PATENTS / SECTION 101 (ELIGIBILITY)
Check Processing Claims Bounce
Davis M. Chin, Jr.
The US Court of Appeals for the Federal Circuit found claims directed to using data from a check to credit a merchant’s account before scanning the check to be subject matter ineligible under 35 USC § 101 as reciting an abstract idea. Solutran, Inc. v. Elavon, Inc., Case Nos. 19-1345, -1460 (Fed. Cir. July 30, 2019) (Chen, J).
Solutran owns a patent directed to a system and method for processing paper checks. The patent explains that in the past, the payee would transport the check to her own bank to be read and processed, then the payee’s bank would transport the check to the payor’s bank, where it was again read and processed. At this point, the payor’s bank would debit the payor’s account and transfer the money to the payee’s bank, which would credit the payee’s account. Solutran’s invention purports to improve on this process by providing a system and method of electronically processing checks in which (1) “data from the checks is captured at the point of purchase,” (2) “this data is used to promptly process a deposit to the merchant’s account,” (3) the paper checks are moved elsewhere “for scanning and image capture,” and (4) “the image of the check is matched up to the data file.” Solutran alleged that the claimed method was an improvement over the prior art because it allowed merchants to get their accounts credited sooner, without having to wait for the check scanning step.
Solutran sued U.S. Bank alleging infringement of its patent. After answering, U.S. Bank filed a motion for summary judgment, arguing that the claims were directed to the abstract idea of delaying and outsourcing the scanning of paper checks. The district court denied the motion, finding that the claims were not directed to an abstract idea. In reaching its decision, the district court was persuaded by a Patent Trial and Appeal Board (PTAB) decision in a previous covered business method review of the patent at issue. The PTAB case focused on obviousness (the eligibility issue having been determined at institution), and the Federal Circuit affirmed the PTAB on the obviousness issue. In the instant case, the district court relied on the PTAB’s reasoning that the basic, core concept of the claim is a method of processing paper checks, which is more akin to a physical process than an abstract idea. The district court also found that the claims recited an inventive concept under step two of Alice and that the claims passed muster under the machine-or-transformation test. U.S. Bank appealed.
The Federal Circuit reversed, concluding that “the claims are directed to the abstract idea of crediting a merchant’s account as early as possible while electronically processing a check.” In particular, the Court relied on Content Extraction v. Wells Fargo (IP Update, Vol. 18, No. 1) in finding that the claims “recite basic steps of electronic check processing.” The Court rejected Solutran’s argument that the claims as a whole were not directed to an abstract idea, finding that the only advance recited in the claims was crediting the merchant’s account before the paper check is scanned. The Court found this feature to be an abstract idea. The Court also noted that Solutran had admitted that the claims did not include a technical improvement to capture check information in order to create a digital file or electronically credit a bank account, and also did not improve how a check is scanned. In view of this, the Court found that the claims were written at a “distinctly high level of generality.”
The Federal Circuit also found that even when viewed as a whole, the claims did not improve the functioning of the computer itself or effect an improvement in any other technology or technical field. The Court concluded that the claims did not pass the machine-or-transformation test, and noted that the claims did not amount to an inventive concept because they used “a general-purpose computer and scanner to perform conventional activities in the way they always have.”
PATENTS / SUBJECT MATTER ELIGIBILITY (DIAGNOSTIC METHOD)
Fractured Federal Circuit Maintains Ineligibility of Diagnostic Methods
Joseph Speyer, PhD
In an opinion evidencing the split in opinion regarding the patent eligibility of diagnostic methods, the US Court of Appeals for the Federal Circuit denied a petition for panel rehearing or rehearing en banc, leaving in place a panel opinion affirming the district court’s conclusion that the claims at issue were invalid as ineligible. Athena Diagnostics, Inc. v. Mayo Collaborative Servs., LLC, Case No. 17-2508 (Fed. Cir. Feb. 6, 2019) (per curiam) (Lourie, J, joined by Reyna and Chen, JJ, concurring) (Hughes, J, joined by Prost, CJ, and Taranto, J, concurring) (Dyk, J, joined by Hughes and Chen, JJ, concurring in part) (Chen, J, concurring) (Moore, J, joined by O’Malley, Wallach and Stoll, JJ, dissenting) (Newman, J, joined by Wallach, J, dissenting) (Stoll, J, joined by Wallach, J, dissenting) (O’Malley, J, dissenting).
In the panel opinion, Judge Lourie, writing for the majority, found the claims directed to the natural law of a correlation between the presence of certain antibodies and a particular disease, and found that the claims did not include additional elements transforming the nature of the claim into a patent-eligible application (IP Update, Vol. 22, No. 2). Judge Newman dissented. In her view, the claims as a whole were not directed to the natural law, but to a specific application.
Judge Lourie concurred in the denial because, in his view, the Federal Circuit is bound by the Supreme Court of the United States’ decision in Mayo (IP Update, Vol. 15, No. 3). On a clean slate, Judge Lourie would only exclude generalized natural laws, such as E=mc2 or Boyle’s Law, from patent eligibility. But in Mayo, the Supreme Court ruled that claims directed to the relationship between the concentration of metabolites and the likelihood that a drug dose would be ineffective were directed to a law of nature, and Judge Lourie found the claims at hand similar to the claims in Mayo. Judge Lourie noted that new method of treatment claims and unconventional arrangements of known laboratory techniques can evade Mayo’s prohibition.
Judge Dyk also concurred, explaining that while the Mayo/Alice framework has successfully screened out many claims directed to abstract ideas, the framework has been less successful in cases where the issue involved natural laws. In Judge Dyk’s view, § 101 does serve an important function in addressing the risk that a patent on a natural law would significantly impede future innovation. For example, a patent on the concept of searching for genetic abnormalities and determining their relationship to disease would be rightly patent ineligible. However, in Mayo, the Supreme Court found a specific correlation to be patent ineligible, and the claims at hand were similarly patent ineligible under the Mayo framework. Nevertheless, Judge Dyk noted that the more recent Myriad decision contains language suggesting that diagnostic patents could be patent eligible. Judge Dyk further explained that, in his view, the utility requirement of § 101, properly applied, prevents overbroad conceptual claiming.
In his concurrence, Judge Chen explained that there is a tension between Mayo and Diehr, because Diehr’s analysis requires examining the claim as a whole. Judge Chen explained that the Mayo analysis is more akin to the analysis in Flook, where the claim is examined on an element-by-element basis to find a novel “inventive concept.” Although Flook was not overruled, Diehr (as the later opinion) was understood to be the guiding precedent, and Mayo has upset 30 years of settled expectations.
In dissent, Judge Moore began by noting that all judges on the Federal Circuit agree that the claims at hand should be eligible for patent protection and only disagree as to whether Mayo precludes patent eligibility. Judge Moore noted that since Mayo, the Federal Circuit has found all diagnostic claims patent ineligible, effectively turning Mayo into a per se rule, which the Supreme Court has cautioned against. Judge Moore would distinguish Mayo based on the generality of the claims. In Mayo, the claims covered all processes that make use of a correlation between a drug dosage and a metabolite, while in the case at hand, the claims are directed to a specific method of diagnosis for a specific disease.
