by Dennis Crouch

Hologic, Inc. v. Minerva Surgical, Inc. (Fed. Cir. 2020)

The assignor estoppel doctrine (a doctrine in equity) potentially becomes more important in times of economic upheaval. Through layoffs, mergers, and acquisition of underperforming companies, patents are more likely to end up in the hands of someone other than their original owner or assignee.  Conflicts then arise when that original inventor (or prior owner) reenters the market and begins to compete against the new patent owner. The doctrine of assignor estoppel operates to bar the original inventory from later challenging the validity of the patent. An oddity of Federal Circuit precedent though, is that assignor estoppel does not apply to USPTO IPR Actions.

In its decision here, the Federal Circuit reluctantly enforced the assignor estoppel doctrine noting that the court is “bound to follow” its prior precedent. Judge Stoll penned the opinion that was joined by both Judge Wallach and Judge Clevenger. Judge Stoll also filed a set of “additional views” suggesting that “it is time for this court to consider en banc the doctrine of assignor estoppel at it applies both in district court and in the Patent Office.”

We should seek to clarify this odd and seemingly illogical regime in which an assignor cannot present any invalidity defenses in district court but can present a limited set of invalidity grounds in an IPR proceeding.

Slip Op. Additional Views by Judge Judge Stoll.

Hologic v. Minerva centers on the work of inventor and entrepreneur Csaba Truckai and relates to a medical device for detecting uterine perforations.  The basic idea is that the device pumps gas into the uterus and then measures the pressure for a few minutes to see if gas has leaked-out. U.S. Patent Nos. 6,872,183 and 9,095,348.

This is a bit of a tale: Back in the 1990’s Truckai invented and assigned rights to his company NovaCept. NovaCept was later acquired by Cytec Corp. and then Hologic acquired Cytec. Truckai was still around for those buyouts and made a substantial amount of money.  Meanwhile, Truckai left the company in 2008 and founded a new company Minerva that now competes with Hologic.

When Hologic sued Minerva, the defendant responded with several invalidity defenses and also petitioned the PTAB for inter partes review of the two patents.  For its part, the Board granted review of the ‘183 patent and found the claims unpatentable as obvious. The Board denied review of the ‘348 patent.

Meanwhile, the district court case continued with the district court judge applying assignor estoppel to prevent Minerva from asserting invalidity defenses in district court — holding that “Truckai is in privity with Minerva.”  A jury then sided with the patentee and awarded $5 million in damages for the two patents. Although the ‘183 patent had been cancelled in the IPR, the District Court judge did not give the PTAB judgment any preclusive effect because that issue was then on appeal.  Subsequently, the Federal Circuit affirmed the PTAB’s cancellation of the ‘183 patent claims.

When the ‘183 patent was finally invalidated by the Federal Circuit, the district court looked back at the jury verdict, but decided to enforce the verdict — holding that “jury’s damages determination can be adequately supported by the finding of infringement of Claim 1 of the [still valid] ’348 patent.” The district court also held assignor estoppel prevented the Minerva from applying the PTAB cancellation to the district court decision. The district court wrote: “the final outcome of the IPR is irrelevant to the district court proceeding . . . [t]o hold otherwise would be to hold that the [AIA] abrogated the assignor estoppel doctrine in a district court infringement action.”

On appeal, the Federal Circuit first rejected the district court’s clearly erroneous decision giving no effect to the PTAB cancellation (affirmed by the Federal Circuit).  The court explained that the PTAB judgment renders the claims retroactively “void ab initio.”  In an unusual statement, the court stated that it was “mindful of the seeming unfairness to Hologic in this situation.”  The apparent unfairness is that the company will not be able to enforce a patent that has been invalidated.

For the remaining ‘348 patent, the defendant Minerva asked the court to “abandon the doctrine” entirely. Barring that, Minerva suggested that the doctrine should not apply to the ‘348 patent — which is a continuation of Truckai’s original patent filing with substantially broadened claims.  The court resisted — holding that “equities weigh in favor of its application in this case.”

With regard to the expanded scope during prosecution, the Federal Circuit added a further quirk to the analysis by reviving a squib from some older cases: Westinghouse Electric & Mfg. Co. v. Formica Insulation Co., 266 U.S. 342 (1924) & Diamond Sci. Co. v. Ambico, Inc., 848 F.2d 1220 (Fed. Cir. 1988).  In Diamond Sci., the Federal Circuit explained:

Westinghouse does allow for an accommodation in such circumstances. To the extent that Diamond may have broadened the claims in the patent applications (after the assignments) beyond what could be validly claimed in light of the prior art, Westinghouse may allow appellants to introduce evidence of prior art to narrow the scope of the claims of the patents, which may bring their accused devices outside the scope of the claims of the patents in suit.  exception to assignor estoppel also shows that estopping appellants from raising invalidity defenses does not necessarily prevent them from successfully defending against Diamond’s infringement claims.

