Winter 2009

New Limits on Process and Method Patent Claims

The Federal Circuit, which is the patent appeals court, recently decided a case that limits the scope of process claims. The holding may significantly limit software, medical, business method, and other “process” patents. The court held that a process will be patentable if it is tied to a particular machine or apparatus, or if it “transforms a particular article into a different state or thing.” In re Bilski, 545 F.3d 943 (Fed. Cir. 2008). A “particular article” is not required to be a physical object, but must at least be “representative of physical objects or substances.” Thus, methods that are largely performed in the human mind, such as a physician’s medical diagnostics, are not patentable.

If you have an issued medical, software, or business method patent, you may want to have your patent counsel analyze it through a Bilski test to determine if the claims still pass muster, and if not, pursue corrective steps. Similarly, if you have a pending patent application, you may want to incorporate additional claim elements that would meet the Bilski criteria.

New Proposed Patent Legislation

For the last several years, Congress has proposed patent reform, without success. Now both the House and Senate have proposed new patent reform legislation. If passed, these bills will mandate some significant changes to United States patent law. Some of the noteworthy changes contained in both bills include: changing from a “first-to-invent” to a “first-to-file” system used by most of the world’s other patent systems; creating a post-grant opposition procedure during the first twelve months after issuance; limiting damages by requiring courts to determine and fully explain a reasonable royalty award in each case; placing a limit on willful infringement, which precludes such a finding where a defendant shows a good faith belief that the patent was invalid, unenforceable, or not infringed; limitations on venue to preclude forum shopping; and a provision to allow litigants to appeal claim construction before a case is concluded. The proposed legislation is in flux.

Patent Lawsuits Filed Where No Witness or Evidence Found Now More Subject to Venue Challenges
Defendants in patent infringement actions have often been sued in the Eastern District of Texas, a forum friendly to patent owners, and have been unable to transfer their cases to courts that were more convenient to the witnesses and evidence. Two recent rulings, however, may change that, holding that such cases may be transferred for the convenience of the witnesses and evidence.

The federal district court of the Eastern District of Texas (E.D. Tex.) has long been thought of as a haven for patent plaintiffs, with a quick docket and rulings that typically favor patent owners. Most of the time, a plaintiff’s choice of court is given great weight, making it difficult to transfer the case. Recent rulings by the Fifth Circuit and Federal Circuit, however, may limit the ability of patent owners to keep their cases in E.D. Tex. In the Federal Circuit case, a plaintiff who resided in Michigan filed a patent case in E.D. Tex. against defendants who resided in Ohio and Canada. In re TS Tech., 551 F.3d 1315 (Fed. Cir. 2008). The court ordered the case transferred to Ohio, since it was far more convenient to all the witnesses and evidence.

Given such facts, the plaintiff’s choice of venue was not given as much weight. The ruling was based on a recent decision by the Fifth Circuit, in which plaintiffs who resided in the Northern District of Texas, where they were injured in an auto accident, brought suit in E.D. Tex. In re Volkswagen, 545 F.3d 304 (5th Cir. 2008). The court transferred the case to the Northern District because all the witnesses and evidence were located there. Thus, those sued in E.D. Tex., or anywhere else there are no parties, witnesses, or evidence, now stand a good chance of getting the case transferred to a more convenient venue where such people and things are located.

Foreign Defendants Can Be Sued in the United States
U.S. patents and copyrights can be enforced against anyone who commits acts of infringement within the United States. One difficulty in enforcing U.S. patents and copyrights against foreign entities is whether a U.S. court can exercise its authority (jurisdiction) over a non-U.S. defendant. Typically, a patent plaintiff would prefer to bring suit in a nearby court. When such a court decides whether a suit can be brought there, part of the analysis is whether the non-U.S. defendant has significant contacts or business in the court’s region.

A court recently ruled, however, that a Canadian company can be sued in Southern California because it was alleged to have knowingly infringed the plaintiff’s copyrights and patents, knew that the plaintiff resided in Southern California, and also knew that its infringement would harm the Southern California-based plaintiff. Specifically, a federal judge in the Central District of California denied a Canadian defendant’s motion to dismiss for lack of personal jurisdiction where the complaint alleged willful copyright and design patent infringement, and the record demonstrated that the defendant knew that the plaintiff resided in Southern California and that the alleged infringements would harm the Southern California company.

Amini Innovation v. Cosmos Furniture, CV 08-7855 AHM (C.D. Cal. Mar. 16, 2009). This ruling is significant in several respects. First, in cases of intellectual property infringement where an out-of-state defendant brings a motion to dismiss for lack of personal jurisdiction under Fed.R.Civ.P. 12(b)(2), if the complaint alleges willful infringement and the plaintiff provides uncontroverted evidence tending to show that the defendant knew the plaintiff was a resident of the forum, then jurisdiction may attach under the Calder effects test. Second, this ruling extends the holding of Amini Innovation Corp. v. JS Imports, Inc., 497 F. Supp. 2d 1093 (C.D. Cal. 2007) to not only out-of-state defendants, but foreign (non-U.S.) defendants, which is particularly significant in today’s global economy. This ruling provides plaintiffs suing out-of-state, or even non-U.S., defendants with a powerful tool to maintain intellectual property lawsuits in the plaintiff’s home forum.