Judge Newman dissented as well. She believes the Federal Circuit has mistakenly enlarged the Mayo decision to bar all diagnostic claims. Judge Newman stressed the importance of diagnostic methods in the medical field and the lack of a logical basis for the disparate treatment between diagnostic and treatment claims.
In a final dissent, Judge O’Malley explained that the confusion and disagreement over § 101 have been engendered by the Supreme Court’s instruction to read into § 101 an “inventive concept” requirement, which Congress expressly abrogated when it amended the Patent Act in 1952.
PATENTS / WRITTEN DESCRIPTION
For Simple, Predictable Tech, Undisclosed Variations May Be Covered by Written Description
In reversing a Patent Trial and Appeal Board (PTAB) decision, the US Court of Appeals for the Federal Circuit explained that the level of written description required to show possession of a claimed invention “varies depending on the nature and scope of the claims and on the complexity and predictability of the relevant technology.” In re: Global IP Holdings LLC, Case No. 18-1426 (Fed. Cir. July 5, 2019) (Stoll, J).
Global IP Holdings filed a reissue application seeking to broaden its claims. The claims were originally drawn to a carpeted automotive vehicle load floor comprising, in part, thermoplastic materials, and the reissue claims were drawn to load floors in which the “thermo” was struck, permitting any kind of plastic materials. In support of its application, Global filed an inventor declaration stating that at the time of the invention, he was aware of the use of other plastics in vehicle load floors. The examiner rejected the broadened claims, finding that only thermoplastic materials were disclosed in the specification. The PTAB affirmed, rejecting Global’s argument that because the type of plastic used was not critical to the invention and plastics other than thermoplastics were predictable options, the disclosure of thermoplastics supported the claiming of plastics generally. In particular, the PTAB held that the absence of disclosure in the specification of anything but thermoplastics doomed the broader claims “regardless of the predictability of results of substituting alternatives, or the actual criticality of thermoplastics in the overall invention.” Global appealed.
The Federal Circuit found that the PTAB’s reasoning conflicted with precedent establishing predictability and criticality as touchstones of the written description analysis, citing Ariad Pharmaceuticals, Inc. v. Eli Lilly & Co. (Fed. Cir. 2010) (en banc) (predictability) and In re Peters (Fed. Cir. 1983) (criticality). The Court vacated the PTAB’s decision but declined to reverse on the basis that it would not decide factual questions regarding predictability or criticality in the first instance.
Practice Note: The Federal Circuit left open for now two related issues regarding burden of proof in the reissue context: (1) whether the examiner or the patentee must establish that a limitation is critical, and (2) the burden of showing predictability of success (or lack thereof) of embodiments that are not expressly disclosed embodiments.
Incomplete Hybridization: Lack of Enablement Found Where Claims Encompass Thousands of Possibilities
Finding that the number of possible embodiments that could fit within the limitations of the asserted claims numbered in the “tens of thousands,” the US Court of Appeals for the Federal Circuit held that the claims were not enabled because undue experimentation would be required given the high number of possible embodiments and the unpredictability in the art. Enzo Life Sciences, Inc. v. Roche Molecular Systems, Inc. et al., Case Nos. 17-2498, -2499, 2545, -2546 (Fed. Cir. July 5, 2019) (Prost, CJ).
Enzo filed suit against Roche, Becton Dickinson and Abbott Laboratories alleging infringement of patents directed to non-radioactive labeling of polynucleotides where the label is attached at the phosphate position of a nucleotide. Enzo also asserted a patent directed to in situ hybridization and liquid phase hybridization against Abbott. The district court granted motions for summary judgment, finding all of the asserted claims of both patents invalid for lack of enablement. Enzo appealed.
The Federal Circuit summarized the current enablement doctrine, noting that to prove that a claim is invalid for lack of enablement, a challenger must show by clear and convincing evidence that a person of ordinary skill in the art would not be able to practice the claimed invention without undue experimentation. The Court stated that in analyzing undue experimentation for purposes of determining enablement, it considers factors such as:
- The quantity of experimentation necessary
- The amount of direction or guidance presented
- The presence or absence of working examples
- The nature of the invention
- The state of the prior art
- The relative skill of those in the art
- The predictability or unpredictability of the art
- The breadth of the claims
Although a specification need not disclose what is well known in the art, that rule is not a substitute for a basic enabling disclosure; a patentee cannot simply rely on the knowledge of a person of ordinary skill to serve as a substitute for the missing information in the specification.
Turning to the patents-at-issue, the Federal Circuit invalidated the claims related to non-radioactively labeled polynucleotides in nucleic acid hybridization and detection applications, finding that the desired functionality was not sufficiently enabled. The Court found that the specification failed to adequately teach a skilled artisan which variable combinations would produce a polynucleotide that was hybridizable and detectable upon hybridization. The Court explained that merely stating that a labeled polynucleotide would work as a probe was not sufficient to enable a skilled artisan to know that it would function as a probe and be hybridizable and detectable upon hybridization given the broad claims, the degree of unpredictability of art at the time of patent filing, and serious doubts in the art whether labels could be successfully attached to specific positions without disrupting hybridization. The Court also found that because the specification did not enable the narrower claims of the non-radioactive labeling of polynucleotides patent, it also did not enable the broader claims directed to in situ hybridization and liquid phase hybridization patent.
Practice Note: In an invention where multiple combinations of variables are possible to achieve a desired functionality, the patent specification must sufficiently guide a skilled artisan of the invention to adequately enable the invention. In combination with the recent Quake decision (IP Update, Vol. 22, No.8) on written description, an inventor must “mark trails by making blaze marks on trees to find one’s way through the woods of a specification such that a skilled artisan would be able to follow that trail and understand what the inventors had invented.” Even though a skilled artisan in the sciences is very knowledgeable, the inventor cannot simply assume that a skilled artisan will be able to “connect the dots” on her own. Sufficiently specific guidance must be explicitly disclosed to show not only possession, but also enablement (reducing undue experimentation).
PATENTS / WRITTEN DESCRIPTION
Mismatch Between Claims and Specification Leads to Invalidity
The US Court of Appeals for the Federal Circuit affirmed a Patent Trial and Appeal Board (PTAB) invalidity decision in an interference proceeding, finding that the written description of the patent at issue did not describe the crucial part of the claimed method for detecting Down syndrome. Quake v. Lo, Case Nos. 18-1779, -1780, -1782 (Fed. Cir. July 10, 2019) (Chen, J).
Stanford University Professor Stephen Quake and Chinese University of Hong Kong Professor Dennis Lo both filed patent applications directed to methods for diagnosing aneuploidies using cell-free fetal DNA (cff-DNA) from mixed maternal and fetal DNA samples, using massively parallel sequencing (MPS) technology to sequence DNA fragments, identifying what chromosomes those DNA fragments come from based on their sequences, and determining if the test chromosome is over- or under-represented in the sample as compared to a reference chromosome based on statistical analyses. The claims of both patents recite a random MPS method, which means that all of the DNA in the sample is sequenced, as opposed to only specifically targeted sequences.
Quake and Lo requested an interference to determine who first invented the random MPS method and when the method was invented. The PTAB declared an interference between Quake’s patent and patent applications and Lo’s patent application, ultimately finding that the claims of Quake’s patent and patent applications were unpatentable for lack of written description because Quake’s patent specification only described detection of target sequences, not all DNA as required by the claims. Quake appealed.
