IP Update, Vol. 21, No. 5

Patents

PATENTS / AIA / CONSTITUTIONALITY

Supreme Court Rules Inter Partes Review is Constitutional, for Now


In a 7-2 decision authored by Justice Thomas, the US Supreme Court held that inter partes review (IPR) proceedings—a congressionally created administrative processes in which the Patent and Trademark Office (PTO) may reconsider and cancel patent claims that were wrongly issued—are constitutional. In doing so, the Supreme Court affirmed several Federal Circuit decisions. Oil States Energy Srvs., LLC v. Greene’s Energy Group, LLC, Case No. 16-712 (Supr. Ct., April 24, 2018) (Thomas, Justice) (Breyer, Justice, concurring) (Gorsuch, Justice, dissenting).

Background

The America Invents Act (AIA) created IPR proceedings to provide a procedure by which “any person other than the patent owner” may challenge the validity of a patent on the basis of prior art. IPR proceedings are discretionally instituted by the PTO’s Patent Trial and Appeal Board (PTAB or Board) and include many similar features to those found in Article III courts, including motion practice, discovery, depositions, cross-examination, evidence and an adversarial hearing before the Board. At issue before the Supreme Court was whether the revocation of a patent must be tried before an Article III court—thus rendering IPR proceedings unconstitutional. Prior to appeal and certiorari, the challenged claims of the patent at issue were found valid in the district court, but invalid by the Board in a parallel IPR.

In the Federal Circuit decision from which certiorari was granted, and in two others—MCM Portfolio LLC v. Hewlett-Packard Co. (IP Update, Vol. 19, No. 1) and Cascades Projection LLC v. Epson America, Inc. (IP Update, Vol. 20, No. 6)—the appellate court held that IPR proceedings are constitutional. In MCM, the Federal Circuit concluded that patents were a “public right” in that they flow entirely from a legislative regime, and therefore Congress could grant their review. In Cascades, the Federal Circuit rejected en banc an appeal citing MCM, with the dissent arguing that a more comprehensive analysis as to whether patent rights were public rights or private rights was warranted.

The Supreme Court’s Decision

In upholding Congress’s authority to create IPR, Justice Thomas, writing for the majority, agreed with the Federal Circuit that patents were indeed a public right, and that IPR “falls squarely within the public rights doctrine” and thus does not encroach on the judicial powers. Reasoning, in part, that the grant of a patent by the government (the PTO) “gives the patent owner the ‘right to exclude others from making, using, offering for sale, or selling the invention throughout the United States,’” the Court found that a grant of a patent akin to the grant of a “public franchise.” Moreover, the grant of a patent “is a matter between ‘the public,’ who are the grantors, and the patentee.”

Because an IPR is essentially “a second look” at this grant—made considering the same statutory requirements —it falls into this very same category. The Supreme Court further reasoned that Congress has long been able to grant a public franchise (such as a toll bridge) while reserving its authority to revoke or amend the franchise in an administrative proceeding. Likewise, Congress has authorized the PTO (as part of the Executive Branch) to grant patents, and the PTO grants patents subject to its authority (through the Board) to cancel them outside of an Article III court. The Court distinguished early cases, which declared patents could only be cancelled by courts, as describing a statutory scheme that existed prior to the current version of the Patent Act, and noted that the Patent Act specifically qualifies that any property rights an owner of a patent enjoys are “subject to the provisions of the [Patent Act].”

The Supreme Court rejected the argument that IPR violated Article III because of its extraordinary similarity to judicial proceedings, indicating that a “looks alike” test has never been adopted to determine whether an administrative procedure was improper outside of an Article III court. The Court also quickly dismissed an argument that IPR proceedings violate the Seventh Amendment’s right to a trial by jury, noting that it has long been established that the Seventh Amendment is no longer a bar to non-Article III adjudication of a matter once the matter has been properly assigned to the non-Article III adjudication.

The Dissent

The minority and majority opinions primarily wrestled with whether history and tradition established that patent validity must be decided by a court. Justice Gorsuch, writing for the minority, made an impassioned dissent that patents have always been considered personal rights that could only be revoked with the concurrence of independent judges, and that judicial independence from the acts of political appointees—no matter how well intended—was a fundamental promise provided by the framers. Concerned with the witling away of individual rights by the political branches, Gorsuch focused on the time of the founding, wherein judges alone resolved virtually all patent challenges, and the conditioned grant of public franchises was disfavored as anticompetitive monopolies. While the majority countered that early English patents included a revocation clause, and a cited cases in which patents were revoked outside the courts by a Privy Council, the minority pointed out that these cases only applied to the revocation of patents on munitions during wartime.

The Decision Is A Narrow One

The Court specifically noted that its decision addresses “only the precise constitutional challenges . . . raised,” and does not apply to whether infringement actions could be heard in a non-Article III forum, future due process challenges to IPR, or whether IPR would be constitutional “without any sort of intervention by a court at any stage of the proceedings”—surely setting the stage for further IPR related appeals.

Practice Note

Perhaps alluding to a deficiency in the appellant’s position or a prediction of future direction, the Court majority noted that the retroactive application of IPR (to patents granted before the AIA was enacted) was not formally challenged by the appellant, despite IPR not existing when the patent at issue was granted, and despite questioning as to whether IPR should be available retroactively for pre-AIA patents during oral arguments.

It is notable that many, if not most, patents were granted before the AIA and IPR proceedings came into existence. The Court’s limiting statements, including those regarding retroactive application, may set the stage for further constitutional challenges.


PATENTS / AIA / IPR / PARTIAL INSTITUTION

Supreme Court to PTAB: All or Nothing at All


Paul Devinsky

In a 5–4 decision, the Supreme Court of the United States reversed a decision by the US Court of Appeals for the Federal Circuit, holding that once the Patent Trial and Appeal Board (PTAB) institutes an inter partes review (IPR) proceeding, it must review every claim challenged in the petition. SAS Institute Inc. v. Iancu, Director of the USPTO, Case No. 16-969 (Supr. Ct., Apr. 27, 2018) (Gorsuch, Justice, joined by Roberts, Chief Justice, and Kennedy, Thomas and Alito, Justices) (Ginsburg, Justice, dissenting, joined by Breyer, Sotomayor and Kagan, Justices) (Breyer, Justice, dissenting, joined by Ginsburg, Sotomayor and Kagan, Justices). Going forward, the PTAB will no longer be permitted to engage in the practice of “partial institution,” i.e., institution of only some of the claims challenged in the petition.

This dispute arose when SAS filed a petition for IPR challenging all 16 claims of a patent owned by ComplementSoft. The PTAB determined that SAS demonstrated a reasonable likelihood of success on only nine of the challenged claims, and therefore declined to institute an IPR on the remaining seven claims. In doing so, the PTAB relied on a regulation that states that the US Patent and Trademark Office (PTO) director “may authorize the review to proceed on all or some of the challenged claims and on all or some of the grounds of unpatentability asserted for each claim.” 37 CFR § 42.108(a). In its final written decision, the PTAB found all but one of the instituted claims unpatentable and was predictably silent with regard to the seven claims on which it did not institute. SAS appealed to the Federal Circuit, which (over a “vigorous” dissent by Judge Newman) upheld the regulation (IP Update, Vol. 19, No. 12).

In reversing the Federal Circuit, the Supreme Court found that the America Invents Act (AIA) supplied a clear answer to the question at hand: § 318(a) states that the PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” The Court found this directive both mandatory and comprehensive, analogizing it to civil litigation where a plaintiff would expect to have a decision on all the claims in the complaint and not just “those the decision maker might wish to address.” The Supreme Court also dismissed the director’s argument for partial institution because such power simply does not appear in the AIA, and the text that Congress chose to utilize strongly counsels against permitting partial institution.

The Supreme Court next addressed the comprehensive AIA framework for IPR proceedings to show that Congress was clear when requiring institution of all claims. Justice Gorsuch cited § 312(a)(3), explaining that the petition, not the institution decision, defines the contours of the proceeding. Next, citing § 314(b), Gorsuch stated that the director’s decision to institute “pursuant to [the] petition” is simply a yes or no choice—not a piecemeal determination.

Additionally, citing § 314(a), the Supreme Court explained that the statute requires institution when a reasonable likelihood of success is shown for “at least one of the claims challenged in the petition.” As the majority explained, this requirement combined with the need to use the petition itself as the procedural contour of the proceeding suggests, if anything, a regime where reasonable likelihood of success on one claim is both necessary and sufficient to justify review of all the challenged claims.

AIA § 316(a)(8) was also informative for the Court, since it discusses the patent owner’s response “to the petition” and not its response to the instituted claims. Lastly, the Supreme Court noted that § 318(a) mandates that the PTAB issue a final decision for “any patent claim challenged by the petitioner.”

In contradistinction to AIA proceedings, the Supreme Court looked to the provision covering a related proceeding, ex parte re-examination, where the director is explicitly granted discretion to determine, on a claim-by-claim basis, whether to review for patentability. 35 USC § 303(a).

In attempting to reconcile the statutory sections of the AIA, the director argued justification for the PTAB to exercise discretion in the language of §§ 314 and 318. According to the director, since § 314 is directed to claims in the petition, while § 318 is directed to claims challenged by the petitioner, there is enough linguistic discrepancy to find the number of claims in the petition to be fewer than those eventually challenged by the petitioner in the actual IPR proceeding. Justice Gorsuch stated, however, that “[w]e just don’t see it,” and noted that whatever differences there may be are insufficient to authorize the PTO’s regulation. If anything, this discrepancy could be a result of the patent owner’s ability to cancel, settle or amend various claims (powers specifically within the statute’s text), thereby making the claims in the petition fewer than those eventually challenged.

