All posts by Dennis Crouch

About Dennis Crouch

Law Professor at the University of Missouri School of Law.

How Prosecution History Can Support a Motivation to Combine

by Dennis Crouch

Elekta Ltd. v. Zap Surgical Systems, Inc., — F.4th — (Fed. Cir. Sept 21, 2023)

The recent Federal Circuit decision in Elekta v. ZAP Surgical provides an interesting case study and also warning on how prosecution history can be used to support a finding of a motivation to combine prior art references, even when those references come from different fields.  Here, the patentee claimed a radiation therapy invention, but included references to imaging devices in its IDS.  That inclusion (along with some other evidence) led to an inference that PHOSITA would generally be motivated to combine art across these two fields.

Background on the Elekta Case

In Elekta, the patent-at-issue claimed a device for treating patients with ionizing radiation using a radiation source mounted on concentric rings. U.S. Patent No. 7,295,648. During an inter partes review (IPR) proceeding, the Patent Trial and Appeal Board (PTAB or Board) found the claims obvious based on a combination of two prior art references:

  • Grady, which disclosed an X-ray imaging device with the X-ray tube mounted on a sliding arm connected to rotating support rings. This was an imaging device.
  • Ruchala, which disclosed a radiation therapy device using a linear accelerator (linac) as the radiation source, where the linac rotates around the patient to deliver the radiation dose. This was a therapy device.

On appeal, Elekta argued that a person having ordinary skill in the art would not have been motivated to combine an imaging device like Grady with a therapy device like Ruchala. The Federal Circuit affirmed the Board, finding substantial evidence supported a motivation to combine, including the prosecution history.

Using the Prosecution History to Find an Implicit Motivation to Combine

A key dispute in Elekta was whether a person having ordinary skill would have been motivated to combine references from different fields – here, imaging and therapy.  Elekta argued that a key difference made the imaging art inapplicable to therapy. In particular, the linear accelerator used for therapy is quite heavy and so support systems designed for imaging are typically will not work.

The Board disagreed with the patentee and found a motivation to combine the imaging reference with the therapy reference. A key factor for the Board was that the patentee had cited imaging references in its information disclosure statement.

The Board supported this conclusion by reviewing “the prosecution of the ’648 patent, [which demonstrated that] patents directed to imaging devices were cited, and were not distinguished based on an argument that imaging devices were not relevant art.”

Slip Op.   Digging into the case history, I found that the patentee had cited an imaging device in its IDS filing and the examiner had cited the reference in an office action rejection.  The patentee distinguished the reference based upon its particular mounting configuration. But, the patentee did not raise any written objection to the reference being an imaging system rather than a treatment system.   Later, in the notice of allowance the examiner cited a different imaging system as state of the art for mounting radiation sources.  Again, the patentee did not raise any express objection to that characterization and its applicability to the claimed therapy system.

On appeal, the Federal Circuit affirmed that it was proper for the Board to infer a motivation to combine based (in part) on this citation history:

We hold that the Board’s finding that a skilled artisan would have been motivated to combine the [imaging] device with Ruchala’s linac [therapy device] is supported by substantial evidence, including the prosecution history of the ’648 patent … Specifically, as explained above, during prosecution, the patentee notably did not argue that prior art references directed to imaging devices were not relevant art.

Id.  The court found this prosecution history suggested an implied admission that both imaging and therapy references were relevant to the claimed invention, and thus established an implied motivation to combine the references.

I want to be clear on the holding here. The imaging references cited during prosecution are different from those relied upon in the IPR.  But, citing those imaging references created an inference that PHOSITA would consider other imaging references and even have a motivation to combine them with the therapy prior art.

One note – neither the Board nor the FedCir distinguished the particular prosecution history acts that were sufficient to create the inference.  When I first read the case, I assumed it was simply IDS citations, but learned of the rejection/NOA citations as I dug into the briefing.  In the briefing, the challenger noted that the imaging patent was the first-cited-reference and therefore was important – but the tribunals did not appear to give credence to that particular statement.  Bottom line, it appears that an IDS statement could be sufficient to trigger the inference, but the actual threshold is is unclear.

Takeaways from Elekta — Disclaimers

This case demonstrates the need for patent prosecutors to be very thoughtful and strategic when citing references, responding to rejections, and notices of allowance in order to avoid creating an unintended prosecution history record that could imply motivation to combine disparate references. The following are some specific steps prosecutors could take include:

  • When citing a reference in an IDS, drafting an explicit statement that the citation should not be construed as an admission that the cited reference comes from an area that is analogous or directly applicable to the invention, and rather that the reference is being cited out of an abundance of caution.
  • If an examiner cites a reference in a rejection from a separate area of technology, not remaining silent and instead actively responding on the record with an explanation of why the particular area of technology is not applicable or combinable due to key differences.
  • Even if rejections are eventually overcome on other grounds, reiterating for the record (and especially in the face of a contrary reason-for-allowance) that no admission is made regarding the applicability of art.
  • Drafting tailored disclaimers and statements to avoid implications of compatibility between disparate references, while balancing the need to prevent unintended admissions.

While it is important to avoid unnecessary concessions, applicants must be deliberate and strategic in crafting the intrinsic record, while also recognizing that these additional statements are contrary to substantial conventional wisdom advising applicants to avoid unnecessary statements in the prosecution history.

Federal Circuit Suspends Judge Newman for Refusing Mental Exam

by Dennis Crouch

At the end of July 2023, a special committee of three Federal Circuit judges recommended a one-year suspension of Judge Newman for refusing to comply with various physical and mental examination requests to test whether she is suffering from a diminished capacity.  The Federal Circuit’s judicial council has now unanimously* adopted the recommendation with the following order:

Judge Newman shall not be permitted to hear any cases, at the panel or en banc level, for a period of one year beginning with the issuance of this Order, subject to consideration of renewal if Judge Newman’s refusal to cooperate continues after that time and to consideration of modification or rescission if justified by an end of the refusal to cooperate.

September 20, 2023 Judicial Council Order.  The attached order, includes 70+ pages of text along with 300+ pages of attached supportive evidence.  As the order to suggests, Judge Newman apparently holds the “keys to her cell” – she simply has to submit to a full medical and mental examination, reveal the results to her colleagues, and achieve a result satisfactory to pass their scrutiny.

Judge Newman took and passed two 11-minute mental  capacity examinations, but the Federal Circuit wants her to subject herself to a six-hour mental examination run by an independent doctor.


  1. The judicial council is made up of all 12 regular members of the court.
  2. Although the order was unanimous, it appears that Judge Newman was not given a vote.
  3. Judge Newman has recently been out and about, speaking and receiving various awards.
  4. I am told that the short mental exam taken by Judge Newman is designed to take up to 20 minutes. Judge Newman completed it in 11 minutes.

Enabled to Claim the Unknown? Federal Circuit applies Amgen v. Sanofi to invalidate broad antibody claims

by Dennis Crouch

Baxalta Inc. v. Genentech, Inc., No. 22-1461, — F.4th — (Fed. Cir. Sept. 20, 2023).

The Federal Circuit recently affirmed a finding of invalidity for lack of enablement in Baxalta v. Genentech, holding that functional antibody claims were insufficiently enabled under 35 U.S.C. §112. Relying heavily on the Supreme Court’s Amgen v. Sanofi decision, the appellate panel found Baxalta’s disclosure to be analogous to Amgen’s “roadmap for further research” rather than a complete teaching of the invention. This result again calls into question the viability of broad functional claims post-Amgen and highlights the importance of structurally defining inventions, especially in unpredictable arts like biotechnology.

As mentioned, the case has close parallels and to the Supreme Court’s recent decision in Amgen Inc. v. Sanofi, 598 U.S. 594 (2023).  Amgen involved a functional-claimed antibody designed to inhibit PCSK9 activity.  The Supreme Court found that the broad claims encompassed a large number of antibody configurations while only describing a limited number of those, along with a trial-and-error roadmap for finding the additional embodiments.  Although some experimentation is permissible, a patentee cannot satisfy the enablement requirement by assigning a research project.  Ultimately, the Court concluded that Amgen had failed to enable the “full scope” of the claimed invention and that the claims were therefore properly held invalid as a matter of law.

As in Amgen, Baxalta’s patent also includes a functionally claimed isolated antibody:

1. An isolated antibody or antibody fragment thereof that binds Factor IX or Factor IXa and increases the procoagulant activity of Factor IXa.

‘590 Patent, Claim 1.

The invention involves a treatment for Hemophilia A to promote blood coagulation.  As you’ll note by looking at Claim 1, it does not claim any particular amino acid sequence or antibody structure, but rather claims all antibodies capable of binding Factor IX or IXa in a way that increases  its procoagulant activity.  The inventors went through a process of injecting Factor IX into mice, and collecting resulting antibody producing white blood cells (B-cells). Those B-cells were then fused with myloma (cancer) cells to promote rapid growth even in vitro. As those fused B cells continued their work, the resulting antibodies were screened to determine which ones increased the procoagulant activity.  Although this process is tedious, it was a familiar and known process at the time of the invention. The result was several hundred antibodies generally identified through the screening, although only 11 were sequenced and disclosed in the patent application.

Genentech’s accused product (Emicizumab) was not one of the 11 disclosed.  The court also noted that, unlike the disclosed antibodies, Emicizumab is a humanized bispecific antibody and would not have been identified through the patentee’s research approach. One note here, unlike in Amgen, the Baxalta patent is not limited to “monoclonal” antibodies even though the disclosed research protocol would only result that type of antibody.

The Patent Act requires that the patentee describe how to make and use the invention:

the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains . . . to make and use the same.

35 U.S.C. § 112(a). Whether or not a particular invention has been enabled is seen as a question of law based upon underlying questions of fact.  Although courts would typically call this a “mixed question” of law and fact, the conceptual separation allows courts more leeway in preemptively deciding the legal question without having to submit the inquiry to the finder of fact (typically a jury).

