IP Update, Volume 6, No. 2, February 2003
February 2003
IN THIS ISSUE
Misstatement in Prosecution? No Matter; Silence During Standard-Setting? That’s OK, Too!
By Matthew F. Weil
Over a vigorous dissent, the U.S. Court of Appeals for the Federal Circuit has ruled that the plain meaning of a claim trumps even directly contradictory statements in the prosecution history of the patent and withholding information concerning one’s own patent portfolio from others in a standard-setting body is not necessarily actionable fraud. Rambus v. Infineon Technologies AG, Case Nos. 01-1449, -1583, -1604, -1641, 02-1174, -1192 (Fed. Cir. January 29, 2002).
Rambus develops and licenses memory technologies to companies that manufacture semiconductor memory devices and was a participant in the Joint Electron Device Engineering Council (JEDEC). As such, Rambus was in a position to influence the development of technical standards for synchronous dynamic random access memory (SDRAM) chips. Although it attended meetings and provided input into the standard-setting process, Rambus never disclosed that it had pending patent applications for claims that might cover devices designed to meet standards and that it was seeking to amend its applications to add claims to increase the scope of its patent coverage. The jury took a dim view of this behavior and found against Rambus on a fraud count, a verdict the district court declined to overturn.
Also, when adding certain claims during the prosecution of the patent in suit, the patent attorney representing Rambus characterized the claims as all containing particular limitations. In fact, it is plain from the wording of the claims themselves that only one of the several newly offered claims contained each of the recited limitations. In construing the claims, however, the district court accepted Infineon’s invitation to read the missing limitations into the claims based on the patent attorney’s representations to the U.S. Patent and Trademark Office. Based on the claim construction, the district court entered a judgment of non-infringement.
On the claim construction issue, the Federal Circuit held that the district court was incorrect as a matter of law to adopt a claim construction inconsistent with the plain meaning of the claim language, the attorney argument during prosecution notwithstanding: "The claim language itself controls the bounds of the claim, not a facially inaccurate remark during prosecution." The majority noted its belief that "a reasonable competitor would not rely on an untrue statement in the prosecution history over the express terms of the claims."
The Federal Circuit also reversed the district court’s denial of a motion to set aside the jury verdict of fraud, finding that "substantial evidence does not support the implicit jury finding that Rambus breached the relevant disclosure duty during its participation in the standards committee." The Court held that the evidence was not sufficient to find that Rambus acted fraudulently when it failed to disclose patent and patent application information to a standard-setting body.
In fact, the Court noted "a staggering lack of defining details" in the body’s patent policy.
Practice Note: Rambus is still the subject of an administrative complaint by the U.S. Federal Trade Commission (FTC) that alleged anti-competitive behavior in violation of Section 5 of the FTC Act. It remains to be seen what effect, if any, this decision will have on the FTC proceeding. The ruling of "no fraud" in this case is highly fact-specific, based on the particular rules governing the JEDEC. Companies involved in such standard-setting bodies should take away two lessons. First, look to the written patent policy for guidance as to what duty you may have to disclose your own patent position and conduct yourself accordingly. Second, consider what the policy should be and make sure you are comfortable with the level of duty imposed on you and others to disclose patent positions.
Patents
No Infringement When Filing FDA Application for Generic Drug for Non-Patented Use
By Jennifer L. Yokoyama
The U.S. Court of Appeals for the Federal Circuit has upheld the grant of summary judgment of non-infringement of a patent claiming a method of using the drug gabapentin to treat "neurodegenerative diseases" where the defendant applied to use the drug for the treatment of epilepsy. Warner-Lambert Co. v. Apotex Corp., Case No. 01-1073 (Fed. Cir. Jan. 16, 2003),
Warner-Lambert (now Pfizer, Inc.) sued Apotex under 35 U.S.C. § 271(e)(2)(a), alleging that Apotex’s filing of an abbreviated new drug application (ANDA) to market a generic gabapentin for the treatment of epilepsy infringed Warner-Lambert’s patent. It was undisputed that epilepsy is not a neurodegenerative disease and the FDA has approved the use of gabapentin for treatment of epilepsy only.
