Layers of Doctrine with a Faulty Claim Construction at the Core

by Dennis Crouch

D Three Enterprises v. SunModo Corp. (Fed. Cir. 2018)

Reading this decision feels akin to slowly peeling off the layers of an onion – hoping to reach some prize at the core but only reaching a rotten core.

D-Three’s patents in suit are directed to roof-mount sealing assemblies for solar panel installation.  U.S. Patent Nos. 8,689,517; 9,068,339; and 8,707,655.   The district court found the asserted claims invalid as obvious or anticipated.  The basic central dispute, however, was whether the claims could rely upon a 2009 provisional application filing date.  Although the formalities of the priority chain was met — the district court found a substantive problem. In particular, the court ruled that the 2009 provisional did not sufficiently disclose the inventions as claimed — i.e., failure of written description.  Going one layer deeper, it seems that the real dispute is about claim construction — do the claimed assemblies require a “washerless” approach?  The courts found that the claims recite a washerless assembly but that the limitation was not disclosed by the provisional application — so no priority.

Unrecited Recitation: In the appeal, the Federal Circuit’s analysis began with its conclusion on the claims: “All Asserted Claims except [except two] recite washerless assemblies.” The problem with the statement is that the claims don’t expressly recite a washerless assembly.  In its brief, D Three characterized the claims as “not includ[ing] a limitation that would require the presence of a washer. No claim in the Patents-in-Suit states that there cannot be a washer, i.e., no claim requires an assembly be washerless.”  (See claim 1 below).

Unfortunately, the Federal Circuit goes no further in explaining its conclusion that the claims recite washerless assemblies but rather jumped into consideration of whether the priority claim provides a sufficient disclosure.

35 U.S.C. § 120 provides for the right-of-priority from prior U.S. applications.  Under the statute, the priority claim only works if the earlier-filed application sufficiently disclosed the invention being claimed in the later-filed application.  In particular, the statute requires disclosure “in the manner provided by section 112(a).”  In other words, the earlier-filed application’s disclosure must satisfy the enablement and written description requirements to support the claims of the later-filed application. Here, the focus was on written description — the requirement that the disclosure clearly allows a PHOSITA “to recognize that the inventor invented what is claimed” and that the “inventor had possession of the claimed subject matter as of the filing date.” Ariad Pharm., Inc. v. Eli Lilly & Co., 598 F.3d 1336 (Fed. Cir. 2010) (en banc).

Here, the provisional application does actually disclose a washerless assembly, but only one.  However, the appellate court affirmed that that one specific example (using W-shaped prongs) was not sufficient to provide written description support for the claims that were not limited to W-shaped prongs.  According to the court, the result is that we can only “speculate as to the modifications that the inventor might have envisioned, but failed to disclose.” Quoting Lockwood v. Am. Airlines, Inc., 107 F.3d
1565 (Fed. Cir. 1997). At base, this case looks a lot like Gentry GalleryLizardTech and ICU Medical, although none of these cases were cited.

In the end, we have a failure of written description; failed priority claim; and invalid patents.

= = = = =


Claim 1 of the ‘517 patent:

1. A roof standoff device for use in mounting an object to a roof, said standoff device comprising:

a base bracket having at least one mounting hole for receiving an attachment element for attaching the base bracket to a roof surface, said base bracket further including a first threaded attachment element;

a flashing having:

a raised section with an upper surface and an aperture extending through said raised section, wherein said aperture is configured for alignment with said first threaded attachment element of said base bracket;

a flange extending beyond a base of said raised section, wherein, when disposed over said base bracket on the roof surface, an inside surface of said raised section receives and surrounds said base bracket and said flange rests on the roof surface;

a core body having a first end and a second end, said second end having a contact surface;

a second threaded attachment element associated with said second end of said core body, said second threaded attachment element configured to threadably engage said first threaded attachment element, wherein, upon said first and second threaded attachment elements being threadably engaged, said flashing is compressed between said base bracket and said second end of said core body; and

said core body having a third attachment element disposed proximate to said first end for attaching an object to said core body.

Respecting Foreign Judgments and $79 million for clicking “I agree”

by Dennis Crouch

An interesting new petition before the Supreme Court focuses on international licensing and copyright issues.  What happens when foreign courts give less weight to contracts and copyrights than would a US court? World Programming Ltd. v. SAS Institute, Supreme Court Docket No. 17-1459 (2018). [petition][docket]

Agreeing not to Reverse Engineer, then Reverse Engineering: WPL, a UK software company purchased a copy of SAS’s popular software and began to study its functionality (all in the UK).  As part of the process, WPL clicked “I agree” on the SAS clickwrap licenses. Those licenses included a prohibition on reverse engineering and also limited the software use to “non-production purposes.”  According to the petition, however, “under U.K. and E.U. law, such observation and study is lawful, and contractual terms restricting such acts are null and void. . . .While  WPL was required to agree to that license before installing the SAS System, it also knew that E.U. and U.K. law permitted use of software for observation, study, and testing regardless of contrary contractual restrictions.” Consider Council Directive 2001/29/EEC, ¶ 50, 2001 O.J. (L 167/10) (EC); Council Directive 91/250/EEC, art. 5(3), 1991 O.J. (L 122/42) (EC); Copyright, Designs and Patents Act 1988, c. 48, §§ 50BA(1), 296A(1)(c) (U.K.).

When SAS later sued, the High Court of Justice sided with WPL — rejecting SAS Institute’s copyright infringement claim (functionality of software not protected) and breach of contract claim (contract cannot bar lawful right of study). Thu U.K. Court of Appeal affirmed — finding the contract provision “invalid to the extent that it prohibits the observation, study or testing of the functioning of the program in order to determine the ideas and principles underlying it” and that the software functionality “does not count as a form of [copyrightable] expression.”

After losing in the UK, SAS brought its lawsuit to the USA and won on the same contract claim that was a loser in the UK (but lost on the copyright claim).  The US lawsuit also included a fraudulent inducement and unfair trade practices under N.C. UDTPA.  A jury found WPL liable — although WPL was barred from presenting any evidence regarding its reliance upon the UK and EU safe harbors.  Damages $80 million.

In this process, the district court refused to give any preclusive effect to the UK judgment.

On appeal, the Fourth Circuit held that the UK judgment was properly denied preclusive effect since it was contrary to North Carolina policy.  “North Carolina courts [are] more protective of the sanctity of contracts” than are UK or EU courts.

On the copyright claim, the 4th Circuit declined to resolve the copyright question — finding it moot.  Here, SAS received all of its sought-for damages from its other claims and the 4th Circuit ruled that it could not prove grounds for injunctive relief.  “Thus, the legal resolution of the copyright question would have no effect on the relief afforded the parties” and therefore the issue is moot. “Absent a practical effect on the outcome of this case, the copyright claim is moot.” SAS Inst., Inc. v. World Programming Ltd., 874 F.3d 370 (4th Cir. 2017).

Now, in its petition, WPL asks two questions:

  1. Whether federal or state law governs the respect that must be accorded to the judgment of a foreign court in diversity cases.
  2. Whether a district court’s decision on the merits of a claim becomes moot, and must be vacated, if the court of appeals determines that the plaintiff has not proven entitlement to the only remaining relief sought in connection with that claim.

In its argument, WPL reaches back to Hilton v. Guyot, 159 U.S. 113 (1895) where the Supreme Court spelled-out its jurisprudence for respecting foreign judgments.  Basically – foreign judgments must be respected by U.S. courts “unless they contravene basic principles of decency and morality.”  The difficulty here, though is how a Federal Court should operate when sitting in diversity and weighing the differences between a foreign judgment and the law of a US state’s law.  Basically – state law is regularly “less respectful of foreign judgments.”

Printed Matter, Mental Steps, and Functional Relationships: Oh My!

Guest post by Professor Kevin Emerson Collins, Washington University School of Law.

Praxair Distribution, Inc. v. Mallinckrodt Hospital Products IP LTD., 2018 U.S. App. LEXIS 12707 (Fed. Cir. 2018)

In a divided opinion, the Federal Circuit held that all of the claims challenged in an IPR were obvious, upholding the PTAB’s obviousness determination with respect to most of the claims but reversing its nonobviousness determination with respect to a few. Praxair Distribution raises of a number of distinct, yet interrelated, issues concerning the cryptic, yet essential, printed matter doctrine: the opinion addresses the doctrine’s extension to mental steps, its implications for the relationship between sections 101 and 102/103, and the breadth of its functional-relation exception.

U.S. Patent 8,846,112 covers methods of distributing nitric oxide gas cylinders for pharmaceutical applications. Inhaling nitric oxide dilates blood vessels in the lungs and improves blood oxygenation, and it is approved for treating neonates with hypoxic respiratory failure. The prior art taught that inhaled nitric oxide may lead to pulmonary edema, a serious adverse event, in neonates with left ventricular dysfunction. The claims of the ‘112 patent address methods that build on this prior art. Roughly, the claims can be sorted into three groups: the informing claims, the informing-and-evaluating claims, and the informing-and-discontinuing-treatment claims. This commentary addresses each of these three groups of claims in turn.

The Informing Claims: Easy Cases?

In gross, the informing claims recite supplying nitric oxide to a medical provider and providing the medical provider with information relevant to the clinical use of the nitric oxide on neonatal patients. Claim 1, for instance, includes the steps of:

  • “supplying the cylinder containing compressed nitric oxide gas to a medical provider responsible for treating neonates” and
  • “providing to the medical provider (i) information” about the recommended dose for neonates with hypoxic respiratory failure “and (ii) information” about the risk of that dose for neonates with left ventricular dysfunction, wherein “the information of (ii) [is] sufficient to cause a medical provider … to elect to avoid treating one or more” neonates with left ventricular dysfunction in order “to avoid putting [them] at risk of pulmonary edema.”

