Federal Circuit Tackles Appellate Review of Claim Construction

Federal Circuit Tackles Appellate Review of Claim Construction Lewis R. Clayton

By a 6-4 vote, the en banc U.S. Court of Appeals for the Federal Circuit tackled one of the most contentious issues in patent law, reaffirming in Lighting Ballast Control v. Philips Electronics North America, 2014 WL 667499 (Fed. Cir. Feb. 21, 2014), that trial court claim construction rulings will be reviewed without deference in the circuit court.

Claim construction—the interpretation of the meaning of terms in the patent claims—is a central issue (sometimes the central issue) in many patent litigations. In some actions, a claim interpretation ruling can mean the difference between an easy infringement case and an impossible one. The Supreme Court held in Markman v. Westview Instruments, 517 U.S. 370 (1996), that claim construction “is a matter of law reserved entirely for the court,” rather than a jury issue. Following on Markman, in Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998), the en banc Federal Circuit held that district court claim construction rulings are reviewed de novo on appeal, meaning that findings of the trial court—including findings on factual issues—receive no deference in the circuit court.

Cybor was controversial from the moment it was decided. Critics, including some appellate and district court judges, asserted that de novo review failed to recognize the superior ability of district court judges to consider complicated technical issues and resolve credibility questions. Pointing to what they claimed to be high rates of reversal on claim construction issues, they argued that the Cybor rule significantly increased the cost and uncertainty of patent litigation. Defenders argued that leaving the last word with the Federal Circuit promoted uniformity and placed final claim construction decisions in the hands of a specialized court most experienced in patent law.

Those issues came to a head when the Federal Circuit designated Lighting Ballast for en banc review for the purpose of reconsidering de novo review 15 years after Cybor was decided. Thirty-eight entities, including the United States, large technology companies, law professors and bar associations signed a total of 21 amicus briefs.

But rather than treat the issue purely as a question of policy, the six judges in the en banc majority approached the issue primarily as a matter of stare decisis, considering whether a case had been made to overturn a settled rule. “The question now,” the majority wrote, “is not whether to adopt a de novo standard of review of claim construction, but whether to change that standard adopted fifteen years ago and applied in many hundreds of decisions.”

Changing the rule, the majority found, would undermine “consistency and stability” in patent law, interests that it regarded as central reasons why the Federal Circuit was established. According deference to district court rulings might lead to differing results on “close questions of claim construction” in different cases brought on the same patent. And, the majority noted, despite “extensive patent-related legislative activity during the entire period of Cybor’s existence,” Congress has not exercised its power to change the rule.

The majority also rejected the position that deference should be given to district court factual findings related to claim construction, while applying full de novo review to the ultimate question of how claim terms should be construed. It was unable to find any “workable” framework to distinguish fact-finding from issues of law in the process of claim construction. Concurring Judge Alan Lourie argued that the Federal Circuit already had in place a reasonable procedure, making sure to “note[] and consider[] how the district court construed the claims” and affording “proper informal deference to the work of judges of a subordinate tribunal….”

The four dissenters complained that, by “refusing to acknowledge the factual component of claim construction, Cybor has made the claim construction process less transparent, accurate, predictable, and efficient….” The dissent stressed fact issues that arise when a court must determine whether a particular term has a specialized meaning among those skilled in the art of the claimed invention.

Although the words of the patent itself are central to claim construction, the Federal Circuit made clear in its landmark decision in Phillips v. AWH Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005) (en banc) that “the ordinary and customary meaning of a claim term” is the meaning understood by “a person of ordinary skill in the art in question at the time of the invention.” In the view of the Lighting Ballast dissenters, Cybor gives the Federal Circuit “free rein to interpret claim terms, [although it] lacks the resources to do it right.”

Despite the concerns of the dissenters, Lighting Ballast likely ends the debate about Cybor in the Federal Circuit. How de novo review will fare if the Supreme Court decides to take up the issue may be a different matter.

