Federal Circuit Affirms Judgment of No Damages for Alleged Pre-Issuance Use of Invention

In a case of first impression, the Federal Circuit today held in Rosebud LMS Inc. v. Adobe Systems, Inc. that section 154(b) of the U.S. Patent Act permits the owner of an issued patent to recover damages for the pre-issuance use of a claimed invention when the defendant has actual knowledge of the pending application.  (Opinion by Judge Moore joined by Judges Hughes and Stoll.)  The relevant statute (which I will, coincidentally, be teaching in my Advanced Patents class on Thursday--students, take note!) reads as follows (with my emphasis added):

(1) In general.--In addition to other rights provided by this section, a patent shall include the right to obtain a reasonable royalty from any person who, during the period beginning on the date of publication of the application for such patent under section 122(b) . . . and ending on the date the patent is issued–
(A)(i) makes, uses, offers for sale, or sells in the United States the invention as claimed in the published patent application or imports such an invention into the United States; or
(ii) if the invention as claimed in the published patent application is a process, uses, offers for sale, or sells in the United States or imports into the United States products made by that process as claimed in the published patent application; and
(B) had actual notice of the published patent application . . . .
(2) Right based on substantially identical inventions.--The right under paragraph (1) to obtain a reasonable royalty shall not be available under this subsection unless the invention as claimed in the patent is substantially identical to the invention as claimed in the published patent application. . . .

In Rosebud LMS, 

Adobe moved for summary judgment of no remedies, claiming that Rosebud was not entitled to post-issuance damages because Adobe had discontinued use of the accused technology in January 2013, ten months before the issuance of the ’280 patent. Adobe also asserted that Rosebud was not entitled to preissuance damages under § 154(d) because Adobe had no  actual notice of the published patent application that led to the ’280 patent. Rosebud did not oppose Adobe’s motion for summary judgment with respect to post-issuance damages. Instead, Rosebud argued that there remained a genuine dispute of material fact as to whether Adobe had actual knowledge of the published ’280 patent application. Specifically, Rosebud argued that Adobe had actual knowledge of the grandparent patent to the ’280 patent application; that Adobe followed Rosebud and its product and sought to emulate some of its product’s features; and that it would have been standard practice in the industry for Adobe’s outside counsel in Rosebud II to search for the ’280 patent application, which was published before Rosebud II was filed and related to the patent asserted in that suit (pp. 2-3).

The district court granted the motion, on the ground that "Rosebud had not met § 154(d)’s requirement of actual notice because Rosebud’s evidence did not identify the ’280 patent application by number, and was, at best, evidence of constructive notice" (p.3).

The Federal Circuit affirms, but in doing so it holds that "actual notice" doesn't necessarily require an affirmative act by the patent owner: 

We agree with Adobe and the district court that constructive knowledge would not satisfy the actual notice requirement. We do not, however, agree with Adobe that § 154(d)’s requirement of actual notice requires an affirmative act by the applicant giving notice of the published patent application to the infringer. Certainly, “actual notice” includes a party affirmatively acting to provide notice. See, e.g., 58 Am. Jur. 2d Notice § 4 (2015) (defining actual notice as “notice expressly and actually given”); Black’s Law Dictionary 1227 (10th ed. 2014) (defining actual notice as “[n]otice given directly to, or received personally by, a party”). But the ordinary meaning of actual notice” also includes knowledge obtained without an affirmative act of notification. “Indeed, ‘actual notice’ is synonymous with knowledge.” 58 Am. Jur. 2d Notice § 4 (2015) (also explaining that “[a]ctual notice rests upon personal information or knowledge while constructive notice is notice that the law imputes to a person not having personal information or knowledge”).

The court also rejects Adobe's argument that the legislative history of the provision suggests that it requires an affirmative act by the applicant, on the ground that the statutory text does not require this; and that the provision should be read consistently with section 287(a), the patent marking statute:

We have interpreted this latter provision to require “the affirmative communication of a specific charge of infringement.” Amsted Indus. Inc. v. Buckeye Steel Castings Co., 24 F.3d 178, 187 (Fed. Cir. 1994) (citing Dunlap v. Schofield, 152 U.S. 244 (1894)). But we will not read this requirement into § 154(d), where the statute itself does not recite the condition. If § 154(d) contained § 287(a)’s “proof that the infringer was notified” language, our interpretation of § 287(a) would be relevant, and likely dispositive. But that is not the case. Section 287(a) explicitly requires an act of notification, unlike § 154(d), which merely requires “actual notice.” If anything, these differences suggest that we should interpret the two statutes differently. Section 287(a) shows that Congress knows how to use language requiring an affirmative act of  notification when it wishes. It could have used that language in § 154(d) and did not.  

Perhaps there are, as Adobe argues, policy reasons for requiring an affirmative act of notification by the patentee. Requiring the applicant to affirmatively provide notice to potential infringers is in line with the extraordinary nature of statutory pre-issuance damages. Moreover, a strict rule requiring notification by the applicant is simpler to implement and does not leave the accused infringer in the difficult situation of having to rebut allegations that it knew of the published application. If Congress wishes, it can amend the statute to require an affirmative act by the patentee. We cannot. In the absence of such action, we interpret the actual notice requirement of § 154(d) as it is clearly written to have its ordinary meaning (pp. 6-7).

Nevertheless, on the facts, the court agrees that Adobe did not have sufficient notice because (1) the fact that Adobe had knowledge of the '280 Patent's grandfather application does not demonstrate that it had knowledge of the published application that matured into the '280 Patent; (2) the evidence did not show that Adobe was monitoring Rosebud's products, and (3) the evidence did not show that outside counsel necessarily would have come across the '280 application while preparing for litigation between the parties involving an earlier-issued related patent, which litigation never proceeded beyond the claim construction stage. 

My initial reaction to the court's rule is not positive.  I would think that actual notice should be construed to mean just that, notice, not actual knowledge; I think the policy considerations cited by Adobe deserve some consideration; and I'm not all that persuaded by the citations to Am. Jur., though I'll leave it to others for now to track down the source and context of the materials supporting the Am. Jur. quotes.  Perhaps the number of cases in which this sort of issue will come up will continue to be small, but I worry that the court has created a potential Pandora's box by permitting damages liability to arise absent an affirmative act by the owner of the pending application.