Tag Archives: obviousness

In my view, Obviousness is the most fundamental of patent law doctrines, and certainly much of the work of patent attorneys is to convince patent examiners that the claims are not obvious.

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

Patent, ,

by Dennis Crouch

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

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

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

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

(internal quotation marks and citations removed).

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

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

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

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

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

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

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

= = = = =

 

 

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

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

 

Trolls vs Pirates: Halo/Stryker Oral Arguments

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

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

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

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

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

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

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

. . . .

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

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

. . .

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

. . . .

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

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

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

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

. . .

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

. . . .

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

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

Some of the conversation focused on the replacement test:

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

MR. WALL: That’s right.

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

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

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

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

. . . .

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

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

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

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

. . . .

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

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

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

 

 

 

Federal Circuit Again Revives Zoltek Case: Who Invented Stealth Technology

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By Dennis Crouch

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

= = = =

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

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

Pending Supreme Court Patent Cases 2016 (February 17 Update)

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by Dennis Crouch

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

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

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

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

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

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

1. Petitions Granted:

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

3. Petitions for Writ of Certiorari Pending:

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

3. Petitions for Writ of Certiorari Denied:

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

4. Prior versions of this report:

 

 

Strategic Decision Making in Dual PTAB and District Court Proceedings

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By Jason Rantanen

Saurabh Vishnubhakat (Texas A&M), Arti Rai (Duke) and Jay Kesan (Illinois) recently released a draft of their empirical study of Patent Trial and Appeal Board proceedings, Strategic Decision Making in Dual PTAB and District Court Proceedings.  Their study takes a close look at the relationship between IPR and CBM proceedings and district court proceedings to assess the “substitution hypothesis”: the claim that post-grant review is “an efficient, accessible and accurate substitute for Article III litigation over patent validity.”

In addition to an array of descriptive statistics on post-grant proceedings at the PTO, the authors find that:

  • “Although IPR petitions may challenge patent claims as to either novelty or nonobviousness, nonobviousness challenges predominate across all major technology areas.” (p. 18)
  • During the period studied (September 16, 2011 to June 30, 2015), “a total of 14,218 patents were either challenged in an IPR or CBM petition, asserted in litigation, or both. A subset of 11,787 patents were involved in litigation alone; 324 patents were involved in a USPTO proceeding alone; and 2,107 patents were involved in both. Accordingly, about 15.2% of litigated patents are also being challenged in the PTAB, and about 86.7% of IPR- or CBM-challenged patents are also being litigated in the federal courts.” (p. 20) [edited on Feb. 12, 2016]
  • Overall, most CBM and IPR petitions are filed by those with a direct self-interest flowing from infringement litigation.  78% of CBM petitioners, and 70% of IPR petitioners, “have previously been defendants in district court litigations involving the patents they later challenge in CBM [or IPR] review.” (p. 23)  By this the authors simply mean that the petitioners showed up as defendants in an infringement proceeding on a given patent before filing for IPR or CBM review on that patent.  They likely continued to be infringement defendants during the pendency of the IPR or CBM (the authors did not track that).

Vishnubhakat et. al’s third finding has two implications.  First, a substantial number of CBM and IPR petitions are filed by parties who are not concurrently defendants in litigation involving those patents.  The existence of this group merits further study. The authors suggest a range of motivations driving these petitions.

Second, notwithstanding that group, the vast majority of CBM and IPR petitions are filed by parties that are in all likelihood simultaneously litigating the patents in district court.  Given the substantial amount of overlap, and the potential for strategic behavior by accused infringers, the authors suggest that the same claim construction standard should be applied by both forums–a point with implications for Cuozzo Speed Technologies v. Lee.

Read the article here: http://ssrn.com/abstract=2731002

 

3M Liable for $26 Million for Fraudulent Patent Enforcement

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By Dennis Crouch

Transweb v. 3M (Fed. Cir. 2016)

Although 3M was the initial litigation aggressor, TransWeb’s response is the more successful.  Here, the lower court sided with TransWeb – finding 3M’s asserted patent claims invalid based upon pre-filing public uses by TransWeb and unenforceable due to inequitable conduct during prosecution. In addition, the jury awarded TransWeb $26 million for antitrust violations based upon 3M’s attempts to maintain its monopoly by asserting a fraudulently obtained patent. On appeal, the Federal Circuit has affirmed.  The technology at issue here involves Plasma-fluorinated filters as covered by 3M’s U.S. Patents 6,397,458 and 6,808,551.

Public Use based upon Oral Testimony: The evidence of pre-filing public use came from TransWeb’s founder Kumar Ogale who orally testified that he attended an expo in May 1997 and handed out “T-Melt” samples (more than one year before 3M’s 1998 priority filing date).  Although it was clear that Ogale did attend the expo and that samples were distributed, 3M challenged the oral testimony based upon the lack of corroborating evidence that Ogale handed-out samples that included the plasma-fluorinated material at the expo.  Oral testimony of an interested party is ordinarily insufficient to invalidate an issued patent.  Rather, the ‘clear and convincing’ evidence standard requires further documentation or testimony to that corroborates the account.  However, “there are no hard and fast rules as to what constitutes sufficient corroboration, and each case must be decided on its own facts.”  In this case, the Federal Circuit rejected 3M’s argument that each and every factual conclusions leading to an invalidity determination must be corroborated by additional evidence.  Rather, the rule of corroboration is a “flexible, rule of reason demand” designed to ensure that “as a whole” the oral testimony is credible.  Here, there was corroborating evidence that Ogale attended the expo and distributed materials; that his company had been producing the plasma-fluorinated material for several months and had filed for patent protection on some aspects of the material; etc.  Reviewing this evidence, the Federal Circuit found “abundant support” for Mr. Ogale’s testimony and for the jury’s verdict of prior public use.

Inequitable Conduct:  As an equitable judgment, the determination of whether a patent is unenforceable due to inequitable conduct is ordinarily within the purview of the judge rather than the jury.  Here, however, the judge permitted the jury to offer an ‘advisory opinion’ of unenforceability that the judge then enforced based upon reaching the same conclusion.  On appeal, the Federal Circuit only reviewed the judge’s conclusions.

The basic facts are that 3M had a sample of TransWeb’s filter and notified the examiner of that fact.  Based upon this notice, the examiner rejected the pending claims as obvious.  At that point, 3M offered the ‘dubious’ assertion that the TransWeb samples were only received after signing of a confidentiality agreement and thus could not constitute prior art.  That assertion was, of course, sufficient for the examiner who withdrew the rejection.  In reviewing what happened, the district court also found that 3M’s in-house counsel “undertook an intentional scheme to paper over the potentially prior art nature” of its TransWeb samples that a 3M collaborator (and later subsidiary) had received from TransWeb one-moth after the aforementioned expo.   Based upon these (and additional facts explained in the decision), the appellate panel affirmed that the fraud upon the patent office was both intentional and material – thus affirming the inequitable conduct finding.

Antitrust Violation:  In the 1965 Walker Process decision, the Supreme Court held that an antitrust-plaintiff can prevail by showing (1) that a patentee enforced its patent, knowing the same to have been obtained by willful fraud upon the patent office leading to (2) monopolization (or attempted monopolization). Although the “willful fraud” element of a Walker Process claim was previously described as a higher burden than that used in inequitable conduct. Following Therasense, the court now sees these as “nearly identical.”

The jury found that the actual harm suffered by TransWeb for the monopolization was a measly $34,000 in lost profits.  However, TransWeb also spent over $10 million in legal fees fighting the patent infringement claims ($7.7 million) and asserting the antitrust claims ($3.2 million).  Under the Sherman Act, “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.”  Following that rule, the district court awarded $3.2 million for the cost-of-suit but then trebled the $7.7 million as the damages for fraudulent patent enforcement.  On appeal, the Federal Circuit affirmed that result – holding that “3M’s unlawful act [of enforcing its fraudulently obtained patent] was in fact aimed at reducing competition and would have done so had the suit been successful.”

 

Michael Williams (Quinn Emanuel) represented TransWeb in the appeal while Seth Waxman (Wilmer) represented 3M.

