IP Update, Vol. 18, No. 7

Patents

Patent / Claim Construction

Expert Testimony Not Always a Guarantee for Appellate Review with Deference


Paul Devinsky

Addressing the impact of expert testimony used during claim construction, the U.S. Court of Appeals for the Federal Circuit in a case remanded by the U.S. Supreme Court, following its January 5, 2015 decision in Teva Pharmaceuticals v. Sandoz, again reversed the district court’s construction of disputed claim terms and finding of infringement, finding that the lower court construed relevant terms too broadly in view of the statements made during prosecution. Shire Development v. Watson Pharmaceuticals, Case No. 13-1409 (Fed. Cir., June 3, 2015) (Hughes, J.). Less than two weeks later, the Federal Circuit issued its decision in the Supreme Court remand of Teva and stood its claim construction ground. Teva Pharmaceuticals v. Sandoz, Case Nos. 12-1567; -1568; -1569 and -1570 (Fed. Cir., June 18, 2015) (Moore, J.) (Mayer, J., dissenting).

In January of 2015 the U.S. Supreme Court, in Teva v. Sandoz, ruled that the Federal Circuit must generally apply a “clear error” standard when reviewing a district court’s claim construction that is not based on intrinsic claim construction evidence (IP Update, Vol.18, No.1). Afterwards the Supreme Court remanded the Shire and Teva cases back to the Federal Circuit for reconsideration.

Shire

Shire owns a patent directed to a controlled-release oral pharmaceutical composition for treating inflammatory bowel disease. The patent requires the claimed composition to have an inner lipophilic matrix consisting of substances and an outer hydrophilic matrix consisting of compounds. After Watson filed an Abbreviated New Drug Application (ANDA) to obtain approval to sell a generic form of the drug, Shire sued for infringement.

The district court found infringement based on its construction of disputed terms “inner lipophilic matrix” and “outer hydrophilic matrix.” Watson appealed. In the first appeal, the Federal Circuit disagreed with the district court’s construction of the terms “inner lipophilic matrix” and “outer hydrophilic matrix” and determined that the matrix—not just an excipient within the matrix—must exhibit the lipophilic or hydrophilic characteristic and that the inner lipophilic matrix and outer hydrophilic matrix should be construed as separate from one another, based on the prosecution history. Shire filed for certiorari. After issuing its decision in Teva, the Supreme Court remanded the case back to the Federal Circuit for reconsideration in light of the new “clear error” standard of review for factual findings that underlie a district court’s claim construction.

Shire argued that the because the district court heard testimony from various expert witnesses during a Markman hearing and at trial, the Court must defer to the district court’s construction of the disputed terms because no “clear error” exists in these claim constructions. The Federal Circuit explained that under Teva, the disputed terms can be construed based on review of the intrinsic evidence including the specification, related claim language and prosecution history. Despite Shire’s arguments to the contrary, the Federal Circuit explained that the deferential standard of review is not trigged any time a district court hears or receives extrinsic evidence. The Court reasoned that there is no indication that the district court made any factual findings based on the extrinsic evidence that underlie its claim construction of the “inner lipophilic matrix” and “outer hydrophilic matrix.”

Teva

Less than two weeks later, in its remand consideration of the Teva case, the same Federal Circuit panel that decided the original appeal in Teva again found that the asserted claims were invalid as indefinite under § 112(b), applying both the Supreme Court’s decisions on claim construction (Teva) and its intervening decision on claim indefiniteness (Nautilus v Biosig, IP Update, Vol. 17, No. 6).

The claim term in issue was to a copolymer “having a molecular weight of about 5 to 9 kilodaltons.” As detailed in the Teva IP Update case note cited above, there are three possible ways for a polymer chemist to calculate molecular weight, but none was specified and there was no “default” that would be used by those skilled in the art. Although the § 112(b) issue was ultimately decided on the basis of whether the claim scope lacked “reasonable certainty” under Nautilus, the finding was predicated on the interpretation of the claim term in issue. At the district court there was expert testimony (by the patentee) that the molecular weight should be calculated as a “peak average” because it was the most “straightforward” calculation. The district court relied on that testimony in its analysis.

In the remand appeal, the Court gave “deference” to the district court’s factual conclusion but nevertheless rejected it in light of the most important intrinsic evidence of all: the actual claim language:

“A party cannot transform into a factual matter the internal coherence and context assessment of the patent simply by having an expert offer an opinion on it. The internal coherence and context assessment of the patent, and whether it conveys claim meaning with reasonable certainty, are questions of law. The meaning one of skill in the art would attribute to the term molecular weight in light of [the intrinsic evidence].”

“Even accepting as correct the district court’s factual determinations about … [the expert testimony] these facts do not resolve the ambiguity in the Group I claim about the intended molecular weight measure.”

In dissent, Judge Mayer argued that under the Supreme Court Teva ruling the expert testimony is dispositive and was improperly rejected by the majority. Rather than vacate the district court claim construction and find the claim indefinite, Mayer would have remanded the case for the district court to consider, in the first instance, whether further factual development was needed to resolve the § 112(b) issue.

Practice Note: Extrinsic evidence may be considered if needed to assist in determining the meaning or scope of technical terms in patent claims, but if reliance on that extrinsic evidence is not necessary to determine the scope of the patented invention, the Federal Circuit may decline to apply a deferential standard of review.

The outcome of this second (i.e., remand) appeal in Shire is consistent with the Federal Circuit’s tendency, post-Teva, to not apply a deferential, clear-error review in cases where claim construction can be decided without reference to the extrinsic evidence. See for example, the discussions on Lighting Ballast, TomTom and Kaneka Corp. (this edition) as well as IP Update, Vol. 18, No. 1 and IP Update, Vol. 18, No. 3.


Patents / Claim Construction

Teva Review Standard Controls Lighting Ballast on Remand


Paul Devinsky

In yet another post-Teva claim construction case (see discussion of Teva v. Sandoz, Shire Development v. Watson Pharmaceuticals, Kaneka Corp. v. Xiamen Kingdomway Grp. and TomTom, Inc. v. Adolph cases (this edition) the U.S. Court of Appeals for the Federal Circuit, in a decision rendered on remand from the U.S. Supreme Court in the wake of its Teva decision, reversed its earlier en banc decision on a key claim construction dispute. Applying the Teva clear-error standard of review for factual findings made by the district court, the Federal Circuit this time found that the district court’s claim construction was not “clearly erroneous.” Lighting Ballast Control LLC v. Philips Electronics North America Corp., Case No. 12-1004 (Fed. Cir., June 23, 2015) (Reyna, J.).

At trial, the district court, based on expert testimony, ruled that the claim term “voltage source means” used in a claim directed to an electronic ballast current regulator and was not a means plus function limitation (and therefore not governed by § 112(6)), but instead would have been understood to an artisan as a structure, specifically a rectifier. Had the disputed term been governed by § 112(6), the claim would have been invalid under § 112(2) for a failure to disclose corresponding structure. After a jury found infringement, the district court awarded $3 million in damages to Lighting Ballast. Philips appealed.

In the initial appeal, after reversing the district court claim construction (in a non-precedential decision) based on de novo claim construction review, the Federal Circuit granted en banc review to consider the correct standard of review to apply in situations where district court fact fining had been made in connection with claim construction.

The result of that en banc review was three published opinions that covered 88 pages, but the distilled holding of the majority was as follows:

“[W]e apply the principles of stare decisis, and confirm the Cybor standard of de novo review of claim construction, whereby the scope of the patent grant is reviewed as a matter of law. After fifteen years of experience with Cybor, we conclude that the court should retain plenary review of claim construction, thereby providing national uniformity, consistency, and finality to the meaning and scope of patent claims. The totality of experience has confirmed that Cybor is an effective implementation of [the Supreme Court’s decision in Markman], and that the criteria for departure from stare decisis are not met.” (See IP Update, Vol. 17, No. 2.)

Lighting Ballast sought Supreme Court review but while its cert petition was pending, the Supreme Court issued its opinion in Teva Pharmaceuticals (IP Update, Vol 18, No. 1), holding that factual findings made by a district court in connection with claim construction should be reviewed for clear error, and remanded Lighting Ballast back to the Federal Circuit for reconsideration in view of Teva. In its remand decision, the Federal Circuit focused on the “unchallenged expert testimony” cited by the district court regarding the meaning, to the artisan, of the claimed “voltage source means.”

Noting that “[t]he district court made findings of fact [as to the meaning of the disputed claim term] based on extrinsic evidence” [i.e., the expert testimony] and that “it was not legal error . . . to rely on [the] extrinsic evidence, because that evidence was “not used to contradict claim meaning that is unambiguous in light of the intrinsic evidence,” the Court this time affirmed the (previously reversed) district court’s construction.

Practice Note: As many litigators have recognized and as district court judges have concluded, in the post-Teva world, extrinsic evidence introduced in connection with claim construction disputes may focus appellate review, at least in these situations where the extrinsic evidence is not used in a way that is inconsistent with the intrinsic evidence. See IP Update, Vol. 18, No. 4, (Enzo Biochem); IP Update, Vol. 18, No. 3 (In re Papst Licensing and Fenner Investments v. Cellco Partnership) and cases included in this edition of IP Update (Kaneka Corp., TomTom and Teva (remand)) for reports on other recent post-Teva cases where the Federal Circuit either accepted or rejected extrinsic claim construction evidence (for deferential review) or rejected it (and engaged in de novo review).


