by Lee Gesmer | Sep 6, 2014 | Copyright
Oracle faces a tough call following the Ninth Circuit’s August 29, 2014 decision in Oracle Corp. v. SAP AG. Should Oracle accept the $ 356.7 million in copyright damages the Ninth Circuit authorized on appeal, or roll the dice for a new trial, gambling that it can do better?
I’ve written about this case before (see Oracle and SAP Avoid a Retrial, Go Directly to Appeal, in the Other “Tech Trial of the Century”). As I discussed in that September 2012 post, in 2010 Oracle won a record $1.3 billion copyright infringement jury verdict against SAP. However, the trial judge held that the jury’s “hypothetical-license” damages award was based on undue speculation, and ordered remittitur, reducing the judgment to $272 million, and giving Oracle the choice of accepting that amount or retrying its damages case. Oracle and SAP then entered into a complex stipulation that allowed the parties to avoid an immediate retrial and permitted Oracle to appeal the district court remittitur order. The terms of the stipulation were as follows:
- The district court entered final judgment for $272 million. (This did not include interest or the $120 million in attorney’s fees that Oracle had already been paid by SAP).
- However, Oracle agreed not enforce the judgment until all appeals are concluded.
Now, assuming Oracle does not appeal to the Supreme Court, decision day has arrived for Oracle. The Ninth Circuit rejected Oracle’s appeal that it reinstate the $1.3 billion, but did up the amount the district court had arrived at on remittitur ($272 million) by $84.7 million to $356.7 giving Oracle the choice of accepting that amount to end the case, or proceed with a new damages trial.
The heart of the Ninth Circuit’s decision is its holding that while a plaintiff in a copyright infringement case is not required to show that it would have 
licensed the infringed material to recover on a hypothetical license theory (an argument pressed by SAP, since it was undisputed that Oracle would never have licensed the work at issue to SAP), Oracle had failed to present sufficient non-speculative evidence to support the jury’s award of $1.3 billion. This left Oracle with the maximum amount the evidence established based on an alternative damages theory — Oracle’s lost profits plus SAP’s illegal profits — an amount the Ninth Circuit concluded was not $272 million, but $356.7 million.
My prediction: fast and furious negotiations will commence, and the case will settle. Oracle’s chances of recovering materially more than $356.7 million on retrial, given the Ninth Circuit opinion, are negligible, given that Oracle probably put on the best “lost profits/illegal profits” case it could at the first trial. However, Oracle’s chances on improving on that number are not zero, so Oracle will probably be able to obtain more than $356.7 million in a negotiated settlement, but not a great deal more. The settlement is likely to be private, so we may never know the precise amount.
Caveat: Larry Ellison gets to make the call on this for Oracle, and he might be more likely to roll the dice on a retrial than your average CEO.
Oracle Corp. v. SAP AG (9th Cir. August 29, 2014)
[Update, November 18, 2014. As predicted, the case has settled, reportedly for $359 million, just a hair more than the $356.7 million ordered by the Ninth Circuit].
by Lee Gesmer | Sep 3, 2014 | Copyright, Patents, Trademark
[As initially published in the September 1, 2014 issue of Massachusetts Lawyers Weekly]
A lot has changed in the realm of intellectual property law following the record-breaking ten intellectual property cases decided by the U.S. Supreme Court in its 2013 term. Highlights of the six unanimously decided patent cases include suits in which the Court narrowed the scope of patent protection for inventions implemented on computers, made it easier to invalidate a patent for indefiniteness, and made it easier for the district courts to shift attorneys’ fees to prevailing defendants.
The Court issued two copyright decisions, including an important ruling that may have implications for cloud computing. And, one of the Court’s two Lanham Act opinions established a new doctrine for standing in false advertising cases.