The PTAB held, and the Federal Circuit affirmed in a majority opinion authored by Judge Lourie and joined by Chief Judge Prost, that the informing claims were unpatentable as obvious under the printed matter doctrine. Under recent Federal Circuit precedent, the informing claims present an easy case of unpatentability. The printed matter doctrine states that “[c]laim limitations directed to printed matter are not entitled to patentable weight unless the printed matter is functionally related to the substrate on which the printed matter is applied.” Opinion at *9. If a limitation is not given patentable weight, it cannot be relied upon to distinguish the claimed invention from the prior art in the novelty or nonobviousness analyses. In claim 1, the limitations apart from the providing-information limitation are obvious in light of the prior art as an ordered combination, and the providing-information limitation cannot be given patentable weight. Federal Circuit precedent clearly establishes that printing information about how to use a product onto that product as a substrate does not create a functional relationship between the printed matter and the substrate. See, e.g., In re Ngai, 367 F.3d 1336 (Fed. Cir. 2004). But see In re Miller, 418 F.2d 1392 (CCPA 1969) (finding a functional relationship between volumetric indicia and the measuring spoons on which they were printed). Importantly, the printed matter doctrine still applies even though the providing-information limitation does not require the information to be in the form of printed matter per se. In King Pharmaceuticals v. Eon Labs and In re Kao, the Federal Circuit had already extended the printed matter doctrine to encompass the conveyance of information in non-printed forms, such as verbal speech or sign language. See, Kevin Emerson Collins, An Initial Comment on King Pharmaceuticals: The Printed Matter Doctrine as a Structural Doctrine and Its Implications for Prometheus Laboratories, 2010 Patently-O Patent L.J. 111.

Not only is the lack of patentable weight for “informing”-type limitations settled law, but it is good policy, as well. As I have repeatedly argued elsewhere, the core of the printed matter doctrine, as well as its expansion to information conveyed through speech and other non-print media, is necessary to ensure that the knowledge disclosed in patent specifications remains free for all to use qua knowledge during the term of the patent. Kevin Emerson Collins, The Structural Implications of Inventors’ Disclosure Obligations, 69 Vand. L. Rev. 1785 (2016); Kevin Emerson Collins, The Knowledge/Embodiment Dichotomy, 47 U.C. Davis L. Rev. 1279 (2014). Claim limitations that read on communicative acts can restrain the diffusion of the teachings contained in patent disclosures, so a broad interpretation of the printed matter doctrine is necessary to ensure that patentee’s exclusive rights to claimed inventions cannot interfere with the free dissemination of the informational content of patent specifications.

The Informing-and-Evaluating Claims: Mental Steps and Patent Eligibility

The informing-and-evaluating claims depend from the informing claims, adding a number of steps to be performed, presumptively, by medical providers who use nitric oxide. (Bracket the divided infringement issue afoot here.) For example, claim 3 adds inter alia the following limitations to claim 1:

  • identifying a neonate with hypoxic respiratory failure,
  • determining whether the neonate has left ventricular dysfunction, and
  • “evaluating the potential benefit of treating” that neonate with nitric oxide “vs. the potential risk” of doing so.

The PTAB and the Federal Circuit both identify the evaluating limitation as a mental step performed in a medical provider’s mind. They then both extend the printed matter doctrine to preclude giving patentable weight to mental steps and, as a result, hold the informing-and-evaluating claims obvious. The Federal Circuit breaks new ground by extending the printed matter doctrine to mental activity in this manner, and Judge Newman’s concurrence argues that the extension is not proper. Simply put, “[m]ental steps are mental, not printed.” Concurrence at *1. (The concurrence may also be read more broadly to suggest that even the extension of the printed matter doctrine to spoken information in King Pharmaceuticals, discussed in the previous section addressing the informing claims, is legal error.)

Given the policy concerns discussed above for extending the printed matter doctrine to speech, however, I believe that its extension to at least some mental steps is a logical and justifiable move. As Judge Louie correctly notes, the evaluating limitation:

requires a medical provider to think about the information claimed in the providing information limitation of claim 1. But adding an ineligible mental process to ineligible information still leaves the claim limitation directed to printed matter. To hold otherwise would make the printed matter doctrine a dead letter, requiring no more than a “think about it” step to give patentable weight to a claim limitation directed to information content. There is no meaningful distinction between claim limitations directed to written information … verbal information … and mentally-processed information.

Opinion at *13. In brief, the extension of the printed matter doctrine to encompass “mentally-processed information” prevents form from trumping substance.

Although Praxair Distribution does not expressly make this point, it seems to revive some variant of the historical mental steps doctrine. In the mid-twentieth century, the mental steps doctrine did for mental steps what the printed matter does today for printed matter: it invalidated claims that relied on the content of mental processes to establish a distinction from the prior art. See, e.g., In re Abrams, 188 F.2d 165, 165 (C.C.P.A. 1951). The PTAB cited to some of these mid-century mental steps cases to support its extension of the printed matter doctrine to mental steps. 2016 WL 3648375 at *10 (2016). The Federal Circuit, however, did not, most likely because the CCPA abandoned the mental steps doctrine decades ago in the course of grappling with the patent eligibility of software, In re Musgrave, 431 F.2d 882, 889 (C.C.P.A. 1970), and the Federal Circuit has refused to reinstate it, Prometheus Labs. v. Mayo Collaborative Servs., 628 F.3d 1347, 1358–59 (Fed. Cir. 2010). Nonetheless, in practice, if not in name, Praxair Distribution plainly reinvigorates some variant of the mental steps doctrine. Technically, the opinion could be read narrowly so that the printed matter doctrine only extends to mental steps when claims recite both a printed matter limitation with certain informational content and a think-about-it limitation to the same informational content. However, the argument that the informational content of an evaluating, think-about-it limitation should be given patentable weight if the informing limitation is removed from the claim is difficult to fathom.

Another interesting aspect of Praxair Distribution is that it opens a new front in the ongoing debate concerning the intermixing of sections 102 and 103, on the one hand, and section 101, on the other hand. The Supreme Court’s opinions on patent eligibility in Mayo and Alice are highly controversial, in part, because their “inventive concept” analysis—i.e., what is now known as Mayo/Alice “step 2″—requires consideration of the advance over the prior art, a factual issue that is usually addressed in the novelty and nonobviousness analyses. Mixing the patentability requirements in the other direction—that is, using 101 concerns to inform 102/103 doctrine—has to date not received much attention. However, the printed matter doctrine has long mixed in this other direction, and Praxair Distribution brings this other-direction mixing into the spotlight:

Claim limitations directed to the content of information and lacking a requisite functional relationship are not entitled to patentable weight because such information is not patent eligible subject matter under 35 U.S.C. § 101. Cf. Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 90 (2012). While the doctrine’s underlying rationale is in subject matter eligibility, its application has been in analyzing other patentability requirements, including novelty … and nonobviousness.

Opinion at *10. (Interestingly, the European Union, too, mixes patent-eligibility concerns into the inventive step analysis with its requirement that that the inventive step reside in a technical effect. European Patent Office, Guidelines for Examination, Part G, Chapter VII.5.2.) The printed matter doctrine reveals that, at least under limited circumstances, what are often conceived of as the rigid statutory silos of patent law must break down. As Judge Newman notes in her concurrence, the printed matter doctrine started out as a prohibition on patenting business forms that was administered as part of the doctrine of patent eligibility. Concurrence at 2–3. However, over time, as patent applicants attempted to claim printed matter in combination with otherwise patent-eligible subject matter, the doctrine developed the two statutory branches that it has today: it is administered via section 101 in cases that involve claims to printed matter per se and via sections 102 and 103 in cases that involve claims to printed matter in combination with statutory processes, machines, manufactures, or compositions of matter. The extension of the printed matter doctrine to mental steps merely further highlights the mixing that is already occurring because mental processes are today, understood, well-understood to be the basis of patent-eligibility rejections. The mental steps doctrine, that the printed matter doctrine now resembles, was administered entirely as a section 101 doctrine, employing the equivalent of a patentable-weight analysis as part of patent eligibility. It never partially migrated from section 101 into sections 102 and 103 like the printed matter doctrine did.

Finally, the dispute underlying the Praxair Distribution opinion also reveals an overlap between sections 102 and 103 and section 101 in yet another way. The parallel district court proceeding invalidated all claims of the ‘112 patent that were at issue for lack of patent eligibility under Mayo, although the representative claim was a more conventional diagnostic claim from a different patent. 2017 WL 387649, *14–*20. The PTAB, of course, could consider this section 101 ground because it is limited in IPRs to 102 and 103 grounds.

The Informing-and-Discontinuing-Treatment Claims: An Expansive Functional-Relation Exception

Like the informing-and-evaluating claims, the final group of claims also depends from an informing claim. Technically, however, these claims depend from a claim that requires slightly different information to be provided to the medical provider with the nitric oxide cylinders, namely information in the form of a “recommendation that, if pulmonary edema occurs in a [neonate] who has pre-existing left ventricular dysfunction … the treatment with … nitric oxide should be discontinued.” Again like the informing-and-evaluating claims, they add further steps presumptively performed by medical providers to the steps performed by nitric oxide distributors. The representative claim here is claim 9. After reciting the limitations of identifying a neonate with hypoxic respiratory failure and determining whether the neonate has left ventricular dysfunction, it adds treatment and treatment-cessation steps:

  • “treating the neonatal patient with left ventricular dysfunction with … nitric oxide, whereupon the [neonate] experiences pulmonary edema; and
  • in accordance with [the information provided], discontinuing the … nitric oxide due to the neonatal patient’s pulmonary edema.”

