Technology Information Law Blog by Charles Gideon Korrell

Tag: CAFC

  • BEARBOX LLC v. LANCIUM LLC: A Legal Examination of Inventorship and State Law Preemption in Patent Law

    In the recent case of BearBox LLC v. Lancium LLC, the United States Court of Appeals for the Federal Circuit addressed pivotal issues concerning inventorship claims and the preemption of state law by federal patent statutes. This case underscores the intricate balance between state and federal jurisdictions in intellectual property disputes.

    Case Background

    Austin Storms, founder of BearBox LLC, engaged in discussions with Lancium LLC’s co-founders, Michael T. McNamara and Dr. Raymond E. Cline, Jr., during a Bitcoin mining conference. Subsequently, Storms sent an email containing technical information about BearBox’s technology. Lancium later secured U.S. Patent No. 10,608,433 (“the ‘433 patent”), leading Storms to assert that he should be recognized as an inventor. BearBox pursued legal action, alleging conversion under Louisiana state law and seeking correction of inventorship on the ‘433 patent.

    Key Legal Issues Addressed

    1. Preemption of State Law Conversion Claim
      • BearBox’s conversion claim centered on Lancium’s alleged unauthorized use of its unpatented technology. The district court dismissed this claim, determining it was preempted by federal patent law. The court reasoned that allowing such a state law claim would conflict with the objectives of federal patent statutes, which aim to promote public disclosure and free use of unpatented ideas. The Federal Circuit affirmed this decision, emphasizing that state laws cannot offer patent-like protection to intellectual creations unprotected under federal law.
    2. Exclusion of Supplemental Expert Report
      • BearBox submitted a supplemental expert report after the close of discovery without seeking the court’s permission. The district court excluded this report, citing procedural rules and the untimely nature of its submission. The Federal Circuit upheld this exclusion, noting that BearBox had ample opportunity to address claim construction issues earlier in the proceedings and failed to justify the delayed submission.
    3. Inventorship Claims
      • At the heart of the dispute was whether Storms should be recognized as a sole or joint inventor of the ‘433 patent. The district court, after a thorough bench trial, found that BearBox did not provide clear and convincing evidence to support Storms’ inventorship claims. The court highlighted that the information shared by Storms did not establish his conception of the claimed invention, nor did it precede Lancium’s independent development. The Federal Circuit affirmed this finding, underscoring the necessity for corroborated evidence in inventorship disputes.

    Implications for Intellectual Property Law

    This case reinforces the principle that federal patent law preempts state laws that attempt to grant patent-like protections to unpatented ideas. It also highlights the critical importance of timely and procedurally correct submissions in litigation, especially concerning expert reports. For inventors and companies, the decision underscores the necessity of maintaining thorough documentation and clear communication when collaborating or sharing technical information, as these records are vital in establishing claims of inventorship.

    In conclusion, the BearBox LLC v. Lancium LLC decision provides valuable insights into the complexities of patent law, particularly regarding the boundaries of state and federal jurisdictions and the stringent requirements for proving inventorship.

    By Charles Gideon Korrell

  • Federal Circuit Reverses Invalidity Finding for Novartis’ Entresto Patent

    On January 10, 2025, the Federal Circuit issued a significant decision in In re Entresto (Sacubitril/Valsartan) Patent Litigation, reversing a district court ruling that had found claims of Novartis’ U.S. Patent 8,101,659 (“the ’659 patent”) invalid for lack of written description. The appellate court affirmed the district court’s rulings that the patent was not invalid for obviousness or lack of enablement, solidifying Novartis’ ability to protect its blockbuster drug, Entresto®.

    This decision highlights several key patent law principles, particularly in the areas of written description, enablement, and obviousness. Here’s a breakdown of the major issues addressed by the court.

    1. Written Description – The Core Issue on Appeal

    The Federal Circuit reversed the district court’s finding that the ’659 patent lacked an adequate written description. The lower court had ruled that because the patent did not describe a valsartan-sacubitril complex, it failed the written description requirement. However, the Federal Circuit clarified that the claims did not specifically require such a complex—they covered valsartan and sacubitril administered in combination, not in a bound form.

    Key Takeaway:

    A patent’s written description must support what is actually claimed, not an unclaimed feature of the accused product. The court found that the patent sufficiently described the claimed combination therapy, even though it did not describe the later-developed valsartan-sacubitril complex.

    2. Enablement – The Patent Need Only Enable the Claimed Invention

    The district court had found that the ’659 patent enabled the claimed invention, and the Federal Circuit affirmed this conclusion. The court held that because valsartan-sacubitril complexes were unknown at the time of filing, Novartis was not required to enable them in its patent.

    Key Takeaway:

    Later-developed technologies cannot be used to argue that an earlier patent lacks enablement. If the claimed invention was enabled based on the state of the art at the time of filing, the patent remains valid.

    3. Obviousness – No Clear Motivation to Combine

    The court also upheld the district court’s ruling that the asserted claims were not obvious. The defendants (generic pharmaceutical manufacturers) argued that a person of ordinary skill in the art would have been motivated to combine an ARB (valsartan) and an NEP inhibitor (sacubitril) based on prior studies of similar drug combinations.

