Federal Circuit Precedents on Domestic and International Patent Exhaustion Principles Remain Unchanged
The en banc US Court of Appeals for the Federal Circuit issued its long awaited (10-2) decision, reaffirming the court’s prior rulings in Mallinckrodt and Jazz Photo that a seller can use its patent rights to block resale and reuse of a product, and authorized sales of a product abroad does not exhaust the US patent rights associated with that product. Lexmark Int’l, Inc., v. Impression Products, Inc., Case Nos. 14-1617; -1619 (Fed Cir, Feb. 12, 2016) (en banc) (Taranto, J., joined by Prost, CJ and Newman, Lourie, Moore, O’Malley, Reyna, Wallach, Chen and Stoll,JJ.) (Dyk, J. dissenting, joined by Hughes, J.).
The case arose in the context of a printer manufacturer, Lexmark, enforcing patent rights in its toner cartridges. Lexmark’s infringement suit addressed two types of cartridges: “single-use” cartridges Lexmark initially sold in the United States, at a reduced price, subject to a box-top label license that notified customers to use the cartridge only once; and cartridges Lexmark sold abroad. Impression acquired spent cartridges, repaired the cartridges such that they could be used again and sold the cartridges in the United States without Lexmark’s authorization.
When Lexmark sued for infringement, Impression responded that Lexmark’s initial sale of the cartridges in the distribution chain without any restriction on resale terminated or “exhausted” Lexmark’s right to enforce its US patents. The district court held that the doctrine prevented Lexmark from enforcing the post-sale single-use restrictions in a patent-infringement suit but allowed Lexmark to enforce its patent rights in foreign-sold cartridges resold by Impression in the United States, because the first sale occurred abroad.
Soon after the appeal was docketed at the Federal Circuit, the Court sua sponte ordered an en banc consideration of the issue of international patent exhaustion in the Court and its 2001 Federal Circuit decision in Jazz Photo, to be reconsidered in view of the Supreme Court 2012 copyright decision in Kirtsaeng v. John Wiley & Sons (IP Update, Vol. 15, No. 5). The Federal Circuit patent rule was there was no exhaustion of US patent rights as a consequence of an authorized sale abroad, while the Supreme Court copyright rule was essentially the opposite.
In its en banc order, the Federal Circuit also noted the apparent tension between its 1992 Mallinckrodt decision (finding single use/no resale restrictions by patent owner to be lawful) and the Supreme Court’s 2008 Quanta Computer decision as to whether patent owners can restrict the scope of exhaustion attended the sale of a patented article (IP Update, Vol. 18, No. 4).
The majority opinion, penned by Judge Richard G. Taranto (92 pages), explained in considerable detail why Mallinckrodt and Jazz Photo remain good law, notwithstanding the Supreme Court’s intervening decisions in Quanta and Kirtsaeng.
In doing so, the Federal Circuit rejected arguments that foreign sales and unrestricted first sales of an item that had post–first sale use restrictions automatically exhaust patent rights in a patented article. Both the US government and a toner-cartridge remanufacturer had urged the court to reconsider its exhaustion precedents in light of the intervening Supreme Court decisions.
Mallinckrodt (Use Restrictions)
As explained by the majority, a patentee, when selling a patented article subject to a single-use/no-resale restriction that is lawful and clearly communicated to the ultimate purchaser, does not by that sale give the downstream buyers the resale/reuse authority that has been expressly denied. “Such resale or reuse, when contrary to the known, lawful limits on the authority conferred at the time of the original sale, remains unauthorized, and therefore remains infringing conduct under the terms of § 271. Under Supreme Court precedent, a patentee may preserve its § 271 rights through such restrictions when licensing others to make and sell patented articles;Mallinckrodt held that there is no sound legal basis for denying the same ability to the patentee that makes and sells the articles itself. We find Mallinckrodt’s principle to remain sound after the Supreme Court’s decision in Quanta Computer…, in which the court did not have before it or address a patentee sale at all, let alone one made subject to a restriction, but a sale made by a separate manufacturer under a patentee-granted license conferring unrestricted authority to sell.”
Jazz Photo (International Exhaustion)
The majority explained that a US patentee, merely by selling or authorizing the sale of a US-patented article abroad, does not authorize the buyer to import the article and sell and use it in the United States, which are infringing acts in the absence of patentee-conferred authority. “Jazz Photo’s no-exhaustion ruling recognizes that foreign markets under foreign sovereign control are not equivalent to the US markets under US control in which a US patentee’s sale presumptively exhausts its rights in the article sold. A buyer may still rely on a foreign sale as a defense to infringement, but only by establishing an express or implied license—a defense separate from exhaustion, as Quanta holds—based on patentee communications or other circumstances of the sale. We conclude that Jazz Photo’s no-exhaustion principle remains sound after the Supreme Court’s decision in Kirtsaeng, in which the Court did not address patent law or whether a foreign sale should be viewed as conferring authority to engage in otherwise-infringing domestic acts. Kirtsaeng is a copyright case holding that 17 U.S.C. § 109(a) entitles owners of copyrighted articles to take certain acts without the authority of the copyright holder. There is no counterpart to that provision in the Patent Act, under which a foreign sale is properly treated as neither conclusively nor even presumptively exhausting the US patentee’s rights in the United States.”
In a 30-page dissent, Judge Timothy B. Dyk (joined by Judge Hughes), argued that “Mallinckrodt was wrong when decided, and in any event cannot be reconciled with the Supreme Court’s recent decision in Quanta Computer. [. . . ] We exceed our role as a subordinate court by declining to follow the explicit domestic exhaustion rule announced by the Supreme Court.”
The dissent also faulted the majority’s “presumption-based approach to international exhaustion that would treat exhaustion as a default rule.” Although the dissent “would retain Jazz Photo insofar as it holds that a foreign sale does not in all circumstances lead to exhaustion of United States patent rights,” it parted way with the majority in arguing that “a foreign sale does result in exhaustion if an authorized seller has not explicitly reserved the United States patent rights.”
Practice Note: A Supreme Court cert petition appears to be likely. Perhaps in contemplation of such action, the lengthy majority opinion meticulously distinguishes not only the two intervening Supreme Court cases discussed above, but a long line of precedents extending back 200 years. In terms of domestic exhaustion, the Federal Circuit’s primary rationale is that Quanta did not hold that, regardless of use restrictions, any “authorized sale” exhausted patent rights, because Quanta did not involve use restrictions, and because the Supreme Court did not accept the Solicitor General’s express request in that case to overturn Mallinckrodt. As for foreign exhaustion, the Federal Circuit explains that the Kirtsaeng copyright decision did not extend to patent law, because that opinion rested on text and precedent unique to the Copyright Act.
As the dissent notes, the case presents obvious tensions between Quanta and Mallinckrodt as well as between Kirtsaeng and Jazz Photo.
Patents / Subject Matter Eligibility (§ 101)
Previously Denied Section 101 Defense Rendered Meritorious by the Supreme Court's Alice Decision
Alexander P. Ott
Addressing a summary judgment of patent ineligibility, the US Court of Appeals for the Federal Circuit agreed with the district court that the Supreme Court’s Alice decision provided good cause for a defendant to amend its invalidity contentions and also rendered the claims unpatentable. Mortgage Grader, Inc. v. First Choice Loan Servs. Inc. et al., Case No. 15-1415 (Fed. Cir., Jan. 20, 2015) (Stark, D.J.) (sitting by designation).
Mortgage Grader sued for infringement of two related patents directed to methods for a prospective borrower to browse loan offers. The defendants pled various defenses, including invalidity based on patent-ineligible subject matter under § 101, but did not include the § 101 defense in their (pre-Alice) preliminary invalidity contentions. After the Supreme Court issued its patent eligibility opinion in Alice (see IP Update, Vol. 17, No. 7), the defendants tried to resurrected their § 101 defense in their final invalidity contentions and relied on the Alice decision as the requisite “good cause” to amend. After the district court found the contention amendment to be proper, the defendants moved for summary judgement on that defense. The district court then found that the claims were directed to the abstract idea of “anonymous loan shopping” and lacked any inventive concept that could render the claims patentable. Mortgage Grader appealed.
On appeal, the Federal Circuit first addressed whether the invalidity contention amendment was properly allowed. The Court concluded that Alice had provided significant additional clarity on the patent eligibility inquiry, such that the district court did not abuse its discretion in permitting the amendment. The Court also pointed to its own Ultramercial opinions—where it had reversed two eligible subject matter holdings before it switched, after Alice to an ineligible subject matter holding—as indicative that a § 101 defense that previously lacked merit could be rendered meritorious by Alice. The Court found this particularly appropriate to cases akin to Alice, where the claims are directed to implementing economic arrangements using generic computer technology.
