• The FCC has filed its finalized net neutrality rules, set to take effect on November 20. The rules will almost certainly face legal challenges from Verizon and MetroPCS over the extent of the FCC’s jurisdiction.
• David Ignatius writes on legal uncertainty and difficult questions facing the future “rules of war” for drone strikes. The debate has gotten fresh attention over last week’s report that the Obama administration’s legal team is split on the extent of our ability to use lethal force in countries like Yemen and Somalia.
• In contrast to Sprint’s approach to AT&T’s proposed acquisition of T-Mobile, Verizon’s CEO has stepped up and defended the deal as a necessary outcome – “like gravity”.
• Samsung is seeking to ban iPhone 5 sales in South Korea for violating Samsung’s wireless technology related patents. The move comes on the heels of Apple’s latest success in banning Samsung’s Galaxy Tab 10.1 from Germany and an escalating international patent battle between the two tech giants.
• With an eye toward stock market volatility, the troubled GroupOn IPO is back on track with a late October-early November goal for going public.
• Three Boston University researchers have estimated that patent litigation by non-practicing entities, aka “patent trolls”, have cost publicly-traded defendants half a trillion dollars since 1990.

• Last week, the Justice Department filed suit in DC District court to block AT&T’s $39 billion acquisition of T-Mobile, arguing that the merger violates antitrust laws. Sprint has since filed its own lawsuit in DC District court to block the proposed deal.
• The Senate debates the America Invents Act on Patent Reform (H.R.1249). These proposed reforms to the patent system are expected to be passed and signed by President Obama within the next two weeks. Many argue that the new laws will harm small inventors and venture capital funded companies.
• TechCrunch reports on Google CEO Eric Schmidt’s own take on improving the quality of issued patents through crowdsourcing.
• Groupon is considering delaying its initial public offering due to recent public market uncertainty.
• The Electronic Frontier Foundation provides analysis on the recent Capitol Records v. MP3Tunes opinion issued by the New York Southern District.  The court held that file de-duplication on cloud-based music services falls within the safe harbor provisions of the DMCA.  The decision will lead to reduced costs for online music locker service providers.

37 CFR 1.56 (Rule 56) establishes that there is a duty to disclose information to the Patent Office. The regulation states that “[e]ach individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability.” The failure to disclose information could result in a later ruling of inequitable conduct and an invalidation of the patent.

In 1998 the Federal Circuit wrote, “inequitable conduct resides in failure to disclose material information… with an intent to deceive.” It is clear that inequitable conduct is made up of two distinct elements and they are: (1) intent; and (2) materiality. These two elements must each be proven by clear and convincing evidence.

Relationship of Office Actions to the Duty to Disclose

A recent question that has been debated among patent prosecutors is whether the duty to disclose material information extends to a duty to disclose the contents of previous office actions from related and/or unrelated patent prosecutions. More practically, patent prosecutors are worried that if they make a decision not to disclose the contents of a previous office action, that failure to disclose will later be used in an allegation of inequitable conduct that could invalidate the patent.

An office action is a response from the examiner at the United States Patent and Trademark Office to a filing by a patent prosecutor in the course of prosecuting a patent. An office action can be an allowance of the claims, a rejection of the claims pursuant to substantive patentability rules, or an objection to the claims pursuant to procedural rules. By its very nature, an office action merely represents the opinions and conclusions of the examiner who sent it and that examiner’s subjective interpretation of patent law and procedure. It is therefore unclear whether office actions fit within the definition of material information.

To answer the question whether office actions must be disclosed, it is therefore necessary to investigate the meaning of “material information” as it is set forth in Rule 56 to determine the extent of the materiality prong of the inequitable conduct test.

Material Information

Is an office action “information”?

Prior to determining whether an office action is material information, it must be determined whether it is information in the first place. As stated above, an office action represents the opinions and conclusions of an examiner at the USPTO based on the facts, arguments, and assertions put forth by the applicant in the patent application and in the prosecution history. It is possible that this definition does not bring office actions within the meaning of information, such that a categorical rule that they need not be disclosed can be established.

However, the language of the regulation and the Manual of Patent Examining Procedure (MPEP) suggests that such a narrow reading of the word “information” should not be endorsed. Rule 56 states that “all information” must be disclosed and it is therefore clear that the regulation is not referring to only prior art. The MPEP says that “the term “information” in Rule 56(a) is intended to be all encompassing.” The MPEP specifically mentions that all information must be disclosed, “regardless of the source.” There is a duty to disclose “information… as to other co-pending United States applications which are “material to patentability.”

