IP Update, Vol. 12, No. 3, March 2009

Patents / Rules - Patent Rules Given New Life by Federal Circuit

Patents / § 101 / Subject Matter Eligibility - Completing the § 101 Sweep, Court Rejects “Scintilla of Interaction” Test

**WEB ONLY** Patents / Patent-Eligible Subject Matter (§ 101) - Board Continues Sua Sponte Invalidations of Claims Under Bilski

Patents / Inequitable Conduct - Patent Attorneys Granted Leeway to be Advocates During Prosecution

Patents / Written Description / Exceptional Case - Can't Disclose Only a Spike and Claim Spikeless

**WEB ONLY** Patents / Inventorship - Inventorship Requires More than Insignificant Contribution When Measured Against Invention as a Whole

Patents / Hatch-Waxman Act - Federal Circuit Affirms Extension of 30-Month FDA Stay

Patents / Court-Appointed Experts - Court-Appointed Expert Pursuant to Rule 706 Does Not Encumber Parties’ Seventh Amendment Rights

Patents / Declaratory Judgment - Empty Promises

**WEB ONLY** Litigation / Forum Selection Clause - Fifth Circuit Speaks Out Again on Venue Transfers

Patents / Sufficiency of Disclosure - How Sufficient Is the Disclosure of the Claimed Subject Matter?

Trademark / Registration - Determine Fraud on a Class-by-Class Basis

Trademark / Infringement - Geographically Descriptive Marks Cannot Be Trademarked

**WEB ONLY** Trademarks / False Advertising - Dastar and Regional Circuit Case Law Result in Narrow Scope for False Advertising Claims

**WEB ONLY** False Advertising/Res Judicata - Transactional Test Upheld in Res Judicata Analysis

Trade Secrets / Software - Software Compilation Trade Secret Claims Must Be Analyzed Separately from Other Software Trade Secret Claims

Legislative Update/Patent Reform - Lawmakers Renew Battle Over Patent Reform in 2009

Patents / Rules

Patent Rules Given New Life by Federal Circuit
By Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit shocked the patent prosecution community by issuing a decision that is, for the most part, favorable to the U.S. Patent and Trademark Office (USPTO) and the rules it promulgated that have sparked fierce debate within the user community.   Writing for a three-judge panel, Judge Sharon Prost overturned most of the district court’s decision that the August 2007 rules (the Final Rules) exceeded the scope of the USPTO’s rulemaking authority as being substantive, not procedural.  Tafas v. Doll (formerly Tafas v. Dudas), Case No. 08-1352 (Fed. Cir., March 20, 2009) (Prost, J.; Rader, J., dissenting). The dissent by Judge Rader raises the specter of a possible request for an en banc review of this decision. 

The USPTO attempted to implement a series of major rules to limit both the number of continuation applications an applicant could file, as well as the number of claims that could be included in each, unless the applicant under took to essentially self-examine any application that exceeded the claim limit by means of a required examination support document (ESD).

The district court blocked the rules, holding on summary judgment that the Final Rules affected substantive changes to existing law, altered the rights of applicants and were therefore beyond the scope of the USPTO’s rulemaking authority.  The district court struck down rules that purported to limit the permitted number of continuations per application as a matter of right to two.  For any additional continuations, the applicant was required to file a petition showing that the amendment, argument or evidence sought to be entered could not have been submitted during the prosecution of the prior-filed application.  The district court also struck down the rule that purported to limit the number of RCEs (Requests for Continued Examination) to two; again, allowing for additional RCEs if the applicant could demonstrate that the desired amendments or arguments could not have been submitted before the close of prosecution.  Finally, the district court struck the rules that purported to limit the number of independent claims and claims per application to five and 25, respectively, along with the companion rule that allowed for additional claims (i.e., beyond the five-to-25 limit), but only if the applicant supplied an ESD.  The vastly unpopular ESD would require a pre-examination prior art search, a list of the most relevant references, the identification of which claim limitations are disclosed in each reference, an explanation of how each independent claim is patentable over the references and a showing of where in the specification each claim limitation is supported.  The USPTO appealed to the Federal Circuit.

USPTO Rulemaking

At the Federal Circuit, the USPTO argued it was entitled to Chevron deference with regard to the interpretation of 35 U.S.C. § 2(b)(2), the provision that allows the USPTO to establish regulations, as long as a propounded rule was not inconsistent with the law.  The USPTO argued that the substantive/procedural distinction was not relevant to its rulemaking because § 2(b)(2) is silent on whether a rule is substantive or procedural.  On this issue, the Federal Circuit agreed with the district court, holding that § 2(b)(2) does not grant the USPTO substantive rulemaking power, and that, therefore, the substantive/procedural distinction is relevant.  The Court also held that if a rule is procedural, the USPTO is entitled to Chevron deference, i.e., the USPTO’s interpretation of statutes that pertain to its delegated authority is entitled to a degree of deference. 

The Court declined to set forth a definitive rule for distinguishing between a substance and a procedural rule.  However, citing the U.S. Court of Appeals for the D.C. Circuit’s approach in JEM Broadcast, the Court agreed that a rule was procedural if it did not “foreclose effective opportunity to make one’s case on the merits.”  The Court acknowledged that compliance with these rules would not be easy, but noted that was not enough to invalidate the rules.  A rule could pass muster “so long as the effort required is not so great that it effectively forecloses the possibility of compliance.”

Based on this standard, the Federal Circuit found that four of the rules were procedural because, while they “govern the timing of and materials that must be submitted with patent applications,” they “do not, on their face, ‘foreclose effective opportunity’ to present patent applications for examination.”   For these rules, the Court reasoned that the USPTO should be accorded Chevron deference. 

Continuation Practice

In Final Rule 78, the USPTO attempted to limit the number of continuation applications to two.   The Federal Circuit agreed with the district court that the Final Rule 78 was inconsistent with 35 U.S.C. § 120.  Section 120 clearly states the requirements for a continuation application and that an application that meets the requirements “shall have the same effect, as to such invention, as though filed on the date of the prior application.” (emphasis in original)  Since Final Rule 78 attempted to impose additional requirements, the Court found that it conflicted with § 120 and was therefore invalid. 

RCE, Claims, EDS

The Federal Circuit overturned the district court's finding of invalidity of Final Rules 114, 75 and 265, reasoning that these rules do not alter an inventor’s rights under the Patent Act. 

Final Rule 114 limited RCE’s in a manner similar to the way Final Rule 78 limited continuations.   However, since RCE applications are not governed by § 120, the Federal Circuit held this rule was not invalid. 

Final Rules 75 and 265 would require an applicant to either adhere to the five-to-25 rule or provide an ESD.   The Court noted that since the rules imposed no hard limit on the number of claims (which would violate § 112, ¶ 2), Final Rule 75 was not invalid and  Final Rule 265 imposition of an ESD for requirement on an applicant that chose to include more claims was procedural. 

Recognizing the potential for inequitable conduct allegations in litigation of any patent maturing from an application in which an ESD was filed, the court was unsympathetic:   “doubts about the judiciary’s ability to apply its own doctrine in a way that yield fair results and discourages frivolous allegations should not preclude the USPTO from promulgating rules that are within its statutory authority.” 

