Patent Litigation

Executive Summary
      More patent cases are coming before the U.S. Supreme Court. Our panel of experts discuss KSR Int'l Co. v. Teleflex, Inc. (No. 04-1350) and Microsoft v. AT&T Corp. (No. 05-1056), currently before the Court, and the impact of eBay v. MercExchange (126 S. Ct. 1837 (2006)) on patent practice.
      The lawyers are William Abrams of Bingham McCutchen, Robert Haslam of Heller Ehrman, Robert Krupka of Kirkland & Ellis, Vincent Belusko of Morrison & Foerster, Daniel Furniss of Townsend and Townsend and Crew, and Steven Hemminger of White & Case. The roundtable was moderated by Custom Publishing Editor Chuleenan Svetvilas and reported for Barkley Court Reporters by Krishanna DeRita.
     
      MODERATOR: The U.S. Supreme Court will hear KSR v. Teleflex on November 28, in which obviousness is at stake. Where do you see it going in this case?
     
      HASLAM: In light of the DyStar opinion, [(Dystar Textilfarben v. S.H. Patrick Co., 464 F. 3d 1356 (2006)], which acts as the Federal Circuit's brief to the Supreme Court on how it intends to apply the motivation-suggestion test, the Federal Circuit goes out of its way to say common sense-making something cheaper, faster, more efficient are all reasonable ways that the person of ordinary skill in the art might modify something. It also says that prior precedent simply requires that you can't just say it. You have to prove it. So I can see the Supreme Court moving towards something like that standard as opposed to abolishing any form of requirement that some motivation comes from somewhere.
     
      BELUSKO: I'm intrigued by this issue from a standpoint of the brief by the KSR folks, because if I understand it correctly, they want to go back to Black Rock and Sakraida. [(Anderson's-Black Rock, Inc. v. Pavement Salvage Co., 396 U.S. 57 (1969) and Sakraida v. Ag Pro, Inc., 425 U.S. 273 (1976).] So you'll end up not having an obviousness test because everything is composed of old elements for the most part. You'll just look at so-called secondary indicia if you are a defendant, or objective indicia if you are a plaintiff. That's going to be the focus if the test is redone as proposed, if there is no more motivation or suggestion to combine references. It's a rather stark choice on the one end.
      DyStar was the Federal Circuit's effort to head off a digital choice here because if we ended up back at Black Rock and Sakraida, then there may not be a lot of work for patent attorneys.
     
      HASLAM: I could see the Court saying this particular decision was too strict on what it requires, as it did in Warner-Jenkinson Co., v. Hilton-Davis [520 U.S. 17 (1997).]. The problem solved by the prior art had to be the precise problem that they were arguing, but then sending it back to the Federal Circuit to let the law develop over time we are going to be left with, "What does that mean?"
     
      HEMMINGER: We are not going to get a definitive decision by the Supreme Court. I don't recall any intellectual property patent decisions where you can go back to the Supreme Court and say, "Aha, here is the answer." So I don't think there's a chance that patent lawyers will be out of work. It's interesting this went up on a summary judgment motion. Quite frankly, decisions of invalidity based upon obviousness at a summary judgment level are typically fraught with disputes of material fact. This may have motivated the Federal Circuit to require specific findings rather than just the general legal conclusion.
      I do agree with Bob [Haslam] that we are going to get some guidance. They may reaffirm the obviousness standard with modifications. It will be a balancing of the statute and the standard. The Court will reaffirm and say, "You have to tell us something. There has to be some evidence of motivation." At what level, I don't know enough to predict.
     
      KRUPKA: I see this a little differently. I see the teaching-suggestion-motivation test as an evidentiary test. You need evidence. I agree that Judge Michel in his DyStar decision is basically making a pronouncement for the benefit of the Supreme Court and basically says, "Well, the evidence comes in as part of the level of skill of the art, as the difference between the claimed invention and the prior art, and as part of the secondary considerations."
      He does a good job of going through the history of the Federal Circuit decisions and finding pieces that correlate to the touchstones from the Graham v. John Deere case [(383 U.S. 1 (1966)]. It will be interesting to see whether the Supreme Court buys into it or not."
     
