All posts by Dennis Crouch

About Dennis Crouch

Law Professor at the University of Missouri School of Law.

Pending Cases at the Supreme Court

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As we sit here today, there are no pending patent cases before the Supreme Court where the court has granted certiorari.  That said, there are a large number of pending petitions.  These include Cuozzo & Pulse that I have previously discussed. WilmerHale has been covering these, but is a few months behind.

The following are a few recently filed petitions:

Teva Follow-On: FiveTech v. SouthCo: (1) Can the Federal Circuit limit the role of the intrinsic evidence in construing patent claims under the exacting “lexicography and disavowal” standard; (2) Does the “lexicography and disavowal” standard improperly circumscribe the objective standard of the person of ordinary skill in the art in construing claim terms.

Teva Follow-On: Chunghwa Picture Tubes v. Eidos: Whether a district court’s factual finding(s) underlying its construction of a patent claim term must be reviewed for clear error under Rule 52(a)(6) as this Court held in Teva, or is an exception created to clear error review where the appellate court finds the intrinsic record clear after a de novo review of that record, as the Federal Circuit held in this case.

Attorney Fees in Copyright:

Kirtsaeng v. John Wiley (Kirtsaeng II): What is the appropriate standard for awarding attorneys’ fees to a prevailing party under § 505 of the Copyright Act?

Omega v. Costco (Costco II): (1) Can Copyright attorney fees be based on a finding that petitioner engaged in copyright misuse when the issue of misuse was appealed but left undecided on appeal? (2) Can the pursuit of a claim of copyright infringement constitute “copyright misuse” when the allegedly infringing copy is a “pictorial, graphic, or sculptural work” that is reproduced in a “useful” article.

Inter Partes Review Challenges:

Automated Merchandising v. Michelle Lee: (1) Must the federal judiciary await the substantive conclusion of an agency proceeding before it can evaluate whether an express statutory limitation on that agency’s jurisdiction requires that agency to terminate its proceeding? (2) Did the Federal Circuit err in refusing to order the USPTO to terminate the subject inter partes reexaminations under 35 U.S.C. § 317(b)?

Luv N’ Care v. Munchkin: Did the Federal Circuit err by affirming a PTAB administrative judgment based on new issues raised sua sponte by the PTAB at the Final Hearing, thus depriving the patent owner of notice and a meaningful opportunity to respond?

ANDA Loophole Cases:

Mylan v. Apotex:  (1) Whether Article III’s case or controversy requirement can be satisfied by a suit which seeks a judgment of non-infringement of a disclaimed patent. (2) Whether Congress can create Article III jurisdiction by imposing statutory consequences that turn on obtaining a judgment of non-infringement of a disclaimed patent.

Daiichi Sankyo v. Apotex: Whether an action seeking a declaration judgment of non-infringement presents a justiciable case or controversy under Article III of the Constitution where the patent at issue was previously disclaimed and thus cannot be enforced.

Design Patent Summary Judgment: Butler v. Balkamp: Is summary judgement proper in a District Court when a factual dispute exists in a Design Patent action and the District Court substitutes its own opinion for that of the ordinary observer?

Reasons to Combine and Obviousness: Arthrex v. KFX Medical: (1) Is the “reason to combine” inquiry a subsidiary question of fact, subject to deferential review on appeal, or a legal question for the court, and reviewed de novo. (2) Should the ultimate legal issue of obviousness be resolved by the court rather than submitted to the jury for resolution.

Trans Pacific Partnership IP Chapter

Patent,

The final draft document for the Trans Pacific Partnership (TPP) agreement intellectual property chapter has apparently been provided by Julian Assange at WikiLeaks.

Some highlights:

Article QQ.E.1:

  1. Subject to paragraphs 3 and 4, each Party shall make patents available for any invention, whether a product or process, in all fields of technology, provided that the invention is new, involves an inventive step, and is capable of industrial application.
  2. Subject to paragraphs 3 and 4 and consistent with paragraph 1, each Party confirms that patents are available for inventions claimed as at least one of the following: new uses of a known product, new methods of using a known product, or new processes of using a known product. A Party may limit such processes to those that do not claim the use of the product as such.
  3. Each Party may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to nature or the environment, provided that such exclusion is not made merely because the exploitation is prohibited by their law. Each Party may also exclude from patentability: diagnostic, therapeutic, and surgical methods for the treatment of humans or animals; animals other than microorganisms; and essentially biological processes for the production of plants or animals, other than non-biological and microbiological processes.
  4. Each Party may also exclude from patentability plants other than microorganisms. However, consistent with paragraph 1 and subject to paragraph 3, each Party confirms that patents are available at least for inventions that are derived from plants.

Article QQ.E.11: {Publication of Patent Applications}

  1. Recognizing the benefits of transparency in the patent system, each Party shall endeavor to publish unpublished pending patent applications promptly after the expiry of 18 months from the filing date or, if priority is claimed, from the priority date.
  2. Where a pending application is not published promptly under paragraph 1, Parties shall publish such application or the corresponding patent as soon as practicable.
  3. Each Party shall provide that an applicant may request the early publication of an application prior to the expiry of the period mentioned in paragraph 1.

Remedies:

6. Each Party shall ensure that its judicial authorities shall have the authority to order a party at whose request measures were taken and who has abused enforcement procedures with regard to intellectual property rights including … patents, copyright and related rights, and industrial designs, to provide the party wrongfully enjoined or restrained adequate compensation for the injury suffered because of such abuse. The judicial authorities shall also have the authority to order the applicant to pay the defendant expenses, which may include appropriate attorney’s fees.

