Virginia IP Law

Federal Circuit Requiring More Rigorous Proof of Patent Damages

Dabney Carr — Fri, 12 Mar 2010 10:58:05 -0500

In a string of recent cases addressing reasonable royalty damages, the Federal Circuit has put patent litigators and district courts on notice that they “must carefully tie proof of damages to the claimed invention’s footprint in the marketplace.” ResQNet.com, Inc. v. Lansa, Inc., 2010 U.S. App. LEXIS 2453 at *19 (Fed. Cir. Feb. 5, 2010).

First, in Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009), the Court sharply criticized evidence on damages and overturned an award of a lump sum royalty of $358 million.

Then, in ResQNet.com, decided last month, the Court overturned a district judge’s award of a 12.5% hypothetical royalty as speculative.

Just last week, Judge Rader, sitting in the district court for the Eastern District of Texas, applied Lucent and ResQNet and excluded the opinion of an expert witness for improperly relying on general royalty rates in the software industry rather than existing licenses to the patents-in-suit and improperly applying the “entire market value rule.” IP Innovation L.L.C. v. Red Hat, Inc., Case No. 2:07-cv-447 (E.D. Tex. March 2, 2010) (Rader, J.).

The one exception to this trend is the December, 2009 decision in i4i L.P. v. Microsoft Corp., 589 F.3d 1246 (Fed. Cir. 2009), in which the Court did not conduct the type of searching review of the evidence that characterizes Lucent and ResQNet. i4i, however, involved only the appeal of a motion to exclude an expert’s testimony because the defendant failed to make a pre-verdict motion for judgment as a matter of law (JMOL) challenging the sufficiency of the evidence of damages. A district court’s decision on a motion to exclude evidence is reviewed under a deferential abuse of discretion standard, and the Court expressly stated that it addressed only the reliability of the expert’s methodology, not his conclusions. The Court also stated that the result may have been different if the defendant had made a timely motion for JMOL and appeared to draw a distinction between the admissibility of an expert opinion and whether that opinion provided a sufficient basis for a damage award.

A full analysis of the opinions is beyond the scope of a blog post, but the cases contain several high-level lessons for patent litigators, including:

Other license agreements are comparable to the parties’ hypothetical license negotiation only if they have a logical connection to the claimed invention.

A license agreement covering multiple patents to broad technologies is not comparable to a hypothetical negotiation involving one patent on a narrow method claim. (Lucent)
Licenses to finished software products, source code and services such as training and maintenance with no discernible link to the claimed technology are suspect, especially when the rates for those licenses differ greatly from other licenses for the claimed technology. (ResQNet)
Licenses offered by a party must have some “discernible link” to the claimed technology; otherwise “a prevailing plaintiff would be free to inflate the reasonable royalty analysis with conveniently selected licenses without an economic or other link to the technology in question.” (ResQNet)
An expert cannot arbitrarily pick an average royalty rate for a broad industry without some evidence that such industry-wide data is in some way comparable to the patents-in-suit. (Red Hat)

Licenses that result from litigation may be considered as evidence of a reasonable royalty. (ResQNet)

One district court recently cited ResQNet to hold that litigation-related licenses were admissible to show a reasonable royalty and that concerns about reliability of the licenses go to weight, not admissibility. DataTreasury Corp. v. Wells Fargo & Co., Civil Action No. 2:06-CV-72 (E.D. Tex. March 4, 2010) (Folsom, J.).

Parties must present particularized evidence and analysis of licenses they claim are comparable. (Lucent)

Testimony about comparable licenses must go beyond superficial recitations of the royalty rates and amounts paid in the agreements.
Parties should introduce evidence about the subject matter of the patents covered in comparable licenses, how valuable or essential those patent rights are and how the technology in those patents is similar or dissimilar to the claimed invention.
When offering cross-licenses, licenses of multiple patents or other complex agreements, a party must explain the value of the patent rights being cross-licensed and how a license to multiple patents is probative of the hypothetical license at issue.

When an accused product includes features other than the claimed invention, parties should offer evidence of the importance of the claimed invention to the accused product.

A glaring imbalance between infringing and non-infringing features must impact the analysis of how much profit can be attributed to the claimed invention. (Lucent)
Conversely, evidence that the claimed invention is an important feature of an accused product will greatly bolster an expert’s reasonable royalty opinion. (i4i)
Application of the entire market value rule requires an “accurate economic measurement” of the demand for the claimed invention and its contribution to the demand for the entire product asserted as the royalty base. (Red Hat)

Post-infringement evidence of usage of the claimed invention must be focused on the infringed claim and not include non-infringing features of the accused products.

“The damages award ought to be correlated, in some respect, to the extent the infringing method is used by consumers.” (Lucent)

There are significant distinctions between lump sum and running royalty agreements. (Lucent)

When arguing for a lump sum award, a party should offer evidence of the expected or estimated usage of an invention.
While running royalty agreements may be relevant to a lump sum award, parties must offer some basis for comparison between a running royalty and a lump sum.
Evidence of per-unit licenses should include an explanation of how a per unit rate corresponds to a percentage of the cost of the products covered under the license.

The plaintiff always bears the burden of proving a reasonable royalty.

A court should not sustain a royalty award based on inapposite licenses simply because a defendant did not proffer a rebuttal expert. (ResQNet)
A plaintiff cannot shift the burden to the defendant to produce sufficient evidence to determine the value of the claimed technology relative to other features of the accused products. (Red Hat).

EDVA Court Certifies Appeal of Dismissal for Lack of Standing

Dabney Carr — Thu, 11 Mar 2010 16:40:29 -0500

As we blogged here, Judge Payne recently dismissed claims relating to seven of the nine patents asserted by WiAV Solutions against multiple defendants (including Nokia, Motorola and Palm) because the plaintiff did not have the exclusive right to license the patents. The Court has now certified WiAV’s appeal of that decision to the Federal Circuit. WiAV Solutions LLC v. Motorola, Inc. et al., 2010 U.S. Dist. LEXIS 21508 (E.D. Va. March 9, 2010).

In his opinion, Judge Payne rejected the defendants’ argument that the appeal should not be certified because most of the accused products are alleged to infringe both the dismissed patents and the two remaining patents. The judge also rejected the argument that certification of the appeal could result in a “two-trial scenario” that may subject the defendants to “double jeopardy on damages.” Judge Payne noted that the appeal would only involve the discrete issue of standing and that delaying certification could also result in two trials if the Federal Circuit overturns the standing decision after trial on the remaining patents.

