Chicago IP Attorney & Lawyer : R. David Donoghue : Chicago IP Litigation Blog

In re Bilski, __ F.3d __ (Fed. Cir. 2008) (en banc).*

Chief Judge Michel, writing for a nine judge majority, affirmed the Board of Patent Appeals and Interferences' finding that Bilski's invention -- a commodities trading method for hedging risks -- did not meet the 35 U.S.C. § 101 patentable subject matter requirement.  The Federal Circuit held that State Street's "useful, concrete, and tangible result" test was insufficient to determine patentability -- disagreements have already started regarding whether State Street was narrowed or overturned.  The Federal Circuit held that the Supreme Court's "machine-or-transformation" test was the only test for determining patentability:

A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.

I found Judge Dyk's concurrence tracing the history of the "machine-or-transformation" test back to the Patent Act of 1793 especially interesting:

In fact, the unpatentability of processes not involving manufactures, machines, or compositions of matter has been firmly embedded in the statute since the time of the Patent Act of 1793, ch. 11, 1 Stat. 318 (1793).

As with any major appellate decision, we will need eighteen to twenty four months of district court and Federal Circuit decisions to flesh out and fully understand Bilski's implications.  While we argue those cases and await the decisions, there will be plenty of law review and blog analysis.  Here are some of the first (I will update with additional posts as they come):**

• 271 Patent Blog (glad to see Peter Zura back in the blogosphere);
   
• IP ADR Blog;
  
  
• Likelihood of Confusion;
  
  
• Patent Baristas;
   
• Patently-O (with Crouch's usual, in-depth analysis);
   
• The University of Chicago Law Faculty Blog (Randy Picker has an exceptionally detailed take on the opinion); and
   
• WSJ Law Blog (saying experts are torn as to whether Bilski will make it to the Supreme Court).

*  Click here for the opinion.

**  I have updated the list of Bilski blog posts with some new ones.

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Baxter Int’l, Inc. v. Fresenius Med. Care Holdings, Inc., No. 08 C 2389, Slip Op. (N.D. Ill. Sep. 25, 2008) (Ashman, Mag. J.)

Judge Ashman granted defendants Fresenius’s motion for a stay pending the Federal Circuit appeal of an earlier case between the parties involving related, but not the same, hemodialysis patents. But the Court denied a stay pending an ex parte reexam of plaintiff’s related patents (the same as in the Federal Circuit appeal) and an inter partes reexam of the patents in suit. The reexam of the related patents had only uncertain and limited benefits to the Northern District. Because the patents under reexam were not the patents in suit, there could be no issue preclusion.  And any potential streamlining of the case the reexam might achieve was outweighed by the reexam’s potential for extreme delay.

The reexam of the patents in suit was filed, as was the stay motion, early in the case. And the inter partes nature of the proceeding guaranteed that it would streamline the case. But the potential benefits were outweighed by the likelihood for extreme delay. The court cited statistics showing that the average inter partes reexam lasts 6.5 years and that they can last as long as ten years. Finally, the Court noted that in the ten year history of inter partes reexam, no case had progressed through every possible level of examination and appeal.

Finally, the Court held that a stay pending the Federal Circuit’s decision on appeal would benefit the case. The Federal Circuit was reviewing a claim term used in the patents in suit. And the Federal Circuit was reviewing obviousness and validity, both issues that could shape this case. And the Federal Circuit decision was expected within months, in early 2009. So, the delay did not outweigh the benefits. 

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Baldwin Graphic Sys., Inc. v. Siebert, Inc., No. 03 C 7718, 2008 WL 4083145 (N.D. Ill. Aug. 27, 2008) (Moran, Sen. J.)*

Judge Moran granted defendant’s summary judgment of invalidity as to plaintiff’s patented technology for cleaning printing press components. The Court previously granted defendants summary judgment of noninfringement on a reissued patent and the patent at issue in this opinion, but the Federal Circuit reversed as to the patent at issue after revising the Court’s claim construction – click here for more on this case in the Blog’s archives.

After holding that each element of the claims were taught by various pieces of prior art, the Court considered whether the art could be combined pursuant to the Supreme Court’s KSR standard. The Court held that the creation of strict new industry standards and a finite number of solutions that met the standards created jurisdiction for combining the prior art references:

The introduction of strict regulations regarding the use of high VOC solvents was an outside impetus to begin using low VOC solvents to clean presses. By plaintiff’s own admission, the existing spray bar/dry roll systems worked poorly with low VOC solvents. Therefore, a problem needed to be solved. The mechanics of printing press design led to a finite number of solutions. The pieces for the ultimately embraced solution were all present in the prior art, and it was only a matter of time before they were put together in the manner described in the asserted claims of the ‘976 patent. We find this to be true, particularly in light of KSR’s instruction that “Common sense teaches … that familiar items may have obvious uses beyond their primary purposes, and in many cases a person or ordinary skill will be able to fit the teachings of multiple patents together like pieces of a puzzle.” KSR, 127 S.Ct. at 1742. See also, Muniauction, Inc. v. Thomson Corp., ___ F.3d ___, 2008 WL 2717689, at *6-*10 (Fed. Cir. July 14, 2008); Leapfrog Enterprises, Inc. v. Fisher-Price, Inc., 485 F.3d 1157, 1160-63 (Fed. Cir. 2007).

