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CAFC Weekly: January 7, 2011

by Orlando Lopez

Microsoft dominated the CAFC precedential opinions and orders this week, obtaining an order in its favor and a finding partially for and partially against them. Additionally, an opinion on obviousness and secondary considerations rounds up the opinions of the week.

In Uniloc USA v. Microsoft , the CAFC, by requiring that the royalty calculations be related to the facts of the case and by restating the boundaries of the “entire market rule” (using the entire market value of a product in determining damages), placed limitations on the size of damage awards in patent infringement cases. Uniloc owns a patent directed at software registration systems to deter copying and unauthorized use of software and sued Microsoft for patent infringement. In a jury trial at District Court, the jury found that Microsoft willfully infringed the patent, found the patent valid and awarded Uniloc $388 million in damages. Microsoft moved for judgment as a matter of law, or alternatively, for a new trial, based on noninfringement, of non-willfulness in regards to infringement and of invalidity of the patent, or alternatively, for a new trial on damages. The District Court held that Microsoft did not infringe, there was no willful infringement, the patent was valid as determined by the jury and rejected Microsoft’s arguments on damages. Uniloc appealed to the CAFC and Microsoft cross-appealed. The CAFC upheld the jury finding of infringement, but found, based on In re Seagate, that the infringement was not willful. The CAFC also upheld the finding of validity of the patent. In regards to the damage calculation, the CAFC held that a general rule of thumb is not appropriate for the damage calculation and that any reasonable royalty calculations must be related to the facts of the case. The rule of thumb used in this case was the “25% rule,” which has been used by a number of patent damage experts. By requiring that the reasonable royalty be tied to the facts of the case, the CAFC joins other courts in doing away with “magical incantations.” The CAFC also found that the use of the “entire market rule” in a verification of the damage calculation was improper, since Uniloc did not show that the patent related feature was the basis for the customer demand of the infringing product. Although many have found the holding, that the blind use of the 25% rule was not allowable, to be the most important holding of this case, the fact that any reasonable royalty calculations must be tied to the facts of the case and a restatement of the limitations of the “entire market rule,” render this case a useful, rational guide to patent damages. The CAFC has, by court rulings, achieved one of the goals of patent reform.

In In re Microsoft, the CAFC adds one more precedential order to the recent orders on transfer of venue. Microsoft appealed to the CAFC in order to overturn the denial of transfer of venue in an infringement case brought by Allvoice Developments

U.S., LLC. Allvoice is operated from the UK, but set up an office in and registered with, the state of Texas. Allvoice has no employees in Texas and in their website, directs requests and inquiries to the Texas office, which are answered from the UK. The CAFC, relying on a number of Supreme Court and CAFC decisions aimed at avoiding the manipulation of venue outcomes, found that the case should be transferred to the Western District of Washington. This order does not bode well for setting up offices and place of business in order to determine venue.

In the case of In re Glatt Air Techniques, the CAFC reversed the Board of Patent Appeals and Interferences (BPAI) decision upholding the rejection of a claim under re-examination for obviousness. The CAFC found that the reference cited by the examiner and the BPAI did not teach all the limitations of the rejected claim and, therefore, the obviousness rejection was not proper. The CAFC found that the BPAI should have given weight to the commercial success as a secondary indicator of non-obviousness. The examiner and the BPAI had interpreted the “means for shielding” in the claim under consideration, to include one or both of two possibilities, a physical shield and/or an air shield. The data on commercial success related only to the physical shield, which is found in the commercially available product. The examiner and the BPAI did not give weight to the commercial success evidence since it did not relate to an air shield. The CAFC stated that the commercial success evidence should be considered “so long as what was sold was within the scope of the claims.” The CAFC findings regarding commercial success as an indicator of non-obviousness, provides encouragement to those using secondary considerations as an indicator of non-obviousness.

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