Today, in the long-awaited case of TC Heartland v. Kraft Foods Group Brands,
the US Supreme Court unanimously determined where a domestic corporation
“resides” for purposes of establishing proper venue in patent cases. In short, a domestic corporation “resides” only in its State of incorporation.
Why is this relevant? And will this have any effect on patent infringement cases going forward?
For years, if it could be shown that a company was subject to personal jurisdiction in that district, then it “resided” in that district and venue was proper. As such, many plaintiffs brought cases in pro-plaintiff jurisdictions, like Marshall, TX, even though defendants’ principal places of business were elsewhere.
Going forward, in patent infringement lawsuits, there will be two choices to bring cases: (1) where the US defendant is incorporated or (2) where “the [US] defendant has committed acts of infringement and
has a regular and established place of business.” 28 U.S.C.§ 1400(b)(emphasis added). The focus may now shift to where companies have their “regular and established place of business.” States, like Delaware (where many companies are incorporated) or California and New York (where companies have established businesses), could become the new forums of choice.
By now, you have undoubtedly received ten thousand E-mails informing you of the Federal Circuit’s recent decision in Akamai Technologies, Inc. v. Limelight Networks, Inc. in which the Court continued to wrestle with the notion of divided infringement under 35 U.S.C.§ 271. In short, the Court refused to extend a new joint tortfeasor approach to direct infringement under 35 U.S.C. § 271(a), noting that to do so would make the other indirect infringement provisions of §§ 271(b) and (c) redundant. Instead, the Court reiterated that for direct infringement under §271(a) to occur, all steps of a method claim must be performed by or attributable to a single entity.
When can the combined acts of multiple parties be “attributed” to a single party? Yet again, the Court pointed to a “mastermind” theory in which one party exercises “direction or control” over the entire process to the point that every step is attributable to the controlling party.
The Court also outlined when vicarious liability might trigger direct infringement under §271(a): (1) principal-agent relationships; (2) contractual relationships; and (3) joint enterprises. The most interesting was “joint enterprise,” which occurs when there is an agreement between members sharing a “community of pecuniary interest” in a “common purpose,” with each having an “equal right to voice direction of the enterprise,” thereby giving “equal right of control.” What’s important to note is that none of these scenarios involved arms-length seller-customer relationships.
Since the Supreme Court last decided Akamai, the safest bet for patent prosecutors has been to craft claims to capture infringing activity by a single party. The Federal Circuit’s comments that “the claim drafter is the least cost avoider of the problem of unenforceable patents due to joint infringement” only reinforce this approach. Claiming the acts of your customers is rarely beneficial and, in light of the Federal Circuit’s recent decision, will not make your infringement case any easier.
Today, in the Octane Fitness
case, the Supreme Court lowered the bar for establishing an award of attorneys’ fees in “exceptional” patent infringement cases. In the past, such fees had been very difficult to obtain because of the onerous standard imposed by the Federal Circuit. Even when accused companies prevailed against unfounded allegations of patent infringement, they failed to recoup the millions of dollars expended on their defense.
of the Patent Act states: [t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” In order to be deemed an “exceptional” case, the Federal Circuit had previously required that it be shown that the litigation was brought in “bad faith” and was “objectively baseless.” A litigation was deemed to be “objectively baseless” when “no reasonable litigant could believe it would succeed.” Further, all of this had to be established by “clear and convincing” evidence.
The Supreme Court did several notable things in its decision. First, it shunned the prior “clear and convincing” evidentiary burden in favor of a “preponderance of the evidence” (i.e.
, more likely than not or 51%) standard, which mirrors the burden for patent infringement. Second, it attempted to loosen what it deemed to be a “too rigid” standard by defining an “exceptional case” as “simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” The Court left this determination to the U.S. District Courts’ discretion, considering the “totality of the circumstances.”
It will be interesting to see how much clarity this new standard brings to future requests for attorneys’ fees. Showing how a case “stands out from others” should be quite an interesting exercise. Removing the “bad faith” requirement and lowering the evidentiary bar should increase companies’ chances of being awarded their fees. Now, companies should be even more concerned about pursuing specious claims of infringement.
Wisconsin is the latest state to entertain legislation aimed at curbing patent troll activity within its state. Last week, the State Assembly passed Senate Bill 498
, as amended
, which requires certain disclosures to be made in an initial demand letter alleging patent infringement. In addition to the information routinely supplied, patent owners will now have to identify not one claim, but all claims that they assert are being infringed. More telling, patent owners will have to detail how each claim is met by the accused technology. As an added bonus, they will also have to include all court proceedings (past and present) involving the patent. This could provide useful information as to how other similarly situated parties defended against similar infringement claims.
