PATENTS / CLAIM CONSTRUCTION / OBVIOUSNESS (REASONABLE EXPECTATION OF SUCCESS)
Merely Articulating a Goal Does Not Provide Reasonable Expectation of Success
The US Court of Appeals for the Federal Circuit affirmed a district court non-obviousness decision, finding that a prior art reference that articulates a goal without explaining how that goal is achieved does not provide a reasonable expectation of success. Endo Pharmaceuticals Inc. v. Actavis LLC, Case No. 18-1054 (Fed. Cir. May 3, 2019) (Wallach, J) (Stoll, J, dissenting).
Mallinckrodt Pharmaceuticals owns a patent, licensed by Endo Pharmaceuticals, directed to compounds known as morphinan alkaloids, such as oxymorphone, that are useful analgesics, and to “processes for preparing [a] highly pure morphinan-6-one” drug having low amounts of α,β unsaturated ketone (ABUK) impurities. The asserted claims of the patent are directed to “hydrochloride salt of oxymorphone comprising less than 0.001% of 14-hydroxymorphinone.” Endo sued several drug manufacturers (collectively, Actavis) that had filed abbreviated new drug applications to market generic versions of the drug.
Actavis argued that the patent claims were invalid as being anticipated by, or obvious over, several prior art references. Based on the specification and the testimony from Actavis’s expert, the district court construed the claim term “14-hydroxymorphinone” to mean “14- hydroxymorphinone hydrochloride” and “not as a separate non-salt, non-hydrochloride component.” The district court further found that a person of ordinary skill in the art would not have a reasonable expectation of success in combining the prior art to arrive at the claimed composition despite a US Food and Drug Administration (FDA) mandate requiring opioid manufacturers to reduce ABUK impurities in oxymorphone to below 0.001%. The district court found that the FDA communications were not prior art because they were not publicly available, and concluded that the asserted claims were not invalid due to obviousness. Actavis appealed.
The issues before the Federal Circuit were whether the district court had erred in its claim construction and whether the district court’s finding of non-obviousness was erroneous. On the first issue, the Court found that the intrinsic and extrinsic evidence supported the district court’s claim construction, which also nullified Actavis’ contention of anticipation. On the second issue, the Court found that the cited “purification” references did not provide a reasonable expectation of success because the two methods suggested in the prior art had not reasonably demonstrated that the claimed level of purity was attainable.
The Federal Circuit further found that although the FDA mandate was not widely circulated, it was still pre-America Invents Act 35 USC § 102(f) prior art. Nonetheless, the majority found that the FDA mandate did not rectify the limitations of the primary “purification” references but instead simply outlined a goal. The Court pointed to the technical difficulties associated with producing a highly pure oxymorphone composition and the extensive experimentation required to attain the mandated purity level as factors supporting its finding. The Court explained that since the mandate recognized the challenges associated with attaining the required standard of purity, it actually supported a finding of non-obviousness. The Federal Circuit therefore affirmed the district court’s findings of non-obviousness and infringement.
Judge Stoll dissented, arguing that the FDA mandate provided a motivation to reformulate the prior art to arrive at the claimed composition, which was sufficient for the inquiry. According to Judge Stoll, the patentee “took advantage by claiming the directive itself [and secured] exclusive rights to a drug first approved in 1959,” which was contrary to the goals of the patent system.
PATENTS / CLAIM CONSTRUCTION
Balancing Act: Broad Definition in Specification Precludes Narrow Claim Construction
Affirming a Patent Trial and Appeal Board (PTAB) final written decision and a district court decision holding patent claims invalid, the US Court of Appeals for the Federal Circuit found that a broad definition in the specification for a claim term precluded a narrower construction of the term. BTG International Limited v. Amneal Pharmaceuticals, LLC, Case No. 19-1147 (Fed. Cir. May 14, 2019) (Wallach, J).
BTG sued Amneal Pharmaceuticals and several other pharmaceutical companies for patent infringement after they filed abbreviated new drug applications to market generic versions of BTG’s abiraterone product, ZYTIGA®. Amneal and several other defendants filed petitions for inter partes review (IPR), seeking to invalidate the asserted claims as obvious. The independent claim of the asserted patent recited “[a] method for the treatment of a prostate cancer . . . comprising administering . . . a therapeutically effective amount of abiraterone acetate . . . and a therapeutically effective amount of prednisone.” BTG argued that the term “treatment” “requires an anti-cancer effect” and does not include palliative/side effect reduction. The PTAB disagreed, finding that the term “treatment” includes palliative/side effect reduction. Because the prior art taught use of prednisone to treat prostate cancer for its palliative/side effect reduction effect, the PTAB found the asserted claims obvious. The district court agreed. BTG appealed both the district court and the PTAB decision.
On appeal, BTG argued that the PTAB and the district court misconstrued the term “treatment,” and that the obviousness finding based on the construction therefore was improper. In viewing the specification, the Federal Circuit noted that BTG referred to a “therapeutic agent” as either “an anti-cancer agent or a steroid.” Since prednisone is a steroid, this advanced the interpretation that prednisone is not necessarily the same as an anti-cancer agent. In other areas, the specification referred to prednisone as an antibiotic that can be an anti-cancer agent. Thus, the Court agreed with the PTAB and district court that the specification identifies prednisone as reducing side effects of drugs (such as abiraterone), as well as having anti-cancer effects. Therefore, the specification shows that “treatment” with prednisone can be manifest either through its anti-cancer effect or other effects. The Court found that “[i]f the patentee intended to limit ‘treating’ and ‘therapeutic agents’ to anti-cancer agents, the patentee neither would have identified steroids separately as an agent for reducing adverse side effects . . . nor described prednisone repeatedly in the specification as a steroid without mentioning any anti-cancer effect.” Given this claim construction and the prior art, the Federal Circuit affirmed patent invalidity based on obviousness.
Practice Note: Choosing broad versus narrow claim construction is a balancing act. While a broad claim construction may be favored to cover as many inventions as possible, overly broad characterization of terms in the specification may prevent later assertions of a narrower construction to avoid invalidity.
PATENTS / AIA / CLAIM CONSTRUCTION (MEANS PLUS FUNCTION)
Algorithm Required Where Corresponding Structure to Means-Plus-Function Term Is Computer-Implemented
The US Court of Appeals vacated a Patent Trial and Appeal Board (PTAB) obviousness decision, finding that the disputed means-plus-function term was computer-implemented and therefore required the corresponding structure to include an algorithm. Sony Corp. v. Iancu, Case No. 18-1172 (Fed. Cir. May 22, 2019) (Dyk, J) (Newman, J, dissenting).
Sony owns a patent directed to an information recording medium (e.g., compact disc, video disc, magneto optical disc) that can store audio data having multiple channels. The patent claims require a “reproducing means for reproducing the audio data of the channel designated by the default value stored in the storing means.” The PTAB instituted inter partes review (IPR). The parties agreed that the “reproducing means” limitation is a means-plus-function limitation, invoking 35 USC § 112 ¶ 6, and that the function performed is “reproducing the audio data of the channel designated by the default value stored in the storing means.” The parties, however, disagreed as to the disclosed corresponding structure.
Before the PTAB, Sony argued that the “reproducing means” limitation is implemented on a computer and thus requires an algorithm to carry out the claimed function. Despite recognizing that “the specification of the [asserted patent] includes steps that could be termed an algorithm and that could be implemented on a computer,” the PTAB disagreed with Sony, concluding that the corresponding structure of the reproducing means is “a controller and a synthesizer, or the equivalent,” and “agree[d] with Petitioner that does not mean that the controller is ‘computer-implemented’ or require that the construction must include the algorithm.” Based on this finding, the PTAB concluded that the asserted prior art taught the “reproducing means” limitation. Sony appealed.
Sony argued that the PTAB erred in construing the “reproducing means.” The Federal Circuit acknowledged that the parties agreed that the specification contemplated a hardware implementation of the reproducing means, but addressed Sony’s earlier position that the means-plus-function limitation required an algorithm, noting that the Court is not bound by the parties’ arguments as to claim construction, as “the [Court] has an independent obligation to determine the meaning of the claims, notwithstanding the views asserted by the adversary parties.” Turning to the merits, the Court found that “[o]n its face, the [asserted patent] refers to a computer-implementation of the reproducing means.” The Court did not find “the patent to describe or refer to the circuitry of the controller that would be required for a hardware controller to perform the claimed function.” Accordingly, the Court construed the means-plus-function term as computer implementation requiring an algorithm, vacated the PTAB’s decision and remanded for the PTAB to consider whether the prior art reference disclosed such an algorithm.
Judge Newman’s dissent focused on her belief that the case should be dismissed for failing to meet the threshold question of appellate jurisdiction: whether there is a live case or controversy sufficient to satisfy Article III. The asserted patent had expired, the IPR petitioner declined to defend its PTAB victory, and the parties had settled the infringement suit in district court. Judge Newman noted that although “a patentee has an indisputable interest in the validity of its patent,” Sony stated that it was unaware of any other pending case that the Court’s decision would affect, and had not provided any other consequence of appealing the decision on the expired patent. Accordingly, Judge Newman found no interest, public or private, in the asserted patent’s fate, and no consequence of either the Court’s decision to vacate or the potential PTAB decision on remand it now ordered, believing that this reduced the Court’s opinion to an impermissible advisory opinion.
