MVS Filewrapper® Blog: H.R. 3309 – The Innovation Act

On December 5, 2013, the U.S. House of Representatives passed H.R. 3309, the "Innovation Act", with bipartisan support by an overwhelming margin of 325-91 votes.  H.R. 3309 was drafted to address the perceived growing problem of abusive patent litigation attributed to alleged “patent trolls.”  Early next year, the Senate will likely consider a companion bill, S. 1720, the "Patent Transparency and Improvements Act of 2013", previously introduced by Senator Leahy (D-VT).  While S. 1720 has similar goals of H.R. 3309, the bills have many provisions that are not shared or coextensive.  Thus, it remains to be seen what impact H.R. 3309's passage will have on Senate deliberations in light of the fact the bill enjoys support from the White House.  If legislation passes the Senate, then the House and Senate bills will need to be reconciled in conference committee and sent to the President's desk for signature.  In the meantime, the Senate Committee on the Judiciary will address the issue by holding a hearing entitled "Protecting Small Businesses and Promoting Innovation by Limiting Patent Troll Abuse" on December 17, 2013.

 

Supporters of H.R. 3309 praised its passage as instituting important patent reforms made necessary after the passage of the America Invents Act (P.L. 112-29).  Particularly, the bill heightens pleading standards; requires patent plaintiffs to name anyone who has a financial interest in the patent being litigated; requires courts to delay the discovery process until after claim construction is determined; creates a voluntary process for small businesses to postpone patent lawsuits while their larger sellers complete similar patent lawsuits against the same plaintiff; and, allows a manufacturer to intervene in a lawsuit against its customers and have the action stayed for the customer if both the customer and manufacturer agree.  The centerpiece of the legislation is a fee-shifting provision that requires courts (with some exceptions) to award prevailing parties reasonable attorneys' fees and other expenses when parties bring frivolous lawsuits or claims that have no reasonable basis in law or fact.  Proponents of this legislation include broad support from the technology sector, including internet companies such as Google, Microsoft, Amazon, and Apple.  H.R. 3309 is also favored by brick-and-mortar industries such as restaurants, retailers, realtors, hotels, casinos, airlines, and the auto industry.

 

On the other side, opponents of H.R. 3309 are concerned that the fee-shifting provision would likely favor wealthy parties while discouraging small inventors from pursuing legitimate patent infringement claims.  Opponents include members of the biotechnology and pharmaceutical industries, the Intellectual Property Owners' Association, patent attorneys, and even universities—which warned that the legislation would harm their patent-licensing revenues.  Notably, the Biotechnology Industry Organization ("BIO") believes that the Act will undermine biotech research and innovation, as it would ultimately make it more difficult for patent holders with legitimate claims to protect their intellectual property.  In a press release, BIO stated "[p]rovisions in the legislation would erect unreasonable barriers to access justice for innovators, especially small start-ups that must be able to defend their businesses against patent infringement in a timely and cost-effective manner, and without needless and numerous procedural hurdles or other obstacles."

 

Additional information about H.R. 3309 and S. 1720 will be available shortly from MVS. 

Nondisclosure of test results disclosed to testifying expert results in sanctions, but not dismissal

In a recent decision, the Federal Circuit affirmed-in-part and reversed-in-part a district court's ruling sanctioning the plaintiffs and their attorney in a case both monetarily and by striking the plaintiffs' pleadings.  The sanctionable conduct was the withholding of certain test results of the allegedly infringing product that arguably showed the product did not infringe.  The test results were disclosed to the plaintiffs' expert witness, but never disclosed to the defendants.  When asked to explain their conduct, the plaintiffs and their lawyer testified they believed (mistakenly) the results were either irrelevant or subject to work product protection, although it was never listed on a privilege log.  As a result of this, the district court struck the plaintiffs' complaint and answer to counterclaims, and also ordered the plaintiffs to pay over $121,000 in attorney fees under Rule 37, nearly $1 million in fees and expenses under the court's inherent authority, over $1.6 million in fees under § 285, and nearly $50,000 in costs under § 1920.

The Federal Circuit agreed with the district court's finding that the conduct was sanctionable, but reversed-in-part the actual sanctions applied.  Specifically, the court held striking the pleadings was too drastic a sanction.  As a result, the awards under § 285 and § 1920 were also reversed, as they have a prevailing party requirement.  The court also reversed the award under the court's inherent powers, noting that under Supreme Court jurisprudence, when a Rule provides adequate sanctioning power, a court should ordinarily rely upon the Rule rather than its inherent authority.

More detail of ClearValue, Inc. v. Pearl River Polymers, Inc. after the jump.

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Today's Federal Circuit practice tip: don't misrepresent the record or the law

In a recent decision, the Federal Circuit awarded sanctions against the plaintiff-appellant for filing and pursuing a frivolous appeal against one of four defendant-appellees.  The court observed the plaintiff-appellant failed to explain how the district court erred in its determination that this defendant did not infringe and also made misrepresentations of the record and law in its briefing on appeal.