Although Apotex never sought or received approval for the use of gabapentin to treat neurodegenerative diseases, Warner-Lambert argued that Apotex’s filing of the ANDA constituted infringement of Warner-Lambert’s patent because patients had used Warner-Lambert’s product for treating neurodegenerative diseases and would likely use Apotex’s gabapentin for this purpose as well.
Warner-Lambert urged a broad application of § 271(e)(2)(a), asserting that it prohibits submission of an ANDA seeking approval to make, use or sell a drug for an approved use if any other use of the drug is claimed in a non-expired patent. The Federal Circuit rejected this argument, holding that "it is not an act of infringement to submit an ANDA for approval to market a drug for a use when neither the drug nor the use is covered by an existing patent, and the patent at issue is for a use not approved [by the FDA]."
The Court also rejected Warner-Lambert’s allegation that Apotex was inducing infringement simply because it was foreseeable that doctors would prescribe gabapentin to treat neurodegenerative diseases according to the method claimed in the patent even if those uses are not approved by the FDA. The Court stated that "mere knowledge of possible infringement by others does not amount to inducement; specific intent and action to induce infringement must be proven."
Berlex’ Patent Claims Do Not Cover Biogen’s Drug for MS
By John Prince, Ph.D.
The U.S. Court of Appeals for the Federal Circuit has substantially upheld a district court’s decision that Berlex’ patents claims do not cover Biogen’s method of making the multiple sclerosis drug AVONEX. The Court noted that "representations during prosecution cannot enlarge the content of the specification." Biogen v. Berlex Laboratories, 01-1058, -1059 (Fed. Cir., Jan. 31, 2003).
Biogen and Berlex Laboratories make competing formulations of a genetically engineered protein (human ß-interferon) for the treatment of multiple sclerosis. Berlex’ BETASERON is produced in bacteria, while Biogen’s AVONEX is produced in cultured mammalian cells. As a result, BETASERON and AVONEX differ in their sugar attachments and in a minor amino acid sequence variation. Berlex sued Biogen for infringement of two patents directed to methods for making human ß-interferon in mammalian cells, but the district court found non-infringement by Biogen. After the trial, Berlex and Biogen settled, with the amount of a final payment by Biogen dependent upon the outcome of an appeal to the Federal Circuit.
According to the Federal Circuit, the principal issue was whether the claims of U.S. Patent No. 5,376,567, directed to the production of ß-interferon in mammalian cells, were correctly construed. The district court had limited the claim scope to the use of a single DNA vector to introduce both the interferon gene and a selectable marker gene into the cells (so-called "linked co-transformation," as disclosed in the `567 patent specification). The scope of the claims did not cover the use of separate DNA vectors for the separate genes (so-called "unlinked co-transformation" used by the Biogen method to make AVONEX). The Federal Circuit agreed that the claims did not cover unlinked co-transformation, despite arguments made by Berlex during the patent prosecution history that the allowed claims "do not depend on any particular nucleic acid construct configuration."
The Federal Circuit also upheld the determination of no literal infringement by Biogen, but remanded the case, for a post-Festo review of the `567 patent claims under the doctrine of equivalents. In a concurring opinion, Judge Rader suggested that the district court should carefully consider whether prosecution history estoppel, either from the `567 patent prosecution or from the prosecution of a prior related patent, should prevent a finding of infringement under the doctrine of equivalents.
Practice Note: On February 3, 2003, Biogen announced that it would make the final settlement payment. The ability to sell AVONEX has been important for Biogen’s success as a biotechnology company. Biogen and Berlex had previously litigated the differences between their respective ß-interferon formulations in the context of the Orphan Drug Act. Berlex Laboratories v. FDA.
Fair Use Defense Fails Where Use Creates Consumer Confusion
By John J. Dabney
The U.S. Court of Appeals for the Ninth Circuit has held that a fair use defense fails as a matter of law if the defendant’s use creates a likelihood of confusion. Brother Records, Inc. v. Alan Jardine, 2003 U.S. App. LEXIS 1335 (9th Cir. Jan. 28, 2003).