Remand

In remanding the case back to the district court for further proceedings in connection with Final Rules 75, 114 and 265, the Federal Circuit cautioned that it was not deciding whether the Final Rules are arbitrary or capricious, whether they conflict with the Patent Act in ways not addressed in the opinion, whether the USPTO’s rulemaking might be subject to notice and comment rulemaking rules or whether any of the Final Rules were impermissibly vague or impermissibly retroactive.  Each of these issues presumable remains open on remand.

Dissent

In dissent, Judge Rader would have found the Final Rules to be substantive as they “drastically change existing law and alter an inventor’s rights and obligations under the Patent Act.”   Judge Rader would therefore have held the rules to be beyond the scope of the USPTO’s rulemaking authority. 

Practice Note:   Practitioners will not experience implementation of these rules any time soon.  If the USPTO (and the new administration) decide to continue this rulemaking effort, the district court, on remand, will still have to consider the issues not decided in this appeal.  The USPTO may be satisfied with the principle it won re Chevron deference and simply move on.

Patents / § 101 / Subject Matter Eligibility

Completing the § 101 Sweep, Court Rejects “Scintilla of Interaction” Test
By Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit, finding that the claims in issue were neither tied to a machine nor require transformation of any article into a different state or thing, affirmed the USPTO Board of Patent Appeals and Interferences (the Board) that under Bilski (see IP Update, Vol. 11, No. 11 ) the claims in issue lacked subject-matter eligibility.  In re Ferguson, Case No. 07-1232 (Fed. Cir., March 6, 2009) (Gajarsa, J.; Newman, J. concurring).  In doing so, the Court rejected the applicants’ invitation to introduce a new “scintilla of interaction with the real world” patent eligibility test. 

The application in issue was directed to a marketing paradigm for bring products to market and included both apparatus and “paradigm” claims.   The examiner rejected the claims under §§ 102, 103, but on appeal the Board entered a new rejection under § 101, concluding the claims were not directed to statutory subject matter.  On the applicants’ request for rehearing, the Board, citing to the USPTO’s Interim Guidelines for Examination of Patent Applications for Patent Subject Matter Eligibility (Guidelines) clarified its rejections, noting that the method claims were directed to an “abstract idea”—not patent-eligible subject matter—and that the “paradigm” claims (directed to a pattern, example or model) did not clearly fall within any of the four enumerated categories of statutory subject matter.  The applicants appealed. 

As to the method claims, the Court explained that its recent Bilski decision was dispositive.  Noting that in Bilski the Court “stated that the Supreme Court’s machine-or-transformation test is the definitive test to determine whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself” and that a claim process is patent-eligible under § 101 if “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” 

Citing Nuijten (IP Update, Vol. 10, No. 10 ) for the proposition that “a machine is a concrete thing, consisting of parts, or of certain devices and combination of devices. This ‘includes every mechanical device or combination of mechanical powers and devices to perform some function and produce a certain effect or result,’” the Court quickly concluded that the claimed method (directed to the use of a shared marketing force) was not tied to any particular machine or apparatus. 

The Court also found the method did not transform any article into a different state or thing:  “[a]t best it can be said that Applicants’ methods are directed to organizing business or legal relationships in the structuring of a sales force (or marketing company).  But as this court stated in Bilski, [p]urported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.”

In an important footnote (and in an apparent response to Judge Newman’s concurrence) the panel majority noted that in Bilski, it did not overturn State Street, but only that it’s the “useful, concrete and tangible result test” was “insufficient to determine whether a claim is patent eligible under § 101” and “should no longer be relied on.” 

The Court also summarily rejected the new test urged by the applicants—i.e., “Does the claimed subject matter require that the product or process has more than a scintilla of interaction with the real world in a specific way?”—noting its “clear statement” in Bilski that the “sole,” “definitive,” “applicable,” “governing” and “proper” test  for a process claim under § 101 is the Supreme Court’s machine-or-transformation test. 

Finally the Court rejected the applicants’ assertion that its method claims, like those in issue in State Street, were directed to business methods and should therefore be treated as statutory:  “[i]n State Street, as is often forgotten, we addressed a claim drawn not to a process but to a machine.” (emphasis in original)

With regard to the paradigm claims, the Court analyzed (as in Nuijten) whether the claimed subject matter fit into any of the four statutory categories of eligible subject matter under § 101 and concluded they did not. 

In her concurring opinion Judge Newman echoed her dissent in Bilski, taking issue with the majority’s characterization of the “machine-or-transformation” test as being a Supreme Court articulated test.   Based on her perception that the majority was treating State Street and the Freeman-Walter-Abele line of cases as having been overturned, she also took issue with the majority’s discussion of those cases: “[t]his sweeping rejection of precedent simply enlarges the taint on the thousands of patents that were granted on application of these tests.” 

Perhaps with an eye arched toward the Supreme Court as it considers Bilski’s petition for certiorari, Judge Newman further argues “this case is not the appropriate vehicle for dictum of potentially large consequence.  For example, the court disposes of the Ferguson method on the ground that it is an ‘abstract idea,’ although it is definite and concrete and limited, and not at all abstract.”  Judge Newman would have resolved the Ferguson claims on the same basis as did the USPTO examiner, i.e., § 103.

Practice Note:   With Ferguson now decided, the USPTO is now 4-0 in the “first wave” of § 101 cases, In re Nuijten, In re Comiskey (IP Update, Vol. 10, No. 10 ), In re Bilski and In re Ferguson.  Notwithstanding how the Supreme Court disposes of Bilski’s pending petition for cert, the coming months (and years) are almost sure to bring a second wave of post-Bilski § 101 cases up to the Federal Circuit and with it some granularity to the apparently broad sweep now accorded § 101 in terms of the rather substantial patent eligibility threshold these case represent.  See IP Update Vol. 12, Nos. 1, 2 and 3 for a summary of some recent post-Bilski Board decisions, several of which are likely to percolate up to the Federal Circuit.

**WEB ONLY**
Patents / Patent-Eligible Subject Matter (§ 101)

Board Continues Sua Sponte Invalidations of Claims Under Bilski
By Eric M. Shelton

In a recent decision applying the new “machine-or-transformation test” set forth by the Federal Circuit in In re Bilski (see IP Update, Vol. 11, No. 11), the U.S. Patent and Trademark Office Board of Patent Appeals and Interferences (the BPAI or Board) continued its recent practice of invalidating software- and electronic-related method claims under § 101.  Ex parte Motoyama, Appeal No. 2008-2753 (BPAI, Feb. 27, 2009) (Dang, APJ).

The application at issue claimed, among other things, a “method for a monitoring device to obtain an identifier of a monitored device,” including steps directed to obtaining, accessing, generating and storing identifiers and information.  The applicants appealed to the Board to overcome a rejection for obviousness under § 103.  Although agreeing with the applicants that the obviousness rejection was improper, on its own initiative, the Board raised a new rejection against the method claim as ineligible subject matter under § 101.

