Publications / McDermott Newsletters / IP Update, Volume 7, No. 9, September 2004

IP Update, Volume 7, No. 9, September 2004

September 2004

Patents / Litigation / Willful Infringement

Knorr-Bremse:  Death of an Inference
By Paul Devinsky and D. Sean Trainor

In its long awaited decision, a virtually unanimous en banc panel of judges of the U.S. Court of Appeals for the Federal Circuit overturned18 years of precedent, revoking the so-called “adverse inference” rule explaining it had resulted in inappropriate burdens on the attorney-client relationship.  Knorr-Bremse Systems Fuer Nutzfahrzeuge GmbH v. Dana Corp., Case Nos. 01-1357, -1376, 02-1221, - 156 (Fed. Cir. Sept. 13, 2004).

Evidence of actual copying is rarely available.  As a result, courts have focused on whether an accused infringer had a good-faith belief its conduct was proper.  Over time, the Federal Circuit imposed an affirmative duty on a potential infringer to act with due care, which included obtaining a competent opinion of counsel.  Underwater Devices, Inc. v. Morrison-Knudsen Co.  The due care and competent opinion of counsel requirement led the Federal Circuit to find a failure to obtain opinion of counsel could warrant an adverse inference that the accused infringer had not obtained an opinion or any such opinion was or would have been adverse.  Kloster Speedsteel AB v. Crucible, Inc.  Finally, the Federal Circuit held the failure to introduce an exculpatory opinion of counsel could also lead to an adverse inference.  Fromson v. Western Litho Plate & Supply Co.

This precedent imposed a significant Hobson’s choice on accused infringers when confronted with allegations of willful infringement.  On the one hand, accused infringers who had obtained an opinion from counsel were forced to reveal those opinions and waive the attorney-client privilege and sometimes even attorney work product.  On the other hand, the accused infringers could elect not to reveal their opinions or not reveal they had obtained an opinion, in which case, the court drew the adverse inference.  Faced with this choice, accused infringers more often than not chose to produce the opinions and waive the attorney-client privilege and work product protections.

In Knorr-Bremse, the Federal Circuit after having reviewed at least 24 amicus curiae briefs, overruled the longstanding precedent and has alleviated the Hobson’s choice previously faced by accused willful infringers.  The Federal Circuit held that it is improper for the trier of fact to draw an adverse inference when the attorney-client privilege and/or work product privilege is invoked; and it is improper for the trier of fact to draw an adverse inference when an accused infringer had not obtained an opinion of counsel.

The Knorr-Bremse Federal Circuit Decision
Knorr-Bremse sued Dana Corporation and Haldex Brake Products AB alleging infringement of a single U.S. patent.  Dana and Haldex had agreed to sell a disk brake in the United States Haldex originally manufactured in Sweden.  More than a year before filing suit, Knorr-Bremse orally notified Dana that Knorr-Bremse was involved in a dispute with Haldex in Europe, and Knorr-Bremse had pending U.S. patents applications.  Soon after, Knorr-Bremse notified Dana in writing that Knorr-Bremse was involved in patent litigation against Haldex in Europe, and Knorr-Bremse’s U.S. patent had issued.  A year later, Knorr-Bremse sued Dana and Haldex alleging willful infringement of its U.S. patent.

Haldex informed the court it had consulted European and U.S. counsel regarding Knorr-Bremse’s patents, but it did not produce any opinion or any legal advice it received from counsel, citing the attorney-client privilege.  Dana did not itself consult counsel, instead relying on Haldex.  The district court, relying on Federal Circuit precedent, determined “it is reasonable to conclude that such opinions were unfavorable.”  The district court found the totality of the circumstances compelled the conclusion the infringement was willful.

In its opinion, the Federal Circuit addressed four separate questions.  To the question “[w]hen the attorney-client privilege and/or work-product privilege is invoked by a defendant in an infringement suit, is it appropriate for the trier of fact to draw an adverse inference with respect to willful infringement,” the court answered with an emphatic “no.”  The Federal Circuit determined an adverse inference should not be drawn but an accused infringer still has a duty to respect the law.  Weighing the attorney-client relationship versus the duty to disclose opinions of counsel, the Federal Circuit pronounced “a special rule affecting attorney-client relationships in patent cases is not warranted.”

The Federal Circuit also answered the second question, “when the defendant had not obtained legal advice, is it appropriate to draw an adverse inference with respect to willful infringement,” with a “no.”  The Federal Circuit stated this second question was not an issue of privilege, “but whether there is a legal duty upon a potential infringer to consult with counsel, such that failure to do so will provide an inference or evidentiary presumption that such opinion would have been negative.”  Consistent with its answer to the first question, the Federal Circuit held “that it is inappropriate to draw a similar adverse inference from failure to consult counsel,” again noting potential infringers have “an affirmative duty of due care to avoid infringement of the known patent rights of others.”

The Federal Circuit also determined a substantial defense to infringement is not sufficient to defeat liability for willful infringement even if no legal advice has been secured.  The Federal Circuit noted that this was a factor to be weighed in the totality of the circumstances analysis but should not be given per se treatment. 