WDVa Local Rules adopted

Joshua Heslinga — Wed, 10 Mar 2010 11:46:02 -0500

Yesterday, the United States District Court for the Western District of Virginia formally adopted local rules for the first time, effective April 8, 2010. A copy is available here.

None of the local rules are directed only at IP cases. But litigants seeking to protect their intellectual property while in litigation in the Western District will certainly want to take note of Local Rule 9, which now sets forth details (with brief commentary on the governing Fourth Circuit case law) regarding how documents may be filed under seal.

IP litigants also will need to be cognizant of Local Rule 54, which provides that, unless otherwise provided by statute, rule, or court order, a motion seeking an award of attorney's fees must be filed within 14 days of entry of judgment, and that noncompliance with that deadline may be deemed a waiver.

A Quick Post on Compromise Patent Reform Legislation

Dabney Carr — Fri, 05 Mar 2010 14:04:22 -0500

Sen. Patrick Leahy announced last Thursday that agreement had been reached by a bipartisan group of Senators on a compromise bill providing for patent reform. The full text of the bill can be found here.

Undoubtedly, the blogosphere and legal publications will shortly become saturated with analysis of the compromise bill and speculation about its chances for passage. Last April, we blogged about a relatively minor provision of the bill -- the provisions addressing venue. As patent litigators in Virignia, we have a particular interest in venue, because the venue provisions of the bill will direcly affect the volume of patent cases filed here.

The compromise version of the bill includes the same provisions discussed in our earlier post, which can be found here. Here are the highlights (all of which are discussed in detail in the earlier post):

the legislation provides that a district court shall transfer a case upon finding that a transferee forum is clearly more convenient. (Sec. 8 of the bill, page 72).
the legislation establishes a pilot program in six U.S. District Courts that provides $5 million a year for education of judges and hiring of patent law clerks. (Sec. 16 of the bill, pages 92-93).
the legislation changes venue for civil actions appealing decisions by the BPAI relating to patent rejections and interferences, civil actions appealing decisions of the PTO relating to patent term adjustments, civil actions appealing decisions of the TTAB relating to registrations of a trademark, and civil actions appealing suspensions or exclusions from practice before the PTO from the District Court in Washington to the Eastern District of Virginia. (Sec. 8 of the bill, pages 72-73).

Baby formula case lessons regarding experts and enhanced damages

Joshua Heslinga — Thu, 04 Mar 2010 11:42:03 -0500

In the PBM Products v. Mead Johnson baby formula case (E.D. Va. case no. 3:09-cv-00269) followed on this blog (see prior posts here, here, and here), on Tuesday, Chief Judge James R. Spencer issued two opinions that resolve several post trial motions and offer useful pointers and reminders about expert witnesses and requests for enhanced damages and attorney's fees.

The first opinion granted PBM’s motion for judgment as a matter of law on Mead Johnson’s Lanham Act counterclaim, which challenged PBM’s comparative advertising label on its formula (“Compare to Enfamil Lipil”). Mead Johnson contended that “PBM’s ‘compare to’ ad impliedly communicates the false message that the performance of PBM’s products has been tested and verified and is equivalent to Mead Johnson’s counterpart formulas and that the parties’ formulas are ‘identical in composition.’”

Applying by analogy Virginia’s two-year limitations period for fraud, Judge Spencer first ruled that the statute of limitations and laches barred Mead Johnson’s claim with respect to certain PBM formulas.

Next, Judge Spencer ruled that Mead Johnson’s evidence that the “compare to” language was impliedly false failed as a matter of law. Mead Johnson had relied on an expert witness and consumer survey evidence. But the survey failed to define what a key term (“the same”) meant, leading Judge Spencer to conclude that it didn’t answer “the critical question … whether consumers understand the ‘compare to’ language to make the claim that the formulas are indeed ‘identical,’ not whether the ingredients are nearly the same, substantially the same, or any other gradation one could create.” And “[b]y failing to account for the specific allegations in this case and consider obvious alternative explanations for the results, the surveys cannot provide the required evidence needed to prove implied falsity. And without that evidence, Mead Johnson cannot prevail on its Lanham Act claim.”

Finally, Judge Spencer held that Mead Johnson could not prove damages because its economist offered no proof of causation. Instead, the economist “assumed that every PBM sale made was attributable to the ‘compare to’ ad on the products and that PBM would not have made any other sales but for the ad.”

In the second opinion, Judge Spencer denied both Mead Johnson’s motion for a new damages trial or for remittitur and also PBM’s motion for enhanced damages and attorney’s fees.

In its motion, Mead Johnson found several flaws with the expert witness PBM offered on damages. Mead Johnson also argued that the verdict was excessive when compared with similar Lanham Act claims. Judge Spencer found that Mead Johnson “failed to carry its heavy burden of proving that the verdict in this case was against the clear weight of the evidence or based on evidence that is false” and held the size of the verdict was not a miscarriage of justice, citing other Lanham Act cases and noting that PBM did not get the full amount of damages it sought. In particular, Judge Spencer complimented PBM’s expert on having “used a reliable regression analysis that was based on relevant and appropriate data” and “explained why certain variables were included and why others were excluded.” Acknowledging the criticism of PBM’s expert, Judge Spencer held that criticisms of an expert witness were not enough to undermine the verdict. “That Mead Johnson and Dr. Gering would have done it differently does not place this verdict against the weight of the evidence or show that it was based on false evidence.”

PBM’s Motion argued that enhanced damages were needed for deterrence – pointing to what it described as Mead Johnson’s recalcitrant corporate culture, untenable positions at trial, and a high public interest in truth, particularly regarding baby formula – and to fully compensate PBM.

Judge Spencer found no reason to award enhanced damages, concluding that PBM was not undercompensated and did not show intent to distribute false advertising. Awarding enhanced damages, according to the Court, would tip the scale from compensation to an impermissible penalty.

