The Missing V-Word in KSR v. Teleflex : VACATED

Everyone is writing about the Supreme Court's decision in KSR v. Teleflex. I have already written a little about it, in anticipation of the decision (IPToday, April 2007, pp. 29-31), and I am not going to jump in again to decide whether the sky has fallen now, or not. (My first entry into blogdom wondered about the falling sky after MedImmune, so perhaps that will be a theme of myunpublishedworks, the blog.)

No, what I want to mention is that what the Federal Circuit did in Teleflex was to VACATE the summary judgment of obviousness, and remand for FINDINGS. It absolutely did NOT reverse. It absolutely did NOT find the patent in suit to be nonobvious.

Who is misleading us?

Among others, the Supreme Court itself. The word "vacat!" is absent entirely from the opinion. In fact, the appeals court decision is affirmatively characterized as a REVERSAL, rather than a VACATING. (See REFERENCES below for supporting quotations.)

I am pretty sure I learned in law school that VACATING was not the same as REVERSING, and I am pretty sure that when I have practiced law, everyone acted like those two words were different, at least for the parties to the suit. But maybe everyone on the Court is so far removed from either law school or practice that they see things differently?

Who is helping keep us misled?

The BNA PTCJ, among others. Its HIGHLIGHTS summary of the cases says: "Reversing and remanding a ruling of patent invalidity, the high court ...." (emphasis mine) No, there was no ruling from the Federal Circuit "of patent invalidity." There was not even a ruling of patent pro-validity. The only thing available for reversal by the Supreme Court was a vacating of a district court's ruling of invalidity. It's complicated, but not impossible.

Another surprising perpetrator is Hal Wegner, whose excellent newsleter had this parenthetical remark,

"(It would have been truly astounding for the Court to have affirmed a holding of 103 nonobviousness on the merits, something the Court the Court has never done in the entire history of this section of the statute.)"

I wrote him about how truly astounding it would be for the Court to affirm something not before it. He thanked me, and then issued a correction about other things in that news item, but not the implication that the Federal Circuit had made a HOLDING OF NONOBVIOUSNESS. I remain astonished.

I have not checked the blogosphere enough yet, but I can confirm that, since the Supreme Court decision was announced, the words VACATED or VACATING and KSR have not yet appeared in the excellent blog of Dennis Crouch's www.patentlyo.com Or at least I could not find those words using wordsearch and google.

I start to wonder whether my copy of the Federal Circuit's decision is different from everyone else's.

Those INFAMOUS "gas pedal" patents: another shooting star in the (falling) sky?

Many (including Wegner) are pushing hard on all those "gas pedal" patents out there. But how many belong to KSR itself? (Answer: 15, on a search today of uspto.gov, looking for 'pedal' and assignee=ksr.) KSR's big victory in the Supreme Court makes its investment in those patents, if not also the research and development that led to them, look like a poor use of corporate time and money.

Will a whole new class of class action suits come out of KSR: stockholders claiming that their money is being misspent on acquiring big patent portfolios -- so often on minor improvements in crowded arts (where the arts may be crowded because of that very company's own efforts)? All that money on patent attorney fees and fees to the PTO, all that researchers' time wasted meeting with patent counsel, etc., etc., spent getting patents that are of no value does not sound like intelligent management. (The defense bar, with the patent bar to serve as experts, may be thrilled.)

Perhaps, though, the foreign counterpart patents are worth something in other countries, ones with a more pro-patent climate? And perhaps the US patents could be worth something again when the pendulum swings back, if the patents have not yet expired, and if their maintenance fees have been paid?

But maybe I exaggerate.

REFERENCES

Cases:

KSR Int'l Co. v. Teleflex Inc., 2007 U.S. LEXIS 4745 (U.S. 2007): The Supreme Court thinks that it was reviewing a reversal of invalidity:

At slip op. 29: "...The District Court granted summary judgment for KSR. [new paragarph] With principal reliance on the TSM test, the Court of Appeals *reversed.*" (emphasis mine -RJM)

Teleflex, Inc. v. KSR Int'l Co., 119 Fed. Appx. 282 (Fed. Cir. 2005) , http://www.fedcir.gov/opinions/04-1152.pdf. Proof that the appeals court VACATED, rather than reversed:

At 283: "[W]e _vacate_ the grant of summary judgment and remand the case to the district court for further proceedings." (underlining by Federal Circuit)

At 286: "We agree with Teleflex that the district court did not apply the correct teaching-suggestion-motivation test. We also agree that, under that test, genuine issues of material fact exist, so as to render summary judgment of obviousness improper. For these reasons, we vacate the decision of the district court and remand for further proceedings consistent with this opinion." (underlining of the word "vacate" in the last sentence appears only the LEXIS version of the decision, but on on the Federal Circuit's pdf.)

