Can You Induce Yourself to Infringe?

The Supreme Court granted certiorari in Life Tech v. Promega Corp. today to resolve an interesting conundrum of statutory interpretation having to do with foreign infringement. I won't provide all the details here - as Jason Rantanen and Dennis Crouch have ably done so. [Note: it turns out that the issue on which the court granted cert. is the one I find less interesting. Thus, I've edited this!]

The question is deceptively simple: when a manufacturer creates an infringing product in a foreign country, here a "kit," is it infringement of the patent for the manufacturer to buy or make a key component of that kit and then export it from the U.S. to the foreign manufacturing facility?

You'd think there would be a clear answer to this question, but there isn't. The statute, 35 U.S.C. § 271(f)(1), states:

Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

I had always assumed that the exported product is a substantial portion. The jury found it was, and if it turns out it wasn't, then that's just not that interesting a question. But I guess not - as this is the question that the court granted cert on. Indeed, on this issue only, as discussed further below.

The only thing that's interesting about the substantial portion question is that the exported product is a commodity, and thus 35 U.S.C. § 271(f)(2) - which enforces liability for exporting specially made products used for contributory infringement - doesn't apply. In other words, this is an interesting case because inducement liability is the only type of liability available, and inducement liability is really hard to prove, especially with a commodity.

But inducement is much easier here, theoretically, because the exporter is the same company as the foreign manufacturer. In other words, you can assume that the intent of the export was to combine the product into the infringing combination. And, yet, the court did not grant cert on that issue.

Instead, it will have to answer the question in a roundabout way - whether self-inducement is possible, but not when the component is a commodity. I suppose the Court could say, well, it's not the commodity that matters, but that it was too small a component. But isn't that a jury question? It seems to me that the only way the Court can reasonable make a distinction is either to make some new threshhold for what "substantial" is, or say that a commodity can never qualify. I don't like either of those options much, though - as I note below - the commodity angle has more legs given that the same commodity could be purchased from a third party without liability.

When this type of combination is done by a single manufacturer in the U.S., we call it direct infringement under § 271(a). The concept of inducement simply never comes up, and thus all the precedent to date discusses inducing another and spends no time on the importance of each component (indeed, § 271(b) says you can induce without selling anything!). So, to say that Life Tech is liable under § 271(f)(1) is to say that it has induced itself to infringe by exporting the commodity component that it could have bought from someone else who would not have induced it.

I don't think this was such a clear cut case on the self-inducing point, and I think that granting cert. on only the substantial component issue muddles the question. I offer two opposing viewpoints.

On the one hand, of course one can induce oneself for this statute. Foreign infringement liability was written in order to stop parties from avoiding the reach of a U.S. patent by shipping parts overseas to be assembled there. Viewed from this angle, it is not only rational but mandated that a company be held liable for shipping components overseas for the purpose of combining them into an infringing product. From this perspective, the policy goals of the statute dictate liability - even if the component shipped is a commodity.

On the other hand, the key component is a commodity, supplied by any number of companies. If Life Tech had only ordered the commodity from one of the other companies for shipment from the U.S., rather than supplying it from it's U.S. arm, it surely would not be liable. Viewed from this perspective, the extraterritorial reach of the statute makes little sense -- is a little silly even -- if it turns on a detail as minute as whether a company bought a commodity and shipped it overseas to itself or whether it bought a commodity and had the seller ship it overseas to itself.

My gut says follow the statute and find liability, even if avoiding liability is ridiculously easy. There are lots of statutes like that, and there's no reason why this shouldn't be one of them. In that sense, the Court's denial of cert. on the self-inducement issue makes sense, but I don't know what to make of the issue on which it did grant review.

Cuozzo v. Lee and the Potential for Patent Law Deference Mistakes

I wrote a short post on Monday's decision in Cuozzo v. Lee for Stanford's Legal Aggregate blog, which I'm reposting here. My co-blogger Michael Risch has already posted his initial reactions to the opinion on Monday, and he also wrote about deference mistakes in the context of the "broadest reasonable interpretation" standard in an earlier article, The Failure of Public Notice in Patent Prosecution.

