Wealth of Ideas, December 2011

The last few issues of Wealth of Ideas have dealt extensively with the passage of the America Invents Act and what it means for everyone involved with IP, so this month we take a look back at 2011.

The America Invents Act, the Nortel patent auction, and Apple vs. all-things-Android truly made 2011 the year that was in IP. First we revisit two of the cases we predicted would be important in 2011 (see our January 2011 feature article, “Precedent-Setting Patent Cases to Follow in 2011”) and see how they turned out, and then we take a look at some of the lawsuits that are shaping up to be big in 2012.

Stanford v. Roche

One of the most important cases to watch in 2011 (at least if you were a research facility receiving government funding, or a contractor for such an institution) was Stanford v. Roche – a case which had major implications for university research departments and the way they structure their agreements with researchers. (Stanford v. Roche Molecular Systems, No. 09-1159)

The case centered on who owned patents developed by Dr. Mark Holodniy, a Stanford scientist who was assigned by the university to do some research at Cetus Corporation, a private firm later acquired by Roche Molecular Systems. Holodniy developed a test to determine the amount of HIV virus in a patient’s blood.

Holodniy had signed agreements with both Stanford and Cetus that required him to assign any patents arising from his work. However, the wording differed in an important way. His Stanford agreement used the phrase “I agree to assign” patents on inventions arising from his employment at Stanford to the university, but then he signed a contract with Cetus (while still employed by Stanford) saying that “I will assign and do hereby assign” (emphasis added) to Cetus patents that resulted from his work there. Thus, his patents were immediately assigned to Cetus/Roche upon issuance without an extra step of assigning them.

To complicate matters, Stanford’s argument for its right to the patents involved the Bayh-Dole Act, which governs who owns patents arising from federally-funded work. The Bayh-Dole Act permits contractors to retain the rights to patents and inventions they already have through other means – which makes IP assignment provisions necessary when they work for an employer.

The case made it to the U.S. Supreme Court, which ruled in favor of Roche. The Court upheld a longstanding precedent that the rights to an invention belong to the inventor until the inventor expressly grants those rights to an employer. Thus, Holodniy was within his rights to assign them to Cetus.

Global-Tech, Pentalpha and SEB

This lawsuit raises a question somewhat similar to the old “tree falling in the forest” conundrum: If a patent exists and you deliberately ignore the possibility of its existence, is that the same as actual knowledge for the purposes of determining induced infringement?

Though the plaintiff and defendants in this case aren’t exactly household names, they do manufacture household appliances – and their lawsuit, which made it to the Supreme Court in May 2011, is important because it tackled the question of whether a company is liable for induced infringement when it purposely turns a blind eye to the possibility of a patent.

The lawsuit dates back to 1999, when SEB sued Montgomery Ward & Co., Inc., Global-Tech Appliance, Inc. and Pentalpha Enterprises, Ltd. for infringement of a patent on a deep-fryer with a well-insulated outer skirt.

Back in 1997, Sunbeam Products, a competitor of French company SEB, asked Pentalpha (a unit of Global-Tech) to supply it with deep fryers. Pentalpha bought an SEB deep fryer in Hong Kong and copied its design. In having their attorney prepare a “right-to-use” study, Pentalpha failed to disclose the fact that they had directly copied an existing deep fryer design. SEB sued Sunbeam in 1998 and Sunbeam informed Pentalpha of the lawsuit (and settled with SEB), but Pentalpha continued selling its deep fryers in outlets such as Montgomery Ward & Co. SEB then sued Pentalpha for both active and induced infringement of its patent.

When we wrote about this story almost a year ago, the Court of Appeals for the Federal Circuit (CAFC) had ruled that Pentalpha’s deliberate indifference to a known risk of infringement made the company liable for acts of induced infringement.

In May 2011, the Supreme Court affirmed the CAFC’s judgment of induced infringement against Global-Tech, but rejected the reasoning used by the CAFC. The Supreme Court found it telling that Pentalpha had deliberately purchased an overseas version of the deep fryer that would not be marked with a U.S. patent number. That, combined with the fact that Pentalpha didn’t inform its attorney that their new deep fryer was “simply a knockoff of SEB’s fryer,” led the Court to conclude that the company believed there was a “high probability” that SEB’s fryer was patented in the U.S. and the company took “deliberate steps to avoid knowing that fact.”

History-Making Patent Sales Bonanzas

When bankrupt Canadian telecom company Nortel Networks put its 6,000-strong patent portfolio up for auction last spring, Google entered an opening bid of $900 million. Then, a consortium – calling itself Rockstar Bidco and including some of Google’s biggest rivals in the mobile phone space, such as Apple, Microsoft and Research in Motion – ponied up $4.5 billion to prevent Google from acquiring the patents.

Only slightly deterred, Google bought Motorola Mobility and its 17,000 patents for $12.5 billion, as well as about a couple of thousand IBM patents for an undisclosed sum. But there are signs that the Motorola acquisition may not be a done deal: Antitrust regulators in the European Union have stalled in their review of the merger.

Although this is not an uncommon occurrence in a merger of this size, it’s enough to make shareholders nervous. Google needs to boost its patent holdings to be able to compete with Apple and Microsoft, especially since it is committed to keeping the Android platform open source.

Predictions for 2012

Just as the smartphone wars have raged around the world and virtually dominated IP news headlines this year, we can expect more of the same next year – and then some. Apple and Samsung, in particular, are predicted to ramp up their patent litigation activities – especially in Australia, where Apple is attempting to win an injunction on Samsung’s Galaxy Tab 10.1 tablet PC and Samsung is targeting Apple’s iPhone 4, iPad 2 and iPhone 3GS. And it will be interesting to see how Apple’s partnership with Digitude – in which the tech giant aligns with a “patent troll” against its major competitors in the smartphone space – works out.

Expect to see more lawsuits involving Amazon’s new Kindle Fire tablet PC. Amazon will also continue battling a pack of lawsuits filed before the America Invents Act’s anti-joinder provision took effect in September.

For an easy way to keep up with what’s going on in IP news, read Wealth of Ideas each month – or check our blog or Infringement News page for coverage of the most newsworthy stories in patent, trademark, trade secret and copyright infringement litigation.