Federal Circuit

December 28, 2015

Federal Trademark Law: Lanham Act Ban on Disparaging Trademark Registrations Is Unconstitutional

The Lanham Act’s ban on registering disparaging marks violates the First Amendment of the Constitution held the Federal Circuit, sitting en banc, on December 22, 2015. In re Tam, en banc Fed. Cir., No. 2014-1203, oral argument 12/22/2015.

In a case involving the refusal to register the term “The Slants” for a group of Asian musicians, the court concluded that the disparagement provision of the Lanham Act is used to reject trademarks based on their content and viewpoint, and that denying the benefit of registration on this basis is an unlawful burden on free speech.

Background

After the U.S. Patent and Trademark Office refused to register the “The Slants” mark as disparaging under Section 2(a) of the Lanham Act, 15 U.S.C. § 1052(a), the applicants appealed to the Federal Circuit. The Federal Circuit panel affirmed based on In re McGinley, 660 F.2d 481 (CCPA 1981), which found no First Amendment violation since the applicant was free to use the mark without the registration.

However, Judge Moore, in her “additional views,” said that McGinley should be reconsidered by the en banc in light of current First Amendment jurisprudence stating that the government may not deny a benefit based solely on a moral judgment about the viewpoint expressed by a mark. The Federal Circuit granted en banc review on whether Section 2(a) violates the First Amendment.

Disparagement Provision Is Neither Content Nor Viewpoint Neutral

It is beyond dispute that Section 2(a) discriminates on the basis of content and viewpoint to the extent that it denies registration on the basis of the idea or message expressed, the court held. It rejected the government’s argument that the provision calls for rejection of marks based on particular words rather than viewpoints. Judge Moore pointed out that an applicant can register a mark if he shows it is perceived by the referenced group in a positive way, even if the mark contains language that would be offensive in another context.

Nor can the government avoid strict scrutiny of the provision by contending that it simply regulates commercial speech, Judge Moore continued. While trademarks have a commercial function as source identifiers, she explained, it is always a mark’s expressive character that is the basis for the disparagement exclusion from registration, not its ability to serve as a source identifier.

The en banc court expressly overruled In re McGinley, rejecting the argument that denial of a trademark registration does not prohibit use of the trademark. Citing Perry v. Sindermann, 408 U.S. 593(1972), Judge Moore pointed out that, by denying the government benefit based on constitutionally protected speech, a government could penalize and inhibit that freedom. She wrote the following:

Federal trademark registration brings with it valuable substantive and procedural rights unavailable in the absence of registration. These benefits are denied to anyone whose trademark expresses a message that the government finds disparages any group, Mr. Tam included. The loss of these rights, standing alone, is enough for us to conclude that § 2(a) has a chilling effect on speech. Denial of federal trademark registration on the basis of the government’s disapproval of the message conveyed by certain trademarks violates the guarantees of the First Amendment.

Government Speech and Government Subsidy

The court also rejected the contention that trademark registration is government speech and therefore beyond the terms of the First Amendment. While registered trademarks are recorded on a government database, that doesn’t convert the underlying speech to government speech any more that copyright registration converts copyrighted works into government speech, Judge Moore noted. “If being listed in a government database or published in a list of registrations were enough to convert private speech to government speech, nearly every action the government takes–every parade permit granted, every property title recorded, every hunting or fishing license issued–would amount to government speech,” she wrote.

Nor was the Federal Circuit persuaded that the provisions of Section 2(a) set out a variety of legitimate conditions for providing the government subsidy of trademark registration, pointing out that the availability of government subsidies may not be limited by unconstitutional conditions. While Congress is entitled to define the conditions under which it extends government benefits, the court noted that the denial of registration has a major chilling effect on private speech because the benefits of registration are so substantial.

