A Special “Treatment” for Patent Eligibility
Bhanu K. Sadasivan, PhD
Addressing the patentability of method-of-treatment claims, the US Court of Appeals for the Federal Circuit issued two decision finding such claims patent eligible. Natural Alternatives Int’l, Inc. v. Creative Compounds, LLC, Case No. 18-1295 (Fed. Cir. Mar. 15, 2019) (Moore, J) (Reyna, J, concurring in part and dissenting in part); Endo Pharmaceuticals Inc. v. Teva Pharmaceuticals USA, Inc., Case Nos. 17-1240, -1455, -1887 (Fed. Cir. Mar. 28, 2019) (Stoll, J).
Natural Alternatives v. Creative Compounds
Natural Alternatives owns a patent directed to certain dietary supplements that increase the anaerobic working capacity of muscle and other tissue. After being sued on the patent, Creative Compounds moved for judgment on the pleadings, arguing that the asserted method, product and manufacturing claims were all directed to patent-ineligible subject matter under 35 USC § 101. The district court granted Creative Compounds’ motion, finding that the patent claims were directed to the natural law that ingesting certain levels of the dietary supplement beta-alanine, a natural substance, will increase the anaerobic working capacity in a human. Natural Alternatives appealed.
The Federal Circuit reversed, finding that the complaint plausibly established patent eligibility. Starting with the method claims, the Court found that the claims “cover using a natural product in unnatural quantities to alter a patient’s natural state, to treat a patient with specific dosages outlined in the patents.” According to the Court, “[a]dministering certain quantities of beta-alanine to a human subject alters that subject’s natural state. . . . The method claims not only embody this discovery, they require that an infringer actually administer the dosage form claimed in the manner claimed, altering the athlete’s physiology to provide the described benefits.” The Court acknowledged that while the method claims rely on natural relationships, under Natural Alternatives’ proposed constructions, “the method claims require specific steps be taken in order to bring about a change in a subject, altering the subject’s natural state.” The fact that beta-alanine exists in nature and is consumed as part of the human diet did not alter the Court’s analysis. The Court noted that Natural Alternatives had argued that the administered amount and the claimed consumption “exceeds natural levels.”
The Federal Circuit also found the product claims patent eligible, concluding that they “are directed to specific treatment formulations” and, although they incorporate natural products, they have “different characteristics and can be used in a manner that beta-alanine as it appears in nature cannot.” The Court also found the manufacturing claims patent eligible, noting that these claims are directed to manufacture of a human dietary supplement that “is not a product of nature,” and “a claim to the manufacture of a non-natural supplement” would not be directed to a law of nature or natural product.
Judge Reyna dissented, arguing that the majority relied on erroneous claim construction, but concurred in remanding the case for further proceedings to allow the district court to revisit patent eligibility under a proper claim construction.
Endo Pharmaceuticals v. Teva Pharmaceuticals
Endo owns a patent directed to a method of treating pain in patients with impaired kidney function using oxymorphone. After being sued, Teva filed a motion to dismiss, arguing that the patent claims were directed to patent-ineligible natural law, namely, the reaction of a renally impaired individual’s body to oxymorphone. After the district court granted the motion, Endo appealed.
The Federal Circuit reversed, finding that the claims were directed to a patent-eligible method of using oxymorphone to treat pain in a renally impaired patient. The Court found that the claims at issue “are directed to a specific method of treatment for specific patients using a specific compound at specific doses to achieve a specific outcome.” The Court explained that while the inventor “recognized the relationship between oxymorphone and patients with renal impairment,” he claimed “an application of that relationship—specifically a method of treatment including specific steps to adjust or lower the oxymorphone dose.” As a result, the Court found the claims patent eligible and remanded the case for further proceedings.
Practice Note: A treatment claim employing a specific method on specific patients or subjects using a specific compound at specific doses to achieve a specific outcome may pass the patent eligibility bar.
PATENTS / § 101 (ABSTRACT IDEA)
Is Invention “Directed to” an Abstract Idea? Look to the Specification
Addressing the various factors a court may consider in order to determine whether a claim is “directed to” an abstract idea, the US Court of Appeals for the Federal Circuit upheld the district court’s dismissal of all claims based on patent ineligibility under 35 USC § 101. ChargePoint, Inc. v. SemaConnect, Inc., Case No. 18-1739 (Fed. Cir. Mar. 28, 2019) (Prost, CJ).
ChargePoint brought suit against SemaConnect for infringement of four patents relating to charging stations for electric vehicles. The four patents described individual charging stations that were networked together to allow site hosts, drivers and utility companies to communicate in real time to address the needs and preferences of each entity. A system of networked charging stations allowed each station to be managed from a central location, allowed drivers to locate charging stations in advance, and allowed all users to interact intelligently with the electricity grid. Upon consideration of SemaConnect’s motion to dismiss under Fed. R. Civ. P. 12(b)(6), the district court found all asserted claims to be directed to patent-ineligible subject matter under 35 USC § 101. ChargePoint appealed.
The Federal Circuit affirmed, confirming that “[s]ubject matter eligibility under § 101 may be determined at the Rule 12(b)(6) stage of a case.” The Court then proceeded to the Mayo/Alice two-step analysis. At step one, the Court emphasized that it is “not enough to merely identify a patent-ineligible concept underlying the claim; [the inquiry is] what the claim is ‘directed to.’” In order to find the “focus” of the claim, it is necessary to balance the specification and claim language. The specification is “helpful in illuminating what a claim is ‘directed to’ [but] reliance on the specification must always yield to the claim language in identifying [the] focus.” The ultimate consideration when dealing with the judicial exceptions is “one of pre-emption”—whether the claims cover subject matter that “the patent law does not authorize anyone to preempt.”
With that disclaimer, the Court identified three areas where the specification may be useful in determining whether the claims are “directed to” an abstract idea. First, the inquiry may require claim construction, which often includes consideration of the specification. Second, the “directed to” inquiry may involve looking to the specification to understand “the problem facing the inventor and, ultimately, what the patent describes as the invention.” Finally, the specification may be useful in determining why any tangible components recited in method claims are actually “conduits for the abstract idea.”
After reviewing the specifications of the asserted patents to identify the problem posed and what the patent identifies as the invention, the Federal Circuit agreed with the district court’s analysis that the claims are directed to the abstract idea of “communicating over a network for device interaction.” Keeping the focus on preemption, the Court next turned to the claim language and found that the claims would “preempt the use of any networked charging stations.”
In step two of the Alice inquiry, the Federal Circuit again turned to the specification to identify an inventive concept. The Court looked at the stated problem, which it identified as “the sparse availability of charging stations and the need for more widespread stations; the need for a communication network that facilitates finding an available charging station, controlling the station, and paying for electricity; and the need for real time communication to effectively implement demand response and vehicle-to-grid transfer.” Unfortunately for ChargePoint, the alleged “inventive concept” that solves these problems is that the charging stations are network controlled—the abstract idea itself. Thus, the Court found the claims patent ineligible because “a claimed invention’s use of the ineligible concept to which it is directed cannot supply the inventive concept that renders the invention ‘significantly more’ that that ineligible concept.”
PATENTS / SUBJECT MATTER ELIGIBILITY
Abstract Idea Analysis Not Always So Concrete
A divided panel of the US Court of Appeals for the Federal Circuit affirmed the district court, finding that a claimed method for monitoring and analyzing a computer network was directed to an improvement in computer capability, not an abstract idea, and was thus patent eligible. SRI International, Inc. v. Cisco Systems, Inc., Case No. 17-2223 (Fed. Cir. Mar. 20, 2019) (Stoll, J) (Lourie, J, dissenting).