The provisions on Pharma, Ag, Biotech Data Protection, and Trade Secrets need further analysis.

– DC

The Concentrated Market of Patent Jurisdictions

Patent

The chart below shows the relative distribution of new patent lawsuit filings (complaints) over the past decade.  I included the top four most popular jurisdictions (E.D.Tex., D.Del., C.D.Cal., and N.D.Cal.) and also a catch-all category for the sum of the other 90 or so districts in the country.  LawsuitDistribution

You’ll note that E.D.Tex. has been the leading district almost every year for the past decade, but that growth has increased since the AIA (2011) and even further increased in 2014 and 2015.  Part of ramp-up comes from the fact that the E.D.Tex. cases already had more defendants-per-patent and the joinder provisions of the AIA could be seen as a natural expression of that phenomenon.  However, the rise in 2015 can’t be so easily explained.

If you calculate the HHI, this now looks like a very concentrated market.

Trans Pacific Partnership

Patent

The Trans-Pacific-Partnership is now much closer to reality with substantive agreement between the 12 member nations that include the US, Canada, Mexico, Japan, Australia, et al. (but not China).  The new multilateral trade agreement has not been made public, but reportedly includes a number of intellectual property elements with special protections against copyright theft for the US entertainment industry and generic competition for the branded pharmaceuticals.  Congress will need to approve the agreement to make it effective in the US, but is likely to do so if Republicans get their act together.

A final version of the text should be available in November.

Cuozzo Takes IPR Challenge to the Supreme Court

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Cuozzo Speed Tech v. Lee (Supreme Court 2015)

Cuozzo lost its petition for en banc rehearing in a 6-5 split of Federal Circuit judges.  Now, the patentee has raised is challenge to the IPR process to the Supreme Court – asking two questions:

  1. Whether the [Federal Circuit] erred in holding that, in IPR proceedings, the Board may construe claims in an issued patent according to their broadest reasonable interpretation rather than their plain and ordinary meaning.
  2. Whether the [Federal Circuit] erred in holding that, even if the Board exceeds its statutory authority in instituting an IPR proceeding, the Board’s decision whether to institute an IPR proceeding is judicially unreviewable.

Answers to these questions will fundamentally alter the inter partes review system. The petition does a good job of walking through the importance of the case and then separately explaining their legal argument.

I’m sure that we’ll cover this case more as the briefing moves forward – amici have 30 days to file.  Meanwhile, read the petition here: Cuozzo Speed Technologies LLC v Michelle K Lee Petition for a Writ of Certiorari

The Cuozzo petition was filed by a rising star in Supreme Court practice – Jeffrey Wall, who is partner at Sullivan & Cromwell.  Wall was a clerk for Justice Thomas and was an Assistant to the Solicitor General for five years. He also has the distinguishing mark of being my law school classmate (as well as Prof. Rantanen).

 

Australia Rejects Isolated-DNA Patents

Patent

Australian_Coat_of_Arms[1]D’Arcy v. Myriad, [2015] HCA 35

The High Court of Australia (HCA) has determined that Myriad’s claims to isolated DNA are not patent eligible — finding that the creation of this category of important rights is best left to “legislative determination.”

Australia’ patent statute is still keyed to the 1624 English Statute of Monopolies that allows for patents on “any manner of new Manufactures.”  Australia takes those “ancient” words and then applies a common law approach to determine its scope.  In general, Australian patent rights can only be granted on “something brought about by human action.”

The court here writes:

Although it may be said in a formal sense that the invention as claimed, referring to isolated nucleic acids, embodies a product created by human action, that is not sufficient to support its characterisation as a manner of manufacture. The substance of the invention as claimed and the considerations flowing from its substance militate against that characterisation. To include it within the scope of a “manner of manufacture” involves an extension of that concept, which is not appropriate for judicial determination. Further, to include this class of claim within that concept would not contribute to coherence in the law. . . Nor do Australia’s international obligations and the differently framed patent laws of other jurisdictions, which were referred to earlier in these reasons, support the conclusion that this class of claim should fall within the concept.

In reaching its decision, the court reviewed US, UK, Korean, Japanese, and Chinese patent law to consider where beneficial harmonization may occur.

D’Arcy v Myriad Genetics Inc (S28-2015) [2015] HCA 35.

No Motivation to Make a Worse Product – Therefore Patentable?

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by Dennis Crouch

Spectrum Pharma and the University of Strathclyde v. Sandoz Inc. (Fed. Cir. 2015)

In this case the Federal Circuit shoots down two fairly silly arguments, but not without first giving them full credence and consideration.  Although the patentee lost here, the Federal Circuit appears to agree with the patentee that its less-pure compound could have been patentable over a purer version identified in the prior art even though the added impurities provided no benefit, functionality, or synergy — PHOSITA simply would not have been motivated to make the less-pure version.

