Biosimilar Notice May Be Given Prior to FDA Approval
In a unanimous decision, the Supreme Court of the United States explained that under the Biologics Price Competition and Innovation Act of 2009 (BPCIA), biosimilar makers do not have to wait for approval before giving 180-day notice of commercial marketing under the BPCIA, and no federal injunction is available to compel biosimilar makers to disclose their approval applications to rivals. Sandoz Inc. v. Amgen Inc., Docket No. 15-1039 (Supr. Ct., June 12, 2017) (Thomas, Justice) (Breyer, Justice, concurring).
The BPCIA establishes processes both for obtaining US Food and Drug Administration (FDA) approval of biosimilars and for resolving patent disputes between manufacturers of licensed biologics and manufacturers of biosimilars. A manufacturer of a biologic product must obtain a license from the FDA to market its drug. A manufacturer may obtain a license either by demonstrating that the drug is “safe, pure and potent” or by piggybacking on the showing made by the manufacturer (sponsor) of a previously licensed biologic (reference product), showing that its product is “highly similar” (i.e., a biosimilar) to the reference product and that there are no “clinically meaningful differences” between the two in terms of safety, purity and potency.
The BPCIA facilitates litigation during the period preceding FDA approval, enabling the parties to bring infringement actions at certain points in the application process to resolve their patent disputes before commercial marketing (or other acts that would traditionally constitute patent infringement) commences.
An applicant seeking FDA approval of a biosimilar must provide its application and manufacturing information to the sponsor within 20 days of the date the FDA notifies the applicant that it has accepted the application for review. Moreover the statute requires that a biosimilar applicant “shall provide notice to the reference product sponsor not later than 180 days before the date of the first commercial marketing of the biological product licensed [by the FDA] under subsection (k).” The issues before the Supreme Court were (1) whether notice provided prior to the FDA decision to license the biosimilar is effective, and (2) whether the requirement that the applicant provide the application and manufacturing data is itself enforceable by injunction (IP Update, Vol. 20, No. 1).
The BPCIA provides various consequences for failing to comply with its procedural requirements. If an applicant fails to provide its application and manufacturing information to the sponsor, the sponsor may immediately bring an action “for a declaration of infringement,” which makes it an artificial act of infringement to submit a biosimilar application.
District Court Proceedings
Amgen markets a filgrastim product called Neupogen, a biologic used to stimulate the production of white blood cells, and has done so since 1991. Amgen holds patents on the methods of manufacturing and using filgrastim. After Sandoz filed an application with the FDA seeking approval to market a filgrastim biosimilar under the brand name Zarxio, with Neupogen as the reference product, Amgen sued Sandoz for patent infringement and asserted claims under California’s unfair competition law. Amgen alleged that Sandoz engaged in “unlawful” conduct (under California law) by (1) failing to provide its application and manufacturing information, and (2) providing notice of commercial marketing before, rather than after, the FDA licensed its biosimilar. Sandoz counterclaimed for declaratory judgments that the asserted patent was invalid and not infringed and that it had not violated the BPCIA.
During the pendency of the district court case, the FDA licensed Zarxio, and Sandoz provided Amgen further notice of commercial marketing following the grant of the license. The district court granted partial judgment on the pleadings to Sandoz on its BPCIA counterclaims and dismissed Amgen’s unfair competition claims with prejudice. Amgen appealed.
Federal Circuit Proceedings
On appeal, the US Court of Appeals for the Federal Circuit affirmed the dismissal of Amgen’s state law claim, finding that Sandoz did not violate the BPCIA in failing to disclose its application and manufacturing information, and therefore committed no unlawful conduct. The Federal Circuit found that the remedies contained in the BPCIA are the exclusive non-compliance remedies.
The Federal Circuit also concluded that an applicant may only provide effective notice of commercial marketing after the FDA has licensed the biosimilar. Thus, Sandoz’s 180-day clock did not begin until Sandoz’s post-licensure notice. Because the Federal Circuit found this notice requirement to be mandatory, the Court extended its injunction pending appeal to bar Sandoz from marketing Zarxio until 180 days after the date it provided its second notice (IP Update, Vol. 18, No. 8).
Supreme Court Decision
Addressing whether the requirement that an applicant provide the sponsor with its application and manufacturing information is enforceable by an injunction under either federal or state law, the Supreme Court affirmed the Federal Circuit’s holding that disclosure of the biosimilar application is not enforceable by an injunction under federal law. However, the Supreme Court rejected the Federal Circuit’s reasoning on this point, finding that Sandoz’s failure to disclose its application and manufacturing information was not an act of artificial infringement under the statute. Rather, when an applicant fails to comply with application disclosure requirements, the statute authorizes the sponsor to bring an immediate declaratory judgment action for artificial infringement. Thus, the remedy for this violation vests the sponsor with the control that the applicant otherwise would have exercised over the scope and timing of the patent litigation, depriving the applicant of the certainty it could have obtained by bringing a declaratory judgment action prior to marketing its product. The Supreme Court found that this remedy provision of the BPCIA excludes all other federal remedies, including injunctive relief.
The Supreme Court also remanded the case to the Federal Circuit to determine whether California law would treat non-compliance with the disclosure section as an “unlawful” act and whether the BPCIA pre-empts any additional remedy available under state law for this non-compliance.
Finally, the Supreme Court addressed the issue of whether an applicant may provide effective notice prior to FDA licensure. Reversing the Federal Circuit’s statutory interpretation, the Court found that the phrase “of the biological product licensed under subsection (k)” modifies “commercial marketing” rather than “notice.” In other words, it is “commercial marketing” that marks the point in time by which the biosimilar must be “licensed” by the FDA. In terms of notice, however, the Court concluded that the statute permits an applicant to provide notice either before or after receiving FDA approval.Justice Breyer wrote a concurrence, joining the Supreme Court’s opinion and providing additional commentary on the FDA’s ability to depart from or modify the Supreme Court’s interpretation of the BPCIA.
No En Banc Resolution on Whether Patent Right Is Public Right
In a 10–2 decision that included two concurrences and two dissents, the US Court of Appeals for the Federal Circuit denied a patent owner’s petition to hear part of its appeal en banc in order to resolve whether a patent right is a public right. Cascades Projection LLC v. Epson America, Inc., Case No. 17-1517; -1518 (Fed. Cir., May 11, 2017) (per curiam) (Newman, J, concurring) (Dyk, J, concurring, joined by Prost, CJ, and Hughes, J) (O’Malley, J, dissenting) (Reyna, J, dissenting).
In its petition for an en banc hearing, Cascades Projection argued that a patent right is not a public right and that therefore an administrative agency such as the US Patent and Trademark Office (PTO) cannot lawfully revoke a patent right, because doing so amounts to the exercise of judicial power. Cascade requested that the Federal Circuit initially hear part of its appeal en banc to resolve whether a patent right is a public right. Although the Court declined the petition to initially hear this issue en banc, Judges Newman and Dyk filed concurrences, and Judges O’Malley and Reyna filed dissents, providing some insight into this decision.
Judge Newman concurred in the denial, noting that a patent right is a property right with the attributes of personal property under 35 USC § 261. Newman identified the real issue in this case as “whether the statutory scheme created by the America Invents Act, in which the [Patent] Office is given an enlarged opportunity to correct its errors in granting a patent, with its decision subject to review by the Federal Circuit, meets the constitutional requirements of due process in disposition of property.” She concluded that the matter should be resolved only after full opportunity for panel consideration.
In his concurrence, Judge Dyk, joined by Chief Judge Prost and Judge Hughes, addressed the application of the 2015 Federal Circuit decision in MCM Portfolio v. Hewlett-Packard (IP Update, Vol. 19, No. 1), to the present petition. Judge Dyk noted that MCM—which held that adjudication of patent rights by the PTO in an inter partes review does not conflict with Article III of the Constitution—was correctly decided. The concurrence noted that MCM was consistent with Federal Circuit and Supreme Court of the United States precedent; the Supreme Court has repeatedly recognized that patent rights are public rights flowing from congressional legislation and that such public rights may be adjudicated by an administrative agency.
In dissent, Judge O’Malley argued that the issue of whether patent rights are public rights warrants consideration en banc because the issue is complex and could have far-reaching consequences. Citing the 1898 Supreme Court decision in McCormick Harvesting Mach. C. v. Aultman, O’Malley indicated that MCM may be at odds with long-standing Supreme Court precedent suggesting that the PTO does not have the authority to invalidate issued patents through IPR proceedings and that Article III adjudication is required.
Also in dissent, Judge Reyna argued that the state of the current law compels en banc review. Reyna included a detailed account of the initial drafting of the Patent Clause (US Const. Art. I, § 8, cl. 8), including an examination of patents as property rights, and a detailed account of relevant case law. In his case law analysis, Reyna pointed out that the Federal Circuit has twice considered McCormick and twice declined to follow it for two distinct reasons, creating a conflict that compels en banc review. Reyna emphasized that Cascades’ petition raises important issues of both separation of powers and the private-versus-public right distinction as it relates to patents, both of which require the Court to review the IPR process in the context of the constitutional role of Article III courts.
Practice Note: On June 12, 2017, the Supreme Court granted certiorari in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC (IP Update, current issue) and therefore will address essentially this same issue, notwithstanding the PTO’s urging the Supreme Court not to do so.
