En Banc Federal Circuit Changes Standard for Using Functional Language in Patent Claims

Richard A. Williamson v. Citrix Online, LLC, et al. (No. 2013-1130)

35 U.S.C. § 112, para. 6 allows patent applicants to draft their claims in a way that recites a function to be performed, rather than by reciting a structure that performs the function.  Drafting claim limitations in this “means-plus-function” format, however, limits the scope of the limitation to only the structure, materials, or acts described in the specification as corresponding to the claimed function, and equivalents thereof.  See Slip Op. at 12.  Traditionally, using the term “means” in the claim limitation created a rebuttable presumption that the limitation should be treated as a means-plus-function limitation.  On the other hand, the absence of the term “means” created a rebuttable presumption that the claim limitation should not be treated as a means-plus-function limitation.  The presence or absence of the term “means” is not dispositive though, and courts generally look to “whether the words of the claim are understood by persons of ordinary skill in the art to have a sufficiently definite meaning as the name for structure.”  Slip Op. at 14.

Over the last decade, the Federal Circuit has raised the presumption that § 112, para. 6 does not apply when the word “means” is absent, noting that the presumption is “a strong one that is not readily overcome.”  Slip Op. at 14.  In 2011, the Federal Circuit went further, stating that the presumption that § 112, para. 6 does not apply is not overcome “without a showing that the limitation essentially is devoid of anything that can be construed as structure.”  Slip Op. at 15.  On June 16, 2015, the Federal Circuit, sitting en banc, reversed course, noting that the new standard is “whether the words of the claim are understood by persons of ordinary skill in the art to have a sufficiently definite meaning as the name for structure.”  Slip Op. at 16.  When a claim limitation lacks the word “means,” the presumption that § 112, para. 6 does not apply is overcome if the claim fails to “recite sufficiently definite structure” or recites “function without reciting sufficient structure for performing that function.”  Slip Op. at 16.

Applying this new standard, the Court affirmed the lower court’s ruling that a “distributed learning control module for receiving communications…” is subject to means-plus-function treatment.  The Court noted that “module” is simply a substitute for the word “means,” and does not connote sufficiently definite structure to preclude means-plus-function treatment.  Slip Op. at 17.  The Court further noted that although the claim term included the prefix “distributed learning control,” the prefix was not sufficient to impart sufficiently definite structure.  Slip Op. at 19.  The Court also rejected the testimony of the patentee’s expert that one skilled in the art would be able to program a computer to perform the recited function, finding that the ability to implement the recited function does not create structure where none is disclosed.  Slip Op. at 19.

Having determined that the “distributed learning control module” is a means-plus-function limitation, the Court then determined that the claim was indefinite because the specification did not disclose sufficient structure corresponding to the claimed function.  Specifically, the Court found that the specification did not disclose an algorithm, e.g. as a mathematical formula, in prose, or as a flowchart, that performs the function of the distributed learning control module.

This case serves as an important warning to patent applicants and practitioners regarding the use of functional claim language.  Practitioners wishing to avoid means-plus-function treatment should be careful to draft claims reciting clearly defined structure, and avoid using vague terms such as “module,” “unit,” “mechanism,” or “device.”  As a protective measure, practitioners should draft the specification to include a disclosure of any algorithms that may correspond to functions recited in the claims.  That way, even if the claim limitation is considered to be means-plus-function, the claim will not be invalid for failure to disclose sufficient structure.

 

Supreme Court Strikes Down New Defense to Inducing Patent Infringement

Commil USA, LLC v. Cisco Systems, Inc. (No. 13-896)

On May 26, 2015, the Supreme Court issued its decision in Commil USA, LLC v. Cisco Systems, Inc. (No. 13-896), rejecting the accused patent infringer’s argument that a good faith belief that the patent is invalid is a defense to induced infringement under 35 U.S.C. § 271(b). In the majority opinion by Justice Kennedy,[1] the Court confirmed its previous holding in Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. __ (2011) that to be liable for inducing infringement the inducer must have knowledge (1) of the patent, and (2) that the induced acts constitute infringement. Slip Op.at 6. Thus, if the alleged inducer reasonably believes that the acts it induces are not infringing, there can be no liability for inducing infringement. Slip Op. at 9. The accused inducer in this case, Cisco, argued that a good faith belief that the patent is invalid should likewise preclude a finding of inducement because an invalid patent cannot be infringed, and a belief of invalidity therefore negates any knowledge that the induced acts constitute infringement.