The Supreme Court also dismissed the director’s final two arguments. The Court rejected a policy argument that investing the PTAB with discretion for partial institution promotes efficiency at the PTAB, thus expediting the streamlined nature of the IPR system. The Court simply noted that such policymaking was a job for Congress. The Court also rejected the director’s argument that reviewing a decision not to institute on some challenged claims was violative of the Supreme Court’s Cuozzo decision (IP Update, Vol. 19, No. 7). The Court noted that the case at hand did not involve a challenge to the determination of a likelihood of success, but rather was an appeal over whether the director exceeded its statutory authority in declining to institute all claims despite finding the requisite likelihood of success for at least one challenged claim.

One dissent, authored by Justice Ginsburg, was short but strongly worded. Ginsburg noted that viewing the combination of the majority’s interpretation of § 318(a) and the absence of a mandate to institute IPRs at all under Cuozzo, the PTAB could simply decline to institute on petitions having some challenged claims where no reasonable likelihood of success is demonstrated while simultaneously noting that other claim challenges warrant ex parte re-examination. Such a procedure would permit petitioners to file multiple petitions in order to determine which claims are most likely to be instituted and then file amended petitions that would receive institution. Justice Ginsburg found it difficult to believe that Congress would implicitly authorize this practice while clearly precluding the more rational way of weeding out insubstantial challenges through the PTAB’s process of partial institution.

Another dissent by Justice Breyer noted many linguistic gaps in the statutory framework that the majority found so clear. For example, Breyer explained that the phrase “any patent claim challenged by the petitioner” is not clear as to whether such claim is from the “original petition.” Under the majority view, if 16 claims are challenged and 15 of the challenges are found to be frivolous, the PTAB is nevertheless required to issue appealable decisions on each claim, as opposed to the PTAB’s regulatory framework, where only a decision on the one non-frivolous claim would be appealable and the decision not to institute IPR on the remaining 15 claims would not be appealable.

Breyer’s dissent also focused on the need to effectuate the statute’s purpose and avoid a “rigid” reading of the statute (such as the majority’s reading). The dissent pointed to the director’s ability to institute as an authorization of discretion because some challenges are allowed and others are not. The dissent wondered why a hard line to stop at all claims or no claims would be preferred over the more efficient claim-by-claim alternative.

The dissent also found the majority’s reading of the statute at odds with Cuozzo, noting that it was difficult to understand why Congress would make decisions not to institute non-appealable and wholly within the director’s discretion, while simultaneously requiring institution of all challenged claims even if a likelihood of unpatentability was demonstrated for only one. In Breyer’s view, that paradigm creates appellate review of final decisions upholding the patentability of claims in cases where a petitioner, in its petition, failed to raise a reasonable likelihood that a claim was invalid. The dissent argued that this additional work for the PTAB and the Federal Circuit could not have been Congress’ intent when creating a more streamlined and inexpensive procedure for patentability review.

Practice Note: Going forward, institution decisions will be based on whether the petitioner has established a reasonable likelihood that at least one challenged claim is unpatentable. In two cases currently on appeal where the PTAB instituted on fewer than all of the challenged claims (PGS Geophysical AS v. Iancu and BASF Corporation v. Iancu), the Federal Circuit ordered supplemental briefing on whether the cases can be heard or must sent back to the PTAB. There is likely to be considerable litigation around the SAS decision on issues such as whether all claims may be waived by petitioner (to limit the scope of estoppel).

On April 26, 2018, the PTO issued a memo explaining how SAS will affect pending and future IPRs. For future IPRs, the PTAB will either institute as to all the petition’s challenges or decline to institute an IPR altogether. For pending trials where the petition was only partially instituted, the panel may issue an order supplementing the institution decision to include all challenges from the petition. After this order issues, the parties “shall” meet and confer to discuss the need for additional briefing and/or other adjustments to the schedule. While the PTAB has discretion to sua sponte grant adjustments to the briefing and/or procedural schedule, parties are encouraged to contact the PTAB following any meet and confer to explain their decision whether to seek adjustments, since doing so guarantees that the parties’ intentions are reflected in the IPR moving forward. Lastly, the memo explains that going forward, the PTAB “shall” address all pending and unresolved claims in its final written decision, including all remaining challenges from the petition and any new claims added during the IPR via amendment.


PATENTS / SUBJECT MATTER ELIGIBILITY

Personalized Medicine Claims Make It Past § 101 Invalidity Challenge


Amy Mahan, PhD

The US Court of Appeals for the Federal Circuit affirmed a district court finding that a patented method for treating schizophrenia was not subject matter ineligible under 35 USC § 101. Vanda Pharmaceuticals Inc. v. West-Ward Pharmaceuticals Intl. Ltd., Case No. 16-2707; -2708 (Fed. Cir., Apr. 13, 2018) (Lourie, J) (Prost, CJ, dissenting).

Vanda Pharmaceuticals owns a patent relating to a method of treating schizophrenia patients with iloperidone. The cytochrome P450 2D6 gene (CYP2D6) encodes an enzyme known to metabolize iloperidone. Expression of this gene varies among individuals, and thus some patients with lower than normal CYP2D6 are poor metabolizers of iloperidone. These patients are more at risk for a side effect known as QTc prolongation—a life-threatening ventricular arrhythmia. The patent teaches that treatment of a patient who has lower CYP2D6 activity with iloperidone can be accomplished more safely by administering a lower dose of the drug than would be administered to a person who has normal CYP2D6 enzyme activity. The patented method requires the steps of (1) determining the patient’s CYP2D6 metabolizer genotype by (a) obtaining a biological sample and (b) performing a genotyping assay, and (2) administering specific dose ranges of iloperidone depending on the patient’s CYP2D6 genotype.

West-Ward Pharmaceuticals filed an abbreviated new drug application seeking approval of a generic version of a drug sold by Vanda, prompting Vanda to file a lawsuit. In response, West-Ward challenged the subject matter eligibility of the patent claims based on § 101. Following a bench trial, the district court analyzed the asserted claims using the Alice/Mayo two-step framework. First, the district court found that the asserted claims depended upon laws of nature, specifically, “the relationship between iloperidone, CYP2D6 metabolism, and QTc prolongation.” In the second step of the eligibility analysis, however, the district court found that the asserted claims transformed the underlying law of nature into a patent-eligible application through the claim limitations—“conducting CYP2D6 genotyping tests to determine the appropriate dose of iloperidone to reduce QTc-related risks.” As a result, the district court found the claims patent eligible. West-Ward appealed.

West-Ward argued that the district court erred in determining that the asserted claims were valid under the two-step Alice/Mayo framework. Vanda argued that while the district court’s ultimate conclusion was correct, it had erred by not finding the asserted claims patent eligible under both steps of Alice/Mayo. The Federal Circuit agreed with Vanda. The Court explained that the claims were not directed to a patent ineligible concept at step one, and thus the Court need not even address step two of the inquiry. The Court also concluded that the asserted claims were directed to “a specific method of treatment for specific patients using a specific compound at specific doses to achieve a specific outcome.”

In reaching its decision, the Federal Circuit noted that, conceptually, the asserted claims cover very similar subject matter to the claims that were invalidated by the Supreme Court of the United States’ 2012 decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. (IP Update, Vol. 15, No. 3), as both sets of claims generally relate to optimizing the therapeutic efficacy of a drug by determining the relative presence of a biomarker in a patient sample prior to dosing. Several crucial differences resulted in the Court’s finding that Vanda’s patent claims were eligible, however. First, although the claim at issue in Mayo recited administering a drug to a patient, the claim considered as a whole was not directed to a novel method of treating a disease—which Vanda’s claims were. Second, the claims in Mayo did not require that the doctor actually use a natural relationship to determine the appropriate dose. The Court emphasized the importance of the end result: the observation or detection of a relevant biomarker for the purpose of optimizing therapeutic efficacy, like that at issue in Mayo, is not patent eligible, but the specific method of treatment that is based on this optimization, like that in the current case, is patent eligible.

Chief Judge Prost dissented, arguing that the asserted patent claims were directed to a law of nature and that the majority’s “efforts to distinguish Mayo cannot withstand scrutiny.” In her view, the majority analysis of Alice/Mayo step one “conflates the inquiry at step one with the search for an inventive concept at step two.”

Practice Note: Based on Prost’s dissent, this case may be headed for en banc review. For now, it appears that a key to surviving a § 101 challenge in connection with personalized medicine claims—i.e., claims relating to tailored use of drugs based on predicted patient outcomes—is to include active steps that require the doctor to actually use the predictive “natural relationship” to determine a specific treatment regimen for a specific disease.

On May 15, 2018, Judge Bryson, sitting by designation in the US District Court for the District of Delaware in Pernix Ireland Pain Ltd. et al. v. Alvogen Malta Operations Ltd., relied on Vanda to find that eligibility challenged claims directed to pain treatment did not encompass unpatentable subject matter since they were not directed toward a law of nature:

[Two claims] each recites a “method of treating pain in a patient having mild or moderate hepatic impairment,” and teaches using a specific extended release formulation of hydrocodone bitartrate that has a particular release profile. Although the inventions recited in those claims were based upon a natural law—the physiological response to hydrocodone in individuals with or without mild or moderate hepatic impairment—the claims do more than merely report those physiological responses. Rather . . . the claims asserted in this case describe a specific dosing regimen to treat a specific condition based on the patient’s medical status.


PATENTS / § 101 / ISSUE PRECLUSION

The Results Are In: Voter Verified’s Claims Are Patent Ineligible


Addressing issue preclusion and patent ineligibility stemming from a Rule 12(b)(6) motion to dismiss, the US Court of Appeals for the Federal Circuit affirmed the district court’s dismissal of Voter Verified’s patent infringement complaint, finding the claims at issue invalid under § 101. Voter Verified, Inc. v. Election Sys. & Software LLC, Case No. 17-1913 (Fed. Cir., Apr. 20, 2018) (Lourie, J).

