IP Update, Vol. 17, No. 4 - McDermott Will & Emery

IP Update, Vol. 17, No. 4



Patents / Attorneys' Fees

Therasense and the Fight for Fees on Fees

Paul Devinsky

In the attorneys’ fee portion of this seminal case on inequitable conduct, the U.S. Court of Appeals for the Federal Circuit has concluded that the defendants, while entitled to attorneys’ fees under 35 U.S.C. § 285, are not entitled to “fees on fees” or to prejudgment interest prior to the time the district court found the case exceptional on remand and reinstituted its fee award. Therasense, Inc. v. Becton, Dickinson and Co., Case No. 12-1504 (Fed. Cir., Mar. 12, 2014) (Rader, C. J.) (Dyk, J., dissenting).

In 2004, Becton sued Abbott (formerly Therasense) seeking a declaratory judgment of non-infringement of its blood glucose test strip (the BD Test Strip). In response, Abbott sued Becton for patent infringement alleging that Becton’s BD Test Strip infringed its patent.

The district court granted summary judgment (SJ) of non-infringement with respect to all asserted claims of two of patents and found nearly all of the asserted claims of the third patent to be invalid. Following a bench trial, the district court also determined that the claims of the patent that was the subject of the SJ ruling were also unenforceable for inequitable conduct. The district court further found the case concerning the later patent to be exceptional under 35 U.S.C. § 285 and awarded Becton costs and fees of almost $6 million. In its order, the district court stated that payment was due “following the exhaustion of all appeals . . . regarding the validity and unenforceability of the [ ] patent, if the court’s inequitable conduct judgment is upheld on appeal.”

Abbott appealed the district court’s judgments of invalidity, unenforceability and non-infringement but not the exceptional case finding or fee award. After the Federal Circuit’s en banc decision, altering the standard for inequitable conduct, the case was remanded to the district court.

Applying the new Therasense standard for inequitable conduct determinations, the district court again concluded that the patent was procured through inequitable conduct. Becton then moved to supplement the original fee award with appellate and remand fees and expenses, fees spent seeking additional fees, pre-judgment interest on fees and post-judgment interest from the date the district court first found this case to be exceptional. The district court reinstated its $6 million fee award and added post-judgment interest of approximately $6400 (standardization the date of its remand decision), but denied Becton’s motion for additional fees and interest in all other respects.

Becton appealed the district court’s denial of additional fees, contending that it was entitled to appellate and remand fees because the district court’s exceptional case finding “permeated” the appeal and remand phases. For the appeal and remand phases, Becton claimed fees of approximately $1.35 million as well as $570,000 in post-judgment interest calculated from the original “exceptional case” finding. Becton appealed.

The Federal Circuit, noting that the district court’s $6 million fee order expressly contemplated an appeal, concluded that the district court did not err in denying Becton’s motion for additional fees predicated on the original vacated determination of inequitable conduct.

Becton also asserted that Abbott’s appeal and petition for rehearing en banc qualify independently as exceptional circumstances, characterizing Abbott’s continued pursuit of appellate review as “a deliberate and malicious attempt to prolong the litigation and to deceive the district court.” However, the Federal Circuit noted the total absence of evidence of bad faith by Abbott in pursuing the appeals: “Expressions of outrage and suspicion in the form of attorney argument are not evidence of bad faith. Nor does the mere act of pursuing appellate review—available as a matter of right and frequently necessary to preserve future rights of appeal—by itself suggest an abuse of the legal system.” Rather, the Court concluded that Abbott’s appeal was not frivolous and that it “developed its appeal based on the facts and reasonable legal arguments,” noting that Abbott did “ultimately succeed on appeal in vacating the underlying judgment of inequitable conduct” (and was therefore the prevailing party in the appeal). Thus, the Federal Circuit concluded the district court did not abuse its discretion by declining to award fees for appeal, rehearing and remand.

Finally, in seeking fees on fees, Becton argued that Abbott forced it to incur additional legal expenses on appeal and remand before paying the fees owed through trial. On this issue, the Federal Circuit noted that “a district court may exercise broad discretion in awarding fees and setting the amounts of fees.” Here the district court not only declined to find the appeal was frivolous, but rather concluded that there “was no litigation misconduct nor any other reason to find that Abbott’s appeal was an exceptional case warranting supplemental fees.” Based on the district court’s “substantial discretion in fixing the amount of any award,” the Federal Circuit affirmed the decision.

Finally, the Federal Circuit agreed that the district court correctly declined to award post judgment interest calculated from the date the district court first found the case to be exceptional, since that judgment had been vacated. Thus, any post judgment interest was properly determined based on the date of the remand judgment. The district court therefore did not err in concluding that post judgment interest should accrue only from the date of its order reinstating the prior fee award.

Dissenting in part, Judge Dyk questioned the rational of the majority on the issue of fees for the appeal: “the district court concluded in the remand order that it could not award appellate fees unless the appeal was independently exceptional. The majority agrees. This holding, it seems to me, is contrary to Supreme Court precedent, and will potentially cause problems in future cases. I would reverse and remand for the district court to reconsider the appellate fee requests under the correct legal standard.”

In Dyk’s view, the Supreme Court rule is that all phases of litigation, including appellate proceedings, are to be treated as a unitary whole, not parsed into discrete parts. Dyk also takes issue with the majority ruling that Becton was not “prevailing party” in the original appeal and en banc proceedings, noting that “the Supreme Court has held that the phrase “prevailing party” applies to any party who has established his entitlement to some relief on the merits of his claims.” Since, in the appeal, Becton prevailed on invalidity and non-infringement, in Dyk’s view it was the “prevailing party.”

In regard to the “fee for fees” issue, Judge Dyk, relying on the same U.S Court of Appeals for the Ninth Circuit precedent as the majority, arrived at a contrary conclusion, observing that since Becton was entitled to substantial fees, “[t]he district court was required to allow fees to secure those fees.”

Patents / "Exceptional Case"

Exceptional Case Finding Results in $12 Million Fee Award

In a non-precedential decision addressing a finding of exceptional case under 35 U.S.C. § 285, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s award of more than $12 million in attorneys’ fees , finding that the plaintiff’s claims were objectively baseless and brought in subjective bad faith and that plaintiff was liable for litigation misconduct. Gabriel Techs. Corp. v. Qualcomm Inc., Case No. 13-1205 (Fed. Cir., Mar. 18, 2014) (per curiam).

Gabriel Technologies filed a lawsuit for more than $1 billion against Qualcomm and SnapTrack alleging 11 causes of action, including claims for correction of inventorship and misappropriation of trade secrets, among other contract and unfair competition claims. At the heart of the dispute, Gabriel alleged that Qualcomm had misappropriated and improperly patented GPS technology licensed from Gabriel. The district court dismissed several of Gabriel’s 11 causes of action for failure to state a viable claim, for claim preemption and for failure to plead with particularity. As the case progressed, the district court required Gabriel to post an $800,000 bond to continue its suit, noting that Qualcomm had presented significant evidence that Gabriel’s remaining claims were meritless and were brought in bad faith. Further, despite years of litigation and discovery, Gabriel had failed to draw any “meaningful connection” between Gabriel’s technology and the allegedly misappropriated information in Qualcomm’s patents. Gabriel posted the bond and proceeded with its case, but the district court later granted summary judgment in favor of Qualcomm. On Qualcomm’s motion for fees, the district court found that the case was objectively baseless and brought in subjective bad faith and that Gabriel had engaged in litigation misconduct and awarded Qualcomm approximately $12 million in attorneys’ fees. Gabriel appealed.

The Federal Circuit affirmed, agreeing that Gabriel’s claims were objectively baseless. For example, regarding Gabriel’s claims that inventorship needed to be corrected, the Court found that Gabriel could not identify any person who claimed to have invented or contributed to the Qualcomm patent.

The Federal Circuit also affirmed the district court’s finding of subjective bad faith, noting that in many cases proving a litigant’s subjective bad faith is challenging, but “this is not such a case.” The Court found compelling emails from Gabriel’s executives admitting the case was meritless. The Federal Circuit rejected Gabriel’s argument that its willingness to post the $800,000 bond and the fact that a law firm was willing to take their case on a contingency basis showed that they had a good faith belief in their claims. In light of the damaging emails, the Court disagreed. Further, the Court found that Gabriel’s refusal to drop its lawsuit after it was warned by the district court about the weakness of its case justified the finding for subjective bad faith.

Finally, the Court agreed with the district court that Gabriel’s attempt to reassert claims that had been dismissed with prejudice and to try to continue litigating trade secret claims that were clearly time-barred justified the finding of litigation misconduct.

Practice Note: This decision issues at a time the U.S. Supreme Court is considering two cases on fee shifting in patent disputes; Octane Fitness v. Icon Health and Fitness (IP Update, Vol. 16, No. 10) and Highmark v. Allcare Health Management Systems (IP Update, Vol. 16, No. 10). The High Court heard argument in both cases on February 26, 2014 and decisions are pending. The decisions in these two cases are expected to focus on the proper standard for an “exceptional case” finding under 35 U.S.C. § 285 and the proper standard for review on appeal. Also of interest is the Federal Circuit’s decision in Kilopass Tech. Inc. v. Sidense Corp. (IP Update, Vol. 17, No. 1), which issued shortly prior to the Supreme Court arguments in Octane Fitness and Highmark.

Patents / Induced Infringement

Lack of Intent Must Be Proved for All Times After Learning of a Patent

Addressing the requisite intent required to prove induced infringement, the U.S. Court of Appeals for the Federal Circuit reversed a lower court’s summary judgment of non-infringement, finding that the defendant failed to prove that it relied on an opinion of counsel in good faith at all times after learning of the asserted patent. Bose Corp. v. SDI Techs., Inc., Case No. 13-1347 (Fed. Cir., Mar. 14, 2014) (Clevenger, J.).

Bose accused SDI of inducing infringement of a patent related to playing digital music stored in an audio source device through a separate powered speaker. Bose targeted 144 of SDI’s speaker dock products, which connect to iPhones, iPods or iPads. To play digital music, it must first be converted into analog signals. In all but one of the accused products, this conversion occurs in the audio source, for example an iPod. In the other accused product, which is wireless, the conversion occurs at the speaker.

The Federal Circuit affirmed the district court’s claim construction requiring that the digital to analog conversion occur at an “interface” in the speaker. Although the specification contemplates that the conversion may occur at the audio source (as in the majority of the accused products), the claim language and a narrowing claim amendment supported the narrower construction. Accordingly, summary judgment of non-infringement was upheld for all but the wireless accused product.

The Federal Circuit also addressed the district court’s finding that SDI had established it lacked the requisite intent to induce infringement insofar as to the wireless product was concerned. An element of SDI’s defense to the change of inducement was an opinion of counsel that the patent was invalid. In evaluating this defense, the Court analyzed SDI’s intent over four periods of time.

First, the Federal Circuit found that SDI could not have had intent to induce infringement at the time prior to learning of the patent and agreed that the district court properly found SDI not liable prior to this time.

Second, the Federal Circuit analyzed the three-month period between the time it became aware of the patent and SDI’s meeting with Bose about the patent. The Court found that the record was silent as to SDI’s state of mind during this period and therefore the record did not support summary judgment in favor of SDI.

