IP Update, Vol. 17, No. 9 - McDermott Will & Emery

IP Update, Vol. 17, No. 9



Patents / Inequitable Conduct

Post-Therasense IC Alive and Kicking at the Federal Circuit *Web Only*

Paul Devinsky

After finding that a patent owner had made several misrepresentations to the Patent and Trademark Office (PTO) during prosecution, the U.S. Court of Appeals for the Federal Circuit concluded that the misrepresentations met the “but for” materiality test, and that the “single most reasonable inference” to be drawn from the evidence was that the requisite intent to deceive had been established. Apotex Inc. v. UCB, Inc., Case No 13-1674 (Fed. Cir., Aug. 15, 2014) (Reyna, J).

In its en banc Therasense decision, the Federal Circuit explained that the law of inequitable conduct relating to nondisclosure requires two separate showings: specific intent to deceive and materiality. The burden of proof is on the challenger to prove each element by clear and convincing evidence.

The patent in issue in Apotex related to moexipril magnesium, an ACE inhibitor used to treat hypertension. This compound was known to be “susceptible to degradation and instability.” To overcome the problem, the inventor claimed that a stabilized formulation could be prepared by reacting moexipril with either magnesium hydroxide or magnesium carbonate in the presence of a solvent, which is later evaporated so that the dry material can be compressed into tablets. As observed by the Court, the basic process, known as “wet granulation,” has been in use in the pharmaceutical industry for over 30 years.

During prosecution, the PTO asserted three references, two of which were cited in the specification of the asserted patent. One was a prior art patent that disclosed methods for stabilizing ACE inhibitors using alkaline magnesium compounds and the other was a journal article that compared wet granulation to dry powder mixing for formulating moexipril—and concluded that only wet granulation was able to stabilize moexipril. The third reference was another patent that disclosed the use of moexipril tablets to treat hypertension.

Through counsel, the inventor (and CEO of Apotex), Dr. Bernard Charles Sherman, argued to the PTO that there was no teaching in the prior art of a reaction—only a disclosure of mixing or combining. The inventor further instructed his counsel to submit an expert declaration that reinforced his representations that in the prior art, the magnesium stabilizer acted to prevent reactions—and had to remain unreacted itself to do so.

After Apotex agreed to limit the claims by including a “greater than 80% conversion” limitation, the examiner allowed the claims noting in his statement of reasons for allowance (essentially quoting Dr. Sherman’s argument) that:

The primary reason for allowance is that the prior art does not disclose nor fairly suggest a process of making a pharmaceutical composition comprising moexipril magnesium, comprising the step of re-acting moexipril or an acid addition salt thereof with an alkaline magnesium compound so as to convert greater than 80% of the moexipril or moexipril acid addition salt to moexipril magnesium. Rather, the prior art teaches that only a portion of drug (if any) may be converted to the alkaline salt and that the stable product results entirely or primarily not from conversion to alkaline salts, but from stabilization of the moexipril hydrochloride by the presence of the alkaline stabilizing compound in the final product.

At trial, the district court relied on several pieces of evidence in finding that Dr. Sherman was aware that Univasc, the compound described in the prior art patent cited in the specification, involved a reaction. Dr. Sherman conceded trial that, before filing his application, he had a “strong suspicion” and a “belief” that Univasc was made according to his claimed process.

Also, on the same day the application was filed, Dr. Sherman admitted that he conducted tests comparing Univasc to an Apotex moexipril product with no alkaline stabilizer. In his hand-written notes, Dr. Sherman concluded that the Apotex product was “much less stable than the magnesium salt.” About a month later, two Apotex scientists produced a detailed mass spectrometry report on Univasc, concluding that moexipril in Univasc is “mainly present” as moexipril magnesium.

The district court also found that Dr. Sherman was both aware of and involved in all decisions regarding prosecution of the application and that he was very familiar with patent prosecution and patent enforcement litigation.

The district court further found Dr. Sherman’s disclaimers regarding his knowledge of the components of Univasc, of the prior art and of the statements made to the PTO by his counsel to not be credible.

Finally, the district court concluded that Dr. Sherman failed to inform the hired expert, Dr. Lipp, of the facts about Univasc and shielded him from the truth, which resulted in a declaration that Dr. Sherman submitted to the PTO to perpetuate his mischaracterizations of the prior art. Dr. Lipp testified that he was specifically asked to limit his discussions to only the documents provided by Apotex, which did not include any information regarding the tests conducted on Univasc or Dr. Sherman’s knowledge of the product.

After the district court ruled the Apotex patent unenforceable for inequitable conduct before the PTO, because of both misrepresentations to the PTO and for withholding material prior art, Apotex appealed.

The Federal Circuit affirmed, concluding that the district findings regarding materiality and intent were “not clearly erroneous” and that the district court’s determination that Dr. Sherman breached the duty of candor owed to the PTO was “not an abuse of discretion.”

As for the district court’s finding on materiality, the Federal Circuit agreed with the district court that Dr. Sherman had made “affirmative misrepresentations” to the PTO as to facts that met the “but for” materiality test, noting Dr. Sherman’s “active involvement” in the prosecution, in the representations made on his behalf by Dr. Lipp and in writing the specification which omitted “important details” regarding prior art known to him. The Federal Circuit also affirmed that Dr. Sherman’s trial testimony was found to be less than credible. The Court found no reason to disturb the district court’s finding of clear and convincing evidence of material misconduct.

The Federal Circuit however, noted that a failure to disclose Dr. Sherman’s “suspicions” or “beliefs” concerning the prior art did not violate any duty, so long as he was able to advocate “in good faith, a reasonable interpretation of the prior art.” Here however, the misconduct went beyond non-disclosure of personal beliefs to “affirmatively and knowingly [misrepresenting] material facts…”

On the issue of intent, the Federal Circuit agreed with the district court findings that Dr. Sherman “knew, or at least had a strong suspicion, that he was seeking to patent the very same process used to obtain an already existing and widely available drug;” that Dr. Sherman knew “some of the assertions made in the specification regarding the prior art were at least misleadingly incomplete, if not plainly inaccurate”; that Dr. Sherman “never performed the experiments described” even though he “drafted the examples in the specification entirely in past-tense language”; and finally that Dr. Sherman directed his counsel to bolster his own misrepresentations “by procuring and submitting the declaration of an expert who was deliberately shielded from the truth.” As the Court concluded “[i]n the aggregate, Dr. Sherman’s conduct evidences a pattern of lack of candor” and that “deceptive intent is the single most reasonable inference that can be drawn from the evidence.”

Patents / Double Patenting

The Doctrine of Obviousness-Type Double Patenting Maintains Its Vitality

Addressing whether the doctrine of obviousness-type double patenting is still viable, and, if so, whether it served to invalidate a later-issued and expiring patent, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s decision of invalidity, finding that the doctrine continues to apply where two patents that claim the same invention have different expiration dates. Abbvie Inc. v. Kennedy Institute of Rheumatology Trust, Case No. 13-1545 (Fed Cir., Aug. 21, 2014) (Dyk, J.).

The Kennedy Institute of Rheumatology owned two patents directed toward methods of treating rheumatoid arthritis by co-administering two drugs. The first patent, which expired in 2012, claimed a method of “coadministering” two drugs to treat arthritis, and the second patent, expiring in 2018, claimed “adjunctively administering” the drugs.

Abbvie is a licensee to the first patent and paid fees to the Kennedy Institute to sell Humira®. When the second patent issued, the Kennedy Institute sought additional licensing fees. Abbvie sued for a declaratory judgment that the second patent was invalid under the doctrine of obviousness-type double patenting (ODP).

The district court, in a bench trial, construed disputed claim term “co-administering” in a way that covered the claimed “adjunctively administering” of the second patent. The district court rejected the Kennedy Institute’s construction of “active disease” in the second patent, finding that the second patent was directed to the same arthritis patients as the first. The district court then determined that the second patent was not patentably distinct from the first patent and found the second patent invalid. The Kennedy Institute appealed.

The Kennedy Institute argued that the doctrine of ODP was no longer viable in view of the Uruguay Round Agreement Act’s (URAA) 20-year period of patent protection from the earliest claimed priority date. The Federal Circuit rejected that argument, explaining that while the doctrine of ODP is less significant in post-URAA disputes, the doctrine continues to prevent an inventor from securing a second, later-expiring patent for the same invention; a situation prohibited by § 101. The Court explicitly held that the doctrine of ODP continues to apply where two patents that claim the same invention have different expiration dates.

The Federal Circuit also agreed with the district court’s ruling of invalidity. Relying on specification of the first patent, the Federal Circuit determined that the lower court’s claim construction of “co-administering” was proper and that the term covered three modes of administration, one of which included the mode covered by the second patent. The Federal Circuit rejected the Kennedy Institute’s argument that this construction improperly excluded a fourth mode of administration and also rejected its claim differentiation argument.

Regarding the claim term “active disease,” the Federal Circuit assumed, without deciding, that the Kennedy Institute’s proposed construction was correct and analyzed whether a patent that claims to treat a subset of patients with more severe rheumatoid arthritis (the second patent) is an obvious variant of a patent that claims to treat rheumatoid arthritis patients generally (the first patent). The Court found that the difference did not render the claims of the second patent patentably distinct from the first.

Applying an analysis that is analogous to an obviousness analysis under § 103, the Federal Circuit explained that obviousness is not demonstrated merely by showing that an earlier patent dominates a later expiring patent, noting that a narrow species can be non-obvious despite a patent on its genus. But, as the Court noted, not every species of a patented genus is separately patentable, stating that when a genus is so limited that a person of ordinary skill in the art can at once envisage each member of the limited class, a reference describing the genus anticipates every species within the genus. The Federal Circuit found that, in this case, a reader of the first patent would have easily envisaged a species limited to sicker patients, and therefore the second patent was not patentably distinct from the first.

Patents / Non-Practicing Entities

States Have the Right to Protect Businesses Against NPEs

Addressing the issue of state efforts to reign in non-practicing entities, the U.S. Court of Appeals for the Federal Circuit found that it lacked jurisdiction to hear cases brought against a non-practicing entity under Vermont’s consumer protection act. State of Vermont v. MPHJ Technology Investments, LLC, Case No. 14-1481 and In re MPHJ Technology Investments, LLC, Case No. 14-137 (Fed. Cir., Aug. 11, 2014) (Newman, J.).

MPHJ owns several patents related to network scanner systems. Through its subsidiary licensees, MPHJ wrote threatening letters to various businesses and non-profits operating in Vermont, asking the targets to either confirm it was not infringing MPHJ’s patents or purchase a license. On May 8, 2013 Vermont’s attorney general filed suit against MPHJ in Vermont state court alleging violation of Vermont’s Consumer Protection Act. The AG stated that MPHJ’s letters contained threatening, false and misleading statements. The AG sought civil penalties against MPHJ. MPHJ removed the case to the U.S. District Court for the District of Vermont asserting federal question and diversity jurisdiction. The AG sought remand while MPHJ filed a motion to dismiss for lack of personal jurisdiction and a motion for Rule 11 sanctions, claiming the AG’s complaint was frivolous. After a hearing, the AG filed a conditional motion to clarify or amend its complaint and eliminate its request for a permanent injunction forbidding MPHJ from threatening Vermont businesses with patent infringement. The District of Vermont granted the motion to remand and did not rule on MPHJ’s other motions. The district court held that the complaint “did not raise a substantial question of patent law” and accordingly belonged in Vermont state court. The district court rejected MPHJ’s preemption defense, finding it was a defense to the allegedly unfair and deceptive practices and that a defense cannot provide a basis for federal subject matter jurisdiction.