Turning to the merits of the ineligibility defense, the Federal Circuit agreed that the claims were directed to the abstract idea of anonymous loan shopping and also found it notable that the methods could be performed by humans without a computer. Like the district court, the Federal Circuit found no inventive technological concept, concluding that the claims merely added generic computer components that did not improve the functioning of the computer itself or solve a problem unique to the Internet. Finally, the Court rejected Mortgage Grader’s protest that the summary judgment ruling improperly resolved underlying factual disputes, noting that the district court had merely acknowledged the existence of pertinent expert testimony, but had not relied on it. The Court thus affirmed the district court’s ineligible subject matter decision.
In Obviousness Analysis Loss of Benefit Is Not the Same as Inoperable
Addressing “teaching away” arguments in the context of obviousness issues, the US Court of Appeals for the Federal Circuit affirmed the Patent Trial and Appeal Board’s (PTAB or Board) obviousness decision, holding a person of ordinary skill in the art (POSITA) would find the combination of two prior art references obvious and would have expected the resulting products. In re Urbanski, Case No. 15-1272 (Fed. Cir., Jan. 8, 2016) (Lourie, J.).
The application in question is directed at a method of enzymatic hydrolysis of soy fiber. The examiner rejected the claims as obvious in view of two references that disclosed enzymatic hydrolysis of dietary fibers. On appeal to the Board, the inventors argued that one reference taught away from the proposed combination because it required a longer reaction time than would be satisfactory for the intended purpose of the second reference. The Board rejected the “teaching away” argument, explaining that even if the benefits of the prior art processes were mutually exclusive, that nevertheless did not outweigh the evidence of obviousness and that the inventors failed to present any evidence of unpredictability with respect to the proposed combination. The applicants appealed.
On appeal, the inventors again argued that modifying the first reference in a manner taught by the second reference (i.e., shortening the reaction time) would render the modified process unsatisfactory for the intended purpose of the first reference (forming a more stable dispersion as a result of a longer reaction time). Because obviousness is a question of law based on underlying factual findings, the Court reviewed the Board’s legal determination de novo and the underlying factual findings under a substantial evidence standard. In affirming the Board’s conclusion, the Court noted that each reference recognized that reaction time and degree of hydrolysis were result-effective variables. According to the Court, the disclosure of the prior art references supported the Board’s finding that a POSITA would have expected the degree of hydrolysis and the properties of the fiber could be altered. The Court thus found that it would have been obvious to shorten the reaction time of the first reference to gain the benefits of the second reference, despite the fact that one would no longer obtain the benefits of the first reference.
In distinguishing the “teaching away” case law presented by the inventors, the Court explained that, in this instance, the prior art did not teach that the proposed combination would result in an inoperable process or a product with undesirable properties. Rather, the combination only resulted in a modified process—which produces products with different, but not inoperable, properties—rendering the claimed invention obvious.
Patents / Attorneys' Fees
Attorneys' Fees Award Cannot Be Enhanced to Deter Misconduct
Addressing whether deterrence can play a role in an attorneys’ fee award under § 285, the US Court of Appeals for the Federal Circuit held that once a case is deemed exceptional, § 285 only authorizes an award of reasonable fees, but does not permit enhancement to deter future conduct. However, there are other avenues a court may use to award further fees (i.e., Rule 11) if deterrence is the goal. Lumen View Technology, LLC v. Findthebest.com, Inc., Case Nos. 15-1275, -1325 (Fed. Cir., Jan. 22, 2016) (Lourie, J.).
Lumen is the exclusive licensee to a patent directed to a method for facilitating bilateral and multilateral decision-making. On several occasions after Lumen filed suit, Findthebest.com (FTB) informed Lumen that its product did not use a bilateral or multilateral preference matching process. After the district court granted FTB’s Rule 12(c) motion finding the claims invalid as unpatentable subject matter under 35 U.S.C. § 101, it went onto find Lumen’s case frivolous and objectively unreasonable. The district court awarded FTB attorneys’ fees under § 285, noting that the “most basic pre-suit investigation” would have shown that FTB did not infringe the asserted claims and that Lumen’s motivation for filing the suit was to extract a nuisance settlement. The district court also noted that Lumen’s “predatory strategy of baseless litigation showed the need for deterrence.” The district court went on to explain that it was the specific circumstances of the case and the district court’s proactive case management that led to an expeditious resolution on the merits and resulted in an “extremely low lodestar” amount of attorneys’ fees, but that had it accepted Lumen View’s proposed schedule, FTB would have incurred significantly greater fees. Thus the district court concluded that the lodestar amount alone would be “insufficient” to deter Lumen and accordingly enhanced the lodestar figure by a multiplier of two. Lumen appealed.
The Federal Circuit found that the facts of the case were sufficient to determine that the lawsuit was indeed baseless and affirmed the district court’s finding that the case was exceptional under § 285.
However, in reviewing the amount of fees awarded, the Federal Circuit explained that deterrence should be considered in determining whether to award fees, but is “not an appropriate consideration in determining the amount of a reasonable fee award.” Rather, § 285 specifies that once an exceptional case is found, “reasonable attorney fees” should be awarded. The lodestar method is intended to yield “a presumptively reasonable attorney fee amount.” Adjustments to the lodestar should only be made in situations where the prevailing party’s attorneys’ performance or conduct “somehow is not factored into the lodestar calculation.” The Court explained that neither the fact that FTB incurred a lower than expected amount of fees nor the goal of deterring Lumen’s future conduct were relevant to an enhancement of the lodestar and that the district court did not properly justify the attorneys’ fee award. Thus, the Court vacated the award and remanded for a recalculation of fees. However, in doing so the Court noted that “there may be other issues open for consideration relating to attorney conduct,” including Rule 11 or other statutes, authorizing an award of attorneys’ fees to FTB.
Practice Note: When requesting fees a prevailing party should arm the court with as many options for justifying the award as possible, including § 285, Rule 11, 28 U.S.C. § 1927 and (as always) the court’s “inherent powers.”
Patents / Claim Construction
Multiplying Claim Requirements After Trial Makes Things Impermissibly Complex *Web Only*
After a jury found non-infringement and invalidity of two asserted patent claims, the US Court of Appeals for the Federal Circuit affirmed the district court’s denial of the patent owner’s judgment as a matter of law (JMOL) of infringement and motion for new trial under U.S. Court of Appeals for the Fifth Circuit law, but reversed the district court’s JMOL that the claims were not-invalid due to improper post-verdict claim construction. Wi-LAN, Inc. v. Apple, Inc., Case Nos. 14-1437;-1485 (Fed. Cir., Jan. 8, 2016) (Reyna, J.).
The litigants’ arguments relating to transmitters used in a spread-spectrum wireless communications technology hinged on the district court’s claim construction. Two patent figures described two alternative embodiments of the invention. Generally, the asserted claims require three things: a converter for converting a stream of data symbols, a “computing means” that operates on the symbols to produce “modulated symbols corresponding to an invertible randomized spreading” and “a means to combine the modulated data signals for transmission.” One example of a mathematical operation performed by the “computing means” was a “complex randomizer transform” depicted in patent Figure 8.
The district court construed the claim term “modulated data symbols” to mean “data symbols that have been spread by a spreading code,” but rejected Apple’s argument that the data symbols must be randomized. The district court adopted the parties’ agreed construction that the claimed “first computing means” was means-plus-function claim element where the corresponding structure is “element 12 of Figures 1 and 4” plus other cited patent sections that did not include or refer to Figure 8. The agreed construction came from a prior case in which the court rejected Wi-LAN’s attempts to have the randomizer of Figure 8 included as part of the means-plus-function structure.
Apple argued that it did not infringe because the claims require randomizing the data symbols before combining them, whereas Apple’s products performed the steps in a reverse order. Apple argued that the claim requirement to “combine the modulated data signals” referred back to the language “modulated data symbols corresponding to an invertible randomized spreading,” such that the data symbols must be randomized prior to combining. Apple argued that the claims were invalid because the prior art taught randomizing modulated data symbols using a “multiplier.” While the parties agreed that the key prior art taught a “real multiplier” versus the “complex multiplier” described in the patent, Apple argued that the court’s construction did not specify a multiplier type.
The jury found that the claims were not infringed and were invalid. Regarding infringement, the district court found that the ordering requirement was consistent with the court’s claim construction and that a reasonable jury could have found non-infringement under the operative construction. On appeal, Wi-LAN argued that the district court’s construction of “computing means” and its rejection of Apple’s argument relating to randomization were inconsistent with the “ordering requirement.” After analyzing the court’s claim construction and the intrinsic evidence, the Federal Circuit agreed with both the Court’s construction and Apple’s analysis. The Court further held that there was substantial evidence to support the jury’s verdict of non-infringement under the doctrine of equivalents.
