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29 July 2016Copyright

US Supreme Court: three IP decisions and their likely impact

Halo v Pulse/Stryker v Zimmer

The first in a series of decisions by the US Supreme Court was the Halo v Pulse and Stryker v Zimmer combined cases.

The decision was announced on June 13 and the court decided to relax the US Court of Appeals for the Federal Circuit’s test for awarding enhanced damages in patent cases.

Halo and Stryker were both seeking a ruling from the Supreme Court after the Federal Circuit’s decision to deny them enhanced damages. The Federal Circuit rejected the claims based on its two-part test for determining whether infringement has been wilful. Under the two-part system, courts first assess whether a patentee can show by “clear and convincing” evidence that an infringer’s actions are objectively unreasonable.

Once answered in the affirmative, the court conducts a de novo review of the infringer’s defence. If the defence is deemed insufficient, the damages award can be tripled. Halo and Stryker said that the test is too rigid.

The Supreme Court unanimously found that the standard is “unduly rigid, and … impermissibly encumbers the statutory grant of discretion to district courts”, which can award enhanced damages where appropriate.

Michael Hawes, partner at law firm Baker Botts, says that the decision “was not a clear cut victory for patentees”.

He says that while the Supreme Court removed one requirement for enhanced damages, known as the objective prong, and took away the ability for defendants to rely on defences only developed for trial, it emphasised the high bar required for the other requirement, known as the subjective prong.

Michael Sandonato, partner at law firm Fitzpatrick, Cella, Harper & Scinto, adds: “With the elimination of the ‘objectively reckless’ prong and the increased focus on the accused infringer’s state of mind, wilful infringement assertions should become far more susceptible to being disposed of on summary judgment.

“In the short time since the Halo decision, we have already seen a magistrate judge in the Eastern District of Texas vacate a pre-Halo grant of summary judgment of no wilfulness in Transdata v Denton Municipal Electric.”

Sandonato continues: “I think that we will see the question go to the jury more often. And with the burden of proof changed to a preponderance of the evidence, it should logically flow that juries will render wilfulness findings more frequently.

“But bear in mind that the jury’s finding is not binding, in the sense that the court has ultimate discretion on the wilfulness and enhanced damages questions, subject only to review by the appellate court under the abuse of discretion standard.”

Jose Patino, patent litigator at law firm Foley & Lardner, told WIPR at the time: “The same ‘ingenious attorneys’ who were helping alleged infringers defend against charges of wilful infringement will now turn their attention to highlighting the lack of typicality of the conduct, and the reasons the conduct is not egregious.

“What is more, as is noted in the concurring opinion, the same Federal Circuit that attempted to provide some structure for the application of the discretion afforded by section 284 will still be responsible for ensuring that the trial court’s discretion is not abused,” he added.

Kirtsaeng v John Wiley

On June 16, the Supreme Court announced a decision that sets rules for attorneys’ fees in copyright cases.

The case, called Kirtsaeng v John Wiley, centres on an earlier Supreme Court ruling that saw Supap Kirtsaeng, a student from Cornell University, cleared of copyright infringement under the first sale doctrine.

Kirtsaeng had been re-selling copies of John Wiley-published books on eBay that his relatives had bought at reduced prices abroad.

The dispute went all the way up to the Supreme Court after both the US District Court for the Southern District of New York and the US Court of Appeals for the Second Circuit found in favour of John Wiley.

When the dispute returned to the Second Circuit, Kirtsaeng’s request for attorneys’ fees was rejected on the grounds that Wiley’s copyright claim was “objectively reasonable”.

In April, Kirtsaeng filed a writ of certiorari to the Supreme Court and argued that if the case was litigated in other federal appeals courts, his claim for attorneys’ fees would have succeeded.

The Supreme Court unanimously found that “we vacate the decision ... so that the district court can take another look at Kirtsaeng’s fee application”.

It also clarified when judges should award attorneys’ fees in copyright cases, saying: “Although objective reasonableness carries significant weight, courts must view all the circumstances of a case on their own terms, in light of the Copyright Act’s essential goals.”

It added: “While the Second Circuit properly calls for district courts to give ‘substantial weight’ to the reasonableness of a losing party’s litigating positions, its language at times suggests that a finding of reasonableness raises a presumption against granting fees, and that goes too far in cabining the district court’s analysis.”

"Kirtsaeng’s request for attorneys’ fees was rejected on the grounds that Wiley’s copyright claim was 'objectively reasonable'."