In this case, Federal Circuit Judge Timothy Dyk served as the district court judge — sitting by designation in D.Del.  In a 2022 decision, Judge Dyk granted summary judgment of invalidity for lack of enablement. On appeal, the Federal Circuit affirmed — finding the facts of the case “materially indistinguishable from those in Amgen.”

There are millions of potential candidate antibodies, but the written description discloses the amino acid sequences for only eleven antibodies with the two claimed functions. . . Just like the roadmap rejected by the Supreme
Court in Amgen, the ’590 patent’s roadmap simply directs skilled artisans to engage in the same iterative, trial-and-error process the inventors followed to discover the eleven antibodies they elected to disclose.

Slip Op. Enablement of a broad genus can also be accomplished by disclosing common qualities of the genus. These are typically structural qualities, but the court here notes that the might include “other” features that help delineate the class.  An example might involve the mechanism of binding, for instance. The court found none of those in the disclosure.

The only guidance the patent provides is “to create a wide range of candidate antibodies and then screen each to see which happen to bind” to Factor IX/IXa and increase procoagulant activity. Amgen makes clear that such an instruction, without more, is not enough to enable the broad functional genus claims at issue here.

Id. (Quoting Amgen).  One question following Amgen is whether the case disturbed the Wands Factors associated with identifying “undue experimentation.” Here, the court wrote that there is “no meaningful difference between Wands’ ‘undue experimentation’ and Amgen’s ‘[un]reasonable experimentation’ standards.”  One difficulty with that result though is that the Wands Factors are generally questions of fact that, if in dispute, preclude summary judgment.  Here though, the court concluded that the case was so analogous to Amgen that summary judgment was appropriate — the effective implied conclusion is that there were not factual allegations presented by the patentee material enough to shift the outcome.

Baxalta reinforces that claimed inventions should be defined structurally insofar as possible, rather than solely by function. While claim breadth is undoubtedly desirable, applicants must now enable the full scope or risk invalidation post-Amgen. Even fields accustomed to broad functional claiming may require narrowing to structurally-defined elements, especially where some aspect of the design remains unpredictable.  A functional limit is potentially problematic any time a claim element has “millions” of possible embodiment designs.  On major caveat here of course is that these two cases are biotech focus and the USPTO in particular has largely resisted strongly expanding enablement doctrine outside of the chemical and biotech arts.  Another caveat of these pair of cases is that neither are combination claims. Rather, each simply claim a single component – the antibody.  I can imagine a situation where more leeway is given to functional components in a combination patent where substantial structure is provided by the combination, including other components in the combination.  Finally, also note that 112(f) is available for combination inventions to claim individual elements in means-plus-function form. That approach should typically save the claim validity at the cost of limited scope.

Supreme Court Patent Petitions: Seeking Guidance on Eligibility, Inventorship, and Procedure

by Dennis Crouch

A number of petitions are pending before the Supreme Court raising interesting patent issues, although none have been granted certiorari thus far.

Leading Eligibility Case: In next week’s long conference (Sept 26), the court will consider what I see as the current leading case of CareDx Inc. v. Natera, Inc., No. 22-1066. The case focuses on the question of whether the patent covering a new biologic diagnostic method was properly invalidated as directed to a natural phenomenon.

The CareDx invention relates to early noninvasive detection of organ transplant failure–an important and longstanding issue in the field. The detection method involves identifying DNA fragments from the transplant within the bloodstream, a challenge that had stumped scientists for over a decade.  Although various scientists had proposed mechanisms for using this information, the evidence shows more than a decade of failed ideas, and at least one article reported that the process is “difficult and impractical.”  The breakthrough came when Stanford researchers successfully applied high-throughput multiplex sequencing (“shotgun sequencing”) to detect single nucleotide polymorphisms (SNPs) unique to donor organs.  Of potential importance, the Stanford researchers did not create these new sequencing techniques, but they were the first to take advantage of them in this particular context and identified particular thresholds in crafting a method that works in this situation.  The claims were invalidated by the district court, and that judgment affirmed on appeal.

Another Natural Law Case: A second well written natural phenom petition was recently filed in ChromaDex, Inc. v. Elysium Health, Inc., No. 23-245.  The patent in that case claims a dietary supplement of nicotinamide riboside (“NR”) that increases the production of nicotinamide adenine dinucleotide (“NAD+”) — this one was crated by folks at Dartmouth.  I have written previously that the Supreme Court’s product of nature in Myriad is hard to square with the two-step abstract idea / law of nature cases of Alice & Mayo.  In its decision, the Federal Circuit concluded that the two-step approach is inapplicable in the natural phenomenon case — thus omitting consideration of any inventive concept going beyond the excluded portion.  The Hail Mary case of Killian v. Vidal, No. 22-1220, argues that the judge made eligibility exceptions represent a Fifth Amendment taking, a due process violation, and represent ultra vires actions.

IPR Estoppel: A second important case awaiting the late-September conference is Ingenio, Inc. v. Click-to-Call Technologies LP, No. 22-873, focusing on the scope of IPR estoppel under 35 USC 315(e).  The case asks whether the Federal Circuit erroneously extended IPR estoppel under 35 U.S.C. § 315(e) to all grounds that reasonably could have been raised in the petition. They focus on the the statutory language that, under their reading, applies the reasonably-could-have modifier in a much narrower context. To wit, petitioner argues that estoppel only applies to issues that could have been raised after the petition was granted– that petitioner “reasonably could have raised during that inter partes review.”

Favorite Pending Case – Inventorship: My favorite pending case is HIP, Inc. v. Hormel Foods Corporation, No. 23-185. HIP argues that the Federal Circuit’s decision improperly heightens the standard for joint inventorship by focusing on quantity rather than substance of inventive contributions. HIP contends any original contribution included in a claim, even if partial, warrants joint inventor status under 35 U.S.C. § 116.  In the case, a HIP engineer provided suggestions to Hormel on implementing a pre-cooked bacon method. HIP’s suggestion (using an infrared oven for the preheating step) made its way into the claims, the court concluded it was not significant enough to warrant joint inventorship.  For me, the case is largely about the strong presumption that the listed inventors are correct.

Additional Pending Petitions: Two more pending petitions. In Personalized Media Communication, LLC v. Apple Inc., No. 23-230, the patentee PMC argues that the court improperly applied prosecution laches to render its patents entirely unenforceable. PMC argues that under cases such as SCA Hygiene, a patentee’s compliance with statutory deadlines precludes equity from stepping in via laches.  I believe that PMC owns the most pre-GATT patents that are still within their patent term. Yes, even more than Gill Hyatt.   Finally, in Salazar v. AT&T Mobility LLC, No. 23-241, the petitioner argues that the Federal Circuit acted improperly by issuing an unforeseeably narrow claim construction on appeal.  Back in 1995 when these applications were filed, Apple had just released an updated Newton that included Graffiti handwriting recognition software from Palm.

Conclusion: The Supreme Court has not yet granted certiorari on any of these patent law petitions, but their treatment of these issues will provide valuable guidance. Cases like HIP v. Hormel and ChromaDex v. Elysium give the Court opportunities to clarify murky areas of the law around joint inventorship and patent eligibility. Meanwhile, petitions in Ingenio v. Click-To-Call and PMC v. Apple deal with critical procedural issues tied to post-issuance review and prosecution laches. The next few weeks may prove pivotal as the Court considers which of these issues merit its attention.

Logos Remain Relevant: Source Confusion and Design Patent Infringement

by Dennis Crouch

In a previous post, I examined the important issue of comparison prior art that emerged from the dispute between Columbia Sportswear and Seirus. This post will focus on another key issue from the case – the relevance of logos in design patent infringement analysis.

The Federal Circuit’s pair of decisions provide guidance on how logos factor into the design patent infringement inquiry, and begin to tease-out differences in policy concerns underlying design patent law versus trademark law. As the court made clear, while logos are often key for avoiding consumer confusion about product source in the trademark sense, the absence of source confusion does not necessarily preclude a finding of design patent infringement. Still, ornamental logos found on the accused product can still be relevant as visual distractors in the process of evaluating similarities and differences between the claimed design and accused design.

Design Patent Infringement vs. Trademark Infringement

The standards for proving design patent infringement and trademark infringement differ significantly regarding the relevance of consumer confusion about product source.

For trademark infringement under the Lanham Act, likelihood of consumer confusion is a key requirement. Moseley v. V Secret Catalogue, Inc., 537 U.S. 418 (2003). The touchstone is whether ordinary consumers in the relevant market are likely to be confused about the source of the goods. Logos and other source identifiers play an important role in this analysis. A logo prominently displayed on the accused goods that is clearly distinct from the plaintiff’s mark can weigh heavily against finding a likelihood of confusion. See, e.g., Groeneveld Transp. Efficiency, Inc. v. Lubecore Int’l, Inc., 730 F.3d 494 (6th Cir. 2013) (“[The accused infringer] has in fact scrupulously avoided such confusion by choosing a starkly different logo that it prominently displays on its [products] and on all its sales and marketing literature.”).

For design patent infringement, however, likelihood of consumer confusion is not directly relevant. See Unette Corp. v. Unit Pack Co., 785 F.2d 1026 (Fed. Cir. 1986) (“Likelihood of confusion as to the source of the goods is not a necessary or appropriate factor.”). The Federal Circuit has made clear that the sole test is whether the claimed and accused designs appear substantially similar to an ordinary observer, not whether consumers will be confused about source. See Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665(Fed. Cir. 2008) (en banc) (“[I]n accordance with Gorham and subsequent decisions, we hold that the ‘ordinary observer’ test should be the sole test for determining whether a design patent has been infringed.”).

