Lessons from the Recent Supreme Court Term: Ordinary Rules Apply in Patent Cases

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1 Lessons from the Recent Supreme Court Term: Ordinary Rules Apply in Patent Cases If the judges on the United States Court of Appeals for the Federal Circuit choose to reflect on the recently concluded Term of the United States Supreme Court, in which five of the six Federal Circuit decisions the Supreme Court reviewed were either reversed or vacated, 1 they might take some solace by recalling Justice Robert Jackson s earlier observations concerning the meaning of higher court reversals: Whenever decisions of one court are reviewed by another, a percentage of them are reversed. That reflects a difference in outlook normally found between personnel comprising different courts. However, reversal by a higher court is not proof that justice is thereby better done. There is no doubt that if there were a super-supreme Court, a substantial proportion of our reversals of state courts would also be reversed. We are not final because we are infallible, but we are infallible only because we are final. Brown v. Allen, 344 U.S. 443, 540 (1953)(Jackson, J., concurring). Finality, which imposes closure and legal, doctrinal uniformity, represents one of the cardinal virtues of appellate authority. This Term, more than most in recent time, the Supreme Court exercised its finality often on patent issues, which prompts this Note. It is indisputable that each of the Supreme Court s patent law decisions this Term possesses significance to patent law generally, with special importance respecting the distinct area of patent law and practice that each decision specifically addresses. It is perhaps less obvious, but potentially more significant to analyze the decisional arc of these Supreme Court 1 In the order of their decision by the Supreme Court: Medtronic, Inc. v. Mirowski Family Ventures, LLC, 134 S. Ct. 843 (2014); Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct (2014); Highmark Inc. v. Allcare Health Mgmt. Sys. Inc., 134 S. Ct (2014); Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct (2014); Limelight Networks, Inc. Akamai Techs., Inc., 134 S. Ct (2014); Alice Corp. Pty. Ltd. v. CLS Bank Int l, 134 S. Ct (2014). -1-

2 decisions, especially if taken in an even broader context by looking back to earlier Supreme Court s earlier patent law decisions reviewing Federal Circuit judgments, to see if there are lessons to be drawn from a discernible decisional pattern. It appears there are such lessons, and from those lessons may be drawn some yet further conclusions, with an eye to predicting and shaping the direction of patent practice in the United States. That is the focus of this Note. The principal lesson to be drawn is remarkably simple, yet worthy of deeper consideration. The decisional arc seems to teach that when the Federal Circuit has crafted a rule applicable to patent cases that in some way deviates from rules generally and usually applied in litigated matters outside patent law, especially where the rule appears to be a bright line test, or an exclusive decisional calculus, the Supreme Court vacates those judgments and re-emphasizes (usually sub silentio) that patent cases are not somehow set apart from being subject to the ordinary rules of federal litigation. If anything, this broader historical view discloses that the development of the language of the Supreme Court in reviewing judgments of the Federal Circuit has devolved from respectful deference, even when reversing a judgment, to outright criticism of the Federal Circuit s reasoning. Looking at this Term s decisions to discern a larger pattern in a broader, historical context of earlier decisions makes clear that the Federal Circuit s efforts to craft special rules for patent cases both draws Supreme Court criticism and directions to restore a doctrinal approach to adapt the regular rules of litigation within the patent context, not create exceptions from those rules for application simply because the controversy invokes the Patent Act. The objective fact is that the decisional pattern of the Supreme Court s review of Federal Circuit judgments has for some time been principally one of reversals or vacaturs of the judgments and/or reasoning of the Federal Circuit respecting the important questions of patent law and practice under review. This pattern, regularly rejecting the Federal Circuit s patent decisions, is particularly striking, not least for the reason that the Federal Circuit is unique among the thirteen Courts of -2-

