PATENTS / PTO ATTORNEY’S FEES
Supreme Court: PTO Not Entitled to Attorney’s Fees in District Court Appeals
In a unanimous decision authored by Justice Sotomayor, the Supreme Court of the United States held that the US Patent and Trademark Office (PTO) is not entitled to recover its attorney’s fees in an appeal to a district court from an adverse decision of the Patent Trial and Appeal Board (PTAB) under 35 USC § 145. Peter v. NantKwest, Inc., Case No. 18-801 (Supr. Ct. Dec. 11, 2019) (Sotomayor, Justice).
The question posed in this case was:
[W]hether such “expenses” [in § 145 proceedings] include the salaries of attorney and paralegal employees of the United States Patent and Trademark Office (PTO).
The answer was a resounding “no.”
The Patent Act provides two options to patent applicants for judicial review of an adverse PTAB decision. The applicant may appeal directly to the US Court of Appeals for the Federal Circuit under 35 USC § 141, in which case “[the court] shall review the decision from which an appeal is taken on the record before the [PTO],” 35 USC § 144. Alternatively, the applicant may file a civil action against the director of the PTO in the Eastern District of Virginia under 35 USC § 145, in which case the applicant may present additional evidence. If the applicant elects to bring such an action, § 145 provides that “[a]ll the expenses of the proceedings shall be paid by the applicant.”
The en banc Federal Circuit previously reversed a divided Federal Circuit panel decision and held that § 145 does not require applicants to pay the PTO’s attorney’s fees in the form of a pro rata share of the PTO personnel’s salaries. NantKwest, Inc. v. Iancu (IP Update, Vol. 21, No. 8).
In its en banc decision, the Federal Circuit found that “the American Rule prohibits courts from shifting attorneys’ fees from one party to another absent a ‘specific and explicit’ directive from Congress.” The Federal Circuit held that the phrase “[a]ll the expenses of the proceedings” falls short of this stringent standard.
However, in a previous case interpreting a similar provision of the Lanham Act, 15 USC § 1071(b)(3) (relating to appeals to the Eastern District of Virginia from a Trademark Trial and Appeal Board decision denying a trademark application), the US Court of Appeals for the Fourth Circuit held that § 1071(b)(3) does require a trademark applicant to pay the pro rata share of the PTO’s personnel expenses in defending the trademark action, win or lose. Shammas v. Focarino (IP Update, Vol. 18, No. 5).
The Supreme Court’s Decision
The Supreme Court resolved the question in favor of patent applicants, adopting the view of the Federal Circuit’s en banc decision that attorney’s fees are not encompassed in the phrase “[a]ll the expenses of the proceedings” in § 145. The Supreme Court agreed with the Federal Circuit that the “American Rule” is a bedrock principle that “[e]ach litigant pays its own attorney’s fees, win or lose, unless a statute or contract provides otherwise,” and provides a starting point for assessing whether § 145 authorizes payment of the PTO’s legal fees.
The Supreme Court emphasized that it has never suggested that any statute is exempt from the presumption against fee shifting or limited its American Rule inquiries to prevailing party statutes. The Supreme Court stated that it instead has developed a line of precedents addressing statutory deviations from the American Rule that do not limit attorney’s fees awards to prevailing parties. The Court also stated that the presumption against fee shifting was particularly important in this case because reading § 145 to permit an unsuccessful government agency to recover attorney’s fees from a prevailing party “would be a radical departure from longstanding fee-shifting principles adhered to in a wide range of contexts.”
The Supreme Court concluded that § 145’s plain text does not overcome the American Rule’s presumption against fee shifting, stating that definitions of “expenses,” while broad enough to include attorney’s fees, provided little guidance. Mere failure to foreclose a fee award “neither specifically nor explicitly authorizes courts to shift [fees].” Rather, the Supreme Court explained that the complete phrase “expenses of the proceeding” would not have been commonly understood to include attorney’s fees at the time § 145 was enacted. The Court also found that the modifier “all” did not transform “expenses” to reach an outlay that it would not otherwise include.
The Supreme Court also noted that in common statutory usage, the term “expenses” alone has never been considered to authorize an award of attorney’s fees with sufficient clarity to overcome the American Rule’s presumption. The Court stated that the appearance of “expenses” and “attorney’s fees” together across various statutes indicates that Congress understands the terms to be distinct and not inclusive of each other. Other statutes that refer to attorney’s fees as a subset of expenses show only that “expenses” can include attorney’s fees when so defined. The Court also stated that its precedent did not support the government’s position that the Court has used “expenses” to mean “attorney’s fees.”
Justice Sotomayor also noted that the Patent Act’s history reinforces that Congress did not intend to shift attorney’s fees in § 145 actions, and that there was no evidence that the PTO ever paid its personnel from sums collected from adverse parties. The Court also found that until this litigation, the PTO had never sought its attorney’s fees under § 145. The Court concluded that when Congress intended to provide for attorney’s fees in the Patent Act, it stated so explicitly, citing as an example 35 USC § 285.
PATENTS / SUBJECT MATTER ELIGIBILITY / ABSTRACT IDEA
Data Processing Software Checks Out as Patent Eligible
Addressing an issue of software subject matter eligibility, the US Court of Appeals for the Federal Circuit reversed the district court’s judgment on the pleadings under 35 USC § 101, finding claims related to error checking patent eligible. Koninklijke KPN N.V. v. Gemalto M2M GMBH et al., Case Nos. 18-1862, -1864, -1865 (Fed. Cir. Nov. 15, 2019) (Chen, J).