Third, the Federal Circuit addressed the meeting between Bose and SDI. Although at the meeting SDI raised the prior art that was the basis of a rejection during reexamination, the record did not demonstrate that SDI relied on advice of counsel in doing so nor did it sufficiently detail SDI’s invalidity position. As a result, the Federal Circuit found that summary judgment in favor of SDI was improper in terms of this event as well.

Finally, the Court addressed the period after SDI received the opinion of counsel, commissioned after the meeting with Bose. Although SDI undisputedly received an opinion of counsel that the asserted patent is invalid, the factual inquiry does not stop there; evidence of a good faith reliance on that opinion is required. In this case, a disputed issue of fact exists as to whether SDI relied in good faith on its opinion of counsel.

The Court also noted that summary judgment for post-verdict liability was improper. Should a jury find the patent valid and infringed, SDI could not credibly argue that it holds a good-faith belief to the contrary. Accordingly, summary judgment improperly absolved SDI of post-verdict liability.

Patents / Res Judicata

Product May Acquire Non-Infringing Status, Even as to Adjudicated Method Claims, After a Prior Finding of Non-Infringement of Apparatus Claims

Addressing the Kessler Doctrine, the U.S. Court of Appeals for the Federal Circuit affirmed-in-part, vacated-in-part and remanded a district court’s summary judgment barring assertion of method claims of a previously asserted patent, finding that although neither claim or issue preclusion barred the claims, the Kessler Doctrine precluded the majority of the asserted claims. Brain Life, LLC v. Elekta Inc.,Case No. 13-1239 (Fed. Cir., Mar. 24, 2014) (O’Malley, J.).

MIDCO, a predecessor in interest to Brain Life, asserted the patent-in-suit against Elekta, alleging that Elekta’s products infringed both the method and system claims of the patent (MIDCO litigation). Before trial, Elekta filed an unopposed motion to dismiss the method claims. The district court subsequently dismissed the method claims without prejudice. At trial, a jury found that Elekta infringed the asserted patent. Elekta appealed the finding of infringement, and the Federal Circuit reversed and remanded the case. On remand, MIDCO attempted to revive the method claims, but the district court refused to reopen the case and entered final judgment in favor of Elekta. MIDCO appealed, and the Federal Circuit affirmed the district court’s refusal to reopen the case.

After the MIDCO litigation, MIDCO exclusively licensed the patent to another company, which subsequently exclusively licensed the patent to Brain Life. Several years after the MIDCO litigation, Brain Life asserted the patent against Elekta, alleging Elekta’s products (three of which were at issue in the MIDCO litigation and one new one that was not) infringe the method claims of the patent. Elekta moved to dismiss for failure to state a claim on res judicata grounds. The district court granted Elekta’s summary judgment motion and held that the present case was barred by claim preclusion. Brain Life appealed.

The Federal Circuit reviewed the district court’s dismissal de novo. The Court divided its analysis into claim preclusion, issue preclusion and the Kessler Doctrine. Regarding claim preclusion, the Court found that, “[w]ithout a doubt,” claim preclusion barred the assertion of either the method or system claims to the extent the acts of infringement predated the final judgment in the MIDCO litigation. However, the Court held that claim preclusion did not entirely bar the present action, because the new product, ERGO++, could not have been included in the prior action as it postdates the final judgment.

Regarding whether Brain Life’s claims were barred under issue preclusion, the Federal Circuit found that the method claims were not “fully, fairly and actually litigated to finality between these parties,” so issue preclusion does not bar the present action.

However, invoking the Kessler Doctrine, the Federal Circuit found that after the method claims were initially abandoned, MIDCO could have reasserted those claims. However, once the Elekta systems were adjudged to be non-infringing, Elekta was free to continue engaging in the accused commercial activity as a non-infringer. As a result, Elekta’s accused devices acquired a status of non-infringing devices, and Brain Life was barred from asserting the same patent claims a second time. Regarding the new product, ERGO++, the Court found the product never acquired the status of a non-infringing device in connection with the patent-in-suit. Therefore, the Court held neither claim preclusion, issue preclusion nor the Kessler Doctrine barred Brain Life’s assertion of infringement against that device. The Court therefore remanded the case to the district court for the further proceedings on the ERGO++ device.

Practice Note: The Kessler Doctrine is based on a 1907 U.S. Supreme Court case (Kessler v. Eldred) and addressed what was perceived to be a “gap” between issue preclusion and claim preclusion. The doctrine is designed to preclude repeated harassment of an adjudicated non-infringer from continuing its business as usual after a final judgment in its favor.

Patents / Claim Preclusion

Claim Preclusion Bars Second Lawsuit on Reexamined Claims Previously Held Invalid

Addressing whether claim preclusion bars a second suit asserting reexamined claims against a defendant who was victorious on the merits on the original claims in a first suit, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s ruling that claim preclusion bars a second suit finding that the reexamined claims were not materially different from the original claims. Senju Pharmaceutical Co., Ltd. v. Apotex Inc., Case No. 13-1027 (Fed. Cir., Mar. 31, 2014) (Plager, J.) (O’Malley, J., dissenting).

Senju sued Apotex for patent infringement after Apotex filed an Abbreviated New Drug Application (ANDA) with the U.S. Food and Drug Administration (FDA) requesting approval to manufacture, market and sell a generic version of Senju’s Gatifloxacin ophthalmic solution covered by a patent owned by Senju. After a bench trial, the district court found for Apotex. Although the court determined that Apotex’s ANDA product infringed all but one of the asserted claims, the court also determined all of the asserted claims were invalid. Senju filed a motion for a new trial or to amend the district court’s judgment of invalidity of one of the asserted claims. The district court again found the claim invalid and entered final judgment, a ruling later affirmed by the Federal Circuit.

Meanwhile, the Patent and Trademark Office (PTO) issued a reexamination certificate certifying the patentability of several claims. Senju then filed a second suit asserting some of the reexamined claims.

On Apotex’s motion, the district court dismissed Senju’s second suit on claim preclusion grounds. The court reasoned that pursuant to 35 U.S.C. § 305, none of the claims Senju added or amended during the reexamination could be broader than the original claims. As such, the court concluded that the new lawsuit did not create a new cause of action that and dismissed the second suit. Senju appealed.

The Federal Circuit affirmed. Applying the Court’s previous decision in Aspex Eyewear v. Marchon Eyewear (IP Update, Vol. 16 No. 5), the Court found that the claims that emerged from Senju’s reexamination request did not in and of themselves create a new cause of action which did not exist before in the original claims. The Federal Circuit noted that during reexamination claim scope cannot be enlarged and concluded that the reexamined claims were essentially the original claims with the addition of limitations designed to avoid the prior art.

The Federal Circuit did not impose a bright-line rule that a second suit asserting reexamined claims against a defendant who won on the merits in a first suit on the original claims is always barred by claim preclusion. Rather the Federal Circuit explained that “in the absence of a clear showing that such a material difference exists in a disputed patentable reexamination claim, it can be assumed that the reexamined claims will be a subset of the original claims and that no new cause of action will be created. This applies whether the judgment in the original suit was based on invalidity of the claims or simply on non-infringement.”

In dissent, Judge O’Malley stated that the dispositive issue on appeal was whether Senju’s reexamined claims created new patent rights that Senju could not have asserted in the first lawsuit. Judge O’Malley reasoned that because the original claims were invalid, Senju never had any patent rights in the original claims. As such, Judge O’Malley concluded that Senju should not be precluded from asserting those patent rights for the first time in a second suit on reexamined claims.

Judge O’Malley distinguished Aspex, concluding that it does not support the majority holding. During the first lawsuit in the Aspex case, the district court found that two of the three asserted claims were invalid and that one claim was valid and infringed. Aspex filed a second suit on two claims from the same patent that had been reexamined but had not been adjudicated by the trial court during the first suit in their original forms. In Aspex, the district court dismissed the second suit, finding the reexamined claims did not materially differ in scope from the original claims. The Federal Circuit affirmed.

Judge O’Malley reasoned that district court’s dismissal of the second suit was effectively based on claim splitting (i.e., asserting in two lawsuits claims from the same patent), a different theory from res judicata, which is the theory applied in Senju. According to Judge O’Malley, the reexamined claims Aspex asserted in the second lawsuit were essentially the same as the original claims it did not assert in the first lawsuit. In other words, Aspex had patent rights in the later asserted claims during the first lawsuit. Accordingly, O’Malley reasoned that while the second lawsuit in Aspex was properly dismissed for claim splitting, that rational does not control the fact situation in Senju.

Patents / Claim Construction

A Prosecution History Without Express Disclaimers Still Informs Claim Construction

Addressing the impact of statements made during prosecution on claim construction, the U.S. Court of Appeals for the Federal Circuit vacated and remanded a lower court’s ruling of infringement, finding that the lower court construed relevant terms too broadly in view of the statements made during prosecution. Shire Development, LLC v. Watson Pharmaceuticals, Inc., Case No. 13-1409 (Fed. Cir., Mar. 28, 2014) (Hughes, J.).

Shire owns a patent directed to a controlled-release oral pharmaceutical composition for treating inflammatory bowel disease. The patent requires the claimed composition to have an inner lipophilic matrix consisting of substances and an outer hydrophilic matrix consisting of compounds. After Watson filed an Abbreviated New Drug Application (ANDA) to obtain approval to sell a generic form of the drug, Shire sued for infringement.

The district court found infringement based on its construction of disputed terms “inner lipophilic matrix” and “outer hydrophilic matrix.” The court construed the former to mean a matrix including at least one lipophilic excipient and the latter to mean a matrix of at least one hydrophilic excipient located outside the inner lipophilic matrix. The district court construed the claim to not require the inner lipophilic matrix to be separate from the outer hydrophilic matrix, reasoning that even though applicants had described their matrices as “separate” to distinguish over the prior art references, those statements did not raise to the level of clear and unambiguous disavowals. Watson appealed.

The Federal Circuit disagreed with the district court’s construction of inner lipophilic matrix and outer hydrophilic matrix and determined that the matrix—not just an excipient within the matrix—must exhibit the lipophilic or hydrophilic characteristic and that the inner lipophilic matrix and outer hydrophilic matrix should be construed as separate from one another, based on the prosecution history.

Although the Federal Circuit agreed with the district court that the applicants’ statements did not rise to the level of unmistakable disavowal, it nevertheless found that Shire’s statements did inform the claim construction and that the statements made to the Patent and Trademark Office (PTO) “stays true to the claim language and most naturally aligns with the patent’s description of the invention.” The Court reasoned that the applicants’ statements together with the structure of the claim compel a claim construction which logically requires that the inner lipophilic matrix be separate from the outer hydrophilic matrix.

Patents / Enablement and Written Description

When Is a Claimed Drug Formulation Enabled and Adequately Described?

Addressing the requirements for enablement and written description, the U.S. Court of Appeals for the Federal Circuit reversed a district court’s ruling of patent invalidity, finding that the patent’s discussion of exemplary compositions and procedures in the challenged written description could be used to achieve the claimed invention. Alcon Research Ltd. v. Barr Labs., Inc., Case Nos. 12-1340, -1341 (Fed. Cir., Mar. 18, 2014) (Lourie, J.).