In essence, while both analyses invoke an “ordinary consumer”, the design patent test focuses solely on visual similarity absent any real-world marketplace considerations and asks whether the design has been replicated. The trademark test deeply analyzes real-world conditions and actual consumer viewpoints on source confusion. This leads to divergent treatment of logos and potentially divergent results.

On their face, both the design patent and trademark infringement tests invoke principles of confusion. The ordinary observer test asks whether the resemblance between designs would “deceive” an observer, “inducing him to purchase one supposing it to be the other.” Gorham Co. v. White, 81 U.S. 511 (1871); see also 35 U.S.C. § 289 (“colorable imitation”). And the likelihood of confusion test directly asks whether consumers would likely be confused about the source of goods.  The overt references to “deception,” “imitation” and “confusion” create risk that the separate doctrines could be conflated or misapplied. This underscores the need for precision in explaining that design patent infringement does not consider real-world consumer perspectives, while consumer viewpoints are paramount in trademark analysis. The linguistic parallels make delineating these distinctions even more crucial.

While the Federal Circuit has characterized design patents and trademarks as distinct doctrines, in practice they substantially overlap in protecting product designs that serve as source identifiers. Certain product design features may function simultaneously as ornamental, novel designs eligible for design patent protection and as source-identifying trade dress. For example, a unique shape for a handbag or sneaker may qualify for a design patent based on its ornamentality while also indicating source as trade dress.

What that means is that design patents are often used to protect brand identifiers as commercial source signifiers. But, are able to do so without needing to satisfy the requirements of trade dress or its more substantial fair use and non-functionality doctrines.  In the case of the wavy reflective inner lining — that clearly has trademark meaning in my mind (as a purchaser of winter gloves).  And, it is that marketplace meaning that likely serves as the true basis of the long running lawsuit. So design patents will sometimes grant backdoor trademark-like protection, encompassing design aspects that convey source identity and marketplace meaning.  Ultimately, while the doctrines have distinct requirements on paper, in practice their protections substantially overlap for certain product designs functioning as visual source identifiers.

Columbia Sportswear v. Seirus

This distinction emerged as a key issue in the dispute between Columbia Sportswear and Seirus. Columbia accused Seirus of infringing its design patent covering a wavy pattern design for use on heat reflective material. Seirus argued that differences between its design and Columbia’s patented design – especially Seirus’s prominent and repeated logo – should weigh against finding infringement.

On summary judgment, the district court disregarded Seirus’s logo entirely based on L.A. Gear, Inc. v. Thom McAn Shoe Co., 988 F.2d 1117 (Fed. Cir. 1993), and found infringement. In Columbia I, the Federal Circuit held this was error:

Our precedent does not prohibit the fact finder from considering an ornamental logo, its placement, and its appearance as one among other potential differences between a patented design and an accused one.

Columbia Sportswear N. Am., Inc. v. Seirus Innovative Accessories, Inc., 942 F.3d 1119 (Fed. Cir. 2019).

The appellate court explained that, while labeling a copy does not avoid design patent infringement, logos still factor into the holistic comparison of the claimed and accused design appearances. Id. The court thus vacated summary judgment and remanded.

On remand, the district court instructed the jury on the ordinary observer test for design patent infringement. But, the district court declined Columbia’s request to instruct that consumer confusion was irrelevant and that likelihood of confusion need not be found. The jury returned a verdict of non-infringement.

In Columbia II, the Federal Circuit affirmed the jury instructions given were legally correct. Columbia Sportswear N. Am., Inc. v. Seirus Innovative Accessories, Inc., No. 2021-2299 (Fed. Cir. Sept. 15, 2023). The court sympathized with concerns that the ordinary observer test’s language referencing deception risked conflation with concepts of consumer confusion. But it found no reversible instructional error, reiterating that logos remain relevant to the overall similarity analysis:

[J]ust because consumers might not be confused about an accused product’s source, that alone would not preclude an ordinary observer from deeming the claimed and accused designs similar enough to constitute design-patent infringement.

Id. (emphasis in original; citing Braun Inc. v. Dynamics Corp. of Am., 975 F.2d 815 (Fed. Cir. 1992)).

These decisions offer important insight and guidance for attorneys in the trenches, and also highlight a need to reconcile the doctrines to ensure that they are serving important societal goals.

Federal Circuit Narrows Scope of Egyptian Goddess

by Dennis Crouch

The Federal Circuit recently vacated a jury verdict of non-infringement in the long-running design patent dispute between outdoor apparel companies Columbia Sportswear and Seirus Innovative Accessories. Columbia Sportswear North America, Inc. v. Seirus Innovative Accessories, Inc., No. 2021-2299, — F.4th — (Fed. Cir. Sept. 15, 2023). The Federal Circuit held that “comparison prior art” used for infringement analysis must be tied to the same article of manufacture as that claimed.  The lower court thus erred by permitting the jury to consider additional references. The decision benefits design patent holders – making it easier to prove infringement and also places more weight on skillful decisions made during prosecution to define the article of manufacture.

Columbia owns U.S. Design Patent No. D657,093, which claims an ornamental design for a heat reflective material featuring contrasting wavy lines. Seirus sells gloves and other products incorporating its HeatWave material, which features similar wavy lines. Columbia sued Seirus for infringing the ‘D’093 patent in Oregon federal court.

The district court originally granted summary judgment of infringement in Columbia’s favor. On appeal, the Federal Circuit vacated and remanded, finding disputed issues of fact regarding the impact of Seirus’s logo and certain prior art references.  Columbia Sportswear North America, Inc. v. Seirus Innovative Accessories, Inc., 942 F.3d 1119 (Fed. Cir. 2019) (“Columbia I”) (holding that logo placement might allow the defendant to avoid an infringement judgment).  I noted previously that this holding is in some tension with the court’s 1993 decision in L.A. Gear, Inc. v. Thom McAn Shoe Co., 988 F.2d 1117 (1993). On remand, the case went to trial, and a jury came to the opposite conclusion — finding no infringement. Columbia again appealed to the Federal Circuit.

Jury verdicts are given strong deference on appeal and so are usually not directly challenged. Here, the appellant skirted the verdict itself by focusing on the jury instructions, with the patentee arguing that the district court erred in its instructions regarding “comparison prior art.”

In design patent law, the test for infringement is whether an ordinary observer would find the accused design substantially similar to the claimed design, such that they would be deceived into purchasing the accused design believing it to be the claimed design. See Gorham Co. v. White, 81 U.S. 511 (1871). When the claimed and accused designs are not plainly dissimilar, courts apply this “ordinary observer” test in light of the prior art. Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 676 (Fed. Cir. 2008) (en banc).  The rationale is that prior art designs provide context that can help highlight similarities and differences between the claimed and accused designs.

In its decision, the Federal Circuit held for the first time that a prior art reference can qualify as comparison prior art only if it discloses a design applied to the same article of manufacture identified in the design patent claim. This holding aligns with other design patent infringement precedent limiting the universe of anticipatory prior art and infringing designs to the particular article of manufacture claimed. See Curver Luxembourg, SARL v. Home Expressions Inc., 938 F.3d 1334, 1340 (Fed. Cir. 2019); Int’l Seaway Trading Corp. v. Walgreens Corp., 589 F.3d 1233, 1240 (Fed. Cir. 2009).

We have held that, for a prior-art design to anticipate, it must be applied to the article of manufacture identified in the claim. We have also held that, for an accused design to infringe, it must be applied to the article of manufacture identified in the claim. We conclude that this requirement also applies to comparison prior art used in an infringement analysis.

Slip Op. (internal citations removed). The court explained its reasoning that its narrow approach aligns with the purpose of allowing comparison prior art: “that purpose is to help inform an ordinary observer’s comparison between the claimed and accused designs—designs that, necessarily, must be applied to the same article of manufacture.”  And, although the issue has not been expressly decided, prior cases also generally involved comparison prior art that had been applied to the same article of manufacture as that claimed.

Here, Columbia’s ‘D’093 patent claim was limited to ornamental designs for “heat reflective material.” Yet the district court instructed jurors that they must decide for themselves what constitutes comparison prior art, without explaining that it must involve designs applied to heat reflective material.  Three particular references with wavy designs were presented to the jury, including U.S. Patent Nos. 2,539,690  (inlaying plastic threads into plastic sheets); 1,515,792 (unwoven fabric for tires); 5,626,949 (shell fabric for outerwear).  Thought the claim is directed to “heat reflective material,” the court had admitted the references disclosing “wave patterns on fabric.” Columbia argued these references were improperly admitted as comparison prior art since they did not involve designs applied to heat reflective materials. But the Federal Circuit declined to directly rule on their admissibility, instead vacating and remanding for the district court to reconsider the issue under the new narrower requiring comparison prior art to be applied to the claimed article of manufacture.  The court suggested that the district court conduct a claim construction on the term heat reflective material before determining whether the references fit within the scope.

Seirus also argued that limiting the patent to heat reflective material would improperly import a functional limitation into the design patent claim. The Federal Circuit properly rejected that argument. While design patents cannot claim primarily functional designs, referring to an article of manufacture’s function to distinguish it from other articles is permissible and relevant.

A Point of View vs The Point of View: Federal Circuit’s Subtle Claim Construction

by Dennis Crouch

The Federal Circuit recently vacated and remanded a pair of Patent Trial and Appeal Board (PTAB) decisions that had upheld patent claims owned by Corephotonics. Apple Inc. v. Corephotonics, Ltd., No. 2022-1350 (Fed. Cir. Sept. 11, 2023). The appellate court held the PTAB erroneously construed a disputed claim term by failing to appreciate the significance of “a” versus “the” in the claims. It also found the PTAB violated the Administrative Procedure Act (APA) by resting its obviousness determination on arguments and evidence not squarely raised by the parties.

