Patents / Induced Infringement / ITC
Federal Circuit Upholds ITC Interpretation of § 337 to Cover Induced Infringement
In a 6-4 ruling, a sharply divided en banc Federal Circuit overturned the original panel decision and deferred to the International Trade Commission’s (ITC or Commission) interpretation of the phrase “articles that … infringe” and its issuance of a limited exclusion order based on a finding of induced infringement in a case where the product, as it crossed the customs boarder, did not infringe. Suprema, Inc. and Mentalix Inc. v. Int’l Trade Comm’n, Case No. 12-1170 (Fed. Cir. Aug. 10, 2015) (Reyna, J.) (O’Malley, J.; Proust, J.; Lourie, J. and Dyk, J., dissenting).
Suprema manufactures hardware for scanning fingerprints. The scanners must be connected to a computer running custom-developed software. Suprema does not provide the software, but instead provides software development kits so its customers can create their own software. Suprema imported these scanners into the United States and sold them to Mentalix, which developed the customized software.
Cross Match Technologies filed a complaint at the ITC alleging that Suprema’s scanners operating with Mentalix’s software infringed one of its patents. Cross Match also alleged that Suprema induced infringement by encouraging Mentalix to combine its scanners with the Mentalix software after importation. The full Commission found that the combination of Suprema’s scanners and Mentalix’s software infringed Cross Match’s patent and that Suprema had induced infringement. It issued a limited exclusion order (LEO) barring Suprema from importation of the accused scanners, with or without the additional software. Suprema appealed, arguing that § 337 of the Tariff Act did not permit entry of an exclusion order under a theory of induced infringement, where the infringing activity does not occur until after importation, because the scanners, as imported (i.e., without the software), did not infringe Cross Match’s patent.
In the initial appeal, a divided three judge panel of the Federal Circuit agreed with Suprema, reversing the Commission’s entry of an exclusion order by a 2-1 ruling, with Judge O’Malley writing the opinion and Judge Reyna dissenting (IP Update, Vol. 16, No. 12). In the panel decision, the Federal Circuit noted that the combination of scanner and software was not imported, sold for importation or sold after importation and, therefore, that product was not subject to an LEO. The panel then found the Commission’s authority to issue an exclusion order under § 337 was limited to „articles that … infringe,“ and that under § 271(b) (the inducement provision of the Patent Act), “[p]rior to the commission of any direct infringement, for purposes of inducement of infringement, there are no ‘articles that … infringe’—a prerequisite to the Commission’s exercise of authority” under § 337. The panel reasoned that because the scanners without software did not directly infringe, the Commission could not exclude them based solely on Suprema’s intent to induce.
On the ITC’s petition for en banc review, the full Federal Circuit vacated the panel opinion and granted rehearing en banc to consider “whether the Commission correctly concluded that unfair trade acts covered by § 337 include the importation of articles used to infringe by the importer at the inducement of the articles’ seller.” (See IP Update, Vol. 17, No. 5.)
In its en banc decision, the Federal Circuit has now ruled in favor of the ITC, Judge Reyna now writing for the majority and Judge O’Malley for the dissent. The majority and dissent parted ways over whether the phrase “articles that … infringe” in § 337 was sufficiently ambiguous that the ITC’s interpretation should be granted deference under the Supreme Court’s 1984 Chevron case.
The majority concluded that due to the difference between the in rem language of § 337 and the in personam language of § 271 the phrase “articles that … infringe” introduced textual uncertainty into § 337. Under the Patent Act persons infringe a patent, but under the Tariff Act, use of the language “articles that … infringe” attempts to apply the same analysis to products. The majority found that “the phrase ‘articles that infringe’ does not map onto the Patent Act’s definition of infringement.” This textual uncertainty, the majority concluded, “requir[ed] resolution by the agency charged with Section 337’s enforcement”—the ITC. The majority found that the ITC’s interpretation that “articles that … infringe” encompassed products where induced infringement could be proven, even if the corresponding act of direct infringement occurred post-importation, was not an unreasonable resolution of the uncertainty and, applying the Chevron deference standard, upheld the ITC interpretation. In support of its conclusion, the majority further explained that Congress had historically vested the Commission with broad enforcement authority to remedy unfair trade acts; that the phrase “articles that … infringe” was added to § 337 as part of an amendment expanding the Commission’s authority; that the Commission had consistently interpreted § 337 as providing it with authority to grant exclusion orders based on induced infringement; and that the ITC’s interpretation of its authority furthered its statutory mandate to safeguard United States commercial interests at the border.
According to the dissent, the phrase “articles that … infringe” in § 337 is unambiguous, and therefore the ITC’s interpretation deserved no deference. In the dissent’s view, the phrase “articles that … infringe,” combined with the limitation of liability under § 337 to goods imported into the United States, sold for importation into the United States or sold after importation in the United States, was a clear statement by Congress that the ITC’s jurisdiction is limited temporally to only acts of infringement that occurred at the time of importation. Thus, a product that does not infringe an asserted patent at the time of importation cannot be the subject of a limited exclusion order, regardless of whether the intent to induce infringement after importation already exists, because the article itself does not infringe the patent. In the view of the dissent, the ITC is powerless to take action against such products, and the proper place to seek relief in such cases is in the district court. The dissent rejected the majority’s argument that the Commission had consistently interpreted its authority to cover induced infringement, arguing that no case had ever presented the issue of a limited exclusion based solely on induced infringement—i.e., in every prior case where induced infringement was at issue, there was a corresponding case of direct infringement by the imported article. Finally, the dissent noted that permitting an exclusion order to issue based solely on induced infringement would require Customs Service officers to determine whether or not a non-infringing product was imported in order to later be used in an infringing manner and with the intent necessary for a finding of induced infringement, a task for which the Customs Service is ill-suited. The dissent also argued that the majority’s ruling exposed importers to potentially harsh liability for violations of an exclusion order, even if the importer provided a bona fide certification statement, based on a post hoc determination of intent.
Practice Note: Judges Moore and Stoll did not participate in the decision. Given that the Federal Circuit was nearly evenly divided, it is highly likely that Suprema will file a writ of certiorari in this case.
Ninth Circuit Is the First Appeals Court to Rule on RAND/SEP Licensing
In an appeal challenging a district courts authority to determine royalty rates in a bench trial the U.S. Court of Appeals for the Ninth Circuit has now affirmed a first-of-its-kind district court judgment relating to royalty rates for standard-essential patents (SEP), finding that the patent owner Motorola had consented to the bench trial and concluding that the district court’s “thoughtful and detailed analysis” was “consistent with the Federal Circuit’s recent approach,” to licensing. Microsoft Corp. v. Motorola, Inc. et al., Case No 14-35393 (9th Cir, July 30, 2015) (Berzon, J.).
As part of the standard setting process, many standards organizations require members who hold patents necessary to implement a given standard to commit to license those patents on reasonable and non-discriminatory terms (RAND). Because inclusion in a standard can increase the importance and value of a patent, parties often differ on what constitutes a reasonable royalty. In this case, district court Judge James Robarts of the U.S. District Court for the Western District of Washington established a multi-factor framework to determine the appropriate royalty rates and ranges for SEPs. Motorola’s appeal challenged the district court’s authority to determine the royalty rate at a bench trial. The company also contended that the district court misapplied Federal Circuit precedent on patent damages.
The long-running patent dispute between Microsoft and Motorola spans several courts and countries. The crux of the conflict traces back to when Microsoft sued Motorola for alleged infringement of certain smartphone patents. Thereafter, the parties explored a possible cross-licensing arrangement to resolve their dispute. Motorola sent letters proposing licenses for 802.11 and H.264 SEP portfolios, with a proposed royalty rate of 2.25 percent of the price of the end product, which Motorola represented was in keeping with its RAND commitments on the patents. Microsoft disagreed. Soon after, Microsoft filed suit, alleging that Motorola had breached its RAND commitments to the Institute of Electrical and Electronic Engineers (IEEE) and the International Telecommunication Union (ITU), the standard-setting organizations that developed the 802.11 and H.264 standards. Motorola responded by filing suit in a rocket docket jurisdiction, the U.S. District Court for the Western District of Wisconsin, seeking an injunction to prevent Microsoft from using its H.264 patents. The cases were consolidated before Judge Robart. Motorola also brought patent-enforcement actions before the International Trade Commission and in Germany. Microsoft alleged in an amended complaint that the filing of these injunctive orders constituted a breach of contract on the grounds that a RAND commitment bars a patent holder from seeking injunctive relief.
The district court found that the RAND commitment made by Motorola to the standard-setting organizations created an enforceable contract, which standard users like Microsoft are able to enforce as third-party beneficiaries. Judge Robart determined, however, that, in order for a jury to determine whether Motorola had breached its RAND commitment, it must first know what the RAND commitment meant. Judge Robart held a bench trial to determine a RAND rate and range for Motorola’s H.264 and 802.11 SEPs and subsequently issued an order setting forth its findings. The royalty rates and ranges determined by the district court (ranging from a fraction of a cent per unit up to less than 20 cents per unit) were substantially lower than those demanded by Motorola. A jury later returned a verdict for Microsoft on its breach of contract claim. Motorola appealed the judgment on the breach of contract claim to the U.S. Court of Appeals for the Federal Circuit, which, on Microsoft’s motion, transferred the appeal to the 9th Circuit (concluding that under the law of the case doctrine, the appeal properly lay with the regional circuit court that had preciously heard an interlocutory appeal in this case).
The RAND Determination
On appeal, Motorola raised two substantive issues. First, Motorola contended that the district court lacked the legal authority to decide the RAND rate issue separate from the ultimate breach of contract issue tried before the jury. Second, Motorola claimed that the district court’s legal analysis was contrary to Federal Circuit precedent as it relates to patent damages.
On the matter of the district court’s authority to conduct a bench trial to determine the RAND rate, the 9th Circuit held that Motorola affirmatively consented to the bench trial. The court rejected Motorola’s claims that its consent was taken out of context and limited to a court-crafted license rather than determination of the RAND rate and range. The court noted that Motorola never raised, at trial or on appeal, any Seventh Amendment claim regarding its right to a jury trial on the RAND rate matter. Given Motorola’s affirmative stipulation to a bench trial for the purpose of determining the RAND rate, the court did not consider whether a jury should have made a RAND determination.
Motorola also challenged the district court’s legal analysis in its determination of the RAND rate and range. Judge Robart’s decision was the first to attempt to establish an appropriate RAND rate. The district court relied upon a modified version of a multi-factor test established in Georgia-Pacific Corp. v. U.S. Plywood Corp. and used extensively to determine damages in patent infringements cases. Georgia-Pacific lays out 15 factors for a court to consider in establishing the royalty rate that the parties to the dispute might have agreed upon in a hypothetical negotiation. One of the factors requires the court to set the time of the hypothetical negotiation at the time the infringement began. Motorola claimed that the district court incorrectly applied this factor, as interpreted and applied by the Federal Circuit.
The 9th Circuit acknowledged that the district court had applied a “partial present-day focus” but denied this constituted error. It pointed to the Federal Circuit’s recent decision in Ericsson v. D-Link (IP Update, Vol. 18, No. 1) which stated it has “never described the Georgia-Pacific factors as a talisman for royalty rate calculations,” and which recognized that some of the factors “clearly are not relevant to every case.” The court noted that the Federal Circuit had even cited Judge Robart’s decision in support of the view that many of the Georgia-Pacific factors are “contrary to RAND principles” and courts thus need to take a flexible approach to such cases. The court highlighted that Georgia-Pacific’s focus on the date of the patent infringement was inapt in a breach-of-contract case. It also noted the impracticality of tying the value of the patents to a particular moment in time given the evidence the parties presented. Finally the court emphasized that Motorola had neither shown, nor even argued, that it had been prejudiced by the court’s analysis. The court ultimately concluded that, given the need for flexibility in determining royalty rates for RAND-encumbered patents and given no prejudice was shown, the district court properly applied the hypothetical agreement approach.
Practice Note: The Ninth Circuit’s decision, coming in the wake of last year’s Federal Circuit decision in Ericsson v. D-Link, further confirms that courts will apply a flexible, fact-specific approach to determine the appropriate royalty rate in cases involving RAND-encumbered SEPs. Both the Federal Circuit and the 9th Circuit have now rejected the view that Georgia-Pacific or any other test can be rigidly applied in all circumstances. The approval of the framework employed by Judge Robarts, however, is likely to encourage its continued use as a starting point in future rate determinations.
Indeed, soon after the Western District of Washington decision by Judge Robart, Judge Holderman, in the case of In re Innovatio IP Ventures, LLC Patent Litig., also held a bench trial and, using a variation on the RAND analysis pioneered by Judge Robart, determine RAND rates for 802.11 SEPs, as applied to manufacturers of Wi-Fi equipment. In two other RAND cases involving the 802.11 Wi-Fi standard, Ericcson v. D-Link (E.D. TX, 2013) before Judge Davis and Realtek v. LSI (N.D. CA 2014) before Judge Whyte, the RAND determinations were made by a jury.
In light of the 9th Circuit’s decision in Microsoft v. Motorola, practitioners should be aware that, in a breach of contract claim regarding standard-essential patents, the court may conclude that it must determine the RAND terms as a precursor to determining the breach of contract action.
Contract Manufacturing is a Commercial Transaction for Purpose of "On-Sale" Bar
Addressing the application of the on-sale bar under § 102(b), the U.S. Court of Appeals for the Federal Circuit found that the claims of an asserted patent were invalid based on an agreement, dated more than one year prior to the application filing date, to have a third party manufacture the patented drug. The Medicines Company v. Hospira, Inc., Case Nos. 14-1469; 14-1504 (Fed. Cir., July 2, 2015) (Hughes, J.).
The Medicines Company (TMC) brought a patent case under the Hatch-Waxman Act against Hospira asserting two patents related to the drug bivalirudin, which is sold under the brand name Angiomax. The patents were filed in July of 2008 and were directed to a method of adding pH-adjusting solution during the compounding process that minimized the Asp9-bivalirudin impurity to less than 0.6 percent. More than a year before, however, TMC hired third party Ben Venue to prepare three batches of bivalirudin. The invoice for the batches described the invoiced work as a “charge to manufacture Bivalirudin lot.” These lots were marked with a commercial product code and a customer lot number. Thereafter, TMC received the product for commercial and clinical packaging. Hospira claimed that it did not infringe and that the patents were invalid under the pre-AIA § 102(b) on-sale bar.