The PTAB held claim 9 not unpatentable as obvious. It construed the “in accordance with” language to mean that the discontinuation of the treatment was performed “based on, or as a result of” the information/recommendation provided with the nitric oxide cylinders. It then concluded that the fact that the information was the reason or motivation for the medical provider to discontinue treatment created a functional relationship between the information and the discontinuing-treatment step. Opinion at *6. In turn, the PTAB held that the functional-relation exception to the printed matter doctrine applied, that the information provided could be given patentable weight, and that claim 9 was not obvious.

The Federal Circuit approved of the PTAB’s interpretation of the functional-relation exception to the printed matter doctrine as well as its application to claim 9. Opinion at *17. However, the Federal Circuit reversed the PTAB’s ultimate nonobviousness determination, concluding that, even when the content of the information is given patentable weight, the claim is obvious in light of the prior art. The prior art taught that nitric oxide may be given to patients with left ventricular dysfunction as long as those patients are monitored during treatment. The information provided—namely that nitric oxide should be discontinued for patients with left ventricular dysfunction upon pulmonary edema—was too small of an advance over the prior art to render the claim patentable.

The point of agreement between the PTAB and the Federal Circuit on the expansive interpretation of the functional-relation exception raises an interesting—and possibly troubling—precedent for future cases. The logical reason for a real-world, extra-mental action can now distinguish a claim reciting the action from the prior art. That is, the “invention” of a nonobvious mental motivation for a human actor to perform an already-known, real-world (i.e., non-mental) action, like discontinuing treatment, can give rise to a patentable method claim.

Consider a simple hypothetical. Assume that doctors routinely decrease the dosage of a drug when a metabolite of the drug in a patient’s bloodstream exceeds a certain threshold because of a known potential for a serious adverse event, namely liver problems. Now assume that a researcher discovers that, unexpectedly, the same metabolite in a patient’s bloodstream exceeding the same threshold also raises the risk of a different, serious adverse event, namely heart problems. The researcher claims a method of a medical provider: (a) administering a dose of a drug to a patient from a package with a printed indication that a metabolite level exceeding a threshold creates a medically unacceptable risk of heart problems, (b) determining the level of the drug’s metabolite in the patient’s bloodstream, and (c) reducing the dosage of the drug “in accordance with” the printed indication (i.e., due to the risk of heart problems) if the threshold is exceeded. Even though the medical provider infringing the claim performs conduct that, to an external observer, cannot be differentiated from the prior art (except for the printed indication on the drug package), the claim is patentable. The functional-relation exception to the printed matter doctrine allows the content of the printed matter be given patentable weight because the information conveyed motivates the medical provider’s conduct, and the unexpected nature of the connection between high metabolite levels and heart problems strongly supports nonobviousness.

To be clear, even if one finds the patentability of this hypothetical claim to be problematic—and reasonable minds may differ on whether it is problematic—there is no reason to question the Federal Circuit’s actual holding concerning claim 9 in Praxair Distribution. The Federal Circuit held the claim unpatentable for obviousness even when it gave the content of the printed (or spoken or thought) matter patentable weight. By necessity, it therefore would have reached the same holding if it had refused to give that content patentable weight. The expansiveness of the functional-relation exception in Praxair Distribution will only become outcome-determinative in future cases when a claim recites information that provides an unexpected reason or motivation for a real-world, extra-mental action that, standing alone, is known or is merely an obvious departure from the prior art.

Inversely, a narrow interpretation of the functional-relation exception—one that does not label the content of information as functionally related to an action recited as a limitation when the action is performed because of the information—would not widely undermine patentability. In particular, it would not invalidate most claims to actions that are motivated by newly discovered information. For example, consider a researcher who discovers that, unexpectedly, a particular genetic mutation means that a patient should be taking a lower dosage of a drug. The researcher may claim a method of a medical provider: (a) testing a patient for the mutation and (b) administering the lower drug dosage to the patient if the mutation is present. The printed matter doctrine is irrelevant to the nonobviousness of this claim because the claim does not recite the content of printed information (or a mental state of a doctor who thinks about the information) as a limitation. Such an information limitation is not required for validity, and would thus be unnecessary drafting surplusage, because the real-world (non-mental) conduct of testing and administering under the specified conditions is sufficient to distinguish the claim from the prior art. Although it is not recited as a claim limitation, the newly discovered information still provides an explanation for why the claimed invention is useful and why it produces unexpected results. (Further highlighting the interconnection of the printed matter doctrine and patent eligibility, compare the outcome in this hypothetical to the Federal Circuit’s recent holding in Vanda Pharmaceuticals Inc. v. West-Ward Pharms Int’l Ltd., 887 F.3d 1117 (Fed. Cir. 2018), which upheld the patent eligibility of a hybrid diagnostic/treatment claim under Mayo.)

The Federal Circuit’s expansive interpretation of the functional-relation exception to the printed matter doctrine in Praxair Distribution can be traced to a recent shift how the Federal Circuit articulates that exception. Traditionally, the functional-relation exception was applied only when there was a functional relationship between the content of the printed matter “the substrate on which the printed matter is applied.” Opinion at *9 (emphasis added). For example, in one of the few non-software cases in which the Federal Circuit actually held that the functional-relation exception allowed the content of printed matter to receive patentable weight, the content of a series of numbers printed on a loop of paper was held to be functionally related to the substrate/paper because the numbers themselves were a looping series. In re Gulack, 703 F.2d 1381 (Fed. Cir. 1983). In contrast, the PTAB and the Federal Circuit in Praxair Distribution looked for, and found, a functional relationship between the content of the printed matter and a different limitation in the claim other than the printed-matter limitation, namely the discontinuing-treatment limitation. From my quick research, Praxair Distribution appears to be the first case in which the functional-relation exception has been found to apply based on a functional relationship between printed matter and a claim limitation directed to something other than the printed matter’s substrate. Both King Pharms. and Kao use language that suggest the possibility of such a non-substrate relationship satisfying the functional-relation exception, but neither finds that it exists on the facts presented. If the functional-relation exception were limited to claims in which there is a functional relationship between the printed matter and the substrate in particular, then claims to new motivations for already-performed conduct would not be patentable under the printed matter doctrine.

Patents as Holdups and the DOJ Controversy

by Dennis Crouch

In February 2018, I wrote an essay titled Patents and Antitrust: Trump DOJ Sees Little Connection.  USDOJ’s chief antitrust lawyer Makan Delrahim has repeatedly stated his position that patent holders rarely create antitrust concerns — even in the standard setting organization and FRAND framework. Mr. Delrahim explained recently:

By denying injunctive relief to standard essential patent holders except in the rarest circumstances, courts in the U.S. run the risk of turning a FRAND commitment into a compulsory license. As a defender of competitive markets, I am concerned that these patent law developments could have an unintended and harmful effect on dynamic competition by undermining important incentives to innovate, and ultimately, have a detrimental effect on U.S. consumers.

Another advocacy position we have taken relates to how patent holders are held to their commitments to license on FRAND terms. . . [U]nilateral patent hold-up is not an antitrust problem. Where a patent holder has made commitments to license on particular terms, a contract theory is adequate and more appropriate to address disputes that may arise regarding whether the patent holder has honored those commitments. . . . Using the antitrust laws to impugn a patent holder’s efforts to enforce valid IP rights risks undermining the dynamic competition we are charged with fostering. So when it comes to disputes that arise between intellectual property holders and implementers regarding the scope of FRAND commitments, we advocate for the application of more appropriate theories, other than the blunt instrument of antitrust.

A third topic I have addressed recently is the need for balanced patent policies in standard setting organizations. As I and others at the Division have said on many occasions, by allowing products designed and manufactured by many different firms to function together, interoperability standards create enormous value for consumers. But standard setting only works—and consumers only reap the benefits of innovative and interoperable products—when both patent holders and patent implementers have the incentives to participate in the process. To that end, I have encouraged standard setting organizations to think carefully about the patent policies they adopt, so that incentives are not skewed towards one group or the other.

Delrahim Keynote Text.

A large group of leading law professors and former government antitrust enforcement officials have now continued the debate with an eight-point letter explaining the “broad bipartisan legal and economic consensus” on the antitrust concerns of patent holdups and the market benefit of SSOs.  [Read the Full Letter: DOJ patent holdup letter].

The points:

  1. “The anticompetitive harms from patent holdup have been consistently acknowledged by officials in Republican and Democratic administrations,” including in a unanimously adopted 2007 joint agency report.
  2. “The holdup problem has been recognized by courts and standard setting organizations themselves.” This is the reason why SSOs (made-up of industry player patent owners) adopt FRAND practices.
  3. Holdup concerns (by the patentee) “presents the more serious antitrust concern” as compared with Holdout concerns (by infringers who refuse to license).
  4. A patentee who obtains or maintains market power by breaching a FRAND commitment is liable for monopolization.
  5. While “injunctive relief often is appropriate” as a remedy in patent cases, the right to exclude granted by patents does not mean that a patentee’s unilateral refusal to license is ‘per se legal.’  Rather there are many doctrines that the right of a property owner to exclude others whether land, personal property, or intellectual property.
  6. eBay is the law; patent infringement no longer necessarily results in an injunction. “Because there could be thousands of patents in a product today, it is not appropriate uniformly to apply standards from the 18th century.”
  7. Patent rights should be considered for their utilitarian purpose – rather than as primarily a natural property right.
  8. Holding patentees to their own FRAND licensing commitments should not be seen as controversial in any way.