KPN asserted a patent that describes a device and improved method for error detection in data transmission systems. As binary code information travels through the air, environmental factors affect the transmission of data in different ways. Some environmental factors cause random errors whereas others may cause certain errors to repeat themselves through a data block in the same way. These persistent errors, also known as “systematic errors,” are the focus of the patent.
Data transmissions systems commonly generate a “check data” that checks whether data was accurately transmitted over a communications channel. Error detection systems compare data generated at both ends of the communications channel to infer whether errors occurred during transmission.
Prior technologies were unable to reliably detect systematic errors because they generated the same check data for corrupted and uncorrupted data. The invention overcame these problems by varying the way check data is generated from time to time so that the same defective check data does not continue to be produced for the same types of persistent systematic error.
Gemalto filed a motion for judgment on the pleadings under FRCP 12(c), asserting that all four claims of the patent were ineligible under § 101. The district court agreed. Applying the two-step framework laid out in the 2014 Supreme Court decision in Alice Corp. v. CLS Bank International (IP Update, Vol. 17, No. 7), the district court found all claims of the patent to be patent ineligible as directed to an abstract idea and containing no saving inventive concept. At step one of Alice, the district court found that the claims were directed to the “abstract idea of reordering data and generating additional data,” likening the asserted claims to data manipulation claims found ineligible in multiple Federal Circuit cases. The district court explained that the claims of the patent were abstract because they did “not say how data is reordered, how to use reordered data, how to generate additional data, how to use additional data, or even that any data is transmitted.” At step two, the district court concluded that the claims were ineligible because KPN’s “purported inventive concept [was] not captured in the claims.” KPN appealed, but only as to specific claims.
The Federal Circuit determined that the appealed claims were directed to a non-abstract improvement in an existing technological process (i.e., error checking in data transmissions) and therefore were patent eligible. Specifically, the Court found that claim 2 recited a specific implementation of varying the way check data is generated that improves the ability of prior art detection systems, and this improvement was akin to the type of non-abstract improvement the Court found to be patent eligible in its 2018 decision in Finjan v. Blue Coat System (IP Update, Vol. 21, No. 2). The Court found that the appealed claims represented a non-abstract improvement in the functionality of an existing technology process and not simply an abstract idea of manipulating data.
Practice Note: To increase the likelihood of a successful appeal on a § 101 issue case, patent owners should consider focusing their appeal on only the claim(s) most likely to pass muster under Alice—even if it means that other claims may be abandoned.
PATENTS / OBVIOUSNESS / ANALOGOUS PRIOR ART
Federal Circuit Snuffs Out PTAB Analogous Art Reasoning
The US Court of Appeals for the Federal Circuit vacated and remanded a decision of the Patent Trial and Appeal Board (PTAB), holding certain claims to be not obvious where the PTAB failed to consider record evidence that might have established that certain prior art was analogous to the claimed invention. Airbus S.A.S. v. Firepass Corp., Case No. 19-1803 (Fed. Cir. Nov. 8, 2019) (Stoll, J).
Firepass owns a patent on a fire prevention and suppression system that involves using oxygen-depleted but still-breathable (hypoxic) air in a sealed room. Airbus petitioned for an inter partes re-examination proceeding, asserting (as prior art) a reference by the same inventor (Kotliar) that involved using hypoxic air for athletic training. Airbus also asserted four additional prior art references relating to fire suppression and/or human performance in hypoxic atmospheres. As part of the re-examination, Firepass submitted new claims to be examined, and the examiner rejected each one as obvious over Kotliar alone or in combination with the additional references. Firepass appealed to the PTAB and argued that Kotliar could not support an obviousness rejection because it was not analogous prior art. Airbus responded that the four additional references showed that Kotliar was analogous prior art, but the PTAB refused to consider the four references in holding that Kotliar was not analogous art. The PTAB reversed the examiner’s rejection. Airbus appealed.
The Federal Circuit explained that art is analogous if it is either (1) from the same field of endeavor as the claimed invention, regardless of the problem addressed, or (2) reasonably pertinent to the particular problem with which the inventor is involved, even if the art is outside the field of endeavor. As to the first part of the test, the Court agreed with the PTAB’s determination that athletic training and fire suppression were separate fields of endeavor to be supported by substantial evidence. As to as to the second part of the test, however, the Court found that the references were relevant when considered with the knowledge and perspective of a person of ordinary skill in the art, and held that “the reasonably pertinent inquiry is inextricably tied to the knowledge and perspective of a person of ordinary skill in the art at the time of the invention.” Thus, the Court concluded that the PTAB erred by failing to consider the four additional references in making its determination, and remanded the case for the PTAB to consider the evidence before it.
Practice Note: The Federal Circuit observed in dicta that Firepass had failed to raise the non-analogous-art issue before the examiner, raising it for the first time before the PTAB. The Court also noted that Airbus failed to argue waiver before the PTAB. These remarks should be taken as a reminder that litigants should be careful to make their procedural arguments in addition to merits arguments.
PATENTS / CLAIM CONSTRUCTION / PREAMBLE
Travel Trailer Pulls Patent Around Prior Art
| Gilbert Smolenski
In an appeal stemming from the denial of a patent application under § 102(b), the US Court of Appeals for the Federal Circuit reversed the Patent Trial and Appeal Board (PTAB) by holding that the claims’ preambles were claim limitations that overcame anticipation over the cited prior art. In re: Fought, Case No. 19-1127 (Fed. Cir. Nov. 4, 2019 (Newman, J).