Judge Moore added the following:

Were we to accept the government’s argument that trademark registration is a government subsidy and that therefore the government is free to restrict speech within the confines of the trademark program, it would expand the “subsidy” exception to swallow nearly all government regulation. In many ways, trademark registration resembles copyright registration. Under the logic of the government’s approach, it follows that the government could refuse to register copyrights without the oversight of the First Amendment. Congress could pass a law prohibiting the copyrighting of works containing “racial slurs,” “religious insults,” “ethnic caricatures,” and “misogynistic images.”

Judge O’Malley filed a concurring opinion, writing separately to argue that Section 2(a) is unconstitutionally vague under the Fifth Amendment.

Judge Dyk filed a concurring and dissenting opinion, arguing that the majority goes too far in concluding that the statute is facially unconstitutional as applied to purely commercial speech.

Judge Lourie filed a dissenting opinion, explaining that he would apply stare decisis to sustain Section 2(a).

Judge Reyna filed a dissenting opinion, arguing that Section 2(a) is an appropriate regulation of commercial speech.

Practice Tip: The availability of trademark protection for the Washington Redskins trademark, which was also denied federal trademark protection on the grounds that it was disparaging, is currently under review by the Fourth Circuit Court of Appeals.

December 4, 2015

Federal Circuit Patent Law: Quality Control Testing Is Not Patent Infringement; Does Not “Make” a Product as Contemplated Under § 271(g)

By Overhauser Law Offices, LLC

Washington, D.C. – The United States Court of Appeals for the Federal Circuit heard a patent infringement lawsuit styled Momenta Pharms., Inc. v. Teva Pharms. USA Inc. on the issue of whether Defendants’ quality control procedures infringed the patent-in-suit. This appeal included a companion case, Momenta Pharms., Inc. v. Amphastar et al. Both cases were heard at the trial court level in the United States District Court for the District of Massachusetts by Judge Nathaniel M. Gorton.

Momenta was the first to market enoxaparin, an anticoagulant drug, in generic form. Momenta also owns U.S. Patent No. 7,575,886 (“the ‘886 patent”), which includes claimed methods designed to ensure that every batch of enoxaparin was of sufficient quality. Momenta asserted the ‘886 patent against other manufacturers, including Teva and Amphastar, which also wanted to bring a generic version of enoxaparin to market. It contended that Defendants’ quality-control measures infringed the ‘886 patent.

In this litigation, the United States District Court for the District of Massachusetts determined that patent infringement had not taken place, listing two separate grounds. First, the asserted claims were directed towards analyzing enoxaparin for the purpose of quality control, not manufacture of the drug, which did not amount to patent infringement. Second, the district court found that use of the analytical methods of the ‘886 patent were protected under the safe harbor provisions of 35 U.S.C § 271(e)(1). Momenta appealed.

Circuit Judges Dyk, Moore and Wallach of the Federal Circuit ruled on this appeal in November. Writing for the court, Judge Wallach affirmed the trial court’s ruling that Defendants Teva and Amphastar had not infringed the ‘886 patent, holding that infringement under 35 U.S.C. § 271(g) occurs when “making” a product and that quality-control testing, thus, did not constitute patent infringement.

The Federal Circuit vacated the district court’s judgment that the activities were also protected under the “safe harbor” provisions within § 271(e)(1) and remanded this issue to the district court for further inquiry.

October 12, 2015

Federal Circuit Law: Laches Preserved as a Defense to Patent Infringement

By Overhauser Law Offices, LLC

Washington, D.C. – The Court of Appeals for the Federal Circuit decided the matter of SCA Hygiene v. First Quality Baby Products, a case about adult incontinence products.

At issue in the case was the legal doctrine of “laches.” The laches doctrine penalizes a plaintiff who “sleeps on” his or her rights by waiting a long time to file a lawsuit after learning of a violation of those rights. Laches, an equitable defense, protects those who would be harmed by the assertion of those rights after a plaintiff’s delay. For example, in the case of a lawsuit asserting patent infringement, laches could work against a patent owner who saw an infringing product emerge in 2000 but waited until 2015 to sue, after a significant investment of time and resources had been put into the product.