In 2009, Voter Verified sued the predecessors of Election Systems & Software for infringement of a reissue patent directed to voting methods and systems that provide for “auto-verification” of a voter’s ballot. Through a series of summary judgment orders, the district court held that various claims were not infringed and not invalid under §§ 101 and 112 because Election Systems failed to present any arguments or evidence regarding invalidity for those claims. The issues went on appeal to the Federal Circuit, which affirmed the district court (IP Update, Vol. 15, No. 11).

In 2016, Voter Verified sued Election Systems in a different district court, alleging that Election Systems was infringing the same patent as in the earlier case. Election Systems moved under Rule 12(b)(6) to dismiss the complaint on the grounds that all of the claims of the same asserted patent were invalid under § 101. In response, Voter Verified argued that issue preclusion, also known as “collateral estoppel,” precluded Election Systems from re-litigating the § 101 issue, which Voter Verified contended was decided in the previous litigation. Nevertheless, the district court granted the motion, concluding that the Alice two-step analysis was a substantial change in the law that would prevent issue preclusion from applying in this case, and substantively, that all claims of the asserted patent were directed to patent-ineligible subject matter under § 101. Voter Verified appealed.

The Federal Circuit first addressed the issue of whether the Supreme Court of the United States’ Alice decision was a substantial change in the law such that issue preclusion would not apply. Based on the first factor of a three-part test, the Federal Circuit explained that the Supreme Court in Alice applied the same § 101 test as it previously set out in Mayo and did not materially change it. Therefore, the Federal Circuit held that the intervening change in the law exception did not preclude the application of issue preclusion in the case.

The Court next analyzed the issue preclusion question under the 11th Circuit’s four-factor test, focusing on two of the factors that the parties contested. First, the Court agreed with Election Systems that the § 101 issue was never actually litigated; the district court dismissed the § 101 issue when Election Systems chose not to respond to those arguments during summary judgment briefing. Next, the Court found that the § 101 issue was not necessary to the judgment in the first district court action. Instead, the district court made decisions on both non-infringement and invalidity, but did not specify which were critical to its final judgment. Therefore, finding that issue preclusion did not attach to defendant’s motion to dismiss, the Court proceeded to its § 101 Alice analysis.

The Federal Circuit first grouped the asserted claims into a representative method claim and a representative system claim. Then, taking all of the factual allegations in the pleadings as true and as viewed in the light most favorable to the plaintiff, the Court found that the factual allegations presented did not prevent a § 101 determination. The Court then performed the two-step Alice test.

After considering the claims and the specification, the Federal Circuit determined that “the claims as a whole are drawn to the concept of voting, verifying the vote, and submitting the vote for tabulation.” These steps, the Court noted, are “nothing more than abstract ideas.”

Next, the Federal Circuit looked for an inventive concept in the claims sufficient to transform them into patent-eligible subject matter. The Court found only general-purpose computer functions being used to perform the abstract idea of voter verification. For example, the specification recited general computer-related devices such as “a standard personal computer,” “a visual display device” or “a laser printer.” The Court held that these standard components did not sufficiently transform the patent’s abstract ideas into patent-eligible subject matter.

Practice Note: This decision comes in the wake of the April 19, 2018, US Patent and Trademark Office (PTO) memo concerning “Changes in Examination Procedure Pertaining to Subject Matter Eligibility” following the Berkheimer v. HP, Inc., decision. In the memo, the PTO revises the procedures set forth in the MPEP for formulating a rejection for lack of subject matter eligibility. Specifically, with respect to the second step in the Alice analysis, the PTO instructs that “an additional element (or combination of elements) is not well-understood, routine or conventional unless the examiner finds, and expressly supports a rejection in writing” with one or more of the following that demonstrate the well-understood, routine, conventional nature of the additional element(s):

  • A citation to an express statement in the specification or statement made by an applicant during prosecution
  • A citation to one or more of the court decisions discussed in the relevant MPEP section
  • A citation to a publication that demonstrates the well-understood, routine, conventional nature of the additional element(s)
  • A statement that the examiner is taking official notice on the issue

With respect to the patent in the Voter Verified case, the Federal Circuit noted express statements in the specification to show why the claims simply recited general-purpose computers and standard components. The Court found no assertions in Voter Verified’s complaint that would have brought the “inventive concept” issue into dispute, presumably because none existed. Accordingly, patent drafters may consider, where applicable, making specific reference as to why some of the processing components are not well understood, routine or conventional. Of course, this may then require some expanded disclosure regarding those components.


PATENTS / INFRINGEMENT

“Practicing the Prior Art” Argument Acceptable If Done Correctly


Affirming denial of a motion for a new trial, the US Court of Appeals for the Federal Circuit found that an accused infringer appropriately argued both non-infringement and invalidity, even though it used a form of the “practicing the prior art” argument. 01 Communique Lab., Inc. v. Citrix Systems, Inc., Case No. 17-1869 (Fed. Cir., Apr. 26, 2018) (Hughes, J).

Communique owns a patent relating to a method of allowing a remote computer to access a personal computer using the internet. The patent requires that the communication channel between the remote computer and the personal computer be created by a separate “location facility.” In 2006, Communique accused Citrix’s GoToMyPC connection service of infringing its patent. Citrix filed an inter partes re-examination asserting that certain prior art invalidated the patent’s claims, including Citrix’s prior art BuddyHelp connection service. The Patent Trial and Appeal Board upheld the validity of the asserted claims, and the case proceeded to trial in the district court.

At trial, the district court allowed Communique to use certain parts of the inter partes re-examination proceeding, but prohibited Communique from identifying Citrix as the challenger because the prejudice to Citrix outweighed any probative value. Citrix argued that its GoToMyPC service did not infringe the claims because the communication channel in that service is created by the remote computer and personal computer, not a separate location facility. It also argued that if the asserted patents were read broadly enough to cover GoToMyPC, then they would be invalid, because the BuddyHelp service used the same process to establish the communication channel. The jury found that the asserted claims were valid, but that GoToMyPC did not infringe. The district court denied Communique’s request for a new trial. Communique appealed.

On appeal, Communique argued that Citrix improperly engaged in a “practicing the prior art” defense during which it did not make the required comparison between the GoToMyPC service and the asserted claims and instead compared the GoToMyPC service to the prior art BuddyHelp service. Communique argued that it was prejudiced by this improper comparison, which warranted a new trial.

The Federal Circuit disagreed. While the Court acknowledged that there is no “practicing the prior art” defense to literal infringement, it found that Citrix’s litigation strategy was appropriate. First, the Court found that Citrix compared the GoToMyPC service to the asserted claims and presented expert testimony and evidence that the “location facility” limitation was missing from GoToMyPC. The Court found this sufficient to support the jury non-infringement finding. The Court then noted that the comparison between GoToMyPC and BuddyHelp was performed during the invalidity case where Citrix argued that if GoToMyPC infringed the patent, then BuddyHelp must invalidate. The Court found no problem with this argument, noting that a comparison between the accused product and the prior art does not automatically cause prejudice mandating a new trial. Instead, the Court noted that there may be certain situations where such a comparison is warranted. The Court thus affirmed the district court’s decision.


PATENTS / CLAIM CONSTRUCTION

Claim Limitation Cannot Be Imported from Specification


Wen Li, PhD

The US Court of Appeals for the Federal Circuit affirmed a district court’s claim construction, finding that plain claim language will not be narrowed unless the patentee clearly and explicitly disclaims broader claim scope. Sumitomo Dainippon Pharma Co. v. Emcure Pharm. Ltd., Case Nos. 17-1798; -1799; -1800 (Fed. Cir., Apr. 16, 2018) (Stoll, J).

Sumitomo owns a patent directed to “novel imide compounds and their acid addition salts” that are useful as antipsychotic agents. The patent discloses and claims more than one billion compounds, some of which have stereo and optical isomers. Stereoisomers are molecules with the same chemical formula and structure but different three-dimensional configurations. After several generic drug manufacturers filed abbreviated new drug applications with the US Food and Drug Administration seeking approval to market generic versions of Sumitomo’s drug LATUDA®, Sumitomo filed a lawsuit.

The claim construction issue in the district court focused on what combination of enantiomers the asserted claim encompassed. The generic drug manufacturers sought to limit the asserted claim to “a racemic mixture of two enantiomers of which the structural formula is representative.” The district court rejected the generic drug manufacturers’ narrow construction because it excluded the specific enantiomer depicted in the asserted claim. Instead, the court adopted Sumitomo’s proposal, which construed the asserted claim to cover “lurasidone, lurasidone’s enantiomer, as well as mixtures of these enantiomers.” Following the district court’s claim construction, the generic drug manufacturers stipulated to infringement and appealed.

The Federal Circuit found that the plain language of the claim covered the depicted enantiomer. The Court also noted that the specification described the enantiomer depicted in the claim as a preferred embodiment and provided physical data on the enantiomer, and found that the specification did not disclaim the specific enantiomer. Finally, the Court found that the generic drug manufacturers’ reference to extrinsic evidence was unavailing because the intrinsic evidence demonstrates that the claim covers the depicted enantiomer. The Court thus affirmed the district court’s claim construction.


PATENTS / EQUITABLE ESTOPPEL / INTERVENING RIGHTS

Claim Amendments May Reset Timing for Equitable Estoppel


Brian A. Jones

The US Court of Appeals for the Federal Circuit held that prior acts related to earlier-issued claims did not lead to equitable estoppel for amended claims that issued in a later re-examination proceeding. John Bean Technologies Corp. v. Morris & Associates, Inc., Case No. 17-1502 (Fed. Cir., Apr. 19, 2018) (Reyna, J).