    However, the court found:

    • The prior art did not directly suggest combining valsartan with sacubitril.
    • Sacubitril was one of over 100 known NEP inhibitors in 2002, and it had never been tested in humans or animals for hypertension or heart failure.
    • The available studies on other NEP inhibitors showed discouraging results.

    Key Takeaway:

    Obviousness cannot be based on hindsight—just because an invention later proves effective does not mean it was obvious at the time of the patent filing.

    Conclusion: A Win for Novartis and Strong Patent Protection

    This decision strengthens Novartis’ patent protection for Entresto®, a drug with annual U.S. sales exceeding $3 billion. It reinforces the principle that:

    1. The written description requirement applies to what is actually claimed, not later-developed variants of the product.
    2. Enablement is judged based on what was known at the time of filing, not what was developed later.
    3. Obviousness must be based on clear motivation and reasonable expectation of success from the prior art.

    For pharmaceutical innovators, this case underscores the importance of careful patent drafting and robust litigation strategies. Meanwhile, for generic manufacturers, it highlights the challenges of proving invalidity when prior art does not clearly suggest the patented invention.

    By Charles Gideon Korrell

  • Court Upholds Limited Damages in Bitmanagement Software GmbH v. United States: Key Takeaways on Copyright Infringement and Licensing

    On January 7, 2025, the United States Court of Appeals for the Federal Circuit issued its decision in Bitmanagement Software GmbH v. United States, affirming a damages award of $154,400 for copyright infringement by the U.S. Navy. The case centered around the Navy’s unauthorized copying and use of Bitmanagement’s 3D rendering software, BS Contact Geo, raising significant issues in copyright law, licensing agreements, and damages calculations.

    Background of the Case

    Bitmanagement, a German software company, initially licensed BS Contact Geo to the Navy in 2008 through seat licenses, which restricted installation to specific computers. In 2012, the parties transitioned to a floating license model, which allowed broader access but required monitoring software (Flexera) to enforce concurrent usage limits. However, the Navy later installed the software on over 429,000 computers without ensuring compliance with the agreed usage restrictions.

    After discovering this breach, Bitmanagement sued the U.S. government for copyright infringement in 2016, leading to a complex litigation over the scope of the Navy’s license and the appropriate damages for the unauthorized copying.

    Major Legal Issues Addressed

    1. Implied License and Copyright Infringement

    One of the core disputes was whether the Navy’s actions constituted copyright infringement or were covered by an implied license. The Court of Federal Claims initially ruled in favor of the Navy, holding that an implied license existed. However, on appeal, the Federal Circuit clarified that while an implied license was granted, it was conditioned on the use of Flexera to track and limit concurrent use. Since the Navy failed to implement this safeguard, its conduct amounted to copyright infringement.

    2. Method of Calculating Damages

    A crucial issue in the case was the method for calculating damages under 28 U.S.C. § 1498(b), which governs copyright infringement claims against the U.S. government. Bitmanagement argued that it should be compensated based on a per-copy basis, amounting to approximately $85.9 million, as the Navy had installed the software on 429,567 computers.

    The Court, however, applied the Gaylord v. United States precedent, which mandates that damages in such cases should reflect a hypothetical negotiation at the time of the infringement. The Court reasoned that because Bitmanagement had previously agreed to floating licenses—where charges were based on concurrent users rather than installations—the hypothetical negotiation would have led to a license fee based on usage rather than per-copy sales.

    3. Burden of Proof on Usage

    The ruling also addressed the burden of proof regarding the Navy’s actual use of the software. The Federal Circuit held that, as the party that breached the licensing agreement, the Navy bore the burden of proving its actual software usage. However, the Court found that Bitmanagement had not sufficiently challenged the government’s usage estimates and did not provide alternative damages calculations.

    4. Admissibility of Expert Testimony

    Bitmanagement challenged the admission of testimony from the government’s expert, David Kennedy, who estimated damages based on Navy usage data. The Court upheld his testimony, finding it credible and aligned with standard methodologies for determining copyright damages in government infringement cases.

    Implications for Intellectual Property and Government Licensing

    1. Importance of Clear Licensing Terms

    This case underscores the importance of well-defined licensing agreements, particularly for software providers dealing with government entities. The failure to enforce explicit monitoring and usage restrictions allowed the Navy to argue for a more limited interpretation of damages.

    2. Challenges in Proving Damages

    The decision highlights the difficulties in proving damages for software infringement, especially when a floating license model is involved. Companies should maintain detailed records of negotiations and enforce monitoring mechanisms to strengthen potential claims in litigation.

    3. Limits on Government Copyright Liability

    Under Gaylord, the Court reaffirmed that copyright damages against the government are limited to “reasonable and entire compensation,” which does not necessarily equate to commercial licensing rates in the private sector. This means companies contracting with the government should anticipate that damages may be awarded based on actual use rather than theoretical maximum exposure.