MPHJ appealed, arguing that the district court abused its discretion by effectively denying MPHJ’s motion for sanctions, by refusing to decide the motion to dismiss for lack of personal jurisdiction before deciding subject matter jurisdiction and by “effectively amending the Original Complaint and then declining to exercise jurisdiction over the complaint as amended . . . without first deciding a controlling question of preemption under the First Amendment and federal patent law.”

The Federal Circuit declined to review, noting that 28 U.S.C. § 1447(d) provided that an order remanding a case to state court was not reviewable on appeal. The Court found that the district court had remanded the case on a § 1447 ground, namely that it did not raise a claim or question or federal law. Thus, the Federal Circuit concluded it lacked jurisdiction to review the remand decision.

The Federal Circuit also denied MPHJ’s argument that § 1447 was not relevant to the Federal Circuit’s review of the district court’s failure to address MPHJ’s motions to dismiss for lack of personal jurisdiction and sanctions, noting that there was no exception to § 1447 for these motions.

Patents / Written Description

Broad Language In Specification Can Provide Written Description Support

In reviving a patent owner’s patent infringement lawsuit, the U.S. Court of Appeals for the Federal Circuit reversed a district court’s summary judgment that a patent was invalid for lack of written description, determining that the absence of sensors from the claims at issue did not mean that those claims were unsupported by the written description that included sensors. ScriptPro, LLC v. Innovation Associates, Inc., Case No. 13-1561 (Fed. Cir., Aug. 6, 2014) (Taranto, J.).

ScriptPro sued Innovation Associates alleging infringement of its patent directed to an automatic dispensing system that fills and labels pill bottles and other prescription containers. The patent emphasized its patient-specific identification and collating, noting that prior art stored containers using a container-specific identifier. The district court granted summary judgment in favor of the defendant, holding that the claims of the patent were invalid under § 112 ¶ 1 (now § 112(a)). According to the district court, the specification described an invention containing “sensors” used to determine whether a particular holding area was full, while the claims at issue were directed to an invention that did not require “sensors.” ScriptPro appealed.

The issue before the Federal Circuit was whether the absence of sensors from the claims at issue means that those claims are unsupported by the written description as a matter of law. The Court analyzed the patent’s specification, noting that the description of embodiments having sensors found in the specification did not necessarily mean that the only invention described included sensors. The Court emphasized that a specification can adequately communicate to a skilled artisan that the patentee invented not just the combination of all identified features but combinations and subcombinations of only some of those features, which may achieve stated purposes even without omitted features.

The Federal Circuit referenced the portion of the specification that stated the invention “broadly includes” a plurality of sensors. Such qualifiers suggest that exceptions are allowed to the assertion of what occurs most, or perhaps even almost all, of the time. The Court determined that phrases such as “broadly includes” and “broadly comprises” are not clear limitations that a skilled artisan, if being reasonable, would have to read as requiring slot sensors.

The Federal Circuit further noted that the specification indicated that, while desirable, the sensors were an optional feature of the invention. As the Court explained references to the sensor’s functionality tended to suggest that its absence would not prevent the system from working. Given the disclosure in the specification, the Federal Circuit determined that claims to a sensorless machine could not be said on summary judgment to be too broad and that a skilled artisan may be able to reasonably read the specification as teaching a specific means of achieving a central stated purpose without requiring sensors.

Patents / Hatch-Waxman Infringement

Silence of ANDA with Respect to a Claim Limitation Does Not Constitute Infringement

In Hatch-Waxman litigation that involved Abbreviated New Drug Applications (ANDAs) that were silent as to certain claimed limitations, the U.S. Court of Appeals for the Federal Circuit reversed a lower court’s conclusion that the ANDAs were infringing merely because the products could infringe the patents based on silence with respect to claimed limitations, finding that the evidence failed to show that the generic product sold or likely to be sold infringed the asserted claims. Ferring B.V. v. Watson Labs., Inc., Case Nos. 14-1377; -1416 (Fed. Cir., Aug. 22, 2014) (Lourie, J.).

Ferring sells branded tranexamic acid tablets, Lysteda®, for treatment of menorrhagia. Ferring owns three patents encompassing Lysteda, which are listed in the Orange Book and are directed to modified release formulations. Apotex and Watson filed ANDAs to sell generic versions of the tablets. Both defendants asserted that the patents would not be infringed by their ANDA product, and Watson alleged that the patents were invalid as obvious under § 103. Ferring sued for infringement of the patent under the provisions of the Hatch-Waxman Act. The asserted claims require about 650 mg of tranexamic acid, specified in-vitro dissolution release rate and specified amount of modified release material. Upon approval of its ANDA, Watson launched its generic product “at risk,” which Ferring did not move to enjoin.

The district court found that the asserted claims would not have been obvious because the prior art did not disclose a 650 mg dosage of tranexamic acid or suggest use of a higher dosage and, in fact, motivated in the opposite direction in view of prior art disclosure of dose-dependent increase in gastrointestinal side effects. The district court also found that Apotex’s actual product did not infringe the patents-in-suit based on its dissolution sample data, but concluded, under Sunovion (IP Update, Vol. 16, No. 10) that the absence of specific dissolution rate in the ANDA, corresponding to the asserted claims, permitted sale of an infringing product. Apotex amended its ANDA based on the court’s suggestion to specify a release rate outside the scope of the claims, which the U.S. Food and Drug Administration (FDA) approved and the court found non-infringing. Further, finding Watson’s ANDA submission to be an act of infringement, the district court concluded that Watson’s product infringed the patents, relying on dissolution rate of uncoated tablet cores and that of four out of the hundreds of coated commercial products tested. Watson’s ANDA did not disclose any dissolution data. Watson appealed.

On appeal, the Federal Circuit emphasized that Glaxo rather than Sunovion applies when an ANDA is silent with respect to infringement, recommending analysis of relevant evidence including biobatch data and actual samples of the proposed product. For the patent holder to prove that a Glaxo-type ANDA is infringing, it must rely on evidence that the ANDA applicant would likely sell an infringing composition pursuant to an approved ANDA. The Court found that data regarding uncoated cores and outlier tablets could not prove infringement by a preponderance of evidence when the dissolution rate collected by both parties was outside the claim scope for an overwhelming majority of samples tested and was consistent with biobatch data reported in Watson’s ANDA itself.

Patents / Infringement

Foreign Marketing Materials Relevant to Domestic Infringement *Web Only*

In an appeal of a lower court’s summary judgment of no infringement of four patents, the U.S. Court of Appeals for the Federal Circuit reversed the lower court’s judgment on three of the patents and vacated a claim construction and remanded the case as to the fourth patent, finding that certain documentary evidence was relevant and created genuine factual issues of infringement. Amdocs (Israel) Ltd. v. Openet Telecom, Inc., Case No. 13-1212 (Fed. Cir., Aug., 1, 2014) (Reyna, J.) (Newman, J., concurring-in-part and dissenting-in-part).

The four asserted patents were all directed to “data mediation software,” which tracks customer network usage. In its summary judgment motion, Openet argued that Amdocs was unable to point to actual infringing use and that the accused products did not practice all claim limitations. Amdocs’ documentary evidence of infringement included marketing presentations and user guides describing operation of the allegedly infringing software, citations to source code and citations to installation scripts associated with the software. For three of the four asserted patents, the district court found that this evidence did not create a genuine issue of material fact regarding a key claimed feature.

The district court found that two of Openet’s marketing presentations were irrelevant to the infringement analysis because Openet prepared these presentations for foreign entities. The court reasoned that, because there can be no infringement based upon activities entirely outside the United States, these presentations could not “constitute evidence of actionable infringement.” The Federal Circuit rejected the analysis of the district court, acknowledging that no infringement could be found for solely extra-territorial activities, but holding that these activities are still relevant to a domestic infringement analysis. In any case, it was noted that the same product described in the foreign materials was sold in the United States.

The district court also discounted the significance of the source code because the software allegedly would not “operate” without certain installation scripts. Noting that the allegedly infringing software also would not “operate” without electricity or a computer, the Federal Circuit stated: “Even assuming that the [software] does not ‘operate’ without [installation] scripts, genuine factual disputes remain regarding [infringement]. Simply because a product will not ‘operate’ in a certain condition does not mean that it does not infringe in that condition.” Even if the software does not “operate” in a particular condition, making, using or selling the allegedly infringing software may still infringe the asserted claims.

Based on the above, the Federal Circuit found that the documents created a genuine issue of material fact and reversed the lower court’s summary judgment of non-infringement.

For the fourth asserted patent, the Federal Circuit held that the district court erroneously construed “single record represent[ing] each of the plurality of services.” The district court construed this term to mean “one record that includes customer usage data for each of the plurality of services used by the customer on the network,” with the understanding that the term does not encompass a record that aggregates usage data. The Federal Circuit focused on the narrow interpretation by the district court of term “represent” to not include a record that aggregates usage data. Analyzing the specification, the Federal Circuit found that it did not define representation or discuss the representation of the claimed “plurality of services.” The specification does, however, teach the “representation” of a plurality of records, both in the text and figures. Because of this, an ordinary artisan would also understand that a separate record can also represent a plurality of services by aggregation. Judge Newman dissented from this holding.

Based on the above, the Federal Circuit vacated the claim construction for the fourth patent and remanded for determination of infringement under the proper claim construction.

Patents / Licensing

License Definition Trumps Need for Actual Infringement Finding

In a case addressing whether royalties are due under a patent licensing agreement even if the products are not covered by the patents, the U.S. Court of Appeals for the Tenth Circuit affirmed in part and reversed in part a lower court’s decision to award royalties, finding that royalties may be due so long as the products are covered by text in the agreement acknowledging such products do infringe. Cellport Systems, Inc. v. peiker acustic GmbH & Co. KG, Case Nos. 13-1029, -1046 (10th Cir., Aug. 5, 2014) (Lucero, J.).

Cellport Systems and peiker acustic entered into a licensing agreement involving three Cellport patents and seven Peiker products. The seven Peiker products were expressly identified under the definition of “Licensed Products,” which provided that “all of such foregoing products and components are, and any substantially similar products and components would be, Licensed Products . . .”

The agreement stated that the “parties acknowledge” that Peiker’s products “utilize technology, designs or architectures covered by one or more of the claims included in the Licensed Patents.” The agreement further acknowledged that “the manufacture, sale, distribution or delivery of [the Licensed Products] would infringe one or more claims of the Licensed Patents, and that Royalties are due in respect of any manufacture, sale, distribution or delivery of said Licensed Products by Licensee.” The agreement further stated that “Licensed Patents” includes both “patents and other rights,” which the 10th Circuit noted could include possible future patent applications.

Peiker argued that Cellport can only claim royalties on products that actually practice Cellport’s patents. Cellport responded that it is entitled to royalties on the sale of “Licensed Products” and that infringement analysis is not necessary. In other words, Cellport argues that the parties created what in substance is an irrebuttable presumption that any products fitting the definition is of a Licensed Products, whether or not they use any technology covered by the Licensed Patents.

The district court determined that if any of Peiker’s products fall within the meaning of a “Licensed Product,” including one that is substantially similar, then by virtue of the acknowledgments, any such products are presumed to use Cellport’s patented technology. But the district court concluded that this presumption is a rebuttable one that may be refuted with evidence showing that the product does not in fact use Cellport’s patented technology. Cellport appealed.

The 10th Circuit disagreed and reasoned that the licensing agreement was between two sophisticated companies represented at all times by counsel. If the parties had wished to bargain for certain terms or deem something to be a Licensed Product even without knowing whether it was uses technology covered by the Licensed Patents, they were free to do so. Instead, the parties created a category of products on which royalties are due regardless of whether any of Cellport’s patents are infringed. Under the 10th Circuit any evidence that Peiker presented to the district court that the products did not infringe Cellport’s patents was irrelevant.

