Dr. Bonzel v. Pfizer (Fed. Cir. 2006).

Bonzel, a German residing in Germany, originally sued Pfizer and others in Minnesota state court for breach of contract (patent license) — but asserted that patent infringement was not an issue. The Minnesota court dismissed on grounds of forum non conveniens — finding that the case should be decided under German law by German courts.

Bonzel refiled in Federal Court, and included assertions of patent infringement, but his case was again dismissed.  On appeal, the Court of Appeals for the Federal Circuit affirmed the dismissal.

Issues

Judicial Estoppel: Judicial estoppel applies “when a party takes a later position that is inconsistent with a former position in the same dispute, on which the party had been successful and had prevailed based on the former position.  The CAFC found no judicial estoppel with regards to Bonzel’s earlier assertions of “no patent infringement” because the complaint was “sufficiently changed.”

Patent Jurisdiction: Bonzel’s charges of breach of contract do not “arise under” the patent laws — even though the breach of contract charges would likely require a determination of whether infringement occurred.

Diversity: The court did not have diversity jurisdiction because foreigners were on both sides of the v.

National Treatment: Bonzel also argued that dismissing his case was not allowed under the Paris Convention’s requirement that a nation’s courts give “equal treatment to nationals of other nations.”  Here, Bonzel argues that his case is being dismissed because he is a German. The CAFC disagreed, finding that the treaties do not “establish jurisdiction or require a nation’s court to receive litigation that it reasonably believes would be better conducted in another nation.”

Applied Medical Resources Corp. v. United States Surgical Corp. (Fed. Cir. 2006).

By Gautham Bodepudi

Facts and History:

U.S. Surgical appealed the decision of the district court for the Central District of California, granting judgment of the willful infringement of U.S. Patent 5,385,553 to Applied Medical, and awarding damages, enhanced damages, attorney fees, and prejudgment interest totaling $64.5 million.

Applied Medical’s ‘553 patent relates to surgical devices called trocars. Trocars are used as access ports into the abdomen during laparoscopic surgery.

Applied first sued U.S. Surgical for their use of the Versaport trocar in the United States District Court for the Eastern District of Virginia (‘Applied I’), and the jury found that U.S. Surgical willfully infringed claims 4 and 18 of the ‘553 patent. The district court permanently enjoined U.S. Surgical, and awarded damages in the form of a 7% reasonable royalty rate.

During the Applied I litigation, U.S. Surgical began redesigning its Versaport trocar, completed its redesign shortly after the Applied I verdict, and began selling the redesigned Versaport (‘Versaport II’) shortly thereafter.

Two years later, Applied Medical filed a second infringement suit (Applied II) against U.S. surgical for their use of Versaport II, and the district court held that Versaport II infringed claim 3 of the ‘553 patent, and entered a permanent injunction against them.

In a separate trial for damages, U.S. Surgical tried to establish that the reasonable royalty for infringing sales of Versaport II was 7%, as established in Applied I and is binding under the principles of collateral estoppel. In addition, U.S. Surgical moved for judgment as a matter of law to establish that their infringement was not willful due to U.S. Surgical’s due care and good faith in designing around the ‘553 patent. Lastly, U.S. Surgical sought preclude evidence relating to the jury’s finding of willfulness in Applied I. However, the judge denied all three motions, and U.S. Surgical appealed.

Issues and Rulings:

I. Is the reasonable royalty rate established in Applied I binding in Applied II under the principles collateral estoppel?

The Court held that collateral estoppel should not be given effect in Applied II because the necessary reasonable royalty determination in Applied II is not identical to that decided in Applied I.

In laying the groundwork, the Court noted that reasonable royalty calculations are employed when actual damages cannot be adequately proved, and that when using such a calculation, the court may determine a reasonable royalty based on hypothetical negotiations between a willing licensor and willing licensee.

However, a reasonable royalty determination for purposes of making an evaluation for damages must relate to the time infringement occurred. The Court stated that the reasonable royalty damage calculation in Applied II is not identical to the issue of reasonable royalty damages in Applied I because the infringements requiring compensation began at separate and distinct times. The infringement in Applied II was caused by sales of Versaport II, which began in 1997, whereas the infringement in Applied I was caused by sales of Versaport I, which began in 1994. There were thus two separate infringements, and each commenced on a different date.

Thus, the Court reasoned, the reasonable royalties of the two different infringements, beginning at two different times, may be different from one another, and therefore the district court was correct in not applying collateral estoppel to the issue of reasonable royalty determination.

