McDermott - Newsletters - IP Update, Vol. 11, No. 11, November 2008

In a long-anticipated en banc decision, the U.S. Court of Appeals for the Federal Circuit retrenched much of its jurisprudence in the area of patent eligible subject matter and implemented a new test of patent eligibility for process claims that is likely to significantly affect those holding and seeking to obtain software and business method patents. In re Bilski, Case No. 07-1130 (Fed. Cir., Oct. 30, 2008), (Michel, C.J.; Dyk, J. and Linn, J., concurring; Newman, J., Mayer, J. and Rader, J., dissenting).

Background
Bilski filed a patent application directed to a method of hedging risk in the field of commodities trading, seeking what has become known as a “business method patent” or, in the words of Judge Linn of the Federal Circuit, “human activity patent.” Upon examination before the U.S Patent and Trademark Office (USPTO), the examiner rejected the application, alleging that the claims were directed to patent ineligible subject matter, a determination that was upheld by the Board of Patent Appeals. On appeal, the Federal Circuit, mindful of recent patent-related decisions from the Supreme Court in which it inferentially questioned the suspect validity of some business method patents, ordered, sua sponte, an en banc hearing of the case.

Exclusive Test for Eligibility of Process Claims: the Machine-or-Transformation Test
The Federal Circuit first explained, as it did in its recent decision in In re Nuijten (IP Update, Vol. 10, No. 10), that subject matter eligibility is a threshold determination for patentability, separate from novelty or non-obviousness. The inquiry begins with determining whether a claim falls into one or more categories of invention listed in § 101: process, machine, article of manufacture or composition of matter. Under the Federal Circuit’s previous precedents, including State Street, if a claim fell into one of the four broad categories, it was deemed patentable subject matter unless it fell under one of several exceptions defined by the Supreme Court: laws of nature, natural phenomena and abstract ideas. Most challenges to the eligibility of business method claims alleged they were directed to abstract ideas. Now, at least for process claims, the test has changed. The Court expressly rejected the State Street test, which looked to whether a claimed process achieved a “useful, concrete and tangible result,” as “inadequate.”

In order to avoid patenting a claim that would be pre-emptive of a fundamental principle, the Federal Circuit established a two-part “machine-or-transformation test” for subject matter eligibility of process claims. First, eligibility may be demonstrated if a claim “is tied to a particular machine or apparatus.” Second, and alternatively, eligibility may be shown if a claimed process “transforms a particular article into a different state or thing.” The Federal Circuit cautioned that “the use of a specific machine-or-transformation of an article must impose meaningful limits on the claim’s scope.” For example, the nominal inclusion of a machine in a claim, placing “form over substance,” will not rescue ineligible subject matter. Additionally, the Court cautioned that inclusion of field-of-use limitations or insignificant extra-solution activity will not cure ineligibility.

The Federal Circuit expressly reserved the question as to “whether or when recitation of a computer suffices to tie a process claim to a particular machine,” so as to satisfy the machine branch of the machine-or-transformation test. Where the use of a computer “reduce[s] the pre-emptive footprint of the claim” such that uses of a recited algorithm remain outside of the claim, a claim may be patent eligible.

Supreme Court Precedent
According to the Federal Circuit, the most relevant Supreme Court precedent is concerned with whether a claim recites a “fundamental principle.” If so, this alone does not render a claim subject matter ineligible, as particular applications of a fundamental principle may still be patentable. Instead, eligibility hinges on whether a claim would pre-empt substantially all uses of that fundamental principle, gaining undue exclusivity over all applications of the principle, now or in the future. The Federal Circuit stated that the machine-or-transformation test ensures “a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself.”

Acknowledging that the machine-or-transformation test may be an obstacle for patenting modern computer- and internet-related technologies, the Federal Circuit explained that its hands are tied by Supreme Court precedent, noting that “the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies. … At present, however, … the machine or transformation test, properly applied, is the governing test.”

Freeman-Walter-Abele Test Overruled
In a trio of cases from a generation ago, the Federal Circuit’s predecessor court (the CCPA) refined the so-called Freeman-Walter-Abele two-step test for patent eligibility: determining whether the claim recites an “algorithm” within the meaning of the Supreme Court’s Benson decision and determining whether that algorithm is “applied in any manner to physical elements or process steps.” In the present case, the Federal Circuit majority expressly overruled this test, noting that the machine-or-transformation test has replaced it. The elimination of this test overrules, or at least modifies, many significant patent eligibility decisions of the CCPA and the Federal Circuit.

State Street, AT&T and Alappat Modified
On ordering the en banc hearing, the Federal Circuit specifically raised the issue of whether it ought to reconsider the “useful, concrete, and tangible result” test articulated in Alappat, State Street and AT&T. Having highlighted the vagueness of the test at the oral argument, in the present decision, the Court determined it to be inadequate, instead opting for the “definitive” machine-or-transformation test. Thus, the “useful, concrete, and tangible result” is no longer to be relied upon.

“Technological Arts” Test and Categorical Exclusions Specifically Disavowed
A number of amici briefs urged that the United States adopt a “technological arts” test for determining patent eligibility, similar to the approach taken in the European Union. However, the Federal Circuit rejected the test as unclear and lacking precedential support. Additionally, the Federal Circuit rejected calls for broad per se exclusions of business method and software patents, reaffirming State Street at least in this regard.

Practice Note: In applying the “machine-or-transformation” test to the Bilski claims, this decision demonstrates the challenge that the new test will impose on business method claims. The Bilski process was found to fail at least the transformation prong of the machine-or-transformation test, as it “does not transform any article to a different state or thing.” As explained by the majority “[P]urported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.” Many existing business method patents and applications are likely to be accused of “incorporat[ing] only such ineligible transformations.”

Worth noting, however, is that Bilski did not claim a computer implementation of the recited method or a software claim. Thus, the “machine” prong of the machine-or-transformation test remains untested by the Federal Circuit as a result of the Bilski decision. However, the Court noted that in order to pass muster under the machine prong, the use of such a machine must “impose meaningful limits on the claim’s scope.” Field of use or insignificant extra-solution activity will not suffice. Moreover, the process claim in issue in Bilski was found to “not … be a software claim.” It therefore also remains open as to how or if a software clam can be written to satisfy the transformation prong of the test.

The USPTO has already issued a “clarification” to examiners to ensure that the analysis of whether a process claim is patent eligible is undertaken consistent with the Bilski decision. Examiners are cautioned that to be patent eligible a process claim must “(1) be tied to another statutory class (such as a particular apparatus) or (2) transform underlying subject matter (such as an article or materials) to a different state or thing.” The clarification acknowledges that the law of statutory subject matter “is evolving.”

In the first Board of Patent Appeals and Interferences decision in the wake of Bilski, Ex parte Bo Li, the Board found claims directed to a report generating computer implemented program stored on a readable memory to be patent eligible subject matter. The Board reversed the examiner’s § 101 rejection (that argued the invention did not produce “a useful, concrete and tangible result”) as being based on the now defunct State Street test—but, because the claim on appeal was not a process claim, the Board did not impose the Bilski machine-or-transformation test. The decision reinforces the notion (at least for now) that so called Beauregard claims remain patent eligible. It is noted that the Li claims were also held unpatentable for obviousness.