Regarding invalidity, the district court acknowledged that its construction did not specifically provide for a complex multiplier. However, it found that a reasonable jury should have understood that the first computing means must randomize the symbols using a “complex multiplier” rather than a “real multiplier” because both sides allegedly took the position that the complex multiplier of Figure 8 was necessarily included in the Court’s construction. On appeal, the Federal Circuit agreed with Apple that the court’s requirement for a complex multiplier was a new claim construction, which the district court may not issue at the JMOL stage. The Court found substantial evidence that Apple witnesses did not agree that a complex multiplier was required. The Court found that the agreed construction from the prior case, in which it was determined that Figure 8 was not part of the “first computing means,” supported Apple’s argument that a complex multiplier was not required.
Patents / Claim Construction
Reversal of Narrow Claim Construction Results in Satisfaction of Claim Element *Web Only*
Addressing the standard to establish a “clear and unmistakable” disclaimer of claim scope during prosecution, the US Court of Appeals for the Federal Circuit reversed the district court’s narrow claim construction and remanded the case for a new trial. Avid Technologies, Inc. v. Harmonic, Inc., Case No. 15-1246 (Fed. Cir., Jan. 1, 2015) (Taranto, J.).
Avid Technologies asserted two patents against Harmonic, both of which relate to data storage systems that allow users to store and retrieve large files, such as movies. The systems included three categories of components: multiple storage units that store data; a client application, which reads data from and writes data to the storage units; and a central controller that can perform various facilitative functions. At trial, the dispute centered on two elements of the asserted claims: how the central controller communicated with the storage units, and how the storage units stored the data. The district court narrowly construed the first disputed element, based on what the court determined to be a disclaimer of claim scope during prosecution, and did not construe the second disputed element. The jury found the patents to be valid but not infringed, and Avid appealed the non-infringement finding based upon alleged error in the district court’s claim construction. Harmonic did not cross-appeal the finding of validity.
On appeal, the Federal Circuit reviewed the district court’s claim construction de novo, as it was based entirely on an intrinsic-evidence determination about the meaning of the prosecution history. The Court concluded that the district court’s narrow construction was improper because the statements Avid made during prosecution did not amount to a “clear and unmistakable” disavowal of subject matter, but instead were “amenable to multiple reasonable interpretations.” Further, because Harmonic did not dispute that its system satisfied the first claim element under Avid’s proposed (and Court confirmed) construction, the Federal Circuit found that “satisfaction of the element [was] now settled.” Instead of entering a judgment of infringement, however, the Court remanded the case for a new trial because, as the Court explained, the evidence did not compel a finding of infringement of the second disputed claim element. Specifically, because the district court had not construed the second disputed term, both Avid and Harmonic were unable to show that the jury was required to find infringement or non-infringement on this element.
Practice Note: This Court should serve as a warning to appellate practitioners that, to the extent possible, they should seek to preserve their alternative positions before the Federal Circuit.
Patents / Claim Construction
You Can't Spell "Pressurized Collection Vessel" Without "Collection" *Web Only*
Joseph Speyer, PhD
In an opinion addressing claim construction, infringement and indefiniteness, the US Court of Appeals for the Federal Circuit affirmed the district court’s findings that the asserted claims were not indefinite and not infringed. Akzo Nobel Coatings, Inc. v. Dow Chem. Co., Case Nos. 15-1331; -1389 (Fed. Cir., Jan. 29, 2016) (Lourie, J.).
Akzo owns a patent covering a method of producing low viscosity aqueous polymer dispersions. The claimed invention prevents the aqueous medium from boiling by maintaining a pressurized extruder and includes a “pressurized collection vessel” that the aqueous dispersion enters. Dow’s accused process uses a pressurized extruder but, rather than entering a pressurized container, the aqueous dispersion passes through a valve, travels through a series of heat exchangers and then collects in an unpressurized compartment.
Dow moved for early summary judgment based on Akzo’s failure to identify a “pressurized collection vessel.” The district court combined the summary judgment and Markman hearings, and construed the term “pressurized collection vessel” to require that some amount of material accumulate in the vessel. Based on this construction, the district court granted summary judgment in Dow’s favor. Akzo appealed.
On appeal Akzo challenged the district court’s narrow construction, arguing that accumulation was not required because the ordinary meaning of “collection” is gather or receive. The Federal Circuit disagreed, noting that such a broad construction would render the word “collection” superfluous. The specification also supported the district court’s construction: Each time “collection” was used, it referred to material accumulated in the vessel. For these reasons, the Federal Circuit affirmed the district court’s claim construction, finding that the term “collection” requires some accumulation of material.
In its cross-appeal, Dow argued that certain asserted claims were indefinite because they included measuring viscosity, but did not specify the temperature at which the viscosity should be measured. The district court previously found that one of skill in the art would know with reasonable certainty that the viscosity is to be measured at room temperature. The Federal Circuit affirmed the district court, noting that it relied on extrinsic evidence without clear error, and the extrinsic evidence did not conflict with the intrinsic evidence.
Dow also argued that the claims were indefinite because one limitation, requiring an elevated temperature, did not specify which steps were to be performed at the elevated temperature. The district court previously found that one of skill in the art would understand which specific steps should be performed at the elevated temperature. The Federal Circuit again affirmed, relying on the disclosure in the specification for support. The Federal Circuit also noted that Dow failed to provide evidence showing that one of skill in the art would not know with reasonable certainty which steps were to be performed at the elevated temperature.
Same Board Panel May Institute and Finally Decide AIA Review
Addressing for the first time the issue of whether the same panel of Patent Trial and Appeal Board (PTAB or Board) may both institute an inter partes review (IPR) and finally decide its merits, the US Court of Appeals for the Federal Circuit affirmed the single panel authority of the Board as well as the PTAB panel’s finding that the challenged claims were obvious. Ethicon Endo-Surgery, Inc. v. Covidien LP, Case No. 14-1771 (Fed. Cir., Jan. 13, 2016) (Dyk, J.) (Newman, J., dissenting as to single panel’s authority to both institute and decide).
Ethicon Endo-Surgery (the patent owner) owns a patent for a surgical stapler. Covidien (the petitioner) challenged claims of the patent in an IPR as being obvious over certain prior art. A three-member panel of the Board decided to institute the IPR, and that same panel later issued a final written decision finding the challenged claims invalid for obviousness. The patent owner appealed, challenging the authority of the same panel to both institute and then try the case to a final written decision.
With respect to the panel constituency, the Federal Circuit affirmed that the America Invents Act (AIA) permits the same panel of the Board to render both the institution and final decisions. The Court found that combining functions in one panel was not contrary to constitutional principles and that deciding whether to institute IPR would not unfairly bias the panel in rendering its final decision. Then, the Court interpreted the statutory text of the AIA and determined that the Director can delegate her authority to institute an IPR to the Board.
As to the merits, the Federal Circuit affirmed that the challenged claims were obvious over the prior art, where patent owner only challenged the Board’s treatment of secondary considerations of non-obviousness, specifically commercial success and long-felt but unresolved need. The Court affirmed that the alleged commercial success of (and alleged long-felt but unresolved need for) the claimed device was not sufficient evidence of non-obviousness because here the patent owner had not demonstrated a sufficient nexus between the inventive aspect of the claims and its commercial success.
Judge Newman, in dissent, argued that use of a single panel to decide on both institution and ultimate disposition was contrary to the AIA. She argued that “[t]he majority’s endorsement of the PTO’s statutory violation departs not only from the statute, but also from the due process guarantee of a ‘fair and impartial decision-maker.’”
Practice Note: The Board and the Court both emphasized the need for a nexus between secondary considerations and the inventive aspect of the claims. Presenting evidence that such a nexus exists is a wise use of the patent owner’s page count.
Patents / Appellate Standing
New Party Has No Cause of Action to Appeal PTAB Decision
Addressing the statutory cause of action requirement to appeal a reexamination decision, the US Court of Appeals for the Federal Circuit dismissed an appeal, finding that the appellant was not a third-party requester of the reexamination in issue and failed to show that it was the successor-in-interest of the requester. Agilent Technologies, Inc. v. Waters Technologies Corp., Case No. 15-1280 (Fed. Cir., Jan. 29, 2016) (O’Malley, J.).
Waters Technologies Corporation (Waters) brought suit against Aurora SFC Systems, Inc. (Aurora) for infringement of a patent relating to chromatography systems. Aurora subsequently filed a request for inter partes review (IPR) of the patent resulting in a stay of the infringement suit. About five months after Aurora filed the reexamination request, Agilent acquired “substantially all” of Aurora’s assets. The examiner then rejected all of the claims of the patent as anticipated over the prior art. Waters appealed and Aurora cross-appealed to the Patent Trial and Appeal Board (PTAB or Board). Subsequently, Aurora filed a request to change the real-party-in-interest from Aurora to Agilent. Agilent began participating along with Aurora in the appeal proceedings. The Board reversed all of the examiner’s rejections and listed Aurora as a third-party requester in the decision. Agilent alone appealed to the Federal Circuit.
