McDermott - Newsletters - IP Update, Vol. 12, No. 6, June 2009

The U.S. Court of Appeals for the Federal Circuit recently affirmed a district court’s denial of a request by Altana Pharma and Wyeth (collectively Altana) for a preliminary injunction to prevent Teva Pharmaceuticals (Teva) from marketing a generic version of the anti-ulcer drug Protonix®. Altana Pharma AG v. Teva Pharmaceuticals USA, Inc., Case No. 08-1039 (Fed. Cir., May 14, 2009) (Ward, J., sitting by designation).

Altana is the owner of a U.S. patent directed to the compound pantoprazole, the active ingredient in Altana’s anti-ulcer drug Protonix®. The compound pantoprazole belongs to a class of compounds known as proton pump inhibitors that are used to treat gastric acid disorders in the stomach. Teva and Sun filed Abbreviated New Drug Applications (ANDA) requesting FDA approval to sell a generic version of Protonix® prior to the expiration of Altana’s patent along with paragraph IV certifications. Altana filed a motion for preliminary injunction; Teva and Sun conceded infringement. However, they maintained that the patent is invalid. Specifically, the firms argued that the patent was obvious in light of the teachings in an earlier Altana’s patent in combination with other prior art.

After considering the evidence and the arguments, the district court denied Altana’s request for a preliminary injunction. With respect to the likelihood of success on the merits, the district court found that the defendants had demonstrated a substantial question of invalidity and Altana had not shown that it lacked substantial merit. The district court also considered, but rejected, Altana’s position on irreparable harm. As a result, the district court concluded that Altana had failed to show that it would suffer irreparable harm if the injunction was not issued. Based on Altana’s failure to establish either a likelihood of success on the merits or irreparable harm, the district court denied the motion for preliminary injunction.

On appeal, Altana argued that the district court incorrectly placed the burden on Altana to show that the obviousness defense lacks substantial merit, rather than putting the burden on the defendants to establish a substantial question of invalidity. In rejecting Altana’s argument, the Federal Circuit held that if an accused infringer raises a “substantial question” concerning validity, enforceability or infringement, a preliminary injunction should not issue.

Altana also challenged the district court’s obviousness analysis on the merits. The Court noted that its review of the district court’s decision is limited and placed the district court’s findings in perspective by pointing out that applications for preliminary injunctions are typically presented on an abbreviated record without the benefit of a full trial. Although the Federal Circuit agreed with Altana that some of the district court’s findings with respect to its obviousness analysis were incorrect, the Court ultimately concluded that the evidence supported the district court’s overriding decision that the defendants had made out a sufficient case of obviousness to defer the matter for trial on the merits, as opposed to granting the preliminary relief sought by the Altana.

Finally, Altana argued that the district court abused its discretion when it found that Altana had failed to demonstrate irreparable harm. The Court, however, held that irreversible price erosion, substantial loss of profits, decrease in market share, inability to service debts, employee layoffs and loss of research opportunities were not irreparable to Altana in this case and that the defendants would be able to satisfy a judgment should Altana prevail at trial.

Licensing / Right to Make

License to “Make” Includes an Inherent Right to “Have Made”
By Leigh J. Martinson

The U.S. Court of Appeals for the Federal Circuit recently held that a license to make a patented article includes an inherent right to have a third party make the article absent express language to the contrary. CoreBrace LLC v. Star Seismic LLC, Case No. 08-1502 (Fed. Cir., May 22, 2009) (Lourie, J.).

CoreBrace owns a patent with claims directed to a brace used in the fabrication of earthquake-resistant steel-framed buildings. Star Seismic (Star) received a non-exclusive license to the patent to “make, use and sell” licensed products. The license also stated that Star cold not “assign, sublicense, or otherwise transfer” its rights to any party except an affiliated, parent or subsidiary company. CoreBrace also reserved “all rights not expressly granted to [Star].” However, the agreement gave Star ownership for any technological improvements “by a third party whose services have been contracted by [Star].”

CoreBrace found out that Star used third-party contractors to make the licensed products, which Star would subsequently use. CoreBrace terminated the license and then sued for patent infringement and breach of the agreement.

Star moved to dismiss the action for failure to state a claim. In granting Star’s motion, the district court reasoned that a patent licensee’s right to “make” an article includes the right to have others do the work connected with the product. CoreBrace appealed.

One of CoreBrace’s arguments was that it retained the “have made” rights, which were not expressly granted and, therefore, retained by CoreBrace under the terms of the license.

Relying on the Court of Claims decision in Carey, the Court held that the right to “make, use, and sell” a product inherently includes the right to have the product made by a third party, absent a clear indication of intent to the contrary. The Court found that Carey held that “a license to produce, use and sell ‘is not restricted to production by the licensee personally or use by him personally or sales by him personally. It permits him to employ others to assist him in the production, and in the use and in the sale of the invention.’…Thus, ‘his license permits him to engage others to do all the work connected with the production of the article for him.’” In view of Carey, the Court reasoned that a “have made” right is implicit in a right to make, use and sell, absent an express contrary intent.

In reviewing the terms of the agreement, the Court failed to find any express language limiting the “have made” right. When addressing CoreBrace’s retention of rights argument, the Court found that CoreBrace failed to show a clear intent to exclude “have made” rights from the license. The Court also found that other provisions of the license appeared to contemplate that Star may have the product made by a third party. For example, the license provided that Star owns any improvements to the technology “by a third party whose services have been contracted by [Star].” In view of these and other circumstances, the Court held that Star did not breach the license by contracting with third parties to have the licensed products made for its own use.

Practice Note: If you intend to have only the licensee “make” the licensed products, be sure to expressly state that in the agreement. In other words, expressly limit the inherent “have made” right.

Patents / Damages

No Damages for Pull-Through Products
By Kristin Connarn

Partially reversing a $226.3 million damages award, the Court of Appeals for the Federal Circuit held that a jury should not have awarded damages on non-infringing “pull-through” products sold in conjunction with patented screws. DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., Case Nos. 2008-1240, -1253, -1401 (Fed. Cir., June 1, 2009) (Linn, J).

In September 2007, a jury found that Medtronic’s Vertex screws infringed DePuy’s patent for a polyaxial screw implant device that stabilizes spinal column segments during surgery. The verdict directed Medtronic to pay the plaintiffs $226.3 million in lost profits, $149.1 million in lost profits on patented pedicle screws and $77.2 million in lost profits on unpatented, “pull-through” products.

On appeal, the district court judgment was affirmed in part and reversed in part. In particular, the Federal Circuit found that the lower court properly denied the defendant’s ensnarement defense, as the combination of two reference patents did not render the hypothetical claim obvious; correctly denied the defendant’s motion for judgment as a matter of law (JMOL) on lost profits of patented screws, and thus properly awarded the plaintiff lost-profits damages; improperly awarded lost-profit damages on the unpatented pull-through products, as the products did not compete or function with the patented invention; properly denied the plaintiff’s motion for a new trial on the issue of reasonable-royalty damages as the plaintiff failed to timely object to the jury's inconsistent award; properly granted the defendant’s motion for JMOL of no willfulness in the infringement; and erred in its exceptionality finding, and thus also in the imposition of attorneys’ fees and sanctions against defendant for litigation misconduct.

The Court reversed the $77.2 million in lost profits awarded against Medtronic for the related, non-infringing products, but refused to alter the other $149.1 million in lost profits that the jury had granted DePuy. The Court rejected the jury’s award of damages for “pull-through” products—such as head braces and vests—that do not compete directly with DePuy’s spinal screws, stating “the jury had no legal basis to award lost profits on DePuy’s un-patented pull-through products, which neither compete nor function with its patented pedicle screws.” The Court explained that “a patentee may recover lost profits on unpatented components sold with a patented item, a convoyed sale, if both the patented and unpatented products ‘together were considered to be components of a single assembly or parts of a complete machine, or they together constituted a functional unit.’” Lost profits cannot be recovered on unpatented items that may have been sold with an infringing device only as a matter of convenience or business advantage.