(parentheticals omitted).

The Court also found the patent invalid because “reduced air content” was indefinite. The patent did not teach how or when to measure the air content reduction. Because three different experts could start the calculation from three different baselines and get three different, but equally correct results, the term was indefinite.

*  Click here for more on this case in the Blog's archives.

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John Marshall's Summer 2008 edition of its Review of Intellectual Property Law is on bookshelves everywhere, plus it is online (click here for the table of contents of the current edition with links to pdfs of each article).  Some of the highlights in:

• The text of Chief Judge Michel's address to the Federal Circuit Judicial Conference in which he discussed the state of the Circuit and asked Congress to add a fourth law clerk for each appellate judge to speed the Federal Circuit's output;
   
• An article by R. Mark Halligan arguing for the addition of a trade secret misappropriation cause of action to be added to the Economic Espionage Act of 1996; and
   
• Hal Wegner's discussion of the impact of the Supreme Court's patent exhaustion decision in Quanta v. LG; and
   
• Daniel Sullivan's student arguing that an Article I patent tribunal should be created and that patents should know longer be subject to trial by jury.

Whether you agree or disagree with the authors, this edition has some provocative arguments.

 

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On Tuesday, September 16 the John Marshall Law School is putting on an impressive conference looking at the legacy of the Federal Circuit's Chief Judge Markey.  For those that never had the opportunity to know or experience Judge Markey, here is part of Judge Michel's tribute to Judge Markey in the Legal Times after he passed in 2006:

Leadership for Howard Markey began with setting a vigorous example. He simply heard more appeals, wrote more opinions, gave more speeches, drafted more articles, taught more law school classes, and judged more moot courts than any other member of the court. And he did so despite all his administrative duties. Meanwhile, he chaired both the board of directors of the American Inns of Court and the Committee on Codes of Conduct of the Judicial Conference of the United States. He traveled constantly and sat with every regional circuit court, the first and only judge to do so.
 

Despite a life in overdrive, he was the happiest and funniest man I ever met, routinely reeling off five or six successive jokes without pausing to recollect, or even to breathe. Family members report that he had a perfect memory, an asset especially helpful to a tireless storyteller, which he was.

(Click here for a link to the article and more on Judge Markey). If Judge Michel's description of Markey is not enough to get you to the event, Supreme Court Justice Antonin Scalia will be giving the keynote address.  I have had the privilege of hearing Justice Scalia speak a couple of times.  He is an excellent speaker and should not be missed. 

Click here for John Marshall's conference brochure and here for Patent Docs' description of the event, they are a seminar sponsor.  The registration deadline is this Friday, September 12.  I hope to see you there.

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Last week’s Olympic edition Blawg Review focused on the medals. Building on that, this week I discuss the elements of a world record swim. If you were watching last week, instead of blogging, you saw 20 of them in the Olympic pool; seven by Mr. Phelps.

 

Practice

Nothing is more critical than preparation. A big part of preparation is tightening your stroke and cutting out unnecessary motion. Reese Morrison, at the Law Department Management blog, discusses blunt suggestions for trimming legal bills.

 

Endless hours in the pool alone are not enough, you need a good coach. Business development coach Cordell Parvin provides an excellent three part series at his Law Consulting Blog – one, two, and three – on persistence, an important element of any Olympic training program. In an Olympic caliber display of persistence, Drug & Device Law had an exhaustive post discussing and classifying each medical device preemption case since the landmark Supreme Court decision in Riegel v. Medtronic, Inc., 128 S. Ct. 999 (2008).

 

You also need a support network to help you get through all of the pool time. Bruce Allen, at Marketing Catalyst, teaches us how to avoid the cocktail conversation you cannot escape from at a networking event. At Copyblogger, John Morrow explains that content is no longer king in the blogosphere, you need friends. And he teaches you how to get them. At BlawgIT, Brett Trout – who is a fighter, not a swimmer – has an interesting post about how to work together as a community to thwart webjackings (the hijacking of a website). And Mediation Channel’s Diane Levin discusses the social side of blogging, and reading blogs.

 

Of course, if you do not have time to practice you will never set the record. So, you need a job, or at least some cash. On that note, Harmful Error posts the great news that loan forgiveness programs were expanded this week for legal aid lawyers, state prosecutors and public defenders. 

