Years hence we may look back to Tuesday, January 14, 2014 as the turning point in the battle against abusive patent litigation. On January 14, New York Attorney General Eric Schneiderman announced the settlement with one of the more notorious patent trolls. See NY Attorney General Settles Investigation into Patent Troll. This operator, MPHJ Technologies, is the owner of patents dealing with scanning technology and has claimed that thousands of small businesses infringe its patents. MPHJ has been one of the entities used by those in the anti-patent community as an example of a patent system run amok. At the end of the day, at least for those who carefully pay attention and look at the facts, this is not a story about the patent system in any way, shape or form. It is a story about a bully that engaged in reprehensible pre-litigation scare tactics.
Unfortunately, in his announcement of the settlement, Attorney General Schneiderman went too far in condemning legal patent activities in the name of defining what is a patent troll. Schneiderman said:
Patent trolls – sometimes referred to as “patent assertion entities” – are not innovators. They buy patents owned by others and then try to turn a profit by aggressively pursuing businesses they claim infringe the acquired patents. In virtually all cases, the businesses targeted by patent trolls did not copy other companies’ technology. Instead, patent trolls argue that that independently developed technology or business processes used by the target – and in some cases, everyday business activities – require a license linked to the troll’s patents.
The problem with this definition is that there is nothing illegal or immoral about acquiring patents, there is nothing illegal or immoral about enforcing patents and seeking out licensing agreements, and independent creation has never been a defense to patent infringement. Thus, it is unfortunate that legitimate patent activities that are clearly legal were at least to some extent compared with the deceitful activities of MPHJ.
In a non-precedential opinion issued October 18, 2013, the Federal Circuit issued a decision that calls into question the overall utility of forum selection clauses in contractual relationships. In fact, Eli Lilly lost its bid to have its dispute with Genentech and City of Hope heard in the Northern District of California despite a forum selection clause in the governing contract that stated the parties would litigate any dispute in the Northern District of California. See In re Eli Lilly and Co.
Eli Lilly petitioned for a writ of mandamus directing the United States District Court for the Northern District of California to vacate its order transferring this case to the United States District Court for the Central District of California. In its order granting Genentech’s motion to transfer, the district court noted that the trial judge in the Central District of California had presided over four cases involving the same family of patents at issue. The district court further noted that another trial judge in the Northern District of California had recently transferred a case brought by one of Eli Lilly’s business partners that involves the same patent and product to the Central District of California, citing the expertise the trial judge had gained through these prior lawsuits.
Last week, the United States Court of Appeals for the Federal Circuit issued a decision in ncCUBE Corporation v. SeaChange International, dealing with the failure of the district court to find SeaChange in contempt for violating a permanent injunction.
ARRIS (formerly nCUBE) commenced the present litigation on January 8, 2001, alleging the infringement of certain claims of U.S. Patent No. 5,805,804 (“’804 patent”), which discloses and claims a media server capable of transmitting multimedia information over any network configuration in real time to a client that has requested the information. The patented technology allows a user to purchase videos that are then streamed to a device such as a television.
On May 28, 2002, the jury returned a verdict in ARRIS’s favor, finding that SeaChange willfully infringed the asserted claims in the ’804 patent. The Federal Circuit later affirmed the jury verdict and the district court’s subsequent decision to enhance the damages award. Subsequent to the Federal Circuit affirmance, the district court entered a permanent injunction enjoining SeaChange from “making, using, selling, or offering to sell… the SeaChange Interactive Television System… as well as any devices not more than colorably different therefrom that clearly infringe the Adjudicated Claims of the ’804 patent.”
The term “patent troll” conjures up all kinds of images and ideas, but what is a patent troll? The answer is that there is really no universally accepted definition of what a patent troll is. In the most common sense of the term, it is usually reserved for those who acquire patents from inventors or companies, perhaps through bankruptcy, auction or otherwise, and then turn around and sue giants of industry for patent infringement. In this situation, patent trolls are typically extremely well funded, they are not engaging in any commerce, so they do not fear a patent infringement counter-claim because they are not infringing, or doing, anything.
Over time, however, as the debate has matured and many with a patent reform agenda seek to weaken patent rights in hopes of solving their short-term litigation concerns, the term patent troll has morphed to mean any non-practicing entity. Such a definition of patent troll is overly broad, though, because it collects many entities that are simply not doing anything other than pursuing the American dream. These individuals and entities include universities, independent inventors, research & development companies, and federal laboratories. Indeed, such a list of innovators has typically been one that has been celebrated, not reviled.
But there are, of course, bad actors.
In The Charles Machine Works, Inc. v. Vermeer Manufacturing Co. (Fed. Cir., July 26, 2013), the patent in question was U.S. Patent 5,490,569 (the “’569 patent”), which generally relates to a two-pipe drill for boring underground holes in the horizontal direction. An inner pipe rotates the drill bit. An outer pipe, which includes a body and casing, is used for steering. The ’569 patent also discusses a structure called a “deflection shoe” as a steering mechanism. The deflection shoe is included on one side of the casing to create an asymmetry about the casing’s centerline axis. If the casing does not rotate, the deflection shoe causes the drill to deflect away from a straight path. When the casing rotates, however, the drill follows a straight horizontal path.
The Charles Machine Works (“CMW”) sued Vermeer for infringement of the ’569 patent. Asserted apparatus claims 1, 4–8, 10, 12, 18, 20–25, and 27 recite “a deflection shoe mounted on a first side of” either “the body” or “the casing.” Asserted method claims 30–31 recite “the casing having a deflection shoe thereon.”
CMW alleged infringement by two types of Vermeer drills: non-commercial prototypes and commercial products. Both types of drills include a structure called a bent sub, which CMW contends meets the “deflection shoe” and “mounted on” limitations. The prototypes include an additional structure called a wear pad. Vermeer moved for summary judgment of noninfringement, literal or under the doctrine of equivalents, of the asserted claims. The district court granted Vermeer’s motion as to all accused products. CMW appealed to the United States Court of Appeals for the Federal Circuit.
On appeal, CMW argued, among other things, that the court erred by granting summary judgment as to Vermeer’s accused prototypes. Furthermore, CMW argued that Vermeer’s motion for summary judgment covered only the accused commercial products. As a result, CMW asserted that it did not have notice that the district court was considering making a ruling relative to the prototypes, which CMW maintained are structurally different than the commercial products.