PATENTS / PERMANENT INJUNCTION / IRREPARABLE HARM
Driving Demand: Causal Nexus Between Infringing Features, Accused Sales Required to Prove Irreparable Harm
The US Court of Appeals for the Federal Circuit clarified that the causal nexus necessary to prove irreparable harm in a multi-purchaser, multi-component setting does not require proof that the infringing feature is the driver of demand (i.e., that almost no buyers would purchase the product but for the infringing feature), but instead only requires evidence that the infringing feature is a driver of decisions by a substantial number of consumers considering multiple features. Genband US LLC v. Metaswitch Networks Corp., Case No. 17-1148 (Fed. Cir., July 10, 2017) (Taranto, J).
In 2014, Genband sued Metaswitch, alleging that Metaswitch products infringed Genband’s patents related to voice over internet protocol technology. After a jury found that Metaswitch infringed the patents, Genband moved for a permanent injunction. In order to obtain a permanent injunction, a patent owner must demonstrate that (1) it has suffered or will suffer irreparable harm, (2) other remedies (including damages) are inadequate, (3) the balance of hardships to the parties warrants an injunction, and (4) an injunction would not disserve the public interest.
Here, the district court (Judge Gilstrap) denied Genband’s request solely on the basis that Genband failed to show that it would suffer irreparable harm. Importantly, the district court found that Genband had not demonstrated a causal nexus between the alleged harm (future sales) and the infringing features of the accused products. Genband appealed, arguing that the district court used too stringent a standard in evaluating the causal connection.
The Federal Circuit explained that for multi-feature devices where only one feature or component infringes, the traditional test for a causal nexus for irreparable harm requires that the infringing feature “drive demand” for sales of the product. However, this “drive demand” test is susceptible to different interpretations, some strict and some more flexible. On the stricter end, driving demand could require that the infringing feature be the driver of decisions by consumers as a whole—even requiring proof that almost no buyers would purchase the product but for the infringing feature. On the other hand, driving demand could require less—that the infringing feature merely be a driver of decisions by consumers considering purchasing a product.
The Federal Circuit ultimately rejected the stricter test, noting that the governing standard for irreparable harm is “some causal nexus” or “a nexus.” This means that the patentee “need not show that one of the patent features is the sole reason consumers purchased the accused products,” nor that consumers will buy the accused product instead of the patentee’s competing product because it contains the infringing feature. Rather, the patentee “must show some connection between the patented feature and the demand for [the infringer’s accused] products,” which could involve “evidence that a patented feature is one of several features that cause consumers to make purchasing decisions,” “evidence that the inclusion of a patent feature makes a product significantly more desirable,” or “evidence that the absence of a patented feature would make a product significantly less desirable.”
While the district court noted in its decision that Genband argued for the less stringent drive demand interpretation, the Federal Circuit could not determine from the opinion what test the district court actually used. Accordingly, it vacated the denial of the preliminary injunction and remanded for reconsideration consistent with the more flexible test.
Practice Note: The Federal Circuit ruling in Apple v. Samsung (IP Update, Vol. 15, No. 11), which involves the proper standard for issuing injunctions, is now on appeal to the Supreme Court of the United States.
PATENTS / INEQUITABLE CONDUCT
Counsel’s Actions Support Inference of Intent to Deceive PTO
In a decision clarifying the analysis for inequitable conduct, a split panel of the US Court of Appeals for the Federal Circuit affirmed a district court finding of specific intent to deceive the US Patent and Trademark Office (PTO) during prosecution of an asserted patent, based largely on misconduct by litigation counsel during the district court action. Regeneron Pharmaceuticals, Inc. v. Merus N.V., Case No. 16-1346 (Fed. Cir., July 27, 2017) (Prost, CJ) (Newman, J, dissenting). The dissent argued that the decision ignored the Court’s own requirement that intent to deceive must be proved and not merely inferred.
Regeneron filed suit alleging that Merus infringed its patent directed to using large DNA vectors to target and modify endogenous genes and chromosomal loci in eukaryotic cells. The patented technology allows users to target and modify specific genes in mice so that the mice develop antibodies that can be used by humans.
Days before the PTO issued a notice of allowance for the application that would mature into the asserted patent, a third party filed a submission in the parent application, disclosing three prior art references. Regeneron’s in-house patent prosecution counsel, who was prosecuting the application, knew of the references submitted in the parent application but failed to cite them to the examiner.
Merus contended that Regeneron’s failure to cite those references constituted inequitable conduct. Regeneron argued that the in-house counsel did not have an obligation to disclose the references to the examiner because they were cumulative of other cited art and therefore not “but-for” material. Merus argued, however, that the withheld prior art taught the very thing that Regeneron’s counsel claimed was missing from the prior art: insertion of human variable region gene segments into mouse immunoglobulin loci.
The district court scheduled a bench trial on Regeneron’s inequitable conduct, bifurcating the trial based on the two elements of inequitable conduct: a first bench trial on the materiality of the withheld references and a second to consider specific intent to deceive the PTO. Following the first part of the bench trial, the district issued an opinion explaining why the withheld references were material. The district court never concluded the second part of the bench trial, however. Instead, the district court pointed to Regeneron’s discovery misconduct, sanctioned Regeneron by drawing an adverse inference of specific intent to deceive the PTO, and held the patent unenforceable. Regeneron appealed.
The Federal Circuit panel majority concluded that under the broadest reasonable construction of the claims (the construction applicable to the PTO examinations), the district court properly found that the withheld references were material. As for specific intent to deceive the PTO, the majority accepted the district court’s sanctions, underscoring the extent and seriousness of Regeneron’s litigation misconduct, in particular its “sword/shield” discovery tactics regarding the attorney-client privilege. The panel cited to the 2011 Federal Circuit Therasense decision (IP Update, Vol. 14, No. 6) for the proposition that “in a case involving nondisclosure of information, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference,” but explained that “direct evidence of intent is not, however, required.” Rather, a “court may infer intent from circumstantial evidence.” The Court went on to note that Regeneron’s behavior in district court was “beset with troubling misconduct.” This misconduct included withholding as privileged a memo by an outside counsel regarding whether the prior art should be presented to the PTO, only to produce the memo at the last moment, at the start of deposition of the memo’s writer.