PATENTS / CLAIM CONSTRUCTION / DOCTRINE OF EQUIVALENTS (DECIDED ON SUMMARY JUDGMENT)
Maintaining Order in Process Claims
The US Court of Appeals for the Federal Circuit affirmed a summary judgment non-infringement ruling, finding that where both the claim language and the specification require that the disclosed steps be performed in the order written, the claims must be limited to that specific order for claim construction and infringement analysis. Amgen, Inc. v. Sandoz Inc., Case Nos. 18-1551, -1552 (Fed. Cir. May 8, 2019) (Lourie, J).
This case relates to a dispute over Amgen’s patents covering filgrastim (marketed as Neupogen®) and pegfilgrastim (marketed as Neulasta®). Amgen sued Sandoz for patent infringement under the Biologics Price Competition and Innovation Act (BPCIA) in relation to its biosimilars of these products. Sandoz had received approval for its biosimilar of filgrastim (marketed as Zarxio®) but had not yet received approval for its proposed pegfilgrastim biosimilar. Amgen’s lawsuit was based on allegations that Sandoz’s BPCIA filings infringed two of its patents: one directed to methods of protein purification by adsorbent chromatography, and another directed to methods of treating “diseases requiring peripheral stem cell transplantation.”
With respect to the protein purification patent, Amgen argued that the district court, in both its claim construction and summary judgment decisions, misconstrued claim limitations reciting “washing” and “eluting” as requiring distinct solutions to be added to the claimed separation matrix at different times. Amgen argued that the claims cover any number of solutions or steps as long as the functions of washing and eluting happen in sequence. Thus, Amgen argued that even though the step of washing precedes the step of elution at any given point in the separation matrix in Sandoz’s process, the Sandoz process nevertheless infringed. Sandoz responded that the patent claim at issue requires a series of steps and thus is limited to the disclosed order of steps. The district court agreed with Sandoz and found that Sandoz’s process did not infringe.
The Federal Circuit affirmed, citing Mformation Technologies v. Research in Motion (Fed. Cir 2014), and concluded that the washing and eluting steps in the asserted claim required discrete solutions. The Court provided two reasons in support of its construction: first, the claim language logically requires that the process steps, lettered (a) through (g), be performed in sequence, and second, washing and eluting are consistently described in the specification as separate steps performed by different solutions. Because the accused process only uses one step and one solution, the Court reasoned that the Sandoz process did not literally infringe. The Court rejected Amgen’s doctrine of equivalence argument, finding that it sought to cover much more than the invention as recited in the natural language of the asserted claim. The Court cautioned that the doctrine of equivalents applies only in exceptional cases and is not regularly available as a method to extend protection beyond the scope of the claims.
With respect to the stem cell treatment patent, Amgen argued that the district court misconstrued the limitation of “disease treating-effective amount” of a chemotherapeutic agent as “an amount sufficient to treat a disease for which at least one chemotherapeutic agent is prescribed.” Amgen argued that this phrase only limited the amount of the chemotherapeutic agent administered, and not the purpose for which the agent is administered. Under the claim scope urged by Amgen, the claim would cover administration of the agent solely for the purpose of mobilizing stem cells. The Federal Circuit, agreeing with Sandoz, concluded that Amgen’s construction improperly read “disease treatment” out of the claim, and found that the claim preamble “[a] method of treating a disease requiring peripheral stem cell transplantation” precluded Amgen’s construction by requiring the limitation of disease treatment in the claims.
PATENTS / OBVIOUSNESS / MOTIVATION TO COMBINE
Lead Compound Analysis Is Inappropriate for Method of Treatment Claims
Amy Mahan, PhD
Addressing the obviousness analysis for method of treatment claims, the US Court of Appeals for the Federal Circuit affirmed the district court’s finding of non-obviousness but rejected part of its reasoning that applied lead compound analysis to method of treatment claims. Novartis Pharm. Corp. v. West-Ward Pharm., LTD., Case No 18-1434 (Fed. Cir. May 13, 2019) (Stoll, J).
Novartis owns the Orange-Book-listed patent for Afinitor with claims that cover methods of treating “advanced solid excretory system tumors” such as advanced renal cell carcinoma (RCC) by administering the compound everolimus, an mTOR inhibitor. Novartis initiated a Hatch-Waxman lawsuit after West-Ward’s predecessor in interest filed an abbreviated new drug application seeking to market a generic version of Afinitor.
At trial, West-Ward cited four pieces of prior art in support of its obviousness defense. Two prior art references discussed different mTOR inhibitors (rapamycin and temsirolimus), their mechanism of action and Phase I clinical trial data. The two prior art references disclosed the compound everolimus, oral formulations and dosing ranges, but did not disclose any pre-clinical or clinical data showing or suggesting that everolimus had anti-tumor activity. According to West-Ward, knowledge in the art about the molecular biology of advanced RCC, the antitumor activity of mTOR inhibitors, phase I temsirolimus clinical trial results and safe dosing ranges for everolimus would have provided a skilled artisan with a reasonable expectation of success in effectively treating advanced RCC with everolimus.
The district court disagreed and found the claims non-obvious. The district court first found that a person of ordinary skill “would have been motivated to pursue everolimus as one of several potential treatment options for advanced solid tumors, including RCC,” but that “a [person of skill in the art] would not have been motivated to select everolimus,” and therefore West-Ward had not demonstrated a motivation to combine the prior art references. West-Ward appealed.
On appeal, the Federal Circuit explained that the district court’s analysis was flawed because it incorrectly applied a “lead compound analysis” to “method of treatment claims.” In lead compound cases, a court first determines whether a skilled artisan would have selected the asserted prior art compounds as lead compounds for further development. The Court found that methods of using compounds are different, and that this “heightened standard” does not apply. Rather, it is sufficient that a skilled artisan would have been motivated to pursue everolimus as one of several potential treatment options for advanced solid tumors, including advanced RCC.
The Federal Circuit found no clear error in the district court’s finding that West-Ward’s asserted prior art combination failed to provide clear and convincing evidence of a reasonable expectation of success. First, Phase 1 data had “diminished weight,” because these studies involved small sample sizes and were designed to test safety, not efficacy. Further, the pharmacological properties of the prior art drugs, everolimus and temsirolimus, were different from those of the claimed compound—for example, they had different binding affinities and half-lives than the claimed compound. Finally, the molecular mechanism by which mTOR inhibitors might inhibit tumor growth in RCC was poorly understood. In light of this evidence, the Federal Circuit affirmed the district court’s conclusion that the asserted claims had not been proven to be obvious in view of the prior art by clear and convincing evidence.
Practice Note: While the Federal Circuit has suggested that there is a lower standard applied in analyzing whether method of treatment claims are obvious in view of the prior art—rejecting the district court’s “lead compound analysis” in this case—the Court has also indicated that something more than Phase I clinical trials, which test safety not efficacy, is required to demonstrate that a skilled artisan would have a reasonable expectation of success in practicing a method of treatment claim. For example, data supporting a drug’s mechanism of action and efficacy may be relied on where possible to support an obviousness defense when confronted with method of treatment claims.
PATENTS / ON-SALE BAR / SUMMARY JUDGMENT
Who You Gonna Call? Inventors Survive On-Sale Heat
The US Court of Appeals for the Federal Circuit affirmed a district court finding that three patent claims were invalid under the on-sale bar but remanded two other patent claims for trial, explaining that the district court abused its discretion in excluding inventor declarations at the summary judgment stage under the sham affidavit doctrine. Quest Integrity USA, LLC v. Cokebusters USA Inc., Case No. 17-2423 (Fed. Cir. May 21, 2019) (Dyk, J).
Quest Integrity owns a patent directed to a system and method for displaying inspection data collected from commercial furnaces. Quest sued Cokebusters for offering furnace cleaning and inspection services that allegedly infringed the patent. Cokebusters filed a motion for summary judgment, arguing that all of the asserted claims were invalid under pre-America Invents Act 35 USC § 102(b) because there was a commercial sale of services prior to the patent’s critical date of June 1, 2003. Cokebusters pointed to a sale of services to Orion Norco Refinery around March 2003 (Norco Sale). Cokebusters argued that in those services, Quest used its claimed commercial furnace tube inspection method and generated two inspection reports (Norco Reports), which contained two-dimensional, color-coded strip charts displaying the collected furnace inspection data (Norco Strip Charts). After the district court granted Cokebusters’ summary judgment motion, Quest appealed.
The Federal Circuit found that the Norco Sale, which included the Norco Strip Charts, was “a commercial offer for sale” under § 102(b). The Court explained that the sale of the Norco Reports, which were produced by performing a claimed furnace tube inspection services process, invoked the on-sale bar. Rejecting Quest’s argument, the Court determined that the asserted claims were not narrowed to exclude the Norco Strip Charts because there was not “clear and unmistakable disclaimer” of the claim scope. In light of these findings, the Court found that three of the asserted claims were invalid.
