May 2018

Plaintiff has Burden of Establishing Proper Venue in Patent Cases

by Dennis Crouch

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

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

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

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

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

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

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

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

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

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


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

Injured by Estoppel

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

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

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

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

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

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

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

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

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

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

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


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

by Dennis Crouch

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

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

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

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

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

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

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




Just Compensation for Cancelling My Patent

by Dennis Crouch

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

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

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

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

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

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

Waiving the SAS Right to Trial on All Challenged Claims

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

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

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

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

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

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

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

The US Venue Laws do Not Protect Alien Defendants

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

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

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

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

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business. 28 U.S.C. 1400(b).

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

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

by Dennis Crouch

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

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

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

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

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

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

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

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






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

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

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

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

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

CURRENT: 37 C.F.R. § 42.100

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

PROPOSED: 37 C.F.R. § 42.100

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

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

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

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

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

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

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

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

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

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

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

28 U.S. Code § 1295(a) The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction—(1) of an appeal from a final decision of a district court of the United States . . . in any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to patents . . . ;

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

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

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

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

Failure to Disclose Pre-Filing Service Contract == Inequitable Conduct

by Dennis Crouch

In Energy Heating v. Heat On-The-Fly, the Federal Circuit affirmed the lower court’s holding that Heat On-The-Fly’s U.S. Patent No. 8,171,993 is unenforceable due to inequitable conduct.

The underlying invention involves a portable system for preparing a heated water and proppant (e.g. sand) mixture for use in hydraulic fracing.  Mr. Hefley, sole inventor and founder of Heat On-The-Fly, filed his priority provisional patent application back in September 2009 that eventually led to the ‘993 patent.

The problem:  By September 2008 (one year before filing), Heafly and his company had provided his services to dozens of “frac jobs” — collecting almost $2 million in revenue.

Mr. Hefley admitted at trial that he and his companies used water-heating systems containing all the elements of claim 1 on at least 61 frac jobs before the critical date. The court further found that invoices reflected that Mr. Hefley’s companies collected over $1.8 million for those pre-critical date heat-on-the-fly services.

Those pre-filing jobs were not disclosed to the USPTO while the ‘993’s application was pending – even though they appear quite material under 102(b) (Pre-AIA).

35 U.S.C. 102(b) (Pre-AIA) A person shall be entitled to a patent unless — (b) the invention was ... on sale in this country, more than one year prior to the date of the application for patent in the United States.

Under Pfaff, the “on sale” bar requires (1) a “commercial” sale or offer and (2) the invention be “ready for patenting.” Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998).  One exception to this rule is for “bona fide experiments.”  In particular, the Federal Circuit has held that experiments to “(1) test the claimed features or (2) determine if the invention would work for its intended use . . . will not serve as a bar.” Citing Clock Spring, L.P. v. Wrapmaster, Inc., 560 F.3d 1317 (Fed. Cir. 2009).

Inequitable Conduct: In the failure-to-disclose context inequitable conduct requires clear and convincing evidence that “the applicant knew of … the prior commercial sale, knew that it was material, and made a deliberate decision to withhold it.” See Therasense.  These issues are determined by the district court judge and given deference on appeal.  Thus, an inequitable conduct finding should only be overturned when based upon a misapplication of law or based upon a clearly erroneous finding of fact.

Here, the patentee argued that the prior uses were “experimental” or at least he thought that they were.  That argument was rejected since the prior uses included all elements of claim 1; that there were no notebooks or other experiment-like-paraphernalia; and that the uses were done openly without any attempt to hide the system or require confidentiality. (Linking these factors to Allen Engineering Corp. v. Bartell Industries, Inc., 299 F.3d 1336 (Fed. Cir. 2002)).  Those elements were more than enough to overcome the experimental-use-defense.

On Attorney Advice: The court also affirmed that Hefley knew of the materiality. On this point, the interesting twist involve’s Hefley’s patent attorney Seth Nehrbass.  Nehrbass was not permitted to testify at trial — but would have apparently testified that the non-disclosure was on attorney advice:

HOTF asserts that Mr. Nehrbass would have testified that Mr. Hefley told him about the 61 frac jobs, but that Mr. Nehrbass decided they were all experimental uses that need not be disclosed.