    Conclusion

    The Federal Circuit’s decision in Bitmanagement Software GmbH v. United States sets a precedent for how copyright damages are calculated in government infringement cases. By affirming a relatively modest damages award, the Court reinforced the principle that compensation should reflect a reasonable licensing negotiation rather than punitive measures. For intellectual property owners, the ruling serves as a reminder to establish clear contractual safeguards and proactively enforce licensing terms to avoid disputes over implied use and damages calculations.

    By Charles Gideon Korrell

  • Federal Circuit Ruling on Oman Fasteners: A Critical Look at Antidumping Duties and Administrative Review Standards

    On January 7, 2025, the U.S. Court of Appeals for the Federal Circuit issued an important ruling in Oman Fasteners, LLC v. United States, a case that highlights key issues in international trade law, including antidumping duties, administrative review procedures, and the application of adverse inferences under 19 U.S.C. § 1677e. The decision sheds light on the Commerce Department’s discretionary power in trade enforcement and the judiciary’s role in ensuring procedural fairness.

    Case Background: Commerce’s Antidumping Review and the 154.33% Duty Rate

    The dispute centers around the Commerce Department’s 2020–2021 administrative review of antidumping duties imposed on steel nails from Oman. Oman Fasteners, the primary respondent, submitted its questionnaire response through Commerce’s electronic system just 16 minutes past the deadline. Despite the minimal delay, Commerce rejected the submission and applied an adverse inference, resulting in a staggering antidumping duty of 154.33%—a drastic increase from the previous rate of 1.65%.

    Commerce justified the penalty under § 1677e(b), which allows the agency to use adverse inferences against parties that fail to cooperate “to the best of their ability.” However, Oman Fasteners challenged the ruling in the U.S. Court of International Trade (Trade Court), arguing that the rejection of its submission was an abuse of discretion. The Trade Court agreed, issuing an injunction that reverted the cash deposit rate to 1.65% pending further review.

    Key Legal Issues Addressed by the Federal Circuit

    The Federal Circuit addressed three major legal issues in its review:

    1. The Scope of Commerce’s Discretion in Rejecting Late Submissions

    One of the primary questions was whether Commerce acted within its discretion in rejecting Oman Fasteners’ submission. The court reaffirmed that Commerce has broad authority to set and enforce deadlines in antidumping proceedings. However, it also emphasized that agency discretion must be exercised reasonably and in proportion to the alleged non-compliance. The court found that a 16-minute delay did not constitute a significant failure to cooperate, especially since the respondent made good-faith efforts to submit the data on time.

    2. The Application of Adverse Inferences Under 19 U.S.C. § 1677e(b)

    The ruling also clarified the application of adverse inferences, a tool Commerce uses to penalize non-cooperative respondents. The Federal Circuit reiterated that the purpose of § 1677e(b) is to encourage compliance, not to impose punitive or aberrational dumping margins. The court concluded that Commerce’s reliance on a 154.33% rate from a 2014 petition was unsupported by substantial evidence. Given that Oman Fasteners had previously been assigned duty rates as low as 0.00%, Commerce failed to justify why such an extreme penalty was warranted.

    3. The Role of the Courts in Reviewing Trade Remedies

    The court underscored the Trade Court’s role in reviewing Commerce determinations for abuses of discretion. While agencies have considerable latitude in trade enforcement, judicial oversight remains essential to prevent arbitrary decision-making. The Federal Circuit upheld the injunction against the 154.33% duty, agreeing that Commerce’s action was excessive and unsupported by the record.

    Implications of the Decision

    The ruling has significant implications for companies facing antidumping reviews and highlights key principles for legal practitioners in trade law:

    • Timeliness vs. Reasonableness: While strict deadlines are necessary, Commerce must evaluate the actual impact of a minor delay before rejecting a submission outright.
    • Limits on Adverse Inferences: Agencies cannot impose punitive margins without demonstrating that a respondent’s actions significantly impaired the review process.
    • Judicial Oversight in Trade Enforcement: Courts play a crucial role in ensuring that trade remedies remain fair and proportionate.

    Conclusion

    The Federal Circuit’s decision in Oman Fasteners serves as a cautionary tale for both agencies and respondents in antidumping cases. While Commerce has broad authority to enforce trade laws, this case illustrates that fairness and proportionality remain essential safeguards against excessive penalties. The ruling reinforces the need for reasoned decision-making and provides a strong precedent for challenging arbitrary trade enforcement actions.

    For businesses navigating U.S. trade laws, this case is a reminder to maintain diligence in compliance while also being prepared to challenge unjust administrative actions through the courts.

    By Charles Gideon Korrell

  • Functionality and Trademark Law: The Federal Circuit’s Decision in CeramTec GmbH v. CoorsTek Bioceramics LLC

    In a significant ruling on the intersection of patent and trademark law, the U.S. Court of Appeals for the Federal Circuit recently upheld the cancellation of CeramTec GmbH’s trademarks for the pink color of ceramic hip components. The court affirmed the decision of the Trademark Trial and Appeal Board (TTAB), finding that the color pink was functional and therefore ineligible for trademark protection. This decision reinforces long-standing principles regarding the limits of trademark rights when applied to functional product features.