 

The Suit

The clothes make the man (or the woman). This year the go-to duds were Speedo’s LZR suits. Patent Librarian Michael White tells us that, no surprise, Speedo patented the LZR. IPKat expands on swimming patents, providing a broader view of Olympics-related patents.

 

Genes

As a guy who swam for a lot of years and practiced hard throughout, I can tell you not everyone has what it takes to set world records. The closest I came was getting beat by an Olympian and world record holder. Of course, you might be less impressed by my loss if you knew that at the time his Olympic medals were four or five decades old, and I was 19. At Idealawg, Stephanie West Allen discusses the traits that make entrepreneurs entrepreneurial.

                                                                     Mental Focus

One of the big stories on Phelps this week was how he thinks of nothing but not losing during a race. At Litigation & Trial, Maxwell Kennerly tells us that you have to know when you are sweating the details more than your client would want by over emphasizing proof-reading. Of course, even Kennerly agrees that some details matter. 

                                                                  Knowing the Rules 

You have to know the rules. Turn wrong or break the rules for your stroke and beating a record by ten seconds will not matter. At the Legal Juice, John Mesirow reports that kids at the Lake County Florida library are allowed to rent R-rated movies because they believe it is an unconstitutional delegation of authority for the Motion Picture Association of America’s guidelines for determining obscenity. I am sure kids from all over that area are flocking to the Lake County library because the rules are on their side, at least for now.

 

Filewrapper reports on a Federal Circuit decision holding that copyright infringement, and not just breach of contract, when the terms of an open source license governing the copyrighted material are breached. For more on this major decision in the IP world, check out: BLT; Law Pundit; and Patently-O.

 

Seattle Trademark Lawyer Mike Graham shows the consequences of not following the rules using two Western District of Washington opinions.

 

Ethan Lieb, guest blogging at Freakonomics, argues that we need to change the rules requiring unanimous juries. And the WSJ Law Blog discusses a judge and a juror who clashed over jury nullification.

The Start

A bad start is hard to recover from, especially when you are chasing the fastest time ever. Evan Schaeffer shows how to open well at trial at the Illinois Trial Practice Weblog, and he links to Trial Theatre’s opening statement quiz.

Turns

Coming off the wall in a turn is the fastest a swimmer goes during a race. So, you need good turns. IntLawGrrls discuss how to turn around the conflict between Georgia and Russia (sorry the turns section was tough).

 

Legal Literacy discusses Whole Foods’ turned around (or recalled) beef and looks behind the scenes at how it happened and Whole Foods’ impressively quick response.

 

The Finish

Do you do an extra stroke or do you glide in hard? Always a tough question, but the .01 seconds the decision costs you can mean the race and the record.

At his E.D. Texas Weblog, Michael Smith reports that while the E.D. Texas started out as a rocket docket, particularly for patents, it has now slowed down and let many other districts catch it with a time to trial of 24 – 30 months.

 

The Law and Magic Blog reminds us that we cannot always win, and that trying to rig the system to guarantee wins – he is talking about the stock market, but it holds true for the pool – is dangerous work.

 

At the IP ADR Blog, Victoria Pynchon praises several Perkins Coie attorneys who went the distance for their pro bono clients at Gitmo and earned the clients’ respect for providing them an able defense.

 

** Images provided via a Creative Commons license by A. Dawson or Andre from Flicker. **

 

Next week's Blawg Review will be at fellow LexBlog site, the Texas Appellate Law Blog.

 

Blawg Review has information about next week's host, and instructions on how to get your blawg posts reviewed in upcoming issues.

 

 

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Managing Intellectual Property published its annual list of the fifty most powerful people in the international IP community (hat tip to Patent Docs for pointing it out).  Click here for the list (subscription or two week free trial sign up required).  There were two honorees with Chicago connections:

• Rhonda Steele (#8) -- Steele is both the president of INTA and Asia-Pacific marketing properties manager for Mars.  While Steele does not necessarily work in Chicago or on Chicago-specific IP, Mars makes Fun Size versions of its 3 Musketeers, Snickers and Milky Way candy bars in Chicago.
  
• Jim Malackowski (#34) -- Malackowski is a founder of Chicago-based Ocean Tomo, as well as its president and CEO.  Among other things, Ocean Tomo is well known for its patent auctions (at leas the last several of which have each totalled more than $10M in sales), IP valuation services and damages expert work.

These IP luminaries share the honor with Second Life avatars (#1), the PTO's Director John Dudas (#4), the Federal Circuit's Judge Michel (#9), Harry Potter (#14),and  blogger and Google copyright counsel William Patry, of the Patry Copyright Blog.

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Se-Kure Controls, Inc. v. Diam USA, Inc., No. 06 C 4857, Slip Op. (N.D. Ill. Jun. 19, 2008) (Guzman J.)

