Guest post: The Supreme Court shows unprecedented interest in IP issues

"To paint with a broad brush, the Court appears to be interested in tightening the requirements for patentability and providing stronger potential defences to those accused of patent infringement, continuing a trend that began several years ago" - James R Barney (left) and Jason W Melvin (right)

During the October Term 2013, the Supreme Court addressed an extraordinary number of IP-related cases including an unprecedented six patent cases. Several of these cases have the potential for significant impact on businesses. To paint with a broad brush, the Court appears to be interested in tightening the requirements for patentability and providing stronger potential defenses to those accused of patent infringement, continuing a trend that began several years ago. In five of the six patent cases, the Court reversed the Federal Circuit, signalling that it has its own ideas regarding the proper scope and enforceability of patent rights.

Alice Corporation v CLS Bank International, No. 13-298 (June 19 2014)

In Alice, the Court considered the question of patent eligibility for computer-implemented inventions. In a unanimous opinion by Justice Thomas, it held that the framework from Mayo Collaborative Services v Prometheus Laboratories, applies to all determinations of whether a patent claims a law of nature, a natural phenomenon, or an abstract idea. Under the Mayo framework, a court first determines whether a claim is directed to a patent-ineligible concept, then determines whether the claimed elements—separately or collectively—transform the nature of the claim into a patent-eligible application of the concept. In this second step of the analysis, the court must identify the “inventive concept” of a claim to determine whether the patent is more than a patent on the ineligible concept itself.

The Court held that the computer-implemented claims at issue in Alice were directed to an abstract concept for financial transactions. The claims included steps for creating “shadow records” of debit and credit at a supervisory institution, recording transactions against those shadow records throughout the day, then applying the end-of-day positions to each party’s credit and debit record at an exchange institution. According to the Court, the role of the supervisory institution was one of an intermediary, or clearinghouse, that mitigates risk. The Court viewed such use of intermediaries as “a building block of the modern economy” and accordingly held that intermediated settlement is an unpatentable abstract idea. In reaching its conclusion, the Court also rejected the proposition that abstract ideas only encompass pre-existing, fundamental truths. Rather, a method of organising human activity may also be an abstract idea.

Under the Mayo analysis, the Court also had to determine whether the claims sufficiently limited the abstract idea to make it patent eligible. Here, the Court expressed the key as whether the claim includes an “inventive concept.” To pass that test, a claim must do more than recite conventional steps and elements in combination with the abstract idea. And to that end, the Court noted that requiring a generic computer adds no patentable weight to a claim.

For the claims in Alice, the Court analysed the elements both separately and as “an ordered combination.” It concluded the use of a computer in the claims was generic because the computer performed conventional functions: electronic recordkeeping, obtaining data, adjusting balances, and issuing automated instructions. To the Court, that amounted to nothing more than using a generic computer to perform generic computer functions. As some clue regarding what might support patentability, when analysing the claim elements in combination, the Court noted that they did not “improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field.” Thus, the claims did not transform the abstract idea into a patent-eligible invention.

Finally, the Court addressed Alice’s claims to a computer system or to a computer-readable medium containing instructions consistent with the method claims. Alice agreed that the media claims rose or fell with the method claims, and the Court held that the system claims included only functional definitions of the hardware. Thus, they were no different from the method claims. In the end, the Court refused to interpret Section 101 in a way that would make patent eligibility depend on the form in which claims were drafted. Thus, it held the system claims were also unpatentable.

Alice is sure to have an effect in the patent world. While it will take some time for decisions to provide examples of claims that pass or fail the test, practitioners and courts now more fully understand that the Mayo framework will apply uniformly. And they should understand that claims reciting conventional elements in combination with abstract ideas will not likely pass the test.

Nautilus v Biosig Instruments, No. 13-369 (June 2 2014)

In Nautilus, Justice Ginsburg wrote for a unanimous Court, which held that a patent is indefinite, and therefore invalid, when its claims “fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.”

The Court rejected the Federal Circuit’s prior test, which had required that claims be “insolubly ambiguous” to be held indefinite – a high burden for challengers to meet. It held that this formulation, and another that the Federal Circuit had applied – whether claims were “amenable to construction” – did not give sufficient precision to the district courts. The Court explained that definiteness depended on the view of skilled practitioners, not on the post hoc view of a court. Even while it recognized that the Federal Circuit in practice followed a more precise application of its own test, the Court held that the key to definiteness is apprising the public of the scope of the claims while permitting for “inherent limitations of language.” In particular, the Court noted the need to eliminate the temptation of vague and ambiguous claims, and placed the patent drafter in control of providing the required notice.

The effect of Nautilus will take some time to appear, as the courts apply the new standard at the district-court level and the Federal Circuit reviews those decisions. Litigants may begin to rely more heavily on expert testimony during indefiniteness challenges, in certain cases, to address the perspective of skilled practitioners. And with competing experts, the district courts will have to decide which party has most accurately portrayed the scope of the claims. It appears, however, that the Supreme Court intended its new standard to permit increased scrutiny of patent claims.