 

On Appeal, Abuse-Deterrent OxyContin Patents are Invalid

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By Dennis Crouch

Purdue Pharma v. Epic Pharma (Fed. Cir. 2016)[1]

In an important Hatch-Waxman related decision, the Federal Circuit has affirmed the lower court’s holding that Purdue Pharma’s abuse deterrent OxyContin patent claims are invalid as anticipated and/or obvious over the prior art.[2]

Of interest, it appears that the patentee was harmed here by the Patent Act’s objective approach to obviousness that, according to the statute, must be considered without regard to the actual “manner in which the invention was made.”  In particular, during the process of creating its low-ABUK oxycodone, the innovators first discovered an 8α impurity isomer created during drug manufacture that led to a problematic 14-hydroxy compound.  The claimed invention was a product having a reduced 14-hydroxy  level.  In the appeal, the Federal Circuit noted that, while the 8α impurity may have been a new discovery, it was not necessary to achieve the claimed low-ABUK results.  In particular, the court noted that reduction of both the 8α and 8β impurities would also achieve the same result without having to distinguish between the two — affirming that “a skilled artisan would recognize that hydrogenation could be used to remove the remaining 14-hydroxy, regardless of the source of the 14-hydroxy.”

Of course, the claims did expressly require that the impurity being reduced be “derived from 8α.”  That limitation, however, was deemed an illusory product-by-process limitation.

We also conclude that, because “derived from 8α[]” is a process limitation, the district court did not err in disregarding the limitation in its obviousness analysis. We have clearly stated that “‘[i]n determining validity of a product-by-process claim, the focus is on the product and not the process of making it.’” Greenliant Sys., Inc. v. Xicor LLC, 692 F.3d 1261 (Fed. Cir. 2012) (quoting Amgen Inc. v. F. Hoffman-La Roche Ltd., 580 F.3d 1340 (Fed. Cir. 2009)). “That is because of the . . . longstanding rule that an old product is not patentable even if it is made by a new process.” Id.; see also SmithKline Beecham Corp. v. Apotex Corp., 439 F.3d 1312, 1317 (Fed. Cir. 2006) (“It has long been established that one cannot avoid anticipation by an earlier product disclosure by claiming . . . the product as produced by a particular process.”); In re Thorpe, 777 F.2d 695, 697 (Fed. Cir. 1985) (“If the product in a product-by-process claim is the same as or obvious from a product of the prior art, the claim is unpatentable even though the prior product was made by a different process.”).

In Amgen, the Federal Circuit did find that the particular claimed process will be relevant if it imparts distinguishing structural differences on the resulting product.  Here, however, the court found that the fact that the negative 14-hydroxy byproduct was derived from 8α “imparts no structural or functional differences” over the prior art that already included low-ABUK product achieved without focusing on the 8α isomer.

Generic OxyContin has been on the market for the past year – following the district court judgment that has now been affirmed – and so this decision should not have a major market impact.

This case here is one part of a complex web of battles that Purdue appears to be fighting to protect its exclusive rights to sell OxyContin – or at least delay competition. Although these asserted claims have been found invalid, Purdue is asserting a set of new patents, including U.S. Patent Nos. 8,309,060, 8,337,888, 8,808,741, 8,894,987, 8,894,988, 9,060,976, 9,034,376 and 9,073,933.

= = = = =

[1] App. No. 2014-1294 (Fed. Cir. 2016); on appeal from In re OxyContin Antitrust Litig., 994 F. Supp. 2d 367 (S.D.N.Y. 2014).

[2] Asserted patents include U.S. Patent No. 7,674,799 (“’799 patent”), U.S. Patent No. 7,674,800 (“’800 patent”), U.S. Patent No. 7,683,072 (“’072 patent”) (collectively, “the low-ABUK patents”), and U.S. Patent No. 8,114,383 patent (“’383 patent”).

REPORT AND ANALYSIS OF RECENT AMENDMENTS TO S. 1890 (The Defend Trade Secrets Act 2016)

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By Professor Sharon K. Sandeen, Mitchell Hamline School of Law  

The Defend Trade Secrets Act (S. 1890) passed out of the U.S. Senate Committee on the Judiciary today, but not before it was amended to address a number of concerns that were voiced by opponents over the past two years. The following is my quick analysis of the changes.  Note that there were actually two sets of amendments to the legislation. The so-called manager’s amendment (labeled “S. 1890 Substitute Amendment”) and amendments offered by Senators Leahy and Grassley (labeled “Leahy-Grassley1”). The following page and line references are to the Substitute Amendment. The Leahy-Grassley amendments are discussed thereafter.  [S.1890 Substitute Amendment][Leahy-Grassley1].

1. S. 1890 Substitute Amendment

Page 1:

The legislation is now to be known as the “Defend Trade Secrets Act of 2016” instead of “2015.”

Page 2, line 2:

“Misappropriated” added and language “aggrieved by misappropriation” deleted

Sandeen Comment: This change was apparently made in response to expressed concerns that “aggrieved” might be introducing a new concept of wrongdoing into trade secret law. Since “misappropriation” is a defined term in the DTSA (copied from the UTSA), it is better to stick with that language.

Page 2, lines 11-12:

With respect to the ex parte civil seizure remedy, the language “but only in extraordinary circumstances” was added.

Sandeen Comment: I am not sure what this language adds other than to emphasize the fact that this remedy should rarely be granted. But that begs the question: Why is the remedy needed at all if it will rarely or ever be granted? No one has ever explained to me why egregious cases that might justify such a remedy would not be championed by the U.S. Department of Justice in a criminal case. But there is a clue in later amendments to the EEA criminal provisions that give trade secret owners standing to assert secrecy concerns in such cases. (See report on new Section 3 below).

Page 2, lines 24-25:

The language “another form of equitable relief” was added to limit the circumstances under which an ex parte seizure order could be granted.

Sandeen Comment: As I understand the limitations built into the civil seizure provision, such an order is not to be granted unless other available equitable relief is inadequate. What seems to be lost in the discussion of all forms of equitable relief is that there are legal remedies available, including potential exemplary damages. Typically, equitable relief is not available when such is the case. In this regard, I wonder if “another form of equitable relief” would include a royalty injunction.

Page 4, line 5 et seq:

A new section (V) has been created (and subsequent subsections re-lettered accordingly) to highlight that “the person against whom seizure would be ordered” must have actual possession of both the trade secret and the property to be seized.

Sandeen Comment: While seemingly limiting the scope of the civil seizure remedy, this addition confirms what the opponents of DTSA were afraid of: that the civil seizure remedy can be used to seize property in addition to the actual trade secrets. While the person against whom seizure would be ordered must be shown to have either misappropriated a trade secret or conspired to misappropriate a trade secret, this language is actually much broader than it may seem on the surface. This is because the definition of misappropriation under the DTSA (and the UTSA) can apply to third-parties who were not directly involved in the initial misappropriation, provided they have the requisite (but obviously later acquired) knowledge. For instance, new employers.

Page 5, line 13:

Deletes the language “that are unrelated to the trade secret that has allegedly been misappropriated” in describing the elements of any civil seizure order.

Sandeen Comment: This was apparently intended to limit the scope of a civil seizure order, which is a good thing if it works.

Page 5, line 16 – page 6, line 11: 

Uses “prohibiting” instead of “restricting” and makes other changes to the provision concerning the required content of a civil seizure order, the most significant change being the addition of a new sub section (iv) which requires the court to “provide guidance to law enforcement officials” concerning how they are to execute the order.

Sandeen Comment: This language was undoubtedly added to address concerns that Senator Sheldon Whitehouse raised during the hearing on DTSA that was held before the U.S. Senate Committee on the Judiciary in December of 2015. His principal concern related to the use of force in the event that the person against whom seizure would be ordered was uncooperative.  

Page 7, line 13 – page 8, line 22:

The “Materials in Custody” provision was re-labeled and expanded, particularly with respect to the newly labeled sub-section “Storage Medium” and new provisions labeled “Protection of Confidentiality” and “Appointment of a Special Master.”

Sandeen Comment: The added language was undoubtedly added in an attempt to address concerns about the scope of any civil seizure order (including the very real possibility that property not relevant to the trade secret case might be seized), the handling of seized information, and the practical reality that federal court staff is ill equipped to manage such materials. Nothing in the legislation indicates who will pay for the services of a Special Master.

Page 9, line 2-15:

Deleted the language that used to allow state and local officials to execute a civil seizure order and instead specifies that a civil seizure order must be executed by federal law enforcement personnel.  State and local law enforcement personnel can be involved, but they cannot be involved in the actual seizure of property. Further, the court may allow for the use of a technical expert to assist federal law enforcement officials in executing the civil seizure order, again without specifying who will pay for the technical expert.

Sandeen Comment: These amendments address some of the concerns that have been expressed about how a civil seizure order will be executed and how it can be done without including the legitimate business information of the “person against whom civil seizure is ordered.” However, the more that efforts are made to address the concerns of critics, the more the risks of such a remedy are revealed. If this remedy will be used very infrequently as its proponents argue, Congress should ask if the marginal benefits of this remedy are worth its tremendous costs, particularly given the fact that: (1) criminal prosecution and seizure are possible in egregious cases; and (2) plaintiffs in trade secret cases have very robust legal remedies in the event of the loss of trade secrecy.