The Dispute Over Dual-Lens “Portrait Mode”

The patent at issue, U.S. Patent No. 10,225,479 (‘479 patent), relates to using dual-aperture camera systems in smartphones to create aesthetically pleasing “portrait photos.” Specifically, the patent discloses combining images from a wide-angle “Wide” lens and a telephoto “Tele” lens to produce a fused image showing a sharp subject in front of a blurred background.  Portrait mode is incredibly popular on Apple and Android phones and so the industry is eager to invalidate the patent held by Tel Aviv based Corephotonics.

Apple filed two petitions for inter partes review (IPR) challenging claims of the ‘479 patent as obvious based primarily on a prior art reference known as Parulski, which discloses a dual-lens digital camera but does not specify how image fusion occurs.  U.S. Patent No. 7,859,588.

Claim Construction – The Significance of “A” vs. “The”

In the first proceeding (IPR2020-00905), the parties disputed the proper construction of the claim term “fused image with a point of view (POV) of the Wide camera.” Apple argued this term required maintaining either the Wide image’s perspective or position point of view in the fused image, while Corephotonics contended it mandated both Wide perspective and position. Patentees often argue for narrow constructions during IPR proceedings in order to avoid the prior art. Here, the patentee’s narrow construction won the day and the PTAB found Apple failed to show the claims were obvious under this narrower construction.

Examining claim construction de novo, the Federal Circuit concluded that the PTAB had erroneously construed the term too narrowly based upon use of the indefinite article “a POV” as well as intrinsic evidence from the patent specification.

The court first looked at the claim language in context, noting the claims recite “a point of view” rather than “the point of view” of the Wide camera, suggesting the fused image need only maintain one type of Wide point of view. While the specification discloses that “point of view” includes both perspective and position, the claims’ use of “a” rather than “the” was critical:

A reasonable reading of [the specification] is that Wide perspective and Wide position are two different types of Wide point of view. The claim term requires only that the fused image maintain ‘a point of view of the Wide camera,’ i.e., only one of the disclosed types of Wide point of view.

Slip Op.  The court also explained that limiting the claims to require both Wide perspective and position would improperly exclude disclosed embodiments where the fused image has a “mixed” point of view, like Wide perspective but Tele position.

Taken together and in context, however, the intrinsic evidence supports that the claim term requiring a fused image maintaining ‘a point of view of the Wide camera’ requires only that the fused image maintain Wide perspective point of view or Wide position point of view, but does not require both.

With this broader construction, the Federal Circuit vacated the PTAB’s first decision and remanded for further analysis of whether the prior art disclosed the disputed limitation under the clarified standard.

While the Federal Circuit suggested the patentee could have defined “point of view” to require both perspective and position by using “the” in the claims, this may have been improper due to lack of antecedent basis. Generally, a new limitation should be introduced using an indefinite article like “a” rather than a definite article like “the.” The existence of this rule of patent claim drafting raises the question of how much interpretive weight should be given to a patentee appropriately following the rule. Here, the use of “a point of view” in the claims adhered to the common rule of using “a” to introduce a new limitation. The Federal Circuit relied heavily on this choice of article in reaching its broader construction. But because patentees are expected to follow this drafting rule, it is debatable whether such weight should be placed on the patentee’s decision to use “a” in accordance with standard practice rather than “the.” This highlights some tension between claim drafting best practices and reliance on subtle differences in claim language during claim construction.  Of course, the patentee could have simply drafted claims that clearly stated the structure being claimed.  Here, the Board noted that the disclosure was “not a model of clarity,” something that should weigh against the patentee.

Sua Sponte Findings Without Adequate Explanation or Opportunity to Respond

In the second proceeding (IPR2020-00906), Apple asserted specific claims reciting detailed camera parameters would be obvious based on combining Parulski with the Ogata reference. U.S. Patent No. 5,546,236. But the PTAB rested its determination that Apple had not proven obviousness almost entirely on typographical errors in the declaration of Apple’s expert, Dr. Sasián, which were barely mentioned by the parties.

Apple appealed both PTAB decisions to the Federal Circuit.

The appellate panel held that resting a determination of nonobviousness primarily on typographical errors in Apple’s expert declaration, without prior notice to the parties, violated the APA. The court explained that while the PTAB can reject unreliable expert testimony, it must provide a reasoned explanation supported by evidence and base its decision on issues the parties had notice and chance to address. Those factors were not present here:

Corephotonics did not rely on [the expert’s] error in any of its arguments on the merits. And it did not contend that this error demonstrated that there would have been no reasonable expectation of success or that it alone was a sufficient basis to find all of Dr. Sasián’s analysis unreliable.

Slip Op. Further, while the PTAB identified additional errors, these inconsistencies were never raised by the parties and appeared to lack evidentiary support.  The PTAB’s “explanations must be supported by substantial evidence, and its decisions must be reached only after the parties have been provided fair notice and an opportunity to be heard.”  Because the PTAB focused on peripheral issues not squarely presented by the parties, it failed to resolve the core obviousness disputes actually raised.

On remand, the PTAB will have the chance to try again — and, more particularly, Apple will get another bite at the Corephotonics patent.

Narrowing the Analogous Arts with a Problem-Solution Statement

by Dennis Crouch

The Federal Circuit recently issued an important decision regarding the analogous art doctrine in Netflix v. DivX, No. 22-1138, — F.4th — (Fed. Cir. Sept. 11, 2023).  The Patent Trial and Appeal Board’s sided with the patentee, holding that a key prior art reference was not analogous art.  On appeal, the Federal Circuit has partially affirmed, but vacated and remanded on a procedural ground.  This case also raises questions about the value of explicitly stating the problem solved within the patent document, and perhaps directly in the patent claims.

The statutory obviousness test requires a comparison of the claimed invention and the prior art from the perspective of a person having ordinary skill in the art (PHOSITA). 35 U.S.C. 103.  Although prior art is generally defined by Section 102(a), courts have concluded that for obviousness purposes, a PHOSITA would only consider “analogous” prior arts. A prior art reference is considered analogous if it fits either of two prongs:

  1. Is the art is from the same field of endeavor, regardless of the problem addressed
  2. Is the reference reasonably pertinent to the particular problem with which the inventor is involved.

An oddity of the analogous art test is that it generally takes a binary approach—either a reference qualifies as analogous art and is considered as valid prior art, or it is deemed non-analogous and categorically excluded. This differs from typical evidence law, where the bar for relevance is low but the fact-finder must still weigh the probative value of the evidence. An alternative approach could apply a more flexible test assessing how closely related a reference is to the field of endeavor or problem addressed, rather than a threshold yes/no question. Under this view, references closely related to the invention would be given greater weight as prior art, while more distantly related references would be considered but afforded less significance in the obviousness analysis. Rather than wholesale exclusion, references could be evaluated along a spectrum. While this incremental approach may have some merits, the Federal Circuit has to date applied the analogous arts test in a binary fashion.

In the case at hand DivX owns US8472792, a patent related to encoding, transmitting, and decoding multimedia files to enable “trick play” functionality like fast forwarding.  Netflix filed an IPR challenging claims of the ‘792 patent as obvious over a primary reference (Zetts) in view of a secondary reference (Kaku).

Kaku discloses using AVI files and index chunks to reproduce motion images in digital cameras, and the IPR focused on whether Kaku qualifies as analogous art to the ‘792 patent. The Board determined Kaku did not qualify as analogous art under either the “field of endeavor” or “reasonably pertinent” tests.  On appeal, Netflix argued the Board erroneously required “magic words” within the petitioner briefing to identify the field of endeavor and that its briefing was sufficient to identify AVI files or encoding/decoding multimedia as potential fields of endeavor. Netflix also challenged the Board’s reasonably pertinent analysis.

On appeal, the court agreed with Netflix that the PTAB abused its discretion by requiring explicit identification of a field of endeavor using specific “field of endeavor” language within the briefs. The court explained that its precedent does not mandate using “magic words” and that Netflix’s briefing, taken as a whole, sufficiently identified potential fields of endeavor. The court remanded for the Board to reconsider the field of endeavor issue under the appropriate standard.

However, the court affirmed the Board’s finding that Kaku was not reasonably pertinent to the ‘792 patent’s problem of facilitating trick play in streaming multimedia. The court found substantial evidence supported the Board’s determination that Kaku addressed a different problem related to image compression and camera memory limitations.

Unlike many patents, the ‘792 patent clearly articulated the goal of enabling trick play functionality directly in the claims. When a patent identifies the purpose or advantage of the invention in its claims, it limits the scope of applicable prior art compared to a patent with vague, generic claims. This is especially true because many patentees intentionally refuse to directly state the problem being addressed within the specification.  By including “enabling trick play functionality” in every claim, the ‘792 patent restricted the field of endeavor and pertinent prior art to references focused on trick play features.

This case raises this question: Should best practices for patent drafting include an explicit statement of the particular problem the invention seeks to solve? As the patent owner here demonstrated, doing so may limit the applicable scope of prior art during litigation. On the other hand, a narrow articulation in the patent itself may make the claims more vulnerable to workarounds. What do you think?

The Federal Circuit’s New Reluctance to Limit Claims

Dali Wireless Inc. v. CommScope Techs. LLC, No. 20-1045 (Fed. Cir. Sept. 6, 2023).

Federal Circuit’s decision in Dali Wireless parallels the issues that I recently discussed in an analysis of the court’s September 1 decision in Sisvel International v. Sierra Wireless. Both cases grapple with claim construction and the tension between construing claims broadly versus importing limitations from the specification.

In Sisvel, the Federal Circuit affirmed the PTAB’s broad construction of “connection rejection message” over the mobile-network patentee’s arguments that the term should be limited to GSM/UMTS networks. Although the disclosed embodiments all focused on GSM/UMTS networks, the claims were drafted broadly without a clear disclaimer or redefinition.

Similarly, in Dali Wireless, the patentee argued for a narrow construction of the claim term “any” in the claims as sending signals to only a specific remote unit. US9531473. Once again the Federal Circuit upheld the PTAB’s broader construction. Despite embodiments showing selective sending, the court declined to import limitations absent clear intent to limit claim scope.  Under a broad construction, the prior art clearly taught the limitations and therefore rendered the claims unpatentable.

