America Invents Act
Patents / IPR / Institution Decision
Decision to Institute IPR Need Not Be Binary
Addressing whether the Patent Trial and Appeal Board (PTAB or Board) may institute inter partes review (IPR) with respect to some but not all of the claims challenged in a petition, the US Court of Appeals for the Federal Circuit upheld the Board’s authority to choose the claims on which to institute review. Synopsys, Inc. v. Mentor Graphics Corp., Case Nos. 14-1516; -1530 (Fed. Cir., Feb. 10, 2016) (Dyk, J) (Newman, J, dissenting).
Mentor owns a patent concerned with detecting bugs (i.e., errors) in the source code of microchips. Synopsys petitioned for IPR of 29 claims on multiple grounds. After the petition was filed, Synopsys acquired an entity that Mentor had sued more than one year prior to the filing of the petition, and Mentor argued that Synopsys’ petition should therefore be time barred. Nonetheless, the Board instituted IPR.
The Board limited the scope of the review to 12 claims and only on one ground: anticipation by a prior art reference to Gregory. Mentor filed a contingent motion to amend along with proposed substitute claims. In its final written decision, the Board found that three of the challenged claims were anticipated, while the other reviewed claims were not anticipated. The Board did not consider whether the other reviewed claims might be invalid for obviousness. The Board also denied the motion to amend the invalidated claims, finding that Mentor had not shown that the proposed substitutes were patentable over Gregory or generally patentable over the prior art. Synopsys appealed the Board’s decision to review some but not all claims as well as its decision that two of the reviewed claims were not anticipated. Mentor cross-appealed regarding the time bar and the Board’s denial of Mentor’s motion to amend.
The Federal Circuit affirmed the denial of Mentor’s motion to amend, finding that the Board’s ruling that Mentor had not shown the proposed amendments patentable over Gregory was sufficient to defeat the motion under Proxyconn (IP Update, Vol. 18, No. 7) and Prolitec (IP Update,Vol. 19, No. 1). Accordingly, the Court declined to decide whether the Board could require a showing of “general patentability over the prior art.” The Federal Circuit also declined to review the Board’s refusal to find the IPR time barred in light of Synopsys’ post-petition acquisition of an alleged infringer, explaining that the institution decision was not reviewable under Achates (IP Update, Vol. 18, No. 10). Finally, the Court also affirmed the Board’s holding with respect to the non-anticipation of claims 1 and 28 as supported by substantial evidence.
Addressing an issue of first impression, the Federal Circuit affirmed the Board’s authority to institute review with respect to some but not all claims. The Court distinguished the phrase “any patent claim challenged by the petitioner” used in the statute regarding a final written decision from the phrase “claims challenged in the petition” used in connection with the institution standard. In doing so, the Court endorsed the US Patent and Trademark Office’s efficiency-driven system for IPR in which the Board determines both whether and to what extent it will institute review, and that the decision is unreviewable. The panel majority found “no statutory requirement that the [B]oard’s final decision address every claim raised in a petition for inter partes review,” but only a requirement that the Board “address claims as to which review was granted.” The language of the law “is quite clear” that the Board can choose to review some claims but not others.
Judge Newman, in dissent, argued that efficiency concerns cannot authorize derogation from the plain language of the statute, which in her view requires a binary, all-or-nothing (unreviewable) institution decision followed by an appealable, substantive decision with respect to each of the challenged claims. Newman argued that letting the Board pick and choose which claims it wants to review creates an “absence of finality [that] negates the AIA’s purpose of providing an alternative and efficient forum for resolving patent validity issues.”
Practice Note: Patent owners can use their Preliminary PO Statement to try to prevent institution at least with respect to some challenged claims, even if other challenged claims are quite broad and vulnerable. Patent owners should emphasize distinctions among and between various challenged claims to entice an efficiency-driven Board to arrive at the narrowest possible institution decision.
Federal Circuit Remands PTAB’s Denial of Motion to Amend in IPR
Addressing a decision by the Patent Trial and Appeal Board (PTAB or Board) denying a motion to amend claims under inter partes review (IPR), the US Court of Appeals for the Federal Circuit remanded the matter to the Board for failure in part to follow the Board’s own prior decisions. Nike, Inc. v. Adidas AG, Case No. 14-1719 (Fed. Cir., Feb. 11, 2016) (Chen, J).
After the Board’s institution of IPR proceedings, the patent owner, Nike, brought a motion to amend, which proposed canceling all 46 claims at issue and substituting new claims 47–50. In its final written decision, the Board granted the request to cancel claims 1–46 but denied entry of the substitute claims because the patent owner did not persuade the Board that the substitute claims were patentable over the prior art applied in the IPR “and over prior art not of record but known to the patent owner.” On appeal, the patent owner argued that the Board erroneously shifted the burden of proving patentability of the substitute claims, that the Board’s determination that the substitute claims were obvious was erroneous, and that it was improper for the Board to require the patent owner to establish patentability over art not of record but known to the patent owner.
With regard to the first issue (the patent owner’s burden), the Federal Circuit noted that while 35 USC § 316(e) places the burden of proving unpatentability on the petitioner as it relates to any patent claim included in the Board’s decision instituting IPR proceedings, § 316(a)(9) indicates that the patent owner has an affirmative duty to justify why newly drafted claims should be entered. The Court found that when the two statutes are read together, § 316(e) does not necessarily apply to claims that were not in existence at the time a petition was filed or when the IPR proceeding was instituted. Thus the Board did not err by placing the burden on the patent owner to establish patentability of the amended claims over the prior art.
The Court did, however, vacate the Board’s determination that the substitute claims would be rendered obvious based on procedural issues. The Court rendered this decision in part because the Board’s final written decision lacked discussion or any acknowledgement of secondary considerations, and also because the Board improperly grouped substitute claims 48 and 49 together in its determination of patentability with respect to those claims (thus contravening its own prior decision in Idle Free Sys., Inc. v. Bergstrom).
As for the issue of distinguishing over prior art known to the patent owner, the patent owner provided a simple statement in its motion that its proposed substitute claims were patentable over prior art known to the patent owner, but not part of the record in the proceedings. The Federal Circuit held that the patent owner’s failure to address any specific prior art not of record was not fatal. The Board’s own “Representative Decision” on Motions to Amend, MasterImage 3D, Inc. v. RealD Inc., found that prior art known to the patent owner “should be understood as no more than the material prior art that Patent Owner makes of record in the current proceeding pursuant to its duty of candor and good faith to the Office.” During oral argument, the US Patent and Trademark Office (PTO) acknowledged that the Board read its own decision “too aggressively,” and that the patent owner’s statement about the substitute claims’ patentability in its motion to amend would satisfy its obligation of candor to the PTO.
Thus, the Court found that, absent an allegation of conduct violating the duty of candor, the patent owner’s statement regarding the patentability of its substitute claims over other art known but not of record was adequate, and did not support a denial of the patent owner’s motion to amend.
Patents / Claim Construction (BRI) / Prosecution History Disclaimer
Even the “Broadest Reasonable Interpretation” Has Limits
In a decision demonstrating the limits of the broadest reasonable interpretation standard, the US Court of Appeals for the Federal Circuit upheld a non-obviousness finding by the Patent Trial and Appeal Board (PTAB or Board), concluding that the petitioner’s claim construction position stretched the claim beyond its broadest reasonable interpretation and that the patent owner had not disclaimed its opposing interpretation. TriVascular, Inc. v. Samuels, Case No. 15-1631 (Fed. Cir., Feb. 5, 2016) (O’Malley, J).
The patent in issue covered a vascular stent designed to hold open blood vessels to prevent stenosis and aneurisms. The novel feature of the patented stent was a set of “inflatable and deflatable cuff[s]” that hold the blood vessel being supported in the right position without having to puncture it. The key claim element was that the cuffs were inflated and deflated by passing fluid into “at least one circumferential ridge disposed about the cuff.” The parties disagreed over whether such a circumferential ridge had to be a single continuous strip, as argued by the patent owner, or could be discontinuous, as argued by petitioner.
In the inter partes review proceeding, the Board found that the claimed “ridge” meant a continuous ridge, siding with the patent owner. The petitioner presented two contrary arguments at the Board and on appeal. First, the petitioner argued that a ridge could be discontinuous, using the Blue Ridge Mountains as an example of discontinuous peaks being referred to as a ridge. The Federal Circuit declined to adopt a topological definition, looking instead at ordinary dictionary definitions that defined ridges as continuous. The Court also pointed out that in the petitioner’s example, the Blue Ridge Mountains are so named for the blue haze or “ridge” that they give off as a result of releasing hydrocarbons into the atmosphere. That blue ridge is visible as a single, continuous strip. The Court found that to adopt the petitioner’s argument would stretch the language of the claim beyond its broadest reasonable interpretation.
The petitioner also argued that the patent owner had disclaimed limiting the term “ridge” to a continuous body during prosecution. At one point during prosecution, the patent owner had included an amendment that added the word “continuously” to the claim language to avoid certain prior art. However, that modifier ultimately fell out of the claim as other amendments were made. The petitioner argued that deletion of the word continuously meant that the patent owner had disclaimed limiting the construction to a continuous ridge.
The Federal Circuit disagreed. The Court found it significant that ultimately the claim was found to be patentable based on other amendments entered after an interview with an examiner. The fact that the word continuously entered and then left the claims without actually affecting their patentability was not evidence of a “clear and unmistakable” disclaimer.