Alcon developed a glaucoma and hypertension drug, Travatan Z®. Barr Laboratories submitted an Abbreviated New Drug Application (ANDA) to receive approval for an ophthalmic travoprost solution as a generic for Travatan Z®. Thereafter, Alcon sued Barr, asserting that the ANDA constituted an act of infringement of its patents. The district court found that Barr’s ANDA product did not infringe Alcon’s asserted claims and that the asserted claims were invalid for lack of enablement and lack of an adequate written description. Alcon appealed.

The Federal Circuit stated that the infringement inquiry provoked by an ANDA filing under the Hatch-Waxman system … is focused on a comparison of the asserted patents against the product that is likely to be sold following ANDA approval. Under this approach, the Federal Circuit affirmed the district court’s ruling that Barr’s ANDA product did not infringe, noting that the generic product proposed in Barr’s ANDA is significantly different from the compositions tested in the study proffered by Alcon as evidence of infringement.

This case also occasioned a Federal Circuit analysis of the statutory obligations of enablement and written description. The Court noted that, for enablement, the patentee must both describe the claimed invention adequately and enable its production and use. To show that a patent claim is not enabled and therefore invalid, a challenger must provide evidence that a person of ordinary skill in the art would not be able to practice the claimed invention without undue experimentation. Distinct from enablement, the written description requirement relates to whether the disclosure allows one skilled in the art to visualize or recognize the identity of the subject matter purportedly described and understand that the inventor was in possession of it at the time of filing. For a validity challenger to succeed in its challenge, enablement and lack of adequate written description must be established by clear and convincing evidence.

As for enablement, the Federal Circuit reversed the district court, finding that the patent’s discussion of exemplary compositions and procedures could be used by a person of skill in the art to achieve the claimed invention. While some experimentation may have been required, the Federal Circuit found that changing parameters of the procedures would not render Alcon’s claimed invention inoperable nor would such experimentation be undue.

The Federal Circuit also reversed the district court regarding written description, explaining that the specification disclosed many formulations and processes. Further, the Court noted that Barr failed to submit clear and convincing evidence that a person skilled in the art “would not have understood from the [patent disclosures] that the patentee’s invented, or possessed, the methods of the asserted claims,” without which there was no basis on which to find a lack of adequate written description.

Patents / Declaratory Judgment Jurisdiction

Pre-Patent Issuance Activities Can Create Justiciable Controversy

Addressing the issue of when a justiciable controversy arises for the purpose of declaratory judgment jurisdiction, the U.S. Court of Appeals for the Federal Circuit reversed a district court’s dismissal of a declaratory judgment action, finding that a controversy existed based on pre-issuance events at the patent office. Danisco US Inc. v. Novozymes A/S, Case No. 13-1214 (Fed. Cir., Mar. 11, 2014) (Lourie, J.).

Danisco and Novozymes develop genetically-modified enzymes used to convert corn into ethanol. Both hold patents for improving enzyme performance in liquefying starch by substituting certain amino acids in α-amylase enzymes. Since 2001, Novozymes has sued Danisco or Danisco’s predecessor-in-interest for patent infringement numerous times.

Danisco holds a patent which claims an α-amylase enzyme with a specific amino acid substitution called “E188P.” The modified enzyme is the active ingredient in Danisco’s products. Novozymes holds a patent that Novozymes argued covered similar subject matter, which issued later than Danisco’s patent.

During prosecution of Danisco’s patent, Novozymes amended its then-pending application to claim an α-amylase enzyme with an E188P substitution and sought an interference proceeding. The examiner rejected Novozymes’ interference request. After Danisco’s patent issued, Novozymes sought continued examination, challenging the examiner’s conclusions and arguing for priority over the Danisco patent. After the examiner rejected Novozymes’ request, Novozymes submitted public comments to the Patent and Trademark Office (PTO), stating that it refused to “acquiesce” to or be “estopped” by the examiner’s decision.

The day before Novozymes’ patent issued, Danisco filed a declaratory judgment action. The district court dismissed the case, finding no justiciable controversy existed because Danisco had challenged Novozymes’ patent before Novozymes took, or even could have taken, any affirmative action to enforce its patent rights. The district court stated that there is no precedent for finding jurisdiction based on such pre-patent issuance events alone. Danisco appealed.

The Federal Circuit reversed, finding that the fact that Novozymes had not accused Danisco’s products of infringing was not dispositive of the existence of explaining a controversy. The question instead was whether Danisco had demonstrated a substantial risk that the harm will occur: “the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of declaratory judgment.”

The Federal Circuit found that the record showed a definite and concrete patent dispute existed between the parties. Novozymes’ E188P α-amylase claim issued as the sole claim of the Novozymes patent and was the same claim that prompted Novozymes to seek the interference. Novozymes insisted on multiple occasions that its patent reads on the active ingredient in Danisco’s products. Novozymes had sued Danisco over related liquefaction products in the past.

The Court faulted the district court’s categorical distinction between pre- and post-issuance conduct as not irreconcilable with the Supreme Court’s flexible totality-of-the-circumstances test and Federal Circuit precedent: “we have never held that pre-issuance conduct cannot constitute an affirmative act, nor have we held that the only affirmative acts sufficient to create justiciable controversies are implied or express enforcement threats.”

The Court concluded that the parties have “plainly been at war over patents involving genetically modified α-amylase enzymes” and have adverse legal interests capable of conclusive resolution through a declaratory judgment.

Patents / Declaratory Judgment Jurisdiction

A Claim of “Authorship” Does Not Raise an Inventorship Dispute *Web Only*

Addressing whether an actual controversy exists that is sufficient to confer jurisdiction under the Declaratory Judgment Act, the U.S. Court of Appeals for the Federal Circuit vacated and remanded a lower court’s ruling on preliminary injunction, finding that the lower court never had jurisdiction to hear the declaratory judgment suit that was only directed to ownership, and not inventorship, of a patent. StoneEagle Services, Inc. v. Gillman, Case No. 13-1248 (Fed. Cir., Mar. 26, 2014) (Rader, C.J.).

StoneEagle sought a declaratory judgment that it was the sole owner of a patent directed to an electronic payment system after a dispute with a former business associate, David Gillman. Gillman worked with StoneEagle on an electronic payment system to process health care claims developed by StoneEagle’s CEO, Robert Allen. Gillman never claimed to be a co-inventor of the patent, but helped draft the application. The patent named Allen as the sole inventor.

The partnership broke down after a meeting with potential investors who said they considered the patent very valuable. According to StoneEagle’s suit, Gillman became upset and claimed that the patent belonged to him because he wrote it.

StoneEagle sued Gillman seeking a declaratory judgment that it was the sole owner and inventor of the patent. The lawsuit alleged a variety of state law, trade secret and contract claims. The district court issued a preliminary injunction against Gillman.

On appeal, Gillman argued that an actual case-or-controversy exists between the parties, but only over the state-law claim of ownership and that the Declaratory Judgment Act requires a case-or-controversy over an issue under federal law. Gillman conceded he did not invent the patented system and argued that the district court never had jurisdiction over the suit because there was no actual controversy about whether Allen should be the sole inventor.

The Federal Circuit found that StoneEagle never sufficiently alleged there was a controversy over whether Gillman was an inventor. StoneEagle only alleged that Gillman falsely claimed to have helped write the patent, which would not establish a dispute over inventorship because helping to write and file a patent application does not give that person inventorship rights. The Federal Circuit said that Gillman’s claim to have written the patent may establish a dispute over whether he has an ownership interest in the patent, but that is a question of state law not properly before the Federal Circuit.

Patents / License

Implied License Limited to Continuation Applications, Not to Provisionals

Addressing the issue of implied license, the U.S. Court of Appeals for the Federal Circuit vacated and remanded a lower court’s denial of a preliminary injunction, finding that defendant did not have an implied license to practice the asserted patents, because none of the asserted patents was a continuation of the licensed patents and a broader interpretation would allow defendant/licensee to capture via implied license subject matter beyond what it had bargained. Endo Pharmaceuticals Inc. v. Actavis, Inc., Case No. 13-1658 (Fed. Cir., Mar. 31, 2014) (Moore, J.) (Dyk, J., dissenting-in-part).

Endo sells branded oxymorphone extended release tablets, Opana® ER. Roxane and Actavis filed an Abbreviated New Drug Application (ANDA) to sell generic version of Opana® ER, and Endo thereupon sued for patent infringement under the provisions of the Hatch-Waxman Act. The parties settled, Endo granting both Roxane and Actavis a license to sell their ANDA products and a covenant not to sue for infringement of a specified licensed patent, and any patent applications that claimed priority to the licensed patent “including any continuation, continuation-in-part and divisional applications” that claimed priority to the licensed patent. The agreements also contained a “no implied rights” provision.

Subsequently, two additional patents to Endo covering Opana® ER issued. Both patents claimed priority to the same provisional application as the licensed patent. Endo asserted the newly issued patents against Roxane and Actavis, moving for a preliminary injunction to prevent sale of their ANDA products. The defendants opposed, citing express and implied license, arguing as to the latter that legal estoppel applied because Endo was trying to deprive them of the benefit of the earlier bargain. The district court did not reach the issue of express license but held that Endo was estopped as a matter of law from claiming that the sale of defendants’ ANDA product was barred by the new patents. Endo appealed.

The Federal Circuit reversed, concluding that Endo/Roxane had no express license and finding no merit in appellees argument that the term “including” in the definition of “licensed patents” showed that more than continuation, continuation-in-part and divisional applications were covered. The Court found that no reasonable argument could support that the newly issued patents claimed priority to the licensed patents and that no reading of the agreement extended coverage to patents that merely had a provisional application in common with the licensed patent. The Federal Circuit explained that the district court erred in finding an implied license when the specifications of the newly-issued patents were different from the licensed patent and the claims covered different subject matter. The Court cited its seminal TransCore decision for the proposition of expressly limiting implied license to the scope of the licensed patent to avoid creating a windfall situation for licensees but agreed only that its cases stand for the rule that a license or a covenant not to sue enumerating specific patents may legally estop the patentee from asserting continuations of the licensed patents in the absence of mutual intent to the contrary.

Judge Dyk dissented in part, concluding that Actavis had an implied license to the newly issued patents because Endo did not disclose the applications to those patents to Actavis and licensed Actavis to produce its ANDA product. Judge Dyk also found no meaningful difference between the provisional patent relationship at issue in the case and the continuation patent relationship in the Federal Circuit’s earlier decisions.

Patents / Burden of Proof

On Remand, Federal Circuit Comes Around to Supreme Court’s Way of Thinking

On a remand from the Supreme Court, the U.S. Court of Appeals for the Federal Circuit, addressing the issue of the sufficiency of infringement evidence, affirmed a district court’s ruling that a patentee failed to prove infringement by a preponderance of the evidence in view of the Supreme Court’s holding that the burden is on the patentee to show infringement in a declaratory judgment action. Medtronic Inc. v. Boston Scientific Corp., Case Nos. 11-1313, -1372 (Fed. Cir., Mar. 11, 2014) (Linn, J.) (non-precedential).

