En Banc Court Ties On-Sale Bar to Commercial Sale in Accordance with Uniform Commercial Code
In a unanimous en banc decision, the US Court of Appeals for the Federal Circuit established the circumstances under which a product manufactured according to product-by-process claims is invalid under the “on-sale bar” of 35 USC § 102(b). The Medicines Co. v. Hospira, Inc., Case Nos. 14-1469; -1504 (Fed. Cir., July 11, 2016) (O’Malley, J). In order for a commercial transaction to trigger the on-sale bar and invalidate the challenged claims, it must “bear the general hallmarks of a sale pursuant to Section 2-106 of the Uniform Commercial Code.”
The Medicines Company (MedCo) brought a patent case under the Hatch Waxman Act against Hospira for patents covering the brand name drug Angiomax. Following a bench trial, the Federal Circuit reversed the district court’s finding that the claims were not invalid based on the legal conclusion that commercial exploitation prior to the critical date triggered the on-sale bar. The full court revisited the panel decision, but this time affirmed the district court’s conclusion that the transactions with a contract manufacturer did not trigger the on-sale bar. The full court remanded all remaining issues to the merits panel, including open questions related to claim construction, non-infringement and whether an agreement with MedCo’s distributor separately constituted an invalidating sale under § 102(b).
MedCo operates as a specialty pharmaceutical company that is not capable of manufacturing its products in-house. Instead, MedCo prepared the active pharmaceutical ingredient and contracted with Ben Venue Laboratories to manufacture commercial quantities of the finished pharmaceutical. More than one year before the priority date, MedCo paid Ben Venue $347,500 to manufacture three batches of the pharmaceutical according to the patents-at-issue (claims directed to a product made by a process that uses a pH-adjusting agent as well as the pH-adjusted product). Hospira argued during the litigation that the on-sale bar was triggered when MedCo paid Ben Venue to manufacture Angiomax before the critical date.
The full Federal Circuit, like the district court, began by applying the two-step framework as explained in the 1998 Supreme Court of the United States case Pfaff v. Wells Electronics, Inc. Under Pfaff, the on-sale bar is triggered where the claimed invention was (1) the subject of a commercial offer for sale and (2) ready for patenting. The Federal Circuit did not reach the second prong, focusing exclusively on whether the transactions between MedCo and Ben Venue were commercial offers for sale. The Federal Circuit rejected Hospira’s argument that MedCo’s transactions with Ben Venue were a commercial sale under § 102(b) because the companies benefitted from the commercial arrangement. Tracing its own precedent since Pfaff, the Court explained that assessment of what constitutes a commercial offer for sale must focus on activities that would be understood to be commercial sales and offers for sale “in the commercial community.” Indeed, as a general proposition, the Court looks to the Uniform Commercial Code to decipher whether the circumstances rise to the level of a commercial offer for sale.
The Federal Circuit explained that the facts presented in this case did not trigger the on-sale bar for the following reasons:
- Only manufacturing services—not the invention itself—were sold to the inventor.
- The inventor maintained control of the invention, as shown by the retention to title to the embodiments and absence of any authorization to Ben Venue to sell the products to others.
- “Stockpiling” of inventory is an act of preparation for commercial sales but does not, standing alone, constitute a “commercial sale” when no offer has yet been made.
Importantly, the Federal Circuit analyzed the significance of the type of claim at issue in this case, clarifying that the disposition might be different where the claims were directed to a process or method instead of a patented product.
Practice Note: The Federal Circuit’s analysis provided ample commentary that may inform future interactions between a patent holder and a contract manufacturer. For example, the Federal Circuit clarified that the passage of title is a “helpful indicator” as to whether a product is “on sale,” but declined to create a bright line rule or attach “talismanic significance” to any one factor when determining whether there has been a commercial offer for sale; the best guidepost in analyzing the on-sale bar is the Uniform Commercial Code’s definition of “sale.” As a practical matter, however, the Federal Circuit emphasized a desire for coherency in the application of its precedent. Adopting the view of amici in the biotechnology and pharmaceutical sectors, the Federal Circuit indicated that attaching the on-sale bar based on the facts of this case would penalize those companies without manufacturing capabilities—presenting costs and difficulties in the drug development process that might deter future investments in innovation. The applied rationale aims to provide equal treatment and a single set of rules to all companies engaging in pre-commercial activities.
Although the Federal Circuit’s decision applies a pre-America Invents Act (AIA) version of the on-sale bar in 35 USC § 102(b), the rationale likely also applies to post-AIA patents. An open question remains as to whether contractual activity is disqualified as an on-sale bar when done under the cover of secrecy rather than in public view. In a pending appeal, Helsinn v. Teva, Case No. 16-1284, the Federal Circuit will be asked to decide, under the AIA, whether “on-sale” activity is limited to activity that is “available to the public.”
PATENTS / WILLFUL INFRINGEMENT / PERMANENT INJUNCTION
First Application of Supreme Court’s Halo Willfulness Framework
In its first post-Halo decision on willful infringement, the US Court of Appeals for the Federal Circuit unanimously affirmed the district court’s award of enhanced damages in WBIP LLC v. Kohler Co., Case Nos. 15-1038; -1044 (Fed. Cir., July 19, 2016) (Moore, J). The panel concurrently vacated and remanded the district court’s denial of a permanent injunction.
The patents-in-suit cover marine engine exhaust systems that are designed to reduce carbon monoxide emissions. WBIP owns the patents following assignment from its parent entity, Westerbeke. Westerbeke and defendant Kohler are competitors that both manufacture and sell marine generators for houseboats. Prior to the claimed inventions, there was a known problem with carbon monoxide poisonings on houseboats. The asserted patents disclose technology that reduces the amount of carbon monoxide released in the exhaust by using a particular catalyst and electronic fuel injection. After applying for the patents, Westerbeke brought to market a product that incorporated the claimed technology as a low-carbon-monoxide generator. Westerbeke demonstrated the product to two Kohler employees at a trade show. About a year later, Kohler launched its own competitive low-carbon-monoxide generators.
Some years later, WBIP sued Kohler for patent infringement. In the ensuing jury trial, Kohler defended that the asserted claims were invalid for obviousness and for lack of written description. The jury found in WBIP’s favor, including determinations that the infringement was willful and that Kohler had not proven invalidity. After the verdict, the district court granted remittitur, reducing the damages award from $9.6 million to $3.7 million. The district court denied Kohler’s motions for judgment as a matter of law (JMOL) that the infringement was not willful, and that the asserted claims would have been obvious and lack written description. The district court also enhanced damages by 50 percent under 35 USC § 285 (using the Federal Circuit’s previous two-part Seagate test) and denied WBIP’s request for a permanent injunction. Kohler appealed the liability issues, and WBIP cross-appealed the denial of an injunction.
On appeal, the Federal Circuit affirmed the denial of JMOL on the invalidity questions, emphasizing the evidence that supported the jury’s verdict. On the obviousness question, the panel examined the legal conclusion de novo, focusing on the secondary considerations of non-obviousness. Here, not only did the objective evidence of non-obviousness overcome Kohler’s prima facie showing of obviousness, but WBIP sufficiently established a nexus between the objective evidence and the merits of the claimed invention.
