Patents / Inequitable Conduct
Post-Therasense: Federal Circuit Divided on Inequitable Conduct
Mandy H. Kim
In a post-Therasense decision, addressing the issue of inequitable conduct the U.S. Court of Appeals for the Federal Circuit upheld a district court’s finding that the asserted patents were unenforceable due to inequitable conduct based on a co-inventor’s actions, finding that defendant had shown “but for materiality” and specific intent to deceive. Am. Calcar, Inc. v. Am. Honda Motor Co., Inc., Case No. 13-1061 (Fed. Cir., Sept. 26, 2014) (Prost, J.) (Newman, J., dissenting).
Calcar brought suit against Honda, asserting infringement of 15 patents, three of which remained at issue on appeal. The patents relate to aspects of a multimedia system for use in a car to access vehicle information and control vehicle functions. Honda responded to the complaint asserting various defenses, including inequitable conduct. Honda urged inequitable conduct based on the actions of a co-inventor who allegedly deliberately withheld prior art that was material to patentability from the U.S. Patent and Trademark Office. After the district court granted Honda’s inequitable conduct motion, Calcar appealed.
While the appeal was pending, the Federal Circuit established a narrower test for inequitable conduct in Therasense, requiring “by clear and convincing evidence that the patent applicant (1) misrepresented or omitted information material to patentability, and (2) did so with specific intent to mislead or deceive the PTO.” The Federal Circuit remanded the case for the district court to determine materiality and intent as to two of the patents at issue in light of Therasense. On remand, the district court again concluded that the patents at issue were unenforceable due to inequitable conduct based on the two-prong Therasense standard, and Calcar appealed.
The Federal Court affirmed the district court’s judgment that the patents were unenforceable due to inequitable conduct. Applying the “but-for materiality” standard set forth in Therasense, the Court agreed with the district court that undisclosed details of the prior art were material to patentability because “it would have been obvious to a person of ordinary skill in the art to include different information in the [prior art] system.” Moving to intent, the Court found no clear error in the district court’s finding of intent to deceive. Citing Therasense, the Federal Circuit explained that “‘[b]ecause direct evidence of deceptive intent is rare, a district court may infer intent from indirect and circumstantial evidence,’ provided that such intent is the single reasonable inference.” The Court further noted that a district court is not bound by a jury’s finding of no equitable conduct.
In dissent, Judge Newman argued that the Therasense standard was not met. First, Judge Newman argued there was no “but-for materiality” because the withheld prior art was provided to the PTO on reexamination and patentability was sustained by the PTO in light of that additional information. Second, Judge Newman argued there was no evidence of intent to deceive, and the majority improperly devised an inference of deceptive intent based largely on the co-inventor’s credibility when inconsistency of recollection was also a reasonable inference. Judge Newman noted that jury decision should be of particular relevance when the issue to be decided relates to questions of credibility.
Terms of Degree Must Provide Objective Boundaries
Providing further elaboration on the “reasonable certainty” standard in an indefiniteness analysis involving a term of degree, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s ruling of indefiniteness, finding that no objective indication of the claim scope was provided by the patent. Interval Licensing LLC v. AOL, Inc. 766 F.3d 1364 (Fed. Cir., Sept. 10, 2014) (Chen, J.).
Interval Licensing (Interval) sued AOL, Apple, Google, and Yahoo! for infringement of its patents directed to a system for occupying the peripheral attention of a person in the vicinity of a display device. The suit alleged that defendants infringed the patents through products and software that use “pop-up” notifications to present information to users. The patents disclosed a system that “acquires data from a content provider, schedules the display of the content data, generates images from the content data, and then displays the images on a device.” According to the claims, the images are not simply displayed on the device, rather, the images are displayed “in an unobtrusive manner that does not distract a user.” The intent was that the images would occupy the peripheral attention of a user in the vicinity of the display device and not interfere with the user’s primary interaction with the device. The district court found the phrase “unobtrusive manner” indefinite during claim construction and the patents invalid as a result. Interval appealed.
Under the Supreme Court’s 2014 decision in Nautilus (IP Update, Vol. 17, No. 6), a claim fails to satisfy the § 112, ¶ 2 if its language, when read in light of the specification and the prosecution history, “fail[s] to inform, with reasonable certainty, those skilled in the art about the scope of the invention.” Applying the standard set forth in Nautilus, the Federal Circuit affirmed the district court’s finding of indefiniteness. The Federal Circuit analyzed whether the patents provided objective boundaries on the phrase “unobtrusive manner,” such that one of ordinary skill in the art could understand the bounds with certainty. The Court observed that the “unobtrusive manner” language was “highly subjective and, on its face, provide[d] little guidance to one of skill in the art” and that no objective indication of the manner in which content was to be displayed without distracting the user was presented.
Turning to the specification and prosecution history, the Federal Circuit concluded that those too failed to provide sufficient guidance. Critically, the Court noted that the specification gave only a single example of the manner in which content could be displayed in an “unobtrusive manner.” Had the example in the specification instead been cast as definitional language, it would have provided the needed objective boundary. But with only a single example, a skilled artisan is left wondering what other forms of display are unobtrusive and non-distracting.
The Federal Circuit reiterated that terms of degree are not inherently indefinite, but cautioned that a term of degree fails to provide sufficient notice of its scope when it depends “on the unpredictable vagaries of any one person’s opinion.” In sum, the “unobtrusive manner” phrase, when viewed in light of the specification and prosecution history, failed to “inform those skilled in the art about the scope of the invention with reasonable certainty.”
Patents / Doctrine of Equivalents
Doctrine of Equivalents Requires Full Analysis
Addressing doctrine of equivalents, the U.S. Court of Appeals for the Federal Circuit vacated a finding of no infringement by a lower court, explaining that such a finding must be supported by a full doctrine of equivalent analysis. EPOS Technologies Ltd. v. Pegasus Technologies Ltd., Case No. 13-1330 (Fed. Cir., Sept. 5, 2014) (Hughes, J.).
EPOS Technologies filed a complaint against Pegasus Technologies seeking declaratory judgment of non-infringement on four patents. In its counterclaims, Pegasus asserted two additional patents. After the district court construed the claims, EPOS moved for summary judgment of invalidity and non-infringement. The district court granted the EPOS’s summary judgment motion of non-infringement and declined to address invalidity. After the district court construed the claim limitation “intermittent” to as “something that occurs occasionally, in a non-continuous manner, in a random or unpredictable manner, or at selected times,” it found that EPOS did not infringe under the doctrine of equivalents, as EPOS’s products have continuous signals. Pegasus appealed.
The Federal Circuit vacated the district court’s claim construction and remanded it to the district court on the issue of infringement under the proper construction. The Federal Circuit also vacated the district court’s grant of summary judgment of non-infringement under the doctrine of equivalents.
Regarding the district court’s finding of no infringement under the doctrine of equivalents, the Federal Circuit noted that the “district court devoted only two sentences to its decision on infringement . . . under the doctrine of equivalents.” The Federal Circuit explained “a court must ask whether an asserted equivalent is an ‘insubstantial difference’ from the claimed element, or whether it matches the ‘function, way, and result of the claimed element’” when addressing the doctrine of equivalents. The Federal Circuit explained that “the district court [engaged in a] ‘shortcut’ inquiry by identifying a binary choice (continuous or intermittent).” The Federal Circuit instructed the district court to more thoroughly consider whether a reasonable jury could conclude products and claim limitation are equivalent.
Patents / Non-Infringement
“Removed” Versus “Removable” Controls Infringement Inquiry *Web Only*
Addressing a district court’s summary judgment of infringement, the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s summary judgment, finding that the accused device did not literally infringe the asserted claims and that prosecution history estoppel precluded application of the doctrine of equivalents. EMD Millipore Corp. v. AllPure Technologies, Inc., Case No. 14-1140 (Fed. Cir., Sept. 29, 2014) (Prost, J.).
Plaintiff Millipore owned a patent directed to a device for introducing or withdrawing a sample from a container without contaminating the contents of the container. The single independent claim at issue was directed to a device that includes, among other things, “at least one removable replaceable transfer member” composed of several component parts: a “holder,” a “seal” and a “hypodermic needle.” The “seal” component of the transfer member included “a first end comprised of a bellows-shaped part” which was “sealingly attached to said holder, and a second end comprising a self-sealing membrane portion interiorly formed at an end of said bellows part.” The claimed device further included a “magazine part for removable securement” of the transfer member.
The parties’ sole dispute with respect to literal infringement was whether the accused device included a “transfer member” as required by the claims. The accused device, when assembled, includes a “transfer member” that contains a “seal.” However, as the district court explained, removal of the “transfer member” from the accused device involves disassembling the transfer member into its component parts. As a result, the disassembled, removed “transfer member” no longer contains “holder” and a “seal” as recited in the claims. Millipore appealed.
Millipore argued that regardless of the fact that the transfer member was itself disassembled when removed from the accused device, because each of the components of the transfer member were still removed, the transfer member as a whole was “removable.” The Federal Circuit rejected Millipore’s argument and concluded that “[i]f a transfer member does not exist when the device is disassembled . . . then there is no genuine issue of material fact over whether the [accused] device contains a ‘removable, replaceable transfer member’ as is literally required” by the claims. The Court therefore affirmed that there was no literal infringement because the accused product did not contain a removable transfer member, as required by the claims.
With respect to infringement under the doctrine of equivalents, the Federal Circuit found that prosecution history estoppel barred Millipore’s argument. During prosecution, applicants amended the pending claims by adding the language requiring that the seal element include a “first end comprised of a bellows-shaped part . . . [and] a second end comprising a self-sealing membrane portion interiorly formed to an end of said bellows part.” The applicant also stated that the claim had been amended to render it “allowable and distinguishable over the cited references.”
In view of these facts, the Federal Circuit concluded there was a rebuttable presumption of prosecution history estoppel. The Federal Circuit then noted that while Millipore bore the burden of rebutting the presumption of prosecution history estoppel, Millipore had chosen not to advance such an argument in front of the district court. Instead, Millipore had argued solely that there was no estoppel because the amendment in question did not narrow the scope of the claims. As a result, the Federal Circuit concluded that Millipore failed to rebut the presumption, and thus prosecution history estoppel barred application of the doctrine of equivalents.
“Soda-Pop” Bottle Caps Can Be Analogous Art for Flash Chromatography Cartridges
Addressing the issue of analogous art in the context of inter partes reexamination, the U.S. Court of Appeals for the Federal Circuit affirmed a decision of the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) that in turn affirmed an examiner’s rejection of all claims to a low pressure liquid chromatography (LPLC) cartridge because it would have been obvious to modify prior art cartridge with the pressure-resistant threaded cap of carbonated beverage containers known in the art to address a concern with leakage in LPLC cartridge. Scientific Plastic Products, Inc. v. Biotage AB, Case No. 13-1219, -1220, -1221 (Fed. Cir., Sept. 10, 2014) (Newman, J.) (Moore, J., dissenting).
Scientific Plastic Products (SPP) sued Biotage for infringement of three of its patents relating to a low-cost resealable LPLC cartridge that provides a fluid tight seal under pressure. Biotage then requested inter partes reexamination (IPR) of the three patents. The primary issue on reexamination concerned obviousness of combining the prior art LPLC cartridge to replace detachable threaded seal of the cartridge with caps known in the art for sealing of carbonated beverage containers in substantially gas-tight and liquid-tight fashion. The examiner rejected all claims for obviousness. SPP appealed to the PTAB.
