In Defense of the Federal Circuit: TC Heartland and Patent Venue

Guest Post by Professors Megan M. La Belle & Paul R. Gugliuzza

Patent litigation is, as we all know, highly concentrated in a small number of districts.  Most notably—some might say, notoriously—the rural Eastern District of Texas hears about forty percent of all patent cases nationwide.  Many lawyers and scholars consider this case concentration to be a critical flaw in the patent system.

Against this background, TC Heartland doesn’t seem like a case the Supreme Court would hear simply to affirm.  As Dennis reported last week, nearly twenty amicus briefs have been filed urging reversal, including one signed by sixty-one law professors and economists.  Predictions of a unanimous ruling against the Federal Circuit are not hard to find.  Indeed, TC Heartland looks like other recent cases in which the Supreme Court has reversed the Federal Circuit without breaking a sweat:  It involves a procedural-type rule so favorable to patent owners that, one could easily assume, it must conflict with the rules in other areas of federal litigation.

The Federal Circuit, in the caselaw on review in TC Heartland, has interpreted the patent venue statute to allow patentees to sue corporations for patent infringement in any district where personal jurisdiction exists.  For companies that sell products nationwide, venue is proper almost anywhere, and that enables litigation to cluster in places like East Texas.  Surely, the conventional wisdom seems to be, the Supreme Court will not permit the Federal Circuit to make the venue statute a dead letter in most patent cases.

In our forthcoming article, we defend the Federal Circuit’s venue doctrine, and we challenge the notion that Federal Circuit venue law is outside the mainstream.  As we explain in detail, the expansive venue options available in patent cases are consistent with historical trends in venue law more generally.  For over a century, Congress has steadily expanded plaintiffs’ venue choices, particularly in cases against corporations.  In fact, the Wright and Miller treatise has gone so far as to say that Congress has “nearly eliminate[d] venue as a separate restriction in cases against corporations.”  Venue in patent cases, simply put, is just like venue in other federal cases.

In the article, we also explain why the Federal Circuit’s interpretation of the venue statute is doctrinally sound.  Though the relevant statutes are somewhat complicated and have been amended several times, our defense of the Federal Circuit’s venue law is simple.  It is based on the plain language of two sections of the Judicial Code:  28 U.S.C. §§ 1391(c) and 1400(b).  Section 1391(c)(2), a subsection of the general venue statute, says that, “[f]or all venue purposes,” corporate defendants “reside” in any district in which they are subject to personal jurisdiction.  Section 1400(b), a venue statute specifically for patent infringement cases, says that infringement suits may be brought, among other places, “where the defendant resides.”  Reading the two statutes together, a corporation can be sued for patent infringement in any district in which it is subject to personal jurisdiction—just like in all other types of federal cases.  That is precisely what the Federal Circuit held in its seminal 1990 decision, VE Holding Corp. v. Johnson Gas Appliance Co.

Of course, there’s more law on this issue than the statutes alone.  The petitioner in TC Heartland argues that the question presented is “precisely the same” as in Fourco Glass Co. v. Transmirra Products Corp., a 1957 decision in which the Supreme Court held that the general venue statute—as it read at the time—did not supplement the patent venue statute.  The Court in Fourco relied heavily on its 1942 decision, Stonite Products Co. v. Melvin Lloyd Co., in which the Court interpreted an even older version of the venue statute and held that, in patent infringement cases, a defendant “resided” only in the state in which it was incorporated.

The petitioner in TC Heartland, building on the theme of “patent exceptionalism” that has resonated with the Supreme Court in recent years, claims that the Federal Circuit has ignored this authoritative Supreme Court precedent.  As we explain in the article, however, even if the Supreme Court decided Fourco correctly (which is not beyond doubt), the general venue statute today is far different than it was at the time of Fourco.  Recent amendments to the statute make plain that the definition of corporate residence in the general venue statute does in fact apply to the patent venue statute.

To be sure, as a matter of policy, granting plaintiffs unbridled discretion over choice of forum in patent litigation may be problematic.  It has incentivized judges, particularly in East Texas, to adopt rules and practices favorable to patent holders in an effort to attract cases.  It has encouraged litigants to engage in unseemly tactics to influence prospective jurors. Ultimately, discretion in forum choice can threaten innovation by facilitating nuisance litigation.  But, contrary to the prevailing wisdom, these problems are emphatically not the result of a misinterpretation of the venue statute by the Federal Circuit, nor does Federal Circuit venue doctrine reflect any sort of patent exceptionalism.

There are better ways to reform the law of forum selection in patent cases.  Congress could amend the venue statute.  Or it could reduce the incentive for litigants to forum shop—and the ability of district judges to “forum sell”—by mandating increased procedural uniformity in patent cases.  Or the Supreme Court could alter personal jurisdiction doctrine, which, for corporate defendants, is tightly linked to venue.  Later this Term, the Court will decide a personal jurisdiction case that could have major consequences for patent litigation.

For a more detailed explanation of these points, read our draft article, which is forthcoming in a terrific symposium issue of the American University Law Review.

Megan La Belle is Associate Professor of Law at Catholic University of America.
Paul Gugliuzza is Associate Professor of Law at Boston University School of Law. 

First Possession and Patent Law

This is a bit abstract, but I’m wondering how you might describe the actual moment that a patent issues in terms of the creation of a new property right and transfer of that right to the patentee.  If we could slow-down time to look at what exactly happens: Is the right first created by the government and then granted to the patentee? Or, is the right simply created already in the hands of the patentee.  Assuming the inventor is no longer the right-holder, does anything pass through the inventor’s hands at that moment?

In the “land patent” system, ownership is originally vested in the sovereign and then transferred to the recipient, but it seems to me that the patents on inventions probably work differently.  In the end, I expect that this may have some impact on the public-rights cases. -DC

Claim Construction: “support an entire body”

by Dennis Crouch

I have been waiting for the Federal Circuit’s decision in Metalcraft of Mayville (Scag Power) v. Toro.  In my patent law class last semester, we used the appeal of a preliminary injunction order as the basis for our 5th annual Patent Law Moot-Court Competition (sponsored by McKool Smith).  I want to also thank the attorneys at Boyle Fredrickson and Merchant & Gould for being good sports and providing us with documents from the case.

[Read the Decision: 16-2433-opinion-2-14-2017-11]

SCAG and TORO are competitors in the lawnmower market.  In 2016, SCAG sued TORO for infringing its U.S. Patent No. 8,186,475 that covers a vehicle (lawnmower) having an operator-platform-suspension-system. This design differs from the more traditional seat-suspension because it supports the “entire body” of the operator and helps reduce harmful shock and vibrations on users.

In the case, the district court issued a preliminary injunction against Toro to cease “making, using, selling, and offering to sell lawnmowers equipped with platform suspension systems that infringe SCAG’s patent.”  Toro appealed both the merits of the infringement case (under a proper claim construction, no infringement) and also the terms of the injunction (Failure of the injunction order to include “reasonable detail” as required by Fed. R. Civ. Pro. 65(d)).  On appeal, the Federal Circuit has affirmed, but with a slightly modified injunction.

The patent drawing below an operator platform that supports the foot rest and the seat.  In the patent drawings, the hand-controls (55) are also supported by the operator platform. However, in the accused Toro lawnmower, the controls are directly attached to the chassis and thus not supported by the operator platform.

scagpatentimage

The claims require that the operator platform “support an entire body of an operator” during operation use of the vehicle.  Toro argued that users of its mowers must keep their hands on the hand-controls during operation and – since hands are part of the body – their platform does not support the “entire body.”  On appeal though, the Federal Circuit rejected that argument for narrowing claim scope.  Most importantly, the court found that the claims do not specifically require steering controls mounted to the operator platform.  Moving from there, the court attempts (but in my view fails) to adequately address the core argument:

Moreover, the specification makes clear that the operator platform supports the entire body and that steering controls are connected to, but not part of, the operator platform. The specification consistently distinguishes the operator platform from components that may be attached to it.

The court here seems to suggest that the platform must directly support the entire body rather than through a component.  The problem with this argument is the seat (another component attached to the platform) actually supports most of the operator’s body.  For the claim to make any sense, the platform’s support function must pass through these attached components.