3 Appeals in that it has nationwide appellate jurisdiction, unbounded by the geography of the trial court or administrative agency from which the appeal is taken, but limited to specific subject matters, principally including patent law, for whose jurisdiction the exponents of the creation of the Federal Circuit were primarily motivated. Indeed, one of the most compelling arguments in favor of creating the Federal Circuit was that it would be expert in the distinct subject matters to which its jurisdiction is subject matter specific, thereby assuring a uniformity of decisional law that would reflect this expertise. 2 Even more striking is the fact that creation of the Federal Circuit was intended to eliminate the splits in regional circuit court opinions respecting patent law that would justify the Supreme Court in exercising its ultimate appellate authority to resolve those splits in authority to restore a uniformity of interpretation and enforcement of federal law on important questions of patent law. In fact, one salient purpose of creating the Federal Circuit and vesting it with exclusive appellate jurisdiction over patent cases was to eliminate the potential that, say, the Seventh Circuit had one standard for obviousness while the Second Circuit had a different one. This potential disparity of rules on basic patent law principles did occur in the past and motivated centralizing intermediate appellate review in one, non-regional court. Indeed, those who led and inspired the movement to create the Federal Circuit as uniquely a subject matter expert Court of Appeals emphasized the benefits that having such a court interpreting patent law, and thereby hoped to bring national uniformity to patent law by having this expert Court of Appeals be the sole intermediate appellate voice on patent law issues. As a practical matter, then, the Federal Circuit, though theoretically the intermediate appellate court, was projected, in the usual circumstance, to be the final arbiter of the legal issues related to the subject matter of the appeals before it, especially patent law. That was presumed to be the case because, for most cases decided by the Federal Circuit, very much 2 28 U.S.C details the discrete subject matters for which appeals from district courts are exclusively to be taken to the Federal Circuit, one of which relates to appeals from judgments in the District Courts where jurisdiction is based on 1338, except, principally, for copyright and trademark. -3-

4 analogous to the decisions of the regional Courts of Appeals, the intermediate appellate court s decision is de facto the ultimate decision. The decisional pattern of Supreme Court cases from Federal Circuit judgments discloses that the reality has been quite different from the expectation. As a practical matter, the Supreme Court, constitutionally the final arbiter of all legal matters related to federal law, has, in effect, become a super Federal Circuit, to paraphrase and adapt Justice Jackson s earlierquoted characterization, by reversing and vacating Federal Circuit pronouncements on subject matters for which the Federal Circuit was created and entrusted by Congress with special, expert and exclusive subject matter appellate jurisdiction. By way of introductory example, this term, perhaps the apogee of the Supreme Court s criticism of Federal Circuit judgments came in Limelight, where a unanimous Supreme Court, in reversing the Federal Circuit s en banc decision defining the requirements of proving induced infringement in a patent infringement case, declared, [t]he Federal Circuit s analysis fundamentally misunderstands what it means to infringe a method patent. Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111, 2117 (2014). Consider the implication of this comment: the Court of Appeals, specifically created to have exclusive appellate jurisdiction over patent cases, a substantial bulk of whose case load addresses those issues daily and whose members are chosen for their expertise and experience in this area of law, according to a unanimous Supreme Court, fundamentally misunderstands a basic concept of patent infringement liability. Though the Court s observation in Limelight may be the most pointed, there are others, which will be discussed further below that give scarcely lip service deference to the Federal Circuit s pronouncement on review before the Supreme Court. Immediately upon the issuance of each of these opinions, a phalanx of commentators offered their instant analysis of what the Court had apparently done in each individual case and why, trying to discern potential lessons for the future direction the law may develop for patent litigation from the individual case. Ultimately, after the term closed, one observation pervaded -4-

