Typhoon Touch v. Dell: Claims Saved From Aristocrat Invalidity But No Infringement Found

By Chris Reaves

A massive infringement suit against the major players in the touch-screen mobile market ended in the Federal Circuit, which confirmed that two patents required that a computer have specific software installed, not merely the capacity to run said software should it be installed.  In a small comfort to the patent holder, the Circuit also reversed a holding that certain patent claims were unsupported means-plus-function claims, finding that a textual description of the procedure involved qualified as an “algorithm” for Aristocrat purposes.

Background

In 1988, prosecution began on a chain of patent applications that culminated in Patents No. 5,379,057 (‘057) and No. 5,675,362 (‘362), issued in 1995 and 1997 respectively.  Both patents disclosed a “portable, keyboardless computer” with components including “a touch-sensitive screen … configured for entry of responses” and an “application generator for generating [at least one] data collection application and for creating different functional libraries”.

Typhoon Touch Technologies, Inc., the present assignee of the patents, sued numerous producers of tablets and smart phones for infringement of the patents.  However, in examining the claims at issue, the district court found that some were invalid as indefinite, and regardless that none were infringed as construed.  It therefore dismissed the case, and Typhoon Touch appealed the dismissal to the Federal Circuit.

Ruling 1: Devices Must Be Configured to Perform Function In Order to Infringe

Typhoon first protested the district court’s decision that, in various means-plus-function terms, the allegedly infringing structure “must perform the recited function”.  Under the rule of Microprocessor Enhancement Corp. (520 F.3d 1367), Typhoon argued, it was sufficient that the structure could be configured or programmed to perform the function, and therefore devices without said programming could still infringe.  The Circuit panel was unmoved, stating that although Microprocessor did allow for infringement by a structure already capable of performing a required function, it did not reach one that first needed to be “specifically so programmed or configured.”

Additionally, the district court had interpreted “keyboardless” to have its ordinary meaning: “without a mechanically integrated keyboard.”  The specification stated that the device was “keyboardless in that it does not require a keyboard for use”, which according to Typhoon redefined “keyboardless” to mean it could take input without a physical keyboard even if it had one.  However, although the Circuit acknowledged that a patentee may change the ordinary meaning of a term in the specification, it found no evidence of that in the instant case.  To the contrary, the specification was full of criticism of the use of mechanical keyboards in general, and never once disclosed a device with an integrated keyboard.

The panel also found no importance in Typhoon’s argument that the district court “constru[ed] the claims in order to target the accused devices and demonstrate their non-infringement.”  Rather, it stated, “[I]t is not inappropriate for a court to consider the accused devices when construing claim terms, for the purpose of ‘claim construction’ is to resolve issues of infringement.”

The Circuit therefore upheld all constructions of the district court. As Typhoon conceded that its patents were not infringed under the district court’s construction, the panel also upheld the judgment of non-infringement.

Ruling 2: Software Means-Plus-Function Claims Require Only a Procedure

In a Pyrrhic victory for Typhoon, the Circuit reversed the decision of invalidity for three claims that included a “means for cross-referencing said responses…” The district court had held these to be indefinite under § 112 ¶ 2, finding no “algorithm” in the description to perform the function, as required for software means-plus-function claims by Aristocrat Technology (521 F.3d 1328).  However, the Circuit found the district court’s interpretation of “algorithm” too restrictive in the context of computing.  A step-by-step procedure was sufficient – computer code was certainly not required – and although the Typhoon patents did not disclose this procedure through a flow chart, a “prose” disclosure in the text of the description served the same purpose.

“[T]he amount of detail that must be included in the specification depends on the subject matter that is described and its role in the invention as a whole, in view of the existing knowledge in the field of the invention.”  Because the specification described the steps of the cross-referencing procedure in terms that “a programmer of ordinary skill” could implement, the Circuit found the claims were supported and reversed the district court’s holding of indefiniteness.  It was no “concession,” as the district court felt it was, that Typhoon admitted “the specific algorithm connoting the structure of the means for cross-referencing element is not explicitly disclosed in the specification.”

Post-Case Analysis

The Circuit’s requirement of specific configuration seems not only sound but necessary, at least in the context of hardware and software.  Modern computers are quite capable of being programmed to run any number of procedures.  Once one has a computer meeting the hardware elements of a claim, no matter how general those elements, one can always install the software elements later, but that should not make the computer alone an infringement.  Presumably, the software is part of what makes the patent patentable, or the prosecutor would have patented the hardware alone, so a valid construction should not effectively make the software elements moot.  (Of course, if the hardware itself is specially designed to run the software in question, contributory infringement principles apply even without a software installation.  But this assumes the hardware has no other uses, and here it did.)

The opinion did not even address an argument that Typhoon tried to emphasize during oral arguments: that the patent claimed priority back to 1988, when hardware capable of executing the software (now ubiquitous) was itself new and arguably inventive.  This issue was beside the point.  Typhoon did not patent the hardware itself; it patented the hardware combined with software (at minimum, the “application generator”).  Again, if it did so because the hardware by itself was not new and unobvious even in 1988, removing the software requirement would have been a gross misreading of what the Patent Office had granted.  If it did so because the prosecutors were too focused on the software and did not consider the potential of the hardware alone, this serves as a lesson to future prosecutors: always remember to claim pieces as well as the whole, if the pieces are also inventive.  One never knows for sure which pieces might be discarded and which might come to dominate the market.

In regards to the “keyboardless” definition, the lesson is simply to remember that CCS Fitness (288 F.3d 1359) asks you to “clearly” redefine terms if you plan to do so.  Do not count on a court to pick up on subtleties and make the inference you want; be explicit with language such as “we define the term X herein to mean…”  Alternatively, use more natural terminology in the first place, such as, in this case, “capable of keyboardless data entry.”

In an interesting aside, the Circuit endorses a court molding its construction around the defendant’s claims, or at least focusing on the most applicable elements.  This approach would mean that the construction of a claim may vary depending on its first alleged infringer.  Issue preclusion applies to Markman constructions, albeit inconsistently and not in all circumstances (see RF Delaware (326 F.3d 1255), which applies a regional circuit’s law of preclusion).  And invalidation of a claim is binding in all courts even if a different construction would have saved the same claim.  It may be wise, therefore, to consider where and how a patent’s boundaries will be tested before deciding which infringing device to sue over first.

As is often the case, even the patent owner’s victories show where it could have drafted a better patent.  As Typhoon stated in oral arguments, had the cross-referencing procedure disclosed in the description been converted to a figure or flow chart, “we wouldn’t be here.”  The attorney meant it as an argument in support of validity, but it’s also a warning to future prosecutors: next time, include the flow chart.  Sometimes, it is the difference between a procedure a skilled programmer can understand and one she can’t, and even if not, it helps the judge understand it.

