Supreme Court: No Inducement Based on Divided (Direct) Infringement
In a unanimous decision, the Supreme Court of the United States reversed a decision from the U.S. Court of Appeals for the Federal Circuit, which had held that induced infringement under § 271(b) could be predicated on direct infringement, even where not all of the claim steps were performed by a single party. The Supreme Court concluded that there could be no liability for indirect infringement unless there was direct infringement, i.e., by a single party. Limelight Networks, Inc. v. Akamai Technologies, Inc., Case No. 12-786 (Supr. Ct., June 2, 2014) (Alito, Justice).
Background of the Case
Akamai is the exclusive licensee of an MIT patent that claims a method of delivering electronic data using a content delivery network (CDN). Proprietors of websites contract with Akamai to deliver the content of their websites to individual users of the internet. The patent provides that certain components of a provider’s website (e.g., large files, such as video or music files) can be designated, or tagged, to be stored on servers and accessed by internet users, which allows for increased speed of access to the content. Limelight also operates a CDN and carries out several of the claimed steps, but does not tag the components to be stored on its servers. Rather, Limelight requires its customers to perform their own tagging.
Akamai successfully sued Limelight for patent infringement and was awarded $40 million in damages. Limelight filed a judgment as a matter of law (JMOL) motion, which was denied. Thereafter, and before final judgment had entered, the Federal Circuit issued its opinion in Muniauction v. Thomson, holding that the defendant could not be held liable for direct infringement because it did not perform all of the claim steps and did not exercise control or direction over the customers that performed the remaining steps. In light of that decision, Limelight moved for reconsideration of its JMOL. The district court granted the motion, holding that Limelight could not be liable for direct infringement because it did not perform the tagging step, nor did it exercise control or direction over its customers. A three-judge panel of the Federal Circuit affirmed that decision.
Subsequently, the Federal Circuit granted en banc review and reversed the panel decision. IP Update, Vol. 15, No. 9. The en banc Federal Circuit held that Limelight could have been liable for induced infringement under § 271(b) where it carried out some of the claim steps, then encouraged others to perform the remaining steps—even if there was no agency relationship involved. Ultimately, the Federal Circuit held that, while there must be direct infringement to support a claim of induced infringement, direct infringement need not be performed by a single party. Rather, the direct infringement could be divided among multiple parties, as long as each of the claim steps was ultimately performed. The Supreme Court granted certiorari to address this issue. IP Update, Vol. 17, No. 1.
The Supreme Court’s Decision
Justice Alito began his analysis by repeating the uncontroversial rule that liability for induced infringement can arise only if there is some underlying direct infringement. The Supreme Court then observed that, in this case, the Federal Circuit had found a party liable for infringement under § 271(b), even though no single party had technically infringed under § 271(a) (i.e., no single party had performed all of the claimed steps). Accordingly, the Supreme Court expressed concern that a party could be held liable for induced infringement, even though the underlying conduct did not actually constitute infringement. The court then reasoned that the Federal Circuit’s opinion created a different standard for induced infringement and direct infringement, stating, “[t]he decision below would require the courts to develop two parallel bodies of infringement law: one for liability for direct infringement, and one for liability for inducement.”
The Supreme Court observed that the language of § 271 does not support a reading that induced infringement could be found without an actual finding of direct infringement under § 271(a). In support of its position, the Supreme Court noted that § 271(f)(1) permits a finding of infringement where components are combined in a manner that “would infringe the patent if such combination occurred within the United States.” In other words, § 271(f)(1) allows for infringement liability even where there is no technical finding of infringement. Thus, Justice Alito observed, when Congress intends to provide for liability for induced infringement where direct infringement has not technically occurred, “it knows precisely how to do so.” Congress did not do so, however, in § 271(b).
Assuming Muniauction was decided correctly (a proposition Justice Alito said is not decided here), the Supreme Court concluded that there could be no direct infringement unless a single actor can be held responsible for the performance of all claimed steps of the patent.
Practice Note: On June 9, 2014, the Supreme Court declined to consider Akamai’s conditional cross appeal for certiorari filed in response to a certiorari petition filed by Limelight Networks. Supr. Ct. Case No. 12-960. In the related petition, Akamai and Limelight sought to broaden the basis of Akamai’s original certiorari petition asking the Supreme Court to directly consider the issue of divided direct infringement (sometimes phrased as joint direct infringement), i.e., the Muniauction issue. Thus, the issue of whether Muniauction was correctly decided is left for another day.
Patents / Claim Indefiniteness
Supreme Court: Patent Claims Must Provide "Clear Notice"
The unanimous Supreme Court of the United States rebuffed the “insolubly ambiguous” standard of the U.S. Court of Appeals for the Federal Circuit, holding that a claim fails to comply with 35 U.S.C. § 112, ¶ 2 if the claim, “read in the light of the specification and the prosecution history, fails to inform, with reasonable certainty, those skilled in the art about the scope of the invention.” Nautilus, Inc. v. Biosig Instruments, Inc., Case No. 13-360 (Supr. Ct., June 2, 2014) (Ginsburg, Justice).
Section 112, ¶ 2, requires that a patent claim “particularly point out and distinctly claim the subject matter which the applicant regards as [the] invention.” Justice Ginsburg explained that the Federal Circuit’s current formulation—“not amenable to construction” or “insolubly ambiguous”—“lacked the precision § 112, ¶ 2, demands.”
Biosig holds a patent directed to an improved heart rate monitor associated with exercise machines. The patent claimed improvements in heart rate measurements (electrocardiogram, or ECG, signals) attained by eliminating interfering signals (electromyogram, or EMG, signals) emitted by skeletal muscles during exercise.
The patent described a cylindrical bar with sensors intended to be gripped by both hands to measure ECG signals. The claim in issue recites a “heart rate monitor for use by a user in association with exercise apparatus and/or exercise procedure,” comprising, on each half of the cylindrical bar, a live electrode and a common electrode “mounted in a spaced relationship with each other.” The claim construction dispute centered on the “spaced relationship” claim language.
After Biosig sued Nautilus for patent infringement, Nautilus petitioned the U.S. Patent and Trademark Office (USPTO) to reexamine the Biosig patent. In the reexamination, Biosig submitted a declaration by the inventor, who explained that the patent sufficiently informed a person skilled in the art how to configure the electrodes “to produce equal EMG [signals] from the left and right hands.” The declaration noted that some “trial and error” would be necessary to account for the different spacing, shape, size and material of the electrodes on different exercise machines. The USPTO ultimately confirmed the patent.
Back in the district court, during Markman, the court construed the term “spaced relationship” to mean that “there is a defined relationship between the live electrode and the common electrode on one side of the cylindrical bar, and the same or a different defined relationship between the live electrode and the common electrode on the other side of the bar,” without any reference to the electrodes’ width. Based on that construction, Nautilus moved for summary judgment, arguing that the term “spaced relationship” was indefinite under § 112, ¶ 2. The district court granted the motion, noting that the term failed to “tell anyone what precisely the space should be” or even to supply “any parameters” to determine the appropriate spacing.
After Biosig appealed, the Federal Circuit reversed. IP Update, Vol. 16, No. 5. The majority, relying on a standard articulated in the 2005 Datamize case, stated that a claim is indefinite “only when it is ‘not amenable to construction’ or ‘insolubly ambiguous.’” The Federal Circuit panel majority found the claim in issue was not indefinite because the claim language, specification and figures disclosed certain inherent parameters delineating the boundaries of the claim.
The Supreme Court granted certiorari to consider the issue of whether the Federal Circuit’s articulation of the standard for compliance with § 112, ¶ 2 was proper. IP Update, Vol. 17, No. 1.
Supreme Court Decision
Balancing Limits of Language Against Precision
Justice Ginsburg explained that § 112 entails a delicate balance, considering the inherent limitations of language. The Supreme Court recognized that some modicum of uncertainty was the price of ensuring the appropriate incentives for innovation. At the same time, a patent must be precise enough to afford clear notice to the public of what is claimed and avoid a “zone of uncertainty which enterprise and experimentation may enter only at the risk of infringement claims.” Absent a meaningful definiteness check, applicants face powerful incentives to inject ambiguity into their claims, the Supreme Court noted.
Cognizant of the competing concerns, the Supreme Court held that § 112, ¶ 2 “require[s] that a patent’s claims, read in light of the specification and prosecution history, inform those skilled in the art [at the time the patent was filed] about the scope of the invention with reasonable certainty.”
Federal Circuit Formulations Too Imprecise
The Supreme Court faulted the Federal Circuit’s “not amenable to construction” or “insolubly ambiguous” formulation of the standard as lacking the precision demanded by §112, ¶2, which could result in lower court confusion.
Justice Ginsburg explained:
It cannot be sufficient that a court can ascribe some meaning to a patent’s claims; the definiteness inquiry trains on the understanding of a skilled artisan at the time of the patent application, not that of a court viewing matters post hoc. To tolerate imprecision just short of that rendering a claim “insolubly ambiguous” would diminish the definiteness requirement’s public-notice function and foster the innovation-discouraging “zone of uncertainty,” . . . against which this Court has warned.
While acknowledging that the phrase “insolubly ambiguous” may be simply a shorthand label for a more probing inquiry that the Federal Circuit applies in practice, and that the Federal Circuit’s fuller explications of the term may track § 112, ¶ 2 more closely, Justice Ginsburg believed lower courts required more guidance: “. . . although this Court does not ‘micromanage the Federal Circuit’s particular word choice’ in applying patent-law doctrines, we must ensure that the Federal Circuit’s test is at least probative of the essential inquiry.” Justice Ginsburg explained that the Federal Circuit’s “insolubly ambiguous” language “can leave courts and the patent bar at sea without a reliable compass.”
Vacate and Remand
The Supreme Court declined to decide whether the patent was indefinite under the proper standard (“we are a court of review, not of first view”), and vacated and remanded the case for reconsideration of the indefiniteness issue under the proper standard.