Practice Note: Accused infringers are no longer faced with an adverse inference stemming from the choice of not divulging an opinion of counsel or from not having obtained one.  Instead, the burden is now on the patentee to demonstrate, under the totality of the circumstances test, an accused infringer acted willfully.  Whether the accused infringer obtained a competent opinion of counsel is now simply one factor to consider in this analysis.  Other factors include deliberate copying, concealing infringing activity, infringement where the infringer knows it has only frivolous defenses, infringement designed to injure a competitor and whether the infringer, when confronted with the knowledge of the patent, formed a good-faith belief as to invalidity or non-infringement.

The Federal Circuit’s decision does not ameliorate the prudence of obtaining an opinion of counsel when faced with a non-frivolous patent infringement allegation.  Indeed, in appropriate circumstances, a competent exculpatory opinion from counsel can be a powerful tool in defending against a claim of willful infringement.

Prior to Knorr-Bremse, an allegation of willful infringement and the attendant Hobson’s choice were often used to pressure an accused infringer during litigation.  Many patent owners used the attorney-client waiver attendant with use of an opinion as leverage to seek broad discovery — even for materials communicated by litigation counsel and attorney work product of litigation counsel.  With the demise of the adverse inference rule, many defendants may now choose not to rely on exculpatory opinions (even if they have one).  Thus, the patentee’s burden of proving willful infringement or obtaining intrusive discovery has increased significantly.  Patentees will now have to focus discovery efforts more on actions taken by the accused infringer to avoid infringement and the other factors listed above.  Indeed, the more factual support the patentee can garner through the discovery process tending to establish such willfulness factors the more likely an accused infringer will confront the dilemma of whether to waive privilege and rely on an opinion of counsel.  However, in future disputes over the scope of the waiver, courts will now look to the traditional jurisprudence of the regional circuit regarding the scope of the remaining privilege, not to case law articulating special (and intrusive) jurisprudence born out of the adverse inference rule regarding litigation of willful patent infringement allegations.

Patents / Doctrine of Equivalents

Intent Is Not an Element of the Disclosure-Dedication Rule
By Matt Grumbling

In yet another visit with this now famous doctrine of equivalents case, the U.S. Court of Appeals for the Federal Circuit held that the disclosure-dedication rule, which limits the application of the doctrine so as not to cover disclosed but unclaimed subject matter, has no intent element.  The Court also found the level of disclosure necessary to dedicate an unclaimed feature to the public is different from (and less than) that necessary to support a proposed claim construction.  Toro Co. v. White Consol. Indust. Inc., Case No. 03-1424 (Fed. Cir. Sept. 13, 2004) (Linn, J) (Toro III).

Toro is owner of the U.S. patent No. 4,694,528 (the `528 patent) directed to a convertible vacuum-blower.  The asserted claim recites a “cover including means for increasing pressure.”  The “means for increasing pressure” allows the claimed device to perform both vacuum and blower functions.  When the “means” is in place it increases pressure and, thus, blower power.  With the “means” detached, air moves freely through the impeller housing, thereby increasing vacuum strength.

In the first appeal in this saga, Toro I, the Federal Circuit construed a claim term “including means for increasing pressure” as not implicating the means-plus-function language of § 112,  6 and as being limited to a restriction ring permanently affixed to and included as part of the cover.  White’s accused vacuum-blower had a restriction ring that was separate from the cover.  Based on its claim construction and the undisputed facts of the case, the Toro I panel reversed the district court’s grant of summary judgment of literal infringement and remanded for further proceedings on the issue of infringement under the doctrine of equivalents.

After a second appeal and remand to the district court, the district court held that infringement under the doctrine of equivalents was precluded because a two-piece cover and restriction ring assembly was disclosed in the patent specification but not claimed.  In the present appeal, Toro argued that the disclosure dedication rule did not apply because Toro did not intentionally fail to claim the unclaimed subject matter.  Relying on language from Johnson & Johnson, the Federal Circuit affirmed the district court, holding intent is not an element of the disclosure-dedication rule.

Toro also argued that the disclosure of the unclaimed subject matter was insufficient to support a claim to the unclaimed feature under § 112, ¶1.  On this issue, the Court reasoned that the level of disclosure necessary to narrow application of the doctrine of equivalents is different (and lower) than the level of disclosure necessary to support a claim to the same feature.  In particular the Court noted that the disclosure necessary to implicate the disclosure-dedication rule could relate to any subject matter included within the specification, including the background of the invention.

Finally, Toro argued the district court’s application of the disclosure-dedication rule was in conflict with the Federal Circuit holding in Toro I illustrating the `528 patent neither illustrated nor described any structure other than a cover with an attached ring.  In other words Toro argued that if White’s structure was disclosed (for purposes of the disclosure-dedication rule), the construction of the term “including…” should be broadened.  The Toro III panel disagreed finding the previous claim construction did not result in any law of the case relating to the disclosure-dedication rule, as the issue was before neither the district nor the Federal Circuit in Toro I, nor was the issue of whether the disclosure needed to support a claim (under §112 ¶1) is different from that needed to trigger the disclosure-dedication rule.

