Malicious Prosecution of Patent Infringement

Lessons from Mee Industries v. Dow Chemical

Mee sued Dow for malicious prosecution after a failed attempt by Dow to crush Mee as an annoying “cockroach,” as counsel for Mee pointed out during closing arguments in their successful defense in a patent infringement suit. According to Judge Presnell’s Order, the “Mee-as-cockroach” reference came from one of Dow’s internal emails. You would think that corporate America would learn from Microsoft’s mistakes in the already legendary antitrust litigation that candid emails of this kind are gold for a defendant trying to build a theme of David versus Goliath. One lesson that will be repeated again and again, unfortunately, is that email and text messages should be treated as formal, written correspondence and not as casual conversation, but this is not the most important lesson taken from this important case in the Middle District of Florida. Three important lessons may be learned from this case: small companies should consider the patent position of market leaders early on in product development and seek advice of patent counsel, malicious prosecution is a separate state law tort and is not precluded by failure to obtain attorneys fees under 35 U.S.C. § 285, and due diligence before bringing a patent infringement litigation requires at least some evidence of at least one instance of direct infringement.

A small company needs to consider, early on, whether a new product will infringe one of the patents of its larger rivals. Mee Industries did the right thing. According to the record, “Thomas Mee wrote to his lawyer that ‘we are going to have to face the Dow patent issue sometime soon … [e]ven if we only negotiate favorable terms for a license.’” Instead, Mee’s patent counsel was able to develop a strategy that allowed Mee Industries to avoid patent infringement, based on the known prior art and the interpretation of the meaning of the claims in Dow’s patent. In my experience, the vast majority of patents issued by the patent office provide any number of ways for competitors to design around the claims of the issued patent and to compete in the same marketplace as a patentee. If consulted early on in product development, a competent patent attorney can provide invaluable assistance to a small company faced with competition by a much larger market leader. Claim interpretation and prior art searching is not something that should be left to the last minute, because design changes might be necessary to make sure that a new product does not infringe an existing claim of a patent that is presumed to be valid. Advice of a dispassionate outside patent counsel should be sought.

To design around a problematic patent claim, patent counsel might need to work with designers and engineers early on before the design goes into production. According to Judge Presnell, any “…prudent (and non-infringing) business owner in Mee’s position – accused of infringement by a competitor with effectively bottomless pockets, faced with the prospect of spending a million dollars or more to successfully defend an infringement suit – would likely explore the possibility of making the problem go away more economically by securing a license.” How true! However, a successful design around of problematic patent claims can put a business in a position of being able to successfully seek a summary judgment motion of noninfringement in a patent infringement litigation. In addition, as shown by Mee Industries, a cause of action for malicious prosecution can be successful if the defendant is successful in the patent infringement litigation, and the defendant can show that the plaintiff did not have a reasonable belief, based on the facts and circumstances known to it at the time of filing of a patent litigation, that its patents were being infringed. This provides a far stronger position for a defendant to negotiate an end to a patent infringement lawsuit early on in the litigation process.

A defendant sued for malicious prosecution should not take the matter lightly. Unlike a request for attorneys fees pursuant to 35 U.S.C. § 285, which requires clear and convincing evidence that a case was so exceptional as to qualify for an award of attorney’s fees, malicious prosecution is a state law tort requiring proof of malice only by a preponderance of the evidence, a lesser burden. However, a cause of action for malicious prosecution must be brought in a separate civil action after the original action is terminated. To prevail in a malicious prosecution civil tort action under Florida law, Mee Industries had to establish: (1) that an original civil judicial proceeding was commenced or continued against Mee Industries; (2) that the present defendant was the legal cause of the original proceeding against Mee Industries; (3) that the termination of the original proceeding constituted a bona fide termination of that proceeding in favor of Mee Industries; (4) that there was an absence of probably cause for the original proceeding; (5) that there was malice on the part of the present defendant; and (6) that the plaintiff suffered damage as a result of the original proceeding. Alamo Rent-A-Car v. Mancusi, 632 So. 2d 1352, 1355 (Fla. 1994). According to the order in Mee Industries, under “…Florida law, probable cause for instituting suit is defined as ‘a reasonable ground of suspicion, supported by circumstances sufficiently strong in themselves to warrant a cautious man…’” to have had “‘...a reasonable belief, based on the facts and circumstances known to him, in the validity of the claim.’” (citing Dunnavant v. State, 46 So. 2d 871, 874 (Fla. 1950); and Wright v. Yurko, 446 So. 2d 1162, 1166 (Fla. 5th DCA 1984). The most difficult element to prove for the plaintiff is that there was malice on the part of the present defendant in bringing the original civil action.

In the court’s order, Judge Presnell dismantles Dow’s arguments that the evidence at its malicious prosecution trial was so overwhelmingly in favor of Dow that no reasonable juror could have found against Dow. The court, and presumably the jury as well, discounted the legal opinions from in house and litigation counsel and the vetting by the litigation review committee of Dow. The advice of in house counsel and the litigation review committee was discounted, at least in part, because the evidence presented was merely conclusory, according to the court, without providing adequate evidence to support the conclusion. This should be a warning to all in house counsel and review boards to document the evidence relied upon in vetting the decision to bring a patent infringement action.

Best practice would be to send the matter to outside patent counsel, separate from litigation counsel, for an opinion of infringement based on all of the evidence known to the potential plaintiff in the litigation. In Mee Industries the advice of outside patent counsel was discounted, at least in part, because the outside patent counsel was the same attorney who litigated the case, which is a powerful incentive to find infringement, when no direct infringement is shown by the facts and a proper claim interpretation.

