Federal Circuit OK’s Award of 50% of Gross Margin

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Astrazeneca v. Apotex (Fed. Cir. 2015)

Omeprazole (Prilosec) is a proton pump inhibitor (PPI) used to treat stomach acid issues.  In a prior portion of this case, the Federal Circuit affirmed that Apotex’s generic omeprazole infringed the AZ patents and that the patents were not invalid. After that 2007 decision, the company took the product off the market. The present appeal is simply about the damages that Apotex needs to pay based upon its infringement from 2003 – 2007.

A patentee is entitled to “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.” 35 U.S.C. § 284.  Thus, the statute sets a ‘floor’ of a reaonable royalty but offers the option of proving further damages that would not be accounted-for in such a royalty calculation. This second category is ordinarily thought of as the patentee’s “lost profits” due to the infringement. See Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009).

Reasonable Royalty as 50% of gross margin: Here, the patentee asked for a reasonable royalty, which the district court set at 50% of Apotex’s $150 million gross margin (gross sales minus cost of goods) on the infringing sales.  On appeal, the Federal Circuit has affirmed.

District courts (and juries) are given substantial deference in awarding damages for patent infringement.  Factual conclusions (including the ultimate award) are reviewed only for clear error and the damage computation approach is reviewed for abuse of discretion.

Entire Market Value Rule for Pharma: The most interesting aspect of the case involved a discussion of the “entire market value rule.”

When thinking about damages, the focus should be on the incremental value of the patented invention.  When the patent covers only a small-portion of a multi-component product, the damage award should be based upon how the invention improves that small-portion unless the patentee proves that the patented feature “creates the basis for customer demand” in the whole product or “substantially creates the value of the component part.” quoting Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011).  One way around this is for a patentee to claim the product as a whole, then reciting both the novel features and conventional elements that make-up the rest of the product.  Here, that is exactly what AZ did – claiming a pill containing the (novel) drug covered with a (standard) enteric coating and subcoating. For the Federal Circuit, that claiming trick was sufficient to allow the patentee to focus on the entire market value of the pills rather than on the value of the novel drug component:

Astra’s formulation patents claim three key elements—the drug core, the enteric coating, and the subcoating. The combination of those elements constitutes the complete omeprazole product that is the subject of the claims. Thus, Astra’s patents cover the infringing product as a whole, not a single component of a multi-component product. There is no unpatented or non-infringing feature in the product.

The court did note that the relative proportion of novel-to-conventional parts should have an impact on the ultimate damage awaard:

When a patent covers the infringing product as a whole, and the claims recite both conventional elements and unconventional elements, the court must determine how to account for the relative value of the patentee’s invention in comparison to the value of the conventional elements recited in the claim, standing alone. See Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1233 (Fed. Cir. 2014) (“[T]he patent holder should only be compensated for the approximate incremental benefit derived from his invention.”).

All of these thoughts and concerns regarding proportional valuation go back to the 1884 Supreme Court case of Garretson v. Clark, 111 U.S. 120 (1884). In that case, the court wrote that the patentee:

must in every case give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features, and such evidence must be reliable and tangible, and not conjectural or speculative, or he must show by equally reliable and satisfactory evidence that the profits and damages are to be calculated on the whole machine, for the reason that the entire value of the whole machine, as a marketable article, is properly and legally attributable to the patented feature.

Thus, under Garretson, it should not really matter whether you calculate the reasonable royalty as a smaller percentage of the whole product or instead a larger percentage of the component.  However, there are two reasons why plaintiffs want to use the larger number.  First, there is a sense that a judge/jury is psychologically more likely to award a higher total amount when the pie appears larger.  Second is the reality that the whole product is sold at a point further down the supply chain where prices are higher as opposed to component supply where prices are generally much lower.

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See also

  • In re Omeprazole Patent Litig., 84 F. App’x 76 (Fed. Cir. 2003) (“Omeprazole I”);
  • In re Omeprazole Patent Litig., 483 F.3d 1364 (Fed. Cir. 2007) (“Omeprazole II”);
  • In re Omeprazole Patent Litig., 281 F. App’x 974 (Fed. Cir. 2008) (“Omeprazole III”); and
  • In re Omeprazole Patent Litig., 536 F.3d 1361 (Fed. Cir. 2008) (“Omeprazole IV”);
  • All relating to U.S. Patent Nos. 4,786,505 and 4,853,230.

Guest Post: White House “Patent Troll” Report Challenged under the Federal Information Quality Act.

Patent

By Ron D. Katznelson

A letter to Congress from 51 professors of law and economics argues that “the net effect of patent litigation is to raise the cost of innovation and inhibit technological progress.”  In response, an equally strong letter to Congress from other 40 professors of law and economics expresses “deep concerns with the many flawed, unreliable, or incomplete studies about the American patent system that have been provided to members of Congress.”  The response letter defends the patent system and notes a pattern of analytical flaws in some studies underlying the 51 professors’ letter, listing basic empirical analysis reliability criteria that such studies fail to meet.  Are criteria for reliable empirical analysis fungible? Should our patent policy turn on a “they said – they said” contest?

The answer must be a resounding NO.  It turns out that the government has developed detailed criteria, requirements and standards for reliable empirical analysis and information quality.  Because the public disproportionately relies on information disseminated by the government, the government holds itself to substantially higher standards than those used by private parties or non-government entities in disseminating information on the internet or in academic journals, with its high variability in accuracy and reliability.  Congress enacted the Information Quality Act (“IQA”) in order to ensure that information disseminated by government agencies meet the standards of “quality, objectivity, utility, and integrity.” 44 U.S.C. § 3516, note.  Information disseminated by the government for reliance by government and the public must be “presented in an accurate, clear, complete, and unbiased manner.”  The IQA forbids agencies from endorsing or approvingly disseminating information of substandard quality from third-parties.

The Office of Management and Budget (“OMB”) promulgated guidelines for agencies to comply with the IQA, including the Bulletin for Peer Review and the Standards and Guidelines for Statistical Surveys.  These quality standards are quite specific.  For example, they set criteria for presentation and substantive balance and objectivity, transparency of data and methods, conditions under which peer-review is required, design of survey frames and sample coverage, minimum survey response rates below which specific bias analyses are required, etc.  Virtually all government agencies, including the Executive Office of the President, are subject to these guidelines and standards.  Under the IQA, agencies are required to establish administrative procedures enabling “affected persons” “to seek and obtain correction of information maintained and disseminated by the agency that does not comply with [the OMB IQA] guidelines;” agencies have established a 60-day period for their review and corrective action in response to such requests.  Agency responses to such petitions are not judicially reviewable because the IQA establishes no Article III standing for petitioners.  However, the President and OMB regulations require agency compliance with the IQA.

Whereas 51 professors, relying on works that do not meet the IQA standards, can freely publish and argue (as they have) that patent litigation inhibits technological progress, the government is precluded from doing so.  But that is exactly what the White House has done in contravention of the IQA by publishing its “patent troll” report known as the Patent Assertion Entities (“PAE”) Report.  It relies on many of the works cited by the 51 professors’ letter, without even having conducted an IQA pre-dissemination review—a basic first-level IQA requirement.  For these reasons, I have filed with the White House a petition under the IQA, requesting correction and removal of this PAE Report from all government websites.