Off to the Supreme Court?
It is believed likely that Bilski will petition for review by the Supreme Court. After the Court’s recent denial of certiorari to Nuijten, many observers anticipate that if the Supreme Court is interested in addressing patent eligibility, it will do so using the Bilski case. However, it is uncertain how the Supreme Court will receive this opinion. On the one hand, the Federal Circuit has taken pains to demonstrate consistency with the Supreme Court’s precedent, adhere to statutory language and acknowledge the negative implications (vis á vis State Street) of dicta in recent Supreme Court cases such as eBay and Metabolite. On the other hand, the Supreme Court may want to consider whether the Federal Circuits’ decision in Bilski, which, at least for process claims, reflects a somewhat narrowed and rigid patent eligibility test, is consistent with the Supreme Court’s Flook and Benson decisions.

Patents / Antitrust Litigation

Cash Payments to Settle Hatch-Waxman Litigation Do Not Violate Antitrust Laws
By Astrid Spain

A unanimous panel of the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s grant of summary judgment granted to Bayer, holding that reverse payment settlements of a bona fide patent litigation are within the exclusionary zone of the patent and not redressable by federal antitrust law. In re Ciprofloxacin Hydrochloride Antitrust Litigation, Case Nos. 08-1907 (Fed. Cir., Oct. 15, 2008) (Prost, J.).

Bayer owns a patent directed to compounds that exhibit antibacterial properties, specifically ciprofloxacin hydrochloride, the active ingredient in Cipro®. Barr Labs, a generic drug manufacturer, filed an Abbreviated New Drug Application (ANDA) for a generic version of Cipro®. Included in the ANDA was a Paragraph IV certification, which indicated that Barr was seeking to market its product prior to the expiration of the Bayer patent because the patent was invalid. As the first Paragraph IV ANDA filer, Barr was entitled to a 180-day period of market exclusivity under the Hatch-Waxman Act. Bayer sued Barr for infringement and Barr counterclaimed for a declaratory judgment of invalidity. On the eve of trial, the parties entered a settlement agreement wherein Barr agreed not to challenge the validity of the Cipro patent and not to manufacture a generic version of the drug until six months before the patent expired. In exchange, Bayer agreed to make payments (characterized as “reverse payments”) to Barr that totaled $398 million.

Thereafter, various plaintiffs filed suit, arguing that the settlement constituted an illegal market allocation in violation of Sections 1 and 2 of the Sherman Act because the reverse payments represented payments not to compete. On cross-motions for summary judgment, the district court ruled that the settlement did not violate the antitrust laws because the settlement excluded no competition beyond the exclusionary scope of the patent.

On appeal, the Federal Circuit held that under paragraph 1 of the Sherman Act, the potential anti-competitive effects of the settlements were correctly subject to a “rule of reason” analysis to determine whether they constituted an unreasonable restraint of trade. The Court stated that a finding of a per se violation of the antitrust laws is only appropriate if a court could “predict with confidence” that the settlement agreement would be found to violate the antitrust laws under a “rule of reason” analysis. The essence of the inquiry was whether the agreement restricted competition beyond the exclusionary zone of the patent. According to the Court, there was no evidence that the agreements created a bottleneck preventing generic challenges to the patent. The Court noted that the patent had subsequently been challenged by four other generic manufacturers and was upheld as valid. The Federal Circuit concluded that in cases such as this, wherein all anticompetitive effects of a settlement agreement are within the exclusionary power of the patent, the outcome is the same whether a court begins its analysis under antitrust law or under patent law. The Federal Circuit also concluded that, in the absence of evidence of fraud before the U.S. Patent and Trademark Office (USPTO) or sham litigation, a court need not consider the validity of the patent in the antitrust analysis of a settlement agreement involving a reverse payment. The Court noted a long-standing policy favoring settlements that extends to patent infringement litigation. Thus the Court concluded that settlement of patent claims by payments rather than by litigation is not precluded by the federal antitrust laws even though it may have some adverse effects on competition.

Practice Note: The Federal Trade Commission (FTC), which has consistently taken the position that reverse payment settlements violate antitrust laws, filed an amicus brief in this case arguing that the district court erred by holding that patent law immunizes the challenged pharmaceutical settlement agreement from antitrust scrutiny on the ground that the agreement’s exclusionary terms are within the scope of the patent.

Patents / Preliminary Injunctions

Federal Circuit Splits Over Correct Standard for Preliminary Injunctions
By Rita Yoon

A divided panel of the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s grant of a preliminary injunction, holding that the correct standard is the likelihood of the plaintiff’s success on the merits, not whether the defendant has raised a “substantial question.” However, the Court seemed to invite en banc review in its 75-page decision. Abbott Labs. v. Sandoz, Inc., Case No. 07-1300 (Fed. Cir., Oct. 21, 2008) (Newman, J.; Archer, Sr. J., concurring-in-part; Gajarsa, J., dissenting).

Abbott sued Sandoz in the U.S. District Court for the Northern District of Illinois, alleging that Sandoz’s generic drugs infringed Abbott’s extended release formulations of the antibiotic clarithromycin. (The drug is sold under the brand name Biaxin®XL.) In defense, Sandoz asserted that Abbott’s patents-in-suit were invalid based on anticipation and obviousness and unenforceable based on inequitable conduct. The district court weighed the traditional four factors relevant to granting a preliminary injunction: likelihood of success on the merits, potential irreparable harm if the injunction is denied, balance of the hardships between the litigants and the public interest. The district court found that Abbott would likely succeed on the issues of validity, enforceability and infringement of its patents and, additionally, that the equities favored Abbott.

On appeal, the Federal Circuit held that the district court did not abuse its discretion by focusing on Abbott’s likelihood of success on the merits as opposed to whether Sandoz raised a substantial question of invalidity or unenforceability. The Court surveyed the law in all circuits governing the grant of a preliminary injunction and concluded that “[a]ll of the circuits have placed the preliminary injunction in terms of the likelihood of success on the merits and equitable factors. No circuit has held that it suffices simply to raise a ‘substantial question.’” However, the Court noted the possibility of conflicting precedent on the applicable standard and stated that “[i]f there is to be a change from this court’s prior rulings, it must be done en banc.”

In dissent, Judge Gajarsa argued that the Court’s recent precedent requires the denial of preliminary injunctions if the alleged infringer raises a substantial question of invalidity or unenforceability. For example, in Erico, the Court vacated a district court’s grant of a preliminary injunction by finding that the alleged infringer “cast enough doubt on the validity” of the asserted claim. Accordingly, Judge Gajarsa argued that the district court in this case abused its discretion by granting the preliminary injunction when Sandoz had raised several substantial questions concerning obviousness and unenforceability that would negate Abbott’s likelihood of success on the merits.

Patents / Novelty and Obviousness

Reference May Anticipate Without Rendering Obvious
By Robert H. Underwood

Rejecting the maxim that anticipation is the epitome of obviousness, the U.S. Court of Appeals for the Federal Circuit held that a non-obvious invention may nonetheless be anticipated. Cohesive Technologies, Inc. v. Waters Corporation, Case Nos. 08-1029, -1030, -1031, -1059 (Fed. Cir., Oct. 7, 2008) (Linn, J.; Mayer, J., dissenting).

The district court held a 16-day jury trial on the issue of infringement of Cohesive Technologies’ patent-in-suit. In defense, Waters presented evidence that the claims were anticipated by seven separate references and obvious over each reference independently and in various combinations. The district court did not submit the issue of anticipation to the jury because it believed that anticipation is a subset of obviousness. Instead, the district court sua sponte entered a directed verdict that the patent claims were not anticipated. The jury found that the patent claims were not obvious and were infringed.