5 most informed commentators views: the Supreme Court had either reversed or vacated the judgments of the Court of Appeals for the Federal Circuit in five of the six cases, and affirmed only one (based on reasoning that did not fully adopt the Federal Circuit s approach). 3 This note leaves to others to sift and analyze the language of each of this Term s decisions in favor of looking at the ultimate holdings of each, in comparison to what the Federal Circuit had done. With reference to earlier Supreme Court cases reviewing Federal Circuit judgments, this note argues that there is in fact a discernible pattern whereby the Supreme Court continues to rein in Federal Circuit pronouncements on patent law that tend to establish rules that are outliers to the usual rules and applications in the context of other, non-patent litigations. Each of this Term s patent cases are discussed briefly in the following paragraphs. Medtronic The Federal Circuit had ruled here that where a declaratory judgment plaintiff, as Medtronic was in this case, held a license to the challenged patent and continued paying royalties into escrow during the declaratory judgment action, that plaintiff bore the burden of proving non-infringement, rather than having the defendant patentee proving infringement of the patent. The Federal Circuit acknowledged that the patentee normally bears the burden of proof to show infringement, but had reasoned that because the license remained in effect during the controversy, thereby foreclosing the patentee s assertion of an affirmative claim of infringement, the burden of proving non-infringement shifted to the declaratory judgment plaintiff. The Supreme Court gave short shrift to that conclusion in reversing. Citing authorities from the mid- to late 19 th century, the unanimous Court observed: Simple legal logic, resting upon settled case law, strongly supports our conclusion. Medtronic, Inc. v. Mirowski Family Ventures, LLC, 134 S. Ct. 843, 849 (2014). Those principles were 1) the patentee normally bears the burden of proving infringement, which is consistent with the traditional notion that the proponent of liability bears the burden of proof; 2) declaratory judgment actions, irrespective of 3 Only in Alice Corp. v. CLS Bank did the Court affirm, unanimously. -5-

6 the substantive rights implicated, are procedural remedies, not substantive claims; and 3) burden of proof is a substantive aspect of any claim. Taken together, said the unanimous Court, these three legal propositions indicate that, in a licensee s declaratory judgment action, the burden of proving infringement should remain with the patentee. Id. The Court then briefly and definitively concluded that both practical and public interest considerations supported the reversal of the Federal Circuit s judgment and reasoning: They do not favor a change in the ordinary rule imposing the burden of proving infringement upon the patentee. Id. at 852. Thus, in clear and unmistakable language, buttressed by what the Court said was simple legal logic, the Court cabined declaratory judgment actions squarely within the usual rules of litigation. Declaratory judgment actions in patent cases were not entitled to special rules allocating burden of proof. Octane Fitness In Octane Fitness, the Federal Circuit, relying on an earlier of its decisions, affirmed the denial of attorneys fees to the prevailing party in an infringement action under the exceptional case provision of 285 of the Patent Act. The Federal Circuit had articulated that a case may be deemed exceptional under 285 only in two limited circumstances: when there has been some material inappropriate conduct or when the litigation is both brought in subjective bad faith and objectively baseless. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1752 (2014) (quotation omitted). The Federal Circuit had then further reasoned that proof of these elements should be made by clear and convincing evidence. Ibid. Once again, a unanimous Supreme Court reversed, finding that The Federal Circuit s formulation is overly rigid. Id. at This formulation superimposes an inflexible framework onto statutory text that is inherently flexible. Id. The Court, rejecting the Federal Circuit s two specific formulations, interpreting the language of the Patent Act, held that [a]n exceptional case is simply one that stands out from others with respect to the substantive strength of a -6-

7 party s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. Id. This formulation entrusted District Courts with discretion to make such a determination. And, [f]inally, we reject the Federal Circuit s requirement that patent litigants establish their entitlement to fees under 285 by clear and convincing evidence. Id. at The reasoning of the Court in rejecting the higher standard of proof is simply summarized: the language of 285 is more expansive and flexible than the Federal Circuit allowed and the usual rules of litigation require only a preponderance of the evidence standard in such circumstances. The Federal Circuit s attempt to craft more restrictive, particular rules for patent litigants was not sustainable. Highmark This case, following on Octane Fitness, also involved a District Court s judgment under 285. The Federal Circuit had reviewed the District Court s judgment de novo, reasoning that the determination whether litigation was objectively baseless, as the Federal Circuit had required to impose fees, is a question of law based on underlying mixed questions of law and fact, empowering the Federal Circuit to review the judgment without deference, de novo. Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 687 F.3d 1300, 1309 (Fed. Cir. 2012). The Supreme Court, again unanimously and in a very short explication of its reasoning, reversed. First, relying on Octane Fitness, the decision had to be reversed for consideration under the newly-announced Octane Fitness standard for determining whether a case was exceptional under 285. Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1748 (2014). Second, again relying of Octane Fitness, the Court declared that the determination to be an exercise of discretion in applying the law to the facts, requiring appellate deference to the trial court s judgment, thereby eliminating de novo review in favor of an abuse of discretion standard. Id. Citing fee-shifting statutes in other, non-patent contexts, the Court reasoned that this standard was consistent with application of general principles of law and that -7-