      ABRAMS: What difference is this going to make to a patent examiner? They still will have only an average of 18 minutes for each application, so are they going to have the time and ability to apply a new analysis that requires even more scrutiny? The Court is going to look at this very practically. Justice Roberts was in private practice not too long ago and handled these kinds of cases. He should appreciate the struggles we have. At best he will try to knit together things like secondary considerations and other obviousness issues. And we still will have a clear and convincing evidence standard to invalidate.
      I hope that the Court deals with the issue the ABA raised in its amicus brief, and that is the 20/20 hindsight issue. I don't think they want people viewing things four, five, ten years down the line with 20/20 hindsight. So we are going to have a practical solution if Justice Roberts has any influence on this.
     
      FURNISS: One of the things that the Supreme Court has already done, and perhaps is one of their goals, is to try to urge the Federal Circuit to be more clear in their message in a lot of these areas. The DyStar opinion is really quite surprising because it includes a discussion by Michel where he essentially asks how the practitioners came to misunderstand our rule as much as they have?
      He's right that the patent law has always said that there does not need to be an express motivation or suggestion to combine. The best example of that is the Inland Steel case where both patents were directed to the exact same concept of making hardened steel, and the court had no problem saying these two would be combined without an express suggestion. [(Inland Steel Co. v. LTV Steel Co., 364 F. 3d 1318 (2004).] Yet in their application of the rule, they have been too reluctant to find obviousness in other kinds of situations.
     
      BELUSKO: There's a core on the Court that's going to be practical. There are always instances of outliers or things on the edge, but at its core, the patent system is still perceived as a big economic value to the United States. This case is fine tuning on the edges, and probably won't result in a huge change.
     
      MODERATOR: At the end of October, the Supreme Court granted cert in Microsoft v. AT&T. What's at stake in that case?
     
      FURNISS: What's at stake is the fundamental issue of the reach of the American patent laws. If it's accepted, the decision would result in applying U.S. patent law outside the United States in a fairly dramatic fashion. It wouldn't just be limited to software, although that's a major area. One can postulate that if the alleged infringer were to send overseas a DNA or RNA construct that codes for an enzyme or protein and the ruling is affirmed, that that would likewise give rise to infringement action in the United States. Such a decision would work a fundamental change in the balance of power, and as has been pointed out in the opposition, would to some extent obviate the need for foreign patents in certain areas, because you can reach the foreign activity with a U.S. patent.
     
      BELUSKO: I've successfully sued Microsoft on 271(f), but I think the question is more pure statutory construction. If you look at the summary judgment granted by the district judge in this case, she said, "This parade of horribles may well be the case, but go talk to Congress. Don't talk to me." That's the big issue here. The job that was done here on the statutory construction is very good, and if you go back and look at the legislation as it was enacted, this is a very reasonable construct.
      Then the public policy issue that Microsoft raises?we are not going to create this golden disk in Redmond anymore, we'll go to Vancouver or something, and that's bad for the U.S.?may be accurate. But I don't think it's the Court's job to determine that public policy issue. Congress did that. With the addition of Roberts and Alito to this Court, I don't think they are going to dive in there and start saying, "Well, we think the public policy is really important here, so we are going to change the law here."
     
      HASLAM: I could see them using the public policy to backstop a ruling that says that the statutory provisions were aimed at a very specific issue, which is Deepsouth. [(Deepsouth Packing Co., v. Laitram Corp., 406 U.S. 518 (1972).] We can't presume that Congress would have intended these kinds of potentially harmful effects on a system that's supposed to promote innovation in the United States rather than promote the flight of innovation from the United States.
     
      ABRAMS: This is right up the alley of Chief Justice Roberts and Justice Alito and Justice Scalia. Congress passed Section 271(f) in 1984 in response to Deepsouth. People took offense to the games that occurred because of this loophole in the patent law. The Court, I think, is not likely to make policy. It will say it's a Congressional issue.
     
      KRUPKA: I agree with all that, but which way are they going to read the statute? Let's assume they take the policy into account. At the same time they look at the statute, is there going to be a strict construction, saying, "You have to supply the physical copies of it from the United States in order to infringe," or is supplying a master copy from which others are then made sufficient?
     
