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Intellectual Property: The Jury Is the Judge
By C. Larry O'Rourke
May 20, 1997
In Warner-Jenkinson v. Hilton Davis, the U.S. Supreme Court let stand the power of juries to
decide patent-infringement cases and reaffirmed the doctrine of equivalents. This decision will likely
influence business and legal strategies in the electronics industry for years to come.
On March 3, 1997, the U.S. Supreme Court decided a case with far-reaching consequences for
the electronics industry. In Warner-Jenkinson v. Hilton Davis, the Court upheld the doctrine of
equivalents, one of the most controversial doctrines in U.S. patent law. Under this rule, established
in its modern form by the Court in 1950 in the Graver Tank decision, a device need not exactly
mimic the claims of a patent. If it differs only insubstantially, it can still infringe. Most significant,
according to Hilton Davis, is the power of the jury to decide whether a device infringes under the
doctrine of equivalents.
Hilton Davis is the second of two recent landmark Supreme Court cases in the field of patent law.
On April 23, 1996, the Court decided Markman v. Westview Instruments, which ruled that the
judge, not the jury, interprets the scope of patent claims in infringement lawsuits. Thus, Hilton Davis
increased the influence of the jury while Markman heightened the role of the judge. Given the rarity
of Supreme Court rulings in patent law, these two cases will fundamentally influence business and
legal decisions in the electronics industry, probably for years to come.
Patent attorney C. Larry O'Rourke of Finnegan, Henderson, Farabow, Garrett & Dunner LLP
analyzes the impact of the two decisions on the roles of judges and juries in patent trials and
discusses how these cases are likely to affect future patent-infringement trials.
Order in The Court
$1.2 billion.That's the amount a jury ruled that Litton Systems Inc. had to pay Honeywell Inc. in
1993 for patent infringement, even though Litton did not "literally" infringe some of the patent
claims.
The Supreme Court's decision in Hilton Davis to uphold the doctrine of equivalents and the
increase in the frequency of jury trials in patent-infringement suits have amplified the risks for
companies accused of infringement. Patent-infringement suits will continue to spiral upward, as will
demand for jury trials, where eye-popping verdicts are becoming standard fare.
In 1994, for example, a jury awarded Stac Electronics, a small, nearly bankrupt company in
Carlsbad, Calif., a $120 million verdict against Microsoft Corp., which was found liable for
infringing two of Stac's patents related to data compression. Other recent cases include Nintendo,
which received a $208 million jury verdict against Alpex Computer in 1994, and Texas Instruments
Inc., which a jury awarded a total of $51.8 million from its 1996 suit against Cypress
Semiconductor Corp., LSI Logic Corp. and VLSI Technology Inc. Although higher courts set
some of these verdicts aside and some cases were settled, the trend and exposure are unmistakably
scary for companies found liable for patent infringement.
Conversely, the Court's ruling in Hilton Davis provides anyone holding valuable patent rights with
an opportunity: A successful suit for patent infringement can mean huge damage awards. Indeed,
the mere threat of a suit for patent infringement can often be enough to persuade potential infringers
to negotiate licenses and pay royalties. Judging from IBM Corp.'s strategy to increase royalties
from its vast patent portfolio, this is just what Big Blue seems to have in mind. In March, Business
Week reported that IBM plans to seek licenses from software giants Oracle Corp., Computer
Associates International Inc., Adobe Systems Inc., Autodesk Inc., Intuit Inc. and Informix
Software Inc. If IBM is successful, its current annual income of $600 million in royalty revenues
could skyrocket.
IBM and many others in the electronics industry are following the example set by Texas
Instruments, which derives significant licensing revenue from its patent portfolio. To pursue that kind
of strategy, these companies must be prepared to back up the threat of litigation with an actual suit
for patent infringement.
Doctrine of Equivalents
When suing for infringement, the patent owner asserts that the alleged infringer's device is
trespassing on protected property. The extent of protection is set out in the patent claims. A single
patent claim, if drafted properly, seeks to stake out as much exclusive territory as possible, making
it difficult for competitors to "design around" the patent. For example, the inventor of a
semiconductor chip may specify an insulating thickness of 700 to 800 angstroms (an angstrom is
one hundred-millionth of a centimeter). But if the invention also works with a greater range of
thicknesses, the experienced patent practitioner will draft the claims at the outer limit of, say, 600 to
900 angstroms so as to own as much intellectual property as possible.
In the infringement suit, the patent owner can assert either "literal" infringement--that the allegedly
infringing device contains every element of the patent claim and literally comes within the territory
described by the claim--or infringement under the doctrine of equivalents. The doctrine of
equivalents has been around patent law since the mid-19th century. It received the Supreme
Court's modern-day blessing in 1950 in the famous Graver Tank decision, in which the Court held
that if an accused device performs the same function in the same way to reach the same result as
the patented device, infringement is established under the doctrine of equivalents. The Court
justified enlarging the literal scope of patent claims to prevent unscrupulous copyists from making
slight changes to barely escape literal infringement.
