Marking Estoppel: CAFC Vacates but Leaves Possibility

December 1, 2004Patent, Patent Cases 2004MarkingDennis Crouch

Slip Track Systems v. Metal Lite (Fed. Cir. December 1, 2004) (unpublished) ("Slip Track III").

In a long-running dispute involving patents directed to earthquake resistant wallboard structures that permit a wallboard to slide vertically with respect to the supporting wall studs, the Federal Circuit vacated the district court’s infringement holding.

The district court barred Defendant Metal Lite from contesting infringement for three reasons. 1) Because of a prior partnership with Slip Track, Metal Lite had marked its product with the asserted patent number — thus creating a marking estoppel. 2) In an earlier decision, ("Slip Track II"), the CAFC had found the asserted patent to cover identical subject matter as another product that Metal Lite admittedly infringed — thus, Metal Lite must also infringe the asserted patent. And 3) Metal Lite’s tardy presentation of non-infringement arguments were contrary to Fed. R. Civ. Pro. R. 26 of "fully airing each parties’ theories of the case well in advance of trial."

On appeal, the CAFC vacated-in-part:

Marking Estoppel: While deliberate mismarking of a product may provide grounds for applying estoppel, there is no evidence in this case that Metal Lite believed its product to fall outside the scope of the patent’s claims when it made the decision to mark its product. Thus, marking estoppel does not apply in this case.

NOTE: The Court explicitly refused to endorse the doctrine of marking estoppel — "We find it unnecessary to address this issue because, even assuming the doctrine remains viable, it does not apply to the facts of this case."

Identical Scope of Second Patent: Patent infringement analysis requires the court to compare construed claims to the accused product. In bypassing this step, the district court failed to consider that Metal Lite’s products do not necessarily infringe the patent.

Metal Lite’s Litigation Conduct: In its answer, Metal Lite denied infringement — and thus, was not tardy.

Accordingly, we hold that the district court abused its discretion in granting Slip Track’s motion in limine barring Metal Lite from contesting infringement.

In Dissent: Judge Newman could "not discern reversible error."

Mobile Phone Manufacturers Win Design Patent Suits

December 1, 2004Patent, Patent Cases 2004Dennis Crouch

Earlier this month, the Federal Circuit ruled that Tony Colida’s patented cell phone design was not infringed by Matsushita’s GU87 phone. (link). Now, Colida’s parallel suit against Kyocera Wireless and Sanyo have been struck down.

Colida v. Sanyo (Fed. Cir. December 2, 2004) (unpublished)

A design patent is for the visual appearance of a useful article. Durling v. Spectrum Furniture Co., 101 F.3d 100, 104-05 (Fed. Cir. 1996). To infringe a design patent, the accused device must have substantially the same appearance as the patented device, and contain the points of novelty as compared with the prior art, such that the ordinary observer would believe that they are the same product.

We agree with the district court that there is no view of the facts whereby a reasonable trier of fact could find infringement, and that summary judgment of non-infringement was properly entered.

Judgment of non-infringement affirmed.

============================================

Kyocera v. President Electronics and Tony Colida (Fed. Cir. November 30, 2004) (unpublished).

Mr. Colida [] argues that the Kyocera 2200 phones are substantially similar to the design in the ‘184 patent. The district court pointed to significant differences in the Kyocera 2200 phones, in that they do not have as pronounced a curvature, have additional buttons taller screens, and different arrays of holes in the earpiece.

[T]he district court’s summary judgment of non-infringement has not been shown to be incorrect. Error has not been shown as to the district court’s analysis. The district court’s identification of the many differences in the features of the designs has not been disputed.

The judgment of non-infringement is affirmed.

============================================

Colida v. Matsushita (Fed. Cir. 2004) (unpublished opinion).

Facts: Tony Colida owns design patents covering the design of mobile phones designated A. Matsushita owns a patent on the design for mobile phone B. In addition Matsushita makes a GU87 phone that matches up with its patented design. After comparing the phone with the figures from Colida’s patents, the district court dismissed Colida’s infringement suit – finding that there was no infringement as a matter of law.

Appeal: Reviewing the summary judgment de novo, the appellate panel affirmed, finding no error in the district court’s conclusion that “no reasonable trier of fact could find infringement of the [patents] by the GU87 phone in this case.”