On appeal, SPP challenged the examiner’s determination that the prior art disclosing beverage sealing systems were analogous art and that it would have been obvious to combine such disclosure with the prior art LPLC cartridge, arguing that “chemists in laboratories would not look to soda-pop bottle caps to solve problems with flash chromatography cartridges.” Notwithstanding, the PTAB affirmed the examiners rejections and cancelled all claims of the patent.
For a reference outside an inventor’s field of endeavor to be considered “analogous art,” it must be “reasonably pertinent” to the particular problem with which the inventor is involved, such that a person of ordinary skill would reasonably have sought a solution to the problem in that outside field.” The Board concluded that it was reasonable for the patent examiner to find that one of ordinary skill in the art would have found the prior art references on sealed beverage containers relevant in forming a plastic container having a fluid tight seal at elevated pressure, while maintaining access to the container for varying its contents, because it was one of the stated purposes of the SSP inventors. The Board found motivation to combine the references in the need to improve the sealing arrangement of LPLC cartridges by solving the known problem of leakage under pressure identified in the patents. SPP appealed again, this tie to the Federal Circuit.
The Federal Circuit found that the prior art references disclosing beverage containers with resealable caps address the problem of providing a fluid tight seal at elevated pressures, which was sufficiently close to the problem addressed by the claimed invention to be analogous art. The Court emphasized that the issue was not whether the prior art cartridge leaked, but whether there was a concern with leakage in LPLC cartridges, such that a person of ordinary skill would have provided a known pressure resistant cap associated with beverages to the cartridge.
In dissent, Judge Moore would have reversed the Board for relying on the inventors’ disclosure of the problem solved by their invention as the primary basis for modifying the prior art and for failing to determine the level of ordinary skill in the art when the analogous art question was unclear. The dissent asserted that the majority was relying on hindsight reconstruction and speculation about a “potential” problem where there was no testimony or other evidence of a known leakage problem in prior art cartridges.
Patents / Patent Infringement Defenses - Estoppel and Laches
Diaper Maker’s Patent Claims Soiled by Delay
This case relates to adult incontinence products. The district court, based on a delay of more than six-years in filing the lawsuit, held that the patent owner’s suit was barred by both laches and equitable estoppel. The U.S. Court of Appeals for the Federal Circuit agreed that dismissal for laches was appropriate but, given the limited interactions between the parties, reversed the district court’s summary judgment as to equitable estoppel. SCA Hygiene Prods. AB v. First Quality Baby Prods., LLC, Case No. 13-1564 (Fed. Cir., Sept. 12, 2014) (Hughes, J.).
In October 2003, SCA sent a letter to First Quality putting First Quality on notice as to its possible infringement of SCA’s patent. First Quality responded that the patent was invalid and not infringed. In July 2004, SCA sought reexamination of the patent, and in March 2007 the U.S. Patent and Trademark Office (PTO) confirmed the patentability of the claims. SCA ultimately brought suit against First Quality in August 2010, three years after the reexamination, and more than six years after its 2003 infringement notice. According to SCA, it took three years after the reexamination to implement new management structures, evaluate outside counsel, and investigate potentially infringing products on the market.
After, the district court granted summary judgment to defendant based on laches and equitable estoppel, SCA appealed.
The Federal Circuit agreed with the district court as to its latches ruling, but faulted the district court estoppel analysis, noting that while laches leaves the “door open” for prospective relief, estoppel is “complete bar to a patentee’s infringement claim.”
Laches: As the Federal Circuit instructed, laches is an equitable defense to patent infringement that arises only when an accused infringer proves that a patentee unreasonably and inexcusably delayed filing an infringement suit to the material prejudice of the accused infringer. Delays exceeding six years are presumed to be unreasonable, inexcusable and prejudicial. The patentee can rebut these presumptions by producing contrary evidence. If so, the accused infringer must prove both elements of laches by a preponderance of evidence.
In the present case, the Federal Circuit concluded that the intervening ex parte reexamination did not toll the laches period and was not a reasonable excuse for the over six-year delay. The three-year delay after the reexamination was also not reasonable. Because First Quality had notice of SCA’s original claim and reexaminations are public proceedings, the Federal Circuit rejected First Quality’s argument that SCA was required to give notice of the reexamination. Nevertheless, SCA failed to rebut the presumption of unreasonable delay because it monitored First Quality since 2003, had a substantial corporate intelligence team, was represented by U.S. counsel and did not act promptly when the reexamination was concluded. The delay resulted in prejudice to First Quality, which had not only expanded its business but would have taken less risk if SCA had diligently pursued its claim. On these facts, the Court concluded that the district court did not abuse its discretion in finding an inexcusable delay that caused harm.
Equitable Estoppel: Equitable estoppel is a discretionary remedy that differs from laches. To establish an estoppel defense, a defendant must prove by a preponderance of the evidence, that the patent owner, through misleading conduct, led the alleged infringer to reasonably infer that the patent owner did not intend to enforce the patent against the alleged infringer; the alleged infringer relied on this conduct; and due to the reliance, the alleged infringer will be materially prejudiced if the patent owner is allowed to proceed on its claim. The passage of time alone does not create an estoppel.
The district court found that SCA’s 2003 notice to First Quality, followed by silence, was a misleading communication. The Federal Circuit disagreed, finding there was no clear duty for SCA to speak. The Federal Circuit reasoned silence and delay must be coupled with other factors, such that the conduct as a whole amounts to misleading inaction. Because SCA and First Quality had minimal interaction, the Federal Circuit reasoned that SCA’s silence did not constitute an admission that its patent was invalid, particularly when SCA sought reexamination. Thus, the Federal Circuit found there were genuine issues of fact whether SCA’s conduct was actually misleading and whether First Quality actually relied on such conduct that caused it harm. The case was remanded for reconsideration of First Quality’s estoppel defense.
Patents / International Trade Commission / Enforcement Proceedings
Patents / Motion to Transfer
Federal Circuit Grants Writ of Mandamus Ordering Transfer of Case *Web Only*
The U.S. Court of Appeals for the Federal Circuit granted a petition for a writ of mandamus and ordered the case transferred from the U.S. District Court for the Eastern District of Texas to the U.S. District Court for the Northern District of California, finding that the district court abused its discretion in denying a motion to transfer. In re Apple, Case No. 14-143 (Fed. Cir., Sept. 11, 2014) (per curiam) (Bryson, J., dissenting).
The defendant, Apple, filed a motion to transfer its patent infringement suit brought by the plaintiff, EON Corp. IP Holdings, the Eastern District of Texas to Northern District of California. The district court denied the motion, finding that the factors governing motions to transfer in the U.S. Court of Appeals for the 5th Circuit, on balance, did not favor transfer. Apple petitioned the Federal Circuit for a writ of mandamus, asking the Federal Circuit to order the district court to grant the motion to transfer. Petitions for writ of mandamus are reviewed for abuse of discretion.
EON is a non-practicing entity, thus it does not have any records related to corporate activities in Texas (the state where it is incorporated). The Federal Circuit found that while the law recognizes EON’s right to select its forum, the Supreme Court and Congress have determined that this right is not unfettered. In considering the convenience of the parties, the Court did not explicitly state that EON’s NPE status weighed in favor of transfer, but noted that EON did not have any documents or relevant witnesses in the Eastern District of Texas that would weigh against transfer.
The district court concluded that the compulsory process factor was neutral, as it only considered one witness who was located in the Northern District of California. However, Apple identified five other witnesses that the Northern District of California would have compulsory process over. The Federal Circuit concluded that the district court ignored the relevant evidence of these other witnesses and held that the compulsory process factor weighed heavily in favor of favor when the witnesses were considered.
The district court found that convenience of party witnesses favored transfer, as Apple identified eight party witnesses in the Northern District of California, whereas EON identified no witnesses in the Eastern District of Texas. The Federal Circuit agreed with this analysis and found that convenience of the witnesses heavily favored transfer.
The district court found that the judicial economy factor weighed heavily against transfer, as the Eastern District of Texas had previously construed claims of three of the four patents-in-suit, whereas the Northern District of California had only construed claims from one of the patents-in-suit. While the Eastern District of Texas would still have some cases involving the family of the patents-in-suit in transfer was granted, the Federal Circuit panel noted that multi-district litigation procedures exist to mitigate inefficiencies in situations where cases involving the same patents are filed in multiple districts. Accordingly, the Federal Circuit found that this factor should not weigh so heavily in favor of transfer, but rather should weigh only somewhat in favor of transfer.
In dissent, Judge Bryson criticized the majority for taking the balancing of factors and the assignment of weight of the factors out of the hands of the district court and into the hands of the Federal Circuit. The dissent argued that, at most, the Federal Circuit should remand the case to the district court to reconsider the factors that were ignored and not grant Apple’s motion to transfer.
In addition, the dissent criticized the majority for giving too much credit to Apple’s identification of third-party witnesses. Specifically, Apple failed to state that any of the third-party witnesses would not be willing to travel to Texas or state that the witnesses’ testimony would be important to the issues at trial. Without this information, the dissent argued that Apple failed to carry its burden to show the Northern District of California’s compulsory process over the third-party witnesses would be useful.
Patent / Stay Pending Post-Issuance Proceedings
No Collateral Attacks on Stay Decision Pending Completion of CBM Review
Addressing a motion to stay district court litigation pending a covered business method (CBM) review, the U.S. Court of Appeals for the Federal Circuit upheld a lower court’s ruling staying litigation, finding a district court should not review a determination by the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) that contested claims are more likely than not invalid in the posture of a ruling on a motion to stay. Benefit Funding Sys., LLC v. Advance Amer. Cash Advance Centers Inc., Case Nos. 14-1122; -1124; -1125 (Fed. Cir., Sept. 25, 2014) (Prost, C.J.).
Benefit Funding Systems asserted a patent against a group of defendants. Later, one of the defendants, U.S. Bancorp, filed a petition with the PTAB requesting CBM review of the asserted claims. After the PTAB instituted a CBM review on the sole basis of subject-matter eligibility under 35 U.S.C. § 101, the district court granted the defendant’s motion to stay. The plaintiffs filed an interlocutory appeal, which solely renewed an argument already presented at the district court, claiming the PTAB is not authorized to conduct a CBM review based only upon § 101, and consequently the district court would not be bound by the results.
The Federal Circuit affirmed the district court’s decision under a de novo standard of review, as provided by 35 U.S.C. § 18(b)(2), on the single argument presented on appeal. In only addressing this argument, the Court did not evaluate the four factors used to determine whether to grant a motion to stay, as specified by § 18(b)(1), but it noted that the district court had found that all four factors weigh in favor of granting the stay. In addition, the Court did not address the substantive merits of the plaintiff’s argument, because the Court found the argument to be an impermissible collateral attack.
The Federal Circuit stated that the stay determination is not the time or the place to review the PTAB’s decision to institute a CBM proceeding. Furthermore, the Court found the questioning of PTAB’s authority to conduct the CBM review in disputing an order staying the litigation is also an impermissible collateral attack. The Court went on to explain that a district court, in the context of a stay determination, need not and should not analyze whether the PTAB might, at some later date, be determined to have acted outside its authority in instituting and conducting the CBM review.
