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On April 11, 2014, the Massachusetts Supreme Judicial Court (SJC) extended the pure-emergency exception to allow police officers and other public officials to enter a home without first obtaining a warrant “to render emergency assistance to animals.”1 The Fourth Amendment to the United States Constitution and Article 14 of the Massachusetts Declaration of Rights each require a judicial determination of probable cause prior to a government intrusion into an individual’s dwelling.2 Nevertheless, there are a number of exceptions to this requirement. One such exception “permits the police to enter a home without a warrant when they have an objectively reasonable basis to believe that there may be someone inside who is injured or in imminent danger of physical harm.”3 The SJC’s holding in Duncan extends that pure emergency exception to the rendering of emergency aid to animals as well.4
II. The Warrantless Entry Of The Defendant’s Home
Police officers arrived at the defendant’s home after receiving a telephone call from a neighbor who reported two dead dogs and one “emaciated” dog on the defendant’s property. Upon arrival, police officers “heard a dog ‘whimpering and very hoarsely and weakly barking’” from behind the defendant’s privacy fence. To get a better view, the officers climbed a nearby snowbank and saw three dogs leashed to a fence; two were “motionless” and “frozen” and one was “emaciated” and “barking.”5 There appeared to be no food or water for the animals. The officer’s attempts to alert any occupants in the defendant’s home—by engaging their police cruiser’s siren, emergency lights, and air horn and utilizing various public records to contact them—were unsuccessful.
The officers, relying on police protocol for handling animal-related emergencies, contacted the fire department to remove the locks on the defendant’s privacy fence. Once inside the defendant’s yard, the officers contacted animal control to remove the dogs. The entire event lasted less than two hours. The Essex County District Attorney’s Office charged the defendant with three counts of animal cruelty, under Chapter 272 of the Massachusetts General Laws.6
The defendant moved to suppress the police officers’ observations and the physical evidence giving rise to the charges, arguing the observations and evidence were unlawfully obtained under the Fourth Amendment to the United States Constitution and Article 14 of the Massachusetts Declaration of Rights. The District Court judge granted the defendant’s motion to suppress, reasoning that “‘[Massachusetts] courts have not as yet applied the emergency exception to animals.’”7 Nevertheless, the judge reported the question of law to the SJC, under the Massachusetts Rules of Criminal Procedure.8 The question presented to the SJC was “‘Does the ‘pure emergency’ exception to the warrant requirement extend to animals?’”9
III. A brief Summary of The Emergency Exception to the warrant requirement and decisions in other jurisdictions permitting the exception for animals
As noted above, both the United States Constitution and the Massachusetts Declaration of Rights consider a police officer’s entry into a home, a “serious governmental intrusion into one’s privacy,” and these provisions were designed to limit such intrusions.10 Despite this protection, courts have recognized an exception that allows police to enter into a person’s dwelling without a warrant if there is an “objectively reasonable basis to believe that there may be someone inside who is injured or in imminent danger of physical harm.”11 The need to protect the life of another person obviates the need for a warrant because of the impracticality of obtaining one during such an emergency.12 The emergency exception, unlike other exigency-based exceptions, is not based on investigating criminal activity and does not require the showing of probable cause.13 In order to ensure constitutional protections, there are two strict requirements for a warrantless entry under the emergency exception: the officer must have an objectively reasonable belief that an emergency exists; and the conduct of the officer, following the entry, must be reasonable under the circumstances.14
In many instances, this emergency exception can discreetly transform into a criminal investigation. There are numerous instances where an officer has responded to a reported emergency that resulted in an arrest.15 Despite the requirement to act reasonably, an officer’s subjective belief does not invalidate the exception.16 Additionally, the exception permits the officer to conduct a “protective sweep” in areas where the emergency may reasonably be found.17 Furthermore, any contraband or evidence of criminal activity observable in “plain view” during the emergency-based entry is subject to seizure.18
Prior to this case, there was a presumption that the emergency aid exception was related and limited to an imminent injury to a human being. In Massachusetts, there was no precedent or statutory provision for the courts to rely upon. Other state courts, for example, had addressed the issue by declaring that a reasonable interpretation of the emergency aid exception would permit the rendering of aid to “vulnerable and helpless animals.”19 Moreover, several states have held that “needless suffering and death” of animals is an exigent circumstance.20 These various state appellate court decisions display a growing consensus among the states that animals fall within the scope of living organisms protected by the emergency exception to the warrant requirement.
IV. The Supreme Judicial Court’s use of Statutory public policy to expand the emergency exception to include Animals
The SJC relied heavily on public policy underlying Massachusetts’s criminal statutes. The Court reasoned that it would be counterintuitive to punish individuals for animal mistreatment and abuse but prohibit officers from entering an alleged abuser’s dwelling without a warrant to render reasonable emergency aid.21 In particular, judges have the authority to make a totality-of-the-circumstances finding of whether there is imminent threat of bodily injury to a pet and judges are required to notify officers of such a finding.22
The SJC relied upon these statutes and noted that courts may consider such policies “when no previous decision or rule of law is applicable.”23 The Court concluded that rejecting the expansion of the emergency aid exception would run contrary to the underlying policy rationales and objectives of the statutes criminalizing animal mistreatment. Additionally, the SJC reasoned that not allowing officers or other public officials to enter a home without a warrant to provide emergency assistance to animals would force untrained persons to intervene, resulting in harm to the animal, layperson, or community at large.24 The SJC did limit the scope of the exception to animals harmed by humans, noting that without human action “the threshold for police entry . . . will be considerably higher.”25 Finally, in dicta, the Court noted a list of potential factors that other courts have considered, such as the species of the animal, the privacy interest at issue, the degree of police effort to obtain consent prior to entry, and the extent of intrusion and damage resulting from the entry.26 The Court remarked that the above list was not exhaustive and emphasized the need for a case-by-case determination upon the totality of the circumstances.