The letter here different from an amicus brief or comments to a notice of proposed rule-making since Delrahim need not respond or even consider the ideas presented.  The reality is that nothing in the letter is ‘new’ information and I am confident that Delrahim has already considered all of these points.  Still, it makes sense to speak the truths that you know. But still I wonder whether there is an intended shadow audience for the letter.

Law of the Flag and Patent Infringement on the High Seas

by Dennis Crouch

Due process ordinarily requires that a court have personal jurisdiction over the parties to a lawsuit.  In its 2016 opinion, the District Court dismissed M-I Drilling’s lawsuit against the Brazilian company Dynamic Air Ltda. (DAL) for lack of personal jurisdiction. M-I Drilling Fluids UK Ltd. v. Dynamic Air Ltda, 2016 U.S. Dist. LEXIS 27357, 2016 WL 829900 (D. Minn. 2016).  On appeal here, the Federal Circuit has reversed. M-I Drilling Fluids UK Ltd. v. Dynamic Air Ltda., 2018 U.S. App. LEXIS 12497 (Fed. Cir. May 14, 2018).

Law of the Flag: The alleged infringement here did not occur within the United States proper, but rather aboard U.S. flagged ships in international waters – the vessels Resolution and Pinnacle.  The district court held that the U.S. Patent Act applies to U.S. flagged ships — “While on the high seas, a vessel is deemed to be part of the territory of the nation to whose citizens it belongs, and under whose flag it sails.” However, the district court then dismissed the case for lack of personal jurisdiction.

Personal Jurisdiction over a Foreign Entity: In most U.S. civil litigation, personal jurisdiction is considered on a state-by-state basis: we ask “does the defendant have sufficient contacts with the state housing the particular court?”  A special rule (R.4(k)(2)) kicks in for foreign entities such as DAL who are not subject to the general jurisdiction of any U.S. State.  Under 4(k)(2), any court across the country will have personal jurisdiction so long as the defendant’s contacts with the United States (as a whole) are sufficient to comport with Constitutional due process and not offend “traditional notions of fair play and substantial justice.”

In finding sufficient minimum contacts with the U.S. here, the Federal Circuit counted contacts with the U.S. flagged ships — finding that DAL’s installation of the accused pneumatic conveyance systems on the HOS Pinnacle and the HOS Resolution created specific jurisdiction over the entity. “Nothing more is required to show that DAL purposefully directed its activities at the United States.”

Judge Hughes wrote the opinion for the court joined by Judges Reyna and Stoll. Judge Reyna also filed a concurring opinion to further discuss the international maritime issues.

Prior to the enactment of the 1952 Act, the only authority speaking on whether U.S. patent laws apply to U.S-flagged ships on the high seas was Gardiner v. Howe, an 1865 case from then-existing Circuit Court of the District of Massachusetts. 9 F. Cas. 1157, F. Cas. No. 5219 (C.C.D. Mass. 1865). In Gardiner, the asserted patent claimed an improvement in the sails of vessels. The accused infringer allegedly used the improvement on the sails of his U.S.-flagged vessel while on the high seas and argued at trial that he could not be held liable for infringement because U.S. patent laws did not apply on the high seas. The court disagreed, stating that the U.S. patent laws “extend[] to the decks of American vessels on the high seas, as much as it does to all the territory of the country, and for many purposes is even more exclusive.” The court reasoned that any contrary ruling would render valueless “patents for improvements in the tackle and machinery of vessels, or in their construction . . . .” Our predecessor court recognized the vitality of Gardiner in Marconi Wireless Telegraph Co. of America v. United States, when it held that U.S. patent laws extend to infringing acts at the American Legation at Peking in China. 99 Ct. Cl. 1 (1942).

Nothing in the legislative history of the 1952 Patent Act evidences congressional intent to narrow the territorial scope of the patent laws from that articulated in Gardiner. . . .

In 1990, Congress applied the logic expressed by the Gardiner court in drafting legislation to extend U.S. patent law to U.S. spaceships. 1990 U.S.C.C.A.N. 4058, 4060-62. . . . Section 105 of Title 35 thus provides that “[a]ny invention made, used or sold in outer space on a space object or component thereof under the jurisdiction or control of the United States shall be considered to be made, used or sold within the United States for the purposes of this title . . . .” Congress’s logic in extending U.S. patent laws to U.S.-spaceships in outer space lends strong support for finding U.S. patent laws extend to U.S.-flagged ship on the high seas. . . .

What is particularly troubling in this case is that if U.S. law does not apply to infringing activity on a U.S.-flagged ship in international water, then it is possible no law applies.

Personal jurisdiction is proper – on remand we’ll see if there was actually any infringement of a valid patent.

A few notes:

  • Although the majority refers to the “high seas” and actions “beyond the territorial boundary” of any nation, Judge Reyna points out that “[t]he alleged infringement in this case occurred in the exclusive economic zone (“EEZ”) of Brazil. The EEZ is “‘an area beyond and adjacent to the territorial sea’ which ‘shall not extend beyond 200 nautical miles from the baselines from which the breadth of the territorial sea is measured.'” Elizabeth I. Winston, Patent Boundaries, 37 Temp. L. Rev. 501, 508 (2015) (quoting the United Nations Convention on the Law of the Sea, Dec. 10, 1982, 1833 U.N.T.S. 397, 418-19 (arts. 55, 57)).
  • One of the most interesting quotes from the article is the following statement: “Our subject matter jurisdiction over this appeal is grounded in the commercial tort of patent infringement.” That phrase has only been used in one other court decision – Judge Newman’s dissent in the damages case of Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995) (en banc) (“Patent infringement is a commercial tort, and the remedy should compensate for the actual financial injury that was caused by the tort.”) 

Patently-O Bits and Bytes by Juvan Bonni

Ed. Note: Mizzou Law Student Juvan Bonni is one of our new Bits and Bytes authors. Juvan’s background in international issues should help bring some perspective to these pages. If you have news updates or event listings you can send them his way: – DC

Recent Job Postings in Patent Law:

Microsoft, Corel, and the “Article of Manufacture”

Guest Post by Sarah Burstein, Associate Professor of Law at the University of Oklahoma College of Law (Tweet @design_law)

Microsoft v. Corel, Order Regarding Post-Trial Motions (N.D. Cal. 2018)

A district judge recently issued a decision that—if affirmed by the Federal Circuit—could have major implications for design patent law and policy.

Microsoft accused Corel of infringing five utility patents and four design patents. The four design patents all claimed designs for particular elements of the Microsoft Office graphical user interface (GUI). The images below show each of the claimed designs, along with a corresponding image of an accused product (images source: Microsoft’s complaint):

Corel initially denied infringing these design patents but, early last year, it amended its answer to admit infringement and dismiss most of its defenses, stating that, “to properly develop and prove out those defenses will simply cost more than the damages could rationally be in this case.” By the time of trial, the only remaining issues were damages, whether Corel had pre-suit notice of three of the design patents, and willfulness.

In its Rule 50 motions, Corel argued that Microsoft was not entitled to recover its “total profits” under 35 U.S.C. § 289 because Corel had not applied the patented designs to any articles of manufacture.

Section 289 provides a special disgorgement remedy for certain acts of design patent infringement. (For more on what § 289 does and doesn’t cover, see FN 74 here.) It provides that:

Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250, recoverable in any United States district court having jurisdiction of the parties.

Nothing 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.

35 U.S.C. § 289.

Corel noted that each of Microsoft’s design patents claimed an “ornamental design for a user interface for a portion of a display screen, as shown and described…” Corel argued that the relevant article of manufacture for each of the design patents was, therefore, a display screen. Sine Corel had not sold any display screens, it argued, there were no applicable profits for Microsoft to recover.

Corel also argued that its software products did not themselves constitute “articles of manufacture.”

Microsoft argued that each of its patents claimed a design “for a user interface for a portion of a display screen” and argued that, in its stipulation of infringement, Corel had “admitted that its products include[] the claimed interface.” Microsoft also argued that software does qualify as an “article of manufacture,” relying mainly on the Supreme Court’s statement in Samsung v. Apple that “[a]n article of manufacture . . . is simply a thing made by hand or machine.” Therefore, according to Microsoft, it was entitled to recover the “total profits” from Corel’s infringing software pursuant to § 289.

The district court agreed with Microsoft. According to Judge Davila, Corel waived its “article of manufacture” arguments because it “already admitted that its products. . . infringe” the design patents. Judge Davila further decided that, even if the arguments weren’t waived, “[s]oftware is a ‘thing made by hand or machine,’ and thus can be an ‘article of manufacture,” citing Samsung. The judge further stated that Corel’s arguments about the claim language were “misplaced” because the claimed design was “broad enough that it could be ‘applie[d]’ to software.”

Both of these conclusions deserve closer attention.

The admission of infringement

As noted above, Corel admitted that its software infringed Microsoft’s design patents. According to the court, this meant that “Corel has already admitted there exists an ‘article of manufacture’ to which the patented designs . . . have been applied.” It’s not entirely clear why the court reached this conclusion. But, reading the discussion as a whole, it appears that the court may have been laboring under the (unfortunately, somewhat widespread) misapprehension that § 289 sets forth the standard for design patent infringement. In other words, it appears that the court may have been under the mistaken impression that design patent infringement occurs only when the patented design is applied to an article of manufacture.

To be fair to the court, there is some dicta floating around to that effect. But, as Microsoft argued, it is § 271 that sets forth the standard for infringement of design patents – just like it does for utility patents.

