IP Update, Vol. 19, No. 4 - McDermott Will & Emery

IP Update, Vol. 19, No. 4



Patents / Patent-Agent Privilege

Case of First Impression: Federal Circuit Endorses Patent-Agent Privilege

In a case of first impression regarding whether communications between a non-lawyer patent agent and a client are legally privileged, a split panel of the US Court of Appeals for the Federal Circuit held that a patent-agent privilege is warranted on a limited basis where an agent is engaged in the congressionally endorsed, authorized practice of law. In Re Queen’s University at Kingston, PARTEQ Research and Development, Case No. 2015-145 (Fed. Cir., Mar. 7, 2016) (O’Malley, J) (Reyna, J, dissenting).

The opinion followed the plaintiffs’ petition for mandamus. At the district court, the petitioners withheld documents reflecting communications between the plaintiffs’ employees and the non-lawyer patent agents who prosecuted the patents-in-suit based on an alleged patent-agent privilege. The district court overruled objections to the magistrate’s order granting defendants’ motion to compel production over the alleged privilege, but agreed to stay the discovery order pending a writ of mandamus. Applying Federal Circuit law, the Court found that mandamus was warranted to decide the issue of first impression, which had split the lower courts.

The Federal Circuit first recognized that “Rule 501 of the Federal Rules of Evidence authorizes federal courts to define new privileges by interpreting ‘common law principles.’” Finding that the respondents did not argue that a patent-agent privilege was foreclosed by the US Constitution, any federal statute or any rule prescribed by the Supreme Court of the United States, the Court turned to reason and experience, as directed by Rule 501, in order to determine whether recognizing a privilege was now appropriate. The majority concluded that it was, holding that the unique roles of patent agents, the congressional recognition of their authority to act, the Supreme Court’s characterization of their activities as the practice of law, and the current realities of patent litigation warranted an independent patent-agent privilege.

The Federal Circuit relied on the Supreme Court’s prior assertion that the preparation and prosecution of patent applications for others constitutes the practice of law. Further, the majority found that Congress had delegated to the commissioner of patents oversight authority concerning lawyers, agents or other persons representing applicants or other parties before the US Patent and Trademark Office (PTO), and that the commissioner had, in fact, allowed both lawyers and agents to practice before the PTO.

In further support, the majority panel cited both the Supreme Court’s recognition of Congress’s delegation of supervisory authority to the commissioner of patents for lawyers and agents alike, and related legislative history acknowledging the practitioners’ equivalent professional rights before the PTO. The majority found that a client has a reasonable expectation that all communications relating to obtaining legal advice on patentability and legal services in preparing a patent application will be kept privileged, and that denying privilege to agents would frustrate Congress’s intent to provide clients a choice between agent and lawyer. As a result, the majority found that a patent-agent privilege is coextensive with the rights Congress affords to patent agents, and serves the same important public interests as the attorney-client privilege.

The Court also noted that the new privilege’s scope is necessarily limited to communications with non-lawyer patent agents when those agents are acting within their authorized practice of law before the PTO. The Court found that the Code of Federal Regulations (CFR) sets forth the acts permitted by non-lawyer agents and helps to define the scope of communications covered under the privilege. For example, communications are due the privilege if made in furtherance of the performance of tasks specifically set forth in the CFR, or “are reasonably necessary and incident to the preparation and prosecution of patent applications or other proceedings before the [PTO] involving a patent application or patent in which the practitioner is authorized to participate.” The Court stressed that it is the burden of the person asserting the privilege to justify its applicability. The Court also cited examples of non-privileged communications, including those with a patent agent who offers an opinion on the validity of another party’s patent in contemplation of litigation or the sale or purchase of a patent, or on infringement.

In dissent, Judge Reyna argued that the public’s need for open discovery outweighed the need for the privilege. The dissent also argued against the new privilege with the following reasoning:

  • The privilege may adversely affect an agent’s duty of candor.
  • Agent communications are already routinely protected because of lawyer involvement.
  • Patent agents and clients are able to destroy written communications through implementation of document-destruction policies.
  • Determining the scope of the privilege is complicated and uncertain.
  • Congress and the Supreme Court have recognized a difference between agents and lawyers.
  • Evidence suggests that Congress did not intend that agents have a privilege.
  • No state has created an agent-client privilege.
  • The Judicial Conference Advisory Committee has not recommended creating the privilege.
  • Lawyers hold the privilege because of their professional status.
  • The Supreme Court has never held that patent agents practice law; it has merely recognized that the Florida Supreme Court has done so under Florida law.
  • Congress has never believed that patent agents practice law.

The Federal Circuit remanded the issue to the district court to determine whether the patent-agent privilege applied.

Patents / ITC / Importation

Federal Circuit Rejects ITC’s Authority over Intangible Articles

The US Court of Appeals for the Federal Circuit denied a request for rehearing en banc in ClearCorrect Operating v. Int’l Trade Comm’n, (IP Update, Vol. 18, No. 11), leaving in place a 2–1 decision that the term “articles” in 19 USC § 1337 is limited to tangible items. ClearCorrect Operating, LLC, et al. v. Int’l Trade Comm’n, Case No. 14-1527 (Fed. Cir., Mar. 31, 2016) (per curiam) (Prost, J, concurring) (Newman, J, dissenting).

Appellant ClearCorrect manufactures orthodontic aligners. In the United States, ClearCorrect would scan a patient’s teeth and digitally recreate the tooth arrangement. The digital file was transmitted to Pakistan, where a new set of digital files of intermediate tooth positions was created. Those digital files were then transmitted back to the United States, where ClearCorrect would use a 3-D printer to make aligners from the digital files. The US International Trade Commission (ITC) found that transmission of the intangible digital files into the United States was an importation of an “article” under § 337, and issued a cease and desist order to ClearCorrect’s Pakistani affiliate. A Federal Circuit panel, over the dissent of Judge Newman, reversed, ruling that the ITC exceeded its authority because the term “articles” in § 337 was limited to tangible goods. Both the ITC and intervenor Align Technology requested rehearing en banc, with a number of amicus briefs filed in support.

The full court nonetheless denied the request for rehearing in an 11–1 per curiam opinion, with Judge Newman dissenting. The dissent argued that limiting the ITC’s jurisdiction to tangible goods is inconsistent with prior rulings, particularly Suprema, Inc. v. Int’l Trade Comm’n, (IP Update, Vol. 18, No. 10). In Suprema, the en banc court found that “the legislative history [of § 337] consistently evidences Congressional intent to vest the [International Trade] Commission with broad enforcement authority to remedy unfair trade acts,” and since US Customs and Border Protection had already determined that transmission of software from a foreign country to the United States via the internet was an importation, § 337 should not be read to exclude authority over such transmissions.

The dissent also noted that nothing in dictionaries from the relevant era or § 337 justified a physical limitation on the term, and that even if an exclusion order could not be enforced, respondents could still be subject to a cease and desist order, removing the argument that leaving “article” unlimited would create an unenforceable remedy.

Finally, the dissent argued that even if there was some question as to whether the term “article” covered digital goods, the ITC’s interpretation was entitled to Chevron deference. Judge Prost wrote a brief concurrence in response to Judge Newman’s dissent, reiterating the panel opinion’s view that if Congress had wanted the ITC to have authority over digital importations, it would have provided for that authority explicitly. Judges O’Malley and Wallach joined the concurrence.

Practice Note: This is the second opinion in the past year to interpret the phrase “articles . . . that infringe” in § 337. In Suprema, the en banc Federal Circuit decided in favor of the ITC’s preferred interpretation, and the respondent did not request certiorari. Now that the Federal Circuit has chosen to leave in place an interpretation of the phrase adverse to the ITC, the ITC will have to decide whether to petition for cert.

Patents / AIA / CBM Eligibility

Patents / AIA / Redundancy Doctrine / IPR Estoppel

Patents / AIA / Institution Decisions

Denying Institution on “Redundant” Grounds Is Proper

Addressing the authority of the Patent Trial and Appeal Board (PTAB or Board) to determine the specific grounds for institution, the US Court of Appeals for the Federal Circuit concluded that the Board can make a final and non-appealable decision to deny institution of a subset of grounds contained within an inter partes review (IPR) petition on the basis that the non-instituted grounds are “redundant” to the instituted ground. Harmonic, Inc. v. Avid Technology, Inc., Case No. 15-1072 (Fed. Cir., Mar. 1, 2016) (Stoll, J).

Harmonic’s IPR petition alleged that the patent at issue was invalid in view of seven different prior art grounds. The Board instituted an IPR proceeding on one set of challenged claims based on one of those seven grounds. The Board did not institute four other grounds because they were deemed to be redundant to the instituted ground. In addition, the Board did not institute as to another set of challenged claims, which disposed of the remaining two grounds. The Board ultimately determined that the instituted ground did not render a subset of the first set of challenged claims unpatentable. Harmonic appealed.