Practice Note: The Supreme Court’s reaffirmation of the public notice function served by the claim definiteness inquiry and its clarification of the appropriate standard will likely result in more challenges to patent claims under § 112, ¶ 2, as well as an increased focus and reliance on expert opinions as to the meaning and scope of challenged claims to one of ordinary skill in the art.
Indefiniteness Standard During Prosecution
The U.S. Court of Appeals for the Federal Circuit affirmed the Patent Trial and Appeal Board (PTAB) decision upholding an examiner’s indefiniteness rejection under 35 U.S.C. § 102(b), invoking the standard from the Manual of Patent Examining Procedure (MPEP). In re Packard, Case No. 13-1204 (Fed. Cir., May 6, 2014) (per curiam) (O’Malley, J., Plager, J., Taranto, J.) (Plager, J., concurring).
This is a case of first impression for the Federal Circuit and goes to the standard for indefiniteness to be applied by the U.S. Patent and Trademark Office (USPTO) when examining application claims.
The PTAB applied the standard set forth in MPEP § 2173.05(e), namely, “[a] claim is indefinite when it contains words or phrases whose meaning is unclear.” Packard appealed, arguing that the PTAB should have applied the “insolubly ambiguous” standard.
The Federal Circuit affirmed the PTAB, noting that the indefiniteness standard to be applied to post issuance claims, under the judicially applied indefiniteness standard, was (at the time of the decision) under review by the Supreme Court of the United States in Nautilus v. Biosig (IP Update, Vol. 17, No. 6.)
The Federal Circuit noted that the basis for an indefiniteness rejection during prosecution is different than that for the judicially applied indefiniteness rejection for issued patents because of the nature of granted patents and the presumption of validity, as well as to encourage applicants to correct their claims while they can be easily amended.
For an indefiniteness rejection during prosecution, the Federal Circuit concluded that when the USPTO has initially issued a well-grounded rejection that identifies ways in which language in a claim is ambiguous, vague, incoherent, opaque or otherwise unclear in describing and defining the claimed invention, and thereafter the applicant fails to provide a satisfactory response, the USPTO can properly reject the claim as failing to meet the statutory requirements of § 112(b).
The Federal Circuit explained that procedurally, the approach to follow for an indefiniteness rejection at the USPTO is the prima facie approach. The USPTO makes a prima facie case if it meets its obligation to explain adequately the shortcomings it perceives so that the applicant is properly notified and able to respond. Once the applicant is so notified, the burden shifts to the applicant to rebut the prima facie case by providing a satisfactory response, which the Federal Circuit explained can take the form of a modification of the language identified as unclear, a separate definition of the unclear language, or, in an appropriate case, a persuasive explanation for the record of why the language at issue is not actually unclear.
Here, the Federal Circuit found that the applicant did not respond adequately to the claim language problems. The applicant ignored some entirely, and for others offered only brief explanations of what he thought certain material in the written description and figures showed. The applicant did not focus on the claim language difficulties, nor did he propose clarifying changes or show why, on close scrutiny, the existing claim language really was as reasonably precise as the circumstances permitted.
Although the Federal Circuit prescribed ways an applicant may properly respond to shift the burden back to the examiner, no guidance is provided as to the standard used to determine if a response is deemed “satisfactory.”
Practice Note: On June 19, 2014, Packard petitioned for a rehearing en banc, asserting that the Supreme Court decision in Nautilus v. Biosig calls for a single standard of indefiniteness.
Patents / Attorneys' Fees
Objective Baselessness and Subjective Bad Faith for Exceptional Case Determination Are Still Applicable Even After Octane Fitness
Interpreting recent Supreme Court of the United States precedent that arguably relaxed the legal test for determining whether a case is “exceptional” to warrant an award of attorneys’ fees, the U.S. District Court for the Eastern District of Texas denied a request for attorneys’ fees, finding that because the patentee failed to meet either of the prongs of the old, more stringent “objectively baseless” and “subjectively brought in bad faith” test, the case did not stand out from others. Bianco v. Globus Medical, Inc., Case No. 2:12-CV-00147-WCB (E.D. Tex., May 12, 2014) (Bryson, J., sitting by designation).
Prior to Octane Fitness, the U.S. Court of Appeals for the Federal Circuit’s legal test for awarding attorneys’ fees in exceptional cases under 35 U.S.C. § 285 required clear and convincing evidence that the case was objectively baseless and brought in subjective bad faith. The Supreme Court rejected both the clear and convincing evidence standard and the two-prong test in Octane Fitness v. Icon Health & Fitness (IP Update, Vol. 17, No. 5), finding them too restrictive. Rather, the Supreme Court held that an exceptional case is merely one that is distinguishable from others based on the substantive strength of the litigation positions taken or the unreasonableness of the litigation approach.
Plaintiff Bianco sued Globus Medical, alleging, among other things, that Globus wrongly excluded him as an inventor on a family of patents related to an intervertebral fusion device. The district court rejected this claim, finding that Bianco was not a co-inventor. Globus moved for an award of attorneys’ fees relating solely to Bianco’s litigation of the inventorship issue. The district court denied its motion, applying the Federal Circuit’s then-applicable legal test. Less than two weeks later, the Supreme Court issued its decision in Octane Fitness, and Globus moved for reconsideration under the new “exceptional” case test.
The district court denied Globus’ motion for reconsideration, concluding that Globus waived its right to assert the new, more liberal standard because it had urged the application of the Federal Circuit’s standard, notwithstanding that Octane Fitness was pending at the Supreme Court. While recognizing that a party may not be chargeable with anticipating unexpected changes in the law, the district court stated that the change in Octane Fitness was not unexpected, because the Supreme Court had long since granted certiorari to consider the Federal Circuit’s exceptional case standard.
As an alternative to waiver, the district court reviewed and denied Globus’ motion, even under the new Octane Fitness standard, explaining that the determination of whether a case is exceptional is a case-by-case, discretionary exercise, and that the Supreme Court explicitly stated that even under the new test, a case presenting exceptionally meritless claims or subjective bad faith might warrant a fee award. The district court retraced its previous analysis rejecting attorneys’ fees based on the objectively baseless and subjective bad faith test, and concluded that Bianco’s inventorship claim was not objectively baseless, despite the ultimate finding that he did not satisfy the requirements of a co-inventor. Rather, a reasonable person could believe that Bianco’s position had a realistic chance of success. Indeed, the district court denied Globus’ motion for summary judgment on the inventorship issue, and the jury found that Globus misappropriated Bianco’s trade secrets, both of which support a finding of non-frivolity. The court further found that Bianco did not bring the inventorship claim in subjective bad faith. Subjective bad faith could not be inferred because the claim was not objectively baseless and Globus’ remaining arguments that Bianco was not a co-inventor and attempted to seek inventorship rights in pending patent applications were misplaced.
Beyond that, the district court found that the totality of the circumstances demonstrated that the claim was not exceptional or distinguishable from other claims with respect to the substantive strength of Bianco’s litigation position. Accordingly, the district court denied attorneys’ fees.
Practice Note: Practitioners moving for attorneys’ fees may continue to argue objective baselessness and subjective bad faith, as those factors remains relevant to a finding of exceptionalness even under the Supreme Court’s Octane Fitness standard.
Sanctions Are Appropriate for Factual Misrepresentation and Abuse of Judicial Process
Addressing the issue of sanctions following a finding that a litigant abused the judicial process and acted in bad faith, the U.S. Court of Appeals for the Federal Circuit upheld a district court’s imposition of sanctions, finding that there was no clear error in the district court’s narrowly tailored sanctions for making factual misrepresentations. Monsanto Co. v. E.I. Du Pont de Nemours & Co., Case No. 13-1349 (Fed. Cir., May 9, 2014) (Lourie, J.)
The case involved a license dispute concerning Monsanto’s Roundup Ready® soybean seeds, which contain a genetic modification that enables them to tolerate application of glyphosate herbicide. DuPont licensed this technology from Monsanto, and produced and sold soybean seeds pursuant to the license. DuPont later developed a genetic modification that conferred tolerance to glyphosate as well as another herbicide. DuPont “stacked,” or combined, its new genetic modification with the modification it had licensed from Monsanto to produce a new line of soybean seeds (OGAT/RR stack). Monsanto then sued DuPont for breach of the license agreement alleging, among other things, that the license did not allow for the production or sale of the OGAT/RR stack. The district court granted partial judgment on the pleadings to Monsanto based on the license.
The district court allowed DuPont to file counterclaims seeking reformation of the license. To support its counterclaims, DuPont asserted that “at all times” during the drafting and execution of the license, DuPont believed that the license covered the stacking it had done. During discovery, Monsanto moved to compel production of documents concerning DuPont’s subjective belief regarding the stacking restrictions in the license. The district court held that DuPont had placed its subjective belief concerning the scope of the license at issue, and gave DuPont the option of either dismissing its counterclaims or producing to Monsanto pertinent documents that had been withheld as privileged. DuPont chose the latter option. DuPont’s documents showed that in-house lawyers and high-level executives who were knowledgeable about the license with Monsanto knew that the license did not cover stacking and specifically would not cover the commercialization of the OGAT/RR stack. Based on this evidence, Monsanto moved for sanctions. The district court granted Monsanto’s motion, dismissed the reformation counterclaims and awarded Monsanto attorneys’ fees for expenses incurred while defending against the reformation counterclaims and bringing the sanctions motion. DuPont appealed.
The Federal Circuit noted that under the applicable law, the reformation claims could succeed only if DuPont could establish by clear and convincing evidence that, before executing the license, the parties came to a specific understanding of the terms of the license that differed materially from the executed document, and that the parties mistakenly believed that the final executed contract accurately expressed that prior understanding. Thus, by seeking to reform the license, DuPont made its subjective belief regarding the scope of the license a material factual issue.
The Federal Circuit also upheld the district court’s finding that DuPont had made material factual misrepresentations regarding its subjective belief that the license allowed for the commercialization of the OGAT/RR stack in view of DuPont’s internal documents to the contrary. Further, the Federal Circuit found that the district court did not clearly err in holding that DuPont had abused the judicial process and acted in bad faith in view of these misrepresentations, and based on this finding, upheld the award of attorneys’ fees to Monsanto.
