Troutman Sanders Federal Circuit Review – May 21, 2015

Each week, Troutman Sanders’ Federal Circuit review summarizes the Federal Circuit precedential patent opinions from the prior week.

This week:

  • A Single Entity Must Perform Every Step of a Method to Infringe Under § 271(a)
  • “Qualitative” Investments Alone Are Insufficient To Satisfy Domestic Industry Requirement of § 337
  • One Legal Standard for Generic Analysis, Whether Trademark Is a Compound Term or a Phrase

A Single Entity Must Perform Every Step of a Method to Infringe Under § 271(a)

Akamai Techs. v. Limelight Networks, Inc., No. 2009-1372, -1380, -1416, -1417, 2015 U.S. App. LEXIS 7856 (Fed. Cir. May 13, 2015) (Linn, J.) (Moore, J., dissenting). Click Here for a copy of the opinion.

Akamai Technologies sued Limelight for infringement of a patent related to content distribution on the internet. Limelight performed each step of the asserted method claim, except for a “tagging” step that was performed by Limelight’s customers. In a previous appeal, the Supreme Court held that Limelight could not be held liable for inducing infringement under § 271(b) unless someone, induced by Limelight, had directly infringed the method claim. However, the Supreme Court did not decide whether either Limelight or its customers directly infringed Akamai’s patent, and remanded the case to the Federal Circuit on that issue.

The Federal Circuit held that neither Limelight nor its customers had directly infringed Akamai’s patented method. A method claim is only directly infringed when all method steps are performed by a single entity. This “single entity” can include more than one party only where there is a principal-agent relationship, a contractual arrangement, or a joint enterprise. One entity must act as a “mastermind,” with sufficient control over others such that their acts are attributable to the mastermind. Here, the relationship between Limelight and their customers is not sufficient to find that either party performed all the steps of the method claim, and thus neither party directly infringed the patent.

The majority reached this result by holding that 35 U.S.C. § 271(a) does not embrace joint tortfeasor theories. Under the common law, two parties acting in concert, in pursuit of a common goal, plan, or purpose, would be sufficient for liability. However, the statute did not incorporate common-law theories. Instead, § 271(b) and (c) are the only circumstances that Congress intended for a party to be liable for less than a direct infringement. Further, a reading of § 271(a) that permitted joint tortfeasor theories would render § 271(b) redundant. The majority also criticized the dissent for supporting an intent requirement for direct infringement, encouraging predatory customer infringement suits, and permitting the absurd result that a customer could infringe a dependent claim while not infringing the related independent claim.

Judge Moore dissented, arguing that § 271(a) includes joint tortfeasor liability. The majority’s “single entity” rule came from a misreading of Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520 U.S. 17, 40 (1997). The “all-elements rule” for the purposes of the Doctrine of Equivalents does not likewise require a single entity to infringe all elements under § 271(a). Additionally, the term “whoever” used at the beginning of § 271(a) is plural, not singular, and thus refers to the acts of multiple persons. Further, between the Supreme Court’s reading of 271(b) and the majority’s reading of 271(a), Akamai’s invention is clearly being infringed, yet Akamai has no remedy, creating a “gaping hole” in liability under § 271. Finally, even if the majority’s rule applied, Limelight is clearly the mastermind of the infringement, and should be found liable under the majority’s rule. They provided the system, and perform all steps, except one. That one step is necessary for customers to use Limelight’s system, and thus one that all customers perform. Judge Moore concludes her dissent by calling for the Federal Circuit to take the case en banc to decide whether the single-entity rule, or common-law joint tortfeasor rule applies to infringement under § 271(a).

“Qualitative” Investments Alone Are Insufficient To Satisfy Domestic Industry Requirement of § 337

Lelo Inc. and Leloi AB v. ITC et al., No. 2013-1582, 2015 U.S. App. LEXIS 7708 (Fed. Cir. May 11, 2015) (Reyna, CJ.). Click Here for a copy of the opinion.

Standard Innovation Corporation and Standard Innovation (US) Corp. (collectively, “Standard”) filed a complaint against Lelo Inc. and Lelo AB (collectively, “Lelo”) with the International Trade Commission (“ITC”). Standard alleged violation of Section 337 of the Tariff Act of 1930 for the importation into the U.S. and sale of certain kinesiotherapy devices and related components that infringe one or more claims of U.S. Patent No. 7,931,605 and U.S. Patent No. D605,779. Standard later withdrew the ’779 design patent from the investigation. To obtain relief from the ITC for patent infringement, Section 337 requires that Standard demonstrate a domestic industry in the U.S. that relates to articles protected by the asserted ‘605 patent. The domestic industry requirement consists of a technical prong and an economic prong.

After an evidentiary hearing, an administrative law judge (“ALJ”) issued an Initial Determination (“ID”) construing the terms of the asserted claims, finding the ‘605 patent valid and infringed, and finding no violation of Section 337 on the grounds the Standard did not satisfy the economic prong of the domestic industry requirement. Specifically, purchases of certain off-the-shelf components were deemed insufficient to satisfy the economic prong because they were small in dollar amount. There was no indication of “what portion, if any, the purchase price actually contributed towards a domestic investment in plant or equipment . . . [or] to research and development costs incurred in the development of the components.” Further, even if the purchase price of the components could be attributed to domestic activities, such investments were insubstantial and insignificant.