Patents / Appellate Jurisdiction
The Federal Circuit Denies Interlocutory Appeal in Licensing Dispute *Web Only*
Addressing a petition to take an interlocutory appeal stemming from a contract dispute, the U.S. Court of Appeals for the Federal Circuit exercised jurisdiction over the case, finding that it involved the issue of whether products infringed, but declined to grant interlocutory appeal. Jang v. Boston Scientific Corp., Case No. 14-134 (Fed. Cir., Sept. 16, 2014) (Linn, J.).
The plaintiff, Dr. G. David Jang, sued Boston Scientific in federal court for breach of a license agreement. The agreement required payment for every stent that practices a valid claim of the licensed patents. During the pendency of the district court case, the U.S. Patent and Trademark Office invalidated the asserted claims in reexamination. Boston Scientific moved for summary judgment, arguing that the Supreme Court’s Lear decision precludes damages in a licensing dispute when the licensed patents are invalidated. The court denied the motion, applying an exception that carves out royalties accrued up to the licensee’s first invalidity challenge. Boston Scientific successfully moved the court to certify the case for appeal and petitioned the Federal Circuit to consider an interlocutory appeal.
The Federal Circuit addressed whether jurisdiction is proper over this breach of contract action in view of the Supreme Court’s Gunn decision (IP Update, Vol. 16, No. 2). The Supreme Court in Gunn analyzed state court jurisdiction over a patent litigation malpractice claim. The plaintiff’s attorneys failed to timely raise an exception to the on-sale bar, and the patent was invalidated. The Supreme Court approved of the state court’s exercise of jurisdiction because the patent law issues were not substantial to the malpractice claim. The issues, limited to the specific facts and parties of that case, were backward-looking and hypothetical.
In contrast, the Federal Circuit found that, here, the patent issues were not “entirely” backward-looking or hypothetical. Infringement issues are forward-looking because they impact subsequently filed infringement actions. Multiple infringement suits create the potential for conflicting invalidity rulings. Inconsistent judgments from appeals of these cases between a regional circuit and the Federal Circuit would result in “serious uncertainty” for parties who later face the same patent in the regional circuit. Preventing this harmful result is important to the federal system as a whole. Accordingly, the Court distinguished Gunn and found that it had jurisdiction.
However, the Federal Circuit rejected Boston Scientific’s argument that the PTO’s cancelling of the claims precludes any forward-looking harm. Jurisdiction is measured at the time the complaint was filed, a time when the claims were presumed valid.
The Federal Circuit considered the request for an interlocutory appeal. The Court denied the petition for the rarely granted relief because a decision on the legal issues would not necessarily be controlling and because the decision hinges on factual issues not yet addressed below.
Patents / Subject Matter Eligibility
Computer-Implemented Business Transaction Claim Must Describe an “Inventive Concept” to Be Patent Eligible *Web Only*
Addressing subject matter eligibility of claims purporting to apply abstract mental processes directed to business transactions using computers, the U.S. Court of Appeals for the Federal Circuit affirmed the dismissal of the patentee’s method claims, finding the claims drawn to ineligible subject matter after finding a lack of “inventive concept” in any asserted claims. buySAFE, Inc. v. Google, Inc., Case No. 2013-1575 (Fed. Cir., Sept. 3, 2014) (Taranto, J.). The same day, Judge Bryson, sitting by designation in the U.S. District Court for the Eastern District of Texas, dismissed a patentee’s transaction-based system and composition claims for the same reasons. Loyalty Conversion Systems Corp. v. American Airlines, Inc., Case No. 2:13-CV-655 (E.D. Tex., Sept. 3, 2014) (Bryson, Cir. J., sitting by designation).
The alleged inventions in buySAFE were directed to methods and machine-readable media encoded to perform steps for guaranteeing a party’s performance of its online transaction. In analyzing the claims, the Court acknowledged the general categories of subject matter ineligibility: claims drawn to of laws of nature, natural phenomena and abstract ideas. But, the Court emphasized that “Section 101 also excludes the subject matter of certain claims that by their terms read on a human-made physical thing (machine, manufacture, or composition of matter) or a human-controlled series of physical acts (process) …” For example, “[s]uch a claim falls outside section 101 if (a) it is ‘directed to’ matter in one of the three excluded categories and (b) ‘the additional elements’ do not supply an ‘inventive concept’ in the physical realm of things and acts—a ‘new and useful application’ of the ineligible matter in the physical realm—that ensures that the patent is on something ‘significantly more than’ the ineligible matter itself.” For purposes of analysis, “[t]his two-stage inquiry requires examination of claim elements ‘both individually and ‘as an ordered combination.’”
The Federal Circuit in buySAFE found that the claimed functionality of a computer receiving a request for a guarantee and transmitting an offer of guarantee in return with no further specification “is not even arguably inventive.” Instead, it is “[a]t best, [a] narrowing [that] is an ‘attempt to limit the use’ of the abstract guarantee idea ‘to a particular technological environment,’ which has long been held insufficient to save a claim in this context.”
In Loyalty Conversion Systems, the asserted claims from two patents were directed to a system by which non-negotiable credits earned in an awards program (such as airline frequent flyer miles or hotel loyalty award points) can be converted into credits that can be used to purchase goods or services from a vendor other than the issuing entity, and a graphical user interface, such as a website, for performing such a conversion. The court found that the claimed inventions were not fundamentally different from the kinds of commonplace financial transactions that were the subjects of the Supreme Court’s Bilski and Alice (IP Update, Vol. 17, No. 7) decisions and that the claims contained only functional limitations of the abstract idea. The court found the claims did not provide detail describing how the functions associated with the conversion process are performed and that there is no suggestion that those functions are performed in any novel or unusual manner rather than routine functions that can readily be performed by a generic computer with conventional programming. The court similarly dismissed the dependent claims finding that they added nothing of substance to the basic currency-conversion concept other than to provide that the steps of the currency conversion are performed by computers or various components thereof with enhanced speed and convenience.
The court further eschewed the claims for their preemptive effect caused by the broad functional limitations. The court found that although the field of use is narrow—the conversion of one entity’s loyalty award points into those of another entity—the preemptive effect of Loyalty’s claims within that field of use is broad. That is, all that is disclosed is the ultimate objective. The court found that there was no disclosure of the precise method by which the computer performs those functions. As a result, the claims would read on virtually any computerized method of performing that function, even if the method used were quite different from any conventional computer-based means. For that reason, the court found that the asserted claims have the potential to foreclose future innovation disproportionately “relative to the contribution of the inventor.”
The court provided a general characterization of patents similar to those asserted in Loyalty that would not be eligible for patenting noting that patent claims are not eligible if they recite methods for performing a commonplace business function—such as currency conversion, hedging or employing intermediated settlement in a financial transaction—typically by using a computer system or computer components to perform those methods; if they are aspirational in nature in that they describe the business function, but do not describe any novel manner of performing that function other than referring to the use of routine operations performed by a specially programed computer; and if the recitations referring to the use of a computer do not include any inventive measure that “purport[s] to improve the functioning of the computer itself.” The court described that the principal flaw in these patents is that they do not contain an “inventive concept” that solves practical problems and ensures that the patent is directed to something “significantly more than” the ineligible abstract idea itself.
America Invents Act
AIA / "Informative" Decisions
PTAB Designates Seven Recent Decisions as Informative
The Patent Trial and Appeal Board (PTAB) recently designated seven decisions from inter partes review (IPR) proceedings as informative opinions: ZTE Corp. v. ContentGuard Holdings, Inc., Case No. IPR2013-00454 (PTAB, Sept. 25, 2013) (Kim, APJ); Intelligent Bio-Systems, Inc. v. Illumina Cambridge Limited, Case No. IPR2013-00324 (PTAB, Nov. 21, 2013) (Crumbley, APJ); Medtronic, Inc. v. Robert Bosch Healthcare Systems, Inc., Case No. IPR2014-00436 (PTAB, June 19, 2014) (Quinn, APJ); Unilever, Inc. v. Proctor & Gamble Co., Case No. IPR2014-00506 (PTAB, July 7, 2014) (Obermann, APJ); Prism Pharma Co., Ltd. v. Choongwae Pharma Corporation, Case No. IPR2014-00315 (PTAB, July 8, 2014) (Yang, APJ); Unified Patents, Inc. v. Personal Web Technologies, LLC and Level 3 Communications, LLC, Case No. IPR2014-00702 (PTAB, July 24, 2014) (Zecher, APJ); and Medtronic, Inc. v. Nuvasive, Inc., Case No. IPR2013-00487 (PTAB, Sept. 11, 2014) (Green, APJ).
In all of these opinions, denied institution under 35 U.S.C. § 325(d), which states: “In determining whether to institute or order a preceding under . . . chapter 31, the Director may take into account whether, and reject the petition or request because, the same or substantially the same prior art or arguments previously presented to the Office.”
In ZTE Corp. v. ContentGuard Holdings, Inc. (IP Update, Vol. 17, No. 8) the petitioner filed a petition against claims in a patent for which it had previously filed an IPR petition. The earlier IPR petition sought review of all claims of the challenged patent, but the Board instituted review on just a subset of the claims. ZTE filed the second petition to challenge the claims not under review in the first IPR. While the second petition was not timely under 35 U.S.C. § 315(b), ZTE filed it with a motion for joinder of the proceeding with the first IPR proceeding. The motion for joinder was denied however, because the earlier proceeding was terminated as the patent owner had filed a request for, and was granted, adverse judgment.
In Intelligent Bio-Systems, Inc. v. Illumina Cambridge Limited (IP Update, Vol. 17, No. 9) the petitioner filed a petition seeking review of all claims of the challenged patent. In an earlier, co-pending IPR proceeding, the Petitioner had sought review of all claims of the same patent. The second petition was filed because the petitioner became aware of the relevance of certain prior art only after the filing of the first petition. The Board found that the second petition presented the same or substantially the same prior art and arguments as the first. In the first proceeding, the patent owner filed a non-contingent motion to amend the claims, which requested cancellation of claims 1-8 and entry of substitute claims. The Board noted that because the patent owner had submitted the new prior art as part of its motion to amend claims, that prior art would be considered by the Board in the first proceeding.
In Medtronic, Inc. v. Robert Bosch Healthcare Systems, Inc. the petitioner sought review of the same patent that its recently acquired entity, Cardiocom, had challenged in a prior IPR proceeding. The Board denied two of Medtronic’s obviousness-based grounds as being the same or substantially the same as those in the earlier IPR. The remaining grounds were rejected because the Board discerned that there was insufficient evidence of a reasonable rationale for the combination of prior art.
In Unilever, Inc. v. Proctor & Gamble Co. the Board denied Unilever’s IPR petition because each ground alleged obviousness over one or more prior art references raised in an earlier petition filed by Unilever for the same patent. The Board found that the later petition was essentially an attempt to cure the grounds in the first petition which were not instituted: “the instant Petition uses our prior Decision on Institution to bolster challenges that were advanced, unsuccessfully, in the [earlier] Petition.”
In Prism Pharma Co., Ltd. v. Choongwae Pharma Corporation the Board denied institution because the cited prior art had been considered during the original prosecution of the challenged patent. The petitioner, who was a co-inventor of the challenged patent, had filed his own application containing similar subject matter as the challenged patent. In at least two declarations submitted by the petitioner in support of his challenge, the petitioner explained how his published application anticipated the challenged patent. The Board noted that ultimately the examiner and the examiner’s supervisor concluded that the claims were patentable over that reference.