Judge Guzman construed the disputed terms in plaintiff’s patent to a retail store security alarm system for portable devices. Of particular note, the Court held that a “retracting mechanism” was a means plus function element. While “mechanism” does not create a perception of means plus function language, the Court noted Federal Circuit precedent that “mechanism” generally lacked sufficient structure. And that held true in this case, as evidence by the fact that both parties identified structure from the specification that allegedly defined the claimed mechanisms.

The Court also provided a very useful summary of its constructions at the end of the opinion. The claim construction summary is an excellent writing device, like an executive summary, that substantially increases the ease of use of the opinion. Hopefully more courts will adopt Judge Guzman’s structure.

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Quanta Computer, Inc. v. LG Elecs., No. 06-937, 553 U.S. ___ (2008).

The Supreme Court concluded its latest review of the patent laws Monday when Justice Thomas delivered the Court's succinct, unanimous decision in Quanta v. LG.  Client obligations this week prevent me from providing a detailed analysis today.  But, no surprise, there is plenty of commentary out there already.  For more about decision, check out:

• 271 Patent Blog

• Agricultural Law

• FileWrapper

• IP Thinktank

• Patent Docs
  

• Patently-O

• WSJ Law Blog

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Trading Techs. Int’l, Inc. v. eSpeed, Inc., No. 2008-1392 & 1393 (Fed. Cir.).*

As Judge Moran predicted, the parties have appealed this case to the Federal Circuit.* The parties’ appeals were consolidated, leaving a single appeal with a substantial number of issues. The great, new Patent Appeal Tracer* reported that plaintiff Trading Technologies (“TT”) is appealing at least the following decisions (click here to read Tracer’s post on the cross-appeals):

Claim constructions, specifically constructions of "static price axis" and "order entry region"  (click here and here and here for the Blog’s posts regarding claim construction opinions);

• Summary judgment of noninfringement of most of defendant eSpeed’s software packages, including the following titles: Dual Dynamic, eSpeedometer, and modified eSpeedometer programs (click here for the Blog’s post regarding this opinion);
  
• Partial summary judgment for TT regarding prior use (click here for the Blog’s post regarding this opinion); and
  
• Judgment as a matter of law overturning the jury’s willfulness finding (click here for the Blog’s post regarding this opinion).

And eSpeed is appealing, at least, the following decisions:

• The permanent injunction regarding certain of eSpeed’s software packages (click here for the Blog’s post regarding the Court’s permanent injunction).

* Thanks to Patent Tracer for linking to the Blog’s TT v. eSpeed coverage. Click here to read much more about this case in the Blog’s archives.

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Card Activation Techs., Inc. v. Barnes & Noble, Inc., No. 07 C 1230, Slip Op. (N.D. Ill. Mar. 18, 2008) (Gottschall, J.).

Judge Gottschall denied defendants' motion for summary judgment of invalidity. Each of plaintiff's independent claims – covering a counter-top terminal for processing debit card payments – included a “telecommunications means” limitation. The parties agreed that “telecommunications means” was a means plus function limitation. Defendants argued that the “telecommunications means” was indefinite because the patent's specification did not recite any corresponding telecommunications structure, such as a modem. The Court held that the specification did not disclose any specific telecommunications structure. But the Court held that no structure was required, where one of ordinary skill in the art would know what the structure was based upon the specification, citing Aristocrat Tech. Australia PTY LTD v. Multimedia Games, Inc., __ F.3d __, 2008 WL 484449 (Fed. Cir. Feb. 22, 2008). Relying upon plaintiff's expert, the Court held that based upon the specification, one of ordinary skill in the art would understand telecommunications means to be a modem.

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Brian Higgins's Maryland IP Law Blog post about the progeny of In re Seagate, 497 F.3d 1360 (Fed. Cir. 2007), inspired me to do follow up posts identifying Northern District cases discussing recent major IP decisions -- click here for my post on injunctions after eBay Inc. v. MercExchange, L.L.C., 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006).  There have been a number of obviousness decisions in the Northern District since KSR Int’l Co. v. Teleflex Inc., __ U.S. __, 127 S.Ct. 1727 (2007).  Here they are:*

• Abbott Labs. v. Sandoz, Inc., No. 05 C 5373, 2007 WL 1549498 (N.D. Ill. May 24, 2007) (Coar, J.). -- Holding that the Court's pre-KSR analysis need not be reconsidered in light of KSR because an element was missing from the prior art, regardless of what standard was used.
  
• Herman Miller, Inc. v. Teknion Corp., No. 05 C 2761, 2007 WL 2230042 (N.D. Ill. Jul. 30, 2007) (Gettleman, J.). -- Noting that, in light of KSR, plaintiff issued a statement of non-liability and certain patents were removed from the suit.
  

• Lexion Medical, LLC v. Northgate Techs., Inc., No. 04 C 5705, Slip Op. (N.D. Ill. Jun. 8, 2007). -- Holding that the pre-KSR jury's decision would not have changed if given a KSR obviousness instruction.

