HOPE FOR SOFTWARE PATENTS IN THE POST-ALICE LANDSCAPE

The courts have long been attempting to establish an appropriate framework with which to handle software-based inventions. Even before the Supreme Court decision in Alice Corp. v. CLS Bank International numerous tests have been created to determine whether software qualified as patentable subject matter. Since Alice patent examiners and courts have stumbled over determining what makes a claim an abstract idea ineligible for patenting often at the detriment of software-based inventions. With Enfish, LLC, v. Microsoft Corporation the Federal Circuit has provided guidance to help patent software methods.

Enfish reiterates the Supreme Court’s stance from Alice and acknowledges that some improvements in computer-related technology are “undoubtedly not abstract.” The Federal Circuit then stated that software can make “non-abstract improvements to computer technology just as hardware improvements can.” This highlights Enfish’s focus on improvements to computer functionality regardless to whether the improvement is due to hardware or software. Thus, software-based inventions may be found as patentable even when able to run on a general-purpose computer.

The decision also serves as a caution when determining whether a claim is abstract idea. Warning that too high a level of abstraction can become “untethered from the language of the claims” Enfish concedes that an extreme abstraction can render any invention unpatentable.

Enfish also stresses the importance of the teachings in the patent’s specification. Looking to the disclosure the Federal Circuit found support for the allegations that the claims provided improvements to computer technology. Additionally, the disclosure served to guide the level of abstraction used to decide if the claims qualified as patentable subject matter.

With this decision the Federal Circuit has provided some guidance that inventors can use to ensure their software based-inventions are examined with the proper analysis. Drafting a patent application using the lessons from Enfish will help avoid some of the pitfalls that have threatened to engulf all software-based inventions. As the courts continue to recognize the patentability of software inventors within this technological area can be reassured that their inventions may be granted the appropriate examination by the United State Patent and Trademark Office (at least with regards to technological improvements to computer functionality).

Introducing a New Product? Should a Freedom to Operate Study Be Undertaken?

When developing a new product, companies will frequently engage counsel to perform a “freedom to operate” study in an effort to identify patents that might raise a risk of patent infringement following the introduction of the product. While there is nothing fundamentally wrong with this approach, there are pros and cons associated with the decision to proceed with such a study that are frequently not considered. What should be done if you find a patent or pending application that includes claims that might cover the product? Would the company have been better off had it not engaged counsel to perform the study initially?

The Law of Willful Infringement
As a prelude to this discussion, it is important to understand the laws applicable to willful infringement. If one manufactures uses or sells an infringing product with knowledge of the infringement, they can be liable for willful infringement under the patent laws. A party is liable for willful infringement if the patent owner demonstrates that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. If willful infringement is found, the patent laws provide that the infringer can be liable for up to treble damages and the patentee’s attorney’s fees.

The Pros:
If one or more issued patents are located that would cover the design of the product under development, it may be possible to redesign the product in a manner so as to avoid the infringement. Avoidance of a potential lawsuit for patent infringement is certainly desirable provided that a redesigned product can be manufactured and sold at a competitive price and that a redesigned product can provide the features desired in the marketplace.

If no issued patents are located as a result of a freedom to operate study that disclose or suggest the design of the new product, such may be informative of opportunities to obtain patent protection on the new design and offer guidance as to the scope of protection that may be available should a patent application be filed.

The Cons:

Not all freedom to operate studies have happy endings. What if a patent is located that contains claims that apply to the product under development and a viable product cannot be produced without violating the claims of the patent. If the non-infringing product cannot be designed that provides the desired features, or cannot be produced in a way that is commercially viable for reasons of cost, the company has several options. One option would be to inquire of the patent owner whether a license is available and on what terms. If a license in not available or is not available on reasonable terms, proceeding with a product introduction poses a heightened risk that a suit for infringement will be initiated by the patent owner. A second option would be to abandon the product introduction. This decision may involve substantial losses of investment in the product development, depending on how far along the product development has progressed. A third option would be to proceed with the product introduction and assume the risk that the patent owner may take notice and initiate a suit for patent infringement. If a court determines that a product infringes a patent, that the infringer had knowledge of the patent, and that the infringer’s conduct was “objectively reckless” the court may hold the infringer liable for willful infringement. In such a case, the patent owner could be awarded up to treble damages and its attorney’s fees associated with the pursuit of the litigation.

If a product is introduced and a suit for patent infringement follows, the infringement could be held to be willful as noted above if the conduct of the infringer is determined to be objectively reckless. Although it is not required that an opinion of counsel be obtained to counter a charge of willful infringement, a competent opinion of patent counsel concluding that a product does not infringe or, that any relevant patent claims are invalid, will generally serve as a defense to a charge of willful infringement. When such an opinion is obtained, the continued sale of the accused product during litigation is seldom considered to be objectively reckless. The preparation of a competent opinion of counsel requires study of the patent and its prosecution history and the preparation of such an opinion can involve substantial legal costs.

If a party chooses to sell a product with knowledge of a patent and chooses not to obtain an opinion of counsel, a court will determine whether the sale of the product was objectively reasonable or objectively reckless based on the specific facts in the case. It should be noted that an opinion of counsel does not serve as a defense to a charge of infringement, only a defense to a charge that the infringement was willful.

If a freedom to operate search results in the identification of a published patent application with claims that, if issued, would cover the product under development another issue is raised. The application that was identified in the search may never issue as a patent and, if it does issue, the claims may not resemble those that existed in the published application or in the public records of the U.S. Patent and Trademark Office. Thus, a company developing a product must decide how to proceed in a period of uncertainty regarding claim coverage that may ultimately be obtained.