Patents / Exceptional Case
Federal Circuit Applies Octane Fitness/Highmark Exceptional Case Standard *Web Only*
In April 2014, a unanimous Supreme Court of the United States reversed two opinions of the U.S. Court of Appeals for the Federal Circuit relating to the criteria for a district court’s ability to award fees to a prevailing party in patent litigation under 35 U.S.C. § 285 “exceptional case” doctrine and the standard of review to be applied by the Federal Circuit in reviewing a district court finding on whether a case is “exceptional.” Octane Fitness v. ICON Health & Fitness, (IP Update, Vol. 17, No. 5) and Highmark v. Allcare Health Management System, (IP Update, Vol. 17, No. 5). Less than a month later, in a three-paragraph non-precedential order, the Federal Circuit applied the Octane/Highmark abuse of discretion standard to a district court attorneys’ fees award. Innovative Biometric Technology LLC v. Toshiba America Information Systems Inc., Case No. 13-1288 (Fed. Cir., May 15, 2014) (Wallach, J., Taranto, J., and Chen, J.) (non-precedential).
The order provides substantive guidance as to how such cases are likely to be handled, announcing in the form of limiting language the result: “[w]e affirm the award, because we find no abuse of discretion to undermine the bottom-line result.”
The Federal Circuit took pains to note what it was not deciding. Citing to Fed. R. Civ. P. 37(c)(1), the district court excluded evidence from the attorneys’ fees hearing that related to the patentee’s pre-suit investigation. The evidence had been withheld in response to discovery requests, but was offered by the patentee to help avoid a fee award. The Federal Circuit noted that Toshiba agreed that withholding the information at the merits stage was an “undisputedly legitimate invocation of privilege covering pre-suit investigations.” The issue not decided is whether such withheld evidence can be introduced during post-merits consideration of fee awards.
Next, applying Fed. R. Civ. P. 56(d), the Federal Circuit rejected Toshiba’s argument that “impropriety of a request can be established by the fact that the requester did not use the information.” The Federal Circuit disagreed, restating the principle that “a discovery request can be legitimate yet uncover no information that turns out actually to be useful.”
Finally, the Federal Circuit noted that the district court approved the fee award as a condition of approving a voluntary dismissal with prejudice under Rule 41(a)(2), whether or not other legal authorizations supported the fee award. The Federal Circuit noted that using Rule 41(a)(2) in this way “raises questions we need not answer.”
Patents / Eligible Subject Matter
Dolly Was a "Natural Phenomenon"
Addressing patent eligible subject matter under 35 U.S.C. § 101, the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the U.S. Patent and Trademark Office Patent Trial and Appeal Board (PTAB) finding that claims covering Dolly the sheep involved “product of nature or natural phenomenon” and therefore were not patent eligible. In re Roslin Institute (Edinburgh), Case No. 13-1407 (Fed. Cir., May 8, 2014) (Dyk, J.)
After obtaining a patent on the breakthrough cloning method of somatic cell nuclear transfer, which was used to create Dolly, Roslin sought to obtain a patent for claims directed to the products of that cloning method. Roslin’s representative product claim reads as follows:
A live-born clone of a pre-existing, nonembryonic, donor mammal, wherein the mammal is selected from cattle, sheep, pigs, and goats.
After the PTAB held that the claimed subject matter was not patent eligible under § 101 because it “constituted a natural phenomenon that did not possess ‘markedly different characteristics than any found in nature,’” Roslin appealed.
At the Federal Circuit, Roslin argued that the claimed clones were distinguishable from the naturally occurring mammals used in creating them and thus patent eligible for two main reasons: environmental factors and physiological and morphological changes associated with aging lead to phenotypic differences between the clones and the donor mammals, and there were genetic differences between the clones and their donor mammals in that the cells in each clone received their mitochondrial DNA from a first donor mammal and their nuclear DNA from a second donor mammal. The Federal Circuit disagreed.
With regard to phenotypic differences, the Federal Circuit explained that these differences (if any) are unclaimed, and any phenotypic differences that came about were produced quite independently of any effort of the patentee. With regard to genetic differences, the Federal Circuit explained that any difference in mitochondrial DNA between the donor and cloned mammals is unclaimed, and “Roslin’s patent application does not identify how differences in mitochondrial DNA influence or could influence the characteristics of cloned mammals.”
Practice Note: In line with the two-prong test of Chakrabarty, the Federal Circuit’s reasoning suggested that the Roslin claims could be patent eligible if it could be shown that (i) the clone embodied “markedly different characteristics from any found in nature” in the form of genetic, phenotypic or morphological differences, and these differences were claimed and/or explained in the specification, and that (ii) these differences were the products of human ingenuity and did not come about independently of any effort by the applicant.
On June 18, 2014, the Roslin Institute petitioned the Federal Circuit for rehearing en banc, arguing that the panel decision improperly created a new category of patent ineligible inventions.
Printed Publication Need Not Be Easily Located to Be Prior Art
Addressing the standard for establishing that an alleged prior art reference qualifies as a “printed publication,” the U.S. Court of Appeals for the Federal Circuit affirmed summary judgment that a non-indexed, non-searchable newsgroup post invalidated a patent, finding that a printed publication does not need to be easily located to qualify as prior art. Suffolk Techs., LLC v. AOL Inc., Case No. 13-1392 (Fed. Cir., May 27, 2014) (Prost, J.)
Suffolk sued AOL and Google on a patent directed to controlling a server that supplies files to computers that render web pages. The alleged invalidating reference was a 1995 posting in an online newsgroup (Post). A college student authored the Post to answer a question posed by another user. Although the newsgroup’s policy was to alter each entry’s timestamp and e-mail address to protect its users from spambots, the author authenticated the substance of his response. After the district court found that the asserted claims of the patent were anticipated by the Post, Suffolk appealed.
Considering Suffolk’s appeal of summary judgment on invalidity, the Federal Circuit addressed Suffolk’s arguments that the Post was neither a “printed publication” nor reliable. Suffolk argued that the Post was not prior art because it was too difficult for a person skilled in the art to locate—the post was not indexed, was not searchable and could only be sorted by date. The Federal Circuit rejected this argument because a printed publication need not be easily found if it was sufficiently disseminated at the time of publication. Because the Post was among six responses during the week following the original query, the Federal Circuit determined that the Post was sufficiently disseminated. Although the Federal Circuit disagreed that the Post was difficult to locate, it explained that ease of location is immaterial if the reference was disseminated at publication.
In addition, despite the fact that the Post’s author authenticated the substance of his Post, Suffolk maintained that the altered timestamp and e-mail address could suggest that the Post is inaccurate and unreliable. Without affirmative evidence indicating that the Post’s substance was altered, however, Suffolk could not defeat summary judgment.
Lastly, the Federal Circuit rejected Suffolk’s argument that a genuine issue of material fact existed, even if the expert witness testimony was excluded. Suffolk argued that the Post did not disclose all of the claim elements. The Federal Circuit rejected this argument for two reasons. First, mere lawyer argument could not undermine credible expert testimony supporting summary judgment. Second, the threat of cross-examination, without actual evidence, cannot overcome a summary judgment motion—if it could, then all such summary judgment motions would necessarily be denied.
General Conclusions About Basic Knowledge or Common Sense Are Insufficient for Core Factual Findings
Alexander P. Ott
Addressing whether the U.S. Patent and Trademark Office (USPTO) properly refused to reject as obvious a claim calling for a multi-prong electrical connection, the U.S. Court of Appeals for the Federal Circuit affirmed the USPTO, finding that there must be documentary evidence of record to support core factual findings, such as whether a claim element was in the prior art. K/S HIMPP v. Hear-Wear Techs., LLC, Case No. 13-1549 (Fed. Cir., May 27, 2014) (Lourie, J.) (Dyk, J., dissenting).
K/S HIMPP sought an inter partes reexamination of Hear-Wear’s patent covering a three-module hearing aid. Two dependent claims were directed to the middle connector module and called for a plurality of prongs for an electrical connection. During the original prosecution of the patent, the USPTO examiner concluded that multi-prong electrical connections were well known in the art, but the claims were eventually allowed as depending from allowable independent claims. In the reexamination, K/S HIMPP argued that the dependent claims were obvious and relied on the original prosecution examiner’s conclusion that multi-prong connections were well known in the art. Both the reexamination examiner and the USPTO appeals board maintained the patentability of the dependent claims, concluding that K/S HIMPP failed to provide record evidence in support of its contention. K/S HIMPP appealed.
The Federal Circuit affirmed, agreeing that the board correctly declined to accept K/S HIMPP’s assertion without supporting evidence in the record. The Federal Circuit found that whether the prior art contains a claim limitation is a “core factual finding” that requires more than a conclusory statement, in contrast to “peripheral issues” where examiners may rely on their own expertise. The Federal Circuit distinguished the Supreme Court of the United States’ ruling in KSR as addressing the combinability of references that do contain the claim limitations, rather than addressing a situation where there is a lack of evidence for a specific claim limitation. The Federal Circuit rejected the patent challenger’s reliance on the original prosecution examiner’s conclusion that the claim element was well known in the art. The Federal Circuit noted that both the reexamination examiner and the board refused to take official notice that multi-prong electrical connections were well known and also declined K/S HIMPP’s request to take judicial notice of that fact.
Judge Dyk dissented from what he considered “an easy case” in which he would reverse the USPTO’s “quite odd decision” and stated that limiting the applicability of expert knowledge and common sense to peripheral issues was inconsistent with KSR’s rejection of rigid rules that deny factfinders recourse to common sense. Instead, Judge Dyk would have concluded that the claimed terminal prongs were well known in the prior art and that “[e]very purchaser of electrical devices in the United States for the past 50 years or more is familiar with multipronged electrical connections.”
