SRI International v. Cisco

On March 20, 2019, a Federal Circuit panel decided SRI International v. Cisco, addressing subject matter eligibility (yes), willfulness (no), exceptional case (yes), a running royalty (yes), and claim construction among other issues. Let’s break it down.

Subject matter eligibility. Over a dissent, the majority held the following method of cybersecurity network monitoring to be eligible because it is fundamentally “directed to a technological solution to a technological problem“:

1. A computer-automated method of hierarchical event monitoring and analysis within an enterprise network comprising:
deploying a plurality of network monitors in the enterprise network;
detecting, by the network monitors, suspicious network activity based on analysis of network traffic data selected from one or more of the following categories: {network packet data transfer commands, network packet data transfer errors, network packet data volume, network connection requests, network connection denials, error codes included in a network packet, network connection acknowledgements, and network packets indicative of well-known network-service protocols};
generating, by the monitors, reports of said suspicious activity; and
automatically receiving and integrating the reports of suspicious activity, by one or more hierarchical monitors. 

The dissenting judge saw it differently:

The claims only recite the moving of information. The computer is used as a tool, and no improvement in computer technology is shown or claimed. 

Willfulness. The jury found that Cisco willfully infringed the patents. The district court judge denied JMOL of non-willfulness. And, in the only win for Cisco, the Federal Circuit reversed:

  • Evidence that Cisco employees did not read the patents-in-suit until their depositions is not evidence of willfulness; Cisco has plenty of lawyers to diligently respond to these issues.
  • Evidence that Cisco designed their products in an infringing manner is not evidence of willfulness; it’s evidence of infringement.

While the jury heard evidence that Cisco was aware of the patents in May 2012, before filing of the lawsuit, we do not see how the record supports a willfulness finding going back to 2000. As the Supreme Court recently observed, “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct.” Halo, 136 S. Ct. at 1933. Similarly, Cisco’s allegedly aggressive litigation tactics cannot support a finding of willful infringement going back to 2000, especially when the litigation did not start until 2012. Finally, Cisco’s decision not to seek an advice-of-counsel defense is legally irrelevant under 35 U.S.C. § 298.

Exceptional case. The district court judge found that the case was exceptional and awarded attorneys’ fees based on Cisco maintaining “nineteen invalidity theories until the eve of trial but only presenting two at trial and pursuing defenses at trial that were contrary to the court’s ruling or Cisco’s internal documents.” The Federal Circuit affirmed.

Running royalty. The district court judge imposed a running royalty of 3.5% on infringing products not colorably different and that was ok.

Human Interface Design in the Law

Fantastic essay by Tim Wu (with whom I do not often find common ground) on the importance of “human interface design” in the law:

The Affordable Care Act is a good example of the complexity problem. Yes, it was an important policy achievement, and yes, many of its problems can be rightly blamed on industry resistance and Republican efforts to dismantle it.

But the act is also exceptionally hard to understand and discouragingly daunting to make use of. An emphasis on “choice” and “transparency” resulted in a law that only a rational-choice theorist could love. The act made health insurance more complicated, not less, which is one reason that such a high percentage of medical bills go to paying administrative costs, and why the Affordable Care Act is much less popular than it could be.

The Democrats’ Complexity Problem

I am a bit disappointed in the partisan framing; it’s unnecessary. Progressives and Democrats aren’t the only policy makers with this problem. And the problem can be rightly framed as a fundamental lack of respect for the public:

But policy experts are rarely good at interface design, for we have a bad habit of assuming that people have unlimited time and attention and that to respect them means offering complete transparency and a multiplicity of choices. Real respect for the public involves appreciating what the public actually wants and needs. The reality is that most Americans are short on time and attention and already swamped by millions of daily tasks and decisions. They would prefer that the government solve problems for them — not create more work for them.

The public is entitled to demand that policy makers do the extra work of making laws understandable and decisions simple.

It’s Not About Fairness

As always, a wonderful take on the college admissions bribery scandal by Matt Levine:

Here is one thing that U.S. Attorney Andrew Lelling said in announcing the charges:

“There can be no separate college admissions system for the wealthy, and I’ll add that there will not be a separate criminal justice system either.”

Level playing field! Here is another thing he said less than a minute later:

“We’re not talking about donating a building so that a school’s more likely to take your son or your daughter. We’re talking about deception and fraud.”