Both cases demonstrate the Federal Circuit’s reluctance to confine claims to specification embodiments when the language can support a broader plain meaning. Again, one take-away for patent prosecutors is to look closely to the described embodiments and consider express limitations that cover only those embodiments.

The decision also rejected an appointments challenge under United States v. Arthrex, 141 S.Ct. 1970 (2021), which held that APJs were improperly appointed principal officers. Dali raised an Appointments Clause challenge to decisions made by Commissioner Hirshfeld who was acting as PTO Director.  The Federal Circuit summarily rejected that challenge as already decided in Arthrex, Inc. v. Smith & Nephew, Inc., 35 F.4th 1328 (Fed. Cir. 2022), cert denied, 143 S.Ct. 2493 (2023).

Opinion by Judge Linn, joined by Judges Hughes and Stark.


Navigating Claim Construction and Broadening Amendments: Lessons from Sisvel v. Sierra Wireless

by Dennis Crouch

In 2019, Sisvel began asserting its U.S. Patent Nos. 7,433,698 and 8,364,196 against cell phone makers, wireless chip suppliers, and cellular network operators. These patents claim methods and systems for exchanging frequency information between a mobile station and a mobile switching center to facilitate switching a mobile device’s connection point within a cellular network. Several defendants petitioned the Patent Trial and Appeal Board (PTAB) for inter partes review (IPR), arguing that the challenged claims were invalid as anticipated and/or obvious based on prior art references. The PTAB instituted IPR and ultimately issued final written decisions concluding that the claims were unpatentable. See IPR2020-01070, Paper No. 31 (PTAB Nov. 8, 2021); IPR2020-01071, Paper No. 30 (PTAB Nov. 8, 2021).

On appeal to the Federal Circuit, Sisvel challenged the PTAB’s claim construction of the term “connection rejection message” and its denial of Sisvel’s revised motion to amend the ‘698 patent claims. The Federal Circuit, in an opinion authored by Judge Stark and joined by Judges Prost and Reyna, affirmed on both issues. Sisvel International S.A. v. Sierra Wireless, Inc., No. 22-1387 (Fed. Cir. September 1, 2023).

Claim Construction

The claims at issue particularly focus on the use of a “connection rejection message” to confer certain information to a mobile device.  The term is used throughout both the patent specification and the claims.  However, it is not expressly defined. The key dispute was it should be construed broadly to mean simply “a message that rejects a connection” or narrowly limited to “a message from a GSM or UMTS telecommunications network rejecting a connection request from a mobile station.”  As is usual for IPR proceedings, the patentee was asking for the narrow construction in order to avoid the prior art.

The Board and the Federal Circuit both applied the Phillips standard. Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc)  Under Phillips, claims are construed according to their plain and ordinary meaning as understood by a person of ordinary skill in the art, looking at the intrinsic evidence including the claims, specification, and prosecution history. Although the specification provides guidance, limitations found within described embodiments should not be imported into the claims absent a clear intent by the patentee to limit claim scope.  Extrinsic evidence, such as dictionary definitions are less important.

On appeal, the Federal Circuit agreed with the PTAB that the plain and ordinary meaning of “connection rejection message” is “a message that rejects a connection.” It found no persuasive basis in the intrinsic evidence to restrict the term only to GSM or UMTS networks. The patentee’s argument here was that the embodiments found in the specification were all directed to UMTS or GSM networks.  But, the problem is that the specification also states that the invention is could work “in many different cellular telecommunications systems” of which UMTS and GMS are two examples. The specification goes on to state that the system work work in any system that involves sending a rejection message in the manner outlined.  Thus, although the specification only the two networks, the court found that the claims and specification were drafted broadly and did not limit the invention only to GSM/UMTS. The court  ultimately declined to confine the claims only to the disclosed embodiments and instead affirmed the broad construction.

Result — invalidity affirmed.

Motion to Amend

Sisvel also challenged the PTAB’s denial of its revised contingent motion to amend claims of the ‘698 patent. The PTAB found the proposed substitute claims impermissibly broadened the scope of the original claims, specifically by changing “based at least in part on” to merely “using” when referring to information from the connection rejection message.  The AIA explicitly prohibits broadening amendments in IPR proceedings. 35 U.S.C. § 316(d)(3) states that amended claims “may not enlarge the scope of the claims of the patent.” Similarly, 37 C.F.R. § 42.121(a)(2)(ii) provides that a motion to amend may be denied if it seeks to enlarge the scope of the claims.

Sisvel contended that when all limitations were considered together, the substitute claims were narrower overall. On appeal, the Federal Circuit explained that a claim is broadened if it is broader in any respect–even if narrowed in some other respects, if it is broadened in any respect. Here, the change from “based on” to “using” broadened the claims by removing the requirement that the frequency parameter impact the value.

Key Takeaways

In hindsight, this is a situation where the patentee could have drafted the claims in these patents in a way that would have at least avoided the arguments raised here.  Of particular note, it often makes sense to include a dependent claims that narrow aspects of the claim to the same level provided by the embodiments. Here, the court also latched-onto throwaway language in the specification stating that the system could work on any network even though the rest of the specification focused on GSM and UMTS networks.  Still, at the time the statement likely made sense as an attempt to explain why it was proper to allow claim scope that is not limited to those networks.

Mandamus for Improper Venue

by Dennis Crouch

The U.S. Court of Appeals for the Federal Circuit recently declined to issue a writ of mandamus directing the U.S. District Court for the Eastern District of Texas (Judge Gilstrap) to dismiss a patent infringement lawsuit against Charter Communications based upon improper venue. In re Charter Commc’ns, Inc., No. 2023-136 (Fed. Cir. Sept. 5, 2023). Although non-precedential, the decision highlights a key difference between motions to dismiss for improper venue under 28 U.S.C. § 1406 and motions to transfer venue for convenience under 28 U.S.C. § 1404. It also shows the high bar for obtaining the “extraordinary remedy” of mandamus relief from denial of an improper venue motion.

The usual rule for appeals is that parties must wait until final judgment.  Assuming that it loses on the merits, Charter will have another opportunity to appeal venue once the case is concluded.

Background: Entropic sued Charter for infringing several of its patents, including US10135682.  The patents cover various aspects of cable network management, focusing on Cable Modem Termination Systems (CMTS) that serve multiple cable modems. The CMTS determines various Signal-to-Noise Ratio (SNR) related metrics for these modems and assigns them to different service groups based on these metrics.

Although Charter derives substantial revenue from customers located in the Eastern District of Texas, it still moved to dismiss the case for improper venue under § 1400(b), arguing it lacked a regular and established place of business in that district.  This statute limits the locations where patent infringement lawsuits can be filed.

1400(b) Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.

Id.  The Supreme Court has interpreted this statute to limit actions against corporations to either (1) their state of incorporation or (2) a district where the defendant “has a regular and established place of business” and also infringes the patent by making, using or selling the invention.   Charter is a Delaware company and does not operate its own retail stores in the Eastern District.  Still, the district court denied the motion to dismiss, finding venue was proper because Charter ratified retail stores operated by its subsidiaries in the district and those subsidiaries were Charter’s agents.

Improper vs. Inconvenient Venue

There is an important distinction between improper venue under § 1400(b) and inconvenient venue under § 1404(a). Section 1400 applies when venue is “wrong” or “improper” in the chosen district. If venue is improper, the district court must dismiss the case or transfer it to a proper district.  And, if a case goes to conclusion in an improper venue, a losing defendant would have an opportunity to appeal and at least get a new trial in a proper venue.

In contrast, § 1404 allows transfer “[f]or the convenience of parties and witnesses” even when venue is proper. Courts have greater discretion in deciding § 1404 transfer motions based on case-specific factors like convenience and judicial economy.  And, by the end of a trial, it is almost never “convenient” to retry the case in another venue.  Thus, post-trial section 1404 appeals are basically automatic losers.

Thus, even though “wrong venue” sounds like a bigger deal than “inconvenient venue” the Federal Circuit has historically only granted immediate mandamus actions for the latter.  The difference here is that, absent mandamus, the inconvenient venue issue cannot practically be appealed.

Mandamus Standards

The party seeking a writ of mandamus must show (1) no other adequate means to attain relief; (2) a clear and indisputable right to issuance of the writ; and (3) the writ is appropriate under the circumstances. Cheney v. U.S. Dist. Ct. for D.C., 542 U.S. 367 (2004).  In the past, the court has suggested that 1400(b) issues are unlikely to lead to mandamus relief because “post-judgment appeal is an adequate alternative means for attaining relief” if venue is found improper on appeal. In re Monolithic Power Sys., Inc., 50 F.4th 157 (Fed. Cir. 2022).

The Federal Circuit’s Decision

In a short opinion authored by Judge Cunningham, the Federal Circuit denied Charter’s petition for mandamus, finding no justification for immediate review of the district court’s order:

At most, CCI’s arguments present a record-specific dispute: whether CCI exerts control sufficient to impute its subsidiaries’ in-district operations to CCI under Fifth Circuit law. . . . CCI’s petition does not raise the type of broad, fundamental, and recurring legal question or other considerations that might warrant mandamus review.

In re Charter Commc’ns, Inc., (Fed. Cir. Sept. 5, 2023) (internal citations and quotation marks omitted). The court here emphasized that mandamus is an “extraordinary remedy” and Charter had not shown the district court’s decision was clearly wrong or raised a novel legal issue requiring prompt resolution. Rather, Charter seemed to “present[] a record-specific dispute” about imputing its subsidiaries’ activities to Charter for venue purposes. The court also explained that Charter could still challenge venue on direct appeal after final judgment, which provided an adequate alternative remedy.


