On the Block

Muniauction, Inc. v. Thomson Corp.

Chopping block, that is, since the patent holder in Muniauction, Inc. v. Thomson Corp. had its verdict for willful patent infringement overturned and its $77 million damage award eliminated. Changes in controlling case law in the time between verdict and appeal contributed to the reversal; but bad expert testimony and a skimpy record on appeal also helped turn the district court's verdict into nothing more than an inflated appraisal.

Patent holder Muniauction held an electronic methods patent that utilized a conventional web browser to allow municipalities to auction bonds to underwriters over the Internet. Because of the web browser, bidders could monitor the auction and the status of the current best bid.  Alleged infringer Thomson held the patent on the prior art which operated in much the same manner but required the use of proprietary software in order for bidders to participate in the bond auctions.

Following the verdict in Muniauction's favor, Thomson appealed.  While the appeal was still pending, the Supreme Court issued the KSR decision regarding the test for obviousness under ยง 103. The Federal Circuit also issued opinions which changed the standards for willful infringement (Seagate) and for evaluation of infringement in multi-party method patents (BMC Resources)

The district court's verdict simply couldn't survive review under these new standards. Because obviousness is a question of law, the Federal Circuit gave no deference to the jury verdict or the district court's conclusion. Muniauctions's expert had admitted that key patent claims were essentially identical to the prior art except for the use of the web browser. Relying on KSR, the court held as a matter of law that the web browser improvement was nothing "more than the predictable use of prior art elements according to their established function."  Worse, additional damaging testimony from patent holder's own expert negated important conflicting evidence from the PTO regarding validity.  Attempts to show secondary indicia of non-obviousness were also dismissed because the court found no sufficient connection to the claims under review.

Further, though the Federal Circuit acknowledged that certain asserted claims were not obvious even under KSR, it found those claims not to be infringed. BMC Resources demands the presence of a single controlling "master mind" in order for there to be infringement in process patents requiring in-put from multiple parties.  Reviewing the record, the Federal Circuit determined that alleged infringer Thomson did not exert that kind of control in the process under review and could not, therefore, be found liable for direct infringement.

The case serves as a stark reminder that the law does matter and litigants need to build their case around the key legal principles at issue.  This includes recognizing unsettled areas of the law and anticipating potential changes in the law adverse to the litigant's position.  With regard to obviousness, the requirement of a nexus between the invention and the secondary indicia of non-obviousness is nothing new, yet its importance in the obviousness calculus has been heightened in the wake of KSR.  Nevertheless, the plaintiff apparently relied upon a fairly sparse record regarding these factors, focusing upon features and functionality of the commercial embodiment that were not directly implicated by the claims.  Equally important, the patent holder did not help its case by conceding how close the prior art was to the claimed invention; by not precisely tying further expert testimony regarding the scope of prior art to the actual claim language, the plaintiff and its expert gave the defendant an opening that the Federal Circuit ultimately seized upon. 

Our advice?  Heed the teachings of Muniauction or risk Federal Circuit review ending with the pronouncement that a prior district court victory is now "going, going GONE!"

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