In theory, someone could infringe a design patent by, for example, inducing someone else to use a patented design without themselves applying the design to any “article of manufacture” or selling an article to which the design has been applied. One reason for this is that we don’t yet have a clear conception of what it means for a design to be “applied” to an article. This decision highlights the need for more clarity in this area. (For my own views on what “applied” should mean, see here.)

The court also seems to conflate the digital instructions for rendering a design from the actual visual design itself. In copyright law, we distinguish between the code (a literary work) and the visual design displayed by the work (an audiovisual or PGS work). That distinction might be helpful in understanding the issues in these GUI design patent cases. Effectively, Judge Davila’s ruling allows for the protection of the process used to display these designs, as opposed to the designs themselves. If upheld, this could have major implications for the protection of CAD files used in 3D printing.

Software as an “article of manufacture”

The court’s alternate conclusion—that software can be an “article of manufacture”—is both surprising and, if upheld on appeal, could have far-reaching implications.

Section 171 provides for the grant of a design patent for “any new, original and ornamental design for an article of manufacture.” There does not seem to be any good reason to interpret the phrase “article of manufacture” differently in § 289 than in § 171. (While some scholars have argued that the scope of GUI design patents should not be limited based on their verbal claims, the—admittedly scarce—case law suggests otherwise. This article collects all the relevant cases I could find as of 2015; here is another, more recent, decision.)

The question of whether a GUI design is, in fact, a “design for an article of manufacture” has never actually been decided by a court. According to the USPTO, a GUI claim “complies with the ‘article of manufacture’ requirement” if the GUI is claimed as “shown on a computer screen, monitor, other display panel, or a portion thereof.” MPEP § 1501.(a). At least in the view of the USPTO, the relevant article is the screen. Of course, this interpretation has not, however, been considered—let alone ratified—by any court. And Corel didn’t mention any of this to Judge Davila. But it’s notable how starkly the court’s reasoning in Microsoft contrasts with the USPTO’s reasoning in allowing this type of patent in the first place.

The Microsoft ruling also stands in striking contrast with Apple’s arguments in its currently-pending retrial against Samsung. Apple is arguing that the relevant article for its GUI patent is the complete Samsung phone, not the software installed thereon. It would seem odd to say that the relevant article of manufacture for a GUI is the software unless the defendant happens to sell its software bundled with a piece of hardware—especially since the Supreme Court rejected the Federal Circuit’s rule that the relevant article is whatever the defendant sells. And if it seems strange to treat Corel and Samsung differently with respect to § 289, that may suggest a deeper flaw in the reasoning the USPTO used to grant design patents for GUIs in the first place.

In any case, if the Federal Circuit affirms the decision that software can be an “article of manufacture,” that would be a major change to U.S. design patent law.

It could also have implications for utility patent law. The phrase “article of manufacture” in the design patent statutory subject matter provision has long been understood to be synonymous with the term “manufacture” in the utility patent subject matter provision. (For more on the longstanding equation of these terms, see here.) One notable exception is In re Nuijten, where the majority rather clumsily tried to distinguish a CCPA design patent case, In re Hruby, on the way to deciding that only tangible items can be “manufactures” under § 101. (Neither Corel nor Microsoft mentioned Nuijten in their “article of manufacture” briefing.)

Eventually, the Federal Circuit will need to sort all of these issues out. But this decision demonstrates how urgent the need is for clarity—and clear thinking—in this space.

Venue in Multi-District States

by Dennis Crouch

The same panel that recently decided In re ZTE (Fed. Cir. May 14, 2018) (Judges Reyna, Linn, and Hughes) has now also decided another improper venue mandamus action: In re BigCommerce, Inc. (Fed. Cir. May 15, 2018).

BigCommerce focuses on the issue of proper venue in multi-district states. The potential confusion comes from the Supreme Court’s central holding in TC Heartland that “a domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.” BigCommerce is a Texas Company, but its HQ is in Austin (W.D.Texas) and argues that the Supreme Court’s statement was incomplete.  Now, on mandamus, the Federal Circuit has sided with BigCommerce — holding that the rule is more nuanced for multi-venue states.

[A] domestic corporation incorporated in a state having multiple judicial districts “resides” for purposes of the patent-specific venue statute, 28 U.S.C. § 1400(b), only in the single judicial district within that state where it maintains a principal place of business, or failing that, the judicial district in which its registered office is located.

Thus, the outcome here is that E.D.Texas is an improper venue for BigCommerce under 28 U.S.C. 1400(b) since the company neither (1) resides nor (2) has a place of business in the venue.

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.

On remand, the District Court should either dismiss the lawsuits or grant a motion to transfer.

The Federal Circuit’s decision here has to be correct, and the only difficulty is the loose Supreme Court wording in TC Heartland.

In its analysis, the Federal Circuit started with the statute, which focuses on “the judicial district where the defendant resides.” The focus here is not on the “state” as a whole but on the district itself.  For its part, the appellate panel though emphasis should be added to the article “the judicial district” — i.e., what is the one single district where the defendant resides? “A plain reading of ‘the judicial district’ speaks to venue in only one particular judicial district in the state.”  The court also cited Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561 (1942) for what it identified as the Supreme Court’s “view on the issue” — “that a corporation incorporated in a multi-district state is not a resident of every district in the state.”

Eligibility Fails: Improving the Physical Realm vs. Improving an Abstract Idea

by Dennis Crouch

In SAP America v. InvestPic (Fed. Cir. 2018), the court repeated a number of well known maxims regarding patent eligibility:

  • Even if the underlying invention is “‘[g]roundbreaking, innovative, or even brilliant,’ . . . that is not enough for eligibility.”  Quoting Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. 576, 591 (2013).
  • Nor is it enough for subject-matter eligibility that claimed techniques be novel and nonobvious in light of prior art, passing muster under 35 U.S.C. §§ 102 and 103. See Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 89–90 (2012); Synopsys, Inc. v. Mentor Graphics Corp., 839 F.3d 1138, 1151 (Fed. Cir. 2016) (“[A] claim for a new abstract idea is still an abstract idea. The search for a § 101 inventive concept is thus distinct from demonstrating § 102 novelty.”)

InvestPic sued SAP for infringing its patented method of analyzing investment information. U.S. Patent No. 6,349,291. Claim 1 reads as follows:

1. A method for calculating, analyzing and displaying investment data comprising the steps of: (a) selecting a sample space, wherein the sample space includes at least one investment data sample; (b) generating a distribution function using a re-sampled statistical method and a bias parameter, wherein the bias parameter determines a degree of randomness in a resampling process; and, (c) generating a plot of the distribution function.

After considering the claims, the district court granted SAP’s motion for judgment on the pleadings — finding that the claimed process of “performing statistical analysis” is an ineligible abstract idea.  In particular, the district court saw core of the claim as being directed toward an ineligible mathematical calculation.  The field limitation (investment data) and generically claimed usable output (“a plot”) were insufficient to transmute the idea into a golden claim.  On appeal, the Federal Circuit has affirmed:

The focus of the claims, as is plain from their terms, quoted above, is on selecting certain information, analyzing it using mathematical techniques, and reporting or displaying the results of the analysis. That is all abstract.

Distinguishing this case from McRO, the court appears to have recast that case as focusing on the “physicality” of lip-syncing:

The claims in McRO were directed to the creation of something physical—namely, the display of “lip synchronization and facial expressions” of animated characters on screens for viewing by human eyes. The claimed improvement was to how the physical display operated (to produce better quality images), unlike (what is present here) a claimed improvement in a mathematical technique with no improved display mechanism. The claims in McRO thus were not abstract in the sense that is dispositive here. And those claims also avoided being “abstract” in another sense reflected repeatedly in our cases (based on a contrast not with “physical” but with “concrete”): they had the specificity required to transform a claim from one claiming only a result to one claiming a way of achieving it.

The court goes on:

Here, in contrast, the focus of the claims is not a physical-realm improvement but an improvement in wholly abstract ideas—the selection and mathematical analysis of information, followed by reporting or display of the results.

USPTO Announces Recipients of 2017 Patent Pro Bono Achievement Certificate

From USPTO: Alexandria, VA– The U.S. Department of Commerce’s United States Patent and Trademark Office (USPTO) today announced the recipients of the 2017 Patent Pro Bono Achievement Certificate in recognition of individuals who help make the Patent Pro Bono Program available to financially under-resourced inventors and small businesses.

In 2017 more than 85 volunteer patent practitioners reported 50 or more hours of patent pro bono service to a regional patent pro bono program. To acknowledge their contributions, USPTO provided certificates and listed their names and employers on the Patent Pro Bono Program website.

“I want to congratulate the recipients for their dedication, time, and commitment they’ve demonstrated in an effort to help spur innovation on behalf of under-resourced inventors and small businesses,” said Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office Andrei Iancu. “Their assistance is crucial not only to the success of our Patent Pro Bono Program, but the success of our nation toward inspiring innovation across the country, and ensures that everyone who has the desire is given the opportunity.”

The continued efforts of patent practitioners across the country have strengthened the success of the Patent Pro Bono Program since 2015. To date, more than 1,500 patent professionals have volunteered their availability, time, and resources to help make the Patent Pro Bono Program a success.

In 2018, USPTO will expand its recognition to include law firms and corporations in addition to individual patent practitioners. Those whose registered practitioners cumulatively contribute a minimum number of hours (based on firm size) to one or more participating regional patent pro bono programs may receive the 2018 Law Firm and Corporate Achievement Certificate.

2017 Winners Include: (more…)

Supreme Court Vacates Secure Axcess Precedent – Finding it Moot

by Dennis Crouch

As you’ll read below, the Supreme Court has vacated the Secure Axcess CBM decision on mootness grounds.  This means that the “financial services” limitation of the covered-business-method provisions are again up for interpretation. 