The district court found that Hospira did not infringe and that the claims were valid because there was no offer for sale that would trigger the on-sale bar. TMC appealed the non-infringement finding, and Hospira cross-appealed the finding that the claims were not invalid. Applying a clear error standard of review, the Federal Circuit reversed the district court’s validity determination, finding that the asserted claims were anticipated by batches of the bivalirudin peptide product manufactured by Ben Venue more than one year before the critical date of the claimed invention.
The Federal Circuit determined that the lots of bivalirudin were both the subject of a commercial offer for sale and ready for patenting. According to the Federal Circuit, a commercial “sale” took place even if Ben Venue did not take title of the commercial embodiment of the claimed invention. Comparing the facts of this case to the 1983 Federal Circuit Decision in D.L. Auld v. Chroma Graphics, the panel emphasized that Ben Venue’s manufacturing services were performed for TMC’s commercial benefit. In particular, TMC sought Ben Venue’s services to secure Food and Drug Administration (FDA) approval for a finished bivalirudin product. That sale was not insignificant, as each batch prepared by Ben Venue for TMC boasted a commercial value of over $10 million. The Federal Circuit reasoned that because the parties’ agreement to secure the bivalirudin lots amounted to “commercial exploitation” as opposed to “secret, personal use,” it qualified as a sale under the on-sale bar. Noting that Federal Circuit case law does not recognize a supplier exception, the Court explained that finding the on-sale bar inapplicable under these facts would allow TMC to circumvent the purpose of the on-sale bar by narrowly drafting its manufacturing services agreement. Where, as here, there was no dispute that the Ben Venue product lots fell within the claim limitations, it made no difference whether the parties to the agreement realized the bivalirudin lots produced the claimed product.
The Federal Circuit also found error in the district court’s application of the experimental use exception. The evidence indicated that the inventor knew the batches had levels of Asp9-bivalirudin below 0.6 percent and that manufacturing the product at this level fell within the claims. The invention was thus reduced to practice at the time of manufacture, and the experimental use exception was no longer available.
Practice Note: Although the Federal Circuit’s decision applies a pre-AIA version of the on-sale bar in § 102(b), the broad interpretation of what constitutes a “commercial” sale or transaction, as explained in this case, may be controlling for post-AIA decisions applying § 102(a)(1). It will be important going forward to recognize that “manufacturing services” may constitute a commercial sale even if title to the product does not change hands.
Patents / Invalidity / Obviousness
Non-Analogous Art is Not Prior for Purposes of Obviousness
Addressing the issue of obviousness, the U.S. Court of Appeals for the Federal Circuit reversed the district court and restored the jury’s verdict finding the patents-at-issue not invalid, because the prior art in dispute was not analogous and therefore could not be used for purposes of an obviousness. Circuit Check Inc. v. QXQ Inc., Case No. 15-1155 (Fed. Cir., Jul. 28, 2015) (Moore, J.).
Circuit Check sued QXQ alleging infringement of its patents for marking interface plates used on circuit board testers. In the prior art, the surface of the interface plate is painted and marked with shallow drill holes. By contrast, Circuit Check’s patents described using a second removable marked layer overlaying the first marked layer of the interface plate. QXQ argued that the second removable marked layer was obvious, citing references having no relation to circuit board testers (for example, references directed to rock carvings and engraved signage). In response, Circuit Check introduced evidence that a skilled artisan at the time of invention would not have considered art outside the field relevant to solving the marking problem addressed in its patents, as well as evidence that art outside the field could not be used to make the claimed invention.
The jury sided with Circuit Check, finding that the asserted claims were valid and that QXQ willfully infringed the patents. But, the district court granted QXQ’s motion for judgment as a matter of law (JMOL), finding the asserted claims invalid as obvious. In granting the QXQ’s motion, the district court acknowledged that QXQ’s obviousness argument was not premised on specific examples of prior art in the applicable field, nor relied on a nuanced discussion about the proper level of skill in the art. According to the district court, a lay person would have understood that interface plates could be marked using the techniques described in art outside the field circuit board testers. The district court noted, for example, that “any vandal who has ‘keyed’ a car knows that stripping the paint with a key will result in the underlying metal color showing through.” The district court further concluded that the additional limitations of certain dependent claims were too trivial to support a finding of non-obviousness, despite the fact that QXQ presented no evidence with respect to these additional limitations. Circuit Check appealed.
The Federal Circuit determined that three of the four Graham factors supported the jury’s validity finding, including the scope and content of the prior, the differences between the prior art and the claims at issue, and objective indicia of non-obviousness. The fourth factor, the level of ordinary skill in the art at the time invention, was not substantially in dispute.
To be considered prior art for obviousness purposes “a reference must be analogous.” As the Federal Circuit explained, prior art is only analogous “if it is from the same field of endeavor or if it is reasonably pertinent to the particular the problem the inventor is trying to solve.” This, the Court clarified, is a question of fact. Because the references QXQ cited as supplying the missing claim limitations were outside the field of circuit board testers, those references were not analogous and could not be considered in the obviousness analysis. Squaring this finding with its opinion in KSR which stated that “familiar items may have obvious uses beyond their primary purposes,” the Court further clarified that “a reference is only reasonably pertinent when it logically would have commended itself to an inventor’s attention in considering his problem.”
The Court also noted that the record contained evidence that a person of ordinary skill in the art would not have considered rock carvings or engraved signage when considering how to mark interface plates for circuit board testers. As such, the jury was entitled to find that a skilled artisan would not have looked to these references to solve the problem addressed by Circuit Check’s patents and therefore conclude the references were not analogous.
With respect to the dependent claims, the Federal Circuit found that the district court erred by shifting the burden to patent owner to disprove invalidity. Because the patent claims are presumed valid, and defendant QXQ produced no evidence that these claims were obvious, it was improper for the district court to find the claims invalid for a lack of evidence supporting non-obviousness.
Practice Note: Although a teaching, suggestion or motivation to combine the prior art (i.e., the TSM test) is not required to support an obviousness argument, prudence dictates that it is nevertheless good practice to do so. Had defendant presented evidence of some teaching, suggestion or motivation to combine the art in the field with art outside the field, the Federal Circuit may have been less likely to find the art outside field non-analogous and improper to the obviousness analysis.
Patents / Personal Jurisdiction
Party's Products Must Be Found in the Forum State to Confer Jurisdiction
In the most recent decision addressing the “purposeful-direction” and “stream-of-commerce” theories used to establish personal jurisdiction over a foreign defendant, the U.S. Court of Appeals for the Federal Circuit upheld dismissal of a patent infringement claim against a South Korean company for lack of personal jurisdiction. Celgard, LLC v. SK Innovation Co., Ltd., Case No. 14-1807 (Fed. Cir., July 6, 2015) (Reyna, J.).
Celgard develops and manufactures ceramic-coated battery membranes that are used in lithium-ion batteries found in electronic vehicles and consumer electronics to separate chemical cell components and prevent electrical shorting. Celgard holds a patent on its ceramic-coated separator technology. SKI, a South Korean company, manufactures separators used in lithium-ion batteries and supplies the separators to third-party manufacturers. All of SKI’s design, manufacturing and sales operations are based in Korea.
Celgard sued SKI in a district court in North Carolina, where Celgard is located. SKI moved to dismiss the complaint for lack of personal jurisdiction. Celgard argued that SKI was subject to personal jurisdiction because SKI placed its separators into the “stream of commerce” and “purposefully directed” them to third-party manufacturers of consumer electronic devices who, in turn, offered the devices for sale in North Carolina. After the district court granted SKI’s motion, Celgard appealed.
The Federal Circuit first analyzed Celgard’s “purposeful-direction” argument. The Court acknowledged SKI’s joint venture with Kia to develop batteries for a Kia electric vehicle (EV) and the fact that two Kia dealerships in North Carolina had advertised that the EV would be coming soon. But the Court found greater weight in the fact that it was the dealers, not SKI or Kia, that made the statements contained in the advertisements. Celgard presented no evidence that those dealers were SKI’s alter egos or its agents for purposes of establishing personal jurisdiction. Indeed, Celgard had not shown the requisite control by SKI over the activities of the dealers in North Carolina, nor did it show that any profits flowed from SKI to the Kia dealers. As the Court stated: “Put simply, there is no evidence of any relationship between SKI and the North Carolina Kia dealers.” Accordingly, the Court held that personal jurisdiction could not be established on the “purposeful-direction” theory because there was no record evidence that SKI purposefully directed its activities, related to the Kia EV or otherwise, toward North Carolina.
The Court then addressed Celgard’s “stream-of-commerce” argument. The Court acknowledged that the Supreme Court had not made a clear determination of whether the “stream-of-commerce” theory requires mere foreseeability that the defendant’s products would end up in the forum, or whether it requires foreseeability and a substantial connection between the defendant and the forum state. The Federal Circuit declined to resolve the question under either formulation of the “stream-of-commerce” test because Celgard provided no evidence that SKI’s products had actually entered North Carolina, much less that the company could foresee that its separators would make their way to the state when it placed them into the market. The Court went further, noting that Celgard also failed to demonstrate that its own separators were present in North Carolina. Consequently, the Court held that the district court did not err in declining to exercise personal jurisdiction over SKI under the stream-of-commerce theory.
Patents / Subject-Matter Eligibility
Steps that Simply Map Out an Application on a Computer Do Not Confer Patent Eligibility
Alexander P. Ott
Again addressing the issue of subject-matter eligibility of computer-implemented claims, the U.S. Court of Appeals for the Federal Circuit found two patents to be directed to non-eligible subject matter, concluding that the invention merely applied abstract ideas using generic computer elements. Intellectual Ventures I LLC v. Capital One Financial, Case No. 14-1506 (Fed. Cir., July 6, 2015) (Dyk, J.).
Intellectual Ventures (IV) sued Capital One Financial on patents related to internet-based budget tracking, web page customization and scanning hard-copy images. IV stipulated to non-infringement for the hard-copy scanning patent after the district court’s claim construction required the recited machine-readable instruction form to be a physical document. After the district court held the claims of the other two patents were directed to ineligible subject matter and additionally that the claims of one of the two patents were indefinite, IV appealed.
On appeal, the Federal Circuit first addressed the budget tracking patent and agreed with the district court that it was directed to the abstract idea of tracking financial transactions to determine whether they exceeded a pre-set spending limit. The Court noted that while IV argued the claims were not directed to an abstract idea, it apparently conceded that budgeting itself is indeed an abstract idea. Turning to the second step of the Alice analysis looking for an “inventive concept,” the Federal Circuit found the recited database, user profile and communication medium elements to be merely generic computer elements, making the claims nothing more than instructions to apply the abstract idea on a generic computer. The Court also found it notable that the budgeting calculations of the claims could be made using pencil and paper.
As for the web page customization patent, rather than spell out the abstract idea, the Court instead looked to whether the claims covered a fundamental and long prevalent practice. It concluded that they covered the longstanding practice of customizing information based on information known about a user and tailoring delivered content based on navigation data. As examples of such tailoring, the Court cited newspaper inserts based on the recipient’s location and television commercials that were tailored to the time of day they were broadcast. With regard to the second step of the Alice analysis, recitation of a technological solution, IV argued that the claims were directed to a specific application of the idea. The Federal Circuit disagreed, noting IV’s successful urging of a broad claim construction for the claimed interactive interface that effectively covered a generic web server running software. The Court further concluded that the claims do nothing more than map out how to apply the application on a computer and therefore do not confer patent eligibility. In doing so, the Federal Circuit distinguished the patent upheld in DDR Holdings as addressing a problem unique to the internet and solved by a solution that departed from the conventional methods.
Finally, the Federal Circuit affirmed the district court’s construction of recorded “machine readable instruction form” as requiring a physical document. It upheld the construction, noting that the claimed step of separating hard-copy prints from the form before scanning and also based on prosecution history arguments emphasizing the physical nature of the claimed step.
Patents / Foreign Discovery
Statute Permits Domestic Discovery for Foreign Opposition Proceedings *Web Only*
With ample citation to Supreme Court precedent, the U.S. Court of Appeals for the Ninth Circuit affirmed the use of 28 U.S.C. § 1782 to conduct domestic discovery in aid of foreign opposition proceedings at the European and Japanese patent offices. Akebia Therapeutics, Inc. v. FibroGen, Inc., Case No. 15-15274 (9th Cir., July 16, 2015) (Graber, J.).
Respondent FibroGen owns several foreign patents directed to chemical compounds useful for treating anemias. Petitioner Akebia initiated opposition proceedings against certain FibroGen patents before the European Patent Office and the Japanese Patent Office. Upon application to the U.S. District Court for the Northern District of California, Akebia obtained an order under § 1782 permitting it to serve FibroGen with document and deposition subpoenas as a means to gather evidence for use in the foreign oppositions. FibroGen appealed.
Section 1782 permits any “interested person” to file an application in a United Stated district court asking that the court order another person to produce testimony or documents for use “in a proceeding in a foreign or international tribunal.” Relying at every step on a 2004 U.S. Supreme Court decision construing § 1782 (Intel v. Advanced Micro Devices), the Ninth Circuit upheld the district court’s discovery order. It held that Akebia was indeed an “interested person” because, as a competitor seeking to invalidate FibroGen’s patents, Akebia had “a reasonable interest in obtaining judicial assistance” within the meaning of the statute. According to the 9th Circuit, § 1782 applies to administrative proceedings, such as those before foreign patent offices, because they “carr[ied] many of the hallmarks of traditional judicial proceedings” such as “serving as first-instance decision-makers tasked with resolving patent validity disputes.”
The Court rejected FibroGen’s argument that Congressional institution of post-grant review processes in the America Invents Act (AIA) repealed, by implication, any application of § 1782 to foreign patent office proceedings. Again citing to Supreme Court authority, the 9th Circuit panel found no “irreconcilable” conflict between the two laws that would justify a repeal by implication. The Court also turned aside FibroGen’s complaint that the district court gave “short shrift” to the non-exclusive factors set out by the Supreme Court in its Intel opinion. The lower court was not required to explicitly address every Intel factor, the 9th Circuit explained, nor even issue a written order. In any event, the hearing transcript confirmed that the district court thoughtfully considered the Intel factors, including by entering a protective order to guard against improper disclosure.
