Fresh From the Bench: Precedential Patent Cases From the Federal Circuit

by Schwabe, Williamson & Wyatt PC
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In Allied v. OSMI, the Circuit affirms dismissal of a declaratory judgment action even though Allied’s Mexican distributors had been sued in Mexico on a corresponding Mexican patent. In a first Waymo v. Uber case, the panel agrees with the district court that a trade secret misappropriation action did not need to be arbitrated despite the fact that there were arbitration provisions in employment agreements between Waymo and Levandowski, the former Waymo employee who allegedly misappropriated the trade secrets.  In a related Waymo v. Uber decision, a writ of mandamus is denied where Levandowski sought to prevent discovery of a report on an investigation of Ottomotto’s employees, including Levandowski, who were previously employed by plaintiff Waymo. In IV v. Motorola, the panel reverses the denial of JMOL because IV failed to demonstrate that Motorola obtained a benefit from every element of the claimed system.

Thanks to another new colleague Eric Blank for his help with this week’s report. Eric is in the group of patent attorneys that joined us earlier this summer.

Any precedential cases decided tomorrow will be included in next week’s report.

Pete

Allied Mineral Products, Inc. v. OSMI, Inc., Fed. Cir. Case 2016-2641 (September 13, 2017)

The Circuit affirms the dismissal of a declaratory judgment action filed by Allied against OSMI and two Stellar companies based on lack of subject matter jurisdiction even though Stellar had sued Allied’s Mexican distributors for infringement of a corresponding Mexican patent.

The dispute centered on a Mexican infringement suit between Stellar and two of Allied’s Mexican distributors, Ferro and Pyrotek. Stellar sent notice letters to Ferro and Pyrotek accusing them of infringing Stellar’s Mexican patent. Allied manufactures the products accused of infringement in the U.S., which are then sold in Mexico by Ferro and Pyrotek. Allied sells the same product in the U.S. Allied’s U.S. counsel responded to Stellar’s notice letters on behalf of Ferro and Pyrotek. Allied identified itself as the manufacturer of the accused products and argued that the products do not infringe the Mexican patent.

Stellar never responded to Allied’s letter. Instead, Stellar filed infringement actions against Ferro and Pyrotek in Mexico, identifying a claim in its Mexican patent that is a Spanish translation of a claim in the corresponding U.S. ’974 patent. Allied then filed the present declaratory judgment action against Stellar in the Southern District of Florida. The district court granted Stellar’s motion to dismiss for lack of subject matter jurisdiction, and Allied appealed.

The panel begins its analysis by citing MedImmune’s phrasing of the issue: “[W]hether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Applying this test, the panel holds that the totality of the circumstances in this case does not rise to the level of a case of actual controversy. Declaratory judgment jurisdiction requires some affirmative act by the patentee. Stellar has not directed any actions towards Allied, nor has it litigated or threatened litigation in the U.S. or on its ’974 patent. All of Stellar’s conduct has been directed towards Allied’s customers Ferro and Pyrotek, unrelated Mexican entities, and that contact was limited to Stellar’s Mexican patent and potentially infringing acts in Mexico. Stellar sent notice letters to the customers alone, and although Allied responded on behalf of its customers, Stellar never responded to Allied’s letter. Stellar then sued only the customers, not the manufacturer. It has not threatened or alleged infringement of the ’974 patent, much less filed suit.

Read the full opinion

Waymo v. Uber Technologies, Fed. Cir. Case 2017-2130 (September 13, 2017)

Waymo sued Uber and others for trade secret misappropriation and patent infringement. Uber contends that Waymo should be compelled to arbitrate the matter because of an arbitration agreement between Waymo and its former employee/inventor/intervenor Levandowski. The panel affirms the district court ruling that compulsory arbitration is not appropriate based in part on the representation by Waymo that it is not relying on its employment agreements with Levandowski to prove its claims.

The employment agreement with Levandowski provided that all employment-related disputes and disputes relating to the employment agreement are subject to binding arbitration. In the district court, defendants argued that equitable estoppel should compel arbitration here because Waymo contended that Levandowski was able to misappropriate Waymo’s information by virtue of his job at Waymo, and that Levandowski downloaded 14,000 Waymo documents relating to self-driving cars, and used this information for the benefit of Uber. In response to this allegation, Waymo assured the court that it would not rely on the employment agreements and would forgo any claims against Levandowski similar to those asserted here, provided that Uber does not open the door by referencing those agreements.

The panel waffles on whether Ninth Circuit law requires the review to be de novo or abuse of discretion but under either standard, the panel rules that arbitration should not be compelled. First, the opinion points out that under contract law principles, non-parties to a contract are generally not bound by the contract, and Uber was not a party to the Levandowski employment agreements. Second, there has been no reliance by Waymo on the employment agreements; that is, it is not attempting to take advantage of the terms of the agreements as a basis for the action and then refusing to arbitrate with the non-signatory under that agreement.

