Alerts and Updates
Federal Circuit Alert
Summer 2006
Sales Under License Agreement with Limited Rights May Not Trigger Patent Exhaustion and Implied License Doctrines
LG Electronics, Inc. v. Bizcom Electronics, Inc., et al., 05-1261, 05-1262, 05-1263, 05-1264, 05-1302, 05-1303, 05-1304
In a July 7, 2006 decision, the Federal Circuit addressed the patent exhaustion and implied license doctrines in an appeal from a ruling by the District Court for the Northern District of California. Writing for the court, Circuit Judge Mayer considered the ramifications of a patent license that expressly required the licensee to put its customers on notice of the limited nature of its license. The Federal Circuit held that patented components sold to customers under a license agreement may be shielded from the implied license and patent exhaustion doctrines by setting forth in the license agreement the requirement that the licensee notify its customers that the original license is limited in nature.
Plaintiff LG Electronics, Inc. ("LGE") is the holder of several patents directed to the management of computer data by combining microprocessors and chipsets with additional components. LGE also holds rights to microprocessors and chipsets that it sells to Intel subject to a license agreement. Intel, in turn, is authorized to and did sell such microprocessors and chipsets to several companies that build computers ("Defendants"). While Intel informed Defendants that Intel was licensed to sell the microprocessors and chipsets, Intel also notified Defendants that Defendants were not authorized under Intel's license agreement with LGE to combine the microprocessors and chipsets with non-Intel products. LGE sued the Defendants alleging that the Defendants' combination of the microprocessors and chipsets manufactured by Intel with other computer components infringes LGE's patents covering the combinations. Defendants, in turn, argued that the sale of the licensed products from Intel to Defendants created an implied license with respect to the patents-in-suit. Defendants further argued that LGE's claims were barred by the patent exhaustion doctrine through the sale of the Intel-manufactured products.
The District Court held that LGE's claim for patent infringement was not barred by an implied license. On appeal, the Federal Circuit noted that, in order to prevail on an implied license argument, Defendants were required to establish that the products had no non-infringing uses and that the circumstances of the sale would plainly indicate that the grant of a license should be inferred. In affirming, the Federal Circuit observed that, regardless of any non-infringing uses that might be made of the Intel microprocessors and chipsets, Intel had expressly informed Defendants that Intel's license agreement with LGE did not extend to any of Defendants' products made by combining an Intel product with non-Intel products. In view of this express disclaimer, the Federal Circuit held, no license could be implied.
The Federal Circuit next turned to Defendants' argument that LGE's claims were barred by the patent exhaustion doctrine, which provides that an unconditional sale of a patented device exhausts the patentee's right to control the purchaser's subsequent use of the device. The District Court had agreed with Defendants that the sales of Intel's microprocessors and chipsets were unconditional. The District Court reasoned that, while LGE was entitled to impose conditions on the sale of the Intel microprocessors and chipsets, LGE had not done so in this case. Specifically, the District Court found compelling that Defendants' purchase of the microprocessors and chipsets was "in no way conditioned on their agreement not to combine the Intel microprocessors and chipsets with other non-Intel parts and then sell the resultant products." The Federal Circuit disagreed with the District Court's holding and noted that the LGE-Intel license expressly prohibited Intel's customers from combining Intel's licensed parts with non-Intel components. Additionally, the LGE-Intel license required Intel to notify its customers of the limited scope of the license, which it did. Accordingly, the Federal Circuit concluded that LGE's rights in asserting infringement of its claims were not exhausted.
For the full opinion, see: http://fedcir.gov/opinions/05-1261.pdf
Federal Circuit Declines to Construe Claims in Absence of Record Concerning the Accused Product
Wilson Sporting Goods Company v. Hillerich & Bradsby Co., 05-1103
In an appeal of a claim construction ruling devoid of any record regarding the accused product, the Federal Circuit appears to have departed from the general rule that the accused product is not relevant to the construction of claim terms. Writing for a unanimous court, Circuit Judge Rader vacated and remanded the case for further analysis of the disputed claim construction terms in U.S. Patent No. 5,415,398 (the "'398 Patent"), which is directed to a softball bat that incorporates interior structural members to improve its impact response. Plaintiff Wilson Sporting Goods appealed a ruling by the District Court for the Northern District of Illinois after entry of a stipulated Rule 54 judgment dismissing the infringement claims with prejudice following the claim construction ruling. Through this posture, the case was on review with respect only to the District Court's claim constructions and without the benefit of a record setting forth the attributes of the accused product.
The Federal Circuit began its analysis by recognizing that patent infringement analysis involves a two-step process set forth by the Supreme Court in Markman v. Westview Instruments, Inc. in which the claims are first construed as a matter of law and then the properly construed claims are compared to the accused process or product. However, in refusing to consider an appeal of the claim construction ruling, the Federal Circuit noted that despite entry of a final judgment, neither the trial court nor the parties supplied the appeal court with any information about the accused products, including how the asserted claims were applied to the accused product.