These opinions suggest that KSR is not changing obviousness law in the Northern District much.  I suspect that is not true.  Once we have a larger sample of cases, including more where the initial analysis was not done pre-KSR, we will see more patents held invalid based upon obviousness.

*  A brief note on methodology:  this was not a thorough study and does not include cases that granted or denied injunctions without discussion.  For a more complete list of post-KSR decisions nationwide, go to the Fire of Genius.

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Black & Decker, Inc. v. Robert Bosch Tool Corp., No. 2007-1243, 1244, Slip Op. (Fed. Cir. Jan. 7, 2008).*

The Federal Circuit affirmed the Northern District jury’s obviousness verdict, and Judge St. Eve’s denial of defendant’s inequitable conduct claim. But the Federal Circuit reversed the Northern District’s construction of “power conversion circuit” and remanded for further proceedings and, perhaps, a new trial.** The Federal Circuit held that the Northern District relied largely upon claim differentiation for its construction and, in the process, gave the patent scope beyond the disclosed invention.

The Federal Circuit held that the Northern District’s pre-KSR obviousness jury instruction was not reversible because defendants identified no evidence in the record that supported an obviousness finding even under the broader KSR standard.

* Click here for extensive coverage of this case in the Blog’s archives.

**  The Court scheduled a status conference early next week.  We may learn at that conference whether a new trial is being scheduled or whether summary judgment will be briefed or a settlement conference scheduled first.

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Chamberlain Group, Inc. v. Johnson Controls Interiors LLC, No. 2007-1314-1467, Slip Op. (Fed. Cir. Feb. 19, 2008).

The Federal Circuit reversed Judge Moran’s construction of “binary code” and, therefore, reversed the limited preliminary injunction entered by the Northern District - click here and here for the Blog’s posts regarding the injunction. The Northern District construed “binary code” as a code represented by two values, but not necessarily a binary number – click here and here for the Blog’s posts regarding the Northern District’s claim and construction opinions. The Federal Circuit praised the Northern District’s claim construction analysis, but reversed the construction:

The district court commendably strove to follow this court’s rules for claim construction. See Phillips, 415 F.3d at 1318-19. In this regard, the trial court weighed the intrinsic evidence along with the extrinsic evidence and properly sought to avoid importing a limitation from the specification into the claims. See id. Nonetheless, this court discerns that the ‘544 patent specification gives particular limiting meanings to the language in the claims.

The Federal Circuit held that “binary code” required a binary (or base two) number. Otherwise, any values would meet the limitation because all values, whether in base two, three, the more standard ten or any other, are represented by computers using two values – 1 and 0. Because the revised claim construction called into question the Northern District’s likelihood of success analysis, the Federal Circuit reversed the preliminary injunction.

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Brian Higgins at the Maryland IP Law Blog posted an analysis of significant willfulness decisions post-In re Seagate, 497 F.3d 1360 (Fed. Cir. 2007) -- click here for the post and click here for a subsequent post discussing Se-Kure Controls, Inc. v. Diam USA, Inc., No. 06 C 4857, 2008 WL 169029 (N.D. Ill. Jan. 17, 2008) (Cox, Mag. J.).  Of the eleven decisions Higgins identified, three were Northern District decisions and one was a Federal Circuit decision analyzing a Northern District case.  Here are my posts on the Northern District decisions:

• Abbott Labs. v. Sandoz, Inc., No. 05 C 5373, 2007 WL 4287503 (N.D. Ill. Dec. 4, 2007) (Coar, J.).
  
• Se-Kure Controls, Inc v. Diam USA, Inc.
  
• Trading Techs. Int’l, Inc. v. eSpeed, Inc., No. 04 C 5312, Slip Op. (N.D. Ill. Jan. 3, 2007) (Moran, Sen. J.).
  

As you can infer from the relatively small number of cases identified by Higgins, there remains a lot of law to be written about Seagate before the standard is well settled.  I suspect that within 18-24 months there will be a relatively large body of law, including numerous Federal Circuit decisions exploring the new standard's outlines.  Until then, patent litigants will face a degree of uncertainty regarding willfulness.  Of course, defendants will generally be glad to have some uncertainty in exchange for plaintiffs's higher willfulness hurdle.

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Emergis Techs., Inc. v. PNM Resources & Otter Tail Corporation, Nos. 2007-1247 & 1252, Slip Op. (Fed. Cir. Jan. 31, 2008) (Moran, Sen. Jr.).*

Judge Moran, sitting by designation, authored the Federal Circuit’s decision reversing in part the District of New Mexico’s and the District of Minnesota’s claim constructions and upholding the Court’s findings of noninfringement. The Court held that payments that went “directly” from customer to invoicer were correctly construed as requiring no third party involvement. But the Court held that based on the specification, “customer invoice account number” was an invoice number as opposed to a more generic customer number. The Court upheld the non-infringement decision because the accrued systems either used third parties to process payments or did not use an invoice number.

