Patent Case Summaries August 31, 2012

Federal Circuit Patent Case Summaries for the Week Ending August 31, 2012

Alston & Bird LLP's weekly Federal Circuit Patent Case Summaries are published by Wolters Kluwer Law & Business as part of its Aspen Publishers product line. The following is a summary of the precedential patent-related opinions issued by the Court of Appeals for the Federal Circuit for the week ending on the date below.

Patent Case Summaries for the Week Ending August 31, 2012
Kirk Bradley prepared the summary in this issue. 

Case Summaries

Patent Office Procedures: Prosecution Before the Office: Prosecution of Applications: Amendments
Woodrow Woods, et al. v. DeAngelo Marine Exhaust, Inc., No. 10-1478 (Fed. Cir. (S.D. Fla.) Aug. 28, 2012). Opinion by Linn, joined by Dyk and Reyna.

In affirming the district court’s denial of judgment as a matter of law as to invalidity and infringement of U.S. Patent Nos. 5,740,670 (“the ’670 patent”) and 6,035,633 (“the ’633 patent”), the Federal Circuit held that the Federal Rules of Civil Procedure and 35 U.S.C. § 282, which provides a time limit for the disclosure of pertinent information to be relied upon by a defendant in defenses against infringement, coexist and are not mutually exclusive. Further, the Federal Circuit reaffirmed that claim terms generally are given their ordinary and plain meaning. In addition, the Federal Circuit held that merely amending a claim to include a limitation does not constitute an admission that the initial claim was unpatentable.

Woodrow Woods (“Woods”) initially filed U.S. Patent Application No. 08/419,097 (“the ’097 application”), which was directed towards a marine exhaust cooling apparatus, on April 10, 1995. On December 29, 1995, Woods filed U.S. Patent Application No. 08/580,548 (“the ’548 application”) as a continuation-in-part (“CIP”) of the ’097 application. The ’548 application included broader claims that ultimately issued as the ’670 patent. On July 1, 1996, an examiner rejected all of the claims in the ’097 application, which Woods abandoned in favor of prosecuting the ’548 application. In addition, Woods filed another CIP application, U.S. Patent Application No. 08/990,821 (“the ’821 Application”), that ultimately issued as the ’633 patent.

Woods exclusively licensed both patents to Marine Exhaust Systems, Inc. (“MES”), and Woods and MES filed suit against DeAngelo Marine Exhaust, Inc. (“DeAngelo”) for infringement of the ’670 and ’633 patents in the U.S. District Court for the Southern District of Florida. During discovery, MES submitted a contention interrogatory requesting that DeAngelo state with specificity all prior art that anticipates or renders obvious the patents-in-suit. DeAngelo timely responded that the interrogatory seeks attorney work product information and that they had yet to decide which prior art references they would use to challenge the patents’ validity. A day before discovery closed, DeAngelo submitted engineering drawings to MES stating the drawings may anticipate the patents-in-suit. During trial, MES moved to strike the drawings, and the district court excluded them under Federal Rule of Civil Procedure 37(c)(1). Ultimately, a jury determined DeAngelo infringed Woods’s valid patents.

On appeal, the Federal Circuit determined that the district court did not abuse its discretion by excluding the drawings. Specifically, the Federal Circuit noted that a district court has discretion to exclude evidence not produced in compliance with a proper discovery request. Although DeAngelo submitted the drawings to MES thirty days before the trial in compliance with 35 U.S.C. § 282, the Federal Circuit held that the district court did not abuse its discretion by excluding the drawings as evidence because DeAngelo’s mere identification of the drawings did not fully comply with MES’s interrogatory, which requested information as to why identified prior art anticipates and/or renders a specific claim obvious.

Additionally, DeAngelo argued on appeal that the district court erred in construing disputed claim terms, but the Federal Circuit reaffirmed that claim terms generally are given their plain and ordinary meaning and are properly construed to include additional limitations only when the patentee provides a specific definition or disavows the full scope of the claim term. Further, the Federal Circuit held that Woods’s abandonment of the ’548 application was not an admission that the claims of the ’548 application were anticipated by the prior art, nor was Woods’s amendment in the ’821 application to include an additional limitation an admission that the originally filed claims were anticipated by the prior art. Specifically, the Federal Circuit stated Woods never conceded that the prior art disclosed every limitation of the originally filed claims of the ’821 application because Woods never addressed the prior art, but merely included an additional limitation, which did not exist within the cited reference.  

