S&C International Property and Technology

En Banc Federal Circuit Affirms That Computer-Implemented Escrow Method Is Not Patent Eligible, But Splits On Applicable Test: Majority Holds That Claims to Escrow Method Are Not Patentable; Equally Divided Court Affirms District Court Holding That Computer System Programmed to Carry Out Method Also Is Not Patent Eligible

Sullivan & Cromwell LLP — Mon, 13 May 2013 20:00:00 GMT

The patentability of computer-implemented business methods recently has been called into question by a number of decisions regarding the nature of patentable subject matter under 35 U.S.C. § 101. Last Friday, the en banc Federal Circuit Court of Appeals issued its long-awaited decision in CLS Bank v. Alice Corp., addressing the patentability of certain method, computer system and computer-readable media claims directed to an escrow methodology for reducing transaction risk. At issue were the interpretation and application of the judicially-created exceptions that bar patenting subject matter that would otherwise be patentable under Section 101—specifically, the exception that bars patenting “abstract ideas.” Unfortunately, the five separate opinions issued by the Court do not provide greater clarity in an area of patent law that many already viewed as uncertain and confused. Because only a minority of active judges on the court agreed on a single rationale for the result, the lower courts are left without clear guidance. A majority of the court held that the asserted method and computer-readable media claims were not directed to patent eligible subject matter, but split on the reasoning for that result. The district court’s ruling that the system claims also were not patent eligible was affirmed by equally divided court.

In the lead opinion written by Judge Lourie, five judges held that both the method and computer-readable media claims were not patent eligible because they did not add sufficient substance—“human ingenuity”—to the abstract escrow concept. Two other judges agreed that those claims were directed to an unpatentable abstract idea, but disagreed with the legal analysis in the five-judge opinion. This second concurring opinion ruled that the claims were unpatentable only because the claims added nothing other than a means to implement the unpatentable abstract idea.

An equally divided court affirmed the district court’s holding that the asserted system claims were not patent eligible. The five-judge lead opinion held that generic hardware (“computer” and “data storage system”) limitations in the system claims of the patents did not sufficiently limit the unpatentable abstract idea. Chief Judge Rader, writing for himself and three other judges, found the system claims were patent eligible, and not abstract, because they were directed to a computer and other hardware specifically programmed to solve a complex problem. Finally, Judge Newman, adding a fifth vote in favor of the patent owner, found that the system claims (as well as the method and computer-readable media claims) were patent eligible under the express language of Section 101 and suggested that the court reject altogether the judicially-created “abstract idea” exception to statutory subject matter patentability.

Royalty Rates for Standard-Essential Patents: District Court Determines “RAND” Royalty Rate for Motorola Patents Using a Modified Georgia-Pacific Analysis Looking to Comparable Standard-Essential Patent Pool License Agreements

Sullivan & Cromwell LLP — Mon, 29 Apr 2013 20:00:00 GMT

Many patents that are essential to a technological standard — so-called “standard-essential patents” — are subject to a commitment that they be licensed on “reasonable and non-discriminatory” (“RAND”) terms. Last week, in the first decision of its kind, a district court in Microsoft Corp. v. Motorola, Inc., determined a RAND royalty rate for two of Motorola’s (now Motorola Mobility) standard-essential patent portfolios. The court set out a methodology based on the widely used Georgia Pacific factors modified to account for the nature of Motorola’s RAND commitments and the importance of its patents to the standards and to Microsoft’s implementation of the standards. Finding that the most relevant comparable royalty rates were found in patent pool licenses for the same standards, the court concluded that a fixed per-unit royalty rate was more appropriate than the percentage-of-selling-price rate offered by Motorola — and that the amount of the RAND royalty was substantially less than 1% of the rate that Motorola had originally sought. The decision sets the stage for a trial on Microsoft’s claim that Motorola’s original royalty offer was not made in good faith, and thus constituted a breach of Motorola’s RAND commitment.

Law Seminars International

Thu, 25 Apr 2013 08:00:00 GMT

ABA Antirust Law Spring Meeting

Thu, 11 Apr 2013 08:00:00 GMT

PLI's Seminar on Developments in Pharmaceutical and Biotech Patent Law 2013

Mon, 01 Apr 2013 08:00:00 GMT

Stephen Elliott Authors Article in New York Law Journal

Sullivan & Cromwell LLP — Sun, 17 Mar 2013 20:00:00 GMT

On March 14, New York Law Journal published the article, “Injunctions, Standard Essential Patents and F/RAND,” authored by Mr. Elliott. The article explores the availability of injunctions to prohibit infringement of standard essential patents and examines recent decisions by courts and regulators in both the United States and Europe. Click here to read the full article.