Uber argued that Waymo should be compelled to arbitrate because Waymo’s trade secret claims against the Defendants relate to actions by Levandowski in purported violation of his employment agreements with Waymo. The complaint does allege that Levandowski downloaded the Waymo files shortly before his resignation, and that Uber then misappropriated and infringed Waymo’s technology using this information, but the complaint neither alleges breach of nor cites to any provision of the Waymo-Levandowski employment agreements. The complaint does reference the employment agreements but just to show that Waymo has taken reasonable measures to safeguard its trade secrets. Prior California cases require that plaintiffs’ claims themselves must intimately rely on the existence of the pertinent agreements, not merely reference them.

The panel also rejects Uber’s argument that the district court erred in relying upon Waymo’s assurance that it would not rely on the employment agreements because this assurance was conditioned upon Uber not raising the agreements. Finally, the panel finds that Uber’s contentions regarding collusion between Waymo and Levandowski are misplaced and do not change the result because the allegations of collusion are not inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.

Read the full opinion

Waymo v. Uber Technologies, Fed. Cir. Case 2017-2235, -2253 (September 13, 2017)

In this related case, the panel rules that a writ of mandamus is not appropriate where Mr. Levandowski, the intervenor, seeks to prevent discovery of a report to investigate defendant Ottomotto’s employees who were previously employed by plaintiff Waymo, including Levandowski.

As discussed above, Waymo’s complaint alleged that Levandowski improperly downloaded thousands of documents related to Waymo’s driverless vehicle technology and then left Waymo to found Ottomotto. Uber subsequently acquired Ottomotto. Before the acquisition closed, counsel for Ottomotto and Uber (but not counsel for Levandowski) jointly retained Stroz, a cyberforensics firm, to investigate Ottomotto employees previously employed by Waymo. The Stroz Report is the subject of the discovery dispute at issue on this appeal.

During discovery, Waymo sought to obtain the Stroz Report via a motion to compel and a subpoena. The magistrate judge granted the motion to compel and denied a motion to quash the subpoena. Defendants and Levandowski then filed a motion for relief from the Magistrate’s orders, which the district court judge denied.

Before addressing the merits, the panel examines whether it has jurisdiction to decide the petition for mandamus. First, Levandowski concedes that the discovery rulings are not “final decisions … in any action arising under … any Act of Congress relating to patents.” 28 U.S.C. § 1295(a)(1) (2012). Instead, Levandowski requests that the Circuit treat his appeals from these orders as petitions for writ of mandamus pursuant to 28 U.S.C. § 1651(a), asserting that the discovery orders from which he appeals will violate his Fifth Amendment right against self-incrimination, and that the constitutional aspect warrants immediate review. Second, Levandowski argues that he has an immediate right to appeal because of the Perlman doctrine, set forth in the Supreme Court’s 1918 Perlman v. U.S. case.

To be eligible for a writ under the Supreme Court’s 2004 Cheney v. District Court case, Levandowski must show: (1) he has other means of appeal, such as asking the district court to certify, and the Circuit to accept, an interlocutory appeal; (2) he has not met his burden of showing that his right to issuance of the writ is “clear and indisputable”; and (3) even though the first two Cheney prerequisites are not met, the panel is not convinced that the writ is appropriate under the circumstances.

As to whether his right to relief is “clear and indisputable,” the panel first notes that the report is not privileged because it was commissioned by Ottomotto and Uber and not Levandowski, and the “common interest” doctrine does not apply. To invoke the common interest doctrine, a party first must demonstrate the elements of privilege and then must demonstrate that the communication was made in pursuit of common legal claims including common defenses. Levandowski meets neither element. Second, Levandowski’s claim of protection under the work product doctrine fails because it was not prepared by Levandowski in anticipation of litigation, and any protection under the work product doctrine was waived when the report was shared between Uber, Ottomotto and Levandowski, whose interests were adverse with respect to the Stroz Report. Third, the panel rules that the Fifth Amendment right against self-incrimination does not apply.

Finally, the Perlman doctrine provides that a discovery order directed at a disinterested third party is treated as an immediately appealable final order because the third party presumably lacks a sufficient stake in the proceeding to risk contempt by refusing compliance. The panel notes that the Perlman doctrine applies only in those cases where a denial of immediate review would render impossible any review, and in this case, Levandowski may be able to appeal following final judgment. Moreover, Levandowski is not a disinterested third party, as he is closely affiliated with all of the parties to the litigation.

