S.J. Quinney College of Law

By Shaun Mathur

The Supreme Court granted certiorari in an unusually high number of patent cases this term. Below is a brief overview of these cases. The issues presented concern attorney fees, subject matter eligibility for computer-implemented methods, indirect infringement liability in the absence of a direct infringer, and the requirement that patent subject matter be particularly and distinctly claimed.

Highmark Inc. v. Allcare Mgmt. Sys. (No. 12-1163)[1]

This case involves the issue of what standard of review an appellate court is to employ when reviewing a district court’s grant of attorney fees under the Patent Act. Specifically, 35 U.S.C. § 285 provides that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” A case is “exceptional” if it is objectively baseless and brought in bad faith. A case is “objectively baseless” if it is so unreasonable that no reasonable litigant could believe it would succeed. Under this statute, the question presented is whether a district court’s exceptional-case finding under 35 U.S.C. § 285, based on its judgment that a suit is objectively baseless, is entitled to deference.

The petitioner Highmark Inc. (“Highmark”) is a non-profit health insurance company. Respondent Allcare Health Management Systems, Inc. (“Allcare”) owns a patent covering a computer-based method that generates a list of possible treatment options based on symptom data entered by a physician. In 2002, Allcare sent Highmark a letter claiming Highmark’s transaction processing systems infringed Allcare’s patent. In the following communications, Allcare threatened to sue Highmark if it did not agree to pay licensing fees. Instead of paying, Highmark sought a declaratory judgment of non-infringement and invalidity in federal district court. Allcare subsequently counterclaimed for patent infringement.

After four years of discovery, the district court granted Highmark’s motion for summary judgment, ruling Highmark’s systems did not infringe Allcare’s patent. The district court also granted Highmark’s motion for fees pursuant to § 285 because Allcare’s infringement claims were objectively baseless and made in bad faith. Specifically, the court determined Allcare did not adequately investigate its case and therefore its infringement claims were frivolous. The court even characterized Allcare’s actions as the kind that gives the term “patent troll” its negative connotation. Thus, the court ordered Allcare to pay Highmark’s attorney fees and costs.

The Federal Circuit reversed. In doing so, the majority applied a de novo standard of review because the court concluded objective baselessness is a question of law. According to Highmark, this level of review is inapposite with the Federal Circuit’s previous decisions where the court has reviewed objective baselessness under a clearly erroneous standard. The Federal Circuit’s approach is also inconsistent with that of every regional circuit. Judge Mayer’s dissenting opinion echoed these concerns and concluded that applying a de novo standard of review results in a waste of resources because district court judges are in the best position to make these determinations. After the Federal Circuit denied Highmark’s petition for a rehearing en banc, Highmark filed a writ of certiorari with the United States Supreme Court. The Court granted the petition on October 1, 2013. Oral argument is set for February 26, 2014.

Octane Fitness, LLC v. Icon Health & Fitness, Inc. (No. 12-1184)[2]

In a companion case to Highmark Inc. v. Allcare Management Systems, the question presented is whether the Federal Circuit’s promulgation of a rigid and exclusive two-part test for determining whether a case is “exceptional” under 35 U.S.C. § 285 improperly appropriates a district court’s discretionary authority to award attorney fees to prevailing accused infringers in contravention of statutory intent and the Supreme Court’s precedent, thereby raising the standard for accused infringers to recoup fees and encouraging patent plaintiffs to bring spurious patent cases to cause competitive harm or coerce unwarranted settlements from defendants.

The respondent Icon Health and Fitness, Inc. (“Icon”) is a Utah-based manufacturer and seller of exercise equipment.[3] In 2000, Icon obtained a patent directed to the linkage system of an elliptical machine. The patent discloses an elliptical that reduces the amount of floor space needed to accommodate such an apparatus and allows adjustments to the size of the elliptical path to fit individual users’ various strides. Although Icon sells elliptical machines, Icon never sold a commercial product covered by the patent, nor was the disclosed design commercially viable. Petitioner Octane Health & Fitness (“Octane”) is a Minnesota-based company and one of Icon’s competitors in the elliptical machine industry. In 2008, Icon sued Octane in a California federal district court, claiming Octane’s elliptical design infringed Icon’s patent. After a series of procedural steps, the court transferred the case to a Minnesota federal district court.

