Lighting Ballast Control LLC v. Philips Elecs. North Am. Corp., 2013 U.S. App. LEXIS 9518 (Fed. Cir.) (9/13/13). Whether the Federal Circuit should no longer provide de novo review of claim construction rulings.
On September 13 the Federal Circuit, sitting en banc, heard argument on whether it should continue to subject all district court claim constructions to de novo review, or whether some other standard such as clearly erroneous should apply.
In taking the case en banc, the Circuit asked the parties to brief three questions:
- Should the Federal Circuit overrule Cybor Corp. v. FAS Techs. Inc., 138 F.3d 1448 (Fed. Cir. 1998) [where the Circuit held that "as a purely legal question, we review claim construction de novo on appeal including any allegedly fact-based questions relating to claim construction."]?
- Should the Federal Circuit afford deference to any aspect of a district court's claim interpretation?
- If so, which aspects should be afforded deference?
Based upon reports of oral argument from Patently-O and the BNA, I can report the following:
The attorneys arguing the case agreed that de novo review is not the appropriate standard of review for all aspects of claim construction. However, that's where their agreement ended. Lighting Ballast argued that the court should completely abandon its practice of de novo review and afford deference to all aspects of claim construction decisions; Universal Lighting Technologies (the appellee) argued that deference is appropriate only in resolving "disputed issues of historical fact." The PTO echoed ULT's stance.
Despite both parties arguing that Cybor should be modified to some degree and many of the Federal Circuit judges having expressed that belief in prior cases, the tone of the arguments was one of skepticism. Three main topics were addressed:
- National Uniformity Concerns Judge Lourie asked whether deference would disrupt the national uniformity of patent law that the Federal Circuit was designed to achieve. It was admitted that the possibility of non-uniform claim construction decisions would be a negative outcome of overruling Cybor, but FRCP 52(a), dealing with findings and conclusions by the district court, is in tension with a pure de novo review of claim construction. The Solicitor of the PTO argued that any non-uniformity that occurred in light of a lowered deference standard would be a benefit to the public because it would result in reduced patent scope in some parts of the country. While that is obviously not ideal, the Solicitor's point was that the concern should not be an overriding one for the court since any non-uniformity is a benefit, not a burden, to the public.
- Line-Drawing-Problems between Issues of Fact and Issues of Law. The issue that was the focus of much of the argument was whether a deferential standard was workable. Judge Moore was troubled with the solution offered by ULT and the PTO. She asked for a precise definition of a "historical fact" no less than three times, and never received an answer that satisfied her. Because claim construction is ultimately an effort to decipher the meaning that a person with ordinary skill in the art would ascribe to a claim term, she feared that every claim construction decision (other than when the patentee acts as his own lexicographer) would be considered a question of fact. Despite the PTO and appellee's repeated assurances that their preferred level of deference would amount to no more than a "small change" in the law, Judge Moore and others (including Judge Dyk, Lourie, and Reyna) seemed troubled by the potential implications of the change. Judge Lourie asked whether every case would now involve litigants attempting to frame legal determinations as factual determinations.
- The Impact of Stare Decision, Judge Taranto repeatedly asked about the court's ability to revisit a clearly established en banc precedent with no intervening Supreme Court case or other change in the law. Neither side seemed to have an answer to his question.
Judge O'Malley attempted to clarify the position of the PTO and ULT. She interpreted their position as one in which a district court judge's decision as to the historical meaning of a claim that was based on extrinsic evidence would be given deference, but if that interpretation runs counter to the Federal Circuit's de novo review of the intrinsic evidence, the district court's decision would not impact the case. This middle position was clearly not satisfactory to a number of judges
Given how disruptive the de novo review has been to patent litigation, I certainly hope that the Circuit heightens its standard of review. But unless they come up with something clear, we know it can just result in more litigation. When, during argument, the discussion turned to trying to find a way to disentangle factual issues from legal ones, Judge Dyk apparently commented "let's just experiment and see how difficult it would be." I assume that was made tongue-in-cheek.
While it seems like reversals on claim construction still hover around 50%, a study by Professor Peter Menell of Berkeley Law School, suggests that the Circuit has in fact been applying a more deferential standard, albeit informally. He says that there has been a significant drop in reversal rate that has occurred over the past decade: from a high of 44% of terms in 2004 to 20% reversed in 2011. Frankly I find that hard to believe. In the cases I see, it seems like time and time again the claim construction has been changed, resulting in remands for new trials, reconsideration of injunctions and reassessment of damages. Given that this is such an important issue, and that this is en banc, I don't think we should expect a decision on this until toward the end of the Circuit's term next Spring.
CLS Bank v. Alice Corp., (en banc) 717 F.3d 1269 (Fed. Cir. 2013) (5/10/13). A 5-5 divided Federal Circuit punts.
In a case that we all hoped might clear things up as to the patentability of computerized methods, the Federal Circuit en banc affirmed that the claims at issue did not constitute patentable subject matter. However, since the ten judges in the en banc panel issued seven different decisions, none of which was supported by a majority of the judges, the case provides little guidance. Seven of the ten agreed that the method and computer readable medium claims lacked subject matter eligibility. Eight of the ten judges felt that the claims should rise and fall together regardless of whether they were method, medium or system claims. The court divided 5-5 as to whether the computer system claims at issue were patent eligible.
Judge Lourie's opinion had five judges behind it and it provided what is probably the best guidance. This opinion provided the normal verbiage about not permitting patents to preempt natural law, natural phenomenon, or abstract ideas. "What matters is whether a claim threatens to subsume the full scope of a fundamental concept, and when those concerns arise, we must look for meaningful limitations that prevent the claim as a whole from covering the concept's every practical application."
Alice Corp's claims are drawn to methods of reducing settlement risk by effecting trades through a supervisory institution empowered to verify that both parties can fulfill their obligations before allowing the exchange to be completed. The court determined that this is an abstract idea because it is a "disembodied" concept that is a basic building block of human ingenuity, untethered from any real-world application."
CLS describes that concept as "fundamental and ancient" and, citing Bilski and Alappat, argued that a basic building block of human ingenuity, untethered from any real-world application, is an abstract idea is not patent-eligible subject matter.
Referring to five Supreme Court decisions: Gottschalk v. Benson, 409 U.S. 63 (1972); Parker v. Flook, 437 U.S. 584 (1978); Diamond v. Diehr, 450 U.S. 175 (1981); Bilski v. Doll, 556 U.S. 1268 (2009); and Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012), Lourie first looked to see whether the claim falls within one of the four statutory classes—process, machine, manufacture, or composition of matter. If an exception such as the idea exception is implicated, then we need to "identify and define whatever fundamental concept appears wrapped up in the claim." Lourie noted that precedent does not require claim construction prior to a Section 101 analysis, but he said such construction "may be especially helpful" to unambiguously identify the idea.
"With the pertinent abstract idea identified, the balance of the claim can be evaluated to determine whether it contains additional substantive limitations that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself."
Lourie's opinion tied the "inventive concept" of the Mayo opinion to such substantive limitations. "An ‘inventive concept' in the §101 context refers to a genuine human contribution to the claimed subject matter." Echoing Mayo, Lourie added, "Limitations that represent a human contribution but are merely tangential, routine, well-understood, or conventional, or in practice fail to narrow the claim relative to the fundamental principle therein, cannot confer patent eligibility."
He said that Mayo‘s use of the terms "routine" and "conventional" was meant "to indicate what qualities added to a natural law do not create patent-eligible subject matter." In contrast, he said, analysis under Sections 102 and 103 looks at "whether particular steps or physical components together constitute a new or nonobvious invention."
After identifying the portion of the claim directed to an abstract idea, Judge Lourie then looked to see whether "the balance of the claim adds ‘significantly more.'" Answering that question in the negative, the court found the claims lack eligibility.
Writing a dissent, Judge Rader noted that "nothing said beyond our [per curiam] judgment has the weight of precedent." The per curiam judgment merely stated: "Upon consideration en banc, a majority of the court affirms the district court's holding that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101. An equally divided court affirms the district court's holding that the asserted system claims are not directed to eligible subject matter under that statute." In his dissent, Judge Rader, relying on a review of the record surrounding passage of the 1952 Act, explained that Section 101 was intended to be very broad in scope. Consequently, "a claim embodying the machine itself, with all its structural and functional limitations, would rarely, if ever, be an abstract idea."
Judge Moore criticized Lourie's opinion, saying: "If the reasoning of Judge Lourie's opinion were adopted, it would decimate the electronics and software industries," she said. "There has never been a case which could do more damage to the patent system than this one."
Judge Prost faulted the majority for misreading Mayo: "The majority resists the Supreme Court's unanimous directive to apply the patentable subject matter test with more vigor," "Worse yet, it creates an entirely new framework that in effect allows courts to avoid evaluating patent eligibility under §101 whenever they so desire." Prost further criticized the court for not heeding the Mayo court's instruction, to "inquire whether the asserted claims include an inventive concept."
Judge Newman essentially viewed the court's multiple opinions in the case as a failure: "[W]e have propounded at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive for innovation," She contended that all attempts to agree upon an appropriate Section 101 analysis have failed because "Section 101 is not the appropriate vehicle for determining whether a particular technical advance is patentable; that determination is made in accordance with the rigorous legal criteria of patentability." She expressed that "an inclusive listing of the ‘useful arts' " is the only threshold of Section 101, and that analysis under the patentability sections of the Patent Act would "eliminate claims that are ‘abstract' or ‘preemptive.' "
In view of CLS v. Alice, a good question is what should we do now in drafting patent claims before either the Supreme Court or Congress provides clear guidance. It seems to me the only thing we can do is continue to draft claims to cover computer-related inventions from a variety of perspectives – as computer systems and as methods, and at varying levels of specificity. The problem of course is that the claims we are drafting now would not be evaluated by the courts for at least 5 years.
Ultramercial Inc. v. Hulu L.L.C., 722 F.3d 1335 (Fed. Cir. 2013) (6/21/13). The panel disagrees on the test but agrees that this method for distributing products over the Internet sets forth patentable subject matter.
A month after deciding CLS, the Federal Circuit came down with its decision in Ultramercial. Here the court agreed 3-0 that the claims at issue to a "method for distribution of products over the Internet via a facilitator" did in fact constitute patentable subject matter. Therefore, the court held that the district court's dismissal of the case should be reversed. The panel, made up of Judges Rader, Lourie and O'Malley, of course vehemently disagreed on the appropriate tests on determining whether there was patentable subject matter.
This case came to the Circuit in an unusual way in that the district court dismissed the case under Fed.R.Civ. P. 12(b)(6) because the claim did not recite patentable subject matter. The Federal Circuit reversed and remanded, and a petition for certiorari was filed. Shortly thereafter the Supreme Court decided Mayo, holding that steps of the medical diagnostic method claims at issue failed to "add enough" to the "inventive concept" of the asserted method patents—the correlations between metabolite levels and effectiveness of the drug. The Supreme Court vacated the Federal Circuit's opinion and remanded the case. On remand, the Federal Circuit denied a motion for en banc hearing since it was in the process of considering CLS.