The opinion is available at: http://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1589.pdf

Oral arguments may be heard at: http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2009-1589.mp3

Federal Circuit Defines Language of 35 U.S.C. § 271(e)(2) in a Hatch-Waxman Controversy

By Kevin M. Repper

In the case of AstraZeneca Pharmaceuticals LP v. Apotex Corp., No. 2011-1182 (Fed. Cir. 2012), Astrazeneca holds the rights to three patents related to the drug rosuvastatin calcium. Two of the three patents involve methods of using rosuvastatin compounds. One of which is a method of treating heterozygous damilial hypercholesterolemia (HeFH) and the other is a method of lowering cardiovascular disease risk for individuals who have normal cholesterol levels but demonstrate elevated circulating C-reactive protein (CRP). The method of use patents expire in 2021 and 2018, respectively.

Apotex, a generic pharmaceutical manufacturer, filed an Abbreviated New Drug Applications (ANDA) with the FDA seeking to market generic rosuvastatin for treating hypercholesterolemia (HoFH) and hypertriglycerdemia while omitting or “carving out” patented indications directed towards the treatment of HeFH and elevated CRP. Under the Hatch-Waxman Act, the filed ANDA must provide a list of all the related patents and if the method of use patents do not claim a use for which the applicant is seeking approval, an applicant may instead submit a statement under 21 U.S.C. § 355(j)(2)(A)(viii) averring that the ANDA excludes all uses claimed in the patent (Section viii). Apotex properly submitted the Section viii statements regarding Astrazeneca’s method patents.

Astrazeneca brought an action against Apotex alleging that Apotex’s ANDAs, as filed, violated § 271(e)(2) because the use of the drug is claimed in AstraZeneca’s method patents. According to § 271(e)(2),  “it shall be an act of infringement to submit an application…for a drug claimed in a patent or the use of which is claimed in a patent…if the purpose of such submission is to obtain approval under such Act to engage in the commercial manufacture, use, or sale of a drug…claimed in a patent of the use of which is claimed in a patent before the expiration of such patent.” Astrazeneca argued that because their method patents claim any use of the drug, Apotex’s filed ANDA falls within the meaning of § 271(e)(2) and has infringed on their patents.

However, the court took a different stance. The court understood the term “use” from § 271(e)(2) to mean “the use listed in the ANDA.” Accordingly, the court held that it is not necessarily an act of infringement under § 271(e)(2) to submit an ANDA for a drug if just any use of that drug is claimed in a patent; rather, infringement of method claims under § 271(e)(2) requires filing an ANDA wherein at least one “use” listed in the ANDA is claimed in a patent. The court concluded that there can be no cause of action for infringement of a method of use unless the accused ANDA actually seeks approval for a patented indication.

An obvious solution for patent holders is to patent the drug itself. Astra has a patent that claims rosuvastatin compounds and pharmaceutical compositions containing such compounds, however the patent was due to expire years prior to the expiration of the method patents. Also, Apotex is challenging the validity of the composition patent in another co-pending litigation. Other solutions may include determining as many methods of treatment for as many diseases as you can and patenting those methods. This however takes a lot of time and a lot of resources.

Another possible option would be to patent the method of what the drug actually does in the body in addition to the disease that the drug treats. For example, rosuvastatin calcium serves to reduce circulating cholesterol by competitively inhibiting 3-hydroxy-3-methylglutaryl-CoA reductase. A patentable method claim of rosuvastatin calcium could have been a method of inhibiting 3-hydroxy-3-methylglutaryl-CoA reductase.  This method claim would likely be broad enough to cover most methods of treatment of any particular disease, especially if the diseases were listed the specification. Therefore, the court may have ruled that the use was in fact covered by the claims.

Federal Circuit Finds Noninfringment of System Claim Since No Single Entity Owns Each Element of Claim

In McKesson Tech, Inc. v. Epic Systems Corp., 98 USPQ2d 1281 (Fed. Cir. 2011), McKesson is the owner of U.S. Patent No. 6,757,898 (the ‘898 patent).  The ‘898 patent is directed to a communication method between doctors and patients in which patients are able to access webpages with customized content specific to the doctor and patient, such as allowing appointments and providing prescription refill requests.  Continue reading

Supreme Court Defines Inducement Standard to Include Willful Blindness of Patent Being Infringed

Supreme Court Mildly Narrows Federal Circuit Standard of Deliberate Indifference

In Global-Tech Appliances v. SEB S.A., 563 U.S.____; 98 USPQ2d 1665 (2011), SEB, a French maker of home appliances, filed a lawsuit against Pentalpha for direct infringement and active inducement of another in infringing of U.S. patent 4,995,312. Pentalpha is a wholly owned subsidiary of Global-Tech Appliances, Inc.

SEB designed an innovative deep fryer and obtained patent ‘312 in 1991, subsequently SEB commenced production of the fryer under the T-Fal brand in the Untied States. Sunbeam products, a U.S. competitor of SEB, requested Pentalpha Enterprises Ltd. to supply it with deep fryers of specific specification. While developing a fryer for Sunbeam, Pentalpha purchased a SEB fryer, in Hong Kong, which did not bear a patent identifier. Pentalpha copied all but the cosmetic details of the SEB fryer. Pentalpha then retained an attorney to perform a right-to-use study, but failed disclose that the design was copied directly form the SEB fryer. The attorney failed to locate the SEB patent, and in August 1997 issued a letter stating that in his opinion Pentalpha’s fryer did not infringe any of the patents he had found. Continue reading

Supreme Court Upholds the Clear and Convincing Standard for Invalidity Defense to Patent Infringement

In Near Unanimous Decision, Supreme Court Confirms Established rule    

In Microsoft Corp. v. i4i LTD. Partnership, 179 L. Ed. 2d 770; 79 U.S.L.W. 3567 (2011), i4i owns a patent for an improved method for editing computer documents.  i4i brought suit against Microsoft for willful infringement of that patent. Microsoft counterclaimed and sought a declaration of invalidity under 35 U.S.C. §102(b), claiming that the “invention” had been on sale in the United States for greater than one year prior to the filing of the patent.

Specifically, the parties agreed that a program known as S4 was sold by i4i in the Untied States for greater than a year prior to filing of the patent in question. The parties however, disagree that S4 embodied the invention claimed in i4i’s patent.  Moreover, since the source code for S4 was destroyed, Microsoft could only rely on testimony to prove what S4 embodied.  At the conclusion of trial, Microsoft objected to i4i’s proposed jury instruction that Microsoft was required to show that the S4 program anticipated the claimed invention by clear and convincing evidence, and relied upon the fact that the S4 program was never before the United States Patent and Trademark Office (USPTO) while the application was pending.   The District Court overruled Microsoft’s objection, and the jury found both infringement and willful infringement of the i4i patent.  The Federal Circuit affirmed the District Court’s decision relying on established case law. Continue reading

Federal Circuit Defines When A System Is Being Used Where No Party Owns All of the System Elements