Patents / Claim Construction
“Plain and Ordinary Meaning” Must Be Tethered to Invention Described in Specification
Addressing claim construction issues, a divided panel of the US Court of Appeals for the Federal Circuit reversed a jury verdict of infringement, holding that the district court’s “plain and ordinary meaning” construction failed to provide the jury with a clear understanding of the disputed claim scope and that, under the correct construction, no reasonable juror could find infringement. Eon Corp. IP Holdings LLC v. Silver Spring Networks, Inc., Case No. 2015-1237 (Fed. Cir., Feb. 29, 2016) (Prost, CJ) (Bryson, J, dissenting).
The patents at issue were directed to two-way communications devices, and each incorporated the terms “mobile” and “portable,” which the parties agreed were synonymous. The defendant argued that the disputed terms do not cover “fixed or stationary products that are only theoretically capable of being moved.” The plaintiff, by contrast, argued that the terms should be given their plain and ordinary meaning, and that the terms should cover devices that are capable of being moved. The defendant’s construction comported with dictionary definitions of the disputed terms, but the patents’ specifications described battery-operated, portable devices with milliwatt transmitter power, that could be moved throughout a geographical area with a “hand-off” process tracking movement from cell to cell. Unlike the devices described in the specification, the defendant’s accused devices were electric watt-hour utility meters affixed to the outside of buildings, often for years at a time.
The plaintiff’s expert argued that the asserted claims covered objects capable of being moved—for example, houses, but not mountains. By contrast, the defendant’s expert argued that the claims only covered devices that were easily moved. The district court agreed with the plaintiff and instructed the jury that the terms should be afforded the plain and ordinary meaning. Both of the parties’ arguments comported with the district court’s directive to refrain from arguments inconsistent with the dictionary definitions of the terms. After the jury found the patents to be infringed, the defendant appealed.
On appeal, the defendant argued that the district court erred by ruling that the synonymous terms should be given their “plain and ordinary meaning” without explaining what that meaning was, and that no reasonable juror could find infringement under the correct construction. The Federal Circuit panel majority concluded that the district court did not perform its claim construction duty to resolve the parties’ dispute about proper scope of a claim term. As the Court explained, by instructing the jury to assume the plain and ordinary meaning without resolving the parties’ dispute, the district court left the legal task of claim construction to the jury. The Court found that the district court’s approach erred for two reasons: there was no single, accepted meaning of the disputed terms, and the plaintiff’s definition was not viewed in context of the patent and was completely untethered from the context of the invention. The Court reiterated that the ordinary meaning of a claim term is its ordinary meaning to the ordinary artisan after reading the entire patent.
Having found that the district court erred with respect to the proper construction of the disputed terms, the majority considered whether to remand the case, but found that no remand was necessary because no reasonable jury could have found infringement with the claims properly construed. The Court cited intrinsic evidence in the patents to support the defendant’s narrower construction, and further evidence from trial supporting that the defendant’s devices were fixed, not portable.
In dissent, Judge Bryson characterized the issue as whether the patents’ specifications demonstrate that the patentee intended to depart from the plain meaning of the terms, consistent with dictionary definitions. The dissent cited to trial evidence showing that the defendant’s accused products were easily moved, even if not actually moved in ordinary practice. The dissent also criticized the majority for not providing its own affirmative construction.
Patents / Claim Construction
Inconsistent and Confusing Specification Language Does Not Support Broad Claim Construction
Alexander P. Ott
Addressing various claim constructions that led to a stipulated judgment of non-infringement and partial invalidity, the US Court of Appeals for the Federal Circuit affirmed two claim constructions and a related indefiniteness holding, but reversed a third construction. Trustees of Columbia Univ. v. Symantec Corp., Case No. 15-1146 (Fed. Cir., Feb. 2, 2016) (Dyk, J).
Columbia sued Symantec for infringement of six patents related to detecting malicious computer software. Two of the patents were directed to detecting malicious email attachments, another two were for detecting computer intrusions, and the remaining patents were directed to detecting anomalous program executions. During claim construction, the district court construed three contested claim terms narrowly in Symantec’s favor and found another term to be indefinite. Columbia appealed.
The Federal Circuit first rejected Columbia’s general position that claim terms must carry their “accustomed meaning in the relevant community” unless expressly redefined or disavowed. The Court instead explained that claim terms are to be interpreted in the context of the specification and that any resort to dictionaries only comes later, if necessary.
The Federal Circuit then considered the term “byte sequence feature” from the malicious email attachment patents. Symantec argued that such a feature could only be obtained from code instructions, whereas Columbia said it could also arise from non-instruction information related to the code. The Court affirmed the narrow construction based on a discussion in the specification that such a feature represents code instructions “instead of” the related information. The Court rejected Columbia’s reliance on other parts of the specification to the effect that the feature “may comprise” code arising from the related information, and held that such inconsistent and confusing specification language cannot support a broad construction. The Court was also unpersuaded by a dependent claim that listed the related information as a source for a “byte sequence feature,” and instead simply invalidated the dependent claim as indefinite for contradicting the construction.
The Federal Circuit next turned to the term “probabilistic mode of normal computer system usage” in the computer intrusion detection patents. These patents used probability models from “normal” computer usage to detect deviations from the norm that could indicate attacks. The dispute concerned whether the “normal” usage data was limited to “attack-free” data. The Court found it dispositive that the specification never described using attack data and that during prosecution Columbia had distinguished prior art that had used attack data. The Court dismissed as mere fleeting references Columbia’s reliance on other specification discussion about storing attack data.
The Federal Circuit finally addressed the term “anomalous” from the patents for detecting anomalous program executions, where the district court had likewise imposed an “attack-free” limitation. Here, however, the Federal Circuit disagreed with the district court and relied on a dependent claim, which required the use of attack data, as support for a broader construction. The Court also relied on a discussion in the specification describing the use of attack data, and contrasted that discussion with the lack of any such discussion in the computer intrusion detection patents. The Federal Circuit thus reversed the construction and remanded the case back to the district court.
Patents / Claim Construction / Intervening Rights
In Determining Whether to Apply Intervening Rights, Courts Must Account for Differences Between Claim Construction Standards
The US Court of Appeals for the Federal Circuit again reversed a district court’s summary judgment determination (on remand) that liability was precluded by intervening rights and found that district courts must account for the differences between claim construction standards when relying on the findings of an examiner during reexamination. Convolve, Inc. et al. v. Compaq Computer Corp., et al., Case No. 14-1732 (Fed. Cir., Feb. 10, 2016) (Hughes, J).
The present case was back before the Federal Circuit after a district court, on remand, granted summary judgment of no infringement a second time, albeit on alternative grounds. While the Federal Circuit affirmed the grant of summary judgment of no direct infringement by Seagate (one of the named defendants), it reversed the district court’s grant of summary judgment of non-infringement by Compaq on nine of the 12 claims, finding that the district court’s claim construction was unduly narrow. In reversing, the Federal Circuit addressed and reversed the district court’s grant of summary judgment based on a determination that liability was precluded by intervening rights.
The intervening rights doctrine states that a patentee of a patent that survives reexamination is only entitled to infringement damages for the time period between the date of issuance of the original claims and the date of the reexamined claims if the original and reexamined claims are substantially identical. In determining the scope of the “before and after” claims, the court must apply the traditional claim construction principles set forth in Phillips. Under this standard, the specification is the single best guide to the meaning of the claim terms. In addition to consulting the specification, the court should consider the patent’s prosecution history. Specifically, the court should pay attention to the examiner’s finding during reexamination. The examiner’s findings are not dispositive, however, as the court must account for the differences between the broadest reasonable interpretation standard and the Philips standard.
In this case, the patentee added the modifier “seek” to the claimed “acoustic noise” limitation during a reexamination proceeding. The question presented was whether the pre-reexamination claims were limited to “seek acoustic noise” or whether the original claims covered both seek and spindle acoustic noise. The Federal Circuit found that the addition of the word seek during reexamination did not alter the scope of the claims, as the pre-reexamination claims were already limited to seek acoustic noise.
The Federal Circuit found that the claims on their face recited only “acoustic noise,” which could encompass both seek and spindle acoustic noise. Looking at the specification, the Court noted that while the specification did not use the term seek acoustic noise, neither did it expressly exclude spindle acoustic noise. The Court concluded, however, that the specification was focused on the seek process and the noise it generates.
Next, the Federal Circuit examined the prosecution history before the reexamination and found that it limited the claimed acoustic noise to only seek acoustic noise. In making this determination, the Federal Circuit relied on an office action response where the applicant made it clear that the acoustic noise problems addressed by the claims and the specification were limited to those generated by the seek function, not the spindle motor. Then, examining the prosecution history of the reexamination, the Court found that it did not compel a different result.
Practice Note: In order to avoid intervening rights, it may be useful (when possible) to characterize amendments made during reexamination as merely clarifying terms in accordance with their appropriate interpretation under Phillips.
