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Guest Post: Silicon Valley’s APA Challenge to PTAB Discretion

Guest post by Saurabh Vishnubhakat, Professor at the Texas A&M University School of Law and College of Engineering.  Professor Vishnubhakat was formerly an advisor at the USPTO, but his arguments here should not be imputed to the USPTO or to any other organization.

This week, four iconic Silicon Valley technology companies—Apple, Cisco, Google, and Intel—sued the USPTO under the Administrative Procedure Act.  The lawsuit challenges the USPTO’s so-called NHK-Fintiv rule, named after a pair of inter partes review decisions in the PTAB that the agency previously designated as precedential.

The 23-page complaint, docketed as Case No. 5:20-cv-06128 in the Northern District of California, is worth reading in full.  Yet what is especially striking about the lawsuit, and worth considering more deeply, is a particular pair of arguments at the heart of the challenge.  One is that the NHK-Fintiv rule is contrary to the policy and text of the AIA and therefore exceeds the Director’s authority.  The other is that the NHK-Fintiv rule is procedurally infirm because it was not promulgated through APA notice-and-comment rulemaking.

The NHK-Fintiv Rule

The disputed USPTO policy allows the PTAB to deny institution of an inter partes review petition based on how far a parallel U.S. district court proceeding on the same patent has already gone.

NHK Spring v. Intri-Plex

The policy was first articulated in NHK Spring Co. v. Intri-Plex Techs., No. IPR2018-00752, Paper 8 (Sept. 12, 2018).  There, a panel of the PTAB declined to institute NHK Spring’s petition against an Intri-Plex patent where a parallel infringement suit was already pending between the same parties in the Northern District of California.

In denying institution, the panel cited its discretion under 35 U.S.C. § 325(d) as well as under § 314(a).  First came § 325(d), which empowers the Director to “determine the manner in which the post-grant review or other proceeding or matter may proceed, including providing for the stay, transfer, consolidation, or termination of any such matter or proceeding.”  Here, the panel applied the nonexclusive factors of the PTAB’s prior informative opinion in Becton, Dickinson and concluded that the art and arguments now asserted in the PTAB were already considered (and overcome) during examination.

Though it found this analysis sufficient on its own, the panel then also went on to exercise its discretion under § 314(a), which makes a “reasonable likelihood” of invalidating at least 1 of the challenged claims a necessary—but not sufficient—condition for instituting review.  Where review is permissible, the Director may still decide in his discretion to deny review, and the NHK panel found it compelling that the parallel proceeding in U.S. district court was “nearing its final stages”—with a five-day jury trial already set for six months before the PTAB’s own proceeding would conclude.

The principle of NHK—that the “the advanced state of the district court proceeding is an additional factor that weighs in favor of denying the Petition under § 314(a)”—forms the first part of the policy now being challenged.

Apple v. Fintiv

That policy was further elaborated in Apple Inc. v. Fintiv, Inc., No. IPR2020-00019, Paper 11 (Mar. 20, 2020).  There, a panel of the PTAB ordered supplemental briefing at the institution stage of Apple’s petition against a Fintiv patent where a parallel infringement suit was pending between the same parties in the Western District of Texas.  Fintiv had already argued in its preliminary response that the “advanced state” of the parallel proceeding warranted discretionary denial under NHK, as the same issues were before the district court and trial there had already been set.  (The setting of a trial date had come after Apple’s petition but before Fintiv’s response, making additional briefing appropriate.)

The panel then set out a number of factors to consider when evaluating whether the state of a parallel proceeding warrants discretionary denial under NHK:

  • whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted;
  • proximity of the court’s trial date to the Board’s projected statutory deadline for a final written decision;
  • investment in the parallel proceeding by the court and the parties;
  • overlap between issues raised in the petition and in the parallel proceeding;
  • whether the petitioner and the defendant in the parallel proceeding are the same party; and
  • other circumstances that impact the Board’s exercise of discretion, including the merits.

NHK was designated as precedential in May 2019 and Fintiv in May 2020.  Taken together, the NHK-Fintiv rule represents a policy of denying institution where a parallel district court proceeding is so far along and so substantially similar in art and argumentation that it would be best to conserve USPTO resources rather than undertake a largely or entirely duplicative review.

The Policy and Text of the AIA

That policy choice is firmly rejected in the opening argument of the APA challenge.  The plaintiffs identify the inter partes review system as a “centerpiece of Congress’s efforts to strengthen the U.S. patent system” through post-grant error correction.  By their account, the system of PTAB adjudcation responded to an environment where “questionable patents were too easily obtained and too difficult to challenge through existing procedures”—and, indeed, this language aptly cites the AIA House Judiciary Committee Report.  Thus, to deny institution under the NHK-Fintiv framework weakens the very purpose of PTAB review through artificial limits that are “found nowhere in the AIA.”  However, though there is much to agree with in the line of argument that follows, it suffers from at least two important weaknesses.

PTAB Review as an Alternative to the Courts

One weakness is that while the PTAB is desirable over the baseline of Article III courts, there are important and under-appreciated limits to this desirability.  It is certainly true that the PTAB was intended as “an improved alternative to litigation” on questions of patent validity.  Indeed, my coauthors and I have similarly argued that the PTAB offers a number of important advantages over the Article III courts, including lower barriers to standing, lower cost, lower delay, and lower rates of error.

However, it does not follow that PTAB review remains preferable regardless of what happens in the Article III courts.  By the time court litigation has reached a stage advanced enough that the NHK-Fintiv doctrine would apply, much of the cost of litigation has already been sunk, especially by the close of discovery and the scheduling of trial, as in NHK itself.  Meanwhile, the problem of delay is turned on its head, as it is the court that will now likely finish before the PTAB would.  The problem of Article III standing is largely irrelevant, as the defendant can point not merely to the threat of suit but the actual suit itself.  Much, though not all, of the marginal benefit from PTAB review relative to the federal courts is already dissipated.

Moreover, while it is true that decision making in the PTAB is done by administrative judges who have relevant technical as well as legal expertise, this benefit is also dissipated to some degree by a late-stage federal court proceeding.  By that time, considerable effort and investment has already been sunk into educating the judge or jury.  This, after all, is where much of the cost of litigation goes, and what makes expert administrative judges an attractive value proposition is that they do not require nearly so much education in each case.  The more that such investments have been made anyway, the less that PTAB review is a clear cost-saving.

Finally, there is the problem inherent to error correction, a problem starkly highlighted by the legislative design of PTAB review.  It is true, as the plaintiffs point out, that “while bad patents can be held unpatentable in IPR by a preponderance of the evidence . . . those same patents will survive litigation unless the challenger proves invalidity by clear and convincing evidence.”  But as I have pointed out in testimony before the FTC, the same is also true of good patents—and there is no way to distinguish the good from the bad up front.  If there were, error correction itself would be unnecessary.

Agency Discretion to Deny Review

The second weakness is that agency discretion carries not only significant structural benefits when protecting agreeable outcomes but also substantial obstacles when the outcomes go the other way.  The crux of the case against discretionary denials under the NHK-Fintiv rule is that “no provision in the AIA expressly requires or even permits the Director (or the Board as his delegee) to deny IPR petitions based on pending litigation involving the same patent claims.”

It is repeated throughout the argument, too, that the principle of NHK and the additional factors enumerated in Fintiv are to be found “nowhere in the AIA” and are, for that reason, outside the Director’s authority.  In this telling, what discretion the Director does have is limited to § 325(d), which is concerned more with managing multiple proceedings inside the agency itself than with doing so across an interbranch court-agency divide.  This matters because the NHK-Fintiv framework is an elaboration of institution authority specifically under § 314(a), not of case management authority under § 325(d).

However, the principle that § 314(a) gives the Director discretion—broad discretion—to deny otherwise meritorious petitions is, by now, fairly well established in Federal Circuit and Supreme Court case law.  For example, the two most significant cases involving the judicial unreviewability of the Director’s institution power—Cuozzo v. Lee in 2016 and Thryv v. Click-to-Call earlier this year—take just this view.  The Court in Cuozzo held explicitly that “the agency’s decision to deny a petition is a matter committed to the Patent Office’s discretion” and cited § 314(a) with an explanatory parenthetical that there is “no mandate to institute review.”  Likewise, the Court in Thryv expanded the scope of that unreviewable discretion to include conditions on institution as well—there, the condition in dispute was the one-year time bar of 35 U.S.C. § 315(b).

Indeed, some of the plaintiffs who now seek to cabin the Director’s institution-related discretion previously endorsed those very same positions before the Court.  In Cuozzo, Apple submitted a brief as amicus curiae supporting the USPTO Director’s assertion of unreviewable discretion in matters of institution.  Intel did the same in Thryv, arguing that a “decision not to institute review is committed to agency discretion.”

These complications in the case against the NHK-Fintiv rule cast serious doubt on the view that the policy choices embodied in that rule contradict the AIA.

The Choice of Rulemaking vs. Adjudication

Beyond the substance of the USPTO’s policy of sometimes denying inter partes review based on the status of parallel court litigation, there also lies an alternative argument that the policy is procedurally defective.  Here, the challenge springs from the familiar APA values of public input and transparency, which are traditionally accomplished by notice-and-comment rulemaking.  By contrast, the disputed USPTO policy was adopted “by designating the NHK and Fintiv decisions as precedential through a unilateral, internal process that involved no opportunity for public comment and no consideration by the Director of any public input.”

In this regard, the challenge to NHK-Fintiv certainly has merit as a matter of desirable administrative practice, but it is not at all clear that this makes the USPTO’s approach legally deficient.  For over 70 years, the Supreme Court has left the form of policymaking up to agencies themselves.  The Court’s 1947 opinion in SEC v. Chenery Corp. (Chenery II) explained that “the choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency.”