Summary Judgment of Noninfringement Affirmed.

Federal Circuit: Claims Should Be Interpreted for Internal Consistency and Operablility

November 30, 2004Patent, Patent Cases 2004Dennis Crouch

Frank’s Casing Crew v. Weatherford Intl. (Fed. Cir. 2004).

Frank’s Casing owns a patent on a device for remotely controlling an oil-well casing. (U.S. Patent No. 5,049,020). Because sections of casing can be up to 36 inches in diameter and weigh 300 pounds per foot, manual alignment is difficult and poses a significant risk of injury. Frank’s Casing brought suit against Weatherford, charging patent infringement.

The district court (W.D. Oklahoma) granted summary judgment of noninfringement after interpreting the means-plus-function claim language of Frank’s patent.

On appeal, Frank’s Casing argued that the district court improperly imported structure into the term "means for selectively pivoting" that was unnecessary to perform the function of pivoting a boom about a horizontal axis.

The Federal Circuit affirmed, finding that the district court’s interpretation is necessary and "to conclude otherwise would render the patent internally inconsistent and the invention inoperable."

Noninfringement Affirmed.

Judge Posner to hear Amazon Patent Case

November 29, 2004Patent, Patent Cases 2004Federal Circuit En BancDennis Crouch

Pinpoint v. Amazon. (N.D. Ill. Aug 31, 2004) (Posner, J.).

Pinpoint has sued Amazon for infringement of its patented system for scheduling broadcast and providing access to video programs. (E.g., U.S. Patent No. 5,758,257). Pinpoint claims that Amazon’s website infringes by providing personalized book and music video suggestions.

In its most recent press release, Pinpoint announced that Judge Richard A. Posner of the 7th Circuit, U.S. Court of Appeals will be sitting by designation as the district judge presiding over the jury trial. According to Judge Posner’s order in the case, the jury trial will begin at 9:00 am on December 6.

Always Controversial

Judge Posner has a reputation for thinking outside the box. In his last patent case, Posner created a new equitable defense to infringement that would bar enforcement of a patent when the patentee’s own conduct significantly inhibits non-infringing practice of the prior art. That case, SKB v. Apotex [I, II, III, IV], involving hemihydrates, was affirmed by the Federal Circuit but is currently being considered for an en banc rehearing.

It is speculated that the Apotex case has sparked some contention within the halls of the CAFC. This speculation stems from the fact that the en banc petition has been sitting undecided for over six months.

Now a Blogger

After a stint as a guest blogger at Professor Larry Lessig’s blog, Judge Posner has started a blog in cooperation with Nobel Winner Gary Becker. The Becker-Posner blog is not fully functional yet, but keep your eyes peeled.

Links:
My Prior Post on Pinpoint v. Amazon
More Info on the Pinpoint v. Amazon

Coolsavings wins patent appeal

November 28, 2004Patent, Patent Cases 2004Claim ConstructionDennis Crouch

Catalina Marketing v. Coolsavings (Fed. Cir. 2004) (03-1548) (unpublished).

Catalina owns a patent on a method for distributing electronic coupons. Coolsavings runs a website that uses user demographics to target coupon offers. Catalina sued Coolsavings for Infringement. Catalina appeals the district court’s claim construction and subsequent dismissal for noninfringement.

On appeal, the Federal Circuit affirmed the district court’s opinion, finding that the District Court had properly construed means-plus-function language by importing limitations from the specification.

Dismissal of Catalina’s Infringement suit Affirmed.

McFarling v. Monsanto: On Petition for Writ of Certiorari

November 17, 2004Patent, Patent Cases 2004Dennis Crouch

McFarling v. Monsanto (Supreme Court Docket No. 04-31).

After being shut-out at the district and appeals courts, Mississippi Delta Farmer Homan McFarling has petitioned the Supreme Court of the United States for a writ of certiorari — asking the high court to hear his case.

Roundup-Ready (R) soybeans have become extremely popular in the the U.S. The genetic modification added by Monsanto allows soybean plants to resist the broad-leaf herbicide. Monsanto’s patents on the genetically modified seed is even more important now because Roundup has gone off-patent.