Power to the Jury
When legal scholars write the history of American patent law, they will probably spot three distinct
epochs. The first, stretching over most of our history, began with the adoption of the U.S.
Constitution, which provided for the protection of inventions. Congress implemented that protection
by enacting our system of federal patent laws, which enabled patent owners to take their cases for
infringement to federal court. During this first phase, however, the courts frequently frowned on
patents, in many cases holding them either invalid or unenforceable. In the process, the federal trial
and appellate courts fashioned a patchwork of patent law with legal doctrines often stitched in
different directions.
The second phase began in the 1970s and early '80s. Burgeoning technologies awakened industry
and the government to the importance of patents in competing in a global economy. In 1982,
Congress created the U.S. Court of Appeals for the Federal Circuit. Based in Washington, D.C.,
this single federal circuit court would now hear all appeals of patent cases from the 94 federal trial
courts nationwide.
As a result of this centralized power of appellate review, patents gained strength. Patentees found
themselves with significant assets, which they could use to produce licensing revenue or exclude
competition from a market. Or they could sue infringers. Patent owners and the alleged infringers
continued to opt for trials by judges, waiving their rights to a trial by jury.
A third phase began in the late 1980s and early '90s. Discovering that juries were often swayed by
some simple facts, patent owners began to demand jury trials in their infringement suits. Counsel for
the patent owner would typically hold up the official U.S. patent and introduce it into evidence.
They would then point to the patented device or a drawing of it and to the alleged infringing device.
Lo and behold, the two looked alike. As a result, the defendant, as often as not, appeared to the
jury to have stolen that invention.
Consequently, the 1990s will likely go down as the decade of the jury trial. "Before 1980, fewer
than 10 patent-infringement cases went to juries each year," according to a January 1996 article in
Corporate Counsel Magazine. "Now nearly 200 do--over 70 percent of all patent trials."
PART TWO
Judge vs Jury
The role of juries in complex litigation has sparked lively debate. Pro-jury advocates point to our
constitutional right to a trial by jury in any civil matter governed by common law. On the other side,
some observers question whether highly technical issues that could stump a blue-ribbon panel of
experts should be submitted to a jury.
As the doctrine of equivalents evolved in federal trials and appeals, some commentators began to
believe that it was an "equitable" doctrine. Under the Seventh Amendment, everyone has the right
to a trial by jury in matters governed by common law, which had its origins in ancient England. But
under old English law, many rights of action were known as equitable rights, enforced in courts of
equity, not courts of law. If, for example, your neighbor builds a brick barbecue grill on your
property, you could sue for damages, a right to relief governed by common law and commanding
the right to a jury trial. But if you sued and asked the court to order the neighbor to tear down the
barbecue, you would be asking for equitable relief. If that is all you sued for, you would not be
entitled to a trial by jury because the matter is not governed by common law. Instead, a judge
would decide your case.
The impact of such a determination in patent law would be gargantuan because a key issue of
infringement would have been removed from the decision-making power of the jury.
In the recent Hilton Davis case, the Supreme Court had an opportunity to fundamentally change the
role of the jury in patent-litigation cases. Before the trial, Hilton Davis admitted it had no case of
literal infringement. To win, it would have to show infringement under the doctrine of equivalents.
Hilton Davis' patent covered a chemical process for purifying certain dyes. The patent claims
required that the process take place at a pH level between "6.0 and 9.0." Warner-Jenkinson,
without knowing about the Hilton Davis patent, developed a similar process operating at a pH level
of 5.0. The trial court submitted the issue of infringement to the jury, which then had to determine
whether the accused process was equivalent to the patented process under the doctrine of
equivalents.
The jury found infringement and awarded damages to Hilton Davis. Warner-Jenkinson appealed to
the Federal Circuit Court, arguing that the doctrine of equivalents was equitable and that the matter
should not have been submitted to the jury. But the Federal Circuit rejected the argument and held,
in a divided opinion, that infringement under the doctrine of equivalents presented a question of fact
for the jury to decide. The case then went to the Supreme Court.
Those urging changes in the jury's role in patent-infringement cases viewed Hilton Davis as an ideal
case for significant reform. In numerous "amicus" briefs filed with the Court, advocates for reform
urged that the doctrine of equivalents was equitable and does not give rise to a constitutional right
to a jury. One brief, submitted by Seagate Technology Inc. and 11 other high-tech companies,
including 3Com Corp., Borland International Inc., Cisco Systems Inc., Hewlett-Packard Co. and
Sun Microsystems Inc., stated: "Faced with the uncertain scope of patent claims, and the uncertain
costs and potential damages to which their activities may expose them, persons or businesses
wishing to introduce new products will simply be discouraged from doing so, rather than face the
risk of the consequence of an adverse jury decision."
