Green Patent Blog

In a previous post I wrote about Ole K. Nilssen, who played fast and loose with the U.S. Patent & Trademark Office (PTO) disclosure rules while prosecuting and maintaining some of his 200+ patents directed to compact fluorescent lighting (CFL) technology.  Nilssen’s shenanigans included incorrectly claiming the right to pay reduced fees reserved for small entities, submitting misleading affidavits, and failing to disclose to the PTO then-pending litigation with Motorola on related subject matter.

The inventor’s conduct before the PTO was later deemed inequitable conduct by the district court and the Federal Circuit Court of Appeals (Federal Circuit) (Patent rule 1.56 imposes a duty of candor on the applicant, and patent case law deems such deception and incomplete disclosure of material information during the patent application process “inequitable conduct” that renders any resulting patents unenforceable).

It turns out that Nilssen’s sloppiness before the PTO spilled over to the courtroom and has cost him about $6 million.  Last month the Federal Circuit affirmed a district court decision that Nilssen should pay Osram Sylvania, Inc.’s (Sylvania) attorney fees to cover the cost of the patent infringement suit Nilssen brought against Sylvania. 

Section 285 of the patent laws gives courts the discretion to award reasonable attorney fees to a prevailing party in “exceptional” cases.  Cases may be deemed exceptional based on a number of factors.  Here, the trial court found the case exceptional because of Nilssen’s inequitable conduct, the frivolous nature of the lawsuit, and Nilssen’s litigation misconduct. 

The litigation misconduct before the district court included waiting until very late in the proceedings to withdraw fifteen of the asserted patents from the case, belatedly producing requested documents, listing incorrect patent priority dates in responses to Sylvania’s interrogatories, and waiting until trial to announce that he was waiving the attorney-client privilege to assert reliance on advice of his tax attorney that he was eligible for the reduced small entity maintenance fees.

On appeal, the most important factor was not legal or factual, but simply the way that the appeals court reviews the district court’s findings - the “standard of review.”  The Federal Circuit must uphold a district court’s finding that a case is exceptional unless that finding is “clearly erroneous.”  Similarly, the district court’s decision to award attorney fees must be affirmed unless the lower court abused its discretion in making the award.  

These standards of review, which require the appeals court to be very deferential to the district court’s findings, ultimately sealed Nilssen’s fate.  The Federal Circuit majority stated: 

 Finally, and most importantly, the key to affirmance of the district court in this case is the standard of review - abuse of discretion.  Much is said by this court, and directed to it, concerning the importance of deferring to district court judges on matters assigned to their discretion.  In reviewing such matters, when we find them to be supported by evidence, and not unreasonable, we must, and do, respect their choices.

The Federal Circuit rejected Nilssen’s argument that the inequitable conduct was “benign,” finding no such qualitative distinction among different types of inequitable conduct.  The appeals court also rejected his contention that the various instances of litigation misconduct merely constituted vigorous litigation tactics and harmless oversight of legal formalities. 

The district court was in the best position to decide these issues because it had held a trial on inequitable conduct and had found that, in context, Nilssen’s multiplicity of transgressions amounted to litigation misconduct, and that granting attorney fees was appropriate under the circumstances.  The Federal Circuit concluded there was no clear error in the district court’s decision that the case was exceptional and no abuse of discretion in awarding attorney fees.

Interestingly, Judge Pauline Newman dissented from the majority opinion, stating that precedent compelled the appeals court to examine the egregiousness of the inequitable conduct in reviewing an award of attorney fees.  She noted that, under Federal Circuit precedent not all inequitable conduct warrants such a finding, so there must be a distinction among different types or levels of inequitable conduct:

The panel majority departs from precedent in holding that the nature of ‘inequitable conduct’ is not a factor to be weighed in the attorney fee determination.  The court today enlarges the scope of ‘exceptional case’ to include less than egregious aspects of patent prosecution and litigation practice, with no evidence or charge of bad faith or prejudice . . . It is appropriate and necessary to consider the nature of the conduct, in reviewing an attorney fee award, and to limit such award to major infractions, as statute and precedent require.

