Supreme Court Report

A Comeback for the Federal Circuit: This Term, SCOTUS Is No Longer the ‘Court of Correction’

Posted Sep 1, 2011 3:00 AM CDT
By Steven Seidenberg

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Illustration by Gary Taxali

It had been a tough 10 years for the U.S. Court of Appeals for the Federal Circuit. Created in part to provide definitive rulings on patent law, the Federal Circuit found its patent rulings be coming anything but definitive—thanks to the U.S. Supreme Court.

Starting in 2000, the high court granted certiorari for an unusually large number of patent cases, about one per year on average. And almost without exception, the Supreme Court overturned the Federal Circuit’s decisions. It repeatedly rejected the views of the specialized appellate court and imposed its own interpretations of patent law.

All this changed dramatically last term. Instead of accepting one patent case, the Supreme Court accepted three. And instead of overturning the Federal Circuit, the Supreme Court upheld the lower court’s results in every case.

This could signal the start of a new, more harmonious relationship between the Supreme Court and the Federal Circuit, according to some experts. “I think the courts are starting to work better with each other, and this year’s decisions reflect that,” says law professor Joshua D. Sarnoff of De Paul University College of Law in Chicago.

The most important of the three rulings, and perhaps the most surprising, was the Supreme Court’s decision in Microsoft Corp. v. i4i Ltd. That ruling addressed a long-standing legal doctrine: For a court to declare a patent invalid, the party seeking invalidity must prove its case by more than a preponderance of the evidence. The party must provide clear and convincing evidence of invalidity. (See “Tilting the Patent Scale,” April, page 20.)

In 1983, the Federal Circuit held in Connell v. Sears, Roebuck & Co. that this clear-and-convincing standard applied in all cases, even when the evidence of invalidity had not been considered by the U.S. Patent and Trademark Office.

When the Supreme Court granted certiorari in Microsoft, many experts anticipated it would overturn Connell. That case created a bright-line rule for patent suits, and the high court had repeatedly rejected such rules in recent years, in favor of more flexible approaches.

In the end, however, the Supreme Court upheld the Federal Circuit’s rule requiring evidence to be clear and convincing. Microsoft was unanimous (with Chief Justice John G. Roberts Jr., who owns Microsoft stock, recusing himself).

The court noted that Congress had codified the common law’s clear-and-convincing standard when it enacted the Patent Act of 1952. So although there might be no good policy supporting Connell, the courts were powerless to alter the standard.

The decision was “quite important,” says Arti Rai, a professor at Duke University School of Law. Had the court ruled in favor of Microsoft, “it would have substantially undercut the value of patents and made the ability to enforce those patents much more unsure,” says Christopher Larus, a partner in the Minneapolis office of Robins, Kaplan, Miller & Ciresi.

A WIN FOR INVENTORS

In another case, Stanford University v. Roche Molecular Systems Inc., the Supreme Court reaffirmed yet another traditional rule of patent law: Absent any assignment, the patent for an invention is owned by the inventor. Stanford argued that Congress created an exception to this rule in 1980 when it enacted the Bayh-Dole Act. That statute, among other things, allocates rights in inventions resulting from federally funded research carried out by contractors, such as universities and research institutions. Stanford claimed the statute automatically gives the patent rights in such inventions to the contractors that receive federal funds—not to the contractors’ workers who create the inventions.

The Federal Circuit rejected Stanford’s interpretation of the statute, and the Supreme Court upheld that ruling 7-2. Chief Justice Roberts, writing for the majority, held that the Bayh-Dole Act’s allocation of rights applies “only when an invention belongs to the contractor.” When an inventor assigns its patent rights to a contractor, the act clarifies the “priority of rights” in the invention between the contractor and the federal government. But the statute says nothing about how rights in an invention are to be allocated between an inventor and the contractor.

This is a particularly thorny issue for universities and research institutions, says Anthony J. Fitzpatrick, a partner in Duane Morris’ Boston office. “If you’re Stanford, MIT or Brigham and Women’s Hospital, you have to be careful how you deal with your workers in light of this decision.”

Such research institutions have earned a lot of money from licensing their government-funded inventions, but after this ruling they will need to carefully review the contracts with their workers to ensure their workers assign all their rights in their inventions. Otherwise, when an institution attempts to license an invention, it may discover—as Stanford did—that the inventor has already licensed the rights to another party.

PARTIAL REJECTION

In its third patent case this term, Global-Tech Appliances Inc. v. SEB S.A., the Supreme Court upheld the Federal Circuit’s judgment against Global-Tech. How ever, the high court rejected the Federal Circuit’s interpretation of the law and adopted a tougher standard for inducing patent infringement.

The Federal Circuit ruled that Global-Tech could be liable for inducing infringement even if it didn’t know the induced actions were infringing. The court held that liability can be imposed when a defendant had a “deliberate indifference to a known risk” that the induced actions were infringing.

The Supreme Court unanimously rejected this standard, holding that “induced infringement ... requires knowledge that the induced acts constitute patent infringement.” But eight justices found a limited exception to this requirement. Writing for the majority, Justice Samuel A. Alito Jr. held that liability can be imposed when a defendant “willfully blinded itself” to the infringing nature of the induced actions.

The majority noted that, in this case, Hong Kong-based Global-Tech had manufactured deep fryers that it knew third parties would import and sell in the U.S. Global-Tech’s fryers were largely copies of an SEB model, which Global-Tech knew was popular in the U.S. market. Global-Tech copied an overseas model of SEB’s fryer, knowing it was unlikely to have U.S. patent markings.

When Global-Tech sought an opinion letter from U.S. patent counsel, the company didn’t mention it had copied its fryer from SEB. There was thus more than sufficient evidence for a jury to find Global-Tech had willfully blinded itself to the infringing nature of its sales in the U.S., the majority concluded. The court then upheld the judgment against Global-Tech.

The Global-Tech decision makes it harder for patentees to prove inducement. How much harder, however, remains unclear. “It will take a while for the lower courts to flesh out what constitutes willful blindness,” says Timothy Teter of Cooley in Palo Alto, Calif.

The Federal Circuit may not have a perfect record last term; its interpretations were upheld in two cases, with only the result upheld in the third. But “in all three cases, the Supreme Court bought into what the Federal Circuit did,” says Joseph M. Potenza, a partner in the Washington, D.C., office of Banner & Witcoff and vice-chair of the ABA Section of Intellectual Property Law.

This is a noteworthy change from past years. “For the first time in a long time, the Supreme Court and the Federal Circuit seem to be on mostly the same page,” says D.C. attorney Daryl L. Joseffer, a partner in King & Spalding.

In the recent past, the Supreme Court seemed to accept patent cases to correct the Federal Circuit. But now it may be accepting these cases simply because they present issues that are important and need clarification, according to Sarnoff. “We can no longer assume the Supreme Court is acting only as a court of correction for the Federal Circuit,” he adds.

For next term, the high court has already granted certiorari in three patent cases. “That’s a huge number of patent cases,” considering that the court hears oral argument in around 80 cases per term, notes Sharon A. Israel, a partner in the Houston office of Mayer Brown and chair of the Patent Litigation Committee of the ABA Section of Intellectual Property Law. “Maybe that reflects the growing importance of patent law.”

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