Patents / Claim Construction

Overcoming Obviousness on Structural Similarity
By Astrid R. Spain

The U.S. Court of Appeals for the Federal Circuit recently affirmed a determination by a district court that Procter & Gamble’s patent covering its osteoporosis drug Actonel® was not invalid as obvious nor was it invalid for obviousness-type double patenting. Procter & Gamble Co. v. Teva Pharmaceuticals USA, Inc., Case Nos. 08-1404, -1405, -1406 (Fed. Cir., May 13, 2009) (Archer, J.; Newman, J. dissenting)

P&G’s osteoporosis drug Actonel reportedly has $1.5 billion in annual sales. The patent-in-suit claims the compound risedronate, the active ingredient in Actonel®. Risedronate is a member of a group of compounds referred to as bisphosphonates, which are active in inhibiting bone resorption. P&G sued Teva for infringement after Teva notified P&G that it planned to market risedronate as a generic equivalent of Actonel®. P&G alleged that Teva’s proposed drug infringed claims directed to the compound risedronate, pharmaceutical compositions containing risedronate and methods of treating diseases using risedronate. In its defense, Teva argued that the patent was invalid as obvious in light of P&G’s own expired prior art patent. Risedronate is neither claimed nor disclosed in the prior art patent. Instead, the prior art patent claims an intermittent dosing method for treating osteoporosis. The prior art patent lists 36 polyphosphonate molecules as treatment candidates and eight preferred compounds for intermittent dosing, including 2-pyr EHDP. Teva argued that the structural similarities between risedronate and 2-pyr EHDP render the challenged claims of the patent-in-suit obvious. In the alternative, Teva argued that the patent-in-suit was invalid for obviousness-type double patenting. The district court rejected Teva’s challenges. Teva appealed.

The Federal Circuit began its analysis by first noting that an obviousness argument based on structural similarity between claimed and prior art compounds requires a preliminary finding that one of ordinary skill in the art would have selected the prior art compound as a lead compound. The Court concluded that this inquiry was rendered irrelevant because, even if 2-pyr EHDP was a lead compound, the evidence did not establish that it would have been obvious to a person of ordinary skill at the time of the invention to modify 2-pyr EHDP to create risedronate. According to the Court, the issue of whether risedronate was obvious in light of the prior art turned on the question of whether, at the time of invention, a person of ordinary skill in the art would have had reason to attempt to make risedronate with a reasonable expectation of success. The Court next noted the importance to the obviousness determination of structural similarities and differences between the claimed compound and the prior art compound. In this case, risedronate and 2-pyr EHDP are positional isomers; they each contain the same atoms arranged in different ways leading to differences three dimensional shape, charge distribution and hydrogen bonding properties. The Court noted that P&G had presented expert testimony attesting that a person having ordinary skill in the art realized that the properties of bisphosphonates could not be anticipated based on their structure. In addition, the panel noted that P&G’s own testing had shown that another bisphosphonate was not active in inhibiting bone resorption despite its close relationship with potent compounds, evidencing the unpredictability of this class of compounds. The Court concluded that the lower court had not erred in finding that a person of ordinary skill would not have been motivated to synthesize and test risedronate and would not have had a reasonable expectation of success in synthesizing and testing risedronate. Moreover, the panel determined that there was no credible evidence that the structural modification of 2-pyr EHDP would have been routine. Overall, the Federal Circuit concluded that the District Court did not clearly err in finding that Teva had failed to establish a prima facie case of obviousness.

Regardless of the insufficiency of a prima facie case, the Court further determined that P&G had introduced sufficient evidence of unexpected results, including risedronate’s potency at low doses and lack of toxicity at higher doses than 2-pyr EHDP could be safely used. The Court also found no error in the district court’s consideration of evidence that risedronate had satisfied a long-felt but unmet need. Finally, having concluded that risedronate was not obvious under 35 U.S.C. § 103, the panel similarly concluded that the patent was not invalid for obviousness-type double patenting.

Patents / Claim Construction

Context-Dependent Claim Construction Creates an Improper Use Limitation
By Alexander Ott and Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit reversed a district court claim construction finding the meaning of a claim term to be context-specific. The Court held that such a construction made infringement unpredictable and was thus inconsistent with the notice function of the patent system. Paragon Solutions, LLC. v. Timex Corp., Case No. 08-1516 (Fed. Cir., May 22, 2009) (Linn, J.).

Paragon sued Timex for infringing its patent on an exercise monitoring system. As issued, the claimed patented system includes a “data acquisition unit” that measures data such as location and heart rate and a “display unit” configured to output “real-time” data during exercise. As originally filed, the application claimed a single structure device. During prosecution, in order to avoid a prior art reference, the claimed system was separated into two, separately claimed “units” and the “real-time” data limitation was added.

The accused Timex device has a delay of up to four seconds, and the device is split into three parts, with two separate parts for data acquisition. Timex argued that Paragon’s “data acquisition unit” must be a single structure because it was amended during prosecution to be structurally separate from the display unit. The district court agreed. Timex also argued that the claim term “real-time” meant “instantaneous.” Here, the court accepted Paragon’s view that the meaning of “real-time” could differ depending on the situation and construed the term to mean “without contextually meaningful delay.” However, since the court had agreed with Timex’s construction of “data acquisition unit,” it concluded that Paragon’s claimed two-part structure could not read on Timex’s three-part device. Paragon stipulated to non-infringement and appealed.

On appeal, the Federal Circuit held that the trial court’s construction of “data acquisition unit” was incorrect. Applying the rule that a disavowal of scope during prosecution history must be clear and unmistakable, the Court held that while Paragon had clearly disavowed the single structure device in the prior art, it had not clearly disavowed a device of more than two parts.

The Court then turned to Timex’s argument concerning the correct meaning of the claim term “real-time” as used as in the functional part of a means plus function claim element “display unit configured for displaying real time data.” Noting that five types of claimed “real-time” data require multiple measurements before they can be calculated, the Court reasoned that “real-time” could not mean “instantaneous,” because the device required at least some delay for computation and transmission. However, the Court also disagreed with the district court’s context-specific construction, noting that construing a non-functional apparatus claim would improperly make direct infringement turn on use. For example, a thirty-second delay would be “real-time” for an activity such as walking, but not for running or skiing. The Court reasoned that such a use-specific construction would make infringement unpredictable and was thus “inconsistent with the notice function central to the patent system.” Thus, the Court found that the proper meaning of “real-time” was “without intentional delay, taking into account the processing limitations of the system.”

Based on the new claim construction, the Court vacated the non-infringement ruling and remanded the case back to the district court.

Patents / Claim Construction

Boundaries of Claim Limitation Construed Based on Intrinsic Record
By Astrid R. Spain

Based on claim construction informed by the intrinsic record, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s grant of summary judgment of non-infringement by Amgen’s Enbrel® product. Amgen, Inc. v. Ariad Pharmaceuticals, Inc., Case Nos. 09-1023 (Fed. Cir., June 1, 2009) (Moore, J.).

Ariad’s patent claims methods comprising “reducing NF-κB activity.” The reduction of NF-κB activity is desirable because NF-κB increases the harmful expression of certain genes. All of the asserted claims include the limitation “reducing NF-κB activity in cells.” The district court construed this phrase to mean “taking action inside cells to directly inhibit (interfere or block) an NF-κB activity.” Amgen’s Enbrel® works outside the cells by binding to free TNF-α, which in turn binds to cell surface receptors that respond by inducing NF-κB activity. The district court concluded that Amgen’s Enbrel®, which works outside the cell, could not infringe the asserted claims. Accordingly, district court granted Amgen’s summary judgment motion of non-infringement.