Medtronic filed a declaratory judgment action against defendants (collectively, MFV) seeking a finding that its products did not infringe the MFV patents. At the time of the litigation, Medtronic held a license to the MFV patents. As a result, MFV could not bring a counterclaim for infringement.

MFV argued that Medtronic, as the declaratory judgment plaintiff, bore the burden of proving non-infringement. The district court rejected this argument and found instead that the patentees have the burden to prove infringement. The district court found that MFV failed to show infringement by a preponderance of the evidence because MFV’s expert failed to consider each limitation of each asserted claim in comparison to each accused product before rending his infringement opinions. MFV appealed.

In a prior decision in this litigation, the Federal Circuit determined that the district court had erred in allocating the burden of persuasion to the patentee, given the context of the dispute. The Supreme Court granted certiorari and reversed the Federal Circuit, finding that the burden of proving infringement falls on the patentee in a declaratory judgment action. (IP Update, Vol. 15, No. 10) On remand from the Supreme Court, the Federal Circuit again reviewed the district court’s conclusion of non-infringement in view of the Supreme Court’s determination that the patentee bears the burden of proving infringement.

This time, the Federal Circuit looked at MFV’s evidence and affirmed the district court’s ruling that MFV had failed to prove literal infringement by a preponderance of the evidence. The Court found that MFV failed to show evidence that the Medtronic products in question met every limitation of the claims at issue. The Federal Circuit explained that “Medtronic’s noninfringement contentions based on certain elements alleged to be missing from its devices do not relieve [MFV’s expert] to opine on the presence of structure meeting every claim limitation.” Further, based on the evidence presented at trial, the Federal Circuit concluded that the district court had not abused its discretion in finding that MFV’s infringement expert was unreliable based on the lack of foundational evidence provided in his report to support the ultimate conclusion of infringement under the doctrine of equivalents. Accordingly, MFV’s arguments presented in rebuttal to Medtronic’s non-infringement position were insufficient to meet its burden of proving infringement by a preponderance of the evidence.

Patents / Subject Matter Jurisdiction

An Order Denying Summary Judgment Is Not an Appealable Final Judgment

In a non-precedential opinion addressing the issue of appellate jurisdiction, the U.S. Court of Appeals for the Federal Circuit dismissed an appeal of a lower court’s denial of two of plaintiff’s motions for summary judgment, finding that a denial of summary judgment is not a final judgment. Nissim Corp. v. ClearPlay, Inc., Case No. 13-1429 (Fed. Cir., Mar. 14, 2014) (Hughes, J.).

The plaintiff, Nissim, sued ClearPlay and its founders for patent infringement, trade secret misappropriation and breach of contract. The parties settled just before trial. The court dismissed the suit with prejudice, retaining jurisdiction solely to enforce the terms of the settlement agreement. Later, Nissim returned to court, seeking to enjoin ClearPlay from engaging in activities allegedly outside the scope of the settlement agreement.

The district court ultimately withdrew its discretionary jurisdiction over the settlement agreement without ruling on any substantive issues in the case. Prior to withdrawing, however, the court issued two rulings denying Nissim’s motions for summary judgment.

Nissim appealed the two summary judgment rulings only and not the district court’s decision to withdraw jurisdiction.

The Federal Circuit explained that the orders denying summary judgment were not appealable. The Federal Circuit stated that its appellate jurisdiction is limited to final judgments that end litigation on the merits and leave nothing for the court to do but execute the judgment. Relying on Supreme Court precedent, the Federal Circuit panel explained that the denial of a motion for a summary judgment based on disputed material issues of fact does not settle or even tentatively decide anything about the merits of the claim. According to the Court, such a ruling only decides that the case should go to trial.

Nissim argued that the two non-final orders denying summary judgment were appealable because those rulings would trigger collateral estoppel. The Federal Circuit noted that the interlocutory rulings should not be the basis for collateral estoppel for at least three reasons. First, the Court stated that ClearPlay’s counsel conceded during oral argument that collateral estoppel would not apply in a related case. Second it seemed unlikely to the Court that a district court would find the prerequisites for collateral estoppel satisfied under the predicate circumstances given that the subject of the interlocutory rulings were not necessary to the outcome of the suit. Third, the determination on the appeal that the orders denying summary judgment are unreviewable on appeal should act to preclude the application of collateral estoppel.

Although not part of the appeal, the Federal Circuit stated that the district court’s decision to withdraw discretionary jurisdiction is a final judgment, and reviewable for possible abuse of discretion. However, as the Court pointed out, Nissim waived its right to challenge the district court’s withdrawal of jurisdiction by stating on appeal that was not appealing that aspect of the district court’s order.

Patents / Consent Order

Civil Contempt Only Applies if Party Violates Explicit Terms of Order

Addressing a civil contempt order under an abuse of discretion standard, the U.S. Court of Appeals for the Federal Circuit found in that a former employee was not in contempt because he did not violate any specific terms within the four-corners of a consent decree. Energy Recovery, Inc. v. Hauge, Case No. 13-1515 (Fed. Cir., Mar. 20, 2014) (Wallach, J.).

Leif Hauge and his former employer, ERI, entered into a consent decree (the 2001 Order) resolving an intellectual property ownership dispute. The 2001 Order provided that ERI would be the sole owner of certain patents relating to “pressure exchangers” used in reverse osmosis. In addition, the 2001 Order obligated Hauge to transfer ownership of all other intellectual property and other rights relating to pressure exchanger technology to ERI; it also contained a non-compete clause prohibiting Hauge from making or selling energy recovery devices for two years from the date of the 2001 Order. Notably, the 2001 Order was silent regarding infringement of the intellectual property rights.

After the non-compete clause expired, Hauge began selling pressure exchangers through his new company, Isobaric. ERI filed a motion to show cause, alleging that Hauge was violating the 2001 Order by using ERI’s proprietary technology. The district court agreed that Hauge was in violation of the 2001 Order, issued a contempt order and enjoined him and Isobaric from manufacturing and selling pressure exchangers. Hauge appealed.

Applying an abuse of discretion standard, the Federal Circuit reversed the contempt order. While civil contempt requires satisfaction of a four-element test by clear and convincing evidence, the Court focused on “whether Mr. Hauge by his conduct violated any terms of the district court’s 2001 Order.” Specifically, the Court considered whether Hauge had violated his promise to assign all his rights to the intellectual property and other rights relating to pressure exchanger technology predating the 2001 Order.

The Court noted that the 2001 Order did not specifically preclude Hauge from using any manufacturing process but merely required Hauge to transfer ownership of the pressure exchanger intellectual property prior to the 2001 Order. Indeed, Hauge was not claiming ownership of the intellectual property. He merely began using the technology after the expiration of the non-compete clause. While the Court suggested that Hauge may be in violation of the patent laws or state trade secret laws, he was not in violation of any “unequivocal command” in the 2001 Order. Since the 2001 Order did not address infringement and ERI never pursued such a claim, Hauge’s use of the technology did not violate the 2001 Order.

The Court also rejected the district court’s finding that Hauge had violated the “letter and spirit” of the 2001 Order, noting that the Supreme Court has explained that a consent decree must be discerned within its four corners. Because Hauge did not violate any specific provision of the 2001 Order, the Court held that the district court abused its discretion in holding Hauge in contempt. Accordingly the Court reversed the decision below.

Practice Note: Consent decrees resolving disputes between a former employer and employee should preclude subsequent infringement of intellectual property by the former employee. Additionally, if a former employee makes use of patented technology after entering a consent decree precluding such use, the former employer should assert a claim for patent infringement in addition to a claim for civil contempt.

Patents / Damages

Multivariate-Hedonic-Regression Damage Analysis Found to Be an Impermissible Rule of Thumb

Addressing the admissibility of expert evidence, Circuit Judge Timothy Dyk, sitting by designation in the U.S. District Court for the Eastern District of Texas, excluded the plaintiff’s damages expert’s opinion because the expert used a multivariate-hedonic-regression analysis, a methodology that the court characterized as an impermissible rule-of-thumb calculation loosely untethered to the particular facts of the case. Stragent, LLC v. Intel Corp., No. 6:11-cv-421 (E.D. Tex., Mar. 6, 2014) (Dyk, J., sitting by designation).

Plaintiff Stragent sought to rely on the expert opinion of Dr. Vellturo regarding damages. Dr. Vellturo applied multivariate-hedonic-regression analysis in support of his opinion. Under his analysis, Intel’s accused product included nineteen features related to reliability, availability and service (RAS), and the feature Stragent accused of infringement was only one of those 19 RAS features. Dr. Vellturo determined that the 19 RAS features altogether accounted for 42 percent of the accused products’ average price. The accused feature was only one of the 19 features, and Dr. Vellturo had no way to determine how much of the 42 percent to apportion to the one accused RAS feature. So, using a multivariate-hedonic-regression analysis, Dr. Vellturo simply divided the 42 percent equally among the 19 RAS features, which led to the conclusion that the accused feature accounted for 2.2 percent of the accused products’ price. In other words, Dr. Vellturo determined that each of the 19 RAS features should be accorded equal value.

Judge Dyk excluded Dr. Vellturo’s opinion because Dr. Vellturo had no basis for assigning equal value to each of the 19 RAS features. Without a factual basis, the court found his analysis to be nothing more than an impermissible rule-of-thumb calculation under Uniloc. Before Uniloc, damages experts sometimes relied on a similar 25 percent of profit rule of thumb to calculate a reasonable royalty. Damages experts would often testify that, in a hypothetical negotiation, a defendant would agree to a reasonable royalty rate of 25 percent of an accused product’s expected profits. In Uniloc, the Federal Circuit rejected the 25 percent rule of thumb when untied to the case’s particular facts. Here, Dr. Vellturo in effect used a 1/19 rule of thumb without tying it to the particular facts of the case.

The court rejected the plaintiff’s argument that Dr. Vellturo’s opinion was admissible because it was “conservative,” or on the low end of the range of possible values. Dr. Vellturo based his opinion on an internal Intel document, which listed the 19 RAS features in a numbered list, the accused feature being number three. The plaintiff argued that because the accused RAS feature ranked high on the list, assigning the accused feature a value equal to lower-ranked features was conservative and therefore admissible. Judge Dyk disagreed. As a factual matter, the internal Intel numbered list was not a ranking of value. Moreover, even if it was, Dr. Vellturo should not have relied on an internal Intel document so “rife with bias and variability.” Daubert requires reliable scientific opinions, and a “conservative” opinion is not the same as a “scientific” one.

Patents / Patent Examination

USPTO Introduces Glossary Pilot Program

Bernard P. Codd

On March 27, 2014, the United States Patent and Trademark Office (USPTO) introduced the Glossary Pilot Program, which is intended to study how the inclusion of a glossary section in a patent specification at the time of filing improves the clarity of the patent claims and facilitates examination. Under this pilot program, computer-related inventions that would be examined in Tech Centers 2100, 2400, 2600 and the Business Methods area of 3600 can receive expedited processing and examining up to the first action on the merits.

