US Patent Applicants Heading to the EPO

Patent

By Dennis Crouch

At the recent Mizzou-USPTO symposium there was some discussion about whether the European Patent Office (EPO) has positioned itself as a more favorable patent venue than the US.  Most practitioners will agree that the US is now more restrictive in terms of subject matter eligibility and the new pan-European patent enforcement court makes those patents obtained in Europe more all the more valuable.  Today, the EPO released a set of data that makes these prognostications appear to ring true.

The first chart below shows that the number of EPO patent applications coming from the US grew substantially over the past year (up 16.4%).  Top US-based EPO filers include United Technologies (UTX), Qualcomm, GE, Intel, Microsoft, J&J, and Honeywell – with these top seven collectively representing about 20% of the US-based EPO applications filed in 2015.  Some major U.S. filers (such as AT&T and GM) did not make the list.  UTX was not patent powerhouse in recent decades, but has ramped-up filings over the past few years. The growth in applications from the US almost accounts for the entire increase in filings over 2014.

EPOUSGrants

Although these are year-to-year changes, it is important to consider that the impacts will linger in the system for the next 20 years.

Federal Circuit Now Receiving More Appeals Arising from the PTO than the District Courts

Patent,

By Jason Rantanen

Appeals arising from district court patent infringement cases have historically made up about a third of the court’s docket.  In 2011, for example, appeals from the district courts constituted 33% of appeals filed, while appeals from the PTO were about 9%.

Caseload by Category - 2011

(Graph from http://www.cafc.uscourts.gov/the-court/statistics)

That distribution no longer holds.  During Fiscal Year 2015 (which ended on September 30, 2015), appeals from the PTO exploded, to about a quarter of all appeals filed.  Appeals from the district courts also rose, but at a slower pace.

Caseload by Category - 2015

(Graph from http://www.cafc.uscourts.gov/the-court/statistics)

That trend has continued, with appeals from the PTO now overtaking appeals from the district courts.  The below chart shows the annual number of appeals filed from 1997 to the end of January 2016.  As of January 29, the court had docketed more appeals arising from the PTO than the district courts.  If this filing rate holds true for the rest of the year, we can expect almost as many appeals from the PTO to be filed as there were appeals from the district court last year.

Appeals docketed through Jan 2016

(Data source: http://www.cafc.uscourts.gov/the-court/statistics)

My primary hypothesis for this dramatic rise is relatively simple.  Since the implementation of the America Invents Act, there has been an explosion of inter partes review proceedings at the PTO.  In inter partes review proceedings, there is inevitably a winner—and a loser.  Given the relatively small cost of filing an appeal, and the current uncertainty as to outcomes on appeal, parties that are losing on IPR are filing those appeals.  There are other things going on, particularly the increased thoroughput of the PTAB, but I suspect that many of the appeals from the PTO are of IPR proceedings.

Whatever the cause, the ramifications of this increase in appeals from the PTO are quite significant.  If I’m right that most of these appeals from IPR proceedings, they’re likely to be hotly contested by both parties.  In addition, each of these cases involves its own invention and technology.  So I see this as a substantial workload increase for the Federal Circuit judges and their clerks.  One thing to take a look at going forward is how the Federal Circuit is going to be handling these appeals.

(I don’t have an explanation for the drop in appeals from the district courts, other than possibly the decline in patent cases filed and pending that occurred in late 2014 and early 2015. It could also be due to more cases being resolved through the IPR proceedings—although as others have observed, only a fraction of patents involved in infringement litigation are also involved in IPR proceedings)..

Using Trademarks to Avoid Country-of-Origin Issues

Patent

JBLUJeansJBLU v. CIT (Fed. Cir. 2016)

Although not a patent case, the JBLU decision has important commercial implications.  JBLU is an American company that sells jeans under the C’est Toi Jeans USA brand. Of course, despite the “USA” name in the brand, the jeans are not manufactured in the US, but rather in China. That fact (‘made in china’) was noted on the inside label of the jeans. (See specimen above).

Customs officials looked at the jeans and determined that they failed the country-of-origin labeling requirement of 19 U.S.C. § 1304(a) (“[E]very article of foreign origin … imported into the United States shall be marked in a conspicuous place … in such manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article.”).  Applying its regulatory authority US Customs created a set of regulations that indicate the use of “USA” or “America” on imports is likely to create confusion and so the country-of-origin must be made even more conspicuous (placed near the “USA” symbol and in equivalent size).  However, the regulations are somewhat relaxed when USA is part of the trademark name.  The Court of International Trade sided with customs officials – that JBLU must meet the more stringent standard (and had failed to meet that standard). On appeal, the Federal Circuit reversed.

The key issue here involved interpretation of the “trademark” term as used in the customs statute.  The CIT interpreted the word to be limited only to marks that are registered U.S. trademarks or else those subject to a registration application in the USPTO. (giving deference to the Customs interpretation of the term).  On appeal, though, the Federal Circuit reversed that determination and instead applied the broader definition found in the Lanham Act of  “any word, name, symbol, or device or any combination thereof adopted and used by a manufacturer or merchant to identify his goods and distinguish them from those manufactured or sold by others.” 15 U.S.C. § 1127.  In making this determination, the Federal Circuit chose to give no deference to Customs interpretation of its own regulations because the term “trademark” as used in the regulation “unambiguously includes federally registered and common law trademarks.”

If a regulation is clear on its face, no deference is given to the promulgating agency’s interpretation, and we interpret the regulation in accordance with its unambiguous meaning. Viraj Grp. v. United States, 476 F.3d 1349 (Fed. Cir. 2007). Doing otherwise would allow the agency, “under the guise of interpreting a regulation, to create de facto a new regulation.” Christensen v. Harris County, 529 U.S. 576 (2000). The fact that a term is not defined by a regulation does not make it ambiguous and entitled to deference. Executive Jet Aviation, Inc. v. United States, 125 F.3d 1463 (Fed. Cir. 1997).

On remand, the CIT will now become a trademark court to determine whether the C’est Toi Jeans USA counted as a trademark back in 2010 when the imports occurred.  (Following the import, the company did apply for TM registration on the brand).

 

 

Eon Corp. v. Silver Spring: Improperly Delegating Claim Construction to a Jury

Patent

by Dennis Crouch

Eon Corp. v. Silver Spring Networks (Fed. Cir. 2016)

In a split decision, the Federal Circuit has again rejected a jury verdict – finding that “no reasonable jury” could have found that Silver Springs networks infringed Eon’s patents.  In particular, a divided panel held that the district court should have construed the claim terms “portable” and “mobile” rather than allowing the jury to take those terms on their face when determining infringement.  The court then went on to hold that under a correct claim construction of those terms, the jury could not have found infringement.

Here, the alleged infringing meters are designed to be bolted down to exterior walls and left in place for years.  Of course, it is fairly easy for an electrician to move these meters and install them, but they are designed to operate in a fixed location once installed.  The majority ruled that the best (and only reasonable) construction of the term involves both of these requirements (portability and non-permanent location).