While the SJC’s ruling does appear to comport with the underlying policy objectives behind statutes criminalizing animal mistreatment and cruelty, this expansion of the emergency aid exception could open a defendant’s rights to abuse by officers seeking to use a whimpering dog as pretext for searching a person’s home for other illegal activity without probable cause or even reasonable suspicion. The SJC did go to rather great lengths to emphasize the limitations imposed by the emergency aid doctrine. In fact, the Court’s opinion hinted that it might be very difficult to utilize the animal-emergency exception when the injuries are not a result of a human cruelty, by stating that such an entry would have a “considerably higher” threshold. Additionally, the Court highlighted that the emergency exception requires officers to act reasonably under the circumstances. This should restrict the officer to the removal of the endangered animal; however, if the officer were to observe contraband, or other evidence of a crime, in plain view, such evidence would be admissible.
The factors enumerated above also demonstrate an attempt by the Court to impose limitations and case-by-case scrutiny by examining the totality of the circumstances. The factor derived from Suss, which examines the measures undertaken by officers to obtain consent prior to entry, has the potential to prevent secret entries when the residents of the dwelling are available to provide consent. Nonetheless, the SJC, in the future, will certainly be prompted to address what constitutes the minimum amount of effort to obtain consent. The Court also noted that the species of the animal was relevant, which raises the logical question of what counts as a protected animal. Perhaps there is some solace that officers, in cases reported in other jurisdictions, only seized neglected or abused animals. Nonetheless, as the Court notes, future litigation will have to flesh out the issues that will naturally arise from the Duncan decision.
The courts of the Commonwealth should vigilantly attempt to safeguard against allowing evidence from an otherwise unlawful search and seizure under the guise of rendering aid to tortured helpless animals. The SJC’s opinion makes a valiant effort to prevent abuse of the ruling, but the judges throughout the Commonwealth must strive to keep this ruling narrow and limited to circumstances that require immediate entry to preserve the life of an animal.
James Gardner Long III, Commentary, SJC Expands Pure Emergency Exception to Animals in Duncan, 2 Suffolk U. L. Rev. Online 52 (Sep. 12, 2014), http://suffolklawreview.org/sjc-expands-pure-emergency-exception
This short commentary corrects an erroneous understanding of probabilistic causation in the loss-of-chance doctrine and the damage calculation method adopted in Matsuyama v. Birnbaum.1 The Supreme Judicial Court of Massachusetts is not alone. Many other common law courts have made the same error, including Indiana, Nevada, New Mexico, Ohio, and Oklahoma.2 The consistency in the mistake suggests that the error is the majority rule of damages. I demonstrate here that this majority rule is based on erroneous mathematical reasoning and the fallacy of probabilistic logic.
To be clear, I do not contest the propriety of the loss-of-chance doctrine because the underlying policy sensibly addresses the social problem of medical malpractice inflicted on severely ill patients.3 Without the doctrine, there would be no such thing as medical malpractice for patients who were more likely to not survive the ailment. I only comment on the conceptual understanding of probabilistic causation and the nature of probability-based damage calculation. The essential error in Matsuyama and other courts’ decisions is a misconception of the reference class from which probabilistic causation is calculated. This error undervalues damages in certain types of cases where even after the medical malpractice, the plaintiff still had some residual chance of survival, though she ultimately died, thus begetting the cause of action.
Loss-of-Chance Doctrine and Damage Calculation
The loss-of-chance doctrine applies in medical malpractice actions in which the plaintiff cannot prove traditional “but for” causation because she was likely to die from her ailment even before the negligence. The doctor’s negligence is typically the failure to diagnose the condition or to treat the condition, and as a result the plaintiff suffers the loss of a chance to survive. Under a traditional analysis, as a matter of probability it is more likely than not that the natural ailment killed the plaintiff in each instance, and the doctor would escape liability no matter how egregious the negligence. This situation leads to what scholars have called “recurring misses,” when doctors systematically escape liability for negligent treatment in cases involving severely ill patients.4
Matsuyama presents a typical fact pattern.5 The plaintiff had cancer at the time he was examined by the defendant. The examination failed to detect the cancer. The jury found that at the time of the initial examination, the plaintiff had only a 37.5% chance of survival.6 The defendant’s negligence destroyed that small chance to survive.7 As a matter of probability, he would have succumbed to his natural health condition irrespective of the negligence. Of course, if we had three such plaintiffs in exactly the same condition, the odds suggest that negligence would have killed one of them.8
Common law courts have adopted the loss-of-chance doctrine to provide plaintiffs a remedy in medical malpractice cases.9 Loss of chance is an exception to the traditional causation analysis, and provides an alternative theory of liability for medical malpractice. The doctrine recognizes that a plaintiff’s loss of probabilistic chance to survive should be a cognizable injury.10 Courts provide an award of damages based on this probabilistic loss of chance.