The plaintiff owns the mark BEACH BOYS for musical entertainment services. The defendant, a former band member, performed musical concerts under various names that included the mark BEACH BOYS, such as AL JARDIN OF THE BEACH BOYS and BEACH BOYS and FAMILY. The district court rejected the defendant’s fair use defense and awarded summary judgment to the plaintiff.
The Ninth Circuit affirmed. The court explained that there are two types of fair use defenses: the "classic" fair use defense, where the defendant uses the challenged term in its primary sense to describe the defendant’s services, and the "nominative" fair use defense, where the defendant uses the challenged term to describe the plaintiff’s services. However, both defenses fail as a matter of law if the defendant’s use creates a likelihood of confusion. "The purpose of trademark infringement law is to ensure that the owners of trademarks can benefit from the goodwill associated with their marks and that consumers can distinguish among competing producers." Because the defendant’s use of BEACH BOYS in its name "suggested sponsorship or endorsement by the trademark owner, the defendant’s fair use defense fails as a matter of law."
Practice Note: The regional circuit courts of appeal are split on whether a showing of confusion defeats a fair use defense. The Fifth and Sixth Circuits follow the Ninth Circuit’s rule that the fair use defense fails if there is confusion. The Second and Fourth Circuits hold that the defense still applies if there is confusion. If you have a case where fair use is a significant issue, selecting the appropriate forum could be outcome determinative.
Trademark Owner’s Failure to Police Strikes Again
By John J. Dabney
In Pro-Fitness Physical Therapy, (IP Update, Vol. 5, No. 12, December 2002), a trademark owner’s failure to police its mark prevented the owner from challenging a similar mark. A new case demonstrates how failure to police can also result in a trademark owner’s loss of right to expand its mark into a related product market. Patsy’s Brand, Inc. v. I.O.B. Realty, Inc., 2003 U.S. App. LEXIS 614 (2nd Cir. Jan. 16, 2003).
The plaintiff and the defendant both use the mark PATSY’S for restaurant services. The parties have co-existed in New York City for more than half a century. The plaintiff opened its restaurant in 1944; the defendant in 1933. In 1993, the plaintiff began to sell pasta sauce at retail under its PATSY’S mark. In 1999, the defendant commenced the sale of pasta sauce at retail under the name PATSY’S. The plaintiff sued for trademark infringement and sought an injunction prohibiting the defendant’s use of PATSY’S for pasta sauce. The district court awarded judgment to the plaintiff.
The U.S. Court of Appeals for the Second Circuit affirmed and, therefore, rejected the defendant’s primary defense that the plaintiff’s claim was barred because the plaintiff’s use of PATSY’S for pasta sauce infringed the defendant’s PATSY’S mark for restaurant services. As the court explained, "Where a senior user delays in enforcing its rights, a junior user may acquire a valid trademark in a related field enforceable against even the senior user." The defendant had allowed the plaintiff to use PATSY’S for more than 50 years without objection. The court found it was now too late for the defendant to object, even if the plaintiff’s continued use of PATSY’S caused confusion. As the court put it, "the failure of [the defendant] to police its restaurant mark against [the plaintiff] has perhaps created a certain degree of now unavoidable confusion in the New York City market for restaurant services. As a result, it is now possible that [the plaintiff] will precipitate some confusion among customers of [the defendant’s] who will think that the sauce comes from [the defendant]. But that risk is far preferable to denying the first to market sauce the opportunity to capitalize on [its] goodwill." The court thus affirmed an injunction that prohibited the defendant from selling PATSY’S pasta sauces at retail.
Practice Note: Patsy’s and Pro-Fitness demonstrate how trademark rights are easily lost by an owner’s failure to timely object to a misuse of its mark. Trademark rights impart a duty on the trademark owner to stop others from using a confusingly similar mark. If the owner fails in that duty, loss of valuable trademark rights may result.