At 290: "(3) We consequently _vacate_ the decision of the district court and remand the case for further proceedings on the issue of obviousness, and, if necessary, proceedings on the issues of infringement and damages." (underlining by Federal Circuit)

*

Other References

Roberta J. Morris, "Thoughts on Patent-Bashing, Obviously," _Intellectual Property Today_, April 2007, at 29-31. Discussion of KSR is on 30-31.

Forum Shopping and MedImmune, SanDisk, and patent DJs

Where is the F word in MedImmune and SanDisk?

I mean forum as in forum shopping and choice of forum. The word FORUM does not appear in MedImmune and it does not appear in SanDisk. Why? Would the judiciary deny that expanded declaratory judgment (DJ) jurisdiction may be an incentive to forum shop and forum race?

The Supreme Court's decision, and the Federal Circuit's view of immediately-famous footnote 11, may effectively transfer from patent owners (POs) to accused infringers (AIs) the right to choose the forum and the right to choose the time when patent infringement suits begin.

If the facts of MedImmune or SanDisk had been a final exam question (before the Supreme Court had ruled), any student who failed to mention forum shopping would have gotten an F from me. Now that the Supreme Court has ruled, I think the Justices get an F. All of them: even dissenting Justice Thomas. He omitted the F word, too.

Respondent/PO Genentech did mention forum shopping once, in n32 of its brief (not exactly up front and center), but the MedImmune amici were remarkably timid about it. If you wordsearch among the briefs, you get only one hit about forum shopping. It is from University of Akron IP professors Jay Dratler, Jr., A. Samuel Oddi, and Jeffrey M. Samuels. They side with MedImmune, which may explain why they mention forum shopping and then explain that Article III is not about fairness but about separation of powers. I don't think the two are mutually exclusive. I rather thought the Constitution was based on principles of fairness and rightness throughout. Isn't the idea behind "case or controversy" that people should be able to seek redress when they need it, and that other people should not be unnecessarily hounded by people seeking redress who do not need it? Then, too, declaratory judgment actions sound in equity, to use an antique turn of phrase. Equity is definitely about fairness.

MedImmune represents a triumph of the patent bashers and the defense bar mentality to a degree that even patent defendants may come to dislike (the clients, not the lawyers: we lawyers will be enjoying full employment). Most patent defendants have a portfolio of patents of their own. (A quick search today shows that MedImmune is assignee on more than 60 patents, SanDisk on more than 600.) Now their licensees and maybe potential licensees and possibly even people who look at one of their patents and think it's interesting, will all have MedImmunity to start a lawsuit whenever they want, wherever they want.

(Am I overstating? Probably. But imagine you are thinking about making a new product and you find a prior art patent that might cover what you want to do. You study up and find a plausible invalidity argument. The US system does not have an opposition proceeding, and you think reexamination is too pro-patentee or time consuming or otherwise undesirable, so you ask the patent owner for a license. If you are offered anything less than a sweetheart deal, you sign up and then file a MedImmune suit. Farfetched? Or is it happening as I write? And are patent owners now sweetening the sweetheart deals even more, trying to make an upfront payment of what economists call rent, the rent that MedImmune has bestowed on licensees?)

THE BLOGOSPHERE DOES NOT LIKE THE F WORD, EITHER

The blogosphere seems not to have mentioned forum shopping and MedImmune in the same breath yet, either. Please correct me if I'm wrong. The hits I get by searching the web for the two words - forum MedImmune - do not lead to anything relevant of recent date. Old posts have the two words somewhere, but not tied together.

I did find a good paper from Skadden that was written before the Supreme Court had ruled. It mentions that a PO who is the second to sue may be able to get dismissal or transfer of an AI's first-filed DJ. But after MedImmune, what equities favor the second-to-file PO?

OTHER MISSING CONCEPTS: THE SANCTITY OF CONTRACTS, BARRIERS TO ENTRY, and RECIPROCITY OF SUIT

These recent decisions attack the sanctity of contracts, in particular patent licenses, but don't admit it. Upholding contracts was important in Lear v. Adkins, but had to make way for "the important public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain." In MedImmune, the public interest was not invoked at all.