The Supreme Judicial Court of Massachusetts in Matsuyama provides a five-step process for calculating damages.11 The jury must find these facts:
(1) “the full amount of damages allowable for the injury,” without any probabilistic offset;
(2) the probability of survival before the medical malpractice;
(3) the probability of survival after the medical malpractice;
(4) the difference in probabilities between steps (2) and (3); and
(5) the product of the difference in probabilities (4) and the full amount of damages (1).
We can generalize this rule of law with this formula:
The court provides the following numeric example to illustrate the damage calculation: The full value of a wrongful death is $600,000. The patient had a 45% chance of survival before the medical practice. The patient had a 15% chance of survival after the medical malpractice. Based on the reduction of 30% chance of survival, the court suggests that the damage for loss of chance is: 30% (reduction in chance) x $600,000 (full loss) = $180,000 (damages).12
A number of other courts have adopted the same approach toward damage calculations.13 For example, in McKellips v. Saint Francis Hospital, Inc., the Supreme Court of Oklahoma gave this example: The full value of a wrongful death is $500,000. The patient had a 40% chance of survival before the medical malpractice. The patient had a 25% chance of survival after the medical malpractice. Based on the 15% reduction of chance of survival, the court suggested that the damage for loss of chance is $75,000 (= 15% x $500,000).14 Indeed, this method in McKellips has influenced a number of subsequent decisions, including Matsuyama.15
The above damage calculation method is a common approach taken by courts in conceptualizing causation analysis and damage calculation. This approach is wrong. In fact, for reasons explained below, the damages in the above hypotheticals should be $211,765 in the Matsuyama hypothetical16 and $100,000 in the McKellips hypothetical.17
The Matsuyama court and other courts have incorrectly calculated probabilistic causation and the damage calculations derived therefrom. The method of calculation endorsed in these cases is correct only in the special case when malpractice reduced the chance of survival to zero. If the malpractice still left a residual chance of survival (as seen in the hypotheticals above), then as a matter of mathematics and probability, the method of damage calculation adopted by the courts is incorrect.
The Special Case of Zero Chance of Survival
When medical malpractice reduces a less-than-probable chance of survival to zero chance of survival, the proper damage amount is the reduction in the chance of survival multiplied by the full value of the loss. In these cases, the Matsuyama and McKellips method produces the correct result. For example, assume the following: (1) full value of loss is $600,000; (2) the chance of survival before the negligence is 30%; and (3) the chance of survival after the negligence is 0%. The damage calculation is: 30% (reduction in chance) x $600,000 (full loss) = $180,000 (damages).
In calculating the percentage decrease in the probability of survival due to negligence, we first need the reference class (the denominator in the fraction). Logically, the denominator is the number of people who died: The reference class is based on the number of people who died from either the natural ailment condition or the malpractice. This constitutes the 100%—another way to say this is that all deaths are explained as having been caused by a natural condition or by negligence. The numerator is the number of people who died from the negligence, and this fraction calculates the damages based on probabilistic causation.
An easier way to think about this situation in probabilistic terms is to imagine 100 people in the identical position. Irrespective of any negligence, how many of these people would have died naturally from the ailment? Seventy people. How many died from the malpractice? Thirty people. What is the probabilistic causation attributable to the negligent doctor? The answer must be 30%, calculated as 30/100. Thus, the damage calculation based on $600,000 full loss must be $180,000 (= 30% x $600,000).
We can generalize the special case where the negligence reduces the pre-negligence chance of survival to zero (death is certain after the negligence) as the following:
This method is seen in Matsuyama and other cases. In Matsuyama, the damage calculation formula was: J = D x (P — R), but since R = 0 in the special case, the formula reduces to: J = D x P. This method applies only when there is no residual chance of survival. Otherwise, the application of this method is an error as a matter of probability analysis.
The Normal Case of Residual Chance of Survival
When malpractice reduces a less-than-probable chance of survival but there still remains a residual chance of survival after the negligence,18 the proper damage amount cannot be the product of the reduction in the chance of survival and the full value of the loss. For example, assume the exact hypothetical provided in Matsuyama: (1) full value of loss is $600,000; (2) the chance of survival before the negligence is 45%; and (3) the chance of survival after the negligence is 15%, which is the residual chance of survival after the negligence. The damage cannot be $180,000 (= 30% x $600,000) as Matsuyama suggests.
To see why, again imagine 100 people in the plaintiff’s exact situation. How many of these people would have died naturally from the ailment? Fifty-five people, because the plaintiff had a 45% chance of survival before the malpractice. How many would have died from the malpractice? Thirty people, because the doctor reduced the chance of survival from 45% to 15%. How many people would have survived despite the negligence? Fifteen people, because there is still a 15% residual chance of survival after the negligence. Because these 15 people would have survived the natural ailment and the malpractice, they would have no injury and thus no legal claim. How many people would have died in total? Eighty-five people.
The reference class from which probability is calculated must be all injured people, which is 85 people and not 100 people. Of these unfortunate 85 people, 55 died from the natural ailment, and 30 died from the malpractice.
What, then, is the probabilistic causation attributable to the negligent doctor? The answer clearly cannot be 30%. The probabilistic causation attributable to the doctor’s negligence must be: 30/85 = 35.3%. Thus, the damage calculation must be: 35.3% (reduction in chance) x $600,000 (full loss) = $211,765 (damages). The error in the hypothetical resulted in an undervaluation of damages of $31,765.