The next issue was whether the Norco Sale disclosed the additional claim limitations in two dependent claims that required generating “composite data markers” and analyzing “sensor data.” The district court relied on deposition testimony of Robert De Lorenzo and his co-inventor. Initially, De Lorenzo testified at his deposition that the claimed composite data marker and sensor data features were used in the Norco Sale. Later, De Lorenzo and his co-inventor submitted a declaration to the contrary, stating that the Norco Sale did not actually use these features in the Norco Reports. Relying on the sham affidavit doctrine, which precludes a party from creating a genuine dispute of material fact (to survive summary judgement) “by filing an affidavit disputing his or her own sworn testimony without demonstrating a plausible explanation for the conflict,” the district court concluded that the declarations were sham affidavits and granted summary judgment on that basis.
As to the dependent claims, the Federal Circuit reversed and remanded, finding that the inventors’ declarations could not be dismissed as sham affidavits. Specifically, the Court noted:
- The sham affidavit doctrine does not apply to another witness’s (e., the co-inventor’s) testimony.
- There was independent, corroborating evidence in record that bolstered the inventors’ declarations.
- It was inappropriate and inconsistent with the sham affidavit doctrine for the lower court to disregard the declarations because they contradicted an earlier invention disclosure drafted by the co-inventor in 2002.
Accordingly, the Court reversed the judgment as to the two dependent claims and remanded for a trial.
Practice Note: Both the sale of a product and the performance of claimed processes (services) before the critical date are subject to the on-sale bar. To avoid on-sale bar issues, entrepreneurs are well advised to file at least a provisional patent prior to engaging in any early “testing” for which they receive compensation.
PATENTS / WRITTEN DESCRIPTION
Just Because It’s Written Doesn’t Mean It’s Descriptive
Addressing the validity of patents involved in a Hatch-Waxman litigation, the US Court of Appeals for the Federal Circuit held that claims were invalid for lack of an adequate written description because the specification failed to explain the efficacy of the claimed drug. Nuvo Pharmaceuticals v. Dr. Reddy’s Laboratories Inc. et al., Case Nos. 17-2473, -2481, -2484, -2486, -2489, -2491, -2492, -2493 (Fed. Cir. May 15, 2019) (Clevenger, J).
Nuvo owns two patents that claim an uncoated proton pump inhibitor (PPI) effective to raise the gastric pH to at least 3.5. Nuvo filed a patent infringement complaint against Dr. Reddy’s, Mylan and Lupin, alleging that the generic drug manufacturers infringed the two patents based on the filing of an abbreviated new drug application. The generic drug manufactures defended, arguing that the patents were invalid. The district court rejected the invalidity arguments, finding that ordinarily skilled artisans would not have expected uncoated PPIs to be effective. The generic drug manufacturers appealed.
On appeal, the generic drug manufacturers argued that the district court clearly erred when it concluded that the claimed effectiveness of un-coated PPI in the asserted patents was supported by written description, because ordinarily skilled artisans would not have expected it to work and the specification provided no experimental data or analytical reasoning showing that the inventor possessed an effective uncoated PPI.
Agreeing with the generic drug manufacturers, the Federal Circuit reversed the district court, finding that the specification lacked “information regarding the efficacy of uncoated PPIs,” even though it provided dosage amounts of un-coated PPI and disclosed the use of uncoated PPI in a drug formulation. Acknowledging that the law requires neither experimental data demonstrating effectiveness nor a theory or explanation of how or why a claimed composition will be effective, the Court nevertheless found that the patents “never discuss or explain its efficacy” and a person of ordinary skill in the art would not have known or understood that uncoated PPI was effective. In making this finding, the Court expressly rejected the notion that the appearance of mere indistinct words in a specification or a claim, even an original claim, necessarily satisfies written description, because it may not put others on notice of the scope of the claimed invention or demonstrate possession of that invention. The Court also recognized that the enablement requirement, which requires the specification to teach those skilled in the art how to make and use the claimed invention without undue experimentation, is separate and distinct from the written description requirement, and that even if an invention is enabled (as was the case here), that does not mean it is adequately described, and vice versa.
Practice Note: As noted by the Federal Circuit, the purpose of the written description requirement is broader than to merely explain how to “make and use” the invention. The focus of the written description requirement is instead on whether the specification notifies the public about the boundaries and scope of the claimed invention and shows that the inventor possessed all the aspects of the claimed invention. Successful defendants can strategically maneuver a §102/§112 squeeze forcing the patentee to make admissions about the unpredictability of the invention, ultimately using those same admissions to demonstrate a lack of a written description. While not legally required, patentees may consider mitigating this threat during prosecution by including experimental data, or some reason, theory or explanation that is more than a mere recitation of the claim language, as to how and why the claimed invention is possessed by the inventor.
Standing Is Unaffected by Patent Licensee’s Failure to Join
Addressing the issue of standing in a patent infringement case, combined with the requirements of joinder under Fed. R. Civ. P. 19, the US Court of Appeals for the Federal Circuit vacated a dismissal based on lack of standing for refusal to permit joinder of the rights holder. Lone Star Silicon Innovations v. Nanya Tech. Corp., Case No. 18-1582 (Fed. Cir. May 30, 2019) (O’Malley, J).
Lone Star licensed several patents from Advanced Micro Devices (AMD). Part of the agreement between Lone Star and AMD limited Lone Star’s ability to assert the patents against only those entities specifically listed in the agreement. No new entities could be added to the list unless Lone Star and AMD both agreed. If Lone Star sued an entity, AMD retained the right to sublicense the patents to the entity without Lone Star’s approval. AMD further retained (1) the right to prevent Lone Star from assigning the patents or allowing them to enter into the public domain and (2) the right for AMD and its customers to practice the patents, and provided that AMD would share in any revenue Lone Star generated through its monetization efforts.
Lone Star sued Nanya, an entity listed in the agreement, for patent infringement. In the complaint, Lone Star alleged that AMD transferred to it “all right, title, and interest” in the patents. Lone Star delayed almost a year after filing the complaint to produce the transfer agreement. Once it did, Nanya filed a motion to dismiss under Fed. R. Civ. P. 12(b)(1). The district court focused on three aspects of the transfer agreement:
- AMD’s ability to control how Lone Star asserted or transferred the patents
- Lone Star’s inability to practice the patents
- AMD’s right to share in the monetization of the patents
The district court concluded that AMD did not transfer all substantial rights in the patents to Lone Star, and that Lone Star could therefore not sue in its own name. The district court refused Lone Star’s motion to join AMD in the lawsuit, explaining that to do so “would reward Lone Star for its litigation gimmick and unfairly prejudice defendants.” The district court dismissed the case. Lone Star appealed.
On appeal, Lone Star argued that it possessed all substantial rights and could assert the patents in its own name, but that if the court found it could not, it should be permitted to join AMD as a plaintiff before the case was dismissed.
In support of its “all substantial rights” contention, Lone Star relied on a single provision of the agreement that conveyed “all right, title, and interest” in the patents to Lone Star. The Federal Circuit was not convinced, explaining that “labels given by the parties do not control.” Instead the Court look at the totality of the circumstances to determine whether AMD retained any substantial rights.
The Federal Circuit considered two salient rights in its analysis: enforcement and alienation. As to enforcement, the Court found that Lone Star needed AMD’s consent to file suit against unlisted entities, and therefore it did not possess the right to sue for “all infringements.” As to alienation, the agreement restricted Lone Star’s ability to transfer the patents to a buyer unless the buyer agreed to be bound to the terms of the agreement, and if the buyer did not, AMD could halt the sale. Because AMD retained control over these rights, the Court determined that Lone Star did not have all substantial rights to sue in its own name.
Nanya argued that because Lone Star was not a patentee and never alleged that it was an exclusive licensee, it lacked standing to sue and the case should be dismissed. The Federal Circuit rejected Nanya’s argument, finding that Lone Star had sufficient exclusionary rights to confer standing at the pleading stage.
Finally, the Federal Circuit determined that the district court erred in dismissing the case and that Lone Star should be given the opportunity to join AMD as a necessary party under Fed. R. Civ. P. Rule 19. The Court noted that joinder of AMD was both “required” and “necessary” under Rule 19, and that “application of Rule 19 is mandatory, not discretionary.” Importantly, the Court observed that Rule 19 applies “whether a defendant invokes Rules 12(b)(1), (6), or (7) or none of the above. The case was remanded to the district court for further proceedings.
PATENTS / AIA / APPELLATE STANDING
No Competitor Standing for Appeal of IPR Decision Upholding Unasserted Claims
Alexander P. Ott
Addressing whether standing to appeal an unfavorable inter partes review (IPR) decision could be based on the competitor standing doctrine, the US Court of Appeals for the Federal Circuit held that the IPR petitioner did not establish the required harmful competitive effect. AVX Corp. v. Presidio Components, Inc., Case No. 18-1106 (Fed. Cir. May 13, 2019) (Taranto, J).
In late 2014, AVX filed a three-patent infringement case against Presidio, its competitor in the capacitors market. Presidio subsequently filed IPRs against all three AVX patents, and AVX responded by filing its own IPR against all the claims of an unasserted Presidio patent. The Patent Trial and Appeal Board (PTAB) instituted review of the claims challenged by AVX, but ultimately found only five claims unpatentable and upheld the remaining 16 claims. AVX appealed.