My Petition shows that the PAE Report contravenes the IQA because it expressly relies on third-party information that does not meet the IQA standards.  The sources relied on by the PAE Report purport to document patent litigation rates, quantify the private and social costs of patent litigation, survey “victims” of PAE litigation, and show the purported adverse effects of PAE activities.  This information includes studies that have undergone no peer review; that have relied on opaque or erroneous methods and surveys; that lack objectivity; and lack practical utility.

To achieve agency compliance with identifiable IQA standards, my Petition concludes with 21 specific requests for correction supported by evidence and arguments.  My Petition provides a compendium of detailed analyses of fundamental flaws surrounding data and methods used in eight commonly cited studies purported to document PAE harms, upon which the PAE Report relies.

Examples of some of the PAE Report’s assertions failing the IQA are:

  • that PAEs take advantage of the patent litigation cost asymmetries to force settlements and that they have an incentive to drag out litigation; my Petition shows that this allegation lacks supporting evidence and merely relies on a citation to a reference that does not exist, therefore failing to meet the IQA;
  • that the social costs of PAEs patent litigation is $83 billion per year; my Petition shows in detail that the Bessen et al. paper upon which the allegation relies is erroneous, biased and fraught with fundamental analytical flaws and the information fails to meet the IQA standards;
  • that the direct costs to defendants of PAE litigation are $29 billion per year; my Petition shows that the Bessen & Meurer paper upon which the allegation relies, incorrectly defines “costs” and is based on a biased and opaque sample in a flawed survey that fails to meet the IQA Survey Standards;
  • an allegation of a “dramatic rise” in PAE litigation and that PAEs brought 62% of all patent suits; my Petition shows that the Chien blog post upon which the allegation relies, fails to meet the IQA because (i) it is irreproducible by independent qualified parties since it is based on secret data and methods, and is financially supported by parties that have an interest in the outcome of the study, and (ii) because it lacks objectivity by failing to even mention the effects of the AIA joinder provisions on the surge in the number of suits;
  • that 40% of technology startups targeted by PAEs suffered a “significant operational impact;” my Petition shows that the survey upon which the allegation relies fails to meet the IQA because the only thing known about the sample frame is its purposeful bias against NPEs. Solicitations (i.e., “trolling”) for the survey were made by entities that are “critical of the patent system,” encouraging respondents to participate in order to send a message to Congress—not to conduct bona fide research.

I also show (including through FOIA revelations) that the PAE Report’s secret author, a patent law professor, dominated its content by her own works, and those substantially reflecting her views.  The White House omitted some in-text citations to the professor’s works from the bibliographic reference list and falsely attributed her survey results to a news reporter.  Together, these errors had the effect of concealing the dominance of this professor’s works in the PAE Report.  But where the professor’s own publications elsewhere strike a balance by at least acknowledging and crediting references with views opposing her own (see Petition, Sec. 5.5.1), it appears that the White House overruled her approach, as the PAE Report generally fails the objectivity requirement of the IQA.  It lacks objectivity both on presentation and substance, because it focuses only on the ostensible negative aspects of NPEs or PAEs.  The IQA “objectivity” standard requires analysis that also includes the salutary economic benefits of patent enforcement, or the positive role of NPEs as intermediaries—analysis that is entirely omitted.

The results are troubling.  For example, the PAE Report disseminates this sweeping conclusory economic assessment: “the losses caused by excessive litigation [include] lost value to consumers who are not able to buy innovative products, and reduced income for workers whose pay is lower because they are unable to work with more productive new processes.”  Absolutely no evidence or other bases are cited in support of this allegation.  Ironically, the stark failure to meet the IQA standards may produce the opposite result of that intended by the proponents of patent reform.  For example, estimates of the number of NPE demand letters based on extrapolation from one extreme outlier case (see Petition at 41) are so fantastic that they undermine the credibility of the legitimate efforts to address a genuine (but infrequent) problem of abusive demand letters.

The Petition and supporting material may appear to some readers as cumbersome and repetitive.  This may be so because it is written to overcome the burden on the petitioner of establishing non-compliance with the IQA, including the requisite particularized requests for correction.  Stay tuned to see what corrective action the White House may take.

Link to the full IQA Petition for Correction

Patent Law Moot Court: Disembodied Genetic Information as an Abstract Idea

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In our Fourth Annual Patent Law Moot Court here at Mizzou Law, the students are grappling another Myriad lawsuit asserting its BRCA1 gene patents.  The question presented is whether the cDNA claims that the Supreme Court suggested are patent eligible could be voided as improperly claiming an abstract idea.

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Order: Presently before the Court is Defendant’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6).  In its oral motion, Defendants’ asserted that Claims 2 and 6 of Myriad’s U.S. Patent No. 5,747,282 are directed toward unpatentable subject matter under 35 U.S.C. § 101 as improperly claiming an abstract idea.[1]  Plaintiffs disagreed and further responded that the issue had been foreclosed in its favor by the Supreme Court’s recent decision regarding the claim and patent at issue and that the issue was not the proper subject of a motion to dismiss.

Parties will brief the issue and particularly address the following:

  • Whether the asserted claims of the patent-in-suit are directed toward an unpatentable abstract idea in violation of the requirements of 35 U.S.C. § 101.
  • The direct impact of Association for Molecular Pathology v. Myriad Genetics, Inc., 133 S.Ct. 2107 (2013) on this motion.
  • Whether a challenge to subject matter eligibility is the proper subject of a motion to dismiss.

Briefs will be submitted simultaneously by 5:00 pm on April 6, 2015 and will otherwise follow the requirements set out in Local Rule 4.3.  The Court will entertain oral arguments on April 10, 2015 at 3:30 pm. Each party will be given up to 20 minutes to present its case.

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[1] The parties have stipulated that Claim 2 is directed toward a cDNA version of the naturally occurring BRCA gene and that Claim 6 is a fragment of the cDNA sequence defined by Claim 2.

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Should be interesting.  How would you argue the case for/against?

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SPONSOR US: I’m looking for a sponsor for the event so that I can give the winner a cash prize.  A tax-deductable donation of $5,000 will fund the system for the next four years and get your name mentioned in Patently-O each year!

Dennis

 

Federal Circuit Cases to Watch on Software Patentability – Planet Blue

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 Guest Commentary by Robert Stoll

In the wake of the Supreme Court’s decision in Alice Corp v. CLS Bank (2014), there have been dozens of decisions in federal district courts and at the Federal Circuit that have applied Alice and Section 101 to a wide variety of business method and software related patents. And in the vast majority of these cases, the courts have invalidated the patents.

This trend line has led to rampant speculation about the end of software patents. But a review of the patents in those cases indicates that the claims at issue in most of the district court cases (and arguably all the Federal Circuit decisions) were directed to business methods that would have likely been held invalid under Bilski and other pre-Alice decisions. What we have seen far less is how courts will apply Alice to patent claims directed to software technology (as opposed to business methods).