Kohler’s willfulness challenge was premised on a legal theory that pre-dated the Supreme Court of the United States’ guidance in Halo Electronics v. Pulse Electronics and Stryker v. Zimmer (IP Update, Vol. 19, No. 6). Kohler had argued that its invalidity defenses were objectively reasonable. The Federal Circuit rejected this position as untenable under Halo. Prior to Halo, accused infringers could escape liability for willful infringement based on proof of an objectively reasonable litigation defense. Post-Halo, litigation positions cannot insulate an accused infringer from earlier culpable conduct. The Federal Circuit reiterated that “timing does matter” and that the appropriate assessment for culpability is whether Kohler had knowledge of its litigation at the time of the challenged conduct.
Kohler further argued that the jury’s verdict of willful infringement should be overturned because the record did not contain substantial evidence that Kohler knew about the patents at the time of the infringing activities. The Federal Circuit disagreed, pointing out that Kohler did not contest that it had pre-suit knowledge of the patents and that the jury had “record evidence upon which it could have inferred knowledge of the patents at issue, and thus its finding is supported by substantial evidence.” The analysis reaffirmed that there is a right to a jury trial on the willfulness question.
After affirming that the district court did not abuse its discretion in enhancing damages by 50 percent, the Federal Circuit found that the district court did abuse its discretion in denying WBIP a permanent injunction. Indeed, the district court had tied its analysis to only the public interest factor, but had not addressed the factors of likelihood of success, irreparable harm or the balance of hardships. The district court had reasoned that the public interest factor weighed against an injunction because WBIP was a much smaller manufacturer than Kohler and the consuming public would benefit from two manufacturers of a potentially life-saving product. Comparing the inventions in this case to potentially life-saving inventions in the pharmaceutical context, the Federal Circuit disagreed with this reasoning, explaining that in nearly every situation involving a life-saving product, the public would benefit from having more manufacturers. The Court noted that limiting the injunction analysis to only the public interest would create a categorical rule that is inconsistent with the Supreme Court’s guidance in eBay v. MercExchange and does not account for the public’s interest in upholding patent rights. The judgment denying the permanent injunction was remanded for a more thorough analysis of the eBay factors.
Practice Note: This case demonstrates that a finding of willful infringement can have severe consequences. The Federal Circuit’s analysis suggests than an effective tool to rebut a claim of willful infringement is to timely seek the advice of counsel. When such advice is sought, counsel should render an opinion as to the strength of future defenses such as non-infringement, invalidity and enforceability as soon as there is knowledge of a problematic patent.
PATENTS / § 101 ELIGIBILITY / BIOTECHNOLOGY
When Applying Alice, Evaluate the Invention as a Whole
Addressing for the first time eligibility issues under 35 USC § 101 for a method of preserving organ cells, the US Court of Appeals for the Federal Circuit reversed the district court’s ruling that the claims were directed to a patent-ineligible law of nature. Rapid Litigation Management Ltd. v. CellzDirect, Inc., Case No. 15-1570 (Fed. Cir., July 5, 2016) (Prost, J).
The patent at issue was directed to an improved process of preserving hepatocytes, a type of liver cell. Hepatocyte preparations are useful in a variety of research, diagnostic and therapeutic contexts. The prior art preservation process was limited to a single freeze/thaw cycle, as conventional wisdom held that a single cycle was all that the cells could withstand. As a result, it was difficult to produce multi-donor pools of cells using the prior art process. The inventors discovered that a portion of the liver cells in a preparation could withstand an additional freeze-thaw cycle, and they used this knowledge to design an improved preservation process.
The district court concluded that the claims were not patent eligible under the Supreme Court Alice decision (IP Update, Vol. 17, No. 7) With respect to step one of Alice, the district court concluded that the claims were directed to an “an ineligible law of nature: the discovery that hepatocytes are capable of surviving multiple freeze-thaw cycles.” The district court also found that the claims lacked the “inventive concept” required by step two of Alice, because the claimed steps were well known in the art. The patent owners appealed.
The Federal Circuit disagreed on both parts of the analysis. Addressing the first step of Alice, the Federal Circuit found that the claims were “directed to a new and useful laboratory technique,” not a law of nature. The Court cautioned that “it is not enough to merely identify a patent-ineligible concept underlying the claim; we must determine whether that patent-ineligible concept is what the claim is ‘directed to.’” While acknowledging the inventors’ discovery of a natural phenomenon (the ability of cells to survive multiple freeze-thaw cycles), the Court noted that the inventors did not stop there. Instead, they “employed their natural discovery to create a new and improved way of preserving hepatocyte cells for later use.” The Court emphasized that the invention resulted “in a preparation that is both new and vastly more useful for research than hepatocyte preparations made by conventional methods.”
The Federal Circuit also explained that even if the claims in issue were directed to a law of nature, they still would be patent eligible under step two of Alice. “Under step two, claims that are ‘directed to’ a patent-ineligible concept, yet also ‘improve an existing technological process,’” pass muster under § 101 because they achieve an “inventive application of the patent-ineligible concept.” Here again the Federal Circuit concluded that the “claimed method is patent eligible because it applies the discovery that hepatocytes can be twice frozen to achieve a new and useful preservation process.” The Court also emphasized the need to consider the invention as a whole, because “a new combination of steps in a process may be patentable even though all the constituents of the combination were well known . . . .” As the Court explained, “[t]o require something more at step two would be to discount the human ingenuity that comes from applying a natural discovery in a way that achieves a ‘new and useful end.’”
Practice Note: On July 14, 2016, the US Patent and Trademark Office (PTO) issued a memorandum to its examiners, noting that the Rapid Litigation Management decision does not change the subject matter eligibility framework and is consistent with the PTO’s current subject matter eligibility guidance. Rapid Litigation Management does, however, highlight several important points regarding the subject matter eligibility analysis, in particular regarding whether a claim is directed to a law of nature. According to the PTO, because the claims in Rapid Litigation Management were focused on the process for achieving a desired outcome, the Federal Circuit determined that they, like thousands of other claims that recite methods of producing things or methods of treating disease, were not directed to a judicial exception. The PTO also explained that claims applying a law of nature are distinguishable from patent-ineligible concepts that merely observe or identify the patent-ineligible law of nature.
PATENTS / § 101 ELIGIBILITY / SOFTWARE
Specific, Discrete Implementation of Abstract Idea Is Patent Eligible
Alexander P. Ott
Once again addressing patent eligibility of software patent claims, the US Court of Appeals for the Federal Circuit this time reversed a finding of ineligible subject matter based on the Alice step two inventive concept inquiry. BASCOM Global Internet Servs., Inc. v. AT&T Mobility LLC, Case No. 15-1763 (Fed. Cir., June 27, 2016) (Chen, J) (Newman, J, concurring).
BASCOM sued AT&T for infringement of BASCOM’s patent on remotely filtering internet content using a server maintained by the internet service provider, where the filtering is customized for each user. AT&T moved to dismiss the case, arguing patent ineligibility of the claimed subject matter. The district court granted the motion, concluding that the claims were directed to the abstract idea of filtering content (Alice step one) and finding no inventive concept because both the filtering software and the individual computer components recited in the claims were known in the prior art (Alice step two). BASCOM appealed.