In Unified Patents, Inc. v. Personal Web Technologies, LLC and Level 3 Communications, LLC, the Board denied the petition based on co-pending IPR proceedings initiated by third parties against the same patent. The petitioner’s grounds of invalidity were based on a single prior art reference, and each of the prior proceedings presented grounds of unpatentability based on the same piece of prior art for many of the claims. The Board noted that in one of the prior proceedings, the patent owner had appealed the Board’s decision that most of the challenged claims were unpatentable to the Federal Circuit and, further, that all of the challenged claims were under review in the other proceeding.
In Medtronic, Inc. v. Nuvasive, Inc. the Board denied the petition as essentially being an attempt to cure a previous petition for which institution was denied. The Board also noted that another prior petition filed by the petitioner against the same patent involved all of the challenged claims in the petition.
Practice Note: The designation of these opinions as “informative” is a signal that the PTAB will, when possible, avoid duplicating review of the same art or arguments previously submitted for a given patent. The opinions also make clear that petitioners seeking to further challenge claims for which institution was initially unsuccessful should not expect to be able to rehabilitate the initial grounds by simply substituting new prior art for old. More meaningful changes, such as relying on new primary references, will be needed to avoid an invocation of 35 U.S.C. § 325(d).
AIA / CBM / Subject Matter Eligibility
Method Implemented on Generic Computers Is Not Patent Eligible, but Method for Processing Paper Checks Is
In a pair of covered business method (CBM) decisions, the U.S. Patent and Trademark Office Patent Trial and Appeal Board (PTAB or Board) illustrated what types of business-method patents are directed to patent-eligible subject matter and which are not. The PTAB has now determined that a patent directed toward managing a collaborative activity was not patent-eligible because it did not require a specialized computer, and could instead be implemented on any generic computer. Salesforce.com, Inc. v. VirtualAgility, Inc., Case No. CBM2013-00024 (PTAB, Sept. 16, 2014) (Braden, APJ). In contrast, the PTAB determined that the basic, core concept of a patent for processing paper checks was directed to patent-eligible subject matter. U.S. Bancorp v. Solutran, Inc., Case No. CBM2014-00076 (PTAB, Aug. 7, 2014) (Bunting, APJ).
Both of these PTAB decisions applied the recent Supreme Court opinion in Alice (IP Update, Vol. 17, No. 7) that tightened up the test for subject matter eligibility. Under Alice, the first step in a § 101 analysis to determine whether the patent falls into one of the three categories of patent-ineligible subject matter: “laws of nature, physical phenomena, and abstract ideas.” Both the Salesforce and Bancorp decisions focused on the “abstract idea” category. If the patent falls within one of the three categories, the second step is to identify an “inventive concept,” an element or combination of elements that directs the patent toward more than just the abstract idea itself. In both Salesforce and U.S. Bancorp, the PTAB applied the two-step Alice test, but arrived at opposite conclusions.
In Salesforce the PTAB explained it will not accept (as patent-eligible) patent claims directed to an abstract business idea implemented on “a generic computer [that] perform[s] generic computer functions.” The challenged patent claims were directed toward managing a collaborative activity by using a computer database filled with various types of data related to a company—such as customer information and economic data—so that a user could sort the information to show how best to allocate company resources.
Applying the first Alice step, the PTAB determined that the Salesforce patent was directed toward an abstract idea: “[t]he creation and use of models to aid in processing management information” was a “disembodied concept” not tied to a specialized computer and was therefore just an abstract idea. The patent failed the second part of the Alice analysis for a similar reason. The PTAB determined that a generic computer was not an “inventive concept” that would narrow the claims to cover less than the abstract idea. Although the patent owner argued that its invention required “a specialized computer that is programmed to execute a series of steps,” the PTAB explained that a conventional, generic computer could perform the patent’s steps.
In contrast, in U.S. Bancorp, the PTAB determined that even if some steps of a business-method patent are directed toward abstract ideas, the proper is focused on the “basic, core concept” of the challenged patent and claims directed toward a physical invention are subject matter-eligible. The petitioner’s mistake was arguing for subject matter ineligibility based on discrete parts of the patent claims, instead of focusing on the invention as a whole.
The challenged patent was directed toward a system and method for processing paper checks, using check data to promptly make a deposit into a merchant’s account and then creating a check image to match with the check data. U.S. Bancorp argued that none of the limitations were directed toward any technological improvement in scanning, and none of the other limitations were anything other than abstract ideas. The PTAB, however, determined that the “basic, core concept” of the patent was a method of processing paper checks. On the spectrum of “abstract ideas,” which are not patent eligible, and “technological processes,” which are, the PTAB found the invention was closer to a technological process and was therefore directed toward patent-eligible subject matter. Notwithstanding that certain discrete claim limitations were directed toward fundamental economic practices, it remained the case that the concept of receiving and depositing paper checks was a physical, and therefore patent-eligible, invention. As the Board explained, it is a patent’s claims’ basic, core concept that must be found patent-eligible, not each claim element. Here, the PTAB determined that § 101 subject matter eligibility was not an appropriate ground on which to institute a covered business method patent review.
AIA / IPR / Timeliness / Joinder
Divided PTAB Panel Denies Issue Joinder as a Matter of Law
Interpreting the statutory provision regarding the one-year time limitation and joinder of parties, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) issued a divided 3-2 expanded panel decision denying petitioner’s petition as barred by the one-year time limitation and denying petitioner’s motion for joinder as a matter of law, finding that 35 U.S.C. § 315(c) permits joinder of parties, but precludes joinder of issues raised by the same party. Target Corp. v. Destination Maternity Corp., Case No. IPR2014-00508 (PTAB, Sept. 25, 2014) (Fitzpatrick, APJ) (Green, APJ, dissenting).
The patent owner, Destination Maternity, sued petitioner Target in district court for infringement of its patent. Within the allotted one-year time limitation, petitioner filed two IPR petitions seeking invalidation of all of the claims of the patent. The PTAB instituted both IPR petitions on all but one of the challenged claims.
Section 315(b) provides an exception to the time bar, stating that the one-year bar does not apply to a request for joinder under § 315(c), which allows the PTAB to join “any person who properly files a petition” in an instituted IPR. After the lapse of the time bar, petitioner filed a third IPR petition concurrent with a joinder motion under § 315(c) requesting that the third petition be joined with its prior two petitions. The third petition presented new prior art disclosed in a corresponding foreign prosecution, the “new” prior art was previously unknown to the petitioner due to the patent owner’s failure to timely provide the material during discovery in the co-pending litigation. The new prior art was directed to the subject matter of previously excluded claim, as well other claims of the patent.
The PTAB denied institution of the third IPR as untimely and denied the joinder motion, concluding as a matter of law that § 315(c) unambiguously prohibits joinder of petitions or issues. The PTAB found that, while § 315(c) does allow a party to join an instituted IPR, it does not permit a party to circumvent the prohibition of issue joinder by seeking to join an instituted IPR in which it is already a party. The PTAB found that its interpretation was harmonious with the plain language of § 315(b)’s time bar, preventing a time-barred party from filing a petition for IPR regardless of whether it requests joinder under § 315(c). Such time-barred petitioners may join instituted IPR proceedings, but are limited to the grounds authorized in the IPR. The PTAB acknowledged a number of contrary PTAB decisions granting issue joinder under § 315(c) (e.g., Ariosa Diagnostics v. Isis Innovation Ltd., Case No. IPR2012-00022), but stated that it reached a different conclusion. According to the PTAB, its interpretation of § 315(c) and § 315(b) reduces the burden on the PTAB’s resources by restricting the scope of joinder.
The two-judge dissent argued that the majority’s denial of joinder based solely on statutory construction was improper because neither party briefed the issue. It then presented its own statutory construction, first pointing to the contrary PTAB decisions identified by the majority. The dissent argued that the majority read out the term “any” from § 315(c) by excluding joinder of the same petitioner to an instituted IPR review. Further, although § 315(c) textually only provides joinder of “any party,” related statutory language in 35 U.S.C. §§ 311, 312 and 314 clearly contemplate issue joinder because the merits of a petition must be considered to determine whether joinder is proper. The dissent further argued that legislative history, particularly comments by Senator Jon Kyl, support liberal joinder of a party “and its new arguments” to an instituted IPR. Finally, issue joinder under § 315(c), according to the dissent, is in line with PTO policy goal of 35 U.S.C. § 316 to ensure “just, speedy, and inexpensive resolution of a proceeding.”
IPR Clock Runs Until Allegations Are Nullified *Web Only*
Addressing the issue of when a defendant’s one-year window to petition for inter partes review (IPR) expires after being served with a patent infringement complaint, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) found that a defendant’s petition for IPR was barred as untimely under 35 U.S.C. §315(b) because, even though the case had been stayed and ultimately dismissed, the defendant had been served with a complaint alleging infringement of the petitioned patent more than one year before petitioner filed its petition. Histologics, LLC v. CDx Diagnostics, Inc., IPR2014-00779 (PTAB, Sept. 12, 2014) (Kamholtz, APJ).
Although the service was in a case that had been stayed for nine months and was ultimately dismissed, the allegations of the original complaint were never nullified—thus preventing the defendant from returning to the same position it held before the complaint’s filing. Therefore, the one-year clock continued to tick.
The patent owner, Shared Medical Resources (SMR), filed a complaint for patent infringement against defendant, Histologics (the first action). In response to Histologics’s motion for dismissal for lack of standing, the court stayed the case because a patent co-owner, CDx Diagnostics, had not been joined and could not be joined until it completed bankruptcy proceedings. Later, SMR and CDx filed a new complaint against Histologics for infringement of the same patent in another district court (the second action). The two actions were later consolidated. After consolidation, the first action was dismissed, leaving the second action pending and inclusive of the original allegations from the first case.
Subsequently, the petitioner petitioned for IPR, and the patent owners argued that the one-year limitation under 35 U.S.C. § 315(b) had already expired. The PTAB agreed, explaining that the first action had only been stayed, not dismissed, and that, although the first action was eventually dismissed, it was combined with the second action, keeping the original allegations above. Therefore, the petitioner remained continuously engaged in litigation based on the original filing since the complaint had been filed. Because the dismissal had not placed the defendant back to the legal position from before the original filing had been served, the original complaint had never been nullified and the one-year time limit had run out.
Too Much Incorporation By Reference Dooms IPR Petition
In a decision issued by the Patent Trial and Appeal Board (PTAB or Board), the Board denied institution of inter partes review (IPR) of several challenged claims of the patent at issue, determining that the information provided in the petition itself did not demonstrate a reasonable likelihood that the petitioner would prevail. Cisco Systems, Inc. v. C-Cation Technologies, LLC, Case No. IPR2014-00454 (PTAB, Aug. 29, 2014) (Droesch, APJ).
The patent at issue generally relates to two-way communication services on a multiple access communication system. The system in question is comprised of a central controller, a shared transmission media and multiple remote terminals dispersed throughout a network.
In its petition, the petitioner contended that 20 separate claims were unpatentable under 35 U.S.C. §§ 102 and 103. In making its arguments, the petitioner utilized numerous footnotes to cite back to its expert declaration. In examining the petition, the PTAB first looked to the propriety of the petitioner’s use of these footnotes.