Arguably the first of those cases is on its way through the Federal Circuit. The McRO (Planet Blue) v. Activision Blizzard, et al. (C.D. Cal. 2014) (“Planet Blue”) appeal pending at the Federal Circuit may be an important indicator of how software patents will be evaluated by the courts going forward.

Unlike many of the other Section 101 cases that have largely involved simple financial/business practices or similar non-technical “inventions,” the patents in Planet Blue are directed to what appear to be actual technological challenges. The patents utilize complex and seemingly specific computer-implemented techniques.

And yet the Planet Blue patents were found invalid under Section 101 in the district court. In deciding the case, Judge Wu did a thorough analysis of the patent claims, starting with the observation that “[f]acially, these claims do not seem directed to an abstract idea” and appear to be directed to a “specific technological process.”  However, interpreting Mayo to require him to disregard any aspect of the claims found in the prior art, he conducted a further analysis to determine what feature of the claims were novel. Wu found that the only aspect of the claims that added to the prior art was an abstract idea:  “the use of rules, rather than artists, to set the morph weights and transitions between phonemes.”

Planet Blue has now appealed to the Federal Circuit, and opening merits briefs were recently filed. These and the subsequent briefs, arguments and decision in this case will be important for practitioners and patent holders for several reasons:

The Federal Circuit will evaluate a patent claim that is technology-based.

An initial read of the claims in the Planet Blue patents seem to be a far cry from basic method claims. The Planet Blue patents are used in animation; the technology helps automate the process of adapting an animated image to mouth words without having to draw or manually program the animated character’s movements. Its’ claims are drawn to the use of three-dimensional synchronization for certain applications in animation.

The district court initially acknowledged that the claims, in isolation, appeared tangible and specific and did not seem directed to an abstract idea: “considered standing alone, the asserted claims do not seem to cover any and all use of rules for three-dimensional synchronization.” In deciding this case, the Federal Circuit will be making an important decision on how to evaluate technology and software claims in a post-Alice environment.

The decision should provide additional guidance on how to apply the ‘significantly more’ test.

In the Alice decision, the Court recognized that patents – even those that are directed to an abstract idea or other ineligible concept – can be made patent eligible if the patent ‘transforms’ the abstract idea, or  does ‘something’ or ‘significantly more’ than a patent on the concept itself. This is the second step of the Alice/Mayo test, which the Court refers to as the search for an inventive concept.  Unfortunately, both the Supreme Court and Federal Circuit have provided scant guidance on what is necessary to satisfy this “significantly more” test.

In this case, the district court found that the claims covered a well-known concept of lip synchronization and weren’t sufficient to meet the ‘significantly more’ test. The Federal Circuit will review the claims, and assess whether the district court’s analysis and conclusion were correct.  The Federal Circuit’s decision should provide some insight as to how ‘significantly more’ test should be performed and how claims should be read moving forward.

Lower courts will be paying close attention to the Federal Circuit’s ruling in this case in their 101 assessments.

Just six weeks after the Planet Blue decision, another Section 101 decision came out from the Central District of California, this one authored by Judge Pfaelzer, in California Institute of Technology v. Hughes Communications, Inc. (C.D. Cal. 2014).  In that case, the court denied Hughes’ motion for summary judgment on Section 101 ineligibility. Judge Pfaelzer also undertook a lengthy analysis of Section 101 case law.  In applying the Mayo/Alice framework, the court found that the Caltech claims were directed to abstract ideas, but that the claims were patentable since they contain inventive concepts.

Interestingly, Judge Pfaelzer also made a point of discussing the Planet Blue decision.  While respectfully acknowledging that Planet Blue offers valuable contributions to the Section 101 discussion, Judge Pfaelzer noted that Planet Blue ultimately reached the wrong conclusion since courts should not, in her view, apply the point-of-novelty approach in the Section 101 inquiry, citing the Supreme Court’s Diamond v. Diehr decision.

This is the first step in the journey, not the destination. Planet Blue may turn out to be a bellwether case on software patentability, as these patents seem quite similar to so many of the software patents held by companies across the IT industry and beyond.  But the outcome is likely to be highly panel dependent, and it would not be surprising to see a request for en banc consideration at some point down the line. The case is sure to be closely watched, and it will be fascinating to see whether the Federal Circuit follows the lead of Ultramercial (and upholds the lower court decision on patent ineligibility), or whether the reasoning of DDR Holdings will prevail (and the Section 101 decision reversed).

Bob Stoll is a partner at Drinker Biddle and Reath and Co-Chair of the IP Group and a previous Commissioner for Patents at the USPTO.  The views expressed above are his own and do not necessarily represent the views of his firm or its clients.

 

SCOTUS: Post-Expiration-Licensing

Patent

Last week the Supreme Court heard oral arguments in the patent licensing dispute known as Kimble v. Marvel Enterprises, Docket No. 13-720.   In that case the license of Mr. Kimble’s patent covering a web-shooter-toy appears to extend beyond the expiry date of the patent and Supreme Court’s prior precedent holds that such post-expiry royalty arrangements are not enforceable. Brulotte v. Thys, 379 U.S. 29 (1964) (post expiry patent license is per se patent misuse).

The per se rule created in Brulotte is what Chief Justice Roberts called a “problem with the ’60s.” More recently, the Supreme Court has overruled a whole set similar per se antitrust cases — and instead applying a rule of reason.

The patentee’s basic argument is that it makes sense to allow parties to negotiate for their own contract terms and decouple a private contract from the patent’s right to exclude.

MR. MELNIK (for patentee):  The way that I would reconcile it … is to decouple the notion of the right to exclude, which is what the statutory term is about, the right to prevent the public as a whole from using the patented invention from the specific royalty arrangement.

Under a rule of reason, a post-expiry license could still be seen as misuse, but that result would depend upon the particular circumstances.

One reason not to overrule Brulotte is that such a course is a rather drastic policy-based action.

JUSTICE SOTOMAYOR: How long has Brulotte been around?

MR. MELNIK: 50 years.

JUSTICE SOTOMAYOR: Why don’t we just let Congress fix it, because if it’s wrong, people can complain to [Congress]. . . .

JUSTICE KAGAN: It may or may not be right, but there’s nothing incredibly sort of wierd and anomalous about it. . . . we have a very strong rule of statutory stare decisis.  We need some special justification to break away from that rule. . . .  But [this issue] surely is a question for Congress, to go back to what Justice Sotomayor was saying, you know, to the extent that there’s a real world problem, and maybe there is and maybe there’s not, it’s a little bit hard to tell from the amicus briefs.  I mean, they’re surely better equipped than we are to deal with that.

The response to the Court here is that the court has been revising statutes for many years without much concern for stare decisis — i.e., that it is really too late for the court to claim it is not an activist court.

On the policy side – the basic reason to keep the rule is as a mechanism for better insuring that inventions are available to the public at the patent term’s expiration.

Congratulations Herbert Wamsley

Patent

Herb Wamsley has been a mainstay and leader of the patent law bar for many decades — including 32 years leading Intellectual Property Owners Association (IPO)  and previously as chief of staff to the Patent & Trademark Office Director.  I have tremendous respect for Herb and the organization he has built.  Although I often don’t fully agree with the IPO positions, Herb has always been honest and open and ready to talk through the pros and cons of any issue.