Garrard Beeney Elected to Law360’s Intellectual Property Editorial Advisory Board

Sullivan & Cromwell LLP — Mon, 18 Feb 2013 19:00:00 GMT

Mr. Beeney was named a member of the newly formed Law360 2013 Intellectual Property Editorial Advisory Board. The purpose of the board is to provide feedback on Law360’s intellectual property news coverage.

District Court Dismisses Claims Based on a Non-Practicing Entity’s Allegedly Fraudulent Efforts to Enforce Its Patents: Court Grants NPE’s Motion to Dismiss RICO, Unfair Competition and Tort Claims After Finding Complaint Allegations Failed to Support Sham Exception to Noerr-Pennington Doctrine

Sullivan & Cromwell LLP — Thu, 07 Feb 2013 19:00:00 GMT

The effort to address IP litigation brought by non-practicing entities (“NPEs”) has markedly increased over the last several months. In addition to seminars held by U.S. regulatory authorities and discussions about the use of competition laws to address certain NPE practices (see more on this below), private litigants have responded to infringement allegations by asserting claims and counterclaims against NPEs based in tort, contract law and other theories. In the most recent judicial decision in the area, a district court rejected at the pleading stage claims that an NPE had fraudulently asserted its patents in violation of several laws. The district court held that a widespread notice letter campaign and subsequent litigation by the NPE was protected activity and fell within the right to petition the government. The court did suggest, however, how such tort and other claims could successfully be pleaded against the NPE providing there was a basis to plead the underlying requisite facts.

In Cisco Systems, Inc. et al v. Innovatio IP Ventures, LLC., manufacturers of IEEE standard-compliant Wi-Fi equipment filed actions against an NPE, Innovatio, alleging that Innovatio’s efforts to enforce its patents against the manufacturers’ customers, including 8,000 pre-suit demand letters, were fraudulent, based on material misrepresentations and omissions in the demand letters, and inconsistent with Innovatio’s contractual commitment to license its patents on reasonable and non-discriminatory (“RAND”) terms. The manufacturers asserted RICO (a U.S. statute addressing certain acts of “racketeering”), unfair competition, civil conspiracy, tortious interference and unclean hands claims (collectively, the “tort claims”), as well as claims for breach of contract and promissory estoppel (the “contract claims”).

In the first decision to consider such tort claims, the United States District Court for the Northern District of Illinois granted Innovatio’s motion to dismiss those claims. Applying the Noerr-Pennington doctrine protecting the right to petition the government (including through litigation) to bar the tort claims, the district court held that plaintiffs failed to provide allegations sufficient to support the sham exception to that doctrine. The court did not dismiss the contract claims, however, holding that plaintiffs sufficiently alleged that Innovatio had breached its RAND commitment. Those contract claims will now proceed to the discovery stage.

Supreme Court Holds Covenant Not to Sue Can Moot Challenge to Trademark: Court Places Burden on Trademark Owner to Establish that Covenant Not to Sue Eliminates Any Case or Controversy

Sullivan & Cromwell LLP — Wed, 09 Jan 2013 19:00:00 GMT

In Already, LLC v. Nike, Inc., the Supreme Court affirmed a decision of the Second Circuit Court of Appeals, holding that a covenant not to sue provided by the mark owner in a trademark infringement action can render moot a counterclaim challenging the validity of the mark. In a unanimous opinion written by Chief Justice Roberts, the Court placed the burden on the mark owner to show that the covenant not to sue will eliminate any case or controversy between the parties by establishing that, as a result of the covenant, the mark owner “could not reasonably be expected to resume its enforcement activities against the accused infringer.”

The Already decision provides further support for a strategy sometimes employed by intellectual property owners to seek enforcement of their IP rights knowing that they later can avoid litigation expenses and the risks associated with challenges to the validity of their trademarks or patents if they are willing to cease any claims against the target of the enforcement action.