Applying the framework set forth in Bilski, the Board first concluded that the claim did not fall within the categories of machine, manufacture or composition of matter of § 101.  Thus, the method claim was subject to the Bilski “machine-or-transformation test” for eligibility under § 101.  Under the first prong of the test, a claim is eligible where it is tied to a particular machine or apparatus.  In this case, although the preamble of the claim recited “a monitoring device,” none of the claimed steps required implementation by any machine.  As noted by the Board, a reasonably broad interpretation of the claims would include software or algorithmic implementations of the claimed steps.

Under the second prong of the test, a claim is eligible if it transforms a physical and tangible article or data representative of such an article.  In this case, the Board found that none of the claimed steps—involving “obtaining,” “accessing,” “generating” and “storing” —performed an eligible transformation.  Having failed both prongs of the Bilski test, the method claim was found to be invalid under § 101.

Practice Note:   In January, the U.S. Patent and Trademark Office (the USPTO) issued a memorandum to its examiners, revising earlier guidelines for examining claims under § 101.  The memorandum explains that the Bilski “machine-or-transformation test” is slightly different from the test previously proposed by the USPTO.  The memorandum also notes that “mere field-of-use limitations” and “insignificant extra-solution activity” will not rescue an otherwise ineligible method.  The letter advised that revised examination guidelines will be “forthcoming.”

Patents / Inequitable Conduct

Patent Attorneys Granted Leeway to be Advocates During Prosecution
By Rita J. Yoon

The U.S. Court of Appeals for the Federal Circuit reversed a jury verdict of inequitable conduct on the ground that “a prosecuting attorney is free to present argument in favor of patentability without fear of committing inequitable conduct.”   Rothman v. Target Corp., Case No. 08-1375 (Fed. Cir., Feb. 13, 2009) (Rader, J.).

Rothman sued Target Corp. and 10 other defendants for patent infringement in the U.S. District Court for the District of New Jersey.   The claimed invention was a tank top with a built-in nursing bra.  Ms. Rothman, the inventor, created a prototype by stitching together two off-the-shelf items, a Jockey tank top and an Olga nursing bra.  While her patent application was pending, Ms. Rothman engaged in licensing negotiations with one of the co-defendants in the case, Leading Lady.  One year later, Leading Lady terminated negotiations by asserting that it developed its own nursing tank top. 

During prosecution of Ms. Rothman’s patent application, the patent attorney did not submit Leading Lady’s competing product as prior art.   In addition, to overcome an obviousness rejection, the patent attorney distinguished prior art references even though he did not have any prior experience in the field of the invention.

At trial, the defendants argued two grounds for inequitable conduct:   the failure to disclose Leading Lady’s nursing tank top and purported misrepresentations based on the patent attorney’s arguments made during patent prosecution.  The jury concluded that Ms. Rothman’s patent was invalid as obvious and unenforceable due to inequitable conduct. 

The Federal Circuit affirmed the jury verdict of obviousness based on substantial evidence that one of ordinary skill in the nursing garment industry would have been motivated to combine a tank top and nursing bra at the time of invention. 

In reversing the jury verdict of inequitable conduct, the Court found that Ms. Rothman’s patent attorney submitted numerous prior art references that were similar to Leading Lady’s nursing tank top.   Therefore, the Court reasoned, Leading Lady’s product was not material because it was cumulative of information already before the examiner. 

Additionally, the Court concluded that while the law prohibits genuine misrepresentations of material fact, in this case, the patent attorney’s interpretation of prior art constituted legitimate attorney argument.   The Court explained that it has “little basis to find deceptive intent in the routine back and forth between examiner and applicant” and that the “boundaries on a patent attorney’s conduct are not so narrow.”  Further, the Court emphasized that “the Patent Act gives the examiner the discretion to reject or accept an applicant’s arguments based on the examiner’s own conclusions regarding the prosecution record.”

Patents / Written Description / Exceptional Case

Can't Disclose Only a Spike and Claim Spikeless
By Paul Devinsky

In a hard-fought case involving early TRO/PI practice, as well as written description defenses, attorneys’ fees and Rule 11 sanctions, the U.S. Court of Appeals for the Federal Circuit affirmed a district court on claim construction, written description invalidity, exceptional case findings and the imposition of Rule 11 sanctions.  ICU Medical, Inc. v. Alaris Medical Systems, Inc., Case No. 08-1077 (Fed. Cir., March 13, 2009) (Moore, J.).

ICU Medical sued Alaris for infringement of four U.S. patents related to valves used in medical intravenous (IV) setups.   After the district court accepted Alaris’s proposed construction of the term “spike,” (requiring pointed and piercing features), it granted partial summary judgment of non-infringement on the so-called “spike” claims.  The district court also granted summary judgment of invalidity for lack of (written description) with respect to so-called “spikeless” claims.  Lastly, the district court awarded attorneys’ fees and Rule 11 sanctions against ICU Medical.  The company appealed. 

The Federal Circuit affirmed the district court’s construction of the claim term “spike” to mean “an elongated structure having a pointed tip for piercing the seal, which tip may be sharp or slightly rounded” noting that “the line between construing terms and importing limitations can be discerned with reasonable certainty and predictability if the court’s focus remains on understanding how a person of ordinary skill in the art would understand the claim terms … after reading the entire patent.”   Here, the Court noted that the specification never suggests that the spike can be anything other than pointed. 

With regard to the so-called “spikeless” claims (claims that do not recite or require a spike) the Federal Circuit affirmed the district court’s holding that the claims were invalid for lack of written description (under § 112, ¶ 1), noting that in order to satisfy the written description requirement, “a patent applicant must convey with reasonable clarity to those skilled in the art that, as of the filing date sought, he or she was in possession of the [claimed] invention.”  (Emphasis in original.)

Here the spikeless claims were not filed with the original application, but were added years later during prosecution.   The Court noted that the spikeless claims recite essentially generic medical valves, i.e., valves that operate without a spike, but that the specification describes only medical valves that operate with a spike.  The Court, after reviewing the figures and description, all of which include spikes, ultimately concluded that a person of skill in the art would not understand the inventor to have invented a spikeless medical valve. 

The Court rejected ICU Medical’s argument that it would have been obvious to a person of ordinary skill to use a pre-slit seal without a spike, noting that “in order to comply with the written description requirement, the applicant must describe the invention, with all its claimed limitations and that here there was no disclosure in the patent specification that describes a spikeless valve with a pre-slit trampoline seal.”

Litigation Misconduct

The Federal Circuit also affirmed the district court’s finding that the case was “exceptional” under § 285 and the award of $4.6 million in attorneys’ fees.   The Court found no clear error in the district court findings that ICU Medical made “multiple, repeated misrepresentations … to the Court regarding its own patents in an effort to conceal what are now characterized as errors in order to rescue the TRO/PI from denial.”  Among ICU Medical’s misrepresentations to the district court were its assertion of claims in one patent that were identical to claims in another of its patents even after Alaris and the district court warned ICU of the double-patenting issue, a misrepresentation of Federal Circuit authority and a representation that certain figures “clearly” disclosed a spikeless embodiment.  The Federal Circuit also agreed that the district court correctly applied the legal standard of Brooks Furniture in finding that ICU Medical had committed litigation misconduct only in connection with a portion of the litigation, noting that ICU Medical had a pre-filing memo that acknowledged that the accused device had no spike element.  The Court therefore affirmed the district court’s exercise of its discretion in awarding attorneys’ fees for that portion of the litigation relating to the TRO/PI, assertion of the “spike” claims and ICU Medical’s proffered construction of the term “spike.” 

