IP News

Federal Circuit Nixes 25% Rule of Thumb in Damages Analysis

In Uniloc USA, Inc. v. Microsoft Corp., (Civ. No. 2010-1035, -1055), the Federal Circuit held that the 25% rule of thumb for calculating a reasonable royalty “is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation.” Judge Richard Linn, writing for the panel, stated that the $388 million verdict levied against Microsoft was incorrect because Uniloc's expert had applied the 25% rule, which is an abstract theory not tied to the particular facts of the case. Therefore, it is inadmissible under Daubert and the Federal Rules of Evidence.

Uniloc's expert came to a damages total of $564,946,803 by calculating 25% of the minimum value reported of each infringing product ($10), for a reasonable royalty of $2.50 per product. The Federal Circuit rejected this approach, stating that “there must be a basis in fact to associate the royalty rates used ' to the particular hypothetical negotiation at issue in the case. The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say anything about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party.”

ITC: No eBay Four-Factor Injunctive Relief Test

On Dec. 21, the Federal Circuit issued an opinion in Spansion, Inc. v. Int'l Trade Comm'n, (Civ. No. 2009-1460) clarifying that the traditional four-factor test for injunctive relief announced by the Supreme Court in eBay v. MercExchange does not apply to ITC remedy determinations in ' 337 actions (19 U.S.C. ' 337). The Commission awarded injunctive relief without giving consideration to the public interest ' a required prong of the eBay test. On appeal, the Federal Circuit noted that the legislative history of ' 337 indicated that Congress intended injunctive relief to be the normal remedy.

The Federal Circuit held that the statutory underpinnings of remedies in district courts and the ITC are quite different, and thus the eBay test for injunctive relief does not apply to ' 337 actions before the ITC.

Federal Circuit Takes Second Look at Prometheus Labs; Reaches Same Result

On Dec. 17, the Federal Circuit issued an opinion in Prometheus Labs., Inc. v. Mayo Collaborative Services, (Civ. No. 2008-1403), which was being considered on remand from the Supreme Court in light of its opinion on patentable subject matter in Bilski v. Kappos, 130 S. Ct. 3218 (2010). The Federal Circuit had previously ruled for Prometheus in Prometheus Labs., Inc. v. Mayo Collaborative Services, 581 F.3d 1336 (Fed. Cir. 2009) (Prometheus I), adjudging Prometheus' two patents valid under 35 U.S.C. ' 101 based on the machine-or-transformation test. After the Supreme Court issued the Bilski decision, ruling that the machine-or-transformation test is not the sole test for determining patent eligibility for process claims, the Federal Circuit again held that Prometheus' asserted method claims are drawn to statutory subject matter and valid.

Prometheus is a licensee of two patents that claim methods for determining the optimal dosage of thiopurine drugs used to treat gastrointestinal and non-gastrointestinal autoimmune diseases. Generally, the claims involve the steps of administering the drugs to a patient, determining the level of drug in the patient, and adjusting the dosage depending on the amount of the drug measured in the patient. The district court invalidated these claims on summary judgment, noting that the “administering” and “determining” steps are only mental steps, and that the correlation between dosage and therapeutic efficacy was a natural phenomena resulting from processes in the body.

On appeal, the Federal Circuit reversed using the machine-or-transformation test, holding that the claimed process is patent-eligible because it transforms a particular article into a different state or thing. On its second look, the Federal Circuit again held that the patents do not claim natural phenomena, but instead claim a particular application of that phenomenon.

Close Relationship Required for Joint Infringement

On Dec. 20, the Federal Circuit issued an opinion in Akami Techs., Inc. v. Limelight Networks, Inc., (Civ. No. 2009-1372), holding that there was no joint infringement of a method patent where the defendant performs some steps and its customers perform the remaining steps. The court held that “there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps.” Because Limelight's customers lacked this relationship with Limelight, there could be no joint infringement.

Solicitor General to Weigh In on Claim Indefiniteness

The Supreme Court asked the Solicitor General to submit a brief on whether it should grant certiorari in Enzo Biochem, Inc. v. Applera Corp., (Civ. No. 2009-1281). On March 26, 2010, the Federal Circuit decided the case, holding that claim language “not interfering substantially” is not indefinite because the claims provide some guidance as to how much interference is tolerated, and that one of ordinary skill in the art would understand what is claimed. The Federal Circuit denied a request for rehearing en banc, with Judge S. Jay Plager writing in dissent from that denial that “the walls surrounding the claimed invention [should] be made of something other than quicksand.”

Pilot Program for Patent Cases in District Courts Passes Senate

On Dec. 17, Congress passed H.R. 268, which will establish a pilot program to “encourage enhancement of expertise in patent cases among district judges.” The program will begin in at least six district courts, and judges in these districts will be allowed to request to hear patent cases. Patent cases will still be assigned randomly regardless of which judges are participating in the program, but judges who have not requested to hear patent cases have the option of declining to accept a patent case, at which point the case will be reassigned to a judge who has elected to hear them.

