Smartphone Patent War: En Banc Federal Circuit Rebukes Earlier Panel Decision, Reinstates Jury Verdicts for Apple
Alexander P. Ott
Sitting en banc, the US Court of Appeals for the Federal Circuit issued an unusual opinion overturning a panel decision for the purpose of reiterating the Court’s limited appellate role and the need to give appropriate deference to district court and jury fact findings. Apple Inc. v. Samsung Elecs. Co., Ltd. et al., Case Nos. 15-1171; -1195; -1994 (Fed. Cir., Oct. 7, 2016) (Moore, J) (Prost, CJ, dissenting) (Dyk, J, dissenting) (Reyna, J, dissenting). Each of the three judges from the earlier panel decision filed separate dissents. The eight remaining judges joined in or concurred with the majority opinion.
This appeal arose from a district court case in the worldwide patent battle between Apple and Samsung in the smartphone, tablet and laptop market. Five Apple patents and two Samsung patents made it to trial in the district court in 2014. Three of Apple’s patents were found valid and infringed, while one Samsung patent was found valid and infringed. Both parties appealed.
The Panel Opinion
In a panel opinion issued earlier in 2016 (IP Update, Vol. 19, No. 3), the Federal Circuit reversed the validity findings regarding two of Apple’s patents and reversed the infringement finding as to the remaining Apple patent. The panel affirmed the district court opinion finding infringement of Samsung’s patent. Apple petitioned for en banc review, objecting to the panel’s reliance on extra-record evidence for claim construction and its reversal of nearly a dozen jury factual findings.
The En Banc Opinion
Without seeking the benefit of additional briefing, the Federal Circuit granted Apple’s en banc petition for the stated purpose of “affirming our understanding of the appellate function” as being limited to only deciding issues raised by the parties, only relying on record evidence and providing the appropriate deference to district court fact findings. The court then issued its en banc decision, written by Judge Moore, reinstating the district court judgment on every issue where it had been overturned by the original panel, while maintaining the panel’s judgment on those issues where it had affirmed the district court.
The three dissenters, members of the original panel, strongly disagreed regarding the grant of en banc review, as well as the Court’s issuance of its en banc ruling without the benefit of en banc briefing. Judge Reyna’s dissent argued that en banc review is limited to maintaining uniformity among panel decisions or addressing important legal issues, and characterized the majority as instead merely objecting to the panel’s judgment calls.
The prime takeaway from the en banc review is the majority’s pronouncement that the Federal Circuit’s role as a reviewing court is “limited to deciding issues raised in the appeal by the parties, deciding these issues only on the basis of the record below, and as requiring appropriate deference be applied to review of fact finding.” The en banc majority was particularly concerned about the original panel’s use of dictionary definitions not of record, which it explained amounted to improper “extra-record extrinsic evidence [used] to construe a patent term.”
This case is likely to be the subject of a petition for certiorari to the Supreme Court of the United States. Indeed, in his dissent, Judge Dyk wondered aloud why the Court took on important issues of obviousness en banc without further briefing and argued that the majority had made “significant changes to the law [of obviousness] as articulated by the Supreme Court.”
Practice Note: Going forward, future panels will be very unlikely to reverse fact findings not put in issue by a party and more likely to strictly apply the “substantial evidence” test when reviewing fact finding by a jury.
PATENTS / SUBJECT MATTER ELIGIBILITY
Federal Circuit Sort of Clarifies the Waters of Patent Eligibility
In recent cases addressing patent eligibility of software patent claims, the US Court of Appeals for the Federal Circuit reached different conclusions in different cases, based on the Alice two-step inquiry. Most notable was the Federal Circuit’s reiteration of its Enfish decision (IP Update, Vol. 19, No. 6) in reversing a district court ruling that found claims directed to computer animation automation patent ineligible. McRO, Inc. v. Bandai Namco Games America Inc., et al., Case Nos. 15-1080; -1081; -1082; -1083; -1084; -1085; -1086; -1087; -1088; -1089; -1090; -1092; -1094; -1095; -1096; -1097; -1098; -1099; -1100; -1001 (Fed. Cir., Sept. 13, 2016) (Reyna, J). In three other cases, however, the Federal Circuit reached a different conclusion, finding the claims patent ineligible. Viewed as an ensemble, these cases reflect the Court’s struggle to engage in line drawing as to what qualifies as patent eligible subject matter in software patent claims. Affinity Labs of Texas, LLC v. DirecTV, LLC, et al., Case Nos. 15-1845; -1846; -1847; -1848 (Fed. Cir., Sept. 23, 2016) (Bryson, J); Affinity Labs of Texas, LLC v. Amazon.com Inc., et al., Case No. 2015-2080 (Fed. Cir., Sept. 23, 2016) (Bryson, J); Intellectual Ventures I LLC v. Symantec Corp., et al., Case Nos. 15-1769; -1770; -1771 (Fed. Cir., Sept. 30, 2016) (Dyk, J) (Mayer, J, concurring) (Stoll, J, dissenting in part).
In McRO, the patents at issue related to individual 3D models, where each of the models included data points on certain areas of the face. In conventional modeling, the animator, using a computer, manually enters certain weights to the 3D models at certain times based on a timed transcript. A computer program then takes the animator manual inputs and interpolates the data to create intermediate frames. The McRO patents described this process as tedious and time consuming and were aimed at automating the process by providing specific rules that applied to the timed transcript, to thereby automatically generate the weight output values.
The Federal Circuit explained that the claimed process for animating characters using a computer was patent eligible because the claimed process used different techniques from those that animators had previously accomplished only manually. The Court concluded that the claimed invention utilized the limited rules in a process specifically designed to achieve an improved technological result in conventional industry practice. The Court noted that there was no evidence establishing that the claimed process was the same process as the prior practice used by animators, and that the specific features of the rules as claim limitations reflect a specific implementation not demonstrated in existing manual animation techniques.
The Federal Circuit found that the claimed rules, not the use of a computer, improved the existing technological process, dismissing the defendants’ argument that the claims simply used a computer as a tool. The Court disagreed with the district court that the claims were directed to the abstract idea of a set of automated rules for lip-synchronized 3D animation, explaining that the district court “oversimplified the claims” by looking at them generally and by failing to account for specific limitation in the claims. The Court also found that the claims did not preempt all approaches that use rules for achieving automated lip-synchronization of 3D characters, noting that the claims were limited to specific rules for automatically animating characters using particular information and techniques. The Court therefore concluded that the claims were patent eligible based on the Alice step one abstract idea inquiry.
In the first of the Affinity Labs cases, Affinity Labs sued nine defendants alleging patent infringement by marketing a system that allows customers to receive regional radio broadcasts on their cellphones even when their cellphones are outside the regions reached by the stations’ broadcast signals. The district court concluded that the claimed invention was directed to an abstract idea, explaining that the purpose of the patent to disseminate regionally broadcast content to users outside the region was a well-known, longstanding business practice. The district court also found the claimed “downloadable application with graphical user interface” to be insufficient to qualify as an inventive concept.
The Federal Circuit agreed that the concept of providing out-of-region access to regional broadcast content is an abstract idea, citing a lack of any positive recitation of a non-generic function or component in the claims that provides, with any degree of specificity, a blueprint of how to disseminate regional broadcast content to a user outside the region over a wireless, cellular telephone service. The Court noted that the specification was scant in terms of providing any technological details regarding the manner in which the invention accomplishes the delivery of ordinary broadcast radio signals to cellphones, explaining that the specification included only a “very brief discussion” that was pertinent to the out-of-region broadcasting claims. Unlike in McRO, the Federal Circuit concluded that the claims were not directed to a technical improvement in cellular telephones but rather to the use of cellular telephones as a tool in the aid of a process focused on an abstract idea.
Regarding step two of the Alice inquiry, the Federal Circuit found that the claimed invention did not provide an inventive concept that transformed the abstract idea of remote delivery of regional broadcasting into a patent-eligible application of that idea, explaining that the claims simply recited generic features of cellular telephones, including routine functions of those features. The Court disagreed with Affinity Labs that the claimed downloadable application for displaying the out-of-region broadcast content amounted to an inventive concept that was novel as of the effective filing date, stating that the patent eligibility inquiry does not turn on the novelty of the feature. Citing its BASCOM decision (IP Update, Vol. 19, No. 8), the Court explained that the technical solution recited in the claims in BASCOM stands in stark contrast to the lack of any technical solution recited in the Affinity Labs patent claims. The Court ultimately found that the Affinity Labs patent claims were subject matter ineligible.
Similarly, in the second Affinity Labs case, the patent claims were found patent ineligible under the Alice step two inquiry. In this case, Affinity Labs sued Amazon alleging infringement by marketing a system that allowed customers to stream music from a customized library. The district court found the claims to be subject matter ineligible under Alice. On appeal, the Federal Circuit agreed that the patent claims were directed to an abstract idea, explaining that the idea of delivering media content to electronic devices was a well-known business practice and that the idea of tailoring content to a user was abstract. The Court further noted that the claims were written in largely functional terms, and that stating the relevant functions in general terms absent any technical discussion in the claims and the specification does not convert the abstract idea into a concrete technical solution to a problem.