In Diamond Sci., the Federal Circuit was a little cagey on this right-to-narrow-claim-scope (“Westinghouse may allow . . . [the doctrine] does not necessarily prevent …”).  Here, the court is more explicit: “[T]his court’s precedents allow Minerva to introduce evidence of prior art to narrow the scope of claim 1 so as to bring its accused product outside the scope of claim 1.” (internal quotes removed). The basic idea here is that an estopped party can avoid infringement by showing “that the accused devices are within the prior art and therefore cannot infringe.”  Mentor Graphics Corp. v. Quickturn Design Sys., Inc., 150 F.3d 1374 (Fed. Cir. 1998) citing Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249 (1945). In his article on the topic, Prof. Mark Lemley suggests this narrowing-the-claim a “promise is likely illusory in modern patent jurisprudence, which has all but eliminated the ability to argue that claims should be narrowed to avoid invalidating prior art.”

= = = =

On damages, the jury was asked for the damages associated with infringing the two patents without requiring any patent-by-patent apportionment.  Since one of the patents is invalid, you would think this would require a new trial on damages.  However, the Federal Circuit has a big exception that allows the damages award to stand “if, despite the fact that some of the asserted claims were held invalid or not infringed subsequent to the award, undisputed evidence’ demonstrated that the sustained patent claim was necessarily infringed by all of the accused activity on which the damages award was based.” (citing Western Geco).

Here, the damages verdict is supported by the jury’s finding that the accused products all infringed Claim 1 of the still-valid ‘348 patent.  This was further supported by the patentee’s damages expert who testified that the damages should be the same regardless of whether the jury finds infringement of one patent or both patents. Since “Minerva did not present any contrary evidence,” any error in jury instruction is deemed harmless.

Dragon Intellectual Property, LLC v. Dish Network LLC (Fed. Cir. 2020)

After Dragon sued DISH for patent infringement back in 2013, DISH collaterally attacked the patent with an inter partes review (IPR) proceeding against the asserted US5930444.  The district court partially stayed the litigation — stayed as to DISH and another IPR filer (SXM), but continued the litigation proceedings as to eight other defendants.

Things didn’t go so well for Dragon. Following a claim construction, the district court entered judgment of non-infringement in favor of all defendants (April 2016).  Then, the PTAB came back cancelling all of the asserted claims (June 2016).  On appeal, the Federal Circuit affirmed the PTAB cancellation and dismissed the district court appeal as moot.  On remand, the district court then vacated its prior non-infringement decision and also dismissed the case as moot under US Bancorp and Munsingwear. “A party who seeks review of the merits of an adverse ruling, but is frustrated by the vagaries of circumstance, ought not in fairness be forced to acquiesce in the judgment” U.S. Bancorp Mortg. Co. v. Bonner Mall P’ship, 513 U.S. 18, 25 (1994).

Following the dismissal for mootness, DISH and SXM requested attorney fees under 35 U.S.C. § 285 as the prevailing parties.  The district court denied the motion — finding that the parties won the case, but don’t actually count as “prevailing parties” as required by the statute.

The court in exceptional cases may award reasonable attorney fees to the prevailing party.

35 U.S.C. § 285.  Further, the district court ruled that the success came in the PTAB, not the district court; and “success in a different forum is not a basis for attorneys’ fees.”

On appeal, the Federal Circuit has vacated and remanded — holding that the “prevailing party” question does not require “actual relief on the merits.”  What matters is whether the defendant “successfully rebuffed Dragon’s attempt to alter the parties’ legal relationship in an infringement suit.”

For precedent here the court cites and follows B.E. Tech., L.L.C. v. Facebook, Inc., 940 F.3d 675 (Fed. Cir. 2019).  B.E.Tech. has very similar facts with an infringement lawsuit being rendered moot based upon an unpatentability finding during an IPR. One difference is that in B.E.Tech, the defendant was seeking costs under Fed. R. Civ. P. 54(d)(1) rather than attorney fees under 35 U.S.C. § 285.  However, since both provisions require a “prevailing party,” the court found that the the same rule should apply to both situations.

The decision here should be distinguished from the court’s recent decision in O.F. Mossberg & Sons, Inc. v. Timney Triggers, LLC, 2019-1134, 2020 WL 1845302, at *3 (Fed. Cir. Apr. 13, 2020).  In Mossberg, the court ruled that case voluntarily dismissed without a court order could not satisfy the prevailing party requirement because it lacked “sufficient judicial imprimatur.”

