Publications / McDermott Newsletters / IP Update, Volume 8, No. 1, December 2004/January 2005

IP Update, Volume 8, No. 1, December 2004/January 2005

December 2004/January 2005

Patents / First Sale Exhaustion

Patent Exhaustion/Principle Only Applies to Products First Sold in the United States
By Paul Devinsky 

The U.S. Court of Appeals for the Federal Circuit affirmed the district court finding that Jazz Photo’s importation, sale and use of over 40 million refurbished disposable cameras directly infringed Fuji’s family of U.S. patents directed to disposable cameras, finding Jazz liable for direct and induced infringement.  Fuji Photo Film Co., Ltd. v. Jazz Photo Corp., Case Nos. 03-1324,-1331 (Fed. Cir., Jan. 14, 2005) (Rader, J.).

Fuji makes and sells relatively inexpensive cameras that it originally intended to be disposable after a single use.  In response to public protest of the camera shell disposals, Fuji began a recycling program in 1991.  Fuji subsequently learned that several companies, including Jazz, purchased used shells from foreign factories, refurbished the cameras by inserting new film through multiple steps and resold the refurbished cameras.

Fuji filed suit against Jazz seeking damages and injunctive relief for direct and indirect infringement of its patents.  The district court stayed its proceedings pending an appeal from a concurrent International Trade Commission (ITC) proceeding wherein the Federal Circuit reversed the ITC’s finding that the refurbishment procedure constituted permissible repair, but that under the exhaustion doctrine only cameras first sold in the United States qualified for the repair exclusion.  The district court subsequently lifted its stay and Fuji’s lawsuit proceeded on issues specific to its 19-step refurbishment procedure. 

After a five-week trial, the jury determined that Jazz infringed Fuji’s patents by refurbishing 40 million cameras, that Jazz willfully infringed by selling 1.2 million newly-made cameras and that Jazz owed a reasonable royalty of $0.56 per camera to compensate for infringement.  After the jury reached its verdict, the district court evaluated the repair/reconstruction issue, determining that the 19 steps were effectively sub-steps of the eight steps that this court previously deemed permissible repair.  The district court next turned its analysis to the issue of foreign sales, noting that “a refurbished disposable camera infringes unless it was permissibly repaired from an empty camera shell first sold in the United States.” 

On appeal Jazz argued that the district court misconstrued the Federal Circuit’s holding regarding exhaustion. 

In Jazz, the Federal Circuit Court held that:

“To invoke the protection of the first sale doctrine, the authorized first sale must have occurred under the United States patent….  Imported (cameras) of solely foreign provenance are not immunized from infringement of United States patents by the nature of their refurbishment.”

In the present appeal the Federal Circuit clarified:

“This court does not construe the “solely foreign provenance” language...to dictate a narrow application of the exhaustion principle.  Specifically, this court does not read…the above language to limit the exhaustion principle to unauthorized sales.  Jazz therefore does not escape application of the exhaustion principle because Fuji or its licensees authorized the international first sales of these [cameras].  The patentee’s authorization of an international first sale does not affect exhaustion of that patentee’s rights in the United States.  Moreover, the solely foreign provenance language does not negate the exhaustion doctrine when either the patentee or its licensee sells the patented article abroad.”

Thus, the Court explained first sales under the exhaustion doctrine are limited to sales occurring within the United States and only cameras “sold within the United States under a United States patent qualify for the repair defense under the exhaustion doctrine.”  “Fuji’s foreign sales can never occur under a United States patent because the United States patent system does not provide for extraterritorial effect.”

Practice Note
This holding should be compared with the holding of the Court in NTP v. RIM (reported in this edition) that not withstanding the fact that a portion of the allegedly infringing system was located in Canada, there was direct infringement by RIM of NTP’s U.S. patents under §271(a).

Patents / Infringement Territoriality

Canadian Component not Withstanding, BlackBerry System Found to Infringe U.S. Patents
By Paul Devinsky

NTP Inc. is the owner of the “Campana patents” that integrate electronic mail with radio frequency (RF) wireless transmission.  Research in Motion (RIM), a Canadian corporation, makes the ubiquitous BlackBerry.  NTP sued RIM, alleging that the elements of the BlackBerry system infringe various claims in the Campana patents.  NTP Inc. v. Research in Motion Ltd., Case No. 03-1615 (Fed. Cir., Dec. 14, 2004) (Linn, J.).

The district court issued a summary judgment of infringement and entered final judgment for NTP, awarding damages totaling $54 million.  A permanent injunction was also entered against further manufacture, use importation, and/or sale of the BlackBerry system.  Soon thereafter, the U.S. Patent and Trademark Office (USPTO) ordered a reexamination of several of the Campana patents and the injunction was stayed pending RIM’s appeal.

On appeal, RIM argued that the term “electronic mail system” requires a processor interconnected with others to serve the common purpose of providing e-mail to end users through systems that “pull” messages off servers while using wireline, point-to-point connections.  The Federal Circuit found that RIM had waived this argument by failing to raise it before the district court.

The Court also found RIM’s premise that the claim term “electronic mail system” is limited to a wireline to be flawed, citing the “plain language” of the claims and “express” statements in the written description.  Finding no disclaimers or disavowals limiting the term “electronic mail system” to a wireline only system, the Federal Circuit affirmed the district court’s construction.  Similarly, the Federal Circuit also affirmed the district court’s reading of “gateway switch,” rejecting RIM’s argument that “gateway switches” must enable the pull technology.

However, the Federal Circuit was persuaded by RIM’s argument that the district court erred in construing the term “originating processor,” found in some, but not all of the Campana patent claims.  The district court read this term to mean “[a]ny one of the constituent processors in an electronic mail system that prepares data for transmission through the system.”  The Federal Circuit, however, ruled that “originating processor” is properly construed as “a processor in an electronic mail system that initiates the transmission of a message into the system.”

Thus, the Federal Circuit remanded the case to the district court to determine whether and to what extent the jury verdict of infringement should be set aside, based on the prejudicial effect, if any, of the district court’s erroneous claim construction.

Perhaps the most controversial aspect of the decision was Federal Circuit affirming the district court’s finding of infringement under §271(a). 