The fact that neither the regulation nor the MPEP go into great detail about the meaning of “information” seems to indicate a broad definition of information, particularly when it is modified by the word “all.” This suggests that the “information” requirement will not provide an easy categorical rule as to whether office actions from other patent prosecutions need be disclosed. Rather, an office action from a different patent prosecution probably fits within the meaning of “information” and therefore its materiality must be analyzed in the same way as the materiality of any other information for which there may be a duty to disclose.

Materiality

Once it is established that an office action fits within the meaning of information, the entire disclosure question stems from the definition of materiality provided by the regulation. Rule 56(b) says that information is only material “it is not cumulative to information already of record or being made of record in the application, and (1) [i]t establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or 2) [i]t refutes, or is inconsistent with, a position the applicant takes in: (i) [o]pposing an argument of unpatentability relied on by the Office, or (ii) [a]sserting an argument of patentability.

There are two aspects to the materiality question, which can be referred to as timing and substance. With regard to timing, information is only material if it is not cumulative to information already of record. This means that regardless of the substantive nature of the information, if it has already been disclosed (or at least a way of obtaining it has been disclosed) then there is no duty to disclose it.

Not surprisingly, the majority of the focus of the case law has tended to be about the substantive materiality question addressed in Rule 56(1) and the standard has evolved over time. Early doctrine regarding materiality of information involved three tests that the court laid out in In re Multidistrict Litigation Involving Frost Patent. There was an objective ‘but for’ test, a subjective ‘but for’ test, and a ‘but it may have test’.[1]

More recently, there are two different tests that the CAFC has used in determining whether information is material. Prior to 1992, the courts used a reasonable examiner test, asking whether a reasonable examiner would have deemed the information material. This was based on the language of Rule 56 prior to its being changed in 1992.

In 1992, the language of Rule 56 was amended to its current form, involving a prima facie case of unpatentability. It appeared that the reasonable examiner test was no longer pertinent. However, recently, the court in Digital Control, Inc. v. The Charles Machine Works suggested that the reasonable examiner test was still alive and the prima facie test provides an additional test of materiality.

Is an office action “material”?

Cumulativeness

It is possible that the timing aspect of at least some types of office actions makes them inherently cumulative to information already of record such that the substantive question of materiality need not be addressed. With regard to cumulativeness, it should be noted that there is a potential difference between office actions from parent applications of the application at issue and office actions from unrelated applications. It is likely that in a regular patent application, office actions from other unrelated patent applications fit within the rule and qualify as information known to the individual and they are not cumulative to information already of record. Therefore, because office actions from other unrelated applications are not of record in the present application, there may be a requirement to disclose them, depending on their substantive materiality.

With regard to the question of disclosure in continuing applications of office actions from parent applications and other related applications, it is more questionable whether office actions are not cumulative. MPEP 609.02 says that it is “not necessary for the applicant to submit an information disclosure statement in the continuing application that lists the prior art cited by the examiner in the parent application” and that “the examiner of the continuing application will consider information which has been considered by the Office in the parent application.” Therefore, in the filing of a continuing application, it would appear that the office actions are cumulative to information already of record and the substantive question of materiality need not be addressed.

However, recently, the court in Larson Mfg. Co. of South Dakota, Inc. v. Aluminart Products Ltd. said that office actions from related co-pending patent applications can be material to prosecution. The court emphasized that the knowledge of a potentially different interpretation is clearly information that an examiner would want to have and therefore is material. Therefore, it is important to note that the court seemed to endorse the reasonable examiner test that was kept alive by the Digital Control court and the court seemed to somewhat merge the timing/substance questions in evaluating the materiality of office actions.

It therefore seems apparent that no categorical rule can be derived either with respect to unrelated office actions or with respect to related office actions based on their cumulativeness. Thus, with regard to the question of whether office actions must be disclosed to the PTO, it depends on an evaluation of the substantive nature of the information contained in the office action.

The substantive aspect of office actions

Assuming that the relevant materiality question is whether information creates a prima facie case of unpatentability and that the question of whether a reasonable examiner would want to have the information is still relevant, it seems that there is a requirement to disclose the contents of office actions.