The PTAB noted that the petitioner was using footnotes as a way to cite large portions of the declaration into its petition. For one particular limitation, the petition footnote cited to a paragraph of the expert declaration that consisted of nearly five pages, four pages of which were a claim chart. The petition further cited to the declaration in order to support conclusory statements for which the petition did not otherwise provide an argument or explanation. Ultimately, the PTAB determined that the petitioner’s use of footnotes amounted to incorporation by reference. In denying the request to institute inter partes review, the PTAB explained that it is improper to incorporate by reference arguments from one document to another. Such practices are prohibited because incorporation by reference “amounts to a self-help increase in the length of the brief, and is a pointless imposition on the court’s time.” The PTAB noted that the petitioner’s incorporation by reference of numerous arguments served “to circumvent the page limits imposed on petitions” and “impos[es] on our time by asking us to sift through over 250 pages of [the expert declaration] to locate specific arguments corresponding to the numerous paragraphs cited to support Petitioner’s assertions.” As such, the PTAB determined that it would not consider arguments that were not made in the petition, but were rather incorporated by reference.
The PTAB denied the request to institute, finding that without the incorporation by reference, and because the petition did not include a detailed explanation of the significance of the evidence cited, the petitioner did not demonstrate a reasonable likelihood that it would prevail.
Practice Note: Use footnotes strategically and sparingly.
Specificity Key in IPR Petitions
In two separate but related written decisions, the Patent Trial and Appeal Board (PTAB or Board) denied institution of inter partes review of two related patents, concluding that the petitioner had not established a reasonable likelihood of prevailing with respect to at least one challenged claim of the patents. The PTAB further denied the petitioner’s request for rehearing, finding that the Board did not overlook the petitioner’s arguments when denying institution of inter partes review. TRW Automotive US LLC v. Magna Electronics Inc., Case Nos. IPR2014-00257 (PTAB, June 26, 2014) (Gerstenblith, APJ); IPR2014-00259 (PTAB, June 26, 2014) (Gerstenblith, APJ); IPR2014-00259 (PTAB, Aug. 28, 2014) (Gerstenblith, APJ).
The patents at issue relate generally to photosensor arrays used in vehicles to identify and capture images in line with the vehicle’s primary direction of travel. The photo array further utilizes light signal information to determine whether there are headlights or tail lights in the driver’s forward field of view so as to automatically control the vehicle’s headlight beam level, thus minimizing annoyance or debilitation of other drivers. The petitioner filed its IPR petitions challenging several similar claims in the patents after the patent owner brought an infringement lawsuit against the petitioner.
The PTAB noted that, when reviewing the validity of a patent, the Supreme Court and Federal Circuit agreed that any analysis of interrelated or combined teachings and the background knowledge of a person of ordinary skill in the art “should be made explicit” and that “rejections on obviousness grounds cannot be sustained by mere conclusory statements; instead, there must be some articulated reasoning with some rational underpinning to support the legal conclusion of obviousness.”
The petitioner pointed to several prior art references that, it argued, when combined would have rendered the challenged claims obvious. In response, the patent owner argued that the petitioner had failed to articulate a single reason why a person of skill in the art would have thought to combine the references, or even why a person of skill in the art would have believed that the references could even operate once combined. Therefore, the patent owner contended that the petitioner had “failed to provide and support sufficient obviousness rationales in view of the Supreme Court’s KSR decision” and could not meet the threshold showing that it was likely to prevail in its grounds of obviousness.
The PTAB agreed with the patent owner, noting that the petitioner “fail[ed] to provide a sufficient reason with rational underpinning as to why one of ordinary skill in the art would have been prompted to combine the teachings [of the references] to achieve the claimed systems.” As such, the PTAB determined that the petitioner had not demonstrated a reasonable likelihood that the challenged claims were unpatentable.
The petitioner here failed to heed a very important rule: “[a] petition for inter partes review must explain specifically how the construed claim is unpatentable, and specify where each element of the claim is found in the prior art.”
Though the petitioner filed a request for rehearing, claiming that the PTAB had abused its discretion in denying institution of inter partes review, the request was denied. The PTAB noted that such a request “must identify, specifically, all matters the party believes the Board misapprehended or overlooked.” The PTAB explained that, for each argument that the petitioner claimed was overlooked by the Board, the petitioner had not raised the argument in its petition and that the PTAB could not overlook an argument that was never raised. Thus, arguments and further explanation may not be raised for the first time on rehearing.
Choose Your Battles Before the PTAB – 49 Basis Is Just Too Many!
In a combined decision of three inter partes review (IPR) proceedings issued by the Patent Trial and Appeal Board (PTAB or Board), the Board declined institution inter partes review of 31 claims of a challenged patent in two out of three separate but related IPR petitions, noting that the petitioner cited no fewer than 49 grounds for unpatentability across the three petitions. The PTAB did institute IPR proceedings for the third petition. Canon Inc. v. Intellectual Ventures I LLC, Case Nos. IPR2014-00535, IPR2014-00536, IPR2014-00537 (PTAB, Sept. 24, 2014) (Boucher, APJ).
The patent at issue describes scanning circuit structures for scanners that have the capability to reduce distortion during high-speed image signal transmission.
The PTAB began its decision by examining the first of the three related petitions. The Board determined that the petitioner had sufficiently demonstrated a reasonable likelihood of prevailing on the majority of challenged claims and granted institution of inter partes review. However, the Board declined to institute IPR proceedings on several additional grounds asserted by the petitioner, noting that it was “not convinced that these various combinations add substantively to the grounds on which we institute.”
The petitioner filed two additional, related petitions challenging the patentability of all claims of the patent at issue. As the PTAB noted in its decision, the petitioner asserted multiple challenges to each claim of the patent across all three filed petitions, yet failed to “address the duplicative nature of its arguments across petitions.” Further, the petitioner relied on the same expert declaration to provide support for all three of its petitions and made no effort to distinguish between the petitions. As such, the expert declaration was “generic, i.e., it is not specific to any one of the proceedings, but instead presents five alternative combinations of prior art.” The generic approach taken by the petitioner’s expert convinced the PTAB that all three petitions should be considered together as a single petition. The PTAB accordingly denied institution of inter partes review for two of the petitions.
Practice Note: When filing multiple petitions requesting inter partes review, be sure that each ground for unpatentability is sufficiently supported on its own. Using a generic approach across multiple grounds will likely succeed only in annoying the PTAB. When in doubt, do some arithmetic and recall the Boards’ admonition at asserting 49 grounds is way too much.
AIA / IPR / Evidentiary Objections (Timeliness)
Timeliness – The Devil Is in the Details (a.k.a. Rules)
In an order issued by the Patent Trial and Appeal Board (PTAB or Board), the Board expunged exhibits from the records of five related cases on the basis of timeliness. GEA Process Engineering, Inc. v. Steuben Foods, Inc., Case Nos. IPR2014-00041, IPR2014-00043, IPR2014-00051, IPR2014-00054, IPR2014-00055 (PTAB, Sept. 29, 2014) (Elluru, APJ).
In post-grant proceedings, it is important to note that there are two different deadlines for objecting to evidence. Prior to institution, a patent owner is required to object to evidence submitted to the PTAB with the petition within 10 business days of institution of a trial. Once the trial has begun, i.e., after institution, a party seeking to object to the introduction of evidence or an exhibit must raise its objection within five business days of service of the evidence or exhibit. The objections should be served on the offering party and not filed with the PTAB.
In GEA Process Engineering v. Steuben Foods, following the institution of trial, the petitioner filed what it characterized as exhibits entitled “Petitioner’s Objections” to the patent owner’s evidence. However, the PTAB expunged the exhibits from the records of all five cases. As the Board explained, the applicable rule, 37 C.F.R. § 42.64(b)(1), requires that “[o]nce a trial has been instituted, any objection [to evidence] must be served within five business days of service of evidence to which the objection is directed.” As such, the petitioner’s filing its objections to the patent owner’s evidence, at the Board was improper—a potentially costly mistake.
AIA / IPR / Motion for Additional Discovery
Specificity and Negotiation Are the Buzz Words for IPR Discovery
Addressing a patent owner’s request for additional discovery, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (Board) denied the patent owner’s request and instructed the parties to resolve future discovery disputes on their own. Square, Inc. v. REM Holdings 3, LLC, Case No. IPR2014-00312 (PTAB, Sept. 15, 2014) (Bisk, APJ.).
The patent owner, REM Holdings, sued the petitioner, Square, for infringement of a patent directed to a magnetic card reader that interfaces with a mobile device to take credit card payment information. The Board instituted inter partes review (IPR) of the patent based on the petitioner’s arguments that the challenged device and method claims were rendered obvious by multiple references. The Board authorized the patent owner to seek limited discovery of secondary considerations of non-obviousness.
The patent owner requested discovery related to, among other things, the design, manufacture, costs and distribution of the card reader device, importance of the device in acquiring investors and customers, number of customers, transactions and revenue, and various communications and engineering-related documents. The Board found that, while the patent owner was entitled to some sales information related to the device, the discovery request was unduly broad and burdensome to the petitioner, denied the request and remanded the issue to the parties to try to come to an accord as to a reasonable amount of discovery.
The parties again found themselves in disagreement over a second set of discovery requests related to, among other things, the commercial success of the challenged method claims, including the estimated dollar value of credit card transactions processed by the petitioner. The Board denied the second request because, in part, the patent owner did not provide any evidence that the petitioner practiced the claimed method, or that demonstrated a nexus between the alleged commercial success and the method claims. Instead, the patent owner compared petitioner’s card reader to the device claims and concluded that the petitioner infringed the method claims. The patent owner was required to show more than a possibility or mere allegation that the discovery request would result in the missing evidence for the claims at issue. The Board also found that the patent owner failed to follow the Board’s previous instructions to limit the discovery requests (including excluding requests for publicly available information). The Board again instructed the parties to make reasonable efforts to resolve discovery disputes on their own, with the caveat that any further request to involve the Board should include a report of why an agreement could not be reached.
AIA / IPR / Mandatory Notice
Parties Must “Meet and Confer” Before Requesting Conference Call *Web Only*
In an order involving two related inter partes reviews (IPRs), the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or the Board) denied a patent owner’s request to dismiss the petition on the grounds that petitioner had substantive and procedural errors in its Mandatory Notices and ordered the parties to make reasonable efforts to meet and confer before involving the Board by way of conference calls. Metrics, Inc. v. Senju Pharmaceutical Co., Ltd., Case Nos. IPR2014-01041 and -01043 (PTAB, Sept. 9, 2014) (Obermann, APJ).
In accordance with the Board Trial Rules and Practice Guide, the Board “encourages the use of conference calls to raise and resolve issues in an expedited manner.” The Rules, however, do not require the parties to meet and confer on issues before requesting a conference call. Here, the patent owner requested a conference call and requested that the board deny the IPR petition because the petitioner’s Mandatory Notices had substantive and procedural errors warranting dismissal. The Board denied the request, noting that dismissal was not warranted under the circumstances.
Going forward, the Board directed the parties to meet and confer to resolve disputes such as this before involving the Board. Specifically, with respect to any newly requested conference calls, the Board instructed that any email requesting a call must “include a certification that the meet-and-confer has taken place, or a full statement explaining why a meet-and-confer has not taken place, or a full statement explaining why a meet-and-confer could not take place prior to involving the Board.” The Board further explained that the email should “describe the nub of the dispute” with appropriate “facts and authority.”
