The USPTO recently issued U.S. patent No 10,999,961.  That means the old odometer is about to roll over.  On Tuesday, May 11, 2021, at 12:01 a.m., we can expect Patent No. 11,000,000.

by Dennis Crouch

Cap Export LLC v. Zinus Inc. (Fed. Cir. 2021)

Zinus is the owner of U.S. Patent No. 8,931,123, which covers a particular bed frame that can assembled at home. A key feature of the invention is that back-side of the headboard includes a zippered compartment that can hold all of the pieces.  Rather than simply a bed-in-a-box, it is a bed-in-a-headboard.

The district court first sided with the patent challenger and awarded sua sponte summary judgment of obviousness based upon a bed-in-a-box reference. That decision was vacated by the Federal Circuit in a 2018 non-precedential decision since Zinus lacked notice and an opportunity to present evidence prior to the summary judgment determination.  On remand, the district court reversed itself — awarding summary judgment the other way — that the bed-in-a-box reference did not invalidate.  The court entered final judgment, awarding $1.1 million in damages and issued a permanent injunction.

One problem: The president of Zinus (Colin Lawrie) had given false testimony regarding the prior art (Lawrie was testifying both as a fact witness and a testifying technical expert). In particular, Lawrie testified that he had never “seen a bed that was shipped disassembled in one box.”  Later, Lawrie testified again and explained that his original testimony was “incorrect” but that at the time he was not intending to answer falsely.  In particular, it turned out that a Zinnus-related company had purchased/sold hundreds of beds in boxes that had not been found by Cap’s prior art searchers.  Lowrie’s later explanation was that he was focusing on the novel features of his company’s patent — a bed shipped disassembled with all of the components in the headboard.  The district court found Lourie’s explanation “wholly implausible.”

After learning of the falsity, Cap filed a R. 60(b) motion — asking the court to reconsider the case based upon the patentee’s fraud on the court.

On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons: . . . (3) fraud, misrepresentation, or misconduct by an opposing party;

FRCP 60(b).   The district court complied and set-aside the judgment.  The court found that Lawrie’s statements – as president of the company – counted as fraud by the party itself.  On appeal, the Federal Circuit has affirmed.

Fraud on the court does not require that the party show that the outcome would change but-for the fraud.  In this case, there is some dispute about whether the prior sales would invalidate the patent.  Here, it was enough to show that the fraud was material to central issues in the case.

In its conclusion, the Federal Circuit reached back to the hey-day of patent invalidation/unenforceability decisions from the Supreme Court in holding that the rules regarding fraud-on-the-court are particularly important in the patent infringement context:

“It is the public interest which is dominant in the patent system.” Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661 (1944). “The far-reaching social and economic consequences of a patent . . . give the public a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud or other inequitable conduct and that such monopolies are kept within their legitimate scope.” Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806 (1945). The functioning of the patent system requires that “everything that tends to a full and fair determination of the matters in controversy should be placed before the court.” Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240, 244 (1933) (quoting 1 Joseph Story, Commentaries on Equity Jurisprudence § 98 (W.H. Lyon, Jr. ed., 14th ed. 1918)). Here, Lawrie, Zinus’s president and expert witness, misrepresented his knowledge of highly material prior art. The district court properly declined to condone such conduct. The district court did not abuse its discretion in granting the motion to vacate the judgment under Rule 60(b)(3), and we affirm.

Slip Op.

by Dennis Crouch

In the USA, COVID vaccines have been widely distributed and are now available at no cost almost on-demand for anyone seeking vaccination.  Vaccines are not widely available in most other countries and global COVID cases are again at an all-time high.

And, people around the world don’t really trust that Pfizer, Moderna, and J&J are going to be serving them anytime soon.  That is where the TRIPS waiver comes into play.