Judge Rader had written the court's 2011 Ultramercial opinion so he authored the remanded decision as well. He started by noting that claim construction had not been conducted because the case was dismissed under 12(b)(6). While saying that the claims must be construed in the light most favorable to the plaintiff, he stated that a motion to dismiss should rarely be granted since claim construction often involves issues of fact, and we must always consider the presumption of validity. But he then concluded that construing every disputed term of every asserted claim was not a wise use of judicial resources, and he jumped right into a Section 101 discussion.
He first referenced the Supreme Court's two method claim decisions in the past three years, and Mayo. Citing Bilski he noted: "a claim is not patent eligible only if, instead of claiming an application of an abstract idea, the claim is instead to the abstract idea itself. The inquiry here is to determine on which side of the line the claim falls: does the claim cover only an abstract idea, or instead does the claim cover an application of an abstract idea?" He then cited Mayo for the proposition that "the relevant inquiry is whether a claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea."
Judge Rader then brought up the Mayo recitation of an "inventive concept" that must be accompanied by steps that are more than "routine" or "conventional" to those in the field to be patent eligible, and noted Parker v. Flook's suggestion that an abstract idea is to be ‘treated as though it were a familiar part of the prior art.' "
Turning to the claims at issue, Judge Rader found: "This court does not need the record of a formal claim construction to see that many of these steps require intricate and complex computer programming." A claim to "sell advertising using a computer" would pre-empt "all forms of advertising, let alone advertising on the Internet," but a "particular process" is at issue here.
Judge Rader's opinion cites In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994), as a reminder that programming creates a special purpose machine. "In other words, a programmed computer contains circuitry unique to that computer." It also distinguished a ruling of patent ineligibility of internet-related claims in CyberSource Corp. v. Retail Decisions Inc., 654 F.3d 1366 (Fed. Cir. 2011)."Unlike the claims in CyberSource, the claims here require, among other things, controlled interaction with a consumer via an Internet website, something far removed from purely mental steps."
Judge Lourie, in his concurring opinion, chastised the majority for applying its own Section 101 standards rather than following the Supreme Court's lead in Mayo and the plurality's views in CLS Bank.
Petitions for Certiorari filed in both CLS and Ultramercial
Petitions for Cert will be decided by the Supreme Court soon, as the oppositions to the petitions have now been filed. One big difference in the two cases is that Ultramercial (now sometimes referenced as Wild Tangent since that is the defendant who filed the petition) was decided on a motion to dismiss. Ultramercial might permit the Supreme Court to comment on when it may be appropriate to grant a motion to dismiss on the basis of patent ineligibility. But it certainly is possible that both cases would be accepted. However, we can't assume any handling of these cases will clear the air. While the possibility of an evenly split Supreme Court is not likely to happen, we never know whether the Supreme Court is really going to examine the claims at issue or is just going to voice broad policy remarks that will be difficult to apply to particular cases.
Accenture Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336 (Fed. Cir.2013) (9/5/13). Claims directed to a computer implemented system for handling insurance claims did not recite patentable subject matter.
In a 2-1 decision the Federal Circuit decided that Accenture's claims directed to a computer implemented system for handling insurance claim processing tasks did not recite patentable subject matter. The majority opinion, written by Judge Lourie, repeatedly cited to his opinion in CLS. Judge Rader, in dissent, voiced the same concerns he expressed in his dissent in CLS. The case simply demonstrates how the likelihood of success on appeal depends more on the panel that is drawn rather than the claims at issue. It shows the need for further guidance, which hopefully will come if CLSand/or Ultramercial are accepted by the Supreme Court, legislative changes are made, or new judges joining the Federal Circuit will change the balance in a noticeable way.
Association for Molecular Pathology (AMP) and ACLU v. USPTO and Myriad Genetics, 133 S. Ct. 2107 (2013) (6/13/13). Isolated DNA is not patent eligible, while synthetic DNA, such as cDNA.
A unanimous Supreme Court held that isolated DNA is not patent eligible, while synthetic DNA, such as cDNA, is. This case reverses a split decision by the Federal Circuit and will change the long-established policy of the PTO in granting such patents. While the ruling was a disappointment to many in the field, as well as to their patent attorneys, it is important to note that the case did not involve method claims, patents on new applications of knowledge about the BRCA1 and BRCA2 genes, or the patentability of DNA in which the order of the naturally occurring nucleotides has been altered. However, method claims were dealt with in the recent Mayo case. Mayo v Prometheus , 566 U.S. ____ (2012).
Myriad obtained patents after discovering the precise location and sequence of the BRCA1 and BRCA2 genes, mutations of which can dramatically increase the risk of breast and ovarian cancer. This permitted Myriad to develop tests for detecting mutations for determining the risk of cancer. Myriad's patents covered the right to isolate an individual's BRCA1 and BRCA2 genes and to synthetically create BRCA composite DNA. The district court entered summary judgment, finding the patents invalid under 35 U.S.C. 101 because they covered products of nature. On remand following the Supreme Court's decision in Mayo, the Federal Circuit found both isolated DNA and composite DNA patent-eligible.
The Supreme Court affirmed in part and reversed in part, noting that the case did not involve "method claims" for new applications of knowledge about the genes or the patentability of DNA in which the order of the naturally occurring nucleotides has been altered. Myriad's claims were not saved by the fact that isolating DNA from the human genome severs chemical bonds that bind gene molecules together. The claims were not expressed in terms of chemical composition, nor did they rely on the chemical changes resulting from the isolation of a particular DNA section. Composite DNA, however, was not found to be a product of nature since a lab technician unquestionably creates something new when introns are removed from a DNA sequence to make composite DNA.
Patent Office Changes Its Standards In Determining Patentable Subject Matter
Shortly after Myriad was decided, the PTO announced it was changing the test for determining whether a patent application directed to DNA-related inventions are considered patentable subject matter.
As of today, naturally occurring nucleic acids are not patent eligible merely because they have been isolated. Examiners should now reject product claims drawn solely to naturally occurring nucleic acids or fragments thereof, whether isolated or not, as being ineligible subject matter under 35 U.S.C. § 101. Claims clearly limited to non-naturally-occurring nucleic acids, such as a cDNA or a nucleic acid in which the order of the naturally occurring nucleotides has been altered (e.g., a man-made variant sequence), remain eligible. Other claims, including method claims, that involve naturally occurring nucleic acids may give rise to eligibility issues and should be examined under the existing guidance in MPEP 2106.
PATENT CASES TO BE HEARD IN THE SUPREME COURT
Medtronic Inc. v. Boston Scientific Corp., 2013 U.S. LEXIS 7390 (Supreme Court 2013) (10/15/13).
In a case presented yesterday at the Supreme Court, Medtronic and Boston Scientific argued about the burden of proving patent infringement. Medtronic had licensed defibrillator patents that are now controlled by Boston Scientific as exclusive licensee. Medtronic's license gives it the right to challenge the patent in court even while still under license. That right to challenge is also supported by the Supreme Court's decision in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007). In a 2007 court filing, Medtronic did challenge the license – alleging that its new products did not infringe the patents in question.
Normally, the patentee has the burden of proving infringement, but the Federal Circuit held instead that the burden shifts to the declaratory judgment plaintiff when the case involves a licensee-in-good-standing suing for declaratory judgment of non-infringement. The Supreme Court will now consider whether that burden shift is appropriate.
The Supreme Court has Accepted two 2012 decisions on damages in patent cases
Icon Health and Fitness Inc. v. Octane Fitness LLC, 496 Fed. Appx. 57 (Fed. Cir. 2012) (10/24/12).
Just last month the Court granted cert in Octane. The Federal Circuit had affirmed a lower court's ruling in an Oct. 24, 2012, unpublished opinion. The petition presents the following question:
Does the Federal Circuit's promulgation of a rigid and exclusive two-part test for determining whether a case is "exceptional" under 35 U.S.C. §285 improperly appropriate a district court's discretionary authority to award attorney fees to prevailing accused infringers in contravention of statutory intent and this Court's precedent, thereby raising the standard for accused infringers (but not patentees) to recoup fees and encouraging patent plaintiffs to bring spurious patent cases to cause competitive harm or coerce unwarranted settlements from defendants?
Highmark, Inc. v. Allcare Health Management Systems Inc., 687 F.3d 1300 (Fed. Cir. 2012) (8/7/12).
The issue before the Court here is when deference needs to be given to a lower court judgment regarding an exceptional case finding under 35 USC 285.
The petition asks:
The Patent Act provides that a case is "exceptional" if it is objectively baseless and brought in bad faith. After living with this case for more than six years, the district court found that it was objectively baseless and brought in bad faith, and it awarded fees. Over a strong dissent, a Federal Circuit panel reversed, holding that a district court's objective baselessness determination is reviewed "without deference." The Federal Circuit denied rehearing en banc by a vote of six to five. One of the two pointed dissents from that denial accurately observed that the decision below "deviates from precedent . . . and establishes a review standard for exceptional case findings in patent cases that is squarely at odds with the highly deferential review adopted by every regional circuit and the Supreme Court in other areas of law."
Other significant cases where petitions for cert have been filed and may be accepted
Limelight v. Akamai The issue that would be decided is whether inducement requires underlying direct infringement by a single actor. The Federal Circuit said "no."
Hyundai Motor America, Inc. v. Clear with Computers, LLC. This is a follow-up to the Supreme Court's 2011 decision in Microsoft v. i4i where the court held that invalidity defenses must be proven with clear and convincing evidence. That decision included a concurrence by Justice Breyer indicating that questions of law such as obviousness need not be proven with clear and convincing evidence. "The question presented is whether, following i4i, a district court may … instruct a jury to apply the heightened 'clear and convincing' standard not only to disputed factual aspects of an invalidity claim, but also to the legal aspects of such a claim - including the ultimate question of a patent's invalidity."
Sony v. 1st Media The case challenges the strict requirements of Therasense as to violation of the duty of disclosure.
Nautilus v. Biosig The case questions whether the "insolubly ambiguous" standard for indefiniteness is overly strict.
Saffran v. Johnson & Johnson The patentee essentially asks the Supreme Court to decide the issue before the en banc Federal Circuit in Lighting Ballast Control; i.e., whether the Federal Circuit should have given deference to the district court's factual findings in construing the patent claims. This petition is something of a place-holder to give the patentee time to see the outcome of Lighting Ballast.
Artesyn Technologies, Inc. v. SynQor, Inc. The losing defendant has asked that the Supreme Court tell the Federal Circuit to "Follow KSR" and also "Follow Global-Tech" In the similar pending petition of Arthrex, Inc. v. Smith & Nephew, Inc., the petitioner asks for a further definition of "willful blindness" for inducement.
Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. This case focuses on when lost-sales outside of the US can be captured under US law. Here, the patentee argues that those sales should be accounted-for when they are "direct and foreseeable result of patent infringement inside the United States."
THE OBVIOUSNESS INQUIRY
Leo Pharmaceutical Products, Ltd. v. Rea, 717 F.3d 1255 (Fed. Cir. 2013). Give sufficient weight to the objective indicia when evaluating obviousness.
This is a pre-AIA decision examining the PTO's now-renamed Board of Patent Appeals and Interferences in an inter partes reexamination. Here the Board's decision on claim construction was reversed, but the decision is significant because of Judge Rader's extended discussion of how obviousness should be decided. In short, he held that the Board had given inadequate weight to the objective indicia of non-obviousness. The case is revealing in that it shows that the assessment of objective indicia of non-obviousness in a patent reexamination proceeding is the same is in the district court. This same rationale will of course apply to Post-Grant Reviews and other inter partes challenges provided by the AIA.