There can be no separate college admissions system for the wealthy, except for the extremely well-known one where you donate a building in exchange for getting your kid in! “Lol just donate a building like a real rich person,” the U.S. Attorney almost said.

. . . . .

It is not about fairness; it is about theft. Selective colleges have admissions spots that they want to award in particular ways. They want to award some based on academic factors; they want to award others based on athletic skill; they want to award others in exchange for cash, but—and this is crucial—really a whole lot of cash. Buildings are not cheap.

You Have to Pay the Right Person

Legal Needs vs. Justice Problems

It is widely acknowledged that we have a legal services crisis in the United States, particularly for vulnerable populations. And most often the response is more and free lawyers. But Rebecca L. Sandefur makes the provocative distinction between unmet legal needs and access to justice, arguing that they are not the same thing:

The distinction between a justice problem and a legal need turns out to be crucial, for these two ideas reflect fundamentally different understandings of the problem to be solved. If the problem is people’s unmet legal needs, the solution is more legal services. If the problem is unresolved justice problems, a wider range of options opens up. Rather than taking the position that unmet legal need is the crux of the issue, we have the option of formulating the access-to-justice crisis as being about, well, access to justice.

Access to What?

What is access to justice? It occurs when “the relevant substantive and procedural norms govern resolution, [and] that resolution is lawful . . . whether or not lawyers are involved in the resolution and whether or not the problem comes into contact with any kind of dispute-resolving forum.”

Sandefur makes the point that legal rules and norms can be observed without the presence of lawyers and judges, and that most civil justice problems are indeed handled by people on their own:

The most common reason people give for not turning to lawyers is not the cost of lawyers’ help. There is a much more important reason: people do not consider law as a solution for their justice problems; they do not think of their problems as being “legal,” even when the legal system could help solve them. They think of them simply as problems: problems in relationships, problems at work, or problems with neighbors. One of the most important reasons that people handle their problems on their own rather than seeking any kind of formal help is that they believe that they already understand their situation and their options for handling it.

She cites research suggesting that the presence of lawyers may be helpful simply to ensure that the rules are followed:

One of the most striking findings was that lawyers’ impact sometimes came by simply being present in the courtroom.

Many of the lower courts and administrative tribunals where Americans find themselves, such as when they face eviction or debt collection or contest a denial of unemployment benefits, can be lawless. Judicial staff in these forums sometimes do not follow the law about which side has the burden of proof. They sometimes fail to apply the rules about what counts as evidence and what is hearsay. They sometimes ignore the right of both sides to present their cases.

When lawyers are present on both sides of cases, courts act more like courts, following the rules they have made to guide their own activities.

The most effective legal services intervention may be empowering participants with knowledge of the rules and the confidence to insist that they are followed.

And it is easier to envision technology filling the gaps when the problem is so broadly reframed.

Lawyer conversations to memorize

This is pure legal gold by Matt Levine imagining a conversation between Elon Musk and his designated “Mystery Twitter Sitter”:

Musk: If I tweet “Thursday 2 pm,” is that the sort of thing that “contain[s], or reasonably could contain, information material to Tesla or its stockholders”? No, right?

Mystery Twitter Sitter: Why do you torture me.

Musk: And surely tweeting “California” is fine? Nothing material or misleading about “California.”

MTS: I was an editor of my law review you know.

Musk: And then “Some Tesla news”?

MTS: What have I ever done to—wait, yes, obviously “some Tesla news” could be material to Tesla and its stockholders.

Musk: But there’s nothing misleading in the tweet, so you can pre-approve it, right?

MTS: Well I don’t know, depends on what the Tesla news is. What is it?

Musk: You’ll find out Thursday, lol.

MTS: What if, instead of doing this, you just went to bed.

Musk: Show me what in these three tweets is illegal or misleading.

MTS: Look, as your lawyer, I am telling you that this seems like a bad idea, and you should at least wait until after your contempt-of-court hearing to do anything that might look like a violation of your settlement with the Securities and Exchange commission.

Musk: Nope! I am a smart guy and I like to get into the details of every aspect of my business. I second-guess expert engineers all the time, and often it works out for me; I’m not going to do whatever you tell me just because you are a lawyer. I think these tweets are fine. If you don’t, you have to explain to me, specifically, how they violate the settlement.