In Centillion Data Systems v. Qwest Communications International, 631 F.3d 1279; 97 U.S.P.Q.2D  1697 (Fed. Cir. 2011), Centillion is the owner of U.S. Patent No. 5,287,270 (the ‘270 patent”), which is drawn to a system for collecting and processing billing information from a service provider and electronically delivering the billing information from the service provider to a customer in a format usable on a personal computer.  As construed by the Federal Circuit, claim 1 recites a system for presenting information comprising “1) storage means for storing transaction records, 2) data processing means for generating summary reports as specified by a user from the transaction records, 3) transferring means for transferring the transaction records and summary reports to a user, and 4) personal computer data processing means adapted to perform additional processing on the transaction records.”  Centillion acknowledged that claim features 1) through 3) are performed at a backend at the service provider and claim feature 4) is maintained by a front end (i.e., the user). Continue reading

Federal Circuit finds Successor Company Liable for Infringement by Prior Company

In Funai v. Daewoo (DEC, DEAM, DECL, and DECA), 2010 U.S. App. LEXIS 18237 (Fed. Cir., September 1, 2010), Funai is the owner of six patents relating to reducing a cost of manufacturing of video cassette recorders (VCRs) and disclosed electrical and mechanical features of the VCRs.  In May 2004, Funai Electric Co., Ltd. (Funai) brought suit against Daewoo Electronics Corp. (DEC) and its U.S. subsidiary, Daewoo Electronics America, Inc. (DEAM) and also the two entities’ predecessors, Daewoo Electronics Co., Ltd. (DECL) and Daewoo Electronics Corp. of America (DECA) in the U.S. District Court for the Northern District of California for infringement of six of Funai’s U.S. patents.

DECL and DECA stopped participating in the lawsuit in May 2005 by presenting no defense against the accusations and by refusing discovery. Consequently, the District Court entered default judgment against DECL and DECA, and awarded $6,956,187 in damages to Funai.  DECL and DECA did not appeal the decision, nor did they pay the penalties assessed against them.  As such, Funai asserted that DEC and DEAM, which were the successors to DECL and DECA were liable for the judgment.

After pre-trial motions, the District Court held that three of the six patents were not infringed and that the remaining patents (Patent Numbers: 6,021,018; 6,421, 210; and 6,064,538) would be under consideration in the infringement trial.  The jury found that Funai’s ‘018 and ‘210 patents were willfully infringed by Daewoo under the doctrine of equivalents and that the ‘538 patent was willfully infringed under either the doctrine of equivalents or was literally infringed and awarded Funai $7,216,698 against DEC and $2,298,590 against DEC and DEAM as well as attorney fees and expenses.

The District Court handled the matter as to whether DEC and DEAM were liable for the judgment against DECL and DECA.  The District Court chose to apply the successor liability law of South Korea and found that neither DEC or DEAM were liable for the judgment against DECL and DECA.  Daewoo appealed the findings of infringement, claim indefiniteness and damages, and Funai cross-appealed the findings of no enhanced damages and no successor liability.

Holder Gear Limitation

The ‘018 patent is directed towards movement of a cassette in a VCR and attending features that allow such movement while decreasing a size of the VCR and claim 1 recites a “holder drive gear for driving said cassette holder via a gear mechanism so said cassette holder is positioned in the initial position when said slide arm is positioned at a first position, and is positioned in said play position when said slide arm is positioned at a second position.”  The District Court granted summary judgment that the “holder driver gear” limitations were not literally infringed, but the jury found infringement of the limitation under the doctrine of equivalents.  Funai appealed the decision that claims 1-4 of the ‘018 patent are not literally infringed.  With respect to a cassette ejection sequence, the Federal Circuit Court stated, that “[t]he Daewoo ejection sequence is similar, but the actions occur in the reverse order.”  The Federal Circuit further noted that the District Court held that Daewoo’s cassette decks could not be literally infringing because they use a slide arm cam, pin and springs to move the cassette holder.  Therefore, the Federal Circuit affirmed the District Court’s holding of no literal infringement.

Insulating Material Limitation

The ‘210 patent’s recitation of “insulating material” was also raised as an issue in appeal.  The ‘210 patent recites “a motor which is mounted on said deck chassis…said motor being electrically insulated form said deck chassis…said direct driving motor including…a bearing holder…wherein said bearing holder is made of an insulating material.”  The District Court found that Daewoo did not literally infringe the ‘210 patent with respect to the insulating material.  Funai challenged the finding of no literal infringement and Daewoo challenged the District Court’s definition of “insulating material,” and asserts that prosecution history estoppel bars infringement under the doctrine of equivalents.

On review, the Federal Circuit noted that the District Court interpreted “insulating material” to be “a material with poor electrical conduction.” Daewoo asserted that such an interpretation is fatally flawed because it uses comparative language, in that “poor” is a relative term.  Daewoo argued that a numerical value, corresponding to the ‘210 specification, should be used.  Funai argued that one of ordinary skill in the art would understand what “poor electrical conduction” means.  The Federal Circuit Court stated that “[t]he use of comparative and functional language to construe and explain a claim term is not improper,” and found that “[n]o error can be attributed to this use of comparative and functional explanation in construing these claims.

Funai next appealed the District Court’s judgment that Daewoo’s material was not an insulating material as defined by the District Court.  The Federal Circuit Court noted that both the Funai and Daewoo products use Lexan, which is brand name polycarbonate resin.  However, Daewoo’s expert testified that Daewoo’s material contained carbon fibers, which increased the thermal and electrical conductivity.  Daewoo’s expert also stated, on cross-examination, that the Daewoo polycarbonate is 1 million to 100 million times less conductive than metal.  Funai asserted that the cross-examination admission would let a reasonable jury find that Daewoo’s polycarbonate is an insulating material, as recited in the ‘210 patent.  The Federal Circuit noted that the District Court stated that Funai “failed to produce any evidence that one of ordinary skill in the art would consider Daewoo’s bearing holders to be made of material with ‘poor electrical conduction,’” and that such a finding by the District Court was supported by the evidence produced in the cross-examination and at other places.  The Federal Circuit went on to state that even if summary judgment was improperly granted, infringement was decided with respect to the doctrine of equivalents, and thus, literal infringement was not tried.

No Prosecution History Estoppel Where Claim Made Independent For Reasons Other Than Feature Used for Equivalency

On the issue of infringement under the doctrine of equivalents, the jury found infringement of the ‘210 patent under the doctrine of equivalents.  Daewoo appealed this finding because prosecution history estoppel precluded infringement under the doctrine of equivalents.  However, because the insulating material was not a ground for rejection during the prosecution of the ‘210 patent, the District Court stated that prosecution history estoppel does not apply and denied summary judgment on this matter.