The patent application at issue contained two claims, each of which recited the same preamble: “A travel trailer having . . . .” The examiner rejected each claim under (pre-America Invents Act) § 102(b). A first reference, cited by the examiner to reject claim 1, described a conventional truck trailer such as a refrigerated trailer. The second reference cited by the examiner to reject claim 2 described a bulkhead for shipping compartments.
The applicant argued that “travel trailer” recited in the preamble of each claim should be considered a limitation on the scope of the claim and offered extrinsic evidence to define “travel trailer.” The examiner nevertheless maintained the anticipation rejections. The applicant appealed to the PTAB, again arguing that “travel trailer” in the preamble was a claim limitation and that the examiner erred by failing to specify the level of ordinary skill in the art. The PTAB affirmed without addressing the second issue. Applicant appealed to the Federal Circuit
Starting with the preamble issue, the Federal Circuit noted that whether a preamble is a limitation is a claim construction issue. Generally, a preamble “merely states the purpose of intended use of an invention” and is not treated as a limitation. However, a preamble may be a limitation when, for example, a claim relies on the preamble for antecedent basis to support other limitations.
Here, the Federal Circuit found that the recitation to a “travel trailer” was a preamble, notwithstanding that the claim did not use the traditional transitional language between the claim and the body, explaining that the word “having” performed the same function as would be performed by the more conventional transition “comprising.”
The Federal Circuit then found that the recitation of “travel trailer” served as antecedent basis for a term appearing in the body of a claim and should therefore be considered as a limitation. Turning to the definition of “travel trailer,” the Court found that the applicant’s extrinsic evidence supported a finding that “‘travel trailer’ is a specific type of recreational vehicle that includes a living quarters.” According to the Court, the extrinsic evidence demonstrated that the recitation to a “travel trailer” was not merely an intended use, but was instead a structural requirement. Accordingly, the Federal Circuit reversed the anticipation rejections, noting that the cited references did not disclose a travel trailer under this definition.
Finally, the Federal Circuit noted that the examiner did not err in failing to define the level of ordinary skill in the art, explaining that an examiner must only articulate the level of ordinary skill in the art when the applicant argues that the level of ordinary skill would change the result. Since the applicant never made such an argument, the examiner did not err in this regard.
Practice Note: Patent applicants should remember that a claim preamble may constitute a limitation on scope that may be relied on to overcome the application of certain prior art. Moreover, if an applicant wants to force an examiner to define the level of ordinary skill in the art, she must first present an argument that the examiner’s application of prior art would change depending on the level of ordinary skill in the art.
PATENTS / AIA / PRIOR ART
Unrebutted Declaration Supports Public Availability of Prior Art
Addressing the evidentiary showing necessary to prove whether a foreign publication is publicly available, the US Court of Appeals for the Federal Circuit found that the Patent Trial and Appeal Board (PTAB) did not abuse its discretion when it accepted a declaration submitted on behalf of the petitioner more than one month after institution of inter partes review (IPR), and that the declaration included sufficient information indicating that the reference was publicly available. Telefonaktiebolaget LM Ericsson v. TCL Corp., Case Nos. 17-2381, -2385 (Fed. Cir. Nov. 7, 2019) (Newman, J).
Ericsson owns a patent directed to a direct conversion receiver for wireless communication systems that may receive signals from systems that operate at different frequency bands. The alleged benefit to such a receiver is that it can receive multiple frequency bands without requiring significant hardware duplication. TCL filed two petitions for IPR relying on an article entitled “Multimodale Funktelefone,” written by Professor Hans-Joachim Jentschel et al. (Jentschel article). Ericsson’s primary argument at the PTAB was that the Jentschel article was not available as prior art as of the priority date of the challenged patent.
The Jentschel article was published in a German periodical, whose cover indicates the date “Mai/Juni” 1996:
May/June 1996 is more than one year prior to the effective filing date of the challenged patent. However, as the publication was not available in the United States until October 1996, TCL was required to prove publication in Germany during the May/June 1996 timeframe.
Six months after the PTAB’s decision to institute, TCL moved to submit the sworn declaration of Doris Michel, a librarian at the Technische Universität Darmstadt in Germany, in support of the Jentschel article’s public availability. Ericsson objected under 37 CFR § 42.123(b), which requires any party seeking to submit supplemental information more than one month after institution to show why the information reasonably could not have been obtained earlier. The PTAB allowed TCL to submit the declaration, relying on TCL’s statement that Michel was the only individual TCL was able to find with personal knowledge of the record-keeping procedures used in 1996, willing to sign a sworn declaration and willing to travel to the United States to be deposed.
Ericsson also argued that the Michel declaration was not sufficient to show public availability. The declaration indicated that Michel worked at the library in 1996, and based on library records, the journal issue dated May/June 1996 “was inventoried by the Library on June 18, 1996 [and] was openly accessible for use to the public after a processing time of 1–2 days.” Ericsson argued that precedent requires something more than simply shelving the document in a library, but submitted no evidence in rebuttal of the Michel declaration. The PTAB ruled that the Jentschel article was publicly available and ultimately ruled that the challenged claims of Ericsson’s patent were obvious. Ericsson appealed.
