Federal Circuit Review | June 2015

by Knobbe Martens

Accused Infringer’s Good-Faith Belief In Invalidity No Defense To Induced Infringement

In Commil USA, LLC v. Cisco Systems, Inc., No. 13-896, the Supreme Court held a good-faith belief a patent is invalid is not a defense to induced infringement.

Commil sued Cisco, claiming Cisco had induced others to infringe Commil’s patent by selling infringing equipment for them to use.  After two trials, Cisco was found liable for induced infringement.  Cisco’s induced-infringement defense hinged on a purported good-faith belief that Commil’s patent was invalid.  The district court found Cisco’s supporting evidence inadmissible. The Federal Circuit held the trial court erred in excluding Cisco’s evidence regarding its good-faith belief of invalidity.

In a 6-2 decision, the Supreme Court reversed the Federal Circuit and held that, while a company’s belief a patent is not infringed means it does not have the requisite intent for induced-infringement liability, that company’s belief the patent is invalid is not a defense to induced infringement.  The Supreme Court viewed induced infringement and validity as “separate issues” with “separate defenses.”  The Court observed that, under the Patent Act a patent is “presumed valid.”  Because a good-faith belief of invalidity is easier to prove than invalidity itself, confronting the issue of validity when infringement is the ultimate issue “would undermine the long held presumption that a patent is valid, . . . permitting circumvention of the high bar—the clear and convincing standard—that defendants must surmount to rebut the presumption.”  Put simply, if “belief in invalidity were a defense to induced infringement, the force of that presumption would be lessened to a drastic degree, for a defendant could prevail if he proved he reasonably believed the patent was invalid.”

The dissent disagreed with the Court’s holding that good-faith belief in a patent’s invalidity is not a defense to induced infringement because the dissent viewed invalidity and infringement as inextricably intertwined issues. “[O]nly valid patents can be infringed.  . . .  Because only valid patents can be infringed, anyone with a good-faith belief in a patent’s invalidity necessarily believes the patent cannot be infringed.”

Method Steps Must Be Performed Or Attributed To Single Entity For Direct Infrigement

In Akamai Technologies v. Limelight Networks, Inc., Appeal Nos. 2009-1372, 2009-1380, 2009-1416, 2009-1417, the Federal Circuit held no liability for direct infringement of a method claim exists under 35 U.S.C. § 271(a) where all the steps of the claim are not performed by or attributed to a single entity.

In 2006, Akamai sued Limelight for patent infringement in the District of Massachusetts. A jury found Limelight had committed infringement and awarded damages to Akamai. Shortly after the verdict, the Federal Circuit decided Muniaction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008), which held there is no infringement where a defendant performs some steps of a method claim and its customers perform the rest. In view of Muniaction, the district court reconsidered and granted Limelight’s earlier motion for JMOL of no direct infringement because Limelight did not control or direct its customers’ “tagging,” a step in the asserted method. On appeal, the Federal Circuit affirmed, clarifying a defendant can only be liable for direct infringement under § 271(a) when there is an “agency relationship between the parties who perform the method.” Akamai petitioned for rehearing en banc, which the Federal Circuit granted. The en banc Federal Circuit reversed, holding liability for induced infringement under § 271(b) can exist even though no party would be liable for direct infringement under § 271(a). Limelight petitioned the Supreme Court for certiorari, which was granted. In that appeal, a unanimous Court held inducement liability must be tied to underlying direct infringement by a single entity and remanded the case to the Federal Circuit.

The Federal Circuit affirmed the district court’s noninfringement finding. Under the “single entity” rule for direct infringement, all steps of the claimed method must be performed by a single entity. Nevertheless, the single entity rule contemplates liability for direct infringement where an accused entity exercises sufficient “control or direction” over the actions of another. This standard is satisfied where the law would traditionally hold a direct infringer vicariously liable for the acts of another. The Federal Circuit explained that such vicarious liability can be found, for example, in a principal-agent relationship, in a contractual arrangement, or in a joint enterprise. Here, Limelight merely instructed its customers, which did not give rise to a relationship sufficient to warrant the application of vicarious liability. Akamai argued the common-law principle of joint-tortfeasor liability should apply to § 271(a). The Federal Circuit disagreed and responded that incorporating joint-tortfeasor liability into § 271(a) would render sections §§ 271(b) and 271(c) (codifying induced and contributory infringement) superfluous and would contradict congressional intent. Additionally, the Federal Circuit reasoned applying joint-tortfeasor liability here would impute a knowledge requirement and would therefore contradict the Supreme Court’s holding that knowledge is irrelevant to direct infringement. The Federal Circuit also noted that situations such as the present are better solved by carefully drafting claims to capture infringement by a single party than by expanding the reach of direct infringement liability.

Interference Appellate Jurisdiction Post-AIA

In Biogen MA, Inc. v. Japanese Foundation for Cancer Research, Appeal No. 2014-1525, the Federal Circuit affirmed a Patent Trial and Appeal Board decision that estopped a patent applicant from establishing priority in an interference and held the district court lacked jurisdiction under pre-AIA 35 U.S.C. § 146 to review the PTAB’s decision.

Biogen sued in district court to appeal the PTAB’s decision in an interference against the JFC for claims directed to various forms of DNA protein.  JFC had prevailed against Biogen in two previous interferences for claims directed to an encoding DNA sequence.  The PTAB found Biogen was estopped by the judgments in the previous interferences and entered judgment in favor of JFC.  The district court determined it did not have jurisdiction to review the PTAB’s decision under 35 U.S.C. § 146 and transferred the case to the Federal Circuit for review under 35 U.S.C. § 141.  Biogen appealed both the district court’s transfer and the PTAB’s judgment.