This testimony might have saved the patent from the inequitable conduct finding.  However, it was properly excluded on prejudice grounds. In particular, up until just before trial Hefley had asserted attorney-client-privilege (including during the Nehrbass and Hefley depositions).  Then, just before trial, Hefley attempted to raise the attorney-advice defense.

We conclude that the district court did not abuse its discretion in excluding Mr. Nehrbass’s testimony. The attorney-client privilege cannot be used as both a sword and a shield. HOTF was the one who asserted the attorney-client privilege in the first instance and was also the one who failed to follow up later by deposing or otherwise making Mr. Nehrbass available for examination prior to trial. HOTF cannot have it both ways. Accordingly, we conclude that the district court did not abuse its discretion in excluding this evidence on HOTF’s advice of counsel defense.

Inequitable conduct affirmed.  Because inequitable conduct wiped-out all of the patented claims, the court did not reach the other patent questions of “obviousness, claim construction, and divided infringement. (more…)

When Co-Inventors Fail to Cooperate – Nobody Gets a Patent

by Dennis Crouch

In re VerHoef (Fed. Cir. 2018) is a sad tale of a failed partnership that doomed the patent rights.  The tale may be useful for anyone representing co-inventors involved in a start-up.  At a minimum, a corporate entity should have been created at the get-go to hold the patent rights and mitigate later breakdowns in the partnership. Notice the drawing below – even the dog looks sad.

= = = =

For patent applications filed prior to the America Invents Act implementation, the Patent Act included an express requirement that the patent applicant be the inventor.

A person shall be entitled to a patent unless - (f) he did not himself invent the subject matter sought to be patented.  35 U.S.C. 102(f) (pre-AIA)

The named in inventor in this case – Jeff VerHoef – received some help from a veterinarian Dr. Lamb. In particular, VerHoef first designed and built his prototype harness designed to provide ‘knuckling’ therapy for his dog.  Later, during a therapy session with Dr. Lamb, she suggested he consider a “figure 8” strap around the dog’s toes.  VorHoef implemented the idea then filed for patent protection — naming both himself and Dr. Lamb as co-inventors. 

Several months later, relations between VerHoef and Lamb broke-down; their original application was abandoned; and each filed their own separate patent applications. Both applications were filed on December 16, 2011 and are identical except for the names of the listed inventors.

Compare Pub. No. 20130152873 (VerHoef - at issue here) with Pub No. 20130152870 (Lamb - now abandoned).

VerHoef’s examiner examiner uncovered the parallel Lamb Application and subsequently rejected the claims under Section 102(f) — alleging that Lamb’s application provides evidence that “applicant did not invent the claimed subject matter.”  The PTAB affirmed that ruling and on appeal here the Federal Circuit has also affirmed.

For joint-inventorship, the baseline principles revolve around “conception.” Individuals who conceive of features that lead to the whole invention are generally thought of as proper joint-inventors.  However, the exact penumbra of what counts as sufficient contribution is at times difficult to exactly discern. Some cases suggest “every feature” while others require “significant contribution” as compared with the invention as a whole.  Here the court did not need to parse-out the exact limits. Rather, VerHoef admitted that the figure-eight design (1) was contributed by Lamb and (2) is an “essential feature” of the invention.

VerHoef argued that he is the sole-inventor since he “maintained intellectual domination and control over the work” at all times and since Lamb “freely volunteered” the idea of the figure eight loop during a therapy session. (“Lamb’s “naked idea was emancipated when she freely gave it to VerHoef.”)

