Personal Jurisdiction in a DJ Action Must be based on Intentional Conduct Directed at the Forum

In Maxchief Investments Ltd. v. Wok & Pan, Ind., Inc., [2018-1121](November 29, 2018), the Federal Circuit affirmed the district court’s dismissal of Maxchief’s declaratory judgment tortious interference claims, because of lack of personal jurisdiction over Wok.

Wok sued Staples in California for infringement of Wok’s U.S. Patent Nos. 5,957,061, 8,881,661, 8,931,421, and 9,089,204 on folding tables,  Staples demanded the distributor Meco defend the action pursuant to an indemnity, and Meco demanded that Maxchief defend the action pursuant to an indemnity.  Maxchief brought a declaratory judgment action against Wok in the Eastern District of Tennessee, alleging specific personal jurisdiction.

The district court held that Maxchief failed to allege that Wok had sufficient minimum contacts with Tennessee, because although Wok sought to enforce the patents against other parties in other courts, Wok did not seek to enforce its patents in the forum state of Tennessee.

The minimum contacts inquiry involves two related requirements: (1) the defendant must have purposefully directed its conduct at the forum state; and (2) the claim must arise out of or relate to the defendant’s contacts with the forum.  A declaratory judgment claim arises out of the patentee’s
contacts with the forum state only if those contacts relate in some material way to the enforcement or the defense of the patent, and thus the minimum contacts prong requires some enforcement activity in the forum state by the patentee.  It is not enough that Wok’s lawsuit might have “effects” in Tennessee, rather, jurisdiction “must be based on intentional conduct by the defendant” directed at the forum.

The Federal Circuit concluded that Maxchief had not established that personal jurisdiction over Wok is proper in Tennessee, and affirmed the district court’s dismissal of Maxchief’s complaint.

Reasonable Royalty Cannot Include Non-Infringing Activities

In Enplas Display Device Corporation v. Seoul Semiconductor Company, Ltd., [2016-2599](November 19, 2018), the Federal Circuit affirmed the district court’s judgment that claim 20 of U.S. Patent No. 6,007,209 and the asserted claims of U.S. Patent No. 6,473,554 are not anticipated; affirmed the district court’s denial of JMOL of no inducement; but reversed the denial of JMOL that the damages award was not supported by substantial evidence, and remanded.  The ’209 and ’554 patents are directed to methods of back lighting display panels, particularly LED displays used in televisions, laptop computers, and other electronics.

On the anticipation of the ‘209 patent, Emplas argued that because an inventor of the ‘209 patent testified that the prior art reference did not exclude mounting light sources as required by the claim, there was an issue of fact for the jury.  The Federal Circuit disagreed, saying that this was not enough for anticipation.  Anticipation requires that a single reference disclose each and every element of the claimed invention, while at most, the testimony suggests that the reference could have been modified to include light sources on the bottom wall.  The Federal Circuit said that “Prior art that must be modified to meet the disputed claim limitation does not anticipate the claim.”

On the anticipation of the ‘554 patent the Federal Circuit noted that it came down to conflicting expert testimony about the prior art,  and that “when there is conflictingtestimony at trial, and the evidence overall does not make only one finding on the point reasonable, the jury is permitted to make credibility determinations and believe the witness it considers more trustworthy.”  Because the jury’s verdict was based upon the reference itself as well as expert testimony, it was supported by substantial evidence.

On the issue of induced infringement, the Federal Circuit noted that in order to succeed on a claim of inducement, the patentee must show, first that there has been direct infringement, and second that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another’s infringement.  Mere knowledge of infringement is insufficient. Liability for inducement can only attach if the defendant knew of the patent and knew as well that the induced acts constitute patent infringement.  Although the text of §271(b) makes no mention of intent, the Court infers that at least some intent is required, so both specific intent and action to induce infringement must be proven.