John Bean Technologies competes with Morris & Associates over chillers designed for poultry carcasses. John Bean owns a patent that it alleged covers Morris’s competing chiller. When Morris learned of John Bean’s allegations, Morris informed John Bean of invalidating prior art. In its demand letter, Morris invited John Bean to refute its invalidity position, but John Bean never responded. Relying on John Bean’s silence, Morris continued to sell allegedly infringing chillers.

Eleven years later, John Bean submitted its patent for ex parte re-examination at the US Patent and Trademark Office (PTO) using the prior art that Morris had identified. During re-examination, the original claims were invalidated and cancelled. John Bean offered significant amendments, and the PTO eventually allowed the amended claims. Once the new claims issued, John Bean sued Morris for infringement on the newly issued claims. Morris moved to dismiss the suit based on estoppel arising from John Bean’s knowledge that Morris had been selling an allegedly infringing chiller for many years and John Bean’s failure to respond to Morris’s demand letter. The district court found that John Bean’s delay and Morris’s reliance on John Bean’s silence equitably estopped John Bean from enforcing its patent. John Bean appealed.

The Federal Circuit disagreed and reversed the district court’s decision. The Court held that equitable estoppel could not apply because Morris’s previous demand letter related to the originally issued claims, and the infringement suit was based solely on the newly issued claims. Because the re-examination process resulted in new and substantively narrower claims, John Bean was not equitably estopped from asserting the new claims. The Federal Circuit analogized the situation to that of pending claims where estoppel cannot apply until after the pending claims have issued.

The Federal Circuit left open the possibility that estoppel may still apply to a re-examined patent where newly issued claims had minor amendments or could be considered identical for purposes of infringement. The Federal Circuit also noted that Morris’s allegations of absolute and equitable intervening rights may nevertheless bar John Bean’s infringement suit.


PATENTS / SWEARING BEHIND / 35 USC § 102(g)

Proof Conception Requires More Corroboration Than Inventor Testimony


Addressing the burden of proof for swearing behind the priority date of an invalidating reference, the US Court of Appeals for the Federal Circuit reasserted that unsupported evidence of the alleged inventor regarding the time of conception for priority purposes is not sufficient proof of prior conception. Apator Miitors ApS v. Kamstrup A/S, Case No. 17-1681 (Fed. Cir., Apr. 17, 2018) (Moore, J).

Kamstrup filed a petition for inter partes review (IPR) of Apator’s patent, and the Patent Trial and Appeal Board (PTAB) instituted review of particular claims based in part on a published US patent application to Nielsen. The effective filing date of the Nielsen reference was 18 days before the filing date of the application that matured into Apator’s patent.

During the IPR proceeding, Apator attempted to swear behind the Nielsen reference. The PTAB rejected this attempt, finding that Apator’s only evidence of an earlier conception date consisted of statements by the inventor. In reaching its conclusion, the PTAB stated that “mere unsupported evidence of the alleged inventor, on an issue of priority, as to . . . conception and the time thereof, cannot be received as sufficient proof of . . . prior conception.” Having found that Apator was not entitled to an earlier conception date, the PTAB went on to find that the claims at issue were not patentable in view of the Nielsen reference. Apator appealed.

The Federal Circuit affirmed, finding that substantial evidence supported the PTAB’s finding that Apator failed to sufficiently corroborate the inventor’s testimony of conception prior to the effective filing date of the Nielsen reference. The Court stated that it was Apator’s burden to prove that the inventor conceived of the invention prior to the Nielsen reference’s effective filing date. After reviewing email evidence and the inventor’s testimony, the Court determined that Apator had failed to carry its burden because it did not proffer any evidence of the inventor’s conception that was not supported solely by the inventor himself. The Court found that the email evidence was not sufficient because “there are no indicia in either the body or header of the email indicating a file is attached, let alone a file [related to the invention].” The Court also found that the email evidence could only be interpreted with the assistance of the inventor’s testimony, and the supposedly attached file did not contain adequate evidence of its creation date.

Practice Note: For pre-America Invents Act patent applications, it remains helpful to retain evidence of conception, such as witnessed lab notebooks, electronic files, and emails and attachments in full context.


PATENTS / AIA / § 120 PRIORITY CLAIM / INCORPORATION BY REFERENCE

“Specific Reference” Required to Claim Priority


Paul Devinsky

Addressing the issues of priority and incorporation by reference, the US Court of Appeals for the Federal Circuit upheld the Patent Trial and Appeal Board’s (PTAB’s) prior art rejection of a patent based on the priority date to which the patent was entitled. Droplets, Inc. v. E*TRADE Bank, Case No. 16-2504; -2602 (Fed. Cir., Apr. 19, 2018) (O’Malley, J). The PTAB concluded that once a patent issues, it must contain a specific reference to a previously filed application to be entitled to the earlier filing date of that application, and that an alleged priority date based only on incorporation by reference cannot satisfy the specific reference requirement.

In 2014, E*TRADE petitioned for inter partes review of Droplets’ patent, asserting that the patent was only entitled to the priority date of one specifically referenced patent. Based on that priority date, E*TRADE argued that the patent was invalid over a previously filed PCT application. Droplets argued that its patent should be entitled to an earlier filing date because a priority claim is within the scope of material that can be made using incorporation by reference, and that since the challenged patent specification specifically references an earlier filed provisional application, the priority date of the earlier filed provisional was claimed under principles of incorporation by reference. The PTAB disagreed and explained that a claim for priority must contain a specific reference to a previously filed application and cannot rely on incorporation by reference. Droplets appealed.

The Federal Circuit affirmed, explaining that in order to claim the benefit of an earlier US filing date, § 120 requires that the patent application “contain a specific reference to the earlier filed application” to which it purports to claim priority. The Court noted that § 119(e)(1) recites parallel requirements to claim priority from an earlier filed US provisional application, stating that “[n]o application shall be entitled to the benefit of an earlier filed provisional application . . . unless an amendment containing the specific reference to the earlier filed provisional application is submitted at such time during the pendency of the application as required by the Director.” Similarly, a US Patent and Trademark Office regulation implementing §§ 120 and 119, 37 CFR § 1.78 (d)(3), requires that an application contain a specific reference to each prior-filed application to which the application seeks to claim priority, wherein the specific reference includes each prior-filed application’s number and familial relationship.

As the Federal Circuit explained, “[a]lthough § 120 might appear to be a technical provision,” courts have long recognized that “it embodies an important public policy.” Sampson v. Ampex Corp. (1972). The information disclosed must “enable a person searching the records of the Patent Office to determine with a minimum of effort the exact filing date upon which a patent applicant is relying to support the validity of his application or the validity of a patent issued on the basis of one of a series of applications.” Section 120 and its specific reference requirement are “necessary to eliminate the burden on the public to engage in long and expensive search of previous applications in order to determine the filing date of a later patent.” Sticker Indus. Supply Corp. v. Blaw-Knox Co. (1968).

Here, the Court concluded that it would be “improper to place the burden on the public to unearth and decipher a priority claim when the patentee is the person best suited to understand the genealogy and relationship of her applications and a requirement for her to clearly disclose this information should present no hardship.” Since the Droplets patent only contains the required specific reference to one earlier filed patent, and the § 120 “specific reference” requirement does not contemplate incorporation by reference to any other earlier filed application, the patent was found to be obvious over an earlier filed provisional application.


PATENTS / ATTORNEYS’ FEES / COSTS

Lack of Standing, Bad Faith Conduct Result in Fees Award


Lisa A. Peterson

Affirming a district court decision, the US Court of Appeals for the Federal Circuit held that a litigant may be deemed a prevailing party if it receives a dismissal with prejudice against the plaintiff, even if it did not receive favorable judgment on the merits regarding the underlying patent litigation. Raniere v. Microsoft Corp., Case Nos. 17-1400; -1401 (Fed. Cir., Apr. 18, 2018) (O’Malley, J).

Keith Raniere sued AT&T Corporation and Microsoft Corporation asserting ownership of several patents. Raniere and other investors transferred the patents at issue to Global Technologies, Inc., (GTI) in 1995. GTI was administratively dissolved in 1996. In December 2014, Raniere executed a document asserting sole ownership over the patents and purportedly transferring the patents from GTI to himself. Raniere then initiated patent infringement litigation against the defendants.

Microsoft argued that Raniere did not own the patents and moved to dismiss the case for lack of standing. Despite representations that ownership of the patents transferred from the dissolved entity to Raniere, Raniere was unable to present evidence demonstrating proof of ownership. As the district court found, Raniere also provided “wholly incredible and untruthful” testimony regarding his ownership rights. After providing Raniere with several opportunities to cure his standing defect, the district court granted Microsoft’s and AT&T’s renewed motion to dismiss, and dismissed the case with prejudice. The district court found that a dismissal with prejudice was warranted because Raniere’s conduct “demonstrated a clear history of delay and contumacious conduct.” Raniere appealed and, in an earlier iteration of this case before the Federal Circuit, the Court summarily affirmed the merits dismissal.

While the appeal was pending, the district court also awarded attorneys’ fees and costs to the defendants after finding that a dismissal with prejudice sufficiently altered the relationship between the parties to trigger “prevailing party status” under 35 USC § 285. Again Raniere appealed, and the Federal Circuit, reviewing the award under an abuse of discretion standard, again affirmed the award of attorneys’ fees and costs.