On appeal, the Federal Circuit noted that the district court agreed with Amgen that agents that act outside the cell do not infringe, while agents that act inside the cell may infringe. The Court pointed out that Ariad did not argue that the reducing act could occur anywhere. Rather, the Court observed, Ariad would place the boundary “at some indefinite place” outside of the cell, such that accused drugs including Enbrel® are captured, while certain prior-art drugs, such as antibiotics, are left out of the claim scope. While the Court agreed with Ariad that the asserted claims have a limited scope, it concluded that Ariad’s particular choice of boundary lacked foundation in the intrinsic evidence. After noting that the ordinary meaning of the term “reducing NF-κB activity in cells” admits alternative views, the Court relied on “unequivocal” statements by the patentee in the specification and prosecution history to conclude that the term limits the asserted claims to methods in which the action that reduces NF-κB activity takes place inside the cell.

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Patents / Claim Construction

The Flange May Be Rectangular—But It Needn’t Have Four Rims
By Matthew Ell and Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit reversed a determination by the International Trade Commission (ITC), resulting in a judgment of a § 337 violation against the respondent/intervenors, SMC Corporation and SMC of America (collectively SMC). Norgren Inc. v. International Trade Commission, Case No. 08-1415 (Fed. Cir., May 26, 2009)(Moore, J.) (nonprecedential).

Norgren filed a complaint with the ITC, alleging various § 337 violations by SMC. Norgren asserted that SMC had imported into the United States structures that connect fluid-conditioning units in a compressed air pipeline in violation of Norgren’s patent rights. The administrative law judge (ALJ) issued an initial determination (ID”, finding that SMC did not infringe the asserted claims, but also finding that the patent was non-obvious.

The claim in issue recites a structure with “a generally rectangular ported flange,” which the ALJ interpreted to require four projecting rims. As the SMC structures only have two projecting rims, the ALJ found that the accused structures did not infringe and thus there was no violation of § 337. The ITC declined to review the ID and terminated the investigation, finding no violation. Norgren appealed.

The issue on appeal focused on claim construction. Norgren argued that the ALJ’s claim construction was “erroneous for requiring that each flange has projecting rims on all four sides.” To resolve the dispute, the Court, reviewing the claim construction de novo, considered the claim preamble language “generally rectangular ported flange” and structural element “clamp adopted … to engage … the pair of ported flanges.” The Court found that nothing in the claims directly requires four projecting rims, noting that the term “rim” does not even appear in the patent. The Court discussed the “generally rectangular ported flange” language to determine if that language indirectly required four projecting rims. Reviewing the figures in the specification, the Court noted that the term “rectangular” was satisfied by the shape of the flange and did not refer to the number of rims required. The term “ported” was found to indicate that the flange have a hole in the middle permitting the passage of fluids. Finally, the Court found that the word “flange” would not be interpreted by one of ordinary skill in the art to require four rims. Although the figures depicted in the patent show flanges with four rims, the Court citing the prohibition against importing limitations from the specification into the claims, enunciated in Phillips, and concluded that the ALJ, in the ID, had unduly narrowed the claim.

Thus, the Court found that the term a “generally rectangular ported flange” means a generally rectangular projection with a hole for fluid passage and did not require four rims. On that basis, the Court reversed the ITC’s non-infringement determination.

SMC, acting as intervenor in the appeal, argued that the Court could affirm the ITC’s determination by reversing the finding of the ALJ that the patent was non-obvious. The Court, however, declined to address this issue, stating that the ALJ should evaluate obviousness in the first instance using the proper construction of “generally rectangular ported flange.”

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Patents / Claim Construction

Federal Circuit Affirms ITC’s Claim Construction
By Christopher L. May

The U.S. Court of Appeals for the Federal Circuit recently affirmed a narrow claim construction by the International Trade Commission (ITC) and the resultant finding of non-infringement. Erbe Elektromedizin GmbH et al. v. ITC, Case No. 08-1358 (Fed. Cir., May 19, 2009) (Dyk, J.).

Erbe’s patent covers the performance of electrosurgery by argon plasma coagulation (APC), using a probe in combination with an endoscope. Erbe and Canady compete in selling APC probes. Erbe alleged that Canady’s importation and sale of its probes constituted contributory infringement and induced infringement. Erbe asserted that Canady sold its probes to hospitals knowing that these hospitals combined the probes with endoscopes, as well as that the use of the combined probes and endoscopes directly infringed the asserted claims of Erbe’s patent.

All of the claims at issue required that there be a plurality of “working channels,” which the administrative law judge (ALJ) defined as “a channel through which a device that performs work may be inserted.” On appeal, the parties disputed whether or not the definition contained within its scope a channel with fixed optics. If fixed optics could not be a “working channel,” then the combination of Canady’s probes with an endoscope could not infringe, because they would contain only one “working channel.”

The Court, after examining the specification, determined that having fixed optics constitute a “working channel” was inconsistent with several figures in the specification that showed fixed optics but did not label them as “working channels.” This conclusion was also consistent with the written specification, which did not refer to the fixed optics as “working channels.” Finally, the Court examined the dictionary definition of “working” and determined that it suggested that a “working channel” could not be stationary, as were the fixed optics described in the specification. Accordingly, the Court found that the ITC construction was correct and that Erbe’s patent was not infringed.

Practice Note: The Federal Circuit’s standard for review of the International Trade Commission, as an administrative agency, is slightly different from that for reviewing a district court. The Federal Circuit reviews both district court and ITC claim construction de novo, but under the Administrative Procedure Act (APA) reviews ITC rulings of law for correctness and findings of fact for substantial evidence.

Patents / Standing

Inventor Lacks Standing to Correct Inventorship After Assigning Rights to Employer
By Charles J. Hawkins

In an appeal originating out of a state court action, the U.S. Court of Appeals for the Federal Circuit found that a co-inventor of certain patents lacked standing to seek correction of inventorship under 35 U.S.C. §256 because he assigned his rights in the patents to his employer. Borden M. Larson v. Correct Craft, Inc. et al., Case Nos. 08-1208, -1209 (Fed. Cir., June 5, 2009) (Arterton, J., sitting by designation).

The action underlying the appeal was brought by Larson, a co-inventor of the patents-in-suit, in Florida state court, alleging multiple fraud-based claims under state law, seeking rescission of patent assignments and requesting declaratory judgments concerning the respective parties’ rights to the patents-in-suit. Defendant Correct Craft Inc. (CCI) removed the case to federal court on the ground that Larson’s declaratory judgment counts, although pled under Florida law, were effectively claims to correct inventorship under §256. The district court considered the action and on summary judgment ruled in favor of the defendants on all counts. Larson appealed.

While working at CCI, Larson designed a tower structure on a water-sports boat that allowed for storage space and the attachment for an elevated tow line. Larson subsequently showed his design to his supervisor, William Snook, for approval and to Robert Todd to build a prototype. Snook and Todd were later listed as co-inventors on the relevant patent applications.

Larson, at CCI’s request, executed assignments and declarations transferring his rights to the patents to CCI. Larson received no compensation in addition to his usual salary as consideration for executing these assignments and declarations. Later, after leaving CCI, Larson allegedly discovered he had rights in the patents and, believing that CCI misled him about the patent assignments, sued CCI for rescission of the assignments and Snook and Todd for a declaration that Larson was the sole inventor.

As an initial matter, the Federal Circuit concluded that the district court correctly treated Larson’s claims for declaratory relief as implicating §256. Next, the Federal Circuit determined that ownership is not necessarily a prerequisite to standing if the party seeking to establish standing has a financial interest in the patents. However, here the Court found that Larson had neither an ownership interest nor a financial interest and therefore lacked standing. The Court concluded that Larson had no ownership and financial interests in the patents without a finding that the underlying patent assignments were void.