MTS: The world is not as black and white as many tech founders wish it was, and the legal system is not just a list of unambiguous written rules applied in a mechanical fashion. Whether you like it or not, regulators and courts operate in large areas of discretion; they have lots of ways to make life more difficult for you and for the company that you manage as a fiduciary for others, and they are used to being treated with a certain amount of deference by the people they regulate. Here they have you dead to rights on a technicality—you didn’t get your “500,000 cars” tweet pre-approved, as you promised you would, and it had to be corrected—and how they respond to that will depend on your overall attitude and behavior. My job as a lawyer is not just to look up rules and show them to you; it is to make predictions, grounded in research but also in experience and a certain professional connoisseurship, about how officials will react to particular fact patterns, and to advise you on the wisest course of action in shaping their reaction. (This is sometimes called “legal realism.”) My expert advice to you is that the benefit to you, and to your company and its workers and shareholders, of sending out these inscrutable late-night tweets is very low, while the risk of further antagonizing the SEC and the courts seems pretty high. I am not giving you a formal legal opinion that it is illegal for you to tweet “California.” I am just telling you that it’s dumb.

Musk: Well are they going to put me in jail for sending these tweets?

MTS: I mean, probably not, no.

Musk: I have a big drill you know.

MTS: I know.

Musk: That’s a kind of legal realism too.

Who Can Say What California Means?

Lawyers working in any complex, regulated space have a version of this conversation every week.

State Regulation of AI Technology

With the federal government seemingly unwilling or unable to regulate on cybersecurity, data privacy, and artificial intelligence, the states are increasingly active, in particular about face recognition technology.

A lot of this activity is around forming task forces, but a fair amount also addresses algorithmic impact:

Legislation referring specifically to “artificial intelligence” is currently pending in at least 13 states, according to LexisNexis State Net’s legislative tracking system. Several of the bills provide for the creation of AI study commissions or task forces, while a few deal with education or education funding.

Only four states are considering bills addressing facial recognition camera technology, including Washington, which is considering measures (HB 1654 and SB 5528) concerning the use of such technology by government entities. But at least 27 states are considering bills dealing with the subject of data collection or “data privacy” specifically.

And although there isn’t any pending legislation referencing an “algorithmic impact assessment,” there are bills in 17 states that mention “algorithm.” They include measures dealing with the use of algorithms to censor offensive, political or religious speech on social media (Arkansas HB 1028, Iowa HB 317, Kansas H 2322, and Oklahoma SB 533); calculate insurance scores (Michigan SB 88, Missouri HB 647, Oregon HB 2703 and Virginia HB 2230); and gauge the risk of coronary heart disease (South Carolina HB 3598 and SB 368).

States May Take The Lead On Regulating AI (paywall)

How will licensing IP in the autonomous vehicle space be different?

Autonomous vehicle IP licensing will have all the problems we saw with smartphone IP licensing, but on steroids. Here’s a short list:

  • Damage base is bigger. Value of the end product is bigger (i.e. cars vs smartphones), so royalty demands are bigger. There will be a correspondingly wider range of “acceptable” royalty amounts and FRAND offers.
  • Injunctions are more dramatic. And lock-in is more severe. You can’t roll a software update on a week’s notice just due to the safety / regulatory issues. You can’t substitute a new chip at the factory as you soon as you’re convinced it’s good. Also, is Germany seriously willing to enjoin the sale of a car because some random chip inside it infringes? This is going to put a lot of pressure on proportionality in legal systems.
  • Whole new issue: safety! Safety issues will dominate (perhaps out of proportion to the actual risks), and the safety issues will supercharge everything from mandatory licensing to pricing to cybersecurity.

Auto manufacturers have so far avoided massive IP battles, and have insisted that their suppliers take care of IP and indemnity issues. This has not been done in the smartphone space. Which model will prevail?

New USPTO Section 101 Guidance

On January 7, 2019, the US Patent and Trademark Office issued revised guidance on whether an invention is eligible for patenting. (For example, can you patent a method of hedging risk?)

Patent law has always been, and remains, unpredictable on the eligible-for-patenting point. But the Supreme Court’s decision in Alice Corp. v. CLS Bank (2014) reset much of the case law that had built up, and it therefore allowed district court judges wide latitude to invalidate “bad patents” on the basis that the underlying ideas simply weren’t eligible. The sudden spike in invalidations increased the sense that the law was unpredictable.

Hence, there is much guidance and revised guidance on whether certain ideas are patentable. But I hate reading this kind of guidance; it’s boring. So I drew a picture.