On appeal, the threshold question was whether AVX had standing to appeal despite not being accused or threatened with infringement of the challenged patent. AVX first argued that it had appellate standing because it faced injury from IPR estoppel that arose from its failed challenge. Following its earlier decision in JTEKT v. GKN (IP Update, Vol. 21, No. 9), the Federal Circuit found that estoppel is an insufficient basis for standing and further noted that it had not yet been decided whether IPR estoppel applies in situations where no appeal is available. AVX also argued that standing could be found under the competitor standing doctrine given its status as Presidio’s competitor in the market for capacitors. On this issue, the Court concluded that the requisite harm based on competitive effect (for the competitor standing doctrine) would only occur in the patent context if the appellant was using the claimed features to compete with the patentee or had a non-speculative plan to do so. Because that was not the case here, the Court dismissed the appeal for lack of standing.
PATENTS / EXCEPTIONAL CASE / PRE-FILING INVESTIGATION
“Exceptional Case” Determinations May Rest on Alleged but Non-Litigated Issues
Mandy H. Kim
Addressing the issue of attorneys’ fees in connection with exceptional cases under 35 USC § 285, the US Court of Appeals for the Federal Circuit affirmed the district court’s determination that a case was exceptional based on plaintiff’s inadequate pre-suit investigation of infringement, even though infringement had not been adjudicated, and affirmed the district court’s $1.3 million attorneys’ fee award. ThermoLife Int’l LLC v. GNC Corp., Case Nos. 18-1657, -1666 (Fed. Cir. May 1, 2019) (Taranto, J).
ThermoLife, the exclusive licensee of four patents owned by Leland Stanford Junior University, brought a total of 81 infringement suits, including suits against Hi-Tech and Vital, by identifying specific products and relying on the product labels and advertisements to support its allegations. The four patents cover methods and compositions involving certain amino acids to be ingested to enhance vascular function and physical performance. During the litigation, the parties agreed to “phased discovery” that was initially limited to issues concerning standing, claim construction, and patent invalidity and/or unenforceability, with issues unique to each defendant to proceed only if necessary (namely, infringement and damages).
The district court so bifurcated the proceedings, and a bench trial on invalidity proceeded with Hi-Tech, Vital and a trio of companies from the GNC family as defendants (all other defendants having settled). The district court held all asserted claims invalid. Thereafter, Hi-Tech and Vital (but not the GNC entities) moved for attorneys’ fees under § 285, making two main arguments for exceptionality:
- Plaintiffs did not conduct an adequate pre-suit investigation into infringement.
- Plaintiffs filed many suits without adequate investigation, simply trying to extract nuisance-value settlements.
The district court agreed and awarded $1.3 million in attorneys’ fees under § 285. ThermoLife and Stanford appealed the exceptional case determination.
The Federal Circuit affirmed, explaining that the district court did not abuse its discretion in finding the case exceptional although the basis for alleging infringement was not fully adjudicated or litigated on the merits. Noting that this was an unusual but not legally impermissible attorneys’ fee case, the Court emphasized “the wide latitude district courts have to refuse to add to the burdens of litigation by opening up issues that have not been litigated but are asserted as bases for a fee award.”
The Federal Circuit rebuffed plaintiffs’ argument that they were denied procedural rights, noting that plaintiffs did not request a hearing and had an opportunity to meet the contentions made in the fees motion. Although a party seeking fees under an exceptional case assertion should provide early notice—a factor not met here—the Court concluded that such notice is not rigidly required, particularly in circumstances where discovery as to party-specific issues is postponed.
The Federal Circuit found no abuse of discretion in the district court’s determination that there had been inadequate pre-filing investigation. The Court explained that there was no reversible error in the district court’s emphasis on any particular claim since ThermoLife had not argued that its infringement case was stronger for any other claim. The Court also found that the district court correctly determined that according to the claim it analyzed, infringement would require application of 1 gram (or more) of L-arginine, since (as the district court determined based on the record) that was the “amount sufficient to enhance” certain metabolic processes recited in the claim. The Court agreed that ThermoLife was properly charged with knowledge of this minimum dosage but failed to apply it in its pre-suit investigation, and that it was therefore not an abuse of discretion to find that investigation was inadequate.
In support of its conclusion, the Federal Circuit noted that the record included no evidence of ThermoLife testing any of the accused products. As the Court observed, while testing of an accused product is not always required as part of pre-suit investigation, the district court did not err in determining that here, where all of the accused products were publicly available, there was no reasonable substitute for testing since the record showed that the tests to determine ingredient amounts were “simple.” Finally, the Federal Circuit found no reversible error in the district court’s “pattern of misconduct” determination because it was tied to the finding that plaintiffs failed to conduct an adequate pre-suit investigation into infringement.
No Transfer Under First-to-File Rule Where Second Case Involves Different Technology
The US Court of Appeals for the Federal Circuit denied a petition for a writ of mandamus requesting transfer of a patent infringement case, finding that the “first-to-file” rule did not warrant transfer because, even though the second-filed case involved the same products as the first-filed case, the second-filed case involved different technologies, different patents and different claims. In re. ASM Int’l., Case No. 19-118 (Fed. Cir. May 23, 2019) (Stoll, J).
ASM develops and sells multi-component furnace systems used in the deposition of thin films on semiconductor microchips. ASM maintains regional sales and support offices for those products in both San Jose, California, and Hillsboro, Oregon. Kokusai Semiconductor Equipment Corporation (HiKE) competes with ASM in the same market and owns several patents covering different aspects of wafer substrate processing and semiconductor device production. HiKE maintains US headquarters in San Jose, California; a facility in Hillsboro, Oregon; and a large sales and support center nearby in Vancouver, Washington.
In December 2017, the parties sued each other for patent infringement in the Northern District of California. HiKE’s suit alleged, in relevant part, that ASM’s furnace systems infringed seven patents that HiKE characterized as relating to the handling, processing and monitoring of wafer substrates during semiconductor fabrication. In February 2018, HiKE filed the underlying complaint in the District of Oregon, alleging that the same products infringed four different patents that, according to HiKE, related to reaction chambers configurations, including nozzles and other structures for injecting gases into those chambers.
In the underlying case, ASM filed a motion to transfer the case to the Northern District of California, arguing that the “first-to-file” rule warranted dismissal or transfer, or alternatively that HiKE had engaged in improper claim splitting. The district court denied ASM’s motion, finding that even though the accused products were the same in both actions, the accused products were highly complex and involved multiple different technologies, and the California and Oregon actions involved different patents, different claim terms and different claim elements. ASM appealed.
On appeal, ASM challenged the district court’s first-to-file rule determination, arguing that when two cases are the same or very similar, efficiency dictates that only one court decide both cases. The Federal Circuit affirmed the districts court’s transfer denial, explaining that when the overlap between actions is not “complete or nearly complete,” it generally defers to the district court’s assessment of the extent of overlap, likelihood of conflict, and comparative advantage and interest of each forum in resolving the dispute. Here, the Court found that the district court properly exercised its discretion to not transfer, because the Oregon case involved different asserted patents, claim terms and technology than were at issue in the Northern California case, and because ASM did not directly refute these factual findings.
The Federal Circuit also rejected ASM’s argument that HiKE was shopping for a forum that would be faster than the Northern District of California. The Court noted that the Oregon case was filed before the trial date was set in the California case and thus before HiKE knew that trial in the California case would be delayed until 2022. Because ASM had not shown a clear and indisputable right to have the case transferred to the Northern District of California, the Court denied ASM’s petition
PATENTS / AIA / ISSUE PRECLUSION
Dropping Appeal on the Eve of Oral Argument Leads to Preclusion of Another
Addressing the applicability of issue preclusion in inter partes review (IPR) proceedings, the US Court of Appeals for the Federal Circuit found that a patent owner’s arguments on appeal were precluded based on similar arguments made in two prior IPR proceedings that resulted in final decisions. Papst Licensing GMBH v. Samsung Elecs. Am., Inc., Case No. 18-1777 (Fed. Cir. May. 23, 2019) (Taranto, J).
The patent at issue, entitled “Analog Data Generating and Processing Device Having a Multi-Use Automatic Processor,” is owned by Papst Licensing and was challenged in an IPR proceeding by Samsung. In addition to the IPR of the patent in issue, Samsung challenged two other Papst patents via IPR proceedings, both of which share the same specification as the patent in issue and claim similar subject matter. The patent in issue is directed to an interface device for communication between a data device (e.g., a specialized multimeter or other data acquisition device) and a host computer. The interface is able to achieve high data transfer rates between the data device and the host computer without first installing a separate communication driver by utilizing communication drivers that are already present on the host computer, such as the driver for a hard drive.
In its final written decision, the Patent Trial and Appeal Board (PTAB) found that the challenged claims were invalid as obvious over three references: a patent to Aytac, a technical standards publication (SCSI) and admitted prior art. In order to arrive at its ultimate conclusion, the PTAB interpreted the claim limitation “without requiring any end user to load any software onto the computer” to mean “without requiring the end user to install or load specific drivers or software  beyond that included [on the host computer].” Based on the admitted prior art, the PTAB found that SCSI drivers are among the drivers included on the host computer, and therefore found the claims obvious. Papst appealed.