Patents / Litigation / Exceptional Case / Burden of Proof
Filing Serial Lawsuits for Nuisance Settlements May Be "Exceptional" if Improper Intent Established *Web Only*
In considering a district court’s denial of attorneys’ fees in view of the Supreme Court’s Octane Fitness standard for finding an “exceptional case” under 35 U.S.C. § 285 (IP Update Vol. 17, No. 5), the U.S. Court of Appeals for the Federal Circuit found that a practice of filing lawsuits for the purpose of extracting nuisance settlements—a charge often leveraged against many non-practicing entities (NPEs)—could make a case “exceptional.” However, the unanimous appellate panel found that there was insufficient evidentiary support in this case to find that the district court had abused its discretion in denying the fees sought. SFA Systems, LLC v. Newegg, Inc., Case No. 14-1712 (Fed. Cir., July 10, 2015) (O’Malley, J.).
The plaintiff, SFA Systems (SFA), sued various defendants for patent infringement in a series of cases filed in the U.S. District Court for the Eastern District of Texas, including the defendant, Newegg. Just over two years later, and after several parties had settled with SFA resulting in dismissal, SFA filed a second lawsuit against Newegg asserting a newly issued patent. While the two suits were pending separately, the district court held a Markman hearing relating to the first Newegg suit, in which the magistrate’s construction adopted by the district court favored SFA’s construction of a disputed term tending to favor infringement liability. Shortly thereafter, the parties agreed to consolidate the two SFA lawsuits against Newegg after all other defendants had settled their cases. After the court ordered consolidation of the two cases, the court conducted a second Markman hearing concerning the later-issued patent. As part of those claim construction proceedings, Newegg filed a motion for summary judgement of invalidity for indefiniteness consistent with local practice.
The district court subsequently issued its second claim construction order, adopting the same construction of the term in the first patent that favored SFA’s liability position and denying Newegg’s motion regarding indefiniteness. The next day, SFA voluntarily dismissed the case against Newegg and covenanted not to sue. Newegg filed motions to recover its costs and fees following the dismissal of the case. The district court found that Newegg was the prevailing party and granted Newegg’s bill of costs, but denied the request for fees because (quoting Octane Fitness) Newegg had “provided no evidence that the case ‘stands out from others with respect to the substantive strength of SFA’s litigating position.’” The district court also rejected Newegg’s argument that SFA’s filing of many lawsuits against many defendants showed a pattern of abusive and vexatious litigation to extract settlements, finding it equally likely on the case record that there was just widespread infringement. Newegg appealed.
Newegg requested de novo review of the district court’s claim construction, which Newegg argued was necessary to show that the substantive strength of SFA’s litigation position was weak in view of what the Newegg considered to be the proper construction. The Federal Circuit declined to engage in de novo review, finding that it is the substantive strength of the party’s litigating position that is relevant to an exceptional case determination, not the correctness or eventual success of that position. As a result, the appeals court concluded that it need not rule on the correctness of the district court’s decision on all underlying issues of law in reviewing a district court’s exceptional case determination. Rather, the Federal Circuit found that the district court did not abuse its discretion in finding that the plaintiffs claim construction and indefiniteness positions did not stand out and that the district court gave due and proper attention to those issues during the course of the litigation.
While the Court, in part, sided with Newegg on its arguments regarding the alleged unreasonable manner in which the case was litigated, the Federal Circuit concluded that the record did not support a finding that the district court had abused its discretion. The Court found that there were several prior settlement payments to SFA that were inconsistent with Newegg’s argument that SFA always settled with accused infringers for far less than the cost to prosecute a case to judgment. The Court concluded, however, that that a district court should consider a patentee’s pattern of litigation where adequate evidence of an abusive pattern is presented and that a pattern of litigation abuses characterized by the repeated filing of patent infringement actions for the sole purpose of forcing settlements, with no intention of testing the merits of one’s claims, is relevant to a district court’s exceptional case determination under § 285.
Practice Note: This case likely makes relevant fact discovery from serial plaintiffs that may have been previously deemed irrelevant or peripheral to the issues pending in an ongoing suit and may provide a role for third-parties (e.g., former defendants) that did not previously exist in a typical patent litigation. On the patent owner’s side, the dicta in this case tends to support the position that it is not enough to establish that another party previously settled with a patent owner and for what amount, but also why the other party settled and under what circumstances.
Patents / Preliminary Injunction
Shall Means Shall...Unless It Doesn't *Web Only*
Addressing issues of first impression related to the Biologics Price Competition and Innovation Act of 2009 (BPCIA), which the U.S. Court of Appeals for the Federal Circuit labeled “a riddle wrapped in a mystery inside an enigma,” the Court affirmed dismissal of unfair competition and conversion claims under California law, but reversed the denial of a preliminary injunction. Amgen Inc., et al. v. Sandoz, Inc., Case No. 15-1499 (Fed. Cir., July 21, 2015) (Lourie, J.) (Newman, J. and Chen, J. each concurring in part and dissenting in part).
In 2014, Sandoz notified Amgen that it had filed a Biologics License Application (BLA) with the Food and Drug Administration (FDA) to produce a biosimilar of Amgen’s Neupogen and that it intended to launch its biosimilar immediately upon FDA approval of its follow-on product. Although BPCIA § 262(l)(2)(A) states that “[n]ot later than 20 days after . . . the application has been accepted . . . applicant shall provide to the reference product sponsor a copy of the application,” Sandoz told Amgen that they “opted” not to provide the application or any of the additional information required by § 262(l)(2)(A).
Amgen filed suit based on BPCIA §§ 262(l)(9)(C) and 271(e)(2)(C)(ii), which provide that failure to provide the application is an act of infringement and also allow the Reference Product Sponsor (RPS) to file for declaratory judgment of infringement. Amgen also filed claims of unfair competition and conversion, based on Sandoz’s failure to provide the information required by § (l)(2)(A), and for giving Amgen notice of commercial marketing prior to the FDA’s approval of Sandoz’s biosimilar product. The district court agreed with Sandoz, holding that the BPCIA requirement to provide a copy of the application was permissive rather than mandatory; and that Sandoz’s notice of its intent to commercially market its biosimilar product was effective despite being given prior to the FDA’s approval. Amgen appealed.
In a highly fractured decision, the Federal Circuit found that BPCIA applicants are not required to provide their applications to reference product sponsors (RPS), but reversed the district court with respect to notice, finding that BPCIA applicants must wait until after FDA approval to provide notice of commercial marketing to RPSs.
With respect to the first issue, the majority explained that although the word “shall” in § (l)(2)(A) implied a mandatory requirement, considered within the entire statute the word “shall” was intended to be permissive because §§ (l)(9)(C) and (e)(2)(C)(ii) contemplated non-compliance by providing remedies. Therefore, the Court explained, Sandoz’s failure to provide an application was not a violation of the BPCIA, and the district court properly dismissed Amgen’s unfair competition and conversion claims.
In dissent, Judge Newman argued that the majority’s interpretation undermined the statute’s purpose of averting and expediting of litigation, limited the RPS’s infringement claims and allowed the applicant to waive a provision that was designed to protect the rights of the RPS.
With respect to the second issue, however, the majority found that the language of § 262(l)(8)(A) required applicants to provide notice to the RPS only after the product had been licensed by the FDA, thereby triggering a 180-day delay in marketing the biosimilar product. The Federal Circuit also reversed the district court’s denial of preliminary injunction. According to the Court, § 262(l)(8)(A) requires notice only after FDA approval because the language of this specific section referred to the biological product as “licensed” and here the term “shall” was mandatory. The Court concluded that the “shall” in § (l)(8)(A) was mandatory because the law did not contemplate non-compliance with this provision.
Judge Chen dissented from this part, arguing that the 180-day delay is inapplicable after Sandoz violated§ (l)(2)(A) because the litigation management rules of §§ (l)(3)-(l)(8) are only set in motion by fulfilling § (l)(2)(A).
Practice Note: The Court’s decision in this case limits the information available to biologic drug makers regarding a competitor’s application for a biosimilar product, but extends the period of exclusivity for the original drug maker.
Patents / Standing / Rule 11 Sanctions
Rule 11 Sanctions are Rare and Reserved for the Most Egregious of Violations *Web Only*
Joshua David Rogaczewski
The U.S. Court of Appeals for the Tenth Circuit reversed an order sanctioning an attorney under Federal Rule of Civil Procedure 11, holding that the district court abused its discretion in finding the attorney’s tactical moves were unwarranted. Predator Int’l, Inc. v. Gamo Outdoor USA, Inc., Case No. 14-1354 (10th Cir., July 14, 2015) (Hartz, J.).
Predator International sued Gamo Outdoor in federal district court for patent infringement and other claims. During the course of the litigation, Predator’s sole ownership of the patent (and, therefore standing to sue) was disputed. Instead of joining the purported co-owner of the patent in the federal suit, Predator dismissed the patent infringement claim without prejudice and commenced state-court litigation over the ownership of the patent. Gamo, however, acquired the purported co-owner’s interest in the patent and expanded the scope of the state-court litigation. Rather than litigate with Gamo in two different courts over related issues, Predator moved to supplement its complaint to add the patent-ownership dispute and re-add the patent infringement claim. The district court denied the motion to supplement but went further, sanctioning Predator’s attorney under Rule 11. The attorney appealed the sanction to the 10th Circuit.
As an initial matter, the 10th Circuit concluded that it possessed appellate jurisdiction over the case. Normally, cases involving patents are appealed to the U.S. Court of Appeals for the Federal Circuit. Although Predator’s suit initially contained a patent infringement claim, at the time of the sanction order, it did not. Because appellate jurisdiction is evaluated based on the conditions when it is invoked, i.e., when the party files its notice of appeal, 10th Tenth Circuit concluded that no basis existed for Predator to appeal the sanctions order to the Federal Circuit.
Turning to the merits of the Rule 11 sanctions, the 10th Circuit first noted that sanctions can be imposed because of malice or bad faith or because of actions unwarranted by the facts or law. Because the lower court found no evidence of malice or bad faith, the appeal turned on whether Predator’s attorney’s tactical choices had some support. The 10th Circuit examined the three bases for the district court’s sanction order and rejected each one, finding in each case that Predator’s attorney’s actions had at least some support.
First, the 10th Circuit reviewed the district court’s conclusion that Predator’s attorney engaged in impermissible forum shopping. As the 10th Circuit explained, forum shopping itself is not sanctionable. What is sanctionable, however, is attempting to litigate in a forum for which no jurisdictional basis exists. That was not the case with Predator. In fact, Predator’s motion to supplement sought to re-add to the federal case to the patent infringement claim, which could only be brought in federal court, and no bar existed to pursuing the patent ownership claim in state and federal court at the same time. The fact that the federal court might abstain from hearing the patent ownership claim did not make Predator’s attempt to litigate it in federal court frivolous.
Second, the 10th Circuit dismissed the district court’s conclusion that Predator’s delay in moving to supplement warranted the sanction. Taking a practical view, the court noted that Predator could have filed a separate lawsuit against Gamo and moved to consolidate it with the pending suit. Accordingly, it seemed odd to sanction Predator’s attorney for choosing the more efficient path of simply adding the claims to the pending lawsuit. Moreover, the 10th Circuit found nothing unreasonable about when Predator moved to supplement its complaint, which occurred after Gamo made itself a participant in and sought to complicate the state court proceeding. When it “became clear that Predator’s rival in the state case would be Gamo, which was already the opposing party in the federal case,” the efficiency of the state-court proceeding evaporated.
Finally, the 10th Circuit rejected the district court’s conclusion that Predator needed new evidence of standing to add the patent infringement claim. As the court noted, Predator needed only to sufficiently allege standing. Indeed, Predator could have litigated the patent-ownership and patent infringement claims in the same federal lawsuit from the outset. The fact that recovery on the latter is contingent on prevailing in the former is irrelevant. Accordingly, Predator needed nothing additional to do what it could have done initially.
Patents / Pleading Standards / Form 18
Direct Infringement Motion to Dismiss Under Form 18 Granted *Web Only*
Addressing pleading requirements for direct and indirect infringement, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s determination that although pre-filing notice is not required to bring suit for direct infringement, an identification of the infringing product is necessary. For indirect infringement, allegations of intent and specific acts caused by the defendant must be pled. Addiction and Detoxification Institute LLC v. Carpenter et al., Case No. 14-1797 (Fed. Cir., July 21, 2015) (Moore, J.) (non-precedential).
Addiction and Detoxification Institute (Addiction) filed a complaint alleging both direct and indirect infringement of one patent. Addiction’s complaint contained a single allegation of direct infringement, reciting only that “Defendants’, each of them, have directly infringed the Patents [sic] by making, using, selling, offering for sale in the United States activities, methods and procedures claimed in the Patent, Exhibit 1.” Similarly, Addiction’s allegation for indirect infringement amounted to a single statement that “Defendants’ have induced infringement of and/or contributorily infringed the Patent.” The district court granted the defendants’ motion to dismiss, finding that in order to satisfy Form 18, a complaint must allege that defendants were notified of the direct infringement before the complaint was filed. The claims for indirect infringement were dismissed because the complaint did not contain any allegations of pre-filing notice or facts supporting the intent requirement of indirect infringement. Addiction appealed.
The Federal Circuit affirmed the dismissal of the direct infringement claim, but for reasons different than those provided by the district court. The Court explained that the district court erred in reasoning that Form 18 creates a pre-filing written notice requirement. Rather, the Court affirmed the dismissal of direct infringement claims based on Addiction’s failure to identify the particular device that infringes, as required by Form 18. The Court agreed that the district court properly dismissed the indirect infringement claim because the complaint contained no allegations of substantial non-infringing uses which would allow the court to infer defendants’ are liable for the alleged misconduct.