Under the reasonable examiner test, which is still relevant according to the Digital Control court, a reasonable examiner would want to know about office actions from other patent prosecutions and to know about other examiners’ views on the subject matter. With regard to the language of the current Rule 56, an examiner’s opinions and conclusions based on the application, the prosecution history, and the prior art is probably enough to establish a prima facie case of unpatentability.

Furthermore, in 1992 the Federal Circuit in LaBounty Mfg v. U.S. Int’l Trade Comm’n established that there is a duty to err on the side of disclosure in ‘close cases.’ Essentially, when in doubt about whether the information should be disclosed, it is not simply a recommendation that the disclosure should be made but rather there is a duty to disclose. Additionally, disclosing earlier office actions from other prosecution can be used in subsequent litigation to show good faith and negate deceptive intent.

Conclusion

All of this doctrine seems to suggest that there is nothing unique about office actions with respect to the duty to disclose. Office actions are information. They are not necessarily cumulative to information already of record, even in cases of continuing applications. The fact that they consist of an examiner’s opinions and conclusions does not inherently mean that they cannot establish a prima facie case of unpatentability pursuant to Rule 56(1). Therefore, the materiality of previous office actions must be analyzed exactly the same way as all other information with respect to the duty to disclose.

A common feature of modern human clinical trials is a double-blind placebo test. In such a trial, neither the doctor administering the drug nor the patient knows who is receiving the active drug and who is receiving a placebo. The placebo effect is well documented and commonly understood as a mental expectation response to being told that you are receiving a powerful drug. Patients taking a placebo report a variety of responses: some patients on the placebo report feeling better; some report no response and no side effects; others report that they are feeling worse or only experiencing side effects. Some patients, who are not experiencing side effects, believe they are receiving the placebo tend to drop out of studies. Patient drop out is a serious problem and in response, the “active placebo” was developed.

Active Placebos

An active placebo is a placebo that causes the same side effects as the active drug, but does not treat the patient’s disease. This helps to convince patients that they are receiving the active drug in the trial, and makes them less likely to drop out (but more likely to report side effects and curative effects of the drug).  Active placebos are commonly used in pain trials, giving people symptoms like drowsiness, nausea, or dry mouth.

Patentability under §101

35 U.S.C. §101 requires that a patent be given for any “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof…” The “useful” requirement of §101 has been used to exclude immoral inventions from patentability. While this category used to include things like gambling machines, today things like suicide machines or a letter bomb would be excluded on an immorality basis. Could an active placebo fail the utility test of §101?

§101 utility requires a practical or specific utility, operability, and a beneficial utility. An active placebo would meet the operability requirement by showing that it did in fact give some people side effects. Presumably, the side effects would have to come from a pharmaceutically active ingredient in the placebo, and not be a result of mental expectation from the patient. The placebo would also pass the practical or specific utility test because it is useful in clinical trials for reducing the likelihood of patient drop out. However, is the active placebo beneficial? It is a device used to trick people into thinking they are taking a curative drug, when in fact the pill does nothing but give them a stomach ache!

The beneficial utility test is a very low bar, and a device that deceives the public may still have a beneficial utility. Here, it may come down to how the claims are written. A composition or compound claim for a drug to induce headaches or nausea would almost certainly be allowed. However, a method claim to tricking patients and taking advantage of the placebo or mental effects of the drug might tip the scales in the other direction. In the European Patent Office, the patent may fail, partly because the EPO expressly allows examiners to consider the morality of an invention, but also because the EPO, under the European Patent Convention, would not grant any method claims filed on an active placebo as being a surgical method.

The use of active placebos presents many regulatory and legal issues that the Bioethics Committee should consider, including patent eligibility. Some other issues involve the informed consent doctrine, the ethics of “do no harm”, and the integrity of clinical trials.  No matter what the committee recommends, they will face a tough decision that could affect many clinical study participants in the future.

Last year, we published his article, The Devil in the Details: A Critique of KSR’s Unwarranted Reinterpretation of “Person Having Ordinary Skill”.  It has since been selected for inclusion in the Patent Law Review, an annual anthology published by West, as one of the best patent articles published in the last year.

Congratulations Professor Dzeguze!

As Core Business Fades, TiVo is Turning to IP Licensing

People love their DVRs.  More specifically, they love their TiVo DVRs.  TiVo was one of the first DVR providers (RIP Replay TV and one-click commercial skipping) and holds broad pioneer patents.  It’s a practicing plaintiff, not a naked patent troll.  And despite some gripes, its products have consistently won accolades for usability, especially compared to competitors’ DVRs.