Page 11, line 6 et seq:   

The standing to file a motion for encryption has been broadened to include both parties to the litigation and “a person who claims an interest in the subject matter seized.”

Sandeen Comment: This is a positive development, but obviously it acknowledges that non-parties may be affected by a civil seizure order and be forced to hire an attorney to protect their interests.

Page 11, line 23 – page 12, line 8: 

The provisions concerning the effect of injunctions on employment were re-worked, re-lettered and expanded. First, the original language was amended so that any injunction must “be based upon evidence of threatened misappropriation and not merely on the information a person knows.” Second,   the legislation now includes language which states that an injunction cannot “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”

Sandeen Comment: This is a very positive development that makes it clear that State law governing restrictive covenants, including non-compete agreements, will continue to apply as limits on the scope of injunctive relief. More specifically, it rejects the worst aspects of the inevitable disclosure doctrine which many states (most notably California) have found to be inconsistent with their laws against restrictive covenants, particularly those that restrict employee mobility. Issues of choice of law remain, of course. 

Page 13, line 9: 

The measure of potential exemplary damages has been lowered to 2 times instead of 3 times.

Sandeen Comment: This is a positive development, particularly for the proponents of the DTSA who claim that its primary purpose is greater uniformity in trade secret law. The new language is consistent with the UTSA. However, it appears that this change may have been part of a compromise since (as discussed below), the criminal penalties for a violation of the EEA have been increased.

Page 13, line 23: 

The statute of limitations has been lowered to 3 years from 5 years.

Sandeen Comment: This change also makes the statute of limitations consistent with the language of the UTSA (although some UTSA states have not adopted the statute of limitations specified in the UTSA). This is a positive development because businesses can now be more certain when threats of trade secret litigation will end. Since the statute of limitation follows the discovery rule, plaintiffs will have plenty of time to bring a lawsuit once the facts giving rise to such claims are discovered.

Page 14, line 8:

The definitions provisions of the DTSA must be read alongside the existing definition provisions of the EEA, which is where you will find the definition of a trade secret. A change from earlier versions of the legislation is that the word “public” in 18 U.S.C. §1839 (3)(B)  (the definition of a trade secret) will be substituted with “another person who can obtain economic value from the disclosure or use of the information.”

Sandeen Comment: This is another positive development that makes the definition of a trade secret under the EEA (as amended) more consistent with the language of the UTSA. Without this amendment, the EEA might be interpreted to include information that is in the public domain under state law. Not changed in the EEA to be consistent with the UTSA is the first part of the definition of a trade secret which, under the EEA, includes a litany of types of information that might qualify for trade secret misappropriation. However, this greater specificity always struck me as necessary since the EEA was initially, and will remain in part, a criminal statute.

Page 17, line 21 – Page 19, line 2:   

A new Section 3 was added titled “Trade Secret Theft Enforcement” and old Section 3 was re-labeled as Section 4. This section increases the penalties for a violation of 18 U.S.C. §1832 from $5,000,000 to the greater of $5,000,000 or 3 times the value of the stolen trade secrets to the organization, including the costs of reproducing the trade secrets. Second, it adds a new provision titled “Rights of Trade Secret Owners” that essentially allows trade secret owners to be heard in criminal court concerning the need to protect their trade secrets. Lastly, it amends 18 U.S.C. §1961 (the RICO statute) to add a violation of the EEA as a predicate act.

Sandeen Comment: At first blush, these changes seem to more directly address the concerns that motivated the proposed legislation and should have been tried first before risking the disruption of U.S. trade secret law by creating a federal civil cause of action for trade secret misappropriation. What they reveal is the concern that trade secret owners have about the effectiveness of federal criminal prosecution to stop (or punish) the most egregious cases of trade secret misappropriation. They also reflect the risks to trade secrets posed by the public nature of criminal prosecutions. Robust criminal laws are already on the books to punish those who would engage in the most egregious forms of trade secret misappropriation, but trade secret owners might be hesitant to report such crimes out of fear that their trade secrets might be lost in the process. Allowing trade secret owners to express their confidentiality concerns in a criminal court seems like a good idea. More study of the implications of the RICO provision is needed, particularly with respect to the potential for the over assertion of criminal prosecutions which was a major concern of business interests when the EEA was first adopted.

Page 22, line 23 et seq.:

The re-numbered “Sense of Congress” provision (now Section 5) added point (4) concerning the civil seizure order and Congress’ sense that the need for such a remedy should be balanced  against the risk of interrupting the business of third parties and the legitimate interests of the party accused of wrongdoing.

Sandeen Comment: While this is helpful language, it is interesting that this language is included in the “Sense of Congress” provision and not in the text of the civil seizure provision itself. While Congress is at it, I would urge it to add point (5) to the “Sense of Congress” and state that the DTSA should be interpreted and applied in a manner that is consistent with the commentary to the UTSA.

Page 23, Line 4 et seq:  

New Section 6 was added titled “Best Practices” to require the Federal Judicial Center “using existing resources” to, within two years, recommend best practices related to civil seizure orders.

Sandeen Comment: Again, this indicates that concerns about the abuse of civil seizure orders remain.

2. Leahy-Grassley Amendments

These amendments would add a section to the DTSA, in a place to be determined, titled “Immunity from Liability for Confidential Disclosure of a Trade Secret or in a Court Filing.” This new section is designed to protect whistleblowers from liability for the disclosure of trade secrets to the government and in the context of retaliation lawsuits, provided that steps are taken by the whistleblower to keep such information confidential. It also would require employers to give notice of such immunity to employees, thereby requiring an exception to confidentiality provisions.

Sandeen Comment: This is a very positive development for those who are concerned that the assertion of trade secret rights can be used to prevent the timely disclosure of information that is needed by law enforcement authorities. However, it only applies where there is an alleged violation of law and not, more broadly, in situations where threats to public health exist, for instance.  

= = = = =

[Prior Patently-O Posts on the DTSA]

Federal Circuit: Board Must Explain its Decisions

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by Dennis Crouch

In the non-precedential Cutsforth v. MotivePower decision, the Federal Circuit has vacated a PTAB inter partes review (IPR) final decision — holding that “the Board did not adequately describe its reasoning for finding the claims obvious.”

The patent at issue is directed to a brush-assembly used to maintain an electric current with a rotating mechanism. US Patent No. 7,990,018. 

The Federal Circuit requires that the PTAB “articulate articulate its reasoning for making its decision.” See In re Sang-Su Lee, 277 F.3d 1338 (Fed. Cir. 2002).  Along these lines, the board must explain the factual bases for its findings and must go well beyond “conclusory statements.”  Most PTAB decisions are related to the question of obviousness and the Federal Circuit particularly requires the Board to “explain why a person of ordinary skill in the art would modify the prior art references to create the claimed invention.” See In re Kotzab, 217 F.3d 1365, 1369 (Fed. Cir. 2000) and In re Rouffet, 149 F.3d 1350 (Fed. Cir. 1998).

Here, the Board apparently recited the challenger’s (MotivePower’s) arguments and the ultimate conclusion of obviousness, but did not “formally” adopt the arguments as its own conclusions. See MotivePower, Inc. v. Cutsforth, Inc., IPR2013-00274.  On appeal, the Federal Circuit rejected this approach. Some key quotes:

The Board’s decision appears to assume this combination is obvious. It offers no explanation for why a person of ordinary skill in the art would adjust Bissett and Kartman to create the claimed mounting block of the ’018 patent. The Board only states that MotivePower argued it was obvious to do so. Merely reciting MotivePower’s argument does not satisfy the Board’s responsibility to explain its own reasoning. The decision must explain why a person of ordinary skill in the art would find it obvious. The Board gives no such explanation. . . .

For claim 5, which requires that the mounting block include a spring, the Board explains that the placement of the spring on the mounting block is simply a design choice. . . . This statement alone is not enough to explain why the Board found claim 5 obvious. Merely stating that a particular placement of an element is a design choice does not make it obvious. The Board must offer a reason for why a person of ordinary skill in the art would have made the specific design choice to locate the spring on the mounting block. Here, it does not.

On remand, I expect that the Board will simply rewrite its 33-page decision – better explaining its holdings – but we shall see. [PTAB Final Decision: final decision-31].

To be clear, although the PTAB is held to this high standard, patent examiners are not.  Rather, examiners are only required to provide notice of their rejection/objection rather than a full-bodied explanation.  Update: I just looked at the comment section and note that a number of folks raise the important point that my off-the-cuff statement an examiner’s notice burden is limited to the introductory rejection and establishing a prima facie case as the Federal Circuit explained in Packard.  Once a prima facie case is established, the patent applicant has the opportunity to rebut that case. And, once rebutted, the examiner’s burden is then raised actually prove the case if possible.