Finally, the Federal Circuit affirmed the district court’s determination that ICU Medical’s “frivolous construction and assertion of the ‘spike’ claims in the amended complaint, concurrently justified sanctions under Rule 11.” 

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Patents / Inventorship

Inventorship Requires More than Insignificant Contribution When Measured Against Invention as a Whole
By Judith L. Toffenetti, Ph.D.

The U.S. Court of Appeals for the Federal Circuit recently re-affirmed the law as it pertains to co-inventorship, holding that merely proposing the inclusion of relevant prior art elements in an invention is an insignificant contribution that does not rise to the level of inventive contribution.  Nartron Corporation v. Schukra U.S.A., Inc., Case No. 08-1363 (Fed. Cir., Feb. 5, 2009) (Lourie, J.).

In 1996 Nartron Corporation was hired by Schukra to design a control system to provide existing automobile seats with massage functionality.   Nartron designed the control system and patented the device.  Subsequently, Nartron sued Indak, a supplier of electronic components to Schukra, for contributory infringement of the patent claims directed to a control module for a seat control with an adjustable lumbar support that optionally includes an extender.  Indak moved for summary judgment of dismissal, alleging that an employee of Schukra was a co-inventor who had not been named on the patent and was, therefore, a necessary party to the suit who had not been joined. 

Co-inventorship by the Schukra employee was based on his non-contested suggestion to include an extender for the seat’s lumbar support, although the employee admitted that the use of extenders in lumbar supports for automobile suits was known in the prior art.  The district court granted Indak’s motion for summary judgment of dismissal, holding that the Schukra employee was a co-inventor and, as such, was required to be joined as a party to the infringement suit.  In reaching its decision to dismiss, the district court relied on the employee’s evidence that he had independently designed a lumbar support extender that provided a massage effect, although the specification merely disclosed the basic concept of a lumbar support and extender.

On appeal, Nartron established that the lumbar support and extender cited in the claims were in the prior art, while the invention was the development of the controller that operates on an automobile seat and causes the seat parts to move in a manner to provide a massage.   The Court held that the Schukra employee’s contribution to the invention was insignificant when measured against the full dimension of the invention, because the extender was a part of the prior art relevant to automobile seats and, therefore, its inclusion in the invention amounted to no more than “the basic exercise of ordinary skill in the art.”   

Practice Note:   Nartron stands for the well-established proposition that an inventor must make a significant contribution to the conception or reduction to practice of the claimed invention, and that providing no more than an explanation of concepts that are well known in the current state of the art is not an inventive act. 

Patents / Hatch-Waxman Act

Federal Circuit Affirms Extension of 30-Month FDA Stay
By Kristin Connarn

The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s extension of a 30-month FDA stay.  Eli Lilly and Company v. Teva Pharmaceuticals, Case No. 09-1071 (Fed. Cir., Feb. 24, 2009) (Rader, J.; Prost, J., dissenting).

Under 35 U.S.C. § 271(e)(2), a generic manufacturer infringes a patent by filing an abbreviated new drug application (ANDA) to obtain approval for a generic drug product claimed by a valid and unexpired patent.  As part of the approval process, an ANDA applicant must make a certification addressing each patent listed in the Orange Book that claims the drug.  The patentee then has 45 days to sue the ANDA applicant for patent infringement.  If the patentee files suit, the FDA may not approve the ANDA until expiration of the patent, resolution of the suit or 30 months after the patentee’s receipt of notice, whichever is earliest.  “The court entertaining the suit has discretion under the statute to order a shorter or longer stay if ‘either party to the action fail[s] to reasonably cooperate in expediting the action.’”

Teva Pharmaceuticals (Teva) filed an ANDA and Eli Lilly (Lilly) subsequently sued for patent infringement.  Lilly holds the approved new drug application (NDA) for raloxifene hydrochloride (raloxifene) tablets.  Lilly alleged that Teva’s ANDA infringed four of its 12 listed Orange Book patents for using raloxifene to prevent or treat postmenopausal osteoporosis.

Lilly amended its complaint, asserting Teva infringed three additional patents covering raloxifene particle size and formulation.  Subsequently, Teva amended its ANDA to include a new particle-size measuring methodology for the active pharmaceutical ingredient in its proposed raloxifene tablets and provided Lilly with three batch samples.  Two of the batch samples were provided before the expiration of the discovery deadline; one batch sample and 27,000 pages of related documentation were provided after the deadline.

Lilly moved to extend the statutory 30-month stay due to Teva’s alleged discovery violations, prejudicing Lilly’s trial preparation.   The court granted Lilly’s motion to extend the stay.  The court relied on evidence that Teva altered its proposed raloxifene tablets late in the litigation.  The court extended the stay to allow Lilly a reasonable amount of time to test the altered samples and assess that information in preparation for trial.  The Federal Circuit affirmed the district court’s decision and distinguished the 2002 Andrx decision by focusing on Teva’s lack of cooperation in expediting the patent litigation. 

Patents / Court-Appointed Experts

Court-Appointed Expert Pursuant to Rule 706 Does Not Encumber Parties’ Seventh Amendment Rights

Addressing for the first time the issue of whether Rule 706 appointments of experts burden a party’s Seventh Amendment right to trial by jury, the U.S. Court of Appeals for the Federal Circuit held that court appointments of experts, when administered properly, do not encumber the right to trial by jury.  Monolithic Power Systems, Inc. et al. v. O2 Micro Int'l Ltd., Case Nos. 08-1128, -1136 (Fed. Cir., Mar. 5, 2009) (Rader, J.).

The district court judge appointed an independent expert pursuant to Fed. R. Evid. 706(a) to opine on complex technical issues.  During trial, the jury was instructed that Dr. Santi was “an independent witness retained by the parties jointly at the court’s direction to assist in explaining the technology at issue in this case.”  Dr. Santi’s opinions generally agreed with the case presented by Monolithic Power Systems (MPS), and the jury found that O2 Micro’s asserted claims were invalid and not literally infringed by MPS.  O2 Micro appealed the verdict to the Federal Circuit on the basis that the appointment of Dr. Santi by the district court violated its Seventh Amendment right to a jury trial.

The Court held that the district court’s appointment of Dr. Santi did not amount to an abuse of discretion because Rule 706 appointments, while rare, are authorized by the Federal Rules and clearly fall within the inherent powers of the judge.  Although it noted that the district court believed that Dr. Santi’s opinion would greatly influence the jury, the Court held that the district court “properly administered the standards set by Rule 706.”  In particular, the Court noted that it allowed the parties to show cause why an expert witness should not be appointed, instructed the parties to nominate and confer on an agreeable expert witness, provided detailed instructions to Dr. Santi regarding his duties and ordered him to be available for depositions, ordered the parties to share Dr. Santi’s costs and allowed both parties to call their own experts to attack, support, or supplement Dr. Santi’s opinions.