On appeal, a majority panel of the Federal Circuit clarified that novelty and non-obviousness are separate patentability requirements that represent separate defenses to patent infringement. The Court commented that a reference that anticipates a claim usually renders the claim obvious but that the tests for anticipation and obviousness are different. Thus, “it is not necessary true that a verdict of nonobviousness forecloses anticipation.” The Court explained that the test for obviousness requires consideration of secondary considerations of non-obviousness, which are not relevant to the issue of anticipation. The Court also explained that “anticipation can be proven inherently, but proof of inherent anticipation is not the same as proof of obviousness.”

The Court illustrated these points with an example involving a claim drawn to a particular metal alloy. In the example, the existence of secondary considerations indicated that the invention is non-obvious. “Nevertheless, there may be a centuries-old alchemy textbook that, while not describing any metal alloys, describes a method that, if practiced precisely, actually produces the claimed alloy. While the prior art alchemy textbook inherently anticipates the claim under § 102, the claim may not be said to be obvious under § 103.”

Judge Mayer dissented, stating that the majority’s view that a claim can be non-obvious yet anticipated “flies in the face of a long line of precedent to the contrary.” In Judge Mayer’s view, “precedent makes clear that every anticipated claim is obvious, it follows that if a claim is not obvious, it cannot be anticipated.”

Practice Note: The decision clarifies that the anticipation defense is available alleged infringers even when the claims are not obvious. The anticipation defense might be particularly valuable when lack of obviousness is based on secondary considerations, or when an anticipating inherent disclosure was not previously appreciated.

Patents / Anticipation

Anticipation Requires All Elements to Be Arranged or Combined in the Same Way
By Jeremiah Armstrong

In a suit involving two patents for secure internet credit card transaction processing, the U.S. Court of Appeals for the Federal Circuit clarified that in order to anticipate a claimed invention a prior art reference must not only disclose all elements of the claim within the four corners of the document, but must also disclose those elements arranged or combined in the same way as in the claim. Net MoneyIN, Inc. v. VeriSign et al., Case No. 07-1565 (Fed. Cir., Oct. 20, 2008) (Linn, J.).

The plaintiff, Net MoneyIN, founded by inventor and Arizona patent attorney Mark Ogram, brought suit in 2001 against a dozen competitors in the internet credit card processing field. The defendants’ key prior art reference was a 1995 working paper entitled “Internet Keyed Payments Protocol” (the iKP reference) that was published by the Internet Engineering Task Force and IBM. The iKP reference provides two example protocols for the flow of a customer’s credit card information, payment authorization and transaction approval bridged over both the internet from a merchant’s web site and also the existing banking network. Addressing two web security and high-fee hurdles that existed with online transaction systems when Ogram filed the 1996 patent application, the patents-in-suit connected a fifth entity to the model: the “payment processor” that acted as an intermediary between the customer, merchant, merchant’s bank and card issuing bank.

On summary judgment, the district court found one of the central patent claims invalid as anticipated under § 102(a). On appeal, the plaintiff argued that the district court wrongly combined two of the disclosed examples contained in the single iKP reference in order to find all elements of the claim. The Federal Circuit agreed and clarified that anticipation requires more than all elements of the claim existing in a single prior art reference: “[U]nless a reference discloses within the four corners of the document not only all of the limitations claimed but also all of the limitations arranged or combined in the same way as recited in the claim, it cannot be said to prove prior invention of the thing claimed and, thus, cannot anticipate under 35 U.S.C. § 102.” The Court found that the lack of an identical arrangement of the five entities in the iKP reference foreclosed anticipation.

Patents / Enablement

Anticipatory Prior Art Reference Must Enable Invention Without Undue Experimentation
Contact Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit recently affirmed a district court’s determination that a patent did not qualify as an enabling prior art reference and, therefore, was insufficient to support an anticipation rejection. Impax Laboratories, Inc. v. Aventis Pharmaceuticals Inc., Case No. 07-1513 (Fed. Cir. Oct. 3, 2008)(Rader J.)

The patent-in-suit, which is owned by Aventis Pharmaceuticals Inc., relates to the use of riluzole to treat amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease). Aventis markets riluzole under the trade name RILUTEK.

Impax Laboratories, Inc. filed an Abbreviated New Drug Application (ANDA) with the FDA seeking approval to market generic riluzole tablets. One year later, Impax sued Aventis for a declaratory judgment that Impax did not infringe, induce infringement of or contribute to the infringement of the Aventis patent. In its suit, Impax alleged that the patent was invalid as anticipated and unenforceable.

After a bench trial, the district court determined that Impax did not prove that the patent was unenforceable due to inequitable conduct or that the asserted claims of the patent were anticipated by the prior art.

Impax appealed that determination to the Federal Circuit, which affirmed-in-part, vacated-in-part and remanded to the district court. On remand, the trial court was advised to consider whether the prior art patent enables a person of ordinary skill in the art to treat ALS with riluzole and thus qualified as enabling prior art.

On remand, the district court found that because the prior art patent disclosed a formula encompassing hundreds or thousands of compounds for the treatment of several diseases, excessive experimentation would have been required to use riluzole to treat ALS. In addition, the district court determined that nothing in the prior art patent directed one skilled in the pharmaceutical arts to recognize that riluzole could be used to treat ALS, rejecting Impax’s assertion that “the mere mention of riluzole is sufficient to put one skilled in the art in the possession of the claimed invention.” Pursuant to Federal Circuit precedent, once an infringer has met the burden of showing a prior art reference anticipatory, such anticipating prior art is presumed enabling, shifting the burden to the patent holder, who “may overcome that presumption with persuasive evidence showing that the prior art patent does not enable the claimed invention.”

In the second appeal, the patentee met that burden with persuasive evidence that the prior art patent did not enable the claimed invention, stating that each component of the claimed invention would require undue experimentation based on the teachings of the prior art patent. Because the district court did not err in finding the prior art patent to be non-enabling, the Federal Circuit also found that the district court had correctly determined that the prior art patent did not anticipate the asserted claims of the patent-in-suit.

Patents / Venue

Volkswagen’s on the Road Again: Venue Transfers from the Eastern District of Texas
By Todd Hales

In a sharply divided 10-7 en banc decision, the U.S. Court of Appeals for the Fifth Circuit issued a writ of mandamus to direct transfer of the case from the Marshall Division of the Eastern District of Texas (Marshall Division) to the Dallas Division of the Northern District of Texas (Dallas Division) after finding that the Eastern District of Texas had no connection to the parties, the witnesses or the facts of the case. In re: Volkswagen of America Inc., Case No. 07-40058 (5th Cir., Oct. 10, 2008) (Jolly, J.; King, J., dissenting).

Following an accident on a Denver freeway that led to injuries to one passenger and the death of another, the surviving family members filed suit against Volkswagen in the Marshall Division, alleging that design defects in the car caused the injuries and death. Volkswagen moved, under 28 U.S.C. § 1404(a), to transfer venue to the Dallas Division, asserting that, among other things, this is where the car was purchased, the accident occurred, the police and paramedic responded and the autopsy was performed. Volkswagen further asserted that no plaintiff, party or witness lived in the Marshall Division, no known source of proof was located in the Marshall Division and no facts giving rise to the suit occurred in the Marshall Division.

