Patents / Claim Construction
The "Totality of the Specification" Can Override a District Court's Factual Findings
K. Nicole Clouse, PhD
Giving little deference to the district court’s factual findings, the U.S. Court of Appeals for the Federal Circuit reversed a district court’s claim construction in a long-running dispute relating to a patent for labeled and detectable nucleic acids. Enzo Biochem Inc. v. Applera Corp., Case No. 14-1321 (Fed. Cir., Mar. 16, 2015) (Prost, C.J.) (Newman, J., dissenting).
The claim at issue generally relates to nucleic acids having a certain structure, including chemical group A, “wherein A comprises at least three carbon atoms and represents at least one component of a signaling moiety capable of producing a detectable signal.” The district court construed this phrase such that “A” can form a detectable signaling moiety either all on its own, without being attached to any additional, separate components (“direct detection”), or by attachment of “A” to a separate, detectable moiety to form the claimed signaling moiety (“indirect detection”). On appeal, the Federal Circuit limited the construction of this phrase to cover only indirect detection.
The Federal Circuit explained that the plain meaning of the term “component” necessarily implies that the claimed signaling moiety must contain multiple parts, “as the term ‘component’ in and of itself indicates a multipart system.” The Federal Circuit reasoned that allowing the signaling moiety to contain only moiety “A” would read the word “component” out of the claim. Moreover, according to the Federal Circuit, because the claims also require that “A” be attached via a linker that “does not substantially interfere with formation of the signaling moiety,” allowing the signaling moiety to contain only moiety “A” would read the word “formation” out of the claim.
The Federal Circuit also rejected the district court’s claim differentiation argument – that the independent claim must encompass both indirect and direct detection because certain dependencies specified only direct detection. In doing so, the Federal Circuit explained that claim differentiation cannot be used to broaden an independent claim beyond its proper scope, which in this case, was limited to indirect detection based on the plain meaning of the claim.
Finally, the Federal Circuit noted that the specification consistently describes “A” as being a multipart system, and the only discussion of direct detection in the specification that direct detection is inferior to indirect detection. Although the Federal Circuit acknowledged certain expert testimony showing that the specification actually did include one example of direct detection (a finding reviewed for clear error under the new Teva standard), the Federal Circuit concluded that “this sole factual finding does not override our analysis of the totality of the specification, which clearly indicates that the purpose of this invention was directed toward indirect detection, not direct detection.”
In her dissent, Judge Newman identified additional factual findings by the district court (which were not addressed by the majority), including that Applera’s expert admitted on cross-examination that the specification discloses several compounds that allow for direct detection. According to Judge Newman, the majority did not identify any clear error with respect to any of the district court’s factual findings. Instead, they “simply rule[d]” that the grammar of the claims requires that the signaling moiety requires two components, and “ignor[ed] the testimony and the district court’s findings and the jury verdict based on the evidence at trial.”
Practice Note: Even in cases where the Federal Circuit applies a “clear error” standard to a district court’s factual findings based on extrinsic evidence, the intrinsic evidence may outweigh the extrinsic evidence, regardless of the correctness of those factual findings.
Patents / Claim Construction / Indefiniteness
"A Hole" Can Refer to Multiple Holes
Addressing indefiniteness in a post-Nautilus world, the U.S. Court of Appeals for the Federal Circuit concluded that the claim limitation “a contact hole” could refer to multiple, separate contact holes and was not indefinite under the “reasonable certainty” standard at Nautilus. Eidos Display, LLC v. AU Optronics Corp., Case No. 2014-1254 (Fed. Cir., Mar., 10, 2015) (Chen, C.J.).
Eidos accused various electronic display manufacturers (the display manufacturers) of infringing its patent directed to manufacturing an electro-optical device, such as a liquid crystal display (LCD). After the Markman phase, the district court granted the display manufacturers’ motion for summary judgment that the claim limitation “a contact hole for source wiring and gate wiring connection terminals” was indefinite. Eidos argued that this “contact hole” limitation required multiple holes. In contrast, the display manufacturers argued that a plain reading required one shared hole. The district court decided that a person of ordinary skill in the art could not determine whether this claim limitation required only one or multiple contact holes and was therefore indefinite. Eidos appealed.
In reversing the district court and finding that the “contact hole” limitation was not indefinite, the Federal Circuit offered an analogy. The limitation was similar to the sentence “I am going to create an electric car for the United States and the United Kingdom.” People knowledgeable about cars would likely interpret this sentence to mean that at least two cars would be created, the U.S. car having its steering wheel on the left, and the U.K. car having its steering wheel on the right. Similarly, a person having ordinary skill in the art would interpret “a contact hole for source wiring and gate wiring connection terminals” to describe at least two separate holes, one contact hole for source wiring connection terminals, and one contact hole for gate wiring connection terminals.
The Federal Circuit found the analogy apt for two reasons. First, it was well known that the standard procedure in LCD manufacturing was to create multiple, separate contact holes. According to the Federal Circuit, “[i]f the patentee wanted to deviate from the standard practice and claim a novel shared contact hole, some teaching of how to depart from the common practice would not only be expected, but is required” for purpose of satisfying the written description requirement. Here, nothing in the specification taught one of ordinary skill in the art how to deviate from the standard “multi-hole” procedure.
Second, the “multiple hole” interpretation found support in the specification and file history. Specifically, during prosecution of the parent application, the claims of the parent application were subject to a restriction requirement. There is no dispute in the record that claims directed to certain unelected embodiments contained the same “a contact hole” limitation, but covered embodiments with multiple holes. The Federal Circuit saw no need to ascribe two different meanings to the same limitation in the patent family, explaining that “claim terms are normally used consistently throughout the patent.”
The display manufacturers also argued that reading the subject limitation in a way that covers multiple holes would amount to an impermissible rewriting of the claims. But the Federal Circuit disagreed, explaining that it was simply interpreting what was originally written. The “contact hole” limitation was not indefinite because one having ordinary skill in the art would understand “with reasonable certainty” that the limitation could cover multiple holes.
Deferential Review for District Court Obviousness Determination
Addressing the issue of obviousness, the U.S. Court of Appeals for the Federal Circuit adopted a deferential review stance toward the district court’s characterization of several prior art references and ultimately upheld its judgment that the asserted claims were obvious. Senju Pharm. Co. v. Lupin Ltd., Case No. 13-1630 (Fed. Cir., Mar. 20, 2015) (Plager, J.) (Newman, J., dissenting).
The claim at issue in Senju was drawn to a method of increasing corneal permeability to an ophthalmic antibiotic by using disodium edetate (EDTA) at a very low concentration and at a pH lower than that used in the cited prior art. EDTA is a commonplace excipient in ophthalmic solutions, and at high concentrations EDTA is known to increase corneal permeability to help medicine in eye-drops reach the interior of the eye. At the district court, the parties’ experts disputed whether several prior art references created an expectation of success or, to the contrary, taught away from using the claimed low concentrations of EDTA. The experts also disagreed over whether the results achieved by Senju with its low-concentration formula were unexpected or consistent with the prior art. Ultimately, the district court credited Lupin’s expert over Senju’s and found that the patents were obvious as the prior art created an expectation of success with the low concentration and that the results achieved were consistent with the prior art.
At the Federal Circuit, the majority and dissent both reviewed the teachings of the various prior art references and reached opposite conclusions. The majority, casting its decision as deference to the district court’s credibility determination as between the parties’ experts, upheld the judgment.
Judge Newman (who has a background in chemistry), in dissent, re-analyzed obviousness de novo. She re-examined the prior art references, measured the consistency of the experts’ arguments with those references, and concluded that the disputed claim was not obvious based on what she viewed as a teaching away by the prior art and significant unexpected results at the claimed concentration.
Practice Note: Practitioners who seek a review of a district court’s fact findings are advised to clearly highlight the alleged clear error(s) and forthrightly request a review of fact finding based on the clear-error standard.
Patents / Claim Construction / Obviousness
A Combination Is Not Obvious If It Is Beyond the Level of Ordinary Skill in the Art, and Other Lessons
Addressing issues of obviousness and claim construction, the U.S. Court of Appeals for the Federal Circuit provided several important lessons in significantly modifying the district court judgment. MobileMedia Ideas LLC v. Apple Inc., Case Nos. 14-1060; 14-1091 (Fed. Cir., Mar. 17, 2015) (Chen, J.).
Plaintiff MobileMedia is a patent assertion entity formed by MPEG LA, Nokia and Sony Corporation of America. In 2012, MobileMedia filed a lawsuit against Apple asserting infringement of 16 patents by various Apple products. Prior to trial MobileMedia pared the case down to four patents. The district court ultimately entered judgment that Apple infringed the asserted claims of two of the four patents and that those claims were valid. The district court also concluded that the asserted claims of another patent were invalid and not infringed, and that Apple did not infringe any claim of the fourth patent. Apple appealed the validity and infringement determinations, while MobileMedia cross-appealed the invalidity and non-infringement determinations.
The Federal Circuit reversed the district court’s infringement finding with respect to one of the two patents but affirmed that this patent was not invalid and reversed the validity determination with respect to the other of the patents found to have been infringed.
Apple’s invalidity arguments were based on a theory of obviousness. For the patents found to have been infringed, MobileMedia did not dispute that the prior art contained all of the claimed features, but argued that one of ordinary skill in the art would not have been motivated to combine the references in the manner proposed by Apple. In affirming the validity of that patent, the Federal Circuit explained that “even when a technique has been used to improve a device, and a skilled artisan would recognize that it could improve other devices in the same way, using that technique may not be obvious if its actual application is beyond his or her level of skill.” Focusing on the trial record, the Federal Circuit found substantial evidence to support a conclusion that combining the prior art in the way that satisfied the explicit language of the claims would be beyond the ordinary level of skill, a level agreed to by both parties. For two of the asserted patents, however, the Federal Circuit did not find the necessary evidentiary support in the record to avoid a finding of obviousness, characterized Mobile Media’s rebuttal evidence as “conclusory” and thus concluded the patents were invalid as obvious.