The Federal Circuit found that the PTAB did not abuse its discretion when it allowed TCL to supplement the record with the Michel declaration. The Court explained that “when the challenged evidence is reasonably viewed as material, and the opponent has adequate opportunity to respond and to produce contrary evidence, the interest of justice weighs on the side of admitting the evidence.” As to the content of the Michel declaration, the Court agreed with Ericsson that it did not bear the ultimate burden of proof with respect to the Jentschel article’s public availability. However, as Ericsson provided no evidence to counter the Michel declaration, the declaration combined with the library records and the journal itself were enough to show that the Jentschel article was publicly available in May/June 1996. Accordingly, the Court affirmed the PTAB’s rulings regarding public availability, and ultimately went on to affirm the PTAB’s finding that the Jentschel article, in combination with other references, rendered the challenged claim invalid as obvious.
PATENTS / AIA / OBVIOUSNESS / SUBSTANTIAL EVIDENCE (MOTIVATION TO COMBINE)
Unsupported Expert Testimony Isn’t Enough to Establish Motivation to Combine
The US Court of Appeals for the Federal Circuit determined that a Patent Trial and Appeal Board (PTAB) finding regarding motivation to combine based only on conclusory expert testimony was not supported by substantial evidence, and thus reversed the PTAB’s determination that the patents-in-suit were unpatentable as obvious over the prior art. TQ Delta, LLC v. Cisco Systems, Inc., Case Nos. 18-1766, -1767 (Fed. Cir. Nov. 22, 2019) (Stoll, J).
Cisco Systems filed two inter partes review (IPR) petitions challenging the patentability of two TQ Delta patents related to improving the signal to power ratio of electronic communications systems. The IPR petitions alleged that the challenged patents were unpatentable based on the combination of two prior art references, either alone or in combination with other prior art that was not at issue on appeal.
The PTAB invalidated all of the challenged claims as obvious based on the combination of the two prior art references, adopting Cisco’s positions regarding motivation to combine the two references—positions that largely relied on the testimony of Cisco’s expert. TQ Delta appealed to the Federal Circuit, arguing that the PTAB’s finding regarding motivation to combine was not supported by substantial evidence.
The Federal Circuit reiterated its oft-stated position that “conclusory expert testimony is inadequate to support an obviousness determination on substantial evidence review.” The Court distinguished expert testimony concerning one of ordinary skill in the art’s technical ability to combine particular prior art from motivation to actually make the alleged combination. The Court also explained that its case law stood for the proposition that expert testimony concerning mere “knowledge of a problem and motivation to solve it [is] entirely different from motivation to combine particular references.”
Turning to the facts of the appeal, the Federal Circuit explained that while both prior art references were focused on the same general field of technology as TQ Delta’s patents, they were not directed to solving the same problem. Indeed, the alleged prior art included neither an “express discussion of, nor any connection to” the patented solution. Nor did Cisco’s expert’s testimony provide the “necessary link.” Instead, the expert offered unsupported testimony that a skilled artisan would have been motivated to apply the teachings of the asserted prior art to solve the problem addressed by the patents-in-suit, and that the alleged combination “would have been a relatively simple and obvious solution” to that problem. The lack of supporting evidence rendered the expert’s testimony conclusory. The Federal Circuit explained that “[u]ntethered to any supporting evidence,” the expert’s “ipse dixit” testimony “‘fail[ed] to provide any meaningful explanation for why one of ordinary skill in the art would be motivated to combine [the asserted references] at the time of the invention’” and “in the way the claimed invention does.” Active Video (emphasis in original). Therefore, the expert’s testimony was “inadequate to support the Board’s fact finding regarding motivation to combine,” and thus the PTAB’s determination was unsupported by substantial evidence. Accordingly, the Court reversed the PTAB’s obviousness determination.
Practice Note: Expert testimony concerning motivation to combine must be supported by record evidence. Conclusory testimony that one of ordinary skill in the art would be motivated to undertake a particular prior art combination based merely on recognition of the problem addressed by the patent-in-suit is unlikely to suffice.
PATENTS / DOCTRINE OF EQUIVALENTS / ESTOPPEL
Doctrine of Equivalents: Prosecution History Estoppel Can Be Both Amendment and Argument-Based
In a case involving at-home glucose monitoring systems, the US Court of Appeals for the Federal Circuit found the patent owner was estopped from asserting a doctrine of equivalents theory of infringement based on subject matter surrendered during prosecution. Pharma Tech Solutions, Inc. v. LifeScan, Inc., Case No. 19-1163 (Fed. Cir. Nov. 22, 2019) (Stoll, J).
Pharma sued LifeScan for infringement of two patents concerning at-home blood glucose monitoring systems. Typical home blood glucose tests measure glucose by placing a drop of blood on a test strip that contains a pair of electrodes. An electrical potential is applied across the electrodes and the current is measured. This current measurement is used to determine the blood glucose level. Pharma’s patents improved upon the reliability and accuracy of at-home tests through a monitor that performed multiple current measurements to account for variability that might indicate measurement or user error.
The claims of Pharma’s patents require “converting” at least two current measurements into analyte concentrations using a calibration slope, and “comparing” the analyte concentrations to determine whether they are within a prescribed percentage of each other. The subject limitation was added by amendment in order to distinguish the claims from multiple prior art references cited by the examiner.
LifeScan’s accused product—an at-home blood glucose monitor that also takes multiple current measurements—calculated variability slightly differently than the claimed method. Rather than converting each current measurement into an analyte concentration and comparing the differences in analyte concentrations as recited in the patent, the LifeScan monitor compared the current measurements to ensure the difference between recorded currents was within a defined limit, then calculated a single analyte measurement based on the current measurements.
