Publications / McDermott Newsletters / IP Update, Vol. 8, No. 11, November 2005

IP Update, Vol. 8, No. 11, November 2005

November 2005

 

Patents / Unenforceability

False Statements of Enablement Lead to Unenforceable Patent
By David M. Beckwith

Affirming a finding of unenforceability due to inequitable conduct, the U.S. Court of Appeals for the Federal Circuit held that the wording of an example in the past tense, coupled with actual knowledge that the example did not work as represented, rendered a patent unenforceable.  Novo Nordisk v. Bio-Technology General Corp., et al., Case No. 04-1581 (Fed. Cir. Oct. 5, 2005) (Schall, J.).

In a patent infringement case involving a synthetic human growth hormone (HGH), Novo described in its patent application an example of how to produce the HGH hormone using LAP enzyme.  Speaking in the past tense, the example states the HGH hormone was purified using the LAP enzyme.  However, the example described in the specification was only a prophetic example.  In fact, Novo had not obtained purified HGH using the LAP enzyme at the time the application was filed and was able to make HGH using the LAP enzyme in the months after the filing date only when DAP enzyme contaminated the LAP.  Novo subsequently sought patents on making HGH with DAP enzyme.  Nonetheless, in order to avoid prior art, Novo continued to improperly rely upon the false example of the early patent application as a basis for claiming an earlier priority date during an interference proceeding and in subsequent continuation prosecution of related patent applications.  The district court found that the false example, stated in the past tense, hid the fact that the example was merely a prediction and that the example was not enabling.

The Federal Circuit affirmed, finding no clear error.  The Court expressly rejected Novo’s circular argument that its attorneys should not be charged with inequitable conduct because the inventors had not fully informed the attorneys of the failure of the example as well as its argument the inventors should not be charged with inequitable conduct because they did not appreciate the legal ramifications of the failure of the example.

Practice Note:  Prophetic examples must be clearly identified as such in the specification; past tense language is proper only for examples actually implemented prior to filing.  Discovery in litigation should also always test the factual basis of all examples stated in the patent.

Patents / Business Methods

Business Method Patents Get Boost from an Unlikely Source—the U.S. Patent and Trademark Office
By Keith E. George

The Board of Appeals and Interferences of the U.S. Patent and Trademark Office (the Board) established a new precedent essentially invalidating examiners’ “technological arts” rejections.  In re Lundgren BPAI Case Nos. 2003-2088 (Sept. 28, 2005) (Per Curium, Smith, APJ., dissenting; Barrett, APJ., concurring).

The 1998 the U.S. Court of Appeals for the Federal Circuit’s decision in State Street Bank held that a mutual fund data processing system (apparatus claim) that transformed discrete dollar amounts into a final share price constituted a patentable practical application of a mathematical algorithm because it produced a “useful, concrete and tangible result”—the final share price.  The following year, in AT&T v. Excel Communications, the Federal Circuit held the same standard applied to method claims when it found that a method of generating a message record for an interexchange call, without specific claim recitations of the system that generated the message, was a practical application and produced a useful result.

A tidal wave of business method patent filings flooded into the U.S. Patent and Trademark Office (USPTO) following these court decisions.  Typically, the method claims recited no structure, even though many if not all practical applications of the methods required computer processing.  In an effort to stem the tide, the USPTO began routinely rejecting business method claims that lacked structural recitations under 35 U.S.C. § 101 on a theory that such claims lacked a relationship to “the technological arts.”  Essentially, the USPTO attempted to create its own new test, which in many cases forced applicants to add machine or computer processing limitations to their method claims.

Lundgren’s claims related to a method of compensating a manager of a firm based on comparison of firm performance to performance of competing firms.  The compensation algorithm, designed to reduce incentives for industry collusion, involved computing a managerial compensation amount and transferring compensation of a value related to the computed amount to the manager.

The Board has now twice considered the patentability of the claimed subject matter.  In an earlier decision, a three judge panel reversed an examiner’s rejection and specifically held that the claim requirement of transfer of physical assets to the manager as compensation was a “practical application” of the recited algorithm.  However, after the first reversal, the examiner entered yet another rejection under § 101 on the new ground that Lundgren’s claims lacked a relationship to “the technological arts” because they did not require machine implementation. 

In the most recent appeal to the Board, the case was heard by an expanded five judge panel.  A three judge majority and a concurring opinion reversed the examiner’s rejection and expressly held there was no separate “technological arts” test for patentable subject matter, either under the U.S. Constitution or the applicable case law. 

Administrative Patent Judge Smith dissented, taking the position that the clause of the Constitution giving Congress the power to “promote the progress of … useful arts” limited the government’s power to grant patent rights to subject matter that was within the “technological arts.”

Although concurring with the majority that there was no separate “technological arts” test for patentable subject matter, Administrative Patent Judge Barrett instead would enter a new ground of rejection.  From a review of Supreme Court and Federal Circuit precedents, his concurrence posits three possible tests for patentability of a nonmachine implemented process:  whether the process achieves a transformation of physical subject matter (matter or energy); whether the process avoids all three of the categories of court-defined exceptions, law of nature, physical phenomena and abstract ideas; and under State Street, whether the process achieves a useful, concrete and tangible result. 

Practice Note
The practical result of this 4-1 case is that the USPTO can no longer reject business method application claims for lack of a relationship to the “technological arts.”  However, the Board’s decision in Lundgren is not binding on the courts in infringement litigations, it is only binding precedent at the USPTO.  For now, the decision wipes out the examiners’ theory of “technological arts” rejections and appears to open the door for broader method claim strategies without the need to limit protection to computer-implemented steps. 

Patents / Public Use

Secret Process Used for Development of Future Products Not in Public Use
By David A. Gay, Ph.D.