The Federal Circuit affirmed, finding that substantial evidence supported the PTAB’s decision that Quake’s patent specification did not disclose a method of using random MPS to determine fetal aneuploidy. In reaching its conclusion, the Court noted that:
- The first time Quake tried to claim random MPS was after the publication of Lo’s patent application directed to random MPS.
- Quake canceled all his pending claims and replaced them with claims covering random MPS, creating a mismatch between the claims and the originally filed specification.
- The term “random MPS” is never mentioned in Quake’s patent, the process of amplifying all the DNA in a sample before sequencing is never described, and Quake admitted that there is no embodiment describing the statistical analysis needed to determine fetal aneuploidy from data generated by random MPS.
The Court also noted that Quake’s invention was directed to targeted MPS for determining fetal aneuploidy, not random MPS more broadly as recited in Quake’s patent claims. The Court also found that the Quake patents failed to reasonably convey detection of the chromosomal origin of randomly selected DNA fragments to determine the presence or absence of fetal aneuploidy, as claimed, and the step of normalization of chromosome size and statistical analysis was not sufficiently described in Quake’s patent to show possession of the claims.
Practice Note: In explaining the public policy behind the written description requirement, the Federal Circuit analogized such a disclosure as “marking trails by making blaze marks on trees to find one’s way through the woods of a specification such that a skilled artisan would be able to follow that trail and understand what the inventors had invented.” However, “the disclosure need only reasonably convey to persons skilled in the art that the inventor had possession of the subject matter in question.” Here, the inventors only left faint blaze marks—a more explicit disclosure was necessary for possession of random MPS technology.
PATENTS / AIA / PRIOR ART (PUBLIC ACCESSIBILITY)
Accessibility, Not Access, Is Proper Legal Touchstone for § 102(b)
The US Court of Appeals for the Federal Circuit found error in a decision by the Patent Trial and Appeal Board (PTAB) for its application of the legal standard for public accessibility under 35 USC § 102(b). Samsung Elecs. Co., Ltd. v. Infobridge Pte. Ltd., Case Nos. 18-2007, -2012 (Fed. Cir. July 12, 2019) (O’Malley, J).
Samsung challenged an Infobridge patent in two inter partes review proceedings before the PTAB. The PTAB instituted review in both proceedings but upheld the patent claims after finding that Samsung failed to show that the prior art reference it relied upon in its prior art combinations was publicly accessible before the patent’s critical date (and thus could not be considered prior art). Samsung appealed.
To the extent that the PTAB resolves factual issues in determining whether a reference is prior art under § 102, the Federal Circuit reviews such factual findings for substantial evidence. The ultimate question of whether a reference is prior art under § 102(b) is a legal question subject to de novo review.
Under pre-America Invents Act § 102(b), a person is not entitled to a patent if her invention was “described in a printed publication . . . more than one year prior to the date of the [patent] application.” The Federal Circuit and its predecessor, the US Court of Customs and Patent Appeals, have read this statutory definition to require that a putative prior art reference be printed and accessible to the public. What constitutes a “printed publication” is determined in light of the technology employed, and public accessibility is the “touchstone.” Jazz Pharm. v. Amneal Pharm (IP Update, Vol. 21, No. 8). A reference is publicly accessible if “persons interested and ordinarily skilled in the subject matter or art, exercising reasonable diligence, can locate it.” Acceleration Bay v. Activision Blizzard (IP Update, Vol. 21, No. 12).
Public accessibility can depend on a case-by-case examination of how a particular reference was disseminated, to whom, for how long and under what circumstances. That a reference is uploaded to a website or deposited in a library, and then indexed or catalogued in some way, can indicate public accessibility. Public accessibility generally requires that the document be “meaningfully indexed such that an interested artisan exercising reasonable diligence would have found it.” Acceleration Bay. Yet, even absent such indexing, evidence that “a person of ordinary skill interested in [the relevant subject matter] would have been independently aware of [the website]” and that “such an interested researcher would have found [the reference] using that website’s own search functions and applying reasonable diligence” (Voter Verified v. Premier Election Solutions (Fed. Cir. 2012)) or “would have had reason to [find the website at issue]” (Jazz) helped the Court’s finding of public accessibility.
In this case, the challenged patent generally relates to encoding and decoding video data. For purposes of appeal, the parties agreed that the patented methods are essential to the High Efficiency Video Coding standard (H.256 standard). The prior art reference at issue was its working draft, “WD4: Working Draft of High-Efficiency Video Coding” (WD4), which was developed by the Joint Collaborative Team on Video Coding (JCT-VC). Samsung offered testimony of Benjamin Bross, the lead author of WD4, and pointed to three examples of disclosures as establishing, independently or together, public accessibility of WD4 of the H.256 standard prior to the critical date.
In July 2011, JCT-VC members met in Torino, Italy, to discuss development of the H.256 standard. Developing WD4 was one of the “primary goals” of the Torino meeting. WD4 was discussed and approved at the November 2011 JCT-VC meeting in Geneva, Switzerland.
Infobridge argued, and the Federal Circuit agreed, that by not making such arguments before the PTAB, Samsung had waived any public accessibility demonstrated from discussion of WD4 in Torino or dissemination of WD4 in Geneva.
JCT-VC and MPEG Websites
WD4 was also uploaded to the JCT-VC and MPEG websites on October 4, 2011. Users had to follow at least four steps to access WD4:
- Navigate to the website
- Select a menu option to view “All meetings” held by the JCT-VC
- Select “Torino” from available meetings (not identified by subject matter)
- Select WD4 from a list of “hundreds” of documents organized by identifying number
The MPEG website required a login and password to access materials, and was organized similarly, such that a user would have to navigate to the relevant meeting and select the document.
The Federal Circuit discounted testimony by Bross that persons interested in H.256 would regularly visit the JCT-VC site and review its contents. The PTAB found, and the Court agreed, that Samsung did not establish that WD4 was accessible to anyone other than JCT-VC members, in part because identifying a meeting location was key to navigating the websites. Samsung presented no evidence that WD4 could be located based on its subject matter. The Court deemed that a work is not publicly accessible if the only people who know how to find it are the ones who created it. The Court thus agreed with the PTAB that accessibility to JCT-VC members did not equate to public accessibility, and declined to reweigh the evidence reviewed by the PTAB.
Also on October 4, 2011, Bross emailed a download link for WD4 to a JCT-VC listserv of members who had attended the Torino meeting and “interested individuals.” Bross testified that “anyone with a valid e-mail address requesting subscription was typically approved.” The PTAB concluded that it could not determine whether “those 254 individuals represented a significant portion of those interested and skilled in the art,” and therefore whether the email was a “limited distribution” or enough to establish public accessibility.