Herb Wamsley has announced his retirement from the IPO and I want to congratulate Herb on such a successful career that has touched so many of us.

The IPO has also announced its new search for an executive director of the agency.  I wonder if they can woo away the current PTO Chief of Staff Andrew Byrnes.  According to the announcement: “Candidates should be skilled in IP law and practice, government affairs, communications, consensus-building, management and organization. To view the job announcement including duties and skill set click here.”

 

Interlocutory Appeal on Stay Decisions for CBM/PGR

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Intellectual Ventures v. JPMorgan (Fed. Cir. 2015)

IV has asserted a set of computer security patents against JPMorgan, some of which are directly related to electronic transactions.  Within a month of the civil action filing, JPMorgan responded by filing petitions for post-grant Covered-Business-Method (CBM) review of two of the five asserted patents.  JPMorgan then immediately requested a stay of litigation (noting that the patents-in-suit are also undergoing inter partes review proceedings).

The district court rejected JPMorgan’s stay request and the company filed this interlocutory appeal.  On appeal, however, the Federal Circuit has dismissed the case – finding that it does not (yet) have jurisdiction over the interlocutory case.

Section 18 of the America Invents Act provides a four factor test for determining whether to stay a civil action pending the outcome of a CBM transitional proceeding.

(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;

(B) whether discovery is complete and whether a trial date has been set;

(C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and

(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

The statute goes on to provide for “immediate interlocutory appeal” of a district court decision on the motion for stay that is related to a CBM Proceeding and that the Federal Circuit will review the decision de novo.  Of course, that provision is an exception to the normal rule that the appellate courts only have jurisdiction to review final judgments of the district courts. 28 U.S.C. § 1295(a)(1) (2012). And further, judgments on motions to stay are normally considered interlocutory orders that are not subject to immediate appeal.

CBM Petition is not a CBM Proceeding: As I said, the statute provides for immediate appeal of district court stay decisions relating to CBM proceedings. Here, the Federal Circuit made a thin but important distinction by noting that the filing of a CBM petition is not itself a CBM proceeding. Rather, the CBM review only becomes a “proceeding” once the petition is granted.  Truthfully, the statute is not entirely clear on this point, but the court cobbled together is conclusion by noting: (1) the statute indicates that that the process is begun with the filing of a “petition for a [CBM] proceeding” which indicates that “a petition is a request for a CBM[] proceeding, not that the petition itself is part of the proceeding.”  The statute then indicates that it is the USPTO Director who “may institute a [CBM] proceeding” — an event that occurs after the filing of the petition.

Because the statute provides for no immediate appeal pre-CBM-proceeding, the Federal Circuit dismissed the case for lack of appellate jurisdiction.

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In the big picture, this means that the challenger will likely still move for a stay immediately following the filing of a CBM/PGR, but if that is denied will need to renew that motion once the proceeding is initiated in order to create appellate jurisdiction. Meanwhile, the patentee may be looking to delay the petition decision and push the civil action more quickly in order to shift the balance of factors in its direction (toward denying the stay).

Oral Arguments in Commil v. Cisco

Patent

by Dennis Crouch

Today, the Supreme Court heard oral arguments in the pending patent dispute Commil v. Cisco, Case No. 13-896.  The Patent Act creates a cause of action for actively inducing infringement of a patent.  Here, the Federal Circuit ruled that a defendant’s belief that a patent is invalid is a defense to induced infringement under 35 U.S.C. § 271(b).  That decision is being challenged here — The patentee (Commil) argues that the mens rea requirement for inducement focuses on infringement rather than validity.  The transcript is an interesting read.

Of course, invalidity of the patent is always a defense and so the issue is only critical if the defendant had a good faith belief of invalidity but the patent turned out to be valid.

JUSTICE GINSBURG: This question would come up only if the patent had been held valid.

The rule does, however, offer some additional procedural and evidentiary benefits – for example a good faith belief of invalidity should be easier to prove than invalidity itself. By taking the case, the Supreme Court suggests reversal, however, that result is not guaranteed here.

In his questioning, Justice Scalia focused on the idea that aiding and abetting requires wrongful intent, and practicing an invention covered by an invalid patent doesn’t seem wrong.

JUSTICE SCALIA:  It’s a type of aiding and abetting liability and both in tort law and in criminal law.  At the common law, it was clear that you’re not liable as an aider and abetter unless you have a wrongful intent.  . . .   It ­­ it seems to m­e that if you don’t know that you’re infringing or that you’re encouraging somebody to infringe is ­­ is no ­­ no worse than you’re not knowing that the patent is valid. . . . You’re just talking about supplemental liability for somebody who induced that violation. And generally, for that kind of liability, we have required mens rea. We have required knowledge that you’re doing something wrong.

The patentee’s response was threefold:

 MR. WERBNER: Well, under the court’s Aro 2 case that the Court described in Global­Tech’s as a fixture of patent law, the Court specifically there recognized that once an accused infringer received actual notice of the patent and is put on notice of the infringing conduct, that that ­[invalidity belief] that creates no defense to that person. . . .  [Second], there are [now] streamlined procedures available [for invalidating invalid patents]. . . . [Third] textual meaning of 271(b) [focuses on infringement not invalidity and] Congress knows the difference between invalidity and infringement.  Where Congress is addressing both, it says both.

Arguing for Cisco, Seth Waxman’s primary point fell in line with Justice Scalia’s statements:

 MR. WAXMAN:  If you go back to the common law . . . [a] defense was available [for] someone who didn’t have that belief was not culpable and, “morally wrong.”

Justice Sotomayor queried whether infringement and invalidity were really two sides of the same coin since a broadly interpreted patent is likely to be invalid while a narrowly interpreted patent is likely to be not infringed.

A good amount of time was focused on the court considering how to deal with the reality that a large percentage of challenged patents are held invalid.

CHIEF JUSTICE ROBERTS: You mentioned the presumption of validity. What percentage of patents that are challenged are found to be valid.

MR. WERBNER: Well, Your Honor, from the briefing, it appears a high number; 40 percent was an estimate.

CHIEF JUSTICE ROBERTS: Well, 40 percent of the patents are found to be valid?Invalid.

MR. WERBNER: Invalid.

CHIEF JUSTICE ROBERTS: Invalid. So only 60 percent are upheld. That’s not much of a presumption of validity.

MR. WERBNER: Mr. Chief Justice, I would submit that it would be for Congress to change the presumption of validity, if it’s out of line. . . . And it’s more than just a procedural mechanism, it’s a message that patents are presumed valued. They should be respected not just by judges and juries, but by the public who are told that until proven otherwise, patents are presumed valid. And someone who wishes to gamble on their belief that it’s invalid should bear the consequences if they’re wrong. . . .

JUSTICE KAGAN:  You’re quite right in your reply brief when you say that this is a tradition in American law, that we assume that statutes are constitutional, that we assume that contracts are valid, that’s right, but it’s because they really are.  You know, almost all statutes are constitutional.  And here we’re in a different universe entirely, aren’t we?  Where, you know, you could flip a coin as to whether a patent is valid or invalid and be pretty close, right?  It’s about 50/50. . . .