Lack of Written Support Brews Trouble for Coffee Adaptor Claims
Addressing the issue of written description, the US Court of Appeals for the Federal Circuit affirmed an International Trade Commission (ITC) decision finding that a patent for a coffee machine adaptor assembly lacked written support for its claims. Adrian Rivera, et al. v. International Trade Commission, et al., Case No. 16-1841 (Fed. Cir., May 23, 2017) (Linn, J).
Rivera’s patent described an adaptor system that allowed automatic coffee brewers that were intended for cup-shaped filter cartridges to also use “pods,” defined in the specification as water-permeable packages containing ground coffee. Every embodiment described in the patent showed the problem of incompatibility between the two systems being solved by adapting a cup-shaped receptacle system to accept coffee-containing pods. After seven years of prosecution, however, the claims had dropped any reference to a pod or pod adaptor, and more broadly claimed a brewer with a container adapted to hold brewing material. Four months after issuance, Rivera filed a complaint with the ITC against Solofill, which imported cup-shaped beverage capsules with a mesh filter to accept loose coffee grounds. The ITC concluded that the patent was not infringed and was invalid for a lack of written description. Rivera appealed.
Although Rivera’s definition of “pod” was broad, the Federal Circuit agreed that it did not cover “a container . . . adapted to hold brewing material” because every described embodiment had the pod and container as separate components. In fact, the distinct separation of those arguments permeated the patent and created exactly the problem that the Rivera adaptor intended to solve. Therefore, even Rivera’s broad description of a pod could not encompass the accused receptacle, which had added a filter to effectively make the container also a pod. Rivera’s description of an adaptor for a sealed, coffee-containing pod could not support an undisclosed configuration that eliminated the pod—a fundamental component of the system—through integration.
Rivera argued that the knowledge of a person of ordinary skill in the art could overcome the deficiencies in the written description because the person of skill would recognize the need for some kind of filter, know that filters existed, understand that the patent did not exclude filters and therefore understand that the written description included filters. The Federal Circuit rejected this argument, noting that the written description inquiry focuses on “the four corners of the specification.” The person of skill’s knowledge can only be used to inform what is in the specification, not fill gaps with new, or even obvious, limitations. Just because a person of skill would have understood that a filter could be added does not mean that such a person would have understood that Rivera had possession of such an integrated system.
Written Description Too Attenuated for Patentability: Claims Lack Support
Addressing the Patent Trial and Appeal Board’s (PTAB’s) final determination in an inter partes re-examination, the US Court of Appeals for the Federal Circuit reversed the PTAB’s determination that some claims were supported by the written description where the PTAB improperly altered the claim construction in connection with its written description analysis. The Federal Circuit found that under the proper construction, the record lacked substantial evidence to find written description support for the claims. Cisco Sys., Inc. v. Cirrex Sys., LLC, Case Nos. 16-1143; -1144 (Fed. Cir., May 10, 2017) (Chen, J). In addition, the appellant cross-appealed the PTAB’s determination that the remaining claims lacked written description support. The Federal Circuit also affirmed that determination.
The patent at issue is directed to an optical network assembly with circuits for splitting, amplifying and attenuating optical beams. Claims proposed in the re-examination proceedings were directed to using a planar light guide circuit (PLC). In a first set of claims, the optical assembly equalized the intensities of light in the individual optical paths through the PLC, and in a second set of claims, the optical assembly discretely attenuated the light in the PLC’s individual optical paths. In a third set of claims, the optical network required a “diverting element” within the PLC to cast the optical paths within the PLC into particular circuit patterns.
The parties and the PTAB agreed that under the proper construction, the claimed equalization or claimed discrete attenuation must occur while the light energy is traveling inside the PLC, and the claimed “diverting element” must also be within the PLC. In analyzing the written description support for the diverting element claims, the PTAB determined that the specification lacked written description for any diverting element located within the PLC. For the claims requiring “equalization” or “discrete attenuation,” the PTAB concluded that the disclosure of equalization or attenuation that occurred outside the PLC was sufficient to show possession of the claimed equalization or discrete attenuation inside the PLC. Cisco appealed, and Cirrex cross-appealed.
The Federal Circuit disagreed with the PTAB’s written description analysis of the “equalization” or “discrete attenuation” claims. First, the Federal Circuit recognized that the parties’ agreed construction accurately captured the broadest reasonable interpretation. In other words, it agreed with the PTAB’s construction that claimed equalization and discrete attenuation must occur while the light energy is traveling inside the PLC. Applying this claim construction to the written description analysis, the Court determined that the claims lacked support, because while the specification disclosed equalization and discrete attenuation that occurred outside the PLC, there was no disclosure of how these features could be implemented inside the PLC. As to the “diverting element” claims, the Court affirmed the PTAB’s determination that these claims did not satisfy the written description requirement because the specification failed to disclose any diverting element located within the PLC. Accordingly, the Federal Circuit found all of the claims proposed in the inter partes re-examination to be unpatentable because they lacked written description support in the specification.
Attempt to Set Aside Judgment Yields Exceptional Case Award
The US Court of Appeals for the Federal Circuit found that the district court did not abuse its discretion in awarding fees to the prevailing defendant in a suit brought in equity seeking to have a patent infringement judgment in favor of the patent owner/defendant set aside. Nova Chems. Corp. v. Dow Chem. Co., Case No. 16-1576 (Fed. Cir., May 11, 2017) (Prost, CJ).
This case relates to an alleged standing defect. In 2005, Dow brought an infringement action against Nova that resulted in a 2010 judgment against Nova for $61 million. That judgment ultimately became final, and Nova paid it. The case continued through a supplemental damages phase, and during discovery in that phase, Nova discovered new testimony by Dow’s tax counsel in an unrelated litigation allegedly showing that Dow did not own the patents-in-suit, negating their standing. Nova alleged that Dow’s counsel defrauded the Court both in misrepresenting Dow’s ownership and in proffering expert testimony that contradicted the expert’s testimony in another case. By the time Nova discovered this evidence, the one-year bar for filing a Rule 60 motion to have a judgment set aside for lack of standing had passed, so Nova filed a separate action in equity to have the judgment set aside.
The district court dismissed that suit at the pleading stage, holding that Dow’s actions did not rise to the level of a “grave miscarriage of justice” necessary to set aside the judgment. The district court found that the tax counsel’s testimony was not sufficient to overcome the assignment documents Dow submitted in the first litigation that demonstrated ownership, and found that the expert’s statements, although “arguably inconsistent,” did not plausibly rise to the level of perjury. Following the dismissal, the district court awarded attorneys’ fees to Dow, finding the case exceptional for both the weakness of the litigating positions and the manner in which it was litigated. Nova appealed.
On review, the Federal Circuit upheld the district court finding regarding the weakness of Nova’s positions and did not reach the manner in which Nova litigated the case. The Court made two points in finding that Nova’s positions were exceptionally weak. First, it clarified that there was and is no per se rule that actions to set aside patent judgments in equity give rise to an exceptional case merely because they require the plaintiff to carry such a high burden. Instead, the Court focused on Nova’s positions in this specific case. Second, the Federal Circuit explained that when judging the exceptionality of similar cases, the strength of the positions should be compared to all patent infringement cases, not just those seeking to set aside a judgment in equity.
Conditional Covenant Not to Sue Insufficient to Moot Patent Dispute
The US Court of Appeals for the Federal Circuit affirmed a summary judgment of non-infringement based on invalidity of asserted reissue claims as impermissibly broadened, notwithstanding a covenant not to sue that the patent owner submitted in the case in an attempt to moot the dispute. ArcelorMittal v. AK Steel Corp., Case No. 16-1357 (Fed. Cir., May 16, 2017) (Hughes, J) (Wallach, J, dissenting).
The appeal stems from a January 2010 lawsuit filed by ArcelorMittal against AK Steel and others for allegedly infringing its patent relating to coated hot and cold rolled steel. A jury found that the patent was invalid as anticipated and obvious, but the Federal Circuit reversed and remanded (IP Update, Vol. 15, No. 12). While the appeal was pending, the patent was reissued. ArcelorMittal then amended its complaint to replace the original patent with the reissue patent. The district court found that claims had been improperly broadened and invalidated the patent, including two new claims added on the reissue. In a May 2015 appeal, the Federal Circuit concluded that while the original claims of the patent were invalid because of impermissible broadening during the reissue proceeding, the two new claims remained valid.
On remand, ArcelorMittal moved to dismiss the case for lack of jurisdiction because it was not asserting the two new claims in the lawsuit and the remaining asserted claims had been found invalid. At the same time, the defendants moved for summary judgment of non-infringement of the two new claims. To avoid a judgment on the defendants’ motion, ArcelorMittal executed and delivered to the district court a conditional covenant not to sue defendants and their customers under the reissue patent. The delivery included a statement to the district court that the covenant was tendered on condition that ArcelorMittal’s motion to amend the complaint be resolved. Importantly, the delivery included a statement that the patentee would be “ready to deliver the covenant unconditionally” upon resolution of the motion and also that the point of the conditional delivery was to ensure that the district court maintained jurisdiction over the case. Nonetheless, the district court held the new claims invalid and denied the motion to amend as moot. ArcelorMittal appealed.