In any decision to bring a patent infringement lawsuit, when a serious question arises as to whether direct infringement of a claim actually exists, the advice of an independent outside patent counsel, who is not the litigation counsel, is desirable. This independent voice of reason was not obtained by Dow (or at least the opinion was not shared in their defense of Mee Industries action for malicious prosecution). Instead, Mee Industries was able to present evidence that Dow never ascertained whether any of Mee’s customers were directly infringing one of the claims of Dow’s issued patent. Dow needed to show that at least one of Mee’s customers was directly infringing a patent claim in the underlying patent litigation, because Mee Industries product was capable of being used for noninfringing purposes. Indeed, Mee provided a list of its customers to Dow. Dow sent letters to the customers of Mee warning them of possible infringement litigation, but “Dow made no effort to ascertain whether any of these customers actually used Mee’s equipment in a manner that would infringe,” according to the court.

A patent infringement suit based on infringement of only a method claim may be more difficult to bring than one based on infringement of a machine or composition of matter. If there are noninfringing methods of using a machine, a determination must be made whether it is reasonable to assume that the machine is being used in an infringing process. This is a difficult hurdle that might require inspection of the equipment being used in service by one of the customers of potential defendant, if access is available to a potential plaintiff. Even then, prior to commencing an action for contributory infringement or inducement to infringe, a patent owner should consider whether there is sufficient evidence to commence a patent litigation.

Dow did have one of its engineers analyze Mee’s equipment, but failed to confirm that the equipment was being used in service in any infringing way. The engineer concluded that under certain temperature and humidity conditions that the equipment could be used to accomplish wet compression, but this report necessarily supported the opposite conclusion, as well, that Mee’s equipment could be used in ways that do not infringe. Also, mere incremental wet compression was old technology and was disclosed in the prior art, according to the court. Therefore, the engineer’s report did not support any inference of direct patent infringement. The engineer, “…among others, admitted as much at trial,” according to Judge Presnell. Without any evidence supporting an inference that Mee’s equipment inherently infringed each and every element of at least one of Dow’s claims, it was Dow’s duty to determine if one of Mee’s customers was using Mee’s equipment in a way that was infringing at least one of Dow’s claims. Without this step, Dow did not have probable cause under Florida law for instituting the patent infringement suit, according to the Order of Judge Presnell.

Still, Dow might have successfully defended against the tort of malicious prosecution if it had been able to show a good faith reliance on the advice of counsel in instituting the patent infringement lawsuit. The jury was asked whether before “…filing the patent infringement case against Mee, Dow in good faith sought the advice of a lawyer, gave the lawyer a full, correct, and fair statement of what it knew, and reasonably relied on the lawyer’s advice in filing the case.” According to the Order of the court, the “jury answered in the negative.” The court opined that “…the jury could have reasonably concluded that Dow had reason to believe its lawyers’ advice was not sound.” Mee Industries was able to present evidence to convince the jury that there was malice on the part of Dow in its determination to ratchet up the pressure on Mee Industries to force Mee Industries to either pay Dow for a license or get out of the market for power augmentation technology. Emails referring to Mee Industries as a “cockroach” could not have helped Dow’s cause. The lack of any showing of direct infringement by one of Mee’s customers was the focus of the Order. Hubris does not play well with a jury, and potential plaintiffs should be forewarned to avoid any appearance of it.

A patent owner has the right to assert an infringed patent, but there should be neither joy nor animus in determining if a patent litigation is warranted. These emotions cloud good judgment. It is always important to choose dispassionate opinion counsel to provide reasoned advice that can be reasonably relied upon to make an informed decision whether to bring a patent infringement action. Even if there is not “probable cause” to bring a patent litigation, a party can enter into good faith negotiations to license the patent and know-how related to the technology to others.
Although bringing patent litigation on a method claim may be problematic, under some circumstances, method claims may provide for the protection of substantial revenue generated from services, technology transfer and licensing that should not be overlooked in patent prosecution. This specific case does not suggest that method claims should be disfavored in any way, and this commentary should not be construed as suggesting that method claims have no value or that method claims may be safely ignored by potential infringers.

Minks v. Polaris Industries, 2008 WL 4601732 (Fed.Cir.(Fla.) 2008)

Summary: Patent marking issues and the district court reduced damages awarded to a plaintiff in the Middle Destrict of Florida for infringement of a patent claim by a long time purchaser of the plaintiff’s patented products. In a decision rendered Oct. 17, 2008, The Court of Appeals for the Federal Circuit opined on the state of law in the Eleventh Circuit, including the Middle District of Florida. When based on a factual analysis about the reasonableness of jury award of compensatory damages in a patent infringement lawsuit, such as determining damages based on a reasonable royalty, a reduction in damages award must be accompanied by an offer for a new trial. “In the Eleventh Circuit, the district court's decision to reduce the jury's damages award without offering Minks a new trial is a matter of law reviewed de novo. See Johansen, 170 F.3d at 1335; see also Tronzo II, 236 F.3d at 1351 (identifying issue as a matter of law).” The Federal Circuit used the law of the 11th Circuit and found that the exception for reducing an award without a new trial based solely on an error of law did not apply to the reasonableness of juries calculation of compensatory damages for patent infringement.

Excerpts from the decision follow.

The Reexamination Clause of the Seventh Amendment states that "no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of common law." U.S. Const. amend. VII. "[T]he Reexamination Clause does not inhibit the authority of a trial judge to grant new trials 'for any of the reasons for which new trials have heretofore been granted in actions at law in the courts of the United States.' " Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 433, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996). This authority extends to "overturning verdicts for excessiveness and ordering a new trial without qualification, or conditioned on the verdict winner's refusal to agree to a reduction (remittitur)." Id. (citing Dimick v. Schiedt, 293 U.S. 474, 486-87, 55 S.Ct. 296, 79 L.Ed. 603 (1935)). Nevertheless, the Supreme Court has long interpreted the Seventh Amendment as requiring that the exercise of a district court's discretion to set aside an excessive jury award be accompanied by an offer of a new trial. In Kennon v. Gilmer the [Supreme] Court stated: [I]n a case in which damages for a tort have been assessed by a jury at an entire sum, no court of law, upon a motion for a new trial for excessive damages and for insufficiency of the evidence to support the verdict, is authorized, according to its own estimate of the amount of damages which the plaintiff ought to have recovered, to enter an absolute judgment for any other sum than that assessed by the jury. 131 U.S. 22, 29, 9 S.Ct. 696, 33 L.Ed. 110 (1889). The Court reaffirmed this principle in Hetzel v. Prince William County, holding that the entry of judgment for a lesser amount than that awarded by the jury, without the offer of a new trial, "cannot be squared with the Seventh Amendment" when the reduction is premised on a finding that the evidence does not support the award. 523 U.S. 208, 211, 118 S.Ct. 1210, 140 L.Ed.2d 336 (1998).