On appeal, Harmonic asserted that the Board erred by failing to consider all prior art grounds contained in Harmonic’s IPR petition. The Federal Circuit noted that while it has jurisdiction to hear appeals from final written decisions, it does not have jurisdiction to hear appeals regarding institution decisions. This is because § 314(d) prescribes that “determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.” In addition, the Federal Circuit found that the US Patent and Trademark Office possesses the authority to promulgate its pertinent rule, 37 CFR § 42.108, which states that “the Board may authorize the review to proceed on . . . all or some of the grounds of unpatentability asserted for each claim.” Therefore, the Board can rightfully make a final and non-appealable decision to (1) institute an IPR proceeding, (2) institute an IPR proceeding on a subset of the grounds contained within the IPR petition, or (3) deny institution of an IPR proceeding.

Turning to the merits, the patent at issue is directed to a method for eliminating interruptions in decompressed video streams. To avoid these interruptions, the patent switches between multiple video buffers to decompress the data at a rate that is faster than the video display rate. Importantly, the subset of challenged claims found not to be unpatentable requires this switching to happen after a “predetermined period of time.” After reviewing the prior art cited in connection with the instituted ground, the Board found that the prior art references did not disclose or suggest the switching of data streams after a predetermined period of time with sufficient particularity. Consequently, the Board found that Harmonic failed to prove that group of claims to be obvious. The Federal Circuit concluded that the Board did not err and affirmed the Board’s findings.

Practice Note: The holding of this case as it relates to institution decisions may soon be clarified, as the Supreme Court of the United States granted certiorari in Cuozzo Speed Technologies v. Lee to determine whether the Federal Circuit erred in holding that the Board’s decision whether to institute an IPR proceeding is final and non-appealable. A decision is expected by the end of June 2016.

Patents / AIA / Assignor Estoppel

PTAB Flushes Assignor Estoppel as Defense in IPR Proceeding

Amol Parikh

In two separate decisions involving the same parties, the US Court of Appeals for the Federal Circuit and the Patent Trial and Appeal Board (PTAB or Board) reached different conclusions on whether assignor estoppel applies to a party challenging validity of a patent. In the first decision, the Federal Circuit affirmed a district court’s ruling that barred a defendant from arguing that the patents-in-suit are invalid under the doctrine of assignor estoppel. MAG Aerospace Industries, Inc. v. B/E Aerospace, Inc., Case Nos. 2015-1370, 2015-1426 (Fed. Cir., Mar. 23, 2016) (Prost, J). In the second decision, the Board held that assignor estoppel could not be used to prevent a petitioner from challenging the validity of a patent. B/E Aerospace, Inc. v. MAG Aerospace Industries, Inc., IPR2014-01510, Paper 106 (PTAB, Mar. 18, 2016) (Kauffman, APJ).

MAG owns US patents directed to the quick repair of vacuum toilets, such as those used on commercial aircrafts, and filed a complaint in district court accusing B/E of infringing these patents. B/E counterclaimed on the basis of non-infringement and invalidity. In response to B/E’s invalidity counterclaim, MAG moved for summary judgment on an affirmative defense of assignor estoppel. Under the doctrine of assignor estoppel, when a patent owner or inventor assigns a patent to another party, the previous owner cannot challenge the validity of the patent. Here, one of the inventors of the patents-in-suit now works for B/E. The inventor previously assigned the patents-in-suit to his former employer, which then assigned them to MAG. MAG argued that the inventor was in privity with B/E and thus assignor estoppel bars B/E from attacking the validity of the patents.

The district court granted MAG’s motion for summary judgment, finding that the inventor was in privity with B/E for the following reasons:

  • B/E used the inventor’s knowledge to conduct the allegedly infringing activities.
  • The inventor was hired specifically to develop the toilets that were accused of infringement.
  • The inventor was the director of engineering for B/E and later became the vice president and general manager of B/E.

On appeal, the Federal Circuit held that the district court did not abuse its discretion in concluding that assignor estoppel applies, and that B/E was correctly barred from arguing that the patents-in-suit were invalid.

As it was defending itself in district court, B/E concurrently challenged the validity of the patents-in-suit in inter partes review (IPR) proceedings before the Board. During the IPR proceedings, MAG argued that the doctrine of assignor estoppel prevented B/E from seeking IPR of these patents because the inventor was in privity with B/E. The Board rejected MAG’s argument and held that assignor estoppel is not applicable to IPR. The Board concluded that assignor estoppel is an equitable doctrine and does not “provide an exception to the statutory mandate that any person who is not the owner of a patent may file a petition for inter partes review.” As a result, while B/E was unable to challenge the validity of the patents-in-suit in district court, it was able to challenge the validity of those patents in an IPR proceeding.

Patents / AIA / Procedures

Factual Assertions Cannot Be Made for the First Time at Oral Argument

Addressing the procedural aspects of making factual assertions during an inter partes review (IPR), the US Court of Appeals for the Federal Circuit vacated and remanded the Patent Trial and Appeal Board’s (PTAB’s or Board’s) invalidity judgment as procedurally improper for relying upon certain factual assertions introduced for the first time during oral arguments. Dell Inc. v. Acceleron, LLC, Case No. 15-1513 (Fed. Cir., Mar. 15, 2016) (Taranto, J).

This case relates to hot-swappable computer network components involving “caddies” disposed beneath power supplies. Although Dell advanced several different arguments throughout the IPR proceedings, one argument in particular—involving whether a reference’s structure met the “caddies” requirement—came up only in oral arguments. The Board based its final written decision on materials presented in Dell’s oral argument slides and found anticipation of the claim in question. Acceleron appealed to the Federal Circuit, challenging, among other things, the Board’s reliance on a basis first raised during the oral argument as procedurally improper.

The Federal Circuit concluded that the Board denied Acceleron notice and a fair opportunity to respond to the newly raised basis of cancellation. According to the Federal Circuit, the Administrative Procedure Act:

. . . imposes particular requirements on the [US Patent and Trademark Office]. The agency must “timely inform []” the patent owner of “the matters of fact and law asserted,” 5 USC § 554(b)(3), must provide “all interested parties opportunity for the submission and consideration of facts [and] arguments . . . [and] hearing and decision on notice,” id. § 554(c), and must allow “a party . . . to submit rebuttal evidence . . . as may be required for a full and true disclosure of the facts.”

The Court therefore concluded:

In this case, the Board denied Acceleron its procedural rights by relying in its decision on a factual assertion introduced into the proceeding only at oral argument, after Acceleron could meaningfully respond. . . . The oral argument presented no opportunity for Acceleron to supply evidence, whether expert or lay or documentary evidence . . . [y]et the Board relied on that basis alone for an essential part of its anticipation ground of decision.

The Federal Circuit vacated the cancellation with respect to the claim at issue and remanded back to the Board for reconsideration as appropriate.

Patents / AIA / Claim Construction (BRI)

Even Under BRI, “A” Does Not Mean “Two” **WEB ONLY**

The US Court of Appeals for the Federal Circuit determined that the Patent Trial and Appeal Board (PTAB or Board) erred in interpreting the claim term “a statistical analysis” as “two statistical analyses” under the broadest reasonable interpretation (BRI) standard. In re Varma, Case No. 15-1502 (Fed. Cir, Mar. 10, 2016) (Taranto, J).

This appeal arose from reexamination proceedings in which the challenged patents were directed to statistical analyses of investment data. The claims recited “a statistical analysis request corresponding to two or more selected investments.” The prior art taught a statistical analysis request of a single investment, but also taught that multiple such requests can cover multiple investments. The Board found that these prior art teachings met the “statistical analysis” limitation, implicitly interpreting “a statistical analysis” to cover “two statistical analyses.” The patent owner appealed.

On appeal, the Federal Circuit found the Board’s interpretation unreasonably broad. The Court framed the issue as “whether ‘a’ can serve to negate what is required by the language following ‘a’: in this instance a ‘request’ (a singular term) that ‘correspond[s]’ to ‘two or more selected investments.’” The Court explained that the article “a” cannot do so, finding that the claimed request must itself correspond to at least two investments. By analogy, the Court reasoned that “[f]or a dog owner to have ‘a dog that rolls over and fetches sticks,’ it does not suffice that he have two dogs, each able to perform just one of the tasks.” The Court vacated the Board’s rejection of the claims for reconsideration under the correct claim construction.

Patents / Alice / Appealable Subject Matter / Patentable Subject Matter

Can’t Beat the House: Card Game Rules Are Patent Ineligible Under Alice

Addressing subject matter eligibility issues (§ 101), the US Court of Appeals for the Federal Circuit affirmed the district court’s judgment that a patent directed to “shuffling and dealing a standard deck of cards” is not eligible for patent protection, and declined to address whether the US Patent and Trademark Office’s (PTO’s) patent-eligibility guidelines for examiners improperly exceeded the scope of the Supreme Court of the United States’ ruling in Alice Corp. v. CLS Bank Int’l. In re Ray Smith, Amanda Tears Smith, Case No. 15-1664 (Fed. Cir., Mar. 10, 2016) (Stoll, J).

Applicants Ray and Amanda Tears Smith appealed the final decision of the Patent Trial and Appeal Board (PTAB or Board) affirming the rejection of their application for claiming patent-ineligible subject matter under § 101. Applying the machine-or-transformation test described in Bilski, the examiner concluded that the claims represented “an attempt to claim a new set of rules for playing a card game,” which “qualifies as an abstract idea.” On appeal, the Board affirmed the rejection under the two-step test outlined in Alice. Applying step one, the Board determined that “independent claim 1 is directed to a set of rules for conducting a wagering game which . . . constitutes a patent-ineligible abstract idea.” For the second step, the Board concluded that “shuffling and dealing cards are conventional in the gambling art,” and as such, “do not add enough to the claims” to render them patent eligible. Applicants appealed to the Federal Circuit.