The majority opinion was written by Chief Judge Prost and joined by Judge Hughes. In his dissent, Judge Bryson suggested that it was acceptable for the district court to refuse to construe these terms and that the jury’s infringement conclusion fit within the definition of those terms (‘capable of being moved’) as it would have been understood by one of skill in the art.

To me, this case exemplifies the longstanding procedural battle of how much of the infringement question should be answered during claim construction — keeping in mind that claim construction is determined by the Judge but the parties have a Seventh Amendment right to have the ultimate question of infringement judged by a jury.

It is not difficult to imagine a claim construction system that particularly focuses on the accused devices and the judge would decide ‘whether the claims are construed so as to cover the accused meter.’  At that point, nothing would be left for the jury to decide unless there is some dispute over exactly how the devices operate. This full infringement analysis in the guise of claim construction is usually disfavored by the courts who instead take a more abstracted approach – perhaps based upon a reticence against usurping the constitutionally guaranteed role of the jury. District court’s also know that a jury verdict is much less likely to be attacked on appeal. And, a jury verdict is much less likely to be attacked on appeal than a judgment as a matter of law.

Jason Mudd (eriseIP) wrote some on this topic for a 2012 Missouri Law Review symposium that I hosted in an article titled To Construe or Not to Construe: At the Interface Between Claim Construction and Infringement in Patent Cases.

Inter Partes Review: Comingling Adjudicative and Executive Roles within an Agency

Patent, , ,

By Dennis Crouch

In its challenge of the USPTO’s implementation of the Inter Partes Review system, Ethicon has now requested an en banc rehearing with the following simple question presented:

Does the Patent Act permit the Patent Trial and Appeal Board to make inter partes review institution decisions?

Outside reading:

The basic issue here involves the two step inter partes review proceeding that begins with a decision on whether to institute the review and then, once instituted, ends with a final determination by the Patent Trial and Appeal Board (the Board).  Under the statute, the USPTO Director (the Director) is tasked with making the initial determination before passing the baton to the Board to make the final determination of patentability.  However, the USPTO’s implementation rules changed the game by also giving the Board authority to make the institution decision.  The USPTO argues that the rules were a proper delegation of the Director’s authority, but Ethicon argues that the USPTO’s procedure is an improper comingling of executive and adjudicative functions.

In creating the IPR process, Congress intended to replace the prior administrative inter partes reexamination procedure with a new adjudicative procedure that would “take place in a court-like proceeding.” H.R. REP. NO. 112-98, pt. 1 (2011). Congress did not need to, and did not, change the institution procedure used in inter partes reexamination, where the Director—through her executive delegate (typically an examiner)—would decide whether to institute. Accordingly, the AIA expressly assigns the institution duty for IPRs to the Director, sets forth a necessary (but not sufficient) substantive threshold for the Director to institute, and identifies a variety of other discretionary criteria that the Director may use to deny institution—whether or not the substantive threshold has been met. As with inter partes reexamination institution decisions, the AIA specifies that the Director’s discretionary institution decisions are not appealable. 35 U.S.C. § 314(d).

The panel nevertheless upheld a PTO regulation commingling the institution and adjudication stages of IPRs by delegating the Director’s institution power to the PTAB. 37 C.F.R. § 42.4(a). That delegation lacks statutory authorization and upends longstanding principles, articulated in both Supreme Court precedent and the Administrative Procedure Act (APA), prohibiting the combination of executive and adjudicative functions below the level of the agency head. . . . [B]y delegating the institution function to the PTAB for the sake of efficiency, the Director has repudiated her statutory duty to exercise executive discretion—including the additional procedural and policy factors specified in the AIA. . . . Congress did not intend for PTAB panels to exercise this gatekeeping function, and as purely adjudicative bodies they are neither inclined nor equipped to apply executive discretion or systemic considerations in deciding whether to institute review. En banc review is warranted to ensure the fairness of the IPR system and its compliance with Congress’s bifurcated decision-making procedure.

In the original panel opinion, Judges Dyk and Taranto joined together to reject Ethicon’s argument – finding that the statute permitted delegation of the institution decision. Judge Newman wrote in dissent.  The difficulty for Ethicon is counting heads – I struggle to find seven votes out of the twelve Federal Circuit judges that would be needed for Ethicon to win.

Amicus support is due by March 14.  Supreme Court and appellate practitioner Pratik Shah filed the brief on behalf Ethicon.  Shah’s involvement strongly suggests to me that a Supreme Court petition will follow if this en banc attempt fails.

 

Federal Circuit: Apple’s Slide-to-Unlock Patent is Invalid

Patent, ,

by Dennis Crouch

In the Federal Circuit’s most recent Apple v. Samsung decision, the court has, inter alia, invalidated two of Apple’s asserted patents and held the third was not infringed – despite a jury verdict to the opposite.

At the district court, the jury found that three of Apple’s touch-screen patents (covering slide-to-unlock, spell correction, and automated data-structure detection) infringed by Samsung devices (resulting in $119.6 million in damages)[1] and that one Samsung patent (covering particular photo/video operations) was infringed (resulting in only $158,400 in damages).[2] This case is parallel to (but entirely separate from) the iPhone design patent case now pending before the Supreme Court that resulted in a $600,000,000 judgement for Apple.

Invalidity: Samsung had argued that the slide-to-unlock and automatic spell correction claims were invalid as obvious.  In support of the patents, Apple presented evidence of copying, commercial success, industry praise, and long-felt but unresolved need  — all as secondary considerations of nonobvoiusness.

[S]econdary considerations must be considered in evaluating the obviousness of a claimed invention. But weak secondary considerations generally do not overcome a strong prima facie case of obviousness. This is particularly true when an invention involves nothing more than the predictable use of prior art elements according to their established functions.

(internal quotation marks and citations removed).

The Federal Circuit walked through Apple’s evidence – pointing out its weakness:

  • Copying: What was copied was not the iPhone unlock mechanism in its entirety, but only using a fixed starting and ending point for the slide — features shown in the prior art.
  • Industry Praise: Evidence of approval by Apple fans—who may or may not have been skilled in the art—during the presentation of the iPhone is not legally sufficient.
  • Long-Felt Need: Apple’s contention here is nothing more than an unsupported assertion that Apple’s method is better and more “intuitive” than previous methods. This is not sufficient to demonstrate the existence of a long-felt but unmet need.
  • Commercial Success: “[E]vidence that customers prefer to purchase a device with a slide-to-unlock capacity does not show a nexus [to the claimed invention] when the evidence does not show what alternative device consumers were comparing that device to. For example, it is not clear whether the alternative device had any unlocking feature. A reasonable jury could therefore not find a nexus between the patented feature and the commercial success of the iPhone.

Collectively, the Federal Circuit found this evidence of secondary conditions too weak to overcome the evidence of obviousness based upon the prior art documents.  As such, the appellate panel reversed the jury verdict and lower court denial of Judgment as a Matter of Law — now holding the patent claims invalid as obvious.