Patent
Medtronic v. Mirowski Family Ventures (Jan. 22, 2014) was the first of five decisions overruling the Federal Circuit outright. The Court held that in a declaratory judgment action for non-infringement brought by a patent licensee, the burden of proving infringement lies with the licensor/patent holder, not the licensee. Medtronic can be seen as an extension of the Court’s 2007 decision in MedImmune, Inc. v. Genentech, holding that patent licensees have standing to bring declaratory judgment actions for non-infringement or invalidity, even as they continue to make royalty payments for the product in controversy.
By placing the burden of proving infringement on patent owners, the Court has made it easier for patent licensees to challenge a patent during the license term.
Octane Fitness v. ICON Health and Fitness (April 29, 2014), may have important consequences for attorneys’ fee awards in patent cases. The case was a challenge to the Federal Circuit’s “exceptional case” standard for awarding attorneys’ fees in patent litigation under 35 U.S.C. §285. That standard required a party seeking fees to show by “clear and convincing evidence” that the case was “objectively baseless” and brought in “subjective bad faith.”
Overruling, the Court held that an “exceptional case” is “one that stands out from others with respect to the substantive strength of a party’s litigating position (both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated … considering the totality of the circumstances.” The Court also changed the standard of proof to a preponderance of the evidence.
While the fee-shifting statute applies to both parties, Octane should make it easier for patent defendants to force losing plaintiffs to pay attorneys’ fees.
Highmark v. Allcare Health Management System (April 29, 2014), a companion case to Octane, held that the standard established in Octane should be left to the discretion of the district courts rather than, as the Federal Circuit had held, be subject to de novo review on appeal.
Octane and Highmark give the district courts substantial leeway within which to decide fee awards and may impact the debate over the reform of the patent laws to curb abusive lawsuits. An important component of proposed reform legislation has been to encourage judicial fee shifting, until now a rarity. These cases may be a significant step in that direction.
That said, until the lower courts demonstrate how aggressively they will apply Octane’s fee-shifting standard, the full impact of these cases will be unclear. Adding to this uncertainty is the risk that the standard will be applied unevenly in different districts (and even from judge to judge), with little authority left to the Federal Circuit, under Highmark, to intervene and shape uniform national application.
In Nautilus v. Biosig (June 2, 2014), the Court addressed the patent statute’s requirement that patent “claims particularly point[] out and distinctly claim[] the subject matter which the inventor or a joint inventor regards as the invention.” 35 U.S.C. §112(b).
The Federal Circuit had held that a patent claim passed that threshold so long as the claim was “amenable to construction” and the claim, as construed, was not “insolubly ambiguous.” Reversing the Federal Circuit for the fourth time, the Court 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” at the time the patent was filed.
While making it easier to challenge a patent based on indefiniteness, the Court left it to the district courts to interpret and apply the standard. Nevertheless, the decision also appears to be consistent with the Court’s trend during the term: to pull in the reins on a patent system widely perceived to be out of control.
The last two cases stand out as the most complex and likely most important patent decisions of the term.
In Limelight Networks v. Akamai Technologies (June 2, 2014), the issue was whether patent infringement could occur when separate entities perform the steps of a method patent, so-called “divided infringement.”
In a controversial decision, the Federal Circuit ruled that a defendant could be liable if it “induced” several parties to jointly carry out the steps necessary for infringement, whether or not the defendant performed any of the steps itself. Reversing again, the Supreme Court held that a defendant cannot be held liable for inducing patent infringement in the absence of direct infringement, which requires that all steps of a patent be performed by a single actor. The Court was not persuaded by the argument that its holding might enable defendants to evade liability by dividing performance among multiple actors.
However, the Court noted that its ruling was based on a 2008 Federal Circuit decision establishing the single actor rule for direct infringement. The Court assumed, without deciding, that that holding was correct, implying that there might be some room for the Federal Circuit (or the Supreme Court) to modify the single actor rule on which the holding in Akamai is based. In the meantime, a divided infringement defense will be a potential loophole for defendants in industries with distributed activities.