In the Intellectual Ventures (IV) case, the patent owner sued Symantec and Trend Micro for infringement of various claims, and the district court held that claims of two of the patents were subject matter ineligible and that an asserted claim of the third patent was eligible. On appeal, the Federal Circuit affirmed the ruling on the first two patents but reversed in part with respect to the third patent, finding all asserted claims of the third patent ineligible. In the first IV patent, the Federal Circuit agreed with the district court that the idea of filtering files and/or emails is a long-prevalent fundamental practice that constitutes an abstract idea, equating such practice to people receiving mail and discarding certain mail based on characteristics of that mail. The Court dismissed IV’s argument that since the prior art did not anticipate or render obvious the asserted claims under the Alice step two inventive concept inquiry, the claims were not abstract. The Court explained that the lack of prior art disclosure does not suggest that the features of “determining” and “outputting” are anything other than routine and conventional, let alone not abstract. To the contrary, the Federal Circuit found the claims in issue distinguishable from those at issue in Enfish and BASCOM, explaining that the challenged claims contained no limitations that addressed the alleged technical improvements of requiring automatic updates to the antivirus software or dealing with the large volume of such software. In regard to the second IV patent, the Federal Circuit concluded that the disclosure of only generic computers performing generic functions to implement the idea of automatic deferral and review of email messages using applied business rules was also routine and conventional, and that it did not improve, and was not directed to an improvement in, the functioning of the computer itself. Thus, these claims were also found to be patent ineligible under Alice.
The third IV patent was directed to using computer virus screening in a telephone network. Again, the Federal Circuit found that the claimed subject matter did not improve or change the way a computer functions, dismissing IV’s argument that the claim limitations narrowed the asserted claim to a specific way of screening for computer viruses within the telephone network and did not preempt all virus detection mechanisms.
On this issue, disagreeing with the majority, the dissent argued that that the asserted claim of the third IV patent “advantageously screen[s] computer data for viruses within a telephone network before communicating the computer data to an end user,” and viewed the invention as a fundamental architectural shift from prior-art virus screening. In finding no meaningful difference between the claims found to be patent eligible in BASCOM and the asserted claim, the dissent argued that the claimed shift of the virus screening software from end-user locations to within the telephone network amounted to an inventive concept. Judge Stoll also noted that while the network components recited in the claim may be conventional, in his view the asserted claim was patent eligible as an ordered combination.
In a concurring opinion, Judge Mayer argued that the claims, in sweeping terms, were simply directed to screening a communication for viruses, a concept that (if patentable) has the potential to disrupt or even derail large swaths of online communication. Judge Mayer argued that “[i]t is well past time to return software to its historical dwelling place in the domain of copyright,” noting that software is akin to a work of literature or a piece of music. Judge Mayer concluded that simply declaring that software implemented on a generic computer falls outside the § 101 protections would provide much-needed clarity and consistency in the approach to patent eligibility, ending the semantic difficulties of trying to bootstrap software into the patent system.
PATENTS / WILLFUL INFRINGEMENT
District Courts on Willful Infringement Post-Halo
In two recent decisions addressing the issue of willful infringement, the US Court of Appeals for the Federal Circuit recalled its mandate, vacated portions of earlier decisions and remanded to the district court the substantive application of the Supreme Court of the United States’ recent decision in Halo Electronics v. Pulse Electronics (IP Update, Vol. 19, No. 6). The Federal Circuit decided Stryker Corp. v. Zimmer, Case No. 13-1668 (Fed. Cir., Sept. 12, 2016) (Prost, CJ) by reinstating the jury’s verdict that Zimmer’s infringement was willful, and remanding to the district court the issues of enhanced damages under § 284 and attorneys’ fees for an exceptional case under § 285. Likewise, in WesternGeco L.L.C. v. Ion Geophysical Corp., Case Nos. 13-1527; 14-1121; -1526; -1528 (Fed. Cir., Sept. 21, 2016) (Dyk, J), the Federal Circuit vacated its earlier enhanced damages analysis and remanded to the district court with instructions to revisit whether the infringement was willful and whether enhanced damages are warranted.
Stryker v. Zimmer
The parties are the two main competitors in the orthopedic pulsed lavage device market. Previously the Federal Circuit affirmed the district court’s claim constructions and its summary judgment ruling that Zimmer infringed two of the asserted patents. The Federal Circuit also affirmed the jury’s determination that a third patent was infringed and that the three asserted Zimmer patents were valid. The jury had awarded lost damages in an amount of $70 million, and the district court thereafter trebled damages and found the case exceptional. In the earlier appeal, the Federal Circuit reversed the finding of willful infringement, with the decision eventually making its way to the Supreme Court in tandem with Halo v. Pulse Electronics for review of the Seagate framework for willful infringement (IP Update, Vol. 19, No. 6).
Following the Supreme Court’s determination that the Federal Circuit’s two-part analysis for willful infringement “unduly confines the ability of district courts to exercise the discretion conferred on them,” the appeal returned to the Federal Circuit. The Federal Circuit affirmed the jury’s finding that the infringement was indeed willful but vacated and remanded the district court’s decision to treble damages for willful infringement and award attorneys’ fees. Although the district court had already made a discretionary determination to award the maximum amount of enhanced damages and to deem the case exceptional, the Federal Circuit stated that the “best course” was to vacate and remand in order for the district court to assess all of the circumstances in the case. And, for the finding of an exceptional case, the Federal Circuit pointed to “further allegations of litigation misconduct in this case” as well as the intervening decision in Octane Fitness v. ICON Health & Fitness (IP Update, Vol. 17, No. 5) as justification for further consideration by the district court.
WesternGeco v. Ion Geophysical
The underlying patent infringement suit covered four patents for technologies used to search for oil and gas beneath the ocean floor. The jury found all asserted patents infringed, not invalid, and awarded WesternGeco $93 million in lost profits and reasonable royalty damages of $12 million. After trial, the district court set aside the jury’s willful infringement findings because the district court concluded that ION’s defenses were reasonable and not objectively baseless. The Federal Circuit affirmed that decision under Seagate, but the Supreme Court later granted certiorari, vacated and remanded the determination of no willful infringement in light of Halo.
The Federal Circuit took the same approach as in Stryker v. Zimmer, reinstating its earlier opinion but amending the section of the opinion addressing willful infringement. Again, the Federal Circuit vacated for the district court to apply Halo in the first instance (i.e., decide whether the infringement was subjectively willful) and, if so, to exercise its discretion in deciding whether to award enhanced damages. Notably, for the first time since Halo, the decision states that the objective reasonableness of the accused infringer’s position remains relevant for the district court to consider when deciding what enhanced damages, if any, are appropriate. The decision posits that Halo adopted language from Octane Fitness regarding the lack of a precise formula in weighing the totality of the circumstances, and that Octane Fitness referred back to a list of nonexclusive factors in the 1994 Supreme Court decision in Fogerty v. Fantasy, Inc. (a copyright decision addressing the fees for an exceptional case). Accordingly, the Federal Circuit concluded that objective reasonableness (both in the factual and legal components of the case), frivolousness, motivation, and the need in particular circumstances to advance considerations of compensation and deterrence were all factors that a district court should consider when assessing whether to enhance damages.
The instructions to the district court preserve a bifurcated approach to enhancement of damages. First, a district court should make a predicate determination (guided by Halo) assessing subjective willfulness. Second, the district court must make a discretionary determination of whether and how much to enhance damages if the infringement is determined to be willful.
Practice Note: In both of these cases, the Federal Circuit prioritized district courts having an opportunity to apply Halo before substantively reviewing the discretionary ruling. Yet in giving district courts that opportunity, the Federal Circuit clarified that district courts should not depart from the two-step process of first deciding whether the defendant has engaged in conduct that should be deterred under Halo and only then deciding how much an award should be enhanced under the nine factors identified in Read Corp. v. Portec (Fed. Cir., 1992). In taking this approach, the Federal Circuit leaves open the possibility that infringement could be willful but a patentee would not receive any enhanced damages. Indeed, the burden will remain with patent holders to put forward evidence establishing that the infringement is willful and to then put forward evidence and argument to support an enhanced damages award in view of the Read factors.
PATENTS / AIA / IPR / APPELLATE REVIEW
PTAB Rulings on § 315(b) Time-Bar, Assignor Estoppel Are Non-Appealable
The US Court of Appeals for the Federal Circuit held that appellate review is not permissible for Patent Trial and Appeal Board (PTAB or Board) rulings on time-bar of an inter partes review (IPR) petition under § 315(b) or on assignor estoppel, based on § 314(d) and the Supreme Court of the United States’ recent ruling in Cuozzo Speed Technologies, LLC v. Lee (IP Update, Vol. 19, No. 7). Wi-Fi One, LLC v. Broadcom Corp., Case No. 15-1944 (Fed. Cir., Sept. 16, 2016) (Bryson, J) (Reyna, J, concurring); Husky Injection Molding Systems v. Athena Automation Ltd., Case Nos. 15-1726; -1727 (Fed. Cir., Sept. 23, 2016) (Lourie, J) (Plager, J, concurring in part and dissenting in part).
In Wi-Fi One, the Federal Circuit reaffirmed its decision in Achates Reference Publishing v. Apple Inc., which stated that § 314(d) prohibits the Court from reviewing the PTAB’s determination to initiate IPR proceedings based on its assessment of the time-bar of § 315(b), even if such assessment is reconsidered during the merits phase of the proceeding and restated as part of the PTAB’s final written decision (IP Update, Vol. 18, No. 10). The Federal Circuit found that Cuozzo did not implicitly overrule Achates, as the time-bar provision of § 315 does not fall into any of the three categories that were found to be explicitly reviewable in Cuozzo. Specifically, the § 315 time-bar provision does not fall into Cuozzo’s first category because it does not implicate a constitutional concern, such as due process. In addition, the time-bar provision does not fall into Cuozzo’s second or third categories because it is a question that is closely tied to the application and interpretation of a statute that is related to the PTAB’s decision to initiate an IPR proceeding. The Federal Circuit also rejected the argument that Cuozzo limited the rule of preclusion to substantive patentability determinations made at the institution stage. The Federal Circuit therefore concluded that the PTAB’s determination of whether an IPR petition is time-barred under § 315(b) is non-appealable.