Upon construing the patent’s claims during a Markman hearing in 2010, the district court granted Octane’s motion for summary judgment of non-infringement. The court, however, denied Octane’s motion for attorney fees despite Octane’s argument that Icon’s case was baseless and brought in bad faith. In doing so, the court disregarded Octane’s characterization of Icon as an industry giant seeking to collect royalties from a smaller competitor. The court also rejected Octane’s argument that a string of emails by Icon employees mentioning the lawsuit established Icon’s bad faith. Instead, the court concluded that Icon’s infringement suit was reasonable. Therefore, § 285’s exceptionality standard did not entitle Octane to attorney fees.

On appeal, the Federal Circuit held the district court did not err in denying Octane’s motion for attorney fees under the exceptionality standard. The court also declined Octane’s invitation to reassess its approach to what constitutes an “exceptional case” under § 285. Octane filed a writ of certiorari with the Supreme Court, and the Court granted the petition on October 1, 2013. Oral argument is set for February 26, 2014. As the district court in Highmark inferred, these cases have the potential to make patent trolls think twice before pursuing baseless litigation in the future.

Alice Corp. Pty. Ltd. v. CLS Bank Int’l (No. 13-298)[4]

Renewing its fascination for patent eligible subject matter, the Court granted certiorari in another Section 101 case, this one coming less than one year after deciding Ass’n for Molecular Pathology v. Myriad Genetics, Inc. The difference is the Court must now define the section’s parameters in the context of a software-implemented method. Section 101 provides that “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent.” Laws of nature, physical phenomena, and abstract ideas are not patentable, however. The provision only determines what subject matter is eligible for patent protection—not what subject matter is entitled to patent protection. This means the inventor must also show the claimed subject matter satisfies the other statutory requirements to receive a patent. Under these guideposts, the question presented is whether claims to computer-implemented inventions—including claims to systems and machines, processes, and items of manufacture—are directed to patent-eligible subject matter within Section 101’s parameters.

The petitioner Alice Corporation is half-owned by National Australia Bank Limited (“NABL”). The inventor of the patents-in-suit is the founder of NABL. The patents claim a computerized system for creating and exchanging financial instruments such as derivatives. The system relates to a process of executing agreements to exchange financial assets or instruments that occur prior to the actual exchange itself. These transactions typically involve a risk that one party will not perform its end of the bargain. The claimed system addresses this problem by using a programmed computer and other hardware to reduce the risk that one party will not perform under the transaction. The computer system uses electronic “shadow credit records” and “shadow debit records” that reflect the actual balances of the transacting parties. These shadow records fluctuate to represent the amount of resources in the parties’ actual accounts as those amounts fluctuate each day. When there are sufficient resources in the actual accounts, a supervisory institution instructs the exchange institutions to effect the transaction.

In 2007, respondent CLS Bank sued Alice in federal court, seeking a declaration that Alice’s claims are invalid and unenforceable. Alice counterclaimed for patent infringement. After the parties submitted cross-motions for summary judgment, the district court ruled Alice’s claims were patent ineligible subject matter under Section 101. On appeal, a divided panel of the Federal Circuit affirmed the district court’s ruling. CLS then petitioned the court to rehear the matter en banc. The court granted the petition and agreed to decide two questions. First, what test should the court adopt to determine whether a computer-implemented invention is a patent ineligible abstract idea; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise ineligible abstract idea? Second, in assessing patent eligibility under Section 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium?

Many anticipated that this decision would provide clear guidance for determining whether computer-implemented inventions qualify as patent eligible subject matter under Section 101. Instead, the Federal Circuit’s en banc decision consisted of seven different opinions—a one paragraph per curiam opinion, five concurring and dissenting opinions, and “additional reflections” by Chief Judge Rader. Seven of the ten participating judges determined the claims were patent ineligible, but the court could not agree why that was the proper result. Because of the confusion created by the en banc’s lack of cohesion, Alice filed a writ of certiorari with the Supreme Court. The Court granted the petition on December 6, 2013, to clarify when a computer-implemented method is patent eligible. Oral argument is set for March 31, 2014.

Limelight Networks, Inc. v. Akamai Techs., Inc. (No. 12-786)[5]

This case, which many believe has “blockbuster” potential in the infringement space, involves the issue of “divided” infringement. The question presented is whether a defendant may be liable for inducing patent infringement under 35 U.S.C. § 271(b) even though no one has committed direct infringement under Section 271(a). Section 271(a) states that anyone who “makes, uses, offers to sell, or sells any patented invention” without permission infringes the patent. Section 271(b) provides that “[w]hoever actively induces infringement of a patent shall be liable as an infringer.”