In dissent Judge Newman argued that, under Supreme Court of the United States and Federal Circuit precedent, “deliberate withholding of but-for invalidating prior art, with the intent to deceive the examiner, must be established by clear and convincing evidence.” Newman relied on Apptix for the proposition that “the remedies for litigation misconduct bar the malfeasant who committed the misconduct. The property right itself remains independent of the conduct of a litigant.” In Newman’s view, “intent to deceive the Examiner cannot be inferred from purported litigation misconduct several years later.” Addressing the dissent, the panel majority took the position that Apptix was inapposite, that prosecution misconduct had occurred, and that Regeneron’s litigation misconduct “obfuscated its prosecution misconduct.”
PATENTS / § 101 (SUBJECT MATTER ELIGIBILITY)
Cardiovascular Disease Correlation Doesn’t Beat § 101 Challenge
Addressing the issue of whether method claims involving determination of risk of cardiovascular disease based on detection of a particular biomarker pass § 101 muster under the 2014 Supreme Court of the United States decision in Alice (IP Update, Vol. 17, No. 7), the US Court of Appeals for the Federal Circuit upheld the district court’s finding that the claims were not patent eligible. The Cleveland Clinic Foundation v. True Health Diagnostics LLC, Case No. 16-1766 (Fed. Cir., June 16, 2017) (Reyna, J).
The patents at issue involve methods of detecting MPO, an enzyme released when arteries are damaged or inflamed, and evaluating the risk of cardiovascular disease based on the MPO levels. After Cleveland Clinic filed suit, True Health moved to dismiss on the grounds that the claims were directed to ineligible subject matter under § 101. The district court agreed and found all claims of the asserted diagnostic patents invalid. Cleveland Clinic appealed.
Cleveland Clinic argued that a motion to dismiss was an improper vehicle for assessing patent eligibility under § 101. Rather, the “district court should have undertaken claim construction and developed the factual and expert record before analyzing” validity under § 101. The Federal Circuit rejected this argument, noting that Cleveland Clinic “provided no proposed construction of any terms or proposed expert testimony that would change the § 101 analysis.”
Turning to the merits of subject matter eligibility, the Federal Circuit first evaluated whether “the claims are directed to ineligible subject matter, such as a law of nature,” under Alice step one. The Court concluded that the claims are directed to a natural law because they involve detecting naturally occurring MPO and then “[employ] the natural relationship between those MPO values and predetermined or control values to predict a patient’s risk of developing or having cardiovascular disease.”
Proceeding to Alice step two, the Federal Circuit examined “the elements of the claims to determine whether they contain an inventive concept sufficient to transform the claimed naturally occurring phenomena into a patent-eligible application.” In other words, having already identified the natural law—the presence of MPO in the body and its correlation with cardiovascular disease—in Alice step one, the Court focused on whether the claims added anything new sufficient to render the claims patentable. As part of that analysis, the Court distilled the claimed method to two steps: a “determining” step that involved analyzing MPO levels, followed by a “comparing” step that involved comparing MPO levels to statistically derived control or predetermined values. The Court concluded that both steps could be performed using known techniques, so the invention claimed reduced to the correlation between MPO and risk of cardiovascular disease. Accordingly, the Court concluded that the claimed method did “not sufficiently transform the natural existence of MPO in a bodily sample and its correlation to cardiovascular risk into a patentable invention.”
Cleveland Clinic argued that its claims were analogous to those in CellzDirect and therefore were directed to patent-eligible subject matter. In CellzDirect, the Federal Circuit found that the challenged claims were valid under § 101 because they were “directed to a new and useful laboratory technique for preserving [liver cells]” (IP Update, Vol. 19, No. 8). The Court, however, disagreed with the analogy. In CellzDirect, “the inventors took the discovery that certain liver cells will survive multiple freeze-thaw cycles and applied that to improve existing methods for preserving liver cells.” The Court concluded that the claimed invention here was not directed to a new laboratory technique but rather “uses well known techniques to execute the claimed method.”
Practice Note: Although the Federal Circuit determined that the claims in issue here were not patent eligible under § 101, it acknowledged a narrow path to § 101 eligibility under CellzDirect. Based on the Court’s reasoning, the claims could have survived the § 101 challenge had they required new and different methods of detecting MPO. When appropriate, patent owners should consider raising substantive claim construction arguments (in response to a motion to dismiss on §101 grounds) in order to try to establish that the challenged method requires new techniques.
PATENTS / PRIVILEGE / WAIVER
Pre-Merger Intentional Waiver of Privilege Can Extend to Post-Merger Communications
The US Court of Appeals for the Federal Circuit ruled that a predecessor company’s intentional waiver of attorney-client privilege can survive the company’s merger. In re OptumInsight, Inc., Misc. Docket No. 2017-116 (Fed. Cir., July 20, 2017) (Hughes, J).
OptumInsight sought a writ of mandamus relieving it from a discovery order issued by the district court. The district court had granted a motion to compel production of documents related to a patent’s conception and first sale, which the original patent holder and OptumInsight’s merger partner, Symmetry Health Data Systems, previously asked the US Patent and Trademark Office (PTO) to consider in a re-examination proceeding. The Federal Circuit denied the mandamus petition, concluding that the district court did not clearly abuse its discretion by extending the waiver of privilege for purposes of the re-examination proceeding to post-merger communications.
Symmetry Health developed health care analytics software that it marketed as the Symmetry Episode Treatment Group Program (ETG). In 1995, Symmetry Health offered Aetna Life Insurance Company a license to ETG. More than a year later, Symmetry Health filed a patent application describing ETG, but did not disclose to the PTO the licensing offer it had made to Aetna. The PTO granted the patent, but in 2000 Symmetry Health sought re-examination, asking the PTO to examine whether the licensing offer invalidated the patent. Symmetry Health submitted an information disclosure statement and attorney affidavit to support its position that ETG as patented was not fully developed at the time of the offer. In 2007, Symmetry Health and OptumInsight merged. OptumInsight emerged as the sole surviving company and sole owner of the patent at issue.
Following the merger, OptumInsight sued Cave Consulting Group, alleging that it infringed the patent, but ultimately dismissed the lawsuit. Cave Consulting then sued OptumInsight, alleging that it misrepresented ETG’s conception date in the re-examination proceedings and thus violated federal antitrust law by asserting a fraudulently procured patent in its lawsuit against Cave Consulting.