On the first step of the Alice analysis—whether the claims are directed to an abstract idea—the Federal Circuit concluded that it was a close call and deferred consideration of the issue, moving directly to step two and examining whether the claim included “specific claim limitations” that narrowed the (possibly) abstract idea. On this issue, the Court concluded that the evidence was insufficient to find the claims ineligible at the motion to dismiss stage.
The Federal Circuit agreed with the district court’s analysis that the claim elements, taken individually, recited only “generic computer, network and internet components.” The Court disagreed, however, as to whether the ordered combination of those elements recited only “well-understood, routine and conventional activities.” The Federal Circuit likened the analysis to an obviousness analysis without any reasons to combine. The Court went on to explain its view that the claims were directed to a specific and discrete filtering implementation that amounted to a technological improvement over the prior art.
The Court next addressed the parties’ battle of prior case analogies, where BASCOM had analogized its claims to those found eligible in the Court’s DDR opinion (IP Update, Vol. 18, No. 1), while AT&T attempted to analogize the more numerous opinions that went the other way. The Federal Circuit agreed with BASCOM that the claims were akin to those in DDR by covering a technology-based solution that improves the performance of the computer itself. It then distinguished its OIP opinion (IP Update, Vol. 18, No. 7), which found that the claims in issue merely automated traditional techniques using generic computer components, and also distinguished four other recent opinions that turned on preemption of the abstract idea.
Judge Newman concurred in the result but wrote separately to complain about separate eligibility and patentability determinations leading to increased costs and uncertainty with no corresponding benefit. She urged a more flexible approach with an initial patentability determination to moot eligibility questions.
PATENTS / AIA / PRIMA FACIE OBVIOUSNESS
Federal Circuit Rebukes PTAB for Shifting Burden of Proof to Patentee in IPR
Reaffirming the petitioner’s burden of proof codified in 35 USC § 316(e), the US Court of Appeals for the Federal Circuit reversed the decision of the Patent Trial and Appeal Board (PTAB or Board) finding the patent owner’s challenged claims invalid. In re: Magnum Oil Tools International, Ltd., Case No. 15-1300 (Fed. Cir., July 25, 2016) (O’Malley, J).
McClinton Energy Group challenged Magnum’s patent in inter partes review (IPR). After the PTAB held all challenged claims invalid as obvious, Magnum appealed. As part of a settlement agreement with Magnum, McClinton agreed not to participate in the appeal. The US Patent and Trademark Office (PTO) intervened on behalf of the PTAB.
Notwithstanding that intervention, the Federal Circuit noted that it may review a PTAB final written decision even if such decision relies on determinations made in the institution decision. Citing its precedent in Versata (IP Update, Vol. 18, No. 8), the Court explained that it “[has] jurisdiction to review determinations made during institution that are subsequently incorporated into the Board’s final written decision.” The Court also noted that Magnum was not required to request a rehearing from the PTAB prior to filing an appeal (from a final written decision that relies on the institution decision).
As to the merits of Magnum’s appeal, the Federal Circuit found that the PTAB erred in shifting the burden of proof on obviousness from the petitioner to the patent owner. Section 316(e) states that “[i]n an inter partes review . . . the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.” The Court separately addressed the underlying burdens of persuasion and production.
Regarding the burden of persuasion, the Federal Circuit cited its decision in Dynamic Drinkware (IP Update, Vol. 18, No. 10) that “the burden of persuasion . . . never shifts to the patentee.” Regarding the burden of production, the Court found that the PTO erred in finding that institution of the IPR shifted the burden of production from the petitioner to the patent owner, explaining that because the burden of persuasion remains with the petitioner, shifting the burden of production to the patent owner would create confusion. The Court further found burden shifting inappropriate in light of the different analyses and standards applied during institution versus the final written decision
Under the proper allocation of burdens, the Federal Circuit concluded that the PTAB had no basis for finding that McClinton had met its burden of proving obviousness. The Court found the final written decision replete with examples where the PTAB improperly shifted the burden to the patent owner to disprove obviousness. In one example cited by the Court, McClinton provided no analysis for why a combination of references rendered the claims invalid, yet the PTAB faulted Magnum for not explaining why McClinton’s analysis regarding a different combination of references did not apply. The Court stated that the need for separate analysis between the various combinations was evidenced by the PTAB’s decision to institute only on the first ground asserted, but not the second.
The Federal Circuit explained that the PTAB erred by adopting arguments that could have been, but were not, raised by the petitioner. The Court ultimately concluded that the PTAB failed to articulate a sufficient rationale for why a skilled artisan would have sought to combine the asserted prior art to achieve the claimed invention.
Practice Note: In America Invents Act proceedings, the PTAB is not permitted to raise arguments that “could have been, but were not, raised by the petitioner.” In light of strict page limits, a petitioner wishing to assert multiple combinations of references should consider filing separate petitions to allow space for development of all arguments.
PATENTS / APPEAL / REEXAMINATION
Prevailing Party Before PTAB May Not Appeal
Addressing the right of a prevailing party to appeal a favorable decision, the US Court of Appeals for the Federal Circuit dismissed an appeal of a case from the Patent Trial and Appeal Board (PTAB or Board) and ruled that the prevailing party could not appeal the PTAB’s final decision based on dissatisfaction with the PTAB’s reasoning on claim construction. SkyHawke Technologies LLC v. Deca International Corp., Case No. 16-1325; -1326 (Fed. Cir., July 15, 2016) (Taranto, J).
SkyHawke owns a patent related to a GPS device for use by golfers to measure the distance to a hole, and asserted this patent against cross-appellant Deca. Deca challenged the asserted claims in an inter partes reexamination, and the district court stayed the case. During reexamination, Deca argued that the claims were invalid as being obvious in view of a combination of prior art references. The examiner disagreed, and Deca appealed to the PTAB.
The PTAB affirmed the examiner’s conclusion of validity. As part of its analysis, however, the PTAB construed a means-plus-function phrase appearing in one of the claims, identifying particular algorithms in the patent as providing the corresponding structure. SkyHawke did not agree with the PTAB’s construction and, despite the validity finding, appealed to the Federal Circuit. At the Federal Circuit, SkyHawke requested correction of the PTAB’s claim construction and affirmance of the PTAB’s ultimate decision as to validity. According to SkyHawke, the claim construction was too narrow and could be used against it in its ongoing district court case against Deca. Deca moved to dismiss the appeal for lack of jurisdiction.
The Federal Circuit declined to deviate from its standard rule against review of prevailing party appeals. The Court reasoned that because SkyHawke had prevailed before the PTAB and was not appealing the judgment itself, SkyHawke could not appeal the underlying reasoning that led to the judgment. The Court also rejected SkyHawke’s argument that the appeal was proper because a section of the patent statute provides that a patent owner who is “dissatisfied with the final decision” may appeal to the Court. The Court noted that the phrase “final decision” does not refer to the PTAB’s opinion or reasoning, but rather to its determination that the claims were valid. Since SkyHawke agreed that the claims were valid, it could not be dissatisfied with the PTAB’s final decision.
Finally, the Court noted that SkyHawke’s concerns were unjustified, as it will have an opportunity to argue its preferred claim construction at trial. If SkyHawke does not prevail at trial, it will have an opportunity to appeal any unfavorable decision at that time.