Recognizing that the LifeScan monitor did not fall within the literal scope of the claims, Pharma alleged infringement under the doctrine of equivalents. LifeScan responded that Pharma was estopped from asserting the doctrine of equivalents based on claim amendments and argument made during prosecution. After the district court agreed with LifeScan and granted summary judgment of non-infringement, Pharma appealed.
The Federal Circuit explained the well-settled notion that prosecution history estoppel can occur in two ways: by making a narrowing amendment to the claim (amendment-based estoppel), or by surrendering claim scope through argument to the patent examiner (argument-based estoppel). Here, the Court found that Pharma was estopped under both amendment-based estoppel and argument-based estoppel.
Under amendment-based estoppel, a patentee’s decision to narrow claims through amendment may be presumed to be a general disclaimer of equivalents in the territory between the original claim and the amended claim. This presumption may be overcome if the rationale underlying the amendment may be no more than a tangential relation to the equivalent in question. Here, Pharma presumptively surrendered any bioelectrical blood glucose monitoring system that did not convert a plurality of current readings into analyte concentration measurements and compare the resulting analyte measurements. The Federal Circuit found that this amendment was not tangential to the equivalent in question, because the inventors unambiguously distinguished their invention over the prior art based on these converting and comparing limitations.
Under argument-based estoppel, the issue turned on whether the prosecution history evinced a clear and unmistakable surrender of systems that did not convert and compare analyte concentration measurements. On this legal theory, the Federal Circuit found that the inventors clearly and unambiguously distinguished their invention over the prior art based on these limitations.
Accordingly, the Federal Circuit upheld the district court’s finding of both amendment-based and argument-based estoppel and affirmed summary judgment.
Practice Note: Fewer written arguments—and perhaps greater use of examiner interviews—during prosecution may help prevent estoppel issues.
PATENTS / AIA PROCEDURE / OBVIOUSNESS
Can You Hear Me Now? PTAB’s Reliance on Reference in Non-Instituted Ground Is Improper
Colin J. Stalter
The US Court of Appeals for the Federal Circuit reversed a finding of obviousness by the Patent Trial and Appeal Board (PTAB), concluding that the finding was based on a reference that was included only in a non-instituted ground. In re: IPR Licensing, Inc., Case No. 18-1805 (Fed. Cir. Nov. 22, 2019) (O’Malley, J).
IPR Licensing (IPRL) owns a patent directed to a mobile device that can dynamically connect to both a WiFi network and a cellular network, and automatically selects the best network for use. The claims of the patent require that (1) the mobile device maintains a connection with a cellular network even when it is not in use (e.g., when the device is also connected to WiFi), and (2) that the cellular network is CDMA-based. At the time the patent was filed, this type of always-on cellular connection feature was only included in competing cellular networking protocols (e.g., GPRS and UMTS).
In response to patent infringement suits brought by IPRL, ZTE and Microsoft filed petitions for inter partes review (IPR) of IPRL’s patent. The PTAB consolidated the petitions and instituted review on only one of three proposed grounds. The instituted ground was based on a combination of a prior art patent that disclosed a CDMA network, the GPRS standard and the IEEE 802.11 protocol. The PTAB found all challenged claims to be obvious.
IPRL appealed the obviousness finding, and the Federal Circuit remanded as to one of the challenged claims after finding that the record was insufficient to support the PTAB’s finding that a skilled artisan would have been motivated to combine a GPRS feature (i.e., always-on cellular connection) with a CDMA network. On remand, the PTAB, hearing no additional arguments from the parties, reached the same conclusion as in the initial decision. In its remand decision, the PTAB included a new motivation-to-combine reason that included reference to the UMTS protocol, which had only been asserted in a non-instituted ground. The citation to UMTS was the only additional evidentiary support provided by the PTAB. IPRL appealed.
The Federal Circuit found the PTAB’s reliance on UMTS improper. The Court reiterated that non-instituted grounds are not a part of the ensuing IPR proceeding and thus IPRL did not have notice that evidence outside of the record might be relied upon, and further did not have an opportunity to be heard on the non-instituted grounds. The Court noted that the reference to UMTS was not simply used to support the notion that a skilled artisan would have known that the always-on feature could be used with CDMA. Instead, the issue of whether the UMTS always-on feature could be used with CDMA was the critical question on remand, and the record did not include any argument that UMTS could be combined with CDMA.
The Federal Circuit also addressed the procedural issue of whether remand was necessary to consider the two non-instituted grounds under SAS Inst., Inc. v. Iancu (IP Update, Vol. 21, No. 5). The Court found that ZTE’s failure to file a cross-appeal did not mean that the Court lacked authority to remand as to the non-instituted grounds. However, ZTE’s withdrawal from the appeal pursuant to a settlement agreement constituted a waiver of its request to institute on the other two grounds. The Court thus reversed the PTAB’s finding of obviousness and vacated the judgment.
PATENTS / AIA / § 315(B) TIME-BAR
Got Served? The PTAB Must Figure It Out
The US Court of Appeals for the Federal Circuit addressed the Patent Trial and Appeal Board’s (PTAB’s) role in determining proper service under 35 U.S.C. §315(b), and found that the PTAB correctly determined that the petitioner had not been properly served with a complaint for patent infringement more than one year before filing its inter partes review (IPR) petition. Game and Tech. Co. v. Wargaming Grp Ltd., Case No. 19-1171 (Fed. Cir. Nov. 19, 2019) (Stoll, J).