The court has refused to take the bait and expand mandamus relief to improper venue challenges under § 1400(b). Defendants must generally wait to appeal after final judgment, even if venue may have been erroneous. Note though that mandamus may be still be justified for improper venue decisions implicating unsettled areas of law or where the party can show a major resulting injustice. But disagreements about case-specific facts and analysis are unlikely to clear the high mandamus bar.


US Copyright Office Generative AI Inquiry: Where are the Thresholds?

by Dennis Crouch

Generative Artificial intelligence (GenAI) systems like MidJourney and ChatGPT that can generate creative works have brought a wave of new questions and complexities to copyright law. On the heels of a recent court decision denying registrability of AI created work, the U.S. Copyright Office recently issued a formal notice of inquiry seeking public comments to help analyze AI’s copyright implications and form policy recommendations for both the Office and for Congress. The notice is quite extensive and raises fundamental questions that many have been discussing for several years about copyrightability of AI outputs, use of copyrighted material to train AI systems, infringement liability, labeling AI content, and more. The Copyright Office’s inquiry is an attempt to respond to AI’s rapidly growing impact on creative industries. [Link to the Notice]

The following is a rough overview of three core inquiries that I identified in the notice.  It is also easy to just read it yourself by clicking on the notice above.

A core inquiry is whether original works that would ordinarily be copyrightable should be denied unless a human author is identified. Generative AI models produce outputs like text, art, music, and video that appear highly creative and would certainly meet copyright’s originality standard if created by natural people.  Further, if human contribution is required, the questions shift to the level of human contribution necessary and procedural requirements to claim and prove human authorship. As the notice states, “Although we believe the law is clear that copyright protection in the United States is limited to works of human authorship, questions remain about where and how to draw the line between human creation and AI-generated content.” Factors could be the relative or absolute level of human input, creative control by the human, or even a word count.  With copyright it is helpful to have some bright lines to streamline the process of registration without substantial case-by-case lawyer input for each copyrighted work, but any hard rule might skip over the nuanced. Although the notice focuses on copyrightability, ownership questions will also come into play.

A second important core inquiry focuses on training data that is fundamental to today’s generative AI models. The copyright office seeks input on the legality of training generative models on copyrighted works obtained via the open internet, but without an express license. In particular, the Office seeks information about “the collection and curation of AI datasets, how those datasets are used to train AI models, the sources of materials ingested into training, and whether permission by and/or compensation for copyright owners is or should be required when their works are included.”  Presumably different training models could have different copyright implications.  In particular, an approach that does not store or actually copy the underlying works would be less likely to be be infringing.

In building the training model, we often have copying of works without license, and so the key inquiry under current law appears to be the extent that fair use applies to protect the AI system generators.  In other areas, Congress and the Copyright Office have stepped in with compulsory licensing models, that could possibly work here — a system of providing a few pennies for each web page. Our system also supports approaches to voluntary collective licensing via joint management organizations; perhaps supported by a minimum royalty rate. An issue here is that many of the folks creating training data are doing so secretly and would like to maintain their data and how the model is using the data as trade secret information.  That lack of transparency will raise technical challenges and costs for the underlying copyright holders.

A third core area focuses on infringement liability associated with AI-outputs that result in a copy or improper derivative work.  Who is liable — the AI system developers, model creators, and/or end users? A traditional approach would allow for joint liability.  Again though, the lack of transparency makes things potentially difficult to prove copying, but perhaps availability and likelihood are enough.  On this point, notice also asks about the idea of labeling or watermarking AI content as suggested a recent White House / Industry agreement.  Although I see this issue as outside of copyright law, the inquiry suggests some penalty for failure to label.

Everyone is floundering a bit in terms of how incorporate generative AI into our world view.  I see the Copyright Office AI inquiry as a real attempt to seek creative and potentially transformative solutions. The public is invited to provide input by submitting comments by the October 18, 2023 deadline. There will also be a short response period for reply comments responding to initial submissions that closes on November 15, 2023.

USPTO Downsizes HQ; Building Owner Faces Financial Troubles

The U.S. Patent and Trademark Office (USPTO) has called their 2.4 million square foot headquarters in Alexandria, Virginia home since 2005. But the agency does not actually own the cutting-edge facility located in the Carlyle neighborhood near the Potomac riverfront. Instead, the USPTO has leased the complex from New York-based real estate owner LCOR.

Several months ago, the USPTO announced it would be downsizing and relinquishing 800,000 square feet of space. The renewed 5-year lease covers 1.6 million square feet.  Still a big footprint, but one reflective of how the USPTO’s workplace and workforce have evolved over the past two decades.

When the agency first moved in, hoteling and work-from-home examiner programs were in place, but not the expectation. Fast forward to today and the USPTO has fully embraced telework along with opening satellite offices nationwide, reducing the need for everyone to be housed at HQ. Despite major examiner corps growth during this time, the footprint no longer needs to be so large.

However, the USPTO’s landlord LCOR now faces its own challenges filling the soon-to-be vacant space. The company continues to struggle finding replacement tenants, as office vacancy rates remain high nationwide.

Most recently, credit rating agency Moody’s downgraded LCOR’s credit outlook to “high risk of default” status. The downgrade reflects Moody’s view that LCOR may have trouble refinancing debt and have insufficient cash flow to cover interest payments unless new paying tenants are found.

I remember first visiting HQ way back then and thinking of the potential benefits of having a patent law office in an adjacent building.  Today, that imagined benefit seems much less so as it is likely that your examiner is sitting at home in another state.

Venue Transfer Games Continue: Rafqa Star v. Google

by Dennis Crouch

Rafqa Star LLC v. Google LLC, No. 6:22-cv-01207-ADA, 2022 WL 3747666 (W.D. Tex. Aug. 17, 2022).

Google is one of the largest companies in the US with extensive ties not just to every state, but virtually every household in the entire country.  Still, the company regularly argues that it would be too unfair and inconvenient to litigate patent cases in states such as Texas. In a recent decision, Judge Alan Albright (W.D.Tex.) denied Google’s motion to transfer venue. In his 40-page order, Judge Albright provided an in-depth analysis of the private and public interest factors that, based upon prior precedent, govern transfer under 28 U.S.C. § 1404(a).  The relevant statute reads as follows:

For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.

Id.  Before analyzing this case, I want to step back and recognize that the current legal test for patent venue transfer has departed significantly from the statutory language declaring the goals of convenience and justice. The public and private factor analysis mandated by current precedent does not actually focus on real inconvenience to parties or witnesses. For instance, the location of documents and witnesses gets weight when almost everything is cloud based. And the 100-mile rule makes little sense in an age of national air travel and remote work.  This is especially true for patent cases that will have nationwide impact.

Moreover, these motions are never really about convenience in patent cases, but rather are tactics for judge shopping with the parties competing to reach a perceived more favorable forum. Like Google, the defendants are typically corporations with national reach who can – and do – litigate anywhere. But they believe certain districts or judges, like Judge Albright, are less favorable for them. Venue motions are weaponized as part of broader forum shopping, not for legitimate inconvenience reasons.

This underlying reality casts doubt on the entire enterprise of venue disputes in patent cases. The jurisprudence should be realigned to get back to the statutory standard and goals of convenience and justice. But until then, district courts and parties are stuck playing this game, as evidenced by the venue fight in Rafqa v. Google.

An interesting solution would be to require parties to certify that the public and private factors highlighted in their argument serve as the primary motivation for seeking a venue change, rather than an attempt to avoid a judge or forum perceived to be less favorable.  W.D. Texas has also largely eliminated the Judge Albright singularity with its order requiring random distribution of patent cases filed in Waco.

Back to Rafqa Star: Ultimately, the Judge Albright determined that Google failed to meet its burden to demonstrate that its proposed transferee venue (N.D.Cal.) was clearly more convenient than Waco. What makes the the order particularly significant is Judge Albright’s lack-of-credibility findings regarding Google’s venue declarant, Mr. Peter Tan.  The key arguments here really relate to the work-from-home transformation for many tech workers, including those at Google.

As Judge Albright explained, Mr. Tan’s declaration ambiguously stated that Google employees “report to” offices in NDCA but did not declare that they actually reside there. Google’s lawyers then used this ambiguous phrasing claim that the employees were located in NDCA. Judge Albright also recounted inconsistent testimony Mr. Tan gave at an evidentiary hearing when pressed about his basis of knowledge for claiming employees were in NDCA.  Mr. Tan was unable to give a persuasive basis.  Based upon his in-person credibility determination, Judge Albright found Mr. Tan’s declaration and testimony unreliable and thus struck the statements about employee locations.

The order also explores apparent attempts by Google’s counsel to mislead the Court about the location of a Google employee in Texas. Counsel relied on a LinkedIn profile rather than investigating the employee’s actual location, leading to shifting stories.

These aspects of the case offer some important tactical considerations for the parties, especially when the fact-finder is a judge rather than a jury.

This case will almost certainly receive a mandamus petition to the Federal Circuit, and it will be interesting to see whether the appellate court once again rejects Judge Albright’s approach.

Rafqa’s asserted patent US11145215 claims a method of providing user feedback (such as directions) based upon inputs from a motion detector and video device.

“Intent Engine” Claims Fail 101 for Lack of Technological Inventive Concept

by Dennis Crouch

USC IP P’ship, L.P. v. Meta Platforms (Facebook), 22-1397 (Fed. Cir. August 30, 2023)

In a non-precedential opinion authored by Judge Pauline Newman, the Federal Circuit has affirmed USC IP Partnership’s asserted patent claims are all invalid.  Back in 2020, USC IP sued Facebook for infringing its U.S. Patent No. 8,645,300.  The arguably pro-patentee Judge Alan Albright served as the district court judge.  Like Judge Newman, he had also found the claims invalid as unduly directed to an abstract idea. USC IP P’ship, L.P. v. Facebook, Inc., 576 F. Supp. 3d 446 (W.D. Tex. 2021) (granting summary judgment of ineligibility).