II. Was their substantial evidence to support the jury’s verdict that U.S. Surgical’s infringement was willful, despite U.S. Surgical’s good faith and due care to design around the ‘533 patent?

Despite U.S. Surgical arguments that it engaged in an intense and deliberate program to design around the ‘553 patent, regularly consulted with its in-house counsel during the redesign process, requested the advice of outside law firms, and avoided making a single sale until after U.S. Surgical received a written second opinion from a patent attorney from another firm, the Court still held that substantial evidence supports the jury’s verdict of willful infringement.

Notably, the Court held that a jury could reasonably infer that U.S. Surgical desperately needed a universal seal trocar to remain competitive in the surgical business, that U.S. Surgical’s management did not properly oversee or adequately participate in the development of Versaport II, and that U.S. Surgical’s management placed intense time pressure on their engineers to create a new product. Specifically, the Court noted that of the three opinions of counsel relied upon by U.S. Surgical, one did not even address the issue of infringement, and another letter arrived after U.S. Surgical began selling Versaport II. In addition, U.S. Surgical’s General Counsel admitted that U.S. Surgical wanted “no gap” in the supply of Versaport trocars once the Applied I injunction took effect. Based on this evidence, the Court concluded that a jury could have reasonably determined that U.S. Surgical paid little if any attention to the opinion letters, and that they would have proceeded to manufacture Versaport II despite outside legal opinions to the contrary.

Therefore, the district court did not err in denying U.S. Surgical’s motion for judgment as a matter of law as to whether U.S Surgical’s infringement was willful.

III. Did the district court abuse its discretion in allowing Applied to introduce evidence regarding the Applied I litigation, including the jury’s finding that U.S. Surgical’s infringement was willful?

The Court held that district did not abuse its discretion because the Applied I litigation was relevant to U.S. Surgical’s state of mind with respect to willfulness. Specifically, the Court reasoned that the Applied I litigation was relevant to the reasonable royalty analysis because the hypothetical negotiation in 1997 took place on the heels of the Applied I jury verdict. In addition, the jury’s determination of willfulness in Applied I is relevant because U.S. Surgical’s in-house counsel testified that U.S. Surgical initiated the design of Versaport II because Applied had commenced the Applied I litigation. Furthermore, the Court noted that U.S. Surgical admitted that the Applied I verdict caused U.S. Surgical to redouble its efforts to avoid willful infringement.

Thus, because the Applied I litigation was relevant to U.S. Surgical’s state of mind, and because U.S. Surgical could not show that the probative value of this evidence was outweighed by the danger of unfair prejudice, the Court held that the district court did not abuse its discretion in allowing the evidence to be introduced.

Gautham Bodepudi received a B.S. in electrical engineering from the University of Illinois and a J.D. from the University of Chicago School of Law. He is an associate in MBHB’s Chicago office. Contact Gau.

On January 17, Research-and-Motion and NTP simultaneously filed opening briefs arguing opposite sides of the injunction issue.  For its part, RIM gives a litany of reasons why the CAFC’s August 2005 decision should not result in an injunction:

• A new trial is required on damages because the jury had improperly found that RIM infringed 7 of the 16 asserted claims.
• The willfulness award should be set aside based on the CAFC’s decision and the intervening decision in Knorr-Bremse.
• RIM’s products introduced since trial are “either non-infringing or contain many substantial non-infringing features.”
• An implied license exists permitting RIM to continue providing services to customers of the handheld devices for which damages are awarded.
• The “exceptional public interest in continued and uninterrupted availability of RIM’s BlackBerry system” and “the fact that NTP can be more than adequately compensated by royalty payments” indicate that a permanent injunction should not be issued.

According to RIM, all these factors should be considered in the backdrop of the fact that the PTO “will fully and finally reject all patent claims at issue in this case in a matter of weeks.”

On the other hand, NTP has argued that the scope and severity of RIM’s infringing conduct “is not affected by the CAFC’s modification of the total number of claims infringed.”  As such, NTP requests its damages (increased because of RIM’s increased sales) and an injunction.

Reply briefs are due on February 1, 2006.

Aspex Eyewear v. Miracle Optics (Fed. Cir. 2006).