Practice Note:  The instant case demonstrates that even an apparently innocuous description of the advantages of the invention can have a drastic effect on the application of doctrine of equivalents.  While much attention has been focused on the conduct of prosecution due to the Festo line of cases, it should be apparent from the Toro III case that a prosecutor’s diligence in safeguarding the potential scope equivalents begins at the stage of writing the patent application and being certain the claim “exhausts” the written description of the invention.  As the Toro III decision makes clear, even the barest of disclosure can result in forfeiture of future equivalents.

Patents / Claim Construction / Litigation

Federal Circuit Requires Preservation of Claim Construction Objection or Lose It
By Jiri Smetana

The U.S. Court of Appeals for the Federal Circuit has emphasized the need for litigants to preserve any objections they might have to the district court’s claim construction in order to preserve the issue for appeal, as well as the need for a challenger to patent validity to be cognizant of its burden in order to support a jury verdict of anticipation or obviousness.  Koito Mfg. v. Turn-Key Tech., Case No. 03-1565, -1603 (Fed. Cir. Aug. 25, 2004) (Gajarsa, J.).

Turn-Key owned U.S. Patent No. 5,045,268 (the `268 patent) directed to a method of strengthening injection-molded plastics by cross-laminating layers of plastics.  Koito brought a declaratory judgment action against Turn-Key, seeking judgment that the `268 patent was declared invalid, unenforceable, and not infringed by Koito’s products.  After the Markman hearing, a jury found Turn-Key’s patent invalid and not infringed.  Turn-Key appealed.

During appeal, Turn-Key attempted to object to the claim construction applied by the district court consistently throughout the litigation.  However, the Federal Circuit found that Turn-Key had failed to preserve its claim construction argument and did not object to the jury’s instructions regarding claim terms.  Turn-Key did not preserve its objections and was not permitted to contest the district court’s claim construction.  Citing Abbott Labs. v. Syntron Bioresearch, Inc., the Court found that if Turn-Key had wanted a different construction it should have objected at trial.

With regard to validity, Koito introduced into evidence at trial a reference, but otherwise failed to provide any testimony or other evidence that demonstrated to the jury how that reference met the limitations of the claims of the `268 patent or how the reference enabled one of the ordinary skill in the art to practice the claimed invention.  Koito did not even mention the reference after introducing it into evidence.  Rather, Koito’s expert offered a conclusion of invalidity relating to a quintet of prior art patents that included the reference in question.

The Federal Circuit explained that testimony concerning anticipation must be testimony from one skilled in the art and must identify each claim element, state the witnesses’ interpretation of the claim element and explain in detail how each claim element is disclosed in the prior art reference.  Testimony that is merely conclusory is insufficient.  Because Koito failed to articulate how the reference anticipated or made obvious the `268 patent, the Court, citing Schumer v. Lab. Computer Sys., Inc., found Koito did not present sufficient evidence to support the jury verdict of invalidity with respect to the reference.

The Federal Circuit distinguished its rationale from two prior holdings in Union Carbide Corp. v. American Can Co. and Monsanto Co. v. Mycogen Plant Science, Inc.  In Union Carbide, the Federal Circuit ruled that even though the alleged infringer did not provide explanatory expert testimony regarding the prior art references, anticipation was still found because the references and the patent were “easily understandable” and the patentee, rather than the alleged infringer, provided explanatory analysis regarding the prior art references.  The Federal Circuit found that the reference in issue here was not an “easily understandable” patent.

In Mycogen, the Federal Circuit held “there is no general requirement that a party necessarily provide explanatory argument linking the evidence to each of the various elements of a legal theory.”  However, the Federal Circuit emphasized that this rule was articulated in the context of a priority contest and is subject to exceptions.  The Court held that in order to support a jury verdict of obviousness, Koito needed some testimony or other evidence comparing the reference with the patent claims at issue (given that the reference in question was a technical patent document describing a novel manufacturing process).

Patents / Analogous Art

A Brush Is a Brush Is a Brush…
By Paul Devinsky and Alex Chan

The U.S. Court of Appeals for the Federal Circuit affirmed the obviousness rejection of a patent application ruling that patent claims directed to a “hairbrush” would have been obvious in view of a prior art hairbrush reference considered in view of a toothbrush reference.  In re Bigio, Case No. 03-1358 (Fed. Cir. Aug. 24, 2004) (Rader J.; Newman, J. dissenting).

In this case, both the examiner and the Board of Patent Appeals and Interferences (the Board) found that toothbrush art is analogous to Bigio’s hairbrush invention.  Bigio contends that the “field of endeavor” test for analogous art lacks clear guidelines and leaves the issue to an examiner’s subjective judgment.  The scope of analogous art, according to the majority, turns on whether the art is from the same “field of endeavor,” regardless of the problem addressed, and, if the reference is not within the field of the inventor’s endeavor, whether the reference still is “reasonably pertinent” to the particular problem with which the inventor is involved.

The Court rejected the contention that the test is unduly subjective.  The test requires the U.S. Patent and Trademark Office to determine the appropriate field of endeavor based on the subject matter described in the patent application, including the disclosed embodiments, function and structure of the claimed invention.  Thus, according to the majority, the assessment of the field of endeavor is not a wholly subjective call, since there must be a basis in the application for limiting or expanding it.

The Court noted that the Board referred to the structure and function of the claimed invention in the application, and it assessed the field that one of skill in this art would consider to be within the same endeavor as the claimed invention.  “Thus, on this record, this court affirms the findings of the Board and upholds its traditional tests for determining the scope of prior art analogous to the claimed invention.”