[The] Eleventh Circuit held in Johansen that when a jury's award is premised on "legal error," a court may reduce the award and enter an absolute judgment in an amount sufficient to correct the legal error without offering the plaintiff the option of a new trial. Compare Johansen, 170 F.3d at 1328, 1331 (stating that "the Seventh Amendment prohibits reexamination of a jury's determination of the facts, which includes its assessment of the extent of plaintiff's injury," and analyzing Hetzel), with id. at 1330-31 ("The Seventh Amendment is not offended by this reduction because the issue is one of law and not fact."). Johansen considered whether a federal court may reduce a punitive damages award by an amount required by the Due Process Clause of the Fourteenth Amendment without offering the plaintiff a new trial. In its analysis, the court identified two types of legal error that permit the reduction of a jury award without the offer of a new trial. First, "where a portion of a verdict is for an identifiable amount that is not permitted by law, the court may simply modify the jury's verdict to that extent and enter judgment for the correct amount." Id. at 1330 (citing N .Y., L.E. & W.R. Co. v. Estill, 147 U.S. 591, 13 S.Ct. 444, 37 L.Ed. 292 (1893)). [FN4] Second, a court may reduce a jury's punitive damages award when the award "enter[s] that 'zone of arbitrariness that violates the Due Process Clause of the Fourteenth Amendment.' " Id. at 1331, 1334 (quoting BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 568, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996)). Importantly, both types of error derive from the operation of legal principles without regard to the evidence presented by the plaintiff. That is, legal errors permitting the reduction of a jury award without the offer of a new trial arise without regard to whether the jury's award is or is not supportable as an evidentiary matter. [FN5]

Under the Eleventh Circuit's analysis of Supreme Court precedent, we conclude that the district court's reduction of the jury's compensatory damages award in this case is governed squarely by Hetzel.

In its analysis of this award, the district court identified no legal principle--such as was present in Estill (state law prohibition on awarding interest) or Johansen (Due Process Clause of the Fourteenth Amendment)--that would limit the amount of a reasonable royalty in this case. Rather, the district court examined the evidence in the record with respect to the components of a reasonable royalty--number of infringing sales, royalty base, and royalty rate--and found that the evidence could not support the jury's damages award. Damages Reduction Order at 25-28. The court further found that "at most the legally competent evidence in the record supported a jury award based on a price per reverse speed limiter of $6.11, a reasonable royalty of 4 percent, and total infringing sales of 116,270, for a total compensatory damage award of $27,904.80." Id. at 33. Despite its effort to cast this decision as one of law rather than fact, the court necessarily engaged in an independent review of the evidence and substituted its conclusion for that of the jury on the factual issue of compensatory damages. Cf. Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 437, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001) (" 'Unlike the measure of actual damages suffered, which presents a question of historical or predictive fact, the level of punitive damages is not really a "fact" "tried" by the jury.' " (quoting Gasperini, 518 U.S. at 448, 459 (1996) (Scalia, J., dissenting))); see also Micro Chem. ., Inc. v. Lextron, Inc., 317 F.3d 1387, 1394 (Fed.Cir.2003) ("The amount of damages based on a reasonable royalty is an issue of fact.").

A comparison of the Georgia-Pacific factors and the standard of a hypothetical negotiation to the evidence of record in this case makes clear that the district court's reduction of compensatory damages necessarily amounted to an assessment of the sufficiency of the evidence, and as such, the option of a new trial was required.


NOTICE INSTRUCTION

As an interesting aside, the Federal Circuit sided with Minks on an improper jury instruction about actual notice.

Title 35 U.S.C. § 287(a) of the patent marking statute provides that where a patentee has failed to mark its patented product, "no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice." The plaintiff, Minks, did not mark its products; therefore, damages are limited by the date that the defendant received actual notice satisfying the requirements of § 287(a). The date of actual notice can be critical to a damages calculation in any case that includes a successful patent marking defense, because sales of infringing articles are not counted towards a damages award until proper notice under 287(a) is provided.

Excerpts of the decision follow.

The district court gave the following instruction on actual notice:

“The date notice was given is the date on which Minks communicated to Polaris a specific charge that one of its products may infringe claim two of the '080 patent.”

Minks objected to this instruction on the grounds that it precludes a jury from finding notice prior to discovery of Polaris' infringement. Minks thus requested the following instruction:

“The date notice was given is the date on which Minks communicated to Polaris a specific charge that one of its products infringed or would infringe claim two of the '080 Patent.”

Minks argues that the proposed instruction indicates that a patentee can provide sufficiently specific notice to an accused infringer before the patentee discovers the actual infringement by the accused. We agree with Minks that the given instruction does not fairly and correctly state the issues and the law; the jury should have been more clearly instructed that it was permitted to find notice prior to the date Minks discovered Polaris' infringement.