TRIPS:  Countries around the world are asking for a waiver of some aspects of the international intellectual property (IP) agreement known as TRIPS as part of their response to the global COVID pandemic.  This IP Waiver would be a first step toward countries and companies around the world manufacturing, distributing, and importing already developed vaccines, such as those now being distributed in the USA by J&J, Pfizer, and Moderna. Without the IP waiver, a country could suffer trade penalties if they permitted production or importation in violation of rights.  The penalties are setup in a country-versus-country bases and do not allow for any private action by the individual rights holders. Thus,  the TRIPS dispute resolution process does not provide Pfizer standing to sue India for violating IP rights guaranteed under TRIPS; Rather Pfizer could only lobby to the U.S. Government to bring a case, which traditionally might have done.

The U.S. Government is reportedly going to support the waiver proposal, although there are current ongoing negotiations over its actual text and content.  Even without a WTO waiver, the US can also act unilaterally to announce that it would not bring any TRIPS cases associated with violations.  This is a major change of policy under President Biden and his new U.S. Trade Representative Katherine Tai.  In the past, the US has always been on the side of stronger IP rights and more enforcement.

Trade Secrets + Patents: In the short-run, the big difference is more about trade-secrets than patents.  In the longer run, patents may become equally important.

If we take India as an example, right now there are no patents that have been granted in India tied directly to the COVID response.   So, allowing India to waive its promise to enforce patents does not generate any short-term gains. Here, by short-term, I’m really talking about the next two years or so.  Hopefully by that time the pandemic will be gone.

Trade secrets are different, most of the “intellectual property” wrapped up in COVID vaccine manufacture is currently being held as trade secrets.  Obviously the companies manufacturing the product have the information. Many countries also have information that they received in the process of (1) funding the research and (2) determining whether to allow the vaccines to be distributed.  International espionage is also a major element here that will put the information in the hands of various  governmental agencies.

TRIPS require that countries protect trade secrets, and also keep secret the information provided as part of regulatory approval.

Article 39

1. In the course of ensuring effective protection against unfair competition … Members shall protect undisclosed information in accordance with paragraph 2 and data submitted to governments or governmental agencies in accordance with paragraph 3.

2. Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices (10) so long as such information: (a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) has commercial value because it is secret; and (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

3. Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.

[TRIPS Text]

The original proposed WTO waiver would have waived this trade secret protection requirement — a really big deal.

Waiver of the requirement does not force the companies to actually conduct any technology transfer — to provide the information to others who want to manufacture.  BUT, it does open the door to governments sharing the information and also to a major WIKILEAKS style sharing of data and information.  I believe that a whistle-blowing is actually quite likely because so many scientists and business insiders are wanting to do everything they can to spread the vaccine, but don’t believe that it will be permitted by the CEOs and Shareholders.

The other thing that this does is substantially shift the negotiation positions.  This waiver signals to the current vaccine-makers to speed-up global access.

We’ll be looking for President Biden’s action on this as we move forward.  As I mentioned above, negotiations are ongoing and I expect a focus on timelines (when does the waiver end) and scope (exactly what is being waived).

Here is the outcome of a twitter poll on prisoner lawsuits. The poll was prompted by the pending lawsuit of Tormasi v. Western Digital. Tormasi is a patentee and has sued Western Digital for patent infringement.  The district court dismissed his case and that finding was affirmed by the Federal Circuit.  Both courts held that as a prisoner in N.J. state prison, Tormasi has lost his right to conduct any business, including enforce his patent rights.   The case is pending on a petition for writ of certiorari before the U.S. Supreme Court.

by Dennis Crouch

In re Modern Font Applications LLC (Fed. Cir. 2021)

The Federal Circuit denied MFA’s petition for mandamus on a discovery dispute, and Chief Judge Prost but wrote an interesting short opinion explaining the panel’s reasoning.  In the case, MFA has asserted its U.S. Patent No. 9,886,421 that covers  a method of displaying “non-standard fonts” on your handheld device when accessing a network-document.

Alaska Airlines is the defendant in this case and submitted a discovery request of MFA’s prior settlement agreements. In civil litigation discovery  requests are generally guided by three pillars: privilege, relevance, and proportionality.

FRCP 26(b)(1) Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case.