Infringement: Apple’s automated data-structure detection claims cover the process of automatically identifying items in within text such as telephone numbers or dates.  The claims require an “analyzer server” that detects the structures. That patent claim term had been previously construed by the Federal Circuit and this narrow construction was adopted by the district court – although not until the last day of trial.  However, Apple’s expert testified that the Samsung device infringed under this narrow definition (Samsung’s expert disagreed) and the jury sided with Apple. On appeal, however, the Federal Circuit reversed – finding that no reasonable jury could have found infringement based upon the testimony:

[Apple’s expert] testimony is not sufficient evidence to allow a jury to conclude that the Samsung software met the “analyzer server” limitation. Our previous construction required more than just showing that accused software was stored in a different part of the memory and was developed separately. We found that the “analyzer server” limitation is a separate structural limitation and must be a “server routine,” consistent with the “plain meaning of ‘server’.” That is, it must run separately from the program it serves. . . . Apple could point to no testimony where its expert stated that the library programs run separately.

Thus, the holding of infringement was reversed and Apple’s $120 million award has vanished.

The court did uphold Samsung’s win, but that award is only $158,400 in damages.  In addition, the court awarded appellate costs to Samsung.

= = = = =

 

 

[1] Apple alleged infringement of five U.S. patents: U.S. Patent  Nos. 5,946,647 (the ’647 patent), 6,847,959 (the ’959 patent), 7,761,414 (the ’414 patent), 8,046,721 (the ’721 patent), and 8,074,172 (the ’172 patent). The jury found infringement of the ’647 patent, the ’721 patent, and the ’172 patent but no infringement of the other two.

[2] The Jury found that Apple infringed Samsung’s U.S. Patent No. 6,226,449 (the ’449 patent) but not U.S. Patent No. 5,579,239 (the ’239 patent).

 

Patentlyo Bits and Bytes by Anthony McCain

Patent

Get a Job doing Patent Law                  

Patent Grants 2016

Patent

PatentsPerYear

Although we are only 8-weeks into 2016, I wanted to take a first-look at where we are headed in terms of patent grants for the year.  In red you’ll see my forecast for the year based upon these first 8-weeks.  Although I expect a drop in patent grants again for 2016, the year will still likely rank as the third-most-patents-granted for any year in the history of the patent office.

Litigation Screen Fails to Avoid Inequitable Conduct (But Almost Succeeded)

Patent

Ohio Willow Wood Company v. Alps South (Fed. Cir. 2016)

Professor Rantanen wrote about the 2013 Federal Circuit OWW v. Alps decision that, inter alia, reversed the lower court’s determination of no inequitable conduct by the patentee OWW.  (U.S. Patent No. 5,830,237, covering a gel-cushion used for prosthetics).  The setup involves two ex parte reexaminations initiated by Alps.  On remand, the district court found no inequitable conduct during the first reexamination but that OWW did commit inequitable conduct during the second reexamination. On appeal, the Federal Circuit affirmed both findings.

Starting from the end, the aforementioned second reexamination was based upon a competitor’s prior art advertisement for a different product along with testimony from the competitor’s engineer (Comtesse) who explained in his submitted testimony how the product worked (in the same way as OWW’s claimed invention).  However, the Board found Comtesse’s testimony unreliable based upon OWW’s statements that he was a “highly interested” and receiving royalties from the competing product. During the reexamination, OWW also told the USPTO that there was  “no other evidence of any sort” corroborating Comtesse’s statements.  Following these arguments, the USPTO Board confirmed patentability of the claims.  It turns out that OWWs statements were untrue and that at least one person involved in the reexamination for OWW (Colvin) was aware of evidence from the parallel litigation that corroborated Comtesse’s statements.

The court found (1) that Mr. Colvin was aware that OWW’s reexamination counsel had represented to the Board that Mr. Comtesse’s testimony was entirely uncorroborated; (2) that Mr. Colvin was aware of materials that corroborated Mr. Comtesse’s testimony; and (3) that Mr. Colvin failed to correct his counsel’s misrepresentations.

All these conclusions came together to confirm a finding that Colvin had intent-to-defraud the USPTO.

Faulty Screen: The key to all of this here was that information from the litigation seeped into the reexamination prosecution.  Interestingly, it was the same law firm handling both litigation and the reexamination. However, the firm had established an “ethical screen to separate the attorney handling OWW’s reexamination proceedings from the attorneys handling OWW’s litigation matters.”  The Federal Circuit seemingly found no inequitable conduct problem with use of a screen that results in keeping relevant documents from the hands of patent prosecutors.  Rather the problem for OWW occurred because one of OWW’s employees was deeply involved with both the litigation and the reexamination prosecution.

Attorney Fees and Mootness: Although the courts had already found the patents unenforceable due to inequitable conduct in the second reexamination, ALPS asked that the Federal Circuit find them doubly unenforceable based upon misconduct in the first reexamination.  That seems like a moot point – unenforceable is unenforceable.  However, the Federal Circuit chose to rule on the issue (ultimately finding no inequitable conduct) because of the potential fee award under 35 U.S.C. 285.

A judgment of unenforceability based on both the first and second reexaminations would expose OWW to a larger attorney fee award than a judgment based on the second reexamination alone. It was therefore proper for Alps to press its argument as to the first reexamination by way of a cross-appeal.

This is a fairly substantial ruling and may end up offering additional power to defendants who wish to continue to pursue non-infringement and invalidity claims even after winning the case.  If broadly applied in this manner, then the ruling is also probably wrong.

 

Trolls vs Pirates: Halo/Stryker Oral Arguments

Patent, ,

Today the Supreme Court heard combined oral arguments in the willful infringement cases of:

  • Halo Electronics, Inc. v. Pulse Electronics, Inc., et al. (14-1513); and
  • Stryker Corporation, et al. v. Zimmer, Inc., et al. (14-1520)
  • Read the transcript.

Jeffrey Wall argued on behalf of the patentee-petitioners who argued that the Federal Circuit’s limits on awarding enhanced damages is unduly rigid – especially following the Supreme Court’s Octane Fitness determination.  The U.S. Government has supported the petitioners in this case and presented Assistant to the Solicitor Roman Martinez to argue as amicus curiae.  Carter Phillips argued on behalf of the defendant-respondents.

Wall’s approach was to highlight the general nature of the the statute, which merely states that “the court may increase the damages up to three times the amount found or assessed.” That general statute should be contrasted with the Federal Circuit’s rule that requires separate proof of both objective and subjective willful behavior.  Rather, Wall argued that we should “go back to doing a totality [of the circumstances] inquiry . . . [applying] the principles that historically guided your exercise of discretion.”  Wall also pointed to the what he sees as an important factor in the analysis: that “a patent lawyer can virtually always come up with some non-frivolous defense in litigation” and, that fact makes is virtually impossible to prove that the infringement was objectively reckless.  The U.S. Government agreed that the objectively reasonable defense “creates an arbitrary loophole that allows some of the most egregious infringers to escape enhanced damages.”