Although it was a close case, the Federal Circuit concludedthat there was substantial evidence whereby both Enplas’ knowledge and intent to induce infringement could be reasonably found.  The Federal Circuit noted that Enplas also did not dispute that it was informed that the product it manufactured, co-developed, and sold to SSC was covered by SSC’s patents, and that Enplas knew its customers sold televisions in the US and other countries.  SSC had sent Enplas a pre-suit letter,informing it that SSC had found infringing lenses made with Enplas parts in televisions sold in the United States. Further Enplas provided its customers with product specifications that recommended infringing configurations for its accused lenses.  The Federal Circuit said that it has held that providing instructions to use a product in an infringing manner is evidence of the required mental state for inducing infringement.

Enplas argued that this evidence did not establish that it knew its lenses would be incorporated in U.S. televisions and that in any event mere knowledge was not enough to establish specific intent. The Federal Circuit agreed that mere knowledge of possible infringement is not enough, there was circumstantial evidence that would allow a jury to reasonably find that Enplas had knowledge of the patents and of its customers’ infringing activity and that it intended to induce their infringement, and affirmed the denial of JMOL.

Finally on the issue of damages, Enplas argued that the only evidence supporting the $4 million award was testimony from SSC’s damages expert that explicitly and improperly included non-infringing devices in the royalty calculation.  Enplas filed a Daubert motion regarding this testimony, that the district court deferred, and a motion in limine regarding this testimony, which the district court denied.  SSC’s expert testified that the parties would have negotiated a premium freedom to operate” license to avoid the need to test and negotiate licenses for additional or future potentially infringing lenses that Enplas might sell, and to determine this premium that Enplas would pay, SSC’s expert assessed the volume of sales of all non-accused lenses made by Enplas, which the expert estimated from Enplas’ website.

The Federal Circuit agreed with Enplas, noting a reasonable royalty cannot include activities that do not constitute patent infringement, as patent damages are limited to those “adequate to compensate for the infringement.”

Software Can Make Non-Abstract Improvements to Computer Technology

In Ancora Technologies, Inc., v. HTC America, Inc., [2018-1404](November 16, 2018), the Federal Circuit reversed the district court’s dismissal of Ancora’s complaint for infringement of its U.S. Patent No. 6,411,941 is entitled Method of Restricting Software Operation Within a License Limitation, finding that the claims are directed to, and ultimately claim no more than, an abstract idea.

The Federal Circuit said that under Enfish and related authorities, we conclude,the claims at issue here are not directed to ineligible subject matter. Rather, it held that the claimed advance is a concrete assignment of specified functions among a computer’s components to improve computer security, and this claimed improvement in computer functionality is eligible for patenting. As a result, the claims are not invalid under §101.

A two-step analysis determines whether claim 1 of the ’941 patent falls outside § 101: (1) whether the claim, as a whole, is “directed to”patent-ineligible matter—here, an abstract idea—and (2) if so, whether the elements of the claim, considered individually or as an ordered combination“‘transform the nature of the claim’ into a patent-eligible application.”  The Federal Circuit concluded that claim 1 is not directed to an abstract idea, and therefore it did not reach the second step.  In cases involving software innovations,this inquiry often turns on whether the claims focus on the specific asserted improvement in computer capabilities or, instead, on a process that qualifies as an “abstract idea” for which computers are invoked merely as a tool.

Computers are improved not only through changes in hardware; software can make non-abstract improvements to computer technology.  The Federal Circuit has several times held claims to pass muster under Alice step one when sufficiently focused on such improvements:  In Enfish, the claimed self-referential tables improved the way that computers operated and handled data.  In Visual Memory LLC v. NVIDIA Corp., the claims were directed to an improved computer memory system.  In Finjan,the claims were to a “behavior-based virus scan” that was a specific improvement in computer functionality. In Core Wireless Licensing S.A.R.L. v. LG Electronics, Inc.,the claims were directed to a method for making websites easier to navigate on a small-screen devices, using a specific type of index for a specific type of user.  In Data Engine Technologies LLC v. Google LLC, the claims were directed to a specific method for navigating through three-dimensional electronic spreadsheets.In accordance with these precedents, the Federal Circuit concluded that claim 1 of the ’941 patent was not directed to an abstract idea. The Federal Circuit said that improving security against a computer’s unauthorized use of a program—can be a non-abstract computer-functionality improvement if done by a specific technique that departs from earlier approaches to solve a specific computer problem.  The Federal Circuit explained that the claimed method here specifically identifies how that functionality improvement is effectuated in an assertedly unexpected way: a structure containing a license record is stored in a particular, modifiable, non-volatile, portion of the computer’s BIOS, and the structure in that memory location is used for verification by interacting with the distinct computer memory that contains the program to be verified. In this way, the claim addresses a technological problem with computers: vulnerability of license-authorization software to hacking.  In short, claim 1 of the ’941 patent is directed to a solution to a computer-functionality problem: an improvement in computer functionality that has the specificity required to transform a claim from one claiming only a result to one claiming a way of achieving it, and it therefore passes muster under Alice step one, as it is not directed to patent ineligible subject matter.