By accepting the broader claim construction, the court was also able to affirm the finding that Scag is likely to succeed on the merits of the case (proving infringement). Here, the district court’s order enjoins Toro from “making, using, selling, and offering to sell lawnmowers equipped with platform suspension systems that infringe Scag’s patent, U.S. Patent No. 8,186,457.” J.A. 6. Toro argues the district court’s preliminary injunction is overly broad. We do not agree. The Decision and Order in which the district court grants the motion for the preliminary injunction discusses both the claims at issue as well as the defendants’ accused products which it enjoins. J.A. 6–18. Claim 21 was argued to cover all the accused products, and Toro has made no meaningful arguments which delineated among the accused products. We have affirmed the district court’s conclusion that the patentee has established a likelihood of success that the accused products infringe claim 21 and that there is not a substantial question of validity as to claim 21. In such a case, we affirm the preliminary injunction as to the accused products.

Scope of the Injunction: Fed. R. Civ. Pro. R. 65(d)(1) requires that every order granting an injunction to “state the reasons why it issued; state its terms specifically; and describe in reasonable detail—and not by referring to the complaint or other document—the act or acts restrained or required.” Here, the order stated merely that TORO must cease “making, using, selling, and offering to sell lawnmowers equipped with platform suspension systems that infringe SCAG’s patent, U.S. Patent No. 8,186,475.”  On appeal, the Federal Circuit affirmed the order, with the caveat of limiting it to the accused products. “We affirm the preliminary injunction as to the accused products.”

Whether a Patent Right is a Public Right

publicprivate

by Dennis Crouch

Another interesting en banc petition by Robert Greenspoon and Phil Mann: Cascades Projection v. Espon and Sony, Appeal No. 17-1517 (Fed. Cir. 2017).  The petition asks one question: “Whether a patent right is a public right.” Of course, the Federal Circuit has already decided this in MCM – which is why the petitioner is bypassing the initial appeal and asking directly for an en banc hearing.

[S]ince this Court has not had a chance (as a full court) to consider the exceptionally important constitutional question, since intervening decisions after MCM have encroached upon the MCM constitutional holding, since patentees continue to bring the same constitutional challenge in hopes of overturning the MCM constitutional holding, and since overturning the MCM holding will potentially reduce this Court’s ballooning USPTO docket, Appellant seeks initial en banc review.

The “public rights” issue is complicated, but the basic outcome is simple – if patents rights are not public rights (but instead private rights) then an administrative agency cannot lawfully revoke a patent once issued (without the permission of the patentee).

The Supreme Court appeared to speak directly on this issue in McCormick Harvesting Mach. Co. v. Aultman-Miller Co., 169 U.S. 606 (1898):

The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent. Moore v. Robbins, 96 U. S. 530, 533; U. S. v. American Bell Tel. Co., 128 U. S. 315, 364, 9 Sup. Ct. 90; Lumber Co. v. Rust, 168 U. S. 589, 593, 18 Sup. Ct. 208.

Although the direct case is 100+ years ago, we’re still working with the same United States Constitution that protects private property rights against governmental intrusion that violate due process and equal protection principles.

In MCM, the Federal Circuit distinguished these old cases by noting that patent office cancellations were not authorized by Congress: “McCormick … certainly did not forbid Congress from granting the PTO the authority to correct or cancel an issued patent.” MCM (opinion by Judge Dyk, joined by Judges Prost and Hughes).  The petition offers several responses: (1) McCormick does not actualy provide the ‘statutory caveat’ but instead limits PTO authority “for any reason whatever.” (2) The reissue statute in force in McCormick did expressly authorize examiners to reject the issued claims – whether original or amended. Thus, the McCormick decision did limit the power of Congress to increase PTO power.

= = =

One of the petitioner’s justifications for en banc review here is that it might allow the court to limit its docket.  In the process, the petition cites my recent Wrongly Affirmed Without Opinion article for the proposition that the court’s opinion writing docket may soon be further ballooning. “If Professor Crouch is right, it could be serendipitous if the Court overrules MCM, thus reducing docket load through reduction of incentives of patent owners to appeal.”

= = =

= = =

The public/private divide is, in reality, a false dichotomy since the Court is comfortable with the notion of “quasi-private right” — which has the aspects of a private property right, but which can be subjected to administrative agency control.  A key recent opinion on point is B&B Hardware (2015) – albeit the dissent by Justice Thomas (with Scalia):

Trademark registration under the Lanham Act has the characteristics of a quasi-private right. Registration is a creature of the Lanham Act, which “confers important legal rights and benefits on trademark owners who register their marks.” Because registration is merely a statutory government entitlement, no one disputes that the TTAB may constitutionally adjudicate a registration claim.

By contrast, the right to adopt and exclusively use a trademark appears to be a private property right that “has been long recognized by the common law and the chancery courts of England and of this country.” In re Trade–Mark Cases, 100 U.S. 82, 92, 25 L.Ed. 550 (1879). As this Court explained when addressing Congress’ first trademark statute, enacted in 1870, the exclusive right to use a trademark “was not created by the act of Congress, and does not now depend upon it for its enforcement.” Ibid. “The whole system of trade-mark property and the civil remedies for its protection existed long anterior to that act, and have remained in full force since its passage.” Ibid. Thus, it appears that the trademark infringement suit at issue in this case might be of a type that must be decided by “Article III judges in Article III courts.” Stern, 564 U.S., at ––––, 131 S.Ct., at 2609.

B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293, 1317, 191 L. Ed. 2d 222 (2015) (Thomas, J. Dissenting).

Federal Circuit to PTO: EXPLAIN WITH PARTICULARITY AND EVIDENCE

PersonalWeb Tech v. Apple (Fed. Cir. 2017) [personalweb]

Following an administrative trial, the PTAB found the challenged claims of PersonalWeb’s Patent No. 7,802,310 obvious based upon a combination of two prior art references.  On appeal, however, the Federal Circuit has vacated the judgment – holding that the Board’s factual findings  were not supported by substantial evidence. In particular, the Federal Circuit could not find substantial evidence for the conclusions (1) that the prior art taught each element of the challenged claims or (2) that PHOSITA would have been motivated to combine the references to form the invention as claimed.

Substantial Evidence: For me, the substantial evidence rule is a misnomer because it suggests that a decision is based upon a substantial amount of evidence (and thus seems like a reasonable approach).  I would rename it as the “scintilla rule” because, under the rule, factual conclusions made by the PTAB are affirmed on appeal so long as supported by “more than a mere scintilla” of evidence.  I previously wrote:

[T]o be clear, the appellate court will affirm a factual determination even when that determination is likely wrong so long as some amount of evidence supports the determination. We have all heard the adage that ‘reasonable minds can differ.’ I think of the substantial evidence rule as a relaxed version that ‘somewhat reasonable minds can differ.‘ Or, in other words, the PTO’s factual determinations will be affirmed if somewhat reasonable.

Although the PTAB burden is not great, the Board must fully explain its conclusions and their bases.  (This is a major difference when compared with the ‘black box’ of a jury trial).  As part of its explanation, the Board must also specifically contend with evidence that “detracts from an agency’s decision.”  The court explained in its 2002 Lee decision:

For judicial review to be meaningfully achieved within these strictures, the agency tribunal must present a full and reasoned explanation of its decision. The agency tribunal must set forth its findings and the grounds thereof, as supported by the agency record, and explain its application of the law to the found facts.

In re Lee, 277 F.3d 1338, 1343 (Fed. Cir. 2002).  That is, the Board, “must articulate ‘logical and rational’ reasons for its decision.” (quoting Synopsys).

Here, the court explained that the rational in an obviousness case includes

  1. Particularly identifying where each element of each claim is taught by the prior art references.  Here, the Board failed to explain the particular location within Woodhill that taught the claim limitation of comparing a name with a “plurality of values.” (yes, that’s right.)
  2. Explaining the motivation to combine.

Explaining motivation to combine is a big deal because it comes up in almost every patent case before the PTO. Here, the Board simply wrote that:

“a person of ordinary skill in the art reading Woodhill and Stefik would have understood that the combination of Woodhill and Stefik would have allowed for the selective access features of Stefik to be used with Woodhill’s content-dependent identifiers feature.”

On appeal, the Court found that justification inadequate.

Indeed, the Board nowhere clearly explained, or cited evidence showing, how the combination of the two references was supposed to work. At least in this case, such a clear, evidence-supported account of the contemplated workings of the combination is a prerequisite to
adequately explaining and supporting a conclusion that a relevant skilled artisan would have been motivated to make the combination and reasonably expect success in doing so. . . .