To participate in the program, an applicant must file a petition to make special using Form PTO/SB/436 (Certification And Petition To Make Special Under The Glossary Pilot Program) at the time of filing the patent application. No fee is required for filing the petition.

The following additional conditions must be met in order to qualify for the program:

  • The application must be (a) an original (non-reissue, non-provisional) utility application filed under 35 U.S.C. § 111(a) that does not claim priority to a prior-filed non-provisional U.S. Application; or (b) a continuation-in-part application claiming the benefit of an earlier filed non-provisional utility application under 35 U.S.C. § 120 or 365(c) filed for the purpose of providing a glossary.
  • The specification must be an English-language specification containing a glossary under its own heading at the beginning of the detailed description section.
  • The application must contain at least one claim and no more than four independent claims and 30 claims total.
  • The application and all follow-on papers must be filed via EFS-Web.
  • The glossary must not rely on other parts of the specification for completeness, and the definitions in the glossary cannot be disavowed elsewhere in the specification.
  • The glossary definitions should establish a positive statement of what the glossary term means and cannot consist solely of a statement of what the term does not mean.
  • The glossary definitions may include examples and synonyms but cannot consist solely of examples and synonyms.
  • The glossary should include definitions that will assist in clarifying the claimed invention and creating a clear prosecution record. Suggested definitions include key claim terms, abbreviations, acronyms, evolving technological nomenclature, relative terms and terms of degree, and functional terms including 35 U.S.C. § 112(f) functional terminology.

This program will begin June 2, 2014 and will run for six months or until the USPTO accepts 200 applications under the program. The USPTO may extend the program an additional six months.

Intellectual Property

Intellectual Property / Technology Transfer

Technology Transfer Agreements: EU Promulgates New Antitrust Rules


The licensing of technology is core to the business model of many companies operating in IP-sensitive industries. Its commercial benefits are myriad. For example, it allows a licensor to take advantage of a licensee’s greater manufacturing capacities and/or depth and breadth of sales network. It also allows a licensee to benefit, for example, from superior technology and thus to sell more attractive and better products. As such, technology transfer agreements pervade the business landscape.

The European Commission (Commission), which sits at the apex of the EU’s antitrust enforcement structure, recognizes that technology transfer agreements are capable of improving economic efficiency and that they are pro-competitive in particular by spurring research and development and innovation. The Commission is also aware that licence arrangements facilitate the diffusion of technology and know-how and generally constitute a welfare-enhancing option as compared with the alternative scenario of firms exploiting technologies themselves. With that said, the licensing of intellectual property can in certain scenarios be anti-competitive with attendant negative consequences for the consumer.

In acknowledgment of the pro- and negative effects of technology licensing arrangements, and in a bid to provide bright line guidance to business, the Commission has published various iterations of legislation and guidance pertaining to such arrangements. Ten years after the promulgation of Commission Regulation (EC) 772/2004 in 2004, on March 21, 2014, the Commission adopted a new regime for assessing technology transfer agreements under the EU antitrust rules. The revised regime comprises two instruments, namely the Technology Transfer Block Exemption Regulation (TTBER) and accompanying Technology Transfer Guidelines (TT Guidelines). These two instruments enter into force on May 1, 2014.

Legal Framework

By way of preliminary, Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) lays down a statutory prohibition of anti-competitive agreements and practices. An anti-competitive agreement or practice can, however, be saved by Article 101(3) TFEU, where the negative effects flowing from such agreement or practice are outweighed by countervailing efficiencies. Furthermore, subject to the fulfilment of certain conditions, some categories of agreement automatically benefit from Article 101(3) TFEU, i.e., they are block-exempted. Technology transfer agreements are one such category (as encapsulated in the TTBER).

The TTBER operates not by listing approved practices, but by exempting agreements as a whole on the proviso that certain conditions are met. Any restriction not expressly prohibited by the TTBER is permitted if the agreement falls within the TTBER “safe harbor.” In essence, to benefit from the safe harbor, the parties to the agreement must:

  • Not transgress a certain market share threshold; and
  • Not incorporate any “hard-core” restrictions into the agreement.

Salient Features of the New Regime

In the following, some of the most notable changes to the revised technology transfer regime are set out:

Market shares: The TTBER applies to agreements where the combined market share of competing parties is up to 20 percent. Where the parties to the agreement do not compete the TTBER applies where the parties hold a market share of up to 30 percent each.

Grant-backs: Exclusive grant-back obligations fall outside the safe harbor of the TTBER and require individual assessment as to whether they are compatible with Article 101 TFEU. All non-exclusive grant-back obligations, on the other hand, remain covered by the TTBER.

Termination clauses: In non-exclusive licence agreements termination clauses, i.e., clauses that allow the licensor to terminate the license agreement if the licensee challenges the validity of the licenses IPR, no longer benefit from the safe harbor. These clauses will now be assessed individually under Article 101 of the TFEU on a case-by-case basis.

Raw materials: The TTBER also covers provisions concerning the purchase of raw material or equipment contained in licence agreements, provided they are directly related to what the licensee produces with the licensed technology.

Settlement agreements: Settlements in the context of technology licensing are generally seen as pro-competitive. That said, the Commission has taken the stance that settlement agreements that lead to a delayed or limited ability to launch a product may be subject to Article 101(1) TFEU. Reverse payments (i.e., payment flowing from the licensor to the licensee) will attract a heightened level of scrutiny. The Commission’s concern here is that such agreements artificially extend the monopoly that owners of patented drugs enjoy in the market by delaying the launch of cheaper generic medicines.

Furthermore, where the parties cross-license each other and impose restrictions on the use of their technologies this may be challenged under Article 101 TFEU, in particular when the parties have a significant degree of market power. Non-challenge clauses contained in settlement agreements are held to generally fall outside the purview of Article 101 TFEU. However, such clauses may infringe the rules in certain specific circumstances, e.g. where an IPR was granted following the provision of incorrect or misleading information.

Technology pools: The TT Guidelines provide that the creation and operation of a pool will generally fall outside the scope of Article 101 TFEU where the following cumulative conditions are met:

  • Participation in the pool creation process is open to all interested IP owners;
  • Sufficient safeguards are adopted to ensure that only essential technologies are pooled;
  • Sufficient safeguards are adopted to ensure that the exchange of sensitive information is restricted to what is necessary for the creation and/or operation of the pool;
  • The pooled technologies are licensed into the pool on a non-exclusive basis;
  • The pooled technologies are licensed out on fair, reasonable and non-discriminatory (FRAND) terms;
  • Licensees and the parties contributing technology to the pool are free to challenge the validity and essentiality of the pooled technologies; and
  • The licensee and parties contributing to the pool remain free to develop competing products and technology.

Licensing agreements between the pool and third parties continue to fall outside the ambit of the TTBER.


The revised regime purports to provide bright line guidance to businesses that have entered or are contemplating entering into technology transfer agreements. In many ways it does so, particularly with respect to the operation of patent pools, for example. With that said, when looking at the regime overall, the TTBER has created a more restrictive regime for technology transfer agreements when compared to the previous regime. As a result, it can be expected that going forward businesses will experience a greater degree of uncertainty when assessing their licensing arrangements. Indeed, given the very limited enforcement activity in the field of technology transfer agreements under the previous regime, it is difficult to understand the basis for some of the changes to the regime.

Cert Alert

Cert Alert

High Court Will Take Up Standard of Review of Factual Findings in Claim Construction

Paul Devinsky

In a case that will likely determine the standard of review used by the U.S. Court of Appeals for the Federal Circuit over lower court claim constructions, the U.S. Supreme Court agreed to hear Teva Pharmaceuticals’ appeal of a decision by the Federal Circuit invalidating several patents covering its multiple sclerosis drug Copaxone, Teva Pharmaceuticals USA Inc. et al. v. Sandoz Inc. et al., Case No 13-854 (Supr. Ct., Mar. 31, 2014).

The question presented to the high court is whether a district court’s factual finding in support of its construction of a patent claim term may be reviewed de novo, according to current Federal Circuit practice, or only for clear error.

In its cert petition Teva argued that the Federal Circuit’s decision to invalidate its patents was the result of its long-standing practice of not giving deference to district court claim construction rulings.

Teva argued that even though “[t]he district court took evidence from all sides and devoted considerable time to understanding the science and the invention. The court of appeals undid that effort based purely on its own oversimplified reading of the record de novo.”

While Teva’s cert petition was pending, the Federal Circuit, in a 6-4 en banc ruling on Feb. 21 in the Lighting Ballast Control case (IP Update, Vol. 17, No. 2), invoked the doctrine of stare decisis and ruled that it would continue to review district court claim constructions based on the 15-year-old Cybor v. FAS Technologies de novo standard of review.

Less than two weeks after the Federal Circuit ruling in Lighting Ballast, Teva urged the Supreme Court to take its case to correct what it argued was an incorrect en banc decision in Lighting Ballast.

Post-Grant Review

Post-Grant Review / IPR

PTAB: The Name of the Game Is the Claim

Representing the first outcome of its kind, in the final written decision of an inter partes review (IPR), the Patent Trial and Appeal Board (PTAB) terminated the proceeding without issuing a final decision on the patentability of the challenged claims, stating that the scope of the challenged claims could not be determined. In doing so the Board provided a primer on the law controlling the construction of computer-implemented means-plus-function claim elements. BlackBerry Corporation et al. v. MobileMedia Ideas LLC, Case IPR2013-00036 (PTAB, March 7, 2014) (Lee, J.).

BlackBerry petitioned for review of a patent that MobileMedia had earlier asserted against it in a district court action. The invention related to “a mobile communication apparatus for carrying out communication through radio waves” and “an information providing system using the mobile communication apparatus.” The claimed invention required reproducing and outputting downloaded data when the apparatus is in a “stand-by state.”

At the institution stage, the Board determined that the meaning of term “stand-by state” was central to its patentability analysis. BlackBerry urged that the claim term should be construed according to its plain and ordinary meaning. In its preliminary response, MobileMedia took the unorthodox position that “it takes no position on the correct claim interpretation for this claims element [i.e., “stand-by state”] at this time.” Instead, MobileMedia argued that the IPR petition failed to explain why BlackBerry’s proposed interpretation of “stand-by state” was correct over that of a panel of reexamination examiners. That panel had earlier denied an ex parte reexamination request for the subject patent that was based on two references common to all of BlackBerry’s asserted grounds of invalidity. Instituting the proceeding, the Board wasted little effort construing the key term at that point in the proceeding: “[g]iven that the patent owner takes no position on the correct interpretation of ‘stand-by state,’ we discuss nothing more, except to note that we are aware of the interpretation accorded the term during reexamination.”

In the final written decision, the PTAB noted that a determination of anticipation and obviousness over prior art necessarily begins with claim construction: “[i]t is axiomatic that we must first know what is being claimed.” Focusing on the computer-implemented means-plus-function element common to the two independent claims under review, namely “processing means for encrypting the information signals prior to storage in said memory means,” the Board found that the element was indefinite because the specification lacked a supporting algorithm for the claimed encrypting function. Because the claim scope could not be determined, the Board explained that any difference(s) between the claimed invention and the prior art could not be determined.