PTAB Clarifies Permissible Use of Documents and Evidence *Web Only*
K. Nicole Clouse, PhD
In two recent inter partes review (IPR) proceedings, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) addressed the scope of permissible use of documents not included in the cited evidence of record, finding in one case the use was permissible because while the document was not cited it could still be within the scope of the deponent’s direct testimony and finding in the other case the use to be impermissible because it constituted a new document(s) that would prejudice petitioner. Medtronic, Inc. v. Endotach, LLC, Case No. IPR2014-00100 (PTAB, Aug. 28, 2014) (Fitzpatrick, APJ); TriVascular, Inc. v. Samuels, Case No. IPR2013-00493 (PTAB, Sept. 2, 2014) (Kamholz, APJ).
In the Medtronic case, the PTAB clarified the scope of documents that a party is permitted to use when cross-examining an expert witness. The patent holder objected to the petitioner’s cross-examination of the patent holder’s expert witness because the petitioner used documents that were not cited in the expert’s declaration. The PTAB overruled the objection, noting that the applicable rule only limits cross-examination to the scope of direct testimony, not to the specific documents cited or discussed in the witness’s expert declaration. As such, “[t]he fact that a document is not cited or discussed in a declaration is not dispositive,” and what matters is whether the line of questioning is consistent with the scope of the direct testimony.
In the TriVascular case, the PTAB explained that demonstrative exhibits must precisely reflect content found in the evidence of record. The PTAB sustained the petitioner’s objections to demonstratives in which the patent owner had made modifications to the evidence of record. For example, the patent owner had animated figures from the patent, added and removed reference numbers in another figure from the patent and provided text that was paraphrased from text found in the record. The PTAB instructed the patent owner to replace those particular demonstratives with content that was an “exact reproduction” of the evidence of record.
The PTAB did not, however, provide the patent owner with an opportunity to provide a replacement demonstrative when the objectionable content was not so clearly traceable to the evidence of record. In one instance, the patent owner submitted an animation that allegedly “visually replicate[d] its arguments concerning inflation of the claimed stent.” The Board found that content was not a mere modification of evidence existing in the record and could not be replaced.
Finally, the PTAB overruled the petitioner’s objections to a demonstrative which contained content that was reproduced exactly from record evidence, but that was allegedly not otherwise “cited or relied upon” by the patent owner. In that instance, the PTAB held that whether a party actually relies upon evidence is immaterial to the question of admissibility, but instead, goes to whether or not the PTAB will consider the evidence in reaching its final decision.
Practice Note: In IPR proceedings, parties may cross-examine expert witnesses using documents not cited or relied upon in the expert’s declaration, so long as the line of questioning falls within the scope of the direct examination. Parties have less flexibility with respect to use of demonstrative exhibits, however, which must include “exact reproductions” of evidence of record. Demonstratives may be admissible even if the party did not otherwise cite or rely on the particular evidence in the demonstrative.
AIA / IPR / Cross Examination
IPR Depositions: Civility and Decorum Must Prevail
Joseph Speyer, PhD
In an order regarding deposition conduct and decorum, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) granted patent owner’s request for additional cross examination, ordering additional deposition hours and limiting counsel’s objections when the deponent was dilatory and both parties’ counsel lacked the required courtesy and decorum. Finjan, Inc. v. FireEye, Inc., IPR Case No. IPR2014-00344 (PTAB, Sept. 18, 2014) (Ippolito, APJ).
The patent owner, FireEye, alleged that the deponent was evasive and dilatory and that the petitioner’s counsel made inappropriate, suggestive objections. The petitioner, Finjan, asserted that the deponent only paused to diligently consult his lengthy declarations and that the objections were in response to deeply flawed questions.
The PTAB found that an additional seven hours of deposition time was warranted. The PTAB noted that the deponent took long pauses before answering questions several times and that the deponent’s two declarations each exceeded 300 pages.
The PTAB also observed both parties’ counsel lacked the required courtesy and decorum expected at a deposition. The PTAB ordered the parties to refrain from interrupting each other or the deponent in future depositions and ordered the parties’ counsel not to make suggestive objections or statements, noting that objections should be limited to a single word or term (e.g., “objection, form”).
AIA / IPR / CBM / Claim Construction / Fraud / Sanctions
PTAB Does Not Rely on District Court’s Markman Decision in Construing Claim Terms
Addressing allegations of impropriety of district court judges that purportedly led to a “tainted” claim construction ruling, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) denied patent owner’s request to stay inter partes review (IPR) and covered business method (CBM) review pending a review by the Inspector General, finding, in part, that the PTAB need not rely on Markman rulings from a district court, at least in part, because the standards for claim construction are different. SAP America, Inc. v. Arunachalam, Case IPR 2013-00194; -00195 and CBM2013-00013 (PTAB, Sept. 18, 2014) (McNamara, APJ).
The patent owner, Dr. Lakshmi Arunachalam, owned a patent directed to a web application network portal. SAP America filed two IPR petitions and a CBM patent review petition. In response, Dr. Arunachalam argued that, in the related district court cases, the judges failed to disclose a financial conflict of interest. According to Dr. Arunachalam, the judges’ failure irreparably tainted the judges’ Markman order “upon which the Office relies in the reexamination decision.” The PTAB disagreed with Dr. Arunachalam, taking the position that the PTAB cannot and did not rely on the district court’s Markman order because the standard for claim construction at the PTAB and at the district court is different. Specifically, the PTAB applies the “broadest reasonable construction” standard to claim terms. Thus, the PTAB confirmed that it did not rely upon the Markman ruling issued by the district court.
Further, Dr. Arunachalam requested that the PTAB refer the district court’s alleged fraud on the PTAB to the Office of the Inspector General to conduct a fraud investigation. The PTAB denied this request, noting that the PTAB is not the appropriate forum for requesting such an investigation. Also, the PTAB noted that the request for the investigation contained only the patent owner’s allegations, but no support for these allegations. Furthermore, as discussed above, the district court’s Markman ruling, even if it was tainted, would not be a fraud upon the PTAB because the claim construction standard used by the district court is different from that used by the patent office.
Finally, the PTAB noted that Dr. Arunachalam did not request or receive authorization from the PTAB before filing the request for a fraud investigation, which the PTAB treats as a motion. The PTAB noted that a party in a case before the PTAB is required to receive authorization before filing a motion, but gave consideration to his pro se status. Regardless, the PTAB noted that further unauthorized motions by Dr. Arunachalam would not be considered and would possibly lead to sanctions.
AIA / IPR / Timeliness / Inherent Anticipation / Motion to Amend
PTAB Adopts Broad View of Inherency Doctrine
Addressing a variety of issues in a recent inter partes review (IPR), the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) determined that some claims were patentable and some were unpatentable, finding, inter alia, that neither filing an action for declaratory judgment of non-infringement nor raising invalidity as an affirmative defense to a counterclaim of infringement triggers the civil action bar of 35 U.S.C. § 315(a); that under an expansive view of the doctrine of inherency, certain claims of the patent were anticipated; and that the patent owner did not meet its burden to show that proposed amendments were patentable because it did not address a district court’s ruling of patent ineligibility in a parallel action. Ariosa Diagnostics v. Isis Innovation Ltd., Case No. IPR2012-00022 (PTAB, Sep. 2, 2014) (Green, APJ).
First, the Board ruled that one-year time bar of 35 U.S.C. § 315(a) does not bar a declaratory judgment plaintiff seeking only a declaration of non-infringement who later raises invalidity as an affirmative defense from instituting an IPR. Before filing its IPR, petitioner Ariosa had filed a district court action seeking declaratory judgment of non-infringement of the challenged patent. Patentee Isis counter-claimed for infringement, and Ariosa raised invalidity as an affirmative defense. The Board reasoned that because “a civil action for a declaratory judgment of non-infringement is not a civil action challenging the validity of a patent” and because “it is clear from [the Supreme Court’s opinion in] Cardinal Chem Co. that there is a fundamental difference between an affirmative defense of invalidity and a counterclaim of invalidity,” Ariosa had never “filed a civil action challenging the validity of the claim of the patent” as required by § 315(a). Thus, no bar existed to Ariosa’s filing of the IPR.
Second, the Board presented a relatively expansive view of the doctrine of inherency, holding that a limitation is inherent in the prior art if the claimed limitation is the “natural result flowing from the operation as taught” and that “to anticipate, the prior art need only meet the inherently disclosed limitation to the extent the patented method does.” The combination of the Board’s broad interpretation of claim language and expansive interpretation of the inherency doctrine proved fatal to some of the challenged claims.
Finally, the Board denied the patent owner’s motion to amend the claims based on its failure to address district court findings of patent ineligibility under § 101. In the parallel district court proceeding, the patent’s claims were held patent-ineligible. Although the Board cannot hear challenges to patent eligibility of existing claims in IPRs, it nonetheless requires patent owners to prove that proposed amendments—not subject to further examination—are patentable. Where a court has found ineligibility, the Board ruled, the patent owner must prove that the proposed amendments are drawn to eligible subject matter.
AIA / IPR / Reduction to Practice / Sufficiency of Corroborating Evidence
Inventor Testimony Without Corroborating Evidence Is Insufficient to Prove of Reduction to Practice *Web Only*
Addressing the sufficiency of corroborating evidence to prove earlier reduction to practice, the Patent Trial and Appeal Board (PTAB) found that an inventor’s testimony regarding practicing features of an earlier invention was insufficient to establish reduction to practice in the absence of corroborating evidence. Accordingly, in finding the challenged claims to have been proven invalid, the PTAB considered prior art references post-dating the uncorroborated reduction to practice. K-40 Electronics, LLC v. Escort, Inc., Case Nos. IPR2013-00203, 2014 WL 4273883 (PTAB, Aug. 27, 2014) (Ward, APJ).
The patent in issue related to radar detectors that alert users if they detect law enforcement radar signals. Specifically, the patent claimed a police activity warning device with a “position determining circuit” used to “lockout” known radar sources that may trigger false alerts.
The PTAB instituted inter partes review (IPR) with the petitioner, contending that certain claims were unpatentable as anticipated and/or obvious based on various patent references. The patent owner argued that the references were not prior art because they were antedated by reductions to practice in the form of prototypes developed in 1992 and 1996.
Addressing the 1992 prototype, the PTAB found that the prototype was not a reduction to practice as it failed to meet all claim limitations. With respect to the 1996 prototype, the primary question was whether the prototype used, as required by the claims, a “positioning determining circuit” to alert and/or not provide an alert if the location signal correlated to a location of a rejectable signal. The inventor testified that the prototype contained the recited functionality and he presented written code to demonstrate this “lockout” feature. However, the lines of code providing position determining circuit functionality were missing from the software on record for the 1996 prototype. The only software containing such code was for later versions post-dating the alleged prior art patents. Analogizing the circumstances to the 2011 Federal Circuit decision in In re NTP (IP Update, Vol. 14, No. 8), the PTAB found that the inventor’s uncorroborated testimony that the 1996 prototype contained the claimed position determining circuit functionality was insufficient to prove by a preponderance of the evidence that the claims were reduced to practice prior to the date of the alleged prior art.
Accordingly, the PTAB considered the references cited by the petitioner and found the challenged patent claims invalid.