The domination legal theory here from an  old patent board decision, Morse v. Porter, 155 U.S.P.Q. 280 (B.P.A.I. 1965).  In Porter, the Board wrote that if an inventor “maintains intellectual domination of the work of making the invention . . . he does not lose his quality as inventor by reason of having received a suggestion or material from another even if such suggestion proves to be the key that unlocks his problem.”  Porter is cited by the Patent Office MPEP inventorship section as the basis for the following heading:


Quarantining Bayh-Dole

by Dennis Crouch

National Institute of Standards and Technology (NIST) (a branch of the Department of Commerce) has announced a new initiative to “improve federal technology transfer” along with a Request for Information (RFI) published in the Federal Register.  The government is looking to “gather information about the current state of Federal technology transfer and the public’s ability to engage with Federal laboratories and access federally funded R&D through collaborations, licensing, and other mechanisms.”

The agency is broadly seeking for comments on topics including:

  1. Best practices in federal technology transfer (what are we doing right . . . and wrong);
  2. Improving efficiency and reducing regulatory burdens in order to attract private sector investment in later-stage R&D, commercialization, and advanced manufacturing;
  3. Ideas for new partnership models with the private sector, academia, other Federal agencies.
  4. Metrics and methods for evaluating the ROI outcomes and impacts arising from Federal R&D investment; and
  5. Mechanisms for significantly increasing technology transfer outcomes from the Federal sector, universities, and research organizations.

Looming large in the background of current Federal Policy is the the Bayh-Dole Act that allows universities and companies to privately patent the results of federally funded research.  In two-years, Bayh-Dole will have its 40th Anniversary — thus the “quarantine” title.



Detail Necessary for a Lawsuit: “Your Products Infringe My Patent”

by Dennis Crouch

Disc Disease Solutions v. VGH Solutions (Fed. Cir. 2018) [17-1483.Opinion.4-27-2018]

Disc Disease’s asserted patents relate to an inflatable air-brace for spinal support. U.S. Patent Nos. 8,012,113 and 7,618,509. The accused infringer sells three different inflatable spinal braces.  However, after considering the complaint filed by Disc Disease, the district court dismissed the case with prejudice for failure to state a claim upon which relief can be granted (R.12(b)(6)).  In the process, the district court rejected Disc Disease’s request to file a first amended complaint.

The timing of the complaint filing is somewhat important. It was filed on November 30, 2015 — the day before the rules of Civil Procedure were officially amended to eliminate the short-form patent complaint (Form 18).   Prior to that change, “Form 18 in the Appendix of Forms provided a form adequate to plead a direct infringement patent claim. See In re Bill of Lading Transmission & Processing Sys. Patent Litig., 681 F.3d 1323, 1334 (Fed. Cir. 2012).” Although the rules of Civil Procedure liberally allow plaintiffs to file a first-amended-complaint, the court here held that Disc Disease’s request to amend was not filed in a timely fashion and thus was appropriately rejected.

Under Iqbal and Twombly, a complaint must include allegations of fact sufficient to allow a “reasonable inference that the  defendant is liable for the alleged misconduct.”

Here, the complaint identified each of the alleged infringing products and then broadly alleged that the products meet “each and every element of at least one claim” of each asserted patent.  The claims did not include a claim chart, reference to any specific claim, or any specific element-by-element analysis.  Noting those failures, the district court ruled that the complaint lacked plausibility because it failed to “explain” the alleged infringement.

On appeal, the Federal Circuit has reversed — holding that the broad infringement allegation is sufficient under Iqbal/Twombly — at least for this relatively simple case. The court writes:

Disc Disease’s allegations are sufficient under the plausibility standard of Iqbal/Twombly. This case involves a simple technology.
The asserted patents, which were attached to the complaint, consist of only four independent claims. The complaint specifically identified the three accused products—by name and by attaching photos of the product packaging as exhibits—and alleged that the accused products meet “each and every element of at least one claim of the ’113 [or ’509] Patent, either literally or equivalently.” These disclosures and allegations are enough to provide VGH Solutions fair notice of infringement of the asserted patents. The district court, therefore, erred in dismissing Disc Disease’s complaint for failure to state a claim.

Judge Reyna’s decision here decides the case at hand, but does not provide substantial guide-posts beyond the general rule – Provide Fair Notice.  What we do know is that in a simple case it will be sufficient to simply identify (1) the patents being asserted and (2) the products being accused.