The Court was somewhat troubled by the disclosure of Dr. Santi’s independent status to the jury, but noted that “district courts enjoy wide latitude to make [Rule 706] appointments.”  Also, the district court instructed the jury that Dr. Santi’s opinions were not to be given any more weight than those of any other witness.  In support, the Court noted that the jury verdict did not entirely agree with Dr. Santi’s opinions.

The Court held that “[u]ltimately, O2 Micro’s arguments that Dr. Santi’s testimony relieved the jury of its tasks are policy arguments against Rule 706” and noted both that Congress entertained and rejected these arguments while drafting Rule 706 and that the Supreme Court has long recognized the constitutionality of court-appointed experts.

Practice Note:   While district court judges rarely appoint independent experts, such an appointment can add considerably to the complexity of a patent litigation.  A practitioner who finds themselves in an unfavorable position (as O2 Micro did in this case) should ensure that the jury is not predisposed to accept the independent expert’s opinions and spend considerable resources addressing the expert’s opinions.

Patents / Declaratory Judgment

Empty Promises
Please contact Paul Devinsky

Finding that a covenant not to sue did not strip the district court of declaratory judgment jurisdiction, the U.S. Court of Appeals for the Federal Circuit reversed and remanded a district court’s dismissal of an action for lack of declaratory judgment jurisdiction.  Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., Case No. 08-1050 (Fed. Cir., Feb. 13, 2009) (Newman, J.) (non-precedential).

In 2003, Revolution sued Aspex for patent infringement.   The patented invention related to magnetically attached auxiliary eyeglasses.  Aspex discontinued selling the allegedly infringing product and filed a counterclaim for non-infringement and invalidity of the patent.  Several years later, Revolution filed a covenant not to sue Aspex for patent infringement, but the covenant only applied to past conduct.  The district court held that the covenant not to sue “forever remove[d] the possibility that Aspex may be sued under the ’913 patent for Aspex products made, used, or sold on or before the filing” and concluded that the covenant was sufficient to remove any actual controversy in the present.  Thus, the court claimed, it no longer had subject matter jurisdiction.  Aspex claimed that an actual controversy continued to exist despite the covenant not to sue because it had the capability and intent to reintroduce the accused product into the marketplace and the covenant only applied to past infringement. 

On appeal, the Court reiterated that MedImmune lowered the bar for declaratory judgment actions by imposing a totality of the circumstances approach for deciding whether there is an actual controversy.  The Court said “[w]hether a covenant not to sue will divest the trial court of jurisdiction depends on what is covered by the covenant.”  The Court then applied the MedImmune test and found that an actual controversy continued to exist because Aspex’s ability to reintroduce the accused product was not speculative.  Thus, the dispute between the parties was definite, concrete, real and substantial because the covenant not to sue did not shield Aspex from liability for future infringement. 

The Court held that by retaining the right to sue for future infringement, Revolution preserved this controversy at a level of “sufficient immediacy and reality to allow Aspex to pursue declaratory judgment relief.”  

Practice Note:   When can a potential infringer sue a patent holder, so as to gain an advantage by choosing a favorable forum?  A mere covenant not to sue will no longer automatically remove jurisdiction from a court.  An actual controversy will continue to exist if a party maintains the right to haul an alleged infringer into court.  Thus, the substance of a covenant not to sue will be determinative. 

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Litigation / Forum Selection Clause

Fifth Circuit Speaks Out Again on Venue Transfers
By Todd Hales

The Fifth Circuit denied a petition for writ of mandamus to direct transfer of a case from the U.S. District Court for the Northern District of Texas to the U.S. District Court for the Northern District of California, notwithstanding a forum selection clause between the parties that designated California.  In re Yahoo! Inc.; Overture Services, Inc., Case No. 09-10098 (5th Cir., Mar. 11, 2009) (per curiam).

American Airlines filed a complaint against Yahoo!, Inc. and Overture Services, Inc. (collectively, Yahoo) in the U.S. District Court for the Northern District of Texas, for trademark, misappropriation and tort violations, alleging that when Yahoo users type various American Airlines’ trademarks into Yahoo’s search engine, a list of paid advertisements from American’s competitors appear as sponsored results on the screen.   Yahoo moved to transfer venue pointing to the forum selection clause that American Airlines and Yahoo had included as part of a contract, termed the Sponsored Search Agreement.  The forum selection clause stated, in part, “[t]he terms of the Agreement and any dispute relating thereto or between you and us shall be governed by the laws of the State of California.  You agree to submit to the exclusive jurisdiction of the state and federal courts located in Los Angeles County or Santa Clara County, California, or another location designated by us.”

The district court, in denying the motion, stated that it was contended that “a jurisdictional statement appearing in a paragraph entitled ‘Choice of Law’ within a boilerplate ‘terms and conditions’ website, incorporated by reference into an advertising contract, mandates an exclusive forum for claims that arise out of a relationship completely separate from, and unrelated to, the relationship created by the advertising contract.”   In a somewhat brusque manner, the district court stated the following:  “The court finds this argument to be completely nonsensical.  The court need not devote further time to explain the various reasons why such argument fails, however, because the plain language of the asserted clause does not apply to claims made by American against Yahoo.”

Calling on its decision In re Volkswagen, the Fifth Circuit reinforced that the court grants mandamus only upon a determination that there has been clear abuse of discretion that produces a patently erroneous result.  The Fifth Circuit, in denying the petition for a writ of mandamus, stated, “We cannot fault the finding by the district court that the forum selection clause does not apply to the type of claims asserted by American,” and that “[t]he claims [of this case] do not depend on the contractual relationship between American and Yahoo, do not require interpretation of the sponsored Search Agreement contract, and involve different operative facts than would exist if American brought a breach of contract claim against Yahoo under the Sponsored Search Agreement.”

Patents / Sufficiency of Disclosure

How Sufficient Is the Disclosure of the Claimed Subject Matter?
Contact Paul Devinsky

The UK House of Lords has now handed down a judgment further explaining its 1997 decision in Biogen v. Medeva in a way that significantly limits the scope of Biogen and provides clarity as to the way in which inventions, particularly in the field of biotechnology, are best claimed in the United Kingdom and Europe.  Generics (UK) v. Lundbeck [2009] UKHL 12 (Feb. 25, 2009).

The Generics case concerned Lundbeck’s patent for the product escitalopram.  Escitalopram is a successor to the product citalopram and is used as an antidepressant.  Citalopram is a racemate consisting to two enantiomers.  Enantiomers are pairs of molecules that have the same chemical formula and the same three dimensional structure but one is the mirror image of the other; they are conventionally distinguished by the prefix (+) or (-). 

What was not known prior to the teaching of the patent in issue in the present case was how to separate the (+) and (-) enantiomers of citalopram and, therefore, their respective contributions to the antidepressant quality of citalopram.   Lundbeck devised a method of separating the (+) and (-) enantiomers and discovered that it is the (+) enantiomer that has the desired antidepressant effect, and that the (-) enantiomer has, if anything, an inhibiting effect. A much more effective antidepressant is, therefore, achieved by isolating and marketing the (+) enantiomer of citalopram.  Lundbeck filed for a patent claiming the (+) enantiomer (escitalopram) on its own.

