Microsoft Loses Post Verdict Rulings in CAC Patent Infringement Case

I reported here about Microsoft's victory (by way of a favorable jury verdict finding two claims not infringed and invalid) in the Eastern District of Texas over Computer Acceleration Corp. (CAC). That case involved alleged infringement of US Pat. No. 5,933,630, entitled "Program Launch Acceleration Using Ram Cache," which is a patent held by CAC, a subsidiary of patent licensing giant, Acacia. Well, the Judge apparently just made some post-verdict rulings on some outstanding issues (1) Microsoft's claim for a declaratory judgment for invalidity based on indefiniteness; (2) Microsoft's claim for a declaratory judgment counterclaim for unenforceability based on inequitable conduct; and (3) Microsoft’s request for attorneys’ fees under 35 U.S.C. § 285. All three were denied as reported by Mike Smith of McKool Smith. Check out Mike's blog for more details on the rulings. A published order is forthcoming and I will post that as soon as we have it.

Licensing Activities in Washington State Held Sufficient to Support Allegations of Personal Jurisdiction in a Patent Case

Tien Hsin Indus. v. Cane Creek Cycling Components, Co7-1272Z, (W.D. Wash. 2007).


Plaintiff Tien Hsin Industries, a Taiwanese maker of cycling components sold in the US under the brand Full Speed Ahead sued Cane Creek Cycling Components and inventor Homer John Rader III for inter alia a declaratory judgment of non infringement and invalidity of U.S. Patent No. 5,095,770, entitled "steering bearing assembly for wheeled vehicle." Defendants moved to dismiss inventor Rader, claiming he had no contacts with the state of Washington sufficient to support specific personal jurisdiction. At first glance, Defendant Rader's motion has some legs. Rader doesn't live in Washington, he has no offices or other presence here, he owns no property here, he never sent threats of infringement here, he has no web-presence or other contacts with Washington, nor did he ever contact plaintiffs in connection with the patent-in-suit. On the surface, Defendant Rader has fewer contacts than some other defendants recently dismissed on personal jurisdiction grounds from W.D. of Washington patent cases. See here and here for my posts on those cases. Why then were plaintiffs successful in defeating a motion to dismiss Rader for lack of personal jurisdiction? The answer comes from looking closely at his licensing activities. Under Federal Circuit law (remember, in patent cases, especially DJ cases, the law of the Federal Circuit applies to determinations of personal jurisdiction because "personal jurisdiction in a declaratory action for non-infringement is 'intimately related to patent law' and thus governed by Federal Circuit law regarding due process," see Silent Drive, Inc. v. Strong Indus., Inc., 326 F.3d 1194, 1201 (Fed. Cir. 2003)), licensing activities by a non-resident defendant may give rise to personal jurisdiction where the defendants' exclusive licensee conducts business in the forum state and where the defendant exercises some modicum of control over that activity beyond the mere collection of royalty income. Breckenridge Pharm. v. Metabolite, 444 F.3d 1356, 1366 (Fed. Cir. 2006). In this case, Defendant Rader licensed Cane Creek, who admittedly conducts business in Washington. Further, Defendant Rader was obligated under his license to Cane Creek to supply consulting services and he had control over sub licenses and rights in the products sold. He also had control over trademark usage and quality. While Judge Zilly's order does not specifically reference these factors, it does cite the Federal Circuit's opinion in Breckenridge in denying the motion.

Here are links to the order, the complaint, the patent-in-suit, the motion to dismiss, and the response.
CaneCreekcomplaint.pdf
canecreekorder.pdf
canecreekmotion.pdf
canecreekresponse.pdf

"It's All About Quality" Says Senior Legal Advisor to USPTO, Elizabeth L. Dougherty to Patent Lawyers in Seattle

Speaking today to a packed room full of Seattle patent lawyers disenchanted with current USPTO policy on, among other topics, continuations and claims rules, Senior PTO Legal Advisor Elizabeth L. Dougherty spoke sanguinely about the future of the controversial rules without providing specific information regarding the Office's current litigation position. Today's keynote address in Seattle was at the monthly meeting of the Washington State Patent Law Association at the Washington Athletic Club. The original topic of Ms. Dougherty's address was "Overview of the New USPTO Rules Effective 11/01/07 (Re: Continued Examination Filings, Applications Containing Pat. Indistinct Claims, etc.)." Not surprisingly, this topic was changed in view of ongoing litigation between the USPTO and GlaxoSmithKline/Tafas over the proposed rule changes. If for some reason you haven't heard, or haven't followed this case, here and here are some links to get you up to speed.

Ms. Dougherty was tight-lipped about the ongoing case, saying only that the USPTO plans to "defend vigorously" its new rules and that the lawsuit was seen inside the office as "bigger" than the new rules; explaining that its outcome could impact "more broadly, the rule making ability of all government agencies" not just the PTO.