Section 287(a) requires actual notice to the accused "to assure that the recipient knew of the adverse patent during the period in which liability accrues, when constructive notice by marking is absent." SRI Int'l, Inc. v. Adv. Tech. Labs., Inc., 127 F.3d 1462, 1470 (Fed.Cir.1997). "[I]n SRI we explained that as long as the communication from the patentee provides sufficient specificity regarding its belief that the recipient may be an infringer, the statutory requirement of actual notice is met. Thus, the requirement of 'a specific charge of infringement' set forth in Amsted does not mean the patentee must make an 'unqualified charge of infringement.' " Gart v. Logitech, Inc., 254 F.3d 1334, 1345-46 (Fed.Cir.2001) (internal citation omitted). Under this standard, general letters referring to the patent and including an admonishment not to infringe do not constitute actual notice. See Amsted Indus. Inc. v. Buckeye Steel Casting Co., 24 F.3d 178, 187 (Fed.Cir.1994). Conversely, letters that specifically identify a product and offer a license for that product do constitute actual notice. See Gart, 254 F.3d at 1346.

As a long time customer of Minks Engineering, Polaris knew of the '080 patent. Moreover, as early as 1997, Minks specifically communicated his belief that reverse speed limiters sensing engine speed and a DC input infringe the '080 patent. Similarly, on September 24, 2001, Minks sent Polaris a letter confirming that a third party vendor was refusing to build a quoted reverse speed limiter for Polaris because the quoted part would infringe the '080 patent. During this time period, Polaris misrepresented the nature of its substitute reverse speed limiter, employed since 1996, as sensing ground speed rather than engine speed. Although it is not for us to determine whether, as a factual matter, any of these exchanges were sufficient actual notice under § 287(a), the court's instruction to the jury should have more clearly articulated that, in the context of this ongoing relationship between the parties, knowledge of a specific infringing device is not a legal prerequisite to such a finding.

Bella Builders, Inc. v. Joseph Minghenelli, 2008 WL 4569880 (M.D.Fla. 2008)

Summary: In the Middle District of Florida, plaintiff is not entitled to a cause of action for conversion of intellectual property in architectural plans under state law conversion, because U.S. copyright laws preempts such a claim for alleged derivative works.

According to JOHN E. STEELE, District Judge of the Middle District of Florida, “Section 301 of the Copyright Act provides in relevant part that: [o]n January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished are governed exclusively by this title.” No person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State. 17 U.S.C. § 301(a). The "intention of section 301 is to preempt and abolish any rights under the common law or statutes of a State that are equivalent in copyright and that extend to works coming within the scope of the Federal copyright law." Dunlap v. G & L Holding Group, Inc., 381 F.3d 1285, 1296 (11th Cir.2004) (internal citations omitted). In order to determine whether a state cause of action is preempted, the Court must determine whether: (1) the rights at issue fall within the "subject matter of copyright" set forth in sections 102 and 103; and (2) the rights at issue are equivalent to the exclusive rights of section 106. Dunlap, 381 F.3d at 1294; see also Crow v. Wainwright, 720 F.2d 1224, 1225-26 (11th Cir.1983).

Architectural plans are architectural works fixed in a tangible medium of expression, which are within the subject matter of copyright law; therefore, “the first part of the preemption analysis is satisfied….” See 17 U.S.C. § 102(a). The “owner of a copyright has the exclusive right to: (1) reproduce the copyrighted work; and (2) prepare derivative works based upon the copyrighted work. See 17 U.S.C. § 106. According to the court, the count of conversion of intellectual property alleges that the designs of the defendant’s architectural were derived from the plaintiff’s architectural works; therefore, pursuant to 17 U.S.C. § 106(2), the rights at issue are equivalent to one of the exclusive rights of section 106, namely an allegation that the designs are a derivative work of the plaintiff’s architectural plans. “Therefore, the Court finds … that both prongs of the preemption test have been met,” resulting in dismissal of the count alleging conversion of intellectual property, a state law claim.

Cohesive Technologies v. Waters Corp. (Fed Cir 10/7/08)

The patents at issue in the appeal to The Court of Appeals for the Federal Circuit (CAFC) have claims drawn to a high performance liquid chromatography process (“HPLC”), which separates, identifies and measures compounds in a liquid. The terms to be construed included the terms “rigid” and “greater than about 30” microns. Claim construction requires claims to be interpreted within the context of the claims themselves and the specification. Also, the prosecution history must be considered in determining what the claims mean. There were three interesting holding by the CAFC in this recent decision: limiting disclaimer to what is actually disclaimed, finding error in keeping the issue of anticipation from the jury, and an interesting determination of the meaning of the term “about” that precludes the consideration of the Doctrine of Equivalence as already included within the literal meaning of the claim term.
In one matter before the CAFC, Cohesive Technologies asserted that the polymeric material used in particles of Waters Corp. is rigid. However, Waters Corp. argued that the prosecution history clearly and unequivocally disclaimed polymer materials as insufficiently rigid to be considered “rigid” within a proper interpretation of the claims. This interpretation of the prosecution history by Waters Corp. was an overly broad reading of the record, which merely distinguished a particular type of polymer particle as being not rigid. Had Waters Corp. used that particular type of polymer particle, then its particles would not have infringed the asserted claims. The CAFC held that there was sufficient evidence to support the juries determination the polymer particles used by Waters Corp. were rigid within the meaning of the claim. In determining the meaning of a claim term in a patent, it is important not to overly broadly narrow meanings of claims terms in ways that were not clearly and unequivocally disclaimed by the applicant.

In a second issue, CAFC agreed with Waters Corp. that granting judgment as a matter of law of no anticipation before the jury was allowed to consider the issue was error. The trial court thought that preserving the issue of obviousness over the same references precluded any harm to Waters Corp., but obviousness requires a different analysis than anticipation. A reference anticipates a claim if it reads on each and every claim limitation exactly, without considering any of the other factors that must be considered in an determination of obviousness. If not allowed to consider anticipation, a jury might consider a claim to be nonobvious for any of a number of reasons that are not relevant to a determination of anticipation. Thus, the issue of anticipation should not have been removed from the juries consideration if it was “iffy” as suggested by the trial court. Both anticipation and obviousness must be submitted to the jury, unless no claim was anticipated as a matter of law with deference to the defendant.