The district court denied Volkswagen’s transfer motion and a motion for reconsideration. Volkswagen then petitioned the Fifth Circuit for a writ of mandamus, and in a per curiam opinion, a divided Fifth Circuit panel denied the petition and declined to issue a writ. Volkswagen filed a petition for rehearing en banc, which the original panel interpreted as a petition for panel rehearing. The original panel granted the petition for rehearing, withdrew its decision and arranged for oral argument. A second Fifth Circuit panel heard oral arguments and granted Volkswagen’s petition to issue a writ directing the district court to transfer the case to the Dallas Division. The plaintiffs, in response, filed a petition for rehearing en banc, which the Fifth Circuit granted.

The Fifth Circuit found that mandamus was an appropriate means to test a district court’s ruling on a venue transfer motion in a case in which there is a clear abuse of discretion; it then considered whether a mandamus was warranted in this matter. The Fifth Circuit found that Volkswagen had no other adequate means to attain the desired relief and that the writ is appropriate under the circumstances, which are both requirements the Supreme Court established in its 2004 Cheney decision for issuance of a writ. The third, and final, Cheney requirement is that the petitioner must show that the right to issuance of the writ is clear and indisputable. Here, the Fifth Circuit found that the errors of the district court, including applying the stricter forum non conveniens dismissal standard, misconstruing the weight of the plaintiffs’ choice of venue, treating choice of venue as a § 1404(a) factor, misapplying the Gilbert factors, disregarding specific Fifth Circuit precedent in In re Volkswagen I and glossing over the fact that not a single relevant factor favors the plaintiff’s chosen venue—were extraordinary errors. In view of these findings, the Fifth Circuit found “that the district court’s errors resulted in a patently erroneous result,” satisfied the clear abuse of discretion standard and met the requirement to show the right to the issuance of a writ. Having found the three Cheney requirements satisfied, the Fifth Circuit granted Volkswagen’s petition of a writ of mandamus to transfer the case to the Dallas Division.

The dissenting opinion by Judge King first addressed the presentation of the facts by highlighting that the present case is a product liability suit and explaining that the case will depend heavily on expert testimony from both the plaintiffs and Volkswagen. Judge King also stated that no claim was “made by Volkswagen that any of its experts is Dallas-based, and whether this case is tried in Marshall or Dallas will make little, if any, difference—Volkswagen will be able to get its experts (from Germany or elsewhere) to trial regardless.” Judge King then methodically criticized the majority’s analysis in applying each of the three Cheney requirements and concluded that more discretion should have been given to the district court and more restraint should have been exercised by the Fifth Circuit.

Practice Note: While this opinion was highly anticipated—particularly among patent plaintiffs and practitioners—because of the perceived favorable treatment within the Eastern District of Texas, it difficult to foresee how the Federal Circuit might treat such venue transfer petitions. While the facts of the present case arose out of a single incident at a specific location, infringement can occur in diverse locations and at diverse times, particularly with respect to infringement by sales or offers for sale. However, two things about venue transfers in the Eastern District are clear after this case: more scrutiny will likely be given to venue transfer motions by both parties and the district courts, and more writs will be sought for decisions on venue transfers.

It is also noteworthy that two weeks earlier, in a nonprecedential opinion, the Federal Circuit denied a Volkswagen petition for writ of mandamus to vacate a decision by the Eastern District of Michigan to dismiss state law claims and to transfer federal patent infringement claims to an earlier-filed case in the Eastern District of Texas because Volkswagen made “only general assertions regarding convenience and [fell] short of satisfying the difficult burden of showing that it has a clear and indisputable right to issuance of a writ of mandamus.” See In re Volkswagen, Misc. Docket No. 880 (Fed. Cir., Sept. 26, 2008) (Mayer, J.) The case is on petition from Eastern District of Michigan Case No. 07-CV-14992.

Patents / ITC Practice

ITC Lacks Statutory Authority to Issue LEO Against Downstream Products of Non-Respondents
By Bonnie J. Warren

The U.S. Court of Appeals for the Federal Circuit recently held that the U.S. International Trade Commission (ITC) does not have statutory authority to issue a limited exclusion order (LEO) covering downstream products of third parties not named as respondents in ITC investigations. Kyocera Wireless Corp. v. International Trade Commission, Case No. 07-1493 (Fed. Cir., Oct. 14, 2008) (Rader, J.).

Broadcom (the intervenor) filed a complaint with the ITC and named appellant Qualcomm as the sole respondent. Broadcom alleged in its complaint that 13 Qualcomm chips and chipsets infringe several Broadcom patents and requested as a remedy an LEO. The ITC administrative law judge bifurcated the ITC’s proceedings into separate liability and remedy proceedings. On liability, the ITC determined that Qualcomm did not infringe two of Broadcom’s patents-in-suit (these aspects were the subject of a separate appeal). With regard to a third patent-in-suit, the ITC found that Qualcomm’s baseband processor chips, when programmed to enable certain battery-saving features, infringe Broadcom’s patent. The ITC also found Qualcomm liable for inducing certain third-party manufacturers to incorporate battery-saving software and Qualcomm’s chips into their mobile devices.

With regard to remedy, the ITC issued an LEO excluding handheld wireless communication devices, including cellular telephone handsets and PDAs, containing the infringing chips or chipsets that are programmed to enable the power saving features. Kyocera Wireless Corporation and other wireless device manufacturers—non-respondents to Broadcom’s ITC complaint—were subject to the LEO because they either purchase and incorporate Qualcomm chips into their mobile wireless devices outside the United States and then import them into the United States for sale or deploy networks that depend on devices that include Qualcomm chips.

Qualcomm appealed both the liability and remedy findings. Qualcomm and the non-respondents (third-party appellants) appealed the ITC’s LEO, arguing, among other things, that the ITC exceeded its statutory authority by issuing an LEO that excludes imports of downstream manufacturers that were not named as respondents in Broadcom’s initial complaint. Broadcom and the ITC argued that the ITC has authority to order an LEO that excludes all of a respondent’s articles which are determined to violate, regardless of the identity of the importer.

On review, the Federal Circuit held that the ITC misapplied the standard for induced infringement and vacated and remanded that aspect of the ITC’s decision. The Federal Circuit also examined the ITC’s authority under 35 U.S.C. § 1337(d) to issue exclusion orders. The Federal Circuit concluded that if certain heightened requirements are met under § 1337(d)(2), the ITC can issue a “general exclusion order” against products of unnamed parties, but that the statutory context limits an LEO to named respondents that the ITC finds in violation of Section 337. Thus, the Federal Circuit held that the ITC has no statutory authority to issue an LEO against downstream products (i.e., products that incorporate infringing components) of non-respondents. In addition, the Federal Circuit upheld a ruling that Broadcom’s patents were not anticipated by publicly available specifications because the prior art was not a single reference for purposes of 35 U.S.C. § 102.

Patents/ Reexamination

Unexplained Examiner’s Amendment Reexamination Did Not Broaden Claims
By Michael A. Messina

The U.S. Court of Appeals for the Federal Circuit reversed a district court decision that a patent’s claims were invalid for impermissible broadening during reexamination and found that amendments to an independent claim resulted in a substantive change to the claim. Predicate Logic, Inc., v. Distributive Software, Inc., Case No. 07-1539 (Fed. Cir., Oct. 9, 2008) (Linn, J.).