Finally, Judge Spencer declined to award attorney’s fees. The Court noted that the Fourth Circuit applies a somewhat higher standard than other circuits for the award of attorney’s fees – requiring proof of “bad faith” for a prevailing plaintiff (citing Scotch Whisky Ass’n v. Majestic Distilling Co., 958 F.2d 594, 599 (4th Cir. 1991), cert. denied, 506 U.S. 862 (1992)) and “something less than bad faith” for a prevailing defendant. The Court concluded that PBM had not shown bad faith by clear and convincing evidence and that Mead Johnson had acted aggressively, but not egregiously.

EDVA Jury Awards More Than $19 Million in Patent Infringement Case

Dabney Carr — Tue, 02 Mar 2010 16:34:18 -0500

On February 25, a jury found in favor of the patentee, CompX International, in the case of Humanscale Corp. v. CompX International, et al., Case No. 3:09cv86 (E.D. Va.), and awarded $19 million dollars in past damages and a reasonable royalty of 6% of future sales of infringing products. The jury’s verdict can be found here.

The patents-at-issue, U.S. Patent Nos. 5,037,054 and 5,257,767, cover adjustable platforms for computer keyboards. After an eight-day jury trial before Chief Judge Spencer in the Richmond Division of the EDVA, the jury found that Humanscale’s accused keyboards infringed three claims of the ‘054 patent and two claims of the ‘767 patent. The jury also found that the patents were valid and rejected Humanscale’s on-sale bar and laches defenses.

EDVA Court Dismisses Patent Infringement Claims For Lack of Standing

Dabney Carr — Fri, 26 Feb 2010 16:47:49 -0500

In a December 18 decision, the U.S. District Court in Richmond dismissed seven claims of patent infringement for lack of standing because the plaintiff did not have the exclusive right to license the patent.

In WiAV Solutions LLC v. Motorola, Inc., et al., Case No. 3:09CV447 (E.D. Va. Dec. 18, 2009), WiAV brought claims of infringement of nine patents involving wireless communication technology against multiple defendants. Seven of the patents (the “Mindspeed Patents”) had been assigned to Mindspeed Technologies, which was named in the case as defendant patent owner.

The defendants moved to dismiss the claims related to the Mindspeed patents for lack of standing. In a December 18, 2009 decision, Judge Robert E. Payne ruled that WiAV lacked constitutional standing because it was not an exclusive licensee of the patent. The key points from Judge Payne’s opinion:

To show that a case or controversy exists, a plaintiff must meet both constitutional and prudential standing requirements.
To have constitutional standing, a plaintiff in a patent suit must have both the contractual right to bring suit and the right to exclude others from making, using, selling or offering to sell the patented invention.
A party with “all substantial rights” under a patent or an exclusive licensee of a patent in a field of use has standing to sue but a “bare licensee” has no standing.
A licensee which is granted an exclusive license subject to prior, nonexclusive licenses has standing as an exclusive licensee.
A licensee is not an exclusive licensee, however, if others retain the right to grant additional licenses, even when the right to sublicense is limited to subsidiaries and affiliates.

The Mindspeed Patents had been transferred and licensed through a complicated series of agreements. At least four other parties retained the right to grant new licenses in the field of wireless handsets, defeating WiAV’s claim of exclusivity.

Judge Payne rejected WiAV’s request to adopt a new legal principle that, if a grantor retains a limited right to sublicense, it does not defeat exclusivity because WiAV could have alleviated the standing issue at the time it contracted for its rights and because WiAV’s request ran against well-accepted legal principles.

Twombley and Iqbal in Patent Cases (Cont.)

Dabney Carr — Tue, 23 Feb 2010 16:56:11 -0500

Last August, we raised here whether the Supreme Court’s decision in Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009) foreshadowed enhanced pleading requirements in patent infringement cases. After several months, the answer from the district courts appears to be yes and no.

For claims of direct infringement, the district courts have followed the Federal Circuit’s decision in McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1357 (Fed. Cir. 2007), a pre-Iqbal decision in which the Court set a low bar for pleading direct infringement.

For claims of indirect infringement, however, the courts have required specific factual allegations showing knowledge and intent to induce or contribute to infringement by another.

Direct Infringement

Only two reported decisions, Elan Microelectronics Corp. v. Apple, Inc., 2009 U.S. Dist. LEXIS 83715 at *5 (N.D. Cal. Sept. 14, 2009), and Fifth Market, Inc. v. CME Group, Inc., 2009 U.S. Dist. LEXIS 108776 at *3-*4 (D.Del. May 14, 2009), have granted a motion to dismiss a complaint for failure to meet the pleading requirements of Fed.R.Civ. P. 8, and in Fifth Market, the defendant's victory was short-lived, as the Court held that an amended complaint was sufficient.

Form 18 of the Federal Rules of Civil Procedure contains a sample complaint for direct patent infringement, and a range of district courts have held that a Complaint asserting a claim for direct infringement is sufficient if it contains the minimal information listed in Form 18. While several courts have noted that it is difficult to reconcile Form 18 with the Supreme Court’s guidance in Iqbal and Twombley, it appears that a claim for direct infringement requires only the following:

An allegation of jurisdiction and the specific patent law infringed;
An identification of the patent and a statement that the plaintiff owns the patent;
An identification of at least one infringing product and a statement that the defendant has been infringing the patent “by making, selling, and using” the product;
A statement that the plaintiff has given the defendant notice of its infringement, and
A demand for an injunction and damages.

See McZeal, 501 F.3d 1354, 1356-58;
Mark IV Indus. Corp. v. Transcore, L.P., 2009 U.S. Dist. LEXIS 112069 at *8-*10 (D.Del. Dec. 2, 2009);
Sharafabadi v. University of Idaho, 2009 U.S. Dist. LEXIS 110904 at *10-*11 (W.D. Wash. Nov. 27, 2009);
Mallinckrodt, Inc. v. E-Z-EM, Inc., 2009 U.S. Dist. LEXIS 108696 at *9-*10 (D.Del. Nov. 20, 2009);
Fifth Market, Inc. v. CME Group, Inc., 2009 U.S. Dist. LEXIS 108776 at *3-*4 (D. Del. May 14, 2009)

A plaintiff is not required to plead specifics as to how an allegedly infringing product works. McZeal, 501 F.3d at 1358; Mark IV, at *10.

