US Supreme Court Targets Patents

Ernest graf

By Ernest Graf

Over the last thirty years the US Supreme Court has generally decided only a handful of patent cases per decade, leaving the US Court of Appeals for the Federal Circuit (CAFC) with the heavy lifting and the specialist job of developing and refining many issues of patent law.

In the last several years however the Supreme Court has begun to play a very active role in the development of US patent law.

Six patent cases, all decided last term, suggest that the Supreme Court believes the CAFC has become too pro-patent. These six decisions have made the law less favourable to patent owners by:

  • holding that the patent owner must still prove infringement (rather than the accused infringer proving non-infringement) even if litigation is initiated by the accused infringer;
  • making it easier for courts to order the losing party to pay the winning party’s costs and thus increasing the risk of bringing an infringement suit;
  • reinforcing the necessity for an infringer to complete all of the steps of a method patent in order to be found to have directly infringed;
  • increasing the amount of clarity and detail demanded in the drafting of valid patent claims; and
  • further defining the test for whether a business method executed by software is patentable.

More detail on each of these cases is included below:   

 

Medtronic, Inc. v. Mirowski Family Ventures, LLC, No. 12-1128, decided on 22 January 2014.  This case addressed the issue of which party should bear the burden of persuasion in patent infringement litigation.  It is settled law that a patent owner has the burden to prove infringement when it initiates a patent infringement suit.  However, sometimes an accused infringer will initiate a patent infringement suit, called a declaratory judgement action, when the infringer has been threatened by a patent owner.  This can give them an advantage by allowing the accused infringer to choose a favourable location (forum) for the litigation and achieve earlier resolution to a dispute.  However, in declaratory judgement cases where there was an existing patent license in place between the parties, the law was unclear whether the patent owner had to prove infringement or whether the accused infringer had to prove non-infringement.

Mirowski Family Ventures had licensed patents concerning implantable heart stimulators to Eli Lilly, and Eli Lilly had then sublicensed the patents to Medtronic.  Mirowski Family Ventures asserted that several Medtronic products fell under the terms of the license agreement and thus compensation was owed to Mirwoski, but Medtronic disagreed.  Medtronic thus initiated a declaratory judgement lawsuit on the issue of patent infringement to resolve the dispute.

The CAFC held that because Medtronic was the plaintiff and the patent owner was the defendant, the burden of proof should be reversed; thus Medtronic had to prove non-infringment of the Mirowski Family Ventures’ patents.

The Supreme Court reversed the CAFC, holding that even in declaratory judgement actions the burden of proof should remain with the patent owner.  The Supreme Court asserted that the burden shifting rule of the CAFC would unduly limit an alleged patent infringer’s right to use a declaratory judgement action to resolve a patent dispute. 

 

Octane Fitness, LLC v. ICON Health & Fitness, Inc., No. 12-1184, and Highmark Inc. v. Allcare Health Management System, Inc., No. 12-1163, both decided on 29 April 2014.  These cases were considered as companion cases and addressed the ability of a winning party in a patent infringement lawsuit to have a court order that the losing party must pay the winning party’s legal costs.  In Australia such “cost orders” are very common and are generally considered to reduce frivolous or unjustified patent litigation.

However, in the US both parties in patent litigation generally pay their own costs, win or lose.  The patent statute at 35 U.S.C. § 285 allows for a court to order a losing party to pay the winning party’s costs in “exceptional” cases, but the CAFC had severely limited the definition of exceptional and thus limited the ability of district courts to make such orders.  The law as interpreted by the CAFC allowed cost orders against a losing party only in cases involving “material inappropriate conduct” or “objectively baseless” cases “brought in subjective bad faith.”

ICON Health & Fitness sued Octane Fitness for infringement of a patent concerning exercise equipment.  Allcare had sued Highmark for infringement of a patent covering “utilization review” in “‘managed health care systems.”  In both cases the district court had awarded “summary judgment” in favour of the accused infringer and against the patent owner.  However, on appeal the CAFC had refused cost orders against the patent owner under their strict interpretation of what amounts to an exceptional case.  The Supreme Court held that district courts should be free to issue cost orders on a “case-by-case exercise of their discretion, considering the totality of the circumstances.”

Thus owners of US patents now have further reason to think twice before initiating a patent infringement lawsuit that could be considered frivolous or otherwise exceptional when compared with other patent litigation.

 

Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12-786, decided on 2 June 2014. This case addressed the issue of whether infringement of a patent for a technological method requires each step of the method to be performed by a single party.  The US patent statute at 35 U. S. C. § 271(b) authorises one party to be found liable for “inducing” another party to infringe a patent.  This is called “indirect” patent infringement, and the party that actually performs the infringing conduct is said to commit “direct” patent infringement.  It is settled law in the US that there can be no indirect patent infringement unless there is also direct patent infringement. It is also settled law that to find a party liable for direct patent infringement of a method patent requires that the party perform every step recited in at least one claim of the patent.  However, to find indirect patent infringement of a method patent it was less clear whether the associated direct patent infringement needed to be strictly performed by a single legal entity.