The Federal Circuit concluded that the Board correctly rejected the applicants’ application, agreeing that card game rules are an abstract idea and therefore not patent eligible under Alice. Specifically, because the applicants’ game involved shuffling and dealing a standard deck of cards, it did not involve an inventive concept that could be patented. Moreover, according to the Federal Circuit, “just as the recitation of computer implementation fell short in Alice, shuffling and dealing a standard deck of cards are ‘purely conventional’ activities” that are not eligible for patent protection. The Federal Circuit noted that not all games are foreclosed from patent protection, stating that “we could envisage, for example, claims directed to conducting a game using a new or original deck of cards potentially surviving” the Alice test.

The applicants also challenged the PTO’s 2014 Interim Guidance on Patent Subject Matter Eligibility (which explains how to apply Alice during the examination of a patent application), arguing that the guidelines “improperly extend the bounds of those four decisions without any substantive legal precedence or authority” and “improperly applied extreme and faulty analogies to apply Alice.” The Federal Circuit declined to consider this argument, explaining that the guidelines are not intended to create any right that was enforceable against the PTO. In any case, the PTO’s rejection of patent applications is based on substantive law, and only those rejections, not the guidelines, can be appealed.

Patents / Obviousness

LED Patent Rendered Obvious by Earlier LED Breakthrough **WEB ONLY**

Alexander P. Ott

Addressing obviousness issues in the context of an ex parte reexamination, the US Court of Appeals for the Federal Circuit upheld a Patent Trial and Appeal Board (PTAB or Board) holding that certain claims covering white LEDs were rendered obvious by a combination of three prior art references. In re Cree Inc., Case No. 15-1365 (Fed. Cir., Mar. 21, 2016) (Bryson, J).

Cree is a manufacturer of LED light bulbs and holds a patent on a device that generates white light by downconverting light from a blue LED. The downconversion is carried out with luminophoric materials such as phosphors, which convert light by either fluorescence or phosphorescence.

Cree’s patent was subject to ex parte reexamination, during which the examiner rejected all claims as obvious over various prior art combinations. One such combination was premised on a 1970 patent that created white light by downconverting blue laser light using phosphors. The examiner combined that laser patent with a 1974 patent for a violet LED that suggested that the violet light could be converted with phosphors, and a 1993 patent for a major breakthrough in high-powered blue LEDs, for which the inventor received a Nobel Prize. The Board agreed with the examiner and concluded that Cree’s patent merely claimed a predictable application of the high-powered blue LEDs. Cree appealed.

On appeal, Cree first argued that the Board wrongly concluded that downconversion of blue LED light was already known. The Federal Circuit disagreed, finding the Board’s conclusion to be that downconversion generally was known, regardless of the particular light source used. Cree next claimed error in the Board’s finding of an admission by Cree’s experts that downconversion was known in the art. According to the Federal Circuit, the experts’ position that downconversion was known, but disfavored, nevertheless amounted to an acknowledgement that it was known. Cree also argued that the Board failed to articulate any motivation to combine. Again the Court disagreed, noting the Board’s finding that the availability of the breakthrough blue LED constituted the motivation. Cree had disputed a similar finding at the Board by pointing to differences between broader spectrum LED light compared to narrower spectrum laser light, but the Court found that these differences would have been taken into account by the well-understood process of selecting the appropriate phosphors.

Cree also argued that the Board improperly dismissed Cree’s asserted secondary considerations of industry praise, licensing and commercial success. Once again the Federal Circuit disagreed. The Court dismissed the industry praise as mere self-serving statements; the statements were by third parties, but praised their own independent work on the same technology. The Court rejected the licensing evidence as lacking the required nexus to the claimed invention and noted that the licenses included broad cross licenses and litigation settlements. The Court likewise dismissed Cree’s commercial success arguments as failing to provide any evidence tying the sales to the claimed invention.

Patents / Venue

Residency Definition in 28 USC § 1391(c) Still Controls IP Venue for § 1400(b) **WEB ONLY**

Judge Bryson of the US Court of Appeals for the Federal Circuit, sitting by designation in the US District Court for the Eastern District of Texas, found that the 2011 changes to 28 USC § 1391 did not negate the Federal Circuit’s interpretation of the relationship between 28 USC §§ 1400(b) and 1391 in regards to venue determination. Proper venue for corporations in patent/copyright cases still includes all venues where a corporation conducts business. Script Security Solutions, L.L.C. v. Amazon.com, Inc., Case No. 2:15-CV-1030 (E.D. Tex., Mar. 17, 2016) (Bryson, J).

Script Security Solutions sued Amazon.com in the Eastern District of Texas for patent infringement. Amazon.com moved to dismiss the case for improper venue, arguing that it did not “reside” in the jurisdiction as required under the special patent venue statute 28 USC § 1400(b).

The Federal Circuit had previously ruled in VE Holding v. Johnson Gas Appliance (1990) that the definition of “resides” in § 1391(c) expressly read into § 400(b), because the statue stated that the residency provision applied “for purposes of venue under this Chapter [87],” which included § 1400(b). At that time, § 1391 stated that “resides” included any place in which personal jurisdiction applied (e.g., any place a corporation did business).

Amazon.com argued that the 2011 changes in § 1391 made the analysis of VE Holding obsolete and reverted the analysis to the 1957 definition of “resides” for § 1400(b) found by the Supreme Court of the United States in Fourco Glass v. Transmirra Products. There, the Supreme Court had found that the pre-1988 version of the general venue statute of § 1391 did not control the specific patent venue statute of § 1400(b), and that residency only existed where the business was incorporated. Amazon.com further argued that the new § 1391(a) language, “except as otherwise provided by law,” now at the beginning of the post-2011 statute, indicated that the general statute of § 1391(c) defers to the specific statute § 1400(b)’s definition of “resides” and obviates the ruling of VE Holding.

Judge Bryson disagreed. He explained that the language of “except as otherwise provided by law” was present in § 1391 at the time of the VE Holding ruling, and had just moved from § 1391(b) to § 1391(a) in 2011—a move that had no effect on interpretation. The phrase only allows for statutes specific for certain causes of action to control where venue lies. But § 1391(c) is a definitional statute, and § 1400(b) provides no contrary definition for “resides.” Therefore there was no conflict between the two sections, and the phrase “except as otherwise provided by law” did not apply. Judge Bryson also explained that the 2011 language in § 1391(c) actually broadened its reach. The 1988 language provided that § 1391(c) was applicable to Chapter 87, while the new language expands § 1391(c) “for all venue purposes,” ensuring that its definition applies to § 1400(b).

Practice Note: In the pending mandamus case In re TC Heartland LLC, the Federal Circuit is considering essentially the same issue. During oral argument on March 11, 2016, the Court expressed doubt regarding mandamus petitioner’s argument that § 1391(c) no longer applied to § 1400(b). The Court noted that the 2011 changes expanded the reach of § 1391(c), that “except as otherwise provide by law” was not new language for the § 1391 statute, and that the 2011 modifications to §1391 incorporated the common law created by VE Holding. While the Federal Circuit’s decision in in TC Heartland remains pending, this opinion by Judge Bryson may foreshadow it.

The day after Judge Bryson’s decision, Senator Jeff Flake (R-AZ) introduced the Venue Equity and Non-Uniformity Elimination Act of 2016 to revise §1400(b). Under the proposed revisions, patent invalidity and infringement suits could “be brought only in the district of the defendant’s principal place of business or incorporation.” However, as the Federal Circuit pointed out at oral argument in TC Heartland, at least five other bills in the last decade have been earmarked to similarly change venue standards post-VE Holding and have failed to pass.

Patents / Infringement

Do Not Be Fooled by the Illusion of Infringement

The US Court of Appeals for the Federal Circuit affirmed a summary judgment of no infringement while reversing a summary judgment of indefiniteness, concluding that the district court had properly construed the claim terms but incorrectly construed the functional language within an apparatus claim. UltimatePointer, L.L.C. v. Nintendo Co., Ltd., Case No. 15-1297 (Fed. Cir., Mar. 1, 2016) (Lourie, J). Specifically, the Federal Circuit concluded that although the accused products give the illusion of infringement, they do not actually infringe, and that the claims are not indefinite because functional language in an apparatus claim term relates only to a capability of the claimed structure, not to the activities of its users.

UltimatePointer sued Nintendo, claiming that the Wii video game system infringed UltimatePointer’s patent covering a handheld pointing device used to control a cursor on a screen. A Wii system allows a user to control an on-screen cursor through a remote that sends information to a processor regarding the remote’s interaction with a sensor bar, which is placed near a television screen and emits an infrared light. The district court determined that the Wii remote was not a “handheld device” as required by the asserted claims, and that the claims were indefinite since they were directed to an apparatus (handheld device) but required performance of a method step (generating data). UltimatePointer appealed.