Since Cellport’s complaint alleged only claims based on contract law, not patent law, the 10th Circuit determined that relief did not depend on the resolution of a substantial, disputed question of patent law. Accordingly, the 10th Circuit rejected Peiker’s jurisdictional challenge that the U.S. Court of Appeals for the Federal Circuit has exclusive jurisdiction over the case.

Patents / Antitrust Counterclaims

Sham-Wow! Antitrust Liability May Attach to Sham Administrative Petitions *Web Only*

Addressing whether the “sham” exception to Noerr-Pennington immunity is limited to sham litigation in courts, the U.S. Court of Appeals for the Federal Circuit vacated a lower court’s summary judgment of no antitrust liability, finding that antitrust liability can attach to sham administrative petitions and that the sham litigation exception is not limited to court litigation. Tyco Healthcare Group LP v. Mutual Pharm. Co., Inc., Case No. 13-1386 (Fed. Cir., Aug. 6, 2014) (Bryson, J.) (Newman, J., dissenting).

Tyco Healthcare acquired patents relating to temazepam, an insomnia drug marketed as Restoril. Seeking Food and Drug Administration (FDA) approval to manufacture and sell generic temazepam, Mutual Pharmaceutical filed an Abbreviated New Drug Application (ANDA), certifying that its generic product would not infringe any patents. Tyco disagreed and sued Mutual for infringement under the Hatch-Waxman Act. The district court rejected this claim, reasoning that products manufactured to the ANDA’s specification could not infringe. Tyco then filed a citizen petition with the FDA, urging new guidelines to require generic temazepam manufacturers to more extensively demonstrate bioequivalence to Restoril. The FDA denied Tyco’s citizen’s petition “indicating that, in the FDA’s view, it was wholly without merit.”

In response to Tyco’s infringement suit, Mutual brought antitrust counterclaims, including allegations that Tyco’s suit and citizen petition were shams. In other words, Mutual argued that Tyco used illegitimate means to keep Mutual’s product off the market. On summary judgment, the district court rejected these counterclaims, holding that it was reasonable for Tyco to proceed with its infringement action and that antitrust liability for sham claims cannot apply to filing administrative petitions because the exception “is expressly limited to litigation.” Mutual appealed.

The Federal Circuit vacated the rulings on antitrust issues and remanded for further consideration. With regard to Tyco’s Hatch-Waxman claim, the Federal Circuit found that it was not unreasonable for a patent owner to allege infringement under Hatch-Waxman if the patent owner has evidence that the as-marketed commercial ANDA product will infringe, even though the hypothetical product specified in the ANDA could not infringe. The Court concluded that further inquiry was necessary to determine if Tyco’s factual theory of infringement was objectively baseless. With regard to the administrative proceeding, the Court found that the sham exception to Noerr-Pennington is not limited to court litigation, and that it has been applied to administrative petitions, including FDA citizen petitions. Accordingly, it remanded this counterclaim for resolution of fact issues regarding whether the citizen petition was objectively baseless and motivated by a subjective desire to directly interfere with Mutual, as well as whether Mutual suffered any anticompetitive injury.

Judge Newman dissented from the court’s conversion of routine patent litigation into antitrust violations, arguing that “[e]nforcement of a presumptively valid patent against a product that infringes by statute [Hatch-Waxman] cannot be deemed objectively baseless” and patent holders have “the right to communicate with the FDA concerning public information on matters within the agency’s authority and responsibility without incurring antitrust liability.”

Patents / Claim Construction

Claim Construction Clarified, Not Changed, Post-Verdict

Addressing whether a district court’s post-verdict ruling on judgment as a matter of law (JMOL) constituted an improper change in claim construction, the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s decision granting JMOL of no infringement, finding that the district court at most clarified its previous construction that was already present in the jury instructions. Mformation Technologies v. Research In Motion, Case Nos. 12-1679, 13-1123 (Fed. Cir., Aug. 22, 2014) (Prost, J.).

Plaintiffs-appellants Mformation filed a lawsuit against Research In Motion (BlackBerry) accusing Blackberry of patent infringement of a patent directed to a method of remotely managing an electronic device that required establishing a connection between the wireless device and the server and “transmitting” information from the server to the wireless device. After trial, the jury found infringement. In a post-trial order, the district court explained that the claimed “establishing” step must be completed before the “transmitting” step can commence. In view of this statement, BlackBerry renewed its judgment as a matter of law (JMOL) motion, arguing that Mformation did not present evidence that, in the accused device, a connection is completely established before the start of the “transmitting” step. The district court granted BlackBerry’s motion and overturned the jury verdict. Mformation appealed.

The Federal Circuit affirmed, finding that the district court’s post-verdict ruling did not constitute an improper change in claim construction. Instead, the Court concluded that the district court at most clarified its previous construction that was already present in the jury instructions. In the jury instructions where the district court described the “establishing” step, it also explained that the use of the phrase “connection is established” found in the claim language means that connection must not only be initiated, but must be “made by the server with the wireless device.” In the next section, the jury instructions discussed the “transmitting” step. The Federal Circuit explained that that “[a] logical reading of these instructions would be that the sub-step discussed in the first section of the jury instructions must be completed before moving on to the next section discussing the separate sub-step.” “It is inherent in those instructions that, to complete the ‘establishing a connection’ sub-step, the connection must be ‘established,’ and that must happen before the transmitting sub-step begins.” Therefore, the Court concluded that the district court did not alter its prior claim construction.

The Federal Circuit further rejected Mformation’s argument that the district court’s order-of-steps requirement was incorrect. The Federal Circuit explained that generally, unless the steps of a method claim actually recite an order, the steps are not construed to require one. However, a claim “requires an ordering of steps when the claim language, as a matter of logic or grammar, requires that the steps be performed in the order written, or the specification directly or implicitly requires” an order of steps. The Federal Circuit found that here, logic required an ordering limitation—if the “establishing a connection” step did not have to be complete before transmission began, it would be “superfluous” because otherwise it is “necessarily encompassed in transmitting a command.” Further, the Court noted that the “other sub-steps in claim 1 inherently require an order-of-steps . . . as a matter of logic, a mailbox must be established before the contents of the mailbox can be transmitted” and that the order-of-steps limitation was “consistent with the sole embodiment in the specification.”

Patents / Exceptional Case

The Squeaky Wheel Gets the Grease - You Won’t Get Fees if You Don’t Complain Early *Web Only*

Applying recent standards for determining whether a case is “exceptional” under Octane Fitness for purposes of awarding fees, the U.S. District Court for the Eastern District of Texas (Judge Bryson of the U.S. Court of Appeals for the Federal Circuit, sitting by designation) denied a defendant’s motion for fees based, in significant part, on the defendant’s lack of prior complaint regarding the alleged misconduct that formed the basis of the post-verdict motion. Stragent, LLC v. Intel Corp., Case No. 6:11-cv-421 (E.D. Tex., Aug. 6, 2014) (Bryson, J., sitting by designation).

Plaintiff Stragent asserted four patents against Intel as part of its original complaint. Only one of the four patents was ultimately tried. The jury concluded that the asserted claims were both invalid and not infringed. As the parties were in the midst of briefing the issue of whether the case was an “exceptional” one under § 285, the U.S. Supreme Court issued its opinion in Octane Fitness (IP Update, Vol. 17, No. 5). With that decision as a guidepost, the district court set out to determine based on the various pronounced factors whether this case “stands out from others with respect to the substantive strength of [Stragent’s] litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”

The court rejected Intel’s arguments criticizing the substantive strength of the case as to both infringement and invalidity. Regarding infringement, the court found that “Stragent’s argument was certainly a weak one,” but that “Intel never sought summary judgment of non-infringement on the basis of the limitation at issue.” The court found that this suggested that Intel did not always view Stragent’s infringement position as frivolous and that there is little injustice in forcing Intel to bear its own attorneys’ fees for defending a claim it did not challenge on summary judgment. The court found that had the defendants successfully moved it would have avoided a trial and would have had the effect of saving both parties a substantial portion of their litigation costs. Regarding invalidity, the court found that “Stragent’s validity argument was certainly not a winning position, but the disputes between the parties over invalidity and related claim construction questions were real and substantial,” that Stragent prevailed in the majority of disputed claim constructions and that Stragent “simply lost the jury verdict.”

The court also rejected Intel’s arguments criticizing the manner in which the case was litigated. The court found that Stragent had not delayed in disclosing certain positions and or committed misconduct in abandoning certain other claims and positions. The court also found no misconduct in Stragent’s alleged strategy of “fil[ing] infringement suits against Intel customers in an effort to force a settlement of this case.” Similarly, the court found that Stragent had not engaged in bad faith discovery, evidenced by the fact that “Intel never sought discovery sanctions against Stragent or even a court ruling limiting the scope of discovery.”

Finally, the court found that “counsel for both sides were cooperative in reaching stipulations and minimizing disputes over collateral issues throughout the case.” Reasoning that “[t]his not only saved the court’s time, but surely lowered the parties’ costs as well” and that “such professionalism is to be commended and weighs against a finding that an award of attorney’s fees is warranted.”

Patents / Post-Issuance Proceedings / IPR / Appeals on Institution Decision

PTO Decision Not to Institute IPR Is Final and Not Appealable

Effectively reiterating a decision from earlier this year, the U.S. Court of Appeals for the Federal Circuit granted a patent owner’s motion to dismiss an appeal of the decision by the U.S. Patent and Trademark Office’s Patent Trial and Appeals Board (PTAB, the Board) not to institute eight separate inter partes review (IPR) proceedings, explaining, once again, that the Court has no authority to review non-institution decisions for IPR proceedings. ZOLL Lifecor Corp. v. Philips Electronics North America Corp., Case Nos. 14-1588; -1589; -1590; -1591; -1592; -1593; -1594; -1595 (Fed. Cir., Aug. 25, 2014) (O’Malley, J.).

ZOLL Lifecor filed IPR petitions seeking to invalidate eight patents asserted by Philips Electronics, in two district court actions against ZOLL Lifecor and its parent, ZOLL Medical.

In separate decisions denying institution, the Board noted that ZOLL Medical was, as the parent of ZOLL Lifecor, a real party-in-interest and should have been identified as such in each of the IPR petitions. The Board noted that normally the petitioner would be given one month’s time within which to cure the statutorily defective petitions but, because the petitioner had been served with a complaint asserting all eight patents more than one year prior to the filing of the petitions, those petitions were time-barred under 35 U.S.C. § 315(b). ZOLL Lifecor then appealed the non-institution decisions of the Board.

The Court pointed to its earlier decision in St. Jude Medical, where it explained that IPR is a two-step process and that the controlling statute, § 319, authorizes appeal to the Federal Circuit only from the “final written decision of the Board.” The Court specifically noted that it has stated “[t]he statute provides for an appeal to this court only of the Board’s decision . . . not the Director’s (institution) decision . . .” Moreover, the Court explained that § 314(d) “contains a broadly worded bar on appeal” of a non-institution decision stating that “[T]he determination by the Director whether to institute inter partes review under this section shall be final and nonappealable.” Additionally, the Court was not persuaded by the ZOLL Lifecor’s attempt to distinguish the facts in St. Jude Medical on the ground that its petitions were rejected under § 315(b), with the Court noting that ultimately the one-year bar under § 315(b) was determinative for both decisions.