The Matsuyama decision confirms its error in discussing the specific facts of the case. The plaintiff had a pre-negligence chance of survival of 37.5% and $875,000 full value of damages.19 The plaintiff had a 0% to 5% post-negligence chance of survival.20 The court suggested that the actual post-negligence chance of survival was an important fact that the trial court should have considered, which is correct as a general application of the rule, but the court used an incorrect statistical reasoning to explain why the datum is important. The court opined that a 5% residual chance of survival would cause a 32.5% loss of chance, rather than 37.5%, decreasing damages from $328,125 (= 37.5% x $875,000) to $284,375 (= 32.5% x $875,000).21 As explained above, this is the wrong analysis of the plaintiff’s actual damages. If there is a finding that the plaintiff had a 5% residual chance of survival, the probabilistic causation attributable to the defendant’s negligence would be: 32.5% ÷ 95% = 34.2%. Thus, the damages are: 34.2% x $875,000 = $299,342.
The error in Matsuyama produces only a small difference between the erroneous damages and correct damages because the residual chance was so small. In other cases where the residual chance is large, the difference in damage amounts can be large. Consider this hypothetical: The plaintiff’s pre-negligence chance of survival was 50%, and full damages are $600,000. The defendant’s negligence reduces the chance of survival to only 10%. The damages are $266,667 (= 40% ÷ 90% x $600,000). However, if the defendant’s negligence reduces the chance of survival to only 40%, the damages are $100,000 (= 10% ÷ 60% x $600,000). Thus, the residual chance of survival—which is an indicator of how the negligence took away the chance of survival—matters greatly in the damage calculation.22
We can generalize the rule of law for damage calculation when there is a post-negligence residual chance of survival:
where J = award of damages
D = full damages
P = pre-negligence chance of survival
R = post-negligence residual chance of survival
This formulation takes into account that a percentage of patients survive both the ailment and the negligence, and as a result they are not injured and cannot be plaintiffs. These people must be excluded from the calculation of probabilistic causation.
Note also that the above formula produces the same outcome as the formula used in the special case where there is no residual chance of survival (recall that the formula in the special case is J = D x P). If R = 0, then the following must be true:
Lastly, I note that my formula requires no more additional factfinding or exceptional application of mathematical analysis by juries. The math is basic elementary school arithmetic, and in any loss-of-chance case, juries are still required to find the pre- and post-negligence chance of survival: The variables are still only D, P, and R. As a matter of judicial administration, the only adjustment required is the application of a correctly stated and conceived formula to calculate probabilistic causation and damages.
If courts adopt the loss-of-chance doctrine, and many do, they must award damages based on the probabilistic causal contribution of the defendant’s negligence to the plaintiff’s death. Indeed, courts embrace this concept of probabilistic causation and damages.23 How, then, did the courts err in the analysis? The error in the mathematical logic arises from the choice of perspective on uncertainty. Courts have conceptualized probabilistic causation from an ex ante perspective when in theory they should consider probabilities from an ex post perspective.24
An ex ante perspective views the probability of an uncertain future event, through the concept of expected value. Expected value is the chance of something occurring in the future given various potential outcomes. Probabilities are assigned to the various outcomes. Mathematically, the calculation is simply the sum of the products of probabilities and outcomes: E(x) = P1 X1 + P2 X2 + . . . + Pn Xn where Pi is the probability given an outcome Xi.
The logic of Matsuyama and other cases is apparent. If we consider the potential future outcomes of medical malpractice and calculate an expected value, that calculation would be: E(x) = P1 0 + P2 0 + P3 D where P1 is the probability of survival, P2 is the probability of death from the natural ailment, P3 is the probability of death from the negligence, and P1 + P2 + P3 = 1. Since a plaintiff can recover nothing from surviving or death from natural causes, the expected value of a doctor’s negligence is E(x) = P3 D, which is what courts have adopted as the rule of law on damages.
However, when a person dies, which is a precondition to bringing a medical malpractice claim for loss of chance, we are no longer concerned with various states of future outcomes including the possibility of survival, but instead we are looking back in time to the past. The reference class is the group of dead plaintiffs, and should not include the class of people who survived (this last bit of uncertainty has been resolved). We have a past occurrence of death, and we must assign only two probabilities: P(d1) the probability that death resulted from the ailment, and P(d2) the probability that death resulted from negligence where P(d1) + P(d2) = 1. The residual chance of survival must be taken out of the equation. The causation analysis must answer the question: Given that death occurred, what was the probability that it resulted from the negligence? Damages should follow therefrom.
Robert J. Rhee, Commentary, Loss of Chance, Probabilistic Cause, and Damage Calculations: The Error in Matsuyama v. Birnbaum and the Majority Rule of Damages in Many Jurisdictions More Generally, 1 Suffolk U. L. Rev. Online 39 (Mar. 18, 2013), http://www.suffolklawreview.org/Matsuyama-Birnbaum.
Marbury Research Professor of Law; Co-Director, Business Law Program, University of Maryland Francis King Carey School of Law. I thank my colleagues Andrew Blair-Stanek and Don Gifford for their helpful comments.
“We saw that if we paid off this patent holder, we’d have to pay off every patent holder this same amount. This is the first case we took all the way to trial. And now, nobody has to pay Soverain jack squat for these patents.”1
Litigation is expensive, plain and simple. In a typical patent-infringement dispute, defending a case from start to finish—that is, from the complaint to the appeal—may cost a company upwards of a million dollars. Accordingly, the defendant-company will often choose to pay the patent holder a licensing fee instead of advancing its case to trial. At times, the alleged infringer may be particularly confident that it is not infringing, or that the patent is not even valid in the first place. Nevertheless, an impartial weighing of potential litigation costs against the price of licensing the patent will oftentimes produce an economically justifiable solution—pay the patent holder and simply walk away. It must just be the cost of doing business, right?