      HASLAM: The problem with the Federal Circuit's solution is that it's not tied to the statutory structure but is simply a pronouncement of its view of public policy. The Federal Circuit says: "Here is a unique set of technology software, which we are going to treat differently than every other one." If you accept the policy consideration, why is sending a master key overseas and generating hundreds of copies of the key or sending a mold overseas wrong? Why shouldn't the policy be what Pellegrini said? [(Pellegrini v. Analog Devices, Inc., 375 F. 3d 1113 (2004) holding that 35 U.S. C. §271(f) refers to "physically supplying components.")] Why should coming up with the entire invention here and then drafting the plans and sending it to Mexico, Canada, or Asia and making it there be treated any differently?
     
      ABRAMS: If you look at Pellegrini, and then you look at the facts of this case, you might wonder if there is going to be a tracing issue now? If a company creates a master disk and sends it across the world, is it going to be traced back to somebody who came up with the idea here in California?
     
      HEMMINGER: Interestingly, everybody is saying we are upset that the U.S. is extending the reach of its patent laws beyond its borders when in fact, the International Trade Commission under Section 337 allows the U.S. patent laws to close the border to any product that is made by a method patent overseas. So if you look at the method patent and it's performed in China, Taiwan, or Vietnam to make a product, and the product is then imported into the United States, through the ITC, you can shut the borders to that product.
      I guess I don't see the set of horribles that can and will come from this case, because the invention was made here. Microsoft took a master disk, which is a component of the product, sent it overseas and as part of the assembly, copied that into the operating system. That is a method of putting together the particular equipment. It is the exact way anyone in the U.S. or anywhere else would actually build the systems. So while they can take this case and try to go back to some policy issues, I don't see the great difficulties in applying the statute correctly.
     
      MODERATOR: How has the Supreme Court's decision in eBay v. MercExchange affected your practice?
     
      KRUPKA: EBay was a big wake-up call for the patent field. The ability to obtain permanent injunctive relief to enforce the exclusivity that we believed patents granted-is now more in doubt, not only as a result of the Supreme Court decision but also by reason of some of the district court decisions that have followed it. As prudent practitioners, the way we go about settling cases and licensing patents and advising our clients has to change and put much more emphasis on, for example, lump sum, up-front royalties.
     
      HEMMINGER: The eBay case has added a new component to all of our cases. We've now had to increase the amount of effort put in justifying the irreparable harm. We feel that those types of proofs will fit well in the overall story that you tell the jury with regard to the entitlement to a patent and the inventive genius that was required to come up with it, and it dovetails into how there was irreparable harm.
     
      FURNISS: EBay will work a fairly fundamental rebalancing, if the perception is that the system favored the patent plaintiff too much. We represented start-ups in defense cases where they had one technology and an injunction was a death sentence for them. So you've got an imbalance where a plaintiff is maybe risking a few dollars more to bring the case to trial with a possibility of a permanent injunction, and the defendant is risking their entire company. In that situation, the plaintiff has the whip hand. That no longer applies in many cases.
      Before eBay you could threaten the defendant with having to pull an entire product and redesign an entire product. Now after Davis's decision in Z4 [(Z4 Tech., Inc., v. Microsoft Corp., 434 F. Supp. 2d 437 (2006).], you are looking at a compulsory license. So the risk to the defendant in many cases has gone down considerably because of eBay, but it's going to take a couple more years before we see where the new balance is.
     
      HASLAM: After eBay came down, you have another issue to deal with, which is injunctive relief. We are involved in some patent wars where the party we represent is both plaintiff and defendant, and in that case you've got to deal with how you construct an argument that you are entitled to one as a plaintiff and but the other side is not entitled to one where we are the defendant.
     
      KRUPKA: It is fascinating that this has evolved the way it has, because when the eBay decision came out, I yawned and said: "What's new?" The Supreme Court did not announce any new law. It simply said the way that the Federal Circuit applied it in this particular case and the so-called rigid rule is not right. You have got to go back to the traditional long-standing precedential standard.
     