CAFC overturned the trial courts interpretation of the meaning of “greater than about 30” microns, because the use of “about 30” within the context of the claims and the specification provided a range for the lower range of particle size. Interestingly, CAFC held that the claim was not entitled to the benefit of the Doctrine of Equivalents, because by introducing “about” to the claim limitation, the applicant had already captured what would have been captured by the Doctrine of Equivalents within the literal meaning of the claim. The term “about” within the context of the claims, the specification, prosecution history and the prior art meant plus or minus 15.22%, according to the CAFC. For this reason, the CAFC reversed the trial court’s judgment of noninfringement based on trial court’s erroneous claim construction of “at least about 30” microns, without consideration of the Doctrine of Equivalents for the applicable literal range of particle size. Claims drafted with a similar use of “about” may avoid arguments that the Doctrine of Equivalents vitiates a claim limitation specifying a lower or higher critical range within a claim by introducing a variance within the literal meaning of the claim.

Claim Interpretation

One of the trends that I am seeing at the patent office is a tendency by Examiners to broaden the claims beyond the context provided in the specification. This allows references to be cited that would otherwise not read on the claims, if the claims were properly interpreted in light of the specification and the level of skill of a person having ordinary skill in the pertinent field. There was a time when precedent of the Court of Appeals of the Federal Circuit supported reading the claim language broadly, according to its plain meaning or a dictionary definition. That time has past. The precedent of the Federal Circuit and the U.S. Supreme Court has established that Applicant’s specification is the best source for determining what the claims mean. Thus, now more than ever, both the drafting of a system of claims that protects all of the aspects of the invention and the context provided by the written description are critical to obtaining the proper scope of protection in an application filed with the United States Patent & Trademark Office. The increasing importance of the specification for interpreting the meaning of the claims means that most clients will be better served by developing long term relationships with a competent, local patent counsel that develops an intimate knowledge of the technology and business goals of the client.

The claims of a patent set the scope of protection granted by the patent. Phillips v. AWH Corp., 415 F.3d 1303, 1312 (Fed.Cir.2005). However, in construing what the claims mean, the patent office must determine what the claim language of the claims would have meant to a person having ordinary skill in the relevant art at the time of the invention within the context provided by the specification. Id. at 1313. According to precedent, the hypothetical “person of ordinary skill in the art” interprets the meaning of the claims after having read the entire patent and within the context of the patent as a whole. Id. The specification--and other intrinsic evidence, such as the prosecution history and the language of other claims--often provides the best indicator of the meaning of claim language. Id. at 1314-15. Provided that due caution is exercised to avoid reading limitations from the specification into the claims, the specification is "…the single best guide to the meaning of a disputed claim term…" and is usually dispositive. Id. at 1315 and 1323 (quoting Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1582 (Fed.Cir.1996)).

The patent protects the entire scope of the invention as stated in the claim, not merely the example or examples of the invention provided in the specification. See 415 F.3d at 1312. However, any interpretation of the claims must be equally careful to avoid reading the claims too broadly, as would be done if the claims terms are defined according to dictionary definitions rather than in the context of the specification. Id. at 1321. While extrinsic evidence, such as learned treatises and technical dictionaries, may be consulted, the purpose of such extrinsic evidence is limited. Extrinsic evidence merely provides "…background on the technology at issue, to explain how an invention works…” or ensures that the Examiner's “…understanding of the technical aspects of the patent is consistent with that of a person having ordinary skill in the art…” or establishes that a particular claim term has a particular meaning within the context of the specification or within the pertinent field. Id. at 1318. Again, the specification is the best source for determining the meaning of a claim term, and assertions of what a claim term means that are not supported by the specification, prosecution history or the prior art in the pertinent field are not useful. Id.

The strongest patent protection is provided by having competent, local patent counsel working closely with the inventors to describe the background of the invention and to prepare a written description that provides context to the language used in the claims. Development of the context needed to support the claims is enhanced by early and frequent contact between patent counsel and the inventors involved in the research and development process. Thus, the patent process benefits from a close proximity between a local patent counsel and the client. The failures and technical challenges faced during reduction of an invention to practice establish a context for defining the patentable features of the claims that are nonobvious over the state of the art at the time that the invention is made. The technical vocabulary developed during close collaboration between local patent counsel and the inventors is invaluable in the understanding of the invention and the defnition of the claim language used in the drafting of strong patent protection. Furthermore, a local patent counsel working closely with inventors is much more likely to be able to identify measurements and comparisons that may be made during evaluation of a new technology, which can be used to distinguish the new technology over the prior art, providing “objective evidence of nonobviousness” such as synergistic results or results that are surprising and unexpected, which is the sin qua non for patentability post-KSR.[1]

Finally, if an ongoing relationship exits between local patent counsel and both top management and the innovators of a client, then patent counsel is much more capable of identifying those particular discoveries and improvements over the prior art that warrant patent protection: inventions with features distinguishable over the known prior art, inventions having important applications within the field of the client or within a field of a potential licensee, and inventions that are aligned with the business goals of the client and support the business objectives of the client. When this type of integration of the client and local patent counsel is achieved, the drafting of a system of patent claims that are fully supported and adequately defined within the context of the written description of the specification is not difficult. The claim terms are defined using the language adopted by innovators within the particular field and defined by the written description, providing no room for abusive over-broadening by the patent office. More importantly, the scope of the claims protected by patenting is not selected merely for ease of patenting or for incremental improvements. Instead, a consistent framework is established for the language used in the claims within the context of the written descriptions across the entire patent portfolio, which strengthens all of the issued patents and pending applications within the enterprise’s intellectual property portfolio.