Six weeks prior to the final written decision, the PTAB issued similar findings in the two other Samsung IPRs involving the two other related Papst patents that share a common specification to the patent in issue. Specifically, the PTAB found unpatentability based on the same three references (Aytac, SCSI and admitted prior art), and in order to do so, was required to construe a “materially identical ‘without requiring’ limitation.” Papst appealed these two IPR decisions and fully briefed the arguments before the Federal Circuit. However, shortly before the oral argument for both IPRs, Papst voluntarily dismissed both appeals, which rendered both PTAB decisions final.
Accordingly, in the present appeal, the Federal Circuit affirmed the PTAB’s ruling on the merits and additionally found that Papst’ s arguments were barred by issue preclusion. Issue preclusion applies “[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment.” In this scenario, “the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” The Federal Circuit made clear that issue preclusion applies to IPR proceedings (in both the mutual and non-mutual respects). Here, because the two prior IPRs (1) involved patents having the same specification as that of the patent in issue, (2) required construction of the same “without requiring” limitation (which was “essential to the Board’s ultimate determination”) and (3) “resolved  in the same way,” i.e., a finding of obviousness based on the same prior art combination, the Court found that issue preclusion properly applied to Papst’s arguments.
Practice Note: The Federal Circuit noted some key exceptions to the applicability of issue preclusion, including where “the amount in controversy in the first action [was] so small in relation to the amount in controversy in the second that preclusion would be plainly unfair.” Although the point was not specifically argued by Papst, the Court found that “generally, given the heavy burdens that Papst placed on its adversaries [i.e., fully briefing an appeal only to voluntarily dismiss shortly before oral argument], Papst’s course of action leaves it without a meaningful basis to argue for systemic efficiencies as a possible reason for an exception to issue preclusion.” Thus, it is important to keep in mind the stage of litigation when arguing for a significant disparity in incentives as an exception to issue preclusion.
America Invents Act
Supreme Court to Consider Time Bar to AIA Challenge
The Supreme Court of the United States, brushing aside the position taken by the US Patent and Trademark Office as to the suitability of this case as a vehicle for review, agreed to consider whether a petition for an America Invents Act (AIA) proceeding was filed within the one-year window provided by 35 USC 315(b) for requesting inter partes review (IPR). Dex Media Inc. v. Click-To-Call Technologies, LP, Case No. 18-916 (S. Ct. June 24, 2019) (cert granted).
According to Supreme Court precedent, most aspects of a decision by the Patent Trial and Appeal Board (PTAB) regarding institution of an AIA review cannot be appealed. There is, however an exception when the PTAB acts outside its authority or partakes in other “shenanigans.” Cuozzo v. Lee (2016) (IP Update, Vol. 19, No. 7).
The en banc US Court of Appeals for the Federal Circuit in Wi-Fi One v. Broadcom (IP Update, Vol. 21, No. 2) (2018) found that PTAB decisions finding IPR petitions to be timely filed fall into that category of exceptions. In the case at bar, the Federal Circuit, relying on Wi-Fi One, found that Dex’s petition was time-barred. The finding was based on a lawsuit filed years earlier against Dex’s predecessor, a case that had been voluntarily dismissed without prejudice (IP Update, Vol. 21, No. 5).
In its petition, Dex argued that while Cuozzo recognized a narrow exception to the non-appealability of institution decisions, “[t]he en banc Federal Circuit used this narrow exception to undercut Congress’ policy determination that institution decisions cannot be appealed.”
Dex’s cert petition also asked the Supreme Court to consider whether an infringement suit that was voluntarily dismissed triggers the IPR time bar. While the PTAB has long said that it does not, the Federal Circuit in this case said that position was wrong. However, the Order granting cert does not include that issue.
The issue presented is:
Whether, in an appeal from the final written decision of the Patent Trial and Appeal Board in an inter partes review, the appellant can argue that the review was improperly instituted because the petition was time-barred by 35 USC 315(b).
AIA / IPR / INSTITUTION DISCRETION
That IPR Could Have Been Your IPR: PTAB Denys Institution of Serial Petition Filed by Different Party
Addressing the scope of its discretion to institute or deny a petition under 35 USC §§ 314(a) and 325(d), the Patent Trial and Appeal Board (PTAB) designated as precedential two recent decisions denying institution of inter partes review (IPR) petitions. Valve Corp. v. Elec. Scripting Prods., Inc., Case Nos. IPR2019-00062, -00063, -00084 (PTAB Apr. 2, 2019) (Weinschenk, APJ); NHK Spring Co., Ltd. v. Intri-Plex Techs., Inc., Case No. IPR2018-00752 (PTAB Sept. 12 2018) (Ankenbrand, APJ). In Valve Corp., the PTAB held that its multi-factor General Plastic analysis under § 325(d) can take into account earlier-filed petitions by anyone, not just the “same petitioner.” In NHK Spring, the PTAB held that any number of factors, separate and apart from those considered under § 325(d), can be considered when exercising its discretion to institute or deny a petition under § 314(a).
In Valve Corp., Valve Corp. was a co-defendant in a district court case with HTC. HTC had filed earlier petitions challenging the same claims of the same patents using the same combinations of prior art. Because of venue issues associated with the district court case, Valve had additional time, as compared to HTC, to file within the one-year time limit under § 315(b). As a result, Valve did not file its petitions until after the PTAB denied institution on HTC’s petitions.
When weighing the General Plastic factors and considering “whether the same petitioner previously filed a petition directed to the same claims of the same patent,” the PTAB determined that when different petitioners challenge the same patent, it considers any relationship between those petitioners in its General Plastic analysis. Valve argued that the PTAB should not factor HTC’s petitions into the analysis because it was an unrelated company that at most shared a common desire to invalidate the patents. The PTAB disagreed, finding a close relationship between HTC and Valve (1) as co-defendants and (2) because the products accused of infringement included technology licensed from Valve to HTC. Moreover, the overlap of challenged claims, grounds of invalidity and expert declarations favored denying institution. The PTAB therefore took into account HTC’s earlier-filed petitions when weighing the factors, and it determined that the factors weighed in favor of denying institution.
In NHK Spring, the PTAB weighed the General Plastic factors and determined that the examiner’s prior rejections over similar art and the petition’s failure to identify errors, present new art and make new arguments, as compared to the examiner, weighed in favor of denying institution. Even after this finding, the PTAB went further to consider whether other factors warranted using its discretion to deny institution under § 314(a). Patent owner argued that the petitioner knew about the challenged patent for more than 10 years but waited unusually long to seek review. The PTAB found this did not weigh in favor of denying institution, because it created an opportunity for tactical advantage. Patent owner also argued that the parallel district court case would make the IPR redundant because that case had not been stayed and was scheduled to go to trial before the IPR proceeding would have concluded. The PTAB found that it would have been an inefficient use of the PTAB’s resources to institute an IPR when the district court would have resolved the issues long before the PTAB would reach them. Accordingly, the PTAB found that this factor weighed in favor of denying institution.
TRADEMARKS / BANKRUPTCY / REJECTION OF EXECUTORY LICENSE
Supreme Court Addresses Effects of Trademark License Rejection in Bankruptcy
Nathan F. Coco
In an 8–1 decision, the Supreme Court of the United States reversed the US Court of Appeals for the First Circuit and held that rejection of a trademark license in bankruptcy constitutes a breach of the license agreement, which has the same effect as a breach outside bankruptcy. Therefore, a licensor’s rejection of a trademark license agreement does not rescind or terminate the licensee’s rights under the agreement, including the right to continue using the mark. Mission Product Holdings Inc. v. Tempnology, LLC, Case No. 17-1657 (S. Ct. May 20, 2019) (Kagan, Justice) (Sotomayor, Justice, concurring) (Gorsuch, Justice, dissenting).
Tempnology, an entity that manufactured specialty products under the mark “Coolcore,” entered into a contract with Mission Product Holdings that gave Mission an exclusive license to distribute certain Coolcore products in the United States and a non-exclusive license to use the mark “Coolcore” worldwide. Prior to expiration of the license, Tempnology filed a petition for Chapter 11 bankruptcy and asked the bankruptcy court to allow it to “reject” the license.
Section 365 of the Bankruptcy Code authorizes the trustee in bankruptcy, or a debtor in possession when applicable, to assume or reject certain executory contracts. The purpose behind § 365 is to “allow a debtor to reject executory contracts in order to relieve the estate of burdensome obligations, while at the same time providing ‘a means by which a debtor can force others to continue doing business with it when the bankruptcy filing might otherwise make them reluctant to do so.’” Bankruptcy Code § 365(g)(1) states that “the rejection of an executory contract . . . constitutes a breach of such contract . . . immediately before the date of the filing of the petition.”
Section 365(n) provides a special protection for the non-debtor licensees of “intellectual property” (as defined under the Bankruptcy Code). In the event that a debtor licensor rejects an intellectual property license agreement, the non-debtor licensee is given two choices: (1) the non-debtor licensee may treat the debtor’s rejection as a termination of the license agreement and file a claim against the debtor licensor for the licensee’s damages caused by the breach, or (2) the non-debtor licensee may elect to retain its rights under the executory license agreement, notwithstanding the debtor’s rejection. The Bankruptcy Code’s definition of “intellectual property” includes trade secrets, patents and copyrights, but does not mention trademarks.