    Background of the Case

    CeramTec, a manufacturer of ceramic hip implants, had obtained trademarks for the pink color of its zirconia-toughened alumina (ZTA) ceramic hip components, marketed as Biolox Delta. The pink coloration resulted from the addition of chromium oxide (chromia) to the ceramic, a practice that CeramTec had also covered in prior patents. However, once its patent on the composition expired, CeramTec sought to use trademark law to prevent competitors from producing similarly colored ceramic implants.

    CoorsTek, a competitor in the medical implant market, challenged these trademarks, arguing that the pink coloration was functional and not protectable under trademark law. The TTAB agreed, ruling that the pink color was functional and canceling CeramTec’s marks. CeramTec appealed this decision to the Federal Circuit.

    Key Legal Issues Addressed

    The Federal Circuit’s opinion primarily addressed two major intellectual property law issues: trademark functionality and the interaction between patents and trademarks in determining the protectability of product features.

    1. The Functionality Doctrine in Trademark Law

    The court emphasized the functionality doctrine, which prevents a manufacturer from using trademark law to claim exclusive rights over functional features of a product. The doctrine is based on the idea that trademark law should not inhibit competition by allowing a company to monopolize useful product features.

    The court applied the four-factor test established in In re Morton-Norwich Products, Inc. to determine functionality:

    • Existence of a Utility Patent: CeramTec’s expired patent explicitly disclosed that the addition of chromia provided material benefits, including increased hardness and durability.
    • Advertising that Promotes a Functional Advantage: CeramTec’s promotional and technical materials, as well as regulatory filings, repeatedly stated that chromia improved the physical properties of its ceramics.
    • Availability of Alternative Designs: The court found no compelling evidence that other ceramic hip implant colors would work equally well.
    • Impact on Manufacturing Cost and Simplicity: Conflicting evidence on whether chromia made manufacturing cheaper led the court to treat this factor as neutral.

    Given the strong evidence under the first two factors, the court concluded that the pink coloration was functional and not eligible for trademark protection.

    2. The Role of Patents in Trademark Functionality Analysis

    One of the most critical aspects of this decision was the role of CeramTec’s expired patent in proving functionality. Under the Supreme Court’s ruling in TrafFix Devices, Inc. v. Marketing Displays, Inc., a utility patent that claims a particular product feature is strong evidence that the feature is functional and cannot be protected as a trademark.

    The court dismissed CeramTec’s argument that the TrafFix standard did not apply because the patent did not explicitly claim the color pink. The Federal Circuit held that because CeramTec’s patent claimed the addition of chromia—directly responsible for the pink coloration—it was clear that the pink color was a byproduct of a functional process. The ruling reinforces that patent disclosures about functional advantages can be fatal to later trademark claims on those same features.

    Unclean Hands and Equitable Defenses

    CeramTec also attempted to raise an unclean hands defense, arguing that CoorsTek had previously asserted that chromia provided no functional benefits and should be barred from now arguing the opposite. The court rejected this defense, emphasizing that public interest in eliminating functional marks outweighed any concerns about inconsistencies in CoorsTek’s prior statements.

    Implications for Trademark and Patent Holders

    This decision serves as a stark reminder that companies cannot use trademark law to extend monopoly rights over expired patents. Once a patent expires, competitors are free to use the disclosed innovation, and trademark law cannot be used as a backdoor method of restricting competition.

    Key Takeaways for IP Practitioners:

    1. Be Cautious with Trademarking Functional Features
      If a product feature serves a functional purpose, securing a trademark may not be a viable long-term strategy for exclusivity.
    2. Prior Patents Can Undermine Trademark Claims
      A company’s own patents can serve as strong evidence that a feature is functional, making it difficult to later argue for trademark protection.
    3. Marketing and Regulatory Filings Matter
      Statements in advertising, promotional materials, and regulatory filings that tout a feature’s functional benefits can be used as evidence against trademark validity.
    4. The Functionality Doctrine Is a Strong Barrier to Color Trademarks
      While colors can sometimes be trademarked (as in Qualitex Co. v. Jacobson), courts will closely scrutinize whether the color serves a functional purpose before granting protection.

    Conclusion

    The Federal Circuit’s decision in CeramTec GmbH v. CoorsTek Bioceramics LLC reinforces core principles of trademark law by preventing the use of trademarks to monopolize functional product features. By reaffirming that expired patents serve as strong evidence of functionality, the ruling ensures that competitors can lawfully use previously patented innovations once patent protection ends. This case serves as a valuable lesson for companies looking to balance patent and trademark strategies in protecting their intellectual property.

    By Charles Gideon Korrell

  • Federal Circuit Overturns PTAB Decision in Honeywell v. 3G Licensing: A Victory for Obviousness Challenges

    On January 2, 2025, the Federal Circuit issued a significant ruling in Honeywell International Inc. v. 3G Licensing, S.A., reversing the Patent Trial and Appeal Board’s (PTAB) decision that upheld the validity of U.S. Patent No. 7,319,718. This ruling underscores the court’s approach to obviousness under 35 U.S.C. § 103 and highlights critical considerations in intellectual property disputes, particularly in standard-essential patents.