Patent owner Predicate Logic brought suit against Distributive Software for infringement of a patent directed to a universal data measurement, analysis and control method for use in a software development process. During the litigation, Distributive requested ex parte reexamination of the patent-in-suit. The claims were allowed as amended during reexamination via an Examiner’s Amendment, without explanation. An amendment to independent claim 1 shifted the word “said” within a clause, changing the phrase “instantiating said at least one index” to “instantiating at least one said index.” A further amendment to claim 1 substituted “first instantiating” and “second instantiating” steps for a single instantiating step. Distributive Software then successfully argued to the district court that the claims were invalid as being improperly broadened, in contravention of 35 U.S.C. § 305.

The Federal Circuit, after lecturing the patent owner and the U.S. Patent and Trademark Office for failing to make an adequate record to fulfill the public notice function of patents, decided the shifting of the word “said” did not broaden the claim. The Court opined that, in analyzing the breadth of the claim before and after amendment, the relevant question is whether any conceivable process would infringe the amended claim but not infringe the original claim. The Court concluded it could imagine no conceivable process that would infringe amended claim 1 but would not infringe original claim 1 of the ’798 patent. The Court also noted that neither the district court nor the parties had identified such a process. Thus, the Court held the amendment of “said at least one index” to “at least one said index” did not broaden the scope of claim 1.

Regarding the substitution of two instantiating steps for one, Distributive Software did not argue this amendment broadened the claims, but rather that it effected a “substantive change” of scope to claim 1 by narrowing the claim, which prevented enforcement against infringing activity that occurred prior to issuance of the reexamination certificate under 35 U.S.C. §§ 252 and 307. The district court agreed, but the Federal Circuit reversed, noting that the un-amended “comparing” step of original claim 1 recites comparing data sets linked to a plural number of indexes generated and instantiated as part of the claimed process. Thus, even in the original claim, two instantiation steps are required. The Court therefore held that the amendment of the “instantiating” step to the “first instantiating” and “second instantiating” steps did not result in a substantive change to claim 1 for purposes of §§ 252 and 307.

Practice Note: Although it is generally desirable to keep comments regarding claim amendments to a minimum, unexplained amendments during reexamination invite trouble. When submitting proposed amendments, the patent owner should consider including arguments that the amendments are proper because they do not broaden the claims. Such remarks could also be submitted after an Examiner’s Amendment.

Patents / Invalidity

Federal Circuit Clarifies Distinction Between Burdens of Production and Persuasion
By Mary Boyle, Ph.D.

In an opinion addressing the burdens of proof and deference to the U.S. Patent and Trademark Office (USPTO), the U.S. Court of Appeals for the Federal Circuit affirmed a trial court by upholding a finding of invalidity after a bench trial. Technology Licensing Corp. v. Videotek, Inc., Case Nos. 07-1441, -1463 (Fed. Cir., Oct. 10, 2008) (Plager, J.).

The technology-in-suit involved the separation of sync signals from video signals. Technology Licensing Corporation (TLC), the patent owner, appealed from the trial court’s judgment of invalidity. Third-party defendant Gennum, a supplier of sync separation chips, raised the affirmative defense that an asserted claim was anticipated by two prior art sync separation chips in 1993. In response, TLC contended that the invention of the asserted claim was entitled to an effective filing date of 1992. Gennum argued that the invention was not entitled to the earlier date because the 1992 application lacked adequate written support under the written description requirement of 35 U.S.C. § 112, ¶ 1, as shown by new matter added in 1995. The trial court agreed with the accused infringer and held that the claim was invalid for anticipation.

On appeal, TLC argued that the trial court erred by improperly placing the burden on TLC to prove its entitlement to the earlier priority date. The Federal Circuit explained that the ultimate burden of proving invalidity always stays with the accused infringer. However, the burden of production, also known as the burden of “going forward with evidence,” does shift. The burden of going forward means “both producing additional evidence and presenting persuasive argument based on new evidence or evidence already of record, as the case may require.”

The Federal Circuit held that the trial court had properly placed the ultimate burden of persuasion on the proponent of invalidity. After TLC met its initial burden of going forward with evidence of infringement, Gennum had the burden of going forward with evidence of its anticipation defense. TLC then had the burden of going forward with evidence that the alleged prior art was not prior art because the claim had an effective filing date predating the alleged art. TLC was required to show the existence of the 1992 application and explain why the written description adequately supported the claim. The burden of going forward would then shift back to the proponent of the invalidity defense to persuade the court that the claim was not entitled to the earlier date. The Federal Circuit held that the trial court did not place the ultimate burden of persuasion on TLC, but instead determined that Gennum had met its burden of persuading the court that the earlier application failed to contain adequate support for the claim.

TLC also argued that the USPTO’s reissuance of the patent during the appeal was pertinent and entitled to deference. The Court sharply disagreed, stating that, “in a circumstance such as this, judicial efficiency and the policy of repose counsels against our re-weighing of the evidence to add an additional deference-thumb to the scale, or even more disruptive, our asking the trial court to reopen the entire invalidity question to reweigh the intangible worth of additional deference.” The Court further noted that, when dealing with the intangible worth to be accorded an administrative agency’s decision making, the judicial process cannot be held hostage to the timing of either the agency or the litigants who have invoked the agency’s further review. The Court concluded that, absent a stay from the trial court or extenuating circumstances, a case must be decided on the record presented for appeal.

**WEB ONLY**

Patents / Written Description

Single Antibody Disclosed in Specification Not Sufficient to Describe Densely Populated Genus
By Astrid R. Spain

In a decision that appears to conflict with the Court’s own precedent, the U.S. Court of Appeals for the Federal Circuit recently tightened the written description requirement of 35 U.S.C. § 112, first paragraph, as it is applied to biotechnology inventions. In Re Kenneth Alonso, Case No. 08-1079 (Fed. Cir., Oct. 30, 2008) (Stearns, D.J., sitting by designation).

The claimed invention recites a method for treating neurofibrosarcoma, a rare cancer of the sheath of a peripheral nerve, by administering an effective amount of a monoclonal antibody idiotypic to the neurofibrosarcoma and further recites that the monoclonal antibody is secreted from a human-human hybridoma derived from the neurofibrosarcoma cells. The specification exemplified the preparation of a tumor cell suspension from the sample of a tumor and the subsequent sensitization of human spleen cells. The results of treating a patient with neurofibrosarcoma with monoclonal antibodies against a 221 kD tumor surface antigen from a hybridoma obtained by sensitizing adult spleen cells from the patient’s tumor. The examiner rejected the claim for lacking adequate written description support for the broad genus of antibodies encompassed by the claim language. The Board of Patent Appeals and Interferences (the Board) reversed the examiner’s rejection of the claim for lack of enablement, but sustained the rejection for lack of adequate written description, agreeing with the examiner that the single antibody described in the specification is insufficiently representative to provide adequate written descriptive support for the genus of antibodies required to practice the claimed invention. Alonso appealed.

