by Dennis Crouch

The decision in this case is short and non-precedential, but raises an interesting Arthrex issue on Unconstitutional Appointments. 

Snyders Heart Valve LLC v. St. Jude Medical, LLC (Fed. Cir. 2020) (SnydersStJude)

Snyders’ US Patent No. 6,821,297 covers a collapsible artificial heart valve that can be attached through a blood vessel rather than open-heart surgery.

After being sued for infringement, St. Jude filed an IPR petition and won a determination that the claims would-have-been-obvious at the time of the invention. Snyders appealed.

Rather than addressing the merits of the obviousness case, the Federal Circuit has followed its precedent set by Arthrex and has has vacated the PTAB’s judgment because the judges were appointed in an unconstitutional manner. On remand, a reconstituted–and now magically constitutional–PTAB panel will re-do the trial (unless the Supreme Court intervenes before then).

In its argument, Snyders suggested that it should receive some particular treatment from the court because of a potential conflict of interest with Dir. Iancu.  Prior to joining the USPTO, Iancu was in private practice and represented St. Jude in a parallel proceedings.  Although Dir. Iancu has recused himself from the case, Snyders argues that the Director’s conflicts are not so easily erased.  Rather, an attorneys conflicts regularly extend to subordinate employees as well.  Here, the Arthrex remedy comes into play because the court in that case gave more direct authority supervisory to the PTO Director. The following argument comes from Snyders’ brief:

The concept that disqualification of an attorney may extend to that attorney’s subordinate employees is well established. For example, the American Bar Association’s Model Rules of Professional Conduct recognize a conflict where representation of a client is materially limited by an attorney’s personal interest. See Model Rules of Prof’l Conduct R. 1.7(a)(2) (2016). Those rules also recognize that disqualification of an attorney due to a personal conflict may be imputed to fellow employees where the employees would be materially limited due to their loyalty to the attorney.

Snyders Brief.

The Federal Circuit found the argument here “without merit . . . the Deputy Director’s role sufficiently removes any potential taint of the Director’s conflict.”  The Court did not address the particular issue here regarding the heightened supervisory authority of PTAB judges coming-out-of Arthrex.

by Dennis Crouch

Thousands of patents claims have been cancelled by the PTAB in inter partes review proceedings.  These are cases where a third party was willing to pay hundreds-of-thousands-of-dollars to cancel a set of claims.  A good number of those patents would have been enforced by a district court. In fact, a good number of those patents have been enforced in Federal Court.

Personal Audio, LLC v. CBS Corporation (Supreme Court 2020) again builds a montage of competing patent tribunals — a district court that enforces and an administrative court that undermines.  This case adds an important third tribunal to the story — the jury.  The disappointing climax is usually the same — spent on the Federal Circuit who sides with the administration.

In this case, the jury sided with Personal Audio — finding the asserted claims of its US8112504 both valid and infringed. (Verdict excerpt below from September 2014).  The jury awarded $1.3 million.

By the time of the jury verdict, the IPR petition filed by the non-profit EFF had already been instituted by the PTAB. Tthe district court allowed post-judgment motions to flounder for months and by April, the PTAB had released its final judgment finding the same claims invalid.  (Note, the PTO no longer institutes IPRs on patents that are close to trial).

The IPR was affirmed on appeal, and the district court relied upon that determination to cancel the jury verdict and enter a final judgment in favor of the Defendant.  The Federal Circuit then affirmed based upon its prior precedent of XY, LLC v. Trans Ova Genetics, 890 F.3d 1282, 1294 (Fed. Cir. 2018); Dow Chemical Co. v. Nova Chemicals Corp. (Canada), 803 F.3d 620, 628 (Fed. Cir. 2015); ePlus, Inc. v. Lawson Software, Inc., 789 F.3d 1349, 1358 (Fed. Cir. 2015); Fresenius USA, Inc. v. Baxter Int’l, Inc., 721 F.3d 1330 (Fed. Cir. 2013).

