May 2019

102(f), Where have you Gone?

Patent,

Endo v. Actavis (Fed. Cir. 2019)

Obviousness is a tough issue to appeal because its flexible fact-heavy analysis lends itself to giving deference to the fact-finder.  This is a case-in-point.

Endo is the exclusive licensee of Mallinckrodt’s U.S. Patent 8,871,779 covering a form of the opioid oxymorphone.  Claim 1 is directed to a highly pure form of “oxymorphone” with “less than 0.001% of 14-hydroxymorphinone.”

Actavis argued that the claims were invalid as obvious.  However, following a bench trial the Delaware district court sided with the patentee — holding that the claims had not been proven invalid with clear and convincing evidence.

The district court did make a major legal mistake — holding that confidential communications between the FDA and oxymorphone producers (including the patentee) were not prior art.  In the communications, the FDA “mandated that opioid
manufacturers reduce ABUK impurities in oxycodone and oxymorphone to below 0.001%” — the exact result claimed by Mallinckrodt. On appeal, the Federal Circuit found the communications prior art under pre-AIA § 102(f) (“A person shall be entitled to a patent unless (f) he did not himself invent the subject matter sought to be patented.”).  Note that 102(f) was eliminated by the AIA and so this type of confidential communication will likely not be counted as prior art in future cases.

On appeal, the Federal Circuit held that the FDA communication – despite being prior art – did not show that the claims were obvious. Although the communications expressly set out the low-impurity goal and was the motivational force for the research, it did not set out the solution created by the patentee.

The majority opinion was penned by Judge Wallach and joined by Judge Clevenger.  Judge Stoll wrote in dissent — arguing that the error was not harmless.  In particular, the FDA mandate actually expressly discloses every limitation found in claim 1, “yet, the district court determined that this mandate did not disclose ‘anything substantive relevant to obviousness.'”

While we owe deference to a district court’s factual findings, such deference is not due where the trial court applies the incorrect standard to arrive at those findings. I would vacate the district court’s decision and remand for a proper analysis under the correct legal standards.

According to the dissent, the FDA statement would have provided substantial motivation to combine prior art references that worked toward the proffered solution.

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102(f) what have we lost: Inventor is given secret information that leads to creation of the invention.  That information is a 102(f) reference under pre-AIA law and can also be used to as part of an obviousness argument. Post-AIA, the provision was wholly eliminated except that the law still supports a narrow action for complete derivation.

CAFC Affirms Exceptional Case and Maybe Encourages Sand-Bagging

Ethics, Patent

By David Hricik

Thermolife Int’l LLC  v. GNC Corp. (Fed. Cir. May 1, 2019) (here) is pretty interesting.  Plaintiffs (Stanford University was one of them) filed about 80 lawsuits, settling many for nuisance value.  Among the 80 defendants were Hi-Tech Pharmaceuticals, Inc. and Vital Pharmaceuticals, Inc. (“Hi-Tech”).  The defendants moved for and lost summary judgment on invalidity, but then the parties agreed to bifurcate further proceedings, with invalidity being determined first.

The trial court held after a bench trial that the asserted claims were invalid under 102 and 103.  A month after that, Hi-Tech moved for an exceptional case finding, but based upon lack of adequate pre-suit investigation into (wait for it) infringement.  The accused products had been publicly available and their labels indicated no infringement (insufficient amounts of one ingredient).

The court allowed plaintiff’s counsel to explain what pre-suit investigation had been done, but the trial court struck the declaration as belated.  Beyond that, the response did not fully address the claims and issues Hi-Tech had raised.  The court then found the case exceptional, essentially reasoning that because the labels indicated no infringement and the products were publicly available, the lawyers should have tested them, but did not.

The panel affirmed (Taranto, Bryson, Stoll).  Calling the determination unusual, the court nonetheless found no abuse of discretion. It noted that Hi-Tech had not “give early notice of the defects in plaintiffs’ infringement assertions that later became he basis for the fee award,” but concluded that because of the numerous suits and need to consolidate this “reasonably led not only to coordination among numerous defendants but to the agreement of all parties, for efficiency, to give priority to the common issue fo validity so that even discovery as to party-specific issues like infringement could be postponed.”  In addition, the court found no abuse of discretion that the pre-suit investigation had been inadequate given the labels and publicly-available products.

I suppose in the narrow sense of mass consolidated suits, the award of fees makes sense, but if the concept is taken out of context, one could imagine defense firms racking up hours hoping for a win on a hard issue while then using an easy issue to establish an exceptional case.  Further, if the invalidity case was close, presumably the amount of fees (not mentioned in the appeal and not challenged) would reflect some discount or adjustment since invalidity was, presumably, not “out of the ordinary.”