Executive Enterprise Institute’s Program on Best Practices in Due Diligence

Mon, 03 Dec 2012 07:00:00 GMT

**Federal Circuit Permits Purchasers to Assert Walker Process Antitrust Claims Even When Not Threatened With a Patent Infringement Action**: The Federal Circuit Concludes That a Party Asserting a Walker Process Antitrust Claim, Which Is Premised on Obtaining a Patent by Fraud, Need Not Have Standing to Challenge the Validity of the Patent

Sullivan & Cromwell LLP — Mon, 26 Nov 2012 19:00:00 GMT

On November 20, 2012, a three-judge panel of the U.S. Court of Appeals for the Federal Circuit issued an opinion in Ritz Camera & Image, LLC v. SanDisk Corp., addressing, for the first time, the issue of whether a direct purchaser of goods has standing to bring a Walker Process antitrust claim even where the purchaser “faces no threat of an action for patent infringement and has no other basis to seek a declaratory judgment holding the patent invalid or unenforceable.” A Walker Process antitrust claim requires a plaintiff to prove (i) that the defendant procured the patent through “knowing and willful fraud on the” U.S. Patent and Trademark Office (“PTO”), and (ii) all elements of a Sherman Act monopolization charge. Although these claims are often brought in response to an actual or potential claim of patent infringement, the Federal Circuit in Ritz held that “a direct purchaser is not categorically precluded from bringing a Walker Process antitrust claim, even if it would not be entitled to seek declaratory relief against the patentee under the patent laws.” As a result, patent-holders may be sued by any number of parties who can allege that they paid inflated prices for goods protected by patents.

Ninth Circuit Affirms Preliminary Injunction Against Enforcement of German Patent Injunction Based on RAND Commitment: Relying on Motorola’s Commitment to License Its Worldwide Patents on RAND Terms, the Court of Appeals Upheld a Preliminary Injunction Barring Enforcement of a German Court’s Injunction Against the Continued Infringement by Microsoft of Motorola’s German Patents

Sullivan & Cromwell LLP — Mon, 01 Oct 2012 20:00:00 GMT

In Microsoft Corp. v. Motorola, Inc. (9th Cir. Sept. 28, 2012), a unanimous panel of the Court of Appeals for the Ninth Circuit (Circuit Judges Wallace, Thomas and Berzon) upheld a preliminary injunction barring Motorola from enforcing (by posting a security bond) a patent infringement injunction entered by a German court; the injunction would have prohibited Microsoft from offering or supplying key products in Germany. The Ninth Circuit found that Motorola’s promise to a standard-setting organization to license its standard-essential patents on reasonable and non-discriminatory (“RAND”) terms created a contract enforceable by Microsoft as a third-party beneficiary. The Ninth Circuit further determined that the district court properly prohibited Motorola from enforcing the German court’s injunction because resolution of whether Motorola had breached its RAND commitment would resolve the German litigation, and because Motorola was not permitted to compromise the U.S. district court’s ability to decide the breach question by putting pressure on Microsoft to settle based on the German injunction.

The Microsoft decision may give a potential licensee or accused infringer of standards-essential patents a new tactic that could be used to avoid the entry of an injunction in a foreign patent action.

International Bar Association’s Annual Conference

Sun, 30 Sep 2012 08:00:00 GMT

**Federal Circuit, En Banc, Loosens Rules For Proving Infringement by Multiple Parties**: Overturning Prior Panel Precedent, Court Holds That Inducement Liability for Method Patent Claims May Be Predicated on Conduct by Multiple Parties Who Collectively Perform the Method Steps, Without a Showing of “Direction or Control” by One Party

Sullivan & Cromwell LLP — Mon, 03 Sep 2012 20:00:00 GMT

In the combined appeal in Akamai Techs., Inc. v. Limelight Networks, Inc. and McKesson Techs., Inc. v. Epic Sys. Corp. (Fed. Cir. August 31, 2012), a 6-5 en banc majority of the United States Court of Appeals for the Federal Circuit held that proving infringement by inducement of a method patent no longer would require proof that a single entity directly infringed that patent. The court held that a defendant may be liable for inducing infringement where the defendant has induced other parties to perform the steps of the claimed method, even if no single party has performed all of those steps. In reaching that conclusion, the court overruled a prior panel decision, in BMC Resources Inc. v. Paymentech, L.P., 498 F.3d 1373, 1379 (Fed. Cir. 2007), which held that liability for inducing infringement required, as a predicate, a finding of direct infringement by a single entity.