In Chenery II, the Court recognized that “problems may arise in a case which the administrative agency could not reasonably foresee, problems which must be solved despite the absence of a relevant general rule.”  The Court also pointed to a touchstone of agency practice that is especially important to the PTAB—expertise—and noted that “the agency may not have had sufficient experience with a particular problem to warrant rigidifying its tentative judgment into a hard and fast rule.”  Both of these considerations point to adjudication as an acceptable mechanism for making policy.

To be sure, rulemaking offers significant benefits, and not only the public participation and transparency that the present APA challenge cites.  Rulemaking also fosters greater predictability, both by specifying rules more fully in advance and by raising the agency’s own political costs from visibly changing course.  For these reasons, I have argued in my own recent work about Patent Office policymaking that setting PTAB policy through rulemaking, such as the USPTO’s 2018 change to the PTAB’s claim construction standard, will often be preferable to shifting and incrementalist adjudications.

Still, a well advised preference is not the same thing as a legal requirement.  Moreover, though notice-and-comment rulemaking is a direct and well established way of securing public input, it’s not as if PTAB adjudication does not allow for meaningful public input.  The plaintiffs themselves note that members of the public are entitled to nominate PTAB opinions for designation as precedential.

Beyond this, the PTAB has accepted and, at times, even invited amicus curiae briefs in cases of public importance, such as whether tribal sovereign immunity defeats inter partes review.  Similarly, under the current USPTO Standard Operating Procedure No. 2 (Rev. 10), cases before the agency’s Precedential Opinion Panel may also be opened for amicus curiae briefing.  In short, where the USPTO exercises its prerogative to make policy through adjudication, it need not ignore public input to do so.


The APA challenge to the NHK-Fintiv rule, like much of the USPTO’s own recent policymaking, balances a range of important considerations and reaches a position that is coherent and reasonable.  The weakness—if it can be called that—of the challenge is that it represents merely one reasonable position among several, especially given the Supreme Court’s views on agency discretion in general and USPTO discretion in particular.  If the challenge eventually fails to dislodge the disputed policy, then the reason will likely be that, like most agencies, the USPTO enjoys wide latitude that is difficult to paint as unreasonable.

“No License, No Problem” – Is Qualcomm’s Ninth Circuit Antitrust Victory a Patent Exhaustion Defeat?

Guest post by University of Utah College of Law Professor Jorge L. Contreras

The Ninth Circuit’s recent decision in FTC v. Qualcomm (9th Cir., Aug. 11, 2020) is generally viewed as a resounding victory for Qualcomm.  In a strongly worded opinion, the Ninth Circuit reversed the entirety of the district court’s holding, which found that Qualcomm violated Sections 1 and 2 of the Sherman Act.  The Ninth Circuit exonerated Qualcomm with respect to each of its allegedly anticompetitive practices, concluding that these practices merely reflected the flexing of Qualcomm’s “economic muscle” with admirable “vigor, imagination, devotion, and ingenuity” (slip op. at 55).

Among Qualcomm’s challenged practices was its refusal to license rival chip makers under patents that are essential to one or more wireless telecommunications standards (standards-essential patents or SEPs).  While the District Court found that this refusal violated Qualcomm’s antitrust duty to deal under Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985), the Ninth Circuit disagreed.  It reasoned that Qualcomm did not violate any duty to deal because it uniformly refused to grant patent licenses to chip makers and did not “single[] out any specific chip supplier for anticompetitive treatment” (slip op. at 35).

In praising Qualcomm’s egalitarian approach toward rival chip makers, the Ninth Circuit points out that instead of granting licenses to these rivals, Qualcomm merely “declines to enforce its patents” against them “even though they practice Qualcomm’s patents” (id). As such, the Ninth Circuit quips that Qualcomm’s “policy toward rival chipmakers could be characterized as ‘no license, no problem’” (id., emphasis added).  Yet, as I discuss below, this approach could actually be a very big problem, not only for Qualcomm, but for all patent licensors seeking to extract revenue from the most lucrative point in the supply chain.

The Patent Exhaustion Doctrine and Chip Sales

As the Supreme Court explained in Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 625 (2008), “The longstanding  doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item.”  That is, once the patent holder or its authorized licensee sells a product covered by a patent, that patent can no longer be asserted against a downstream buyer or user of the product. The patent is “exhausted” with respect to that particular product.

In Quanta, LG licensed three patents to Intel.  Intel manufactured chips allegedly covered by the patents, then sold the chips to Quanta for incorporation into Quanta’s PCs. LG then attempted to assert the patents against Quanta.  The court held that so long as the Intel chips “substantially embodied the patent[s]”, they were exhausted upon Intel’s sale of the chips to Quanta (553 U.S. at 633).  LG had no right to assert the patents against Intel’s customer Quanta.

Level Discrimination and SEPs

To grossly oversimplify, the supply chain for standardized wireless telecommunications functionality can be divided into three relevant tiers: (1) standards developers, (2) chip manufacturers, and (3) end user device (e.g., smartphone) manufacturers.  Standards developers like Qualcomm cooperate within standards-development bodies to create telecommunications standards like 4G LTE. Chip manufacturers then implement these standards in chipsets, which they sell to device manufacturers for incorporation into smartphones and other consumer devices.

What happens, however, when a standards developer like Qualcomm holds patents (SEPs) that cover a standard like LTE?  In theory, both the chips embodying the standard and the smartphones incorporating those chips infringe its SEPs.  Thus the SEP holder could choose to license those SEPs at either Tier 2 (chip manufacturers) or Tier 3 (device manufacturers). How to choose?

If a SEP holder licenses a chip manufacturer, then its SEPs covering a particular chip will be exhausted as soon as the manufacturer sell that chip to a device manufacturer, just as LG’s patents were exhausted in Quanta.  This means that if the SEP holder licenses a Tier 2 chip manufacturer, it cannot separately license, or collect royalties from, Tier 3 smartphone manufacturers for the same SEPs.  Qualcomm was keenly aware of the risk of patent exhaustion, which is why it refused to grant “exhaustive” licenses to chip makers like Intel. 411 F.Supp.3d at 748, 761.

If SEP royalties were standardized on a per-unit basis (e.g. $0.50 per product embodying the standard), then it would not matter whether the SEP holder licensed its SEPs at Tier 2 or Tier 3.  In either case it would receive the same payment.  However, due to longstanding industry practice, that is not how SEP royalties are calculated. Instead, they are usually based on some percentage (say 2.5%) of the price of the product embodying the standard.  So for a 4G LTE wireless radio chipset priced at $30, the royalty would be $0.75.  But for a $600 iPhone incorporating that chipset, the royalty would be $15.  For this reason, SEP holders strongly prefer to license their SEPs to end device makers (Tier 3).  As explained by one Ericsson licensing executive, “we choose to license the patents as late in value chain as possible …. One big advantage with this strategy is also that it is likely that the royalty income will be higher since we calculate the royalty on a more expensive product.” Or, as more succinctly expressed by a Qualcomm attorney at trial, licensing SEPs to device makers is “humongously” more lucrative than licensing  them to chip makers. 411 F.Supp.3d at 754, 758, 796.  The practice by which a SEP holder licenses its SEPs at only one tier of the supply chain is sometimes called “level discrimination.” (Courts and commentators disagree whether level discrimination is permitted under the nondiscrimination prong of a FRAND commitment – see this article for a discussion).

Pseudo-Licensing Deals with Chip Makers

If a SEP holder licenses its SEPs at Tier 3, what happens to the Tier 2 chip manufacturer? Does the chip that embodies the standard infringe the SEPs?  Yes, probably. Patent exhaustion only works downstream, not upstream.  That is, a smartphone manufacturer can’t infringe a SEP if it purchases a chipset from a licensed chip maker.  But a chip manufacturer can infringe a SEP even if its customer (the smartphone maker) has a license to use it.  Without a license, the Tier 2 chip maker is exposed to infringement claims by the SEP holder.

So what’s a chip maker to do?  Should it manufacture and sell chipsets that embody a standard even though it knows that it is infringing a host of SEPs?  Wouldn’t this infringement be willful, subjecting the chip maker to a risk of treble damages (see Sec. 5.2.1(1) of this chapter for a discussion of willful infringement of SEPs)?  It seems like an untenable situation for a chip maker.

To address this situation, Qualcomm appears to have developed various strategies.  In the 1990s, it granted chip makers purportedly “non-exhaustive licenses” that permitted them to manufacture chipsets covered by Qualcomm’s SEPs (in exchange for a royalty), but which explicitly excluded any license rights for the purchasers of those chipsets (9th Cir., slip op. at 14 n.7).  In Quanta, the Supreme Court rejected such a “non-exhaustive” arrangement between LG and Intel, holding that LG’s patent rights were exhausted upon Intel’s sale of covered chips to Quanta.  After this, Qualcomm amended its practices and began to enter into “CDMA ASIC Agreements” with chip makers. Under these agreements, “Qualcomm promises not to assert its patents in exchange for the company promising not to sell its chips to unlicensed [smartphone manufacturers]” (9th Cir., slip op. at 14, emphasis added).  According to the Ninth Circuit, these agreements “allow Qualcomm’s competitors to practice Qualcomm’s SEPs royalty-free” (id.).  Or, as the court pithily observed, Qualcomm’s “policy toward rival chipmakers could be characterized as ‘no license, no problem’” (id. at 35).

The Ninth Circuit found that because Qualcomm applied its “no license, no problem” policy uniformly toward all rival chip makers, it did not violate the antitrust laws.  But did Qualcomm, instead, open the door to a finding that its patents are exhausted at the chip maker level?

Do SEP Makers Inadvertently Grant Exhaustive Licenses to Chip Makers?

As observed by the Ninth Circuit, Qualcomm “promises not to assert” its SEPs against chip makers.  Its CDMA ASIC Agreements allow chip makers “to practice Qualcomm’s SEPs royalty-free”.  Ericsson, which employs a similar form of level discrimination, has referred to the result as “indirect licensing” of chip manufacturers (see Ericsson v. D-Link, 2013 U.S. Dist. LEXIS 110585, *80 (E.D. Tx. 2013)).

