Willfulness for Patent Infringement, Appealing JMOL Orders and Clear and Convincing Proof of Invalidity

The recent Federal Circuit Court of Appeals case, Uniloc USA, Inc. v. Microsoft Corp., Case No. 2010-1035, Jan. 4, 2011 (Fed. Cir. 2011)(available here), presented the Court’s view on a number of topics which several blog entries will cover.  The topics include (a) the rejection by the Federal Circuit of the 25% rule for calculating reasonable royalty patent damages (a rule “passively tolerated” by the Appeals Court but “widely accepted” by the lower courts for many years); (b) divided patent infringement between two parties which may require the presence of two defendant parties in the suit and the importance of drafting patent claims to “structure a claim to capture infringement by a single party;” and (c) the test for determining willful patent infringement and a review of some basic procedural concepts.

This blog discusses the test for willful patent infringement and other procedural aspects highlighted by the Court.

Uniloc’s ’216 patent (available here) is directed to a software registration system to deter copying of software. In order to stem the loss of revenue as a result of the “casual copying” by users of software, where users install copies of a software program on multiple computers in violation of applicable software license conditions, Uniloc (www.uniloc.com/) was an early developer of a software registration system.  The Uniloc software registration system permitted the user to operate the software in a “use mode” by inputting a software serial number which the registration system then combines with the computer’s internal code to generate a “local licensee unique ID” or “local ID.”  This local ID was then sent to the software vendor’s system via the Internet which uses an algorithm to generate a “remote licensee unique ID” or “remote ID.” The remote ID is then transmitted or downloaded and stored in the user’s computer.  When the software application boots up a second time, a software lock routine checks to see if the remote ID matches the local ID with an algorithm check.  If the codes match, the software operates as normal.  If the codes do not match, the software operates in a demonstration mode.

At trial, the jury returned a verdict of infringement on claim 19, the only patent claim asserted by Uniloc, finding that Microsoft (http://www.microsoft.com/en/us/default.aspx) willfully infringed the patent, and awarded Uniloc $388M in damages.  The jury also found that the Uniloc patent was not invalid.  In post-trial motions, the trial court granted Microsoft’s motion for judgment as a matter of law (JMOL) of non-infringement, JMOL on the issue of willfulness and granted a new trial on infringement and willfulness.   The Federal Circuit reversed the trial court’s JMOL order of no infringement, upheld the lower court’s order on willfulness, and remanded the case for a new trial on damages since Uniloc’s expert relied upon the newly-discredited 25% rule for reasonable royalty patent damages.  The Court also upheld the validity of the patent.

Regarding willful infringement, the Court re-stated the two-prong objective-subjective test from In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc).  The Court said:

“‘[T]o establish willful infringement, a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.’ In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc). This is a objective inquiry. Id. In addition, a patentee must show that this risk ‘was either known or so obvious that it should have been known to the accused infringer.’ Id. This is a subjective inquiry.” Uniloc slip opn. p. 32 (hereinafter “Uniloc p.32″).

Further, “If the accused infringer’s position is susceptible to a reasonable conclusion of no infringement, the first prong of Seagate cannot be met. See Cohesive Techs., Inc. v. Waters Corp., 543 F.3d 1351, 1374 (Fed. Cir. 2008) (‘Because ‘rigid’ was susceptible to a reasonable construction under which Waters’s products did not infringe, there was not an objectively high likelihood that Waters’s actions constituted infringement.’).”  Uniloc p. 32.

In Uniloc, the trial court found that Uniloc failed to met the objective prong of the Seagate test.  “Uniloc has not presented any evidence at trial or on appeal showing why Microsoft, at the time it began infringement, could not have reasonably determined that MD5 and SHA1 did not meet the licensee unique ID generating means, licensee unique ID, or registration system, [and] mode switching means limitations. Specifically, infringement of the licensee unique ID generating means limitation is a complicated issue, made more so because ‘equivalence requires an intensely factual inquiry,’ DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F.3d 1314, 1337 (Fed. Cir. 2009).”  Uniloc p. 32.

Uniloc argued that Microsoft engaged in copying but the Court held “Uniloc’s argument about copying is largely inapposite. See DePuy Spine at 1336 (‘[E]vidence of copying in a case of direct infringement is relevant only to Seagate’s second prong.’). As the district court noted, the facts here presented are ‘hardly the stuff of which objectively reckless unreasonable conduct is made.’ Uniloc USA, Inc. v. Microsoft Corp., 640 F. Supp. 2d 150, 177 (D.R.I. Sept. 29, 2009) (“Uniloc II”).  Uniloc p. 33.

