News
Roundtable-Intellectual Property
Jan. 1, 2008
Intellectual Property
A roundtable with Goodwin Procter; Hogan & Hartson; Morrison & Foerster; and Weil, Gotshal & Manges.
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EXECUTIVE SUMMARY
A slate of intellectual property cases heard by the U.S. Supreme Court and the Federal Circuit court have resulted in recent decisions that have altered the patent law landscape. The opinions in In re Seagate Technology (497 F.3d 1360 (2207))and KSR International Co. v. Teleflex, Inc.(17 S. Ct. 1727 (2007)) in particular, will have notable impacts on both patent prosecution and litigation. Our panel of experts from Northern and Southern California discusses these changes to patent law, as well as the potential implications of Quanta Computer, Inc. v. LG Electronics, Inc., (No. 06-937) which the U.S. Supreme Court will hear this month. They are Byron Cooper of Goodwin Procter; David Ben-Meir and Troy Schmelzer of Hogan & Hartson; Alison Tucher of Morrison & Foerster; and Vernon Winters of Weil, Gotshal & Manges. The roundtable was moderated by freelance writer Bernice Yeung and reported for Barkley Court Reporters by Krishanna DeRita. MODERATOR: In the case, In re Seagate Technology, the Federal Circuit overruled the previous standard for willful infringement in intellectual property cases, which clarified some of the rules related to opinions of counsel. What are some of the potential effects of these rule clarifications? TUCHER: I think Seagate will put an end to the reflexive practice of procuring an opinion of counsel when an entity is sued for patent infringement. In its decision, the Federal Circuit essentially said that post-filing opinions are of marginal value and that there's no obligation for an accused infringer to get an opinion of counsel. So people will still get opinions, just not as often. BEN-MEIR: On the other hand, with the higher standard for willful infringement?there's been a shift from the "duty to exercise due care" to the threshold requirement of "objective recklessness"?companies may see obtaining an opinion of counsel as a bulletproof shield against a charge of willfulness. However, the higher standard may also change the economics of whether or not to obtain an opinion each and every time you receive a notice letter because doing so will not be seen as essential to effectively defending against a willfulness charge. So clients should continue to weigh the option carefully. WINTERS: The opinion will likely reduce the number of pre-filing opinions that are procured. An underappreciated problem with opinions is that people tend to think of them as insurance policies when, in fact, they can be a potential anchor. In other words, the positions taken by trial counsel can, for legitimate reasons, be different from the positions taken by opinion counsel, as Seagate recognized. But these differences can lead to the opponent trying to contradict trial positions with opinion positions, and vice versa. So instead of paying for an insurance policy, you end up doing the opposite and purchasing an anchor that drags you down. COOPER: In-house counsel can still use an opinion as an insurance policy when they have notice of a patent before suit is filed. The new standard increases the burden for plaintiffs to show recklessness. Only if plaintiffs can show knowledge of the patent before suit should defendants produce their opinion of counsel to show they weren't reckless. Many companies perform patent searches for new product clearance or patent applications. These companies may still seek opinion letters for patents found during product clearance or patent prosecution, where the patent could cover their product. These patents would likely be discovered prior to the filing of any suit. TUCHER: Another place where an opinion can still be valuable is in cases where you may indirectly, but not directly, infringe a patent. Under the DSU Medical Corporation v. JMS Co., Ltd. case (471 F.3d 1293 (2006)), if you have an opinion of counsel, that's essentially a safe harbor. I think that another thing we'll see more of as a result of Seagate is an increase in summary judgment motions for no willfulness. If the court is going to let a case go to trial on the grounds that there's an issue of fact as to infringement, it's going to be hard for the court to simultaneously say that there was clearly an objectively reckless disregard for the patent owner's rights. SCHMELZER: Another important issue addressed by Seagate is the scope of waiver of attorney-client privilege and work product protection with regard to trial counsel. The court held that a party disclosing opinions of opinion counsel does not necessarily waive attorney-client privilege and work product protection for communications with trial counsel. This ruling will need to be considered in determining whether different opinion counsel and trial counsel should be used. WINTERS: The court explicitly left open the waiver issues as they pertain to in-house counsel. Those were important issues to in-house counsel, because unfortunately, companies still sometimes obtain opinions through in-house counsel rather than a businessperson with the power and authority to stop the accused activity if the opinion comes back bad. In-house counsel were hoping to get some clarity on their waiver issues, and they just didn't get it. BEN-MEIR: The problem is that in-house counsel often have multiple roles, and unless you have multiple people in your legal department with distinct functions, it can be difficult to discern if a waiver of the attorney-client privilege should apply. The nature of the advice that in-house counsel are giving their client, and how that advice is intended to be used, may be substantially different with each communication. The court reiterated the factors that determine whether the waiver should apply or not, and that courts should