* Click here for the opinion.  And thanks to Dennis Crouch of Patently-O for pointing out this decision.

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The blogs are full of commentary about yesterday's Supreme Court patent exhaustion argument.  But no one is declaring a winner.  Instead, like my earlier post, people are focusing on trends in the Justices questions.  Here are some of the best commentaries:

• Amster, Rothstein & Ebenstein has a guest post all over the blogs -- read it at Patently-O, 271 Patent Blog, and Philip Brooks' Patent Infringement Updates.
  
• Anticipate This!
  
• I/P Updates -- quoting Chief Judge Roberts:  "We've had experience with the Patent Office where it tends to grant patents a lot more liberally than we would enforce under the patent law."  Ouch.
• ScotusWiki -- This is a companion to the well-known SCOTUSblog (which does not have any commentary about the argument posted yet).  ScotusWiki does not provide any commentary, but it is a great resource for information about this case, and any other Supreme Court case.
  
• Troll Tracker -- predicting a 5-4 or 6-3 reversal of the Federal Circuit (although only "leaning" that way and only predicting a "slight" reversal) and, similar to my post, picking up on Justice Breyer's cycling theme, but without professing a love for the sport.

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Quanta Computer, Inc. v. LG Elecs., Inc., No. 06-937 (Jan. 16, 2008).

The Supreme Court heard argument yesterday regarding the bounds of patent exhaustion, as explained in my previous posts on the case -- click here to read them.  The transcript was posted late yesterday and is an interesting read, although not one of the Supreme Court’s most entertaining arguments.  I was thrilled to see Justice Breyer use a cycling hypothetical (regular readers will remember that I am a huge fan of cycling). Justice Breyer, apparently not 100% at ease with chipsets, used the hypothetical of selling patented bicycle pedals either as part of a bicycle or to be used with a bicycle. Here are Justice Breyer’s hypos and a few of the responses from G. Carter Phillips, arguing on behalf of LG:

JUSTICE BREYER: But you couldn't put in --you are authorized to sell the bicycle pedals that I have patented only if you impose a restriction that will tell the bicycle user that he must send me a check for $15 in addition to whatever he pays you. That sounds unlawful under contract law.

* * *

JUSTICE BREYER: Well, there's a reason, I guess, that would be so. Imagine that I want to buy some bicycle pedals, so I go to the bicycle shop. These are fabulous pedals. The inventor has licensed somebody to make them, and he sold them to the shop, make and sell them. He sold them to the shop. I go buy the pedals. I put it in my bicycle. I start pedaling down the road.

Now, we don't want 19 patent inspectors chasing me or all of the other companies and there are many doctrines in the law designed to stop that. One is the equitable servitudes on chattel. Another is the exhaustion of a patent. And now you talk about implied license.

I would say, why does it make that much difference? What we're talking about here is whether after those pedals are sold to me under an agreement that the patent -- you know, you have a right to sell them to me -- why can't I look at this as saying that patent is exhausted, the patent on the pedals and the patent for those bicycles insofar as that patent for the bicycles says I have a patent on inserting the pedal into a bicycle.

Call it exhaustion, call it implied license. Who cares?

MR. PHILLIPS: I don't have any problem with your hypothetical because it's not this case. Your hypothetical deals with the situation of what would have happened if you had bought the chip. Would we be in a position to say, even though you bought the chip, we nevertheless want to retain some right to come out -- to come after you claiming we still have a patent in that chip? And the answer is no. We exhausted -- that was exhausted by the sale of the chip.

The question is if you buy a pedal, can you then take that pedal that was designed for a bicycle, put it into a Stair Master --

* * *

JUSTICE BREYER: All right, now if it should be protected -- and here I'm not sure I'm understanding it, so correct me. Let's suppose we have this contract. So everything is identical except we've got my bicycle example in here because I'm more comfortable with that. I know how to ride a bicycle and I don't know how to work the chips. So what I do --

MR. PHILLIPS: Me too.

JUSTICE BREYER: But you see the analogy I'm making.

MR. PHILLIPS: Right.

JUSTICE BREYER: So what I do I go to the shop and I buy this, this mechanism with the pedals on it, and then I insert it in my bicycle. Now, actually I need help in doing that, but I do it. Okay. Now I start pedaling off, and now what is it for all these things here that would stop that original inventor from catching me and hauling me into court, and say, what you've done, Breyer, is you've put my -- my mechanism here in this bicycle and I happen to have a patent on the system. And now you start talking to me about, well, the patent was exhausted on the bicycle --

MR. PHILLIPS: Pedal.

JUSTICE BREYER: -- pedals, but not on the system.

MR. PHILLIPS: Right.

JUSTICE BREYER: And you agree that shouldn't happen.

MR. PHILLIPS: Right.

JUSTICE BREYER: But if I follow you and I write an opinion just for you, what stops it from happening?