Indirect Infringement

There is no form complaint for indirect infringement analogous to Form 18. As a result, district courts have applied a higher standard for pleading claims of indirect infringement. One court, Elan, has even held that where a Complaint alleges that a defendant “directly and/or indirectly” infringed, a plaintiff cannot rely on Form 18 but must comply with the stricter standards in Iqbal and Bell Atlantic Corp. v. Twombley, 550 U.S. 544 (2007).

To satisfy Iqbal and Twombley, a claim of indirect infringement must include:

Facts showing how the alleged infringer either induced or contributed to another party’s direct infringement. Sharafabadi at *14.
An allegation that the alleged infringer knew of the patent at the time of the infringing activities. Mallinckrodt at *11.
For induced infringement, an allegation that the alleged infringer specifically intended to induce infringement. Mallinckrodt at *11.
For contributory infringement, an allegation that the alleged infringer knew that the combination for which his component was especially designed was both patented and infringing. Mallinckrodt at *12.

Netscape v. Valueclick: Summary judgment granted in part, denied in part, granted in part, denied in part, granted in part, ... (etc.).

Robert Angle — Wed, 10 Feb 2010 14:46:08 -0500

On January 29, 2010, Judge Ellis issued a comprehensive, 49-page opinion (available here) on the parties’ motions for summary judgment in Netscape Communs. Corp. v. Valueclick, Inc., et al., Civil Action No. 1:09cv225 (E.D. Virginia). Plaintiff Netscape claims that the Defendants willfully infringed U.S. Patent No. 5,774,670 (the ‘670 Patent), known as the “Internet cookie patent.” After several months of discovery, the parties filed for summary judgment on twelve separate issues. Specifically, the parties filed cross-motions on:

(1) invalidity based on the on-sale bar of 35 U.S.C. § 102(b); and

(2) whether plaintiff waived its right to enforce the ‘670 patent.

In addition, Netscape moved for summary judgment on the Defendants’ affirmative defenses based on:

(3) invalidity based on public use of the invention under 35 U.S.C. § 102(b);

(4) invalidity based on anticipation;

(5) invalidity under 35 U.S.C. § 102(f) based on misjoinder or nonjoinder of inventors;

(6) equitable estoppel; and

(7) federal preemption of defendants’ state law counterclaims of fraud, misrepresentation and unfair competition.

Separately, Defendants moved for summary judgment on:

(8) invalidity of three claims based on indefiniteness;

(9) laches;

(10) non-infringement of claims 1-8 under any claim construction;

(11) non-infringement of all claims under defendants’ proposed claim construction; and

(12) willful infringement.

In its ruling, the Court took the opportunity to clear out many issues and gave each side partial victories, but left the core issues for resolution at trial, which is set to begin on April 26, 2010.

For plaintiff Netscape, Judge Ellis dismissed the defenses of equitable estoppel, public use, inventorship, and granted summary judgment on defendants’ state law counterclaims, but denied Netscape’s motion to dismiss the anticipation defense.

For defendants, Judge Ellis invalidated claim 1 of the ‘670 patent based on the on-sale bar and dismissed the claim of willful infringement, but denied defendants’ motion on their defenses of indefiniteness, waiver, laches and application of the on-sale bar to the remaining claims of the patent and denied defendants’ motion based on non-infringement.

Although the rulings were based mainly on the absence of supporting facts or the existence of disputed material facts, Judge Ellis reached several notable legal conclusions.

As to the “on-sale bar,” Judge Ellis concluded that the cookies-functional web browser was "ready for patenting" prior to the critical date of the patent-in-suit even though the web browser was not released until after the critical date. Judge Ellis found “the undisputed record evidence shows that draft cookies source code existed [prior to the critical date], [and thus] the second [Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998)] prong is satisfied. Moreover, with respect to inventions involving computer code, Pfaff simply requires complete conception of the invention, not the source code's actual completion, provided that there is an enabling disclosure that would allow one skilled in the art to complete the invention."

With respect to willful infringement, Judge Ellis noted that “plaintiff's claim is based on defendants' use of the cookies technology following the initiation of the instant suit, as defendants had no pre-litigation knowledge of the '670 patent. While not dispositive, plaintiffs’ decision not to seek a preliminary injunction has been deemed relevant… Moreover, while not all of defendants' arguments are meritorious, defendants do present legitimate defenses and credible invalidity arguments.”

Finally, Judge Ellis held that defendants’ state law claims for fraud, misrepresentation and unfair competition based on plaintiff's acts of enforcing its patent rights were preempted by federal patent law: “[A]lthough clear and convincing evidence establishes that the § 102(b) on-sale bar invalidates claim 1 of the [patent-in-suit], this conclusion does not necessarily demonstrate objective baselessness, as questions of infringement and invalidity remain as to [other] claims.”

Federal Circuit Holds that Actual Knowledge of a Patent is not Required for Induced Infringement

Dabney Carr — Tue, 09 Feb 2010 09:44:59 -0500

In a February 5 decision, the Federal Circuit clarified that an accused infringer need not have actual knowledge of a patent to be liable for inducement of infringement. SEB S.A. v. Montgomery Ward & Co., Inc., 2010 U.S. App. LEXIS 2454 (Fed. Cir. Feb. 5, 2010).

A little over three years earlier, an en banc panel of the Court held in DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006) that “[t]he requirement that the alleged infringer knew or should have known his actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent.”

The DSU decision would appear to require that an accused infringer have actual knowledge of a patent as a basis for inducement liability. The SEB panel held, though, that DSU did not set out the “metes and bounds” of the knowledge-of-the-patent requirement. Since the record showed that the accused infringer had actual knowledge of the patent in suit, the Court noted, the DSU Court never addressed the scope of knowledge required to prove intent.

The “knowledge” requirement, SEB holds, is met not only by actual knowledge but also by “deliberate indifference” to the existence of a patent. The basis for the Court’s conclusion, though, is unclear. The Court simply notes that inducement requires the specific intent to encourage another’s infringement, and that in other contexts, specific intent includes “deliberate indifference.” This reasoning assumes that the specific intent and knowledge of the patent are not separate elements of proof of inducement. Rather, the Court conflates knowledge of the patent within the requirement of specific intent and concludes that specific intent may be proven not only through actual knowledge but also through deliberate indifference.