Practice Note: Both the Federal Circuit and the district court were guided by Rule 84 of the FRCP and Appendix Form 18, which sets forth the pleading standard for direct infringement. Rule 84 provides that the forms “suffice under these rules and illustrate the simplicity and brevity that these rules contemplate.” However, effective December 1, 2015, Rule 84 and the Appendix of Forms (including Form 18) will be abrogated. This means patent litigators will no longer be able to rely on the notice pleading standard of Form 18, which is arguably less strict than the standard set forth by the Supreme Court in Twombly and Iqbal. For now, under the Federal Circuit’s decision in K-Tech (IP Update, Vol. 16, No. 5), if a conflict exists between Twombly and Form 18, Form 18 would control. After December, however, in order to meet the stricter pleading requirements imposed by Twombly, a complaint will need to contain sufficient factual matter to state a claim for relief that is plausible on its face. This plausibility requirement is met when a plaintiff pleads factual content that allows a court to draw the reasonable inference that the defendant is liable for the misconduct alleged.
Patents / Patent Term Adjustment
Patents / EU / SEP / FRAND Licensing
The European Union's Highest Court Rules on Standard-Essential Patents, Injunctions and Abuse of Dominance *Web Only*
Wilko van Weert
The long-awaited ruling regarding the circumstances under which the owner of a standard-essential patent (SEP) encumbered by fair, reasonable and non-discriminatory (FRAND) terms may seek injunctive relief has been delivered by the Court of Justice of the European Union, in Huawei v. ZTE, Case No. 170/130 (CJEU). Although the judgment lays down the legal test applicable to injunctions involving standard-essential patents, and significantly clarifies the landscape that had previously been shaped by the European Commission, a number of issues remain unresolved.
Huawei Technologies entered into negotiations with ZTE Corporation over the possibility of concluding a FRAND license agreement regarding Huawei’s SEP that is essential to the 4G standard. Given that negotiations between the companies were unsuccessful, and because Huawei contends that ZTE continued to use its SEP without paying royalties, Huawei brought an infringement action against ZTE, seeking an injunction to stop the sale of certain ZTE products.
In adjudicating the matter, the Regional Court of Düsseldorf considered that the outcome of the litigation largely depended on whether or not the action brought by Huawei constituted an abuse of dominance under EU law. Given this consideration, and the uncertainty surrounding the topic of SEP injunctions, the court made a reference for a preliminary ruling to the CJEU. The court asked in what circumstances a dominant SEP holder who has committed to grant licenses to third parties on FRAND terms can seek an injunction to stop an infringement of that SEP, or to recall products manufactured using the SEP, is to be regarded as committing an abuse contrary to Article 102 of the Treaty on the Functioning of the European Union (TFEU).
The Test for SEP Injunctions
The CJEU decided that the following conditions must be satisfied before a dominant SEP licensor can validly bring an injunction against a party infringing an SEP, without acting contrary to Article 102 TFEU.
Prior to taking any action, a SEP holder that has given an irrevocable undertaking to a standard-setting body to grant a license to third parties on FRAND terms must alert the alleged infringer to the alleged infringement. This prior notice must designate the SEP in question and specify the way in which it has been infringed.
After the alleged infringer has been informed about the infringement, it must (somehow) express its willingness to conclude a licensing agreement on FRAND terms. Presumably, this willingness refers to the alleged infringer agreeing to receive a FRAND offer from the SEP holder.
The SEP holder must present to the alleged infringer a specific, written offer for a license on FRAND terms, in accordance with the undertaking given to the relevant standardization body. In particular, this written offer must specify the amount of the royalty and the way in which that royalty is to be calculated.
Response to FRAND Offer
The alleged infringer must respond to the FRAND offer, in accordance with recognized commercial practices in the field, and in good faith. The alleged infringer must not engage in any delaying tactics.
If the alleged infringer is deemed to be using delaying tactics once a FRAND offer has been presented by the SEP holder, e.g., if the alleged infringer causes any undue delays in the negotiations, this may point towards its “unwillingness” to license and prevent it from using Article 102 TFEU in a counterclaim against the SEP holder. The CJEU judgment also, however, states (albeit in rather loose terms) that the alleged infringer “cannot be criticized” for challenging the validity of the SEP and/or its essential nature.
If the alleged infringer wishes to submit a counter-offer, it must do so promptly and in writing, and in compliance with FRAND terms.
According to the CJEU, if the alleged infringer has already been using the SEP without a license, it must provide appropriate security,e.g., though a bank guarantee or the placing of funds in a deposit account, from the point at which the counter-offer is rejected.
If the parties are unable to agree bilaterally on the details of the FRAND terms following the counter-offer by the alleged infringer, the parties “may” request that the amount of the royalty be determined by an independent third party.
If the alleged infringer continues to use the patent in question and has not diligently responded, either by accepting the FRAND offer or by submitting a FRAND counter-offer, the SEP holder may seek an injunction stopping the infringement or seek the recall of products made using the SEP, without risking Article 102 TFEU scrutiny.
Finally, by making it a condition that the alleged infringer must still be using the patent in question for the SEP holder to seek injunctive relief, the CJEU draws a clear distinction between an injunction based on the alleged infringement of an SEP and proceedings brought with a view to obtaining the rendering of accounts or an award of damages. This means that, notwithstanding the multiple steps and requirements that have to be followed when seeking an injunction, if the SEP holder only intends to pursue an action for damages for the unlicensed use of its SEP, Article 102 TFEU cannot be invoked by the alleged infringer.
Practice Note: The CJEU’s judgment sets out the final, general and legally binding test applicable to injunctions based on an infringement of a FRAND-encumbered SEP sought by a dominant market player.
To a large extent, the ruling reflects the European Commission’s earlier efforts to regulate FRAND licensing. That said, it is difficult to say whether or not the pro-licensee safe harbor envisaged by the European Commission has been fully embraced by the CJEU in its current decision. The number of issues that remain unresolved, e.g., in relation to the existence of dominance on the part of the SEP holder, the definition of “willingness” or the meaning of FRAND, potentially makes the legal test less useful in practice.
Unfortunately, although the CJEU refers to the concept of “willingness” in terms of the alleged infringers responsible to a FRAND offer, it does not address the criteria for determining “willingness,“ i.e., does not make clear what the potential licensee should do in order to be treated as “willing.”
Also the CJEU does not elaborate on what a FRAND offer but simply states that the SEP holder may not discriminate between licensees, i.e., the license terms must be comparable with the licensing arrangements the SEP holder has concluded with other competitors. The CJEU therefore places the burden of knowing what is FRAND on the licensor. Regardless of whether or not the licensor is able to discharge this burden, the ruling does not help the licensee, who has no guidance on determining whether or not the license it has been offered is actually FRAND-compliant, particularly as it doesn’t have access to the licensor’s existing agreements.
The requirements for a response by the licensing target might lead to a problem if, for example, the alleged infringer accepts the FRAND offer, but does so on the condition that validity of all the relevant IP rights be confirmed before the courts.
An alleged infringer’s response to a FRAND offer will usually be one of the following:
- Acceptance of the FRAND offer, in which case the SEP holder cannot seek an injunction, but can claim damages for the unlicensed use of the SEP
- Rejection of the FRAND offer, which presumably makes the alleged infringer an “unwilling” licensee and therefore enables the SEP holder to seek injunctive relief
- Submission of a FRAND-compliant counter-offer, to which the SEP holder must respond before taking any further steps.
The requirement for a prompt written counter-offer is implemented, under most national systems, an offer presented in writing will be contractually enforceable by the SEP holder. This may imply that “willingness” is a behavioral condition, i.e., that mere statements by the alleged infringer do not amount to willingness, but a concrete step has to be taken before the alleged infringer can rely on an Article 102 TFEU defense.
This requirement seems to place an even heavier burden on the alleged infringer, for whom it may potentially be a lot more difficult to determine what corresponds to FRAND terms, particularly in light of the inherent information asymmetry between the SEP holder and the potential licensee.
Although a referral to a third party for a determination appears to be reasonable, its application remains unclear. The wording in the judgment suggests that the parties are not obliged to seek third-party determination, but that they “may” do so. It is also not clear what consequences would follow if one of the parties rejected the proposal to have a court or an arbitrator decide on the level of royalties.
Licensors and potential licensees are therefore still advised to take caution when structuring transactions involving SEPs.
Patents / Patent Examination
USPTO Releases Update on Subject-Matter Eligibility *Web Only*
Bernard P. Codd
On July 30, 2015, the U.S. Patent and Trademark Office (USPTO) released an update to the 2014 Interim Guidance on Patent Subject Matter Eligibility (the interim guidelines) (See IP Update, Vol. 17, No. 12.) The update is aptly titled July 2015 Update on Subject Matter Eligibility and was released in response to over 60 comments submitted in response to the interim guidelines. The USPTO noted the comments submitted fell into several major themes including requests for additional examples, further explanation of the “markedly different characteristics” analysis from the 2014 Interim Guidelines, further information regarding how examiners identify an abstract idea, a discussion of the prima facie case (from the interim guidelines) and an explanation of the role of preemption in the patent eligibility analysis.
The update provides seven additional examples, illustrative of court holdings on subject-matter eligibility, are included in the update.
Markedly Different Characteristics
The update explains that inclusion of the “markedly different characteristics” analysis in Step 2A of the 2014 Interim Guideline analysis was intended to provide an additional pathway to subject matter eligibility for many claims directed to “product of nature” exceptions.
The update notes that courts have not expressly defined “abstract ideas” and that examiners should therefore refer to examples in court decisions where abstract ideas were identified. An examiner should not find a concept to be abstract unless it is similar to at least one concept that a court has identified as an abstract idea. The update also included a graphic summarizing concepts held to be abstract ideas in Supreme Court and U.S. Court of Appeals for the Federal Circuit decisions under the following four categories: Fundamental Economic Practices, An Idea of Itself, Certain Methods of Organizing Human Activity, and Mathematical Relationships/Formulas.
Prima Facie Case
The update explains that to make a prima facie case of non-eligibility, an examiner must clearly articulate the reasons why the claimed subject matter is not eligible, for example by providing a reasoned rationale that identifies the judicial exception recited in the claim and why it is an exception, and should identify the additional elements in the claim, if any, and provide an explanation as to why those elements do not amount to significantly more than the stated exception.
The update explains that preemption is not a stand-alone test for eligibility. While a preemptive claim may be ineligible, a claim that lacks preemption is not necessarily eligible.
In an appendix to the update, the USPTO provides an index of 27 examples for determining eligibility. The appendix provides information such as the subject matter, statutory category, judicial exception (if any) and relevant considerations for each example.
The USPTO is seeking written comments on the update. The comment period expires on October 28, 2015.
America Invents Act
New PTAB Trial Rules Proposed *Web Only*
On August 19, 2015, the U.S. Patent and Trademark Office (USPTO) published a proposal to amend the existing rules of practice for inter partes review (IPR), post-grant review (PGR), the transitional program for covered business method patents (CBM) and derivation proceedings that implemented provisions of the Leahy-Smith America Invents Act (AIA). The proposed rule seeks public comment on the proposed changes, and the USPTO will issue a final rule implementing these changes—or some version of them—at a later date. The proposed rule also states that the USPTO intends to later amend its Office Patent Trial Practice Guide concerning how the Office handles additional discovery, live testimony and confidential information. The USPTO published a final rule addressing certain ministerial changes, including an allowance for 10 additional pages for a patent owner’s motion to amend and providing 10 additional pages for a petitioner’s reply brief. IP Update, Vol. 18, No. 6.
The new proposed rule changes envision only a few changes to the existing rules. The major changes are:
- Allows the patent owner to submit new testimonial evidence in support of the preliminary response. This change creates some new strategic considerations for the patent owner as it may not always be advantageous to submit an expert declaration with the preliminary response. It may be more strategic to wait and see the institution decision by the Patent Trial and Appeal Board (the Board) before the patent owner locks in its witness’ testimony.
- The PTAB will maintain the broadest reasonable interpretation claim construction standard, unless the patent will expire before the final written decision is issued. The proposed rule also clarifies the claim construction standard for a patent that will expire during the course of a proceeding and, thus, cannot be amended.
- Expressly provides that a petitioner may seek leave to file a reply to the patent owner preliminary response and that material facts that are disputed will be viewed in the light most favorable to the petitioner for purposes of deciding whether to institute a proceeding.
- Reinforces the duty of candor in PTAB proceedings and provides that the signature on any document filed with the office is a representation, among others, that the action is not being conducted “for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of the proceeding.” This is a catch-all provision that could be used by the PTAB in a variety of contexts. The proposed rule also provides new procedural rules for sanction motions, including allowing the affected party to first correct the challenged document.
- Changes many of the page limits to word counts. For example a petition for inter partes review would be limited to 14,000 words.
- Demonstrative exhibits must be served at least seven business days before oral argument and filed no later than the time of the oral argument.
AIA / Federal Circuit / Claim Construction
Broadest Reasonable Interpretation Persists as Standard for Claim Construction in AIA Proceedings
In a deeply divided opinion addressing the claim construction standard in post-grant America Invents Act (AIA) proceedings, the U.S. Court of Appeals for the Federal Circuit denied a petition for rehearing en banc, leaving in place a panel decision affirming a Final Written Decision of the U.S. Patent and Trademark Office’s (PTO) Patent Trial and Appeal Board (PTAB or Board) finding all challenged claims obvious under the Broadest Reasonable Interpretation (BRI) claim construction standard. In re Cuozzo Speed Techs., LLC, Case No. 14-1301 (Fed. Cir., July 8, 2015) (per curiam) (Dyk, J., concurring) (Prost, C.J., dissenting) (Newman, J., dissenting).
Garmin International petitioned the PTAB for inter partes review (IPR) of Cuozzo Speed Technology’s patent. The PTAB instituted the proceeding and found all challenged claims obvious in a Final Written Decision. Cuozzo appealed, challenging the PTO’s use of the BRI claim construction standard in IPR proceedings.
A divided Federal Circuit panel affirmed the PTAB (IP Update, Vol. 18, No. 2). The panel found that, as the AIA statute is silent as to the claim construction standard, there was no indication that the AIA was designed to change the claim construction standard the PTO applies in almost all of its proceedings. The panel also found setting the claim construction standard to be within the purview of the rulemaking authority vested in the PTO by the AIA. Cuozzo petitioned the Federal Circuit for en banc review.