Patents / Inequitable Conduct
Unenforceability Due to Client Failure to Correct Counsel’s Misrepresentations to PTO
In the ongoing saga between two manufacturers of liners for prosthetic limbs, the US Court of Appeals for the Federal Circuit confirmed a finding of inequitable conduct committed by the patent owner while the patent at issue was being reviewed in an ex parte reexamination. The Ohio Willow Wood Company v. Alps South, LLC, Case Nos. 15-1132; -1133 (Fed. Cir., Feb. 19, 2016) (Bryson, J). This confirmation comes less than a year after the Federal Circuit vacated a patent owner verdict of willful infringement for a lack of standing IP Update, Vol. 18, No. 7).
Ohio Willow Wood (Willow) filed a lawsuit against Alps South (Alps) alleging infringement of its patent. Alps mounted a validity challenge in two successive ex parte reexamination proceedings while the district court remained stayed. In the first reexam, Willow managed to avoid the asserted prior art by amending its claims, limiting them to cover a prosthetic liner with gel only on the inside. In the second reexam, however, Alps submitted additional evidence of prior art showing that the added claim limitation was disclosed in the prior art.
In particular, Alps presented evidence in the form of an advertisement from a competitor in the field of prosthetics, Silipos, and declaration and deposition testimony from a Silipos employee attesting that Silipos had sold prosthetic liners with gel only on the inside before the effective filing date of the asserted patent. The patent examiner agreed with Alps and rejected the claims for obviousness. Willow appealed to the Patent Trial and Appeal Board (PTAB or Board).
To overcome the Silipos prior art, Willow argued that the Silipos employee’s testimony was unreliable because it was uncorroborated and that the witness was highly interested as a result of receiving royalty payments on the prior art product. The Board agreed and reversed the examiner’s rejection on the basis that the Silipos employee’s testimony was uncorroborated and that the witness was an interested third party.
After completion of the second reexam, the district court lifted the stay. Alps thereupon moved for summary judgment of invalidity of the asserted claims, and for summary judgment that Willow’s conduct before the US Patent and Trademark Office (PTO) during the reexams was inequitable. The district court granted Alps’s motion for summary judgment of invalidity but denied Alps’s motion on inequitable conduct, concluding there was a triable issue of fact regarding inequitable conduct on Willow’s part. Both parties appealed. The Federal Circuit affirmed summary judgment of invalidity but reversed and remanded the summary judgment ruling of no inequitable conduct.
On remand, the district court found that Willow, based on the conduct of Mr. Colvin, its director of research and development, was guilty of inequitable conduct during the second reexamination concerning the argument that the challenged testimony was uncorroborated. Willow used the same law firm for both the litigation and the reexamination proceedings. However, the firm established an ethical wall between the lawyers handling the reexamination and the lawyers handling the litigation. Mr. Colvin, as the overseer of both the reexamination proceedings and the litigation, was the link between Willow’s litigation and reexamination counsel.
The district court found that Mr. Colvin knew that Willow’s reexamination counsel had represented to the PTO that the Silipos testimony presented by Alps was uncorroborated, yet was aware of the corroborating letters and materials Willow had received from Silipos. He failed to correct the misrepresentation. Mr. Colvin did not deny being aware of the withheld materials but could not offer an explanation as to why he failed to correct counsel’s misrepresentation.
The district court found that Mr. Colvin was aware of Silipos’s letters, that the letters were material (because they corroborated the testimony presented to the Board that Willow’s counsel argued was uncorroborated), and that he failed to disclose the letters to correct the misrepresentation. The trial court found that the most reasonable inference to be drawn from the evidence was that Willow acted with deceptive intent in misrepresenting the existence of corroborating evidence, and the court consequently held the patent unenforceable. The district court awarded Alps attorneys’ fees for the period after the second reexamination. Willow appealed.
In reviewing the district court’s findings of fact on the issues of materiality and intent for clear error, and the district court’s ultimate finding of inequitable conduct based on those facts for abuse of discretion, the Federal Circuit considered whether Mr. Colvin made misrepresentations or omissions material to patentability, whether he did so with the specific intent to mislead or deceive the PTO, and whether the deceptive intent was the single most reasonable inference to be drawn from the evidence.
Like the district court, the Federal Circuit concluded that the Silipos letters were material because they corroborated the testimony that the Silipos prosthesis liners with gel only on the interior were prior art (since the Board’s decision turned on Willow’s representation that there was no evidence corroborating that testimony). On the issue of specific intent, the Court noted that inequitable conduct may be inferred from indirect and circumstantial evidence, but cautioned that deceptive intent must be “the single most reasonable inference.” Using that standard, the Federal Circuit concluded that the most reasonable inference behind Willow’s withholding of the Silipos materials was deceptive intent.
The Federal Circuit thus concluded that the district court did not abuse its discretion in finding that Willow’s failure to correct the misrepresentation by its counsel to the Board regarding the absence of corroborating evidence was an act of inequitable conduct.
Patents / Antitrust / Misuse / Inequitable Conduct
Price Tag for Patent Invalidity Ruling in Inequitable Conduct Case is $26 Million
Stefan M. Meisner
Affirming a ruling of invalidity and an antitrust damages award of trebled attorneys’ fees in a patent abuse case, the US Court of Appeals for the Federal Circuit highlighted the severe penalties that may befall patent owners that pursue anticompetitive suits based on unenforceable patents. TransWeb, LLC v. 3M Innovative Properties Co., Case No. 2014-1646 (Fed. Cir., Feb. 10, 2016) (Hughes, J). Finding no error or abuse of discretion with the district court’s ruling that the two 3M patents at issue were unenforceable because of inequitable conduct, the Federal Circuit affirmed the district court’s finding that 3M had committed a Walker Process antitrust violation and upheld $26 million in antitrust damages.
This litigation stems from a patent dispute surrounding plasma-fluorinated filter media used in respirators. In spring 1997, the founder of TransWeb allegedly handed out samples of his company’s plasma-fluorinated product at a filtration industry expo. In 1998, 3M obtained patents on its plasma-fluorinated media, asserting to the examiner that TransWeb’s product was not prior art. 3M later used its patents to initiate an infringement suit against TransWeb.
After 3M voluntarily dismissed its suit, TransWeb filed its own suit against 3M asserting unenforceability, invalidity and a Walker Process antitrust violation. The case resulted in a jury verdict invalidating 3M’s patents for obviousness and finding those patents unenforceable because of inequitable conduct. The jury also found 3M liable for a Walker Process violation and awarded TransWeb lost profits and attorneys’ fees ($3.2 million in cost-of-antitrust-suit fees and $23 million in the form of treble antitrust damages for the cost of defending the earlier infringement suit). 3M appealed.
Evaluating the inequitable conduct ruling for abuse of discretion or clear error in factual determinations, the Federal Circuit noted that the facts of this case presented a “definitional case of but-for materiality” because of the patent examiner’s statement that 3M’s patent claims would not have been allowed but for statements by 3M during prosecution that the TransWeb samples were not prior art. Walking through extensive evidence of 3M’s intent to deceive the examiner, the Federal Circuit found no clear error or improprieties in the district court’s analysis.
3M also appealed the ruling that it committed a Walker Process violation. In Walker Process, the Supreme Court of the United States held that a plaintiff may bring a § 2 Sherman Act claim (monopolization or attempted monopolization) on the basis of maintenance and enforcement of a fraudulently obtained patent. To do so, a plaintiff must show (1) that the defendant obtained the patent by knowing and willful fraud on the patent office, and maintained and enforced the patent with knowledge of the fraudulent procurement; and (2) all other elements required by § 2 of the Sherman Act, such as anticompetitive harm to a relevant market. 3M challenged the antitrust market definition adopted by the district court. On review, the Federal Circuit found sufficient evidence to support the jury’s finding of fact regarding the relevant market.
As to the damages award, the issue on appeal was whether the $23 million in-defense-of-suit damages were correctly deemed an antitrust injury, which requires a sufficient link to an anticompetitive action by 3M. The Federal Circuit upheld the monetary award, finding that 3M’s anticompetitive lawsuit forced TransWeb to either (1) forfeit the suit and lose profits, or (2) defend against the suit. The Court ruled that either choice would result in antitrust injury, which could form the basis of a damage award under Clayton Act § 4. The Federal Circuit noted that it “furthers the purpose of the antitrust laws to encourage TransWeb to bring its antitrust suit . . . instead of waiting to be excluded from the market[.]”
Practice Note: In defending a patent claim, defendants should consider whether to bring antitrust counterclaims when asserting affirmative defenses such as patent misuse and inequitable conduct. This case shows that such defenses and corresponding antitrust counterclaims for damages can have powerful results, as the costs of defending, i.e., attorneys’ fees, can form the basis of automatically trebled damages.
Patents / Obviousness / Inherent Anticipation
Reformulated OxyContin Patents Invalid
Addressing product-by-process limitations and inherent anticipation issues, the US Court of Appeals for the Federal Circuit affirmed the district court’s ruling that the asserted claims of Purdue Pharma’s patents covering reformulated OxyContin are invalid. Purdue Pharma L.P., et al. v. Epic Pharma, LLC, et al., Case Nos. 14-1294, -1296, -1306, -1307, -1311, -1312, -1313, -1314 (Fed. Cir., Feb. 1, 2016) (Prost, CJ).
The case concerns four patents related to a version of the pain reliever OxyContin. Three of the patents relate to an improved formulation of oxycodone hydrochloride, which is the active ingredient (API) of OxyContin. The fourth patent covers abuse-resistant formulations of OxyContin.