When a farmer purchases seeds from Monsanto, the company requires that the farmer agree not to retain any seeds from the resulting crop for replanting. These second generation seeds are genetically identical to the ones originally purchased — and thus, fall under the scope of the patents. Monsanto brought suit against McFarling after the farmer violated his agreement and saved second generation soybean seeds to replant his 5,000 acre farm.

McFarling now questions whether Monsanto has any right to control the trade of the second generation seeds — Is Monsanto’s limitations on use of the second generation seeds an unlawful restraint of trade?

In my quick review of the briefs for and against certiorari, it appears that Monsanto’s attorneys have put their best foot forward by showing that there are no true circuit splits, a key feature in the Supreme Court’s decision whether to accept a case on appeal. All the same, McFarling’s case has a certain flair that may push the court to accept the case.

Links:

Supreme Court Requests Bush Administration’s View on Seed Patent Controversy

November 15, 2004Articles and Publications, Patent, Patent Cases 2004Supreme CourtDennis Crouch

McFarling v. Monsanto (Supreme Court Docket No. 04-31).

Homan McFarling was sued by Monsanto for saving seeds and replanting them. The seeds had been genetically modified by Monsanto to resist Roundup (R) herbicide and were patented. (U.S. Patents 5,633,435 and 5,352,605).

At the Federal Circuit, McFarling argued that the Sales Agreement from Monsanto involved an unlawful misuse of Monsanto’s patents by restricting use of “god-made” second-generation seeds. The Appellate Court disagreed. Because the first-generation seeds (sold by Monsanto) were nearly identical copies to the second-generation seeds, the Court found that the patent scope includes both generations. Thus, the Court rejected McFarling’s appeal and held that the Sales Agreement did not impermissibly extend Monsanto’s rights.

Now, McFarling has taken the suit to the Supreme Court. In case No. 04-31, McFarling is asking the Court to to overturn the Federal Circuit’s ruling and presents two questions:

1. May a patent holder lawfully prohibit farmers from saving and replanting seed as a condition of the purchase of patented technology?

2. Does obtaining patents on products which are the subject of licensing agreements afford an absolute defense to any claim that the licensing agreements violate the Sherman Act?

The Supreme Court has asked the Solicitor General to brief in this case expressing the views of the United States. It is expected that the Bush Administration, through the Solicitor General, will support Monsanto’s position.

Military Contractor Forfeits Patent Rights: Company Failed to Properly Disclose Invention

November 10, 2004Patent, Patent Cases 2004LicensesDennis Crouch

Campbell Plastics v. Les Brownlee, Secretary of the Army (Fed. Cir. November 10, 2004) (03-1512).

The Case:

In 1992, Campbell Plastics (as it is now known) entered into a cost-plus-fixed-fee contract with the Army to develop components of an aircrew protective mask. Section I of the contract required Campbell to disclose any invention developed pursuant to the government contract and further provided that the government could obtain title if Campbell failed to disclose the invention within two months.

Campbell invented a new type of gas mask, but the company did not disclose the invention to the Government. Campbell then obtained a patent on the invention, noting that the Government has a "paid-up license in this invention."

The government, however, wanted more than just a license. In a decision by the Armed Services Board of Contract Appeals, ruled that Campbell had forfeited title to the patent by failing to comply with disclosure requirements of the contract.

The Appeal:

The Federal Circuit Court of Appeals, interpreting both the Bayh-Dole Act and the contract, sided with the Army.

Campbell Plastics failed to comply with the disclosure provisions of the parties’ contract. The contract unambiguously provides that in such a case, the government may obtain title to the subject invention. The decision of the Board to deny Campbell Plastic’ appeal is affirmed.

The Result:

Campbell failed comply with its contract to disclose inventions to the Army. As a result, the Army may obtain title to the related patents.

Comment: This case should serve as a warning to government contractors. You cannot rely on the friendly face of the Technology Tranfer Office always being there. Contractors should implement a regular practice of documenting engineering work associated with government contracts to ensure that inventions are accurately reported in a timely manner.

University of New Mexico v. Knight

November 9, 2004Patent, Patent Cases 2004Dennis Crouch

University of New Mexico v. Knight (Fed. Cir. November 9, 2004) (unpublished).