[1] In KSR v. Teleflex the U.S. Supreme Court overruled the Federal Circuit’s rigid application of the TSM test and instead relied on earlier precedent that patent examiners and the courts must consider (1) the scope and content of the prior art, (2) the differences between the claimed invention and the prior art, (3) the level of ordinary skill in the pertinent art, and (4) objective evidence relevant to the issue of obviousness, when determining if a claim is nonobvious over the prior art. (For an introduction to patentability post-KSR see http://www.bpcouncil.com/apage/488.php.)

IP ASSESSMENT

Any intellectual property assessment starts not with a catalogue of patents, but with a definition of strategic business goals and an IP vision. Then, an IP analysis system may be devised that fits the IP vision of the company. Tools may be selected to develop information, quantifiable or qualitative, capable of supporting IP management decisions directed to achieving the IP vision of the company.

Is the company looking to out-license some or all of its patent portfolio to others? Is the company looking to acquire companies with strategic IP assets in areas identified for strategic business development? Is the company trying to avoid IP infringement lawsuits by buying or licensing IP rights that might be acquired by others? Is the company looking to identify directions for targeted innovation for developing new markets? Each of these require a different type of search and different information to support decision making by company management.

Patent search and mapping tools offered by Delphion (clustering) and Micropatent (Aureka) are decent commercial tools for patent assessment, provided that a sufficient number of issued and published patent applications are available within the selected field(s) of interest to warrant the use of these tools. A patent specialist or paralegal may be trained to use these tools. Otherwise, it is best to develop a long term relationship with outside patent counsel capable of providing patent, trademark and copyright searches and IP due diligence using tools available to them.

Nothing beats a intellectual property attorney with the technical expertise and experience in using or understanding the available tools and a staff capable of providing initial keyword searches to identify relevant search terms and to analyze intellectual property assets, such as patent claims and written descriptions. A long term relationship with in house or outside counsel having a strong technical background in the related art and an understanding of your company's needs for information to support business decisions is essential to implementation of an IP vision.

A snapshot provided by a single report is only marginally useful and will soon be outdated. Continuous tracking of trends and the ability to identify opportunities aligned with the IP vision is far more useful. A long term relationship with IP counsel supporting an IP assessment provides benefits in the quality of the analysis, which goes beyond patent mapping of specifications, titles and abstracts and includes analysis of the claims, file histories and written descriptions within key areas of innovation. Patent counsel may provide information useful to key decision makers based on the reports and in depth analysis that goes beyond the reports and metrics used to keep management informed of the status of the company’s IP portfolio and strategic investments. If the IP vision is understood by the entire enterprise, then information developed using data mining tools will be supplemented by information from employees, such as the sales force, technical specialists and managers, provided that some system is in place to capture such information.

If the IP vision includes development of an ongoing out-licensing, innovation development or acquisition strategy, then adequate resources must be committed to the endeavor and senior management must be willing to be actively involved in formulating the IP vision and in managing the IP assets and the allocation of resources in support of the IP vision. IP management and analysis tools may be used for gathering specific information about company IP, providing patent mapping reports to support business decisions, presenting relevant relationships between IP clusters, identifying directions for new development, identifying corporate IP assets for out-licensing opportunities, and finding IP assets that may be beneficial targets for acquisition or in-licensing. Any use of such tools should support the IP vision and must be incorporated into the company decision making process. Decision makers must be familiar with the information that may be presented by such tools and how such tools may be understood and used by decision makers to evaluate IP assets of the company and to identify opportunities furthering the company’s IP vision.

A system must be provided for evaluation of IP assessment reports, identifying opportunities, making management decisions supporting the IP vision, and updating of the company’s IP vision.

Privilege, Willfulness & In re Seagate

Any litigation may come back to haunt a company that does not carefully consider the impact of broad discovery rules under the Federal Rules of Evidence. Discovery may lead to disclosure of trade secrets and privileged information that the company would rather keep confidential. Thus, a company should not lightly initiate a lawsuit or take any action that might provide a basis for a competitor to bring a lawsuit against it. Some examples of activities that may give rise to litigation by one’s competitors include advertising, use of trademarks, claims of patent or trademark infringement, licensing activities and sales of products or services that might give rise to a third party patent infringement lawsuit.

While it is prudent to seek the advice of legal counsel prior to making business decisions, the protection provided to legal advice in litigation must be considered in determining how confidential attorney-client communications are used and disclosed. Disclosing attorney-client privileged communications may have far reaching and unintended consequences. While the attorney work product privilege and attorney-client privilege provide some protection for information requested by an attorney in anticipation of a litigation, the privilege ultimately fails to shield some tests, opinions of counsel and reports. The purpose of the attorney work product privilege is to shield work product that is prepared under the direction of an attorney, and the privilege is related to the attorney-client privilege. However, the work product privilege is narrower than the attorney-client privilege, because it only protects work product that would not have been prepared except for the anticipation of litigation.

A recent decision by U.S. District Court Judge Richard J. Sullivan of the Southern District of New York should be a reminder that any advertising claims should be carefully vetted, and business risk analysis should consider carefully the consequences of broad discovery rules. In this decision, the defendant was required to disclose confidential testing information in a lawsuit claiming false advertising under the Lanham Act and the New York Consumer Protection Act . The Procter & Gamble Company (P&G) claimed that advertising claims of Ultreo, Inc. (Ultreo), about the ultrasound wave technology of Ultreo’s ultrasonic toothbrush, were misleading to consumers. P&G sought laboratory and clinical testing and reports of Ultreo that related to the false advertising claims. Ultreo was compelled to produce such reports, and P&G was entitled to consider them in its action for false advertising. Ultreo sought to protect some of the reports from disclosure under attorney work product protections. According to the court, however, it is not enough for a report to be performed in anticipation of litigation. Utreo must be able to show that the reports “would not have been prepared in substantially similar form but for the prospect of litigation.” According to the court, Ultreo failed to meet its burden to show that these reports were shielded by the attorney work product privilege, and Ultreo was compelled to disclose the protocols, data and final results of the studies.