The Federal Circuit also addressed the district court’s infringement conclusions in the context of claim construction and in particular the construction of certain means-plus-function claim terms. The Federal Circuit applied a de novo standard for purposes of its claim construction review because the parties cited only intrinsic evidence when presenting their claim construction arguments. In reversing the district court, the Federal Circuit focused on the explicit language of the specification. For one of the patents, MobileMedia argued that the claim should receive a broad construction, because the specification did not expressly limit the disputed structure to one specific function. The Federal Circuit was not persuaded, explaining that “[t]he scope of a means-plus-function limitation is outlined not by what the specification and prosecution history do not say, but rather by what they do say.” In this case, MobileMedia did not establish a “clear link or association between the function or functions recited in the means-plus-function limitation and the structure or structures disclosed in the specification for carrying out those functions.”
For another of the patents, similar logic applied to the Court’s claim construction. There, the specification expressly described a structure that could perform two alternative functions. Although those functions were expressly described as alternatives, the Court adopted a sufficiently broad construction to allow for both functions, finding that any other construction would improperly exclude an embodiment of the invention from the scope of the claim. The Federal Circuit explained that the mere possibility of creating a system where the two functions were mutually exclusive was not sufficient to justify imposing a narrow construction.
Patents / Anticipation / Obviousness
Anticipation Found Even Where the Prior Art Did Not Disclose Limitations Arranged the Same Way as in the Claim *Web Only*
Applying the substantial evidence standard to support an invalidity determination by the Patent Trial and Appeal Board (PTAB or Board), the U.S. Court of Appeals for the Federal Circuit affirmed the PTAB’s decision with respect to both anticipation and obviousness. Kennametal, Inc. v. Ingersoll Cutting Tool Co., Case No. 14-1350 (Fed. Cir., Mar. 25, 2015) (Linn, J.).
Kennametal (the patent owner) filed suit against Ingersoll (the petitioner) for infringement of a patent related to cutting tools with a binder containing ruthenium and having a physical vapor deposition (PVD) coating. Ingersoll successfully petitioned the Patent and Trademark Office (PTO) for inter partes reexamination of the asserted patent, raising both anticipation and obviousness grounds. The examiner refused to adopt the proposed anticipation rejections, but rejected all of the claims as obvious. The owner appealed the obviousness rejections to the PTAB, and the petitioner cross-appealed the examiner’s refusal to adopt its proposed anticipation rejections. The PTAB found that the examiner erred by not adopting the petitioner’s proposed anticipation rejection and affirmed the obviousness rejections. The patent owner appealed all of the PTAB’s rejections to the Federal Circuit.
The Federal Circuit affirmed the PTAB’s finding of anticipation. There was no dispute that the prior art disclosed all of the limitations of the rejected claim. The patent owner, however, argued that the prior art failed to disclose all the claimed limitations—here, the combination of ruthenium and PVD coatings— “arranged or combined in the same way as in the claim.” The Federal Circuit explained that can anticipate a claim even if it “d[oes] not expressly spell out” all the limitations arranged or combined as in the claim, if a person of skill in the art, reading the reference, would “at once envisage” the claimed arrangement or combination. Here, the question for the purposes of anticipation is “whether the number of categories and components” disclosed in the prior art is so large that the combination of ruthenium and PVD coatings “would not be immediately apparent to one of ordinary skill in the art.” After reviewing the PTAB’s reasoning, the Federal Circuit concluded that the prior art’s express contemplation of PVD coatings is “sufficient evidence that a reasonable mind could find that a person of skill in the art would immediately envisage applying a PVD coating” and that “actual performance” of combining ruthenium and PVD coatings was not required.
With regard to the PTAB’s decision of obviousness, the Federal Circuit explained that although a prior art reference that anticipates an invention can, theoretically, still not make that invention obvious, that is the rare case. Here, because there was only a limited number of possible combinations disclosed in the prior art, it would have been obvious to a person of ordinary skill in the art to combine ruthenium and PVD coatings with a reasonable expectation of success. As for the patent owner’s assertion of unexpected results, the Federal Circuit concluded that because the precise combination of ruthenium binders and PVD coatings was taught in Grab, the patent owner’s secondary consideration argument falls short.
Patents / § 271(a) Doctrine of Equivalents
Use of "Antithesis" of Claim Element Does Not Bar Application of Doctrine of Equivalents
Cadence Pharms. Inc. v. Exela Pharma Sciences LLC, Case No. 14-1184 (Fed. Cir., Mar. 23, 2015) (Linn, J.).
Plaintiff Cadence accused Exela’s generic injectable acetaminophen product of infringing two patents. The relevant claim limitation of one of the patents recited a method for preparing an aqueous solution containing acetaminophen by adding an inert gas until the oxygen concentration was below two parts per million. In the Cadence process, acetaminophen was added and then the oxygen was removed from the solution. In Exela’s process, oxygen was removed from the solution and then acetaminophen was added. The district court construed the claim as requiring that the acetaminophen must already be dissolved prior to deoxygenation of the solution. Nevertheless, after a bench trial, the district court found that the two methods were insubstantially different and that Exela’s product therefore infringed the claim under the doctrine of equivalents.
On appeal, the Federal Circuit panel affirmed the district court in full, rejecting Exela’s argument that its method was the “antithesis” of what was claimed in the patent and therefore that the finding of infringement under the doctrine of equivalents vitiated the claim limitation. The Court found that the determination of whether a proposed equivalent “vitiated” or was the “antithesis” of a claimed element required an analysis of whether the proposed equivalent was insubstantially different, rather than a substitute for such an analysis. Because the Federal Circuit concluded that the district court could reasonably have concluded Exela’s process was insubstantially different from the claimed method, it rejected “the argument that a claim limitation is vitiated by the doctrine of equivalents [as] both incorrect and inapt.”
Patents / AIA / Interlocutory Review
No Interlocutory Review of Pre-Institution Stay Motion's in CBM Proceedings
Upon consideration of an issue of first impression, the U.S. Court of Appeals for the Federal Circuit addressed its limited jurisdiction to hear an interlocutory appeal on a motion to stay a district court proceeding under § 18 of the America Invents Act (AIA). The Court, in a split decision, found that when a covered business method (CBM) review petition is pending before the PTAB, but the PTAB has not yet acted to institute review, there is no right to interlocutory review of a district court decision denying a stay motion. Intellectual Ventures II LLC v. JPMorgan Chase & Co., et al., Case No. 14-1724 (Fed. Cir., Apr. 1, 2015) (O’Malley, J.) (Hughes, J., dissenting).
Plaintiff Intellectual Ventures (IV) sued JP Morgan Chase and related banking entities (collectively, JPMC) for infringement of five patents. After the suit had been pending for close to a year, JPMC moved to stay the district court litigation based on the anticipated filing of four CBM petitions with the PTAB. Once the motion to stay was on file, JPMC filed two of the four promised petitions. The district court denied the motion, applying the four-factor test set forth in § 18(b)(1) of the AIA. In doing so, the district court explained the benefits of moving the case forward, which included judicial efficiencies and accelerated resolution by holding a trial within less than a year. JPMC appealed the denial of the motion to stay to the Federal Circuit. Both at the time of the district court’s decision and during the pendency of the appeal, the PTAB had not acted on JPMC’s two CBM petitions.
JPMC noticed its appeal under § 18 of the AIA, a statutory provision carving out a grant of jurisdiction to the Federal Circuit to hear immediate interlocutory appeals of decisions on motions to stay “relating to a [CBM] proceeding for that patent asserted in the district court.” The majority recognized that it was not apparent from the language of the statute whether, for purposes of appeal, a “proceeding” at the PTAB began at the time the petition was filed or at the time the PTAB instituted review.
IV argued that a CBM “proceeding” does not begin until the PTAB institutes a review, while JPMC argued that the “proceeding” was live as soon as the CBM petition was filed. In assessing whether it had jurisdiction over the district court’s stay decision, the majority began by revisiting the final judgment rule and clarifying that while motions to stay are not ordinarily appealable, the AIA confers a narrow exception for a CBM “proceeding.” The majority noted that the AIA differentiated between a “petition” and a “proceeding” because a petition is a request for a CBM proceeding and is not itself the proceeding. The majority next looked at the congressional record for the AIA, including statements made on the Senate floor that envisioned a CBM “proceeding” only being instituted once the petitioner had established a likelihood of invalidity. The majority next looked at language in the Court’s earlier Virtual Agility decision, noting the previous suggestion that district courts wait until the PTAB instituted a CBM proceeding before ruling on a motion to stay.
In a lengthy dissent, Judge Hughes explained the reasons that he would find jurisdiction over interlocutory appeals on a stay motion prior to institution, although he clarified that in this case he would have affirmed the district court’s decision on the merits. Referring to the majority’s approach as a “purely textual analysis,” Judge Hughes would apply a rationale that defers to the overall legislative purpose of § 18 of the AIA, which he reads to ensure uniformity of stay motion decisions by seeking immediate appellate review. In particular, Judge Hughes disagrees with a perceived regime that divides review of CBM stay decisions into two categories. The dissent warns of anomalous results by relying too heavily on the distinction between pre- and post-institution decisions.
Patents / PTO / APA Review
PTO Revival Rulings Are Not Subject to Collateral Attacks by Third Parties
Joseph Speyer, PhD
Addressing whether third parties have the right to challenge a patent revival ruling by the U.S. Patent and Trademark Office (PTO) under the Administrative Procedure Act (APA), the U.S. Court of Appeals for the Federal Circuit held that such challenges are not permissible. Exela Pharma Sciences, LLC v. Lee, Case No. 13-1206 (Fed. Cir., Mar. 26, 2015) (per curiam) (Newman, J., concurring) (Dyk, J., concurring).