Now, in a per curiam decision, the Federal Circuit has denied Cuozzo’s petition for rehearing en banc. In a concurrence, Judge Dyk (who authored the panel decision) explained that BRI is a long-standing practice in PTO proceedings and that Congress conveyed rulemaking authority to the PTO in light of this long-standing practice. Without an indication of express congressional intent, Dyk argued that the Federal Circuit should not adopt a different claim construction standard.
In dissent, Chief Judge Prost first noted that IPR proceedings were intended by Congress to be a substitute for more expensive district court proceedings, which are subject to narrower claim construction standards. Furthermore, as IPR proceedings are novel, Prost argued that it was not legislated within any existing PTO post grant regime. As such, she argued that congressional intent cannot be inferred from silence. Further in Prost’s view, it makes little sense to adhere to the BRI standard in an IPR, where the goal is to provide an efficient vehicle for examining the validity of an issued patent.
AIA / Federal Circuit / CBM Review
PTAB Prevails in First Appeal of a CBM Review
In the first appeal of a covered business method (CBM) review, the U.S. Court of Appeals for the Federal Circuit affirmed the Patent Trial and Appeal Board’s (PTAB or Board) decision, and explained that the eligibility of a patent for CBM review can be reviewed on appeal only as part of the Court’s review of the Board’s final written decision. Versata Development Group, Inc. v. SAP America, Inc. (Fed. Cir., July, 9 2015) (Plager, J.) (Hughes, J., concurring in part and dissenting in part).
SAP petitioned for CBM review of Versata’s patent, which disclosed a method and apparatus for pricing products in multi-level product organizational groups. In granting SAP’s petition, the Board concluded that Versata’s patent qualified for CBM review and that § 101 was an applicable basis for review of patents in CBM proceedings. In a final written decision, the Board concluded that all of the challenged claims of Versata’s patent were unpatentable under § 101. Versata appealed.
On appeal, the Federal Circuit addressed the Court’s jurisdiction to review whether a patent qualifies for CBM review, the claim construction standard for CBM proceedings, and whether the Board can hear and decide § 101 challenges in CBM proceedings.
Section 324(e) bars an appeal from an initial decision by the Board to institute a CBM review. However, the Federal Circuit concluded that it has jurisdiction to review the merits of the final written decision, and such review includes the question of whether the challenged patent is CBM-eligible. The Court reasoned that the language of § 324(e) “does not by its terms apply to limits on the authority to enter a ‘final written decision’ invalidating a patent,” as institution and invalidation are two distinct actions by the Board. The Court further explained that barring judicial review of some aspects of a final written decision would “run counter to our long tradition of judicial review of government actions that alter the legal rights of an affected person.” Additionally, the Court noted (as an analog to the present situation) that prior to enactment of the America Invents Act (AIA), limitations on the scope of reexamination authority was reviewable upon final decision.
Regarding the proper basis for claim construction in connection with CBM review, the Federal Circuit rejected Versata’s argument that it was improper for the Board to apply the “broadest reasonable interpretation” in CBM proceedings. Citing its own precedent, In re Cuozzo Speed Technologies (IP Update, Vol. 18, No. 2) the Court explained that the “broadest reasonable interpretation” applies in all post-grant proceedings. Although Cuozzo Speed Technologies did not expressly address the standard for claim construction in CBM proceedings, the Court saw “no basis for distinguishing between the two proceedings [IPR and CBM] for purposes of the PTAB’s use of BRI in claim construction here.”
As for the use of § 101 as a basis for CBM review, the Federal Circuit determined that the Board can hear and decide § 101 challenges as part of a CBM review, explaining that excluding § 101 challenges from CBM reviews would require clear direction by Congress, as the statute provides that in both CBM and PGR proceeding the Board may hear challenges on any ground that could be raised under paragraph (2) or (3) of § 282(b). The Federal Circuit was not persuaded by patent owner’s argument that only § 282(b)(2) is relevant in terms of the § 101 argument and that § 101 is not included as “Part II” of the Patent Act, the portion referenced in § 282(b)(2). According to the Court, it would put form over substance to conclude that § 101 is not a ground available in a CBM review.
Turning to the merits, the Federal Circuit concluded that the patent at issue was a proper subject to a CBM review, noting that the definition of a CBM patent is not limited to only products and services of the financial industry. In addition, the Court agreed that the patent failed to recite a technological invention and was directed to “the abstract idea of determining a price, using organizational and product group hierarchies.” For these reasons, the Court affirmed the Board’s decision that the challenged claims were unpatentable under § 101.
AIA / CBM / Subject Matter Jurisdiction
More Guidance on "Financial Service or Product" for Instituting CBM Review *Web Only*
Addressing whether an abstract idea involves “financial product or service” in the context of covered business method (CBM) reviews, and providing additional guidance on the analysis, the Patent Trial and Appeal Board (PTAB or Board) found the challenged patent to be directed to financial products or services. Microsoft Corporation Inc. v. ADC Technology Inc., Case CBM2015-00026 (PTAB, July 3, 2015) (Tierney, APJ).
The petitioner sought a CBM review for a patent directed to transmitting video game and karaoke software. The parties disputed whether the patent was subject-matter eligible for a CBM review.
The petitioner argued that the claims required a host facility and that the patent taught that the host facility included a financial charging system and further performs a financial charging process when transmission of programs and/or data was complete. The patent owner argued that the claims did not recite a charging process and that no claim terms hinted to a financial activity.
The Board found that the patent was directed to solving the problem of purchasing game cassettes by transmitting video game and karaoke software. The Board explained that the patent described a financial charging process for its data transmission service. Noting that literal recitation of financial products or services were not required in a claim, the Board concluded that challenged patent claimed a system that was, at a minimum, complementary or incidental to a financial activity.
The petitioner also argued that the claims did not satisfy the technological invention exception because the claims contained general purpose computers, communication hardware and common programming. The petitioner further relied on its expert declarant in arguing that the claimed features were not novel or unobvious over the prior art. The patent owner argued that patentability of the claims was confirmed in a reexamination and appeal process. The patent owner also argued that the claims solved the technical problem of preventing unwarranted access to program and/or data.
The Board credited the testimony of the petitioner’s declarant and concluded that the claims were directed to generic hardware combined with routine programming. The Board also found that the patent owner failed to identify where the technical problem was discussed in the patent and found that the problem was identified as purchasing game cassettes. Thus, the Board concluded that the patent was eligible for a CBM review.
Practice Note: If a claim element is described (in this specification) as performing a financial activity, and the claim does not recite more than generic hardware and routine programming, the patent will likely be found eligible for CBM review (IP Update, Vol. 18, No. 6).
Lesson #1 - Keep PTAB Petitions Clean and Simple
Addressing the procedures for seeking a covered business method (CBM) review, the Patent Trial and Appeal Board (PTAB or Board) declined to institute the CBM, finding that the petition improperly shifted the burden of deciphering the petitioner’s arguments onto the patent owner and the Board, and that the petitioner failed to show a reasonable likelihood that it would prevail on the merits with respect to at least one claim. Whole Space Industries Ltd. v. Zipshade Industrial (B.V.I.) Corp, Case No. CBM2015-00488 (PTAB, July 24, 2015) (Grossman, APJ.).
Petitioner Whole Space challenged all of the claims of Zipshade’s patent relating to a control system and method for raising and lowering window shades, filing several corrected petitions in the process. The patent owner filed a patent owner’s preliminary response to the first corrected petition.
The Board found that Whole Space’s petition failed to satisfy threshold requirements for unpatentability, in part because it contained “confusing, inconsistent grounds” and cited a “thirty-one page, seventy-four paragraph” Declaration in its entirety without referring to any specific portions of that document. The Board explained that parties requesting inter partes review should “avoid submitting a repository of all the information that a judge could possibly consider, and instead focus on concise, well-organized, easy-to-follow arguments supported by readily identifiable evidence of record.”
On the merits, the Board dismissed the petitioner’s anticipation and obviousness assertions, noting a substantial number of inconsistencies and conclusory statements in the petition. Specifically, the Board found inconsistencies between the arguments presented in the petition and accompanying claim charts, which required the Board to decipher whether the petitioner intended to make certain arguments not fully articulated in the petition. The Board also concluded that citations in the petition arose to incorporation by reference, rejecting any consideration of arguments that relied upon such citations. The Board noted that incorporation by reference “serves to circumvent the 60-page limit imposed on petitions for inter partes review, while also obscuring the arguments and evidence by requiring the patent owner and the Board to sift through the entire Declaration to locate specific, relevant arguments.” Moreover, the Board found that the petition failed to satisfy the particularity and specificity requirements by failing to identify how the “fifty-four figures and seventeen columns of text” of the reference corresponded to the challenged claims, noting the same problems in the accompanying claim charts.
In addition, the Board found that the petitioner’s assertions equated to conclusory labels that do not substitute for a fact-based analysis, concluding that the petitioner “must clearly express and explain its positions, especially on precisely how the teachings of multiple references are used in combination to meet a claimed feature.” For these reasons, the Board declined to institute an IPR.
Practice Note: The Board has shown a reluctance to decipher arguments presented in a petition without a sufficient showing of articulated and concise supporting evidence. Providing readily identifiable citations to supporting evidence together with concise explanations as to how such cited evidence applies to each of the challenged claims is essential for the Board to properly consider the arguments presented and developed in the petition.
Changes in the Law Can Open the Door for Follow-On Petitions
In an order issued on a patent owner’s motion to terminate in connection with a second petition for covered business method (CBM) patent review, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) declined to terminate review of claims for which review had previously been requested in light of intervening changes in the law. Westlake Services LLC v. Credit Acceptance Corp., Case CBM2014-00176 (PTAB, May 14, 2015) (McKone, APJ.).
In its first CBM review (CBM2014-00008) (IP Update, Vol. 18, No. 4), the petitioner Westlake Services requested review of all claims of the patent at issue. The Board instituted trial on only some of the claims and ultimately found those claims to be directed to non-patent-eligible subject matter under § 101.
During the first CBM review, the Supreme Court issued its decision in Alice and vacated a Federal Circuit decision on which the Board relied in declining to institute on some of the claims. In view of the new case law, the petitioner sought a rehearing in the first CBM review regarding those claims, but the Board declined, indicating that the petitioner was free to file another petition.
The petitioner submitted a new petition requesting review of the claims on which trial was not instituted in the first CBM review. In the second CBM review, the Board instituted trial after considering the impact of serial petitions on the patent owner, the nature of the changes in the law and the impact of the timing of these cases on the petitioner’s ability to present its arguments.
Meanwhile, after issuance of a Final Written Decision in the first CBM review, the patent owner filed a Motion to Terminate in the second CBM review, arguing that the Final Written Decision had an estoppel effect that applies to all claims challenged in the first petition, including those claims on which trial was not instituted. The petitioner responded that § 325(e) should be interpreted to apply on a claim-by-claim basis and, thus, estoppel should not apply to claims on which trial was not instituted in the first CBM review.
The Board agreed with the petitioner and concluded that estoppel is applied on a claim-by-claim basis, stating that estoppel is invoked under § 325(e)(1) as to “a claim in a patent.” The issuance of the Final Written Decision in the first CBM review did not change the Board’s view regarding its decision to institute trial in the second CBM review.
Practice Note: Changes in the law can present opportunities to seek review of claims on which trial has not yet been instituted, even when other claims of the same patent are the subject of a final written decision.
AIA / CBM / Institution Discretion
Section 325(d) Does Not Preclude All Second Petitions *Web Only*
Addressing its decision to institute a covered business method (CBM) patent review based on a second petition, the U.S. Patent and Trademark Office’s (PTO) Patent Trial and Appeal Board (PTAB or Board) found that its decision to institute was not an abuse of discretion. Motorola Mobility LLC v. Intellectual Ventures I LLC, Case No. CBM2015-00004 (PTAB, July 24, 2015) (Kauffman, APJ).
The petitioner (Motorola Mobility) previously filed a petition for CBM patent review of the challenged claims but, in the view of the Board, failed to demonstrate that the challenged patent was a “covered business method patent.” The Board therefore denied the petition. Motorola then filed in a second petition requesting a review of the same challenged patent. This time the Board instituted a CBM review.
The patent owner (Intellectual Ventures I) sought rehearing, asking that the Board reconsider its decision via an expanded panel. The patent owner argued that the Board abused its discretion by not denying institution on the second petition based on 35 U.S.C § 325(d).
An abuse of discretion may be determined “if a decision is based on an erroneous interpretation of law, if a factual finding is not supported by substantial evidence, or if the decision represents an unreasonable judgment in weighting relevant factors.” In relevant part § 325(d) states that “[a] petitioner is not entitled to multiple challenges against a patent” and that “[i]n determining whether to institute or order a proceeding … the Director may take into account whether … the same or substantially the same prior art or arguments previously were presented to the Office.”
According to the Board, § 325(d) does not require the Board to “deny any second petition against a patent.” Rather, as the Board explained, § 325(d) states that “the Director may take into account whether … the same or substantially the same prior art or arguments previously were presented to the Office.” Accordingly, the Board found that the patent owner failed to demonstrate an abuse of discretion.
The Board also disagreed with the patent owner’s contention that “the rehearing request presents a significant question, namely whether a petitioner that has fully litigated the issue of whether a challenged patent is a covered business method patent may be permitted to re-litigate that same issue in a second petition against the same patent.” The Board explained that “Section 325(d) does not preclude institution of a covered business method review where, as here, the merits of the earlier petition were not reached.”
AIA / IPR / Claim Amendments
PTAB Clarifies Requirements for Claim Amendments
In an order perhaps indicating that the tide is turning for patent owners seeking to amend claims in inter partes review (IPR), an expanded panel of the Patent Trial and Appeal Board (PTAB or Board) provided clarification as to what is required of patent owners when seeking to amend claims. This order reinforces at least one recent decision by the Board and also statements by the director to the effect that the Patent Trademark Office will be relaxing the practical requirements for amending claims in IPR proceedings. MasterImage3D, Inc. and MasterImage 3D Asia, LLC v. RealD Inc., Case IPR 2015-00040 (PTAB, July 15, 2015) (Lee, APJ.).
MasterImage 3D and its foreign affiliate filed an IPR petition challenging RealD’s patent directed to a polarization conversion system and method used for projecting images for 3D viewing. Agreeing that the petitioner had met its threshold showing, the Board instituted review of nine of the 20 challenged claims.