    Background: The ‘718 Patent and the CQI Coding Method

    The case centered around the ‘718 patent, which covers a method for encoding Channel Quality Indicator (CQI) data in third-generation (3G) mobile communication systems. CQI is used by mobile devices to inform base stations about network conditions, helping optimize data transmission rates.

    Honeywell and other appellants challenged the ‘718 patent in an inter partes review (IPR), arguing that the claimed method was obvious in light of prior art, particularly a proposal from Koninklijke Philips N.V. (the Philips reference). The PTAB, however, found that Honeywell failed to demonstrate a motivation to modify the Philips reference in the specific way claimed by the ‘718 patent.

    The Federal Circuit’s Analysis: Legal Issues in Patent Obviousness

    The Federal Circuit reversed the PTAB, concluding that its findings were legally flawed and unsupported by substantial evidence. The ruling focused on four major issues of patent law:

    1. Motivation to Modify Prior Art: Must It Match the Patentee’s Objective?

    The PTAB had determined that because the ‘718 patent aimed to maximize system throughput, there was no motivation for a skilled artisan to modify the Philips reference to enhance protection for the most significant bit (MSB). The Federal Circuit rejected this reasoning, reaffirming that obviousness does not require the motivation to match the patentee’s goal. Citing KSR International Co. v. Teleflex Inc., the court emphasized that any recognized need in the field—not just the inventor’s specific motivation—can support a finding of obviousness.

    2. Prior Art and the Role of Technical Modifications

    The court found that the Philips reference itself taught the desirability of protecting the MSB and that swapping two bits in the encoding table (as the ‘718 patent claimed) was a straightforward optimization. Because the modification merely involved a minor technical adjustment, it fell within the realm of routine experimentation and optimization rather than a novel innovation.

    3. Conflation of Obviousness and Anticipation

    The Federal Circuit criticized the PTAB for improperly treating the lack of an explicit proposal to swap the bits in the Philips reference as evidence of non-obviousness. The court clarified that while anticipation requires every element to be disclosed in a single prior art reference, obviousness merely requires that the claimed modification would have been a natural and logical step for a skilled person.

    4. The “Best Approach” Fallacy in Standards Development

    The PTAB had focused on the lack of consensus within the 3G standards-setting process regarding optimal CQI encoding methods. The Federal Circuit held that obviousness does not require a modification to be the “best” or “preferred” approach, only that it be a reasonable and predictable improvement.

    Implications for Patent Law and Standard-Essential Patents

    This decision reinforces the high bar for patentability in the face of well-documented prior art. Some key takeaways include:

    • Obviousness analysis should not be constrained by the inventor’s specific motivations but should consider broader industry knowledge.
    • Technical refinements and optimizations may not be patentable if they represent routine modifications of existing methods.
    • Standard-setting bodies’ debates do not necessarily shield patents from invalidity challenges—if an approach was reasonably suggested by prior art, it may still be deemed obvious.

    Conclusion

    The Federal Circuit’s decision in Honeywell v. 3G Licensing serves as a reminder that minor tweaks to well-known technologies, even when adopted into industry standards, may not be enough to sustain patent validity. As companies continue to litigate standard-essential patents, courts will likely scrutinize whether claimed inventions represent true innovation or merely expected refinements of prior art.

    This ruling is a win for companies challenging weak patents in high-tech industries and signals a continued shift toward a pragmatic and evidence-driven approach to patent law.

  • Federal Circuit Reverses Infringement Verdict in CloudofChange v. NCR: A Case Study in Divided Infringement and System Claims

    On December 18, 2024, the Federal Circuit issued a significant opinion in CloudofChange, LLC v. NCR Corporation, a case concerning direct infringement of system claims under 35 U.S.C. § 271(a). The decision clarifies the application of Centillion Data Systems, LLC v. Qwest Communications International, Inc. and Akamai Technologies, Inc. v. Limelight Networks, Inc., two pivotal cases addressing the standards for direct infringement of system and method claims. Ultimately, the Federal Circuit reversed the jury’s verdict of infringement and vacated the $13.2 million damages award against NCR.

    Key Issues in the Case

    The appeal focused on whether NCR directly infringed U.S. Patent Nos. 9,400,640 and 10,083,012, which claim a web-based point-of-sale (POS) system that allows non-expert business operators to build and modify POS terminals remotely. The infringement question centered on NCR’s “NCR Silver” product, a web-based POS solution. NCR argued that it could not be liable for direct infringement because it did not “use” the claimed system—only its customers (merchants) did.

    1. What Constitutes “Use” of a System?

    Under Centillion, direct infringement of a system claim requires that an entity (1) control the system as a whole and (2) obtain benefit from it. The Federal Circuit reaffirmed that customers must be the ones who “use” a system when they initiate interactions with it and derive its benefits. In this case, NCR’s merchants, not NCR itself, performed these actions:

    • Merchants provided their own POS hardware and internet access.
    • They initiated actions on their POS terminals, such as building or modifying menus.
    • They benefitted directly from the system’s functionality.