Federal Circuit Reaffirms Copyright Does Not Preempt Contract Claim
By Jennifer L. Yokoyama
The U.S. Court of Appeals for the Federal Circuit reaffirmed its original opinion in Bowers v. Baystate Technologies (IP Update, Vol. 5, No. 9, September 2002), Judge Dyk dissenting in part. Bowers v. Baystate Technologies, Case No. 01-1108, -1109 (Fed. Cir. Jan. 29, 2003).
The Court, in the majority opinion, adhered to its previous rulings that under First Circuit law, the applicable law in this case, the Copyright Act does not preempt the contract claim presented by Bower’s "shrink-wrap" license; the district court properly omitted copyright damages as duplicative of contract damages; and under a proper claim construction, no reasonable jury could have found in favor of Bowers with respect to his claim for patent infringement.
Judge Dyk dissented as to the copyright preemption issue only, voicing his concern that "under the majority’s reasoning, state law could extensively undermine the protections of the Copyright Act."
In Judge Dyk’s view, applying state law to give contractual effect to a shrink-wrap license is different from applying state law to give effect to a freely negotiated contract. By ruling that the state law in issue is not preempted by the Copyright Act, Judge Dyk asserts that the Court has authorized the use of "shrink-wrap agreements . . . [that] are far broader than the protection afforded by copyright law." The dissent argues that the majority opinion logically threatens other federal copyright policies by allowing copyright holders to extend their rights. "If by printing a few words on the outside of its product a party can eliminate the fair use defense, then it can also, by the same means, restrict a purchaser from asserting the ‘first sale’ defense . . . or any other of the protections Congress has afforded the public in the Copyright Act." The dissent also voices a concern that the majority opinion is in conflict with the only other federal court decision that addresses the issue, Vault Corp. v. Quaid Software, Ltd, holding that state law prohibiting the copying of a computer program is preempted by the Copyright Act.
Enough Is Enough: Federal Circuit Sanctions Frivolous Arguments
By Matthew F. Weil and David M. Stein
In a sharply-worded per curiam opinion, the U.S. Court of Appeals for the Federal Circuit upheld the district court in the latest of a long series of appeals involving Phonometrics, Inc. and its claims to telephone billing display technology. Phonometrics, Inc. v. Westin Hotel Co., Case No. 02-1314 (Fed. Cir. February 12, 2003). The opinion is principally noteworthy for the Court’s order that Phonometrics and its attorney, jointly and severally, be required to pay Westin $3,000 as a sanction for making frivolously unmeritorious arguments before the appeals court.
Among other things, the Court rejected attempts by the part of Phonometrics to argue that an earlier, non-precedential decision was not binding on it (even though it was a party to that earlier case). The Court held that Phonometrics was not free to reargue positions it had lost on the earlier appeal.
The Court also rejected Phonometic’s argument that the district judge should have recused himself because he "(1) ruled against it on every issue; (2) awarded attorney fees every time a defendant sued by Phonometrics has requested them; (3) insisted on adopting a consistent claim construction and (4) disagreed with Phonometrics’ proffered construction of the phrase ‘substantially instantaneous’ after [the Federal Circuit’s] decision in [the earlier], non-precedential case."
Finally, the Federal Circuit upheld the district court’s claim construction on all points, including the district court’s determination that a printed paper notice in a hotel guest room indicating the fixed cost of a local call cannot be the "digital display" to provide callers with a real-time visual readout of call costs of the sort recited in the claim.
Plain Meaning Rule Preempts Description of Preferred Embodiment
By David V. Jafari
The U.S. Court of Appeals for the Federal Circuit vacated the grant of a summary judgment of non-infringement finding that the patent claims in question were construed too narrowly by the district court. Prima Tek II, L.L.C. v. Polypap, Case No. 02-1164 (Fed. Cir. February 5, 2003).
The patent-in-suit describes a decorative assembly for a floral grouping. The district court construed the claim term "floral holding material" to be limited to "a three-dimensional solid, semi-solid, or granular material capable of giving support to individual flowers when their stems are inserted into the material." The district court also required that the floral stems be "inserted into and through" the floral holding material. Based on its construction, the district court found that the product in issue did not infringe the Prima Tek patent, either literally or under
the doctrine of equivalents, because "the flowers and stem ends are not actually inserted into and through the actual plastic material of the cone."