PATENTS / PERSONAL JURISDICTION
Concerted Actions with Sister Company in Finland Result in Delaware Jurisdiction
Addressing personal jurisdiction over a foreign defendant, the US Court of Appeals for the Federal Circuit found that concerted actions occurring in a foreign jurisdiction but directed at Delaware were sufficient minimum contacts to satisfy due process under the Delaware long arm statute. Polar Electro Oy v. Suunto Oy, Case No. 15-1930 (Fed. Cir., July 20, 2016) (Lourie, J).
Polar sued Suunto and its sister company Amer Sports Winter & Outdoor (ASWO) in Delaware. Suunto is a Finnish company with a principal place of business and manufacturing facilities in Finland. ASWO is a Delaware corporation with a principal place of business in Utah. ASWO distributes Suunto’s products in the United States. According to the terms of the agreement, ASWO pays for shipping of the product and for title passes from Suunto to ASWO in Finland. Prior to the filing of the complaint, at least 94 accused products had been shipped to at least three retail stores in Delaware.
Following jurisdictional discovery, the district court granted Suunto’s motion to dismiss, finding that Suunto was not subject to specific jurisdiction in Delaware because it did not directly sell the accused products in Delaware. The court found that Suunto lacked the minimum contacts necessary for due process. The district court also found that Delaware’s long-arm statute (§ 3104(c) (4)) was satisfied under a “dual jurisdiction” theory, since (i) Suunto intended to serve the Delaware market and (ii) that intent resulted in the introduction of Suunto products into Delaware and the cause of action arose from injuries caused by the products and that. The dual jurisdiction theory does not require a showing of general jurisdiction or full satisfaction of the Delaware long-arm statute, but only a showing that the defendant had the intent of serving the Delaware market and that, as a consequence, product was introduced into Delaware. However, notwithstanding satisfaction of the Delaware long-arm statute, given Suunto’s lack of sufficient minimum contacts, the district court dismissed Suunto from the action. Polar appealed.
On appeal, the Federal Circuit reversed, explaining that the plaintiff need only make a prima facie of personal jurisdiction to avoid dismissal. The Court examined and applied the Delaware long-arm statute in order to determine whether exercising jurisdiction complied with due process. In doing so, the Federal Circuit affirmed the district court’s use of a dual jurisdiction theory to decide the personal jurisdiction issue and determined that Suunto’s shipping of products to Delaware retailers was sufficient to sustain specific jurisdiction in Delaware. Specifically, the Court found that Suunto’s actions indicated an intent to serve not only the US market generally, but the Delaware market specifically. The Court, applying its 1994 Beverly Hills Fan precedent (and noting that the jurisdiction facts of this case would satisfy even the most stringent of the Supreme Court standards as set forth in Asahi (1987) and McIntyre (2011)), found that Suunto’s contacts were sufficient, because “although ASWO provided the destination address, took title to the goods in Finland, and directed and paid for shipping, it was Suunto, not ASWO, who physically fulfilled the orders, packaged the products and prepared the shipments in Finland.” Suunto did not sell its products to an independent distributor, but was “acting in consort with ASWO” to ship accused products to Delaware.
The Federal Circuit remanded the case for a determination of whether, given the showing of purposeful minimum contacts, exercising jurisdiction would be reasonable and fair, noting that on remand Suunto bears the burden of proving unreasonableness.
Practice Note: This case has made it increasingly difficult to shield a foreign supplier from jurisdiction where it acts in concert with its US affiliate.
PATENTS / BPCIA / MANDATORY DISCLOSURES
BPCIA 180-Day Notice of Intent to Market a Biosimilar Is Required, Enforceable by Injunction
In an opinion that details many intricacies of both the Biologics Price Competition and Innovation Act of 2009 (BPCIA) and related portions of the Patent Act, the US Court of Appeals for the Federal Circuit affirmed a district court’s grant of a preliminary injunction, finding that a biosimilar product applicant must provide a biologic reference product sponsor with 180 days’ post-licensure notice before the applicant’s commercial marketing begins, regardless of whether the applicant provided notice of US Food and Drug Administration (FDA) review under 42 USC § 262(l)(2)(A). Amgen, Inc. v. Apotex, Inc., Case No. 16-1308 (Fed. Cir., July 5, 2015) (Taranto, J).
Apotex filed an application for an FDA license to market a biosimilar version of Amgen’s Neulasta® biologic product, invoking the BPCIA’s abbreviated pathway for regulatory approval of follow-on biological products that are “highly similar” to a previously approved reference product. Amgen sought and obtained a preliminary injunction to enforce BPCIA’s § 262(l)(8)(A), which requires a biosimilar product applicant to give notice to the reference product sponsor 180 days before the applicant begins commercially marketing its FDA-licensed product. The parties stipulated that all of the factors considered in awarding a preliminary injunction favored Amgen as the reference product sponsor, except for the likelihood of success factor, which depended on the parties’ competing interpretations of the BPCIA. Apotex appealed the preliminary injunction to the Federal Circuit.
In a prior case, Amgen v. Sandoz (IP Update, Vol. 18, No. 8), the Federal Circuit held that the 180-day notice period must follow, not precede, FDA licensure. In that case, the biosimilar product applicant had not engaged in the so-called “patent dance.” As detailed in the multi-part subsection § 262(l) of the BPCIA, the “patent dance” refers to a series of information disclosures made between an applicant and the reference product sponsor, and to the parties’ related duties concerning initiation of patent litigation relating to marketing a licensed biosimilar product. The dance is initiated by the disclosures described in § 262(l)(2)(A). In Sandoz, the Federal Circuit held that a biosimilar product applicant cannot be compelled to provide notice of FDA review under § 262(l)(2)(A), and that an infringement suit under 35 USC § 271(e)(2) is the reference product sponsor’s remedy if the applicant does not voluntarily provide such notice.
In this case, Apotex argued that the 180-day post-licensure notice described in § 262(l)(8)(A) was not mandatory under the BPCIA when the applicant had made its disclosures under § 262(l)(2)(A). In Sandoz, the Court described the 180-day notice as mandatory, but the applicant had not made a § 262(l)(2)(A) disclosure. Apotex argued that § 262(l)(9) establishes that the exclusive remedy for failure to provide the 180-day notice of commercial marketing under § 262(l)(8)(A), where an applicant had also made its § 262(l)(2)(A) disclosure, is a declaratory judgment suit.
BPCIA § 262(l)(9) provides different remedies for a reference product sponsor depending on the status of the § 262(l)(2)(A) and § 262(l)(8)(A) disclosures. The Federal Circuit rejected Apotex’s argument, however, finding that the 180-day notice is mandatory regardless of whether the applicant first provides notice under § 262(l)(2)(A), and is enforceable by injunction. As the Court explained, while § 262(l)(9)(A) bars certain declaratory judgment actions, §§ 262(l)(9)(B) and (C) state only that, in certain circumstances, the reference product sponsor “may bring” such an action. There is no language that excludes other remedies for the conduct described. Indeed, according to the Court, Apotex’s argument conflicts with the Supreme Court of the United States mandate that “equitable jurisdiction is not to be denied or limited in the absence of a clear and valid legislative command.” For these reasons, the Federal Circuit affirmed the grant of the preliminary injunction.