Patent Challenger (Unsuccessfully) Argued Board Used Hindsight in Finding Claims Non-Obvious

In Hamilton Beach Brands, Inc. v. F’Real Foods, LLC, [2018-1274](November 16, 2018) the Federal Circuit affirmed the PTAB’s Final Written Decision upholding the validity of claim 21 of U.S. Patent No. 7,520,662, on a rinseable splash shield and method of use, covering a shield for the vessel of a mixing machine.

As a preliminary matter, the Federal Circuit ducked the question of whether the IPR was barred by Section 315(b) because F’Real failed to appeal the Board’s decision that the IPR was not time barred.  Hamilton Beach had actually been served with a complaint for infringement of the ‘662 patent more than a year before the IPR was filed, but at the time F’Real did not own the patent, and thus did not have standing.  Thus the Federal Circuit’s Click-to-Call decision was not necessarily controlling, but the Federal Circuit declined to decide whether 315(b) applies to a complaint served by a party without standing.

The Board concluded that the references did not teach a rinse nozzle at a fixed location relative to the shield, and that in any event objective evidence of non-obviousness outweighed the evidence of obviousness.  Hamilton Beach argued that the Board violated the Administrative Procedure Act by changing claim construction theories midstream without providing the parties an opportunity to respond, and additionally erred in construing the “nozzle” terms so as to require that the nozzles be pre-positioned.  The Federal Circuit found that Hamilton Beach received adequate notice of the claim construction adopted by the Board in F’Real’s post-institution response regarding the nozzle terms, as shown by the fact that Hamilton Beach argued against F’Real’s proposed constructions in its reply brief and during the oral hearing.  The Federal Circuit further found that the Board’s final adopted construction of the nozzle terms, while not identical to those proposed by F’Real, were similar enough to F’Real’s proposed constructions so as to not constitute changing theories midstream in violation of the APA.

Based on the claim language itself, the Federal Circuit rejected Hamilton Beach’s claim construction, noting that the claim required “a nozzle oriented” towards the splash shield. Based upon this construction the Federal Circuit affirmed the determination of non-obviousness.  In an unusual twist, Hamilton Beach, the patent challenger, argued that the Board improperly relied upon hindsight, in its finding that finding that there was no sufficiently proved motivation to combine the prior art references.  Although the prior art recites cleaning the mixing machine, the Federal Circuit found that substantial evidence supports the Board’s finding that Hamilton Beach did not prove that the prior art provides a motivation to clean components in place with a fixed nozzle directed towards the splash shield.  The Federal Circuit concluded that the Board did not err in its decision that the prior art did “not teach or suggest the nozzle limitations.”

Because the Federal Circuit affirmed the Board’s findings regarding the failure of the prior art to teach or suggest all limitations of claim 21, it did not address Hamilton Beach’s assertions of error in the Board’s consideration of the objective indicia of nonobviousness.

TC Heartland/Micron Free Oath from the Eastern District of New York

In In re: Oath Holdings Inc., [2018-157] (November 14, 2018), the Federal Circuit granted Oath Holdings petition for mandamus, and remanded the case with the district court with the instruction that the district court either dismiss or transfer the case.