Applying a substantial evidence standard of review, the Federal Circuit agreed that “the one compound disclosed by Alonso cannot be said to be representative of a densely populated genus.” The court noted that it held in Noelle that a patentee of a biotechnological invention cannot necessarily claim a genus after only describing a limited number of species because there may be unpredictability in the results obtained from species other than those specifically enumerated. The Court also pointed to its precedent in University of Rochester, noting that it found a specification lacked written descriptive support where the inventors had neither possession nor knowledge of the claimed compound. The Federal Circuit rejected Alonso’s argument that he reduced his method to practice and identified the resulting compound, stating that “while it is true that Rochester disclosed no compounds that worked with the claimed method, the one compound disclosed by Alonso cannot be said to be representative of a densely populated genus.” The Court further noted that the specification discloses only the molecular weight of the one antigen identified in the example and teaches nothing about the structure, binding affinity or other properties “common to the large family of antibodies implicated by the method.” Because Alonso failed to argue before the Board that there is a well-known correlation between the structure and function of the specific antibodies generated by his disclosed method, noting that the Court has found adequate written descriptive support for a claimed invention where the disclosure specifies relevant identifying characteristics, the Court refused to hear that argument on appeal. The Federal Circuit also affirmed the Board’s enablement finding without elaboration, merely noting in a footnote that enablement and written description will often, but not always, stand or fall together.

Patents / Infringement

Infringement of Patents on Blood Clot Fragmenting Methods Not Supported by Substantial Evidence
By Aamer S. Ahmed

Addressing the issue of substantial evidence to support an allegation of infringement, the U.S. Court of Appeals for the Federal Circuit overturned a jury verdict of infringement of three patents, holding that the jury’s verdict was not supported by substantial evidence. The Johns Hopkins University v. Datascope Corp., Case No. 07-1530 (Fed. Cir., Oct. 2, 2008) (Zobel, J.; Newman, J. dissenting).

Johns Hopkins University (Hopkins) is the owner of three patents for methods of mechanically fragmenting blood clots. Arrow International, Inc. is its exclusive licensee. The patented methods used catheters with expandable wire basket ends to fragment blood clots that often form in vascular access grafts in patients undergoing chronic hemodialysis. Hopkins alleged that the use of Datascope’s ProLumen device infringed the three Hopkins patents. Hopkins presented evidence in the form of expert testimony, and the jury found that Datascope indirectly infringed all asserted claims of the three patents. Datascope then moved for judgment as a matter of law (JMOL), or in the alternative, a new trial. The district court denied both motions, holding that the jury’s conclusion was not against the clear weight of the evidence. Datascope subsequently appealed.

Each of the asserted independent claims in the suit required introducing into a vascular conduit a fragmentation catheter comprised of either a fragmentation member or an expanding distal end that automatically expand to conform to the shape and diameter of the inner lumen of the vascular conduit. Hopkins’ only evidence supporting the contention that Datascope’s ProLumen device literally met the “expands to conform” limitation was presented by expert Dr. Valji, who testified that the S-shaped wire on the distal end of the ProLumen device met the claim limitations when it was rotated in the vascular lumen in a corkscrew manner. However, on cross-examination, Dr. Valji testified that the ProLumen device only contacts the lumen at two points, even while rotating.

The Federal Circuit determined that the “expands to conform” limitation must be met whether or not the distal end of the fragmentation member is rotating. Accordingly, despite Hopkins’ evidence that the ProLumen device contacts the lumen and fragments blood clots, the Court cited Valji’s contradictory testimony that the device only contacts the vessel in two places in holding that the jury’s finding of infringement was not supported by substantial evidence. The Court reversed and remanded the district court’s denial of Datascope’s motion for JMOL for entry of a final judgment in favor of Datascope, determining that no reasonable jury could have found that the ProLumen device literally met the claim limitation that the device expands to conform to the shape and diameter of the inner lumen.

In dissent, Judge Newman reminded the panel majority that it is not in the Federal Circuit’s province to reweigh the evidence when there was substantial evidence by which a reasonable jury could have reached its verdict. While she did not disagree with the panel majority that there was evidence and argument on Datascope’s side, Judge Newman deemed determinative that a reasonable jury could have reached the verdict of infringement.

Patents / Obviousness

Secondary Considerations Must Be Linked to Feature Missing in the Prior Art
By Christina A. Ondrick

After 10 years of litigation and three appeals, the U.S. Court of Appeals for the Federal Circuitfound Asyst’s patent on a system for tracking semiconductor wafers in a manufacturing process invalid as obvious and found that Asyst’s evidence on secondary considerations did not overcome a strong case of obviousness. Asyst Technologies, Inc. v. Emtrak, Inc., Case No. 07-1554 (Fed. Cir., Oct. 10, 2008) (Bryson, J.).

A jury found Asyst’s patent valid and infringed. The district court, however, granted judgment as a matter of the law (JMOL) that the patent was invalid for being obvious in light of a prior art patent. The Federal Circuit affirmed. According to the Court, the only material difference between the Asyst patent and the prior art patent was that the prior art disclosed a bus for transmitting communications between processing stations and a central control unit, whereas the Asyst patent provided a multiplexer that selectively directed communications to the particular processing unit to which a communication was addressed. The Asyst patent was obvious because multiplexers and buses were the two common ways for connecting electronic system components and the choice between the two was a familiar one based on well-known considerations. Relying upon KSR, the Court found the Asyst patent invalid because the multiplexer was nothing more than“the simple substitution of one known element for another” and such substitution was not beyond the skills of a person having ordinary skill in the art.

The Federal Circuit further found that Asyst’s objective indicia on non-obviousness—commercial success, long-felt need and industry praise—were not linked to the multiplexer, i.e., the feature of the invention missing in the prior art. The Court further noted that “evidence of secondary considerations does not always overcome a strong prima facie showing of obviousness.” The Court then indicated that Asyst’s evidence failed to overcome the strong case of obviousness presented by the prior art patent. Finally, the Federal Circuit found that the district court properly admitted new evidence on invalidity after the Federal Circuit changed the claim scope in a prior appeal dealing with claim construction issues.

Patents / Prior Art

Provisional Patent Application Is Prior Art as of Its Filing Date
By Eric M. Shelton

In a rare precedential opinion, the U.S. Patent and Trademark Office’s Board of Patent Appeals and Interferences (BPAI) recently affirmed the position stated in the Manual of Patent Examination Procedure (MPEP) that the critical date, used for determining whether a reference is “prior art,” reaches back to the filing date of an underlying provisional application. Ex parte Yamaguchi, Appeal No. 2007-4412 (BPAI, Aug. 29, 2008) (Jeffrey, APJ; Torczon, APJ, concurring).

At issue was whether the critical reference date for an allegedly invalidating U.S. patent extended to the filing date of a provisional patent application to which it claimed priority. Under Section 102(e), a U.S. patent or U.S. patent application publication obtains, subject to limitations mainly relating to applications claiming the benefit of a foreign patent filing, a critical date corresponding to the earliest filing to which it claims priority. For Yamaguchi, a particular U.S. patent was available as prior art only if its underlying provisional application filing date was considered to be the Section 102(e) filing date.

The BPAI concluded that under the current statutory scheme, in cases in which there is an underlying provisional application, a U.S. patent application or U.S. patent application publication is prior art as of the filing date of the provisional application. Procedurally, the examiner bears an initial burden of establishing that the provisional application supports the subject matter relied upon for a rejection. At least in this case, the burden was allowed to be carried by a “somewhat terse and conclusory” statement. Once carried, the burden shifts to the applicant to explain why the support alleged by the examiner is lacking. Yamaguchi failed to carry this burden, having offered “a mere conclusory statement totally devoid of explanation or analysis.”

