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Patent Reexamination Used to Stall Patent Enforcement

Here’s a link to an interesting article in the May 5, 2008 issue of Forbes, that highlights the use of anonymous, ex parte requests for reexamination of issued patents to the Patent Office. The result of a reexamination is to stall enforcement of the patent.

The article highlights the plight of Anthony Brown, a lawyer who purchased the patent for compression of an electronic file for transmission over a communications line (think JPEG, this ubiquitous). Before Brown purchased this patent it had laid dormant (the fate of the vast majority of issued patents). After Brown purchased the patent and began a licensing/enforcement program –

“A petition filed in 2000 by parties unknown asked the U.S. Patent & Trademark Office to reexamine whether the processes the patent described were novel enough to deserve a patent. The feds agreed to the review, a common practice if the questions raised seem substantial. The catch is that during the review the holder of the patent can’t demand licensing fees, and the patent’s life doesn’t get extended accordingly. The reexam of the JPEG patent lasted seven years”

After the patent survived that challenge, Brown hit his next roadblock –

“But last year saw yet another anonymous challenge. This one was filed by Chicago patent attorney Vernon Francissen, who declines to identify his client. Francissen suggested the JPEG patent’s current version had slipped through an overburdened system and was being applied too broadly. In March the Patent Office agreed to a second reexam, again putting up a roadblock to Brown’s licensing campaign.”

As a result of the impact of a successful request for rexamination, reexamination requests have become an almost standard strategy for defendants in patent litigation.

EDTex Giveth, CAFC Taketh Away

One of the largest jury verdicts in the notoriously plaintiff- friendly Federal District Court for the Eastern District of Texas was the June 2006 $79 million jury award, enhanced for wilfulnes by $25 million by U.S. District Judge Ron Clark in the case of Finisar Corporation v. DirectTV. (Note: Texas judges often have nicknames as their legal first names. It’s a Texas thing. If he were Massachusetts bred, he’d be Ronald Harrison Clark, III). In addition to this award, the judge refused Finisar a permanent injunction (applying the USSC eBay decision), but ordered DirectTV to pay a compulsory license of $1.60/set-top box until expiration of Finsar’s patent.

This judgment is no more. On April 18th the Court of Appeals for the Federal Circuit held that Judge Clark had misconstrued the term “downloading into a memory storage device.” You would think that such a simple term would be easy to construe, but apparently that wasn’t the case in Beaumont, Texas. Result: infringement verdict of over $104 million (not including interest) vacated, case remanded for a new trial.

In addition to correcting the district court on the construction of the “memory storage” term, the Federal Circuit held that one of Finisar’s patent claims had been anticipated by prior art, and therefore was invalid. Moreover, the Federal Circuit ordered the district court to reconsider its holding of non-obviousness with respect to the surviving claims. Piling on, the Federal Circuit reversed the district court’s finding of wilfulness (the basis for the $25 million enhancement), finding that DirectTV had obtained a proper opinion of noninfringement. This, in the event the issue should arise upon a retrial of the case.

It must be a sad day in Sunnyvale. And, Finisar is in a far weaker position today than it was in 2006, given the Supreme Court’s 2007 KSR decision, which has made patents more difficult to enforce and easier to invalidate. In the process, perhaps the widely-feared Eastern District of Texas has lost a bit of its luster for plaintiffs.

This case illustrates the fragility of any patent infringement verdict. After the expenditure of millions of dollars in costs and fees, thousands of hours of attorney and executive time, stock market gyrations, careers made and destroyed, a case can be reversed simply because the Federal Circuit disagrees with the trial court’s interpretation of a few words found in the patent. In the patent context, more than almost any, id imperfectum dum confectum erit (or, it ain’t over until it’s over, for those of you whose Latin is rusty). For a losing plaintiff, an appeal is “baked into” the process.

There is much more to this important case than I’ve had time to discuss here (including discussion of structural disclosures in “means-plus-function” claims involving a general purpose computer) and Dennis Crouch at Patently-O has done such a fine job that I’ll refer you to two entries in which he discusses other aspects of this decision, here and here.

FTC Decision That Rambus Monopolized Reversed by D.C. Circuit Court

We have followed the Rambus saga for some time. My last post linked to the Federal Trade Commission’s decision holding that Rambus had engaged in illegal monopolization and linking to an extended discussion by my partner, Andy Updegrove.

Today, the Federal Circuit Court of Appeals reversed the FTC, holding that Rambus was not guilty of monopolization. Decision here. More to follow, as we have a chance to review this decision.

Treble Damages Now Mandatory Under Massachusetts Wage Statute

Until the recent passage of a new state law (effective July 13, 2008), the Massachusetts Wage Statute contained a provision that provided for trebled damages at the discretion of the judge. An “innocent” violator had a chance of avoiding treble damages; a repeat offender was likely to get whacked.

No more. As of July 13th, treble damages are mandatory. My partner Joe Laferrera has written a Client Advisory explaining in more detail this change in the law. Click here to read the Advisory.