RIM argued that §271(a)’s requirement that all of the allegedly infringing steps take place “within the United States” was not met since the BlackBerry Relay component of the accused system is located in Canada.  In concluding that §271(a) does apply, the Court noted “... when two domestic users communicate via their BlackBerry devices, their use of the BlackBerry system occurs ‘within the United States,’ regardless of whether the messages exchanged between them may be transmitted outside of the United States at some point during their wireless journey.”

Patents / Anticipation

Discovering the Nucleotide Sequence of a Known DNA Molecule Identifies an Inherent Characteristic of Its Chemical Structure
By David A. Gay, Ph.D.

Affirming a broad claim construction for claims directed to a nucleic acid molecule, the U.S. Court of Appeals for the Federal Circuit upheld a rejection by the U.S. Patent and Trademark Office (USPTO) that the claims were anticipated by earlier publications, which disclosed an uncharacterized form of the nucleic acid.  In re Crish, Case No. 04-1075 (Fed. Cir., Dec. 21, 2004) (Lourie, J.).

Inventors Crish and Eckert (Crish) discovered the promoter region for the human involucrin gene (hINV).  Their patent application claims purified DNA molecules having a specific nucleotide sequence and exhibiting promoter activity for hINV.  The Board of Patent Appeals and Interferences (Board) affirmed the USPTO’s rejection that the application claims were anticipated by Crish’s earlier publications describing a molecule containing the hINV promoter region.  The Board concluded that, although unsequenced, the prior art molecule necessarily possessed the same sequence as the molecules claimed in the application.

On appeal, Crish argued that the claims cannot be anticipated because the prior art references did not provide any information about the hINV promoter nucleotide sequence.  Crish additionally argued, inter alia, that the prior art molecules do not necessarily contain the claimed nucleotide sequence because others have arrived at different sequences when using the same starting materials.

Affirming the USPTO’s claim construction that the claims can include hINV gene sequence additional to the recited promoter region fragments, the Federal Circuit held that the claims encompass the hINV promoter region plus other hINV gene nucleotides and are anticipated by the earlier publications describing the hINV gene which included its promoter region.  Rejecting Crish’s argument based on lack of sequence information for the promoter region of the hINV gene, the Court pointed to a long line of precedent holding that the discovery of a new property for a known material does not make claims to a material reciting that property novel.  The Court reasoned that the nucleotide sequence of the hINV gene is the identity of the gene’s structure, not merely one of its properties.  The promoter region was not new because it had been known and used in the prior art publications, and the identification and characterization of the hINV promoter region similarly did not make it novel.  The Court further rejected Crish’s argument that the molecules claimed in the application did not necessarily claim the sequences of the prior art molecules because the application claimed molecules that Crish previously disclosed.  Crish was presumed to have sequenced his material correctly and evidence that others may have arrived at different results should not be relied on in lieu of his own work.

Patents / Claim Construction

Narrow Claim Construction Avoids Invalidity Based on Prior Art
By Astrid R. Spain

Based on narrow claim construction, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s holding that ALZA Corporation’s (ALZA) patent is not anticipated or obvious in view of the prior art and that the patent is not unenforceable as having been procured by inequitable conduct.  ALZA Corp. v. Mylan Laboratories Inc., Case No. 04-1344 (Fed. Cir., Dec. 10, 2004) (Archer J.; Dyk, J. concurring-in-part and dissenting-in-part).

ALZA’s `580 patent is directed to a system for the transdermal administration of the narcotic fentanyl, marketed as the Duragesic patch.  Prior to the invention disclosed in the `580 patent, attempts at transdermal patches for fentanyl delivery had been unsuccessful due to low skin permability of fentanyl citrate, the traditionally administered form of the drug.  The inventors of the `580 patent discovered that the skin permeability of fentanyl was highly dependent on the chemical form of the drug and that the base form of fentanyl should be incorporated into the transdermal therapeutic system to achieve increased skin permeability. 

Mylan developed a generic transdermal fentanyl patch that is a bioequivalent to Duragesic and filed an Abbreviated New Drug Application (ANDA) seeking approval to market its patch before the `580 patent expires.  ALZA sued for infringement and Mylan asserted invalidity based on anticipation, obviousness and inequitable conduct.

The Federal Circuit commenced its review by acknowledging that the critical claim term “skin permeable form” is not plain on its face to one of ordinary skill in the art.  The Court then turned to evidence intrinsic to the `580 patent to determine whether or not the term excludes fentanyl citrate.  The Court examined both the prosecution history and the specification and concluded that both disclaimed fentanyl citrate as unsuitable for transdermal administration.  Accordingly, the Court affirmed the district court’s claim construction of “skin permeable form” as “fentanyl that is in a form that can pass through the skin, excluding solutions of fentanyl citrate.”

Turning to invalidity, the Court concluded that the alleged anticipatory prior art patent (the Keith patent) teaches adjusting the acidity of the solution to prepare the fentanyl citrate solution expressly disclaimed by the `580 patent’s inventors’ during prosecution and does not disclose a “skin permeable form” of fentanyl within the meaning of the `580 patent as necessary to anticipate the `580 patent.  The Court further concluded that the cited art lacked the requisite motivation to combine the Keith patents’ fentanyl citrate solutions with any reference that teaches use of the drug’s base form.  With regard to inequitable conduct, the Court found insufficient requisite intent in the inventor’s failure to point out that data submitted during prosecution included values suggesting that adequate skin permeability in a transdermal system could be achievable with a sufficiently large amount of fentanyl citrate.

Judge Dyk, dissenting in part, indicated he would have remanded the case for fact findings on inequitable conduct based on whether the statements made by ALZA to the U.S. Patent and Trademark Office were true.

Patents / Doctrine of Equivalents

Only Narrowing Amendments Operate to Preclude Equivalents
By Paul Devinsky

To compose a proper inquiry, a user must understand the structure and content of the relational database as well as the complex syntax of the specific query language.  These complexities generally prevent laypersons from drafting queries in query languages.  Business Objects, S.A. v. MicroStrategy, Inc., Case No. 04-1009 (Fed. Cir., Jan. 6, 2005).

The patent claims a method that allows users to query a relational database without knowing a query language or understanding the structure of the relational database.  The method employs a “manager” (a skilled human operator who defines the business objects with knowledge of the database) that sets the parameters to allow lay users to retrieve information from a relational database.  The manager achieves this objective by creating a new “universe” (a user-friendly representation of the contents of a relational database that is relevant to the lay users).  After the manager has created a universe, lay users may work with common language to query the relational database. 