Background: The ANDA lawsuit here centers around Strathclyde’s patent (licensed to Spectrum) covering the the drug Fusilev aka l-leucovorin and Sandoz’s related generic drug application.  The drug leucovorin was found to be effective at treating iron deficiency that can occur with 5-FU cancer treatment. Later, researchers discovered that it was actually one isomer of leucovorin (6S) that was effective and the other isomer (6R) was just along for the ride. The patentee here substantially purified the 6S isomer and attempted to patent it as part of a therapeutic composition.  Claim 1 requires “a mixture of (6S) and (6R) diastereoisomers and consists of at least 92% by weight of the (6S) diastereoisomer, the balance of said compound consisting of the (6R) diastereoisomer.”  It turns out that years earlier a researcher had manufactured a pure form of the 6S isomers and the 50/50 mixture of 6S/6R isomers was known as well. By the time of the invention in question here it was also known that the 6S isomer was the effective one. Later studies proved that the substantially pure form was clinically no better than the 50/50 mixture having the same effective amount of  the 6S isomer.

Obviousness:

A patent claim is invalid as obvious if an alleged infringer proves that the differences between the claims and the prior art are such that “the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art.” 35 U.S.C. § 103(a) (2006) (pre-AIA). Obviousness is ultimately a conclusion of law premised on underlying findings of fact, including the scope and content of the prior art, the differences between the claimed invention and the prior art, and the level of ordinary skill in the pertinent art. KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007); Graham v. John Deere Co., 383 U.S. 1 (1966). “The presence or absence of a motivation to combine references in an obviousness determination is a pure question of fact.” Alza Corp. v. Mylan Labs., 464 F.3d 1286 (Fed. Cir. 2006). In addition to common knowledge or teachings in the prior art itself, a “design need or market pressure or other motivation” may provide a suggestion or motivation to combine prior art elements in the manner claimed. Rolls Royce, PLC v. United Techs. Corp., 603 F.3d 1325 (Fed. Cir. 2010);

Here, the patented mixture could be made by simply mixing the known pure 6S isomer with the 50/50 mixture so as to reach the claimed 92% ratio.  The patentee argued that there would have been no motivation to combine these references — going from a pure substance to a less-pure substance. The Federal Circuit sees merit in that argument:

[I]f the pure material is known, no reason has been shown why one would want to have an impure material. Although one may not be motivated to obtain an impure material and, in effect, it therefore can be argued to have been nonobvious—which is Spectrum’s position here, that the 92–95% pure material was nonobvious over the known pure material.

 

 

The Federal Circuit ultimately rejected that argument “despite its superficial appeal” by looking at the patent from the starting point of a 50/50 mixture – and finding that there would have been a motivation to improve its purity.  The court also noted that the new mixture offered no “unexpected advantages over the prior art pure material, the less-than-pure material, and any others of similar concentration.”  In essence, this case is can be seen as very much parallel to KSR – where a combination of two known elements, with each element being used as expected, is unlikely to be patentable absent some unexpected results or synergy.

Objective Post-Invention Evidence Showing Obviousness: Of interest, the Federal Circuit approved of two additional bits of evidence that occurred post-invention that helped prove obviousness. The first was evidence that several other researchers were able to obtain the 92% isomer concentration shortly after the patentee obtained its results — that appears have provided some evidence of obviousness.  Secondly, the court relied upon post-invention studies showing no benefit of the pure drug to negate any synergy  argument.

Infringement by Importation: A second set of claims included a limitation that the composition was provided in “a quantity at least sufficient to provide multiple doses of said mixture of (6S) and (6R) diastereoisomers in an amount of 2000 mg per dose.”  Although Sandoz was planning to sell drug in single-use vials of ~200 mg per dose, the patentee argued that Sandoz did plan to import the drug in larger shipments and, at that importation would be infringing.  The Federal Circuit rejected that argument – finding that the ANDA infringement inquiry under 271(e)(2) “focuses on a comparison of the asserted patent claims against the ANDA product that is likely to be sold following FDA approval.” Thus, the fact that Sandoz plans bulk-imports does not create liability.

On this front, it seems that the Federal Circuit may have left open the possibility that Sandoz imports may still infringe under 271(a) once the generic maker begins imports.

Doctrine of Equivalents: The patentee had argued for infringement under the DOE even though it had narrowed the very amount element during prosecution.  Its argument was that the amendment should not count as narrowing because other claims in the patent were still broader.  That argument fell on deaf ears:

[B]y claim amendments and distinguishing statements on the prior art during prosecution, Spectrum is now estopped from invoking the doctrine of equivalents to prove infringement. When submitting an amendment with the application claims that eventually issued as claims 5–9, the applicants asserted that the newly added claims “include specific limitations as to quantities of materials,” and distinguished the prior art by pointing to the “quantities of these specific mixtures specified in the claims.” Those claims were also added following an office action rejecting the previous original claims as obvious in view of Rees. The applicants again explicitly highlighted the significance of the dosage limitation during an appeal to the Board, their brief stating that the claims “require a minimum of four grams,” the “quantity limitations set forth in the claims” which “define an aspect of the invention that is of great practical significance.” The applicants unequivocally argued that Rees, which allegedly only produced experimental quantities, “do[es] not teach, suggest, or otherwise render obvious the claimed compositions in the quantity specified” in the application claims that became claims 5–9. Those statements are clear and unmistakable expressions of the applicants’ intent to surrender coverage of quantities of the compound in lower doses.

Thus, Sandoz wins here on all fronts.

 

Patent Market Tracker

Patent

John Martin and his team at Innography have released their bi-annual update on the patent market. LINK. Their primary finding: Alice v. CLS Bank “hasn’t affected the volume of US patent sales, which continues its roughly 10% per year increase over the last several years.”  The short report hits a number of highlights, including recent deals by Porsche, Google, LinkedIn, and others. Although the report does delve into particularly technological issues, its tracking remains in terms of quantities rather than valuation.