The initial question on appeal was whether Agilent had a cause of action to bring the appeal. As the party seeking relief, Agilent bore the burden of demonstrating that it had a cause of action. The parties agreed that Agilent’s right to appeal, if any, derives from 35 U.S.C § 141, which states that a “patent owner, or a third party requester” may appeal a final decision of the Board. In its opening brief, Agilent labeled itself as either a “privy” or a “successor-in-interest,” and the Court examined Agilent’s right to a cause of action based on both relationships. With respect to Agilent’s “privy” argument, the Court explained that because Congress explicitly provided for appeals of reexaminations by third-party requesters, but not privies, mere privies lack a cause of action to file an appeal.
Agilent also argued it was Aurora’s successor-in-interest because it acquired substantially all of Aurora’s assets before the reexamination concluded, including all rights relating to the underlying reexamination. The Court noted uncertainty over what was transferred from Aurora to Agilent as it was not disclosed in the RPI change request, except that it was not all of the rights. After the transfer, Aurora remained a distinct, ongoing entity. Aurora also filed third-party comments in the reexamination proceedings several months after the transfer date, which belied Agilent’s claim that it stepped into Aurora’s shoes as a successor-in-interest. Also, it was not until eight months after the asset transfer, and one month after the appeal to the Board, that Aurora filed a request to change the real-party-in-interest to Agilent. Even then, Aurora’s counsel appeared at the Board hearing. Further, Aurora remained a party to the underlying district court litigation. Although not dispositive, Agilent never furnished the court with a copy of the asset transfer agreement so that the extent of the transfer could be verified. Instead, Agilent provided a declaration by Agilent’s general counsel stating that Agilent “succeeded to all of Aurora’s legal claims and liabilities relating to the purchased Business.” The Court found the declaration an “incomplete” account of the agreement, which did not allow the Court to determine the extent of Agilent’s rights. Accordingly, the Court found that Agilent lacked a statutory cause of action to appeal the reexamination decision.
Practice Note: Parties wishing to appeal a reexamination decision by the Board must show they are the patent owner, a third-party requester or at least a successor-in-interest.
Patents / USPTO / Patent Term Adjustment
Time Between Original and Corrected Restriction Requirement Nets No Further Patent Term Adjustment
Addressing patent term adjustment issues, the US Court of Appeals for the Federal Circuit affirmed the US Patent and Trademark Office’s (USPTO) decision not to adjust the term of a patent, where the 197-day delay resulted from an examiner’s issuance of a corrected restriction requirement. Pfizer, Inc. v. Lee, Case No. 15-1265 (Fed. Cir., Jan. 22, 2016) (O’Malley, J.) (Newman, J., dissenting).
The Patent Term Guarantee Act (35 U.S.C. § 154(b)) provides for the restoration of patent term under certain circumstances, including so-called “A-Delay” arising from the USPTO’s failure to act on a pending application by certain examination guidelines. Prosecution of Pfizer’s application (covering pharmaceutical methods for cancer treatment) incurred an initial delay when the examiner waited 404 days beyond the deadline for his first office action to mail a restriction requirement. Thereafter, during the course of a telephone interview, Pfizer persuaded the examiner that the restriction requirement omitted six dependent claims from its categorization of the various pending claims. The examiner then issued a corrected restriction requirement 601 days after the original deadline.
USPTO credited only the initial 404-day delay in its patent term adjustment when Pfizer’s application issued as a patent but not the additional 197 days until the corrected restriction requirement issued. Pfizer sued the USPTO in district court to recoup the 197-day period. After the district court affirmed USPTO’s calculation on an undisputed summary judgment record, Pfizer appealed.
On appeal the Federal Circuit agreed with the USPTO. Citing Chester v. Miller, the Court observed that § 154(b) stops A-Delays from accruing when an examiner makes an office action that informs the applicant “of the broad statutory basis for the rejection of his claims, so that he may determine what the issues are on which he can or should produce evidence.” A contrary rule would reach beyond § 154(b)’s purpose of compensating applicants for undue prosecution delays and instead guarantee the correctness of every USPTO decision.
Because the original restriction requirement put Pfizer on notice of the steps it needed to take (and in fact did take) to circumvent that rejection, the Court held that Pfizer was not entitled to the longer adjustment. The Court found support for its decision in MPEP § 814 guidance that a restriction requirement does not automatically fail because it omits a particular claim. The Court did, however, posit that a future case turning on the omission of independent claims from a restriction requirement (as opposed to the dependent claims, as in this case) may reach a different result.
In dissent, Judge Newman reasoned that the examiner’s miscategorization of claims warranted an award of the full adjustment sought by Pfizer. In her view, Congress intended § 154(b) to compensate for delays caused by erroneous office actions made through no fault of the applicant.
America Invents Act
CBM Jurisdiction Survives Abandonment of CBM Claims
Addressing the issue of whether a patent owner can divest the Patent Trial and Appeal Board (PTAB or Board) of covered business method (CBM) jurisdiction, the Board found that a determination of initial jurisdiction for CBM patent review holds regardless of whether a petitioner has standing throughout the proceeding. J.P. Morgan Chase LLC V. Intellectual Ventures II LLC, Case No. CBM2014-00157 (PTAB, Jan. 12, 2016) (Droesch, APJ).
The Board “determined that the Petitioner had standing to file the petition for covered business method patent review on the basis that at least one claim was directed to a method for performing data processing used in the practice of a financial product or service.” Subsequently, the patent owner canceled a particular claim and argued that “the Petition should be dismissed for lack of standing because, after the disclaimer of [the canceled claim], the challenged patent is no longer a covered business method patent.”
The Board was not persuaded. Instead, the Board looked to the America Invents Act (AIA) § 18, which establishes the limitation on who may file a petition, but states no other jurisdiction impediment.
In light of the lack of statutory language imposing a subject-matter limitation on jurisdiction other than at the time a CBM petition is filed, or persuasive authority challenging the plain meaning of the statue, the Board found that the “statutory requirements necessitate evaluation of Petitioner’s standing to file a petition for CBM patent review based on the point in time when the petition was filed.”
Accordingly, the Board concluded that despite the cancelation of the CBM claim, “the plain language of the AIA requires [the Board] to determine whether petitioner had standing to file a petition for CBM patent review at the time the petition was filed; not whether petitioner has standing throughout the proceeding.” Finding that the challenged patent contained at least one CBM claim at the time the petition was filed, the Board rejected the patent owner’s jurisdictional challenge.
CBM Review Not a Venue for Review of Contractual and Tortious Disputes
Addressing the issue of standing, the Patent Trial and Appeal Board (PTAB or Board) denied institution of a covered business method (CBM) patent review, finding that the petitioner failed to show sufficient proof demonstrating that it satisfied the standing requirements for a CBM petitioner. Ocean Tomo, LLC v. PatentRatings, LLC, Case No. CBM2015-00157 (PTAB, Jan. 26, 2016) (Chen, APJ).
Ocean Tomo filed a petition for CBM patent review, challenging all claims of the patent owner’s patent relating to the probabilistic quantification of a degree of relevance between two citationally or contextually related patent documents. Following submission of a preliminary response by the patent owner, the Board permitted the petitioner to submit a reply to the preliminary response. The Board noted that the parties were intertwined in ongoing litigation arising from a business relationship between the patent owner and the petitioner having gone awry.
The petitioner and patent owner entered into a license agreement to which the patent owner would provide the petitioner with “certain proprietary computer generated metrics for determining the quality and relevance of patents.” The petitioner and patent owner disputed the business relationship in district court, in a case having 15 contract, tort and related causes of action. The petitioner’s district court complaint alleged that the patent owner used the petitioner’s information and solicited a potential customer of the petitioner’s after the patent owner’s senior executive, hired by the petitioner to be a managing director, resigned. The patent owner’s counterclaim alleged that the petitioner “created intolerable working conditions and severe conflicts of interest with the goal of forcing [the patent owner’s senior executive] to resign his employment.” The patent owner also alleged that the petitioner “routinely and systematically sold products” relating to the patent owner’s technology and “never reported or paid revenues to the Patent Owner,” including misappropriation of the patent owner’s confidential information.
Analyzing § 42.302, the Board found that the petitioner failed to show that it was either sued for infringement or charged with infringement at the time of filing the petition. The Board found no evidence that the patent owner sued the petitioner for patent infringement, concluding that none of the allegations raised in district court identified any patent infringement claims by the patent owner. The Board concluded that all of the causes of action arose from the contractual and tortious conduct, not from charges of patent infringement. The Board also concluded that the discovery requests in the related litigation did not place the petitioner in apprehension of being sued for patent infringement, finding that the challenged patent was not within the scope of the discovery requests. The Board finally concluded that the petition contained insufficient proof to support the assertion of standing, finding that the contractual and tortious conduct arising out of the business relationship between the patent owner and petitioner did not create a real and substantial controversy regarding patent infringement. For these reasons, the Board denied institution of the CBM patent review.