MR. MARTINEZ: So recklessness, everyone agrees, is an objective inquiry. And in every other area of law where courts are conducting an objective inquiry, what you ­­ what you’re supposed to do is you’re supposed to take a reasonable man, and you put him in the ­­ the actual person who is accused of wrongdoing, in his shoes. And you take what that actual person knew, and you figure out whether a reasonable man in that person’s shoes would have thought that there was a very high risk that the conduct at issue was unlawful.

And what the Federal Circuit does is not that. What they are essentially doing is taking the reasonable man and giving him the benefit of omniscience, giving him the benefit of hindsight and saying, what facts do we know at the time of trial? And now that we know these facts at the time of trial, . . .

JUSTICE BREYER: I didn’t think they were doing that. I thought what they were doing was saying, we are not going to allow punitive damages in a case where the patent is so weak.

. . . .

MR. MARTINEZ: I think it’s possible to imagine ­­let me ­­ let me make it concrete.

Imagine a case in which there’s intentional violation or a reckless violation based on the facts known at the time. And later the ­… infringer is sued, and he hires a law firm that scours the world, and they find the library in Germany that has a Ph.D. dissertation that has some [publication] that arguably anticipated the invention at issue. So that’s a new fact. It wasn’t in anyone’s head. No one was aware of it at the time the infringement occurred. And maybe that law firm then puts together a reasonable but wrong theory under which the patent is invalid in light of that prior art. We think that’s a case in which the ­­ the conduct was culpable at the time of ­­ of infringement, and we think that’s a case that would warrant enhanced damages.

. . .

MR. PHILLIPS: We’re not talking about a situation here where it’s obvious when something is infringed. There are thousands of patents, hundreds of thousands of patents. There are lots of entities creating new products every day, new services,

. . . .

MR. WALL: [W]e and the PTO and many of Respondents’ amici recognize, the system as it currently stands is out of balance. And we have tried, and I believe we have succeeded, in crafting an approach that balances the Court’s concerns with the need to respect the rights of patentees, including small companies like Halo.

Justice Breyer offered some concern for software companies being accused of infringing weak patents:

MR. WALL: Justice Breyer, the sky didn’t fall for a century and a half, and it’s not going to fall if you reverse the Federal Circuit’s framework, just as it didn’t fall after Octane and Highmark in the fees context.

JUSTICE BREYER: It hasn’t fallen? Go look at the market shares of the different companies that are seriously involved in software. . . . I think it’s unfortunate that Congress hasn’t passed a special regime for those kinds of patents, but they haven’t.

. . .

MR. PHILLIPS: This is not a classic copying case. I mean, in a lot of ways this case comes down to sort of trolls versus pirates in terms of how you want to analyze it.

. . . .

JUSTICE SOTOMAYOR: Mr. Phillips, there’s a whole lot of worry articulated by Justice Breyer and reflected in your briefs about protecting innovation.But there’s not a whole lot of worry about protecting the patent owner. I can’t  forget that historically enhanced damages were automatic, and they were automatic because of a policy judgment that owning a patent entitled you to not have  people infringe willfully or not willfully. And I accept that at some point there was a different judgment made that ­­ that good­faith infringers should be treated differently than other infringers, willful infringers.

But I don’t know that that swung things so far the other way that it can only be that, if you come up with something, any defense whatsoever in the litigation that’s not frivolous, that that gets you out of enhanced damages.

Some of the conversation focused on the replacement test:

JUSTICE SOTOMAYOR: It can’t be that they can give enhanced penalties on whim.

MR. WALL: That’s right.

JUSTICE SOTOMAYOR: All right? So if it’s not whim, what is it? How do we articulate a test that protects what Justice Breyer is concerned about, which I think is a legitimate concern, but doesn’t entrench a position that just favors you?

MR. WALL: We think the statute was invoked for various purposes, not just to punish infringement. . . . [W]hat the parties are really debating is the nature of the infringement. That needs to be intentional or reckless based on the facts as they were known to the infringer. . . . the strength of the notice . . . Reed factors . . .

JUSTICE SOTOMAYOR: I Don’t want to adopt that test. How do I articulate this in a more generalized way?

MR. WALL: I think what you would say is that in judging whether a reasonable person would have thought that there was a really high risk, you’ve got to take account of both the strength of the notice, what kind of notice were they on of the patent, and what would have been commercially reasonable in the industry as it exists. And I think that ­­ those factors and those limitations are going to take account of the vast bulk of what Justice Breyer and what Respondents are are concerned about.

. . . .

MR. PHILLIPS: [Good luck finding] tort cases in which the eggshell plaintiff gets punitive damages because the defendant overreacted.

In addition to the elements of the test, the court is also addressing the standards of proof and review.

JUSTICE GINSBURG: Can we at least peel off the clear and convincing evidence that seems to come out of nowhere and the standard of de novo review rather than abuse of discretion?

MR. PHILLIPS: I would desperately ask you not to take out de novo review because we’re talking about an objective standard; it’s really almost ­­ it’s essentially a question of law. The issue is, is there an objectively reasonable basis for what’s been done here? [and clear and convincing evidence standard is dicta to this case]

. . . .

JUSTICE GINSBURG: You ­­ care about de novo review in the Federal Circuit rather than testing the district court’s determination for abuse of discretion.

A substantial amount of example-time focused on “copying”, which Mr. Wall identified as the “typical” case and the extent that enhanced damages should be limited to “willful” behavior.

For this case, it appears likely that the majority will overrule Seagate but the question remains open as to what will be the replacement rule.

 

 

 

Federal Circuit Again Revives Zoltek Case: Who Invented Stealth Technology

Patent, , , ,

By Dennis Crouch

Zoltek Corp. v. US (Fed. Cir. 2016)

The interesting and long-running Zoltek case has received another decision from the Federal Circuit – this time reversing the Court of Federal Claims ruling that Zoltek’s stealthy patent claims are invalid.

Zoltek is the owner of US Reissue Patent No. Re 34,162[1] issued January 19, 1993.  In 1996, Zoltek sued the U.S. government for infringing the patent – in particular, the patentee argued that the B-2 Bomber and F-22 Fighter both used carbon fiber sheets that infringed the patent rights.

As a starting point for most claims against a government is with sovereign immunity. The U.S. Government claims sovereign immunity against suits except where waived.  In the patent context, the U.S. government has waived its immunity, but limits the procedure and form of recovery. In particular, 28 U.S.C. § 1498(a) provides that “the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.”  The statute also provides cover for contractors or other non-government-entities who infringe the patent “with the authorization or consent of the Government” so that those actions must also be pursued against the U.S. Government.  The Court of Federal Claims is located in the same Madison Place building as the Court of Appeals for the Federal Circuit.

In its prior en banc decision from the case, the Federal Circuit ruled that Section 1498(a)’s infringement statute should be broadly read to encompass Section 271(g) infringement.