The Federal Circuit had long recognized laches as a limitation on patent owners’ rights. But a recent Supreme Court case, Petrella v. MGM, called the doctrine into question. In Petrella, the Supreme Court held that laches was not a defense in copyright cases. Given the ruling in Petrella, the Federal Circuit opted to hear this litigation en banc to determine whether laches should still be a defense in patent cases.

The court held that the defense should be preserved. Proponents of laches in the patent-infringement context (see, e.g., Electronic Frontier Foundation‘s friend-of-the-court brief), contend that patent defendants and copyright defendants are in very different positions when it comes to defending against stale claims. Patent defendants, unlike their copyright counterparts, often defend themselves by showing that the patent owner’s claimed invention was obvious at the time of filing (thus making the patent invalid). But, by delaying a lawsuit, a patent owner can make it difficult for the defendant to find evidence of what people in the field knew about or would have found obvious back when the application was filed. This is especially true in the Internet age, those proponents argue. Websites are constantly rewritten. Software code gets lost or is not documented. In sum, without the defense of laches, patent owners can sit and wait for time to destroy the evidence that an alleged infringer needs to defend herself.

The decision came out 6-5, meaning five judges of the Federal Circuit think Petrella changed the availability of the doctrine of laches in both copyright infringement and patent infringement lawsuits. Given the closeness of the decision, this case may go to the Supreme Court.

This edited article was provided by the Electronic Frontier Foundation, a nonprofit group which advocates for innovators and users of technology. The article has been licensed under the Creative Commons Attribution License.

May 1, 2015

Appellate Patent Law: Federal Circuit Affirms that Prior Art was Anticipatory

By Overhauser Law Offices, LLC

Washington, D.C. – The United States Court of Appeals for the Federal Circuit heard an appeal in the matter of Ineos USA LLC v. Berry Plastics Corporation. It affirmed the decision reached by the United States District Court for the Southern District of Texas, Case No. 3:13-cv-00017, regarding the infringement of Patent No. 6,846,863 (the “‘863 patent), which was issued by the U.S. Patent and Trademark Office.

Ineos holds the ‘863 patent, which was directed to polyethylene-based compositions which could be used to form shaped products, such as screw caps for bottles. In a patent lawsuit filed in Texas, Ineos accused Berry Plastics of infringing its ‘863 patent.

Berry Plastics moved for summary judgment that the asserted claims were anticipated independently by various prior art references, including U.S. Patent No. 5,948,846. Prior art incorporated a lubricant to allow the cap to glide better, which facilitated unscrewing the cap. However, in addition to increasing usability, the prior chemical formulations also imparted a bad odor and flavor to food products stored in contact with them. Ineos’ ‘863 patent claimed to have solved this problem by modifying the proportions of polyethylene, lubricants, and additives.

The district court ruled in Berry Plastic’s favor, holding that the ‘863 patent was invalid as anticipated by prior art under 35 U.S.C. § 102 (2006).

Ineos appealed from the district court’s ruling. The Federal Circuit affirmed, holding that Ineos had failed to show that the range claimed by the ‘863 patent was “critical to the operability of [Ineos’] invention.”

February 27, 2015

Copyright Law: Federal Circuit Upholds $540,000 in Royalties for USPS Copyright Infringement

By Overhauser Law Offices, LLC

Washington, D.C. – The United States Court of Appeals for the Federal Circuit affirmed a royalty award in Gaylord v. United States for copyright infringement committed by the United States Postal Service.

Frank Gaylord, a World War II veteran and renowned sculptor, created The Column, consisting of nineteen stainless steel statues depicting a squad of soldiers on patrol. This work, completed and dedicated in 1995, formed a central part of the Korean War Veterans Memorial located on the National Mall in Washington, D.C. For his efforts in creating the work, Gaylord was paid $775,000.