The first three patents (referred to herein as the low-ABUK patents) describe an oxycodone salt with extremely low levels of a particular impurity (14-hydroxy), which belongs to a class of potentially dangerous compounds known as alpha, beta unsaturated ketones (ABUKs). Purdue scientists discovered that the source of the 14-hydroxy impurity was an oxidation byproduct called 8-alpha, which transformed into 14-hydroxy during the synthesis process. To remove the 14-hydroxy impurity from the API, Purdue included an extra hydrogenation step to convert the 14-hydroxy into oxycodone free base.
The district court found the three low-ABUK patents to be obvious, explaining that using hydrogenation to remove 14-hydroxy was well known, and that the discovery of 8-alpha was not necessary to the claimed invention. According to the district court, “a skilled artisan would recognize that hydrogenation could be used to remove the remaining 14-hydroxy, regardless of the source of the 14-hydroxy.” The district court also concluded that because the claims were directed to a product, the process limitation requiring the 14-hydroxy to be derived from 8-alpha was immaterial to the obviousness determination.
Purdue appealed, relying heavily on the seminal 1923 Supreme Court of the United States Eibel Process decision for the proposition that “where an inventor discovers a nonobvious source of a problem and then applies a remedy in response, the invention is nonobvious and worthy of a patent—even if the remedy, standing alone, would generally appear to be known in the art.” According to Purdue, because the source of the 14-hydroxy was not obvious, the solution must also be nonobvious.
The Federal Circuit found the Eibel Process decision inapplicable, explaining that unlike Eibel, Purdue did not claim the remedy of the problem (performing an extra hydrogenation step), but instead claimed only the end product itself (oxycodone with low ABUK levels). Purdue also argued that without knowing the source of the 14-hydroxy impurity, a person of ordinary skill in the art would not know when or how to perform the hydrogenation step. The Federal Circuit again disagreed, noting that Purdue claimed the end product, not a method for creating that product. As such, the only issue was whether a person of ordinary skill in the art would find it obvious to use hydrogenation to remove the 14-hydroxy—the source of the 14-hydroxy is irrelevant.
Purdue next argued that the district court erred in concluding that the claim language “wherein at least a portion of the 14-hydroxy is derived from 8-alpha . . .” was a process limitation that was immaterial to the obviousness analysis. The Federal Circuit agreed with the district court, noting that the “derived from 8-alpha” limitation does not describe the structure of 14-hydroxy or impart any structural or functional differences in the ultimate end product. According to the Federal Circuit, there was no suggestion in the patents that the hydrogenation process changes depending on the source of the 14-hydroxy impurity. Because the claims at issue were product-by-process claims, the district court properly focused on the product and not the process of making it.
With respect to the fourth patent, the issue was whether the prior art inherently disclosed tablets having the specific breaking strength required by the asserted claims. According to the inventors, a crush-resistant formulation (having a breaking strength of greater than 500N) reduced the potential for abuse, as the original OxyContin tablets were easily crushed into powder, allowing them to be swallowed, snorted or injected.
The district court found the asserted claims of the fourth patent to be anticipated, crediting the experimental work and testimony of defendant’s expert Dr. Fernando Muzzio, who recreated a process disclosed in a key prior art reference, McGinity. Using the McGinity process, Dr. Muzzio made thousands of tablets, then tested them for breakage strength. Each and every tablet made according to McGinity had a breaking strength of over 500 nM. The district court thus concluded that the McGinity reference “inherently discloses a breaking strength greater than 500N, because the experimental results indicate unanimously, reliably, clearly and convincingly that any tablet made according to the McGinity Application would exhibit this characteristic.”
Patents / Pre-Issuance Damages
Pre-Issuance Damages Possible Only If You “Know” About the Published Application
Addressing for the first time the notice requirement for pre-issuance damages under 35 USC § 154(d), the US Court of Appeals for the Federal Circuit affirmed the grant of summary judgment of no pre-issuance damages where the patent owner failed to prove that defendant had actual notice of its published application. Rosebud LMS Inc. v. Adobe Systems Inc., Case No. 15-1428 (Fed. Cir., Feb. 9, 2016) (Moore, J).
The present litigation is the third suit filed by the patent owner, Rosebud, against Adobe alleging infringement of various patents within a single patent family. In this case, the district court granted Adobe summary judgment on the issue of post-issuance damages because Adobe had stopped use of the accused technology 10 months before the patent-in-suit issued.
Adobe also moved for summary judgment on pre-issuance damages, claiming it had no notice of the published patent application. Regarding pre-issuance damages, Rosebud argued that material facts remained in dispute, that Adobe had actual knowledge of the grandparent patent to the patent-in-suit, that it had followed Rosebud’s products for years and that Adobe’s outside counsel would have searched for the published application as part of its work on Rosebud’s prior cases against Adobe.
A month before the close of discovery, the district court granted Adobe’s motion for summary judgment, finding that Rosebud had not met the § 154(d) requirement of actual knowledge and that its evidence was, at best, evidence of constructive notice. In doing so, the district court rejected Rosebud’s argument that the litigation history created an affirmative duty for Adobe to search for Rosebud’s published patents. Rosebud appealed.
The Federal Circuit began by noting that § 154(d) provides a narrow exception to the general rule that damages may only be collected for infringement during the term of the patent, and by its plain language requires proof that the infringer “had actual notice of the published patent application.” The Court agreed with the district court that “constructive knowledge” did not suffice. The Federal Circuit further explained that, unlike the marking provision (§ 287(a)), § 154(d) requires the patentee to affirmatively notify the accused infringer to be entitled to damages. The Court agreed with Adobe’s policy argument that given the extraordinary nature of pre-issuance damages, adherence to the statutory requirement of notification by the applicant is simpler to implement and does not force an accused infringer to rebut unsubstantiated allegations that it knew of a published application. The Court concluded that any policy change would have to come from Congress, and “in the absence of such action, we interpret the actual notice requirement of § 154(d) as it is clearly written to have its ordinary meaning.”
After analyzing the evidence that Rosebud submitted in support of its actual notice argument, the Federal Circuit, like the district court, found that Rosebud’s evidence failed. The fact that Adobe knew of the grandparent patent was found to be insufficient. As the Court explained, the alleged infringer must have notice of the specific claims in the published application for the patent-in-suit; knowledge of the family’s specification does not satisfy § 154(d). Similarly, nothing in the evidence suggested that Adobe was so closely monitoring Rosebud’s products or that it would seek out Rosebud’s published applications. The Court also rejected Rosebud’s argument that Adobe’s counsel would have evaluated the application as part of earlier litigation, finding that the claim was unsupported by evidence.
Practice Note: Patent holders should put suspected infringers on actual notice of published patent applications in order to claim pre-issuance damages under § 154(d).
Patents / Assignment / Standing
Stent Contract Collapses Standing Argument
Addressing the issue of when patent rights are assigned under a contract, the US Court of Appeals for the Federal Circuit overturned the district court’s finding that a prospective inventor had surrendered his rights to an invention by failing to describe prior inventions at the outset of a contract. TriReme Med., LLC v. AngioScore, Inc., Case No. 15-1504 (Fed. Cir., Feb. 5, 2016) (Dyk, J).
AngioScore holds a patent for an angioplasty balloon catheter for the clearance of arterial blockages. While the invention was in development, an uncontracted physician performed a single study with a prototype and wrote a memorandum on how to correct an issue relating to a catheter piece dislodging when the catheter was extracted. After the initial study, AngioScore hired the physician as a consultant under a contract that purported to require him to (1) list all intellectual property owned by the physician related to AngioScore’s proposed business, products, or research and development; (2) provide a non-exclusive license to any prior conceived invention that the physician incorporated into any work thereafter performed for AngioScore; and (3) assign to AngioScore all inventions conceived, developed or reduced to practice during the term of the agreement. The angioplasty balloon was eventually patented, but the contracted physician was not listed as an inventor. Years later, AngioScore’s competitor, TriReme, approached the contract physician, purchased his rights to the invention and brought suit for correction of inventorship.
AngioScore convinced a California district court that, under California law, TriReme lacked standing to bring suit because the physician had already assigned his rights to AngioScore. TriReme appealed.
The Federal Circuit disagreed, finding that the physician had not assigned his rights by failing to list his earlier discoveries in the contract. The Federal Circuit concluded that, under Cal. Civ. Code § 1639, the plain language of the contract provided AngioScore, at best, a license to the physician’s prior discoveries if they had been integrated into AngioScore’s patented invention. The Federal Circuit also found that TriReme, as the physician’s successor in interest, was not estopped under Cal. Ev. Code § 662 from claiming that there was a prior invention, even where the physician had previously not asserted it. Contract estoppel did not apply because neither the physician nor TriReme were attempting to enforce rights under the contract. The Federal Circuit did agree, however, that if the physician’s work at AngioScore could be considered “developing or reducing to practice” an “invention, development or improvement” under the terms of the contract, then his contribution to the invention may have been assigned under the contract. Because the parties disagreed as to this factual issue, the Federal Circuit remanded the case back to the district court.
Patents / Litigation / Due Process
Absent Contemporaneous Objection to Order for Single Trial on Subset of Claims, No Due Process Violation
The US Court of Appeals for the Federal Circuit ruled that a patent owner’s due process rights were not violated when a district court found that the defendant did not infringe all of the originally asserted patents, even though a trial was held on only a subset of those patents. Nuance Communications v. Abbyy USA Software House, Case No 14-1629 (Fed. Cir., Feb. 22, 2016) (Prost, CJ).
