Beyond the holding—A nuanced look at the Federal Circuit's patent decisions | Episode 2
Play • 16 min

 This week, we interview Seth Lloyd:

Alternative rationales, attorney fees, and NDAs stretched too far.

Can parties contract away their rights to file an IPR? And what can a party expect when it fails to appeal an alternative rationale?

Every other week, BCLT Executive Director Wayne Stacy conducts interviews with a Morrison & Foerster team member to discuss the Federal Circuit's recent patent decisions. We all know the basic holdings. The key, however, lies in the nuances of how the Federal Circuit reached its decision. If you want to know more—with an eye toward predicting the future—we have the nuanced information for you.

 

SPEAKERS

Seth Lloyd, Wayne Stacy

 

Wayne Stacy  00:00

Welcome, everyone to the Berkeley Center for Law and Technology's Federal Circuit podcast. I'm your host, Wayne Stacey, the Executive Director for BCLT. And we're here again to talk about some of the nuances from recent Federal Circuit decisions. We have today with us again, one of the experts from Morrison and Forester, Seth Lloyd specializes in appellate litigation, including appellate litigation at the Federal Circuit. So thank you for joining us today.

 

Seth Lloyd  00:28

Thanks for having me. Wayne, really great to be here.

 

Wayne Stacy  00:31

So there were two cases that popped out in the last two weeks that they can be glossed over when you when you look at some of the reporters that come out, but that really deserve a little bit of extra attention. The first is the Kannuu case. And you flag that one, because it really seems to tell us something about NDAs and this idea of pre litigation discussions. So would you walk us through kind of how it got to the Federal Circuit?

 

Seth Lloyd  01:02

Yeah, sure. I think it's a little bit of a hot topic right now in the interplay between NDAs or arbitration agreements and the availability of review at the patent office. So IPR is in PTAB. So that's kind of this case, really, right in the center of all that, I thought was interesting, because it actually drew amicus briefing during the initial appeal briefing. So sometimes, at the Federal Circuit, it's not uncommon to see amicus briefing once there's a petition for rehearing but but this one actually had amicus briefing on both sides of the issue at the kind of initial appeal stage. And the cases, just kind of the background facts are, you have Kannuu, who's the plaintiff and patent owner. They're an Australian startup company focused on media related products. So kind of navigation of smart TVs. And several years ago, Samsung contacted Kannuu expressing apparently some interest in in technology. And before the parties got too far along, they entered into a standard kind of non disclosure agreement so that they could speak freely about their respective technologies and businesses. The agreement contained a fairly common forum selection clause. And the clause stated that any legal action suit or proceeding, and this is kind of that the key language arising out of or relating to this agreement, or the transactions contemplated here by, must be instituted exclusively in a court of competent jurisdiction in Manhattan in New York. So that was the forum selection clause. The parties talked for a bit more than a year, but basically failed to reach any agreement. nothing came of it, at least initially, but about six years after the initial discussions Kannuu sued Samsung in District Court in New York, alleging patent infringement and breach of the NDA agreement, and Samsung responded as many defendants now do by filing several petitions for IPR, for intra parties reviews at the patent office. In response to the petitions, Kannuu actually argued at the board that the NDA's forum selection clause barred Samsung from seeking IPRs. But the board didn't accept that argument. It denied several of the petitions kind of on the merits, saying Samsung had failed to show a likelihood of success, but it did grant two of the petitions. And that then prompted Kannuu to go back to the district court. And Kannuu filed a motion for a preliminary injunction in the district court seeking to compel Samsung to dismiss the IPRs. And the district court denied that and that's when Kannuu took the appeal. So it's sort of the rare case where you have an interlocutory appeal. So you have the right to immediate appeal from the denial of a preliminary injunction. And so that's that's how the case got to the Federal Circuit.

 

Wayne Stacy  03:44

Now, my natural tendency is to say, well, it's a preliminary injunction denial, district courts dump preliminary injunction motions all the time. They're easy to dispose of. But this one procedurally has got a little bit more bite to it, because if there's no preliminary injunction, the IPR runs its course before there's any permanent help, and your patent may be invalid. So it seems that this really does matter, procedurally, for timing, and the entire fight was the preliminary injunction.

 

Seth Lloyd  04:14

I think that's right. And I think, in fact, even more so here because I think the district court granted a stay of all proceedings in the district court, while the IPR carries out, so without a preliminary injunction, the IPR will, you know, come to full completion before there could be any review later from the district court case. But you know, the district court denied the injunction and the Federal Circuit, on appeal affirmed, agreed with the district court.