The Federal Circuit concluded that the district court cannot exercise supplemental jurisdiction over any surviving state-law claims because Larson’s declaratory judgment claims, the only claims conferring federal question jurisdiction, were dismissed for lack of standing. The Court remanded the case with instructions to return the action back to Florida state court.

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Patents / Litigation

Scope of Patent Invalidity Assertion Agreement Does Not Broaden Upon Merger
By Adam D. Brooke and Paul Devinsky

Addressing the impact on an acquiring company of an acquired company’s agreement not to challenge a third party’s patent, the U.S. Court of Appeals for the Federal Circuit reversed in part an International Trade Commission (ITC) finding that Epistar Corporation (Epistar) infringed Philips Lumileds Lighting Company (Lumileds) patent. In reversing the ITC’s finding of estopple against Epistar from challenging the validity of the patent, the Federal Circuit held that the acquired company’s (UEC’s) prior agreement with Lumileds to not challenge the validity of the patent only had preclusive effect with respect to UEC products inherited by Epistar in the acquisition. Epistar Corp. v. International Trade Commission, Case No. 07-1457 (Fed. Cir., May 22, 2009) (Rader, J.).

Prior to their merger, both Epistar and United Epitaxy Company (UEC) had a history of litigation with Lumileds over the subject patent. UEC’s litigation led to a settlement agreement in which Lumileds granted UEC a license to use the subject patent for the manufacture, sale and importation of LEDs with absorbing substrates, and UEC covenanted, on behalf of itself and its successors, not to challenge the validity of the patent. Epistar’s litigation led to a settlement agreement in which Lumileds granted Epistar a license to use the patent in the manufacture of absorbing-substrate LEDs, and Epistar promised not to challenge the validity of the patent—but Epistar’s agreement was silent with respect to non-licensed products, preserving Epistar’s right to contest validity of the patent if asserted against non-licensed products.

Lumileds filed suit under 19 U.S.C. § 1337 in the ITC to prevent the importation into the United States of certain high-brightness LEDs and products, alleging infringement of certain claims of the subject patent. Both UEC and Epistar were named as respondents. Less than two months later, UEC merged into Epistar, and Epistar assumed all of UEC’s contractual and patent-related rights and obligations. Epistar continued to manufacture its products that were manufactured before the merger, as well as newly-developed products.

Lumileds argued (successfully at the ITC) that UEC’s merger with Epistar bound Epistar to UEC’s agreement—on behalf of itself and its successors—not to challenge the validity of the Lumileds patent. However, the Federal Circuit found that the assignment of a contract to an assignee, such as from UEC to Epistar, only changes the obligated party, not the scope of obligation. The Federal Circuit based this holding on the traditional contract law principle that an assignor (e.g., UEC) has no power to change the performance to be rendered by the obligor (e.g., Epistar).

Patents / Litigation/ Personal Jurisdiction

Federal Circuit Limits District Court’s Reach Over Foreign Companies
By Brian Park

Addressing the issue of personal jurisdiction, the U.S. Court of Appeals for the Federal Circuit upheld a district court’s refusal to exercise personal jurisdiction over a foreign patentee. Autogenomics, Inc. v. Oxford Gene Technology Limited, Case No. 07-CV-846 (May 18, 2009) (Moore, J.; Newman, J., dissenting).

The Court upheld a California district court’s ruling that it possessed neither specific nor general personal jurisdiction over the British company Oxford Gene Technology Limited (OGT) and found that the district court did not abuse its discretion in denying jurisdictional discovery to Autogenomics.

OGT is a British biotechnology company organized under the laws of England and Wales. OGT is the owner of a U.S. patent directed to oligonucleotide microarrays for analysis of polynucleotides. OGT is not registered to do business in California nor does it have facilities, assets, employees or agents there. Autogenomics is a biotechnology company organized under the laws of California and uses microarray technology in its business.

After licensing negotiations with OGT broke down, Autogenomics brought a declaratory action seeking judgment of non-infringement and invalidity of certain claims of OGT’s patent. The district court dismissed the case for lack of personal jurisdiction, not allowing the alleged infringer to conduct jurisdictional discovery.

In upholding the district court’s finding of no general personal jurisdiction, the Court ruled that this was a “classic case” of sporadic and insubstantial contacts with the forum state. The Court noted that Oxford had some commercial contacts with California. Specifically, OGT attended conferences where it likely met potential customers as well as entered into several non-exclusive license agreements with other California companies for technology unrelated to the patent at issue. Autogenomics argued that OGT’s presence at these conferences was tantamount to having a “mobile office.” Rejecting Autogenomics’ assertion, the Court acknowledged that OGT did not have a physical presence or license to do business in California and ruled that its contacts were insufficient to establish general jurisdiction.

The Court also upheld the district court’s decision that it lacked specific personal jurisdiction over OGT. According to the Court, not every type of contact is material to the specific jurisdiction analysis in a declaratory judgment action. Relying on its recent holding in Avocent, the Court asserted that only enforcement or defense efforts related to the patent rather than the patentee’s own commercialization efforts are to be considered to establish specific personal jurisdiction in a declaratory judgment action against a patentee. The Court acknowledged that this rule allows foreign patentees, such as OGT, the opportunity to engage in significant commercialization and licensing efforts in a state while benefiting from the Avocent rule, but noted that U.S. parties like Autogenomics may bring their declaratory actions in the U.S. District Court for the District of Columbia when they cannot establish personal jurisdiction in a specific state. Finally, the Court concluded that the district court did not abuse its discretion in denying Autogenomics jurisdictional discovery, because Autogenomics had failed to move for such discovery with the required degree of specificity to show it would “demonstrate facts sufficient to constitute a basis for jurisdiction.”

Judge Newman dissented, arguing that the majority’s reading of Avocent was in direct conflict with the Federal Circuit’s and the Supreme Court’s precedent.

Patents / Double Patenting

Two-Way Test for Obviousness Type Double Patenting Narrowly Applied
By Leigh J. Martinson

The U.S. Court of Appeals for the Federal Circuit determined that the two-way test for obviousness-type double patenting is applicable when the claims could have been presented in an earlier application in the family. In re Fallaux, Case No. 08-1545 (Fed. Cir., May 6, 2009) (Moore, J.).

The Fallaux application, which was filed on July 11, 2003, was the fifth filed in a family of applications stemming from a Patent Cooperation Treaty (PCT) filing of June 15, 1995. The four intervening applications in the family had all issued as patents. In rejecting the Fallaux application, the examiner applied the one-way test for obviousness-type or non-statutory double patenting. This rejection was based on a patent to Vogel, which shared a single common inventor with the Fallaux application.

Fallaux argued that the two-way test for obviousness-type or non-statutory double patenting should have been applied. Under the two-way test, the examiner would have had to show that Vogel’s claims were also obvious in view of the Fallaux claims, instead of just the Fallaux claims being rendered obvious by the Vogel claims. The examiner agreed that under the two-way test the rejection could not be maintained. However, the examiner maintained the rejection because Fallaux failed “to argue, much less provide evidence that, the issuance of the [Vogel] patents prior to the instant application was due to administrative delay on the part of the PTO.” Instead, the examiner reasoned that claims at issue could have the presented in any one of the earlier-issued patents in the family.

Fallaux appealed to the Board of Patent Appeals and Interferences (the Board). The Board affirmed the examiner. The Board determined that the record indicated that Fallaux was entirely responsible for the delay that caused the Vogel patent to issue prior to the filing of the Fallaux application. Fallaux appealed to the Court of Appeals for the Federal Circuit.