In view of the ongoing litigation, Ms. Doughtery's topic was changed to the "Future of Patents and the USPTO." That future is bright according to her presentation, which summarized the recent statistical update released a couple weeks ago by the office. For a complete listing of recent stats from the USPTO, click here (pdf). While the statistics show a dramatic decrease in allowance rate (from over 70% in 2000 to about 54% currently), Ms Dougherty explained that this is because of the USPTO's focus on quality. Quality was the theme of the presentation which also discussed various pilot programs within the USPTO aimed at increasing quality, including a peer review process where the public may comment on published applications.

Despite her somewhat grumpy audience, I thought Ms. Dougherty's presentation was well received. She also came bearing gifts, including neat squishy USPTO light bulbs. If the new rules ever go into effect, you can expect these "stress relievers" will get a lot of use.

Here is a complete copy of the slides for her presentation.
Future%20of%20Patents%20and%20the%20USPTO%20%2880145198%29.pdf

Surprise Plaintiff in Nintendo Patent Litigation is Altitude Capital Partners

I reported here and here that Nintendo, along with others, was sued in the ED of Texas for infringement US Patent Nos. 5,592,555; 5,771,394; 5,502,689; and 5,247,621. The plaintiff was purportedly Saxon Innovations LLC, a new patent licensing company. Well, according to Patent Troll Tracker, the true plaintiff (i.e., beneficial owner of the claims in litigation) is Altitude Capital Partners. From their web site:

"Altitude Capital Partners is a leading private investment firm focused on investing $250 million of capital in businesses which own compelling intellectual property assets. We seek to invest in portfolio companies that have valuable patents, trademarks/brands, copyrights, royalty streams, trade secrets, and other intangible assets which will create a competitive advantage in creating value."

ACP doesn't meet the strict definition of "patent troll." It is more of an investment bank, having a business model focused on investment in IP, or investment in companies developing IP.

But when "portfolio companies" have no other business but enforcement of IP through licensing and litigation, the model moves away from pure investment, and into funding litigation in exchange for a piece of the action. This sounds a little like the old common law doctrine of champerty. This doctrine is in a state of flux right now. To date, I have not heard of champerty being asserted against those who fund patent litigation. The issue appears to have been raised by Peter Zura's 271 Patent Blog in September of last year in connection with a post regarding a patent suit against Toyota, alleging that hybrid technology in the Toyota Prius and Toyota Highlander gasoline-electric hybrids infringes on US Patent 5,067,932. The plaintiff in that case was apparently funded by Oliver Street Finance, LLC, who apparently agreed to pay "all legal fees and expenses in exchange for a portion of any recovery Solomon receives in the litigation equal to the greater of 40% of the recovery or the actual amount of legal fees and expenses."

According to Peter Zura, the law of Champerty is still very much in effect in the state of New York, albeit in limited situations where there is an agreement whose "sole or primary purpose" is the prosecution of litigation. The key words, of course, are "sole purpose." This would seem to exclude most, if not all, artfully drafted agreements to fund patent litigation. Cases cited in support of this proposition are Refac Int'l, Ltd. v. Lotus Dev. Corp. 131 F.R.D. 56 (S.D.N.Y. 1990) (finding assignment champertous where a five-percent interest in the patent was contracted in exchange for Refac's obligation to sue at least two alleged infringers within one month. The patent was subsequently invalidated for inequitable conduct by the Federal Circuit, but no opinion was given on appeal with regard to the agreement itself). Another case is American Optical Co. v. Curtiss, 56 F.R.D. 26 (S.D.N.Y. 1971) (finding assignment of certain IP that was expressly conditioned on the assignee bringing suit was champertous, and therefore void).

With today's raging debate over patent reform, it would make sense to start seeing champerty raised as a defense to patent litigation funded by investment banks like ACP. A brief look at the law of champerty in the state of Washington reveals case law explaining (at least in dictum) that the doctrine "has never obtained a foothold" here. Weed v. Foster, 58 Wash. 675, 678, 109 P.2d 123, 124 (1910). Later cases specifically hold "that maintenance and champerty is abrogated in the state of Washington pursuant to RCW 9.12.010." Giambattista v. National Bank of Commerce, 21 Wn. App. 723, 748 (D. I. 1978 (Dore, J., dissenting in part). Even if the doctrine of champerty were in effect, Washington cases seem to limit the doctrine to providing a defense to enforcement of allegedly champertous assignments. Id. Thus, it would not seem to provide any sort of defense to patent litigation funded pursuant to an allegedly champertous agreement. Other Washington cases addressing the doctrine of champerty include Harrison Mem. Hospital v. Ross, Case No. 25538-3-II, 2001 Wash. App. lexis 1485 (Div. II July 10, 2001) and Jordon v. Welch, 61 Wash. 569, 571, 112 P. 656, 657 (1911).