In assessing whether a patent has been licensed, courts have generally looked beyond the language used by the parties.  As the Supreme Court reasoned in De Forest Radio Telephone Co. v. United States, 273 U.S. 236, 241 (1927), “No formal granting of a license is necessary in order to give it effect. Any language used by the owner of the patent, or any conduct on his part exhibited to another from which that other may properly infer that the owner consents to his use of the patent in making or using it, or selling it, upon which the other acts, constitutes a license”.

A number of lower court cases have equated a license to a ‘covenant not to sue’.  As the Federal Circuit held in Ortho Pharmaceutical Corp. v. Genetics Institute, Inc., 52 F.3d 1026, 1031 (Fed. Cir. 1995), “A license may amount to no more than a covenant by the patentee not to sue the licensee for making, using or selling the patented invention.”

Given this precedent, SEP holders’ practice of tacitly permitting chip manufacturers to operate under their patents, whether by promising not to assert or “indirectly” licensing, looks suspiciously like licensing.  And, if SEP holders are granting chip manufacturers licenses to make and sell chips under their SEPs, then those SEPs should, by rights, be exhausted upon the sale of those chips to smartphone and other device manufacturers.  And this exhaustion should thereby prevent SEP holders from seeking to license and collect royalties from Tier 3 device manufacturers who incorporate those chips into their smartphones and other products.

This result should come as no surprise to anyone, least of all Qualcomm.  According to the District Court, a Qualcomm executive admitted to the IRS in 2012 that “if Qualcomm licensed a rival [chip manufacturer] … ‘[W]hen [the rival] sell[s] that chip to somebody who’s going to put the chip in a cell phone, okay, the licensee’s sale of that chip will exhaust our rights and then we won’t be able to collect a royalty on a cell phone that’s based on the price of the cellphone’” (411 F.Supp.3d at 796).  When Huawei apparently asserted that Qualcomm’s SEPs were exhausted after selling chips to Huawei, Qualcomm allegedly “threatened to cut off [Huawei’s] chip supply” (id. at 712).

These statements and actions indicate that Qualcomm was well-aware of the threat of patent exhaustion, and actually took measures to avoid the appearance of exhaustion (e.g., by converting its chip maker license agreements into CDMA ASIC Agreements).  Yet in trying to rebut the antitrust allegations made against it, and to overturn the District Court’s antitrust holdings, Qualcomm seems to have persuaded the Ninth Circuit that it effectively grants licenses to rival chip manufacturers. And, in doing so, Qualcomm may have armed its next smartphone licensee with a potent exhaustion defense to any claim of infringement.  Ultimately, “no license, no problem” may cause big problems for Qualcomm and other SEP holders that seek to license only at the most lucrative level of the supply chain.

Inventorship as the Wind Blows

Egenera, Inc. v. Cisco Systems, Inc. (Fed. Cir. 2020)

Egenera’s network system architecture patent (US7231430) lists eleven inventors.  Back in 2016, Energa sued Cisco for infringement, and Cisco responded with an IPR petition.  At that point, Egenera “realized that all claim limitations had been conceived before one listed inventor, Mr. Peter Schulter, had started working there.”  Egenera’s underlying concern in the case was its ability to prove an early pre-filing invention date.

It is apparent that at least part of Egenera’s motivation to remove Mr. Schulter was to facilitate swearing behind  “Grosner,” a piece of prior art asserted against Egenera in the IPR.

Slip op.  The PTAB declined to institute the IPR, but the PTO did grant the petition to remove Shulter.

Back in the district court, Cisco argued that Shulter was actually an inventor (of the claimed tripartite structure) and that the patent was therefore invalid under pre-AIA 102(f).  At that point, Egenera suggested that Shulter be conditionally re-listed as an inventor:

The [district] court … rejected Egenera’s argument that if the trial showed Mr. Schulter to be an inventor, the patent’s inventorship should be corrected under 35 U.S.C. § 256(b). The court reasoned that judicial estoppel precluded Egenera from “resurrect[ing]” Mr. Schulter’s inventorship.

Slip Op.  The district court did subsequently determine that Shulter had conceived of the claimed structure, that Egenera was judicially estopped from adding him back as an inventor, and that the patent claims were therefore invalid.

Section 256 of the Patent Act was modified in the AIA (2011) to remove “deceptive intent” from the inventor-correction provision. The statute now allows correction of an “error” of omitting a named inventor and does not require that “such error arose without any deceptive intention on his part“.   The statute goes on to explain that the error “shall not invalidate the patent in which such error occurred if it can be corrected.”  Although Energa’s patent is a pre-AIA patent, the modification here applies to old patents.

The district court found that the removal of Mr. Shulter was a strategic and deliberate decision — and therefore not an error.  In addition, the district court found that the inventorship “tactical ploy” created an estoppel to present the second Shulter from being added back.

Regarding Error: Deliberate and calculated acts are often in error.  And the law of inventorship allows for correction of those errors — even if they were “dishonest” errors. Thus, the removal of Shulter counts as an “error” under the statute that may be corrected.

Judicial Estoppel: Judges are given some discretion in applying judicial estoppel regarding changing of arguments during litigation. However, there is a usual three-element test:

  1. Are the two positions clearly inconsistent with one another?
  2. Did the party succeed in persuading the court to accept the first position?
  3. Would the party receive an unfair advantage if not estopped?

1. Clearly Inconsistent: Originally Egenera listed Shulter as an inventor of the claims; Later they argued he should not be listed as an inventor of the same claims; finally they argued that he should be relisted as an inventor, still the same claims.  At first (and second) glance, these appear clearly inconsistent.

In reviewing these elements, the Federal Circuit found no clear inconsistency. In particular, the court explained that the district court’s claim construction and development of inventorship facts. In particular, the court had, over Egenera’s objection, interpreted a certain claim term as means-plus-function. That interpretation tied the claim to embodiments in the specification conclusively linked Shulter to the invention.  The court notes that changes in “the law” excuse inconsistency.  Since claim construction is a question of law, then it apparently serves as an excuse.

2. Acceptance of the First Position: Although the PTO accepted the change in inventorship, the Federal Circuit held that the PTO’s actions here do not serve as judicial action. Rather, the PTO did not truly examine the facts of the situation — instead it simply “agreed that all the signatures and fees were in order.”  As such, the second requirement of “persuading the court to accept” was not met.

3. Unfair Advantage: The court here could also find no unfair advantage taken by the inconsistent positions.  In particular, although Shulter was dropped in order to gain some advantage in the IPR, the IPR was actually denied before the change in inventorship was approved. Although arguments were made regarding the issue in the petition, the PTAB apparently denied the petition “without addressing Egenera’s priority arguments.”  The appellate panel writes that “Things might be different had Egenera succeeded in swearing behind the prior art. . . . But that is not this case.”

Since none of the factors point toward estoppel, the appellate panel found that it was improperly applied. On remand, the district court will need to allow inventorship to be amended and then reconsider validity and infringement.

The UK Supreme Court’s Re-interpretation of FRAND in Unwired Planet v. Huawei

Guest post by University of Utah College of Law Professor Jorge L. Contreras

In its Judgment of 26 August 2020, [2020] UKSC 37, the UK Supreme Court affirms the lower court decisions ([2017] EWHC 711 (Pat) and [2019] EWCA Civ 38) in the related cases Unwired Planet v. Huawei and ZTE v. Conversant [I discuss the High Court’s 2017 decision here].  The judgment largely favors the patent holders, and holds that a UK court may enjoin the sale of infringing products that incorporate an industry standard if the parties do not enter into a global license for patents covering that standard. The court covers a lot of important ground, including the parties’ compliance with EU competition law under Huawei v. ZTE (CJEU, C-170/13, 2015) (¶¶ 128-158) and the appropriateness of injunctive remedies under UK law (¶¶ 159-169). But in this post, I will focus on what I consider to be the most significant aspect of the court’s judgment – its interpretation of the patent policy of the European Telecommunications Standards Institute (ETSI), an interpretation that largely determines the outcome of the case and could have far-reaching ramifications for the technology sector.


The case began in 2014 when Unwired Planet, a U.S.-based patent assertion entity (PAE), sued Huawei and other smartphone manufacturers for infringing UK patents that it acquired from Ericsson (other suits were brought elsewhere). The patents were declared essential to the 2G, 3G and 4G wireless telecommunications standards developed under the auspices of ETSI, an international standards-setting organization (SSO).  A companion case was brought by another PAE, Conversant, with respect to similar patents that it acquired from Nokia.

Because Ericsson and Nokia participated in standards-development through ETSI, they were bound by ETSI’s various policies, including its patent policy.  Accordingly, when the patents were acquired by Unwired Planet and Conversant, these policies continued to apply.  The ETSI patent policy requires that ETSI participants that hold patents that are essential to the implementation of ETSI standards (standards-essential patents or SEPs) must license them to implementers of the standards (e.g., smartphone manufacturers) on terms that are “fair, reasonable and non-discriminatory” (FRAND).

Huawei and ZTE are China-based smartphone manufacturers with operations in the UK.  Unwired Planet and Conversant offered to license the patents to them on a worldwide basis, but the manufacturers objected to their proposed royalty rates, claiming that they were not FRAND. Among other things, Huawei argued that any license entered to settle the UK litigation should cover only UK patents.  After numerous preliminary proceedings, in 2017 the UK High Court (Patents) held that a FRAND license between large multinational companies is necessarily a worldwide license. Moreover, if Huawei did not agree to such a worldwide license incorporating FRAND royalty rates determined by the court, the court would enter an injunction against Huawei’s sale of infringing products in the UK. The Court of Appeal largely affirmed the High Court’s ruling.