A brief explanation may do all that is needed if, for example, the technology is simple and familiar and the prior art is clear in its language and easily understood. See Ariosa, 805 F.3d at 1365–66. On the other hand, complexity or obscurity of the technology or prior-art descriptions may well make more detailed explanations necessary. Here, the Board’s explanation is wanting. Apple’s attempts in this court to explicate both the Board’s explanation and the underlying evidence do not persuade us otherwise.

On remand, the Board will give it another go – and we’ll see whether the exercise of actually explaining its reasoning causes the Board to change its mind as well.

= = = = =

My explanation of the case skipped over details of the patent at issue.  Claim 1 is shown below and basically includes three steps: (a) sending a “content based name” for a data-item from one computer to another; (b) check to see if the name is on a list; and (c) grant or deny access to the data-item depending upon the result of (b).

1. A computer-implemented method … comprising the steps:

(a) at a first computer, obtaining a content-based name for a particular data item from a second computer …, the content-based name being based at least in part on a function of at least some of the data which comprise the contents of the particular data item, wherein the function comprises a message digest function or a hash function, and wherein two identical data items will have the same content-based name; and

(b) … a processor at said first computer ascertaining whether or not the content-based name for the particular data item corresponds to an entry in a database comprising a plurality of identifiers; and

(c) based at least in part on said ascertaining in (b), determining whether or not access to the particular data item is authorized.

The patentee claims that Apple’s iTunes and iCloud services infringe.

USPTO Still Michelle Lee’s For Now

What an oddity – for the past 26 days, it has been an open secret that Michelle Lee remains USPTO Director but officials at the office have repeatedly refused to confirm or deny that role or to provide any answer to the question “Who is in charge at the USPTO?”

According to a Politico squib report, both Rep. Darryl Issa and USPTO PR Director Paul Fucito have confirmed that Dir. Lee is “in charge” but it is unclear whether she is still USPTO Director.

Paul Fucito tells [Politico Reporter] Nancy that Lee has been signing the certificates since since Inauguration Day. That function by law is handled by the director, but Fucito declined to clarify Lee’s status at the agency.

[Politico Report]  I requested both confirmation and further comment from the USPTO and Department of Commerce and was provided with “no comment.”

Representative Issa is now the Congressman with the most direct influence and oversight of USPTO activities in his role as chair of the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet.   Also communicating with Politico, Issa indicated his support for Dir. Lee but suggested that she may be transitioned into another administration role outside of the USPTO – such as trade negotiations or as a member of the Office of Science and Technology Policy.  Thus, we may still have a new USPTO director this spring.

We will not begin to see action until a Commerce Secretary (likely Mr. Ross) is confirmed and puts in place his pick for PTO Director.  This will likely happen next week.

For anyone pushing patent reform this term – either at the PTO or in the courts, you should recognize that all roads lead through Rep. Issa – nothing will go forward without his direct support.

 

 

Patentlyo Bits and Bytes by Anthony McCain

Get a Job doing Patent Law                  

Scan-to-Email Patent Finally Done; Claim Scope Broadened by Narrow Provisional Application

MPHJ Tech v. Ricoh (Fed. Cir. 2017)[16-1243-opinion-2-9-2017-11]

MPHJ’s patent enforcement campaign helped revive calls for further reform of the patent litigation system.  The patentee apparently mailed out thousands of demand letters to both small and large businesses who it suspected of infringing its scan-to-email patents.  The primary patent at issue is U.S. Patent No. 8,488,173.

Ricoh, Xerox, and Lexmark successfully petitioned for inter partes review (IPR), and the PTAB concluded that the challenged claims (1–8) are invalid as both anticipated and obvious.[1] On appeal, the Federal Circuit has affirmed.

Claim 1 is a fairly long sentence – 410 words, but basically requires a scanner with the ability to both store a local file and also email a file that can be operated with a “go button” followed by “seamless” transmission.  The patent itself is based upon a complex family of 15+ prior US filings, most of which have been abandoned, with the earliest priority filing of October 1996.

Although more than 20 years ago, there was prior art even back then.  However, the identified prior art process was apparently not entirely “seamless” in operation. On appeal, the patentee asked for a narrowing construction of the claim scope to require “a one-step operation without human intervention.”  Unfortunately for MPHJ, the claims are not so clear.

Relying upon the Provisional to Interpret the Claims: Attempting to narrow the claim scope, MPHJ pointed to one of the referenced provisional applications that disclosed a “one step” process requiring the user to simply push “a single button”  On appeal, the Federal Circuit agreed that the provisional is relevant, but not how MPHJ hoped. Rather, the court found that the fact MPHJ omitted those limiting statements when it drafted the non-provisional serves as a suggestion that the claims were not intended to be limited either.

We agree that a provisional application can contribute to understanding the claims.[2] . . . In this case, it is the deletion from the ’798 Provisional application that contributes understanding of the intended scope of the final application. . . . We conclude that a person of skill in this field would deem the removal of these limiting clauses to be significant. The [challenged] Patent in its final form contains no statement or suggestion of an intent to limit the claims to the deleted one-step operation. Neither the specification nor the claims state that this limited scope is the only intended scope. Instead, the ’173 Patent describes the single step operation as “optional.” . . . A person skilled in this field would reasonably conclude that the inventor intended that single-step operation would be optional, not obligatory.

MPHJ’s efforts really should be written up as a case-study.  Unfortunate for patentees that this is the case members of the public will continue to hear about for years to come.

For patent prosecutors.  Here we have another example of how a low-quality provisional filing failed the patentee.  Now, you have to recognize that changes you make when filing the non-provisional will be used against you in the claim construction process.  While there may be ways to use this strategically, I expect that more patentees will be trapped than benefited.

 

 

 

= = = = =

[1] Ricoh Ams. Corp. v. MPHJ Tech. Invs., No. IPR2014-00538, 2015 WL 4911675, (P.T.A.B. Aug. 12, 2015).

[2] See Trs. of Columbia Univ. in New York v. Symantec Corp., 811 F.3d 1359, 1365 (Fed. Cir. 2016) (looking to the provisional application for guidance as to claim construction); Vederi, LLC v. Google, Inc., 744 F.3d 1376, 1383 (Fed. Cir. 2014) (same).

IPO’s Next Legislative Proposal: 35 U.S.C. 103

commonsenseFollowing IPO’s recent proposal to effectively eliminate 35 U.S.C. 101, a Patently-O reader (“MM”) proposed the following amendment to 35 U.S.C. 103 for the organization’s consideration:

35 U.S.C. 103:  A patent for a claimed invention may not be obtained, notwithstanding that the claimed invention is not identically disclosed as set forth in section 102, if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains. Common sense shall not be used or references in any part of the analysis of the claim. Under no circumstances will any element in the claim be deemed to be non-limiting for any reason. Individual claim elements, whether or not disclosed by the prior art, shall never be discussed or analyzed separately from the other claim elements. The term ‘monopoly’ must never appear in the analysis.

(Added language underlined.) According to the anonymous Patently-O reader, this would make it the “Best. Patent. System. Ever.”  Certainly, the provision would take care of KSR v. Teleflex that has been so frustrating for patentees and time consuming for the Court of Appeals.  (Satire).

March 10: Implementing and Evaluating the Defend Trade Secrets Act of 2016.

I am really looking forward to our next event here at Mizzou sponsored by the Center for Intellectual Property and Entrepreneurship.  March 10: Implementing and Evaluating the Defend Trade Secrets Act of 2016Featured Speakers include Berkeley Law Professor Peter Menell and Trade Secrets Expert Mark Halligan (among others).  I am really excited about our dynamic keynote speaker Professor Orly Lobel from the University of San Diego.  Professor Lobel is the author of the great book Talent Wants to Be Free

thumbnail_lobel-author-1

Details:

  • University of Missouri School of Law (Courtroom)
  • March 10, 2017: 8:25 am – 2:00 pm.
  • No cost to attend – CLE as well.

Let me know if you are planning to attend, I would love to meet up in person – Dennis Crouch (crouchdd@missouri.edu)

Enforcing Intellectual Property Theft

President Donald Trump’s first action on intellectual property is buried within his newly released Presidential Executive Order on Enforcing Federal Law with Respect to Transnational Criminal Organizations and Preventing International Trafficking.   The executive basically orders the already existing inter-agency Threat Mitigation Working Group to delve further into its already-existent mission of fighting transnational organized crime.  The primary action item is a report due in June 2017 that discusses the extent of penetration of those organziations into the US and mechanisms for combating their crimes.