On this document, the Federal Circuit agreed with Samsung that the PTAB erred by confusing access with accessibility. The standard for public accessibility is whether a person of ordinary skill in the art could, after exercising reasonable diligence, access a reference. Under applicable case law, if accessibility is proven, there is no requirement to show that particular members of the public actually received the information or inspected the reference. Therefore, a petitioner need not establish that specific persons actually accessed or received a work to show that the work was publicly accessible. The Court remanded to the PTAB to consider whether, based on the listserv email, the evidence established that an ordinarily skilled artisan could have accessed the WD4 reference after exercising reasonable diligence. The Court suggested the PTAB examine whether a person of ordinary skill, exercising reasonable diligence, would have joined the listserv, and the circumstances of the listserv email itself—for example, why the email was sent and whether it was covered by an expectation of confidentiality.
PATENTS / AIA / FIFTH AMENDMENT (TAKING) CHALLENGE
Retroactive Application of IPRs to Pre-AIA Patents Is Not Unconstitutional Taking
Mandy H. Kim
The US Court of Appeals for the Federal Circuit addressed for the first time whether the retroactive application of inter partes review (IPR) proceedings to pre-America Invents Act (AIA) patents is an unconstitutional taking under the Fifth Amendment, and concluded that it is not. Celgene Corp. v. Peter, Case Nos. 18-1167, -1168, -1169 (Fed. Cir. July 30, 2019) (Prost, CJ).
Coalition for Affordable Drugs VI LLC (CFAD) filed four IPR petitions challenging the validity of two patents owned by Celgene that cover methods and improved methods for safely distributing teratogenic or other potentially hazardous drugs while avoiding exposure to a fetus to avoid adverse side effects. In each of its final written decisions, the Patent Trial and Appeal Board (PTAB) concluded that CFAD had shown by a preponderance of the evidence that all claims of each patent were unpatentable as obvious over the instituted grounds. Celgene appealed.
Celgene argued that the PTAB erred in finding all claims of both patents obvious, and that the retroactive application of IPRs to patents filed before September 16, 2012, when the relevant provisions of the AIA went into effect, is an unconstitutional taking. CFAD did not participate in the appeal, and the director of the US Patent and Trademark Office (PTO) intervened pursuant to 35 USC § 143.
The Federal Circuit affirmed the PTAB’s decisions, holding all claims of both patents obvious over the asserted prior art.
Turning to the constitutional issue of whether the retroactive application of IPRs to pre-AIA patents is an unconstitutional taking, the Court first concluded that its discretion was appropriately exercised to hear Celgene’s constitutional challenge for the first time on appeal even though Celgene did not raise it before the PTAB. The Federal Circuit explained that resolving the constitutional issue was purely a question of law that was sufficiently briefed for its review, and further, that interests of justice warranted addressing the retroactivity question given the growing number of retroactivity challenges following the Supreme Court of the United States’ 2018 Oil States decision (IP Update, Vol. 21, No. 5).
Turning next to the merits of Celgene’s constitutional challenge, the Federal Circuit held that the retroactive application of IPRs to pre-AIA patents is not an unconstitutional taking. The Court rejected Celgene’s regulatory takings theory arguing that subjecting its pre-AIA patents to IPR, a procedure that did not exist at the time its patents issued, unfairly interfered with its reasonable investment-backed expectations without just compensation. In so doing, the Court reasoned that “for the last forty years, patents have also been subject to reconsideration and possible cancellation by the PTO,” and “IPRs do not differ significantly enough from preexisting PTO mechanisms for reevaluating the validity of issued patents to constitute a Fifth Amendment taking.” Although Celgene identified a number of differences between ex parte and inter partes reexamination predecessors and IPRs, the Federal Circuit stated that those differences did not outweigh the far more significant similarities of purpose and substance to effectuate an unconstitutional taking.
PATENTS / CLAIM CONSTRUCTION / CLEAR DISAVOWAL
Clear Disavowal in Specification Can’t Be Remedied by Non-Material Change in Claims
Addressing an appeal from four related actions concerning Orange Book patents covering Suboxone® sublingual film, the US Court of Appeals for the Federal Circuit affirmed the district court’s judgments that certain generic manufacturers did not infringe a patent because the specification limited the scope of the claims by disparaging a particular embodiment. Indivior Inc. et al. v. Dr. Reddy’s Laboratories, S.A. et al., Case Nos. 17-2587, 18-1010, -1058, -1062, -1114, -1115, -1176, -1177 (Fed. Cir. July 12, 2019) (Lourie, J) (Mayer, J, dissenting).
Indivior markets and holds the new drug application for Suboxone film, an opioid addiction treatment that combines the opioid buprenorphine and the opioid antagonist naloxone. Suboxone film is applied below a patient’s tongue, where it rapidly dissolves to release the active ingredients. Indivior owns patents that generally relate to methods of producing films that have drug content uniformity using controlled drying techniques that avoid the rippling problems produced by conventional drying methods. The specification distinguished Indivior’s invention from conventional drying methods, which apply hot air to the top of the film, thus producing non-uniform films.
Several generic drug companies filed abbreviated new drug applications (ANDAs) to market generic versions of Suboxone film. Indivior then brought several actions for patent infringement against the generic drug manufacturers, including Dr. Reddy’s Laboratories (DRL), Watson and Alvogen, accusing them of infringing Indivior’s patents. After conducting four bench trials, the district court found that two patents were not invalid, that DRL did not infringe those two patents and that Alvogen did not infringe one of those patents. In finding noninfringement, the district court relied on the patentee’s disclaimer and construed the drying limitation to mean “dried without solely employing conventional convection air drying from the top,” finding that this limitation, as construed, was not met by the accused films. The generic drug manufacturers appealed the validity finding, and Indivior cross-appealed the noninfringement findings against DRL and Alvogen.
On appeal, the Federal Circuit found that the district court correctly construed the drying limitation because the patent specification disclaims conventional top air drying. In doing so, the Court cited the patent specification’s express statements regarding what the applicant regarded the invention to be, its repeated disparagement of conventional top drying methods, and the patent applicant’s characterization of the invention during prosecution. The Court further noted that it had previously concluded that the same language in the specification in a related patent limited the scope of the claims, even though the patentee had specifically amended the claims to remove the words “dried” and “drying.”
Affirming that the patent specification unmistakably disclaimed conventional top air-drying, the Federal Circuit concluded that DRL’s and Alvogen’s ANDA products did not infringe.
The majority also concluded that the generic companies had failed to prove that any of the asserted patents were invalid by clear and convincing evidence, finding that the claims were neither indefinite nor obvious.
In his dissent, Judge Mayer argued that a person of skill in the art “would have readily recognized that switching the location of the heat source from the top to the bottom would likely ameliorate the problem of films that were overly dry on the top and overly wet on the bottom. Indeed, any person having basic familiarity with a kitchen oven would certainly appreciate that, since hot air rises, heating an item from the bottom rather than the top facilitates uniform baking.” Quoting KSR, Mayer stated that “[g]ranting patent protection to advances that would occur in the ordinary course without real innovation retards progress,” and that “‘[r]igid preventative rules that deny factfinders recourse to common sense’ have no place in the obviousness analysis.”
Practice Note: A specification can limit the scope of a claim (regardless of the specific claim language used) where it repeatedly disparages a particular embodiment. Here, the specification disparaged conventional top air drying, explaining that it did not produce uniform films, which were the central object of the claimed invention. Such statements, especially when coupled with examples of disparaging comparisons, may preclude a patentee from claiming the full scope of the invention if a court finds that the disclaimer is unequivocal and clear. Moreover, such disparagement may also affect related applications in the same family.
