Supreme Court Intervention in Patent Appeals Welcomed by Lawyers

The appeals court’s “general rule” that an automatic injunction is the only remedy for patent infringement, barring “extraordinary circumstances” like public health, supplanted the traditional 4-factor test for weighing injunctive relief, the high court said in eBay. The case involved eBay’s fixed-price auction feature, which MercExchange claimed infringed its patent. The Supreme Court criticized the district court for citing MercExchange’s licensing agreements as its rationale to refuse an injunction. But overturning the general rule ended a practice going back to the 24-year-old Federal Circuit’s early days.

Supreme Court intervention can be traced partly to the insularity of the Federal Circuit, speakers said. Unlike other appeals courts, the Federal Circuit has no sister courts to create “splits” on issues, so without high court attention, “dialog” about patent jurisprudence “probably wouldn’t exist,” said Judge Kent Jordan, U.S. Dist. Court, Wilmington, Del. The high court hadn’t touched injunction questions for decades before taking eBay, Whelan said. The Federal Circuit might ward off intervention by sitting en banc -- with all judges participating rather than just a panel -- on first hearing of cases more often, said Deputy Solicitor Gen. Thomas Hungar. Its rehearing rate of 3% is 3rd highest among all appeals courts: En banc first-run hearings might let complex issues “percolate internally” among judges and reduce rehearing decisions, he said. But Seth Waxman, MercExchange’s lawyer at the high court (WID March 30 p1), said newfound Supreme Court interest shouldn’t pressure the circuit to change its hearing practices or other traditions.

The specialization of the Federal Circuit has made clashes inevitable with the Supreme Court and even administrations, Waxman said. On becoming President Bill Clinton’s solicitor general, Waxman said he found Federal Circuit decisions “crazy” and decided to increase his office’s comments to the high court on petitions for Federal Circuit review. He was told by a colleague: “You have unleashed something terrible.” But patent cases are “becoming some of the most dominant issues in American jurisprudence,” complicated by disputes over the patentability of software and business methods, he said. The patent in eBay was for a business method. The Supreme Court takes a “generalist” approach that was at odds with the Federal Circuit’s special rule for patents as applied to injunctive relief, Hungar said.

There’s no bigger issue in intellectual property cases today than the Federal Circuit’s review of district court decisions, Jordan said. The appeals court declined to address whether district courts should be given deference on their constructions of patent claims in 2005’s Phillips v. AWH, a bone of contention for Jordan’s peers, he said. The circuit overturns about ? lower courts’ patent infringement decisions, estimated the law firm of Farella, Braun & Martel. It’s no surprise that district courts sometimes err in patent cases: Judges have “thousands of decisions to make… platoons of lawyers” on each side, and big money at stake -- but breathing down the necks of lower courts doesn’t help, Jordan said.

Other patent cases at the high court could affect the Internet sector. Tech advocates are watching LabCorp v. Metabolite, argued in March but not decided. The Computer & Communications Industry Assn. warned that a decision affirming patents on “correlation” -- like diagnosing a medical problem, the crux of the case -- would encourage nuisance infringement suits in the already-litigious tech sector (WID March 22 p9). The dispute in MedImmune v. Genentech, to be heard in the fall, centers on whether a patent licensee can challenge the validity of the licensed patent. Failed licensing talks over MercExchange’s online auction patents spurred the infringement suit against eBay, and MercExchange plans to challenge technology underlying 2/3 of eBay’s business as infringing (WID May 17 p4).

District Courts Need Patent Education

Cal. Reps. Issa (R) and Schiff (D) have a different view on district courts and deference, as shown by their new legislation to educate district courts on patent law. They said in a letter accompanying the bill introduced Fri., HR- 5418, that “it’s not unusual” for patent suits to cost each party over $10 million, and decisions overturned by the Federal Circuit are frequent, implying the lower courts “are not sufficiently prepared” for patent cases.

HR-5418 would create a $5 million, 10-year pilot program for participating courts that lets judges opt in to hearing patent cases. Suits filed, however, would be randomly assigned to a district’s entire pool of judges. Judges chosen at random who hadn’t opted in could take a case anyway or pass it to colleagues who had opted in. Appropriated money would pay for “educational and professional development” in patent law, as well as for law clerks “with an expertise in technical matters arising in patent cases.” The U.S. Court’s Administrative Office would choose at least 5 district courts in at least 3 different circuits from the top 15 district courts for patent caseload.

The pilot program would increase the return on investment for innovative companies, especially smaller firms, found a study on the measure by the Assn. for Competitive Technology. “Better informed judges can weed out frivolous claims more easily, improving quality and reducing the cost of litigation,” counsel Braden Cox said: “Increased judicial certainty allows innovators to keep on innovating,” a boon to small firms whose research spending could take a back seat to litigation costs. Business Software Alliance Pres. Robert Holleyman said the measure would help judges strike down “patent trolls and others seeking to abuse the legal system.”

The Issa-Schiff bill follows IP Subcommittee Chmn. Smith’s Patent Reform Act (HR-2795), which would bring the U.S. in line with the international first-to-file standard, limit choice of patent venue, and make injunctive relief harder to get -- provisions cheered by the tech sector. Smith said in a written statement that the eBay decision “confirms my belief that our Subcommittee was correct” to focus on treating patent cases the same as others for injunctions: “There needs to be a more deliberate review of the facts of each case.” The subcommittee’s next hearing, to discuss patent “trolls” and appropriate injunctive relief, is tentatively set June 15 (WID May 15 p4). Smith said at least one more patent hearing will happen after that this year. -- Greg Piper

* * * * *

A New Zealand actor’s regulatory revenge against Amazon.com for slow book delivery paid off last week, as the PTO granted his request to reexamine the company’s ballyhooed “one-click” e-commerce patent. Peter Calveley complained on his blog in Oct. that his order from an Amazon Marketplace seller arrived “very late,” spurring him to raise $2,520 from readers to pay for a reexamination request. The actor went after a claim in the patent for “ordering an item using a client system,” which “seems to give Amazon a monopoly on the very idea of ’shopping with one click,'” Calveley said. He submitted 2 pieces of prior art: An earlier patent that charges a user through a 900 number billing system after one- click purchase and download; and another by DigiCash, now defunct, under whose system a payment client can be configured to respond automatically to payment requests for online purchases.