Judge Reyna concurred in the decision based on the facts in the Wi-Fi One case but opined that the Federal Circuit’s decision in Achates should be reconsidered en banc. In particular, Reyna believes that a legal distinction exists between an “institution” decision and a final decision. As such, a final decision concerning the time-bar provision of § 315 should be subject to review.
Similarly, in Husky Injection Molding Systems, the Federal Circuit found that the PTAB’s decision on assignor estoppel is non-appealable. The Federal Circuit first considered whether the PTAB’s decision on assignor estoppel falls into any of the three categories that were found to be explicitly reviewable in Cuozzo. Specifically, the Court concluded that assignor estoppel does not fall into Cuozzo’s first category because it does not implicate a constitutional concern, such as due process. Assignor estoppel does not fall into Cuozzo’s second category because it is not derived from a statute and thus cannot depend on other less closely related statutes. Finally, assignor estoppel does not fall into Cuozzo’s third category because it does not present issues that are well beyond the PTAB’s decision to initiate an IPR proceeding. The Federal Circuit then considered whether assignor estoppel relates to the PTAB’s ultimate invalidation authority. The Court found that it did not, because, like the time-bar provision of § 315, the PTAB can still invalidate a claim based on a properly filed petition. The Federal Circuit therefore determined that the PTAB’s decision on assignor estoppel is non-appealable.
Judge Plager dissented in Husky Injection Molding, arguing that decisions regarding assignor estoppel should be reviewable. Plager based his argument on the fact that the assignor estoppel could fall into Cuozzo’s second category because it operates in connection with § 311, which could be considered less closely related to the decision to initiate an IPR proceeding. Alternatively, Plager argued that assignor estoppel could fall into Cuozzo’s third category to the extent it presents questions of interpretation that reach beyond § 314.
PATENTS / OBVIOUSNESS / SECONDARY CONSIDERATIONS
Obviousness Inquiry Allows Flexibility in Considering Teachings of Prior Art
Addressing issues of obviousness, the US Court of Appeals for the Federal Circuit affirmed a finding of obviousness based on a flexible approach and further clarified the appropriate evaluation of secondary considerations evidence in an obviousness analysis. ClassCo, Inc. v Apple, Inc., Case No. 15-1853 (Fed. Cir., Sept. 22, 2016) (Stoll, J).
ClassCo brought suit against Apple and several others for infringement of its patent relating to “caller ID” technology. The patented technology improves pre-existing systems by verbally announcing a caller’s identity before the call is connected. Apple filed a request for inter partes reexamination of the patent. The Examiner found, and ClassCo agreed, that the primary reference taught all elements of the claims except the use of a single speaker to announce both voice signals and identity information. The Examiner found the claims obvious in view of a second reference’s disclosure of a speaker in a telephone system that can produce audio from multiple types of data. However, the secondary reference did not specifically disclose the use of a single speaker for both voice signals and announcing the caller’s identity. The Patent Trial and Appeal Board (PTAB or Board) affirmed the Examiner’s finding of obviousness on the basis that modifying the primary reference in the way taught by the secondary reference would have resulted in no more than the predictable result of the use of a speaker in a telephone system that produces audio derived from multiple data sources, including voice signals, identity information or tonal ringing. The PTAB gave no weight to ClassCo’s secondary considerations evidence, finding it did not have sufficient nexus to the merits of the claimed invention or was not commensurate with the claim scope. ClassCo appealed.
On appeal, ClassCo argued that the PTAB improperly applied the seminal Supreme Court of the United States KSR obviousness case, and that, under KSR, a combination of references can only unite old elements with no change in their respective functions (IP Update, Vol. 15, No. 7). The Federal Circuit disagreed, explaining that an ordinary artisan would recognize that familiar items may have obvious uses beyond their primary purpose and that KSR requires a flexible approach to an obviousness determination. The Federal Circuit found that the PTAB properly applied this flexible approach in reaching its obviousness conclusion.
Addressing secondary considerations, the Federal Circuit noted that much of ClassCo’s evidence of praise focused on conventional features in the prior art. The PTAB properly ignored this evidence. However, the Federal Circuit also concluded that the PTAB improperly dismissed some of ClassCo’s evidence of praise on the grounds that the claims encompassed additional embodiments not subject to the praise. As the Federal Circuit explained, the features subject to praise were clearly encompassed by the claims, and a patent applicant need not sell every conceivable embodiment of the claims in order to rely upon evidence of secondary considerations. Nevertheless, while this secondary considerations evidence should have been considered by the PTAB, it was not sufficient to overcome the prima facia obviousness determination.
PATENTS / CLAIM CONSTRUCTION / DIVIDED INFRINGEMENT
Claim Construction Disputes Should Be Affirmatively and Formally Raised
Addressing the preservation of claim construction disputes for appeal and issues of divided infringement, the US Court of Appeals for the Federal Circuit affirmed the district court, explaining that O2 Micro only requires the district court to resolve claim construction issues that were actually and affirmatively raised before or during trial, and that, for purposes of a divided infringement analysis, a negative claim limitation is not an affirmative step that must be performed by the same party. LifeNet Health v. LifeCell Corp., Case No. 15-1549 (Fed. Cir., Sept. 16, 2016) (Prost, CJ).
LifeNet’s patent relates to plasticized soft tissue grafts for transplantation. Prior art tissue grafts were preserved by freeze drying, which presented several technical and medical disadvantages. LifeNet developed an improved preservation method, where the tissue’s water is replaced with plasticizers that mimic the hydrating capability of water while eliminating the need for a freeze drying step. According to the specification, the plasticizers may be removed prior to implantation, but do not have to be.
In order to overcome a prior art reference during prosecution, LifeNet added a negative claim limitation: “one or more plasticizers are not removed from said internal matrix of said plasticized soft tissue graft prior to transplantation into a human” (emphasis added). LifeCell’s accused products are plasticized soft tissue grafts for which some—but not all—of the plasticizers are removed during a two-minute rinse prior to transplantation.
During the claim construction process, LifeCell argued that the non-removal limitation means that no processing steps can be taken prior to implantation, such that no amount of plasticizer is even partially removed. Under this construction, LifeCell would not infringe. Defendant LifeNet, in contrast, argued that the non-removal limitation is met so long as the plasticizers are not fully removed. The district court did not adopt either construction, instead instructing the jury that the non-removal limitation should be given its plain and ordinary meaning.
At trial, LifeCell argued non-infringement on the grounds that up to 50 percent of the plasticizer is removed during its two-minute rinse. LifeNet responded that although LifeCell’s rinse step removes plasticizer found in gaps and voids in the tissue, the step does not remove plasticizer from the internal matrix of the tissue graft, as required by the negative claim limitation. According to LifeNet, it was the jury’s job to resolve the factual question of whether the two-minute rinse removed plasticizer from the internal matrix. The jury found the patent infringed and not invalid.
On appeal, LifeCell argued that the district court should have instructed the jury that the non-removal limitation meant that no plasticizer could be removed from any part of the tissue graft, and that the court’s failure to resolve this legal dispute about claim scope constituted error under O2 Micro. The Federal Circuit rejected the O2 Micro argument as untimely, noting that LifeCell’s arguments during the Markman phase focused only on the degree of plasticizer removal, not the location from which the plasticizer had to be removed. LifeCell’s new “location” theory came up for the first time at trial, via a motion in limine to exclude testimony contrary to the court’s claim construction and in the proposed jury instructions. At no point did LifeCell ever explicitly request a new or modified claim construction encompassing the “location” theory but rather pressed the issue as a factual one, arguing that there was not enough evidence to find infringement. For these reasons, the Court found that LifeCell failed to properly raise an O2 Micro issue.
With respect to divided infringement, LifeCell argued that it cannot be held liable for direct infringement because the non-removal step cannot actually be met until a third party (e.g., a physician) prepares and implants the tissue graft. According to LifeCell, because not all claim elements are practiced by a single entity, there can be no liability for infringement. The Federal Circuit disagreed, explaining that in typical divided infringement cases, a third party must take one or more affirmative steps in order for all claim limitations to be met. By contrast, because the non-removal step at issue is a negative claim limitation, “[t]he limitation is met without action by a third party. It is satisfied by the graft from the moment it is manufactured unless and until the plasticizer is removed from the internal matrix before implantation.” No action is required by a third party in order to satisfy all elements of the claims.
Point of Novelty Enters Indefiniteness Analysis
Cox Communications, Inc. v. Sprint Communication Co., Case No. 16-1013 (Fed. Cir., Sept. 23, 2016) (Prost, CJ) (Newman, J, dissenting).
Sprint sued Cox for patent infringement, asserting several patents directed to developments in voice-over-IP technology. Among the claims that Sprint asserted were method claims where certain steps of the method were performed using a “processing system.” Cox moved for partial summary judgment on the ground that the claim term “processing system” was indefinite. The district court granted Cox’s motion, finding the claims indefinite because they functionally described the structural “processing system” limitation. Sprint appealed.