On appeal, the Federal Circuit agreed with the district court that it still held subject matter jurisdiction over the case because the covenant not to sue was not fully delivered:
Although a patentee’s grant of a covenant not to sue a potential infringer can sometimes deprive a court of subject matter jurisdiction, the patentee “bears the formidable burden of showing” “that it ‘could not reasonably be expected’ to resume its enforcement efforts. . . . In this context, that requires ArcelorMittal to show that it actually granted a covenant not to sue to Defendants, and that the covenant enforceably extinguished any real controversy between the parties related to infringement of the [reissue] patent. . . .
At no time before the court entered summary judgment did ArcelorMittal unconditionally assure Defendants and their customers that it would never assert [reissue] claims 24 and 25 against them. ArcelorMittal certainly had ample opportunity to provide the unconditional assurances required to defeat jurisdiction. It did not. . . . The district court, well within its discretion in managing its docket, resolved the . . . summary judgment motion without having first resolved the motion to amend.
The primary disputed issue was whether the district court possessed subject matter jurisdiction when it granted summary judgment of invalidity and non-infringement. The majority found a sufficient case or controversy, while Judge Wallach, in dissent, would have found appellant’s covenant not to sue sufficient to moot the dispute.
Practice Note: This case demonstrates that a case or controversy is not moot, and jurisdiction is not avoided, by tendering an unexecuted and conditional covenant not to sue.
Federal Circuit Dismisses Premature Appeal of Pre-Judgment Interest Award
The US Court of Appeals for the Federal Circuit dismissed an appeal brought by an adjudged infringer because the district court had not determined or specified the means for determining the amount of pre-judgment interest. Halo Electronics, Inc. v. Pulse Electronics, Inc., Case No. 16-2006 (Fed. Cir., May 26, 2017) (Lourie, J). Because the Federal Circuit lacked jurisdiction, the appeal was dismissed in order for the district court to resolve the specifics of the pre-judgment interest award in the first instance.
This dispute has been ongoing for 10 years. The lawsuit began in 2007, with Halo accusing Pulse of infringing three patents. Following a jury trial, the district court entered judgment in favor of Halo on findings of direct infringement, induced infringement and $1.5 million in reasonable royalty damages. While both sides initially appealed, Pulse’s appeal of the district court’s decision to set aside the jury’s finding of willful infringement eventually found its way to the Supreme Court of the United States after the Federal Circuit affirmed the no willfulness finding (IP Update, Vol. 19, No. 6). While the Supreme Court decision was pending, the district court awarded Halo pre-judgment interest and ordered the parties to either file a stipulation on the amount of that award or file briefs explaining their position on how much pre-judgment interest should be awarded.
The parties could not agree on an amount of pre-judgment interest and disputed the period during which the interest accrued. Halo contended that the amount should be calculated from the day the complaint was served. Pulse disagreed and contended that the calculation of pre-judgment interest should account for the fact that Pulse’s infringing activities were found to occur throughout the damages period and Halo had not suffered the full amount of damages at the time the complaint was served. Shortly after the briefing addressing the pre-judgment interest dispute was submitted to the district court, Pulse filed notice of appeal. That appeal arose from the district court’s decision to award Halo any pre-judgment interest at all. The appeal proceeded, with Pulse indicating that the district court could wait to rule on the particulars of the disputed pre-judgment interest issues until after the Federal Circuit addressed the propriety of the decision to award any pre-judgment interest to Halo.
On appeal, the Federal Circuit declined to address the substantive issues raised because there was no “final decision” pursuant to 28 USC § 1295(a)(1) (final judgment rule). The Federal Circuit explained that it has jurisdiction over the “final decision” of a district court—i.e., a decision that “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” There is a narrow exception to the final judgment rule pursuant to § 1292(c)(2), which gives the Federal Circuit jurisdiction over an appeal from a judgment in a patent infringement action when the case is final except for an accounting. However, here the Court explained that it lacked jurisdiction over the appeal under both the final judgment rule and the § 1292(c)(2) exception.
The Federal Circuit looked to the appealed-from decision dated April 6, 2016, and noted that the Order required the parties to either stipulate to the amount of pre-judgment interest or submit briefing addressing disputed items. The district court never resolved the parties’ dispute regarding the date from which to begin calculating pre-judgment interest or set the amount of pre-judgment interest to be awarded. The presence of these outstanding disputes was dispositive. The Federal Circuit determined that there was no final decision that would confer jurisdiction on appeal. Similarly, the exception to the final judgment rule was not applicable because the order was not final. Regardless of whether pre-judgment interest is part of an accounting, § 1292(c)(2) has been interpreted to preclude consideration of a non-final order that is related to the accounting. Thus, because the order appealed from was not final under § 1295(a)(1), the Federal Circuit lacked jurisdiction under § 1295(c)(2). The appeal was dismissed for lack of jurisdiction, but the Federal Circuit clarified that Pulse preserved its rights to later file a proper appeal of a final award of pre-judgment interest.
The Right Test for Evaluating Equivalence in Chemical Cases
The US Court of Appeals for the Federal Circuit affirmed a rare grant of preliminary injunction based on one of three patents in suit, but reversed the injunction as to the other two patents based on the district court’s improper analysis of the doctrine of equivalents under the function-way-result (FWR) test. Mylan Institutional LLC v. Aurobindo Pharma Ltd., Case No. 17-1645 (Fed. Cir., May 19, 2017) (Lourie, J).
Apicore owns, and Mylan is the exclusive licensee of, the patents at issue, which relate to ISB, a triarylmethane dye used to map lymph nodes. Two of the three patents are directed to a process for preparing ISB by reacting isoleuco acid with silver oxide in a polar solvent, followed by reaction with a sodium solution (process patents). The third patent is directed to an ISB compound having a purity greater than 99.0 percent as measured by high-performance liquid chromatography (purity patent). Aurobindo sought US Food and Drug Administration approval for a generic 1 percent injectable solution of ISB after studying a number of patents describing ISB manufacture and selecting Apicore’s process patent.
Mylan sued Aurobindo for infringement and sought a preliminary injunction, which the district court granted after analyzing the four factors. The district court concluded that Aurobindo “more likely than not” infringed the process patents under the doctrine of equivalents. Specifically, the district court found that the difference in oxidation strength between silver oxide and manganese dioxide was irrelevant under both the FWR and the insubstantial differences tests for equivalence because the claims did not specify an oxidation strength requirement. Aurobindo appealed the district court’s holdings regarding infringement, as well as its holding that Aurobindo did not raise a substantial question as to validity of the purity patent and regarding irreparable harm to Apicore.
As to the process patents, the Federal Circuit concluded that the district court’s analysis of equivalence was flawed “no doubt because of the sparse and confusing case law concerning equivalents, particularly the paucity of chemical equivalence case law, and the difficulty of applying the legal concepts to the facts.” The Court explained that the FWR test may not be well suited for chemical cases (noting the same observation by the Supreme Court of the United States in Warner-Jenkinson) because the “function” and “way” of a particular limitation of a chemical process claim often overlap. Here, the district court did not consider the “way” the oxidation works because while manganese dioxide and silver oxide may have the same function, there was room for sufficient doubt as to whether they oxidize isoleuco acid in the same way so as to satisfy the “way” prong of the FWR test. The Federal Circuit noted that the district court may wish to consider whether the insubstantial differences test is more applicable in this case, because the “FWR test may be less appropriate for evaluating equivalence in chemical compounds if it cannot capture substantial differences between a claimed and accused compound.”
Turning to the purity patent, the Federal Circuit affirmed the district court’s grant of the preliminary injunction premised on this patent. In so doing, the Federal Circuit found that the district court did not err in finding irreparable harm, and that Aurobindo did not raise a substantial question concerning the validity of the patent.
Patent Owner Statements in IPR May Result in Prosecution Disclaimer
Addressing for the first time the issue of whether statements made during America Invents Act post-grant proceedings can trigger a prosecution disclaimer, the US Court of Appeals for the Federal Circuit upheld the district court’s ruling that arguments made by a patent owner during an inter partes review (IPR) proceeding can be relied on to support a finding of prosecution disclaimer during claim construction. Aylus Networks, Inc. v. Apple Inc., Case No. 16-1599 (Fed. Cir., May 11, 2017) (Stoll, J).
Aylus Networks filed a patent infringement suit against Apple, alleging that Apple’s AirPlay product/feature infringed its patent. The asserted patent covers systems and methods for streaming and displaying media content using combinations of networked components, including a media server (MS); a media renderer (MR); control point (CP) logic to negotiate media content delivery with the MS and/or MR; and control point proxy (CPP) logic to control presentation of the content and to negotiate with the MS, MR and/or CP logic. In some embodiments, the CP logic and CPP logic cooperatively negotiate media delivery, while in other embodiments only CP or CPP logic is invoked to negotiate media delivery.
Apple filed two separate IPR petitions challenging the asserted patent. Ultimately, the Patent Trial and Appeal Board (PTAB) instituted proceedings on all challenged claims of the patent except claims 2, 4, 21 and 23. In view of the institution, Aylus filed a notice of voluntary dismissal in the district court, dismissing with prejudice its infringement contentions as to all of the asserted claims except claims 2 and 21. Apple subsequently filed a motion for summary judgment of non-infringement as to those claims, relying on Aylus’s statement during the IPR that the claims required invoking only the CPP logic to negotiate media content delivery between the MS and MR. Aylus argued that the proper construction of the claims was not so limited.