Patent Trolls and Great Inventors

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ScreenShot168

The announcement to my upcoming Mizzou event with Prof Holte is exciting, but so is our topic.  Discussion will center around Holte’s case-study article: Trolls or Great Inventors: Case Studies of Patent Assertion Entities.

Holte’s abstract:

There has been much debate about the economic harms caused by patent infringement lawsuits filed by patent holders who do not make or sell products covered by their own patents — entities pejoratively referred to as “patent trolls.” This debate has thus far been largely theoretical or based on broad industry-wide data. The purpose of this Article is to present a focused empirical report that has previously been lacking — detailed information regarding the inventors themselves, the patent assertion entities (PAEs) that represent them, and the stories behind their patents. The research for this Article centers on two instructive case studies: (1) MercExchange, L.L.C., the prominent PAE whose seminal patent infringement action against eBay continued to the Supreme Court in eBay Inc. v. MercExchange, L.L.C., 547
U.S. 388 (2006); and (2) Capital Security Systems, Inc., a lesser-known PAE that has sued some of the largest banks in the world on its patented electronic check processing technology. This Article explores the stories behind the inventors, the patented inventions, and the entities asserting the patents in order to develop a more complete contextualized picture of PAEs and their economic impact. Based on this more complete picture, the Article then assesses whether these patent holders warrant the “patent troll” moniker, lurking under the bridge of innovation waiting to harass and extort innovators attempting to pass, or whether they instead resemble the great American vision of a Horatio Alger novel protagonist, laboring to build that bridge of innovation brick-by-brick and eventually reaping a reward for their hard effort. The Article concludes that, while additional studies are needed, the two PAEs studied herein fall squarely into the latter honest laborer category.

 

Shukh v. Seagate: Fired Inventors and their Former Employers

Patent,

Alexander Shukh v. Seagate (Fed. Cir. 2015)

Mr. Shukh sued his former employer Seagate asking for a correction of inventorship under 35 U.S.C. § 256 as well as breach of contract and discrimination associated with his firing.

Because Shukh had already assigned-away his ownership rights to the patents, the District Court ruled that the Shukh’s standing for the inventorship claim hung on his alleged reputational harm due Seagate’s failure to list him as a co-inventor on six different patents. The district court also dismissed the state law allegations for failure to state a claim. At the close of discovery, the district court then dismissed the case on summary judgment – finding that Shukh had not produced evidence to prove the reputational harm.

On appeal, the Federal Circuit has vacated the lower court’s summary judgment –

Today, we hold that concrete and particularized reputational injury can give rise to Article III standing. As we noted in Chou, “being considered an inventor of important subject matter is a mark of success in one’s field, comparable to being an author of an important scientific paper.” 254 F.3d at 1359. We reasoned that “[p]ecuniary consequences may well flow from being designated as an inventor.” Id. This is particularly true when the claimed inventor is employed or seeks to be employed in the field of his or her claimed invention. For example, if the claimed inventor can show that being named as an inventor on a patent would affect his employment, the alleged reputational injury likely has an economic component sufficient to demonstrate Article III standing.

We find that there is a question of material fact as to whether Dr. Shukh’s omission as a named inventor on the disputed patents caused him reputational injury. Dr. Shukh presented evidence such that a trier of fact could conclude that this omission injured his reputation in at least two ways: first, it harmed his reputation as an inventor in the field of semiconductor physics, and second, it contributed to his reputation for poor teamwork due in part to his accusations that others were stealing his work. Moreover, Dr. Shukh presented evidence from which a trier of fact could conclude that these reputational harms had economic consequences—namely, that Dr. Shukh was unable to find employment after he was terminated from Seagate.

This case highlights a troubling issue for inventors. The difficulty for inventors is that an inventor does not automatically have standing to sue for being improperly excluded from being listed as an inventor. Rather, the inventor must be able to allege additional cognizable harm before the court will hear the case.

Hereby Assign: Shukh’s employment contract with Seagate included a statement that he “hereby assign[s]” his future invention rights to Seagate. Although these contracts are generally interpreted by state-law, the Federal Circuit issued a 1991 patent-specific ruling that this clause results in an automatic assignment of rights. Filmtec Corp. v. Allied-Signal, Inc., 939 F.2d 1568 (Fed. Cir. 1991). The Filmtec outcome should be contrasted with agreements where employees “agree to assign.” In the agreement-to-assign case, legal title does not shift until the inventor actually does assign after inventing. In his appeal, Shukh asked the Federal Circuit to overrule Filmtec – which it refused to do here on stare decisis grounds. “[W]e cannot overrule that holding without en banc action.”

The suggestion for en banc action has some strong backers. In his dissenting opinion in Stanford v. Roche, Justice Breyer challenged the Federal Circuit rule. Relying upon history and tradition, Justice Breyer wrote that the initial “hereby-assign” employment contract as creating equitable title in the invention whose legal title does not automatically transfer.