The last and most highly awaited patent case in the 2013 term was Alice Corp. v. CLS Bank Int’l (June 19, 2014). At issue was whether claims directed to a computer-implemented financial process were patent-eligible subject matter.
While many in the patent community feared (or hoped) that the decision would render software and business method inventions unpatentable, the Court was careful to avoid that outcome. Rather, it held that, like laws of nature and natural phenomena, “abstract ideas” — such as the business practice in Alice — must contain a sufficient “inventive concept” to “transform” the idea into a patent-eligible application. However, that cannot be achieved solely with a generic computer implementation. In Alice, the claims amounted to “‘nothing significantly more’ than an instruction to apply the abstract idea,” using some “unspecified, generic computer.” That was “not ‘enough’ to transform an abstract idea into a patent-eligible invention.”
While Alice did not create a per se exclusion for software and business processes, these categories will face heightened scrutiny in both prosecution and enforcement. But application of Alice will be complicated by minimal guidance on what constitutes an “abstract idea.” While using a general purpose computer to implement an abstract idea will not achieve patent-eligibility, software that improves a physical process or the functioning of the computer itself may provide the “something more” identified by the Court as a requirement to transform an abstract concept into patent-eligible subject matter.
However, those distinctions were left to the lower courts to resolve on a case-by-case basis.
Copyright
In Petrella v. Metro-Goldwyn-Mayer, the first of two copyright cases decided in the 2013 term (May 19, 2014), a 6-3 Court reversed the 9th Circuit, holding that the copyright statute’s three-year “rolling” statute of limitations (17 U.S.C. §507) could not be shortened by the common law doctrine of laches. However, an unreasonable, prejudicial delay in filing suit may be relevant to awarding equitable relief and damages based on the infringer’s profits, making it less likely that the ruling will spark a flood of hitherto dormant copyright suits.
The second copyright ruling, ABC v. Aereo (June 25, 2014), involved the legality of Aereo’s system of using micro-antennas and individual digital copies to stream over-the-air TV on the Internet. Reversing the 2nd Circuit, a unanimous Court held that Aereo’s streaming service violated the copyright statute’s public performance right. The Court rejected Aereo’s argument that it was legally indistinguishable from a TV antenna/DVR supplier, holding instead that Aereo transmitted a public performance through “multiple, discrete transmissions,” and that Aereo was substantially similar to cable TV companies, which are required to pay royalties to retransmit TV broadcasts.
The impact of the decision on cloud computing remains to be seen, as does the accuracy of the three-justice dissent’s warning that the rationale of the case will “sow confusion for years to come.”
Lanham Act
In Lexmark Int’l v. Static Control (March 25, 2014) the Court unanimously reversed the 6th Circuit’s holding that Static Control could not proceed with a false advertising counterclaim against Lexmark under §43(a) of the Lanham Act because the parties were not direct competitors. The Court announced a new, two-part test: (1) Is the claim within the “zone of interests” protected by the Lanham Act? (2) Did the alleged conduct proximately cause the alleged injury? To meet the second part of the test, a plaintiff must plead “economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising,” and that the deception causes consumers to withhold business from the plaintiff.
The ruling eliminates circuit conflicts and liberalizes standing under federal false advertising law.
In POM Wonderful v. Coca-Cola (June 12, 2014), another false advertising case, POM complained that the label for Coca-Cola’s “pomegranate blueberry” juice blend was deceptive and misleading, in violation of the Lanham Act.
The 9th Circuit held that POM’s claim was precluded by the Food, Drug and Cosmetic Act, which regulates the misbranding of food by means of false labeling. The Court reversed, holding that the federal law was not a safe harbor from the Lanham Act, and, therefore, food and drink labels are subject to competitor claims under the act.
The extent to which the ruling will lead to an increase in false advertising lawsuits over food and drink labeling remains to be seen.
by Lee Gesmer | Aug 28, 2014 | Patents
It would be difficult to find a more straightforward application of the Supreme Court’s recent ruling in Alice Corporation Pty. Ltd. v. CLS Bank International (June 14, 2014) than the Federal Circuit’s August 26th decision in Planet Bingo, LLC v. VKGS LLC (Fed. Cir. August 26, 2014) (non-precedential).