After SRI sued Cisco for infringement of two patents, Cisco sought summary judgment that the asserted claims were not patent eligible, a motion that the district court denied. Cisco appealed.
Applying the two-step Alice test, the Federal Circuit explained that the claims were not directed to an abstract idea under step one. Instead, the invention was directed to “using a specific technique—using a plurality of network monitors that each analyze specific types of data on the network and integrating reports from the monitors––to solve a technological problem arising in computer networks: identifying hackers or potential intruders into the network.” Citing Enfish, the Court majority explained that the claimed technology provides a network defense system that monitors network traffic in real time to automatically detect large-scale attacks, thus providing a “specific asserted improvement in computer capabilities.” To further explain why the invention was not abstract (and in response to the dissent), the majority noted that the patent specification taught that the invention solved weaknesses found in conventional networks and provided “a framework for the recognition of more global threats to interdomain connectivity, including coordinated attempts to infiltrate or destroy connectivity across an entire network enterprise.”
Cisco asserted that the claims were directed to generic steps for collecting and analyzing data, and thus were analogous to those at issue in Electric Power Group v. Alstom. The Federal Circuit noted that the claims in Electric Power Group were drawn to “using computers as tools to solve a power grid problem,” in contrast to the claims at issue, which were drawn to “improving the functionality of computers and computer networks themselves.” The Court majority analogized the claims at issue to those in DDR Holdings, noting that the “claimed technology ‘overrides the routine and conventional sequence of events’ by detecting suspicious network activity, generating reports of suspicious activity, and receiving and integrating the reports using one or more hierarchical monitors.”
In response to Cisco’s argument that the claimed technology does not involve “an improvement to computer functionality itself,” the Federal Circuit explained that the challenged claims are not directed to using a computer as a tool, but instead are directed to improving the technical functionality of the computer and computer networks by reciting a specific technique for improving computer network security.
Further, in rejecting Cisco’s argument that the claims were directed to an abstract idea because the claimed technology could be performed by mental processes, the Federal Circuit noted that the human mind cannot detect suspicious activity by using network monitors and analyzing network packets as recited in the claims.
Judge Lourie dissented, arguing that the claims were directed to an abstract idea. Specifically, Judge Lourie would have found, under Alice step one, that the claims were analogous to those considered in Electric Power Group and failed to recite a specific way of enabling a computer to monitor network activity. In Lourie’s view, the claims were directed to the abstract idea of monitoring network security. Unlike the majority (which never addressed Alice step two), Judge Lourie would have found under step two of Alice that the specification explained that the claims only relied on generic computer components. Thus Lourie would have concluded that the claims were directed to an abstract idea, did not recite an inventive concept and therefore should have been found to be patent ineligible.
Practice Note: In a recent address before the American Bar Association Intellectual Property Law Conference, US Patent and Trademark Office Director Andrei Iancu remarked that the en banc Federal Circuit could take on a few § 101 eligibility cases, in tech and life sciences, and “hash this out,” noting that “[i]t’s not brain surgery. It’s a solvable issue.”
Back Up: No Inherency if Alternative Methods Achieve Same Result
On a second appeal from an inter partes review (IPR) proceeding, the US Court of Appeals for the Federal Circuit reversed the Patent Trial and Appeal Board (PTAB) determination that a patent directed to creating a substantially unique identifier for each data item in a data processing system was invalid as obvious, finding that the PTAB’s decision was not supported by substantial evidence. PersonalWeb Technologies, LLC v. Apple, Inc., Case No. 18-1599 (Fed. Cir. Mar. 8, 2019) (Chen, J).
PersonalWeb owns a patent directed to a method and apparatus for creating a substantially unique identifier for each data item in the data processing system that is independent of the data item’s user-defined name and location, and is dependent only on the content of the data item itself. The identifier for a particular data item is created by applying a cryptographic hash function to the data item. The output of the hash function is the content-based identifier or “True Name,” which is “virtually guaranteed” to be unique to the data item. The system uses the content-based identifier alone to determine whether a particular data item is present on the system. When the data item’s contents are changed, the content-based identifier of the data item also changes.
Apple filed an IPR petition arguing that PersonalWeb’s patent was invalid because a Woodhill patent inherently discloses a reference index/lookup feature, and it would be obvious to a person skilled in the art to combine Woodhill with a patent to Stefik, which discloses an authentication system for controlling access to digital works. In Stefik, each digital work’s unique identifier and associated usage rights, among other information, are stored in a repository. A user accesses a digital work over a network using a “digital ticket,” which entitles the ticket holder to exercise usage rights associated with the work because, for example, the user has paid for access.
At the PTAB, Apple argued that in Woodhill, “referencing necessarily must be accomplished” using “the remote backup fileserver,” which “maintains some sort of file system or other mapping (i.e., a database) that allows the Binary Object Identification Record to serve as a lookup for the requisite file data that is to be restored.” Apple argued that a skilled artisan would have combined the backup and restore system in Woodhill and Stefik with the repository in Stefik to add an authorization layer to prevent unauthorized users from accessing a different user’s backup files. The PTAB agreed with Apple and found PersonalWeb’s patent claims invalid. PersonalWeb appealed.
PersonalWeb argued that the PTAB erred because Woodhill does not necessarily require a lookup table to locate the current or previous version of the file because Woodhill’s system “obtains from the user the identities of the current and previous versions of the file (comprised of binary objects) which needs to be restored.” PersonalWeb argued that this was an alternative method to achieve the same result, and thus referencing would not necessarily be accomplished using the remote backup fileserver, as found by the PTAB. The Federal Circuit agreed with PersonalWeb, finding that the PTAB’s determination that the “compared to a plurality of values” limitation was inherent in prior art was not supported by substantial evidence. The Court noted that Woodhill only disclosed a method of locating a current or previous file by searching for the file using standard file block information, including the file name and location, but the Woodhill reference did not disclose searching for a file based on a content-based identifier. The Court thus reversed the PTAB’s obviousness finding.
Practice Note: Before making inherency arguments to support invalidity, practitioners should consult with experts to carefully rule out alternative solutions or explanations.
PATENTS / AIA / CLAIM CONSTRUCTION / PRIORITY DATE
Intended Use Preamble Not Limiting; Diligence Must Only Be Reasonably Continuous
In an opinion addressing claim construction and priority dates, the US Court of Appeals for the Federal Circuit explained that preamble language is not limiting when it merely recites an intended use, and that diligence need only be reasonably continuous when reducing an invention to practice. Arctic Cat Inc. v. GEP Power Prods., Inc., Case Nos. 18-1520, 1521 (Fed. Cir. Mar. 26, 2019) (Taranto, J).
GEP filed petitions for inter partes review of two Arctic Cat patents directed to power distribution modules, challenging all claims of each patent as unpatentable for anticipation and obviousness over several prior art patents. Both reviews were instituted, and the Patent Trial and Appeal Board (PTAB) issued final written decisions finding all claims of both patents unpatentable. The PTAB rejected Arctic Cat’s argument that certain language in the preambles of several claims was limiting, finding that the preambles recited only an intended use for an otherwise complete claimed apparatus. The PTAB further rejected Arctic Cat’s argument that the patents were entitled to a priority date predating one of the prior art patents, because the PTAB found that the inventor had failed to diligently reduce the invention to practice. Arctic Cat appealed.