Inter Partes Review: An Unconstitutional Delegation of Judical Power

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Carl Cooper has now filed his constitutional challenge to the Inter Partes Review (IPR) system — arguing that the system is an unconstitutional delegation of judicial power to an administrative agency. [Petition: Cooper v. Lee]

Question presented:

Whether 35 U.S.C. §318(b) violates Article III of the United States Constitution, to the extent that it empowers an executive agency tribunal to assert judicial power canceling private property rights amongst private parties embroiled in a private federal dispute of a type known in the common law courts of 1789, rather than merely issue an advisory opinion as an adjunct to a trial court.

The brief here is well-written because it focuses on the tight issue of parallel court/proceedings and the history:

No previous court has ever approved delegating validity-determination authority over common-law-adjudicated property rights to a non-Article III decisionmaker.

And, the petition suggests a way-out via an advisory opinion from the PTAB:

[T]his Court may make the process constitutionally sound by doing what it has always done under these circumstances: make the outcome of inter partes review advisory and subject to de novo treatment in an Article III trial court. So corrected, inter partes review may still identify and appropriately target “junk patents,” though an Article III trial court will need to perform the final act of invalidation.

 

Cooper also suggests that the court link this case to Cuozzo:

This Court may thus hear the two cases together, the one raising smaller issues (Cuozzo) alongside the one raising larger issues (this case). That would secure a more complete vetting of administrative agency authority.

Obviously, a favorable decision here could render Cuozzo completely moot, and wouldn’t that be quite interesting.

 

Guest Post: Why we Need a Seizure Remedy in the Defend Trade Secrets Act

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Guest post by James Pooley.  Pooley is the former Director General of WIPO. He recently testified at the Senate Judiciary Committee in favor of the Defend Trade Secrets Act. See his earlier Patently-O guest post here.

INTRODUCTION

In a recent essay published in the Washington and Lee Law Review Online,[1] Professor Eric Goldman of the Santa Clara University School of Law criticized the ex parte seizure provisions of the Defend Trade Secrets Act (“DTSA”), which is pending before Congress in identical Senate (S.1890) and House (H.R.3326)  bills. In his view, the legislation is unnecessary, unprecedented, and carries an unacceptably high risk of abuse and collateral damage.

I strongly disagree. Trade secrets face far different threats in the digital age, and having federal courts able to intervene immediately in cross-border cases is critical. In exceptional circumstances, impoundment of a secret by the court will do what this sort of remedy has always done: get the property out of the hands of someone who threatens to destroy it or flee the jurisdiction, so that the matter can be heard on notice before the harm occurs. The seizure provisions of the DTSA have been carefully constrained to prevent abuse, to minimize harm, and to discourage any but the most compelling applications.

SEIZURE PREVENTS TRADE SECRET LOSS BEFORE IT HAPPENS

Most trade secret theft can be adequately addressed with preventive orders entered after a noticed hearing. This is because most actors in these cases can be expected to follow the orders of a court, and because our legal tradition values notice and the higher quality of information that is produced by the adversarial process.

Notwithstanding that preference, as we all learned in civil procedure class, courts in extraordinary cases may act without giving notice because of an acute danger to someone or something. This has been true across the range of legal disciplines, including trade secrets, and the majority of state laws, as well as the Federal Rules, have acknowledged this by articulating the high bar that a plaintiff has to meet before any matter can be heard ex parte. While that bar is necessary to ensure the case is exceptional, the flip side of the coin is that the harm to be avoided is irreparable.

Professor Goldman argues that the DTSA will be useless against the thief who plans to hijack information over the Internet, or who is on his way to the airport with the secrets in his pocket. But these scenarios only prove the need for a federal remedy: when a trade secret owner discovers that such a thing is about to occur, he can’t waste time figuring out what some county court might do. If there is a chance that a surprise intervention by law enforcement can prevent the loss, it is a federal court that is in the best position to respond and to deliver process that works across state lines. Like a terrorist attack, we can only hope to be vigilant and discover it before the button is pushed. But when we do have that kind of information, we also should be able to deploy the most effective tools to prevent the harm. In the right circumstances, one of those tools should be law enforcement, acting under the guidance and supervision of a federal court, to take temporary possession of the trade secret. That is the focus of the DTSA seizure provisions.

EX PARTE SEIZURE FOR TRADE SECRETS IS NOT “UNPRECEDENTED”

In his essay, Professor Goldman asserts that the seizure provisions “would represent an unprecedented innovation. No state trade secret law has a trade secret-specific ex parte seizure process [that is] similar . . . .” This stretches the meaning of “unprecedented” pretty far. He gets away with it only because the second sentence is so narrowly drawn, claiming only that no state has a “trade secret-specific ” process. But that doesn’t mean that states have not used broadly applicable seizure procedures in trade secret cases. In fact they have, although they may call them by another name, such as sequestration, or attachment. Texas, for example, allows for ex parte sequestration in a variety of circumstances, and it has been applied in at least one case to software. See Glenn, Ex-Parte Seizure of Intellectual Property Goods, 9 Tex. Intell. Prop. L.J. 307 (2001) (discussing Tex. Civ. Prac. & Rem. Code §62.001, and Learn2.com, Inc. v. Bell, 2000 U.S. Dist. Lexis 14283 (N.D. Tex. July 20, 2000)).

Moreover, the UTSA itself includes § 2(a), which “authorizes mandatory injunctions requiring that a misappropriator return the fruits of misappropriation to an aggrieved person, e.g., the return of stolen blueprints or the surrender of surreptitious photographs or recordings.” Commissioners’ Comment, 14 U.L.A. at 451. While the Act doesn’t expressly authorize granting such injunctions ex parte, neither does it prohibit them. Again, the circumstances justifying issuance of an order without notice have traditionally been defined by local rules in state courts and by FRCP Rule 65 in federal courts.

Indeed, Professor Goldman acknowledges that trade secret owners “already may seek ex parte TROs, including impoundment,” under FRCP Rule 65, reinforcing this with the statement that “existing federal TRO procedures already provide for ex parte seizures for trade secret owners.” He finds this authority in the Committee Notes to the 2001 amendments, which explains that “impoundment may be ordered on an ex parte basis under subdivision (b) [of Rule 65] if the applicant makes a strong showing of the reasons why notice is likely to defeat effective relief.” While he uses this reference to argue that the DTSA seizure provisions are unnecessary, it directly contradicts his claim that they are “unprecedented.”

DTSA SEIZURE PROVISIONS ARE BUILT ON THE LANHAM ACT

Another reason why the “unprecedented” argument fails is that the DTSA seizure language was directly patterned on the Lanham Act, 15 U.S.C. §1116(d), expressly authorizing ex parte seizure and impoundment of counterfeit goods. As a condition of such an order, the statute requires that it clearly appear from specific facts sworn by the applicant that some other order would not be adequate, that the applicant is likely to succeed on the merits, that immediate and irreparable injury will occur without the order, and that the “matter to be seized” is located at a specific place. Execution of an order has to be by law enforcement, and seized materials must be held by the court in accordance with a protective order to prevent disclosure of confidential information. The plaintiff must be prohibited from publicizing the order or getting access to the defendant’s trade secrets in the course of the seizure. Finally, a hearing has to be held between ten and fifteen days later, at which the plaintiff will have the burden to demonstrate continuing justification for the order.

The DTSA imposes all of these same restrictions, but adds more. Only property “necessary to prevent propagation or dissemination of the trade secret” can be seized. This means, for example, that records and other evidence of the acts of misappropriation or misuse cannot be taken away, thereby reducing the risk of disruption to the defendant’s other business operations. In fact, the court is specifically required to order only “the narrowest seizure of property necessary” and to provide that the seizure “be conducted in a manner that . . . does not interrupt the legitimate business operations of the [defendant] that are unrelated to the trade secret that has allegedly been misappropriated.”

As with other predicate requirements, the plaintiff’s showing must “clearly” demonstrate “from specific facts” that the information is a trade secret, that the target of the seizure has the secret in their possession, and that if notice were given the target “would destroy, move, hide, or otherwise make such matter inaccessible to the court . . . .” (This latter requirement provides assurance to cloud vendors and others who might be holding information for someone accused of misappropriation.) And the merits hearing must be held no more than seven days later (not ten to fifteen as in the Lanham Act), during which time anyone affected by the order may move to modify or dissolve it.