After reviewing the jurisprudence related to whether the one-way test or two-way test is appropriate, the Court determined that an “applicant is entitled to the narrow exception of the two-way test when the PTO is at fault for the delay that causes the improvement patent to issue prior to the basic patent.” Fallaux argued that because he did not manipulate prosecution for some ill-gotten gain, but rather prosecuted the family of applications in the ordinary course of business, the delay should not be attributed to him. The Court rejected this argument, noting that the rule is not that an applicant is entitled to the two-way test absent proof of nefarious intent to manipulate prosecution. The Court sided with the Board by reasoning that the delay was attributable to Fallaux. Thus, the one-way test for obviousness-type double patenting rejection was appropriate.

Patents / Interference / Written Description

Claim Meaning May Depend on Why You Are Looking
By Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit, invoking the § 112, ¶ 2 written description requirement, held that a party copying claims to provoke an interference must have written description support in its own specification to support the claims in issue. However, following its own precedent, the Court concluded that when construing such a claim for purposes of evaluating validity, the claim should be construed in light of the specification and prosecution history of the host patent or application. Agilent Technologies, Inc. v. Affymetrix, Inc., Case No. 08-1466, (Fed. Cir., June 4, 2009) (Rader, J.).

The case came to the Federal Circuit as an appeal from a district court § 146 proceeding against Affymetrix. The district court denied Agilent’s motion for summary judgment with regard to written description under § 112, thus sustaining the decision of the Board of Patent Appeals and Interferences (the Board) awarding priority to Affymetrix. Agilent appealed.

The disputed claims pertain to “microarray hybridization,” a technique for performing multiple genetic analyses on a small fluid sample. Using this technique, a tester can perform millions of genetic tests in a single small assay. The disputed invention focuses on a method of mixing a fluid sample containing the genetic material of interest for thorough contact with the surface of a microarray, typically a glass slide bearing millions of molecular probes.

Agilent’s patent discloses a method of conducting a hybridization reaction in a closed chamber where bubbles are formed by nucleation in a film of fluid. Movement of the bubbles (by application of heat) causes mixing.

Affymetrix’s application discloses three embodiments, called “agitation systems,” for mixing fluid through a cavity during hybridization. Using ports, vents and valves, an agitator injects gas into cavities in an alternating manner, thereby forcing fluid into and out of the cavity so that the targets and probes mix to effect hybridization. Bubbles agitate the fluid as it circulates through the system.

Before the Board, Agilent filed a single substantive preliminary motion challenging the validity of the copied claims on the grounds that the Affymetrix application did not describe the invention adequately under § 112, ¶ 1 to show actual possession of the bubble-mixing invention. The Board ruled that Agilent did not prove that the Affymetrix application lacked adequate written description to support the count (the interfering claims) and awarded priority to the Affymetrix application over the Agilent patent.

Agilent sought district court review under 35 U.S.C. § 146. At the district court, the parties submitted new expert reports and testimony from their respective expert witnesses. The district court held a claim construction hearing and consequently granted Affymetrix’s motion for summary judgment, thereby affirming the Board. In this appeal to the Federal Circuit, Agilent challenged the trial court’s claim construction and written description decisions.

In terms of claim construction, the Federal Circuit, citing its 1992 In re Spina decision, concluded that “[w]hen interpretation is required of a claim that is copied for interference purposes, the copied claim is viewed in the context of the patent from which it was copied.”

The Court also noted that in accordance with its 1998 decision in Rowe v. Dror (another case arising in the context of a patent interference), when considering validity, the PTO should interpret a claim in light of its host disclosure, just as it would during ex parte prosecution.

In this case, in reversing the district court, the Court reasoned that the Spina rule should be applied to the written description issue, i.e., whether the Affymetrix application contains adequate basis to copy a claim from Agilent’s patent and thereby challenge Agilent’s priority of invention. In other words, in assessing whether both parties have a right to claim the same subject matter, the claim construction analysis must be made in the context of the specification from which the claims were copied. On that basis the Court concluded that the Affymetrix application did not meet the written description requirement to support the count.

The Court noted that if the issue were whether the claim is patentable to one or the other party in light of prior art, the Rowe rule would apply and the claim would be evaluated in light of the host specification.

As the Court summarized, “when a party challenges written description support for an interference count or the copied claim in an interference, the originating disclosure provides the meaning of the pertinent claim language. When a party challenges a claim’s validity under § 102 or § 103, however, this court and the Board must interpret the claim in light of the specification in which it appears.”

Patents / Venue

Growing Gaps in the ED Texas Venue Net
By Todd Hales

On the same day, the U.S. Court of Appeals for Federal Circuit issued two decisions on petitions for writ arising from motions to transfer venue out of the U.S. District Court for the Eastern District of Texas (ED Texas). In one case, In re Genentech,it granted the petition for writ, ordering the transfer of the case following a line of Fifth Circuit and Federal Circuit cases involving petitions on failed transfer motions filed in the ED Texas. See IP Update Vol. 12, No. 3; IP Update Vol. 12, No. 1; IP Update Vol. 11, No. 11.) In re Genentech, Misc. Docket No. 901 (Fed. Cir., May 22, 2009) (precedential order) (Linn, J.). In the other case, In re Volkswagen, it refused to grant the petition for writ. In re Volkswagen, Misc. Docket No. 897 (Fed. Cir., May 22, 2009) (precedential order) (Linn, J.).

In re Genentech
In a patent infringement suit brought in the ED Texas by Sanofi against Genentech and Biogen Idec (the petitioners), the Federal Circuit granted a petition for a writ of mandamus by petitioners to transfer venue of the suit out of the ED Texas to the U.S. District Court for the Northern District of California.

The Federal Circuit, in assessing the petition for writ, reviewed the district court’s denial of the petitioners’ request to transfer the suit for abuse of discretion, explaining that “use of mandamus to correct a patently erroneous denial of transfer pursuant to § 1404(a) has been approved under the rulings of the Fifth Circuit in appropriate circumstances.” To determine whether the district court’s decision was a patently erroneous denial of transfer, the Federal Circuit reviewed the “private” and “public” factors for determining forum non conveniens. The private interest factors, as explained by the Circuit, include the following: “(1) the relative ease of access to sources of proof; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practical problems that make a trial easy, expeditious and inexpensive.” The Circuit explained that the public interest factors include the following: “(1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflicts of laws or in the application of foreign law.”

Of note, the Federal Circuit found that “because a substantial number of material witnesses reside within the transferee venue and the state of California, and no witnesses reside within the Eastern District of Texas, the district court clearly erred in not determining this factor to weigh substantially in favor of transfer.” The Federal Circuit also explained that Genentech is headquartered within the Northern District of California, Biogen Idec is headquartered in San Diego and that “Sanofi is a German corporation that will be traveling a great distance no matter which venue the case is tried in and will be only slightly more inconvenienced by the case being tried in California than in Texas.” Given their relative locations, the Federal Circuit noted that “the parties’ convenience factor favored transfer, and not only slightly.” The Federal Circuit explained that the Fifth Circuit’s “100-mile” rule, which factors inconvenience to witnesses directly proportional to the amount needed to travel beyond 100 miles, “should not be rigidly applied such that it creates the result presented here” because the “witnesses from Europe will be required to travel a significant distance no matter where they testify.”

Also weighing in favor of transfer, as explained by the Federal Circuit, were the availability of compulsory process, which wrote that “there is a substantial number of witnesses within the subpoena power of the Northern District of California and no witness who can be compelled to appear in the Eastern District of Texas.” Access to evidence also weighed in its decision, noting, “Keeping this case in the Eastern District of Texas will impose a significant and unnecessary burden on the petitioners to transport documents that would not be incurred if the case were to proceed in the Northern District of California. Furthermore, because the documents housed in Europe and Washington, D.C. will need to be transported in any event, it is only slightly more inconvenient or costly to require the transportation of those materials to California than Texas.”