On remand in Dragon IP, the district court will need to reconsider whether an exceptional case exists and whether attorney fees are appropriate given that the defendant now satisfies the “prevailing party” requirement.

Of note, although the mootness determination satisfies the prevailing party requirement, it is likely not sufficiently “on the merits” in order to satisfy the requirements for claim or issue preclusion.

by Dennis Crouch

CardioNet, LLC v. InfoBionic, Inc. (Fed. Cir. 2020)

I have been following this case for the past couple of years because it served as the template for our 8th Annual Patent Law Moot Court at Mizzou back in 2018 (Sponsored by McKool Smith).

In the case, CardioNet sued InfoBionic for infringement (D.Mass.).  The district court quickly dismissed the case for failure to state a claim under R. 12(b)(6) – ruling that the claims of CardioNet’s US7941207 are improperly directed at patent-ineligible concepts under 35 U.S.C. § 101.

The ‘207 patent covers a method for identifying AF (atrial fibrillation and atrial flutter) that is associated with stroke, congestive heart failure, and cardiomyopathy.  The invention particularly monitors heartbeat variability, including identification of irregular “ventricular beats.”  The claims here use off-the-shelf technology to measure heartbeat activity and already existing logic for determining heartbeat variability.  The new feature is claimed as “relevance determination logic to identify a relevance of the variability in the beat-to-beat timing to at least one of atrial fibrillation and atrial flutter” and an “event generator” triggered when variability is “relevant.”  Claim 1 is included below. (Some patent attorneys will point out that that the combination as a whole is also new).

The district court found that the claimed invention completely flows from the unpatentable idea that AF “can be distinguished by focusing on the variability of the irregular heartbeat.”  As such, the claims were deemed invalid.

On appeal, a 2-1 majority has reversed – holding “instead that the asserted claims of the ’207 patent are directed to a patent-eligible improvement to cardiac monitoring technology and are not directed to an abstract idea.”  In making this determination, the court looked to the claim language requirements and also

In particular, the language of claim 1 indicates that it is directed to a device that detects beat-to-beat timing of cardiac activity, detects premature ventricular beats, and determines the relevance of the beat-to-beat timing to atrial fibrillation or atrial flutter, taking into account the variability in the beat-to-beat timing caused by premature ventricular beats identified by the device’s ventricular beat detector. In our view, the claims “focus on a specific means or method that improves” cardiac monitoring technology; they are not “directed to a result or effect that itself is the abstract idea and merely invoke generic processes and machinery.” McRO.

Majority Op. The majority opinion was written by Judge Stoll and joined by Judge Plager.  Judge Dyk concurred in judgment, but dissented from the majority reasoning.

This is a routine case easily resolved by existing precedent. Under that approach, I agree with the majority that the claims have not been shown to be patent ineligible under section 101. I dissent in part because the majority addresses issues never argued by the parties and appears to suggest approaches not consistent with Supreme Court and circuit authority.

Judge Dyk particularly takes issue with the majority’s statements that:

Step one of the Alice framework does not require an evaluation of the prior art or facts outside of the intrinsic record regarding the state of the art at the time of the invention. . . . [Although it] is within the trial court’s discretion whether to take judicial notice of a longstanding practice where there is no evidence of such practice in the intrinsic record. But there is no basis for requiring, as a matter of law, consideration of the prior art in the step one analysis in every case. If the extrinsic evidence is overwhelming to the point of being indisputable, then a court could take notice of that and find the claims directed to the abstract idea of automating a fundamental practice—but the court is not required to engage in such an inquiry in every case.

Majority Op. at 22.  Judge Dyk argues that instead that “limiting the use of extrinsic evidence to establish that a practice is longstanding would be inconsistent with authority. No case has ever said that the nature of a longstanding practice cannot be determined by looking at the prior art.”

= = = =

1. A device, comprising:

a beat detector to identify a beat-to-beat timing of cardiac activity;

a ventricular beat detector to identify ventricular beats in the cardiac activity;

variability determination logic to determine a variability in the beat-to-beat timing of a collection of beats;

relevance determination logic to identify a relevance of the variability in the beat-to-beat timing to at least one of atrial fibrillation and atrial flutter; and

an event generator to generate an event when the variability in the beat-to-beat timing is identified as relevant to the at least one of atrial fibrillation

by Dennis Crouch

Ericsson Inc. v. TCL Communication Tech. (Fed. Cir. 2020)

The jury sided with Ericsson — holding that TCL willfully infringed the two asserted claims of Ericsson’s US7149510 and awarded $75 million in compensatory damages. Judge Payne then added an additional $25 million enhanced damages for the adjudged willfulness.