 

Wayne Stacy  04:41

Well, the district court really focused on that, that language, which you refer to is kind of the key piece of it. And I think that as I read this case, I think that's what you got to focus on. This isn't a broad statement that said, Oh, you can't contract away your rights to go to the PTAB page. Just saying that this NDA didn't have the right language to make that happen. Am I reading that right?

 

Seth Lloyd  05:06

Yeah, that's the way I read it to Wayne is. I think the Federal Circuit in several spots, they talked about how common this type of business arrangement is, and how common these types of agreements are. So I think the court was aware of the potential ramifications here that a decision in favor of the plaintiff could turn every NDA and every one of these types of agreements into a bar on review at the patent office. But even though the court seemed aware of that, I think the decision is written in a way to really focus on the specific language here and the specific facts. And so, you know, most of the decision really turned on, you know, you have the four factors for a PI preliminary injunction, but mostly, the court focused on the likelihood of success. And that turned on interpreting the contract. And there the court basically just concluded that the connection between the NDA which the court read as really focusing on preserving confidentiality of business information was too tenuous to the underlying intellectual property rights, that the assertion of patent rights and so the court, in fact, I think, distinguished that type of NDA agreement here from a patent license, saying, you know, a patent license there, the parties really certainly are contemplating intellectual property rights and a dispute about either infringement or validity of intellectual property rights when there's a patent license, which certainly seemed to arise out of, I think the court at least hinted would arise out of or relate to a patent license agreement. But here the agreement was really about confidentiality, even though there was the potential for the parties discussions to lead to a patent license later down the road, because they never did lead to that patent license, that the connection between kind of the patent fight now and the confidentiality agreement was there are too many steps in between for the court to conclude that the contract contemplated that this type of dispute had to be raised in New York.

 

Wayne Stacy  07:04

The court didn't appear to me to answer. I guess the next question that somebody is going to ask in licensing negotiations. So before we get to a final license, but just in that negotiation period, can the parties contract away their right to go to the PTAB? If it's unclear, precise language? Or is that going to be void as a policy matter?

 

Seth Lloyd  07:29

I think from this decision, it's going to depend on on the language of any agreement that the parties come to and the facts there, which is a very lawyer answer, I suppose. But you know, I don't think this decision here draws any kind of uniform or universal rule. And in fact, you know, there was in 2019, there was a non precendential decision from the Federal Circuit, I think there was a patent license agreement. So the parties had gotten far enough along that there was a license agreement with the forum selection clause. And in that non-precedential decision, the court agreed that it was proper to grant a preliminary injunction against IPRs. One interesting question, which this case only sort of slightly touches on is, if you think you have these rights, that might bar an IPR. Where do you try to enforce them? Here, can you try both at the patent office in response to the IPRs, and in District Court, neither worked here. And there was, you know, about a month ago, in re Maxpower case, the Federal Circuit denied a mandamus petition seeking to enforce a similar type of agreement. I think that in that case, it was an arbitration clause from the patent office. But here, at least from the district court, the plaintiff got full review by the Federal Circuit. Maybe this hints at the way to enforce these types of things, may be better off trying to seek enforcement in the district court. If you have the right language in the right facts.

 

Wayne Stacy  08:55

You raise an interesting point with a discretion that's been given to the PTAB panel to decide whether to institute or not institute, and with a new director, eventually coming online. This may be a powerful tool within the PTAB itself, or it may completely go away where the PTAB doesn't care. There'll be a lot to learn over the next probably 12, 18 months on how parties start contracting on this issue, because I think you're right when you said it's it's a hot issue, people are beginning to go down this path in this case may flag it even more. Before you as a patent owner, start talking about licenses, you may need to define a little bit more clear wording for protection if you don't want people to run out and file against you.

 

Seth Lloyd  09:41

Yeah, I agree. It seems to be somewhat a hot issue at the Federal Circuit in the sense of the court doesn't seem to be in total agreement. So this case, had a dissent from Judge Newman and the inrae Maxpower case from about a month ago, had a partial dissent from Judge O'Malley. So the judges aren't completely uniform either on kind of their views of these issues. So Judge Newman would have granted the preliminary injunction here in re Maxpower, Judge O'Malley would have reviewed and I think enforce the arbitration clause.