Judge Newman dissented, arguing that a brush for hair has no more relation to a brush for teeth than hair resembles teeth.  Judge Newman failed to see any good reason why a person designing an improved hairbrush would look at toothbrush technology.  Nor, in her opinion, was it relevant that the hairbrush claims are not limited to scalp hair.

Patents / §102(b) Publication

Foreign Sales May Enable an Otherwise Non-Enabling Publication
By Firasat Ali and Arturo Sandoval

In a matter of first impression, the U.S. Court of Appeals for the Federal Circuit recently held that evidence of the foreign sale of a claimed reproducible plant selection may enable an otherwise non-enabled printed publication disclosing that plant, thus creating a 35 U.S.C. §102(b) bar.  In re Elsner, Case No. 03-1569 (Fed. Cir. Aug. 16, 2004) (Lourie, J.).

Zary and Elsner each claimed, in unrelated applications, a rose and geranium variety, respectively, that had been previously described in applications published in other countries more than one year before the patent filing in the United States.  Additionally, the plants had been on sale in Germany (the geranium), South Africa and Zambia (the rose), also more than a year before the U.S. filing.

The Court reasoned that because a plant patent gives the owner the right to exclude others from asexually reproducing the plant, when a publication combined with a foreign sale enables a person of skill in the art to practice asexual reproduction in a manner consistent with §161 then the “non-enabling publication and foreign sale [together] act as a §102(b) bar.”  In other words, if , more than one year prior to the application filing date of the patent, one of ordinary skill in the art could have obtained the foreign sold plant and the publication, and created the same plant as is disclosed in the patent application without undue experimentation, no patent should be granted or that application.

Recognizing that ordinarily foreign sales of an invention in combination with a non-enabling publication will not constitute a bar “because such a result would circumvent the established rules that neither non-enabling publications nor foreign sales can bar one’s right to a patent,” the Court distinguished this situation because it perceived a difference “between plants and statutorily distinct [e.g., mechanical] inventions.”  The cases were remanded for a factual determination of whether “the foreign sales of the claimed plants was within the knowledge of the skilled artisan” and may therefore “be considered to provide the public with access to the…inventions.”

Patents / §102(b) Publication

New USPTO Equation, Length of Time + Expertise of Target Audience + Copying = Printed Publication?
By Firasat Ali and Arturo Sandoval

The U.S. Court of Appeals for the Federal Circuit recently held that a slide show that was printed and then displayed on a poster board for approximately three days at a meeting of chemists and at a university was a “printed publication” under §102(b).  The slide show was not “published” in the sense of copies being disseminated, nor was it catalogued or indexed in any library.  In re Klopfenstein, Case No. 03-1583 (Fed. Cir. Aug. 18, 2004).

In this case two inventors from Kansas State University applied for a patent (the `950 application) that disclosed methods of preparing foods comprised of extruded soy cotyledon fiber.  Approximately two years earlier the inventors presented a printed slide show at a meeting of the American Association of Cereal Chemists that disclosed every limitation of the `950 application.  The presentation was pasted onto poster boards and displayed for two and a half days after the meeting.  A little later, the same slide presentation was displayed at Kansas State University for less than a day.  An examiner rejected the `950 application reasoning that it was anticipated by the slide show.  The Board of Patent Appeals and Interferences (Board) upheld the examiner’s decision.  The applicant appealed.

In upholding the Board’s decision, the Federal Circuit rejected the appellant’s arguments that the slide show was not a “printed publication” for purposes of §102(b) because copies of the slide show had not been disseminated and/or indexed in a library or database.  Instead, the court stated that “the key inquiry is whether or not a reference has been made ‘publicly accessible.’”  Citing to past precedent, where students theses were indexed in a library and made publicly accessible, the court reasoned that dissemination and indexing by themselves were not the only factors to consider.  Rather, “the entire purpose of the ‘printed publication’ bar was to ‘prevent withdrawal’ of disclosures ‘already in the possession of the public by the issuance of the patent.’”

In this case, the Court balanced four factors:  the length of time the display was exhibited; the expertise of the target audience; the existence (or lack thereof) of reasonable expectations that the material displayed would not be copied; and the simplicity or ease with which the material could have been copied.

Applying these factors the Court noted that the slide show was prominently displayed to the public for approximately three cumulative days, giving the public the opportunity to process and retain the information.  A large subsection of the general public who viewed the posters included those ordinarily skilled in the art of cereal chemistry and agriculture, making it easier for them to retain the displayed material due to their interest in the subject.  There was no expectation that the information on the posters would not be copied or reproduced by those viewing it.  Finally, the 14 slide presentation was simple enough making it more likely that members of the public “could learn it by rote or take notes adequate enough for later reproduction.”  For these reasons the court held that the presentation was sufficiently publicly accessible to count as a “printed publication” under §102(b).