The Federal Circuit affirmed the PTAB’s finding that the preamble was not limiting, explaining that a preamble is only limiting if it recites essential structure or steps, or if it is necessary to give life, meaning and vitality to the claim. A preamble is not limiting where the claim recites a structurally complete invention and the preamble only states a purpose or intended use for the recited structures. In the case at hand, the claims at issue contained preambles referring to a “personal recreation vehicle” as an intended use for the claimed invention. The Court noted the lack of reference to the “personal recreation vehicle” in the body of the claims, and that Arctic Cat did not rely on the preamble to distinguish prior art during prosecution. Moreover, the specification failed to disclose any aspect of the “personal recreation vehicle” that is asserted to be an improvement, other than the claimed power distribution module. Finally, Arctic Cat chose not to use the well-established Jepson transitional language, which is a powerful reason to deny the preamble the limiting effect it would have had.
Regarding the appropriate priority date for the applications for the Arctic Cat patents, the Federal Circuit reversed the PTAB. It was undisputed that Arctic Cat’s conception date predated the priority date of the asserted prior art, and the only issue was whether the inventor was diligent in reducing the invention to practice from conception until the date of the filing of the application (constructive reduction to practice). In reversing the PTAB, the Court explained that diligence need only be reasonably continuous; the point of the analysis is not to scour the patent owner’s corroborating evidence in search of intervals that must be explained. The pertinent question is whether, in light of the evidence as a whole, the invention was abandoned or unreasonably delayed. Here, the Court explained that the PTAB’s analysis rested on too rigid a standard. The PTAB faulted the inventor for two gaps in the record. However, evidence showed that the invention was undergoing testing, an activity that does not give rise to an inference of abandonment or unreasonable delay.
PATENTS / CLAIM CONSTRUCTION
Slip of the Tongue? Specification Describing “Present Invention” Limits Claim Scope
Finding that the use of the phrase “present invention” in the specification limited the scope of a patent’s claims, the US Court of Appeals for the Federal Circuit vacated a district court judgment and remanded the case, instructing the district court to reconsider non-obviousness and non-infringement findings under the corrected claim construction. Forest Laboratories, LLC v. Sigmapharm Laboratories, LLC, Case Nos. 17-2369, -2370, -2372, -2373, -2374, -2375, -2376, -2389, -2412, -2436, -2438, -2440, -2441 (Fed. Cir. March 14, 2019) (Moore, J).
Forest owns a patent directed to a sublingually administered, atypical antipsychotic containing asenapine. Forest sued several pharmaceutical companies for patent infringement, asserting that their proposed generic versions of the drug Saphris infringed Forest’s patent. Following a bench trial, the district court held that the defendants had not established that the asserted claims were invalid and that Forest had not established infringement of certain claims against two of the defendants, Alembic and Breckenridge. The defendants appealed the district court’s invalidity determination, and Forest cross-appealed the district court’s non-infringement finding.
The Federal Circuit noted that the district court limited the claim to “buccal and sublingual formulations,” despite the absence of any express language in the claim itself. The Court further noted that the patent described the features of the “present invention” as relating to a sublingual or buccal pharmaceutical composition, which strongly supported the district court’s construction. The Court explained that the patent’s title, “Sublingual or Buccal Pharmaceutical Composition,” and additional language in the specification focused the invention on the benefits of sublingual and buccal treatment over the prior art and further supported limiting the claim to “buccal and sublingual formulations.”
The district court found that the defendants had not established that there was a motivation to combine asenapine maleate into a sublingual or buccal form. However, because the district court failed to make a finding as to whether compliance concerns for patients with trouble swallowing would provide a motivation to combine, the Federal Circuit remanded the case, instructing the district court to address this narrow question.
As to the district court’s non-infringement finding against Alembic and Breckenridge, the Federal Circuit found that the district court had erred in treating “excitation” as being limited to “excitation disorders.” The Court noted that the claim language and the specification indicated that “excitation” refers to a symptom rather than a “disorder.” The use of the conjunction “and” before “psychotic and schizophrenic disorders” indicates that “psychotic and schizophrenic disorders” is a distinct item on the list, and that unlike the terms “psychotic” and “schizophrenic,” the words “tension,” “excitation” and “anxiety” are not describing “disorders” but rather symptoms. Accordingly, the Court vacated the judgment of non-infringement as to Breckenridge and Alembic, and remanded for reconsideration under the revised construction.
Practice Note: This case illustrates the Federal Circuit’s willingness to deviate from its normal restraint in importing limitations from the specification into the claims during claim construction. The Court emphasized that language describing “the present invention as a whole” may have the effect of limiting the scope of the invention, especially when contrasted with the prior art. Accordingly, practitioners should be cautious when making statements in the specification that appear applicable to the entire invention as opposed to a particular embodiment. Similarly, during litigation a party may be able to argue that despite any explicit language, a particular claim should be limited in scope based on the disclaimers in the specification.
PATENTS / OBVIOUSNESS / INDIRECT INFRINGEMENT
Polymorphic Patent Survives Obviousness Challenge
In a Hatch-Waxman case involving patents directed to a polymorphic compound for a treatment for polyneuropathic pain, the US Court of Appeals for the Federal Circuit affirmed a district court finding that a patent was not invalid for obviousness and that a patent directed to the method of treating a polyneuropathic pain was indirectly infringed by virtue of product labeling. Grunenthal GMBH, Assertio Therapeutics, Inc. v. Alkem Laboratories LTD, Case Nos. 2017-1153, -2048, -2049, -2050 (Fed. Cir. Mar. 28, 2019) (Reyna J).
The technology at issue relates to a polymorphic compound, tapentadol hydrochloride (tapentadol). A polymorphic compound is one that can present in more than one 3D structure. Tapentadol presents in two forms, Form A and Form B. Grunenthal is the owner of two patents: one directed to the Form A of tapentadol and the other directed to a method of using either form of tapentadol for the treatment of polyneuropathic pain. The patents were licensed to Depomed and listed in the US Food and Drug Administration (FDA) Orange Book for NUCYNTA ER, a tapentadol hydrochloride tablet.
Three generic drug manufacturers, Alkem, Hikma and Actavis, independently filed abbreviated new drug applications (ANDAs) seeking to market generic versions of the tapentadol hydrochloride tablet. Grunenthal and Depomed filed a lawsuit against the three generic drug companies under the Hatch-Waxman Act. After a bench trial, the district court found that Alkem infringed the method patent, but that Actavis and Hikma did not. The court also found that the Form A tapentadol patent was not invalid as obvious, and that the method patent was not invalid due to anticipation or obviousness-type double patenting. Alkem and Hikma each appealed different aspects of the district court’s invalidity rulings, and Grunenthal and Depomed appealed the district court’s findings of non-infringement against Actavis and Hikma.
The Federal Circuit first addressed Grunenthal and Depomed’s cross-appeal of the district court’s finding that Actavis and Hikma did not infringe the patent directed to methods of treating polyneuropathic pain. Depomed’s FDA-approved label of NUCYNTA included as an indication the management of neuropathic pain associated with diabetic peripheral neuropathy (DPN), which is a type of polyneuropathic pain. The proposed labels of Actavis and Hikma’s drugs included an indication for treatment of “chronic pain” but not specifically DPN or polyneuropathic pain. The Court noted that both Actavis and Hikma filed “section viii” statements with their ANDA applications, indicating that they would not seek FDA approval for an indication directed to the treatment of DPN.