PATENTS / INDIRECT INFRINGEMENT / CLAIM CONSTRUCTION
Indirect Infringement Not Overcome by Objective Strength of Non-Infringement Case
Addressing indirect infringement and claim construction issues, the US Court of Appeals for the Federal Circuit reversed the district court on three of the four patents at issue, finding that it applied the wrong standard for indirect infringement and improperly imported limitations into the claims. Unwired Planet, LLC v. Apple Inc., Case No. 15-1725 (Fed. Cir., July 22, 2016) (Moore, J).
Unwired Planet sued Apple for patent infringement of patents concerning cell phone communication systems. The district court granted summary judgment of no indirect infringement on one patent and non-infringement on three others.
With respect to indirect infringement, the district court granted summary judgment because it found Apple’s non-infringement argument sufficiently strong that no reasonable juror could conclude that Apple knew or was willfully blind to infringement. But, as the Federal Circuit explained, the doctrine of willful blindness—which may be used to show knowledge—requires the accused infringer to “subjectively believe that there was a high risk of infringement” and to take “deliberate actions to avoid confirming infringement.” Here, the district court erred by basing its decision on an objective estimation of the strength of Apple’s case rather than Apple’s subjective knowledge of the patent.
The Federal Circuit also reversed the district court’s summary judgment of non-infringement for two of the patents. With respect to the first patent, the district court erred by importing requirements into the claim that went beyond the ordinary and customary meaning. Specifically, the district court relied on the description of the invention in the specification to find that the claimed “voice input” must be transmitted over a voice channel rather than a data channel. But the claims themselves did not imply any particular transmission method, and there was no evidence of a clear and unmistakable disclaimer. As the Federal Circuit explained, although the “summary of the invention” in the specification included the phrase “the present invention relates” before describing voice inputs using voice channels, this phrase alone does not amount to a disclaimer.
For the second patent, the district court ruled that “user information” exchanged between the server and phone must always be identical and that Apple avoided infringement by reformatting the user’s password through encryption or “hashing.” The Federal Circuit again reversed, finding that the term “user information” referred to “information, knowledge, or data on a user” contained within the transmission, regardless of format. Although the hashed format could not be reversed or decrypted to determine the information it represented, the relevant inquiry was whether the information was present—a question of fact for a jury that was not appropriate for summary judgment.
For the third patent, the Federal Circuit affirmed the district court’s summary judgment of non-infringement based on a stipulated construction of “narrowband channel” as a channel with a “lower data transfer rate . . . than the wideband channel.” Here, Unwired argued that Apple effectively used a narrowband because certain data transmissions were smaller than typical wideband. The Federal Circuit, however, found that it was the transmission speed, not the data size, that controlled whether the limitation was met.
PATENT INFRINGEMENT / CIVIL PROCEDURE / FEDERAL ARBITRATION ACT
PATENTS / MEANS-PLUS-FUNCTION CLAIMING
Indefiniteness of Means-Plus-Function Claims
Addressing both the circumstances that lead to a claim limitation invoking a means-plus-function construction and indefiniteness issues for means-plus-function claims, the US Court of Appeals for the Federal Circuit affirmed the district court’s finding that the term “symbol generator” invoked means-plus-function claiming and was indefinite because the specification failed to disclose a corresponding algorithm for performing the claimed function. Advanced Ground Info. Sys., Inc. v. Life360, Inc., Case No. 15-1732 (Fed Cir., July 28, 2016) (Wallach, J).
Life360 is a startup company and creator of a Life360 mobile app that allows users to view each other on a map, communicate and receive alerts when other users arrive at designated locations. Advanced Ground Information Systems, Inc., (AGIS) filed a complaint in district court alleging that Life360’s mobile app infringed several claims of its patents. In response, Life360 alleged that the terms “symbol generator” and “CPU software” in the asserted claims invoke means-plus-function claiming under 35 USC § 112, ¶ 6 and were indefinite for failure to disclose adequate structure. After the district court agreed with Life360, AGIS appealed to the Federal Circuit.
The Federal Circuit first analyzed whether the term “symbol generator” invoked § 112, ¶ 6, noting that it need not independently address the term “CPU software” if it found the term “symbol generator” indefinite. In this case, although the asserted claims do not include the word “means,” the Federal Circuit nevertheless affirmed the district court’s finding that AGIS intended to invoke § 112, ¶ 6. According to the Federal Circuit, the combination of the terms “symbol” and “generator,” as used in the context of the relevant claim language, simply describes the function being performed—the generation of symbols. The term “symbol generator” does not, by itself, identify a structure by its function, nor do the asserted claims suggest that the term connotes a definite structure.
Next, the Federal Circuit analyzed whether the specifications adequately describe what is meant by the term “symbol generator” in the claims. In this case, the patents-in-suit do not describe this component other than to specify the medium through which the symbols are generated. The Court found the specifications’ description insufficient, explaining that simply disclosing a general-purpose computer as the structure designed to perform the necessary function is insufficient to overcome an indefiniteness challenge. According to the Court, the specifications should have disclosed an algorithm for the claimed “symbol generator.” Finding that the specifications failed to disclose the required operative algorithm for this term, the Federal Circuit affirmed the district court’s conclusion that the claims were indefinite.
PATENTS / PATENT PROSECUTION
PTO Initiates Post-Prosecution Pilot Program
Bernard P. Codd
On July 11, 2016, the US Patent and Trademark Office (PTO) announced a new pilot program to enhance after final practice. The Post-Prosecution Pilot Program (P3) combines elements of the Pre-Appeal Request for Review and AFCP 2.0 After Final Consideration Pilot, and is designed to reduce the number of appeals and issues to be taken up on appeal to the Patent Trial and Appeal Board (PTAB or Board), and to reduce the number of Requests for Continued Examination.
To participate in the P3 program, an applicant must submit an original utility non-provisional application filed under 35 USC § 111(a) or a national phase application filed under 35 USC § 371 containing an open final rejection. The P3 request is limited to five pages of arguments regarding appealable matters and must include a transmittal form identifying the submission as a P3 submission as well as a statement that the applicant is willing and available to participate in a conference with a panel of examiners. There is no fee for the P3 request, and the request must be filed electronically via the PTO’s EFS-Web within two months from the mailing date of the final rejection. Once a P3 request is accepted, no further responses under 37 CFR § 1.116 will be entered for the same final rejection unless the additional response was requested by the examiner to place the application in condition for allowance.
A P3 request may be accompanied by a proposed amendment to one or more claim. Entry of the amendment is governed by Rule 116, and the proposed amendment may not broaden the scope of a claim in any aspect. The amended claims section of the P3 does not count towards the five-page argument limit.
After the PTO verifies the P3 request as timely and compliant, the PTO will contact the applicant to schedule the examiner conference. During the conference, the applicant will present arguments in support of patentability to a panel of examiners in a manner similar to an ex parte appeal before the PTAB. An applicant’s participation in the conference is limited to 20 minutes. The conference can be done in person, by telephone or via a video conference, such as a WebEx® conference. If the office and the applicant are unable to agree on a time to hold the conference within 10 calendar days from the date the PTO first contacts the applicant, or if the applicant declines to participate in the conference, the P3 request will be deemed improper and treated as an after final response under Rule 116.