PATENTS / DOCTRINE OF EQUIVALENTS / PROSECUTION HISTORY ESTOPPEL
Doctrine of Equivalents – It’s Over Before It Begins
Amy M. Lange
The US Court of Appeals for the Federal Circuit affirmed a dismissal based on the defendant’s failure to state a claim motion, concluding that under principles of prosecution history estoppel, the patent owner could not establish infringement under the doctrine of equivalents based on prosecution history estoppel. Amgen Inc. v. Coherus Biosciences Inc., Case No. 18-1993 (Fed. Cir. July 29, 2019) (Stoll, J).
Amgen sued Coherus for infringement of a patent directed to a method of purifying recombinant proteins using hydrophobic interaction chromatography (HIC) after Coherus filed an abbreviated biologic license application indicating its intent to manufacture and market a biosimilar version of Amgen’s pegfilgrastim product Neulasta. Each claim of Amgen’s patent requires an elution buffer chosen from one of three buffer combinations. Because Coherus’ purification method used an elution buffer that was different from the three indicated buffer combinations in Amgen’s patent, Amgen alleged infringement under the doctrine of equivalents.
Coherus filed a motion to dismiss, arguing that Amgen was precluded from asserting infringement under the doctrine of equivalents because Amgen surrendered combinations of salts that were different from those three recited in the claims during prosecution of the application for the asserted patent. Specifically, Coherus argued that Amgen differentiated its claims from the Holtz prior art reference, which disclosed several salts for improving hydrophobic interactions in chromatography. Coherus further asserted that Amgen argued during prosecution that Holtz (1) did not recite any particular combination of salts, (2) did not recite the particular combinations of salts in the pending claims, and (3) did not disclose increasing dynamic capacity, which is the amount of protein that can be added to the column at once. During prosecution, Amgen also provided a declaration from an inventor specifying that the three specific combinations of salts in the asserted patent had the characteristic of allowing for substantial increases in dynamic capacity, and the declaration did not discuss any other salt combinations. The district court granted Coherus’s motion, finding that Amgen distinguished its claims from Holtz by pointing out that Holtz did not disclose “one of the particular recited combinations of salts,” and this resulted in prosecution history estoppel, which precluded infringement under the doctrine of equivalents. Amgen appealed.
The Federal Circuit affirmed, finding that “Amgen clearly and unmistakably surrendered salt combinations other than the particular combinations recited in the claims.” The Court further noted that when multiple bases are presented during prosecution by which to distinguish an application from prior art, each is a sufficient basis for prosecution history estoppel as long as the bases were not used in combination to distinguish from prior art. The Court also noted that it does not matter if an assertion made by the applicant during prosecution was actually required for a patent to issue; if the applicant made the assertion, that is a sufficient basis for estoppel.
Practice Note: Care must be taken in overcoming prior art during prosecution. Each basis asserted by the applicant in distinguishing from prior art creates an opportunity for a prosecution history estoppel.
PATENTS / AIA / CLAIM CONSTRUCTION
Narrow Claim Construction Is Out of Sync with Broad Intrinsic Evidence
Addressing the proper construction for two claim terms construed by the Patent Trial and Appeal Board (PTAB) as part of related inter partes review (IPR) proceedings, the US Court of Appeals for the Federal Circuit affirmed the PTAB’s decision invalidating certain claims, but vacated and remanded as to other claims because the PTAB erred by improperly reading limitations from a preferred embodiment into the claims in its claim construction. TQ Delta, LLC v. Dish Network LLC, Case No. 18-1799 (Fed. Cir. Jul. 10, 2019) (Wallach, J); Cisco Systems, Inc. v. TQ Delta, LLC, Case No. 18-1806 (Fed. Cir. Jul. 10, 2019) (Wallach, J).
TQ Delta owns a patent directed to multicarrier transmission systems that provide high-speed data links between communication points. The patent claims an apparatus for waking up a transmission system from low power mode using a “synchronization signal,” and allowing the system to rapidly exit low power mode “without needing to reinitialize” by using parameters stored prior to entering low power mode. Dish filed an IPR petition seeking to invalidate claims 6, 11, 16 and 20 of the patent. Cisco filed an IPR petition seeking to invalidate those same claims over the same prior art, and also to invalidate claims 1–5, 7–10, 12–15 and 17–19 of the patent based on different prior art.
The PTAB instituted IPR and ultimately found claims 6, 11, 16 and 20 unpatentable, but determined that claims 1–5, 7–10, 12–15 and 17–19 of the patent were not unpatentable. TQ Delta appealed the findings as to claims 6, 11, 16 and 20 (TQ Delta v. Dish), and Cisco appealed the findings as to claims 1–5, 7–10, 12–15 and 17–19 (Cisco v. TQ Delta).
In TQ Delta v. Dish, TQ Delta challenged the PTAB’s construction of the term “without needing to reinitialize.” The PTAB construed the term “without needing to reinitialize” as being satisfied “if any step of the initialization is avoided and does not require that every step of initialization be avoided.” TQ Delta argued that the PTAB erred and that the plain and ordinary meaning of the term is “without needing to perform any step of the initialization process.”
The Federal Circuit upheld the PTAB’s construction, concluding that it was supported by the intrinsic evidence. In terms of the claim language itself, the Court noted that the claims use the term “reinitialize” but do not refer to a prior or first initialization. Thus, the Court reasoned that the term “reinitialize” must refer to the full initialization process described in the specification, noting that the specification indicates that upon waking from low power mode, it is not necessary to “repeat the initialization that was earlier required to establish the requisite parameters.” The specification explains that transceivers, when waking from inactivity, performed “full . . . initialization.” The Court also noted that nothing in the specification suggested a way to rapidly exit low power mode while avoiding the initialization process entirely. Using the PTAB’s construction, the Court found that substantial evidence supported the PTAB’s obviousness finding of the challenged claims.
In Cisco v. TQ Delta, the Federal Circuit found error in the PTAB’s construction of the term “synchronization signal.” The PTAB had construed the term to mean “a signal allowing synchronization between the clock of the transmitter of the signal and the clock of the receiver of the signal.” The Court found that the intrinsic evidence did not support this narrow construction, given that the term is not limited to describing what a signal must synchronize or to a particular type of synchronization. The Court found that while the preferred embodiment indicates that clock-based synchronization is “advantageous,” it is improper to read limitations from a preferred embodiment into the claims, absent clear indication by the patentee to do so. Having found sufficient alternate embodiments in the specification that support both timing and frequency synchronization, the Court found that the term “synchronization signal” means “used to establish or maintain a timing relationship between transceivers between the transmitter of the signal and the receiver of the signal.” The Court vacated the PTAB’s decision and remanded with instructions to determine whether the prior art invalidated the challenged claims under the proper construction.
Practice Note: In TQ Delta v. Dish, TQ Delta also argued that the PTAB violated TQ Delta’s rights by relying on a new claim construction for “without needing to synchronize” between the institution and final written decision phases. The Federal Circuit found that TQ Delta’s rights were not violated because TQ Delta was provided with notice of the construction at the oral hearing and further had an opportunity to respond through the ability to “seek a sur-reply or rehearing.” This decision indicates that it is entirely possible for the PTAB to construe or reconstrue a term in the final written decision, if proper notice and an opportunity to be heard is provided.