Applying a two-pronged test for public use as a statutory bar to novelty, the U.S. Court of Appeals for the Federal Circuit held a biotechnology invention used within the company to develop products that were never sold was not subject to a statutory bar.  Invitrogen Corp. v. Biocrest Mfg., L.P., Case Nos. 04-1273,-1274 (Fed. Cir. Oct. 5, 2005) (Rader, J.).

Genetic engineering techniques use a transformation process to introduce genetic material into cells in order to produce recombinant products.  Invitrogen is the assignee of a patent that claims a process for producing transformable bacterial cells having improved competence.  The district court found that the defendants infringed the patent but held the claims invalid for public use.  On appeal, Invitrogen argued that internal use of the claimed process for further development of research projects did not provide a commercial advantage triggering the public use bar because the claimed process or any products derived therefrom were not sold, offered for sale or otherwise placed in the public domain.

The Court instructed that the proper test for public use is, like the test for on-sale, a two-pronged inquiry.  The first prong, adopted from the U.S. Supreme Court decision in Pfaff v. Wells, is whether the invention is complete and ready for patenting.  The second is whether the invention is in public use.  The first part of the test is based on the public policy consideration that underlies both the on-sale and public use statutory bars to preclude removal of existing knowledge from the public domain.  As to the public-use prong, the Court held that the proper test was whether the purported use was accessible to the public or commercially exploited.

Analyzing the public-use prong, the Court held that Invitrogen’s use of the claimed invention did not trigger the bar because it was neither public nor commercially exploited.  Noting that a public use requires the use to occur without any limitation, restriction or prohibition of secrecy, the Court found that Invitrogen’s invention was neither given nor sold to another and was maintained under a strict obligation of secrecy.  Commercial exploitation of a secret use represents a public use only when a confidential sale or charge for the invention generates commercial benefit.  Use of the invention for research and development of future products was found not to result in commercial exploitation because it did not occur in the usual course of producing articles for commercial purposes.  The Court emphasized there was no evidence that Invitrogen received compensation for the secret, internal exploitation of its transformation process and that, without more evidence, secret use to internally develop future products that were never sold was insufficient to create a public use bar.

Patents / Standing

Assignment of All Substantial Rights and Standing to Sue
By Amanda E. Koenig

Addressing a party’s standing to sue for patent infringement, the U.S. Court of Appeals for the Federal Circuit further clarified the relationship between an assignment of patent rights and the assignee’s standing to sue for patent infringement without joining the assignor.  Sicom Systems Ltd. v. Agilent Technologies, Inc., Case No. 05-1006 (Fed. Cir. Oct. 18, 2005) (Prost, J.).

This case was the latest in a series of patent infringement cases brought by Sicom in an effort to enforce a U.S. patent that when issued was assigned to the Canadian government.  Four years later, Sicom licensed the patent from Canada in an agreement under which Canada retained a number of rights in the patent.

After an attempt to sue Agilent for infringement of the patent was dismissed for lack of standing, Sicom and Canada amended their license agreement to give Sicom “(1) the exclusive right to ‘initiate commercial infringement actions’ related to the patent; (2) an extension of the term of the Agreement to coincide with the term of the patent; and (3) an extension of Sicom’s right to initiate commercial infringement actions after expiration of the patent.”  Sicom subsequently filed a second suit for infringement against Agilent who responded by filing another motion to dismiss for lack of standing.  The district court granted the motion to dismiss with prejudice, concluding Sicom lacked the “substantial rights necessary to be an ‘effective patentee’ for purposes of granting Sicom standing to sue for infringement of the … patent.”  Sicom appealed.

The Federal Circuit, quoting Prima Tek II, upheld the district court’s dismissal, noting that classifying an agreement as an assignment or license was not dispositive and reiterating its position that it “‘must ascertain the intention of the parties and examine the substance of what [the licensing agreement] granted’ to determine if it conveys all of the substantial rights in the patent and is sufficient to grant standing to the licensee.”  The Federal Circuit agreed with Sicom’s argument that “an important substantial right is the exclusive right to sue for patent infringement.”  Nevertheless, it found that under Sicom’s agreement with Canada, Sicom did not have the “exclusive right to sue for all infringement” (emphasis added) because the Canadian government retained the right to sue for “non-commercial” infringement.  Sicom also lacked other essential rights under its agreement with Canada, including “the right to settle litigation without the prior written consent from Canada,” “the right to sublicense without Canada’s prior approval” and the right to assign its rights.

Practice Note
Sicom emphasizes the importance the Federal Circuit places on ensuring that infringers not be subject to multiple infringement suits from parties with interests in a patent.  Practitioners should be aware that licensing agreements which do not convey “all substantial rights” in a patent are unlikely to convey standing to sue for infringement of the patents which are the subject of the license.

Patents / Enablement

Disparaging Something Doesn’t Mean You Can’t Claim It
By David E. A. Jordan

The U.S. Court of Appeals for the Federal Circuit has held that a claim does not necessarily lack enablement just because the inventor described aspects of the claimed invention in only the background section of the patent and in a disparaging manner.  Callicrate v. Wadsworth Mfg., Inc., Case Nos. 04-1597,-1598 (Fed. Cir. Oct. 31, 2005) (Rader, J.).

Callicrate’s patents disclose an apparatus for castrating large animals that includes a component for tightening a ligature.  The background section of the parent specification generally faulted conventional tightening mechanisms, describing a new, winding assembly-type mechanism.  In two later applications claiming priority to the earlier application, Callicrate employed means-plus-function claim language that described both the new winding mechanism and the disparaged traditional mechanism.