The Federal Circuit's patent law losing streak was broken Monday with the Supreme Court's decision in Cuozzo v. Lee. At issue were two provisions of the 2011 America Invents Act related to the new "inter partes review" (IPR) procedure for challenging granted patents before the Patent and Trademark Office. IPR proceedings have been melodramatically termed "death squads" for patents—only 14% of patents that have been through completed trials have emerged unscathed—but the Supreme Court dashed patent owners' hopes by upholding the status quo. Patent commentators are divided on whether the ease of invalidating patents through IPR spurs or hinders innovation, but I have a more subtle concern: the Supreme Court's affirmance means that the PTO and the courts will evaluate the validity of granted patents under different standards of review and different interpretive rules, providing ample possibilities for what Prof. Jonathan Masur and I have termed "deference mistakes" if decisionmakers aren't careful about distinguishing them.

Cuozzo: So Right, Yet So Wrong

The Supreme Court issued its basically unanimous opinion in Cuozzo today. I won't give a lot of background here; anyone taking the time to read this likely understands the issues. The gist of the ruling is this: USPTO institution decisions in inter partes review (IPR) are unappealable, and the PTO can set the claim construction rules for IPR's, and thus the current broadest reasonable construction rule will surely remain unchanged.

I have just a few thoughts on the ruling, which I'll discuss here briefly.

First, the unappealability ruling seems right to me. That is, what part of "final and non-appealable" do we not understand? Of course, this leads to a partial dissent, that it means no interlocutory appeals, but you can appeal upon a final disposition. But that's just a statutory interpretation difference in my book. I'm not a general admin law expert, but the core of the reading, that Congress can give the right to institute a proceeding and make it unreviewable, so long as the outcome of the proceeding is reviewable, seems well within the range of rationality here.

But, even so, the ruling is unpalatable based on what I know about some of the decisions that have been made by the PTO. (Side note, my student won the NYIPLA writing competition based on a paper discussing this issue.) The court dismisses patentee's complaint that the PTO might institute on claims that weren't even petitioned for review as simply quibbling with the particularity of the petition and not raising any constitutional issue. This is troublesome, and it sure doesn't ring true in light of Twiqbal.

Second, the broadest reasonable construction ruling seems entirely, well, broadly reasonable. The PTO uses that method already in assessing claims, and it has wide discretion in the procedures it uses to determine patentability. Of course the PTO can do this.

But, still, it's so wrong. The Court understates, I believe, the difficulty of obtaining amendments during IPR. The Court also points to the opportunity to amend during the initial prosecution; of course, the art in the IPR is now newly being applied - so it is not as if the BRC rule had been used in prosecution to narrow the claim. Which is the entire point of the rule - to read claims broadly to invalidate them, so that they may be narrowed during prosecution. But this goal often fails, as I wrote in my job talk article: The Failure of Public Notice in Patent Prosecution, in which I suggested dumping the BRC rule about 10 years ago.

Whatever the merits of the BRC rule in prosecution, they are lost in IPR, where the goal is to test a patent for validity, not to engage in an iterative process of narrowing the claims with an examiner. I think more liberal allowance of amendments (which is happening a bit) would solve some of the problems of the rule in IPRs.

Thus, my takeaway is a simple one: sometimes the law doesn't line up with preferred policy. It's something you see on the Supreme Court a lot. See, e.g. Justice Sotomayor's dissent today in Utah v. Strieff

Halo v. Pulse and the Increased Risks of Reading Patents

I wrote a short post on Monday's decision in Halo v. Pulse for Stanford's Legal Aggregate blog, which I'm reposting here.

The Supreme Court just made it easier for patent plaintiffs to get enhanced damages—but perhaps at the cost of limiting the teaching benefit patents can provide to other researchers. Chief Justice Robert’s opinion in Halo v. Pulse marks yet another case in which the Supreme Court has unanimously rejected the Federal Circuit’s efforts to create clearer rules for patent litigants. Unlike most other Supreme Court patent decisions over the past decade, however, Halo v. Pulse serves to strengthen rather than weaken patent rights.