Read the full opinion

Intellectual Ventures, LLC v. Motorola Mobility LLC, Fed. Cir. Case 2016-1795 (September 13, 2017)

A divided panel affirms the validity of many of the claims of two patents asserted by IV against Motorola, but the entire panel rules that substantial evidence does not support the jury’s verdict of direct infringement as to the asserted claim of its ’144 patent. This reversal of the denial of JMOL was because IV failed to demonstrate that Motorola obtained a benefit from every element of the claimed system.

The ’144 patent, the principal patent in suit, is directed to transferring computer files electronically between two computers. Motorola contended the patent was invalid for lack of written description, arguing that the specification of the patent excludes “long term” or “permanent” storage of the data being transmitted on an intervening computing device. Despite this exclusion, Motorola contended that the scope of claim 41 covers embodiments that nevertheless use such long-term or permanent storage, in violation of the written description requirement. The panel disagrees, ruling that the claim does not cover long term or permanent storage, so there is no written description problem.

Motorola also argued that it was entitled to JMOL as to the obviousness of the ’144 patent, but the majority disagrees with that contention as well, against Judge Newman’s dissent, ruling that the teachings of IV’s expert and the primary reference itself constituted substantial evidence supporting the jury’s conclusion that the prior art did not “receive … files irrespective of user action,” as recited in the claim.

The most interesting part of the case deals with the issue of whether substantial evidence supports the jury’s verdict of direct infringement. Claim 41 is a system claim with limitations directed to an “authenticating device configured to . . . generate a delivery report.” At trial, IV argued that Motorola’s customers directly infringed claim 41 by using the accused system to send text-plus-photo messages using a Multimedia Messaging Service (“MMS”), and that Motorola itself directly infringed claim 41 by testing the accused phones’ MMS functionality. As evidence, IV presented consumer surveys showing that Motorola’s customers sent MMS messages using the accused phones, and numerous compliance and testing documents from Motorola demonstrating that sending and receiving of MMS messages was tested on the various carrier networks. On appeal, Motorola contends that IV failed to offer evidence of a directly infringing “use” of the claimed system because none of the accused direct infringers “used” the “authenticating device configured to . . . generate a delivery report.”

The panel first discusses the applicable standard from its 2005 NTP and 2011 Centillion Data cases. Claim 41 is written to claim a “device configured” to perform certain operations, some of which involve communications with other devices having certain functionality. In NTP, in addressing the question of “where” an infringing use of a claimed system occurs, the Circuit held that “the use of a claimed system under section 271(a) is the place at which the system as a whole is put into service, i.e., the place where control of the system is exercised and beneficial use of the system obtained.” In Centillion, the Circuit applied NTP’s situs-of-infringement holding to resolve infringement of “system comprising” claims where components of the claimed system were in the possession of more than one actor. The Circuit concluded that “to ‘use’ a system for purposes of infringement, a party must put the invention into service, i.e., control the system as a whole and obtain benefit from it.” Thus, under NTP and Centillion, to prove an infringing “use” of a system under § 271(a), a patentee must demonstrate “use”—that is, “control” and “benefit”—of the claimed system by an accused direct infringer.

In applying its interpretation of NTP and Centillion to the case on appeal, the panel sees the critical question as whether there was substantial evidence that Motorola’s customers obtained a “benefit” from the generation of delivery reports. Neither of IV’s direct infringement theories purported to explain how Motorola’s customers satisfied this claim limitation by using the accused phones. Indeed, there is no evidence that the customers ever “generated a delivery report,” as recited in the claim. Instead, IV relied on testimony and evidence that the delivery reports were generated by Multimedia Messaging Service Centers (“MMSC”) maintained or operated by the customers’ wireless service carriers when the customers used the accused phones.

In the ’144 patent, the only benefits identified as flowing from the delivery reports rest on the sending device’s ability to receive or retrieve the delivery reports from the third-party authenticating device. But, according to the panel, the evidence does not support an inference that Motorola’s customers ever received the delivery reports. IV provided expert testimony that the accused Motorola phones were capable of sending and receiving MMS messages, and that the sending phone could display a confirmation that the MMS message was received. IV’s expert conceded, however, that all but one of the MMSCs discussed at trial had been rendered technologically incapable of transmitting delivery reports to the sending phone (i.e., to Motorola’s customers).

Having rejected as unsupported by substantial evidence IV’s argument that Motorola’s customers benefitted from the delivery reports generated by the MMSCs, the same non-infringement finding is necessary as to Motorola itself. Citing the Supreme Court’s 2014 Limelight v. Akamai case, the panel rules that, because a finding of direct infringement is predicate to any finding of indirect infringement, none of the jury’s verdicts with respect to infringement of claim 41 of the ’144 patent is supported by substantial evidence. Accordingly, Motorola was entitled to judgment as a matter of law regarding non-infringement of claim 41 of the ’144 patent.

Read the full opinion

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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