In this case the patent claims a storage stable and non-aqueous pharmaceutical composition used to treat skin conditions such as psoriasis. Prior to the invention, it was well known that a combination of Vitamin-D along with a corticosteroid could be an effective treatment. However, no one had been able to manufacture a storage stable form of the combination. This was challenging because the stable forms of the active ingredients prefer different pH levels. To achieve the storage stable results, Leo added a solvent to the mixture. The claim identifies the solvent in a Markush group that includes thousands of potential compounds.
The PTO Board found the patent claims to be obvious in light of a combination of three prior art references, holding that it would have been obvious for someone of ordinary skill to take the prior art combination of Vitamin-D and corticosteroids and add the claimed solvent in order to achieve storage stability.
On appeal, the Federal Circuit criticized the Board for failing to give much credit for the patentee's identification of the problem (that a stable form should be designed). The prior art did not recognize the problem but rather "either discouraged combining vitamin D analogs and corticosteroids … or attempted the combination without recognizing or solving the storage stability problems." Leo also presented evidence that, at the time of the invention, researchers were being warned that vitamin D should not be combined with other drugs requiring a low pH (e.g., corticosteroids)." Moreover, although the patentee claimed a wide variety of solvents, there were many other solvents available to try and the PTO did not provide any explanation of why the ones claimed would have been obvious to try. According to the court, obviousness law recognizes an important distinction between combining known options into "a finite number of identified, predictable solutions," KSR, and "merely throwing metaphorical darts at a board" in hopes of arriving at a successful result.
The opinion then turned to the Board's analysis of the objective indicia of nonobviousness. The Board reasoned that "the strong case of obviousness outweighs the experimental evidence and testimony about the advantages of the claimed composition." Contrary to the Board's conclusion, the Circuit held that the objective indicia, in concert with the entire obviousness analysis, present a compelling case of nonobviousness. In fact, the objective indicia of nonobviousness shows that the Board's analysis regarding the claimed combination was colored by hindsight.
Judge Rader noted that the Circuit has emphasized that consideration of the objective indicia is part of the whole obviousness analysis, not just an afterthought. When an applicant appeals an examiner's objection to the patentability of an application's claims for obviousness, the PTO necessarily has the burden to establish a prima facie case of obviousness which the applicant then rebuts. However, during inter partes reexamination, the Board is reviewing evidence of obviousness—including objective indicia—submitted by two adversarial parties for the claims of an issued patent. Thus, the Board should give the objective indicia its proper weight and place in the obviousness analysis, and not treat objective indicia of nonobviousness as an afterthought.
In this case, the court held that unexpected results are useful to show the "improved properties provided by the claimed compositions are much greater than would have been predicted." In re Soni, 54 F.3d 746, 751 (Fed.Cir.1995). This record shows "extensive experimental evidence" of unexpected results that contradict the Board's obviousness finding. The Board concluded that the "unexpected results" claimed by Leo were not surprising or unexpected, but Judge Rader determined that substantial evidence does not support the Board's conclusion.
The court then turned to commercial success, and noted that the claimed invention is the first FDA-approved drug to combine vitamin D and corticosteroids into a single formulation for topical application. While FDA approval is not determinative of nonobviousness, it can be relevant in evaluating the objective indicia of nonobviousness. Knoll Pharm. Co., Inc. v. Teva. Pharm. USA, Inc., 367 F.3d 1381, 1385 (Fed.Cir.2004). Here, FDA approval highlights that Leo's formulation is truly storage stable, something that the prior art formulations did not achieve.
The court found that long felt but unsolved need also supported a finding of nonobviousness. The length of the intervening time between the publication dates of the prior art and the claimed invention can qualify as an objective indicator of nonobviousness. See Ecolochem, Inc. v. S. Cal. Edison Co., 227 F.3d 1361, 1376–77 (Fed.Cir.2000). Here, the researchers were aware of the benefits of using both vitamin D and corticosteroids in the treatment of psoriasis, taught by Dikstein in 1986, and a patent to Turi, issued in 1978. Yet, it was not until the ′013 patent's filing in 2000— twenty-two years after Turi and fourteen years after Dikstein-that the solution to the long felt but unsolved need for a combined treatment of vitamin D and corticosteroid was created. According to the Circuit, the intervening time between the prior art's teaching of the components and the eventual preparation of a successful composition speaks volumes to the nonobviousness of the ′013 patent.
In conclusion, viewed through the lens of the objective indicia as opposed to the hindsight lens used by the Board, the court held that the Leo patent would not have been not obvious over Turi in combination with Dikstein or Serup.
Plantronics, Inc. v. Aliph, Inc., 724 F.3d 1343 (Fed. Cir. 2013) (7/31/13). Be careful with your responses to requests for restriction.
On summary judgment the district court found that a headset accused of infringing a utility patent was not infringed and that the patent in suit was invalid. The Federal Circuit reversed on both grounds, holding that an election did not in this case narrow the scope of coverage, and that the district court had not given adequate weight to the objective indicia of nonobviousness that supported patentability.
During prosecution, the PTO issued a restriction requirement, and Plantronics elected to limit the claim scope to claim species of "Figures 1a and 1b." Those figures both show the headset stabilizer support as an elongated member, while other non-elected species were structurally different in that they did not include the elongated member. The district court relied upon that the restriction/election to construe "stabilizer support" as an elongated member that is longer than it is wide. On appeal, the Federal Circuit rejected that claim scope narrowing because the reason for the restriction requirement was not necessarily the elongated structural difference.
Judge Wallach held that the PTO's restriction requirement did not suggest that the different inventions were based on differences in structure (i.e., "elongated" versus an "arch"). According to the court: "The election of an invention in response to an ambiguous restriction requirement in turn cannot be said to provide any guidance forming a basis for narrowing a broadly drafted claim." In this case, neither the PTO nor Plantronics made any particular remarks regarding the differences in structure. This exchange with the PTO was found by the court not to amount to anything clear or unambiguous that disclaimed claim scope otherwise encompassed by the broadly drafted claims.
Therefore, while the Circuit did not find that the restriction/response limited claim scope in this case, it did suggest that an election might in some cases limit the scope of the claims, so anyone responding to a restriction requirement should take care not to provide anything that might suggest that the reason for the restriction was due to specific features found in the elected/non-elected species.
As to the district court's summary judgment ruling that the patent claims were obvious, the Federal Circuit vacated, based upon its feeling that the evidence was not sufficiently clear for such a ruling as a matter of law. Specifically, the Circuit ruled that the district court erred in (1) failing to identify the motivation for combining prior art references and (2) adequately considering the objective indicia that relate to obviousness.
Judge Wallach first noted that it is often the case that combination inventions may be deemed nonobvious even when all of the claim elements are individually found in the prior art. For example, in KSR v. Teleflex, the Supreme Court noted that there must also be some reasoning as to why someone in the art would seek to combine the references in the manner claimed. That motivation to combine may be found explicitly or implicitly in market forces, design incentives, or by considering the background knowledge, creativity, and common sense of the person of ordinary skill in the art.
Although KSR added "flexibility" and "common sense" to the process, the motivation must still be based on evidence. Here, the district court indicated that "common sense" serves as the motivation but Judge Wallace found that explanation insufficient without more extensive reasoning and with evidentiary support. As the court wrote in Mintz, "the mere recitation of the words 'common sense' without any support adds nothing to the obviousness equation."
The opinion then turned to the objective indicia of nonobviousness, noting that commercial success, copying, or prior failures could weigh against a KSR-style finding of common-sense motivation to combine. While the district court apparently did consider the patentee's evidence regarding copying and commercial success, the Circuit held that the district court's decision provided insufficient written analysis of the patentee's evidence. In addition the lower court had mis-ordered its analysis by first finding a prima facie case of obviousness and then considering whether the objective factors negate that original conclusion. Rather, according to Circuit panel, the objective indicia of nonobviousness must be considered prior to reaching an obviousness conclusion. Citing to In re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent Litig., 676 F.3d 1063, 1076 (Fed. Cir. 2012), the significance of this fourth Graham factor cannot be overlooked or be relegated to "secondary status."
In concluding, the Circuit held that it was not clear from the record that the district court had resolved all potential factual issues, such as the objective indicia, in favor of the non-moving party. Here that would have required that the objective indicia supported patentability. As such, the legal determination of obviousness did not appear to be sufficiently supported for a summary judgment determination of obviousness.
ArcelorMittal France v. AK Steel Corp., 700 F.3d 1314 (Fed. Cir. 2012) (11/30/12). Another case reversed for closer consideration of objective indicia.
In this case the Federal Circuit panel reversed the district court's claim construction and remanded the case for a new trial. In so doing, the panel ordered the lower court to reconsider the jury instructions relating to commercial success. The district court's claim construction had been so narrow that the jury instruction made it difficult for Arcelor to establish a nexus between the sale of a number of its systems and commercial success that would support nonobviousness. When construction was broadened by the Circuit, the other systems now had to be considered as objective indicia supporting nonobviousness.
Bayer Healthcare Pharmaceuticals Inc. v. Watson Pharmaceuticals Inc., 2013 U.S. App. LEXIS 16609 (Fed. Cir.) (4/16/13). Motivation to combine prior art references is created by the recognition in those references that the problem solved by the patent exists.
In this case, the opinion by Judge Lourie relied on the holding in KSR that a motivation to combine prior art references is created by the recognition in those references that the problem solved by the patent exists. KSR International Co. v. Teleflex Inc., 550 U.S. 398 (2007). This resulted in the remand of the district court's summary judgment of nonobviousness regarding a patent directed to a regimen for combining contraceptive pill usage with a placebo.
The prior art cited by the generic drug makers contained either references to the dosage or the regimen, but not both. Some of the references, however, identified the problem Bayer was intending to solve. An express motivation to combine the references, the Circuit said, was established by the recognition of the problem within the references.
It will be recalled that in KSR the Supreme Court criticized the Federal Circuit's prior test that required that a "teaching, suggestion, or motivation" to combine be explicitly stated in the prior art. As the Supreme Court said in KSR: "any need or problem known in the field of endeavor at the time of invention and addressed by the patent can provide a reason for combining the elements in the manner claimed."
Further, in rejecting Bayer's arguments based on objective considerations, Judge Lourie made clear that some secondary indicia of nonobviousness are simply not applicable in the drug approval context. Responding the Bayer's allegations of unexpected results, expert skepticism, industry praise, and copying by others, the court was not persuaded:
- even Bayer's expert said the results were a matter of "common sense";
- the FDA's request for safety and efficacy data is not "skepticism";
- "bare journal citations and self-referential commendation fall well short of demonstrating industry praise"; and
- "evidence of copying in the ANDA context is not probative of nonobviousness because a showing of bioequivalence is required for FDA approval."
The court thus reversed the lower court's summary judgment of nonobviousness, and remanded the case for further proceedings.
Soverain Software v. Newegg, 728 F.3d 1332 (Fed. Cir. 2013) (9/4/13). Summary judgment of validity reversed with a grant of summary judgment of obviousness.