Patents / Claim Construction

No Deference by the Federal Circuit to Lower Courts' Claim Construction Findings


Mandy H. Kim

Addressing issues of claim construction, the U.S. Court of Appeals for the Federal Circuit recently reversed the decisions of two district courts, shedding some light on the impact of the Teva decision on its claim construction review process. Kaneka Corp. v. Xiamen Kingdomway Grp. Co., Case Nos. 14-1373 and -1399 (Fed. Cir., June 10, 2015) (Reyna, J.); TomTom, Inc. v. Adolph, Case No. 14-1699 (Fed. Cir., June 19, 2015) (Wallach, J.).

In the first case, Kaneka sued Xiamen for infringement of a patent directed to producing oxidized and reduced coenzyme Q10, which is used in dietary supplements. Shortly thereafter, Kaneka filed a 337 Petition in the U.S. International Trade Commission. The district court stayed the lawsuit pending resolution of the Commission proceeding. The Commission issued a decision finding no infringement by any of the respondents. After lifting the stay, the district court construed the asserted claims and granted summary judgment of non-infringement. Kaneka appealed, challenging the district court’s claim construction.

Addressing the standard for review, the Federal Circuit stated it reviews the district court claim construction rulings “de novo except for subsidiary facts that are based on the extrinsic record, which [are reviewed] for clear error.” For all of the terms at issue, the Court relied heavily on the intrinsic evidence, explaining that “[e]xtrinsic evidence, such as dictionary definitions, for example, may be useful when construing claim terms, so long as the dictionary definition does not contradict any definition found in or ascertained by a reading of the patent documents.” In this case, the Federal Circuit declined to rely on extrinsic evidence, finding that the appropriate meaning of claim terms could be ascertained from the intrinsic evidence. In this regard, the Court further explained that “word-for-word alignment of disclosed embodiments [. . .] with claim language is unnecessary when the meaning of a claim term can be ascertained from the intrinsic record.”

Just nine days later, in TomTom, the Federal Circuit issued another opinion reversing a district court’s claim construction, again applying a de novo standard of review. The TomTom case involves allegations of infringement of a patent directed to generating and updating data for use in a destination tracking system. In its claim construction order, the district court construed all four disputed terms in favor of the plaintiff. Based on the claim constructions, TomTom moved for summary judgment and the defendant moved for reconsideration of the claim construction. The court denied the defendant’s motion and issued an opinion in favor or TomTom, consistent with its previous claim construction order. At the parties’ request, the district court entered a judgment of non-infringement, and Adolph appealed.

Although the Federal Circuit addressed all four disputed limitations on appeal, one limitation is of particular interest. For the term “destination tracking system of at least one mobile unit” the Court reversed the district court conclusion that the patentee disclaimed certain claim scope during prosecution. TomTom asked the Federal Circuit to give deference to the lower court’s fact-findings regarding the specification and file history, but the Court declined, explaining that the prosecution history is part of the intrinsic evidence and should be reviewed de novo. For other claim terms, the Federal Circuit clarified that claim terms should generally be given their plain and ordinary meanings, unless the patent drafter acted as his or her own lexicographer, or there was a disavowal of claim scope. Having found evidence of neither in the record, the Federal Circuit reversed the district court.

Practice Note: For other post-Teva claim construction cases where the appropriate standard of review was discussed, see Lighting Ballast Control and Teva Pharmaceuticals (remand) cases (this edition).


Patents / IPR / PTAB Claim Construction

Patent Trial and Appeal Board Claim Construction Cannot Be Unreasonable


Although the U.S. Court of Appeals for the Federal Circuit has held that the U.S. Patent and Trademark Office Patent Trial and Appeal Board (PTAB or Board) has the authority to use the broadest reasonable interpretation claim construction standard, it reversed and remanded several Board claim constructions on the basis that they are overly broad or unreasonable. Microsoft Corp., v. Proxyconn, Inc., Case Nos. 14-1542 and -1543 (Fed. Cir., June 16, 2015) (Prost, C.J.).

At the conclusion of an inter partes review (IPR) proceeding, the Board concluded that all of the 24 challenged claims except 4 were unpatentable and denied entry of Proxyconn’s motion to enter substitute claims. Proxyconn appealed challenging the broadest reasonable interpretation (BRI) standard for claim construction used by the Board. During the appeal the U.S. Patent and Trademark Office (USPTO) intervened to defend the BRI statement. The Federal Circuit explained that “[b]ecause we are bound by the decision in Cuozzo, we must therefore reject Proxyconn’s argument that the Board legally erred in using the broadest reasonable interpretation standard during IPRs.” However, recognizing that there are limits to the broadest reasonable interpretation standard, the Court further explained, “[t]hat is not to say, however, that the Board may construe claims during IPR so broadly that its constructions are unreasonable under general claim construction principles.” Particularly instructive is the Court’s statement that in addition to the specification, the Board should “consult the patent’s prosecution history,” which is contrary to the popular belief that consideration of the prosecution history is unnecessary when giving claims their broadest reasonable interpretation. Relying on these principles, the Federal Circuit vacated several of the Board’s unpatentability determinations on the basis that the claim constructions were “unreasonably broad.”

The Federal Circuit also affirmed the Board’s denial of Proxyconn’s motion to amend claims, finding that “[r]equiring the patentee to establish that its substitute claims are patentable over prior art of record does not run afoul of” the Patent and Trademark Office regulations setting forth the specific requirements for claim amendments.

Practice Note: This decision is significant both for what it holds and for what it expressly does not decide. It also is significant because it is the first Federal Circuit decision reversing the Board on an issue that some believed the Federal Circuit would not address, given the large number of Board appeals now before the Court and the limited judicial resources. The Federal Circuit frequently utilizes Rule 36, summarily affirming the Board without a written decision. Many have predicted that the Federal Circuit would use this rule often to affirm decisions from the new Board trial proceedings, especially for claim construction determinations. While the Federal Circuit has utilized Rule 36 frequently in recent PTAB cases, this case demonstrates that the judges will overturn Board decisions when legal errors are made, giving new hope to patent owners seeking to appeal the cancellation of their claims.

With Proxyconn’s regard to the motion to amend, many have wondered whether the Federal Circuit would uphold the Board’s expanded requirements for claim amendments in Idle Free Systems, Inc. v. Bergstrom, Inc., IP Update, Vol. 17, No. 1. Although the Court affirmed the requirement that the patent owner must show that the amended claims are patentable over the prior art “of record” in the proceeding, it specifically noted that “this case does not call on us to decide whether every requirement announced by the Board in Idle Free constitutes a permissible interpretation of the PTO’s regulations.” The Court noted, for example, that it was not addressing “Idle Free’s requirement that the patentee . . . show patentable distinction over all ‘prior art known to the patent owner.’” This reservation gives fresh optimism to patent owners who have appealed or desire to appeal a Board denial of a motion to amend on this basis. Indeed, in the REG v. Neste Oil IPR (discussed in this edition) the Board took a far more permissive position on a patent owner’s motion to amend.


Patents / Patent-Eligible Subject Matter (§ 101)

Price Optimization in E-Commerce Not Patent Eligible


In the wake of the Supreme Court’s decision in Alice addressing patent-eligible subject matter (IP Update, Vol. 17, No. 7), the U.S. Court of Appeals for the Federal Circuit affirmed grant of judgment on the pleadings that a patent on price optimization in e-commerce does not claim eligible subject matter under 35 U.S.C. § 101. In his concurring opinion, Judge Mayer commented that patent eligibility is an issue properly resolved at the pleading stage. OIP Technologies, Inc. v. Amazon.com, Inc., Case No. 12-1696 (Fed. Cir., June 11, 2015) (Hughes, J.) (Mayer, J. concurring).

OIP, the patent owner, filed suit against Amazon alleging infringement of a patent directed to a computer-implemented price optimization method that “help[s] vendors automatically reach better pricing decisions through automatic estimation and measurement of actual demand to select prices.” The patent specification explains that traditional merchandisers manually determine prices, resulting in an imperfect pricing model where the merchandiser often is not charging an optimal price that maximizes profit because the merchandiser is slow to react to changing market conditions. The patent’s computer-implemented methods for “pricing a product for sale” thus sought to automate traditional price-optimization to improve efficiency and reduce costs.

Amazon filed a motion dismiss on the basis that the asserted patent was directed to ineligible subject matter. After the district court granted Amazon’s motion, finding that the asserted claims were invalid because they merely described a general purpose computer implementing the abstract idea of “price optimization,” OIP appealed.

The Federal Circuit, applying U.S. Court of Appeals for the Ninth Circuit law for review of a motion to dismiss, reviewed OIP’s appeal de novo and affirmed the district court.

Following Alice’s two-part test for patent eligibility, the Federal Circuit first determined that the claim method for price optimization was an abstract idea and was therefore a patent-ineligible concept. The Court further noted that the patent claims “merely recite ‘well-understood, routine conventional activit[ies],’ either by requiring conventional computer activities or routing data-gathering steps.” The Court then considered the next step required by Alice, whether the elements of the asserted claim, individually and as an ordered combination, transformed the nature of the claim into patent-eligible subject matter. The Court found that the claim elements, whether considered individually or taken together as an ordered combination, failed to transform the claimed abstract idea for price optimization into a patent-eligible matter.

The Federal Circuit explained that at best “the claims describe automation of the fundamental economic concept of offer-based price optimization through the use of generic-computer functions” and concluded that the mere use of a general purpose computer was insufficient to elevate the patent’s abstract ideas to patentable subject matter.

In a concurrence addressing a purely procedural Judge Mayer addressed OIP’s argument that the district court erred in resolving patent eligibility matter in a Rule 12 motion. Judge Mayer commended the district court for adhering to the Supreme Court’s instruction that patent eligibility is a threshold issue and wrote that “failure to recite statutory subject matter is the sort of ‘basic deficiency,’ that can, and should ‘be exposed at the point of minimum expenditure of time and money by the parties and the court.’”