In the America Invents Act (AIA) of 2011, Congress created a trio of AIA-Trials: Inter Partes Reviews; Post Grant Reviews; and Covered Business Method (CBM) Reviews.

The CBM program is particularly targeted at claims for data processing or other operations used in the “practice, administration, or management of a financial product or service” and not covering “technological” inventions.  In PNC Bank v. Secure Axcess, the Federal Circuit narrowly interpreted the eligibility for CBM review – holding that the claims themselves must be directed to a financial service.  A patent does not qualify for CBM simply because it can be used in the financial service industry.

PNC then petitioned the Supreme Court for writ of certiorari asking the following question:

  1. Whether the U.S. Court of Appeals for the Federal Circuit’s judgment should be vacated and remanded with instructions to dismiss the appeal as moot, in accordance with United States v. Munsingwear, Inc., when the claims of the challenged patent are invalid, and there is no longer a live case or controversy between petitioners and respondent; and
  2. Whether, if the case is not moot, the lower court erred in holding that the statutory definition of a patent eligible for covered business method review requires that the claims of the patent expressly include a “financial activity element”—in other words, that the claim have no use outside of financial activity—rather than making covered business method review available for patents that claim “a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service.”

In its list of orders, the Supreme Court has decided the case — agreeing with the first question that the case is moot:

The petition for a writ of certiorari is granted. The judgment is vacated as moot, and the case is remanded to the United States Court of Appeals for the Federal Circuit with instructions to remand the case to the Patent Trial and Appeal Board to vacate the Board’s order. See United States v. Munsingwear, Inc., 340 U. S. 36 (1950). Justice Alito took no part in the consideration or decision of this petition.

The mootness issue here stems from the fact that the challenged Secure Axcess patent claims were also cancelled in a separate IPR proceeding that has been affirmed by the Federal Circuit and the time for petitioning the Supreme Court has passed. Petitioner writes:

The now unreviewable invalidation of those claims, and resulting dismissal of Secure Axcess‘ infringement claims with prejudice moots any live case or controversy between the parties here.

The cited Supreme Court Munsingwear decision comes from mootness-on-appeal. In that case, the court explained its establish practice of vacating judgments on issues that become moot while on appeal or pending decision:

The established practice of the Court in dealing with a civil case from a court in the federal system which has become moot while on its way here or pending our decision on the merits is to reverse or vacate the judgment below and remand with a direction to dismiss.

United States v. Munsingwear, Inc., 340 U.S. 36 (1950).

Plaintiff has Burden of Establishing Proper Venue in Patent Cases

by Dennis Crouch

In re ZTE (Fed. Cir. May 14, 2018) is an important case establishing that the plaintiff has the burden of proving proper venue in patent cases. 

In May 2018, the Federal Circuit denied HTC’s writ-of-mandamus request on improper-venue grounds — holding that – like most issues – appeal of improper venue decision should ordinarily wait until final judgment.  See, Dennis Crouch, The US Venue Laws Do Not Protect Alien Defendants, Patently-O (May 9, 2018); In re HTC Corp., 2018 U.S. App. LEXIS 12182 (Fed. Cir. 2018). Less than one-week-later, the Federal Circuit has swung the other way — this time granting ZTE’s motion for writ of mandamus on the issue of improper venue.  The ZTE panel (Judges Reyna, Linn, Hughes) did not cite HTC, nor are there any overlapping judges with the HTC panel (Chief Judge Prost, and Judges Wallach and Taranto).  Of course, TC Heartland was an improper venue case that went to the Supreme Court on mandamus.

Here, the panel explained that mandamus makes sense because the decision resolves two “basic and undecided” issues of venue law: (1) What law to apply on the question of burden-of-proof for proper venue; and (2) Which party has the burden of showing proper/improper venue.

Federal Circuit Law: Each region within the US has its own court-of-appeals that guides lower courts in their decision making. Patent lawsuits are filed in these same regional courts, but the Court of Appeals for the Federal Circuit hears those appeals. The courts are all applying the same law, but differences in practice and interpretation have developed (i.e., Circuit Splits). In the patent world, the Federal Circuit has developed a practice of having the lower courts use their regional circuit law and procedure as a baseline, but then apply Federal Circuit law to issues unique to patent law.  See Biodex Corp. v. Loredan Biomed., Inc., 946 F.2d 850 (Fed. Cir. 1991).

In TC Heartland, the Supreme Court ruled that patent-venue is a unique patent law question. Here, the Federal Circuit has extended that general principle to hold that sub-determinations such as burdens-of-proof related to improper venue challenges are also issues of patent law for the Federal Circuit to decide.

Burden of Persuasion in Venue Law: The question of who has the burden of persuasion in venue law is interesting.  On the one hand, it appears to be the plaintiff’s burden to file the case in a proper venue. On the other hand, it is the defendant who files the FRCP 12(b)(3) motion to dismiss for improper venue.  The regional circuit courts do not offer much help because they are divided on the issue with reference to the general venue statute.

In this case the appellate panel found that 1400(b) is a restrictive measure – particularly limiting venue in patent cases — and that intentional narrowness suggests that the plaintiff should have the burden of showing proper venue.  This fits in line with Moore’s Federal Practice explanation.

It makes good sense to require a defendant who seeks dismissal of an action because of this personal privilege to establish the privilege. Placing the burden on the plaintiff is justified only in a case involving an exclusive venue statute, such as in patent infringement cases, in which venue lies in the district where the infringement takes place. Because the plaintiff has the burden of proving patent infringement, it makes sense to shift the burden of proof on the venue issue to the plaintiff, and the courts have so held.

17-110 Moore’s Federal Practice – Civil § 110.01[5][c] (2018).  (Note that when Moore’s state that “courts have so held”, the accompanying footnote only cites one 1981 district court case. Hoffacker v. Bike House, 540 F. Supp. 148, 149–150 (N.D. Ca. 1981)).

Here, the district court had placed the burden on the defendant ZTE of proving improper venue – on remand that burden needs to shift. The appellate panel went on to caution the lower court about finding a “regular and established place of business” in E.D. Texas based upon an “arms-length contract for service” with a call center provider.


  1. Although the plaintiff has the burden of proving proper venue, it does not appear that the court here changed the usual notion that proper venue need not be alleged in the complaint itself. Rather, the defendant must challenge proper venue. Ordinarily for such a challenge to be recognized must surpass some burden of presentation — i.e., by making a plausible or prima facie case of improper venue.

Injured by Estoppel

A major limitation on Federal Court policy-setting is the actual-controversy limitation housed in Article III of the U.S. Constitution.  “Article III” courts are limited to hearing “actual cases and immediate controversies.”  Hollingsworth v. Perry, 133 S. Ct. 2652 (2013).  As an executive agency, the USPTO is not so limited.  Rather, the USPTO is empowered to decide AIA-style patent challenges regardless of whether any actual controversy exists between the patent-challenger and the patent owner.  Thus, when Altair Pharma filed its Post Grant Review petition, the USPTO did not even need to consider whether Altair had any interest in the litigation.  However, even in AIA-trials, the case-or-controversy issue arises upon appeal to the Federal Circuit since the Federal Circuit is an Article III court bound by the case-or-controversy jurisdictional limit.  Here, the PTAB sided with the patentee Paragon and a major element stumbling block for Altair’s appeal was proving it had standing.

In Altaire Pharma v. Paragon Biotech, App. No. 2017-1487 (Fed. Cir. May 2, 2018) (Opinion not released until May 11, 2018), the Federal Circuit has issued a sharply split decision on whether PGR petitioner Altair has constitutional standing to appeal the PTAB decision confirming patentability of Paragon’s U.S. Patent No. 8,859,623 (method of using an ophthalmic composition for pupil dilation).

Injury-in-Fact: In many standing cases, the largest hurdle is showing “injury in fact.”  In Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the Supreme Court explained that the injury must be concrete (actually exist), be particularized to the party, and actual or imminent rather than “conjectural or hypothetical.”  Although there must be an actual injury (or potential injury), the court has reduced “the normal standards for redressability and immediacy” based upon the express statutory right of appeal. Phigenix, Inc. v. Immunogen, Inc., 845 F.3d 1168 (Fed. Cir. 2017).

Here, Altaire included an affidavit that it intends to seek FDA approval of its own formulation phenylephrine as soon as a prior joint-operation agreement between the parties was terminated. (A separate lawsuit is pending to terminate that agreement).  The majority saw this potential sequence of events sufficient to find immediate injury — “Altaire’s injury is inevitable.”  Writing in dissent, Judge Schall argued that the injury remained speculative:

First, leaving aside the possibility of a settlement, one of two things will happen in the [parallel] breach of contract suit. Either Altaire will prevail; or Paragon will prevail, in which case Paragon perhaps will be given the right to terminate the Agreement. At this point, though, we do not know what will happen. Moreover, should Altaire prevail in the suit, the possibility that Paragon will be given the right to terminate the Agreement before 2021—which is a critical linchpin of Altaire’s claim of imminent harm will have been eliminated. It seems to me that, by any standard, we presently are in a situation where a determination of imminent harm is speculative.

Estoppel as an Injury Generator: The most interesting legal point in the analysis is the majority’s conclusion that the “injury is compounded” by the estoppel created from the PGR.  Here, the court attempted to distinguish Phigenix and Conusmer Watchdog. In those cases, the Federal Circuit held plainly that the estoppel “does not constitute injury-in-fact.” According to the majority, the difference here is that the there is the aforementioned potential upcoming infringement — that makes the estoppel more real than those prior cases.