Now, Personal Audio is up before the U.S. Supreme Court with a few interesting questions. The basic argument is that collateral estoppel (issue preclusion) is not an open-and-shut business. Rather, any time a prior judgment of invalidity is invoked, the “patentee-plaintiff must be permitted to demonstrate, if he can, that he did not have a fair opportunity procedurally, substantively and evidentially to pursue his claim the first time.” Blonder-Tongue Laboratories, Inc. v. U. of Illinois Found., 402 U.S. 313, 332–33 (1971).  The Restatement of Judgments § 29 further walks through a series of reasons and factors for issue preclusion might not apply to a later case.

Blonder-Tongue was a very big case for defendants supporting non-mutual issue preclusion. The point here, though is that it set limits and provided a contextual analysis while the Federal Circuit has moved to an if-then rule-based approach post-IPR.

Here, the patentee argues against estoppel because (1) the PTAB judges were unconstitionally appointed (via Arthrex); and (2) the PTAB determination overturns a prior jury’s finding of facts in a case protected by the 7th Amendment Right to Trial.

The trouble – as usual – is that the claims are pretty bad: Personal Audio’s patent claims a system for distributing “a series of episodes represented by media files via the Internet.”  The new portion appears to be updating a compilation file of currently available episodes.  The list of new episodes (and their links) are downloaded by a client computer that can then use the links to request the actual media files.

The other big difficulty here is a question of when does the jury verdict stick.  Is it worthless until the judge enters final judgment?

The Supreme Court will rule on the petition later this Fall.

by Dennis Crouch

Baxalta Inc. v. Genentech, Inc., 2020 WL 5048435 (Fed. Cir. Aug. 27, 2020)

Although not en banc, this case was picked-up by five different Federal Circuit judges with two separate opinions and one recusal.

Sitting by designation as a D.Del. district court, Judge Dyk sided with the accused infringer Genentech by narrowly construing Baxalta’s US7033590.  Although perhaps most jury members would need some help with definitions, the disputed terms are incredibly basic and fundamental to anyone involved with biotech. Disputed terms:

• Antibody; and
• Antibody fragment.

Following claim construction, the parties stipulated to non-infringement.

On appeal, the Judges Moore, Wallach, and Stoll took up the claim construction question.  However, after oral arguments Judge Stoll recused herself and Judge Plager stepped-in.  The new panel rejected Judge Dyk’s claim construction and consequently vacated the non-infringement judgment.

The patent is directed to a treatment for hemophilia and claims “an isolated antibody or antibody fragment” that binds to FactorIXa and increased its procoagulant activity.

Judge Dyk explained that the term antibody might have various potential meanings.  But here, the patentee expressed a narrower definition within its specification with the following statement:

Antibodies are immunoglobulin molecules having a specific amino acid sequence which only bind to antigens that induce their synthesis. . . . Each immunoglobulin molecule consists of two types of polypeptide chains. Each molecule consists of large, identical heavy chains (H chains) and two light, also identical chains (L chains).

‘590 at Col. 5.  Applying this portion of the patent, the district court limited the scope of antibody to molecules having one set of identical H-chains and a set of identical L-chains.

Genentech’s product uses an antibody organized with a variety of H- and L- chains (not all the H-chains are identical to one another). Thus, Judge Dyk’s requirement of identical chains led to the admission of non-infringement.

On appeal, the Federal Circuit took Judge Dyk to task — finding that the patent did not suggest such a narrow definition of the term. Dependent claim 4, for instance, identifies the antibody as being selected from “the group consisting of … a chimeric antibody, a humanized antibody, … [and] a bispecific antibody.”  The court explains that none of these antibody types in the dependent claim conform with the narrow definition of the term as used in claim 1.

The district court’s construction which excludes these explicitly claimed embodiments is inconsistent with the plain language of the claims. . . . The plain language of these dependent claims weighs heavily in favor of adopting Baxalta’s broader claim construction.

Slip Op.  The court then looked at the definition discussed by Judge Dyk and concluded that it was a “generalized introduction” rather than a “definitional statement.” In this process, the court noted the lack of patent-profanity such as “the present invention is … ”  The court’s conclusion is supported by other aspects of the specification that refers to the bispecific and other forms of antibodies that do not conform to Judge Dyk’s definition. The result: “The claim construction excluding these disclosed and claimed embodiments is therefore incorrect.”

