Federal Circuit Review - February 2018

by Knobbe Martens

Knobbe Martens

Improperly Drafted Employment Agreement Leads to Dismissal of Patent Case Due to Lack of Standing

In Advanced Video Technologies LLC v. HTC Corporation et al., Appeal Nos. 2016-2309, 2016-2310, 2016-2311, the Federal Circuit held that a co-inventor did not transfer ownership interests in a patent under a California employment agreement that included a “will assign” provision, a trust provision, and a quitclaim provision.

Advanced Video sued the defendants for patent infringement.  The district court dismissed the case, finding that Advanced Video lacked standing because a co-inventor had not assigned ownership rights in the patent pursuant to the Employment Agreement and was not a party to the action. 

The Federal Circuit agreed with the district court that the future-tense “will assign” language in the Employment Agreement did not itself effect an assignment.  Furthermore, the trust provision undermined the existence of an immediate assignment because an inventor could not immediately assign patent rights and at the same time hold them in trust.  Even if Advanced Video was a beneficiary of a trust, the Federal Circuit explained that, under California trust law, generally the beneficiary is not the party in interest and may not sue in the name of the trust.  Finally, the quitclaim provision of the Employment Agreement merely waived the co-inventor’s rights to patents that were assigned.  However, as no patent rights were ever assigned, the Federal Circuit found that the quitclaim provision was inapplicable.  Accordingly, Advanced Video did not have full ownership of the patent, and because the co-inventor was not a party to the suits and had not consented to the suits, Advanced Video lacked standing and the district court’s dismissal of the cases was affirmed. 

Judge O’Malley concurred that the judgment was compelled by binding precedent but argued that the precedent serving as the predicate for the case was wrong.  The concurring opinion examined Federal Rule of Civil Procedure 19, case law addressing joinder under Rule 19, and the Patent Act itself, concluding that that Rule 19, which allows for involuntary joinder, should be applied to cases such as the instant case.  The concurring opinion then called for the Federal Circuit to reconsider en banc its precedent that a co-owner or co-inventor cannot be involuntarily joined pursuant to Rule 19. 

Judge Newman dissented, arguing that Advanced Video had full ownership of the patent and standing to sue.  Judge Newman argued that the Employment Agreement, including the “will assign,” trust, and quitclaim provisions, demonstrated a mutual intent and understanding of employer and employee to effect an assignment of patent rights.  Judge Newman also disagreed with the majority’s findings regarding the trust, arguing that the trust vested immediately upon creation of an invention under the Employment Agreement, and that the beneficiary could act on behalf of the trust if the trustee were absent or inactive. 

Damages Must Be Apportioned Between the Patented Improvement and the Conventional Components

In Exmark Manufacturing Company v. Briggs & Stratton Power Products Group, Appeal No. 2016-2197, the Federal Circuit held that reexaminations of patents confirming validity are not dispositive of validity in district court.  Furthermore, when a patent covers the infringing product as a whole, damages must be apportioned between the patented improvement and conventional components, and expert testimony on damages must adequately tie a proposed reasonable royalty to the facts of the case.

Exmark sued Briggs for infringement of a patent directed to a lawn mower having improved flow control baffles.  Three separate reexaminations confirmed the patentability of Exmark’s patent.  The district court, relying solely on the fact that the claim at issue had survived multiple reexaminations, granted summary judgment that the claim was not invalid.  Following a jury award of damages for willful infringement, the district court denied Briggs’s motion for a new trial on damages.

On appeal, the Federal Circuit vacated the district court’s summary judgment of no invalidity.  Although the district court stated it had given the reexaminations “some, though not determinative, weight,” the Federal Circuit disagreed, finding that the conclusory opinion written by the district court offered no other explanation for its determination.  In doing so, the Federal Circuit found the district court had improperly deferred entirely to the PTO and neglected its obligation to reach an independent conclusion.  The higher “clear and convincing” standard of proof in district court does not preclude the district court from reaching a different conclusion on validity than that reached by the PTO.  In particular, because the district court suggested it was adopting a broader claim interpretation than that applied by the PTO during the reexaminations, the district court was required to independently assess validity in view of that construction.