As explained above, Altaire’s injury is imminent, whereas the appellant in Consumer Watchdog “only alleged a general grievance concerning” the challenged patent, and the appellant in Phigenix only alleged its aspirations of licensing its patent portfolio.

Here, the majority used estoppel as a bonus-injury — one that “further supports Altaire’s claimed injury in fact.”  The court reserves for another day the question of whether estoppel could be “sufficient independently to establish standing.”  In dissent, Judge Schall writes that it should not be sufficient.

On the Merits, the court sent the case back down to the PTAB — holding that it should have considered Altaire proffered expert testimony.

Although the PTAB “has broad discretion to regulate the presentation of evidence,” that discretion is not without limits, Ultratec, Inc. v. CaptionCall, LLC, 872 F.3d 1267 (Fed. Cir. 2017). The PTAB’s decision to assign no weight to Mr. Al Sawaya’s [expert] testimony was an abuse of discretion. . . . [T]he agency must take account of all the evidence of record, including that which detracts from the conclusion the agency ultimately reaches.”

Note here that this case was filed as a Post Grant Review rather than Inter Partes Review.  PGR’s are broader in scope and allow the patent to be challenged on a wide range of patentability questions. Here, Altaire relied upon its own prior chemical production Lots #11578 and #11581 that were sold and distributed to another Altaire customer in 2012.  According to the PTAB – those uses qualified at least as being “in public use, on sale, or otherwise available to the public” 35 U.S.C. § 102(a)(1).


Priority of Precedent: When Same-Day Federal Circuit Opinions are in Tension

by Dennis Crouch

On May 11, 2018 the Federal Circuit released two opinions in a bit of tension over the constitutional requirement of a “case or controversy.”

The tension between the cases in this situation is actually fairly small, but the setup raises an interesting question in my mind. When two decisions are released simultaneously, how should we treat the precedential value of the cases relative to one another?  My initial answer is that the cases should be treated as we would a plurality Supreme Court decision.  Although law-of-the-circuit rules prohibit a later panel from upsetting prior precedent, the reality is that principle is treated as an internal rule rather than one opening the later decision to collateral attacks by the parties.

Veering away from the simultaneous release — would it matter if one were uploaded to PACER (the Docket) a few hours before the other? Under Federal Rules of Appellate Procedure R. 36, “a judgment is entered when it is noted on the docket.”  The rules do not, particularly define priority of precedent, and I have not seen any Federal Circuit precedent on-point.  Supreme Court becomes precedent immediately upon release. Federal Circuit decisions should seemingly have the same result by Default.

In this particular case, the opinions were not released simultaneously.  See my comparative timeline below:

  • AIDS Healthcare: Decision posted to PACER at 05/11/2018 09:22AM; Posted on the Court Website at approximately 10:00 AM that same date.
  • Altaire Pharma: Decision originally issued under-seal on 05/02/2018 10:22 AM; ordered unsealed on 05/04/2018 11:13 AM; Posted on the Court Website at approximately 9:00 AM on 05/11/2018. (It is unclear to me at what point in time the opinion was effectively unsealed).

For Altaire, the initial release of the decision was under-seal.  Although the opinion at that point was already designated as precedential, under-seal opinions are seemingly not binding precedent in the ordinary course.  The docket notes that the Altaire opinion was ordered unsealed on 5/4/2018 and thus should be seen as having precedential priority over AIDS Healthcare, which was not released until 5/11/2018.

Of course, in many ways, Precedential Priority is an illusory marker.  Except when squarely on point, later panels have power to substantially shift precedent by adding nuances or “explaining” the prior decision in terms that better fit to a new narrative.  Later panels are often even better at explaining how prior cases fit together rather stand in tension.   Although the Supreme Court is not bound by its own prior precedent, the high court’s patent eligibility jurisprudence fits this pattern well.




Just Compensation for Cancelling My Patent

by Dennis Crouch

A new class-action lawsuit has been filed against the U.S. Government alleging damages suffered by “patent holders whose property was taken by the USPTO without compensation in violation of the Fifth Amendment of the Constitution.” Christy, Inc. v. USA, 18-cv-00657 (Ct. Fed. Clms. 2018) (2018-05-09-1-Complaint).

The basic story here begins with the USPTO’s “public (and shocking) admission” that the AIA Trials are targeted toward patents that were “erroneously granted in the first instance” — i.e., the USPTO erred in issuing the patents and that is why the AIA trials are now necessary.  The problem though is that the erroneous issuance lead to a granted property right with the potential for substantial royalty income, substantial payments of maintenance and other USPTO fees, and often substantial costs involved with the AIA-trial. In my mind, only claim with potential here is that of paid fees based upon an erroneous grant. The complaint explains:

The USPTO’s invalidation of the Plaintiff’s and Class member’s patent claims was a taking without just compensation in violation of the Fifth Amendment of the Constitution. The compensation due here includes, but is not limited to, expected royalties and other payments related to use of the patents. This case additionally seeks damages for the Defendant’s breach of contract by failing to maintain in force the subject patent claims for the terms prescribed in the patent grants for the relevant claims, including the recovery of attorney fees expended defending those same patents in post-grant proceedings, any investments made in the inventions underlying those patents, any expected royalties or payments related to the patents, and all fees paid to the Defendant for the issuance of those patents. In the alternative, the case seeks to recover fees that were paid by inventors and patent owners to the USPTO, such fees having been exacted from Plaintiff and Class members through the AIA—according to the Defendant, these patents were issued erroneously by the USPTO in the first instance and thus all fees should be returned to the Plaintiff and Class members.

Id. Note here that, although the Supreme Court in Oil States did not bestow patents with full grandeur private property rights — the Court was clear that patents should continue to be treated as property protected by the Due Process and Takings Clauses of the U.S. Constitution.

[O]ur decision should not be misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause.

Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, 200 L. Ed. 2d 671 (Supreme Court 2018).  Overall, it is in interesting idea for a lawsuit, but it lacks precedential support.  Its best shot is to focus on the retroactive impact of IPR/CBM decisions on pre-AIA patents.  For those cases, the IPR regime was not pre-baked into the implied contract.

Waiving the SAS Right to Trial on All Challenged Claims

Although non-precedential, Valmont Indus. v. Lindsay Corp (Fed. Cir. 2018) appears to be the first post-SAS Federal Circuit opinion involving a partially-initiated inter partes review (IPR) proceeding.

In its IPR petition, Lindsay challenged all 18 claims of Valmont’s U.S. Patent No. 7,003,357.  The PTAB instituted, but only to claims 1-15 and 17-18 — the case against Claim 16 was not strong enough.   In its final decision, the PTAB found the claims obvious except for claim 11 and, of course claim 16 (whose validity was not tried).

Meanwhile, in SAS, the Supreme Court ruled that the PTO cannot partially-institute its AIA trials, but rather, it must either hold trial on all the challenged claims or none of the challenged claims.

[The statute] directs that “[i]f an inter partes review is instituted and not dismissed under this chapter, the [Board] shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner . . . .” §318(a) (emphasis added). This directive is both mandatory and comprehensive. The word “shall” generally imposes a nondiscretionary duty. . . . SAS is entitled to a final written decision addressing all of the claims it has challenged.

One open question following SAS is what-to-do with all the cases that have been partially instituted . . . Here, neither party filed any post-SAS briefing and the court consequently ignored the issue — holding that the PTAB erred on claim 11 and instead that all of the tried claims should be cancelled.

Because the decision here is non-precedential and sub silento, it is difficult to discern much meaning — but one conclusion is that the right to trial and written decision on all challenged claims is a waivable right. In SAS, the court referred particularly to the right as an “entitlement” held by the petitioner — and most entitlements are waivable.  The setup raises several questions – most notably (1) does the patentee also hold the entitlement and (2) may the petitioner “waive” the all-challenged-claims right within the petition itself?

As an alternative theory — I dug into some of the documents and found that the aformentioned unjudged Claim 16 was later challenged in an ex parte reexamination and Valmont calncelled the claim in that proceeding. At that point, it is probably appropriate to say that it is no longer a “claim” subject to challenge.

The US Venue Laws do Not Protect Alien Defendants

In re HTC Corp. (Fed. Cir. 2018)

In 2017, 3G Licensing filed its infringement lawsuit in Delaware Federal Court — accusing both HTC Corp. (a Taiwan Corp.) and HTC America (its US Subsidiary based in Washington State) of infringement.  Following TC Heartland, the District Court found that venue was improper for HTC America, but allowed the action to proceed against the foreign company HTC Corp.

HTC Corp. then petitioned the Federal Circuit for a writ of mandamus on the issue – that writ has been denied.  Here, in particular, the decision indicates that a venue mandamus will no longer be granted simply “to avoid the inconvenience of litigation by having this issue decided at the outset of its case.”  Mandamus is seen by the courts as an extreme remedy and requires a showing that the petitioner has “no other adequate means to attain the relief desired.”  Here, the court notes denial of an improper venue motion can be appealed following a final judgment — and a successful appeal will render the judgment null.  The decision here contrasts with the court’s precedent regarding mandamus on convenience grounds (1404(a)) that really cannot be appealed post-final judgment.

In what appears to me as dicta, the Federal Circuit went on to explain its position that the Delaware court is a proper venue for the foreign corporation.  Rather, according to the court, TC Heartland did nothing to disturb the “long-established rule that suits against aliens are wholly outside the operation of all the federal venue laws, general and special.” Quoting Brunette Machine Works, Ltd. v. Kockum Industries, Inc., 406 U.S. 706 (1972).  The difficulty for foreign corporations is that many times there will be no proper venue under 28 U.S.C. 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. 28 U.S.C. 1400(b).