MicroStrategy’s accused products also allow lay users to use familiar names to query a relational database.  However, the MicroStrategy approach is to use three separate “hierarchies” of information and “entities” that are derived from the physical tables in the relational database. 

This district court applied prosecution history estoppel to prevent Business Objects from asserting equivalents with regard to the “associating step” limitation.  Business Objects conceded that the inclusion of the “associating step” limitation to the claims was the result of a narrowing amendment (thus erecting a Festo presumption of estoppel) but attempted to overcome that presumption by arguing that the amendment was only “tangentially related” to MicroStrategy’s accused equivalent.  The Federal Circuit easily dismissed this argument, noting that Business Objects argued to the U.S. Patent and Trademark Office that the addition of the “associating step” to the claims  rendered the claim allowable over two prior art references because neither of those references associated a particular RBDMS query with a familiar name.  Business Objects now alleges that the accused products infringe the claims under the doctrine of equivalents because they associate something equivalent to RBDMS query to a familiar name.  Thus, the Court found that the amendment to the claims “are directly related to the claimed equivalents” and that Business Objects may not assert that the accused products practice an equivalent to the claimed “associating step.”

Business Objects also challenged the district court’s holding that it is estopped “from contending that the accused devices practice a function equivalent to the ‘query engine means.’ ”  This challenge arises in the context of a claim which was added during the prosecution of the patent, but which was similar to an original independent system claim where the language “translating said user query into a structured query language (SQL) equivalent statement,” had been changed to “generating queries in the predetermined query language.”  The district court held that this amendment narrowed the scope of the function of the query engine means for purposes of patentability and raised a Festo presumption.

The Federal Circuit reversed finding that the amended term is broader than the original term and that MicroStrategy failed to identify anything in the record that would support its proposed (narrower) interpretation of the term.  Thus, as there was no narrowing amendment, the Court found that Business Objects was “not precluded” from claiming equivalents with respect to the “query engine means.”

Patents / Inequitable Conduct

Patentee’s Demonstrated Knowledge of Prior Art Device Raises Inference of Materiality
By Paul Devinsky

Affirming a district court finding of a case as “exceptional” predicated on a determination of inequitable conduct, the U.S. Court of Appeals for the Federal Circuit found that the patent owner’s failure to disclose to the U.S. Patent and Trademark Office (USPTO) information on prior art devices.  Bruno Independent Living Aids, Inc. v. Acorn Mobility Services, Ltd., Case Nos. 04-1114, -1125, (Fed. Cir., Jan. 11, 2005) (Lourie, J.).

Bruno manufactures and sells “stairlifts,” which are devices that allow people with mobility impairments to ascend and descend stairways on a chair that travels along a rail. 

Bruno sued Acorn, a competitor, alleging infringement of certain claims its patent.  Acorn moved for summary judgment of invalidity based on numerous prior art stairlifts that had not been considered by the patent examiner.  Admitting that the asserted claims were invalid in view of the prior art identified by Acorn, Bruno filed a reissue application at the USPTO, and the district court granted Acorn’s motion for summary judgment.

Subsequently, Acorn accused Bruno of having intentionally withheld invalidating prior art from the USPTO and asked the district court to declare the case “exceptional” under 35 U.S.C. §285.  The district court, after finding that Bruno had failed to disclose to the USPTO information on several invalidating prior art stairlifts that Bruno had submitted to the U.S. Food and Drug Administration (FDA) in seeking approval to sell a stairlift covered by the patent. 

Observing that the disclosure to the FDA occurred concurrently with the prosecution of the patent, the district court – noting the absence of a credible, good faith explanation from Bruno for not disclosing the same information to the USPTO – inferred that the information had been withheld with deceptive intent.

On appeal, Bruno challenged the district court’s determination of an exceptional case.  While conceding awareness of the prior art devices during prosecution, Bruno contended that a duty to disclose did not arise because it had failed to appreciate its materiality.

The Federal Circuit, citing to a letter to the FDA in which Bruno indicated its “stairlift was similar in design and function to the [prior art] units,” affirmed finding that the “record supports the district court’s finding that Bruno possessed actual knowledge of the [prior art device] and that it knew or should have known of its materiality.”  Significantly, the record reflected that the individual who prepared the FDA letter was also involved in the prosecution of the patent and had asked Bruno’s patent attorney to conduct a prior art search in preparation for filing the patent application.

On the issue of intent, the Federal Circuit affirmed the “negative inference” found by the district court, noting that “... in the absence of a credible explanation, intent to deceive is generally inferred from the facts and circumstances surrounding a knowing failure to disclose material information.”

Patents / Claim Construction

A Child Patent Inherits Its Parent’s Limitations
By Tiffany M. Scurry

The patent claims were directed to a system for handling and positioning sections of well casing, which line a well bore to facilitate removal of oil or gas.  Because of their size and weight, moving and positioning casings manually can be dangerous.  The invention provided a remote-controlled boom for lowering and positioning casings from a distance.  The boom had jaws at one end for engaging a casing and was hydraulically movable in an up-and-down “pivoting” motion and in a side-to-side “yawing” motion.  A piston and cylinder subassembly, which in the preferred embodiment operated against a lift plate beneath the boom, facilitated these motions.  Frank's Casing Crew & Rental Tools, Inc. v. Weatherford Int'l Ltd., Case Nos. 03-1519, -1563 (Fed. Cir., Nov. 30, 2004).

The claims at issue recited “means for selectively pivoting said boom about said horizontal axis to raise and lower the second end of said boom which carries said jaws, and to elevate said boom to a location where it extends in a generally vertical direction.”  The parties agreed that the limitation was in “means-plus-function” format, governed by §112, ¶6.  The parties also agreed that its function was “selectively pivoting said boom about said horizontal axis to raise and lower the second end of said boom which carries said jaws, and to elevate said boom to a location where it extends in a generally vertical direction.”

At issue was whether the corresponding structure included the lift plate.  The plaintiff asserted that the structure included only a piston and cylinder subassembly for pivoting the boom.  Anything additional, according to the plaintiff, would constitute “improperly imported structure unnecessary to perform the recited function.”  However, the defendant argued that the structure must also include the lift plate, which was disclosed in the preferred embodiment of the invention.  The Court turned to the prosecution history, specification and other claims for its answer.