The patent in suit was directed to internet e-commerce in which computers were operated by a buyer, a merchant and a payment processor through a data network. Soverain sued seven online retailers, including Newegg. All of the defendants other than Newegg settled by taking licenses under the patent. Newegg argued that the claimed invention was obvious based upon a pre-internet system operated by Compuserve.
This case is a little surprising in that in reviewing the district court's summary judgment ruling of non-obviousness, the Federal Circuit reversed and granted summary judgment of invalidity. In a unanimous opinion by Judge Newman, the court determined that there were no issues of fact that precluded summary judgment and after applying the prior art to the claims at issue, decided that all of the claims were invalid as obvious. This shows the risk one takes in moving for summary judgment and conceding that there are no genuine issues of material fact.
The court also dealt with the patentee's argument that the licensing of its patent by the dismissed defendants as well as others provided objective evidence of the patent's non-obviousness. The patentee asked "why would someone pay to license an invalid patent?" The court's discussion suggests that while that argument might be valid in some cases, here the answer appears to be "to avoid the costs of litigation," and not necessarily to take advantage of the invention.
Where, as here, the content of the prior art, the scope of the patent claim, and the level of ordinary skill in the art are not in material dispute, and the obviousness of the claim is apparent in light of these factors, summary judgment is appropriate. In doing so, the panel's approach follows the lead of KSR International Co., v. Teleflex, Inc., 550 U.S. 398 (2007), where the Supreme Court reached the legal conclusion that the asserted claims were obvious because the factual underpinnings of obviousness were not in material dispute.
It makes one wonder why the panel in Baker didn't do the same thing and simply reverse the granting of summary judgment of non-obviousness instead of remanding the case back to the district court. In that case there did not appear to be any genuine issues of fact, and the error the district court made was in failing to apply the KSR teaching that the motivation to combine was established by the recognition of the problem within the references.
The Circuit granted a rehearing of Soverain in September and confirmed that all of the claims at issue had been adequately and fairly assessed in the district court and on appeal. In so ruling, it also denied Soverain's motion for rehearing en banc.
Transocean Offshore Deepwater Drilling, Inc. v. Maersk Contractors USA, Inc., 699 F.3d 1340 (Fed. Cir. 2012) (11/15/12). "Transocean II" Patent found valid despite prima facie case of obviousness.
The patented technology involved offshore drilling vessels that have "dual activity" capability, which provides two stations that can cooperate to drill a single oil well. This is the second time this case has reached the Federal Circuit. In Transocean I, the Circuit overturned the district court's summary judgment finding of obviousness, noting that although Maersk provided prior art that made a prima facie case of obviousness, the summary judgment was improper in view of Transocean's evidence of objective indicia of nonobviousness. On remand, the trial jury found Transocean's patents were not obvious and awarded Transocean $15 million in damages. Transocean appealed the case after the district court granted Maersk's motion for JMOL.
In the remanded case, the parties disagreed over whether the jury could consider the two prior art references in addition to the secondary indicia evidence. Transocean, apparently believing the prima facie case was weak, wanted the jury to consider the two prior art references for two purposes: (1) to determine whether the references taught each limitation of the claims and provided a motivation to combine, and (2) to consider the strength of the prima facie case. Maersk opposed both, insisting that the only issue to go to the jury was the secondary indicia of non-obviousness. The district court allowed the jury to review the prior art for both purposes. The Transocean II panel said it was error to allow the jury to reconsider whether the references taught each limitation of the claims and provided a motivation to combine. Because that issue was decided in Transocean I, it was the "law of the case." On the other hand, the court held it was not error to allow the jury to weigh the strength of the prima facie case together with the objective evidence of nonobviousness.
On the ultimate issue of nonobviousness, the panel reinstated the jury verdict as supported by substantial evidence. That evidence of nonobviousness included evidence of commercial success (including customers willing to pay a premium or even requiring rigs with the patented features), industry praise and unexpected results, copying (including by Maersk itself), industry skepticism, licensing, and long-felt but unsolved need. The court found: "Few cases present such extensive objective evidence of nonobviousness, and thus we have rarely held that objective evidence is sufficient to overcome a prima facie case of obviousness. . . . This, however, is precisely the sort of case where the objective evidence establishes that an invention appearing to have been obvious in light of the prior art, was not."
One of the surprising things about this case was that the original Maersk contract included an option to modify the rig before delivery if any patent infringement was likely. The jury found that Maersk committed infringement when it "offered to sell" and "sold" its rig. The contract evidencing the sale/offer expressly indicated that Maersk could modify the final rig design based on the outcome of then-pending district court litigation between Transocean and a third party based on the same patents. Before actually delivering the rig, Maersk modified it to avoid infringement. But the Federal Circuit reiterated that the option to modify and subsequent modification could not save Maersk. The jury found that the specifications of the rig offered and sold met all the claim limitations. Post-offer/sale modifications did not matter even though they occurred before actual delivery. To avoid this sort of results in our own cases potential infringers might contract not for an "option" to modify, but for a mandatory modification to avoid infringement upon the triggering event, such as patent issuance or litigation upholding the patent's validity.
Kinetic Concepts, Inc. v. Smith & Nephew, Inc., 688 F.3d 1342 (Fed. Cir. 2012) (8/13/12). Jury's "advisory" opinion on obviousness gave rise to implied findings of facts that the district court was required to accept.
Wake Forest, the patent holder, appealed a district court grant of JMOL of invalidity for obviousness of a claimed invention for treating difficult-to-heal wounds by applying suction. The Circuit reversed, holding that (1) the jury's "advisory" opinion on the ultimate issue obviousness gave rise to implied findings of facts that the district court was required to accept provided that they were supported by substantial evidence, despite the presence of special interrogatories on the verdict form; (2) the jury's implied findings of facts on the Graham factors were supported by substantial evidence; and (3) the ultimate conclusion of obviousness was that the claims were not obvious.
Judge O'Malley, writing for the majority of the divided panel, distinguished the "advisory jury" option allowed under Fed.R.Civ.P. 39(c)(1) in which the jury's findings are not binding on the court. According to the court, Rule 39(c) is explicitly for use in an action not triable by jury. Smith & Nephew conceded as much, according to the court, by filing a Rule 50 JMOL motion in the lower court rather than filing a Rule 52(b) motion that would apply to an advisory jury action.
In essence, because the district court included the ultimate question of obviousness on the special verdict form, all of the factual determinations underlying the ultimate question were implicitly put to the jury for resolution. Wake Forest did not, therefore, waive a jury trial on any factual issue not submitted to the jury in an interrogatory, and the district court was required to accept all implicit factual findings supporting the jury's conclusion with respect to the ultimate conclusion of obviousness that were supported by substantial evidence.
In arriving at the ultimate legal conclusion of nonobviousness, the Federal Circuit focused its discussion on the lack of a reasons to combine the prior art references (itself a factual finding), referencing concerns about hindsight reconstruction. In a statement suggesting a technology-based limitation on the use of common sense, the court held that "although expert testimony regarding motivation to combine is not always required, the technology at issue here is not the type of technology where common sense would provide the motivation to combine these references."
Rambus Inc. v. Rea, 2013 U.S. App. LEXIS 19500, (Fed. Cir.) (9/24/13). Patentee should have been permitted to submit additional evidence before the Board if new issues were raised by the Board.
This is one of several Rambus cases having been heard in recent years by the Federal Circuit. In response to a patent infringement suit, Nvidia Corp. requested inter partes reexamination. The matter was heard by the Board of Patent Appeals and Interferences, now the Patent Trial and Appeal Board. The BPAI agreed with the patent examiner's rejection of six claims held invalid for anticipation. The Board also agreed that those six and twelve other claims were invalid but that came only after the parties agreed that that the examiner had made an erroneous fact finding. Thus, the Board's obviousness determination differed from that of the examiner. However, a critical part of the case was that Rambus was not permitted to submit additional evidence to the Board even though the Board's findings were different from those of the examiner, and raised new issues that had not been a part of the proceeding before the examiner.
The panel noted that while the BPAI can "elaborate on the examiner's findings" without offering further patentee argument, it must provide Rambus an opportunity to respond if its rejection relies on new facts and rationales not previously raised by the examiner. The Board did not do so here so the court vacated the obviousness finding.
Again as to the objective evidence, the Circuit told the PTO what we have seen as a pattern over the past year – to pay closer attention to the objective indicia of nonobviousness.
The Board determined that Rambus' proffered evidence lacked a nexus to the claimed features of the patent, but the Circuit found, in expressions of long felt need and industry praise, direct references to the claimed invention.
While objective evidence of nonobviousness lacks a nexus if it exclusively relates to a feature that was known in the prior art, the court cited Ormco Corp. v. Align Tech., Inc., 463 F.3d 1299, 1312 (Fed. Cir. 2006) for the proposition that the obviousness inquiry centers on whether the claimed invention as a whole would have been obvious. And, the court said, at least some of Rambus' objective evidence of nonobviousness pertained to the patented memory device architecture. The panel thus instructed the Board to be more careful to parse the evidence as to what was touting broad functionality of the devices on the market and what was touting the patented design.
Other Obviousness/objective indicia cases of interest:
MeadWestvaco Corp. v. Rexam Beauty & Closures, Inc., 2013 U.S. App. LEXIS 19657, (Fed. Cir.) (9/26/13).
Evidence of commercial success and other objective indicia of obviousness must be tied to a specific claim rather than to the overall invention, vacating summary judgment of nonobviousness
Alcon Research, Ltd. v. Apotex Inc., 687 F.3d 1362 (Fed. Cir. 2012) (8/8/12).
In a bench trial the district court held that eight of the asserted patent claims were invalid. The primary issue on appeal was whether there was a motivation to adapt the formula disclosed in the prior art (tested on guinea pigs) for use in treating humans. The panel held that the district court applied an overly strict "reason to modify" requirement to the claims setting forth a range overlapping the prior art. Given the district court's factual finding that guinea pig tests are generally predictive of a compound's activity in humans, the district court was held to have erred when it concluded that a person with skill in the art would not have been motivated to use the pertinent concentration with humans.
With respect to the claims that did not recite ranges that overlapped with the prior art, the panel found no clear error for its conclusion that a person of ordinary skill would not have had a reasonable expectation of success for increasing the dosage into the range of the claims.
The panel briefly discussed the objective indicia supporting nonobviousness but felt that the strong evidence of obviousness was not outweighed by the objective indicia.
Versata v SAP, 717 F.3d 1255 (Fed. Cir. 2013) (5/1/13). A New Type of case for the Federal Circuit - Post-Grant Review.
Versata sued SAP in 2007 and won a first jury verdict and then a second jury verdict (finding that SAP's design-around did not cure the infringement) with a $300 million damage award. That final decision was later affirmed on appeal by the Federal Circuit.
Following the district court's second finding of infringement (but prior conclusion of the appeal), and on the first day that PGR was available on September 16, 2012, SAP filed a petition for Post Grant Review available to "Covered Business Methods" as part of the AIA. Because PGR allows for challenge on any ground permitted under 35 USC section 282b (relating to invalidity), SAP's petition challenged the patent claims as (1) directed toward unpatentable subject matter; (2) lacking written description; (3) indefinite; and (4)anticipated. Versata argued that because § 101 is not a condition for patentability, much less specified as such as required by 35 U.S.C. § 282(b)(2), it is not reviewable by the in a Post Grant Review proceeding.