TiVo was the first company to deliver on the promise of easy-to-use time-shifted television.  But TiVo has been a victim of the success of its own technology.  It has languished for the last decade as cable and satellite companies deployed their own (usually mediocre, occasionally execrable) set-top box DVR recorders to a captive customer base.  TiVo’s subscriber base is way off its highs.  Its third quarter 2009 revenues were an anemic $56.9 million.  And TiVo’s share price has been flat for a decade, hovering around $1 billion market cap.

But while TiVo’s own products and services founder, its IP posture is increasingly puissant.  TiVo has partnerships with DirecTV, Comcast, Cox, and Virgin Media, and has patent licensing agreements with Pioneer, Sony, and Toshiba.  In its second incarnation as an IP holding company, TiVo wants to get patent licensing rents from all of the players in the DVR/set-top box market.  However, those revenue streams aren’t as profitable as having a larger base of customers: TiVo averages 93¢ a month from licensed subscribers and $7.65 from its own customers.  To survive, it needs to bend the DVR market to its will and get all of the major players to join its harem of captive patent licensees.

TiVo Does Patent Trolling Right

TiVo is in a uniquely sympathetic position as a practicing pioneer facing seemingly undeserved losses at the hands of patent infringers.  As a result, TiVo has been spectacularly successful in a grueling six-year patent fight with EchoStar and Dish Network.

TiVo’s legal Death Star is U.S Patent No. 6,233,389 (“Multimedia time warping system”), issued on May 15, 2001.  The ‘389 patent covers fundamental DVR technologies for recording video from TV.  TiVo scored an initial $73.9 million win and permanent injunction against EchoStar for infringement of the ‘389 patent by EchoStar’s Dish Network DVR.  On appeal at the Federal Circuit, the case was argued by appellate heavyweights Seth Waxman and Donald Dunner, and the lower court verdict was upheld.  Then, TiVo got $200 million more in damages, contempt sanctions, and attorney fees for violation of the injunction when EchoStar unsuccessfully attempted to design around the patent.  TiVo pegs the total litigation revenues from EchoStar at $400 million plus attorney fees.

The ‘389 patent has also been upheld on ex parte re-examination by the PTO, and is now on its second re-examination.  Although the PTO has preliminarily rejected two important claims in an office action, TiVo characterizes the rejection as simply a procedural matter pending full re-examination; indeed, in the prior reexamination, claims were initially held invalid and then ultimately upheld.

If TiVo comes out of the second reexamination with the ‘389 patent mostly intact, it will have a gold-plated patent that has been repeatedly validated in District Court, the Federal Circuit, and the PTO.  The patent will be a license for TiVo to print money, and will form the keystone of TiVo’s strategy to extract licensing revenues from the entire DVR industry.

A Challenger Appears

Perhaps sensing blood, TiVo opened a new litigation front by suing AT&T and Verizon in the Eastern District of Texas on August 26, 2009, alleging that AT&T’s U-verse service infringed on TiVo’s DVR patents.  This dragged Microsoft into the DVR wars: AT&T uses Microsoft’s Mediaroom system in its U-Verse TV service.  If TiVo were able to crush AT&T like it whelmed EchoStar, the U-Verse venture could be in jeopardy – a permanent injunction is still a normal remedy in patent litigation for practicing plaintiffs, even post-eBay v. MercExchange.

Microsoft intervened in the case and separately sued TiVo on January 19, 2010, for infringing a different set of DVR patents.  Microsoft’s complaint alleges infringement of U.S. Patents No. 6,008,803 (“System for displaying programming information”) and 6,055,314 (“System and method for secure purchase and delivery of video content programs”).  Microsoft admits it is asserting these two patents to force a settlement with a cross-licensing agreement: “We remain open to resolving this situation through an intellectual property licensing agreement, and we have initiated discussions to engage TiVo in negotiations”.

Should TiVo be concerned about Microsoft’s patents?  Are they enough to force TiVo to the table?

From an admittedly cursory look, they are about as threatening as a limp noodle.  Neither of the patents has been tested in court.  The PTO patent application system is ex parte; patents issue without being tested adversarially.  Although there is a presumption of patent validity once issued, the presumption may be overcome in court in a variety of ways.

The ’803 Patent

The ‘803 patent (“System for displaying programming information”) was filed on August 7, 1998 and issued December 28, 1999.