While practitioners and observers of patent law seemed to agree that Alice didn’t spell doom for software and business method patents, it was clear that it did mark the end for patents that do nothing more than recite a generic computerized implementation of an abstract idea.
While it is true that a patent may be obtained for “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof” (link), the Supreme Court has held, in a series of decisions, that there is an implicit exception to the patent statute: laws of nature, natural phenomena, and abstract ideas are not patentable.
In Alice the Court held that “abstract ideas” are not patentable unless they contain an “‘inventive concept’ sufficient to ‘transform’ the claimed abstract idea into a patent-eligible application.” While the precise line between an impermissibly abstract idea and a patentable process remained undefined in Alice (and may never be fully defined), one thing seems clear: once an invention is identified as an abstract idea, a generic computer implementation of that idea is not patentable.
Planet Bingo filed its patent application in 2000, long before the decision in Alice, and it was awarded the patent in 2002. The system described in the patent allows players to select their own numbers and store them for later use, allows players to print off game tickets at the Bingo-playing site with those pre-selected numbers, and enables Bingo hall operators to track and validate these sets of numbers.
Higgins & Jeong
However, obtaining a patent and enforcing it are two different things, and Planet Bingo ran headlong into a defense of patent ineligibility when it brought suit to enforce the patent against a competitor in federal district court in Michigan in 2012 (apparently only one of many cases filed by Planet Bingo). The federal district court declared the patent invalid under the Federal Circuit’s holding in Alice, and the Supreme Court’s 2014 decision in Alice sealed Planet Bingo’s fate when it appealed to the Federal Circuit.
In one of the first of what is likely to be many cases invalidating patents under Alice the Federal Circuit identified the steps set forth in the patent as an abstract idea because they are “mental steps which can be carried out by a human using pen and paper.” Furthermore, the Federal Circuit observed, these steps can be “carried out in existing computers long in use.” The patent lacked the “inventive concept” essential to transform the patent’s ideas into a patent eligible invention. Accordingly, the patent was held invalid.
For a similar case invalidating a patent that claimed a system of computerized meal planning which the court described as a “computer program that allows the user to create meals from a database of food objects, … to change those meals by adding or subtracting food objects, and to view the dietary impact of changes to those meals on a visual display,” see DietGoal Innovations LLC v. Bravo Media LLC (S.D.N.Y. July 8, 2014) (patent “recites nothing more than the abstract concept of selecting meals for the day, according to one’s particular dietary goals and food preferences”). This case also includes a helpful summary of the evolution of patent-eligibility in the Supreme Court from 1972 to 2014.
by Lee Gesmer | Aug 6, 2014 | Trade Secrets
This case, decided by the Massachusetts Supreme Judicial Court on July 28, 2014, shows how difficult it can be to recover damages in a trade secret case. The facts (boiled down) are straightforward. Lightlab manufactures optical coherence tomography systems (OCT). Lightlab had a joint development/non-disclosure agreement with Axsun. Axsun disclosed Lightlab secrets to Volcano, a competitor to Lightlab and would-be acquiror of Axsun. Lightlab obtained a preliminary injunction enjoining the use of its trade secrets by Axsun and Volcano, and also enjoining Volcano’s acquisition of Axsun until after the Lightlab/Axsun agreement expired in 2014, more than five years later.
At trial Lightlab was able to obtain a verdict for trade secret misappropriation (and related claims) from a Massachusetts Superior Court jury.
However, the trial was bifurcated, and before presenting its damages case to the jury Lightlab first needed to run the gauntlet of expert disqualification thrown down by the defendants (Axsun and Volcano). It failed to do this – outside the presence of the jury the trial judge questioned Lightlab’s damages expert for three days, following which she disqualified the expert, leaving Lightlab with no damages case to present.*
*In business and intellectual property cases damages are almost always established through the testimony of a damages expert.