Following that decision, the Court of Federal Claims held a trial on validity and found that the asserted claims were invalid as obvious and/or lacking written description.  The court has reversed that holding and remanded.

Omitted Elements:  During reissue prosecution of the manufacturing process claims, the applicant deleted the initial step of “oxidizing and stabilizing the carbonizable fiber starting material at an elevated temperature.”  That deletion clearly broadened the patent claim – however, a broadening reissue was proper because it had been filed within two years of the grant of the original patent.  The CFC found, however, that the new breadth went beyond the original written description and thus rendered the claim invalid – holding that “the preparation of the known starting material must be included in the claim” even if known in the prior art.  On appeal, the US Government argued for affimance since “the specification does not state that these steps need not be performed by the same entity.”

On appeal, the Federal Circuit completely rejected this analysis: “The question of who performs steps of a fully described invention, including preparation of a known starting material, is not a matter of the written description requirement.”

The original specification plainly, and without dispute, describes that the starting material is an oxidized and stabilized fiber, cites references showing this known material, and describes its preparation. That a previously oxidized and stabilized starting material was known to a person of ordinary skill in the field was recognized [as well] . . . . The question of who performs steps of a fully described invention, including preparation of a known starting material, is not a matter of the written description requirement.

The purpose of the written description requirement is to assure that the public receives sufficient knowledge of the patented technology, and to demonstrate that the patentee is in possession of the invention claimed. . . . The written description need not include information that is already known and available to the experienced public. . . .

The CFC stated its concern that the reissue patent claims could be infringed by an entity that did not itself make the starting material, but purchased the known starting material from a commercial source. . . . A validly obtained reissue does not violate the written description requirement if the patentee can reach an enlarged scope of possible infringement. It is not an improper broadening amendment when a reissue applicant, with the considered agreement of the reissue Examiner, substitutes a preparatory step known to those skilled in the art at the time of the invention with a requirement to start with the product of that known preparatory step. The CFC’s emphasis on who might infringe the broadened reissue claims is an issue of infringement, not written description. We conclude that the CFC erred in holding reissue claims 1–22 and 33–38 invalid for failure to meet the written description requirement of section 112. That ruling is reversed.

The issue here is definitely interesting – in particular, I see the question of whether the starting-material is available as prior art to be a total red-herring since its manufacture was sufficiently described in the specification.  The question is whether the patentee described an invention that began by “obtaining” rather than “making” the starting material.  The Federal Circuit didn’t really answer that question. I will note that none of the parties cited Gentry Gallery, Inc. v. Berkline Corp., 134 F.3d 1473 (Fed. Cir. 1998) ([not announcing] an omitted essential elements test).

On Obviousness, the Federal Circuit took the government to task as well – finding substantial errors in the Government’s expert testimony and noting the admitted novelty of the fiber sheets created by the inventors. “Instead, the government’s argument appears to be that since [its expert] Dr. Sullivan is a renowned scientist in this field, and since Dr. Sullivan was able to reproduce the Figure 4 graph, it was obvious to do so. This was error.”[2]

Section 101 – The government had also argued that the patented “method of manufacturing . . . carbon fiber sheets” lacked subject matter eligibility under Section 101 as effectively claiming a law of nature.  From the CFC Decision rejecting the eligibility argument:

The Government argues that the claims are invalid because they embody nothing more than a law of nature. For example, the Government points to Figure 4 of the patent to support its contention. It argues that Figure 4, which charts a relationship between heat treatment temperature and surface resistance, demonstrates the ineligibility of the ‘162 Patent claims by showing that the claims embody nothing more than a natural law that links temperature to resistance. Relying upon the testimony of its expert, Dr. Brian Sullivan, the Government argues that the independent claims at issue (claims 1 and 33) consist of three parts: (1) the manufacture of carbon fibers using conventional carbonization equipment and techniques; (2) the manufacture of a sheet product using conventional techniques and processes; and (3) “the concept that if you control the fibers’ volume electrical resistivity it gives you the ability to control the sheet or surface resistivity of the final carbon mat productThe Government argues that these three parts render the ‘162 Patent’s claims similar to those found ineligible in Flook and Mayo. . . . The Court agrees with Zoltek [and disagrees with the Government]. The Government’s comparisons to the ineligible claims in Flook and Mayo are much less apt than comparison to Diehr.

The CFC did reject that argument and the Government did not appeal that issue.

= = = =

[1] The ‘162 Reissue Patent originally issued in 1988 as U.S. Patent No. 4,728,395 and then reissued in 1993. Zoltek obtained the patent rights when it bought Stackpole Fibers in 1988.

[2] See Uniroyal, Inc. v. Rudkin-Wiley Corp., 837 F.2d 1044, 1051 (Fed. Cir. 1988) (“[t]hat which may be made clear and thus ‘obvious’ to a court, with the invention fully diagrammed and aided . . . by experts in the field, may have been a break-through of substantial dimension when first unveiled.”); see also KSR (“A factfinder should be aware, of course, of the distortion caused by hindsight bias and must be cautious of arguments reliant upon ex post reasoning”); W.L. Gore, 721 F.2d at 1553 (“It is difficult but necessary that the decisionmaker forget what he or she has been taught at trial about the claimed invention and cast the mind back to the time the invention was made (often as here many years), to occupy the mind of one skilled in the art who is presented only with the references, and who is normally guided by the then-accepted wisdom in the art.”).

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Retroactive License to Parts Exhausts Patent Rights as to Whole

Patent

By Dennis Crouch

The Federal Circuit has released an interesting new (though non-precedential) decision on patent exhaustion – in particular the court affirmed a lower court finding of exhaustion based upon a retroactive sublicense filed after the lawsuit was filed and the patents had expired.  The case offers some further guidance as to how patent licenses are treated in complex mergers.

In High Point SARL v. T-Mobile,[1] the patentee (High Point) sued T-Mobile for infringing its patents.[2]  The set of patents themselves have an interesting history.  They were originally owned by AT&T but then spun-off to Lucent when that company was created.  Avaya bought the patents from Lucent in 2000 and then the Luxembourg-based patent assertion entity High Point bought them from Avaya in 2008.

T-Mobile uses the technology allegedly covered by the patents, but it is not the manufacturer.  In particular, various portions of the accused systems were purchased from Alcatel Marketing US, Nokia Siemens Networks US, and Ericsson US.  The district court held (and now the appellate panel) that these parts used in the system were all licensed under the patents and “substantially embodied” the asserted claims.

Retroactive Licenses: For Ericsson US, the court looked to a 1996 cross license between Lucent (then owner of the patents) and LM Ericsson.  That license particularly indicated that LM Ericsson could grant sub-licenses to its subsidiaries and related companies and that those sublicenses could “be made effective retroactively.”