Prior settlement agreements tend to be quite relevant to for any damages calculations, but MFA refused to comply with the request based upon privilege.  Although the prior agreements had been shared between litigating parties, with the settlement agreement the parties became unified (at least with regard to the agreement) and the result is “common interest privilege.”

The magistrate judge ordered disclosure, confirmed by the district court, and now the Federal Circuit has refused to act on the mandamus petition (other than denying it).  Most appeals are taken after final judgment in a case. Mandamus is a shortcut to get an immediate decision from an appellate court on an interlocutory issue (such as discovery disclosure), but is only rarely granted.  The court notes that it will only grant mandamus in cases involving a “clear and indisputable right to relief [where there are] no other adequate means to attain the relief.” Slip op., quoting Cheney v. U.S. Dist. Ct. for D.C., 542 U.S. 367 (2004).  Even where those elements are met, the district court also has discretion to decide whether granting the writ is “appropriate under the circumstances.” Id.

In its opinion, the court did not fully decide the issue of common interest privilege in the settlement context, but noted that the Federal Circuit has previously declined to recognize the form of privilege. See In re MSTG, Inc., 675 F.3d 1337 (Fed. Cir. 2012) (holding that pre-settlement communications were not privileged). The court went on to note that even if common interest privilege were adopted in this context, the parties must still show that the withheld documents are “communications by a client to an attorney made in order to obtain legal assistance from the attorney in his capacity as a legal advisor.”

The outcome here makes sense and also begs the question — why is MFA trying to hide its prior settlement agreements?

Editor’s Note: Avery Welker is a 1L at Mizzou and likely a future patent attorney. He is starting a new series linking law school canonical cases with intellectual property counterparts. You can email ideas for future posts to avery@patentlyo.com.  – Dennis Crouch

By Avery Welker

The first line of class notes I took in Civil Procedure during our discovery module says, “Spoliation – OLD LEGAL DOCTRINE.” I’m not sure why I felt the need to emphasize that spoliation is an old doctrine at the time, but it makes sense now. Oddly, my note reflects the importance of the doctrine and how it has stood the test of time. Zubulake V, the first case in my Civil Procedure discovery module, is a perfect example of the dangers facing a party if they are not diligent about evidence preservation. Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004) (“Zubulake V”). Sanctions were the “spoils” that Skyline Steel, LLC (Skyline / Plaintiff) sought over PilePro, LLC (PilePro / Defendant) during a “bitter” patent suit between the two companies. Skyline Steel, LLC v. PilePro, LLC, 101 F.Supp 3d 394, 397 (S.D.N.Y. 2015).

Skyline and PilePro are merchants of sheet pile wall systems and components. Id. at 397-98. Sheet pile walls are structures deployed to retain soil or water and are built out of vertical interlocking sheet sections. E.g., Nucor Skyline. PilePro made accusations that Skyline was infringing PilePro’s patent, U.S. Patent No. 8,856,543, through letters and claims on their website. U.S. Patent No. 8,856,543 (filed Mar. 31, 2008) (issued Oct. 15, 2013) (‘543 Patent); Skyline, 101 F.Supp 3d at 397. In relevant part, the ‘543 Patent covers a two-step method for manufacturing a sheet pile section with an interlock connector. U.S. Patent 8,856,543. First, the preliminary wall is formed with a “material accumulation” at the side with the interlock connector, which is then shaved down by shape-cutting to produce a uniform cross-section throughout the interlock connector. Id. The method claims to be able to make different types of connectors, including a T-carrier, Hoesch claw, and a Larsson hook, through the processes shown in figures 1, 2, and 3, respectively, of the ‘543 Patent (shown below). Id. at figs. 1-3.

PilePro’s accusations of infringement on the ‘543 Patent have an interesting origin. To obtain the ‘543 Patent, PilePro had to differentiate their process from an earlier patent, named the “Hermes I.” Skyline, 101 F.Supp 3d at 398. The location of the material accumulation was at issue. Id. The ‘543 Patent differentiated itself (through the eyes of the USPTO) by noting that the material accumulation was only at the area to be made into the interlock, and not the entire flange, as in Hermes I. Id. Hermes I is owned by ArcelorMittal Commercial RPS, which manufactures a sheet pile system called the “HZM System,”  distributed by Skyline. Id. Soon after the ‘543 Patent was issued, PilePro sent letters to Skyline and current and potential customers of Skyline that PilePro would hold the customers liable for damages PilePro was entitled to for the use of the HZM System, which PilePro claimed may infringe on the ‘543 Patent. Id. In addition, PilePro posted a public warning on their website for about a month and a half that the HZM System was infringing on the ‘543 Patent. Id.