When construing the disputed limitation, the district court relied on the statements made by Aylus in its preliminary response to Apple’s IPR petitions, finding the statements “akin to prosecution disclaimer.” Based on these statements, the district court construed the relevant limitation to “require that only the CPP logic is invoked to negotiate media content delivery,” and granted Apple summary judgment of non-infringement. Aylus appealed, arguing that statements made during an IPR cannot be relied on to support a finding of prosecution disclaimer.
The Federal Circuit affirmed the district court’s claim construction and grant of summary judgment. The Court restated the axiom that the prosecution history “includes all express representations made by or on behalf of the applicant to the examiner to induce a patent grant.” It went on to explain that prosecution disclaimer “protects the public’s reliance on definitive statements made during prosecution.” The Court also observed that the doctrine has been applied in the past to statements made during a re-examination proceeding. Based on this historical purpose and usage, the Court concluded that “[e]xtending the prosecution disclaimer doctrine to IPR proceedings will ensure that claims are not argued one way in order to maintain their patentability and in a different way against accused infringers.”
Practice Note: Patent owners should beware that statements made to the PTAB during post-grant proceedings could potentially limit the scope of the challenged claims. A patent owner must ensure that arguments differentiating the challenged claims from the prior art are not at odds with its infringement positions.
PTAB Free to Adopt Claim Constructions Independent of Party Contentions
The US Court of Appeals for the Federal Circuit affirmed that the Patent Trial and Appeal Board (PTAB) may arrive at its own claim broadest reasonable interpretation (BRI) independent of those proffered by the parties and agreed that under the PTAB’s adopted BRI, the challenged claims would have been obvious. Intellectual Ventures II LLC v. Ericsson Inc., Case Nos. 16-1739; -1740; -1741 (Fed. Cir., May 8, 2017) (Reyna, J).
Ericsson and Google petitioned for inter partes review (IPR) of two Intellectual Ventures (IV) patents as obvious over certain prior art references. In briefing before the PTAB, the parties disputed the construction of the claim term “an indication of an operating bandwidth.” IV contended that the term meant “identification of a particular operating bandwidth,” while the petitioners argued that the term required no construction. After oral arguments, the PTAB issued its final written decision, containing the PTAB’s own construction for the term, which differed from the proposed constructions. After applying its construction, the PTAB found all challenged claims obvious over the cited references. IV appealed.
At the Federal Circuit, IV argued that the PTAB denied it due process by supplying its own construction. IV argued that the PTAB cannot adopt arguments that could have been, but were not, raised by the petitioner, citing In re: Magnum Oil Tools International, Ltd. (IP Update, Vol. 19, No. 8), and that by adopting its own construction, the PTAB changed theories midstream (citing SAS Institute, Inc. v. ComplementSoft, LLC (IP Update, Vol. 19, No. 7)).
The Federal Circuit disagreed. Due process requires notice and an opportunity to be heard. Under the Administrative Procedures Act, the PTAB must give the parties an opportunity to submit facts and arguments for consideration, and each party is entitled to present oral and documentary evidence in support of its case, as well as rebuttal evidence. In this case, IV was given ample notice of the PTAB’s construction of the claim term, and both sides extensively litigated the issue. The Federal Circuit also noted IV’s failure to file a sur-reply or to seek rehearing after the PTAB’s final written decision, which weakened its argument that a due process violation had occurred.
The Federal Circuit also noted that the PTAB extensively questioned both parties’ counsel regarding the proper construction for the claim term, and explained that the PTAB is free to adopt its own construction. After the PTAB adopts a construction, it may not change theories without giving the parties an opportunity to respond, but that was not the case here. The Federal Circuit found the PTAB’s constructions reasonable in light of the specification and affirmed the PTAB’s decision on obviousness using that construction.
Practice Note: Exhaust all administrative procedures available in a proceeding before an administrative agency before arguing a due process violation on appeal.
Reasonable Notice to Patent Owner Is a Must
The US Court of Appeals for the Federal Circuit remanded a Patent Trial and Appeal Board (PTAB) inter partes review (IPR) decision finding a patent obvious and directed the PTAB to provide sufficient factual support for its obviousness findings. The Court also found that the PTAB violated procedural requirements by using the patent owner’s submissions without providing proper notice. Rovalma, S.A. v. Bohler-Edelstahl GMBH & Co. KG, Case No. 16-2233 (Fed. Cir., May 11, 2017) (Taranto, J).
Bohler petitioned the PTAB for IPR of Rovalma’s patent, which claims methods of making steel having certain thermal conductivity properties. In its petition, Bohler argued that the claims should be construed to cover the specific chemical compositions of the steel (which were taught in the prior art), whether or not the steel was created using the process steps in the claim. The PTAB adopted Bohler’s construction in its institution decision.
After institution, Rovalma argued against the adopted claim construction and proposed a construction that required performance of each of the process steps. As background for its claim construction, Rovalma submitted additional evidence and argument regarding the knowledge of a person of ordinary skill in the art (POSITA) of steel thermoprocessing. In its reply, Bohler only argued that the claims were obvious under its own proposed claim construction and did not address obviousness under Rovalma’s construction.
In its final decision, the PTAB adopted Rovalma’s claim construction but found the claims obvious in view of both the prior art cited by Bohler and Rovalma’s submissions regarding the knowledge of a POSITA. Rovalma appealed, arguing that there was a lack of substantial evidence to support the PTAB decision and that the PTAB made prejudicial procedural errors relying on Rovalma’s POSITA submission in its obvious analysis.
The Federal Circuit remanded back to the PTAB for two reasons. First, the Federal Circuit found that the PTAB failed to sufficiently explain the basis for its obvious determinations. The PTAB found that a POSITA would have inherently completed one of the process steps and that the remaining steps were obvious—but the Federal Circuit noted that the PTAB failed to cite record evidence for its obvious determinations. Accordingly, the PTAB did not provide a “sufficiently focused identification of the relevant evidence” and the Court was unable to review the PTAB’s decision without usurping the PTAB’s fact-finding authority.
Second, the Federal Circuit noted a procedural deficiency. During IPR, the PTAB must timely inform a patent owner of “the matters of fact and law asserted” and give the patent owner an opportunity “to submit rebuttal evidence” in response to new invalidity positions. Here, the Court found that, to the extent the PTAB relied on Rovalma’s own submissions in finding obviousness, Rovalma was entitled to adequate notice and a chance to address the PTAB’s positions regarding those submissions.
The Federal Circuit rejected Rovalma’s argument that the PTAB could not use Rovalma’s own submissions to find obviousness, however. The Court noted that “a tribunal may use a party’s own submissions against it, even if the opposing party bears the burden of persuasion,” if the PTAB provides adequate notice and allows the patent owner to respond to any new arguments made in view of the use of patent owner’s submissions. Finding lack of adequate notice, the Court remanded the case back to the PTAB for further proceedings.
PTAB May Institute Re-Examination Even Where Requester Wants It Denied
The US Court of Appeals for the Federal Circuit found that the Patent Trial and Appeal Board (PTAB) properly instituted an inter partes re-examination even though the requester had asked it to deny institution and had admitted that its request did not meet the institution standard. In re: AT&T Intellectual Property II, L.P., Case No. 16-1830 (Fed. Cir., May 10, 2017) (Reyna, J).
Two days before the inter partes review procedures went into effect, LG filed a request for inter partes re-examination of an AT&T patent directed to video data compression. Before the PTAB decided whether to initiate re-examination, LG sought to have its re-examination request denied, stating that it did “not believe there is a reasonable likelihood of prevailing with respect to any of the claims challenged in the Request.” Two weeks later, the PTAB granted LG’s initial request for inter partes re-examination. During the re-examination, LG withdrew from the proceedings. The PTAB nevertheless found the challenged claims anticipated. AT&T appealed.
On appeal, AT&T argued that the PTAB improperly instituted re-examination because LG had requested that its re-examination request be denied and as a result there was no requester or request. The US Patent and Trademark Office (PTO) intervened in the appeal, but only to argue that the Federal Circuit lacked jurisdiction to entertain AT&T’s challenge to the institution decision. The Court agreed with the PTO and rejected AT&T’s contrary argument:
The record does not support a finding that the Board instituted inter partes reexamination without the presence of a request and a requester. LG was the requester, and LG submitted a request. LG was still involved in the proceedings at the time the institution decision was made. While LG may have desired that its request to institute be denied, it was granted.
After finding that the PTAB acted within its statutory authority in instituting re-examination, the Court affirmed the PTAB’s anticipation finding on the merits.
A Refresher on Re-Examination Estoppel
Addressing the pre-AIA estoppel provision of 35 USC § 317(b), the US Court of Appeals for the Federal Circuit affirmed a Patent Trial and Appeal Board (PTAB) decision not to terminate all pending re-examinations of a patent after the party that requested one of the re-examinations received an adverse ruling as to specific claims of that patent in a co-pending litigation. In re: Affinity Labs of Texas, LLC, Case Nos. 16-1092; -1172 (Fed Cir., May 5, 2017) (Chen, J).
Section 317(b) states:
Once a final decision is entered against a party in a civil action . . . that the party has not sustained its burden of proving invalidity of a patent claim in suit . . . then neither that party nor its privies may thereafter request an inter partes reexamination of any such patent claim on the basis of issues which that party or its privies raised or could have raised in the civil action . . . and an inter partes reexamination requested by that party or its privies on the basis of such issue may not thereafter be maintained by the Office.