The Federal Circuit first addressed the construction of the claim term “handheld device,” which required the device to be “direct pointing.” A direct-pointing device, such as a laser pointer, is a device in which the physical point-of-aim coincides with the object of pointing, such as an on-screen cursor. An indirect-pointing device, such as a computer mouse, is a device in which the physical point-of-aim has an indirect relationship to the object of pointing, such as an on-screen cursor. UltimatePointer argued that the district court had improperly included the limitation of “direct pointing,” and that the construction should not exclude indirect pointing. The Federal Circuit rejected this argument, relying on the title (“Direct Pointing System”) and the specification that repeatedly disparaged indirect pointing.

The Federal Circuit also rejected UltimatePointer’s argument that even if the patent requires a direct pointing device, the Wii system still infringes by using direct pointing. UltimatePointer argued that the Wii system causes an on-screen cursor to be displayed at the Wii remote’s point-of-aim. The Federal Circuit, however, agreed with the district court that the Wii remote does not perform direct pointing, because it is the interaction of the remote with the sensor bar, rather than the television screen, that controls the on-screen cursor. Although the Wii system may provide an illusion of direct pointing, it does not function as such. Since there was no issue of material fact, the Court affirmed that the Wii system did not infringe UltimatePointer’s patent.

Finally, the Court continued its clarification of the indefiniteness standard under § 112 ¶ 2, based on the Supreme Court of the United States Nautilus decision (IP Update, Vol. 17, No. 6), and reversed the summary judgment determination that certain claims were indefinite for covering both an apparatus and a method of use of that apparatus. If a claim includes both, it becomes unclear whether infringement occurs when the system is created or when the user actually uses the system in the infringing manner. An apparatus claim that uses functional language is still valid if it is limited to an apparatus having recited structures where the structures are capable of performing the recited functions. In this case, the apparatus claims included “generating data” limitations. The Federal Circuit agreed with UltimatePointer that the “generating” limitations went to the ability of the recited structure, rather than describing the act of data actually being user generated. Therefore, the Court found the claims to be compliant with § 112, ¶ 2 as simply reciting a handheld device having the capability to generate data.

Patents / Interference / Written Description

In Interference, Copied Claims Must Have § 112 Support Consistent with Their Construction in View of Original Specification **WEB ONLY**

Addressing written description issues in connection with claims copied in order to provoke an interference, the US Court of Appeals for the Federal Circuit upheld the Patent Trial and Appeal Board’s (PTAB’s or Board’s) decision that the claims failed to meet the written description requirement. Bamberg v. Dalvey, 15-1548 (Fed. Cir., Mar. 9, 2016) (Hughes, J).

The technology at issue involves a method for transferring printed images onto dark-colored textiles by ironing over a specialty transfer paper. The transfer paper includes a removable substrate, a hot-melt adhesive, a white layer and an ink-receptive layer. The process works as follows: the user peels off the removable substrate, places the transfer sheet on top of the dark textile with the ink-receptive layer facing up, covers the sheet with the removable substrate and applies heat using an iron. The heat melts the hot-melt adhesive, which causes the white layer and ink-receptive layer to adhere to the textile.

Dalvey obtained four patents for the above-described method. Bamberg copied the claims of those patents into its own patent applications and then sought to provoke an interference. The Board declared three interferences and determined that Bamberg was the senior party. Dalvey filed a motion alleging that Bamberg’s claims were unpatentable for lack of written description support under 35 USC § 112. Specifically, Dalvey argued that Bamberg’s copied claims cover a white layer that could melt at temperatures both above and below 220°C (the approximate temperature of a hot iron), while Bamberg’s PCT application only disclosed white layers that melt above 220°C.

Copied claims in an interference proceeding are construed in accordance with the disclosure of the specification from which they originated—in this case, Dalvey’s specification. Dalvey’s specification disclosed embodiments having white layers that melt above and below 220°C, so the Board agreed with Dalvey that the claims encompass white layers that melt above and below this temperature. The Federal Circuit found no error with the Board’s claim construction.

Having construed the claims, the Board evaluated whether Bamberg’s specification provided adequate support for claims that cover white layers that melt above and below 220°C. Bamberg’s specification taught that the invention comprised a white layer that did not and must not melt below 220°C, because to allow otherwise would produce an undesired result. In view of this teaching, the Board concluded that Bamberg’s specification did not provide written description support for white layers that melt below 220°C.

The Federal Circuit found that the Board’s conclusion was supported by substantial evidence. According to the Federal Circuit, Bamberg did not possess a white layer that melts below 220°C degrees because the specification “specifically distinguished white layers that melt below 220°C as producing an ‘undesired’ result.”

The Federal Circuit also affirmed the Board’s denial of Bamberg’s motion to amend its claims. During the interference, in response to Dalvey’s motion regarding lack of written description, Bamberg sought to amend its claims. The US Patent and Trademark Office regulations require that a motion to amend include a claim chart showing that the proposed new or amended claims are supported by adequate written description. Bamberg did not provide the required claim chart, so the Board denied the motion. The Federal Circuit found that this denial did not constitute an abuse of discretion.

Practice Note: Before seeking to provoke an interference by copying claims, parties should ensure that the specification provides support for broad claims in a manner similar to that provided by the original specification. If such support is not present, then the party seeking to propose an amended claim (or courts) should do so as soon as practicable and include a claim chart showing § 112 support for the proposed amended claims.

Patents / ANDA / Personal Jurisdiction

Future Infringement Supports Speculative Jurisdiction

Addressing personal jurisdiction in suits under 35 USC § 271(e)(2), the US Court of Appeals for the Federal Circuit held that a state in which an Abbreviated New Drug Application (ANDA) filer plans to sell its generic product has specific personal jurisdiction over the ANDA filer, even where the ANDA was neither prepared nor filed in that state. Acorda Therapeutics Inc. v. Mylan Pharm. Inc., Case Nos. 15-1456; -1460 (Fed. Cir., Mar. 18, 2016) (Taranto, J) (O’Malley, J, concurring).

Mylan filed ANDAs seeking permission from the US Food and Drug Administration (FDA) to manufacture and market generic versions of three drugs owned by two brand-name manufacturers. Mylan prepared the ANDAs at its principal place of business in West Virginia and filed them at FDA headquarters in Maryland. The brand-name manufacturers brought separate suits against Mylan under 35 USC § 271(e)(2) in the District of Delaware. Mylan did not dispute that it planned to sell its product in Delaware or that it was registered to do business in Delaware. Nonetheless, Mylan moved to dismiss the suits for lack of personal jurisdiction. The judges in both suits denied Mylan’s motions, finding that Delaware had specific personal jurisdiction over Mylan. The judges disagreed as to whether general personal jurisdiction existed as a result of Mylan being registered to do business in Delaware. Both judges certified their rulings for interlocutory appeal.

In both cases, the Federal Circuit affirmed the denial of the motion to dismiss on the specific jurisdiction grounds. Although the statute states that “[i]t shall be an act of infringement to submit an application,” the Federal Circuit concluded that § 271(e)(2) was also meant to guard against future infringement, as defined under § 271(a). The Court disagreed with Mylan that a rigid past/future dividing line governs the minimum-contacts standard. The Court explained that Mylan’s uncontested plans to sell its generic product in Delaware supported specific jurisdiction there, even though no sales nor any activity related to submitting the ANDA took place in Delaware.

With the case resolved on specific jurisdiction grounds, the Court did not reach the question of general jurisdiction. Judge O’Malley wrote separately to express that she would have preferred to resolve the case on general jurisdiction grounds as opposed to “planned future conduct in the State.” In her view, a clear line of Supreme Court of the United States precedent supports finding general jurisdiction over Mylan because it registered to do business in Delaware.

Practice Note: The Federal Circuit declined to disturb a long-standing procedural practice absent a congressional decree. Litigants should recognize the quasi-precedential effect that such long-standing practices have in assessing the likelihood of obtaining relief from the Court.

EU Competition Law / Patents / Royalties / Arbitral Awards

Paying Royalties for Technology that Competitors Can Use for Free – AG Wathelet’s Genentech Opinion **WEB ONLY**

The Court of Justice of the European Union (CJEU) recently issued its opinion on a question referred to it by the Paris Court of Appeal regarding the provisions of Article 101 of the Treaty on the Functioning of the European Union (TFEU), which deal with anticompetitive agreements. The question at issue was whether Article 101 TFEU must be interpreted as precluding effect being given, where patents are revoked, to a license agreement that requires the licensee to pay royalties for the sole use of the rights attached to the licensed patent. Sanofi-Aventis v. Genentech, Case C-567/14 (CJEU, Mar. 17, 2016) (Wathelet, AG).


In 1992, Hoechst granted a license to Genentech for a human cytomegalovirus enhancer. The licensed technology was subject to one European patent and two patents issued in the United States. In 1999, the European Patent Office revoked the European patent.

Under the license agreement with Hoechst, Genentech was obliged to pay a one-off fee, a fixed annual research fee and a running royalty based on sales of finished products. Genentech never paid the running royalty, however, and in 2008 it notified Hoechst and Sanofi-Aventis (Hoechst’s parent company) that it was terminating the license. Hoechst and Sanofi-Aventis believed that Genentech had used the enhancer to manufacture its blockbuster drug Rituxan and was therefore liable to pay the running royalty on its sales of that drug.

