McDermott - Newsletters - IP Update, Vol. 10, No. 10, October 2007

Issuing two long-awaited decisions on the same day, the U. S. Court of Appeals for the Federal Circuit has clarified subject matter that falls outside the scope of patentable subject matter, intensifying a debate that has persisted in the wake of its nine-year-old State Street decision and finding that each of the applications failed to present patent subject matters under 35 U.S.C. § 101.

In one case, the Court held that claims directed to a method for mandatory arbitration resolution were unpatentable subject matter under § 101 because the claimed subject matter amounted to an unpatentable “mental process.” In re Comiskey, Case No. 06-1286 (Fed. Cir., Sep. 20, 2007) (Dyk, J.).

In a second case, the Court held that a signal (not embodied in a tangible media or memory) did not fall within any of the four statutory classes of patentable subject matter under § 101. In re Nuitjen, Case No. 06-1371 (Fed. Cir., Sep. 20, 2007) (Gajarsa, J.; Linn, J., dissenting).

Comiskey

Comiskey’s patent application was directed to a method and system for conducting mandatory arbitration involving legal documents, such as wills or contracts. Before the Federal Circuit, Comiskey argued that the claims were directed to patentable subject matter because they did not fall within an exception to patentability, such as an abstract idea, natural phenomena or law of nature. The U.S. Patent and Trademark Office (USPTO) argued the claims were directed to an abstract idea.

Citing State Street Bank & Trust Co., the Court concluded the claims were “barred at the threshold by § 101,” explaining “[i]t is well established that ‘[t]he first door which must be opened on the difficult path to patentability is § 101.’”

The Court characterized Comiskey’s claims as “business method” claims and cited its State Street decision for the proposition that business methods are “subject to the same legal requirements for patentability as applied to any other process or method.” The Court further explained that a claim involving a mental process or algorithm is directed to patentable subject matter only if it is tied to a machine or involves a transformation of an article. However, citing Gottschalk v. Benson, the Court held that mental processes—or processes of human thinking—are not patentable, even if they have practical application.

The Court noted that while the range of patentable subject matter is extremely broad, the thread of Supreme Court and Federal Circuit cases on this issue have established that the application of human intelligence to the solution of practical problems is not in and of itself patentable. Thus, the Court held the patent statute did “not allow patents to be issued on particular business systems—such as a particular type of arbitration—that depend entirely on the use of mental processes.” As Comiskey’s independent claims 1 and 32 were directed to the mental process of resolving a legal dispute by the decision of a human arbitrator, the claims were found to be directed to unpatentable subject matter.

However the Court remanded independent claims 17 and 46 for further consideration by the USPTO. The Court noted these claims recited the use of “modules.” Therefore, even under the broadest reasonable interpretation, those claims could be limited to a system requiring use of a computer. The Court explained that as recognized by the Supreme Court in Diamond v. Diehr and the Federal Circuit in State Street Bank, combining an unpatentable mental process with a machine may produce patentable subject matter.

The Court went on to caution that claims that satisfy the threshold of § 101 must still satisfy the other requirements for patentability, noting “[t]he routine addition of modern electronics to an otherwise unpatentable invention typically creates a prima facie case of obviousness,” citing Leapfrog Enterprises v. Fisher-Price,(See IP Update, Vol. 10, No. 5). The Court then went further, linking § 101 and § 103 in a manner that pre-empts reliance on secondary considerations for non-patentable (under § 101) subject matter, stating that “there is no pertinent evidence of secondary considerations because the only evidence offered is of long felt need for the unpatentable mental process itself, not long felt need for the combination of the mental process and a modern communication device or computer.” The Court then observed that claims 17 and 46 merely appear to add a modern general purpose computer to an otherwise unpatentable mental process.

Nuijten

Nuijten sought to patent a signal with embedded supplemental data, also known as a watermark. Nuijten obtained allowance of claims directed to a process of adding a watermark to a signal, an arrangement for embedding supplemental data in a signal and a storage medium having the signal stored thereon. However, those application claims directed to a signal with embedded supplemental data were rejected under § 101 as being directed to non-statutory subject matter. The Board of Patent Appeals and Interferences of the USPTO noted that “[t]he signal … has no physical attributes … thus, it is considered an ‘abstract idea,’” and found that the signal claims did not fit into any of the four statutory categories of patentable subject matter defined in § 101. Nuijten appealed.

The Federal Circuit noted that while a carrier (such as electromagnetic radiation or light pulses) upon which the information is embedded is required, the claims were not limited by any specified physical medium. The Court explained that while in its State Street decision, it held “[t]he question of whether a claim encompasses statutory subject matter should not focus on which of the four categories of subject matter a claim is directed,” the claimed subject matter “must [still] fall into at least one category of statutory subject matter. … If a claim covers material not found in any of four statutory categories, that claim falls outside the plainly expressed scope of § 101, even if the subject matter is otherwise new and useful.” Thus, the issue presented here is whether a transitory signal per se fits any of the statutory categories: process, machine, manufacture or composition of matter.