Patents / Litigation

Patentee Must Present Evidence of Doctrine of Equivalents
By Andrew Dallmann

Addressing whether a failure to present evidence of doctrine of equivalents would compel a new trial in light of a district court’s post-trial modifications to its claim construction, the U.S. Court of Appeals for the Federal Circuit held that a patentee, who was on notice that the court’s pretrial claim construction contained significant ambiguities, could not claim its failure to present evidence of infringement under the doctrine of equivalents was the result of surprise at the district court’s modified claim construction.  Power Mosfet Technologies, LLC v. Siemens AG, Case Nos. 03-1083, -1469, -1470, -1471 (Fed. Cir. Aug. 17, 2004) (Gajarsa, J.).

Power Mosfet Technologies (PMT) is the owner of U.S. Pat. No. 5,216,275 (the `275 patent).  Directed to a semiconductor power device design in which the voltage sustaining layer (the layer that, when not conducting current, sustains a voltage between the source and drain terminals) results in a new relationship between the breakdown voltage and the on-resistance.  According to the `275 patent, the new relationship allows lower on-resistance values without the same magnitude of accompanying loss in breakdown voltage found in traditional semiconductor devices.

PMT sued Siemens AG and several other marque semiconductor manufactures, alleging infringement of the `275 patent.  A special master (in a Markman ruling essentially adopted by the district court) construed the disputed claim terms of the `275 patent, but as isolated terms, rather than within the context of the claims.  The parties were aware that substantial ambiguities in the claim construction existed when the claims were read as a whole.  Namely, the parties continued to dispute whether the claims required that specific layers of the claimed semiconductor device be in physical contact.  Despite this ambiguity, PMT did not present any evidence of infringement under the doctrine of equivalents.  Following the bench trial, the district court modified its claim construction to reconcile the ambiguity and adopted a claim construction that resulted in a finding of non-infringement.  PMT asked for a new trial but the court refused.  PMT appealed, arguing that in relying on the district court’s initial claim construction it had been precluded from presenting evidence of doctrine of equivalents.

The Federal Circuit affirmed the denial of PMT’s motion for a new trial, reasoning that all parties were aware that the special master’s claim construction as adopted by the district court was ambiguous and subject to further modification.  Since there is no requirement that there be a final claim construction at the outset of the trial, PMT could not claim surprise as a basis for failing to present evidence on the doctrine of equivalents.

Patents / Obviousness / JMOL

Substantial Evidence Basis for Reinstating Jury Verdict
By J. James Li, Ph.D.

The U.S. Court of Appeals for the Federal Circuit recently reversed a Judgment as a Matter of Law (JMOL) order and reinstated the jury verdict in a case involving a battle of experts on the issue of validity during the trial.  Cardiac Pacemakers, Inc.  v. St. Jude Medical, Inc., Case Nos. 02-1532, -1559 (Fed. Cir. Aug. 31, 2004) (Newman, J.).

There were two patents at issue in this case, both involving an implantable cardiac defibrillator that measures cardiac activity and automatically delivers an appropriate electrical stimulation to correct arrhythmia.  The key element was a multimode function that can deliver, among other therapies, cardioversion.  Cardioversion is an application of electrical pulses that do not directly cause pacing change of the heart but is designed to stimulate the heart tissue to indirectly correct an arrhythmia.  A jury found St. Jude liable for infringement of one of the two patents and that both patents were valid.  The trial judge, however, granted a JMOL, finding both patents invalid.  On appeal, the Federal Circuit recognized the fact that there conflicting expert testimony during the trial.  The Court nonetheless found that the plaintiff’s expert provided sufficient evidence to support the jury finding, thus, the patents were not invalid.

On the obviousness issue, the district court found motivation for combining a prior art teaching of cardioversion with a teaching of a pace-making device.  The district court relied on a Haft reference that described the problem of fibrillation triggered by pacing.  The court also placed weight on a Duncan reference that disclosed cardioversion achieved by applying a combination of small pacing shocks delivered simultaneously to multiple sites on the heart.  The Federal Circuit, however, noted that the plaintiff’s expert testified that Duncan did not teach true cardioversion, but a form of pacing, and that Duncan actually taught away from the claimed high-energy single shock cardioversion because Duncan was concerned only with power consumption.   The Court stated that the Haft and Duncan references merely identified the problem without suggesting the solution.  The Court emphasized that whether the combination of references produces the invention at issue was a question of fact, and “the record contains substantial evidence whereby a reasonable jury could have reached the verdict [of the obviousness].”

Patents / Damages

Entire Market Value Analysis Means the Juice and Dispenser
By David Beckwith

Addressing whether the entire market value rule permits recovery of lost profits on unpatented components sold with a patented item, the U.S. Court of Appeal for the Federal Circuit reversed the district court’s exclusion of evidence of lost profits on unpatented syrup concentrate sold with a patented dispenser.  Juicy Whip, Inc. v. Orange Bang, Inc. et al., Case No. 03-1609 (Fed. Cir. Sept. 3, 2004) (Lourie, J.).

Juicy Whip is the owner of U.S. Patent No. 5,575,405 (the `405 patent), which is directed to a beverage machine that mixes syrup concentrate and water just before it is dispensed.  The machine features a transparent bowl that creates the visual impression that the bowl is the primary source of the dispensed beverage, which induces the sale of the beverage.