In reaching its holding, the Federal Circuit cited a 2016 Supreme Court of the United States decision (CRST Van Expedited. v. EEOC) for the proposition that the relevant inquiry was “not limited to whether a defendant prevailed on the merits, but also considers whether the district court’s decision—‘a judicially sanctioned change in the legal relationship of the parties’—effects or rebuffs a plaintiff’s attempt to effect a ‘material alteration in the legal relationship between the parties.’” And, even if a judgment on the merits was appropriate, a dismissal with prejudice for lack of standing, especially after Raniere was given multiple opportunities to try to cure, was equivalent to a decision on the merits because it provided full adjudication. The Federal Circuit further reasoned that the district court did not err in finding the case “exceptional” to trigger the fee-shifting provisions. The plaintiff’s own behavior increased the defendants’ costs through “a pattern of obfuscation and bad faith” intended to “vexatiously multiply” the litigation proceedings. Thus, the district court made a “well-reasoned determination” to award fees and costs for the defendants.


PATENTS / UNENFORCEABILITY

Balm for Gilead: Unclean Hands Render Patents Unenforceable


Bhanu K. Sadasivan, PhD

The US Court of Appeals for the Federal Circuit affirmed a district court finding of unenforceability, concluding that a patent owner’s unclean hands can render patents unenforceable based on a materiality standard of conduct that had an “immediate and necessary relation to . . . the matter in litigation,” which included conduct with the “objective potential” to affect the litigation. Gilead Sciences, Inc. v. Merck & Co., Inc. et al., Case No. 16-23102; -2615 (Fed. Cir., Apr. 25, 2018) (Taranto, J).

The case involved two Merck patents related to Hepatitis C treatment. Gilead, which had developed its own Hepatitis C treatments, sought declaratory judgment that the Merck patents were invalid. Merck counterclaimed. The jury ruled for Merck and awarded damages. Thereafter, the district court held a bench trial on Gilead’s equitable defenses, including unenforceability of the patents based on Merck’s unclean hands. The district court ruled in favor of Gilead, concluding that both pre-litigation and litigation misconduct attributable to Merck rendered the patents unenforceable. Merck appealed.

The Federal Circuit affirmed, applying a deferential standard of review of the lower court’s findings, and articulated the legal standard for unclean hands. The Court explained that “a determination of unclean hands may be reached when ‘misconduct’ of a party seeking relief has ‘immediate and necessary relation to the equity that he seeks in respect of the matter in litigation.’”

The Court endorsed the lower court’s identification of four instances of “misconduct”—two pre-litigation and two litigation business misconducts—and its finding that the conduct had immediate and necessary relationship to the equity that Merck sought to enforce its patents.

The two pre-litigation misconduct incidents stemmed from Merck’s interaction with Pharmasset, which was later acquired by Gilead. Pharmasset had developed PSI-6130 (the compound that led to Sofosbuvir, the active ingredient in Gilead’s Hepatitis C treatment). Pharmasset had agreed to allow Merck to evaluate PSI-6130 with the understanding that anyone involved in Merck’s internal Hepatitis C virus program would be excluded from the review. Merck, however, sent its patent counsel, Dr. Durette, who was involved with Merck’s Hepatitis C program, to attend a call discussing PSI-6130. After the call, Dr. Durette continued to prosecute Merck’s patents, including the applications that became the asserted patents.

The Federal Circuit found Dr. Durette’s participation in the call with Pharmasset and his continued prosecution of the asserted patents to be two instances of pre-litigation business misconduct attributable to Merck. The Court explained that the improperly acquired knowledge influenced Merck’s decision to file narrower claims, with the attendant potential for expedited patent issuance and lowered invalidity risk, which led directly to the acquisition of the asserted patents and thus was immediately and necessarily related to the equity of patent enforcement relief sought by Merck.

The two instances of litigation misconduct arose from Dr. Durette’s testimony and were found to be attributable to Merck. First, Dr. Durette testified during his deposition as Merck’s corporate witness that he did not participate in the call with Pharmasset, which he later conceded was false and which the district court found to be intentional. Second, Dr. Durette downplayed the effect of the Clark application (Pharmasset’s patent application containing PSI-6130’s structure published after the Pharmasset call but before the narrowing amendment), which the district court found “not credible” and “false.” The Federal Circuit explained that the district court had properly charged Merck with the consequences of Dr. Durette’s false testimony and that the testimony was relevant to the invalidity issues (i.e., whether the claimed inventions were derived from Pharmasset’s Clark application) and had an immediate and necessary relation to the equity of patent enforcement relief sought by Merck.

Practice Note: Patent prosecutors should ensure that they do not violate any firewalls, protective orders or agreements, and further should not continue prosecuting patents in the same subject matter after inadvertent (or, of course, deliberate) access to the confidential business information of others.


PATENTS / INVENTORSHIP / FEDERAL JURISDICTION

Inventorship Challenge Survives Another Day Because of Unclear Contract


Mandy H. Kim

Addressing the issue of federal jurisdiction based on a lack of Art. III standing by plaintiff, the US Court of Appeals for the Federal Circuit reversed a district court’s dismissal of a claim for correction of inventorship for lack of standing, finding that there was at least a factual dispute about any implied assignment or promise to assign patent rights by the inventor. James v. J2 Cloud Services, LLC, Case No. 17-1506 (Fed. Cir., Apr. 20, 2018) (Taranto, J).

Gregory James filed a lawsuit asserting a claim for correction of inventorship under 35 USC § 256, along with state law claims for unjust enrichment, conversion, misappropriation and unfair competition. The complaint alleged that James was the sole inventor of the subject matter claimed in a patent directed to systems and methods “for accepting an incoming message over a circuit switched network and transmitting it over a packet switched network.” The patent named Jack Rieley and Jaye Muller as the inventors and was originally assigned to JFAX Communications, a company owned by Rieley and Muller.

The complaint alleged that a Software Development Agreement (SDA) was entered into between JFAX (for which Rieley signed) and GSP Software, a partnership of professional software developers and independent contractors (for which James signed). The SDA preamble stated that GSP “will develop software solutions for the exclusive use of JFAX” but did not mention patent rights, whereas it expressly required the assignment to JFAX of “all copyright interests” in the developed “code and compiled software.” The complaint also alleged that James developed the software and hardware components covered by the patent and assigned all copyrights in the code and compiled software to JFAX, but did not assign any patent rights.

The current assignee, AMT, and j2, an exclusive licensee, filed a motion under Rule 12(b)(1) to dismiss the case for lack of jurisdiction, asserting that James had no Article III standing to bring the action. The district court granted the motion, concluding that James lacked a stake in the controversy because he failed to allege facts sufficient to show he had an ownership or financial interest in the patent, and also dismissed the state law claims. James appealed.

The Federal Circuit reversed, explaining that

. . . if Mr. James were to prevail on his allegations that he is the sole inventor and owner of the patent, he would stand to gain concretely, whether through securing an entitlement to seek damages for past acts of infringement or otherwise. Such a gain would directly be related to the merits of the claim and would redress the asserted injury of being deprived of allegedly rightful ownership. In the absence of other facts, that is enough to give Mr. James Article III standing.

The Federal Circuit noted that the district court did not conclude otherwise but found this reasoning inapplicable, focusing instead on the important qualification that “[w]hen the owner of a patent assigns away all rights to the patent, neither he nor his later assignee has a ‘concrete financial interest in the patent’ that would support standing in a correction of inventorship action.’” The Federal Circuit noted that the district court relied on two sources for its conclusion—the SDA and the “hired-to-invent doctrine”—but explained that neither supported the conclusion that James had assigned, or obligated himself to assign, his patent rights to JFAX, at least not at this stage of the action. The Court noted that the SDA was amenable to the construction that James did not assign or promise to assign patent rights that would have accrued to him as an inventor. The Court also noted that the hired-to-invent principle does not apply where the underlying agreement for engagement of services was between two legal entities where the inventor was not personally a party.


America Invents Act

AIA / IPR / REAL PARTY-IN-INTEREST

Control Is Key to Identifying Real Parties-in-Interest


Two recent decisions from the Patent Trial and Appeal Board (PTAB) highlight the key factor in identifying real parties-in-interest in an inter partes review (IPR): whether a non-party controls or has the ability to control the petitioner’s participation in the IPR proceeding. Mobile Tech, Inc. v. Sennco Solutions, Inc., Case No. IPR2017-02199 (PTAB, Apr. 10, 2018) (McGraw, APJ); Puzhen Life USA, LLC v. Esip Series 2, LLC, Case No. IPR2017-02197 (PTAB, Apr. 11, 2018) (Kaiser, APJ).

In Mobile Tech, the patent owner, Sennco Solutions, argued that the PTAB should deny Mobile Tech’s petition because it failed to name Mobile Tech’s sole owner as a real party-in-interest. In support of its argument, Sennco alleged that Mobile Tech could not make litigation decisions without input from its owner, that its owner received regular updates about the dispute, and that its owner had the sole right to manage Mobile Tech’s business.

The PTAB found Sennco’s arguments unpersuasive, finding that the mere existence of a parent-subsidiary relationship, without more, is insufficient to establish that the parent is involved in an IPR proceeding or makes decisions for the petitioner. The PTAB explained that one of the facts considered in determining if a non-party is a real party-in-interest is whether the non-party “exercised or could have exercised control over [Mobile Tech’s] participation in a proceeding” and whether the non-party “is funding or directing the proceeding.” The PTAB found that none of Sennco’s allegations established that Mobile Tech’s owner controlled or funded the proceeding. The PTAB thus concluded that Mobile Tech properly identified all real parties-in-interest, and instituted the IPR.

The PTAB addressed a similar situation in Puzhen Life, in which the patent owner, Esip Series, filed a request for rehearing, urging the PTAB to dismiss the petition because Puzhen Life failed to identify all real parties-in-interest. Esip Series argued that Puzhen Life should have named its corporate parent as a real party-in-interest because it substantively controlled Puzhen entities. The PTAB disagreed, holding that “without more, generic corporate control through ownership is insufficient to establish the control necessary to show that the corporate parent is a real party-in-interest.”