AIA / IPR / Motion to Amend
PTAB Denies Motion to Amend for Failure to Show Patentability
Addressing a patent owner’s motion to amend by cancelling claims and substituting claims, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) granted in part and denied in part the patent owner’s motion, finding that cancellation was appropriate but that the patent owner failed to meet its burden on the patentability of the substitute claims. Reg Synthetic Fuels, LLC v. Neste Oil Oyj, Case No. IPR2013-00178 (PTAB, Aug. 29, 2014) (Tornquist, APJ).
Syntroleum filed a petition for inter partes review (IPR). The patent owner, Neste Oil Oyj, did not file a Patent Owner Response and chose instead to file a motion to amend. In its motion to amend, Neste Oil requested cancellation of the issued patent claims and substitution of those claims with 10 new claims. At the final hearing, the PTAB determined that the patent owner did not meet its burden to prove by a preponderance of the evidence that the proposed substitute claims are patentable. Accordingly, the PTAB granted the patent owner’s motion to amend with respect to the cancellation of the original patent claims and denied the motion with respect to the substitution of the 10 new claims, essentially eviscerating the challenged patent.
In evaluating the substitute claims, the PTAB noted that, unlike examination, “entry of the proposed substitute claims in an inter partes review is not automatic.” Instead, “Patent Owner must establish that it is entitled to the requested relief.” In evaluating whether the substitute claims constituted a reasonable number of claims, the PTAB found that two proposed substitutes for one original claim were not proper, given that the patent owner failed to show that the two claims were patentably distinct. Further, the PTAB found that the patent owner failed to show adequate written description support for the substitute claims.
As to patentability, the PTAB rejected Neste Oil’s argument that the substitute claims were patentably distinct from the prior art. The PTAB found that the patent owner failed to address why the claims were non-obvious or the knowledge, skill and creativity of one of ordinary skill in the art with respect to the added limitations. Thus, the PTAB granted the motion to amend solely with respect to patent owner’s non-contingent request to cancel the issued claims.
AIA / IPR / Motion to File Sur-Reply
Patent Owner Must Prove Patentability of Proposed Amended Claims (Including Prior Art Date) *Web Only*
In an order addressing a motion for a sur-reply to introduce evidence to antedate a prior art reference in an inter partes review (IPR) proceeding, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (Board) denied the patent owner’s request to file a sur-reply brief regarding the date of invention, but granted the patent owner an additional two pages to address the argument in its reply in further support of its motion to amend in lieu of the requested sur-reply. Neste Oil Oyj v. REG Synthetic Fuels, LLC, Case No. IPR2013-00578 (PTAB, Sept. 9, 2014) (Crumbley, APJ).
Patent owner REG requested a conference call to seek authorization to file a sur-reply brief on the issue of the date of the invention of the patent at issue. During the conference call, REG argued that it could not have anticipated the arguments raised in the petitioner’s reply to the patent owner’s response. REG also argued that it bore the burden of proof regarding the date of invention of the patent at issue and was therefore entitled to the last word on the issue.
The Board disagreed that REG bore the burden of establishing invention date, noting that while the burden of production with respect to antedating a reference rested with REG, the ultimate burden of proof on the issue of proving that the claims of the patent were unpatentable remained with petitioner. REG received its relief, however, in a slightly different form. Noting that the ultimate burden of proof as to the patentability of the amended claims rested with REG, the Board granted REG an additional two pages for its reply to the opposition to the motion to amend. This grant of relief came with the caveat, however, that REG could not attempt to make arguments or establish facts that it could have raised in its opening brief.
Trademarks / Exceptional Case Doctrine
Octane Fitness Changes the Landscape for Trademark Cases Too
Addressing for the first time the application of the Supreme Court decision in Octane Fitness to trademark cases, the U.S. Court of Appeals for the Third Circuit held that a finding of culpable behavior was no longer a prerequisite to awarding fees under the Lanham Act and that Octane Fitness set the standard for awarding fees not only in patent cases, but in trademark cases as well. Fair Wind Sailing, Inc. v. Dempster, Case Nos. 13-3305, 14-1572 (3d Cir., Sept. 4, 2014) (Fuentes, J.).
Fair Wind is a Michigan corporation that owns sailing schools throughout the United States, including one in St. Thomas, Virgin Islands. Fair Wind St. Thomas uses exclusively catamarans. In July 2007 Fair Wind hired Larry Bouffard as a captain and sailing instructor. Bouffard’s contract included a non-compete restricting him from working for a competitor within 20 miles of the St. Thomas school for two years after his employment terminated. In 2010, Bouffard and another former Fair Wind employee, H. Scott Dempster, opened a sailing school in St. Thomas, Virgin Island Sailing School (VISS). VISS copied Fair Wind in multiple ways, including using catamarans, using the identical curriculum and itineraries and employing the same mechanism for student feedback.
Fair Wind sued for trade dress infringement pursuant to Section 43(a) of the Lanham Act and common law claims for tortious interference and unjust enrichment. The district court granted Dempster’s motion to dismiss all claims, finding that Fair Wind failed to allege facts about its business that amounted to its trade dress. Dempster then moved for attorneys’ fees pursuant to Section 35(a) of the Lanham Act and the Virgin Islands Code. The district court granted Dempster full recovery of his fees under the Virgin Islands Code. Fair Winds appealed.
The 3d Circuit affirmed the dismissal of all claims. It went on to note that the district court failed to make a finding that the fees incurred defending the territorial law and federal law claims were “inextricably intertwined,” rendering full recovery of fees improper. The 3d Circuit remanded for an analysis of the fee request under both the Lanham Act and Virgin Islands Code.
The 3d Circuit also provided guidance as to Octane Fitness’s application to the Lanham Act, noting that the § 285 exceptional case language at issue in Octane Fitness (IP Update, Vol. 17, No. 5) was identical to the exceptional case language I the Lanham Act and that the Supreme Court sent “a clear message that it was defining exceptional not just for the fee provision in the Patent Act, but for the fee provision in the Lanham Act as well.” The 3d Circuit remanded the fee determination to the district court to determine whether the case was “exceptional” under the Lanham Act. If found to be exceptional, the district court can award fees under the Lanham Act for the entire litigation; if not found to be exceptional, the district court must subtract the Lanham Act fees from the fees to defend against the Virgin Islands claims.
Trademarks / Fraud on the Trademark Office
Trademark Trial and Appeal Board Sustains Opposition on the Basis of Fraud
The United States Patent and Trademark Office (USPTO) Trademark Trial and Appeal Board (TTAB or Board) sustained an opposition on the basis of fraud, finding that Ahmad’s assertions to the USPTO regarding his use of the trademark NATIONSTAR in interstate commerce were false and knowingly made with the requisite intent to deceive the USPTO. Nationstar Mortgage LLC v. Mujahid Ahmad, Opposition No. 91177036 (TTAB, Sept. 30, 2014) (precedential) (Bergsman, ATJ).
In the opposition proceeding, the registrant, Ahmad, testified that he had considered using the trademark NATIONSTAR in connection with his real estate services in 2004 or 2005, and, in April 2005, Ahmad registered several domain names containing the text “nationstar.” Because Ahmad was not using the domain names in 2006, Nationstar Mortgage contacted Ahmad, offering to purchase two of the domain names from him. Ahmad denied Nationstar Mortgage’s offer, and days later proceeded to file his own trademark application for NATIONSTAR. The application included a declaration under penalty of perjury signed by Ahmad claiming that he had used the trademark in commerce in connection with all of the real estate and mortgage brokerage services listed in the application since at least as early as April 4, 2005. In order to demonstrate the requisite proof of use of the trademark in commerce, Ahmad later filed with the USPTO a copy of a business card and an advertising flyer showing use of the NATIONSTAR mark.
Eight days after Ahmad filed his U.S. trademark application for NATIONSTAR, Nationstar Mortgage filed two new U.S. trademark applications for the marks NATIONSTAR MORTGAGE and NATIONSTAR MORTGAGE & DESIGN in connection with mortgage lending services. When Ahmad’s pending trademark application for NATIONSTAR was cited by the USPTO as a potential bar to registration of Nationstar Mortgage’s applications, Nationstar filed an opposition against Ahmad’s application claiming fraud, likelihood of confusion and a lack of bona fide intent to use the mark in commerce. During the proceeding, Ahmad filed a motion to amend the filing basis of his NATIONSTAR application from a “use in commerce” basis under Section 1(a) of the Lanham Act, to an “intent-to-use” basis under Section 1(b). Despite this amendment, however, the Board noted that “amending the filing basis of the opposed application to Section 1(b) does not protect the application from the fraud claim.” The Board cited In re Bose Corp. for the proposition that fraud in procuring a trademark registration occurs when an applicant knowingly makes false, material representations of fact in connection with its application with intent to deceive the USPTO. The party alleging fraud must prove same with clear and convincing evidence, and the Board will not find fraud if the evidence shows that a false statement was made with a reasonable and honest belief that it was true, rather than with intent to mislead the USPTO.
The Board found that Ahmad’s statements regarding his use of the NATIONSTAR mark were material to the USPTO’s approval of the application, and the Board then examined the evidence of record to determine whether the material representations were indeed knowingly made to deceive. The Board stated that “the law does not require ‘smoking gun’ evidence of deceptive intent,” and it determined that the surrounding facts and circumstances were sufficient to find that Ahmad did not have a good-faith basis to state that he was using the NATIONSTAR trademark in commerce for all of the services listed in the application. The Board noted that Ahmad was not licensed by the state to be a real estate or mortgage broker (and he testified that he was not a real estate broker), but he stated in the application that he had used the mark for “real estate brokerage” and “mortgage brokerage” services; Ahmad could not identify when or who created or printed his business cards, flyers and postcards (some of which were submitted as specimens of use); Ahmad testified that he did not know whether his business earned any income or revenue; and, Ahmad did not use or post any content on his “nationstar” domain names until 2007 even though he owned them in 2005, and claimed to be doing business under the mark in 2005.
Citing its “grave concerns about the credibility of applicant’s testimony regarding his use of NATIONSTAR for the identified services at the time he filed the use-based application,” the Board found that the totality of the evidence met the standard of proof and denied registration of Ahmad’s application on the ground of fraud.
A Hypothetical-License Damages Theory Must Be Rooted in Non-Hypothetical Evidence
The U.S. Court of Appeals for the Ninth Circuit has explained that a copyright owner is not required to show that it actually would have granted a license to the defendant before it can recover hypothetical damages based on a fair market licensing theory, notwithstanding that the evidence showed it would not have granted such a license. However, the hypothetical-license award cannot be based on speculation. Oracle Corporation v. SAP AG, Case No. 12-16944 (9th Cir., Aug. 29, 2014) ( Fletcher, J.).
Oracle sued SAP for copyright infringement based on activities of TomorrowNow, a company acquired by SAP. SAP admitted liability but disputed damages. Following the damages trial, the jury awarded Oracle $1.3 billion in damages based on a hypothetical-license theory of recovery, but the award was short-lived as the district court later found the amount to be “grossly excessive” and unsupported by evidence. The district court replaced the award with a remittitur of $272 million reflecting the $36 million in Oracle’s lost profits and $236 million in SAP’s infringer profits. Oracle appealed to the 9th Circuit.
Following Polar Bear, Wall Data and Jarvis, an award of hypothetical-license damages constitutes an acceptable form of “actual damages” recoverable under 17 U.S.C. § 504(b) provided the amount is within the range of the license’s reasonable market value, that is, what a willing copyright owner actually would have charged after negotiation, as opposed to what the owner would have charged if “unconstrained by reality.” Based on those principles, the 9th Circuit refused to revive the $1.3 billion award to Oracle finding it unduly speculative.