During discovery in Cave Consulting’s lawsuit, Cave Consulting sought communications from both pre- and post-merger periods relating to the conception date and first sale. OptumInsight objected to the request for post-merger documents, arguing that Symmetry Health’s earlier submission could not be construed as waiver over post-merger communications between OptumInsight and its counsel. The district court granted Cave Consulting’s motion to compel as to all communications, leading up to OptumInsight’s dismissal of its infringement suit.
The Federal Circuit declined to adopt a categorical rule against attributing a predecessor’s waiver to its successor entity. Instead, the Court explained that the question of subject-matter waiver should be analyzed “through a fairness lens.” The Court noted that the authority to assert and waive a corporation’s attorney-client privilege survives succession, and concluded that “[l]ogically, if a successor company can assert privilege over its predecessor’s communications, the flipside of that principle is that a successor company can also be subject to its predecessor’s intentional waiver in certain circumstances.”
Finding no abuse of discretion in the district court’s analysis, the Federal Circuit denied the writ of mandamus and directed OptumInsight to produce its communications in accordance with the district court’s order.
Obviousness Reversed for Clear Error in Factual Findings on Combination of References
Mandy H. Kim
The US Court of Appeals for the Federal Circuit reversed a district court’s judgment that the challenged claims were invalid for obviousness. The Court also vacated judgments in separate actions that had been entered based on collateral estoppel, concluding that the district court erred in its evaluation of the factual record in its obviousness analysis. Millennium Pharmaceuticals, Inc. v. Sandoz Inc., Case Nos. 15-2066; 16-1008; -1009; -1010; -1109; -1110; -1283; -1762 (Fed. Cir., July 17, 2017) (Newman, J).
Millennium is the exclusive licensee of the patent at issue, which relates to a chemical compound described as a boronate ester of bortezomib and D-mannitol and also claims a lyophilized compound. Millennium developed the patented product under the brand name Velcade®, and it became “a cancer treatment that changed the decades-old standard of care for multiple myeloma and has saved thousands of lives. The [US Food and Drug Administration] approved Velcade® in record time, despite its novel structure and mechanism of action.”
Sandoz filed abbreviated new drug applications (ANDAs) admitting infringement and seeking to invalidate various claims of the patent. The district court held the asserted and challenged patent claims invalid, based on its finding that they were the inherent result of an allegedly obvious process, i.e., lyophilizing bortezomib in the presence of the bulking agent mannitol. Regarding the patent owner’s evidence of secondary considerations, the district court found that Millennium did not establish unexpected results or long-felt need. Millennium appealed after the district court entered a final judgment in separate actions arising from ANDAs filed by Apotex and Teva based on collateral estoppel arising from the district court’s judgment of invalidity of the asserted patent claims in the Sandoz action. The Federal Circuit consolidated the appeals.
Reversing the district court, the Federal Circuit found clear error in the district court’s obviousness analysis. The Court noted that there was no teaching or suggestion in the prior art of the claimed compound (a mannitol ester of bortezomib), and that moreover there was no reference or combination of references that showed or suggested a reason to make the claimed compound in order to solve the problems of instability and insolubility so as to release bortezomib (the lead compound) at an effective rate in the bloodstream, all critical to effective use for treating multiple myeloma. The Court noted that none of the experts presented by the many defendants testified awareness of prior art to fill any of the gaps in terms of teaching or suggesting the patented Velcade® product. Rather, the Court found that the undisputed facts only showed failed attempts to achieve a stable formulation having the necessary properties of solubility and dissociation in the bloodstream, as did the claimed compound. The Federal Circuit explained that neither the requisite motivation nor reasonable expectation of success required to arrive at a determination of obviousness was found in the prior art.
Similarly, the Federal Circuit explained that the district court erred in its reasoning regarding inherency of the outcome, finding that the claimed compound was not inevitable: “[t]he inventor’s own path itself never leads to a conclusion of obviousness; that is hindsight. What matters is the path that the person of ordinary skill in the art would have followed, as evidenced by the pertinent prior art.” Here, the Court found no evidence that anyone “foresaw or expected” that the reaction between bortezomib and mannitol “would have the long-sought properties and advantages” of the claimed invention.
The Federal Circuit also concluded that the district court erred in its examination of secondary considerations of unexpected results and long-felt need. As to unexpected results, the Court found that the district court should have acknowledged the unrebutted evidence that the D-mannitol ester of bortezomib exhibited unexpected results compared with bortezomib, including unexpectedly superior stability, solubility and dissolution. As to long-felt need, the Court noted that there was no dispute that there was a long-felt need for a product to treat multiple myeloma, since available treatments prior to Velcade® gave poor remission rates and low survival rates.
PATENTS / INTER PARTES RE-EXAMINATION / OBVIOUSNESS
Obviousness Does Not Require Absolute Predictability
Wen Li, PhD
Addressing the issue of obviousness, the US Court of Appeals for the Federal Circuit affirmed three inter partes re-examination decisions of the Patent Trial and Appeal Board (PTAB) invalidating numerous claims in each of three related patents. Soft Gel Tech., Inc. v. Jarrow Formulas, Inc., Case Nos. 16-1814; -1815; 17-1051 (Fed. Cir., July 26, 2017) (Bryson, J).
Jarrow requested inter partes re-examinations of three related Soft Gel patents. The patents relate to compositions comprising a solution of CoQ10 dissolved in d-limonene, which belongs to the family of monoterpene. The US Patent and Trademark Office ordered re-examinations of all three patents, and the examiner rejected various claims of the patents in each re-examination. On appeal, the PTAB invalidated numerous claims in each of the three patents for being obvious over the combination of five references.
In particular, the PTAB found that (1) a prior art reference (Motoyama) discloses that CoQ10 is highly soluble in carvone, which is a monoterpene found in spearmint oil and peppermint oil; (2) other prior art references (Khan and Nazzal) teach using peppermint oil, spearmint oil and lemon oil with CoQ10; and (3) according to other prior art (IARC and Fenaroli), d-limonene is the main component of lemon oil. The PTAB determined that combination of the references suggests the claimed composition. The PTAB also found that a skilled artisan would have been motivated to combine the references and would have had a reasonable expectation of success in doing so. Soft Gel appealed.
On appeal, Soft Gel raised issues with three factual PTAB findings—namely, that d-limonene is the main component of lemon oil, that Khan does not teach away from the claimed invention, and that a skilled artisan would have had a reasonable expectation of success for combining the references.