In a separate decision under Rule 36, the court affirmed the district court's determination that the cases against each of the defendants were exceptional under 35 U.S.C. § 285 and the associated award of attorney fees against the plaintiff.  

More details of E-Pass Techs., Inc. v.  3Com Corp. after the jump.

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Failure to disclose patents to SSO results in unenforceabilty against products using standard

In a recent decision, the Federal Circuit affirmed-in-part a district court decision that a patentee had breached a duty to disclose relevant video-compression technology patents while participating in a joint video team standards-setting organization (SSO).  The Federal Circuit, however, reversed in part the district court decision finding the patents unenforceable against the world, instead holding the patents should only be held unenforceable against products embodying the applicable video standard.

The court affirmed the district court's finding that the case was exceptional and awarding attorney fees to the defendant.  The plaintiff had concealed the existence of tens of thousands of relevant documents throughout discovery, with their existence not revealed until near the end of trial (we previously blogged about the district court's decision awarding fees here).  The Federal Circuit held this litigation misconduct was sufficient to support the exceptional case finding even absent the failure to disclose the patents to the SSO.

More on Qualcomm Inc. v. Broadcom Corp. after the jump.

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First Circuit: Don't expect to win on appeal if you admit 7 of 8 likelihood of confusion factors

In a decision Friday, the First Circuit affirmed a district court's summary judgment of trademark infringement and an associated award of the defendant's profits and attorney fees to the plaintiff.  The defendant used the plaintiff's registered marks in both the metatags of its website as well as in white text on a white background in the body of the site in an effort to cause consumers searching for the plaintiff's marks on an internet search engine to be more likely to go to the defendant's website instead.  Over the course of discovery, the defendant essentially admitted that seven of the eight Pignons factors weighed in favor of the plaintiff, and accordingly the district court granted summary judgment, awarding the plaintiff an equitable share of the defendant's profits and attorney fees.

The First Circuit affirmed, holding that even if the final factor, evidence of actual confusion, was neutral or favored the defendant, it was not error for the district court to grant summary judgment for the plaintiff given the admissions on the other seven factors.  Further, the court held the award of profits was proper, as the plaintiff only had to prove the defendant's gross sales under 15 U.S.C. § 1117(a).  Because the defendant did not offer evidence of its costs, the district court's award of profits was proper.  Further, the award of attorney fees was not an abuse of discretion, given the defendant's admission that it intentionally used the plaintiff's marks in order to divert traffic to its website.

This is an instance where companies would do well to remember that while how search engines work is generally secret, it is widely believed that metatags have no effect on search engine ranking, although some search engines may use them for indexing purposes.  However, if the point of their use is to increase the site's position in the search results (as it usually is, and was in this case), they are basically useless and, as shown here, a potential basis for liability.

More detail of Venture Tape Corp. v. McGills Glass Warehouse after the jump.

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Finding of inequitable conduct without considering materiality vacated

In a decision on Friday, the Federal Circuit reversed a district court's summary judgment of invalidity and noninfringement and subsequent finding of inequitable conduct.  The court also vacated the district court's exceptional case finding and the associated award of attorney's fees.

The plaintiff was initially awarded partial summary judgment of infringement of six patents.  The district judge then assigned a special master to examine the remaining issues in the case, including invalidity and inequitable conduct.  The case was then transferred to a new judge who, without written opinion, overturned the plaintiff's ruling of summary judgment and awarded partial summary judgment of noninfringment and invalidity.  The judge then held a brief bench trial on the issue of inequitable conduct, where the plaintiff was only allowed to present inventor testimony regarding candor and good faith; all evidence of materiality was precluded.  After this trail, the court, from the bench, made a ruling of inequitable conduct against the plaintiff, ruled the case was exceptional under § 285, and awarded attorney's fees.

The Federal Circuit reversed, vacated, or remanded every ruling made by the trial court.  Specifically, the court held that in order to support a finding of inequitable conduct, there must be threshold findings of both materiality and intent to deceive.  Here, the district court only examined intent, rendering the record insufficient to support a holding of inequitable conduct.  The court also held the district court's findings regarding intent to deceive were clearly erroneous.  On top of that, the court held the summary judgment rulings "lack[ed] findings for judicial review," and that "the record show[ed] many potential issues of fact that would prevent entry of summary judgment."  Given the district judge's handling of the case, the court further ordered the case reassigned to a new trial judge on remand.

More on Research Corp. Tech., Inc. v. Microsoft Corp. after the jump.

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Seventh Circuit: Prevailing defendants should have greater presumption of fees in copyright cases

In a decision Wednesday, the Seventh Circuit reversed a district court's denial of attorney fees to a prevailing defendant in a copyright case.  The district court found that, as a matter of law, no copyright infringement occurred, but declined to award attorney's fees.