In another example, attorney work product privilege was denied for patent searches conducted in anticipation of litigation, even though attorney advice was obtained based on the searches. The defendant in Takeda was found to have regularly conducted patent searches in the course of its business. Thus, the court held that the specific patent search results and related strategies were not shielded by the attorney work product privilege. While the Takeda decision is not applicable to attorney advice based on the results, a party can infer a great deal from a patent search and patent search strategy, when it is disclosed in litigation discovery.

Reasonably relying on a sound, pre-litigation written opinion prepared by competent patent counsel provides a degree of immunity to charges of willfulness, but potentially opens up any pre-litigation advice about infringement and invalidity by litigation counsel to discovery by the plaintiff. A written opinion of counsel relating to invalidity or infringement is protected by attorney-client privilege only if the written opinion is kept secret. A defendant is immunized against willful infringement based on reasonable reliance on the written opinion of an experienced patent attorney, showing that all of the claims at issue in the patent litigation are either invalid or not infringed. It should come as no surprise that use of a defendant’s reliance on a pre-litigation “opinion of counsel” as a defense to willful infringement strips the attorney-client privilege and work product privilege for the opinion, because the plaintiff is entitled to investigate if the reliance on the opinion was reasonable. Use of this defense, makes all related opinions discoverable by the plaintiff and not just the one chosen by the defendant, because the other opinions might make it more or less reasonable for the defendant to rely on the opinion offered.

However, an opinion by the U.S. Court of Appeals for the Federal Circuit in In Re Seagate overturns longstanding precedent and sets a standard of “objective recklessness” for determining if a defendant’s infringement is willful and subject to enhanced damages, and the same decision shields post-litigation opinions of litigation counsel from discovery. While the standard in Seagate is likely to diminish the risk to defendants of an award of enhanced damages, which may be up to three times the actual damages, some companies will still seek pre-litigation opinions of noninfringement and invalidity as a defense against possible charges of willful infringement. Formal opinions of counsel may be required in certain deals licensing patented technology or in mergers and acquisitions, for example. In addition, a reasonable reliance on a sound opinion of counsel is likely to be an even more effective defense against willfulness under the heightened standard of objective recklessness than it was previously.

A standard of “objectively unreasonable” in a concurring opinion is different from the standard of the majority opinion, which requires the plaintiff to establish “objective recklessness” prior to any subjective determinations. According to the majority opinion of the en banc panel in In re Seagate, an objective recklessness standard should be applied when determining whether enhanced damages for willful infringement are warranted. According to the majority opinion, the “objective recklessness” standard likely lessens the defendant’s burden in rebutting willfulness to only a showing of a “substantial question” as to invalidity and non-infringement, which is the same standard capable of defeating a motion for preliminary injunction. Depending on the standard that the courts ultimately adopt, the likelihood of successfully meeting the threshold for requiring a showing of subjective reasonableness by a defendant may be greatly diminished following In Re Seagate. Whenever the risk of litigation warrants a review of a particular patent, any company that can afford to have a formal written opinion prepared by an independent, experienced patent counsel should consider engaging opinion counsel, prior to making a business decision to sell a product that might give rise to a patent infringement lawsuit.

However, some companies refrain from introducing a formal written opinion, prepared in advance of litigation, due to the effect of discovery rules on attorney-client privileged communications with their litigation counsel. Prior to In Re Seagate, introducing the opinion of counsel defense opened not only the opinion counsel to scrutiny during discovery but also trial counsel’s advice and opinions were subjected to the same scrutiny in some cases. The court in Seagate balanced the interests in discovery with the attorney-client privilege, allowing for discovery of all pre-litigation opinions provided for making informed business decisions, while drawing the line at discovery of post-litigation advice of litigation counsel. The opinion of In Re Seagate does not address the case when opinion and litigation counsel are one and the same; therefore, advice given post-litigation might be discoverable in determining if the defendant reasonably relied on the pre-litigation advice of the same patent counsel.

For now, if a company might desire to introduce its reliance on a pre-litigation opinion of counsel as a defense to willfulness, then the company should select different firms for post-litigation defense of a patent infringement lawsuit and any pre-litigation opinions of counsel.

There also is an unanswered question about any privilege that is offered for pre-litigation advice of litigation counsel. The opinion in In Re Seagate applies, directly, only to post-litigation advice of litigation counsel. Pre-litigation advice might not be offered any attorney-client and work product privileges. If the company routinely relies on objective assessment of opinions of counsel for making informed business decisions, then the work product privilege probably does not apply. An analogy may be made with the work product privilege in Takeda, for example, which makes patent search strategies and results discoverable based on the routine use of patent searches in making business decisions. Therefore, there is a substantial risk than any pre-litigation opinion of litigation counsel may become discoverable, if the defendant ultimately presents a defense to willfulness based on reliance upon any pre-litigation advice of counsel.

If there is a substantial risk relating to certain specific patents, a company probably should still seek an independent pre-litigation opinion, as an insurance policy against the plaintiff making its showing of “objective recklessness.” A pre-litigation opinion should be provided by an experienced patent attorney from a firm other than the firm that will be chosen to defend any patent infringement litigation.

The primary purpose of any legal opinion should always be for use in making a business decision, preferably prior to infringing a related patent or within a reasonable time after discovering the existence of such a patent. Any opinion that might be used as a defense to willfulness should be a formal written opinion of invalidity or non-infringement or both, because it is more reasonable to rely on a formal, complete, and thorough written opinion than on a less formal opinion. The cost of a formal written opinion, which may be more than twenty thousand dollars per patent and sometimes considerably more, is nevertheless a comparatively inexpensive defense against a debilitating award of enhanced damages. The formality of a written opinion is needed to make it effective in raising an opinion of counsel defense against enhanced damages, if the need arises. However, there is some room for separating out routine legal opinions merely for use in making business decisions and formal legal opinions for defending against a successful showing of objective recklessness in infringing a patent.