But the Federal Circuit’s lesson for Nilssen is clear:  observe the rules of the game both in the PTO and the courts if you want to enforce your patents.

Earlier this month I attended the CleanTech 2008 Summit and Exhibition in Israel.  The trade show focused on renewable energy, conservation technology, and, not surprisingly given the country’s climate and neighborhood, water technologies.

One company that stood out was Hydropath Holdings Ltd. (Hydropath), a British water treatment firm who was exhibiting its technology through its Israeli marketer, Waterpath (itself a division of Pazgas, an Israeli gas company).  Hydropath’s technology cleans limescale in commercial, industrial and residential water systems without the use of chemicals by a device that attaches to pipes and generates electric fields in the water flow.  According to Hydropath’s web site, 1 mm of limescale deposition can reduce the efficiency of a residential boiler by 10%.

Limescale deposits occur when positively and negatively charged ions such as calcium carbonate and bicarbonate exceed a maximum concentration and crystalize out of solution onto pipe surfaces.  Crystallization can be either homogeneous (the initial “seed” crystals are formed by oppositely charged ions of the dissolved substance) or heterogeneous (the initial seed crystals are formed by ions on an alien substance such as a pipe surface).  This latter type of crystallization leads to scale deposition on pipes.  Homogeneuously-formed crystals, on the other hand, are carried through the pipe without impeding water flow.

Hydropath owns several patents and applications in the U.S. and abroad, including U.S. Patent No. 5,667,677 (677 patent) and two applications, International Pub. Nos. WO 2007/045824 (’824 application) and WO 2008/017849 (’849 application).  As described in the ‘849 application, the electric field produced by Hydropath’s device orients the molecules so all of the positively charged ions are aligned and traveling in one direction, and all the negatively charged ions are aligned and traveling in the opposite direction.  This increases the odds of collision between particles of opposite charge, and leads to increased growth of the benign homogeneous crystal clusters.  It also decreases the saturation level of the solution, so existing limescale deposits can re-enter solution and flow out.

The ‘824 application discloses using the electric field to provide a more energy efficient desalination process.  The electric current causes water to re-orient into a thin layer of molecules with positive poles on one side and the negative poles on the other side.  This “hydration” layer excludes other molecules and contains substantially pure water, which can be extracted using less energy than other desalination methods.

Hydropath’s patented technology has many applications, including boilers, heat exchangers, swimming pools and fuel pipes, and according to the company’s web site, can be used to combat bacteria, algae and other substances in addition to limescale.

Recently, four more electronics companies - Sony, Sanyo, Exceed Perseverance and Lucky Light - took licenses from retired Columbia prof and LED innovator Gertrude Neumark Rothschild.  These four were recently targeted by Rothshild in the U.S. International Trade Commission (ITC) in a complaint that named over 25 respondents.

These licensees join Epistar, Toyoda Gosei, Osram and Philips Lumileds, so now eight different companies have taken a license under Rothschild’s U.S. Patent Nos. 4,904,618 and 5,252,499.  The patents relate to methods of doping semiconductors, which means adding impurities to increase the number of free charge carriers.  Rothschild’s patented process made high spectral range LEDs, such as blue and green, commercially feasible. 

Rothschild is quickly becoming the Ronald Katz of LEDs and perhaps the first such phenomenon in clean technology.  Katz was an innovator in the field of automated telephone call center technology and is the named inventor on over 50 patents (full disclosure: I worked on litigation on behalf of Katz for about six months while I was an associate at a previous law firm).  

Katz is now in the business of collecting licensing fees from various companies through both negotiation and litigation.  He has been staggeringly successful in this regard:  more than 200 companies have licensed his technology, and he has made hundreds of millions of dollars.