It was this point that the decision in Biogen kicked in.  The Court of First Instance accepted that the (+) enantiomer on its own was a novel entity since previously it had only existed in combination with its “twin.”  However the court also held that, as of the priority date, the separation of the enantiomers was “a known desideratum” and obvious.  The court further determined that Lundbeck’s contribution to the art was to discover one way of achieving the separation, but at the same time there could well be other ways.  On that basis the court ruled that a claim to the (+) enantiomer per se fell afoul of § 14(3) of the UK law that provides that “the specification … shall disclose the invention in a manner which is clear enough and complete enough for the invention to be performed by the person skilled in the art.”  Previous cases determined that this provision should be read in conjunction with § 14(5)(c), which provides that the claims or claims should be “supported by the description.”  Thus, the court reasoned, the claims (at issue in Biogen) were not supported by the description since they sought to monopolize a molecule that was a known desideratum in a situation in which the patentee had only disclosed one way of making that molecule and there could be other ways of making it which owed nothing to the teaching of the patent.  Put another way, the court held that the technical contribution (i.e., the discovery of one way of making the molecule) did not justify the breadth of the monopoly claimed.  While the patentee might be entitled to a patent for its initiative process, it was not entitled to claim the product itself, which was known.

What emerged from the appeal is an understanding that, for the past 12 years patent practitioners in the UK had taken a completely erroneous view of the scope of Biogen.   As explained by Lord Hoffmann in the initial level of appeal (the Court of Appeal) and now confirmed by the House of Lords, Biogen was explicable by its particular facts.  Of crucial importance was that in Biogen the claims in issue were product by process claims.  In Biogen, the inventor had simply taken large strands of the Dane particle DNA, put them into a standard recombinant plasmid, transfected a prokaryotic cell and caused that cell to express the genes of the hepatitis B antigens.  He had not sequenced the DNA.  However the claims sought by Biogen would monopolize the molecule made by any process of recombinant technology.  Thus, the House of Lords found the patent to be insufficient in that the specification did not provide support for whole breadth of the claims.

By contrast, the Lundbeck patent claimed only the product per se. The judges ruled that the disclosed product’s novelty was Lundbeck’s contribution to the art.   Once a patentee had disclosed a new product and one way in which it can be made, he was entitled to claim that product per se, even if there were other ways by which the product could be made.  Accordingly, the allegation of insufficiency was rejected.  The crucial distinction was between a product by process claim on the one hand (where a patentee would be limited to claims for products made by that process) and product claims per se (where all the patentee had to do was to show one way of making a novel product and he was then entitled to a monopoly for that product).

Practice Note:   At least in the UK, patentees should, so far as possible, avoid framing their inventions as product by process claims and, whenever possible, strive to disclose a novel product, how it can be made and then claim the product per se.  

Trademark / Registration

Determine Fraud on a Class-by-Class Basis
Contact Paul Devinsky

Addressing a contentious area of trademark law, the Trademark Trial and Appeal Board (TTAB), in a recent precedential decision, held that “each class of goods and/or services in a multiple class registration must be considered separately when reviewing the issue of fraud, and judgment on the ground of fraud as to one class does not in itself require cancellation of all classes in a registration.”   G&W Labs., Inc. v. G.W. Pharma Ltd., Opposition No. 91169571 (TTAB, Jan. 29, 2009) (Hairston, Holtzman, Mermelstein, ALJs). 

The opposer, G&W Laboratories, Inc. (Labs), owned two trademark registrations for the mark G&W.   Both registrations were multiple class registrations for goods in Class 5 and services in Class 35.  Labs opposed the application for registration by G.W. Pharma Ltd. (Pharma) of the mark GW PHARMACEUTICALS (and design) on the grounds of priority and likelihood of confusion.  Following commencement of the opposition proceeding, applicant Pharma counterclaimed to cancel Labs’ registrations on the basis of fraud.

In April 2008, Labs filed a Section 8 Declaration of Continued Use with respect to the registrations at issue, wherein it deleted Class 35 from the registrations.   In May 2008, Labs filed a motion to dismiss Pharma’s counterclaims against Class 35 as moot and to dismiss the counterclaims against Class 5 for failure to state a claim.  Labs argued that deletion of the Class 35 services from its registrations rendered Pharma’s counterclaims moot.  In opposition, Pharma argued that deletion of a class during maintenance of a registration will not cure fraud and, moreover, that if fraud is shown as to one class of a multiple class registration, then the registration in its entirety must be cancelled.

The TTAB denied Labs’ motion to dismiss the counterclaims as moot, stating that it is settled that “fraud cannot be cured merely by deleting from the registration those goods or services on which the mark was not used at the time of the signing of a use-based application or a Section 8 affidavit.”   With respect to Lab’s motion regarding the Class 5 counterclaims, the TTAB acknowledged that the line of cases since Medinol had only involved single class applications or registrations; thus, the TTAB had not had the occasion to consider whether fraud in less than all classes of a multiple class registration subjects the entire registration to cancellation for fraud.  Because a multiple-class application can be viewed as a series of applications for registration of a mark that have been combined into one application, the “filer of such an application is in the same position it would be had it filed several single-class applications instead.” The TTAB therefore granted Labs’ motion to dismiss Pharma’s Class 5 counterclaims, holding that each class in a multiple class registration must be viewed separately for fraud and a finding of fraud against one class will not subject an entire multiple class registration to cancellation. 

Trademark / Infringement

Geographically Descriptive Marks Cannot Be Trademarked
By Jeremy T. Elman

Addressing the validity of a trademark for the geographically descriptive term OBX, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s ruling that the mark OBX was not a valid trademark because it was either generic or descriptive without secondary meaning.  OBX-Stock, Inc. v. Bicast, Inc., 2009 U.S. App. LEXIS 3941 (4th Cir., Feb. 27, 2009) (Niemeyer, J.).

The plaintiff invented the term OBX in connection with the Outer Banks of North Carolina, a popular vacation area.   The plaintiff began using the letters OBX on oval stickers for automobiles to indicate that the automobile was from or had visited the Outer Banks. The letters were also attached to souvenirs and other sundries to indicate that they were sold at the Outer Banks.  The plaintiff’s business was successful, with annual revenue in 2004 of more than $1 million.  After several unsuccessful attempts at trademarking OBX because it generically referred to a geographic area, the plaintiff obtained four trademarks in connection with several classes of products and services, including stickers, sports clothing, tourist sundries, bottled drinking water, entertainment services, ethnic festivals and sporting events.  The defendant later began selling stickers with the text "OB Xtreme, prompting the plaintiff to file this action for trademark infringement. 

The district court found overwhelming evidence that the OBX trademarks were either generic or descriptive without secondary meaning, but refused to cancel the trademarks under 35 U.S.C. §1119.  The Fourth Circuit affirmed that the OBX mark was not a trademark because plaintiff never intended that OBX become associated with a product as its brand or source. Rather, the plaintiff admitted that it intended solely that OBX become associated with and descriptive of a geographical location, the Outer Banks.  The plaintiff had used the stickers to denote an association with a location, not to establish a brand or source.