Affinity Labs of Texas is the owner of a patent against which Richard King petitioned for ex parte re-examination of all claims. After Affinity brought an infringement action against Volkswagen Group of America in district court, it also requested inter partes re-examination of all claims of the patent. Apple also requested inter partes re-examination after Affinity brought an action against it.
The US Patent and Trademark Office (PTO) granted all three re-examination requests and merged them into one re-examination proceeding. While the merged re-examination was pending, Apple and Affinity reached a settlement and filed a joint stipulation of dismissal at the district court. Apple then filed a notice of non-participation in the re-examination. Volkswagen, however, received an adverse final judgment in its district court case, upholding the validity of claims 28 and 35 of the patent. Volkswagen eventually settled with Affinity, and the parties filed a joint stipulation of dismissal with the district court. Volkswagen filed a notice of non-participation in the re-examination. Affinity petitioned the PTO to terminate the entire merged re-examination proceedings under § 317(b).
The PTO denied Affinity’s request to terminate the re-examinations but did severe the Volkswagen re-examination from the merged proceeding. The PTO also held that the estoppel provision of § 317(b) applied to claims 28 and 35, and therefore no rejection could be maintained against those claims in the Volkswagen re-examination. The Examiner proceeded to evaluate the Volkswagen re-examination separately from the merged Apple/King re-examination and found numerous claims of the patent to be unpatentable in each re-examination proceeding. Affinity appealed to the PTAB, which affirmed the Examiner’s rejections. Affinity then appealed to the Federal Circuit.
On appeal, Affinity argued that the estoppel provision of § 317(b) required the PTO to terminate all three re-examinations after Volkswagen received an adverse ruling as to claims 28 and 35 in the co-pending litigation. The Court disagreed, noting that the estoppel provision speaks to “any patent claim,” as opposed to the patent as a whole, and this claim-by-claim approach applied to both a request for inter partes re-examination and the maintenance of a pending inter partes re-examination. Therefore, the Court affirmed the PTO’s decision to proceed with the Volkswagen re-examination as well as its decision that no rejection could be maintained against claims 28 and 35 of the patent in the Volkswagen re-examination. The Court also concluded that the final decision in the Volkswagen litigation did not have a preclusive effect on the King/Apple re-examination. The Court noted that § 317(b) applies only to inter partes re-examinations and not ex parte re-examinations, and therefore had no bearing on the ex parte King re-examination. The Court further noted that the estoppel provision applies only to a requester that was a party to the civil action or its privies. Because Apple was not a party to the Volkswagen litigation and there was no evidence that Apple was Volkswagen’s privy, the Court affirmed the PTO’s decision not to terminate the inter partes re-examination requested by Apple.
Does IPR Extinguish Private Property Rights?
The Supreme Court of the United States granted certiorari to decide whether only Art. III federal courts, not executive branch tribunals such as the Patent Trial and Appeal Board (PTAB), can decide whether a patent is invalid. Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, Docket No. 16-712 (Supr. Ct., June 12, 2017). The case is set to be considered during the October 2017 term.
The US Court of Appeals for the Federal Circuit, in an unpublished per curium decision issued on May 4, 2016 (reprinted at 639 Fed. Appx. 639), held that patents are public rights and that America Invents Act proceedings are constitutional, rejecting the petitioner’s argument that patents are private property rights, which can only be revoked by an Article III court, and not public rights, which can be revoked by a government agency.
The US government urged the Supreme Court not to hear the case, arguing that “patents are quintessential public rights” because they are derived from a federal regulatory system.
The specific issue on which cert was granted is whether inter partes review, an adversarial process used by the US Patent and Trademark Office to analyze the validity of existing patents, violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.
America Invents Act
PTAB Discretion, Petitions Reliant on Prior Art Cited During Prosecution
In three recent cases, the Patent Trial and Appeal Board (PTAB) addressed arguments pertaining to when and how it should exercise its discretion to deny some or all grounds for unpatentability in an inter partes review (IPR) where the petition relies on prior art disclosed during earlier prosecution of the challenged patent. In deciding whether to institute, the PTAB exercised its discretion under 35 USC § 325(d) where the prior art was not only disclosed during examination, but was also used by the Examiner to reject the claims in an office action. Edwards Lifesciences v. Boston, Case No. IPR2017-00072, Paper 8 (PTAB, Apr. 21, 2017) (Tartal, APJ). However, the PTAB declined to exercise its discretion where the prior art was submitted during prosecution but not relied upon by the Examiners to reject claims. Scientific Fox Factory v. SRAM, Case No. IPR2017-00472, Paper 10 (PTAB, Apr. 21, 2017) (Cherry, APJ); Digital Check v. e-ImageData, Case No. IPR2017-00178, Paper 6 (PTAB, Apr. 25, 2017) (Haapala, APJ).
In relevant part, § 325(d) states that “[i]n determining whether to institute or order a proceeding under this chapter . . . the Director may take into account whether, and reject the petition or request because, the same or substantially the same prior art or arguments previously were presented to the Office.”
In Edwards Lifesciences v. Boston, the PTAB exercised its discretion to deny institution because the primary reference relied upon by the petitioner was not only disclosed to the patent office during examination of the patent, but was also used to reject the claims in an office action, which the applicant overcame. In addition, the PTAB found that the secondary references relied on in the petition were either disclosed to the patent office during examination or only disclosed ubiquitous features known in the prior art. The PTAB therefore found that the petitioner relied upon the same or substantially the same information that was considered during prosecution of the patent.
The PTAB reached a contrary conclusion in Scientific Fox Factory v. SRAM, where it declined to exercise its § 325(d) discretion and instituted an IPR trial. Even though the petition relied on prior art that was cited during prosecution and re-examination, the Examiner apparently gave these references no more than a cursory review during the original prosecution of the patent and, although these references were also of record in a subsequent re-examination, that re-examination had not concluded. The PTAB therefore found that the IPR petition did not rely on the same or substantially the same information that was considered during the prosecution that resulted in allowance of claims.
Similarly, in Digital Check v. e-ImageData, the PTAB declined to exercise its § 325(d) discretion and instituted an IPR trial even though petitioner relied on prior art that was cited during prosecution. In this instance, the PTAB found no indication in the record that the Examiner rejected any claims based on either reference relied on in the petition or that the Examiner or applicant substantively discussed either reference during prosecution of the patent. Furthermore, the petitioner’s obviousness challenge also relied on witness testimony that was not previously submitted during prosecution. The PTAB therefore found that the IPR petition did not rely on the same or substantially the same information that was considered during prosecution of the patent.
No Post-Grant Review Where Challenged Claims Are Disclaimed
Addressing whether disclaimer of all challenged claims prior to institution of post-grant review constitutes a request for adverse judgment, the Patent Trial and Appeal Board (PTAB) found that it did not and denied the petition. Corvus v. United States, Case No. PGR2016-00042 (PTAB, Mar. 31, 2017) (Green, APJ).
Corvus sought post-grant review of certain claims of a patent owned by the US government. The government responded by disclaiming all challenged claims. Corvus then argued that the government’s statutory disclaimer constituted a request for adverse judgment under 37 CFR § 47.73(b)(2), which provides that “[a] party may request judgment against itself at any time during a proceeding” and lists disclaimer among the actions “construed to be a request for adverse judgment.” The government responded that because no trial had been instituted, 37 CFR § 42.73(b)(2) did not apply. Rather, the government argued that the PTAB was compelled to deny the petition under 37 CFR § 42.207(e), which provides that “[n]o post-grant review will be instituted based on disclaimed claims.”
Corvus argued that the PTAB should enter an adverse judgment because otherwise, the government “will arguably be free to prosecute claims that are patentably indistinct from the claims it has disclaimed” in a pending continuation application. Corvus noted that “it expended considerable resources in preparing the Petition” and that adverse judgment was warranted in view of Corvus’s and “the public’s interest ‘in finality and repose on the challenged claims.’” Corvus relied on the PTAB’s 2016 Smith & Nephew decision, in which the PTAB concluded that “the entry of adverse judgment was the more equitable result as the patent owner had two continuation applications pending, and, thus, absent entry of adverse judgment, nothing would prevent that patent owner from seeking allowance of patentably indistinct claims.”
The government also relied on prior a PTAB decision (FCA) to argue that disclaimer necessitated denial of the petition and that § 42.73(b)(2) does not apply because no trial has been instituted (RPX). The government also argued that Smith & Nephew distinguished the PTAB’s 2015 RPX and FCA decisions by noting that those panels had not considered the ability of the patent owner to obtain the disclaimed claim coverage in future prosecution.
The PTAB concluded that “our rules necessitate denying institution under the circumstances of the instant proceeding, that is, where patent owner disclaims all of the challenged claims prior to institution.” The PTAB declined to follow Smith & Nephew and emphasized that it, as well as the cases relied on by the government, were non-precedential and thus non-binding.
The PTAB instead focused on the text of the pertinent regulations and concluded that the rules, when “read in full and in concert,” do not permit entry of adverse judgment, but rather “oblige us to deny institution.” The PTAB explained that under the plain language of § 42.73(b)(2), disclaimer of challenged claims only constitutes a request for adverse judgment when the party has “no remaining claim in the trial.” However, because no trial had been instituted, “there are no claims in a trial.” The PTAB thus concluded that the rule does not permit it to “construe the relevant action by Patent Owner, i.e., disclaimer of challenged claims, as a request for adverse judgment before institution of trial.” Accordingly, the PTAB denied the petition for post-grant review.