Juicy Whip sued Orange Bang and others alleging infringement of the `405 patent.  Juicy Whip attempted to present damages evidence of lost syrup sales, claiming that because a functional relationship exists between the patented dispenser and the unpatented syrup, the recovery of lost profits for the unpatented syrup should be permitted under the entire market value theory of recovery.  Orange Bang argued a functional relationship did not exist because the syrup and machines were capable of use independent of each other — the patented dispenser could be used with other syrups, and the syrup could be used in unpatented dispensers.  The district court excluded evidence of lost profit of syrup sales Juicy Whip appealed.

The Federal Circuit reversed, ruling that a functional relationship was clearly present between the syrup and the dispenser.  Citing Rite Hite and MicroChemical, the Court noted that under the market value rule if a functional relationship exists between patented and unpatented items, the unpatented item is properly part of a lost profit analysis.  Since the dispenser and the syrup are parts of a single assembly and together function to produce the visual appearance that is central to the `405 patent, the Federal Circuit found the two items function together to achieve one result.  The fact the dispenser could be used with other syrups and the syrup could be used in unpatented dispensers did not detract from this conclusion. 

Practice Note:  Always consider whether a lost profit claim can include the sale of non-patentable items used with any patented devices.  In prosecuting patents on devices that utilize consumables, consider including claims which combine the device together with the consumables.

Patents / Inventorship

The Standard of Review for Inventorship Claims
By Daniel Foster

The U.S. Court of Appeals for the Federal Circuit granted a rehearing of its recent decision in Linear Technology Corp. v. Impala Linear Corp., et al., (IP Update, Vol. 7, No. 7) for the limited purpose of correcting the Court’s reporting of the district court’s decision regarding Linear’s motion for summary judgment that Vinsant was not an inventor of the `178 patent.  The only change made by the Federal Circuit in the revised decision was to correct the standard of review with regard to the question of inventorship from an abuse of discretion standard to one based on a failure to raise a genuine issue of material fact.  Linear Technology Corp. v. Impala Linear Corp., et al., Case Nos. 02-1569, 02-1576 (Fed. Cir., Aug. 17, 2004).

In its earlier decision, the Federal Circuit held:

“Because we discern no abuse of discretion in the district court’s conclusion that     Vinsant’s inventorship claim was not corroborated, we affirm the district court’s denial of   Maxim’s motion for summary judgment as to inventorship.” 

In the revised decision, the Federal Circuit modified the standard as follows:

“Because the district court, after viewing the evidence in a light favorable to Maxim, correctly concluded that no reasonable juror could find that Vinsant’s inventorship claim was corroborated, we affirm the district court’s grant of summary judgment that Vinsant was not an inventor of the `178 patent.”

In all other respects, the Federal Circuit’s earlier decision remained the same.

Copyrights / Ownership

Martha Graham Was a Work-for-Hire Author of Dance Choreographer
By Lisa Stone

The U.S. Court of Appeals for the Second Circuit has ruled that the work-for-hire doctrine applied to determine the ownership of copyrights in dances choreographed by the late Martha Graham, the founder of modern dance.  Martha Graham School and Dance Foundation, Inc., et al. v. Martha Graham Center of Contemporary Dance, Inc., et al., Case No. 02-9451, 2004 U.S. App. LEXIS 17452 (2d Cir. Aug. 18, 2004).

Several years after Martha Graham’s death, her sole beneficiary and The Martha Graham School and Dance Foundation, Inc. sought a judgment from the district court declaring, among other things, that the plaintiffs owned the copyrights in 70 dances choreographed by Ms. Graham.  The defendants Martha Graham Center of Contemporary Dance, Inc. (the center) and Martha Graham School of Contemporary Dance, Inc. (the school) also asserted ownership of the disputed copyrights.  The district court concluded that the defendants were entitled to a declaration of ownership of the copyrights for the choreography of 45 dances—27 because they were works-for-hire “authored” by the center for purposes of copyright proprietorship and 18 because Graham had assigned them to the center.  The district court further concluded that the plaintiffs were entitled to a declaration of ownership of only the renewal term of copyright in one dance.

In affirming the majority of the district court’s ruling, the Second Circuit determined that the issue of whether Ms. Graham’s dances were “works-for-hire” under copyright law depended strictly on the nature of her employment agreements with the defendants.  The court rejected the plaintiffs’ contention that the work-for-hire doctrine is inapplicable where a corporation is formed for the purpose of fostering a supportive environment for an employed artist to create new works.  Because under the prevailing work-for-hire principles all of Ms. Graham’s dances created after 1966 were at the “instance and expense” of either the school or the center, the court concluded that these dances were works-for-hire and that the defendants were entitled to a declaration of ownership of the copyrights in these dances.

Trademarks / False Advertising

No Disparagement Required to Allege Claim of False Advertising
By John Dabney and Ann Brose

The U.S. Court of Appeals for the Second Circuit recently held that a claim for false advertising under the Lanham Act does not need to plead disparagement to survive a Rule 12(b)(6) motion for dismissal.  Societe Des Hotels Meridien v. LaSalle Hotel Operating Partnership, L.P., No. 03-7346, 2004 U.S. App. LEXIS 17037 (2d Cir. Aug. 17, 2004).