Patentable Invention: Obviousness: Teaching, Suggestion, or Motivation in Prior Art
Patentable Invention: Obviousness: Secondary Considerations of Nonobviousness
In re Applied Materials, Inc., Nos. 11-1461, -1462, -1463, -1464 (Fed. Cir. (B.P.A.I.) Aug. 29, 2012). Opinion by Linn, joined by Clevenger. Dissenting opinion by Newman.

The Federal Circuit affirmed rejections by the Board of Patent Appeals and Interferences (“Board”) in four separate ex parte reexaminations of the claims of Applied Material, Inc.’s (“Applied”) four patents-in-suit. In doing so, the Federal Circuit held that prior art disclosing that a property is affected by a value is sufficient to support that the variable is result-effective and that the optimization of the variable is within the knowledge of a person of ordinary skill in the art.

Applied asserted U.S. Patent Nos. 5,921,855; 6,520,847; 6,699,115; and 6,824,455, each of which is directed towards chemical mechanical polishing pads, which provide for the planarization of a substrate using a polishing slurry. Specifically, the claims are directed towards sufficiently rigid pads with grooves that distribute the slurry, remove waste material, and increase pad life. During reexamination, Applied amended the claims to cover pads with grooves having a depth between about 0.02 and 0.05 inches, a width between about 0.015 and 0.04 inches, and a pitch between 0.09 and 0.24 inches, wherein the pitch is the radial distance between adjacent grooves. In addition, the sidewalls of the grooves are substantially perpendicular to the polishing pad surface.

The Board affirmed the examiner’s obviousness rejection based on the following prior art: (1) a publication from the CMP-MIC Conference on February 22-23, 1996 (“Weling”); (2) an English translation of Japanese Patent Application No. H5-146969 (“Breivogel”); and (3) European Patent Application No. 0674972 (“Talieh”). Specifically, the Board found the prior art discloses grove dimension values overlapping Applied’s claimed ranges and that the dimensions were result-effective variables.

On appeal, Applied argued that the prior art did not discuss the impact that changing dimensional values had on pad performance, and thus, did not specify the result of the alleged result-effective variable. Further, Applied argued that Breivogel and Talieh teach grooves having different profiles and/or spiral or offset grooves. The Federal Circuit held there was substantial evidence to support the Board’s decision that the values were result-effective variables, placing their optimization within the knowledge of a person of ordinary skill in the art, because Breivogel disclosed that groove pitch affects polishing rate and uniformity. The Federal Circuit also held that merely combining multiple result-effective variables does not necessarily render the combination nonobvious to one of ordinary skill in the art. Further, the Federal Circuit determined that although Applied’s argument that Weling teaches away from deeper grooves by disclosing shallower grooves are preferred over perforated pads is plausible, Applied’s alternative explanation is irrelevant in determining whether substantial evidence existed to support the Board’s interpretation of Weling’s teachings that grooves generally are preferred over perforations. Lastly, the Federal Circuit held that evidence of commercial success for overcoming a prima facie case of obviousness is insufficient when sales data is not provided.

Dissenting, Judge Newman disagreed with the majority’s reasoning. In Judge Newman’s view, the prior art fails to disclose any expectations that changing the variables would successfully produce the advantages espoused within Applied’s patents. Further, Judge Newman stated that a consumer’s preference for Applied’s patented products over the prior art products was relevant to the obviousness determination because the consumer is in the best position to determine the advantages of technological changes significant to the product’s properties.  

Remedies: Damages: Reasonable Royalty
Litigation Practice and Procedure: Procedure: Admissibility of Evidence
LaserDynamics, Inc. v. Quanta Computer, Inc., et al., Nos. 11-1440, -1470 (Fed. Cir. (E.D. Tex.) Aug. 30, 2012). Opinion by Reyna, joined by Dyk and Clevenger.

On appeal after two trials in the U.S. District Court for the Eastern District of Texas, the Federal Circuit affirmed-in-part, reversed-in-part, and remanded the case to the district court for further proceedings. The Federal Circuit held that a patentee may not calculate damages based on sales of an entire multi-component product containing a patented component without showing that the sales were attributable to the patented component. In addition, the Federal Circuit held that an implied license exists when the manufacture of a patented product and its eventual sale to a licensee are legitimate and separate business transactions that do not expand or circumvent the patent licenses. The court also held that when establishing a hypothetical negotiation date for a reasonable royalty analysis, the date is established as the date of the first direct infringement caused by a party’s first instance of inducement conduct. The Federal Circuit further held that when the probative value of a settlement agreement is greatly outweighed by the risk of unfair prejudice, the agreement is inadmissible as evidence. Additionally, the Federal Circuit held that when an expert witness relies upon unrelated licenses in establishing a reasonable royalty rate, the expert opinion may not be used to establish the royalty rate.