During prosecution of the parent case, the applicant had distinguished his invention from a prior art reference that disclosed a cylinder attached under the boom for the lifting function.  The applicant argued that “the spatial and positioning limitation [of the prior art reference] is overcome in the present invention by connecting [the cylinder which lifts the boom] not directly to the boom, but by connecting it indirectly to the boom through securement” to the lifting plate.  The Federal Circuit affirmed the district court’s holding that the prosecution history of the parent case “amounted to a disclaimer” of the “below-mounted and directly-attached lifting means.”

The Court also noted that while the specification on occasion referred to the piston and cylinder subassembly without mentioning the lift plate, the only embodiment showing use of the piston and cylinder subassembly disclosed a direct connection to a lift plate.  Additionally, the Court referred to other claims in the patent, directed to the yawing function, noting that a device could not perform yawing without a lift plate under the boom.  Although the claims at issue did not recite “yawing,” the Court recognized the principle that related claims should be interpreted consistently.

The Court concluded that the “means for selectively pivoting” must include a lift plate under the boom.  As the accused device did not include a lift plate located under the boom, the Court held that it did not infringe under either §112, ¶6 or the judicially created doctrine of equivalents.

Patents / Obviousness

“Good” May Be “Good Enough” When It Comes to Suggestions to Combine Obviousness References
By Matthew F. Weil

The U.S. Court of Appeals for the Federal Circuit has held that obviousness can be shown where the prior art contains a motivation to combine, even if the motivation comes in the form of a somewhat half-hearted suggestion.  In re Fulton, Case No. 04-1267 (Fed. Cir., Dec. 2, 2004) (Michel, J.).

In a case involving multiple decisions, appeals and other procedural wrangling, the Board of Patent Appeals and Interferences (Board) finally rejected an application for a patent on hexagonal projections on the sole of a shoe designed to increase traction.  The Board based the rejection on one prior art patent that disclosed a shoe with a sole having square, triangular or rectangular projections arranged like those of the applicant and a second patent describing a shoe with hexagonal projections like those claimed by the applicant, but in a significantly different layout.  The motivation to combine cited by the Board was found in a third reference that “clearly suggests that cylindrical polygon shaped studs or projections other than those expressly described (square, rectangular or triangular) may be employed to provide sharp edges which bite into artificial turf for good traction.”

The Federal Circuit upheld the obviousness rejection, reasoning that, given these disclosures in the prior art, a person of ordinary skill would have “readily appreciated” the known hexagonal shaped projecting surfaces disclosed in the second patent as being well suited for using in the arrangement disclosed by the first patent.  “This appreciation,” the Court held, “would have furnished the artisan with ample suggestion or motivation to combine [the two references] in the manner proposed.”

The applicant argued that the motivation cited by the Board was inadequate because it failed to suggest that the resulting combination was “the preferred” configuration.  The Court rejected the argument, stating that the case law does not require that a particular combination must be the preferred or the most desirable combination described in the prior art in order to provide motivation for the current invention.  It is sufficient that the prior art point to the proposed combination as one possible solution.

Patents / Declaratory Judgments

District Court’s Refusal to Hear Declaratory Judgment Suit Found to Be Abuse of Discretion
By Paul Devinsky

Applying the “abuse of discretion” standard, the U.S. Court of Appeals for the Federal Circuit reversed a district court’s dismissal of a declaratory judgment suit and remanded the case.  Electronics For Imaging, Inc. v. Jan R. Coyle, Case No. 04-1266, (Fed. Cir., Jan. 5, 2005) (Lourie, J.)

Electronics For Imaging Inc. (EFI) specializes in network printing solutions.  It sells its products to companies such as Canon Inc., Hewlett-Packard Company and Xerox Corporation, which in turn incorporate EFI’s technology into their own print servers, printers and copiers.  EFI is a Delaware corporation with its principal place of business in California.  Jan Coyle, a Nevada resident, is a listed inventor on two patents directed to printing technology.  Kolbet Labs is a Nevada sole proprietorship owned by Daniel Kolbet, who is also a Nevada resident and an inventor listed on both patents.

Coyle first contracted EFI in 1997, offering to license his then-unpatented technology.  Subsequently, Coyle and EFI met in Nevada under a non-disclosure agreement.  EFI left that meeting uninterested in Coyle’s work and did not retain any written information from it.  In 1999, the two parties convened again; EFI indicating an interest in discussing Coyle’s statements concerning progress on the technology and a pending patent application.  Coyle also apparently informed EFI about his own history of filing patent infringement lawsuits against such corporations as Atari Inc., Nintendo, Sega and NEC Technologies.  In 2000, the two parties met under a new non-disclosure agreement to discuss possible licensing arrangements, but those talks also ended without any agreement.

In 2001, Coyle discovered certain EFI sales and marketing information that convinced him that EFI was manufacturing products that were within the scope of Coyle’s patent application, then still pending.  Soon thereafter, Coyle notified EFI that his patent would soon issue and asserted that the patent would cover all of EFI’s print controllers.  Later, Coyle began to pressure EFI on an almost daily basis, threatening to drive EFI out of business.  Coyle even identified specific attorneys and law firms in support of his litigation threats.  Coyle purportedly leveled an ultimatum, warning EFI that December 15 was the deadline to pay, saying, “If we don’t get a deal, we will pull the trigger and execute the litigation.”  However, negotiations between the two parties again broke down.  A few days before the ultimatum date, EFI sued Coyle and Kolbet Labs in the Northern District of California, seeking a declaratory judgment that EFI did not breach the two non-disclosure agreements and that EFI did not misappropriate Coyle’s trade secret.

A few weeks later, Coyle’s patent issued, and EFI amended its complaint that same day to assert non-infringement and invalidity of the patent.  Coyle filed motions to dismiss the complaint for lack of personal jurisdiction, for improper venue and for failure to comport with the objectives of the Declaratory Judgment Act.  The court granted Coyle’s motion to dismiss for lack of personal jurisdiction, but reserved judgment on Coyle’s other motions to dismiss.  EFI appealed and the Federal Circuit, applying its own law on the issue of personal jurisdiction, concluded that Coyle had not shown that the case was “one of the ‘rare’ situations in which sufficient minimum contacts exist but where the exercise of jurisdiction would be unreasonable.”