The main revision appears to be the following:

Examiners should note, however, that revised Step 2A specifically excludes consideration of whether the additional elements represent well-understood, routine, conventional activity. Instead, analysis of well-understood, routine, conventional activity is done in Step 2B. Accordingly, in revised Step 2A examiners should ensure that they give weight to all additional elements, whether or not they are conventional, when evaluating whether a judicial exception has been integrated into a practical application.

And… you’re welcome.

Efficiency of Bankruptcy

These numbers from a recent Matt Levine column on how much money the Lehman bank creditors got back from bankruptcy are intriguing benchmarks:

Creditors got back 31 cents on the dollar in nominal terms (about 21 to 26 cents accounting for the time value of taking 10 years to get paid). At the high end, the costs of bankruptcy came to 21 cents on the dollar, meaning that if bankruptcy could have somehow magically been free and instantaneous, creditors would have gotten back about 52 cents on the dollar. The rest of the loss was due to Lehman, not bankruptcy.

The direct cost of the bankruptcy (fees and costs for advisors and lawyers) appears to have been around $7.28 billion. But then you have to account for the 10-years between the bankruptcy filing and the actually getting your money back.

Bankruptcy is widely regarded as a positive legal mechanism: intelligently carve up what’s left to maximize value to creditors and minimize the chance that knee caps get busted. But it’s striking to consider the costs of the bankruptcy proceeding itself, here about half of the value of what was left when accounting for the time delay.

Levine notes that the Madoff victims got back about 70 cents on the dollar (hooray!), so your mileage may vary.

Paper Summary: Faith-Based Intellectual Property

Is there any evidence — like actual data — that intellectual property protection does what we want, namely encourage creativity and innovation? This turns out to be highly controversial. And relevant when reviewing proposals that would, for example, “chang[e] the copyright regime without really understanding where the problem is.”

I recently ran across a set of papers discussing this truly fundamental inquiry in intellectual property law. The most easily accessible of these is Mark Lemley’s Faith-Based Intellectual Property, which reads almost like a personal complaint.

Lemley begins by summarizing past attempts to actually answer this question. Here’s one:

Fritz Machlup, commissioned by Congress in the 1950s to evaluate the patent system, came to the strikingly wishy-washy conclusion that if we didn’t have a patent system, the evidence wouldn’t justify creating one, but since we already had one the evidence didn’t justify abolishing it.

62 UCLA L. Rev. 1328 at 1331-32

This excerpt reflects the consensus tone. Researchers don’t seem to be able to say whether the data supports the notion that intellectual property actually accomplishes what we believe it accomplishes.

Frustratingly, Lemley complains, many researchers react to this ambiguity by retreating to “moral rights theory,” the notion that intellectual property protection is simply a recognition of what you own as a matter of basic rights, the fruit of your labor. He calls out Prof. Rob Merges at Berkeley specifically:

After decades at the forefront of economic analysis of the patent system, Merges threw up his hands: “Try as I might, I simply cannot justify our current IP system on the basis of verifiable data showing that people are better off with IP law than they would be without it.” While one might think that the logical thing to do if the evidence doesn’t support one’s theory is to question the theory, Merges instead observes that “through all the doubts over empirical proof, my faith in the necessity and importance of IP law has only grown.” IP rights, he decides, are Rights in the moral sense: things to which people have some intrinsic entitlement that “social utility alone is not reason enough to override.”

Id. at 1336-37.

Lemley suggests that justifying IP protection solely on the basis of moral rights is deeply problematic. Intellectual Property law does not correspond well to our instincts about what intellectual labor should be awarded property rights:

We grant extremely valuable patents to accidental discoverers [citing photography and penicillin] and extremely valuable copyrights to photographers who happened to be in the right place at the right time [citing Zapruder film of JFK assassination and Reginald Denny beating that led to LA riots]. Further, we allow those rights to be enforced even against people who put more productive work into the final product than the IP owner—the companies who actually make products based on an idea sketched out by a patent troll [most lawsuits are filed against independent inventors] and the artists who remake a photo into an iconic image [discussing copyright case against Shepard Fairey].

Id. at 1340.

Lemley concludes with his rather personal, and it seems well-founded, complaint:

Rather, the line I hope to draw here is between theories of IP that are responsive to evidence and those that are impervious to it. The evidentiary support for the current IP regime is dubious enough that it should prompt us to have a serious conversation as a society about when IP is serving the goals of encouraging the creation and dissemination of new content and when it isn’t.

Id. at 1345.

But serious conversations are in short supply these days.