The Federal Circuit reversed. The parties had previously agreed that the term “processing system” was not a means-plus-function term, so the Court analyzed whether “processing system” rendered the claims indefinite under the Nautilus v. Biosig Instruments framework (IP Update, Vol. 17, No. 6). The Court noted that all of the asserted claims were method claims and that the point of novelty resided with the functional steps of the claimed methods, not with the processing system that performed those steps. Because the “processing system” played “no discernable role in defining the scope of the claims,” the Court found that term did not prevent the claims from informing skilled artisans about the scope of the invention with reasonable certainty as Nautilus requires.
Judge Newman concurred in the Court’s judgment but disagreed with its analysis. Newman found that the
. . . court creates an interesting, but flawed, new mode of analysis, whereby the adjudicator (1) first removes the challenged term from the claim, then (2) decides whether the claim has the same meaning without the challenged term, and (3) if the answer is “yes,” rules that the claim is not indefinite as a matter of law.
Rejecting that analysis, Newman urged the Court “to return to the traditional method of claim analysis.”
PATENTS / WRITTEN DESCRIPTION
Claims Withdrawn Because of Rejection May Limit Claim Scope **WEB ONLY**
In an opinion addressing prosecution history estoppel, the US Court of Appeals for the Federal Circuit affirmed a district court’s decision granting summary judgment of non-infringement, finding that the patentee was estopped from including certain subject matter within the scope of an asserted claim when other claims directed to that subject matter had been canceled during prosecution. UCB, Inc. v. Yeda Research and Development Co., Ltd., Case No. 15-1957 (Fed. Cir., Sept. 8, 2016) (Newman, J).
UCB sued Yeda in district court, seeking declaratory judgment as to non-infringement and invalidity of a patent with claims directed to a monoclonal antibody. The question was whether the scope of the asserted claim included chimeric and humanized antibodies, or only murine (mouse) antibodies, the latter being the only antibodies described in the specification. Yeda argued that humanized and chimeric antibodies should be included because they were known in the art as of the filing date. UCB responded that the prosecution history prohibited such broad coverage. Specifically, during the lengthy prosecution, Yeda limited the original claims to only murine antibodies and then added a new claim without this limitation. That claim was rejected for lack of enablement. In response, Yeda argued that chimeric and humanized antibodies were contemplated, and submitted a declaration that it was within the level of skill in the art to produce such antibodies at the filing date. Yeda also added new claims specifically claiming chimeric and humanized antibodies. The Examiner withdrew the rejection for lack of enablement against the first new claim but rejected the additional new claims as adding new matter. Yeda then canceled the additional claims, and the patent issued with the first new claim.
At trial, the district court granted UCB’s motion for summary judgment of non-infringement, finding that the prosecution history prohibited construction of the claim to include chimeric and humanized antibodies. According to the district court, because Yeda had withdrawn rejected claims that included the subject matter at issue to obtain issuance, it could not now recover the surrendered claim scope. Yeda appealed.
The Federal Circuit affirmed the district court’s construction, finding that Yeda was estopped from including chimeric and humanized antibodies within the scope of the claim. The Federal Circuit pointed out that actions and arguments made during prosecution must be considered when construing the claim. Yeda argued that the issued claim itself had never been narrowed and therefore no prosecution history estoppel should apply to that claim. The Federal Circuit rejected this position, stating, “[T]he general rule is that a patent applicant cannot later obtain scope that was requested during prosecution, rejected by the Examiner, and then withdrawn by the applicant.”
PATENTS / WRITTEN DESCRIPTION
Inherent Disclosure Supplies Adequate Written Description for Priority Claim
Addressing the doctrine of inherent disclosure, the US Court of Appeals for the Federal Circuit held that a protein can satisfy the written description requirement when the priority application discloses only a partial amino acid sequence. Yeda Research and Development v. Abbott GMBH & Co. KG, Case No. 15-1662 (Fed. Cir., Sept. 20, 2016) (Reyna, J).
Abbott is the owner of a patent that discloses and claims a protein called TBP-II with a particular 15 amino acid sequence at its N-terminus. The patent claimed priority to two applications that only disclosed a partial (9 out of 15) N-terminus amino acid sequence, a protocol for obtaining TBP-II from its biological source, and other properties of the protein. At issue was whether the patent was entitled to claim priority to the earlier applications. If not, it would be invalid as anticipated by an intervening prior art reference that described TBP-II.
In a 1996 interference proceeding between Abbott’s patent and Yeda’s later-filed application, the Board of Patent Appeals and Interferences (now renamed the Patent Trial and Appeal Board) determined that Abbott’s patent was not entitled to claim priority to the earlier applications and was invalid. Abbott sought review of the Board’s decision in federal district court. The district court held that the priority application inherently disclosed the TBP-II protein and therefore provided adequate written description for the invention claimed in the patent.
On remand, the Board found that the priority application sufficiently disclosed TBP-II and that Abbott’s patent was entitled to the earlier priority date. Yeda again sought review in federal district court, which affirmed the Board’s decision. Yeda appealed the two district court decisions to the Federal Circuit, arguing that the district court applied the wrong legal standard for written description, that the prosecution history precluded Abbott from relying on inherent disclosure because the missing amino acids were material to patentability, and that the district court erred in affirming the Board’s finding of adequate written description. The Federal Circuit rejected each of these arguments.
Under the doctrine of inherent disclosure, when a specification describes an invention that has certain undisclosed yet inherent properties, that specification serves as adequate written description to support a subsequent patent application that explicitly recites the invention’s inherent properties. Applying this doctrine, the Federal Circuit held that “it is not necessary for an application to disclose a protein’s complete N-terminus sequence in order to provide an adequate written description of that protein.” In reaching this conclusion, Court relied on the fact that it was undisputed that the protein disclosed in the priority application was the same TBP-II protein claimed by Abbott’s patent.
The Federal Circuit also found that the prosecution history of Abbott’s patent did not preclude Abbott from relying on the doctrine of inherent disclosure and did not demonstrate that the missing amino acids were material to patentability, because the partial amino acid sequence and biological properties disclosed in the priority application were sufficient to identify the TBP-II protein.
PATENTS / DECLARATORY JUDGMENT JURISDICTION
Substantial Controversy for Declaratory Judgment Jurisdiction May Be Based on Demonstrated Intent to Enforce Patents **WEB ONLY**
The US Court of Appeals for the Federal Circuit reversed a district court’s dismissal of a declaratory judgment action for lack of subject matter jurisdiction, clarifying that a “substantial controversy” does not require a specific threat of infringement litigation. Asia Vital Components Co., Ltd. v. Asetek Danmark A/S, Case No. 15-1597 (Fed. Cir., Sept. 8, 2016) (Prost, CJ).
Asetek is the assignee of the asserted patents, which are directed to liquid cooling systems used to cool computers. In April 2014, Asetek sent Asia Vital Components (AVC) a letter accusing AVC of infringing its patents. AVC noted that it did not manufacture the products Asetek called out in its letter, but still requested a meeting with Asetek to discuss related matters. Asetek stated that it believed AVC was likely selling other infringing products in the United States, highlighted Asetek’s enforcement of its intellectual property against other manufacturers of liquid cooling systems and agreed to meet with AVC. The two parties met in August 2014 and discussed a potential license to the asserted patents but did not specifically discuss any AVC products that potentially infringed the asserted patents.
In September 2014, AVC filed a declaratory judgment complaint seeking a declaration that its liquid cooling products, identified as K7 and K9, did not infringe Asetek’s patents. Asetek moved to dismiss the complaint for lack of subject matter jurisdiction. The district court granted Asetek’s motion, explaining that because there were never any discussions between the parties as to whether AVC’s K7 and K9 products were infringing, and because Asetek was unaware of the existence of AVC’s K7 and K9 products prior to the complaint, “the complaint does not plead sufficient facts to show that there is a substantial controversy under the totality of the circumstances.” AVC appealed.
On appeal, the Federal Circuit reversed, finding that Asetek’s actions demonstrated intent to enforce its patents, creating a substantial controversy between the parties. The Court found this intent based on Asetek’s accusation that AVC was selling other infringing products in the United States and Asetek’s warning to AVC that it enforced its intellectual property in pending litigations against companies that AVC alleged sell products similar to its own K7 and K9 products. Asetek also met with AVC to discuss a potential license, even after learning that its specific allegations in its initial letter were incorrect, and made threats to AVC’s customers regarding AVC’s alleged infringement of the asserted patents. The Court found that such threats constitute affirmative actions by Asetek to “impede and frustrate AVC’s attempts to meaningfully participate in the liquid cooling market,” further supporting the conclusion that a substantial controversy existed between the parties. Additionally, the Federal Circuit found that the threat of suit was “real and immediate” because AVC had completed designs for the K7 and K9 products, including manufactured prototypes, and demonstrated an intent to market and sell the products with evidence of potential customers prepared to place orders.
The Federal Circuit emphasized that the question of jurisdiction does not turn on Asetek’s knowledge of the specific AVC products that may infringe or whether Asetek specifically alleged that the K7 and K9 products infringed, but rather whether Asetek’s actions “can be reasonably inferred as demonstrating intent to enforce a patent.” Because Asetek’s actions demonstrated intent to enforce its patents, there was a sufficient controversy to support AVC’s declaratory judgment complaint.