LaserDynamics, Inc. (“LaserDynamics”) is the owner of U.S. Patent No. 5,587,981 (“the ’981 patent”), which is directed to a method of differentiating between different types of optical disks (e.g., compact discs vs. digital video discs) by an optical disc drive (“ODD”). Between 1998 and 2001, LaserDynamics entered into a number of licensing agreements for lump sum amounts varying between $57,000 and $266,000. In 2006, LaserDynamics entered into a licensing agreement with BenQ Corporation two weeks before an anticipated trial for a $6 million lump sum. In addition, LaserDynamics had licensed the ’981 patent to two other parties in 2009 and 2010 for lump sum payments of $1 million or less.

Quanta Storage, Inc. (“QSI”) manufactures ODDs and is a partially-owned subsidiary of Quanta Computer, Inc. (“QCI”). QCI, however, does not control QSI’s operations and only holds a minority share in QSI. Further, QCI does not manufacture ODDs, but rather assembles computers and installs ODDs into computers as instructed by QCI’s customers. QCI sold its first computer in the United States with an ODD manufactured by QSI in 2003.

In August 2006, LaserDynamics sued QCI for infringing the ’981 patent by actively inducing the infringement of the patented method. During the first trial, LaserDynamics’s expert witness, Mr. Murtha, opined that the reasonable royalty would have been a running royalty rate of 2% of the total sales of laptop computers by QCI if the parties had engaged in negotiations. Mr. Murtha arrived at that rate by concluding that the ODD was responsible for one-third of a laptop computer’s value and that 6% was a reasonable royalty rate for the ODD alone. Ultimately, the jury awarded $52 million in damages to LaserDynamics, and the district court granted QCI’s motion for a remittitur or new trial. In the second trial, LaserDynamics offered evidence that damages should be $10.5 million based upon the same theory that a reasonable royalty for the ODD was 6% of the average ODD price, and the jury awarded $8.5 million in damages.

The Federal Circuit held that LaserDynamics’s arguments basing damages on the total sales of laptop computers and that 2% of those sales was a reasonable royalty were incorrect because LaserDynamics failed to provide any evidence that the ODD specifically drove demand for laptop computers. In addition, the court held that Mr. Murtha’s opinion that the ODD was worth one-third of the laptop value was unsubstantiated by any evidence, and that when Mr. Murtha relied on unrelated licenses not directed towards the patent-in-suit, Mr. Murtha’s opinion that a reasonable royalty was 6% of the value of the ODD could not be admitted as evidence. Further, the Federal Circuit held that QCI had an implied license to assemble laptop computers for its customers using the ODDs because QSI was authorized to make the ODDs for a valid licensee, who then sold the ODDs to QCI for assembly in a valid licensee’s computer.

Furthermore, the Federal Circuit held that when establishing the hypothetical negotiation date for a reasonable royalty analysis, the date should have been in 2003, not August 2006, because QCI’s first instance of inducement conduct was in 2003. The Federal Circuit also held that the probative value of the BenQ settlement agreement was greatly outweighed by the risk of unfair prejudice because the BenQ settlement amount was six times larger than any other license fee for the ’981 patent, and likely reflected the desire to avoid litigation instead of the value of the ’981 patent. Accordingly, the Federal Circuit remanded the proceedings back to the district court for determining the damages owed by QCI on the ODDs used in assembling computers that were not purchased from valid licensees of the ’981 patent. 

Infringement: Contributory and Induced Infringement: Generally
Akamai Technologies, Inc. v. Limelight Networks, Inc., Nos. 09-1372, -1380, -1416, -1417 (Fed. Cir. (D. Mass.) Aug. 31, 2012), and McKesson Technologies, Inc. v. Epic Systems Corp., Nos. 10-1291 (Fed. Cir. (N.D. Ga.) Aug. 31, 2012). Per curiam opinion before Rader, Newman, Lourie, Bryson, Linn, Dyk, Prost, Moore, O’Malley, Reyna, and Wallach. Dissenting opinion by Newman. Dissenting opinion by Linn, joined by Dyk, Prost, and O’Malley.