continue to consider the harm to each side if certain advice is or is not disclosed. Without further guidance, in-house counsel that communicates on the subject matter of an opinion may be playing a dangerous game. At least the court was clear in limiting the waiver of attorney-client privilege to exclude trial counsel. In the past, that was a messy situation because you didn't always know what you could or could not communicate to your own client. WINTERS: Troy [Schmelzer], as a patent prosecutor, have you seen, as an empirical matter, reduced demand for opinions? SCHMELZER: I have not yet seen a reduced demand, but the decision is very recent. One thing that may happen, given the standards of objectively high risk and conscious disregard of that risk articulated by the court for willful infringement and enhanced damages, is to put a greater onus on a party sending a notice letter to provide more detail about its patent infringement allegations. A court might not consider a letter merely enclosing a patent "for your information," with little or no additional detail, as creating an objectively high risk that paves the way for enhanced damages and creates a potential reason to obtain an opinion letter. MODERATOR: In KSR International Co. v. Teleflex, Inc., the Supreme Court weighed in on longstanding obviousness debates. What are the potential impacts? SCHMELZER: In many ways, the court did not put forth a new standard on obviousness, but returned to older, more flexible, standards articulated in Graham v. John Deere Co., (383 U.S. 1 (1966)), and rejected the more recent strict application by the Federal Circuit of the teaching-suggestion-motivation (TSM) test as the only way for determining obviousness. KSR states that the TSM test is a helpful approach, but not the only approach, and it lays out a number of other rationales that can be considered in assessing obviousness. I think it is safe to say that the Patent and Trademark Office (PTO) is pleased with the decision. The PTO has been actively reducing allowance rates, and KSR will probably reduce that allowance rate even further by providing more rationales to support an obviousness determination. Post-KSR, the PTO has released new examination guidelines describing the various rationales that would support a finding of obviousness. It is instructive that, whereas TSM used to be the only test, it is now rationale number 7 on a list of 7. TUCHER: I agree with Troy that the KSR opinion put a lot of standards out there that can be used to prove that a patent is obvious. For example, there's "obvious to try." In other words, if it's within the technical grasp of a person of ordinary skill in the art who tries and it's obvious to try, a patent may now be obvious. Then the court also said that the combination of familiar elements according to known methods is likely to be obvious, when it does no more than yield predictable results. There are three or four more kernels of that sort that the PTO pulled out of the KSR opinion as alternative ways to establish obviousness. WINTERS: It will be interesting to see whether, at the implementation level, KSR and the new PTO guidelines will have different effects, depending on the industry. For example, in the biological arts, where some biological mechanisms are still poorly understood and results are not predictable in many of the fields, you might get a different obviousness result, even though your algorithm will be the same. BEN-MEIR: I think that in the litigation timeline, we're also going to see the obviousness issues addressed earlier in the case. Alleged infringers may try to bring out the obviousness evidence quickly, and potentially file their summary judgment motions earlier in an attempt to avoid expensive discovery. So we could see more third-party prior art-related subpoenas issued very early in discovery. SCHMELZER: And with KSR, two or more pieces of prior art that collectively disclosed all elements of an invention, but did not make the invention obvious because TSM barred combination of those references, might now be revitalized as invalidating prior art since TSM is no longer an obstacle to combination of those references. WINTERS: This may make the secondary indicia more important, too. If you look at the PTO guidelines, there a variety of grounds for an obviousness rejection articulated there. Although the guidelines don't have the force of law, as a practical matter, busy district judges are going to look to those grounds for guidance. So that may make secondary indicia all the more important to rebut a prima facie case of obviousness, by arguing that there are factual issues on the secondary indicia. But I agree that there are going to be more summary judgment motions as a result of KSR. TUCHER: Right. TSM was often used to defeat summary judgment on the grounds that whether there was a teaching, suggestion, or motivation to combine known art was an inherently factual determination. Now, with the Supreme Court pointing the lower courts back to the Graham factors, we may see courts, as opposed to juries, increasingly deciding these cases because the factual issues underlying the question of law are now more amenable to summary judgment. COOPER: That's where I think KSR significantly increases the burden on a patent litigation plaintiff. Previously, defendants had the burden of showing a TSM factor for every combination of prior art asserted in the dispute. That burden has been lifted, and the plaintiff must now offer factual evidence of non-obviousness if he expects to survive a summary judgment motion. WINTERS: What does everyone think about the suggestion in KSR that the motivation for the innovative advance can come from market forces that aren't discussed much in the technical or industry literature? How is this going to play out with experts? COOPER: I have already seen this in one case where we looked at the Graham