Practice Note: Judge Mayer’s concurrence might be compared to a procedure recently implemented by District Judge Gilstrap in the U.S. District Court for the Eastern District of Texas requiring defendants to first seek leave from the court before filing an early motion on patent eligibility. Judge Gilstrap’s procedure only permits parties to file dispositive motions under 35 U.S.C. § 101 without leave from the Court following issuance of the court’s claim construction order. Thus, the order encourages defendants to wait until after claim construction to challenge patent eligibility.

Even in jurisdictions having local rules that mandate a threshold for motion, defendants confronted with infringement allegations based on patents that raise § 101 eligible subject matter issues may still want to consider raising the issue at the pleading stage, even if that means seeking leave of court. As noted in Judge Mayer’s concurrence, addressing patentable subject matter at the outset conserves scarce judicial resources, spares litigants the costs of discovery and claim construction and stems vexatious suits brought by owners of “vague and overbroad” business method patents.


Patents / Patent Eligibility

Alice Strikes Again!


Addressing the issue of patent eligibility under § 101, the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s dismissal of a complaint on the grounds that the asserted patent, directed to web browser technology, claimed an abstraction, was not limited to a technological invention and was therefore directed to patent-ineligible subject matter. Internet Patents Corp. v. Active Networks, Inc., Case Nos. 14-1048; -1061; -1062 and -1063 (Fed. Cir., June 23, 2015) (Newman, J.).

Internet Patents Corporation (IPC) is the owner of a patent directed to a web browser that stores a user “state” representing what a user has typed into a web-based form, even if that information has not yet been submitted. If the user navigates away from and back to the web-based form, the stored state is still usable in the web-form. This way, the user does not have to re-type the information he/she previously provided. IPC asserted its patent against the defendant, Active Networks, among others. Active Networks moved to dismiss the complaint. After the district court granted the motion, finding the patent invalid for failure to meet the eligibility requirements of patentable subject matter, IPC appealed.

Applying the first step of the Supreme Court’s Alice analysis (IP Update, Vol. 17, No. 7), the Federal Circuit explained that “[t]he character of the claimed invention is an abstract idea: the idea of retaining information in the navigation of online forms.” With respect to the second step of the Alice analysis—whether the claims contain an “inventive concept” —IPC argued that various limitations, such as “maintaining said state . . .” took the claim outside the realm of a mere abstract idea and claimed an improvement over prior art. But the Federal Circuit rejected IPC’s argument, noting that the patent’s specification refers to the “browser Back and Forward button functionality” as “conventional.” The patent specification also referred to the Back and Forward functionality as “well-known” and “common.”

The Federal Circuit also explained that “[the asserted] claim . . . contains no restriction on how the result is accomplished” and “[t]he mechanism for maintaining the state is not described, although this is stated to be the essential innovation.” Therefore, “IPC’s proposed interpretation of ‘maintaining state’ describes the effect or result dissociated from any method by which maintaining the state is accomplished upon the activation of an icon.” For these reasons, the Court concluded the claims were not directed to patent-eligible subject matter.


Patents / Patentability

Fetal DNA Test Cannot Give Birth to a Patent


Addressing the issue of patent eligibility of a pre-natal testing invention, the U.S. Court of Appeals for the Federal Circuit unanimously affirmed the district court’s judgement of invalidity under 35 U.S.C. § 101 with respect to a test for determining fetal characteristics using only maternal serum. Ariosa Diagnostics, Inc., et al. v. Sequenom Inc., et al., No. 14-1139 and -1144 (Fed. Cir., June 12, 2015) (Reyna, J.) (Linn J., concurring).

The claims in issue are directed toward the discovery of cell-free fetal DNA (cffDNA) in maternal serum or plasma, which can be used to determine fetal characteristics such as gender and genetic defects. Previously, the serum had been discarded as medical waste. Importantly, this claimed method had replaced the more dangerous technique of taking samples from the placenta during pregnancy.

Acknowledging that the claimed discovery made a significant contribution to prenatal care, the Federal Circuit nevertheless invalidated the claims citing the Supreme Court decision in Mayo Collaborative Serv. v. Prometheus Labs. Applying the first step of the Mayo analysis, the Court concluded that the claimed invention was directed to a patent-ineligible concept because it began and ended with the naturally occurring cffDNA, without any transformation of the naturally produced product. Applying the second step, the Court found that the claims lacked the required inventive concept. That is, under Mayo, a process based on a natural phenomenon may be patentable, but only if the method adds new and useful steps. Here, the Court explained the claimed collection, amplification and assessment of DNA in plasma or serum to be “well-understood, routine, conventional activities performed by doctors in 1997,” i.e., at the time of the invention. Thus, these steps failed to rescue the invention from lack of eligibility.

In an unusual concurrence, Judge Linn explained that he only joined the decision because he was “bound by the sweeping language” of Mayo. Judge Linn opined that the broad language of the second step in the Mayo test is unnecessary and lamented that it leaves “truly meritorious invention[s],” like the one here, unprotected. Judge Linn also distinguished the unpatentable procedures in Mayo, which doctors already performed in combination with the claimed steps, from those in the present case, which for the first time made use of serum and plasma that had previously been discarded. Nevertheless, because the Supreme Court’s “blanket dismissal of conventional post-solution steps” left no room for these factors to bear any weight, Judge Linn reluctantly joined in the decision.


Patents / Application of Kessler Doctrine

Empowering Customers to Sell an Exonerated Accused Product


In a decision that expands a customer’s right to defend itself under the Kessler doctrine, the Federal Circuit clarified that a customer is not subject to liability for a product that has already been cleared of patent infringement allegations. SpeedTrack Inc. v. Office Depot, Inc., Case No. 14-1475 (Fed. Cir., June 30, 2015) (O’Malley, J.).

SpeedTrack asserted claims for a software method to access files and data in a storage system based on designated criteria. It accused Office Depot and other online retailers (the appellees) of literally infringing the asserted claims through website search functionality allowing users to locate a particular product. SpeedTrack had previously sued Walmart for the same software purchased from Endeca. In the earlier action against Walmart, Endeca (currently owned by Oracle) intervened to litigate alongside its customer. Eventually, after claim construction and after the Patent and Trademark Office (PTO) confirmed the patentability of the claims, the district court disposed of the case on summary judgment. In that case, the Federal Circuit affirmed the finding that the Endeca software used by Walmart did not infringe.

Shortly thereafter, SpeedTrack sued the appellees, pursuing infringement under the doctrine of equivalents. The district court granted summary judgment, finding that accusing the Endeca software used by the appellees was “essentially the same” as the non-infringing software in Walmart. The district court applied both res judicata and the Kessler doctrine. SpeedTrack appealed.

The Federal Circuit reaffirmed that the 1907 Supreme Court decision in Kessler v. Eldred is binding precedent that controls a preclusion analysis unless and until the Supreme Court overrules it. In so holding, the Court provided a powerful defense to customers of an accused, yet exonerated product by emphasizing the need to protect a manufacturer’s right to sell an accused product freely after a final adjudication. Consequently, SpeedTrack was not entitled to relitigate the Walmart case by focusing on the doctrine of equivalents instead of literal infringement or through the assertion of different claims. To the contrary, the right to sell without restraint attaches to the product itself so that an accused product is no longer encumbered. The Federal Circuit noted its own 2014 decision in Brain Life LLC v. Elekta Inc., 746 F.3d 1045, 1050 (Fed. Cir. 2014) (IP Update, Vol. 17, No. 4) for this proposition.

In this case, the implementation of the Endeca software on the accused online retailer websites was materially the same as the implementation in Walmart. Because the Endeca software was non-infringing, SpeedTrack had a duty to refrain from suing customers on the same functionality. It was of no moment that Endeca was not a litigant in this action. Indeed, the Federal Circuit clarified that a customer has an affirmative right to invoke the Kessler doctrine as a defense to patent to infringement. Although Kessler had focused on a manufacturer’s rights without addressing whether the defense extended to a customer—the Federal Circuit found that the defense did extend to a customer because “[a]llowing customers to assert a Kessler defense is consistent with the [Supreme] Court’s goal of protecting the manufacturer’s right to sell an exonerated product free from interference or restraint.”

Practice Note: The continued vitality of the Kessler doctrine offers essentially blanket protection to accused products that have previously been subject to litigation and found not to infringe, so long as the customer can demonstrate that the later-accused product is the same as the product or article exonerated in the earlier case (or shares a non-infringing implementation).


Patents / ANDA / Reverse Payment Settlements

Third Circuit Extends Actavis to Reverse Settlement Agreements Involving Non-Cash Consideration


Daniel Powers

Addressing for the first time whether reverse settlement agreements involving non-cash consideration merit antitrust scrutiny, the U.S. Court of Appeals for the Third Circuit reversed the district court, applying the reasoning set forth in the Supreme Court’s Actavis decision to hold that non-cash payments were subject to the same rule of reason analysis as cash payments. King Drug Company of Florence, Inc. v. Smithkline Beecham Corp. d/b/a GlaxoSmithKline, Case No. 14-1243 (3rd Cir., Jun. 26, 2015) (Scirica, J).

The plaintiffs are direct purchasers of Lamictal, a brand-name drug used to treat epilepsy and bipolar disorder, from defendant GlaxoSmithKline (GSK). GSK developed Lamictal and held a patent for its active ingredient, lamotrigine.

