Taking the opportunity to speak to a pair of patent doctrines that were the subject of “disruptive” opinions last year (and that are still in the process of being fully fleshed out), a panel of the U.S. Court of Appeals for the Federal Circuit reversed a jury verdict finding infringement and validity, rejecting the theory of joint infringement absent a single party exercising “control or direction” over the infringement and found claims directed to a method of using the internet to conduct a bond auction to be obvious under KSR. Muniauction, Inc. v. Thomson Corp., Case No. 07-1485 (Fed. Cir., July 14, 2008) (Gajarsa, J.).

The patent in suit was directed to electronic methods for conducting “original issuer auctions of financial instruments” over the internet, using a web browser. The claimed system provides an “integrated system on a single server” that allows issuers to run the auction and bidders to prepare and submit bids using a conventional web browser, without the use of other separate software. The system also allows issuers to monitor the progress of the auction and bidders to monitor their bid vis-à-vis the current best bid.

Prior to the critical date of the patent in suit, the defendant Thomson operated an auction system that worked with other bid calculation programs, but which used a proprietary network. Soon after Thomson modified its system to allow issuers to view bids over the internet using a web browser, Muniauction filed suit.

A jury found that the asserted claims were not obvious and that Muniauction was entitled to lost profits damages. The jury also found willful infringement. Thomson’s motions for judgment as a matter of law (JMOL) that the claims were obvious and that Thomson did not infringe the claims under the appropriate standard for joint infringement were both denied. After the Supreme Court issued its decision in KSR, the district court reconsidered the obviousness issue, but again denied Thomson’s motion and issued a final judgment, awarding enhanced damages for willful infringement and a permanent injunction. Thomson appealed.

While the appeal was pending, the Federal Circuit its opinions in Seagate (changing the standard of willful infringement from one akin to negligence to that of objective recklessness) and in BMC Resources (holding that where steps of a method claim are performed by multiple parties, the entire method must be performed at the control or direction of the alleged direct infringer). The Federal Circuit granted Thomson’s motion for a stay of the injunction pending appeal, concluding that Thomson had shown a likelihood of success on the merits under BMC Resources.

Obviousness

Considering the obviousness issue as denial of a JMOL, the Federal Circuit reviewed the conclusion of obviousness de novo, but gave deference to the underlying fact finding using the substantial evidence standard. After concluding that Thomson’s prior bid/auction system (Parity®) met all of the method claim limitations as construed by the district court other than the use of a web browser, the court articulated the issue to resolve the legal conclusion of obviousness as “whether it would have been obvious to one of ordinary skill in the art to modify the Parity® system to incorporate conventional web browser functionality.” Citing KSR and posing the question as “whether the improvement is more than the predictable use of prior art elements according to their established functions,” the Federal Circuit concluded that claims in issue were obvious as a matter of law.

The Court noted that since, prior to the critical date, the use of web browsers was well known “the modification of Parity® to incorporate web browser functionality represents a combination of two well known prior art elements to a person of ordinary skill in the art,” especially since the record demonstrated the use of the internet and web browsers to conduct other types of electronic auctions, and quoting KSR for the proposition that “[w]hen a work is available in one field of endeavor, design incentives and other market forces can prompt variations of it, either in the same field or a different one.”

The panel reinforced its conclusion, citing to its own post-KSR Leapfrog Enterprises case, “reasoning that ‘[a]pplying modern electronics to older mechanical devices has been commonplace in recent years.’ The record in this case demonstrates that adapting existing electronic processes to incorporate modern internet and web browser technology was similarly commonplace at the time the patent application was filed.”

The Court easily dismissed Muniauction’s argument that the incorporation of web browser functionality into existing electronic prior-art systems was beyond the ability of a person of ordinary skill in the art as of the critical date was filed. Noting that the prior art taught the use of a web browser both to communicate information associated with a bid over an electronic network and to display information associated with a bid, and that the Muniauction patent itself did not specifically teach how to implement the claimed method using a web browser, the Court saw the issue more as an enablement issue (vis-à-vis the patent in suit) then as an obviousness issue.

The Federal Circuit also disposed of Muniauction’s evidence regarding secondary considerations of non-obviousness purportedly directed to initial skepticism followed by praise, copying and commercial success. As to some factors, the Court noted a “lack the requisite nexus to the claims” and as to others that their relationship to the claims was simply too attenuated to overcome the strong prima facie case of obviousness, especially where the specific feature praised was already in the prior art.

Joint Infringement

The joint infringement issue presented was whether the actions of at least the bidder and the auctioneer may be combined so as to give rise to a finding of direct infringement by the auctioneer. After reminding us that direct infringement requires a single party to perform every step of a claimed method, the panel cast issue of infringement in this case as turning on whether Thomson sufficiently controls or directs other parties (e.g., the bidder) such that Thomson itself can be said to have performed every step of the asserted claims. Conceding that the district court’s denial of Thomson’s JMOL motion occurred before BMC Resources issued, the Federal Circuit found the jury instruction on joint infringement to have been based on an interpretation of the Federal Circuit’s On Demand standard that was no longer viable and that under BMC Resources, the “control or direction” standard is only satisfied “where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method.” Here, the Court concluded that “Thomson neither performed every step of the claimed methods nor had another party perform steps on its behalf, and Muniauction has identified no legal theory under which Thomson might be vicariously liable for the actions of the bidders.”