The Federal Circuit noted that, during the prosecution of the ‘210 patent, the Examiner rejected claims 1-3 and 6 in view of two pieces of prior art viewed in combination, one of which was relied upon to disclose the motor electrically insulated from the deck chassis.  The Examiner also stated that claim 4 had allowable subject matter, so the applicant cancelled the rejected claims and rewrote claim 4 to be in independent form, which issued as claim 1.  Daewoo, in appeal, asserts that the scope between claims 1 and 2 and 4 was surrendered, and cites Honeywell, 370 F.3d at 1141, which states that “[a] presumption of surrender…arises if rewriting the dependent claims into independent form, along with canceling the original independent claims, constitutes a narrowing amendment.”  Funai, in contrast, asserted that cancelling claims 1 and 2 is not a narrowing amendment because there was no rejection with respect to the insulating material.  In finding to estoppel, the Federal Circuit noted the insulating material had no bearing on the allowance of claim 4, and thus, the insulating material was “merely tangential.”  The Federal Circuit went on to find that “the district court correctly held that the cancellation of claims 1 and 2 did not surrender access to equivalency with respect to the insulating material.  The district court appropriately tried the question of equivalency to the jury,” and the Federal Circuit Court affirmed the judgment of the jury.

Series Circuit Feature: Interpretation Which Excludes Embodiments Not Allowed

The ‘538 patent is directed towards an oscillation circuit of magnetic erasing heads used in VCRs. Daewoo appealed the District Court’s claim construction, and asserted that the jury’s finding of infringement is predicated upon such.  Specifically, the Federal Circuit noted that Daewoo contests how the District Court construed the claim 1 limitation of “series circuit” with respect to the phrase “through a series junction point.”  The District Court’s construction found that the series junction point does not need to be between two heads of the VCR recited in claim 1.  The District Court relied upon the specification, which has figures showing the junction point at various locations both between and not between the heads of the VCR.

The Federal Circuit affirmed the District Court’s claim interpretation because Daewoo’s interpretation would exclude embodiments included in the figures of the ‘538 patent.  Daewoo also contested the validity of the claims 1, 3 and 4 of the ‘538 patent for failure to meet claim definiteness, an issue that was decided by the District Court as a matter of law if the jury found the claims to be infringed.  Daewoo asserts that there are grammatically inconsistent uses of the terms “at least,” “between,” and “one of,” and that such terms, and in particular “at least,” are inconsistent with ordinary use.  However, the Federal Circuit found that the District Court “construed the terms to implement their meaning as manifested in the specification and the prosecution history, and correctly rejected Daewoo’s charge of indefiniteness.”

Notice and Damages

The Federal Circuit Court also addressed the damages awarded to Funai.  At issue was when Funai gave notice of infringement to Daewoo.  Funai claimed that notice was given by a letter on April 3, 2003, naming the six patents, and naming two models of Daewoo’s VCRs as the infringing products.  Daewoo disputed that the letter was sufficient notice as per any other Daewoo VCRs, and thus, damages assessed against those other Daewoo VCRs being further limited than from the date of the Funai letter.  The Federal Circuit relied upon Gart v. Logitech, Inc., 254 F.3d 1334, 1346 (Fed. Cir. 2001) for proposition that “a letter must be sufficiently specific to support an objective understanding that the recipient may be an infringer.” The Federal Circuit further noted that “[t]he letter must communicate a charge of infringement of specific patents by a specific product or group of products.” Armsted Industries Inc. v. Buckeye Steel Castings Co., 24 F.3d 178, 187 (Fed. Cir. 1994).  Moreover, the Federal Circuit went on to state that “when the threshold specificity is met, the ensuing discovery of other models and related products may bring those products within the scope of the notice.”  The Federal Circuit thus held that a reasonable jury could have considered these factors in the jury’s calculation of damages, as it was instructed to do in this case, and that it has not been shown that the jury’s award does not implement this instruction.

Patent Marking and Damages

Funai asserted that damages should have been awarded from the date of Daewoo’s start of infringement, with respect to the ‘018 patent because it was marked, and thus there was constructive notice.  The jury was instructed on marking requirements, and Daewoo did not object to the instructions.  On appeal, Daewoo asserted that the marking statute permits no shortcoming in completeness of marking.  Funai states that it marked 88%-91% of its retail products, and that the remaining sales were done by Funai’s original equipment manufacturer (OEM).

The Federal Circuit noted that evidence showed that 88% of Funai’s products were retail sales marked with the ‘018 patent in 2003 and that, in 2004, 91% were.  Daewoo’s argument for lack of completeness of marking relied upon American Medical Systems, Inc., v. Medical Engineering Corp., 6 F.3d 1523, 1537 (Fed. Cir. 1993), which states that a marking “must be substantially consistent and continuous in order for the party to avail itself of the constructive notice provisions of the statute.”  However, the Federal Circuit Court notes that a “rule of reason” is provided by Maxwell, 86 F.3d at 1111-12, which states that the rule is “consistent with the purpose of the constructive notice provision—to encourage patentees to mark their products in order to provide notice to the public of the existence of the patent and to prevent innocent infringement.”  The Federal Circuit affirmed the District Court’s finding that “th[e] evidence constitutes substantial evidence from which the jury could find that Funai’s marking of products that incorporated the ‘018 was ‘substantially consistent and continuous.’”

Successor Liability for Awarded Damages

The Federal Circuit addressed the issue of successor liability.  As noted above, at the outset of the present lawsuit, Funai brought action against four Daewoo entities, DEC and DEAM, and their respective predecessors, DECL and DECA, and DECL and DECA stopped participating in the lawsuit.  The District Court entered a default judgment against DECL and DECA, jointly and severally, for patent infringement between January 1, 2001 and October 25, 2002.  Neither DECL nor DECA paid the judgment of $8,066,112.  Funai entered a motion that the judgment be assessed against DEC and DEAM. The District Court rejected this motion by applying South Korea law, which does not allow for successor liability unless it is assumed by contract.

Funai appealed the District Court’s decision as South Korean law is not applicable to the successor liability of DECA and DEAM, because they are U.S. companies and because it’s claim against DEAM and DECA is not a contract claim.  However, Funai did not challenge the District Court’s decision as to the South Korean companies, DECL and DEC.

The Federal Circuit summarized Funai’s argument as being “Funai stresses that the issue is the liability of a successor to a United States company for the judgment of a United States court for infringement of United States patents by activities in the United States by a United States corporation doing business in the United States,” and that such actions should be governed by U.S. laws and the applicable state law.

As to the application of South Korean law, the District Court held that it applied to the transfer between DECA and DEAM in the U.S. because:

“Korea has a strong interest in having its law applied because the Transfer Agreement was a contract entered in Korea between tow Korean corporations, where most of the assets transferred were also in Korea…to the extent that the transfer between DECA and DEAM was an outgrowth of the Transfer Agreement…the same expectation would apply to the issue of successor liability in that context.”

The Federal Circuit stated that it did not need to consider successor liability as per the South Korean companies DECL and DEC, but rather only needs to look at the successor liability of DEAM for infringement conducted by DECA.  Further, the Federal Circuit noted that the issue at hand is “whether a domestic corporation incurring a judgment of a United States court is insulated from that judgment if the judgment would not be enforceable under the laws of its foreign parent.”  The Federal Circuit went on to note that the District Court emphasized the interests of Daewoo over the interests of New Jersey in applying New Jersey law to businesses operating in New Jersey.  However, the Federal Circuit held that the District Court was in error in applying South Korean law so as to not apply successor liability to DEAM for the judgment against DECA.  The Federal Circuit stated that “[t]his is not a question of conflict with foreign law, or choice between domestic and foreign law, for no foreign law is involved in this question of successor liability for a default judgment for violation of United States law,” and thus, reversed the District Court’s decision to apply South Korean law.