Nunc pro tunc: After the litigation began, Ericsson LM granted its subsidiary Ericsson US a “nunc pro tunc” sublicense that was made retroactive back to 2002. The courts found that retroactive sublicense effective even though the license was conveyed after the patents had expired. Further, the courts found that the retroactive sublicense also retroactively exhausted the patent vis-à-vis products sold by Ericsson US after the 2002 back-date.  The appellate court found that this right to retroactively sub-license was simply paperwork and that, in effect, the subsidiary was always licensed.

Here, Ericsson U.S. was at all times authorized to sell the accused equipment to TMobile because when the sales took place neither Lucent nor any of its successor entities could have sustained an infringement claim based on those sales. To the contrary, if they had attempted to bring suit, LM Ericsson had the unrestricted right … to immediately grant Ericsson U.S. a [retroactive] sublicense, thereby immunizing Ericsson U.S. from any potential infringement liability.

Thus the result was that the parts supplied by Ericsson US were deemed licensed and authorized and thus patent rights associated with those parts were exhausted.

For Alcatel Marketing US, it turns out that in 1996 AT&T had licensed the patents to Alcatel (France). By its terms, the 1996 license extended to both current and future subsidiaries, but was limited only to products “of the kind” being furnished or used by Alcatel back in 1996.  In 2006, Alcatel and Lucent merged, to form Alcatel-Lucent. Alcatel Marketing US was already a subsidiary of Alcatel and merged with a Lucent subsidiary to become Alcatel-Lucent USA.  Of importance, although Alcatel did use and sell parts similar to those at issue here back in 1996, it did not manufacture those parts back then but instead purchased them from Spatial Communications (Alcatel later acquired Spatial).  In reviewing this history, the courts found that the patents were properly licensed to Alcatel Marketing and that the “of the kind” language was broad enough to include more modern switches.

Finally, for Nokia-Siemens US, Siemens originally obtained a patent cross license from AT&T in 1988. That license was extended in 1995 to include an allowance for sublicensing to divested businesses.  In April 2007, Siemens divested its carrier division into a joint venture (Nokia-Siemens BV) and then granted a retroactive sublicense to the new venture.  In 2011, Nokia-Siemens BV granted a retroactive sublicense to its US subsidiary Nokia-Siemens US.  It was this US sub that sold the parts to T-Mobile and, according to the court, those sales were (at least retroactively) licensed under the patents and thus the patent rights exhausted.

Substantial Embodiment and a Combination of Licensed Parts: As suggested above, the authorized supplied parts here do not themselves individually infringe the asserted patents.  However, the particular combination of the parts (along with some other parts) does result in a system that allegedly infringes. In the appeal, High Point argued that the asserted claims include innovative features beyond the licensed parts and that, as a consequence, the patents were not exhausted as to the unique combination claimed.

In Quanta, the Supreme Court roughly addressed this issue – stating that “[M]aking a product that substantially embodies a patent is, for exhaustion purposes, no different from making the patented article itself.”[3] Likewise, in Univis Lens, the court wrote that sales of an article that “embodies essential features of [a] patented invention” exhausts the patent rights.[4]

In the appeal, the appellate panel agreed with the district court’s conclusions that the parts supplied did, in fact, substantially embody the patent – noting that High Point had failed to produce evidence showing that other (unlicensed) aspects of the system “performed any inventive feature of the asserted claims.”

—

[1] High Point SARL v. T-Mobile USA, Inc., App. No. 15-1235 (Fed. Cir. February 8, 2016) (Judges Reyna, Mayer, and Chen).  District court decision available at High Point SARL v. T-Mobile USA, Inc., 53 F. Supp. 3d 797 (D.N.J. 2014).

[2] U.S. Patent Nos. 5,195,090 (the “’090 patent”), 5,195,091 (the “’091 patent”), 5,305,308 (the “’308 patent”), and 5,184,347 (the “’347 patent”).

[3] Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 625 (2008). “What is ‘inventive’ about patent claims in the patent exhaustion context is what distinguishes them from the prior art.” LifeScan Scotland, Ltd. v. Shasta Techs., LLC, 734 F.3d 1361, 1369 (Fed. Cir. 2013)

[4] United States v. Univis Lens Co., 316 U.S. 241, 251 (1942).

Pending Supreme Court Patent Cases 2016 (February 17 Update)

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by Dennis Crouch

Justice Scalia died this week. May he rest in peace. Although he (as well as Justice Kagan) had left the University of Chicago before I arrived, their influence continues to be felt in that institution.  (Posner, Obama, Sunstein, Meltzer & Epstein, etc. were all still around). On her blog, Professor Ouellette (Stanford) has a nice post about the mixed bag of Justice Scalia’s IP scholarship legacy.  Most recently, Justice Scalia may be best remembered for calling-out Federal Circuit jurisprudence on obviousness as “gobbledygook.”  In many cases, I would expect that his ‘vote’ was less important than the ideas he brought to the table and the way he changed the debates.

I don’t see Scalia’s death having any impact on Halo/Stryker — where I predict the Federal Circuit will be reversed.  Cuozzo is perhaps a different story where I expect a divided court to affirm in a situation where Justice Scalia may have voted to reverse.  Oral arguments are still set for February 23, 2016 in Halo and Stryker. Tony Mauro has an interesting article on the case titled “Coin toss decides which advocate will argue key patent case.”  Professor Mann provides an argument preview on SCOTUSblog.

New petitions this week include the reappearance of Limelight v. Akamai.  The Supreme Court previously shot-down the Federal Circuit’s expanded definition of inducing infringement, but on remand the Federal Circuit expanded its definition of direct infringement (to include joint enterprise liability).  The case is interesting and I hope that the court grants certiorari, but I would side with the patentee here.

In Medinol v. Cordis, the patentee questions whether the laches doctrine still applies in patent cases. This case parallels SCA Hygiene and comes on the heels of the Supreme Court’s Petrella decision which eliminated the laches defense for back-damages in copyright cases.

Briartek IP v. DeLorme, delves into interesting separation of powers and jurisdiction issues, asking: Whether a binding consent order, entered between the federal government, the ITC, and an ITC respondent, deprives federal district courts of jurisdiction over a declaratory judgment action, seeking to invalidate the patent at issue, filed by the ITC respondent … against the patent holder: a non-party to the consent order.  The Federal Circuit had affirmed without substantive opinion.

Finally, last but not least, is Click-to-Call Tech v. Oracle Corp. who has copied the questions from Cuozzo and the recently denied Achates v. Apple.  These questions challenge the seeming the absolute bar on judicial review of Patent Trial & Appeal Board’s power to institute IPR proceedings.  Although this particular petition is unlikely to be granted. It lends additional credence to the other two.  The petition is also a mechanism for the patentee here to keep the issue alive.