Shortly after the completion of the work, an amateur photographer named John Alli visited the Memorial during a heavy snowstorm and photographed The Column. In 2002, the United States Postal Service decided to issue a stamp to commemorate the upcoming fiftieth anniversary of the Korean War armistice. It settled on Alli’s photo of The Column for the stamp face and paid Alli a one-time fee for the right to use his photo. The Postal Service made no payment to Gaylord.

Gaylord sued for copyright infringement. The United States Court of Federal Claims acted as the trial court in the litigation. Twice prior to the instant appeal, an appeal was made to the Federal Circuit, first in 2010 and again in 2012. In Gaylord I, the Federal Circuit held that the government was liable to Gaylord for copyright infringement. Upon remand, the Court of Federal Claims awarded Gaylord a total of $5,000 to compensate for the infringement of his copyright. This award was vacated by the Federal Circuit in Gaylord II and the lawsuit remanded with instructions to “determine the fair market value of a license for Mr. Gaylord’s work based on a hypothetical negotiation with the government.”

Upon remand, the trial court split the calculations of damages for the infringement into three categories: (1) stamps used to send mail; (2) commercial merchandise featuring an image of the stamp; and (3) unused stamps purchased by collectors. The parties agreed that no damages would be paid for stamps used to send mail and that a royalty of 10% of revenues would be appropriate for commercial merchandise featuring the copyrighted work.

The only disputed issue was the appropriate measure of copyright infringement damages for the stamps purchased by collectors. The lower court determined that the Postal Service received $5.4 million in revenue, which was deemed “almost pure profit,” from these sales. It then found that an appropriate copyright royalty would be 10%, or $540,000.

At issue in this latest appeal, Gaylord III, is whether this royalty was appropriate. The Federal Circuit applied the “hypothetical negotiation” analysis in reviewing the Court of Federal Claims’ award to Gaylord, stating that “actual damages for copyright infringement may be based on a reasonable royalty representing the fair market value of a license covering the defendant’s use.” Determining that “fair market value,” in turn could be done employing a valuation tool used in the context of patent infringement litigation: a hypothetical negotiation that would determine “the reasonable license fee on which a willing buyer and a willing seller would have agreed for the use taken by the infringer.”

The Federal Circuit held that the lower court neither committed clear error nor abused its discretion in arriving at a 10% royalty rate affirmed the award of $540,000.

January 13, 2015

Indiana Patent Litigation: Federal Circuit Overturns Trial Court’s Award of Enhanced Damages for Patent Infringement

By Overhauser Law Offices, LLC

Washington, D.C. – The U.S. Court of Appeals for the Federal Circuit ruled on the patent infringement litigation between Zimmer of Warsaw, Indiana and Stryker of Kalamazoo, Michigan. The Federal Circuit upheld the jury’s finding that Zimmer had infringed three of Stryker’s patents but overturned the decision of the Western District of Michigan to triple the damage award, reducing the award from $228 million to $70 million, and vacated the district court’s award of attorneys’ fees.

Stryker and Zimmer are the two principal participants in the market for orthopedic pulsed lavage devices. A modern, orthopedic pulsed lavage device is a combination spray-gun and suction-tube, used by medical professionals to clean wounds and tissue during surgery.

In 2010, Stryker Corp, Stryker Puerto Rico, Ltd. and Stryker Sales Corp. (collectively, “Stryker”), sued Zimmer, Inc., Zimmer Surgical, Inc. and Zimmer Orthopaedic Surgical Products of Warsaw, Indiana (collectively, “Zimmer”) alleging that Zimmer’s line of Pulsavac Plus pulsed lavage devices infringed three of Stryker’s patents – U.S. Patent No. 6,022,329 (“the ‘329 patent”), U.S. Patent No. 7,144,383 (“the ‘383 patent”) and U.S. Patent No. 6,179,807 (“the ‘807 patent”). A jury awarded $70 million in damages and the district court increased that figure by approximately $2.4 million to reflect sales made by Zimmer during a time period that had not been considered by the jury.