PilePro’s spoliation woes flowed from this website. Skyline contended that PilePro failed to produce two types of evidence related to who viewed the warning on PilePro’s website: (1) Google Analytics data and (2) sever log data collected by “PaperTrail” which are both used to track website traffic, among other analytics. Id. at 407.

Here, the court found some guidance in Zubulake V. This case, the fifth opinion in the Zubulake series, details the importance of an attorney’s duty to carefully and thoughtfully ensure everybody in a company is on the same page when it comes to file preservation in anticipation of litigation. You can feel the irritation written into the opinion about this dispute dragging out: “This is the fifth written opinion in this case, a relatively routine employment discrimination dispute in which discovery has now lasted over two years.” Id. at 424.

Laura Zubulake, an equities trader, filed a complaint against her employer, UBS Warburg, LLC (UBS), alleging gender discrimination, failure to promote, and retaliation. Id. at 425. UBS was on notice that Zubulake would file a complaint, and their counsel instructed employees to preserve any evidence that could be used through the claim. Id. However, as you may guess, the employees failed to preserve evidence on several occasions (hence Zubulake I – IV), and where they did preserve evidence, labored in presenting it timely. Id. at 436. The penalty of sanctions for UBS was sweeping, compensating Zubulake for the troubles of the missing and delayed evidence through charging UBS for costs of depositions, paying the cost of the sanctions motion, and giving the jury an adverse instruction for the irrecoverable data. Id. at 436-37.

The court in Zubulake V detailed several (non-exhaustive) steps that counsel should be taking in continually fulfilling the common law duty to preserve evidence: (1) issue and periodically reissue a “litigation hold” when litigation is anticipated; (2) communicate the importance of this hold to “key players,” who are people identified by the initial party disclosure; and (3) direct all employees to immediately turn over any active files for prompt backup and safeguarding. Id. at 433-34. Very convenient and concise for learning in Civil Procedure.

Luckily for PilePro, you don’t have to preserve evidence that never existed. PilePro’s third-party vendor deactivated Google Analytics before the warning went live on PilePro’s website, which was also before Skyline put PilePro on notice of litigation. Skyline, 101 F.Supp 3d at 408. Skyline did not produce evidence that PilePro knowingly directed their third-party vendor to shut down the analytics. Id. at 408-09. PilePro claimed to not know about the deactivation until April 2014. Id. The court concluded that PilePro was unaware of the deactivation had no duty to preserve this evidence. Id. at 409.

The failure to preserve server logs is a different story. This evidence existed but was overwritten weekly, apparently a part of their data policy. Id. The court concluded that when PilePro was put on notice, shortly after posting the message on their website, they had a duty to preserve those logs. Id. The court also found that PilePro acted with a culpable state of mind, defined as at least negligent conduct because counsel for PilePro did not continually ensure the preservation of evidence and communicate this to key players, which allows for a spoliation inference. Id. at 410-11.

The court then needed to determine appropriate sanctions. Because PilePro was merely negligent and did not willfully engage in spoliation, the court did not impose an adverse jury instruction on the missing logs but chose to prevent PilePro from using this lack of evidence against Skyline. Id. at 412. Additionally, PilePro was instructed to reimburse Skyline for the costs associated in moving for sanctions. Id. Skyline won the big prize as well: summary judgment on Skyline’s noninfringement claim was granted. Id. at 403.

The Zubulake V court expressed the duty and dangers of spoliation simply:

At the end of the day, however, the duty to preserve and produce documents rests on the party. Once that duty is made clear to a party, either by court order or by instructions from counsel, that party is on notice of its obligations and acts at its own peril.