Not for Newegg, and not for its Chief Legal Officer, Lee Cheng.2 In an age when settlement is commonplace, Newegg’s approach to infringement litigation is refreshing, albeit confrontational and seemingly expensive: Newegg refuses to settle with nonpracticing entities (NPEs) that allege infringement.3 NPEs, which are more commonly referred to as “patent trolls,” are companies that accumulate patents with the intent to aggressively pursue licensing fees through litigation, with no plans of ever manufacturing or marketing the patented inventions.4 In the past decade, NPEs have changed the landscape of patent law, generating a constant fear of litigation and discouraging the very innovation that lies at the heart of patent protection. Even President Obama, in a recent “Fireside Hangout” on Google Plus, stated that NPEs were doing nothing more than “extorting” money from others, and that further legislation is necessary to remedy the problem.5 Soverain Software LLC v. Newegg Inc.6 demonstrates how costly and truly difficult it can be for a defendant to stand its ground against an NPE.
In 2007, Soverain filed suit against a group of companies for infringement of its patents disclosing a system for e-commerce sales transactions.7 Each of the other defendant-companies chose to pay Soverain to license the patents in exchange for avoiding litigation; however, Newegg refused. It argued that the Newegg sales system was materially different than the patented system, and that Soverain’s patents were obvious in light of the prior art and thus invalid. In a way, the case was a perfect storm. On one side, the prototypical NPE holding a group of dubious patents, and on the other, an alleged infringer committed to litigating the issue, regardless of cost. The stage was set for the two companies to square off in what was coined “the mother of all patent battles,” and the rest of the online-retail community had a front-row seat.8 The case is particularly interesting for two reasons: It highlights the stark difference between the Federal Circuit and the district court’s position regarding what level of evidence is necessary to establish a prima facie case of nonobviousness, and it also provides an example of when a court will disregard evidence of licensing as secondary indicia of nonobviousness, when such licenses merely reflect a party’s attempt to avoid costly litigation.
The “Shopping Cart” Patents and Soverain’s Goal to Obtain One Percent of All Internet Sales
The Soverain-Newegg dispute involved a number of patents, developed in 1994 by Open Market Inc., covering a system that most would describe as your typical online sales transaction. The patents disclosed a sales system with a buyer computer, a host computer, and a merchant computer, all interconnected by an electronic network. Under the patented system, the buyer accesses the merchant’s website and selects a product, the product is recorded in the buyer’s “shopping cart,” and the information is saved on the server until he or she chooses to checkout and purchase the item. The vast majority of online retailers rely on a similar system to conduct sales transactions on the Internet.
The patented inventions were embodied in a software system called “Transact” that Open Market attempted to license to retailers in the early 1990s. After modest success, Open Market sold the patents and supporting software to Divine Inc. in 2001. Less than two years later, however, Divine filed for bankruptcy, and Soverain purchased the patents. In fact, Soverain was created specifically to acquire these “shopping cart” patents, with the ultimate goal of brandishing the patents to demand licensing fees from all major online retailers.9 Shortly after acquiring the patents, Soverain began actively pursuing licensing fees from online retailers whose sales systems incorporated the patented technology.
Soverain’s goal was to demand a one percent royalty on all Internet sales transactions generated through the use of the patented system.10 From the outset, Soverain was extremely successful, obtaining judgments against Avon and Victoria’s Secret for over $18 million, as well as a running royalty on all online sales.11 In 2005, Amazon settled with Soverain for a reported $40 million, while The Gap also settled for an undisclosed sum.12 And to date, Soverain has filed infringement suits against more than a dozen other companies, such as Office Depot, Kohl’s, and J. Crew.13 In 2007, Soverain shifted its focus to Newegg, an online retailer that sells electronics and information-technology products.14
Nonobvious as a Matter of Law?
Newegg refused to pay Soverain a licensing fee for the use of the patented system, and in 2007 the parties went to trial in the United States District Court for the Eastern District of Texas.15 At issue were the three Open Market patents that Soverain had acquired: U.S. Patent Nos. 5,715,314 (the ‘314 patent); 5,909,492 (the ‘492 patent); and 7,272,639 (the ‘639 patent). The parties each agreed that there were three specific sets of claims at issue: the “shopping cart” claims, which were system claims 34 and 51 of the ‘314 patent; the “hypertext statement” claims, which were system claims 41 and 61 of the ‘492 patent; and the “session identifier” claims, which were method claims 60 and 79 of the ‘639 patent. The “shopping cart” claims involved the system of storing shopping information in individual storage areas, referred to as shopping carts, on the host server. The “hypertext statement” claims covered a system of producing an online-accessible sales summary, or receipt, with each sales transaction. And last, the “session identifier” claims disclosed a method of assigning a number to each shopping session, for purposes of keeping record of the transaction.
At trial, Newegg attempted to differentiate its system from the patented inventions, claiming that its sales system did not store sales information on its server but, instead, utilized “cookie” technology to store the ongoing sales information on the buyer’s computer until checkout, which it argued was a significant distinction. Additionally, and most notably, Newegg also attacked the validity of the patents themselves, claiming that all three patents were obvious in light of the prior art and thus invalid. Specifically, Newegg alleged that an e-commerce system called the “CompuServe Mall” was available prior to the issuance of Open Market’s original patents, rendering the “shopping cart” and “hypertext statement” claims of the ‘314 and ‘492 patents obvious. Additionally, Newegg relied on U.S. Patent Nos. 5,560,008 (the ‘008 patent) and 5,724,424 (the ‘424 patent), both of which disclosed a method of assigning numbers to individual customers, to argue that the “session identifier” claims of the ‘639 patent were also obvious.