PATENTS / STANDING / DEFAULT SANCTIONS
Default Sanction for Discovery Violations Was Abuse of Discretion
Highlighting the significance of procedure, discovery disputes and the limits of judicial discretion, the US Court of Appeals for the Federal Circuit affirmed the district court’s denial of a motion to dismiss for lack of standing and vacated several orders for abuse its discretion. Drone Techs., Inc. v. Parrot S.A., Parrot, Inc., Case Nos. 15-1892; -1955 (Fed. Cir., Sept. 29, 2016) (Schall, J) (Newman, J, concurring).
Drone is a Taiwanese corporation and the assignee of the two asserted patents, which are generally directed to systems for remotely controlled machines. Parrot designs, develops and markets hobby aircrafts, i.e., “drones,” and offers them for sale in the United States. Drone sued Parrot in 2014 alleging indirect infringement. Parrot answered and asserted counterclaims and affirmative defenses. As a sanction for violating two discovery orders, however, the district court struck Parrot’s counterclaims and defenses, which resulted in a default judgment against Parrot as to liability. A jury awarded Drone almost $8 million, and the district court awarded almost $2 million in attorneys’ fees. Parrot appealed.
The first issue on appeal was whether Drone, the assignee, had standing to sue. Before a court may exercise jurisdiction over a patent infringement action, it must be satisfied that, “in addition to Article III standing, the plaintiff also possesse[s] standing as defined by § 281 of the Patent Act.” Parrot claimed that the named inventor and assignor of the patent either did not invent the claimed subject matter or was not the sole inventor, thereby rendering the assignment to Drone null and void. However, the Federal Circuit recognized that there was a “presumption that [a patent’s] named inventors are the true and only inventors” and that lack of standing is not the place to challenge inventorship when the issue can be raised as a § 102(f) defense for misjoinder or non-joinder. In other words, there is no need to address inventorship when considering plaintiff’s standing to sue.
The second issue was whether the district court abused its discretion by entering a default judgment as a sanction. During discovery, in response to a first motion to compel, Parrot was ordered to produce all source code used in its drone. Parrot produced documents including its off-board source code. Drone wanted the on-board source code as well, however, and filed another motion to compel. Parrot objected, insisting that the local patent rules permitted inspection of source code in lieu of production, and filed several requests for reconsideration and for modification of the protective order to include additional safeguards, as well as a motion to stay so that it could file an application for a writ of mandamus. The district court rejected these requests and imposed sanctions. Parrot argued on appeal that these discovery decisions were abuses of discretion.
The Federal Circuit agreed, noting that the district court’s discovery orders controverted the local patent rules, which only required production of documents “sufficient to show” the operation of the accused products, and permitted inspection of source code in lieu of production. The district court’s failure to evaluate the alleged deficiencies in Parrot’s initial production in light of the local patent rules, as well as its refusal to limit Parrot’s production to making its on-board source code available for inspection, was inappropriate.
The Federal Circuit further found that the district court’s default judgment was also an abuse of discretion, because it was a sanction imposed only for failing to comply with discovery orders. Further, the Court explained that default was a “drastic” sanction generally “disfavored absent the most egregious circumstances.”
Despite concluding that vacating the judgment was appropriate, the Federal Circuit engaged in a Poulis analysis as an alternative ground for vacating the sanction. In its Poulis analysis, the Federal Circuit questioned the district court’s stated need to “penalize” Parrot, because “a court may not enter a default judgment against a defendant who failed to comply with a discovery order as ‘mere punishment.’” In this case, not only was the sanction more stern than necessary to cure the alleged prejudice to Drone, it also did not support the presumption that Parrot was refusing to provide its on-board source code because discovery of that information would have revealed the lack of merit in Parrot’s defense against Drone’s infringement case. On the contrary, Parrot repeatedly offered to make the on-board source code available for inspection.
The Federal Circuit vacated the discovery orders, default sanction and damages award.
In her concurrence, Judge Newman focused on the inventorship issue and urged the district court, on remand, to consider the inventorship, noting that based on the record, the named inventor “merely suggested a result to be accomplished” and might not qualify as an inventor. Newman emphasized that in her view “a substantive examination of inventorship” is necessary to resolve standing where the plaintiff’s claim to title is otherwise not in dispute, since an “incorrect inventor or inventive entity cannot pass title by assignment.”
Practice Note: Practitioners should heed the advice of the Federal Circuit, which stated that Parrot could and should have taken the position that it would not produce the on-board source code without additional protections and then ask for an immediately appealable sanction.
PATENT LITIGATION / LAWYER CONFLICTS / DQ
Lawyer Disqualifications for Conflict of Interest Result in Rebuke
Addressing conflict of interest issues in a case involving the plaintiff’s in-house lawyer representing her new company in an infringement lawsuit against her former company over substantially related subject matter, the US Court of Appeals for the Federal Circuit affirmed a district court’s disqualification of all of the plaintiff’s in-house and outside counsel, finding that the plaintiff failed to rebut a presumption that those lawyers received the defendant’s confidential information. Dynamic 3D Geosolutions LLC v. Schlumberger Ltd., Case Nos. 15-1628; -1629 (Fed. Cir., Sept. 12, 2016) (Lourie, J) (Wallach, J, concurring).
Dynamic 3D Geosolutions is a subsidiary of Acacia. Acacia’s senior vice president and associate general counsel, Charlotte Rutherford, took her position after serving in various high-level counsel positions in Schlumberger’s intellectual property department over a period of seven years. At Schlumberger, Rutherford’s job duties included developing and implementing the worldwide intellectual property strategy; protecting and preserving Schlumberger’s intellectual property assets, including patents, trademarks and trade secrets; and advising senior Schlumberger executives regarding risk issues relating to intellectual property. Among other projects at Schlumberger, Rutherford was specifically involved in evaluating the risks of infringement for a product later accused of infringement by Acacia.
After joining Acacia, Rutherford participated in discussions with Acacia’s in-house lawyers and outside counsel regarding the possibility of acquiring a patent to assert in an infringement suit against Schlumberger. Rutherford also spoke to the inventor of the patent prior to the acquisition. Following those discussions, Rutherford approved a recommendation to Acacia’s CEO to acquire and assert the patent against Schlumberger.
The parties disputed Rutherford’s level of involvement in the plan to acquire and assert the patent against Schlumberger, but the court found that the level of Rutherford’s involvement was sufficient to cause disqualification in either case. Specifically, the district court found that the evidence created an irrebuttable presumption that Rutherford acquired confidential information as a Schlumberger lawyer that disqualified her from involvement in a case on behalf of Acacia. The district court also determined that Rutherford’s acquired knowledge should be imputed to all Acacia in-house lawyers for purposes of the suit against Schlumberger because Acacia failed to rebut the presumption that Schlumberger’s confidential information was disclosed to those lawyers. As for outside counsel, the district court disqualified them as well, finding that Schlumberger had shifted the evidentiary burden to Acacia to prove non-disclosure of confidential information to the outside counsel. Acacia appealed.
In affirming Rutherford’s disqualification, the Federal Circuit looked to Texas Disciplinary Rule of Professional Conduct 1.09(a) and the corresponding ABA Model Rule, and found that Rutherford’s former representation of Schlumberger was substantially related to her alleged representation in this case. The Court found that Rutherford’s participation at Acacia entailed assessing the patent’s value as a litigation tool against Schlumberger with knowledge of her former employer’s confidential information.
The Court rejected Acacia’s argument that US Court of Appeals for the Fifth Circuit law does not require a presumption of disclosure for in-house lawyers. The Court found that regardless of whether the presumption of disclosure of confidential information was rebuttable, Acacia could not rebut the presumption after admitting that it did not wall Rutherford off from Acacia’s other lawyers, and that all four employees in Acacia’s office reported to Rutherford even after the conflict issue was raised.
In affirming the disqualification of Acacia’s outside counsel, the Court found that Rutherford disregarded her duty of loyalty and communicated Schlumberger’s confidential information not only to other in-house counsel but also to outside counsel. The Court affirmed the dismissal of Acacia’s complaint without prejudice as a result of the logistics presented following the extensive lawyer disqualification.
The concurring opinion included as strong rebuke of Rutherford’s actions in view of the disputed circumstances.
PATENTS / PLEADING STANDARD
Iqbal/Twombly Pleading Standard Governs Joint Patent Infringement Claims
Addressing the pleading standard under which a joint patent infringement claim must be reviewed, the US Court of Appeals for the Federal Circuit affirmed the dismissal of a complaint of patent infringement, finding that the pleading requirements set forth in Iqbal and Twombly, rather than those set forth in Form 18, govern claims of joint patent infringement. Lyda v. CBS Corp., Case No. 15-1923 (Fed. Cir., Sept. 30, 2016) (Stoll, J).
Prior to the abrogation of Form 18 on December 1, 2015, Edwin Lyda sued CBS alleging patent infringement. Lyda’s amended complaint alleged that the patent infringement was carried out by an independent contractor (under the direction and control of CBS) and unnamed third parties (under the direction and control of the independent contractor). CBS moved to dismiss the amended complaint for failure to state a claim under Fed. R. Civ. P. 12(b)(6).
The district court determined that the allegations in the amended complaint regarding an “independent contractor” implicated a theory of joint—rather than direct—patent infringement. The district court noted that the pleading standard for direct patent infringement (prior to December 1, 2015) is found in Form 18, but the Federal Circuit has never articulated the pleading standard for joint patent infringement claims. The district court observed, however, that sister courts generally have found that Form 18 does not apply to joint infringement claims, and granted CBS’s motion to dismiss, finding that the allegations of patent infringement in the amended complaint were too vague to satisfy even the “generous” Form 18 pleading standard. Lyda appealed.
