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Supreme Court Affirms Three Federal Circuit Patent Cases This Term, Contributed by Jon E. Wright and Byron L. Pickard, Sterne, Kessler, Goldstein & Fox P.L.L.C.

Wednesday, August 31, 2011

By Jon E. Wright and Byron L. Pickard, Sterne, Kessler, Goldstein & Fox P.L.L.C.

On June 9, 2011, the U.S. Supreme Court issued its decision in Microsoft v. i4i Limited Partnership,1 holding that the Patent Act requires the defense of patent invalidity to be proved by clear and convincing evidence. The decision marked the Supreme Court's third affirmance of the U.S. Court of Appeals for the Federal Circuit in the three patent cases heard this term. The other cases also touched on questions of interpretations of statutes governing patents. In Stanford v. Roche,2 the Supreme Court ruled that the Bayh-Dole Act, which governs control of intellectual property developed in connection with federally funded research, does not automatically vest title to an invention with the federal contractor. And, in Global-Tech Appliances v. SEB S.A.,3 the Court clarified the proper legal test governing claims for induced infringement under Section 271(b) of the Patent Act.

The Supreme Court's affirmance in these cases is a departure from a trend of reversals for the Federal Circuit at the Supreme Court. This trend was seen by many as reflective of concerns by the Supreme Court that patent law, as interpreted by the Federal Circuit, was excessive in its protection of patents. The Supreme Court's most prominent reversals have generally fallen into two broad categories.

First, the Supreme Court has rejected the Federal Circuit's use of rigid, formulaic tests. Most notable among these cases is the Supreme Court's 2007 KSR v. Teleflex4 decision, which rejected the Federal Circuit's teaching-suggestion-motivation test for obviousness in favor of a more flexible standard, generally believed to make it easier for an accused infringer to prove a patent invalid for being obvious. And two terms ago, the Supreme Court rejected another Federal Circuit test using a rigid standard in Bilski5 for determining whether an invention is considered eligible subject matter for patenting under the Patent Act. Although the Supreme Court affirmed the Federal Circuit's result, it rejected the Federal Circuit's test in favor of a more flexible standard.

Second, the Supreme Court has reversed the Federal Circuit where it was seen to have strayed from principles that govern most other areas of the law. Here, the most prominent examples are the 2006 Ebay6 decision, involving the standard for awarding an injunction against infringers, and Dickinson v. Zurko7 from 1999, resolving the question of what deference courts must give the Patent Office's findings of facts under the Administrative Procedures Act.

Among the Supreme Court's recent reversals, the KSR and Ebay decisions are the most significant examples of the Court cutting back on the strength of patent rights. KSR made it significantly easier for an accused infringer to prove a patent was invalid for obviousness. And the Ebay decision changed the long-standing rule in patent cases that a patent owner was automatically entitled to an injunction against any party judged to infringe its patent. Now, patent owners must prove, among other things, that they will be irreparably harmed in the absence of an injunction and that money damages are not sufficient to compensate for future infringement—the same showing that must be made in any case involving a request to impose an injunction. That is, KSR made it significantly easier to invalidate a patent, while Ebay fundamentally changed the state of the law for patent-infringement remedies, especially where the patent was owned by a non-practicing entity.

So what does the Supreme Court's three-for-three affirmances of the Federal Circuit this term mean? Has the Supreme Court stepped back from its earlier efforts that appear directed to diminishing patent protection, or has the Supreme Court continued to cut back at patent protection? A close look at this term's patent decisions show the pendulum may be swinging back in favor of stronger patent rights.

Microsoft v. i4i
The Microsoft v. i4i decision is clearly a pro-patentee decision. It maintains the heightened standard of proof that a defendant must meet to invalidate a patent based on the statutory presumption that patents are valid. Microsoft argued that a lower preponderance of the evidence standard should apply. The Supreme Court's rejection of Microsoft's position rested on the holding in the Supreme Court's 1934 decision in the RCA8 case, which held that patents can only be invalidated by "clear and cogent evidence." The Microsoft Court reasoned that the 1952 patent act codified the common law holding of RCA. The Supreme Court also rejected an alternative argument raised by Microsoft that the validity presumption should be lessened where the Patent Office did not consider the same issue or same prior art during original prosecution. By rejecting this argument, the Supreme Court closed the door that it had appeared to open in dicta found in the KSR decision. In KSR, the Supreme Court threw the continuing viability of the presumption of validity into doubt. There, the Supreme Court declined to decide whether the presumption of validity was affected by the fact that the prior-art reference asserted at trial was not considered during prosecution at the Patent Office:

We need not reach the question whether the failure to disclose Asano during the prosecution of Engelgau voids the presumption of validity given to issued patents, for claim 4 is obvious despite the presumption. We nevertheless think it appropriate to note that the rationale underlying the presumption—that the PTO, in its expertise, has approved the claim—seems much diminished here

Microsoft is an unquestionably positive opinion from the perspective of those favoring strong patent rights. It reaffirms the long-standing rule that patents must be proved invalid by clear and convincing evidence and settles the open question of whether the presumption should apply with equal force where a new invalidity issue not considered by the Patent Office was raised for the first time at trial.

Global-Tech Appliances v. SEB S.A.
If the Microsoft case is unquestionably good for patent owners, the Supreme Court's ruling in Global Tech is murkier. The Supreme Court's decision in Global-Tech addressed the standard of intent needed to prove a claim of indirect infringement for inducement under Section 271(b) of the Patent Act. The Federal Circuit in the case below held that "deliberate indifference" to a known risk that a patent exists was sufficient to create liability for induced infringement. The Supreme Court affirmed the ruling of the Federal Circuit but rejected the deliberate-indifference standard in favor of a more stringent willful-blindness standard. Under this standard a plaintiff must show at least two things: first, the defendant subjectively believed there was a high likelihood that infringement was occurring; second, the defendant took deliberate actions to avoid learning this fact. This heightened standard departs from the Federal Circuit's deliberate-indifference standard is two significant ways. It is no longer enough for a defendant to perceive a risk of infringement—now, it must be a subjectively high risk—and mere deliberate indifference will not suffice—the defendant must take some active step to avoid acquiring knowledge of the infringing acts. While this heightened standard will make the already difficult task of proving induced infringement harder for patent holders, it nevertheless can be seen as a positive for patent holders. In adopting the willful-blindness-standard, the Supreme Court did not adopt the even stricter requirement, urged by the petitioner, that the defendant have actual knowledge of the patent and the infringing acts.
Stanford v. Roche
Finally, the Supreme Court decision in Stanford v. Roche resolved the issue of whether the Bayh-Dole Act automatically vests title in an invention to a contractor, where the innovation arose from a federally funded project. Bayh-Dole was adopted over 30 years ago to deal with intellectual property arising from federal-government-funded research. That act reversed what had previously been an assumption of title in patent rights by the government, and allowed universities, small businesses, or non-profit institutions to pursue ownership of an invention in preference to the government.

Stanford sued Roche for infringing patents invented by a Stanford researcher who was under a duty to assign his inventions to the university. Roche challenged Stanford's ownership of the patent, relying on a line of cases holding that a promise to make a future assignment of an invention does not vest title in the invention or any patents claiming the invention. Stanford countered that the Bayh-Dole Act, which gives contractors (often research universities) a statutory option to gain title to inventions arising from federally funded research programs, automatically vested title in the inventions and later-issuing patents to Stanford. The Supreme Court affirmed the Federal Circuit, ruling that Stanford did not own the patent because the Bayh-Dole act does not automatically vest title to the invention in the federal contractor, basing its decision mainly on the plain meaning of the act.

While this decision has significant consequences for the parties, it will likely not have far-reaching or long-lasting implications for patent cases. University technology transfer offices are likely to address the issues raised by this case with better drafted assignment agreements with their employees, if they have not done so already. The clarity provided by the Court in Stanford v. Roche should ultimately favor small innovators seeking to retain patent rights.

While it is always difficult to predict where the Supreme Court is heading, these three cases suggest that the Supreme Court may have ended what appeared to be active efforts to cut back on patent-owner rights and return to a more neutral disposition in resolving patent cases. Whether these cases mark an actual change of course remains to be seen.

Jon E. Wright is a director at Sterne, Kessler, Goldstein & Fox P.L.L.C. where he focuses on complex patent litigation and appellate litigation in the courts, and complex reexamination practice before the United States Patent & Trademark Office. In particular, he has represented patent owners in over thirty inter partes and ex parte reexaminations involving concurrent district court or USITC proceedings, including appeals to the Board of Patent Appeals and Interferences (BPAI). Contact him at jwright@skgf.com.

Byron L. Pickard is an associate at Sterne, Kessler, Goldstein & Fox P.L.L.C. where he focuses his practice on patent infringement and patent validity suits, trademark and trade dress issues, copyright matters, and licensing disputes. Contact him at bpickard@skgf.com.

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