The application at issue was filed under the Patent Cooperation Treaty (PCT), claiming priority from a French application. In order to enter national stage in the United States, the applicant had to fulfill certain U.S. documentary and fee requirements within 30 months. The applicant did not file the required materials on time, and the application was deemed abandoned. The applicant then filed a petition with the PTO to revive the application, stating that the delay was “unintentional,” which the PTO granted. After the application issued as a patent, it was asserted against Exela.
Exela sought to reverse the PTO’s decision to revive the patent, arguing that “unintentional” delay was not a proper basis for revival of a PCT application. According to Exela, the PTO should instead have applied the “unavoidable” delay standard for revival, which is the standard under the PCT statute. The PTO declined to consider Exela’s petition, stating that no statute or regulation authorizes a third party to challenge the PTO decision to revive a patent application. Exela then filed suit in district court under the APA, arguing that the PTO’s failure to apply the correct standard for revival has enabled the enforcement of a patent that should not have issued. After the district court dismissed Exela’s action as time-barred by the statute of limitations, Exela appealed.
The Federal Circuit concluded that neither the Patent Act nor the APA provides a cause of action in which third parties may challenge the revival of a patent application by the PTO. According to the Federal Circuit, the Patent Act’s “intricate scheme for administrative and judicial review of PTO patentability determinations” and “careful framework for judicial review at the behest of particular persons through particular procedures” demonstrate that that Congress did not intend to permit a third party to challenge and obtain judicial review of a PTO revival ruling.
In his concurrence, Judge Dyk took the opportunity to criticize the Federal Circuit’s Aristocrat Technologies Australia Pty Ltd. v. International Game Technology (barring the use of “improper revival” as a defense in infringement actions) and suggested that this case should be revised by an en banc panel. Judge Newman wrote separately to address Judge Dyk’s criticisms, and defended the Aristocrat decision.
Lost Profits Are Hard to Come By
Addressing the issue of convoyed and related sales, the U.S. Court of Appeals for the Federal Circuit, even while affirming the district court with respect to its invalidity and infringement findings, remanded the case for a new trial on damages, concluding that the district court had improperly allowed damages on non-convoyed sales. Warsaw Orthopedic, Inc. et al. v. NuVasive, Inc., Case Nos. 13-1576; -1577 (Fed. Cir., Mar. 2, 2015) (Dyk, J.).
Warsaw Orthopedic brought suit against NuVasive asserting infringement of two patents: one directed to oversize spinal implants and the other to retracting tissue for minimally invasive spinal surgery. NuVasive counterclaimed against Warsaw and its related company Medtronic Sofamor Danek USA (MSD) asserting a patent related to neuromonitoring during surgery. After a jury found liability on all three asserted patents, it awarded Warsaw over $100 million in total damages, indicating on the verdict form that was for “lost profits damages (with royalty remainder).” The district court denied Warsaw’s post trial motion for supplemental damages and a permanent injunction. The district court set an ongoing royalty rate at 13.75 percent for one of the Warsaw patents and 8.25 percent for the other.
Warsaw appealed, arguing that the district court erred in denying supplemental damages to compensate for NuVasive’s infringement between the close of discovery and trial and in declining to award a higher royalty rate. Warsaw also appealed the determination that it infringed NuVasive’s patent. NuVasive cross appealed challenging the validity determination, the infringement determination against it and the damages calculation for the patents it was found to infringe.
The Federal Circuit affirmed the district court’s liability determinations. However, the more interesting aspect of the opinion relates to Federal Circuit’s remand of the damages issues. While Warsaw owns the asserted patents, it does not practice them. Rather it licenses them to related companies that manufacture and sell patented products to MSD and pay royalties to Warsaw on those sales and manufactures fixations (medical products such as screws and surgical rods), which it sells to MSD for a profit. MSD packages the fixations and the patented products together into medical kits.
Warsaw claimed that NuVasive’s infringement of the patented technologies resulted in Warsaw’s making fewer sales of fixations to MSD because MSD lost sales of the patented medical kits that included the fixations. Warsaw’s claim was based on a convoyed sales theory. The Federal Circuit explained that to be entitled to lost profits for convoyed sales, the related products must be functionally related to the patented product and the losses must be reasonably foreseeable. The Court found the fixation sales to MSD were not convoyed sales as Warsaw had failed to prove a functional relationship between the two sufficient to support a jury verdict for convoyed sales. The Court also found that Warsaw’s marketing of the fixations as part of a comprehensive kit of instruments and implants was “the precise sort of convenience or business strategy” that was excluded from the convoyed sales analysis.
NuVasive also challenged the inclusion of lost royalty payments from related companies in the lost profits award. Warsaw had claimed that NuVasive’s infringement detrimentally affected the licensees sales, which in turn negatively affected the royalty payments they made to Warsaw. NuVasive challenged this as Warsaw’s effort to recover lost profits from other companies. On this issue, the Federal Circuit explained that “[t]o be entitled to lost profits, we have long recognized that the lost profits must come from the lost sales of a product or service the patentee itself was selling.” Normally, “if the patentee is not itself selling a product, by definition there can be no lost profits.” Thus, the Court found that the lost royalty payments were not recoverable as lost profits.
Additionally the Federal Circuit disallowed, as lost profits, the “true up” payments made by MSD to Warsaw. These were part of a complex structure designed to comply with tax and accounting laws and based on transfer pricing agreements. The Court found Warsaw failed to distinguish between the types of true up payments and accordingly they were not recoverable as lost profit.
The Federal Circuit noted that its rejection of Warsaw’s lost profits claims did not mean that Warsaw was precluded from recovery altogether—it was entitled to a reasonable royalty. The Court thus remanded the case for the district court to determine which—if any—related party licensing agreements should be considered as part of the royalty determination.
Finally, the Federal Circuit did not address the supplemental damages question, but instructed that it be addressed at a new trial on damages.
Patents / Appeal / Time for Appeal
Notice of an Order Intending Final Judgment, Even if Erroneous, Triggers Appeal *Web Only*
Addressing the requirements for extending and reopening the time to appeal under Fed. R. App. Pro. 4(a), the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s denial to either extend or reopen the time to appeal a final judgment where it was undisputed that multiple attorneys for the appellant had received electronic notice, albeit erroneous, that a final order had been entered on the docket and where the substance of that order triggered the start time to file an appeal. Two-Way Media, LLC v. AT&T Inc., Case No. 14-1302 (Fed. Cir., Mar. 19, 2015) (O’Malley, J.) (Dyk, J. dissenting).
The plaintiff, Two-Way Media (TWM), sued various AT&T defendants (AT&T) for patent infringement. A jury found that AT&T infringed valid claims of two asserted patents and awarded damages. AT&T filed four motions for judgment as a matter of law (JMOL) or for new trial. AT&T moved to place three of the four motions under seal for confidentiality reasons. The pendency of the four motions stayed the time to file an appeal until all were decided.
Several weeks later, the district court denied all four of the JMOL motions, granted TWM’s request for cost, and entered judgment against AT&T on all pending claims. AT&T’s attorneys and staff received Notice of Electronic Filing (NEF) relating to the clerk’s entry of the orders, but some of the corresponding NEF’s and docket descriptions incorrectly described the substance of the filed orders as pertaining only to AT&T’s motions to seal, rather than substantive orders directed to the underlying JMOL motions. Three days later, the clerk corrected the docket text to accurately describe the substance of each of the filed orders, but no NEF was sent notifying AT&T’s attorneys of the update. After those corrections, the docket sheet accurately reflected that all of the motions had been denied and that final judgment had been entered.
AT&T’s attorneys discovered the proper content of the earlier erroneously described orders after the appeal deadline. Almost immediately, AT&T moved to either extend or reopen the time to file an appeal under Fed. R. App. Pro. 4(a)(5) and (6). The district court denied AT&T’s motion, noting that 18 attorneys or law-firm personnel for AT&T had been notified of the entry of the substantively correct orders, some of those recipients had downloaded the actual orders and the notice regarding the motions to seal and entry of costs should have alerted AT&T that all issues affecting the trigger date for an appeal had been resolved.
Applying U.S. Court of Appeals Fifth Circuit law, the Federal Circuit majority found that the district court had not abused its discretion in denying a late appeal. The Court found that Rule 4(a)(5) required a showing of excusable neglect or good cause to extend the appeal period. The Court found that the district court did not abuse its discretion in finding that AT&T had not met the standard given the number of recipients who received notice of the correct filing of the orders, the fact that the non-confidential orders entered at the same time were correctly labelled and that the entry of costs order was available only upon a complete disposition. The Court also found that something more than lack of receipt of notice of the orders by the clerk was required to establish excusable neglect, i.e., lack of notice plus an attempt to discover the previous orders. The Federal Circuit agreed with the district court that AT&T’s lawyers could have discovered the correct final orders by checking the docket sheet and that they had an obligation to do so. The Court agreed that the clerk’s erroneous description was relevant to the AT&T’s request for relief, but not determinative given the other attendant facts.
The Court also found that the district court did not abuse its discretion in refusing to reopen the appeals period under Rule 4(a)(6). The Court explained that the rule requires that there was no notice of the entry of judgment. The Court agreed that electronic notice of the district court’s orders via the NEF, although flawed, was sufficient where the substance of the orders accurately and unequivocally reflected intent to enter final judgment.
The majority distinguished the authority cited by Judge Dyk in his dissent, noting that the cases cited in the dissent involved instances where the substance of the underlying order was not clear. Analogizing to situations where a recipient of a notice chooses not to open its mail, the majority found that the only question for purposes of Rule 4(a)(6) is whether a party receives notice of an order. The Court found that where an order is actually received, but ignored, Rule 4(a)(5) is the procedural vehicle counsel must pursue to seek relief from its failure to read or digest the order.