The Federal Circuit explained that the record (including the IARC and Fenaroli references) supports the finding that d-limonene is the major component of lemon oil. Regarding a reference introduced by Soft Gel to challenge that finding, the Court concluded that the reference actually supported the PTAB finding.
The Federal Circuit also sustained the PTAB’s ruling that Khan does not teach away from dissolving CoQ10 in lemon oil. The Court explained that Soft Gel mischaracterized Khan in contending that Khan teaches difficulties associated with dissolving CoQ10 in lemon oil. The Court also rejected as immaterial Soft Gel’s contention that Khan only disclosed melting, and not dissolving, CoQ10 in the presence of an essential oil. Because Khan discloses using essential oils to make CoQ10 more available to the body, the Court reasoned that it resolved the same problem as the claims at issue. Finally, notwithstanding Soft Gel’s attempt to draw a contrast between lemon oil and peppermint oil/spearmint oil, the Federal Circuit concluded that Khan showed the best results being associated with lemon oil. The Federal Circuit noted that the PTAB’s obviousness conclusions were not undermined by Soft Gel’s attack on Khan because the decisions were based on a combination of references.
Finally, the Federal Circuit explained that Soft Gel urged an incorrect legal standard for obviousness, one that required “absolute predictability” rather than “a reasonable expectation of success.” Soft Gel relied on a follow-up study conducted by Dr. Khan on the use of d- and l-limonene as evidence that it would not have been obvious that the earlier results from lemon oil are attributable to d-limonene. The Court noted that a supplemental study on the use of limonene does not imply lack of awareness of the likely results. Rather, subsequent studies are frequently conducted to confirm a reasonable expectation.
PATENTS / PTAB / CLAIM CONSTRUCTION / JURISDICTION
Disclosed Structure Restricts Breadth of Means-Plus-Function Limitations
In an opinion addressing claim construction and Patent Trial and Appeal Board (PTAB) jurisdiction, the US Court of Appeals for the Federal Circuit concluded that while the PTAB had the authority to consider the patentability of the challenged claims, its obviousness rejections were based on a faulty claim construction. IPCom GmbH & Co. v. HTC Corp., Case No. 16-1474 (Fed. Cir., July 7, 2017) (Chen, J).
After IPCom sued HTC for infringing its patent, HTC requested that the US Patent and Trademark Office (PTO) conduct inter partes re-examination of several claims of the patent. After the examiner found the claims patentable, HTC appealed to the PTAB, which issued a new ground of rejection against the claims for which re-examination was sought, as well as several other claims. IPCom amended the claims that were subject to the re-examination request, but the PTAB found the amended claims obvious. IPCom appealed.
On appeal, IPCom argued that the PTAB’s obviousness rejections were based on a flawed claim construction because (i) the PTAB never identified the structure in the specification corresponding to a means-plus-function claim limitation, and (ii) that the PTAB lacked jurisdiction to review a subset of the amended claims because those claims were not expressly considered by the PTAB in its first review of the examiner’s rejection.
Regarding the claim construction issue, the Federal Circuit agreed that the PTAB failed to properly construe the means-plus-function limitation, noting that § 112, ¶ 6 sets a limit on how broadly the PTO may construe a means-plus-function limitation even under the broadest reasonable interpretation standard. The language of a §112, ¶ 6 claim element must be interpreted in light of the corresponding structure disclosed in the specification, and the PTO may not disregard that structure when considering patentability. In construing the claim element in issue here, the PTAB rejected IPCom’s proposed three-step algorithm disclosed in the specification, but failed to identify what it believed to be the correct algorithm. After rejecting IPCom’s proposed algorithm, the PTAB treated the means-plus-function limitation as purely functional and concluded that the cited references disclosed the claimed function.
As for the PTAB’s jurisdiction regarding the subset of amended claims, the Federal Circuit noted that IPCom filed a request to reopen prosecution of the challenged claims (which included the subset of claims) in view of the PTAB’s initial decision, and that the matter was remanded to the examiner for consideration in view of the newly submitted claim amendments. The Federal Circuit explained that by amending the subset of claims, IPCom altered the scope of those claims, thus permitting HTC to challenge their validity. Hence, the PTAB properly considered HTC’s challenge to the amended subset of claims after IPCom reopened prosecution.
PATENTS / IPR / MOTION TO AMEND
PTAB’s Consideration of Prior Art Needs a Tune Up
The US Court of Appeals for the Federal Circuit remanded a case to the Patent Trial and Appeal Board (PTAB) where the PTAB had failed to consider a specific prior art combination and unpatentability argument advanced by the petitioner against the amended claims. Shinn Fu Co. of America, Inc. v. The Tire Hanger Corp., Case No. 16-2250 (Fed. Cir., July 3, 2017) (Prost, CJ) (non-precedential).
Shinn Fu filed a petition for inter partes review (IPR), challenging all five claims of a patent owned by Tire Hanger that generally relates to methods and apparatus for handling and supporting vehicle wheels that have been temporarily removed from a vehicle positioned on a lift or hoist. The PTAB instituted review based on three asserted grounds of invalidity. In response, Tire Hanger filed a motion seeking to cancel claims one to five and replace them with substitute claims. Tire Hanger accompanied its amendments with arguments in support of patentability over the prior art cited for the instituted grounds of review as well as two newly cited prior art references. Shinn Fu opposed and presented arguments of unpatentability with regard to the references Tire Hanger identified in its motion and the two additional references.
After oral hearing, the PTAB concluded that the amended claims were patentable in light of the prior art of record and granted the patent owner’s motion to amend. In its decision, the PTAB referred to only a subset of the prior art cited by the parties. Shinn Fu appealed, arguing that the PTAB failed to consider its position of unpatentability based on one of its cited combinations of prior art.
The Federal Circuit found that the PTAB erred by ignoring the manner in which Shinn Fu proposed its obviousness combinations in opposition to Tire Hanger’s motion to amend. Despite Tire Hanger’s arguments that Shinn Fu failed to thoroughly develop its unpatentability arguments during the trial, the Federal Circuit found that “Shinn Fu described various prior art references and, more importantly here, the particular manner in which to combine them.” The Court further observed that aside from specifying the order in which to perform the recited steps, the claim amendments added human involvement to steps that an apparatus or other structure could have otherwise performed. The Federal Circuit explained that it could not review the PTAB’s analysis with respect to Shinn Fu’s described prior art combination because that analysis was completely missing from the PTAB’s decision.
