Posted On: April 30, 2007

Preemption Test Focuses on Conduct, Not Remedy

Since state-law unfair competition and other tort claims often accompany allegations of patent infringement, the question of whether the state claims are preempted by the patent scheme assumes importance in intellectual-property litigation. Judge Joseph J. Farnan Jr. recently addressed the question of preemption for a variety of tort claims brought in the Knova Software-Inquira patent litigation.

Intentional Interference with Prospective Economic Relationships and Unfair Competition. One aspect of the traditional test of preemption involves whether a party's state-law claim contains an element in addition to those necessary to establish infringement. The Court here, however, was faced with a damages-based claim: Plaintiff Knova contended that because it pleaded damages recoverable solely under the state law claim, it properly alleged an element divorced from the infringement counts. Rejecting this assertion, the Court reaffirmed that the preemption test "focus[es] on the conduct of the defendant, not remedies that may be available to plaintiffs." Accordingly, the Court found that the patent act preempted Knova's interference and unfair competition claims.

Unjust Enrichment. Addressing a rare unjust enrichment count, the Court declined to find a preemptive effect until discovery closed. Knova argued that defendant's allegedly infringing sale of bundled software services conferred an "incremental benefit" on defendant compensable apart from the infringement. But the Court could not discern from the complaint whether Knova simply sought a "patent-like remedy for making, using, or selling a patented product." In the face of this uncertainty, the Court allowed the unjust enrichment claim to proceed without prejudice to raise the question of preemption after completing discovery on the other claims.

<%media(20070430-Knova.pdf|Knova Software Inc. v. Inquira Inc., C.A. No. 06-381-JJF (D. Del. April 27, 2007) (Farnan, J.).)%>

Posted On: April 26, 2007

Link Between the Blackberry and Vonage Cases?

A reader posted an interesting comment on Patently-O today about the Federal Circuit's recent grant of an "emergency stay" of the permanent injunction that issued in the Vonage-Verizon litigation:

After all the bad press over refusing the stay in the Blackberry case and letting the Virginia judge force a greater than half billion dollar settlement over patents the PTO may now find unpatentable, the CAFC could not afford to put Vontage out of business, or Congress might have put them out of business.

For the entire entry, click here.

Posted On: April 25, 2007

Injunctions Pending Appeal - Not Without Solid Evidence of Harm

<%media(20070425-IMX - 4-24-07.pdf|IMX, Inc. v. Lendingtree, LLC, C.A. No. 03-1067-SLR (D. Del. Apr. 25, 2007). )%>

IMX filed a motion for reconsideration of the Court's previous denial of a permanent injunction pending appeal. As grounds for reconsideration, IMX cited an attempted post-verdict workaround by Lendingtree and design work that preceded the workaround as "ongoing, infringing conduct." Op. at 2. The Court saw the use of this new evidence as grounds for reconsideration as "nonsensical" because a workaround implies that Lendingtree has found a noninfringing alternative rather than a new infringing method. More likely, IMX used this "new evidence" as a way to make its assertion of new case law (a series of district court opinions according to the opinion) to the Court more palatable. Nonetheless, the Court examined the cases cited by IMX and distinguished them on their facts. Of particular concern to the Court was IMX's lack of evidence that either it or the public would be harmed without an injunction pending appeal. Id. at 3-4. Due to Lendingtree's admission that they continued infringing conduct until September of 2006, some nine months after the jury's verdict against Lendingtree, the Court ordered that Lendingtree produce an accounting of their continued infringement to the Court so that the Court may modify the damages award.

Interestingly, this issue of stays pending appeal was dealt with in summary fashion by the Federal Circuit yesterday in the Verizon v. Vonage patent dispute over VoIP internet telephony. The Eastern District of Virginia had granted Verizon's request for an injunction barring Vonage from signing up new customers during the pendency of Vonage's appeal to the Federal Circuit. Vonage argued to the Federal Circuit that the status quo could only be preserved by allowing Vonage to sign up new customers during the appeal. In addition, Vonage noted that district courts are overturned on their claim constructions about 40% of the time (I've seen higher numbers, but 40% is reasonable). Since Vonage was arguing on appeal that the claim construction was incorrect, and, statistically, it had a 40% chance of winning, Vonage asserted the unfairness of permanently damaging its business where it had decent odds of winning on appeal. The Federal Circuit issued a permanent stay of the injunction pending appeal of the claim construction.

Chad�s Editorial Take:

Both of these decisions raise interesting questions about the fairness of entering judgment against adjudged infringers before the Federal Circuit has had the final say on claim construction. Here�s my take: as long as the Federal Circuit (and the Supreme Court by not overturning them) insists on a de novo standard of review for patent claim construction, it makes little sense to grant injunctions pending appeal against accused infringers at the district court level. I know that this stance could hurt patentees that have rightfully prevailed, but the posting of bond could help alleviate this concern. As in the criminal context, I think it is more important to protect the adjudged infringer that ultimately may be found innocent than it is to reward the patentee with immediate gratification for prevailing at the district court level. Ultimately, I think the de novo standard of review must be changed because the district courts are clearly in a better position to construe the patent�s claims than an appeals court working with only a paper record. Until that happens, however, the reality will remain that your success at the Federal Circuit on claim construction is determined as much by the composition of the panel as by the arguments made by the parties on appeal.