Patents / Appellate Procedure and Jurisdiction
An Easy First Impression: Joint Dismissal of Appellate Review
Addressing for the first time the propriety of vacating an appellate opinion when the underlying appeal is rendered moot before issuance of that opinion, the U.S. Court of Appeals for the Federal Circuit determined that it not only was appropriate, but required for want of subject matter jurisdiction. Versata Software, Inc. v. Callidus Software, Inc., Case No. 14-1468 (Fed. Cir., Feb. 27, 2015) (Chen, J.).
The district court had denied a stay of trial court proceedings pending the outcome of post-grant review of the asserted patents under the AIA Covered Business Method (CBM) review proceedings. An interlocutory appeal of that denial was filed with the Federal Circuit under § 18 of the AIA and the Federal Circuit issued an opinion reversing and remanding the denial of stay of the patent infringement suit. The Federal Circuit was not aware, however, that the afternoon before the opinion issued the parties had filed a joint request to dismiss the appeal. The parties had also concurrently filed a joint unconditional stipulation of dismissal of the underlying complaint with the district court.
Because the conundrum before the Court was a procedural issue, as opposed to a patent issue, regional circuit law applied and the Federal Circuit looked to U.S. Court of Appeals for the Ninth Circuit law. Under 9th Circuit law, there is a “significant difference between a request to dismiss a case or proceeding for mootness prior to the time an appellate court has rendered its decision on the merits and a request made after that time.” Armster v. U.S. Dist. Court for Cent. Dist. Of Cal. Despite being an issue of first impression, the panel explained that the answer was straightforward: “[B]ecause the parties’ joint stipulation was filed in the district court the day before the issuance of this court’s opinion . . . the appeal was moot when our opinion issued. There was no longer a controversy.” Indeed, fundamental subject-matter jurisdiction requires that a case or controversy remain alive during all stages of a case, including appellate review. To allow otherwise would be beyond the federal court’s constitutional authority.
The Federal Circuit thus vacated its opinion.
Practice Note: Litigants should heed footnote 2 of the Federal Circuit’s opinion stressing the “importance of parties informing the court promptly and without delay when a matter has been settled or otherwise may have become moot.” Here, the parties had apparently reached a settlement nearly a week prior to filing the joint stipulation.
Patents / Declaratory Judgment / Subject-Matter Jurisdiction
Declaratory Judgment of Non-Infringement of a Disclaimed Patent Warranted in Hatch-Waxman
Mandy H. Kim
Addressing the issue of subject matter jurisdiction in Hatch-Waxman litigation, the U.S. Court of Appeals for the Federal Circuit reversed a district court’s dismissal for lack of case or controversy of an action seeking declaratory judgment of non-infringement with respect to a disclaimed patent. The Federal Circuit also reversed the district court’s denial of the first Abbreviated New Drug Application (ANDA) filer’s motion to intervene. Apotex Inc. v. Daiichi Sankyo, Inc., Case Nos. 14-1282, -1291 (Fed. Cir., Mar. 31, 2015) (Taranto, J.).
Daiichi listed two patents in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations publication (Orange Book) in seeking FDA approval of its New Drug Application (NDA) for Benicar®, a treatment for hypertension. One of the patents covered the active ingredient of the drug, olmesartan medoxomil, and another covered methods of treatment. Mylan was the first to file an ANDA with the FDA to market generic olmesartan medoxomil. In 2006, after receiving notice of Mylan’s paragraph IV certification, Daiichi disclaimed the method of treatment patent and sued Mylan for infringing the drug patent. After a full trial, the district court upheld validity of the Daiichi’s patent and entered judgment of infringement against Mylan. The Federal Circuit affirmed, thereby presenting Mylan with an earliest date of market entry of October 2016, six months after the expiration date of the Daiichi patent.
In June 2012, Apotex filed its own ANDA for generic olmesartan medoxomil, including a paragraph III certification stating that the Daiichi patent is valid and that Apotex’s product would infringe, and a paragraph IV certification that Apotex’s product would not infringe the method patent. Apotex also brought a declaratory judgment action against Daiichi seeking a declaration that it would not infringe the method patent. Mylan moved to intervene, and both it and Daiichi moved to dismiss for lack of a case or controversy because non-infringement of the method patent would be indisputable as a matter of law in view of the Daiichi patent disclaimer. The district court granted Daiichi’s motion and denied Mylan’s motion to intervene as moot. Apotex appealed, and Mylan cross-appealed the denial of its motion to intervene.
In reversing the district court, the Federal Circuit explained that the case presented a “substantial controversy, between parties having adverse legal interests, of a sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” According to the Federal Circuit, the patent disclaimer did not resolve adversity between the parties because the “patent disclaimer eliminates one, but only one, potential barrier to Apotex’s ability to make sales. The listing of the patent, with its current consequence of preventing FDA approval during Mylan’s presumptive exclusivity period, is another [barrier], and the parties have adverse concrete interests in the truncation or preservation of that period.” The Court also rejected Daiichi’s argument that any delayed entry of Apotex would not be “fairly traceable to Daiichi,” given that Daiichi’s act of listing the method patent in the Orange Book created the entry barrier that Apotex sought to eliminate through a declaratory judgment.
After analyzing the legislative history of the Hatch-Waxman Act, the Federal Circuit also disagreed with Mylan’s argument that without at least a “tentative approval” of Apotex’s ANDA, Apotex’s injury is too speculative to create a case or controversy for purposes of a declaratory judgment action. Indeed, the Federal Circuit explained that Apotex could trigger forfeiture of Mylan’s exclusivity period under the governing statute by obtaining the non-infringement judgment sought in this case.
Patents / Willfulness / Octane-Highmark
Federal Circuit Acknowledges § 284 Review Issue May Be Raised by Octane/Highmark Cases *Web Only*
The U.S. Court of Appeals for the Federal Circuit issued a revised opinion in Stryker Corp. v. Zimmer, Inc. In the revised opinion the Court added a footnote discussing the implications of recent Supreme Court jurisprudence to the standard of review of findings of willfulness under § 284. Stryker Corp. v. Zimmer, Inc., Case No. 13-1668 (Fed. Cir., Dec. 19, 2014) (Prost, C.J.).
Previously, in addressing the issue of willful infringement, the Court reversed the lower court’s finding of willful infringement and award of attorneys’ fees, finding that the defenses asserted by the accused infringer were not objectively unreasonable, despite being unsuccessful at trial (IP Update, Vol. 18, No. 1). In making this finding, the Court stated that “[w]e have held that objective recklessness, even though ‘predicated on underlying mixed questions of law and fact, is best decided by the judge as a question of law subject to de novo review.’” To clarify the standard of review, the Court has now revised its opinion, including a new footnote 6, which states, “This court has not yet addressed whether Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), or Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1746 (2014), altered the standard of review under which this court analyzes the objective prong of willfulness. However, as the district court failed to undertake any objective assessment of Zimmer’s specific defenses, the district court erred under any standard of review and thus this court need not now address what standard of review is proper regarding the objective prong of willfulness.”
Practice Note: In January of this year, in deciding a petition for en banc rehearing in Bard Peripheral Vascular, Inc. v. W. L. Gore & Assoc., Inc., the Federal Circuit was asked to consider the correct standard of review for willfulness under § 284 and whether the more differential standard that now applies to review of “exceptional” case under § 285 should also apply to findings of willfulness under § 284. The new footnote in the revised Stryker Corp. opinion may be viewed by Gore as an opening in terms of a possible writ of certiorari.
USPTO Implements Quick Fixes to AIA Review Rules
Bernard P. Codd
On March 27, 2015, the director of the U.S. Patent and Trademark Office (PTO) announced several quick fixes in response to public comments on proposed revisions to the rules for inter partes review (IPR), post grant review (PGR) and covered business method (CBM) review. One of the quick-fix changes is to increase the number of pages for a motion to amend from 15 to 25 pages, along with the addition of a claims appendix (with a commensurate amount of additional pages for the opposition and reply briefs). Patent Trial and Appeal Board (PTAB or Board) judges have been instructed to implement these rule changes immediately.
In addition to these immediate changes, the PTO is considering a number of additional rules changes, to be subject to public comment, expected to be released sometime this summer. This second rule package will include further modifications to the motion to amend process, adjustments to the evidence that can be provided by the patent owner in its preliminary response and clarification of the claim construction standard as applied to expired patents in AIA proceedings. Also being considered are adjustments to the scope of additional discovery, how to handle multiple proceedings before the PTO involving the same patent, use of live testimony at oral hearings and whether parties should be required to make a certification with their filings similar to a Rule 11 certification in district court litigation.
Regarding motions to amend, the PTO is contemplating proposed changes to emphasize that a motion under substitute narrower claims by amendment will always be allowed to come before the Board for consideration (i.e., be entered), for such an amendment to result in the issuance (patenting) of the amended claims a patent owner will not be required to make a prior art representation as to the patentability of the narrowed amended claims beyond the art of record before the Office.
The PTO is also contemplating changes to the Trial Practice Guide, including clarifying the use of live testimony at hearings. The PTO also plans to update the Trial Practice Guide to emphasize the importance of real party in interest discovery for determinations of standing and as to possible later estoppel consequences. Finally, the PTO is considering a single-judge pilot program, under which a single judge would make the institution decision. Two additional judges would join the panel only when and if a trial is instituted. In the interest of efficiency, the first judge would remain on the panel, but given the countervailing interest of having “fresh eyes,” the two additional judges would not have participated in the matter prior to institution.