The Act's goal is to have some judges participate more in patent cases, and thus develop more experience and expertise with patent issues. The bill also requires data reporting to compare judges participating in the program with judges not participating in the program on issues such as reversal rates at the Federal Circuit.

Federal Circuit Transfers Two Cases Out of Texas

On Dec. 3, the Federal Circuit granted a petition for a writ of mandamus in In re Acer America Corp., et al., (Civ. No. 10-m942). The petitioners, as defendants in a patent infringement action brought by MedioStream, Inc., had attempted to transfer venue out of the Eastern District of Texas, to the Northern District of California, a request that was denied by the district court. Thereafter, the 12 defendants filed a writ of mandamus asking the Federal Circuit to direct the Eastern District of Texas to vacate its orders denying the motion to transfer.

The Federal Circuit granted the writ of mandamus, and in a published opinion reasoned that the denial of the motion to transfer was “patently erroneous” because all of the U.S.-based defendant companies except for Dell are headquartered in California, with six having headquarters in the Northern District of California. No party maintains a headquarters in the Eastern District of Texas. The Federal Circuit also noted that a number of witnesses as well as the inventor and attorneys that prosecuted the patents in suit all reside in the Northern District of California. The Federal Circuit also found that the Northern District of California has a localized interest in the case, whereas the Eastern District of Texas does not. The petitioners include Acer America, Inc., Apple Inc., ASUS Computer International, Dell Inc., Microsoft Corporation, Nero, Inc., Sonic Solutions, and Sony Corporation.

On Jan. 5, 2011, the Federal Circuit also granted a writ of mandamus in In re Microsoft, (Civ. No. 10-m944), ordering a patent action transferred from the Eastern District of Texas to the Western District of Washington, which is “clearly more convenient and fair for trial.” The Federal Circuit held that all of Microsoft's witnesses reside within 100 miles of the Western District of Washington, while the plaintiff Allvoice identified 14 witnesses, 12 of whom reside outside the Eastern District of Texas. The other two are local East Texas businessmen who bought or used the accused Microsoft products. The Federal Circuit was also skeptical of Allvoice's local office in Tyler, TX, calling it a connection made in anticipation of litigation for the likely purpose of making it appear convenient. Allvoice is a UK company, and its Web site directs requests and inquiries to its Texas office, which are then answered from the UK. Allvoice does not employ anyone in the Tyler, TX office. Allvoice also incorporated in Texas 16 days before filing suit, a move that the Federal Circuit found unpersuasive of establishing a connection to the venue.

Jeffrey S. Ginsberg is a partner and Joseph Mercadante is an associate in the New York office of Kenyon & Kenyon LLP.

Federal Circuit Nixes 25% Rule of Thumb in Damages Analysis

In Uniloc USA, Inc. v. Microsoft Corp., (Civ. No. 2010-1035, -1055), the Federal Circuit held that the 25% rule of thumb for calculating a reasonable royalty “is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation.” Judge Richard Linn, writing for the panel, stated that the $388 million verdict levied against Microsoft was incorrect because Uniloc's expert had applied the 25% rule, which is an abstract theory not tied to the particular facts of the case. Therefore, it is inadmissible under Daubert and the Federal Rules of Evidence.

Uniloc's expert came to a damages total of $564,946,803 by calculating 25% of the minimum value reported of each infringing product ($10), for a reasonable royalty of $2.50 per product. The Federal Circuit rejected this approach, stating that “there must be a basis in fact to associate the royalty rates used ' to the particular hypothetical negotiation at issue in the case. The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say anything about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party.”

ITC: No eBay Four-Factor Injunctive Relief Test

On Dec. 21, the Federal Circuit issued an opinion in Spansion, Inc. v. Int'l Trade Comm'n, (Civ. No. 2009-1460) clarifying that the traditional four-factor test for injunctive relief announced by the Supreme Court in eBay v. MercExchange does not apply to ITC remedy determinations in ' 337 actions (19 U.S.C. ' 337). The Commission awarded injunctive relief without giving consideration to the public interest ' a required prong of the eBay test. On appeal, the Federal Circuit noted that the legislative history of ' 337 indicated that Congress intended injunctive relief to be the normal remedy.

The Federal Circuit held that the statutory underpinnings of remedies in district courts and the ITC are quite different, and thus the eBay test for injunctive relief does not apply to ' 337 actions before the ITC.

Federal Circuit Takes Second Look at Prometheus Labs; Reaches Same Result

On Dec. 17, the Federal Circuit issued an opinion in Prometheus Labs., Inc. v. Mayo Collaborative Services, (Civ. No. 2008-1403), which was being considered on remand from the Supreme Court in light of its opinion on patentable subject matter in Bilski v. Kappos , 130 S. Ct. 3218 (2010). The Federal Circuit had previously ruled for Prometheus in Prometheus Labs., Inc. v. Mayo Collaborative Services , 581 F.3d 1336 (Fed. Cir. 2009) (Prometheus I), adjudging Prometheus' two patents valid under 35 U.S.C. ' 101 based on the machine-or-transformation test. After the Supreme Court issued the Bilski decision, ruling that the machine-or-transformation test is not the sole test for determining patent eligibility for process claims, the Federal Circuit again held that Prometheus' asserted method claims are drawn to statutory subject matter and valid.