The respondent Akamai Technologies, Inc. holds a patent claiming a method redirecting requests for Internet content and selecting optimal servers. The method seeks to alleviate Internet congestion by delivering content from numerous alternative servers. Akamai is the major player in this industry, and petitioner Limelight Networks, Inc. is Akamai’s major competitor. After Limelight refused Akamai’s proposal to acquire Limelight, Akamai sued Limelight for direct and induced infringement in 2006. Limelight, however, does not practice all of the steps of Akamai’s method claim. Rather, Limelight performs only some of the steps and instructs its customers to perform the remaining steps. The district court granted Limelight’s motion for summary judgment, ruling Limelight did not infringe because Limelight did not perform all the steps of the claimed method as required to be liable for direct infringement.

The Federal Circuit’s subsequent en banc opinion began by reiterating that direct infringement of a method claim requires a showing that the accused party performed all the steps of the claimed method. The court also noted that direct infringement had yet to extend to cases where multiple independent parties performed the method claim’s steps. On the other hand, induced infringement only requires the inducer to cause, urge, encourage, or aid the infringing conduct. An inducer can only be liable if there is a direct infringer. Against this backdrop, the Federal Circuit stated the direct infringer does not have to be a single entity for another entity to be liable for induced infringement because the impact on the patentee is the same whether the direct infringer is a single entity or not. Therefore, the court concluded Limelight would be liable for inducing patent infringement if Akamai could establish that (1) Limelight knew about Akamai’s patent, (2) Limelight performed all but one of the steps of the claimed method, (3) Limelight induced others to perform the method’s final step, and (4) the others in fact performed that final step.

Limelight took exception with the Federal Circuit’s holding, claiming the court’s test conflicts with the requirement that a party cannot be liable for indirect infringement without proof of a direct infringer. Accordingly, Limelight filed a writ of certiorari with the Supreme Court on December 28, 2012, and the Court granted the petition on January 10, 2014. No date for oral argument has been set.

Nautilus, Inc. v. Biosig Instruments, Inc. (No. 13-369)[6]

This case addresses the notice function of patent claims, which is currently a focal point in the patent reform realm. Specifically, this case concerns Sections 112 and 282 of the Patent Act. Section 112, paragraph two, requires that a patent’s specification “conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as his invention.” This is known as the “definiteness” requirement, and its purpose is to inform the public of the bounds of the patented invention. Section 282(a) states that issued patents are presumed valid. From these two statutory provisions, the petitioner Nautilus, Inc. presents two questions to the Court. The primary question, however, is whether the Federal Circuit’s acceptance of ambiguous patent claims with multiple reasonable interpretations—so long as the ambiguity is not “insoluble” by a court—defeats the statutory requirement of particular and distinct patent claiming.

Respondent Biosig Instruments, Inc. holds a patent claiming a heart rate monitor associated with exercise equipment and procedures. Biosig sued Nautilus for infringement, and Nautilus filed a motion for summary judgment, claiming patent invalidity. Nautilus argued the term “spaced relationship” recited in claim one of Biosig’s patent was indefinite as a matter of law because it was not distinctly and particularly claimed in violation of 35 U.S.C. 112. The term referred to the spacing between two electrodes on the heart monitor. The district court granted Nautilus’s motion. The Federal Circuit reversed, holding the definiteness requirement is satisfied if a court is able to construe the patent’s claim to inform skilled artisans of the bounds of the claim. In other words, the court determined that a claim fails the definiteness requirement only when the claim is “not amenable to construction” or “insolubly ambiguous.” Under these standards, the court held the term “spaced relationship” did not fail the definiteness requirement because the term was amenable to construction based on the claim’s language, specification, and illustrations showing the spatial relationship between the two electrodes.

Nautilus claims this interpretation of the definiteness requirement has incentivized patent drafters to draft intentionally ambiguous claims, forced courts to spend a substantial amount of judicial resources to interpret unclear claims, and created a zone of uncertainty for competitors. Thus, Nautilus filed a petition for a writ of certiorari with the Supreme Court on September 21, 2013, and the Court granted the petition on January 10, 2014. No date for argument has been set.

Shaun Mathur, a 2L at the University of Utah S.J. Quinney College of Law, is a Fellow with the Center for Law and Biomedical Sciences

OTHER NEWS

---