Patent plaintiffs typically may recover only their lost profits or a “reasonable royalty” to compensate for the infringement, but § 284 of the Patent Act states that “the court may increase the damages up to three times the amount found or assessed.” In the absence of statutory guidance on when the court may award these enhanced damages, the Federal Circuit created a two-part test in its 2007 en banc Seagate opinion, holding that the patentee must show both “objective recklessness” and “subjective knowledge” on the part of the infringer. The Supreme Court has now replaced this “unduly rigid” rule with a more uncertain standard, holding that district courts have wide discretion “to punish the full range of culpable behavior” though “such punishment should generally be reserved for egregious cases.”

On Empirical Studies of Judicial Opinions

I've always found it odd that we (and I include myself in this category) perform empirical studies of outcomes in judicial cases. There's plenty to be gleaned from studying the internals of opinions - citation analysis, judge voting, issue handling, etc., but outcomes are what they are. It should simply be tallying up what happened. Further, modeling those outcomes on the internals becomes the realest of realist pursuits.

And, yet, we undertake the effort, in large part because someone has to. Otherwise, we have no idea what is happening out there in the real world of litigation (and yes, I know there are detractors who say that even this isn't sufficient to describe reality because of selection effects).

But as data is easier to come by, studies have become easier. When I started gathering data for Patent Troll Myths in 2009, there was literally no publicly aggregated data about NPE activity. By the time my third article in the series, The Layered Patent System, hit the presses last month (it had been on SSRN for 16 months, mind you) there was a veritable cottage industry of litigation reporting - studies published by my IP colleagues at other schools, annual reports by firms, etc.

Even so, they all measure things differently, even when they are measuring the same thing. This is where Jason Rantanen's new paper comes in. It's called Empirical Analyses of Judicial Opinions: Methodology, Metrics and the Federal Circuit, and the abstract follows:

Despite the popularity of empirical studies of the Federal Circuit’s patent law decisions, a comprehensive picture of those decisions has only recently begun to emerge. Historically, the literature has largely consisted of individual studies that provide just a narrow slice of quantitative data relating to a specific patent law doctrine. Even studies that take a more holistic approach to the Federal Circuit’s jurisprudence primarily focus on their own results and address only briefly the findings of other studies. While recent developments in the field hold great promise, one important but yet unexplored dimension is the use of multiple studies to form a complete and rigorously supported understanding of particular attributes of the court’s decisions.

Drawing upon the empirical literature as a whole, this Article examines the degree to which the reported data can be considered in collective terms. It focuses specifically on the rates at which the Federal Circuit reverses lower tribunals — a subject whose importance is likely to continue to grow as scholars, judges, and practitioners attempt to ascertain the impact of the Supreme Court’s recent decisions addressing the standard of review applied by the Federal Circuit, including in the highly contentious area of claim construction. The existence of multiple studies purportedly measuring the same thing should give a sense of the degree to which researchers can measure that attribute.

Surprisingly, as this examination reveals, there is often substantial variation of reported results within the empirical literature, even when the same parameter is measured. Such variation presents a substantial hurdle to meaningful use of metrics such as reversal rates. This article explores the sources of this variability, assesses its impact on the literature and proposes ways for future researchers to ensure that their studies can add meaningful data (as opposed to just noise) to the collective understanding of both reversal rate studies and quantitative studies of appellate jurisprudence more broadly. Although its focus is on the Federal Circuit, a highly studied court, the insights of this Article are applicable to virtually all empirical studies of judicial opinions.

I liked this paper. It provides a very helpful overview of the different types of decisions researchers make that can affected how their empirical "measurement" (read counting) can be affect and thus inconsistent with others. It also provides some suggestions for solving this issue in the future.

My final takeaway is mixed, however. On the one hand, Rantanen is right that the different methodologies make it hard to combine studies to get a complete picture. More consistent measures would be helpful. On the other hand, many folks count the way they do because they see deficiencies with past methodologies. I know I did. For example, when counting outcomes, I was sure to count how many cases settled without a merits ruling either way (almost all of them). Why? Because "half of patents are invalidated" is very different than "half of the 10% of patents ever challenged are invalidated" are two very different outcomes.