On appeal, a divided Federal Circuit has reversed judgment — holding that the asserted claims are actually invalid as a matter of law as being directed toward ineligible subject matter under Section 101.  Majority Opinion by Chief Judge Prost and joined by Judge Chen. Dissenting Opinion by Judge Newman.

The bulk of the case focuses on waiver of TCL’s right to appeal – with the majority finding no waiver.

During the litigation, TCL moved for summary judgment of ineligibility.  The district court denied that motion after finding that the patent was not directed toward an abstract idea. The case continued then continued to trial and judgment as noted above.

After being denied summary judgment, a moving party typically needs to take a couple of steps in order to preserve the argument for appeal.  Preservation is necessary because the summary judgment motion is seen as effectively moot once trial starts, and so the party needs to make a post-trial renewed motion for Judgment as a Matter of Law (JMOL) under Fed. R. Civ. Pro. R.50(b) (or similar post-trial motion) in order to preserve the issue for appeal.  And, under the rules, a R. 50(a) JMOL motion (made during trial) is a prerequisite to the post-trial R.50(b) renewed JMOL motion. An appeal can then follow if the judge denies the R.50(b) motion.  Here, TCL did not file a JMOL motion or any other post-trial motion on eligibility, but instead simply appealed the Summary Judgment denial — typically a non-starter on appeal.

The waiver rule is different when Summary Judgment is granted.  A grant of summary judgment finishes litigation on the issues decided, and those issues are fully preserved for appeal.

Coming back to this case: Many denials of summary judgment are based upon the existence disputed issues of material fact.  And, even when a defendant’s SJ motion is denied, the defendant may still win the issue at trial.  Here, however, when the district court denied the ineligibility SJ motion there was nothing left for the jury to decide.  Using that logic, the majority held that when the court denied TCL’s ineligibility SJ motion, it effectively effectively granted SJ of eligibility.  Critical to this determination is the appellate panel’s finding that “no party has raised a genuine fact issue that requires resolution.”  With no facts to decide, the question became a pure issue of law: either it is eligibile or it is ineligible. “As a result, the district court effectively entered judgment of eligibility to Ericsson.”  And, as I wrote above, a grant of summary judgment is appealable.

Writing in dissent, Judge Newman argues that the majority’s conclusion that pre-trial denial of SJ on eligibility is the same as a final decision going the other way “is not the general rule, and it is not the rule of the Fifth Circuit, whose procedural law controls this trial and appeal. . . . The majority announces new law and disrupts precedent.”

Judge Newman explained that TCL simply failed to pursue its Section 101 claim after Summary Judgment was denied.

TCL did not pursue any Section 101 aspect at the trial or in any post-trial proceeding. . . . TCL took no action to preserve the Section 101 issue, and Section 101 was not raised for decision and not mentioned in the district court’s final judgment.

There is no trial record and no evidence on the question of whether the claimed invention is an abstract idea and devoid of inventive content. The panel majority departs from the Federal Rules and from precedent.

Newman, J. in Dissent.

The majority also went on to say that its “authority is total” in deciding whether to hear an appeal because there is “no general rule.” “We have the discretion to hear issues that have been waived.”  (The first quote is not actually from the court but something I read in the news).  The court here oddly includes the following statements:

[T]here is “no general rule” for when we exercise our discretion to reach waived issues. . . . Our general rule against reaching waived issues is
based on sound policy. . . .

Majority opinion (concluding that if appeal was waived, the court would exercise its discretion to hear the appeal).

= = = =

On the merits of the invention, the majority and dissent also disagree. As you can read below, the claims are directed to a system for software-access-control and the majority found it directed to the “abstract idea of controlling access to, or limiting permission to, resources.”  The district court instead found that the claims were directed to an “improved technological solution to mobile phone security software.”

1. A system for controlling access to a platform, the system comprising:

a platform having a software services component and an interface component, the interface component having at least one interface for providing access to the software services component for enabling application domain software to be installed, loaded, and run in the platform;

an access controller for controlling access to the software services component by a requesting application domain software via the at least one interface, the access controller comprising:

an interception module for receiving a request from the requesting application domain software to access the software services component;

and a decision entity for determining if the request should be granted wherein the decision entity is a security access manager, the security access manager holding access and permission policies; and

wherein the requesting application domain software is granted access to the software services component via the at least one interface if the request is granted.

5. The system according to claim 1, wherein:

the security access manager has a record of requesting application domain software;

and the security access manager determines if the request should be granted based on an identification stored in the record.

As the Federal Circuit temporarily moved to telephonic oral arguments, the court also began denying more oral argument requests after deciding that “oral argument [are] unnecessary.”  In denying oral arguments, the court has generally been citing Fed. R. App. P. 34(a)(2)(C) which allows an assigned appellate panel to decide that oral arguments are not needed based upon a determination that “(C) the facts and legal arguments are adequately presented in the briefs and record, and the decisional process would not be significantly aided by oral argument.” The decision to deny a request for oral arguments must be unanimous.