Prior to the Mission Product Holdings decision, courts were split on whether a trademark licensee retains the ability to use a debtor-licensor’s marks after the corresponding license is rejected in bankruptcy. The Seventh Circuit had held that a trademark license agreement was not rescinded or terminated upon rejection of a trademark license agreement. Sunbeam Products v. Chicago American Manufacturing (2012). The First Circuit, on the other hand, had held that rejection constitutes complete termination of the licensee’s rights, including the right to use the mark. In re Tempnology (2018).
In this case, the Supreme Court affirmed the Seventh Circuit’s reasoning in Sunbeam and reversed the First Circuit. The Supreme Court reasoned that:
If the licensor breaches the agreement outside bankruptcy . . . the breach does not revoke the license or stop the licensee from doing what it allows. See, e.g., Sunbeam [citation omitted]. And because rejection “constitutes a breach,” § 365(g), the same consequences follow in bankruptcy. The debtor can stop performing its remaining obligations under the agreement. But the debtor cannot rescind the license already conveyed. So the licensee can continue to do whatever the license authorizes.
The Supreme Court was unpersuaded by the debtor-licensor’s argument that the omission of trademarks from the definition of “intellectual property” and § 365(n) creates a “negative inference” that the rejection of a trademark license constitutes a rescission that terminates the licensee’s rights: “Congress did nothing in adding Section 365(n) to alter the natural reading of Section 365(g)—that rejection and breach have the same results.”
Justice Sotomayor filed a concurring opinion joining the majority’s opinion in full and highlighting “two potentially significant features of [the] holding”:
 the Court does not decide that every trademark licensee has the unfettered right to continue using licensed marks postrejection . . . Special terms in a licensing contract or state law could bear on that question in individual cases. . .
 Provisions in § 365(n) mean that the covered intellectual property types are governed by different rules than trademark licenses.
Justice Gorsuch dissented, finding that it was not clear that there was an actual case or controversy: “[Petitioner] hasn’t come close to articulating a viable legal theory on which a claim for damages could succeed . . . where our jurisdiction is so much in doubt, I would decline to proceed to the merits.”
Practice Note: IP licensing and bankruptcy lawyers should review the Supreme Court’s decision and take note of Justice Sotomayor’s observations:
- Special terms in a trademark license agreement or state law may bear on the right to continue using a mark if the licensor files for bankruptcy.
- Other forms of intellectual property, such as trade secrets, patents and copyrights, are governed by different rules than trademark licenses in bankruptcy.
TRADEMARKS / LIKELIHOOD OF CONFUSION / ITC (PRECLUSION)
Not So Swag: No Preclusive Effect for ITC Trademark Infringement, Validity Rulings
Eleanor B. Atkins
Addressing for the first time whether International Trade Commission (ITC) trademark infringement rulings have a preclusive effect on district court litigation, the US Court of Appeals for the Federal Circuit affirmed the ITC’s determination on infringement, but held that such a determination did not preclude the issue from being litigated in a co-pending district court case. Swagway, LLC v. ITC, Case No. 18-1672 (Fed. Cir. May 9, 2019) (Clevenger, J).
Segway, DEKA Products Limited Partnership and Ninebot (Tianjin) Technology (collectively, Segway) filed a complaint with the ITC in May 2016 alleging that Swagway’s self-balancing hoverboards, sold in connection with its SWAGWAY X1 and SWAGTRON T1 and T3 trademarks, infringed six Segway patents and two Segway trademarks. Swagway later moved for termination of the trademark infringement investigation based on a stipulated consent order that stated “that Swagway would not sell or import ‘SWAGWAY-branded personal transporter products as well as all components thereof, packaging and manuals therefor.’” Segway opposed, arguing that the consent order addressed only some of the claims and products at issue in the investigation, and that entering the consent order would allow Swagway to (re)litigate the issue of trademark infringement in district court.
The administrative law judge (ALJ) issued an initial determination finding that while Swagway did not infringe the Segway patents, its use of the SWAGWAY trademarks did infringe Segway’s SEGWAY trademarks. Without explicitly addressing Swagway’s motion for termination based on the consent order stipulation, the initial determination stated that “any pending motion that has not been adjudicated is denied.” Swagway appealed the denial of its consent order motion and the determination on trademark infringement to the full Commission.
The Commission declined to review the ALJ’s denial of the consent order motion, modified the initial determination to state that the evidence of actual confusion “did not weigh in favor of likelihood of confusion,” but nonetheless upheld the ALJ’s determination on likelihood of confusion and trademark infringement. Swagway appealed to the Federal Circuit.
With respect to trademark infringement, Swagway contended that the lack of actual confusion is “especially probative” and “essentially dispositive in this case.” The Federal Circuit, however, found that Swagway had not presented sufficient concurrent use evidence to show that this factor should weigh in its favor. Swagway additionally argued that the ITC failed to accurately assess the likelihood of confusion factors and that Segway’s lack of survey evidence should create an adverse inference that the survey evidence would have been damaging to Segway’s claims. On this issue, the Court concluded that the ITC correctly interpreted the likelihood of confusion factors and further observed that “the adverse inference Swagway encourages us to adopt belies our precedent.”
Swagway also took issue with the ITC’s refusal to provide any basis for its denial of the consent order motion. Although the ITC’s order and Swagway’s consent order appeared very similar “as a practical matter,” Swagway believed that their ultimate effects rendered them very different: the ITC’s order would have a preclusive effect, whereas the consent order would circumvent any issue preclusion in the co-pending district court case. The Federal Circuit explained that Swagway misapprehended the preclusive effect of any ITC determination on trademarks in the corresponding district court case: “We see no reason to differentiate between the effect of the [ITC’s] patent-based decisions and the [ITC’s] decisions regarding trademarks. . . . [T]he [ITC’s] decisions pertaining to trademark infringement or validity are not entitled to preclusive effect in the district courts.”
TRADEMARKS / ITC INSTITUTION DECISION / FED CIR § 337 APPELLATE JURISDICTION
Nothing Fishy Here: No Private Right of Action Precludes § 337 Unfair Competition Claim
Lisa P. Rumin
The US Court of Appeals for the Federal Circuit affirmed an International Trade Commission (ITC) decision not to institute an investigation where the underlying statutory scheme precluded a private right of action. Amarin Pharma, Inc. v. ITC, Case Nos. 18-1247, -114 (Fed. Cir. May 1, 2019) (Prost, CJ) (Wallach, J, dissenting). The Federal Circuit’s decision solidified precedent giving the Court jurisdiction over ITC decisions not to institute where such decisions intrinsically represent a decision on the merits.
Amarin markets the prescription drug Vascepa®, which uses an ethyl ester synthetically produced fish oil to lower triglyceride levels. Amarin’s product is the only US Food and Drug Administration (FDA) approved drug in the United States made from a purified ethyl ester omega-3 acid. In 2017, Amarin filed a verified complaint with the ITC alleging that several other companies were falsely advertising and labeling their omega-3 products as dietary supplements in contravention of the Food, Drug, and Cosmetic Act (FDCA). Amarin alleged that this conduct constituted an unfair act or unfair method of competition under § 337 of the Tariff Act, because it contained false statements in violation of § 43(a) of the Lanham Act and the standards set forth in the FDCA. The FDCA, however, does not authorize private rights of action. Accordingly, the ITC issued a decision letter declining to institute an investigation and dismissing the complaint. Amarin appealed.
The Federal Circuit first addressed whether it had jurisdiction over the appeal. The ITC and FDA contended that the Court lacked jurisdiction because the ITC’s decision not to institute did not constitute a “final determination” under § 337. Citing its own precedent, the Court found that it had jurisdiction over the appeal because the ITC’s decision is “intrinsically a final determination, i.e., a determination on the merits.” The Court reasoned that because the ITC found that the claims were precluded by the FDCA and the complaint failed to state a claim, the ITC de facto reached the merits of the complaint and decided whether Amarin’s claims could proceed. Any future complaint alleging the same facts would have failed on the same basis. The Federal Circuit rejected the ITC and FDA’s argument that such a “final determination” could only be made after institution of an investigation. On this issue, Judge Wallach dissented, siding with the ITC and FDA. Judge Wallach argued that the statutory text indicated that Congress intended to make determinations not to institute final and non-appealable by excluding them from the list of “final determinations” in the statutory scheme. The majority criticized the dissent for elevating form over substance when neither statutory text nor congressional intent intended such inflexible formality.
Turning to whether the ITC had a mandatory duty to institute an investigation on Amarin’s verified complaint, the Federal Circuit reasoned that where a complaint lacks sufficient allegations to support a particular claim, it does not constitute a complaint within the meaning of § 337.
The Federal Circuit next considered the ITC’s holding that the specific complaint in issue failed to state a claim for an unfair method of competition or unfair act. Although Amarin packaged its claims under the Tariff Act and the Lanham Act, both claims effectively relied on alleged violations of the FDCA and required the ITC to adjudicate the underlying FDCA claims to address the complaint before it. The FDCA lacks a private right of enforcement. Since Amarin was precluded from bringing FDCA claims, the Court reasoned that its complaint failed to state a claim on which relief could be granted, and concluded that the ITC properly dismissed the complaint.