In 2002, the defendant Teva sought U.S. Food and Drug Administration (FDA) approval to market generic lamotrigine. Under the Hatch-Waxman Act, pharmaceutical manufacturers may apply for approval of new drugs shown to be “bioequivalent” to drugs that have been previously approved, using an abbreviated approval procedure (Abbreviated New Drug Application, or ANDA). Hatch-Waxman provides significant incentives for these generic manufacturers to challenge weak or invalid patents relied upon by brand-name manufacturers. A generic manufacturer who is first to file an ANDA and who certifies that the relevant brand-name patents are invalid or will not be infringed by the proposed generic enjoys a 180-day exclusivity period vis-à-vis other potential generic entrants. The brand-name manufacturer, however, is permitted to market an authorized generic during this 180-day period.

Teva’s ANDA filing triggered a patent infringement litigation with GSK. The district court ruled in Teva’s favor with respect to GSK’s main patent claim. In 2005, before the district court could rule on remaining claims, GSK and Teva settled the litigation. Under the terms of the settlement, GSK agreed to allow Teva to enter the market with less popular generic chewable lamotrigine tablets 37 months prior to expiration of GSK’s patent. For regular tablets, GSK’s blockbuster product worth $2 billion, Teva would be allowed to enter the market six months prior to the expiration of the patent. GSK also agreed not to market an authorized generic (a “no-AG agreement”) until Teva’s 180-day exclusivity period expired.

In 2012, a putative class of direct purchasers sued GSK and Teva, alleging that their settlement violated Section 1 of the Sherman Act by conspiring to delay generic competition for Lamictal tablets and Section 2 by conspiring to monopolize the chewable lamotrigine tablet market. GSK and Teva moved to dismiss, claiming that, pursuant to the 3rd Circuit’s decision in In re K-Dur Antitrust Litigation, only cash payments constituted actionable “reverse payments.” The district court granted the motion. On appeal, the 3rd Circuit stayed the proceedings pending the Supreme Court’s decision in Actavis, ultimately remanding the case back to the district court for further consideration. On remand, the district court concluded that Actavis only required antitrust scrutiny in reverse payment patent settlements that involve an exchange of money and not in cases that involve other types of consideration. The plaintiffs again appealed to the 3rd Circuit.

The 3rd Circuit reversed, concluding that under Actavis a no-AG agreement, such as the one in question here, should be subject to antitrust scrutiny under the rule of reason analysis (as was applied) in order to determine whether a reverse payment settlement “could have an anticompetitive effect or, alternatively, whether it was reasonable compensation for litigation costs or the value of services.” As the Supreme Court explained in Actavis, unjustifiably large payments may suggest the patent holder sought to buy out the challenger to avoid the risk of competition. Applying that logic to the instant case, the 3rd Circuit concluded that no-AG agreements likely present the same concerns as cash payments. The court emphasized that an agreement not to offer an authorized generic “may be of great monetary value to . . . a first-filing generic.” For example, in Actavis the Supreme Court recognized that the 180-day exclusivity was potentially worth several hundred million dollars. Similarly, in this case, Federal Trade Commission and amici briefs suggested that the Lamictal no-AG agreement was potentially worth hundreds of millions of dollars to Teva.

The defendants argued that no-AG agreements are distinguishable from reverse payments because they are essentially exclusive licenses, expressly permitted under patent law. But the 3rd Circuit disagreed, emphasizing that the issue was not whether patent holders had the right to license their patents, but rather the specific terms of those licenses. The right to grant licenses did not include the “right to give a challenger a license along with a promise not to produce an authorized generic—i.e., a promise not to compete—in order to induce the challenger” to settle litigation.


Patents / Standing

Federal Circuit Throws Out a Willful Infringement Verdict Due to Lack of Standing *Web Only*


Addressing the issue of standing, the U.S. Court of Appeals for the Federal Circuit vacated a jury verdict of willful infringement, finding that plaintiff did not possess all substantial rights to enforce the patent at the time the complaint was filed. Alps South, LLC v. The Ohio Willow Wood Co., Case Nos. 13-1452; -1488; 14-1147 and -1426 (Fed. Cir., June 5, 2015) (Chen, J.).

After third party Applied Elastomerics (AEI) licensed its patent for liners used to cushion a prosthetic limb to the plaintiff Alps, Alps sued the defendant Ohio Willow Wood (OWW) for patent infringement. Shortly after Alps filed its complaint, OWW filed a motion to dismiss for lack of standing, claiming that Alps did not receive “all substantial rights” from AEI. In response, AEI and Alps executed a nunc pro tunc license that eliminated several limitations on Alps’ rights and removed certain rights retained by AEI. The district court denied the motion finding that the original license sufficed to provide standing and the nunc pro tunc agreement clearly gave Alps all necessary rights. At trial, the jury held that the patent was valid and that OWW willfully infringed. OWW appealed.

The Federal Circuit reversed, finding that the original license agreement failed to confer onto Alps the necessary rights to sue as a sole plaintiff. The Court was not persuaded by Alps’ claim that it possessed all substantial rights to sue as a sole plaintiff because it had the right to exclude and the right to pursue infringement litigation under its own control and its own cost. According to the Court, the original license prohibited Alps from settling infringement litigation without prior written consent from AEI, provided AEI the right to pursue an infringement action if Alps declined to do so within six months of learning of suspected infringement, and limited Alps’ enforcement to a particular field of use (prosthetic products). The Court found these limitations fatal to Alps’ standing argument, placing particular emphasis on the field of use limitation. According to the Court, a license limited to a particular field of use creates a substantial risk of multiple suits and could result in multiple liabilities.

Alps also argued that, even if it lacked standing under the original license, this defect was cured by the nunc pro tunc license, because that license eliminated both the field of use restriction and the provision that permitted AEI to pursue litigation if Alps declined to do so. However, the Federal Circuit concluded that “nunc pro tunc agreements are not sufficient to confer retroactive standing,” explaining that party asserting patent infringement is “required to have legal title to the patents on the day it filed the complaint and that requirement cannot be met retroactively.”


Patents / AIA / Appellate Jurisdiction

In Seeking Patent Review, Timing Matters *Web Only*


Clarifying the “final written decision” rule in covered business method (CBM) reviews, the U.S. Court of Appeals for the Federal Circuit explained that the Patent Trial and Appeal Board’s (PTAB or Board) decision to terminate a CBM proceeding was not appealable because the Board’s decision did not address the validity of the patents. GTNX, Inc. v. INTTRA, Inc., Case Nos. 15-1349; -1350; -1352 and -1353 (Fed. Cir., June 16, 2015) (Taranto, J.).

The patents-at-issue related to online methods for coordinating containerized shipping. In 2011, the appellant’s parent company filed suit in district court, seeking a declaratory judgment that the patents were invalid. While that case was pending, the appellant petitioned the U.S. Patent and Trademark Office (USPTO) for a CBM review of the asserted patents.

The Board instituted the CBM review proceedings. However, just two months after institution, the Board granted the appellee leave to file a motion to dismiss the proceedings under 35 U.S.C. § 325(a)(1), which states that “review may not be instituted . . . if, before the date on which the petition for such a review is filed, the petitioner or real party in interest filed a civil action challenging the validity of the patent.” The appellant opposed the motion, arguing that the appellee had waived its § 325(a)(1) objection. The Board granted the motion to dismiss, noting that there was no dispute that the appellant’s declaratory judgment action fell within § 325(a)(1). The petitioner appealed.

The petitioner argued that the Board’s decision constituted a final written decision under § 328(a). But, the Federal Circuit rejected this claim, noting that § 329 authorizes appeals only with respect to a “final written decision of the [Board] under section § 328(a).” The Court explained that § 328(a) refers solely to a “final written decision with respect to the patentability of any patent claim challenged by the petitioner. . .” By contrast, the Board’s decision “was not reached after conduct of the review and did not make a determination with respect to patentability.” Thus, the decision fell outside of § 328(a). Since only a decision under § 328(a) constitutes an “appealable decision within the statutory regime,” the Court found that it did not have jurisdiction to hear the appeal.

The Federal Circuit went on to note that the Board “expressly stated that it was vacating [its] earlier decision to institute proceedings.” In so doing, the Board was, in effect, making a decision whether to institute proceedings. Under § 324(e), such decisions are “final and nonappealable,” further confirming the Court’s lack of jurisdiction.

Practice Note: Parties seeking institution of inter partes review must file such motions prior to (or on the same day of) seeking a declaratory judgment for invalidity. This bar cannot be waived, even where the patent owner fails to raise it as an issue.


Patents / Injuctions

No En Banc Review of Panel Decision Vacating a Civil Contempt Remedy *Web Only*


Alexander P. Ott

Addressing the issue of contempt for violation of a non-final injunction, a divided U.S. Court of Appeals for the Federal Circuit declined to rehear en banc a panel decision that vacated a civil contempt holding for violation of an injunction in a case where the underlying patent was cancelled by the Patent and Trademark Office (PTO). ePlus, Inc. v. Lawson Software, Inc., Case Nos. 13-1506 and -1587 (Fed. Cir., June 18, 2015) (Prost, J. and Dyk, J.) (O’Malley, J., dissenting).

Lawson originally appealed after an infringement verdict and subsequent injunction. In a 2012 opinion, the Federal Circuit found the system claims to be invalid due to an indefinite means-plus-function element and reversed the infringement verdict as to two of the three method claims. The Federal Circuit remanded the case, instructing the district court to modify the injunction as necessary.