The opinion directly acknowledges a conflict with In re Wertheim, a decision by the Federal Circuit’s predecessor court regarding the critical date for continuation-in-part applications under Section 102(e). Under Wertheim, a provisional application arguably could not be used for a Section 102(e) critical date. However, the BPAI stated that the rationale for Wertheim no longer applies under the current statutory scheme, which includes provisional applications and 18-month publication of applications, coupled with the easy availability of underlying provisional applications online. Thus, the BPAI refused to follow Wertheim.

Practice Note: Although the BPAI asserts that the current statutory scheme supports the result for Section 102(e) as a whole, it appears to be in firmer footing for 102(e)(2). Additionally, the conflict with appellate precedent appears to make this issue ripe for appeal.

Patents / Damages

Reduction of Compensatory Damages Requires Offer of New Trial by Jury
By Leigh J. Martinson

The U.S. Court of Appeals for the Federal Circuit recently vacated a judicial reduction in damages for violating the Seventh Amendment, while affirming a jury’s finding of infringement of a means-plus-function claim by applying well-known precedent. Floyd M. Minks v. Polaris Industries, Inc., Case Nos. 07-1490, -1491 (Fed. Cir., Oct. 17, 2008) (Gajarsa, J.).

Floyd M. Minks is an electrical engineer who designs electronic components for a variety of vehicle types. Minks holds U.S. Patent No. 4,664,080 (the ’080 patent), which is drawn to an electric governor system for internal combustion engines that uses a circuit to limit the reverse speed of an all-terrain vehicle (ATV). When the ATV is shifted into reverse gear, the reverse speed limiter circuit senses the direct current (DC) voltage. Once activated, the circuit also senses the alternator’s alternating current (AC) output to thereby sense engine speed. If the alternator’s AC voltage output exceeds a predetermined limit, the circuit emits a control signal to interrupt the ignition of the engine. Minks sued Polaris, a customer for years, for infringement of the’080 patent after making numerous attempts to obtain a license from Polaris for its use of a reverse-speed limiter produced by a different vendor. The only asserted claim was claim 2, which included means-plus-function elements.

The jury found willful infringement and awarded just under $1.3 million in royalty damages. The district court subsequently granted Polaris’ motion for a reduction in damages or remittitur pursuant to Rule 59(e). The court reduced the jury’s damages award to $27,904.80, an amount which was later double based on the willfulness finding. The court failed to offer Minks a new trial on damages, holding that reduction was necessitated by legal error. Minks appealed the reduction of the damages award, among other things. Polaris cross-appealed from the district court’s denial of its judgment as a matter of law (JMOL) motion on non-infringement.

The Supreme Court has long interpreted the Seventh Amendment as requiring that the exercise of a district court’s discretion to set aside an excessive jury award be accompanied by an offer of a new trial. However, in the Eleventh Circuit, when a jury’s award is premised on “legal error,” a court may reduce the award and enter an absolute judgment in an amount sufficient to correct the legal error without offering the plaintiff the option of a new trial. The Eleventh Circuit recognizes two types of legal error that fit this situation: where a portion of a verdict is for an identifiable amount that is not permitted by law and when the award enter[s] that zone of arbitrariness that violates the due process clause of the Fourteenth Amendment.

After reviewing the facts on appeal, the Federal Circuit concluded that neither of the above exceptions applied. The Court stated, after reviewing in the district court’s analysis of this award, that the district court had identified no legal principle that would limit the amount of a reasonable royalty. Thus, it was improper to reduce the award without offering Minks a new trial. As such, the Court vacated the district court’s judgment and remanded for a new trial on the issue.

Also, the Court reiterated that to determine infringement of a means-plus-function claim, “the court must compare the accused with the disclosed structure, and must find equivalent structure as well as identity of the claimed function for that structure.” On appeal, Polaris failed to make any argument that the accused devices did not perform a function identical to that recited in the claim to achieve an identical result. In its analysis, the Court applied the function-way-result test to determine equivalence between the accused product and the ’080 patent. The Court also reiterated that differences in physical structure alone is not determinative of § 112 ¶ 6 equivalence. Rather, once the identity of function is established, the test for infringement is whether the structure of the accused device performs in substantially the same way to achieve substantially the same result as the disclosed structure. Citing both expert testimony and the ’080 patent itself, the Court agreed that the jury’s verdict of infringement was supported and thus affirmed.

Practice Note: When attacking a means-plus-function claim in litigation, the place to commence the analysis remains the recited function in the claim.

Patents / Patent Term Adjustment

Patent Term Adjustment
By Babak Akhlaghi

The District Court for the District of Columbia recently granted summary judgment in favor of Wyeth, determining that the U.S. Patent and Trademark Office (USPTO) had misconstrued 35 U.S.C. § 154(b)(2)(A) and, as a result, had denied Wyeth a portion of patent term to which it was entitled. Wyeth v. Dudas, Case No. 07-1492 (D.D.C., Sept. 30, 2008) (Robertson, J.).

35 U.S.C. § 154 establishes that a patent term is 20 years from the earliest relevant filing date of a patent application. Because patentees do not benefit from patent term during prosecution, § 154(b)(1) further provides a patent term adjustment (PTA) to account for USPTO delays under certain circumstances. For example, the statute provides a one-day extension of term for every day corresponding to an “A delay,” that is, where the USPTO fails to meet particular deadlines such as issuing a first Office Action within 14 months, responding to a reply within four months, and so forth. In addition, the statute addresses a “B delay” by giving a one-day extension of term for every day of prosecution that occurs three years after the filing date.

To the extent that “A delays” and a “B delay” overlap, § 154(b)(2)(A) mandates that the patent term adjustment “shall not exceed the actual number of days the issuance of the patent was delayed.” § 154(b)(2)(A). The USPTO has interpreted this language to mean that a patentee may obtain credit for A delays or B delays, whichever is larger, but may not obtain credits for A delays plus B delays. According to the USPTO, any period of B delay necessarily overlaps with any periods of A delay.

In Wyeth, the D.C. District Court overruled the USPTO’s interpretation. The Court noted that the problem with USPTO’s construction is that it considers an application delayed under § 154(b)(1)(B) during the period the application has not yet been delayed, stating “the construction cannot be squared with the language of § 154(b)(1)(B), which applies ‘if the issue of an original patent is delayed due to the failure of the [USPTO]’”. Therefore, the Court held that under § 154(b)(1)(B) the period of delay begins after the expiration of the three years within which the USPTO has failed to issue a patent. The Court noted that periods of time only “overlap” if they actually occur on the same day. Thus, if an A delay occurs on one day and a B delay occurs on another, a patentee may obtain an extension for sum of A and B.

Practice Note: 37 C.F.R. § 1.705 indicates that any request for reconsideration of a final PTA determination by the USPTO must be filed within two months after the grant of a patent. Patentees with issue dates falling into this time window should consider filing such requests without delay. Section 154 itself indicates that an applicant dissatisfied with a USPTO determination regarding PTA may file a civil action in the D.C. District Court within 180 days after a patent issues. § 154(b)(4). It remains to be seen if the USPTO will put into place an efficient procedure to recapture erroneously denied PTA.

Trademark Infringement / Personal Jurisdiction

Personal Jurisdiction Found Where Website Harms
By Jeremy T. Elman

Addressing issues of personal jurisdiction regarding copyright infringement on the internet, the U.S. Court of Appeals for the Eleventh Circuit reversed a lower court’s ruling and found that a Tennessee website operator was subject to jurisdiction for copyright infringement of a Florida resident’s works. Licciardello v. Lovelady, 2008 U.S. App. LEXIS 21376 (11^th Cir., Oct. 10, 2008) (Hill, J.).