 

Wayne Stacy  10:11

The second case, you flagged the Acceleration Bay is a wonderful example of the procedural requirements at the Federal Circuit. And that you have to be very, very careful, because if there's a procedural way out, the Federal Circuit is going to take it most likely, as opposed to a district court which may smooth the the procedural processes to get to a result. The Federal Circuit's demanding. You want to walk us through here kind of what happened and what people should take away from Acceleration Bay.

 

Seth Lloyd  10:46

Yeah. So this is also a patent infringement case coming out of District Court. And in this case, Acceleration Bay was the plaintiff, and they asserted four patents related to networking. And they asserted these patents against various companies based on online video games, so games like Grand Theft Auto and NBA 2k franchise games. An interesting wrinkle, which maybe we'll talk about toward the end is that the defendants made software but most of the claims were directed to computer components, like the network itself, and even when there were method claims, the method claims were interpreted, basically to require computer components as well. The District Court granted summary judgment against the patent owner for non infringement to the defendants. And the trap for the unwary kind of point that you were talking about is that the district court had alternative rationales. So it found for many of the claims that the patent owner had failed to show a specific claim limitation called the the M regular limitation, which was related to kind of the connections within the network. But then it independently found that the patent owner failed to show that the defendants made or practiced the claims because the defendants just made software. And as I said before, most of the claims or all of the claims required, at least some elements of hardware. And so because the defendants only made the software and the hardware came from someone else, the patent owner had failed to show infringement by the defendants themselves. The cautionary tale from this as you set things up is that, in fact, the Federal Circuit felt compelled to dismiss part of the appeal. So they actually dismissed rather than even issuing a decision on the merits for part of the appeal, because it said, the the appeal was moot. And the reason was because of those alternative grounds. So the appeal by the patent owner had only challenged one of the district court's alternative grounds. And so the court reasoned that well, because even if they were to agree with the patent owner on that ground, they couldn't actually grant any relief, because the judgment would still stand with, the judgment was just non infringement. It didn't matter which of the alternative grounds and so that made the appeal, or at least that part of the appeal moot. The one interesting part on the court's rationale on that was, the patent owner argued that well, you should still address the issue because it's going to be relevant to the attorney fees motion that is sure to come after the appeal is over. And, you know, argued that a decision reversing the district court on the issue that the patent owner challenge would at least help to show that the case is non exceptional, and defeating the attorney fees motion. And the Federal Circuit said, Well, at this point, there isn't a motion. And what you're asking for is basically an advisory opinion on something that might come up later. And if there's an attorney fees motion, and it comes out against the patent owner, the patent owner could appeal them. But at this stage, you know, that potential future effect wasn't enough to give it jurisdiction.

 

Wayne Stacy  13:56

I think that's the first week of the constitutional law. That the court's not going to pick up things that it doesn't need to. And I can see why the burdened Federal Circuit would go down that particular path. The vast majority of times, district courts don't give multiple rationales, they find one reason to terminate a claim and they're done. So I can see how somebody might overlook this. But is it often or occasionally the case where it's hard to figure out that there are multiple rationales buried in a district court opinion?

 

Seth Lloyd  14:30

I think it can happen. You know, it's not uncommon and I think it's it shows maybe the value of having somebody fresh, take a look at your case. At some point, if you're going on appeal, oftentimes parties who have lived with the case for five years, they see things within a certain context because, you know, they know all this background in history and sometimes just getting a fresh pair of eyeballs to review the decision and check and see, Are there any, anything that could be considered an alternative rationale I think can go a long way to heading off this this type of problem but it you know, it's an important thing to just triple check multiple times to make sure that there's nothing that could be considered an alternative rationales for exactly this reason your appeal could get dismissed or the court can just affirm it on an alternative ground without ever addressing you know, the issue that you care about.

 

Wayne Stacy  15:23

Well, I gotta tell you it's probably a probably a bad day when you're drafting that that reply brief that says, Well, we know we lose, but can you help us out on the the attorney's fee motion that's going to be coming in the lower court? That's that's not a place any lawyer wants to be. So I feel for them.

 

Seth Lloyd  15:42

Same and getting up at oral argument in the case like that, it's tough too.

 

Wayne Stacy  15:47

Well, Seth thank you for pointing out these two cases. And my bet is we're gonna hear more about the topics in both of them over the next 6, 12 months. We'll have a chance to catch up in the future.

 

Seth Lloyd  16:00

Great, thanks for having me Wayne.

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