CHIEF JUSTICE ROBERTS:  Is that a ­­ is that an historical development?  Did more of them used to be valid, however many decades ago and, it’s sort of changed recently?

MS. ANDERS (US Gov’t): I think it makes sense to say that a good faith belief in invalidity is not a defense ­­even though 40 percent of patents may be invalid.
. . .
JUSTICE KAGAN: Well, but that might be a very good reason for Congress to take a new look at this presumption of validity. But [Cisco’s] problem is that this presumption of validity exists and that this question of validity functions in a patent suit only as an affirmative defense.

 

Revision of PTAB Policies

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USPTO Director Michelle Lee is in the process of making a series of changes to the Patent Trial & Appeal Board (PTAB).  In her comments, Director Lee begins with her wry humor: “In recent appearances … I highlighted the popularity (at least based upon number of filings) of our Patent Trial and Appeal Board (PTAB) America Invents Act (AIA) trials.”  PTAB trials have been popular for patent challengers – not so much for patentees.

Although the PTAB is a quasi-judicial body, it also operates at the direction of the USPTO director (who is also a member of the PTAB).  Thus, unlike many courts, the PTAB is not self-directed.

Director Lee has explained a set of changes to PTAB AIA Trial proceedings coming in two packages:

This spring we plan to issue a first rule package containing what we call “quick fixes”—changes of simple scope that will immediately improve the trial proceedings.  Later this summer, we will issue a second proposed-rule package containing more involved changes to our PTAB Trial Rules that govern the conduct of the AIA trial proceedings.

Regarding the quick-fix package, the PTAB is immediately implementing the following changes:

  1. Expanding the short 15-page limit on motions to amend claims (that must also explain why the proposed amendment is patentable).
  2. Expanding the 15-page limit for petitioner’s reply-brief.

In the follow-up rule-package proposal, the PTO is considering:

[F]urther modifications to the motion to amend process; adjustments to the evidence that can be provided in the patent owner preliminary response; and clarification of the claim construction standard as applied to expired patents in AIA proceedings; . . . adjustments to the scope of additional discovery[; . . . joining of] multiple proceedings before the Office involving the same patent; use of live testimony at oral hearings; and [requiring parties to] make a certification with their filings similar to a Rule 11 certification in district court litigation.

Additionally, regarding motions to amend, we are contemplating proposed changes to emphasize that a motion for a substitutionary amendment will always be allowed to come before the Board for consideration (i.e., be “entered”), and for the amendment to result in the issuance (“patenting”) of amended claims, a patent owner will not be required to make a prior art representation as to the patentability of the narrowed amended claims beyond the art of record before the Office.

One issue that has been raised by some (and is part of the proposed “STRONG patent act”) is the perception that PTAB judges who grant the petition-for-review have already come to a conclusion in the case — giving the patentee an undue uphill battle to win on the trial merits (since it is the same judges who hear the merits).  The PTO is going to propose a modified model for a pilot program where a single judge decides the petition and then two additional judges are added for the trial.

 

Teva, Nautilus, and Change without Change

Patent

By Jason Rantanen

Rather than just write short blog posts about the Federal Circuit’s recent claim construction decisions, I put together a longer piece that examines both indefiniteness after Nautilus v. Biosig and claim construction after Teva v. Sandoz.  In the essay, I argue that despite an expectation that Nautilus and Teva would have a substantial impact on the Federal Circuit’s jurisprudence in these areas, very little has actually changed either in outcome or in the court’s formal analytical framework.

Nevertheless, I conclude, the potential for substantial change still remains, both for claim construction and indefiniteness.  In a nutshell, I suggest that Teva’s real effect may be to expose a fundamental crack in the Federal Circuit’s claim construction methodology, one that could ultimately result in meaningful change.  And while indefiniteness might appear frozen, there are cracks beneath the surface on which perceptive advocates will inevitably push.

The essay is available here.  As this is a draft, I welcome reasonable comments.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2585844

Million Dollar Mistake? The Cost of Limiting or Canceling IP Rights

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Guest post by  Cynthia M. Ho, Clifford E. Vickrey Research Professor, Loyola University of Chicago School of Law.

Philip Morris and Eli Lilly think that they are entitled to millions in compensation from countries that limit or deny desired intellectual property rights.  These companies are the first to challenge IP issues pursuant to international agreements protecting investments of foreign companies. However, they join a trend of companies increasingly suing states before a panel of private arbitrators pursuant to investor-dispute settlement (ISDS).  The substantial financial stakes may have a chilling effect on traditional domestic laws and policies.

Although there are only two IP related ISDS disputes so far, IP policy makers should be concerned and oppose pending fast-track legislation that would permit President Obama to easily conclude more agreements with these problematic provisions.  Indeed, pending agreements have been criticized by a diverse group of individuals and countries including Nobel Prize winner Joseph Stiglitz, Elizabeth Warren, the Cato Institute and countries such as France and Germany.  The USTR recently issued a fact sheet, which was promptly debunked.

What is ISDS?

ISDS is a mechanism in over 3000 international agreements that permit foreign investors to seek compensation against countries.  The agreements guarantee freedom from discriminatory measures, a guarantee of being treated no less favorably than domestic companies, compensation for expropriation of investments, and “fair and equitable treatment.”  If these rights are allegedly violated, investors can bring a dispute before a tribunal of private (usually commercial) lawyers chosen by the parties to the dispute. There is not only no independent judiciary, but also no binding precedent and no appellate review, such that there can be inconsistent and unpredictable results.

Historically, these provisions were first added to international agreements promoting investments after World War II when newly independent nations wanted to encourage foreign investment.  ISDS was intended to provide protection to companies that lacked any legal recourse against unlawful state action.  ISDS was conceived as an improvement over “gunboat diplomacy” that nations used to protect their companies.

Why is ISDS relevant to IP?

Although ISDS was not originally designed to protect IP, companies are trying to use it for this purpose.

Most agreements providing ISDS do so only for investments of foreign companies.  These investments can include not only tangible, but also intangible property, which would seem to include IP.

Is a Canceled IP Right an “Investment” Subject to ISDS?

Even if IP is within the scope of covered investments, a critical question is whether this should include canceled IP.  IP lawyers and even students know that IP is at most presumptively valid, such that it can and often is canceled when found to not meet basic requirements.  Although canceled IP has never been considered to provide rights, Eli Lilly assumes it has rights.  In particular, it is seeking $500 million from Canada after failing to convince both a trial and appellate court that two of its patents were valid.

Highlights of Existing ISDS Claims Regarding IP

Eli Lilly’s case involves a challenge to Canada’s “promise doctrine” for assessing utility of patents and applications that make certain promises.  The promise doctrine is unusual as a utility requirement, but similar to disclosure and other patentability  requirements of other countries.  Eli Lilly claims that because this doctrine developed after its patents were granted (a point that is contested, even by some lawyers), it is improper to retroactively apply it to invalidate its patents, such that its patents have been improperly “expropriated,” which is roughly similar, but broader than US takings.  However, patents are routinely invalidated after common law modifications to laws, such as the scope of patentable subject matter with no claims of takings.