The defendant argued that there was a presumption of validity associated with the four trademarks granted by the U.S. Patent and Trademark Office (USPTO), but the court held that entry on the Principal Register does not shift the burden of persuasion on validity, merely the burden of production.  The court also held that the USPTO’s grudging issuance of the trademarks (after intervention from North Carolina’s congressional delegation), further weighed against the presumption of validity.  The court analogized to patent law to conclude that the USPTO’s repeated rejections were relevant to the validity of the trademarks.

The Fourth Circuit therefore concluded that the district court did not err in concluding that OBX is a geographically descriptive abbreviation that has no secondary meaning and therefore is not a valid trademark.

Practice Note:   Companies seeking to trademark geographically descriptive mark must associate the mark with a source or brand and not simply with a geographic region. 

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Trademarks / False Advertising

Dastar and Regional Circuit Case Law Result in Narrow Scope for False Advertising Claims
Please contact Paul Devinsky

In a suit involving the marketing of high-end basketballs, the U.S. Court of Appeals for the Federal Circuit narrowly construed the scope of false advertising claims allowed under § 43(a) of the Lanham Act, which the Court reiterated does not codify the entirety of unfair competition law.  Baden Sports, Inc. v. Molten USA, Inc., et al., Case Nos. 2008-1216, -1246 (Fed. Cir., Feb. 13, 2009) (Lourie, J.).

Basketball manufacturer Baden sued competitor Molten for patent infringement and false advertising in the U.S District Court for the Western District of Washington.  Baden’s basketballs embody its patented technology, which is marketed as containing “cushion control technology.”  Molten advertised its new products as containing “dual cushion technology.”  Several months after the complaint was filed, Molten stopped importing the basketballs.

On summary judgment, the court granted Baden’s infringement motion and denied Molten’s invalidity motion.  Also on summary judgment, the court, relying on the 2003 Supreme Court decision in Dastar Corp. v. Twentieth Century Fox Film Corp., dismissed those false advertising claims regarding Molten’s use of the terms “proprietary” and “exclusive.”  However, the court allowed the false advertising claim based on the term “innovative” to proceed to trial.  The jury awarded Baden more than $8 million.  After the district court denied Molten’s  motions for a new trial and judgment as a matter of law, Molten appealed.

The Federal Circuit’s appellate jurisdiction was based on Baden’s cross-appeal of the district court’s denial of a modified injunction regarding the patent infringement judgment against Molten.  Therefore the Federal Circuit applied regional circuit law for the non-patent claims.

The Federal Circuit began its analysis with § 43(a)(1)(A) of the Lanham Act, which provides an actionable claim for commercial misrepresentation that is likely to cause confusion “as to the origin” of goods.  In Dastar, the Supreme Court explained that term “origin of goods” means the “producer of tangible goods that are offered for sale,” rather than the author of any idea.  Thus, the Federal Circuit evaluated whether Molten’s advertising refers who manufactured the basketballs in issue.  Because Molten’s advertising did not misrepresent the manufacturer of the balls, the court rejected Baden’s § 43(a)(1)(A) claims.

Next, the Federal Circuit considered Baden’s argument based on § 43(a)(1)(B), which creates liability for any commercial advertising that “misrepresents the nature, characteristics, qualities, or geographic origin” of goods.  While acknowledging that Molten’s use of the term “innovative” may cause confusion regarding the authorship status of the basketball technology, relying on the Ninth Circuit’s 2008 decision Sybersound Record  v. UAV   held that section 43(a)(1)(B) of the Lanham Act does not refer to the licensing status of a good.  Consequently, the Court also rejected this claim.

Practice Note:   Citing cases from the First and Second Circuits, the Federal Circuit noted that the outcome of its § 43(a)(1)(B) holding may have been different under the laws of the other circuits.  Thus, this case illustrates why—before filing suit—plaintiffs must carefully analyze regional circuit case law.

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False Advertising/Res Judicata

Transactional Test Upheld in Res Judicata Analysis
By Elisabeth Malis

The U.S. Court of Appeals for the Fifth Circuit recently affirmed the U.S. District Court for the Eastern District of Louisiana’s holding that a plaintiff’s false advertising claims were barred by res judicata because they arose from the same series of transactions as a prior action that was dismissed with prejudice.  Oreck Direct, LLC v. Dyson Inc., Case No. 08-30804 (5th Cir., Feb. 23, 2009) (Haynes, J).

Oreck and Dyson are direct competitors in the vacuum cleaner industry.  In 2005, Oreck filed a false advertising claim under Lanham Act §43(a) and the Louisiana Unfair Trade Practices Act (LUPTA), alleging that Dyson falsely advertised features of its vacuums.  Oreck did not limit its allegations to specific models of vacuums.  Oreck and Dyson settled the claim, and the district court dismissed the suit (Oreck I) with prejudice.  In its dismissal, the court did not incorporate by reference the parties’ binding term sheet executed prior to the dismissal, and the formal settlement agreement was negotiated and executed subsequent to dismissal.

Oreck filed a second action in 2007, alleging false advertising claims against Dyson with respect to the DC18 vacuum model, in violation of Lanham Act §43(a) and LUPTA.  The U.S. District Court for the Eastern District of Louisiana granted Dyson’s motion for summary judgment based on res judicata, holding that Oreck’s claims arose out of the same series of transactions that were at issue in Oreck I.

The sole issue on appeal was whether the second action was comprised of the “same claims or causes of action” as those in Oreck I.  The Fifth Circuit upheld the district court’s use of the “transactional test,” which requires the two actions be based on a common nucleus of operative fact.  The Court rejected Oreck’s argument that the district court should have considered the parties’ subjective intent as reflected in their settlement agreement, because the settlement agreement was finalized after Oreck I’s dismissal and the settlement agreement broadly released Dyson from “all advertising and patent claims arising out of, and related to” Oreck I.

Because Oreck alleged the same Lanham Act and LUPTA claims in both actions and the claims in Oreck I were not limited to a particular Dyson model, the false advertising allegations with respect to the DC18 “could have been” alleged in Oreck I.  On this basis, the Fifth Circuit affirmed the district court’s holding that Oreck’s false advertising claims concerning the DC18 arose from the same set of transactions as those alleged in Oreck I and were therefore barred by res judicata.

Trade Secrets / Software

Software Compilation Trade Secret Claims Must Be Analyzed Separately from Other Software Trade Secret Claims
By Rita W. Siamas

Reviving a significant trade secret misappropriation claim brought by a software company against a company started by its former employees, the U.S. Court of Appeals for the Fourth Circuit held that an alleged trade secret claim based on an entire software compilation must be analyzed separately from other software trade secret claims.   Decision Insights, Inc. v. Sentia Group, Inc., 2009 U.S. App. LEXIS 2654 (4th Cir., Feb. 12, 2009) (Williams, J.; Wilkinson, J.; Voorhees, J). 