Stryker also moved for enhanced damages under 35 U.S.C. § 284, alleging willful patent infringement by Zimmer. Under § 284, “the court may increase the damages up to three times the amount found or assessed” at trial. For this determination, the court referred to Read Corp. v. Portec, Inc.. In Read, the Federal Circuit had held that the “paramount determination in deciding to grant enhancement and the amount thereof is the egregiousness of the defendant’s conduct based on all the facts and circumstances.” In evaluating the egregiousness of the defendant’s conduct, courts typically rely on the nine Read factors, which are:

1. whether the infringer deliberately copied the patentee’s ideas or design;

2. whether the infringer investigated the scope of the patent and formed a good faith belief that it was invalid or not infringed;

3. the infringer’s conduct during litigation;

4. the infringer’s size and financial condition;

5. closeness of the case;

6. duration of the infringing conduct;

7. remedial actions, if any, taken by the infringer;

8. the infringer’s motivation for harm; and

9. whether the infringer attempted to conceal its misconduct.

The district court found that all nine Read factors favored substantial enhancement of the jury’s award and trebled both the jury’s award of $70 million and the court’s award of supplemental damages.

In the current opinion, the Federal Circuit affirmed the jury’s findings that Stryker’s patents were valid and had been infringed by Zimmer, as well as the jury’s award of damages to Stryker but reversed the district court’s judgment that Zimmer’s infringement was willful.

To establish willfulness, the patentee has the burden of showing “by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” If and only if the patentee establishes this “threshold objective standard” does the inquiry then proceed to the question of whether the objectively defined risk was either known or so obvious that it should have been known to a party accused of patent infringement.

The Federal Circuit noted that the district court had failed to undertake the required objective assessment of Zimmer’s specific defenses to Stryker’s claims. The Federal Circuit then considered the question of objective recklessness, which “will not be found where the accused infringer’s position is susceptible to a reasonable conclusion of no infringement.” The court held that the objective standard showed that Zimmer had presented reasonable defenses to all of the asserted claims of Stryker’s patents. Consequently, Zimmer was found not to have acted recklessly and the decision to award enhanced damages was reversed.

Because the appellate court reversed the trial court’s determination that the infringement of the patents had been willful – and because district court’s award of attorneys’ fees was based on that determination – the Federal Circuit vacated district court’s finding that the case was exceptional as well as the award of attorneys’ fees and remanded the issue to the trial court for further consideration.

November 25, 2014

Indiana Patent Law: Method for Offering Video for Ad Viewing Is Not Patent Eligible

By Overhauser Law Offices, LLC

Washington, D.C. – In the matter of Ultramercial Inc. v. Hulu, LLC et al., a patent attorney for Ultramercial, Inc. and Ultramercial, LLC appealed to the United States Court of Appeals for the Federal Circuit asserting that the District Court for the Central District of California erred in granting Defendant Wildtangent, Inc.’s Motion to Dismiss.

Applying the U.S. Supreme Court‘s 2014 ruling in Alice Corp. v. CLS Bank Int’l, the Federal Circuit concluded that a method of offering free, streamed video in exchange for viewing an advertisement is not patent eligible. According to the court, the claims were directed to abstract ideas containing no element or combination of elements to ensure that the patent claims significantly more than the abstract idea itself.

While the court’s opinion disclaimed any intent of holding that all claims in all software-based patents will necessarily be directed to an abstract idea, it said this conclusion is warranted as to this claim. In a concurring opinion, Judge Mayer made three points: (1) patent eligibility is a threshold question, (2) there is no presumption of eligibility, and (3) Alice set out a technological arts test for patent eligibility.

Claims Direct to Patent-Ineligible Concept

Under Alice, the first step of the analysis is to determine if the claim was directed to a patent-ineligible concept, the court began. The method claim in question set out eleven steps, including receiving media, selecting an ad, offering sale on the Internet, limiting public access, offering for sale to the public in exchange for the selected ad, receiving the consumer’s request to view the ad, facilitating display of the ad, allowing consumer access to the media and if the ad is interactive, updating an activity log, and receiving payment from the ad sponsor.