The Federal Circuit went on to address which U.S. state law was applicable to DEAM and DECA as per successor liability.  The Federal Circuit analyzed the California and New Jersey law as per successor liability, and noted that DEAM is a Florida corporation.  The Federal Circuit also noted that neither party of the lawsuit finds there to be a material difference between the successor liability laws of New Jersey, California and Florida, and that Funai argues that New Jersey law should be applied, with the District Court relying upon New Jersey law when comparing U.S. law to South Korean law.  The Federal Circuit also chose to apply the law of New Jersey because that state was found to be the principal place of business for DECA and DEAM.

In reviewing DECA’s transfer to DEAM, the Federal Circuit Court stated that “[i]t is not disputed that DECA’s sales activities in the United States continued as DEAM without interruption, at the same corporate headquarters and sales facilities in New Jersey, with substantially the same managers and other employees,” and notes that New Jersey precedent presents a four factor test for successor liability, Woodrick v. Jack J. Burke Real Estate, Inc., 703 A.2d 306, 312:

(i)   continuity of management, personnel, physical location, assets, and general business operations;  (ii)       a cessation of ordinary business and dissolution of the predecessor as soon as practically and legally possible; (iii)assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the predecessor; and (iv) continuity of ownership/shareholders.

The Federal Circuit noted that Woodrick also states that “the most relevant factor is the degree to which the predecessor’s business entity remains intact.  In applying this rule, the Federal Circuit found that DEAM continued the business operations of DECA, and that “the transfer between DECA and DEAM was simply a “new hat” for DECA,” and thus found DEAM to be liable for the default judgment against DECA in the present case, thus overturning the District Court’s decision as per successor liability.  Thus, the Federal Circuit Court upheld the District Court’s decisions as per the infringement of the ‘018, ‘210 and ‘538 patents, and reversed the District Courts decision as per successor liability, thus finding DEAM liable for DECA’s patent infringement.

Federal Circuit Finds Reference to “Present Invention” Limits Scope of Claims and No Willful Infringement Where Commercially Reasonable Time is taken to Change Infringing Product to Non-Infringing Product

In Trading Technologies Int’l, Inc. (TT) v. Ecco LLC, Eccoware Ltd., and eSpeed Int’l, Ltd. (eSpeed), 595 F.3d 1340;93 U.S.P.Q.2D 1805 (Fed. Cir. 2010), TT owns both U.S. Pat. No. 6,772,132 (‘132 patent) and U.S. Pat. No. 6,766,304 (‘304 patent).  The ‘132 and the ‘304 patents share a common provisional filing date of March 2, 2000.  The ‘132 patent was filed on June 9, 2000 and issued on August 3, 2004.  The ‘304 patent, which is a divisional patent of the ‘132 patent, was filed on June 27, 2001 and issued on July 20, 2004.  Both patents relate to software displaying an electronic commodity market.  The market consists of bids, or offers to purchase, and asks, or offers to sell.  The software has a graphical user interface (GUI) having a dynamic display for the bids and asks and a static display for prices corresponding to the bids and asks.  Prior art software displayed an “inside market” which was the best or highest bid price and the best or lowest ask price, which reflect the current price of the commodity.

However, the prior art displayed grids for the inside market that did not move. Thus, if a trader saw a price on the inside market on which they wanted to act, the trader could mistakenly click on the wrong price while a new price in the inside market appeared before they clicked on their intended price.  In contrast, TT’s software had a static price column, and thus, the best bid and best ask would move up and down along the price column to reflect the current state of the market.  As such, a trader could click on the intended price box and know that a transaction at the clicked price would occur, while not worrying that an accidental order at an incorrect price occurred because the inside market had changed before the order was processed.

TT filed suit in the U.S. District Court for the Northern District of Illinois alleging that eSpeed’s products, which are trading platforms and software for trading commodities on eSpeed’s electronic exchanges, infringed TT’s patents.

The accused eSpeed products include Futures View, Dual Dynamic, and eSpeedometer, with the accused products being the same in all relevant aspects, as the latter products are redesigns of the original product.  Also, eSpeed acknowledged that Futures View satisfied all claim limitations of the patents in suit.  eSpeed was sold before the ‘132 and ‘304 patents were issued.  However, TT and eSpeed disagreed on whether Dual Dynamic and eSpeedometer use a “static display of prices” or a “static price axis,” which are recited by the ‘132 and ‘304 patents, respectively.  Dual Dynamic re-centered price levels by either a manual operation by a user or by an automatic operation if the inside market shifted by a predetermined amount, however, the automatic operation could not be disabled by users.  eSpeedometer, on the other hand, only had an automatic re-centering operation, wherein the entire market display would adjust after each change in the inside market.

The products were variously sold during the suit, with Futures View being sold before the TT’s patents issued, and replaced with Dual Dynamic in December 2004 before a hearing for a preliminary injunction in the case.  eSpeedometer replaced Dual Dynamic after the District Court found that Dual Dynamic likely infringed TT’s patents.  After trial, the District Court held that Futures View still infringed asserted claims of the ‘132 patent and the ‘304 patent.  The District Court also held that other accused products were not literally infringing TT’s ‘132 and ‘304 patents, and that TT was barred from using doctrine of equivalents to assert infringement.  Furthermore, the District Court found there to be no on-sale bar under 35 U.S.C. §102(b) by giving the ‘132 patent and the ‘304 patent filing dates corresponding to a common provisional application.  Additionally, the District Court found that there was no indefiniteness with respect to the asserted claims of the ‘132 and ‘304 patents.

Specifically, the District Court found that neither Dual Dynamic nor eSpeedometer literally infringed on the ‘132 or ‘304 patents.  As per infringement under the doctrine of equivalents, the District Court held that Dual Dynamic did not infringe under the doctrine of equivalents because finding infringement would obviate the term “static” and that prosecution history estoppel prevented application of doctrine of equivalents to eSpeedometer.  As such, the District Court granted summary judgment of non-infringement with respect to Dual Dynamics and eSpeedometer.

With respect to eSpeed’s Future View, the District Court, during a jury trial, granted several of TT’s motions, including barring eSpeed from asserting an on-sale bar defense, and barring expert testimony asserting that the claim construction of “single action of a user input device” was indefinite.  The jury found that Futures View willfully infringe the ‘132 and ‘304 patents, however, the District Court vacated the jury’s finding of willful infringement and reduced the damages awarded to TT.  Additionally, the District Court found that TT did not engage in inequitable conduct and denied eSpeed’s motions on validity, indefiniteness, priority date, and patent misuse defense.  Both TT and eSpeed appealed the District Court’s holding.

