News & Developments

 

Quanta Computer, Inc. v. LG Elec., Inc.

On June 9, 2008, the U.S. Supreme Court issued its decision in Quanta Computer, Inc. v. LG Electronics, Inc. In reversing the Federal Circuit, the Supreme Court held that patent exhaustion (1) can apply to method patents and (2) can apply to the sale of components of a patented system that must be combined with additional components in order to practice the patented methods.

Patent Reform Legislation Update

Patent Reform Attempt Seems To Be Running Out of Time

Dispute Over Key Damages Provision May Doom Patent Reform -- The Patent Reform Act (S.1145) was recently pulled from the floor schedule by Senate Majority Leader Harry Reid (D-AZ). While not a mortal blow to patent reform, this move, which was a clear reaction to ranking committee members' inability to bridge the gap on the issue of damages, will embolden opponents of patent reform legislation as the debate among interested parties continues.

On February 15, 2008, the Congressional Budget Office ("CBO") released its Cost Estimate for S. 1145, Patent Reform Act of 2007. The following excerpts are taken from the Summary section of the report:

• CBO estimates that enacting the bill would increase direct spending by $26.9 billion and revenues by $25.5 billion over the 2009-2018 period.…In total, those changes would increase budget deficits (or decrease surpluses) by $1.4 billion over the 2009-2018 period.
• CBO estimates that changes in direct spending and revenues from enacting the bill would not cause an increase in the deficit of more than $5 billion in any of the 10-year periods between 2018 and 2057.
• CBO estimates that implementing the bill would increase net discretionary spending by $0.5 billion over the 2009-2018 period, assuming appropriation of the necessary amounts.

The Patent Office Professional Association (POPA), which includes patent examiners, voiced its opposition to S.1145 by joining 13 other unions in a February 6, 2008 letter to legislators.

All indications are that the patent reform bill, S. 1145, will not be taken up until after Congress's Easter recess, which ends on March 30.

The Biotechnology Industry Organization recently released a study conducted by noted economist Robert J. Shapiro and health care policy expert Aparna Mathur entitled "The Economic Implications of Patent Reform: The Deficiencies and Costs of Proposals Regarding the Apportionment of Damages, Post-Grant Opposition and Inequitable Conduct." The study concludes that the three proposals would make patents "harder to secure, easier to invalidate, and cheaper to infringe" and that "[t]he net effects will reduce the value of patents and the intellectual property they represent, dampening R&D and the consequent pace of innovation in the United States." See Study, p. 2.

On January 24, 2008, Senate bill S. 1145: Patent Reform Act of 2007 was placed on the Senate Legislative Calendar. (Calendar No. 563). The bill, which is sponsored by Sen. Patrick Leahy (D-VT) and co-sponsored by 9 other Senators (7 Republicans; 2 Democrats) promises significant changes to the patent system and patent litigation. Though there is no date certain for a vote on the bill, ranking Judiciary Committee members have indicated a desire to take up the bill as soon as possible in 2008. (See Cong. Rec. 12/18/07, pp. S15898-S15899).

Among the proposed changes in the bill are a number of provisions sure to have a significant impact on patent litigation. Notably, the bill contains, inter alia, the following revisions: (1) a shift to a first-to-file policy for determining the effective filing date of an invention; (2) a requirement that courts consider a patent’s specific contribution over the prior art in determining damages – an entire market value rule; (3) an expansion of the prior user defense; (4) an increased role for third parties in patent examination and post-grant review procedures; and (5) a change to the venue requirements, which would allow civil patent cases to be brought only in the district where either party resides or where a corporate defendant was incorporated or has its principal place of business.

While most pundits believe a revised version of S. 1145 will be passed as early as February, particularly given the majority party’s control over the order in which bills are considered and its leaders’ public statements, others caution that the Senate may not have the votes or stomach to pass such sweeping legislation. It is worth noting that the House passed H.R. 1908, which is identical to the Senate bill, in September 2007 with 73 percent of Democrats supporting and 67 percent of Republicans opposing. See GovTrack.us. H. Res. 636--110th Congress (2007): Providing for consideration of the bill (H.R. 1908) to amend title 35, United States Code, to provide for patent reform, GovTrack.us (database of federal legislation) (accessed Jan 31, 2008).

Considerable forces have been mobilized on each side of this debate - the tech industry supporting the reforms and the pharma and bio-tech industries opposing major portions of the bill.  On February 4, 2008, the Administration relayed its opposition to certain aspects of the current version of the bill to the Judiciary Committee. Similarly, comments contained within the Judiciary Committee’s Report on the bill indicate an unwillingness to pass the legislation in its current form.

The Committee will post updates as additional developments as they occur.