Two business days before its Patent Owner Preliminary Response and Motion to Amend were due, RealD requested a conference call with the Board. During the call, the parties and the Board discussed the requirements articulated by the Board in the Idle Free Systems v. Bergstrom, decision on motion to amend (IP Update, Vol. 17, No. 1), a decision previously designated as informative by the Board. Following the call, the expanded panel of the Board issued its order, expressly clarifying some of the language of the informative Idle Free decision.
The Board provided three points of clarification of its statement in Idle Free to in order to demonstrate patentability of proposed substitute claims over the prior art, “[t]he burden is not on the petitioner to show unpatentability, but on the patent owner to show patentable distinction over the prior art of record and also prior art known to the patent owner.” (Emphasis in original.) According to the Board, the reference in Idle Free to “prior art of record” should be understood as referring to “any material prior art in the prosecution history of the patent,” “any material art of record in the current proceeding, including art asserted in grounds on which the Board did not institute review” and “any material art of record in any other proceeding before the Office involving the patent.”
The Board further explained that “prior art known to the patent owner” in the context of Idle Free should be understood as “no more than the material prior art that Patent Owner makes of record in the current proceeding pursuant to its duty of candor and good faith to the Office under 37 C.F.R. § 42.11.” Since claim amendments made during an IPR can only narrow the scope of challenged claims, the Board also reasoned that when considering its duty of candor and good faith in connection with a proposed amendment, “Patent Owner should place initial emphasis on each added limitation.”
Practice Note: The order in this case echoes the recent final decision in REG Synthetic Fuels LLC v. Neste Oil Oyj (IP Update, Vol. 18, No. 7) and like that case indicates a response by the Board to criticism by patent owners about the severe requirements imposed in early proceeding to successfully amend claims during IPRs. The Board’s stance here is more permissive than was the case in the final written decision in Idle Free, where the patent owner’s Motion to Amend was rejected for not meeting the “burden of proof in demonstrating patentability of the proposed substitute claims over the prior art in general.” With this new clarification, the Board seems to have reframed the burden placed on patent owners seeking to amend claims—a not-insubstantial change.
Petitioners Only Get One Bite at the Same Part of the Apple
In a decision to institute inter partes review (IPR), the Patent Trial and Appeal Board (PTAB or Board) determined that the petitioner was estopped from challenging several claims of the patent-in-question as a consequence of the result of a prior IPR proceeding, but had demonstrated a reasonable likelihood that it would prevail in showing the unpatentability of the remaining claims. Alcohol Monitoring Systems, Inc. v. Soberlink, Inc., Case IPR2015-00556 (PTAB, July 16, 2015) (McKone, APJ).
The challenged patent relates to a remote breath testing and identification device. The device includes a breath alcohol test, a digital camera that verifies the identity of the user and a wireless transmitter that transmits the blood alcohol level and identity information to a receiver at a monitoring station. In its decision to institute, the PTAB first considered its final written decision from an earlier related IPR. In the previous IPR, the PTAB construed certain terms, and it maintained those constructions in the present proceeding. The PTAB also concluded that the petitioner should be estopped under § 315(e)(1) from challenging several claims that were addressed in the earlier IPR.
Section 315(e)(1) states that a petitioner in an inter partes review that results in a final written decision under § 318(a) “may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” In the earlier IPR, the PTAB found several of the challenged patent’s claims unpatentable. The PTAB determined that the petitioner was estopped from maintaining the instant proceeding as to those claims.
The PTAB then considered the petitioner’s arguments with respect to the remaining claims. Although the previously invalidated claims themselves could not be challenged, the PTAB addressed the applicability of the prior art used to invalidate claims in the context of those claims that had not previously been challenged. After reviewing the petitioner’s arguments, the PTAB was persuaded that the petitioner met its threshold for showing that the limitations of the challenged claims were taught or suggested by the prior art and that the petitioner’s reasons for combining the prior art had a “rational underpinning.” Based on those findings, the PTAB instituted inter partes review for the newly challenged claims.
PTAB Petition Must Specifically Explain the Grounds for Invalidity
In a trio of orders addressing the extent of express explanation required in a petition for post-grant review, the Patent Trial and Appeal Board (PTAB or Board) found each petition defective for lack of explanation regarding the specific grounds on which the petition was based. Apple Inc., v. ContentGuard Holdings, Inc., Case No. IPR2015-00451 (PTAB, July 13, 2015) (Begley, APJ); Apple Inc., v. ContentGuard Holdings, Inc., Case No. IPR2015-00452 (PTAB, July 13, 2015) (Scanlon, APJ); Apple Inc., v. ContentGuard Holdings, Inc., Case No. IPR2015-00453 (PTAB, July 13, 2015) (Scanlon, APJ).
The petitioner, Apple, filed three petitions requesting inter partes review of patent owner ContentGuard’s patents. Apple relied on several prior art references and an expert declaration in challenging ContentGuard’s patents. The PTAB denied the institution based on the petitions.
In denying institution, the PTAB explained that the petitions proffered a hypothetical, integrated system that purported to combine the teachings and suggestions of the prior art references with the knowledge of a person of ordinary skill in the art. The PTAB explained that the obviousness analysis, which compared the asserted patents to prior art references, was too far removed from the actual disclosures of the prior art references, and thus obscured Apple’s position. The PTAB further noted that the petitions were riddled with vague, nested citations to broad sections of the prior art references, the expert declaration, other exhibits and other sections of the petitions without explanation. The defects in the petitions were compounded by the petitions’ repeated citations to broad sections of the expert declaration to support conclusory arguments and reasoning.
The PTAB found Apple’s practice impermissible under the PTAB rules (37 C.F.R. § 42.6(a)(3): “Arguments must not be incorporated by reference from one document into another document”); the petitions’ citations to voluminous portions of the expert declaration ran afoul of the specificity required by supporting evidence under PTAB rules.
AIA / IPR / Printed Publication
Printed Publication in IPR *Web Only*
Addressing the requirements for proof of prior art in inter partes review (IPR), the Patent Trial and Appeal Board (PTAB or Board) found that the petitioner failed to establish that certain documents cited qualified as “printed publications” and denied institution of the requested IPR proceeding. LG Electronics, Inc. v. Advanced Micro Devices, Inc., Case No. IPR2015-00329 (PTAB, July 10, 2015) (Arpin, APJ).
The petitioner LG Electronics sought to institute an IPR of an Advanced Micro Devices patent based on two purported prior art references supported by a declaration. The petitioner argued that each of the applied references was a printed publication that could properly be used as a ground of unpatentability in an IPR.
The PTAB noted that the “party seeking to introduce the reference ‘should produce sufficient proof of its dissemination or that it has otherwise been available and accessible to persons concerned with the art to which the document relates and thus most likely to avail themselves of its contents.’” In this case, the petitioner relied on a preliminary technical specification, arguing that the dates on the face of the document and the citation of the document in an information disclosure statement (IDS) were sufficient to show public availability. The PTAB agreed that the technical specification was a printed publication, noting that although “an IDS alone is insufficient to demonstrate that a document is a printed publication . . . the presence of a copyright notice, together with the listing of the reference in an IDS, may be taken as some evidence of public accessibility as of a particular date.”
The petitioner also cited a user’s manual as a prior art reference, similarly arguing that the date on the document was sufficient to show that it was a printed publication as of that date. The PTAB disagreed, noting that the date on the document only contained a reference to a revision level, which suggested that the document may have been revised on that date but was not sufficient evidence that it was published on that date. The PTAB further stated that the “unsupported opinion” of the petitioner’s declarant that the document was more than likely published on the noted date was “insufficient to demonstrate a reasonable likelihood” that the document was in fact published on that date. The PTAB thus concluded petitioner failed to establish that the user’s manual was a printed publication for the purposes of the IPR decision.
Considering only technical specification as prior art, the PTAB denied the petitioner’s request to institute the IPR.
Dismissal Without Prejudice Does Not Trigger IPR Statutory Bar
Addressing the standard for the 35 U.S.C. §§ 315(a)(1) and (b) statutory bars to filing an inter partes review (IPR) petition, the Patent Trial and Appeal Board (PTAB or Board) concluded that, notwithstanding by the petitioners prior filing of a declaratory judgement (DJ) action, the petition-at-issue should not be barred, since the declaratory judgement was voluntarily dismissed without prejudice. Microsoft Corporation v. Parallel Networks Licensing, LLC, IPR2015-00483 (PTAB, July 15, 2015) (Crumbley, APJ).
Microsoft filed a petition for an IPR of Patent Owner Parallel Networks Licensing’s (Parallel) patent, which relates to a system and method for managing dynamic web page generation requests and providing web pages in response to those requests. Parallel argued that Microsoft should be statutorily barred from bringing its petition under 35 U.S.C. §§ 315(a)(1) and (b). Section 315(a)(1) bars a petitioner from filing a petition for inter partes review if the petitioner had previously filed a declaratory judgment action challenging the validity of the same patent. Section 315(b) requires inter partes review petitions to be filed within one year of the petitioner being served with a complaint alleging patent infringement. Here, Microsoft filed an action for declaratory judgment of invalidity of the instant patent in 2008. Separate from the declaratory judgment action, Parallel also sued Microsoft in 2009 for infringement of the same patent. The parties settled both cases in 2012 and dismissed both actions voluntarily and without prejudice pursuant to a Dismissal Agreement.
Absent the Dismissal Agreement, Microsoft’s petition would have been time barred. Here, however, the Board cited Federal Circuit precedent, which has “interpreted the effect of such dismissals as leaving the parties as though the action had never been brought.” Parallel attempted to distinguish the present situation, arguing that the Dismissal Agreement contains provisions that give “on-going legal effect” to the dismissed actions. But the Board disagreed, explaining that even if the parties had intended to give “on-going legal effect” to the dismissed actions, from the court’s perspective, a voluntary dismissal without prejudice still renders the prior action a nullity. The Board further stated that parties to a settlement agreement may wish to prevent filing of inter partes review petitions following the dismissal of their district court actions, but should do so by including explicit prohibitions against such filings. For these reasons, the Board concluded that the previous legal actions between the parties do not give rise to statutory bars under §§ 315(a)(1) or (b).
Additional Discovery Scrutinized by PTAB for Scope and Purpose *Web Only*
In an order granting a patent owner’s motion for additional discovery, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) ordered a petitioner to produce specific documents identified in the patent owner’s Motion. Arris Group Inc. v. C-Cation Technologies LLC, Case IPR2015- 00635 (PTAB, May 1, 2015) (Pettigrew, APJ.).
The petitioner, Arris Group, filed a petition requesting inter partes review (IPR) of claims of a patent that had been the subject of an earlier IPR (IPR2014-00746) involving the same parties and different claims of the same patent.
In the first IPR proceeding, the patent owner, C-Cation, had sought discovery of an indemnification agreement that it argued would show that the petitioner was barred from challenging the patent under 35 U.S.C. § 315(b). According to the patent owner, the agreement would show that the petitioner had a business relationship with a third party that the patent owner had sued over the patent at issue more than one year before the petitioner filed the IPR petition. The Board granted the discovery request, but determined that the first IPR was not barred based on the evidence presented.
In the second IPR proceeding, C-Cation again sought discovery of “indemnification agreements referencing or contingent on Petitioner’s ability to control” the litigation with the third party, claiming to have new information that, together with the requested discovery, would be sufficient to show that the second IPR was barred. The petitioner argued that the discovery request should be denied because the same discovery was permitted in the first IPR and the Board had already determined that the first IPR was not barred by any relationship between the petitioner and the third party.
The Board nevertheless granted the discovery request, noting that the first IPR involved different claims and the patent owner had identified new information that could support its § 315(b) argument. The Board concluded that, in view of the “very limited request,” the patent owner had satisfied a threshold amount of evidence sufficient to deem the discovery to be necessary in the interests of justice.
Practice Note: Parties seeking additional discovery in IPR proceedings should make limited and specific requests and be prepared to show why the requested discovery is necessary.
Trademarks / Preliminary Injunction
Proof of Confusion Essential for Trademark Injunction *Web Only*
Addressing the likelihood of success requirement for injunctive relief, the U.S. Court of Appeals for the First Circuit vacated an order requiring trademark attribution where the district court had not found a likelihood of consumer confusion. Arborjet, Inc. v. Rainbow Treecare Scientific Advancements, Inc., Case No. 14-2324 (1st Cir., July 16, 2015) (Souter, J.) (sitting by designation).
Arborjet manufactures and sells TREE-age, an emamectin benzoate solution used to protect trees from various pests. TREE-age is one of Arborjet’s most successful products. From August 2008 to February 2013 Arborjet granted Rainbow Treecare Scientific Advancements (Rainbow) an exclusive right to distribute TREE-age. The sales contract contained confidentiality and nondisclosure obligations, as well as an obligation that Rainbow not attempt to “replicate Arborjet’s products or processes.” After the sales agreement was terminated, Rainbow began marketing and distributing ArborMectin, another emamectin benzoate combination meant to compete directly with TREE-age. As part of its sales effort for ArborMectin, Rainbow sent a blast marketing email to customers characterizing ArborMectin as an improved formulation as compared to TREE-age and claiming that ArborMectin worked faster than TREE-age. Rainbow also referenced TREE-age on its website. Rainbow did not include any trademark attribution for TREE-age in its marketing materials.
Arborjet sued Rainbow for breach of contract, false advertising under the Lanham Act and Massachusetts law, false origin under the Lanham Act and common law unfair competition. Arborjet secured a preliminary injunction based on the likelihood of success of its contract claims. The district court concluded that Arborjet was unlikely to succeed on its false designation of origin claim. Nevertheless Rainbow was ordered to cease and desist selling, distributing and/or marketing ArborMectin, as well as to “properly attribute Arborjet’s trademarks “Arborjet” and “TREE-age” by appending the ® symbol to those marks and a footnote stating “Registered Trademark of Arborjet, Inc.” Rainbow appealed the injunction.
The court affirmed the finding that Arborjet was likely to succeed on its contract claims and accordingly affirmed the portion of the injunction ordering Rainbow to stop selling ArborMectin.