The Court also clarified that “deliberate indifference” is not synonymous with a constructive knowledge. Deliberate indifference, unlike constructive knowledge, may require a subjective determination that a defendant knew of and disregarded a risk. Thus, “deliberate indifference” appears to be an intermediate standard, somewhere between constructive and actual knowledge. In fact, the Court held that deliberate indifference “is not different from actual knowledge, but is a form of actual knowledge.”

In SEB, there was no direct evidence of actual knowledge of the patent, but there was adequate evidence that the defendant deliberately disregarded a known risk that the plaintiff had patented its product based on the following factors:

the defendant purchased the plaintiff’s product in Hong Kong and copied it but did not tell the counsel it hired to conduct a right-to-use study that it had done so, which was “highly suggestive” of deliberate indifference.
the defendant’s president was well-versed in the U.S. patent system and understood the plaintiff to be cognizant of patent rights.
the defendant produced no exculpatory evidence that it believed there were no patents covering the accused product.

The Court also left the door open to other ways of proving knowledge of a patent. For example, the Court suggested that constructive knowledge of a patent combined with “persuasive evidence of disregard for clear patent markings” may be sufficient.

Recalculated Patent Term Adjustment Available

Timothy Salmon — Fri, 05 Feb 2010 15:09:02 -0500

In view of the Federal Circuit's decision in Wyeth v. Kappos, Case No. 2009-1120 (Jan. 7, 2010), the U.S. Patent and Trademark Office ("PTO") has implemented an interim procedure for patentees to request a recalculation of a patent term adjustment under 35 U.S.C. § 154. In Wyeth, the Federal Circuit held that "overlap," for the purposes of § 154(B)(2)(A), does not occur unless the delay attributable to the ground(s) specified in § 154(B)(1)(A) ("A delay") occurs at the same time as the delay attributable to the grounds specified in § 154(B)(1)(B) ("B delay"). The A delay grounds relate to the PTO's delay in meeting examination deadlines, and the B delay begins when the PTO fails to issue a patent within 3 years of the actual filing date of the patent application. Thus, according to Wyeth, the potential for overlapping A delay and B delay can only begin after 3 years from the actual filing date.

In view of Wyeth, the PTO is modifying the computer program it uses to calculate patent term adjustments and such modification should be complete by March 2, 2010. In the meantime, patentees can request (without a fee) a patent term adjustment recalculation using a form issued by the PTO entitled, Request for Recalculation of Patent Term Adjustment in View of Wyeth. According to the PTO's interim procedure, a patentee may request a patent term adjustment if (1) the patent issued prior to March 2, 2010, (2) the sole basis for requesting reconsideration of the patent term adjustment is based on Wyeth, and (3) the request is filed within 180 days of the day the patent was granted. On or after March 2, 2010, a patentee who believes the patent term adjustment calculation for his/her patent is incorrect must file a request for reconsideration under 37 C.F.R. § 1.795(d) that complies with the requirements of 37 C.F.R. 1.705(b)(1) and (b)(2) within two months of the date the patent issued.

For more information, please click here.

Supreme Court Declines Appeal of EDVA Patent Case

Dabney Carr — Tue, 02 Feb 2010 14:21:48 -0500

On January 11, the Supreme Court declined certiorari in the case of Astellas Pharma, Inc. v. Lupin, et al., Case No. 09-335, upholding a June, 2007 decision by Judge Payne in the Eastern District of Virginia. Our earlier post on the Federal Circuit's Decision can be found here.

The Astellas case involves a generic version of the drug Omnicef (cefdinir), which is an antibiotic used to treat a number of common infections. The generic manufacturer, Lupin, alleged that Astellas’ patent on crystalline cefdinir only covered the Crystal A form of the drug, and Lupin alleged that its generic version of Omnicef only contained the Crystal B form.

In his claim construction opinion, Judge Payne ruled that Astellas’ patent was limited to the Crystal A form, effectively deciding the case in favor of Lupin. In short, the claims at issue were “product by process” claims, and Judge Payne ruled that each of the process steps in the claim were limitations on the invention. In an en banc decision, the Federal Circuit agreed, settling a long-standing split of authority on product by process claims.

Defendant Sanctioned for Improper Motion to Dismiss Based Upon Defense of Res Judicata

Robert Angle — Tue, 26 Jan 2010 14:27:36 -0500

In Heinz Kettler Gmbh v. Little Tikes Co., Civil Action No. 2:09cv500 (E.D. Va.), Judge Doumar denied Little Tikes’ motion to dismiss Kettler’s claims for patent infringement and awarded sanctions against Little Tikes for filing the motion to dismiss in the first place. The case against Little Tikes follows an earlier case that Kettler brought against Rand International and Little Tikes, Heinz Kellter GmbH v. Rand International, Case No. 1:08cv679 (E.D. Va.), for infringement of Kettler’s patents by certain tricycles sold by Rand International and Little Tikes. In that case, Kettler agreed to dismiss its claims against Little Tikes relating to the Ofrat Model No. 129H tricycle at issue based upon Little Tikes’ multiple representations, in discovery responses and correspondence from Little Tikes’ counsel, that Little Tikes and did not manufacture, sell or distribute the Ofrat Model No. 129H tricycles, and that Little Tikes was nothing more than a trademark licensor. Kettler later learned that these representations were, “at best, misinformation” (according to Judge Doumar), and brought suit against Little Tikes and its parent, MGA Entertainment, Inc., for patent infringement by Little Tikes’ Product No. 615221.

Little Tikes and MGA thereafter moved to dismiss the Complaint on the grounds that Kettler’s claims were barred by the doctrines of res judicata and implied license arising from Kettler’s dismissal of Little Tikes in the earlier Randcase. The Court soundly rejected these arguments, finding that Kettler's Complaint was directed to Little Tikes Product No. 615221, not the Ofrat Model No. 129H that was the subject of the Rand case., thus making Defendants' assertion of res judicata "unnecessary, and therefore, improper." For this reason, the Court awarded Kettler its reasonable fees and costs in "answering the totally unnecessary Motion to Dismiss as a sanction against the Defendants since they were responsible for the misinformation [in the Rand case] and the Motion." Kettler was represented by Troutman Sanders' John Lynch and Ethan Ostroff. Here is the full opinion.

