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Upcoming IP decisions that should be on in-house counsel’s radar

Virginia Lawyers Weekly//April 29, 2014

Upcoming IP decisions that should be on in-house counsel’s radar

Virginia Lawyers Weekly//April 29, 2014

This term is a very active one for the U.S. Supreme Court in the area of intellectual property law.  The court has seven cases on its docket dealing with various issues of patent, false advertising, and copyright law.  Below is a quick primer on some of these cases, which are expected to have a significant impact on IP enforcement and licensing, for in-house counsel as they assist their companies in negotiating the ever-changing IP legal landscape.

Patent eligibility for computer-based inventions

Alice Corp. Pty., Ltd. v. CLS Bank Int’l, No. 13-298. This case tackles the question of the extent to which patent claims covering computer-implemented inventions can be considered patent-eligible subject matter under the patent statute.  The specific patent at issue claimed a computerized, software-based trading platform for exchanging obligations whereby a third party settles obligations between the trading parties to eliminate settlement risk.  The Federal Circuit found that the patent claims are directed to nothing more than an abstract idea, one of the exceptions to patentable subject matter established by prior Supreme Court decisions, and thus not patentable.

Why it matters.  Over the years, software-based inventions have proliferated and become pervasive across a broad range of industries.  The Alice Corp. decision could determine whether many of those patents remain valid in whole or in part.  The results could greatly impact the value of software-based patents, and the exposure for those companies defending infringement claims or considering taking licenses under such patents.

What to watch for.  Most observers believe that the Supreme Court will uphold the Federal Circuit’s opinion that the Alice Corp. patent does not claim patentable subject matter, but the question is whether the Court will provide a definitive test to be applied in assessing other patent claims.  The Federal Circuit opinion was fractured with no consensus as to the specific test that should be applied.  Without further guidance, the scope and value of software-based patents could remain very uncertain.  However, if the Supreme Court rejects the position that software-based inventions cannot be patent-eligible, a position some have advocated, then the value of those inventions will likely increase substantially.

Induced infringement standard

Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12-786. This case presents the question of whether a party can be held liable for inducing infringement under 35 USC § 271(b) when no single party committed direct infringement, the so-called “divided infringement” issue.  The Federal Circuit reiterated the established rule that there can be no induced infringement without proof of direct infringement (i.e., showing that all steps of a claimed method are performed), but held “that it is not necessary to prove that all the steps were committed by a single entity.”

Why it matters.  Most every allegation of patent infringement includes a charge of induced infringement.  A holding that the necessary direct infringement can be performed by multiple parties could provide much greater exposure to potential defendants and much more flexibility to patent owners in patent infringement cases going forward.

What to look for.  If the Supreme Court upholds the Federal Circuit, there is still the question of whether it will provide a test for determining when joint action is sufficient, for example, whether a plaintiff will need to establish that all were acting under the direction and control of the alleged inducer.  The highly-factual nature of such an inquiry could make early resolution (e.g., summary judgment) very difficult, and could place strains on the commercial relationships of parties accused to be joint tortfeasors.

Standing to bring false advertising claims

The recently issued decision in Lexmark Int’l v. Static Control Components, Inc., No. 12-873 (Mar. 25, 2014) addresses the test for establishing standing to bring a false advertising claim under the Lanham Act.  The case arose from a claim for false advertising against Lexmark based on its statements to its customers that a program designed to assure that used Lexmark printer cartridges were returned to Lexmark, and not a third-party remanufacturer, was legally binding on the customer, and to Static Control’s customers that Static Control’s microchip designed to make remanufactured printer cartridges compatible with Lexmark printers was illegal.  The 6th Circuit reversed the district court’s dismissal using a Second Circuit test (that has also been adopted in the 4th Circuit) that looks to whether the plaintiff has a “reasonable commercial interest” to protect from false advertising.

Why it matters.  Previously, at least three different tests had been applied by the various circuits to determine standing to bring a false advertising claim.  Most circuits rejected standing if the plaintiff was not a direct competitor of the defendant or only indirectly harmed by the false advertising.  That approach essentially required a showing that the false advertising resulted in a plaintiff’s lost sale that went directly to defendant, and generally prevented standing when the alleged damages were deemed to remotely relate to the false or misleading statements.  The new ruling now sets a single two-part standard for establishing standing that will apply consistently in all circuits.

What to look for.  Companies now have much broader opportunities to bring false advertising claims where another commercial actor makes misleading statements that damage that company’s business reputation and sales.  As the Supreme Court noted, this standing is consistent with one of Congress’ stated purposes in enacting the Lanham Act, namely, to protect persons engaged in commerce from acts of unfair competition.  In this case, those acts consisted of assertions of exclusive intellectual property rights that the plaintiff alleged were false and misleading.

Standard for award of attorneys’ fees

In Octane Fitness, LLC v. Icon Health and Fitness Inc., No. 12-1163, the Supreme Court will address whether the Federal Circuit’s two-part test for establishing that a case is “exceptional,” and thus subject to an award of attorneys’ fees under the patent statute, usurps a trial court’s discretionary authority to award attorney fees to prevailing defendants.  The Federal Circuit test requires a moving party to establish first that the claim is “objectively baseless,” and, if so, that it was brought in subjective bad faith.  In a non-precedential opinion, the Federal Circuit refused to substitute an “objectively reasonable” standard for “objectively baseless,” and credit the prevailing defendant’s argument that the patent owner took unreasonable positions regarding claim construction.

Why it matters.  A consistent theme in several of the IP cases before the Supreme Court is the extent that the deference historically given to trial court findings should be maintained in patent cases.  In addition to Octane Fitness, the court will tackle that question in the context of attorneys’ fee awards in a companion case (Highmark Inc. v. Allcare Health Mgt. Sys., No. 12-1163) and the fact findings underlying claim construction (Teva Pharmaceuticals USA, Inc. v. Sandoz Inc., No. 13-854).

What to look for.  Recasting issues as a pure matter of law could streamline proceedings at the trial court, but will also virtually assure that every decision will be appealed, with the appeals court being asked to reweigh anew the trial court’s decisions.  This could significantly destabilize the certainty that is supposed to be available once a final decision is issued by the trial court.
For any company dealing with IP issues, which is essentially every company, the Supreme Court’s decisions in the foregoing cases should be closely watched and consulted.  These decisions will significantly shape all aspects of the IP landscape, including licensing, enforcement, and business relationships in which IP issues are prominently involved.

– By Cecil E. Key. Key is of counsel to the law firm of DiMuroGinsburg in Alexandria.

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