The majority rejected this argument for several reasons. First, the majority notes that the Patent Act treats infringement and invalidity separately. The infringement statute, Section 271, is found in Part III of the Act, entitled “Patents and the Protection of Patent Rights,” while the patentability statutes, Sections 101, 102, and 103, etc., are in Part II, entitled “Patentability of Inventions and Grants of Patents.” See Slip Op. at 10. Second, the majority further noted that non-infringement and invalidity are listed as separate defenses under Section 282, and allowing a good faith belief of invalidity to defeat an inducement claim would contradict the presumption of validity that issued patents enjoy pursuant to that section. See Slip Op. at 10. Because patents are presumed valid, they must be proved invalid by clear and convincing evidence, as opposed to the lower preponderance-of-the-evidence standard used for proving infringement. According to the majority, this difference further dictates that infringement and invalidity should not be conflated. See Slip Op. at 10. Lastly, the majority noted that allowing the defense would make litigation more burdensome and confuse juries by making them distinguish between the defendant’s belief regarding validity and the actual issue of validity. See Slip Op. at 12.

Interestingly, the majority went out of its way to note that accused infringers still have multiple ways to defend against frivolous patent infringement claims, especially claims by patent assertion entities or “trolls.” The majority stressed that Rule 11 of the Federal Rules of Civil Procedure and 35 U.S.C. § 285 allow district courts to award sanctions and attorney fees against parties who bring frivolous cases. Slip Op. at 14. According to the majority, these deterrents, combined with post-grant review proceedings at the Patent Office, warrant maintaining the separation between infringement and validity.

 

[1] Justice Scalia and Chief Justice Roberts dissented, while Justice Breyer did not take part in deciding the case.

Supreme Court Considers New Defense to Inducing Infringement

Commil USA, LLC v. Cisco Systems, Inc. (No. 13-896)

On March 31, 2015, the Supreme Court heard oral argument in Commil USA, LLC v. Cisco Systems, Inc. (No. 13-896), which relates to whether a defendant can be liable for inducing infringement if the defendant had a good faith belief that the asserted patent is invalid. Under 35 U.S.C. § 271(b), one is liable for inducing infringement if it knowingly induced infringement and possessed specific intent to encourage another’s infringement. Inducement differs from direct infringement under 35 U.S.C. § 271(a) in that direct infringement is a strict liability offense, whereas inducement includes an additional intent requirement. Courts have traditionally held that an alleged inducer’s good faith belief that it (or the party it is inducing) is not infringing the asserted patent is a defense to an inducement claim. Under this theory, if the inducer does not believe it is infringing, it cannot have a specific intent to encourage another party to infringe.

Commil raises the question of whether the alleged inducer’s good-faith belief that the patent is invalid also serves as a defense to inducement liability. In the court below, the Federal Circuit for the first time answered this question in the affirmative. However, infringement and invalidity have traditionally been viewed as separate issues, such that using invalidity as a defense to infringement would conflate two issues that are generally separate. In addition, the Patent Act states that all issued patents carry a presumption of validity. Allowing an accused infringer to avoid inducing infringement based on its good faith belief that the patent is invalid would seem to undercut the statutory presumption of validity.

During oral argument, Justice Scalia likened inducement to aiding and abetting, which requires wrongful intent, suggesting that a belief that the patent is invalid may negate the wrongful intent. Justice Kagan also suggested that infringement and invalidity are two sides of the same coin, such that if a good faith belief of non-infringement is sufficient to defeat inducement liability, a good faith belief of invalidity should also be sufficient. On the other hand, Justice Sotomayor questioned how the presumption of validity can be reconciled with a defense based on a good faith belief of invalidity, suggesting that there may be a split among the justices.

This case is potentially very important for defendants facing claims of inducing infringement. If the Federal Circuit decision is upheld, defendants would have a strong new weapon for avoiding liability for inducement. When defendants receive notice accusing them of inducing infringement of another’s patent, in addition to conducting a non-infringement analysis, they may also want to consider seeking an invalidity opinion of counsel to undercut a potential inducement claim.