Game and Technology (GAT) filed a patent infringement complaint against Wargaming on July 9, 2015. GAT hired a process server to serve an affiliate of Wargaming in the United Kingdom in December 2015. Although referencing “the Summons in a Civil Action issued herein, together with” attached documents, the summons served on Wargaming was not signed by the clerk of court and did not bear the court’s seal. GAT’s lawyer also mailed a copy of the complaint and summons to Wargaming’s Cyprus office in December 2015.
In February 2016, Wargaming’s counsel emailed GAT counsel stating, “we still do not believe that service was properly effected on either Wargaming entity. Nevertheless, we will waive service and our defenses to improper service in exchange for your agreement that we have until April 1 to answer or otherwise respond to the complaint.” Counsel for Wargaming appeared at a March 2016 scheduling conference and the next month filed a motion to dismiss for improper venue or alternatively for failure to state a claim. No formal waiver of service was ever filed with the district court.
On March 13, 2017, Wargaming filed an IPR petition, including a declaration by its general counsel stating that “Petitioner and real-parties-in-interest are not barred or estopped from requesting inter partes review . . . because they have not been served.” GAT’s preliminary response argued that Wargaming’s IPR petition was time-barred under § 315(b), and relied on its UK process server’s “witness statement of service” that a complaint for infringement was served in the United Kingdom in December 2015.
After reviewing the parties’ briefs and evidence, the PTAB acknowledged that the “record presents competing evidence as to whether Wargaming was served more than one year before the filing of the Petition,” and determined that development of the record would be required to resolve the factual issues underlying the time bar. In the meantime, the PTAB instituted the IPR. GAT subsequently submitted a supplementary brief, relying on both UK and Cyprus service, arguing that a “mere procedural printing error that caused the seal and signature to be missing from the copy of the summons properly served by [the process server in the United Kingdom] does not render the service ineffective.”
The PTAB issued a final written decision concluding that neither the UK nor Cyprus service triggered a § 315(b) time bar. Specifically, the PTAB found that the lack of signature and seal rendered the UK service non-compliant with Rule 4(a) of the Federal Rules of Civil Procedure. The PTAB stated that it has “no authority to overlook defects in service of a complaint in district court litigation and deem service to have occurred,” and that “no district court has deemed service to have occurred.” Similarly, the PTAB determined that the Cyprus service failed to satisfy Rule 4 because counsel for GAT had sent the summons but did not include a signed receipt as required by Rule 4. GAT appealed.
Under § 315(b), “[a]n inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner . . . is served with a complaint alleging infringement of the patent.” Under Click-to-Call v. Ingenio (IP Update, Vol. 21, No. 9), the “plain meaning of . . . ‘served with a complaint’ is ‘presented with a complaint’ or ‘delivered a complaint’ in a manner prescribed by law.” The Federal Circuit found that the PTAB erred as to statements about the PTAB’s authority or lack thereof to determine service. Because the PTAB’s authority to institute an IPR is dependent on whether the “petitioner . . . is served with a complaint,” the Court found that the PTAB “must necessarily determine whether service of a complaint alleging infringement was properly effectuated” and “cannot strictly rely on a district court’s determination of proper service.”
The Federal Circuit found GAT’s failure to raise certain arguments on appeal troubling, noting that its main argument was procedural—i.e., that “[c]ompliance with the time-bar requirement is a condition precedent to institution of an IPR, and thus a decision should have been rendered before institution of the IPR.” However, given that any harm to GAT would only have occurred if the IPR was time-barred, the Court declined to find error in the PTAB’s choice to decide the time-bar issue after institution of the IPR. The Court also noted that GAT’s brief included only a single paragraph regarding its substantive argument. Despite the PTAB’s rejection of GAT’s service arguments based on the plain language of Rule 4, GAT failed to address or show any specific errors in the PTAB’s findings. The Court explained that without more, GAT’s simple statement that it “provided proof [of the UK service] and provided proof that Wargaming’s counsel in writing on February 11, 2016 waived any defenses as to improper service” was an insufficient level of detail to properly preserve GAT’s arguments on appeal.
PATENTS / DESIGN PATENTS / INFRINGEMENT ANALYSIS
Cold Pattern Forecast: Piecemeal Design Evaluation Yields Improper Infringement Analysis
In a procedurally complicated case involving allegations of both utility and design patent infringement, the US Court of Appeals for the Federal Circuit found that a district court’s piecemeal approach to a design patent infringement analysis was erroneous for considering ornamental features in isolation, especially on summary judgment. Columbia Sportswear North America, Inc. v. Seirus Innovative Accessories, Inc., Case Nos. 18-1329, -1331, -1728 (Fed. Cir. Nov. 13, 2019) (Lourie, J).
Columbia owns a utility patent relating to heat reflective elements used in cold weather and camping gear, and a design patent covering an ornamental design of the heat reflective material. Columbia filed a complaint against Seirus in the US District Court for the District of Oregon asserting infringement of both patents. The district court granted summary judgment that Seirus’s products infringed the design patent, finding that a consumer would be hard-pressed to notice the differences between Columbia’s patented design and Seirus’s accused product, and characterizing the presence of Seirus’s logo as a minor difference. The district court set a jury trial to determine liability for the utility patent and damages for the utility and design patent. Before trial, the case was transferred to the Southern District of California. At trial, the jury awarded Columbia $3 million in damages for the design patent infringement. The jury also determined that Columbia’s utility patent claims were invalid as being anticipated and obvious. Columbia appealed the venue transfer and the jury verdict of invalidity of the utility patent. Seirus cross-appealed the summary judgment of the design patent infringement.