A difficulty with search engines, and communication generally, is that parties often fail to fully and literally state their needs.  We are often left inferring intent based upon other clues, such as situational context or our knowledge of the speaker.  USC IP’s ‘300 patent attempts to provide some solutions to this problem through its “intent engine” that uses an “intent tool” as well as a ranking tool to provide better results. The intent engine analyzes information about the user to predict their intent and displays this inferred intent in the intent field. It also recommends webpages matching the intent in the recommendation field. The user can provide ranking data on how well the webpage matches their intent via the ranking tool, and this data is stored in a database. As recited in the claims, the intent engine combines intent prediction, webpage recommendation, and user ranking to deliver a customized browsing experience. But, the claims focus on the high-level functionality of the system rather than the technical details of how intent analysis, recommendation algorithms, or data storage operate.  In some of the claims, the process is interactive — with the system prompting visitors to confirm their intent before recommending webpages matching the intent.

As per usual, the Federal Circuit analyzed patent eligibility under the two-step test set forth in Alice Corp. v. CLS Bank Int’l, 573 U.S. 208 (2014). At step one, the court looks to whether the claims are directed to an abstract idea such as a fundamental economic practice or mathematical formula. If so, the court proceeds to step two, where it considers whether the claims contain an “inventive concept” sufficient to transform the abstract idea into a patent-eligible application. This process involves looking at the claim elements individually and in combination to assess whether they amount to significantly more than the abstract idea itself.

Applying the two-step Alice framework, the Federal Circuit agreed with the district court that the claims are directed to the abstract idea of “collecting, analyzing and using intent data.” This kind of data collection and analysis is an abstract idea, even  if implemented on a computer. The court compared USC IP’s claims to those invalidated in Electric Power Group, LLC v. Alstom S.A., 830 F.3d 1350 (Fed. Cir. 2016).

At Alice step two, the court agreed that the claims lack an inventive concept to transform the abstract idea into a patent-eligible application. They merely invoke generic computer components like web browsers and databases. As Judge Albright explained, the “intent engine” is described only as a black box without accompanying technical details.

The patentee’s key argument on appeal was at step-2, arguing that the “intent engine” was not a conventional or generic computer component, but provided a technical solution rooted in computer technology like the claims in DDR Holdings. The patentee argued the intent engine played a role that went beyond well-understood, routine, and conventional computer functionality.  And, the patentee provided expert testimony at the district court level in an attempt to support this conclusion.

On appeal, the Federal Circuit rejected these arguments and again affirmed Judge Albright’s holdings. Albright had disregarded the expert testimony as merely providing legal conclusions without underlying factual support — finding it not “backed by any concrete facts from the specification or prior art.”  The appellate panel went on to agree that the ‘300 patent claims are not directed to any improvement in computer functionality itself but merely describe the use computers as a tool.

The claims here were filed and issued prior to Alice and Mayo at a time when many patents were focused more on the functional terms without the accompanying technical details.  Today, many are thinking of similar tools in the generative AI context. Like here, I expect that gen-AI tools will face high patent eligibility obsticles absent inclusion of strong technical implementation details placed at least within the specification, but more likely within the claims themselves.


Taylor v. Hunton Andrews Kurth LLP: A Cautionary Tale for Inventors and Startups

The Harris County Texas appellate court recently affirmed summary judgment favoring the Hunton Andrews Kurth law firm and its attorneys. Taylor v. Hunton Andrews Kurth, LLP, 14-22-00410-CV (Tex. App.–Hous. [14th Dist.] July 13, 2023).  Taylor and his companies WPEM and W2W had sued the firm for legal malpractice after first losing its infringement lawsuit and being stuck with the defendants attorney fees. The case offers a few key takeaways for entrepreneurs delving into the patent system.

Background: William Taylor and his business partner developed a software application called SafeCell and assigned the patent rights to their startup company W2W. They hired Hunton AK to handle the patent application process. Hunton filed provisional and non-provisional patent applications on behalf of W2W.  Several years later, after a patent was granted (and their legal bill still unpaid), Taylor and his partner transferred patent rights back to themselves as individuals and terminated W2W. They then formed a new company called WPEM and assigned the patent to WPEM so it could sue another company for infringement. That lawsuit failed with a complete reversal — WPEM was ordered to pay $180,000 in attorneys’ fees to the defendant.

Taylor, his partner, WPEM, and W2W then sued Hunton for legal malpractice, alleging negligence in the handling of the original patent application. The trial court dismissed all claims except Taylor’s individual claims against one Hunton attorney, which were later severed and dismissed in a separate order. The appellate court affirmed, holding (1) Taylor was not the firm’s client, and neither was WPEM; (2) although W2W as a client its had been terminated in 2017 — more than 3 years before hand.  That was a problem because Texas has a 3-year limitation on actions following dissolution of a corporation.

Key Takeaways for Inventors and Startups

1. Be careful when assigning IP rights from individuals to businesses, and back again.

The engagement letter was between W2W and Hunton, not with Taylor or his partner as individuals. And, Hunton had the individuals sign a particular statement that they were not the clients.  The court found this disclaimer made clear Hunton only represented W2W. The transfer of the patent from W2W to the individuals did not transfer W2W’s attorney-client relationship.

Key quote: “The assignment of a patent does not transfer an attorney-client relationship.” (quoting Telectronics Proprietary, Ltd. v. Medtronic, Inc., 836 F.2d 1332 (Fed. Cir. 1988)).

2. Understand the effects of terminating a business entity.

W2W lacked standing to sue because it had been terminated as an entity outside the 3-year winding up period permitted under Texas law. Its claims were extinguished.

Key quote: “Once dissolved, the corporation could neither sue nor be sued, and all legal proceedings in which it was a party abated.” (quoting Hunter v. FW, 620 S.W.2d 547 (Tex. 1981)).

3. Individual shareholders generally can’t sue for harms to the company.

The court applied the corporate injury rule, which bars owners from recovering personally for injuries to the company. Taylor owned no individual losses because he did not own the patent rights at any relevant time.

Key quote: “Under the corporate injury rule, an owner of a company cannot sue to recover damages personally for a wrong done to the company. ”

The outcome here is a classic corporate defense strategy — the defense used the complex corporate structure and ownership changes to ultimately defeated of the claims.  For inventors and startups seeking to protect IP, it makes sense to also consult with a corporate attorney along the way to ensure consistent protection.

I’ll note here that although Hunton Andrews Kurth won on technicalities, they also denied the substance of the claims.

Double Patenting and Patent Term Adjustment

by Dennis Crouch

The Federal Circuit recently issued an important decision in In re: Cellect, LLC (Fed. Cir. Aug. 28, 2023) regarding how Patent Term Adjustment (PTA) interacts with terminal disclaimers and obviousness-type double patenting (ODP). This case establishes binding precedent that a terminal disclaimer cuts off any extended patent term granted through PTA.

This holding contrasts with the court’s prior rulings regarding Patent Term Extension (PTE), where the extended term is calculated from the disclaimed expiration date, not the original expiration date. Thus, PTE extends beyond a disclaimed term, while PTA does not.

This result was expected by many patent experts, although some in the pharmaceutical industry had pushed for PTA to extend beyond disclaimed terms similarly to PTE. In the end, the statutory language expressly addressing disclaimers in the context of PTA proved decisive. This precedent will apply to all patents already in-force as well as those issued in the future.  Thus, applicants will want to carefully consider PTA and terminal disclaimer strategy for patent families.

If I were the judge, I would consider eliminating non-statutory double patenting. I expect the doctrine would have never developed under our current patent term calculation and is instead a vestige of history.

Millions of U.S. patents are tied to a family member patent via terminal disclaimer and its accompanying promise of continued common ownership.  A terminal disclaimer generally disclaims any patent term that would extend beyond the expiration date of the full statutory term of the reference patent and are generally required for the USPTO in order to overcome a rejection for obviousness-type double patenting.

Obviousness-type double patenting (ODP) is a judicially created doctrine that prevents an inventor from obtaining a second patent for claims that are not patentably distinct from claims in a first patent. The doctrine has its stated origins in 35 U.S.C. 101, which provides that an inventor may obtain “a patent” (singular) for an invention.  The obviousness question normally focuses on prior-art as required by Section 103.  ODP doctrine does not consider prior art but rather non-prior-art patents (or applications) with overlapping inventorship.

Although the statutory hook of Section 101 focuses on one-patent-per-invention, the policy concern is also highly focused on ensuring that a patentee cannot obtain multiple patents on a single invention in order to improperly extend the patent term.  This problem is largely historic — stemming from the time when patent term was determined based upon the date of issuance and prior to publication of applications.  These transformations have substantially limited gamesmanship potential.  However, in the patent-term-adjustment world, it is possible to extend a patent’s term by several years in situations where the patent applicant has a successful PTAB appeal.

ODP is intended to prevent an inventor from securing a second, later-expiring patent for small modifications or obvious variations of the same invention claimed in an earlier patent. The goal is to prevent an unjustified extension of the term of exclusivity for the invention beyond the original patent term. ODP is most commonly applied when two commonly owned patents share overlapping or obvious claims but have different expiration dates.  The courts have concluded that a terminal disclaimer by the patentee along with a binding promise of ongoing co-ownership serves as a solution — allowing both patents to issue.  The result is effectively a single patent with a single patent term designed to preventing potential harassment from multiple assignees asserting commonly owned patents covering the same invention.

= = =

The case at hand involves several Cellect patents related to image sensors in personal digital assistants and phones.  The patents are all part of a family and all claim priority to the same original application. The patents also received varying Patent Term Adjustment (PTA) to extend their terms due to USPTO delays during examination.