The Federal Circuit affirmed, agreeing that Form 18 does not apply to joint infringement claims, which must be evaluated under the more rigorous pleading standard set forth in Iqbal and Twombly. Thus, to survive a motion to dismiss, a joint infringement claim must
. . . plead facts sufficient to allow a reasonable inference that all steps of the claimed method are performed and either (1) one party exercises the requisite “direction or control” over the others’ performance or (2) the actors form a joint enterprise such that performance of every step is attributable to the controlling party.
The Court concluded that the allegations in the amended complaint implicated a theory of joint infringement but did not satisfy the Iqbal and Twombly pleading standard.
Practice Note: On December 1, 2015, as part of the amendments to the Fed. R. Civ. P., Rule 84 and its appendix of forms were abrogated. For all cases filed since that date, including cases alleging only direct infringement, litigants should understand that the complaint must meet the plausibility standard.
PTO Extends Pilot Programs
Bernard P. Codd
The US Patent and Trademark Office (PTO) has extended the After Final Consideration Pilot 2.0 (AFCP 2.0) and the Quick Path Information Disclosure Statement (QPIDS) pilot programs until September 30, 2017.
To be considered for the AFCP 2.0 program, a response under 37 CFR § 1.116 must include a request for consideration (Form PTO/SB/434) and an amendment to at least one independent claim that does not broaden the scope of the independent claim in any aspect. Additional non-examining (other) time is authorized for the Examiner to consider and act on the after-final amendment. If the Examiner determines that the amendment cannot be addressed fully in the additional time granted under the AFCP 2.0, the Examiner will issue an Advisory Action indicating that the amendment was not entered.
Under QPIDS, an Information Disclosure Statement (IDS) submitted after the payment of the issue fee and before the patent issues may be considered without requiring a Request for Continued Examination (RCE). For consideration under QPIDS, the applicant must file an IDS with a certification under 37 CFR § 1.97(e), a petition to withdraw from issue and an RCE. Upon consideration of the IDS, if the Examiner determines that no cited item of information necessitates reopening prosecution, the PTO will mail a corrected notice of allowability, the patent will issue, and the RCE will not be entered. On the other hand, if the Examiner determines that prosecution needs to be reopened, the petition to withdraw from issue and the RCE will be entered, and the applicant will be charged the pertinent fees.
America Invents Act
AIA / CBM / FINANCIAL PRODUCT OR SERVICE
For CBMs, the Name of the Game is a Financially Limited Claim
In two recently denied petitions for covered business method (CBM) review, the Patent Trial and Appeal Board (PTAB or Board) provided further guidance on what claimed subject matter is eligible for CBM review. BMC Software, Inc. v. zIT Consulting GmbH, Case No. CBM2016-00044 (PTAB, Aug. 23, 2016) (Giannetti, APJ); Plaid Technologies Inc. v. Yodlee, Inc. and Yodlee.com, Inc., Case No. CBM2016-00037 (PTAB, Aug. 16, 2016) (Zecher, APJ). In doing so, the PTAB underscored that claims with general utility devoid of any terms tied to a financial-related activity are not subject to CBM review.
In the BMC decision, the PTAB observed that, according to the America Invents Act (AIA), a CBM patent is “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service.” BMC argued that the challenged patent—which related to managing mainframe computer system usage for large mainframe computers—met the requirements of the CBM statute because it claimed a method used in the management of a financial product. Admitting that the claims did not include any financial limitations on their face, BMC maintained that the claims should be considered financial in nature because the specification described the claimed method as managing a licensing contract.
Reviewing the claims and the specification, the PTAB found the claims had only general utility and lacked any financial limitations. The PTAB disagreed with the petitioner’s argument that the claimed subject matter produced a financial result by reducing costs. According to the PTAB, “[s]aving money is not necessarily a financial activity under the covered business method patent review statute,” because, reductio ad absurdum, if it were, “then every patent that led to a cost reduction would qualify for review.” The PTAB discounted BMC’s citation of prior non-binding PTAB authority, explaining that “we do not find covered business method patent review available for patents that claim generally useful technologies that also happen to be useful to financial applications.”
The PTAB similarly found that the claims challenged by Plaid Technologies were not tied to any financial limitations and had only general utility. In that case, the challenged patent was generally related to the field of internet navigation and, in particular, to a method and apparatus for gathering summary information from users or websites and presenting that information as HTML to the users or websites via either push or pull technology. Quoting the US Court of Appeals for the Federal Circuit’s recent CBM analysis in Blue Calypso, the PTAB explained that “§ 18(d)(1) [the CBM statute of the AIA] directs us to examine the claims when deciding whether a patent is a [CBM] patent” (emphasis in original) (IP Update, Vol. 19, No. 4). The PTAB further explained that while the Federal Circuit in Versata (IP Update, Vol. 18, No. 8) recognized that the AIA term “financial product or service” should be interpreted broadly, there are limits to the breadth of that term: “As the Federal Circuit explained, ‘[t]he plain text of the statutory definition contained in § 18(d)(1) . . . on its face covers a wide range of finance-related activities’” (emphasis in original). The PTAB then examined a number of prior CBM denials, noting that for each case, the claims at issue were found to have only general utility.
Practice Note: These PTAB decisions underscore that in order to have CBM review instituted, at least one claim of the challenged patent must have financial limitations expressly or inherently recited. In BMC, the petitioner admitted that the claims did not include any financial limitations on their face. In Plaid, the petitioner essentially did so as well. Neither petitioner supported its position with any claim constructions linking any claim term to a financial limitation. For cases where challenged patents do not include claims that expressly recite financial limitations, prospective CBM petitioners should consider urging claim constructions linking the claims to inherent financial limitations.
AIA / § 315(e)(1) ESTOPPEL
PTAB Denies Subsequent Challenge on Grounds Petitioner “Reasonably Could Have Raised”
Addressing the issue of whether to grant a second inter partes review (IPR) after all of the claims had previously been adjudicated, the Patent Trial and Appeal Board (PTAB or Board) determined that the petitioner and its foreign subsidiary were estopped from requesting or maintaining the later-filed IPR. Praxair Distribution, Inc. v. INO Therapeutics LLC, Case No. 2016-00781 (PTAB, Aug. 25, 2016) (Pollock, APJ).
INO Therapeutics is the owner of a patent that describes methods of distributing a pharmaceutical product aimed at reducing the risk or preventing the occurrence in a human patient of an adverse event associated with a medical treatment comprising inhalation of nitric oxide.
Praxair previously requested IPR of claims 1–19 of the patent, asserting that one of ordinary skill in the art would have been referred to the US Food and Drug Administration approved INOMAX® label for new warnings and precautions related to patients with left ventricular dysfunction. The PTAB agreed and determined that all claims but claim 9 were unpatentable. Applying US Court of Appeals for the Federal Circuit precedent, the PTAB determined that “providing information” to medical practitioners lacks a functional relationship to the claim elements where the methods of administering the drug can be performed irrespective of whether that knowledge is conveyed.
Praxair filed a second request for IPR because of its concern that the Federal Circuit might reverse the PTAB’s prior determination that the step of “providing . . . information” should not be given patentable weight. To bolster its argument, Praxair offered the PTAB two “recently discovered” prior art references that, according to Praxair, disclosed the provided “information.”
Under 35 USC § 315(e)(1), a petitioner may not request or maintain subsequent proceedings on a ground that it raised or reasonably could have raised during the prior proceeding. The PTAB turned to the legislative history and concluded that the phrase “reasonably could have raised” broadly encompasses “prior art which a skilled searcher conducting a diligent search reasonably could have been expected to discover.”
INO Therapeutics argued that the two articles produced by the petitioner were catalogued and accessible at dozens of libraries in the United States, including the Library of Congress and the National Library of Medicine, and that both articles are readily identified by searching Google Books using keywords from the patent specification.
The PTAB found that the newly asserted references were not obscure texts unlikely to be discovered upon a reasonably diligent search of the relevant prior art by a skilled researcher. The PTAB did, however, note that the petitioner failed to identify the actual searcher, his or her skill level, experience in the field and searching methodology, so it had little evidence to find that Praxair conducted a diligent search.
Ultimately, the PTAB determined that because Praxair had previously challenged claims 1–19 of the patent, which resulted in a final decision, it was now estopped under § 315(e)(1) from requesting or maintaining the current proceeding with respect to any of those claims.
Practice Note: Petitioners seeking a second IPR should put forth evidence of prior art that a skilled searcher conducting a diligent search reasonably could not have been expected to discover. A mere reference to relevant subject matter, without showing that the newly asserted reference is obscure, uncatalogued and generally inaccessible, may not be sufficient to justify a second review.
TRADEMARKS / LIKELIHOOD OF CONFUSION
Use of Judicial Notice in Likelihood of Confusion Analysis Held Improper
Addressing the likelihood of confusion for competing marks used in connection with financial services, the US Court of Appeals for the First Circuit largely reversed the district court’s finding that the defendant’s use of various marks containing the word ORIENTAL did not infringe the plaintiff’s rights in its family of ORIENTAL marks. Oriental Financial Group, Inc. v. Cooperativa de Ahorro Y Crédito Oriental, Case No. 15-1009 (1st Cir., Aug. 3, 2016) (Lipez, J).