Eli Lilly seems to assume both that an issued patent is a state representation that it will remain forever valid and also that a nation can not modify its laws without violating legitimate expectations.  The supposed violation of its legitimate expectations figures prominently in a claim for denial of the amorphous condition of “fair and equitable treatment.”

Problematically, although a patent lawyer would readily reject the idea that patents are always valid and untouchable by subsequent law, they will not be deciding Eli Lilly’s case. Notably, when I presented a forthcoming article about this case to an international law colloquium, I was surprised that the audience resisted the basic principle that patent rights can and should be invalidated when found not to satisfy fundamental requirements.

Philip Morris also claims its legitimate expectations were violated, but in a different way.  Philip Morris asserts that it had a legitimate expectation that Australia would uphold its obligation to comply with TRIPS requirements for trademarks.   This suit fundamentally challenges the process for resolving alleged TRIPS violations.  Only countries, not companies, have standing to adjudicate alleged violations under TRIPS.  Thus far, countries have been cautious in doing so since there are often political implications for their actions. Moreover, permitting violations of TRIPS to be litigated outside of the WTO forum would seem wholly inconsistent with the WTO dispute settlement process that is intended to be the only forum for litigating such disputes.  In addition, there could be conflicting results; indeed, there is a pending WTO case.

ISDS for IP Threatens Flexibilities Under TRIPS

Eli Lilly’s case poses a serious threat to the minimum standard approach of TRIPS (and NAFTA).  Although these agreements have been widely understood to permit nations flexibility to define key terms, such as what is “new” or what counts as “useful,” Eli Lilly falsely claims that Canada’s definition is impermissible.

Ironically, these cases are arising at a time when many academics and policy makers (Eastern Europe, South Africa) have been encouraging countries to take greater advantage of their already limited flexibilities under TRIPS.  The present disputes may have chilling effects at a time when countries such as South Africa and Brazil have been considering modifying patent laws.

Future Problems

In the near future, companies may use ISDS to challenge patent provisions, such as compulsory licensing and India’s patent law designed to prevent “evergreening” of drugs that have attracted criticism, but no WTO dispute.  Moreover, regulatory provisions are also ripe for challenge.  For example, countries that fail to provide data exclusivity desired by the pharmaceutical industry could be subject to challenge.  In addition, a pending EU law hailed by public health advocates for increasing transparency concerning data of approved drugs is also at risk.

Given the wide range of issues at the intersection of intellectual property and public health that are potentially threatened by ISDS, this should be an issue of major concern.  Those who want to preserve policy space for countries should oppose pending agreements that permit ISDS, such as the pending Trans Pacific Partnership Act, especially because there is no public access to draft text of pending agreements except through sources such as Wikileaks, which just released the secret investment chapter of the TPP, that permits ISDS.   Public opposition is important; the EU has now delayed consideration of ISDS in its pending Transatlantic Trade and Investment Partnership (TTIP) agreement with the US.  In addition, although “fast-track” legislation is presently stalled, it should be opposed if re-introduced mid-April.  In the meantime, you can join  a petition to Congress, or directly contact your Congressman to oppose fast track bills.

Cynthia is a Law Professor at Loyola University of Chicago School of Law.

Deputy Director Russ Slifer

Patent

As I mentioned in my twitter feed, Russ Slifer has now been sworn-in as Deputy Director of the USPTO after being nominated by Director Michelle Lee and then appointed by Secretary of Commerce Penny Pritzker.  The PTO leadership is again at its full strength with a healthy mix of PTO insiders and outsiders, but all having years of direct intellectual property law experience.  We should expect Lee and Slifer to stay on the job for the next two years. But, as political appointees, the expectation is that they will be out once a new president is sworn-in, although that transition can come in different forms depending upon the new administration.

The team is making a strong push for patent quality initiatives associated primarily with aspects under their control – internal examination processes – rather than changes in substantive law.  However, they are also now renewing their focus on helping guide congressional patent reforms in order to avoid unbalancing the system. Two key questions on that front: (1) what clout with PTO input carry on the Hill when the focus is on litigation reform; and (2) how will PTO actions on that front be curtailed or shaped by the White House.

As Gene Quinn writes, Slifer was hard at work yesterday leading various aspects of the Patent Quality Summit.

The Deputy position is something like a vice president – little actual defined job responsibility. However, when I spoke with Director Michelle Lee who has been in that position for more than a year, she indicated that Slifer’s plate will be extremely full.

Duty of Candor and Indefinite Claims

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The Patent Act requires that patent claims be clear and distinct. 35 U.S.C. 112(b)(“The specification shall conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the inventor or a joint inventor regards as the invention.”).  Ambiguity is important because it can fundamentally smudge patent scope and resulting enforceability.  As a friend recently commented to me – that ambiguity fuels conflict and (in my view) helps spoil the market for patents.

The rule of definiteness is designed to put the world on notice of the scope of the exclusive patent right. Unduly ambiguous claims are not patentable and – if patented – are invalid.  As the Supreme Court recently held, the scope must be “reasonably certain” to one of skill in the art. Nautilus (2014).  Although not requiring absolute certainty, reasonable certainty remains a high standard that has been thought of as a civil equivalent of the beyond-a-reasonable-doubt standard used in criminal cases and is the same standard used to prove lost-profits damages.

Applicant Responsibilities: The Examiner is the first adjudicator of indefiniteness, but it is applicants who draft and amend patent claims.  The patent system creates some incentive for applicants seek some claims that are ambiguous (with other claims being more well defined).  However rather than addressing that partial incentive for ambiguity, I wanted to think for a moment about the applicant’s requirement under the law.

The Duty of Candor & Good Faith Dealing is a fundamental aspect of the patent prosecution system.  Rule 56 includes:

Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability as defined in this section. The duty to disclose information exists with respect to each pending claim until the claim is cancelled or withdrawn from consideration, or the application becomes abandoned.

37 C.F.R. § 1.56.

Although patent attorneys (and agents) have a duty of zealous advocacy for their clients (37 C.F.R. § 10.84), the duty of candor and good faith dealing is significantly raised in the ex parte patent prosecution process in comparison with traditional adversarial proceedings such as litigation.

It seems to me that the duty of candor would kick-in if the applicant knew a claim term to be unduly ambiguous (scope not reasonably certain).  The bigger question involves other what-ifs: What if the applicant knows of that a term has multiple definitions that leave the term potentially indefinite; and what if the applicant knows that a term is not well defined in the art?

Supreme Court: TTAB Decisions Create Issue Preclusion for Later Litigation

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by Dennis Crouch

In B&B Hardware v. Hargis Indus. (2015), the U.S. Supreme Court involved a trademark opposition running in parallel with a trademark infringement lawsuit over the mark SEALTITE/SEALTIGHT.  The general holding is that a final decision by the US Patent & Trademark Office’s Trademark Trial and Appeal Board (TTAB) can serve as issue preclusion to collaterally estop a court from re-judging already-decided issues.  The particular issue being precluded here is the likelihood-of-confusion between the two marks, and the Supreme Court held that the TTAB’s final decision on likelihood-of-confusion could preclude that issue from being later litigated in the collateral action between the parties.