In an en banc decision concerning two consolidated cases, Akamai Technologies, Inc. v. Limelight Networks, Inc. (“Akamai Technologies”) and McKesson Technologies, Inc. v. Epic Systems Corp. (“McKesson Technologies”) (collectively “Akamai”), the Federal Circuit reversed the district courts’ judgments and remanded both cases for further proceedings. The Federal Circuit expressly overruled its holding in BMC Resources Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), ruling that inducement of patent infringement no longer requires proof that a single entity directly infringes the patent.

In Akamai Technologies, the patent at issue claimed methods for efficiently delivering web content by placing some of a content provider’s content on replication servers and modifying the content provider’s web page to instruct web browsers to access the content from those servers. Limelight Networks maintains servers and places content on its servers, but does not modify the content provider’s web pages; rather, it instructs users how to do so. The district court ruled that Limelight Networks did not infringe and granted judgment as a matter of law.

In McKesson Technologies, the patent claims were directed to a method of electronic communication between healthcare providers and their patients. Epic Systems owns and licenses software that permits healthcare providers and patients to communicate electronically. Epic Systems does not perform any of the steps of the claimed method, but rather performance of the claimed method was divided between the patients and the healthcare providers. The district court in McKesson Technologies also granted summary judgment of noninfringement to Epic Systems.

After issuing separate panel decisions affirming the district court rulings, the Federal Circuit agreed to rehear the cases together en banc. In the majority opinion, the Federal Circuit held that for induced infringement of a patented method, all of the steps must be performed, but not necessarily by a single entity. The court rationalized that the impact of a party inducing a single entity to infringe a patented method is no different from a party inducing multiple entities to infringe the same method.

Under the revised standard, the Federal Circuit explained that a defendant in the Akamai Technologies-type situation can be held liable for inducing infringement if it can be shown that (1) it knew of the patent, (2) it performed certain of the steps of the method claimed in the patent, (3) it induced others to perform the remaining steps, and (4) those others in fact performed the remaining steps. Likewise, a defendant in the McKesson Technologies-type situation can be held liable for inducing infringement if it can be shown that (1) it knew of the patent, (2) it induced the performance of the steps of the method claimed in the patent, and (3) those steps were performed.

The Federal Circuit also explained that “inducement does not require that the induced party be an agent of the inducer or be acting under the inducer’s direction or control to such an extent that the act of the induced party can be attributed to the inducer as a direct infringer. It is enough that the inducer ‘cause[s], urge[s], encourage[s], or aid[s]’ the infringing conduct and that the induced conduct is carried out.” Applying these standards to the facts of the two cases, the Federal Circuit reversed the district court’s noninfringement rulings in both Akamai Technologies and McKesson Technologies and remanded the cases to the district courts.

In a dissenting opinion, Judge Newman opined that the majority incorrectly eliminated the predicate requirement of direct infringement for the purposes of an indirect infringement claim. Specifically, Judge Newman questioned how there could be direct infringement without any direct infringers. In Judge Newman’s view, the use of the word “whoever” in the text of § 271(a), which “[b]y statutory canon . . . embraces the singular and plural,” shows that it encompasses the actions of multiple entities. According to Judge Newman, the court should have overturned the single-entity rule of BMC and adhered to long-existing precedent: “The court should simply acknowledge that a broad, all-purpose single-entity requirement is flawed, and restore infringement to its status as occurring when all of the claimed steps are performed, whether by a single entity or more than one entity, whether by direction or control, or jointly, or in collaboration or interaction.”

In a dissenting opinion by Judge Linn, joined by Judges Dyk, Prost, and O’Malley, Judge Linn characterized the majority’s broadening of the doctrine of inducement “such that no predicate act of direct infringement is required” as “a sweeping change to the nation’s patent policy that is not for this court to make.” Judge Linn explained that, contrary to the majority’s view, § 271(a) “defines infringement,” and §§ 271(b) and (c) are to be read in light of § 271(a). Judge Linn would retain the single-entity rule of BMC: “I would hold that direct infringement is required to support infringement under § 271(b) or § 271(c) and properly exists only where one party performs each and every claim limitation or is vicariously liable for the acts of others in completing any steps of a method claim, such as when one party directs or controls another in a principal-agent relationship or like contractual relationship, or participates in a joint enterprise to practice each and every limitation of the claim.”

For a thorough analysis of the Akamai decision, please see Alston & Bird’s IP Advisory entitled “Federal Circuit Changes the Standard for Induced Infringement of Method Patents”:  


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