Interesting case, not for the merits of finding no adequate pre-suit investigation, but for the rest.

The CASE Act: Copyright Small Claims Court

Patent,

by Dennis Crouch

Few patent litigators would file a lawsuit if the potential payout is less than $1,000,000 — that amount ordinarily does not cover the expected cost of litigation and risk of loss. Except in the most simple cases, copyright litigation can be similarly expensive.  What this means is that it can be difficult to earn a regular ‘living’ independently creating and licensing intellectual property.

A bipartisan group of legislatures are working on a small claims solution and have proposed the CASE Act: Copyright Alternative in Small-Claims Enforcement Act of 2019.

The basics: The statute calls for creation of a “Copyright Claims Board” empowered to decide infringement cases with a limit of $30,000 damage award per case and no injunction (except to enforce a settlement agreement) and no attorney fees (except for bad faith conduct).  Although the Board will be based in DC, hearings will be via the internet with very limited procedural requirements.

I like it in theory, but need to consider implementation aspects.  Small claims IP court in the UK has received a good amount of positive response — three tiers: Small Claims (<£10,000); Smallish Claims (<£500,000); and Everything Else.

Read the Bill: https://www.congress.gov/bill/116th-congress/house-bill/2426/text

 

 

Unfair Competition at the USITC

Patent,

Amarin Pharma, Inc. v. International Trade Commission (Fed. Cir. 2019)

In 2017, Amarin filed a Section 337 complaint at the ITC — alleging unfair competition against several dietary supplement importers.  Amarin sells a prescription drug containing a particular omega-3 fatty acid known as EPA (eicosapentaenoic acid).

A number of supplement companies started importing synthetic omega-3 fatty acids and Amarin looked for a way to shut them down.  Although Amarin’s formulation is patented, the importers are apparently not close-enough to infringe the patents.  Amarin thus turned to unfair competition law with the following logic: The imported “supplements” are actually drugs that have not been FDA approved and are not properly labelled.  The Food, Drug, and Cosmetic Act (FDCA) requirements served as the foundational basis for the lawsuit.  Here, however, the FDA intervened to argue that the FDCA prohibits private enforcement actions “including unfair trade practice claims that seek to enforce the FDCA.” (quoting opinion).

The ITC then dismissed the case — agreeing that the allegations here are precluded by the FDCA.  POM Wonderful LLC v. Coca-Cola Co., 573 U.S. 102, 109 (2014) (“Private parties may not bring [FDCA] enforcement suits.” (citing 21 U.S.C. § 337)).

On appeal, the Federal Circuit has affirmed holding:

  1. The appellate court has authority to review refusals to non-institution decisions that are effectively final determinations on the merit.
  2. The ITC has discretion as to whether to institute an investigation. In particular, “the Commission may decline to institute an investigation where a complaint fails to state a cognizable claim under § 337.”
  3. On the merits here, the “complainant fails to state a cognizable claim under § 337” since the claim cannot be fundamentally based upon a yet-unadjudicated  claim of FDCA violation. “Such claims are precluded by the FDCA.”

The majority opinion was authored by Chief Judge Prost and joined by Judge Hughes.  Judge Wallach wrote in dissent —  arguing that the court did not have appellate jurisdiction because the ITC’s refusal to institute an investigation does not count as a “final judgment” as required by the Federal Circuit’s jurisdictional statute. (The court has jurisdiction “to review the final determinations of the [ITC] relating to unfair practices in import trade, made under [§ 1337].” 28 U.S.C. § 1295(a)(6).)

= = = =

In my mind, the case leaves-out a major element — the fact that ITC Section 337 litigation is not a civil action brought by a private party.  Rather, investigations are instituted and conducted by the ITC. This is why, on appeal, the ITC is always a party rather than just the decision-maker.   Thus, at least technically, ITC proceedings are “by and in the name of the United States” as required by the FDCA act.

TTI v. IBG: Federal Circuit clarifies meaning of “technical solution to a technical problem”

Patent,

Trading Technologies International, Inc. v. IBG LLC, Interactive Brokers, LLC (Fed. Cir. April 19, 2019).  Panel: Moore (author), Mayer, and Linn  Download TTI v IBG (April 18, 2019)

Trading Technologies International, Inc. v. IBG LLC, Interactive Brokers, LLC (Fed. Cir. April 30, 2019), Panel: Moore (author), Clevenger and Wallach.  Download TTI v. IBG (April 30, 2019)

This is a long post since it covers two opinions addressing Covered Business Method (CBM) review for business method claims, plus discussion of two related opinions for good measure.  tl;dr: The Federal Circuit affirmed the PTAB that the claims are subject to CBM review and are directed to ineligible subject matter.  Along the way it clarified some its jurisprudence interpreting the threshold CBM review regulation.

