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Fifth Circuit splits, but affirms JP Morgan entitled to $69M refund from licensor for its giving second licensee more favorable terms; implies legal malpractice in drafting patent license agreements

In a case of first impression, the Fifth Circuit addressed the retroactive application of a most favored licensee (MFL) clause under a fully-paid up lump sum royalty in a patent license agreement. In an underlying patent infringement case, DataTreasury Corp settled with JP Morgan Chase and negotiated a license in 2005. So too did Cathay Bank, but much later in 2012. JP Morgan paid $70M lump-sum, while Cathay paid only $250K. The patents were set to expire in 2016 and 2017. Each of the lump sums were calculated based on a per-transaction basis, but the MFL clause in JP Morgan’s agreement did not make that a material aspect of the enforceability of the right, or otherwise limit its scope or application. The court applied the MFL clause retroactively to the Cathay Bank license, and held JP Morgan entitled to a refund of $69M (98.6% of what it paid). Its reasoning rested on the distinction between a lump-sum versus a running royalty and, applying Texas law, used parol evidence rule to exclude extrinsic evidence of how the lump sums were determined. The dissent pointed out the obvious: a shorter, later in time license is necessarily less valuable than the longer, earlier in time license. He reasoned the MFL was ambiguous, and susceptible to patentee’s construction.

See: JP Morgan Chase Bank, N.A. v. Datatreasury Corp., No. 15-4095 (5th Cir. May 19, 2016)

May 19, 2016

Federal Circuit finds database software patent 101-eligible; opens door to “large field” of “data structure” claims

Patentee brought suit against Microsoft and others claiming infringement of its “self-referential database” software patents. Trial court granted summary judgment to Microsoft on grounds that (1) the patents were 101 ineligible subject matter under Alice and Mayo, (2) that the claims were 102 anticipated by prior art, and (3) that one of the claims was not infringed. The Federal Circuit reversed summary judgment under 101 and 102, but affirmed the non-infringement and definiteness of the means plus function claims under 112. It analyzed the claims only under step one of Alice and Mayo, and held that software claims are not de facto abstract or ineligible, and that “[s]oftware can make non-abstract improvements to computer technology just as hardware improvements can.” It reasoned that the claims described improvements to computer functionality including flexibility, speed, and smaller memory footprint. However, the court affirmed the trial court’s finding of definiteness under 112, and non-infringement of one of the five claims.

See: Enfish, LLC v. Microsoft Corporation, No. 2015-1244 (Fed. Cir. May 12, 2016)

May 12, 2016

Headlines

Fifth Circuit splits, but affirms JP Morgan entitled to $69M refund from licensor for its giving second licensee more favorable terms; implies legal malpractice in drafting patent license agreements
Federal Circuit finds database software patent 101-eligible; opens door to “large field” of “data structure” claims

 

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