After an earlier remand from the Federal Circuit, defendants Knight and Scallen attempted to amend their counterclaims to indicate precisely how they were damaged by actions arising from the University’s actions. However, the district court denied their motions to amend and dismissed all but one counterclaim as barred by the statute of limitations and the New Mexico Tort Claims Act.

On appeal, the appellate panel again sided with the University, finding that Scallen and Knight’s arguments to be “without merit.” Barring a rehearing or appeal to the Supreme Court, this case is closed.

Link: Senior U.S. District Judge John Conway said it was unfortunate the university’s lawsuit against two former UNM researchers was not resolved by cooperation and “searching for the greater good” outside the courts to benefit cancer patients.

Patent holder barred from reopening malpractice arbitration

November 8, 2004Patent, Patent Cases 2004Dennis Crouch

Theis Research v. Brown & Bain (Now Perkins Coie) (9th Cir. 2004).

B&B was Theis’s attorney in patent litigation that turned out badly. Theis demanded arbitration of claims against B&B for legal malpractice, breach of fiduciary duty, fraud and breach of contract. In commenting on the litigation that spawned the arbitration, the arbitrator stated:

Viewed as a whole, the litigation that is the subject of this arbitration was an almost unmitigated disaster both for [Theis] and for B&B. The hopes of [Theis] and its investors were dashed; years of work by Mr. Theis and others went unrequited; B&B got no return on millions of dollars of invested time, and had to chalk up a major loss on its results chart.

The arbitrator awarded no compensation for Theis. Theis then filed a lawsuit for damages and to vacate the arbitration award.

On appeal, the Ninth Circuit first determined that the amount in controversy was sufficient for federal jurisdiction even though the arbitration award had been zero. The Appellate Panel then Affirmed, finding that Theis could not re-open arbitration as he had not shown that the “arbitral result … was a manifest disregard of the law, an implausible interpretation of the contract, the award was procured by corruption, fraud, or undue means, or the arbitrator exceeded his powers.”

2004 U.S. App. LEXIS 21753

Federal Court has no jurisdiction over suit to recover patent-infringement litigation proceeds

November 8, 2004Patent, Patent Cases 2004LicensesDennis Crouch

General Technology Applications v. Exro (4th Cir. 2004).

GTA and Exro pursued a joint business venture to produce and market a drag reduction additive (DRA) for petrolium products. The startup company, EXG, never successfully produced or marketed any DRA. However, GTA successfully sued Conoco for infringement of its DRA patents — $60 million. Neither EXG or Exro were parties to that litigation.

Once Exro learned of the award, it demanded its share. According to Exro, EXG held an exclusive license to the GTA patents, thus making the infringement award property of EXG. However, the district court dismissed Exro’s claims on summary judgment.

On appeal, the 4th Circuit Court of Appeals reversed — finding that the district court lacked diversity jurisdiction over the claims. The case remanded to Virginia state court.

Federal Circuit Court of Appeals warns that future appellate rule violations will likely result in sanctions

November 7, 2004Patent, Patent Cases 2004Dennis Crouch

In Re Violation of Rule 28(c) (Fed. Cir. 2004) (Unpublished Order)

At the district court, Esab Group won a multi-million dollar judgment against Centricut for infringement of Esab’s patent relating to plasma welding products. Centricut appealed the judgment and the measurement of damages. Esab cross-appealed, asking for a modification of the judgment on damages.

While not yet deciding on the merits of the case, the Federal Circuit gave Esab’s attorney a written reprimand for filing a reply brief in violation of Rule 28(c) of the Federal Rules of Appellate Procedure.

Rule 28(c) limits the content of a cross-appeal reply brief to issues presented by the cross appeal. Further, the Practice Notes accompanying Rule 28 specifically caution counsel to limit the reply brief “to the issues presented by the cross-appeal.” However, Esab’s reply brief consisted of 23 pages, about 20 of which related only to the main appeal and not the cross appeal.

The appellate panel declined to impose sanctions against the offending attorney, but noted that “we wish to make clear that it is the duty of counsel to familiarize themselves with applicable rules, and that, in future cases, serious violations of applicable rules, whether or not ‘inadvertent,’ will potentially subject counsel to sanctions.”

A decision on the merits of Centricut v. Esab Group is expected later this year.