THE RISK OF ABUSIVE SEIZURE IS LOW AND WELL MITIGATED BY DTSA

So it should be obvious – particularly to any practitioner that has tried to convince a federal judge to issue any sort of ex parte order – that getting relief under this section will be very, very difficult. And while making it hard to get is the first line of defense against abuse of any legal process, the legislation provides serious consequences in case it turns out that the plaintiff was wrong. In the first instance, the court has to require a bond adequate “for the payment of the damages that any person may be entitled to recover as a result of a wrongful or excessive seizure” or attempted seizure. But the amount of the bond is only a guarantee and “shall not limit the recovery” of damages for wrongful seizure. Those damages are expressly tied to the Lanham Act, 15 U.S.C. § 1116(d)(11), which includes lost profits, cost of materials, loss of good will, punitive damages where bad faith is shown, and attorneys fees.

In other words, the risk analysis that any litigant must do before requesting a seizure remedy is not just that it might try and fail – although in my experience that is a very likely outcome – but that if it succeeds in getting the order it may be found to have oversold its case. Federal judges are not known for suffering fools gladly, and in addition to the opportunity to impose liability for damages they have Rule 11 sanctions in their tool kit. Therefore we can reasonably assume that the vast majority of counsel will exercise good judgment in discouraging marginal applications, and that to the extent any abusive behavior occurs, appropriate consequences will be imposed, just as they have been in other areas of the law.

CONCLUSION

Professor Goldman envisions the future without giving sufficient weight to the past or present. Of course there is risk involved in this as in all other processes run by humans. The relevant questions are: how important is the goal, how serious are the risks, and what can be done — informed by our analogous experience — to mitigate those risks to an acceptable level? By any objective measure, the authors of the DTSA have done their job well, and we have reliable answers.

The goal — having a federal resource that matches the modern threat of irreparable harm to an essential industrial asset — is critically important, not just for the limited number of cases where the tool will be used, but also for those that will not mature into problems because it is there. The abstract risk of meritless, abusive applications to federal courts must of course be acknowledged, but our experience with similar procedures shows what it takes to discourage such behavior. And the measures written into the seizure provisions of the DTSA — demanding the greatest care and judicial scrutiny possible and imposing very serious consequences for getting it wrong — provide a generous margin of comfort to conclude that seizures will happen only where necessary and where properly controlled to minimize harm.

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[1] http://ssrn.com/abstract=2697361.

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Links: 

 

 

The Maling Decision from Massachusetts on Subject Matter Conflicts

Ethics, ,

In late December, the high court of Massachusetts issued a decision in Maling v. Finnegan, Henderson.  The decision is accessible, if you search for “Maling,” here.

Boiled down, the court affirmed the grant of the firm’s Rule 12(b)(6) motion to dismiss a complaint that in broad terms alleged that the Finnegan firm had a conflict because it represented the plaintiff and another client in obtaining patents claiming screwless eyeglass hinge inventions.  There are two broad issues:  when is prosecution of patents for one client adverse to another, and when are two patent applications so close that prosecuting them creates a material limitation on the lawyer’s ability to represent either client.

With respect to adversity, this form of conflict is sometimes viewed as a “finite pie” conflict, where two clients are fighting for a resource that cannot meet both their demands.  In Maling, the court relied on a case that I’ve cited for two decades now that involved a firm representing two companies each pursuing a license to a radio channel.  The court reasoned there that so long as they were not fighting over the same channel, and there was no electrical interference between the two channels, there was no direct adversity and so no conflict.  By analogy, the court’s essential holding was that unless patent claims interfere or are to obvious variations of each other, there is no direct adversity.  (The court also noted that giving an infringement opinion to one client about another client’s patent would be adverse, but that was not alleged, apparently, here.)

With respect to material limitations, this form of conflict arises when a lawyer’s obligations to anyone (including himself) precludes him from competently representing a client.  The basic test is:  imagine what a lawyer without the “obligation” would do; and then ask whether the obligation the allegedly conflicted lawyer had would result in a material limitation.  Simple example:  if a lawyer represents a car wreck plaintiff, the lawyer generally cannot cross-examine that plaintiff even in an unrelated matter if it doing so would involve, say, exposing eyesight problems that could be used against the plaintiff in the car wreck. The court in Maling contrasted the allegations in the complaint to situations where firms have shaved claims for one client to avoid another client’s patent.  There was nothing like that here, and nothing like what the court suggested might otherwise be a material limitation.

The court ended with admonitions to lawyers to be sure to monitor for conflicts carefully.  I’ll end by noting that this is not the first, or last, word on this topic.

“Be careful out there,” as they said in Hill Street Blues.

 

Due Process and Separating Powers Within an Agency

Patent, , , , , ,

by Dennis Crouch

In this decision, the Federal Circuit has affirmed that the IPR procedure allowing the same PTAB panel to both institute an IPR and issue the final decision cancelling the claims is proper. In the process, the divided court rejected both a constitutional and statutory challenge. 

In Ethicon Endo-Surgery v. Covidien (Fed. Cir. 2016)[1], a divided Federal Circuit has affirmed the PTAB’s final judgment that all of Ethicon’s challenged patent claims are invalid as obvious.  The court also confirmed that the PTAB’s procedure of having the same panel decide both the IPR initiation petition and the final decision is proper. “Neither the statute nor the Constitution precludes the same panel of the Board that made the decision to institute inter partes review from making the final determination.”

Ethicon’s U.S. Patent No. 8,317,070 is directed to a surgical stapling device used in endoscopic surgery.  The purported novelty of the stapler is that it uses (a) two sets of staples (with different heights) and (b) staples with non-parallel legs.  The prior art included surgical staplers with each of these features, but no prior art teaches the combination of the two. “Thus, the purported inventive aspect of the ’070 patent is the combination of these two features in a surgical stapler.”

From the majority’s perspective, the case involves a straightforward application of KSR’s holding that a “combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results.”  Here, the court noted that the patent itself “discloses no particular synergy resulting from the combination.”  Ethicon did present evidence of commercial success of Covidien’s infringing product. However, that argument failed because, according to the court, Ethicon provided no evidence of nexus between the particular inventive combination of features and the proven commercial success.

Nowhere does Ethicon demonstrate, or even argue, that the commercial success of the Covidien products is attributable to the combination of the two prior art features—varied staple heights and non-parallel staple legs—that is the purportedly inventive aspect of the ’070 patent.

I’ll pause here to note that that the court’s nexus requirement here appears to be doctrinally different than the more traditional requirement that the commercial-success be linked to the claimed invention (as a whole) rather than the clearly more stringent inventive features of the claimed invention.  See Wyers v. Master Lock Co., 616 F.3d 1231, 1246 (Fed. Cir. 2010) (“the patentee must establish a nexus between the evidence of commercial success and the patented invention.”).

= = = = =

Ethicon also argued (unsuccessfully) that the PTAB’s procedure violated Ethicon’s procedural due process rights. In particular, Ethicon argued that the final decision was invalid because it was “made by the same panel that instituted the inter partes review.”   The appellate panel rejected that argument- finding that “[t]he inter partes review procedure is directly analogous to a district court determining whether there is ‘a likelihood of success on the merits’ and then later deciding the merits of a case” and that the initial decision to grant a petition did not create any presumption of prejudice or bias against the patentee.

Ethicon’s best (but still weak) argument was that the AIA does not permit the PTAB to make the institution determination.  In particular, the statute gives the PTAB power and authority to make final determinations regarding an IPR, but assigns the USPTO Director the power to institute IPRs.  The statutory scheme, according to Ethicon, requires separation of these two functions.   On appeal, the Federal Circuit rejected that argument as well – finding that the USPTO director has implicit authority to delegate her authority to officials within the agency.

Ethicon argues that because Congress (1) specifically gave the Director the power to institute, see, e.g., 35 U.S.C. § 314(a), (2) did not explicitly give the Director authority to delegate the institution decision to the Board, and (3) gave the Board the power to make the final determination, Congress intended to keep the functions of institution and final decision separate.

= = = = =

The majority opinion was penned by Judge Dyk and joined by Judge Taranto.  Judge Newman wrote in dissent arguing that the statutory scheme created a clear distinction:

At the first stage, the Director determines whether the review is to be instituted. 35 U.S.C. § 314(a) (“The Director may not authorize an inter partes review to be instituted unless the Director determines that the information presented in the petition . . . and any response . . . shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition.”). (Of course, the Director may designate an examiner or solicitor to conduct this initial review.)

If instituted by the Director, the Board then conducts a trial on the merits. 35 U.S.C. § 316(c). . . .