Pointing to the “considerable, clear, and consistent guidance” of the Federal Circuit, the Board explained that the specification did not comply with 35 U.S.C. § 112, ¶ 6, since it was devoid of any encryption algorithm for performing the stated function. The Board also noted that the claimed encrypting function was not one that fell within the narrow exception where the function recited is generic and can be performed by any general-purpose computer without special programming.

Because the Board terminated the proceeding without resolving the patentability of the claims, the patent owner technically prevailed. Such a “victory,” however, likely came with the sequela of incurable indefiniteness of all the patent claims.

Post-Grant Review / CBM

A Primer On Claim Amendments in Post-Grant Review

In the final written decision of a covered business method (CBM) review, the Patent Trial and Appeal Board (PTAB) sided with the petitioner, canceling all claims under review. In doing so, the Board provided important guidance for patent owners seeking to amend claims. Bloomberg Inc. et al. v. Markets-Alert Pty Ltd., Case CBM2013-00005 (PTAB, Mar. 26, 2014). (Medley, APJ).

Petitioner Bloomberg, along with 13 other co-petitioners, filed for CBM review of the patent that Markets-Alert had earlier asserted against the petitioners. The invention related to a trading system that monitors stock data and provides notification to a remote device using a network based system.

The petitioners challenged all four claims of the patent, and CBM review was instituted for all of the claims on three grounds of anticipation and one ground of obviousness. After institution, Markets-Alert’s patent owner response was dismissed without consideration as it was found by the Board to be non-responsive to the CBM petition and also non-compliant with the controlling statute and rule. The Board did, however, consider Markets-Alert’s motion to amend the claims. That motion requested both the addition of new claims and also cancellation of the original claims. Critically, the request to cancel the original claims was not based on any contingency, i.e., entry of the new claims. Instead, the Board found that “the substitute motion to amend leaves no doubt that Markets-Alert unequivocally requests cancellation of [the original] claims. Because the request was unqualified, the Board canceled the original claims.

Addressing the motion to amend, Board found that it was deficient for a number of reasons. First, the amendment only pointed out asserted support in the specification for “new” language, i.e., language not in the original claims, but not for the entirety of the claims. Thus, the Board concluded that the motion did not point out support for the claims in the original disclosure. Further, the motion failed to provide a proposed construction for certain terms, such as “server-based, scalable, and redundant” as well as other terms the Board believed required clarification. Rather the motion only explained what the terms did not mean, and the patent owner’s expert failed to adequately explain what the terms would mean to a person of ordinary skill in the art. Without such an explanation, the Board was unable to determine whether there was § 112 support for the claim language in the original disclosure.

Second, the motion sought to remove a limitation that was present in the original claims, without offering an explanation as to how the narrower disclosure conveyed to one with ordinary skill in the art that the inventor had possession of the broader concept in the proposed new claims.

Third, the Board found that the proposed claims did not address the grounds of invalidity alleged in the petition; especially important as the claims were broader than the original claims.

Finally, the motion was found to be deficient because the claims were not identifiable, on a one-by-one basis, as being substitutes for the original claims.

At the end of the proceeding, the Board canceled the original claims and denied entry of the proposed claims.

Practice Note: This particular CBM proceeding underscores the potential pitfalls facing patent owners seeking to amend and add new claims to a patent under America Invents Act (AIA) review before the PTAB. Perhaps chief among the lessons learned are that amending claims is not a normal (pre-issuance) prosecution matter, rather it is of motions practice and one in which the patent owner has the burden of proof to show that it is entitled to the amendment(s). Also, patent owners are advised to make requests for deletion of original claims contingent upon entry of the proposed new claims.

Post-Grant Review / IPR Practice

PTAB Not a “Death Squad”—More Like a Surgeon

In the final written decisions of eight inter partes reviews (IPRs), all issued in the first half of March, the Patent Trial and Appeal Board (PTAB) sided with the petitioner in each proceeding, canceling all claims under review. While the PTAB has recently stated that it is not a “death squad” for patents, it does seem to effectively remove “diseased tissue” from the patent system. Recently several patents have emerged from IPR proceedings unscathed. (See accompanying article, this edition.)

Xilinx, Inc. v. Intellectual Ventures I LLC

The PTAB cancelled all challenged claims and denied patent owner Intellectual Ventures’ motion to amend the claims. The IPR was instituted on two grounds of obviousness, one of which being based on only a single reference. The patent in issue related to a color video projector system having separate light sources. The light from the sources was combined for improved quality light output as compared to the prior art. IV urged that the preamble term “video projector system” of claim 1 should be considered as limiting, but the Board construed the independent claim broadly according to the plain and ordinary meaning, with reference to extrinsic evidence, i.e., a technical dictionary. Of note: Less than three months ago, based on IPR petitions filed by Intellectual Ventures (IV), the PTAB issued decisions invalidating four Xilinx patents. In this IPR the PTAB, addressing IV’s motion to amend the claims, found the motion to be fatally deficient for not addressing “in any meaningful way” the level of ordinary skill in the art, what was “within the ordinary creativity and skill set” of that person regarding what it characterized as standard components recited in the claims, or the meaning of claim terms added by amendment. Xilinx, Inc. v. Intellectual Ventures I LLC, (IPR2013-00029, slip op. Mar. 10, 2014). (Arbes, APJ).

Illumina, Inc. v. Trs. of Columbia Univ.

In all three of these IPRs, the PTAB cancelled all challenged claims and denied patent owner Columbia University’s motion to amend the claims. The patents related to a “massive parallel method for decoding DNA and RNA.” After institution of the proceeding, the Board determined that Columbia’s characterization of the prior art understated the interest level shown in the prior art for a facet of the claimed methods. The Board ultimately found Columbia’s arguments of secondary considerations of non-obviousness unpersuasive and sided with Illumina on the asserted obviousness grounds of unpatentability, cancelling all claims under review. The Board found, however, that Illumina had failed to meet its burden of proof on the sole ground of anticipation urged. Illumina, Inc. v. Trs. of Columbia Univ., (IPR2012-00006, slip op. Mar. 6, 2014), (Lebovitz, APJ); Illumina, Inc. v. Trs. of Columbia Univ., (IPR2012-00007, slip op. Mar. 6, 2014), (Lebovitz, APJ); Illumina, Inc. v. Trs. of Columbia Univ., (IPR2012-00011, slip op. Mar. 6, 2014), (Lebovitz, APJ).

Of note: In the 00006 IPR, on Illumina’s request for rehearing of two grounds of unpatentability denied in the Institution Decision, the Board partially reversed its prior position and instituted review on one of those grounds. On Illumina’s request for rehearing of two grounds of unpatentability denied in the Institution Decision in the 00011 IPR, the Board partially reversed its prior position and instituted review on one of those grounds. On Illumina’s request for rehearing of the Institution Decision in the 0007 IPR, the Board modified two of the grounds by substituting a different patent publication for one of the cited patent publications, where both publications had the same inventors and shared specifications and disclosures.

Micron Tech., Inc. v. Bd. Of Trs. of Univ. of Ill.

In all three of these IPRs, the PTAB cancelled all challenged claims. The patents related to methods of treating semiconductor devices, by passivation or annealing with deuterium, which purportedly reduced degradation of the device’s operational characteristics over time. Micron Tech., Inc. v. Bd. Of Trs. of Univ. of Ill., (IPR2013-00005, slip op. Mar. 10, 2014), (Fitzpatrick, APJ); Micron Tech., Inc. v. Bd. Of Trs. of Univ. of Ill., (IPR2013-00006, slip op. Mar. 10, 2014), (Fitzpatrick, APJ); Micron Tech., Inc. v. Bd. Of Trs. of Univ. of Ill., (IPR2013-00008, slip op. Mar. 10, 2014), (Fitzpatrick, APJ).

CBS Interactive, Inc. v. Helferich Patent Licensing, LLC

The PTAB cancelled all challenged claims and denied patent owner Helferich Patent Licensing’ motion to amend the claims. The patent in issue related to a system for selective paging, which notified the user that a message had been received at a server on the related network but without send the full message to the user’s mobile device. CBS and four other media companies filed an IPR petition, challenging the claims of the patent and the Board instituted trial on two of the asserted grounds of obviousness, each including two common prior art references. During trial, the PTAB found HPL’s proposed constructions to be overly narrow and further found HPL’s expert testimony to be unpersuasive. CBS Interactive, Inc. v. Helferich Patent Licensing, LLC, (IPR2013-00033, slip op. Mar. 3, 2014), (Chang, APJ).

Of note: The Board refused HPL’s attempt at antedating one of the references common to both grounds of review. The inventor of the patent testified to having conceived the subject matter of each challenged claim prior to the filing date of the particular prior art reference. To corroborate that testimony, HPL submitted an undated handwritten specification that allegedly described the claimed invention. The Board found that the proffered specification failed to meet the requirement that corroboration of conception be evidenced by a showing that the inventor disclosed to others his or her “completed thought expressed in such clear terms as to enable those skilled in the art to make the invention.”

Of note: On April 16, 2014, the patent owner filed appeals to the Federal Circuit in each of these cases. In all of these IPR’s the Board fond the challenged claims to be prima facie obviousness, notwithstanding the patent owners assertion of secondary considerations (unexpected results and failure by others, explaining that the patent owner had failed to compare the claimed invention to the closest prior art.

Practice Note: The early statistics regarding the PTAB’s disposition of IPR’s so far has raised concerns for patent owners once an IPR is instituted its patent is likely to be invalidated. Until recently, no patent going through an IPR had emerged from the proceeding unscathed. That stated, there is a strong argument that the patents the PTAB is now getting rid of are the early “chaff” and, over time, as higher quality patents are challenged, the outcomes will appear less statistically skewed.

Post-Grant Review

It’s Not All that Bleak for Patent Owners at the PTAB

Paul Devinsky

In addition to the many IPRs and CBM reported in this issue, the Patent Trial and Appeal Board (PTAB) has now issued several decisions where the merits determination was at least partially adverse to the petitioner.

LKQ Corp. v. Clearlamp, LLC

In this inter partes review (IPR), the PTAB cancelled 12 out of 24 challenged claims of a Clearlamp-owned patent titled “Method for refurbishing lamp services” direct to a method for refurbishing a surface of a vehicle lamp having surface damage. The patent had been asserted by Clearlamp against LKQ in a district court action. Although the PTAB cancelled claims 1-10, 13 and 14, it concluded that LKQ had not met its burden of establishing that claims 11, 12 and 15-24 are unpatentable. LKQ Corp. v. Clearlamp, LLC, IPR 2013-00020, (PTAB, Mar. 27, 2014 (Cocks, APJ)

In this IPR, Clearlamp properly offered substitute claim amendments (as replacements for original claims) on a contingent bases. However, the PTAB denied all of the proposed amended claims.

Although the PTAB addressed secondary considerations of non-obviousness (copying and commercial success) offered by Clearlamp in some detail, it nevertheless concluded that the strong evidence of obviousness of the cancelled clams outweighed Clearlamp’s evidence.

MicroStrategy, Inc. v. Zillow, Inc.