A court should give preclusive effect to TTAB decisions if the ordinary elements of issue preclusion are met.

Here, the “ordinary elements” of issue preclusion are that “[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” Restatement (Second) of Judgments §27.

In its decision, the Supreme Court recognized (1) that the TTAB is an administrative agency and not an Article III court; (2) that a right to a jury trial would exist in the infringement action absent preclusion; (3) that the details and procedures associated with the TTAB judging likelihood-of-confusion were somewhat different (but not fundamentally different) than that applied in the 8th Circuit; and (4) that – had the TTAB decision been challenged – it was not appealed.

And it is undisputed that a civil action in district court would entail de novo review of the TTAB’s decision. Ante, at 5.

Going forward, the court is clear that many TTAB decisions will not have preclusive effective — but that is because they fail the ordinary elements of preclusion and not simply because the TTAB is an administrative agency or because the TTAB usually decides cases in a certain way.

The 7-2 decision was penned by Justice Alito with a concurring opinion by Justice Ginsburg.  Justice Thomas wrote in dissent and was joined by Justice Scalia.  The dissent argued that the court should not simply presume that Congress intended agency decision to have preclusive effect.

= = = = =

For patent attorneys, the case will have an obvious impact on the interplay between the Patent Trial and Appeal Board (PTAB) and parallel district court litigation.  The same reasoning that led the Supreme Court to its decision in B&B will apply equally with determinations made during inter partes and post grant review proceedings.  Importantly, issue preclusion applies to individual decisions of fact or law and thus may be important for sub-issues such as claim construction, scope and content of the prior art, level of skill in the art, etc.

Although B&B focused on traditional mutual issue preclusion, there is should also apply to defensive non-mutual issue preclusion that might arise when the defendant in an infringement action was not one of the parties in the IPR/PGR.

An important caveat: The Supreme Court recognized that issue preclusion won’t apply to agency decision when Congress so indicates. Here, there is an argument that the estoppel provisions in the IPR/PGR statutes suggest that Congress has opted out of the issue preclusion arena for these decisions.

= = = = =

One of the most interesting lines from the opinion: “federal law does not create trademarks.” For that line, the court cited Trade-Mark Cases, 100 U. S. 82, 92 (1879) (“This exclusive right was not created by the act of Congress, and does not now depend upon it for its enforcement. The whole system of trade-mark property and the civil remedies for its protection existed long anterior to that act, and have remained in full force since its passage.”).

 

Willfulness: Federal Circuit Denies En Banc Review in Halo v. Pulse

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By Jason Rantanen

Halo Electronics, Inc. v. Pulse Electronics, Inc. (Fed. Cir. 2015) (denial of rehearing en banc) Halo Order

The Federal Circuit denied Halo’s petition for rehearing en banc today over the dissent of Judges O’Malley and Hughes.  (For background, Dennis and I previously wrote about the opinion and the petition for rehearing).  The concurrence and dissent focused solely on the issue of willfulness, which Halo had framed as:

Willfulness: Whether an infringer who subjectively knew pre-suit that it was infringing a valid patent (after being given notice of the patent, and failing to design around, seek a license, or stop infringing) can use an unsuccessful defense developed post-suit as a per se bar to liability for pre-suit willful infringement, despite the flexible text of 35 U.S.C. § 284.

This is not the right case: Concurring in the denial of the rehearing en banc, Judge Taranto, joined by Judge Reyna, wrote separately to explain that the denial was appropriate because “Halo raises only one question about the enhanced-damages provision of the Patent Act, 35 U.S.C. § 274, and I do not think that further review of that question is warranted.”  Concurrence at 4.  In the concurrence’s view, “[t]he only enhancement-related question that Halo presents for en banc review is whether the objective reasonableness of Pulse’s invalidity position must be judged only on the basis of Pulse’s beliefs before the infringement took place.” Id. at 5.  In Judge Taranto’s view, “Halo has not demonstrated the general importance of that question or that the panel’s assessment of objective reasonableness is inconsistent with any applicable precedents or produces confusion calling for en banc review.”  Id.  Nor is the requirement of objective recklessness affected by Octane Fitness.

Nevertheless, the concurrence observed, there are many aspects of the court’s § 284 jurisprudence that could bear revisiting en banc, including “whether willfulness should remain a necessary condition for enhancement under § 284’s “may” language,”” the proper standards for finding willfulness,” “who makes which decisions and what standards of proof and review should govern those decisions,” whether “a judge or jury decide willfulness, in full or in part,” whether “willfulness (or, rather, its factual predicates) have to be proved by clear and convincing evidence,” and “what standards govern appellate review”?  In Judge Taranto’s words, “Whether such questions warrant en banc review will have to be determined in other cases.”  Id. at 1.

The Willfulness Jurisprudence Should be Reevaluated: Judge O’Malley, joined by Judge Hughes, disagreed for the same reasons provided in her dissent to the original opinion (discussed here).  The court’s “jurisprudence governing the award of enhanced damages under § 284 has closely mirrored our jurisprudence governing the award of attorneys’ fees under § 285.” Dissent at 2. But “[w]e now know that the artificial and awkward construct we had established for § 285 claims is not appropriate. We should assess whether the same is true with respect to the structure we continue to employ under § 284.”  Id. at 4.  Both the court’s framework for assessing willfulness and the framework for attorneys’ fees were predicted on its interpretation of Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993).  But in Octane Fitness, the Supreme Court held that the Federal Circuit had misunderstood PRE for its attorneys’ fees inquiry.  Consequently “[w]e should now assess whether a flexible test similar to what we have been told to apply in the § 285 context is also appropriate for an award of enhanced damages.”  Id. at 5.

Beyond the effect of Octane Fitness, Judge O’Malley identifies additional issues with the current willfulness framework: its requirement of clear and convincing evidence, the court’s imposition of de novo review, which was rejected for fee awards by the Court in Highmark, and who should be making the decision to enhance damages: the judge or the jury?

The Unsettled Standard of Review: Shortly after releasing its denial of rehearing en banc in Halo, the court issued a revised opinion in Stryker v. Zimmer, in which it added a new footnote:

6   This court has not yet addressed whether Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), or Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1746 (2014), altered the standard of review under which this court analyzes the objective prong of willfulness. However, as the district court failed to undertake any objective assessment of Zimmer’s specific defenses, the district court erred under any standard of review and thus this court need not now address what standard of review is proper regarding the objective prong of willfulness.

Combined with the additional language in Stryker v. Zimmer, the court may be gearing up to take on a compromise issue in willfulness: namely, whether a modified standard of review is appropriate.  That said, it is entirely possible that the Supreme Court will take on the bigger question that Judge O’Malley raises in dissent.  Halo remains an appeal to watch.