On appeal Federal Circuit, while noting that numerous issues were raised by both parties on appeal, stated that TT’s appeal focuses on patent infringement, while eSpeed’s appeal focuses on patent validity.  TT appealed the District Court’s claim construction as per “common static price axis” and “a static display of price,” and argued that Dual Dynamic and eSpeedometer infringe under TT’s claim construction.  Additionally, TT asserted that Dual Dynamic infringes under the doctrine of equivalents without obviating the word “static,” and that prosecution history estoppel does not preclude eSpeedometer from infringing the TT patents under the doctrine of equivalents.  eSpeed, in the appeal, asserted:  (1) that the ‘132 and ‘304 patents should not be dated back to the provisional application dates; (2) that the patents are invalid under the on-sale bar; (3) that the term “single action of a user input device” is indefinite; and (4) that TT engaged in inequitable conduct.

Narrow Claim Construction in View of “Present Invention” And Only One Embodiment

The Federal Circuit reviewed the grant of summary judgment of non-infringement with respect to Dual Dynamic and eSpeedometer with out deference, and reviewed the District Court’s claim construction order under Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996).  TT asserted that the District Court’s construction of “static” in the limitations of “static display of prices” and “common static price axis” in the ‘132 and ‘304 patents to be incorrect.  The District Court construed “static display of prices” to mean “a display of prices comprising price levels that do not change positions unless a manual re-centering command is received.”  Similarly, the District Court construed “common static price axis” to mean “a line comprising price levels that do not change unless a manual re-centering command is received and where the line of prices corresponds to at least one bid value and one ask value,” with the District Court noting that “a static condition – requires permanency” so that “the price axis never changes positions unless by manual re-centering or re-positioning.”

Thus, the Federal Circuit noted that under the District Court’s interpretation, the ‘132 and the ‘304 patent only cover manual re-centering without automatic re-centering.  However, the Dual Dynamic and eSpeedometer include automatic re-centering corresponding to changes in the inside market.  The specifications of both the ‘132 and ‘304 patents state that “The values in the price column are static; that is, the do not normally change positions unless a re-centering command is received.”  The Federal Circuit noted that although the District Court’s construction may seem narrower than the inventor’s definition of “static” because the District Court added that the re-centering command is to be manual, the claims, specification and prosecution history estoppel support the District Court’s definition.  Thus, the Federal Circuit agreed with the District Court’s claim construction.

While elaborating on the support for the claim construction found in the specification, the Federal Circuit stated that they recognize that relying on the specification heavily may lead to an improper risk of reading a preferred embodiment into the claim, unless the patentee evinces a clear intention that the preferred embodiment represents the claim.  (See Saunders Group, Inc. v. Comfortrac, Inc., 492 F.3d 1326, 1332 (Fed. Cir. 2007)).  In reviewing the specification, the Federal Circuit found that the “reference to ‘the present invention’ strongly suggests that the claimed re-centering command requires a manual input, specifically, a mouse click. See Honeywell Int’l, Inc. v. ITT Indus., 452 F.3d 1312, 1318 (Fed. Cir. 2006) (concluding that the invention was limited to a fuel filter because the specification referred to the fuel filter as ‘this invention’ and ‘the present invention’).”  The Federal Circuit further noted that the specification did not disclose alternate embodiments, such as automatic re-centering.  As such, the Federal Circuit stated that “[t]his court takes some comfort against this risk from the inventors’ use of the term “the present invention” rather than “a preferred embodiment” or just “an embodiment.”

The Federal Circuit went on to detect any contrary intentions as per the embodiment, and noted that all claims of the ‘132 patent include a “wherein” clause stating that “the static display of prices does not move in response to a change in the inside market.”  As such, the claims of the ‘132 patent excludes automatic re-centering upon a change in the inside market.

TT further argued that even if the “re-centering command” is interpreted as manual in the ‘132 patent, the District Court cannot limit the claims to only recited elements because the claims use a transitional phrase “comprising.”  Thus, TT asserts that the claims also cover features not recited, such as automatic re-centering.  The Federal Circuit responded by stating that “automatic re-centering is not an additional feature, but rather negates a claimed requirement that the price level remains static and does not move….Thus, this court construes the claims to require a manual re-centering command.”  The Federal Circuit also pointed to the prosecution history in noting that the Examiner initially rejected the claims because “static display” was indefinite.  The Federal Circuit stated that the Examiner allowed the claims, in part, based upon the applicant’s explanation that “the values in the price column…do not change (unless a re-centering command is received).”    Furthermore, the Federal Circuit also noted that a manual re-centering of the price column may avoid mistakes that may arise from an automatic re-centering of the price column, as found in the prior art.  Thus, the Federal Circuit stated that:

[t]he invention’s contribution to the prior art, its specification, and its prosecution history show that the static display of prices cannot move without a manual re-centering command from the trader.  Accordingly, the District Court correctly construed disputed word “static.”

Thus, the Federal Circuit found that eSpeed’s Dual Dynamic and eSpeedometer do not literally infringe on the ‘132 and ‘304 patents because eSpeed’s products have mandatory re-centering features.

No Doctrine of Equivalents Due to Claim Vitiation and Prosecution History Estoppel

With respect to the doctrine of equivalents, the Federal Circuit noted that, under the all-elements rule, it is required to consider “the totality of circumstances of each case and determine whether the alleged equivalent can be fairly characterized as an insubstantial change from the claimed subject matter without rendering the pertinent litigation meaningless.”  Freedman Seating Co. v. Am. Seating Co., 420 F.3d 1350, 1359 (Fed. Cir. 2005).  As per the claim vitiation if doctrine of equivalents is found, the Federal Circuit stated that claim vitiation “applies when there is a ‘clear, substantial difference or a difference in kind’ between the claim limitation and the accused product. Id. at 1360.  It does not apply when there is a ‘subtle difference in degree.’  Id.

The Federal Circuit stated that occasional automatic re-centering, as may occur with Dual Dynamic, is not an insubstantial difference, and that they must surmise the difference between a price axis that moves only in response to a trader’s command and one that moves without prompting.  In noting that Dual Dynamic’s automatic re-centering allows for the problems of the prior art, wherein an inside market price may move while a trader was executing a deal, the automatic re-centering is substantially different than the invention of the ‘132 and ‘304 patents.  Therefore, the Federal Circuit affirmed the District Court’s holding that the doctrine of equivalents does not show that Dual Dynamic infringes.