The PTO will accept P3 requests until either January 12, 2017, or whenever the PTO accepts a total of 1,600 compliant requests, whichever comes first. Each technology center is limited to 200 compliant requests, which means that the P3 program may end in one technology center while continuing to accept requests in another technology center. The PTO is seeking comments on the P3 program, which may be submitted by email to firstname.lastname@example.org by November 14, 2016.
Federal Circuit Will Review PTAB Rules for Claim Amendments in AIA Reviews
The full US Court of Appeals for the Federal Circuit has issued an order granting en banc review of the Patent Trial and Appeal Board’s (PTAB’s or Board’s) rules governing amendments filed in the course of America Invents Act reviews. In re: Aqua Products, Case No. 15-1177 (Fed Cir., Aug. 12, 2016).
Under the statute, 35 USC § 316(d), a patent owner is given one opportunity to propose amendments or substitute claims. The PTAB rules, however, require the patent owner to demonstrate that the proposed amendments would make the claims patentable over the known prior art.
In the underlying case, Aqua Products moved to amend some of its claims to include the limitations found in non-instituted claims. Although the PTAB agreed that the new claims satisfied the formal requirements of § 316(d), it refused to enter the amendment, finding that the motion failed to establish that the substitute claims were patentable over the prior art.
In its original decision, the Federal Circuit upheld the PTAB rule (IP Update, Vol. 19, No. 6). In vacating the original panel decision, the en banc Federal Circuit asked the parties—Aqua Products and the US Patent and Trademark Office (PTO)—to brief the following questions:
- When the patent owner moves to amend its claims under 35 USC § 316(d), may the PTO require the patent owner to bear the burden of persuasion, or a burden of production, regarding patentability of the amended claims as a condition of allowing them? Which burdens are permitted under 35 USC § 316(e)?
- When the petitioner does not challenge the patentability of a proposed amended claim, or the PTAB thinks the challenge is inadequate, may the PTAB sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion, or a burden of production, lie?
America Invents Act
AIA / IPR / REAL PARTIES IN INTEREST
Retroactive Estoppel: Acting as Real Party in Interest May Import Estoppel Effects from Earlier-Filed Petitions
Brian A. Jones
In a decision that could significantly extend the estoppel effects of 35 USC § 315(e), the Patent Trial and Appeal Board (PTAB or Board) found that estoppel applies to all real parties in interest of an inter partes review (IPR) petition if even one of those petitioners was also party to an earlier-filed petition resulting in a final written decision. Kofax, Inc. v. Uniloc USA, Inc., Case No. IPR2015-1207 (PTAB, July 20, 2016) (Praiss, APJ).
Section 315(e) states that a “petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision . . . may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” This provision extends to any “real party in interest or privy of the petitioner.”
This case arises out of a series of IPR petitions challenging the same patent. The earliest such petition, IPR2014-1453, listed Sega, Ubisoft, Kofax and Cambium Learning Group as petitioners. The PTAB instituted a trial on the 1453 petition. While the 1453 trial was pending, Kofax filed a second petition, IPR2015-1207, for the same patent (the Kofax petition). Kofax was the only listed petitioner. After the PTAB instituted trial on the Kofax petition, Ubisoft, Zebra Technologies and Cambium filed a follow-on petition and requested joinder.
Before resolving the joinder motion and before issuing a final decision on the Kofax petition, the PTAB issued a final written decision in the earlier-filed 1453 petition. Subsequently, the PTAB dismissed the Kofax petition, determining that under § 315(e), Kofax was estopped from maintaining its petition because it could have raised these grounds in the earlier-filed 1453 petition. Estoppel also applied to Ubisoft and Cambium as real parties in interest to the 1453 petition. Although Zebra was not itself a petitioner in the earlier 1453 proceeding, the PTAB found that estoppel also applied to Zebra because Zebra was a real party in interest with Ubisoft and Cambium in the follow-on petition.
The PTAB was not persuaded by Zebra’s argument that estoppel should be limited to petitioners and real parties in interest to proceedings that result in a final decision. The PTAB explained that § 315(e) does not contain any “temporal limitation for real parties in interest or privies of a petition,” and so the estoppel provisions also extend to all real parties in interest of petitioners in the earlier proceeding. According to the PTAB, Zebra’s eventual status as a real party in interest to a now-estopped petitioner would bring the same estoppel effect as if Zebra had itself been listed as a real party in interest in the earlier-filed 1453 petition. The PTAB also denied that Zebra was deprived of its due process rights, explaining that Zebra “had the opportunity to address [in the follow-on] proceedings the effect of estoppel in view of the final written decision in IPR2014-01453.”
AIA / IPR / “PRINTED MATTER”
“Providing . . . Information” to Medical Providers Is Not Given Patentable Weight
Addressing the application of the “printed matter” doctrine, the Patent Trial and Appeal Board (PTAB or Board) determined that claim elements directed to “providing [certain] information” fell within the doctrine and therefore were not entitled to patentable weight. Praxair Distribution Inc. v. Mallinckrodt Hospital Products IP Ltd., Case No. IPR2015-00529 (PTAB, July 7, 2016) (Pollock, APJ).
Mallinckrodt produces INOmax®, a US Food and Drug Administration (FDA) approved inhaled nitric oxide therapy for hypoxic respiratory failure in infants—a potentially deadly condition also referred to as “blue baby” syndrome. A decade after the drug was approved, a clinical study found that patients with pre-existing left ventricular dysfunction experienced an increased risk of serious adverse events when treated with the product. Based on these findings, the FDA approved a supplemental label for INOmax®, which included new warnings and precautions related to patients with left ventricular dysfunction. Mallinckrodt also filed for and obtained a patent directed to methods of “providing pharmaceutically acceptable nitric oxide gas” aimed at reducing the risk or preventing the occurrence of adverse events associated with inhaled nitric oxide therapy. The claims of the patent included steps related to “providing [certain] information” to a medical provider.
Praxair filed for inter partes review of Mallinckrodt’s patent. At issue was whether the claimed step of “providing [certain] information” to a medical provider should be given patentable weight. Reading the claims as a whole and applying US Court of Appeals for the Federal Circuit precedent, the PTAB determined that the “providing . . . information” step qualifies as printed matter, which is not entitled to patentable weight. According to the PTAB, “because printed matter itself is non-statutory subject matter, it must have a functional relationship to other claim elements to be accorded patentable weight.” Otherwise, anyone could continue patenting a product indefinitely provided that they add a new instruction sheet to the product.
Mallinckrodt argued that the claims require more than simply providing information; they transform the ordinary methods by providing the information “sufficient to cause a medical provider . . . to elect to avoid” treating patients at risk. The PTAB disagreed because the “method of providing pharmaceutically acceptable nitric oxide gas” can be performed irrespective of whether the “information” required by the claim is “provided.” In addition, the “sufficient to cause” claim language does not specify any particular outcome and therefore does not “transform” the claimed method in a way that requires giving the step any patentable weight.
In light of the PTAB’s determination that the informational and deliberative steps of the challenged claims carry no patentable weight, Mallinckrodt’s arguments regarding non-obviousness were deemed immaterial, and all but one claim of Mallinckrodt’s patent were held unpatentable under 35 USC §§ 102(a) and 103(a).