Process, Machine, Composition of Matter
The Court readily found that the signal claims were not directed to a process, a machine or a composition of matter. As for process, the Court found no active steps and hence no process. Finding no “concrete thing,” the Court found the signal is not a “machine.” After defining composition of matter as a chemical union, gas, liquid or solid, the Court found the signal did not find a home there either.

Manufacture
Turing to the category of manufacture, the Court cited Supreme Court’s definition of “manufacture” (in its verb form) from Diamond v. Chakrabarty as “the production of articles for use from raw or prepared materials by giving to these materials new forms, qualities, properties, or combinations,” and explained that the same dictionary the Supreme Court used to define “manufacture” in its verb form, defined “manufacture” in its noun form as “a particular substance or commodity: as an article of merchandise, an article of clothing.” Noting that when a signal is encoded on an electromagnetic carrier it can be transmitted through a vacuum, a medium that by definition is devoid of matter. Thus, the Federal Circuit determined that the claimed signal is not a manufacture.

Judge Linn, dissenting-in-part, argued the claimed signal was a manufacture. Citing the majority opinion for the proposition that the signal claim contemplates “some physical carrier of information,” Linn reasoned the claimed signal required some material to which the signal was input, whether a pulse of energy or a stone tablet, be given a new form, quality or property by direct human action or by a machine, and thus was a new and useful manufacture in the expansive sense of 35 U.S. § 101.” Judge Linn also pointed out that “manufacture” had a second definition as “anything made for use from raw or prepared materials.” Asserting this definition did not require the manufacture be an “article” or a transformed “raw material,” only that it be “something—‘anything’—made from them,” he argued that the claimed signal is an information carrier and that the claim is not an attempt to claim the information itself.

Practice Note: Several cases, including In re Belski (argued on October 1, 2007), on the Federal Circuit dock are likely to further clarify the extent to which the Federal Circuit can be expected to heed the rumblings of the Supreme Court and pre-emptively narrow State Street. The Comiskey opinion already appears to require a claim to recite a “technological art,” a requirement recently eliminated by the Board in its In re Lundgren decision. (See IP Update, Vol. 8, No. 11.)

Patents / Infringement

The Federal Circuit Rejects “Joint Infringement” of a Patent
Contact: Paul Devinsky

In what is almost certain to be viewed as a watershed decision, the U.S. Court of Appeals for the Federal Circuit rejected the theory that the activities of multiple different entities could be combined to find “joint infringement” of a patent. Rather, the Court reaffirmed the rule that for direct infringement, there must be one single person or entity that fulfills all limitations of the claim. BMC Resources, Inc. v. Paymentech, L.P.., Case No. 06-1503 (Fed. Cir., Sept. 20, 2007) (Rader, J.).

BMC owned a patent covering a method for processing debit transactions without a personal identification number (PIN). The claims described an end-to-end system involving a customer, a merchant, a payment processing company and affiliated financial institutions.

It was undisputed that the defendant, Paymentech, did not itself perform all of the steps of the method claim. The sole issue on appeal was whether BMC could pursue a theory of “joint” or “divided” infringement to obtain damages based on the combined actions of Paymentech and the other entities involved in practice of the claimed method.

The Federal Circuit reiterated the rule that “direct infringement requires a party to perform or use each and every step or element of a claimed method or product.” The Court noted that a party may be vicariously liable for the actions of another only “in circumstances showing that the liable party controlled the conduct of the acting party.”

The Court rejected the argument that language in a 2006 opinion, On Demand Machine Corp. (See IP Update, Vol. 9, No. 4), made broad “joint infringement” theories viable. The Court explained "[i]nfringement requires, as it always has, a showing that a defendant has practiced each and every element of the claimed invention. … Where a defendant participates in infringement but does not directly infringe the patent, the law provides remedies under principles of indirect infringement. However, this court has held that inducement requires a predicate finding of direct infringement.”

The Court then acknowledged “that the standard requiring control or direction for a finding of joint infringement may in some circumstances allow parties to enter into arms-lengths agreements to avoid infringement.” The Court observed, however, that these issues usually can be avoided by properly drafting the claims so that a single entity may infringe. Because there was no evidence that Paymentech controlled or directed all of the other steps of the method claim, summary judgment of non-infringement was affirmed.

Practice Note: The Federal Circuit reminds us of the importance of thoughtful claim drafting to make sure that the claims read on the activities of a single entity. The Court has already granted a stay of an injunction pending appeal in Muniauction Inc. v. Thomson Corp., a case that raises a similar issue.

