Alert January 23, 2015

The Year Ahead in Patent Law

Summary

With the advent of the America Invents Act (AIA), public perception of frivolous patent litigation, frequently surrounding cases filed by non-practicing entities (NPEs), has received increasing legislative attention. Although last year’s Innovation Act stalled in the Senate, new legislation is a practical certainty for 2015. Additionally, the Supreme Court has issued a landmark claim construction opinion and is poised to make important decisions on appropriate terms for royalty agreements and belief in the patent-in-suit’s invalidity as a defense to induced infringement.

New Patent Reform Legislation is on the Horizon for 2015

When the 113th Congress came to a close on January 3, 2015, all patent reform bills that have been introduced, but not passed, in the last two years expired. This includes the Innovation Act, H.R. 3309, which was the subject of bipartisan support and approval from the White House, and was passed by a 325-91 vote in the House. Although the Innovation Act seemed poised for action in the Senate Judiciary Committee, Senator Patrick Leahy (D-VT), Chairman of the Committee, announced on May 21, 2014 that the bill was being taken off the Committee’s agenda due to stakeholder disagreement.

Despite the failure of the Innovation Act, bipartisan support for patent reform remains strong, and with the recent turnover in Congressional seats during the 2014 mid-term election, odds are in favor of the introduction of new legislation aimed at patent reform in 2015. During a Chamber of Commerce summit on intellectual property on November 18, 2014, Chairman of the House Judiciary Committee, Bob Goodlatte (R-VA), announced that patent reform is high on the list of priorities for the 114th Congress, and new legislation will likely be introduced in 2015. Goodlatte has a history of supporting patent reform, and was the Innovation Act’s sponsor in the House in 2013.

It is not clear what provisions will be included in a new, 2015 patent reform bill, but with the new Republican majority in the 114th Congress, proposed legislation may include more aggressive reforms than the bills introduced in 2013 and 2014. Reportedly, the fee-shifting provision of the Innovation Act played a large role in the decision to scuttle that bill, and it remains to be seen whether new legislation would include such a provision, or it would be omitted in favor of a less controversial bill that could achieve swifter enactment.

The Supreme Court Has Several Patent Cases on its Docket for 2015

In 2015, the Supreme Court has decided one patent case with wide-reaching consequences, and will address two additional cases with important ramifications for patent practice. In Teva Pharm. USA, Inc. v. Sandoz, Inc., No. 13-854, 2015 WL 232131 (U.S. Jan. 20, 2015), the court ruled on the appropriate standard of review for claim construction determinations, and in 2015 the Court is also set to decide the duration of patent royalty agreements and whether a party’s good faith belief in the patent-in-suit’s invalidity is a defense to an induced infringement claim. The latter two cases are on the Supreme Court’s docket for argument in 2015.

The issue before the Court in Teva was whether a trial court’s claim construction decisions are reviewable de novo, as required by Federal Circuit precedent, or only for clear error, as Federal Rule of Civil Procedure 52(a) appeared to require. Following the Supreme Court’s decision in Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996), claim construction has been treated as a question of law to be decided by the trial judge rather than the jury. In interpreting Markman, the Federal Circuit established in Cybor Corp. v. FAS Technologies, Inc., 122 F. 3d 46 (Fed. Cir. 1996) that claim construction decisions were to be reviewed de novo on appeal. The Federal Circuit reaffirmed this position just last year in Lighting Ballast Control LLC v. Philips Electronics N.A. Corp., 744 F.3d 1272 (Fed. Cir. 2014).

On January 20, 2015, the Supreme Court vacated and remanded the Federal Circuit’s Teva v. Sandoz decision, holding that Rule 52(a)’s clear error standard of review applies to a district court’s findings of fact regarding “evidentiary underpinnings” of claim construction decisions. See Teva, 2015 WL 232131, at *3, *5. The Supreme Court clarified that, while under its Markman holding the “ultimate issue of the proper construction of a claim” is still a question of law subject to de novo review by the Federal Circuit, “subsidiary factfinding” determinations by the district court should be reviewed for clear error.  Id. at *7. The Teva opinion explains that when a district court consults extrinsic evidence to determine, for example, “the background science or the meaning of a term in the relevant art during the relevant time period,” it is evaluating a subsidiary factual question. Id. at *10. By contrast, when the district court evaluates a claim with reference to solely intrinsic evidence, the resulting claim construction will be considered a determination of law. Id. at *9.

While the Teva decision is poised to have lasting effect on appellate patent practice, another case on the Supreme Court’s docket, Kimble v. Marvel Enterprises, No. 13-720 (S. Ct.), is set to impact patent licensing negotiations and settlement of patent cases. The question presented by the petition for certiorari in Kimble, which was granted by the Court on December 12, 2014, is whether the Court should overrule its decision in Brulotte v. Thys Co., 379 U.S. 29 (1964) that a patent royalty agreement that extends beyond the patent’s expiration date is per se unlawful.

Kimble is an appeal from a decision in which the Ninth Circuit “reluctantly” affirmed the trial court’s decision that the defendant Marvel was absolved of its obligation to pay royalties under an agreement that extended beyond the life of the patent, because the agreement was unenforceable under Brulotte. Petitioner argued that Brulotte relies on obsolete ideas about competition and economic theory. Indeed, the Brulotte decision has been widely criticized over the years both by courts and commentators. In response to a request from the Court, the Solicitor General filed an amicus brief suggesting that the petitioner has not met the high hurdle for overturning one of the Supreme Court’s statutory interpretation decisions. Oral argument will take place sometime in March or April of 2015.

Finally, rounding out the patent cases on the Supreme Court’s docket is Commil USA, LLC v. Cisco Systems, No. 13-896 (S. Ct.), in which the Court will address the question of whether it was error for the Federal Circuit to hold that a good faith belief in the invalidity of the patent-in-suit is a defense to induced infringement under 35 U.S.C. § 271(b).

At trial in the Eastern District of Texas, a jury initially found defendant Cisco liable for direct infringement, but not liable for induced infringement. Cisco had put on evidence at trial concerning its good faith belief that the patent-in-suit was invalid. A retrial was granted, during which Cisco was prohibited from arguing its good-faith belief in the invalidity of the patent-in-suit as a defense to induced infringement. The jury found for plaintiff on both direct and induced infringement. Cisco appealed, and the Federal Circuit reversed holding that Cisco was improperly denied the chance to argue its good faith belief in the invalidity of the patent-in-suit as a defense to induced infringement. The plaintiff filed a petition for certiorari to the Supreme Court.

Following a request from the Supreme Court, the Solicitor General filed an amicus brief agreeing with the plaintiff that even a good faith belief in the invalidity of the patent-in-suit is not a defense to an induced infringement claim. Certiorari was granted on December 5, 2014, and like Kimble, oral argument will take place sometime in 2015.