The plaintiff, Meridien Hotels, operated two hotels, one in Dallas and the other in New Orleans, which were owned by the co-defendant LaSalle Properties.  The parties became embroiled in a lease dispute in 2001 over the management of the two hotels.  While the case was still ongoing, LaSalle began negotiations with the co-defendant, Starwood Resorts (dba Westin Hotels) to manage the disputed hotels.  LaSalle succeeded in the court proceeding and then attempted to evict Meridien from the properties.  However, this attempt failed on procedural grounds and Meridien continued to manage the two hotels.  During this period when Meridien was losing its dispute with LaSalle but had not yet been evicted from the hotels, Starwood began to circulate its hotel directory prominently featuring the Dallas and New Orleans hotels and identifying them as Westin rather than Meridien properties.

After unsuccessfully pursuing Lanham Act and state law claims against the parties, Meridien filed an amended complaint under the Lanham Act for reverse palming (or passing) off and false advertising against Starwood including contributory claims against LaSalle.  The defendants moved under Federal Rules of Civil Procedure (FRCP) 12(b)(6) to dismiss the claims, arguing that Meridien had failed to state a claim.  The district court granted the defendants’ motion finding that the reverse palming off claim failed because the directory created only a small likelihood of confusion and that, in fact, Meridien would reap the benefits of any sales generated by it.  The court also dismissed the false advertising claim because the directory did not disparage the quality of Meridien’s hotels.

The Second Circuit reversed.  The court found that Meridien satisfactorily stated a claim for reverse palming off, which occurs under the Lanham Act when company A sells company B’s product under A’s name.  Here, the court found that Starwood was including in its directory images of the two hotels and providing information on those hotels including the services offered even though it was not the source of those services.  The court rejected Starwood’s argument that there was no reverse palming off because it did not use any of Meridien’s trademarks noting that removal of a competitor’s trademark is the hallmark of a reverse palming off claim.  As to the false advertising claim, the court found that even though nothing in the directory disparaged the Meridien’s product, the depiction of the services as originating from Westin facilities misrepresented the nature and the quality of both Starwood’s and Meridien’s products and, therefore, was a sufficient basis to allege a claim of false advertising under the Lanham Act.

Trademarks / Seizures

Ex Parte Seizures — A Heavier Burden for the Victim
By Farah Bhatti

The U.S. Court of Appeals for the Third Circuit, affirmed the decision of the district court, refusing to issue an ex parte seizure order of counterfeit goods, finding that the trademark owner did not provide sufficient evidence that an ex parte seizure order was the only adequate way to preserve evidence.  Lorillard Tobacco Company v. Bisan Food Corp. Case No. 03-3151 (3rd Cir. July 28, 2004).

Lorillard Tobacco Company, the owner of the Newport brand of cigarettes, filed suit against three retail establishments selling counterfeit Newport cigarettes in New Jersey and requested the court grant an ex parte seizure order against each establishment.  The district court refused.

Lorillard argued that the granting of the ex parte order was required as each defendant had an incentive to destroy the goods as they could be used to prove their liability under various criminal statutes, including the New Jersey Unfair Cigarette Sales Act, federal criminal laws relating to trafficking in counterfeit goods and tax evasion. 

In reviewing the case, the Third Circuit held that the district court did not err, finding that ex parte seizure orders are only to be granted when no other order is adequate.  In other words, the court ruled that the plaintiff must provide evidence to show that a defendant will not comply with a different order. 

In distinguishing this case from its recent holding in the Vuitton case, the Third Circuit stated that an ex parte order was appropriate in extreme cases such as Vuitton where the defendant street vendors did not show up in court even after having been served.  However, an ex parte seizure order will not be deemed the only available remedy unless other evidence is presented to show that other orders have been disobeyed.

With regard to Lorillard’s argument that the defendants had an incentive to destroy the goods, the Third Circuit ruled that the statute requires more than just incentive.  Rather, the district court noted that the statute states that the person “would destroy, move, hide, or otherwise make such matter inaccessible to the court…”  The court reasoned that if Lorillard’s arguments are accepted, the granting of an ex parte seizure order would become standard in all cases involving counterfeit cigarettes, rather than only in extreme cases.


Patents / USPTO Rules

Rules Consolidated for Board of Appeals and Interferences
By Lawrence Cullen

Effective September 13, 2004, the U.S. Patent and Trademark Office (USPTO) consolidated most of the rules affecting appeals and interferences under new section 41 of 37 C.F.R. and also modified aspects of the appeals and interference practice.  Fed. Reg. 49960-50020 (Aug. 12, 2004).

The consolidation affected ex parte appeals from examiners, which now fall under 37 C.F.R. §§ 41.30-41.54.  Unlike the prior rules, only one copy of an appeal brief is now required.  This change is consistent with the USPTO’s move toward an electronic file wrapper.  Also under the new rules, a concise statement of the issues is replaced by a listing of the rejections presented for review.  Moreover, the requirement that claims must be grouped to be considered as standing or falling together has been eliminated.  The grouping requirement was reportedly the cause of many disputes and was not believed to be necessary.  Under the new rules, the Board of Patent Appeals and Interferences (the Board) will consider claims under a rejection to be grouped unless separate arguments are presented for the various claims under rejection.  Also, under the new rules, the examiner will be permitted to make new grounds of rejection in the examiner’s answer to the appeal brief.  The USPTO explained that this change was necessary to allow the examiners to address new arguments without reopening prosecution.  The comments accompanying the new rules suggest that allowing examiners to make a new grounds of rejection in an examiner’s answer will reduce an apparent problem where new arguments of the appellant would go up to the Board without the examiner’s comments. 