Supreme Court Changes Standard Of Review For Patent Claim Construction Rulings

Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. – No. 13-854 – January 20, 2015

In Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., the Supreme Court revised the standard of review used by the Federal Circuit for nearly twenty years in reviewing claim construction rulings, replacing a de novo standard with a “clearly erroneous” standard. Teva sued Sandoz for infringing its patent covering a method of manufacturing Copaxone, a drug used to treat multiple sclerosis. The relevant claim recited that the active ingredient has a particular “molecular weight.” Sandoz argued that the claim was indefinite under 35 U.S.C. §112 ¶2 because the term “molecular weight” could refer to any of three different methods of calculating molecular weight.

After hearing expert testimony, the District Court found that the patent was sufficiently definite because a skilled artisan would understand the term “molecular weight” referred specifically to one of the three allegedly possible interpretations. The District Court’s decision was based on the testimony of Teva’s expert regarding how one skilled in the art at the time of the invention would have understood the term. On appeal, the Federal Circuit reviewed the District Court’s decision, including the evaluation of expert testimony, under the de novo standard and found that the claims were indefinite. The Supreme Court reversed the Federal Circuit’s decision, finding that the Federal Circuit applied the incorrect standard of review.

Writing for the majority, Justice Breyer noted that Federal Rule of Civil Procedure 52(a)(6) prevents appellate courts from setting aside a district court’s findings of fact unless they are clearly erroneous. Justice Breyer further noted that although the ultimate question of claim construction is a question of law, underlying questions of fact that inform the claim construction determination are still subject to the “clearly erroneous” standard of Rule 52(a). For example, district courts often hear expert testimony regarding how a particular term is understood by those in the industry–a factual question that the trial court is better positioned to resolve than an appellate court. The majority distinguished between a district court’s consideration of solely intrinsic evidence (e.g., patent specification, drawings, claims, and prosecution history), and a consideration that includes evidence that is extrinsic to the patent (e.g., background science, meaning of a term of art during a particular time period, etc.). In the former, the appellate court’s review is de novo, while the latter constitutes a factual finding that is subject to review for clear error. However, even when a district court must decide a subsidiary factual dispute–e.g., resolving a dispute between competing experts about the meaning of a term at the time of invention–the court must still make a legal determination whether one skilled in the art would ascribe the same meaning to the term in the context of the specific patent at issue. That legal determination is reviewed de novo, but to overturn the district court’s construction on the basis of the underlying factual finding, the appellate court must find clear error.

In weighing the testimony of each side’s expert in this case, the District Court credited Teva’s expert’s testimony regarding how a skilled artisan would understand the term “molecular weight.” The Federal Circuit did not accept Teva’s expert’s explanation, but did not find that the District Court clearly erred in crediting the testimony of Teva’s expert. And for that reason, the Supreme Court remanded the case for the Federal Circuit to apply the correct standard of review.

Prior to the Teva decision, the Federal Circuit routinely overturned claim construction rulings under de novo review, which often led to increased uncertainty and litigation costs, as well as provided hope to parties dissatisfied with a claim construction ruling that it would be overturned on appeal. The Teva decision may reduce uncertainty and costs by ostensibly requiring greater deference to the trial court, but the ultimate effect may depend on how parties litigate claim construction and how district court judges craft their claim construction rulings. Litigants and judges may be inclined to rely more heavily on expert testimony during claim construction in order to insulate claim construction rulings from appellate review. The Federal Circuit’s deference to the lower court’s factual findings in connection with claim construction places a greater emphasis on the court’s already-critical function of construing claims. In view of this deference, litigants should carefully consider the use of experts during claim construction and whether the resultant limited appellate review helps or hurts their case.

Business Method Patents Live! – Federal Circuit Finds First Patent That Survives Post-Alice Analysis

DDR Holdings, LLC. v. Hotels.com, L.P., et al.,

No. 2013-1505 (December 5, 2014) (Wallach, Mayer, and Chen)

Since the Supreme Court issued its June 2014 decision in Alice Corp. v. CLS Bank International,[1] federal district courts, the Court of Appeals for the Federal Circuit, and the United States Patent & Trademark Office have been invalidating patent claims under 35 U.S.C. § 101 at an unprecedented rate. But on December 5, 2014, the Federal Circuit bucked the recent trend, ruling for the first time that a challenged claim is patent-eligible under the analysis set forth in Alice.