Oracle argued that the $1.3 billion verdict was supported by the enormous about of illegal downloads of Oracle software (over five terabytes of infringing data, which “would encircle the globe nine times if printed out on double-sided paper laid end-to-end”); the amount Oracle paid to acquire the IP, which included the copyrighted data at issue; Oracle’s anticipated loss; and SAP’s anticipated gain. The 9th Circuit disagreed, stating that the quantity of infringing data downloaded reveals “very little about its value to SAP” and that there was no evidence apportioning the revenue obtained from the infringing activity from the $900 million in SAP’s “hoped” for revenue. Indeed, the Court observed that if SAP truly anticipated it could make $1.3 billion based on its acquisition of TomorrowNow, then the $10 million acquisition price for TomorrowNow was “strikingly low.” The 9th Circuit also doubted Oracle’s expert’s conclusion that Oracle stood to lose more than $1.3 billion since that estimate was based on the assumption that Oracle would lose the 1,375 customers that SAP, in presentation slide entitled, “Assumptions,” stated it hoped to gain—not a particularly reliable source of objective evidence, according to the 9th Circuit.
Finally, the 9th Circuit recalculated the remittitur to $356.7 million, concluding that the district court erroneously adopted a $36 million lost profits number instead of the $120.7 million figure it should have used when it calculated the remittitur.
Practice Note: Oracle must now choose between accepting $356.7 million remittitur award or seeking a new trial on damages. If it chooses a new trial, Oracle is limited to claiming damages based only on lost-profits and infringer’s profits theories. As the 9th Circuit noted, having no history of granting fair market licenses, Oracle could have, but did not, proffer evidence of “benchmark” licenses in the industry to approximate the value of a hypothetical fair market license, but did not.
Transformative Use in the Seventh Circuit
The U.S. Court of Appeals for the Seventh Circuit affirmed the district court’s grant of summary judgment based on fair use, but cited different grounds than the district court and ultimately rejected the concept of transformative use. Kienitz v. Sconnie Nation LLC, Case No. 13-3004 (7th Cir., Sept. 14, 2014) (Easterbrook, J.).
In 2011 plaintiff Michael Kienitz photographed the mayor of Madison, Wisconsin, Paul Soglin, who subsequently posted the photograph online with Plaintiff’s permission. The same year, Soglin sought to shut down the annual political activism event Mifflin Street Block Party, which he had himself participated in many years earlier. The defendant, Sconnie Nation (Sconnie), downloaded the photograph of the mayor from the website, altered it and printed it on t-shirts bearing the words “sorry for partying.” When the plaintiff learned of the t-shirts with his photograph on them, he filed a copyright application for the photograph and filed this suit against Sconnie for copyright infringement.
The district court granted Sconnie’s motion for summary judgment, finding that the t-shirt made fair use of the plaintiff’s photograph. In its decision, the district court relied on the U.S. Court of Appeals for the Second Circuit’s opinion in Cariou to support its findings that by making “a monochromatic outline of Soglin’s image in a Paschke-esque neon green,” Sconnie made the photograph completely different from the original.
The concept of transformative use in copyright law refers to whether the new work merely supersedes the objects of the original creation, or whether and to what extent it is “transformative,” altering the original with new expression, meaning or message. In addition, the more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use. The fair use factors as listed in § 107 of the Copyright Act are: the purpose and character of the use, including whether such use is of commercial nature or is for nonprofit educational purposes; the nature of the copyrighted work; the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and the effect of the use upon the potential market for, or value of, the copyrighted work.
The 7th Circuit affirmed the grant of summary judgment based on fair use, but cited different grounds than the district court and ultimately rejected the concept of transformative use, holding that transformative use is “not one of the statutory factors” under § 107. “Asking exclusively whether something is ‘transformative’ not only replaces the list in §107 but also could override 17 U.S.C. §106(2), which protects derivative works.” If you say that a new use transforms the work, it is precisely the same as saying it is derivative and therefore protected under 17 U.S.C. §106(2).
ECJ Rules on Digitization of Library Collections *Web Only*
The European Court of Justice (ECJ) ruled on the meaning of an exception contained in the European Copyright Directive (2001/29/EC), permitting the provision of protected works on dedicated terminals by libraries and various other educational establishments for the purposes of on-site research and private study. It was held that such entities were permitted under the exception to digitize works protected by copyright for such purposes but that depending on national legislation, public end users may or may not be permitted to print or save such works to USB sticks. Technische Universität Darmstadt v. Eugen Ulmer KG, Case No. C 117/13 (ECJ, Sept. 11, 2014).
The European Copyright Directive requires all EU member states to enact certain legislation in relation to the protection of works subject to copyright. In particular, Articles 2 and 3 provide for authors the right to prohibit unauthorized reproduction of their works and to prevent such works from being communicated or made available to the public.
Under Article 5(3)(n), EU member states have the option to enact exceptions or limitations in relation to the above rights, allowing libraries and other publicly accessible educational establishments (which are not for direct or indirect economic or commercial advantage) to communicate or make available, on dedicated on-site terminals, protected works not subject to purchase or licensing (i.e., contractual) terms, for the purposes of research or private study.
This exception is, however, qualified by Article 5(5)—which requires that Article 5(3)(n) must only be applied in certain special cases that do not conflict with a normal exploitation of the work and do not otherwise unreasonably prejudice the interests of the right-holder. Various member states have implemented such an exception into their national legislation including, inter alia, Germany and the United Kingdom.
In the present case, TU Darmstadt (the appellant), an operator of libraries in Germany that had installed electronic reading terminals allowing members of the public to access the works in its collections, including textbooks published by Eugen Ulmer (the respondent), appealed against a decision of the Frankfurt Regional Court which prohibited the appellant from allowing the public to print out works accessed through its reading terminals or otherwise storing them on a USB stick to be taken out of the library. Before proceedings commenced against the appellant, the appellant had declined an offer by the respondent to purchase and use the respondent’s textbooks as e-books. As such, the German Federal Court of Justice referred the following questions to the ECJ on the interpretation of the meaning of Article 5(3)(n):
- Whether a work is subject to “purchase or licensing terms,” within the meaning of Article 5(3)(n), where the right-holder has offered to conclude with an establishment a licensing agreement in respect of that work.
- Whether Article 5(3)(n) entitled member states to confer on such establishments the right to digitize the works contained in their collections, where necessary to make those works available on terminals.
- Whether the rights that member states lay down pursuant to Article 5(3)(n) go so far as to enable public users to print out on paper or store on a USB stick the works made available on terminals.
In summary, the ECJ ruled as follows:
- In respect of the first question, that the mere offering to conclude a licensing agreement was not sufficient to exclude the application of Article 5(3)(n). On the basis that the aim of the exception was to promote the public interest in encouraging research and private study, allowing unilateral and discretionary actions (i.e., mere contractual offers) to exclude Article 5(3)(n)’s application would negate its purpose and create imbalances in favor of right-holders. Accordingly, the exception could only be excluded on this basis by existing contractual relations.
- In respect of the second question, that Article 5(3)(n) would be rendered ineffective if the institutions covered by the exception did not have the right the digitize the relevant works if that was necessary for making those works available to users by means of dedicated terminals within the libraries. However, the ECJ clarified that Article 5(3)(n) should be read in conjunction with Article 5(2)(c), meaning that the exception only covered “specific acts of reproduction.” Accordingly, whilst libraries were not permitted to digitize their entire collections, the digitization of some of their collection would be acceptable.
- In respect of the third question, that the creation of a new analog or digital copy of a protected work (by public users, rather than the libraries themselves) made available by means of a dedicated terminal cannot be permitted under Article 5(3)(n), on the basis that such reproduction is not strictly necessary for the purpose of making the work available to the users of that work. However, this did not mean that member states could not, where appropriate, permit such reproductions through enacting national legislation pursuant to Articles 5(2)(a) and (b) of the European Copyright Directive, provided that the relevant right-holders received fair compensation and the reproductions did not unreasonably prejudice the legitimate interests of the right-holders.
Practice Note: The ECJ’s response to the first two questions may appear obvious on reading Article 5(3)(n), in particular, it specifically excludes works subject to contractual terms and from a practical perspective, digitization is evidently the most appropriate method of making works available on a public terminal. However, the ECJ somewhat side-stepped the third issue—although it was clear that Article 5(3)(n) did not extend to user-created reproductions, it conceded that such reproductions may instead be covered by other exceptions or limitations, to the extent permitted by the relevant member state.
The end result here for right-holders may be frustrating—this ruling may mean that it becomes increasingly difficult for right-holders to assert their rights, requiring consideration as to whether any exceptions or limitation apply on a jurisdiction-by-jurisdiction basis due to varying degrees of implementation of the European Copyright Directive by different EU member states.
Trade Secrets / Indemnification / Scope of Indemnitees
Not All Vice Presidents Are Officers and Entitled to Corporate Indemnification *Web Only*
Joshua David Rogaczewski
Addressing the meaning of the term “officer” in a company’s bylaws, the U.S. Court of Appeals for the Third Circuit vacated a district court’s summary judgment that a computer programmer (who was also a vice president) was an “officer” entitled to indemnification because the term was ambiguous and remanded the case for trial. Aleynikov v. Goldman Sachs Grp., Inc., Case No. 13-4237 (3d Cir., Sept. 3 2014) (Fisher, J.) (Fuentes, J., dissenting in part).
The computer programmer worked for a non-corporate subsidiary, the officers of which are entitled to indemnification under the parent corporation’s bylaws, which define “officer” to include actual officers and “any person serving in a similar capacity or as the manager of such entity.” The non-corporate subsidiary used the term “vice president” to communicate that an individual was more senior than an “analyst” or “associate” but less senior than a “managing director.” Approximately one-third of the non-corporate subsidiary’s employees were “vice presidents,” including the computer programmer.
On his last day of employment with the non-corporate subsidiary, the programmer stole his employer’s source code. He has since faced both federal- and state-level prosecutions for his conduct. He also sued his former employer’s parent for indemnity under the parent’s bylaws. On summary judgment, the district court found the bylaws unambiguous and that the programmer was entitled to indemnification because he was a vice president. Goldman Sachs appealed.
The 3d Circuit vacated, finding the term “officer” in the bylaws ambiguous. The court was not convinced by the district court’s facile analysis, which hinged on the meaning of a term “vice president,” which was not part of the bylaws. It was more interested in the meaning of “officer.” After consulting several dictionaries (and lamenting the absence of any evidence of an “industry-specific common meaning” of the term), the court settled on a plain meaning of “officer” as “someone holding a position of trust, authority, or command,” which created a tautology when applied to the bylaws, which would consider an officer to be that and anyone serving in a similar capacity or as a manager of an entity. In effect, the term was “circuitous, repetitive, and most importantly, fairly or reasonably susceptible of more than one meaning.” That left the court in a world of extrinsic evidence, which “raise[d] genuine issues of material fact,” which would have to be resolved by a jury. (Dissenting in part, Judge Fuentes would have resolved the ambiguity against the parent corporation.)
As the 3d Circuit noted, the bylaws “are a unilaterally-drafted agreement,” leaving the parent corporation in complete control over its contents. More careful drafting by the parent corporation may have avoided the ambiguity result (and upcoming trial).