Given what seem only slight linguistic differences in the contractual language, this reasoning seems to make too much of too little. Dr. Holodniy executed his agreement with Stanford in 1988. At that time, patent law appears to have long specified that a present assignment of future inventions (as in both contracts here) conveyed equitable, but not legal, title. See, e.g., G. Curtis, A Treatise on the Law of Patents for Useful Inventions §170, p. 155 (3d ed. 1867) (“A contract to convey a future invention . . . cannot alone authorize a patent to be taken by the party in whose favor such a contract was intended to operate”); Comment, Contract Rights as Commercial Security: Present and Future Intangibles, 67 Yale L. J. 847, 854, n. 27 (1958) (“The rule generally applicable grants equitable enforcement to an assignment of an expectancy but demands a further act, either reduction to possession or further assignment of the right when it comes into existence”).

Under this rule, both the initial Stanford and later Cetus agreements could have given rise only to equitable interests in Dr. Holodniy’s invention. And as between these two claims in equity, the facts that Stanford’s contract came first and that Stanford subsequently obtained a postinvention assignment as well should have meant that Stanford, not Cetus, would receive the rights its contract conveyed.

In 1991, however, the Federal Circuit, in FilmTec, adopted the new rule quoted above—a rule that distinguishes between these equitable claims and, in effect, says that Cetus must win. The Federal Circuit provided no explanation for what seems a significant change in the law. Nor did it give any explanation for that change in its opinion in this case. The Federal Circuit’s FilmTec rule undercuts the objectives of the Bayh-Dole Act. While the cognoscenti may be able to meet the FilmTec rule in future contracts simply by copying the precise words blessed by the Federal Circuit, the rule nonetheless remains a technical drafting trap for the unwary. It is unclear to me why, where the Bayh-Dole Act is at issue, we should prefer the Federal Circuit’s FilmTec rule to the rule, of apparently much longer vintage, that would treat both agreements in this case as creating merely equitable rights.

The majority in Stanford v. Roche did not particularly address the issue.

Non-Transitory Patent Claims

Patent,

by Dennis Crouch

I was surprised when I ran these numbers and found that 4% of recently issued patents include a non-transitory claim limitation. (95% of these are in what I term computer-related arts).  For the most part, these are software patent claims.  However, because “software” per se is usually not considered patent eligible, patent attorneys moved toward claiming a computer-readable-medium having the software instructions stored therein.  More recently, the PTO concluded that those claims – when broadly interpreted – would encompass transitory signals which are not patent eligible under Section 101.  The PTO suggested that applicants amend their claims “by adding the limitation ‘non-transitory’ to the claims.”

TransitoryClaims

Open question – how many of these cases have written description support for the new non-transitory limitation?

Patent Grants Per Fiscal Year (USPTO)

Patent

As expected, the USPTO has posted its first reduction in patent grants of the Kappos-Lee era.  In Fiscal Year 2015, the PTO issued 296k utility patents. That is a 3% drop from the record high of 304k patents issued in FY2014.  Although a modest reduction in the absolute number of patents granted, FY2015’s numbers still represent the second-highest number of patents granted in the PTO’s 200+ year history. FiscalYearPatentGrants

Design Patent Damages

Patent, ,

By Dennis Crouch

Nordock v. Systems Inc (PowerAmp) (Fed. Cir. 2015)

Nordock’s asserted design patent covers the ornamental design of a lip and hinge plate for a dock leveler. (U.S. Patent No. D579,754). The lever is designed to be attached to a truck loading and can then be adjusted to provide a smoother linkage between the dock and the truck being loaded/unloaded. As a design patent, the patentee does not claim a new and useful invention, but rather the “ornamental design” as shown in the figure below.

Disgorging all of the infringer’s profits: A jury sided with the patentee on infringement and validity, but awarded only $46,000 in reasonable royalty damages. On appeal, the Federal Circuit vacated – finding that the district court had improperly calculated the profit-disgorgement damages.

A design patent holder may seek damages under the standard patent damages statute 35 U.S.C. 284 that sets a floor for damages as “a reasonable royalty for the use made of the invention by the infringer.” As an alternative, the patentee can collect damages under the design-patent-damages provision codified in 35 U.S.C. 289. Under Section 289, an infringer is “be liable to the owner to the extent of his total profit, but not less than $250.” To be clear, when the statute speaks of “his total profits” – that refers to the total profits of the infringer. Opining on the statute, the Federal Circuit has written that § 289 requires “the disgorgement of the infringers’ profits to the patent holder, such that the infringers retain no profit from their wrong.” Nike Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437 (Fed. Cir. 1998). The Federal Circuit has ruled that a patentee can collect either of these damages theories, but not both. Catalina Lighting, Inc. v. Lamps Plus, Inc., 295 F.3d 1277 (Fed. Cir. 2002). That result is also demanded by the statutory language that “[n]othing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement.”

At trial, the district court forced an apportionment of profits – requiring a calculation the infringer’s profits associated with the lip and hinge plate even though the infringer sold the dock leveler with the plate as an entire unit. As it recently did in Apple, the Federal Circuit here rejects that approach:

[W]e recently reiterated that apportioning profits in the context of design patent infringement is not appropriate, and that “Section 289 explicitly authorizes the award of total profit from the article of manufacture bearing the patented design.” Apple Inc. v. Samsung Elecs. Co., 786 F.3d 983 (Fed. Cir. 2015) (rejecting Samsung’s attempt to limit the profits awarded to the “portion of the product as sold that incorporates or embodies the subject matter of the patent”); see also Nike, (discussing the legislative history of § 289 and Congress’s decision to remove “the need to apportion the infringer’s profits between the patented design and the article bearing the design”).