A potential conflict disclosure at the outset: MBHB, which represented Trading Technologies on these appeals, is the primary financial sponsor of PatentlyO.

On to the writeup…

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Background

Both April opinions in TTI v. IBG involve the same procedural posture, the same general subject matter (displaying market information to traders), and the same issues on appeal: whether the claimed inventions are subject to the “technological inventions” exception to CBM review and whether they claim patent eligible subject matter.  In both cases, the PTAB concluded that the patents were subject to CBM review and held the patents directed to patent ineligible subject matter.  Of the two opinions, the court’s April 18, 2019 opinion is meatier on both issues, so I’ll mainly focus that one.

The two April opinions also provide a counterpoint to the court’s February nonprecedential opinion involving the same parties, the same area of technology, the same procedural posture (appeal from Covered Business Method review decisions by the PTAB), and for some of the patents, the same outcome at the PTAB: lack of subject matter eligibility.   See TTI v. IBG (Fed. Cir. Feb 13, 2019) (nonprecedential).  Writing per curiam, the panel in the February opinion (Judges Lourie, Moore and Reyna) held the patents were for “technological inventions,” and thus were not properly subject to CBM review.  In the two April opinions, overlapping panels (Judges Moore, Mayer and Linn in one and Judges Moore, Clevenger and Wallach in the other) reached the opposite conclusion on different sets of GUI patents.

“Patents for Technological Inventions”

A threshold question for CBM review is whether the patents-in-suit are “patents for technological inventions.   Generally, CBM review is available “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service…”  America Invents Act, § 18(a)(1)(E).  However, this mechanism comes with an important caveat: “…except that this term does not include patents for technological inventions.”  Id.

The USPTO regulation implementing the “technological invention” exception states that:

In determining whether a patent is for a technological invention solely for purposes of the Transitional Program for Covered Business Methods (section 42.301(a)), the following will be considered on a case-by-case basis: whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution.

37 C.F.R. § 42.301(b). In Versata v. SAP, 793 F.3d 1306 (Fed. Cir. 2015), the Federal Circuit criticized the regulation while offering a sliver of guidance.  “In short, neither the statute’s punt to the USPTO nor the agency’s lateral of the ball offer anything very useful in understanding the meaning of the term ‘technological invention,'” the court wrote, concluding that “we agree with the PTAB that this is not a technical solution but more akin to creating organizational management charts.”  Id. at 1326, 1327.  

In a subsequent opinion, the court clarified the regulation as involving a “prong”-type analysis: that is, if a patent fails to meet either the “technological feature” or the “solves a technical problem using a technical solution,” it is not a “technological invention.”  See Apple v. Ameranth, 842 F.3d 1229, 1240 (Fed. Cir. 2016) (“We need not address this argument regarding whether the first prong of 37 C.F.R. § 42.301(b) was met, as we affirm the Board’s determination on the second prong of the regulation—that the claimed subject matter as a whole does not solve a technical problem using a technical solution.”)  The court did not elaborate on the meaning of the “solves a technical problem using a technical solution” language.

Meaning of “solves a technical problem using a technical solution”

The two April TTI v. IBG decisions shed additional light on the meaning of the “technical problem” and “technical solution” prong, drawing a distinction between the practice of a financial product as opposed to a technological invention:

“TT argues the inventions addressed technical problems in the way prior art GUI tools were constructed and operated. It claims the ’999 patent addressed problems related to speed, efficiency, and usability, and the ’056 patent. It claims the ’999 patent addressed problems related to speed, efficiency, and usability, and the ’056 patent addressed problems related to intuitiveness, visualization, and efficiency.”

April 18, 2019 Slip Op. at 8-9.  The Federal Circuit held that this is not a technical solution to a technical problem:

“We agree with the Board that the patents relate to the practice of a financial product, not a technological invention.  The specification states that a successful trader anticipates the market to gain an advantage, ’999 patent at 1:20–26, but doing so is difficult because it requires assembling data from various sources and processing that data effectively, id. at 1:51–54. The invention solves this problem by displaying trading information “in an easy to see and interpret graphical format.” Id. at 2:3–6. The specification makes clear that the invention simply displays information that allows a trader to process information more quickly.”