At trial, Wadsworth successfully argued that Callicrate’s later claims (encompassing the traditional mechanism) were not enabled by the original application and, therefore, were not entitled to the earlier effective filing date.  The trial court agreed, holding Callicrate’s failure to describe the traditional mechanism anywhere in the application other than the background section, coupled with the disparaging nature of those remarks, demonstrated that the application did not disclose the use of the traditional mechanism.  Without the benefit of the earlier effective filing date, Callicrate’s later patents were found invalid in view of intervening prior art.  Callicrate appealed.

The Federal Circuit reversed, holding a patent specification may sufficiently enable a feature under § 112, ¶ 1 even if only the background section provides the enabling disclosure.  Furthermore, the Court indicated that disparaging remarks in a background section, or remarks characterizing the prior art as less effective, do not remove those disclosures as enabling references.  Finally, the Court rejected Wadsworth’s argument that comments made during prosecution narrowed the scope of the claims, noting the comments merely repeated facts from the background section. 

Because the record lacked any indication that one of skill in the art could not make and use the patented invention with the traditional mechanism based on the patent’s disclosure, the Court held that Callicrate’s later patents could properly base priority on their relationship to the earlier one.  Accordingly, the Court reversed the district court’s verdict of invalidity and remanded the case.

Practice Note:  Because neither side had raised it the Court did not consider the question of the adequacy of the written description to support the claimed invention

Patents / Litigation / Licensee Standing

Licensee Standing to Bring Declaratory Judgment Action
By Cameron K. Weiffenbach

The U.S. Court of Appeals for the Federal Circuit affirmed there is no “case or actual controversy” as required by the Declaratory Judgment Act to challenge the validity and enforceability of a patent where, at the time the licensee brought the declaratory judgment action and thereafter, the licensee honored and continued to honor its obligations under the license agreement.  MedImmune, Inc. v. Genetech, Inc, Case Nos. 04-1300,-1384 (Fed. Cir. Oct. 19, 2005) (Newman, J.; dissenting in part by Clevenger, J.)

Genetech is owner of the Cabilly patents.  Celltech owns the Boss patent.  During prosecution of the Cabilly application, the U.S. Board of Patent Appeals and Interferences (the Board) declared an interference between the Boss patent and the Cabilly patent application.  Priority was awarded to the Boss patent.  Genetech filed a civil action in the district court where the parties were urged to settle the suit.  Ultimately, the parties arrived at a cross-licensing settlement with Boss conceding priority to Cabilly.  The court entered judgment and ordered the Board to vacate its decision, revoke the Boss patent and issue the Cabilly application as a patent.  After the Board entered an order returning the Cabilly application to the examiner to consider information presented by Genetech, the examiner issued the Cabilly patent.  The Board declared the Boss patent cancelled by operation of law.

MedImmune licensed the Cabilly patent and had also taken a license from Celltech under the Boss patent.  After the Cabilly patent issued, Genetech advised MedImmune that its Synagis product was covered by the Cabilly patent and was subject to royalties in accordance with the terms of the license.  MedImmune paid royalties under the license but filed a declaratory judgment action to have the Cabilly patent declared invalid and unenforceable, but it continued to pay license royalties.  The district court dismissed the suit, citing Gen-Probe v. Vysis.  MedImmune appealed, asserting that the Gen-Probe decision improperly resurrected licensee estoppel, a preemption doctrine that was abolished by the Supreme Court in Lear v. Adkins.

On appeal, the Federal Circuit did not find the Gen-Probe and Lear cases to be inconsistent, noting that as was the case in Gen-Probe, MedImmune assiduously avoided breach of the license agreement. 

The Federal Circuit rejected MedImmune’s argument that public policy is served by permitting it to attack the Genetech patent and that licensee estoppel had been eliminated in the field of intellectual property as a matter of public policy; the Court noted the issue before it was declaratory judgment jurisdiction, not estoppel.

According to the Court, the Declaratory Judgment Act requires a “definite and concrete controversy,” and the test to be applied is the “totality-of-the circumstances test.”  Declaratory judgment relief requires “both (1) a reasonable apprehension on the part of the declaratory judgment plaintiff that it will face an infringement suit, and (2) present activity by the declaratory judgment plaintiff which could constitute infringement ….” 

The Court also stated, by continuing to pay royalties under the license, MedImmune avoided the apprehension of suit and could not show a definite and concrete controversy of sufficient immediacy to warrant declaratory judgment relief.

The Court also rejected MedImmune's argument Genetech misrepresented to the district court that it was entitled to priority, noting that priority was an issue in that litigation and therefore the concession did not constitute a misrepresentation.  

The Federal Circuit found no error in the district court's refusal to consider MedImmune's argument that Genetech committed fraud during the prosecution of the Cabilly application based on its failure to present information to the examiner before the interference was declared.  It dismissed the argument as not part of the pleadings and denied MedImmune leave to amend its complaint.  The Federal Circuit noted:

A person not under reasonable apprehension of suit cannot overcome the absence of declaratory standing simply by challenging the patent prosecution and asserting fraud.  There is neither statutory nor precedential authority for collateral attack on patent examination procedures, by a person who does not meet the requirement of declaratory judgment standing.

Finally, MedImmune requested that, should the Federal Circuit affirm the district court on the patent counts, it transfer the antitrust and unfair competition counts to the Ninth Circuit and argued the Federal Circuit did not have jurisdiction over these counts because they did not arise under the “patent laws.”  The Federal Circuit refused, explaining that it “would be contrary to [the] careful balance and efficient design for the Federal Circuit to decide part of an appeal and then, depending on the outcome of that part, to ship the residue to another circuit.” 