The UK Supreme Court Embraces SSO Policy Interpretation

In its judgment, the UK Supreme Court gives significant weight to the language and intent of the ETSI patent policy – far more than either the High Court of the Court of Appeal.  This approach contrasts starkly with that of the U.S. Court of Appeals for the Ninth Circuit, which decided another FRAND case, FTC v. Qualcomm (9th Cir., Aug. 11, 2020), just a fortnight earlier.  The Ninth Circuit explicitly dodged any interpretation of the SSO policies at issue in that case (those of the Telecommunications Industry Association (TIA) and Alliance for Telecommunications Industry Solutions (ATIS)), focusing solely on the antitrust issues raised by the parties.  The UK Supreme Court, in contrast, appears to have embraced the exercise of SSO policy interpretation, focusing intently on the language and drafting history of the ETSI policy, as well as its own conclusions about the intent of that language.  This judicial interpretive exercise leads to three key holdings in the case:

ETSI’s Policy Compels a Worldwide License

In determining that a FRAND license between Unwired Planet and Huawei should be global in scope, rather than limited to the UK, Mr Justice Birss of the UK High Court looked to industry practice and custom. He first noted that “the vast majority” of SEP licenses in the industry, including all of the comparable licenses introduced at trial, were granted on a worldwide basis, and both Unwired Planet and Huawei are global companies.  He then reasoned that “a licensor and licensee acting reasonably and on a willing basis would agree on a worldwide licence” (¶543).  In contrast, he regarded the prospect of two large multinational companies licensing SEPs on a country-by-country basis to be “madness” (¶543). Accordingly, the High Court held that  a FRAND license, under these circumstances, must be a worldwide license.

The UK Supreme Court acknowledges the industry practices referenced by the High Court, but bases its reasoning much more heavily on ETSI’s patent policy. First the Supreme Court recognizes the inherent territorial limitations on the jurisdiction of national courts (¶58). However, it is the ETSI patent policy, adopted by the SSO and accepted by its participants, that opens the door both to the consideration of industry practices (¶61) and the extension of national court jurisdiction to the determination of global royalty rates. The Court concludes, “[i]t is the contractual arrangement which ETSI has created in its patent policy which gives the [English] court jurisdiction to determine a FRAND licence” for a multi-national patent portfolio (¶58).  Thus, the Supreme Court affirms the decisions of the lower courts, but grounds its decision more firmly in the ETSI patent policy.

ETSI’s Policy Contemplates Injunctions

The Supreme Court also relies on the ETSI patent policy to support its conclusion that SEP holders may seek injunctions against standards implementers who do not enter into FRAND license agreements. The availability of injunctions in FRAND cases has been the subject of considerable debate in jurisdictions around the world. The UK court comes down in favor of allowing such injunctions, not on the ground that patent holders can do whatever they like, but because “[t]he possibility of the grant of an injunction by a national court is a necessary component of the balance which the [patent] policy seeks to strike, in that it is this which ensures that an implementer has a strong incentive to negotiate and accept FRAND terms for use of the owner’s SEP portfolio” (¶61).

This conclusion is striking in two regards.  First, it largely omits the analysis of EU competition law that typically accompanies the consideration of injunctive relief in EU FRAND cases.  While the Court later discusses Huawei v. ZTE at length (¶¶ 128-158), it does so while analyzing whether the parties violated applicable competition law, not whether competition law itself establishes a basis for seeking injunctive relief.

Second, and more surprisingly, the Court imputes to the ETSI patent policy an affirmative authorization to seek injunctive relief that is found nowhere in the policy itself.  From the fact that the patent policy includes provisions that are favorable to both implementers and SEP holders, the Court finds that the policy intended to establish a “balance” between these two groups, and that a “necessary component” of that balance is the ability of the SEP holder to seek an injunction against the implementer.

This is a surprising result that was not forecast in either of the decisions below. It is particularly significant because it may influence other courts’ interpretations of the ETSI patent policy.  It may also encourage other SSOs, if not ETSI itself, to adopt policy language expressly prohibiting participants from seeking injunctive relief against adopters of their standards (as IEEE has already done).

 Non-Discrimination is Not a Stand-Alone Commitment

The third significant aspect of the judgment relates to the non-discrimination (-ND) prong of the ETSI FRAND commitment.  At the High Court, Mr Justice Birss held that the -ND part of a FRAND commitment does not have a “hard edge”, which would mandate that every FRAND license must be priced at exactly the same rate. Instead, based on EU competition law, he found that differences in pricing should not be objectionable unless they distort competition.  As such, he did not fault Unwired Planet for pricing some FRAND licenses below the rates that it offered to Huawei.

I disagreed with Justice Birss’s reasoning on this point in 2017, arguing that it “conflate[s] two issues: the competition law effects of violating a FRAND commitment, and the private “contractual” meaning of the FRAND commitment itself.” I was thus pleased to see that the UK Supreme Court looks not to competition law, but to the content of the ETSI patent policy, to define the scope of the SEP holders’ non-discrimination obligation.

This being said, the Court’s interpretation of “non-discrimination” is novel and somewhat radical.  Rather than considering the -ND prong of FRAND to be an independent commitment of the SEP holder – that the licenses it grants not discriminate (however that is defined) — the Court blends the -ND prong  together with the “fair and reasonable” (FRA-) prong to form a “general” obligation.  It explains,

Licence terms should be made available which are ‘fair, reasonable and non-discriminatory’, reading that phrase as a composite whole. There are not two distinct obligations, that the licence terms should be fair and reasonable and also, separately, that they should be non-discriminatory. Still less are there three distinct obligations, that the licence terms should be fair and, separately, reasonable and, separately, non-discriminatory” (¶113 (emphasis added)).

As evidence for its interpretation, the Court points to ETSI’s rejection, in 1993, of a ‘most-favored license’ clause in its patent policy.  Interpreting the policy’s non-discrimination commitment as a ‘hard edged’ commitment would, in the Court’s view, re-introduce most-favored treatment “by the back door” (¶116).  As a result, the Court concludes that the non-discrimination prong of ETSI’s FRAND commitment merely “gives colour to the whole and provides significant guidance as to its meaning. It provides focus and narrows down the scope for argument about what might count as ‘fair’ or ‘reasonable’ for these purposes in a given context” (¶114).

As far as I am aware, the elimination of non-discrimination as a separate pillar of the FRAND obligation is at odds with both U.S. case law and the academic literature that address this issue (an overview can be found here).  The Court’s reasoning also contradicts the explicit concerns of the European Commission, which emphasized the importance of non-discrimination during debates over the ETSI patent policy in 1992:

Terms and conditions applied to participants and non-participants should not significantly discriminate against the latter. A fortiori where the standard-making body acts in an official or quasi-official standard-making capacity and where its standards are recognized and even made compulsory by virtue of legislation, access to the standard must be available to all without a precondition of membership of any organization (Communication from the Comm’n, Intellectual Property Rights and Standardization at p. 19, 27 Oct. 1992).

Clearly, the Commission did not view non-discrimination simply as giving color to the meaning of ‘fair and reasonable’.  On the contrary, non-discrimination, standing alone, is among the most important features of the FRAND commitment.  The UK Supreme Court’s interpretation to the contrary is thus highly problematic.


While I applaud the UK Supreme Court’s shift from a focus on competition law to the language and intent of the ETSI patent policy, I am concerned about its conclusions regarding the authority of one country’s courts to determine global FRAND rates, the availability of injunctive relief against standards implementers and the demotion of non-discrimination as an independent prong of the FRAND analysis.

One silver lining in this cloud, perhaps, is that the Court’s judgment, which relies so heavily on the particulars of the ETSI policy, is thus limited to the ETSI policy.  It is unclear how much weight its findings would have for a court, whether in the UK or elsewhere, assessing participants’ obligations under FRAND policies adopted by different SSOs such as TIA and ATIS (as in FTC v. Qualcomm), not to mention SSOs such as IEEE that have adopted language expressly contravening some of the interpretations that the Court makes with respect to ETSI.

In fact, the Court seems to invite SSOs to re-evaluate their patent policies.  Huawei objected to the UK court’s determination of global FRAND rates because, among other things, permitting a national court to resolve a global dispute could promote “forum shopping, conflicting judgments and applications for anti-suit injunctions” (¶90).  The Court tacitly agrees, but then pushes back, seeming to blame SSOs for allowing this to happen:

“In so far as that is so, it is the result of the policies of the SSOs which various industries have established, which limit the national rights of a SEP owner if an implementer agrees to take a FRAND licence. Those policies … do not provide for any international tribunal or forum to determine the terms of such licences. Absent such a tribunal it falls to national courts, before which the infringement of a national patent is asserted, to determine the terms of a FRAND licence. The participants in the relevant industry … can devise methods by which the terms of a FRAND licence may be settled, either by amending the terms of the policies of the relevant SSOs to provide for an international tribunal or by identifying respected national IP courts or tribunals to which they agree to refer such a determination” (¶90).

In this regard, I wholeheartedly agree with the Court. I have long advocated the creation of an international rate-setting tribunal for the determination of FRAND royalty rates.  I continue to believe that such a tribunal, if supported by leading SSOs, would eliminate much of the inter-jurisdictional competition and duplicative litigation that currently burdens the market.  If the UK Supreme Court’s judgment in Unwired Planet encourages ETSI and other SSOs to endorse such an approach, then this could be the most significant outcome of the case.

IPR: Not a Taking; Not an Illegal Exaction

by Dennis Crouch

Christy, Inc. v. US (Fed. Cir. 2020)

David McCutchen is the inventor of U.S. Patent No. 7,082,640 – a shop-vac that can reverse the air flow (back-flush) in order to clear the filter.  The video below shows how this is implemented.  McCutchen passed-away in 2019, but assigned his patent to his company – Christy, Inc. – which is apparently named after his daughter (Christy).

The patent here issued in 2003 — well before the AIA was even a concept.  However, when Christy attempted to enforce its patent against Black & Decker, the company turned around and petitioned for inter partes review. The PTAB cancelled most of the patent claims — a judgment affirmed on appeal without opinion.

At that point, Christy filed a class-action lawsuit in the Court of Federal Claims (CFC) against the U.S. Government — alleging that the cancellation constituted a 5th Amendment taking that required compensation.

nor shall private property be taken for public use, without just compensation.