Patents / Exceptional Case

Federal Circuit Remands Trio of Attorneys’ Fee Award Cases Back to District Courts

Paul Devinsky

In the span of 10 days, and in the wake of the U.S Supreme Court decisions of last spring in Icon Health & Fitness, v. Octane Fitness (IP Update, Vol. 17, No. 5) and Highmark v. Allcare Health Mgmt. Sys., Inc. (IP Update, Vol. 17, No. 5), the U.S Court of Appeals for the Federal Circuit issued a trio of non-precedential decisions, vacating the initial lower court opinions and remanding the cases back to their respective district courts with instructions to apply the new Supreme Court standards. Icon Health & Fitness, Inc. v. Octane Fitness, LLC, Case No.11-1521, -1636 (Fed. Cir., Aug 26, 2014) (per curiam); Checkpoint Systems, Inc. v. All-Tag Sec., S.A., Case No. 12-1085 (Fed Cir., Sept 4, 2014) and Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc.,Case No.11-1219 (Fed Cir, Sept. 5, 2014) (per curiam)

The Supreme Court, in its decisions in the Octane Fitness and Highmark cases, reversed the Federal Circuit’s standard for determination of an “exceptional case” under sec. 285 (Octane) as well as the standard of review to apply to an exceptional case determination on appeal (Highmark). In the Octane decision the Supreme Court abrogated the Brooks Furniture two-part test, requiring both objective baselessness and subjective bad faith to support an exceptional case holding, as well as the clear and convincing evidence standard. In their place, the Supreme Court held that an “exceptional case” is “simply one that stands out from others with respect to the substantive strength of a party’s litigating position…” and should be determined by the district court, based on the totality of the circumstances and in the exercise of the court’s discretion. In the Highmark case, the Supreme Court abrogated the Federal Circuit’s de novo standard of appellate review and replaced it with an abuse of discretion standard.

In the Octane remand, the instruction was simply to apply the new standard to the exceptional case determination.

In the Checkpoint case, the remand instruction was to reconsider the initial award of attorneys’ fees in light of the Octane case, but taking “guidance from [the Federal Circuit’s] prior opinion” (which overturned the initial $6.6 million award of attorneys’ fees).

In the Highmark case, rather than simply apply the new appellate standard of review announced by the Supreme Court, the Federal Circuit vacated the district court’s $4.7 million fee award and sent the case back “for reconsideration under the new standard articulated [by the Supreme Court] in Octane.”

America Invents Act

AIA / Post-Issuance Procedure / CBM

First Final CBM Decision Invalidates Patent Under § 101

In the first final written decision issued in a Covered Business Method (CBM) proceeding, the Patent Trial and Appeal Board (PTAB, the Board) ruled that it has authority to review petitions premised on 35 U.S.C. § 101 grounds, and then exercised that authority by invalidating the patent at issue. U.S. Bancorp v. Retirement Capital Access Management Co., Case No. CBM2013-00014 (PTAB, Aug. 22, 2014) (Ward, ALJ)

Retirement Capital Access Management (the patent owner) and Benefit Funding Systems sued U.S. Bancorp (the Petitioner) for infringement in district court. Less than a year later Bancorp filed a petition for CBM, requesting that the asserted patent be found invalid under 35 U.S.C. § 101 as being directed to an abstract idea. The patent owner argued that § 101 was not an appropriate ground to maintain a CBM proceeding because it is not a “condition for patentability” within the meaning of § 282(b). The patent owner also argued that even if the PTAB could review the § 101 issue the asserted patent should be found valid. The PTAB disagreed on all counts.

The PTAB confirmed that § 101 is a proper ground for a CBM review, noting that the Supreme Court recognized § 101 as “a condition for patentability” as far back as Graham v. John Deere (Supr. Ct., 1966). The PTAB also looked to the legislative history of the America Invents Act (AIA), and found that “[t]he specified purpose of the covered business method review program was to allow the Office to revisit business method patents post-Bilski and evaluate whether the patents were too abstract to be patentable under § 101.”

Analyzing the asserted patent under the framework set forth by the Supreme Court in Mayo Collaboration Servs. v. Prometheus Labs, (IP Update, Vol. 15, No. 3) the PTAB concluded that the asserted patent claims recite nothing more than abstract concepts that constitute non-patentable subject matter. Specifically, the Board explained the asserted patent covered a method by which recipients of retirement payments (such as Social Security payments) can obtain a monetary advance in exchange for a predetermined portion of that recipient’s future retirement benefits. The Board likened the claimed invention to the method of managing risk at issue in Alice Corp., (IP Update, Vol. 17, No. 7) and the method of hedging risk commodities found invalid in Bilski.

After concluding that the patent was directed to an abstract idea, the Board considered whether the claims contained meaningful and substantive limitations that caused them to cover less than the identified abstract concept. Ultimately, the Board was unpersuaded that any such meaningful and substantive limitations existed because the limitations cited by the patent owner for this proposition merely required the transaction to be legal, a routine requirement that cannot render an abstract idea patent-eligible.

The Board also concluded that the challenged claims were not saved because of the recited the use of a computer. With respect to the words “computerized method” in the preamble, the Board concluded that this language did not meaningfully limit the claims. As for certain means-plus-function limitations, which the Board construed as being implemented on a computer, the Board concluded that these limitations merely require “utilizing the well-known technique of electronic funds transfer” and thus could not save the claims from being patent-ineligible. Indeed, as the Board noted, the specification expressly states that the “present invention utilizes known computer capabilities,” which suggests that no special purpose computer is necessary to implement any step of the claimed method.

AIA / Post-Issuance Proceedings / CBM / Procedure

CBM Review Cannot Proceed if Petitioner Filed Civil Suit Challenging Patent’s Validity Prior to Filing Review Petition

Addressing the circumstances under which a Covered Business Method (CBM) patent review may proceed, the U.S. Patent and Trademark Office’s (USPTO) Patent Trial and Appeal Board (PTAB, the Board) held that a post-grant review may not be instituted if the petitioner or real party in interest filed a civil action challenging the validity of a claim of the patent before the CBM petition is filed. SecureBuy LLC v. Cardinal Commerce Corp., Case CBM2014-00035 (PTAB, April 25, 2014) (Hoskins, APJ.).

Cardinal Commerce Corporation owned a patent directed to schemes for credit card payment authentication. SecureBuy filed a petition for CBM review of the patent. Two weeks prior to that filing, SecureBuy had filed two separate civil suits in federal court seeking declaratory judgments that several claims of the patent were invalid.

Under the America Invents Act (AIA), CBM review is barred in cases where a civil suit has already been filed by the petitioner. According to the Board, AIA is intended to expedite the review of business method patents by involving the USPTO, not to provide a petitioner with multiple different forums in which to challenge an issued patent.

The Board found that the CBM review requested by SecureBuy was foreclosed by § 325 of the AIA because on the filing date of the petition SecureBuy had already filed a civil suit seeking declaratory judgment that several claims of the patent were invalid. Thus, the Board dismissed the CBM petition without reaching the merits of the invalidity allegation.

The Board marked its decision in the instant case as “precedential,” meaning that future Board judges must adhere to the ruling in the instant case as long as this ruling is not “overcome by subsequent binding authority.”

AIA / Post-Issuance Proceedings / IPR / Motions to Amend / Discovery

PTAB Designates Two Recent Decisions as Informative

The Patent Trial and Appeal Board (Board) recently designated as “informative” two decisions earlier released from concluded inter partes review (IPR) proceedings, Garmin Int’l, Inc., et al. v. Cuozzo Speed Technologies LLC, Case IPR2012-00001 (slip op. March 5, 2013) (Lee, APJ), and Idle Free Systems, Inc. v. Bergstrom, Inc., Case IPR2012-00027 (slip op. June 11, 2013) (Lee, APJ). The two newly designated opinions explain the requirements for motions to amend claims and for additional discovery.

In Idle Free Systems v. Bergstrom, (IP Update, Vol. 17, No. 1) the Board spelled out the requirements for a motion to amend challenged claims: a patent owner is required to confer with the Board prior to filing a motion to amend; a challenged claim can be replaced by only one claim, absent special circumstances, and a motion to amend should identify which challenged claim the proposed claim is to replace; a proposed claim must be responsive to an alleged ground of unpatentability and must include or narrow each feature of the claim being replaced; a substitute claim cannot enlarge the scope of challenged claim by eliminating any feature; a proposed substitute claim cannot introduce new matter; and the patent owner must show written description support in the original disclosure for the proposed substitute claim.

For each proposed substitute claim, the patent owner should make a showing of patentable distinction over the prior art and should identify the feature(s) added to each substitute claims, compared to the challenged claim it replaces, and present technical facts and reason about such feature(s), including construction of new claim terms, sufficient to persuade the Board that the proposed substitute claim is patentable over the prior art of record and over prior art not of record but known to patent owner.

Finally, a patent owner should include the contingency of substituting a claim only upon the unpatentability of the original claim.

In Garmin Int’l, v. Cuozzo Speed Technologies (IP Update, Vol. 16, No. 12), the Board explained what constitutes “routine” discovery and what additional discovery may be permissible for IPRs. The Board pointed to the Office Patent Trial Practice Guide, which explains that routine discovery includes production of any exhibit cited in a paper or in testimony with the citing paper or testimony, the cross-examination of the other side’s declarant(s) and relevant information that is inconsistent with a position advanced during the proceeding. The standard for granting any requests for additional discovery is whether the additional discovery is in “the interest of justice.” The Board spelled out five factors that are used to determine whether a request meets the standard: the requestor of information should already be in possession of a threshold amount of evidence or reasoning tending to show beyond speculation that something useful will be uncovered—“useful” meaning “favorable in substantive value to a contention of the party moving for discovery”; asking for the other side’s litigation positions and the underlying basis for those positions is not in the interest of justice; the ability of the requesting part to generate the requested information without need of discovery; question should be easily understandable; and requests should not be overly burdensome, financially, on human resources, and on meeting the statutory time schedule for inter partes review. The Board ultimately denied all facets of Cuozzo’s discovery motion as not complying with the first enumerated factor.

Practice Note: Patent owners desiring to recast many claims in a patent may want to consider following the PTAB’s advice by filing for either a reissue application or a request for ex parte reexamination of a patent relying on the Board’s institution of an IPR as raising the required substantial new question of unpatentability. Any party seeking additional discovery in IPR proceedings should tailor their requests narrowly to comply with the five-factor test used for the “interest of justice” standard.

AIA / Post-Issuance Proceedings / IPR / Motions to Amend

Motions to Amend Hard to Come By

In a Final Written Decision the Patent Trial and Appeal Board (PTAB) found all instituted claims unpatentable and denied patent owner’s motion to amend claims. Zodiac Pool Systems, Inc. v. Aqua Products, Inc., IPR2013-00159 (PTAB, Aug. 22, 2014) (Arpin, J.).

The petitioner filed for inter partes review (IPR), challenging certain claims of Aqua Products’ patent. The Board instituted an IPR with respect to many, but not all, of the challenged claims. Zodiac asserted both anticipation and obviousness arguments based on four prior art patents. Aqua Products argued the claims were patentable and that evidence of secondary considerations of non-obviousness overcame any case of prima facie obviousness. Aqua Products also filed a Motion to Amend Claims, proposing to substitute new claims that amended some of the challenged claims.

The Board concluded the challenged claims were not patentable (on various anticipation and obviousness grounds) and further found that Aqua Products failed to show that any alleged secondary considerations of non-obviousness outweighed the strong evidence of obviousness. In particular, the Board explained that Aqua Products failed to show a nexus between the claims and the alleged secondary considerations (commercial success, copying, long felt need, failure of others to solve the problems purportedly solved by the patent).

With respect to the Motion to Amend Claims, the Board found that Aqua Products’ amendments properly narrowed the claims, were definite and had written description support. However, the Board found that Aqua Products failed to prove the proposed substitute claims were patentable over an obviousness combination asserted in the original petition.