Post-Grant Review Estoppel Applies on a Claim-by-Claim Basis
Addressing a motion to terminate post-grant review based on a final written decision in another proceeding directed to some of the challenged claims, the US Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) denied the motion, finding that the petitioner was not estopped from maintaining review of claims that were not previously instituted nor addressed in the final written decision. Westlake Services, LLC v. Credit Acceptance Corp., Case No. CBM2015-00176 (PTAB, May 14, 2015) (McKone, APJ).
After institution of a covered business method (CBM) review for only some of the challenge claims in the subject patent, the Board denied the petitioner’s request for rehearing but granted leave to file a second petition based on a newly issued decision from the Supreme Court. A second proceeding was instituted. After a final written opinion issued in the first proceeding, the patent owner was granted leave to file a motion to terminate the second proceeding based on § 325(e)(1); i.e., that the petitioner was estopped from “maintain[ing] a proceeding with respect to any claim [that results in a final written decision] on any ground that the petitioner raised or could have raised during that post-grant review.” In its motion, the patent owner took the position that, under the Board’s rules, estoppel applies to all claims challenged by a petitioner—even claims for which the Board did not institute a trial.
The Board, however, found that estoppel should be applied on a claim-by-claim basis, and thus § 325(e)(1) should be interpreted to apply to “a claim in a patent” that “results in a final written decision.” The patent claims that were challenged during the first proceeding, but for which trial was not instituted, are not claims that resulted in a final written decision. Thus, the Board denied patent owner’s motion to terminate the proceedings.
The Board also denied patent owner authorization to reargue the impact of allowing serial petitions—an issue already considered in its decision to institute proceedings—noting that the patent owner did not seek reconsideration of the institution decision.
The Board marked its decision in the instant case as “precedential,” meaning that future Board judges must adhere to the ruling in this case until and unless it is “overcome by subsequent binding authority.”
PTAB Exercises Exclusive Jurisdiction Over Patents Involved in IPR
Addressing the issue of jurisdiction during an inter partes review (IPR), the US Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) exercised exclusive jurisdiction over several requests for certificates of correction, which were filed after IPR petitions had already been filed. Alarm.com Inc. v. Vivint, Inc., Case IPR2015-01995 (PTAB, Jan. 28, 2016) (Boudreau, APJ).
The petitioner, Alarm.com Inc., filed nine IPR petitions seeking review of certain claims in four patents owned by the patent owner, Vivint. After the petitions were filed, the patent owner filed requests for certificates of correction with respect to each of the four patents. The patent owner did not request authorization from the Board prior to filing the requests and did not notify the Board upon their filing. Instead, the patent owner filed preliminary responses in four of the IPR proceedings and referenced the corresponding requests for certificates of correction.
Because the requests were filed after the petitions, the Board exercised jurisdiction over the patent owner’s requests for certificates of correction in the related proceedings and stayed the requests pending the decision on institution in the related proceedings. The Board ordered that, for any claims for which correction is sought and for which IPR is instituted, consideration of the requests by the Certificate of Correction Branch would be stayed during the pendency of trial. During trial, the Board would make a determination whether or not the certificates of correction should be granted. If the Board determines not to institute review of any claims for which correction is sought, the patent owner’s requests would be returned to the Certificate of Correction Branch for further action.
The Board distinguished the patent owner’s requests from non-precedential decisions granting requests relating to certificates of correction. The Board noted that such requests had previously been granted when a patent owner sought authorization from the Board prior to filing a request or motion; when a patent owner sought to correct a claim not involved in an IPR proceeding; when a patent owner sought correction of an error by the USPTO, rather than by the patentee; and when a patent owner merely sought to file a copy of a certificate of correction that issued from a request filed before the petition was filed.
Practice Note: If possible, a patent owner should file any request for a certificate of correction before an IPR petition is filed. Once a petition is filed, a request should be filed only after seeking authorization from the Board.
AIA / IPR / Priority Dates
In the Wake of Dynamic Drinkware, PTAB Rejects Prior Art Due to Petitioner's Failure to Establish Earlier Priority Dates
Brian A. Jones
Addressing the burden-shifting requirements for establishing priority of prior art references, the Patent Trial and Appeal Board (PTAB or Board) recently issued two decisions finding that the petitioners failed to meet their burden to establish that a prior art reference was entitled to its earlier-claimed priority date. VMware, Inc. v. Clouding Corp., Case Nos. IPR2014-01304; -01305 (PTAB, Jan. 7, 2015) (Chang, APJ); Ariosa Diagnostics, Inc. v. Illumina, Inc., Case No. IPR2014-01093 (PTAB, Jan. 7, 2015) (Green, APJ).
In 2015, the Federal Circuit upheld a Board determination in an inter partes review (IPR) proceeding that the petitioner had the burden to prove that a prior art patent was entitled to its earlier-claimed priority date. (Dynamic Drinkware, see IP Update, Vol. 18, No. 10). There, the US Court of Appeals for the Federal Circuit explained how the burden would shift back and forth between petitioner and patent owner with respect to proving priority, but that the ultimate burden of persuasion always remained with the petitioner. The Ariosa and VMware decisions, discussed below, mark the first time that the Board has applied the standard set out by the Federal Circuit in Dynamic Drinkware.
In Ariosa, the patent owner attempted to rely on an application filed after the effective filing date of the patent-at issue, but which claimed priority from an earlier-filed provisional application. The Board faulted the petitioner for failing to explain how the application met the requirements for prior art under §102(e), noting that the petitioner only included a general allegation that the application was prior art under “102 (a), (b), and/or (e).” According to the Board, without explicitly stating how the application qualified as prior art under §102(e), the patent owner was never put on notice of the petitioner’s contentions. As a result, the Board determined that burden never shifted to the patent owner to disprove the priority date, and therefore the petitioner failed to meet its burden to establish the reference as prior art.
In VMware, the petitioner relied on §102(e) to qualify a reference patent as prior art. In this case, the reference patent claimed priority from a non-provisional continuation-in-part and a separate provisional application. The petitioner explained how the priority documents provided written description support for the disclosures in the reference patent and how those priority documents disclosed the subject matter of the patent-at-issue. The Board found this insufficient, however, because the petitioner did not explain how the priority documents provide written description support for the claims of the reference patent, and thus did not meet its burden to establish that the reference patent is entitled to its priority date.
Practice Note: Petitioners at the PTAB are advised to explicitly state in the Petition the basis relied on as to why a reference qualifies as prior art.
Three Most Important Things at PTAB: Rules, Rules, Rules
In a decision highlighting the importance of closely following the procedural rules for inter partes reviews (IPR), the Patent Trial and Appeal Board (PTAB or Board) refused to exclude allegedly improper evidence, holding that the patent owner failed to preserve their objection by not filing a timely motion to exclude. Republic Tobacco, LP v. Fan Bao, Case No. IPR2015-00072 (PTAB, Jan. 4, 2016) (Chagnon, APJ).
The petitioner filed a reply to the Patent Owner’s Response attaching several exhibits in support. A week later the patent owner filed a paper titled “Patent Owner’s Objection to Untimely and Improper Evidence Submitted by Republic Tobacco, L.P.,” claiming that the supporting exhibits were new evidence, rather than a proper rebuttal. Unsure how to classify the filing, the Board considered three possible categories: a sur−reply, a motion to strike and a motion to exclude under 37 C.F.R. § 42.64.
The Board rejected the first two categories citing the same reason—both require prior authorization from the Board. Because the patent owner did not seek authorization, the Board refused to place the filing in either category.
The Board next considered whether the filing qualified as an evidentiary objection under Rule 42.64. Under § 42.64(b)(1), if a party objects to evidence after the IPR has been instituted, the objection must be filed within five business days of service of the evidence to which the objection is directed. Under § 42.64(c) the objecting party must file a separate motion to exclude in order to preserve the objection. Here, although the Board concluded that the patent owner’s filing could be considered as a timely objection, it found that the patent owner nevertheless failed to file the required motion to exclude by the deadline for motions to exclude; that fell on the same day as the patent owner filed its objections. Consequently, the Board declined to consider the patent owner’s filing and allowed the evidence into the proceeding.
AIA / IPR / PTAB Procedure
"Supplemental Evidence" Versus "Supplemental Information" *Web Only*
Addressing the requirements to offer supplemental evidence and information, the Patent Trial and Appeal Board (PTAB or Board) denied the patent owner’s requests for authorization to file a motion to submit supplemental declarations, making it clear that parties wishing to offer supplemental evidence or information must follow specific rules for doing so. CaptionCall, LLC, v. Ultratec, Inc., Case Nos. IPR2015-00636; -00637 (PTAB, Jan. 6, 2016) (Benoit, APJ).