Notes:

Fed. R. App. P. 28(c) Reply Brief. The appellant may file a brief in reply to the appellee’s brief. An appellee who has cross-appealed may file a brief in reply to the appellant’s response to the issues presented by the cross-appeal. Unless the court permits, no further briefs may be filed. A reply brief must contain a table of contents, with page references, and a table of authorities-cases (alphabetically arranged), statutes, and other authorities with references to the pages of the reply brief where they are cited.

Dell sued for infringement of international e-commerce patent

November 4, 2004Patent, Patent Cases 2004Dennis Crouch

DE Technologies v. Dell

DE Technologies owns the patent on multi-lingual e-commerce. (U.S. Patent No. 6,460,020). The patent, originally filed in 1997, covers a method carried out on a computer that allows international commercial transactions. Claim 1 of the patent includes the following steps:

(a) selecting a language from a menu;
(b) selecting a currency from a menu;
(c) selecting a product to be purchased and a destination for shipping;
(d) obtaining from a database i) price information; ii) an international goods classification of the product; and iii) international shipping information;
(e) calculating shipping costs;
(f) determining a total cost;
(g) confirming existence of available funds; and
(h) accepting the order and generating a shipping invoice

Yesterday, BusinessWeek reported that DE has sued Dell for infringement of this patent. According to the article, If litigation goes forward, it will focus on whether, as DE contends, it really was the first company to demonstrate a system for processing international sales online when it filed for patent protection in 1997.

(Thanks Lisa).

District Court’s Review of Figures in Design Patent Sufficient for Summary Judgment.

November 3, 2004Patent, Patent Cases 2004Dennis Crouch

Colida v. Matsushita (Fed. Cir. 2004) (unpublished opinion).

Summary Judgment of Noninfringement Affirmed.

Patent Case: Bard v. United States Surgical

October 29, 2004Patent, Patent Cases 2004Claim ConstructionDennis Crouch

Bard v. U.S. Surgical (Fed. Cir. 2004).

Bard owns a patent on a method of repairing hernias with a flexible mesh plug. Bard sued U.S. Surgical for infringement and for inducing surgeons to infringe. Because in the prosecution history and specification Bard defined the claimed plug as having pleats, the district court’s claim construction requiring “pre-formed pleats” was affirmed. Noninfringement affirmed.

Concurrence by Judge Prost:

In this case, the inventors clearly and deliberately disclaimed any coverage of non-pleated plugs they might otherwise have had when they stated during reexamination that “the surface of the inventive plug is pleated” in an attempt to overcome the prior art-based rejections of claims 19 and 20. Under the theory that the inventors acted as lexicographers, the majority holds that this statement, among others, shows that the inventors “clearly defined the plug of claim 20 as having pleats.” The statement, in my view, is a surrender of claim scope, which precludes Bard from recapturing coverage of non-pleated plugs. Litton Sys., Inc. v. Honeywell, Inc., 140 F.3d 1449, 1458 (Fed. Cir. 1998). Because the inventors clearly disclaimed coverage of non-pleated plugs in the reexamination, I believe we may affirm the judgment of the district court on that basis alone; accordingly, I find it unnecessary to reach the remaining grounds for affirmance relied upon by the majority.

Patent Suit Alleges Disney Stole fastPass Idea

October 29, 2004Patent, Patent Cases 2004Dennis Crouch

Disney’s patented fastPass system allows customers to reserve a time to ride an attraction, rather than waiting in line. (U.S. Patent No. 6,173,209).

According to a report by Sean Mussenden at the Sun Sentinel, a Tennessee man has sued Disney for stealing his idea for the line management system.

After Robert Keyes watched a man pass out in a ride queue at Disney-MGM Studios, he had an epiphany, he said: Theme park visitors do not have to stand in line.

So, according to a patent lawsuit Keyes filed this month in federal court in Orlando, he sent a letter to Disney executives in 1991 describing a system that would allow some theme-park visitors to wait in a “standby” line but give others a ticket to return later and avoid the wait.

A top Disney executive sent him a letter back a month later, telling him the idea wouldn’t work and would result in “more guest inconvenience,” according to Keyes’ lawsuit.

Now, Keyes has sued Disney for “stealing his idea.” In the complaint, he has requested correction of inventorship and damages for unjust enrichment.