Zubulake at 436.

Discovery is one of the unique cornerstones of American legal practice, and spoliation helps protect the integrity of the discovery process.

by Dennis Crouch

Tormasi v. Western Digital, Docket No. 20-1396 (Supreme Court 2021)

Walter Tormasi is a prisoner in the New Jersey state prison system. He is serving a life sentence for murdering his mother when he was 16 years old after apparently receiving encouragement from his father, Attila.

Tormasi is also a patentee.  His U.S. Patent No. 7,324,301 covers a computer hard-drive that allows for “simultaneously and independently” reading and/or writing on different carrier surfaces within the drive.   The patent looks fairly sharp.  Although Tormasi began the prosecution pro se, he later worked with John Kane, a Trenton-based patent attorney, to push through to issuance.

In 2019 Tormasi sued Western Digital in the N.D. Cal — asserting that the defendant’s dual-actuator drives infringed Tormasi’s patents. Rather than reaching the merits, the district court dismissed the case on procedural grounds.  The district court ruled that Tormasi lacked the capacity to sue and the Federal Circuit then affirmed.  The majority opinion is per curiam from Judges Wallach and Chen.  Judge Stoll wrote in dissent.

Capacity to Sue: Under the Federal Rules of Civil Procedure, a plaintiff’s capacity to sue is determined “by the law of the individual’s domicile.”  For Tormasi, that is New Jersey.  New Jersey has a statute on point: “Every person who has reached the age of majority . . . and has the mental capacity may prosecute or defend any action in any court.” N.J. STAT. ANN. § 2A:15-1 (2013).  However, New Jersey’s Prison Administrative Code sets forth regulations that prohibit prisoners from “operating a business … without the approval of the Administrator” N.J. ADMIN. CODE § 10A:4-4.1.   Tormasi does not have the Adminstrator’s approval.  The courts found that this non-statutory administrative rule was sufficient to limit the state statute — superseding his right to file a lawsuit in his personal capacity.  It seems to me that rule eliminating a party’s right to file a civil lawsuit probably should have been a bit more direct.

Prisoner is a patent owner. Should he be permitted to sue in Federal Court to enforce the patent?

— Dennis Crouch (@patentlyo) May 3, 2021

Tormasi represented himself pro se at the district and appellate court levels. However, Thomas Lewry and his team at Brooks Kushman recently took-up the case and have petitioned for Supreme Court review.

Three questions presented:

1. Does imprisonment (1) forfeit a patent owner’s right not to be deprived of personal property without due process of law and (2) render a person wholly without equal protection of the law?

2. Does Lewis v. Casey, stating that the right of access to the courts “does not guarantee inmates the wherewithal to transform themselves into litigating engines,” enable state agencies to affirmatively eliminate an inmate’s access to court on general civil matters?

3. The patent statute authorizes patent owners to enforce their constitutionally recognized  exclusionary rights in federal court. Did the lower courts create a dangerous slippery slope that (1) establishes a mechanism by which states can, via an administrative rule, nullify federally granted statutory rights and (2) oppresses prisoners by depriving them of property without redress?

SupremeCourtCertiorariPetition (Appendix) (Fed. Cir. Decision)

I would add a fourth question focusing on the particular patent statute: 35 U.S.C. § 281, which expressly provides a remedy for patent infringement to the patentee: “A patentee shall have remedy by civil action for infringement of his patent.” As interpreted by the Federal Circuit, the rules of procedure are in conflict with this statute and one of the two must bend.

Still, perhaps the answer comes within the 13th Amendment’s pronouncement that slavery is still permitted within the United States “as a punishment for crime.”

At the Supreme Court, responsive briefing is due from Western Digital by May 28, 2021.  Joining Lewry on the brief are REZA ROGHANI ESFAHANI, DUSTIN ZAK, and LEROY ASHLEY.