The opinion in In Re Seagate makes clear that there is little benefit to preparing a formal written opinion after a patent litigation is commenced.

Since any pre-litigation opinion of litigation counsel may be subject to discovery, in an abundance of caution, litigation counsel might forego pre-litigation analysis and advice. Instead, prior to litigation, the litigation counsel might rely on the formal opinion of a separate opinion counsel from a different firm in advising the client, subject to the caveat that litigation counsel has not formed an independent legal opinion as to invalidity and infringement. At least, it would be best for litigation counsel to refrain from offering any pre-litigation opinions about infringement or invalidity of the claims to any decision maker in the business. Advice by litigation counsel could reasonably be considered in determining whether continued reliance on an opinion earlier prepared by opinion counsel was reasonable under the circumstances. A practical problem arises, because advice from litigation counsel is usually not objective and is often the most pessimistic of advice. Litigation counsel is compelled to present a range of possible outcomes to a client, including the worst possible outcome. The alternative theories of litigation counsel are not intended to be an objective determination of infringement or validity. Instead, litigation counsel should consider the case from all angles, including that most favorable to the plaintiff. Indeed, this is the only way of assessing whether dismissal is appropriate. In light of Seagate, unless the client is willing to cease any infringing activities based on a worst case assessment of litigation counsel, such a frank assessment should probably not be shared with the client until after litigation is commenced, because if presented to the client prior to onset of litigation, such a worst case assessment is possibly discoverable.

The only times that it makes sense for litigation counsel to offer pre-litigation advice regarding infringement and validity is when the client is capable of acting on the advice to mitigate damages and when the client does not have any opinion of non-infringement or invalidity.

Especially if advice of litigation counsel would differ substantially from the assessment of the opinion counsel, sharing of any such advice by the litigation counsel with the client prior to the initiation of a litigation might prevent the unfettered use of an objective opinion, which might otherwise immunize the client against a charge of willful infringement. In the alternative, if the advice of litigation counsel does not differ substantially from that of the opinion counsel, then it is of limited usefulness, and there is no advantage in offering it to the client. If a pre-litigation opinion of counsel is on hand, then any discovery of a litigation counsel’s speculative pre-litigation assessments undoubtedly will be used against the opinion counsel’s assessment, which may well be the more reasoned, objective opinion. Of course, plaintiff’s counsel will present any differences in the two assessments in the most damaging light possible.

THE STUFF DREAMS ARE MADE OF

A recent article published by the Associated Press, claims that the estate of J.R.R. Tolkien was promised 7.5% of the take in the Lord of the Rings movie trilogy. "New Line has not paid the plaintiffs even one penny of its contractual share of gross receipts despite the billions of dollars of gross revenue generated by these wildly successful motion pictures," according to Steven Maier, an attorney for the Tolkien estate. So, why has New Line only paid the author's estate $62,500 in an up front payment, according to the Associate Press article?

Without reading the agreement between the estate and New Line, this question cannot be answered with any certainty. Did New Line agree to pay 7.5% of the “gross,” reportedly $6 billion, worldwide? Or did New Line only agree to pay 7.5% of some net receipts? The terms of a deal and the basis for the royalty are issues to address with a clever and experienced attorney prior to accepting any advance or signing any agreement within the entertainment industry. Often, the definitions in an agreement are far more important than the license grant and royalty rate, combined. Unfortunately, a term like "gross receipts" can be defined within nested definitions to be anything but gross revenues.

Without a doubt, 7.5% of $6 billion is a lot more than $62,500. You don't need an accountant to calculate the zeroes left off the amount paid. However, the motion picture industry, the music business, the theatre and the publishing industry are well known for a history of creative accounting. It is no laughing matter when an artist or writer learns that he or she owes money to the producer or publisher, rather than the other way around. Box office receipts are only a fraction of the total take of a blockbuster movie. Often, box office receipts may barely cover production, talent, distribution and marketing costs. It is easy for a studio to show a net loss compared only to box office receipts. When it comes time to divvy up the profits, somehow, even the biggest blockbuster at the box office finds a way to fizzle on its balance sheets.

With a project like The Lord of The Rings, the estate of the copyright owner could have required minimum amounts paid annually for the exclusive rights (expecting production delays) in addition to any future royalties. The revenue basis should not have been limited to box office receipts. Licensor will want the basis to be gross revenues and to have gross revenues defined as broadly as possible to capture every source of revenue, including toys, games, broadcast rights, foreign rights, advertising rights and cross-marketing. In short, every source of revenue, whether cash or a cash equivalent, should be included as revenue. Audit rights should be included, which provides a look at the books without resorting to litigation, and a single entity should be required to maintain a single set of books. Likewise, deductions from the gross revenue should be as limited as possible, if any. This would put the copyright holder in first place ahead of talent, composers, investors, producers, directors, family and friends of the producers and "others who are owed money for past productions that failed to even cover production costs that the producers feel ethically or morally compelled to compensate using someone else's money." (The money must be going somewhere!) You get the picture. Payroll can swell in big budget production. Even better, agree to take a smaller share of the gross revenue and save some money on your auditor’s bill. Finally, is a lump sum payment, made in advance, an advance on royalties or is it an advance payment in addition to any royalties paid later? So long as the advance is nonrefundable, why not take the money up front, if offered. But, don't count on seeing royalties any time soon. If the estate of J.R.R. Tolkien is going to court to try to collect its share of $6 billion, you can be sure that many other authors with less cachet are still waiting for their royalty checks. Find a good agent and a good attorney before you sign any agreement in the entertainment industry.