The Federal Circuit also agreed with the District Court’s decision that prosecution history estoppel bars TT from asserting doctrine of equivalents to show that eSpeedometer infringes the patents in suit.  The Federal Circuit noted that TT submitted a prior art reference describing a static price display after the USPTO issued a notice of allowance, and requested that the application be withdrawn from issuance.  TT amended claims that issues as claim 1 of their respective patents, with similarly recited limitations stating that price displays do not move in response to the inside market changing.  TT argued that “do not move” being amended into the claims did narrow the claims because they already recite “static.”  However, the Federal Circuit noted that TT’s argument is circular because the District Court has construed “static” to mean not moving, and thus, the claims of the ‘142 and ‘304 patents would still be limited to manual re-centering.  Thus, the Federal Circuit found that the inventors surrendered any subject matter that moves automatically during prosecution, and affirmed the District Court’s holding that Dual Dynamic and eSpeedometer don not infringe the ‘132 and ‘304 patents under the doctrine of equivalents.

No Willful Infringement

As per TT’s appeal on the District Court finding no willful infringement, the Federal Circuit noted that they, in In re Seagate Technology, LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007), held that “proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness.”  The Federal Circuit went on to note that neither party disputes that eSpeed began redesigning Futures View immediately after TT commenced the infringement suit.  The Federal Circuit then stated that “[p]rompt redesign efforts and complete removal of infringing products in a span of a few months suggest that eSpeed was not objectively reckless.”  Furthermore, TT could not show that eSpeed sold Future View to new customers, or that they delayed in updating Future View with the non-infringing Dual Dynamic.  Thus, the Federal Circuit affirmed the District Court’s grant of JMOL motion on willful infringement that no reasonable jury could have found eSpeed to be willfully infringing the ‘132 and ‘304 patents.

“Single Action” Claim Term Definite and Supported by Provisional Application

As per the contention on whether the limitation of “single action of a user input device” is indefinite, the Federal Circuit upheld the District Court’s ruling that the term, as construed, is sufficiently definite.  The Federal Circuit stated that “[t]he district’s court’s construction correctly sets objective boundaries by distinguishing the invention from multiple-action systems found in the prior art.”  The District Court found that “an action” means one user action, even including sub-elements such as two separate clicks of a double-click, if the user views all sub-elements as one action.  Additionally, the Federal Circuit stated that one of ordinary skill in the art would find a non-ambiguous difference between singular and multiple user actions, even with the District Court’s construction that a single action be executed in a “short period of time.”

With respect to eSpeed’s contention of the patents in suit having a priority date of the provisional applications filed on March 2, 2000, the Federal Circuit looked to the provisional application as an adequate written description under 35 U.S.C. §112, par. 1.  At contention was the fact that all claims recite a “single action of a user input device,” whereas the provisional application only recites “a single click of a computer mouse.”  The Federal Circuit states that “[o]n summary judgment, the parties’ experts disagreed that the provisional application showed possession of forms of order entry other than “a single click of a computer mouse”,”…and thus, there was “a dispute of material fact about whether the disclosure of a species, i.e., “one click of a mouse,” was sufficient to show that the inventors possessed the genus, i.e., “single action of a user input device.”  Thus, the Federal Circuit held that the District Court did not abuse its discretion in determining there was a dispute of material fact and precluding a grant of summary judgment on the issue.

The Federal Circuit also found that the District Court’s jury instruction was not legally erroneous, and that the District Court did not abuse its discretion by allowing TT’s expert witness to testify generally about the written description requirement.   Lastly, the Federal Circuit looked at the merits and found that the jury’s verdict was supported by substantial evidence on record showing that the written description was adequate.  The Federal Circuit noted that “the parties’ experts did not dispute that one of ordinary skill in the art would have know about other forms of “single action” such as a double-click or pressing a key,” and thus, “disclosure of a species in this case provides sufficient written description support for a later filed claim directed to a very similar and understandable genus.”  Therefore, the Federal Circuit found that the ‘132 and ‘304 patents were entitled to claim priority to the provisional application.

No On Sale bar for Service Contract to Build Invention

The District Court granted a motion in limine precluding eSpeed from alleging the on-sale bar defense, and eSpeed appealed the decision.  eSpeed relied upon the fact that Harris Brumfield, one of the inventors, hired TT to build trading software according to his idea.  TT and Brumfield entered into a contract, Individual Consulting Agreement #2 (ICA2), in which TT would build trading software according to Brumfield’s specifications.  TT delivered the software to Brumfield in February 1999, and Brumfield paid TT for the custom software on March 2, 1999.  The Federal Circuit affirmed the District Court’s de facto decision that ICA2 was not a sales transaction for a product embodying the patented invention, as is required for an on-sale bar under 35 U.S.C. §102(b).

The Federal Circuit stated that the ICA2 was a contract for hourly programming services, and not a computer software license, as eSpeed contended, and that Brumfield did not sell or offer anything for sale that would embody the invention.   Additionally, no product was ever sold to Brumfield.  Thus, the Federal Circuit stated that “[i]nventors can request another entity’s services in developing products embodying the invention without triggering the on-sale bar,” and that Brumfield’s contract with TT did not constitute a sale under 35 U.S.C. §102(b).

With respect to TT’s alleged inequitable conduct, the Federal Circuit found that the District Court was correct in finding that TT did not engage in such by not disclosing Brumfield’s custom software to the USPTO because the software wasn’t material to the question of patentability.  Brumfield used the software after March 2, 1999, however, the Federal Circuit stated that the “District Court did not clearly err by finding that Brumsfield’s software was immaterial given that his use of the software after the priority date would not have changed the examiner’s analysis of the patent.”  eSpeed further alleges that TT should have disclosed the “sale” of the software from TT to Brumfield, and Brumfield’s testing of the software to the USPTO.  The Federal Circuit noted that the ICA2 contract was not a sale under 35 U.S.C. §102(b) and that Brumfield tested the software for his own personal purposes, confidentially, and that he kept the software secret until he and TT filed the provisional application.  Thus, the Federal Circuit found no inequitable conduct on the part of TT.

Summary

In summary, the Federal Circuit upheld the District Court on all matters decided by the District Court.  Particularly, the Federal Circuit noted that the use of “the present invention” rather than “a preferred embodiment” or just “an embodiment” in the specification can be used to support the Federal Circuit Court’s use of the specification’s embodiment as reflecting the claims.  Additionally, the Federal Circuit found that, in the present case, prosecution history estoppel can be used to bar the use of doctrine of equivalents.  The Federal Circuit also stated that “disclosure of a species in this case provides sufficient written description support for a later filed claim directed to a very similar and understandable genus,” in finding the provisional application an adequate written description for the ‘132 and ‘402 patents.  Also, the Federal Circuit held that “[i]nventors can request another entity’s services in developing products embodying the invention without triggering the on-sale bar.”  Therefore, the Federal Circuit found no reversible error and affirmed the District Court’s decision.

Significance for Patent Owners and Applicants

In Trading Technologies Int’l, the Federal Circuit again emphasizes the importance of the specification in defining claim terms using the specification.  The Federal Circuit scoured the specification looking for a more expansive definition given to a particular claim term, and were unable to find alternative embodiments which would have allowed such an expansive interpretation.  Indeed to the contrary, the Federal Circuit found that the applicants had not even indicated that the claim term was only an embodiment, and instead emphasized that the claim term was part of the present invention, as opposed to only an embodiment of the present invention.  Therefore, when drafting claims and specifications, it is important that the specification include multiple embodiments for each claim term and avoid characterizing any particular embodiment as being the invention as opposed to an example of that invention.

