Historically, the United States Supreme Court granted certiorari in a patent case once every blue moon. Now, things are different. The Roberts court has taken a keen interest in patent cases and recently granted certiorari in three, choosing to address (and perhaps change) long-standing principles adopted by the United States Court of Appeals for the Federal Circuit. The issues presented include a challenge to: (1) the clear and convincing standard of proof required to invalidate patents; (2) the “state of mind” element required to establish indirect infringement, and specifically active inducement; and (3) the circumstance under which (or whether) individual inventors or contractors retain patent rights to federally funded inventions. This article addresses all three cases being briefed on appeal.
Stanford vs. Roche
The earliest case (based on when the Federal Court ruled) is Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., et al., 583 F.3d 832 (Fed. Cir. 2009) (rehearing and rehearing en banc denied Dec. 22, 2009). There, the Federal Circuit found for defendant Roche and Stanford petitioned the Supreme Court. Although the parties debate the exact wording of the issue presented on appeal, the Supreme Court in essence granted certiorari to address the Bayh-Dole Act, 35 U.S.C. §§ 200-212, and how that Act governs the relationship between a private university who receives government funding and its inventors and assignees. Stanford, the petitioner, posed the question as follows:
Whether a federal contractor university’s statutory right under the Bayh-Dole Act, 35 U.S.C. §§ 200-212, in inventions arising from federally funded research can be terminated unilaterally by an individual inventor through a separate agreement purporting to assign the inventor’s rights to a third party.
The respondents countered with the following question:
Whether the Bayh-Dole Act permits a private university to void, unilaterally and retroactively, an inventor’s otherwise valid contractual assignment of his rights in an invention, solely because that invention was developed in part with federal funds.
At the heart of the debate is the Bayh-Dole Act, which, in terms of its policy and objective, wears its heart on its sleeve:
It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development; to encourage maximum participation of small business firms in federally supported research and development efforts; to promote collaboration between commercial concerns and non profit organizations, including universities; to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery; to promote the commercialization and public availability of inventions made in the United States by United States industry and labor; to ensure that the Government obtains sufficient right in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions; and to minimize the costs of administering policies in this area.
35 U.S.C. § 200.
In practice, the Act “allows nonprofit organizations and small business firms to elect to retain title to any invention [developed by it] pursuant to a government contract.” Campbell Plastics v. Brownlee, 389 F.3d 1243, 1247 (Fed. Cir. 2004). In Stanford, Stanford received government funding for its HIV research through the National Institute of Health (“NIH”), and for which it, through the work of Stanford researchers, received several patents. These researchers also collaborated with Cetus, a company where certain techniques relevant to the potential invention were developed. At least one inventor agreed to assign his inventions to the university and did assign certain invention rights to Cetus. Other agreements were signed including between the university and Cetus, providing Cetus with licenses to technology that Stanford created as a result of access to Cetus’s material. In December 1991, Roche purchased Cetus’s business (and agreements) pertaining to these activities.
Subsequently, Stanford confirmed to the Government the grant of a nonexclusive license and formally notified the Government that it elected to retain title to the inventions under the Bayh-Dole Act. All three patents at issue contain the notation: “This invention was made with Government support under contracts AI27762-04 and AI27766-07 awarded by the National Institutes of Health. The Government has certain rights in this invention.”
In April, 2000, Stanford initiated licensing discussions with Roche but Roche countered and claimed ownership rights in the patents. When eventually sued, Roche contested, inter alia, Stanford’s ownership rights and standing. The district court granted Stanford’s motion for summary judgment, in part, finding that Roche’s ownership claims were barred by California’s statute of limitation, laches, and the Bayh-Dole Act. The court held that the Bayh-Dole Act negated an individual inventor’s assignment to Cetus “because it empowered Stanford to take complete title to the inventions.”
On appeal, the Federal Circuit reversed in part, finding that Roche possesses an ownership interest in the patents-in-suit that deprives Stanford of standing and that the election of title by Stanford under the Bayh-Dole Act does not void any prior, otherwise valid assignment of patent rights. More specifically, Stanford argued to the Federal Circuit that, in effect, while the government has the right, under certain circumstances, to choose to take action and title to patented inventions, if the government does not so choose then the university was allowed a “right of second refusal” to trump any individual assignment granted by an inventor. This theory, however, was rejected.
In its petition for writ, and in its reply brief, Stanford presses for clarity, arguing that a research institution’s rights flow from the Bayh-Dole Act and that by “making title to federally funded inventions depend on the ad hoc assignments of titles by individual inventors, the Federal Circuit has introduced a lack of clarity that is anathema to the statutory scheme.” Petitioner’s Reply Brief, pp. 5-6. We shall soon see if the Supreme Court agrees.