With respect to the trademark claim, Arborjet had argued that Rainbow’s failure to attribute TREE-age trademarks was likely to cause consumer confusion. The district court rejected this argument, holding that the evidence “weighed against a finding of a likelihood of confusion.” The First Circuit held that the district court’s finding that there was not a likelihood of confusion was “fatal” to Arborjet’s attribution request. The 1st Circuit noted that likelihood of success on the merits is the “sine qua non” of a preliminary injunction. Where Arborjet was unlikely to succeed on its false designation of origin claim, there could be no injunction ordering Rainbow to attribute Arborjet’s trademarks. The court thus vacated that portion of the preliminary injunction.
Trademarks / Initial Interest Confusion
Do Amazon.com's Search Results Constitute Trademark Infringement
Holding that a reasonable jury could find that online retailer created a likelihood of consumer confusion through the format of its product search returns, the U.S. Court of Appeals for the Ninth Circuit reversed the district court’s grant of summary judgment in a trademark infringement action filed by a watch company that did not authorize distribution via the online retailor. Multi Time Machine, Inc. v. Amazon.com, Inc. Case No. 13-55575 (9th Cir., July 6, 2015) (Bea, J.) (Silverman, J., dissenting).
Multi Time Machines (MTM) manufactures high-end military-style watches under the trademarks MTM, MTM MILITARY OPS and MTM SPECIAL OPS. MTM does not sell its watches to Amazon.com for resale, and MTM does not authorize its distributors to sell the MTM watches through Amazon. MTM sued Amazon for trademark infringement and sought injunctive relief to bar Amazon from using its trademarks in a particular manner when customers search for MTM’s products on Amazon. After the district court granted summary judgement to Amazon, MTM appealed.
According to the evidence of record, if a customer searches for “MTM Special Ops” watches on Amazon.com, the customer is routed to a screen that displays the customer’s search terms in the query field. Directly below the search query field, the phrase “MTM Special Ops” in quotation marks appears, and then below the quoted phrase, the product name appears again as “Related Searches: MTM Special Ops.” Underneath these three iterations of the MTM search query, Amazon provides an image list and the product names of various men’s watches that are for sale through Amazon.com, including rugged, military-style watches that are manufactured by MTM’s competitors. Customers cannot purchase the watches from the search results page, and they must click on the product links to reach the product detail page. However, once a customer reaches the product detail page, the customer’s initial search inquiry, “MTM Special Ops,” still appears in the Amazon.com search field. The court specifically noted that nothing on Amazon’s search return page or product detail pages indicate that Amazon does not carry the MTM watches. By contrast, the court observed, Amazon’s competitors Buy.com and Overstock.com clearly announce that no product search results match the “MTM Special Ops” query before listing competitors’ products.
The 9th Circuit examined the concept of initial interest confusion, which may occur during the shopping process (rather than the purchase process), when use of one party’s trademark causes consumer confusion that creates interest in a competitor’s product. Initial interest confusion is actionable trademark infringement because it impermissibly capitalizes on the goodwill associated with the trademark owner’s mark, even if a purchase is ultimately made without any confusion as to product source.
The 9th Circuit cited an expert report submitted by MTM, which stated that the search results on Amazon are “ambiguous, misleading, and confusing.” Based on this report, the court concluded that a reasonable jury could infer that shoppers would be confused as to why MTM watches are not listed in the search return, since Amazon does not inform consumers that it does not carry the MTM watches. The court also found that a reasonable jury could infer that the search results will cause shoppers to wonder whether a competitor has acquired MTM or if the competitor is otherwise affiliated with or endorsed by MTM.
The 9th Circuit then examined the eight-factor Sleekcraft test for likelihood of confusion, determining that five of the eight factors were relevant to its analysis and that three of the five relevant factors “appear to weigh in favor of finding a likelihood of confusion.” Specifically, the court determined that there was a genuine issue of material fact as to the strength of MTM’s trademark; a jury could find that the similarity of the goods weighs in favor of a finding a likelihood of confusion because both MTM and Amazon sell specialized, military-style watches, and; a jury could infer that Amazon had an intent to confuse consumers because it has done nothing to address vendor and customer complaints about Amazon’s non-responsive search results when searching for products that are not carried by Amazon.
The 9th Circuit concluded its opinion stating that it was “by no means certain that MTM will be able to prove likelihood of confusion under an initial interest confusion theory.” But, because the court found genuine issues of material fact to be resolved, it reversed and remanded.
In dissent, Judge Silverman analogized the Amazon search results to a diner in a restaurant who asks for a Coke beverage, but is told that the restaurant does not carry Coke, only Pepsi, which likely would not constitute trademark infringement. Because the Amazon search results clearly labeled the name and manufacturer of each competing watch that appeared in the “MTM” search results, along with a photograph of each product, Silverman argued that “no reasonably prudent consumer accustomed to shopping online would likely be confused as to the source of the products.”
Third Circuit Deciphers Proper Standard for Evidence of Actionable Confusion
Rebecca Harker Duttry
Addressing the standard for actionable confusion, the U.S. Court of Appeals for the Third Circuit reversed the district court’s denial of a motion for a preliminary injunction for limiting what constitutes actionable confusion to “actual customer confusion.” Arrowpoint Capital Corp. v. Arrowpoint Asset Mgmt., LLC, Case No. 14-3063 (3rd Cir., July 16, 2015) (Jordan, J.).
Arrowpoint Capital provides insurance and investment-related financial services throughout the United States and has been doing business under the Arrowpoint Capital name since 2007. Capital owns six registered trademarks, all of which feature the words “Arrowpoint Capital” or its logo. Arrowpoint Asset Management and its related entities (collectively, AAM), also provide investment-related financial services. AAM first began using the mark “Arrowpoint” in December 2007.
Capital filed a complaint against AAM in February 2010, asserting trademark infringement. That same day, Capital filed a motion for a preliminary and permanent injunction to prevent AAM from using the AAM logo or Arrowpoint name in any form. More than four years later, the district court denied Capital’s motion without an evidentiary hearing. On appeal, Capital argues, among other things, that the district court erred in denying its preliminary injunction motion.
The controversy in this case hinges on the evidence of actual confusion. Capital submitted evidence of 11 incidents of actual confusion in its preliminary injunction briefing. The district court discounted that evidence because the confusion was among brokers and dealers, rather than “actual customer confusion.” Capital contends the district court’s view of what constitutes actionable confusion is too narrow.
The Lanham Act defines trademark infringement as use of a mark so similar to that of a prior user as to be “likely to cause confusion, or to cause mistake, or to deceive.” The likelihood of confusion is not limited to confusion of products among purchasers. A number of decisions, both within the 3rd Circuit and beyond, have highlighted the Lanham Act’s extension to “the use of trademarks which are likely to cause confusion, mistake, or deception of any kind, not merely of purchasers nor simply as to source of origin.”
In this case, although the district court cited the correct standard, the 3rd Circuit found it did not apply that standard correctly. By emphasizing the lack of customer confusion, the district court did not recognize the special importance of identity and reputation in the financial industry, discounting such concerns due to the “greater care” taken by customers in the financial industry, and finding that “prospective purchasers are unlikely to perceive the marks before becoming familiar with the parties’ businesses.” The 3rd Circuit found the district court’s interpretation of what constitutes confusion under the Lanham Act overly narrow and contrary to the Court’s deeply rooted precedent. The court reiterated the correct standard, emphasizing that the Lanham Act certainly covers confusion created “in the minds of person in a position to influence [a] purchasing decision or persons whose confusion presents a significant risk to the sales, goodwill, or reputation of the trademark owner.”
The 3rd Circuit also found that the district court erred by declining to hold an evidentiary hearing prior to ruling on the preliminary injunction motion, notwithstanding that consideration of the injunction motion was influenced significantly by credibility issues and factual disputes. The court thus vacated the denial of the preliminary injunction.
Trademarks / Likelihood of Confusion
When Peace and Love Are Not Enough *Web Only*
The U.S. Court of Appeals for the Federal Circuit reversed a refusal by the Trademark Trial and Appeal Board’s (TTAB or Board) to register the mark “PEACE LOVE AND JUICE” in connection with juice bar services due to likelihood of confusion with the registered mark “PEACE & LOVE” for use with restaurant services. Juice Generation, Inc. v. GS Enters., LLC, Case No. 14-1853 (Fed. Cir., July 20, 2015) (Taranto, J.).
Juice Generation, a New York City juice bar chain, applied for registration of the mark “PEACE LOVE AND JUICE” in 2012. GS Enterprises opposed the application, asserting likelihood of confusion with GS’s family of registered marks containing “PEACE & LOVE.” The Board sided with GS after evaluating the 13 DuPont factors, concluding that “PEACE LOVE,” or the “dominant” portion of Juice Generation’s mark, was “virtually identical in appearance and sound” to GS’s “PEACE & LOVE” mark. Juice Generation appealed.
The Federal Circuit reversed, holding the Board had inadequately assessed the weakness of GS’s marks in light of evidence that third parties had used and, in some cases, registered marks containing the words “peace” and “love” for use in connection with restaurant services. Some examples in the record were “PEACE LOVE AND PIZZA,” “PEACE LOVE & BARBECUE” and “PEACE LOVE YOGURT.” Third-party use “bears on the strength or weakness of an opposer’s mark” because it suggests that the public has been conditioned to distinguish between highly similar marks. The Board discounted this evidence because of the lack of “specifics regarding the extent of sales or promotional efforts surrounding the third-party marks,” but the Court found the evidence “nonetheless powerful on its face.” The Board should have inquired whether PEACE & LOVE is merely suggestive or descriptive in the food service industry.
GS’s earlier statements to the Patent and Trademark Office (PTO) during prosecution made such an inquiry “particularly important.” GS’s application for the “PEACE & LOVE” mark was initially rejected due to likelihood of confusion with the mark “PEECE LUV CHICKEN,” to which GS responded that its mark gave “the overall commercial impression of a restaurant that has a theme and atmosphere of the counterculture prevalent in the 1960s and 1970s.” These statements supported Juice Generation’s position that “PEACE & LOVE” is a descriptive or suggestive mark.
Further, citing the well-established principle that a mark must be considered as a whole, the Court held that the Board erred in considering only the words “peace” and “love” in Juice Generation’s mark. Juice Generation’s application had disclaimed the word “juice,” but even disclaimed elements are relevant, as “confusion is evaluated from the perspective of the purchasing public, which is not aware that certain words or phrases have been disclaimed.” Though it is permissible to deem certain features of a mark less important than others, it is erroneous to ignore them and fail to consider the mark in its entirety. The Court remanded the case and instructed the Board to assess the strength or weakness of GS’s marks and to consider Juice Generation’s mark as a whole.
Trademarks / Evidence and Injunctive Relief
A Spin of the Wheel Results in Broader Injunctive Relief *Web Only*
Addressing numerous evidentiary issues arising during the course of a jury trial, as well as the scope of a permanent injunction, the U.S. Court of Appeals for the Sixth Circuit affirmed in part and remanded in part the district court’s decision concerning the defendants’ infringing use of their BMF Wheels trademark. CFE Racing Products, Inc. v. BMF Wheels, Inc., Case Nos. 14-1357; -1608; -1939 (6th Cir., July 13, 2015) (Clay, J.).
The plaintiff, CFE Racing Products, filed a complaint against the defendants BMF Wheels and its owner, Brock Weld, alleging trademark infringement under the Lanham Act. According to the plaintiff, the defendants’ “BMF Wheels” trademark was “strikingly similar” to the plaintiff’s logo and registered “BMF” trademark. The plaintiff later added a claim seeking the cancellation of the defendants’ “BMF Wheels” trademark registration pursuant 15 U.S.C. § 1119. The case proceeded to a three-day jury trial, where the jury found that the defendants’ use of the “BMF Wheels” mark and logos created a likelihood of confusion with the plaintiff’s “BMF” mark. The district court entered judgment for the plaintiff and an injunction that, while prohibiting the defendants from using logos that were similar to the plaintiff’s logos, permitted the defendants to use the “BMF Wheels” mark so long as it was used with a disclaimer. The district court also declined to cancel the defendants’ “BMF Wheels” registration.
Dissatisfied with the narrow scope of the injunction, the plaintiff appealed. The defendants also appealed, seeking review of, among other things, the district court’s denial of their motion for judgment as a matter of law (JMOL motion) and denial of their motion for a new trial.
The 6th Circuit quickly disposed of the defendants’ appeal of the JMOL motion, noting that the defendants’ pre-verdict Fed. R. Civ. P. 50(a) JMOL motion failed to argue that there was insufficient evidence to sustain a likelihood of confusion, and, as such, the defendants waived their right raise that argument in a post-verdict JMOL motion.
The defendants’ appeal of their motion for a new trial asserted a host of evidentiary errors, only some of which will be addressed here. First, the defendants asserted that the court wrongfully excluded evidence that the defendants had recently obtained a trademark registration for “BMF” for tires. The court rejected this argument because the defendants, facing a motion for sanctions for failing to produce documents concerning their “BMF” registration, had entered into a stipulation with the plaintiff where the defendants agreed they would not introduce the “BMF” registration into evidence. Second, the defendants asserted that the district court erred by permitting a witness to testify about conversations with his attorney concerning the witness’ understanding of the scope of the plaintiff’s “BMF” trademark registration. Although the court concluded that this testimony should have been excluded because it was hearsay and legal opinion testimony, the error was harmless. Third, the defendants claimed that the court should have excluded testimony concerning a conversation evidencing customer confusion on hearsay grounds. The court rejected this argument, finding that the evidence was not being offered for the truth of the matter asserted, but rather was probative of the declarant’s confusion. The court thus held that a new trial was not warranted.
The 6th Circuit next considered the scope of the injunction entered by the district court, finding that the district court clearly erred in not cancelling the defendants’ “BMF Wheels” trademark registration in light of the jury’s verdict that the defendants’ “BMF Wheels” trademark created confusion with the plaintiff’s registered “BMF” mark. The district court also erred in failing to permanently enjoin the defendants from using the “BMF Wheels” mark. The court remanded the case to the district court to cancel the defendants’ “BMF Wheels” trademark registration and to enjoin the defendants from using their infringing “BMF Wheels” trademark.