The PTAB issued a decision on a patent titled “Automatically determining a current value for a real estate property, such as a home, that is tailored to input from a human user, such as its owner.” The patent owner Zillow sued Trulia Inc., a real estate firm that apparently uses MicroStrategy software, for infringement of the patent and MicroStrategy was the petitioner at the Board. MicroStrategy, Inc. v. Zillow, Inc., PTAB, No. IPR 2013-00034, March 27, 2014 (Kim, APJ)

MicroStrategy challenged all 40 claims of the patent, but the PTAB instituted trial only on claims 2, 5-17 and 26-40. In its final decision the PTAB found that 25 of the claims on which IPR had been instituted are unpatentable for anticipation and obviousness, but that MicroStrategy did not establish that claims 12, 27, 34 and 38 are unpatentable.

Practice Note: Trulia subsequently filed a covered business method (CBM) challenge on the same patent, challenging the claims on which IPR had not been instituted, this time challenging the claims under 35 U.S.C. § 101 as not patent eligible. Section 101 is available as a challenge basis in a CBM proceeding, but not in an IPR proceeding.

Kyocera Corp. v. SoftView LLC

The PTAB cancelled the 27 challenged claims of the two patents both titled “Scalable display of internet content on mobile devices.” The patents are directed to mobile devices to support resolution independent scalable display of web content to allow zooming and panning for better viewing on smaller screen sizes. SoftView asserted the patents against defendants in a district court proceeding. Kyocera Corp. v. SoftView LLC, PTAB, NO. IPR 2013-00007, March 27, 2014 (B.J. McNamara, APJ)

The board determined that all of the challenged claims were obvious over prior art cited by Kyocera.


Trademark / Lanham Act / False Advertising

Non-Direct Competitors May Sue Under the Lanham Act, Doctrine of Prudential Standing Eliminated

The Supreme Court of the United States has held that the right to bring false advertising claims under the Lanham Act is not limited to direct competitors. Justice Scalia, writing for a unanimous court, applied “traditional principles of statutory interpretation” to determine that a manufacturer of parts used by a printer company’s competitors to refurbish and sell toner cartridges—fell within “the class of plaintiffs whom Congress has authorized to sue” under the false advertising provision of the Lanham Act, 15 U.S.C. § 1125(a). Lexmark International, Inc. v. Static Control Components, Inc., Case No. 12-873 (Supr. Ct., Mar. 25, 2014) (Scalia, Justice).

Lexmark is a laser printer company that manufactures the only new toner cartridges that work with its printers, though it competes with other manufacturers in refurbishing used cartridges. To exclude this competition, Lexmark equipped its cartridges with a microchip that causes the cartridges to shut down once they run out of toner. When customers return the spent cartridges to Lexmark, Lexmark replaces the microchips and re-sells the cartridges. Static Control reverse-engineered the microchips and sells them to the third parties that compete with Lexmark for sales of replacement toner cartridges.

In 2002, Lexmark sued Static Control for copyright infringement—a claim that the U.S. Court of Appeals for the Sixth Circuit rejected. Static Control counterclaimed for false advertising under the Lanham Act, 15 U.S.C. § 1125(a), alleging that notices included on the packaging of Lexmark’s cartridges falsely represented to customers that they were legally bound to return the spent cartridges to Lexmark only and Lexmark sent letters to its competitors that refurbish cartridges (i.e., Static Control’s customers) falsely stating that it was illegal to use Static Control’s microchips to refurbish Lexmark cartridges. The district court dismissed Static Control’s false advertising claims for lack of “prudential standing,” holding that there were “more direct plaintiffs in the form of remanufacturers of Lexmark’s cartridges” who could bring these claims, but the 6th Circuit reversed. Lexmark petitioned the Supreme Court for cert of the standing issue.

In affirming the 6th Circuit’s decision, the Supreme Court swept away the three different standards for Lanham Act prudential standing previously applied by the courts of appeals and expressly discarded the amorphous concept of prudential standing in all federal statutory cases. Rather than ask whether Congress should have authorized a plaintiff’s suit, a federal court is required to ask “whether in fact Congress did so,” because a court may not “limit a cause of action that Congress has created merely because ‘prudence’ dictates.” In other words, applying ordinary principles of statutory construction, the appropriate inquiry is whether the plaintiff “has a cause of action under the statute.”

The Supreme Court set forth a two-part test to determine whether a putative plaintiff enjoys a statutory cause of action. First, the plaintiff’s allegations must demonstrate that the plaintiff is in the statute’s “zone of interests.” Second, the plaintiff’s complaint must allege injuries “proximately caused by violations of the statute.” Applying its new two-part test to the Lanham Act, the court held that Static Control could sue under the statute.

Under the “zone-of-interests” inquiry as applied to a Lanham Act false advertising claim, the Supreme Court held “a plaintiff must allege an injury to a commercial interest in reputation or sales.” As Static Control “alleged injuries—lost sales and damage to its business reputation—[that] are injuries to precisely the sorts of commercial interests the [Lanham] Act protects,” Static Control came within the Lanham Act’s zone of interests, even though Static Control was not a direct competitor of Lexmark in the market for replacement cartridges sales.

Under the “proximate-cause” inquiry, Static Control’s complaint also sufficiently alleged proximate causation in two distinct respects.

First, Static Control alleged that Lexmark expressly disparaged Static Control’s products and that these false statements had a negative effect on the number of microchips that Static Control was able to sell. In addition, Static Control alleged that it designed, manufactured and sold microchips that were necessary for, and had no other use than, refurbishing Lexmark toner cartridges. Lexmark’s “false advertising that reduced the manufacturers’ business necessarily injured Static Control as well.” Taking Static Control’s allegations at face value, “there is likely to be something very close to a 1:1 relationship between the number of refurbished [ . . . ] cartridges sold (or not sold) by the manufacturers and the number of [ . . . ] microchips sold (or not sold) by Static Control.” In these circumstances, the remanufacturers were not “more immediate victims” for purposes of proximate cause.

Practice Note: The Supreme Court decision in Lexmark eliminates widespread confusion concerning the right to bring false advertising claims under the Lanham Act, and for that reason is important for Lanham Act practitioners. More broadly, Lexmark is a landmark decision of interest to all practitioners litigating federal statutory claims, because it replaces the nebulous doctrine of “prudential standing” with a clear two-part test.

Trademark / Likelihood of Confusion

STONE LION CAPITAL Likely to Cause Consumer Confusion with LION and LION CAPITAL

The U.S. Court of Appeals for the Federal Circuit affirmed the Trademark Trial and Appeal Board’s decisions sustaining an opposition to registration of the mark STONE LION CAPITAL for “financial services, namely, investment advisory services, management of investment funds, and fund investment services,” based on existing registrations for LION and LION CAPITAL for identical financial services. Stone Lion Capital Partners, L.P. v. Lion Capital LLP, Case No. 13-1353 (Fed. Cir., Mar. 26, 2014) (Wallach, J.).

The plaintiff, Lion Capital owns two trademark registrations for ‘LION” and “LION CAPITAL” for use in connection with various financial services, including “financial and investment planning and research,” “investment management services,” “capital investment consultation,” “equity capital investment” and “venture capital services.” Lion Capital started using these marks in April 2005.

Stone Lion Capital Partner filed a trademark application for STONE LION CAPITAL on August 20, 2008, based on its intent to use the mark in connection with “financial services, namely investment advisory services, management of investment funds, and fund investment services.” Lion Capital opposed Stone Lion’s trademark application for STONE LION CAPITAL, alleging the proposed mark was likely to cause consumer confusion with its trademark registrations for LION and LION CAPITAL.

The Trademark Trial and Appeal Board (the Board) found Stone Lion’s application for STONE LION CAPITAL to be confusingly similar to Lion Capital’s trademark registrations for LION and LION CAPITAL. The Board conducted the likelihood of confusion inquiry pursuant to the 13 du Pont factors focusing on similarity or dissimilarity of appearance, sound, connotation and commercial impression; nature of the goods or services; established, likely to continue trade channels; and conditions under which and buyer to whom sales are made, i.e.“impulse” versus careful, sophisticated purchasing. The Board found these four factors to weigh in favor of Lion Capital and that the remaining factors were neutral. Stone Lion appealed the Board’s decision, arguing the Board conducted an erroneous comparison of the marks, erred in analyzing the purchasers and trade channels, and improperly dismissed purchasers’ sophistication and conditions of sale.

On appeal, the Federal Circuit affirmed the Board’s decision, concluding that the Board properly determined that the first four du Pont factors favored a finding of likely confusion and that the remaining factors were neutral. The Court found that the Board properly concluded that the marks have the same overall commercial impression. The Court also noted that the Board properly found that the application and the registrations contained no limitations on the channels of trade and classes of purchasers: “[A]n application with no restriction on trade channels cannot be narrowed by testimony that the applicant’s use is, in fact, restricted to a particular class of purchasers.” Finally, the Court agreed with the Board’s evaluation of the sophistication of potential customers based on the broad scope of services listed in Stone Lion’s application, stating “parties that choose to recite services in their trademark application that exceed their actual services will be held to the broader scope of the application.”

Trademark / Cancellation / Standing

Ninth Circuit Confirms that Trademark Cancellation Is a Remedy and Not a Cause of Action

Sarah Bro

Dismissing a trademark cancellation claim against Victoria’s Secret’s DREAM ANGELS trademarks, the U.S. Court of Appeals for the Ninth Circuit ruled that federal trademark law under § 37 of the Lanham Act does not provide an independent cause of action for trademark cancellation. Airs Aromatics v. Victoria’s Secret, Case No. 12-55276 (9th Cir., Feb. 28, 2014) (Farris, J.).

In 1991, Airs International, the purported owner of the trademark ANGEL DREAMS, entered into a consent-to-use agreement allowing Victoria’s Secret to use the mark DREAM ANGELS in connection with the sale and marketing of personal care products in exchange for a fee of $25,000 per year payable to Airs International. In 2000, Airs International became involved in litigation pertaining to the ownership of its trademarks, including the ANGEL DREAMS trademark. During the litigation, Victoria’s Secret made its annual payments under the consent-to-use agreement into an escrow account. However, in 2002, the California Secretary of State’s office suspended Airs International’s corporate status, and in 2008, Victoria’s Secret elected to stop making payments under the agreement with Airs International. Victoria’s Secret then filed several U.S. trademark applications for its various uses of the DREAM ANGELS trademark, and the United States Patent and Trademark Office granted the registrations.

In 2011, the principal of Airs International revived the company and attempted to transfer all of its common law rights in the ANGEL DREAMS trademark to a newly formed company, Airs Aromatics, LLC. Shortly thereafter, Airs Aromatics filed a complaint against Victoria’s Secret for breach of the consent-to-use agreement, and requesting cancellation of the eight DREAM ANGELS trademark registrations owned by Victoria’s Secret.

The district court dismissed the case with prejudice finding that Airs Aromatics lacked standing to pursue the trademark cancellation claim because Airs Aromatics did not adequately allege continuous use or “non-abandonment” of its ANGEL DREAMS trademark. The district court also dismissed the breach of contact claims finding that the alleged breach of the agreement did not breach the actual terms. Air Aromatics appealed the dismissal of the trademark cancellation claim only.