On remand, the district court considered the other grounds for dismissal previously raised by Coyle.  The court determined that EFI did not have any uncertainty about Coyle’s intention to sue and was not uncertain about the strength of its legal position.  The district court thus concluded that EFI’s declaratory judgment suit did not serve the objectives of the Declaration Judgments Act and was merely anticipatory, designed to preempt Coyle’s suit and to secure EFI’s own choice of forum instead and granted Coyle’s motion to dismiss.

In this appeal, the Court, while noting that a district court has “unique and substantial discretion” to decline to exercise declaratory judgment jurisdiction, warned that discretion is not plenary:  “[t]here must be well-founded reasons for declining to entertain a declaratory judgment action.” 

Noting that the question of whether to accept or decline jurisdiction in an action for a declaration of patent rights in view of a later-filed suit for patent infringement “is an issue that falls within our exclusive subject matter jurisdiction,” the Federal Circuit announced that it would not defer to the procedural rules or decisional law of the regional circuit on this issue.

Based on the purpose of the Act (“to provide the allegedly infringing party relief from uncertainty and delay regarding its legal rights”), the Federal Circuit held that “the district court erred as a matter of law when it held that EFI suffered no uncertainty of the kind recognized by the Declaratory Judgment Act.”

[A] patent owner . . . attempts extra-judicial patent enforcement with scare-the-customer-and-run tactics that infect the competitive environment of the business community with uncertainty and insecurity. . . .  Before the Act, competitors victimized by that tactic were rendered helpless and immobile so long as the patent owner refused to grasp the nettle and sue.  After the Act, those competitors were no longer restricted to an in terrorem choice between the incurrence of a growing potential liability for patent infringement and abandonment of their enterprises; they could clear the air by suing for a judgment that would settle the conflict of interests.

The Federal Circuit explained that the district court “misinterpreted the term ‘uncertainty’ in the Act.”  “The proper inquiry should not have been whether a party is ‘certain’ that its legal position and defense theories are sound, because litigation is rarely ‘certain,’ even if one is confident of one’s position. ... ”  “‘Uncertainty’ in the context of the Act refers to the reasonable apprehension created by a patentee’s threats and the looming specter of litigation that result from these threats.”

The Federal Circuit also found that the district court abused its discretion in its dismissal order by focusing on the anticipatory nature of the suit:  “We apply the general rule favoring the forum of the first-filed case, ‘unless considerations of judicial and litigant economy, and the just and effective disposition of disputes, requires otherwise.’” 

The Court reasoned that whether a party intended (by filing a declaratory judgment action) to preempt another’s infringement suit is merely one (non-dispositive) factor.  “The considerations affecting transfer to or dismissal in favor of another forum do not change simply because the first-filed action is a declaratory action.”

Patent License / Oral Contract

In Fight Over Board Game Deal, E-mail Created Genuine Dispute Concerning Existence of Contract
By Matthew F. Weil

Reversing the district court’s second grant of summary judgment, the U.S. Court of Appeals for the Federal Circuit held that genuine issues of material fact concerning the intent of the parties to enter into a contract precluded a grant of summary judgment.  Lamle v. Mattel, Inc., Case No. 04-1151 (Fed. Cir., Jan. 7, 2005) (Dyk, J.; Newman, J., dissenting).  The Federal Circuit also held than an e-mail outlining contract terms could be a sufficient “writing” to overcome the California Statute of Frauds.

Stewart Lamle holds two patents on a board game he calls Farook.  According to the allegations in his complaint, in 1997, he and Mattel agreed to an exclusive license and manufacturing agreement.  Lamle and representatives of Mattel discussed the terms of the contract in an exchange of e-mails, but never executed a formal agreement.

When Mattel refused to go forward with the deal, Lamle sued for (among other things) breach of contract, patent infringement and intentional interference with economic relations. 

The District Court for the Central District of California granted summary judgment in favor of Mattel, and Lamle appealed.  The Federal Circuit vacated and remanded because it could “neither discern the grounds on which the district court granted summary judgment nor be certain that there [were] no genuine disputes of material fact.”  On remand, the district court again granted summary judgment, but its second opinion failed to impress the Federal Circuit:  “[The district court’s] order and judgment listed six grounds for its decision, each being one sentence long, with no citations to any case or to the record, and providing no explanation as to the facts or law upon which it was relying.”

Upon de novo review, the Federal Circuit applied California law, under which the question of whether an oral agreement will take effect depends on the intention of the parties, as determined in light of all the facts and circumstances.  The Court held that on the facts of this case summary judgment on this issue was inappropriate because a reasonable juror could find that the parties intended to enter into a contract.  The Court also held that the name of a Mattel vice president at the end of a confirming e-mail was a sufficient “signed writing” to overcome the California Statute of Frauds.  The Court applied California common law in its analysis, but noted that if the e-mail had been sent after January 1, 2000, there would be no question of its sufficiency because the Uniform Electronic Transactions Act, Cal. Civ. Code §1633.7 (2004), now provides that a “record or signature may not be denied legal effect or enforceability solely because it is in electronic form.”

Patents / “Exceptional Case” Doctrine

Absent Litigation Misconduct, Court Looks for Subjective Bad Faith to Justify “Exceptional Case” Holding
By Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit, in vacating an award of attorney fees based on the “exceptional case” doctrine, has held that as long as the underlying declaratory judgment action for patent invalidity non-infringement was brought in good faith, the case is not exceptional.  Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc. and Dutailier, Inc., Case No. 03-1379 (Fed. Cir., Jan. 4, 2005) (Newman, J.).

Dutailier is the owner of a design patent for rocking chair trim.  Brooks and Dutailier are both in the business of manufacturing rocking chairs.  Dutailier sent Brooks a cease and desist letter, alleging infringement of its patent and demanding an orderly withdrawal from the market and payment of royalties for past and interim infringement.  In response, Brooks filed suit seeking a declaratory judgment that it did not infringe and that the patent was invalid.  Brooks alleged that the action was “exceptional” and requested attorney fees and litigation costs.  Dutailier then sued Brooks in Delaware asserting patent infringement, Lanham Act and common law unfair competition, as well as deceptive trade practices under state consumer protection law.  After an unsuccessful attempt to transfer the Tennessee case to Delaware, Dutailier dismissed the Delaware action and filed equivalent counterclaims in the Tennessee action.