Federal Rule of Civil Procedure 52(a)(6) requires that district court findings of fact, even when based on documentary evidence, may not be “set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court’s opportunity to judge the witnesses’ credibility.” The Supreme Court has in the past rejected efforts by the Federal Circuit to establish procedural rules that are particular to patent cases—for example, the Supreme Court held that injunctions in patent cases may only be issued when generally applicable federal standards for equitable relief are satisfied. The Supreme Court could well conclude that Cybor is inconsistent with the broad discretion federal law vests in district court judges.

Trademarks

Jordan v. Jewel Food Stores, 2014 WL 627603 (7th Cir. Feb. 19, 2014), rejected the argument that a “tribute” ad published in Sports Illustrated by Jewel, a grocery store chain, congratulating Michael Jordan on his induction into the Basketball Hall of Fame was “noncommercial” speech protected by the First Amendment and thereby immune from Jordan’s right of publicity and Lanham Act claims. Jewel’s ad featured a pair of basketball shoes with Jordan’s number 23, appearing below Jewel’s logo and marketing slogan, “Good things are just around the corner.” The text of the ad “salute[d]” Jordan on “ his many accomplishments as we honor a fellow Chicagoan who was ‘just around the corner’ for so many years.”

Jordan sued, claiming violations of the Lanham Act, the Illinois Right of Publicity Act and deceptive trade practices statute and the common law of unfair competition. Reversing the district court’s dismissal of Jordan’s claims, the U.S. Court of Appeals for the Seventh Circuit found the ad to be commercial speech, so that Jewel had no constitutional defense. Although the ad did not invite a specific commercial transaction, it qualified as image advertising, designed to promote Jewel’s brand by associating the company with Jordan. A contrary holding, the court wrote, would have “sweeping and troublesome implications” for athletes, actors and other celebrities. The court also noted that, even if the ad were considered noncommercial speech, it was not clear that Jewel’s constitutional defense would have defeated Jordan’s claims.

Copyright

Swatch Group Management Services Ltd. v. Bloomberg L.P., 2014 WL 274407 (2d Cir. Jan. 27, 2014) held that Bloomberg’s publication of a recording of Swatch Group’s earnings call to invited investment analysts was fair use. Swatch invited over 300 analysts to a conference call to discuss its 2010 results. Before the call began, participants were instructed that the call was not to be recorded for purposes of publication or broadcast. Within minutes of the conclusion of the call, however, Bloomberg, which was not an invited participant, made a sound recording and transcript available online to its subscribers.

Affirming dismissal of Swatch’s copyright claim on summary judgment, the U.S. Court of Appeals for the Second Circuit applied the statutory four-factor test for fair use: (1) the purpose and character of Bloomberg’s use favored fair use because Bloomberg’s purpose was to “make important information about Swatch available to American investors and analysts”; (2) the nature of the copyrighted work favored fair use given that Swatch’s copyright was thin. The “through-and-through factual nature” of the call “places it at the very edge of copyright’s protective purposes;” (3) Bloomberg’s use of the entire recording was reasonable in light of its purpose of disseminating financial information; and (4) the effect of the use on the market for or value of the work also weighed in favor of Bloomberg. Swatch came forward with no evidence of a potential market for a recording of its earnings calls, and the possibility of receiving licensing revenues “played no role in stimulating the creation of the earnings call.”

In Garcia v. Google, 2014 WL 747399 (9th Cir. Feb. 26, 2014), a notorious anti-Islamic film was the backdrop for an unusual ruling that an actress’ brief performance in a film could be protected by copyright. Cindy Garcia alleged she was duped into acting in a film publicized under the title Innocence of Muslims which caused huge controversy in the Islamic world when it was made available on the Internet. Garcia and others involved with the film received death threats. Reversing a district court’s denial of a preliminary injunction, the U.S. Court of Appeals for the Ninth Circuit held that, although she could not claim joint authorship of the film, her individual performance nevertheless could be copyrightable.

Although her appearance was fleeting and her voice was partially dubbed over, her performance nevertheless met the minimal standard of creativity necessary for copyright protection. The Second Circuit also held that Garcia was not an employee whose rights vested in the filmmaker under the “work for hire” doctrine because she did not work under a written agreement and did not receive traditional employment benefits, and that any implied license Garcia granted the filmmaker was not applicable because the final version of the film differed radically from anything she could have imagined when she was cast.