Here, the dock is welded-to and sold as a unit with the dock leveler and – as such – the calculated profits must be associated with the entire dock leveler being sold. This result should boost the patentee’s damages up to at least $600,000, which represents the infringer’s total profits associated with the infringing sales.

Based upon this error, the Federal Circuit ordered a new trial on damages.

Is it Functional? Preserving the Appeal: There is no question that the design patent here covers a functional invention. The question raised by the infringer’s cross-appeal is whether it is impermissibly functional such that the design patent is invalid. However, in the appeal, the Federal Circuit ruled that argument to be waived because Systems’ counsel “failed to renew the motion for JMOL as to validity with sufficient particularity.” Here, defendant’s counsel gave a general motion following the verdict stating that “as a routine matter whatever motions we made during the trial, JMOL and so forth, we would renew those motions to the extent that they are necessary. . . . Everything we made we renew. I’m not sure what that is, but just for the record whatever we said before.” The patentee did not file any further particular post-verdict motions with respect to validity and – as such – the Federal Circuit ruled that the general post-verdict motion was insufficient to preserve the infringer’s rights.

Is it Functional? The Test: As an alternative judgment, the court also ruled the jury had been presented with sufficient evidence to support a not-impermissibly-functional verdict.

A design patent will be deemed invalid if the claimed design “as a whole, is dictated by functionality.” Factors often considered in the functionality analysis include:

  • Whether the protected design represents the best design;
  • Whether alternative designs would adversely affect the utility of the specified article;
  • Whether there are any concomitant utility patents;
  • Whether the advertising touts particular features of the design as having specific utility; and
  • Whether there are any elements in the design or an overall appearance clearly not dictated by function.

High Point Design LLC v. Buyers Direct, Inc., 730 F.3d 1301 (Fed. Cir. 2013) (these factors “may help”). At trial, the jury heard testimony from the patentee indicating that the design was intended to be distinctive and ornamental, that the claimed plate is not necessary to perform the dock leveling function, and that other designs are available to achieve the same utilitarian purpose. “On this record, there was substantial evidence from which a jury could conclude that the claimed design is not dictated by function.”

= = = = =

There has been some outcry regarding the relatively large disgorgement profits without any proof of an innovative leap or a business impact of the design. However, up to now there have been no congressional proposals on point.  In 1946, Congress eliminated equitable disgorgement from utility patent doctrine. (as interpreted by Aro II (1964)).

The pending design patent legislation would excuse spare-auto-parts manufacturers and sellers from liability.

Method Patent Claims

Patent

by Dennis Crouch

The Patent Act opens the door to patenting of “any new and useful process, machine, manufacture, or composition of matter.” In recent years, the patenting of processes in particular (or at least process claims) has risen sharply. The chart below shows the percentage of patents with at least one independent method or process claim, grouped by issue year.* Over the past 30 years, the percentage of method patents has risen from around 30% of patents to almost 60% today.


* For this data, I parsed each independent claim of each issued patent for the past 30 years and tallied the number of patents that included the word “method” or “process” within the claim (excluding processor, etc.).

Some of these claimed method are new uses of known products as well as new processes for manufacturing a known product. It may be difficult to even draft an apparatus claim in those cases (other than product-by-process) when the invention does not involve the creation of any new device or system. These new-use claims are expressly authorized by Section 100(b) of the Patent Act that defines a process as including “a new use of a known process, machine, manufacture, composition of matter, or material.”  (cf Alice Corp.).

On the other hand, the majority of method claims are tied to some form of new apparatus/software.  In that situation, it is legally appropriate and often good strategy to protect the apparatus as well as methods performed by the apparatus, methods of using the apparatus, and/or methods of manufacturing the apparatus.  

By adding the method steps, a patentee is able to include fewer structural limitations and still obtain protection.  It is perhaps that potential of altered scope – more than anything else – that gives method claims their power.

Of course, most patents still also include non-method claims too.  The chart below splits these into three categories and displays.

MethodClaimsII

Federal Circuit Sends Bad-Faith-Patent-Assertion Case back to State Court

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Vermont v. MPHJ Tech (Fed. Cir. 2015)

In an interesting opinion, the Federal Circuit has rejected MPHJ’s plea to get into Federal Court. The State of Vermont sued the patent holder for violations of Vermont Consumer Protection Act (VCPA) stemming from MPHJ’s patent enforcement campaign. The letter campaign had three stages:

  1. Letter from the shell company stating that “we have identified your company as one that appears to be using the patented [scanner-to-email] technology” suggesting that “you should enter into a license agreement with us at this time.”
  2. Follow-up letter a few weeks later from the Farney Daniels firm stating that a prior-non response is considered “an admission of infringement” and implying that litigation would commence if the recipient did not enter into a license agreement.
  3. A third follow up following the pattern of the second.

These actions prompted the Vermont Attorney General to sue under the VCPA – alleging unfair and deceptive trade practices based upon MPHJ’s “threating litigation even though litigation was unlikely, targeting small businesses, placing the burden on the recipient to do the investigation, using shell corporations to minimize liability; and stating in its letters that it would bring suit immediately absent a license, the licensing program was successful with many businesses taking part, and the average license was $1000/employee.” The state demanded a permanent injunction requiring that MPHJ comply with state law.