Expert's Failure to Properly Apply Obviousness Standard Leads to Vacated Jury Verdict
Addressing the sufficiency of expert testimony to support a jury’s finding of obviousness, the U.S. Court of Appeals for the Federal Circuit reversed the district court’s denial of judgment as a matter of law (JMOL), finding that the testimony “did not even come close” because it failed to analyze motivation to combine, involved the wrong time period and failed to consider secondary considerations. InTouch Techs., Inc. v. VGo Communications, Inc., Case No. 13-1201 (Fed. Cir., May 9, 2014) (O Malley, J.)
InTouch sued VGo for infringing several patents directed to systems that let physicians and family members visit patients via a robot operated from a remote computer. As the robot moves about the hospital, the remote user is present on the robot’s video display. At the conclusion of the submission of evidence at trial, the jury returned a verdict of noninfringement on all asserted claims, and of invalidity based on obviousness for two claims. The district court denied InTouch’s subsequent motions for JMOL and new trial. InTouch appealed.
The Federal Circuit reversed the denial of JMOL on obviousness. VGo relied exclusively on the testimony of its expert, Dr. Yanco, to support the jury’s finding of obviousness. The Federal Circuit found that her testimony was “plagued with numerous problems,” including her failure to identify sufficient reasons or motivations to combine the asserted prior references, focus on the relevant time frame or consider any objective evidence of nonobviousness.
Describing a “reason for combining disparate prior art references [as] a critical component of an obviousness analysis,” the Federal Circuit homed in on the Supreme Court’s ruling in KSR, stating that “it can be important to identify a reason that would have prompted a person of ordinary skill in the relevant field to combine the elements in the way the claimed new invention does.”
The Federal Circuit discounted Dr. Yanco’s testimony as vague and conclusory, and her analysis as an application of a jumbled legal standard. The court found that her opinion that “a person of ordinary skill in the art could combine these references” fell short of the requirement to show such person of skill “would have been motivated to do so.”
The Federal Circuit also found that Dr. Yanco failed to analyze motivation to combine prior art references from the perspective of a skilled artisan at the time of the invention, which here was 2001. Dr. Yanco instead focused on what a skilled artisan could accomplish in 2011.
The Federal Circuit also held that “[b]y failing to account for objective evidence of nonobviousness, Dr. Yanco’s analysis was incomplete.” Consideration of such evidence helps guard against improper hindsight analysis, but Dr. Yanco had not even heard of the concept.
The Federal Circuit found that Dr. Yanco was not the only one to apply the wrong legal standard. In denying JMOL, the district court relied in part on the jury’s “application of common sense to the evidence” to find the patented inventions obvious. The Federal Circuit found that “[a] court may only rely upon the common sense of one of ordinary skill in the art, not that of the jury in assessing a claim of obviousness.”
Patents / Claim Construction
Claim Construction: When Figures Do Not Match Their Description *Web Only*
Addressing the issue of claim construction in light of an appeal of summary judgment, the U.S. Court of Appeals for the Federal Circuit reversed and remanded a district court’s summary judgments of noninfringement, finding a genuine dispute based on an apparent disagreement between a figure in the specification and its corresponding description. GE Lighting Solutions, LLC v. AgiLight, Inc., Case No. 13-1267 (Fed. Cir., May 1, 2014) (Moore, J.) (Reyna, J., concurring in part and dissenting in part).
GE sued AgiLight, alleging infringement of four patents directed to LED string lights by AgiLight’s LED string light product SignRayz. After claim construction, the parties stipulated to noninfringement of two patents, and the district court granted AgiLight’s motion for summary judgment of noninfringement of the other two patents. GE appealed.
The Federal Circuit reversed and remanded the judgments of noninfringement for three patents and affirmed summary judgment of the other patent. In its analysis, the Federal Circuit considered the lower court’s construction of the term “substantially ellipsoidal inner profile.” The term described the shape of an inner surface of an LED reflective housing. Although the parties stipulated to this term, the stipulation did not address whether the claim requires the entire profile, or just a portion of that profile, to be ellipsoidal. The district court construed the term to require the inner profile to be “substantially” ellipsoidal. The only embodiment disclosed in the specification refers to the inner profile of Figure 7 as ellipsoidal. It was undisputed that the inner profile of the embodiment illustrated in Figure 7, the only disclosed embodiment, is only partially ellipsoidal and arguably not substantially ellipsoidal.
The Federal Circuit found that there was no intrinsic evidence supporting a construction of the term that would exclude the preferred and only disclosed embodiment. The Federal Circuit reversed the judgment regarding that patent because there was a genuine dispute as to whether AgiLight’s accused devices included a substantially ellipsoidal inner profile. The Federal Circuit used similar reasoning in rejecting AgiLight’s argument regarding the term “generally spherical outer profile” found in the same patent.
The Federal Circuit also reversed and remanded summary judgment of noninfringement based on the lower court’s construction of the term “IDC connector.” The Federal Circuit found that the district court improperly imported limitations from the specification where there was no clear lexicography or disavowal to justify not construing the term according to its plain and ordinary meaning.
In the dissenting opinion, Judge Reyna disagreed with the majority’s construction of “substantially ellipsoidal inner profile.” Judge Reyna stated that the term should refer to the full profile, instead of just a portion of the profile. The dissent argued that the majority took the term “profile” out of context. The plain meaning of “profile” along with the statements made during prosecution indicated that the claim required the full profile to be ellipsoidal. Judge Reyna argued that there was disconnect between the patent figures and the corresponding description, but argued that this problem was resolved by the amendments and remarks made during prosecution.
Patents / Written Description
Disclosure of a Single Embodiment Can Provide Sufficient Written Description
The U.S. Court of Appeals for the Federal Circuit reversed the Patent Trial and Appeal Board (PTAB), finding that the disclosure of a single embodiment falling with the scope of the claims was sufficient to show that the inventors had possession of the invention. Tobinick v. Olmarker, Case No. 13-1499 (Fed. Cir., May 19, 2014) (Reyna, J.)
In an interference proceeding, both parties claimed methods of treating spinal nerve injuries by locally administering—for example, via epidural—a TNF-α inhibitor therapeutic. Spinal discs contain a fluid called “nucleus pulposus,” which, when discs are herniated, leaks into the epidural space and often causes nerve damage and pain in other discs nearby. Pain is caused by TNF-α present in this fluid, and thus inhibitors of TNF-α are effective pain treatments.
In the context of an interference, claims are construed in light of the originating disclosure, not the interfering application. Based on the senior party’s intrinsic evidence and also extrinsic evidence, the PTAB construed the claim term “administered locally” as administering the compound “directly to the site where it is intended to act, that is, to the location where the nucleus pulposus is causing the symptoms of the nerve disorder.”
Based on this construction, the PTAB found that the junior party’s application did not contain sufficient written description support because it did not describe local administration. In particular, the PTAB found that the junior party’s application described “local” as including administration of a therapeutic near the injury site, followed by diffusion of the therapeutic to the injury site. The PTAB agreed with Olmarker’s expert witness, finding that this method of administration did not fall within its construction. The PTAB, therefore, concluded that the junior party’s application lacked written description support and dismissed the interference for lack of standing.
The Federal Circuit affirmed the PTAB’s construction, but reversed its finding of no written description. First, the Federal Circuit clarified the limits of the PTAB’s construction, noting that the construction does not exclude administration adjacent to the site of disc herniation. Indeed, since leakage of nucleus pulposus from a herniated disc can injure nerves in adjacent discs, administering a TNF-α inhibitor adjacent to a herniated disc “may well be where the inhibitor is ‘intended to act.’”
The Federal Circuit then explained that it was immaterial that the broad disclosure of “local” administration techniques in the junior party’s application may have included some techniques that are considered “non-local” under the claim construction. Indeed, the application “need only reasonably convey to one skilled in the art that junior party’s had possession of at least one embodiment that meets the PTAB’s construction of local administration.” Since the junior party’s application “plainly describes localized, epidural injection of a TNF-α inhibitor” adjacent to a herniated disc, the Federal Circuit found that the junior party’s application did, in fact, provide sufficient written description.
Practice Note: Although the Federal Circuit may not consider this case to be relevant in non-interference contexts, two of its findings could have general significance: (i) the Federal Circuit found that disclosure of even one single embodiment can provide sufficient written description support for a generic claim, not even mentioning the more burdensome “representative number” standard, and (ii) the Federal Circuit is open to reversing the PTAB, even when its finding is supported by substantial evidence such as expert witness testimony.
Purported Inventor Fails to Prove Inventorship *Web Only*
Addressing a claim to inventorship of an individual not listed as an inventor on two patents, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s ruling that a former employee was not an inventor of a GE patent, finding that the employee did not present any credible testimony that could be corroborated. General Electric Co. v. Wilkins, Case No. 13-1170 (Fed. Cir., May 8, 2014) (Lourie, J.)
Plaintiffs General Electric Co. and GE Wind Energy, LLC, (collectively GE) filed suit seeking to quiet title to two of their patents related to wind turbines. Both patents listed several German GE employees as inventors. Defendant Wilkins worked in the United States wind energy group for a GE predecessor in the early 2000s, at the same time the inventions were made in Germany. During development of the inventions, the German inventors contacted Wilkins to learn about the United States’ power grid requirements, and later Wilkins traveled to Germany to discuss the inventions.
Prior to the quiet title action, GE filed a U.S. International Trade Commission (ITC) action against Mitsubishi regarding the patents. In the ITC action, an administrative law judge found that Wilkins was a co-inventor, but found that the patents were not unenforceable because GE did not intend to deceive the patent office. Wilkins then agreed to license the patents to Mitsubishi, which prompted GE to file the quiet title action. The district court found that Wilkins and Mitsubishi did not prove inventorship by clear and convincing evidence, because there were no reliable documents to verify what, if anything, Wilkins contributed to any of the claims of the patents.
The Federal Circuit agreed with the district court that Wilkins did not prove his inventorship claim by clear and convincing evidence, because he did not present any credible testimony that could be corroborated. In particular, the court found that Wilkins was biased, as he was paid more than $1.5 million by Mitsubishi in order to permit Mitsubishi to “manage” his involvement in Mitsubishi’s litigations against GE. The Federal Circuit further found no clear error in the district court’s finding that Wilkins lacked credibility based on his failure to give clear answers to even simple questions, and because he was repeatedly impeached during cross-examination.