False Marking Penalties Dramatically Increased by Recent Federal Circuit Decision

Robert Angle — Tue, 26 Jan 2010 13:57:37 -0500

On December 30, 2009, the Federal Circuit in The Forest Group, Inc. v. Bon Tool Company, issued a unanimous decision establishing a new standard for assessing the size of the penalty in an action for false patent marking. This is a potentially significant development in the area of false patent marking. A full discussion of Forest Group, authored by James Moore Bollinger, George B. Snyder and Laura E. Krawczyk, can be found here.

In Pequignot v. Solo Cup Co., No 1:07cv897-LMB/TCB (E.D. Va.), which we discussed in April 2009 (see link), Judge Brinkema initially denied Solo Cup’s motion to dismiss, but later granted summary judgment to Solo Cups upon finding that Solo lacked an intent to deceive the public given its reasonable reliance on advice of counsel in deciding to replace patent-marking molds with non-marking molds in a gradual fashion. See Pequignot v. Solo Cup Co., 646 F. Supp.2d 790, 2009 U.S. Dist. LEXIS 76032 (E.D. Va. August 25, 2009). Significantly, Judge Brinkema also held that an "offense" under the statute is the overall decision to mark improperly and rejected Pequignot’s argument that Solo should be penalized for each and every lid it marked. This decision by Brinkema may not stand given the logic of the Federal Circuit’s decision in Forest Group.

Attorneys Join Troutman Sanders Intellectual Property Practice

Robert Angle — Fri, 22 Jan 2010 16:20:07 -0500

The law firm of Troutman Sanders LLP is pleased to announce the addition of James “Jim” Moore Bollinger as partner, Xin “Kevin” He as of counsel, and Laura E. Krawczyk as an associate to its Intellectual Property practice group, bolstering the presence of this group firm-wide and particularly in New York.

Prior to joining Troutman Sanders, all three attorneys worked for Morgan Lewis in New York. Jim was a partner in Morgan Lewis’ Litigation Practice, leader of the firm’s Intellectual Property Practice in New York, and co-head of the firm’s financial patent initiative. Kevin was an associate at the firm and practiced in the firm’s Litigation, Intellectual Property and Greater China Practices, and Laura was an associate in the firm’s Litigation and Intellectual Property Practices.

“Kevin has strong ties to the emerging Chinese IP market and is very well connected in the Chinese IP community," said Doug Salyers, head of Troutman Sanders' Intellectual Property practice group. "He has already brought some Chinese based clients to us, and working with other Troutman attorneys who have been similarly focused on China, we expect to develop significant additional work."

With 20 years of experience in patent litigation, Jim focuses his practice in the medical, electronics, computer science, and financial technologies fields. He has acted as lead trial counsel for a variety of patent disputes and has handled both jury and bench trials. He is lead counsel on patent matters pending in many diverse venues, including in the Western District of Wisconsin, the Northern District of Illinois, the Southern District of New York, and the Northern District of California. He has also represented several overseas clients in international forums on patent and IP matters.

Jim is admitted to practice in New York and Connecticut and before the Supreme Court of the State of New York, Appellate Div., 1st Dept.; the Supreme Court of the State of Connecticut; the U.S. Court of Appeals for the Federal Circuit; the U.S. Court of Appeals for the Eleventh Circuit; and the U.S. Patent and Trademark Office.

He is a member of the American Bar Association, the American Institute of Chemical Engineers, and the New York Intellectual Property Law Association.

Jim received a B.S.C.H.E. (Chemical Engineering) in 1979 from Tufts University and a J.D. in 1986 from Pace University School of Law.

Kevin’s practice includes intellectual property litigation, licensing, opinion work, and patent prosecution. He has litigated many cases involving flash memory drives, wide bandgap (WBG) light-emitting diodes (LEDs), digital cameras, cell phones, electronic watches, and PDAs, as well as other technology areas, such as semiconductor manufacturing processes, computer software and telecommunication systems. He also advises clients on licensing, opinion, and patent prosecution matters.

His practice covers most areas of physics and electrical engineering, including wireless telecommunications, digital signal processing, Internet technology, e-commerce, software, integrated circuits, business methods, fiber optics, lasers, nuclear magnetic resonance (NMR) and xerography.

Kevin is fluent in Chinese and English and has represented multiple Chinese companies in their patent litigations in the United States.

He is admitted to practice in New York and before the U.S. Patent and Trademark Office.

He is a member of the Institute of Electrical and Electronic Engineers, the American Intellectual Property Lawyers Association and the New York City Bar Association.

Prior to joining Morgan Lewis, Kevin had been a patent agent at a leading intellectual property boutique, as well as a member of the technical staff (MTS) at Lucent Technologies, where he worked on software development of 3G CDMA wireless telecommunication systems.

Kevin received a B.S. in electrical engineering in 1995 from Tsinghua University, a M.S. in 1998 and a Ph.D. in electrical engineering in 2001 from the University of Notre Dame, and a J.D. in 2005 from Fordham University School of Law.

Laura’s practice focuses primarily on intellectual property litigation and patent counseling. Her litigation background involves a wide array of technologies, including chemical, electronics, radio controlled devices, and semiconductor technology. She has experience in dealing with all phases of litigation, including discovery, motion practice, summary judgment, and trial. She has managed discovery in international forums, including Hague convention protocols in U.S. litigation matters. Additionally, her practice includes counseling clients in intellectual property matters, such as patent licensing and mediation.

She is admitted to practice in New York and New Jersey, as well as before the U.S. Court of Appeals for the Federal Circuit, the U.S. District Courts for the Southern and Eastern Districts of New York, the U.S. District Court for the Central District of Illinois and the U.S. District Court for the District of New Jersey.

Laura earned a B.S., magna cum laude, in chemical engineering in 2002 from Manhattan College and a J.D., cum laude, in 2005 from Pace University School of Law, where she served on the editorial board of the Pace International Law Review.

ED Va makes patent filings top 10 in 2009

Joshua Heslinga — Wed, 20 Jan 2010 10:22:20 -0500

LegalMetric, an intellectual property case law research and analysis company, recently released its list of district courts in which the most patent cases were filed in 2009. That the Central District of California and Eastern District of Texas came in first and second, respectively, probably won't surprise any IP litigators. Our own Eastern District of Virginia (the "Rocket Docket") placed tenth.