MR. PHILLIPS: Well, in that -- in that particular context, in the absence of relatively clear notice, I think it would be quite reasonable to potentially find that there was an implied license to use it under those circumstances.

* * *

JUSTICE BREYER: Then explain -- now this you might know because it's just following up on what Justice Souter said better than I did. I think from these briefs I've gotten the impression that at least some people think that where you invent a component, say, like the bicycle pedals, and it really has only one use, which is to go into a bicycle, it's the easiest thing in the world to get a patent not just on that component but to also get a patent on the system, which is called handlebars, body, and pedals.

And since that's just a drafting question, all that we would do by finding in your favor is to destroy the exhaustion doctrine, because all that would happen, if it hasn't happened already, is these brilliant patent lawyers, and they don't even -- they can be great patent lawyers, not just fine lawyers, and just draft it the way I said and that's the end of the exhaustion doctrine. And that's why it is preferable to say it is exhausted. What is exhausted? One, the patent on this component and, two, the patent on any system involving this component where that system is the only reasonable use of the component, rather than using the terminology "implied license."

Now, I think that's an argument that's being made in some of these briefs, and if so I'd like to you reply.

MR. PHILLIPS: Well, I think that clearly understates the role of the PTO in granting a separate patent. I mean, this is not -- these are not things you pick up at the corner drugstore. You have to justify them. And if you look at Section 282, "a patent shall be presumed valid," each claim shall be presumed valid independently of the validity of other claims. And there's an independence that's embedded in this entire scheme. If it's true that the PTO has in fact granted patent rights on something that's fundamentally not different from the other -- from some other patent, the solution to that is a validity challenge. And candidly, I think that's exactly what all of those arguments are

CHIEF JUSTICE ROBERTS: Well, then --

MR. PHILLIPS: -- is patent validity challenges.

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Tomorrow, the Supreme Court hears arguments in Quanta Computer Inc. v. LG Electronics Inc., 06-937 -- click here for a collection of the many briefs filed in the case at Patently-O.  The Court will be deciding whether parties can contract around patent exhaustion.  The patent exhaustion doctrine, also known as the first sale doctrine, holds that a royalty can only be charged once per product.  Once one link in the supply chain has paid a royalty for a patented product, or a key component, the patent is exhausted and no other link in the chain must pay a royalty for the same patent.  LG Electronics attempted to contract around patent exhaustion.

LG Electronics owned a group of patents claiming microprocessors used in personal computers.  They licensed the patents to Intel, but expressly excluded from the license any Intel customer that combined a licensed Intel microprocessor with non-Intel components.  As part of the license, Intel sent letters to its customers warning of this license exclusion.  LG Electronics sued Intel's post-license customers that were allegedly combining the licensed Intel chips with non-Intel products.   

The district court held that Intel's license exhausted LG Electronics' downstream patent royalty rights.  But the Federal Circuit reversed, holding that when parties expressly restrict a license a court should infer that the parties also negotiated a more limited royalty to reflect the limited rights given in the license.  As a result, patent exhaustion should not apply to restricted licenses.  Quanta argues that the Federal Circuit's decision contradicts a long history of both Federal Circuit and Supreme Court precedent requiring that patent licenses cannot be restricted to one link in the supply chain.

This is another case that has major implications for the business of patent law.  If the Supreme Court overturns the Federal Circuit it could dramatically change the model of many patent licensing programs.  I will keep you posted both on what occurs during the argument and the Court's ultimate decision.

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Trading Techs. Int’l, Inc. v. eSpeed, Inc., No. 04 C 5312, Slip Op. (N.D. Ill. Jan. 3, 2007) (Moran, Sen. J.).*

Judge Moran granted defendants’ (collectively “eSpeed”) motion for judgment as a matter of law that their infringement was no willful. The Court instructed the jury using the objective recklessness standard from In re Seagate Techs., LLC, 497 F.3d 1360 (Fed. Cir. 2007), but when the Court reviewed the totality of the circumstances it found no support for the willfulness verdict and, more specifically that plaintiff Trading Technologies (“TT”) had not met its burden of proving that there was an objectively high likelihood of infringement when eSpeed sold its infringing product, Futures View. When eSpeed launched Futures View, TT’s patent had not issued. And while eSpeed was aware of the application, knowledge of an application does not prove willfulness. Furthermore, TT produced no evidence of post-issuance willfulness. TT submitted two internal eSpeed emails, but both were sent before TT’s patent issued and the emails only suggested that eSpeed should mimic certain features of the TT software. And upon learning of TT’s issued patent, eSpeed immediately began a redesign of Futures View, resulting in new software products that the Court granted summary judgment of noninfringement. As a result of the redesign, the infringing Futures View was only on the market for five months after TT’s patent issued. 