The Board also denied the patent owner’s motion to exclude with respect to the declaration of petitioner’s technical expert because Aqua Products failed to timely object to the declaration. Parties must object within five business days of receiving evidence, but Aqua Products did not object to the declaration until it filed its motion to exclude, over 20 business days after receiving the declaration. The Board did however grant the motion with respect to portions of a declaration by the petitioner that referred to documents that were either not produced or produced in a foreign language and no translation was provided.

(Disclosure: Mr. Yoder participated in the reported IPR.)

AIA / Post-Issuance Proceedings / IPR / Motions to Amend

Movants Face a High Bar to Succeed on Motions to Amend *Web Only*

In response to a patent owner’s motion to amend its claims in an inter partes review (IPR) petition, the U.S. Patent and Trademark Office’s (USPTO) Patent Trial and Appeal Board (Board) denied the motion, finding that patent owner did not meet its burden showing that the proposed claims were patentable over prior art. Intelligent Bio-Systems, Inc. v. Illumina Cambridge Ltd., IPR2013-00128 (PTAB, July 25, 2014) (Lebovitz, APJ.).

When the Board institutes an IPR, a patent owner may file responsive arguments or, instead, move to amend the claims at issue so long as the amended claims address the grounds of patentability raised in the IPR, do not broaden the scope of the claims or add new matter and are fully supported by the specification. The patent owner bears the burden of proof to show by a preponderance of the evidence that the proposed amended claims are novel and non-obvious over “the prior art available to one of ordinary skill in the art at the time the invention was filed, not just the prior art cited in the Petition.” The patentee has 15 pages in which to accomplish this and may include exhibits and an expert witness declaration. The petitioner then has an opportunity to respond and submit its own exhibits and expert declaration.

In the instant IPR, the patent owner requested cancellation of all of the claims at issue in the IPR and proposed substitute claims that mirrored the canceled claims except that they included a further limitation that was not part of any of the original claims. The motion with respect to cancellation of the original claims was not contingent on the original claims being held unpatentable. As such, the Board explicitly based its decision on the entire motion on the patentability of that new limitation in the substitute claims. The Board found the claims, even with the new limitation, to be obvious. Thus, the Board granted the patentee’s motion with respect to cancellation of the original claims but denied the motion with respect to the request to substitute the new claims.

Both parties also moved to exclude from evidence several exhibits, but the Board dismissed those motions as moot because it did not rely on those exhibits in reaching its decision. The petitioner also moved to exclude two exhibits on the grounds that they were not relevant, lacked foundation and were misleading. The Board dismissed the motion because it found the exhibits relevant, because petitioner did not sufficiently explain why the exhibits lacked foundation and because whether or not an exhibit is “misleading” goes to the weight given to the exhibits but not their admissibility.

AIA / IPR / Post-Issuance Proceedings / Motions to Amend

PTAB Denies Motion to Amend a Motion to Amend; Reason: Delay *Web Only*

In response to patent owner’s request to file a motion to amend a motion to amend made approximately one month before oral hearing, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (Board) denied patent owner’s motion, finding that an additional motion to amend would delay the proceeding, in which all evidence has been presented and oral hearing is about to occur. Tandus Flooring, Inc. v. Interface, Inc., Case No. IPR2013-00333 (PTAB, Aug. 8, 2014) (McNamara, APJ).

The patent owner, Interface, requested a conference to discuss obtaining authorization to supplement its previously filed motion to amend claims to expressly claim priority to an earlier filed patent application and to identify support for the subject matter of the substitute claims in that application. Interface argued that the earlier filed patent application has the exact same disclosure as the later application that was originally cited in support of the proposed amended claims in the original motion to amend. The petitioner, Tandus Flooring, opposed the request, arguing that none of the considerations for authorizing an additional motion to amend are present, such as identification of supplemental information not known to patent owner when it filed its original motion to amend.

The Board did not authorize patent owner to file an additional motion to amend. The Board found that the additional motion would delay the proceeding, citing to the fact that all evidence had been presented and oral argument was about a month away. In addition, the Board found that patent owner’s proposed additional motion to amend would have no effect on the outcome of the proceeding because the patent owner’s failure to claim support from the earlier disclosure does not change the fact that the later application is a continuation of the earlier application and is therefore entitled to the priority date afforded the earlier application under § 120. The Board explained that the disclosure in the earlier application is not available as prior art to the later application and that analysis of the original motion to amend will consider whether the later application supports a conclusion that the patent owner possessed the invention in the proposed amended claims as of the filing date of the later application under 35 U.S.C. § 112.

AIA / IPR / Post-Issuance Proceedings / Motions to Amend

Know the Patent Specification Before Filing a Motion to Amend *Web Only*

Addressing issues of claim construction and the requirements for a motion to amend, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (Board) ruled that the claims at issue were unpatentable and denied a motion to amend, finding that the patent owner had not sufficiently distinguished the proposed amended claims over the cited prior art and all prior art known to the patent owner. Veeam Software Corp. v. Symantec Corp., Case No. IPR2013-00142 (PTAB, July 29, 2014) (Petravick, APJ).

Veeam filed a petition challenging certain claims of Symantec’s patent that relates to the restoration of computer systems backed up on storage managers (e.g., over a network) when normal restoration is not available. The Board determined the challenged claims were likely unpatentable and instituted the inter partes review proceeding. The Board later found in a final written decision the claims to be unpatentable and denied Symantec’s motion to amend.

The Board construed the claim term “client disk configuration information,” adopting the broadest reasonable construction, which had been proposed by petitioner Veeam. Under this construction, both independent claims were anticipated by an old computer user guide that disclosed a system including client disk configuration information as well as a restoration server. Although Symantec made no arguments regarding the additional limitations of the dependent claims, the Board found the dependent claims were also anticipated.

Symantec’s motion to amend proposed substitute claims that included additional limitations. The Board denied the motion to amend based on the unpatentability of the substitute claims. Symantec failed to demonstrate that the substitute claims were patentable over the prior art of record and all prior art known to Symantec, noting that it was insufficient to simply argue the substitute claims are patentable over the grounds of unpatentability on which the Board instituted review. For instance, neither Symantec’s motion to amend nor the attached expert declaration addressed whether it would have been obvious to one skilled in the art to modify the cited prior art in a manner suggested by the additional claim limitations. Also, neither Symantec’s motion nor its supporting expert declaration addressed that one of the additional limitations proposed to be added was already admitted to be known in the art in the patent specification.

In addition to denying the substitute claims based on unpatentability, the Board denied any substitute claim that included the term “server device” as improperly broadening the scope of the claim. Symantec had replaced the term “restoration server” with the “facially broader” term “service device.” This amendment did not respond to any alleged ground of unpatentability, and Symantec’s motion failed to explain how this substitution did not broaden the claims.

Symantec had also filed a motion to exclude that sought to exclude a piece of prior art. Because the above listed reasons did not depend on the specific piece of art, the motion to exclude was dismissed as moot.

AIA / IPR / Post-Issuance Proceedings / Motion for Supplemental Discovery

The Narrow Scope of Supplemental Discovery in an Inter Partes Review

Addressing issues of limited discovery and the requirements of a motion for supplemental discovery, the Patent Trial and Appeal Board (PTAB) denied supplemental discovery, finding the patent owner’s discovery requests were unduly broad and burdensome. The Board concluded that even though the patent owner made a sufficient showing to warrant limited discovery related to secondary consideration of non-obviousness (sales figures), it had not sufficiently narrowed its discovery requests such that there was more than a possibility or mere allegation that something useful would be found. Square, Inc., v. REM Holdings 3, LLC, Case No. IPR2014-00312 (PTAB, Sept. 15, 2014) (Bisk, APJ).

Square filed a petition challenging the claims of REM’s patent relating to a mobile card reader device (such as those used to process credit card payments). After the Board instituted an inter partes review, REM sought “additional discovery” related to secondary considerations of non-obviousness. In particular, REM argued that it required more information regarding copying by Square and the commercial success of Square’s card reader device. The Board granted REM’s request to file a motion for additional discovery subject to REM specifically identifying the materials that were being requested and why it believed the requested discovery was “necessary in the interest of justice.” The Board directed REM to the five factor test outlined in Garmin v. Cuozzo Speed Techs. (IP Update, this issue) and emphasized that the mere possibility of finding something useful would be found insufficient to warrant discovery.

After REM filed its motion for additional discovery relating to evidence of secondary considerations, the Board dismissed its requests finding they were “unduly broad and burdensome . . . and sought information that was publicly available.” The Board explained that REM did not show that there was more than a possibility or mere allegation that its request would result in evidence “both that there is commercial success, and that the thing (product or method) that is commercially successful is the invention” or “a sufficient relationship between that which is patented and which is sold.” In particular, the Board emphasized that in its motion, REM did not point to any specific language in the claims or otherwise explain how it might be able to show a nexus between the features of the claims and any commercial success.

AIA / IPR / Post-Issuance Proceedings / Supplemental Information

Supplemental Information Authorization Hard to Come By

Tomoki Tanida

The Patent Trial and Appeal Board (PTAB, the Board) denied a motion by a petitioner to file a motion for supplemental information to introduce the deposition testimony of a named inventor, obtained in the co-pending district court case, explaining that the appropriate time to introduce the testimony would be in its reply to the patent owner’s response. International Business Machines Corporation v. Intellectual Ventures II LLC, IPR2014-00180 (PTAB, Aug. 7, 2014). (Quinn, APJ).

Supplemental information is evidence a party relies on to support an argument on the merits. Rule § 42.123(b) provides that a party seeking to submit supplemental information more than one month after the date the trial is instituted must request authorization by filing a motion to submit the information.

In this case, after the decision to institute had issued and after the patent owner’s response was filed, the petitioner sought to file a motion to submit supplemental information. During the ensuring conference call, the petitioner contended that introduction of the inventor’s testimony should be authorized as supplemental information because that testimony is “highly relevant” to claim construction. The petitioner argued that its motion was appropriate in view of the 15-page limit on its reply to the patent owner’s statement.

The PTAB denied the request, explaining that the appropriate mechanism for introduction of the inventor’s testimony would be as support in connection with its reply, where the petitioner has an opportunity to address the arguments in the patent owner’s response. The Board further explained that a motion to file supplemental information is neither a vehicle for explaining the significance of the testimony nor an opportunity to obtain extra pages for argument that should be presented in a reply. If the inventor testimony supports the broadest reasonable interpretation and its consideration would challenge either patent owner’s position or the PTAB’s claim construction, the petitioner is free to make its argument regarding that testimony in the reply. The PTAB noted, however, that the litigation-derived inventor’s testimony would likely be little probative value for purpose of claim construction.

The rule in question (§ 42.123(b)) places limits on the introduction of evidence, regardless of whether it is relevant to claim construction, after trial has been instituted. The rule provides that consideration of supplemental information is to be permitted based on an interest of justice. The PTAB was not persuaded by the petitioner’s allegation that it would be able to show that the inventor’s testimony is “highly relevant” to a claim for which trial has been instituted such that, in the interests of justice, it should be introduced as supplemental information.

AIA / IPR / Post-Issuance Proceedings / Obviousness

Patent Owners: Better Address All Obviousness Arguments Raised by Petitioner

In a final written decision addressing an obviousness challenge, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB, the Board) found the challenged claims unpatentable as obvious, noting that the patent owner failed to respond to petitioner’s arguments regarding disclosures in certain prior art references. PharmaTech Solutions, Inc. v. LifeScan Scotland Ltd., Case IPR2013-00247 (PTAB, Aug. 6, 2014) (Kamholz, APJ).

PharmaTech petitioned the Board for an inter partes review (IPR). The challenged patent was directed to methods for monitoring glucose levels in blood by measuring the electrical current created when blood is in contact with sensors positioned on a testing strip. In the ensuing proceeding, PharmaTech argued that the challenged claims were obvious in view of the combined teachings of the references to Nankai and Schulman and of the references to Winarta and Schulman.