The Federal Circuit recently completed its April sitting and I used the oral argument schedule to create the chart below.  The chart below shows the percentage of cases with oral arguments for each Judge. Chief Judge Prost heard the highest percentage of oral arguments while Judges Lourie and Hughes were on panels that cancelled all of their oral arguments. One interpretation is that Chief Judge Prost sees oral arguments as more important for her decisional process, while Judges Lourie and Hughes find less importance.  Although the number of cases was small (10 to 20 per judge), the dramatic shift in distribution is unlikely due to chance.

One thing to recognize here is that the R.34 standard did not change because of COVID-19 and the National Emergency. What did change is the mechanism for oral arguments and potential emergency pressures on various judges. These issues might explain the differences in judicial rates more than whether a judge “cares about oral arguments.”

Moving forward we are going to see lots of results from the “natural experiment” created by the COVID-19 National Emergency and Global Pandemic. While the results may end up being interesting and teach us something, the nature of this experience probably includes too many confounding factors to provide real results.

by Dennis Crouch

O.F. Mossberg & Sons, Inc. v. Timney Triggers, LLC (Fed. Cir. 2020)

Attorney Fees following Voluntary Dismissal: I recently posted a note on the Keith Manufacturing decision allowing for an attorney fee motion following a Fed. R. Civ. Pro. R. 41(a)(1)(A)(ii) stipulated dismissal with prejudice.  Mossberg involves attorney fees following a R. 41(a)(1)(A)(i) dismissal without prejudice.  The appellate court ultimately refused to award attorney fees against Mossberg because the dismissal was “without judicial imprimatur” and thus leaving no “prevailing party.”  As I note bellow, Keith and Mossberg are in some tension, even though both were penned by Judge Hughes and published less than 1-week apart.

FRCP Rule 41(a) covers voluntary dismissal of lawsuits:

(a)(1)(A) Voluntary Dismissal by the Plaintiff Without a Court Order:

… [T]he plaintiff may dismiss an action without a court order by filing:

(i) a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment; or

(ii) a stipulation of dismissal signed by all parties who have appeared.

(B) Effect. Unless the notice or stipulation states otherwise, the dismissal is without prejudice.

In Mossberg, the patentee sued Timney for infringement, but the district court almost immediately stayed the action awaiting the outcome of a series of USPTO reexaminations filed by Timney.  After 5+ years, Timney ultimately prevailed at the USPTO and the asserted claims were invalidated.  Back at the district court Mossberg voluntarily dismissed its lawsuit under R. 41(a)(1)(A)(i) without prejudice.   The district court then entered a docket order stating that the case was dismissed without prejudice.

Following dismissal, Timney asked for attorney fees — arguing that it won the lawsuit. Although the lawsuit was dismissed without prejudice, the collateral cancellation meant that Mossberg would not be able to sue again. Complete win for Timney.

The court in exceptional cases may award reasonable attorney fees to the prevailing party.

35 U.S. Code § 285.  The district court refused to award attorney fees — holding that the dismissal without prejudice was “not a decision on the merits and thus cannot be a judicial declaration altering the legal relationship between the parties.” O.F. Mossberg & Sons, Inc. v. Timney Triggers, LLC, No. 3:12-CV-00198, 2018 WL 4398249, at *6 (D. Conn. Sept. 14, 2018).

While the district court’s statement of the law is off a bit, the Federal Circuit affirmed the holding that attorney fees are not available for this type of voluntary dismissal.  In particular, the court decision does not need to be “on the merits,” but it must result in a “material alteration of the legal relationship of the parties” and “be marked by judicial imprimatur.” CRST Van Expedited, Inc. v. E.E.O.C., 136 S. Ct. 1642, 1646 (2016).  CRST involved a Title VII action for employment discrimination.  That provision of the Civil Rights Act of 1964 includes a “prevailing” party provision for attorney fees that is similar to the Patent Act (“the court, in its discretion, may allow the prevailing party … a reasonable attorney’s fee.”).

Here, the Federal Circuit found no “judicial imprimatur” because the voluntary dismissal is “effective immediately upon plaintiff’s filing of the notice of dismissal.” Here, the district court did include a docket entry dismissing the case — but by that time the case had already been dismissed by the plaintiff.  “A properly filed Rule 41(a)(1)(A)(i) voluntary dismissal becomes effective immediately upon plaintiff’s filing of the notice of dismissal.” That make sense since the rule is titled voluntary dismissal “without a court order.”  Thus, the court explained that “[a]lthough the district court in this case entered a dismissal order after Timney filed its notice of voluntary dismissal, that dismissal order had no legal effect.”