The bifurcated design of post-grant review is clear not only from the language of §§ 314(a) and 316(c), but pervades the structure of these post-grant proceedings. Congress unambiguously placed these separate determinations in different decision-makers, applying different criteria. The majority’s endorsement of the PTO’s statutory violation departs not only from the statute, but also from the due process guarantee of a “fair and impartial decision-maker.”

= = = = =

Phil Johnson (President of the Intellectual Property Owners Association) argued the case on behalf of Ethicon while Kathleen Daley of Finnegan argued for Covidien and Katherine Twomey Allen of the DOJ represented the USPTO as an intervenor.

The parties relied upon Supreme Court for support and the case has some chance of heading up.

= = = = =

[1] Federal Circuit Appeal No. 14-1771, appeal of PTAB IPR 2013-00209. [EthiconDecision]

Wi-Lan v. Apple: “Clarification” or “reconstruction”?

Patent, ,

By Jason Rantanen

Wi-Lan, Inc v. Apple Inc. (Fed. Cir. 2016) Download Opinion
Panel: Reyna (author), Wallach, Hughes

Although precedential, this case doesn’t really break new patent-law ground.  Instead, it offers a data point in the tricky issue of whether a post-verdict modification to the construction of a claim constitutes a permissible “clarification” or an impermissible “reconstruction.”    The opinion also provides an example of how claim construction can operate at multiple levels, in this case by applying to both the meaning of a given term and the meaning of that term in the broader context of the claim.

Wi-Lan, the owner of RE37,802, a patent relating to wireless data communication, sued Apple and others for infringement based on their manufacture and sale of standards-compliant products. Claim 1 of the ‘802 patent reads:

1. A transceiver for transmitting a first stream of data symbols, the transceiver comprising:

a converter for converting the first stream of data symbols into plural sets of N data symbols each;

first computing means for operating on the plural sets of N data symbols to produce modulated data symbols corresponding to an invertible randomized spreading of the first stream of data symbols; and

means to combine the modulated data symbols for transmission.

(emphasis added).  The critical claim constructions related to “modulated data symbols,” which the district court construed to mean “data symbols that have been spread apart by spreading code” and “first computing means,” which the district court construed to be a means-plus-function element linked to particular structure disclosed in the specification.   Applying these constructions, a jury found that Apple did not infringe and that the ‘802 patent was invalid as anticipated.  Following trial, the district judge denied Wi-Lan’s request for judgment as a matter of law (JMOL) on infringement but granted its request for JMOL of no invalidity based on a modified construction of the structure to which “first computing means” corresponded.

The Interdependent Text and Claim Construction

On appeal, Wi-Lan challenged the district court’s denial of JMOL on infringement (effectively challenging the jury verdict of no infringement).  This issue largely turned on an issue of claim construction: whether the district court’s constructions precluded Apple’s noninfringement defense, a defense premised on the argument that the claims required that data symbols be randomized before combining them, while Apple’s products combined the symbols before randomizing them.

On appeal, the Federal Circuit agreed with Apple.  The text of the claim indicated that the modulated data symbols had to be randomized before combining them.  The “first computing means” produces “modulated data symbols corresponding to an invertible randomized spreading of the first stream of data symbols.'”  The second means then combines “the modulated data symbols for transmission.”  Since “[s]ubsequent uses of the definite articles ‘the’ or ‘said’ in a claim refers back to the same term recited earlier in the claim,” slip op. at 10, quoting Baldwin Graphic Sys., Inc. v. Siebert, Inc., 512 F.3d 1338, 1342 (Fed. Cir. 2008), the term “the modulated symbols” in the second means element referred back to the randomized modulated symbols produced by the first means element, thus requiring randomization-before-combination.  This construction was consistent with the specification.

Wi-Lan’s principal contention was that during its pre-trial construction of  “modulated data symbols,” the district court rejected Apple’s argument that the term requires randomization.   But, the Federal Circuit held, the district court’s construction only involved the unmodified, generic term “modulated data symbols.”   Apple’s argument involved the intersection of the full language in the first means element with the use of “modulated data symbols” in the second means element:  “Even though generic ‘modulated data symbols’ do not have to be randomized, the recited ‘modulated data symbols corresponding to an invertible randomized spreading‘ do have to be randomized.”  Slip Op. at 11.  Through its use of “the,” the  second means element referred back to those randomized data symbols.  Since Apple’s products combined then randomized, there was no direct infringement.  (The Federal Circuit also disposed of Wi-Lan’s argument of infringement under the doctrine of equivalents.)

Post-verdict claim construction

Prior to trial, the district court construed the means-plus-function element “first computing means” as “element 12 of Figures 1 and 4, columns 2:6–10, 2:36–40, 2:58–62, 4:2–12, and 4:35–44, and equivalents thereof.”  Using this construction, the jury found the claims to be anticipated by a prior art reference that used real multipliers to randomize the “modulated data symbols” rather than complex multipliers.  In granting Wi-Lan’s motion for JMOL of no invalidity, however, the district court “determined that, although its construction of computing means ‘does
not specifically provide for a complex multiplier,’ a complex multiplier was nevertheless necessary because ‘expert witnesses from both sides agreed that complex multipliers are part of the structure of the ‘first computing means’ as taught by the ’802 patent.'”  Slip Op. at 8.

On appeal, the Federal Circuit concluded that this was an instance of impermissible post-verdict reconstruction.  “‘[I]t is too late at the JMOL stage to argue for or
adopt a new and more detailed interpretation of the claim language and test the jury verdict by that new and more detailed interpretation.’ Hewlett-Packard Co. v. Mustek Sys., Inc., 340 F.3d 1314, 1321 (Fed. Cir. 2003).”  Slip Op. at 16.  None of the corresponding structure in the court’s pre-trial construction mentioned complex multipliers or referred to the patent figure involving complex multipliers.

While a district judge may “adjust constructions post-trial if the court merely elaborates on a meaning inherent in the previous construction,” Mformation
Techs., Inc. v. Research in Motion Ltd., 764 F.3d 1392, 1397 (Fed. Cir. 2014), this was not such a case.  Such “clarification” is allowed because it only makes “plain . . . what should have been obvious to the jury.”  Slip Op. at 17, quoting Cordis Corp. v. Boston Scientific, 658 F.3d 1347, 1355–57 (Fed. Cir. 2011).  Here, the implicit requirement of a complex randomizers was not obvious to the jury, particularly given conflicting testimony over whether the claims actually did require the use of a complex randomizer.  The result was that the district court did not simply elaborate on the meaning of its prior claim construction in the post-verdict opinion, but altered that construction, something that it could not do.

Inter Partes Reviews are Won/Lost on the First Filing

Patent, , , , ,

In Redline Detection v. Star Envirotech,[1] the Federal Circuit has affirmed (1) the PTAB substantive determination that Star’s patent claims[2] are not invalid as obvious and (2) the PTAB procedural refusal to allow Redline to submit a post-institution expert declaration in its attempt to challenge the patent.[3]

On procedure, the Federal Circuit found that the Patent Office must be given deference in interpreting its own regulations regarding PTAB process and that the PTO’s rules make sense as they are designed to encourage submission of “all of the efidence that supports the ground of unpatentability” at the petition stage.  Here, although the PTAB rules do allow for submission of supplemental information – the PTAB was justified in denying the submission here since the petitioner gave no reason for the delayed submission other than cost-savings.

Although the PTAB rules (§ 42.123) suggest that supplemental filings may be made within one-month of a petition being granted – that simply might not work in many cases.  Thus, this case stands for the proposition that, even when timely filed within the one-month deadline, a motion to submit supplemental information must be justified beyond merely being “relevant.” More broadly, the result here repeats the conventional wisdom that inter partes reviews are generally won/lost on the first-punch.

Star’s patent relates generally to the abstract idea of generating leak-identifying smoke for use in volatile environments such as a vehicle brake-system.  On the merits, the PTAB found that the submitted prior art did not render the particularly challenged claims obvious.

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[1] Redline Detection, LLC v. Star Envirotech, Inc., App. No. 2015-1047 (Fed. Cir. 2015), appealed from the Patent Trial Appeal Board’s final decision in IPR2013-00106.

[2]  Claims 9 and 10 of U.S. Patent No. 6,526,808.

[3] See 37 C.F.R. § 42.123(a) (2012).

Amicus Briefs on Enhanced Damages

Patent, , , , ,

by Dennis Crouch

This term the Supreme Court is addressing one patent issue,[1] that of enhanced damages.[2] Two cases have been joined together for a single one hour hearing.  Merits briefing is ongoing. In an earlier post I briefly discussed the merits briefs that were filed in early December 2015. Now a set of friend-of-the-court briefs have also been filed either in support of the patentee-petitioners or in support of neither party. Respondent briefs as well as any briefs in support of respondent will be due in the upcoming weeks.