Judge Clevenger disagreed with the majority on this issue; he found that when dismissing those portions of MedImmune’s complaint arising under patent law, the district court “eliminate[d] all issues of patent law from MedImmune’s well-pleaded complaint and thus divest[d] [the Federal Circuit] of jurisdiction over the case” as to the antitrust and unfair competition issues.

Patents / Prosecution History

Lemelson En Banc Request Results in a Deeper Hole
By Paul Devinsky

In a new precedential order, the U.S. Court of Appeals for the Federal Circuit denied Lemelson's petition for rehearing en banc of the U.S. Court of Appeals for the Federal Circuit decision of September 9, 2005.  (See IP Update, Vol. 8, No. 9).  Symbol Technologies, Inc. v. Lemelson Foundation, Case No. 04-1451 (Fed. Cir. Nov. 16, 2005) (Michel, C.J.; Newman, Mayer, Lourie, Clevenger, Rader, Bryson, Gajarsa and Dyk, J.).

In its earlier decision the Federal Circuit upheld the district court judgment that 14 Lemelson patents in issue were unenforceable under the doctrine of prosecution laches based on unreasonable delay.  In its new order, the Court amended its earlier decision to make its finding of unenforceability apply to each and every claim of the patents:  “… in our view the … appropriate course of action is to apply the [district court’s] laches holding to all of the claims …”

Patents / Litigation

Series of Missteps Leaves Plaintiff Almost without Evidence as to Damages or Causation
By Stephanie L. Nagel

The U.S. Court of Appeals for the Federal Circuit upheld a grant of summary judgment and other evidentiary rulings that effectively precluded Microstrategy from presenting evidence as to damages and causation.  Microstrategy Inc. v. Business Objects, S.A.,Case No. 04-1572 (Fed. Cir. Nov. 17, 2005) (Newman, J.). 

Microstrategy sued Business Objects, a competitor in the field of business intelligence software, for patent infringement, as well as for misappropriation of trade secrets, tortious interference with contract, violation of the Computer Fraud and Abuse Act and conspiracy to injure Microstrategy.  The claims at issue on appeal were all resolved by the district court without a jury. 

The opinion is notable primarily for its consideration of an extraordinary set of evidentiary rulings from the district court and for substantially precluding Microstrategy from submitting critical evidence, both expert and nonexpert, on damages and causation related to its tort claims.

Microstrategy’s case relied heavily upon its damages expert and his three expert reports.  The district court, however, excluded those reports for using a flawed methodology because they failed to consider certain factors obviously relevant to the damages analysis.  For example, despite a recent history of extreme financial instability and the introduction of new products from Business Objects, the damages expert attributed all of Microstrategy’s post-2000 financial losses to Business Object’s alleged tortious conduct.  As the Court instructed, “[w]hile an expert need not consider every possible factor to render a “reliable” opinion, the expert still must consider enough factors to make his or her opinion sufficiently reliable in the eyes of the court.”  Nor, noted the Court, did the expert reports accurately link the alleged damages to any of the alleged torts.  As a result, the Federal Circuit agreed the district court correctly deemed the reports unreliable under the Daubert test.  The Federal Circuit concluded the district court had not abused its discretion in excluding the reports.  The Court further noted that without any expert reports to support testimony, the district court properly refused to allow Microstrategy's expert to testify at trial.

The district court did not abuse its discretion in excluding nonexpert theories on damages, said the Court, because Microstrategy had not timely supplemented interrogatories to include them.  Failure to disclose these theories was “substantially justified not harmless.”  In sum, the Federal Circuit found the district court’s determinations were well supported even though the combined effect of the rulings left Microstrategy with little or no evidence as to damages and causation. 

Patents / Claim Construction

Sometimes “Removable” Is Hard to Do
By Minn Chung

How easily removable must an object be to be “removable”?  In a patent whose specification did not mention ease of separation, the U.S. Court of Appeals for the Federal Circuit agreed the claim term “removably attached” should be construed to mean “merely … capable of separation.”  Dorel Juvenile Group, Inc. v. Graco Children’s Prods., Inc., Case No. 05-1026 (Fed. Cir. Nov. 7, 2005) (Clevenger, J.; Newman, J., dissenting).

Dorel’s patents cover a retractable cup assembled on a child’s car seat with a base “removably attached” to a seat.  Graco’s accused product is a car seat molded in two segments where the top portion is attached to the bottom portion by six screws set in recessed indentations.  The screws are “one-way” screws that require a special tool to be unscrewed. 

The district court construed the claim term “removably attached” to mean the seat and base “are designed at some time or another to come apart.”  According to the district court, under the ordinary meaning of the term, the claim language did not require that the seat and base come apart during normal usage.  The court held that ease of separation was not a limitation on claim scope.  Nevertheless, the district court granted Graco’s motion for summary judgment of noninfringement, holding that no reasonable jury could find that the Graco product had a seat removably attached to a base.

The Federal Circuit reversed.  It agreed the district court had construed the term “removably attached” properly in view of the Federal Circuit’s recent en banc opinion in Phillips v. AWH Corp. because the specification of Dorel’s patents did not mention ease of release or separation.  However, the Court held that, under this construction, the two segments of Graco’s car seat were “removably attached” because they could be separated from each other (albeit only by the use of a special tool to remove six screws set in recessed indentations.)  According to the Court, because Graco’s seat had a top structure and a bottom structure, it was for the jury to decide whether “the top structure is capable of functioning as a ‘seat’ upon being removed from the bottom structure.”

The Federal Circuit (over Judge Newman’s vigorous dissent) vacated the summary judgment of noninfringement and remanded the case for factual finding of whether the top and bottom structures of the Graco products are the claimed “seat” and “base” of the asserted patents.