On remand, Lawson argued for extensive modifications to the injunction, but the district court only eliminated a single configuration that was not implicated by the remaining claim. The court also held Lawson in civil contempt based on a failed re-design and ordered it to pay a compensatory fine of over $18 million, along with daily coercive fines until Lawson complied with the injunction.

Lawson appealed both the contempt order and the refusal to modify the injunction. While that appeal was pending, the sole remaining claim was cancelled by the PTO after an ex parte reexamination. In a 2014 opinion (IP Update, Vol. 17, No. 8), a Federal Circuit panel held the cancelled claim to be void ab initio and set aside the injunction. The panel also considered the injunction to be non-final because it was still under appeal and thus vacated the contempt order based on the rule that contempt of a non-final injunction rises or falls with the underlying injunction.

ePlus moved for rehearing en banc. On June 18, 2015, after a deadlocked five to five vote (with Judge Chen not participating), the Federal Circuit issued an order denying an en banc rehearing. The panel also issued a revised opinion that same day, which added further discussion emphasizing that the decision was limited to non-final injunctions. The majority panel judges also wrote a concurrence to the en banc denial, characterizing their decision as nothing more than the application of well-established precedent for non-final injunctions.

In dissent, Judge O’Malley addressed what she considered to be the majority’s attempt to re-characterize the injunction as non-final.

Practice Note: As Judge Moore warns in her dissent, this holding should encourage defendants to scrap and fight to keep an underlying district court litigation pending in the hope of faring better with the PTO.


Patents / Exceptional Case Doctrine (§ 285)

Poor Litigation Conduct by Prevailing Party Not Enough to Obviate Exceptional-Case Doctrine


Joshua David Rogaczewski

Addressing the degree to which litigation conduct can preclude the recovery of fees under 35 U.S. C. § 285, the U.S. Court of Appeals for the Federal Circuit vacated the denial of a fee award, finding that sloppy litigation performance does not bar a prevailing party from obtaining fee shifting. Gaymar Indus., Inc. v. Cincinnati Sub-Zero Prods., Inc., Case No. 14-1174 (Fed. Cir., June 25, 2015) (Dyk, J.).

Gaymar Industries sued Cincinnati Sub-Zero Products (CSZ) alleging patent infringement. CSZ then instituted an inter partes reexamination proceeding before the U.S. Patent and Trademark Office (USPTO), which found all claims of Gaymar’s patent invalid. The USPTO’s invalidity determination resolved the merits of the Gaymar–CSZ lawsuit, and CSZ sought its attorneys’ fees under § 285, which authorizes courts to “award reasonable attorney fees to the prevailing party . . . in exceptional cases.”

In the meantime, however, CSZ had made several missteps. First, CSZ made inconsistent statements about the need for expert testimony in the case. In July 2008, CSZ told the district court that it needed to identify an expert for its case. In November 2012, however, CSZ told the court that its position throughout the case was no experts were needed. Second, CSZ misstated the basis of its expert’s testimony. The expert testified that his perspective what that of one skilled in the relevant art, but CSZ told the district court that the opposite was true. Third, CSZ stated that Gaymar denied at a hearing that it had validity-related burdens, but Gaymar actually stated (correctly) that it had no burdens unless and until CSZ introduced evidence of invalidity. Finally, CSZ stated that Gaymar did supplement its papers with validity-related material when the district court invited it to do so, but the district court had agreed to defer validity discussions until CSZ asserted an invalidity defense.

The district court—adopting the report of a magistrate—found that Gaymar’s litigation position was not objectively baseless and, therefore, that the case was not exceptional. In addition, the court found that CSZ’s “litigation misconduct” barred a fee award even if the case was exceptional.

After the Supreme Court reset § 285 jurisprudence in Octane Fitness v. ICON Health & Fitness (IP Update, Vol. 17, No. 5), diminishing the importance of the objective-reasonableness inquiry, CSZ moved for reconsideration. The district court and denied reconsideration explaining that CSZ’s “unclean hands” barred an exceptional-case finding. CSZ appealed.

The Federal Circuit affirmed the not-objectively-baseless finding, but it reversed the unclean-hands finding. The court concluded that CSZ’s errors and overstatements were neither misconduct nor sanctionable, which the Court appeared to find necessary. To gran the relief requested. In the Court’s words, “bad lawyering” is not “misconduct.”

In light of these rulings, the Federal Circuit vacated the denial of the fee award and remanded the case to the district court for an assessment of whether, applying the totality of the circumstances test (under the Octane standard), including the weakness of Gaymar’s position, a fee award was justified.


Patents / Double Patenting

When a Divisional is Not a Divisional: No Section 121 Safe Harbor for Reissue Patentee Who Retroactively Omitted New Matter


Addressing the “safe harbor” provision under 35 U.S.C. § 121, the U.S. Court of Appeals for the Federal Circuit upheld a district court ruling that a reissue patent was invalid for obviousness-type double patenting. G.D. Searle LLC v. Lupin Pharmaceuticals, Inc., Case No. 14-1476 (Fed. Cir., June 23, 2015) (Bryson, J.).

Co-plaintiffs G.D. Searle and Pfizer Asia (collectively Pfizer) asserted a reissued U.S. patent (the Pfizer patent) against five generic drug makers. Although the reissue was ostensibly filed to correct certain “technical errors,” Pfizer also re-designated the reissue as a divisional (the original application was filed as a continuation-in-part), removing any subject matter not present in the original application. The defendants argued that the Pfizer reissue patent was invalid for obviousness-type double patenting and that Pfizer was not entitled to invoke the safe harbor in § 121, a provision that protects patentees from a double-patenting challenge where the claimed subject matter is presented in a divisional application as a result of a restriction requirement made in a parent application. The district court agreed, concluding that Pfizer’s patent was not a proper “divisional” and found the Pfizer reissue patent invalid. Pfizer appealed.

The first issue addressed by the Federal Circuit was whether the “safe harbor” of § 121 applies to the Pfizer reissue patent. The Court found it did not, explaining the Pfizer reissue patent was not a true “divisional” of the parent patent. As the Federal Circuit explained, “[T]he [child] application cannot be a divisional of the [parent] application, despite being designated as such in the reissue patent, because it contains new matter that was not present in the [parent] application.” Although Pfizer attempted to delete the new matter during the reissue proceedings, the Federal Circuit found this to be insufficient for purposes of invoking the safe harbor of § 121, stating that “[s]imply deleting that new matter from the reissue patent does not retroactively alter the nature of the [child] application.”

The Federal Circuit concluded that § 121 could not save Pfizer’s patent for a second reason as well: Pfizer’s reissue patent and the reference patent not derive from the same restriction requirement. As the Court explained, to trigger the “safe harbor” under § 121, the restriction requirement must carry forward to the later-filed application. In this case, the U.S. Patent and Trademark Office (USPTO) imposed separate restriction requirements on separate applications so there was no common lineage and further, there was no evidence that the PTO intended the earlier restriction requirement to carry forward.


Patents / Patent Term Adjustment

Patent Term Adjustment of Parent Application Does Not Extend to Continuation Applications


Addressing for the first time whether a patent term adjustment in a parent application is applicable to continuing applications, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s summary judgment in favor of the Patent and Trademark Office (PTO), finding that the patent term adjustment statute “does not provide patent term adjustment in continuing applications based on delays in the prosecution of parent applications.” Hossein Mohsenzadeh v. Michelle K. Lee, Case No. 14-1499 (Fed. Cir., June 25, 2015) (Reyna, J.).

The patent term adjustment statute requires the PTO to extend the term of a patent by one day for each day the issuance of a patent is delayed under either section 35 U.S.C. § 154(b)(1) (A) or (B). Section (A) provides for an extension when the PTO fails to timely take certain actions or provide certain notices to the patentee, while section (B) provides an extension when the PTO fails to issue a patent within three years of the actual filing date of the application. This case concerns only Section (A), which requires the PTO is to provide “at least one of the notifications under § 132 or a notice of allowance under § 151 not later than 14 months after” the date on which an application was filed.

Mohsenzadeh filed a patent application on July 6, 2001, but did not receive a restriction requirement (i.e., a notification under § 132) until September 21, 2006—more than 14 months after the application was filed. In response to the restriction, Mohsenzadeh elected two groups of claims and cancelled the remaining two groups, choosing to pursue those groups in divisional applications. When the original patent issued, the PTO granted a patent term adjustment of 2,104 days. But, when the two divisional applications directed to the non-elected groups issued, the PTO did not apply the patent term adjustment from the parent application to these divisional applications. The PTO denied Mohsenzadeh’s request for reconsideration, explaining that any delays arising prior to the actual filing date of the application will not apply to the patent issued from that application.

Mohsenzadeh challenged the PTO decision at the district court under the Administrative Procedures Act. In district court, the government argued that § 154(b)(1)(A) was not intended to cover both parent and continuing applications because Congress could have, but did not, refer to both applications as it had done in a related statute and that the statute’s amendment history confirms that the statute only applies to the application in which the adjustment was applied. Mohsenzadeh argued that the term “an application” signified an intent to adjust the terms of all patents impacted by PTO delays. The district court granted the government’s motion for summary judgment, holding that the statute unambiguously requires that a patent term adjustment apply for delays that occurred during prosecution of the actual application from which the patent directly issued, not the application from which it derived priority. Mohsenzadeh appealed.

On appeal, the Federal Circuit affirmed the district court, concluding that the statute “does not provide patent term adjustment in continuing applications based on delays in the prosecution of parent applications.”


America Invents Act

AIA / PGR

PTAB Institutes Very First Post-Grant Review (PGR)


Representing the first decision of its kind, the Patent Trial and Appeal Board (PTAB or Board) instituted the first post-grant review (PGR) under the American Invents Act (AIA). American Simmental Association v. Leachman Cattle of Colorado, LLC, Case PGR2015-00003 (PTAB, June 19, 2015) (Kim, APJ.).

