Supreme Court Gives District Courts More Power in Patent Claim Construction

On January 20, 2015, in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., the Supreme Court reallocated power between federal district courts and the Federal Circuit in the patent claim construction process.  For many years, the Federal Circuit has reviewed all district court claim constructions de novo, without deference to the district court. Today, the Court held that the Federal Circuit must find clear error before overturning a district court’s resolution of an underlying factual dispute during claim construction.

After the Court’s decision in Markman v. Westview Instruments (1996), the Federal Circuit’s Cybor Corp. v. FAS Technologies, Inc. (1998) decision announced the de novo standard of review.  Under this standard, the Federal Circuit has often reversed district court claim construction orders.

Dissolving this longstanding precedent, the Court held that Rule 52(a)(6), Federal Rules of Civil Procedure, requires that claim construction decisions involving “evidentiary underpinnings,” “subsidiary factual findings,” or “underlying factual disputes,” not be set aside unless clearly erroneous.  The Federal Circuit still reviews “the ultimate construction of the claim de novo.”  And claim constructions that only analyze the intrinsic evidence—the patent, its specification, and the prosecution history—still will be reviewed de novo.  “But, to overturn the judge’s resolution of an underlying factual dispute, the [Federal Circuit] must find that the judge, in respect to those factual findings, has made a clear error.”

Recognizing the “need for uniformity in claim construction,” and recalling that Markman aimed to alleviate “damaging…unpredictability” in claim construction, by making it an issue for the court, Justice Thomas’s dissent raises the concern that Teva will “inject uncertainty into the world of invention and innovation.”  “At best,” Justice Thomas wrote, Teva will increase “collateral litigation over the line between law and fact.”  The majority, in contrast, viewed “subsidiary factfinding [as] unlikely to loom large in the universe of litigated claim construction.”  With such a significant change in claim construction, it’s at least certain that it will take some time to see who is right.

Posted in Patent Litigation Tagged , ,

Supreme Court to Review Defenses to Induced Patent Infringement

On December 5, 2014, the Supreme Court granted certiorari in Commil USA, LLC, v. Cisco Systems, Inc., to decide whether a defendant’s good-faith belief that a patent is invalid is a defense to induced infringement.

Previously, a divided panel of the Federal Circuit held that a Texas district court should have allowed evidence that Cisco believed in good faith Commil’s patent was invalid.  At trial, Cisco was not permitted to present such evidence to rebut Commil’s claims of induced infringement.  The district court relied on Federal Circuit precedent, DSU Medical Corp. v JMS Co., which addressed a good-faith belief of non-infringement, not a good-faith belief of invalidity, as a defense.

Reversing the district court, the Federal Circuit reasoned that, because one necessarily cannot infringe an invalid patent, no principled distinction exists between a good-faith belief of non-infringement and a good-faith belief of invalidity.  Accordingly, the court held that evidence of a good-faith belief of invalidity is evidence that “should be considered by the fact-finder in determining whether an accused party knew that the induced acts constitute patent infringement.”  In dissent, Judge Newman argued that a good-faith belief of invalidity cannot be a defense to induced infringement of a patent that is actually valid and infringed.

For now, the Federal Circuit’s decision provides accused infringers with two means of defending against induced infringement claims: good-faith belief of non-infringement and good-faith belief of invalidity.  Considering the recent patent cases the Supreme Court has reviewed, it is uncertain whether both defenses will persist.

Posted in Patent Litigation Tagged , ,

Arizona Supreme Court Limits Preemptive Sweep of Arizona’s Trade Secrets Act

The Arizona Supreme Court decided yesterday in Orca Communications Unlimited v. Noder that Arizona’s version of the Uniform Trade Secrets Act, A.R.S. § 44-401 et seq., does not preempt common law tort claims for misappropriation of confidential information that does not rise to the level of a statutory “trade secret.”

The majority of jurisdictions deciding the preemption issue have held that the uniform act preempts such claims.  See, e.g., Mortgage Specialists, Inc. v. Davey, 904 A.2d 652, 664 (N.H. 2006) (interpreting New Hampshire Uniform Trade Secrets Act).