In granting the writ, the Circuit concluded, “[b]ecause the petitioners have met their burden of establishing that the district court clearly abused its discretion in denying transfer of venue to the Northern District of California and because we determine that mandamus is appropriate in this case, we grant the petition for a writ of mandamus.”

In re Volkswagen
Although named the same as the seminal October 2008 Fifth Circuit case, which transferred venue of a case on a petition for writ (See IP Update, Vol. 11, No 11), the present case arises from a patent infringement dispute in the ED Texas. MHL Tek, LLC (MHL) is a small Texas company operated out of its offices in Rochester Hills, Michigan. MHL filed first and second suits in the ED Texas against a total of 30 foreign and U.S. automobile companies, including Volkswagen. A third suit was filed by Volkswagen, seeking a declaratory judgment, in the Eastern District of Michigan. The third suit was transferred to the ED Texas to avoid wasting judicial resources and the risk of inconsistent rulings on the same patents. Volkswagen moved to transfer venue of the first suit from the ED of Texas to Michigan and, upon denial by the ED of Texas, petitioned the Federal Circuit for a writ to transfer venue.

The Court acknowledged that the “public” and “private” factors for determining forum non conveniens when assessing whether the burden of demonstrating the need to transfer was met. In this case, the Court found that “the existence of multiple lawsuits involving the same issues is a paramount consideration when determining whether a transfer is in the interest of justice.” In refusing to grant the writ, the Court further explained “[a]lthough these cases may not involve precisely the same issues, there will be significant overlap and a familiarity with the patents could preserve time and resources. Because the district court’s decision is based on the rational argument that judicial economy is served by having the same district court try the cases involving the same patents, mandamus is inappropriate under our precedents.”

Practice Note: Under the framework established by the Fifth Circuit’s Volkswagen case and the Federal Circuit’s TS Tech case (See IP Update, Vol. 12, No. 1), the Genentech case enumerates the forum non conveniens public and private interest factors that are considered when deciding petitions for writ to transfer cases. Plaintiffs filing suit in the ED Texas that involve parties with headquarters located outside, and perhaps far from, the district; no witnesses within the district; and no evidence located within the district may find themselves defending challenges to venue before the Federal Circuit.

The fact that the Federal Circuit stated that it is only slightly more inconvenient to relocate evidence from Washington, D.C. to California than to Texas seems to suggest that the Federal Circuit may be disinclined to give much weight to the accessibility of evidence factor if the evidence is not located in the ED Texas. The same may also be true, in future cases, for witnesses. It seems that the Federal Circuit is taking the position that if a witness has to travel a significant distance in the first place, increasing that distance to travel to another venue will not be a great inconvenience, and consequently, should not carry much weight in the venue transfer determination. Although Genentech is limited to inventors traveling from Europe, the case raises the question whether someone traveling from Washington, D.C. or New York would be only slightly more inconvenienced traveling to California than to Texas.

Transfer motions may still be denied, as in the Volkswagen case, where the district court’s rationale of judicial economy was upheld by the Federal Circuit, where the patent owners has established that the existence of multiple, related lawsuits in the ED Texas is a “paramount consideration when determining whether a transfer is in the interest of justice.”

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Design Patents / Infringement / Ordinary Observer Test

Design Patents—The Ordinary Observer Test Point Is the Sole Test of Design Patent Infringement
By Kenneth L. Cage

In a decision addressing Gorham’s ordinary-observer test, the sole infringement test pursuant to Egyptian Goddess, the U. S. Court of Appeals for the Federal Circuit vacated and remanded a jury verdict of design patent infringement for further proceedings where the jury was instructed to consider the ordinary observer test and point of novelty. Sofpool LLC v. Intex Recreation, Case No. 08-1498 (Fed. Cir., May 11, 2009) (per curiam) (nonprecedential).

Sofpool LLC (Sofpool) filed suit against Intex Recreation Corp. (Intex), alleging infringement of two design patents. The district court submitted the infringement issue to a jury, with instructions that “[t]he comparison of the accused product to the patented design includes two distinct tests, the ordinary observer test and the point of novelty test.” The court further instructed the jury that it could find infringement only if it determined that both the ordinary observer and the point of novelty tests had been satisfied. The jury returned a verdict in Intex’s favor, finding no infringement of either of Sofpool’s patents. Sofpool appealed.

Subsequent to the jury verdict, the Federal Circuit issued its en banc decision in Egyptian Goddess v. Swisa (See IP Update, Vol. 11, No. 9). In that decision, the Federal Circuit concluded “that the point of novelty test, as a second and free-standing requirement for proof of design patent infringement, is inconsistent with the ordinary observer test laid down by the Supreme Court in [Gorham] … and is not needed to protect against unduly broad assertions of design patent rights.” In stating that the Gorham ordinary observer test should be the sole test for determining whether a design patent is infringed—the Federal Circuit noted that the “ordinary noted observer” would benefit from a comparison of the claimed design and accused design. Thus the Court reasoned, “[o]ur rejection of the point of novelty test does not mean … that the differences between the claimed design and prior art designs are irrelevant. To the contrary, examining the novel features of the claimed design can be an important component of the comparison of the claimed design with the accused design and the prior art. But the comparison of the designs … must be conducted as part of the ordinary observer test.” The Court emphasized that such comparisons are not a test of validity, but are designed solely for purposes of infringement. According to the Court, the burden of proof of infringement is on the patentee, but the burden of the production of the prior art is on the accused infringer.

Because the Sofpool jury infringement instructions were based upon the point of novelty test eliminated by Egyptian Goddess, the Court reversed the judgment of the district court and remanded the case.

Sofpool also argued that it “is entitled to an instruction on remand that the … patent is infringed, because both Intex’s expert and its attorney conceded that the accused design satisfied the ordinary observer test.” The Court disagreed stating that “[a]lthough Intex acknowledged that its oval pool might infringe the … patent under the ordinary observer test as it existed prior to Egyptian Goddess, Intex has never conceded that its oval pool infringes under this court’s newly articulated ordinary observer standard.”

Practice Note: The Egyptian Goddess ordinary observer test is a newly articulated test that contemplates a comparison between the accused design and the prior art as a factor that may be considered. To that extent, the test is different than the ordinary observer test as it existed prior to Egyptian Goddess.

Trademark / Disparagement of Laches

Laches Bars Claim of Disparagement
By W. Sutton Ansley and Paul Devinsky

The U.S. Court of Appeals for the D.C. Circuit affirmed a district court’s decision to preclude, under the doctrine of laches, the plaintiffs-appellants from pursuing their claim for cancellation of the mark “Redskins” against Pro-Football, Inc.—the corporate entity of the Washington Redskins professional football team and owner of the trademark. At issue was whether the district court properly found trial and economic prejudice sufficient to support a defense of laches. Pro-Football, Inc. v. Harjo, Case No. 03-7162 (D.C. Cir., May 15, 2009) (Tatel, C.J.).

The plaintiffs in this matter, seven Native Americans, filed an action in 1992 seeking cancelation of six Redskins trademarks that allegedly violated Lanham Act § 2(a), which prohibits disparaging trademarks. Although the Trademark Trial and Appeal Board sided with the plaintiffs on this issue, the district court reversed, finding that the equitable doctrine of laches prevented the plaintiffs from bringing their claim. (See IP Update, Vol. 6, No. 10) This doctrine applies when an unjustifiable delay in bringing an action demonstrates a “lack of diligence by the party against whom the defense is asserted” and “prejudice to the party asserting the defense.” The D.C. Circuit remanded, holding that the relevant delay period did not begin with the mark’s initial registration in 1967, but with the 18th birthday of the youngest plaintiff, i.e., in December 1984. On remand, the district court found that even the seven-year, nine-month period was sufficient to prevent the trademark disparagement claim under the doctrine of laches.