In such a circumstance does one shut down the development of the product, defer the project or continue the development with the recognition that the product would infringe if the patent issues with existing claims? While one can study the progress of a given patent prosecution if the prosecution is available in the public records of the U.S. Patent and Trademark Office, it would require a crystal ball to determine the scope of protection that would ultimately be granted. Unfortunately, the correct decision to many of the questions raised can only be determined in hindsight and must be based on an educated guess as to what patent coverage may ultimately be achieved.

If a freedom to operate search had not been performed and there was no knowledge of the patent in advance of the introduction of the product to the marketplace and the filing of suit by a patent owner, it is more difficult to sustain a claim for willful infringement. Of course, it this path is followed, following the filing of a suit for patent infringement, the company is faced with a decision of whether to discontinue the product, attempt to settle the dispute or contest the assertion in a litigation.

Conclusion 

There are perfectly good and valid reasons for performing freedom to operate studies. If a study is to be conducted, it is generally advisable that it be undertaken before substantial sums have been invested in product development.

It should be recognized however, that is often unknowable whether a patent owner will become aware of a product that enters the marketplace, whether the patent owner would view the product as constituting an infringement should it become aware of the product, whether the patent would ever be asserted by the patent owner even after becoming aware of the product or, if a license would be available upon reasonable terms. Of course, it is considerably more likely that the introduction of a product will become known to a competitor. The ultimate decision whether to commission a freedom to operate study and what to do if such a study is performed, relates to ones tolerance for risk and an understanding of the ramifications that flow from such a course of action. Before a company engages patent counsel to perform a freedom to operate study, it is therefore worthwhile to discuss with counsel what the company plans to do with the search results since, once the search has been performed, if relevant issued patents are located as a result of the search, the specter of willful infringement is out of the bag.

UPDATE: President Signs Defend Trade Secrets Act of 2016 (DTSA) into Law and Imposes New Employer Whistleblower Immunity Notice Requirements

President Barack Obama signed the federal Defend Trade Secrets Act of 2016 (DTSA) into law on Wednesday, May 11, 2016.

As discussed in a prior blog article, the new federal trade secret law provides a new federal civil cause of action for trade secret misappropriation, and imposes new whistleblower immunity notice requirements on employers. The effective date of the DTSA is the date of enactment. 

Starting May 12, 2016, all employers will be required by federal law to “provide notice of the immunity set forth in [the DTSA] in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The notice requirement applies to “contracts and agreements that are entered into or updated after the date of enactment.” The DTSA broadly defines “employee” to include “any individual performing work as a contractor or consultant for an employer.”

Businesses should review agreements and documents addressing trade secrets and confidentiality with counsel. Employers should consult with counsel to ensure compliance with the new whistleblower immunity notice requirements.

Congress Passes Defend Trade Secrets Act of 2016 (DTSA) and Imposes New Employer Whistleblower Immunity Notice Obligation

Congress has passed a new intellectual property law to protect trade secrets. The law provides a new federal civil cause of action for trade secret misappropriation. The law also imposes a new whistleblower immunity notice requirement on employers.

On April 27, 2016, the U.S. House of Representatives voted 410 to 2 in favor of a bill to enact the Defend Trade Secrets Act of 2016 (DTSA). Congress presented the bill to the White House on April 29, 2016 for signature by President Barack Obama. The President is expected to sign the bill, based on prior support of the bill by his administration.

The DTSA is a bipartisan bill to amend a federal criminal statute known as the Economic Espionage Act of 1996 (EEA) to create the first federal private civil cause of action for theft or misappropriation of trade secrets. Although the EEA made trade secret theft a federal crime, some felt that the federal criminal statute did not go far enough to stem the rising tide of trade secret theft, economic espionage, and online hacking by cybercriminals.

Previously, trade secret misappropriation claims were generally brought under state laws. However, trade secret laws vary from state to state, which has made it difficult for U.S. companies to develop uniform policies. The DTSA is expected to assist U.S. companies by providing a harmonized federal standard for protection of trade secrets. The DTSA does not preempt state trade secret laws, however, so trade secret owners may still pursue remedies under applicable state laws.

The DTSA authorizes trade secret owners to file a civil action in federal court for trade secret misappropriation related to a product or service in interstate or foreign commerce. 

The DTSA provides remedies for theft or misappropriation of trade secrets that may include injunctive relief, damages (for actual loss plus any additional unjust enrichment not covered by an actual loss award, or, alternatively, a reasonable royalty), exemplary damages (for bad faith misappropriation, in an amount up to two times the amount of the damages award), an order for seizure of property, and attorney fees (for willful and malicious misappropriation or for pursuing a claim or opposing an injunction motion in bad faith). 

The statute of limitations for commencing a civil action under the DTSA is 3 years from the date that the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.

Employers should take note that the DTSA imposes a new federal whistleblower immunity notice obligation. The DTSA provides whistleblower immunity against criminal or civil liability for confidential disclosure of a trade secret to the government or in a court filing under seal. The DTSA whistleblower provisions require employers to provide notice of the immunity “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The DTSA broadly defines “employee” to include “any individual performing work as a contractor or consultant for an employer.” An employer who fails to comply with the notice requirement may forfeit exemplary damages or attorney fees in an action against an “employee” to whom the notice was not provided. The notice requirement applies to contracts and agreements that are “entered into or updated” after the date of enactment of the DTSA.

Employers should consult with counsel to ensure compliance with federal whistleblower immunity notice requirements, and may wish to review agreements and documents addressing trade secrets and confidentiality.