U.S. Const. 5th Amendment.  In Oil States, the Supreme Court explained that patents are a “public right” also known as a “public franchise” rather than being pure “private property.” However, the Oil States majority was careful to cabin-in that decision only to the question presented in the case.

We emphasize the narrowness of our holding. We address the constitutionality of inter partes review only. . . . [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 Services, LLC v. Greene’s Energy Group, LLC, 138 S. Ct. 1365, 1379 (2018).  In its decision in Christy, the CFC sided with the Gov’t and found that IPR cancellation is not a compensable taking. This result comports with the Court’s prior decisions in Celgene Corp. v. Peter, 931 F.3d 1342, 1360 (Fed. Cir. 2019), cert. denied, 19-1074, 2020 WL 3405867 (U.S. June 22, 2020) and Golden v. United States, 955 F.3d 981 (Fed. Cir. 2020).   I’ll note that the not-a-taking holding is based upon the Federal Circuit’s legal conclusion that “IPRs do not differ sufficiently” from inter partes and ex parte reexaminations available pre-AIA.

The illegal exaction theory is interesting — Christy asks for a refund of its issuance and maintenance fees.  Since this is a class-action, that amount could add-up if we look at all of the patent claims cancelled via IPR.

On appeal, the Federal Circuit found that the CFC does have jurisdiction to hear the illegal exaction case under the Tucker Act, but found that the case lacks merit.

An illegal exaction occurs when money is “improperly paid, exacted, or taken from the claimant in contravention of the Constitution, a
statute, or a regulation.” Norman v. United States, 429 F.3d 1081 (Fed. Cir. 2005).  Given that the Board did not violate Christy’s Fifth Amendment rights by canceling its patent claims, Christy asserts no constitutional provision, statute, or regulation that the PTO violated by failing to refund Christy’s issuance and maintenance fee payments for the ’640 patent. Instead, Christy is left to contend that the PTO’s requiring Christy to pay issuance and maintenance fees for the ’640 patent was in error, and therefore the fees should be refunded. . . .

Christy’s argument fails because the law requires payment of these issuance and maintenance fees without regard to any later result of post-issuance proceedings, see, e.g., 35 U.S.C. §§ 41, 151. Christy identifies no statute, regulation, or constitutional provision compelling the fees’ refund if claims are later canceled in post-issuance proceedings.

Slip Op.




CAFC: IPR Cancellation Is not a 5th Amendment Taking

CHRISTY, INC. v. US (Fed. Cir. 2020)

I’ll add more on this case. The holding is big, but expected. Cert petition to SCOTUS coming this fall:

Christy, Inc. asserts that the United States owes it just compensation for the Patent Trial and Appeal Board’s cancellation of claims 1–18 of Christy’s patent, U.S. Patent No. 7,082,640, in two inter partes reviews. Because the cancellation of a patent in an inter partes review does not grant the patentee any compensable claim against the United States, we affirm the Court of Federal Claims’s dismissal of the case for failure to state a claim.

Slip Op.


Doubling Up: Federal Circuit Mischaracterizes both its own Precedent and the Lower Court Ruling

by Dennis Crouch

I am struggling somewhat to wrap my head around the Federal Circuit’s recent claim preclusion decision in Sowinski v. California Air Resources Bd. (CARB) (Fed. Cir. 2020).   I believe that it turns out to be a really poor decision — probably prompted by poor lawyering in the first-place.  In particular, the court reaches its result here only after mischaracterizing both (1) the lower court holding and (2) its own prior precedent.

Claim preclusion always involves (at least) two lawsuits.  Here, Sawinski’s first lawsuit against CARB was dismissed “with prejudice” for lack of subject-matter-jurisdiction based on sovereign immunity (12(b)(1)) and also for failure to state a claim upon which relief can be granted (12(b)(6)).  Sowinski later re-filed his lawsuit — but focusing on subsequent acts of alleged infringement that occurred after the prior case ended.  The district court dismissed on res judicata and the Federal Circuit here affirms.

Sowinski’s Patent No.  6,601,033 claims a pollution credit system that he argues is infringed by California’s Cap-and-Trade Program.

Sowinski originally sued CARB (and others) for patent infringement in California state court. The defendants first removed the case to Federal Court and then moved for dismissal for lack of subject matter jurisdiction and failure to state a claim.  One minor note about that filing is that Kamala Harris represented CARB in her role as California AG.

After some wrangling, Sowinski failed to respond to the motion to dismiss and the district court subsequently dismissed the case.  In dismissing, the C.D.Cal. court pointed to a local rule that “failure to file any required document, or the failure to file it within the deadline, may be deemed consent to the granting or denial of the motion . . . .”  And, the court dismissed the case “with prejudice.”  That dismissal was affirmed by the Federal Circuit back in 2017 — with the court noting that Sowinski had recognized that the Motion to Dismiss was potentially dispositive but still failed to oppose.

Sowinski then re-filed the lawsuit which was dismissed on res judicata grounds.  On appeal, Sowinski raised two arguments.

[Sowinski] raises two principal arguments:

(1) that res judicata does not apply because his present complaint seeks damages only for infringement that occurred after conclusion of his prior suits and

(2) that res judicata does not apply because the prior suit was resolved on procedural grounds, without reaching the merits of infringement.

Failure to Prosecute Was not the Reason: Taking these grounds in reverse-order.  In its decision here, the Federal Circuit characterized the original court’s dismissal as one of failure-to-prosecute.  And, there is prior precedent supporting claim preclusion following from dismissal on those grounds.

Federal Rule of Civil Procedure 41(b) provides that a dismissal for failure to prosecute “operates as an adjudication on the merits,” with exceptions not here applicable

Slip Op. The problem with the court’s holding here is that it somehow failed to delve into the details of the three-page dismissal order. [DismissalOrder].

Contrary to the appellate panel’s statements here, the original case was not dismissed for failure to prosecute. Rather the case was dismissed for failure state a claim and lack of subject matter jurisdiction. But, those motions were granted because of Sowinski’s failure to oppose.  The distinction is appropriate because R.41(b) (quoted by the Federal Circuit in its decision) distinguishes between the two scenarios: Dismissals for failure to prosecute are treated as “adjudication[s] on the merits.” Dismissals for “lack of jurisdiction” are not treated as such. FRCP 41(b).  The court should pick-up this case a second time and consider the impact of lack-of-jurisdiction on the res judicata question or else explain how the issue was waived (and is waivable).

Later Infringement: The court also held that Sowinski was barred from pursuing action against post-judgment infringement — so long as the infringing activity was the same.  The court quoted a 10% rule of thumb from the 9th Circuit:

[T]he plaintiff alleges facts which by the defendants’ own concession are at least 10 percent different from the facts alleged in Harkins I, and, of course, the plaintiff alleges conduct that occurred in a different time period.

Harkins Amusement Enters., Inc. v. Harry Nace Co., 890 F.2d 181 (9th Cir.
1989) (finding no preclusion).

Here, Sowinski did not allege any different behavior by the defendants except that it occurred after the original lawsuit.  So — less than 10% difference.   The oddity of the decision is that it then draws in what seem to be issue preclusion and Kessler doctrine principles:

[W]hen the act has been adjudged not wrongful, its repetition cannot be challenged in a subsequent suit. . . .

Here the accused CARB activity had been held not to be infringing, for Dr. Sowinski’s failure to respond to the motions to dismiss was treated as a judgment on the merits.

Slip Op.  I’ll note here that the district court did not actually make any ruling regarding infringement, but instead dismissed the case on other grounds. Thus, while the infringement claim may have been dismissed on the merits, it is entirely improper to state that there was any holding of “non-infringement.”

The appellate court goes-on with this point by citing to Brain Life, LLC v. Elekta Inc., 746 F.3d 1045 (Fed. Cir. 2014). The panel applied Brain Life as follows:

[T]he [Brain Life] court considered the effect of a prior judgment of non-infringement; the court explained that preclusion does not apply to new or changed products or methods, but does apply when the accused products or methods are essentially the same.

Slip Op. Citing Brain Life at 1054. It turns out that Brain Life actually holds the opposite.

[W]e find that Brain Life’s second suit is not barred by claim preclusion—regardless of whether the same transactional facts are present in both suits—to the extent Brain Life’s current infringement allegations are temporally limited to acts occurring after final judgment was entered in the first suit. . . .

[T]raditional notions of claim preclusion do not apply when a patentee accuses new acts of infringement, i.e., post-final judgment, in a second suit—even where the products are the same in both suits.

Id. at 1054.  The holding here is completely the opposite to what the Sowinski court described.

Now, the court in Brain Life does go on to apply the Kessler Doctrine to prohibit re-litigation of the infringement question for post-judgment products, but only after holding particularly that its decision is outside of the traditional bounds of claim preclusion.  In Sowinski, the court does not cite the Kessler Doctrine as the basis for its decision, but rather misapplies the court’s claim preclusion precedent.

= = = = = =

In the end, Sowinski probably should lose anyway – because the patent is invalid under contemporary eligibility analysis.

1. A data processing apparatus for establishing one of a pollution offset and tax offset, for a seller using gas within gas distribution system of a home, business or the like, to bring about a reduction of known pollutants being emitted into the atmosphere associated with said seller’s home, business or the like, on a day-to-day basis or on a catastrophic basis, comprising:

(a) a central controller including a CPU and a memory operatively connected to said CPU,

(b) at least one terminal adapted for communicating with said central controller for transmitting thereto, pollution credit or tax credit information to gain a conditional pollution reduction credit (“CPRC”) for said seller,

(c) said memory containing a program adapted to be executed by said CPU for

(1) authenticating legal basis of the energy efficiency means employed against a data base of eligible energy efficiency means,

(2) authenticating the eligibility of the seller against a data base of eligible sellers,

(3) if the energy efficiency means relates to non-filtering of pollutants, generating a CPRC for tax credit offset purposes for said seller as a function of a seller identifier,

(4) if the energy efficiency means relates to filtering of pollutants, determining the eligibility of each pollutant against a pollutant data base,

(5) determining the amounts of reduction of each eligible pollutant normalized to a standard time duration;

(6) generating a CPRC for each pollutant based on (5), and

(7) storing each CPRC generating at (3) and (6) as a function of a seller identifier which may include a seller’s credit card number,

whereby economic incentive has been provided to said seller to bring about a substantial reduction of emission of pollutants to the atmosphere whether on a day-to-day basis or on a catastrophic basis.