Sanofi-Aventis initiated two separate actions. In the United States, it brought an action alleging that Genentech infringed the two US patents. The US courts ultimately decided that there was no infringement of the patents in question. Sanofi-Aventis also submitted an application for arbitration against Genentech before the International Court of Arbitration to recover the royalties.

In the arbitral award, the sole arbitrator held that Genentech had manufactured Rituxan using the enhancer and that the company was therefore required under the license to pay Sanofi-Aventis the running royalties. According to the arbitrator, the license’s commercial purpose was to avert all litigation on validity. Thus, payments already made under the license could not be reclaimed, and payments due remained due regardless of whether the patent had been revoked or was not infringed.

Genentech brought an action before the Paris Court of Appeal seeking annulment of the arbitral award. The company relied on public policy arguments, claiming that a requirement of payment for the use of technology that Genentech’s competitors could use without charge put Genentech at a competitive disadvantage and contravened Article 101 TFEU. The Paris Court of Appeal stayed the proceedings and referred the preliminary question to the CJEU.

AG Wathelet’s Opinion

Payment of Running Royalties

Genentech argued that the payment of a running royalty where the patent was revoked and where there was no infringement not only affected trade between Member States, but also constituted a restriction on competition. As noted, Genentech also argued that it was placed at a competitive disadvantage in the market since it was required to pay for the use of a technology that its competitors could take advantage of freely and without charge.

In his opinion, Advocate General (AG) Wathelet reiterated that the aim of EU competition law is not to regulate commercial relations between companies, but to prohibit anticompetitive agreements. He relied on the CJEU’s judgment in C-320/87 Ottung, which held that an obligation to pay a royalty that is unconnected with a patent may implicate Article 101(1) TFEU if the license agreement either (1) does not grant the licensee the right to terminate the agreement or (2) seeks to restrict the licensee’s freedom of action after termination.

AG Wathelet noted that Genentech’s obligation to pay royalties was stipulated to last only for the duration of the license agreement, and that Genentech could terminate the license by giving notice (thereby placing Genentech in the same position as all other users of the enhancer). He also argued that Genentech’s freedom of action was not restricted and that it was not subject to any non-challenge obligations.

The AG’s answer to the question referred to the CJEU was therefore “no.” He considered that Article 101 TFEU does not preclude effect being given, in the event of revocation or non-infringement of patents protecting a technology, to a license agreement that requires the licensee to pay royalties for the sole use of the rights attached to the licensed patents where (1) the commercial purpose of the agreement is to enable the licensee to use the technology at issue while averting patent litigation, and (2) the licensee may terminate the license agreement by giving notice, even in the event of revocation or non-infringement.

Competition Law and Annulment of Arbitral Awards

During the proceedings before the Paris Court of Appeal, the French government and Sanofi-Aventis argued that because of certain limitations on the review of arbitration awards under French law, the reference for a preliminary ruling in the present case was inadmissible.

AG Wathelet considered such limitations on the scope of the review of international arbitration awards to be contrary to the principle of effectiveness of EU law. Referring to C-126/97 Eco Swiss, the AG noted that Article 101 TFEU constitutes a fundamental provision that is essential for accomplishment of the tasks entrusted to the European Union. In particular, AG Wathelet opined that a Member State court’s review of whether international arbitral awards are contrary to public policy rules could not be conditioned by whether this question was raised or debated during the arbitration proceedings, nor could it be limited by national law prohibiting the merits of the award being reconsidered (as Sanofi-Aventis and the French government had tried to argue). He concluded that parties to agreements that might be regarded as anticompetitive could not put such agreements beyond the reach of review under EU competition law by resorting to arbitration.

Practice Note: It remains to be seen whether the CJEU will follow the AG’s opinion, which, in respect of the antitrust issues, is uncontroversial and relies on settled EU case law. Should the highest court of the European Union agree with AG Wathelet’s conclusions, licensors and licensees should consider the following points:

  • License agreements should expressly provide for what should happen with regard to payment of royalties where and if the patents in question are revoked.
  • If a licensor intends to extract royalties for patents that are no longer protected, the license agreement should expressly state that the licensee is free to terminate the agreement by giving notice and to challenge the validity of the patents. Licensors should also ensure that licensees are not otherwise restricted in using the licensed technology following termination of the license agreement. In order to limit antitrust scrutiny, licensors should consider including (e.g., in the preamble of a license agreement) a brief commercial explanation of why royalties are charged for unpatented technology.
  • If negotiations regarding royalties for unpatented technology prove problematic (e.g., because of the licensee’s bargaining power), licensors may consider applying a lower royalty rate following expiry of patent protection. Doing so would ensure the license agreement’s continuation post-expiry of the patents.
  • Extra caution is advised with regard to international license agreements that have a US element, because US law does not permit licensors to collect royalties accruing after expiry of the patent.

America Invents Act

AIA / CBM / Jurisdiction

A Patent Can Be a CBM Patent for One Proceeding and Not for Another

The Patent Trial and Appeal Board (PTAB or Board) found challenged claims directed to data security to be subject to covered business method (CBM) patent review notwithstanding the absence of claim limitations directed to a financial product or service, and concluded that the patent was subject matter ineligible under § 101. Square, Inc. v. Protegrity Corp., Case No. 2014-00182 (PTAB, Mar. 2, 2016) (Petravick, APJ).

Square filed a petition for CBM review of Protegrity’s patent on grounds of patent ineligible subject matter under § 101, characterizing the claims as directed to the business method disclosed in the patent specification. A CBM patent is one that “claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.” America Invents Act § 18(d)(1). The legislative history indicates that “financial product or service” should be interpreted broadly.

Protegrity argued that the challenged claims were not directed to a financial product or service because “not a single word in a single claim of the . . . patent is purportedly directed to a ‘financial product or service’” (emphasis in original). The Board nevertheless instituted, explaining in its final written decision that it does not interpret the statute as requiring “literal recitation of terms of data processing of financial products or services.” Patent claims must only be broad enough to cover a financial product or service. In this regard, the Board noted that the patent discloses protection attributes that are used to protect against unauthorized access of data portions in a database, and that “banking is a field where protection against unauthorized access to databases that are used for administering and storing sensitive information is desired. . . . Banking is a financial activity.”

The Board further noted that the patent specification included a figure depicting a “financial manager” as a person authorized to access the data element types disclosed in the patent. In addition, the Board pointed out that a declarant on behalf of the patent owner testified that the standard examples of market concern include protection of data items such as credit card numbers, credit card PIN numbers and salary information. Looking at the totality of circumstances, the Board agreed with Square that a preponderance of the evidence showed that at least one claim of the patent encompasses activities “that are financial in nature, incidental to a financial activity, or complementary to a financial activity.”

The Board rejected the patent owner’s argument that previous Board decisions demonstrate that the challenged patent is not a CBM patent. The panel noted that the prior Board decisions are neither precedential nor binding on the current panel. In addition, the panel explained that review of the allegedly conflicting decisions shows that “whether the patent is a covered business method patent rests upon the specific facts of those proceedings.”

Practice Note: For more information on CBM review and the topic of “financial product or service,” see this issue’s article on Blue Calypso, LLC v. Groupon, Inc.

AIA / CBM / Burden of Evidence

Look to the Specification Before Leaping to CBM Conclusions

Addressing the standard for instituting a covered business method (CBM) review, the Patent Trial and Appeal Board (PTAB or Board) found that the petitioner met its burden in demonstrating that the challenged patent is a CBM patent. Motorola Mobility, LLC v. Intellectual Ventures I, LLC, Case No. CBM2015-00004 (PTAB, Mar. 21, 2016) (Kauffman, APJ).

The patent at issue is directed to software for operating a user station for communicating with a multiplicity of independently operating data sources via a non-proprietary network. The patent owner asserted the patent against the petitioner in a district court. In response, the petitioner filed its first petition for CBM review of the claims, which the Board declined to institute, finding that the petitioner did not adequately demonstrate that the patent is a CBM patent. Specifically, the Board found that the petitioner offered only conclusory analysis as to whether the claimed subject matter recites a technological feature that is novel and unobvious, and that the petitioner failed to address whether the challenged patent solves a technical problem using a technical solution.

The petitioner then filed the current petition for CBM review. Although the patent owner attempted to argue that the Board lacked jurisdiction in the present case as a result of its previous denial of institution, the Board disagreed and instituted on the petition.

In its final written decision, the Board found that the petitioner met its burden to show that the challenged patent is a CBM patent. The first part of the two-part CBM inquiry is whether the patent “claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service.” The petitioner cited examples from the specification showing that the claimed method could be used for tax or other governmental filings, and could have analogous uses in financial planning and portfolio management systems. The patent owner argued that the cited portions failed to establish that the claims themselves had a particular application to financial activity. The Board disagreed, explaining that a financial product or service need not be explicitly recited in the claims in order to satisfy the first part of the test.

The second part of the CBM inquiry is whether the patent is a technological invention, which in turn involves a two-prong test of whether the claimed subject matter (1) as a whole recites a technological feature that is novel and unobvious over the prior art, and (2) solves a technical problem using a technical solution. The Board found that the challenged claims recite known prior art technology, a fact that the patent owner conceded. Despite this concession, the patent owner argued that institution was not proper, because the prior art did not recite the specific sequence of the claimed steps. The Board was not persuaded, however, and explained that the second step of the CBM inquiry is not the same as an anticipation or obviousness analysis; rather, the proper inquiry is whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art.