Depomed argued that because the Hikma and Actavis labels contained an indication for “severe chronic pain,” the labels would cause at least some users to infringe the method patent because polyneuropathic pain is a common form of “severe chronic pain.” The Federal Circuit disagreed, finding that “even if severe chronic pain includes polyneuropathic pain, it also includes mononeuropathic pain and nociceptive pain. Therefore, the proposed ANDA labels do not specifically encourage the use of tapentadol hydrochloride for the treatment of polyneuropathic pain.” The Court also noted that neither of the accused ANDA labels listed an indication for the management of pain associated with DPN or mentioned any DPN clinical studies as a basis for FDA approval. Accordingly the Court found that Actavis and Hikma were not liable for induced infringement. Further, the Court found no clear error in the district court’s finding that there was no contributory infringement.
Alkem challenged the finding of non-obviousness of the asserted claims of the patent directed to Form A tapentadol based on two prior art references: Byrn and a prior art patent. Byrn taught a “conceptual approach to the characterization of pharmaceutical solids, including a flow chart describing investigative steps to determine whether polymorphs are possible.” However, Byrn did not teach a particular method to definitively test for polymorphism—it simply listed a number of solvents to be used in recrystallizing and other variables that could affect the solids produced by recrystallization with these solvents. The prior art patent disclosed the steps for making Form B of tapentadol. No evidence was presented at trial that the synthesis conditions from the prior art patent would produce any Form A tapentadol.
The Federal Circuit agreed with the district court’s finding that the asserted combination did not render the asserted claims obvious. The Court found that the fact that tapentadol was a polymorphic compound was unknown in the art at the time and that Byrn alone provided insufficient guidance as to what particular solvents, temperatures, agitation rates, etc., were likely to result in Form A. Finally, despite Alkem’s arguments, the Court found there was no evidence presented at trial that the synthesis of tapentadol in the prior art patent results in the Form A version. Therefore, the Court determined that Alkem failed to prove that a skilled artisan would have reasonably expected a polymorph screening of the Form B disclosed in the prior art patent to result in Form A. The Court also noted that a conclusion of obviousness does not follow from merely varying all parameters or trying each of numerous possible choices until one possibly arrives at a successful result, where the prior art gave either no indication of which parameters were critical or no direction as to which of many possible choices was likely to be successful.
Practice Note: Patents covering polymorphic compounds may become more difficult to invalidate in view of the Federal Circuit’s decision—especially in situations where it is unknown whether a compound is polymorphic at all and there are no concrete steps in the literature to definitively determine that such polymorphism exists.
PATENTS / COURT PROCEDURE
Obviousness Take Two
Mandy H. Kim
Finding that the district court improperly restricted a defendant’s ability to present the jury with relevant evidence of invalidity after a prior remand, the US Court of Appeals for the Federal Circuit vacated a district court’s final judgment as to validity and reversed its denial of the defendant’s motion for a partial new trial on validity. TEK Global, S.R.L. v. Sealant Sys. Int’l, Case No. 17-2507 (Fed. Cir. Mar. 29, 2019) (Prost, CJ).
TEK sued Sealant Systems International (SSI) alleging infringement of a patent directed to an emergency kit for repairing vehicle tires deflated by puncture. Following claim construction, the district court granted SSI’s motion for summary judgment of invalidity, finding the asserted claims obvious over two prior art references. TEK appealed the district court’s order, and the Federal Circuit reversed the district court’s construction of certain claim terms and its invalidity holding, and remanded the case back to the district court because SSI had not had an opportunity to make a case for invalidity in light of the Federal Circuit’s claim construction.
On remand, SSI again moved for summary judgment of invalidity on a new obviousness theory involving the same two prior art references. The district court denied SSI’s motion, finding that the Federal Circuit had already considered and rejected obviousness in light of these two prior art references. After a four-day trial, a jury found the asserted claims infringed and not invalid. Following trial, the district court denied SSI’s motion for a new trial on invalidity. SSI appealed.
The Federal Circuit reversed the denial of SSI’s motion for a partial new trial on validity, finding that the district court improperly restricted SSI’s efforts to present the jury with relevant evidence of invalidity. The Court explained that the district court should not have barred SSI from presenting to the jury other preserved obviousness theories based on arguments about the combination of the two prior art references that were not before the Federal Circuit in the first appeal. The Court explained that only one obviousness theory based on the two prior art references was raised in the first appeal, and only that obviousness theory was foreclosed on remand. The district court was directed to grant SSI a new trial limited to determining the issue of validity on an appropriate evidentiary record.
AMERICA INVENTS ACT
AIA / IPR / INSTITUTION DECISION
PTAB Refuses to Deny IPR Petitions Based on Parallel ITC Proceeding
Alexander P. Ott
Addressing an inter partes review (IPR) petition filed by respondents to an earlier-filed International Trade Commission (ITC) Section 337 investigation, the Patent Trial and Appeal Board (PTAB) declined to treat the petition as a “follow-on” to the ITC investigation and accordingly refused the patent owner’s request for a discretionary denial of institution. Samsung Elecs. Co., Ltd. et al. v. BiTMICRO LLC, IPR No. 2018-01545 (PTAB March 7, 2019).
In late 2017, BiTMICRO instigated an ITC investigation of Samsung Electronics and others for alleged infringement of four patents related to solid state hard drives (SSDs). Samsung responded by filing a district court action seeking a declaratory judgment of non-infringement and shortly thereafter filed IPR petitions challenging the validity of the asserted patents.
BiTMICRO responded to each IPR petition by requesting that the PTAB use its discretion to deny institution under Section 314(a). BiTMICRO argued that IPR proceedings would be a waste of resources because the same issues would be considered as part of the ITC investigation. BiTMICRO characterized the petitions as “follow-on” petitions and pointed to a passage in the PTAB’s trial guide that listed a parallel ITC investigation as a factor in favor of denying a petition. Samsung countered that the ITC’s decisions on validity would have no preclusive effect in any other forum and that the PTAB’s final written decisions would issue before final resolution of the ITC investigation.
The PTAB agreed with Samsung and instituted each of the IPRs. The PTAB relied on the fact that the ITC has no authority to invalidate patents and also refused to treat the petitions as follow-on petitions.
Joinder of Same Party Permitted Only in Limited Circumstances; Error Does Not Qualify
Setting precedent on whether a party may use joinder under § 315(c) to add new issues to its own petitions, the Precedential Opinion Panel (POP) of the Patent Trial and Appeal Board (PTAB) determined that in very limited circumstances, a party may join new issues to its own previously filed inter partes review (IPR) petition. Proppant Express Investments, LLC v. Oren Techs., LLC, Case No. IPR2018-00914 (Mar. 13, 2019) (Boalick, ACAPJ). Granting a request for rehearing, the POP resolved conflicting decisions on (1) whether a petitioner may be joined to a proceeding in which it is already a party, (2) whether § 315(c) permits joinder of new issues into an existing proceeding, and (3) whether the § 315(b) time bar may affect the first two questions.