In re: Seagate Technologies, LLC

JUNE 7, 2007 – The Federal Circuit heard oral arguments in In re: Seagate Technologies on whether the assertion of an advice of counsel defense to a willful infringement claim should cause a waiver of the attorney-client privilege for communications with trial counsel. Recognizing the impact of the statutory duty of care standard announced in Underwater Devices on the issue of the waiver of the attorney-client privilege, the Court also invited argument on whether the decision in Underwater Devices and the duty of care standard itself should be reconsidered. The result was a lively debate of one of the most nettlesome issues facing patent litigators today.

Federal Circuit decision may have significant impact on the attorney-client privilege and work-product immunity in patent litigation cases

Over the past several years, courts have been split over what exactly is waived when companies attempt to rely upon an opinion of counsel in defense of a charge of willful infringement in patent cases. On January 26, 2007, the Federal Circuit announced that it will give an en banc review of a writ of mandamus filed by Seagate Technology, Inc pertaining to this important issue. The court invited briefing on the following issues:

1. Should a party’s assertion of the advice of counsel defense to willful infringement extend waiver of the attorney-client privilege to communications with that party’s trial counsel? See In re EchoStar Commc’n Corp., 448 F.3d 1294 (Fed. Cir. 2006).
2. What is the effect of any such waiver on work-product immunity?
3. Given the impact of the statutory duty of care standard announced in Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983), on the issue of waiver of attorney-client privilege, should this court reconsider the decision in Underwater Devices and the duty of care standard itself?

The Supreme Court reviewing a case that may greatly extend the extraterritorial reach of U.S. patent law

In late October, 2006, the Supreme Court granted a petition for writ of certiorari in Microsoft Corporation v. AT&T Corp. The case involves the scope of 35 U.S.C. § 271, and the extraterritorial reach of U.S. patent laws, and may have important implications for the software and biotechnology industries. The issues presented include whether software code constitutes a component of a patented invention for purposes of Section 271(f)(i), and whether copies of the code that are replicated in a foreign country should be considered to be supplied from the U.S. under the language of the statute.

In July 2005, the Court of Appeals for the Federal Circuit ruled in AT&T Corp. v. Microsoft Corp., 414 F.3d. 1366 (Fed. Cir. 2005), that Microsoft had infringed AT&T’s patents by exporting master versions of the Windows software code to foreign manufacturers, who in turn replicated the code for installation in computers that were both manufactured and sold abroad. The decision followed the Federal Circuit’s March 2005 ruling in Eolas Techs. v. Microsoft Corp., 399 F.3d 1325 (Fed. Cir. 2005), cert. denied 126 S. Ct. 56 (2005), in which the Court of Appeals affirmed a trial court’s power to use Section 271(f) to include foreign sales of Microsoft’s Internet Explorer. That section, enacted in 1984, provides that a U.S. patent holder may collect damages for the foreign sales of a patented invention based upon the export of one or more of its components from the U.S. This is the first case in which the Supreme Court will interpret the provision.

In its cert petition, Microsoft asserted that the case presented “a recurring question of vital importance to the U.S. software industry.” According to Microsoft, the Federal Circuit, by extending the meaning of Section 271(F)(i) to include foreign-made copies of software code, has “vastly expand[ed] the extraterritorial reach of U.S. patents involving software.” Microsoft, which contended that its infringement exposure in the case would be tripled if the Federal Circuit’s decision is allowed to stand, raised the prospect that “American software companies [would be compelled] to reevaluate decisions to locate their research-and-development facilities in the United States."

Further, Microsoft argued that American patent laws generally are not intended to operate beyond the territorial jurisdiction of the United States. The cert petition asserted that the Federal Circuit limited the application of Section 271(f) during the first two decades after it was enacted, to the exportation of physical parts of patented inventions. Microsoft contended that not only is the Federal Circuit’s extension of Section 271(f) “textually insupportable,” but it “effectively eliminates the right of American software companies to compete with patent holders in foreign markets.” The cert petition also noted that the biotechnology industry could be adversely affected by the Circuit’s current interpretation of the statute, citing the hypothetical of an American company transmitting the genetic code of a cell line abroad to facilitate the replication of the cell line by a foreign biotech company. Microsoft also argued that the Federal Circuit’s decision conflicts with a long line of Supreme Court decisions that have restricted the extraterritorial application of U.S. law in fields other than patent law.

In its opposition to the cert petition, AT&T argued that Microsoft misstated the potential impact of the Federal Circuit’s decision, characterizing Microsoft’s “doomsday picture for American software companies” as “alarmism.” AT&T took the position that the Court of Appeals’ decision is consistent with the longstanding line of cases that have found that software can be a component of a patented invention or of an infringing device. According to AT&T’s opposition, the Federal Circuit correctly construed “components” to include software components, and correctly construed “supplied” to include the supply of software abroad.

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