Practice Note: The Federal Circuit explained that the PTAB’s error was failure to address the specific prior art combination cited by the petitioner, but that “the law does not require that the PTAB address every conceivable combination of prior art discussed throughout an IPR proceeding, no matter how duplicative the other references are.”
PATENTS / EXCEPTIONAL CASE (ATTORNEYS’ FEES) DOCTRINE
Consideration Under Octane Fitness Requires Fresh Case Analysis
The US Court of Appeals for the Federal Circuit reversed and remanded a district court decision for proper application of the exceptional case standard set forth in Octane Fitness v. Icon Health & Fitness (IP Update, Vol. 18, No. 8), finding that the district court is required to reconsider the record under the Octane Fitness standard instead of relying upon the findings in the original decision. AdjustaCam, LLC v. Newegg, Inc., Case No. 16-1882 (Fed. Cir., July 5, 2017) (Reyna, J).
AdjustaCam owns a patent directed to a camera clip that supports a camera on a flat surface or when attached to a computer monitor. AdjustaCam sued Newegg, among other defendants, for patent infringement, ultimately moving to dismiss its claims against Newegg just prior to summary judgment briefing, contingent on Newegg’s right to seek fees after dismissal. A key dispute among the parties was whether the ball and socket joint of Newegg’s products could meet the claim limitation of the asserted patent, which requires the hinge member to be rotatably attached to the camera in a single axis of rotation. Newegg moved for a declaration that the case was exceptional under 35 USC § 285 and an award of fees, arguing that AdjustaCam brought an objectively baseless lawsuit in bad faith to extract nuisance-value settlements unrelated to the merits and far below the cost of the defense, prolonging the litigation in bad faith even after the Markman order. After the district court denied Newegg’s motion, Newegg filed a first appeal to the Federal Circuit.
In the first appeal, Newegg challenged the district court’s denial of its motion, and the Federal Circuit remanded the case for reconsideration in light of Octane Fitness, noting in its order that Octane Fitness (IP Update, Vol. 17, No. 5) substantially changed the analysis under § 285 and that “Newegg’s arguments appear to have significant merit”
On remand, the case was assigned to a new judge, and the parties re-briefed the § 285 issue under the Octane Fitness standard. The district court again denied Newegg’s motion for fees, relying heavily on the findings of the original judge in order to avoid hindsight bias, noting that the original trial judge was in the best position to evaluate the merits of the case. The district court found that AdjustaCam’s infringement and validity arguments were not so weak, nor its litigation conduct so poor, as to constitute an exceptional case. Newegg again appealed.
In this appeal, the Federal Circuit found that the district court abused its discretion by not awarding fees to Newegg for two reasons:
- The district court failed to follow the Federal Circuit’s mandate on remand.
- The district court’s decision was based on a clearly erroneous assessment of the evidence.
First the Federal Circuit found that the district court erred by failing to engage in an independent analysis to determine whether the case was “exceptional” under the totality of the circumstances and the lower burden of proof under Octane Fitness. The district court abused its discretion by adopting the previous judge’s factual findings wholesale and failing to follow the Federal Circuit’s mandate by not evaluating the merits of Newegg’s motion in the first instance based on the Octane Fitness standard.
Second, the Federal Circuit found the district court’s findings regarding the substantive strength of AdjustaCam’s case to be clearly erroneous because AdjustaCam did not introduce any evidence showing infringement by Newegg’s products under the adopted claim construction. Based on the evidence presented, the accused products did not infringe the asserted patent, making AdjustaCam’s litigation position baseless. In terms of litigation misconduct, the Federal Circuit also noted that the district court erred in failing to consider AdjustaCam’s repeated use of after-the-fact declarations—such as serving a new expert report on the day of the expert’s deposition and use of supplemental declarations making new infringement arguments—as litigation misconduct. The Federal Circuit further explained that the district court erred by not considering AdjustaCam’s damages methodology because, while not determinative of an exceptional case on its own, AdjustaCam’s assertion of nuisance-value damages against many defendants, in combination with its frivolous infringement arguments and unreasonable manner of litigation, should have played a role in evaluating whether the case was exceptional based on a totality of the circumstances test. The Court reversed and again remanded the case for further proceedings, including the calculation of attorneys’ fees.
PATENTS / ITC / ENFORCEMENT
ITC Denies Emergency Petitions on Relief from Exclusion Order
The US International Trade Commission (ITC) denied respondent’s emergency petitions to modify, suspend or rescind the ITC’s limited exclusion order and cease-and-desist order pending appeal of the Patent Trial and Appeal Board’s (PTAB’s) inter partes review final written decisions, which found unpatentable the claims of two patents previously held to be in violation by respondent under § 337. In re Certain Network Devices, Inv. No. 337-TA-945 (ITC, June 20, 2017).
The ITC instituted its investigation of Arista Networks’ devices based on a complaint filed by Cisco Systems, which alleged § 337 violations by way of infringement of six Cisco patents. The ITC found a violation of § 337 as to certain claims of two Cisco patents, and as a result issued a limited exclusion order and a cease-and-desist order regarding Arista Networks’ infringing devices.
Parallel to the ITC proceedings, the same two patents that formed the basis of the ITC’s § 337 violation findings were subject to inter partes review at the PTAB. Ultimately, the PTAB issued final written decisions finding the claims of both patents unpatentable. In light of the PTAB’s decisions, Arista Networks filed emergency petitions seeking the suspension or rescission of the ITC’s remedial orders pending appeal of the PTAB decisions.
The ITC denied Arista Networks’ emergency petitions, however, finding that “the PTAB’s final written decisions do not constitute a changed circumstance such that the remedial orders should be rescinded.” Specifically, the ITC noted that the legal status of those claims at issue would not change unless and until the US Patent and Trademark Office issued a certificate canceling the claims following the exhaustion of all appeals.
America Invents Act
AIA / IPR / SOVEREIGN IMMUNITY
Sovereign Immunity Cannot Protect Patent Co-Owned by Private Party
Addressing for the first time the issue of whether an inter partes review (IPR) may proceed where one of the co-owners was entitled to sovereign immunity under the 11th Amendment, the Patent Trial and Appeal Board (PTAB) held that the proceeding could continue against the co-owner not entitled to sovereign immunity, even in the absence of the other co-owner. Reactive Surfaces Ltd., LLP v. Toyota Motor Corp., Case No. IPR2017-00572, Paper 32 (PTAB, July 13, 2017) (Moore, APJ).