Patents / AIA / IPR / Writ of Mandamus
No Special Rules Regarding Consideration of Expert Declarations in IPR Proceedings *Web Only*
In a non-precedential opinion, the U.S. Court of Appeals for the Federal Circuit declined to direct the U.S. Patent and Trademark Office (PTO) to create a particularized written standard for consideration of inter partes review (IPR) petitions and supporting evidence. In re International Business Machines Corp., Case No. 15-119 (Fed. Cir., Mar. 24, 2015) (Lourie, J.).
IBM filed two IPR petitions attacking a patent owned by Intellectual Ventures. The Patent Trial and Appeal Board (PTAB or Board) declined to institute IPRs based on IBM’s petitions. IBM filed a motion for reconsideration, faulting the Board for overlooking relevant portions of an expert declaration filed in support of the petitions. The Board denied the motion explaining that the declaration could not be incorporated by reference into the petitions and the petitions themselves did not include enough detailed discussion of the cited portions of the declaration.
IBM then sought a writ of mandamus from the Federal Circuit directing the PTO to “issue a written, clear, binding, and definitive/particularized standard for all of the PTAB merits panels to follow for considering petitions requesting inter partes review, including all evidence submitted in support thereof.” IBM was forced to seek a writ instead of appealing the Board’s institution decision because 35 U.S.C. § 314(d) explicitly prohibits appeals of PTAB institution decisions.
The remedy of mandamus is available only in exceptional circumstances to correct a clear abuse of discretion or usurpation of judicial power. Further, a party seeking a writ bears the burden of proving that it has no other means of obtaining the relief desired and that the right to issuance of the writ is clear and indisputable.
IBM argued that the Federal Circuit should enforce IBM’s “procedural right to have its expert evidence considered (or not considered) according to consistently applied standards.” But the Federal Circuit rebuffed the petition, explaining that IBM had no such “right.” The Court also found that IBM failed to clearly demonstrate “any injury beyond a generally available grievance about the government.” Indeed, the record reflected that the PTO was already engaged in its own rulemaking process and that, as part of that process, IBM submitted comments to the PTO advocating for the same rules it was now requesting from the Court. Thus, according to the Court, IBM had alternative means by which to obtain the relief sought in the writ. The Court denied the petition.
En Banc Alert
En Banc Alert / Patents / Exhaustion
Federal Circuit to Consider International Patent Exhaustion En Banc
The U.S. Court of Appeals for the Federal Circuit has sua sponte ordered an en banc hearing to consider the issue of international patent exhaustion. Lexmark International, Inc. v. Impression Products, Inc., Case No. 14-1617 (Fed. Cir., Apr. 14, 2015).
The present Federal Circuit rule, which dates back to the 2001 Federal Circuit decision in Jazz Photo, is difficult to reconcile with the international exhaustion principles pronounced by the Supreme Court in the copyright context in its 2012 decision in Kirtsaeng v. John Wiley & Sons (IP Update, Vol. 15, No. 5).
The Federal Circuit also noted the apparent tension between its 1992 Mallinckrodt decision and the Supreme Court’s 2008 Quanta Computer decision as to whether patent owners can restrict the scope of exhaustion attended the sale of a patented article.
The parties were ordered to file new briefs addressing the following issues:
(a) Should this court overrule Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001)?
(b) The case involves (i) sales of patented articles to end users under a restriction that they use the articles once and then return them and (ii) sales of the same patented articles to resellers under a restriction that resales take place under the single-use-and-return restriction. Do any of those sales give rise to patent exhaustion? In light of Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), should this court overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), to the extent it ruled that a sale of a patented article, when the sale is made under a restriction that is otherwise lawful and within the scope of the patent grant, does not give rise to patent exhaustion?
America Invents Act
Non-Claimed Elements Cannot Transform an Abstract Idea *Web Only*
Addressing unpatentable subject matter under 35 U.S.C. §101, the Patent Trial and Appeal Board (PTAB or Board) concluded that additional elements not recited or required by the claim, such as a non-limiting preamble, cannot transform a claim into a patent-eligible application of an abstract idea. Agilysys, Inc. et al. v. Ameranth, Inc., Case No. CBM2014-00015 (PTAB, Mar. 20, 2015) (Petravick, APJ).
The Board instituted a covered business method (CBM) review on the grounds of unpatentable subject matter under §101. The patent owner argued that the preamble was limiting because terms recited in the preamble, even though they did not appear in the remainder of the claim, were important to the claimed invention, and the examiner relied upon the preamble during prosecution to distinguish over the prior art. The Board rejected this arguments, finding that the preamble did not recite any structural components not captured in the body of the claim but merely set forth the purpose and intended use of the invention. In addition, the Board found that the Examiner did not rely on the preamble and instead indicated in the notice of allowance that the claimed software and sub-modifier menu were uniquely distinct features.
The Board analyzed the claims under the two-step framework set forth in Alice v. CLS Bank (IP Update, Vol. 17, No.7), addressing the first step, whether the claims at issue are directed to a patent-ineligible concept, such as an abstract idea, law of nature or natural phenomenon, the patent owner argued that the claims were not directed to an idea at all, but to a new machine. The Board rejected this argument and found that the claims were directed to an abstract idea of generating a second menu from a first menu and sending the second menu to another location.
Having found an abstract idea, the Board proceeded to consider whether the elements of the claims individually and as an ordered combination transform the nature of the claim into a patent-eligible application. The patent owner relied on the preamble to argue that the claims were directed to a specialized machine that generated and wirelessly transmitted non-PC standard handheld menus. However, the Board found that the patent owner could not rely on the preamble, as it was not limiting, or the wireless transmission, as it was not recited in the claim, to transform the claim into a patent-eligible application of an abstract idea. The remaining claim elements, individually and as an ordered combination, were directed to generic computer elements that did not transform the claims into a patent-eligible application of an abstract idea.
AIA / CBM / Financial Product
Financial Product or Service Is Not Just for Financial Service Industry
Addressing the requirements for instituting a covered business method (CBM) review in three decisions, the U.S. Patent and Trademark Office (PTO) Patent Trial and Appeal Board (PTAB or Board) explained that the “financial product or service” requirement will be interpreted broadly, while the “technological inventions” exception will be applied narrowly. Samsung Electronics v. Smartflash LLC, Case No. CBM2014-00199 (PTAB, March 30, 2015) (Bisk, APJ.); Samsung Electronics v. Smartflash LLC, Case No. CBM2014-00200 (PTAB, March 30, 2015) (Anderson, APJ); Motorola Mobility LLC v. Intellectual Ventures I LLC, Case No. CBM2015-00005 (PTAB, Mar. 27, 2015) (Kokoski, APJ.).
In the Samsung cases, the petitioner Samsung sought to institute a CBM patent review of two patents directed to “a portable data carrier for storing and paying for data and to computer systems for providing access to data to be stored,” as well as corresponding methods and computer programs. The patent owner argued that both petitions should be rejected because the challenged patents were not directed to “financial product[s] or service[s]” and fall within the AIA exclusion for “technological inventions.”
With respect to the “financial product[s] or service[s]” requirement, the patent owner argued that the “financial product or service” requirement should be read narrowly as covering only technology limited to the financial industry. According to the patent owner, the challenged patents were not financial in nature because they “omit […] the specifics of how payment is made.” The PTAB disagreed. Under the AIA, a CBM proceeding may be instituted with respect to a patent that “claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.” The PTAB explained that “[t]he AIA does not include as a prerequisite for covered business method patent review, a ‘nexus’ to a ‘financial business.’” Further, the Board explained that “the legislative history indicates that the phrase ‘financial product or service’ is not limited to the products or services of the ‘financial services industry’ and is to be interpreted broadly.” Applying these principles to the patents-at-issue, the PTAB concluded that “payment validation is a financial activity, and conditioning data access based on payment validation amounts to a financial service.”
The patent owner also argued that the challenged claims fell under the exclusion for “technological inventions.” According to the patent owner, both patents contained claims with at least one novel and unobvious technological feature, and that those claimed features solve the technological problem of writing data and an access rule from a data supplier into a data carrier. The PTAB disagreed, finding that the challenged claims were “merely the recitation of a combination of known technologies,” which indicates that they are not a technological invention. And, according to the PTAB, the problem being solved—data piracy—was a business problem. For these reasons, the patents were found to be eligible for CBM patent review.
In Motorola, the patent owner raised similar arguments to those in the above Samsung cases, asserting that its patent was not directed to “financial product[s] or service[s],” and should be subject to the exclusion for “technological inventions.” With respect to the first argument, the patent owner argued that “Congress did not intend the CBM statute to cover patents that claim subject matter that is generally applicable to many sectors including the financial services sector.” The Board however disagreed, explaining that the challenged patent meets the broad CBM standard because the specification “contemplates the use of the claimed methods in operations that are at least incidental or complementary to the practice, administration, or management of a financial product or service.”
As for the patent owner’s “technological inventions” exception argument, the Board considered “(1) whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art; and (2) solves a technical problem using a technical solution.” As in the Samsung cases, the Board here found that “the technological features of the claimed steps [were] directed to using known technologies.” As such, the PTAB concluded “that the claimed subject matter, as a whole, does not recite a technological feature that is novel and unobvious over the prior art, [therefore] the patent is not directed to a technological invention.” Accordingly, the PTAB found the patent to be eligible for a CBM patent review.
Practice Note: The “financial product or service” requirement for a CBM patent review is not limited to products or service of the financial services industry but may also encompass patents “claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.”
AIA / CBM / Jurisdictional Subject Matter
Payment Information Does Not Necessarily Make a CBM *Web Only*
Addressing the issue of what qualifies as a covered business method (CBM) under the America Invents Act (AIA), the U.S. Patent and Trademark Office’s (PTO’s) Patent Trial and Appeal Board (PTAB or Board) denied institution of a CBM review, finding the patent was directed to technology that restricts the use of software and had no particular relation to financial products or services. SEGA of Am., Inc. v. Uniloc USA, Inc., Case No. CBM2014-00183 (PTAB, Mar. 10, 2015) (Praiss, APJ).