Factually and procedurally, the case has a lengthy history. Oriental Financial Group (Oriental Group) started in eastern Puerto Rico and later expanded throughout the island. It has used the word mark ORIENTAL to market its financial services since 1964 and uses ORIENTAL in several of its service marks and trademarks. Cooperativa de Ahorro Y Crédito Oriental began using the word mark COOP ORIENTAL to market its financial services in 1995. Until 2008, Cooperativa maintained a few branches that were confined to eastern Puerto Rico and engaged in minimal advertising. In 2008, Cooperativa began expanding across the island, started an advertising campaign, and eventually adopted a new logo and trade dress that was similar to Oriental Group’s branding. Several incidents of consumer confusion followed, and Oriental Group sued Cooperativa in 2010 for service mark and trade dress infringement under 15 USC § 1125(a).
After a bench trial, the district court held that Cooperativa’s new logo and trade dress were infringing, but permitted Cooperativa to continue to use the COOP ORIENTAL word mark. Oriental Group sought to amend the district court’s injunction, but the district court denied that request.
On appeal, the First Circuit remanded and ordered the district court to assess whether Cooperativa’s use of COOP ORIENTAL and similar marks caused a likelihood of confusion with Oriental Group’s ORIENTAL mark. On remand, the district court found that there was no likelihood of confusion caused by Cooperativa’s use of the word marks COOP ORIENTAL, COOPERATIVA ORIENTAL, ORIENTAL POP and CLUB DE ORIENTALITO. Oriental Group again appealed. Reviewing for clear error, the First Circuit held that the district court erred with respect to Cooperativa’s use of COOP ORIENTAL, COOPERATIVA ORIENTAL and ORIENTAL POP, but found no clear error with respect to CLUB DE ORIENTALITO.
The First Circuit concluded that COOP ORIENTAL, COOPERATIVA ORIENTAL and ORIENTAL POP were indisputably similar to Oriental Group’s family of ORIENTAL marks. The Court criticized the district court’s use of judicial notice to find that consumers in Puerto Rico understand that for-profit entities such as Oriental Group are prohibited from using the word “cooperativa” or “coop” in their name (and credit unions like Cooperativa must use those words in their names). In other words, the district court found—without any evidentiary support—that a consumer would see “Coop” or “Cooperativa” in Cooperativa’s marks and understand that Cooperativa legally could not be affiliated with Oriental Group. The Court found this use of judicial notice highly problematic because “public perception of a mark is central to any trademark dispute.”
The First Circuit also disagreed with the district court’s determination that the use of COOP and COOPERATIVA in Cooperativa’s ORIENTAL marks served to dispel any confusion with Oriental Group because those terms were descriptive of Cooperativa’s credit-union services. The fact that Oriental Group used a family of ORIENTAL marks further supported a finding of likelihood of confusion, as the Court found that consumers are likely to mistakenly believe that COOP ORIENTAL and COOPERATIVA ORIENTAL are part of that family of marks. Because of the strong similarities of COOP ORIENTAL, COOPERATIVA ORIENTAL and ORIENTAL POP to Oriental Group’s ORIENTAL family of marks, the Court reversed the district court’s finding that there was no likelihood of confusion with respect to these marks.
Practice Note: Much can be written about what went wrong in this case, including Cooperativa’s failure to argue on appeal that Oriental Group’s unregistered ORIENTAL marks were not entitled to protection (oriental means “eastern” in English and Spanish) and Oriental Group allowing Cooperativa’s applications for ORIENTAL marks to register while this case was pending. Trademark owners should remember that brands must be protected and enforced on multiple fronts—in federal courts and at the US Patent and Trademark Office.
CERT ALERT / TRADEMARKS / DISPARAGEMENT
Supreme Court to Review Registrability of Disparaging Trademarks
On September 29, 2016, the Supreme Court of the United States granted a petition for certiorari to consider the constitutionality of a provision of the US trademark laws directed to the registrability of disparaging trademarks. Lee v. Tam, Docket No. 15-1293 (Sup. Ct., Sept. 29, 2016) (certiorari granted).
The sole question presented is whether the disparagement provision of the Lanham Act, 15 USC § 1052(a), which provides that no trademark shall be refused registration on account of its nature unless, among other things, it “[c]onsists of . . . matter which may disparage . . . persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute” is facially invalid under the Free Speech Clause of the First Amendment.
The case concerns a rock band called The Slants founded by Simon Tam. Tam’s goal in naming his band was to reappropriate a derogatory term for people of Asian descent. Tam tried to register “The Slants” as a trademark but was refused on the basis that the name was “disparaging” within the meaning of § 1052(a).
In December 2015, a divided (9–3) en banc panel of the US Court of Appeals for the Federal Circuit (in addition to the opinion of the Court, four other concurring and dissenting opinions were issued) held § 1052(a) facially invalid (IP Update, Vol. 19, No. 1). In essence, the Federal Circuit ruled that disapproval of a mark based on its content violates the First Amendment right to free speech: “the First Amendment protects even hurtful speech.”
Practice Note: The Washington Redskins are challenging the Trademark Trial and Appeal Board’s (TTAB’s) decision to revoke the team’s “Redskins” trademarks on the grounds that the marks are disparaging to Native Americans. That TTAB decision was upheld in July 2015 by the US District Court for the Eastern District of Virginia and is currently on appeal at the US Court of Appeals for the Fourth Circuit. The Redskins filed an amicus brief urging the Supreme Court to hear their case alongside Tam’s (i.e., without waiting for the Fourth Circuit to rule), but the Supreme Court declined the request.
COPYRIGHTS / TRADE SECRETS / PREEMPTION
Federal Copyright Law Does Not Preempt Trade Secret Claim
Addressing issues of preemption, the US Court of Appeals for the Fifth Circuit affirmed the district court’s decision that federal copyright law did not preempt the plaintiff’s trade secret claim because trade secret claims seek to protect different rights than those protected under federal copyright law. GlobeRanger Corporation v. Software AG US, Inc., Case No. 15-10121 (5th Cir., Sept. 7, 2016) (Costa, J).
GlobeRanger is a software company that specializes in radio frequency identification (RFID) technology for inventory management. In 2007, GlobeRanger entered into a contract to build and implement a bundle of RFID technology for the US Navy. GlobeRanger provided the Navy with three instances of the solution before the Navy decided it wanted an enterprise-wide system that could be run from a single location rather than requiring servers at each location. The Navy considered proposals for the enterprise-wide system from both GlobeRanger and Software AG, and decided to go with Software’s proposal. While working on the Navy contract, Software accessed some of GlobeRanger’s data, manuals and software. GlobeRanger filed a complaint arguing, among other things, that Software misappropriated its RFID technology after taking over GlobeRanger’s subcontract with the Navy to implement the technology.
The jury found that Software misappropriated GlobeRanger’s trade secrets and awarded $15 million in compensatory damages. The district court also found that GlobeRanger proved neither malice nor conspiracy, and was not entitled to punitive damages. Software appealed.
On appeal, Software argued that federal copyright law preempted GlobeRanger’s trade secret claim, and if the trade secret claim was not preempted, then the case should be remanded to state court. The Fifth Circuit disagreed, explaining that trade secret claims seek to protect different rights than those protected under federal copyright law. A trade secret misappropriation claim requires a claimant to establish that the protected information was taken via improper means or breach of a confidential relationship—an element not required for a copyright violation claim. Because the state tort provides substantially different protection than copyright law, it is not preempted. This ruling brings Fifth Circuit case law on this issue in line with the other 10 regional circuits.
As for the request to remand to state court, the Fifth Circuit denied that request as well, noting that the case was originally removed to federal court based on a conversion claim, which was fully preempted by the copyright claim. Although the conversion claim was dismissed before trial, jurisdiction is determined at the time of removal, and so the case was properly before the district court.
The Fifth Circuit further concluded that GlobeRanger’s evidence was sufficient to show that Software used the Navy solution owned by GlobeRanger in developing its own product. Therefore, the Court affirmed the jury’s finding with respect to the trade secret claim.
COPYRIGHTS / TRADE SECRETS
Flash Drive Design May Support Copyright Infringement Claim
Addressing claims of copyright infringement and misappropriation of trade secrets, the US Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the district court’s summary judgment in favor of the defendant finding that the shape of a flash drive lacked originality as a derivative work, and that the alleged trade secrets lacked “independent economic value.” Direct Technologies, LLC v. Electronic Arts, Inc., Case Nos. 14-56266; -56745 (9th Cir., Sept. 6, 2016) (Gould, J).
The dispute between Direct Technologies (DT) and Electronic Arts (EA) arose in connection with a prototype of a USB flash drive that DT created at EA’s request for distribution with the release of version three of The Sims, EA’s popular life simulation computer game. DT designed the flash drive prototype to resemble The Sims’ “Plumbob,” a gem-shaped icon that appears over the head of a game character as it moves throughout the game. After EA sent DT’s Plumbob flash drive prototype to a company in China for reproduction, DT sued for copyright infringement and misappropriation of trade secrets.
The district court granted summary judgment to EA on the federal copyright claim stating that the flash drive was not sufficiently original to qualify for protection under the Copyright Act. The district court also granted summary judgment in favor of EA with regard to claims brought under the California Uniform Trade Secrets Act (CUTSA), holding that DT did not take “reasonable efforts” to keep the prototype design confidential. DT appealed both claims.