Petitioner American Simmental filed a petition seeking post-grant review of the patent owner’s patent directed to evaluation of the relative market value of livestock. The petition challenged the patent on grounds of ineligible subject matter, anticipation and obviousness. After confirming that the challenged patent was eligible for post-grant review, the Board construed a couple of key terms in the independent claims before proceeding to evaluate the substantive challenges to the claims.

In addressing patent subject-matter eligibility, the Board observed that exceptions to patent-eligible subject matter under § 101 include “[l]aws of nature, natural phenomena, and abstract ideas.” Guided by the Supreme Court’s two-step framework described in Mayo and Alice, the Board analyzed the challenged claims to determine whether they were directed to a patent-ineligible abstract idea. According to the petitioner, the claims of the patent were directed to the fundamental concept of “determining an animal’s relative economic value based on its genetic and physical traits.” The patent owner argued that the “online genetic merit scorecard” limitation, and other computerized hardware, took the claimed subject matter outside the abstract idea category and made it concrete.

In its institution decision, the Board agreed with the petitioner that the claims appeared to be directed largely to applications of mathematical formulas and algorithms in the field of animal valuation. The Board also noted that the specification described the “computerized hardware” cited by the patent owner as including “one or more processors,” which could be “any commercially available terminal processor, or plurality of terminal processors.” Because this hardware was used in a customary and conventional manner, it could not impart subject-matter eligibility. The Board therefore concluded that the claims were directed to abstract ideas and did not include “significantly more” that would transform the otherwise patent-ineligible subject idea into patentable subject matter.

Turning to the prior-art based grounds of invalidity, the Board concluded that the petitioner had met its burden in showing that it was more likely than not that all of the claims were unpatentable over the petitioner’s cited prior art references. The Board also exercised its discretion under 37 C.F.R. § 42.208(a) in declining to institute the petitioner’s additional grounds of invalidity.

Practice Note: For eligible patents, i.e., those filed under the AIA’s first-to-file regime with an effective filing date on or after March 16, 2013, PGR proceedings permit petitioners to challenge claims under §§ 101 and 112, grounds that are not available for inter partes review. Thus, at least for the nine-month period after issuance, a petitioner can challenge a patent on grounds similar to those available for covered business method (CBM) reviews, without the requirement that the claims be directed to financial transactions.


AIA / CBM / Subject-Matter Eligibility

Covered Business Patents Jurisdiction Continues to Develop


In three parallel decisions, the Patent Trial and Appeal Board (PTAB or Board) determined that patents directed to validating payment and then granting access to data were eligible for covered business method (CBM) review and were more likely than not directed to patent-ineligible subject matter. Apple Inc. v. Smartflash LLC, CBM2015-00028 (PTAB May 28, 2015) (Elluru, APJ), CBM2015-00029 (PTAB May 28, 2015) (Elluru, APJ), CBM2015-00031 (PTAB May 28, 2015) (Anderson, APJ).

The challenged patents are directed to data piracy, prevention, i.e., to the prevention of internet users making proprietary data—such as music—available over the internet without authorization. The patents address this problem using portable storage for storing the proprietary data and restricting access to the data until a computer can validate payment. The portable data-storage device receives payment information from the internet, verifies that information, downloads the proprietary data into the data-storage device and then allows the user to access to the data from a mobile device. The patents explain that the physical implementation of the invention is not important. Instead, the specification explaining that the heart of the invention is restricting access to data based on validation of payment.

The Board first determined that the patents were eligible for CBM review. To be eligible for CBM review, the patent must be used in the operation of a “financial product or service” and not qualify for the “technological invention” exception. (See IP Update, Vol. 18, No. 6). The Board determined that the patents satisfied the “financial product or service” requirement because the patents performed the financial service of restricting access to content based on payment data, an activity that is financial in nature. The Board reasoned that the “financial product or service” requirement was not so narrow as to require that the patents relate to technology used in the financial or banking industry. The “financial product or service” requirement merely requires that the patented activity be “financial in nature.”

The Board also determined that the asserted patents were not directed to “technological inventions.” The patents merely recited non-novel and obvious technological features, such as “nonvolatile data memory” and “standard smart cards.” The patents also admitted that their novelty related to controlling access to data, not any specific improvement of software or hardware. The Board reasoned that the patents addressed not a technological problem but a business problem, data privacy. The patents were therefore eligible for CBM review.

Turning to subject-matter eligibility, the Board determined that the patents were more likely than not directed to patent-ineligible subject matter. Under the Supreme Court decision in Alice (IP Update, Vol. 17, No. 7) in order to determine whether a patent is directed to patent-eligible subject matter requires a two-step inquiry: whether the patent is drawn to a patent-ineligible concept, such as an abstract idea; and whether the claims recite an “inventive concept” that ensures that the patent amounts to significantly more than a patent pre-empting the abstract idea itself. Looking at the first step, the Board determined that the patents were directed to the abstract idea of restricting access to data based on validation of payment. Next, the Board determined that the patents likely did not contain an inventive concept. The recited computer functions— “receiving,” “reading” and “displaying”—were all purely conventional functions performable on a generic computer. The Board therefore preliminary concluded that the patent claims were more likely than not unpatentable under § 101 and instituted CBM review.


AIA / CBM / PTAB Practice

AIA / IPR / Amendments

A Kinder, Gentler PTAB Allows Claim Amendments


In a final written decision, the Patent Trial and Appeal Board (PTAB or Board) agreed with the petitioner that the original challenged claims were unpatentable but at the same time granted the patent owner’s motion to amend, finding that the proposed substitute claims were patentable. This decision may portend a relaxation of the practical requirements for amending claims in IPR proceedings. REG Synthetic Fuels LLC v. Neste Oil Oyj, Case IPR 14-00192 (PTAB, June 25, 2015) (Crumbley, APJ.).

REG’s inter partes review (IPR) petition challenged Neste Oil’s patent directed to a process of manufacturing biodiesel fuel. GEN stepped into the shoes of its predecessor, REG, and maintained the challenge against the Neste patent. The patented two-step process included a first step in which a feed stream of biological origin is hydrodeoxygenated and then a second step in which the feed stream is isomerized. According to the patent, two chemical reaction pathways are present for the deoxygenation step: one requiring a large amount of hydrogen while producing a significant amount of heat that must be dissipated. The purported invention included adding sulfur to the feed stream to selectively favor the less problematic reaction pathway.

Neste admitted that although the elements of the claims were known in the art, prior art taught away from the originally claimed subject matter and also proposed substitute claims. Neste’s original claim 1 included a limitation that sulfur was added to the feed stream within a range of concentrations from 100 weight parts per million (w-ppm) to 10,000 w-ppm. The proposed substitute claim narrowed the range of sulfur content to between 5,000 to 8,000 w-ppm.

The Board was unconvinced by Neste’s teaching-away arguments, finding that the original claims were unpatentable. According to the Board, various prior art references taught advantages of adding sulfur in the range of 2,000 to 4,431 w-ppm to a feedstock. The Board further noted that Neste’s teaching-away arguments were essentially economic ones, which are insufficient to rebut a case of prima facie obviousness under U.S. Court of Appeals for the Federal Circuit precedent.

The Board, however, gave a kinder reception to Neste’s proposed substitute claims and supporting arguments. Noting that the parties did not dispute that the proposed substitute claims met the requirements of Rule 42.121, the Board found that the amendment was responsive to a ground of unpatentability, did not enlarge the scope of the claims or introduce new matter, the proposed a reasonable number of substitute claims and set forth the support for the proposed claims in the original disclosure.

For the proposed substitute independent claim, Neste argued that the prior art references cited by REG either failed to disclose the sulfur concentration of between 5,000 to 8,000 w-ppm or taught that the desirable characteristic of the added sulfur peaked below or plateaued over that range. REG on the other hand had argued that the claimed range would have been obvious as a result of routine optimization of the ranges taught by the prior art since it was “a prime range for investigation.” As one reference taught a fixed sulfur concentration of 2000 w-ppm, the Board concluded that using the claimed concentration would not have been routine.

REG had additionally argued that the motion should fail for not discussing three prior art references known to Neste. According to the Board, however, while Neste was required to explain why that the claims were patentable over the prior art of record, it was “not required to prove that the claims are patentable over every item of prior art known to a person of ordinary skill.” The Board also reasoned that Neste’s duty of candor required it to discuss any relevant prior art not of record but known to it. The Board explained that the three noted references were only relevant to Neste’s teaching-away argument, but not to any new issue raised by the motion to amend.

Practice Note: This decision may reflect a response to recent criticism by patent owners regarding the severe requirements to amend claims during IPRs. In citing to the Idle Free Systems v. Bergstrom decision (denying a motion to amend) (IP Update, Vol. 17, No. 1), the Board made it clear that a patent owner is not required to prove the patentability of substitute claims over every item of prior art known in the art, but rather the prior art of record. The Board’s position here is more permissive than in Idle Free, where the patent owner’s motion to amend was rejected for not meeting the “burden of proof in demonstrating patentability of the proposed substitute claims over the prior art in general.”


AIA / IPR / Patent Owner Estoppel

In an IPR, Issue Preclusion Does Not Attach Until Appeal Rights are Exhausted


Addressing issue preclusion in the context of an inter partes review (IPR), the Patent Trial and Appeal Board (PTAB or Board) allowed the patent owner to present patentability and admissibility arguments from a related IPR, finding that issue preclusion does not attach until the patent owner’s appeal rights have been exhausted. SDI Technologies, Inc., v. Bose Corp., IPR2014-00343 (PTAB, June 11, 2015) (McKone, APJ.).

