Cert denied on In re Seagate

A quick update on a previous post regarding In re Seagate Technology LLC. In Seagate, the Court of Appeals for the Federal Circuit CAFC expressly overturned prior precedent and raised the standard for determining whether a patent infringement is willful from one requiring an “affirmative duty to exercise due care to determine whether or not [one] is infringing” if one is merely on “actual notice of another’s patent rights” to a far higher standard requiring “objective recklessness.” In doing so, the CAFC effectively raised the bar for a finding of willful patent infringement to a substantially higher level than the previous standard of mere negligence, thus making it more difficult for a patent holder to prove a claim for willful infringement.

While the decision on willful infringement in the Seagate case was significant (some even called it “seismic“), the Seagate case itself had been appealed to the U.S. Supreme Court, leaving the door open to a potential reversal or modification of the decision. However, on February 25th, the U.S. Supreme Court denied a petition to review the Seagate case (including the decision on willful infringement). While not carrying the same weight as an actual decision by the Supreme Court, the denial affectively serves to establish the standard of “objective recklessness” as the law of the land.

Many have gone so far as to say that this decision now removes the affirmative obligation that a patent infringement defendant have obtained an opinion from competent legal counsel before initiating possibly infringing activity. Whether this actually proves to be the legacy of Seagate still remains to be seen. However, at minimum, the decision by the Supreme Court cements Seagate as yet another step in the further judicial reform of patent laws here in the U.S.

For more information on the case, see Convolve Inc. v. Seagate Technology LLC (U.S., No. 07-656, review denied 2/25/08) .

So, Just How Patentable is Software Anyway?

It appears that the Court of Appeals for the Federal Circuit (CAFC) — the court having exclusive jurisdiction over appeals in patent infringement cases here in the U.S. — is going to consider this very question in the near future. Last week the CAFC agreed to grant a relatively rare en banc review for the In Re Bilski case. The court has also scheduled the case on the fast track, with oral arguments scheduled for early May.

Briefly, Bilski deals with an appeal of a rejection by the Board of Patent Appeals and Interferences (BPAI) within the U.S. Patent Office of a patent application directed at a software-implemented business method for “managing risk at a reduced cost.” The BPAI based its rejection in large part on the fact that the claims of the application are not tied to any physical structure. In particular, the BPAI found that the application did not recite a “physical transformation, or any electrical, chemical, or mechanical act,” not even an “implicit transformation of electrical signals from one state to another.” Even though the claimed method may be “useful” in a business sense, the BPAI determined that a method that does not provide any transformation of matter, and that “has not been implemented in some specific way,” is not considered practically useful in a patentability sense. The BPAI thus ruled that the method claimed in Bilski’s application was not patentable subject matter under Section 101 of the Patent Act (dealing with what subject matter is patentable under U.S. law).

The Order in the CAFC appeal of the BPAI decision is included below and also available online. In addition to issues specific to the case, the questions to be considered by the court in the Bilski appeal go to the heart of the patentability of computer software and software-implemented business methods. In particular, question no. 5 asks the parties in the case to submit briefs to the court addressing whether it is appropriate to reconsider the State Street Bank & Trust Co. case (the case credited with first opening the door to the patentability of business methods) and the later AT&T v. Excel Communications case (which also helped shape the current rules regarding the patentability of business methods). The Order even goes so far as to open the question of whether these cases should be “overruled in any respect.”

I understand that at least one judge on the CAFC has already strongly implied that we can look for some significant discussion and refinements of the legal requirements regarding the patentability of computer software patents under Section 101 to come from Bilski. Interestingly, he and others have also recently noted on the record that the U.S. Supreme Court is likely to take up Section 101 at some point in the near future. Likely not by coincidence, the CAFC’s decision to take the Bilski appeal en banc now sets up a direct path for this to actually happen — assuming that the CAFC’s decision in the case is itself ultimately appealed to the Supreme Court.

Whether you are a friend or foe of patent reform, Bilski is definitely one to watch. While Congress remains mired in its own efforts to amend U.S. patent laws, the wheels of patent reform nonetheless continue to turn as the courts continue their activist stance toward the reconsideration (and potential reform) of patent laws here in the U.S.

___________________________________

NOTE: This order is nonprecedential.
United States Court of Appeals for the Federal Circuit
2007-1130
(Serial No. 08/833,892)
IN RE BERNARD L. BILSKI and RAND A. WARSAW

Appeal from the United States Patent and Trademark Office, Board of Patent Appeals and Interferences.
Before MICHEL, Chief Judge, NEWMAN, MAYER, LOURIE, RADER, SCHALL, BRYSON, GAJARSA, LINN, DYK, PROST, and MOORE, Circuit Judges.