It immediately loses brownie points for mentioning the “information superhighway” in a non-ironic manner in the specification.  It also misspells “information” “informaton” in Claim 1.  We’re not off to a very good start!

Claims 1-21, 23, and 25-32 cover sundry variations on two- or three-pane information displays, all clearly anticipated in the prior art by myriad computer displays dating from the dawn of windowing systems (or even from text displays).

Claims 22 and 24 are where the meat is.  Claim 22 claims a “system” with an “information display” and a “category display.”    Claim 24 claims “[t]he system recited in claim 22, wherein each of the information tiles comprises at least a program name, program date and start time, and program channel.”  Claim 24 is the only claim mentioning TV programming data.  As there are innumerable prior art information displays with generic data in a format that would anticipate the other claims, Claim 24 is the only claim that could realistically be asserted against TiVo.

Even if there is no prior art with TV programming data displayed in a format like Claim 24 (doubtful), the ‘803 patent faces other enforcement obstacles.  An exact prior art reference will invalidate a patent for lack of novelty.  But even if there is no exact single prior art reference that practices the claim, two or more prior art references may be combined to void a patent for obviousness.  Here, a prior art reference teaching the compilation and organization of TV programming data (e.g. TV Guide magazine) can be combined with the prior art screen data formats to show that Claim 24 was obvious and therefore not patentable.

Even if the ‘803 patent survives what will surely be a searching obviousness inquiry, it may encounter an issue of patentable subject matter under the currently-valid (pending a Supreme Court decision expected in Spring 2010) machine-or-transformation test articulated by the Federal Circuit in In re Bilski.

§ 101 of the Patent Act enumerates four types of statutory (that is, eligible) subject matter: processes, machines, manufactures, and compositions of matter.  Claims are supposed to indicate in their preamble what category they fall under.  Generally, “system” is susceptible to interpretation as a machine or as a process.  If the claimed system doesn’t clearly describe a machine or apparatus, then it may be interpreted as a process claim.  A process must be implemented with a particular machine or transform an article from one thing or state to another.  Clearly, there is no transformation happening in Claim 24.  Is there a particular machine?  The claim language may be too vague – there is no context for “category display” or “information display.”  Furthermore, reference to a generic computer or set-top box may be insufficient.

The ‘314 Patent

The ‘314 patent (“System and method for secure purchase and delivery of video content programs”) was filed on March 22, 1996, and issued April 25, 2000.

On its face, the ‘314 patent appears to be on much more solid ground than the ‘803 patent.  It’s bigger: 74 claims.  It actually appears to deal with technology!  There are method, device, and several varieties of system claims: “video content delivery system,” “interactive entertainment network system,” “system for purchasing video content programs,” etc.  Overall, the patent covers video decryption technologies for set-top boxes.  It has a bit tacked on at the end concerning the use of the encrypted network to purchase video-on-demand.  Without having more technical knowledge of TiVo’s encryption setup it’s hard to get a feel for how well the claims map to TiVo’s devices.  The analysis is on shakier ground here due to the increased complexity of the ‘314 patent.  However, a few issues do stand out.

Claims 27-33, covering an “integrated circuit card for use in decryption of video content programs” or “a video decryption device” arguably cover the now-standard cable TV decryption standard CableCARD.  The CableCARD decryption approach for digital cable was a product of the Telecommunications Act of 1996, and has been blessed by the FCC.  TiVo DVRs use it.  To the extent that TiVo infringes because it implements support for CableCARD, it may have a claim that the CableCARD system pre-empts the ‘314 patent – not because CableCARD is prior art, but because it is a specific technological industry mandate from a regulatory agency and should therefore not become a vector for a patent infringement suit.

Claims 34-41 are method (process) claims.  Claim 34 is the only independent claim.  The rest are dependent on 34.  Unfortunately for Microsoft, Claim 34 (“method for delivering video content programs”) appears to violate the rule of BMC v. Paymentech: a single entity must directly or vicariously (i.e. by ordering a minion) carry out all of the steps of a process claim in order to infringe.  Claim 34 describes a series of operations involving encrypted video streams, including 1) encrypting and decrypting a program key, 2) encrypting and decrypting the video stream, and 3) transmission of an encrypted video stream.  But TiVo doesn’t transmit video from the cable company: the cable company does.  And consumers typically lease their CableCARD from the cable company; any decryption that the card performed couldn’t be attributed to TiVo.  On the other hand, if TiVo stores data encrypted on hard disk and uses a non-CableCARD means of decrypting it prior to viewing, it may arguably infringe.