Proppant Express Investments (PropX) filed a first IPR petition. After institution, PropX filed a second petition to add a new reference to correct “mistakes” in the prior petition. Because the second petition otherwise would have been time-barred, PropX filed a motion under § 315(c) for joinder with its first petition. The panel recognized a split among various PTAB decisions and held that § 315(c) was limited to joining new parties, and that a party was prohibited under § 315(c) from adding new issues to its earlier petitions (IP Update, Vol. 21, No. 12). PropX sought rehearing, and the POP granted rehearing to address the conflicting decisions.
The POP determined that § 315(c) allows for a petitioner to join a proceeding in which it is already a party and provides discretion for the PTAB to allow joinder of new issues into an existing proceeding. Reviewing the statute’s phrase “any person” in the context of the statute and congressional record, the POP declined to limit the interpretation to only those persons who are not already a party to a proceeding. The POP rejected the argument that consolidation of multiple petitions under § 315(d) was the only appropriate vehicle by which a party could seek joinder of its own petitions. The POP noted that joinder under § 315(c) and consolidation under § 315(d) provided two separate and distinct ways of managing parallel US Patent and Trademark Office proceedings, each having different requirements and limitations.
The POP also concluded that the time bar under § 315(b) is one of several factors that may be considered when the PTAB exercises its discretion under § 315(c). However, the POP noted that the PTAB should exercise its discretion only in limited circumstances—namely, where fairness requires it and to avoid undue prejudice to a party. Mistakes or omissions by a petitioner generally do not qualify. Other circumstances, such as actions taken by a patent owner in a co-pending litigation to add newly asserted claims, may be such a circumstance.
PATENTS / AIA / IPR / POST-SAS EFFECT ON PRE-SAS INSTITUTIONS
Partial Institutions Not Null and Void if Modified After Institution Deadline
| Paul St. Marie, Jr.
In a final written decision invalidating claims, the Patent Trial and Appeal Board (PTAB) held that it was proper to issue a modification of a timely pre-SAS institution order to include claims previously not included in the institution order, even where the modification order issued after the three-month statutory deadline to institute following the patent owner’s preliminary response. TomTom, Inc. v. Blackbird Tech, LLC, Case No. IPR2017-02023 at Dkt. No. 25 (PTAB March 11, 2019) (Stephens, APJ).
Prior to the Supreme Court of the United States decision in SAS, the PTAB instituted inter partes review (IPR) on some of the challenged claims of a patent subject to a petition. The institution order was issued within the three-month deadline to institute following the patent owner’s preliminary response. Following the decision in SAS, which eliminated the PTAB’s practice of partially instituting claims and grounds raised in petitions (IP Update, Vol. 21, No. 5), the PTAB amended its institution decision to add additional claims, as well as an additional ground of challenge from the petition. The patent owner argued that (1) the PTAB’s modification order “improperly attempts to address, without the statutorily-mandated rulemaking, how to govern a proceeding covering all challenged claims and all asserted grounds,” and (2) “the Board lacks authority to modify an unlawful institution decision once the statutory timeframe for issuing an institution decision has expired.”
The PTAB rejected the patent owner’s argument that modifying the institution decision constitutes improper rulemaking relating to 35 USC § 316 under the Administrative Procedures Act. The PTAB explained that it was not precluded under 37 CFR § 42.108(a) or 42.108(b) from modifying the institution order to include challenged claims that the PTAB initially determined were not reasonably likely to be determined invalid. The PTAB explained that while 37 CFR § 42.108(c) precludes institution unless the PTAB determines that a petition demonstrates a “reasonable likelihood that at least one of the claims challenged in the petition is unpatentable,” it does not prohibit institution on other challenged claims so long as petitioner has shown a likelihood of unpatentability of at least one claim.
The PTAB also dismissed the patent owner’s contention that the PTAB’s partial-institution decision was final, explaining that notwithstanding SAS making partial institutions improper, and despite the absence of new rules mandating institution on an asserted ground of unpatentability, even where petitioner does not demonstrate a reasonable likelihood of success with respect to at least one claim within a grounds for challenge, the PTAB is not prohibited from instituting on all claims as long as it finds that at least one claim is reasonably likely to be determined invalid on at least one asserted ground.
The PTAB rejected the patent owner’s assertion that modifying the institution order effectively reset the date of institution to a date beyond the three-month deadline following the preliminary patent owner response. The PTAB explained that the patent owner was mischaracterizing the appropriate SAS inquiry, which is simply a binary choice for the director to institute or not within the three-month timeline. The PTAB noted that the Supreme Court in SAS did not find the institution decision null and void, but instead remanded the case for review of all challenged claims. According to the PTAB, SAS thus “did not preclude a scope correction of an already instituted case . . . including corrections made after the due date for the PTAB to decide whether to institute review.” Accordingly, since IPR was timely instituted, the decision to later modify that decision to comport with SAS did not constitute an untimely institution.
Practice Note: For cases having pre-SAS institution decisions, patent owners should be aware that the institution decision may be modified after the statutory deadline to include previously non-instituted claims and grounds. As for petitioners, a failure to request a rehearing of a partially instituted decision does not make final the non-instituted grounds and claims under SAS.
Paul St. Marie, Jr., is a law clerk in the law firm of McDermott Will & Emery LLP and is based in Washington, DC. He focuses on intellectual property matters.
AIA / PTAB PROCEDURE (DECISIONS DESIGNATED AS PRECEDENTIAL)
PTAB Clarifies when Live Testimony at Oral Argument Is Permitted, and Motion to Amend Practice
The Patent Trial and Appeal Board (PTAB) designated as precedential four decisions addressing America Invents Act proceedings and issues of live testimony at oral argument and motions to amend under 35 USC § 316(d). Amazon.com, Inc. v. Uniloc Luxembourg S.A., Case No. IPR2017-00948, Paper 34 (PTAB Jan. 18, 2019) (designated Mar. 18, 2019); DePuy Synthes Prods., Inc. v. Medidea, L.L.C., Case No. IPR2018-00315, Paper 29 (PTAB Jan. 23, 2019) (designated Mar. 18, 2019); K-40 Elecs., LLC v. Escort, Inc., Case No. IPR2013-00203, Paper 34 (PTAB May 21, 2014) (designated Mar. 18, 2019); Lectrosonics, Inc. v. Zaxcom, Inc., Case No. IPR2018-01129, 01130, Paper 15 (PTAB Feb. 25, 2019) (designated Mar. 7, 2019).
DePuy Synthes Prods., Inc. v. Medidea, L.L.C.
The PTAB designated as precedential a decision denying a patent owner’s request to allow the inventor of the challenged patent to address the panel at oral hearing because the inventor had not provided any declaration in the proceeding and was not a counsel of record. Under the PTAB Trial Practice Guide, a party may rely upon evidence that has been previously submitted in the proceeding and may only present arguments relied upon in the papers previously submitted, and no new evidence or arguments may be presented at the oral argument. Because the inventor’s testimony would not have been based on previously submitted evidence, such as an inventor declaration, the inventor was not permitted to testify at the oral hearing.
K-40 Elecs., LLC v. Escort, Inc.
The PTAB designated as precedential an order granting a patent owner’s motion to present live testimony from its named inventor at the final oral argument. The PTAB noted that although it does not envision that live testimony will be necessary at many oral arguments, “under very limited circumstances, cross-examination of witnesses may be ordered to take place in the presence of an administrative patent judge,” such as “where the Board considers the demeanor of a witness critical to assessing credibility.” Rather than establishing a de facto or per se rule permitting live testimony in all disputes, the PTAB found that live testimony is necessary only in limited circumstances, so the PTAB will approach requests for live testimony on a case-by-case basis. The factors to be considered may include the importance of the witness’s testimony to the case, i.e., whether it may be case-dispositive, and whether the witness is a fact witness, since the credibility of experts often turns less on demeanor and more on the plausibility of their theories. The PTAB also cautioned that granting requests for live testimony was still exceptional.