Wilkins pointed to a design document that he argued supported his inventorship claim and allegedly showed corroboration. However, the design document showed a key component of the invention in a configuration contrary to the patent claims. In addition, Wilkins admitted that his key contribution to the invention was the use of a component that was well known in the prior art. The Federal Circuit found that this was not sufficient to be named a co-inventor. Further, the prosecution history revealed that GE argued that the prior art component combined with a novel electrical circuit distinguished the invention over the prior art, which provided a further indication that Wilkins’ contribution did not rise to the level of inventorship.
Patents / Patent Term Extension
USPTO Revises Patent Term Extension Calculation *Web Only*
Bernard P. Codd
On May 15, 2014, the U.S. Patent and Trademark Office (USPTO) issued final rules revising the way patent term extensions are calculated for patents granted on or after January 14, 2013. In accordance with § 1(h) of the AIA Technical Corrections Act, the USPTO revised the date from which the 14th-month patent term adjustment period is measured, and clarified the date from which the three-year patent term adjustment period with respect to international applications filed under the Patent Cooperation Treaty should be calculated. The date from which the 14th-month patent term adjustment period and the date from which the three-year patent term adjustment period are measured is the same date; i.e., the application filing date under 35 U.S.C. § 111(a) or the date of the commencement of the national stage under 35 U.S.C. § 371.
The 14th-month period refers to the time from when an application is filed under § 111(a) or when the national stage is commenced under § 371 until an action on the merits or notice of allowance is mailed by the USPTO. Prior to the Technical Corrections Act, the 14th-month period for national stage applications was measured from the date on which the international application fulfilled the requirements of § 371. The three-year patent term adjustment refers to the period of time from when an application is filed or the national stage is commenced until a patent is issued. The rule change was necessary because the date of the commencement of the national stage and the date of fulfillment of all the requirements of § 371 are not necessarily the same.
The final rules permit extensions of up to five additional months from the two-month period from the date of patent grant to request reconsideration of the patent term adjustment indicated on the patent.
The final rules further specify that the exclusive remedy for an applicant that is dissatisfied with the director’s decision on the applicant’s request for reconsideration of the patent term adjustment is a civil action against the director filed in the U.S. District Court for the Eastern District of Virginia.
Because the USPTO experienced a significant delay in modifying the computer program used to calculate patent term adjustment, the USPTO is providing an optional procedure for requesting recalculation of patent term adjustments for patents resulting directly from international applications that issued between January 14, 2013 (the date of enactment of the AIA Technical Corrections Act), and May 20, 2014. No fee is required for a request for recalculation under the optional procedure, but the request must be filed no later than July 31, 2014.
In addition, in view of the AIA Technical Corrections Act, the USPTO no longer provides an initial patent term adjustment determination with the notice of allowance.
Inter Partes Review
Inter Partes Review / Motion to Amend Claims
PTAB Permits Substitution of New Claims in Challenged Patent
In a move unprecedented in any inter partes review (IPR), the Patent Trial and Appeal Board (PTAB) allowed the patent owner—the U.S. Department of Agriculture (USDA)—to substitute 18 claims in an insect repellant spray patent. International Flavors & Fragrances Inc. v. The United States, Case IPR2013-00124 (PTAB, May 20, 2014) (Green, APJ).
International Flavors & Fragrances petitioned for review of several claims of a patent owned by the USDA, which claims a method for repelling arthropods, such as ticks and mosquitoes, utilizing isolongifolanone analogs. Rather than file a patent owner response, the USDA filed only a motion to amend seeking to substitute 19 claims of the challenged patent.
Under 37 C.F.R. § 42.121, a patent owner must meet three criteria to successfully substitute new or amended claims in an IPR: (i) the substitute claims may not enlarge the scope of the original patent claims; (ii) the motion must identify the support in the original disclosure for each element of claim that is added or amended; and (iii) the motion must demonstrate the patentability of the proposed claim(s) over the prior art in general.
The third requirement has proven to be the most burdensome for patent owners. Simply distinguishing the proposed claims from the prior art references applied to the original patent claims is insufficient to demonstrate patentability over prior art. Instead, the PTAB noted that a “patent owner should discuss, as well as present evidence, if appropriate, as to the level of ordinary skill in the art, and what was known regarding the features being relied upon to demonstrate patentability of the proposed claims.”
Here, the patent owner provided the PTAB with several publications and an expert declaration to demonstrate the level of ordinary skill in the art. In its decision, the PTAB noted that the patent owner not only provided declaratory statements about the level of ordinary skill in the art, but also provided ample evidence to establish “what would have been understood by the ordinary artisan as to those features being relied upon to demonstrate patentability of the proposed claim.” In particular, the publications cited by the patent owner showed how minor structural changes in isolongifolanone compounds result in substantially different properties. Further, the PTAB noted the absence of a “reasonable expectation that such modifications would result in a compound having the desired insect repellant activity.” Indeed, minor chemical modifications could create a compound that attracted, rather than repelled, insects. The IPR petitioner did not oppose the motion.
The PTAB concluded that the USDA had shown, by a preponderance of the evidence, that 18 of the 19 proposed substitute claims were patentable, and granted-in-part the motion to amend those claims.
Inter Partes Review / Motions
Testimony of Expert Witness: Key Patentability Arguments in Inter Partes Review
In a final written decision, in an inter partes review (IPR), the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) rejected a patent owner’s motion to submit new substitute claims, concluding that the patent owner had failed to show that the substitute claims were patentable over the prior art. SATA GmbH & Co. KG v. Anest Iwata Corp., Case IPR2013-00111 (PTAB, May 20, 2014) (Katz, APJ).
Petitioner SATA petitioned for an IPR of claims of a patent owned by Anest Iwata. The claimed invention relates to a low-pressure atomizing spray gun with a nozzle for improved atomization of paint. Rather than filing a Patent Owner’s Response, the patent owner filed a Motion to Amend requesting cancellation of the claims under review, contingent on a finding of unpatentability, and proposing new substitute claims.
In the Motion to Amend, the patent owner argued that the Decision to Institute was made in error. On this issue, the PTAB concluded that the claims were unpatentable because rebuttal testimony provided by the patent owner’s witness was not definitive on whether the cited prior art failed to teach certain claim elements. In the Motion to Amend, the patent owner argued that the substitute claims were not anticipated by the prior art cited, but the patent owner did not represent to the PTAB or provide evidence that it did not know of any other anticipatory art. This omission was adequate for the PTAB to deny the Motion to Amend.
The patent owner also argued that there was no reason to address obviousness because the PTAB had declined to analyze obviousness in the Decision to Institute, relying instead on anticipating art. The PTAB explained that although it declined to consider obviousness in its Decision to Institute, that did not apply to the entire proceeding. The patent owner had argued that there was no basis in the common knowledge of those skilled in the art, the cited prior art or prior art generally to conclude that the claim features were obvious, but the PTAB stated that, without some evidence “of what one of ordinary skill in the art would have known or understood in order to make a determination of nonobviousness,” such an assertion is merely lawyer argument and insufficient to establish patentability of the substitute claims.
Practice Note: To establish patentability (or unpatentability) of any claim in an IPR, the patent owner (or challenger) should provide evidence, e.g., expert testimony, that addresses both anticipation and obviousness.
Inter Partes Review / Evidence vs. Opinion
Expert Testimony Must Be Supported by Evidence
The Patent Trial and Appeal Board (PTAB) issued final written decisions in 10 inter partes review (IPR) challenges. Although early IPR decisions generally have sustained petitioners’ challenges, here the PTAB largely sided with the patent owner, upholding 157 out of 209 challenged claims spanning across eight related patents. Corning Inc. v. DSM IP Assets B.V., Case Nos. IPR2013-0043 and IPR2013-0044 (PTAB, May 1, 2014) (McKelvey, APJ); IPR2013-0045 (PTAB, May 9, 2014) (Obermann, APJ); IPR2013-0046 (PTAB, May 1, 2014) (Bisk, APJ); IPR2013-0047 (PTAB, May 1, 2014) (McKelvey, APJ); IPR2013-0048 (PTAB, May 9, 2014) (Kamholz, APJ); IPR2013-0049 (PTAB, May 9, 2014) (Kamholz, APJ); IPR2013-0050 (PTAB, May 1, 2014) (Kamholz, APJ); IPR2013-0052 (PTAB, May 1, 2014) (Yang, APJ); IPR2013-0053 (PTAB, May 1, 2014) (Yang, APJ).
The patents at issue generally relate to coated optical fibers that are commonly used in fiber-optic communications and data transmission. Corning filed IPR petitions challenging the eight patents held by DSM IP Assets, even though DSM had never asserted its patents against the petitioner.
In the final decisions, the PTAB took particular notice of the expert reports and testimony that were used by the opposing parties to develop their arguments. The PTAB was skeptical of statements made by experts if such statements were found to be unsupported by underlying data. This was especially true where experts “repeated, verbatim, attorney argument from the parties’ submissions” that did not identify objective supporting evidence.
The PTAB noted that expert assertions must be substantiated by evidence, explaining that even if it had no specific reason to question the soundness of an expert’s assertion, without citation of supporting evidence for an assertion, the PTAB can assign little or no weight to the expert’s opinions and testimony. As the PTAB explained, “an expert’s opinion is only as good as the facts on which it is based.”
The PTAB further explained that it will give consideration only to the arguments made by the parties and the evidence cited in support of those arguments. The PTAB “will not scour the record in search of evidence relevant to a particular issue, nor will it attempt to fit evidence together into a coherent explanation that supports an argument.”