Addressing the utility patent, the Federal Circuit declined to consider Columbia’s challenges to the anticipation finding, stating that the jury independently and correctly found the patent to be invalid for obviousness. Columbia also asserted that Seirus failed to submit “competent expert testimony” to support the jury’s obviousness finding, arguing that the case involved a technical area beyond the training and education of most jurors. The Court disagreed, concluding that the technology here—coated materials for cold weather and outdoor products—is “easily understandable without the need for expert explanatory testimony.”
Columbia further argued that it was entitled to a new trial because:
- The district court declined to instruct the jury with Columbia’s proposed instructions on anticipatory ranges.
- Seirus’s expert falsely testified to the embodiments taught by one of the prior art references.
The Court concluded that, since the jury correctly found the claims to be obvious, any error in anticipatory instructions were harmless. Further, the Court found that the false expert testimony did not warrant a new trial since the jury could have easily verified any representations about the reference and Columbia had ample opportunity to cross-examine the expert.
Turning to the design patent, the Federal Circuit reversed the district court’s infringement decision, finding that there were jury-triable facts. The Court relied on its 1993 decision in L.A. Gear v. Thom McAn Shoe to note that while design infringement is not avoided “by labelling” with a logo, L.A. Gear does not prohibit a fact finder from considering “an ornamental logo, its placement, and its appearance as one among other potential differences between a patented design and an accused one.” The Court concluded that the district court erred in ignoring Seirus’s logo placement on the products in its infringement analysis and that the district court’s “piecemeal approach” in considering similarities of ornamental features in isolation was at odds with the law requiring a factfinder to analyze similarities in the overall design as a whole.
Turning to venue, the Federal Circuit noted that Seirus initially contested venue by relying on the Federal Circuit’s 1990 decision in VE Holding v. Johnson to argue that it was not subject to personal jurisdiction in Oregon. The district court declined to dismiss or transfer, finding that it had personal jurisdiction over Seirus. After the Supreme Court decided TC Heartland v. Kraft Foods (IP Update, Vol. 20, No. 5), overruling VE Holding, Seirus renewed its motion to dismiss or transfer the case to the Southern District of California.
The Federal Circuit found that the district court did not abuse its discretion in excusing Seirus’s conduct-based waiver of its venue defense based on an intervening change in law. Accordingly, the Federal Circuit affirmed the district court’s judgment as to the utility patent and remanded for further proceedings to the Southern District of California as to the design patent.
PTAB / TRIAL PRACTICE GUIDE
PTAB Issues Updated Trial Practice Guide: Yearly Updates Expected
On November 20, 2019, the Patent Trial and Appeal Board (PTAB) issued updated guidance for trial procedures in inter partes review (IPR) and post grant review (PGR) proceedings at the US Patent and Trademark Office in the new edition of the Trial Practice Guide.
For easier reading and greater consistency, the new edition incorporates the prior updates released in August 2018 (IP Update, Vol. 21, No. 9) and July 2019 (IP Update, Vol. 22, No.8) into the original August 2012 Practice Guide.
The new edition provides updated guidance on the impact of SAS Institute Inc. v. Iancu on the institution of trial. The new guide also replaces the prior “observations” practice with procedures for a more fulsome sur-reply. In addition, the PTAB has provided more opportunities to contact the PTAB to request an initial conference call, and it has updated the way word counts apply to specific filings. The PTAB has also updated the expected scheduling order for derivation proceedings and the default protective order.
TRADEMARKS / ATTORNEY’S FEE AWARD
Seventh Circuit Formally Adopts Octane Fitness Standard for Trademark Cases
The US Court of Appeals for the Seventh Circuit officially joined its sister circuits in holding that the Supreme Court standard for awarding attorney’s fees in patent cases, set forth in Octane Fitness, LLC v. ICON Health & Fitness, Inc., was equally applicable to attorney’s fees claims under the Lanham Act. In doing so, the Seventh Circuit overruled its prior holding that a plaintiff’s claims were only “exceptional” under the Lanham Act if they constituted an abuse of process. LHO Chicago River, LLC v. Perillo, Case. No. 19-1848 (7th Cir. Nov. 8, 2019) (Manion, J).
LHO Chicago, owner of the Hotel Chicago, sued defendants after the defendants opened a competing “Hotel Chicago” three miles from the plaintiff’s hotel. After more than a year of litigating, LHO moved to voluntarily dismiss its claims with prejudice, and the district judge granted the motion. Defendants then moved for attorney’s fees under § 1117(a) of the Lanham Act, which allows the court to award attorney’s fees to the prevailing party in “exceptional cases.”
The district court applied the Seventh Circuit’s then-prevailing standard, which only permitted a defendant to recover fees if the plaintiff’s claims had constituted an “abuse of process.” This standard required proof that the plaintiff’s claim was “(1) ‘objectively unreasonable because it is one a rational litigant would pursue only because it would impose disproportionate costs on his opponent’ . . . or (2) . . . a frivolous claim [brought] with the purpose of obtaining an advantage external to the litigation, ‘unrelated to obtaining a favorable judgment’” (quoting Seventh Circuit cases Burford v. Accounting Practice Sales, Inc. (2015) and Nightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC (2010)). The district court held that the plaintiff’s claims had not risen to this standard and denied the request for fees. Defendants appealed.
The sole issue on appeal was whether the Seventh Circuit would adopt the standard set forth by the Supreme Court in Octane Fitness v. ICON Health & Fitness (2014) (IP Update, Vol. 18, No. 8) for determining whether a patent case was “exceptional.” Octane Fitness loosened the standard for exceptionality, holding:
[A]n “exceptional” case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is “exceptional” in the case‐by‐case exercise of their discretion, considering the totality of the circumstances.