Applying the abuse-of-discretion standard of review, the D.C. Circuit affirmed the district court’s reliance on trial and economic prejudice to affirm application of laches. With regard to trial prejudice, the court concluded that it was within the district court’s discretion to find that the delay period hampered Pro-Football’s ability to obtain favorable evidence concerning the views of Native American leaders at the time of the marks’ registration—noting the reasoning in its prior (2003) decision that whether marks are disparaging depends on the perceptions of the affected group at the time marks the were registered. As for economic prejudice, the court noted that laches—as opposed to estoppel—requires only “general evidence of prejudice, which may arise from mere proof of continued investment in the late-attacked mark alone.” Given that the application of laches requires equitable weighing of both the length of delay and the amount of prejudice, the D.C. Circuit concluded that the district court was left “with very broad discretion to take account of the particular facts of particular cases.”

In affirming, the D.C. Circuit also upheld the doctrine of laches as applied to a more recently registered trademark pertaining to the team’s cheerleaders, the “Redskinettes.” The court held that the substantial similarity between the “Redskins” and “Redskinettes” names indicates that the disparaging nature of the latter derives from the disparaging nature of the former. Thus, the district court did not abuse its discretion by analyzing the reasonableness of the 29-month delay in light of the seven-year, nine-month delay in bringing the underlying claims against the name of the team itself.

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Trademark / Subject Matter Jurisdiction

Unfixed Design Not Ripe for DJ
By Paul Devinsky

The U.S. Court of Appeals for the Fifth Circuit affirmed a district court dismissal of a case for lack of subject matter jurisdiction when the declaratory judgment plaintiff did not have a substantially fixed and definite product design when it filed the action. Vantage Trailers v. Beall Corp.,Case No. 08-20139, (5th Cir., May 8, 2009) (Jones, C. J.).

Defendant Beall marks and sells an aluminum bottom dump trailer, the “Beall Bullet,” which is protected by a trademark registration. After Vantage began design of its own trailer, Beall sent a letter to Vantage stating that if Vantage were to place any trailers into service that violate any of the Beall trademarks it would pursue legal action.

Vantage thereupon filed suit seeking a declaratory judgment that Beall’s trademark is invalid and that “the design, manufacture, sale and use of [Vantage’s] aluminum bottom dump trailer does not infringe any valid intellectual property right” of Beall’s.

Following discovery, Beall filed a successful motion to dismiss the trademark declaratory judgment claim for lack of subject matter jurisdiction. Vantage appealed.

On appeal, Vantage argued that a variety of its activities, all centered around its design and attempted sale of an aluminum bottom dump trailer, demonstrate the immediacy and reality of the controversy between itself and Beall. Vantage worked with an engineer on product development, began construction of a new manufacturing facility, purchased specialized equipment, built a sub-frame and offered to sell its new model trailers. The question, in the mind of the court, was whether the product design was sufficiently fixed at the time of filing to allow evaluation of trademark infringement.

Turning to a Federal Circuit decision in a patent case, Sierra Applied Sciences, for guidance, the court found, that like the Sierra Applied Sciences, although the declaratory plaintiff had begun development of a potentially infringing device at the time of suit there was no immediate and real controversy “[b]ecause the design was fluid on the date the complaint was filed, it was impossible to determine‑on that date‑whether any eventual design … would infringe [the] patents.”

The Fifth Circuit concluded that even though the present dispute involved a trademark, not a patent, the “distinction between patents and trademarks weakens, rather than strengthens, Vantage’s argument for justiciability. Typically, the functional elements of design will long precede the cosmetic. The compromises and alterations necessary to accomplish a product’s purpose often dictate its appearance.”

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Trademark / Secondary Meaning

Secondary Meaning Not Established by Length of Use Alone
By Sara E. Coury

The U.S. Court of Appeals for the Fourth Circuit affirmed the grant of summary judgment against the plaintiff’s trademark infringement and cybersquatting claims, in a case in which the plaintiff wanted 40 years to register its geographically descriptive mark and could not establish secondary meaning. B & J Enterprises, Ltd. v. Ken Giordano et al., 2009 U.S. App. LEXIS 10564 (4th Cir., May 18, 2009) (Michael, J.; Motz, J.; King, J.) (affirmed by unpublished per curiam opinion).

The plaintiff had operated a talent agency under the name “Washington Talent Agency” in the Washington, D.C. area since 1967, but did not apply to register the “Washington Talent Agency” mark until July 2006, after the commencement of the lawsuit. The defendant, doing business as “USA Talent Agency,” had registered four domain names: “WashingtonTalentAgency.com,” “MarylandTalentAgency.com,” “VirginiaTalentAgency.com” and “ColoradoTalentAgency.com.” Each of the domain names was a portal for the defendant’s parent website “USATalentAgency.com.” The plaintiff appealed. In order to prevail on trademark infringement and cybersquatting claims, a party first must prove that it possesses a valid and protectable trademark. In the instant case, the district court found that “Washington Talent Agency” was a geographically descriptive term, which had not acquired secondary meaning, and, therefore, was not a protectable mark. In reviewing the district court’s decision, the Fourth Circuit applied the six Perini factors: the plaintiff’s advertising expenditures, consumer studies linking the mark to a source, the plaintiff’s record of sales success, unsolicited media coverage of the plaintiff’s business, attempts to plagiarize the mark and the length and exclusivity of the plaintiff’s use of the mark.

In considering the first factor, the court found that B & J’s evidence of advertising expenditures was insufficient because it only showed that the funds were expended generally. They did not show expenditures on advertising the name “Washington Talent Agency” in the relevant area of Washington, D.C. B & J also failed to satisfy the second factor because it did not produce any consumer studies linking the mark to a source. With regard to the third factor, the court again found B & J’s evidence lacking because its sales history failed to show sales success in the Washington area. B & J fared no better on the fourth and fifth factors. Despite using the name “Washington Talent Agency” for almost 40 years, B & J could only produce one instance of unsolicited media coverage and no instances of infringement prior to the instant case. Finally, in evaluating the sixth factor, the court found that length of use alone, without evidence of exclusivity in the relevant market, is not sufficient to establish secondary meaning.

Copyrights / Statute of Limitations

Federal Discovery Rule Governs the Accrual of Copyright Infringement Claims
Contact Paul Devinsky

Addressing an issue of first impression, the U.S. Court of Appeals for the Third Circuit held that, for purposes of triggering the three-year statue of limitations (SOL), the federal rule regarding discovery of claim governs the accrual of civil claims brought under the Copyright Act. This means that the cause of action accrues “when the plaintiff discovers, or with due diligence should have discovered,” the copyright infringement. The Third Circuit also reversed the lower court’s orders granting the defendants’ motions for a new trial and summary judgment with respect to the accrual of the statute of limitations issues, thus setting the stage for the initial $18.9 million jury verdict to be reinstated. William A. Graham Co., d/b/a The Graham Co. v. Haughey et al., Case No. 08-2111 (3rd Cir., June 5, 2009) (Sloviter, J.)

Plaintiff William A. Graham Company (Graham) is an insurance brokerage firm that developed and copyrighted forms used in preparing insurance proposals. Graham alleged that defendant Thomas Haughey, a former employee, took the copyrighted forms with him in 1991 when he left Graham to join another insurance firm, now known as USI MidAtlantic, Inc. (USI). The defendants allegedly copied Graham’s copyrighted language into at least 857 proposals used to solicit clients. Because it was USI’s policy to keep the proposals confidential, Graham did not discover defendants’ infringement until November 2004. Graham subsequently filed suit in February 2005.