In a January 2013 order, the PTAB granted the petition after finding that the challenged claims are "more likely than not unpatentable." In particular, the PTAB allowed the challenge to move forward on the Section 101 and 102 grounds.
Initially the Board determined that the patent claims qualified as covered-business-methods because the claims are directed to a method for the "management of a financial product or service" and are not "technological inventions." It will be recalled that the PTO's definition of "technological" simply asks whether the claim recites a new "technological feature" or "solves a technical problem using a technical solution."
The ordinary rule in federal courts is that issue preclusion applies following final judgment by a district court. The fact that an appeal is pending normally does not impact the finality of the district court judgment unless and until the appellate court takes some action. Versata argued that the PTO should follow that general rule since SAP already had a full and fair opportunity to challenge the patent validity and had lost its federal lawsuit, resulting in final judgment. The PTAB rejected Versata's argument, finding instead that, as the final judgment in the related Versata v. SAP litigation was currently on appeal to the Federal Circuit, the district court's judgment was not sufficiently firm to be accorded conclusive effect.
At this point, in January 2013, the PTAB was beginning its review of the patent's validity and, in parallel the Federal Circuit was considering SAP's appeal that focused on noninfringement and remedy arguments.
The next event came in May 2013 when the Federal Circuit affirmed the district court's determination of infringement and the $300 million damages award. The only modification of the judgment was to ask the lower court to be more particular in enjoining infringement without enjoining sales of SAP products in general.
The following month in June 2013, the PTAB came out with its final ruling holding that the patent claims were invalid under 35 U.S.C. §101 as unpatentably abstract.
In particular, the PTAB determined that it would apply the "broadest reasonable interpretation" (BRI) standard to claim construction during post-issuance proceedings even though the terms had already been construed by the district court. The PTO's rational is that (1) it is not bound by the district court judgment since appeals from this proceeding are exclusively the Federal Circuit rather than to district courts and that (2) the patentee's ability to amend claims during review suggests that BRI should apply.
In the Section 101 analysis, the PTAB found that the claimed method of determining a price using product group hierarchies was a "disembodied concept" capable of being performed mentally, on paper, or on a general purpose computer. The PTO final judgment did not substantially revisit the issues of preclusion or whether the PTO had standing to challenge the patent under Section 101.
At the PTAB, the current status is that the Board is considering a rehearing request by Versata in view of the Federal Circuit's Ultramercial decision. Versata has again raised the contention that Section 101 is not a permissible ground for post grant review, and this is an issue that will have to be decided by the Federal Circuit.
You will recall that in 2011, in the Therasense en banc decision, the Federal Circuit toughened the test for successful assertion of the inequitable conduct defense in an attempt to address the "plague" of inequitable conduct allegations that are a part of the defense of so many patent infringement lawsuits. Therasense, Inc. v. Becton Dickinson and Co., 593 F.3d 1289 (Fed. Cir. 2011). According to the court, the "intent" prong is satisfied only by a showing of specific intent that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it. To meet the "materiality" prong, the Court adopted a "but for" test, requiring the challenger to show that the PTO would not have allowed a claim had it been aware of the undisclosed art. An "egregious conduct" exception was added in the event the "but for" test is not met, for example, where a fraudulent affidavit is filed that might not have been critical to allowance.
While we expect that the availability of Supplemental Examination may reduce the number of cases in which inequitable conduct is litigated, the cost for filing a supplemental examination request is steep, especially for large entities: $5,180 for the initial request plus $16,120 for the ex parte re-examination fee. Both must be paid at the time of initial request, although the $16,120 will be refunded if no re-examination is ordered in the supplemental examination certificate.
It has been over two years since Therasense, and only two Federal Circuit cases have been uncovered that have affirmed rulings of unenforceability. I'll start with those two to show how difficult it is to have a patent found unenforceable due to inequitable conduct.
Intellect Wireless, Inc. v. HTC Corp., 2013 U.S. App. LEXIS 20529, (Fed. Cir.) (10/9/13). Filing of a false affidavit, without clear corrective action being taken after the falsity was discovered, meets the materiality prong of Therasense.
In a case decided just last month, the filing of a false affidavit, without clear corrective action being taken after the falsity was discovered, was found sufficient to meet the materiality prong of Therasense.
The decision confirms that, though the en banc court's decision in Therasense tightened the requirements for evidence of materiality, a false affidavit is at least one of the "affirmative acts of egregious misconduct" that the Therasense majority said, "strikes a necessary balance between encouraging honesty before the PTO and preventing unfounded accusations of inequitable conduct." In affirming the district court's judgment here, the panel held that any cure to a false representation made in a PTO filing must specifically identify the false representations in the original document.
During prosecution of the patent in suit to a mobile phone transmission system, the inventor filed a declaration to overcome prior art by saying that the invention was reduced to practice, evidenced by a public demonstration in July 1993. However, no transmission was made to the mobile phone in that demonstration. It merely displayed pre-stored messages.
A revised declaration was subsequently submitted, but it still used the phrase "actual reduction to practice." The district court rejected the argument that, through the revised declaration, the inventor had corrected the error in the first declaration and was now contending that the patent application served as constructive reduction to practice.
The Federal Circuit panel noted that a charge of inequitable conduct must meet both the materiality and intent prongs of Therasense, which tightened the evidence requirements for each, including a high "but-for materiality" test.
However, Therasense created an "egregious misconduct" exception, based on the unclean hands doctrine that underpinned inequitable conduct decisions in the 1930s and 1940s. The Therasense court used "the filing of an unmistakably false affidavit" as an example, whereby misconduct is deemed to be material with requiring application of the "but for" test.
The panel conceded that the inventor may have cured the misstatement in the original declaration, but it said "the revised declaration did not cure the misconduct because it never expressly negated the false references to actual reduction to practice in the original declaration." The court thus confirmed that Therasense did not modify Rohm & Haas Co. v. Crystal Chem. Co., 722 F.2d 1556, 1572 (Fed. Cir. 1983): "we require that the applicant ‘expressly advise the PTO of [the misrepresentation's] existence, stating specifically wherein it resides.'"
The panel further affirmed the district court's judgment as to the intent prong, again applying Rohm & Haas. "Submission of an affidavit containing fabricated examples of actual reduction to practice in order to overcome a prior art reference raises a strong inference of intent to deceive." The inventor had engaged in a pattern of deceit by claiming actual reduction to practice in other patent applications in the same family, and in using language in the two declarations that "dances around the truth."
The court thus affirmed that the asserted patents were unenforceable due to inequitable conduct.
Aventis Pharma S.A. v. Hospira Inc., 675 F.3d 1324 (Fed. Cir. 2012) (4/9/12). Intent to mislead was the single most reasonable inference to be drawn from the evidence.
While this case was decided in early 2012 and not this year, it is illustrative of how the Circuit will affirm a finding of inequitable conduct in the appropriate case. In this case the same references that were withheld from the PTO were found to invalidate the claims at issue. Thus, the Court had no trouble finding the "but for" materiality element of Therasense satisfied. With respect to intent, the inventor argued that he did not appreciate the significance of the references and therefore the specific intent to deceive was not "the single most reasonable inference able to be drawn from the evidence."
The district court found that the inventor cited prior art showing that others had recognized the problem with the prior art approaches but were not able to find the solution. Given that the withheld prior art showed the solution and the inventor clearly knew about the art, the district court determined that the intent to deceive was the single most reasonable inference. Relying on these materiality and intent findings, the district court found the patents were unenforceable due to inequitable conduct.
Based on the evidence that was heard by the district court, and its thorough discussion of its factual findings, the panel found that the factual findings were not clearly erroneous and, based upon its well-reasoned analysis that was consistent with Therasense, the Circuit found that the district court's decision to strike down the patent as unenforceable was not an abuse of discretion.
Cases affirming findings of no inequitable conduct
Network Signatures, Inc. v. State Farm Mut. Auto. Ins. Co., 2013 U.S. App. LEXIS 19499, (Fed. Cir.) (9/24/13).
In this case the Federal Circuit reversed a finding of patent unenforceability for failing to tell the PTO the reason for making a late maintenance fee payment, the majority of the panel holding that Therasense made it virtually impossible to meet in the context of a maintenance fee payment since "substantive criteria of patentability" were not at issue.
Reversing summary judgment of unenforceability, the majority held that using a standard form supplied by the PTO without explanation for why the payment was late was adequate to negate the requirements for meeting the high materiality and intent thresholds. It effectively left "matters unrelated to the substantive criteria of patentability" to the discretion of the PTO.
The dissent had "no doubt whatsoever" about materiality and intent in that, had the PTO known of the reason for the delay, it would have rejected the late payment and allowed the patent to lapse.
Here the patentee deliberately permitted the patent to lapse even though just prior to the due date a potential licensee tried to contact the patentee to request a license. The patentee and the prospective licensee were not able to talk until two weeks after the fee was due. The patentee immediately petitioned for delayed payment, filling out the PTO's standard form. The "Statement" section of the form includes only the following preprinted text: "The delay in payment of the maintenance fee to this patent was unintentional." In response to this submission, the PTO granted the petition.
It is difficult to imagine a maintenance fee case in which the intent is more clear. It simply shows that the Federal Circuit, or at least this panel of the Circuit, is never going to find a patent unenforceable due to an intent to mislead in late payment of a maintenance fee.
Powell v. Home Depot, 663 F.3d 1221 (Fed. Cir. 2011) (11/14/11).
Here, the Federal Circuit affirmed a district court determination that the patentee did not commit inequitable conduct by failing to update a Petition to Make Special as this was "not the type of unequivocal act, 'such as the filing of an unmistakably false affidavit,' that would rise to the level of affirmative egregious misconduct.'"
Outside the Box Innovations LLC (Union Rich) v. Travel Caddy, 695 F.3d 1285 (Fed. Cir. 2012) (9/21/12).
In this case, the Federal Circuit continued in the direction set by Powell, although it does not appear to be ready to completely abandon the notion that certain "minor" violations can constitute inequitable conduct.
Prior to Therasense, the Federal Circuit had held that inequitable conduct could arise when a large entity pays only the small entity fees. See Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1231-33 (Fed. Cir. 2007). In the present case the patentee paid the small entity fee when, based upon licensing affiliates, it should have paid the large entity fee. The district court held the patents unenforceable. On appeal, the Federal Circuit reversed, not on the ground of materiality, but on the basis of a lack of intent. Thus, the court did not decide the question of whether the false statement associated with the small entity fee payment could rise to the level of "affirmative egregious misconduct.,"
According to the panel, a false affidavit or declaration is per se material. Although on its face, it appears that a false declaration of small entity status would fall within the definition of an "unmistakably false affidavit," particularly since a party that claims entitlement to small entity status does so in a sworn written declaration, the court stated that it did not need to decide that question. "Even if a false assertion of small entity status were per se material, the requirements of Therasense are not met here because there was no clear and convincing evidence of intent to deceive the PTO. Specifically, there was no evidence that anyone involved in the patent prosecution knew that a patent license had been granted to a large entity and deliberately withheld that information in order to pay small entity fees."