On their website, Disney notes that “we are unable to accept or examine any creative idea, suggestion or document other than those solicited by the company itself. We hope that you understand the aim of this policy, which is designed to prevent any future misunderstandings or problems which might arise if projects developed by [Disney] were to show a resemblance to creative work originated from third parties.”

Links:
Download the complaint against Disney.
Download Disney’s patent.

In a parallel case, the 9th Circuit Court of Appeals, in Jeff Grosso vs. Miramax Film Corp., found that movie and television executives enter an implied contract every time they read a script or hear a pitch.

Caterpillar Jury Trial Vacated Because Juror’s Spouse Was an Employee

October 28, 2004Patent, Patent Cases 2004Trade SecretsDennis Crouch

Caterpillar v. Sturman (Fed. Cir. October 28, 2004).

The Court of Appeals for the Federal Circuit (CAFC) today vacated a jury verdict in a trade secret and contract dispute involving Caterpillar.

The technology at issue involved the use of residual magnetic latching in a fuel injector. (See, for example, U.S. Patent 3,646,898). The Appellate Panel, led by Judge Newman, decided several important issues in this case. One of the most interesting involved Juror No. 3 whose spouse was a current Caterpillar employee.

At the beginning of trial, during the jury selection process, Sturman moved to dismiss for cause any current or former Caterpillar employees and their spouses. The district court denied Sturman’s blanket objection, but specifically allowed Sturman to show cause for individual jurors. . . . Sturman did not individually challenge for cause Juror No. 3, the spouse of a current Caterpillar employee, nor did it use one of its peremptory challenges to have her removed. Juror No. 3 ultimately sat on the jury.

Sturman appealed the district court’s opinion to allow Juror No. 3 to sit on the jury.

Potential for bias reviewed de novo.

Normally, the question of whether an individual juror is biased is a factual determination entitled to deference on appeal. However, the CAFC ruled that a district court’s decision on “implied bias, as opposed to actual bias” is reviewed de novo.

Spouse of Employee is Biased as a Matter of Law.

Applying Seventh Circuit law, the court found that implied bias is demonstrated by “showing that the juror has a personal connection to the parties or circumstances.”

Juror No. 3 had a financial interest in this case because her husband worked for Caterpillar at the time of the trial. As noted in Polichemi, even a tiny financial interest is enough to warrant dismissal. And it is legally irrelevant whether this financial interest arose due to his employment in management or under a union contract. . . . In addition, we find no distinction in the law between the financial interest of an at-will management employee and the interest of an employee under a union contract, nor do we advocate creating one.

Jury verdict vacated. Case remanded for a new trial.

Patents: Federal Circuit Defines Requirements For Declaratory Judgment Action

October 25, 2004Patent, Patent Cases 2004Dennis Crouch

Capo v. Dioptics (Fed. Cir. 2004).

Background

Dioptics produces “wear-over” sunglasses that are adapted to fit over or clip onto eyeglasses. Capo is a wholesale marketer of sunglasses. Prior to suit, the president of Dioptics (Henry Lane) called the president of Capo (Mark Ascik):

Lane left a voice mail message stating that if he did not hear promptly from Ascik, he would have to “presume that you are just ducking and racing forward to infringement;” Lane cautioned Ascik about “charging down a path here that’s going to end up into a multi-million dollar lawsuit.” Ascik then phoned Lane, and Ascik’s affidavit states that Lane said that Dioptics had thirteen United States patents and would soon have forty, and that these patents covered all of the basic wear-over sunglass frame shapes. Lane said that Dioptics would have no choice but to defend its patents against infringement, and that he was sure he would win an infringement suit.

After the conversations, Capo filed a declaratory judgment complaint, asking for a preemptive noninfringement holding. Dioptics moved for dismissal of the declaratory action, on the ground that Dioptics could not have threatened suit because no one at Dioptics had seen Capo’s product or analyzed it for infringement.

The district court dismissed the declaratory action, finding that the dispute was not “sufficiently crystallized” for declaratory action. On appeal, the Federal Circuit reversed:

Objective Apprehension Of Being Sued Sufficient For Declaratory Judgment Action.