1. Petitions Granted:

2. Petitions Granted with immediate Vacatur and Remand (GVR)

3. Petitions for Writ of Certiorari Pending:

  • Infringement by Joint Enterprise: Limelight Networks, Inc. v. Akamai Technologies, Inc., et al., No. 15-993 (can a defendant be held liable for the collective performance of method steps by multiple independent parties?)
  • Post Grant Admin: Cooper v. Lee, No. 15-955 (whether IPRs violate Separation of Powers).
  • Post Grant Admin: Click-to-Call Tech, LP v. Oracale Corp., No. 15-1014 (Same questions as Achates v. Apple and Cuozo)
  • Laches: Medinol Ltd. v. Cordis Corporation, et al., No. 15-998
  • Laches: SCA Hygiene Products Aktiebolag, et al. v. First Quality Baby Products, LLC, et al., No. 15-927
  • Post Grant Admin: Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Design Patents: Samsung Electronics Co. v. Apple Inc., No 15-777 (design patent scope and damages calculation)
  • Design Patents: Systems, Inc. v. Nordock, Inc., No. 15-978 (design patent damage calculations – similar issues as Samsung v. Apple). []
  • Inducement: Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (whether an entity can “induce itself” under 271(f)(1))(CVSG, awaiting government brief)
  • Inducement: Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commil re-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Claim Construction: Universal Lighting Technologies, Inc., v. Lighting Ballast Control LLC, No. 15-893 (intrinsic vs extrinsic evidence for claim construction).
  • Preclusion or Jurisdiction:  BriarTek IP, Inc. v. DeLorme Publishing Company, Inc., et al., No. 15-1025 (Preclusive impact of ITC consent judgment).
  • Preclusion or Jurisdiction: Vermont v. MPHJ Technology Investments, LLC, No. 15-838 (Federal court jurisdiction in anti-troll consumer protection case)
  • Preclusion or Jurisdiction: Alexsam, Inc. v. The Gap, Inc., No. 15-736 (appellate jurisdiction over patents that were dropped from case pre-trial)
  • Preclusion or Jurisdiction: ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Preclusion or Jurisdiction: Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • Eligibility Challenges: Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Eligibility Challenges: Joao Bock Transaction Systems, LLC v. Jack Henry & Associates, Inc., No. 15-974 (defining an abstract idea)
  • Claim Construction: Media Rights Technologies, Inc. v. Capital One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Patent Term Adjustment Dispute: Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies; could bleed into admin law issues)
  • Damages: STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Damages: Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on – potential wait-and-see)
  • Low Quality Brief: Morales v. Square, No. 15-896 (eligibility under Alice)

3. Petitions for Writ of Certiorari Denied:

  • Achates Reference Publishing, Inc. v. Apple Inc., et al., No. 15-842 (IPR institution decisions unreviewable, even when addressed in a final written decision by PTAB)
  • Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567
  • Allvoice Developments US, LLC v. Microsoft Corp., No. 15-538
  • OIP Technologies, Inc. v. Amazon.com, Inc., No. 15-642
  • Fivetech Technology Inc. v. Southco, Inc., No. 15-381
  • Tyco Healthcare Group LP, et al. v. Ethicon Endo-Surgery, Inc., No. 15-115
  • Nautilus, Inc. v. Biosig Instruments, Inc., No. 15-561
  • Chunghwa Picture Tubes, Ltd., et al. v. Eidos Display, LLC, et al., No. 15-288
  • Kenneth Butler, Sr. v. Balkamp Inc., et al., No. 15-273
  • Arthrex, Inc. v. KFx Medical Corporation, No. 15-291
  • Daiichi Sankyo, Inc., et al. v. Apotex Inc., No. 15-281
  • Mylan Pharmaceuticals Inc. v. Apotex Inc., No. 15-307
  • Luv N’ Care, Ltd. v. Munchkin, Inc., No. 15-242
  • Automated Merchandising Systems, Inc. v. Michelle K. Lee, Director, United States Patent and Trademark Office, No. 15-326
  • I/P Engine, Inc. v. AOL Inc., et al., No. 14-1358
  • Interval Licensing LLC v. AOL Inc., et al., No. 14-1362
  • Content Extraction and Transmission LLC v. Wells Fargo Bank, National Association, et al., No. 14-1473
  • W.L. Gore & Associates, Inc. v. Bard Peripheral Vascular, Inc., et al., No. 15-41
  • NetAirus Technologies, LLC v. Apple Inc., No. 14-1353
  • Muffin Faye Anderson v. Kimberly-Clark Corporation, No. 14-10337
  • MobileMedia Ideas LLC v. Apple Inc., No. 15-206
  • SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kessler doctrine)
  • Rodney K. Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602
  • Lakshmi Arunachalam v. JPMorgan Chase & Co., No. 15-691

4. Prior versions of this report:

 

 

Lexmark and Disposability: Gumming Up the Market for Refills and Repairs.

Patent

by Dennis Crouch

I was surprised at the en banc Federal Circuit’s decision in Lexmark to re-affirm Mallinckrodt — giving a seller power to block future resale and reuse of a patented product.  My surprise is grounded in the longstanding tradition in American property law of promoting the free-flow of commerce by refusing to enforce servitudes that limit the alienation or use of goods. To be clear, courts have often enforced contracts between willing parties to this end, but those same courts have refused to allow restrictive covenants to cling to the good and bind any subsequent purchaser.  Here, the court held that this type of restriction is enforceable for Lexmark, but only because Lexmark’s product is covered by patent rights.

Apart from the law, the policy issues are incredibly important and relate to the continued increase in both (1) disposable/non-reparable products on the market and (2) manufacturer control over the repair market for products that are reparable by patenting the replacement part itself.  In the auto industry, insurance companies and consumers have been fighting this issue for years – pushing lawmakers to negate design patents covering spare-parts when used to limit the supply of less-expensive parts.

In my ideal system, we encourage the creation of high quality and long lasting goods that are reparable (or refillable) at a local level.  The best and most direct way to offer this encouragement is outside the patent system. However, the Lexmark decision gums-up the works by creating a cloud over the third-party repair/refill marketplace — a market that is already such a shadow of its former self.

 

USPTO Stadium Tours (PTAB/TTAB Hearings)

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The USPTO has partnered with four law schools with a “stadium tour” of both the Patent Trial & Appeal Board as well as the Trademark Trial & Appeal Board.

Here at Mizzou, we will begin at 9:00 a.m. March 1, we will host two panels that will focus on strategy issues and policy concerns, and the experience will be capped by live hearings by the Patent and Trademark Trial and Appeal Boards.  Various board members will be speaking along with other experts in the field.  Following their tradition, the Boards have asked that we not video-stream the hearing.  However, other content during the day will be streamed online.

The events are free, but we ask that you pre-register if you would also like free lunch.

= = = = =

The central importance of the Patent Trial & Appeal Board (PTAB) has risen greatly since passage of the America Invents Act of 2011 and creation of the new inter partes and post-grant review procedures. These review proceedings provide an alternative forum for third-parties (usually accused infringers) to challenge patent validity. The review trials are handled by three-member tribunals of administrative patent judges who have been appointed by the U.S. Secretary of Commerce after consideration of their training in both technology and the law. The review proceedings are now being challenged on a variety of procedural and constitutional grounds – with one case, Cuozzo v. Lee, to be heard by the U.S. Supreme Court this term.