Writing in dissent, Judge Newman argued that the majority did not go far enough in its reversal because the filing of the small entity statement by affidavit should not render the incorrect statement "per se material."
In re Rosuvastatin Calcium Patent Litigation, 703 F.3d 511, (Fed. Cir. 2012) (12/14/12).
Therasense did not address whether the "specific intent to deceive" standard applies equally to reissue of a patent, but Rosuvastatin resolves this question. In a split decision, the court held that the post-Therasense heightened threshold showing of deceptive intent that would breach the applicant's duty of candor under 37 C.F.R. §1.56 is the same as that for showing "deceptive intention" that would bar reissue.
In his dissent Judge Mayer didn't clearly address the issue of the patentee's deceptive intent, arguing that because the patentee deliberately drafted the patent claims and knew precisely the scope of the claims, there was no "error." While Judge Mayer stopped short of saying that the patentee had the requisite deceptive intent to satisfy Therasense, he was highly critical of the patentee's actions, which he was convinced would have constituted "fraud" under the pre-Therasense framework.
INDEFINITENESS UNDER SECTION 112
Ibormeith IP, LLC v. Mercedes-Benz USA, LLC, 2013 U.S. App. LEXIS 21361 (Fed. Cir.) (10/22/13).Algorithm intended as structure to support a means-plus-function claim must be specific.
In this case Mercedes-Benz prevailed in defending against a patent infringement suit based on technology designed to detect when a motorist is getting tired because an algorithm intended as structure to support a means-plus-function claim must do more than list the relevant factors. Here the court found fatal the fact that the algorithm factors were not weighted or calculated.
Section 112 (f) permits patent claims to be written as a "means for" accomplishing a particular function. When written in claim form, a "means for" claim appears extremely broad because it suggests coverage of all possible means or mechanisms for accomplishing the stated goal. However, section 112(f) requires that the limitation be construed to only cover the "corresponding structure … described in the specification and equivalents thereof. Courts have repeatedly held that a patent is invalid as indefinite if no particular corresponding structure for the "means" is disclosed in the specification. See, e.g., Function Media, LLC v. Google, Inc., 708 F.3d 1310, 1319 (Fed. Cir. 2013).
The patent claims at issue all include a "computational means" that determine whether or not someone is sleepy. On summary judgment, the district court found the claims indefinite because the claimed computational means were not supported by structure in the specification. Specifically, the specification did not disclose how the factors listed in the algorithm should be weighted, or how specifically they are calculated in order to result in a warning being issued to the driver.
Writing for a unanimous panel Judge Taranto held: "Table 10 merely lists inputs without specifying any single formula or function or algorithm defining the contribution of any of the inputs to a computation." "A description of an algorithm that places no limitations on how values are calculated, combined, or weighted is insufficient to make the bounds of the claim understandable." The issue of whether or not the disclosure was adequate is an issue of law decided de novo on appeal, but even under this lower standard of review the patentee was not able to prevail, and the court affirmed summary judgment of invalidity.
Biosig Instruments Inc. v. Nautilus Inc., 715 F.3d 891 (Fed. Cir. 2013) (4/26/13). Functionality of a claimed device may adequately indicate the metes and bounds of a limitation.
In this case with a local flavor the Federal Circuit reversed a judgment of invalidity for indefiniteness of a patent on an exercise equipment heart rate monitor based upon its holding that the functionality of a claimed device may adequately indicate the metes and bounds of a limitation and render the claim not indefinite.
The claim recited a "spaced relationship" between electrodes. The Federal Circuit held that the relationship can be calculated, reversing the district court's judgment, saying that "inherent parameters" defined the upper and lower bounds of the space and a "whereby" clause describing the objective of the claim would allow a skilled artisan to identify the optimal space.
The Klarquist firm recently filed petition for certiorari on behalf of Nautilus , challenging the standard set by the Federal Circuit that a patent claim is indefinite only if it cannot be construed or is "insolubly ambiguous."
The petition asked two questions:
- Does the Federal Circuit's acceptance of ambiguous patent claims with multiple reasonable interpretations—so long as the ambiguity is not "insoluble" by a court—defeat the statutory requirement of particular and distinct patent claiming?
- Does the presumption of validity dilute the requirement of particular and distinct patent claiming?
Given all of the petitions for certiorari that are being filed these days in patent cases, it is unlikely that the case will be accepted but we can only wish our friends at the Klarquist firm good luck.
nCUBE Corp. v. SeaChange Int'l., Inc., 2013 U.S. App. LEXIS 20614 (Fed. Cir.) (10/10/13). Motion for contempt denied even though design-around was not colorably different.
This case was heard on a motion for contempt involving a design-around that allegedly was not colorably different from the design found to infringe. The Circuit affirmed the district court judgment rejecting the motion for contempt. In doing so the court clarified its decision in TiVo Inc. v. EchoStar Corp., 646 F.3d 869 (Fed. Cir. 2011) relating to the standard for deciding a motion for contempt as to an injunction.
The court affirmed a district court's judgment that, even though a case could be made that the redesigned service still infringes, it does so based on an argument that was not the basis of the infringement judgment leading to the injunction. The appeals court thus clarified its holding in Tivo that the prong of the contempt standard for colorable differences "focuses on how the patentee in fact proved infringement, not what the [patent] claims require."
The district court had previously issued an injunction against SeaChange's interactive television system, "as well as any devices not more than colorably different therefrom that clearly infringe the adjudicated claims of the ‘804 patent." By the time the injunction was entered, SeaChange had already modified its TV system such that, in its view, it no longer infringed. The patentee disagreed and moved to find SeaChange in contempt of the injunction order. The district court denied the motion and the patentee appealed.
Judge Prost commented on the two-step standard for contempt of an injunction set forth by the en banc court in TiVo Inc.:
- "[I]n determining whether more than colorable differences are present the court focuses ‘on those elements of the adjudged infringing products that the patentee previously contended, and proved, satisfy specific limitations of the asserted claims."
- The second step, whether the redesigned product actually infringes, is irrelevant unless there are colorable differences.
The court made a distinction between a redesign that removes the elements in question and one that modifies the elements. In TiVo, the court indicated that the colorable-differences inquiry applies only to modifications.
The court disagreed with the patentee's characterization of SeaChange's redesign as "removal." There is still a ClientID and there is still a service connection table, so the elements have not been removed, the court said. The differences between the original and redesigned services represent a modification, and in the modified system, the SessionID—now serving as the upstream physical address—differs significantly from the ClientID.
Broadcom Corp. v. Emulex Corp., 2013 U.S. App. LEXIS 20411 (Fed. Cir.) (10/7/13). Injunction preventing the sale of certain wireless data transceivers is affirmed.
Broadcom's injunction preventing Emulex from offering certain wireless data transceivers was affirmed by the Federal Circuit, ruling on infringement, nonobviousness and the appropriateness of an injunction. As to the last, the court distinguished this case from the mobile phone market, where the court in 2012 refused to support an injunction sought by Apple.
Following a jury trial the district court granted Broadcom's motion for judgment as a matter of law that Emulex infringed the ‘150 patent. The court entered an injunction but gave Emulex a year to cease fulfilling existing contracts. Emulex appealed.
Writing for a unanimous panel, Judge Rader first affirmed the judgment of infringement, holding that "an accused device that ‘sometimes, but not always, embodies a claim nonetheless infringes,'" quoting Bell Commc'n Research, Inc. v. Vitalink Commc'n Corp., 55 F.3d 615, 622-23 (Fed. Cir. 1995). He then rejected Emulex's argument that a prior art reference offered motivation to add one aspect of the invention that was missing from the reference. Specifically, the court held that the Broadcom invention was directed to clock synchronization and data recovery, while the prior art reference was directed to a problem where "there is no data to recover."
Finally, the court praised the district court for its comprehensive analysis on obviousness and the objective indicia: "Here the district court averted the trap of hindsight by considering the evidence of the objective indicia as part of the obviousness analysis, and not just as an afterthought." As discussed earlier in this paper, over the past year the Federal Circuit has repeatedly admonished courts for establishing a "prima facie case" of obviousness and then turning to whether objective indicia can overcome it. The secondary considerations that favored nonobviousness included Broadcom's success, with a proven nexus to the patented feature, and a long felt but unsolved need. The court thus affirmed that the asserted claims were not invalid for nonobviousness.
The court then turned to the appropriateness of the injunction. The court first noted that the ‘150 patent covers only a component of OEM products such as data center servers, but it distinguished Broadcom's position because of the characteristics of the market. In this market, the OEMs hold "design win" competitions and lock into a specific supplier for a long term. Emulex had won the competition by including the infringing component in its bid and thus, the court said, "the evidence here shows that the infringement did cause the harm."
Last year it will be recalled that, the Federal Circuit decided against a preliminary injunction when Apple failed to show irreparable harm via a nexus between a patented feature of its phones and consumer demand. Apple, Inc. v. Samsung Electronics Co., 678 F.3d 1314 (Fed. Cir. 2012).The court further distinguished the post-trial posture of the present case compared to the preliminary injunction in Apple. "Broadcom has shown—not that it is likely to succeed on the merits and likely to suffer irreparable harm—but that it in fact has succeeded on the merits and has suffered irreparable harm."
Judge Rader also agreed with the district court in allowing Emulex to fulfill its existing contracts, because the OEMs had no ability to turn quickly to competitive products. "Emulex had already ‘won' these products, so immediately enjoining their sale would have penalized the OEMs and disrupted the supply of servers with no corresponding benefit to Broadcom," thereby supporting the public interest factor in designing an injunction.
Presidio Components Inc. v. American Technical Ceramics Corp., 702 F.3d 1351 (Fed. Cir. 2012) (12/19/12). Denial of a motion for permanent injunction is reversed even though the patentee did not practice the invention.
This case dealt with both damages and injunctive relief but the discussion of injunctive relief is most interesting. Here the patentee prevailed at trial, and was awarded lost profits. Its motion for injunction was denied, however, and the court ordered a prospective royalty arrangement. On appeal the Federal Circuit reversed the denial of that motion and remanded the case for further proceedings.
The district court had, in its lost profits analysis, determined that the parties were direct competitors. Yet, when it analyzed the irreparable harm factor for an injunction, under eBay, the lower court said the opposite. eBay Inc v. MercExchange LLC, 547 U.S. 388 (2006) The appeals court could not justify that inconsistency.
The trial judge had also apparently put weight on the fact that Presidio did not practice the patent, but "Even without practicing the claimed invention, the patentee can suffer irreparable injury." "Direct competition in the same market is certainly one factor suggesting strongly the potential for irreparable harm without enforcement of the right to exclude."
The court noted that the jury had awarded lost profits and thus "necessarily found ATC's 545L capacitor sales caused Presidio to lose BB capacitor sales." "This squarely supports a finding of irreparable harm."
The district court thus was found to have abused its discretion in finding no irreparable harm. The case was remanded for re-weighing of the four eBay factors in light of its irreparable harm analysis. The panel vacated the ongoing royalty arrangement inasmuch as it was predicated on the district court's denial of a permanent injunction.
Aevoe v. AE Tech, 727 F.3d 1375 (Fed. Cir. 2013) (8/29/13). Preliminary injunction is appropriate, even as to a non-party.