Prometheus is a licensee of two patents that claim methods for determining the optimal dosage of thiopurine drugs used to treat gastrointestinal and non-gastrointestinal autoimmune diseases. Generally, the claims involve the steps of administering the drugs to a patient, determining the level of drug in the patient, and adjusting the dosage depending on the amount of the drug measured in the patient. The district court invalidated these claims on summary judgment, noting that the “administering” and “determining” steps are only mental steps, and that the correlation between dosage and therapeutic efficacy was a natural phenomena resulting from processes in the body.

On appeal, the Federal Circuit reversed using the machine-or-transformation test, holding that the claimed process is patent-eligible because it transforms a particular article into a different state or thing. On its second look, the Federal Circuit again held that the patents do not claim natural phenomena, but instead claim a particular application of that phenomenon.

Close Relationship Required for Joint Infringement

On Dec. 20, the Federal Circuit issued an opinion in Akami Techs., Inc. v. Limelight Networks, Inc., (Civ. No. 2009-1372), holding that there was no joint infringement of a method patent where the defendant performs some steps and its customers perform the remaining steps. The court held that “there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps.” Because Limelight's customers lacked this relationship with Limelight, there could be no joint infringement.

Solicitor General to Weigh In on Claim Indefiniteness

The Supreme Court asked the Solicitor General to submit a brief on whether it should grant certiorari in Enzo Biochem, Inc. v. Applera Corp., (Civ. No. 2009-1281). On March 26, 2010, the Federal Circuit decided the case, holding that claim language “not interfering substantially” is not indefinite because the claims provide some guidance as to how much interference is tolerated, and that one of ordinary skill in the art would understand what is claimed. The Federal Circuit denied a request for rehearing en banc, with Judge S. Jay Plager writing in dissent from that denial that “the walls surrounding the claimed invention [should] be made of something other than quicksand.”

Pilot Program for Patent Cases in District Courts Passes Senate

On Dec. 17, Congress passed H.R. 268, which will establish a pilot program to “encourage enhancement of expertise in patent cases among district judges.” The program will begin in at least six district courts, and judges in these districts will be allowed to request to hear patent cases. Patent cases will still be assigned randomly regardless of which judges are participating in the program, but judges who have not requested to hear patent cases have the option of declining to accept a patent case, at which point the case will be reassigned to a judge who has elected to hear them.

The Act's goal is to have some judges participate more in patent cases, and thus develop more experience and expertise with patent issues. The bill also requires data reporting to compare judges participating in the program with judges not participating in the program on issues such as reversal rates at the Federal Circuit.

Federal Circuit Transfers Two Cases Out of Texas

On Dec. 3, the Federal Circuit granted a petition for a writ of mandamus in In re Acer America Corp., et al., (Civ. No. 10-m942). The petitioners, as defendants in a patent infringement action brought by MedioStream, Inc., had attempted to transfer venue out of the Eastern District of Texas, to the Northern District of California, a request that was denied by the district court. Thereafter, the 12 defendants filed a writ of mandamus asking the Federal Circuit to direct the Eastern District of Texas to vacate its orders denying the motion to transfer.

The Federal Circuit granted the writ of mandamus, and in a published opinion reasoned that the denial of the motion to transfer was “patently erroneous” because all of the U.S.-based defendant companies except for Dell are headquartered in California, with six having headquarters in the Northern District of California. No party maintains a headquarters in the Eastern District of Texas. The Federal Circuit also noted that a number of witnesses as well as the inventor and attorneys that prosecuted the patents in suit all reside in the Northern District of California. The Federal Circuit also found that the Northern District of California has a localized interest in the case, whereas the Eastern District of Texas does not. The petitioners include Acer America, Inc., Apple Inc., ASUS Computer International, Dell Inc., Microsoft Corporation, Nero, Inc., Sonic Solutions, and Sony Corporation.

On Jan. 5, 2011, the Federal Circuit also granted a writ of mandamus in In re Microsoft, (Civ. No. 10-m944), ordering a patent action transferred from the Eastern District of Texas to the Western District of Washington, which is “clearly more convenient and fair for trial.” The Federal Circuit held that all of Microsoft's witnesses reside within 100 miles of the Western District of Washington, while the plaintiff Allvoice identified 14 witnesses, 12 of whom reside outside the Eastern District of Texas. The other two are local East Texas businessmen who bought or used the accused Microsoft products. The Federal Circuit was also skeptical of Allvoice's local office in Tyler, TX, calling it a connection made in anticipation of litigation for the likely purpose of making it appear convenient. Allvoice is a UK company, and its Web site directs requests and inquiries to its Texas office, which are then answered from the UK. Allvoice does not employ anyone in the Tyler, TX office. Allvoice also incorporated in Texas 16 days before filing suit, a move that the Federal Circuit found unpersuasive of establishing a connection to the venue.

Jeffrey S. Ginsberg is a partner and Joseph Mercadante is an associate in the New York office of Kenyon & Kenyon LLP.