Dale Cendali, partner at law firm Kirkland & Ellis, tells WIPR: “The Supreme Court in Wiley clarified the test for fee awards in copyright cases by endorsing Wiley’s position that an objectively reasonable test is more in keeping with the purposes of copyright law over Kirtsaeng’s argument in favour of rewarding those who attempt to advance changes to the law.

“As a practical matter, the decision aids copyright lawyers as it gives nationwide clarity as to the appropriate test. It also should give comfort to lawyers and their clients that they should not be at risk of a fee-shifting award if they are taking reasonable positions based on existing law and do not otherwise engage in some form of litigation misconduct,” she adds.

Theodore Davis Junior, partner at law firm Kilpatrick Townsend & Stockton, tells WIPR that the Supreme Court, which addressed the rules governing attorneys’ fees under section 205 of the Copyright Act, adopted an approach similar to its application of section 285 of the Patent Act in Octane Fitness v Icon Health & Fitness at the Supreme Court in 2014. He adds that “although the salient language of the two statutes differs, the court in each case loosened the rules governing awards of attorney’s fees to prevailing defendants”.

“In doing so, the court eschewed a narrow focus on the objective reasonableness or unreasonableness of a losing plaintiff’s position in favour of more holistic analyses capable of considering a pattern of over-aggressive claims of infringement (per Kirtsaeng),” he adds.

“Taken together, the opinions are evidence the court continues to view the IP playing field as slanted toward plaintiffs.”

Cuozzo Speed Technologies v Lee

The Cuozzo Speed Technologies v Lee case centres on the claim construction standard that the Patent Trial and Appeal Board (PTAB) applies during the inter partes review (IPR) process.

The dispute started in 2012 after Cuozzo’s rival Garmin International challenged the validity of Cuozzo’s patent, US number 6,778,074, by requesting an IPR at the PTAB.

After construing the claims asserted in the patent using its broadest reasonable interpretation (BRI) standard, the PTAB invalidated it in 2013 on the grounds that it was obvious.

In January this year, the court granted a writ of certiorari filed by Cuozzo that challenged the earlier PTAB decision to invalidate the patent, which covers a speedometer.

Then in February, the Federal Circuit rejected Cuozzo’s challenge against the PTAB’s ruling and, five months later, a divided Federal Circuit rejected an en banc hearing of the case.

The US Supreme Court’s decision, handed down on June 20, said it was reasonable for the PTAB to use the BRI standard when assessing patent claims. The court also held that decisions to institute IPRs cannot be appealed.

Writing the majority opinion, Justice Stephen Breyer said: “The Patent Office uses the broadest reasonable construction standard in other proceedings, including interference proceedings, which may implicate patents that are later reviewed in district court.”

He added that the statute gives the US Patent and Trademark Office the power to consolidate these other proceedings with IPRs.

“To try to create uniformity of standards would consequently prove difficult. And we cannot find unreasonable the … decision to prefer a degree of inconsistency in the standards used between the courts and the agency, rather than among agency proceedings,” he added.

Dissenting in part, Justice Samuel Alito said: “I would vacate the Federal Circuit’s judgment and remand for that court to consider whether the Patent Office exceeded its authority to institute inter partes review with respect to claims 10 and 14 of Cuozzo’s patent. With respect to claim 17, I agree with the court that the judgment ... must be affirmed.”

Naveen Modi, partner at law firm Paul Hastings, tells WIPR: “The court definitively held that—unless modified by the PTAB or by Congress—the BRI applies to IPR proceedings. In the aftermath of this clear guidance, it is now for the PTAB and the federal courts to determine how to reconcile in practice two parallel sets of proceedings that apply different standards.”

Bradley Olson, partner at law firm Barnes & Thornburg, says: “The Cuozzo opinion will place a higher burden on all patentees who intend to attempt to enforce their patent rights and find themselves defending that same patent in an IPR procedure.

“Going forward, it will be much more difficult for patentees to maintain meaningful patent claim scope in view of the application of the BRI standard in IPR proceedings,” he adds.

The next term

For the next Supreme Court term, there are at least two IP cases pending: SCA Hygiene v First Quality and Apple v Samsung.

The SCA Hygiene dispute centres on the laches defence for patent cases. In September last year, WIPR reported that the Federal Circuit ruled en banc that the defence does apply to patent cases.

In May this year, it was reported that the Supreme Court would review SCA Hygiene’s writ of certiorari, with a hearing likely in the autumn.

A hotly awaited case also due at the Supreme Court is Apple v Samsung. In March this year, the Supreme Court accepted Samsung’s petition to hear its patent dispute with Apple.

The case centres on claims made by Apple that Samsung infringed three of its patents. Apple was awarded $399 million in damages by the Federal Circuit last year.

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