SEGA filed a petition seeking a CBM review of a patent related to the creation and verification of unique user software licenses. The claimed system compared local and remote keys to determine if the user was allowed unrestricted use of the software. The issue was whether the claimed system met the definition of a CBM as defined in AIA § 18(d)(1), i.e., whether it is “used in the practice, administration, or management of a financial product or service.”
SEGA argued the patent was a CBM because the specification disclosed a registration process that required payment information. The Board explained held that in the context of the claimed system, payment details, including a credit card number, are not themselves financial transactions but are simply information unique to each user. The claimed system uses such information to generate unique local licensee keys. The Board concluded that generating this licensee key does not itself fit in the definition of a CBM.
SEGA also argued the challenged patent was similar to patent at issue in a previous CBM review, which was directed at determining a price. The Board distinguished the challenged patent, which is used to prevent software piracy, from the earlier considered patent that included such activities as moving money or extending credit. As the Board explained, even in relation to the licensing of digital data or software, the challenged patent does not require a sale, process a payment, determine a cost, facilitate a payment or extend credit.
The Board thus denied the CBM petition on standing grounds, concluding that patent was not directed to a system for performing data processing or other operation in relation to a financial product or service or claim an activity financial in nature. Rather, the patent claims the creation and verification of a unique user software license, which may be based on a user’s credit card or other payment information.
Specific Application Will Not Avoid Ineligibility Unless Required by the Claims
Alexander P. Ott
Addressing the patent eligibility of claims from two challenged covered business method patents (CBMs), the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) found the challenged claims to be not patent eligible. In each case the Board rejected arguments by the respective patent owner that the challenged claims covered specific applications, explaining that the asserted specificity was not required by the claims. Int’l Securities Exchange LLC v. Chicago Board Options Exchange, Inc., CBM2013-00049 (PTAB, Mar. 2, 2015) (Elluru, ALJ) and SAP America, Inc. v. Lakshmi Arunachalam, CBM2014-00018 (PTAB, Mar. 6, 2015) (McNamara, ALJ).
In CBM2013-00049, Int’l Securities Exchange requested a CBM review of a Chicago Board Options Exchange patent on a method for managing risk in the options market. The patent describes a conventional method where a market-maker personally entered into contracts and thus manually managed the risk of their portfolio, but noted, as a disadvantage, the rapid speed at which trades are executed. The patent then presented an automated trading system that determined a risk level associated with a trade and compared the risks to a market-maker’s risk threshold value.
Int’l Securities argued that the claims were directed to the abstract concept of managing risk. The patent owner responded that the claims were “not merely” directed to an abstract idea, but rather a specific application with meaningful limitations. However, the Board interpreted the patent owner’s position to be an admission that the first step of the Alice test, i.e., that the claim was directed to an abstract idea, was met. Thus, turning to the second prong of the Alice test, whether the claims recite an inventive concept, the patent owner argued that the claimed subject matter required specific programming to create specific interactions between computers. The petitioner argued that the claims required nothing more than the application of an abstract idea using a generic computer. The Board concluded that none of the specific interactions that the patent owner identified were required by the claims and thus found the claims to be non-patent eligible.
In CBM2014-00018, SAP America requested a CBM review of Lakshmi Arunachalam’s patent on real-time web transactions. Applying the two-step Alice test, the Board first concluded that the claims were directed to an abstract method, i.e., performing a real-time web transaction by providing a web application for a user to transfer funds between bank accounts. Turning next to the inventive step, the patent owner argued that the claims required that the transactions occur by way of a specific routing of a specific data structure. However, the Board, noting that it had rejected a broadest reasonable interpretation claim construction that required those specifics, concluded the specific routing relied on was not part of the claims. The Board found nothing else in the claims that contributed patent-eligible subject matter.
Conventional Use of Computer Not Enough to Overcome Alice *Web Only*
In two separate decisions involving an § 101 analysis of subject-matter eligibility of business methods patents (CBMs), the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) found that the challenged patents were directed to non-eligible subject matter in light of Alice. Westlake Services, LLC v. Credit Acceptance Corp., Case No. CBM2014-00008 (PTAB, Mar. 24, 2015) (Anderson, APJ); Regions Financial Corporation, Advance America, Cash, et al. v. Retirement Capital Access Management Company LLC, Case No. CBM2014-00012 (PTAB, Mar. 23, 2015) (Ward, APJ).
In Westlake Services v. Credit Acceptance, the petitioners challenged a patent that “describes a system and method for providing financing to the customers of a dealer to allow the customers to purchase products from the dealer’s inventory.”
The patent owner argued that the challenged claims “do not monopolize any abstract ideas” and “merely involve, but do not manifestly describe, the abstract idea of ‘providing financing.’” The patent owner argued that because the claims “do not ‘explain the basic concept’ of financing and add ‘apply it to a computer,’ they are not directed to an abstract idea.” The patent owner also argued that because “a specific practical application of the abstract idea of providing financing for purchase of a product … ‘did not exist in prior art’” and “the step of generating financing packages … requires a computer,” the claims are patent-eligible.
The PTAB applied the two-step test required by Alice (IP Update, Vol. 17, No. 7) to determine whether the challenged claims were patent-eligible. In applying the first threshold step, the Board analyzed whether the claims were directed to an abstract idea and concluded that they were directed to the abstract idea of speeding up with a computer that which could be done by a human.
Having determined that the claims were directed to an abstract idea, the Board moved on to the second step and analyzed whether the claims include an “inventive concept” that would render the claimed subject matter patent-eligible. The PTAB concluded that although the claimed steps require a computer, there was insufficient evidence “to conclude that the computer is being utilized for anything beyond routine or conventional use . . . and did not contain “enough to meet the inventive step of Alice.” Thus, the Board concluded that the challenged claims were not patent-eligible.
In Regions Financial v. Retirement Capital Access Management, the petitioners challenged a patent that “generally relates to a method for enabling recipients of Social Security payments to convert a designated portion of future payments into currently available financial resources.”
The patent owner argued that the claims had “meaningful and substantive limitations that cause the claims to cover less than the identified concept.” The patent owner further argued that a computer limitation is integral to the challenged claims.
Again applying the two step framework of Alice, the PTAB first determined that the claims were concededly directed to an abstract idea and so analyzed whether there was an “element or combination of elements that is ‘sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.’” The Board explained that the recitation of “computerized method” was not a meaningful limitation to the claims and concluded that the challenged claims were not patent-eligible.
Filing Waiver of Service Triggers One-Year IPR Bar Date
Addressing the issue of standing to present a petition, the Patent Trial and Appeal Board (PTAB or Board) granted institution of an inter partes review (IPR), finding that the petition filed within one year of filing waiver of service was not barred under 35 U.S.C. § 315(b). The Brinkmann Corporation v. A&J Manufacturing, LLC, Case No. IPR2015-00056 (PTAB, Mar. 23, 2015) (Kamholz, APJ).
Brinkmann filed a petition for IPR, challenging all claims of A&J’s patent relating to a barbecue grill that allows simultaneous gas grilling and charcoal-fueled grilling. The patent owner had earlier sued the petitioner for patent infringement in district court and had sent a copy of the complaint and a request for waiver of service to the petitioner on October 7, 2013. The patent owner filed the petitioner’s executed waiver of service with the district court on October 21, 2013. The patent owner also filed a complaint with the U.S. International Trade Commission (ITC), which later served the petitioner with the patent owner’s complaint on September 23, 2013. The petitioner filed the IPR petition on October 13, 2014.
Analyzing § 315(b), the Board found that the petitioner had not exceeded the one-year bar date at the time of filing the petition. The Board concluded that the one-year bar period began to run when the petitioner’s waiver of service was filed with the district court, rejecting the patent owner’s argument that the one-year bar period triggered when the petitioner was sent a copy of the complaint. The Board also concluded that service of the ITC complaint on the petitioner had no bearing on the one-year bar period, rejecting the patent owner’s argument that the petitioner was served with the ITC complaint more than one year prior to the petition filing date. The Board concluded that the § 315(b) bar is triggered only by a civil action, not an arbitral or administrative proceeding such as an ITC investigation.
The Board also found that institution of the IPR was not barred under § 315(a) or (b) based on actions of asserted real parties in interest, nor dismissible under § 312(a)(2) for failure to name all real parties in interest (IP Update, Vol. 18, No. 2). The Board rejected the patent owner’s argument that the petitioner had failed to name defendants in related civil actions and co-respondents in the related ITC proceeding, finding that the patent owner had not supplied sufficient credible evidence indicating that such defendants or respondents played an active role in the petition or had a continuing interest in the IPR proceeding.
AIA / IPR / § 315(b) Bar Date
Mere Receipt of a Copy of the Compliant Does Not Invoke the One-Year Bar Rule *Web Only*
Addressing the meaning of “defendant” for purpose of the one-year bar rule, the U.S. Patent and Trademark Office (PTO) Patent Trial and Appeal Board (PTAB or Board) explained that being served with a third party subpoena in an action is not sufficient to start the one-year clock under 35 U.S.C. § 315(b)—the complaint must be served in a lawsuit where the petitioner is an actual defendant. Petroleum Geo-Services, Inc. v. Westerngeco LLC, IPR 2014-01475 (PTAB, Mar. 17, 2015) (Daniels, APJ.).
In defending against a petition for inter partes review by Petroleum Geo-Services, the patent owner, argued that the petitioner’s IPR should be time-barred under § 315(b) because the petitioner was served with a copy of the complaint more than one year before filing the present petition. The basis for the patent owner’s claim is that the petitioner received a subpoena in litigation between the patent owner and a third party (ION) and, in response to that subpoena, appeared in the ION lawsuit through its counsel. According to the patent owner, after entering an appearance in the ION lawsuit, the petitioner’s counsel was “served” with a copy of the amended complaint via the court’s electronic filing system (ECF), thereby invoking the start of the one-year bar.