Trademarks / Distinctive Marks / Secondary Meaning
What Does It Take to Trademark Your Name? *Web Only*
Addressing the question of when a professional name can be protected as a trademark, the U.S. Court of Appeals for the Eleventh Circuit found that the plaintiff doctor’s name had not acquired that distinction. Tartell, M.D. v. South Florida Sinus and Allergy Center, Inc., et al., Case No. 14-13178 (11th Cir., June 23, 2014) (Pryor, J.).
This story started in 1998 when plaintiff Dr. Paul Tartell and defendant Dr. Lee Mandel practiced together as “Tartell & Mandel, M.D., LLC under the name South Florida Sinus and Allergy Center (SFSAC). In 2011, their joint practice ended and the doctors went their separate ways. After their separation, Dr. Mandel, without Dr. Tartell’s knowledge, incorporated under the name of their old practice, obtained the domain name sfsac.com, registered six other domain names that used some variation of Dr. Tartell’s name (ptartell.com, paultartellmd.net, paultartellmd.com, paultartell.net, paultartell.com, and tartell.net) and had those domain names forward users to sfsac.com. He also purchased Google AdWords so that the sfsac.com domain appeared as an advertisement whenever someone searched for “Paul Tartell” or “Paul Tartell, MD.”
Dr. Tartell filed a complaint alleging federal cybersquatting, false designation of origin, unfair competition, false advertising and unauthorized publication of name and likeness under both federal and state law.
To prevail, Dr. Tartell had to prove that his “descriptive” mark (i.e., his name) was either inherently distinctive or had acquired secondary meaning. For a name to acquire secondary meaning, it must denote to the consumer a single thing or product/service coming from a single producer or source, as opposed to the product or service itself. Evidence tending to prove secondary meaning includes direct evidence, such as consumer surveys or circumstantial evidence. For circumstantial evidence, courts consider the four Conagra factors, which include the length and nature of the name’s use, the nature and extent of advertising and promotion of the name, the efforts of the proprietor to promote a conscious connection between the name and the business, and the degree of actual recognition by the public that the name designates the proprietor’s product or service.
Having no consumer surveys, Dr. Tartell relied on circumstantial evidence, presenting evidence of his name appearing on advertisements, including ads when the two doctors still worked together; academic, community and charity activities; 39 lectures, 11 presentations and 10 medical journal articles; and patient testimonials and referrals. The district court found that Dr. Tartell’s name acquired secondary meaning within South Florida based on the “length and prevalence of Dr. Tartell’s overall public use of his name in conjunction with his medical services.” It entered judgment in Dr. Tartell’s favor on all counts except false advertising and awarded him $1,000 in statutory damages for each claim for cybersquatting for a total of $6,000. SFSAC appealed.
The 11th Circuit reversed, concluding that decades-old evidence related to the use of Dr. Tartell’s name in academic settings or his reputation among other medical professionals are not probative of whether his name acquired secondary meaning with the target audience: consumers of his medical services and potential patients. Significantly, the 11th Circuit found no substantial evidence relevant to the fourth Conagra factor (the degree of actual recognition by the public that the name designates the proprietor’s product or service), especially in densely populated South Florida. Indeed, the 11th Circuit found no evidence showing Dr. Tartell’s efforts “promote a conscious connection between [his] name and [his] services.”
Practice Note: While your reputation among your professional peers is significant, it may not be sufficient proof of secondary meaning for trademark purposes. Thus, when building a professional practice, it is a good practice to insure that your advertising and marketing materials not only “sell” your business but also your name and that they promote a conscious connection between your name and your services in the minds of potential clients.
Trademarks / Licensing / Royalties
Sublicensee's Purchase of Licensee Not Prohibited Under the License Agreement *Web Only*
The U.S. Court of Appeals for the Seventh Circuit ruled that a sublicensee of patent and trademark rights that purchased its sublicensor in order to reduce the royalties it owned to the licensor was not prohibited from buying the company in the absence of a specific prohibition in the original licensing agreement. VDF FutureCeuticals, Inc. v. Stiefel Labs., Inc., Case No. 14-3232 (7th Cir., July 10, 2015) (Posner, J.).
VDF FutureCeuticals owned trademark and patent rights in the name CoffeeBerry for coffee plant extract. VDF had granted a royalty-based license to J&J Technologies to make skin care products based on the CoffeeBerry coffee plant extract. According to the license, J&J was allowed to sublicense its rights. The license required J&J to pay 15 percent of any revenues it obtained from selling the licensed product and of any royalties it received from its sublicenses. Assignment of the license was not allowed without written permission, although the license did not forbid a change of control.
J&J sublicensed to Stiefel Laboratories to use the CoffeeBerry coffee plant extract in its dermatological products. Later, Stiefel bought J&J, making it a subsidiary. J&J then agreed to reduce Stiefel’s royalty obligations, thereby diverting part of the licensing revenue from VDF to Stiefel. According to Stiefel’s internal documents, it bought J&J instead of seeking an assignment of its license in order to avoid seeking VDF’s permission (as would be required for an assignment of the license agreement) and to reduce the royalty costs.
VDF sued Stiefel for breach of contract, claiming the assignment was unauthorized and that the purchase price Stiefel bought J&J for was really a purchase of J&J’s anticipated sales revenue under the sublicense agreement. The district court dismissed both claims, granting summary judgment in favor of the Stiefel. Although other claims remained pending, the district judge certified its ruling for an immediate appeal of these two claims.
The 7th Circuit court affirmed the district court’s decision. With regard to the unauthorized assignment claim, the Court held that a fatal problem with this claim “is that by failing to place any restrictions on who could own its licensee J&J,” the plaintiff “exposed itself to being taken advantage of by a change of ownership at J&J that would result in operating changes and alter its relationship” with the plaintiff. The court explained that had the defendant bought J&J’s license or dissolved the company after the purchase, the terms of the license with the plaintiff would have been violated by obtaining the license without the approval of the plaintiff. But neither of those events happened. Regarding whether royalty was owned on the purchase price the defendant paid for J&J, the court concluded that the license that the plaintiff had granted J&J limited the royalties that J&J would owe the plaintiff “based on the actual sale of Products by Licensee or sublicensees that was actually collected.” Since J&J sold stock, not products to Stiefel, the 7th Circuit rejected VDF contentions that the royalty provision required a royalty based on the stock purchase price.
Trademarks / TTAB Practice
TTAB States Documents Filed on Same Day Are Filed at Same Time
In a precedential decision, the Trademark Trial and Appeal Board stated that it “shall not take cognizance of fractions of a day” and ruled that documents filed on the same day are assumed to be filed at the same time. 3PMC, LLC v. Huggins, Case No. 91219982 (TTAB, July 24, 2015) (Richey, ALJ.).
A trademark applicant expressly abandoned its application through the U.S. Patent and Trademark Office’s TEAS electronic filing system on the same day the application was opposed through the Trademark Trial and Appeal Board’s TTABVUE electronic system. Even though the applicant pointed to timestamps of the parties’ respective filings to argue that the express abandonment preceded the opposition filing, the Board nevertheless reasoned that “with multiple electronic filing systems that operate and update differently, it is not always possible to establish temporal sequence with certainty.” The Board also acknowledged that computer systems and networks have technological limitations.
Therefore, the Board held that a day is an indivisible period of time for establishing a procedural sequence of events and stated that it “will assume that an opposition and an express abandonment, filed the same day, were filed at the same instant.”
Copyrights & Trademarks / Ownership
Trade Secrets / Copyright Preemption
Copyright Preemption Notwithstanding No Copyright Protection and No Copyright Claims
In a suit alleging trade secret theft of ideas related to a software program, the U.S. Court of Appeals for the Fifth Circuit affirmed both a lower court’s denial of remand to state court based on complete copyright preemption and its subsequent summary judgment ruling, holding that the claim of trade secret theft was in fact a doomed copyright infringement claim. Spear Marketing, Inc. v. BancorpSouth Bank, Case No. 14-10753 (5th Cir., June 30, 2015) (Wiener, J.).
Spear Marketing, Inc. (SMI) is a small business with a single software product called VaultWorks for use by the banking industry to manage cash inventories. VaultWorks employs an online interface for user operability, and accordingly none of the users actually access the software itself. ARGO is a competitor of SMI, which also develops software for the banking industry. A customer of both SMI and ARGO, BancorpSouth Bank (BCS) used VaultWorks from SMI to manage its cash inventories and BANKPRO Teller from ARGO to automate customer transaction processing.
To expand its product line, ARGO began developing its own cash management program called Cash Inventory Optimization (CIO), which it intended to bundle with BANKPRO Teller. CIO uses different predictive algorithms than VaultWorks and is installed directly onto a bank’s operating system. ARGO pitched CIO to BCS as an upgrade to its BANKPRO Teller system.
Concurrently with ARGO’s attempt to transition BCS away from VaultWorks and to CIO, SMI and ARGO entered into discussions for ARGO to acquire SMI. In connection with those discussions, ARGO represented that it neither had, nor was developing, a cash management product similar to VaultWorks. Relying on this representation, SMI demonstrated VaultWorks to ARGO, simultaneously disclosing confidential business and technical information. ARGO chose not to acquire SMI. Subsequently, BCS decided to replace VaultWorks with CIO. During the transition to CIO, and to validate the software’s functionality, BCS provided historical cash usage data to ARGO in the form of various screen shots of the VaultWorks user interface.
SMI filed suit against BCS and ARGO in a Texas state court, alleging 10 Texas state law causes of action and claiming theft of its technical and business trade secrets related to VaultWorks. The case was removed to federal court on Argo’s argument that SMI’s claims were completely preempted by the Copyright Act. Thereafter, SMI amended its complaint to remove certain causes of action and various references to copying and distribution; it also moved for remand back to state court. The federal district court denied remand and, after discovery, dismissed all of SMI’s remaining claims on summary judgment. SMI appealed, arguing that its trade secret claims fell outside of the purview of the Copyright Act because ideas, processes and methods are themselves excluded from protection.
As an issue of first impression, the 5th Circuit addressed the intersection of trade secret law and the breadth of federal copyright preemption. Specifically, the 5th Circuit explained that ideas, processes and methods fixed in a tangible medium of expression may be copyrightable subject matter for preemption purposes, even though such subject matter is not actually copyrightable. The 5th Circuit first reiterated that grounds for removal are based on the complaint as originally filed, not subsequent amendments. Next, the court explained to determine whether there is preemption by the Copyright Act, a two-prong test is applied: does the cause of action fall within the subject matter of copyright and does the cause of action protects rights that are equivalent to the exclusive rights of a federal copyright. Both prongs must be satisfied for preemption.
While actual copying of VaultWorks would fall within the subject matter of copyright, SMI had not alleged mere copying, but wrongful access, disclosure and theft of its trade secrets. Indeed, SMI’s complaint was directed to theft of know-how, ideas, procedures, processes, systems, methods of operation and concepts, all of which are excluded from copyright protection. Nevertheless, according to the court, while these processes and methods are excluded from copyright protection, they are not outside of the scope of copyright. Undeniably, SMI’s claims were based on ideas fixed in a tangible software medium, and thus were within the scope of copyright subject matter for the purposes of preemption under the Copyright Act.
Further, the court concluded that SMI’s claims were equivalent to the exclusive rights of a federal copyright because its various claims relating to copying, communicating and transmitting of its trade secrets were qualitatively the same as a copyright infringement claim. Moreover, summary judgement as to SMI’s claims was proper. SMI failed to establish substantial similarity between VaultWorks and CIO and waived its right to appeal with respect to the remaining claims for failure to proffer authority or argument thereabout.
Trade Secrets / Discovery / Protective Orders
Modification of Protective Orders to Permit Use of Discovery Material in Foreign Litigation Must Consider 28 U.S.C. § 1782 Factors
Joshua David Rogaczewski
The U.S. Court of Appeals for the Federal Circuit vacated an order modifying a protective order to allow the use of confidential discovery material in foreign litigation, explaining that courts facing such questions must consider the law applicable to standalone requests under 28 U.S.C. § 1782 (2012) for discovery to be used in foreign cases. In re POSCO, Case No. 15-112 (Fed. Cir., July 22, 2015) (Dyk, J.) (Hughes, J., concurring).
Nippon Steel & Sumitomo Metal sued POSCO and an affiliate in the United States for patent infringement and unfair competition. Like most district court protective orders, the one in this case prohibited the parties from using confidential material gained in discovery except“for purposes of the prosecution or defense of th[e] action.” Nippon Steel subsequently filed a lawsuit in Japan against POSCO for trade-secret misappropriation, and POSCO filed a mirror-image declaratory-judgment lawsuit in Korea. To avoid the difficulties of conducting discovery in Japanese and Korean litigation, Nippon Steel asked the district court to modify its protective order to permit its Japanese and Korean lawyers to use certain confidential documents provided by POSCO in the U.S. case. Applying the general U.S. Court of Appeals for the Third Circuit standard for modifying protective orders, the district court granted Nippon Steel’s request, provided that the foreign courts agreed to keep the materials confidential and restrict public access to them.
POSCO petitioned the Federal Circuit for a writ of mandamus, which the Court issued, holding that the district court’s analysis failed to account for 28 U.S.C. § 1782, which provides a mechanism for litigants in a foreign forum to obtain discovery in the United States. The Court explained that although § 1782 does not govern the modification of a protective order to permit the use of domestic discovery in a foreign proceeding, “the considerations articulated under § 1782 and [the Supreme Court’s construction of it] must be considered together with other considerations pertinent under Federal Rule of Civil Procedure 26.” Those considerations are whether the U.S. provider of the discovery is a participant in the foreign proceeding; the nature of the foreign tribunal, the character of the foreign proceedings, and the receptivity of the foreign tribunal to U.S. judicial assistance; whether the actions in the United States are attempts to evade foreign discovery restrictions; and whether the request is intrusive or burdensome.
Because the district court did not consider these factors, the Federal Circuit vacated the order and remanded the case for reconsideration of Nippon Steel’s request under the appropriate standard.
Although Judge Hughes concurred in the result, he disagreed with the majority’s analysis, reasoning that § 1782, which applies on its face to requests by foreign litigants for permission to take discovery in the United States, has no bearing on how the parties to an existing U.S. litigation can or cannot use materials gained in discovery. In his view, Nippon Steel’s request was no different than any other request to modify a protective order. Nevertheless, he concurred in the result reached by the majority, explaining that the district court erred in purporting to restrict foreign courts.