After VT filed its original complaint (but before it filed its amended complaint), the state enacted the “Vermont Bad Faith Assertions of Patent Infringement Act” (BFAPIA) that creates a new Vermont cause of action for “bad faith assertion of patent infringement” based upon factors such as “the contents of the demand letter, the extent of any pre-assertion investigation, demands for payment of a license fee in an unreasonably short time, and deceptive assertions of infringement.”

MPHJ alleges that the proposed injunction would force it to comply with BFAPIA, but that law is preempted by the US patent laws and – as such – that the case should be removed to Federal Court.

The Federal District Court denied MPHJ’s first removal request (based upon the first complaint) and second removal request (based upon the VT amended complaint).  It is that second denial that was appealed and the Federal Circuit here has affirmed the denial – limiting the appeal question to the BFAPIA issue and finding that the VT injunction does not raise the BFAPIA enforcement issue – especially since Vermont stipulated during oral arguments that they were not seeking an injunction that would require compliance with that statute.

Federal Circuit Jurisdiction: The most interesting aspect of the decision is Judge O’Malley’s discussion of Federal Circuit jurisdiction post-AIA and post-Gunn.

The America Invents Act amended Title 28 to now grant Federal Circuit appellate jurisdiction “in any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to patents.” 28 U.S.C. § 1295(a)(1). This change extends the Federal Circuit’s jurisdiction to include cases where the patent issues arise only in a compulsory counterclaim (formerly, the focus was only on the complaint). The new statute also added additional language that “no state court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents,” 28 U.S.C. § 1338(a), and a new removal statute indicating that “a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents . . . may be removed to [federal] district court . . . .” 28 U.S.C. § 1454.

At the same time, in Gunn (2013) the Supreme Court contracted Federal Circuit jurisdiction to cases where (1) federal patent law creates the cause of action or (2) where, although the claim arises under state law, that a federal patent law issue is: (a) necessarily raised, (b) actually disputed, (c) substantial, and (d) capable of resolution in federal court without disrupting the federal-state balance approved by Congress. Gunn (interpreting pre-AIA law).

Here, MPHJ asserts that the Federal Circuit has jurisdiction over the appeal because its Counterclaim (No. 5) raises a patent law issue. In particular, MPHJ asked for “a declaratory judgment that the VCPA is invalid or preempted by the First, Fifth, and Fourteenth Amendments, the Supremacy and Patent Clauses, and Title 35 of the U.S. Code.”

Walking through this morass, the Federal Circuit first ruled that the counterclaim is a compulsory counterclaim because of its close factual and logical relationship with the main claim found in the complaint. The next question under Section 1295(a)(1) then, also answered affirmatively here, is whether the counterclaim “arises under” federal patent law. Although not a cause of action, the federal circuit found that the preemption defense is an important and necessary federal patent question whose resolution will have a broad impact on the federal patent system as a whole.

Whether federal patent laws preempt or invalidate the VCPA as applied has considerable significance beyond the current case. A hypothetical finding that the VCPA is not invalid or preempted in state court would affect the development of a uniform body of patent law, as such a decision would be binding in Vermont, but would not be in other states with similar laws or in federal court. The facts of this case are fundamentally unlike Gunn, in which the Court recognized that the federal issue was a “backward-looking . . . legal malpractice claim” that would be unlikely to have any “preclusive effect” on future patent litigation and was, therefore, not substantial. As an “as applied” challenge, counterclaim 5 depends to a certain extent on the specific facts of this case, but the resolution of this case would assist in delineating the metes and bounds of patent law and clarifying the rights and privileges afforded to patentees in pursuing patent infringement claims.

With that, the Federal Circuit found that it does indeed have appellate jurisdiction to hear the appeal.

At this point, you may be seeing a disconnect between the ultimate holding that I first described (effectively denying removal) and the new statute permitting removal of cases “in which any party asserts a claim for relief arising under any Act of Congress relating to patents” (§ 1454) – especially since the court just decided that the court here decided that MPHJ had indeed asserted a claim for relief arising under federal patent law. The resolution of that seeming conflict is procedural – “MPHJ has not appealed the district court’s ruling pursuant to 28 U.S.C. § 1454 [and thus] we have no occasion to address … how that newly enacted provision should be interpreted.”

The complicating factor is that it looks like the State court will now need to dismiss MPHJ’s preemption counterclaim because it arises under the patent law. 1338(a) and, at that point, MPHJ would seemingly have standing to file a federal declaratory judgment action raising preemption.

The Lost ‘Art’ of the Patent System

Patent

by Dennis Crouch

Sean O’Connor has released a draft version of his new article titled The Lost ‘Art’ of the Patent System.  O’Connor builds on his earlier UChicago Article on the meaning of Discovery, now focusing on the term useful arts.

I contend that the shift from ‘‘art’’ to ‘‘technology’’(and, even worse, ‘‘science’’) loses sight of critical parts of a well functioning patent system and blurs boundaries than can result in both a temptation for problematic ‘‘upstream’’ patenting of basic science research results and an improper bias against ‘‘nonscientific’’ artisanal innovation. Instead, I argue for a system that focuses once again on advances in the ‘‘useful arts.”

Read it here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2664837

 

35 U.S. Code § 314 – Institution of inter partes review

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(a)Threshold.—

The Director may not authorize an inter partes review to be instituted unless the Director determines that the information presented in the petition filed under section 311 and any response filed under section 313 shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.

(b)Timing.—The Director shall determine whether to institute an inter partes review under this chapter pursuant to a petition filed under section 311 within 3 months after—

(1) receiving a preliminary response to the petition under section 313; or

(2) if no such preliminary response is filed, the last date on which such response may be filed.