As to the second prong of the technological invention inquiry, the Board found that the specification expressly identified the problem it solves as “the problem of enabling simple, economical and prompt mass distribution of electronic information products.” With respect to the patent owner’s contention that the problem was more technical in nature, the Board concluded that this argument was not reflected in the claims, which were general in nature. The Board therefore concluded that the claims do not solve a technical problem with a technical solution.

AIA / CBM / “Financial Product or Service” / RPI

No CBM Carve Out for Graphical User Interfaces

Addressing the scope of covered business method (CBM) patent review and clarifying the application of the “real party in interest” in joint defense groups, the Patent Trial and Appeal Board (PTAB or Board) determined that a patent directed to graphical user interfaces for electronic trading does not fall within a category of patents exempted from CBM review, and refused to expand the meaning of a “real party in interest” to cover members of a joint defense group. IBFX, Inc. v. Trading Techs. Int’l, Inc., Case No. CBM2015-00181 (PTAB, Mar. 7, 2016) (Plenzler, APJ).

Trading Technologies asserted several patents in district court against various e-trading companies. After forming a joint defense group, the defendants coordinated efforts to file multiple CBM petitions for the asserted patents. In this proceeding, the challenged patent is directed to a method for displaying a graphical user interface that dynamically displays the market depth of a traded commodity and allows the user to place electronic trades more efficiently.

Trading Technologies argued that the petition was improper because none of the patent’s claims were directed to a CBM and were instead part of a category of technological inventions that were exempted from CBM review. Trading Technologies cited Senator Chuck Schumer’s (D-NY) comments about the America Invents Act—namely, that CBM review was not meant to target “novel software tools and graphical user interfaces that are used by electronic trading industry workers to implement trading or asset allocation strategies,” and that, “generally speaking, it is not the understanding of Congress that such patents would be reviewed and invalidated under [the CBM review process].” The Board rejected those statements as inconsistent with the wording of the law as passed, and it reiterated its view, affirmed in Versata (IP Update, Vol. 18, No. 8), that a CBM review may be proper where at least one claim is directed to a “financial product or service,” which broadly encompasses claims that are “financial in nature, incidental to a financial activity or complementary to a financial activity.”

Trading Technologies also suggested that the petition was improper because all members of the joint defense group should have been named as “real parties in interest.” Trading Technologies described defendants’ multiple CBM filings as abusive “litigation gamesmanship” and part of a larger “scheme of coordination” among joint defense group members. The Board rejected this argument, stating that mere coordination among defendants does not make joint defense group members real parties in interest to each other’s CBM petitions, absent a showing that the would-be co-defendants exercised control over the filing of each other’s petitions.

AIA / IPR / Collateral Estoppel

Procedural Differences Between Inter Partes Reviews and Reexaminations May Preclude Collateral Estoppel

Addressing collateral estoppel issues, the Patent Trial and Appeal Board (PTAB or Board) concluded in two related decisions that a patent owner should not be estopped from raising in inter partes review (IPR) proceedings an issue that was previously decided during an inter partes reexamination of a related patent. BioDelivery Sciences Int’l, Inc. v. MonoSol Rx, LLC, Case IPR2015-00165, Paper 70 (PTAB, Mar. 24, 2016) (Prats, APJ); BioDelivery Sciences Int’l, Inc. v. MonoSol Rx, LLC, Case IPR2015-00168, Paper 69 (PTAB, Mar. 24, 2016) (Yang, APJ).

BioDelivery Sciences International filed two IPR petitions with respect to a patent covering rapidly dissolving films. The patent at issue is part of a large patent family that includes a patent that previously underwent inter partes reexamination, wherein all of the claims were rejected based on a reference to Chen. BioDelivery argued that because the reexamination decision for this related patent is final, the patent owner should be estopped from contesting the Board’s findings as to Chen during the IPRs.

Issue preclusion is appropriate only if (1) the issue is identical to one decided in the first action, (2) the issue was actually litigated in the first action, (3) resolution of the issue was essential to a final judgment in the first action, and (4) the party against whom issue preclusion is asserted had a full and fair opportunity to litigate the issue in the first action. In both cases, the Board found that issue preclusion did not apply because the issue was not essential to the final judgment during reexamination, explaining that the present action involves subject matter found in a dependent claim of the reexamined patent that was not specifically argued during the reexamination proceedings. Because the reexamination did not resolve whether Chen met the subject matter of the specific dependent claim of the reexamined patent, collateral estoppel does not apply.

The Board noted that issue preclusion is also inappropriate in these two cases because IPR proceedings under the America Invents Act offer procedural opportunities that were not available to parties during inter partes reexamination. Specifically, although inter partes reexamination proceedings allow for submission of evidence in affidavit form, there is no opportunity to cross-examine those affiants. In contrast, cross-examination is permitted in IPR proceedings, and this procedural distinction could result in a different outcome from the prior inter partes reexamination. For this additional reason, the Board found that issue preclusion is not appropriate in these proceedings.

AIA / Rules

PTO Publishes New PTAB Trial Rules

The US Patent and Trademark Office (PTO) published a final rule to amend the existing rules of practice for inter partes review, post-grant review, and the transitional program for covered business method patents and derivation proceedings that implemented provisions of the Leahy-Smith America Invents Act. Federal Register, Vol. 81, No. 63 at 18750 et seq. April 1, 2016. Last year, the PTO published a final rule addressing certain ministerial changes, including an allowance for 10 additional pages for a patent owner’s motion to amend and 10 additional pages for a petitioner’s reply brief (IP Update, Vol. 18, No. 6).

The new rules make only a few changes to the existing rules. The major changes are as follows:

    • The patent owner is now permitted to submit new testimonial evidence in support of the preliminary response.

Practice Note: This change creates new strategic considerations for the patent owner, as it may not always be advantageous to submit an expert declaration with the preliminary response. Instead, it may be strategic to wait for the institution decision by the Patent Trial and Appeal Board (PTAB or Board) before locking in witness testimony. Doing so allows the patent owner to craft its post-institution case based on the Board’s concerns, and also preserves some new evidence for the post-institution trial. If the same three judges are looking at the exact same evidence and arguments pre- and post-institution, the trial phase may mirror the institution decision in terms of the patentability of the challenged claims. The strategy of submitting new testimonial evidence with a preliminary response is made even more complicated by a new provision that provides that “a genuine issue of material fact created by such testimonial evidence will be viewed in the light most favorable to the petitioner.” See 37 CFR § 42.108. Most testimonial evidence submitted by a patent owner would create a material issue of fact. As a result, these factual disputes will be resolved against the patent owner for purposes of the institution decision.

    • The PTO maintains the broadest reasonable interpretation claim construction standard, unless the patent will expire before the final written decision is issued. The final rule provides that a party may request, by motion, a “district court-type claim construction approach” where the patent at issue will expire within 18 months of the entry of the Notice of Filing Date. See 37 CFR § 42.300. The motion must be made within 30 days from the filing of the petition.

Practice Note: The Board apparently will resolve the claim construction standard on a case-by-case basis for patents that will expire during the course of the post-grant proceeding.

    • The new rules reinforce the duty of candor in Board proceedings and provide that the signature on any document filed with the Board is a representation, among others, that the action is not being conducted “for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of the proceeding.” See 37 CFR § 42.11, 11.18(b)(2).

The proposed rules also provide new procedural rules for sanction motions, including a requirement to serve the accused party with a copy of the motion 21 days prior to seeking authorization to file a motion for sanctions. This provision gives the accused party an opportunity to correct the challenged error.

Practice Note: It is unclear what an “improper purpose” encompasses.

    • The new rules replace page limits with word counts for the petition, patent owner preliminary response and petitioner’s reply brief. For example, a petition for inter partes review is now limited to 14,000 words instead of 60 pages. The Board retains page limits for all other briefings, however.

Practice Note: This rule change will allow claim charts to contain lawyer argument, since such argument in singe-spaced claim charts will no longer be considered as a way to circumvent the page limits.

The new rules are effective as of May 2, 2016.


Trademarks / Unfair Competition

Standing Under Lanham Act Premised on Defendant’s Putative Conduct

The US Court of Appeals for the Fourth Circuit reversed a district court’s application of the two-part test for prudential standing to bring a Lanham Act claim, focusing instead on the plain language of § 43(a) of the Lanham Act. Belmora LLC v. Bayer Consumer Care AG and Bayer Healthcare LLC, Case No. 15-1335 (4th Cir., Mar. 23, 2016) (Agee, J). The Court noted that the statute is written in terms of the putative defendant’s conduct in order to allow allegations of unfair competition and false advertising to proceed even where the allegedly injured party did not use its own trademark in commerce in the United States.

This case involves similar branding for similar products in the United States and Mexico. Appellant Bayer Consumer Care AG owns the trademark FLANAX in Mexico (and other parts of Latin America) for a pain reliever composed of naproxen sodium. Bayer has owned the FLANAX mark in Mexico since 1976 and has made sales in Mexico totaling hundreds of millions of dollars through use of the well-known mark and product packaging. Bayer has never sold FLANAX in the United States, but its sister company Bayer Healthcare LLC sells naproxen sodium pain relievers in the United States under the brand ALEVE.