Patents / Claim Construction

Color-Blind Claim Construction
By Michael W. Connelly

Addressing when and how claim scope may be limited, the U.S. Court of Appeals for the Federal Circuit found the U.S. International Trade Commission (ITC) erred in interpreting a claim for molding of plastics with "different characteristics" to require that the plastics differ in some aspect other than color.  Sorensen v. ITC, Case No. 05-1020 (Fed. Cir. Oct. 31, 2005) (Rader, J.).

Sorenson holds a patent for multilayer injection molding of plastics in two steps.  The second step calls for injecting a plastic with "different characteristics" than the first plastic.  During prosecution, the examiner had rejected the claims of Mr. Sorensen's application as obvious over the prior art.  In response, Mr. Sorensen amended the claims, including the addition of the “different characteristics” limitation.  

Mr. Sorensen had alleged that certain models of imported Mercedes-Benz automobiles contained injection-molded laminated tail lights made by a process that infringed his patent.  After a § 337 investigation, the ITC found Mercedes did not infringe and noted the second plastic used by Mercedes differed only in color from the first plastic, and the claim language "different characteristics" required a difference in some characteristic other than color.  Therefore, the ITC found no infringement and no violation.  Sorenson appealed.

The Federal Circuit reversed, finding that nowhere in the claims, specification or prosecution history did Mr. Sorensen exclude or clearly disavow color as a basis for differing characteristics.  The Federal Circuit, reviewing the ITC claim interpretation without deference, determined the claim language “different characteristics” would be satisfied by any difference, including color.  The Federal Circuit cited the specification gave a “broad” interpretation of “different characteristics.”  According to the specification, the first and second pieces could be of the same material, and differences in transparency (which like color may not require differences in molecular structure) could be different characteristics.  Also important to the Court's analysis was its finding the prosecution history did not reflect a clear and unambiguous disavowal of claim scope.

Michael W. Connelly is an associate in the law firm of McDermott Will & Emery LLP based in the Washington, D.C. office.  He is a member of the Intellectual Property, Media & Technology Department.  Michael concentrates his practice on patent litigation and prosecution, intellectual property licensing, and counseling private and public clients on the protection of intellectual property assets.

(Web only) Patents / Claim Construction

Federal Circuit Attempts to Set Record Straight on Means-Plus-Function Claim Limitations
By Matthew F. Weil

The U.S. Court of Appeals for the Federal Circuit has ruled that the district court got it wrong twice in construing a means-plus-function limitation, which improperly imported unclaimed functions and structural elements into its construction.  JVW Enterprises, Inc. v. Interact Accessories, Inc., Case No. 04-1410 (Fed. Cir. Oct. 3, 2005) (Prost, J.).

JVW’s patent covers an accessory for video game joysticks that allows a video game player to operate a controller without having to hold it in his or her hands.  The patents include a means-plus-function limitation to a means for “lockably receiving a video game controller in fixed position on said mounting member.”  At first, the district court construed this limitation to cover a structure “attached by a method whereby one can lock a game controller in place for use and can unlock and release the game controller after use.”  After further proceeding, the Court “rephrased” its construction to cover something “received in fixed position by the interlacing of fitting of parts into each other.”

At the close of the bench trial, the Court found no infringement under its construction.  JVW appealed.

Observing the district court had apparently used both of its constructions in reaching its noninfringement determination, the Federal Circuit considered both and found both lacking.  As to the first, the Court held the district court had erred by adopting the unclaimed functions of “unlocking” and “releasing” as part of its construction.  As to the second construction, it held the construction improperly included language describing structure (“fitting parts”) in the description of the claimed function. 

The Federal Circuit then came up with its own construction—“receiving and locking a video game controller into a fixed position on the mounting member for use”—and, based on this construction, reversed the judgment of noninfringement as to one Interact product and affirmed as to another.

Patents / Antitrust

Settlement of Tamoxifen Infringement Litigation Passes Muster
By Stefan M. Meisner

In a case involving the settlement of patent infringement litigation, in which consumers of tamoxifen (a drug used to treat breast cancer), third-party payors and consumer advocacy groups asserted the settlement violated the antitrust laws, the U.S. Court of Appeals for the Second Circuit affirmed the settlement.  In re Tamoxifen Citrate Antitrust Litig., Case No. 03-7641 (2nd Cir. Nov. 2, 2005) (Sack, J.; Pooler, J. dissenting).  In affirming the decision, the court held that a settlement of patent infringement litigation would not run afoul of the antitrust laws provided the settlement agreement did not expand the patent rights beyond the scope of the patents at issue in the case.  In a vociferous dissent, Judge Pooler argued the strength of the patent should be “central to any antitrust analysis involving a patent” in addition to other factors.  The majority’s holding places the Second Circuit in line with cases decided by the Eleventh Circuit in Valley Drug and Schering Plough.

In 1993, Zeneca and Barr Laboratories settled patent infringement litigation stemming from Barr’s efforts to provide a generic form of the drug tamoxifen.  Zeneca marketed the drug under the brand name Novadex.  Barr filed an abbreviated new drug application (ANDA) with the U.S. Food and Drug Administration (FDA) to begin the process of approving its generic version of the drug.  Included with its ANDA, Barr filed certification that claimed the patent held by Zeneca was invalid.  Predictably, Zeneca filed a patent infringement suit against Barr.  After the district court held the patent invalid, the parties settled.

Under the terms of the settlement, Zeneca agreed to pay Barr $21 million and licensed Barr to supply tamoxifen for resale under Zeneca’s label.  Barr agreed to amend its ANDA in order to remove Barr’s claim the tamoxifen patent was invalid.  Barr also agreed not to market its generic version of tamoxifen.  Other generic companies sought ANDAs for their versions of tamoxifen, and Zeneca successfully sued each of them for infringement.  The district court, after concluding the settlement did not restrain trade in violation of the antitrust laws and did not impose antitrust injury on the plaintiffs (a consortium of third-party payors and consumer advocacy groups), dismissed the case.  The plaintiffs appealed.