The Federal Copyright Claim
EA created the Plumbob icon as it appears in The Sims game and therefore holds a copyright in the original two-dimensional design of the Plumbob. Accordingly, in order to determine whether DT could sustain a claim of copyright infringement, the Ninth Circuit examined whether DT’s 3D version of the Plumbob-shaped flash drive was entitled to protection as a derivative work.
The Ninth Circuit outlined its two-step inquiry for determining whether a derivative work is original enough to receive copyright protection. Step one looks at whether any aspects of the derivative work are purely functional or utilitarian. Step two is an application of the Second Circuit’s two Durham factors, namely, (1) whether the original aspects of the derivative work are more than “trivial,” and (2) whether the scope of copyright protection in the preexisting work is in any way affected by the original aspects of the derivative work.
On the question of functionality, the Court held that there was a genuine issue of material fact regarding whether the “cut away” manner in which the flash drive stick fit into the Plumbob design was merely utilitarian. The Court cited the sworn declaration of DT’s flash drive designer, who explained that the design was chosen from at least four other design options for “aesthetic reasons.” Thus, based on the evidence of record, the Court determined that a reasonable jury could potentially answer the question of whether the design was merely utilitarian or functional in either party’s favor.
The Ninth Circuit then examined the originality inquiry and explained that if a jury were to find that the “cut away” fit of the flash drive was indeed artistic and non-functional, such a determination would inevitably raise a genuine issue of material fact as to whether DT’s design was sufficiently original to warrant copyright protection. However, the Court was quick to clarify that any such copyright protection would extend only to the artistic “cut away” fit design and not the Plumbob itself.
The Court also dismissed EA’s alternative argument claiming that DT was not a joint author of the derivative work, and held that there was a genuine issue of material fact as to whether DT was “sufficiently in control of its artistic contribution” to the flash drive to qualify as a joint author. Finally, the Court further rejected EA’s argument that DT assigned away its copyright interest via a third-party vendor agreement, and ultimately reversed the district court’s grant of summary judgment on the copyright claim.
The Trade Secret Claim Under CUTSA
The Ninth Circuit affirmed the district court’s grant of summary judgment for EA with regard to misappropriation of trade secrets, but on different grounds. Instead of holding that DT did not maintain the secrecy of its prototype—noting a potential “implied confidential relationship” between the relevant parties—the Court turned to the language of CUTSA, which defines a trade secret as having “independent economic value . . . from not being generally known to the public or to other persons who can obtain economic value from its disclosure.” In this regard, the court determined that DT had not presented any evidence to show that there was value in the secrecy of its design. In particular, since the Plumbob flash drive was uniquely applicable to EA’s game and its original Plumbob design, the Court agreed that DT had not shown any actual or potential value in its design outside of EA’s project.
The Court denied EA’s request for attorneys’ fees on the trade secrets claim, finding that DT’s claim was not “objectively specious” nor brought in bad faith. Thus, the Ninth Circuit affirmed the district court’s grant of summary judgment as to misappropriation of trade secrets and remanded the action for further proceedings with regard to the copyright claim.
COPYRIGHTS / FOREIGN JUDGMENTS
Ninth Circuit Says Oui to French Copyright-Infringement Award
Sarah P. Hogarth
Addressing whether federal courts may go outside the pleadings when ruling on a motion to dismiss premised on foreign law, the US Court of Appeals for the Ninth Circuit clarified that the content of foreign law is a “question of law” that permits judicial reliance on independent research and the parties’ submissions. De Fontbrune v. Wofsy, Case No. 14-15790 (9th Cir., Sept. 26, 2016) (McKeown, J).
Yves Sicre de Fontbrune owns the copyright in Christian Zervos’s almost 16,000 photographs of Pablo Picasso’s artwork. After US art editor Alan Wofsy reproduced some of the photographs and sold them at a Parisian fair, de Fontbrune brought suit in France for copyright infringement. The French court awarded de Fontbrune EUR 2 million for “astreinte”—a French legal remedy with no US counterpart. Invoking the California Uniform Foreign-Court Monetary Judgment Recognition Act (Uniform Recognition Act), de Fontbrune sought to enforce his astreinte award against Wofsy in California state court.
Wofsy removed the case to federal court and filed a motion to dismiss, arguing that astreinte is a type of penalty, rather than a monetary award, and is therefore not enforceable pursuant to the Uniform Recognition Act. Under Fed. R. Civ. P. 44.1 (Determining Foreign Law), both parties provided conflicting expert opinions as to the status of astreinte in French law.
The district court initially refused to rely on the experts’ declarations, calling them “evidence outside the pleadings” that may not be considered on a motion to dismiss. On reconsideration, however, it reversed course, finding that Rule 44.1 authorizes a court’s consideration of any relevant source on the content of foreign law regardless of its admissibility, likening questions of foreign law to questions of domestic law. After evaluating the French legal sources, the district court found that de Fontbrune’s astreinte was a non-cognizable penalty and dismissed the enforcement action. De Fontbrune appealed.
Recognizing that there was significant confusion over how to treat foreign legal questions under Rule 44.1, the Ninth Circuit took the opportunity to clarify. As the Court explained, subject only to Rule 44.1’s requirement that a party intending to rely on foreign law give notice, questions of foreign law are to be treated the same as questions of domestic law. Because courts have an independent obligation to research legal rules (as opposed to factual issues), courts are permitted to both independently investigate questions of foreign law and review submissions from the parties “outside the pleadings” regarding the content of foreign law.
Implementing its own advice, the Court conducted an independent legal review of the nature of astreinte and considered the parties’ expert submissions. After reviewing the relevant sources, the Court reversed the district court, finding instead that the particular astreinte judgment ordered in the case was in the nature of a monetary award, not a penalty, and was therefore legally cognizable under the Uniform Recognition Act.
Practice Note: Although federal courts have authority to independently research foreign law, source access, language barriers and general unfamiliarity may cause greater reliance on parties’ submissions than a typical domestic legal question. Therefore, litigants should be prepared to submit expert declarations supporting their interpretation of foreign law at the pleading stage.
COPYRIGHTS / EVIDENCE OF ACCESS
Absent Nexus, Radio Station Play and Intermediaries Are Insufficient to Prove Access **WEB ONLY**
Addressing the standard for proving “access” to a copyrighted work, the US Court of Appeals for the Ninth Circuit affirmed the district court’s grant of summary judgment due to a lack of admissible evidence showing sufficient access to plaintiff’s song to prove copyright infringement. Loomis v. Cornish, Case No.13-57093 (9th Cir., Sept. 2, 2016) (Clifton, J).
Loomis and his band recorded “Bright Red Chords” in 2008, released it on a 2009 album and re-released it on a 2010 album. Although the song and corresponding video received some promotion and airplay, as well as a few accolades, the song was not commercially successful by industry standards. The defendants’ accused song, “Domino,” was written in 2011 by a songwriting team spearheaded by Lukasz Gottwald (aka Dr. Luke), in collaboration with Jessica Cornish and others. After hearing “Domino,” Loomis filed a copyright infringement suit against Jessica Cornish, as well as Universal Music Group, Inc., (UMG) and Universal Republic Records (URR).
The defendants moved for summary judgment on the issue of access to Loomis’s song. Proof of access, which is typically based on circumstantial evidence, requires a reasonable possibility that an alleged infringer had a chance to view or listen to the work, not “merely a bare possibility.” Loomis attempted to prove that the defendants had access to his song through various intermediaries who may have had an opportunity to pass his song along to the defendants. For example, a UMG employee asked Loomis’s mother for a copy of Loomis’s song. However, there was no evidence that this employee had any contact with the “Domino” songwriters—the songwriters said they had never met or received anything from that employee. Similarly, a guitar player who did not perform “Bright Red Chords” in the studio, but did play the song live on MTV, ended up joining Katy Perry’s band in early 2010. According to Loomis, this guitarist worked with Dr. Luke during a 10-day recording session for Katy Perry’s Teenage Dream album and could have provided Dr. Luke with access to Loomis’s song during that period. But again, nothing in the record showed any nexus between the guitarist and Dr. Luke’s work on “Domino.” Moreover, Loomis had no personal knowledge of the guitarist actually working with Dr. Luke or Katy Perry during the 10-day recording session, and Loomis’s speculation was not sufficient proof.
Loomis also argued that the “widespread dissemination” of his song proved access. “In most cases, the evidence of widespread dissemination centers on the degree of a work’s commercial success and on its distribution through the radio, television, and other relevant mediums.” Courts also can look to the saturation of the relevant market in which both the plaintiff and defendants participate. Here, the Ninth Circuit agreed with the district court, finding the fact that the Santa Barbara music scene may have been saturated with “Bright Red Chords” during the time that Dr. Luke was in the area for a 10-day recording session with Katy Perry insufficient to raise a triable issue of access. According to the Ninth Circuit, Dr. Luke’s team was focused on recording the album and was not in town to scout new acts, listen to the radio or read local music magazines. The evidence presented by Loomis did not suggest otherwise, but consisted primarily of his speculations unsupported by personal knowledge. For these reasons, the Ninth Circuit affirmed the district court.
Practice Note: Appellant filed a petition for rehearing en banc on September 16, 2016, arguing that the panel decision “would serve as a blueprint for unethical or overreaching content providers to obtain copyrighted work” and infringe “that work with impurity.” On October 19, 2016, the same panel that decided the appeal issued an order denying that petition without comment. As the original panel decision explains, showing access to a work for purpose of proving copyright infringement requires some hard evidence of a nexus between Defendant and Plaintiff’s work beyond a “bare possibility” that it could have happened.