Esip Series also alleged that Puzhen Life failed to name as a real party-in-interest doTERRA International, the only party against which Esip Series asserted its patent in a district court action. Esip Series argued that doTERRA desired review of the patent because doTERRA was the defendant in the district court action. The PTAB, however, found “no rule establishing that every party who has been sued for infringement of a patent is necessarily a real party-in-interest.” Esip Series also argued that doTERRA’s agreement to the same estoppel that applied to Puzhen Life made doTERRA a real party-in-interest. The PTAB disagreed, finding that doTERRA’s agreement to the terms of the estoppel was not an agreement to be bound as a real party-in-interest. Accordingly, the PTAB denied Esip Series’ request that the IPR be terminated.


Actual Control, Not Common Interest, Guides Real Party-in-Interest Inquiry


David Mlaver

In a decision granting in part and denying in part a petition for inter partes review (IPR), the Patent Trial and Appeal Board (PTAB) held that membership in a defensive patent aggregator does not by itself render members real parties-in-interest to proceedings brought by the aggregator. Unified Patents, Inc. v. Uniloc Luxembourg S.A., Case No. IPR2017-02148 (PTAB, Apr. 17, 2018).

Unified Patents is a defensive patent aggregator and describes itself as a “deterrence entity” that is “designed to deter NPE [non-practicing entity] activity” within certain industrial “zones.” Unified Patents seeks to accomplish the “deterrence” by bringing validity challenges in proceedings before the US Patent and Trademark Office.

Unified Patents filed an IPR petition against a patent that Uniloc is asserting in district court against several of Unified Patents’ members (member-defendants). In the petition, Unified Patents identified itself as the sole real party-in-interest and certified that no other party exercised or could exercise direction, funding or control over its participation in this proceeding, the filing of this petition, or the conduct of any ensuing trial. Uniloc filed a preliminary response, arguing that the petition should be denied because Unified Patents failed to identify the member-defendants as real parties-in-interest. In support of its argument, Uniloc asserted that had the member-defendants not contracted with and paid money to Unified Patents, Unified Patents would not have had the desire or the resources to file the petition against Uniloc’s patent.

The PTAB rejected Uniloc’ argument, declining to deny institution for failure to name all real parties-in-interest. The PTAB found no evidence that any other entity was controlling the proceeding, reasoning that the mere fact that members provide payment to Unified Patents for a subscription to its services was insufficient to show that such members were funding the instant IPR. The PTAB noted that the evidence did not show an obligation on Unified Patents’ part to file an IPR petition on behalf of any member in return for payment, nor did it show that Unified Patents’ members have any control over when and how Unified Patents spends the revenue received from its members. Thus, although the member-defendants contributed indirectly to the funding of the IPR and would stand to benefit from the invalidation of the challenged patent, the PTAB held that the member-defendants were not real parties-in-interest.

Practice Note: The PTAB’s requirement of actual control or direct financing leaves the door open for multiple proceedings to be brought against the same patent by, for example, a district court defendant, a patent aggregator in which the defendant is a member, and investors in the defendant. As a result, various parties representing the same or similar interests are likely to bring—and patent owners may expect to face—multiple challenges to the validity of a patent.


PATENTS / AIA / § 315(b)

Still No Privity or Additional Real Parties-in-Interest


On remand from the US Court of Appeals for the Federal Circuit en banc decision in Wi-Fi One, LLC v. Broadcom Corp., Case Nos. 15-1944; -1945; -1946 (Fed. Cir., Jan. 8, 2018), the Federal Circuit reaffirmed the portions of its prior decision that were unaffected by the en banc decision. Wi-Fi One, LLC v. Broadcom Corp., Case No. 15-1944 (Fed. Cir., Apr. 20, 2018) (Bryson, J) (Reyna, J, dissenting). Specifically, the Federal Circuit reaffirmed that the time bar does not apply to the inter partes review (IPR) petitioner, because the evidence did not show (1) that the petitioner was in privy with the district court defendants or (2) that the district court defendants were real parties-in-interest in the IPR proceeding.

Wi-Fi’s predecessor, Ericsson, filed a patent infringement action against D-Link Systems and several other defendants in the US District Court for the Eastern District of Texas. Although Broadcom was not a defendant in this district court litigation, it was the manufacturer of two chips that formed the basis for some of the infringement allegations in the litigation. This case resulted in a jury trial finding infringement of three patents.

Shortly after judgment was entered in the district court action, which was about three years after the complaint was filed, Broadcom requested IPR of the three patents that were found to be infringed in the district court action. Wi-Fi argued that Broadcom’s petition was time barred under 35 USC § 315(b) because Broadcom was in privity with the district court defendants, or that the district court defendants were the real parties-in-interest in the IPR proceeding. The Patent Trial and Appeal Board (PTAB) found that privity and real party-in-interest status could be established not only by Broadcom’s exercise of control over the district court proceedings, but also by the district court defendants’ exercise of control over the IPR proceeding. However, the PTAB concluded that Broadcom’s petition was not time barred because Broadcom did not exercise control over the district court proceeding and the district court defendants did not exercise control over the IPR. Thus, the IPR proceeding continued, and the PTAB ultimately found the patents invalid.

Wi-Fi appealed, arguing that the decision to institute was incorrect because Broadcom’s petition was time barred (IP Update, Vol. 19, No. 10). The Federal Circuit panel refused to review the PTAB’s institution decision, citing the Federal Circuit’s prior decision in Achates v. Apple (IP Update, Vol. 18, No. 10). Wi-Fi sought en banc review, and the en banc Federal Circuit later remanded the appeal to the panel, finding that the PTAB’s time-bar decisions at the time of initiation could be appealed (IP Update, Vol. 21, No. 2).

On remand, Wi-Fi argued that the PTAB applied the wrong legal standard when it determined that no district court defendant was either a privy of Broadcom or a real party-in-interest in the IPR proceeding. The Federal Circuit rejected Wi-Fi’s argument, concluding that although Broadcom’s interests were aligned with the defendants, the evidence did not show that Broadcom had the right to control the litigation. Additionally, the evidence did not suggest that the district court defendants were real parties-in-interest in Broadcom’s IPR.

Wi-Fi also argued that the PTAB abused its discretion by refusing Wi-Fi additional discovery, such as its request for discovery of evidence related to the indemnity agreements between Broadcom and two of the district court defendants. The Federal Circuit again rejected Wi-Fi’s argument, finding that the PTAB had not abused its discretion by denying Wi-Fi additional discovery because Wi-Fi had not been able to show that the requested discovery would be likely to produce favorable evidence. The Court also agreed with the PTAB’s finding that the discovery Wi-Fi requested would likely not have established control, as paying for trial expenses pursuant to indemnity normally does not establish privity or control.

Judge Reyna dissented, finding that the Court applied an erroneous standard for establishing privity. He argued that indemnity agreements evidenced privity and that Wi-Fi should have been entitled to additional discovery related to the indemnity agreements.


AIA / IPR / CLAIM CONSTRUCTION

Petitioner Beware – Claim Construction Choice Can Make or Break Your Case


Addressing the requirements to institute an inter partes review (IPR), the Patent Trial and Appeal Board (PTAB) denied a petition because it failed to map the challenged claims to the asserted prior art using the claim construction that the petitioner believed was correct. Hologic, Inc. v. Enzo Life Sciences, Inc., Case No. IPR2018-00019 (PTAB, Apr. 18, 2018) (Paper 17) (Fitzpatrick, APJ) (Yang, APJ, concurring) (Paulraj, APJ, dissenting).

Enzo owns a patent directed to nucleic acid detection technology that can be used to diagnose genetic defects by isolating or separating certain genetic materials. Enzo sued Hologic for patent infringement in district court. In response, Hologic filed a petition for IPR challenging various claims of Enzo’s patent. Enzo filed an unopposed motion for a district-court-type Phillips claim construction because the challenged patent would expire less than 18 months from entry of the Notice of Filing Date Accorded to the Petition. The PTAB granted the motion, agreeing that the district court claim construction standard would apply.

During the co-pending district court litigation, Enzo proposed broader constructions for certain disputed terms while Hologic proposed narrower constructions for those terms. In its IPR petition, Hologic had to decide whether to use its own narrower proposed claim construction from the litigation or Enzo’s broader proposed claim constructions. Reasoning that Enzo’s broader proposed claim construction would be the path of least resistance to arguing unpatentability, Hologic challenged the claims under Enzo’s broader construction. To preserve its district court arguments, however, Hologic stated that it considered Enzo’s proposed construction to be erroneous.

The applicable PTAB regulations require that IPR petitions identify how the challenged claims are to be construed and how the challenged claims are unpatentable. The PTAB explained that this rule required Hologic to present a case for unpatentability under the claim construction that Hologic considered to be correct. Since Hologic only presented its challenge under Enzo’s proposed claim constructions, the PTAB found that the petition did not explain how the challenged claims were unpatentable under the construction that Hologic believed was correct, and therefore denied institution.

In dissent, APJ Paulraj asserted that the majority opinion forces a petitioner “into an untenable Hobson’s choice of adopting—as its own—Patent Owner’s proposed constructions from the district court proceeding, (which may not necessarily be favorable to its non-infringement positions) in order [to] be allowed to present its unpatentability arguments in this proceeding.” Paulraj argued that it should be appropriate for an IPR petition to present unpatentability arguments under a patent owner’s proposed constructions, even if the petitioner disagrees with those constructions.

Practice Note: When seeking a district-court-type Phillips claim construction in an IPR proceeding, a petitioner should propose in its petition the constructions it is seeking in any co-pending district court litigation.