Claims 43-53, covering the purchase of  video streams, again run into the Paymentech issue because the claim steps purport to cover both the actions of the video purchaser (i.e. the viewer) and the “video merchant” (e.g. Amazon, Netflix, etc.).

A few, more broadly written claims (e.g. Claim 42 and 54-58) appear to recognize this limitation.  These claims only cover decryption of a video data stream.  However, their extremely wide claim scope may run into prior art novelty anticipation from other TV decryption technologies – of which there are many.

Is Microsoft’s Suit Credible?

The ‘803 patent is clearly a non-starter, but it’s much harder to evaluate the ‘314 patent.  Neither patent has been tested in court, so they’ll initially have discounted bargaining weight compared to the battle-tested, blood-spattered ‘389 patent.  If the ‘314 patent proves valid, it may be enough to parry TiVo’s attack on U-Verse, which, with barely 2 million subscribers, is nowhere near the mother lode that EchoStar was.  This wouldn’t affect TiVo’s ability to take on other targets (Time Warner may be especially tempting), but it may blunt the strong momentum that TiVo has built up with its string of EchoStar victories.

• Twitter is a source of evidence for a murder charge, reports the New York Daily News.  But could those tweets be copyrighted?  Law.com’s Law Technology News weighs in.

• The Electronic Frontier Foundation provides a good, link-heavy analysis of the unanswered questions surrounding Google’s decision to stop censoring their Chinese services.

• For some reason, Psystar keeps fighting Apple, posts Gizmodo.

• Custom and Border Protection’s laptop searches may have gone too far, as revealed in a series of Freedom of Information Act requests for documents, reports Gizmodo.  EFF is looking for potential plaintiffs.

• The Wall Street Journal Law Blog analyzes how advances in medical science have impacted the rights of surrogate mothers.

• IBM gets the more U.S. patents than any other company for the 17th consecutive year, says MSN’s Moneycentral.  But Microsoft’s much smaller patent portfolio is worth more, reports The 271 Patent Blog.

• The Prior Art offers a fascinating look into the jury’s decision in i4i v Microsoft, complete with juror interviews.

• Chief U.S. District Judge Vaughn Walker in San Francisco decided to allow showing the trial challenging California’s Proposition 8 on YouTube, reports the San Francisco Chronicle.  The Wall Street Journal Law Blog questions whether that’s a good thing.

• Patent Librarian notes that Wikipedia citations in patent applications are up 59%, but Patently-O puts that increase in perspective.

• A report commissioned by the French government recommends taxing Google on their online advertising revenues in France to help fund legal outlets to buy media hurt by online piracy, reports the Mercury News.  President Sarkozy supports the measure, says PC World.

• The Wall Street Journal reports that Philip K. Dick’s estate claims Google infringed on its intellectual property by using the name “Nexus One” for the new Google-branded phone.  It brings to mind this recent post by Seth Godin.

• The Electronic Frontier Foundation responds to Bono’s recent New York Times Op-Ed, in which the musician / global icon lamented media piracy and suggested digital tracking be used to help criminal enforcement.

• Law.com provides an insightful guide to mining web 2.0 as a source of evidence.

• The Colorado Department of Transportation created an iPhone app to tell users if they’re too drunk to drive, the latest in a series of state efforts “to reach out to the Twitter-iPhone-Facebook generation,” according to the Wall Street Journal.

• The Ninth Circuit Court of Appeals affirmed [decision, pdf] a district court ruling that tasers should only be used in limited circumstances, as they pose a greater threat to their targets than other non-lethal police weapons.  The San Jose Mercury News reports on the suit that originated from a city police officer using a stun gun on a San Jose State student.

• Broadcom agreed to settle the securities fraud class action against it, says the Wall Street Journal Law Blog.

• The L.A. Times reports that the California Science Center has been sued for canceling a showing of film attacking Darwinian evolution and promoting intelligent design.

• Blizzard helps police make a drug arrest of a suspect tracked by his World of Warcraft account, posts kokomo perspective.

TXED: Favored Home of Patent Claimants

The Eastern District of Texas is unique among the 94 federal district courts.  Over the past decade the district, 200 miles east of Dallas, has become an epicenter of patent litigation in the United States.  The rise of the Eastern District under the guidance of Judge John Ward has been well-documented, and is not a coincidence: Judge Ward very intentionally built his district’s reputation as being trial friendly—or, to listen to his critics, plaintiff and patent-troll friendly.  By expediting trials and deferring to plaintiff-favoring juries, among other factors, the judges of the Eastern District made their court a favorite destination of forum-shopping plaintiffs with patent claims.