The case proceeded to a jury trial. The jury reached a verdict in favor of Graham on the copyright claim, awarding $18.9 million, and finding that Graham was not on notice of defendants’ infringement prior to February 2002. As such, Graham’s claims were not time-barred under the rule where the SOL trigger is predicated on discovery of the claim. USI subsequently moved for a new trial on the SOL issue. The district court granted the motion, reasoning that Graham knew or should have known of “certain storm warnings” that Haughey would infringe. The court then granted defendants summary judgment on the SOL issue because “sufficient storm warnings existed to put Graham on notice,” thereby barring Graham from recovering on any acts of infringement that occurred prior to February 2002. A second jury trial was held on the issue of damages—limited to acts occurring on or after February 2002—and Graham was awarded $1.7 million in damages.

On appeal, the Third Circuit noted that the issue of whether to apply the discovery rule or the injury rule (which provides that a cause of action accrues at the time of the injury) was one of first impression. Relying on eight of its sister courts of appeals’ decisions, as well as the text, structure and legislative history of the Copyright Act, the court held that the discovery rule should apply. In rejecting the district court’s conclusion that Graham should have discovered the infringement before 2004 in light of certain “storm warnings,” the court explained that the discovery rule does not place “a duty on prospective plaintiffs to inquire into possible future wrongful conduct.” Rather, “[t]he mere fact that a copyright owner has notice that another person also possessed its copyrighted material and may find it useful to copy should not and does not by itself constitute a storm warning of possible infringement.” Because the evidence before the first jury was sufficient to support a finding that Graham was not on notice of the infringement before February 2002, the Third Circuit reversed the lower court’s summary judgment ruling and remanded as to the issues of apportionment and excessiveness.

Copyrights / Litigation

Insufficient Evidence of Similarity Dooms Copyright Claim
By Elisabeth (Bess) Malis

The U.S. Court of Appeals for the Ninth Circuit recently affirmed the district court’s holding that Adobe Systems’s InDesign desktop publishing program did not infringe the copyright of Brookhaven Typesetting Services’s K2 typesetting software due to insufficient evidence that the programs were “substantially similar.” Brookhaven Typesetting Services v. Adobe Systems, Case No. 07-16700 (9th Cir., June 1, 2009) (per curiam).

The K2 software was first developed by Science Typographers Inc. (STI). STI intended to license K2 to Aldus Corp. and provided Aldus with the program’s source code. Before STI and Aldus entered into a license for the software, STI filed for bankruptcy and sold the rights to K2 to the software’s developers. Adobe purchased Aldus, while Brookhaven purchased the rights to K2 from the developers. A few years later, Adobe announced it was developing a program named K2, which began as a project by former Aldus employees. The program was later renamed InDesign. Brookhaven filed a copyright application for K2 in 2001 and shortly thereafter filed suit against Adobe for copyright infringement, misappropriation of trade secrets, unfair competition and breach of contract. In its complaint, Brookhaven alleged that the announced capabilities of InDesign contained features similar to those in K2 that were communicated to Aldus during licensing discussions. Brookhaven also contended that while the first version of InDesign did not contain several key capabilities of K2, it suspected future versions of InDesign would.

The district court granted summary judgment in favor of Adobe on all claims. The court concluded Brookhaven did not submit sufficient evidence of “substantial similarity” between the ideas and expressive elements of K2 and InDesign to warrant copyright infringement; Brookhaven neither identified similarities between the programs, nor refuted Adobe’s expert testimony that negated substantial similarity. The court ruled against Brookhaven’s remaining claims as they were premised on the alleged copyright infringement. Brookhaven appealed.

The Ninth Circuit affirmed the district court, finding that while Brookhaven could legitimately assert the ownership and access elements of copyright infringement, the only similarity between the programs that Brookhaven offered was “not substantial in the context of the entire program.” The Ninth Circuit similarly upheld the district court’s grant of summary judgment on the trade-secret, unfair competition and breach of contract claims, as such claims were either based on insufficient evidence or were dependent upon the copyright claim. The Ninth Circuit also affirmed the district court’s refusal to impose terminating sanctions on Adobe despite its “troubling and unflattering history of discovery compliance,” finding no evidence to suggest that Adobe acted in bad faith or intentionally destroyed earlier versions of relevant source code.

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China / IP Litigation

Preliminary Injunction Petitioner Has Liability to Compensate Enjoined Party
Contact Paul Devinsky or Kevin Qian, a partner at MWE China Law Offices, a separate law firm based in Shanghai, China. McDermott has a strategic alliance with MWE China Law Offices.

On April 21, 2009, the Supreme People’s Court of China (SPC) issued an official report regarding a selection of 10 more-or-less typical intellectual property cases adjudicated by various courts in 2008. One of the cases concerned damage compensation as a result of a wrongfully issued preliminary injunction (PI). The SPC agreed with the second instance court’s holding that if a party has wrongfully requested a PI, the injured party should receive adequate compensation from the requesting party. The SPC further noted that this remedy is necessary to prevent misuse of patent rights and should be made clear so that the holders of IP rights can evaluate their legal risks prior to requesting a PI. Given the few judicial cases contemplating compensation for the injured party resulting from a wrongfully issued PI in the past, the case—Jiangsu Baite Import & Export Trading Co., Ltd, Huaian Kangbaite Carpet Co., Ltd v. Xuzanyou (Individual), (2008) Su Minsan Zhongzi No. 0071, Jiangsu High People’s Court—represents a large step toward imposing rationality in the decision making process on those requesting a PI in the future.

Facts
In April 2004, Xuzanyou initiated two litigations against Jiangsu Baite Import & Export Trading Co., Ltd (Baite) and HuaianKangbaite Carpet Co., Ltd (Kangbaite) for infringing a design patent. In the first litigation, the Nanjing Intermediate People’s Court (Nanjing Court) imposed a freeze on $40,000 (USD) of Kangbaite assets. In the second litigation, upon the request of Xuzanyou, the Nanjing Court granted a PI ordering Baite and Kangbaite to immediately cease production of the sale of products that were the same as or similar to the patented design.

Subsequently, Baite ignored the PI and proceeded to export a batch of allegedly infringing goods to Hong Kong in performance of one of its contracts. However, the goods were seized by Nanjing customs as infringements. Later at Xuzanyou’s request, the goods were seized by Nanjing Court pending further proceedings. The Nanjing Court subsequently ordered Kangbaite, in the first litigation, to compensate Xuzanyou in the amount of $25,000 (USD) and to cease and desist from further acts of infringement. Later the Nanjing Court ruled in the second litigation that Baite and Kangbaite must pay Xuzanyou damages in the amount of $170,000 (USD).

While these rulings were on appeal, in a separate invalidation proceeding, the design patent was held invalid by the State Intellectual Property Office (SIPO). As a result of the invalidation, the appellate court, Jiangsu High People’s Court (Jiangsu Court), reversed the rulings made by Nanjing Court in both cases and dismissed Xuzanyou’s claims. Baite and Kangbaite then sued Xuzanyou in Nanjing Court claiming various damages in the amount of $280, 000 (USD).

Judgement Summary
Nanjing Court ruled that where a party requesting PI loses the litigation, the PI shall be considered as having been wrongfully requested and the losing party must compensate the injured party for its reasonable losses. However, losses resulting from disobeying the PI will not be compensated. Thus, Baite’s and Kangbaite’s claims for compensation were only partially upheld. The appellate court affirmed this ruling.

Practice Note : Patent right holders should more seriously weigh both the benefits of requesting a PI and legal risks of losing the litigation in Chinese courts. Since the injured party is only entitled to “reasonable losses” incurred as a result of the granted PI if the patent infringement allegations fail to stand, consideration should be given to seeking relief that will minimize potential damage to the enjoined party if the case on the merits fails.

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IP Update, Vol. 12, No. 6, June 2009

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