The petitioner SDI Technologies filed an IPR petition challenging certain claims of a Bose patent. The same parties were already involved in a related IPR over the same patent (IPR2013-00350). In IPR-350, Bose argued that certain evidence presented SDI was inadmissible and that the challenged claims were patentable. The Board disagreed and issued a written decision finding the challenged claims unpatentable.

In the instant case, the petitioner argued that the patent owner should be estopped from re-arguing the patentability and admissibility issues decided in the petitioner’s favor in IPR-350. The rule regarding estoppel, 37 C.F.R. § 42.73(d)(3), states that “a patent owner is precluded from taking action inconsistent with the adverse judgment, including obtaining in any patent . . . a claim that is not patentably distinct from a finally refused or cancelled claim.” According to the petitioner, the term “judgment” in § 42.73(d)(3) refers to “a final written decision by the Board, or a termination of a proceeding,” and so the patent owner should be precluded from taking any action inconsistent with the PTAB’s final written decision in IPR-350.

The Board disagreed, explaining that issue preclusion applies only when the patent owner’s right of appeal with respect to an adverse judgment has been exhausted. In the instant case, because the patent owner had not exhausted its appeal rights, the Board concluded it was not estopped from re-presenting the patentability and admissibility arguments it rained in IPR-350. The Board also clarified that, in order for estoppel to apply, the claim would need to be cancelled, not merely held unpatentable, as it was in the instant case.

Although the patent owner was allowed to re-present its arguments, it was only a pyrrhic victory, as the Board was again unpersuaded by the substance of the arguments (for the same reasons as in IPR-350).


AIA / CBM / Jurisdiction

What Constitutes a Covered Business Method Patent? *Web Only*


Addressing a request for rehearing and to expand the panel, the Patent Trial and Appeal Board (PTAB or Board) found that it did not abuse its discretion in instituting a covered business method (CBM) review and declined to expand the panel. Square Inc. v. Protegrity Corp., Case No. CBM2014-00182 (PTAB, June 5, 2015) (Petravick, ALJ).

Petitioner Square Inc. requested a CBM review of a patent directed to a system and method for data processing. The PTAB instituted the review and found standing based on the fact that “at least claim 1 claims a method for performing data processing or other operations that are at least incidental or complementary to the practice, administration, or management of a financial product or service.”

The patent owner, Protegrity, contended that the PTAB abused its discretion with respect to standing because it misinterpreted the specification and the claims. In particular, according to the patent owner, the only reference to “banking” is in the portion of the specification entitled “Background Art,” while the claims merely describe a computer-implemented data processing method. The PTAB disagreed, noting that the term “financial product or service” in the statute should be interpreted broadly and explaining that the statute does not require “the literal recitation of the terms data processing of financial products or services . . . Rather, the patent claims must only be broad enough to cover a financial product or service.”

The patent owner also claimed that the PTAB abused its discretion by overlooking the fact that the claims were directed to a “technological invention.” But the PTAB again disagreed, concluding that at least claim 1 fails to recite a technological feature that is novel, unobvious or a technical solution to a technical problem. Specifically, the PTAB found that merely reciting a known technology, such as a database, typically does not turn a patent into a technological invention.

Finally, the patent owner asked that the panel of administrative patent judges be expanded to at least five, claiming that the institution of this CMB review conflicts with other PTAB decisions. However, the discretion to expand the panel rests with the chief judge, who declined to exercise that discretion in this case. Indeed, as the PTAB noted, the conflicting decisions cited by the patent owner were not binding on the panel and each decision rested upon the specific facts of those proceedings.


AIA / IPR / § 325(d) PTAB Discretion

Use of § 325(d) Discretion Can Lead to Harsh Result *Web Only*


The U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) used its § 325(d) to dismiss a petitioner’s motion for joinder with an inter partes review (IPR) instituted on an earlier filed petition by the same petitioner. Samsung Austin Semiconductor, LLC v. Rembrandt Wireless Technologies, LP, Case IPR2015-00555 (PTAB, June 19, 2015) (Blankenship, APJ).

The petitioner filed a petition requesting inter partes review (IPR) of a claim asserting that the claim was unpatentable as obvious over these references Admitted Prior Art (APA), Boer, and Siwiak. The petitioner also sought joinder with an earlier IPR proceeding against the same patent. The challenged patent relates to data communications and communication system in which a plurality of modems in a network use different types of modulation.

In the earlier-filed IPR, the PTAB stated that the petitioner failed to show that the APA and Boer taught every feature of the challenged claim. In that proceeding, the PTAB further stated that the petitioner failed to provide sufficient evidence that the ordinary artisan would have considered combining the features as a matter of “design choice.” Accordingly, the PTAB did not institute an IPR proceeding against the challenged claim. In connection with the present petition after noting the previous challenge by the petitioner in other cases, the Board refused the petition for joinder, exercising its discretion under § 325(d).

Section 325(d) states that “[a] petitioner is not entitled to multiple challenges against a patent” and that “[i]n determining whether to institute or order a proceeding . . . the Director may take into account whether … the same or substantially the same prior art or arguments previously were presented to the Office.”

In applying this rule, the PTAB concluded that “the difference between what Petitioner presents in this proceeding and what Petitioner presented in [its prior IPR petition] with respect to [the challenged] claim . . . is that Petitioner now also offers Siwiak as support for the asserted obviousness” claim. The Board explained that new combination of references was the “same or substantially the same prior art” as that previously presented and concluded that Petitioner’s current petition was “essentially, a second chance to challenge the claims” and that the Petitioner is simply presenting “arguments now that it could have made in [its earlier petition].” Given these facts, and given the fact that, barring joinder, the petition would have been time-barred under § 315(b), the PTAB exercised its discretion to deny the petition.

Practice Note: Application of 325(d) discretion is a recurring issue in second and subsequent petitions. See IP Update, Vol. 17, No. 11.


AIA / IPR / Inappropriate Petition

Keep the Petitions Concise *Web Only*


Addressing the issues of voluminous petitions and obviousness, the U.S. Patent and Trademark Office’s (PTO) Patent Trial and Appeal Board (PTAB or Board) denied a request to institute an inter partes review (IPR), finding the voluminous petition and attached declaration did not allow the Board to secure a “just, speedy, and inexpensive resolution.” The Board explained the petition failed to “focus on concise, well-organized, easy-to-follow arguments supported by readily identifiable evidence of record.” Apple, Inc. v. ContentGuard Holdings, Inc., Case No. IPR 2015-00356 (PTAB, June 26, 2015) (Perry, APJ).

The challenged patent was directed to providing downstream digital rights. The petition included a declaration that was used in eight separate petitions. The declaration was 342 pages and included information not relevant to the specific petition. Additionally, the petition included 61 exhibits totaling 30,298 pages, which the Apple asserted were all relied upon in the petition. However, 51 of the exhibits were not cited in the petition. Of those 51 exhibits, several were not even cited in the declaration. The Board emphasized the citation of an exhibit in the declaration does not equate to being relied upon in the instant petition because the declaration included irrelevant information to the instant petition. Based on this voluminous petition, the Board held it could not institute a proceeding under 37 C.F.R. § 42.1, which requires a “just, speedy, and inexpensive resolution.”

Additionally, the Board explained that Apple had not presented sufficient evidence to support its obviousness challenges. Apple challenged the patent as obvious in light of both a single patent and the combination of two patents. The Board concluded the petition failed to articulate clearly the differences between the prior art and what was required by the claims of the patent at issue, and as a consequence the petition failed to explain how a person of ordinary skill in the art would be able to bridge those differences. The Board criticized the petition as merely suggesting a range of possible implementations without explaining how one implementation would have been obvious in view of another. Without the specific reasoning bridging the differences between patent at issue and the prior art, the Board concluded that Apple failed to demonstrated a reasonable likelihood that it would prevail on its assertions the patent at issue would have been obvious in light of the cited prior art.

Finally, the Board pointed out the petition failed to comply with 37 C.F.R. §§ 42.8(b)(2) and 312(a)(4) because it failed to identify all related matters. Specifically, the petition did not identify two additional litigation matters involving the patent at issue as well as various matters involving continuation applications and related patents belonging to the patent owner. The Board noted that Apple was aware of at least some of these matters, as evidenced by references in the declaration. Despite Apple’s failure to properly identify all related matters, the Board found it unnecessary to determine whether to deny the petition on this basis because it denied the petition for the reasons listed above.


Trademarks

Trademarks / Fair Use / Likelihood of Confusion

Trademarks in the Crosshairs: Non-Trademark Use of a Descriptive Term


Addressing likelihood of confusion and the fair use defense in a trademark infringement suit pertaining to corrosion inhibitors, the U.S. Court of Appeals for the Seventh Circuit affirmed a lower court’s summary judgment ruling, holding that the use of the term “inhibitor” constituted non-trademark descriptive fair use and, further, that the trademark holder failed to raise a genuine issue of material fact regarding likelihood of source confusion related to its orange crosshair mark. Sorensen v. WD-40 Co., Case No. 14-3067 (7th Cir., June 11, 2015) (Flaum, J.).

Jeffrey Sorensen is the founder and CEO of Inhibitor Technology Corporation, which sells rust-prevention products having a volatile corrosion inhibitor (VCI) under the incontestably registered word mark THE INHIBITOR. Sorensen further claims common law trademark ownership in an orange-and-black crosshair design. Sorensen’s VCI products each include the word mark THE INHIBITOR, but only some of the products include the crosshair design, and its appearance is inconsistent.