The Federal Circuit reversed, reasoning that the district court impermissibly read limitations into the claims from the written description. "[N]either the phrase ‘inserted into’ nor ‘inserted through’ appears in any of the asserted claims. Instead, all of the claims at issue require that the ‘floral holding material’ be constructed of ‘material capable of receiving a portion of the floral grouping and supporting the floral grouping without any pot means.’ This claim language does not require that the stem end of the flower be inserted into and through the floral holding material."
The Court rejected Polypap’s attempt to limit the claim terms by reference to the written description and prosecution history that indicated that the "floral holding material" was either floral foam or soil. "[W]e find this argument unpersuasive," said the Federal Circuit. "First, the written description does not describe ‘with reasonable clarity, deliberateness, and precision’ the definition of ‘floral holding material’ proposed by Polypap." The Federal Circuit pointed out that the written description only states that the floral holding material "may be" (not must be) foam or soil. "[I]ndeed the many uses of the term throughout the [] patent are consistent with a broader definition, one encompassing material of any shape or type."
The Federal Circuit, citing the general rule "that claims of a patent are not limited to the preferred embodiment, unless by their own language," noted that the written description used the term "floral holding material" at various points to refer to material of any shape or type, and that no "special and particular definition" had been created. Thus, the Court found "there is nothing in this case that warrants departing from the general rule." The Court also concluded "that the prosecution history does not attribute a special meaning to the phrase ‘floral holding material,’ as there were no express representations made in obtaining the patent regarding the scope and meaning of the claim terms.
Sales of Non-Infringing Products Relevant to Reasonable Royalty
Contact: Paul Devinsky
The U.S. Court of Appeals for the Federal Circuit has affirmed a trial court’s admission into evidence of expert testimony regarding sales of non-infringing products that were promoted by making the infringing product available free of charge as relevant to a reasonable royalty determination. Micro Chemical, Inc. v. Lextron, Inc. Case No. 02-1155 (Jan. 24, 2003).
Micro Chemical and Lextron supply "animal health products," including drugs and equipment used to treat illnesses afflicting cattle. In an effort to promote sales of their animal health products, Micro Chemical and Lextron provide their feedlot customers with computerized medical records systems for tracking health histories and medical treatments of livestock. Micro Chemical’s medical records system is the commercial embodiment of the invention described and claimed in U.S. Patent No. 5,315,505 (the `505 patent).
Turnkey Computer Systems, Inc. supplies accounting system software to feedlots, including an animal records module that tracks health and treatment histories of livestock. Turnkey allegedly underpriced its animal records module in order to support sales of its accounting system.
Micro Chemical sued Lextron and Turnkey alleging infringement of the `505 patent. The defendants stipulated that their original systems infringed the `505 patent, but claimed that they had modified their systems to remove the allegedly infringing feature. Micro Chemical later amended its complaint to limit its infringement allegations to the defendants’ unmodified systems and trial was set to determine the amount of damages from the date the patent issued to the dates when the defendants modified their systems.
Prior to the trial, the defendants unsuccessfully moved to preclude expert testimony to the effect that the modified systems, which were not in existence during the period of infringement, could not be considered non-infringing alternatives for purposes of determining the amount of damages. The defendants also unsuccessfully sought to exclude testimony that a reasonable royalty for Lextron’s infringing computer systems should be based on revenues from sales of its animal health products. The district court ruled that while Micro Chemical could not recover a royalty on the animal health products themselves, it could present testimony that sales of animal health products were relevant to a reasonable royalty determination based on Micro Chemical’s allegation that the defendants used their infringing systems as loss leaders to promote animal health product sales.
The Federal Circuit rejected the defendants’ argument that the trial court failed to exercise its gatekeeping function: "When, as here, the parties’ experts rely on conflicting sets of facts, it is not the role of the trial court to evaluate the correctness of facts underlying one expert’s testimony." The Court noted that Rule 702 does not "authorize a trial court to exclude an expert’s testimony on the ground that the court believes one version of the facts and not the other." Where a party has ample opportunity to rebut an expert’s damages theory during cross-examination and has presented its own competing theory through the testimony of their own expert witness, the district court does not abuse its discretion in allowing an expert to testify based on a disputed version of the facts.