After the district court granted Brooks’ motion for summary judgment of non-infringement, Brooks voluntarily dismissed its other declaratory judgment claims and Dutailier voluntarily dismissed its remaining counterclaims.  The district court then entered a final judgment and granted Brooks’ request for attorney fees, concluding that the circumstances of the case were exceptional.  Dutailier appealed.

On appeal, the Federal Circuit explained that “[a]bsent misconduct in conduct of the litigation or in securing the patent, sanctions may be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.”  This case focused on the subjective bad-faith requirement.

The Federal Circuit, observing that there “is a presumption that the assertion of infringement of a duly granted patent is made in good faith” noted that “the underlying improper conduct and the characterization of the case as exceptional must be established by clear and convincing evidence.”

Brooks argued, and the district court found, that Dutailier had acted in bad faith in sending the cease and desist letter and filing the Delaware suit against Brooks.  The district court considered the frivolousness of the infringement claim, as well as Dutailier’s behavior in the marketplace and its policy of suing and acquiring its competitors, most of whom were small and therefore less able to afford to defend themselves. 

Dutailier argued it had a good faith belief in the strength of its infringement claim and that it had conducted a thorough investigation of the accused chairs before sending the cease and desist letter and filing the infringement counterclaims.  Dutailier investigation included analyses by its marketing staff and designer, followed by infringement opinions by Canadian and United States patent attorneys, as well as evaluations by two independent experts in the field of rocking chair design.  All of the experts and attorneys that Dutailier consulted concluded that there was substantial similarity between the accused chairs and the design set forth in its design.

The district court, after concluding that design patents “are entitled to almost no scope beyond the precise contact of the pertinent drawings” found that the opinions of counsel and the opinions of the other experts Dutailier had consulted, were unreasonable in their conclusions.   The court found that Dutailier’s reliance on these opinions was unreasonable and that such unreasonable reliance established Dutailier’s bad faith.

The Federal Circuit reversed, noting that the “legal criterion for infringement of a design patent is substantial identity, whereby ‘in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantially the same, if the resemblance is such as to deceive such an observer, inducing him to purchase one supposing it to be the other, the first one patented is infringed by the other.’”

Thus, according to the Federal Circuit, “the fact that an infringement opinion may not have mentioned every detail of the patented or the accused design does not necessarily render the opinion wrong or unreliable,” and that an otherwise competent opinion “cannot be transformed into the opposite extreme of unreliability and incompetence, simply because the court reached a different conclusion on the merits of infringement.”  The Court concluded that Brooks failed to prove by clear and convincing evidence of bad faith by Dutailier in charging Brooks with infringement.

As to the other bad-faith factors noted by the district court, the Federal Circuit considered the relative size of the companies, patent owner’s history of enforcement litigation and unwillingness to license as not germane and observed that “patent rights are useful only if they can legally exclude others from the patented subject matter.”  “Although the entirety of a patentee’s conduct may be considered, enforcement of patent rights that are reasonably believed to be infringed does not entail special penalty when the patentee is unsuccessful.” 

Trademark Litigation / Attorney’s Fees

Egregious Trademark Owner is Poster Child for “Exceptional Case” Doctrine
By Farah Bhatti

Addressing the issue of the award of attorney’s fees in a trademark litigation context, the U.S. Court of Appeals for the Seventh Circuit found that litigation misconduct by a defendant was sufficient to declare a case “exceptional” under the Lanham Act.  Because the defendant’s misconduct was so oppressive and egregious, the plaintiff was entitled to attorney’s fees.  Te-Ta-Ma Truth Foundation-Family of Uri, Inc. v. The World Church of the Creator., Case No. 03-4085, (7th Cir., Dec. 13, 2004).

The plaintiff, Te-Ta-Ma Truth Foundation (Foundation), the owner of a federally registered trademark for the mark “Church of the Creator,” filed a trademark infringement action against the defendant, World Church of the Creator (World Church), a white supremacist group, for use of the “Church of Creator” mark. World Church’s use of the mark resulted in actual confusion as Foundation, a religious charity that promoted universal love and respect, began to receive complaints and condemnations from third parties after World Church members appeared on the Jerry Springer show and proclaimed hatred for Jews and non-whites. 

Throughout the litigation, World Church encouraged its members to send offensive and threatening e-mails and voicemails to the Foundation and the Foundation’s attorneys.  In addition, World Church posted press releases on its website flouting its use of the mark even after the issuance of a permanent injunction. Moreover, a member of the World Church was tried and convicted of soliciting the murder of the district court judge and attempting to influence her through corruption and force.

In evaluating this case, the court looked at whether World Church’s litigation conduct was enough to label the case “exceptional” for purposes of the Lanham Act.  The court evaluated trademark cases in the context of patent fee-shifting provisions and found that where a “losing party has engaged in vexatious litigation conduct,” even without willful infringement, a case can be deemed “exceptional.”  The court found that World Church, through its harassment campaign, drove up the plaintiff’s costs in defending its suit.  In addition, the court found that such harassment and threatened violence amounted to tortuous and criminal conduct which were “egregious” and “beyond the pale of acceptable litigation conduct.”  In addition, the court considered the purposeful flouting of the infringement after the issuance of the injunction and found that the case was “exceptional” for purposes of the Lanham Act.

While the court found that vexatious litigation may result in the award of attorney’s fees, the court distinguished such litigation with aggressive litigation which is acceptable so long as parties play “by the rules.”

Trademarks / Famous Marks

What Qualifies as a Famous-Mark Exception to the Territoriality Principle?
By Linda A. O. Lamberson

The U.S. Court of Appeals for the Ninth Circuit has now found that the famous-mark exception to the territoriality principle gave the owner of a famous mark superior geographical rights.  While this exception was an appropriate theory of recovery, the Ninth Circuit concluded that the district court’s interpretation of this exception was too broad and would effectively eliminate the territoriality principle if adopted.  Grupo Gigiante S.A. de C.V. v. Dallo & Co., Inc., 2004 U.S. App. LEXIS 25958 (Ninth Cir., Dec. 15, 2004).