Practice Note: This case provides a patent owner an avenue by which it may avoid post-grant review and still address the petitioner’s invalidity arguments through ex parte prosecution—disclaim challenged claims in the preliminary response, then prosecute the disclaimed subject matter in a pending application. It remains to be seen whether Corvus will be designated precedential and thus set a binding rule for future cases.
Band Trademark Can Rock On: Lanham Act Disparagement Clause Unconstitutional
In an 8–0 decision, the Supreme Court of the United States affirmed an en banc panel of the US Court of Appeals for the Federal Circuit and found the disparagement clause of the Lanham Act to be facially unconstitutional under the free speech guarantees of the First Amendment. Matal v. Tam, Docket No. 15-1293 (Supr. Ct., June 19, 2017) (Alito, Justice) (Kennedy, Justice, concurring) (Thomas, Justice, concurring).
The case affirmed the Federal Circuit holding that § 2(a) of the Lanham Act, which since 1946 has denied federal registration of trademarks that may “disparage . . . or bring . . . into contemp[t] or disrepute” any “persons, living or dead,” is facially unconstitutional under the First Amendment’s free speech clause (IP Update, Vol. 19, No. 1).
This has been a long-fought case for Simon Shiao Tam, the lead singer of the Asian-American dance-rock band The Slants—a band name that, according to Tam, was adopted to “reclaim” and “take ownership” of Asian stereotypes and slurs. In 2011, Tam filed an application for federal registration of the mark THE SLANTS in connection with entertainment services in the nature of live musical performances. When the US Patent and Trademark Office (PTO) and the Trademark Trial and Appeal Board (TTAB) refused registration of the mark under § 2(a) of the Lanham Act as disparaging and likely offensive to a “substantial composite” of people of Asian descent, Tam appealed to the Federal Circuit in 2015, where the en banc panel ultimately found the disparagement clause facially unconstitutional. In 2016, the Supreme Court granted the government’s petition for certiorari (IP Update, Vol. 19, No. 10).
Before tackling the three primary contentions set forth by the government, Justice Alito’s opinion dismissed a preliminary argument raised in Tam’s brief, which alleged that the disparagement clause does not reach trademarks that disparage racial or ethnic groups, since those non-juristic entities are not “persons” as contemplated by the language of the statute. Instead, the Supreme Court found that the “plain terms” of the disparagement clause do not target only marks that disparage a particular natural person, and that Congress did not intend such a confinement of the clause, despite prior “regrettable” and inconsistent decisions by the PTO granting registration of trademarks that clearly denigrate racial or ethnic groups, including African-Americans and Native Americans.
The Supreme Court then turned its attention to the government’s three primary arguments, which were aimed at eliminating any First Amendment protection or at least inviting only a rational-basis review of the disparagement clause.
Trademarks Are Private Speech
The government argued that trademarks are government speech, not private speech, as the government’s own speech is exempt from First Amendment scrutiny. The Court vehemently disagreed, noting that the PTO has made it clear that federal trademark registration by the government does not constitute approval of a mark, that registration under the Lanham Act is largely mandatory if a trademark meets the Act’s viewpoint-neutral requirements, and that trademarks have not traditionally been used to convey a government message. Citing examples of registered trademarks, Alito opined that if trademarks were indeed government speech, then the “Federal Government is babbling prodigiously and incoherently” and “unashamedly” endorsing a wide array of commercial products, while sending messages such as “Just do it” or “Have it your way” (referring to popular registered trademarks owned by Nike and Burger King).
Holding that trademarks are private speech, the Supreme Court distinguished the case at hand from government speech cases cited by the government, including the Walker Texas license plate case, and outlined the dangers of expanding the government-speech doctrine to any system of government registration, including the copyright registration system.
Trademarks Are Not Government Subsidies
The Supreme Court also dismissed the government’s argument that trademarks are a form of government subsidy. As noted in Alito’s opinion, all of the supporting cases cited by the government on this point pertained to cash subsidies or their equivalent, while the federal trademark registration system “is nothing like the programs at issue” in the cited cases, and instead requires that trademark applicants support the process through application, registration and maintenance fees.
No New “Government Program” Doctrine
Finally, the Supreme Court wholly rejected the government’s proposal to create a new “government program” doctrine under which to review disparaging trademarks and under which certain content- or speaker-based restrictions may be permitted. On this point, the Court opined that even if the government could analogize its proposal to cases in which the government creates a limited public forum for private speech, “viewpoint discrimination” is still forbidden in those instances. And, according to the Supreme Court, the disparagement clause discriminates on the basis of viewpoint since “[g]iving offense is a viewpoint.” Justice Kennedy’s concurring opinion also focused on “potent” viewpoint discrimination and argued that First Amendment protections under viewpoint discrimination render much of the Court’s discussion on other issues “unnecessary.”
Disparagement Clause Cannot Withstand Even Relaxed Scrutiny
On the question of whether trademarks are commercial speech subject to relaxed scrutiny, the Supreme Court declined to resolve that debate between the parties and instead concluded that the disparagement clause cannot withstand even relaxed Central Hudson review. In short, the Supreme Court noted that the thrust of the disparagement clause is improperly intended to prevent the expression of ideas that offend, and is not a “narrowly drawn” anti-discrimination clause but a “happy-talk clause” that goes “much further than necessary to serve the interest asserted.”
Justice Kennedy, along with the concurring opinion from Justice Thomas, made a point to note that even if trademarks are considered commercial speech, there is still no exception to the heightened scrutiny required whenever government regulation of speech is based on viewpoint.
Practice Note: As the disparagement clause has found itself in the center of other recent trademark disputes—most notably the 2014 cancellation of federal trademark registrations owned by the Washington Redskins—this affirmation of the Federal Circuit will undoubtedly affect other pending trademark litigation and may result in an influx of newly filed “offensive” trademark applications and re-filed applications that were previously refused registration. The PTO also will be working through a backlog of pending applications that were suspended pending the Supreme Court’s decision in the Slants case.
No Trademark Genericide: GOOGLE Is Not “a Google”
The US Court of Appeals for the Ninth Circuit made a point to remind trademark litigants of the relevant laws and policies pertaining to trademark “genericide” when it sustained summary judgment in favor of ubiquitous search engine provider Google after a third party sought to cancel the registered GOOGLE trademark on grounds that the mark had become generic. David Elliott v. Google, Inc., Case No. 15-15809 (9th Cir., May 16, 2017) (Tallman, J) (Watford, J, concurring).
After Chris Gillespie registered 763 domain names that included the word “GOOGLE” paired with other terms, brands or personal names, Google filed a complaint under the Uniform Domain Name Dispute Resolution Policy (UDRP) alleging that the domain names were registered in bad faith. The arbitration forum agreed that the numerous domains had been registered in violation of the UDRP and transferred the domains to Google. Following the UDRP decision, David Elliott, later joined by Gillespie (together, Elliott), filed an action petitioning the district court to cancel the registered GOOGLE trademark under the Lanham Act, which allows for cancellation of a registered trademark if the mark is primarily understood as a generic name for the goods or services for which it is registered. Elliott argued that the word “google” is now primarily understood as “a generic term universally used to describe the act of internet searching.”
Both parties filed motions for summary judgment on the issue of genericness. Elliott’s motion argued that the public’s use of the word “google” as a verb in familiar statements, such as “I googled it,” constitutes generic use of the trademark as a matter of law. In granting summary judgment in favor of Google, however, the district court agreed with Google’s framing of the issue, focusing on search engines rather than the act of searching, and determined that Elliott failed to present sufficient evidence that the word “google” is primarily understood as a generic name for search engines. Elliott appealed
On appeal, Elliott alleged that the district court misapplied the genericide “primary significance” test under the Lanham Act and failed to recognize the importance of verb use of the GOOGLE trademark. Rejecting Elliott’s arguments, the Ninth Circuit outlined what it means for a trademark to be generic and the appropriate test for determining whether a trademark has taken the “fateful step” down the path to genericness.
As the Ninth Circuit explained, under US trademark law generic terms are not protectable as trademarks because they do not identify the source of a product or service. In this regard, a valid trademark may eventually be deemed “generic” when the public appropriates a trademark and uses it as a generic name for particular types of goods or services irrespective of its source, and when such use of a mark becomes its “primary significance” to the relevant public.
The court then elaborated on what it regarded as “fundamentally flawed” arguments set forth by Elliott on appeal, emphasizing that the plain language of the Lanham Act requires that a claim of genericide relate to a particular type of good or service (in this case, internet search engines), and confirming that verb use does not automatically constitute generic use.
In reviewing Elliott’s evidence, which included secondary dictionary definitions, expert testimony, a survey, and use of the term “google” by media and consumers (the lyrics to at least one rap song were referenced), the court explained that even if it is assumed that the public uses the verb “google” in a generic and indiscriminate sense, such evidence demonstrates nothing about how the public primarily understands the word “google” with regard to the product or service at issue, namely, internet search engines. In other words, verb use does not automatically constitute generic use, and use of the word “google” as a verb to refer to the act of searching on the internet does not mean that the public understands the word “google” to mean any and all search engines. Moreover, the court found that “not a single competitor calls its search engine ‘a google,’” and the consuming public recognizes and refers to different internet search engines.