Federal Circuit Reaffirms Prior Decision: Isolated Human DNA Patentable: Federal Circuit Panel Decides That Its Previous Ruling Is Unaffected by Subsequent Supreme Court Opinion

Sullivan & Cromwell LLP — Sun, 19 Aug 2012 20:00:00 GMT

On August 16, 2012, a divided three-judge panel of the United States Court of Appeals for the Federal Circuit held for the second time that isolated DNA molecules are patentable subject matter under § 101 of the Patent Act. The opinion reaffirms the Federal Circuit’s previous holding in the same matter, after the Supreme Court had vacated the initial opinion and remanded for further consideration in light of the Supreme Court’s decision in Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (March 20, 2012) (“Mayo”). The Federal Circuit case concerns the patent eligibility of isolated human genes called BRCA1 and BRCA2, mutations of which are associated with a predisposition to breast and ovarian cancer.

Third Circuit Holds Reverse Payment Settlements Subject to "Quick-Look" Antitrust Scrutiny: Court Rejects “Scope of the Patent” Test Used In Three Other Circuits, Preparing Way for Supreme Court Review

Sullivan & Cromwell LLP — Tue, 17 Jul 2012 20:00:00 GMT

In In re: K-Dur Antitrust Litig., No. 10-2078 (3d Cir. July 16, 2012), the United States Court of Appeals for the Third Circuit considered patent litigation settlement agreements between patent owner Schering and two generic manufacturers. Those settlements involved substantial payments by Schering to the generics in exchange for, inter alia, delayed entry of generic products that would compete with Schering’s K-Dur® sustained release potassium. Such agreements, which have been associated with Hatch-Waxman patent litigation, are known as “reverse-payment” or “pay-for-delay” settlements. The Second, Eleventh and Federal Circuits have held that reverse-payment settlements are not prohibited by the antitrust laws, so long as competition is restrained only within the scope of the patent’s coverage and there is no evidence that the patent was procured by fraud or that the enforcement suit was objectively baseless. However, reverse-payment settlements continue to be a target of FTC scrutiny and enforcement efforts.

In K-Dur, the Third Circuit rejected the “scope of the patent test” as inconsistent with Supreme Court precedent and the policies underlying the Hatch-Waxman Act. It held that reverse-payment settlements should instead be subject to “quick-look” rule of reason antitrust scrutiny. Specifically, it found that a court must treat any payment from the patent holder to the generic as prima facie evidence of an unreasonable restraint of trade. The presumption that a settlement including a reverse payment is illegal can be rebutted only by showing that the payment (1) was for a purpose other than delayed entry, or (2) offers some pro-competitive benefit. The stark conflict between the Third Circuit and other courts of appeal means that the appropriate antitrust treatment of reverse-payment settlements in Hatch-Waxman patent litigation may now be considered by the Supreme Court.

Garrard Beeney and Nader Mousavi Recognized Among World’s Leading Patent Practitioners

Sullivan & Cromwell LLP — Sun, 15 Jul 2012 20:00:00 GMT

In July 2012, Mr. Beeney and Mr. Mousavi were recognized in Intellectual Asset Management’s The World’s Leading Patent Practitioners. Mr. Mousavi was recommended in the field of licensing, and was described as “a greatly respected expert on IP transaction. ‘He is extremely intelligent and is a fantastic discussion partner on thorny legal issues.’” Mr. Beeney was recommended in litigation and licensing. He was recognized as “‘one of the best in the business,’” as well as “‘a fine litigator with sound judgment and strong pragmatic instincts.’ Peers confide that ‘when there is something you can’t do, you send it to him.’ Primarily a trial lawyer, he is also esteemed for his licensing savvy.”

S&C Recognized by Southern California Super Lawyers

Sullivan & Cromwell LLP — Thu, 05 Jul 2012 20:00:00 GMT

Southern California Super Lawyers recently recognized seven lawyers in the Firm’s Los Angeles office as top lawyers in southern California. Five lawyers were recognized as Super Lawyers in their respective practice areas:

Patrick Brown (Mergers and Acquisitions, Securities and Corporate Finance)
Eric Krautheimer (Mergers and Acquisitions)
Alison Ressler (Mergers and Acquisitions, Securities and Corporate Finance, Corporate Governance and Compliance)
Bob Sacks (Securities Litigation, Business Litigation, Antitrust Litigation)
Michael Steinberg (Antitrust Litigation, Intellectual Property Litigation, Business Litigation)

Two lawyers were recognized as Rising Stars:

Orly Elson (Litigation)
Brian England (Business Litigation, Antitrust Litigation, Securities Litigation)