Wisconsin is essentially mandating a patent claim chart showing infringement for any accused technology. Many trolls, who are serious about enforcement, already provide such information to accused infringers. So, while it may cut down on the issuance of shotgun cease and desist letters, it should not have a real impact on the more sophisticated trolls.
Both the state attorney general’s office and aggrieved parties may bring claims for violations of the law. The state can seek penalties of up to $50,000 per violation. Private claimants can seek reasonable attorneys’ fees and costs and an award of punitive damages not to exceed $50,000 for each violation or three times the aggregate amount of actual damages and costs and attorneys’ fees awarded by a Court, whichever is greater
Violations are based on “false, misleading or deceptive information” in the demand letter or if the required disclosures are not made within 30 days after the recipient notifies the enforcing party that the disclosures were incomplete. Importantly, no enforcement actions or private remedies may be sought solely based on an initially incomplete demand letter.
Certain types of demand letters are exempt from the law- those sent by an institution of higher education and those involving patents subject to approval by the U.S. Food and Drug Administration.
Determining what is “false, misleading or deceptive information” in this context seems to be a formidable task for state courts to entertain, especially since many of them do not routinely handle patent matters. Such cases are usually litigated in federal court. The stiff $50,000 per violation price tag and/or the threat of having a state investigation, however, may deter those from sending completely baseless demand letters.
Crowdfunding is becoming commonplace these days. Inventors are using it to bring their products to market and artists are using it
as a means to fund movies and even new music platforms.
Now, parties are using crowdfunding to combat patent trolls and Adam Carolla
is leading the charge. Although it sounds like an interesting concept, there can be consequences for participating. Indeed, Personal Audio, the troll that sued Carolla, recently pressed this issue and, for the moment, lost. Last Fall, the Electronic Frontier Foundation (“EFF”) used crowdfunding to initiate an inter partes
reexamination request with the USPTO of the patent that Personal Audio claims Carolla and others are infringing over podcasts. Personal Audio subpoenaed the EFF to learn the identities of the 1,000+ donors, arguing that it needed to verify whether any of the defendants, including Carolla, had contributed to the campaign as parties are estopped from making the same prior art arguments in court once pursued in an inter partes
reexamination. Arguing that the Personal Audio’s request was overbroad and that its donors had a first amendment right of privacy, the EFF opposed the subpoena. It was reported
that the assigned magistrate judge deferred on the first amendment issue, but felt that it was premature to seek this information at this point as the “estoppel” issue only arises once a final determination is made during a reexamination proceeding. For now, the donors’ identities may remain anonymous unless Personal Audio asks the U.S. District Court judge to override the magistrate’s decision and consider the issue.
While crowdfunding can be an effective way of pooling resources, there can be consequences. Interestingly, had the EFF filed an “ex parte
” reexamination request, there would have been a different result as “ex parte
” reexaminations do not create the same “estoppel” effects as their “inter partes
Last week, the Vermont AG’s Office filed a “conditional” Motion
to amend its Complaint against MPHJ Technology Investments, LLC (“MPHJ”) relating to alleged violations of the State’s state consumer protection laws. This move does not mean that the Vermont AG has given up on its case. To the contrary, it is probably trying to tighten up its consumer protection case by removing overly broad requested relief.
The motion asks to possibly amend its Complaint to remove relief that would enjoin MPHJ from “threatening Vermont businesses with patent-infringement lawsuits.” Importantly, it retains the right to ask the Court to enjoin MPHJ “from engaging in any business activity in, into or from Vermont that violates Vermont Law.” The AG’s Office also continues to seek considerable civil penalties for violation of the State’s Consumer Protection Act.
While others might see this request as a weakness in the AG’s case, I disagree. The AG seems to be cutting the dead wood in order to bolster its argument that it is not trying to enjoin lawful activity.
On Wednesday, it was reported
that the Virginia General Assembly passed legislation from the House
designed to crack down on misleading patent troll demand letters. Virginia’s efforts come on the heels of a letter
from over 40 state and territorial attorneys general to the U.S. Senate’s Commerce and Judiciary Committees urging federal patent litigation reform
Virginia, like other states (e.g.
, Kentucky and Oregon), has expressed concern over its small businesses being targeted with baseless letters threatening patent infringement. In an effort to provide some protection from frivolous claims, Virginia established criteria for when a claim has been made in “bad faith” (e.g.
, failing to specify how the target is infringing, etc.). More importantly, the legislation grants the Virginia Attorney General’s Office enforcement power to curb unwanted troll behavior.