The district court dismissed Aspex’s action against Miracle on the ground that neither Aspex nor co-plaintiff Contour Optik had standing to sue for infringement of Patent No. 6,109,747.  Prior to initiating the infringement suit, Contour had transferred some rights to a licensee, Chic Optic.  The question presented on appeal was whether the transfer of rights was (1) merely a license to the patent or (2) a transfer of all substantial ownership rights.  If the transfer was merely a license, then the patentee, Counter, would retain the right to sue an infringer.  However, if the transfer was for all substantial ownership rights, then the patentee would no longer have rights in enforcing the patent.

Under the agreement Chic was granted (1) the exclusive right to make, use, and sell in the United States products covered by the patent, (2) the first right to commence legal action against third parties for infringement of the patent and the right to retain any award of damages from actions initiated by Chic, and (3) a virtually unfettered right to sub-license all of its rights to a third party. However, under the agreement all of Chic’s rights ended as of March 2006, when the rights reverted to Contour.  Contour also retained the right to commence infringement actions against third parties if Chic refused to do so.

On appeal, the Federal Circuit reviewed the question of standing de novo.  “[A]t bottom, the question [of standing] is ‘who owns the patent’?”  Here, the appellate court determined that, because the agreement had a term that was shorter than the life of the patent, that the licensee “never had all substantial rights to the patent, i.e., it never was the effective owner of the patent.”

The ’747 patent was never assigned; it was exclusively licensed for only a fixed period of years, which does not meet the all substantial rights standard. Thus, we hold that the Contour/Chic agreement was a license, not an assignment, and Contour was the owner of the patent when the complaint was filed and entitled to sue.

Dismissal vacated and remanded.

Sicom Systems v. Agilent (Fed. Cir. 2005).

Sicom’s lawsuit was dismissed by the Delaware district court after finding that the plaintiff was not an “effective patentee” and thus lacked standing to sue.

The patent in question uses “eye patterns” for automatic monitoring of signal transmissions.  (Patent).  The patent was originally assigned to the Canadian Government and then licensed to Sicom, a company owned by the inventors. Under the license agreement Sicom had rights to bring “commercial infringement actions.”  However, the district court found that such rights were insufficient to allow a licensee to bring suit because “Canada may still be able to pursue non-commercial customers of Defendants like governmental entities, the military and universities, thereby creating multiple risk of litigation over the same patent, a result which is inconsistent with a genuine exclusive right to sue.”

Generally, a patentee and successors in title have rights to sue for patent infringement as do licensees who receive “all substantial rights under the patent.” Thus, a nonexclusive license confers “no constitutional standing on the licensee to bring suit.”

On appeal, the CAFC agreed that Sicom did not possess all substantial rights under the patent — focusing on Canada’s ability to sue other infringers and Canada’s retention of a right to practice the invention.

Dismissal With Prejudice: Sicom also argued that the lower court’s dismissal with prejudice should be set aside to give Sicom a third chance to establish standing.  However, because the company already had one chance to correct the standing defect, the CAFC affirmed, finding that the district court was within its discretion to dismiss the case with prejudice.

MedImmune v. Genentech (Fed. Cir. 2005)

MedImmune, a licensee in good standing, filed a declaratory judgment action to challenge the patents validity and enforceability. The district court dismissed the action, without prejudice, finding no “case of actual controversy.” On appeal, the CAFC affirmed holding that a licensee in good standing is not under threat of being sued for patent infringement and thus cannot bring a DJ action. (Citing MedImmune v. Centocor).

MedImmune also had pending antitrust claims and asked that once the Federal Circuit had disposed of all the patent claims, the case be transferred to the Ninth Circuit Court of Appeals.  The CAFC panel disagreed, finding that “the jurisdiction of the Federal Circuit is established by the well-pleaded complaint in the district court, whereupon the Federal Circuit must exercise jurisdiction of all of the issues in the case.”  According to the panel, jurisdiction is determined “at the outset of litigation” and does not change — except when sham charges of patent infringement are brought to manipulate the appeals process.

In dissent, Judge Clevenger argued that the district court’s dismissal without prejudice was “equivalent for jurisdictional purposes to an amendment removing the declaratory judgment claims from the complaint.”  Because no other claims in MedImmune’s complaint “arise under” patent law, Clevenger argued that the regional circuit should now have jurisdiction over the case.

Enzo Biochem v. Gen-Probe (Fed. Cir. 2005).

At the district court, Enzo’s patent, covering DNA probes for hybrodizing N. gonorrhoeae, was held invalid under the on sale bar. Specifically, the district court found that the claimed invention had been offered for sale before the critical date — more than one year before the patent application was filed.