Thus, because Elliott failed to present evidence sufficient to support a jury finding that the relevant public primarily understands “google” as a generic name for internet search engines and not as a trademark identifying the GOOGLE search engine in particular, the Ninth Circuit affirmed the district court’s grant of summary judgment in favor of Google.
In his concurrence, Judge Watford opined that the court need not decide whether evidence of “indiscriminate” verb use of a trademark could ever tell a jury whether the public primarily thinks of a mark as a generic name for a type of good or service, and declined to join the opinion to the extent it may be read to foreclose the consideration of such evidence of verb usage as a matter of law.
Fame of a Mark Must Be Considered Along a Spectrum
Addressing the standard for fame of a trademark, the US Court of Appeals for the Federal Circuit vacated and remanded a Trademark Trial and Appeal Board (TTAB) decision, finding that the TTAB used an incorrect standard in its analysis of whether a mark has achieved the status of “famous.” Joseph Phelps Vineyards, LLC v. Fairmont Holdings, LLC, Case No. 2016-1089, (Fed. Cir., May 24, 2017) (per curiam) (Newman, J, concurring).
Joseph Phelps Vineyards has been selling its wines bearing the mark INSIGNIA since 1978. In 2012, Fairmont Holdings registered the mark ALEC BRADLEY STAR INSIGNIA for cigars, tobacco, cigar boxes, cigar cutters and cigar tubes. Phelps petitioned for cancellation of Fairmont’s mark. Although the products are different, Phelps argued that the fame of its mark increased the likelihood of confusion. The TTAB disagreed, finding that Phelps’s mark was not famous. Phelps appealed.
The Federal Circuit found that the TTAB’s analysis of “fame” was flawed in that it treated fame as an “all or nothing” factor. The Court pointed out that although fame is “either/or” in a dilution analysis, that is not the case in a likelihood of confusion analysis, which treats the factor along a spectrum from strong to weak. Phelps had provided substantial evidence that its wine is renowned in the wine market and among consumers of fine wine. The record revealed extensive recognition and accolades for the INSIGNIA brand wine by national media outlets and food and wine magazines. In fact, INSIGNIA wine was served at White House dinners on multiple occasions. The Court was perplexed at the TTAB’s finding that INSIGNIA wine had no “fame,” having given no discernable weight to this factor. It remanded the case for the TTAB to apply the proper standard.
Judge Newman separately concurred, noting two additional issues that warranted review on remand. First, she found that the TTAB failed to properly examine Fairmont’s actual use of the mark. She pointed to the dominance of the word INSIGNIA as used on Fairmont’s products. The TTAB had determined that since Fairmont used “standard characters” and was not limited in the presentation of its mark, use of the word in all capital letters was not an issue. Judge Newman disagreed and suggested that the TTAB re-analyze the mark as “viewed from the eyes of a consumer” to determine the commercial impression of the mark.
Second, Judge Newman determined that the TTAB failed to treat the DuPont factor of “relatedness” along a sliding scale. The TTAB had concluded that wine and cigars were not related, but the evidence suggested that the goods are sold in the same channels of trade to the same purchasers. Judge Newman pointed out that relatedness is a broad concept and products may exhibit “relatedness” when they are “complementary products sold in the same channels to the same class of consumer.”
Practice Note: The Federal Circuit adopted a sliding scale rule for “fame” in likelihood of confusion cases. Fame must be assessed based on the totality of the circumstances, which requires considering all the relevant factors on a scale appropriate to their merits.
No Damages for Plaintiff Since Dry Cleaner Agreed to Hang Up Trademark Use
The US Court of Appeals for the Eighth Circuit affirmed a permanent injunction enjoining a dry cleaner franchisee from using plaintiff’s trademarks but explained that plaintiff was not entitled to punitive damages, costs or attorneys’ fees since the franchisee had agreed to cease using plaintiff’s trademarks. Martinizing International LLC v. BC Cleaners, LLC, et al., Case No. 16-1069 (8th Cir., Apr. 28, 2017) (Loken, J).
In 2011, Martinizing International entered into franchise agreements with Markus Kanning authorizing use of Martinizing’s trademarks in operating dry cleaning stores. The agreements prohibited Kanning from selling the franchise locations or assigning the franchise agreements without Martinizing’s consent. In 2014, BC Cleaners and the individuals Lundell and Carver (defendants) entered into an asset purchase agreement with KM Cleaners without asking for Martinizing’s consent. Defendants then continued to operate the dry cleaning stores using Martinizing’s trademarks.
In 2015, Martinizing’s counsel sent a cease-and-desist letter to defendants demanding that they either stop using Martinizing’s trademarks or enter into a franchise agreement with Martinizing. Defendants agreed with the demands of the cease-and-desist letter but continued to use the trademarks. Martinizing filed a complaint against defendants, alleging infringement of its trademarks and that Lundell and Carver were member-managers who “aided, abetted, directed and controlled BC with respect to the wrongful conduct.” Defendants failed to appear, and the district court granted a default judgment against BC Cleaners, holding that it willfully infringed Martinizing’s trademarks. However, the district court denied Martinizing a default judgment against Lundell and Carver, concluding that they were not personally liable for trademark infringement or a deceptive trade practice. Martinizing appealed, arguing that the court erred when it denied a default judgment against Lundell and Carver and reduced the award of attorneys’ fees for willful infringement.
The Eighth Circuit agreed with the district court’s conclusion that because defendants had been using Martinizing’s trademarks without approval notwithstanding their agreement to stop using the trademarks, the district court did not “abuse its discretion in not granting injunctive relief against the individual defendants, as BC Cleaners had agreed to stop using the trademarks.”
However, the Eighth Circuit concluded that Martinizing had failed to prove that BC Cleaners’ conduct entitled Martinizing to damages, an accounting of infringer profits or attorneys’ fees, i.e., in addition to the injunctive relief the Court upheld. For example, Martinizing made no showing that franchise fees were not paid by Kanning during the months when defendants were operating the stores under the unterminated agreements.
Circuit Divide: Is Registration a Precondition for Copyright Infringement Suits?
Addressing the regional circuit split over whether copyright registration occurs when a copyright application is filed or when the Register of Copyrights registers the copyright, the US Court of Appeals for the 11th Circuit followed the latter approach, affirming the district court’s dismissal of a copyright infringement suit where the plaintiff’s application had been filed, but not yet approved or denied, prior to filing suit. Fourth Estate Public Benefit Corp. v. Wall-Street.com, LLC, Case No. 16-13726 (11th Cir., May 18, 2017) (Pryor, J).
Fourth Estate is a news organization that licenses online news articles. Wall-Street.com, one of Fourth Estate’s customers, continued to display its licensed articles even after termination of its account with Fourth Estate. Fourth Estate sued Wall-Street.com for copyright infringement, alleging in the complaint that it had filed applications to register the relevant articles with the Register of Copyrights. Wall-Street.com moved to dismiss, arguing that the Copyright Act only allows for an infringement suit once the copyright application has been approved or denied.
The Copyright Act (§ 411(a)) requires that a copyright be registered before a copyright owner can assert a claim of infringement:
No civil action for infringement of the copyright in any United States work shall be instituted until . . . registration of the copyright claim has been made in accordance with this title. In any case, however, where the deposit, application, and fee required for registration have been delivered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action for infringement.
The question presented on appeal was whether registration occurs when the application has been either denied or approved (registration approach), or when the copyright deposit, application and required fee for registration have been filed (application approach).
The 11th Circuit acknowledged that its sister courts are divided on the issue. The 10th Circuit follows the registration approach, whereas the Ninth and Fifth Circuits follow the application approach. The Eighth Circuit endorsed the application approach in dicta, while Seventh Circuit case law contains conflicting dicta. The First and Second Circuits, while acknowledging the split, have declined to follow either approach.
The 11th Circuit agreed with the district court, stating, “the text of the Copyright Act makes clear that the registration approach . . . is correct.” In reaching this conclusion, the Court examined various sections of the Copyright Act, especially § 401(a), and concluded that “an application alone is insufficient for registration.” The Court dismissed Fourth Estate’s argument that the three-year statute of limitations for copyright infringement suits supported the application approach:
True, an owner who files an application late in the statute of limitations period risks losing the right to enforce his copyright in an infringement action because of the time needed to review an application. But this potential loss encourages an owner to register his copyright soon after he obtains the copyright and before infringement occurs.The Court declined to assess the legislative history and policy arguments, finding it unnecessary where “the words of the statute are unambiguous.”
DMCA Grandfather Clause Does Not Extend to Acquired Business
Addressing the Digital Millennium Copyright Act (DMCA) grandfather clause that allows “pre-existing subscription services” to pay the pre-1998 reduced royalty rate for digital music licensing, the US Court of Appeals for the District of Columbia Circuit reversed the district court’s dismissal, holding that the defendant was not entitled to the lower royalty rate for service transmissions in connection with its newly acquired business. SoundExchange, Inc. v. Muzak LLC, Case No. 16-7041 (DC Cir., Apr. 25, 2017) (Silberman, J) (Rogers, J, concurring).