After Cellect sued Samsung for infringement, Samsung requested ex parte reexaminations of Cellect’s patents asserting they were unpatentable for obviousness-type double patenting (ODP) over earlier expiring patents in the family.  The examiner agreed the claims were unpatentable for ODP in the reexaminations. The Board affirmed the unpatentability findings.

On appeal, Cellect argued that PTA should be available beyond the disclaimed portion of the term — noting that the judge-made-law could not overcome the statutory guarantee.  On appeal, however, the Federal Circuit affirmed the Board and rejected Cellect’s arguments.  The clincher here is that Congress identified disclaimers within the PTA statute, stating: “No patent the term of  which has been disclaimed beyond a specified date may be adjusted under this section beyond the expiration date specified in the disclaimer.”  35 U.S.C. 154(b)(2)(B).   In other words, Congress appears to be stating that PTA  cannot extend a patent term beyond what was disclaimed — but this is exactly what Cellect was asking for.  The appellate panel also agreed with the PTAB that Cellect received an unjustified timewise extension and a terminal disclaimer was required to ensure common ownership since the later patents were clearly obvious variants of the original.  An otherwise result would effectively confer PTA on the earlier issued patents even though they were not entitled.

In summary, the unjustified extension stemmed from the challenged claims extending beyond the expiration of the one family member (‘036) that did not receive PTA. This could have been resolved with a terminal disclaimer, but none were filed.

The decision thus establishes how PTA granted under 35 USC 154 should be factored into the ODP analysis — and the result does not favor patent families.

Publicly Traded International Patent Firm IPH Continue Growth through Acquisition

by Dennis Crouch

The publicly traded Australian company IPH Limited continues expanding its global intellectual property services empire. IPH’s latest acquisition is the Canadian IP firm Ridout & Maybee for $65 million Canadian dollars. This comes just 10 months after IPH purchased Canada’s largest IP firm, Smart & Biggar.

Ridout & Maybee will merge into Smart & Biggar, further consolidating IPH’s presence in Canada. IPH’s strategy is to dominate secondary IP markets like Canada, New Zealand, and Singapore. It already owns leading firms in Australia, including AJ Park, Griffith Hack, Pizzeys, and Spruson & Ferguson.

Ridout’s website indicates only that the firm is joining “fellow Canadian IP firm, Smart & Biggar” and does not indicate that the firm will be owned by the publicly traded firm IPH.

As I wrote last October, IPH’s model raises conflict of interest concerns. With control of over 1/3 of Australian patent filings, competitors may find their IP work handled by business partners. The growth also tests regulations restricting non-lawyer ownership of law firms.

The expansion of publicly traded international IP conglomerates like IPH makes one wonder if similar consolidation could come to the US. For now, the USPTO prohibits their model. But with IPH now owning top firms across the Pacific, Canada, and Australia, pressure on the USPTO’s stance may build over time. The IPH model promises global reach and resources while threatening attorney independence. The coming years will tell whether it represents the future of IP law.

9th Circuit Revives False Claims Act Action for Fraud on the Patent Office

by Dennis Crouch

The U.S. Court of Appeals for the Ninth Circuit recently issued a pair of decisions in the qui tam case Silbersher v. Valeant Pharmaceuticals concerning the False Claims Act’s (FCA) public disclosure bar.  The case sets significant precedent in linking FCA claims to patent prosecution and fraud upon the patent office.  The case can be contrasted with Silbersher v. Allergan, Inc., 21-15420, — F.4th — (9th Cir. Aug. 25, 2022) [21-15420], that Silbersher lost.


The False Claims Act (FCA) allows private citizens, known as “relators,” to file qui tam suits on behalf of the government against those who have submitted false or fraudulent claims to the Federal Government. A relator who successfully prosecutes an FCA action is entitled to receive a percentage of any recovery. This bounty system is meant to encourage whistleblowers to come forward with information about fraud against the government. However, the FCA also contains a “public disclosure bar” to prevent opportunistic litigation by relators who do not contribute any original information. The public disclosure bar mandates dismissal of qui tam suits where the allegations are substantially the same as information already publicly disclosed through certain channels enumerated in the statute. The public disclosure bar applies to block FCA claims when: (1) the disclosure occurred via a specified channel, (2) the disclosure was public, and (3) the relator’s allegations are substantially the same as what was disclosed.  31 U.S.C. § 3730(e)(4)(A). If the bar is triggered, courts must dismiss the FCA claim unless the relator qualifies as an “original source” of the information.

In this case, the relator, Zachary Silbersher, brought an FCA lawsuit alleging that Valeant Pharmaceuticals and Dr. Falk Pharma fraudulently obtained patents covering their Apriso drug.  According to Silbersher, Valeant intentionally withheld material prior art references showing that Apriso’s delayed-release formulation was obvious. Valeant then allegedly used the fraudulently obtained patents to charge Medicare/Medicaid inflated prices for Apriso.

Silbersher is a patent attorney and represented GeneriCo in an inter partes review (IPR) proceedings that invalidated one of Valeant’s patents related to Apriso.  In the course of that investigation, Silbersher found that Valeant (allegedly) took inconsistent positions in prosecuting related patents several years apart regarding whether Apriso’s effectiveness without food would have been obvious.

The district court dismissed the suit under the FCA’s public disclosure bar discussed above. The court held that the inter partes review (IPR) proceedings invalidating one of Valeant’s Apriso patents qualified as a public disclosure and contained substantially the same allegations as Silbersher’s complaint.  Thus, because the fraud was already subject of public disclosure, it could not serve as the basis for a False Claims Act Claim.

Ninth Circuit’s Analysis

On appeal, the Ninth Circuit reversed, holding that the IPR proceedings did not qualify as a public disclosure under § 3730(e)(4)(A).  The provision spells out the types of public disclosures that bar FCA claims:

[Barring disclosures may be found in] … (i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media …

Id.  The appellate panel explained that IPRs are primarily adversarial and adjudicatory rather than investigative. With the government not a party to the IPR, the proceeding did not qualify under channel (i) as a “hearing in which the Government … is a party.” Nor did it qualify under channel (ii) as an “other Federal … hearing” since IPRs are not focused on fact-finding or obtaining information, but rather serve as an adversarial proceeding.

While the patent prosecution histories qualified as public disclosures under channel (ii), the Ninth Circuit held they did not disclose substantially the same allegations or transactions as Silbersher’s complaint. Critically, neither the prosecution histories nor any other single qualifying document revealed Valeant’s allegedly inconsistent positions taken before the PTO. According to the Ninth Circuit, publicly disclosing a “fraudulent transaction” requires revealing both the alleged misrepresentation and the true facts, which was absent here.

Key Takeaways

The decisions provide a roadmap for litigators to structure FCA claims based on “fraudulent transactions” arising from allegations of inequitable conduct or inconsistent representations before the PTO. Carefully piecing together the elements of fraud from various public sources may avoid triggering the public disclosure bar. For defendants, these cases highlight the importance of the pleadings and demonstrating that the “essential elements” of alleged fraud have already been publicly disclosed.  A prosecution history that explains any inconsistencies with parallel proceedings would also avoid the potential problem.

Third Circuit Allows Deduction of Generic Hatch-Waxman Defense Costs

by Dennis Crouch

Mylan v. IRS, No. 22-1193, — F.4th — (3d Cir. July 27, 2023)

In a recent tax appeal, the Third Circuit court of appeals afformed that legal expenses incurred by generic drug makers to defend against patent infringement suits brought under the Hatch-Waxman Act are deductible as ordinary and necessary business expenses. This aligns with longstanding precedent treating patent litigation defense costs as deductible for the alleged infringer.

Mylan had deducted over $100 million in litigation expenses for the periods of 2012-2014 it occurred in defending patent infringement lawsuits brought against the generic manufacturer after it submitted abbreviated new drug applications (ANDAs) with paragraph IV certifications challenging the respective patents.  The IRS disallowed the deductions and issued notices of deficiency to the company — concluding that instead the litigation costs should be capitalized under I.R.C. § 263 (and associated regulations) as costs to acquire intangible assets (the FDA drug approvals).   The capitalization process requires amortization over 15 years rather than permitting immediate tax relief offsetting current income.

Mylan petitioned the U.S. Tax Court for redetermination and won a holding that litigation costs were deductible business expenses, rejecting the IRS’s position that they should be capitalized.  The IRS Commissioner then appealed to the 3rd Circuit who affirmed.

In the appeal, the IRS argued that litigation costs should be capitalized under Treas. Reg. §1.263(a)-4(b)(1)(v) as amounts paid to facilitate the acquisition of the FDA drug approvals, which are intangible assets.  The 3rd Circuit rejected that argument, holding that lawsuits by the branded manufacturers do not facilitate FDA approval.  The court noted that the FDA can approve an ANDA regardless of the litigation outcome and also that not every ANDA results in litigation so it is not a required step in the process.  Although litigation is a contemplated aspect of the Hatch-Waxman process, that does not convert the litigation into an approval requirement.  The court also noted that disparate tax treatment between generics and brands would undermine Hatch-Waxman.

The Third Circuit had previously held that litigation expenses a patentee incurs in enforcing its patents are ordinary and necessary business expenses because they are “peculiarly normal to the business in which … [patentee] taxpayers [a]re engaged.” Urquhart v. Commissioner, 215 F.2d 17, 19 (3d Cir. 1954). The court in Mylan reasoned that generic manufacturers defending infringement suits are engaged in functionally the same activity as patentees enforcing patents. Thus, the court concluded that deductibility should not differ based on whether litigation expenses are incurred by the patentee or alleged infringer. In the court’s view, “[i]t makes no difference in deciding the question of deductibility whether the patent litigation expenses are incurred by the patentee or the alleged infringer. Nor does it matter that the deductibility question arises in the context of an ANDA suit.”

Generic manufacturers relying on deductibility of these litigation costs will benefit from the ruling. If the fees had to be capitalized, it would substantially increase costs and undermine their incentives to challenge weak patents under Hatch-Waxman.