Petitioner CaptionCall filed petitions for inter partes review (IPR) of two of Ultratec’s patents. After the Board instituted proceedings, the patent owner, Ultratec, filed its patent owner’s response, which included two declarations: one from Ms. Kretschman and one from Mr. Ludwick.
CaptionCall filed and served objections challenging Ms. Kretschman’s qualifications and the basis for her opinions as presented in her declaration. In accordance with 37 C.F.R. § 42.64(b)(2), which requires supplemental evidence to be served within 10 business days of service of the objection, Ultratec served a supplemental declaration by Ms. Kretschman. Ultratec then requested permission to file the supplemental declaration of Ms. Kretschman as supplemental evidence, intending to render unnecessary the filing of a motion by CaptionCall to exclude Ms. Kretschman’s original declaration. CaptionCall argued that filing the supplemental declaration was unnecessary and premature, since § 42.64 already addresses this situation. The Board agreed, further noting that if CaptionCall is not satisfied that its objections have been overcome by Ms. Kretschman’s supplemental declaration, CaptionCall may preserve its objections by filing a motion to exclude under § 42.64(c), and in response, “[Ultratec] may file the supplemental evidence with its Opposition to [CaptionCall]’s Motion to Exclude.”
Ultratec also sought to supplement Mr. Ludwick’s declaration to include a limited explanation of certain background facts and experiences on which he based his opinions and also to respond to the final written decision in CaptionCall, LLC v. Ultratec, Inc., Case No. IPR2014-00780 (PTAB, Dec. 1, 2015). The Board concluded that Mr. Ludwick’s supplemental declaration is not supplemental evidence, as it was not made in response to an objection, but instead would be treated as a late submission of supplemental information, which is governed by § 42.123(b). The late submission of supplemental information required Ultratec to make two showings: why the supplemental information reasonably could not have been obtained earlier, and that the consideration of the supplemental information would be in the interests of justice. CaptionCall argued that Ultratec did not, and cannot, meet these requirements because the information could have been obtained earlier. The Board agreed, noting that Ultratec did not adequately explain the three-week delay between the related CaptionCall final decision and the request to supplement the declaration. The Board also found that Ultratec did not sufficiently show why allowing Mr. Ludwick to supplement his declaration at this late stage of the proceeding is in the interest of justice. For these reasons, the Board did not authorize the patent owner to file a motion to submit a supplemental declaration of Mr. Ludwick.
AIA / IPR / § 315(b) Time Bar
First Complaint Triggers One Year Time Bar for IPR Petition *Web Only*
Addressing whether a petitioner was time-barred or estopped from requesting inter partes review (IPR) based on a newly filed second complaint, the US Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) held that the petitioner was barred from making the request because the IPR petition was filed outside the one-year time-bar set by 35 U.S.C. 315(b), based on a prior complaint. LG Electronics, Inc. v. Mondis Tech. Ltd., Case No. IPR2015-00937 (PTAB, Sept. 17, 2015) (Zecher, APJ).
The petitioner was served with a complaint alleging infringement of the subject patent in 2008 and again in 2014. The pre-America Invents Act (pre-AIA) complaint of 2008 had been previously dismissed, partly with prejudice and partly without. The petitioner contended that it was not time-barred because its IPR petition was filed within one year service of the 2014 complaint, because following dismissal of the 2008 complaint the parties were left in the same legal position as if the complaint had never been served and because and equitable and public policy considerations favor a “broad” interpretation of § 315(b).
The Board declined to read § 315(b) as being subject to a “latest” or “second” complaint, instead explaining that it “interpret[s] ‘a complaint,’ according to the plain language of § 315(b) to simply mean ‘a complaint’,” and that the 2008 complaint was therefore now a time-bar to the IPR petition. The Board also found that the circumstances of the dismissal of the 2008 complaint did not leave the parties in the same legal position as if the 2008 complaint had never been served, because the parties are now prohibited from pursuing the claims (and counterclaims) dismissed with prejudice and are subject to the terms of a settlement agreement. Nor did the Board agree that equitable or public policy considerations favored a “broad” interpretation of the statute, noting that “the purpose of § 315(b) is ‘to ensure that inter parties review is not used as a tool for harassment by repeating litigation and administrative attacks.’” Thus, the Board dismissed the petition without reaching the merits regarding invalidity.
The Board marked its decision in the instant case as “precedential,” meaning that future Board judges must adhere to the ruling in the instant case as long as this ruling is not “overcome by subsequent binding authority.”
PTAB: On Second Thought, Your IPR Is Instituted
In what could be a first, the Board granted-in-part a petitioner’s rehearing request, reversing its earlier decision not to institute an inter partes review (IPR). In reversing, the majority of the Board acknowledged that the petition and supporting declaration had in fact explained how the primary prior art reference taught a key term under the board’s construction. AVX Corp. v. Greatbatch Ltd., Case IPR2015-00710 (PTAB, Jan. 13, 2016) (Tornquist, APJ) (Rose, APJ, dissenting).
AVX filed a petition seeking inter partes review (IPR) of Greatbatch’s patent directed to capacitors having hermetic seals and structure allowing for testing of those seals, with the capacitors intended use being for electromagnetic interference (EMI) shielding in implantable medical devices. After reviewing the petition, the supporting evidence and Greatbatch’s preliminary response, the Board initially declined to institute the IPR. Central to the Board’s initial decision was its construction of the claim term “laminar delamination gap,” which relates to the testing structure. The Board construed the term to mean, under the broadest reasonable interpretation (BRI) claim construction standard, “a very thin space between layers of material allowing passage of helium gas to the outer edges of the capacitor,” just as the district court had done in the related litigation. In making its decision, the Board stated that AVX had not convincingly shown that the primary prior art reference, relied upon by AVX for teaching the testing structure for all asserted grounds of unpatentability, disclosed the “laminar delamination gap.”
In the rehearing decision, the Board agreed that it had indeed overlooked AVX’s argument that the “gas flow passage” depicted in one of the primary prior art reference’s figures disclosed the “very thin space” required by its construction for “laminar delamination gap.” The Board rejected Greatbatch’s argument that the size of the gap between the depicted insulator and washer of the prior art would be “substantial,” noting that Greatbatch’s own exhibit—relied upon as purportedly teaching that brazing as taught by the prior art reference would necessarily result in a substantial gap—actually taught that “[a] braze fillet should ideally be very small.” In granting the rehearing request, the Board made it clear that overlooking a key material statement in a petition is sufficient grounds to grant rehearing and reverse a prior denial of institution.
Also unusual was the inclusion of a dissent. According to the dissent, the majority relied upon argument and evidence that were not present in the petition. In particular, the dissent noted that AVX’s petition, by advancing a claim construction without any “very thin” limitation, “gives short shrift” to showing anticipation under a claim construction requiring the “lamination delamination gap” to be “very thin.” The dissent also pointed out that the petitioner’s rehearing petition advanced a new argument, to the effect that the primary prior art reference disclosed the “laminar delamination gap” by describing certain gaps as “minute.” The dissent also noted the inclusion in the rehearing motion of an annotated version of a drawing from the primary prior art reference, the annotations being absent in the original petition. The majority, however, considered the visual annotations to effectively correspond to the arguments in the petition without constituting new argument or evidence.
Practice Note: Despite the debate about whether the BRI standard currently used by the Board is the correct standard to use for America Invents Act (AIA) reviews and the fact that the Board is not generally bound by prior judicial construction of a claim term, the Board in this case adopted the district court’s claim construction from the parallel litigation. The Board’s review of that district court’s claim construction is consistent with the Federal Circuit’s decision in Power Integrations, Inc. v. Lee (IP Update, Vol. 18, No, 9), which found that the Board had an obligation to evaluate the claim construction of the parallel litigation and to determine whether it was consistent with the BRI of the claim terms at issue.
No Institution Based Solely on Unsupported Expert Testimony
Addressing whether a petitioner’s unsupported expert testimony, unchallenged by the patent owner, is sufficient to carry an inter partes review (IPR) petition at least through the institution phase, the Patent Trial and Appeal Board (PTAB or Board) said no and denied the IPR petition. Johns Manville Corporation v. Knauf Insulation Inc., Case No. IPR2015-01633 (PTAB, Jan. 4, 2016) (McKelvey, APJ).
The petitioner filed an IPR petition alleging that various claims of Knauf’s patent were inherently anticipated under §102(b) by a prior art patent to Gogek. The claims at issue are, in general, directed to a material comprising non-woven mineral fibers held together by a binder, wherein the material contains a certain residual level of ionic species per kilogram as assessed in a leach test. Petitioner argued that Gogek inherently taught the claimed product in one of his disclosed examples and provided expert testimony to that effect. Specifically, Petitioner’s three experts collaborated to prepare “insulated blocks” as taught in Gogek “Example 3” and then tested those blocks for residual ionic species as required by the challenged claims.