Amazon.com, Inc. v. Uniloc Luxembourg S.A.
The PTAB designated as precedential a decision finding that 35 USC § 101 is a potential ground for denying proposed amended claims in an inter partes review. The PTAB found that the US Court of Appeals for the Federal Circuit’s decision in Aqua Products (IP Update, Vol. 19, No. 8) clarified that the patent owner does not bear the burden of persuasion on issues of patentability in a motion to amend, and found that Ariosa Diagnostic (IP Update, Vol. 19, No. 8) noted that the burden to show patentability of amended claims requires the patent owner to address § 101. The PTAB found that neither case prevents it from considering the patentability of amended claims under non-prior-art-based statutory provisions such as § 101.
Specifically, § 311(b) limits a petitioner to requesting cancellation of “1 or more [existing] claims of a patent” under § 102 and § 103, but does not limit the grounds of unpatentability that can be raised in response to proposed substitute amended claims presented in a motion to amend. 35 USC § 316(d) provides a patent owner the right to file a motion to amend, but does not prevent the PTAB from considering unpatentability under sections other than § 102 and § 103 with respect to substitute claims. Amended claims are only proposed claims until they are added following a final written decision and action of the director.
The PTAB has previously relied on provisions other than § 102 and § 103, such as 35 USC § 112 paragraphs 1 and 2, to evaluate amended claims for unpatentability and to find proposed substitute claims unpatentable as being indefinite or lacking written support. The PTAB recognized that § 101 issues can be introduced and corrected through a motion to amend and that Aqua Products did not divest the PTAB of the power to consider a § 101 challenge to proposed amended claims. The PTAB further found that under Aqua Products, the PTAB must “consider the entirety of the record before it when assessing the patentability of amended claims under § 318(a) and must justify any conclusions of unpatentability with respect to amended claims based on that record,” and also must “assess the patentability of all claims in the proceeding, including amended claims that have been entered into the proceeding after satisfying the requirements outlined in § 316(d), and must do so through the lens of § 316(e).”
Lectrosonics, Inc. v. Zaxcom, Inc.
The PTAB designated as precedential an order that provides the following general guidance regarding motions to amend.
1. Motions to amend may be contingent.
A motion to amend claims may cancel claims and/or propose substitute claims under 35 USC § 316(d)(1) and 37 CFR § 42.121(a)(3). A request to cancel claims will not be regarded as contingent, but a request to substitute claims ordinarily will be. Proposed substitute claim(s) will normally be considered only if a preponderance of the evidence establishes that the original patent claim that it replaces is unpatentable. The patent owner should specify the contingency of substitution on a claim-by-claim basis.
2. Burden of persuasion lies with petitioner.
The patent owner does not bear the burden of persuasion to demonstrate the patentability of substitute claims. Rather, petitioner must show that any proposed substitute claims are unpatentable by a preponderance of the evidence. The PTAB may also justify any finding of unpatentability by reference to evidence of record in the proceeding. The PTAB determines whether substitute claims are unpatentable based on the entirety of the record, including any opposition made by the petitioner, after determining whether the motion to amend meets the statutory and regulatory requirements of 35 USC § 316(d) and 37 CFR § 42.121.
3. Rebuttable presumption of one substitute claim per challenged claim.
Patent owner may rebut the presumption that a reasonable number of substitute claims per challenged claim is one substitute claim by demonstrating a need to present more than one substitute claim per challenged claim. The determination of whether the number of proposed substitute claims is reasonable is made on a claim-by-claim basis. The motion should, for each proposed substitute claim, specifically identify the original challenged claim that it is intended to replace.
4. Proposed claims must respond to an instituted ground of unpatentability.
Under 37 CFR § 42.121(a)(2)(i), “[a] motion to amend may be denied where . . . [t]he amendment does not respond to a ground of unpatentability involved in the trial.” The PTAB reviews the entirety of the record to determine whether a patent owner’s amendments respond to a ground of unpatentability involved in the trial. A proposed claim amended to address a prior art ground in the trial may also include additional limitations to address potential § 101 or § 112 issues, if necessary. Allowing such amendment, when a given claim is being amended already in view of a 35 USC § 102 or § 103 ground, serves the public interest by helping to ensure the patentability of amended claims, and helps ensure a “just” resolution of the proceeding and fairness to all parties. 37 CFR § 42.1(b).
5. Motion to amend may not enlarge the scope of the claims or introduce new subject matter.
A motion to amend may not present substitute claims that enlarge the scope of the claims of the challenged patent or introduce new subject matter, even in responding to an alleged ground of unpatentability. A proposed substitute claim may not remove a feature of the claim in a manner that broadens the scope of the claims of the challenged patent. A substitute claim will meet the requirements if it narrows the scope of at least one claim of the patent in a way that is responsive to a ground of unpatentability involved in the trial. A proposed substitute claim adding a novel and non-obvious feature or combination to avoid the prior art in an instituted ground of unpatentability will not enlarge the scope of the claims of the patent.
To avoid rejection under 35 USC § 112, a motion to amend must set forth written description support in the originally filed disclosure of the subject patent for each proposed substitute claim, and also must set forth support in an earlier-filed disclosure for each claim for which benefit of the filing date of the earlier filed disclosure is sought. The motion must also set forth written description support for each proposed substitute claim as a whole, and not just the features added by the amendment. If petitioner raises an issue of priority of a proposed substitute claim (e.g., based on art identified in the opposition), the patent owner may respond in a reply to the opposition.
6. Claim listing is required.
A motion to amend must include a claim listing reproducing each proposed substitute claim. Any claim with a changed scope subsequent to the amendment should be included in the claim listing as a proposed substitute claim, and should have a new claim number. The motion must show clearly the changes in each proposed substitute claim with respect to the original patent claim that it is intended to replace. Use of brackets to indicate deleted text and underlining to indicate inserted text is strongly suggested.
The claim listing may be filed as an appendix to the motion to amend, and shall not count toward the page limit for the motion, but shall not contain any substantive briefing. All arguments and evidence in support of the motion to amend shall be in the motion itself.
7. Page limitations and permissible evidence.
A motion to amend, as well as any opposition to the motion, is limited to 25 pages. A patent owner’s reply is limited to 12 pages. A petitioner’s sur-reply is limited to 12 pages. The parties may contact the PTAB to request additional pages or briefing.
Additional testimony and evidence may be submitted with an opposition to the motion to amend and with a reply. A reply or sur-reply may only respond to arguments raised in the preceding brief. Petitioner’s sur-reply should only respond to arguments made in a reply, comment on reply declaration testimony, or point to cross-examination testimony, and may not be accompanied by new evidence other than deposition transcripts of the cross-examination of any reply witness. Deadlines for submitting any motion to amend and responsive briefing may be stipulated by the parties, to the extent permitted by the instructions set forth in the scheduling order.
8. All parties have a duty of candor.
Under 37 CFR § 42.11, all parties have a duty of candor. Patent owner has a duty to disclose to the PTAB information of which the patent owner is aware that is material to the patentability of substitute claims (for each added limitation) if such information is not already of record in the case. Information about an added limitation may be material even if it does not include the rest of the claim limitations.