The Federal Circuit also found that the testimony regarding sales of feed products was relevant to "[t]he effect of selling the patented specialty in promoting sales of other products of the [infringer]," a factor set forth in Georgia-Pacific. The Court found that whether placing the infringing systems in feedlots actually promoted derivative sales of the defendants’ other products is a question of fact for the jury.
Finally, the Federal Circuit agreed that the trial court’s admission of expert testimony to the effect that the defendants’ modification of their systems in 1997 would not have reduced the royalty rate that would have been agreed upon in a hypothetical negotiation in 1994, was not legally erroneous and the testimony "…was merely based on Micro Chemical’s version of the disputed facts."
Practice Note: In another case between the same litigants decided by the Federal Circuit five days later, the Court reversed a summary judgment ruling that Micro Chemical was not entitled to an award of lost profits. Micro Chemical sued Lextron for infringement of its patent directed to a machine that dispenses feed additives to livestock and poultry feed by weight. The district court held that Micro Chemical could not recover lost profits because it could not demonstrate demand for the patented product and absence of available, non-infringing substitutes. The Federal Circuit reversed, holding that the non-infringing substitute, which was developed in 1997, was not available during the infringement period and, therefore, Micro Chemical was entitled to an opportunity to prove lost profits. The Court also found that because it was reasonably foreseeable that Micro Chemical would have made profits from microingredient sales earned by virtue of placing its patented weigh machines on feedlots, a damage calculation based on lost microingredient sales would also be appropriate.
Failure to Instruct on Interest Calculation an "Appellate Lapse"
Contact: Paul Devinsky
The U.S. Court of Appeals for the Federal Circuit has held that post-judgment interest on a $20 million punitive damages award should be calculated from the date of the district court’s amended judgment after appeal and not from its original judgment in Tronzo v. Biomet, Case No. 01-1585 (Feb. 12, 2003).
The plaintiff sued Biomet, Inc. for patent infringement, fraud and breach of confidential relationship. In 1996, a jury awarded the plaintiff almost $4 million in compensatory damages, which the district court enhanced by almost $2 million based on the jury finding of willful infringement. The plaintiff was also awarded punitive damages of $20 million. On appeal, the Federal Circuit ruled that the plaintiff's patent was invalid and remanded for recomputation of compensatory damages on the tort claims. On remand, the district court reduced the compensatory damages as instructed, despite the fact that the award of punitive damages was never appealed. The district court also reduced the punitive damages award to $52,000 on the grounds that the original award was excessive in light of the reduction in compensatory damages. The plaintiff appealed and the Federal Circuit reversed the reduction in punitive damages, holding that the district court exceeded its mandate on remand by disturbing the unappealed punitive damages award. However, in the resulting mandate, the Federal Circuit did not instruct the trial court on the calculation of post-judgment interest. The district court entered yet another amended final judgment and awarded the plaintiff post-judgment interest from August 6, 1996, the date of the original judgment on the punitive damages award.
Biomet appealed, arguing that the calculation of interest on the punitive damages award should run from July 27, 2002, not from August 6, 1996. The Federal Circuit, recognizing that it erred in not instructing the district court on the interest calculation (as it was required to do by Federal Rule of Appellate Procedure 37(b)), looked to the advisory committee notes that "a party who conceives himself entitled to interest from a date other than the date of entry of judgment in accordance with the mandate should be entitled to seek recall of the mandate for determination of the question." Despite the plaintiff’s failure to seek such a recall, the Court called its prior decision an appellate lapse and gave the interest issue plenary review. Applying the law of the regional circuit, the Court used a "meaningful ascertainment" test for determining when post-judgment interest should begin to run and held that because the plaintiff’s initial compensatory and punitive damages award was modified when the plaintiff’s patent was held invalid and because the full punitive damages award was not reinstated until after the Federal Circuit’s mandate, post-judgment interest should run from the district court’s July 2001 judgment.