The IP part is small:

Policy. It shall be the policy of the executive branch to (a) strengthen enforcement of Federal law in order to thwart transnational criminal organizations and subsidiary organizations, including criminal gangs, cartels, racketeering organizations, and other groups engaged in illicit activities that present a threat to public safety and national security and that are related to, for example . . . intellectual-property theft.

Theft here suggests a crime – and so we are probably talking primarily about criminal copyright infringement and identity theft.

“Consisting Of” Creates Closed Group and Provides Avenue to Avoid Infringement

Shire Development v. Watson Pharma (Fed. Cir. 2017) [16-1785-opinion-2-8-2017-11]

In a short opinion, the Federal Circuit has reversed a lower court infringement claim — holding instead that Watson’s generic product does not infringe.

In U.S. Patent law, it is an act of infringement to file an Abbreviated New Drug Application (ANDA) with the Food and Drug Administration (FDA) seeking to market a generic version of a patented drug listed in the FDA Orange Book.  That is just what Watson did here and Shire sued on its U.S. Patent No. 6,773,720.  The drug at issue is LIALDA, a mesalamine drug used to treat ulcerative colitis.  The claimed compound includes the following limitation:

said outer hydrophilic matrix consists of compounds selected from the group consisting of polymers or copolymers of acrylic or methacrylic acid, alkylvinyl polymers, hydroxyalkyl celluloses, carboxyalkyl celluloses, polysaccharides, dextrins, pectins, starches and derivatives, alginic acid, and natural or synthetic gums;

The basic question on appeal the scope of the claimed Markush group and whether it is a “closed group.”   In other words: is the hydrophilic matrix limited only to substances in the list.  This issue is a deciding factor in the case because Watson’s proposed generic version includes an inner hydrophilic matrix with additional substances not listed.

Consisting Of: In its analysis, the Federal Circuit began by recognizing that the phrase “consisting of” and “consists of” are terms of art in patent claims and “creates a very strong presumption that that claim element is ‘closed’ and therefore ‘exclude[s] any elements, steps, or ingredients not specified in the claim.'” quoting Multilayer Stretch Cling Film Holdings, 831 F.3d 1350, 1358 and AFG Indus., Inc. v. Cardinal IG Co., 239 F.3d 1239, 1245 (Fed. Cir. 2001). Although the presumption of standard meaning can be overcome, it requires that the patentee have documented the redefinition during prosecution in ways ““unmistakably manifest.”  However, as an exception to the standard meaning, the court may still find infringement when elements are added to the group that are “unrelated to the invention.” Norian Corp. v. Stryker Corp., 363 F.3d 1321, 1331 (Fed Cir. 2004).

Here, the generic proposal includes magnesium stearate within the matrix.  Citing Noriam, the district court still found infringement – noting that magnesium stearate is lipophilic and therefore including it within the hydrophilic outer matrix was “unrelated to the invention.”

On appeal, the Federal Circuit has reversed – noting that the “unrelated” exception is a “rare exception” to the general rule that “consisting of” closes the group.  The court explained here that the existence of magnesium stearate would certainly impact the invention by placing a lipophilic compound in an area designed to be hydrophilic.

When the outer, hydrophilic matrix interacts with a person’s digestive fluids, the matrix creates a swollen barrier preventing aqueous solution from reaching the inner, lipophilic matrix. This delay permits the product to proceed through the digestive system until the water breaks apart the outer matrix, releasing the lipophilic granules.

The court here found that the adding mag stearate to the outer layer has the potential of changing this process.  As such, the Norian exception does not apply, and Shire’s Markush claim is closed.  No infringement.

Question: Tell me why did Shire use “consisting of” instead of “comprising” or “consisting essentially of”?

Answer: In response to this inquiry, a reader correctly pointed us to MPEP 2173.05(h), which states” “It is improper to use the term ‘comprising’ instead of ‘consisting of’ [in a Markush group.]”  Citing Ex parte Dotter, 12 USPQ 382 (Bd. App. 1931).  In Dotter, the patentee sought a patent on an air purifier apparatus that relied upon a “mass of loose granules of a natural material of the group comprising wood and grains.”  Although the Board objected to the use of “comprising”, it did not explain the legal basis for its objection. Board wrote:

The word “comprising” does not exclude other materials besides wood and grains. It is considered that the word “consisting” would be more appropriate in this relation in confining the material strictly to these materials –wood and grains. If this formal change is made in claim 17 it may be allowed.

The word “comprising” does not exclude other materials besides wood and grains. It is considered that the word “consisting” would be more appropriate in this relation in confining the material strictly to these materials –wood and grains. If this formal change is made in claim 17 it may be allowed.

It turns out that the MPEP’s quote is from a case, just not Dotter.  It comes from In the precedential case In re Harnish, 631 F.2d 716, 723 (C.C.P.A. 1980)(“It is improper to use the term ‘comprising’ instead of ‘consisting of.'”)  Again, however, the court fails to justify its reasoning or basis for that objection. However, there is a slight suggestion elsewhere in the decision that the objection might be based on lack of unity of invention.

An interesting bit of the claim at issue here is that they make double-use of the consist/consisting of language.

said outer hydrophilic matrix consists of compounds selected from the group consisting of

I wonder whether the PTO would object to a reformulation claiming the “matrix comprising compounds selected from the group consisting of …” Thoughts?

First Rehearing Request Challenging No-Opinion Judgments

by Dennis Crouch

LSI v. FLIR (Fed. Cir. 2017) (request for rehearing) [16-1299-leak-surveys-v-flir_combined-rehg]

In its newly filed petition for rehearing, Leak Surveys has asked the Federal Circuit to withdraw its Judgment Without Opinion. Leak’s Counsel (Donald Puckett) argues:

It is hard to imagine an appeal more unsuitable for affirmance without opinion under Fed. Cir. R. 36 than this one.

The petition makes two primary arguments:

  1. If the Federal Circuit’s judgment is based upon new or alternative grounds not stated by the PTAB, then it must write an opinion.  Although the reason for a judgment without opinion are not directly discernible, the petitioner here suggests that it was likely based upon theories first espoused by the court and respondent at oral arguments — sufficient to form a prima facie conclusion that the judgment relied upon new or alternate grounds.
  2. LSI urges the en banc Court to grant rehearing to decide whether this Court can ever affirm a PTAB IPR decision without opinion. See 35 U.S.C. § 141 (in USPTO appeal, Federal Circuit “shall issue to the Director its mandate and opinion . . .”) (emphasis added). See also Crouch, Wrongly Affirmed Without Opinion, Univ. of Missou. L. Stud. Research Paper No. 2017-02, Forthcoming 52 Wake Forest Law Review ___ (2017) (http://ssrn.com/abstract=2909007).

In offering the first weaker option, LSI gives the court an option in case it “may hesitate to open a floodgate of rehearing requests.”  Of course, there are only about a dozen R.36 decisions that are still within the court’s 30-day deadline for requesting rehearing.  (The Supreme Court has a 90-day deadline).  The stronger approach that I argue for: “LSI presents this argument here to preserve it for further appeal to the U.S.
Supreme Court if necessary.”  [Amicus support due within two weeks]

The underlying appeal center on the validity of Leak’s U.S. Patent No. 8,193,496 and 8,426,813 that cover gas-leak detection equipment and methods using a passive-IR camera and bandpass filter.  The primary issues were claim construction (“leak” and “normal operating conditions”) and motivation to combine in the ultimate obviousness conclusion.   The original brief began as follows:

The IPR proceedings below resulted in the creation of a dense factual record involving 24 declarations and 14 depositions. Almost all witnesses were scientists (many with Ph.D. degrees) having personal knowledge of the petroleum industry’s extensive efforts (and failures) to develop a commercially viable imaging system for detecting hydrocarbon gas leaks in the field. Most of these same witnesses also offered first-hand testimony of [the inventor] David Furry’s own efforts to solve the same technical problem. Several witnesses -top scientists from the largest petroleum companies – described the day in 2004 when Furry showed up at the industry’s “Scan Off” to demonstrate his “Hawk” camera against the industry’s then-best optical leak detection systems. These scientists, having dedicated years of work and countless resources to creating a commercially viable optical leak detection system, testified that they were completely surprised and astonished by the Hawk’s unexpected results. It was immediately apparent that Furry had solved an important technical problem that the petroleum industry had been unable to solve.

leaksurveysmeritsbrief

us08193496-20120605-d00001

 

Judgments Without Opinion Continue at the Federal Circuit

I had hoped that the Federal Circuit would quickly change its ways, but the court has now issued a new R.36 Judgment in a PTO Appeal: GreatBatch Ltd. v. AVX Corp. (Fed. Cir. 2017) (judgment without opinion).  In a draft article released last week (now forthcoming in The Wake Forest Law Review), I argue that 35 U.S.C. § 144 requires the PTO to issue opinions in these cases rather than simply judgments without opinion.  In particular, the statute states:

[T]he Federal Circuit shall review the decision from which an appeal is taken …. Upon its determination the court shall issue to the Director its mandate and opinion, which shall be entered of record in the Patent and Trademark Office and shall govern the further proceedings in the case.