The Second Circuit held that for a settlement agreement to be unlawful under the antitrust laws, the “exclusionary effects of the agreement [must] exceed the scope of the patent’s protection.”  If the settlement agreement does not expand the scope of the patent, the only available antitrust challenges would be to claim the patent was procured by fraud or the enforcement suit was objectively baseless.  On the first part, the Second Circuit analyzed the plaintiffs’ argument that Zeneca’s payment to Barr was “excessive” and indicative of a weak patent.  The Second Circuit rejected this argument because even “excessive” payments are permissible as they do not represent an expansion of patent rights.  With respect to fraud and baseless enforcement, the court reasoned the plaintiffs never alleged fraud, and subsequent enforcement of the patent by Zeneca (in which courts found other generic companies infringed the tamoxifen patent) indicated the Barr litigation was not objectively baseless.

The dissent focused on the strength of the patent as an important factor in determining whether a settlement was reasonable under the antitrust laws.  Other factors the dissent would include in the analysis are: “(a) the amount the patent holder paid to keep the generic manufacturer from marketing its product, (b) the amount the generic manufacturer stood to earn during its period of exclusivity, and (c) any anticompetitive effects of the agreement including the presence or absence of a provision allowing the parties to manipulate the generic’s exclusivity period.” 

Practice Note
The standard urged by the dissent is similar to the one rejected by the Eleventh Circuit in Schering Plough,a case the U.S. Federal Trade Commission is seeking review by certiorari at the Supreme Court.

Trademark / Fair Use

Nominative Fair Use and Likelihood of Confusion
By David M. Mello

Addressing for the first time the issue of nominative fair use as a defense to trademark infringement, the U.S. Court of Appeals for the Third Circuit upheld nominative fair use as a defense that can be validly asserted once actual confusion is shown.  Century 21 Real Estate Corp. v. Lending Tree, Inc., Case No. 03-4700, (3rd Cir. Oct. 11, 2005) (Michael, J.; Fisher, J., concurring in part and dissenting in part).

Lending Tree provides internet-based services, including a real estate referral network service that allows consumers to search for brokers in a selected geographical area.  Many of the brokers are franchisees of leading real estate companies, such as Century 21.  While the franchisees enter an agreement with Lending Tree, the real estate companies do not.  Century 21 filed suit for Lanham Act violations and sought injunctive relief to stop Lending Tree’s use of its marks on the Lending Tree website to promote its real estate broker referral network.  The district court turned away Lending Tree’s nominative fair use defense and issued a preliminary injunction.  Lending Tree appealed. 

The Third Circuit reversed.  In considering “nominative fair use,” the court examined the Supreme Court’s “classic fair use” decision in KP Permanent Make-Up.  Classic fair use occurs when a defendant, who is not selling the goods trademarked by the plaintiff, uses the plaintiff’s mark to refer to the defendant’s product in a way that may be confusing but is nonetheless fair.  Nominative fair use occurs when a defendant refers the plaintiff’s mark and product in order to better describe the defendant’s own product or services.

The Third Circuit, like the Ninth Circuit in New Kids on the Block, held that nominative fair use was an affirmative defense to trademark infringement.  However, departing from the Ninth Circuit, which held that a likelihood of confusion analysis was not required in nominative fair use cases, the Third Circuit held that the burden of showing nominative fair use only shifted to the defendant until the plaintiff had shown likelihood of confusion.  In doing so, the Third Circuit’s holding for nominative fair use was consistent with the Supreme Court’s rationale in KP Permanent Make-Up, Inc. for classic fair use, which required the plaintiff first satisfy its burden of showing likelihood of confusion.

Practice Note
Users of third party trademarks should understand that the nominative fair use defense is not well-settled law and is not treated uniformly in all circuits.  While the Third and Ninth Circuits both recognize the defense, they each apply a different test, and it is unclear how other courts, or the Supreme Court, will ultimately treat nominative fair use as a defense to trademark infringement.

Trademark Infringement

A Side-by-Side Comparison May Not Be the Best Likelihood-of-Confusion Analysis
By Jennifer M. Mikulina

The U.S. Court of Appeals for the Second Circuit reversed the denial of a preliminary injunction for trademark infringement, noting the lower court was inappropriately focused on a side-by-side comparison of the goods rather than on the purchasing context in which the marks appeared.  Louis Vuitton Malletier v. Burlington Coat Factory Warehouse Corp., 426 F.3d 532 (2nd Cir. Oct.12, 2005) (Calabresi, J.).

Louis Vuitton, a luxury goods designer, introduced a line of handbags and accessories featuring a new colorful version of the famous Louis Vuitton logo.  The bags in this collection are available at high-end retail stores, such as Neiman Marcus and Saks Fifth Avenue.  Approximately one year later, Burlington Coat Factory (BCF), a chain of discount clothing and accessory stores, started offering beaded handbags featuring colorful designs “reminiscent” of the colorful new Louis Vuitton logo.

Louis Vuitton filed suit alleging trademark infringement, counterfeiting, unfair competition, false designation of origin, trade dress infringement, trademark dilution and related state law claims.  The district court denied Louis Vuitton’s request for a preliminary injunction, stating that “point-of-sale confusion was unlikely.”  Focusing its analysis on the simultaneous viewing of the goods, the district court found that “[s]ignificant differences between the handbags are easily discernible whether one views the handbags side-by-side or from a distance.”  Louis Vuitton appealed. 