In March 2016, Oath was sued for patent infringement in the United States District Court for the Eastern District of New York.  While Oath conducts business in the State of New York, it is incorporated in Delaware, and it does not have “a regular and established place of business” in the Eastern District.  Within 21 days of the Supreme Court’s decision in TC Heartland, although it had answered the Complaint, Oath filed a motion pursuant to Rule 12(b)(3), to dismiss for improper venue.  The district court found that Oath had waived the right to challenge venue.  Oath petitioned for mandamus, but because the Federal Circuit in Micron said TC Heartland effected a relevant change in the law, such that failure to present the venue objection earlier did not come within the waiver rule, the Federal Circuit instructed Oath to raise the matter with the district court.  Oath did, but the district court did not change its ruling, so Oath filed a second petition for mandamus.

The Federal Circuit said that given its on point ruling in Micron, its order on Oath’s first mandamus petition based directly on Micron, and the district
court’s reasoning in nevertheless standing by its initial conclusion, we think that this case involves the narrow and exceptional circumstance in which mandamus is important for proper judicial administration.

The Federal Circuit rejected respondent’s argument that Micron does not apply because it arose under First Circuit law, while the present case arises under Second Circuit law, concluding that issues of waiver or forfeiture of patent-venue rights under §1400(b) and §1406(a) are governed by Federal Circuit law.  The Federal Circuit went on to observe that there was no Second Circuit precedent that would suggest a different result than in Micron, and thus Micron answers the entire question of waiver under Rule 12(g)(2) and (h)(1) for purposes of this case: there was no such waiver.

The Federal Circuit concluded that Oath had not waived or forfeited its
venue rights. Because it was undisputed that venue was improper in the Eastern District of New York, the case may not remain there. The Federal Circuit ordered the district court to either dismiss the case or transfer the case to a “district or division in which it could have been brought.”

Lustron Houses

As you drive around, you might encounter small, well-built homes made from metal squares:

These are Lustron houses conceived by Carl Strandlund, and patented in 1947 to alleviate the housing shortage after World War II.  The Lustron Corporation sold 2,498 Lustron homes between 1948 and 1950.  Lustron offered a house that would “defy weather, wear, and time,” and about 2000 of these houses survive today.


Collateral Estoppel Does Not Apply Where the Accused Product is Different

In Arcelormittal Atlantique et Lorraine v. AK Steek Corp., [2017-1637] (November 5, 2018), the Federal Circuit vacated and remanded the district court’s grant of summary judgment of non-infringement of U.S. Patent Nos. 6,296,805, RE 44,153, and RE 44,940 on collateral estoppel grounds, because the product involved was materially different from the product in the prior litigation.

In January 2010, ArcelorMittal sued AK Steel for infringement, and the primary issue  of the ’805 patent (the “2010 action”).1 The primary issue in the 2010 action was whether steel sheets produced by AK Steel met the “a mechanical resistance of 1500 MPa or greater” limitation after thermal treatment.  The 2010 action ended in a jury verdict of non-infringement.

In April 2013, ArcelorMittal again sued  AK Steel, who filed a motion to dismiss the case on the basis of collateral estoppel, arguing that the action was estopped by the verdict in the 2010 action.  ArcelorMittal argued that new evidence, obtained after the verdict in the 2010 action, established that AK Steel’s new ULTRALUME products were materially different from the AXN products that were the subject of the prior action, because the ULTRALUME sheets were hot-stamped to achieve a UTS exceeding 1,500 MPa.

The Federal Circuit said that a primary issue in a collateral estoppel analysis with respect to non-infringement is whether the accused product is the same—i.e., the issue sought to be precluded is the same as that involved in the prior action—or whether the accused products have materially changed.  The Federal Circuit concluded that the evidence supports the conclusion that the products are not materially the same.  The evidence, when viewed in the light most favorable to non-movant ArcelorMittal, reflected a material difference in the accused product and AK Steel’s conduct since the 2011 verdict.  The evidence indicated that the production process was no longer “rudimentary,” and that commercial stampers were being utilized, and that the stamped steel is being commercialized. This evidence represented a material difference in the accused products and did not exist during the 2010 action.  Finally the Federal Circuit pointed out that AK Steel’s brochure, created after the 2010 action support an allegation that AK Steel is commercially marketing and supplying steel sheets to auto manufacturers that may exceed 1,500 MPa UTS after hot-stamping