Reactive Surfaces filed an IPR against a patent co-owned by Toyota and Regents of the University of Minnesota (collectively, patent owner), alleging that the patent owner’s patented processes for preparation of a protein-polymer composite material, and the patented material itself, were obvious in view of prior art. During prosecution of the patent, three of the six named inventors assigned their interest in the patent to the Regents. The remaining three inventors assigned their rights to Toyota. Accordingly, the patent is co-owned by Toyota and the Regents.
After Reactive filed the IPR petition, patent owner was granted authorization to file a motion to dismiss the petition on the grounds that the Regents were entitled to sovereign immunity under the 11th Amendment and that the proceeding could not continue in their absence. Patent owner argued that sovereign immunity had already been held to apply to IPR proceedings, that the Regents (as an arm of the State of Minnesota) were clearly entitled to invoke it, and that the merits of the IPR proceeding could not be adjudicated in the absence of the Regents. Reactive opposed the motion on several grounds, arguing that the 11th Amendment does not extend to IPRs, that the patent owner failed to prove that the Regents were entitled to assert sovereign immunity, and that any sovereign immunity possessed by the Regents did not extend to Toyota.
The PTAB reiterated that sovereign immunity may be asserted in IPRs, citing its own precedent (which, while non-binding, was found to be persuasive). Next, the PTAB found that the Regents were entitled to assert sovereign immunity because “a state university typically enjoys sovereign immunity” and the Regents were “interchangeable [with the University of Minnesota] for purposes of 11th Amendment analysis.” Finally, the PTAB determined that the proceeding could continue against Toyota in the absence of the Regents. The PTAB noted that the rules governing IPRs provided for “at least three circumstances” where proceedings could continue in the absence of a patent owner. Although the PTAB found that none of the three circumstances applied to the present situation, it demonstrated that the patent owner’s argument “for a rule requiring automatic termination of a proceeding upon the dismissal of a party” was unsupported. Citing federal case law allowing actions to proceed against private defendants after a co-defendant had asserted sovereign immunity, the PTAB concluded that an IPR proceeding against a private co-owner could proceed where the co-owner “adequately represents the interest of the absent sovereign party.” Here, where the same legal counsel represented both co-owners of the patent, the PTAB concluded that Toyota could adequately represent the Regents’ interests.
Practice Note: Universities and other state actors should be aware that co-owning a patent with a private party leaves the patent susceptible to IPR challenges. It may behoove such state actors to completely own their patents to protect against post-grant challenges. Similarly, private parties should be aware that co-owning a patent with a state actor will not protect the patent from post-grant challenges.
TRADEMARK / GOOD FAITH ADOPTION / DAMAGES
Stone-Cold Circuit Split on Award of Trademark Profits
Addressing the issue of whether willfulness is required to award profits in trademark cases, and continuing a circuit split on the issue, the US Court of Appeals for the Ninth Circuit affirmed the district court’s conclusion that willfulness is a necessary condition for the disgorgement of profits. Stone Creek, Inc. v. Omnia Italian Design, Inc., Case No. 15-17418 (9th Cir., July 11, 2017) (McKeown, J).
In 2003, Stone Creek, a furniture manufacturer in the Arizona area, contracted with Omnia to buy Omnia’s furniture branded with the STONE CREEK mark. In 2008, Omnia wanted to capture another large customer, Bon-Ton Stores, a retailer in the Midwest. Bon-Ton signed on for Omnia to supply it with leather furniture. However, Bon-Ton wanted an “American- sounding” label. Although it had many choices, Bon-Ton opted for STONE CREEK. Without permission, Omnia copied the STONE CREEK mark and applied it to a host of items, including binders, leather samples, in-store displays, warranty cards and the furniture. Stone Creek learned of Omnia’s unauthorized use of the STONE CREEK mark and promptly filed suit, alleging trademark infringement and unfair competition. After the district court determined that Omnia did not infringe Stone Creek’s trademark, Stone Creek appealed.
The Ninth Circuit analyzed the Sleekcraft likelihood of confusion factors and concluded that the district court committed legal error in framing many of the factors. In analyzing the market channels factor, the Ninth Circuit found that the district court was led astray by its “myopic focus on the considerable distance between Stone Creek’s physical showrooms in Arizona and Bon-Ton’s in the Midwest.” Essentially, the district court’s failure to properly analyze this factor rested on its faulty legal assumption that geographic separation automatically means no intersection in market channels. Such analysis fails to take into account the internet as a sales channel, the Court explained. Finding a powerful case for a likelihood of confusion, the Ninth Circuit reversed the district court on the issue of infringement.
Omnia asserted that its use of the Stone Creek mark was protected under the Tea Rose-Rectanus good faith adoption doctrine. But that doctrine requires the junior user to establish good faith use in a geographically remote area. Since Omnia serendipitously chose to use the Stone Creek mark, without authorization from the registered owner, the Ninth Circuit found that the junior user acted in bad faith and that therefore the doctrine was not available to it as a defense.
The Ninth Circuit then addressed the standard for disgorgement of profits as the proper measure of damages. Prior to a 1999 amendment to the Lanham Act’s remedies provision, Ninth Circuit precedent held that an award of a defendant’s profits required a showing of willful infringement. In this case, the Court examined the legislative history of the Lanham Act amendment and found that it was intended only to correct a mistaken omission under the trademark dilution statute, not to change the foundation of Ninth Circuit precedent on defendants’ profits as a measure of damages. Addressing the question for the first time, the Ninth Circuit held that “willfulness remains a prerequisite for awarding a defendant’s profits.”
Practice Note: Several circuits have ruled the other way, viewing willfulness as one factor in the overall determination of whether an award of the infringer’s profits is appropriate. The Third, Fourth, Fifth and Seventh circuits have adhered to the rule that willfulness is but one piece of the puzzle. Given this split, trademark owners should be aware of what they must plead to recover the defendant’s profits in the various regional circuits.
Ongoing Family Feud over Earnhardt Name
Eleanor B. Atkins
Addressing the Trademark Trial and Appeal Board (TTAB) finding that EARNHARDT was not primarily merely a surname, the US Court of Appeals for the Federal Circuit remanded the case to the TTAB to clarify its surname analysis. Teresa H. Earnhardt v. Kerry Earnhardt, Inc., Case No. 16-1939 (Fed. Cir., July 27, 2017) (Chen, J).