In 2004, Belmora LLC began selling naproxen sodium tablets in the United States. Belmora registered the trademark FLANAX in the United States. The Belmora packaging for FLANAX in the United States closely mimicked Bayer’s Mexican FLANAX packaging, with a similar color scheme, font size and typeface. Belmora’s marketing materials included statements implying that its FLANAX brand in the United States was the same FLANAX product sold by Bayer in Mexico, including statements that the pain reliever was a top-selling product among Latinos. There was also evidence in the record that Belmora’s marketing materials resulted in a belief among its distributors, vendors and marketers that the Belmora FLANAX product in the United States was the same as or affiliated with Bayer’s FLANAX product in Mexico.

In 2007, Bayer initiated proceedings at the Trademark Trial and Appeal Board (TTAB) that eventually led to the cancellation of Belmora’s US trademark registration. Before the TTAB, Bayer established misuse of the Belmora mark in the United States by trading on the reputation and good will of Bayer’s Mexican mark.

Belmora appealed the TTAB decision by initiating a civil proceeding in the US District Court for the Eastern District of Virginia. The TTAB appeal was then consolidated with a pending lawsuit filed by Bayer for Lanham Act violations and claims arising under California state law. Ruling on a motion for judgment on the pleadings, the district court dismissed the case, concluding that Bayer lacked standing to assert its claims for unfair competition and false advertising, among other things, because Bayer did not own a registration for the FLANAX mark in the United States and had never used the FLANAX mark in the United States. The district court also reversed the TTAB’s decision canceling Belmora’s mark. Bayer appealed to the Fourth Circuit.

In a detailed analysis that unpacked the requirements to bring claims under § 43(a) of the Lanham Act, the Fourth Circuit vacated the district court’s legal conclusions and remanded for further proceedings. The analysis turned on the two-part test established by the Supreme Court of the United States in Lexmark Int’l, Inc. v. Static Control Components, Inc. (IP Update, Vol. 17, No. 4).

The Fourth Circuit evaluated the plain language of § 43(a) and concluded that the district court erred in finding that in order to be standing, a plaintiff must have initially used its own mark in commerce within the United States. Rather, the Fourth Circuit explained that § 43(a) does not require that a plaintiff possess or have used a trademark in US commerce as an element of the cause of action. In reaching this conclusion, the Fourth Circuit looked to the Lanham Act’s purpose statement, distinguished between the statutory injuries for trademark infringement and those for false advertising, and relied on the manner in which § 43(a) is crafted as defining causes of action based on a defendant’s putative conduct. Ultimately the Fourth Circuit explained that a well-pled Lanham Act claim—such as the claims asserted by Bayer—can proceed where there is a reasonable basis to conclude that the claimant is likely to be damaged by the defendant’s activities in the United States.

In order to assess whether Bayer was in a position to properly allege that it had been or would likely be damaged by Belmora’s conduct, the Fourth Circuit walked through the two-part test established in Lexmark for both the unfair competition and false advertising allegations. In both instances, the Fourth Circuit determined that the plaintiff’s claim fell within the “zone of interests” protected by the statute, and that Bayer sufficiently pled proximate causation of a cognizable injury.

Lastly, for reasons that largely overlapped with the § 43(a) analysis, the Fourth Circuit found that the district court erred in reversing the TTAB’s cancellation of Belmora’s mark for misuse.

Trademarks / Trade / Customs / Labeling / Summary Judgment

For Customs Purposes, a Trademark May Be Registered or Unregistered

The US Court of Appeals for the Federal Circuit reversed the US Court of International Trade’s (CIT’s) decision in favor of US Customs and Border Protection, finding that Customs’ definition of “trademark” under the Tariff Act and its applicable regulations is unambiguous and includes unregistered trademarks and trademarks not subject to a pending application (in addition to registered marks and marks subject to a pending registration). JBLU, Inc. v. United States, Case No. 15-1509 (Fed. Cir., Mar. 2, 2016) (Moore, J).

JBLU, a California corporation registered as C’est Toi Jeans USA, imported jeans manufactured in China into the United States between September 11 and October 20, 2010. Multiple parts of the jeans were embroidered with “C’est Toi Jeans USA,” “CT Jeans USA” and “C’est Toi Jeans Los Angeles.” On October 8, 2010, JBLU filed trademark applications with the US Patent and Trademark Office (PTO) for C’est Toi Jeans USA and CT Jeans USA, but not C’est Toi Jeans Los Angeles. When the shipments arrived in the United States, Customs inspected the samples of jeans and determined that JBLU violated § 304 of the Tariff Act and the relevant regulations promulgated by Customs, 19 CFR §§ 134.46 and 134.47.

Under 19 CFR §§ 134.46, when words referring to a geographical location appear on an imported article or its container that “may mislead or deceive the ultimate purchaser as to the actual country of origin of the article,” the article must also be marked with the country of origin in a manner that is legible, permanent, in close proximity to the geographical words, and in at least a comparable size.” The more lenient requirements under § 134.37 specify that the country of origin marking must be legible and permanent, conspicuous, and either in close proximity to the geographical words or in some other conspicuous location. Customs determined that because JBLU’s jeans were marked with “USA” or “Los Angeles,” they also must meet the country of origin labeling requirements of § 134.46.

JBLU argued that its “Made in China” labels met the requirements of § 134.47. Customs agreed, but only as to the jeans that were marked with C’est Toi Jeans USA or CT Jeans USA and were imported after JBLU filed its trademark applications for those marks. Customs determined that the more stringent § 134.46 requirements applied to the jeans that were marked with C’est Toi Jeans USA or CT Jeans USA and were imported before JBLU filed its trademark application.

JBLU filed suit against the US government at the CIT. The CIT granted the government’s motion for summary judgment, giving deference to Customs’ definition of “trademark” as limited to trademarks registered with the PTO and trademarks subject to pending registration applications. The CIT found that C’est Toi Jeans USA, CT Jeans USA and C’est Toi Los Angeles were not trademarks under § 134.47, and that therefore the more stringent requirements of § 134.46 applied. JBLU appealed.

On appeal, JBLU argued that the trial court erred because an agency’s interpretation of a regulation is given deference only when the regulation is ambiguous, and that the word trademark as used in § 134.47 unambiguously includes both common law trademarks and federally registered trademarks.

The Federal Circuit agreed. The Court looked to the definition of trademark in the dictionary and in the Lanham Act, neither of which limit the term to registered trademarks or trademarks subject to pending applications. The Court reasoned that trademark rights stem from use, not registration. The government acknowledged the Lanham Act and dictionary definitions, but argued that the use of the word trademark in the intellectual property context does not inform its meaning in the context of § 134.47. The Federal Circuit disagreed. The Court looked to various regulations and the Tariff Act, and found that when the regulations intended to limit a regulation to “registered trademarks,” they expressly did so, whereas § 134.47 does not.

Trademarks / Damages

Willfulness Remains Prerequisite to Award of Infringer’s Profits

Addressing whether willfulness is a prerequisite to an award of a trademark infringer’s profits, the US Court of Appeals for the Federal Circuit affirmed the district court’s decision that absent a finding of willful infringement, the plaintiff was not entitled to an award of the defendant’s profits earned from sales of infringing products. Romag Fasteners, Inc. v. Fossil, Inc., et al., Case Nos. 14-1856; -1857 (Fed. Cir., Mar. 31, 2016) (Dyk, J).

Romag sells magnetic snap fasteners under its ROMAG registered trademark. Fossil sells handbags and small leather goods that are made by its authorized manufacturers and include ROMAG fasteners through an agreement with Romag. When Romag discovered that one of Fossil’s authorized manufacturers had used counterfeit ROMAG fasteners in its products, Romag sued Fossil for trademark infringement, false designation of origin and related state law claims.

After a seven-day trial, a jury found that Fossil had not willfully infringed the ROMAG trademark, but nevertheless made an advisory award of almost $7 million of Fossil’s profits. The district court held that Romag was not entitled to an award of Fossil’s profits because the infringement was not willful. Romag appealed.

On appeal, the Federal Circuit reviewed the history of Lanham Act § 35(a) and the split among the circuits regarding whether proof of willfulness is necessary for an award of an infringer’s profits. Prior to the 1999 amendments to the Lanham Act, several courts of appeal (the Second Circuit in George Basch v. Blue Coral, Inc., along with the Third, 10th and District of Columbia Circuits) held that willfulness was required to recover an infringer’s profits, while others (the Fifth, Sixth, Seventh and 11th Circuits) held that willfulness was not a prerequisite to such an award. The 1999 amendments to the Lanham Act added language to make the monetary remedies of § 1117(a) available only for “willful” trademark dilution under § 1125(c). Since the 1999 amendments, several courts of appeal (the First, Ninth and 10th Circuits) have held that willfulness remains a requirement for an award of profits for trademark infringement under § 1117(a), while others (the Third, Fourth, Fifth and Sixth Circuits) have found that the amendments show that Congress intended to remove any willfulness requirement for an award of profits for trademark infringement.