Posted On: April 20, 2007

Can a Privilege Log Discrepancy Effect a Waiver?

One party to a settlement agreement lists the document on a privilege log in subsequent litigation between the signatories and a third-party plaintiff. The other party to the settlement, a co-defendant in the subsequent litigation, fails to log the agreement. Plaintiff realizes the discrepancy and argues that any privilege that may have attached to the document has been waived.

What is the answer? Read pages 5-6 of <%media(20070420-Sedona.pdf|Block Drug Co. v. Sedona Labs. Inc.)%>, C.A. No. 06-350-*** (D. Del. April 19, 2007) (Thynge, M.J.) to find out.

Posted On: April 19, 2007

Update: Patent Reform Act of 2007

The ascendency of patent litigation over the past few decades — in Delaware and elsewhere — neatly tracks the United States's broader shift to an information economy and the increasing value that companies place on intellectual property. As with other areas of the law (e.g., securities), a spike in litigation often provokes a congressional response. In the realm of patents, witness the Patent Reform Act of 2007, which this and other blogs have been monitoring.

For the latest on this legislation, Patently O reported yesterday a comprehensive update, with links to primary sources, commentary, and lobbying players.

Posted On: April 13, 2007

The Intersection of Subject-Matter Jurisdiction and the Hatch-Waxman Act

On Tuesday, Delaware district judge Gregory M. Sleet issued a one-page order granting a voluntary dismissal in the Merck-Apotex ANDA litigation. After Apotex filed an ANDA application, Merck brought an infringement action. Apotex responded with a declaratory-judgment counterclaim. Merck then decided it no longer wanted to pursue the action and granted Apotex a covenant not to sue.

Thereafter, Merck filed a motion to voluntarily dismiss, claiming that the covenant removed the Court's subject matter jurisdiction concerning both the infringement claim and counterclaim. As reported by IPLaw360 (subscription), Defendant Apotex opposed Merck's motion, contending that dismissal of the case would remove a "triggering event" under the Hatch-Waxman Act and therefore would delay Apotex's entry into the market. The Court, which said it would issue a full decision at a later date, apparently rejected this argument and sided with Merck on jurisdictional grounds.

It will be interesting to see how the Court analyzes the jurisdictional argument in the upcoming opinion, especially in light of Apotex's contention that Merck is allegedly manipulating the Hatch-Waxman process. Stay tuned.

<%media(20070413-Merck.pdf|Merck & Co. v. Apotex Inc., C.A. No. 06-230-GMS (D. Del. April 10, 2007) (Sleet, J.).)%>

Posted On: April 12, 2007

New Judge Sleet Formatting Guidelines for Briefs

On 3/29/07, Judge Sleet posted new guidelines for formatting and filing briefs in cases pending before His Honor. The guidelines require that 2 copies of all briefing on motions and letter briefs requesting relief (excluding appendices, declarations, affidavits and exhibits) be filed with the court. A party cannot file a brief that exceeds the page limits set forth by the court or the local rules until they have court approval to do so. All briefs and memoranda need to be double-spaced, with 1 inch margins, left justification, and Times New Roman 12 pt. font. Any copies of briefs, memoranda, and/or appendices that are filed with the Court, need to be firmly bound (preferably spiral) at the left margin. These guidelines can also be found on the District of Delaware website.

Posted On: April 10, 2007

Court Publishes Proposed Revised Local Rules For Comment

To download a copy of the new proposed Rules, <%media(20070410-PublicNotice-LocalRules_040207.pdf|click here)%>.

Posted On: April 6, 2007

District of Delaware New Filings

4/2: Fairchild Semiconductor Corp. et al. v. Power Integrations, Inc. (transfer of patent infringement case from E.D. Tex.)
4/3: Siemens Medical Solutions USA, Inc. v. Saint-Gobain Ceramics & Plastics, Inc. (patent infringement)
4/4: Third Point, LLC v. Tripoint Asset Management, LP and Tripoint Holdings LLC (trademark infringement - false designation of origin and unfair competition)
4/5: Bayer Healthcare AG and Bayer Pharmaceuticals Corp. v. Teva Pharmaceuticals USA, Inc. (patent infringement)

Posted On: April 6, 2007

"Overzealous" Use of the Term "Means" Negates Application of Section 112, Paragraph 6

Delaware district judge Joseph J. Farnan Jr. recently issued a comprehensive claim construction opinion involving the Verisign computer-access security system. Of note is the Court's analysis of the means-plus-function and step-plus-function construction rules under 35 U.S.C. � 112, � 6.

For one claim, the Court noted that the patentee chose to employ the means-plus-function rules by using the phrase "clearinghouse means." Thus, "a consequence of [this] choice is that [the] scope of the means-plus-function limitation is limited to the corresponding structure described in the specification and equivalents thereof." (slip op. at 34).