Scope of Opposition
The PTAB also explained its rule that a reply may only respond to arguments raised in the corresponding opposition. Where a reply raises a new issue or belatedly presents evidence, that new evidence or issue will not be considered. In one IPR, Corning attempted to submit evidence, based on post-petition experimentation and the testimony of three previously undisclosed witnesses, that purported to show that the prior art met the claim limitations being reviewed. The PTAB determined that consideration of the new evidence would be unfairly prejudicial to DSM because DSM would not have the opportunity for rebuttal. The PTAB did indicate that Corning’s evidence might have been permitted had DSM been given the opportunity to rebut the new theory.
Practice Note: An explanation of the experimental methods used to generate results is an essential part of experiment-based expert testimony. An expert must explain not only what their conclusions are, but how and why they arrived at them.
Inter Partes Review / BRI Rule
The PTAB Was Right the First Time *Web Only*
In a final written decision in an inter partes review (IPR), the Patent Trial and Appeal Board (PTAB) determined that under the broadest reasonable interpretation claim construction rule, the petitioner demonstrated by a preponderance of the evidence that several claims of the patent-in-question were unpatentable on grounds of anticipation and obviousness. EMC Corp. v. PersonalWeb Technologies, LLC, Case IPR2013-00082 (PTAB, May 15, 2014) (Zecher, APJ).
EMC petitioned for review of a patent relating to a data processing system that identifies data items using substantially unique identifiers. The patent further covers the process of examining the identities of a plurality of data items in order to determine whether a particular data item is present in the data processing system.
In its analysis, the PTAB noted that it construed terms under the broadest reasonable interpretation in light of the patent specification, and that claim terms are given their ordinary and customary meaning as understood by a person of skill in the art. Following the PTAB’s initial claim construction, i.e., on institution, the parties accepted most of the PTAB’s constructions, with the exception of one term. PersonalWeb contested the PTAB’s construction of a means-plus-function term, arguing that the PTAB’s claim construction was overly broad and did not reflect features disclosed in the specification as being necessary to perform the claimed function. PersonalWeb challenged the PTAB’s claim construction, but did not provide alternative arguments as to patentability in the event the PTAB maintained its construction.
The PTAB disagreed with PersonalWeb’s argument that the PTAB’s previous construction was overly broad, noting that the functions PersonalWeb believed were necessary to perform the claimed function were, in fact, merely preferred embodiments disclosed in the patent’s specification. The PTAB concluded that PersonalWeb’s proposed construction was “not commensurate in scope” with the broadest reasonable construction.
Practice Note: Be extremely careful when basing patentability arguments on claim constructions that do not conform to those issued by the PTAB on institution. The failure to develop alternative arguments exposes the party to the risk that the PTAB will ignore patentability arguments inconsistent with its initial construction.
Inter Partes Review / Motions Practice
Know Your Objections: Notices, Motions and Discussions with the PTAB *Web Only*
In a final written decision, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) commented that evidence can only be excluded by properly serving a notice and filing a motion to exclude, but that a motion to exclude is not the proper vehicle to dispute the scope of arguments and evidence in a reply. ABB, Inc. v. ROY-G-BIV Corp., Case IPR2013-00063 (PTAB, May 16, 2014) (Giannetti, APJ).
Petitioner ABB requested an inter partes review (IPR) of claims of a patent owned by ROY-G-BIV. The claimed invention relates to a system for facilitating the creation of hardware-independent software for controlling mechanical systems. This case is one of a series of related IPRs (IP Update, Vol. 17, No. 5). As in other cases in this series, the PTAB held that the prior art references failed to satisfy two of the claim limitations.
In this case, unlike others in this series, the patent owner stated in a footnote of the Patent Owner Response that the petitioner had not established the publication date of a reference and raised this argument again at the final hearing. The PTAB agreed that the petitioner carried the burden to prove the publication date but instructed that the patent owner should have raised its objection by serving a notice of objection within 10 business days of institution of trial and subsequently filing a motion to exclude the evidence. Because the PTAB decided the case on other grounds, it declined to resolve this dispute.
The patent owner also sought to exclude certain “new” arguments made in the Petitioner’s Reply and portions of the petitioner’s expert testimony. The PTAB dismissed the motion as being moot because the PTAB decided the case on other grounds. Nonetheless, the PTAB instructed that “a motion to exclude normally is not the proper vehicle for resolution of a dispute regarding reply arguments and evidence exceeding the proper scope of a reply” if it did not timely note an objection in the record. Instead, “the parties should contact the Board to discuss the issue.”
Practice Note: Upon submission of any evidence or arguments by an opposing party, practitioners should promptly consider noting an objection and/or requesting permission to file a motion to exclude.
Inter Partes Review / Commercial Success
Commercial Success But No Nexus
In the final written decisions of two related inter partes reviews (IPRs), the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) sided with the petitioner and canceled all claims under review. Smith & Nephew, Inc. v. ConvaTec Technologies, Inc., Case Nos. IPR 13-00097 and IPR 13-00102 (PTAB, May 29, 2014) (Guest, APJ).
The patents at issue were directed to methods of manufacture for enhancing the ability of silver-containing medical devices such as wound dressings to resist uncontrolled discoloration. Each of the claims at issue required the devices to remain “substantially photostable” prior to rehydration.
After finding the claims at issue anticipated and obvious in view of the prior art, the PTAB considered ConvaTec’s assertion that secondary considerations precluded a finding that the claims were unpatentable. ConvaTec presented evidence of commercial success of its AQUACEL product as evidence of nonobviousness. ConvaTec argued that its AQUACEL product “doubl[ed] the size of the market in the US within just two years.” However, noting that commercial success must “derive from a feature recited in the claims” and that ConvaTec provided “no details of the manufacturing process” for its AQUACEL product, the PTAB deemed unpersuasive ConvaTec’s arguments regarding these method of manufacture claims.
The PTAB also denied ConvaTec’s motion to amend two of the claims at issue. First, the PTAB noted ConvaTec’s failure to point to specific sections of the original disclosure for written description support as required by Rule 41.121(b)(1). The PTAB concluded that ConvaTec’s reference to issued claims and portions of the issued patents (without indicating whether the issued specification was identical to the original disclosure) was not sufficient to satisfy the rule. Second, the PTAB explained that ConvaTec must do more than simply explain why the proposed substitute claims were patentable over the grounds raised in the IPR. The PTAB noted that a patent owner must also discuss other known prior art references, the level of ordinary skill in the art, and the knowledge possessed by one of skill in the art with respect to the new claim features.
In what may have been the first concurring opinion in a final written decision of the PTAB, APJ Snedden disagreed with the majority’s construction of the term “substantially photostable” but concurred with the majority’s ultimate decision of unpatentability. The patents defined “photostable” as “[c]ontrolled colour change to a desired colour with minimal change thereafter.” And while the majority concluded that a “desired colour” could be any color, APJ Snedden concluded that, in light of the evidence on the record, “desired colour” could not include purple, which is the color of silver after exposure to light. According to APJ Snedden, purple discoloration was “undesirable for silverized medical devices meant for coming into contact with skin.”
Inter Partes Review / Commercial Success
Need Nexus Between the Claimed Feature and the Marketed Product to Demonstrate Commercial Success *Web Only*
In the final written decision of an inter partes review, the Patent Trial and Appeal Board (PTAB) canceled all claims at issue on obviousness grounds, rejecting the patentee’s argument that the patented features’ commercial success evinced the patent’s nonobviousness. St. Jude Med., Cardiology Div., Inc. v. The Bd. of Regents of the Univ. of Mich., IPR No. IPR2013-00041 (PTAB, May 1, 2014) (Crumbley, APJ).
The patent at issue is directed to a method of increasing the calcification resistance of glutaraldehyde-tanned biomaterials. Prior to implantation, biomaterials are typically tanned with glutaraldehyde to prevent degradation. Tanning does, however, increase the likelihood of calcification. The patent teaches that treating the tanned biomaterial with aqueous solutions of greater than 50 percent aliphatic alcohol renders the biomaterial more calcification-resistant. The patent further teaches that the biomaterial should be rinsed following treatment, and one embodiment describes treating the biomaterial with trivalent cations.
The PTAB concluded that the challenged claims would have been obvious in light of the prior art. Three prior art references were asserted. In the first, Levy disclosed treating tanned biomaterials with trivalent cations in aqueous solution to prevent calcification, and states that organic solvents can be used, including aliphatic alcohols. That reference also discloses rinsing the treated biomaterial. The second disclosed storing tanned biomaterials in 50 percent aliphatic alcohol solutions. The third taught treating biomaterials with high concentrations of alcohols to prevent rejection or reabsorption.
The PTAB found that all elements of the claims at issue are taught by one or more of the prior art references. The patentee argued that there would be no reason to combine these references, because Levy is directed to making tissue calcification-resistant, whereas Kaplan merely mentions calcification in the context of storing tanned biomaterials, and the third addresses using ethanol as a sterilant. The PTAB disagreed, finding that Kaplan teaches one of skill in the art to treat tanned biomaterials in alcohol solutions to prevent calcification, and gives one a reason to substitute such a solution into Levy’s method. The PTAB found that all three references teach treating tanned biomaterials with aliphatic alcohols, and Kaplan and Holman show that high concentrations of alcohol are not toxic.
The patentee presented evidence of the commercial success of products that practice the patent, but the PTAB found that the patentee failed to establish a nexus between the commercial success of its products and the claimed invention. The patentee provided absolute sales numbers, but the PTAB did not find this evidence meaningful because it was not comparative data. The patentee also relied on marketing materials that touted the patented features, but this evidence was countered by testimony that unpatented features weighed more heavily in the purchasing decisions. The patentee also failed to persuade the PTAB that there was a long-felt need because both Levy and Carpentier disclosed effective anticalcification methods, and the mere fact that existing products can be improved is not proof of long-felt but unmet need.
Inter Partes Review / Real Party in Interest
The Duty to Indemnify Does Not Create Privity
In the final written decisions of two related inter partes reviews (IPRs) concerning patents in the same family, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB) sided with the petitioner, canceling all claims under review. Apple Inc. v. Achates Reference Publishing, Inc., Case Nos. IPR 13-00080 and IPR 13-00081 (PTAB, June 2, 2014) (Arbes, APJ).
