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Special Feature: Essential Features of the Invention: Patent Damages Reform Dead End
Tuesday, March 10, 2009
by William C. Rooklidge and Mansi H. Shah
The authors are with Howrey LLP, Irvine, California. The views expressed in this paper are those of the authors, and should not be attributed to Howrey LLP or its clients. Although Mr. Rooklidge formerly served as President of the American Intellectual Property Law Association, the views expressed in this paper should not be attributed to that association.
Recognizing that the controversial damages provision of the Patent Reform Act of 2009 needs further work, Senator Leahy optimistically predicted when introducing that bill that Congress "will find the right language" in view of "several positive developments since the Committee voted to report the legislation in July 2007." He suggested that the "Supreme Court’s Quanta decision may offer a useful way of describing the truly inventive feature of a patent," referring to the Supreme Court’s recent Quanta Computer, Inc. v. LG Electronics, Inc., 128 S. Ct. 2109 (2008). Senator Leahy was referring to "essential features of the invention," a phrase that has been championed as of late by IBM as a solution to the patent damage reform deadlock. See IBM, Towards an Efficient Market for Innovation (2009); Federal Trade Commission February 11, 2009 hearing on the evolving IP Marketplace—Patent Damages, remarks of Marian Underweiser at Panel 2, the Industry Roundtable Discussion, http://htc-01.media.globix.net/COMP008760MOD1/ftc_web/transcripts/021109_sess3.pdf. Rather than a solution, however, "essential features" is but another form of the prior art subtraction that has plagued patent damages reform legislation since 2005, and as such represents a dead end.
The principal problem posed by Senator’s Leahy’s search for language to define "the truly inventive feature of the patent" lies in the very use of an alternative to the patent claims to define the damages base instead of using the complicated and nuanced apportionment approach employed in the case law to date. Whether described as "the inventive contribution," "the patent’s specific contribution over the prior art," the "essential features" the legislative attempt to separate the "gist" or "heart" of the invention from the patent claims would dramatically change patent infringement damages law by introducing the extra step of redefining the scope of a patent. At the very least, focus on the "truly inventive feature of the patent" would be a subjective process. See F. Scott Kief, Quanta v. LG Electronics: Frustrating Patent Deals by Taking Contracting Options off the Table?, 2007-08 Cato Sup. Ct. Rev. 315, 321 (2008) (describing the "heart" of the invention approach as "so subjective that it became the plaything of the judiciary" and "One of the two central motivating factors behind the congressional decision to promulgate the 1952 Patent Act"). The Federal Circuit has labored long and hard to root the "essence," "gist" and "heart" of the invention out of the determination of obviousness in utility patent law, see Para-Ordnance Mfg. v. SGS Importers Int’l, Inc., 73 F.3d 1085 (Fed. Cir. 1995), and has recently rejected the "point of novelty" analysis in design patent law. Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 678 (Fed. Cir. 2008) (en banc). Reduction of the invention that has been examined by the USPTO, construed by the federal district court, and relied upon to determine validity and infringement, to such an inherently subjective concept would be unfair to the patent owner.
In addition to the inherent subjectivity of the "essential features" analysis, the Supreme Court in Quanta nowhere identified exactly how to separate the essential from non-essential, what the inventor actually invented from what she did not. The Quanta Court’s suggestion that essential elements are different from "application of common processes" or "the addition of standard parts," "standard components," or "common and noninventive" steps, 128 S. Ct. at 2120, suggests that the essential elements analysis is similar if not identical to prior art subtraction. Not to put to fine a point on the matter, the Quanta Court did not set out to identify what the inventor "really invented" and has not identified a standard remotely useful in doing so.
A problem equally important as subjectivity and the lack of a clear standard is that the "essential features" analysis simply cannot work for inventions made up entirely of prior art elements, a fact recognized by the Supreme Court in Quanta itself, 128 S. Ct. at 2121, as well as the Court’s opinion in Aro Manufacturing Co. v. Convertible Top Replacement Co., 365 U.S. 336, 344-45 (1961). For patent claims "in which the combination itself is the only inventive aspect," 128 S. Ct. at 2121, subtraction of all but the essential features would leave nothing. Combination inventions like the Post-It note and telephone would be ineligible for reasonable royalty damages. This problem with combination patent claims is endemic, as most if not all patent claims are combinations of old elements. The Quanta Court gave no specific guidance on distinguishing pure combination claims from other claims, and distinguishing between the two classes of claims is not always simple. As Chief Judge Markey explained "there ain’t no new elements! Only God makes things out of new elements." Howard T. Markey, Some Patent Problems, 80 F.R.D. 203, 209 (1979). Because the "essential features" analysis could not be meaningfully applied to anywhere near all patent claims, it has no place as the general standard in a patent damages statute.
These problems with applying Quanta’s "essential features" analysis to determination of reasonable royalty damages should come as no surprise. The Quanta Court did not set out to address patent damages for an adjudicated infringement of a valid patent, but was instead working in the context of patent licensing and exhaustion. In Quanta, the Supreme Court held that patent exhaustion applies to the authorized sale of components that must be combined with other components in order to practice the method claimed in the patents. In reaching this holding, the Court quoted its 1942 decision in United States v. Univis Lens Co., 316 U.S. 241 (1942), "where one has sold an uncompleted article which, because it embodies essential features of his patented invention, is within the protection of his patent, and has destined the article to be finished by the purchaser in conformity to the patent, he has sold his invention so far as it is or may be embodied in that particular article." Quanta and Univis dealt deals not with the value of a claimed invention, but when in the distribution chain the patentee must collect for that value. Quanta and Univis alike hold that, in the absence of a contract to the contrary, there is a certain point beyond which the patent owner may not control the patented invention because to do so would unreasonably restrain commerce in unpatented goods. This point is reached, and the patent is exhausted, where essentially all of the claimed combination is being sold, and any remaining part of the claimed combination is deemed to be trivial. This holding has nothing to do with determining the amount of reasonable royalty or other damages for infringement of a valid patent.
The irony that would be created by adding the "essential features" language to the current patent reform bills in an attempt to clarify the fact-specific and multi-factored reasonable royalty patent damages analysis of the current law is that it would result in a new fact-specific, multi-factored approach susceptible to subjective expert testimony and jury determination. The same evidence submitted today under the multi-factor reasonable royalty test would be available for use under the contemplated provision. At bottom then, the current bills modified by the "essential elements" analysis would do nothing to solve the problems perceived by their proponents, but would instead go a long way to confusing the law and harming the rights of patent owners.
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