= = = = =

Both Mossberg and Keith were penned by Judge Hughes.  Hughes is seemingly a good choice for these cases because of his decades of experience as a civil litigator at the Department of Justice.  But, the two cases are in tension.

In Mossberg, the court explains that there was not “judicial imprimatur” because the case was voluntarily dismissed by the parties under R.41(a)(1).  In distinguishing from prior cases where courts had dismissed cases on non-merits grounds, Judge Hughes writes “[i]n this case, there was no such final court decision [because a] properly filed Rule 41(a)(1)(A)(i) voluntary dismissal becomes effective immediately upon plaintiff’s filing of the notice of dismissal. . . . Because there is no final court decision here, Timney cannot be a prevailing party for purposes of attorney’s fees under § 285.”

Keith also involved a voluntary dismissal under R.41(a)(1) and did not require a court order. Judge Hughes explained this as part of his decision:

In April 2017, the parties filed a stipulation of dismissal with prejudice pursuant to Rule 41(a)(1)(A)(ii). Such a dismissal requires no court order.

In his decision in Keith, however, Judge Hughes held that the voluntary dismissal without a judicial statement counted as a judgment for attorney fees purposes under Fed. R. Civ. P. 54(d)(2)(A).

Judge Hughes should have included a statement in Mossberg distinguishing Keith. There are two basic ways to distinguish these: (1) Keith focused on the “judgment” language found in R. 54(d) while Mossberg focused on the “prevailing party” language of 285. That distinction is strictly true, but both judgment and prevailing party indicate a sense of judicial action and the court offers no reason why that element of the analysis should be different for the two different statutes. (2) A second way to distinguish the cases is that Keith was a dismissal with prejudice; while Mossberg was without prejudice.  The dismissal with prejudice is accompanied by substantial judicial action if the parties ever attempt to relitigate; while the dismissal without prejudice is seen as a full reset.

= = = = =

As you might guess from the parties, the case involves a trigger assembly for a firearm.

by Dennis Crouch

Over the past couple of decades, some banks have been making efforts to appear more personal & humane.  All that has come to fruition with the Federal Circuit’s decision in Bozeman Financial LLC v. Federal Reserve Bank of Atlanta, et al.  In its opinion the court explained that yes, the Federal Reserve is a person too — at least with regards to the right to file an inter partes review (IPR) or post grant review (PGR) petition.

The AIA permits “a person who is not the owner of a patent” to petition for IPR/PGR requesting cancellation of a patent. In 2019, the Supreme Court took-up a case where the US Postal Service (USPS) had filed for review of a patent owned by Return Mail, Inc.  Return Mail, Inc. v. U.S. Postal Serv., 139 S. Ct. 1853 (2018).  In its decision, the Supreme Court held that the USPS is not a person under the statute. The court stuck to its “longstanding interpretive presumption” that Congress’s use of the term “person” does not “include the sovereign.”

In the present case, the twelve Federal Reserve Banks jointly petitioned the USPTO to challenge Bozeman’s U.S. Patent Nos. 6,754,640 and 8,768,840. The PTAB complied and cancelled all of the claims — finding them ineligible under Section 101.

On appeal, the patentee asked that the entire case be thrown-out under Return Mail. However, the Federal Circuit refused — finding that the Federal Reserve Banks are sufficiently separate and distinct from the United States Gov’t.

The Federal Reserve Banks were established as chartered corporate instrumentalities of the United States under the Federal Reserve Act of 1913. Unlike the Postal Service, which was at issue in Return Mail, the Banks’s enabling statute does not establish them as part of an executive agency, but rather each bank is a “body corporate.”  Like any other private corporation, the Banks each have a board of directors to enact bylaws and to govern the business of banking. Moreover, the Banks may sue or be sued in “any court of law or equity.”  . . .

The Banks are not structured as government agencies. The Banks do not receive congressionally appropriated funds. 12 U.S.C. § 244. No Bank official is appointed by the President or any other Government official. 12 U.S.C. § 341. Moreover, the government exercises limited control over the operation of the Banks. Instead, the “direct supervision and control of each Bank is exercised by its board of directors.” 12 U.S.C. § 301. And the Banks cannot promulgate regulations with the force of law. Scott v. Fed. Reserve Bank, 406 F.3d 532, 535 (8th Cir. 2005). For these reasons, we conclude that the Banks are distinct from the government for purposes of the AIA. We recognize that there may be circumstances where the structure of the Banks does not render them distinct from the government for purposes of statutes other than the AIA. For purposes of the AIA, however, we conclude the Banks are “persons” capable of petitioning for post-issuance review under the AIA. The Board therefore had authority to decide the CBM petitions at issue here.