There are some notable parallels between Katz and Rothschild, including that they are both true innovators of important technology, they are both named inventors on the patents they assert (which some people believe insulates them from the patent troll label) and they are now in the business of collecting license fees instead of practicing their technology. 

Perhaps the most important similarity is that their technology is ubiquitous across many different industries, so there are loads of potential infringement targets.  Companies from many industries including credit cards, pharmacies and utilities use automated telephone calling technology for sales and customer service.  Similarly, LEDs are used by the billions in a wide array of applications from instrument panels to traffic lights to cell phones as an energy-efficient substitute for incandescent bulbs.  It is probably for this reason that Rothschild has initially been so successful following in Katz’s footsteps, and she is likely to end up as filthy rich. 

In the latest chapter of a lawsuit that has become a stark demonstration of the futility of patent litigation, Japanese LED maker Nichia lost its motion for attorney’s fees in a design patent dispute with Korean competitor Seoul Semiconductor (Seoul).  Nichia had moved for a fee award of about $2.5 million.  In February, Nichia won a Pyrrhic victory when it obtained a judgment against Seoul for $250 (the actual money damage was a paltry $62, but the statutory minimum award for design patent infringement is $250) in a case that cost both sides millions of dollars in legal fees.

Section 285 of the patent statute provides for the award of attorney’s fees to the prevailing party in “exceptional cases.”  A case may be deemed exceptional for many reasons, including where infringement is found to be willful or a party has engaged in litigation misconduct.  However, an award of attorney’s fees is discretionary, and a judge can deny attorney’s fees even in exceptional cases.

Here, despite a jury verdict that Seoul had willfully infringed four of Nichia’s LED design patents, Judge Maxine M. Chesney of the U.S. District Court in San Francisco denied attorney’s fees because Nichia’s ultimate claim for relief was based on such a small monetary loss.  Judge Chesney noted that Nichia proceeded with the litigation after its claim for inducing infringement (which, if successful, could have resulted in damages of over $4 million) was dismissed on summary judgment.

The court’s order (order.pdf) characterized Nichia’s attempt to pursue the remaining allegations of direct infringement based on only two sales in the U.S. as the use of a “sledgehammer to kill a gnat” and noted that Seoul spent about $2 million in legal fees to defend that portion of the case.

Judge Chesney also observed that the parties are engaged in other disputes in Korea and Japan and suggested that Nichia’s persistence here may have been an attempt to gain “some unstated ancillary advantage over defendants in Asia.” 

Although that may have been Nichia’s motivation, there is nothing that prevents a patent holder from pursuing a “de minimis” injury.  A patentee has the right to enforce its patent even for tiny damages amounts:  the Federal Circuit’s opinion in Embrex, Inc. v. Service Engineering Corp. held that the patentee can sue for a de minimis amount so long as the lawsuit is not “performed for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry.”  The result here guaranteed one thing - no one was amused by this lawsuit.

Retired Columbia University professor and LED innovator Gertrude Neumark Rothschild has reached her fourth settlement of patent infringement claims, this time with Epistar (the other licensees are Toyoda Gosei, Osram and Philips Lumileds, which I wrote about in a previous post).  She had accused the Taiwanese technology company of infringing two of her patents, U.S. Patent Nos. 4,904,618 and 5,252,499.

The patents relate to methods of doping semiconductors, which means adding impurities to increase the number of free charge carriers.  Rothschild’s patented process made high spectral range LEDs, such as blue and green, commercially feasible.  Under the terms of the agreement, Rothschild granted Epistar a worldwide license to use the technology in the patents.

This agreement was not the result of litigation and was announced by Rothschild’s counsel.  But other litigation over these patents continues, with a suit pending in federal district court in New York against semiconductor maker Cree Inc. and an International Trade Commission (ITC) investigation into possible infringement by more than 25 companies, including Sony, Toshiba, Motorola and Samsung. (see my previous post the ITC case)