Concerning the combined teachings of Nankai and Schulman, petitioner, PharmaTech, argued that Nankai disclosed all claim limitations except three: the position of the sensors; the required step of comparing the currents from each sensor to establish a “difference parameter”; and providing an error indication when the “difference parameter” is beyond a threshold. PharmaTech further argued that since there were a finite number of ways to arrange the sensors, the claimed arrangement would have been obvious to try and that the remaining two limitations were taught by Schulman.

LifeScan countered that the claimed positioning was critical. LifeScan also challenged the motivation to combine Nankai and Schulman, but it never directly addressed PharmaTech’s arguments about the teachings of Schulman.

Noting that LifeScan did not point to any unexpected consequence of the claimed sensor arrangement, the Board agreed with PharmaTech and found the sensor positioning obvious. Also, as noted by the Board, PharmaTech relied on Schulman only for the “limited disclosure that multiple measurements of a sample can be compared to establish a difference parameter, and rejected if the difference exceeds a threshold” and rejected LifeScan’s argument on motivation to combine. As a result, the Board agreed with PharmaTech’s challenge.

Regarding the combined teachings of Winarta and Schulman, PharmaTech argued that Winarta disclosed all claim limitations except measuring an electric current at a second working sensor and the limitations taught by Schulman discussed above. As before, PharmaTech argued that Schulman taught the missing limitations either directly or indirectly by motivating a skilled artisan to modify Winarta’s disclosures.

LifeScan asserted that the sensors disclosed in Winarta could not perform the missing sensor claim element and that other claim limitations were missing from both Winarta and Schulman. The Board disagreed, noting that LifeScan was considering each reference separately rather than their combined teachings. Again, the Board noted that LifeScan did not address PharmaTech’s arguments concerning the combination with Schulman and found in favor of PharmaTech.

LifeScan argued that there was objective evidence of non-obviousness, particularly copying by PharmaTech. Relying on LifeScan’s admission that PharmaTech’s product was designed to fit into a specific meter, the Board rejected this evidence. LifeScan did not show or explain how designing the strips for a particular meter related to the claimed subject matter. The Board thus concluded that petitioner had proved by a preponderance of the evidence that the challenged claims would have been obvious in view of each of the reference combinations.

AIA / IPR / Post-Issuance Proceedings / Pleading Requirement

Petitioner Barred from Raising Arguments Not in Petition *Web Only*

Addressing the petitioner’s request for rehearing of a denial for review, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB, the Board) denied the petitioner’s request for rehearing of the earlier denials of institution in three inter partes review (IPR) proceedings of the same challenged patent, concluding the petitioner, in its original petitions, failed to plead the specific invalidity grounds raised in its rehearing request. TRW Automotive US LLC v. Magna Elecs., Inc., Case IPR2014-00256 (PTAB, July 31, 2014) (Arbes, APJ).

Petitioner TRW filed a request for rehearing of the denial of institution of an IPR for numerous claims in a patent owned by Magna Electronics. The Board denied the request, explaining that the original denial of the petition was not based on “an erroneous conclusion of law or clearly erroneous factual findings, or . . . a clear error of judgment.”

The Board explained that TRW improperly raised arguments in its request for rehearing not included in its petition. For example, the petition stated the prior art reference “shows the limitations” of the claims, while in its request for rehearing, TRW posited the prior art reference “suggests” the claim limitation. The Board explained that by using the word “shows,” the petition relied on the prior art reference as anticipating a claim limitation, and TRW was now barred from arguing for rehearing on the basis that the prior art as rendering the claim limitation obvious. The Board additionally noted that, in its request for rehearing, TRW improperly relied on portions of a prior art reference not cited in the original petition and that it was barred from raising them as arguments for rehearing. Finally, PTAB explained that the original petition “did not provide a facially logical explanation of why it would have been obvious” to combine the prior art references and that TRW’s attempt to argue, on rehearing, a motivation to combine the references was improper, as the denial of institution was based solely on the arguments in the original petition.

AIA / IPR / Post-Issuance Proceedings / Obviousness

PTAB on Analogous Art

In a final written decision addressing the patentability of claims challenged as obvious, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB, the Board) found three challenged claims patentable, determining that one of the key prior art references was non-analogous and could not be used in an obviousness analysis. Schott Gemtron Corp. v. SSW Holding Co., Inc., Case IPR2013-00358 (PTAB, Aug. 20, 2014) (Braden, APJ).

Schott Gemtron petitioned the Board for review of a patent directed to refrigerator shelving with a hydrophobic surface having a spill containment pattern where the hydrophobic surface area is less than the remaining area. One embodiment was a shelf with a perimeter band of hydrophobic material.

During claim construction, the Board determined that the arguments raised by the parties made it necessary to construe the term “spill.” Relying on examples provided in the patent, the petitioner argued that “spill” has a specific meaning of “liquid being placed on a surface.” The patent owner argued for the plain and ordinary meaning of the term—“an accidental or unintentional release of liquid”—relying on other parts of the specification. In view of examples in the specification showing how the invention affected an accidental spill, the Board agreed with the patent owner.

The petitioner provided a declaration in support of its petition. In an attempt to qualify its witness as a skilled artisan as of the effective filing date, the petitioner disputed the priority date for the challenged patent. The petitioner alleged that the two provisional applications cited for priority lacked sufficient written description to support limitations in each disputed claim. The Board disagreed. It found support in the provisionals for all limitations and accorded the patent the earlier priority date. Consequently, the petitioner’s witness did not qualify as a skilled artisan at the time of the invention, and the Board discounted his testimony.

The petitioner provided two prior art combinations to support its obviousness challenge. The patent owner argued that one reference, which was critical to both obviousness challenges, was not analogous to the claimed invention. The reference in question was directed to the containment of liquids on microscope slides. Relying in part on testimony from the patent owner’s witness, the Board agreed. The Board also noted that the petitioner’s witness did not dispute that testimony.

The Board reasoned that containing the accidental spill of liquid on a shelf is markedly different from containing miniscule amounts of liquid on a microscope slide. The Board determined that it did not matter whether the technique was scalable because the reference was not analogous. As a result, the Board excluded the reference from its analyses. Without this reference, both obviousness challenges failed.

AIA / IPR / Post-Issuance Proceedings / Motivation to Combine

No Motivation to Combine Where Combination Requires Complete Redesign *Web Only*

In a final written decision for two consolidated inter partes review (IPR) proceedings, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB, the Board) ruled that some of the challenged claims were patentable and some were unpatentable, finding that two proposed reference combinations did not render obvious certain of the claims because a person having ordinary skill in the art would not have been motivated to combine the references. Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., Case Nos. IPR2013-00132 and IPR2013-00584 (PTAB, July 24, 2014) (Arbes, APJ).

The patent at issue is directed to a system for providing an uninterrupted stream of stranded material such as yarn to a machine for subsequent processing. Specifically, the patent describes a mechanism for providing a “pre-configured supply of materials, carried on movable carts, or cartridges” for loading onto a stranded material creel. The dependent claims at issue describe systems having two types of bobbin transfer capabilities: across-frame and same-side.

The petitioner Shaw Industries presented two obviousness combinations: Munnekehoff with Ligon and Barmag with Ligon. The primary references, Munnekehoff and Barmag, each disclosed across-frame bobbin transfer arrangements with multiple 90-degree turns to guide the threaded material to the desired textile machine. Ligon disclosed both types of claimed bobbin transfer arrangements. However, Ligon taught that multiple sharp turns within a material path will increase the chances of material breakage. Accordingly, Ligon disclosed a reduced-bend material path that is generally in-line. Because the two primary references shared similar across-frame arrangements, the Board applied the same analysis to both combinations.

Shaw argued that “common sense” would drive a skilled artisan to combine the same-side arrangement of Ligon with the across-frame arrangement of the primary references. The Board disagreed, citing two reasons. First, the Board explained that short of a complete redesign, the combination would result in an inoperable assembly due to entanglement. Despite Shaw’s objection, the Board relied in part on the entanglement testimony of the inventor to reach this conclusion because it did not conflict with evidence in the record. Second, the Board explained that Ligon expressly discourages the type of sharp turns present in the primary references, and a skilled artisan would not have been motivated to combine them.

Shaw bolstered its “common sense” argument with two proposed redesigns. The Board found that the references did not disclose the addition of a new guide tube, which was Shaw’s first proposed design change, or reversing the rotation of bobbins after one sequence, which was Shaw’s second proposed design change. In any event, the Board noted that Shaw’s proposed design changes were not admissible because Shaw presented them for the first time in a reply brief.

As to the motivation to combine, the Board concluded that the primary references use multiple sharp turns for guiding thread and that Ligon “discourages the use of sharp turns.” Because Ligon’s teachings against the use of sharp turns were deemed to be its “primary objective,” the Board concluded that a skilled artisan would not be motivated to combine the references based on other secondary aspects of Ligon.

AIA / IPR / Post-Issuance Proceedings / Practice and Procedure

Counsel May Confer with a Witness Between Cross-Examination and Re-Cross, but the Witness Might Be Re-Crossed on the Substance of Such a Discussion

In an order regarding allowable communications between counsel and witness, the Patent Trial and Appeal Board (PTAB) held that counsel may confer with a witness between the end of cross-examination and the beginning of re-cross, but not during cross-examination or re cross. Organik Kimya AS v. Rohm and Haas Co., IPR No. IPR2014-00185 (PTAB, Aug. 21, 2014) (Green, APJ).

The PTAB explained that, during cross-examination and re-cross, counsel is generally prohibited from conferring with the witness regarding certain topics, such as the substance of the witness’s testimony, or how the witness should answer any questions. This prohibition ends once cross-examination concludes and begins again when re-cross commences.

The PTAB also considered whether the witness could be re-crossed on the substance of such discussions with counsel. The PTAB noted that the best practice here is for the parties to confer and agree to ground rules for such lines of questioning.

AIA / IPR / Post-Issuance Proceedings / Stays

Inter Partes Review Not Stayed, Despite Looming Patent Ownership Trial

Addressing a motion to stay an inter partes review (IPR) by the patent owner, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB, the Board) denied the patent owner’s request for stay, finding that the request for stay was not compatible with the statutory deadline to issue a final determination of the review no later than one year of institution. Symantec Corp. v. RPost Commc’ns Ltd., Case No. IPR2014-00357 (PTAB, July 31, 2014) (Clements, APJ).

Symantec petitioned the Board for IPR of RPost’s patent. RPost moved to stay this review because ownership of the patent was at issue in a state court case slated for trial later in the year. Given the correlation between ownership and standing, three federal district court actions involving the patent were stayed pending adjudication of the ownership issue in state court. Symantec, a party to one of the federal actions, did not oppose a stay in district court. For the same reasons the federal cases were stayed, RPost asked the Board to grant a stay of the IPR.

The Board denied RPost’s motion for three reasons. First, the Board is not subject to the ownership, standing and jurisdictional issues to which a district court is subjected. Second, even though trial is scheduled for a date specific, it is unknown when the ownership issue will ultimately be resolved after post-trial briefing, appeals and the like. Third, a stay is incompatible with the Congressional mandate that a final determination on the review be issued within one year. Even if the trial disposed of the ownership issue, a stay as short as three months would detrimentally impact the Board’s ability to meet the deadline. The pending ownership dispute was not sufficient cause to deviate from the Congressional one-year deadline.

AIA / IPR / Post-Issuance Proceedings / Procedure / Service of Petition

PTAB Grants Request for Rehearing Relating to Procedure for Serving Petitions

In an order granting a request for rehearing to address the issue of a filing date of a petition for inter partes review (IPR), the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (Board) granted a request for rehearing to clarify that service of the petition by electronic means or Express Mail is not required to be accorded a filing date, finding that the petition was accorded the proper filing date. Facebook, Inc. v. Rembrandt Social Media, L.P., Case IPR2014-00415 (PTAB, July 31, 2014) (Clements, APJ).