Patents

The Supreme Court held in Medtronic v. Mirowski Family Ventures, 134 S.Ct. 843 (2014) that when a licensee seeks a declaratory judgment against a patentee to establish that there is no infringement, the burden of proving infringement remains with the patentee. Medtronic licenses certain Mirowski patents in exchange for royalty payments. Pursuant to the license, Mirowski notified Medtronic that several Medtronic products infringed the licensed patents. Medtronic challenged that assertion of infringement in a declaratory judgment action.

The Federal Circuit held that where the patentee is a declaratory judgment defendant and, like Mirowski, foreclosed from asserting an infringement counterclaim by the continued existence of a license, the party seeking the declaratory judgment bears the burden of persuasion. The Supreme Court reversed, reasoning that the burden of proving infringement is a substantive aspect of a patent claim that rests upon the patentee. That result is unchanged by the Declaratory Judgment Act, which is a purely procedural statute.

The Supreme Court noted that shifting the burden depending on the form of the action could create postlitigation uncertainty about the scope of the patent—conceivably, both a declaratory judgment plaintiff and the patentee plaintiff in a later suit could fail to carry the burden to show infringement. The Supreme Court also found that shifting the burden would create an undesirable disincentive for patent licensees to bring declaratory judgment actions.

Amid continuing controversy about the activities of patent “trolls”—entities that acquire patent rights for the purpose of asserting claims against alleged infringers—on Jan. 14, 2014, the Office of the New York Attorney General announced a settlement agreement with a patent assertion entity, MPHJ Technology Investments, LLC, that legislators may look to as a guideline for regulating the behavior of similar entities.

The office found that, starting in 2012, MPHJ sent letters to over 1,000 New York businesses stating that the recipients “likely” infringed five patents directed to scanning and sending PDFs by email that MPHJ had acquired for $1. Despite additional correspondence from MPHJ and a law firm, only one New York business agreed to a license and no infringement suits were brought. The Attorney General’s office alleged that the letters deceptively communicated that MPHJ had conducted individualized analyses of its targets’ practices and that other businesses had decided to acquire licenses.

The settlement requires, among other things, that MPHJ will not assert infringement against a New York business unless it has a good faith basis to do so, and has made reasonable efforts to evaluate the scope of the asserted patent and to identify a specific infringing product or method made, offered or sold by that New York business. The settlement also requires that MPHJ provide certain material information necessary for the New York business to evaluate infringement claims and royalty demands. And the settlement bars MPHJ from asserting infringement claims through counsel unless that counsel has a good faith basis for doing so.

In Ring & Pinion Serv. Inc. v. ARB Corp., 2014 WL 627623 (Fed. Cir. Feb. 19, 2014), the Federal Circuit made clear that there is no “foreseeability limitation” that bars an infringement claim based on the doctrine of equivalents. Under that doctrine, structures that perform substantially the same function in substantially the same way with substantially the same results as an element in a patent claim are considered equivalents of that element. In Ring & Pinion, the parties stipulated that a structure in the accused product was an equivalent of an element in a patent claim covering an automobile locking differential. The alleged infringer argued, however, that the doctrine of equivalents should not apply because that equivalent would have been foreseeable to someone skilled in the art when the patent application was filed. On that view, a patent applicant should be required to make reference in the application to known equivalents, in order to reduce uncertainty about the scope of the claims.

The court disagreed, ruling that “[t]here is not, nor has there ever been, a foreseeability limitation on the application of the doctrine of equivalents.” To the contrary, moreover, it “has long been clear that known interchangeability weighs in favor of finding infringement under the doctrine of equivalents.” Ring & Pinion reaffirms the broad scope of the doctrine of equivalents as construed by the Federal Circuit.

Lewis R. Clayton is a litigation partner of Paul, Weiss, Rifkind, Wharton & Garrison and co-chair of the firm’s intellectual property litigation group. Jennifer H. Wu and Jenny C. Wu, associates with the firm, assisted in the preparation of this article.

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