TT also argued that eSpeed’s failure to make noninfringement arguments in preliminary injunction proceedings showed willfulness. But the Court held that eSpeed denied infringement in its answer and that there was no need to argue noninfringement of Future View in preliminary injunction proceedings because eSpeed was not selling Future View. There was no danger of an injunction over a product eSpeed was not selling. 

Finally, TT argued that eSpeed’s creation of a $4M escrow account related to potential infringement of the TT patent when it purchased defendant Ecco was proof of willfulness. The Court, however, held that the escrow account was merely assignment of risk in a business deal. When eSpeed purchased Ecco, TT had already sued eSpeed and to the extent that there was any risk that Ecco products could infringe the TT patent, the escrow account was not an admission, but a “shrewd business practice.”

Expect to see more on TT v. eSpeed this week. The Court has issued its first few post-trial opinions and I am sure others are on their way before this case heads, presumably, to the Federal Circuit.

*  Click here to read much more about this case in the Blog’s archives and click here for a copy of this opinion.

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Abbott Labs. v. Sandoz, Inc., No. 05 C 5373, 2007 WL 4287503 (N.D. Ill. Dec. 4, 2007) (Coar, J.).*

Judge Coar granted defendant Sandoz’s Fed. R. Civ. P. 12(b)(6) motion to dismiss or in the alternative Fed. R. Civ. P. 12(c) motion for judgment on the pleadings, dismissing plaintiff Abbott’s willfulness claims Abbott alleged that Sandoz willfully infringed Abbott’s patent related to an extended release antibiotic (clarithromycin, an erythromycin derivative which Abbott markets as Biaxin XL). At the time Sandoz entered the market with its generic version of Biaxin XL, the Federal Circuit had issued an opinion based upon an interlocutory appeal of a temporary restraining order, which included statements that Abbott’s patent was susceptible to invalidity and unenforceability argument. The Court held that Sandoz’s reliance on that opinion, regardless of the limited record it was based upon or its non-final nature was objectively reasonable, well above the In re Seagate objective recklessness standard.

* Click here for more on this case and related cases.

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The Chicago Tribune has had a few IP-related articles this week. First, the Tribune reported – click here for the story -- that the House is about to take up a bill that would allow an abbreviated approval process for generic versions of biotech drugs, commonly known as biosimilars or biogenerics, similar to abbreviated new drug applications. The Senate Health, Education, Labor and Pensions Committee approved a similar bill in June, called the Biologics Price Competition and Innovation Act of 2007.

Second, the Tribune reported – click here for the story – about a new book, "The Telephone Gambit: Chasing Alexander Graham Bell's Secret," by Seth Shulman -- which argues that Alexander Graham Bell, one of America’s most famous patentees, stole his most famous invention, the telephone, from his rival Elisha Gray. And Shulman argues that he was aided by attorneys and a corrupt patent examiner.  The book is due out January 7. It looks like it could be an interesting read.

Third, the Tribune reported – click here for the story -- that the Federal Circuit reversed in part the Western District of Wisconsin’s April 2007 decision which held that Google’s AutoLink and AdSense feature did not infringe HyperPhrase’s patents. The Court upheld Judge Shabaz’s decision that AdSense did not infringe the patents and remanded the case for further proceedings regarding whether the AutoLink feature infringed two of the patents in suit. Click here for a copy of the Federal Circuit decision.

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There is a debate brewing in the patent litigation community over the correct scope of a state institution's waiver of 11th Amendment immunity when that institution asserts its patents. In Florida Prepaid Postsecondary Ed. Expense Bd. v. College Savings Bank, 527 U.S. 627 (1999), the Supreme Court held that state institutions were immune from patent infringement suits. Of course, if a state institution asserts a patent claim against a party, immunity is generally waived as to that party for counterclaims. But the Federal Circuit recently held in BPMC v. California Dept. of Health (Fed. Cir. 2007), that when the California Department of Health (“Cal. DoH”) intervened as a plaintiff in a patent suit (which is considered a waiver of immunity), it is only a waiver as to that suit. So, when the original suit was dismissed because of improper venue, the waiver was rescinded. As a result, the defendant in the first case, BPMC, could not bring a declaratory judgment suit that mirrored the original suit because of the Cal. DoH’s 11th Amendment immunity. 

The Federal Circuit’s decision has ignited substantial controversy (click here for the WSJ Law Blog’s article on the subject and click here for IP Biz’s responsive blog post) and some are predicting that this will be the next patent case that the Supreme Court takes on cert. It is an interesting issue, but not one that we see often in the Northern District, which caused me to investigate whether Chicago-area colleges are prolific patentees. None makes the top ten, like my alma mater the University of Michigan – Go Blue! But there is some substantial patenting going on at Chicago-area universities. The following chart show the number of patents assigned to the identified universities or their related entities between 1969 and 2005:

Chicago-Area University Utility Patents 1969-2005

School	Patents
U of Chicago	309
IIT	59