Note here that the court did not mention the Fed Reserve Board of Governors – whose members are appointed by the president – or the fact that the Board of Governors appoint a substantial portion of the directors of each bank.  The outcome here is also interesting to consider with respect to the corporate structure of various public universities around the country.

Moving on to the merits, of the eligibility decision, the Federal Circuit affirmed that the claims were directed to the abstract ideas of “collecting and analyzing information for financial transaction fraud or error detection” (‘840 patent).

(more…)

Guest post by Christine Haight Farley (Professor, American University Washington College of Law and Faculty Director, Program on Information Justice and Intellectual Property).

The Court of Appeals for the Federal Circuit has held that color marks on product packaging can be inherently distinctive. On April 8, 2020, the court issued its opinion in In re: Forney Industries, Inc. It stated that “a distinct color-based product packaging mark can indicate the source of the goods to a consumer, and, therefore, can be inherently distinctive.”

Leaving aside the circularity of that statement—if it’s distinct it can be distinctive?—this holding lowers the bar for the acquisition of exclusive rights over colors. For the first time, color marks are instantly protectable (when used in commerce as a mark) and need not wait until they achieve secondary meaning, so long as they are used on packaging.

Because this ruling comes from the Federal Circuit it controls the how the Trademark Office deals with applications for color marks. Companies that want to acquire exclusive rights in colors now have a blueprint for how get a registration quickly: apply for a product packaging mark. So companies like Christian Louboutin should make those shoeboxes red!

The opinion was authored by Judge O’Malley joined by Dyk and Chen. The court reversed the TTAB, which had affirmed the trademark examining attorney’s refusal to register Forney’s mark.

In its use-based application (Serial No. 86269096), Forney identified its mark as a “color mark.” The mark, represented below, was applied for accessories and tools for welding and machining and described as follows: “[t]he mark consists of a solid black stripe at the top. Below the solid black stripe is the color yellow which fades into the color red. These colors are located on the packaging and or labels.”

Because Forney sought to register the mark without showing secondary meaning, the Examining Attorney refused registration on the principle register. Affirming, the TTAB, in a precedential opinion by Kuczma, held that “a color mark consisting of multiple colors applied to product packaging is not capable of being inherently distinctive.” It stated that Supreme Court precedent does not distinguish between color marks for products and color marks for product packaging; both require secondary meaning to be registrable.

Not a Gray Area

The Federal Circuit’s opinion reads like it thought it had carte blanche to write the rules in this area. It stated that “[t]he Supreme Court has [] provided several data points on inherent distinctiveness of trade dress.” (emphasis added) I’ve certainly never thought of the Supreme Court’s trilogy of cases on trade dress as data points; I always thought they were precedent. It later referred to these cases as “guideposts.”

Surprisingly, the Federal Circuit stated that “[a]lthough Qualitex implied that a showing of acquired distinctiveness may be required before a trade dress mark based on color alone can be protectable, it did not expressly so hold.” (emphasis added) This is just flatly wrong. The Qualitex Co. v. Jacobson Products Co. court did not “imply” the rule at all; it set it out in black and white:

over time, customers may come to treat a particular color on a product or its packaging … as signifying a brand. And, if so, that color would have come to identify and distinguish the goods–i.e. to “indicate” their “source”–much in the way that descriptive words on a product … can come to indicate a product’s origin.

In its subsequent decision in Wal-Mart Stores, Inc. v. Samara Brothers, Inc., the Court reconfirmed its rule: “with respect to at least one category of mark— colors—we have held that no mark can ever be inherently distinctive.” It also stated: “In Qualitex, . . . [w]e held that a color could be protected as a trademark, but only upon a showing of secondary meaning.” Nope, no innuendo.

Coloring Outside the Lines

The Federal Circuit stated that “Forney’s multi-color product packaging mark is more akin to the mark at issue in Two Pesos than those at issue in Qualitex.” That’s an odd statement given that the mark at issue in Two Pesos, Inc. v. Taco Cabana, Inc. was a restaurant, while the mark at issue in Qualitex was, wait for it, … a color! But the point here was that the Federal Circuit was judging Forney’s mark as a product packaging mark, as in Two Pesos, and not a product design mark, as in Qualitex. And that was its error.

Yes, Qualitex involved a product design mark, but the rule it announced was about color marks, not product design marks. Again, it stated: “over time, customers may come to treat a particular color on a product or its packaging … as signifying a brand. And, if so, that color would have come to identify and distinguish the goods.” (emphasis added). In anticipating color on “packaging,” the court made clear the holding was about color, not product design.