LegalMetric Director of Research Greg Upchurch, in a conversation with this author, stated that LegalMetric does a bulk download every quarter of every case identified in PACER as a patent case. The company's business focuses on analyzing IP decisions so as to enable litigators to evaluate how particular courts, judges, and issues may impact their case. Statistics like the 2009 patent filings list are a happy by-product of that business.

I think it's a great thing that there can be any degree of data mining from PACER and hope that the federal courts will continue to expand the ability to do queries and analysis. In our electronic world, the data is there; the challenge is finding, organizing, and making good use of it.

Those interested in more information about the opportunities and challenges of litigating patent cases in the Eastern District of Virginia can check out past publications on that topic by my colleagues Robert Angle and Dabney Carr (listed under "Publications" on each's page or accessible directly here and here) and contact one of this blog's authors.

Karaoke lawsuit rocks Virginia

Joshua Heslinga — Mon, 11 Jan 2010 13:04:29 -0500

If you’ve ever been to a karaoke session and found yourself wanting to sue someone, here’s a lawsuit for you.

Just before Christmas, two related karaoke / sing-along entertainment manufacturing companies, one from North Carolina and one from Delaware, filed suit in the Eastern District of Virginia (Alexandria Division) against an array of people and businesses who provide or host karaoke in the Northern Virginia and Richmond areas. (Case no. 1:09-cv-01390; see copy of 41-page Complaint here.)

The lawsuit is an action for trademark infringement and unfair competition under the Lanham Act (15 U.S.C. 1114 and 1125).

The complaint alleges that, thanks to new technologies that make it possible to easily copy the special karaoke CDs, up to thirty illegitimate copies of new karaoke releases are created for each legitimate copy sold, causing significant losses and layoffs and an overall threat to the businesses of the two plaintiffs, Slep-Tone Entertainment Corp. and Sound Choice Studios, Inc. It further alleges that investigators for the plaintiffs “observed each of the Defendants possessing, using, or authorizing or benefiting from unauthorized counterfeit copies of at least one work bearing the” plaintiffs’ marks.

The plaintiffs seek compensatory damages, the defendants’ profits, or statutory damages, treble or punitive damages, attorney’s fees, injunctive relief, and seizure of all media containing counterfeits.

No word yet on whether the lawsuit will have a soundtrack.

EDVA Rejects Insurance Coverage of Trademark Infringement Claim as "Advertising Injury"

Dabney Carr — Mon, 11 Jan 2010 10:47:08 -0500

Intellectual property claims are rarely covered by insurance, but some claims of trademark and copyright infringement may be covered by insurance for advertising injury. In a January 5 decision, though, Magistrate Judge Lauck narrowly interpreted "advertising injury" coverage to exclude the duty to defend a trademark infringement claim. Premier Pet Products LLC v. Travelers Property Casualty Co. of Am., Civil Action No. 3:09CV293 (Jan. 5, 2010).

In Premier Pet Products, Travelers issued an insurance policy to Premier that contained a “Web Xtend Liability” endorsement which provided coverage for “an offense committed in the course of advertising your goods, products or services” and defined advertising injury to include “infringement of copyright, title or slogan.”

Premier was sued for selling dog training collars bearing the plaintiff’s trademarked designations. The suit, however, did not specifically refer to Premier’s advertising. Rather, the plaintiff alleged liability based on Premier’s "sale" of products with plaintiff's trademarks and Premier's “use” of plaintiff’s trademarks and trade dress.

Travelers denied coverage, and Premier sued for breach of contract, seeking defense and indemnity under the policy. Judge Lauck granted summary judgment to Travelers on the duty to defend.

The key issue would appear to be whether the policy language covering “infringement of copyright, title or slogan” includes trademark infringement, and the parties extensively briefed a nationwide split of authority on that issue. Judge Lauck, though, did not reach that issue, holding instead that the Complaint did not allege (1) that Premier’s conduct occurred in the course of advertising its products, as the policy required; or (2) that Premier’s advertising activities caused the plaintiff’s harm.

On the first issue, Premier argued that the policy should be construed broadly, relying on a Fourth Circuit decision applying North Carolina law, State Auto Prop. & Cas. Co. v. Travelers, 343 F.3d 249, 259 (4th Cir. 2003), which held that “the term ‘advertising’ normally refers to ‘[a]ny oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business.’”

Instead, Judge Lauck relied on an earlier EDVA case, Solers, Inc. v. Hartford, 146 F.Supp.2d 785, 793 (E.D.Va. 2001), which narrowly defined “advertising” under Virginia law to refer “unambiguously to the widespread definition of promotional material to the public at large, or at least to widely disseminated solicitation or promotion” and did not include one-on-one “solicitation.” The Complaint’s allegations of Premier’s “sale” of products and “use” of the plaintiff’s trademarks, the Court held “could not constitute advertising, or ‘widespread promotion’ (as opposed to sale) of goods.”

On the second issue, Judge Lauck held that the Complaint did not clearly allege that Premier’s advertising activities caused injury. Instead, the plaintiff alleged that Premier’s “sale” of products and “use” of infringing designations were the cause of its alleged injuries.

The same day, Judge Lauck issued a follow-up Order noting that she had not ruled on whether Travelers had a duty to indemnify under the policy and giving the parties thirty days to brief that issue. Since the duty to indemnify is typically no broader than the duty to defend, though, there seems little chance that the result will change.

Federal Circuit Reverses the Eastern District of Texas Twice More on Venue

Dabney Carr — Mon, 04 Jan 2010 16:00:45 -0500

Four times over the course of less than a year, the Federal Circuit has reversed a decision by the Eastern District of Texas (EDTex) denying a motion to transfer venue under 28 U.S.C. § 1404(a). Posts on the first two decisions, In re: TS Tech USA Corp., 551 F.3d 1315 (Fed. Cir. 2008) and In re: Genentech, 566 F. 3d 1338 (Fed. Cir. 2009), can be found here and here.

Last month, the Federal Circuit issued two more writs of mandamus reversing the EDTex for refusing to transfer a patent case to a different venue. See In re: Nintendo Co., Ltd., Misc. No. 914, 2009 U.S. App. LEXIS 27647 (Fed. Cir. Dec. 17, 2009); In re: Hoffman-La Roche Inc., Misc. No. 911, 2009 U.S. App. LEXIS 26244 (Fed. Cir. Dec. 2, 2009).