    Thus, the court found that NCR did not “use” the system under Centillion, and its merchants were the actual users.

    2. Vicarious Liability and Divided Infringement

    Recognizing that Centillion alone did not end the inquiry, the court next considered whether NCR was vicariously liable for its customers’ use of the system. The Federal Circuit applied the Akamai framework, which allows direct infringement liability when one entity “directs or controls” another’s performance of the claim elements.

    CloudofChange argued that NCR’s Merchant Agreement, which required merchants to maintain internet access, established control over their use of the system. The district court had agreed, analogizing NCR’s role to that of an infringer who contracts with another party to perform part of the claim.

    The Federal Circuit, however, rejected this reasoning, emphasizing that:

    • NCR did not contractually require merchants to use the POS system in any particular way.
    • NCR’s merchants acted independently, choosing whether and how to use the system.
    • Merely requiring internet access as a prerequisite to use does not amount to “direction or control” over system usage.

    Since NCR did not control the merchants’ use of the POS system, it could not be held vicariously liable for their infringement.

    Conclusion: A Cautionary Tale for System Claims

    This decision underscores the challenges of proving direct infringement of system claims when multiple parties are involved. Patent holders alleging infringement of such claims must demonstrate that the accused infringer, not just its customers, uses the system in a legally meaningful way. Additionally, claims involving distributed systems must account for the complexities of divided infringement and vicarious liability.

    For technology companies, this case highlights the importance of structuring agreements and customer interactions to minimize exposure to direct infringement claims. As CloudofChange v. NCR demonstrates, courts are unwilling to stretch the definition of “use” beyond the clear framework established in Centillion and Akamai.

    By Charles Gideon Korrell

  • Federal Circuit Vacates and Remands in Meyer Corporation Case: Key Patent Law Takeaways

    The Federal Circuit’s recent decision in Meyer Corporation, U.S. v. United States sheds light on several significant issues in customs law and the valuation of imported goods, with broader implications for how courts interpret evidentiary burdens and transaction pricing in a related-party context. While the case primarily involved tariff assessments rather than patent law, it touches on principles relevant to intellectual property valuation and cross-border transactions.

    Background of the Case

    Meyer Corporation, U.S. sought to rely on a “first-sale” price to determine the dutiable value of imported cookware. The cookware was manufactured in Thailand and China, sold to related-party distributors in Macau and Hong Kong, and then imported to the U.S. Customs and Border Protection (CBP) rejected Meyer’s request to use the first-sale price and instead assessed duties based on the second-sale price.

    Following a prior Federal Circuit ruling that found the Court of International Trade (CIT) had misapplied precedent, the case was remanded for reconsideration. However, the CIT again ruled against Meyer, citing a lack of financial documentation from the company’s parent, Meyer Holdings. The Federal Circuit has now vacated that ruling, finding errors in the application of evidentiary presumptions.

    Key Legal Issues Addressed

    1. The Burden of Proof in Related-Party Transactions

    A core issue in the case was whether Meyer had sufficiently demonstrated that the first-sale price was a valid transaction value under U.S. customs law. Under 19 U.S.C. § 1401a(b)(2)(B), a transaction between related parties can serve as the basis for customs valuation if it meets one of two tests:

    • The price reflects normal pricing practices of the industry (Normal Pricing Practices Test).
    • The price covers all costs plus a reasonable profit (All Costs Plus Profit Test).

    The CIT imposed an adverse inference against Meyer due to the company’s failure to provide financial records of its parent company. The Federal Circuit criticized this approach, holding that the trial court improperly speculated that the missing records would have disproved Meyer’s claim without considering the available evidence.

    2. The Interpretation of “All Costs Plus Profit” and the Definition of “Firm”

    Meyer also challenged CBP’s interpretation of 19 C.F.R. § 152.103(l)(1)(iii), which requires proof that the price ensures recovery of all costs plus a profit equivalent to the firm’s overall profitability. The government had argued that “firm” should be interpreted to mean the parent company, while Meyer contended that it referred only to the seller in the related-party transaction.

    The Federal Circuit declined to rule on the proper interpretation of “firm,” as the trial court’s decision was not based on that definition. However, the issue remains unresolved and could be litigated in future cases involving similar customs valuation disputes.

    3. The Role of Non-Market Economy Concerns in Customs Valuation

    The trial court originally denied Meyer’s first-sale price argument by reasoning that non-market influences (due to Chinese manufacturing) distorted the transaction value. The Federal Circuit had previously ruled that such reasoning was improper under U.S. customs law, which only requires that the related-party relationship not influence the price.

    On remand, the CIT attempted to reformulate its reasoning but still relied on the absence of financial records to reject Meyer’s claim. The Federal Circuit again vacated the decision, reaffirming that speculation about non-market influences is insufficient grounds to reject a first-sale transaction value.