factors and hired economists and industry experts to show why others in the market or industry couldn't or didn't come up with the invention earlier. I've also had a defendant on the other side of a case hire industry experts to establish that at the time of the invention, the field was already going in that direction. It's all fair game now. As a result of KSR, we will likely see more inter partes and ex parte reexaminations filed. During any examination, the patent office construes all claims to give them their broadest scope. Now all claims will be examined under the new patent office KSR guidelines. Re-exam after KSR means patent claims will be construed as broadly as possible, then evaluated against more prior art and under a very relaxed standard of obviousness. Inter partes re-exams will cost defendants more, but still much less than taking the case to trial. MODERATOR: The U.S. Supreme Court will soon decide Quanta Computer, Inc. v. LG Electronics, Inc. What are the implications of the issues involved in this case? WINTERS: This is clearly a huge subject for the industry. The issue?whether a patentee may enforce, through federal-court actions for patent infringement, downstream limitations on purchasers following an authorized sale of an essential patented component?is very significant for technology companies in particular, especially those that make a product that is incorporated into others, such as the manufacturers of chips that get incorporated into computers, or makers of software that get bundled with other software. And once again, the Supreme Court is weighing in on a patent subject of fundamental importance, both legally and commercially. COOPER: This is a patent drafting strategy issue, in my opinion. Savvy patent prosecutors can avoid the problem in this case by putting claims against different industry segments into different patents. For example, patent claims covering processors can be placed in one application while other claims covering computer systems (with the processor) can be placed in a separate application, and they will issue as separate patents. The processor patent can be licensed to the processor industry, leaving the unlicensed computer system patent for enforcement against computer system vendors. SCHMELZER: The strategy you describe makes sense, but could be circumvented by the PTO if it is successful in enacting rules that treat claims in related applications as counting together towards a ceiling on the total number of allowed claims, and that also limit the number of continuation applications that may be filed. However, those rules are now in limbo, and are the subject of ongoing litigation since they were enjoined by the Eastern District of Virginia in Tafas v. Dudas (522 F. Supp.2d 652 (2007)). TUCHER: There's also the second question before the Court in this case, which is whether the patent exhaustion doctrine applies to method claims at all. The Federal Circuit has made the bright-line rule that method claims are immune from patent exhaustion, and a patent prosecutor can usually turn what would otherwise be an apparatus claim into a method claim. But I would not be surprised if the Supreme Court abolished this bright-line rule by saying that patent exhaustion does and should apply to method claims. BEN-MEIR: Again though, abolishing that bright-line rule might only be meaningful if the doctrine were extended to deal with the carving of claims into different patents. To preclude that kind of claim drafting, you might look at the whole patent family and if the claim originates from the same basic invention, then decide that exhaustion applies to those claims as well. Another potential way of overcoming the issue, though, is in the license agreement itself. Before the patent owner exhausts their rights and before the product goes out the door, the conditions can be spelled out, up front, on the licensee side so that they're not selling the products to unauthorized downstream customers, something LG Electronics has argued. These downstream customers, in turn, will then also become aware that they will need to become licensees of the patent. That way, the product goes out unencumbered and the downstream customers can use the product however they want. Ultimately, I think a certain tension exists when you have a product that doesn't have any notice attached to it limiting its use, and yet there are these encumbrances that could potentially be exploited at any time. TUCHER: I don't think it's just about unknown encumbrances and whether the purchaser has received notice. I think it's really about whether the patent exhaustion doctrine is a limitation on patent rights, or whether it's something that the parties can contract around. And it wouldn't surprise me if the Supreme Court said that there is a fundamental limitation on patent rights, and that a patent holder is going to have to seek contract remedies if the terms of its license are being violated. BEN-MEIR: I think that's true. It's just that it's hard to draw that line as to when the patent exhaustion doctrine should apply. The Court may draw that line by allowing encumbrances of the patent licensee, but not its downstream customers due to patent exhaustion, which is what Quanta appears to be advocating in this case. So the issue becomes: If you can contractually shift those same encumbrances from the customer side to the licensee's side, should the exhaustion doctrine still apply? On the other hand, without a bright line rule, it may be hard to determine where and when it does. SCHMELZER: If the Supreme Court does hold that licensors can't get around patent exhaustion via conditional sales, then they will be left to rely on their contract rights, which means that licenses will need to be drafted very carefully. |
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Megan Kinneyn
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