The plaintiff, Decision Insights (DI), developed a software tool called “Dynamic Expected Utility Model,” which is used to prepare negotiating strategies.   Many years later, three of the plaintiff’s employees who had developed the software left to form a new company, Sentia Group (Sentia).  Sentia proceeded to develop its own software application to perform the same essential functions and analysis as DI’s software.  DI filed suit against Sentia in the U.S. District Court for the Eastern District of Virginia, alleging breach of contract and misappropriation of trade secrets. 

DI asserted trade secret misappropriation claims based upon its software as a total compilation, as well as 12 specific functions within the software’s code.   During discovery, defendant Sentia sought sanctions against DI multiple times, alleging that DI’s discovery responses did not sufficiently identify its asserted trade secrets.  In its interrogatory responses, DI identified the 12 processes alleged to be trade secrets and provided the corresponding lines of source code for each.  DI also identified the entire source code of the software program, as a compilation, as a trade secret.  Later DI also provided an expert report identifying and explaining each of the 12 alleged proprietary processes and explaining how its code operated as a whole.  Ultimately, however, the district court determined that the plaintiff’s identification was deficient and imposed monetary sanctions of more than $13,000 against it.  Sentia then moved for summary judgment, which the court granted.  Concerning the trade secret claims, the court found that DI failed to meet its burden as to demonstrating the existence of a trade secret because it did not sufficiently identify its alleged trade secrets.  DI appealed. 

DI contended that the district court erred by finding as a matter of law that it failed to identify any trade secrets relating to its software because the court did not consider DI’s trade secret claim based on the software as a total compilation separately from its trade secret claims based upon the 12 specific functions within the code.   DI also challenged the imposition of monetary sanctions.  In reversing the district court, the Fourth Circuit held that DI’s alleged software compilation trade secret should be analyzed separate and apart from its other software trade-secret claims.  Because the district court did not consider whether DI’s entire software might qualify for trade secret protection under the Virginia Uniform Trade Secrets Act, the Fourth  Circuit remanded the trade secret misappropriation claim based upon its software compilation for independent consideration.  In doing so, the Fourth  Circuit indicated that DI had provided sufficient identification of its alleged compilation trade secret to Sentia by providing the source code, as well as a flow chart and expert report explaining the software program as a whole.  The Fourth Circuit affirmed the district court’s grant of summary judgment on DI’s claims based upon the 12 processes, agreeing that the information DI provided for those was presented, “in such a way to prohibit meaningful analysis by [Sentia], the court, or a jury.” 

Finally, the Fourth Circuit vacated the sanctions imposed against DI as inappropriate.   Although the Fourth Circuit agreed that DI failed to adequately identify the 12 processes it contended were trade secrets, it also found that a genuine dispute existed concerning the method for identifying the alleged trade secrets.  The court also found that DI had reasonable cause to believe its production was sufficient in light of precedent recognizing that production of source code is an acceptable method of identifying an alleged software compilation trade secret. 

Legislative Update/Patent Reform 

Lawmakers Renew Battle Over Patent Reform in 2009
By Paul Devinsky and Rita W. Siamas

After unsuccessful efforts to enact significant patent reform legislation in the last session of Congress, legislators renewed their patent reform efforts on March 3, 2009 by introducing the Patent Reform Act of 2009 in both the House and Senate.   The identical bills are co-sponsored in the Senate by Patrick Leahy (D-Vt.) and Orrin Hatch (R-Utah), and in the House of Representatives (H. R. 1260) by John Conyers, Jr. (D-Mich.) and Lamar Smith (R-Texas).  The 2009 bills are to similar to the bipartisan legislation introduced in 2008 that was passed in the House (H.R. 1908), but which did not proceed past the Senate Judiciary Committee (S. 1145). 

The 2009 bill retains major components from the 2008 version and adds new provisions based on legislative compromises made last year.   Significant holdover provisions of the 2009 bill include the following:

• Change to a “first-inventor-to-file” system from current “first-to-invent” system and elimination of the one-year grace period.   This provision, which harmonizes the United States with rest of the world, encourages early filing of patent applications and tends to favor corporate inventors over solos.
• Allowing third parties to submit prior art in pending application.   Third parties would be entitled to submit relevant information together with a statement of relevance within six months of publication of the application or before a first office action on the merits.
• Codifying and clarifying the “reasonable royalty” standard in calculating damages. The proposed provision would provide for calculation of a reasonable royalty based on the price of licensing a similar non-infringing substitute in the relevant market.
• Apportionment of damages based on an invention’s “specific contribution over the prior art.” (This is perhaps the most controversial provision in the bill and one that was opposed by Senator Arlen Specter (R-Pa.) in the prior bill and the one Senator Specter still characterizes as “controversial.”)
• Codifying the Seagate standard for willful infringement and limiting treble damage awards to situations where an adjudicated infringer recklessly continued to infringe after receiving specific written notice of the alleged infringement and proceeding without advice of counsel.
• Imposing stricter venue requirements for patent actions, limiting plaintiff’s choice of venue to the location of the defendant’s principal place of business, place of incorporation, or place where defendant has committed substantial acts of infringement and has a regular and established physical facility that the defendant controls and that constitutes a substantial portion of the operations of the defendant.
• Permitting evidence of prior public use or on sale as additional grounds for re-examination, i.e., in addition to printed publication prior art.
• Providing an additional post-grant review in the form of a cancellation proceeding.   According to the provision in the bill, a petition for cancellation, based on any ground of invalidity, may be filed within 12 months of patent issuance.  Cancellation proceedings would be conducted by an administrative patent judge (APJ).
• Providing the Federal Circuit jurisdiction over interlocutory claim construction appeals if certified by the district court judge.
• Relaxing the current requirement of submitting a signed inventor declaration by allowing a company to file an application on the inventor’s behalf when an obligation to assign exists.   

While many controversial provisions from the 2008 legislation remain, such as those concerning apportionment of damages, significant deletions from the prior bill include the following:

• Deletion of requirement that all applications are published automatically at 18 months. (This was a concession to small inventors who are less likely to see protection overseas and who did not want to see their applications published, only to be practiced overseas.)
• Deletion of all inequitable conduct provisions (an issue that Sen. Leahy indicates remains under consideration).
• Deletion of “second window” post-grant review procedure and adoption of approach to improve current inter partes re-examination process.
• Deletion of “Applicant Quality Submission” provision that would have required mandatory submissions by patent applicants of prior art and other materials relevant to patentability.
• Deletion of provision that would have granted the U.S. Patent and Trademark Office (USPTO) substantive rule-making authority.
• Deletion of provision providing immunity for infringement of electronic check processing patents. 

While Senator Leahy stated that 2009 is “the year in which bipartisan patent reform should be enacted” and that he hopes the 2009 bill will be the “final round” of patent reform efforts, the controversial provisions of the bill, most significantly the changes to calculation of patent damages, have provoked heated debate as they did in 2008. 

In fact, in a hearing conducted on March 10, most of the testimony centered on the damages apportionment issue (a legislative attempt to limit a patent holder’s recovery to the real economic worth of the invention by limiting the so-called entire market rule to specific situations) with high technology companies in favor of apportionment (which tends to reduce damage awards) and the pharmaceutical industry (which relies on the possibility of large damage awards to maintain market share for pioneer drugs) opposed.

The last major overhaul of the U.S. patent laws was in 1956.