On appeal, the 9th Circuit had to decide whether the sole claim of trademark cancellation could provide an independent basis for subject-matter jurisdiction on remand. Resolving previous contrasting interpretations as to whether §37 of the Lanham Act provides an independent basis for trademark cancellation claims, the Court held that the language of the Lanham Act “specifies that cancellation may only be sought if there is already an ongoing action that involves a registered mark.” Citing the interpretations of other circuits that have previously addressed the issue, the court further noted that § 37 of the Lanham Act “creates a remedy for trademark infringement rather than an independent basis of federal jurisdiction.”

Airs Aromatics argued that its cancellation claim was actually a poorly pleaded claim of trademark infringement. However, after noting that Airs Aromatics original claim was titled “Cancellation of Registered Trademarks,” the court further disagreed with Airs Aromatics arguments further noting that the company failed to allege any facts regarding its continuous usage of the ANGEL DREAMS mark and therefore did not allege sufficient facts to support a claim for trademark infringement. Accordingly, the Court affirmed the district court’s dismissal of the trademark cancellation claim.

Trademark / Equitable Relief

Zero Damages Does Not Preclude Equitable Relief

The U.S. Court of Appeals for the Eleventh Circuit vacated and remanded a district court’s conclusion that where the jury found liability but awarded zero damages, the district court was precluded from entertaining a request for equitable relief. The unanimous panel clarified that plaintiffs-appellants Platypus Wear, Inc. (Platypus) will have an opportunity to re-urge its demands for equitable relief; the panel also emphasized that any such relief turns on the broad discretion of the district court. Platypus Wear, Inc. v. Horizonte LTDA, Case No. 13-11784 (11th Cir., Mar. 10, 2014) (per curiam).

In a complex dispute, Platypus and former licensee Horizonte LTDA (Horizonte), a Brazilian energy drink company, went to trial on a number of issues, including the ownership and right to use the “Bad Boy” clothing trademark. From 2000 to 2003, Horizonte contracted with Platypus’s Brazilian licensee to sell energy drinks in Brazil bearing the “Bad Boy” mark. The license agreement ended in 2003, giving rise to a series of claims such conversion of the “Bad Boy” mark and aiding and abetting breach of a fiduciary duty to Platypus.

As relevant to the appeal, the jury found Horizonte liable for converting one or more of Platypus’s trademarks and also found that Horizonte aided and abetted in the breach of a fiduciary duty owed to Platypus. The jury awarded zero damages. Thereafter, the district court concluded that because the jury did not award damages after finding liability and, because proof of damages was a necessary element for the claims on which Horizonte was liable, Platypus had failed to establish success on the merits.

The 11th Circuit disagreed. While damages are a necessary element for several of the causes of action at issue, Platypus was not precluded from pursuing declaratory and equitable/injunctive relief. The declaratory and equitable issues were remanded for a case-by-case assessment based on the relevant facts. The appellate decision also endorsed future litigation of equitable defenses such as unclean hands, equitable estoppel and in pari delicato. The 11th Circuit did not offer an opinion as to how additional proceedings should unfold on remand (and even suggested that the district court could reach the same result). The decision did, however, reject Platypus’s request for a new trial on damages.


Copyrights / Compilation

Stock Photo Agency Need Not List All Photographs in Its Compilation

Paul Devinsky

Joining with the U.S. Court of Appeals for the Fourth Circuit, the U.S. Court of Appeals for the Ninth Circuit ruled that a stock photo agency is the valid owner of the copyright to a compilation of photographs and, notwithstanding that the copyright application for the collection failed to identify the name of photographer of each photo works in the compilation, to each photo in the compilation as well. Alaska Stock, LLC v. Houghton Mifflin Harcourt Pub. Co., Case No. 10-36010 (9th Cir., Mar. 18, 2014) (Kleinfeld, J.).

Section 409 of the Copyright Act requires that an application for copyright registration include “the name and nationality or domicile of the author or authors” and “in the case of a compilation or derivative work, an identification of any preexisting work or works that it is based on or incorporates, and a brief, general statement of the additional material covered by the copyright claim being registered.”

There has been a spate of disputes between photographers and stock photo agencies against textbook publishers in which publishers are alleged to have used images beyond the scope of the applicable license. In this case the district court cited § 409 in dismissing a complaint filed by Alaska Stock against publisher Houghton Mifflin, concluding that compilation applications for copyright must list all authors. Alaska Stock appealed.

In the appeal, the Copyright Office submitted an amicus brief, in which it took the position that § 409 did not require identification of the authors of all the individual works included in a compilation. Rather the Copyright Office explained that for over 30 years it has interpreted § 409 as requiring only that the author of the collective work, not the individual authors of the separate works, be included in the application.

Several months ago, in another case where the Copyright Office filed a brief, the 4th Circuit affirmed a rejection of the argument that § 409 requires that all authors be listed in an application for a compilation of works, Metro. Reg’l Info. Sys. Inc. v. Am. Home Realty Network Inc., (IP Update, Vol. 16, No. 8), deferring to the Copyright Office’s views on the issue.

In the present appeal, the 9th Circuit, deferring to the position of the Copyright Office, reversed the district court, noting that “[t]he procedure applied for over three decades by the Register of Copyrights to registration by stock photo agencies complied with the statutory requirements and did not violate any clear requirement to list individual authors and titles of the components within the work.” The 9th Circuit also concluded that the registration was valid not only for the compilation, but also for each photograph in the compilation.

Copyrights / Obligation to Regist

First Circuit Stays on the Fence Regarding Application Versus Registration Approach

Once again failing to choose a side in the application versus registration approach, the U.S. Court of Appeals for the First Circuit upheld the district court’s finding that plaintiffs failed to meet the § 411 requirement that the relevant copyright interest had not been registered with the Copyright Office, notwithstanding that the copyright had been applied for but not yet accepted. Alicea v. Machete Music, Case No. 12-1548 (1st Cir., Mar. 17, 2014) (Howard, J.).

The plaintiffs are Massachusetts-based producers of “reggaeton music,” a genre originating in Puerto Rico from diverse origins, including reggae, hip hop, salsa and meringue. The lawsuit concerns songs released on an album distributed by the defendant that allegedly infringed the plaintiffs’ copyrights. Two months after filing suit in the district court, the plaintiffs registered copyrights in the sound recordings of four songs, each of which had numerous composers and vocalists; seven months later the plaintiffs registered three additional songs. Two years later, the Copyright Office still had yet to determine if the deposited recordings, while not the original recordings on which the plaintiffs had worked, were nevertheless acceptable for registration purposes. The district court granted a motion for summary judgment finding that the plaintiffs had not satisfied the registration precondition of § 411(a), having “neither obtained registration certificates for the compilations nor even having shown that they had submitted all the necessary application materials for registration.”

The 1st Circuit acknowledged that courts are split on “whether the registration requirement is satisfied at the time the copyright holder’s application is received by the Copyright Office (the ‘application approach’) or at the time the office acts on the application and issues a certificate of registration (the ‘registration approach’).” The court went on to dodge the question, finding that “[o]nce again, we need not decide whether the application approach or the registration approach should govern, as we conclude that the defendants were entitled to summary judgment under either approach.” The court found that there was a lack of evidence as to whether the plaintiffs had met the requirements for an application and that there was no doubt the copyrights had not been registered. Alicea appealed.

The court noted that “[o]ver a century ago, Mark Twain lamented ‘[o]nly one thing is impossible for God: to find any sense in any copyright law on the planet.’ We fear that Twain’s deity would fare little better with the tangled skein of copyright and contractual claims presented by plaintiffs in this case.”

Copyrights / DCMA

Criminal Conviction Upheld for Modifying Videogame Console *Web Only*

The U.S. Court of Appeals for the Sixth Circuit recently affirmed a defendant’s criminal conviction under the Digital Millennium Copyright Act for trafficking technology that modifies technological controls in video game consoles, despite the jury receiving an admittedly imprecise instruction on the “willfulness” of the defendant’s conduct. USA v. Reichert, Case No. 13-3479 (6th Cir., Mar. 28, 2014) (Griffin, J.) (Donald, J., dissenting).

Jeffrey Reichert moderated an online web forum that discussed and gave instruction on how to modify video game consoles through the installation of “modification chips.” Modification chips circumvent the technology controls in the console so that users may play pirated video games. In 2007, Reichert sold a modified Nintendo Wii gaming console to an undercover agent for a $50 profit. Reichert was subsequently charged under the anti-trafficking provisions of the Digital Millennium Copyright Act (DMCA), 17 U.S.C. §1201, which prohibit trafficking for financial gain technology whose primary function is to sidestep access controls that protect copyrighted works. In order for criminal liability to attach, prosecutors must prove that the violation of the DMCA was “willful.” At trial, the jury was instructed that an act is done willfully if it is done “voluntarily and intentionally with the intent to do something unlawful,” even if the wrongdoer is not aware of the specific law or rule that is being violated. The jury was also instructed that willfulness can be determined if it believed, beyond a reasonable doubt, that the defendant “deliberately ignored a high probability that he was trafficking in technology primarily designed to circumvent technological measures” in the video game consoles. The jury convicted Reichert of willfully violating the DMCA and he was given an enhanced sentence due to the jury’s belief that the crime was facilitated by Reichert’s special technical skills. Reichert appealed.

On appeal, Reichert objected to the implementation of the deliberate ignorance instruction, which he contended informed the jury that defendant’s conduct was a willful violation of the DMCA if he knew that he was trafficking in the technology, as opposed to knowing that his conduct in trafficking such technology was illegal. While the court acknowledged that the challenged language in the jury instructions, without more context, was “mildly imprecise,” the court reasoned that the jury instruction as a whole was proper. The challenged language was situated between two instructions that conveyed the stricter requirements of the willfulness standard, including “the intent to disobey or disregard the law.” Moreover, immediately after giving the challenged instruction to the jury, the district court repeated that in order to find willfulness, the jury must find beyond a reasonable doubt that Reichert “was aware of a high probability that he was violating the Digital Millennium Copyright Act, and that Defendant deliberately closed his eyes to what was obvious.” Thus, the court ultimately found the jury instructions on the issue of willfulness to be proper and affirmed the district court’s conviction.

In dissent, Circuit Judge Donald disagreed that the misstatement in the jury instructions was harmless to Reichert’s defense, especially because the DMCA’s anti-circumvention provision is subject to varying interpretations. Some courts (including the 6th Circuit) have held that circumvention technologies designed for purposes other than copyright infringement are not prohibited by the DMCA. On the other hand, the U.S. Court of Appeals for the Ninth Circuit broadly construes the anti-circumvention provision in a manner that may even prohibit technologies with only an incidental relation to copyright infringement. Judge Donald also reasoned that because there are many non-infringing uses of modification chips, the legal status of modification chips as applied to video game consoles is “not entirely clear.” Judge Donald held that due to the ambiguities associated with the anti-circumvention provision and its application to modification chips, proof that Reichert knew his conduct was unlawful is crucial to a conviction. Moreover, evidence from the record did not support a contention that Reichert knew his conduct was illegal, as he openly advertised his “business” and expressly stated that modification chips for game consoles are a legal “gray area.”

Copyrights / Infringement