In Hoffman, the Court reversed a decision by EDTex Chief Judge Folsom denying transfer of a pharmaceutical patent case to the Eastern District of North Carolina.

The Federal Circuit rejected the reasoning (which can be found in numerous EDTex cases) that where a case is “decentralized” because witnesses and documents are located across the country, transfer should be denied.
The court held that the district court improperly ignored the significant contrast between the strong connections the cause of action had with North Carolina, where the accused drug was developed, and the Eastern District of Texas, which had no factual connection to the case.
The Court also held that a plaintiff could not manipulate venue by transferring documents to litigation counsel in the EDTex, calling the assertion that these were “Texas” documents a “fiction” and characterizing the district court’s ruling as having “no legally rational basis.”

In Nintendo, the Court used similarly strong language in reversing a denial of transfer by Judge Davis, holding that “in a case featuring most witnesses and evidence closer to the transferee venue with few or no convenience factors favoring the venue chosen by the plaintiff, the trial court should grant a motion to transfer.”

Unlike Judge Folsom in Hoffman-La Roche, Judge Davis acknowledged that the Western District of Washington had a strong interest in the dispute, while the EDTex did not.
As in Hoffman-La Roche, the Federal Circuit rejected the reasoning that the EDTex was as convenient as any other forum because witnesses and documents were located in several locations. Instead, the Court should have more strongly considered the convenience of witnesses who must travel farther to reach the EDTex and the location of the Defendant’s documents in Washington.
The Federal Circuit also chided the EDTex court for glossing over a record “without a single relevant factor favoring the plaintiff’s chosen venue.”

Despite the strong messages that the Federal Circuit continues to send regarding venue motions in the EDTex, it remains to be seen whether the district judges will listen. Hoffman-La Roche and Nintendo will be helpful to sole defendants sued in the EDTex, but transfer will continue to remain difficult where there are multiple defendants in different forums.

Yes, Virginia, there is a cause of action for false advertising

Joshua Heslinga — Mon, 04 Jan 2010 08:30:00 -0500

In the PBM Products v. Mead Johnson baby formula case (E.D. Va. case no. 3:09-cv-00269) twice previously mentioned on this blog (here and here), Chief Judge James R. Spencer delivered a gift to counsel on Christmas Eve, in the form of the second of two Christmas week opinions that provide a full discussion of and rationale for prior rulings.

This blog entry addresses a portion of that December 24th opinion [docket no. 243 on PACER/ECF, copy available here, also available at 2009 U.S. Dist. LEXIS 120200], which dealt with Mead Johnson’s summary judgment motion on PBM’s false advertising claims under the Lanham Act and for commercial disparagement under Virginia law. The motion was denied on the former and granted on the latter. A passage (on p.10) about the Virginia law claim may be somewhat startling at first:

“As this Court has previously held, ‘the only claims for unfair competition recognized in Virginia are palming off and misappropriation of another's work.’ PBM Products. Inc. v. Mead Johnson & Co., 204 F.R.D. 71, 75 (E.D. Va. 2001). Thus, Virginia does not recognize a cause of action for deceptive trade practices, such as false advertising. See id.”

So, does this passage really mean that those who want to sue for “deceptive trade practices, such as false advertising,” are out of luck under Virginia law? No, as explained below.

Following the link to the 2001 opinion, also by Judge Spencer, quickly begins to clear up the confusion. Citing an unpublished 1994 Eastern District of Virginia opinion by Judge Cacheris (1994 U.S. Dist. LEXIS 20303) and a 1993 Fairfax County Circuit Court opinion by Judge Michael P. McWeeny (32 Va. Cir. 75), the 2001 opinion reaches the conclusions quoted above. It makes clear, however, that what is at issue is “Virginia's narrow definition of common law unfair competition.” 204 F.R.D. at 74 (emphasis added).

Further exploration of the authorities up the chain (a 1989 E.D. Va. opinion by Judge Ellis and a 1921 Supreme Court of Virginia case) confirm that what has happened – on both the federal and state level – is that legislatures have set forth what is prohibited, thereby displacing the common law’s efforts to address deceptive trade practices and false advertising through the rubric of unfair competition. See Monoflo Int’l, Inc. v. Sahm, 726 F. Supp. 121, 127 (E.D. Va. 1989) (“there is no federal common law of unfair competition applicable here separate or apart from the Lanham Act and the judicial decisions construing that Act”); Benj. T. Crump Co. v. J. L. Lindsay, Inc., 130 Va. 144, 164, 107 S.E. 679, 685 (1921) (“we have a statute … which expressly authorizes the adoption of a form of advertisement … provides for the registration thereof, and makes it a misdemeanor for any other to counterfeit or imitate such form of advertisement, or to circulate any such imitation thereof. The inference from the enactment of such a statute clearly is, that one who desires a monopoly of the precise form of his advertisements should take advantage of its provisions”).

Indeed, Virginia has more than one statute that addresses false advertising (leaving aside industry-specific statutes).

The Virginia Consumer Protection Act contains numerous advertising and trade practices provisions, including a prohibition on any “deception, fraud, false pretense, false promise, or misrepresentation in connection with a consumer transaction.” Va. Code § 59.1-200.

Virginia’s criminal code (§ 18.2-216) makes it a Class 1 misdemeanor to, with commercial intent, “publish[], disseminate[], circulate[] or place[] before the public … an advertisement of any sort regarding merchandise, securities, service, land, lot or anything so offered to the public … contain[ing] any promise, assertion, representation or statement of fact which is untrue, deceptive or misleading, or us[ing] any other method, device or practice which is fraudulent, deceptive or misleading to induce the public to enter into any obligation.”

The General Assembly has explicitly created a private cause of action for “[a]ny person who suffers loss as the result of a violation of” that misdemeanor false advertising statute. See Va. Code § 59.1-68.3 (allowing an action for damages or $100, whichever is greater, plus reasonable attorney’s fees for violation of Article 8 (§ 18.2-214 et seq.), Chapter 6 of Title 18.2).

And last but not least, there’s the Virginia Trademark and Service Mark Act. See Va. Code § 59.1-92.12.

In sum, Virginia law offers more than one potential cause of action for deceptive trade practices, such as false advertising, but Judge Spencer’s PBM Products opinion is a good reminder that litigants need to be cognizant of the fact that this is an area of state law that is predominantly a matter of statutes, not common law.