Interestingly, the Court then declined to apply Paragraph 6 to the identical phrase as used in a subsequent claim. The Court distinguished between means-plus and step-plus claim elements, and noted that the simple presence of the term "means" or "step" (as opposed to "steps for") does not automatically signal the applicability of Paragraph 6. Examining the claim as a whole — "a method of controlling access . . . comprising the steps of [the clearinghouse means]" — the Court rejected plaintiff's argument that the means- or step-plus analysis applied. Instead, the term "clearinghouse means" was "little more than an overzealous use of the word means." (slip op. at 37).

This opinion is a reminder that parties should not slice their claim construction arguments too thin — context, and not the import of words in isolation, will ultimately control.

<%media(20070406-Verisign.pdf|Prism Techs. LLC v. Verisign Inc., C.A. No. 05-214-JJF (April 2, 2007) (Farnan, J.).)%>

Posted On: April 4, 2007

Federal Circuit: Curing Inequitable Conduct by Misrepresentation?

What would you do if you discovered that in prosecuting a patent application, your client failed to disclose a relevant piece of prior art during an earlier prosecution of a related application? One way to avoid the potential inequitable conduct is to fully disclose the art in the current application. But while making this disclosure, according to the Federal Circuit, take care not to misrepresent the prior art in the process.

In a recent opinion, the Federal Circuit affirmed former Delaware district judge Kent A. Jordan's finding of inequitable conduct under similar circumstances. After discovering the omission in the earlier prosecution, plaintiff's outside counsel sought to cure by submitting several declarations and supporting exhibits to the PTO. Unfortunately, one declarant stated that the system under consideration, involving automated financial trading under several so-called "new rules," did not encompass those rules. On finding that the system did in fact incorporate those rules, the district court entered a judgment of unenforceability due to inequitable conduct.

On appeal, the Federal Circuit noted the incongruity of plaintiff's "cure":

"The applicants submitted the declarations at issue in an apparent attempt to purge possible inequitable conduct in the '733 application and to disclose the Super System in the '526 application. Instead of being candid, Paul's declaration disingenuously states that the Super System did not include new rules."

The fact that the statement was made in a declaration assumed importance in both courts' intent-to-deceive analysis: "[T]he affirmative act of submitting an affidavit must be construed as being intended to be relied upon."

Perhaps what is most interesting is left untouched by the Court of Appeals: whether, had the declarant been truthful, the declarations and exhibits disclosing the prior art would eliminate the specter of inequitable conduct regardless of the conduct on the earlier, related application.

<%media(20070404-ESPEED1.pdf|eSpeed Inc. v. Brokertec USA LLC, C.A. No. 03-612-KAJ (Feb. 22, 2006) (Jordan, J.))%> [District Court Opinion]
<%media(20070404-ESPEED2.pdf|eSpeed Inc. v. Brokertec USA LLC, 2006-1385 (Fed. Cir. March 20, 2007))%> [Federal Circuit Opinion]

Posted On: April 3, 2007

New District of Delaware Filings

ExxonMobil Oil Corp. v. Hyundai Mobis, Co., Ltd.; Mobis America, Inc.; Mobis Parts America, LLC; Mobis Parts Detroit, LLC; and Mobis Alabama, LLC (trademark infringement)

Posted On: April 2, 2007

Another Post-E-bay Injunction Decision

In another post-eBay permanent injunction opinion, the Court denied to enter a permanent injunction where the plaintiffs failed to set forth specific reasons why damages in the form of monetary compensation would not suffice and where they did not provide the Court with any details as to what injury it would incur as a result of not receiving a permanent injunction against the defendant. <%media(20070402-Praxair - 03-1158-SLR.pdf|Praxair, Inc. v. ATMI, Inc.)%>, C.A. No. 03-1158 (D. Del. Mar. 27, 2007) (Robinson, J.). The plaintiffs received a jury verdict in their favor finding all asserted patent claims infringed and not invalid. They later sought a permanent injunction to enjoin the use of all infringing products by defendants' customers and a mandatory recall of all infringing products to which it still had title and a voluntary recall on those products where titled had passed. Id. at 4. The products made by the plaintiffs and defendants were in "direct and head-to-head competition" and are the only two of their type on the market. Id. at 3-4. The Court acknowledged that the "quantum of evidence required [to demonstrate the need for a permanent injunction] is relatively unclear," however, the Court still found that the plaintiffs had not met their burden under eBay to be entitled to such a broad scope of relief. The plaintiffs "generally" argued that without an injunction they would lose market share, profits and goodwill but they did not provide or even describe any "specific sales or market data to assist the court" and they did not identify what market share, revenues or customers they have lost to the defendant. Id. at 6. Furthermore, both parties cited to evidence that the products are not critical to either one's "overall corporate success." Id. at 7. The Court therefore denied the injunction but stated that the plaintiffs may renew their motion for injunctive relief after appellate review of the jury verdict. Id.