IPR Appellants Must Satisfy Article III Standing

In Personal Audio, LLC v. Electronic Frontier Foundation, Appeal No. 2016-1123, the Federal Circuit held that standing for an appeal to a federal court is based on the party seeking entry into the federal court.

Electronic Frontier Foundation (EFF) filed a petition for IPR challenging certain claims from a patent owned by Personal Audio. The PTAB issued a final written decision holding the challenged claims invalid as anticipated and/or obvious. Personal Audio appealed the PTAB’s decision.

The Federal Circuit requested briefing from the parties on whether EFF had standing to participate in the appeal in view of Consumer Watchdog v. Wisconsin Alumni Research Foundation, 753 F.3d 1258 (Fed. Cir. 2014), which held that a PTAB petitioner that does not meet the Article III case-or-controversy requirement does not have standing to invoke federal judicial power, and thus does not have standing to appeal a PTAB decision on inter partes reexamination. Here, the Federal Circuit explained that Article III standing is not a requirement to file an IPR petition at the USPTO, however the party seeking review of a PTAB decision in a federal court must have Article III standing.

In this appeal, Personal Audio is the party that sought federal judicial review of the PTAB’s decision, not EFF. The PTAB’s decision caused Personal Audio to experience loss of its patent claims, which is a sufficient alteration of its legal rights to confer standing under Article III. Therefore, Article III standing for this appeal was satisfied by Personal Audio acting as the appellant, and the Federal Circuit determined that EFF was not constitutionally excluded from defending the PTAB’s decision.

On the merits, Personal Audio argued that the PTAB’s decision was based on erroneous construction of certain claim terms. The Federal Circuit determined that the PTAB did not err in its claim constructions and therefore affirmed the PTAB’s judgment of unpatentability.

Federal Circuit Finds Patent Claims Directed to Improved Computer Memory Patent Eligible

In Visual Memory LLC v. Nvidia Corporation, Appeal No. 2016-2254, the Federal Circuit held that claims reciting an improved computer memory system were patent eligible under section 101.

Claim 1 of Visual Memory’s asserted patent recites a “computer memory system connectable to a processor and having one or more programmable operational characteristics, said characteristics being defined through configuration by said computer based on the type of said processor . . . wherein a programmable operational characteristic of said system determines a type of data stored by said cache.” The district court determined that the claims were directed to the abstract idea of “categorical data storage” and that the other features of the claim (main memory, cache, bus, and processor) were generic and conventional. The district court granted NVIDIA’s motion to dismiss for failure to state a claim.

The Federal Circuit disagreed and found that the claims were not directed to an abstract idea under Alice step one, but rather were directed to “an improved computer memory system.” The court stated that the claims “focus[ed] on a ‘specific asserted improvement in computer capabilities’—the use of programmable operational characteristics that are configurable based on the type of processor.” The benefits provided by the claimed system were described in the specification: the system could be used with a variety of different processors while remaining efficient and outperformed prior art systems even though it used a smaller memory cache. Thus, the Federal Circuit concluded that the system was not directed to patent ineligible subject matter.

In dissent, Judge Hughes criticized the majority for applying too low a level of abstraction in view of the “level of generality or abstraction expressed in the claims themselves.” He found that “the ‘programmable operational characteristic’ [was] a black box for performing the abstract idea of storing data based on its characteristic, and [that] the patent lack[ed] any details about how that [was] achieved.”

Infringement of System Claims by Use Does Not Require Direct Control Over All Elements

In Georgetown Rail Equipment Company v. Holland L.P., Appeal No. 2016-2297, the Federal Circuit held that a party can use a patented system for purposes of infringement by transmitting data to a third-party with instructions to process using the claimed steps. Additionally, lost profits may be awarded based on a market reconstruction where the infringer had a contract to sell infringing goods, but no actual sales.

Georgetown and Holland are competitors in the market for systems to automatically inspect tie plates on railroad tracks. In 2012, both companies participated in a head-to-head challenge to demonstrate their services to a potential customer: Union Pacific Railroad. After the demonstration, Union Pacific signed a contract with Holland to supply systems on an as-needed basis. Georgetown sued Holland for infringing its patent covering a system for inspecting track. The District Court granted a preliminary injunction and Holland never actually made sales to Union Pacific. A jury found that Holland infringed and awarded Georgetown its lost profits.

On appeal, Holland argued that it could not be a direct infringer because it did not process the data using the patented method—processing was subcontracted to a third party. The Federal Circuit disagreed, finding that a jury could reasonably believe that Holland exercised control of and benefited from the patented system regardless of the fact that a third party processed the data. The Federal Circuit explained that Holland had used the entire system for the purposes of infringement when it gathered information and sent that information with instructions to the third-party to analyze that information. By requesting third-party processing, Holland “put into service” the patented system, demonstrating both control of and benefit from the system.

Holland further argued that because it did not have any infringing sales, its infringement was not the but-for cause of Georgetown’s alleged lost profits. The Federal Circuit again disagreed, finding that Georgetown’s expert’s analysis of the Union Pacific contract, even without sales, provided sufficient evidence for the jury to award lost profits. The Federal Circuit noted that they have affirmed lost profits awards based on a wide variety of reconstruction theories and that the court would not re-weigh the evidence that the jury found persuasive.

A Desire for Simplicity Does Not Teach Away From Unmentioned Modifications

In Nidec Motor Corporation v. Zhongshan Broad Ocean Motor Co., Appeal No. 2016-2321, the Federal Circuit held that a prior art reference’s general preference for a simple device does not teach away from more complex modifications to achieve predictable results.

Broad Ocean filed an IPR petition challenging certain claims of Nidec’s patent relating to low-noise heating, ventilating, and air conditioning (HVAC) systems. The Board held that the challenged claims were obvious over the combination of Bessler and Kocybik. Bessler describes an HVAC system, but does not describe the claimed sinewave commutation, which lowers vibrations by using a more gradual voltage change than a traditional square-wave commutation. Kocybik discloses the use of sinewave commutations, but not in HVAC systems. The Board held it was obvious to combine the conventional HVAC system of Bessler with the sinewave commutation described in Kocybik to achieve predictable results. Nidec appealed.

Nidec argued that Bessler teaches away from Kocybik because Bessler was designed to reduce the complexity of HVAC systems and the teachings of Kocybik would increase the complexity of the system. The Federal Circuit disagreed and affirmed the Board because Bessler did not even mention sinewave commutation, much less discourage the use of sinewave commutations. Bessler’s desire for a simple system that did not require the use of certain components did not teach away from sinewave commutations.