Kerry Earnhardt, son of the late professional racecar driver Dale Earnhardt, is co-founder and CEO of Kerry Earnhardt, Inc. (KEI). KEI applied to register the mark EARNHARDT COLLECTION in Class 20 for “furniture” and in Class 37 for “custom construction of homes.” Kerry Earnhardt’s step-mother (and Dale Earnhardt’s widow), Teresa Earnhardt, opposed the application, arguing that the applied-for mark would result in a likelihood of confusion with her registered and common-law DALE EARNHARDT marks used in connection with a variety of goods and services. Teresa Earnhardt further argued that EARNHARDT COLLECTION was primarily merely a surname under § 2(e)(4) of the Lanham Act.
The TTAB dismissed the opposition, finding that Teresa Earnhardt failed to establish a likelihood of confusion and that EARNHARDT COLLECTION was not primarily merely a surname. Earnhardt appealed the TTAB’s surname finding.
Both parties agreed that EARNHARDT, standing alone, is primarily merely a surname. The dispute centered on whether considering the mark in its entirety—with the addition of COLLECTION—changed that conclusion. The Federal Circuit explained that the proper test according to Hutchinson Technology requires the US Patent and Trademark Office (PTO) to make two inquiries:
- It must determine whether the additional term (here, “collection”) is merely descriptive of the applied-for goods and services.
- It must determine whether the additional term alters the primary significance of the mark.
Earnhardt argued that the TTAB failed to fully and properly analyze “collection” in discussing only whether the term was generic and not assessing whether the mark was merely descriptive. KEI agreed that the TTAB should address the issue of whether “collection” is generic or descriptive, but, contrary to Teresa Earnhardt’s contentions, argued that the TTAB properly assessed both inquiries.
The Federal Circuit agreed with the parties that the TTAB must determine whether “collection” is merely descriptive of the applied-for goods and services. However, in remanding the case back to the TTAB, the Court explained that “upon review of the Board’s decision, it is unclear whether the Board engaged in a merely descriptive inquiry for the term ‘collection’ or if the Board improperly constricted its analysis to only a genericness inquiry.” Failure to “adequately explain” whether “collection” is merely descriptive of furniture and custom construction of homes rendered the TTAB’s entire surname analysis “deficient.”
Practice Note: In assessing whether the addition of a term to a surname alters the mark such that it is not primarily merely a surname, the PTO must determine whether the additional term is generic or merely descriptive, and whether the addition of that term alters the primary significance of the mark.
TRADEMARKS / INFRINGEMENT
COPYRIGHTS / INFRINGEMENT
Home Is Where the Non-Infringement Is
The US Court of Appeals for the Seventh Circuit affirmed a summary judgment ruling that the plaintiff did not offer sufficient proof that the defendant’s work was substantially similar to the home designs in which it claimed copyright or that the defendant had access to its designs. Design Basics, LLC v. Lexington Homes, Inc., Case No. 16-3817 (7th Cir., June 6, 2017) (Hamilton, J).
Design Basics, which claims copyrights to about 2,700 home designs, sued Lexington Homes, claiming that it infringed four of Design Basics’ home designs and built about 50 homes using those designs. After the district court granted summary judgment to Lexington, finding no evidence that it had access to Design Basics’ home designs, Design Basics appealed.
To succeed on a claim for copyright infringement, a plaintiff must prove (1) ownership of a valid copyright and (2) that the defendant copied elements of the copyright work that are original. As part of the second prong of the test, a plaintiff must prove that the protected copyrighted elements and alleged infringing works are substantially similar. In terms of the substantial similarity test, courts consider “whether the accused work is so similar to the plaintiff’s work that an ordinary reasonable person would conclude that the defendant unlawfully appropriated the plaintiff’s protectable expression by taking material of substance and value.” The substantial similarity between the works must also relate to the original elements of the copyrighted work. Therefore, a court must separate the copyrighted work’s original, protected expressive elements from those aspects that are not copyrightable.
The Seventh Circuit affirmed the summary judgment determination that Design Basics did not offer evidence from which a reasonable jury could conclude that Lexington’s home designs were substantially similar to the protectable expressions in Design Basics’ design plans, nor that they were strikingly similar. Rather, the Court found that “to whatever extent the parties’ plans resemble one another, they likewise resemble countless other home designs in a crowded market.”
The Seventh Circuit further concluded that Design Basics did not offer evidence that Lexington or its agents had a reasonable possibility of access to the design plans at issue, noting:
[W]e do not draw here a bright line as to the quantity or quality of evidence, in addition to a web presence, a plaintiff must offer to raise a genuine issue of fact concerning access. We decide only that the existence of the plaintiff’s copyrighted materials on the Internet, even on a public and “user-friendly” site, cannot by itself justify an inference that the defendant accessed those materials. It follows that a plaintiff who cannot show striking similarity and whose evidence of access reduces to the mere existence of a website cannot survive summary judgment on a copyright infringement claim.
Damages Recovery for Trade Secrets Misappropriation: What’s New York’s State of Mind?
Eleanor B. Atkins
Addressing unresolved issues surrounding damages calculations for misappropriation of trade secrets under New York law, the US Court of Appeals for the Second Circuit certified two questions to the New York Court of Appeals: (1) does New York law recognize avoided costs as a permissible measure of damages for misappropriation of trade secrets, unfair competition and unjust enrichment, and (2) if so, is prejudgment interest mandatory where a plaintiff recovers the defendant’s avoided costs? E.J. Brooks Co. v. Cambridge Security Seals, Case Nos. 16-207-cv(L),-259-cv(XAP) (2d Cir., June 5, 2017) (Lohier, J).
E.J. Brooks Co. d/b/a TydenBrooks, a large plastic security seal manufacturer, sued Cambridge Security Seals (CSS) and former TydenBrooks employees for misappropriation of trade secrets, civil conspiracy, unfair competition and unjust enrichment under New York law, alleging that CSS had copied TydenBrooks’s manufacturing process. The district court jury found for TydenBrooks on three of the four claims (misappropriation of trade secrets, unfair competition and unjust enrichment).