Global-Tech vs. SEB
On February 5, 2010, in SEB et al. v. Montgomery Ward, Global Tech and Pentalpha Enterprises, 594 F.3d 1360 (Fed. Cir. 2010), the Federal Circuit addressed “induced” infringement, affirming a jury and district court’s finding that co-defendant Pentalpha induced infringement by others of a patent directed to a “deep fryer” with an inexpensive plastic outer shell or skirt. The jury received evidence of Pentalpha’s sales to Sunbeam, Fingerhut, and Montgomery Ward, but there was “no evidence that [Pentalpha] was aware of the [patent-in-suit] before April 9, 1998” when it was notified that SEB brought suit against Sunbeam. SEB, nonetheless, argued:
[SEB is] saying that you could infer the specific intent to . . . encourage the infringement by the fact that [Pentalpha’s president] doesn’t disclose that [Pentalpha copied the SEB product] to the people doing the [patent] search. [Pentalpha] wants them to do a search that . . . is doomed to failure, and that that is enough, that a reasonable jury could infer that, specific intent . . . . Here is the argument. There are a zillion patent attorneys in New York City, [yet] [t]hey go to this guy in the middle of nowhere to do this patent search . . . . I don’t know what happened. I’m not in [Pentalpha’s President’s] head. I don’t know what he did. . . . I think it is . . . a reasonable argument, could a jury infer from those actions, if they chose to believe them in the way the plaintiffs want, that that was an indication that [he] understood that he was likely violating a patent, in fact violating a patent.
The question then, under Federal Circuit precedent, was whether without actual knowledge of the patent could Pentalpha be found to “induce” another’s infringement. Indeed, the Federal Circuit made clear previously, in DSU Medical v. JMS, 471 F.3d 1293 (Fed. Cir. 2006) (en banc), that under § 271 (b), inducement requires that the “alleged infringer knew or should have known his actions would induce actual infringement” and that this “necessarily includes the requirement that he or she knew of the patent.”
Although Pentalpha argued that this should not mean “knew or should have known” because the DSU decision only states “knew of the patent” (and not “should have known”), the Federal Circuit seemed to retreat from its DSU language, pointing out that the “knowledge of the patent” issue was not before it and that “the standard of deliberate indifference of a known risk is not different from actual knowledge, but is a form of actual knowledge.” Accordingly, the Federal Circuit ruled that “a claim for inducement is viable even where the patentee has not produced direct evidence that the accused infringer actually knew of the patent-in-suit.” When can this happen? When the record contains adequate evidence to support a conclusion that the defendant “deliberately disregarded a known risk that [the plaintiff] had a protective patent.” Here, the jury heard evidence of copying and that the defendant failed to inform counsel conducting a right-to-use study that its product was based on the plaintiff’s product. Additionally, defendant’s president was well versed in patent issues and failed to produce any exculpatory evidence. As a result, the Federal Circuit concluded that Pentalpha “deliberately ignored the risk” and thus induced infringement.
On appeal, Pentalpha asks whether “the legal standard for the state of mind element of a claim for actively inducing infringement under 35 U.S.C. § 271(b) is “deliberate indifference of a known risk” (as the Federal Circuit ruled) or (as Pentalpha believes) a “purposeful, culpable expression and conduct” to encourage an infringement. Interestingly, Pentalpha relies on and cites a Supreme Court copyright case, MGM Studios v. Grokster, 545 U.S. 913 (2005), in support of its position because the Court, in that case, cited and characterized the patent statute’s § 271(b) as requiring “an affirmative intent that the product be used to infringe,” and arguably based on “purposeful, culpable expression and conduct.” Petition for Writ, p. 8. In opposition, SEB argued that “deliberate indifference” is a “practical and workable test that provides courts with flexibility in assessing an infringer’s knowledge of a patent.” Again, how the Supreme Court rules remains to be seen.
Microsoft vs. i4i Ltd.
The most recent grant of certiorari belongs to the Microsoft v. i4i case. What a difference a year makes. Then, i4i was basking in the glow of a $240,000,000 affirmance. Now the Supreme Court may take it all away based on an issue not even presented by Microsoft in its petition to the Federal Circuit for rehearing en banc (which was denied).
Since its inception, the Federal Circuit has unwaveringly followed the principle, based in part on the statutory presumption of validity that attaches to U.S. patents when issued, that such patents can only be invalidated by clear and convincing evidence rather than by a preponderance of evidence, even when the prior art relied upon to establish invalidity was not before or previously considered by the U.S. Patent and Trademark Office in granting the patent. In its Petition for a Writ, Microsoft relied, in part, on the Supreme Court’s statement in KSR Int’l Co. v. Teleflex, 550 U.S. 398 (2007) that “the rationale underlying the presumption - that the PTO, in its expertise, has approved the [patent] - seems much diminished” when an “invalidity defense rests on evidence that the PTO never had an opportunity to consider.” Microsoft also goes back in time to pre-1982 decisions of the regional courts of appeals:
Though all twelve regional circuits had held that, when the PTO has issued a patent without considering prior art evidence pertinent to patentability, the presumption of patent validity is (at a minimum) “weakened,” and accordingly incapable of supporting a heightened standard of proof, the Federal Circuit nonetheless adheres to a rule that a challenger must carry a clear-and-convincing-evidence standard in all cases, repeatedly declining invitations to reconsider the issue en banc. That deliberate departure from the uniform pre-1982 practice of the regional circuits warrants this Court’s review.
i4i, however, in its brief in opposition, counters that the Federal Circuit’s construction of § 282, which allows the clear-and-convincing burden to be carried more easily with prior art not considered by the PTO, does not conflict with KSR or with most regional circuit’s pre-1982 decisions. Accordingly, the issue to be resolved has been joined and the Supreme Court will, we tust, soon provide its guidance.