Nuance sued Abbyy alleging infringement of eight patents: three optical character recognition (OCR) patents and five non-OCR patents. The two groupings were treated separately for Markman. During Markman, Nuance suggested a procedure where representative claims would be used in a single trial. Nuance even opposed a motion by Abbyy for separate trials on the OCR and non-OCR patents.
A special master recommended that Nuance select four of the asserted patents for trial. Nuance did not object and ended up selecting only three of the asserted patents for trial. When the special master prepared the case management report recommending a single trial using representative claims from a subset of the asserted patents (with the claims and patents to be selected by Nuance), he did so “adopting” a procedure proposed by Nuance. The district court adopted the special master’s report without objection by either party. At trial, a jury found no infringement of the three patents tried.
Post-trial, Nuance tried to “reserve” its right to have another trial on the other asserted patents. After the district court rejected the request and entered judgment for Abbyy on all eight asserted patents, Nuance appealed.
Nuance argued that the district court violated its due process. The Federal Circuit rejected Nuance’s argument, noting that the single trial procedure was done at the request of Nuance. In the Court’s view, Nuance’s problem was that it did not preserve any objection to a single trial or object to the special master procedural ruling when it was made.
“Ultimately the responsibility was on Nuance to timely notify the district court as to any objection to the court’s procedures . . . Because it did not do so, and instead made the tactical litigation decision to move forward only on a subset of patents without contemporaneous objection, Nuance is not entitled to another trial on the remaining patents.”
The Federal Circuit further noted that “Nuance actively participated in structuring the winnowing process and never objected until it had already lost at trial.” As a consequence, the Court concluded there was “no due process violation and the district court properly found that Nuance was not entitled to a second trial on the unselected patents.”
Practice Note: Patent owners or plaintiffs that have an objection to a procedural report that sets a single trial, but is limited to a subset of the asserted patents and claims, should make their objection clearly and contemporaneously.
Patents / Written Description and Obviousness
20-Year Zoltek Litigation Continues: Federal Circuit Reverses CFC Invalidity Ruling on Written Description, Obviousness Grounds
Addressing written description and obviousness issues, the US Court of Appeals for the Federal Circuit reversed the US Court of Federal Claims (CFC), holding that the CFC erred in finding the claims invalid under 35 USC § 112 and § 103. Zoltek Corporation v. United States, Case No. 14-5082 (Fed. Cir., Feb. 19, 2016) (Newman, J).
This is the third appeal in this case, which began in 1996 when Zoltek filed suit against the United States in the CFC alleging that the process used to produce carbon fiber sheet materials for the B-2 Bomber and the F-22 Fighter Plane infringed Zoltek’s patent. In the first appeal, the Federal Circuit held that, pursuant to § 271(g), a patentee has no cause of action against the United States when any step of a patented method is practiced outside of the United States. Acting en banc, the Federal Circuit reversed its Zoltek I ruling, holding that § 1498(a) establishes liability of the United States for infringement resulting from acts that are performed with its authorization and consent (IP Update,Vol. 15, No. 4). On remand, the CFC found the patent at issue invalid for lack of written description under § 112 and obvious under § 103, resulting in the current appeal.
The patent at issue is a reissue patent directed to a method of manufacturing carbon fiber sheet products whose electrical resistivity is pre-selected and value-controlled by the described method. During the reissue proceedings, Zoltek removed one step of the claimed method directed to the preparation of the starting material. This broadening of claim scope, together with a purported lack of support for the broader claim in the original specification, formed the basis for the CFC’s finding that the patent at issue was invalid for lack of written description.
The Federal Circuit reversed, explaining that a broadening amendment is not improper when a reissue applicant “substitutes a preparatory step known to those skilled in the art at the time of the invention with a requirement to start with the product of that known preparatory step.” This rule is of course subject to the requirement that a broadening reissue be filed within two years of issuance.
With respect to obviousness, the patentee relied on a graph created by the inventor demonstrating the electrical resistivity properties of the carbon fiber sheets. In reaching its conclusion that the patent claims were obvious, the CFC relied heavily on the government’s expert witness, who recreated the inventor’s graph using a mathematical formula that he developed based on the teaching of a number of prior art references. The Federal Circuit explained that the government’s expert witness reached his conclusions based on data and resources that were not available at the time the patent was filed. According to the Federal Circuit, this “[h]indsight reconstruction for litigation ends is not of probative value.” The Federal Circuit then remanded the case back to the CFC to address infringement issues, which were bifurcated from the case based on the government’s invocation of state secret privilege. Thus the Zoltek saga continues.
Patents / Inventorship / Laches
Foreign Litigation Does Not Defeat Presumption of Laches
Addressing laches issues in the context of a multi-jurisdictional dispute, the US Court of Appeals for the Federal Circuit affirmed a summary judgment ruling that the plaintiff’s correction of inventorship lawsuit was barred by the doctrine of laches. Lismont v. Alexander Binzel Corp., Case No. 14-1846 (Fed. Cir., Feb. 16, 2016) (Chen, J).
Mr. Hedwig Lismont resides in Belgium. He asserts that in 1995 he began developing a manufacturing process at the request of welding equipment manufacturer Binzel-Germany. According to Mr. Lismont, after he disclosed the details of his manufacturing process to Binzel, the company began filing patent applications naming a Binzel employee, and not Mr. Lismont, as the inventor. Three filings are of relevance:
- A German patent
- A Patent Cooperation Treaty (PCT) application claiming priority from the German patent
- A US patent claiming priority from the PCT application
The US patent is directed to a cost-effective method of manufacturing a contact tip for use in metal inert gas welding.
Mr. Lismont first filed a lawsuit in Germany in 2000 alleging that he was the true inventor of the German patent. He filed a second suit with similar allegations in 2002. The German lawsuits were eventually decided against Mr. Lismont, with the courts concluding that he failed to prove his inventorship interest.
In 2012, Mr. Lismont sought correction of inventorship with respect to the US patent by bringing a lawsuit in the United States under 35 USC § 256. After limited discovery, Binzel moved for summary judgment that the claim was barred by laches since Mr. Lismont knew of the PCT application that precipitated the issuance of the US patent in 2002, yet waited 10 years before initiating a lawsuit in the United States.
The district court granted the motion, finding Mr. Lismont’s inventorship claim barred by laches. The district court concluded that the rebuttable presumption of laches would attach since more than six years had passed between the filing of the lawsuit and the time Mr. Lismont knew or should have known of the US patent’s issuance. The district court further concluded that Mr. Lismont failed to rebut the presumption of laches with evidence that the delay should be excused or was otherwise reasonable. Mr. Lismont appealed.
Summary judgment orders are typically reviewed de novo, but because laches is an equitable doctrine that turns on questions of fact, the Federal Circuit reviewed the district court’s conclusions for abuse of discretion. With respect to the laches, the Federal Circuit agreed that the presumption of laches applies and that the district court “properly determined that Mr. Lismont had not presented any genuine issues sufficient to rebut the presumption.” In reaching this conclusion, the Federal Circuit rejected two of the appellant’s positions. First, Mr. Lismont had argued that the presumption of laches was inappropriate because he had been diligently seeking to vindicate his inventorship rights in European courts and therefore did not delay the US litigation. The Federal Circuit disagreed, explaining that in order to avoid the imposition of laches, Mr. Lismont should have initiated his correction of inventorship suit within six years of the US patent issuance.
Second, Mr. Lismont contended that the European litigation efforts should rebut the presumption of laches. The Federal Circuit rejected this argument as well, finding that a foreign litigation could only excuse a plaintiff’s delay where the defendant had adequate notice of the foreign litigation as well as plaintiff’s intention to pursue his or her rights in the United States upon completion of the foreign litigation. Here, there had been no adequate notice or threat of litigation in the United States. The mere initiation of patent litigation in a foreign jurisdiction and the existence of a US patent are insufficient to rebut the presumption of laches.
The Smart Phone Patent Saga Continues
In a case involving suits, countersuits and multiple appeals by the two giants of the mobile phone space, the US Court of Appeals for the Federal Circuit reversed a jury’s finding of infringement, voiding the accompanying award to Apple of more than $119 million. Apple Inc. v. Samsung Electronics Co., Ltd., et al., Case Nos. 015-1171, -1195, -1994 (Fed. Cir., Feb. 26, 2016) (Dyk, J).
In this case’s third appeal, the Federal Circuit was asked to deal with “the core infringement and invalidity issues with respect to the asserted patents.” At issue were five patents asserted by Apple against Samsung (four of which a jury found to be infringed) and two patents asserted by Samsung against Apple (one of which the same jury found to be infringed).
After the district court entered judgment on the jury verdict ($120 million to Apple and $160,000 to Samsung), both sides appealed.