Interlocutory decisions by a district court are not normally appealable. Rather, the losing party must ordinarily wait until a final judgment ends the lawsuit before filing an appeal. One exception to the appellate final-judgment rule involves interlocutory judgments on motions for injunctive relief. The appellate jurisdictional statute provides for immediate jurisdiction over appeals from the "granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions". 28 U.S.C. § 1292(a)(1).
In this case, Aevoe sued AE Tech and moved for a preliminary injunction, which was granted. Although AE Tech had a right to immediately appeal that decision, it failed to file its notice of appeal within the 30 day deadline of Rule 4(a)(1) of the Federal Rules of Appellate Procedure.
The district court subsequently modified its order to explicitly state that "colorable imitations" of the enjoined systems were also enjoined. At the time of the modified injunction Aevoe took the opportunity to add as defendants AE Tech's two suppliers, S&F and GreatShield. They were added to the injunction. AE Tech then filed a timely appeal to that modified injunction.
The Federal Circuit dismissed the appeal, holding that the modified injunction did not really change the legal standing between the parties. Under Ninth Circuit law, a modified injunction was appealable if the injunction had been modified such that "it substantially alters the legal relations of the parties." The Circuit held that the modified injunction could not be so described. This was true for two reasons. First, the court held that an enjoined company cannot make or sell a "colorable imitation" of its patent-infringing products regardless of whether a district court's preliminary injunction order stated so explicitly. Therefore, adding a reference to prohibiting "colorable variations" did substantively change to injunction. Second, distributors of the infringing products were subject to the original injunction as privies of the infringing manufacturer, even though they were not named until later. Therefore, adding S&F and GreatShield as a party to the injunction didn't substantively change the original order, which now was no longer appealable.
We don't often think that entities that are not a party to a lawsuit can be enjoined without having the opportunity to be heard. However, that is what happened in this case. S&F and GreatShield argued that they could only be appealing the modified injunction since that was the first time they were explicitly named. The court noted that there was no dispute that the distributors received notice of the injunction shortly after it was entered, and they continued to distribute AE Tech products. They had, interestingly, also represented to Aeveo that they would stop selling the products named in the injunction. The court therefore determined: "It is beyond debate that the S&F Defendants thus fell within the express language of the original injunction, whether or not they were explicitly named as enjoined parties."
Thus, the distributors were subject to the original injunction when they received notice of it and, again, because the modified injunction did not alter the legal relationship between them and Aeveo, they had no right to appeal the modified injunction.
Aria Diagnostics, Inc. v. Sequenom, Inc., 2012 U.S. App. LEXIS 20412 (Fed. Cir.) (8/9/13). Denial of preliminary injunction is reversed.
In this case the patentee filed a timely appeal of the denial of its motion for preliminary injunction related to its patent on detecting prenatal abnormalities. The Federal Circuit reversed, holding that the district court was too hard on the patentee as to claim construction, patentable subject matter and in application of the four eBay factors.
In an opinion written by Judge Rader, the court first faulted the lower court's construction of two terms.
Representative claim 1 of the ‘540 patent calls for detecting "paternally inherited nucleic acid," and the district court added a timing limitation related to when that detection must occur. The appeals court saw potential support for that added limitation only in a single sentence in the specification, and it concluded that the lower court misread that sentence. Judge Rader further stated that the district court inappropriately limited claim 1 by narrowly construing the term "amplifying." According to the Circuit, both the specification and the prosecution history pointed away from the district court's reasoning. In reversing that part of the injunction, the opinion stated that the district court erred to the extent it used those two mistaken interpretations to conclude that Ariosa had raised a substantial question of noninfringement.
As to patentable subject matter under section 101. Judge Rader noted that the district court could benefit from referencing the Myriad decision that was issued subsequent to the denial of the preliminary injunction motion. Ass'n for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107(2013). In Myriad, of course, the Supreme Court held that product claims directed to isolated DNA are not patent eligible but, if directed to synthetic complementary DNA, they would be.
After determination of a likelihood of success on the merits, Judge Rader ordered the district court to reconsider the four eBay factors:
(1) that the moving party has suffered an irreparable injury;
(2) that remedies available at law are inadequate to compensate for that injury;
(3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
(4) that the public interest would not be disserved by a permanent injunction.
eBay Inc. v. MercExchange LLC, 547 U.S. 388 (2006).
In its prior analysis as to the first two factors, the district court ruled that, should Sequenom prevail, it could recover market share later and damages would compensate for Ariosa's infringement in the interim. The appeals court criticized that reasoning as an insufficient assumption. "In the face of that kind of universal assumption, patents would lose their character as an exclusive right as articulated by the Constitution and become at best a judicially imposed and monitored compulsory license."
And the court further criticized the weight the lower court gave to the impact of a potential third competitor. Pfizer, Inc. v. Teva Pharm. USA, Inc., 429 F.3d 1364, 1381 (Fed. Cir. 2005) held that the "fact that other infringers may be in the marketplace does not negate irreparable harm."
As to the third factor, the district court noted that a preliminary injunction would put Ariosa out of business. According to the court, that fact alone "does not control the balance of hardships factor." The district court made "no comparison of difficulties or losses Ariosa might experience weighed against the harms Sequenom might suffer without protection of its legal exclusive rights," and the court noted the money and effort spent by Sequenom on research and development and investment in its technology.
Finally, while the lower court properly gave weight to the public interest in having Ariosa's test available to low-risk women, subsequent to the district court's decision, the Committee on Genetics of the American College of Obstetricians and Gynecologists warned that the test should not be used on those very same low-risk women. Judge Rader instructed the district court to consider this evidence on remand.
Core Labs v. Spectrum Tracer Services, 2013 U.S. App. LEXIS 16285 (Fed. Cir.) (8/7/13). Preliminary injunction relief can be easier in trade secret cases than patent cases.
Two of Core Labs' employees left the company and started Spectrum, a competing firm, servicing the hydraulic fracturing (fracking) industry. Core Labs sued, alleging trade secret misappropriation, copyright infringement and patent infringement. During the lawsuit, an employee of Core Labs received the following email from a new Spectrum employee/whistleblower:
I recently have been contracting with Spectrum. . . . Not long ago I was handed some documents that have your company logos and such on them and had them ask me to recreate the same functionality in other documents and programs for them. From what I have been able to learn I believe you have been in a law suit with my company, and I am not very happy with trying to re-create someone else's work. I have provided one of the worksheets I have been provided with and have others I can provide if they would be of any assistance. I am not sure if you gave my company permission or not to use these, but it is my intention to learn what the truth of the matter is.
The documents were in fact a copy of Core Labs' Microsoft Excel template file that it used for its fracking services. In addition to setting forth calculations, the file also included customer and price lists.
Despite this evidence, the district court denied Core Labs' motion for a preliminary injunction based on the failure to show irreparable harm. On appeal, the Federal Circuit reversed and ordered that the preliminary injunction be granted.
The Federal Circuit noted that patent plaintiffs often have difficulty proving irreparable harm at the preliminary injunction stage. Here, however, Core Labs requested the preliminary injunction as a mechanism to support its state law trade secret rights, and under the applicable Texas state law, a defendant's possession of a plaintiffs' trade secret rights is sufficient to create a presumption of irreparable harm. The court found that, in general, irreparable harm tends to be easier to show in trade secret cases as compared with patent cases since information secrecy is so difficult regain once it is lost.
The Federal Circuit therefore reversed the district court and ordered that the preliminary injunction should be granted.
Douglas Dynamics L.L.C. v. Buyers Products Co., 717 F.3d 1336 (Fed. Cir. 2013) (5/21/13). Denial of permanent injunction is reversed and injunction is ordered.
In short, the court held that irreparable harm to a patentee will generally be found when it is forced to compete with an infringer, even if the infringing product serves a different segment of the market. A dissenting opinion essentially equated the majority's analysis to a presumption of irreparable harm, which the Supreme Court rejected in eBay.
Douglas sued a new market entrant Buyers Products for infringement of three utility patents on snowplow assemblies. Buyers competes with Douglas, but Buyers' SnowDogg snowplows are substantially cheaper and represent only 5 percent of the market compared to Douglas's 60 percent. The district court granted a motion for summary judgment of noninfringement of one of the three patents. Following a jury trial in which Douglas prevailed as to the remaining two patents, Douglas moved for a permanent injunction. The district court denied Douglas's motion but instead determined a reasonable royalty that Buyers would pay to continue selling its snowplows. Both parties appealed.
Judge Rader first reversed the claim construction that led to the noninfringement judgment. The controversy was related to a limitation on "a support frame connected to the A-frame." The district court construed that to require a direct connection between the two frames, but the appeals court said the phrase should encompass indirect linkages as well. The court cited the ordinary meaning of "connected to" and both language and a preferred embodiment in the specification that allowed for indirect mounting. Further, since the SnowDogg plows had such an indirect connection and Buyers had made no other contention of noninfringement, the court reversed summary judgment on that issue and directed the district court to find in favor of Douglas.
Buyers conceded validity and infringement of the other two patents. The question on appeal as to denial of the injunction was whether Buyers directly competed with Douglas and the extent to which the answer to that question informed the "irreparable harm" analysis under eBay Inc. v. MercExchange L.L.C., 547 U.S. 388 (2006).
First, the court turned to an analogy between a Mercedes and a Ford referenced by the district court:
Indeed, buyers interested in purchasing the Mercedes, when presented with both choices, would not likely switch to the Ford and vice versa. However, if the Ford made its place in the market by infringing on the intellectual property of the Mercedes and capitalized on its similarity to the better product, then the harm to the Mercedes product might go beyond a simple counting of lost sales—some of which would occur anyway if the Ford marketed itself effectively as a "Mercedes at half the price." The Mercedes would lose some of its distinctiveness and market lure because competitors could contend that they had "similar features" without noting that those features infringe Mercedes's proprietary technologies.
The lower court had also weighed against Douglas the fact that its market share grew in the five years since introduction of the SnowDogg plows. That was immaterial, the panel said, noting "a variety of reasons" why Douglas might have otherwise maintained or gained market share.
The majority also gave value to the reputation loss to Douglas, for three reasons:
- Its "reputation as an innovator will certainly be damaged if customers found the same ‘innovations' appearing in competitors' snowplows, particularly products considered less prestigious and innovative."
- Its reputation would be damaged in the eyes of dealers and distributors for failure to enforce its patent rights.
- Douglas had never licensed its patented technology in the past, and the loss of exclusivity "is part of a company's reputation."
Concluding its irreparable harm analysis, the majority said, "Where two companies are in competition against one another, the patentee suffers the harm—often irreparable—of being forced to compete against products that incorporate and infringe its own patented inventions."
The court analyzed the other three eBay factors—whether monetary damages would be adequate; a balance of hardships; and the public interest—and determined that the facts favored Douglas on those as well.
Buyers reached a 5 percent market share in just five years, the court noted, and that "suggests that mere damages will not compensate" a competitor. As to hardships, Buyers hurt its own case by contending that it had a noninfringing design-around ready for implementation.
And finally, though the court agreed that competition generally serves the public interest, it ruled that "cheap copies of patented inventions have the effect of inhibiting innovation and incentive. This detrimental effect, coupled with the public's general interest in the judicial protection of property rights in inventive technology, outweighs any interest the public has in purchasing cheaper infringing products."