8 determinations under 285 did not merit the extraordinary imposition of de novo appellate review. 4 Once again, the Federal Circuit s creation of a special or unique standard for fee shifting met resistance and rejection from the Supreme Court in favor of more generally applicable decisional formulas. Nautilus In Nautilus, the Supreme Court reviewed the Federal Circuit s standard for determining whether a claim satisfied of the Patent Act. According to the Federal Circuit, wrote Justice Ginsburg for a unanimous Court, a patent claim passes the threshold so long as the claim is amenable to construction and the claim, as construed, is not insolubly ambiguous. Natuilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120, 2124 (2014). Finding that the Federal Circuit s definition of definiteness tolerates some ambiguous claims but not others, does not satisfy the statute s definiteness requirement, the Court reversed. Id. The Supreme Court approached the question as being one of statutory interpretation and concluded that the Federal Circuit had misread the statute and created a standard that left District Courts and the patent bar without a reliable compass to know when was (or was not) satisfied. Id. at The Supreme Court then held that a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention. Id. at This formulation was supported by lengthy citations to both patent law and non-patent law cases interpreting statutes and the purpose of the definiteness requirement. The unanimous Supreme Court thus rejected the Federal Circuit s more restrictive definition, which left open the question whether a claim had too much ambiguity, and 4 It is this case that seems to suggest that the Supreme Court is likely to grant certiorari in Lighting Ballast Control LLC v. Philips Electronics North America Corp. 744 F.3d 1272 (Fed. Cir. 2014)(en banc), which raises as a fulcrum question whether Markman rulings should be afforded de novo review, as they were there and are generally, or whether they too should be subject to an abuse of discretion standard. -8-

9 substituted a more traditional, statutory interpretation of the Patent Act, employing a broad range of non-patent authorities to support its reading. Limelight As alluded to earlier, Limelight represents the Supreme Court s decision most critical of the Federal Circuit issued last term. In Limelight, the Supreme Court reviewed the Federal Circuit s judgment concerning induced infringement. The procedural history is somewhat complicated but important for context. A jury had found Limelight liable for induced infringement. After the Federal Circuit had ruled in Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008), Limelight moved for reconsideration of post-trial motions concerning the jury s finding of infringement. In Muniauction, the Federal Circuit had ruled that although proof of induced infringement required proof of direct infringement by a single party, if a single defendant exercises control or direction over the entire process such that every step is attributable to the controlling party liability for induced infringement could be imposed. Id. at The District Court found that because Limelight did not control all actors, the liability verdict had to be vacated. Akamai Techs., Inc. v. Limelight Networks, Inc., 614 F. Supp. 2d 90, (D. Mass. 2009). A panel of the Federal Circuit affirmed, but an en banc panel reversed, explaining that [r]equiring proof that there has been direct infringement is not the same as requiring proof that a single party would be liable as a direct infringer. Akamai Techs., Inc. v. Limelight Networks, Inc., 692 F.3d 1301, (Fed. Cir. 2012). The Supreme Court granted certiorari, disagreed, and reversed. As noted earlier, the unanimous Supreme Court caustically observed that the Federal Circuit s analysis fundamentally misunderstands what it means to infringe a method patent. Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111, 2117 (2014). First, the Supreme Court assumed, but did not decide, that Muniauction was correctly decided. The Court, even making that assumption did not rescue the Federal Circuit s en banc decision in Limelight. That was so because, according to the Supreme Court, the Federal Circuit s reasoning would deprive -9-