The Federal Circuit affirmed both the district court transfer and the PTAB judgment.  The Federal Circuit determined only pre-AIA § 141 review by the Federal Circuit is available for interferences declared after September 15, 2012.  The interference at issue was declared on July 16, 2013.  Accordingly, the Federal Circuit declined to transfer the appeal back to the district court.

The Federal Circuit also held Biogen did not meet its burden of showing the claims were patentably distinct from the counts at issue in the earlier interference.  Estoppel by judgment applies where a losing party in a previous interference between the same parties tries to patent a claim that is patentably indistinct from the counts at issue in the earlier interference.  The Federal Circuit rejected Biogen’s evidence of a restriction requirement between the protein and DNA sequence claims because it was not substantive evidence that the claims are patentably distinct.  For the same reason, the Federal Circuit rejected evidence of two interferences between JFC and a third party involving separate counts for the proteins and the DNA sequences.  Biogen’s expert declaration also did not address the question of patentable distinctness.

Qualitative Factors Alone Do Not Satisfy Domestic Industry Requirement In ITC Cases

In LELO Inc. v. ITC, Appeal No. 2013-1582, the Federal Circuit reversed the ITC’s determination that qualitative factors alone are sufficient to satisfy the domestic-industry requirement of § 337 of the Tariff Act of 1930 (19 U.S.C. § 1337). 

Standard Innovation filed a § 337 complaint, alleging LELO imported kinesiotherapy devices that infringed Standard Innovation’s patent. A claimant asserting patent rights under § 337 must satisfy the “domestic industry” requirement with respect to the articles protected by the patent. The statute sets forth three prongs for satisfying the domestic-industry requirement: (A) significant investment in plant and equipment; (B) significant employment of labor or capitol; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing.

Standard Innovation does not manufacture its kinesiotherapy devices in the United States. Nevertheless, Standard Innovation argued it satisfies the domestic industry requirement because it purchases four of the device components from U.S. suppliers. An ITC ALJ rejected this argument, but the Commission reversed the ALJ’s determination, finding “Standard Innovation has satisfied the domestic industry requirement based on its expenditures on components produced domestically that are critical to [its devices].” 

The Federal Circuit reversed the Commission’s determination, holding the domestic requirement cannot be satisfied by qualitative factors alone. The Federal Circuit emphasized (1) the language in § 337 (“significant” and “substantial”) indicates the statute requires a quantitative analysis, and (2) prior ITC cases have based the domestic industry determination on quantitative factors. The Federal Circuit found “[t]he purchase of so called ‘crucial’ components from third-party U.S. suppliers” does not satisfy the domestic industry requirement “where there is an absence of evidence that connects the cost of the components to an increase of investment or employment in the United States.” 

Functional Features Not Excluded From Design Patent Infringement Analysis

In Apple Inc. v. Samsung Electronics Co., Appeal Nos. 2014-1335, 2015-1029, the Federal Circuit affirmed the district court’s findings of infringement, validity, and damages for Apple’s design and utility patents because sufficient evidence supported the jury’s findings, but reversed the district court’s finding of protectable trade dress and vacated its damages award for trade dress dilution.

Apple sued Samsung, claiming Samsung’s smartphones infringed various Apple design and utility patents and diluted Apple’s trade dresses.  Two jury trials resulted in findings that Samsung’s smartphones infringed Apple’s design and utility patents and diluted Apple’s trade dresses, awarding $930 million in damages.  Samsung filed two post-trial motions challenging those findings on various grounds.  The district court upheld those findings and Samsung appealed.

Regarding Apple’s trade dress claims, the Federal Circuit reversed and determined both the unregistered and registered trade dresses are functional and therefore unprotectable.  The Federal Circuit panel pointed out Apple did not rebut evidence that the elements in the unregistered trade dress, such as the iPhone’s rounded corners, serve the functional purpose of improving usability.  The panel also concluded the elements claimed by the registered trade dress, which related to the icons on the iPhone’s home screen, are functional.  The panel cited testimony of Apple’s own expert that those icons promote usability and are meant to communicate that functionality will occur when the icons are touched.

Regarding infringement of Apple’s design patents, the Federal Circuit affirmed.  First, the panel rejected Samsung’s challenges to the jury instructions, stating that functional aspects of design patents need not be entirely excluded from the claim scope.  It further noted the instructions correctly stated actual deception was not required to prove infringement and correctly directed the jury to consider the prior art.  Second, the panel concluded the district court did not abuse its discretion in excluding minimally probative testimony regarding independent development and held substantial evidence supported the jury’s infringement findings.

Regarding validity and damages for Apple’s utility patents, the Federal Circuit affirmed.  The panel agreed a claim directed to “substantially centering” document portions on a display was not indefinite.  It reasoned there was sufficient evidence that skilled artisans would interpret “substantially centered” to mean essentially centered except for a marginal spacing to accommodate ancillary graphical user interface elements.  The panel also held there was sufficient evidence that a claim directed to distinguishing between scrolling and gesturing operations was not anticipated because Apple’s expert testified the asserted reference did not disclose a claim element.  Further, the panel upheld the application of the entire market value rule because one of Samsung’s asserted non-infringing substitutes had significantly different features and the other was not available at the time of infringement.

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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