AIA / IPR / § 315(b)

The Cases that Never Were: Nullified Litigation and the One-Year Bar


Paul Devinsky

Addressing whether either of two previously filed district court actions precluded institution of an inter partes review (IPR) proceeding under the one-year time bar of 35 USC § 315(b), the Patent Trial and Appeal Board (PTAB) held that the bar does not apply to voluntary dismissals without prejudice under Fed. R. Civ. P. 41(a) because such a dismissal effectively nullifies the very existence of the prior action. Superior Comms., Inc. v. Volstar Tech., Inc., Case No. IPR2017-00067 (PTAB, Apr. 20, 2018) (Zado, APJ).

During an IPR proceeding, the patent owner, Volstar Technologies, asserted that the PTAB should have denied institution under § 315(b) because the petitions were filed more than one year after the petitioner (Superior Communications), the real party-in-interest or the petitioner’s privy was served with a patent infringement complaint. Volstar identified two prior district court actions asserting infringement of the challenged patent that it contended gave rise to a time bar: a 2012 case against AT&T, in which AT&T was a privy to Superior, according to Volstar, and a case against Superior filed in 2013. Both cases were pending for more than one year and were ultimately dismissed without prejudice pursuant to Fed. R. Civ. P. 41(a).

In finding the IPR petition timely, the PTAB noted that the voluntary dismissal of both actions without prejudice under Rule 41(a) nullified the existence of those prior actions, relying on US Court of Appeals for the Federal Circuit precedent holding that Rule 41(a) dismissals leave the parties “as though the action had never been brought.” The PTAB reasoned that the nullified prior litigation cannot form the basis of a bar under § 315(b).

Volstar attempted to distinguish the present case from the Federal Circuit rule, relying on a Tolling Agreement entered into by the parties to the prior litigation, which it argued should be viewed in conjunction with the dismissal of the prior actions as effectively creating a dismissal with prejudice. In support, Volstar argued that the Tolling Agreement prevented Superior from seeking damages it would otherwise have been entitled to seek. The PTAB disagreed, explaining that the Tolling Agreement cannot change the de jure legal effect of the dismissal, and distinguished cases cited by Volstar where only some claims were dismissed without prejudice and where a “without prejudice” dismissal led to consolidation of an action with a related case where the claims were continually litigated. Accordingly, the PTAB found that the IPR petition here was not subject to a § 315(b) bar because Volstar failed to rebut that the dismissals of the prior cases without prejudice rendered those cases a nullity for purposes of the § 315(b) one-year rule.

Practice Note: Patent owners should exercise caution when dismissing under Rule 41(a), because if an action is dismissed without prejudice, the PTAB will not consider how long the underlying action was pending in terms of determining whether an IPR petition is barred. Petitioners should be aware that where a prior action is dismissed without prejudice under Rule 41(a), IPR petitions may still be filed more than one year after the petitioner is served with the complaint, regardless of the duration of pendency of the prior action.


AIA / IPR / RECONSIDERATION OF INSTITUTION DECISION

IPR Petition for Hair Loss Treatment Patent Restored


In an unusual ruling, the Patent Trial and Appeal Board (PTAB) granted a petitioner’s request for rehearing and instituted inter partes review (IPR) on a previously denied ground, finding that it previously had applied an overly restrictive standard when analyzing whether the patented invention would have been obvious. Incyte Corporation v. Concert Pharmaceuticals, Inc., Case No. IPR2017-01256 (PTAB, Apr. 9, 2018) (Hulse, APJ) (Fitzpatrick, APJ, dissenting in part).

Concert Pharmaceuticals owns a patent with claims covering CTP-543, a chemical compound being evaluated for treatment of hair loss. According to Concert, the compound was discovered by applying deuterium chemistry to modify ruxolitinib to create a deuterated ruxolitinib resistant to cytochrome P450-mediated oxidative metabolism, resulting in improved safety, efficacy and tolerability compared to its non-deuterated counterpart.

Incyte filed an IPR petition challenging Concert’s patent on anticipation and obviousness grounds. In its institution decision, the PTAB denied the petition on all grounds. Incyte subsequently requested rehearing on two obviousness grounds, arguing that the PTAB erred by applying a narrow legal standard for finding “structural obviousness” and requiring it to show that one of ordinary skill in the art would have been motivated to deuterate ruxolitinib to obtain compounds with superior properties. Specifically, Incyte argued that the patented claims were obvious in view of cited references’ disclosure of a genus of deuterated ruxolitinib compounds, identification of particular sites associated with oxidative metabolism, and the ability to create new derivatives with improved safety and/or efficacy. Incyte also argued that a motivation to modify a lead compound need not be fueled by a pursuit of improvement but rather could arise from an expectation to obtain compounds with “similar properties.”

The PTAB agreed with Incyte. Regarding the first part of the test for structural obviousness, while noting that Incyte did not conduct a formalistic lead-compound analysis, the PTAB nonetheless found that ruxolitinib’s useful properties would have motivated a chemist to make structurally similar compounds. Regarding the second part of the test, the PTAB found that expert testimony and statements made by Concert’s CEO evidenced recognition that the deuterated variants would have been expected to possess at least similar efficacy and safety profiles to that of the non-deuterated compounds. The PTAB concluded that it had substantively misapplied the law by requiring an express motivation in the prior art to modify a lead compound.

In rebuttal, Concert relied on its own expert testimony as well as evidence of unexpected properties of deuterated analogs. The PTAB found that competing testimonial evidence forwarded by the parties raised a genuine issue of material fact that required resolution via an IPR proceeding.

The majority also disagreed with an alternate theory of obviousness forwarded by Incyte based on a US Food and Drug Administration label. However, APJ Fitzpatrick dissented in part, finding that Incyte made a sufficient showing that the label was both a printed publication and prior art to the claims of the challenged patent, and that there was a reasonable basis to examine this alternate theory of obviousness.


AIA / IPR / § 315(b)

Litigation Continuity Means Earlier Time Bar Date


The Patent Trial and Appeal Board (PTAB) denied petition for inter partes review (IPR) as time barred under 35 USC § 315(b) when a first-filed district court complaint was dismissed without prejudice because there was continuity of infringement litigation due to a second complaint filed before the dismissal of the first complaint. Fujifilm Corp. v. Sony Corp., Case No. IPR2018-00060 (PTAB, Apr. 20, 2018) (Paper 8) (Boucher, APJ).

Sony owns a patent directed to a tape cassette that has a magnetic tape and a solid-state memory. Sony filed a patent infringement complaint against Fujifilm in the Southern District of New York. Fujifilm accepted service of the complaint on August 22, 2016. On May 8, 2017, Sony withdrew the patent from the New York action and on the same day filed a new complaint alleging infringement of the patent in the Southern District of Florida. The claims for infringement of the patent were dismissed in the New York action without prejudice on May 9, 2017.

Fujifilm filed a petition for IPR on October 11, 2017. Sony filed a preliminary response arguing that the petition was time barred because it was filed more than one year after service of the complaint in New York. In response, Fujifilm argued that the relevant date for determining time bar under § 315(b) was the date of service of the complaint in the Florida action. The PTAB disagreed, finding that because the parties remained engaged in a dispute first raised in the New York action and continued in the Florida action without interruption, the service of the complaint in New York was the relevant date for determining whether the petition was time barred under § 315(b). Because the New York complaint was served more than a year before the IPR petition was filed, the PTAB denied institution.

Practice Note: Patent owners should file a new complaint well before withdrawing a first one to ensure continuity of litigation.


Trademarks

TRADEMARKS / ATTORNEYS’ FEES / FIRST-FILED RULE

Tidy Answer on Attorneys’ Fees in “Sloppy Tuna” Trademark Row


Eleanor B. Atkins

Addressing for the first time whether attorneys’ fees should be included in an award of costs under Fed. R. Civ. P. 41(d), the US Court of Appeals for the Second Circuit affirmed the district court’s decision to include such fees, but nonetheless vacated and remanded the district court’s dismissal of the complaint pursuant to the “first-filed” rule. Horowitz v. 148 South Emerson Assocs. LLC, Case No. 16-3912-cv (2d Cir., Apr. 20, 2018) (Walker, J).

In May 2011, four colleagues opened a restaurant in Montauk, New York, called the Sloppy Tuna. They created various corporate entities, including Montauk U.S.A., LLC, (Montauk) which owned the intellectual property associated with the Sloppy Tuna, and 148 South Emerson Associates LLC (Associates), which owns and operates the restaurant. In 2016, Montauk sued Associates in district court alleging Lanham Act violations as a result of Associates’ use of the Sloppy Tuna trademarks after the license agreement between the parties was terminated.

The district court dismissed the complaint without prejudice pursuant to the “first-filed” rule and ordered Montauk to pay Associates’ costs, including attorneys’ fees, in defending a Georgia state court action for breach of contract regarding Associates’ use of the Sloppy Tuna trademarks, among other things. Furthermore, the district court rejected the claim that Michael Meyer (one of the four colleagues who created the Sloppy Tuna) did not have a derivative right to act on behalf of Associates.

On appeal, the Second Circuit acknowledged “New York’s general disfavor of derivative litigation,” but agreed with the district court that, in this case, it would be inequitable to prevent Meyer from acting on behalf of Associates “because it would effectively require the LCC to pay license fees to one 50% member [] at the expense of the other 50% member [] who would be barred from appearing in the suit.”

The Second Circuit, however, vacated and remanded the district court’s dismissal pursuant to the “first-filed” rule, which requires that if there are two competing lawsuits, the suit that was filed first should (typically) have priority. The district court dismissed the case, citing a state appellate case in Georgia. However, since that case was subsequently transferred to the same district court and assigned to the same district judge that was presiding over this case, “none of the considerations motivating the district court’s application of the ‘first-filed’ rule remain. . . . The able district judge is perfectly capable of consolidating them as necessary.”