A petitioner has a duty of candor relative to relevant information that is inconsistent with a position advanced by the petitioner during the proceeding. Such information could include objective evidence of non-obviousness of proposed substitute claims, if a petitioner is aware that such evidence is inconsistent with a position it has advanced during the proceeding and the evidence is not already of record in the case.
AIA / DERIVATION PROCEEDING
A Window into PTAB Derivation Proceedings
In the first-ever final written decision in a post-American Invents Act (AIA) derivation proceeding, the Patent Trial and Appeal Board (PTAB) found that the petitioner had not shown that an inventor named in the respondent’s patent had derived the invention from the inventor named in the petitioner’s patent application. Andersen Corp. v. GED Integrated Solutions, Inc., Case No. DER2017-00007 (PTAB Mar. 20, 2019) (Arbes, APJ).
GED owns a patent directed to a spacer frame and fabrication process for use in an insulating glass unit. Insulating glass units are used in windows to reduce heat loss during cold weather and are typically formed by a spacer assembly sandwiched between glass panes. The named inventors on GED’s patent are William Briese and Clifford Weber. Andersen owns a patent application directed to an offset seam for an insulating glass unit and a method of use and manufacturing the same. The named inventor of Andersen’s patent application is Sammy Oquendo. Andersen filed a petition for derivation proceeding arguing that several years before GED filed its patent, Oquendo had conceived of the inventions claimed in GED’s patent and communicated them to multiple employees at GED. The PTAB instituted on Andersen’s petition.
After a trial, the PTAB held that Andersen did not demonstrate that an inventor named in GED’s patent derived any of the claimed inventions from Oquendo. To show derivation under the AIA, Andersen was required to establish by a preponderance of the evidence (1) prior conception of the claimed subject matter and (2) communication of the conception to an inventor of the other party. The dispositive issue in the proceeding was whether Andersen had proven that Oquendo conceived of a spacer frame with a “stop” spaced away from the corners of the frame, as required by GED’s patent claims, and communicated that conception to a named inventor on the GED patent.
The PTAB found that while Oquendo conceived of a spacer frame with a stop, he never communicated that concept to anyone at GED. Although there was undisputed evidence in the record that Oquendo had numerous discussions with the named inventors about window frames, and even provided the named inventors with a prototype, the PTAB found no evidence that Oquendo ever communicated anything about a frame with a stop being away from the corner. The PTAB also noted there was sufficient documentary evidence that Briese had independently conceived of the stop feature for the spacer frame claimed in GED’s patent. As a result, the PTAB found that because Andersen had not established that Oquendo had communicated the claimed stop position to the named inventors, Andersen had not proven derivation.
TRADEMARKS / TRANSFER OF OWNERSHIP
Vested Rights Clause Restores Trademark to Original Applicant
Eleanor B. Atkins
Addressing the issue of trademark ownership under since-terminated development and commercialization agreements, the US Court of Appeals for the Third Circuit reversed in part and affirmed in part, finding that under a “vested rights” clause, there was no transfer of a trademark under a later assets purchase agreement, and the original applicant remained the rightful owner of the trademark. Sköld v. Galderma Laboratories L.P., Case Nos. 17-3148, -3231 (3d Cir. Feb. 28, 2019) (Jordan, J).
Sköld invented a proprietary drug-delivery system for skincare products that he called “Restoraderm.” He began searching for a development partner and, in 2001, signed a letter of intent with CollaGenex for the co-development of skincare product. This letter stated that “[a]ll trade marks associated with the drug delivery system; the proposed intellectual property; products deriving therefrom and products marketed or to be marketed by CollaGenex and/or any commercial partner of CollaGenex anywhere in the world shall be applied for and registered in the name of CollaGenex and be the exclusive property of CollaGenex.” Shortly thereafter, in 2002, the parties signed a Co-Operation, Development and Licensing Agreement, which further stated that “[a]ll trade marks applied for or registered (including ‘Restoraderm’) shall be in the sole name of CollaGenex and be the exclusive property of CollaGenex during the Term and thereafter.” Importantly, this 2002 agreement also included a clause stating that vested rights would survive the termination of the agreement.
Following execution of the 2002 agreement, CollaGenex filed an application to register the RESTORADERM trademark with the US Patent and Trademark Office. Two years later, the parties entered into an Asset Purchase and Product Development Agreement, which replaced the 2002 agreement, but, unlike the 2002 agreement, did not explicitly address trademarks. In 2008, Galderma bought CollaGenex and shortly thereafter terminated the 2004 agreement with Sköld. Galderma ceased use of Sköld’s technology but continued to market certain products under the RESTORADERM mark. Sköld requested that Galderma return certain assets, including the RESTORADERM trademark, and after Galderma refused, Sköld sued for trademark infringement, unfair competition, false advertising, breach of contract, unfair competition and unfair enrichment.
Galderma moved for summary judgment, arguing that Sköld did not own the RESTORADERM trademark and therefore all of his claims must fail. The district court denied summary judgment, finding that the 2004 agreement voided any rights Galderma might have had in the mark under the 2002 agreement, and allowed the case to proceed to trial to determine ownership of the mark under certain provisions in the 2004 agreement. At trial, the jury decided that Sköld owned the mark and that he had proven unjust enrichment, but had failed to prove infringement, unfair competition, false advertising and breach of contract. Both parties appealed.
On appeal, the Third Circuit held that Galderma was the rightful owner of the RESTORADERM mark, stating that “the 2002 Agreement unambiguously provided for the transfer of the mark to Galderma’s predecessor in interest, CollaGenex.” Moreover, CollaGenex’s rights in the RESTORADERM trademark vested when the mark achieved registration, and, therefore, given the 2002 agreement’s survivorship clause for vested rights, CollaGenex (now Galderma) was the rightful owner: “Even assuming that the 2004 Agreement completely superseded the 2002 Agreement, it did nothing to disturb those vested rights. The ownership issue should not have gone to the jury.”
TRADEMARKS / FALSE ADVERTISING / DISGORGEMENT
Willful False Advertiser Not Subject to Disgorgement of Profits or Injunctive Relief
The US Court of Appeals for the Fifth Circuit affirmed a district court ruling that the defendant need not disgorge its profits or be subject to any further injunction, despite a jury finding that it had willfully falsely advertised its products for many years and profited from its deception. Retractable Technologies, Inc. v. Becton Dickinson & Company, Case No. 17-40960 (5th Cir. Mar. 26, 2019) (Higginbotham, J) (Graves, J, dissenting). The Court explained that the partial injunctive relief ordered by the district court at an earlier phase of the case and already carried out was sufficient to prevent future harm, and thus a further injunction was unwarranted. The Court also found that although some of defendant’s profits were the result of the false advertising, the plaintiff had not proved that those profits had come at the expense of the plaintiff’s profits, and thus disgorgement was not required under equity.
Initial District Court Proceeding
Retractable Technologies, Inc., (RTI) sued Becton Dickinson & Company for false advertising and antitrust violations resulting from Becton’s marketing of its “safety syringe” products, a type of syringe that automatically retracts the needle into the body after the syringe is used, to prevent injury to health care workers from accidental needlesticks. Both RTI and Becton, as well as two other competitors, sell safety syringes. Becton had falsely advertised its safety syringes as having the “world’s sharpest needle” (a proxy for patient comfort) and for having less “waste space” in its syringes than RTI’s syringes (which meant that less medicine was wasted in each use).