The rule consolidation also affects appeals in inter partes reexamination, which now fall under 37 C.F.R. §§ 41.60-41.81.  The new rules for appeals in an inter partes reexamination are similar to the rules for an ex parte appeal, except for allowing a respondent brief and a rebuttal brief.  The respondent brief is limited to issues raised in the appellant’s brief and the rebuttal brief may be directed toward issues raised in the respondent brief or the examiner’s answer.  

The rules consolidation also affect interferences and government (e.g., U.S. Department of Energy and the National Aeronautics and Space Administration) ownership contests, all referred to as “contested cases” under the new rules.  The new rules codify judicial precedents, such as the two way unpatentability test for determining interfering subject matter.  The new rules largely keep the prior interference practice intact, but modify their language and arrangement.  The categories of motions that may now be filed are labeled as “substantive motions” (including redefining the scope of the count, changing the benefit accorded and judgment (e.g., for invalidity of an opponents claims) in the contested case, “responsive motion” (such as to amend or add a claim, change inventorship or otherwise cure a defect raised) or miscellaneous motions.  A substantive motion can be based on a “threshold issue,” which includes no interference in fact, a motion for an untimely claim under 35 U.S.C. § 135(b), and a motion for unpatentability for a lack of written description.

Patents / Biotechnology

Controversial Weldon Amendment Has Negligible Impact On Issuance of Claims to Methods for Human Cloning
By Judith Toffenetti and Thomas Haag

On January 23, 2004, President George W. Bush signed into law appropriations omnibus bill H.R. 2673 authorizing 2004 funding of the federal government including the United States Patent and Trademark Office (USPTO).  The bill contained a hotly debated rider on human patenting introduced by Dave Weldon (R-Fla.).  The Weldon amendment states that “[n]one of the funds appropriated or otherwise made available by this act may be used to issue patents on claims directed to or encompassing a human organism.”  It represents a strategy for restraining scientific research in an controversial field by prohibiting the issuance of patent claims to a particular technology.

In arguing for his amendment, Rep. Weldon, a physician, pointed to a recent report wherein researchers described co-culturing human male and female embryonic cells for six days, as an example of a study, “universally condemned as unethical and unnecessary.”  Weldon insisted there was a need to, “draw the line where some rogue scientists fail to exercise restraint,” and that the investigators should not be allowed to financially exploit science of this type by being granted an “exclusive right to practice such ghoulish research.”

Notwithstanding the Weldon law, the USPTO has a seventeen year-old ban on patent claims, if their “broadest reasonable interpretation as a whole” encompasses a “human being.”  Whereas the USPTO bans patent claims directed to “human beings,” the Weldon law recited “human organisms.”  However, in the Congressional Record., Rep. Weldon strenuously asserted that the amendment exactly reflects the scope of the USPTO ban on the patentability of human beings, “at any stage of development.” Accordingly, Weldon stated that his measure would not affect any existing patents on human stem cell lines or have any bearing on stem cell research.

An example of the type of patent claims that may be effected by the Weldon amendment exist in U.S. Patent No. 6,211,429.  The patent has claims directed to methods of producing a cloned mammal by nuclear transfer into oocytes.  As such, the claims includes methods of cloning humans.  Weldon stated on the record, however, that such claims would be unaffected by the amendment.

Contrary to Weldon’s assertion, other supporters of the amendment argued that claims to methods of producing a cloned human being, also cover the human being itself.  Their justification for this position relies on §271(g) which makes it an act of infringement to perform a process, e.g., a method of cloning a human, in another country that would infringe a process claim of a U.S. patent and then import the product, e.g., the cloned human organism, into the United States.  The Court of Appeals for the Federal Circuit, in Bayer AG v. Housey Pharmaceuticals, Inc., (IP Update, Vol. 7, No. 8), recently narrowly construed §271(g) as applying only to importation of physical objects derived from manufacturing processes and specifically excluded the importation of information obtained through the execution of U.S.-patented methods abroad.

On August 24, 2004, the USPTO issued U.S. Pat. No. 6,781,030, (assigned to Tufts College in Massachusetts) claiming methods for generically cloning “mammals.”  Although some claims are directed to “non-human mammals,” the specification states that “[t]he present invention encompasses the cloning of a variety of animals.  These animals include mammals (e.g., human, canines, felines), murine species (e.g., mice, rats), and ruminants (e.g., cows, sheep, goats, camels, pigs, oxen, horses, llamas).”  The Weldon amendment impacts the validity of this patent because it issued during the current appropriations period.

The USPTO’s allowance of claims directed toward methods of cloning humans apparently indicates that it does not consider claims to methods of cloning humans to be “directed to or encompassing a human organism.”  Moreover, it does not appear that the USPTO is utilizing the amendment as a mechanism to block the issuance of claims to methods that may be used in controversial and allegedly “ghoulish” research.  In fact, based on the issuance of the `030 patent is evidence that the USPTO is apparently narrowly interpreting the Weldon amendment.


McDermott Will & Emery

McDermott Will and Emery