    Implications for Patent and Intellectual Property Law

    Although this case centers on customs valuation rather than patent law, it has broader implications for intellectual property and cross-border licensing arrangements:

    • Valuation of IP Transactions: The court’s analysis of related-party transactions is relevant to companies that transfer patented technology or intellectual property between subsidiaries. The evidentiary burden for demonstrating arm’s-length pricing in these transactions may be influenced by similar legal principles.
    • Regulatory Compliance for Global IP Holders: Firms engaged in licensing or technology transfer should take note of the court’s emphasis on proper documentation. Ensuring that records of pricing methodologies and cost structures are maintained can help mitigate risks in customs and tax audits.
    • Potential Precedent for Future Trade Cases: The decision reinforces the importance of adhering to statutory and regulatory definitions rather than introducing judicially created presumptions, which could impact how courts approach licensing and patent valuation in import-export scenarios.

    Conclusion

    The Federal Circuit’s decision in Meyer Corporation, U.S. v. United States underscores the necessity of applying proper evidentiary standards in customs valuation cases. By rejecting the CIT’s reliance on speculative adverse inferences, the court reaffirmed the principle that valuation decisions must be grounded in record evidence rather than assumptions about missing documentation.

    For businesses engaged in international trade, particularly those dealing with intellectual property or patented technology, this ruling highlights the importance of maintaining clear, well-documented transaction records to support customs and tax positions. As the case returns to the CIT for further proceedings, it will be important to see how the trial court applies the Federal Circuit’s guidance in evaluating the validity of the first-sale price under U.S. customs law.

    By Charles Gideon Korrell

  • Federal Circuit Vacates PTAB Decision in Palo Alto Networks v. Centripetal Networks: Key Patent Law Takeaways

    On December 16, 2024, the Federal Circuit issued an opinion in Palo Alto Networks, Inc. v. Centripetal Networks, LLC, vacating and remanding a decision by the Patent Trial and Appeal Board (PTAB) in an inter partes review (IPR) proceeding. The ruling highlights critical issues in patent law, particularly regarding obviousness, motivation to combine, and the sufficiency of PTAB’s reasoning in IPR decisions.

    Background of the Case

    The dispute concerns U.S. Patent No. 10,530,903 (the ’903 patent), owned by Centripetal Networks, which covers a system for correlating network packets to improve cybersecurity by de-obfuscating packet sources. Palo Alto Networks (PAN) petitioned for IPR, arguing that the claims were obvious over a combination of three prior art references, with the key dispute centering on whether two references—Paxton and Sutton—could be combined to teach a crucial limitation in the patent.

    The PTAB ultimately ruled in favor of Centripetal, finding that PAN had not sufficiently demonstrated the claimed invention was obvious. PAN appealed, arguing that the Board failed to properly analyze the motivation to combine the references.

    Key Patent Law Issues Addressed

    1. Motivation to Combine and the “Necessary Bridge”

    One of the most important legal issues in this case was whether PAN had sufficiently established a motivation to combine the teachings of Paxton (which disclosed packet correlation techniques) and Sutton (which disclosed methods for notifying administrators of potential malicious activity).

    PAN contended that it would have been obvious to modify Paxton’s system by incorporating Sutton’s notification method to improve cybersecurity. The Board, however, concluded that there was no clear “bridge” between the two references that would support a motivation to combine.

    The Federal Circuit found that the Board failed to make a clear finding on the motivation to combine and did not adequately explain what it meant by the “necessary bridge” between Paxton and Sutton. The court emphasized that when an obviousness challenge is raised, the Board must explicitly find whether a motivation exists and provide a clear rationale. Citing In re Nuvasive, Inc., the court reiterated that a Board decision must include specific findings rather than vague assertions that a motivation was not sufficiently demonstrated.

    2. Evaluating Prior Art Combinations as a Whole

    The Federal Circuit also criticized the Board’s piecemeal analysis of the prior art. The PTAB evaluated Paxton and Sutton in isolation rather than considering them together as a combination. The court clarified that the correct test for obviousness is not whether any single reference discloses all claim limitations, but whether a skilled artisan would find it obvious to combine the teachings of multiple references.

    This aligns with the Supreme Court’s ruling in KSR Int’l Co. v. Teleflex Inc., which rejected a rigid approach to obviousness in favor of a more flexible, common-sense inquiry. By failing to consider the prior art references in combination, the PTAB misapplied the law and failed to properly analyze whether the combined references taught the disputed claim limitation.

    3. The Importance of Clear Reasoning in PTAB Decisions

    The Federal Circuit underscored that the PTAB’s reasoning must be sufficiently detailed to allow for meaningful appellate review. While the court does not reweigh evidence, it must ensure that the PTAB’s decisions are supported by substantial evidence and clearly articulated findings.

    The decision in this case reinforces prior holdings, such as in Gechter v. Davidson, which stress that PTAB opinions must be sufficiently reasoned and cannot leave key issues unresolved. The court found that the Board’s failure to explain whether PAN’s arguments about obviousness were valid required a remand.