The Board rejected the patent owner’s argument, explaining that the “mere receipt of a complaint, via email or even ECF” and service in response to a subpoena does not initiate the one-year time period under § 315(b). In its interpretation of § 315(b), the Board concurred with a prior panel’s—Motorola Mobility LLC v. Arnouse, Case IPR2013-00010 (PTAB Jan. 30, 2013) —statement that “[w]e do not do not believe that the Congress intended to have the time period start before a petitioner is officially a defendant in a law suit.” Because “Petitioner was not, and never has been, a party defendant” in the ION litigation, it was never “served with a complaint” for purpose of § 315(b).
The patent owner also argued that proposed grounds of invalidity should be rejected as redundant to those advanced in a prior IPR because the claim at issue depends from a claim examined in the previous IPR. The PTAB disagreed, explaining that there was no redundancy “[b]ecause this Petition involves a different claim.”
AIA / IPR / Real Party in Interest / Privity
IPR Privity Analysis Includes post-Complaint Period
Clarifying the privity requirement for inter partes review (IPR) petitions, the U.S. Patent and Trademark Office (PTO) Patent Trial and Appeal Board (PTAB or Board) explained that privity should be determined looking at the time period up to the date of the IPR petition, not just the date of service of any district court complaint. VMWare, Inc. v. Good Technology Software, Inc., Case Nos. IPR2015-0002, -00030, -00031 (PTAB, Mar. 6, 2015) (Weinschenk, APJ.).
Good Technology Software (GTS) is the owner of certain patents, which it asserted against the AirWatch company in November of 2012. In February of 2014, the petitioner VMWare acquired AirWatch, and in October of 2014 VMWare filed IPR petitions against the patents asserted by GTS. In those petitions, VMWare acknowledged that AirWatch was now its wholly-owned subsidiary, but argued that its petitions should not be time-barred under 35 U.S.C. § 315(b) because it was not in privity with AirWatch at the time the patents were initially asserted against AirWatch.
The Board disagreed, noting that the issue is a “highly fact-dependent question” that is to be evaluated based on “flexible and equitable considerations.” The Board explained that, under § 315(b), the status of an entity being in privity with the petitioner is not limited temporally to the time of filing of related litigations. The Trial Practice Guide provides guidance for determining privity, including that “[t]he relevant factors for determining whether a party is a real party in interest or a privy of the petitioner include, inter alia, the party’s relationship with the petitioner and the nature and/or degree of the party’s involvement in the filing of the petition.” From this guidance, the Board concluded that “at least some of the factors analyzed in determining whether a party is a real party in interest or a privy of the petitioner involve actions or events that may occur after service of a complaint alleging infringement of the challenged patent.” Thus, when properly framed under §315(b), a privity analysis can include the period between service of a complaint and the filing of a petition seeking inter partes review.
The Board rejected petitioners argument that certain of its prior decisions supported limiting the privity determination under §315(b) to only the time of service of the complaint, explaining that those decisions were non-precedential and that there was no language in the controlling statute that mitigated in favor of adopting the petitioner’s position.
In view of its analysis, and because an inter partes review “may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent,” the Board concluded that VMWare’s petitions were time-barred.
Practice Note: Patent owners are well advised to monitor events that occur after filing of the complaint, with particular attention to any corporate mergers or acquisitions by the defendants or an after arising privity who files a petition for AIA review. This case illustrates the importance of considering the privity issue as part of any IP due diligence performed during M&A transactions.
Facts Govern Real Party-in-Interest Determinations
Addressing the real-party-in-interest (RPI) requirement of 35 U.S.C. § 312(a) in two separate proceedings, the U.S. Patent and Trademark Office (PTO) Patent Trial and Appeal Board (PTAB or Board) emphasized the fact-dependent nature of the inquiry and explained that the inquiry necessarily requires “totality of the circumstances” approach. TRW Automotive US LLC v. Magna Electronics Inc., Case No. IPR2014-01497 (PTAB, Mar. 19, 2015) (Grossman, APJ.); Paramount Home Entertainment Inc. v. Nissim Corporation, Case Nos. IPR2014-00961, -00962 (PTAB, March 19, 2015) (Scanlon, APJ.).
In TRW Automotive v. Magna Electronics, the patent owner claimed that the petitioner failed to identify all of real parties in interest in violation of § 312(a)(2). In this case, the petitioner identified TRW Automotive U.S. LLC as the sole real party in interest and identified TRW Automotive Holdings Corp. and TRW Vehicle Safety Systems Inc. as co-defendants in the related litigation.
The patent owner argued that TRW Automotive Holding Corp. was the “ultimate parent corporation” of the petitioner and therefore “undoubtedly exhibits a significant measure of control” over the petitioner’s activities. Among the evidence of “control,” the patent owner cited the Annual Report of the parent company, noting that the report discussed the petitioner’s financial position. The patent owner also cited a statement in the report that the parent company “conduct[s] substantially all of our operations through subsidiaries” as further evidence of control. As additional evidence, the patent owner identified certain press releases issued by the parent company, and pointed to the use of a common law firm by the Petitioner and the parent company for both the inter partes proceedings and the related litigation.
The PTAB rejected the patent owner’s arguments and determined that the petitioner properly identified all of the real parties in interest. The PTAB explained that real parties in interest are determined under the totality of circumstances, and the process is a “highly fact-dependent question.” Factors that the PTAB may consider include whether a non-party funds and directs and controls an IPR petition or proceeding, the non-party’s relationship with the petitioner and to the petition itself, and the nature of the entity filing the petition. The PTAB particularly noted that a party “is not considered a real party-in-interest in an inter partes review solely because it is a joint defendant with a petitioner in a patent infringement suit. The evidence as a whole must show the non-party possessed “effective control” over the petitioner.”
Addressing the specific evidence cited by the patent owner, the PTAB determined that the Annual Report only generally stated the parent company’s relationship to the petitioner and was not persuasive to establish sufficient opportunity to control “all aspects of Petitioner’s business,” including controlling the inter partes review. Nor did the PTAB find evidence that the petitioner was acting as a proxy for the parent company, or that the parent company was involved in strategic planning, preparation and review of the IPR petition. Rather, the evidence merely demonstrated a “traditional parent/subsidiary business relationship.”
In Paramount Home Entertainment v. Nissim, the PTAB denied the petitioner’s request for rehearing of a decision denying institution of inter partes review. In this case, the petitioner disagreed with the PTAB’s “clearly erroneous” determination that Paramount Pictures Corporation was an unidentified real party-in-interest. According to the petitioner, the record did not contain any evidence rebutting the presumption of corporate separateness between the petitioner and Paramount Pictures Corp. The PTAB, however, pointed to “substantial evidence” presented by the patent owner showing Paramount Pictures to be “an involved and controlling parent corporation.”
The PTAB was also not persuaded by the petitioner’s attempt to address each of the individual pieces of evidence provided by patent owner (and relied upon by the Board) in deciding the real-party-in-interest issue. As the PTAB explained, there is “no bright-line test” used to determine the necessary degree of participation, “the inquiry is not based on isolated facts, but rather on consideration of the totality of circumstances.” Because the petitioner’s arguments did not consider the totality of the circumstances, they were not found to be persuasive.
Practice Note: The PTAB emphasizes that the determination of a real party in interest is a highly fact-dependent question that is based on a totality of the circumstances. When citing cases in support of your position to the PTAB, be sure that the facts closely align with your own.
AIA / IPR / Claim Construction
Nearly Expired Is Not the Same as Expired: The Board Clarifies Claim Construction Standards for Inter Partes Review *Web Only*
Addressing the standard to be applied for claim construction during inter partes review (IPR) proceedings, the U.S. Patent and Trademark Office’s (PTO) Patent Trial and Appeal Board (PTAB or Board) declined to create an exception to the broadest reasonable claim construction standard based on the expiration date of the challenged patent. Apple, Inc. v. PersonalWeb Techs., LLC, Case IPR2013-00596 (PTAB, Mar. 25, 2015) (Turner, APJ.).
After PersonalWeb sued Apple in district court, Apple filed an IPR petition challenging the asserted patent. In its Patent Owner’s Response (filed without a motion to amend), PersonalWeb argued that the Board should not apply the broadest reasonable interpretation (BRI) standard, but should instead apply the narrower Phillips claim construction standard. The multiple asserted basis for this petition was that the challenged patent was nearly expired, as well as an assertion by the patent owner that it did not have an opportunity to amend the claims and that no appeal will take place until after the expiration of the patent. PersonalWeb further argued that the PTO has no authority to apply any claim construction standard for IPR proceedings other than that required by Phillips since the proceeding is not an examination and the applicable claim construction standard is a substantive issue.
The Board was not persuaded. The Board rejected the argument that the patent owner had no ability to amend the claims. In fact, as the Board explained, PersonalWeb had the option to file a motion to amend and to request expedited consideration in view of the imminent expiration of the patent, but chose not to do so. The Board also noted that the Federal Circuit has already determined that the standard to be applied to claim construction of an unexpired patent in an IPR proceeding is the BRI standard and that even the imminent expiration date of the challenged patent does not alter that aspect of the proceeding. After construing the challenged claims under the BRI standard, the Board found all of the challenged claims to be unpatentable as obvious over two prior art references.
PTAB: We Are Disinclined to Acquiesce to Your Rehearing Request
In a decision denying rehearing of the order denying institution of an inter partes review (IPR), the Patent Trial and Appeal Board (PTAB or Board) explained the factors it considers in making institution decisions based on serial petitions. In doing so, the Board made it clear that a petitioner advancing the same or substantially the same prior art or arguments previously before the Office should expect the Board to exercise its discretion under § 325(d) to not institute. Conopco Inc. dba Unilever, v. The Procter & Gamble Company, Case IPR2014-00628, (PTAB Mar. 20, 2015) (Obermann, APJ.).