Non-Infringement Opinions Still Valuable
If a patent owner proves that infringement was willful, it can result in enhanced (increased) damages. Over the years, the Federal Circuit has made it more difficult for patent owners to prove willful infringement, and downplayed the importance of non-infringement opinions of counsel as a defense to willfulness. Such opinions, however, can still be very valuable to an accused infringer, as they provide a compelling defense to willfulness and inducing infringement.

The Federal Circuit in In re Seagate Tech. LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc) raised the standard for finding willful infringement, requiring at least a showing of objective recklessness. The court also confirmed that it was abandoning the affirmative duty of due care to determine in advance whether one’s actions would result in infringement. Before that, Knorr-Bremse v. Dana, 383 F.3d 1337 (Fed. Cir. 2004) held that there is no affirmative duty to obtain a non-infringement opinion of counsel, and that failure to obtain such an opinion could not be used to infer that any such opinion would have been unfavorable. Despite these cases making it easier to avoid a finding of willful infringement, non-infringement opinions still have value for accused infringers. For example, in Broadcom. v. Qualcomm, 543 F.3d 683 (Fed. Cir. 2008), the court noted that an opinion of counsel could be used as evidence of lack of intent to induce infringement. By the same token, however, lack of such an opinion could be used as evidence of such intent to induce, specifically whether the infringer knew or should have known that the induced actions constituted infringement.

Moreover, the court clarified Knorr-Bremse by noting that a jury may still consider whether the accused infringer sought a legal opinion as one factor in assessing whether, under the totality of the circumstances, any infringement was willful. Thus, although Seagate and Knorr-Bremse may have altered the landscape of willfulness, pre-litigation non-infringement opinions are still the best proof that an accused infringer did not willfully infringe a patent, and also that it did not have the intent to induce infringement by others.

New Standards for Design Patent Invalidity
In our Summer 2008 newsletter, we reported that the Egyptian Goddess case simplified the test for design patent infringement, and made infringement easier to prove. Recently, a court applied that same test to whether a design patent is invalid, also making invalidity easier to prove. In Egyptian Goddess Inc. V Swisa, Inc., 543 F.3d 665 (Fed. Cir. 2008), the court discarded the longstanding “point of novelty” test, and limited a determination of infringement to the “ordinary observer” test, which focuses on whether there is “substantial similarity” between the patented design and the accused product. Although the Federal Circuit had previously held that the tests for infringement and invalidity by anticipation are identical, the Egyptian Goddess case specifically stated that “it is not a test for determining validity, but is designed solely as a test of infringement.”

Nevertheless, a court in the Southern District of Florida applied the Egyptian Goddess standard to invalidity, reasoning that it was appropriate to expand that test for such purposes. International Seaway v. Walgreens, 2009 U.S. Dist. LEXIS 6240 (S.D. Fla. Jan. 22, 2009). Cislo & Thomas represented the defendants in the case, and successfully argued for invalidity. The case has been appealed, and we expect that the Federal Circuit will clarify whether the point of novelty test remains viable for design patent invalidity determinations.

Patent Allowance Rates Plummet
The patent allowance rate at the U.S. Patent Office has dramatically decreased during the last four years, to an all-time low of 44 percent. This means that it is more difficult than ever to obtain a patent, and all the more reason to retain qualified patent counsel to draft your patent applications. The patent allowance rate is calculated as the number of allowances divided by the number of allowances plus the number of abandonments. For the last 25 years, the patent allowance rate averaged about 65 percent, and never dipped below 62 percent. Since 2004, however, the allowance rate has plummeted each year to an all time low of 44 percent in 2008. Although this may be attributable to many factors, including the relative inexperience of current examiners and multiple layers of their supervisory review, at least some of it looks to be the result of the regulations that implemented the Request for Continued Examination (“RCE”) procedures.

Generally, patent examiners are rewarded for “counts,” which occur when they issue a first office action and when an application is disposed (abandoned or granted). When an applicant requests an RCE after final rejection, it creates an “abandonment” for the purpose of giving the examiner a count (as well as calculating the allowance rate), and creates another opportunity for a first Office Action. Thus, the RCE process itself incentivizes the examiner to reject applications, and the “abandonment” skews the allowance rate. But whatever the reason for the decrease in the allowance rate, it is bad news for patent applicants, as it increases their costs to obtain a patent. Thus, it is more important than ever to use a qualified law firm to draft applications and respond to Office Actions.

Now May Be a Good Time to Resolve Disputes with Competitors
In our practice, we have recently seen a significant uptick in litigation, but we have also seen that litigants are much quicker to settle disputes to avoid spending money on litigation, presumably due to the current economic uncertainty. Therefore, this might be a good time to resolve lingering disputes you may have with your competitors. Even if you would normally be the defendant, you may be able to either threaten suit or even file a lawsuit to force a resolution of an infringement issue that has not been resolved. Please call us if you would like to discuss your options and the likelihood of success of your case.

Union Rescue Mission to the Homeless
On Saturday, January 24, 2009, twenty Cislo & Thomas employees volunteered their time to prepare and serve meals for the homeless at the Union Rescue Mission in downtown Los Angeles. They prepared and served lunches to three different groups of homeless people; women, women and children, and men. All the participants found it to be a very rewarding experience. In addition, the firm made a monetary donation to the Mission. Cislo & Thomas strives to help our community with similar projects on a regular basis.

Peter S. Veregge – Newsletter Editor