Without the benefit of any evidence of the accused product, the Federal Circuit found the sparse record lacked the "complete context for accurate claim construction" and declined to render a ruling. Rather, Circuit Judge Rader found the appeal "assumes many attributes of a proceeding seeking an advisory opinion on the scope of the '398 patent." In so ruling, the Federal Circuit indicated its reluctance to consider an appeal of a claim construction ruling in the absence of a record regarding the allegedly infringing process or product. In a subsequent case, Lava Trading, Inc. v. Sonic Trading Management, LLC, 05-1177 (Fed. Cir. April 19, 2006), the Federal Circuit reached the same conclusion, stating "[w]ithout knowledge of the accused products, this court cannot assess the accuracy of the infringement judgment under review and lacks a proper context for an accurate claim construction."
It appears the Federal Circuit now requires asserted claims to be "construed in the context of the accused device," while still maintaining the claim construction rule that "claims may not be construed with reference to the accused product." In explaining this distinction, the Federal Circuit admonishes that a court may not use the accused product or process "as a form of extrinsic evidence to supply limitations for patent claim language," but now emphasizes that knowledge of the accused product or process "provides meaningful context" for the claim construction analysis. While the Federal Circuit declined to undertake a full review of the District Court's claim constructions in view of the sparse record, the appeals court did discuss the disputed claim terms in an effort to "guide" the District Court. However, the Federal Circuit has not elaborated on the extent to which the "context" of the accused device must be incorporated into the claim construction analysis. As a result, practitioners will have to await further guidance from the Federal Circuit on how much of a record must be developed on the accused infringing process or product to provide the appropriate context for claim construction purposes.
For the full opinion, see: http://fedcir.gov/opinions/05-1103.pdf
Federal Circuit Elaborates On "Printed Publication" Requirement for Prior Art Under 35 U.S.C. § 102(b)
Bruckelmyer v. Ground Heaters, Inc., et al., 05-1412
In an April 20, 2006 decision affirming the Minnesota District Court's grant of summary judgment of invalidity, the Federal Circuit addressed the issue of what constitutes a "printed publication" sufficient to serve as invalidating prior art. Writing for the Court, Circuit Judge Lourie found that a set of drawings that were part of a foreign patent application but were not ultimately included in the issued patent could constitute a "printed publication" for purposes of 35 U.S.C. § 102(b).
The plaintiff is the inventor and owner of two patents directed to a method for thawing frozen ground so that a layer of concrete can be laid on top of the ground. At issue was the question of whether the asserted patents were invalid in view of drawings contained in a Canadian patent application, but not the Canadian patent that ultimately issued. Similar to the asserted patents, the prior art Canadian patent disclosed a method for laying concrete in cold weather in pre-constructed structures by having preheated liquid flow through flexible hoses in the structures. The Canadian patent further disclosed that "other typical uses" included thawing frozen ground. The Canadian patent does not, however, include two drawings that were contained in the patent application that ultimately issued as the Canadian patent and that specifically illustrate the use of a heating system to thaw frozen ground. Although the drawings were not in the issued patent because they were cancelled during prosecution, the Federal Circuit noted that the drawings "still remain" in the Canadian patent's file wrapper.
At the District Court, the defendants argued that the figures in the Canadian patent application would render the plaintiff's patents invalid if the Canadian patent application as filed was considered to be a "printed publication" under 35 U.S.C. § 102(b). The District Court found that the Canadian patent application was a "printed publication," and the plaintiff filed a stipulation conceding that the drawings rendered the claims of the asserted patents invalid on the ground of obviousness.
The single legal issue on appeal before the Federal Circuit was whether the two figures in the Canadian application constitute "printed publications" within the meaning of § 102(b). The plaintiff argued that for a reference to constitute a "printed publication," it must be "publicly accessible," and the drawings were not "publicly accessible" because the Canadian application was neither indexed nor catalogued and because persons of ordinary skill in the art would not have been guided to locate the drawings at issue because they were "removed" from the application during prosecution.
The Federal Circuit concluded that the drawings in the Canadian patent application were "publicly accessible" and, therefore, constituted a "printed publication" within the meaning of 35 U.S.C. § 102(b), since a person of ordinary skill in the art interested in the subject matter of the asserted patents and exercising reasonable diligence would have been able to locate the Canadian application. Specifically, the Federal Circuit noted that the published Canadian patent served as a "roadmap" to finding the cancelled drawings from the Canadian patent application since it disclosed the same use contemplated by the method claims in the asserted patents. Given the pertinence of the Canadian patent, the Federal Circuit held that a person of ordinary skill in the art exercising reasonable diligence would have located the Canadian application and the relevant drawings. In so ruling, the Court rejected the plaintiff's argument that the Canadian patent application itself was not "catalogued or indexed" because the Canadian patent was indexed and could serve as a "research aid." The Federal Circuit found equally unpersuasive plaintiff's argument that the drawings were "removed" from the Canadian application during prosecution since the drawings were never physically "removed" from the file, but were merely "cancelled" and were always part of the patent application.