Throughout trial, both parties offered evidence on the issue of obviousness. Newegg relied heavily on the CompuServe Mall, a system by which a buyer could access a database of retailers on a buyer computer that operated as an electronic sales catalog: The buyer would type “O” to order or select an item and “checkout” to purchase. Newegg offered testimony from CompuServe’s former Chief Technology Officer, who provided a detailed description of the CompuServe system, as well as two books, published prior to the patented inventions, that explained how to utilize the CompuServe Mall. Additionally, Newegg’s expert witness testified regarding the similarities between the CompuServe Mall and the patented system embodied in the Transact software, detailing the similarities element by element, before concluding that all of the elements and limitations found in Soverain’s patents were “shown or apparent” in the prior art.16
In response, Soverain argued that its patents were nonobvious in light of the CompuServe Mall, offering testimony from its own expert, who explained that the patented system had a number of claims that were not present in the CompuServe Mall. Specifically, Soverain alleged that the patents incorporated Internet technology that was not available at the time of the CompuServe system. Additionally, Soverain was permitted to offer evidence that numerous companies had paid to license its “shopping cart” patents, as a means of demonstrating that the inventions were commercially successful. Relying on these licenses, Soverain’s argument was rather convincing: Why would companies pay to license Soverain’s software if its patents were invalid?
Despite extensive evidence on the issue of obviousness, at the close of trial Judge Davis removed the issue of obviousness from the jury, granting Soverain’s Rule 50(a) motion and concluding that the patents were nonobvious as a matter of law and thus valid. Judge Davis said, “I don’t think there’s sufficient testimony to present an obviousness case to the jury. I think it would be very confusing to them.”17 With the issue of obviousness removed from consideration, the jury found that Newegg had indirectly infringed on the “shopping cart” and “hypertext statement claims” of the ‘314 and ‘492 patents, but that it did not infringe on the “session identifier” claims of the ‘639 patent. The jury awarded Soverain $2.5 million dollars in damages.
After the jury rendered its verdict, both Newegg and Soverain filed a series of post-trial motions. Newegg moved to vacate and remit the damages award, while Soverain moved for a permanent injunction or, in the alternative, an ongoing royalty payment. Both sides also filed renewed motions for judgment as a matter of law under Rule 50(b). Again, Judge Davis sided with Soverain, denying Newegg’s motions and upholding the jury’s verdict of infringement of the ‘314 and ‘492 patents. Additionally, the judge set aside the jury’s finding of noninfringement of the asserted claims of the ‘639 patent, entering a judgment in favor of Soverain and ordering a new trial on the issue of damages. Last, he entered a judgment in favor of Soverain for both post-trial damages and an ongoing royalty of $0.15 per sales transaction for the life of the patents.
The Nonobviousness Requirement
To obtain a patent, an invention must exhibit patentable subject matter and must be new, useful, and nonobvious.18 At issue in Soverain was the obviousness requirement, which states a patent may not be obtained “if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.”19 In order to determine nonobviousness, a patent examiner or the court will consider previous patents, patent applications, and other existing public information to determine whether, in light of that information, the claimed invention or improvement would have been obvious to an ordinary person with skill in that particular art. For example, in a patent application for a new system of delivering an existing pharmaceutical, the examiner may review prior patents covering delivery systems of other pharmaceuticals, as well as articles published in medical journals and other available literature, to determine if this new system of delivery is sufficiently nonobvious to warrant patent protection.
In Graham v. John Deere Co.,20 the Supreme Court established four factors that the court should consider in determining if the party has satisfied the nonobviousness requirement: (1) the scope and content of the prior art; (2) the difference between the prior art and the claimed invention; (3) the level of ordinary skill in the field of the invention; and (4) any “objective” or “secondary” considerations.21 With ongoing advances in technology, the courts have frequently been faced with difficult validity determinations with respect to nonobviousness. Particularly relevant in the Soverain case was the Federal Circuit’s recent decision in Muniauction, Inc. v. Thomson Corp.,22 a case involving patents disclosing a system of buying and selling bonds online. With respect to whether it was obvious to combine an existing bonds-sales system and Internet technology, the Federal Circuit concluded that the patents failed the nonobviousness requirement, stating that the application of Internet technology to an existing process was “commonplace.”23
The Federal Circuit—“Questions of Law Must Be Correctly Decided”24
Despite the judgment in the district court, most believed Newegg had actually scored a significant victory at trial—the $2.5 million verdict was only seven percent of what Sovereign sought in damages, and the $0.15 royalty per transaction was significantly less than the one percent of all sales that Soverain had set out to obtain. Nevertheless, Newegg appealed the decision to the United States Court of Appeals for the Federal Circuit. Citing Graham and KSR International Co. v. Teleflex Inc.,25 the Federal Circuit characterized the obviousness determination as a question of law, before gently reminding the district court that “questions of law must be correctly decided.”26
The Federal Circuit reversed the district court’s ruling that the patents were nonobvious as matter of law. In stark contrast to the district court’s finding, the Federal Circuit concluded that sufficient evidence was offered to determine that the patents were, in fact, obvious as a matter of law and thus invalid. Judge Newman wrote, “The district court’s conclusion that a prima facie case of obviousness was not met is not explained by the court or by Soverain, and does not accord with the record.”27 The court went on to hold that the “shopping cart” and “hypertext statement” claims of the ‘614 and ‘492 patents were obvious in light of the CompuServe Mall system, and that applying the use of the Internet to the existing electronic sales process did not render the Soverain patents nonobvious. Additionally, the court vacated the district court’s finding of infringement regarding the “session identifier” claims of the ‘639 patent, stating that the prior ‘008 and ‘424 patents rendered obvious the “session identification” claims, and that any distinction between attaching numbers to individual buyers, as opposed to individual sales transactions, was immaterial.