TRADEMARKS / RIGHT TO JURY TRIAL FOR DAMAGES / LIKELIHOOD OF CONFUSION
No Jury Trial for Trademark Infringement Claims
In finding a fair use defense and no “likelihood of confusion” in a cosmetics trademark infringement dispute, the US Court of Appeals for the 11th Circuit also considered, as an issue of first impression, whether the Seventh Amendment right to a trial by jury applies when a trademark plaintiff attempts to recover the defendant’s profits from the allegedly infringing goods. The Court concluded that the trademark plaintiff was not entitled to a jury because it was seeking remedies that were equitable in nature. Hard Candy, LLC v. Anastasia Beverly Hills, Inc., Case No. 18-10877 (11th Cir. Apr. 23, 2019) (Marcus, J).
Hard Candy is a Florida-based cosmetics company that licenses the registered mark HARD CANDY® in connection with a beauty line sold exclusively through Walmart, with annual sales of approximately $36 million. In 2018, Hard Candy sued Anastasia Beverly Hills, a California-based cosmetics company, when Hard Candy learned about the launch of Anastasia’s “Gleam Glow Kit” makeup palette that included a peachy-pink highlighter shade referred to as “hard candy.” (Anastasia herself would later testify that the color designation was inspired by the color of candies regularly received from her grandmother.) The shade designation appeared on the inside and back of the palettes that sold between 2015 and 2016 as a limited edition product through retailers such as Macy’s and Sephora. During that time, the “hard candy” shade designation also appeared throughout Anastasia’s marketing materials and social media campaigns.
In the district court, Hard Candy’s complaint was based on trademark infringement and unfair competition, and sought an accounting and disgorgement of Anastasia’s profits, statutory damages and a permanent injunction. Hard Candy, however, did not seek actual damages. Given that all of Hard Candy’s requested remedies were considered to be equitable in nature, the district court struck Hard Candy’s jury trial demand. After a bench trial, the district court found that there was no likelihood of confusion caused by Anastasia’s use of “hard candy” and also held that Anastasia made out a fair use defense to infringement. Hard Candy appealed as to each of the district court’s determinations, including the denial of a jury trial.
The Seventh Amendment right to a trial by jury has long been understood to extend only to suits requiring the determination of legal rights, as opposed to those where equitable rights and remedies alone were recognized. The Supreme Court of the United States’ two-part test to determine whether the Seventh Amendment right applies to a particular claim requires a court to examine (1) the nature of the action and (2) the remedy sought. In the current case, the 11th Circuit labeled the first prong “indeterminate” since trademark cases historically have been recognized at both law and equity, and thus focused on the second prong. The Court found it to be undisputed that Hard Candy’s demands for injunctive relief and related costs and fees were equitable remedies that would not entitle it to a jury trial. The Court therefore centered its analysis on Hard Candy’s request for an accounting of Anastasia’s profits from sales of the allegedly infringing pallets and a disgorgement of those gains.
Running through a series of historical jurisprudence and dicta on the issue, and citing equivalent decisions from the Sixth and Ninth Circuits, the 11th Circuit concluded that the specific accounting and disgorgement remedy requested by Hard Candy under the Lanham Act was equitable, and not legal, in nature. The Court was “unpersuaded” by Hard Candy’s argument that the Supreme Court decision in Dairy Queen v. Wood stands for the proposition that a claim for a money judgment is wholly legal in nature. The Court pointed out that despite the plaintiff’s “accounting” language used in its call for remedies in Dairy Queen, the Supreme Court found that case to be an action for “debt” or “damages,” which does implicate the right to a jury trial. Thus, as to Hard Candy’s claims, the second prong of the Supreme Court’s Seventh Amendment test—the nature of the remedy—was found to weigh “decidedly in favor of Anastasia,” and the 11th Circuit confirmed that the district court did not err in refusing Hard Candy’s jury trial demand.
Turning to Hard Candy’s challenge of the district court’s denial of its trademark infringement and unfair completion claims, the 11th Circuit determined that, under its seven-factor test from Lone Star Steakhouse & Saloon v. Longhorn Steaks, Hard Candy did not demonstrate a likelihood of consumer confusion with Anastasia’s use of the “hard candy” color designation. The Court focused primarily on the similarity-of-marks factor and compared the overall impressions that the marks create, which it found to favor Anastasia, since the company was not using “hard candy” as a trademark. Also, while not necessary to a finding of likelihood of confusion, the Court found the absence of any evidence of actual consumer confusion in this case to be “significant,” given the extensive promotion of the Anastasia product to an arguably similar consumer base. Finally, the Court affirmed the district court’s finding of a fair use defense in that Anastasia used the terms “hard candy” descriptively to refer to the color and sheen of the highlighter product along with other descriptively named shades.
TRADEMARKS / INFRINGEMENT
Gorilla Wars: Infringement but No Intent
The US Court of Appeals for the 11th Circuit affirmed a district court’s finding that the mark GORILLA GYM, used by defendant for indoor pull-up bars and accessories, infringed the mark GORILLA PLAYSETS, long used by the plaintiff to sell outdoor children’s playsets, but held that the evidence of willful intent to infringe—which consisted solely of the fact that defendant continued to sell the products after receiving plaintiff’s complaint—was insufficient. PlayNation Play Systems, Inc. v. Velex Corporation, Case. No. 17-15226 (11th Cir. May 21, 2019) (Wilson, J).
PlayNation has sold children’s outdoor playground equipment, including swing sets and attachable rings, ropes and swings, under the trademark GORILLA PLAYSETS since 2002, and has three federal registrations for the mark that it registered in 2004 and 2014. Velex later began to sell doorway pull-up bars and attachable accessories for children under the mark GORILLA GYM. Velex secured a trademark registration in the same class as PlayNation’s registrations in 2014. PlayNation sued for trademark infringement. After the district court conducted a bench trial, it found that Velex’s mark infringed PlayNation’s mark, awarded PlayNation damages and ordered that Velex’s registration be cancelled. Velex appealed.
The 11th Circuit affirmed the district court’s finding of infringement. While the district court found that all the likelihood of confusion factors except the defendant’s intent weighed in favor of a likelihood of confusion, the 11th Circuit explained that the most important factors are the strength of the mark and evidence of actual confusion. It therefore focused its analysis on those factors. The Court noted that the mark GORILLA PLAYSETS was strong because it was suggestive, that PlayNation had widely advertised and promoted its products under the mark since 2002, that PlayNation’s mark was incontestable because it had been registered for more than five years with the US Patent and Trademark Office (PTO), and that there was little third-party use of similar marks for similar goods.
The 11th Circuit also found persuasive the evidence of actual confusion—which consisted of two consumers’ testimony that they had mistakenly contacted Velex for customer service assistance with playsets they had purchased from PlayNation. The Court rejected Velex’s argument that the testimony of two “careless and uninformed” consumers, who at trial confused the names of the two companies and could not remember which name was on the packaging and website they looked at before calling Velex for customer service, was unpersuasive. The Court observed that the likelihood of confusion analysis only requires that consumers be “reasonably prudent,” not “the most careful consumer, who diligently research[es] and meticulously examin[es] the inner and outer packing to determine the provenance of the product she purchased.” The Court found that the evidence was extremely persuasive because “[t]he customers PlayNation identified are ultimate consumers of the product, to which we give special weight.”
Finally, the 11th Circuit rejected Velex’s argument that the PTO’s decision to register Velex’s trademark in 2014 had any preclusive effect. PlayNation had not challenged Velex’s registration before the PTO and thus had not litigated the merits of likelihood of confusion. Finding that the district court similarly did not err with regard to the other likelihood of confusion factors, the Court affirmed the finding of infringement and cancellation of Velex’s trademark.
The 11th Circuit did, however, reverse the district court’s holding that PlayNation was entitled to an accounting of Velex’s profits. An accounting is appropriate only where the defendant’s conduct is willful, the defendant was unjustly enriched, or an accounting is necessary to deter future conduct. The district court’s award of an accounting was based solely on the first rationale: it held that Velex’s infringement was willful because Velex continued to sell GORILLA GYM products after being served with PlayNation’s complaint. In reversing, the 11th Circuit held as a matter of law that the mere sale of allegedly infringing products after being served with a complaint was insufficient to prove willfulness. It remanded the damages issue to the district court to determine if there was other evidence of willfulness or other justifications for awarding an accounting..
Practice Note: The testimony of even one or two confused “ultimate consumers” persuasively demonstrates actual confusion and therefore trademark infringement. A plaintiff is well-served to try to secure such testimony when possible.
Post-Verdict Motion for Increased Damages Ends on a Sour Note
Addressing a trademark owner’s Rule 59(e) motion to amend the jury’s damage award, the US Court of Appeals for the Seventh Circuit held that the trademark owner was not entitled to an increased damages award after discovering that two of the defendants were not separate companies, but rather divisions of a third defendant. Barrington Music Products, Inc. v. Music & Arts Center, et al., Case No. 18-2945 (7th Cir. Mar. 26, 2019) (Bauer, J).