The Massachusetts Institute of Technology (MIT) had licensed to Akamai Technologies a patent for a method of delivering electronic data using a content delivery network.  Akamai sued Limelight Networks for infringement of the patent, even though Limelight’s customers, and not Limelight itself, performed some of the method steps recited in the patent claims.  Thus even though there was no single direct infringer, the CAFC found that there was indirect patent infringement because Limelight performed most of the steps of the method patent and induced its customers to perform the rest.

The Supreme Court reversed the CAFC, holding that an exception should not be allowed to the simple rule that there cannot be indirect infringement without direct infringement.  The Supreme Court stated that the CAFC’s rationale was unworkable and would “require the courts to develop two parallel bodies of infringement law: one for liability for direct infringement, and one for liability for inducement.”

 

Nautilus, Inc. v. Biosig Instruments, Inc., No. 13-369, decided 2 June 2014.  This case addressed the claim “definiteness” requirements of the US patent statute at 35 U.S.C. § 112.  Patent claims are the generally long and awkward English sentences listed at the end of a patent, and the claims define the boundaries of the patent owner’s legal rights.  The US patent statute requires that a patent claim must clearly and definitely describe the owner’s rights, or else the claim is invalid.  This is known as the definiteness requirement.  However, as with all legal writing some amount of ambiguity must be tolerated.  Thus the CAFC had previously held that a claim satisfies the definiteness requirement as long as it was not “insolubly ambiguous”, meaning that the language was amenable to some reasonable interpretation.

Understandably the insolubly ambiguous test had become a rather difficult test to fail, which strongly favoured patent owners since they could define their legal rights somewhat ambiguously in patents and then broadly apply those rights against competitors.

Biosig owned a patent that covered heart rate monitors on exercise equipment.  The patent claims required that the monitors include electrodes “mounted…in spaced relationship with each other.”  Biosig sued Nautilus for patent infringement and the case was eventually appealed to the CAFC.  Applying its “insolubly ambiguous” test, the CAFC held that the claims satisfied the definiteness requirement as ordinarily skilled readers of the patent would be able to reasonably interpret what “mounted … in spaced relationship with each other” meant.

However, on appeal the Supreme Court held that the insolubly ambiguous test for claim definiteness applied by the CAFC was incorrect.  The Supreme Court asserted that the definiteness requirement of the patent statute instead “mandates clarity”, and held that a “patent’s claims, viewed in light of the specification and prosecution history, inform those skilled in the art about the scope of the invention with reasonable certainty.”

It is likely that the new “reasonable certainty” test will require patent drafters to use clearer and perhaps narrower language in patent claims, or risk having the claims rejected by the US Patent Office or invalidated by a court.

 

Alice Corp. Pty. Ltd. v. CLS Bank International, No. 13-298, decided on June 19, 2014.  This case addressed the issue of whether business methods defined in software and executed on a general purpose computer are eligible for patent protection under the US patent statute at 35 U.S.C. § 101.  Business methods that are not defined in software, such as methods for selling products or negotiating a contract, have traditionally not been eligible for patent protection.  It is a common view that patents must involve technology, and thus where business methods involve no technology they cannot be patent eligible.  However, where business methods are executed by a computer it has been argued that adequate levels of technology are involved and the methods should be eligible for patent protection.

In a counterclaim to a declaratory judgement lawsuit brought by CLS Bank, Alice Corporation sued CLS Bank for infringement of several method patents related to computer implemented methods for reducing risks in securities trading.  A majority of the CAFC judges, sitting en banc, held that the patents were invalid because they were directed to mere abstract ideas implemented by a general purpose computer.

The Supreme Court agreed with the CAFC, and held that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.”  The Supreme Court stated that “[t]he method claims do not, for example, purport to improve the functioning of a computer itself… Nor do they effect an improvement in any other technology or technical field.”

Thus, in this case, the Supreme Court appears to be more closely aligning US patent law with the patent law of most other countries, where software is patent eligible only when there is a clear link between use of the software and an improvement in technology. 

 

Conclusion

As shown above, the US Supreme Court was very busy last term addressing issues of patent law and over ruling pro-patent decisions of the CAFC.  Together the Supreme Court decisions, many of which were unanimous, appear to show that the Supreme Court believes that the CAFC has been too easy on patent owners and too tough on alleged patent infringers.  As the US Patent Office, US Federal district courts and the CAFC apply these new precedents of the Supreme Court over the coming months and years, businesses involved with US patent rights, whether as patent owners or as possible infringers, should pay close attention to this rapidly changing legal landscape.  More than ever it appears that patent specifications, and in particular patent claims, must be carefully drafted with the above issues in mind to be valid and enforceable.  Well drafted patent specifications will provide patent owners with real business value, whereas poorly drafted specifications are likely to enable alleged infringers to more easily escape patent infringement disputes unscathed.