Last, the court rejected Soverain’s argument that extensive licensing and commercial success of the patented inventions negated any finding of obviousness. In reaching its decision, the court explained that the patented system was relatively unsuccessful in the early 1990s, and that the recent licensing of the product was more likely a reflection of parties attempting to avoid costly infringement litigation, as opposed to a genuine interest in the patented system. The court concluded that licenses purchased “by those who bought litigation peace . . . do not support [a finding of] nonobviousness.”28
Emptying the Cart—Soverain’s Impact Moving Forward
The Federal Circuit’s decision to reverse the district court’s finding of nonobviousness as matter of law would usually be surprising. It is hard to understand how two courts, both reviewing the same evidence, could come to entirely conflicting conclusions. More specifically, the district court found there was insufficient evidence to allow the jury to even consider the issue of obviousness, while the Federal Circuit concluded that very same evidence was sufficient to render the patented system obvious by clear and convincing evidence.
The result, however, is less surprising when you consider that the parties litigated the case in the Eastern District of Texas. The Eastern District has, over time, developed a reputation as being a “patent friendly” court and, as such, is a common forum for NPEs seeking to enforce their patents.29 With this decision, the Federal Circuit has seemingly pushed back against the Eastern District. Nevertheless, it is hard to predict if the Federal Circuit will continue down this path of curbing baseless patent litigation, or if defendants will actually choose to provide it with the opportunity to do so. Here, Newegg likely spent more money defending the suit than it would have paid for a license—to effect change, other defendants would have to make similar financial sacrifices. Another possible solution to limiting the NPE threat could be a fee-shifting provision that would permit the defendant to recoup attorney fees if the patent is determined to be invalid, which would serve to discourage baseless infringement actions, while also incentivizing defendants to challenge what they consider to be questionable patents.30 Under existing patent law, a judge may award attorney fees only in exceptional cases.31
At a minimum, the Soverain case is certainly a victory for online retailers, as well as the consumers who would have been affected by the increased cost of online sales. In contrast, the decision is a significant loss for Soverain, whose attempts to utilize “shopping cart” patents to generate licensing fees have seemingly been halted. From a tactical standpoint, the case provides future defendants with a roadmap for attacking broad, technology-based patents that simply incorporate the Internet into existing methods. Last, the case serves to expose the inherent weaknesses in arguing that licensing fees should be considered secondary indicia of nonobviousness, when such licensing is likely the result of parties avoiding costly litigation, as opposed to a desire to utilize the patented invention. Moving forward, this distinction may prove to be an effective tool for defendants seeking an invalidity determination based on the obviousness of the patented invention, especially when the licensing fees at issue are significantly less than the cost of litigating infringement.
Kevin C. Adam, Commentary, Obviously Obvious: Federal Circuit Reverses District Court’s Decision That Online “Shopping Cart” Patents Are Nonobvious as a Matter of Law—Soverain Software LLC v. Newegg Inc., 1 Suffolk U. L. Rev. Online 9 (Feb. 25, 2013), http://www.suffolklawreview.org/adam-patent.
Kevin C. Adam is a 2012 graduate of Suffolk University Law School and former Editor-in-Chief of the Suffolk University Law Review.
Supreme Court cases reflect changing times. Suffolk University Law Review began in 1967, the year of Loving v. Virginia,1 a civil rights case that struck down state laws barring interracial marriage. In 2013, the Court has before it cases to determine the validity of federal and state laws limiting same-sex marriages.2
This piece looks at a different sector of the Court’s docket. Not coincidentally, Suffolk University Law Review Online begins as courts are paying increased attention to issues of high technology. The Supreme Court presently has four intellectual property cases pending (and two just decided), after decades in which it commonly considered one or two such cases per year.
Ass’n for Molecular Pathology v. U.S. Patent & Trademark Office3 addresses an issue with philosophical implications: Are human genes patentable? The case represents a recent surge of Supreme Court patent cases. In 1980, Diamond v. Chakrabarty held that a living thing, a genetically engineered, “human-made micro-organism” is patentable subject matter.4 In 1981, Diamond v. Diehr established that computer-implemented inventions could be patentable.5 The invention in question was a process for curing rubber, involving measuring certain temperatures and using a computer to calculate the appropriate length of time to run the curing process. Those cases also established three categories of nonpatentable subject matter: abstract ideas, laws of nature, and natural phenomena. The Supreme Court then did not address the issue of patent subject matter for decades, leaving the lower courts struggling to define the boundaries of those three vague exceptions.
