The Umpires Strike Back!

Tangible IP, LLC
The Umpires Strike Back!
(Courtesy of Law360, New York)
The Federal Circuit has handed down important patent decisions in recent months that make large damages awards more difficult to obtain, send a message that courts should stay infringement cases during America Invents Act reviews and invalidate several computer-related patents for claiming abstract ideas.

Here's a roundup of the top rulings by the Federal Circuit since June and their potential implications for IP law:

VirnetX Inc. et al. v. Apple Inc.

In this September decision, the Federal Circuit vacated a $368 million damages award that VirnetX had won against Apple — a decision that will have a profound effect on damages law and shows that the court is cracking down on verdicts it sees as excessive, attorneys say. 

The appeals court found that VirnetX's damages expert had relied on flawed theories that tainted the verdict, such as using the entire value of Apple products like the iPhone and iPad to calculate damages, even though only certain features like the FaceTime video-calling service were accused of infringement.

The decision sends a strong message that damages experts have an obligation to base their theories only on the value of the accused features, which should make huge awards like the one the jury handed VirnetX much harder to come by, said Blair Jacobs of McDermott Will & Emery LLP.

"There's no doubt in my mind that this decision dramatically slashes the potential recovery for plaintiffs in patent cases," he said. "I think that over the last 15 to 20 years, this is one of the most fundamentally important decisions on damages in patent cases that I've seen."

The decision criticized VirnetX's expert for failing to explain how his damages estimates were related to the particular facts of the case. Among other things, he used a theory called the Nash bargaining solution that presumed that Apple and VirnetX would split profits related to FaceTime nearly 50/50,  but which the court said was not based on any evidence.

In the ruling, the Federal Circuit is clearly calling for more rigor in damages calculations, so in the future, "I would foresee experts applying a very customized analysis for the particular litigation, rather than relying on off-the-shelf shortcuts," said Marc Cavan of Ropes & Gray LLP.

Damages awards that don't follow the standards set out in the ruling will be in trouble from now on, said Peter Heuser of Schwabe Williamson & Wyatt.

"The Federal Circuit is going to hold your feet to the fire and make sure the damages theories you apply are closely tied to the facts of the case," he said.

VirtualAgility Inc. v. Inc.

In July, the Federal Circuit reversed a district court judge's decision not to stay a patent case against while the VirtualAgility patent-in-suit is reviewed under the America Invents Act, a ruling that should make it easier for companies challenging patents in the popular AIA proceedings to secure stays, attorneys say.

After the Patent Trial and Appeal Board decided to review the patent, saying had likely shown that it was invalid, Judge J. Rodney Gilstrap of the Eastern District of Texas refused to stay the infringement case on the ground that he was not convinced the patent would ultimately be invalidated.

The Federal Circuit said the judge's ruling "amounts to an improper collateral attack on the PTAB's decision" to review the patent and remanded with orders to grant the stay. It warned judges not to second-guess the PTAB's decisions to institute a review when considering motions to stay.

"The Federal Circuit seems to be implying at a policy level that stays are to be encouraged," said Antony Pfeffer of Kenyon & Kenyon LLP. While other Federal Circuit panels may reach different conclusions, the one that heard the case "seems very hostile to the denial of a stay," he said.

The decision is good news for accused infringers that want to avoid the expense of litigating a patent case before both the PTAB and the district court, and it is an incentive for them to appeal decisions denying stays. It's a setback for any plaintiff hoping to use the cost of parallel proceedings to exert leverage over defendants.

"The fact that the Federal Circuit has signaled that it will review stay determinations at the district court level is reassuring," Cavan said. "It shows they want to get the stay decisions right."

BuySAFE Inc. v. Google Inc.

The U.S. Supreme Court ruled in June in Alice Corp. v. CLS Bank that abstract ideas implemented using a computer are not eligible for a patent. In the past three months, the Federal Circuit has relied on that ruling to invalidate several patents, signaling that from now on, "scrutiny of software and computer-related patents will be very, very staunch," Jacobs said.

In one notable case in September, the Federal Circuit held that a patent on a method of providing secure online sales that buySAFE accused Google of infringing is invalid because it claims nothing more than using a computer to perform the basic concept of providing a third-party guarantee for a transaction.

The court said that based on the Alice decision, it was "a straightforward matter to conclude that the claims in this case are invalid."

Before deciding buySAFE, the Federal Circuit invalidated patents on digital image processing and computerized bingo games as abstract under Alice earlier in the summer.

"The Federal Circuit is really just vigorously applying the standard set forth by the Supreme Court in Alice, and making it a tough place for a lot of software claims that currently exist to be found patent-eligible," Pfeffer said.

The buySAFE decision "is a good example of the Federal Circuit really taking the Supreme Court's guidance" to invalidate patents that simply add a computer to an abstract idea, said Christian Stahl of Quarles & Brady LLP.

"We'll see a lot more of these from the Federal Circuit, but this was an easy one because it really fell into the framework of Alice," he said. "We'll see some more decisions from the Federal Circuit that will not be so easy."

STC.UNM v. Intel Corp.

In an case that sharply divided the court, the Federal Circuit held in June that patent infringement suits must be thrown out when the co-owner of a patent decides not to participate, creating a hurdle for patent plaintiffs.

The full Federal Circuit voted 6-4 in September not to conduct an en banc review of the decision, which held that the University of New Mexico's licensing arm could not sue Intel Corp.over a semiconductor patent because the co-owner of the patent, Sandia Corp., decided to "take a neutral position" and not join the case.

The decision amounts to a bright-line rule that unless all the co-owners of a patent consent to a suit, it cannot move forward, which "makes it more difficult for patent owners, no doubt," Jacobs said.

"Patents are often co-owned, so this can be a very viable defense to knock out infringement cases early on," he said.

The decision "shows the perils of co-owning patents," Pfeffer said. In the future, it will prompt patentees to be much more careful about clarifying in co-ownership agreements which party has the ability to sue, in order to prevent one party from blocking a suit by doing nothing, he said.

--Editing by Jeremy Barker and Patricia K. Cole. 
Louis Carbonneau, Founder & CEO
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