10 271(b) of ascertainable standards. Id. at This seems clear enough by observing that if no one entity is liable for direct infringement, how can one entity induce direct infringement because proof that direct infringement has occurred is a constituent of proving indirect infringement. Whether Muniauction was correctly decided, permitting infringement liability where no one person commits all the acts of infringement but where unitary control over all the actors can be found who, together, commit all the acts of infringement remains an open question that the Supreme Court did not address directly. But one thing is clear, the Supreme Court rejected the Federal Circuit s expansion of induced infringement liability beyond a showing that some, identified single entity has committed direct infringement. The unanimous Supreme Court s reasoning, following traditional statutory interpretation cases and applying long-standing principles of patent litigation liability, once again brought patent infringement analysis solidly within a traditional analytical framework. Alice Corporation Lastly, in Alice, though a unanimous Supreme Court affirmed the Federal Circuit s decision that a business method claim was invalid because it was patent ineligible for attempting to patent an abstract idea, once again the Supreme Court effectively rejected the Federal Circuit s reasoning in upholding the ultimate judgment of invalidity by substituting its own analysis. The Court, relying on the earlier Mayo decision, found that the patents in Alice were drawn to the abstract idea of mitigating settlement risk. See Alice Corp. Pty. Ltd. v. CLS Bank Int l, 134 S. Ct. 2347, (2014). The Court was then required to ask what else the patents taught, beyond applying those concepts with a computer. The Supreme Court found there was nothing beyond application by a computer of the abstract reasoning, thereby making the patent invalid as being drawn to an abstract idea. See id. at The analysis followed the Supreme Court s earlier approaches in Mayo, Bilski and Myriad and extended their reasoning. -10-

11 The Broader Context How do these cases fit the decisional arc described earlier? To answer that question requires an even briefer description of the earlier cases. In Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722 (2002), the Supreme Court vacated and remanded a Federal Circuit judgment that effectively held that any amendment to a patent application directed to an issue of patentability surrendered the applicant s ability to rely on the doctrine of equivalents for any claim of infringement. The Supreme Court s unanimous opinion rejected that very strict and stringent rule, in favor of a more traditional application of the doctrine of equivalents. In ebay Inc., v. MercExchange, LLC, 547 U.S. 388 (2006), a unanimous Supreme Court vacated and remanded a Federal Circuit decision that had announced a general rule that injunctions were usually granted to successful infringement patentee-plaintiffs in patent cases. Instead, the Supreme Court held that the usual rules of equitable discretion applied to determine whether injunctive relief should be imposed. Id. at 394. In Bilski v. Kappos, 561 U.S. 593 (2010), the Supreme Court affirmed a finding that a patent application was directed to ineligible subject matter as an abstract idea, but rejected the Federal Circuit s limitation of the decisional analysis to the so-called machine or transformation test. Although the Court advised practitioners that they would benefit by reading the various opinions filed in the Federal Circuit s opinion in Bilski, as useful recitations of patent law, the Court nevertheless observed that adopting the machine or transformation test as the sole or exclusive test for what constitutes a process would violate ordinary rules of statutory interpretation. Retaining that test as a useful tool to making a determination, the Supreme Court nevertheless afforded greater latitude, more in line with general statements of statutory interpretation, to courts in making these determinations. -11-