In June 1982/83, Enzo and Ortho Diagnostics entered into a joint research that specifically focused on the gonorrhea probe. In 1984 Enzo supplied Ortho a probe like that claimed.  However, it was not until 1986 that Enzo filed its patent application.  The district court found the transfer to be an invalidating sale and awarded summary judgment of invalidity.

On appeal, the CAFC reviewed the two prong Pfaff test for application of the on sale bar:

1. Subject to a commercial offer for sale; and
2. Invention ready for patenting.

Offer for sale: Taking the two elements in turn, the appellate panel first found that the research agreement “created the necessary contractual obligations” to be considered a commercial offer for sale. Specifically, the court pointed to the following language in the agreement:

ENZO shall supply to ORTHO and ORTHO shall purchase from ENZO for use in Licensed Products no less than ninety percent (90%) of ORTHO’s United States requirements or seventy-five percent (75%) of ORTHO’s worldwide requirements of Active Ingredients. . . .

Ready for Patenting: Because the invention had been reduced to practice and its utility as a gonorrhea probe had been recognized, the court also determined that the invention was “ready for patenting.”

Method Claim: The CAFC found that the method claims were put “on sale” by including instructions for use with the probe.

Summary judgment of invalidity affirmed.

U.S. Philips v. International Trade Commission (Fed. Cir. 2005)

Philips owns patents on recordable compact discs including CD-R and CD-RW technology and offers licenses to various manufacturers in pools of “essential” and “nonessential. Several foreign manufacturers refused to pay and, upon Philips request, the ITC initiated an investigation.

During the investigation, the ITC administrative law judge found that the manufacturers infringed the claims of the asserted Philips patents but rules the patents unenforceable for patent misuse.  Specifically, the judge ruled that the pooling arrangement constituted misuse because some of the “essential” patents were actually not essential. 

Among the grounds invoked by the administrative law judge for finding patent misuse was his conclusion that the package licensing arrangements constituted tying arrangements that were illegal under analogous antitrust law principles and thus rendered the subject patents unenforceable.

In Philips first appeal, the Commission affirmed the judge’s ruling, concluding that nonessential patents were impermissibly tied to essential patents because “none of the so-called essential patents could be licensed individually for the manufacture of CD-RWs and CD-Rs apart from the [essential] package.”

Court of Appeals for the Federal Circuit, however, reversed, finding that the license pool was not patent misuse even if some of the pooled patents were nonessential.

[T]he Commission erred when it characterized the package license agreements as a way of forcing the intervenors to license technology that they did not want in order to obtain patent rights that they did.

The CAFC’s decision relied on the theory that it would be “entirely rational” for a patentee who has an “essential” patent to “charge what the market will bear for the essential patent and to offer the others for free.”

Thus, the CAFC held that that the Commission’s application of both  per se and rule-of-reason analyses to the package license agreement to be legally flawed.

REVERSED AND REMANDED

• File Attachment: Philips v. ITC.pdf (150 KB)
• Commentary by Professor Shubha Ghosh

Arizona Cartridge Remanufacturers Assn. v. Lexmark Int’l. (9th Cir. 2005).

ACRA sued Lexmark for unfair business practices based on Lexmark’s “prebate” program that allows customers to receive $30 off the price of a printer cartridge if they agree to return the empty cartridge to Lexmark — rather than allowing a third-party remanufacturer to refill the cartridge. ACRA argued that this practice was a restriction on alienability that should be barred.

The district court granted summary judgment in Lexmark’s favor, finding that the restriction on further use was a valid agreement and that Lexmark’s statements about the pricing were accurate.

On appeal, the 9th Circuit found that the post-sale restriction was allowable because the product was patented. (citing Monsanto v. McFarling).  Post sale conditions are generally allowed if the good is “reasonably within the patent grant.”  The EFF filed a brief in the case that was largely ignored. 

DDC Commentary:

1. For me, the interesting part of this opinion is that restrictions on alienation (resale/repair) of consumer goods are generally not enforceable unless the good in question is patented.
2. In the wake of this and other cases, pundits are predicting that we will be seeing more “shrink-wrap” licenses restricting repair and modification attached to products that might need repair or modification.
3. If you plan to take such an action, be sure that your product is patented. (Query — will a design patent be sufficient?)

