The Supreme Court has issued opinions in three patent cases this year. The Court: (1) raised the standard for review of factual determinations in claim construction to require clear error; (2) rejected good faith belief in validity as a defense to inducement; and (3) upheld the bright line rule prohibiting license terms imposing patent royalties after the patent expires. On remand from the Supreme Court, the Federal Circuit (1) reversed the District Court's claim construction despite conceding there was no clear error in the factual determination and (2) refused to close the “gaping hole” in liability for divided infringement of method claims.
I. Claim Construction & Indefiniteness
In Teva Pharmaceuticals USA Inc. v. Sandoz, Inc., 135 S.Ct. 831 (2015), the Supreme Court (with two justices dissenting ) held that a determination of a factual dispute in the course of claim construction is subject to review for clear error. The ultimate claim construction, however, remains an issue of law subject to de novo review. In Teva the District Court found the claim valid and infringed, relying on expert testimony regarding how a person of ordinary skill in the art would define the claim term "molecular weight". The Federal Circuit rejected the expert's explanation and found the claim term indefinite. The Federal Circuit did not find the District Court's reliance on the expert was "clearly erroneous"; consequently, the Supreme Court vacated and remanded.
On remand, the Federal Circuit found the District Court did not commit clear error in relying on the expert testimony. Teva Pharmaceuticals USA Inc. v. Sandoz, Inc., 789 F.3d 1335 (Fed. Cir June 18, 2015). However, that factual determination was not controlling on the legal issue of claim construction. The Federal Circuit also considered the prosecution history of two related patents, in which Teva had offered two different definitions of molecular weight. On the legal issue of claim construction, the Federal Circuit again found the term "molecular weight" indefinite – this time under the "reasonable certainty" standard recently established by the Supreme Court in Nautilus, Inc. v. Biosig Instruments, Inc., 134 S.Ct. 2120 (2014) (replacing the "insolubly ambiguous" standard). While Plaintiff Teva won in the Supreme Court, success on the merits continues to elude Teva at the Federal Circuit.
II. Induced Infringement
A. Belief in Invalidity is No Defense
In Commil USA LLC v. Cisco Systems, Inc., 135 S.Ct. 1920 (2015), the Supreme Court held that defendant Cisco Systems could be liable for inducing infringement (35 U.S.C. § 271(b)) even if Cisco had a good faith belief the patent was invalid. It turns out the patent was valid, and infringed. Consequently, the District Court awarded damages of $3.7 million against Cisco for direct infringement and $63.7 million for induced infringement. The Federal Circuit had held the District Court erred in excluding evidence of Cisco's good faith belief the patent was invalid. The Supreme Court held patent validity was a separate issue. The only elements necessary to prove infringement under inducement are the defendant (1) knew of the patent and (2) knew the acts induced by the defendant would infringe. Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. ___, 131 S.Ct. 2060 (2011). Defendant Cisco's subjective belief regarding patent validity was not material, even though Cisco's subjective belief regarding infringement was material.
A potential infringer with a subjective belief a patent is invalid could seek (1) declaratory judgment; (2) re-examination; or (3) inter parties review. Any of these alternatives would resolve the question of patent validity. Merely relying on a good faith belief of invalidity when inducing others to infringe is not a defense. On the other hand, if a patent plaintiff brought suit without a good faith belief in patent validity, the court could ultimately award the defendant relief under Fed. R. Civ. P. 11 or the attorneys' fees statute (35 U.S.C. § 285). Two justices dissented (and Justice Breyer did not participate in the decision).
B. The Single Actor Rule – the Gaping Hole
A Supreme Court decision last year held that there must be a direct infringer in order to impose liability for induced infringement of a method patent. Limelight Networks, Inc. v. Akamai Technologies, Inc. 134 S.Ct. 2111 (2014). A method patent contains steps to practice the invention. If the steps are practiced by multiple actors there may be no direct infringer; therefore, there can be no liability for induced infringement. The Supreme Court remanded to the Federal Circuit for further consideration of the "single actor rule" developed in the Federal Circuit, which narrowly limits the circumstances under which the actors performing different steps can be treated as one actor (requiring proof of an agency relationship, a contract or a joint enterprise).
On remand the Federal Circuit reaffirmed its single actor rule. Akamai Technologies, Inv. v. Limelight Networks, Inc., 786 F.3d 899 (Fed. Cir. May 13, 2015). Consequently, there is what dissenting Judge Moore called a “gaping hole” in patent liability for divided infringement for method claims. If someone performs all the method steps, liability may be imposed for direct infringement. If someone induces another person to perform all the steps, that other person is liable as a direct infringer and liability can also be imposed on the actor who induced infringement. If, however, someone performs all the steps but one, and then induces another to perform the remaining step, there is no liability for either actor if there is no agency, contract or joint enterprise relationship between the actors. The remedy for this anomaly must be sought in Congress (or another appeal to the Supreme Court). Meanwhile careful claim drafting is necessary to craft method claims that will be directly infringed without dividing the method steps among multiple actors.
III. Patent License Royalties
In Kimble v. Marvel Enterprises, LLC, 135 S.Ct. 2401 (June 22, 2015), the Supreme Court considered whether a license can permit a patent owner to impose a royalty after the patent expires. Fifty years ago, the Supreme Court adopted a bright line rule that no royalty could be imposed for use of the invention after the patent expired. Brulotte v. Thys Co., 379 U.S. 29, 85 S.Ct. 176 (1964). A continuing royalty would be an unlawful extension of the patent monopoly.
A series of Supreme Court cases have eliminated bright line (“per se”) rules under the antitrust law and required courts to apply the "rule of reason". Kimble, the owner of the patent at issue, sought declaratory judgment that the unlimited royalty term of his patent license should also be subject to the rule of reason. The district court and the Ninth Circuit Court of Appeals denied Kimble declaratory relief, enforcing the established rule on patent royalties. The Supreme Court affirmed, holding stare decisis has special force with respect to statutory interpretation and in cases of property and contract law. The Supreme Court viewed this case as a case under the Patent Act raising issues of statutory interpretation, property law and contract law; hence, following established precedent was particularly important. Applying the rule of reason would make litigation involving patent licenses more expensive and less predictable. Any relief from the court's long standing rule must come from Congress (which has previously rejected legislative efforts to change the rule of Brulotte v. Thys Co.).
Kimble argued that allowing the parties to freely contract regarding future royalties would promote the constitutional objective of patents - to encourage innovation. The court disagreed and noted that a patent owner has considerable flexibility to defer payment, to collect payments after the patent term expires based on continuing non-patent rights (such as trade secrets) or to form a joint venture to share in the revenue generated by the invention without creating a specific patent royalty. A license which seeks to extend the patent royalty beyond the expiration date is simply and clearly unenforceable.