PER CURIAM.
O R D E R

This case was argued before a panel of this court on October 1, 2007. Thereafter, a poll of the judges in regular active service was conducted to determine whether the appeal should be heard en banc.

Upon consideration thereof, IT IS ORDERED THAT:

The court by its own action grants a hearing en banc. The parties are requested to file supplemental briefs that should address the following questions:

(1) Whether claim 1 of the 08/833,892 patent application claims patent-eligible subject matter under 35 U.S.C. § 101?

(2) What standard should govern in determining whether a process is patent-eligible subject matter under section 101?

(3) Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that
contains both mental and physical steps create patent-eligible subject matter?

(4) Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101?

(5) Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

This appeal will be heard en banc on the basis of the original briefs and supplemental briefs addressing, inter alia, the issues set forth above. An original and thirty copies of all briefs shall be filed, and two copies served on opposing counsel. The parties shall file simultaneous supplemental briefs which are due in the court within 20 days from the date of filing of this order, i.e., on March 6, 2008. No further briefing will be entertained. Supplemental briefs shall adhere to the type-volume limitations for principal briefs set forth in Federal Rule of Appellate Procedure 32 and Federal Circuit Rule 32.

Any amicus briefs will be due 30 days thereafter. Any such briefs may be filed without leave of court but otherwise must comply with Federal Rule of Appellate Procedure 29 and Federal Circuit Rule 29. Oral argument will be held on Thursday, May 8 at 2:00 p.m. in Courtroom 201.

FOR THE COURT

February 15, 2008 /s/ Jan Horbaly
Date Jan Horbaly
Clerk
cc: David C. Hanson, Esq.
Stephen Walsh, Esq.

Seagate and the Economics of Patent Infringement

Earlier this week, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued its decision in In re Seagate Technology, LLC. The decision has been well-covered by the legal press and with good reason. As one commentator stated, Seagate represents a “seismic” shift in the law on the issue of willful patent infringement. Indeed, Seagate appears to have the potential to significantly re-balance the economics of patent infringement cases here in the U.S.

Prior to Seagate, courts relied on a negligence-based standard articulated in the Underwater Devices Inc. v. Morrison-Knudsen Co. case to determine whether patent infringement was willful. Under this standard, one having “actual notice of another’s patent rights” had “an affirmative duty to exercise due care to determine whether or not it is infringing.” Seagate expressly overturns this standard and holds that proof of willful infringement instead requires a higher showing of “objective recklessness.” In doing so, Seagate raises the bar for a finding of willful infringement to a level substantially higher than that of mere negligence, thus making it more difficult for a patent holder to prove a claim for willful infringement.

Under U.S. patent law a finding of willful (and not merely innocent) infringement allows a claim for treble (3x) damages to be made against the alleged infringer. By raising the bar for a finding of willfulness, Seagate appears to significantly narrow the range of situations in which a patent holder can now credibly threaten (much less expect to win) a claim for increased damages based on willful infringement. This likely means more situations in which patent holders will be able to (at best) expect to obtain only actual damages if they bring a case to enforce their patent(s) against an alleged infringer. Considering that according to a 2004 report titled “Empirical Statistics on Willful Patent Infringement” by now CAFC judge Kimberly Moore, over 90% of patent cases involve allegations of willful infringement and claims for treble damages, it seems reasonable to assume that this change will figure significantly into the economics behind the decision to bring many future patent cases.

While much is made about the high costs of defending a patent case, the upfront “investment” necessary to bring a patent case is not insignificant. Seagate in essence lowers the potential return on that investment by making it more difficult to obtain treble damages. Particularly when viewed in light of other recent patent decisions such as eBay Inc v. MercExchange, L.L.C. (which denies a patent holder the ability to automatically obtain an injunction in the case of a finding of patent infringement – injunctions and damages being the primary remedies available in patent cases) and KSR v. Teleflex (which has been widely viewed as making it easier for infringement allegations to be challenged on the grounds that the patented invention at issue is too obvious to deserve patent protection), Seagate would appear to have the potential to motivate patent holders to reconsider bringing costly patent infringement cases and instead encourage them to negotiate less costly settlements or licensing arrangements (or perhaps take no action at all). After all, why would a reasonable (and value-maximizing) patent holder bring a patent case if the potential return does not justify the overall investment necessary to reach that return?

Whether this actually proves to be the legacy of Seagate remains to be seen. And, it will be very interesting to watch the extent to which Seagate and these other recent cases have an actual impact on the willingness of patent holders to threaten and bring patent cases in this country. Regardless, I would expect that foes of the continued rise in power of patents and patent holders and those who have ranted about the need for patent reform are likely to welcome Seagate as yet another step in the weakening of that power and toward the further reform of patent laws here in the U.S.