Another amicus, submitted by MCI Communications Corp., observed, "The Federal Circuit's
doctrine [of equivalents] permits abusive infringement suits, bringing considerable pressure on
innocent inventors to settle."
Nonetheless, the Court upheld the doctrine of equivalents and left the issue in the hands of the jury.
In fact, the Court declined to even consider whether a patent owner had a constitutional right to a
trial by jury on the issue of infringement under the doctrine of equivalents.
Anyone engaged in commerce can see danger lurking. A jury of lay persons will decide whether a
semiconductor with an insulating layer 500 angstroms thick infringes a patent calling for a layer with
a thickness between 600 and 900 angstroms. If the two chips look alike, and the patent owner's
attorney flashes that official-looking patent before the jury, the chances for a finding of infringement
may be considerable.
The implications of Hilton Davis for the electronics and software industries are huge. Companies
must dust off their patent portfolios and look at them with a new focus. How far might a jury go in
finding equivalents? Far enough to ensnare current competition? Far enough to prompt renewed
rounds of licensing efforts? Companies must also look at their products and processes in light of
their competitors' patents. Could current or planned business operations step over the line in the
sand, the line of equivalents to be decided by an American jury?
Here Comes the Judge
But the specter of adverse jury awards in patent-infringement lawsuits should not necessarily
prompt companies to load up on infringement insurance. The judge, after all, has the authority to
correct the actions of an errant jury. In fact, the 1995 case of Markman v. Westview Instruments
tends to reduce the power of the jury in patent- infringement cases while significantly increasing the
judge's influence.
When a patent owner sues for infringement, one of the key issues determining the outcome is the
scope of the patent claims: What exactly do the claims mean, how are their words to be
interpreted, and just how far do the claims reach? Patent claims in electronic devices, for example,
often recite a structure that carries out a function. For example, a patent claim relating to a printing
apparatus may recite "an electronic printer" and "a feed device for feeding a web of paper to the
printer." When the issue of infringement arises, the question becomes whether the printer described
is any printer or only those that can be used to print on a web of paper, as opposed to individual
sheets. The issue, then, becomes the scope of the patent claim. According to Markman, the
Supreme Court made it clear that the judge should determine the scope of patent claims, not the
jury.
Thus, in our printing-apparatus example, the judge would have to decide the scope of the claim
specifying "an electronic printer." The judge also has other powers that can rein in a runaway jury.
The judge can overturn verdicts not supported by "substantial evidence" or verdicts that could not
have been reached by "reasonable juries." Indeed, in the 1996 case of Texas Instruments v.
Cypress Semiconductor, for example, the Federal Circuit said the trial judge "observed the jury
and believed that it lacked a grasp of the issues before it. The judge was convinced that the jury
failed to meaningfully deliberate the case." The trial judge set aside TI's $51 million jury verdict.
What's an Industry to Do?
In the post-Hilton Davis and post-Markman world, technology owners must develop a strategy for
their patent portfolios. They should review existing patents with one eye on Markman (how broadly
might the claims be construed by a judge?) and the other on Hilton Davis (how far might the claims
reach to equivalent devices, processes or compounds?).
Innovators, meanwhile, must be ever vigilant. To secure protection for their inventions, they must
realize there are good patents and not-so-good patents. The quality depends on the care given and
skill deployed during the patent prosecution process, the "give and take" proceedings an applicant
goes through before the Patent and Trademark Office.
If claims are not artfully drawn, they can concede territory that should have belonged to the
inventor. If the patent's specification section is improperly written and claim terms poorly defined,
the judge in a Markman hearing may have to seek other guidance on the scope of the claims. If
judges find only ambiguity in the claims, the patent prosecution history and the patent's specification
section, they can then rely on the opinions of experts about the meaning of the patent owner's
claims.
When a patent-infringement case does wind up in court, the premium will be on trial strategy.
Savvy patent defense counsel will seek to cut infringement trials short through the now all-important
Markman hearing. Patent counsel representing plaintiffs, of course, will urge the broadest possible
construction of claims to encircle the largest scope of intellectual property.
If a case goes to the jury, both sides must pay special attention to the presentation of highly
complex evidence. The use of jury consultants and the completion of mock trials before
focus-group juries can go a long way toward educating patent-trial counsel on the best way to
portray the patent claims and the device accused of infringement. Furthermore, as an article in Trial
Magazine pointed out in April, innovative trial tactics are increasingly finding favor among federal
judges when the issues at stake involve complex science. The side making the most skillful
presentation to the jury often is victorious.
It is unusual for the Supreme Court to speak to matters pertaining to patent law, so it may be
awhile before it rules on these matters again. Meanwhile, industry must keep its eye firmly on the
U.S. Court of Appeals for the Federal Circuit because that's where the contours of these crucial
legal doctrines will emerge. |