Links to Further Commentary:

• Link: Fred von Lohmann at EFF
• Link: Donna Wentworth at Copyfight/EFF
• Link: Cathy Kirkman at Wilson Sonsini
• Link: Professor Michael Madison at Pitt
• Link: Professor Mark McKenna at St. Louis
• Link: Legal Blog Watch (Lauren Gelman) on Lisa Stone’s blog
• Link: Lexmark Press Release

Documents:

• Lexmark Decision

Illinois Tool Works v. Independent Ink (Supreme Court 2005). 

On appeal to the Supreme Court is the question of whether market power must be proven in a Section 1 Sherman Act case that alleges the tying of a non-patented product to the sale of a patented product.  In its opinion in the case, Court of Appeals for the Federal Circuit determined that a rebuttable presumption of market power sufficient to restrain trade under antitrust law arises from the patentee’s possession of a patent used in an explicit tying agreement.  Oral arguments are scheduled for Tuesday, November 29, 2005.

Briefing is ongoing, but a number of parties have filed as amici. 

• In Support of Petitioner

• U.S. Government Brief
• IPO Brief
• MPAA Brief
• NYIPLA Brief
• IPLAC Brief

• (Not yet due).

REVIEWS:

Amicus Brief of the U.S Government:

The government makes the powerful argument that there is “no economic basis” for inferring market power from the “mere fact” that the defendant holds a patent.  The relevant market would rarely have the same boundaries as the legal scope of the patent — as such, the per se approach is not warranted.  Both the DOJ and FTC have a policy against applying a presumption of market power based on the existence of a patent. Download the U.S. Government Brief.

Brief of the IPO:

The Intellectual Property Owners Association agreed with the Government Brief that there was a lack of economic rational for a per se presumption of market power.  In addition, the IPO argued that the presumption makes it too easy for defendants in patent infringement suits to file baseless antitrust counterclaims.  Notably, the IPO questions the basic premise that tying is competitive by citing a number of academic articles (Bakos) that provide evidence of the pro-consumer effects of tying agreements. File Attachment: IPOTyingBrief.pdf (1099 KB).

Amicus Brief of the MPAA

The Motion Picture Association of America and several other organizations filed a joint brief in support of the petitioner.  The MPAA makes the argument that Loew’s does not set a rule of “presuming antitrust market power from intellectual property ownership.”  The MPAA is a heavy copyright holder, but certainly realizes that the Supreme Court often generalizes across traditional IP categories with its analysis. File Attachment: Illinois Tool MPAA Amicus Brief.pdf (345 KB).

Brief of the NYIPLA:

In its support of the petitioner, the NY IP Law Association (David Ryan, et al.) took the novel position that Section 271(d)(5) of the Patent Act exempts tying. Section 271–(d)(5) provides that:

No patent owner . . . shall be denied relief or deemed guilty of misuse or illegal extension of the patent right by reason of his having . . . (5) conditioned the license of any rights to the patent or the sale of the patented product on the acquisition of a license to rights in another patent or purchase of a separate product, unless, in view of the circumstances, the patent owner has market power in the relevant market for the patent or patented product on which the license or sale is conditioned.

The NYIPLA thus argues that the plain language of the statute encompasses tying and requires a specific showing of market power — thus eliminating the per se approach.  File Attachment: NYIPLABrf.pdf (318 KB).

Amicus Brief of the IPLAC:

The Intellectual Property Law Association of Chicago analyzed the parallels between this case and Jefferson Parish — making the argument that the only notable difference between the two cases being the fact that a portion of the tying product is patented. File Attachment: IPLACbrf.pdf (132 KB).

Ericsson v. InterDigital v. Nokia (Fed. Cir. 2005).

Ericsson sued InterDigital for a declaratory judgment that InterDigital’s group of digital wireless telephone patents are invalid and/or unenforceable. After a decade of litigation, the parties settled in 2003 and agreed to maintain the litigation record under seal. In the meantime, Nokia entered into a license agreement with InterDigital as a "most favored licensee."  Thus, Nokia’s payments are based on settlement amounts from the Ericsson case.

To protect its interests, but only after the Ericsson settlement, Nokia moved to intervene in the Ericsson case.  The district court granted Nokia’s motion — holding that "the Court’s rulings potentially affects Nokia’s obligations under its agreement with InterDigital." InterDigital appealed.

Finding that intervention is not a matter unique to patent law, the CAFC applied Fifth Circuit law to determine whether the intervention was proper. Under Fifth Circuit precedent, the appellate panel found that since Nokia filed its motion after the case was already dismissed, "Nokia’s motion to intervene failed to satisfy the Fifth Circuit requirement that there be an existing suit in which to intervene."

Reversed —