Bosch, Ultramercial, Commil, Fresenius: All-Star Break

A guest post from Ron Schutz of Robins, Kaplan, Miller & Ciresi

The Federal Circuit goes into the symbolic half-way point of summer leading the league with a series of homerun opinions. To keep the games back gap on updates from widening, consider the following take on a Midsummer Classic.

Bosch v. Pylon In Bosch, the Federal Circuit considered en banc two questions regarding the extent of its appellate jurisdiction under 28 U.S.C. § 1292(c)(2). That statute authorizes an interlocutory appeal from a judgment in a patent infringement judgment action that is “final except for an accounting.” Sua sponte, the court asked whether § 1292(c)(2) confers jurisdiction for an appeal of patent infringement liability before a trial on damages has occurred and whether that jurisdiction exists when willfulness issues remain undecided.

In a 5-4 split opinion, the majority answered both questions affirmatively. Delving into the history of § 1292(c)(2) and the practices that have developed around it since its original enactment, seven of the nine judges agreed that the statutory term “accounting” is expansive enough to include a determination of the patentee’s damages. There was less accord, however, on jurisdiction for liability appeals before a determination of willfulness. For the majority, history trumped. Looking at past practices—including when equity’s “accounting” was still in use—the majority found that willfulness has traditionally been part of the determination of damages after a finding of infringement liability. The dissenters objected to the majority’s statutory and historical interpretations, as well as raising Seventh Amendment concerns regarding having two juries decide a defendant’s fate.

Bosch is sure to encourage more post-liability, pre-damages appeals, especially in cases involving allegations of willful infringement.  Given the deep divide on the outcome, expect more in-fighting—or a review by the Supreme Court.

Ultramercial v. Hulu Right on the heels of CLS Bank v. Alice—and its apparent poison pill for software patents—comes the anodyne Ultramercial. The patent at issue in Ultramercial covers a method for distributing copyrighted products like songs and books over the Internet via computerized system that allows a consumer to receive the product for free in exchange for viewing an advertisement. Following the alleged infringer’s 12(b)(6) motion to dismiss, the district court found the patent ineligible under § 101. On appeal, a three judge panel firmly reversed.

The panel said that it will be “rare” that a patent infringement suit can be dismissed at the pleading stage for lack of patentable subject matter because “every issued patent is presumed to have been issued properly, absent clear and convincing evidence to the contrary.” As a result, Rule 12(b)(6) dismissal for lack of eligible subject matter should be “the exception, not the rule.” The court also emphasized that the § 101 determination is “rife with underlying factual issues” and reiterated that, because of the  procedural posture of the case, proof of patent ineligibility must be proved by clear and convincing evidence. After a thorough review of recent Supreme Court and Federal Circuit precedent, the panel provided yet another set of guidelines for assessing software method claims under § 101. “At the bottom, with a claim tied to a computer in a specific way, such that the computer plays a meaningful role in the performance of the claimed invention, it is as a matter of fact not likely to pre-empt virtually all uses of an underlying abstract idea, leaving the invention patent eligible.”

A separate concurrence by Judge Lourie agreed that the patent covered more than the abstract idea of using advertising as currency, but groused at the use of an analysis different than that outlined in his plurality opinion in CLS Bank. Unless and until further en banc review occurs, expect the software method patent challenges to just keep coming.

Commil v. Cisco In Commil, a divided panel’s review of a $63.7 million verdict may have forever altered the landscape for induced infringement claims. On appeal, adjudged infringer Cisco challenged the district court’s inducement jury instructions. Cisco also argued that the district court erred when it refused to allow evidence regarding Cisco’s good-faith belief of patent invalidity as proof of lack of the requisite intent for inducement. The panel’s majority agreed with Cisco on both issues.

The ruling on the jury instruction seemed inevitable given the Supreme Court’s decision in Global-Tech v. SEB. In Global-Tech, the Court said that inducement requires knowledge that the induced act constitutes infringement and that only actual knowledge or willful blindness can satisfy that requirement. The district court in Commil instead gave a “knew or should have known” instruction to the jury because Global-Tech did not issue until about two months after the Commil trial. All three members of the appeals panel agreed that district court’s now-erroneous instruction prejudiced Cisco. As a result, the panel unanimously vacated the jury’s finding of inducement and its associated damage award and remanded that part of the case for a new trial.

But the panel split on whether evidence of Cisco’s good faith belief of invalidity could be introduced to negate the requirement of intent required in an induced infringement claim. Judges Prost and O’Malley held that evidence should be considered because of the heightened proof of intent required for inducement claims. Judge Newman, however, argued strenuously that whether direct or indirect, patent invalidity is determination in which subjective belief does not play a role. Because the patent was found valid in previous trial, Judge Newman said Cisco’s belief about invalidity should not play a role in subsequent inducement proceedings.

Request for review en banc is likely. Should that request be turned down—or this decision affirmed—induced infringement claims face a “two outs,  nobody on” count as companies with technology that potentially induces infringement will insulate themselves with a good opinion of counsel regarding invalidity or non-infringement.

Fresenius v. Baxter Poor Baxter. First, way back in 2007, it fended off a declaratory judgment action to invalidate its patent brought by competitor Fresenius. Baxter won a JMOL on the jury’s verdict of invalidity as well as an award of $13 million in damages on its counterclaim for infringement. While the Federal Circuit considered and then affirmed a part of that decision, Fresenius sought a reexamination of Baxter’s patent in the PTO. Relying on new prior art not considered in the litigation, the PTO invalidated Baxter’s patent—a decision affirmed in 2012 by the Federal Circuit despite its earlier validity determination.

Meanwhile, the remanded action was working its way through the district court. That court ultimately entered a final judgment for Baxter of more than $25 million dollars representing the original jury award plus pre and post-judgment interest. But, according to a divided panel in Baxter, the PTO’s invalidation of the patent before the district court ordered that final judgment divested the district court of jurisdiction.  As a result Baxter “no longer has a cause of action.”

The majority reached its conclusion by finding that, though “final” for purposes of the original appeal, the 2007 judgment wasn’t really “final” when it came to res judicata preclusion–and cited the In re Baxter decision affirming the PTO’s invalidation as support.  A 30-page dissent from Judge Newman argued that the result allowed by the majority violates the separation of powers outlined in Article III of the Constitution.  Baxter will likely seek Supreme Court review.

Anyone ready for a seventh-inning stretch?

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