In 2010, Bilski v. Kappos held that a general process for using commodity exchange transactions to hedge risks was an unpatentable abstract idea.6 In 2012, Mayo Collaborative Services v. Prometheus Laboratories, Inc. held unpatentable a diagnostic method, which consisted essentially of measuring the level of a metabolite in a patient’s blood and adjusting the dose of a drug accordingly.7 The Court held that this method was unpatentable as encompassing a law of nature combined with “well-understood, routine, conventional activity previously engaged in by scientists who work in the field.”8
The Federal Circuit in Ass’n for Molecular Pathology held that Bilksi and Prometheus did not govern the patentability of genes, on the theory that its analysis did not apply to the third category of unpatentable subject matter: products of nature.9 Rather, the Federal Circuit held that human genes were patentable—not in natural form in the body—but in the isolated form captured in a laboratory. The isolated form, the lower court ruled, was a different molecule than the natural form and so not simply a product of nature.10 If, however, the Supreme Court does extend the general approach of Prometheus, it might well hold that the gene itself is an unpatentable product of nature, and the isolated form is simply the result of “well-understood, routine, conventional activity previously engaged in by scientists who work in the field.”11
Notable also is the fact that Ass’n for Molecular Pathology will not answer the broad question of whether human genes are patentable? The facts of the case raise only the issue of whether human DNA, once isolated, is patentable. But “human genes” could encompass many other issues: Whether synthetic genes put into humans are patentable; whether DNA isolated from fossil ancestors of homo sapiens are patentable; whether genes from another species combined with human genes are patentable; and whether human DNA that did not code for a gene—but was nevertheless useful—was patentable.
Genes are also at the heart of Bowman v. Monsanto Co.,12 in which the question is: “Whether the Federal Circuit erred by (1) refusing to find patent exhaustion in patented seeds even after an authorized sale and by (2) creating an exception to the doctrine of patent exhaustion for self-replicating technologies?”13 In plain English, whether a farmer who purchases patented genetically modified seeds may plant the seeds that grow from the resulting plant. Such self-replicating technologies indeed raise new questions for the law.
Software can also fall into that category, and raises analogous issues. An important issue is whether someone who buys software may resell it without infringing the copyright in the software. Courts so far have enforced limitations on resale incorporated in intellectual property licenses, whether for patented seeds or copyrighted software. By contrast, copyright holders of yore were not able to shut down markets in used books.
John Wiley & Sons, Inc. v. Kirtsaeng14 reflects the increasing internationalization of trade and communications.15 The case addresses the question of whether the importation of books printed abroad under license from a copyright owner infringes the copyright owner’s exclusive right to distribute the work in the United States. A student from Thailand noticed how much more expensive textbooks were in the United States than their foreign counterparts. The enterprising student imported and sold thousands of books until publishers successfully sued him for copyright infringement. If a book is printed and sold in the United States, the purchaser may freely resell it under the “first sale” doctrine. But the Second Circuit held that first sale does not apply to books printed outside the United States, even if authorized by the copyright holder.16 The case turns on laborious issues of statutory interpretation and has good policy arguments on both sides. If first sale does not apply to foreign works, then museums in the United States are infringing by displaying foreign-made artworks they own, such as Picasso’s paintings. If first sale does apply, then perhaps United States publishers will no longer sell less expensive editions abroad, hurting education in developing countries.
Federal Trade Commission v. Watson Pharmaceuticals, Inc. addresses a different aspect of the control over the market for a product covered by intellectual property.17 When patented pharmaceuticals are reaching the end of their patent term, patent holders often sue makers of the generic versions for patent infringement. Sometimes those suits are resolved in a counterintuitive way: The patent holder pays the accused infringer as part of the settlement. Such “reverse settlement payments” look like antitrust violations: A monopolist paying a potential competitor to stay out of the market. But some courts have tended to uphold such settlements, on the theory that they encourage settlement of litigation and offer an incentive to develop generic versions of patented drugs. Watson will address the elementary question of how closely courts will scrutinize such transactions under antitrust laws.
Gunn v. Minton addressed an institutional issue, holding that state courts have jurisdiction to hear legal malpractice claims involving patents.18 Exclusive jurisdiction in patent and copyright cases has made intellectual property primarily a federal area of the law. The mere fact that Gunn reached the Supreme Court demonstrates how that has extended even to state law claims that involve federal intellectual property rights, such as the claim that a patent lawyer negligently drafted the claims in a patent application or gave faulty advice in patent litigation. The Supreme Court unanimously held that exclusive federal jurisdiction over patent law does not deprive state courts from exercising jurisdiction over state law claims in a case involving a patent.19 Gunn echoes the issues of federalism in 1967 and today, whether and how states and the federal government could regulate marriage.
Already, LLC v. Nike, Inc. addressed the question of how easy it should be for someone to sue himself or herself.20 Among legal entitlements, intellectual property rights are notoriously vague, ambiguous, and uncertain. Rights holders often assert infringement without filing suit, such as to gain leverage in licensing negotiations. The accused party may then seek to clarify rights–by suing itself by bringing a declaratory judgment action seeking a court order that it is not infringing. The party asserting rights will then backpedal, arguing there is no controversy and so no justiciable case. Already held that there was no jurisdiction where the trademark holder had filed a covenant not to sue the other party.21
These high-profile cases give a flavor of the role that technology and intellectual property have come to play in today’s society. Suffolk University Law Review Online will reflect and embody these changes.
Stephen McJohn, Commentary, Genetic Engineering, Self-Replicating Technologies–and Used Books: Intellectual Property Law in 2013, 1 Suffolk U. L. Rev. Online 5 (Feb. 25, 2013), http://www.suffolklawreview.org/mcjohn-ip2013.
Stephen McJohn, Professor of Law, Suffolk University Law School.