The forum shopping has not been unwelcome—the flood of patent cases filed in Marshall has brought added prestige to the four E.D. Tex. judges and has been an economic boon to the community.  For patent attorneys and parties to suits brought there, the judges’ familiarity with and expertise in patent law has made litigation more predictable.  The result has been analogous to Delaware’s rise in the area of corporate law, with a similar mix of criticism and praise.

Now, however, the Federal Circuit has threatened the primacy of the Eastern District of Texas for patent litigation.  The Federal Circuit’s writ of mandamus on Thursday was its third this year directing the Eastern District to vacate a decision denying venue change and transfer venue to the district requested by the defendant.  As in In Re Genentech and In Re Hoffmann-La Roche (the latter decided just three weeks ago), the C.A.F.C. in In Re Nintendo said it was “clear and indisputable” that the Eastern District misapplied the Fifth Circuit’s framework for considering venue change under 28 U.S.C. § 1404(a) and abused its discretion by refusing the requested transfer motion.

Venue Change after TS Tech

All three cases follow from the C.A.F.C.’s decision in In Re TS Tech.  That case was appealed from Lear Corp. v. TS Tech, in which TS Tech moved for transfer for venue from EDTX to the Southern District of Ohio.  TS Tech argued that OHSD was the more appropriate venue because the physical and documentary evidence was mainly located in Ohio and the key witnesses all lived in Ohio, Michigan, and Canada.  TS Tech’s only alleged connection to Texas was that it sold some of its products there, as it did nationwide.  Judge Ward denied the motion for transfer, giving significant deference to the plaintiff’s choice of venue and saying that the sale of TS Tech’s products in the district gave the local citizens a “substantial interest” in the litigation.

The Federal Circuit disagreed.  In a landmark decision that cited no substantive patent law, the court decided the matter on largely procedural grounds.  In the Fifth Circuit, a motion for venue change should be granted when the proposed venue would be “clearly more convenient” than the venue chosen by the plaintiff, a determination made by weighing the eight “public” and “private” forum non conveniens factors from In re Volkswagen.  The Federal Circuit said Judge Ward’s misapplication of the factors was so great as to produce a “patently erroneously result”—the standard for a writ of mandamus.

The Federal Circuit identified four “key errors” made by the Eastern District.  First, the district court gave too much weight to the plaintiff’s choice of venue—Judge Ward treated the plaintiff’s choice as a ninth forum non conveniens factor to be weighed in the Volkswagen analysis.  The plaintiff’s choice actually only shifts the burden onto the moving party to prove, using the eight factors, that its proposed venue is “clearly more convenient” than the original venue—the plaintiff’s preference should not be given any weight in itself.  Second, the district court “completely disregarded” precedent in assessing the cost of attendance for witnesses.  The cost and inconvenience of having key witnesses travel over 100 miles to a venue should be considered, and “the factor of inconvenience to witnesses increases in direct relationship to the additional distance to be traveled.”  Even though all the key witnesses would have had to travel approximately 900 miles further with the case in Texas, the district court said it “was not persuaded to give great weight” to the inconvenience.  The Federal Circuit said this was clearly erroneous, and found this factor to weigh significantly for transfer.

Third, the district court purposefully discounted the relevance of all the physical and documentary evidence being much closer to the proposed venue, and none of the evidence being in Texas.  Judge Ward’s decision said that “the increased ease or storage and transportation” makes the factor assessing relative ease of access to sources of proof “much less significant.”  The Federal Circuit noted that this interpretation was directly contrary to Fifth Circuit precedent, which indicates that modern ability to store, transport, and electronically view evidence does not neutralize this FNC factor.  Finally, the district court disregarded Fifth Circuit precedent as to “the public interest in having localized interests decided at home,” finding a local interest in the outcome of the case because some of the defendant’s products had been sold within the borders of the Eastern District.  The Federal Circuit said the district court’s application of this factor had been “unequivocally rejected” by the Fifth Circuit.  This factor only weighs against transfer when there is a local connection to the case that is greater than in the proposed venue—here, because the defendant’s products were sold nationwide, there was no more connection to the case in Marshall, Texas than there was in any other federal district.