While I have been critical of recent federal patent reform efforts to date for having any meaningful impact, it does appear that granting enforcement power to state attorneys general could have an effect on baseless patent infringement claims. Not only will it curb mass letters from being sent, it should also cause patent owners concern about asserting thinly-based claims of infringement. Companies might think twice before sending knee-jerk infringement letters to their competitors if they could face being investigated by the state.
We continue to get guidance as to when a party can file a request for an inter partes
review of a patent. As I mentioned last Fall
, under 35 U.S.C. § 315(b), a petitioner has 1 year from the date that it is “served with a complaint alleging infringement” to file a request for inter partes
review. Last week, the U.S. Patent and Trademark Office
(“Board”) clarified that the filing of an arbitration claim does not start this 1 year clock.
Based on a 2009 arbitration, Tessera, Inc. moved to terminate an inter partes
review initiated by Amkor Technology, Inc. for being outside the 1 year window. Thus, the question became whether “served with a complaint alleging infringement” included being served with an arbitration counterclaim of infringement. The Board noted that arbitration is not “litigation,” but rather an alternative dispute resolution procedure. Simply stated, “served with a complaint alleging infringement” only refers to disputes in District Court versus any forum for adjudicating infringement as Tessera had argued. We now know that complaints and counterclaims alleging infringement (even if dismissed with prejudice) are the two clear-cut ways to start the clock running with regard to the filing of requests for inter partes
Most people are now aware of the changes by the American Invents Act to the inter partes
process for reviewing patents. There are no longer inter partes
reexaminations. Instead, parties can petition for inter parties
reviews. Generally speaking, a petitioner has 1 year from the date that it is served with “a complaint alleging infringement” to file a request for inter partes
review. 35 U.S.C. § 315(b). Until the recent decision
in St. Jude Medical, Cardiology Division, Inc. v. Volcano Corporation
, it was unclear as to whether “a complaint” also included a counterclaim of infringement by the patent owner. Earlier this month, the Patent Trial and Appeal Board (“Board”) confirmed that it does.
St. Jude Medical sued Volcano for infringement of its own patents. Volcano, in turn, counterclaimed with a charge of infringement of U.S. Patent No. 7,134,994 (“the ‘994 Patent”) in September of 2010. Two years later, the parties dismissed all claims relating to the ‘994 Patent with prejudice. Nonetheless, in April of 2013, St. Jude Medical petitioned for an inter partes
review of the ‘994 Patent. The Board denied the petition for falling outside the 1 year time limit imposed by 35 U.S.C. § 315(b).
The Board recognized Congress’ intent behind inter partes
reviews, which is to “‘provid[e] quick and cost effective alternatives to litigation.’” It found that a counterclaim was tantamount to a complaint. More importantly, it held that that Section 315(b) applies even when a complaint is later dismissed with prejudice.
Now, it is clear. If you want to petition for inter partes
review, you need to stay on top of the 1 year deadline. It doesn’t matter if the counterclaim is ultimately dismissed with prejudice. The clock continues. Companies should make sure to docket such deadlines.
Here is the latest in Activision’s quest to use Farney Daniels as its patent litigation counsel. (For those unfamiliar with the issue, see my prior postings
, which discuss various states’ reactions to this firm’s efforts to enforce patent rights for a particular patent troll across the country.) This past Monday, the Nebraska U.S. District Court Judge granted Activision’s request for a preliminary injunction against the Nebraska AG’s Office. Specifically, the Court prohibited the AG from:
[T]aking any steps to enforce the cease and desist order issued to Farney Daniels on July 18, 2013, in any manner that would prevent or impede the Farney Daniels firm from representing Activision in connection with licensing and litigation of U.S. patents owned by Activision with respect to companies based in, or having operations in, Nebraska.
However, this injunctive relief has no bearing on the AG’s ability to continue to investigate Farney Daniels for violations of the State’s Consumer Protection Act and the Court reserved the AG’s right to revisit the injunction should its investigation uncover a claim of bad faith by Farney Daniels.
Some may tout this as a great victory for Farney Daniels, but it wasn’t a great surprise. The Nebraska AG’s Office conceded that it wouldn’t oppose Farney Daniels attorneys’ requests to appear in the Activision matter because that matter pre-dated its cease and desist order, which only applied to future actions. Although Farney Daniels can now file new actions on behalf of Activision against Nebraska-based entities, it’s unclear that there is any desire to do so. Further, the Nebraska AG is still free to investigate any new claim asserted by Farney Daniels. As such, this firm will continue to operate under the watchful eye of the State and is not out of the woods yet.