The Apple Patents
With regard to the Apple “click structure” patent, the Federal Circuit found that no reasonable jury could have concluded that the accused Samsung devices included the claimed “analyzer server,” and reversed the judgment of infringement. Before trial, neither party sought construction of “analyzer server,” agreeing that it should be given its ordinary meaning. On the last scheduled day of the trial, the Federal Circuit construed this term (in the Motorola case) as “a server routine separate from a client that receives data having structures from the client.” The district court adopted this construction and permitted the parties to recall their expert witnesses to provide testimony under this construction. However, the Federal Circuit concluded that Apple failed to present sufficient testimony that the accused software library programs in the Samsung phones ran separately from the programs they served (i.e., the Browser and Messenger applications), as required by the Federal Circuit’s construction. Accordingly, the Federal Circuit reversed the district court’s denial of judgment as a matter of law (JMOL) of non-infringement.
Apple also asserted its “slide to unlock” patent, whereby a user can slide a moving image across the screen with a finger in order to unlock the phone, and its “auto correct” patent, whereby a phone automatically corrects typing errors. At the district court, Samsung sought JMOL that both of these patents were invalid as obvious. The Federal Circuit agreed.
For the “slide to unlock” patent, Apple did not dispute that the prior art combination disclosed all of the claimed features. Rather, Apple argued that the jury could have reasonably found that one of the references taught away from using the “slider toggle” feature, and that a skilled artisan would not have been motivated to combine these references, since the slide toggle reference describes a wall-mounted touch-screen device, not a mobile phone. The Federal Circuit disagreed, concluding that “[t]he fact that [the prior art reference] notes that users did not prefer the particular design of the slider toggle is not evidence of teaching away.” The Federal Circuit reasoned that a motivation to use the teachings of a particular prior art reference need not be supported by a finding that the feature is the “preferred, or the most desirable” option.
The Federal Circuit also concluded that no reasonable jury could find that the reference is not analogous art since it concerned user interfaces for touch-screen devices, noting that the asserted patent and the reference both disclose essentially the same structure: a touch-screen device with software that allows the user to slide his or her finger across the screen to change interface states.
The Federal Circuit also dismissed Apple’s secondary considerations argument, noting that although Apple identified the unsolved problem as the lack of an “intuitive” method of unlocking a touch-screen portable device, it provided no evidence showing that the asserted need was recognized in the industry. With respect to industry praise, the Court noted that evidence of approval by Apple fans—who may or may not have been skilled in the art—is not legally sufficient.
With respect to copying, the Federal Circuit noted the only evidence of copying went to an unlock mechanism using a fixed starting and ending point for the slide—a feature disclosed in the prior art. Finally, with respect to commercial success, the Federal Circuit reasoned that Apple’s evidence was not sufficient to show a “nexus” between the patented feature and the commercial success of the iPhone. Accordingly, the evidence of secondary considerations was insufficient as a matter of law to overcome the prima facie obviousness case.
Apple also asserted its “universal search” patent that permits a user to search for results from both the phone and the internet based on a single search term. On appeal, the issue was whether the search feature on the Samsung phones “locates” information on the internet. The district court found that Samsung devices do not search the internet, but rather blend data previously retrieved from a Google server and a local database. Apple argued that the plain meaning of the claim covered search information previously downloaded from the internet, a construction the district court denied. The Federal Circuit agreed with the district court’s denial.
The Samsung Patents
Samsung asserted a patent directed to capturing, compressing and transmitting videos. In its claim construction order, the district court construed “means for transmission”—a means-plus-function claim limitation—to require software in addition to hardware. Samsung argued that the district court erred in its construction because the specification did not “require any software for transmission, and including such software [in addition to hardware] as necessary structure was error.” The Federal Circuit agreed with the district court that the term “transmission” implies communication from one unit to another, and the specification explains that software is necessary to enable such communication. The Federal Circuit noted that software is necessary because hardware alone does nothing without software instructions telling it what to do, and affirmed the district court’s construction of the term and the judgment of non-infringement.
As for Samsung’s patent directed to a camera system for compressing, decompressing and organizing digital files, the jury found that Apple had infringed, and the district court denied Apple’s post-trial motion for JMOL of non-infringement. Apple argued that no reasonable jury could have found that the Apple products met the “compressor” and “decompressor” limitations of the claim because these limitations require components that compress or decompress both still images and videos, and its products use separate and distinct components to compress and decompress still images and videos. The Federal Circuit rejected this argument, finding that Samsung presented testimony that identified a single Apple design chip with circuitry that performs compressing/decompressing methods for both images and videos.
Practice Note: Assuming this decision resolves the utility patent fight, the only remaining battle shifts to the Supreme Court of the United States, which has now agreed to hear Samsung’s appeal on the issue of damages in connection with design patent infringement. See Cert Alert in this issue of IP Update.
Patents / Preliminary Injunction
Preliminary Injunction on Flameless Candle Extinguished
Addressing whether the district court erroneously granted a preliminary injunction, the US Court of Appeals for the Federal Circuit reversed the district court, finding that the injunction rested on an incorrect claim construction and that under the proper construction, a substantial question of validity precludes granting a preliminary injunction. Luminara Worldwide, LLC v. Liown Electronics Co. Ltd., No. 2015-1671 (Fed. Cir., Feb. 29, 2016) (Moore, J).
Luminara’s predecessor, Candella, acquired substantial rights from Disney Enterprises with respect to several patents covering flameless candle technology. Candella then sued Liown for patent infringement, resulting in a settlement. After Liown obtained its own patent on artificial flame technology, Liown told Candella that it would no longer comply with the settlement agreement, and began selling flameless candles to Candella’s exclusive customers.
Luminara sued Liown for infringement and moved for a preliminary injunction. Liown argued that a preliminary injunction was improper because the claims were invalid as anticipated by the prior art. After construing the claims, the district court rejected Liown’s argument, finding that the prior art did not teach the claim term “the body is free to pivot when supported by the flame support element.” Under the district court’s construction of “free to pivot,” this term required chaotic movement that is more than rotation around two axes, while the prior art taught a body that only rotated around two axes. Liown appealed.
On appeal, the Federal Circuit vacated the preliminary injunction as based on an incorrect claim construction. Reviewing the underlying claim construction de novo, the Court found that the proper construction requires chaotic movement but not movement that is more than rotation around two axes. The Court also found that, under the proper claim construction, the prior art likely taught all of the claimed limitations. Concluding that a substantial question of validity remained, the Court vacated the district court’s grant of the preliminary injunction.
Cert Alert / Design Patents / Damages
Yet Another Bite at this Apple: Damages in Design Patent Cases
The Supreme Court of the United States has now agreed to review a 2015 decision by the US Court of Appeals for the Federal Circuit regarding the proper measure of damages in cases of design patent infringement. Samsung Electronics Co., Ltd. v. Apple Inc., Case No. 15-777 (Supr. Ct., Mar. 21, 2016), cert. granted.
At the Federal Circuit, Samsung argued that it was legal error to allow the jury to award Apple all of Samsung’s profits on the infringing smartphones. Samsung argued that damages should have been limited to those profits that are proven to be causally attributable to the infringement, i.e., that Apple should have been required to apportion damages for infringement of design patents, the same way as is required for infringement of utility patents.
In rejecting Samsung’s argument, the Federal Circuit relied on the language of 35 USC § 289, which provides that the infringer of a design patent is “liable to the [patent] owner to the extent of [the infringer’s] total profit,” and held that § 289 explicitly authorizes an award of the total profits from an article of manufacture bearing the patented design. In doing so, the Court differentiated § 289 from § 284, which (in the context of utility patents) only authorizes damages “adequate to compensate for the infringement, but in no event less than a reasonable royalty.” Addressing criticism from an amicus brief on the allocation issue, the Federal Circuit noted that while “Amici 27 Law Professors argues that an award of a defendant’s entire profits for design patent infringement makes no sense in the modern world,” the Court is “bound by what the statute says, irrespective of policy arguments that may be made against it.” IP Update, Vol. 18, No. 6.
The order grants review on the second question raised in the petition: Where a design patent is applied to only a component of a product, should an award of infringer’s profits be limited to those profits attributable to the component?
In its petition, Samsung argues that nothing in § 289 “suggests that Congress exempted design patents from the background principles of causation and equity that inform all of patent law,” and that the Federal Circuit decision would provide a vehicle for design-patent holders to obtain “unjustified windfalls far exceeding the conceivable value of any inventive contribution” and is “an open invitation to litigation abuse.”
Other Supreme Court IP News
In the consolidated appeals regarding the appropriate test for awarding enhanced damages under 35 USC § 284, Halo Elecs. v. Pulse Elecs., Case No. 14-1513, and Stryker v. Zimmer, Case No. 14-152, the matter was argued and submitted on February 23, 2016, and is awaiting decision.
In the appeal regarding the appropriate claim construction and reviewability of institution decisions in inter partes reviews, Cuozzo Speed Techs. v. Lee, Case No. 15-446, oral argument is set for April 25, 2016.
In the copyright appeal regarding the appropriate standard for awarding attorneys’ fees under § 505 of the Copyright Act, Kirtsaeng v. John Wiley & Sons, Case No. 15-375, oral argument is set for April 25, 2016.
Disclaimed Claims May Be Disregarded in Considering CBM Petition
Addressing whether disclaimed claims should be considered when determining whether to institute a covered business method (CBM) review, the Patent Trial and Appeal Board (PTAB or Board) denied institution, finding that such claims should be disregarded and that the remaining claims were not demonstrably finance related. Great West Casualty Co. v. Intellectual Ventures II LLC, Case No. CBM2015-00171 (PTAB, Feb. 9, 2016) (Kim, APJ).