Based upon the foregoing, the Circuit instructed the district court to enter a permanent injunction as to the ‘978 patent. The injunction decision was moot with respect to the now expired ‘530 patent.
While the granting of the injunction rendered moot the determination of an ongoing royalty, the panel couldn't help but comment. First, the district court had applied the infamous 25% rule of thumb, no longer applicable since Uniloc USA Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed.Cir. 2011). Second, the district court limited the ongoing royalty rate to a portion of Buyers' profit margins, and the panel noted that profit is not necessarily a ceiling under Golight Inc. v. Wal-Mart Stores Inc., 355 F.3d 1327, 1338 (Fed. Cir. 2004). "The infringer's selling price can be raised if necessary to accommodate a higher royalty rate, and indeed, requiring the infringer to do so may be the only way to adequately compensate the patentee for the use of its technology."
Judge Mayer dissented: "Where, as here, a patentee supplies no evidence that money damages are inadequate to redress any injury from future sales of an infringing product, a trial court acts well within its discretion in denying injunctive relief." Mayer faulted the majority's analysis on two grounds. First, he said the assessment of Douglas's reputation damage with respect to its dealers was "too speculative." Second, Mayer characterized the majority's concern about a patent owner "forced to compete" as equivalent to the presumption of irreparable harm that eBay eliminated. Because Douglas offered "no evidence of lost profits or erosion of market share," he said, "the harm suffered by a patentee generally will not be irreparable."
Revision Military Inc. v. Balboa Manufacturing Co., 700 F.3d 524 (Fed. Cir. 2012) (11/27/12). Denial of preliminary injunction is reversed because court improperly applied Second Circuit heightened standard.
The Circuit reversed and remanded the lower court's denial of a motion for preliminary injunction, holding that the correct standard for preliminary injunctions is the Federal Circuit's likelihood of success on the merits standard and not the Second Circuit's "heightened" standard. Also, the court suggested that in determining whether, in the eyes of an ordinary observer, the overall design of the accused article was infringing, it would be helpful for the district court to review the prior art to establish a frame of reference.
Judge Newman, writing for a unanimous panel, first cited the general standard for preliminary injunctions as set forth by Winter v. Natural Resources Defense Council Inc., 555 U.S. 7 (2008), which requires findings favoring the moving party regarding the factors of likelihood of success on the merits, irreparable harm, a balance of the equities, and the public interest. The Second Circuit's Doninger v. Niehoff, 527 F.3d 41 (2d Cir. 2008) established a heightened standard when the sought-for injunction would "alter rather than maintain the status quo." Under this heightened standard, the moving party must show a "clear" or "substantial" likelihood of success on the merits of its claim.
The district court applied the Doninger standard, leading it to deny the injunction. However, according to Judge Newman, Hybritech Inc. v. Abbott Laboratories, 849 F.2d 1446 (Fed. Cir. 1988), requires that in patent cases, it is the preliminary injunction standard of the Federal Circuit that must be applied, not the law of regional circuits, and this standard is a simple likelihood of success.
LaserDynamics v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012) (9/14/12). Jury award overturned due to improper application of Entire Market Value rule.
Here the court overturned an $8.5 million jury award, discussing in detail the level of evidence needed to support the use of the entire market value (EMV) rule where an individual component of a computer was accused of infringement. The Federal Circuit held that application of the EMV rule could not be justified simply by asserting a low enough royalty rate. It was also not enough to show that the patented component was valuable, important, or even essential to the entire system, or that given a choice, customers would choose the system with the patented feature. Instead, the patent holder had to demonstrate that customers bought the entire system because of the patented component alone.
The court continued its discussion that may articulate a new rule for determining reasonable royalty patent infringement damages on multi-component or multi-feature products. "Where small elements of multi-component products are accused of infringement," it is "generally required that royalties be based not on the entire product, but instead on the smallest salable patent-practicing unit." 694 F.3d at 67. "Where small elements of multi-component products are accused of infringement, calculating a royalty on the entire product carries a considerable risk that the patentee will be improperly compensated for non-infringing components of that product." Id. "We reaffirm that in any case involving multi-component products, patentees may not calculate damages based on sales of the entire product, as opposed to the smallest salable patent-practicing unit, without showing that the demand for the entire product is attributable to the patented feature." Id. at 68-69.
Versata Software, Inc. v. SAP America, Inc., 106 U.S.P.Q.2d 1649 (Fed. Cir. 2013) (5/3/13). The Circuit continues its discussion of the Entire Market Value rule.
This is one of several Versata opinions in the last couple of years, one of which is discussed earlier in the context of Post Grant Review. The present decision discussed and expanded on Laser Dynamics' holding regarding the EMV rule. An entirely different panel of the Circuit cited LaserDynamics for the proposition that "[t]he entire market value rule is a narrow exception to the general rule that royalties are awarded based on the smallest salable patent-practicing unit." 106 U.S.P.Q.2d at 1659. That panel defined the EMV rule to be: A "patentee may assess damages based on the entire market value of the accused product only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts."
The Circuit affirmed an $85 million royalty award despite the defendant's argument that the EMV rule was improperly applied. The panel held that the EMV rule simply didn't apply here.
WhitServe LLC v. Computer Packages Inc., 694 F.3d 10 (Fed. Cir. 2012) (8/7/12). Expert testimony must be specific and provide a complete basis for an opinion.
The Federal Circuit ordered a new trial on damages in a patent infringement case because the patentee's expert encouraged the jury to reach a speculative judgment. A jury's award of over $8 million in damages was "sheer surmise and conjecture." ‘Superficial recitation' by an expert that factors suggest higher or lower royalties in a patent damages calculation, without an indication of why and to what extent, was found here to be inadequate.
The court remanded the case for a new trial on damages, faulting the patentee's damages expert for making conclusory remarks about the impact of Georgia-Pacific factors on a proper royalty rate. The court noted that mathematical precision is not a requirement, but that the expert should have said more about why and to what extent each factor mattered.
SynQor Inc. v. Artesyn Technologies Inc., 709 F.3d 1365 (Fed. Cir. 2013) (3/13/13). Supplemental, enhanced damages awarded for post-trial continuing patent infringement
The district court found that post-verdict continuing infringement had been willful even though the patentee did not claim willfulness at trial. The enhanced damages award was found by the Federal Circuit to be appropriate, affirming an award of $95 million, over $5 million in supplemental damages and almost $12 million in enhanced damages against nine foreign firms that make power converters incorporated into computing and telecommunications equipment overseas and are shipped to the U.S.
Defendants appealed the jury's $95 million calculation, focusing on SynQor's expert's "but for" theory of price erosion—the price that SynQor could have charged for its products covered by the patents had not the defendants infringed, forcing SynQor's actual prices downward. The prices proposed for the damages calculations were two to three times higher than the defendants' prices. SynQor justified its figure based on sales prior to the infringement. A representative of one such customer testified at trial that his company would not have paid the but-for price, but he admitted his company would have had to incur significant costs to redesign its end products to use any noninfringing power converter. The court concluded that, with this and other information, the jury had sufficient evidence to have accepted the but-for pricing estimate.
The district court's justifications for supplemental and enhanced damages resulted from post-verdict findings of continuing sales into the United States. First, according to the panel, there was no right to a jury trial on new factual issues arising post-verdict relevant to the supplemental damages, citing Amado v. Microsoft Corp., 517 F.3d 1353, 1362 n.2 (Fed. Cir. 2008). Second, the court noted that two defendants had issued stop orders on shipments, but each had also entered into indemnification agreements with its overseas customers with respect to post-verdict exports. By the terms of each indemnification agreement, the court concluded, each manufacturer had acknowledged that infringing products would be sold in the United States, satisfying the intent requirement for a showing of inducement.
As to the enhanced damages, the district court had found egregious conduct "in continuing, and even increasing, sales in the face of an infringement verdict," and had multiplied the damages attributed to post-verdict sales by a factor of 1.75. The panel found that this enhancement was proper under 35 U.S.C. §284.
In re Owens, Fed. Cir., 710 F.3d 1362, (Fed. Cir. 2013) (3/26/13). Use of different boundary lines might constitute new matter in design patent application.
The Federal Circuit affirmed a rejection of a continuation application for a design patent because the new application's use of unclaimed boundary lines appears to create a trapezoidal-shaped surface that was not in the original patent application.
Both a 2004 and a 2006 design patent application disclosed a design for a bottle. The later application was intended to claim three additional design elements. However, in an attempt to indicate what was being claimed, the 2006 application used unclaimed boundary lines. These broken lines created a visual impression of an addition of a trapezoidal-shaped surface area on the bottle that was not disclosed in the earlier application. Thus, the panel held that the later application adds new subject matter and therefore is not entitled to the filing date of the parent application under Section 120.
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High Point Design LLC v. Buyer's Direct, Inc., 2013 U.S. App. LEXIS 18836 (Fed. Cir.) (9/11/13). Summary judgment of invalidity of design patent reversed due to improper obviousness analysis.
The Federal Circuit reversed the district court's summary judgment as to invalidity of a design patent, noting several errors in the lower court's analysis of design patent obviousness and invalidity for functionality. The Circuit also vacated the dismissal of related trade dress infringement claims.
The unanimous panel, for whom Judge Schall was writing, first dealt with the issue of obviousness. According to Judge Schall, in the design patent context, the § 103 analysis has two steps. First, the court must identify a proper primary reference—i.e., a "something in existence" that has "basically the same" appearance as the claimed design. Then, assuming certain conditions are met, other references can be used to modify the primary reference "to create a design that has the same overall visual appearance of the claimed design." If this test is satisfied, then the patent should be considered obvious and invalid.
With respect to functionality, the panel stated that the standard for finding a design more functional than ornamental is that "the claimed design is ‘dictated by' the utilitarian purpose of the article," quoting L.A. Gear, Inc. v. Thom McAn Shoe Co., 988 F.2d 1117, 1123 (Fed. Cir. 1993). In making that determination, a district court should assess factors laid out in PHG Techs., LLC v. St. John Cos., 469 F.3d 1361, 1366 (Fed. Cir. 2006):
 whether the protected design represents the best design;
 whether alternative designs would adversely affect the utility of the specified article;
 whether there are any concomitant utility patents;
 whether the advertising touts particular features of the design as having specific utility; and
 whether there are any elements in the design or an overall appearance clearly not dictated by function.
According to the panel, the district court erred in instead assessing only whether the design's "primary features" can perform functions. Under that standard, the panel held, it would be impossible to get a design patent on an article of manufacture.
Finally, the court dealt with the plaintiff's trade dress claim, which it proposed to amend four days after the district court's deadline by adding details of the trade dress claimed. The lower court rejected the amendment and dismissed the trade dress claims with prejudice.
The panel noted the district court's discretion in deciding whether or not to excuse the late filing but faulted the trial judge's failure to explain why the plaintiff lacked good cause, an exception allowed under Fed. R. Civ. P. 16(b). "The only explanation provided by the district court for its refusal to allow BDI's amendment was its timing vis-a-vis the ‘stage of litigation.'" The Circuit thus vacated the dismissal and asked the district court to reconsider on remand "whether, if dismissal remains appropriate, that dismissal should be without prejudice."