The jury found Becton liable on both the antitrust and false advertising claims, and awarded $113.5 million in damages for the antitrust violations. The district court trebled that figure to $352 million pursuant to the antitrust statute. The district court also found that equity favored disgorgement of Becton’s profits under the Lanham Act, but found that these profits were subsumed in the $352 million figure.
Finally, the district court issued an injunction to remedy the false advertising and antitrust claims. The injunction required Becton to immediately cease making false claims; notify various entities, including both sellers and purchasers of syringes, of the falsity of its claims; and re-train its employees and distributors. Becton asked the district court to stay the injunction pending appeal, but the district court stayed only the part of the injunction that required Becton to notify its “end users,” such as hospitals and health care providers, of the falsity of its claims. Becton complied with the remainder of the injunction.
First Fifth Circuit Appeal
Becton appealed the district court’s finding of antitrust liability, and the Fifth Circuit reversed, finding the antitrust claim legally insufficient. The Court vacated the $352 million dollar damages award, as well as the injunction, finding that it was at least partly based on the now-vacated antitrust claim.
In addressing the disgorgement issue, the Fifth Circuit agreed that “at least some part of [Becton’s] profits were attributable to the false advertising”; that Becton had willfully deceived customers; and that laches did not bar RTI’s claims. The Court remanded the disgorgement issue to the district court to determine whether and how much Becton should be required to disgorge for the Lanham Act violations.
On remand, the district court held a one-day bench trial and found that equity did not favor any disgorgement. The court also did not reinstate any part of the injunction. RTI appealed.
New Fifth Circuit Decision
In a split decision, the Fifth Circuit affirmed the district court’s holding. Regarding the injunction, the court agreed that the remedial steps that Becton had taken over the two years between the district court’s initial decision and when the Fifth Circuit vacated the injunction—including removing the false advertising from its marketing materials; notifying and re-training its employees, distributors and major purchasing groups to cease making the false claims; and posting a notice on its website—were sufficient to remedy any injury or threat of injury to RTI. RTI had not proved that the sole portion of the injunction that had been stayed (notification of end users) was necessary to prevent future harm.
Regarding the district court’s denial of disgorgement, the Fifth Circuit held that the district court was correct in finding that even though some of Becton’s profits were attributable to its false advertising claims, RTI had not shown that its own sales were diverted as a result of these false claims—despite the fact that Becton’s advertising disparaged RTI’s syringes. Specifically, RTI had not shown that a single customer saw Becton’s advertising and as a result chose to purchase Becton’s, rather than RTI’s, syringes. The Court noted that RTI and Becton were not the only competitors in the safety syringe market—there were two others as well, and RTI’s market share was only 6%. Furthermore, RTI’s market share had actually risen during the period when the false advertising was being distributed.
In dissent, Judge Graves explained that he thought the district court had erred in reweighing the diversion factor and in finding insufficient evidence of disgorgement. Graves would have remanded the case back to the district court.
Practice Note: Even though RTI demonstrated that Becton had profited from its false advertising (thus establishing liability), RTI did not prove that its own sales had been diverted (thus failing to prove its tangible harm and entitlement to an equitable remedy). The Fifth Circuit refused to presume diversion based on the jury finding that Becton’s deceit was willful, noting that such a presumption would conflate liability with entitlement to damages and constitute “an unjustified windfall” for RTI. The injunctive relief RTI had already received before the injunction was vacated was sufficient remedy for the harms caused to RTI by Becton’s willful false advertising.
RTI appears to be seeking rehearing of the Fifth Circuit’s opinion; it has obtained an extension of time to file its petition.
A plaintiff seeking disgorgement under the Lanham Act should plan to put on evidence of its lost sales attributable to the defendant’s Lanham Act violations, including thorough testimony of consumers who, as a result of defendant’s violations, purchased defendant’s products rather than plaintiff’s products. This is especially important if the plaintiff and defendant are not the sole competitors in the marketplace. The principles in this case will likely be applied by district courts in the Fifth Circuit to all Lanham Act cases, not just those involving false advertising.
COPYRIGHTS / DIRECT INFRINGEMENT / FAIR USE
Picture This: No Direct Infringement but No Fair Use Either
Addressing the use of third-party photographs on a real estate listing website, the US Court of Appeals for the Ninth Circuit found no direct copyright infringement, notwithstanding the display of thousands of copyrighted photographs. VHT, Inc. v. Zillow Group, Inc., Case No. 17-35587, -35588 (9th Circ. Mar. 15, 2019) (McKeown, J). The Court also concluded that making photographs searchable was not transformative and thus did not support a fair use defense.
Real estate brokers, agents and listing services hire VHT to take professional photos of new real estate listings for marketing purposes. VHT takes the photos, touches them up, saves them in the studio’s database and then delivers them to its clients for use under a license. The license authorizes use of the photos in relation to the sale of the property. Zillow used VHT’s photos to display images of current and expired home listings on its real estate website, known as the listing platform. Zillow also used the photos on its Digs website, which focuses on home renovation and interior design.
In 2015, VHT sued Zillow for copyright infringement, alleging that Zillow’s use of the photos on its listing platform and Digs sites exceeded the scope of licenses that VHT provided to its licensees who in turn provided the photos to Zillow. VHT alleged that Zillow directly infringed its copyrights by displaying photos after the property sold. Zillow argued that it received the photos via feed providers that represented that they had all the necessary authority to grant rights to Zillow that would allow it to use the photos without violating any third-party intellectual property rights. VHT alleged that Zillow designed its software to cause the reproduction of the photos post-sale on the listing platform.
The district court concluded that Zillow had not engaged in volitional conduct and therefore did not directly infringe VHT’s copyrights by displaying more than 54,000 photos on its listing platform. It also granted Zillow partial summary judgment of non-infringement. On the remaining claims of direct, indirect and willful infringement for Zillow’s use of the photos on Digs, a jury found in favor of VHT and awarded $8.27 million in damages. The district court, however, reversed part of the jury verdict on the majority of photos and reduced total damages to approximately $4 million. VHT appealed the non-infringement finding relating to the listing platform, and Zillow appealed the infringement finding relating to Digs.
On appeal, the Ninth Circuit agreed with the district court, concluding that Zillow did not directly infringe VHT’s copyrights by using the photos on its listing platform. The Court pointed out that direct copyright infringement requires active involvement in the infringement. Since VHT failed to demonstrate that Zillow exercised any control over the material, selected any material for transmission, or instigated any copying or distribution of the photos, it could not be held liable for direct infringement.
Zillow asserted that the fair use defense insulated it from liability on the remaining photos for which it had been found liable on its Digs site, arguing that Digs’ searchable functionality constitutes fair use. At issue was whether Zillow’s tagging of 3,921 VHT photos for searchable functionality on Digs was transformative and thus supported a finding of fair use. The Ninth Circuit rejected Zillow’s argument, noting that making the images searchable did not fundamentally change their original purpose when produced by VHT, which was to artfully depict rooms and properties. Finding limited transformation, the Court affirmed the district court’s grant of summary judgment.
Addressing damages, the Court found there remained an issue as to whether the photos were a compilation or whether each individual photo was entitled to a separate damages award. Since there were thousands of photos, and there was no explicit determination on compilation, the Court remanded the issue to the lower court to make the determination.