Dr. Sowinski is the listed inventor on a number of other patents that all relate to technical aspects of gas and gas distribution.   In a separate lawsuit, Sowinski sued cereal manufacturers Post, General Mills, and Kellogg– arguing that their products should include a Cancer warning under California’s Proposition 65 because of their acrylamide content.  That case was dismissed on preemption grounds. In particular, the California appellate court found the existence of a comprehensive federal scheme promoting consumption of whole grains to preempt the marking requirement. Post Foods, LLC v. Super. Ct., 235 Cal. Rptr. 3d 641, 644 (Cal. App. 2d Dist. 2018), as modified on denial of reh’g (Aug. 15, 2018), review denied and ordered not to be officially published (Oct. 31, 2018).


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

by Dennis Crouch

This is a quirky case, but the holding is troubling — that a patent owner’s state of residence can prohibit the patentee from using the federal courts to assert their patent rights.  I would think the 14th Amendment is on point: “nor shall any State deprive any person of life, liberty, or property, without due process of law.”

Walter Tormasi v. Western Digital Corp. (Fed. Cir. 2020)

Tormasi is serving a live sentence at the Maximum Security New Jersey State Prison in Trenton for murdering his mother. Tormasi is also a patentee — his U.S. Patent No. 7,324,301 covers a particular disk drive construction — and the claims appear quite broad.

In 2019, Tormasi sued Western Digital in N.D. Cal. for patent infringement seeking $5 billion in damages.  The district court quickly dismissed the case — holding that Tormasi lacks the capacity to sue to enforce his patent rights.  On appeal, the Federal Circuit has affirmed.  Here is the logic:

  • FRCP 17(b)(1) indicates that an individual’s capacity to sue or be sued is determined “by the law of the individual’s domicile.” For Tormasi, that is New Jersey.
  • Although N.J. has a broad capacity-to-sue statute, N.J. law also prohibits inmates from “commencing or operating a business … without the approval of the Administrator.” N.J. Admin. Code § 10A:4-4.1.  No approval has been granted.
  • Joining these two laws together, the court held that Tormasi’s lawsuit here is a continuation of his business activities and thus prohibited by the “no business” provision. And, the court tied this to his capacity-to-sue — holding that his enforcement lawsuit is simply prohibited.

Truthfully, this holding makes very little sense from a statutory construction approach.  It is not surprising that neither judge in the majority (Wallach or Chen) were willing to sign as the opinion author.

Judge Stoll penned a short dissent — explaining that New Jersey’s capacity to sue statute should govern here, and there is no indication that the prohibition of in-prison business was designed to further limit someone’s capacity to use the Federal Court system. “It makes little sense to narrow the New Jersey statute on capacity to sue in light of the ‘no business’ rule, which is an administrative rule of the Department of Corrections that prescribes sanctions for certain ‘prohibited acts.'”

We also have the particular issue here of Federal Patent Rights and the state’s role in limiting a patent owner from asserting and enforcing those rights.

Rather than really addressing the issue, the unsigned majority opinion concluded that Tormasi had waived the argument:

  • Majority: Mr. Tormasi did not argue to the District Court that the “no business” rule cannot generally limit the scope of an inmate’s capacity to sue. The argument is, accordingly, waived, and Mr. Tormasi has therefore conceded that the no business rule may limit his capacity to sue.
  • Dissent: To the contrary, in his briefing to the district court, Mr. Tormasi asserted that the “no business” rule “was never intended to supersede [his] right to file civil lawsuits in his personal capacity.”

The majority also explained that Tormasi abandoned his constitutional arguments on appeal.

How Much Nexus is Too Much Nexus?

by Dennis Crouch

Great question in the new Supreme Court petition of SRAM, LLC v. FOX Factory, Inc.  The Federal Circuit has tightened its belt on Secondary Indicia of nonobviousness — only rarely finding that the claimed indicia are closely enough tied to the claims at issue and creating additional hoops of proof for the patentee. The petition argues that those requirements go beyond the statute and Supreme Court precedent. When I wrote about the original 2019 FedCir decision, I explained that This is “not a good case for patent holders.”

The court here again raised the “nexus” hurdle by holding that a presumption of nexus can only be achieved by proving that the product being sold by the patentee is “essentially the claimed invention.”

Dennis Crouch, Nexus: Product must be “Essentially the Claimed Invention”, Patently-O (December 18, 2019).

New Question Presented:

In Graham v. John Deere Co. of Kansas City, 383 U.S. 1 (1966), this Court recognized the pivotal importance of “objective indicia” of nonobviousness (also known as “secondary considerations”) – including the long-felt but unsolved need for the patented invention, the failure of others to arrive at the invention, and the invention’s subsequent commercial success – in determining whether a patent’s claims were obvious to a person of ordinary skill in the art at the time of the invention under 35 U.S.C. § 103.

In this case, the Federal Circuit effectively undermined this Court’s standard by improperly creating a new categorical and overly restrictive limitation on the consideration of objective indicia of nonobviousness that exists nowhere in the Patent Act or this Court’s jurisprudence.

The question presented is:

Whether the Federal Circuit erred in holding that, under 35 U.S.C. § 103, before a nexus can be presumed between objective indicia of nonobviousness and the patent claim, a patentee must first prove that a commercial product is “essentially the claimed invention” – to the exclusion of all other product features.

SRAM petition for cert.


Nexus: Product must be “Essentially the Claimed Invention”

Immediate Appeal of Denied Dismissal

The pending appeal in AlexSam, Inc. v. HealthEquity, Inc., Docket No. 20-00146 (Fed. Cir. 2020), offers some interesting questions for the Federal Circuit.

As Patently-O readers are aware, lots of patent infringement lawsuits have been ending very quickly – with courts ruling that plaintiffs patents are directed to ineligible subject matter and therefore cannot support a patent infringement claim.  In this case, the patentee AlexSamwanted to ensure that it stated-a-claim and so added page-after-page to its initial complaint explaining inventiveness of its asserted US6000608. (Excerpt below).

Despite the full explanation, the defendant (HealthEquity) moved to dismiss on eligibility grounds and as a matter of law.  The district court sided with the patentee and denied the motion to dismiss — finding that the complaint included “plausible factual allegations” sufficient to avoid dismissal at such a preliminary stage.

[E]ven if the claims here are directed toward an abstract idea, the court cannot find as a matter of law at this early stage of the litigation that the claims are ineligible for patent protection. . . .

[The court then found that none of the the individual claim limitations included anything new, and then continued:] When considering the elements as “an ordered combination,” however, the court cannot find as a matter of law that the claims reflect “conventional, routine, and well understood applications in the art.” To be sure, the ordered combination of elements described by the claims may seem conventional today, but inventiveness is determined “at the time of the patent,” Berkheimer—not a generation later. The court finds it plausible that, even if each element of the claims was itself conventional, the ordered combination and specific arrangement of these conventional pieces described by claims was “non-conventional and nongeneric” at the time of invention. Bascom (holding that “an inventive concept can be found in the non-conventional and non-generic arrangement of known, conventional pieces”).

AlexSam Dismissal Denial Utah.

The district court case is ongoing, and the defendant does not have a right to immediate appeal.  However, it went ahead and filed its petition for interlocutory appeal. That petition was supported by the district court who explained:

If this court’s ruling is erroneous, it would welcome reversal by the Federal Circuit. It is likely that such a ruling would promptly and efficiently resolve litigation not only in this case, but also in two other district courts where similar lawsuits and “nearly identical” motions to dismiss are pending. The court accordingly finds that this “order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.” 28 U.S.C. § 1292(b).

Id.  Apparently, the District Court’s call for immediate appeal was sua sponte.

Although Section 1292(b) allows a judge to certify an interlocutory question for immediate appeal, the appellate panel need not actually hear the appeal.  Rather, the court of appeals is then given “its discretion” to permit an appeal.

Here, HealthEquity petitioned for interlocutory appeal [HealthEquity Petition Interlocutory Appeal], and the Federal Circuit has ordered briefing from AlexSam within 7 days.

AlexSam, Inc. is directed to respond to the petition no later than 7 days from the date of filing of this order. Any reply in support of the petition is due 3 days thereafter.

Fed. Cir. Docket.

In a prior case, Judge Mayer would have held some of the claims of the asserted patent ineligible. Alexsam, Inc. v. IDT Corp., 715 F.3d 1336 (Fed. Cir. 2013). In that case, Judge Mayer dissented — apparently the eligibility issue had not been appealed and so the other two judges did not see it appropriate as the decision point.

Post Thrive: PTAB Decision Affirmed rather than Vacated

Bennett Regulator Guards, Inc. v. Atlanta Gas Light Company (Fed. Cir. 2020)

This case has been up to the Supreme Court and is now back down.

Bennet owns U.S. Patent No. 5,810,029 (Anti-icing of gas pressure regulators, now expired).  Back in 2012, Bennett sued Atlanta Gas for patent infringement.  That case had been filed in N.D. Ohio and the court there dismissed for lack of personal jurisdiction over the Georgia-based defendant.  Three years later (2015), Atlanta Gas filed for inter partes review (IPR). The PTO Granted review and the PTAB eventually found the challenged claims unpatentable. In a 2018 appeal, the Federal Circuit vacated — holding that the statutory time-bar precludes the PTO from instituting a petition in this case. 35 U.S.C. § 315(b) (“An [IPR] may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner … is served with a complaint alleging infringement of the patent.”).  Atlanta Gas then petitioned for Supreme Court review and in April 2020, the Supreme Court issued the following decision:

Petition GRANTED. Judgment VACATED and case REMANDED for further consideration in light of Thryv, Inc. v. Click-to-Call Technologies, LP, 590 U. S. ___ (2020).