The Federal Circuit also vacated the jury’s damages award.  While the Federal Circuit agreed that it was permissible to apportion damages through the royalty rate rather than the royalty base, it found that Exmark’s expert failed to adequately tie her proposed royalty rate of 5% to the facts of the case.  The Federal Circuit noted that the expert considered the Georgia-Pacific factors, but she failed to explain the extent to which those factors impacted the royalty calculation.  It was not sufficient to analyze the Georgia-Pacific factors without carefully tying those factors to the proposed royalty rate.  Additionally, the expert’s analysis ignored the value added by components covered by other patents as well as non-patented elements such as durability, reliability, and branding.  The Federal Circuit remanded to the district court for new determinations of invalidity and damages, including, if necessary, a new trial on damages.

Final Decision by Board Invalidating a Patent Has Preclusive Effect on Co-Pending IPR

In MaxLinear, Inc. v. CF CRESPE LLC, Appeal No. 2017-1039, the Federal Circuit reiterated that final written decisions by an administrative tribunal can have a preclusive effect.

MaxLinear filed an IPR petition on claims of a CF CRESPE patent.  The Board instituted review on the independent claims and certain dependent claims and ultimately issued a final written decision upholding the patentability of the challenged claims.  In its final written decision, however, the Board limited its analysis to the independent claims and did not separately analyze the dependent claims.  MaxLinear appealed the Board’s decision of patentability.

Pending the appeal, the Board issued final written decisions for two other IPR proceedings concerning the same CF CRESPE patent but considering different prior art and brought by a third party.  In these proceedings, which were subsequently affirmed by the Federal Circuit, the Board held that certain claims of the CF CRESPE patent were unpatentable, including the independent claims that were held patentable in the IPR proceeding that was the subject of this appeal.

The parties agreed that the prior decisions in the other two IPR proceedings that were upheld by the Federal Circuit had a preclusive effect in this proceeding.  The Federal Circuit noted that in light of the decision in B&B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293 (2015), the parties could hardly argue otherwise.  Issue preclusion prevents a party from re-litigating an issue and applies in the administrative context.  Accordingly, the Federal Circuit held that the decisions in the two other IPR proceedings finally resolved the issue of unpatentability of the independent claims.  However, because the Board failed to separately analyze the dependent claims, the Federal Circuit remanded and instructed the Board to consider the patentability of the dependent claims in view of the prior art cited in the other IPR proceedings.  The Federal Circuit noted that collateral estoppel is not limited “to patent claims that are identical” and instructed the Board to decide whether the remaining claims are patentably distinct from the independent claims.

Claims Directed to a Specific Improvement Over Prior Systems for Presenting Information on Small Displays Are Patent Eligible Under § 101

In Core Wireless Licensing S.A.R.L. v. LG Electronics, Inc., Appeal No. 2016-2684, 2017-1922, the Federal Circuit held that claims directed to a specific improvement over prior systems for summarizing and presenting information on display interfaces for electronic devices are patent eligible under 35 U.S.C. § 101.

Core Wireless sued LG alleging infringement of patent claims directed to improved display interfaces, particularly for electronic devices with small screens.  The improved interfaces allow a user to more quickly access data and applications in electronic devices by displaying a limited list of commonly accessed functions and data.  LG moved for summary judgment that the claims constituted patent ineligible subject matter under 35 U.S.C. § 101 because they were directed to the abstract idea of displaying a summary window while an application is unlaunched.  The district court found that the claims were not directed to an abstract idea because the claims recited concepts such as “summary window” and “unlaunched application,” which are specific to devices like computers and cellphones.  The jury found all asserted claims to be infringed and not anticipated.  The district court denied LG’s motions for judgment as a matter of law of non-infringement and anticipation.  LG appealed to the Federal Circuit.  

The Federal Circuit affirmed the district court’s decision.  Concerning § 101, the Federal Circuit noted that the claims recited a specific improvement over conventional user interface methods resulting in an improved user interface for electronic devices.  In its analysis, the Federal Circuit pointed to claim limitations that disclose the specific manner of displaying a limited set of information to the user.  It also highlighted language in the specification indicating that the claims were directed to an improvement in the functioning of computers, particularly those with small screens.  Finding that the asserted claims were not directed to an abstract idea, the Federal Circuit did not proceed to the second step of the Alice inquiry.  Concerning LG’s motions for judgement as a matter of law, the Federal Circuit rejected LG’s argument that the relevant claims were anticipated.  Finally, the Federal Circuit rejected LG’s non-infringement arguments based on the construction of “unlaunched state” as “not running” rather than “not displayed.”

Judge Wallach dissented in part, arguing that the district should have construed “unlaunched state” to mean “not running” as LG proposed, instead of “not displayed.”  In his analysis, Judge Wallach pointed to the distinct and independent meanings of “display” and “launch” as used in the claims as well as the specification.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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