The Seventh Circuit reversed.  The court held the suit was frivolous, and brought in bad faith.  The plaintiff deposed all of the defendant's customers and several potential customers, resulting in the defendant losing several customers.  Further, the plaintiff was not eligible for statutory damages and had suffered no actual damages, and even if there was infringement, the defendant's profits were not tied to the infringement, as the asserted copyright was in a compilation of OSHA regulations that would be easily replaced by simply copying the appropriate regulations anew.  

The court also criticized other courts (such as the Sixth Circuit) who have held prevailing defendants are only entitled to attorney fees in copyright cases when the claims are "colorable, albeit meritless," as not in compliance with the Supreme Court's Fogerty v. Fantasy, Inc. decision.  In rejecting this position, the court offered some favorable dicta for defendants:

If there is an asymmetry in copyright, it is one that actually favors defendants. The successful assertion of a copyright confirms the plaintiff's possession of an exclusive, and sometimes very valuable, right, and thus gives it an incentive to spend heavily on litigation.  In contrast, a successful defense against a copyright claim, when it throws the copyrighted work into the public domain, benefits all users of the public domain, not just the defendant; he obtains no exclusive right and so his incentive to spend on defense is reduced and he may be forced into an unfavorable settlement.
More concerning Eagle Servs, Corp. v. H2O Indus. Servs., Inc. after the jump.

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Failure to consider evidence of good faith leads to reversal of inequitable conduct finding

In a decision last week, the Federal Circuit affirmed a district court's finding of no infringement and invalidity for obviousness, and reversed the district court's finding of unenforceability due to inequitable conduct.

The Federal Circuit, citing KSR, noted that an obviousness analysis can take account the inferences and creative steps that a person of ordinary skill in the art would employ, and held that there was a only small logical gap between the prior art and the claim at issue that could be closed by a person of ordinary skill in the art pursuing known options within his or her technical grasp and therefore the claim was obvious.  

Regarding inequitable conduct, the court reaffirmed that intentionally misleading or false statements made in a petition to make special can lead to a finding of unenforceability, even if the statements do not relate to the patentability of the invention, as long as the false statement succeeds in obtaining expedited review of the application.  Here, however, the evidence was just as susceptible to the inference that intentional misrepresentations occurred as to the inference that the statements were either innocent, not misleading, or both.  As stated by the court: 

Whenever evidence proffered to show either materiality or intent is susceptible of multiple reasonable inferences, a district court clearly errs in overlooking one inference in favor of another equally reasonable inference.  All reasonable inferences must be drawn from the evidence, and a judgment then rendered on the evidence as informed by the range of reasonable inferences.
Here, the district court clearly erred because it failed to give due weight to evidence of good faith that would call for inferences contrary to a finding of deceit.  As a result, the finding of inequitable conduct was reversed.  The district court also affirmed the finding of noninfringement.

More detail of Scanner Tech. Corp. v. ICOS Vision Sys. Corp. after the jump.

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Litigation misconduct and inequitable conduct lead to exceptional case, fees for defendant

In a decision yesterday, the Federal Circuit affirmed an award of attorneys' fees for a prevailing defendant in an infringement case.  The district court held the case was exceptional under § 285 because the patent holder had engaged in inequitable conduct (a finding previously affirmed), asserted frivolous claims, and engaged in litigation misconduct.  The district court also held that it would be manifestly unjust to force the defendant to pay the plaintiff's expert witness fees under Rule 26(b)(4)(C)(i).

The Federal Circuit affirmed.  While the individual acts may not have been sufficient to find the case was exceptional, the ultimate conclusion was not clearly erroneous.  The Federal Circuit was very reticent to question the district court's finding of litigation misconduct, stating:  "it ill behooves an appellate court to overrule a trial judge concerning litigation misconduct when the litigation occurred in front of the trial judge, not the appellate court."

Judge Newman dissented.  In her opinion, the district court and panel majority applied too low a standard for a case to be considered "exceptional."  Citing the Federal Circuit's previous opinion affirming the finding of inequitable conduct, she noted the court stated the actions that led to the finding "may have been an oversight."  With this low level of "bad" conduct, Judge Newman would have reversed the award of attorney fees.

More concerning Nilssen v. Osram Sylvania, Inc. after the jump.  

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Three sentences insufficient to explain why a case is exceptional

In a decision yesterday, the Federal Circuit vacated an award of attorney fees under § 285.  The district court only provided a three-sentence explanation as to why the case was exceptional.  The Federal Circuit found this insufficient, as there was no explanation of the facts underlying the findings made by the court.  As a result, the court vacated the award and remanded for more detailed findings.

More detail of Innovation Techs., Inc. v. Splash! Med. Devices, LLC after the jump.

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