    Conclusion and Impact on Future Cases

    The Federal Circuit’s decision in Palo Alto Networks v. Centripetal Networks serves as a reminder that PTAB decisions must be clear, specific, and legally sound when analyzing obviousness and motivation to combine. For practitioners handling IPRs, this case highlights the importance of:

    • Providing a well-reasoned explanation for why prior art references should or should not be combined.
    • Ensuring that PTAB panels properly evaluate prior art combinations as a whole rather than in isolation.
    • Holding PTAB accountable for issuing decisions that contain detailed findings and sufficient reasoning to withstand appellate scrutiny.

    As the case is remanded, PTAB will need to reconsider its findings on motivation to combine and whether the combined prior art discloses all claim elements. This ruling could influence future PTAB proceedings by emphasizing the need for thorough and well-supported decisions in IPR disputes.

    By Charles Gideon Korrell

  • Keeping Patent Damages Expert Opinions In Check

    The Federal Circuit has taken the unusual step of granting en banc review in EcoFactor Inc. v. Google LLC to address fundamental questions about patent damages. The order vacates the previous decision and calls for new briefing on whether the district court properly applied Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc. in its allowance of testimony from EcoFactor’s damages expert. This is the first time since 2018 that the Federal Circuit has taken an en banc case involving a utility patent.

    The dispute centers on testimony from EcoFactor’s damages expert, David Kennedy. Google was found by a jury to infringe EcoFactor’s patent related to smart thermostat technology. Mr. Kennedy opined that Google should pay a specific per-unit royalty rate for infringement, a rate spelled out in three license agreements between EcoFactor and three other companies. Each agreement contained a “whereas” clause stating that EcoFactor “believes” that the royalty payment was based on a particular per-unit rate, and the operative provisions of the agreements explicitly stated that the payment is not based upon sales and does not reflect or constitute a lump sum. Despite these arguably contradictory provisions, and without analyzing any underlying sales data or documentation showing how the lump sums were calculated, Mr. Kennedy testified that the licenses reflected an agreed-upon per-unit license rate applicable to Google.

    Google challenged this methodology.  Google argues that the royalty rate does not reflect the value of the asserted patent but instead reflects the value of EcoFactor’s entire portfolio. The licenses included all of EcoFactor’s patents and patent applications. Google further argues that the expert failed to properly apportion the royalty rate to just the asserted patent.

    EcoFactor argues that the case is a poor candidate for en banc review, and that the majority properly applied the deferential standard of review to find that the district court did not abuse its discretion in admitting the damages opinion. EcoFactor argues that the per-unit royalty rate is spelled out in three different arms-length patent license agreements. EcoFactor further argues that the agreements settled infringement allegations involving comparable patents against specific smart thermostat features, making them sufficiently comparable to the case at bar. EcoFactor argues that Mr. Kennedy did apportion between the asserted and non-asserted patents.

    The Federal Circuit’s decision in this case is likely to have some impact on the way damages are calculated in patent cases in the future. The court is being asked to clarify when damages theories “cross the line” from permissible approximation to unreliable speculation. The court has requested briefing limited to the narrow issue of the admissibility of the expert’s testimony. However, the amicus briefs raise broader policy issues. The briefs in support of Google or a neutral position emphasize:

    • the importance of rigorous application of Federal Rule of Evidence 702 and *Daubert* to ensure that only reliable and relevant expert testimony is presented.
    • the need for damages experts to appropriately apportion the value of the patented technology.
    • concerns about “royalty stacking,” where combined royalties on a product could exceed the product’s total value.

    The briefs highlight a fundamental tension in patent damages: while estimation is inherent in the hypothetical negotiation framework, that framework must be grounded in the analysis of prior licenses and sound economic reasoning. They urge the court to balance the need for flexibility while ensuring reliability and ensuring fair compensation for the patent holder. Ultimately, the decision will likely shape how courts evaluate the use of prior licenses in damages, particularly in the context of patent portfolios.

    Case History:

    • EcoFactor initially sued Google over Nest thermostats in the Western District of Texas.
    • The case went to trial and a jury found Google liable for infringement. The jury awarded EcoFactor \$20 million in damages.
    • Google appealed the judgment, arguing in part that EcoFactor’s damages expert opinion was based on an unreliable methodology.
    • A panel of the Federal Circuit affirmed the district court’s decision, finding that the expert opinion was admissible.
    • Google petitioned for en banc rehearing, and the full court granted the petition limited to the issue of the damages expert testimony.

    What’s next…

    • Google’s opening brief is due 45 days from September 25, 2024.
    • Amicus briefs supporting Google are due 14 days after service of Google’s opening brief.
    • Amicus briefs supporting EcoFactor are due 14 days after service of EcoFactor’s response brief.

    Issues to watch for:

    • How will the court balance the need for flexibility in damages calculations with the requirement of reliability?
    • Will the court adopt a more stringent standard for the admissibility of damages expert testimony?
    • What guidance will the court provide on the use of prior licenses in calculating damages?
    • How will the decision impact the calculation of damages in cases involving patent portfolios?

    This case is being closely watched by patent practitioners and academics, as it could have a significant impact on patent damages law. The outcome is likely to have implications for both patent holders and accused infringers.

    By Charles Gideon Korrell