As a result of the possibility that a foreign company might not fit within the Venue statute, the Supreme Court in Brunette held that venue is proper for a foreign corporation in any judicial district where accused is subject to personal jurisdiction. In other words “the venue laws do not protect alien defendants.”

Introducing IPRs as the De Facto Administrative Claim Construction (ACC) Procedure

by Dennis Crouch

Several years ago, I proposed an Administrative Claim Construction Procedure (ACC)— allowing a patentee or third party to request a claim-construction by the USPTO.  The process would be much like an Inter Partes Review (IPR) proceeding – although my proposal would end the proceedings before actually analyzing whether the prior art reads upon the claims.

The combination of (1) the USPTO’s new proposed court-like claim-construction for IPRs and (2) the Supreme Court’s SAS decision collectively provides some opportunity for a de facto administrative claim construction procedure.  It is likely that a substantial portion of IPR participants will now be focused as much on claim construction as on the underlying validity arguments themselves.  Although this is already going on to some extent, once the courts and PTO apply the same standard of law, PTAB claim construction determinations could then be taken as decided issues of law (or at least highly persuasive authority) handed back for the stayed (or upcoming) district court litigation.

In his first major action as USPTO Director, Andrei Iancu has proposed modifying the approach to claim construction that the Patent Trial and Appeal Board (PTAB) applies in IPR proceedings (as well as PRG and CBM proceedings).  Rather than using the usual examination standard of “broadest reasonable interpretation,” the proposal would shift to the “ordinary meaning” of claim terms as applied by the courts and exemplified by Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc) and adjusted by Teva Pharms. USA, Inc. v. Sandoz, Inc., 135 S.Ct. 831 (2015).

Although the BRI and Ordinary Meaning standards are actually quite close, the courts and PTO have regularly held them to be different enough to avoid preclusion or even consideration when considering a claim construction performed by another judicial body.  Thus, the PTO Notice explains: “Minimizing differences between claim construction standards used in the various fora could lead to greater uniformity and predictability of the patent grant [and] could help increase judicial efficiency overall.”  (Note – the notice does not mention issue preclusion or collateral estoppel).

The point here is that claim construction performed by the PTAB will now suddenly have an important legal impact once the case returns to the district court.

In SAS Inst., Inc. v. Iancu, 138 S. Ct. 1348 (2018), the Supreme Court held that the PTO cannot partially-institute its AIA trials, but rather, it must address the patentability – and issue a final written decision – for each and every patent claim challenged in an IPR petition (if the petition is granted).  Under SAS, weaker patent challenges will now be heard — for those claims, the fight will likely be primarily about claim construction. Although the petitioner has power over the petition, the patentee also has expanded amendment rights.  Thus, both sides will have the power to seek and obtain a final decision that likely includes a claim construction of disputed claim terms.

At this point, it is difficult to know generally if the PTAB ordinary-meaning claim constructions will tend to favor the patentee or the accused infringer.  The big benefit, however, will be greater certainty prior to getting deep-into district court litigation.

In Light of the Prior Art: One important twist is that the PTAB claim construction is be done in view of the prior art – but ordinarily not with much if any consideration of the accused infringing actions.  This makes it less likely that the claim construction will fully resolve the infringement dispute – that’s OK and how it should be since infringement is a question for the jury.






USPTO Announces Notice of Proposed Rulemaking for Claim Construction Standard used in PTAB Proceedings

USPTO Press Release: Alexandria, VA – Today, the United States Patent and Trademark Office announced its proposed rulemaking to change the prior policy of using the Broadest Reasonable Interpretation standard for construing unexpired and proposed amended patent claims in Patent Trial and Appeal Board (PTAB) proceedings under the America Invents Act. The proposed new standard is the same as the standard applied in Article III courts and International Trade Commission (ITC) proceedings.

The USPTO also proposed to amend the rules for PTAB trials to add that the USPTO will consider any prior claim construction determination concerning a term of the claim in a civil action, or an ITC proceeding, that is timely made of record in an Inter Partes Review (IPR), Post Grant Review (PGR), or Covered Business Method (CBM) proceeding.

The purposes of the proposed rule include, among other things, to ensure consistency in claim construction between the PTAB and proceedings in district court or at the ITC, and to increase judicial efficiency.

A Notice of Proposed Rulemaking (NPRM) will publish on May 9, 2018. Please submit comments to within 60 days from the notice of publication.

CURRENT: 37 C.F.R. § 42.100

(b) A claim in an unexpired patent that will not expire before a final written decision is issued shall be given its broadest reasonable construction in light of the specification of the patent in which it appears. A party may request a district court-type claim construction approach to be applied if a party certifies that the involved patent will expire within 18 months from the entry of the Notice of Filing Date Accorded to Petition. The request, accompanied by a party’s certification, must be made in the form of a motion under § 42.20, within 30 days from the filing of the petition.

PROPOSED: 37 C.F.R. § 42.100

(b) In an inter partes review proceeding, a claim of a patent, or a claim proposed in a motion to amend under § 42.121, shall be construed using the same claim construction standard that would be used to construe such claim in a civil action to invalidate a patent under 35 U.S.C. 282(b), including construing the claim in accordance with the ordinary and customary meaning of such claim as understood by one of ordinary skill in the art and the prosecution history pertaining to the patent. Any prior claim construction determination concerning a term of the claim in a civil action, or a proceeding before the International Trade Commission, that is timely made of record in the inter partes review proceeding will be considered.

How the AIA is Getting Breach-of-License Cases into Federal Court

Alexsam, Inc. v. Wildcard Systems, Inc. (Supreme Court 2018)

In its new petition for certiorari, Alexsam argues that its breach-of-contract case should have never been removed to Federal Court. The petition relies heavily on Gunn v. Minton, 568 U.S. 251 (2013) and raises important issues of when licensing disputes issues should be heard in Federal Court [AlexsamPetition]

The State/Federal Balance: In Gunn, the Supreme Court held that a patent-attorney malpractice case did not “arise under” the patent laws.  Even though the case required consideration of patent law issues, those issues were not deemed “substantial” enough to “disturb[ the] congressionally approved balance of federal and state judicial responsibilities.” Grable & Sons Metal Products, Inc., 545 U.S. 308 (2005).

Disturbing the Balance: While Gunn narrowed the scope of federal jurisdiction, the “congressionally approved balance” is expansive enough to permit removal of state cases to federal court whenever “any party” raises a claim (including counterclaims) relating to patents or copyrights.  In addition, the law particularly preempts state court jurisdiction over “any claim for relief” arising under the patent laws. [NOTE: This Section was Updated to Eliminate an Error]

28 U.S.C. § 1454 A civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights may be removed to the district court of the United States for the district and division embracing the place where the action is pending.

28 U.S.C § 1338 No State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights.

Back in 2004, Alexsam sued WildCard for infringing two of its payment systems patents. (U.S. Patent Nos. 6,000,608 and 6,189,787).  The parties settled the lawsuit in 2005 and entered into a “settlement and license agreement.” The agreement indicated it would end if “the claims of the Licensed Patents are held invalid or unenforceable by a court of competent jurisdiction. . . ”  Zoom up to 2015 – Alexsam sued WildCard (and its owners) in Florida state court for breach of the agreement and asking for the royalties owed under the contract.  Respondents filed a counterclaim of invalidity and unenforceability then removed the case to Federal Court (S.D.Fla.).  The Federal Court then heard the case and sided with WildCard – finding no breach of contract (holding it had been terminated in 2009) and then dismissed the patent claims as barred by preclusion (and as an alternative holding, that the claims no longer had an independent basis for existence).

Note here – this setup is odd and seemingly improper: The Federal Court agreed to hear the state-law contract claims because they were supplemental to the patent claims, but then turned around and found that there was no independent basis for the patent claims to be brought. In its briefing before the Federal Circuit, WildCard explained this result in its Federal Circuit briefing: “Whether or not a claim is barred by res judicata has nothing to do with whether it arises under federal law, and thus has no bearing on the trial court’s subject-matter jurisdiction.”  See Smalls v. U.S., 471 F.3d 186 (D.C. Cir. 2006) (“the defense of res judicata, or claim preclusion, while having a “somewhat jurisdictional character,” does not affect the subject matter jurisdiction of the district court.”)  I would suggest a counterclaim must still state a plausible claim — and one barred by res judicata is not plausible and should have been dismissed from the get-go.

Alexsam appealed to the 11th Circuit Court of Appeals. However, that court transferred its case to the Federal Circuit who affirmed without opinion (R.36).  Note here that the Federal Circuit only has appellate jurisdiction over district court patent cases where either (1) the civil action (i.e., well pled complaint) or (2) a compulsory counterclaim arises under the patent laws.

28 U.S. Code § 1295(a) The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction—(1) of an appeal from a final decision of a district court of the United States . . . 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 . . . ;

There is a clear dispute here as to whether the counterclaim filed here was “compulsory” — if not then the 11th Circuit was the proper court to hear the appeal.

Bringing these issues together, Alexsam has asked two questions in its petition for writ of certiorari:

  1. Was there an independent basis for Respondents’ assertion of an invalidity counterclaim sufficient to invoke federal subject matter jurisdiction over petitioner’s state law claim for breach of the patent license agreement?
  2. Under Gunn v. Minton, where is the line drawn for federal jurisdiction for a state law Breach of Contract claim for the breach of a patent license?

Interesting and very important case that raises the basic question of whether the AIA amendments were designed to open-the-door to patent license disputes that would otherwise be determined by state law.