In Thryv, the Supreme Court held particularly that the § 315(b) time-bar is part of the institution decision that is not subject to appeal. Thus, on remand, the Federal Circuit has now altered its holding — writing: “Thryv precludes our review of the Board’s ‘application of § 315(b)’s time limit,'”

Its original decision did not reach the merits of the appeal because it dismissed on the time-bar ground.  Now, the court has affirmed the PTAB decision that the claims are both anticipated and obvious.

The claims here are directed to the skirt assembly 40 designed to reduce ice formation at the outlet tube.

In its argument to avoid the prior art, Bennett argued that its claim terms should be narrowly construed in order to preserve their validity — since the patent is expired and thus cannot be amended.    On appeal, the Federal Circuit appears to agree with the general notion that this canon of claim construction should apply to IPR proceedings, but concluded that it does not apply in this case. In particular, the court explained that the narrow-to-preserve-validity canon only applies if claims are “still ambiguous” after being construed using the standard tools of claim construction. Quoting LiebelFlarsheim Co. v. Medrad, Inc., 358 F.3d 898 (Fed. Cir. 2004).  Here, the particular terms – “diaphragm-type gas pressure regulator” and “outside gas pressure regulator” were not ambiguous.

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In its appeal, Bennett also detailed a “litany of APA violations by the Board.”  The APA requires the board to establish an evidentiary basis for its factually findings; to actually make those factual findings; and then to explain the connection between the findings and the outcome of the case. For the most part, these arguments came-down to the PTAB not expressly considering Bennett’s evidence presented on each point.  On appeal, the Federal Circuit found that the PTAB had done enough:

The Board did not specifically discuss th[e] particular testimonial evidence supporting Bennett’s argument, but the Board did explain that it found Bennett’s argument unpersuasive when it credited Atlanta Gas’s evidence. That is enough. The Board need not expressly discuss every single bit of evidence proffered by the parties, so long as we can reasonably discern its path.

Slip Op.

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One oddity of the PTAB decision involved a sanctions award against Atlanta Gas.  During the IPR proceeding, Atlanta Gas merged with Southern Co.  However, Atlanta Gas did not notify the PTAB until after the Final Written Decision had issued.  At that point, one of the PTAB judges had to recuse himself and a new panel-member was added (who signed on to the opinion as written). The PTAB awarded sanctions (but did not state the amount yet) but refused to terminate the IPR.

On appeal, the Federal Circuit stayed its hand — explaining that “we lack jurisdiction” in this case because the sanction amount is “unquantified” and is therefore not yet final. “On remand, the Board may, at its discretion, further consider its order given the outcome of this appeal. But until the Board quantifies any sanctions, we will not review its decision granting them.”

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Dismissals With Prejudice

by Dennis Crouch

This is a non-precedential pro-se case and so a bit quirky, but its support of dismissing a case for improper venue with prejudice is likely to be cited as an example in other cases. 

Nazir & Iftikhar Khan v. Hemosphere Inc. (Fed. Cir. 2020)

In their lawsuit, Khans (both MDs) sued Hemosphere as well as 300+ hospitals and individual physicians for infringing their U.S. Patent No. 8,747,344 (AV shunt). The case did not get far.  The district court dismissed the case – with prejudice – for want of prosecution, insufficient service, improper venue, and misjoinder. The Federal Circuit has now affirmed.

The Khans represented themselves pro se at both the district court and on appeal. Their complaint alleges infringement based upon Hemosphere’s HeRO Graft shunt.

The Khans had mailed out the summons & complaint to the defendants with a waiver request — but did not actually serve the defendants in the manner required by FRCP 4.

The district court found that the Khans had not attempted to personally serve any defendant. Instead, the Khans asserted that they completed service by mailing the summons and complaint to the defendants, despite contrary instruction from the district court. The district court explained that Rule 4(e) does not permit personal service via mail and the Khans had not identified any state laws that would otherwise allow service by mail. The district court further found that the Khans had failed to comply with the [90 day] timeliness requirement of Rule 4(m).

The district court also noted that dismissal was proper for failure to plausibly allege proper venue 28 U.S.C.  § 1400(b) and for improper joinder under 35 U.S.C. § 299.

When dismissing for lack of venue, improper joinder, or failure to prosecute, the usual approach is a dismissal without prejudice. That result would allow the plaintiffs to re-file the lawsuit at a later date (perhaps with the assistance of an attorney). For instance, R.4(m) states that the court “must dismiss the action without prejudice” based upon failure to serve. Here, however, the district court dismissed with prejudice.  I read through the district court order and it does not actually provide any fact finding or discussion of why dismissal with prejudice is appropriate in this case other than the following one-liner regarding failure to prosecute:

Such a dismissal may be with prejudice “if the plaintiff’s delay in obtaining service is so long that it signifies failure to prosecute.”  Williams v. Illinois, 737 F.3d 473 (7th Cir. 2013).

Khan v. Hemosphere Inc., No. 18-cv-05368, 2019 WL 2137378, at *1 (N.D. Ill. May 16, 2019) (dismissal and sanction order).

On appeal, the Federal Circuit affirmed the dismissal. Although the Khans had attempted to obtain waivers of service, the vast majority defendants refused to waive service. At that point, service is required under R.4(e).  And, without service or waiver of service, the district court must dismiss.

Regarding dismissal with prejudice, the Federal Circuit wrote explained that the 250 day delay in serving process for the vast majority of defendants was a form of “extreme delay” that sufficient to justify dismissal with prejudice. Note here that the court actually wrote: “nearly all of the over 300 defendants had not been properly served.”  My comment on that line — make sure your law clerks are great writers.

For the improper venue  dismissals, the appellate panel also concluded that that dismissal with prejudice was proper (rather than without prejudice), but did not provide any reasoning for that conclusion.

Khans have failed to convince us that the district court erred in determining that venue under that statute was improper. . . . Accordingly, we conclude that the district court did not abuse its discretion in dismissing the action with prejudice.

Slip Op. Here, the court should have done a better job of explaining why this case overcomes the presumption set forth in R.41(b) that an involuntary dismissal on venue / joinder grounds is not on the merits.

Sanctions:  Although the district court denied that the case was “exceptional” under 35 U.S.C. § 285, the court still awarded $95k in attorney fees to out-of-state defendants for violation of FRCP 11(b). On appeal, the Federal Circuit affirmed writing that the rules do not “preclude sanctions for frivolous venue
and service assertions.”

A vs The: Preamble Limitations

by Dennis Crouch

Shoes by Firebug LLC v. Stride Rite Children’s Group (Fed. Cir. 2020) petition for rehearing denied (Fed. Cir. August 12, 2020).

The Federal Circuit originally decided this claim construction case in June 2020 on the topic of when a claim preamble is limiting. The court has now denied Firebug’s petition for rehearing.

The case is interesting because it involves two Firebug patents with identical claim preambles. On appeal the Federal Circuit found one preamble limiting, and the other non-limiting. The result here shows that (1) this continues to be a tricky issue; and (2) whether a preamble is limiting is substantially determined by the body of the claim (rather than simply an examination of the preamble itself).

The preamble at issue: “1. An internally illuminated textile footwear comprises.” U.S. Patents 8,992,038 and 9,301,574.  The prior art internally illuminates a piece of plastic that is part of the shoe upper, and the patentee argues that its claims require the textile itself to be internally illuminated. The problem for the patentee is that the limitations in the claim body do not expressly require light diffusion through the textile — hence its reliance on the preamble.

Construction of a claim preamble is a holistic process and requires “review of the entire patent” with any particular litmus test. Coning Glass.  The court has offered a number of platitudes regarding claim preamble limitations — like most platitudes, these are rarely sufficient resolve any particular dispute.

  • Limiting: recites essential structure or steps.
  • Limiting: necessary to give life, meaning, and vitality to the claim.
  • Limiting: reliance on preamble phrase for antecedent basis.
  • Not Limiting: body of the claim defines a structurally complete invention.
  • Not Limiting: preamble merely states a purpose or intended use for the invention.

 = = = =

‘038 Patent ’574 Patent
1. An internally illuminated textile footwear comprises:

a footwear; the footwear comprises a sole and an upper; …

the upper being light diffusing


1. An internally illuminated textile footwear comprises:

a sole and an upper;

the upper being a light diffusing section;

an illumination system; … the illumination system being housed within the footwear; …

The two patents at issue share the same (almost the same) specification and the claims are also quite similar.  The table above shows the most relevant portion of the two claims.  As mentioned, the during the IPR, the patentee wanted the claims to be construed to require that the textile be internally illuminated.

In distinguishing between these two claims, the court basically put on its simplistic grammar hat. The preamble recites a “footwear”, but the ‘038 claim body reintroduces “a footwear” while the ‘574 claim body’s first reference is to “the footwear.”

The preamble [of the ‘038 claim] cannot be said to provide essential structure or necessary meaning to the claimed invention because the same element—the footwear—is independently recited in the body of the claim. . .

Unlike claim 1 of the ’038 patent, claim 1 of the ’574 patent does not reintroduce “footwear” in the body of the claim but instead relies on the instance of “footwear” introduced in the preamble for “antecedent basis.” . . . Because the claim requires that the illumination system be housed in the textile footwear recited in the preamble, the preamble is essential to understanding the structural limitations of the illumination system. Accordingly, rather than merely reciting an intended purpose of the claimed invention, we conclude that the preamble of claim 1 of the ’574 patent limits the scope of claims 1–10 of the ’574 patent to require the use of a textile upper

Slip Op.  Despite its strong reliance on “a” vs “the”, the court reiterated that the process is holistic and noted that nothing in the specification or prosecution history demanded that the light pass through a textile.

