November 2013: Patent Litigation Update

Commil USA, LLC v. Cisco Systems (expanding evidence that may be used to negate an intent to induce infringement of a patent). The Federal Circuit recently expanded the scope of evidence that a defendant may introduce to defend against allegations of inducement in Commil USA, LLC v. Cisco Sys., 720 F.3d 1361, (Fed. Cir. 2013). In overruling the trial court’s exclusion of evidence at trial, the Court held that evidence of a defendant’s good-faith belief that a patent is invalid may negate the requisite intent necessary to prove induced infringement.

Recognizing that “one cannot infringe an invalid patent,” a majority of the Court explained that “one could be aware of a patent and induce another to perform the steps of the patent claim, but have a good-faith belief that the patent is not valid,” and, consequently, lack the intent to induce infringement. Addressing Judge Newman’s dissent—stating that “[t]his change in the law of induced infringement is inappropriate”—a majority of the Court cautioned that evidence of an accused inducer’s good-faith belief of invalidity does not preclude a finding of induced infringement, but it is evidence that should be considered by the fact-finder in determining whether an accused inducer acted with the requisite intent to induce infringement.

Going forward, potential defendants assessing inducement liability should consider obtaining an opinion of counsel as to both the invalidity and non-infringement of the patent, preferably soon after the patent is brought to their attention. Under Commil, the invalidity portion of such opinions may be introduced at trial as evidence of defendant’s good faith belief that no inducement liability would attach, possibly negating any finding of intent to induce infringement. Such opinions should be obtained pre-suit, given the Federal Circuit’s prior holding that an opinion of counsel regarding non-infringement obtained after the commencement of litigation is insufficient to rebut an inference of reckless conduct. Golden Blount, Inc. v. Robert H. Peterson Co., 438 F.3d 1354, 1370 (Fed. Cir. 2006). Where a defendant has no prior notice of the plaintiff’s induced infringement claims, any post-filing opinions of counsel regarding the invalidity of an asserted patent should be supported with other evidence demonstrating the defendants’ belief, at the time of the conduct allegedly constituting “inducement,” that the asserted patent was invalid.

Lighting Ballast Control Inc. v. Philips Electronics North America. Corp. (addressing deference to trial court’s claim construction on appeal). On September 13, 2013, the Federal Circuit sitting en banc heard oral arguments as to whether it should overrule its holding in Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998) that a trial court’s patent claim construction decisions are subject to de novo review on appeal, and whether it should afford deference to any aspect of the trial court’s interpretation of the patent claims.

Both sides asked the Court to overrule the Cybor decision. The plaintiff argued that the Court on appeal should deferentially review the entirety of a trial court’s claim construction. The defendant, and the U.S. Patent Office as a “friend of the Court,” argued that the Court should only review deferentially the trial court’s findings regarding “disputed issues of historical fact,” but maintain a de novo review of all other trial court claim construction findings.

Many of the Court’s questions suggested a reluctance to overturn Cybor. In particular, Judge Lourie expressed concern that affording deference would subvert Congress’s goal, in establishing the Federal Circuit, of lending uniformity in patent decisions, while Judge Moore cautioned that permitting a deferential review for “issues of historical fact” may lead to a rush of litigants claiming all claim construction issues were factual issues.

The Court’s ruling is expected before the end of 2013.

Status of Legislation Addressing Non-Practicing Entities (NPEs). Members of Congress have proposed at least six pending bills intended to curb abusive actions by non-practicing entities (“NPEs”) or Patent Assertion Entities (“PAEs”).

In the House, the Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act (H.R. 845) would impose a fee shifting provision allowing the prevailing party to recoup costs in appropriate circumstances, including attorneys’ fees, and would require the patent owner to post a bond, potentially early in the litigation, to facilitate recovery of such costs. The End Anonymous Patents Act (H.R. 2024) would preclude an entity to which a patent, patent application, or interest is sold, granted, or conveyed from collecting any damages for allegedly infringing conduct that occurred before the entity files a notice of ownership transfer with the U.S. Patent Office. The Patent Litigation and Innovation Act (H.R. 2639) would impose a heightened pleading requirement, allow for intervention by interested parties, require a stay of discovery until after any rulings on claim construction or motions to dismiss or transfer, and require courts to make findings regarding the parties’ conduct during discovery. Finally, the Stopping the Offensive Use of Patents (STOP) Act (H.R. 2766) would expand the Transitional Program for Covered Business Method Patents under the AIA beyond “financial products and services,” and remove the program’s current 2020 expiration date, allowing more parties accused of infringing certain types of patents to petition the Patent Office to review a patent’s grant and scope. Each House bill is currently before the House Subcommittee on Courts, Intellectual Property and the Internet.

The Senate has also proposed NPE-directed bills, including the Patent Quality Improvements Act (S 866) which, like the House’s STOP Act, would expand the Transitional Program for Covered Business Method Patents under the AIA beyond “financial products and services” and remove the program’s 2020 expiration date. The Patent Abuse Reduction Act (S 1013) would impose a fee shifting provision allowing the prevailing party to recoup costs in appropriate circumstances, impose a heightened pleading standard, and limit the type and amount of permissible discovery. Both Senate bills are currently pending before the Senate Judiciary Committee.

States have also gotten into the act. For example, Vermont recently created a cause of action under its Consumer Fraud statute for “Bad Faith Assertions of Patent Infringement,” listing several non-exhaustive factors that courts may consider as evidence of bad faith by a patent owner, including sending patent demand letters that fail to identify how a party is violating the patent, provide a reasonable estimate of the damages, or provide a reasonable time for a response. And, on May 8, 2013, the Vermont Attorney General filed an action under preexisting Vermont law, accusing MPHJ Technology Investments, LLC of unfair and deceptive trade practices, such as, for example, demanding up to $1,200 per employee to avoid a patent-infringement lawsuit, and telling companies that they would sue if they didn’t respond within two weeks.