Federal Circuit Clarifies Knowledge Required for Inducement

Federal Circuit Clarifies Standards for Inducement and for Sales in the United States.

In SEB S.A. v. Montgomery Ward & Co., 93 USPQ2d 1617 (Fed. Cir. 2010), SEB manufactures and sells cooking products in the United States through a subsidiary T-Fal Corp.  SEB owns U.S. Patent No. 4,995,312 (the ‘312 patent), which is directed to a deep fryer that is sold in the U.S. through T-Fal.  Pentalpha is a Hong Kong corporation who sold a deep fryer to Sunbeam Products, Inc., which then sold the fryers in the U.S. using the remaining defendants.  In developing the fryer, Pentalpha purchased SEB’s fryer in Hong Kong, and copied SEB’s fryer.

Pentalpha asserted that the fryer it purchased in Hong Kong was not marked with a patent number.  However, the majority of fryers SEB sold in the U.S. were marked with the ‘312 patent.

Pentalpha had obtained a right-to-use study from a U.S. attorney for its fryer.  This study indicated that the fryer was not infringing a U.S. patent.  Notably, the study did not cover the ‘312 patent, and Pentalpha did not reveal to its counsel that the fryer was copied from a competing product sold by SEB or T-Fal.  Pentalpha then provided its fryer free-on-board (fob) to Sunbeam in Hong Kong using Sunbeam’s U.S. brand, and Sunbeam imported the fryer into the U.S.

On learning of the fryer sold by Sunbeam, SEB sued Sunbeam for infringing the ‘312 patent in 1998.  Sunbeam settled the suit by agreeing to pay SEB $2 million.

Pentalpha also sold the accused fryer to others, including defendant Montgomery Ward, after Pentalpha learned of the suit against Sunbeam.  In these sales, the accused fryers were also branded with trademarks used by defendant Montgomery Ward, and were also delivered fob in Hong Kong or China.  Further, the invoices all clearly indicated that the purchasers were in the U.S.

On learning of these additional sales, SEB brought suit against Montgomery Ward and Pentalpha in 1999.  The jury found that the accused fryer sold by Montgomery Ward and Pentalpha infringed the ‘312 patent, and found Pentalpha to have infringed the ‘312 patent directly under 35 U.S.C. §281(a), and under a theory of inducement under 35 U.S.C. §271(b).

On appeal, the Federal Circuit confirmed that the accused fryer did infringe the ‘312 patent. However, Pentalpha further argued that it should not be liable for direct or induced infringement under 35 U.S.C. §271(a) or (b) since the sales were fob in Hong Kong, and since there was no evidence that Pentalpha actually knew of the ‘312 patent.

Direct Infringement for Selling in the U.S.

On the issue of whether Pentalpha could be liable for making an offer to sell the infringing fryer, the Federal Circuit noted that it has not precisely defined the extent to which foreign acts can be used to show an offer to sell for purposes of 35 U.S.C. §271(a).  Citing to Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d 1246, 1260 (Fed. Cir. 2000), the court noted that prior caselaw appears to hold that infringement under 35 U.S.C. §271(a) is not possible where all acts occur overseas, but there is no clear holding of the such in relation to offers for sale.

 

However, the Federal Circuit noted that it need not define the extraterritorial effect of 35 U.S.C. §271(a) since the only evidence that the sale occurred overseas was the fob language in the sales.  The fob language in the invoices relates only to where the risk of loss occurred and not to the location of the sale itself.  The Federal Circuit noted that its caselaw expressly found that fob language does not control the location of a sale for purposes of infringement.  Litecubes, LLC v. N. Light Prods., Inc., 523 F.3d 1353, 86 USPQ2d 1753 (Fed. Cir. 2008).

Moreover, while there was a lack of evidence that the sale occurred outside of the United States, the record showed that Pentalpha intended to sell the infringing fryers to U.S. customers, affixed the marks used by the U.S. customers, used electrical fittings used in the U.S., and identified in the invoices the U.S. destination of each shipment.  Thus, as there was sufficient evidence in the record to support a finding that the offers for sale were in the United States as opposed to overseas, the Federal Circuit upheld the finding of direct infringement under 35 U.S.C. §281(a).

Inducement Includes Where Infringer Deliberately Avoided Knowledge of Patent

On the issue of the knowledge requirement for 35 U.S.C. §271(b), the Federal Circuit first noted that the level of intent was recently decided in DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006) (en banc).   Under DSU, the intent required for inducement is that the infringer knew or should have known that the infringer’s actions would result in infringement, which would “necessarily” include a requirement that the inducing infringer knew of the patent.  In distinguishing from DSU, the Federal Circuit clarified that, in DSU, it was undisputed that the inducing infringer actually knew of the patent.  Therefore, DSU does not answer the question of when does the inducing infringer know of the patent

In resolving the question, the Federal Circuit noted that inducement requires a specific intent to cause another’s infringement.  Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 699 (Fed. Cir. 2008).  Further, the Federal Circuit took note that other courts have found in other like contexts that deliberate indifference is the same as specific intent.   Thus, “the standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge.”

In applying this standard, the Federal Circuit found that the evidence supported a finding that Pentalpha “deliberately disregarded a known risk that SEB had a protective patent.”  Such evidence included the fact that Pentalpha copied the SEB design; hired outside counsel to perform the right-to-use study without informing the counsel that it copied the design from SEB; and was headed by a President who had detailed knowledge of patent law and had worked on other projects with SEB in which SEB patented the resultant product.  There was no evidence that Pentalpha reasonably believed the fryer was not patented.  Thus, the Federal Circuit found that Pentalpha exercised deliberate indifference to the existence of a patent, and that this deliberate indifference was sufficient to show inducement to infringe under 35 U.S.C. §271(b).

Significance for Patent Owners and Foreign Sellers

As discussed more completely in the below Feature Comment, SEB confirms that offers for sale by foreign entities can still be infringing under 35 U.S.C. §271(a) where much of the activity is directed to a U.S. purchaser.  Additionally, SEB confirms that inducement can occur even where patent owner is deliberately avoiding finding patent.  As such, foreign producers of goods need to be aware that, even where they do not directly import goods into the United States, their sales can still incur liability under the right set of facts such as those in SEB.

The Supreme Court Clarifies Definition of “Component” Under 35 U.S.C. §271(f) As Applies to Software

Supreme Court Holds Exported Software Copied Abroad And Installed in Computer Does Not Infringe Apparatus Claims

On April 30, 2007, the United States Supreme Court issued its decision in Microsoft Corp. v. AT&T Corp., 127 S. Ct. 1746; 82 USPQ2d 1400 (2007), which reversed the Federal Circuit’s decision and found that liability under 35 U.S.C. §271(f) does not extend to copies of software made abroad and installed in foreign computers.  Continue reading