In Re Nintendo

Much of the Federal Circuit’s analysis in Nintendo was identical to its analysis in TS Tech, Genentech, and Hoffmann-La Roche.  The court said a “stark contrast in relevance, convenience, and fairness between the two venues” existed in Nintendo “as in” those other three cases, and the court “has held and holds again in this instance that in a case featuring most witnesses and evidence closer to the transferee venue with few or no convenience factors favoring the venue chosen by the plaintiff, the trial court should grant a motion to transfer” (emphasis added).

The Federal Circuit identified the same four errors in FNC-factor analysis in Nintendo as it did in TS Tech, reiterating that the plaintiff preference is not a factor to be considered, and restating the importance of the cost and inconvenience of additional travel to get to Texas for witnesses, the physical location of evidence, and the lack of local connection to the case.  The Federal Circuit was also unimpressed by an argument by the district court that because key witnesses were located in Japan, Washington, and New York, the Eastern District could serve as a “centralized location” for the case.  The Federal Circuit rejected that claim (as it had in Genentech), and noted that to even make this “hypothesized” argument the district court included minor satellite offices of the parties in its analysis that probably should not have been considered.  Accordingly, the court ruled that “the district court clearly abused its discretion in denying transfer from a venue with no meaningful ties to the case.”

Future application

The factors motivating the Federal Circuit’s conclusion could easily apply to a significant number of cases brought in the Marshall courthouse.  The Eastern District of Texas’ centrality to the world of patent litigation has been questioned precisely because it is rarely convenient for witnesses to get there, the source of the case’s evidence, or locally connected to the issue at trial.  In TS Tech, Genentech, Hoffmann-La Roche, and now Nintendo, the Federal Circuit has made clear that in such cases, the district court should grant venue-transfer motions to more convenient districts.  Often, the only stated reason to have the trial in the Marshall courthouse is the plaintiff’s preference or possibly its neutral, central location between the actual places witnesses or evidence are to be found.  The Federal Circuit has made clear that these considerations are categorically insufficient to outweigh the three problem factors.  A forum-shopping plaintiff—or an EDTX judge protecting the relevance of the district—has significantly less ground on which to defend a denial of motion transfer after Nintendo.

Though the quartet of mandamus cases could represent a dramatic blow to the EDTX’s plaintiff-friendly reputation, it’s yet to be seen if TS Tech will result in a “wave of transfers of actions” from the Texas district.  One reason to believe the change will be moderate is In Re Telular Corp., in which a motion for a writ of mandamus on the same bases as the defendants in TS Tech and Nintendo was denied by the Federal Circuit.  Judge Moore emphasized that even if the Federal Circuit disagreed with the district court ruling, for a writ of mandamus he must defer to the lower court unless “it is clear that the facts and circumstances are without any basis for a judgment of discretion.”  The decision noted that unlike in those cases where the Federal Circuit had recently granted writs for transfer, the venue proposed by Telular was not clearly more convenient than the Eastern District.  In the other cases, the key witnesses and evidence were unequivocally closer to the proposed venue; here, two key witnesses would potentially be more inconvenienced traveling to the proposed venue, and some evidence would potentially be more costly to send to the proposed venue.  Additionally, Telular waited five months after the district court’s denial of transfer to motion for the writ; Judge Moore noted that although “remedy by mandamus is at law, its allowance is controlled by equitable principles,” so Telular’s delay weighed against granting the writ.  Together, these two aspects of Telular led to the Federal Circuit’s conclusion that mandamus was not appropriate.

Game over?

The conclusion for patent litigators on the defense side should be one of cautious optimism.  The four writs of mandamus coming from the Federal Circuit since December 2008 gives defendants hoping to avoid the plaintiff-friendly district a last resort assurance against the clearest cases of forum-shopping.  Moreover, the language of the decisions indicates that the Federal Circuit might be sending a message to the Texas judges to scale back their efforts to boost the importance of their district.  On the other hand, Telular shows that the Federal Circuit still gives deference to the district courts to make rational decisions regarding change of venue motions.

The issue going forward will be how the judges of TXED react to the Federal Circuit’s five mandamus rulings.  Will they continue to guard the district’s importance and err on the side of rejecting transfer motions?  Or will they hedge against further mandamus writs or reversals on appeal by more willingly transferring cases out of the district—and send with them the district’s unique position?  Future analysts might look back to December 2009 and see that Nintendo marked the end of the game for the Eastern District of Texas.

By Rajiv Batra.

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