The petitioner requested CBM review of a patent directed to distributing content through one or more distributed information access points to a centralized access point, which purportedly helps users identify and access desired information. In its preliminary response, the patent owner indicated that it had disclaimed certain claims of the patent. The petitioner argued that the disclaimed claims should be considered in deciding whether to institute the CBM review, and that even if the disclaimed claims were not considered, the remaining claims were sufficiently financial in nature. The petitioner further argued that several portions of the specification illustrated the financial nature of the claimed invention.
With respect to the disclaimed claims, the Board cited US Court of Appeals for the Federal Circuit precedent for the proposition that disclaimed claims are to be treated as though they never existed. The Board acknowledged that other panels have taken disclaimed dependent claims into consideration, but explained that this was limited to instances where the independent claims (on which the disclaimed claims depend) include limitations that encompass finance-related subject matter. In this case, the Board found little overlap between the disclaimed and remaining claims.
The Board also found that the petitioner failed to show that the remaining claims were finance related. The petitioner argued that claim elements such as “server” and “content objects” were finance related. The Board disagreed, finding that, on their face, these claim terms were not related to finance. Turning to the specification, the Board found that the specification as a whole was directed to technology of general applicability, and although portions of the specification pertained to finance, those portions “were insufficient to convert the otherwise general terminology of [the remaining claims] into finance-related subject matter.”
AIA / IPR / § 315(b) Time Bar
Timing Is Everything – Meeting the One-Year Filing Deadline for IPR
Addressing the one-year time bar for filing an inter partes review (IPR) petition, the Patent Trial and Appeal Board (PTAB or Board) found petitioner’s arguments regarding proper service and jurisdiction unpersuasive and rejected the generic drug maker’s petitions as time barred under 35 USC §315(b). Lannett Holdings Inc. v. AstraZeneca AB, IPR2015-01630 (PTAB, Feb. 2, 2016) (Yang, APJ).
At issue is an AstraZeneca patent directed to formulations of the anti-migraine drug zolmitriptan for nasal applications. The patent claims a formulation of zolmitriptan that achieves fast relief while maintaining high efficacy, without causing any irritation or side effects. AstraZeneca filed two actions for patent infringement. The first action stated that “AstraZeneca AB is the owner by assignment of the  patent and has the right to sue for patent infringement.” The second action stated that “AstraZeneca AB and AstraZeneca UK Limited own all rights, title and interest in the  patent.” Zeroing in on this discrepancy, Lannett filed a motion to dismiss the first action based on the judicial admission in the second action that AstraZeneca UK is a co-owner of the patent and should have been a named party. The district court denied the motion to dismiss without prejudice, subject to renewal after completion of discovery.
Lannett later filed petitions for IPR of two AstraZeneca patents, including the patent at issue in the two lawsuits. The Board determined that the petitions were time barred because they were filed one day after the one-year filing deadline. Per 35 USC §315(b), an IPR may not be instituted “if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.”
In an effort to save the petitions, Lannett argued that AstraZeneca’s service of its complaints was ineffective under Delaware law and could not trigger the one-year bar. Specifically, Lannett claimed that AstraZeneca’s registered agent, CSC Entity Services, is a limited liability company and that therefore the complaint should have been served “personally to any manager” of CSC. Here, the proof of service only showed CSC, and not an individual, having accepted service, and so the service was defective. The Board disagreed, explaining that the corporate status of the petitioner, not the registered agent, dictates the appropriate procedure for service. In this case, the petitioner (Lannett) is a corporation, and under Delaware law service of process on a corporation “shall be made by delivering a copy personally to . . . the registered agent of the corporation . . . .” As such, AstraZeneca’s service was proper.
Lannett also raised a jurisdictional argument, which largely tracked its motion to dismiss in the first action. Specifically, Lannett argued that the first action was jurisdictionally deficient for failure to name AstraZeneca UK as a party, and a jurisdictionally deficient action does not trigger the § 315(b) time bar. The Board disagreed, noting that the district court did not dismiss the first action, but instead allowed the parties to conduct discovery into the ownership question. In this case, despite almost one year of discovery, Lannett was unable to present any evidence to demonstrate the level or type of interest AstraZeneca retains in the patent. The Board agreed with the district court’s conclusion that the statement in the second action—that AstraZeneca UK is a co-owner of the patent—was not sufficient evidence to show that AstraZeneca UK is an indispensable party in the first action. In other words, the Board declined to conclude that the district court lacks jurisdiction over the first action.
AIA / IPR / Appeals / Obviousness
Presumptions Can Apply in Inter Partes PTAB Proceedings
Addressing issues of claim construction and obviousness, the US Court of Appeals for the Federal Circuit affirmed, vacated and remanded in part the Patent Trial and Appeal Board’s (PTAB’s or Board’s) obviousness conclusion, finding that the Board failed to give certain claim terms their broadest reasonable interpretations. PPC Broadband, Inc. v. Corning Optical Commc’n RF, LLC, Case Nos. 15-1361, -1366, -1368, -1369 (Fed. Cir., Feb. 22, 2016) (Moore, J).
Corning Optical filed several inter partes review (IPR) petitions challenging various claims of three of PPC’s patents directed to coaxial cables. The Board instituted on the petitions and eventually concluded that various claims of each patent would have been obvious. PPC appealed.
The Federal Circuit began its analysis by addressing the difference in claim construction standards between the district court and the Board. In proceedings where the applicant may amend the claim language, the Board must give the claims their broadest reasonable interpretation consistent with the specification. By contrast, district courts construe claims using the framework laid out in Phillips, seeking to reach a construction that most accurately delineates the scope of the claimed invention.
In this case, the Federal Circuit affirmed the Board’s conclusion that the term “continuity member” did not require temporal continuity or continuous contact, finding the Board’s construction was “not unreasonable” in light of the ordinary meaning of “continuity” and disclosure in the specification. Here, the result hinged on the claim construction standard applied. While the Court found that the Board’s construction was not correct under Phillips, it nevertheless upheld the Board’s conclusion based on the broadest reasonable interpretation of “continuity member.” The Court clarified, however, that even under their broadest reasonable interpretations, certain claims required temporal continuity by virtue of their additional limitations. These limitations require that the continuity member “maintain electrical continuity” during certain specified periods of operation of the connector. Because the Board did not make any fact findings regarding temporal continuity in the prior art, the Court vacated the conclusion of obviousness with respect to the claims that included the additional limitations.
Similarly, the Court vacated the Board’s holdings regarding the term “encircle or surround.” Although the Board gave this term its broadest reasonable interpretation, the Board arrived at its construction by simply selecting what it considered to be the broadest dictionary definition. The Board’s approach did not take into account how the claims or the specification informed the construction.
Finally, the Federal Circuit addressed certain secondary considerations of nonobviousness, finding that the Board’s conclusions with respect to long-felt but unresolved need, failed attempts and copying were supported by “substantial evidence.” With respect to commercial success, however, the Court reversed the Board, finding that the Board erred in concluding that PPC’s connector did not embody all of the features of the claims. In this case, Corning did not dispute that PPC’s connectors are commercial embodiments of the claimed connectors, and it was error for the Board to find to the contrary without further explanation. Since the evidence showed that the PPC connectors embodied the claimed invention, the court noted that there was a presumption that any commercial success of these products is due to the patented invention. The Court noted that this presumption would not apply in the ex parte context, because the Board cannot gather evidence regarding commercial success. However, in the case of IPRs, the presumption applies because Corning had the means to rebut PPC’s evidence, but chose not to do so.
AIA / IPR / Protective Orders
PTAB Disinclined to Tailor Protective Orders or Interfere with Protective Orders Issued in Parallel Proceedings
Joseph Speyer, PhD
In a pair of orders addressing confidential information acquired in parallel proceedings, the Patent Trial and Appeal Board (PTAB or Board) denied (1) a request to modify the Board’s default protective order to protect third-party confidential information, and (2) a request for additional discovery to allow the patent owner to submit petitioner’s confidential information subject to a district court protective order. ASML Neth. B.V. v. Energetiq Tech., Inc., IPR Nos. IPR2015-01277; -01279; -01300; -01303; -01377; -01362; -01368; -01375 (PTAB, Feb. 16, 2016) (Parvis, APJ); Meyer Prods., LLC v. Douglas Dynamics, LLC, IPR No. 2015-01247 (PTAB, Feb. 16, 2012) (Worth, APJ).
In ASML, the patent owner sought to revise the Board’s default protective order to submit documents containing third-party confidential information that the patent owner obtained in a parallel proceeding. The patent owner indicated that the third party consented as long as the documents would not be shown to the third party’s competitors’ employees, including the petitioner’s in-house counsel. The petitioner opposed the motion, arguing that its in-house counsel was actively involved in preparing arguments and obtaining evidence for the inter partes review (IPR).
The Board explained that confidential information subject to a protective order in an IPR typically becomes public 45 days after a final judgment, and that there is an expectation that information will be made public where the existence of the information is identified in a final written decision. Furthermore, a motion to expunge the information will not necessarily prevail over the public interest in maintaining a complete and understandable file history.
Ultimately, the Board concluded that the patent owner’s request was premature because the patent owner had not made sufficient efforts to reduce the amount of third-party confidential information. The Board urged the patent owner to work with the third party to reduce the amount of third-party confidential information through redaction and de-designation, and instructed the patent owner to remind the third party that any information submitted may be made public, so that the third party would appreciate the risks associated with submitting such information.