      BELUSKO: My reaction was exactly like yours. I read the decision, and it was a yawner for me. But we don't have any Federal Circuit review of any of those cases yet, so I don't know where it's going to end up. I'm not convinced that it's going to be, "You don't practice the patent, you can never get an injunction." Right now, you have to prepare for these things. You better deal with it in discovery, and not try to throw in a declaration of some expert after trial. You can get burned with that approach.
     
      ABRAMS: The main takeaway from eBay is that we've got to deal with trial of the injunctive issues very early on, at the first case management conference, and some judges are just going to say, "This is a first time for me too. How are we going to handle this and how are we going to do discovery and what comes in at trial?" How does this judge want to approach what he or she is doing?
      It's inevitable we are going to have judges who have a case like Z4 and see it differently or judges who don't like compulsory licensing as a matter of policy. Is the court going to retain jurisdiction for ongoing infringement? Will you need serial lawsuits for enforcement? Is it going to be one big lump-sum recovery? Our economists are going to be doing a lot of thinking and a lot of publishing on this in the future. The nice thing for us is that it allows us to be creative, and that's not an opportunity we have very frequently.
     
      William F. Abrams, a partner in Bingham McCutchen's Intellectual Property Litigation Group, is a trial lawyer with more than 25 years of experience in intellectual property and complex litigation matters throughout the U.S. and abroad. Areas of recent experience include patent infringement; trade secrets; technology transfer and licensing; trademarks and advertising; and Internet-related issues. Mr. Abrams represents a broad spectrum of clients, including software and hardware companies, universities and research institutions, life sciences companies, and financial services firms. He is on the Stanford faculty.
      william.abrams@bingham.com
     
      Robert Haslam is a partner in the Silicon Valley office of Heller Ehrman. His practice focuses on patent litigation where he has recently successfully tried cases relating to semiconductor processes, electronic circuits, the combination of GPS and cellular technology, pay-per-click Internet search, and basic DSL algorithms and circuits. A member of the American College of Trial Lawyers, Mr. Haslam has been named one of California's 25 "best and brightest" intellectual property lawyers, and one of two "go to" patent litigators in Northern California.
      robert.haslam@hellerehrman.com
     
      Bob Krupka co-heads Kirkland & Ellis's IP practice and specializes in trials of IP cases, ITC proceedings, expedited remedy matters, and Federal Circuit appeals. He has tried over 60 cases to judgment, including 13 jury trials to verdict (all but one victorious), obtaining over $1 billion in verdicts and $2.5 billion in settlements, including history's largest patent settlement?$1.35 billion. He was selected one of 2006's "Top 100 Most Influential Lawyers in America" by the National Law Journal.
      bkrupka@kirkland.com
     
      Vincent J. Belusko is a partner at Morrison & Foerster's Los Angeles office. His practice focuses on patent litigation. He's conducted jury and bench trials, arbitrations, and numerous Federal Circuit appellate arguments concerning patent, trademark, copyright, trade secret, unfair competition, and IP matters. Mr. Belusko is admitted to practice in California, U.S. District Court, U.S. Courts of Appeals (Ninth and Federal Circuits), and the U.S. Supreme Court. He is also registered to appear before the U.S. Patent and Trademark Office.
      vbelusko@mofo.com
     
      Daniel J. Furniss is a partner in Townsend's Palo Alto office. He has represented plaintiffs and defendants in numerous patent infringement actions involving: software, antivirus technology, and computer-controlled manufacturing; Internet credit card transactions; "flying heads" used in hard disk drives; DRAM circuits and processes; DNA sequencing; medical device patents including cryosurgery, cardiology, and drug-delivery systems; and communications and Internet technology. He is a Fellow of the American College of Trial Lawyers, and he has more than 20 years of trial experience. 
      dfurniss@townsend.com
     
      Steven D. Hemminger is a partner at White & Case's Palo Alto office. His practice focuses on patent, trademark, and trade secret litigation cases in the electronics, semiconductor, and computer software and hardware fields. He's been involved in over 35 major IP litigations. He also manages international patent and trademark portfolios and counsels clients on matters concerning international licensing of IP portfolios. Mr. Hemminger was named in Chambers USA 2005 Guide of America's Leading Lawyers for IP Litigation.
      shemminger@whitecase.com
     
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