The particular case here is narrow – what exactly is disclosed by the cited prior art – and  how a prior art pin assembly is grounded.  Truly a narrow issue, but what the oral arguments suggest is that the court did not really understand the technology at issue and instead planned to rely upon the substantial evidence standard of review.

Eligibility: Explaining the IPO Legislative Proposal

by Dennis Crouch

Following Bilski, Prof. Rob Merges and I published a paper titled “Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making” arguing, inter alia, that eligibility decisions are largely out of the normal bailiwick of PTO examiners.  As imagined by the Supreme Court, the eligibility doctrine really became too philosophical and policy based to be administrable.  Alice and Mayo were subsequently released and did not help the situation.  Under Dir. Lee, the USPTO did figure out a way to administer the test — by not following the test set-out by the Supreme Court.  Rather than looking for abstract ideas and laws of nature as imagined by the Supreme Court, examiners are guided to look specifically only for concepts that the courts have already identified as problematic.  Of course, as the number of court cases finding ineligible subject matter rises, the PTO’s approach has necessarily expanded as well.

The administration concern is one factor behind the IPO’s newly proposed legislative change to 35 U.S.C. 101.   For the IPO, though, the larger issue though is “revers[ing] the recent Supreme Court rulings and restore the scope of subject matter eligibility to that intended by Congress in the passage of the Patent Act of 1952.”

IPO Steps Up: Proposes Statute to Overturn Mayo and Alice

In a newly published whitepaper, the IPO explains its proposed legislative amendment. [PDF20170207_ipo-101-tf-proposed-amendments-and-report]

Following an explanation rejected by the Supreme Court in its eligibility doctrine, IPO explains that the traditional subject matter exceptions including abstract ideas and laws of nature were part of the pre-1952 “invention” requirement.  That requirement was eliminated in the 1952 Act in a way that, according to the IPO, should have opened the door to broad subject matter jurisprudence.  As the organization sees it, the Supreme Court began to go off track in the 1970s – a path revived in recent years.

With this avenue of legal argument rejected by the courts, the IPO sees itself forced to appeal to Congress for a more direct statement of broad subject matter eligibility.

The IPO’s proposed amendment is as follows:

101 Inventions patentable.

101(a) ELIGIBLE SUBJECT MATTER: Whoever invents or discovers, and claims as an invention, any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereto, shall be entitled to thereof, may obtain a patent for a claimed invention thereof therefor, subject only to the exceptions, conditions, and requirements set forth in this Title of this title.

101(b) SOLE EXCEPTION TO SUBJECT MATTER ELIGIBILITY: A claimed invention is ineligible under subsection (a) if and only if the claimed invention as a whole, as understood by a person having ordinary skill in the art to which the claimed invention pertains, exists in nature independently of and prior to any human activity, or exists solely in the human mind.

101(c) SOLE ELIGIBILITY STANDARD: The eligibility of a claimed invention under subsections (a) and (b) shall be determined without regard as to the requirements or conditions of sections 102, 103, and 112 of this Title, the manner in which the claimed invention was made or discovered, or the claimed invention’s inventive concept.

In describing the 101(a) amendment, the IPO explains that, in the amended structure “utility [is] the sole basis of eligibility.”  The requirement that the entitlement to a patent is “subject only to the exceptions and conditions set forth in this Title” is, according to the IPO, intended “to foreclose the development of any future ‘judicial exceptions” to section 101.” and to recognize that the “only exceptions to the entitlement to a patent … are those defined in the statute.”  The IPO statement does not consider the impact of other already-existing non-statutory exceptions such as double-patenting, but presumably those will disappear unless a sufficient statutory hook is found.

Proposed 102(b) includes a very narrow exception to eligibility.  I would suggest that there is almost nothing on earth that provably “exists in nature independently of and prior to any human activity” leaving the only actual exception that the invention “exists solely in the human mind.”  On this second exception, IPO writes:

This ineligibility criterion … makes eligible any claim limitation that requires some external involvement with the physical world or any representation thereof (e.g., data in a computer).
. . . [However] ideas that do not have physical or tangible aspects . . . are not patentable.

The IPO does not indicate whether the exception would be triggered if a single embodiment of the invention could conceivably exist solely in a human mind.  I expect that it would.

According to the IPO, 101(c) is designed to ensure that eligibility is not determined based upon the novelty, obviousness, or definiteness of a patent claim.  I would suggest that the language does not quite achieve the purpose suggested.  A more effective revision might state instead that “eligibility of a claimed invention. . . shall be determined without regard to its novelty, obviousness, or definiteness, or lack thereof.”

I compliment the IPO on taking this major step and beginning a conversation on legislative fixes to the eligibility doctrine.

I agree with the IPO members that the current situation is quite problematic both because the lines are so unclear and because they are ruling-out many inventions that should qualify in my conception.  That said, I believe that the provision likely goes too far.  I would suggest that the proposal take at least two further steps: (1) include a third exception to eligibility derived from the printed matter doctrine; and (2) include a new 102(d) that expressly defines the scope of the utility doctrine so that it becomes clear what work will be going on there.  It should be clear from the statute that ordinary works of authorship, for instance, are not patent eligible.

Supreme Court Update: Are Secondary Indicia of Invention Relevant to Eligibility?

by Dennis Crouch

The Supreme Court is on recess until Feb 17.

I don’t know if my end-of-April prediction will hold true, but I do expect Neil Gorsuch to become a Justice on the United States Supreme Court.  As a 10th Circuit Judge, Gorsuch never decided a patent case, but does have a handful of interesting IP cases.

There are a few petitions filed that we have not discussed here: 

 In its newest petition, DataTreasury takes 101 for a new spin by taking the 101/103 analysis to its next logical level.  If we are going to include a 103 analysis as part of the eligibility doctrine then lets go whole hog.  Thus, DataTreasury asks: whether a court must consider secondary indicia of invention as evidence in its eligibility analysis? In the case, the Federal Circuit had affirmed the PTAB judgment without opinion under R.36. A second eligibility petition is found in TDE Petroleum Data Solutions, Inc. v. AKM Enterprise, Inc., dba Moblize, Inc. TDE asks the court to “please reconcile Diehr and Alice.” (I’m not literally quoting here).  The patent at issue (No. 6,892,812) claims a four-step process of “determining the state of a well operation.” (a) store several potential “states”; (b) receive well operation data from a plurality of systems; (c) determine that the data is valid by comparing it to a threshold limit; and (d) set the state based upon the valid data.

In Wi-LAN v. Apple, the patentee revives both Cuozzo and Markman claim construction arguments – this time focusing on “whether claim terms used to define the metes and bounds of an invention are generally given their “plain and ordinary meaning,” or are redefined (limited) to match the scope of the exemplary embodiments provided in the specification.”

duPont v. Macdermid asks whether summary judgment of obviousness is proper because of the factual disputes at issue.  Similarly, in Enplas v. Seoul Semiconductor, the petitioner argues that a finding of anticipation by the PTAB must be supported by findings each and every element of the subject patent claim is disclosed in the prior art.  In Enplas, the Federal Circuit affirmed the PTAB on a R.36 Judgment Without Appeal — it difficult for the petitioner to point to the particular deficiencies.