The International Trade Commission (“ITC”) reviewed the ID and determined that Standard satisfied both the technical and economic prongs of the domestic industry requirement and that there was a violation of Section 337 with respect to the ‘605 patent. Although the ITC essentially agreed that the “modest” investments were trivial in amount, it found that the “crucial” nature of the purchased components to the overall devices was “sufficient” to find that the investments satisfied the economic prong of the domestic requirement. While the investments were small, the “contribution of the components at issue from a qualitative standpoint is indeed significant.” Lelo appealed the ITC’s final determination.

The Federal Circuit reversed the ITC’s decision, concluding that Standard did not satisfy the economic prong of the domestic industry requirement for the ‘605 patent. The decision “turn[ed] on the single question of whether qualitative factors alone are sufficient to satisfy the ‘significant investment’ and ‘significant employment’ requirements of § 337.” The plain text of Section 337 requires “a quantitative analysis in determining whether a petitioner has demonstrated a ‘significant investment in plant and equipment’ or ‘significant employment of labor or capital.’” Rejecting the ITC’s “qualitative approach,” the Court explained that “the terms ‘significant’ and ‘substantial’ refer to an increase in quantity, or to a benchmark in numbers.” The record was devoid of information that would indicate the “magnitude of labor expended to produce the components, [] the amount the suppliers invested in their equipment, . . . [or] the share of labor or capital costs attributable solely to purchases made by Standard Innovation.” Agreeing that Standard’s investment and employment prongs (A) and (B) were quantitatively “modest and insignificant,” the Court concluded that “[q]ualitative factors cannot compensate for quantitative data that indicate insignificant investment and employment.”

One Legal Standard for Generic Analysis, Whether Trademark Is a Compound Term or a Phrase

Princeton Vanguard, LLC, v. Frito-Lay North America, Inc., No. 2014-1517, 2015 U.S. App. LEXIS 8002 (Fed. Cir. May 15, 2015) (O’Malley, J.). Click Here for a copy of the opinion.

After successfully registered the trademark PRETZEL CRISPS for “pretzel crackers” on the Supplemental Register, Princeton Vanguard (“PV”) applied for the Principal Register. Frito-Lay filed a notice of opposition to PV’s application and a petition to cancel PV’s Supplemental Registration. On summary judgment, the TTAB Board denied both parties’ motions, “finding a genuine dispute as to whether the mark is generic for pretzel crackers and whether it had acquired distinctiveness.” The parties then submitted trial briefs and the Board conducted oral argument.

Initially, the Board determined that PRETZEL CRISPS is a compound term and analyzed the words individually. Subsequently, the Board found that PRETZEL is generic for pretzels and pretzel snacks and that CRISPS is generic for crackers. Thus, PRETZEL CRISPS is generic for “pretzel crackers.” The Board based its findings on media references, third party use of the term, dictionary definitions, and generic references to the combined term “pretzel crisps.” Evidence also included expert surveys. However, the Board gave little weight to Frito-Lay’s survey due to inherent flaws in the methodology. The Board also disregarded PV’s survey but provided no explanation.

The issue on appeal was whether the Board applied the correct legal standard in evaluating whether the mark is generic. This requires a two-step inquiry: (1) “what is the genus of goods or services at issue” and (2) whether “the term sought to be registered or retained on the register is understood by the relevant public primarily to refer to that genus of goods or services.” Whether the mark is a compound term or a phrase does not change this inquiry. Here, after concluding that PRETZEL CRISPS is a compound term, the Board did not “assess whether the public understands the mark, as a whole, to refer to that genus.” The Court concluded that the Board applied the incorrect legal standard.

PV also argued that “the Board cherry-picked the media references in the record and chose only those references that supported genericness.” The Court did not analyze the parties’ arguments with respect to the evidence of record, but reiterated that “substantial evidence review ‘requires an examination of the record as a whole, taking into account both the evidence that justifies and detracts from an agency’s opinion.’” Because the Board disregarded PV’s expert survey without any explanation, the Court required appropriate consideration be given to the proffered survey evidence on remand.

The following opinions are not reported in this newsletter:

Apple Inc. v. Samsung Electronics Co., No. 2014-1335, 2015-1029, 2015 U.S. App. LEXIS 8096 (Fed. Cir. May 18, 2015) (affirming on the judgment of damages for utility patents but remanding on the judgment of trade dress infringement). Click Here for a copy of the opinion.

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Each week, we succinctly summarize the preceding week of Federal Circuit precedential patent opinions. We provide the pertinent facts, issues, and holdings. Our Review allows you to keep abreast of the Federal Circuit’s activities – important for everyone concerned with intellectual property. We welcome any feedback you may provide.

Joe Robinson, Ryan Schneider, Bob Schaffer, Parker Hancock, John Morrissett and Tinh Nguyen.

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