Champerty defenses aside, this suit raises real issues regarding the effectiveness of FRCP 7.1, which is supposed to require disclosure of the real parties in interest to litigation. Arguably, ACP is the real plaintiff in interest in the current litigation over US Patent Nos. 5,592,555; 5,771,394; 5,502,689; and 5,247,621, but the litigants (especially the Court) have no way of knowing this through normal operation of Rule 7.1.

For a very interesting article on emerging business models in IP, have look at this article from Raymond Millien and Ron Laurie, "Established and Emerging IP Business Models."

Established2007.pdf

Happy Thanksgiving and Judicial Patent Reform

Happy Thanksgiving. As you slip into your tryptophan-induced food coma, have a brief look at this excellent article from Rebecca S Eisenberg, Law Professor, University of Michigan Law School. Professor Eisenberg discusses the recent activist position of the Supreme Court in the area of patent law, comparing the Court to a non-custodial parent "who spends an occasional weekend with the kids." This term, the Court has granted certiorari in Quanta v. LG, a case dealing with patent exhaustion. Here is some good coverage of Quanta from PatentlyO and the Chicago IP Litigation Blog.

Comments Posted on Proposed BPAI Rules

Dennis Crouch has a couple good posts on the proposed rule changes for patent appeals.

Local commentators include the Washington State Patent Law Association, Intellectual Ventures, and Microsoft.


wspla%282%29.doc
microsoft%282%29.doc

Federal Circuit Affirms $160M Verdict Against Microsoft

The Federal Circuit Court of Appeals affirmed [pdf] a $160M verdict against Microsoft and Autodesk, Inc., for infringement of US Patent Nos. 6,044,471 and 6,785,825. The '825 patent is for a "method and apparatus for securing software to decrease software piracy," and it relates specifically to using unauthorized code to enable software while the '471 patent covers a "method and apparatus for securing software to reduce unauthorized use," and it relates to passwords used for the operation and access to data through software. Both patents were acquired by plaintiff, Z4 Technologies.

The appeal came from -- you guessed it -- the Eastern District of Texas, where Judge Leonard Davis had denied post-verdict motions for JMOL and granted Z4 its attorneys fees ( $1,978,000 from Microsoft and $322,000, for a total fee of $2.3M, a bargain if you ask me) and directed Microsoft only to pay enhanced damages of $25M.

On appeal, Microsoft asserted through its attorneys, Fish and Richardson, that the patents were invalid as a matter of law. The federal Circuit treated the jury's verdict of no invalidity with the usual deference, and the appeal was lost due to the existence of "substantial evidence" of validity.

Microsoft also argued that the jury was not properly instructed on the issue of invalidity, saying that it was error for the court to refuse to tell the jury that the burden to prove invalidity was "more easily carried when a reference on which the assertion is based was not directly considered by the Examiner during prosecution." Citing the possibility for jury confusion from such an instruction, the Federal Circuit decided that remand was not necessary.

A permanent injunction was denied by Judge Davis against Microsoft. The injunction, in granted, could have halted sales of Windows XP and other Office products some of which had been sold since 2000. Autodesk stipulated to entry of an injunction, agreeing to implement a design around these patents.

Overall, this was a huge victory for Z4 and their lawyers, Brooks Kushman.

Download patents here [pdfs].

US6044471%5B1%5D.pdf
US6785825%5B1%5D.pdf

Microsoft Wins One in the ED of Texas

I used to think that juries in East Texas never met a patent they didn't like. All of that changed last Friday when word of Microsoft's victory over Computer Acceleration Corp. ("CAC") spread across the blogosphere. CAC is a subsidiary of Acacia Research Corp., which is owned by one of the largest patent licensing companies in existence. A recent SEC filing shows that Acacia subsidiaries are involved in 33 pending patent infringement cases for a variety of technologies, including vehicle magnetic brakes, user-activated Internet advertising, digital media transmission and credit card fraud protection.

The patent-in-suit in Microsoft's case, US Pat. No. 5,933,630, entitled "Program Launch Acceleration Using Ram Cache." (patent here in pdf US5933630%5B1%5D.pdf)

Interestingly enough, the inventors are both Washingtonians, Clinton L. Ballard (a registered member of the Suquamish tribe) and Timothy W. Smith, both reportedly residents of Seattle Washington.

The Jury found the claims of the '630 patent invalid. Some commentators on this case are saying the ED of Texas is not as plaintiff-friendly as some think. Mike Smith of McKool Smith reports that the win rate in the ED of Texas for this year is below the national average by almost 2/3 or 67%.