As a result, the Court upheld the trial court’s decision vacating the jury’s verdict on willfulness but remanded the case for a new trial on damages due to the rejection of the 25% patent damages theory.

Other procedural points of interest are listed below in sections.
Infringement
The Court held that “To prove infringement, the plaintiff bears the burden of proof to show the presence of every element or its equivalent in the accused device. Lemelson v. United States, 752 F.2d 1538, 1551 (Fed. Cir. 1985). The underlying infringement issue is a question of fact reviewed for substantial evidence. Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1332 (Fed. Cir. 2008).” Uniloc p. 13.  Uniloc’s claim 19, the only asserted claim stated:

19. A remote registration station incorporating remote licensee unique ID generating means, said station forming part of a registration system for licensing execution of digital data in a use mode, said digital data executable on a platform, said system including local licensee unique ID generating means, said system further including mode switching means operable on said platform which permits use of said digital data in said use mode on said platform only if a licensee unique ID generated by said local licensee unique ID generating means has matched a licensee unique ID generated by said remote licensee unique ID generating means; and wherein said remote licensee unique ID generating means comprises software executed on a platform which includes the algorithm utilized by said local licensee unique ID generating means to produce said licensee unique ID.

Since claim 19 includes “means plus function” elements, the Court explained how trial courts should view those elements.  “‘The literal scope of a properly construed means-plus-function limitation does not extend to all means for performing a certain function. Rather, the scope of such claim language is sharply limited to the structure disclosed in the specification and its equivalents.’ J&M Corp. v. Harley-Davidson, Inc., 269 F.3d 1360, 1367 (Fed. Cir. 2001). Nevertheless, in determining equivalence under § 112 ¶ 6, ‘the range of permissible equivalents depends upon the extent and nature of the invention.’ IMS Tech., Inc. v. Haas Automation, Inc., 206 F.3d 1422, 1436 (Fed. Cir. Tex. Instruments, Inc. v. ITC, 805 F.2d 1558, 1563 (Fed. Cir. 1986)).”  Uniloc p. 19.

The claim element, “licensee unique generating means,” was earlier construed by the trial court in a Markman ruling to include a summation or “addition” routine.  Microsoft had argued that its algorithm was not a summation routine, and the trial court agreed with Microsoft in its JMOL order and overruled the jury’s decision of infringement.  The Federal Circuit reviewed the grant of the JMOL on appeal.  “This court’s review of a district court’s grant of JMOL is governed by regional circuit law. Union Carbide Chems. & Plastics Tech. Corp. v. Shell Oil Co., 425 F.3d 1366, 1372 (Fed. Cir. 2005).” Uniloc p. 13.

“The First Circuit reviews a district court’s denial of JMOL after a jury verdict de novo, asking whether ‘the evidence points so strongly and overwhelmingly in favor of the moving party that no reasonable jury could have returned a verdict adverse to that party.’ Keisling v. Ser-Jobs for Progress, Inc., 19 F.3d 755, 759-60 (1st Cir. 1994). This court may not evaluate ‘the credibility of witnesses, resolve conflicts in testimony, or evaluate the weight of the evidence,’ but must view the evidence in the light most favorable to Uniloc. Gibson v. City of Cranston, 37 F.3d 731, 735 (1st Cir. 1994).”  Uniloc p. 13.

The Court found that there was enough evidence to support the jury verdict of infringement and reversed the trial court’s JMOL order on infringement.

Burden of Proof for Establishing Invalidity
Typically when a defendant challenges the validity of a patent, the burden of proof to establish patent invalidity is met by “clear and convincing evidence.”  Microsoft argued that it met its burden of proof to show patent invalidity by a “preponderance of the evidence,” because the ’093 prior art reference was not before the PTO.  Microsoft’s innovative argument was based upon the Supreme Court’s 2007 statement in KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 426 (2007) that “the rationale underlying the presumption—that the PTO, in its expertise, has approved the claim—seems much diminished here [where the allegedly invalidating prior art was not before the Patent Office]”.  The Federal Circuit responded to this argument by stating:

“Microsoft has made this argument before, and we held that the statutory presumption of validity can be overcome only by showing invalidity by clear and convincing evidence, even where allegedly invalidating prior art was not before the patent office.  See i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 856 (Fed. Cir. 2010), cert. granted, 562 U.S. — (U.S. Nov. 29, 2010) (No. 10-290); Am. Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1359 (Fed. Cir. 1984). Until changed by the Supreme Court or this court sitting en banc, that is still the law.”  Uniloc p. 55.

Many patent practitioners await the ruling in i4i Ltd. but it is clear that until the Supreme Court states otherwise, defendants must prove patent invalidity with clear and convincing evidence. In general, the Uniloc case shows the complex nature of patent infringement litigation.

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