Finally, the Second Circuit affirmed the district court’s decision to require Montauk to pay the costs, including attorneys’ fees, incurred by Associates in the Georgia state action. Fed. R. Civ. P. 41(d) provides that “[i]f a plaintiff who previously dismissed an action in any court files an action based on or including the same claim against the same defendant, the court . . . may order the plaintiff to pay all or part of the costs of that previous action.” Despite Montauk’s arguments to the contrary, the Court found that the instant action was based on the same claims as the Georgia state action (ownership and/or use of the Sloppy Tuna trademarks), stating that “[t]his is the precise type of litigation tactic that Rule 41(d) is meant to deter,” namely “forum shopping and vexatious litigation.”

Practice Note: The issue of whether attorneys’ fees may be included with costs under Rule 41(d) has resulted in a circuit split: the Sixth Circuit has held that attorneys’ fees are never available under Rule 41(d), whereas the Eighth and 10th Circuits have held the opposite. The Fourth, Fifth and Seventh Circuits have decided that attorneys’ fees may only be included when the statute that serves as the basis for the original suit allows for attorneys’ fees.

In this case, the Second Circuit followed the Eighth and 10th Circuits, noting that “the entire Rule 41(d) scheme would be substantially undermined were the awarding of attorneys’ fees to be precluded” because these actions typically only result in “minor costs to the adversary other than attorneys’ fees, which may be substantial.”


TRADEMARKS / LIKELIHOOD OF CONFUSION

“Backyard” Grill Summary Judgment Gets Burned


Mary Hallerman

Reversing summary judgment in a trademark infringement dispute over the use of the term “Backyard” on grills, the US Court of Appeals for the Fourth Circuit found that the district court erred because there were genuine issues of disputed fact concerning key factors in the likelihood-of-confusion analysis. Variety Stores, Inc. v. Wal-Mart Stores, Inc., Case Nos. 17-1503; -1644; -1906 (4th Cir., Apr. 24, 2018) (Floyd, J).

Variety Stores sells lawn and garden products, such as grills, at its stores located in 16 states and the District of Columbia. In 1997, Variety acquired the trademark “The Backyard” for retail services in the field of lawn and garden supplies. At the time the original owner of the mark applied to register the mark with the US Patent and Trademark Office (PTO), the examiner did not require proof of secondary meaning. At some point after acquiring the mark, Variety began using the marks “Backyard” and “Backyard BBQ” for selling grills.

In late 2010, Wal-Mart decided to adopt a private label for its grills and related goods. In the process of researching available marks, Wal-Mart’s legal counsel advised the marketing team not to use “Backyard Barbeque” and “Backyard BBQ.” Wal-Mart also knew of Variety’s registration for “The Backyard.” Despite these risks, Wal-Mart decided to adopt “Backyard Grill,” began selling grills under that mark in late 2011 and applied to register the mark shortly thereafter.

Variety learned of Wal-Mart’s “Backyard Grill” application and opposed it at the Trademark Trial and Appeal Board. After limited discovery, Variety sued Wal-Mart in district court, asserting claims of trademark infringement and unfair competition under federal law and related state law claims. Variety moved for partial summary judgment on liability, and the district court granted Variety’s motion. The district court found that Variety owned protectable registered and common-law trademarks, and that Wal-Mart’s use of “Backyard Grill” caused a likelihood of confusion. Ultimately, the district court ordered Wal-Mart to disgorge $32.5 million in profits. Wal-Mart appealed.

On appeal, the Fourth Circuit found that the district court erred in finding that four likelihood-of-confusion factors weighed in favor of Variety: (1) the strength of Variety’s mark, (2) the similarity of the marks to consumers, (3) Wal-Mart’s intent to confuse and (4) actual confusion.

Strength of Variety’s Mark

The Fourth Circuit found that Variety’s mark was conceptually weak. While the PTO did not require proof of secondary meaning at the time Variety’s “The Backyard” mark was registered, that does not end the inquiry. See Grayson O. v. Agadir International (IP Update, Vol. 20, No. 7). A suggestive mark, even if it is inherently distinctive, can still be conceptually weak when others in the field widely use the mark. Wal-Mart presented evidence of such use, and the Fourth Circuit found that the district court failed to credit this evidence. The Fourth Circuit noted that conceptually weak marks may be considered strong if they have sufficient commercial strength. Here, both parties submitted evidence concerning the commercial strength of Variety’s mark, and the Fourth Circuit found this to be in genuine dispute. Because the commercial strength was disputed, the overall strength of Variety’s mark was also genuinely disputed. The Court therefore found that the district court erred in weighing this factor in Variety’s favor.

Similarity of the Marks to Consumers

The Fourth Circuit also found a genuine dispute of material fact with respect to mark similarity. While both marks include “backyard,” Wal-Mart’s mark displays the word “grill” in larger font than “backyard,” and thus that term could be viewed as the dominant feature of the mark.

Wal-Mart’s Intent to Confuse

The Fourth Circuit found that Wal-Mart’s awareness of Variety’s “The Backyard” registration and legal advice related to Wal-Mart’s adoption of “Backyard Grill” created a genuine dispute of material fact. While a jury could infer bad faith based on Wal-Mart’s knowledge of Variety’s registration, a jury could also find that Wal-Mart did not act in bad faith because it largely followed its counsel’s advice and did not know of Variety’s use of “Backyard BBQ” on grills.

Actual Confusion

The Fourth Circuit found that the district court erred in giving Wal-Mart’s survey—which showed a lack of actual confusion—little weight in deciding Variety’s summary judgment motion. At the summary judgment stage, the Court admonished the district court for weighing the evidence.

While the majority of the likelihood of confusion factors ultimately weighed in favor of Variety, because the strength of Variety’s mark, Wal-Mart’s intent to confuse and evidence of actual confusion were genuinely disputed, the Fourth Circuit found that the ultimate question of likelihood of confusion was genuinely disputed and the district court erred in granting summary judgment.

Practice Note: Legal advice concerning trademark clearance and selection is ordinarily privileged, but the privilege will be waived in the event the allegedly infringing party relies on advice of counsel to show that there was no intent to confuse. Understanding the circumstances of clearance and selection is a critical step in early case assessment.


Copyrights

COPYRIGHTS / SCOPE OF COPYRIGHT / NON-PROTECTABLE ELEMENTS

Attempt to Claim “Common Heritage of Human Kind” Sinks Infringement Case


Sarah Bro

The US Court of Appeals for the Ninth Circuit examined the extent to which copyright protection can be granted in the expression of an idea based on elements first found in nature, and finding only a “thin copyright” in the plaintiff’s work, affirmed the district court’s summary judgment in favor of the defendant. Peter A. Folkens v. Wyland Worldwide, LLC, et al., Case No. 16-15882 (9th Cir., Feb. 2, 2018) (Gould, J).

In 2014, wildlife artist Peter A. Folkens sued Robert T. Wyland and his galleries (together, Wyland) for copyright infringement, alleging that Wyland’s 2011 painting “Life in the Living Sea,” depicting an underwater scene consisting of various fish, aquatic plants and three dolphins—two of which are crossing—infringed Folkens’s 1979 pen and ink illustration depicting two dolphins crossing each other as one dolphin swims horizontally and the other vertically. After applying the Ninth Circuit’s extrinsic test of substantial similarity to assess copyright infringement, the district court granted summary judgment for Wyland. The court found that the main similarity between “Life and the Living Sea” and Folkens’s “Two Dolphins” illustration was the depiction of two crossing dolphins, and that the idea of dolphins swimming underwater close together in a manner resulting from “dolphin physiology and behavior” is not a protectable element under copyright.

It is well settled that copyright law does not protect an idea per se, but instead protects the manifestation or expression of an idea. Therefore, on appeal, Folkens argued that his depiction of the crossing dolphins was a unique expression of the idea of dolphins swimming underwater. To bolster his claims, Folkens alleged that the dolphins in his illustration were posed by professional animal trainers in an enclosed environment and did not appear in nature in such a configuration.

The Ninth Circuit explained that proving copyright infringement requires a plaintiff to demonstrate (1) ownership of a valid copyright and (2) copying of the constituent elements of the work that are original. Since Folkens’s ownership of the copyright was not in dispute, on appeal the Court only had to determine whether the two works were substantially similar so as to constitute improper copying by the defendants.

Typically, summary judgment is not favored to decide questions of substantial similarity in copyright cases unless “no reasonable juror could find substantial similarity of ideas and expression.” Here, the Ninth Circuit relied on an objective extrinsic test, which focuses on articulable similarities between specific expressive elements in the works at issue. Because the parties agreed that the element of similarity between the works was the two dolphins crossing, the Court’s key inquiry became whether the crossing of the dolphins was a protectable element under copyright law.

In its analysis, the Ninth Circuit first dismissed the idea that the positioning of the dolphins by a trainer removed the possibility of summary judgment, noting that the assistance of animal trainers “does not in itself dictate whether the pose could be found in nature.” Citing its own well-known copyright decision in Satava v. Lowry (pertaining to glass jellyfish sculptures), the Court reaffirmed that ideas first expressed in nature are the “common heritage of human kind,” and copyright law may not be used by one artist to prevent another from depicting such ideas as expressed by nature. At the same time, however, the Court was careful not to foreclose all copyright protection in the depiction of live animals, noting that an artist’s original expression and contributions, such as lighting, perspective and background, may earn copyright protection, but only “thin” or “narrow” protection.

The Ninth Circuit determined that although Folkens did hold such a thin copyright in his expression of the two dolphins in dark water with certain light ripples, those protectable elements were not substantially similar to Wyland’s crossing dolphins, and thus Wyland’s work was not an infringement. Since the crossing of dolphins under the sea is an “idea first expressed in nature,” the Court explained that the only similar element of the works—the positioning of the dolphins—was not protectable under copyright law, and affirmed the district court’s grant of summary judgment in favor of Wyland.


COPYRIGHTS / STANDING

COPYRIGHTS / INFRINGEMENT