Dioptics’ argument that it could not have ethically filed suit at that time may be relevant to whether Dioptics acted responsibly, but it is irrelevant to whether the patentee’s threats of suit instilled a reasonable apprehension of suit. Although Dioptics now characterizes Lane’s words as “cursory,” the record well supports the conclusion that Capo had the objectively reasonable apprehension that it would be sued by Dioptics for patent infringement. This objective apprehension was deliberately and intentionally created by the president of Dioptics. It is irrelevant whether Dioptics had adequately investigated the basis of its threats, if they created the requisite objective apprehension. . . . We conclude that the district court clearly erred in declining to find that Capo had a reasonable apprehension of suit.

Failure to Raise Counterclaims Does Not Warrant Dismissal.

The district court gave weight to Dioptics failure or refusal to make compulsory counterclaims for infringement. The Appellate Court found that Dioptics’ waiver of the claims should not add any weight to the argument for dismissal.

The Existence of Pending Patent Applications Does Not Justify Dismissal.

The district court also gave weight to Dioptics’ argument that it had pending patent applications that upon issuance would strengthen its case for infringement. The Appeals Court disagreed with this finding:

Capo is entitled to resolution of the infringement accusations already made, for the patents that already exist. The possibility of future patents is irrelevant to present rights and liability.

Conclusion

Resolution of this dispute is within the court’s capability, and it is the district court’s responsibility to resolve it. Declining to do so is an abuse of discretion.

We conclude that the dismissal was improperly granted. The dismissal is vacated, and the case is remanded for further proceedings.

Federal Circuit Denies Petitions to Rehear

October 22, 2004Patent, Patent Cases 2004Federal Circuit En BancDennis Crouch

Today, the Federal Circuit, without opinion, denied several petitions for rehearing en banc:

Toro v. White Consolidated Industries petition for rehearing DENIED.
Home Diagnostics v. LifeScan petition for rearing DENIED.
Chamberlain Group v. Skylink Technologies petition for rehearing DENIED.

Earlier this week, the CAFC denied petitions for en banc rehearings in Monsanto v. Ralph and International Rectifier v. IXYS.

Barring an appeal to the United States Supreme Court, the holdings on appeal represent the final rule of law.

California Appeals Court Upholds Genentech Verdict

October 22, 2004Patent, Patent Cases 2004Enablement, Licenses, Supreme CourtDennis Crouch

City of Hope v. Genentech (Cal. App. 2004) (B161549).

Decision: A California state appellate court has upheld a $500 million verdict against Genentech for back payment of royalties on drug sales from a 1976 agreement with City of Hope National Medical Center. The court found that Genentech breached a fiduciary duty to City of Hope.

Genentech does not dispute that it failed to disclose various licenses and pay royalties on those licenses. Rather, it contends that it did not breach any fiduciary duty so long as it was adhering to an erroneous but legally tenable interpretation of the agreement. In essence, Genentech would have us hold that even if it followed an interpretation it knew was contrary to what the parties intended and agreed upon, it could not be held liable so long as that interpretation was objectively sustainable under the law. . . . None of [the cases cited by Genentech] allows a party to profit from a legally tenable contract interpretation when the party knows that the agreement has a wholly different meaning. In any event, it would be antithetical to the very nature of the obligations imposed on fiduciaries for us to hold that a fiduciary could act in the manner suggested by Genentech.

To the extent Genentech contends that its interpretation of the agreement was held in good faith, that contention fails. The jury’s finding of fraud or malice demonstrates that it believed that Genentech acted in bad faith. That finding . . . is supported by substantial evidence and is sufficient for concluding that Genentech breached its fiduciary duty.

According to a California based patent attorney, several amici curiae — including Intel Corp., TechNet and the California Chamber of Commerce — pleaded with the court to reverse the judgment, saying that imposing fiduciary status as a cost of using third-party intellectual property would impede innovation. Genentech has announced its plans to appeal the decision to the California Supreme Court.

About the Case: In 1978, City of Hope biologists Arthur Riggs and Keiichi Itakura developed a technique for splicing into a bacteria gene the DNA for human insulin, which became the world’s first biotechnology drug. Genentech agreed to pay City of Hope 2% on net sales of products that were tied to the DNA provided by the cancer center. (see Patent No. 4,704,362). Royalties had been paid for sales of insulin and on sales growth hormone products, but the cancer center is asking for royalties on products made under 20 other license agreements.