Barrington Music Products began using the VENTO trademark in connection with musical instruments in 2009, and in 2010 filed an application to register the mark. Guitar Center created a new brand of woodwind and brass instruments made by Eastman Music Company and started selling the instruments under the trademark VENTUS in 2011. In 2016, Barrington sued Guitar Center, Music & Arts Center and Woodwind & Brass as separate entities, as well as Eastman, for trademark infringement. At trial, the evidence established the following sales under the VENTUS marks:
- Music & Arts: $4,906,292
- Woodwind: $37,680
- Guitar Center: $3,228
The jury found that only the sales by Guitar Center were infringing and awarded Barrington $3,228 in damages. Barrington filed a Rule 59(e) motion seeking an amendment to the award of damages after it learned that Music & Arts and Woodwind were divisions of Guitar Center. After the district court denied the motion, Barrington appealed.
At the outset, the Seventh Circuit noted that Rule 59(e) motions are properly granted only if (1) the court committed a manifest error of law or fact, or (2) newly discovered evidence precluded entry of judgment. The Court further noted that a Rule 59(e) motion cannot be used by a party to “undo its own procedural failures” or to introduce new evidence that could or should have been presented at trial. The Court found that Barrington named Guitar Center, Music & Arts and Woodwind as separate defendants, an error that remained throughout the case, which resulted in a verdict form listing each defendant separately. As a result, the jury was asked to determine whether each named defendant infringed Barrington’s trademark and to list the amount of damages for each defendant. However, the jury determined that only Guitar Center’s sales were infringing, and Barrington provided no reason for the Court to conclude that the jury’s verdict would have been different if it had known that Music & Arts and Woodwind were divisions of Guitar Center. Accordingly, the Seventh Circuit affirmed the denial of Barrington’s motion.
Practice Note: Prior to filing, determine the relationship, if any, of all potential corporate defendants to ensure that the entities are properly named as defendants.
COPYRIGHTS / CLAIM PRECLUSION
Copyright Infringement Claims Precluded by Plaintiff’s Own Patent Lawsuit
The US Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the district court’s dismissal of claims of copyright infringement, violation of the Digital Millennium Copyright Act (DMCA) and breach of contract, finding preclusion of certain of those claims based on the plaintiff’s earlier patent infringement suit. Media Rights Technologies, Inc. v. Microsoft Corporation, Case No. 17-16509 (9th Cir. May 2, 2019) (Gould, J).
In 2013, Media Rights Technologies (MRT) brought a patent infringement lawsuit against Microsoft claiming that Microsoft developed a similar piracy detection technology after learning critical information regarding the technology from MRT and its digital rights management product called the Controlled Data Pathway (CDP). MRT voluntarily dismissed the patent suit with prejudice when the court, in a separate proceeding, declared one of the CDP patents invalid.
One year later, MRT filed a different suit against Microsoft for copyright infringement, violation of the DMCA and breach of contract based on allegations of reverse engineering and copying by Microsoft when MRT discovered its CDP copyright watermark in a large number of Microsoft products. The district court dismissed MRT’s entire complaint, citing claim preclusion based on the same nucleus of facts and much of the same evidence in both the patent and copyright infringement suits, with both suits involving intellectual property rights in the CDP software. MRT appealed.
The Ninth Circuit explained that claim preclusion bars a party in successive litigation from pursuing claims that were raised, or could have been raised, in a prior action. Here the test reduced to whether MRT’s patent infringement suit (1) involved the same claim or cause of action as the copyright suit, (2) reached a final judgment on the merits, and (3) involved identical parties or privies. Only the first prong of the test was at issue in MRT’s appeal, as well as the accrual timing of the claims or causes of action at issue.
Citing the Ninth Circuit’s 2017 holding in Howard v. City of Coos Bay, MRT argued that its copyright claims did not accrue until after it filed the patent infringement lawsuit, as preclusion does not apply to claims that accrue after the filing of the first action at issue. The Court, however, clarified the meaning of “accrue” under Howard, explaining that preclusion will apply to claims that were in existence and legally cognizable at the time of the first action.
The Ninth Circuit barred the copyright infringement claims, the DMCA claim and the claims for breach of contract that arose from the sale of Microsoft software products and had accrued before or at the time of MRT’s patent infringement suit. The Court found that all of the claims could have arisen from the same events (namely, Microsoft’s alleged misappropriation of the CDP technology) and that MRT could have reasonably investigated and discovered Microsoft’s alleged copying of MRT’s software so as to give rise to a claim for copyright infringement at the time of the patent lawsuit. Moreover, the Court found that MRT’s copyrights protected MRT’s exclusive right to use and sell the embodiment of its copyright in the CDP software, a right that was at issue in the patent lawsuit.
Under the Copyright Act’s separate-accrual rule, however, successive acts of infringement are each actionable new wrongs. Therefore, the Ninth Circuit determined that at the time of the patent infringement lawsuit, MRT could not have sued for copyright infringement with respect to post-patent lawsuit sales of allegedly infringing Microsoft products. As such, claim preclusion did not bar MRT’s separate and independent copyright infringement claims for those later sales of the Microsoft software. The DMCA and breach of copyright claims remained precluded, however, as those causes of action did not benefit from the separate accrual rule. In the end, the Ninth Circuit affirmed in part and reversed and remanded in part, with only MRT’s post-patent lawsuit copyright infringement claims surviving claim preclusion.
Supreme Court to Consider Abrogation of Sovereign Immunity Under Copyright Law
The Supreme Court of the United States granted certiorari in a sovereign immunity copyright case to consider the abrogation issue in the context of copyright law. Allen v. Cooper, Case No. 18-877 (S. Ct. June 5, 2019).
Issue Presented: Whether Congress validly abrogated state sovereign immunity via the Copyright Remedy Clarification Act in providing remedies for authors of original expression whose federal copyrights are infringed by states.
Issue Restated in Opposition: The Copyright Remedy Clarification Act purports to abrogate the states’ sovereign immunity for alleged violations of federal copyright law. Did the court of appeals correctly hold that the Copyright Remedy Act’s abrogation of state sovereign immunity was invalid?
At the district court, the State’s motion to dismiss a copyright infringement action based on a sovereign immunity defense was denied based on the 1990 Copyright Remedy Act. Under the Act, any State, any instrumentality of a State, and any officer or employee of a State or instrumentality of a State acting in his or her official capacity shall not be immune, under the 11th Amendment of the Constitution of the United States or under any other doctrine of sovereign immunity, from suit in federal court by any person, including any governmental or nongovernmental entity, for a violation of any of the exclusive rights of a copyright owner provided by sections 106 through 122, for importing copies of phonorecords in violation of section 602, or for any other violation under this title. (Emphasis supplied). 17 USC § 511(a).
In dismissing the State’s motion, the district court declined to follow the US Court of Appeals for the Fifth Circuit, as well as several district courts that have found the abrogation clause of the statute to be invalid. On appeal, the US Court of Appeals for the Fourth Circuit reversed, explaining that its “conclusion is required by [the 1999 Supreme Court decision in] Florida Prepaid” and that Congress did not have the authority to abrogate immunity from copyright infringement under the Copyright Clause, Commerce Clause and Section 5 of the 14th Amendment.
Practice Note: Although Florida Prepaid arose under the Patent Law, almost all district courts that have addressed the issue of abrogation under the Copyright Law have followed it. It should be noted that the Supreme Court has significantly changed since Florida Prepaid was decided (5–4) in 1999. Only Justice Thomas remains from the Florida Prepaid majority, and only Justices Ginsburg and Breyer remain from the dissent. On a related note, on June 14, 2019, the Federal Circuit decided an appeal in a state sovereign immunity case—Regents of University of Minnesota v. LSI Corp., Case No. 18-1559—where a split Patent Trial and Appeal Board panel ruled that the State waived immunity from inter partes review (IPR) when it filed an infringement suit using the patent in IPR. In that case, the Federal Circuit ruled that state sovereign immunity does not apply in IPR, rejecting arguments to the contrary by the University of Minnesota.
Supreme Court to Address Whether Copyright Protection Available for Annotated State Code
The Supreme Court of the United States granted the State of Georgia’s request to address whether it can claim copyright ownership over annotations made to its official legal code. State of Georgia, et al. v. Public.Resource.org, Inc., Case No. 18-1150 (S. Ct. June 24, 2019).
The question presented is:
Whether the government edicts doctrine extends to—and thus renders uncopyrightable—works that lack the force of law, such as the annotations in the Official Code of Georgia Annotated.
The State of Georgia provides the text of its legal code available, but also compiles and produces the Official Code of Georgia Annotated (OCGA) with case notations, editor’s notes, excerpts from law review articles and other research references by Lexis, under a contract with the Georgia Revision Commission, an arm of the Georgia General Assembly. The contract specifies that the Commission owns the copyright to the OCGA and grants Lexis the exclusive right to publish copies of the OCGA.
The nonprofit group Public.Resource.Org, Inc. (PRO), which is dedicated to providing free access to public documents, purchased a copy of the OCGA and distributed it via its free website. The Commission sued PRO for copyright infringement, and the district court ultimately granted the Commission’s motion for summary judgment. PRO appealed to the US Court of Appeals for the 11th Circuit, which reversed, finding that the OCGA could not be copyrighted because the OCGA was approved by the Georgia General Assembly. The 11th Circuit concluded that the true “author” of the OCGA was “the people” and that the OCGA was in the “public domain” (IP Update, Vol. 21, No. 11). The State of Georgia appealed to the Supreme Court.