12 Similarly, in both Mayo and Myriad, the Supreme Court undertook very traditional statutory interpretation analyses, and in both cases refined the approaches to be more conventional and less purely patent directed. Finally, in KRS International Co. v. Telefex Inc. 550 U.S. 398, 399 (2007), the Supreme Court rejected the Federal Circuit s requirement, previously enforced in other cases, that to show obviousness under 103, there had to be either a teaching, suggestion or motivation to combine prior art references. The TSM test, as it came to be called, had been developed by the predecessor Court of Customs and Patent Appeals, prior to the Federal Circuit s creation. What the Federal Circuit developed from that formulation, however, was a requirement that either a teaching, suggestion or motivation had to be shown to combine prior art references in order for there to be an obviousness finding. The Supreme Court rejected that interpretation, saying, Because the Court of Appeals addressed the question of obviousness in a manner contrary to 103 and our [meaning the Supreme Court s] precedents, we granted certiorari. We now reverse. Id. at 407 (citations omitted). The Supreme Court did observe that the TSM test was a helpful insight in reaching a conclusion on obviousness, but in doing so reiterated that the question of obviousness under 103 could not be confined by a formalistic conception of the words teaching, suggestion and motivation Id. at 419. This decision too fits within the familiar pattern: rejection of restrictive, unique rules for application in patent cases. Thus, as stated at the beginning of this note, the most recent term, though dramatic for the number and intensity of the decisions, continues to follow a pattern of carrying out more conventional analytical techniques and applying more general legal principles to the decisional process in patent cases. Whatever the hope of those who advocated the creation of the Federal Circuit may have been concerning the ability of the Federal Circuit to establish greater uniformity in patent law interpretation and enforcement, it would seem that no one anticipated that the Supreme Court would take as active and supervisory role by reversing so many decisions of the Federal Circuit, and on so many and varied important issues to the structure of -12-

13 patent law in the United States. It also proves that not being final as a matter of law makes the Federal Circuit fallible on those matters to which Congress delegated exclusive, intermediate appellate jurisdiction. What does this portend? What does the future hold? Those questions, of course, are unanswerable with certainty, but the coming Term may also present another important issue for patent law. In Lighting Ballast Control LLC v. Philips Electronics North America Corp., 744 F.3d 1272 (Fed. Cir. 2014), the Federal Circuit en banc, declined, on stare decisis terms to depart from its ruling in Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998)(en banc), which held that claim construction is made as a matter of law by the Court and is therefore reviewable on appeal without deference, de novo, by the Federal Circuit. A lengthy, scholarly, dissenting opinion by Judge O Malley, joined by three other judges on the Court, criticized the majority s adherence to Cybor, extensively canvassing the history of Cybor, and the many criticisms from the bench, from academics and practitioners that persuaded the dissenters to urge the overruling of Cybor. The dissenters urged a rule that retained, as the Supreme Court had directed, that the claim construction function was for the Court, but that the standard of review would be an abuse of discretion standard. Such a rule would make claim construction subject to a more traditional, deference standard, analogous to decisions on preliminary injunctions where, of course, the allocation of the decision is as a court not a jury function. See, e.g. Lighting Ballast, 744 F.3d at A petition for certiorari is pending. Whether the Supreme Court takes up the issue remains to be seen, but looking at the decisional arc to which we have referred here, it would appear likely that if certiorari is granted as it was in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., No (S.Ct. March 31, 2014), which case appears to have presented a similar, if not identical question, the Supreme Court will apply more traditional standards, reverse Lighting Ballast (and thereby overrule Cybor in this regard) and afford claim construction review a deference standard upon appellate review. -13-

14 As a final caution from this analysis of the Court s decisional arc is that practitioners would be well advised to avoid arguments and positions in patent applications and litigation that appear to fashion special or unique rules to patent matters. Rather, it would seem prudent to couch arguments and positions in more conventional, general legal terms, both analytically and practically. Those approaches may resonate better with District Judges. In any event, in light of the fate of the many Federal Circuit decisions considered in this Note, such more traditional approaches may receive more hospitable reception in the Federal Circuit. Remember, the Supreme Court may not be infallible in the absolute sense, but Article III of the Constitution, as Justice Jackson so eloquently observed, did make it final. And, paraphrasing an even older adage, the court that speaks last, speaks best. 5 5 The upshot of all these decisions also justifies asking the question whether the direction of these cases will mean fewer patents issued, fewer litigations brought and, concomitantly, whether the fewer patents will be better i.e., more generally valid patents and the fewer litigations more justified? No definitive answers can be given to these questions. Time will tell, but, in the meantime, practitioners are well advised to be cautious in expanding the reach and scope of patent claims. -14-