The key ruling of the decisions concerns the one-year rule of 35 USC § 315(b). Achates argued that the IPR petition was time barred because it had asserted the patent against an iPhone application developer, QuickOffice Inc., more than a year prior to the filing. Achates argued that QuickOffice was a privy of Apple’s because the companies had likely entered into a software development agreement that required QuickOffice to indemnify Apple for third party patent infringement claims.
The PTAB held that QuickOffice was not in privity with Apple, because QuickOffice had no role in instituting the IPR and could not control Apple’s legal strategy. In short, the PTAB concluded that indemnification is not a “substantive legal relationship[.]” Additionally, the PTAB held that Achates, by its own admission, had grounds to sue Apple that were distinct from any liability flowing from the actions of its developers.
The PTAB also made an evidentiary ruling concerning 37 C.F.R § 42.64(b)(1), which provides that “[a]ny objection to evidence submitted during a preliminary proceeding must be served within ten business days of the institution of the trial.” Achates sought to exclude the expert declaration filed with Apple’s petition for IPR. However, the PTAB held that such evidence fell within the ambit of § 42.64(b)(1). The PTAB stressed the importance of § 42.64(b)(1) and § 42.64(b)(2) with respect to motion to exclude, noting that a party submitting evidence must be provided with notice and an opportunity to correct its submission, i.e., in the form of a supplemental submission before an opposing party may file a motion to exclude.
Trademarks / Unfair Competition
Supreme Court: FDCA Compliance Does Not Bar Lanham Act Claims
Mandy H. Kim
In a unanimous decision, the Supreme Court of the United States reversed the U.S. Court of Appeals for the Ninth Circuit ruling that the Food, Drug, and Cosmetic Act (FDCA) and its regulations do not bar lawsuits authorized under the Lanham Act. POM Wonderful LLC v. Coca-Cola Co., Case No. 12-761 (Supr. Ct., June 12, 2014) (Kennedy, Justice). Justice Kennedy, writing for the Supreme Court, explained that the two federal statutes are complementary, and the FDCA’s delegation of enforcement authority to the federal government did not indicate Congress’ intent to foreclose private enforcement of other federal statutes, such as the Lanham Act.
Background of the Case
Pom Wonderful produces, markets and sells pomegranate juice and pomegranate juice blends, including a pomegranate blueberry juice blend. The Coca-Cola Company markets and sells juices and juice blends, including a pomegranate blueberry juice blend product. The Coca-Cola product contains about 99.4 percent apple and grape juices, 0.3 percent pomegranate juice, 0.2 percent blueberry juice and 0.1 percent raspberry juice. Among other things, the front label displays the words “pomegranate blueberry” in all capital letters, on two separate lines, and below those words, the phrase “flavored blend of 5 juices” in much smaller font.
Pom sued Coca-Cola alleging Coca-Cola’s name and labeling of the pomegranate blueberry juice blend product violated the false-advertising provision of the Lanham Act. The district court granted partial summary judgment to Coca-Cola, ruling that Pom’s name and labeling claim under the Lanham Act was barred by the FDCA’s regulations. Pom appealed.
The Ninth Circuit affirmed, holding that the FDCA and its regulations barred both the name and labeling aspects of Pom’s Lanham Act claim. Relying on its own precedent, PhotoMedex, Inc. v. Irwin, the Ninth Circuit noted that “[w]here the FDA has not concluded that particular conduct violates the FDCA, we have even held that a Lanham Act claim may not be pursued if the claim would require litigating whether that conduct violates the FDCA.” The Ninth Circuit thus concluded that “for a court to act when the FDA has not—despite regulating extensively in this area—would risk undercutting the FDA’s expert judgments and authority.” IP Update, Vol. 15, No. 6.
The Supreme Court Decision
The Supreme Court granted certiorari to address the issue of whether a private party may bring a Lanham Act claim challenging a product label regulated under the FDCA. IP Update, Vol. 17, No. 1.
Writing for the unanimous court, Justice Kennedy stated that competitors may bring Lanham Act claims challenging food and beverage labels regulated by the FDCA. The Supreme Court first noted that this is not a pre-emption case dealing with whether state law is pre-empted by federal law, but rather a statutory interpretation case involving “the intersection of two federal statutes.”
Moving to the text of the two statutes, Justice Kennedy observed that neither the Lanham Act nor the FDCA expressly forbids or limits Lanham Act claims challenging labels that are regulated by the FDCA. In fact, the Supreme Court noted that the two statutes “complement” each other in major respects, including their scope and purpose. Namely, the Lanham Act permits one competitor to sue another for unfair competition and so protects commercial interests against unfair competition and the public from false or misleading product descriptions. The FDCA prohibits misbranding and so protects public health and safety regarding food and beverage labeling. The two statutes also complement each other in remedies, because while the FDA enforces the FDCA and its regulations, it “does not have the same perspective or expertise in assessing market dynamics that day-to-day competitors possess.” On the other hand, the Lanham Act allows private parties whose “awareness of unfair competition practices may be far more immediate and accurate than that of agency rulemakers and regulators” to sue competitors. Justice Kennedy explained that in this regard the two statutes serve as distinct mechanisms to enhance protection of competitors and consumers.
The Supreme Court also reasoned that where two statutes are complementary (as here), it would show “disregard for congressional design” to hold that enforcement of one should preclude the other: “[i]t is unlikely that Congress intended the FDCA’s protection of health and safety to result in less policing of misleading food and beverage labels than in competitive markets for other products.”
On a similar basis, Justice Kennedy rebuffed the argument of the solicitor general, noting that the government’s position wrongly “assumes that the FDCA and its regulations are a ceiling on the regulation of food and beverages.” As to whether U.S. Food and Drug Administration label regulations pre-empt the field, Justice Kennedy noted “[a]n agency may not reorder federal statutory rights without congressional authorization.”
Justice Breyer took no part in the consideration or decision of the case.
Practice Note: The Supreme Court’s ruling opens the door for competitors to bring Lanham Act claims even if a product label is compliant with the FDCA and its regulations. This may lead to a rise in private false advertising claims brought by competitors in the food and beverage industry as food labels come under more scrutiny.
"STOP THE ISLAMISATION OF AMERICA" Is Disparaging
The U.S. Court of Appeals for the Federal Circuit upheld the Trademark Trial and Appeal Board’s (TTAB) refusal to register the mark “STOP THE ISLAMISATION OF AMERICA” in connection with the services “providing information regarding understanding and preventing terrorism,” holding that the mark was disparaging to a group of persons. In re Pamela Geller and Robert B. Spencer, Case No. 13-1412 (Fed. Cir., May 13, 2014) (Wallach, J.)
Geller and Spencer applied to register the mark “STOP THE ISLAMISATION OF AMERICA” for “providing information regarding understanding and preventing terrorism.” The U.S. Patent and Trademark Office examining attorney refused registration of the application under § 2(a) of the Trademark Act, which prevents registration of a mark that “may disparage . . . persons, living or dead, institutions, [or] beliefs . . . or bring them into contempt, or disrepute,” reasoning that the mark is disparaging to Muslims and the Islamic religion. The applicants appealed the refusal to the TTAB. The TTAB, after considering the likely definition of the mark, and whether the mark would disparage a “substantial composite of the referenced group,” determined that “Islamisation” has both a religious meaning (“the conversion or conformance to Islam”) and a political meaning (“a sectarianization of a political society through efforts to make [it] subject to Islamic law”). The TTAB found the proposed mark to be disparaging to American Muslims under either meaning. The TTAB noted that using the mark in connection with the applied-for services directly associates Islam and its followers with terrorism. Finding that “the majority of Muslims are not terrorists and are offended by being associated as such,” the TTAB upheld the refusal to register. Applicants appealed.
The Federal Circuit affirmed the TTAB, rejecting appellants’ argument that the TTAB relied on improper evidence in determining the meaning of “Islamisation” and ignored “overwhelming evidence in the record” indicating that the term is solely used in a political context. Rather, the Federal Circuit found appropriate the TTAB’s reliance on dictionary definitions, essays and comments posted to appellants’ blog (which both the TTAB and Federal Circuit acknowledged had lower probative value due to the anonymity of the authors) in determining that the term “Islamisation” had both religious and political significance. Appellants conceded that the proposed mark is disparaging in reference to the religious definition of “Islamisation.” As to the political significance, the Federal Circuit explained that “substantial evidence” supports the TTAB’s finding that the mark is also disparaging with regard to the political meaning. The Federal Circuit rejected appellants’ argument that political Islamisation does not include nonviolent activity, finding nothing in the record to suggest that political Islamisation requires violence or terrorism. Thus, concluding that mark associates even “peaceful political Islamisation” with terrorism, the Federal Circuit concluded the mark is disparaging to American Muslims and affirmed the TTAB’s refusal to register.
DC Circuit Limits Discovery and Joinder for Downloading "Swarms"
Deciding a case that involves issues of discovery and joinder, the U.S. Court of Appeals for the D.C. Circuit addressed issues presented by so-called “copyright trolls” who subpoenaed internet service providers (ISPs) requesting the identities of their subscribers, identified by plaintiff as “does” in its complaint. AF Holdings v. Does et al., Case No. 1:12-cv-00048 (D.C. Cir., May 27, 2014) (Tatel, J.)
After AF Holdings filed suit naming more than 1,000 “does” as defendants and subpoenaed their ISPs for their identities, the ISPs refused to comply, invoking Fed. R. Civ. P. 45(d)(3)(A), which provides that a district court “must quash or modify a subpoena that . . . subjects a person to undue burden.” The ISPs argued that the administrative expense involved was necessarily an “undue burden” because AF Holdings had failed to establish that Washington, D.C., courts would have personal jurisdiction over the defendants or that venue would properly lie in Washington, D.C. The ISPs argued that of the 1,058 IP addresses sought, only 189 were associated with individuals who lived in Washington, D.C. One of the providers didn’t even offer service in Washington, D.C.