The plaintiff, Grupo Gigante, operated its chain of “Gigante” grocery stores in Mexico beginning in 1962.  However, the plaintiff did not expand its business into the United States until 1999, eight years after the defendant, Dallo & Co., opened its first grocery store, “Gigante Market,” in San Diego.  Although both parties owned California state registrations for “GIGANTE,” neither party had a federal registration for the mark.  Further, prior to this suit, both parties had informally attempted to stop the other’s use of the mark in Southern California.

In upholding the famous-mark exception, the Ninth Circuit acknowledged that “[c]ommerce crosses borders.  In this nation of immigrants, so do people.”  Thus, an absolute territoriality rule without such an exception would only “promote consumer confusion and fraud.” 

Although no “clear threshold for just how famous a mark must be to qualify for the exception” existed, the Ninth Circuit rejected the district court’s interpretation that it should evaluate whether the foreign mark had attained secondary meaning in Southern California.  By analyzing the foreign user’s rights in terms of whether it had established secondary meaning in the particular U.S. market where it sought to assert rights, the district court improperly ignored that the user’s earlier use of the mark was entirely outside the United States.

Ultimately, the Ninth Circuit held that defining this exception in terms of secondary meaning was “not enough.”  In cases where the foreign mark was not used in U.S. commerce, the user also must establish, by a preponderance of the evidence, that “a substantial percentage of consumers in the relevant American market are familiar with the foreign mark.” (Emphasis in original).  The court elaborated, noting that courts should consider factors such as intentional copying of the mark and whether consumers of the U.S. business were likely to believe that they were purchasing the goods or services of a business using the same mark in another country.

Trademarks / Consumer Confusion

Internet Search Engine Results are Not Evidence of Actual Consumer Confusion
By Benjamin J. Hofileña, Jr.

The U.S. Court of Appeals for the Second Circuit agreed with the district court’s finding that internet search engine results are of little value when trying to demonstrate “actual consumer confusion” in a trademark infringement case.  Playtex Prod., Inc. v. Georgia-Pacific Corp., Case No. 03-7946 (Second Cir., Nov. 23, 2004) (Sotomayor, S.).

This dispute in this case revolved around the use of marks in connection with pre-moistened wipes.  Playtex registered the mark “Wet Ones” as a mark for pre-moistened towelettes over 20 years ago.  In the last six years, Playtex has sold $170 million worth of its pre-moistened wipes.  Sometime after 2001, when defendant Georgia-Pacific first entered the market for pre-moistened wipes, it started using the mark “Quilted Northern Moist-Ones.” Playtex brought suit against Georgia-Pacific, seeking damages and injunctive relief.  The Second Circuit affirmed the district court’s granting of summary judgment in favor of Georgia-Pacific, agreeing with the court’s determination that there was no likelihood of confusion between the two marks and that there was no trademark infringement. 

To prove infringement in the Second Circuit, a plaintiff has to show that its trademark is protectable and that the defendant’s mark is likely to confuse consumers as to the source or sponsorship of its product.  In addressing the likelihood of confusion, courts in the Second Circuit applied eight factors: 

1.       The strength of the plaintiff’s mark

2.       The similarity of the parties’ marks

3.       The proximity of the parties’ products in the marketplace

4.       The likelihood that the plaintiff will “bridge the gap” between the products

5.       Actual consumer confusion between the two marks

6.       The defendant’s intent in adopting its mark

7.       The quality of the defendant’s product

8.       The sophistication of the relevant consumer group 

Applying these factors, the district court ultimately found that there was no likelihood of confusion between the marks.

The Second Circuit’s review of the district court’s finding of no actual confusion is noteworthy.  Playtex contested the district court’s finding that there was no evidence of actual consumer confusion.  In district court, Playtex relied on evidence demonstrating that when a user types in “moist ones”  into the search function of a popular website (DrugStore.com), the website pulls up several versions of Playtex’s product and none of Georgia-Pacific’s product (as evidence of actual confusion).  The search results showed that the search engine associates “Moist-Ones” with “Wet Ones.” The Second Circuit agreed with the district court that “the fact that the computer associates ‘Moist Ones’ with ‘Wet Ones’ reflects little, if anything, about whether consumers are actually confused.”

Copyrights / Digital Millennium Copyright Act

“Good Faith Belief” in DMCA Notice and Takedown Provisions Requires Subjective Standard
By Ann Brose

Addressing the notice and takedown provisions of the Digital Millennium Copyright Act (DMCA), the U.S. Court of Appeals for the Ninth Circuit affirmed a lower court’s granting of summary judgment, adopting a “subjective standard” for the good faith belief requirement.  Rossi v. Motion Picture Assoc. of Am., Case No. 03-16034, D.C. No. CV-02-00239-BMK (Ninth Cir., Dec. 1, 2004) (Rawlinson J.).

The plaintiff Michael Rossi owns and operates the internet site www.internetmovies.com, which he described as an “online magazine” that provides its members with a directory of websites containing movie information.  The defendant, Motion Picture Association of America (MPAA), is a trade association whose objective is to prevent unauthorized copying, transmittal or other distribution of its member movie studios’ films.  On finding that Rossi’s website included the following content:  “Join to download full length movies online now!  New movies every month,” “Full Length Downloadable Movies” and “NOW DOWNLOADABLE,” and also provided graphics for several copyrighted movies, the MPAA believed that Rossi was illegally infringing its copyrighted materials and sent letters to Rossi and his internet service provider (ISP), informing them of the alleged infringement and including the “notice and takedown” procedures prescribed in the DMCA.

On receiving notice from his ISP that his website would be shut down, Rossi filed suit against the MPAA asserting tortuous interference with contractual relations, tortuous interference with prospective economic advantage, libel and defamation, as well as intentional infliction of emotional distress.  The MPAA filed a motion for summary judgment on all claims.  The district court granted the motion noting that the MPAA “had more than a sufficient basis to form the required good faith belief that [Rossi’s] site contained infringing content prior to asking [the ISP] to shut down the site.” 