Ultimately, “This invention makes the trader faster and more efficient, not the computer.  This is not a technical solution to a technical problem.”  April 18, 2019 Slip Op. at 9 (emphasis in original).

Additional language in the opinion reinforces this line between business problems and solutions and technological problems and solutions.  In rejecting a challenge to the PTAB’s decision not to consider the testimony of TTI’s expert, the court wrote “Nothing in his declaration asserts that the claimed interface did anything other than present information in a new and more efficient way to traders. Even if the Board had considered this testimony, it could not have reached a different conclusion.”  April 18, 2019 Slip Op. at 10.  Analyzing another GUI patent, the court stated that providing the trader with information in the claimed manner “is focused on improving the trader, not the functioning of the computer.”

“Indeed, the specification acknowledges that the invention ‘can be implemented on any existing or future terminal with the processing capability to perform the functions described,’ id. at 4:4–6, and ‘is not limited by the method used to map the data to the screen display,’ which ‘can be done by any technique known to those skilled in the art,’ id. at 4:64–67.”

The court’s April 30 opinion, reached the same conclusion on a different patent using similar reasoning.  “Merely providing a trader with new or different information in an existing trading screen is not a technical solution to a technical problem,” the court wrote, before repeating the language about the method focusing on “improving the trader, not the functioning of the computer.”   Apr. 30, 2019 Slip Op. at 7.

One final notable aspect of this set of the opinions: By affirming the PTAB on the second prong of the “technological inventions” regulation, the Federal Circuit avoided needing to address TTI’s argument that “Versata set aside the novelty and nonobviousness language of the first prong of the regulation….”  Apr. 18, 2019 Slip Op. at 8.  That issue remains unsettled.

Patent Eligible Subject Matter

The Federal Circuit affirmed the PTAB on the issue of lack of patent eligible subject matter for all the patents-in-suit in a fairly routine review.  The court conducted the Alice two-stage analysis, concluding that the claims were directed to abstract ideas and did not include an inventive concept.  The most interesting aspect of this component of the court’s analysis is the relationship with the 2017 TTI v. CQG nonprecedential opinion discussed below.

Constitutional Challenges: Not preserved by four sentences

The court declined to address TTI’s constitutional challenges, which consisted of “a total of four sentences in each of its opening briefs” based on “a right to a jury under the Seventh Amendment, separation of powers under Article III, the Due Process Clause, and the Taking Clause.”  “Such a conclusory assertion with no analysis to the underlying challenge is insufficient to preserve the issue for appeal.”  Id.

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Relationship with Prior Decisions

As I noted at the outset, these opinions represent a counterpoint to the court’s February nonprecedential opinion, although since the April decisions are precedential and the February one was not, there isn’t direct legal tension.

The February opinion involved a review of a set of CBM review PTAB decisions finding that the both the two patents involved an even earlier opinion, Trading Technologies International, Inc. v. CQG, Inc., 675 F. Appx 1001 (Fed. Cir. 2017) (nonprecedential), and two other patents were not “technological inventions” and therefore were subject to CBM; in the subsequent CBM review, the PTAB held that the two patents from TTI v. CQG were directed to patent eligible subject matter but the other two patents were not.  As with the April decisions, all the patents involved GUI claims.

The Federal Circuit reversed as to the institution decision on all four patents.  For the two patents involved in TTI v. CQG, the Federal Circuit reasoned that because the two patents were directed to patent eligible subject matter, they must be “technological inventions.”  For the other two patents, the Federal Circuit reasoned that “because we see no meaningful difference between the claimed subject matter [of the two sets of patents] for purposes of the technological invention question, the same conclusion applies in those cases as well.  (This is puzzling to me, since the PTAB held that the first set of patents were directed to patent eligible subject matter but the second set were not.)

There’s also the tension between the subject matter eligibility determination in TTI v. CQG and the lack of subject matter eligibility determinations in the two April 2019 TTI v. IBG decisions, but I’ll leave that for others to opine on.  The Federal Circuit itself declined TTI’s invitation to get into the specifics of how its April 2019 decisions relate to the earlier decisions:

“TT argues that because nonprecedential decisions of this court held that other TT patents were for technological inventions or claimed eligible subject matter, we should too. We are not bound by non-precedential decisions at all, much less ones to different patents, different specifications, or different claims. Each panel must evaluate the claims presented to it. Eligibility depends on what is claimed, not all that is disclosed in the specification.”

April 18, 2019 Slip Op. at 19.