The patentee, DDR Holdings, LLC (“DDR”), is the assignee of U.S. Patent Nos. 6,993,572 (“the ‘572 patent”) and 7,818,399 (“the ‘399 patent”), which relate to generating a composite web page that combines a host website with content of a third-party merchant. Many web pages include advertisements from third-party merchants that, when clicked on by a customer, re-direct the customer to the merchant’s website, and away from the host website. In order to eliminate the host website’s lost web traffic, DDR’s patents disclose a system that generates a composite webpage that displays product information from the third-party merchant but retains the host website’s “look and feel.” Slip Op. at 3-4. At the trial court, the defendants argued that DDR’s patents are invalid for, among other reasons, claiming patent-ineligible subject matter under 35 U.S.C. § 101. The lower court denied the motion, and a split panel of the Federal Circuit affirmed.

Writing for the majority, Judge Chen applied the two-step analysis set forth in Alice to determine that DDR’s claims are patent-eligible. Under the first step–whether the claims are directed to a patent-ineligible abstract idea–the majority did not explicitly answer the question, but instead noted that under any of the alleged underlying abstract ideas proposed by the defendants and the dissent, the claims are patent-eligible because they satisfy the second step of the test. In particular, the defendants argued that the claims were directed to the abstract ideas of “making two web pages look the same,” “syndicated commerce on the computer using the Internet,” and “making two e-commerce web pages look alike by using licensed trademarks, logos, color schemes, and layouts.” Slip Op. at 19. Dissenting Judge Mayer described the claims as directed to the business goal “that an online merchant’s sales can be increased if two web pages have the same ‘look and feel.’” Dissenting Op. at 2. The majority found that regardless of which definition of the abstract idea is adopted, the claims are patent-eligible under the second step of the analysis.

Applying the second step of the analysis–whether the claim includes elements that transform the nature of the claim into a patent-eligible application of the abstract idea–the majority first noted that the claims at issue are “necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks,” and do not “merely recite the performance of some business practice known from the pre-Internet world along with the requirement to perform it on the Internet,” like the claims in Alice. Slip Op. at 20. The majority also disagreed with the dissent’s position that the claims were merely an Internet implementation of the well-known “store within a store” abstract concept. Id. at 21. In the well-known “brick and mortar” context, a physical warehouse store may include a kiosk selling third-party products. However, unlike what happens when an online customer clicks on a third-party advertisement, a customer in the physical warehouse store is not transported out of the store to a separate physical location associated with the third-party simply by walking up to the third-party kiosk. Id. at 22. According to the majority, the distinction is that in the cyberspace context, the customer is able to purchase the third-party product without any indication that they were previously at the host website, and is not required to return to the host website. The majority therefore concluded that the claims are not merely directed to a computer implementation of a well-known abstract concept, but address a problem specific to the Internet.

The majority was however careful to note that “not all claims purporting to address Internet-centric challenges are eligible for patent.” Id. Unlike the patent-ineligible claims in Ultramercial, Inc. v. Hulu, LLC,[2] which used the Internet in its conventional fashion to implement a method of offering media content in exchange for viewing an advertisement, DDR’s claims change the normal operation of the Internet that occurs when a user clicks on a third-party advertisement. Id. at 22-23. The majority further noted that the claims also do not attempt to preempt every application of the idea of increasing sales by making two web pages look the same, instead reciting a specific way to automate the generation of a composite website by an outsource provider. Id. at 23.

While this case hardly re-opens the flood gates for business method and software-related patents, it should at least provide some hope to patent owners and applicants that Alice has not killed off this entire segment of patents. As articulated in Alice, this case confirms that patents related to improving the functionality of a computer or the Internet–as opposed to improving a preexisting concept by implementing the concept using computers or the Internet–may have a chance at surviving a § 101 challenge. However, given the split panel decision, this case may be headed for en banc review by the full Federal Circuit, so the glimmer of hope may be short-lived.

 

[1] 134 S. Ct. 2347 (2014).

[2] __ F.3d __, 2014 WL 5904902 (Fed. Cir. Nov. 14, 2014).