Black Sheep

The Federal Circuit’s decision here creates a new rule for color marks in product packaging. Although it states that it is “not the only court to conclude that color marks on product packaging can be inherently distinctive,” even the case it cites doesn’t support its new rule. It cites a 10th Circuit decision (Forney Industries v. Daco of Missouri), but that court explicitly stated “we hold that the use of color in product packaging can be inherently distinctive … only if specific colors are used in combination with a well-defined shape, pattern, or other distinctive design.” (emphasis added). The Federal Circuit stated that the 10th Circuit was “considering a mark very similar to the one at issue here,” but that statement may have involved a bit of whitewashing because the 10th Circuit case involved the very same mark owner and the same mark! The only difference was that the mark was described with more definition in the 10th Circuit case, and the court still denied protection.

Red Flag

To the extent this decision is read to hold that color marks on product packaging can be inherently distinctive; it is at odds with both Qualitex and Wal-Mart. Does that make it ripe for reversal by the Supreme Court? While decisions by the Federal Circuit often make the Supreme Court see red, the Court only grants cert. in trademark cases once in a blue moon. The government, however, has a strong record of having its cert. petitions granted. Recall that most doubted cert. would be granted in Brunetti. Another question is whether the government will even petition for cert. or instead decide not to go chasing rainbows.

True Colors

Is there a narrower reading of this decision? Perhaps the holding is only that certain multi-color product packaging marks that are sufficiently definite can be inherently distinctive. As a policy matter, a single color product design mark is much more problematic for competition than a multi-color product packaging mark is.

Even were the holding so limited, it still begins to undermine the policy orientation of Wal-Mart. It’s hard not to understand Wal-Mart as a course correction. Two Pesos’s holding that trade dress can be inherently distinctive did not foresee any of the problems it created. Although Qualitex further extended trade dress to include color, it did claw back a requirement of secondary meaning. The Wal-Mart Court finally saw the policy mess created by Two Pesos. It meant to build on Qualitex’s limitation, not scale it back. Qualitex saved colors from being inherently distinctive, and Wal-Mart saved product design. The Federal Circuit’s decisions pushes in the opposite direction, by narrowing Qualitex’s carve-out.

Unfortunately, the Federal Circuit is not clear that that its new rule is limited to multi-color marks. It simply states: “we hold that color marks can be inherently distinctive when used on product packaging, depending upon the character of the color design;” and “a distinct color-based product packaging mark can indicate the source of the goods to a consumer, and, therefore, can be inherently distinctive.” Requiring a color mark to be “distinct” is not filling any gaps left open by Qualitex, which specifically sated that the green-gold color was distinct for dry cleaning press pads. If the court had in mind a particular kind of color mark, it missed a golden opportunity to say so.

The rationale for both Qualitex and Wal-Mart was that, unlike product packaging, neither color nor product design prompt consumers to “equate the feature with the source.” Is there reason to believe that either multiple colors function more like product packaging than a single color, or that color on a product conveys something different than color on a package? If so, what do we make of the fact that Forney has been using its multi-color mark on packaging for more almost 30 years and yet chose to litigate in two different courts of appeal rather than simply demonstrating its secondary meaning?

The Federal Circuit has an internal practice of only issuing R.36 affirmances-without-opinion in cases where the court holds oral arguments.  Most of the oral arguments have been cancelled for the court’s April sitting. The result then is that either (1) the court is going to write a lot more opinions or (2) the court will shift its practice to now start issuing no-opinion judgments even without oral arguments.

Todays short decision in In re Thomas (Fed. Cir. 2020) (per curiam) suggests to me that the court will be writing the opinions. Douglass Thomas is a patent attorney and his claimed invention is a “computer-implemented method for notifying users having patents of subsequent publications that reference the patents.”  The examiner rejected the claimed invention as ineligible and that decision was upheld by the PTAB (along with finding the claims anticipate/obvious).

The Federal Circuit has now affirmed the rejections — offering the following 1-paragraph analysis:

Applying the two-step framework set forth in Alice Corp. v. CLS Bank Int’l, 573 U.S. 208 (2014), the Board found that the claims are directed to the abstract idea of “alerting by notification message notice of a new publication indicated as relevant to the notifiee.” The Board also found that the claims do not contain an inventive concept beyond the abstract idea. We agree with the Board on both points. We therefore adopt the Board’s reasoning in its decision and its decision denying rehearing.

Slip Op.

Despite being short and lacking depth of analysis. The decision is helpful in a number of ways — most importantly has to do with the potential alternate reasons for affirmance. If the case had been simply affirmed without opinion then we would not know if the court affirmed eligibility or instead on obviousness/anticipation. That would allow Thomas to avoid issue preclusion and potentially raise the same arguments again in this or a different case.  The court’s 1-paragraph will foreclose that avenue.