In his opinion for the Court, Judge Lourie wrote “[t]his combination of steps recites an abstraction–an idea, having no particular concrete or tangible form.” The steps all describe an abstract idea, “devoid of a concrete or tangible application,” he explained, adding the following: “Although certain additional limitations, such as consulting an activity log, add a degree of particularity, the concept embodied by the majority of the limitations describes only the abstract idea of showing an advertisement before delivering free content.”

The court acknowledged that, at some level, all inventions reflect abstract ideas, and said this decision does not purport to say that all claims in all software-based patents will necessarily be directed to an abstract idea. Other cases may turn out differently, but the claims in this patent are directed to an abstract idea, Judge Lourie observed, which is a method of using advertising as an exchange or currency.

Nor does the addition of merely novel or non-routine components to the claimed idea necessarily turn an abstraction into something concrete, the court added. In any event, the novelty in implementation of the idea was a factor to be considered only in the second step of the Alice analysis, Judge Lourie wrote.

No Elements Transform Claims to Patent-Eligible Subject Matter

For the second step of the analysis–determining if elements or a combination of elements transform the claims to patent-eligible subject matter–the court examined the limitations of the claim, noting that they must disclose features that are more than “well-understood, routine, conventional activity.”

None of the 11 individual steps, viewed both individually and as an ordered combination, transformed the nature of the claim into patent-eligible subject matter, the court concluded.The majority of those steps comprised the abstract concept of offering media content in exchange for viewing an advertisement. Adding routine additional steps such as updating an activity log, requiring a request from the consumer to view the ad, restrictions on public access, and use of the Internet did not transform an otherwise abstract idea into patent-eligible subject matter. Instead, the claimed sequence of steps comprised only “conventional steps, specified at a high level of generality,” which is insufficient to supply an “inventive concept.” Instead, the steps of consulting and updating an activity log represented insignificant “data-gathering steps” and, thus, added nothing of practical significance to the underlying abstract idea. Further, that the system was active, rather than passive, and restricted public access also represented only insignificant “[pre]-solution activity,” which was also not sufficient to transform an otherwise patent-ineligible abstract idea into patent-eligible subject matter.

The invocation of the Internet added no inventive concept, the court explained, observing that, as an attempt to limit the use of the abstract idea to a particular technological environment, it was also insufficient to save the claim. “Given the prevalence of the Internet, implementation of an abstract idea on the Internet in the case is not sufficient to provide any “practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself,” Judge Lourie wrote. The fact that some of the eleven steps were not previously employed in this art, standing alone, was not enough to confer patent eligibility here, he added.

While the “machine or transformation” test can provide a useful clue to patent eligibility, Judge Lourie acknowledged, he pointed out that this claim was not tied to any machine other than a general purpose computer. Nor was there any sufficient “transformation” insofar as the subject matter of claim merely involved the granting of access and the exchange of money. These were insufficient, according to the court, because they were neither physical objects or substances nor representative of physical objects or substances.

Concurring Opinion

In his concurring opinion, Senior Judge Mayer stressed three separate points: (1) the subject matter requirements of 35 U.S.C. §101 were a threshold matter to be addressed at the outset of the litigation; (2) the issues of Section 101 were not subject to a presumption of patent eligibility; and (3) the Alice decision, for all intents and purposes, set out a technological arts test for patent eligibility.

To read the opinions in this case, click here.

September 8, 2014

Apple Entitled to $400M in Samsung Profits, Indiana University Maurer School of Law Professors Say in Amicus Brief

By Overhauser Law Offices, LLC

Bloomington, Indiana – In a highly publicized intellectual property case involving the design features of smartphones and tablets, the Federal Circuit will decide whether to force Samsung to pay Apple nearly $400 million – Samsung’s total profits on products that infringed Apple’s design patents. Though several high-profile academics have lined up in support of Samsung, Apple’s position on the total profits rule should prevail, according to Indiana University Maurer School of Law experts who have filed an amicus curiae brief in the case.

