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The game of peek-a-boo, and one reason why patent litigation is so expensive

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Here's a pop quiz: How is the price of oil like the cost of patent litigation?

The differences are obvious. For one thing, it's cheaper to buy a barrel of oil than it is to hire a junior patent litigation associate for an hour. Indeed, it may be cheaper to drill for oil than it is to litigate a moderate-exposure patent infringement case. For another -- depending upon your make and model of car -- you can take your family out to dinner on a barrel of oil. But who wants to have dinner with a patent attorney?

Swinton

On the other hand, the similarities can be summed up in one word: uncertainty. Efficient business craves certainty. In times of certainty, businesses can establish plans and predict outcomes. In uncertain markets, however, businesses lose efficiency as they tend to raise prices to try to protect against unpredictable outcomes. At near $70 a barrel these days, we know what's happening in the oil markets, and consumers are left to suffer the consequences. The same is true in the world of patent litigation. Just as the price of oil on the global trading market has fluctuated with the relative level of political and economic uncertainty in the world, so has the cost of patent litigation floated with the uncertainty surrounding the "rules" of patent infringement litigation. And the continued uncertainty of the rules surrounding patent claim construction is a prime example of the uncertainty that continues to plague U.S. patent law.

The single, most significant event in the course of a patent infringement case is the interpretation of the asserted patent claims. Whether the ultimate inquiry is infringement or validity, the first step is to construe the patent claims. Only then can one evaluate infringement by comparing the accused device to the properly construed claims or evaluate invalidity by comparing the prior art to the claims. Yet, even as to this all-important step, the Federal Circuit, ironically, the court established to provide certainty to patent litigation, has been anything but certain.

In 1996, the Supreme Court decided the case of Markman v. Westview Instruments Inc., the case that coined the so-called Markman procedure. In that decision, the court confirmed that the task of determining the meaning of patent claims was reserved exclusively for judges, not juries. Since that time, the Federal Circuit has enjoyed virtually free reign to decide how trial courts should perform this all-important "Markman" task. Unfortunately, the Federal Circuit's guidance has suffered from a degree of uncertainty that would cause most oil traders to give up their day jobs.

For example, in the 2002 decision in Texas Digital Systems Inc. v. Telegenix Inc., a panel of the Federal Circuit proposed a rule for construing patent claims that gave predominant, if not exclusive weight, to dictionary definitions. This "dictionaries-rule" view turned the then-prevailing views of claim construction upside-down and provoked a broad outpouring of controversy -- not to mention an avalanche of appeals over trial court Markman proceedings that had followed prior Federal Circuit guidance. The effect of this new uncertainty: cha-ching! Patent attorneys who had drafted patent claims without anticipating the application of the "dictionaries-rule" standard ran to the phone to call their malpractice carriers. Patent owners who had given up all hope on their patent infringement claims suddenly found hope for their failing cases. Accused infringers, who had expended significant effort following the then-prevailing Markman rules to obtain noninfringement or invalidity judgments, suddenly saw the foundations of their success subjected to entirely new and unanticipated considerations on appeal. No matter how one fared from the ensuing upheaval, the result for all was a sudden increase in the stakes -- and costs -- of patent litigation.

The controversy and uncertainty generated by the Texas Digital "dictionaries-rule" decision raged for several years until the Federal Circuit finally met en banc to decide the case of Phillips v. AWH Corp. With the "assistance" of scores of amicus arguments from the domestic technology and pharmaceutical industries, the full court rejected the "dictionaries-rule" philosophy in favor of the prior "all-factors" view that allowed the trial courts to balance and weigh the various considerations from both the intrinsic and extrinsic sources. Although the decision left much unresolved, at least the court's reversion to the pre-Phillips status quo allowed patent owners and accused infringers slightly more predictability regarding the construction of patent claims that had been drafted and issued long before the dictionaries-rule decision.

Unfortunately, even before the trial courts digested the full implications of the Philips decision, the Federal Circuit had opened another new ground of uncertainty in Markman proceedings, this time over the seemingly innocuous issue of whether a trial court is allowed to consider the accused device before rendering its Markman decision construing the patent claims. The leading case: Wilson Sporting Goods Co. v. Hillerich & Bradsby Co.; the result: cha-ching!

To understand the implications of the Wilson Sporting Goods decision, we first have to review another historical aspect of Markman proceedings. Beginning at least as early as its 1985 en banc decision in SRI Int'l v. Matsushita Elec. Corp. of America, the Federal Circuit espoused a view that trial courts should determine the scope of disputed patent claims without reference to the accused device. As the court explicitly stated in SRI, "[a] claim is construed in the light of the claim language ... not in light of the accused device." Although the court never clearly articulated why that rule should apply, most observers assumed that by "blinding" the trial courts to the effect of their decisions and not allowing them to "peek" at the accused device, the Federal Circuit hoped to ensure that litigants obtained "pure" and unbiased interpretations of the claims.

Now, in a series of decisions beginning with Wilson Sporting Goods, several panels of the Federal Circuit have rejected the "don't peek" rule and replaced it with a "limited peek" approach that directs the trial courts to construe claims "in the context of" the accused device. So, having imposed "blinders" regarding the accused device for nearly 21 years, and after many battles have been fought in district courts over the "don't peek" rule, the trial courts are now free -- indeed, required -- to conduct at least a limited evaluation of the accused device before construing patent claims.

Certainly, the merits of a "peek" vs. "don't peek" rule can be debated. Indeed, probably only in Markman proceedings is a trial court supposedly "blind" to the effect of its decisions. In virtually every other type of case, whether in deciding summary judgment motions or resolving disputed jury charges, the trial court obviously recognizes the effect of its decision and, in effect, "peeks" at the underlying facts and outcomes. And, even in patent cases, only the most naïve trial court presumes that the patent litigants' arguments over claim construction are premised upon a neutral view of the "correct" interpretation of the disputed claim terms. The patentee's counsel rarely argues for a claim construction that excludes the infringing device just as the accused infringer's counsel doesn't usually advocate a disputed construction that confirms infringement. Thus, even without "peeking," trial courts always could reasonably infer the characteristics of the accused device.

As a result, some will argue that this new pronouncement won't ultimately affect the outcome of Markman proceedings. Nonetheless, the explicit rule reversal implicated by Wilson Sporting Goods is likely to send some of the same shivers of uncertainty through patent litigants that we observed in the Texas Digital experience. Just as that decision created an expensive and ultimately unproductive controversy, this new string of decisions will likely produce another wave of trial court fights and Federal Circuit appeals over whether a trial court appropriately "peeked" or didn't "peek." The near-term uncertainty in patent litigation may make the oil futures market look tame by comparison.


Swinton is a partner in the litigation department of Latham & Watkins' San Diego office. Long is an associate in the litigation department of Latham & Watkins' San Diego office.

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