For the most part, the briefest stick to a model of focusing on a particular set of questions:

  • Is willfulness a prerequisite to enhanced damages under section 284?
  • Does the two-step test of Seagate create too high and too rigid of a standard?
  • Is subjective bad faith sufficient for enhanced damages award?
  • Should the District Court apply a totality of the circumstances test when determining enhanced damages?
  • What level of proof is required: preponderance of evidence or clear and convincing evidence?
  • When and enhanced damage award is appealed, what level of review should be applied?

The following is a short review of the amicus briefs that have been filed in the case.[3]

United States Government

When the United States government files and amicus brief, that brief is usually seen as the most important amicus brief in the case. Often, it is seen as the most important brief in the case – even more important than briefs filed by the parties themselves. The brief was filed in a joint effort by both the Department of Justice Solicitor’s office and the USPTO.

The government brief supports the petitioners’ position that the Federal Circuit test is too rule-based and too restrictive. “The Federal Circuit’s recent decisions, including its decisions in these cases, have imposed unwarranted restrictions on awards of enhanced damages.” In particular, the government argues that Seagate should be overruled. At the same time, the government takes pains to clarify that enhanced damages should only be awarded in cases of “unusually egregious acts of patent infringement.”  An interesting question not addressed by the brief is how “unusually egregious” corresponds to the “exceptional” requirement for attorney fees.

The government brief does particularly ask the court to limit enhanced damages only to cases involving willful infringement. In particular, the brief quotes affirmatively from Aro Mfg., that enhanced damages are available for “willful or bad-faith infringement.”[4]  Earlier courts, the brief notes, allow enhanced damages “for the infringer’s unlawful conduct was intentional, willful, flagrant, or undertaken in bad faith.”

Regarding the questions addressed above, the government brief argues that a preponderance of the evidence – the lower standard – is sufficient to prove enhanced damages and that District Court determinations regarding enhanced damages should be reviewed for abuse of discretion on appeal, not de novo.

Prof. Rantanen and Chris Seaman

Professors Rantanen and Seaman take a statutory and historical approach in their argument that willfulness is the appropriate standard for determining whether damages should be enhanced.  The historical case law they argue was bolstered by the AIA language which states that failure to obtain or introduce evidence of counsel “may not be used to prove that the accused infringer willfully infringed the patent”[5] It is clear from context that this new provision was intended to be a defense against enhanced damages under Section 284.

The professors argue that the determination of whether the infringement was willful should be accomplished through a totality of the circumstances test and reviewed on appeal for abuse of discretion as has been the law since 1836.

Mentor Graphics, Microsoft, and SAP

John Vandenberg of Klarquist Sparkman filed this brief arguing that trial courts should be given discretion to increase damages following a judgment of infringement.  Parties on this brief all have valuable patent portfolios. However, they are also subject to infringement allegations – typically from nonpracticing entities. In that framework is not surprising they argue that the behavior of the patent owner, not just the infringer, should be relevant to the willfulness inquiry. In particular the brief suggests that the court should consider whether the patentee “implemented a scientifically or commercially significant advance” and “diligently provided actual and clear notice.”  They also suggest that a patentee who, instead of suing the source of infringement, sues that infringers customers, should be less likely to receive enhanced damages.

Brief also asks the Supreme Court to make clear that enhanced damages are a question for the judge, not for a jury.

Nokia

John Haynes of Alston & Bird filed Nokia’s brief that argues for broader enhanced damages. Stating that “the Federal Circuit’s grafting of a willfulness requirement onto section 284 is contrary to the legislative history of the statute and ignores the compensatory aspect of enhanced damages.” A weakness of this argument from Nokia is that it fails to consider 19th-century Supreme Court cases on point such as Seymour v. McCormick (1854).

Prof. Mossoff

The purpose of Prof. Mossoff’s brief is to highlight his research that the current “crisis” in the patent system is nothing new rather.  Patent licensing entities have been around for more than 100 years and serve an “important role in the development of innovation”.

Licensing Executives Society

Daniel Stringfield from Steptoe and Johnson filed the LES brief is interesting because it is somewhat equivocal. The brief argues that the Seagate rule is beneficial because it appears to encourage predictable and consistent results at the same time, the brief recognizes that a more flexible approach may do a better job of deterring undesirable infringement and better protecting patented inventions.

Intellectual Property Owners Association

My former boss Paul Berghoff of MBHB filed the IPOs short brief. The brief supports Seagate and argues that enhanced damages should only be allowed based upon sufficient evidence that the infringement was subjectively willful and also objectively reckless. In general, a party that “mounted a good-faith defense against allegations of infringement” should not be punished with punitive damages even if defense was ultimately unsuccessful.

Public Knowledge, the Electronic Frontier Foundation, and Engine Advocacy

Charles Duan filed a brief for these three public interest groups acting together. In general these groups can be termed “anti-patent.”  The brief argues that the threat of enhanced damages are regularly used against small companies with “devastating results” such as practically requiring opinion letters for legitimate threat creating an incentive not to read patents. The brief also argues that lowering the bar would increase the likelihood of abusive patent demands.and C That petitioner’s policy concerns are detached from reality.

Ericsson

Mike McKool of McKool Smith filed Ericcson’s brief arguing that the Federal Circuit’s limits on enhanced damage awards are “practically insurmountable”, “too high”, and have “fostered patent holdout and diminished respect for intellectual property rights”.  Ericcson argues that the extensive body of precedent stretching back to the 1832 patent act provide sufficient standards and guidance for district courts considering enhanced damage awards.[6]  On particulars, the brief argues that there should be no objectively reckless requirement, no clear and convincing evidence requirement and no de novo review of District Court decisions regarding enhanced damages.

AIPLA

Peter Sullivan of Foley Hoag filed the AIPLA brief.  Brief argues that “willful infringement” should be read into the statute as a limit on when damages may be enhanced. For that point, the brief sites Seymour v. McCormick (1854) where the court wrote distinguished between, on the one hand, a “good faith” or ignorant infringer from a “wanton and malicious pirate.”

Of course, is not a clean dividing line between “good faith” acts and willfully bad acts. The brief does not delve into that potential middleground other than stating that proof of willful infringement should be a requirement.  However, the association does argue that the Seagate standard “goes too far, allowing blameworthy conduct to go unpunished.” The brief argues instead that proof of subjective bad faith should be sufficient.  The brief also cautions the Supreme Court to be wary of giving too much discretion to District Court judges. For instance, it argues that a totality of the circumstances test has the potential of leading to both unpredictability and imprecision in punitive damage awards.

Foreman, Morinville, and the “Small Inventors”

IP attorney Andy Baluch filed a brief on behalf of a group of self-identified “small inventors” including Lewis Foreman, Paul Morinville, and James Innes.  The brief lays out the argument that contemporary intellectual property licensing has been undermined by the rise of what is termed “efficient infringement.” In 1L contract law, budding attorneys learn of the economic concept of efficient breach that, in certain circumstances and jurisdictions, permits a contracting party to breach a contract when the harm (penalty) caused by the breach is less than the benefit associated with breach.  Manufacturers and the uses of technology are using the same concept now to continually infringe patent rights with the expectation that their benefit from infringing will be greater than any potential penalty they must pay. That balance has shifted in recent years as today the ordinary penalty is simply payment of a reasonable royalty since both injunctive relief and enhanced damages are so difficult to obtain. Brief argues that this “anti-patent climate is particularly harmful to America’s individual inventors and startups.”

Askeladden

Askeladden’s brief was filed by Kevin Colligan’s team at Goodwin Procter in New York.  Brief makes two primary conclusory arguments. First, despite the open language of section 284, enhanced damages should only be available for acts of willful infringement. That conclusion is supported by what Askeladden sees as “established” law in the patent field and “consistency” with the ordinary rules of punitive damages. Second, adjudged infringer’s should have an absolute defense to enhanced damages if the infringement occurred in good faith and based upon a reasonable belief that the patent was either invalid or not being infringed.

Innovention

James Otteson’s counsel of record for Innovention Toys. That company won an infringement action against MGA entertainment – makers of “Bratz.”  Although the district court awarded enhanced damages for willful infringement based upon strong evidence of copying, Federal Circuit reversed finding that MGA’s obviousness defense was not objectively reckless. The company has a petition for writ of certiorari pending.[7]  brief here stands with the petitioners, arguing that enhanced damages should not even require finding of willfulness but instead should be based upon the totality of the circumstances as determined by the District Court judge and only reviewed on appeal for substantial evidence/clear error.