Patent owner, Rembrandt Social Media, requested a rehearing for the Board’s decision to institute the IPR. In the decision to be reheard, the Board stated that “mailing via FedEx after the cut-off time on Thursday [February 6, 2014] without electing Saturday delivery failed to comply with 37 C.F.R. § 42.105(b),” but accorded a filing date of February 6, 2014. The patent owner argued that the Board misapprehended the standard for determining whether a failure to effect service was “harmless” by focusing on whether patent owner’s ability to respond was prejudiced rather than on whether the failure to follow the rule was outcome determinative.

The Board did not find patent owner’s argument persuasive but granted the rehearing in order to revisit the Board’s statement. The Board found that petitioner Facebook did not fail to comply with § 42.106, which states that “[a] petition to institute inter partes review will not be accorded a filing date until the petition . . . [e]ffects service of the petition on the correspondence address of record as provided in [§] 42.105(a).” The Board found that § 42.106(a)(2) does not require compliance with § 42.105(b) for a filing date to be accorded, thus the petition complied with § 42.106 and was accorded a proper filing date.

AIA / IPR / Post-Issuance Proceedings / Trial Procedure

Expungement of Unauthorized Filings Under 37 CFR § 42.7(a) *Web Only*

In a sua sponte order concerning an inter partes review (IPR) proceeding, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (Board) expunged from the record in a proceeding several unauthorized filings by the patent owner pursuant to 37 C.F.R. § 42.7(a). MotivePower, Inc. v. Cutsforth, Inc., Case No. IPR2013-00267 (Quinn, APJ).

The patent owner filed a document entitled “Patent Owner’s Updated Exhibit List” and an accompanying exhibit that included the patent owner’s demonstrative exhibits for the oral hearing. The Board explained that it did not authorize these filings, and referenced its Trial Hearing Order, which explicitly stated that the parties “shall not file any demonstrative exhibits . . . without prior authorization.” Instead, the order directed the parties to serve the exhibits by email to the Board. Because the patent owner did not follow this procedure set forth in the Order, the Board expunged its filings.


Trademarks / Injunctions

Ninth Circuit Finds Permanent Injunction Questionable Despite Trademark Infringement

Sarah Bro

While affirming trademark infringement with respect to a Mexican hotel chain’s use of its trademark in the United States, the U.S. Court of Appeals for the Ninth Circuit also vacated a permanent injunction finding that the district court must conduct a further assessment of the equities in connection with issuing an injunction. La Quinta Worldwide LLC v. Q.R.T.M., S.A. De C.V., dba Quinta Real, Case No. 12-15985 (9th Cir., Aug. 6, 2014) (Gould, J.).

La Quinta operates more than 800 mid-tier hotels across the United States and has used the LA QUINTA trademark in commerce since 1968. Over the past few years, La Quinta has also opened several hotels in Mexico. Quinta Real opened its first hotel in Mexico in 1986, and it now operates eight luxury hotels throughout Mexico. In 1994, and again in 2007, Quinta Real entered into letters of intent to build a hotel in the United States. While neither letter of intent actually resulted in a new Quinta Real hotel in the United States, Quinta Real has maintained its intent to open a hotel in the United States.

In 2009, two years after the date of Quinta Real’s second letter of intent, La Quinta filed a lawsuit seeking an injunction against Quinta Real expanding use of its mark into the United States. After a bench trial, the district court found that there was a likelihood of confusion between the parties’ LA QUINTA and QUINTA REAL trademarks and granted a permanent injunction barring use of the QUINTA REAL trademark in the United States. On appeal, Quinta Real raised four arguments: that there is no federal subject-matter jurisdiction over the case; that no likelihood of confusion exists; that La Quinta’s suit is barred by laches; and, that the district court erred in granting La Quinta a permanent injunction.

With respect to the issue of subject-matter jurisdiction, the court rejected Quinta Real’s argument that its expressions of intent to open a hotel do not qualify as “use in commerce” of the QUINTA REAL trademark as required under the Lanham Act. Citing previous Supreme Court decisions, the court stated that the “use in commerce” element of the Lanham Act is not a jurisdictional requirement and determined that it had subject matter jurisdiction over La Quinta’s claims.

On the issue of trademark infringement, Quinta Real argued that the lower court misapplied the Sleekcraft “likelihood of confusion” factors. However, the court determined that all but two neutral factors supported a conclusion that there is a likelihood of confusion between the parties’ respective trademarks and confirmed that expansion of Quinta Real’s Mexican hotel business into the United States would result in a likelihood of consumer confusion with La Quinta.

In finding that the defense of laches did not apply, the court noted that Quinta Real gave no evidence that La Quinta’s period of delay in bringing suit during the time between the two letters of intent prejudiced its efforts to open a hotel in the United States, and the court agreed with the district court that the absence of prejudice was the most important factor in its laches analysis.

Finally, the 9th Circuit reviewed the district court’s decision to grant a permanent injunction for abuse of discretion and found that the lower court’s analysis did not discuss a particular fact relevant to weighing the equities, namely, the fact that a permanent injunction would bar Quinta Real from opening a hotel in the United States under its QUINTA REAL trademark, while La Quinta would be free to continue to open hotels and conduct business in Mexico under the LA QUINTA trademark. Accordingly, the court vacated the permanent injunction and remanded to the district court for further assessment of the equities with respect to the permanent injunction in the United States.

Trademarks / False Advertising

False Origin Claims Applicable to Services as Well as Goods

Clarifying prior Lanham Act case law related to false designation of origin, the U.S. Court of Appeals for the Seventh Circuit vacated a district court’s dismissal under Fed. R. Civ. P. 12(b)(6), holding that § 43(a) of the Lanham Act can reach claims alleging false designation as to the origin of services as well as goods. M. Arthur Gensler, Jr. & Assoc. v. Strabala, Case No. 12-2256 (7th Cir., Aug. 21, 2014) (Easterbrook, J.).

Jay Marshall Strabala was employed as a design director at the Gensler architectural design firm for nearly four years. During this time, Strabala participated in the design of several major projects. After leaving Gensler to set up his own competing architectural design company, Strabala set up two websites on which he claimed to have designed several of the projects for which Gensler was the architect of record, including the Shanghai Tower, the Hess Tower and the Houston Ballet Center. Gensler sued Strabala to prevent him from claiming to be the origin of the designs of these buildings. Gensler argued that the projects were designed by teams of Gensler employees, not by Strabala alone.

In the district court, Strabala filed a motion to dismiss Gensler’s complaint, arguing that the Supreme Court decision in Dastar v. Twentieth Century Fox precludes Lanham Act claims alleging false claims of origin to the idea, concept or communication embodied in goods and not the origin of the goods themselves. In that case, the defendant copied and sold videos containing movies that had entered the public domain. The Dastar court held that since the defendant had correctly identified itself as the origin of the video tapes, but had not falsely claimed to be the origin of the content of the tapes, there was no false claim of origin of the goods under the Lanham Act. Applying Dastar, the district court held that since Strabala did not make any false claims as to the origins of the buildings themselves, but only the design services embodied in them, the Lanham Act claim must be dismissed. Gensler appealed.

The 7th Circuit disagreed with the district court, explaining the holding in Dastar holding was focused on the false designation of goods’ origins because the suit only involved goods. The Supreme Court did not, however, read the word “services” out of the Lanham Act or limit application of § 43(a) to false designation of origins. In this case, Gensler alleges that Strabala made a false or misleading representation of fact that would tend to deceive clients as to a continuing connection between Strabala and Gensler, as well as to deceive clients regarding the origin of the design of the named buildings. As the 7th Circuit explained, such allegations fall within the bounds of § 43(a). The 7th Circuit found it immaterial that Strabala was claiming to have been the origin of the design services rather than of the buildings themselves.

Trademarks / Likelihood of Confusion

Holy Non-Infringement, Batman!

Sarah Bro

The U.S Court of Appeals for the Seventh Circuit affirmed the dismissal of a trademark infringement claim, finding that a real computer software product was not similar to a movie that used an identical name for a fictional software product in the story. Fortres Grand Corporation v. Warner Bros. Entertainment Inc., Case No. 13-2337 (7th Cir., Aug. 14, 2014) (Manion, J.).

Fortres Grand provides a desktop software management program called CleanSlate, which is used to wipe away private data from shared, public-access computers. After Warner Bros used the words “the clean slate” to describe a computer hacking program in the movie, The Dark Knight Rises, Fortres noticed a drop in sales of its CleanSlate software and filed a trademark infringement suit against Warner Bros. Fortres alleged trademark infringement under theories of “traditional confusion,” namely, that consumers would be confused as to the source of The Dark Knight Rises film, and “reverse confusion,” claiming that consumers would be confused as to the source of its CleanSlate software.

The district court dismissed the complaint, finding that Fortres failed to state a claim under either theory of infringement and held that Warner Bros. use of “clean slate” was protected by the First Amendment. Fortres appealed, but only on the “reverse confusion” theory of trademark infringement, claiming that its prior, senior use of the CleanSlate trademark has been mistaken as originating from Warner Bros. based on Warner Bros later, junior use of “clean slate.”

On appeal, the 7th Circuit looked to its seven-factor test for finding a “likelihood of confusion” and noted that there is little authority on how to treat the “similarity of the products” factor when one of the products is fictional. In reviewing the few relevant cases, however, the 7th Circuit found that it must consider the likelihood of confusion between the senior user’s CleanSlate software and the junior user’s creative film work and not any particular fictional software product within the film, as this approach comports best with the Supreme Court’s emphasis in Dastar that confusion must be analyzed with respect to the “tangible product sold in the marketplace.” Nevertheless, the circuit court also noted that in determining the existence of a likelihood of confusion between products, the question is whether the products are of the kind that the public attributes to a single source.

The 7th Circuit cited a similar case involving Disney, where the movie studio sold licensed promotional goods bearing the TRON trademark in association with Disney’s TRON movie, and such use was found to infringe the prior use of TRON by a company that sold electrical fuses. The circuit court distinguished the Disney case, finding that Warner Bros. did not sell any movie merchandise similar to Fortres’ software which bears the “clean slate” mark. Therefore, the only products available to compare were Fortres’ software and Warner Bros.’ movie, which the court found to be “quite dissimilar,” even when taking into consideration the common practice of merchandising related to films. The court explained that Fortres “alleged no facts that would make it plausible that a super-hero movie and desktop management software are ‘goods related in the minds of consumers in the sense that a single producer is likely to put out both goods.’”

Fortres argued that the district court had erred in relying on the weakness of a single likelihood of confusion factor (i.e., the similarity of the goods), but the 7th Circuit found that the allegations of reverse confusion were equally implausible in light of the other factors (with the exception of the similarity of the marks), including the strength of the mark and the fact that Warner Bros. “descriptive use” of the words “clean slate” in the movie’s dialogue to describe a program that cleans a criminal record is unlikely to cause confusion. The court also rejected Fortres’ arguments that “internet chatter” by movie fans regarding whether The Dark Knight Rises “clean slate” program was real and could potentially work as depicted in the film constituted actual consumer confusion.

Finally, the 7th Circuit noted that Fortres’ fundamental complaint was really one of dilution since it was claiming that Warner Bros. use of “clean slate” had tarnished its CleanSlate trademark by associating it with illicit software. But, the court properly stated that “reverse confusion” could not be used to extend dilution protection to a non-famous trademark. Accordingly, the court affirmed the district court’s ruling that Fortres failed to plausibly allege confusion and, as such, the court also noted that it was unnecessary to consider Warner Bros. claims that its use of “clean slate” was protected under the First Amendment.