PATENTS / AIA / APPELLATE STANDING
No Competitor Standing for Appeal of IPR Decision Upholding Claims
Alexander P. Ott
Again addressing the question of appellate standing for inter partes review (IPR) decisions, the US Court of Appeals for the Federal Circuit held that an IPR petitioner did not show a sufficient injury to confer Article III appellate standing where challenged claims that had not been asserted against the petitioner survived IPR. General Electric Co. v. United Techs. Corp., Case No. 17-2497 (Fed. Cir. July 10, 2019) (Reyna, J).
In early 2016, General Electric (GE) filed an IPR petition against a United Technologies patent directed to a geared-fan engine design. GE went on to file 31 other IPR petitions against United Technologies patents over the next three years without any pending district court litigation or other attempt by United Technologies to enforce its patents. In the IPR in issue here, the Patent Trial and Appeal Board instituted review on GE’s petition but ultimately refused to find five of the challenged patent claims unpatentable. GE appealed.
On appeal, the threshold question was whether GE had standing to appeal the decision despite not being accused or threatened with infringement by United Technologies. GE first asserted competitive harm due to an instance where Boeing requested that GE and its competitors submit proposed engine designs and GE chose not to submit a design for a geared-fan engine. The Federal Circuit found this argument unpersuasive because GE did not contend that it decided against submitting a geared-fan engine because of the challenged patent and because GE did not even say whether it lost that bid. The Court also noted that GE’s status as a competitor to United Technologies was insufficient due to its previous decision on competitor standing in AVX Corp. v. Presidio Components, Inc. (IP Update, Vol. 22, No. 6).
GE separately argued that it had sustained an economic loss due to the increased research and development costs in designing around the challenged patent. The Federal Circuit found this assertion unpersuasive because GE did not articulate any specific costs that it had incurred or explain how any increased research and development costs were related to designing around the challenged patent. The Court consequently dismissed the appeal for lack of Art. III standing.
Judge Hughes wrote a concurring opinion agreeing that the dismissal was required by the Court’s competitor standing decision in AVX Corp. but arguing that that decision was mistaken. Judge Hughes concluded that he would have found standing in this case if he was not bound by that earlier decision.
PATENTS / VENUE / FRIVOLOUS APPEAL
Unique Procedural Posture Leads to No Sanctions in Frivolous Appeal
Michael S. Stanek
Reaffirming that the plaintiff in a patent case has the burden of establishing that venue is proper, the US Court of Appeals for the Federal Circuit affirmed a district court’s dismissal. The Court ultimately denied the defendant’s request for sanctions, however, because the question of which party bears the burden relating to venue had not been decided when the appeal was filed. Westech Aerosol Corporation v. 3M Company, GTA-NHT, Inc. DBA Northstar Chemical, Case No. 18-1699 (Fed. Cir. July 5, 2019) (Reyna, J).
In January 2017, Westech filed a patent infringement suit in the Western District of Washington against 3M and Northstar Chemical. 3M moved to dismiss for failure to state a claim, prompting Westech to file an amended complaint. In May 2017, after Westech filed an amended complaint that 3M also moved to dismiss, the Supreme Court of the United States issued its decision in TC Heartland (IP Update, Vol. 20, No. 5), finding that for purposes of the patent venue statute, 28 USC § 1400(b), a corporation “resides” only in the state where it is incorporated.
Following TC Heartland, 3M amended its motion to dismiss, arguing that venue was improper because neither 3M nor Northstar had a regular and established place of business in the Western District of Washington. In response, Westech conceded that the amended complaint did not assert facts that supported venue under TC Heartland, and thus sought leave to amend its complaint. Westech filed a second amended complaint. However, instead of pleading any facts to support proper venue, Westech simply parroted the language of § 1400(b). 3M once again moved to dismiss for improper venue, just before the Federal Circuit issued its decision in In re: Cray Inc. (IP Update, Vol. 20, No. 9), which held that for purposes of venue, a defendant must have a physical place in the district that serves as a regular and established place of business. The district court found that venue was improper because there was no factual basis showing that 3M or Northstar had a regular and established place of business in the district. Westech appealed.
The Federal Circuit found that Westech failed to show that venue was proper in the Western District of Washington. The Court noted that under In re: ZTE (USA) Inc. (IP Update, Vol. 21, No. 6), Westech has the burden of establishing that venue is proper, and under Cray, the regular and established place of business must be physically present in the district. The Court found that Westech failed to plead any facts showing that 3M had a regular and established place of business in the Western District of Washington.
After Westech had filed its opening brief on appeal, 3M moved for sanctions, arguing that Westech’s appeal was frivolous because the district court’s judgment was plainly correct and because Westech disregarded both Cray and ZTE in its appeal brief. The Federal Circuit found that the appeal was not frivolous “as filed” because ZTE issued after Westech filed its opening brief. The Court found that the appeal was frivolous “as argued,” however, because Westech ignored Cray and ZTE despite being aware of both decisions during the pendency of the appeal. While the Court noted that Westech’s behavior on appeal bordered on sanctionable, the Court found that sanctions were unwarranted because the question of who shoulders the burden of establishing venue had not yet been answered at the time Westech filed the appeal.
PATENTS / WILLFULNESS / EXCEPTIONAL CASE
Timeframe of Willful Infringement a Factor when Considering Attorneys’ Fee Award
The US Court of Appeals for the Federal Circuit modified its original decision in SRI International, Inc. v. Cisco Systems, Inc., vacating the district court’s award of attorneys’ fees because it was based on a now vacated willful infringement finding, and remanding for further consideration. SRI International, Inc. v. Cisco Systems, Inc., Case No. 17-2223 (Fed. Cir. modified July 12, 2019) (Stoll, J) (Lourie, J, dissenting).
In its original opinion issued in March 2019 (IP Update, Vol. 22, No. 4), a divided Federal Circuit panel affirmed a district court decision finding that a claimed method in SRI’s patent for monitoring and analyzing a computer network was directed to an improvement in computer capability, was not abstract and thus was patent eligible. The Court also found that the district court did not abuse its discretion in finding that this case was exceptional under § 285. Specifically, the district court awarded SRI the attorneys’ fees, concluding that fees were warranted because Cisco “maintain[ed] 19 invalidity theories until the eve of trial but only present[ed] two at trial,” and because the jury found that Cisco willfully infringed SRI’s patent before and after May 2012. After the original opinion issued, Cisco filed a petition for panel rehearing.
The Federal Circuit granted in part and denied in part the petition for rehearing, withdrawing the original opinion and replacing it with a modified opinion. In connection with willfulness, the Court found that the record was insufficient to establish that Cisco’s conduct prior to Mary 2012 rose to the level of wanton, malicious and bad-faith behavior required for willful infringement. The Court noted that Cisco only became aware of SRI’s patent in May 2012 when SRI sent its notice letter, and thus concluded that Cisco could not have willfully infringed before May 2012. Because the district court’s award of attorneys’ fees was based on the now vacated willfulness finding, the Court vacated the attorneys’ fees award and remanded the case for further consideration regarding willfulness.