The district court rejected these arguments, holding that “considerations of personal jurisdiction and joinder are premature when discovery is sought before the plaintiff has named a defendant and the discovery is targeted to identify unknown individuals associated with the IP addresses.” The ISPs appealed.
The D.C. Circuit first considered whether considerations of personal jurisdiction were properly considered when deciding the discovery issues raised in this case. After noting that courts have an obligation under Rule 26 to “ensure that the scope of discovery is limited to issues actually relevant to the litigation,” the D.C. Circuit held that “a plaintiff pursuing discovery of the sort AF Holdings seeks regarding unknown defendants must have at least a good faith belief that such discovery will enable it to show that the court has personal jurisdiction over the defendant[s].” The D.C. Circuit also applied a principle that “when the purpose of a discovery request is to gather information for use in proceedings other than the pending suit, discovery properly is denied.”
When applying these two principles, the D.C. Circuit noted that AF Holdings apparently made no effort to determine which of the IP addresses were associated with Washington, D.C., residents, and thus it could not have a good faith belief of jurisdiction. The D.C. Circuit noted that, based on this lack of effort, the names were likely sought for “reasons unrelated to its pursuit of this particular lawsuit.” AF’s argument that many of the thousand defendants might waive venue and personal jurisdiction arguments was “speculative” and didn’t demonstrate the required good faith belief.
The D.C. Circuit next addressed the issue of joinder. Relating the joinder issue to the propriety of the subpoenas, the court noted that seeking the identities of multiple parties that could not be properly joined in an action “cannot possibly be relevant to the subject matter involved in the action.”
The defendants in the case allegedly all used the same file sharing system (BitTorrent) to download the same movie over a period of nearly five months. The D.C. Circuit surveyed other courts’ consideration of similar BitTorrent cases and considered whether, in this case, the defendants satisfied joinder law by being “part of the same transaction or series of transactions.” Other courts have found that users who download the same file using BitTorrent are part of the same “swarm,” have all participated in the same series of transactions and can be properly joined.
Expanding on the law associated with the downloading “swarm,” the D.C. Circuit speculated that users who were part of “the same swarm at the same time” could be part of the same series of transactions for proper joinder. Joinder was clearly improper in this case, however, because AF Holdings was attempting to join defendants who performed acts over a period of nearly five months: “[s]imply committing the same type of violation in the same way does not link defendants together for the purposes of joinder.”
The D.C. Circuit vacated the discovery order and remanded the case for further proceedings.
Copyrights / Infringement
Architectural Copyrights Should Be Treated No Differently than Other Copyrights
The U.S. Court of Appeals for the Second Circuit, in addressing the extent to which architectural works are protectable copyright material and the proper framework for assessing copyright infringement of a work of architecture, rejected the 11th Circuit’s analysis that categorized architecture as “compiled works” of copyrightable elements, reasoning that architectural works—like all works of art to some extent—are compiled from uncopyrightable elements, and therefore that architectural designs should be treated like any other art form when assessing copyright infringement. Zalewski v. Cicero Builder Dev., Inc., Case No. 12-34488 (2d Cir., June 5, 2014) (Wesley, J.)
The plaintiff-appellant, James Zalewski, an architect, had licensed his designs for colonial-style houses to some of the defendants. Zalewski later sued the former licensees and parties involved in the making of the modified designs for copyright infringement, alleging that after the license expired, the former licensees contracted with other entities to make modified versions of his home designs. There was no dispute that the defendants possessed copies of Zalewski’s designs and that their home designs strongly resembled his. Nevertheless, the district court granted summary judgment to the defendants, concluding that any copying that occurred was only of unprotectable elements of the design. Zalewski appealed.
Copyright infringement requires that a work is protected by a valid copyright, the defendant copied the work, and the copying was wrongful. To determine those protectable elements of an architectural work, the Second Circuit clarified that the usual copyright doctrines of merger, public domain and scenes-a-faire apply in terms of separating protectable expression from elements in the public domain: “[d]esign elements attributable to building codes, topography, structures that already exist on the construction site, or engineering necessity should therefore get no protection.” The Second Circuit added that design features driven by consumer demand also are not protected by copyright.
In affirming summary judgment of no infringement in favor of the defendants, the Second Circuit found that Zalewski indeed had a valid copyright, but to the extent any copying occurred, it extended only to unprotected elements of his designs. Thus, the Second Circuit concluded that any copying that occurred was not wrongful and did not rise to copyright infringement. Rather, the Second Circuit concluded that any similarities to Zalewski’s designs were a function of consumer expectations, colonial-home design and house design generally; in other words, design elements in the public domain and therefore unprotectable by copyright.
Trade Secrets / Misappropriation
Inferring Trade Secret "Use" Based on the Potential for Harm
Addressing the question of what constitutes “use” of a trade secret absent direct evidence, the U.S. Court of Appeals for the Fifth Circuit upheld the jury’s finding of trade-secret misappropriation based in part on inferences of use based on potential harm to the trade-secret owner. Aspen Tech., Inc. v. M3 Tech., Inc., Case Nos. 12-20388; -20268 (5th Cir., May 29, 2014) (per curiam).
In the district court, Aspen claimed trade-secret misappropriation against M3, a company founded by and composed of former Aspen employees. Both Aspen and M3 develop and sell software for chemical companies. Aspen accused M3 of misappropriating its trade secrets in the form of product-development road maps, source code and a source-code manual.
During the litigation, M3 engaged in various acts of misconduct. One M3 employee admitted to concealing Aspen property at a friend’s house. Another M3 employee admitted to removing an external hard drive containing Aspen’s trade secrets. M3 employees also admitted to defragmenting their hard drives, which made it nearly impossible to recover deleted files. These acts of misconduct allowed the jury to make adverse inferences against M3.
To show trade-secret misappropriation, Texas law requires the existence of a trade secret, improper acquisition of that secret, and use of the trade secret without authorization. The Fifth Circuit focused on the “use” requirement, which generally requires “commercial use,” including selling and commercially operating the trade secret for profit. Texas law also recognizes a broader conception of “use,” in the form of “any exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant.” Based on this definition, along with adverse inferences resulting from M3’s misconduct, the Fifth Circuit affirmed the finding of trade-secret misappropriation.
M3 did not dispute that it possessed Aspen’s product-development road maps. M3 only argued that Aspen had not shown that M3 used the road maps. Mere possession could not support an inference of use. Aspen, however, presented testimony that M3 could have used the road maps to its advantage, by using the road maps to create a competing product quickly and efficiently. Further, because an M3 employee had defragmented his hard drive, the jury was allowed an adverse inference that the deleted files would have shown M3’s use of the road maps.
M3 also possessed Aspen’s trade secrets in the form of source code and a source-code manual. M3 argued that Aspen had not shown use of the source code and manual. Again, however, Aspen presented evidence that M3 could have used the source code and manual to create its own source code. M3’s possession could have allowed M3 to create a competing product without wasting time and resources. Even though Aspen had not presented direct evidence of M3’s use of Aspen’s trade secrets, the Fifth Circuit allowed inferences of use based on M3’s misconduct and potential harm to Aspen.
Trade Secrets / Subject Matter Eligibility
General Ideas Protectable as Trade Secrets in California *Web Only*
Clarifying case law that distinguished the protection available under patent law from that available under trade secret law, the California Court of Appeal held that general ideas, including combinations of ideas, are protectable as trade secrets. Altavion, Inc. v. Konica Minolta Systems Laboratory Inc., Case Nos. A134343, A135831 (Cal. Ct. App., May 8, 2014) (Simons, J.)
Altavion developed “digital stamping technology” (DST), which enables the self-authentication of digital and paper documents by encoding the content of an original document in a barcode stamped on the document itself. A DST system uses the barcode to determine whether the document had been altered. Altavion also solved problems with the reliability of barcodes through the unique use of “color reference cells” that aided reconstruction of the encoded data.
Konica Minolta Systems Laboratory (K-M) was interested in DST for authentication of scanned paper documents, and signed a nondisclosure agreement with Altavion during negotiations aimed at incorporating DST into its line of multifunction printers. Altavion disclosed general design concepts underlying DST and provided K-M with demonstration software, but not the particular algorithms or source code. Ultimately, the parties did not come to an agreement on the use of DST. However, even during the negotiation period, K-M filed 24 patent applications on Altavion’s DST technology, from which eight patents issued.
Altavion sued K-M for misappropriation of its trade secrets, among other claims. The California trial court ruled in favor of Altavion on its claim of trade secret misappropriation, awarding $1.5 million in damages and $3.2 million in attorneys’ fees. K-M appealed the judgment of trade secret misappropriation as well as the damages award.
The principal issue for the Court of Appeal was whether general ideas are protectable as trade secrets. K-M relied on Silvaco Data Systems v. Intel Corp. for the proposition that, while patent law protects ideas, “trade secret law does not protect ideas as such.” K-M argued that the general ideas and concepts of DST, as opposed to the undisclosed algorithms and code, did not constitute protectable subject matter.
The appellate court disagreed, noting an overlap in the protection afforded by patent law and trade secret law. While an inventor may obtain a patent for novel technology and control the use of the idea, trade secret law protects the inventor’s right to control the dissemination of valuable information, that is, the idea itself. If a patentable idea is kept secret, the idea itself can constitute information protectable by trade secret law.
The Court of Appeal divided Altavion’s DST information into three tiers. The least specific and least protectable tier included the general idea about self-authenticating barcode technology. This idea was disclosed publicly without a non-disclosure agreement (NDA) and was therefore not protectable. The most specific and secret tier included Altavion’s algorithms and source code. Such information, the Court of Appeal explained, is clearly protectable trade secret information, but was not disclosed to K-M. The middle tier comprised the design concepts underlying DST, which were disclosed only to K-M and only pursuant to the NDA. The evidence showed that K-M had not independently developed the DST concepts prior to learning about them from Altavion, and that the later-patented design concepts had independent economic value. Thus, the DST design concepts were held to be protectable trade secrets.
Accordingly, the Court of Appeal upheld the trial court’s judgment, including the award of damages and attorneys’ fees.