NJ Law Limiting Patentee’s Capacity to Sue Upheld on Appeal

Invention of a Slave and the Ongoing Movement For Equal Justice

by Dennis Crouch

Bio-Rad Labs, Inc. v. ITC and 10X Genomics (Fed. Cir. 2021)

At its core, this is an employer-inventor dispute in the area of gene sequencing technology.  Saxonov & Hindson co-founded company QuantLife that was bought out by Bio-Rad. The pair then became Bio-Rad employees. At both companies they signed agreements to transfer invention rights to Bio-Rad. In April 2012 the pair left Bio-Rad; in July 2012 formed 10X; and began filing new patent applications in August 2012. These applications eventually issued as patents and include the patents-in-suit: US Patent Nos. 9,689,024, 9,695,468, and 9,856,530.

Bio-Rad and 10X are competitors and 10X sued for patent infringement.  In defense, Bio-Rad argued that it owns the patents.  The USITC rejected that argument and the Federal Circuit has now affirmed.

The agreements are clear that they are limited to the term of employment: Each promised to assign anything conceived, developed, or reduced-to-practice “during the period of my employment.”

In this case, it appears that Hindson and Saxonov conceived of some aspects of the inventions while still at Bio-Rad, but did not have complete conception until after leaving employment.   Still, Bio-Rad argued that the advances while employees was enough.  In reviewing the record, the ITC found that these early-stage ideas were too generic to count.  Bio-Rad then renewed the argument on appeal. The following comes from Bio-Rad’s brief:

About a year after selling QuantaLife to Bio-Rad for more than $160 million, the two inventors left Bio-Rad to form 10X. Then, in less than four months, they filed applications leading to the asserted patents. Under well-established ownership and inventorship principles, Bio-Rad owns a pro rata share of the patents based on the work that two of the six inventors conceived at QuantaLife/Bio-Rad. Their work was not a vague hope for a future research plan, but a specific solution to a problem using specific reagents. At a minimum, their work met the threshold required for co-inventorship. The error below was to require a single “eureka” moment contrary to the controlling contractual language; the ITC ignored that multiple people can contribute to patented inventions over time and that co-inventors each do not have to conceive all elements of a patent claim.

BioRadBriefOnAppeal.

On appeal, the Federal Circuit affirmed — affirming that “the assignment provisions do not apply to a signatory’s ideas developed during the employment (with Bio-Rad or QuantaLife) solely because the ideas ended up contributing to a postemployment patentable invention in a way that supports co-inventorship of that eventual  invention.”  In particular, the terms of the agreement was limited to Intellectual Property, and mere ideas don’t count as intellectual property.

The Agreement covers: All inventions . . . which I may solely or jointly conceive, develop, or reduce to practice during the period of my employment by Bio-Rad

Federal Circuit: The most straightforward interpretation is that the assignment duty is limited to subject matter that itself could be protected as intellectual property before the termination of employment.

This was a California employment contract — adding additional weight to the conclusion that prior employer gets nothing:

California law recognizes significant policy constraints on employer agreements that restrain former employees in the practice of their profession, including agreements that require assignment of rights in post-employment inventions.

Id. Note that the court cited its own prior precedent as to the scope of California Law rather than actual California cases.

= = = = =

This case offers an interesting piece in the puzzle of inventorship. One interpretation of Bio-Rad is simply that ownership and transfer of intangibles, including pre-invention intangible rights, are a matter of state law. In this case, the contract (as interpreted under California law) would not require transfer of ownership rights to the former employer.  In this vein, employers may be reevaluating their employment contracts to ensure that they capture rights to innovations do not raise to the level of invention.

At the same time, the case also offers a counterpoint to Dana-Farber Cancer Inst., Inc. v. Ono Pharm. Co., Ltd., 964 F.3d 1365 (Fed. Cir. 2020). In Dana-Farber,we had pre-conception contribution of ideas that – on their own – were not patentable. The court found those contributions sufficient for a claim of co-ownership.

= = = = =

The court does not go into this, but I’ll also note that Saxonov & Hindson’s employment contract with Bio-Rad was not a standard contract signed by regular scientists or engineers.  These two founded a company that was bought out for more than $100 million.  I’m confident that these terms were negotiated and well-lawyered before the deal was done.