The Trademark Trial and Appeal Board (TTAB) hears trademark challenges, including opposition proceedings and appeals. Their hearings often focus on questions of whether a mark is generic, amoral or confusingly similar to existing marks. A set of cases pending in federal courts challenge the constitutional propriety of the TTAB’s statutory authority to cancel marks that “disparage” persons, institutions, beliefs or national symbols. Like the PTAB, administrative trademark judges are appointed by the U.S. Secretary of Commerce.

Lexmark: Presumptions in the Right to Import, Reuse, and Resale

Patent,

by Dennis Crouch

The en banc holding of Lexmark v. Impression[1] is simple – the principles of Mallinckrodt[2] and Jazz Photo[3] are re-affirmed. In particular, the court reaffirmed (1) that a seller can use its patent rights to block both resale and reuse of a product and (2) that authorized sales of a product abroad does not exhaust the US patent rights associated with that product. As Prof. Rantanen explained, although the holding is simple, the ten-member majority panel took 90+ pages to describe how its conclusions conform with 19th – 21st century Supreme Court precedent and why the patent laws should operate differently than the copyright regime in these cases.

The presumptions are of some importance for those operating on the ground.  Here, the US court will presume that foreign sales of a product do not exhaust the US patent right.  Thus, an importer must obtain a release/license of those rights to avoid liability (assuming a valid and otherwise infringed patent).  Of course, that license right may be implied based upon providing notice of the importation intent. In addition, depending upon the location of sale, UCC  2-312 (or its foreign equivalent) may create a presumption of license depending upon the situation.

With regard to limits on domestic resale/reuse, the presumption continues to be that a bare sale without express restriction is delivered free from any resale or reuse restrictions.  However, once the restriction is in place, it appears to be bound to the product and thus binding upon subsequent owners who have no contractual agreement or relationship with the patentee.  Under the UCC, a bona fide purchaser of a good takes “good title” presumably free of any encumbrance (such as a reuse restriction).  UCC 2-403(1).  However, as state-law, the UCC is trumped by Federal Patent Law which is the source of encumbrance here.  The common law has a long history of prohibiting these types of encumbrances on personal property, but for the Federal Circuit, the patent right overwhelms that tradition.

A Supreme Court petition is likely in this case.  The problem though is that Impression is a rather small generic-cartridge company and lacks the funds to hire a top Supreme Court counsel – perhaps especially important here because of the 200 years of Supreme Court precedent relating to the issues at hand.   That said, Ed. O’Connor (Impression’s litigation counsel) previously represented Independent Ink in the 2006 Illinois Tool Works case before the Supreme Court.

= = = = =

[1] Lexmark Intern., Inc. v. Impression Products, Inc., App. No. 2014-1617, ___ F.3d ____ (Fed. Cir. February 12, 2016) (en banc). En banc order available at 785 F.3d 565 (Fed. Cir. 2015).

[2] Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992).

[3] Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001)

En banc Federal Circuit affirms Mallinkrodt, notwithstanding Quanta

Patent,

By Jason Rantanen

Lexmark International, Inc. v. Impression Products (Fed. Cir. 2016) (en banc) Download Opinion
Majority opinion authored by Judge Taranto, with Judge Dyk dissenting (joined by Judge Hughes)

 This morning the Federal Circuit issued its en banc opinion in the closely watched Lexmark case.  In a behemoth 92 page opinion by Judge Taranto, the court held that the limitations on the exhaustion doctrine set out in its 1992 Mallinkrodt and 2001 Jazz Photo opinions remain good law, notwithstanding the Supreme Court’s intervening decisions in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) and Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013).

From the majority opinion:

First, we adhere to the holding of Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), that a patentee, when selling a patented article subject to a
single-use/no-resale restriction that is lawful and clearly communicated to the purchaser, does not by that sale give the buyer, or downstream buyers, the resale/reuse authority that has been expressly denied. Such resale or reuse, when contrary to the known, lawful limits on the authority conferred at the time of the original sale, remains unauthorized and therefore remains infringing conduct under the terms of § 271. Under Supreme Court precedent, a patentee may preserve its § 271 rights through such restrictions when licensing others to make and sell patented articles; Mallinckrodt held that there is no sound legal basis for denying the same ability to the patentee that makes and sells the articles itself. We find Mallinckrodt’s principle to remain sound after the Supreme Court’s decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), in which the Court did not have before it or address a patentee sale at all, let alone one made subject to a restriction, but a sale made by a separate manufacturer under a patentee-granted license conferring unrestricted authority to sell.

Second, we adhere to the holding of Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), that a U.S. patentee, merely by selling or authorizing the sale of a U.S.-patented article abroad, does not authorize the buyer to import the article and sell and use it in the United States, which are infringing acts in the absence of patentee-conferred authority. Jazz Photo’s no-exhaustion ruling recognizes that foreign markets under foreign sovereign control are not equivalent to the U.S. markets under U.S. control in which a U.S. patentee’s sale presumptively exhausts its rights in the article sold. A buyer may still rely on a foreign sale as a defense to infringement, but only by establishing an express or implied license—a defense separate from exhaustion, as Quanta holds—based on patentee communications or other circumstances of the sale. We conclude that Jazz Photo’s no-exhaustion principle remains sound after the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), in which the Court did not address patent law or whether a foreign sale should be viewed as conferring authority to engage in otherwise-infringing domestic acts. Kirtsaeng is a copyright case holding that 17 U.S.C. § 109(a) entitles owners of copyrighted articles to take certain acts “without the authority” of the copyright holder. There is no counterpart to that provision in the Patent Act, under which a foreign sale is properly treated as neither conclusively nor even presumptively exhausting the U.S. patentee’s rights in the United States.

Judge Dyk, joined by Judge Hughes, disagreed:

I agree with the government that Mallinckrodt was wrong when decided, and in any event cannot be reconciled with the Supreme Court’s recent decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008). We exceed our role as a subordinate court by declining to follow the explicit domestic exhaustion rule announced by the Supreme Court.

They also would take a presumption-based approach to international exhaustion that would treat exhaustion as a default rule:

Second, I would retain Jazz Photo insofar as it holds that a foreign sale does not in all circumstances lead to exhaustion of United States patent rights. But, in my view, a foreign sale does result in exhaustion if an authorized seller has not explicitly reserved the United States patent rights.

My sense is that Supreme Court review is likely given the tensions between Quanta and the Mallinkrodt rule that Judge Dyk and others have identified.  In my view, Judges Dyk and Hughes have the better reading of the pre-Mallinkrodt Supreme Court decisions and the effect of Quanta.  And given the Supreme Court’s tendency to look to patent law statutes when deciding non-statutory issues in copyright law (such as in MGM v. Grokster), I’m not convinced that, should it grant cert, the Supreme Court is going to feel as strongly that patent law’s exhaustion doctrine is different because it is non-statutory while copyright law’s is statutory.

Patentlyo Bits and Bytes by Anthony McCain

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