WD-40 markets its own brand of VCI corrosion inhibitors, referred to as the WD-40 Specialist product line. With one exception, each of the products in the Specialist line are in metal aerosol spray bottles having the familiar WD-40 yellow shield trademark and the word mark SPECIALIST. Below the SPECIALIST mark, the specific name of the Specialist product, such as “Long-Term Corrosion Inhibitor,” and a gray-and-burnt orange crosshair design are displayed. WD-40’s VCI Specialist products are targeted to different consumer industries than those of Sorensen’s products, and none of its print and online marketing media overlap with media advertising Sorensen’s products.

Sorensen filed suit against WD-40, alleging trademark infringement and unfair competition under federal and state law. Sorensen’s claims related to the use of the word “inhibitor” in WD-40’s “Long-Term Corrosion Inhibitor” Specialist product and WD-40’s use of its crosshair design. The district court granted summary judgment against Sorensen on all counts, holding that the word “inhibitor” was a descriptive fair use and no genuine issue of material fact existed that WD-40’s crosshair mark was confusingly similar to Sorensen’s. Sorensen appealed.

Under § 1115(b)(4), a defendant may invoke a fair use defense by demonstrating that alleged trademark infringement “is a use, otherwise than as a mark . . . which is descriptive of and used fairly and in good faith only to describe the goods or services of such party.” To prevail on its fair use defense, WD-40 was required to show that its use of the term “inhibitor” was not as a trademark, descriptive of the goods to which it refers, and fair and in good faith.

The 7th Circuit found for WD-40 on all three elements. Although a product can have multiple indicators of source, WD-40’s use of the term “inhibitor” was less prominent, less noticeable and less attention-grabbing than its famous shield mark, the word mark SPECIALIST and even the word “Corrosion.” Indeed, as the court explained, although a plurality of words serving as a full name or phrase may act as an indicator of source, each individual word need not serve as a mark. With respect to descriptiveness, the court further explained that the descriptiveness of a term not only depends on the word itself, but also the product for which it serves as a source indicator. WD-40’s use of “inhibitor” simply described a characteristic of its product, which contains VCI and is meant to inhibit corrosion over a long period of time. Finally, although WD-40 appeared to have knowledge of Sorensen’s mark, it did not act in bad faith because it did not believe that it was using the word “inhibitor” as a trademark. Accordingly, WD-40 was under no obligation to conduct a trademark search, which the court deemed would have been useless in any event.

Next, the court turned to the likelihood of consumer confusion between the two crosshair designs. The court relied on seven factors to determine likelihood of confusion: (1) similarity between the marks in appearance and suggestion, (2) similarity between the products, (3) the area and manner of consistent use, (4) the degree of care likely to be exercised by consumers, (5) strength of the plaintiff’s mark, (6) evidence of actual confusion and (7) the intent of the defendant to palm off his product as that of the plaintiff. Although several of the factors at least weakly supported Sorensen, the court found that the most prominent factors—similarity of the marks, bad faith intent, and evidence of actual confusion—were all decisively in WD-40’s favor. Moreover, the court found that the strength of Sorensen’s mark was clearly lacking.

Regarding the similarity of the marks, the court stated that the crosshair designs must be evaluated not in isolation but as a whole with additional surrounding labeling of the products, and concluded that the two designs were dissimilar. In particular, the coloring of the products, the coloring of the crosshair designs and the two-dimensional affects thereof created two different overall commercial impressions. The strength of WD-40’s famous shield mark additionally indicated a lack of a likelihood of confusion. Moreover, Sorensen failed to present evidence of WD-40’s bad faith intent or of actual consumer confusion. Indeed, according to the court, WD-40’s use of its shield design on the Specialist products tended to suggest a lack of bad faith, as inclusion of the shield indicates that the product originates from WD-40, not from Sorensen. Finally, the Court found that Sorensen’s crosshair design is clearly weak because of its inconsistent use – which sometimes appeared with symbols in quadrants of the crosshairs, sometimes had no symbols or different symbols, and sometimes did not appear on Sorensen’s products at all.


Trademarks / Intent-to-Use Applications

Timing is Everything - Objective Evidence of Bona Fide Intent to Use Necessary at the Time of Filing Application *Web Only*


Mary Hallerman

Addressing what constitutes sufficient evidence of “bona fide intent” to use a trademark in commerce, the U.S. Court of Appeals for the Federal Circuit affirmed the Trademark Trial and Appeal Board’s (TTAB or Board) decision sustaining an opposition to M.Z. Berger & Co.’s intent-to-use application for the trademark iWatch. M.Z. Berger & Co. v. Swatch AG, Case No. 14-1219 (Fed. Cir., June 4, 2015) (Chen, J.).

Berger applied to register the trademark iWatch for watches, clocks and related goods under § 1(b)(1) of the Lanham Act, which permits an applicant to seek registration of a trademark based on a bona fide intent to use that mark in commerce. Swatch filed a Notice of Opposition to Berger’s iWatch application, claiming that iWatch was confusingly similar to its Swatch trademark. Swatch later added a second claim to its Notice of Opposition—that Berger lacked a bona fide intent to use the iWatch mark at the time Berger filed its intent-to-use application. Relying on testimony of Berger’s chief executive officer and the fact that all physical and documentary evidence concerning Berger’s intent to use the trademark related solely to the trademark application itself, the TTAB sustained the opposition. The TTAB found that the totality of the evidence demonstrated Berger did not have a bona fide intent to use iWatch at the time it filed its application. Berger appealed.

Agreeing with the U.S. Court of Appeals for the District of Columbia Circuit’s decision in Aktieselskabet AF 21. v. Fame Jeans, the Federal Circuit first found that the lack of an applicant’s bona fide intent to use a mark in commerce is a proper basis for opposing a § 1(b)(1) application. Reviewing the relevant text of the Lanham Act and the text and legislative history of the Trademark Law Revision Act of 1988, the Court then assessed what constituted sufficient evidence of a bona fide intent to use and concluded that whether an applicant had a bona fide intent to use a mark in commerce at the time of the application requires objective evidence of intent. The evidence must show that the applicant had a “firm” intent to use a mark and that the applicant did not intend to merely reserve a right in the mark. To determine whether an applicant had demonstrated this intent, the Court stated that the Board may consider the totality of the circumstances on a case-by-case basis.

Because substantial evidence supported the TTAB’s decision to sustain the opposition to Berger’s iWatch application, the Federal Circuit affirmed.

Practice Note: This case serves as an important reminder to all intent-to-use trademark applicants. While declarations are sufficient to support the filing of intent-to-use applications, in the event an application is challenged in an opposition proceeding, an applicant must be able to muster objective evidence demonstrating a bona fide intent to commercialize its applied-for trademark at the time the application was filed.


Copyrights

Copyrights

Copyrights / Substantial Similarity

Copyrights / Implied License

Delivering Architectural Plans May Create Implied License *Web Only*


Where an architectural draftsman left his design firm mid-project and later used partial plans drawn during his employment to complete the project, the U.S. Court of Appeals for the Fifth Circuit affirmed the ruling that the draftsman and his client had an implied license to use the draft plans and thus did not infringe the firm’s copyrights. Hunn v. Dan Wilson Homes, Inc., Case Nos. 13-11297, 14-10365 (5th Cir., June 15, 2015) (Elrod, J.).

Dan Wilson Homes (Wilson), a home construction company, hired Hunn Designs (Hunn) to complete architectural plans for four custom homes. Ben Lack, a draftsman employed at Hunn, created partial plans and delivered paper copies to Wilson and the homeowners at several weekly meetings. Before Lack had completed the project, he disclosed to Hunn that he wished to resign, which led to his termination. Hunn asked that Lack return the physical files from the Wilson project but did not ask for the AutoCAD software files. After learning of Lack’s termination, Wilson made several proposals to Hunn to ensure the completion of the project, but Hunn declined, believing that Lack and Wilson had devised a secret plan to cut Hunn out of the project. Wilson then asked Lack to complete the plans, which he did using the AutoCAD files residing on his home computer.

Hunn registered copyrights in the plans with the U.S. Copyright Office and brought suit against Wilson and Lack, asserting copyright infringement. After a bench trial, the court entered judgment to defendants favor as to the copyright infringement claim and awarded defendant’s attorneys’ fees. Wilson appealed.

The 5th Circuit affirmed the district court’s rulings in all respects, holding that Lack and Wilson had an implied license to use Hunn’s copyrighted plans. The Court cited Shaver, where the U.S. Court of Appeals for the Seventh Circuit found that an architect who prepared a preliminary design for an airport had granted an implied license such that the airport was free to hire a new architect to complete the design. The architect in Shaver asserted that he intended that the airport only be permitted to use the design if he remained on the project, but there was no evidence of such intent in the record. Similarly, Hunn, through its agent Lack, had delivered multiple drafts of the plans to Wilson “without any written or orally communicated restrictions about limits on Dan Wilson’s ability to use the delivered drawings,” thereby creating an implied license. The 5th Circuit explained that this license covered the plans in both physical and AutoCAD format, as they contained the same content. The 5th Circuit also noted that Hunn’s registered copyrights were not for the AutoCAD files but instead for plans printed out from the AutoCAD software.

The Court affirmed the award of attorneys’ fees pursuant to the Copyright Act, stating that “an award of attorney’s fees to the prevailing party in a copyright action is the rule rather than the exception and should be awarded routinely.” Where the district court had considered the proper factors, including the parties’ motivations and reasonableness, the award of attorneys’ fees was appropriate.