 

=== THE LIST===

1. 2016-2016 Decisions:

  • Design Patent Damages: Samsung Electronics Co. v. Apple Inc., No 15-777 (Total profits may be based upon either the entire product sold to consumers or a component);  GVR order in parallel case Systems, Inc. v. Nordock, Inc., No. 15-978.  These cases are now back before the Federal Circuit for the job of explaining when a component

2. Petitions Granted:

3. Petitions with Invited Views of SG (CVSG): 

4. Petitions for Writ of Certiorari Pending:

  • Claim Construction: Wi-LAN USA, Inc., et al. v. Apple Inc., No. 16-913 (“plain and ordinary meaning”)
  • Is it a Patent Case?: Boston Scientific Corporation, et al. v. Mirowski Family Ventures, LLC, No. 16-470 (how closely must a state court “hew” federal court patent law precedents?) (Appeal from MD State Court)
  • Anticipation/Obviousness: Google Inc., et al. v. Arendi S A.R.L., et al., No. 16-626 (can “common sense” invalidate a patent claim that includes novel elements?) (Supreme Court has requested a brief in response)
  • Anticipation/Obviousness: Enplas Corporation v. Seoul Semiconductor Co., Ltd., et al., No. 16-867 (“Whether a finding of anticipation under 35 U.S.C. § 102 must be supported by findings that each and every element of the subject patent claim is disclosed in the prior art?”)
  • Anticipation/Obviousness: E.I. du Pont de Nemours and Company v. MacDermid Printing Solutions, L.L.C., No. 16-905 (summary judgment of obviousness proper)
  • Jury Trial: Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, et al., No. 16-712 (“Whether inter partes review … violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.”) [oilstatespetition]
  • Jury Trial: Nanovapor Fuels Group, Inc., et al. v. Vapor Point, LLC, et al., No. 16-892 (Can a party forfeit a properly demanded trial by jury without an explicit, clear, and unequivocal waiver?)
  • Is it a Patent Case?: Big Baboon, Inc. v. Michelle K. Lee, No. 16-496 (Appeal of APA seeking overturning of evidentiary admission findings during reexamination – heard by Federal Circuit or Regional Circuit?)
  • LachesMedinol Ltd. v. Cordis Corporation, et al., No. 15-998 (follow-on to SCA); Endotach LLC v. Cook Medical LLC, No. 16-127 (SCA Redux); Romag Fasteners, Inc. v. Fossil, Inc., et al, No. 16-202 (SCA Redux plus TM issue)
  • Eligibility: TDE Petroleum Data Solutions, Inc. v. AKM Enterprise, Inc., dba Moblize, Inc., No. 16-890 (Please reconcile Diehr and Alice)
  • Eligibility: DataTreasury Corporation v. Fidelity National Information Services, Inc., No. 16-883 (secondary indicia as part of eligibility analysis).
  • Eligibility: IPLearn-Focus, LLC v. Microsoft Corp., No. 16-859 (evidence necessary for finding an abstract idea)

5. Petitions for Writ of Certiorari Denied or Dismissed:

(more…)

Apple Samsung: Federal Circuit Remands Design Patent Damages Decision to District Court

iphonedesignpatentimageBy Dennis Crouch

Apple v. Samsung (Fed. Cir. 2017)

In a non-precedential decision, the Federal Circuit has remanded this design patent damages dispute back to the district court reconsideration.  The basic question is whether the patented “article of manufacture” (which serves as the basis for profit disgorgment) should be the entire article sold to consumers or some component of that whole.  A patentee would obviously prefer the whole-article basis because it would result in a greater total-profit award. In Samsung Elecs. Co. v. Apple Inc., 137 S. Ct. 429 (2016), the Supreme Court held that the statute is broad enough to encompass either the entire-article or simply a component.  However, the Court refused to provide any guidance as to how to determine the appropriate basis in any particular case (including this case involving Apple’s iPhone design patents).

On remand here, the Federal Circuit has also refused to particularly decide the case but instead has remanded to the District Court for her analysis.  “[W]e remand this case to the district court for further proceedings, which may or may not include a new damages trial.”

The court did provide some commentary:

The Supreme Court clarified that a damages award under § 289 involves two steps: (1) “identify the ‘article of manufacture’ to which the infringed design has been applied;” and (2) “calculate the infringer’s total profit made on that article of manufacture.”

The parties here dispute whether the jury instructions were appropriate based upon this clarification of the law.   Apparently, Judge Koh read the statute to the jury, and did not particularly indicate whether the “article of manufacture” was the phone as a whole or some component thereof.  So, while the instructions are not wrong, they could be more detailed.

On remand, the District Court will need to review the trial record and determine whether a new damages trial is necessary based upon more detailed jury instructions.

= = = = =

I like what the court did here.  When the Federal Circuit does decide this issue, its precedential approach is likely to stick for many years to come.  It makes sense then for the court to seek the perspective of at least one other judge before jumping into the foray.  Here, there is no question that the district court more fully understands the case and the particulars of the trial and so it is also right to remand for consideration of how the Supreme Court’s decision impacts what has already been decided. We can also recognize that the parties are fighting over past damages and both have sufficient cash-on-hand so that a delay in judgment does not create irreparable harm.

= = = = =

In a Footnote, the court looked to foreclose a separate argument on remand. The court writes:

Samsung also argued that § 289 “contains a causation requirement, which limits a § 289 damages award to the total profit the infringer made because of the infringement.” We rejected that argument, and Samsung abandoned this theory during oral argument to the Supreme Court.

Thus, although causation may still be an issue to be debated – it appears out for this case.

TC Heartland: Statutory Interpretation, Fairness, and E.D.Texas

by Dennis Crouch

The topside briefs have been filed in TC Heartland with strong support for the petitioner who is looking to dismantle the notion of nationwide venue against accused patent infringers.  The question presented in the case is one of basic statutory interpretation of Congress’s venue statute: Whether 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by 28 U.S.C. § 1391(c).

28 U.S.C. § 1400(b) appears to severely limit venue in patent cases to “the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”  Section 1391(c), however seems to broaden the definition of residence “For all venue purposes . . . (2) . . .[defendant] shall be deemed to reside … in any judicial district in which such defendant is subject to the court’s personal jurisdiction.”  Since most patent defendants are subject to nationwide personal jurisdiction, venue is then proper in any jurisdiction.

This first-level statutory interpretation seems to make TC Heartland’s case a loser. The thing is, the Supreme Court already decided what is almost the exact same case in its 1957 decision Fourco Glass (limiting patent venue) and the unusual concentration of patent cases in the E.D.Texas has certainly reached the ears of the high court in a way that may influence the outcome.

TC Heartland’s attorneys Dabney & Duffy write:

This is an extraordinary case because it presents a question of statutory interpretation that this Court specifically answered more than a half century ago.

[Petitioner’s Merits Brief: 16-341_pet-authcheckdam1]

In addition to stare decisis, the brief offers a cogent explanation that the narrower, specific interpretation makes sense and that the “for all venue purposes” phrase in the broader statute is limited by its preparatory statement “except as otherwise provided by law.”

One debate here that may arise is a question of what is the “settled law.”  The Federal Circuit broad-venue doctrine has been the approach since its 1990 VE Holdings decision.  Here, however, TC Heartland raises the little known case of  Andrews v. Hovey (1888) for the proposition that a patent statute’s interpretation “cannot be regarded as judicially settled [until] so settled by the highest judicial authority which can pass upon the question.” I wonder though, whether creation of the Federal Circuit should be seen as overruling that prior statute – likely not.

A strong set of amicus briefs have been filed in support.  Most briefs are fairly similar – arguing the statutory interpretation and that the result is bad policy / unfair.  See Bankers Brief [16-341-tsac-aba];  ABA [16-341-tsac-american-bar-association]; APP Ass’n [16-341-tsac-act]; Internet Companies and Retailers [16-341-tsac-48-internet-companies]

The only party in opposition thus far is AIPLA who argues, inter alia, that if a policy needs changed then congress should do the changing. [16-341-ac-aipla]

Although I do not expect the Federal Government (SJ) to weigh-in on the case, one interesting brief comes from a group of 17 state attorneys general, including Texas whose “citizens [have been facing] abusive claims of patent infringement, which businesses and residents confirm are a drag on economic growth.” [16-341-texas-et-al]

Without the Government Brief, Mark Lemley’s brief (on behalf of 61 professors) may be seen as the most influential.  However, I would suggest that the brief loses some amount of its “law professor” credibility by being so one-sided in its statutory construction. [16-341-tsac-61-prof-of-law] Alongside Lemley’s brief is that filed by Stanford’s IP Clinic that argues, inter alia, harm to small businesses and start-ups: “frivolous PAE litigation is negatively correlated with venture capital (VC) investment.” Implicit (and often explicit) in these briefs is the argument that E.D.Texas is supporting frivolous litigation. Stanford writes:  “The Eastern District of Texas Exhibits Abnormal Forum-Selling and Litigant Gamesmanship That Undermine the Appearance of Integrity of the Patent Litigation System.” [16-341tsacengineadvocacy] Orange County IP Law Association’s brief filed by Bill Brown raises the real argument that E.D. Texas Judges now have “de facto policy making authority.” [16-341-tsac-ocipla]; See also Unified Patents [16-341-tsac-unified-patents]

Intel and Dell also offered a strong brief filed by Donald Verrilli in his new role at Munger Tolles: All indicia of statutory meaning show that Congress narrowed patent venue in 1897 and has never expressed an intent to expand it.” [16-341tsacintelcorporation].  Following onto Intel’s intent argument, WLF explains that post-Fourco amendments by Congress should be considered “within the context of a century of special rules governing patent cases. [16-341tsacwashingtonlegalfoundation] The Intel brief also focuses on a common complaint against the Federal Circuit – that it fails to really respect and follow the principles of statutory interpretation.  Here though, the issue is failing to follow Supreme Court precedent.  Intel argues that the “Court does not depart from the doctrine of stare decisis without some compelling justification.” (quoting Hilton v. S. Carolina Pub. Rys. Comm’n, 502 U.S. 197, 201 (1991).