Apple and Samsung have been battling in dozens of complex intellectual property infringement cases in several countries. At trial in one of the U.S. cases, a jury found that several Samsung devices infringed Apple’s design patents, and awarded Apple all of Samsung’s profits on those devices. On appeal, Samsung is arguing that it should only be required to give up the portion of its profits that can be linked directly to the infringing design features of the products, a theory called “apportionment.”

“Congress debated this same question over a century ago and rejected apportionment,” said Mark D. Janis, the Robert A. Lucas Chair of Law and director of the Center for Intellectual Property Research at the IU Maurer School of Law. He explained that in the mid-1880s, the Supreme Court decided two cases involving carpet designs in which the infringers made thousands of dollars in profits, but the design patent holder was awarded only 6 cents because it failed to prove how much of the profit was attributable to the carpets’ appearance.

August 20, 2014

United States Patent Law: Supreme Court Holds Prevailing Defendants in “Unreasonable” Patent Lawsuit Can Be Awarded Legal Fees; Federal Circuit Review Curtailed

By Overhauser Law Offices, LLC

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Washington, D.C. – In two related rulings, the United States Supreme Court addressed the standards for granting and reviewing awards of legal fees in patent infringement lawsuits.

In the first matter, Octane Fitness, LLC was sued by Icon Health & Fitness, Inc. At issue was Icon’s contention that the use of a particular component in elliptical fitness machines constituted patent infringement. After Octane prevailed, it sought $1.8 million in attorneys’ fees. The district court denied these fees and an appeal was taken on the issue.

In its review, the Federal Circuit applied the rule from Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc. In Brooks Furniture, the Federal Circuit had defined an “exceptional case,” which would warrant an award of legal fees, as one that either involves “material inappropriate conduct” or is both “objectively baseless” and “brought in subjective bad faith.” It then rejected Octane’s assertion – that attorneys’ fees were appropriate because Icon had asserted an unreasonable claim construction – as not falling within the Brooks Furniture definition and declined to overrule the district court’s denial of attorney’s fees.

In Octane Fitness v. Icon Health & Fitness, Case No. 12-1184, the Supreme Court reversed and remanded. Justice Sotomayor, writing for a unanimous court, said that the Federal Circuit’s interpretation of 35 U.S.C. §285 was overly rigid and “superimposes an inflexible framework onto statutory text that is inherently flexible.” Instead, the Court held that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.

The Court also revised the standard of proof that had been required by the Federal Circuit. In Brooks Furniture, the Federal Circuit had held that §285 requires that parties establish the “exceptional” nature of a case by “clear and convincing evidence.” The Supreme Court opined that such a high standard was not supported by the statute. Instead, as patent infringement litigation is generally governed by a preponderance-of-the-evidence standard, that standard was also appropriate for the award of attorneys’ fees.

The second patent infringement litigation decided by the Supreme Court pertained to a patent infringement lawsuit filed by Allcare Health management Systems. After Allcare lost in the district court, the district judge awarded $5 million in attorneys’ fees to Highmark. The Federal Circuit reviewed the district court’s judgment de novo and reversed the award.

In Highmark v. Allcare Health Management Systems, Case No. 12-1163, the Supreme Court reversed the Federal Circuit’s reversal, holding that, in light of the traditional framework of review, the Federal Circuit should be more deferential to the trial court on the issue of the award of fees. The Supreme Court stated, “Traditionally, decisions on ‘questions of law’ are ‘reviewable de novo,’ decisions on ‘questions of fact’ are ‘reviewable for clear error,’ and decisions on ‘matters of discretion’ are ‘reviewable for abuse of discretion.'” The determination of whether a case should be considered to be “exceptional” for the purposes of awarding attorneys’ fees is a matter of discretion. As such, it is properly reviewed not de novo but instead for abuse of discretion.