In Meyer, the patent owner sought to submit documents the petitioner had produced in a parallel proceeding, where the documents were subject to a district court protective order. The district court protective order prohibited the use of the documents for any purpose outside of the district court proceeding without the permission of the petitioner. While the patent owner acknowledged that there were no other exceptions to the protective order, the patent owner argued that the documents satisfied the Garmin factors for discovery (IP Update, Vol. 16, No. 4), and suggested that the Board protect the information with a suitable protective order.
The Board declined, finding instead that the patent owner must first obtain permission from the petitioner or the district court. The PTAB explained that the pertinent question was not whether the PTAB could protect the confidential information, but whether the patent owner was complying with the district court protective order. The patent owner was instructed to first seek guidance from the district court if it wished to further pursue the discovery.
Trademarks / Right of Publicity / First Amendment
First Amendment Prevents Right of Publicity Claim Arising from Film About “Issues of a Public Nature”
In a lawsuit involving the 2010 Oscar-winning film The Hurt Locker, the US Court of Appeals for the Ninth Circuit held that right of publicity claims arising from expressive works, including films, are in essence content-based restrictions on speech that are presumptively unconstitutional, and affirmed the district court order dismissing the lawsuit on constitutional grounds. Sgt. Jeffrey S. Sarver v. Nicolas Chartier, et. al., Case No. 12-55429 (9th Cir., Feb. 17, 2016) (O’Scannlain, J).
In 2004 and 2005, Army Sergeant Jeffrey Sarver led the 788th Explosive Ordnance Disposal Company that identified and disposed of improvised explosive devices (IEDs) in Iraq. Sarver contended that Will James, the main character of The Hurt Locker, was based on Sarver, because the film’s screenplay was written by Mark Boal, a journalist who had been embedded with the 788th in Baghdad. Sarver believed that the film falsely portrayed him in a negative manner and hurt his reputation. Asserting that he did not consent to use of his likeness in the film, Sarver filed suit against several parties involved in the making of The Hurt Locker, alleging causes of action for misappropriation of likeness and right of publicity, invasion of privacy, defamation, breach of contract, intentional infliction of emotional distress, fraud and misrepresentation.
On defendants’ motion, the case was transferred from New Jersey to California, and defendants then filed motions to strike the complaint under California’s anti-SLAPP statute. The anti-SLAPP law provides for early dismissal of meritless First Amendment cases aimed at chilling expression.
The district court concluded that The Hurt Locker constituted an exercise of free speech in connection with a public issue. Moreover, it found that any similarities between Sarver and the main character of the film were transformed by the significant amount of original expressive content in the screenplay and through direction and production of the movie. After the district court dismissed Sarver’s claims, he appealed.
Before looking at the merits of Sarver’s claims, the Ninth Circuit considered whether California law was properly applied and whether defendants’ anti-SLAPP motions were timely filed. The Court determined that California law applied in the federal diversity action, because under New Jersey choice of law, California had the most “significant relationship” to The Hurt Locker and to the litigation overall. In addition, the Ninth Circuit found that Cal. Civ. Proc. Code § 425.16(f), which requires that an anti-SLAPP motion be filed within 60 days of the complaint, did not apply here because it was a procedural device that was in direct conflict with the federal summary judgment rule. Citing its own precedent, the Ninth Circuit established that California’s 60-day time limitation does not apply in federal diversity cases. Therefore, the Court found that defendants’ anti-SLAPP motions were timely filed in response to Sarver’s complaint.
The Ninth Circuit then examined the merits of the defendants’ anti-SLAPP motions under the two requirements of the statute: (1) a plaintiff’s suit must arise from a defendant’s act made in connection with a public issue in furtherance of the defendant’s right to free speech, and (2) the plaintiff must have a reasonable probability of a favorable judgment.
On the first issue, the Ninth Circuit determined that the Iraq War, The Hurt Locker and the narrative of the film’s main character, Will James, spoke directly to issues of public concern. In particular, the Court distinguished the present case from its earlier decision in Dyer v. Childress, which found “no discernible public interest” in the use of someone’s persona in a particular film, noting that the nature of Sarver’s occupation during the Iraq War made his persona part of the issues of public interest.
Under the second part of the analysis, the burden shifted to Sarver to substantiate a “legally sufficient” claim. In this regard, the Ninth Circuit determined that even if Sarver could establish all elements of a right of publicity claim under California law, pursuing a right of publicity action at all would infringe defendants’ right to free speech. Specifically, since the film was speech fully protected by the First Amendment, Sarver could not show a compelling state interest in preventing the defendants’ speech by applying California’s right of publicity law where to do so would be in derogation of the defendants’ First Amendment rights. Thus, the Court concluded that Sarver could not state a right of publicity claim and the district court did not err in granting defendants’ anti-SLAPP motions.
Copyrights / Right of Publicity
NFL Players’ Right of Publicity Claims Denied
The US Court of Appeals for the Eighth Circuit affirmed a district court summary judgment in favor of defendants, denying plaintiffs’ publicity rights claims in footage and interviews made by the defendants and finding that plaintiffs’ state law publicity rights claims were preempted because the subject films were expressive speech covered by the Copyright Act. J. F. Dryer et al. v. The National Football League, Case No. 14-3428 (8th Cir., Feb. 26, 2016) (Gruender, J).
The underlying lawsuit involved objections by NFL players to the use of their names and likenesses in NFL game footage and additional interviews in NFL-produced historical documentaries about “significant games, seasons and players in NFL’s history.” The suit was filed as a class action, but 20 of the players who originally sued settled with the NFL, while three players continued with the suit and opted out of a $42 million settlement. The complaint filed by the three remaining players alleged violations of their right of publicity and claims of false endorsement under the Lanham Act.
The district court relied on § 301 of the Copyright Act, which states that certain works are governed exclusively by the Copyright Act and that “thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.” The district court concluded that the players’ right of publicity claims were preempted by the copyright law, and that the players produced no evidence that the films contained “misleading or false statements” under the Lanham Act. The players appealed.
The Eighth Circuit affirmed the district court’s rejection of the right of publicity claims, agreeing with the district court that the films were expressive rather than commercial speech, and therefore the players’ right of publicity claims were preempted by the Copyright Laws. In rejecting the players’ argument that the film represented commercial speech and was therefore subject to state regulation, the Court noted that “consumers pay to view the films, either by purchasing copies or through subscriptions to broadcasters like ESPN, which licenses the films to show on its various television networks,” and that “because the films represent speech of independent value and public interest rather than advertisements for a specific product, the NFL’s economic motivations alone cannot convert these productions into commercial speech.”
The Court also denied the players’ claims of false endorsement under the Lanham Act because the Players produced no evidence that the films contained “misleading or false statements” regarding their current endorsement of the NFL.
Trade Secrets / Loss Calculation
Financial Gain Not Required to Prevail in Trade Secret Theft Claim
The US Court of Appeals for the Seventh Circuit vacated a district court decision awarding substantial restitution for trade secret theft, determining that a loss calculation made by the district court was erroneous and that the amount the defendant was ordered to pay in restitution required the government to provide a complete accounting of the amount spent by the financial institutions in their investigation of the trade secrets theft. United States of America v. Yihao Pu, Case No. 15-1180 (7th Cir., Feb. 24, 2016) (Williams, J).
The defendant, Yihao Pu, worked for two different financial institutions that traded stocks and other assets on behalf of clients. While at work, Pu copied various computer files from his employers and saved the information to his own personal storage device. The files were part of each company’s proprietary software that allowed them to execute strategic trades at high speeds. The files were company trade secrets, and Pu’s copying of the files was a significant data breach.
Typically a crime that involves theft of computer data trade secrets leads to the sale of that data or to a situation where a company interested in the stolen data hires the person who stole it. In this case, Pu used the data to conduct computerized stock market trades for himself and lost approximately $40,000.
According to the US Sentencing Commission’s guidelines, district courts are permitted to determine the “intended loss” to the victim of trade secret theft when no “actual loss” occurred. Although there was no actual loss in this case, the district court sentenced Pu to 36 months in prison and ordered him to pay more than $750,000 in restitution.
Pu appealed the district court’s decision. He challenged the intended loss calculation and the restitution amount, and argued that the factual findings did not support the district court’s conclusion that he intended to cause a loss of approximately $12 million to the financial institutions.
The Seventh Circuit agreed and vacated the district court decision, ruling that the factual findings did not support the district court’s loss calculation and that the calculation itself was erroneous. The Court explained that if a district court concludes that the “intended loss” holds the same value as the cost of development of the trade secret, the court must have evidence that the defendant intended to cause a loss to the victims that equaled the cost of development. Here, there was no evidence that Pu intended to cause the financial institutions any loss. Furthermore, the Seventh Circuit reasoned that the district court erred in deciding on a restitution amount because the government was required to provide a complete accounting of the loss caused by the offense before the district court could determine the restitution amount. There was no such evidence, or even evidence that reflected an accounting of the financial institutions’ investigation costs. As the Seventh Circuit warned, “[t]he government must provide an explanation, supported by evidence, of how each professional’s time was spent investigating the data breach, being certain that the evidence provides adequate indication that the hours claimed are reasonable.”