AIA / IPR / CERTIFICATE OF CORRECTION
PTAB Grants Patent Owner Motion to Request Certificate of Correction
Addressing the requirements for correcting a mistake in a patent undergoing inter partes review, the Patent Trial and Appeal Board (PTAB or Board) granted the patent owner’s motion requesting authorization to file a certificate of correction necessary to fix a mistake in a dependent claim of the patent at issue. Aceto Agricultural Chemicals Corp. v. Gowan Company LLC, Case No. IPR2016-00076 (PTAB, July 21, 2016) (Paulraj, APJ).
The challenged patent relates to compositions comprising synergistically effective amounts of two herbicides used to control undesired vegetative growth in rice crops. Claim 9 erroneously recited an herbicide ratio of “about 0.6:0.08” rather than the correct ratio of “0.66:0.08.” According to the patent owner, the error resulted from an amendment made during prosecution that mistakenly omitted the second “6” in the recited ratio. Similar amendments had been introduced into other dependent claims, although with the correct ratios. Moreover, original claim 9 and the specification recited the correct ratio. Because the proposed correction would narrow, rather than broaden, the claim scope, the patent owner characterized the mistake as one of “minor character.” The petitioner did not oppose the patent owner’s motion.
When a patent owner seeks to correct an error in a patent involved in a trial before the PTAB, a request for a certificate of correction must be accompanied by a motion seeking the PTAB’s authorization. In this case, the patent owner properly requested such authorization. Noting that the correction did not appear to be controversial, the PTAB concluded that the patent owner had presented sufficient basis for seeking the correction and authorized the patent owner’s request. The PTAB also ordered the parties to proceed as though the claim recited the correct ratio, but acknowledged that the final discretion on whether to grant the requested certificate of correction lies with the director.
TRADEMARKS / LIKELIHOOD OF CONFUSION
Circuit to District Court: Pucker Up for a Remand
Addressing the application of the Sleekcraft likelihood-of-confusion factors in the context of a summary judgment motion, the US Court of Appeals for the Ninth Circuit reversed the district court’s grant of summary judgment, finding numerous genuine disputes of material fact in connection with use of a colored lips design on vodka bottles as a trademark. JL Beverage Company, LLC v. Jim Beam Brands Co. et al., Case No. 13-17382 (9th Cir., July 14, 2016) (Wallace, J).
In 2003, JL Beverage began using a lips logo on its Johnny Love Vodka bottles, with the lips colored to denote the flavor of the vodka (for example, green lips for apple-flavored vodka). JL Beverage registered its Johnny Love Vodka (& Design) mark in 2005. In 2011 Jim Beam began selling a line of flavored vodkas called Pucker Vodka. Jim Beam’s bottle also featured a lips design, colored to denote the vodka’s flavor. A former marketing employee of Jim Beam involved with the development of Pucker Vodka was apparently aware of JL Beverage and the Johnny Love Vodka brand. Prior to the launch of Pucker Vodka, Jim Beam’s legal counsel conducted a trademark search, which revealed JL Beverage’s Johnny Love Vodka (& Design) registration, as well as numerous other references to lips in connection with alcohol-related products.
JL Beverage sued Jim Beam for trademark infringement under both a forward and reverse confusion theory and sought a preliminary injunction, which the district court denied. Jim Beam later moved for summary judgment, which the court granted “for reasons articulated in the Order denying the Preliminary Injunction,” further stating that “no issues of material fact remain which could provide Plaintiff a basis for success on any of its claims.” JL Beverage appealed.
On appeal the Ninth Circuit reversed, explaining that the district court failed to apply the proper standard for deciding a summary judgment motion, as Jim Beam had the burden to demonstrate that no material facts were in dispute. In this case, Jim Beam did not dispute that some of the Sleekcraft factors favored a finding of a likelihood of confusion. With respect to disputed factors—such as the conceptual and commercial strength of the lips design mark, similarity of the parties’ marks, and Jim Beam’s intent in selecting the mark—the Ninth Circuit found that there were factual disputes that, when viewed in the light most favorable to JL Beverage, made summary judgment inappropriate.
Considering the conceptual strength of the lips design mark, the Court found that a reasonable fact-finder could view JL Beverage’s colored lips design as suggestive—entitling JL Beverage to a higher degree of protection—because a consumer must use their imagination to connect the lip color to the vodka flavor. While the record contained evidence of multiple uses of lips in connection with alcohol beverages, none of those uses coordinated color to flavor, and most of them did not apply to liquor products. As for the mark’s commercial strength, the Court observed that even if JL Beverage had a relatively weak market presence (and JL Beverage submitted evidence that indicated otherwise), a finding that the mark was commercially weak would support a finding of a likelihood of reverse confusion.
Given that JL Beverage’s and Jim Beam’s lip design marks bore many similarities, the Ninth Circuit concluded that the similarity of marks factor (often the most important factor in the likelihood-of-confusion analysis) presented genuine issues of material fact. Finally, according to the Court, there was a genuine dispute of material fact concerning Jim Beam’s intent in selecting the colored lips mark in light of (1) the trademark search report, (2) the US Patent and Trademark Office’s refusal to register Jim Beam’s application for its lip design mark because of the likelihood of confusion with JL Beverage’s Johnny Love Vodka (& Design) registration, and (3) prior knowledge of the Johnny Love Vodka brand by a Jim Beam employee involved with Pucker Vodka. For these reasons, the Court reversed the grant of summary judgment and remanded the case.
TRADEMARKS / LIKELIHOOD OF CONFUSION / SUMMARY JUDGMENT
Summary Judgment Ruling Affirmed as Bench Trial Decision
Han (Jason) Yu
Affirming a district court ruling on cross motions for summary judgment on the issue of confusing similarity (in a non-jury case), the US Court of Appeals for the 11th Circuit, reviewing the judgment as a trial on a stipulated record, affirmed. Florida International University v. Florida National University, Case No. 15-11508 (11th Cir., July 26, 2016) (Marcus, J).
Florida International University (FIU) sued Florida National University (FNU) under the Lanham Act (15 USC §§ 1114 & 1125(a)), alleging that FNU’s name infringed FIU’s federally registered trademarks. After conducting discovery, the parties filed cross-motions for summary judgment. While the summary judgment motions were pending, the parties continued preparing the case for a bench trial, including submitting a list of pretrial stipulations, identifying the issues of fact to be litigated at trial, and submitting witness lists. Then, at a pre-trial status conference, the parties informed the district court that they had submitted enough facts and evidence into record to allow the court to decide most issues in the case. A pre-trial hearing was subsequently held at which the parties presented their respective oral arguments. At the conclusion of the hearing, both parties confirmed to the court that they had presented everything to the court and would not add anything new to the record at a trial. After reviewing the parties’ submissions and oral argument presentations, the district court ruled in favor of the defendant FNU on the cross- motions for summary judgment and entered a final judgment dismissing all of FIU’s trademark claims, finding that FIU had failed to establish that FNU’s name was likely to cause confusion with FIU’s name. FIU appealed.
On appeal, FIU urged the 11th Circuit to treat the district court’s decision as a summary judgment ruling and review it under the summary judgment standard (i.e., whether a genuine issue of material fact existed to preclude the granting of summary judgment). On the other hand, FNU claimed that the district court’s decision was effectively a bench trial decision and therefore should be reviewed under the deferential “clearly erroneous” standard of review.