The Second Circuit reversed and remanded the case cautioning the lower court to focus on market conditions when analyzing the ultimate issue of the likelihood of consumer confusion.  According to the Second Circuit, the Lanham Act “requires a court to analyze the similarity of the products in light of the way in which the marks are actually displayed in their purchasing context … Though two products may be readily differentiated when carefully viewed simultaneously, those same two products may still be confusingly similar in the eyes of ordinary consumers encountering the products individually under typical confusion, and that ‘real world’ confusion is the confusion that the Act seeks to eliminate.”  Given the market conditions and claims of initial-interest and post-sale confusion, the lower court should have “considered the context in which the marks are displayed and the totality of factors that could cause confusion among prospective purchasers.”  In fact, the Second Circuit specifically instructed the lower court “should give particular weight to any evidence submitted by the parties addressing the overall impression that consumers are likely to have of the handbags when they are viewed sequentially, and in different settings, rather than simultaneously.”

Trademark / Secondary Meaning / Collateral Estoppel

Relitigation of Secondary Meaning Requires a Significant Intervening Factual Change
By Rania C. Sarkis

The U.S. Court of Appeals for the Fifth Circuit has held that a trademark owner must be able to point to significant intervening factual change (other than the mere passage of time) before it will be permitted to relitigate secondary meaning.  Test Masters Educational Services Inc. v. Singh, Case Nos. 03-20787, 04-20861 and 05-20049 (5th Cir. Oct. 18, 2005) (Stewart, J.). 

In a long series of contentious cases the district court dubbed “the second coming of the Hatfields versus the McCoys,” test preparation companies operating under the name “Testmasters” and “Test Masters” each sought to exclude the other from using its respective name.  Singh began doing business as “Testmasters” in Beverly Hills in 1991; Israni began operating Test Masters Education Services, Inc. (TES) in Houston in 1992.  In 1999, Singh received a trademark registration for the “TESTMASTERS” trademark.  When Singh tried to set up a website, he learned that TES had acquired the domain name “testmasters.com” in 1995.  Multiple suits ensued. 

In one previous trial, the jury found “TESTMASTERS” was a descriptive mark that had acquired secondary meaning.  On appeal, the Fifth Circuit reversed the jury’s decision on secondary meaning, finding Singh had failed to provide sufficient factual evidence to support secondary meaning of the mark. 

Several years later, Singh filed a second lawsuit against TES for California trademark infringement based on his claim that TES altered its website to suggest it was Singh’s California-based company.  TES filed a motion to dismiss based on res judicata.  The district court granted TES’s motion and concluded res judicata applied to bar the second litigation because it was based on the same nucleus of operative facts as the first.  The fact scenarios were parallel and involved Singh’s attack on TES for use of the website to infringe the “TESTMASTERS” mark.  Not persuaded that the expansion of Singh’s company, U.S.-wide exposure and acquisition of state trademark rights in 29 other states materially changed the analysis, the court also dismissed Singh’s attempt to relitigate secondary meaning.

On appeal, the Fifth Circuit held Singh’s action was not estopped by res judicata (or claim preclusion) because the operative facts between the two lawsuits were different.  Nonetheless, the court concluded Singh was barred by collateral estoppel (or issue preclusion) because the issue of law in both cases was identical (i.e., whether “TESTMASTERS” had acquired secondary meaning) and because Singh had failed to allege any significant intervening factual changes to justify relitigating the issue of secondary meaning of the mark.  The court held that whether a mark has secondary meaning depends on dynamic factual scenarios, not the mere passing of time. 

Trademarks / Certifications Marks

No-Challenge Provisions Unenforceable in Certification Marks Licenses
By Farah Bhatti

Addressing the enforceability of a “no-challenge” provision, the U.S. Court of Appeals for the Ninth Circuit has held that a former licensee was not precluded from challenging the validity of a certification mark notwithstanding a provision in the license barring such suits.  State of Idaho Potato Commission v. G&T Terminal Packaging, Inc., Case No. 04-35229 (9th Cir. Oct. 7, 2005) (Tashima, J.).

The Idaho Potato Commission (IPC), a state agency, owns several certification marks including the words “Idaho” and “Grown in Idaho.”  G&T, a potato distributor, licensed the certification marks from IPC, agreeing never to challenge the validity of the marks.  When G&T later allegedly violated the terms of the license, IPC sued in the District of Idaho alleging breach of the license and infringement.  G&T filed suit in the Southern District of New York to have IPC’s marks declared unenforceable and to have them cancelled.  IPC then added a breach of contract claim to the Idaho case based on the license’s no-challenge provision. 

On IPC’s motion for summary judgment, the Idaho Court found that G&T’s New York filing breached the license agreement.  However, before entry of final judgment in Idaho, the Second Circuit (in a separate case involving IPC and a third party) held the no-challenge provision in IPC’s license agreement was unenforceable.  The Idaho court granted G&T’s motion for reconsideration as to the breach of contract claim but ruled in favor of IPC on the infringement claims and awarded it damages.

On appeal, IPC challenged the district court’s finding regarding the unenforceability of the no-challenge provision, and G&T challenged the damages awards.

The Ninth Circuit found that issue preclusion and collateral estoppel did not prevent IPC from raising the no-challenge provision issue.  The Court stated that certification marks must be treated differently from trademarks as they protect different public interests: trademarks protect the public against confusion, and certification marks identify a characteristic of a product. 

The Ninth Circuit agreed with the Second Circuit that the appropriate analysis can be found in Lear v. Adkins (a patent case) that balances public interests against private contract rights.  Applying the balancing test, the Court found the public interest in free competition promoted by certification marks outweighed IPC’s right to enforce its no-challenge contract provision.  The Court further held that, because licensees of certification marks are the only groups that have an economic incentive to challenge the owner of a certification mark, no-challenge provisions in licenses would effectively insulate owners of certification marks from most legal challenges.  Thus, the Court held, the no-challenge provision in IPC’s license was unenforceable.