In 1995, the Digital Performance Right in Sound Recordings Act for the first time granted copyright owners the right to collect royalties from digital music services. The DMCA increased those royalty rates in 1998, but provided a grandfather clause that allowed “pre-existing subscription services” to pay the lower, pre-1998 rates. The change was intended to provide a fairer “market rate” for the copyright holders, and the grandfather clause was intended to benefit three businesses that had invested during the lower rate period.
At the time the DMCA was passed, Muzak, one of the three businesses protected by the grandfather clause, provided licensed music through its DishCD service to Dish Network customers. In 2011, Mood Media Corporation acquired Muzak, as well as one of Muzak’s competitors that was not covered by the grandfather clause. Mood Media arranged for Muzak to acquire the competitor’s customers so that Muzak could pay the grandfathered rate for all of its transmissions, including those resulting from its acquisition of the competitor company. As a result, SoundExchange, a nonprofit responsible for collecting royalties on behalf of performing artists and copyright owners, sued Muzak for underpaying royalties.
The district court dismissed SoundExchange’s complaint, likening Muzak’s acquisition of the competitor to Muzak simply acquiring more customers. SoundExchange appealed.
The DC Circuit reversed, explaining that it did not agree with the district court’s analysis. The Court explained that “Mood-Muzak’s acquisition , if allowed to expand Muzak’s grandfather eligibility to ‘services’ other than DishCD, threatens the very purpose of the Act.” The Court reasoned that allowing such an interpretation might result in the “complete elimination of the market-rate regime by Mood-Muzak’s acquisition strategy.”
In reaching its decision, the DC Circuit analyzed the definition of “pre-existing subscription service,” which reads, “[a service] that performs sound recordings by means of noninteractive audio-only subscription digital audio transmissions, which was in existence and was making such transmissions to the public for a fee on or before July 31, 1998.” Concluding that the statute and the legislative history were unclear as to whether “service” refers to the business entity or the original program offerings, the Court interpreted the grandfather clause narrowly and concluded that “the better interpretation of the statute is that the term ‘service’ contemplates a double limitation; both the business and the program offering must qualify before the transmissions are eligible for the favorable rate.” Accordingly, the Court reasoned that Muzak’s expansion and provision of additional transmissions did not qualify as pre-existing subscription services and were not eligible for the reduced grandfathered rate.
Outside Constitutional Protection, Within Anti-SLAPP Statute
Addressing the issue of defending against claims seeking to remedy alleged misappropriation or misuse of a business’s trade secrets or confidential information by invoking the Texas Citizens Participation Act (TCPA), the Texas Third Court of Appeals ruled that the TCPA as written can potentially be invoked successfully to defend against these claims and, more broadly, that “communications” protected by the TCPA, which in turn can serve as predicate for a motion to dismiss a “legal action” under the TCPA, are not solely confined to speech that enjoys constitutional protection, but instead are defined by the language of the TCPA as written. Elite Auto Body LLC v. Autocraft Bodywerks, Inc., Case No. 03-15-00064 (Tex. App., May 5, 2017) (Pemberton, J).
The underlying litigation was initiated by appellee Autocraft Bodywerks, an auto-repair shop. The defendant (appellant here) Elite Auto Body was founded by a one-time employee of Autocraft. Additional Autocraft employees left that company to join Precision. Autocraft accused the former Autocraft employees of furnishing Precision with confidential, proprietary and trade secret information they had acquired through their former positions of trust and confidence with Autocraft to obtain an unfair competitive advantage in the marketplace. Based on these allegations, Autocraft sought injunctive relief to restrain appellant’s alleged impending or ongoing use or disclosure of Autocraft’s confidential and proprietary information and trade secrets, plus actual and exemplary damages.
Alongside more traditional litigation responses, appellant invoked the TCPA, seeking dismissal of Autocraft’s suit on grounds that this legal action “is based on, relates to, or is in response to” appellant’s “exercise of the right of . . . association” and the “exercise of the right of free speech” in its pursuit of Precision’s business. After the district court denied appellant’s motion, this appeal ensued.
The Third Court of Appeals explained that Autocraft’s claims were predicated factually on conduct that falls within either the “exercise of the right of association” by the appellant or its “exercise of the right of free speech,” as the TCPA defined those terms. The TCPA defined the former as “a communication between individuals who join together to collectively express, promote, pursue, or defend common interests,” and the latter as “a communication made in connection with a matter of public concern.”
Autocraft contended that the alleged theft and misuse of its trade secrets and confidential information was distinguishable from any “communications” or free expression. However, “communications” is itself a defined term under the TCPA, and the definition “includes the making or submitting of a statement or document in any form or medium, including oral, visual, written, audiovisual or electronic.”
Autocraft attempted to limit “communications” under the TCPA by insisting that the larger statutory context and anti-SLAPP purpose of the TCPA precludes a reading of communications that would extend beyond communications that the First Amendment protects. Autocraft argued that certain “historic and traditional” categories of speech that are considered susceptible to regulation without implicating First Amendment concerns include “speech integral to criminal conduct,” such as that “soliciting illegal transactions or other crimes,” that “incident to bribery or extortion,” or “that are uttered by a robber while ordering his victim to hand over the money.”
The Court rejected Autocraft’s attempt to limit TCPA communications solely to those the First Amendment protects, explaining that the TCPA defines communications with no such limitation. Rather it simply “includes the making or submitting of a statement or document in any form or medium, including oral, visual, written, audiovisual, or electronic,” with no reference to constitutional rights or concepts.
Practice Note: Communications protected under the TCPA are not confined to communications that enjoy constitutional protection.
Conviction for Economic Espionage, Sale of Trade Secrets to China
The US Court of Appeals for the Ninth Circuit upheld the first federal jury criminal conviction for economic espionage and theft of trade secrets under the Economic Espionage Act of 1996 (EEA), even though the owner of the trade secrets sold a facility allegedly embodying the trade secrets. United States v. Liew, et al., Case No. 14-10367 (9th Cir. May, 5, 2017) (Owens, J).
This case involves the ability to build a titanium dioxide (TiO2) chloride facility. TiO2 is a “commercially valuable” white pigment extracted from ore, and DuPont has been and continues to be the industry leader in the technology. In the 1990s, China wanted to develop TiO2 production capabilities to replace its molten-salt process and elicited the help of Walter Liew, a US citizen.
Liew hired two retired DuPont employees, Robert Maegerle and Tim Spitler, as consultants for his company, Performance Group, and later, USA Performance Technology, Inc. (USAPTI). Both former DuPont employees had experience at DuPont’s TiO2 facilities, and both had certified, upon their retirement from DuPont, that they had returned all “secret or confidential” materials and agreed “not to use or divulge” such information without DuPont’s permission. By 2005, Maegerle was serving as Liew’s “in-house expert” in multimillion-dollar contracts with Pangang, a Chinese company, to upgrade Chinese molten-salt plants into chloride process facilities.
In August 2010, DuPont received an anonymous letter stating that Liew and others had “embezzled DuPont technology and sold it to China.” DuPont and the Federal Bureau of Investigation began investigating. DuPont later sued for trade secret misappropriation, and federal prosecutors indicted and charged Liew and USAPTI with conspiracy, as well as economic espionage and trade secret theft under the EEA.
The EEA punishes economic espionage that involves (1) trade secret misappropriation intended to benefit any foreign government, and (2) theft of trade secrets where the trade secret “is related to a product or service used in or intended for use in interstate or foreign commerce” and knowingly converted to the economic benefit of anyone other than the owner.
In March 2014, a federal jury convicted Liew and USAPTI of violating the EEA. Defendants appealed, challenging the district court’s jury instruction, the court’s refusal to give jury instructions regarding the meaning of “trade secrets,” and the sufficiency of trade secret evidence.
On appeal, defendants argued for the first time that the compilation instruction was erroneous because it omitted a principle that “a compilation cannot constitute a trade secret if ‘one skilled in the art could view the nonsecret elements and replicate the combination without undue difficulty.’” However, the Ninth Circuit ruled that defendants failed to show that the given instruction was incorrect, misleading or inadequate.
The Ninth Circuit also found that the district court correctly rejected defendants’ proposed instructions on “public disclosure,” “reverse engineering” and “general knowledge.” The public disclosure instruction was superfluous because the given instructions informed the jury that generally known/readily ascertainable information could not qualify as trade secret material. The proposed instruction stating that disclosure to a single recipient who is not legally bound to maintain the secrecy destroys trade secret protection was also properly rejected because it was unsupported by the EEA’s then-definition of trade secrets. The Court concluded that defendants’ proposed instructions on reverse engineering and fair-use of “general knowledge” were unnecessary since the jury had already been instructed that individuals can independently develop technology through proper means, and that former employees are free to use non-trade secret information and skills gained through employment.
Finally, the Ninth Circuit noted that the government was not required to prove that DuPont’s technology had been disclosed when DuPont sold one of its TiO2 facilities; it only had to show that DuPont took reasonable measures to guard it—which it had. As such, the sale of DuPont’s Antioch/Ashtabula factory and DuPont’s increased use of contractors had no bearing on whether that material remained protected because the technology used at that factory was different from the relevant trade secret material used at other plants, and the EEA’s then-requirement was that trade secrets not be generally known to “the public,” which is consistent with DuPont’s employment of “secure eyes contractors.” Thus, the Court found that ample evidence supported the conviction.