Federal Circuit Reverses Course, Affirms Patent Ineligibility Ruling in View of Surpreme Court Alice Decision

Ultramercial, Inc. et al. v. Hulu, LLC, et al.,

No. 2010-1544 (November 14, 2014) (Lourie, Mayer, and O’Malley)

On November 14, 2014, after twice before reversing the lower court’s dismissal of Ultramercial’s complaint for failing to claim statutory subject matter, the Federal Circuit agreed with the lower court that Ultramercial’s patent claims are ineligible under 35 U.S.C. § 101. Applying the new test set forth in the Supreme Court’s recent decision in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014). the Federal Circuit found that Ultramercial’s claims directed to distributing copyrighted media over the Internet at no charge in exchange for viewing an advertisement, claimed nothing more than an ineligible abstract idea.

According to the two-step test, the court first determines whether the claims are directed to one of the three exceptions to patent-eligible subject matter: laws of nature, natural phenomena, and abstract ideas. If so, it is then determined whether the claim contains “an element or combination of elements that is sufficient to ensure that the patent practice amounts to significantly more than a patent upon the [ineligible concept] itself.” Alice, 134 S. Ct. at 2355. The additional elements must be more than “well-understood, routine, conventional activity” in order to transform the abstract idea into patent-eligible subject matter. Slip. Op. at 10 (quoting Mayo Collaborative Services. v. Prometheus Laboratories, Inc., 132 S. Ct. 1289, 1298 (2012)). The Federal Circuit found that Ultramercial’s claims are directed to the abstract idea of “showing an advertisement before delivering free content.” Slip. Op. at 10. Although the claims included limitations such as the user selecting the advertisement to view, and recording the transaction in an activity log, the Court found that these limitations merely add a degree of particularity but the claim as a whole is still devoid of a concrete or tangible application. The Court was careful to note that not all software-based patent claims are directed to abstract ideas, but agreed with the lower court in this case that the claims are directed to the abstract idea of “using advertising as an exchange or currency.” Id.

Moving to the second step of the analysis, the Federal Circuit examined the remaining claim limitations to determine whether they constitute an “inventive concept” that renders the claim patent-eligible. The Court found that the majority of the eleven claimed steps are merely incidental to the abstract concept of offering media content in exchange for viewing an advertisement (e.g., receiving the media content, selecting the advertisement, making the content available subject to the condition that the consumer views the advertisement, displaying the advertisement, allowing access to the content, and receiving payment from the advertiser). The additional steps of updating an activity log, requiring a request from the user to view the advertisement, restricting public access, and using the Internet, are merely conventional steps that are “insufficient to supply an inventive concept.” Slip. Op. at 11. Although not necessary to finding the claims patent-ineligible, the Court also noted that the claims fail the machine-or-transformation test because the claims are not tied to particular machine or apparatus and do not transform a particular article into a different state or thing.

Writing in concurrence, Judge Mayer made several interesting points with respect to patent eligibility. First, Judge Mayer encouraged lower courts to address patent eligibility at the outset of litigation–like the trial court in this case did–to conserve judicial resources, reduce vexatious litigation by resolving disputes before engaging in expensive discovery, and to free the public from innovation-stifling patents. Second, Judge Mayer argues that no presumption of validity should attach when conducting a section 101 analysis, unlike the presumption of validity for prior art challenges. Third, Judge Mayer interprets Alice as essentially implementing a “technological arts” test. Judge Mayer’s interpretation relies on the Supreme Court’s finding claims ineligible where they did not “improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field.” Alice, 134 S. Ct. at 2359. Under this interpretation advances in non-technical disciplines such as business, law, or the social sciences––seemingly, any business method patent–– would be patent-ineligible.

The Ultramercial decision is not surprising given the Supreme Court’s decision in Alice, and the recent flood of decisions invalidating patent claims on patent-eligibility grounds. The most interesting aspects of the case come from Judge Mayer’s concurrence arguing that there is no presumption of patent-eligibility and that the issue of patent-eligibility should be determined at the outset of litigation. Over the last several months, district courts have decided the patent-eligibility issue at the pleadings stage with increased frequency, as opposed to on summary judgment. Judge Mayer’s concurrence further encouraging this practice should result in even more trial courts addressing the issue earlier in litigation.