But the Arizona Supreme Court observed that the Legislature had not adopted the uniform act’s uniformity clause, and that “[e]ven when the legislature has adopted a uniformity clause, we have not felt compelled to follow other courts’ decisions.”  Arizona thus joins the minority of jurisdictions that have held there is no preemption.  See, e.g., Burbank Grease Servs., LLC v. Sokolowski, 717 N.W.2d 781, 789 (Wis. 2006) (interpreting Wisconsin Uniform Trade Secrets Act).

After Orca, one can expect Arizonans allegedly victimized by theft of confidential business information to argue that they have an unfair competition claim even if the stolen information does not satisfy the Act’s rather rigorous requirements to qualify the information as a “trade secret.”  Broadly speaking, these requirements include that the information derive economic value from not being generally known or ascertainable, and that the information have been subjected to reasonable efforts to maintain its secrecy.

Yet, to hold that the Act does not preempt such a common law unfair competition claim is not exactly the same as holding that theft of non-secret or unprotected, let alone valueless, business information gives rise to such a claim.  Indeed, the court took care to note that it had not even decided “whether Arizona common law recognizes a claim for unfair competition.”

At a minimum, Orca likely opens the doors to more claims based on theft of business information.  How those claims will fare is another matter.


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Patent Assertion Entity Settles FTC Charges

Patent Assertion Entities (PAEs) acquire patent rights and attempt to generate revenue by licensing or litigating the patents.  In September 2013, the FTC announced its decision to collect empirical data to study the effects of PAE activities.

Recently, on November 6, 2014, the FTC agreed to settle charges against MPHJ Technology Investments, LLC, a PAE that sent patent enforcement letters to thousands of small businesses and demanded licensing fees.  The FTC charged MPHJ and its law firm with using “deceptive sales claims and phony legal threats” to enforce MPHJ’s patents. This is the first time the FTC has responded to PAE activities using its consumer protection authority.  The public may comment on the proposed consent order through December 8, 2014.

The proposed consent order prevents MPHJ from making any deceptive representation (1) that many small businesses have licensed the patents at a particular price or within particular price ranges, or (2) that MPHJ will initiate a lawsuit if MPHJ does not receive a response within a certain period of time.  In addition, MPHJ must preserve any patent assertion related communication for inspection and copying for five years.

Jessica L. Rich, director of the FTC’s Bureau of Consumer Protection, said, “Small business and other consumers have the right to expect truthful communications from those who market patent rights.”  Whether or not the FTC study spurred this action against MPHJ, the FTC’s prosecution adds a new dimension to the discussion about PAEs.

Posted in Patent Litigation Tagged ,

Ninth Circuit: Unincorporated Groups Can Own and Enforce Trademarks

On August 11, 2014, the Ninth Circuit Court of Appeals held that unincorporated associations have the capacity to own their own trademarks and to sue to enforce them.  In Southern California Darts Ass’n v. Zaffina, No. 13-55780, the Court affirmed the United States District Court for the Central District of California’s entry of summary judgment and issuance of a permanent injunction against a former member of “SoCal”—a forty-year-old unincorporated association—who incorporated a same-named, competing corporation.

Even though SoCal is unincorporated, the Court affirmed summary judgment, holding that SoCal owns its marks.  Unincorporated associations must be evaluated on a case-by-case basis, but “[t]here is no reason . . . why such questions in specific circumstances should preclude the universe of unincorporated associations from owning trademarks. . . .  An entity of this character may engage in commercial activities, and may use names and marks in connection with those activities.”

Under California law, SoCal lacks the capacity to sue as a corporation because its corporate powers were suspended by the State of California in 1977.  See United States v. 2.61 Acres of Land, 791 F.2d 666, 668 (9th Cir. 1985) (applying California law).  But Rule 17(b)(3)(A), Federal Rules of Civil Procedure, permits an “unincorporated association” to “sue or be sued in its common name to enforce a substantive right existing under the United States Constitution or laws.”  So the Court held SoCal was permitted to bring suit in federal court as an unincorporated association for the purpose of enforcing its trademark rights.

Posted in Trademark Litigation Tagged