Limelight Networks v Akamai Technologies, No. 12-786 (June 2 2014)

In Limelight, the Court considered an en banc decision of the Federal Circuit, which had held that a party could be liable for inducing infringement even if no single entity could be liable for direct infringement. The Federal Circuit had concluded that even if a first party did not direct or control the performance of all steps, it could still be liable if it induced a second party to perform steps that the first party did not. The Supreme Court, in a unanimous opinion by Justice Alito, rejected this proposition.

In opening, the Court noted that liability for induced infringement “must be predicated on direct infringement.” It then rejected the Federal Circuit’s distinction between direct infringement capable of supporting inducement and liability for direct infringement. Federal Circuit law on liability, which the Supreme Court expressly excluded from consideration, requires that one party direct or control the performance of all steps. The Court held that the same law applies to both direct and induced infringement, and inducement cannot apply unless a single party has directly infringed.

The Court noted concerns that its holding could permit parties to avoid infringement by dividing the steps of a method claim, each performing a subset of the steps. But in its view, that “anomaly” came from the Federal Circuit’s law on direct infringement, and the Court was unwilling to avoid such a result by altering the law of inducement liability. It left open the question of direct-infringement law for the Federal Circuit to address, should it choose to do so on remand.

Medtronic v Mirowski Family Ventures, 134 S. Ct. 843, No. 12-1128 (January 22 2014)

In Medtronic, Justice Breyer wrote for a unanimous Court, which held that a patentee carries the burden of proving infringement when defending against a declaratory-judgment claim seeking a holding of non-infringement, even when it cannot assert counterclaims of infringement because of a licence agreement. This holding, which reversed the contrary holding of the Federal Circuit, has the potential to significantly alter the balance of power in certain declaratory-judgment actions. Where the patentee could not assert infringement because of a license agreement, the Federal Circuit previously had placed the burden on the declaratory-judgment plaintiff to show non-infringement. Now, regardless of a license agreement, the patentee must always carry the burden of persuasion to prove infringement.

The Court relied on notions of certainty, and on the desire for preclusive effect of judgments to prevent further litigation. A shifting burden would leave open the possibility for relitigating issues. Also, the Court reasoned that always placing the burden on the patentee made sense because the patentee is best positioned to apply the claims to an accused product or process. In closing, the Court recognised the value of the patent system but stressed the importance of giving patents the appropriate scope.

Octane Fitness v Icon Health & Fitness, 134 S. Ct. 1749, No. 12-1184 (April 29 2014)

In Octane Fitness, the Court considered the standard that district courts should apply when deciding whether a case is exceptional and thus justifies the possible award of attorneys’ fees. In an opinion by Justice Sotomayor, the unanimous Court held that an exceptional case “is simply one that stands out from others with respect to the substantive strength of a party’s litigation position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” It thus rejected the Federal Circuit’s prior test based on Brooks Furniture Manufacturing v Dutalier International.

In Brooks Furniture, the Federal Circuit had applied a two-pronged test to determinations of exceptionality that were based on allegations other than litigation misconduct or inequitable conduct in obtaining a patent. Outside of those categories, the Federal Circuit required a showing of objective baselessness and subjective bad faith. In the Supreme Court’s view, this overly restricted the statute’s flexible language, which provides that: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 USC § 285. The Court took issue both with cases that the Federal Circuit excluded from the two-pronged analysis and also those that it included. Regarding the misconduct/fraud-type cases, the Court held that fee awards could reach to a broader class of cases than those involving independently sanctionable conduct.

Perhaps more significantly, the Court rejected the two-pronged analysis of Brooks Furniture and held that a case might justify a fee award if it only involved subjective bad faith or objectively baseless litigation. It held that there was no reason to import the two-pronged analysis from the antitrust context, as the Federal Circuit had done, because that context involved a more significant burden on the First Amendment right to petition the government. In particular, antitrust liability can bring treble damages, thus burdening the right more than the shifting of attorneys’ fees.

The impact of this decision is already being felt in the district courts, where prevailing parties are now seeking attorneys’ fees with increased vigour, citing the new, relaxed standard set forth in Octane Fitness.

Highmark v Allcare Health Management Systems, 134 S. Ct. 1744, No. 12-1163 (April 29 2014)

In Highmark v Allcare Health Management Systems, the Court addressed the standard of review applicable to the determination of exceptionality under Octane Fitness. In an opinion by Justice Sotomayor, the unanimous Court held that its contemporaneous holding in Octane Fitness required that the Federal Circuit review all aspects of a district court’s determination for abuse of discretion. The Court reasoned that a determination of exceptionality is a matter of discretion, thus dictating its standard of review. It noted, however, that “[t]he abuse-of-discretion standard does not preclude an appellate court’s correction of a district court’s legal or factual error: ‘A district court would necessarily abuse its discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence,’” quoting its previous decision in Cooter & Gell v. Hartmarx Corp.

James R Barney is a partner in the Washington, DC office of Finnegan Henderson Farabow Garrett & Dunner, and is the head of Finnegan’s appellate practice group. Jason W Melvin is an associate in Finnegan’s Washington, DC office. Both Barney and Melvin specialise in patent litigation and appeals.