Thus, under Octane Fitness, to determine if a case is exceptional, a district court must simply weigh non-exclusive factors such as “frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.”
Although Octane Fitness interpreted the exceptionality standard in the Patent Act, 35 USC § 285, the interpreted language is identical to that in § 1117(a) of the Lanham Act, and the Supreme Court cited trademark cases in deciding Octane Fitness. In addition, in the five years since Octane Fitness was decided, many circuits adopted its standard for Lanham Act cases, including the First, Second, Third, Fourth, Fifth, Sixth, Ninth, 11th and Federal Circuits.
Determining to join its sister circuits, the Seventh Circuit formally overruled its “abuse of process” standard and adopted the “totality of the circumstances” standard of Octane Fitness. It then vacated the denial of attorney’s fees and remanded the case to the district court to evaluate the matter under the Octane Fitness standard.
Practice Note: Octane Fitness has become the law for trademark cases in most circuits. Practitioners in those few circuits that have not yet formally adopted this standard should assume nonetheless that it is applicable and should argue their fees motions accordingly.
TRADEMARKS / LICENSING / REMEDIES
TRADEMARKS / PERSONAL JURISDICTION
Lotso More Than Non-Exclusive Licensor-Licensee Relationship Needed for Personal Jurisdiction
Eleanor B. Atkins
Addressing whether the activities of non-exclusive licensees subject the licensor to personal jurisdiction, the US Court of Appeals for the Fifth Circuit held that jurisdiction over the licensees does not extend personal jurisdiction to the licensor where the licensor does not have any additional contacts with the forum. Diece-Lisa Industries, Inc. v. Disney Enterprises, Inc., Case No. 17-41268 (5th Cir. Nov. 19, 2019) (Dennis, J).
Diece-Lisa Industries owns a trademark registration for LOTS OF HUGS for “toys, namely, puppets” and sells stuffed toy bears under that mark. Two years after the LOTS OF HUGS registration issued, Disney released Toy Story 3, featuring a stuffed bear named Lots-O’-Huggin’ Bear, or Lotso for short.
Diece-Lisa initially sued certain Disney retail entities for trademark infringement and unfair competition stemming from the defendants’ sale of Lotso merchandise, and later filed a second complaint against the Disney entities that owned and licensed the Disney character intellectual property (IP holders). The district court consolidated the cases and granted Diece-Lisa leave to file a third amended complaint, in which Diece-Lisa added 10 new Disney subsidiaries as defendants and additional infringement claims.
The district court then denied the IP holders’ pre-consolidation motion to dismiss for lack of personal jurisdiction. The IP holders filed a motion for reconsideration, arguing that their only contact with Texas was the grant of non-exclusive licenses to parties that happened to conduct business in the state.
While this motion was pending, the district court made the three decisions from which Diece-Lisa appealed. First, the district court vacated the order granting Diece-Lisa leave to file the third amended complaint. Second, the district court stayed the case pursuant to a consented order preventing both parties from raising additional claims, defenses or theories of liability. Nonetheless, Diece-Lisa attempted to file a fourth amended complaint with new theories of infringement, but the district court granted the defendants’ motion to strike in light of the consented order. Third, the district court granted the defendants’ motion for reconsideration, dismissing the claims against the IP holders for lack of personal jurisdiction.
On appeal, Diece-Lisa argued that the court had personal jurisdiction over the IP holders for two reasons. First, Diece-Lisa claimed that the activities of the IP holders (granting non-exclusive licenses to parties conducting business in Texas and exercising quality control pursuant to those licenses) was sufficient for personal jurisdiction (licensor theory). Second, Diece-Lisa argued that the IP holders were part of the “unified Disney Company,” and if the court had jurisdiction over the retail entities, it therefore also had jurisdiction over the IP holders (franchise theory).
The Fifth Circuit dismissed the franchise theory because Diece-Lisa failed to allege any facts that would rebut the “presumption of institutional independence,” such as:
- Information as to the amount of stock owned by the parent of the subsidiary
- Whether the entities have separate headquarters, directors and officers
- Whether corporate formalities are observed
- Whether the entities maintain separate accounting systems
- Whether the parent exercises complete control over the subsidiary.
Addressing the licensor theory of personal jurisdiction, the Fifth Circuit stated: “[n]either this nor any other circuit has held that specific jurisdiction may arise solely from a defendant licensor’s non-exclusive licenses to third parties who sell allegedly infringing products in the forum state, and at least one circuit has explicitly rejected such a theory.” Accordingly, where the plaintiff has not alleged that the defendants had any additional contacts with the forum state (as here), the mere fact that the defendant granted non-exclusive licenses to parties that conduct business in the forum state is insufficient to establish personal jurisdiction. Accordingly, the Court affirmed the district court’s order dismissing the claims against the IP holders for lack of personal jurisdiction.
With respect to the other issues on appeal, the Fifth Circuit affirmed the decision to strike the fourth amended complaint, pursuant to the agreed order, but vacated the district court’s order with respect to the third amended complaint, holding that the “district court’s failure to give notice and a hearing prior to the sua sponte dismissal of a complaint is unfair and requires reversal.” On remand, the Court instructed the district court to first consider whether it has jurisdiction over the defendants in the third amended complaint, “in accordance with the jurisdictional analysis provided in this opinion.”