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[1] Certiorari has been granted on only one patent issue thus far. A number of petitions remain pending.

[2] Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., Supreme Court Docket No. 14-1513 (2015) and Stryker Corporation, et al. v. Zimmer, Inc., et al., Supreme Court Docket No. 14-1520 (2015).  See, Dennis Crouch, Expanding the Framework for Enhanced Patent Damages, Patently-O (December 13, 2015).

[3] Opening  briefs by the petitioners are available on Patently-O at: https://patentlyo.com/patent/2015/12/expanding-framework-enhanced.html.

[4] Aro Mfg. Co. v. Convertible Top Replacement Co., 377 US. 476, 508 (1964).

[5] 35 U.S.C. § 298.

[6] See, for example Bott and Read.

[7] Innovention Toys, LLC v. MGA Entertainment , et al. , No. 15-635 (U.S. Nov. 10, 2015).

IPR: Proving Patentability before Amendment

Patent, , , , ,

By Dennis Crouch

In Prolitec, Inc. v. ScentAir Technologies,[1] the Federal Circuit has affirmed a USPTO inter partes review (IPR) decision cancelling Prolitec’s air-freshener diffuser claims.  The patent at issue[2] is the subject of a co-pending lawsuit between the parties that was stayed in 2013 — awaiting the IPR outcome.[3]

Here, the patent included a claim limitation requiring a diffusion head “mounted to” a reservoir.  The patentee wanted that term to be limited to require permanent joining of the head to the reservoir.

Too Clever Specification Drafting?: To achieve that permanent-joining result, the patentee first argued for a narrow claim construction of the “mounted term.”  That approach failed at the PTAB and has been affirmed on appeal.  The failure is to the ordinary patent drafting strategy, employed by the patentee, of using non-definite and non-limiting terms such as “may” to describe the role of various embodiments in the specification so as to not unduly limit claim scope. Here, in particular, the specification had indicated the possibility of a permanent joining in a disposable fashion, but, by clever specification drafting, had not foreclosed the potential for non-permanent mounting.  Thus, that narrowing argument was foreclosed by the patentee’s own prior actions.

No Amendment without Major Proof: As an alternative approach, the patentee also requested permission to amend its claims to replace “mounted” term with “permanently joined.”  As per its usual modus operandi, the Patent Trial and Appeal Board (PTAB) denied the motion to amend.  In particular, the PTAB found that Prolitec had failed to prove that its proposal was patentable over the prior art of record.  On appeal, the Federal Circuit affirmed – first reiterating its prior statement in Microsoft Corp. v. Proxyconn, Inc.[4] that the Board can require a patentee to establish patentability before allowing an amendment.  Here, the Federal Circuit extended that doctrine to affirm the PTAB rule that, prior to amendment, patentability must be established over all prior art of record (in both the IPR and prosecution history). That rule, according to the Federal Circuit, is not contrary to any statute and is also “reasonable.”  Further, the court held that the requirement of “establishing patentability” includes both novelty and nonobviousness.  On the merits, the court affirmed that the patentee had failed to show that its amended claims were non-obvious over the combination of references cited in the IPR petition and found in the prosecution history file.

The majority opinion was written by Chief Judge Prost and joined by Judge Taranto.

Writing in dissent, Judge Newman argued that the refusal to allow an amendment was “contrary to both the purpose and the text of the America Invents Act. . . . [E]ntry of a compliant amendment is [a] statutory right, and patentability of the amended claim is properly determined by the PTAB during the IPR trial, not for the first time at the Federal Circuit.”

= = = =

[1] Prolitec, Inc. v. ScentAir Technologies, App. No. 15-1020, (Fed. Cir. Dec. 4, 2015) (slip opinion available at http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/15-1020.Opinion.12-1-2015.1.PDF)

[2] U.S. Patent No. 7,712,683.

[3] Prolitec, Inc. v. ScentAir Technologies, Civil Action #: 2:12-cv-00483-RTR, Docket No. 62 (E.D. Wisc., May 17, 2013).  The IPR petition was filed in May 2013 but not instituted until August 2013. See IPR2013-00179. The claims of a second patent in the lawsuit were also largely been cancelled and was the subject of a separate appeal. That PTAB decision was affirmed without opinion in June 2015. See Prolitec, Inc. v. ScentAir Technologies, App. No. 15-1017 (Fed. Cir. June 9, 2015) (R. 36 affirmance without opinion).

[4] 789 F.3d 1292 (Fed. Cir. 2015).

PTAB Allows Filing of Motion for Sanctions for Alleged Protective Order Violation

Ethics

Lately I’ve had a lot of calls about ethical issues in IPR proceedings. The rules are not clear in a number of instance and the case law is sparse and not always easily harmonized with the plain text of the rules.  This case caught my eye, though, for a different reason.

The order is paper 23 in RPX Corp. v. Applications on the Internet Time, LLC, IPR 2015 (Dec. 4, 2015).  The actual order itself grants the petitioner authority to file a motion for sanctions for alleged violations of the Standing Default Protective Order.  Obviously, parties need to police against such violations.

What the case reminds us is that the Standing Default Protective Order is not… a standing default protective order.  Instead, it is entered only by motion of the parties, and that motion must include the proposed protective order.

Here, the parties had previously agreed to be bound by the protective order, and so the fact that they had not requested entry of any protective order did not matter. However, remember that there really is no default standing protective order… a misnomer that can hurt you.

S.D. Florida shifts fees from date of claim construction onward

Ethics,

Advanced Ground Info. Sys., Inc. v. Life360, Inc. (S.D. Fla. Civ. A. No. 14-cv-80651), is an interesting case .  The patent-in-suit covered some sort of smart phone app (it’s not clear what).  The key dispute over infringement centered on whether the end user, alone, performed each step of the patented method.  Of course, a method claim cannot be infringed without preponderant evidence of direct infringement by someone.

Here, the asserted method claims survived the accused infringer’s motion for summary judgment of non-infringement, but were found by the jury to be not infringed.  Even though the case got to a jury, the district court awarded fees to the prevailing accused infringer, rejecting the argument that simply because the case got to trial meant it was not subject to shifting.

Instead, the court emphasized that after Akamai and the district court’s claim construction, it had been clear that there could be no infringement.  To oppose fees, the accused infringer pointed out that the court had denied the defendant’s motion for summary judgment after both Akamai and claim construction.

Why then, did the district judge deny the motion for summary judgment?

In granting fees in its November 30, 2015 order, the judge explained that he had “considered granting” the motion but had not done so because of the patentee’s explanation of how the app worked. Specifically, the judge stated that he denied summary judgment of non-infringement of the method claims based on the patentee’s argument that when the end user used the app was used, the app “automatically,” performed the remaining steps and so directly infringed the method claims.  That turned out to be untrue, and so the denial of summary judgment, alone, was insufficient to avoid an exceptional case finding.

In addition, the judge in granting fees also mentioned that the patentee had never sold any products, sued a start-up that had never made a profit, and yet the patentee argued that it had suffered irreparable harm.  Given the facts, the judge awarded fees from claim construction onward.

The lessons are several, but not unusual or new.  One is obviously to have a viable infringement claim and evidence of it; lawyer argument is not evidence.  The other is to keep in mind that, post-Octane it is important to evaluate infringement and other arguments carefully after claim construction (and any other similar event) and advise the client on, not just whether the case is meritorious, but whether it is marginally so and thus continued litigation puts the client at risk of fee shifting.

Federal Circuit: The IPR System is Constitutional

Patent, , , ,

by Dennis Crouch

In a precedential opinion, the Federal Circuit has rejected MCM’s foundational challenges against the Inter Partes Review (IPR) system implemented as a result of the America Invents Act of 2011 (AIA).

MCM Portfolio v. HP (Fed. Cir. 2015) (MCM.decision)

In particular, the court held that the IPR system does not violate Article III of the U.S. Constitution nor does it violate the Seventh Amendment of the U.S. Constitution.  On the merits, the court then affirmed the PTAB’s decision cancelling MCM’s challenged claims as obvious.  The court writes:

The teachings of the Supreme Court in Thomas, Schor, and Stern compel the conclusion that assigning review of patent validity to the PTO is consistent with Article III. . . . . [Furthermore we] are bound by prior Federal Circuit precedent. . . . We see no basis to distinguish the reexamination proceeding in Patlex from inter partes review. . . .

Because patent rights are public rights, and their validity susceptible to review by an administrative agency, the Seventh Amendment poses no barrier to agency adjudication without a jury.

The decision here also essentially forecloses Carl Cooper’s parallel proceedings. However, both parties are likely to request rehearing en banc followed by petitions for writ of certiorari.