Lightlab had some unfavorable facts to overcome in order to prove damages. The trial judge held Lightlab’s damages experts’ proposed testimony to be speculative (and therefore inadmissible) based on her findings that Lightlab –
- had no profitable sales of its OCT device since it began sales in 1999
- was unable to prove it had lost any sales as a result of the infringement
In addition to these key facts, Lightlab –
- had no guaranteed funding from its parent company to develop the new version of its product that was the basis for the expert’s damages theory
- had not (as of the time of trial in 2010) obtained FDA (or non-U.S.) regulatory clearance for its newest product
- had not yet invented the new generation of its product that was the basis for the expert’s anticipated damages testimony
The trial court judge also found that the expert had performed no market study to support certain assumptions he made concerning Lightlab’s market share through 2038, the 28 year period for which the expert claimed to have calculated damages.
The trial judge closed out the case with no trade secret damages awarded to Lightlab. Lightlab appealed, and the Massachusetts Supreme Judicial Court (SJC) affirmed the trial judge’s decision
It is notoriously difficult for a start-up company such as Lightlab, which had no history of profitability, to recover trade secret damages based on “future” lost profits. In an important sense Lightlab was a victim of its own success – it obtained a preliminary injunction against the use of its trade secrets before the defendants could utilize them, so the defendants never profited directly from the misappropriation.
Given the early preliminary injunction and the factors listed above Lightlab was faced with a seemingly near-insurmountable challenge to recover damages. To overcome this obstacle Lightlab advanced some cutting-edge arguments, the most interesting of which was that as a result of the misappropriation Lightlab had lost the “first mover advantage.” The “first mover advantage” theory is not described in any detail by the SJC in the Lightlab decision, but it is described by Pearson Education as follows (link):
The basis of first-mover advantage is [that] by being the first to enter a new market, the business gains an advantage over its actual and potential rivals. . . . If the business is first into a market, so the thinking goes, it can establish what the military thinkers would call ‘defensible ground’. First, it can capture market share much more easily without having to worry about rivals trying to capture the same customers. Second, when the rivals do come along – as they inevitably will – the first-mover and its management team will have advantages in the ensuing competition, such as familiar products, brand loyalty, the best retail outlets, up-and-running distribution systems, and so on. By beating rivals into the market, the first-mover can consolidate its position and compete more effectively, not only defending its previously acquired share but even continuing to expand.
However, the SJC found that Lightlab was able to cite almost no judicial authority in support of this damages theory: “Significantly, [Lightlab’s expert] acknowledged that nothing in the economic literature supports quantifying lost profits based on first mover advantage. … [The trial judge’s] conclusion that [the expert’s] use of first mover advantage in his methodology rendered that methodology incapable of being validated and tested was well within her discretion.”
Before closing out its opinion the SJC expressed its “concern” that traditional lost profits analysis may not be an adequate model for analyzing harm caused by misappropriation of trade secrets of a “start-up” business. “This fact,” the court stated, “should not render them ‘damage proof.'” The court stated that “other theories of damages may lend themselves to misappropriation of trade secret cases and that such theories may be ripe for testing in our courts.” However, the court did little to indicate what these “other theories” might be and, for Lightlab, this was too little too late.*
*The court’s only citation in connection with this comment was to a 2002 ABA publication, “Enforcement of Trade Secret Rights and Noncompetition Agreements”, pp. 23-32 (link)
There are other important issues addressed in this opinion, not touched on here, relating to damages, the judge’s role in excluding expert witnesses and the scope of injunctive relief in trade secret litigation. Trade secret decisions from the Supreme Judicial Court are few and far between, so Lightlab will be closely studied in trade secret litigation in Massachusetts for many years to come.
Lightlab Imaging, Inc. v. Axsun Technologies, Inc. (SJC, July 28, 2014)