In light of the 1999 amendments, Romag argued that willfulness was not a requirement in the Second Circuit for an award of Fossil’s profits. The Federal Circuit was not persuaded, reasoning that nothing in the 1999 amendments upset the Second Circuit’s 1992 Basch decision. The Federal Circuit found that neither the plain text nor the legislative history of the amendments demonstrated that Congress intended to change the willfulness requirement for an award of damages under § 1117(a), let alone address the split among the circuits on this issue. The Federal Circuit found further support in the Second Circuit’s 2014 decision in Merck Eprova AG v. Gnosis S.p.A. (IP Update, Vol. 17, No. 8), which restated the Second Circuit’s rule that willfulness is a prerequisite for awarding profits.

Practice Note: The split among the circuits concerning the willfulness requirement persists. Plaintiffs in trademark cases must be aware of these differences when choosing where to file in order to maximize their potential recovery, and defendants must be aware of these differences when considering case strategy, including whether to attempt to transfer venue and the potential for settlement. All litigants should bear in mind that even in circuits where willfulness is not a requirement for an award of an infringer’s profits, willfulness remains an important factor that courts will consider in making such an award.

Trademarks / Trademark Infringement / Trademark Dilution / Likelihood of Confusion

Land O’ Lakes – No Harm, No Foul **WEB ONLY**

Addressing the issue of whether a famous mark can be diluted by the identical mark of a much smaller company, the US Court of Appeals for the Seventh Circuit decided that the district court rightly dismissed trademark infringement claims and cross-claims where neither party had been, or was likely to be, harmed by the other. Hugunin, et al. v. Land O’ Lakes, Inc., Case No. 15-2815 (7th Cir., Mar. 1, 2016) (Posner, J).

The plaintiffs make and sell fishing bait and tackle in Land O’ Lakes, Wisconsin, which is located in a region of the same name with many lakes that attract fishermen. Mr. Hugunin first sold fishing tackle to a bait shop in Wisconsin in 1997 and currently sells to retailers in several states. In 2000, the US Patent and Trademark Office registered Mr. Hugunin’s trademark LAND O LAKES for fishing tackle.

The defendant and counterclaimant, Land O’ Lakes, Inc., is located in Minnesota and sells butter and other dairy products throughout the United States. Its trademark, LAND O LAKES, is the same as Mr. Hugunin’s but has been used far longer—since 1920, when the company was founded.

In 1997, the year Mr. Hugunin began selling fishing tackle, Land O’ Lakes began sponsoring a sport-fishing contest called the Walmart FLW Tour and began advertising its dairy products in fishing magazines. Three years later, after learning that Mr. Hugunin had registered LAND O LAKES as a trademark for fishing tackle, Land O’ Lakes wrote to Mr. Hugunin and told him that Land O’ Lakes’ trademark was “famous” and had been in use much longer than Mr. Hugunin’s mark, that he was infringing, and that he must obtain a license or give up using the mark. Mr. Hugunin refused.

Mr. Hugunin’s original registration had lapsed, and Land O’ Lakes filed a trademark opposition at the Trademark Trial and Appeal Board (TTAB) to block Mr. Hugunin’s new application to register the mark. Mr. Hugunin’s application was suspended pending the outcome of the litigation. Mr. Hugunin filed suit for trademark infringement against Land O’ Lakes in 2011, a case that was ultimately dismissed.

Expressing puzzlement over why Land O’ Lakes would have been worried about Mr. Hugunin’s use of the LAND O LAKES trademark, the Seventh Circuit found that despite sponsoring the fishing tournament, advertising in fishing magazines and making other “appeals” to fishermen to buy its dairy products, Land O’ Lakes does not make or sell any items used in fishing that might be confused with Hugunin’s fishing tackle. “It would be strange indeed for a dairy company to manufacture a product so remote from milk, butter, and cream [as fishing tackle], and there is no sign that the dairy company intends to take the plunge.” Similarly, the Court was puzzled over why Mr. Hugunin and his companies sued Land O’ Lakes for trademark infringement when there was nothing to suggest that Land O’ Lakes intended to make or sell fishing tackle. “Can one imagine Land O’ Lakes advertising: ‘we sell the finest dairy products and the best fishing tackle’?” The Court emphasized that there was no evidence of any confusion, and on this basis, Mr. Hugunin’s infringement claims were dismissed.

Regarding Land O’ Lakes’ counterclaims charging that Mr. Hugunin’s companies’ use of the LAND O LAKES trademark diluted the value of Land O’ Lakes’ identical trademark, the district court found that the dilution claim was barred by laches, i.e., Land O’ Lakes had waited too long to bring its claim. The Seventh Circuit did not analyze the district court’s decision regarding laches. Instead, the Court stated that even if laches had not been in the picture, Land O’ Lakes would not have prevailed.

The Court explained that there are two forms of dilution: “blurring,” with an example of the TIFFANY jewelry mark being adopted by an upscale restaurant, and “tarnishment,” with an example of the same famous TIFFANY mark being used by a “striptease joint.” The Court noted that the present case did not fit either type of dilution, because “it is beyond unlikely that someone dissatisfied with LAND O LAKES fishing tackle would take revenge on the dairy company by not buying any of its products, or that a customer would have difficulty identifying Land O’ Lakes’ dairy products because he had seen the LAND O LAKES mark used on Hugunin’s fishing tackle.”

The Court also found that Land O’ Lakes’ mark was itself derivative from Minnesota’s catchphrase, “Land of 10,000 Lakes,” a phrase the Court found was “in such widespread use that the company could not insist that it was the sole lawful user of the phrase in advertising for all products.”

The Court found that Mr. Hugunin’s claim for trademark infringement based on reverse confusion—i.e., when a junior user of a trademark uses its size and market penetration to overwhelm the senior, but smaller, user—was equally without merit, finding that Land O’ Lakes’ use of its mark was confined to products so different from Mr. Hugunin’s that few if any consumers would think that simply by virtue of having an identical trademark the dairy company was competing with Mr. Hugunin in a different industry. The Court was not concerned with the “Land O’ Lakes Walleye Pro,” a fishing champion whom Land O’ Lakes sponsors in fishing competitions in return for that individual’s promotion of Land O’ Lakes dairy products, or with the use of Land O’ Lakes’ logo on fishing boats during tournaments. The Court stated that just as “no one watching a NASCAR race and seeing a racing car emblazoned with Budweiser’s logo would think that the beer company had entered the automobile industry, so no one reading the ‘Walleye Pro’ ad or seeing a boat sponsored by the dairy company would think that the advertiser sells fishing tackle.”

The Court summed up: “So in this unusual case two firms sued each other though neither had been, is, or is likely to be harmed in the slightest by the other. The suit was rightly dismissed.”

Practice Note: In the Seventh Circuit, a litigant claiming trademark infringement, including by dilution or reverse confusion, must be prepared to present evidence of harm or likelihood of harm. Without such evidence, a trademark infringement claim will be nothing more than “the one that got away.”



Furniture Infringement – Not for Canadian Courts to Decide

The US Court of Appeals for the Federal Circuit reversed a district court decision dismissing a copyright infringement claim based on forum non conveniens grounds put forth by the Canada-based defendants. Halo Creative & Design Limited, et al. v. Comptoir Des Indes Inc., David Ouaknine, Case No. 15-1375 (Fed. Cir., Mar. 14, 2016) (Dyk, J).

Halo Creative & Design Limited, a Hong Kong company that designs and sells modern furniture in the United States, owns various patents, copyrights and common law trademarks covering its 25 furniture designs. Comptoir, a Canadian corporation, and Mr. Ouaknine, a Canadian resident, (together, the defendants) also design and sell furniture in the United States. Defendants’ furniture is manufactured in China, India and Vietnam and is imported and sold to US consumers directly at furniture shows and through distributors, including to consumers in Illinois.

In 2014, Halo filed a complaint in the US District Court for the Northern District of Illinois against the defendants, claiming that they infringed upon Halo’s intellectual property and violated Illinois’s consumer fraud and deceptive business practices statutes. Defendants moved to dismiss based on forum non conveniens, arguing that the Federal Court of Canada had jurisdiction to adjudicate design patents and trademarks.

The district court agreed and dismissed the suit based on forum non conveniens grounds, finding that the balance of interests favored Canada and that Canada, where the defendants reside, was an adequate forum. The district court reasoned that Canada is a signatory to the Berne Convention and that Halo is therefore entitled to all of the protections offered by Canadian copyright law to Canadian citizens. Halo appealed.

The Federal Circuit reversed and remanded the case, concluding that the district court abused its discretion in dismissing the lawsuit. “It is particularly important that a forum non conveniens movant demonstrate the adequacy of an alternative forum when the dispute implicates the enforcement of intellectual property rights. The policies underlying United States copyright, patent, and trademark laws would be defeated if a domestic forum to adjudicate the rights they convey was denied without a sufficient showing of the adequacy of the alternative foreign jurisdiction.” The fact that the United States, Canada and Hong Kong are all signatories to the Berne Convention does not mean that the Federal Court of Canada can provide a potential avenue for redress for the subject matter. Moreover, “[t]he Berne Convention does not require that member countries provide remedies for extraterritorial infringing activity. Nor does the Berne Convention require that Canada apply its laws extraterritorially.”