Judge Leighton Dismisses Patent Case for Lack of Personal Jurisdiction

I'm beginning to wonder whether specific personal jurisdiction in the Western District of Washington can ever exist over an out of state defendant in a patent case. Perhaps it's too early to call this a "trend," but Judge Leighton's recent decision (November 2, 2007) dismissing a DJ complaint under Rule 12(b)(2), The Campbell Pet Co. v. Theresa Miale, (C07-5375 RBL) follows closely after a similar ruling by Judge Zilly in October, High Maintenance Bitch v. Uptown Dog Club, Inc. (C07-0888 TSZ).

In both cases, Defendants sold products within this judicial district, and both operated interactive web sites where people from Washington could purchase those products. The Campbell Pet Co. case involved a complaint for declaratory judgment that US Pat. Nos. 6,199,508 and 6,230,622 were invalid and not infringed by Campbell's sale of certain mobile folding stretchers for transporting injured animals. The accused products in Campbell Pet Co. were all made and sold in Vancouver, Washington. Further, over 40 people were employed by Campbell in Washington. No doubt these people were selling items in Washington accused of infringing both patents in suit. The existence of a reasonable apprehension of suit concerning these items was apparently not challenged by the Defendants, i.e., they did not deny the fact that they had accused a Washington company of infringement, and that these accusations placed a cloud of infringement over the products made and sold by Plaintiff's 40 Vancouver-based employees. Indeed, some of the accusations giving rise to DJ subject matter jurisdiction were carried out by the Defendants in person at a trade show in Seattle. Apparently threats of infringement were made directly to the plaintiffs, and then again to the trade show's organizer. Again, all of this happened in Seattle.

In dismissing the complaint for lack of personal jurisdiction, Judge Leighton's opinion focuses on the complaint's challenge to the validity of the patents, and reasons that the "sporadic sales and marketing of [Defendant's] products in the State of Washington has no nexus with the validity of the patents at issue." Of course, focusing on the sales of Defendants into Washington may be only tangentially relevant to the personal jurisdiction inquiry where the claims arise under the Declaratory judgment Statute. When claims are in the nature of declaratory judgment, the suit "arises from" or is most related to the threat of infringement. Defendant's sale of products into Washington should be of lesser importance to determine whether the exercise of jurisdiction over Defendants comports with due process. The transaction giving rise to the complaint most certainly occurred in Washington, and this should have been given some weight by the Court in my view.

complaintcampbellpetco.pdf
OrderDismissCampbellPet.pdf

Digeo's Winning Appeal Lessens Blow in "Dead" Inventor Case

Digeo, Inc., maker of "state of the art home entertainment technologies," won an appeal yesterday brought by rival, Audible, Inc. in a dispute involving U.S. Patent No. 5,734,823, a patent entitled "Systems and Apparatus for Electronic Communication and Storage of Information." US5734823.pdf Yesterday's decision by the Federal Circuit Court of Appeals affirmed Judge Robart's ruling that the case is not "exceptional" within the meaning of 35 U.S.C. Section 285. Digeo lost the case on summary judgement in a bizarre turn of events, including the "discovery" that a listed inventor, presumed by all to be dead, was actually alive.

Put yourself in the shoes of plaintiff's counsel for a moment. Imagine receiving service of a subpoena for the deposition of a listed inventor you thought was dead for two years. Now imagine what this would do to your allegations in the complaint that your client is "the owner of all right, title, and interest in the '823 patent, including the right to sue for infringement of that patent." This sounds like every lawyer's nightmare.

Digeo's complaint was dismissed for lack of standing. Smelling blood, Audible moved for attorneys fees and a finding that the case was "exceptional" under section 285. Audible did not assert Rule 11 grounds for fees, just a ruling that the case was exceptional and that it should therefore be entitled to fees. Judge Robart denied Audible's motion, finding that Digeo and its lawyers did not know (and had no reason to know) certain assignment documents in the file history were "forgeries."

In affirming Judge Robart's decision, the CAFC clarified the often confusing cases granting attorney's fees under Rule 11 and section 285. Audible relied heavily on the CAFC's decision in View Engineering Inc. v. Robotic Vision Sys. Inc, 208 F.3d 981 (Fed. Cir. 2000), a case applying Ninth Circuit law and affirming an award of sanctions based on Rule 11. In View Engineering, the CAFC explained that the plaintiff has the burden of proof to identify facts showing a reasonable pre-filing investigation. Calling the View Engineering case "inapposite" to Audible's appeal, the CAFC drew a distinction between cases seeking fees under section 285 and those seeking fees under Rule 11. In a Rule 11 case, the plaintiff bears the burden of proof to show a reasonable pre-filing investigation, while in a section 285 context, the accused infringer will have the burden to prove that a given case is "exceptional." Of course, many "exceptional"cases are also ones where the prevailing party has sought sanctions under Rule 11, so in many cases both standards may apply.

Another rule from this case is that there is no affirmative duty for a plaintiff to investigate title prior to filing an infringement law suit, not unless he "knew or should have known its legal title was defective."