For the full opinion, see: http://fedcir.gov/opinions/05-1412.pdf
Federal Circuit Emphasizes Importance of Specification in Defining Limits on Construction of Claim Terms
On Demand Machine Corp. v. Ingram Indus., Inc., et al., 05-1074, 05-1075, 05-1100
In a March 31, 2006 decision, the Federal Circuit reversed the District Court for the Eastern District of Missouri's holding of patent infringement upon concluding that the jury verdict was based on an incorrect claim construction. Writing for a unanimous panel of the Federal Circuit, Circuit Judge Newman found the District Court's construction of the term "customer" was in error and inconsistent with the Federal Circuit's emphasis in the recent en banc Phillips decision on the "dominance of the specification in understanding the scope and defining the limits of the terms used in the claim."
Plaintiff On Demand Machine is the holder of U.S. Patent No. 5,465,213, titled "System and Method of Manufacturing a Single Book Copy" (the "'213 Patent"). The '213 Patent is directed to a system for printing and binding a single copy of a book based on the selection of a customer after reviewing computer-stored promotional and sales information about the book. According to the claimed invention, a customer can browse information regarding books on a computer, select a book, inspect the text and then have the book printed and bound. Defendant Lightning Source, a subsidiary of defendant Ingram Industries, permits purchasers to order books through its Web site, and the turnaround time from order until delivery ranges from one to fifteen days. Defendant Amazon.com does not print books but does order single or multiple copies of books from Lightning Source to fill orders from customers at Amazon.com's Web site.
The key issue on appeal was the construction of the claim term "customer." According to the asserted method claim of the '213 Patent, this disputed claim term is in the steps: "providing means for a customer to visually review said sales information," and "commanding a computer to print the text of a selected one of said books in response to a customer's selection." The District Court construed the claim term "customer" to mean anyone "who buys goods or services." In rejecting the defendants' argument that the term is limited to "direct retail customer sales," the District Court instructed the jury that "[t]he word 'customer' is 'one who buys goods or services' and, is not limited to a retail customer." On appeal, the defendants argued that the Missouri District Court's construction placed too much weight on a dictionary definition that was out of context and that the construction was broader than the specification of the '213 Patent because the entire focus of the invention is that the "customer" is the person who orders and immediately receives the printed-to-order book.
In agreeing with the defendants' focus on the specification, the Federal Circuit cited its en banc Phillips v. AWH Corp. decision, the current seminal case on claim construction, to explain that the role of the specification is to describe and enable the invention and, "[i]n turn, the claims cannot be of broader scope than the invention that is set forth in the specification." The Federal Court found that the focus of the '213 Patent is "immediate single-copy printing and binding initiated by the customer and conducted on the customer's site," thus the Federal Circuit rejected the District Court's construction as "eliminating the constraints" of the specification. The Federal Court cautioned that "[c]are must be taken lest word-by-word definition, removed from the context of the invention, leads to an overall result that departs significantly from the patented invention."
Finally, with respect to plaintiff's contention that Lightning Source and Amazon could be jointly liable for infringing a method claim, the District Court instructed the jury that "[w]hen infringement results from the participation and combined action(s) of more than one person or entity, they are all joint infringers and jointly liable for patent infringement." In dicta, the Federal Circuit stated "[w]e discern no flaw in this instruction as a statement of law" and perhaps provided a preview of how the court will address the pending matter of Freedom Wireless, Inc. v. Boston Communications Group, Inc., 06-1020, in which the Federal Circuit is expected to substantively address the theory of joint infringement.
For the full opinion, see: http://fedcir.gov/opinions/05-1074.pdf
Supreme Court to Review the "Suggestion-Teaching-Motivation" Test for Obviousness
KSR Int'l Co. v. Teleflex, Inc. et al., 04-1350
In a case that likely will have far-reaching implications for patent law, on June 26, 2006, the U.S. Supreme Court agreed to review the standard for when a claimed invention can be found obvious and, therefore, invalid under 35 U.S.C. § 103(b). The specific issue the Court will address is whether a claimed invention can be obvious "in the absence of some proven 'teaching, suggestion, or motivation' that would have led a person of ordinary skill in the art to combine the relevant prior art teachings in the manner claimed."
The "suggestion-teaching-motivation" test is a key requirement for establishing obviousness as applied by the Federal Circuit. As articulated in the Federal Circuit's decision on January 6, 2005 in Teleflex, Inc., et al. v. KSR Int'l Co. (04-1152): "When obviousness is based on the teachings of multiple prior art references, the movant must also establish some 'suggestion, teaching, or motivation' that would have led a person of ordinary skill in the art to combine the relevant prior art teachings in the manner claimed." However, the Supreme Court has never addressed the "teaching, suggestion, or motivation" test and has not reviewed the standard for obviousness since the seminal case Graham v. John Deere Co., 383 U.S. 1, in 1966. Oral argument is expected in the fall and a decision in late 2006 or early 2007.
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