PATENTS / AIA / PRIOR ART / EVIDENCE OF EARLIER CONCEPTION
Uncorroborated Inventor Testimony Cannot Establish Earlier Conception Date
Stephen J. Smith
The US Court of Appeals for the Federal Circuit affirmed a Patent Trial and Appeal Board (PTAB) determination that the patent owner could not establish an earlier date of invention based on evidence originating from the inventors that was not independently corroborated, and thus affirmed that the patents-in-suit were unpatentable as obvious over the prior art. Kolcraft Enterprises, Inc. v. Graco Children’s Products, Inc., Case Nos. 18-1259, -1260 (Fed. Cir. July 2, 2019) (Prost, CJ).
Graco Children’s Products filed a petition for inter partes review challenging two Kolcraft design patents related to playpens as—among other things—unpatentable over a particular prior art reference. In its patent owner response, Kolcraft sought to antedate the prior art based on a redacted inventors’ declaration with attached exhibits (Inventor Declaration) and on the inventors’ deposition testimony. Notably, the redactions included the alleged dates of conception and reduction to practice. During deposition, one of the inventors testified that the redacted dates “were based on metadata associated with the computer files containing the exhibits.” One day before the oral hearing, Kolcraft filed an unredacted version of the Inventor Declaration. During the hearing, Kolcraft admitted that the unredacted Inventor Declaration was not part of the evidentiary record.
The PTAB found that Kolcraft had failed to demonstrate that it was entitled to an earlier conception date. The PTAB explained that the redacted Inventor Declaration and accompanying exhibits were “undated and find identification, if at all, only via the conclusory and uncorroborated testimony of the inventors.” Further, the PTAB determined that Kolcraft had waived its reliance on the inventors’ deposition testimony regarding prior conception because it raised that issue for the first time during the hearing. Having determined that Kolcraft could not establish prior conception, the PTAB determined that the patents-in-suit were obvious over the prior art reference. Kolcraft appealed.
Noting that the case “turns on the corroboration of inventor testimony,” the Federal Circuit reiterated its holding in Apator Miitors v. Kamstrup (Fed. Cir. 1996) that “[i]nventor testimony of conception must be corroborated by other, independent information.” Turning to the Inventor Declaration and the inventors’ deposition testimony, the Court explained that both “originated with the inventors of the [patents-in-suit]” themselves.” The Court also determined that the PTAB’s refusal to consider the unredacted Inventor Declaration and inventor deposition testimony was “immaterial” because both pieces of evidence “are supported solely by the inventors themselves.” Similarly, the Court explained that the alleged dates of the exhibits accompanying the Inventor Declaration were supported only by the inventors’ testimony. Thus, the Court concluded that “[t]here is no evidence in the record independently corroborating the inventors’ alleged conception prior to [the prior art].”
The Federal Circuit also rejected Kolcraft’s argument that the metadata associated with the exhibits established an earlier conception date. The Court noted that the metadata was not part of the record, and that the only other evidence addressing the metadata was the inventors’ deposition testimony, “which [wa]s insufficient to corroborate inventor testimony of prior conception.”
Thus, the Federal Circuit found that substantial evidence supported the PTAB’s finding that Kolcraft had not established a conception date prior to the asserted prior art.
Practice Note: Documentary evidence authored by an inventor will not corroborate an inventor’s testimony regarding prior conception. When necessary, parties should affirmatively take necessary steps to make any metadata part of the record before relying on it.
PATENTS / DESIGN PATENTS / AESTHETIC FUNCTIONALITY
Keep on Truckin’: Aesthetic Functionality Has No Part in Design Patent Validity
Addressing the issue of the functional requirements of design patents, the US Court of Appeals for the Federal Circuit refused to invalidate design patents on truck parts on the basis of aesthetic functionality. Automotive Body Parts Association v. Ford Global Technologies, LLC, Case No. 18-1614 (Fed. Cir. July 23, 2019) (Stoll, J).
At issue were Ford’s design patents on its F-150 truck hood and headlamp. Ford accused members of the Automotive Body Parts Association (ABPA) of infringing on its patents. The ABPA sued Ford, seeking a declaratory judgment that the design patents were invalid or unenforceable. The district court entered summary judgment in favor of Ford, noting that the ABPA was essentially asking the court to eliminate design patents on auto parts. The ABPA appealed.
The Federal Circuit first addressed the ABPA’s invalidity argument. The ABPA argued that consumers seeking replacement parts prefer hoods and headlamps that restore the original appearance of their vehicles and that there is a functional benefit to designs that are aesthetically compatible with those vehicles. The Court disagreed, holding that “for a particular design to match other parts of a whole, the aesthetic appeal of a design to consumers is inadequate to render that design functional.” To hold that designs that derive commercial value from their aesthetic appeal are functional would gut the very principles of a design patent, the Court noted.
The ABPA next argued that the Federal Circuit should apply “aesthetic functionality” from trademark law, which provides that purely aesthetic features can only be protected if they are non-functional. The Court again rejected the ABPA’s argument, pointing out that trademarks and design patents serve different purposes and have different governing law. Trademarks ensure brand awareness, whereas design patents expressly grant exclusive rights to the owners to a particular aesthetic for a limited period.
Next, the ABPA asked the Court to limit Ford’s ability to enforce its design patents to only the initial market for the sale of the F-150, and not the aftermarket for replacement parts. The ABPA reasoned that consumers have different concerns in different contexts and care less about the design when selecting a replacement part. The Court dismissed those argument as unpersuasive, unsupported and contrary to an abundant record of evidence.
America Invents Act
PTAB: Lawyers Permitted to Confer with Witnesses to Prepare Redirect
Brian A. Jones
Addressing the scope of Patent Trial and Appeal Board (PTAB) guidelines that prohibit lawyers from conferring with their witness during cross-examination, the PTAB designated as precedential a 2014 decision permitting lawyers to confer with their witness after cross-examination ends and before any recross begins. Focal Therapeutics Inc. v. SenoRx, Inc., Case No. IPR2014-1593 (PTAB July 21, 2014) (Bonilla, APJ) (designated precedential July 10, 2019). According to the decision, a lawyer is permitted to confer with her witness to prepare a redirect.
The PTAB’s Patent Trial Practice Guide sets forth certain Testimony Guidelines. Among other rules, the Guidelines prohibit lawyers from conferring with their witnesses during cross-examination. The Guidelines state in the relevant part:
Once the cross-examination of a witness has commenced, and until cross-examination of the witness has concluded, counsel offering the witness on direct examination shall not: (a) consult or confer with the witness regarding the substance of the witness’ testimony already given, or anticipated to be given, except for the purpose of conferring on whether to assert a privilege against testifying or on how to comply with a Board order; or (b) suggest to the witness the manner in which any questions should be answered.
The question presented to the PTAB was simple: when does cross-examination conclude? Does it span the entire time of the deposition to include cross-examination, redirect and recross, or does it conclude with the end of the initial of cross-examination?
The PTAB determined that “cross-examination” includes cross-examination and recross, but it does not include the entire deposition. The prohibition on conferring with a witness does not exist between the conclusion of cross-examination and the start of recross. As a result, lawyers are permitted to confer with the witness to prepare a redirect examination.