Lear was also concerned with that perhaps-old-fashioned antitrust concept, the "barrier to entry." (395 U.S. 653, 669 n.16). Patent licensees have the benefit of the patent as a barrier to entry, even while they attack the patent in court. Perhaps potential new entrants, knowing of the suit, find the patent to be no barrier at all? But maybe they just see it as a sinking barrier, not yet sunk and possibly buoyant. In that case, the theory goes, the patent helps the licensee-plaintiff's competitive position while the suit is wending its way to a conclusion. We can never run the experiment both ways to learn about what would happen with and without the lawsuit, but I wonder if some economist or law-economist has compiled any historical data on licensed patents, comparing the level of new entry into a market where patents are later invalidated with the level where the patents are not challenged, or are upheld or subject to settlement. There probably is no such study, because if there were, some brief would have mentioned it and there would have been a footnote about it somewhere.

RECIPROCITY

In post-MedImmune licensing negotiations, a licensee has more liberty to start a suit than the licensor-PO, who must await a colorable breach. Licenses of the future may RECITE that initiating a DJ is a breach, but at that point the horse is stolen: the forum and the timing have been chosen by the AI.

The Supreme Court did not answer the question whether Genentech, having received the royalty payment from MedImmune, albeit under protest, could sue. What it said was:

"Assuming (without deciding) that respondents here could not claim an anticipatory breach and repudiate the license, the continuation of royalty payments makes what would otherwise be an imminent threat at least remote, if not nonexistent. As long as those payments are made, there is no risk that respondents will seek to enjoin petitioner's sales. Petitioner's own acts, in other words, eliminate the imminent threat of harm. The question before us is whether this causes the dispute no longer to be a case or controversy within the meaning of Article III."

(127 S.Ct. at 772, internal footnote n8 omitted, emphasis mine). It then proceeded to answer that question "NO."

If Genentech did sue, then MedImmune could have the suit dismissed on the basis that it was licensed and had done nothing to breach. Is there anything to stop it from the next day starting a suit in a forum of its choice? What could Genentech do then: could it get the suit back to the forum it had preferred earlier?

The fact that all district court appeals are heard by the Federal Circuit (except for Vornado actions) does not eliminate forum shopping. District courts differ in their patent intelligence, the general crowdedness of their dockets, the sympathies of their jurors, etc. etc. and in fact MOST patent lawsuits never reach the Federal Circuit. The District Court is the main event in patent cases, as Judge Rader said it should be in Cybor, but that is a subject for another blog.

MedImmune, by keeping the license alive, deprived Genentech of a basis for suit, yet it has - per the Supreme Court - a right itself to choose the time and place of suit. Maybe that resolution is a great boon to society, but it would be nice to have been told why.

THE SKY IS FALLING

Every big patent decision is met by members of the bar saying that this will end life as we know it. Usually, however, life goes on pretty much as before. Is this the exception?

If ever a decision was designed to encourage litigation and to discourage the peaceful, intelligent and lower-cost method of contracting to resolve disputes, it strikes me that MedImmune is it.

The only good news for patent owners is that now they get to be defendants, a more favored class in patent cases these days.

References

Cybor: Cybor Corp. v. FAS Techs., 138 F.3d 1448, 1474 (Fed. Cir. 1998) (Rader, J., concurring in the judgment)

Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826 (2002)

Lear: Lear, Inc. v. Adkins, 395 U.S. 653 (U.S. 1969)

MedImmune: MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (U.S. 2007).

MedImmune Briefs:
- Genentech: Brief for Respondent Genentech, Inc., (No. 05-608), July 26, 2006, 2006 U.S. S. Ct. Briefs LEXIS 1676, 2006 WL 2190748, at page *44.
- University of Akron Professors' Brief to the Supreme Court: Brief of Three Intellectual Property Professors as Amici Curiae in Support of the Petitioner (No. 05-608) , 2006 U.S. S. Ct. Briefs LEXIS 419, 2006 WL 1355595, at *13.

SanDisk: SanDisk Corp. v. STMicroelectronics, Inc. (Fed. Cir., March 26, 2007)

Skadden paper: http://www.skadden.com/content/Publications/Publications1219_0.pdf
(see page 5, point 5)