GiantCo GE offers some crocodile tears at the “unfairness” of the provision to nice companies like GE.  Astutely foreshadowing a likely upcoming challenge, GE also reflects that part of the problem is “the Federal Circuit’s expansive approach to personal jurisdiction [that] has further stretched the boundaries of permissible venue in patent cases.” (citations omitted). [16-341-ac-ge]

Although GE’s unfairness arguments likely fall flat, one of the best briefs is that filed by EFF who does a great job of explaining how venue’s primary concern is that of fairness and that the Federal Circuit’s interpretation completely ignores that import. [16-341-tsac-electronic-frontier-foundation]

Generic Pharma adds to the statutory construction by explaining that the venue provisions in Hatch-Waxman Act are inconsistent with the Federal Circuit’s interpretation. [16-341-tsac-generic-pharmaceutical-association]

Finally, last but not least, Chicago’s IP Law Ass’n offers its analysis that patent venue battles over the “best venue” are wasting time and would be unnecessary under Fourco. [16-341-ac-intellectual-property-law-association] [16-341-ac-appendix]

Guest Post: Administrative Law Matters Even More following Cuozzo Speed Technologies v. Lee

By David Boundy

David Boundy of Cambridge Technology Law LLC, a patent law firm in Cambridge, Massachusetts, practices at the intersection of patent and administrative law, and consults with other firms on PTAB trials and appeals. In 2007–09, David led the teams that successfully urged the Office of Management and Budget to quash the USPTO’s continuations, claims, information disclosure statements, and appeal regulations under the Paperwork Reduction Act.

This paper is a short version of an article in the current issue of ABA Landslide, vol. 9, no. 3, electronic edition.  It’s a follow up to my earlier paper on the Cuozzo case, which ran in Patently-O in February 2015.

Cuozzo Speed Technologies v. Lee[1] illustrates an important lesson for the patent bar: federal courts are far more familiar with administrative law than with patent law. Almost every federal court hears several times as many administrative law cases as patent cases. Even the Federal Circuit sees at least as many administrative law issues (involving various federal employees and contracts) as patent law issues. We patent lawyers need better administrative law issue spotting skills, and when a case presents them, we must argue on administrative law grounds with administrative law expertise. Basic principles of good advocacy urge us to argue our cases on the courts’ choice of turf.

Cuozzo is a prime illustration.  In Cuozzo, the Supreme Court narrowly decided that the PTO’s decision to institute an inter partes review (IPR) against Cuozzo’s patent was unreviewable.  Notably, the Court’s reasoning clarifies that many decisions to institute are judicially reviewable, so long as the issues are cloaked in administrative law terms rather than patent law terms. Cuozzo’s loss stems from Cuozzo’s briefing that failed to mention a dead-on administrative law statute, and that was all but silent on the Supreme Court’s administrative law precedent. Cuozzo creates many future opportunities for informed administrative law advocacy.

The AIA, Its Preclusion Statutes, and Cuozzo’s Path to the Supreme Court

The 2011 America Invents Act (AIA) created new patent reviews within the United States Patent and Trademark Office (USPTO): inter partes review (IPR), post-grant review (PGR), and covered business method review (CBM). Congress included preclusion statutes that limit judicial review of USPTO decisions to institute such reviews.

The preclusion statutes for IPR and PGR decisions to institute, 35 U.S.C. § 314(d) and § 324(e) respectively, are essentially similar: “The determination by the Director whether to institute [a review] under this section shall be final and nonappealable.” Compared to other preclusion statutes (discussed in the full Landslide paper), this is decidedly on the weak end of the spectrum of preclusion statutes.

In February 2015, the Federal Circuit gave its first deep consideration to these statutes in In re Cuozzo Speed Technologies LLC.[2] The IPR petition against Cuozzo’s patent had applied reference A to claim 10, and references A, B, and C to claim 17 (which depended from claim 10). However, the Patent Trial and Appeal Board (PTAB) instituted on references A, B, and C against claim 10. The PTAB cited no statute or regulation, only its own naked claim of “discretion” to mix and match among the grounds in the petition.

The IPR ended in cancellation of claim 10, on references A, B, and C.

Cuozzo appealed the final decision to the Federal Circuit, and challenged the decision to institute. The Federal Circuit held that § 314(d) precluded all review of all issues embedded in a decision to institute: “On its face, the provision is not directed to precluding review only before a final decision. It is written to exclude all review of the decision whether to institute review.”[3]

In June 2016, the Supreme Court issued its further decision.  Where all decisions leave open issues, Cuozzo introduces several internal contradictions.  Let’s look at the background administrative law case law, and how Cuozzo fits—or misfits.

APA § 706: Government-Wide Grounds of Judicial Review

The Administrative Procedure Act (APA), in 5 U.S.C. § 706(2), confines judicial review of agency action to a specific list of errors—a court may set aside agency actions that are:

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;  …
(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;
(D) without observance of procedure required by law; …

Section 706(2) is famously deferential to agencies, but it doesn’t insulate agencies totally. Courts set aside agency decisions that fail standards of “reasoned decisionmaking” by failing to explain an important point, giving an irrelevant explanation, omitting consideration of important factors or basing a decision on impermissible factors, deciding without evidence, deciding on legal error, acting beyond jurisdictional authority, and the like.

APA § 704: Preliminary Decisions Are Reviewable with Final Agency Action

Procedural lapses usually find review under 5 U.S.C. § 704: “A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is subject to review on the review of the final agency action.” Thus, if an agency’s final decision is infected by error earlier in the process, the final decision can be attacked on the basis of that underlying error.

Supreme Court’s Presumption of Judicial Review

Since the days of Chief Justice John Marshall, the Supreme Court has relied on a strong presumption that judicial review is available for executive branch action.[4] Agency decisions are presumed to be reviewable, and preclusion statutes are construed narrowly. Even within the scope of preclusion, an agency decision that reflects “brazen disregard” of procedure, or “abuse,” or that has sufficiently grave consequences, often can be reviewed.  Likewise, the Court has always held agencies to scrupulous observance of their own procedures. The presumption of review has always been extraordinarily high for procedure, and the “holes” in preclusion statutes for procedure and “abuse” have always been quite large. Cuozzo is an extraordinary outlier. Among the principles established in Supreme Court precedent:

  • Courts accept judicial review of underlying issues in agency decisions, even if the final decisions are unreviewable, especially where procedural fairness is at stake.[5]
  • Preclusion statutes are read narrowly—they preclude only what they say they preclude, and no more. Even where a statute precludes review of an end result decision, underlying issues are not precluded unless the preclusion statute speaks expressly to those underlying issues.  “[R]eview is available to determine whether there has been a substantial departure from important procedural rights, a misconstruction of the governing legislation, or some like error going to the heart of the administrative determination.”[6]
  • Courts read statutes closely to split issues finely, and will review issues (especially underlying issues) that differ by a hair’s breadth from precluded issues. When a statute precludes benefit amounts for individual claimants, “challenges to the validity of the Secretary’s instructions and regulations[] are cognizable in courts of law.”[7]
  • When an agency statute, regulation, or guidance promises the public that an agency or agency employee “must” or “will,” the agency must follow those procedures “scrupulously.” Review of agency decisions under § 706(2)(D), “without observance of procedure required by law,” is “strict” and “without deference.”[8]

Review under § 704/§ 706 is a persistent substrate. To preclude review, especially of underlying issues, Congress must speak expressly.