Trademarks / Standing and False Advertising

A Warehouse Full of Unapproved Genetically-Modified Seeds; Now What? *Web Only*

The U.S. Court of Appeals for the Eighth Circuit addressed allegations of breach and false advertising against an agricultural product storage and transport company, who not only stopped accepting genetically-modified strain of corn seeds—a variety that was not approved in China—but placed signs in its regional facilities and website indicating that the seeds were not approved for U.S. export markets. Syngenta Seeds, Inc. v. Bunge North America, Inc., Case No. 13-1391 (8th Cir., Aug. 8, 2014), (Bye, J.).

China maintains a zero-tolerance policy regarding the import of corn grown from seeks with genetically-modified traits China has not approved. Under this policy, China could prohibit an entire shipment of corn from entering the Chinese market if it contained corn—or traces of corn—with an unapproved genetically modified trait. Syngenta alleged that Bunge’s refusal to accept the corn grown from Syngenta’s Viptera seeds resulted in significant lost profits, loss of market share and good will, especially from farmers who had planted Viptera corn seeds thinking Bunge would purchase them. However, Bunge did not, and the farmers not only had to find non-Bunge warehouses to store their harvest, but also had to buy non-Viptera corn to fulfill their existing contracts with Bunge.

As a federally licensed warehouse operator, Bunge was required to enter into a licensing agreement with the federal government and under the United States Warehouse Act (USWA), is under a bonded obligation to treat depositors of agricultural products fairly. Syngenta claims that as an entity which sells seeds to Bunge’s agricultural depositors, it was harmed by Bunge’s refusal to accept Viptera seeds, and thus had a cause of action directly under the USWA or as a third party beneficiary of the license agreement. The 8th Circuit disagreed.

Reviewing the specific statutory language of § 247 of the USWA, the 8th Circuit saw nothing in the text or legislative history to indicate any Congressional intent to authorize injured third parties to sue a breaching warehouse operator directly. The circuit court also refused to find an implied private cause of action under the statute because “private rights of action to enforce federal law must be created by Congress.” And indeed, relying on Supreme Court direction in Alexander v. Sandoval, “[s]tatutes that focus on the person regulated rather than the individuals protected create ‘no implication of an intent to confer rights on a particular class of persons.” The circuit court next concluded that Syngenta was not a third-party beneficiary of the license agreement between Bunge and the federal government because a “nonparty becomes legally entitled to a benefit promised in a contract . . . only if the contracting parties so intended.” The court affirmed the district court’s dismissal of Syngenta’s USWA and third-party beneficiary claims on the pleadings.

Finally, Syngenta contends that the district court erred in granting summary judgment to Bunge on its false advertising claim under the Lanham Act for lack of standing (because Bunge was not Syngenta’s competitor) and that Bunge’s signs had not constituted “commercial speech.” But the district court reviewed the Lanham Act claim under the then-controlling but pre-Lexmark standard. The Supreme Court decision in Lexmark resolved a circuit split, establishing the “zone-of-interest” test and the “proximate causality” requirement as the proper analysis for evaluating standing under the Lanham Act expressly rejecting the requirement that the challenged commercial speech be made by a competitor. (IP Update, Vol. 17, No. 4). The 8th Circuit explained that under Lexmark, standing exists where a defendant harms a plaintiff’s reputation by casting aspersions on its business by, for example, equating the product with an inferior product. Thus, when a party claims reputational injury from disparagement direct competition is unnecessary for proximate cause. The 8th Circuit thus vacated the grant of summary judgment and remanded for further proceedings.

Trademarks / Ownership and Standing

Unincorporated Associations Can Own and Enforce Trademark Rights *Web Only*

The U.S. Court of Appeals for the Ninth Circuit affirmed a grant of summary judgment and a permanent injunction in favor of a common law trademark owner whose marks were misappropriated by a former member, on the grounds that unincorporated associations have capacity to own trademark rights and standing to enforce such rights under the Lanham Act. Southern California Darts Association v. Zaffina, Case No. 13-55780 (9th Cir., Aug. 11, 2014) (Wolf, J.).

For at least 40 years, Southern California Darts Association (SCDA) has used the trademarks “Southern California Darts Association,” “SCDA,” “SoCal Darts” and a related logo design, in connection with promoting the competitive play of darts. Defendant Dino Zaffina was a member of SCDA but, after turmoil with the group, was expelled. Zaffina subsequently registered with the State of California a corporation named Southern California Darts Association, Inc., registered a corresponding domain name, contacted darts-related businesses under the name and enforced his purported rights to the name by suing third parties. In 2012, SCDA sued Zaffina and his corporation alleging violations of the Lanham Act, California Business and Professions Code, common law trademark infringement and unfair competition; SCDA requested a preliminary injunction. The district court granted summary judgment in the plaintiff’s favor and issued a permanent injunction against Zaffina that prohibited him and associated businesses from using SCDA’s marks. The district court also awarded SCDA over $115,000 in damages. Zaffina appealed.

On appeal, Zaffina argued, in part, that SCDA lacked capacity to sue because SCDA was a “delinquent corporation” whose corporate powers had been suspended by the State of California in the 1970s. While acknowledging that, under California law, a delinquent corporation “may not bring suit and may not defend a legal action,” the 9th Circuit held that California law was not dispositive of standing in this case. The circuit court reasoned that SCDA’s capacity to sue in federal court is permitted under the Federal Rules of Civil Procedure 17(b), which allows an unincorporated association lacking capacity to sue under state law to bring an action in federal court “to enforce a substantive right existing under the United States Constitution or laws.” Relying on prior 9th Circuit precedent, the court held that corporations whose powers were suspended under state law can be treated as unincorporated associations who are permitted to sue in federal court, even if prohibited from filing suit in state court. The district court applied this analysis in its determination that SCDA should be treated as an unincorporated association, so the 9th Circuit held that the district court’s conclusion that SCDA had standing to sue under the Lanham Act was legally sound.

Having established that SCDA was justified in bringing the Lanham Act claim, the 9th Circuit also confirmed that unincorporated associations have the capacity to own trademarks. The 9th Circuit reasoned “an entity of this character may engage in commercial activities and may use names and marks in connection with those activities.” On the merits, the 9th Circuit concluded that while descriptive, SCDA’s marks acquired secondary meaning through long and continuous use in the marketplace with its services, and the similarity of Zaffina’s mark was likely to cause consumer confusion. Therefore, the 9th Circuit affirmed the district court’s grant of summary judgment and the issuance of the permanent injunction against the defendant.


Copyrights / Attorneys' Fees

Judge Posner Orders Sherlock Holmes Estate to Pay Attorneys’ Fees for “Form of Extortion”

In another scathing opinion against the Sherlock Holmes estate, Judge Richard A. Posner ordered the estate to pay attorneys’ fees for bringing “nonexistent copyright claims” as a “form of extortion” against its competitor. Judge Posner applauded the competitor, author Leslie Klinger, for “performing a public service” by “exposing the estate’s unlawful business strategy.” Klinger v. Conan Doyle Estate, Ltd., Appeal No. 14-1128 (7th Cir., Aug. 4, 2014) (Posner, J.).

In a previous opinion penned by Judge Posner, the 7th Circuit affirmed the district court’s declaratory judgment of non-infringement. (IP Update, Vol. 17, No. 5). The 7th Circuit concluded that the original character of the famous detective Sherlock Holmes, published before 1923, was no longer subject to copyright protection. “Once the copyright on a work expires, the work becomes a part of the public domain and can be copied and sold without a license from the holder of the expired copyright.”

Klinger had compiled an anthology of Sherlock Holmes stories, entitled In the Company of Sherlock Holmes. Doyle’s estate demanded a $5,000 license from Klinger. The estate also suggested that if Klinger’s anthology was published without a license, the estate would prevent retailers, such as Amazon, from selling the book. As a result, publishers Random House and Pegasus Books refused to publish Klinger’s anthology until Klinger paid for a license.

Klinger then sued Doyle’s estate in the district court for declaratory judgment of non-infringement. Klinger prevailed in the district court and on the estate’s appeal to the 7th Circuit. He then moved for approximately $30,000 in attorneys’ fees incurred on appeal.

Under 17 U.S.C. § 505 of the Copyright Act, the prevailing party is entitled to an award of reasonable attorneys’ fees. In determining whether to award such fees, the 7th Circuit considers the strength of the prevailing party’s case and relief obtained. There is a “very strong” presumption in favor of awarding attorneys’ fees where a litigant, like Klinger, has lodged a successful defense to a claim of copyright infringement.

In granting Klinger an award of attorneys’ fees, the Seventh Circuit suggested that the Doyle estate engaged in anti-competitive behavior. “The Doyle estate’s business strategy is plain: charge a modest license fee for which there is no legal basis, in the hope that the ‘rational’ writer or publisher asked for the fee will pay it rather than incur a greater cost, in legal expenses, in challenging the legality of the demand.”

“[T]he estate was playing with fire in asking Amazon and other booksellers to cooperate with it in enforcing its nonexistent copyright claims against Klinger. For it was enlisting those sellers in a boycott of a competitor of the estate, and boycotts of competitors violate the antitrust laws.”

The circuit court applauded Klinger for acting, in effect, as “a private attorney general, combating a disreputable business practice—a form of extortion.” Judge Posner admonished the Doyle estate: “It’s time the estate, in its own self-interest, changed its business model.”

Trade Secrets

Trade Secrets

Don’t Throw It Away: A Company May Not Have Rights to Confidential Information It Puts in the Garbage

In an opinion that should remind us all of the importance of properly disposing of documents, the District of Columbia Court of Appeals upheld the dismissal of Greenpeace’s claims of trespass, invasion of privacy, and conversion stemming, in part, from appellees’ alleged participation in rummaging through Greenpeace’s trash in order to obtain Greenpeace’s confidential information. Greenpeace, Inc. v. The Dow Chemical Co., Case No. 13-CV-685 (D.C. C.A., Aug. 21, 2014) (Blackburne-Rigsby, J.).

Greenpeace alleged that two companies, Dow Chemical and Sasol North America and their PR firms, engaged in corporate espionage in order to undermine Greenpeace’s efforts. To this end, Greenpeace asserted that the companies hired Beckett Brown International (BBI), a company staffed with former Secret Service and CIA agents, to root through Greenpeace’s trash. They further alleged that BBI broke into Greenpeace’s offices and conducted physical surveillance of Greenpeace employees. These actions only came to light when a disgruntled BBI employee alerted a reporter.

Greenpeace initially filed suit in federal court alleging claims under the Racketeer Influenced and Corrupt Organizations Act (RICO). After that case was dismissed, it filed again, this time in the Superior Court of the District of Columbia alleging claims of trespass, conversion and invasion of privacy. The trial court granted the defendants’ motion to dismiss. Greenpeace appealed.

The court upheld the dismissal. First, it ruled that Greenpeace could not assert a claim of trespass because it could not establish that it had a possessory interest in the trash and recycling areas of its building. These areas were for the common use of the buildings’ tenants and therefore Greenpeace was unable to demonstrate that it had exclusive control of the area.

Next, the Court affirmed that Greenpeace’s invasion of privacy claim based on physical intrusion into Greenpeace’s offices, was barred by a one-year statute of limitations.

Finally, the court ruled that Greenpeace could not maintain a claim of conversion of intangible property. The court explained that, because Greenpeace “purposefully threw away or abandoned” documents containing confidential information, it could not now claim that it had a recognized property interest in them, particularly as it did not take steps to protect its garbage.

Practice Note: This case should serve as a reminder that companies should properly discard of documents containing confidential information.