Siding with FNU, the 11th Circuit determined that the circumstances of the case warranted the treatment of the district court’s decision as a judgment after a bench trial. Specifically, the 11th Circuit noted that the parties had informed the district court that the evidence and arguments they had submitted and presented constituted the full record before the court and that additional evidence or live witness testimony would be unnecessary, and that the parties had also agreed that the district court could treat the stipulated record as a record after a bench trial. Furthermore, according to the 11th Circuit, the district court’s opinion on the cross-motions for summary judgment read more like a judgment by a fact-finder after a bench trial than a summary judgment ruling. Lastly, the 11th Circuit pointed out that FIU did not argue on appeal that there were material factual disputes that precluded the district court from granting summary judgment in FNU’s favor, nor did FIU seek to have the case remanded to the district court in order to conduct a trial on the merits.
Treating the district court’s decision as a judgment after a bench trial, the 11th Circuit went on to review the district court’s factual findings under the “clear error” standard. After examining the relevant factors on the issue of likelihood of confusion between FIU’s marks and FNU’s marks, the 11th Circuit found the district court’s assessment of each of the factors to be reasonable and found no clear error in the district court’s conclusions of law.
TRADEMARKS / PROCEDURE / DISCOVERY / TTAB
Use of Rule 45 Subpoenas in TTAB Proceedings
The US Court of Appeals for the 10th Circuit clarified the proper discovery procedures for a Rule 45 subpoena to compel a nonparty to produce documents in a trademark dispute before the US Patent and Trademark Office (PTO) Trademark Trial and Appeal Board (TTAB). In doing so, it reversed the district court’s grant of a nonparty’s motion to quash a subpoena. El Encanto, Inc. v. Hatch Chile Co., Case No. 15-2012 (10th Cir., June 17, 2016) (Gorsuch, J).
The original trademark dispute before the TTAB pertained to the Hatch chile, a chile pepper that is grown in the Hatch Valley region of northern New Mexico. After the Hatch Chile Company sought to register the trademark HATCH for chile peppers, rival chile producer El Encanto objected to registration of the mark because it refers to a geographical place, and because El Encanto claimed that the Hatch Chile Company used the term in a misleading manner since its products regularly include chiles that do not come from the Hatch Valley.
To demonstrate misleading use of the HATCH name, during discovery El Encanto asked Hatch Chile to disclose the origin of its chiles. Hatch Chile responded that it did not know the source of the chiles and indicated that El Encanto would have to ask its co-packers and suppliers for that information. El Encanto immediately issued a subpoena under Fed. R. Civ. P. 45 to Hatch Chile supplier Mizkan Americas, seeking documents revealing the geographic source of Hatch Chile’s peppers. In response, Hatch Chile filed a motion for a protective order, and Mizkan filed its own motion to quash the subpoena. Arguing in support of their motions, Hatch Chile and Mizkan propounded what the 10th Circuit called a “rather paradoxical argument” and claimed that the Rule 45 subpoena failed because a deposition is a necessary precondition to any document demand. In other words, the Rule 45 subpoena faltered because it compelled only the production of documents, instead of the production of documents at deposition. The district court agreed and granted the motion to quash.
On appeal, the 10th Circuit looked at whether the district court read the law correctly with regard to the Rule 45 subpoena and concluded that “nothing in the federal rules, the relevant statute, or the applicable regulations . . . commands the pointless process that Hatch Chile and Mizkan insist upon.” First and foremost, the Court focused on the underlying purpose of the Federal Rules of Civil Procedure, which are intended to ensure the speedy and inexpensive resolution of all cases, and noted that the requirement of a deposition only to secure relevant documents defeats the purpose of the rules.
Next, the 10th Circuit examined 35 USC § 24, which authorizes parties before the TTAB to invoke federal discovery processes, and found that the statutory language itself expressly affords parties the power to compel nonparties to produce documents without also convening a deposition. The Court also examined past PTO practice and found that in at least two patent proceedings the PTO expressly stated that parties may seek and obtain subpoenas for nonparty documents without a deposition. Finally, the Court reviewed the relevant portion of the TTAB Manual of Procedure (TBMP), regarding which the parties argued entirely disparate interpretations of the rule pertaining to nonparty document subpoenas. The Court concluded that it owed no deference to the TBMP since the TBMP itself states that it does not bind the TTAB and does not “have the force and effect of law.”
Thus, on the narrow issue of the application of Rule 45 subpoenas in TTAB matters, the 10th Circuit concluded that “a party to a TTAB proceeding can obtain nonparty documents without wasting everyone’s time and money with a deposition no one really wants.”
“Crazy Horse” Is Still Going Crazy in Las Vegas
The US Court of Appeals for the Ninth Circuit upheld the district court’s decision that the plaintiff was the assignee of a valid trademark co-existence agreement entered into with the former owner of the registered mark “Crazy Horse.” Russell Road Food and Beverage, LLC v. Frank Spencer, et al., Case No. 14-16096 (9th Cir., July 22, 2016) (Wardlaw, J).
In 2006, strip club owner Carl Reid registered with the US Patent and Trademark Office (PTO) his rights in the “Crazy Horse” and “Pure Gold’s Crazy Horse” marks for use in connection with “exotic dancing services.” Later, two other strip club operators tried to register similar marks with the PTO. Russell Road tried to register the mark “Crazy Horse III Gentlemen’s Club at the playground” for his strip club in Las Vegas, and Frank Spencer tried to register “Crazy Horse” for his strip clubs in Ohio. The PTO rejected both applications based on likelihood of confusion with Reid’s previously registered “Crazy Horse” marks. In 2009, another third party, John Salvador and his company Crazy Horse Too A Gentlemen Club, tried to register a similar name for his strip club in Las Vegas. The application was once again rejected, but Salvador initiated a cancellation proceeding against Reid based on non-use and obtained a co-existence agreement. Salvador later assigned his rights under the co-existence agreement to Road. In 2010, Reid assigned his rights in the Crazy Horse trademark to Spencer.
In 2011, Spencer learned that Road was operating clubs in Las Vegas under the name Crazy Horse III and asked Road to enter into a license agreement to license the trademark from Spencer. Instead, Road entered into an assignment agreement with Salvador (on behalf of Crazy Horse Too), whereby Crazy Horse assigned to Road its rights under the 2009 trademark co-existence agreement.
Road later sought a declaratory judgment confirming that his use of the Crazy Horse name did not infringe Spencer’s trademark. After the district court granted the motion for summary judgment, Spencer appealed.
The Ninth Circuit affirmed the summary judgment, confirming the district court’s conclusion of a valid assignment of rights under the trademark co-existence agreement between Reid and Crazy Horse Too (now Road). The Ninth Circuit explained that when a trademark is assigned, the assignee “steps into the shoes of the assignor,” and the assignee not only acquires all of the assignor’s rights, but also assumes any “burdens or limitations” on the use of the mark. Here, Road obtained the rights that Crazy Horse Too had possessed, whereas Spencer and Crazy Horse Too retained the duties not to oppose each other’s use of the Crazy Horse mark. The Court also found “that the trademark co-existence agreement made it explicit that it would ‘be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and licensees.’”
Practice Note: In an order dated August 17, 2016, the Ninth Circuit denied a petition for panel rehearing.