Adaptation of prior art bidding system to the web obvious under KSR and LeapfrogJuly 17, 2008

In a decision Monday, the Federal Circuit reversed a district court's permanent injunction and denial of judgment as a matter of law in a patent infringement case. A jury determined the asserted claims of the patent were not obvious and that the defendant willfully infringed, and awarded $38.5 million in damages, which the district court enhanced to nearly $77 million based on the willful infringement finding. After the jury reached its verdict, but before the district court ruled on the defendant's motion for judgment as a matter of law, the Supreme Court decided KSR. The district court considered KSR, but held substantial evidence supported the jury's conclusion of nonobviousness in part based on secondary indicia.On appeal, the Federal Circuit held some of the asserted claims were obvious as a matter of law under KSR and Leapfrog. The plaintiff's expert testified that the prior art contained all the elements of several asserted claims with the exception of perform the method using a web browser. The Federal Circuit noted the facts showed web browser technology was well-known at the time the patent was filed. Under KSR, "when a work is available in one field of endeavor, design incentives and other market forces can prompt variations of it, either in the same field or a different one," and in this case, additional prior art noted the desirability of the combination. As a result, the defendant had shown a prima facie case of obviousness. While the plaintiff asserted secondary indicia of nonobviousness rebutted this showing, the court held much of the evidence lacked a nexus with the claims, and the remainder was not sufficiently persuasive to overcome the strong prima facie case of obviousness.The court then addressed whether the defendant infringed the remaining claims. The infringement claim was based on a theory of joint infringement, and while the appeal was pending, the Federal Circuit decided BMC Resources, clarifying the standard for joint infringement. Under BMC Resources, one party must control or direct all steps of the claimed method in order for joint infringement to be found. Here, there was no such "mastermind," so the Federal Circuit held the remaining claims were not infringed.More detail of Muniauction, Inc. v. Thomson Corp. after the jump.Muniauction owns a patent directed to electronic methods for conducting original issue auctions of financial instruments. Specifically, the patent is directed to original issue municipal bond auctions over an electronic network, such as the internet, using a web browser. The patent references an earlier bidding system, the Parity^® electronic bid submission developed by 21st Century Municipals, Inc., which was similar to the claimed system but did not use a web browser to process the method. The defendant, Thomson Corporation, acquired 21st Century Municipals, and adapted the Parity^® system to the web.A jury found Thomson willfully infringed the asserted claims of the patent, and awarded Muniauction approximately $38.5 million for lost profits damages, which the district court enhanced to nearly $77 million based on Thomson's willful infringement. The jury also found the asserted claims not obvious. The district court permanently enjoined Thomson from continued infringement of the patent.After these findings, the Supreme Court decided KSR, altering the standard for determining whether a patent is obvious. Thomson filed a motion for judgment as a matter of law, but the district court denied the motion, finding substantial evidence supporting the jury's conclusion of nonobviousness, and that secondary indicia bolstered this conclusion. Thomson appealed.The Federal Circuit first addressed the question of obviousness of the broader asserted claims. The plaintiff's expert testified that Parity^® bidding system contained all the elements of the relevant claims with the exception of an automatic computation step and a web browser. The expert clarified on cross-examination that his conclusion that the Parity^® system did not perform the automatic computation step was because the Parity® system did not have "an automatically computing calculator," but performed the calculations on the bidder's computer. However, the district court construed the automatic computation step as capable of being performed on the bidder's computer, and as a result, Federal Circuit held the only possible conclusion was that the Parity® system only differed from the broad claims insofar as it did not use a web browser.The Federal Circuit then addressed whether it would have been obvious to one of ordinary skill in the art to modify the Parity^® system to incorporate conventional web browser functionality. The central inquiry was whether "the improvement is more than the predictable use of prior art elements according to their established function." The patent made reference to "conventional internet browser" and "conventional web browsing software," indicating web browsers were well known in the art at the time of the invention. The Federal Circuit then cited Leapfrog, stating "accommodating a prior art mechanical device . . . to modern electronics [is] reasonably obvious to one of ordinary skill" and that similarly, adapting existing electronic processes to incorporate modern internet and web browser technology was similarly obvious at time the patent was filed. Applying KSR and Leapfrog to this case, the Federal Circuit held the browser modification to Parity® represented a combination of two well-known prior art elements to a person of ordinary skill in the art and that therefore Thomson had clearly and convincingly established a prima facie case that the broader claims of the patent were obvious as a matter of law. Muniauction offered secondary indicia of non-obviousness, however the Federal Circuit held that the secondary indicia lacked "a nexus [with] the merits of the claimed invention" or was simply inadequate to overcome the evidence that the broader claims were obvious as a matter of law. Specifically, the court stated (emphasis added, internal quotations omitted): "commercial success or other secondary considerations may presumptively be attributed to the patented invention only where the marketed product embodies the claimed features, and is coextensive with them." In this case, for example, there was press coverage of an award given to the City of Pittsburgh for the use of the claimed system, however the broad claims encompassed both a conventional "all-or-none" bidding system as well as "maturity-by-maturity" systems. Pittsburgh only used a "maturity-by-maturity" system, and as a result, there was an insufficient nexus with the claims.Turning to the narrower claims, the court did not these claims obvious, but determined they were not infringed. The only theory of infringement advanced by Muniauction was that of joint infringement, as it was undisputed that at least some steps were performed by the bidder and others were performed by the accused software system. The court, citing BMC Resources, acknowledged that "a defendant cannot . . . avoid liability for direct infringement by having someone else carry out one or more of the claimed steps on its behalf," but a "claim is directly infringed only if one party exercises control or direction over the entire process such that every step is attributable to the controlling party." Here, the Federal Circuit held the fact that Thomson controlled access to its system and instructed bidders on its use was not sufficient to meet the standard for joint infringement. Muniauction had not offered a theory on how Thomson might be vicariously liable for the actions of the bidders, and Thomson had neither performed every step of the claimed methods nor had another party perform steps on its behalf. As a result, the Federal Circuit held that Thomson did not infringe as a matter of law.To read the full decision in Muniauction, Inc. v. Thomson Corp., click here.