Still Obvious: Although the patentee got its limiting construction for the ‘574 patent, the Federal Circuit still affirmed the obviousness determination. Basically, the PTAB had offered an “alternative fact finding” that the prior art “suggests using a woven, porous material in a light diffusing, internally illuminated part of footwear”, and the court affirmed that finding as based upon substantial evidence.

The patentee petitioned for rehearing with a seemingly important argument.  The Board’s “alternative fact finding” was written in an aside within FN16 of the Final Written Decision.  Firebug argues that the conclusion was introduced for the first time in the final written decision and “Firebug did not have the opportunity to address” the issue.   The petition has now been denied without new opinion.

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Firebug also argued secondary indicia of nonobviousness. In particular, the patentee presented two third-party license agreements for the patents at issue as well as testimony of Ralph Shanks who negotiated one of the licenses (against Firebug). On appeal, the Federal Circuit noted that the licenses included “eight patents, two patent applications, and one trademark.”  The court questioned the nexus to the particular invention here, but affirmed on the ground that the evidence is so weak that even if a nexus exists the claims are still obvious.  An odd bit of the decision is that the conclusion of “weakness” appears to be directly tied to the no-nexus argument that was not affirmed.

Obviousness: Known Solutions from other Fields of Art

In re Robert Kross (Fed. Cir. 2020)

In this short decision, the Federal Circuit has affirmed the PTAB’s determination that Kross’s claimed invention would have been obvious. Apn. No. 13/275,400. (Real party-in-interest here is Poly-Gel L.L.C.).

The invention: A method of printing using “non-gelatin viscoelastic gel printing plates.” The gel used here is designed to solve cracking problems that were “a hallmark of gelatin plates.”  The claimed viscoelastic gel was already known in the art for its non-cracking properties. In its decision, the Board concluded that PHOSITA would have been motivated to solve the known cracking problem by using “known properties of a known material.”

The difficulty in this case involves the claimed viscoelastic gel. The prior art (Chen) discloses the gel and its non-cracking and ease-of-manufacture properties.  However, Chen only describes this outside of the printing context. On appeal, the Federal Circuit affirmed that PHOSITA would have been motivated to use Chen’s disclosure:

 [T]he fact that Chen does not teach the use of viscoelastic compositions in any type of printing does not undermine the Board’s finding of a motivation to combine. We agree with the Board that Chen’s silence “as to a particular application is of little or no moment given the teachings of the properties and the resulting general uses of the viscoelastic gel-like materials, which would have suggested those materials as, more likely than not, a successful solution to the problems of gelatin cracking and splitting.”

Slip Op. (Quoting PTAB determination).  Here, the Federal Circuit was guided by its reading of the prior art — which identified the particular problematic parameters (cracking, splitting) to be addressed. That guidance from this prior art brought this case outside of the “obvious to try” world and into one of “reasonable expectation of success.”  I’ll note here that the court was guided by its reading of the prior art — it turns out that there are many many problems with gel-based printing recognized in the prior art. The court skipped over how those additional problems might have guided PHOSITA off of the neat invention pathway offered by the opinion here.

The Overly Complicated Law of Getting Your Money Back From the Government

I invited Prof. Burbank to provide a discussion of this recent appellate decision reversing a judgment from the Court of Federal Claims.  Burbank has previously written about confusing elements of the Tucker Act and the scope of claims for “illegal exaction.” In typical law professor style, she writes here that the court came to the “right conclusion but for the wrong reason.”   – Dennis.

Guest Post by Renée A. Burbank, Clinical Lecturer at Law and Robert M. Cover Fellow at Yale Law School

Boeing v. U.S. (Fed. Cir. August 10, 2020)

The Boeing Company holds over $28 billion in contracts with federal government, mostly with the Department of Defense. Those contracts are governed by the Federal Acquisition Regulation (FAR), which dictates all manner of procurement procedures and contract clauses, and includes non-negotiable requirements for federal contracts. Boeing argues that one such requirement concerning price adjustments to contracts based on changes in cost accounting, FAR 30.606, is incompatible with 41 U.S.C. § 1503(b). On a plain reading of the two provisions, they do seem point in opposite directions:

Statute: 41 U.S.C. § 1503(b) Regulation: 48 C.F.R. § 30.606(a)(3)(i), (ii)
“[T]he Federal Government may not recover costs greater than the aggregate increased cost to the Federal Government . . . on the relevant contracts subject to the price adjustment.” The agency “shall not combine the cost impacts” of multiple changes at once, and will thus recover costs of any change that increases costs of the government.

When Boeing made several cost accounting adjustments, some of which lowered costs to the government and some of which raised them, the government followed the FAR provision and made Boeing pay for the raised costs without offsetting the lowered costs. Boeing paid, but it also sued.

Now, you might wonder whether the regulation does, in fact, violate the statute, and whether multiple cost accounting changes are properly included in a single “price adjustment.” But the trial court never got there, and neither will this blog post.

Instead, Boeing is important because the Federal Circuit allowed the case to go forward at all. Between this case and last week’s decision in NVLSP v. US, it has been a good month for people who want sue the federal government for overcharging them. As both cases demonstrate, historically, it’s been a tricky business to sue the federal government for an “illegal exaction” (i.e., when the government illegally requires money or property be paid to it, directly or in effect) without being thwarted by sovereign immunity. With its decision in Boeing, the Federal Circuit finally clarified that an illegal exaction claim need not be based on a “money-mandating” provision.  This removes many of the obstacles and confusion that has often prevented plaintiffs from reaching the merits of their illegal-exaction arguments.

The government argued that money-mandating provisions were required in both NVLSP and Boeing. Under the government’s theory, federal courts lack jurisdiction over illegal exaction claims unless the statutory or regulatory provisions allegedly violated are “money-mandating.” A money-mandating statute is, quite simply, one that requires the government to pay money to someone. For example, the Military Pay Act is money-mandating because it says military personnel “are entitled” to be paid. 37 U.S.C. § 204. Therefore, if a servicemember is wrongfully dismissed, they can sue for back pay. By contrast, neither the PACER fees statute at issue in NVLSP or the cost accounting standards statute in Boeing requires the government to pay money to anyone. Instead, they require people to pay money to the government.  Therefore, the government argued, because the statutes contained no mandate for the government to pay money, much less a requirement that money be paid as damages for the violation of those statutes, they were not money-mandating, and federal courts lacked jurisdiction to hear the plaintiffs’ claims at all.

In both cases, the Federal Circuit rejected the government’s argument.  In Boeing, the Court went a step further and clarified prior confusing case law, largely stemming from dicta a 2005 Federal Circuit decision, and definitively held that an illegal exaction claim does not need to be based on a money-mandating provision. This opens up a wide variety of potential illegal exaction claims. Any time a person or organization has to pay money to the government or to a third party because of the government’s incorrect interpretation of its legal authority, that person can potentially recover the money back under an illegal exaction claim. Because illegal exactions are not limited to a specific doctrinal area of law, the claim can provide relief whenever the federal government oversteps its bounds and creates direct monetary damages.

In my opinion, the Federal Circuit reached the right conclusion but for the wrong reason. The reason the statute allegedly violated doesn’t need to be money-mandating isn’t because illegal exactions are a special type of statutory claim that needn’t be money-mandating.  Instead, illegal exaction claims don’t have to be based on statutes (or regulations or constitutional provisions) at all. They are, properly understood, common law claims. As I explain in a recent article on illegal exactions, the history of illegal exactions demonstrates that the claim fits best in a common law framework. It also is the best interpretation of the Tucker Act, which provides courts with jurisdiction over illegal exaction claims in the first place. The Tucker Act (and its identical language in the Little Tucker Act) waives sovereign immunity for three types of claims, namely claims “[1] founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or [2] upon any express or implied contract with the United States, or [3] for liquidated or unliquidated damages in cases not sounding in tort.” 28 U.S.C. §§ 1291(a)(1), 1346(a)(2). The first category comprises money-mandating claims, i.e., claims that can be brought under the statutes themselves. The second category includes contract claims. The third category is illegal exactions. Notice that the last category does not include the requirement that they be “founded upon” any constitutional, statutory or regulatory provision. Instead, they are simply a non-tort, non-contract claim for damages. Like a common law claim for unjust enrichment, it should be sufficient under an illegal exaction theory to simply claim that the government has taken the plaintiff’s property without a legal basis. No written provision required, money-mandating or not.

Unfortunately, the neither the NVLSP panel nor the Boeing panel quoted, much less examined, the Tucker Act.  But the cases go a long way to clarify that illegal exaction claims cover a lot more than the government wishes they did.

Covered Business Method Review: Last Day to File is September 16, 2020.

Under the 2011 America Invents Act, certain Covered Business Method Patents (CBM) can be broadly challenged as part of a Post-Grant Review (PGR).  CBM filing was opened on September 16, 2012 – 1 year after AIA enactment. So far, about 600 CBM petitions have been filed.

The CBM program is “transitional” — and is set to sunset (i.e., become inactive) soon.  Under the law, the program sunsets “upon the expiration of the 8-year period beginning on the date that the regulations … take effect.”  That takes us to September 16, 2020 — CBM Sunset Date.  The particular language of the law indicates that Section 18 of the AIA is “repealed” as of the sunset date.  However, the provision will still apply to “any petition … filed before the date.”

So, get your petition filed by the 16th of September 2020.

I’ll add a couple of notes.

  1. A powerful aspect of the CBM program is that the patents can be challenged on any ground (including patent eligibility) whereas inter partes review (IPR) proceedings are tightly limited to anticipation and obviousness grounds based upon patents and printed publications.  Post-Grant Review will still be available, but there is a very tight window for filing such a petition (within nine months of patent issuance).
  2. I believe that the last day to file is Sept 16, but I have not fully analyzed this — so do some of your own legwork if you want to wait for the deadline.



Patently-O Bits and Bytes by Juvan Bonni

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