Practice Note: The Guidelines permit the parties to come to their own agreement regarding the conduct of depositions, including whether to permit conferring with witnesses before redirect.
TRADEMARKS / INDEMNIFICATION / ADVERTISING INJURY
Dental Company’s Indemnification Claim “Bites”
The US Court of Appeals for the First Circuit affirmed the dismissal of a dental product manufacturer’s suit against its insurer, holding that the IP exclusion in the policy expressly excluded the trademark claims over which the insured sought coverage. Sterngold Dental, LLC v. HDI Global Insurance Company, Case No. 18-2084 (1st Cir. July 2, 2019) (Selya, J).
Intra-Lock sued Sterngold, alleging that Sterngold had infringed Intra-Lock’s OSSEAN trademark by using the marks OSSEO and OSSEOs for a nearly identical product. Sterngold asked HDI to defend the lawsuit and provide indemnification, but HDI refused. After Sterngold settled the underlying lawsuit, it again requested that HDI indemnify it. HDI again refused, and Sterngold sued. The district court granted HDI’s motion to dismiss, holding that Sterngold’s insurance policy from HDI did not provide coverage for the lawsuit. Sterngold appealed.
Sterngold’s policy provided coverage for “personal and advertising injury[,]” defined as “the use of ‘another’s advertising idea’ or ‘[i]nfringing upon another’s copyright, trade dress or slogan in [an] advertisement.’” The policy had an IP exclusion that provided:
This insurance does not apply to: . . . “Personal and advertising injury” arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. Under this exclusion, such other intellectual property rights do not include the use of another’s advertising idea in your “advertisement”.
However, this exclusion does not apply to infringement, in your “advertisement”, of copyright, trade dress or slogan.
The First Circuit assumed without deciding that Intra-Lock’s claim alleged infringement of an “advertising idea” and thus constituted a covered “personal and advertising injury.” It went on to address the IP exclusion, which it described as Sterngold’s “most formidable obstacle.” The Court framed the question before it as “whether the advertising injury alleged in Intra-Lock’s complaint arose out of the claimed infringement of Intra-Lock’s trademark,” and concluded that it clearly did.
Sterngold’s argument for coverage focused primarily on the second sentence of the exclusion, which Sterngold argued took trademark infringement claims that did arise out of the use of another’s advertising idea out of the exclusion. The First Circuit disposed of this claim by concluding that the phrase “other intellectual property rights,” repeated in the first and second sentence of the exclusion, means that the second sentence only applies to those “other” rights—not to trademark infringement, which is independently listed in the first sentence. “Any other reading would render nugatory the plain language contained in the first sentence of the IP exclusion[,]” the Court stated.
Sterngold then argued that its OSSEO marks, used in internet advertising, were “slogans” and thus were expressly excluded from the IP exclusion by its third sentence. The First Circuit disposed of this argument by looking to Intra-Lock’s complaint, which never alleged that its OSSEAN marks were slogans or used the word “slogan,” and by considering the “plain and ordinary meaning” of the word “slogan.” Both paths foreclosed Sterngold’s argument that Intra-Lock had alleged the infringement of a “slogan.”
Practice Note: It is worthwhile for trademark infringement defendants to comb through their general liability policies to determine if there is any basis to seek defense or indemnification. However, defendants should be judicious about pursuing a suit for coverage where the “plain language” of their policy forecloses relief.
COPYRIGHTS / INJUNCTIVE RELIEF
That’s All He Wrote: Copyright Owners No Longer Enjoy Presumption of Irreparable Harm
Eleanor B. Atkins
Addressing for the first time the issue of whether a presumption of irreparable harm should apply in copyright infringement cases, the US Court of Appeals for the Third Circuit held that it did not, aligning the rule for copyright cases with the existing rule in patent cases. The Court vacated a permanent injunction and remanded for further proceedings. TD Bank N.A. v. Hill, Case No. 16-2897 (3d Cir. July 1, 2019) (Krause, J) (Cowen, J, concurring in part and dissenting in part).
At the end of his more-than-30-year tenure as CEO of Commerce Bank, Vernon W. Hill, II, co-authored a book about his experiences. Commerce hired the co-author and entered into a publishing agreement that defined Commerce as the “author” and “exclusive owner of all rights conveyed in the manuscript.” Additionally, Hill signed a letter to the publishing company in which Commerce was defined as the “author” of the work, and which stated that Hill “unconditionally guarantee[d] that the Work is a work made for hire within the meaning of the United States Copyright Law.” The manuscript, however, was never published, as Hill left Commerce in 2007 just a few months before it was purchased by TD Bank.
In 2012, Hill released a book focused largely on his post-Commerce business ventures, but which allegedly incorporated parts of the 2007 manuscript. When Hill’s book came to TD Bank’s attention, it applied to register the 2007 manuscript with the US Copyright Office and sued Hill for copyright infringement.
The district court granted summary judgment for TD Bank, finding that per Hill’s signed letter, Commerce owned the copyright as a work for hire. A year later, after TD Bank presented evidence that Hill was continuing to promote his book, the district court issued a permanent injunction enjoining Hill from publishing, marketing, distributing or selling the 2012 book. Hill appealed.
The Third Circuit agreed with the district court that TD Bank owned the copyright, but for different reasons. The Third Circuit reasoned that TD Bank was the owner of the copyright not through the work-for-hire doctrine, but because the agreement operated as an assignment
The Third Circuit vacated the permanent injunction, however, holding that eBay Inc. v. MercExchange, LLC (which rejected the presumption of irreparable harm in patent infringement cases) also applied to copyright infringement cases: “[A] court considering the propriety of a copyright injunction should no longer place a ‘thumb on the scales’ in favor of injunctive relief. . . . Irreparable harm in copyright cases ‘must be proven, not presumed.’”
Four factors are commonly used to evaluate whether a permanent injunction should be granted:
- Whether the moving party will suffer irreparable injury
- Whether there is an adequate remedy available at law for that injury
- The balance of hardships
- Public interest considerations
The Third Circuit found that three of the four factors favored Hill, and the outlying factor (the balance of hardships) was equal.
The Court held that Hill’s continued infringement, which “depriv[ed] [TD Bank] of the ‘right to not use the copyright’” was insufficient for irreparable harm: “Holding that a violation of ‘the right to not use the copyright’ necessarily amounts to irreparable harm would not only resurrect the presumption of irreparable harm, but make it irrebuttable.”
With respect to the second factor, the Court held that monetary relief was still sufficient even where, “as here, an accused infringer distributes an infringing product for free and the copyright holder makes no use of a work.”
Additionally, the public interest factor weighed in Hill’s favor since TD Bank admitted that it had no intention of publishing or licensing the copyrighted work, and the injunction prevented the public from access to Hill’s book. Moreover, the injunction “inflicted a far more subtle and insidious harm . . . by placing Hill in jeopardy of a contempt finding for sharing anything that ‘sounds too much like himself.’”
Judge Cowen concurred with the majority’s decision to vacate the permanent injunction, but dissented from its conclusion that TD Bank owned the copyright, arguing that TD Bank had waived the assignment issue and Hill’s letter failed “to convey an unmistakable intent to effect a present transfer” of his interest in the manuscript.