The Gogek process for making insulated blocks included use of “asbestos fines.” One of Petitioner’s experts explained that because asbestos fines are no longer commercially available (due to its carcinogenic properties) “Superwool 607,” which is a form of glass wool, was used instead. Petitioner’s expert stated that use of Superwool 607 was equivalent to use of asbestos fines, that use of Superwool 607 would not change the physical properties of the insulated blocks made in accordance with Example 3, and that use of Superwool 607 would not change the level of residual ionic species in the blocks as assessed by a leach test. No evidence was cited in support of these conclusory statements, nor was any analysis provided comparing Superwool 607 to the “asbestos fines” taught in Gogek. In its preliminary response, the patent owner argued that because Superwool 607 is not asbestos fines, the petitioner had not made the insulated blocks taught in Gogek. The patent owner did not, however, present evidence to dispute the expert’s claims that Superwool 607 was equivalent to asbestos fines.
The petitioner argued that the PTAB should credit its expert’s testimony at this stage in the proceedings, particularly where the patent owner did not dispute its argument that Superwool 607 was equivalent to asbestos fines. The PTAB disagreed, explaining that it was entitled to broad discretion in determining the amount of weight to be accorded witness testimony and could decide not to credit unsupported expert testimony. The PTAB stated that the patent owner “had no reason to mount a detailed challenge in its Preliminary Response given the lack of underlying support for [the petitioner’s expert’s] opinion.” Furthermore, the PTAB explained that in “IPR proceedings, it is up to the petitioner to make out its case; it is not the responsibility of a patent owner to challenge a case which has not been made.” Accordingly, the PTAB concluded that petitioner had failed to establish that, following trial on the merits, there is a reasonable likelihood that it will prevail.
Practice Note: Considering the Board decision in Knauf and the Federal Circuit decision in Redline Detection v. Star EnviroTech (IP Update, Vol. 19, No. 1), IPR petitions containing credible evidence but no expert testimony and petitions that include expert testimony without credible supporting evidence are both likely to be found insufficient even at the institution phase. Rather, the best practice is to submit an expert declaration along with supporting evidence in an IPR petition. Parties hoping to save on costs by preparing only a bare-bones IPR petition do so at the risk of not progressing to the trial phase.
Trademarks / International Comity, Res Judicata and Laches
Glass Half Full for Russian Federation Successor's Stolichnaya Infringement Saga
Addressing issues of international comity, res judicata, and laches, the US Court of Appeals for the Second Circuit affirmed in part and vacated in part the district court’s decision concerning a dispute over rights to the trademarks for Stolichnaya. Fed. Treasury Enter. Sojuzplodoimport et al. v. Spirits Int’l B.V., et al., Case Nos. 14-4721, 15-152 (2nd Cir., Jan. 5, 2016) (Jacobs, J.).
This is the latest chapter in the saga concerning the ownership of this well-known vodka brand (IP Update, Vol. 16, No. 9). Defendant Spirits International (SPI) claimed ownership of the Stolichnaya trademark through the privatization of a Soviet Union state enterprise, VVO-SPI, the original owner of the United States trademark registration for the Stolichnaya mark. In 2000, a Russian court held that VVO-SPI had not been validly privatized, meaning that the Soviet Union and thus now the Russian Federation retained ownership of the Stolichnaya mark. The Russian Federation then formed the plaintiff Federal Treasury Enterprise (FTE) to serve as its successor to the Stolichnaya marks. In an earlier lawsuit, FTE sued SPI for violating § 32(1) of the Lanham Act, alleging infringement of a registered trademark and other analogous federal and state claims. The court dismissed FTE’s § 32(1) claims for lack of standing because the Russian Federation retained “too great an interest” in the Stolichnaya marks for FTE to be considered an “assign” of the marks. FTE’s non-§ 32(1) trademark claims were either dismissed or otherwise dropped from the litigation.
In light of the court’s ruling, the Russian Federation directed that its Federal Agency for State Property Management assign to FTE the rights of the Russian Federation in the Stolichnaya marks. FTE then filed this latest lawsuit, again asserting Lanham Act § 32(1) claims and non-§ 32(1) claims against SPI. The district court again held that FTE lacked standing to assert its § 32(1) claims, this time because the assignment was not valid under Russian law. The court also ruled that FTE’s non-§ 32(1) claims were barred by res judicata and laches. FTE appealed.
On appeal, the 2nd Circuit held that the district court was precluded from considering the validity of the assignment of rights to the Stolichnaya marks under two related doctrines—international comity and the act-of-state doctrine. Under international comity, courts should refuse to review actions of foreign governments, unless those actions would be contrary to the policies of the United States. The 2nd Circuit found no countervailing policy interest to justify the district court’s decision. Under the act-of-state doctrine, courts of one sovereign state are precluded from reviewing the acts of government of another sovereign state performed within that state’s territory. Rejecting SPI’s argument that the act-of-state doctrine did not apply to commercial actions, the 2nd Circuit found that the assignment of rights in the marks was the act of a foreign sovereign, effectuated within the boundaries of Russia. The court also held that res judicata did not bar FTE from asserting its § 32(1) claims because those were not previously adjudicated on the merits.
Though the 2nd Circuit vacated and remanded the district court’s dismissal of FTE’s § 32(1) claims, it did affirm in part the district court’s dismissal of FTE’s non-§ 32(1) claims. The 2nd Circuit agreed that res judicata barred those claims because they were either previously adjudicated on the merits or could have been asserted in prior litigation. Laches also barred FTE’s non-§ 32(1) claims, as they were brought many years after the six-year statutory presumption for an unreasonable delay.
Trademarks / Modifying Permanent Injunctions
Trying to Outhustle a Permanent Injunction
Rebecca Harker Duttry
Addressing the issue of modifying a permanent injunction for trademark infringement, the Court of Appeals for the Sixth Circuit held that an injunction may be modified if it is no longer “achieving its principal objects,” due to a change in factual circumstances. LFP IP, LLC v. Hustler Cincinnati, Inc., Case No. 15-3135 (6th Cir., Jan. 13, 2016) (Sutton, J.).
Two siblings, Jimmy and Larry Flint, have been involved in a long-running business dispute stemming from their original business venture opening “The Hustler Club” bar and nightclub in Cincinnati. From this venture, Larry created the Hustler enterprise, which was eventually consolidated into a single corporation, LFP Inc. Jimmy worked on and off for the corporation before opening his own retail store, Hustler Cincinnati, in 2000, for which he paid licensing fees until the brothers had a falling out in 2009.
Larry’s corporations previously sued Jimmy, accusing Hustler Cincinnati of trademark infringement, unfair competition and several state-law violations. The district court granted summary judgment to Larry and his entities on the trademark infringement claims and issued a permanent injunction prohibiting Jimmy and his companies from using the HUSTLER trademark and using any trademark or variation thereof owned by Larry or his corporation. This decision was affirmed by the 6th Circuit.
Upon Jimmy’s opening of a new retail store marketed under the name “FLYNT Sexy Gifts,” Larry and his companies filed a motion for infringement of the “LARRY FLYNT” trademark and argued Jimmy should be held in contempt for violating the injunction. The district court denied the contempt motion, finding that the injunction did not directly prohibit Jimmy’s conduct at his new store. Based upon this ruling, Larry and his corporations filed a motion to change the scope of the injunction. Following an evidentiary hearing, the district court granted the motion, reasoning that Jimmy’s use of “FLYNT Sexy Gifts” was likely to cause confusion with the LARRY FLYNT trademark. The modified injunction prevented Jimmy and his companies from using the name “Flynt” in connection with the sale, promotion or advertising of adult entertainment products or services unless it is accompanied by the first name “Jimmy” in the same font size, color and style and on the same background color. Jimmy appealed the modification of the injunction.
On appeal, the 6th Circuit found that the district court properly justified its modification, finding that Jimmy’s marketing scheme would likely mislead consumers into thinking that his store was associated with Larry, the Hustler empire’s public figurehead. The district court properly crafted the injunction to respond to Jimmy’s conduct at his new store location and to target the specific actions that gave rise to its modification. The 6th Circuit clarified that the appropriate standard for modifying an injunction is not the “grievous wrong” standard, which the Supreme Court has essentially rejected since it was first promulgated in the 1932 case United States v. Swift & Co., but rather, a district court may modify an injunction that is no longer “achieving its principal objects” due to a change in factual circumstances. Thus, the 6th Circuit found the district court properly modified the original injunction based on Jimmy’s new violations that violated Larry and his corporations’ trademark.
Practice Note: A permanent injunction for trademark infringement may be modified if it is no longer “achieving its principal objects” due to a change in factual circumstances.
Trademarks / Right of Publicity
Rosa Parks Name and Likeness Free for Use?