Reexamined Patent Still Obvious According to the Court

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by Dennis Crouch

Senju v. Lupin (Fed. Cir. 2015)

In a split decision, the Federal Circuit has affirmed a district court judgment that Senju’sU.S. Patent No. 6,333,045 is invalid as obvious. The patent covers an eye-drop formulation that is mixture gatifloxacin and EDTA (sold as Zymar) and has an interesting litigation history. In particular, this case represents the fourth time that the patent has been asserted in a lawsuit before Judge Sue Robinson (D.Del.). That history includes a prior finding by Judge Robinson that the claims were invalid as obvious. Following that original obviousness decision, Senju successfully shepherded the claims through an ex parte reexamination.  In that process, the PTO confirmed the patentability of the claims once amended to include a specified concentrations of the aforementioned ingredients (e.g., “about 0.3 to about 0.8 w/v%” of gatifloxacin and “about 0.01 w/v%” of EDTA).  Following reexamination, the court blocked Senju from asserting the reexamined claims against the same party (Apotex) who won the first obviousness decision — finding that claim to be precluded. However, the court did allow assertion of the new claims against new parties – here Lupin and Hi-Tech Pharma.  However, after considering the same prior art as the USPTO, Judge Robinson found the revised claims still obvious based upon -again – the same prior art.

On appeal, the Federal Circuit affirms – holding that the district court’s conclusion of obviousness was correct. In the process the Federal Circuit appeared to give no deference to the USPTO reexamination determinations other than to require clear and convincing proof of the factual underpinnings of the obviousness determination. See Sciele Pharma Inc. v. Lupin Ltd., 684 F.3d 1253, 1260 (Fed. Cir. 2012) (“Whether a reference was previously considered by the PTO, the burden is the same: clear and convincing evidence of invalidity.”). The appellate court did agree that the amendments during reexamination did refresh the patent claims so as to reestablish the presumption of validity in the face of the prior invalidity ruling.

Regarding the added concentration limitation of “0.01 w/v% EDTA,” the two sides fought over whether that concentration level was suggested by the prior art studies.  The court writes:

At bottom, the district court’s analysis rests largely on a determination that Lupin’s experts were more credible than Senju’s experts. Based on this determination, the district court found that [the Prior Art] Grass 1988-I, along with the other cited references, taught that 0.01 w/v% EDTA would be effective to increase corneal permeability. On the evidence before us, that determination by the district court falls well within the wide discretion the court has to weigh expert credibility. Ordinarily, and absent compelling reason otherwise, an appellate court defers to such credibility determinations.

With that (and some further analysis), the court affirmed the obviousness finding.

= = = = =

Judge Plager drafted the majority opinion that was joined by Judge Moore.  Writing in  dissent, Judge Newman argued that the courts should “give deference” to the PTO’s review of the narrowed claim scope and its conclusions regarding the unexpected results associated with the newly narrowed claims.  Judge Newman further writes:

The prior art is crowded. . . . However, no combination of prior art references shows or suggests the use of very low concentrations of EDTA to enhance the corneal permeability of antibiotic formulations of gatifloxacin, or of any other quinolone. . . . The panel majority relies on the unsupported opinion of Lupin’s expert witness, and gives that unsupported opinion greater weight than the experimental data.

= = = = =

Although PTO reexamination decisions are not given deference in this type of third-party challenge, there are some reasons to think that IPR/PGR decisions should be given deference under the APA.  However, it is unlikely that the Federal Circuit would come to that conclusion without first being led by either Congress or the Supreme Court.

Docket Error Loses AT&T’s $40 Million Appeal

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by Dennis Crouch

The Federal Circuit decision in Two-Way Media focuses on a narrow issue of appellate deadlines – with a 2-1 majority concluding that AT&T cannot recover from missing its deadline for filing a notice to appeal following resolution of the defendant’s post-verdict motions.

AT&T had apparently relied upon the court’s PACER/ECF docket and email notification that had incorrectly labeled the Court’s final order (JMOL denial) as a decision on a motion to seal even though the underlying PDF documents clearly denied the JMOL motions.  According to the appellate panel – that reliance was insufficient to excuse the delay.

The case is a cautionary tale warning against over reliance upon PACER/PAIR in docketing due-dates and particularly against automated docketing systems or docketing departments that rely primarily upon document headers to populate their information. Rather, the court writes here that “it is the responsibility of every attorney to read the substance of each order received from the court and that it is not sufficient to rely on the email notifications received from the electronic filing system.”

In the lawsuit, a jury found that AT&T infringed Two-Way Media’s U.S. Patent Nos. 5,778,187 and 5,983,005 under the doctrine of equivalents and that the asserted patent claims were neither anticipated or obvious.  The result then was a $27.5 million reasonable royalty verdict raised to about $40 million with interest.

= = = = =

The rules of appellate procedure provide that a notice of appeal must be filed within 30 days of the final judgment.  Fed R. App. Proc. 4(a)(1).  Here, that timeline was triggered with the Judge’s November 22, 2013 docketing of its orders denying JMOL.  However, AT&T claims that it did not have actual notice of the decisions until January 15, 2014 — well past the 30-day period.  AT&T quickly filed a motion with the district court to extend/reopen the appeal period pursuant to Federal Rules of Appellate Procedure 4(a)(5) and (6). Those provisions provide for “extending” the appeal period if “the party shows excusable neglect or good cause,” F.R.A.P. R. 4(a)(5)(A)(i), or “reopening” the appeal period when “the moving party did not receive notice … of the entry of the judgment.”  The district court denied that motion and the Federal Circuit has now affirmed – holding that the lower court’s decision was within its proper discretion.

The following is the Federal Circuit’s write-up on the district court findings:

In considering AT&T’s motion under Rule 4(a)(5), the court found that the AT&T had failed to show good cause or excusable neglect. Although the [Notices of Electronic Filing] communicated an arguably incomplete description of the orders, the district court noted that even a total lack of notice would not be enough, standing alone, to justify extending the time for filing an appeal. The court concluded that it is the responsibility of every attorney to read the substance of each order received from the court and that it is not sufficient to rely on the email notifications received from the electronic filing system. The court explained that the NEFs were sent to 18 attorneys at the two firms representing AT&T. The court further noted that assistants at those firms actually downloaded copies of all of the orders onto the firms’ internal systems. Finally, the court pointed to the fact that, on that same day, the court also issued orders denying the unsealed JMOL motion and entering a bill of costs—both of which produced accurately labeled NEFs. The district court therefore refused to extend the appeal period under Rule 4(a)(5). . . .

After concluding that AT&T’s neglect was not excusable, the court turned to AT&T’s request for relief under Rule 4(a)(6). . . . Here, the district court found that AT&T did receive notice of the entry of judgment when it received and downloaded those judgments from the electronic docket and that TWM would be prejudiced by the reopening of the appeal period, rendering Rule 4(a)(6) inapplicable.

On appeal, the Federal Circuit affirmed this reasoning.  Thus, no appeal and AT&T must pay the $40 million.

= = = = =

The majority here was written by Judge O’Malley who has the tendency to give deference to district court judgments and be a stickler for following the rules of procedure.  Judge Dyk wrote in dissent – arguing that AT&T had proven its case of not receiving notice because the docket listing was incorrect.