On appeal, Rossi did not dispute that the MPAA complied with the DMCA notice and takedown procedures.  However, Rossi contended that the MPAA did not have the “good faith belief” required by §512(c)(3)(A)(v) that he was illegally infringing the MPAA copyrights.  Noting that the MPAA never attempted to download any movies from his site or related sites, Rossi argued that the “good faith belief” requirement would impose an objective standard of review for measuring the reasonableness of the MPAA’s behavior in contacting Rossi and his ISP about the allegedly infringing material.  Rossi further contended that if the MPAA had tried, it would have discovered that no movies could be downloaded from his site or any of the related links.  The MPAA  asserted that the “good faith belief” requirement was a subjective one.

The Ninth Circuit affirmed, noting that Congress could have incorporated an objective standard of reasonableness for the requisite “good faith belief,” but declined to do so, thereby indicating its intent to follow the subjective standard traditionally associated with a good faith requirement.  The court also viewed the “good faith” requirement in light of the “knowing misrepresentation” provision in the DMCA, which only imposes liability upon copyright owners for knowing misrepresentations pertaining to allegedly infringing website.  The court found that “[m]easuring compliance with a lesser ‘objective reasonableness’ standard would be inconsistent with Congress’s apparent intent that the statute protect potential violators from subjectively improper actions by copyright owners.” 

In applying the subjective standard, the court examined the material on Rossi’s site and the MPAA’s response to the discovery of that information.  It found that Rossi’s representations on the site led the MPAA to reasonably conclude in good faith that MPAA movies were available on the site for downloading and that the MPAA acted within the law in contacting Rossi and his ISP.

Intellectual Property Litigation

Court Shifts Cost of Electronic Discovery to Requesting Party
By Paul E. Poirot

In a case extending the trend to shift the cost of electronically stored information to the requesting party, a California Court of Appeal for the Fourth District has applied a California statute to shift the costs of restoring backup tapes of electronic data to the demanding party.  Toshiba America Electronics Components, Inc. v. Superior Court, 2004 Cal. App. LEXIS 2055 (Cal. App. Fourth, Dec. 3, 2004).

The real party of interest, Lexar Media Inc., sued Toshiba America Electronic Components (TAEC) for misappropriation of trade secrets, breach of fiduciary duty and unfair competition.  Lexar served TAEC with a request for production of documents that included electronic mail.  A dispute arose about who should pay for recovery of e-mail stored on TAEC's computer backup tapes.  TAEC had more than 800 backup tapes for the pertinent time period.  Complete processing of all the tapes would cost between $1.5 and $1.9 million.

TAEC asserted that Lexar should pay some or all of the cost of recovery.  Lexar refused and filed a motion to compel production of all responsive documents contained on the backup tapes.  Relying on decisions from federal courts, Lexar argued that cost-shifting would be unfair when the producing party had chosen to keep records in a manner that makes them difficult to retrieve. TAEC responded that restoring its electronic backup tapes was an undue burden and that the federal analysis favored shifting the cost to Lexar.  Neither party referred to the California statute, C.C.P. §2031 (g)(1).

The trial court granted Lexar's motion and TAEC petitioned for a writ of mandate, raising the issue of C.C.P. §2031 (g)(1) and arguing that it was an automatic cost-shifting provision that should apply.  The relevant portion of C.C.P. §2031(g)(1) states that "[i]f necessary, the responding party at the reasonable expense of the demanding party shall, ... translate any data compilations ... into reasonably usable form."  The court framed the issue as whether the phrase "at the reasonable expense of the demanding party" is a mandatory cost-shifting provision or merely permits cost-shifting.  The court found Lexar’s reliance on federal cases unpersuasive after it held that the issue was one of state law and the interpretation of C.C.P. §2031(g)(1).  The court then held that the statute "clearly states that if translation is necessary, the responding party must do it at the demanding party's reasonable expense" and shifted the costs to Lexar (the demanding party).  The appellate court left open for the trial court to determine what was a "reasonable expense" and what was a "necessary" translation.

Practice Note

This decision follows closely on the heels of a similar decision in a New York state court, where that court held that the party requesting electronic data should bear the costs of production.  Lipco Electrical Corp. v. ASG Consulting Corp.  Last year, the Federal Court for the Southern District of New York established a test for which party should bear the costs of discovery of electronic data, distinguishing between "accessible" and "inaccessible" data.  Zubulake v. UBS Warburg LLC.

While this decision relies almost exclusively on a California statute that would not be controlling in federal court, it is instructive of the trend by courts to shift the cost of expensive electronic discovery to the requesting party.

Patents / Infringement Claim

Gillette and Energizer Cross Blades in German Patent Court
By Thomas Hauss

On December 02, 2004 the patent panel of the district court in Düsseldorf, Germany, handed down its decision in a 20 million Euro patent dispute between subsidiaries of the two world market leaders for wet shaving blades, U.S. companies Gillette and Energizer.  The court held that Gillette’s European patents for the “Mach3” shaver with three blades were not infringed by the new “Quattro” shaver, produced by the German Energizer subsidiary Wilkinson Sword. 

Gillette’s counsel, contended that Gillett’s European patent concerns progressive three blade exposure and a three phase strategy for shaving.  He said the patent would also cover shavers with four blades because even with four blades the shaver makes use of the technical solution in three phases patented for Gillette.  However,  Energizer contended that the Gillette patent rather warned against using four blades and was restricted to a three blade shaver only.  The court found no patent infringement because the fourth blade of the Energizer shaver proved to be no dud but effective.  The court handed down its decision immediately after the hearing and not, as usual in patent cases, after a period of deliberation.  In his judgment, Judge Thomas Kühn explained that Gillette’s patent covered only a process with three blades, not a process in three steps, and dismissed Gillette’s claim for damages of approximately 17.6 million USD.  In addition he ordered that Gillette has to bear the cost for the proceedings at the Düsseldorf district court.  Gillette plans to appeal against this decision.

The world wide market for wet shaving equipment is estimated to be worth several billion USD a year.  Thus, Gillette and Energizer quite frequently take their disputes on such cutting-edge technology to court.  Only a few days ago, on November 24, 2004, the district court Hamburg, Germany, granted an interim injunction against Gillette and in favor of Wilkinson.  In the challenged advertising campaign, Gillette contended that the new “M3Power” wet shaver uses electrical “micro impulses” and guarantees a closer shaving.  The district court Hamburg could not establish any proof of a technical advantage and found the advertisement misleading.  It released a cease and desist order concerning Gillette’s  advertising campaign.

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