Practice Tip: Under U.S. patent law, a trial court may award attorneys’ fees in case of patent infringement litigation that it deems “exceptional.” These Supreme Court rulings revisiting how “exceptional” is defined may benefit Google, Apple and other large technology companies, which are often targets of questionable patent infringement lawsuits, as trial judges will now have greater latitude to award attorneys’ fees in those cases in which they determine that the conduct of the losing party “stands out from others.”

March 19, 2014

Divided Federal Circuit Rules En Banc to Retain Cybor Rule of De Novo Review for Claim Construction

By Overhauser Law Offices, LLC

Washington, D.C. – The United States Court of Appeals for the Federal Circuit concluded in a six-to-four decision that the rule in Cybor – that claim construction is an issue of law subject to de novo review on appeal – will be retained under the principles of stare decisis.

In 1998, the Federal Circuit, sitting en banc, decided Cybor Corp. v. FAS Technologies, Inc. Among the issues in Cybor was the standard of appellate review of district court decisions concerning the meaning and scope of patent claims (“claim construction”). The Federal Circuit held that, for purposes of appellate review, claim construction was to be considered to be a question of law, not one of fact, and subject to de novo review.

Recently, in Lighting Ballast Control LLC v. Philips Electronics North America Corp, the Federal Circuit was asked to revisit the Cybor holding. In addition to the arguments presented by the parties, patent attorneys for thirty-eight organizations and individuals filed twenty-one amicus briefs.

The opinion of the Court, written by Judge Newman, was joined by Judges Lourie, Dyk, Prost, Moore, and Taranto; it included a concurring opinion by Judge Lourie. A dissenting opinion, written by Judge O’Malley, was joined by Chief Judge Rader and Judges Reyna and Wallach.

The court, again sitting en banc, retained the rule, as stated in Cybor, that no deference will be given by the appellate court to the trial court’s decisions concerning the meaning and scope of patent claims.

Among the arguments presented for reversal of Cybor was an assertion that treating claim construction as a matter of law increases uncertainty, “negates settlement and increases litigation costs.” The court found these arguments unpersuasive. Instead, it discussed two reasons to maintain the Cybor rule.

The court cited the ruling of the U.S. Supreme Court in Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996) (also known as “Markman II“), in which the Court had stressed that issues of claim construction should be considered “purely legal.” Moreover, the Supreme Court has emphasized the importance of “uniformity in the treatment of a given patent.” For example, the possibility of differing claim constructions could lead to different results for infringement and validity, as well as the possibility of disparate district court constructions. De novo review by an appellate court ensures national uniformity, stability and predictability in claim construction.

The court also cited the rule of stare decisis in its refusal to abandon the fifteen-year-old rule established in Cybor and the subsequent years of experience with that rule, stating that it had been presented with “no argument of public policy, or changed circumstances, or unworkability or intolerability, or any other justification for changing the Cybor methodology and abandoning de novo review of claim construction.” The court held that the demanding standard for departure from established law had not been met and retained the de novo review of claim construction established in Cybor.

Practice Tip #1: The issues addressed in claim construction are not considered to be questions of weight of the evidence or credibility of witnesses, but rather of the scope of the claims as set forth in the patent documents.

Practice Tip #2: Claim construction is typically conducted relatively early in the trial court’s proceedings, before addressing questions such as patent infringement, patent validity and damages. At the outset, the trial court must establish the metes and bounds of the claims that define the scope of the intellectual property.

Practice Tip #3: In a dissent that was, at times, strongly worded, Judge O’Malley opined that “no one in the legal community–except perhaps the members of the majority–has come to believe that either the wisdom or vitality of Cybor is settled.” She cited previous statements of Circuit Judges who challenged Cybor as improperly relying on the legal fiction that there are no facts to be decided in claim construction and as “profoundly misapprehend[ing]” the Supreme Court’s decision in Markman.