District Court Abused Discretion in Ignoring Federal Circuit Mandate to Reconsider Attorneys’ Fees Under Octane Fitness

In Adjustacam, LLC v. Newegg, Inc., Appeal No. 2016-1882, the Federal Circuit held that a district court abused its discretion in denying attorneys’ fees when the court failed to follow the Federal Circuit’s mandate to reconsider the case under a new legal standard, and when the facts independently merited an award of attorneys’ fees.

AdjustaCam sued Newegg and other defendants for infringing a patent directed to a rotating clip for a webcam. Shortly after an adverse claim construction order, AdjustaCam settled with most defendants but continued to litigate against Newegg. AdjustaCam eventually moved to dismiss the case with prejudice, and Newegg moved for a declaration of exceptional case under 35 U.S.C. § 285 and an award of fees, pointing to AdjustaCam’s past nuisance-value settlements, weak infringement positions post-Markman, and abusive litigation tactics.

The district court denied Newegg’s motion and Newegg appealed. The Supreme Court then issued its decision in Octane Fitness, and the Federal Circuit remanded for reconsideration in light of Octane. On remand, a new judge adopted the previous judge’s factual determinations without much explanation and again concluded that the case was not exceptional. Newegg again appealed.

The Federal Circuit reversed, finding that the district court abused its discretion for two reasons. First, the district court failed to examine the case under the totality of the circumstances and lower burden of proof required by Octane Fitness. By adopting the previous judge’s findings of fact without substantive analysis, the court did not follow the Federal Circuit’s mandate. Second, the district court clearly erred in its findings about the substantive strength of AdjustaCam’s case. The Federal Circuit found that AdjustaCam’s suit became “baseless” after the claim construction decision and that AdjustaCam litigated in an “unreasonable manner,” especially by repeatedly serving belated expert declarations and reports. The court further found that AdjustaCam’s pattern of seeking nuisance-value damages reinforced a conclusion of unreasonableness.

Federal Circuit Reverses PTAB for Improper Means-Plus-Function Analysis

In IPcom GmbG & Co. v. HTC Corporation, Appeal No. 2016-1474, the Federal Circuit held that the PTO may not interpret mean-plus-function limitations as purely functional based on the “broadest reasonable interpretation” standard. Instead, the PTO must look to the specification for the corresponding structure that performs the function.

IPCom sued HTC for allegedly infringing a patent directed to methods and systems for handing over a phone call from one base station to another. HTC requested inter partes reexamination. In construing the means-plus-function limitation “arrangement for reactivating the link,” the Board rejected IPCom’s proposed 3-step algorithm for performing the function. However, the Board did not identify what it believed to be the correct algorithm from the specification. Instead, the Board determined that each individual step of IPCom’s proposed algorithm was not separately necessary. Thus, the Board held that several claims were obvious after concluding that it need not consider whether the prior art disclosed any of the three steps.

IPCom argued that the Board erred by never identifying the structure in the patent specification that corresponds to the “arrangement for reactivating the link” term. The Federal Circuit held that the Board impermissibly treated that limitation as a purely functional limitation. The Board’s conclusion was inconsistent with the Federal Circuit’s prior decision in In re Donaldson Co., 16 F.3d 1189, 1193 (Fed. Cir. 1994), which held that the PTO may not disregard structure disclosed in the specification that corresponds to a means-plus-function limitation. Thus, the Federal Circuit vacated and remanded the Board’s finding of obviousness based on the term “arrangement for reactivating the link.”

Federal Circuit Affirms Invalidity of Patent Claims for Soft Gel Capsule Version of Coenzyme Q-10

In Soft Gel Technologies, Inc. v. Jarrow Formulas, Inc., Appeal No. 2016-1815, the Federal Circuit affirmed the invalidity of patent claims directed to soft gel CoQ10 capsules, holding that the legal standard for obviousness requires a reasonable expectation of success, not absolute predictability.

Jarrow Formulas requested inter partes reexaminations of three related patents directed to using d-limonene (a monoterpene) as a solvent for CoQ10. The PTAB invalidated numerous claims from each of the three patents for obviousness. On appeal, Soft Gel challenged the Board’s factual finding that a person of ordinary skill would have had a reasonable expectation of success in combining prior art references. Soft Gel argued that, because the references cited by the Board did not expressly mention d-limonene, a person of skill in the art would not have expected d-limonene to function like carvone, the monoterpene that was actually disclosed by the prior art. The Federal Circuit rejected this argument, noting that another prior art reference discussed future studies on interactions between CoQ10 and essential oils, such as limonene. As the Board correctly noted, “[t]hose recommendations for future research show that a person of skill in the art would have recognized [] that the monoterpenes limonene and carvone are of interest in the essential oil–CoQ10 mixtures. “

Soft Gel also highlighted follow-up research by a prior-art author that evaluated the use of d-limonene in drug delivery systems. Soft Gel argued that the reason for conducting follow-up research was because it was not obvious that the results in the prior art experiments were attributable to d-limonene. The Federal Circuit rejected this argument because “Soft Gel applies an incorrect legal standard for obviousness, requiring ‘absolute predictability’ rather than a reasonable expectation of success.” The Federal Circuit reasoned that a “supplemental study does not imply lack of awareness of the likely result; rather, studies are frequently conducted to confirm what is suspected to be true.”

District Court May Sanction Discovery Abuses with Adverse Inference of Specific Intent to Deceive the USPTO

In Regeneron Pharmaceuticals v. Merus N.V., Appeal No. 2016-1346, the Federal Circuit held that a district court did not abuse its discretion in drawing an adverse inference of specific intent to deceive the patent office due to the plaintiff’s widespread litigation misconduct.

Regeneron sued Merus for patent infringement. Merus counterclaimed for a finding of unenforceability due to inequitable conduct based on four prior art references that were withheld from the examiner during prosecution of the asserted patent. The district bifurcated the inequitable conduct trial into two bench trials to determine the materiality of the prior art references and Regeneron’s specific intent to deceive the PTO. At the first bench trial, the district court held that each of the four withheld prior art references were were not cumulative and, in fact, were but-for material to prosecution. However, instead of holding a second bench trial on specific intent, the district court sanctioned Regeneron for widespread litigation misconduct by drawing an adverse inference of specific intent by Regeneron to deceive the PTO.

The Federal Circuit affirmed. The court noted that Regeneron’s behavior during litigation, in which Regeneron repeatedly failed to make full and adequate production of documents during discovery by withholding non-privileged documents relating to the alleged attempt to deceive the PTO, suggested a pattern of misconduct. This pattern of misconduct during litigation was sufficient to support an adverse inference that Regeneron had specific intent to deceive the PTO by withholding material references during prosecution. The Federal Circuit reasoned that Regeneron’s litigation misconduct had obfuscated its prosecution misconduct, and concluded that the district court did not abuse its discretion by drawing an adverse inference of specific intent to deceive the PTO.

In dissent, Judge Newman argued that specific intent to deceive cannot be inferred, and must be proved by clear and convincing evidence. She also argued that, while litigation misconduct can support dismissal of a suit, unenforceability must be established based on the law of enforceability and should not be imposed as a discovery sanction.