Addressing the balance between privacy rights and matters of public interest, the US Court of Appeals for the Eleventh Circuit affirmed the district court’s dismissal of the plaintiff’s complaint, holding that the defendant was shielded by the First Amendment from a lawsuit claiming the retailer violated the publicity rights of civil rights icon Rosa Parks by selling various products that included the plaintiff’s picture. Rosa and Raymond Parks Institute for Self Development v. Target Corp., Case No. 15-10880 (11th Cir., Jan. 4, 2016) (Rosenbaum, J.).
Target Corporation (the defendant), a national retail chain, sold books, a movie and a plaque that included pictures of Rosa Parks, an icon of the civil rights movement who, in 1955, refused to surrender her seat to a white passenger on a racially segregated Montgomery, Alabama bus. The Rosa and Raymond Parks Institute for Self Development (the plaintiff) owns the right and likeness of Rosa Parks. The plaintiff filed a complaint against the defendant, alleging unjust enrichment, right of publicity and misappropriation under Michigan common law for the defendant’s sales of all items using the name and likeness of Rosa Parks. The plaintiff complained that by selling the products, the defendant had unfairly and without the plaintiff’s prior knowledge, or consent, used Rosa Parks’ name, likeness and image as used on the products. The plaintiff further argued that the defendant promoted and sold the products using Rosa Parks’ name, likeness and image for the defendant’s own commercial advantage. After the defendant filed a motion for summary judgment, the district court dismissed the complaint. The plaintiff appealed.
On appeal, the 11th Circuit, sitting in diversity, applied Alabama’s choice-of-law rules, which holds that the procedural law of the forum state should be applied, while the law of the state in which the injury occurred governs the substantive rights of the case. Accordingly, the 11th Circuit applied the procedural rules of Alabama and the substantive law of Michigan.
In Michigan, the common-law right of privacy protects against four types of invasions of privacy: intrusion upon the plaintiff’s seclusion or solitude, or into his private affairs; public disclosure of embarrassing private facts about the plaintiff; publicity which places the plaintiff in a false light in the public eye; and appropriation for the defendant’s advantage, of the plaintiff’s name or likeness. The right of privacy is not absolute, and Michigan courts have long recognized that individual rights must yield to the qualified privilege to communicate on matters of public interest.
Applying Michigan law, the Court affirmed the district court’s dismissal of the plaintiff’s complaint, concluding that “the use of Rosa Parks’ name and likeness in the books, movie, and plaque is necessary to chronicling and discussing the history of the Civil Rights Movement” and that these matters therefore are protected by Michigan’s qualified privilege. As the 11th Circuit noted, “it is difficult to conceive if a discussion of the Civil Rights Movement without reference to Rosa Parks and her role in it.”
Trademarks / Domain Names / Cybersquatting
Re-Registration of a Domain Name Constitutes "Registration" Under the ACPA
The US Court of Appeals for the Eleventh Circuit affirmed a district court ruling imposing a mandatory injunction requiring transfer of certain domain names to the trademark rights holder. Jysk Bed’N Linen, Inc. v. Monosij Dutta-Roy, Case No. 13-15309 (11th Cir., Dec. 16, 2015) (Tjoflat, J.).
Jysk has operated under the common law trademark BY DESIGN since 1990. In 1999, Jysk contracted with several people, including Monosij Dutta-Roy, to create an online retail site. Under the contract, Dutta-Roy was instructed to register the domain name bydesignfurniture.com, listing Jysk as the owner. However, when Dutta-Roy registered the domain in April 1999, he listed himself, not Jysk, as the owner.
After the relationship between Jysk and the group of contractors fell apart in 2003, one of the members took over management of thebydesignfurniture.com website through her own company. In April 2012, Dutta-Roy’s registration of the bydesignfurniture.com domain expired, and the Jysk website went down. Jysk immediately discovered that it did not own the domain and asked Dutta-Roy to re-register the domain in Jysk’s name. Instead, Dutta-Roy re-registered the domain in his own name along with three other domains containing the BY DESIGN trademark. Dutta-Roy then offered to transfer the four domains to Jysk in exchange for compensation for work performed under an alleged partnership agreement with Jysk’s predecessor. As no such agreement existed, Jysk rejected Dutta-Roy’s offer and instead filed a lawsuit under the Anticybersquatting Consumer Protection Act (ACPA).
The ACPA was enacted to prevent cybersquatters, namely, the registration of domain names containing trademarks for the purpose of holding them ransom from the trademark owner or causing consumer confusion by diverting customers to other website(s) through use of the owner’s trademark. Under the ACPA, a person is liable to a trademark owner if that person registers a domain that is identical or confusingly similar to a distinctive trademark and has a bad-faith intent to profit from the domain.
The district court determined that Dutta-Roy registered and re-registered the domains in bad faith and ordered him to transfer the domain names to Jysk. In reviewing Dutta-Roy’s appeal, the Court examined the four preliminary injunction factors for an abuse of discretion, namely, the likelihood of success on the merits, irreparable injury absent injunction, the potential damage to the moving party vs. the non-moving party and consideration of public interest.
As for the substantial likelihood of success on the merits, the 11th Circuit considered whether Dutta-Roy’s re-registration of the bydesignfurniture.com domain constituted “registration” of the domain under the ACPA and examined divergent answers to the question by the US Courts of Appeal Third and Ninth Circuits—the 3d finding that re-registration of the domain falls within the ACPA’s meaning of “registration” (Schmidheiny v. Weber), with the 9th coming to the opposite conclusion (GoPets v. Hise). Finding the language of the ACPA to be “plain and unambiguous,” the court agreed with the 3d Circuit and held that “a re-registration is, by definition, a registration.”
The 11th Circuit then determined that Jysk was likely to succeed on the merits of its ACPA claim. First, there was no dispute that the domain names at issue were registered by Dutta-Roy, nor was there any dispute that the domains were identical or confusingly similar to the BY DESIGN trademark, of which Jysk was the established owner. Second, the 11th Circuit identified at least five of the nine “bad faith” factors under the ACPA that were relevant to Dutta-Roy’s registration of the domain names including the fact that the domains were never used by Dutta-Roy for a bona fide offering of goods and services, and that Dutta-Roy demanded payment for the domain names.
The 11th Circuit quickly affirmed the district court’s assessment with regard to the remaining preliminary injunction factors, finding no potential harm to Dutta-Roy and affirming the public interest by placing the domains in the hands of the rightful owner. The 11th Circuit confirmed that “Dutta-Roy’s actions are those of a cybersquatter” and affirmed the lower court’s issuance of the preliminary injunction.
Copyrights / Statute of Limitations
Waiting to File Makes No (50) Cents
The US Court of Appeals for the Second Circuit has held that the Copyright Act’s three-year statute of limitations applies to exclusive licensees thereby precluding a lawsuit against rapper Curtis Jackson, also known as “50 Cent,” and various other defendants. Simmons v. Stanberry, Case No. 14-3106-CV (2d Cir., Jan. 15, 2016) (per curiam) (Winter, J,; Leval, J.; Raggi, J.).
Tyrone Simmons, a writer and performer of hip-hop music, brought the lawsuit against hip-hop producer William C. Stanberry, Jr., rapper 50 Cent and various corporate entities involved in the production and distribution of the 2007 song “I Get Money,” a song produced by Stanberry and recorded by 50 Cent. According to Simmons’s claim, in February 2006 he purchased an exclusive license to a beat from Stanberry. However, when 50 Cent expressed interest in the beat, Stanberry arranged with 50 Cent so they would collaborate in the production of a song employing the beat. Simmons alleged that in May 2007, Stanberry sent him an email informing Simmons that he “no longer had exclusive (or any) rights to the Beat.” 50 Cent’s recording of his song employing the beat was publicly released in the summer of 2007 and enjoyed immediate success. Simmons brought suit in December 2010, claiming that the defendants’ use of the beat infringed on Simmons’ exclusive rights. The district court granted the defendants’ motion to dismiss as time-barred by the Copyright Act’s three-year statute of limitations. 17 U.S.C. § 507(b). Simmons appealed.
The 2d Circuit looked to its 2011 decision in Kwan v. Schein, which held that a plaintiff’s copyright claim must be brought “within three years after the claim has accrued,” and that such an ownership claim accrues once “a reasonably diligent plaintiff would have been put on inquiry as to the existence of a right.”
The 2d Circuit rejected Simmons’ argument that this case is distinguishable from Kwan because he is not an owner but an exclusive licensee of the copyright. The court found that the distinction was not material, as the Copyright Act recognizes that an exclusive license is effectively a transfer of ownership over the rights licensed, and that exclusive licensees stand in the shoes of creators for enforcement purposes. Because Simmons waited more than three years to file his claim despite his awareness of Stanberry’s repudiation of the sale, Stanberry’s agreement with 50 Cent for the exploitation of the beat and the release of the allegedly infringing song, the 2d Circuit affirmed the district court’s decision and dismissed his claim as barred by the statute of limitations.