The case also included some prosecution history. In particular, the patentee amended its claims from “antibody derivative” to “antibody fragment.” On appeal, the court found no clear statement from the prosecution history regarding how that amendment modified the scope. Without a ‘clear statement’ there is no prosecution disclaimer leading to disavowal of scope.

by Dennis Crouch

Facebook v. Windy City (Fed. Cir. 2020) [WindyCity Original OP] [WindyCity Revised OP][WindyCity Mark-up Showing Changes]

This was an important PTAB JOINDER case when it was decided by the Federal Circuit back in March 2020.  (Panel of Chief Judge Prost with Judges Plager and O’Malley).  The en banc court has now denied rehearing, but the original panel has also revised its opinion to take into account the the Supreme Court’s intervening decision in Thryv.

In Civil Procedure, joinder is typically divided into distinct area: joinder of claims and joinder of parties.  The AIA statute provides only for joinder of parties, but the PTAB allowed Facebook to join itself to a pending IPR in order to add additional claims. Facebook had wanted to do this type of joinder, because its later-filed IPR petition would have otherwise been time-barred under § 315(b) — and the patent act particularly notes that the 1-year 315(b) time-bar “not apply to a request for joinder”.  In its first decision, the appellate panel held that the self-joinder approach was not permitted by the statute.

Since March, the Supreme Court decided Thryv — and overturned a set of Federal Circuit cases reviewing various petition-stage decisions by the PTAB.  In Thryv, the court held that the USPTO’s interpretation of the § 315(b) one-year time-bar was not reviewable on appeal based upon the “no appeal” provision of § 314(d).

Now the original panel has revised its opinion in Windy City to take into account Thryv.  In its decision, the court explained that 315(c) joinder requires two decisions: (1) determination of whether the joinder-applicant’s petition warrants institution (including whether it is time-barred); and (2) determination of whether joinder should be allowed.  Under Thryv, the first portion of the test is not reviewable on appeal, but the second portion is appealable.

The statute requires the Director (or the Board on behalf of the Director) to make a “joinder decision.”  The statute makes clear that the joinder decision is made after a determination that a petition warrants institution, thereby affecting the manner in which an IPR will proceed.

Thus, the joinder decision is a separate and subsequent decision to the intuition decision.  Nothing in § 314(d), nor any other statute, overcomes the strong presumption that we have jurisdiction to review that joinder decision. . . .

Accordingly, we have jurisdiction to review the Board’s joinder decisions in this case to determine whether the Board (on behalf of the Director) acted outside any statutory limits under § 315(c).

Revised Opinion. Thus, the holding:

Because joinder of the new claims was improper, we vacate the Board’s final written decisions as to those claims, but because we lack authority to review the Board’s institution of the two late-filed petitions, we remand to the Board to consider whether the termination of those proceedings finally resolves them.

Id. I expect that on remand, the PTO will dismiss the late-filed petitions.

In its revised opinion, the court maintained its unanimous secondary opinion offering “additional views” on deference to Precedential Opinion Panels at the PTO.

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

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

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

The NHK-Fintiv Rule

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

NHK Spring v. Intri-Plex

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

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

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

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

Apple v. Fintiv

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

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

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

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

The Policy and Text of the AIA

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

PTAB Review as an Alternative to the Courts

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

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

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

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

Agency Discretion to Deny Review

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

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

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

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

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

The Choice of Rulemaking vs. Adjudication

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

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

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

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

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

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

Conclusion

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

by Dennis Crouch

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

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

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

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

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

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

[Sowinski] raises two principal arguments:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

= = = = = =

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

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

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

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

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

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

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

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

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

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

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

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

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

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

by Dennis Crouch

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

AlexSam Dismissal Denial Utah.

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

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

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

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

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

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

Fed. Cir. Docket.

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

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

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

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

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

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

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

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

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

= = = =

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

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

Slip Op.

= = = = =

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

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

Professor Yaniv Heled (GSU Law) has created the following helpful infographic of the patent prosecution process: PDF Life of a Patent Infographic (Aug. 14, 2020).  (Reproduced with permission).

Only one thing is certain in the life of a patent: all roads lead to the public domain. — Dennis

by Dennis Crouch

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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