Plaintiff Carman Licciardello (Licciardello) has been a nationally-known Christian musician and entertainer for more than 25 years. From 2000 to 2001, Rendy Lovelady (“Lovelady”) was employed by Licciardello as his personal manager; Lovelady also managed Licciardello’s concert tour during that year. Licciardello alleges that in early 2006, Lovelady posted a website on the internet that was accessible to the public in Florida that promoted Lovelady as a personal manager for music artists. The website used Licciardello’s trademarked name and his picture, implying that Licciardello endorsed Lovelady’s skill as a personal manager. The website offered CDs for sale that provided management advice and other career assistance. Licciardello brought claims for trademark infringement in the District Court for the Middle District of Florida. The district court dismissed for lack of personal jurisdiction because Lovelady is a Tennessee resident.

Licciardello argued that Lovelady’s creation in Tennessee of a website containing an allegedly infringing and deceptive use of Licciardello’s trademark is a tortious act “within this state” as contemplated by the statute because the injury from trademark infringement occurs where the holder of the mark resides—in this case, Florida. Lovelady maintained that he had no constitutionally significant contacts with Florida. He has no office, no agents, no employees and no property in Florida. His sporadic travel to Florida in connection with his management of Licciardello and other music groups, he argued, is both constitutionally insufficient and unrelated to this cause of action.

On appeal, the Eleventh Circuit found that the Florida’s long-arm statute was satisfied because, although the website was created in Tennessee, the Florida long-arm statute is satisfied if the alleged trademark infringement on the website caused injury in Florida. In assessing whether the due process clause permitted the exercise of personal jurisdiction over Lovelady in Florida, the Eleventh Circuit considered whether the website operation was sufficient to establish the minimum contacts to exercise personal jurisdiction over Lovelady. The Court held that using the trademark and the musician’s picture on a website accessible in Florida so as to imply an endorsement was an intentional tort and satisfied the Supreme Court’s “effects” test of Calder v. Jones. The trademark use was expressly aimed at a specific individual in the forum and represented an intentional tort whose effects were suffered in the forum. The Eleventh Circuit, however, limited the rulings to the facts and did not create a blanket rule for personal jurisdiction over all internet websites. The court reversed the dismissal, holding personal jurisdiction permissible in Florida.

Practice Note: Website operators are advised to carefully curtail their geographic scope to avoid the exercise of personal jurisdiction in potential suits.

Copyright / Licensing

Copyright License Improperly Read as Perpetual Under New York Law
By Rita W. Siamas

The U.S. Court of Appeals for the Second Circuit reversed the dismissal of a copyright infringement claim, holding that the district court erred in dismissing the claim on the basis that the contract at issue unambiguously granted the defendants the right to copy plaintiffs’ materials indefinitely. Chapman v. New York State Div. for Youth, Case No. 05-7010 (2nd Cir., Oct. 14, 2008) (Walker, J.).

Plaintiffs Bruce Chapman and Handle With Care Behavior Management Systems (HWC) marketed a training program that teaches a safe technique for physically restraining others. The plaintiffs sued 16 defendants—various New York state entities—for copyright infringement and antitrust violations based on a dispute arising from a 1997 contract. Pursuant to the contract, HWC provided training in the techniques to defendants and allowed defendants to reproduce the training materials. The contract provided for a four-month term ending on August 31, 2007. In 1998, one defendant, Cornell University, developed and marketed a competing restraint method and training service. The applicable New York state agency then began to withhold approval of facilities unless they implemented the new method. Upon learning of the agency’s policy, HWC filed a lawsuit alleging copyright infringement for defendants’ use of its training materials after the contract expired and antitrust violations based on the agency’s requirement to use the second method.

The district court dismissed both claims. The Second Circuit affirmed the dismissal of the antitrust claim but reversed the dismissal of the copyright claim. With respect to the copyright claim, the district court held that the contract at issue unambiguously granted defendants the right to copy plaintiffs’ training materials indefinitely. On appeal, the Second Circuit disagreed and concluded that the contract was ambiguous on its face. While the contract provided that a defendant “has the right to reproduce all training materials,” the Second Circuit found that the provision was unclear on its face as to whether this right was meant to end with the agreement or whether it was meant to continue for a reasonable period of time after the agreement ended to allow for further training. The Second Circuit rejected the defendants’ argument that the contract granted a perpetual license to use the training materials; New York courts are reluctant to declare a perpetual license without an explicit grant of one. Therefore, the Second Circuit remanded the copyright claim to the district court so that the relevant extrinsic evidence could be considered and weighed to determine what the parties intended.

Trade Secrets / Non-Compete Agreements

Independent Disclosure of Trade Secrets Precludes Preliminary Injunctive Relief
By Vanessa I. Lefort

The U.S. Court of Appeals for the Fourth Circuit found no abuse of discretion and affirmed a district court’s refusal to issue a preliminary injunction that would have enjoined a former employee from working for a competitor, where the record reflected a “strong possibility” that the competitor had already learned much of the information at issue independently. Technology Partners, Inc. v. Hart, Case No. 08-1651 (4th Cir., Sept. 23, 2008) (Duncan, J.) (unpublished opinion).

Technology Partners, Inc. (TPI), a software provider to the healthcare industry, sued its former employee, Brian Hart, claiming that Hart’s employment with rival AMICAS would breach his non-compete covenants and result in the misappropriation of TPI’s trade secrets.

Hart began work at TPI in 2003 as an hourly-wage programmer. Hart worked his way up through the ranks at TPI and its subsidiaries. In January 2008, Hart accepted a position at TPI as vice president of product management. At that time, he signed a new employment agreement, which included covenants not to compete. Hart had access to all of TPI’s computer systems, server records, databases, product development, technology, client lists and confidential financial and business information.

In late 2006 and early 2007, AMICAS considered acquiring TPI and conducted due diligence investigations which familiarized AMICAS with TPI’s financial, business and operational underpinnings. In the end, AMICAS did not acquire TPI, but became co-owner of TPI’s flagship product, IMAGINEradiology software. TPI assigned Hart to oversee the installation of and training support for the software at AMICAS. In early 2008, AMICAS made Hart an offer and Hart resigned from TPI in April 2008. About three weeks later TPI moved for preliminary injunctive relief preventing Hart from joining AMICAS. The lower court denied the motion and TPI appealed.

The lower court applied the so-called Blackwelder three-part test for preliminary injunctive relief: balance of harms, likelihood of success on the merits and public interest. In balancing the harms, the lower court concluded that the balance did not tip in favor of either party—AMICAS had likely already and independently acquired much of the disputed information, undermining TPI’s claim of irreparable harm, while Hart would likely lose the increased compensation at his new job.

On appeal, TPI argued, inter alia, that the lower court erred in its balancing analysis. The Court disagreed, pointing out that “[a]s to the harm to TPI, the record reflected a strong possibility that AMICAS had already learned much of the information at issue independently of Hart, either through its due diligence during earlier negotiations with TPI or through the [deal to purchase the IMAGINEradiology software]”—this “significantly mitigated any potential harm to TPI.” Moreover, the Court found no fault in the lower court’s conclusion that TPI had not shown likelihood of success on the merits.

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IP Update, Vol. 11, No. 11, November 2008

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