While G&T was not precluded from challenging the validity of the mark, the Court did find that G&T made unauthorized use of IPC’s mark, and such use amounted to counterfeiting.  As a result, the Court confirmed statutory damages to IPC in the amount of $100,000.

Trademark / Disclaimer

The “Bulls-Eye Requirement” for Disclaimers—How Specific Must a Disclaimer Requirement Be?
By Richard Y. Kim

The U.S. Court of Appeals for the Federal Circuit affirmed a U.S. Patent and Trademark Office (USPTO) decision requiring the disclaimer of the term “stereotaxis” apart from the mark as shown, in connection with an application for the mark STEREOTAXIS for medical goods, including “medical imaging apparatus.”  In re Stereotaxis, Inc. 2005 U.S. App. LEXIS 23264 (Fed. Cir. Oct. 27, 2005) (Friedman, J.).

The applicant based its challenge of the Board of Patent Appeals and Interferences’ (the Board) disclaimer requirement on two main grounds:  the Board was required, but failed to specify, the exact, particular products and services that the term “stereotaxis” “merely described”; and there was not substantial evidence that “stereotaxis” was descriptive of any of those products and services. 

The applicant’s challenge with respect to the second ground of refusal did not involve any novel question of law or USPTO procedure.  The Court found substantial evidence that supported the Board’s finding that, as applied to the applicant’s goods, the term “stereotaxis” was merely descriptive of a feature or characteristic.  However, with respect to the first ground of refusal, the applicant advanced an uncommon, if not novel, argument.

According to the Trademark Act, the USPTO “may require the applicant to disclaim an unregistrable component of a mark otherwise registrable.”  A mark or component is unregistrable if, “when used on or in connection with the goods of the applicant,” it is “merely descriptive … of them.”  The applicant contended the Board failed to specify with particularity the exact goods to which the disclaimer requirement applied, and, thus, the disclaimer requirement was not proper.  The statute empowers the USPTO to require a disclaimer as a condition of registration if the term is merely descriptive of at least one of the products or services involved.  As the Court commented, “[w]e know of no requirement in the trademark statutes or elsewhere that the Board must make the additional analysis the Applicant seeks in order to determine that a proposed mark is merely descriptive as applied to the Applicant's products and services.”

Practice Note
As a practical matter, the “specificity” of a disclaimer would not ordinarily be an issue appealed to the Board.  In issuing office actions, examining attorneys ordinarily identify the specific goods and/or services to which a disclaimer requirement applies, especially when an applicant initially refuses to comply with the requirement. 

The Federal Circuit's decision in this case confirms that any argument imposing requirements on the USPTO beyond those specifically in the statutes or procedures is rarely successful.

Copyright / Infringement

First Circuit Lines Up with Sixth in Dividing Up the Copyright Renewal-Right Pie
By Tyler J. Woods

Avoiding a split with the U.S. Court of Appeals for the Sixth Circuit, the U.S. Court of Appeals for the First Circuit has held that if a copyright holder dies before he or she exercises the renewal right, the right belongs equally to his or her surviving spouse (50 percent) and his or her children (who split the remaining 50 percent) under the compulsory bequest provision.  Venegas-Hernández v. Asociación de Compositores y Editores de Música Latinoamericana (ACEMLA) v. Peer, 424 F.3d 50 (1st Cir. Sept, 16 2005) (Boudin, C.J.).  The court also held that a publisher who wrongfully “authorizes” a third party to perform a copyrighted work is not liable for infringement absent proof the third party actually did so.

During his lifetime, well-known Puerto Rican composer Guillermo Venegas-Lloveras granted Peer the right to sublicense his songs and collect royalties from the sublicenses.  Shortly after Venegas-Lloveras died, his widow, Lucy Chávez-Butler, assigned all of her interest in his works to Latin American Music Company.  Latin American Music Company and Peer subsequently authorized the use of Venegas-Lloveras’ songs for broadcast in the United States and Puerto Rico.  Venegas-Lloveras’ four children sued Peer and Latin American Music Company for copyright infringement and sued Chávez-Butler to determine who owned the right to renew Venegas-Lloveras’s copyrights.

The district court determined that neither Peer nor Latin American Music Company had the right to authorize the use or copying of Venegas-Lloveras’ copyrighted works because the copyright had entered its renewal period, and the renewal period rights belonged to the widow and children of the author and not to the publishing companies.  Because the plaintiffs had offered no direct evidence of any infringing act, however, the district court held there had been no infringement, and “wrongful authorization” was not actionable under the Copyright Act.

As to inheritance of the right to renew, Chávez-Butler argued she should receive 50 percent under the compulsory bequest provision of the Copyright Act, which states the right passes to “the widow, widower, or children of the author.”  The district court, however, citing dicta in the Supreme Court’s De Sylva case, sided with the children and gave them, and Chávez-Butler, 20 percent each.

The First Circuit affirmed the district court’s decision regarding noninfringement but reversed the ruling on ownership.  The court, seeking to avoid a split with the Sixth Circuit, held that the ownership rights should be evenly divided between the surviving spouse and the children to better serve the policy aim behind the compulsory bequest:  “A majority of states give the widow a 50 percent or greater interest in her husband’s estate if he dies intestate, even with multiple children; … hardly a surprising allocation, since ordinarily the widow will herself have a duty to support children still in their minority, and children in their majority ordinarily have earning power of their own.”

McDermott Will & Emery

McDermott Will and Emery