The petitioner, Unilever, requested rehearing of the Board’s decision denying institution of IPR review. Unilever asked for an expanded panel, including the Chief Administrative Patent Judge, to rehear the matter. Unilever made four arguments for rehearing: that the Board had misapplied § 325(d) and its provisions regarding denying institution based on the same or substantially the same prior art or arguments previously before the Office; that the prior art relied on by the second petition was not substantially the same as that relied on in its first petition; that the Board applied improper estoppel considerations, and that there is no statute, rule or policy basis justifying what is essentially a rule precluding a petitioner from filing a second, improved petition. In the rehearing decision, the Board rejected each of these arguments.
The Board explained that its authority for deciding whether to grant institution is grounded not only in § 325(d), but also in the broader discretion to deny a petition under § 314(a). The latter statue expressly states that “the Director may, but not must, institute a review” even where a petitioner meets the required threshold, i.e., likelihood that a claim will be found invalid.
Revisiting its earlier analysis, the Board noted that a petition raising the same or substantially the same prior art or argument as previously before the U.S. Patent and Trademark Office was just one factor in its denial of institution. Another was “the reasonable inference that new prior art references raised in the second petition . . . were known to Unilever when it filed the first petition.” The Board noted that “a grant of review, under the particular circumstances presented here, would incentivize petitioners to hold back prior art for successive attacks, should a first petition be denied.” The Board also noted that “the sheer multiplicity of grounds asserted in each petition favors denying the second petition, in part, to protect P&G from multifarious challenges to the same patent claims.”
Addressing Unilever’s estoppel argument, the Board explained that petitioner had not articulated a rational basis for precluding the Board from considering whether any new arguments or prior art were known or available at the time of filing of the first petition and that the petitioner’s bright-line approach of automatically allowing follow-on petitions to correct deficiencies in the initial petition would “allow petitioners to unveil strategically their best prior art and arguments in serial petitions, using our decisions on institution as a roadmap, until a ground is advanced that results in review.” The Board underscored that such a practice “would tax Board resources, and force patent owners to defend multiple attacks.”
Finally, the Board explained that panel expansion was not something that the panel itself had authority to grant.
Practice Note: This decision is a tutorial in how serial petitions should and should not be structured. The Board took umbrage at the “sheer multiplicity” of invalidity grounds advanced in the serial petition. To the extent possible, second petitions should be based on new prior art and arguments, and the prior art applied should be art that was not known by the petitioner at the time the first petition was filed. Petitioners are also well advised to be selective as to the number of grounds of unpatentability asserted against the challenged claims.
Cleaning Up a Trademark Damage Mess
In one of three parallel actions for trademark infringement involving competing paper towel manufacturers, the U.S. Court of Appeals for the Fourth Circuit examined the appropriate remedies that may be granted under the Lanham Act with respect to injunctive and monetary relief under §§ 1116 and 1117 of the Act, and sent the matter back to the district court to consider the implications of the Supreme Court decision in Octane Fitness (IP Update, Vol. 17, No. 5). Georgia-Pacific Consumer Prods LP v. von Drehle Corp., Case No. 13-2003 (4th Cir., Mar. 30, 2015) (Niemeyer, J.) (Shedd, J., concurring in part and dissenting in part).
Georgia-Pacific, a leading paper products company, owns a trademark for ENMOTION for use in connection with touchless paper towel dispensers and related goods. Georgia-Pacific’s paper towel dispensers are different in size from competing products, and, under the company’s leases (and subleases through distributors), Georgia-Pacific requires that only certain paper towels manufactured by Georgia-Pacific are to be used in the ENMOTION dispensers. In 2005, when competitor von Drehle made a less expensive paper towel specifically for use in the ENMOTION dispensers, Georgia-Pacific sent a cease-and-desist letter to von Drehle and then filed several complaints against both von Drehle and its distributors for trademark infringement, claiming that “stuffing” its dispensers with von Drehle towels was likely to cause confusion and to deceive end-user customers.
By the time of trial, the U.S. Court of Appeals for the Eighth Circuit had issued a ruling in one of the parallel infringement actions filed against a von Drehle distributor, affirming an Arkansas district court ruling that found no trademark infringement. Following the 8th Circuit’s ruling, the U.S. Court of Appeals for the Sixth Circuit, in the second parallel infringement action against a different von Drehle distributor, ruled against Georgia-Pacific, stating that the Arkansas judgment precluded Georgia-Pacific from relitigating the trademark infringement claim. In the dispute now at the 4th Circuit, however, the court determined that von Drehle had waived its defenses of claim and issue preclusion stemming from the earlier decisions in the other circuits, and allowed the infringement action to go forward.
After the jury found that von Drehle infringed Georgia-Pacific’s ENMOTION trademark, the district court issued a permanent, nationwide injunction prohibiting von Drehle from direct or contributory infringement of Georgia-Pacific’s trademark. The jury awarded Georgia-Pacific almost $800,000, based on von Drehle’s paper towel profits dating from the 2005 cease-and-desist letter through 2011. Finding von Drehle’s trademark infringement to be willful and intentional, the district court also granted treble damages, attorneys’ fees and prejudgment interest, for a total monetary award of a little less than $5 million.
Next, von Drehle appealed the district court award, challenging the geographical scope of the court’s injunction as unduly broad and in conflict with the decisions of other circuits, as well as the monetary awards, arguing that that the district court applied the wrong legal standard with respect to the award of treble damages and attorneys’ fees.
The 4th Circuit acknowledged that under § 1116(a) of the Lanham Act, a district court has the authority to issue a nationwide injunction. However, in view of the fact that the 6th and 8th Circuits found no trademark infringement by von Drehle, the court observed that a nationwide injunction likely would create an “irreconcilable conflict” as to Georgia-Pacific’s trademark rights in those circuits and refused to authorize the enforcement of an injunction in the 6th and 8th Circuits. The court further noted that the doctrine of comity requires that it not allow the injunction to extend to other circuits that have not yet considered the trademark dispute between the parties. The court therefore limited the injunction to the states covered by the 4th Circuit.
As for the treble damage award, the 4th Circuit determined that the district court improperly conflated §§ 1117(a) and 1117(b) of the Lanham Act, which provide “vastly different legal standards, based on the egregiousness of the offense, for determining when a district court can modify a monetary reward.” Therefore, the 4th Circuit found that the district court erred in relying Larsen to award treble damages, because Larsen dealt with a counterfeit trademark under § 1117(b) of the Lanham Act, instead of § 1117(a), which applies generally to trademark infringement cases, noting that § 1117(a) only allows a district court to adjust a jury’s verdict if recovery is either inadequate or excessive and that monetary adjustment under § 1117(a) may not be punitive in nature. Because Georgia-Pacific requested damages consisting only of von Drehle’s profits, the 4th Circuit noted that the jury’s damages award was not inadequate and an increase in the award was not necessary to compensate Georgia-Pacific.
On the issue of attorneys’ fees under the “exceptional” case doctrine, the 4th Circuit explained that the Supreme Court’s 2014 decision in Octane Fitness (IP Update, Vol. 17, No. 5) was applicable, because that decision construed a parallel and essentially identical damages provision in the Patent Act. As the district court did not have the benefit of the Octane Fitness decision when considering whether to award attorney fees to Georgia-Pacific, the Court remanded the question for further consideration by the district court under the guidance of the Supreme Court’s “exceptional” case factors.
Issuing a partial dissent in connection with the restriction of the nationwide injunction, Judge Shedd argued that the 4th Circuit misapplied the discretionary doctrine of comity, and he further stated that an injunction limited to the 4th Circuit is counter to the fundamental purpose of the Lanham Act, which is to provide nationwide protection of trademarks used in interstate and foreign commerce.
Trademarks / Use in Commerce Requirement
Offering of Services Alone Insufficient Basis for § 1(a) Trademark Application
Addressing for the first time whether the offering of a service was sufficient “use in commerce” under the Lanham Act, the U.S. Court of Appeals for the Federal Circuit affirmed the Trademark Trial and Appeal Board’s (TTAB) grant of a petition for cancellation for a trademark registration, concluding appellant’s application was void ab initio. David Couture v. Playdom, Inc., Case No. 14-1480, 778 F.3d 1379 (Fed. Cir., Mar. 5, 2015) (Dyk, J.).
The appellant, David Couture, filed an application for the mark PLAYDOM under § 1(a) of the Lanham Act based on prior use in commerce. Mr. Couture submitted a screenshot of his website, www.playdominc.com, which “offered” film and television services. The website stated it was “under construction.” Mr. Couture did not actually provide film and television production services under his mark until 2010, nearly two years after he filed his use-based application.
Meanwhile, in 2009 Playdom, Inc. (Playdom) filed an application for PLAYDOM. The examining attorney rejected Playdom’s application based on Couture’s registration for PLAYDOM. Playdom then filed a petition to cancel Couture’s registration, arguing that Couture’s registration was void ab initio because Couture had not used the PLAYDOM mark in commerce. After the TTAB agreed with Playdom, this appeal followed.
Relying heavily on its prior decision in Aycock v. Eng’g, Inc. v. Airflite, Inc., the Federal Circuit affirmed the cancellation. Under the Lanham Act, a service mark is used in commerce only when “both it is used or displayed in the sale or advertising of services and the services are rendered.” Because appellant had only offered a service (but not rendered it) at the time he filed his use-based trademark application, his registration was void ab initio.
Practice Note: When in doubt, file an intent-to-use application or amend the basis of an already filed trademark application from prior use in commerce (§ 1(a)) to intent-to-use in commerce (Section 1(b)). Once the mark is registered, however, the original basis of the registration cannot be changed.