TydenBrooks sought recovery of CSS’s “avoided costs,” which would be calculated based on the cost savings to CSS resulting from not having to develop its own manufacturing process. Under this theory, the district court ultimately awarded TydenBrooks $3.9 million, but the next day TydenBrooks moved to amend the judgment to include prejudgment interest. The district court denied TydenBrooks’s motion, claiming that the current award included the time period during which prejudgment interest would accrue, and therefore the addition of the prejudgment interest would be a windfall to the plaintiff.
On appeal, the Second Circuit concluded that neither the Second Circuit nor the appellate New York State court had explicitly recognized “avoided costs” as a measure of damages for this type of case. The issue, therefore, presented an “unresolved policy decision that the New York Court of Appeals is better situated [to handle].”
Similarly, with regards to the issue of mandatory prejudgment interest, the Court found that the issue was best left to the New York Court of Appeals. The district court’s jury instructions were that the damages should be calculated from the date of misappropriation or unfair use through the verdict date. As the Second Circuit noted, “[u]nder an avoided costs theory of damages, in which the award to TydenBrooks is measured in terms of costs that CSS did not pay rather than in terms of money TydenBrooks lost, any prejudgment interest award could well constitute a windfall because TydenBrooks was not deprived of the use of those avoided costs.” The issue results from the tension between § 5001(a) of the CPLR, which suggests that prejudgment interest is mandatory in this type of case, and New York case law that suggests mandatory prejudgment interest is not appropriate where it would result in a windfall to the plaintiff.
Ultimately, the Second Circuit affirmed the district court’s decision on liability, reserved its decision on damages, and certified the issues of “avoided costs” recovery and mandatory prejudgment interest to the New York Court of Appeals.
Practice Note: It is expected that the New York Court of Appeals will bring long-awaited clarity regarding recovery of damages for cases involving misappropriation of trade secrets, unfair competition and unjust enrichment.
Summary Judgment “Disfavored” for Resolving Fair Use Trademark Defense
Examining the issue of trademark fair use, the US Court of Appeals for the Ninth Circuit reversed a district court grant of summary judgment in favor of a promotional products company and remanded the case for reconsideration of the lower court’s finding that the company’s use of a competitor’s trademarks was wholly protected by the fair use defense. Marketquest Group, Inc. v. BIC Corp.; BIC USA, Inc.; Norwood Promotional Products, LLC, Case No. 15-55755 (9th Cir., July 7, 2017) (Smith, J).
In 2011, promotional products company Marketquest sued BIC and its promotion company, Norwood, for trademark infringement after Marketquest’s registered ALL-IN-ONE mark appeared on Norwood’s promotional products catalog, which combined the company’s various categories of hard goods “in one” resource, and after Marketquest’s THE WRITE CHOICE trademark appeared on BIC’s 30th anniversary packaging for its pens. After the parties filed cross-motions for summary judgment, the district court determined that Norwood’s use of the trademarks created “some likelihood of confusion and therefore the potential for trademark infringement liability.” However, the district court conducted no further analysis on the issue of confusion in finding that Norwood provided a “complete defense” to the claims of trademark infringement by alleging fair use of the marks. Marketquest appealed.
The Ninth Circuit first touched on the general disfavor toward summary judgment in trademark cases given the “intensely factual” nature of trademark infringement disputes. Turning to the merits of the case, the Court outlined the difference between forward and reverse confusion in the context of trademark infringement.
Forward confusion occurs when consumers believe that goods bearing a junior mark come from, or are affiliated with, a senior mark owner. Reverse confusion occurs when consumers that encounter the senior mark holder believe that they are actually doing business with the junior mark user, or that the parties are affiliated.
Marketquest argued that the dispute with BIC and Norwood qualified as reverse confusion, since customers began to associate Marketquest’s registered trademarks with the defendants. The Ninth Circuit agreed and rejected Norwood’s argument that Marketquest failed to specifically plead reverse confusion and thus was foreclosed from advancing such a claim. Instead, the Court explained that “when reverse confusion is compatible with the theory of infringement alleged in the complaint, a plaintiff need not specifically plead it.”
Also in regard to the theory of reverse confusion, the Ninth Circuit examined the applicability of the Sleekcraft likelihood of confusion factors, and in particular the intent factor, which focuses on the defendant’s intent in selecting the mark at issue. Here, the parties advanced conflicting views on the type of evidence required to establish intent. The Court explained that even though the “tenor of the intent inquiry shifts when considering reverse confusion due to the shift in the theory of confusion,” there is no particular type of evidence necessary to establish intent, and the weight of the intent factor and the evidence presented will vary depending on the facts of a case.
On the fair use defense, the Ninth Circuit separately analyzed Norwood’s and BIC’s respective uses of the trademarks ALL-IN-ONE and THE WRITE CHOICE, noting that a defendant must show that its use of the mark at issue is (1) other than as a trademark, (2) descriptive of defendant’s goods and (3) in good faith. The Court also looked to the degree of customer confusion in evaluating fair use.
Regarding the ALL-IN-ONE trademark, the Ninth Circuit concluded there was a “strong argument” that Norwood’s use of the phrase on the 2011 consolidated “all-in-one” catalog was descriptive. However, since the company used the phrase not just on its consolidated catalog but also in certain promotional materials and an online advertisement, the Court found a genuine issue of material fact as to whether Norwood only used “All-in-One” in its primary, descriptive sense “other than as a trademark,” or also as a trademark to indicate the source of goods.
As to the third element of fair use, the Ninth Circuit rejected the position advanced by Marketquest that Norwood’s mere knowledge of its ownership and use of the ALL-IN-ONE trademark established Norwood’s bad faith in using the phrase. Nevertheless, the Court determined that questions of fact remained as to whether Norwood’s use of the mark was actually done in good faith. Finally, noting that consumer confusion is a factor in the fair use analysis because “use that is likely to cause confusion or that has caused confusion, is less likely to be objectively fair,” the Court left it to the district court to determine on remand the relevance of the degree of consumer confusion in this case.
The Ninth Circuit also briefly addressed THE WRITE CHOICE trademark, finding the district court’s fair use analysis to be in error, since fair use is an affirmative defense that only comes into play once the party alleging infringement has shown by a preponderance of the evidence that confusion is likely. Because the district court did not find evidence of confusion and did not conduct a Sleekcraft analysis in the earlier proceeding, the Court explained that it was improper to conclude that Norwood even qualified to raise a fair use defense. Thus, the Court reversed and remanded the finding of fair use in the case of both trademarks.