(c)Notice.—

The Director shall notify the petitioner and patent owner, in writing, of the Director’s determination under subsection (a), and shall make such notice available to the public as soon as is practicable. Such notice shall include the date on which the review shall commence.

(d)No Appeal.—

The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.

Shire Wins Vyvanse Case, but Supplier Escapes Liability

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Shire LLC v. Amneal Pharma, et al. (Fed. Cir. 2015)

This ANDA patent litigation arose after the defendants filed Abbreviated New Drug Applications (ANDAs) with the FDA requesting permission to make and sell a generic version of Shire’s “safe” amphetamine Vyvanse. According to the unreputable urban dictionary: “Unlike other amphetamine pills like Adderall that have distinct ups and downs, and relatively quick effects, Vyvanse is like a big slow moving amphetamine truck that hits you all day long.”

Under 35 U.S.C. 271(e)(2), the filing of an ANDA with the FDA is a form of patent infringement so long as the original NDA owner has listed covering patents in the FDA’s Orange Book. Shire sued the ANDA filers for infringement under this provision.

The money-ruling: The Federal Circuit affirmed the lower court’s finding that – as a matter of law – the claimed inventions of the asserted patents are not obvious and that the lower court did not abuse its discretion by denying a late-filed on-sale-bar defense. The result is that patents will remain in force until their expiration in 2023 – protecting Shire’s billion dollar market.

Supplier Liability: As part of each case, Shire also sued Johnson Matthey who was partnering with each of the ANDA filers and supplying the drug to those entities. As part of its work, Matthey had (1) filed a drug master file with the FDA (but did not itself file an ANDA) and (2) supplied each of the ANDA filers with product covered by one of the patents. In the appeal, the Federal Circuit ruled that these acts do not constitute infringement – either direct or by inducement.

First, the appellate court found that Matthey’s supply of the infringing product qualified under the research exemption of Section 271(e)(1) –

Johnson Matthey is correct that it cannot be liable for the [active ingredients – API] it sold the ANDA defendants up to this point. Johnson Matthey, as an API supplier, has thus far done nothing more than provide material for use by the ANDA defendants in obtaining FDA approval. As the district court found, these sales, and the ANDA defendants’ use of the API for filing the ANDA, were “reasonably related to the submission of an ANDA.” As such, Johnson Matthey’s activities are protected by the safe harbor of § 271(e)(1), and the district court erred by entering judgment that Johnson Matthey has induced infringement of the compound claims at issue.

Second, the appellate court found that Matthey “cannot be liable for infringement under § 271(e)(2)” because it did not submit an ANDA.

The court here seems to skirt its prior holding in Forest Laboratories, Inc. v. Ivax Pharmaceuticals, Inc., 501 F.3d 1263 (Fed. Cir. 2007). In that case, the Federal Circuit found that a supplier could be held enjoined to prevent it from inducing infringement: “Section 271(e)(2) may support an action for induced infringement. . . . Under the standards for inducement which we apply to 35 U.S.C. § 271(b), [the supplier] has therefore actively induced the acts of [the ANDA filer] that will constitute direct infringement upon approval of the ANDA, and it was thus not inappropriate for the district court to include [the supplier] within the scope of the injunction.”

In Forest, the court explained though that – at the point of an ANDA lawsuit – that the supplier was not infringing (for the two reasons discussed above), but that it would be infringing/inducing if the ANDA was approved. As such, the Forest court found that it was appropriate to preemptively enjoin the suppler from taking that action that would constitute infringement. Coming back to the Shire case, the appellate panel distinguished Shire – finding that “Forest involved the scope of an injunction under § 271(e)(4). No such injunction has been issued against Johnson Matthew here and thus Forest is inapposite. Johnson Matthey is therefore not currently liable for infringement.”

High Priced Generic Drugs

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The news has been abuzz regarding the drug Daraprim and the major price-hike by its US-distributor (Turing Pharma).  According to its website, Turing “acquired” Daraprim in August 2015 from CorePharma who had previously obtained rights in 2010 from GlaxoSmithKline.  When CorePharma bought rights, it increased the price from $1 to $13.50 per pill, Turing’s increase pushed the price up to $750.

My first thought was that the price-hike was likely backed by the exclusivity of patent rights. However, I then read that the drug has been on the market for more than 60 years and any patent rights associated with its sale and distribution have long expired.  Although the deal is not public, the rights purchased by Turing appear to include marketing rights (FDA right to market) along with related trade mark and trade secret rights associated with the manufacture, sale, and testing of the drug.

At this point, it is a straightforward process for a generic competitor to enter the market by filing an Abbreviated New Drug Application (ANDA).  However, that ANDA process is still expensive and was previously not cost effective because of the low number of Daraprim users. Turing is apparently now lowering its price, but if it remains high enough, a competitor will likely enter the market.

Outside of the U.S., the drug is sold generically for $1 per pill or less. However, foreign drugs cannot be directly imported and sold without first seeking and obtaining approval from the FDA through the ANDA process. In the meantime, the company with exclusive marketing rights can demand monopoly rents.

The situation should highlight the fact that patent rights are only a small-bit of the ‘game.’  The barriers to entry are such that – even in the generic market – drug pricing in the US will often have little relation to the marginal cost of production – with the exception being drugs used by millions of Americans.