Thus, I suspect one reason we see inconsistency is that each later researcher has improved on the methodology of those who went before, at least in his or her own mind. If that's true, the only way we get to consistency now is if we are in some sort of "post-experimental" world of counting. And if that's true, then I suspect we won't see multiple studies in the first place (at least not for the same time period). Why bother counting the same thing the same way a second time?

Patent Damages Conference at Texas Law

Numerous patent academics, practitioners, and judges gathered in Austin at the University of Texas School of Law yesterday and today for a conference on patent damages, organized by Prof. John Golden and supported by a gift from Intel. Here's a quick overview of the 12 papers that were presented, the suggestions from the paper commenters, and some notes from the Q&A. (We're following a modified Chatham House Rules in which only statements from academics can be attributed, but it was great having others in the room.)

Jason Bartlett & Jorge Contreras, Interpleader and FRAND Royalties – There is no reason to believe the sum of the bottom-up royalty determinations from FRAND proceedings will be reasonable in terms of the overall value the patents contribute to the standard. To fix this, statutory interpleader should be used to join all patent owners for a particular standard into a single proceeding that starts with a top-down approach. Arti Rai asks whether the bottom-up approach really creates such significant problems. Why can’t courts doing the bottom-up approach look at what prior courts have done? And doesn’t this vary depending on what product you’re talking about? But ultimately, this is a voluntary proposal that individual clients could test out. Doug Melamed notes that even if royalties in individual cases are excessive, standard implementers won't have an incentive to interplead unless their aggregate burden is excessive—and given the large number of "sleeping dog" patents, it's not clear that's true.

Ted Sichelman, Innovation Factors for Reasonable Royalties – Instead of calculating royalties based on the infringer's revenues, let's use the patentee's R&D costs (including related failures and commercialization costs) and award reasonable rate of return. Better aligned with innovation-focused goals of patent law. Becky Eisenberg notes that it is stunning that patentee costs aren't in the kitchen-sink Georgia-Pacific list, and she thinks idea of moving toward a cost-based approach more broadly has significant normative appeal, but she doesn't think it's easier to apply (see, e.g., criticisms of DiMasi estimates of pharmaceutical R&D costs). I think this paper is tapping into the benefits of R&D tax credits as an innovation reward. Daniel Hemel and I have compared the cost-based reward of R&D tax credits with the typical patent reward (in a paper Ted has generously reviewed), and it seems worth thinking more about whether and when it makes sense to move this cost-based reward into the patent system.

Does Europe Have Patent Trolls?

There have been countless articles—including in the popular press—about the problems (or lack thereof) with "patent trolls" or "non-practicing entities" (NPEs) or "patent-assertion entities" (PAEs) in the United States. Are PAEs and NPEs a uniquely American phenomenon? Not exactly, says a new book chapter, Patent Assertion Entities in Europe, by Brian Love, Christian Helmers, Fabian Gaessler, and Max Ernicke.

They study all patent suits filed from 2000-2008 in Germany's three busiest courts and most cases filed from 2000-2013 in the UK. They find that PAEs (including failed product companies) account for about 9% of these suits and that NPEs (PAEs plus universities, pre-product startups, individuals, industry consortiums, and IP subsidiaries of product companies) account for about 19%. These are small numbers by U.S. standards, but still significant. Most European PAE suits involve computer and telecom technologies. Compared with the United States, more PAE suits are initiated by the alleged infringer, fewer suits involve validity challenges, fewer suits settle, and more suits involve patentee wins.

Many explanations have been offered for the comparative rarity of PAE suits in Europe, including higher barriers to patenting software, higher enforcement costs, cheaper defense costs, smaller damages awards, and more frequent attorney's fee awards. The authors think their "data suggests that each explanation plays a role," but that "the European practice of routinely awarding attorney's fees stands out the most as a key reason why PAEs tend to avoid Europe."