Cuozzo’s Brief, the Majority Opinion, and the End Result: Cuozzo’s Specific Institution Is Nonreviewable

The Cuozzo majority opinion follows the basic contour of 50 years of precedent: preclusion statutes are to be read narrowly. However, on the facts, Cuozzo lost—the Court characterized Cuozzo’s complaint to be a “mine-run claim,” “an ordinary dispute about the application of certain relevant patent statutes,” and “little more than a challenge to the Patent Office’s conclusion, under § 314(a), that the ‘information presented in the petition’ warranted review.”[9] That is, the Supreme Court understood the case to be a good faith difference of opinion in application of validly promulgated law, not a case of an agency tribunal exercising naked “discretion” against a party, making up new rules on the fly with no grounding in any text, and asserting those new rules in a context with no opportunity for rejoinder. Because the Court was not informed of the procedural basis for the case, the Cuozzo opinion stands in striking contrast with the Court’s precedent that requires agencies’ “scrupulous” observance of procedure, and strict “no deference” judicial review for procedural issues.

The Supreme Court majority opinion embeds a number of internal contradictions that leave a great deal of unclear ground. The majority’s holding, if applied to the facts—at least the procedural facts as we patent lawyers understand them—leads to the opposite result.

Most of these contradictions in the majority opinion, and perhaps the final result itself, are invited error. Cuozzo’s brief treats the case as a patent law case, arguing page after page of Title 35 U.S.C. and Federal Circuit patent law cases.[10] Cuozzo’s opening brief cites Supreme Court “preclusion of review” cases only as a cursory afterthought—a single string cite, with no discussion of analogies to precedential cases. The brief compounds the error by citing a 1946 case that had been overruled by the Supreme Court in 2013.  The table of authorities in Cuozzo’s opening brief has only a single cite to Title 5 U.S.C., and only one more in the reply brief.

But reviewability is an administrative law issue, and that’s where the Court decided it.

Even though Cuozzo’s briefs are all but irrelevant to the administrative law bases on which the Court decided the case, the reasoning comes so close to going Cuozzo’s way. Cuozzo demonstrates the importance of identifying the turf where a court is likely to decide an issue, and arguing it there.  And that may well be administrative law, rather than patent law.

Cuozzo’s “Long Paragraph”

The heart of the majority opinion is a long paragraph toward the end of section II, beginning “Nonetheless.” The majority explains that most issues arising under patent law are precluded, but that issues arising under other bodies of law are not. Review remains available for constitutional questions, and most importantly, for issues slotted into one of the pigeonholes of APA § 706.  The latter half of the “long paragraph” reads as follows:

[W]e do not categorically preclude review of a final decision where a petition fails to give “sufficient notice” such that there is a due process problem with the entire proceeding, nor does our interpretation enable the agency to act outside its statutory limits by, for example, canceling a patent claim for “indefiniteness under § 112” in inter partes review. Such “shenanigans” may be properly reviewable in the context of § 319 and under the Administrative Procedure Act, which enables reviewing courts to “set aside agency action” that is “contrary to constitutional right,” “in excess of statutory jurisdiction,” or “arbitrary [and] capricious.”[11]

The latter half of the long paragraph, especially the last sentence, opens a wide barn door. The Cuozzo majority’s long paragraph indicates that the full reach of § 706 applies to underlying issues in decisions to institute.  Cuozzo tells us that issues that are losers when presented in patent law vocabulary become winners when wrapped in administrative law vocabulary.

Cuozzo Could Have Argued an Administrative Law Jurisdictional Issue

Cuozzo’s brief doesn’t squarely present the issue of the PTAB’s transgression of its own jurisdictional boundaries. Section 312(a) reads, “A petition . . . may be considered only if . . . the petition identifies, in writing and with particularity, each claim challenged, the grounds on which the challenge to each claim is based . . . .” Section 314(a) reads, “The Director may not authorize [institution of an IPR] unless the Director determines that the information presented in the petition . . . shows that there is a reasonable likelihood that the petitioner would prevail . . . .” These are plainly jurisdictional statutes, confining jurisdiction to the grounds in the petition. The APA, in § 706(2)(C), provides that a court shall set aside agency action “in excess of statutory jurisdiction.” Yet, Cuozzo’s brief argues only breaches of the AIA, not the administrative law jurisdictional issues that—the majority tells us—would be reviewable under administrative law principles.

The Supreme Court has been quite strict in enforcing agencies’ jurisdictional boundaries, no matter (in the Cuozzo majority’s words) how compelling “one important congressional objective” might be.[12]

Cuozzo’s brief fleetingly nibbles at the edges of the issue, and even cites one of the important cases in this line (for a different proposition), but never squarely frames the challenge as “in excess of [the agency’s] jurisdiction”—neither brief mentions § 706 at all.  And thus Cuozzo lost the issue.

The latter half of Cuozzo’s “long paragraph” places jurisdictional issues within the scope of judicial review, so long as they are framed in an § 706(2)(C) administrative law context, not a patent law context.  Subject matter jurisdiction is central to a court’s duty to prevent agencies from “act[ing] outside . . . statutory limits,” or in the language of § 706, “in excess of statutory jurisdiction.”

Had the issue been presented squarely as a challenge to PTAB action beyond its jurisdiction, with the patent law issues argued as underlying support for APA § 706(2)(C) “in excess of jurisdiction” grounds, Cuozzo likely would have obtained a favorable result, and the Court majority would not have been left grasping at inconsistent straws to reach its decision.

Several more omissions from Cuozzo’s brief, and internal contradictions in the majority opinion, are discussed in the full Landslide paper.  The full paper shows that Cuozzo lost a very winnable case because the opening brief argued patent law principles to the near exclusion of administrative law principles. The patent bar is left with a resultant set of internal contradictions in the Cuozzo decison, with all the problems and opportunities they create.  And the Federal Circuit is left with a difficult task of reconciling Cuozzo’s reasoning against its end result.

Conclusion

The full paper gives a number of other examples of questions that come out differently depending on whether they’re argued as patent law issues or administrative law issues. There are many differences between the powers of an Article III court and of an agency tribunal, differences between appellate review of an Article III court vs. judicial review of an agency, differences in the arguments that an appellant and appellee can raise, and differences in limits on raising new issues on appeal. Unfortunately, Cuozzo’s brief did not exploit those differences or cite the applicable administrative law.

The key take-away is that almost every PTAB proceeding and appeal presents a “target rich environment” of administrative law issues. Teams that include administrative law expertise will successfully exploit many opportunities that are invisible to teams without that expertise.

Because of internal tensions in the Cuozzo decision, many issues remain to be decided by the Federal Circuit, and will be decided differently depending on how well parties match their argument turf to courts’ choice of decision turf.

Endnotes

[1]. Cuozzo Speed Techs. v. Lee (Cuozzo III), 136 S. Ct. 2131 (2016).

[2]In re Cuozzo Speed Techs. LLC (Cuozzo I), 778 F.3d 1271 (Fed. Cir. 2015), reissued without change to the reviewability discussionCuozzo II, 793 F.3d 1268 (Fed. Cir. 2015).

[3]Cuozzo I, 778 F.3d at 1276.

[4]. 5 U.S.C. § 702 (“A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof.”); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971).

[5]Service v. Dulles, 354 U.S. 363 (1957); Vitarelli v. Seaton, 359 U.S. 535 (1959).

[6]Lindahl v. Office of Personnel Management,470 U.S. 768, 791 (1985) (internal quotation marks omitted).

[7]Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 680 (1986).

[8]Reuters Ltd. v. FCC, 781 F.2d 946, 950–51 (D.C. Cir. 1986); see also Berkovitz v. United States, 486 U.S. 531, 544 (1988) (“The agency has no discretion to deviate from [its procedural regulations].”).

[9]Cuozzo III, 136 S. Ct. 2131, 2136, 2139, 2142 (2016).

[10]See Brief for the Petitioner, Cuozzo III (No. 15-446), 2016 WL 737452 at xiv, 52-53, 54 (Feb. 22, 20142016); Reply Brief for the Petitioner at iii, Cuozzo III, 2016 WL 1554733 (Apr. 15, 2016).

[11]Cuozzo III at 2141–42 (majority opinion).

[12]FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 125 (2000)