Patents / Standing

Separation of Enforcement from Ownership Leaves No Leg to Stand On
By Paul Devinsky

In a case involving a bankruptcy reorganization in which a trustee in bankruptcy was given the right to pursue claims of misappropriation or infringement (but not ownership of the bankrupt’s intellectual property), the U.S. Court of Appeals for the Federal Circuit reversed the district court finding that the no trustee had standing to bring suit. Morrow, et al. v. Microsoft Corp., Case Nos. 06-1512, -1518, -1537 (Fed. Cir., Sept. 19, 2007 (Moore, J.; Prost, J., dissenting).

Hank M. Spacone, as the trustee authorized to pursue infringement of At Home Corp.’s intellectual property (AHC IP), filed suit against Microsoft alleging infringement. Under the reorganization plan, Spacone has the exclusive right or duty to decide, at his discretion, whether to investigate, pursue or dismiss patent infringement actions (without consultation with co-trustees); collect damages from infringement litigations; incur any liability arising from claims or defenses of any infringement defendant; incur all costs and expenses associated with such litigations; and assume any litigation sanctions. Spacone did require consent from the trustee that owned the AHC IP to settle patent infringement litigation.

Microsoft filed a motion for summary judgment contending that Spacone lacked standing as another trustee, Morrow, had been granted ownership of the AHC IP in the reorganization. Spacone filed a cross-motion for summary judgment that standing existed. The district court denied Microsoft’s standing motion and granted Spacone’s cross-motion, concluding that Spacone had standing to sue under bankruptcy law principles and based on his trust beneficiary status. Specifically, the district court found that Spacone’s rights “arise out of bankruptcy law and trust relationships, rather than a traditional patent licensing relationship.” The district court determined that Spacone had a “proprietary interest” in the patent as AHC’s successor and as a trust beneficiary of the patent (that yet another trustee holds in trust for Spacone), as well as an equitable title holder. The district court did not analyze Spacone’s standing under patent law standing principles. Microsoft moved the district court to certify the standing order for interlocutory appeal, but the district court denied the motion.

Spacone later filed a motion in the bankruptcy court requesting clarification of his rights under the liquidation plan approved by that court. Spacone sought a declaration that he had the right to prosecute and settle patent infringement claims, the right to grant nonexclusive licenses to settle these claims, and the right to receive revenues generated from these settlement licenses. After bankruptcy court ruled in Spacone’s favor, the district court reversed, holding that Spacone did not have the right under the reorganization plan to grant licenses to settle certain litigation or receive licensing revenues since under the liquidation plan, ownership of and licensing rights in the intellectual property was assigned to another trustee.

After the district court granted Microsoft’s motion for summary judgment of non-infringement and invalidity, Spacone appealed. Microsoft also appealed on the standing issue.

The Federal Circuit considered the question as to how bankruptcy or trust law relationships affect the standing analysis in a patent infringement case as a question of first impression. The majority, citing the venerable (1922) Supreme Court case of Crown Die and Tool Co., noted that the patent infringement suit against Microsoft is governed by the patent laws and that it is patent law principles, not bankruptcy or trust law principles, which govern which parties are entitled to assert which rights. Under patent law principles, only a patentee or its “successors in title” is entitled to bring a “civil action for infringement of his patent.” Under Federal Circuit precedent, a successor in title is the party holding legal title to the patent.

In analyzing whether Spacone had suffered any injury in fact as a result of the alleged infringement (to warrant standing), the Court noted that Spacone held no license rights in the AHC IP, much less any exclusive rights. Further, Spacone did not have the right to grant licenses or sublicenses under the patent or to collect licensing royalties. Rather, co-trustee Morrow held legal title to the AHC IP and the right to license third parties and collect royalties from its licenses; royalties not shared with the co-trustees.

Noting that “[t]here are three general categories of plaintiffs encountered when analyzing the constitutional standing issue in patent infringement suits: those that can sue in their own name alone; those that can sue as long as the patent owner is joined in the suit; and those that cannot even participate as a party to an infringement suit,” the Court analyzed which category fit Spacone’s situation.

The first category includes plaintiffs that hold all legal rights to the patent as the patentee or assignee of all patent rights. Additionally, if a patentee transfers “all substantial rights” to the patent to a party, this amounts to an assignment or a transfer of title, which confers constitutional standing on the assignee to sue for infringement in its own name alone. Spacone was not found to fit this category.

The second category consists of exclusive licensees who are granted the right to prevent others from practicing the invention and who hold exclusionary rights and interests created by the patent statutes, but not all substantial rights to the patent. These exclusionary rights “must be enforced through or in the name of the owner of the patent,” and the patentee who transferred the exclusionary interest is usually joined to satisfy standing concerns. The Court found that Spacone did not fit this category either.

The third category consists of those that hold less than all substantial rights to the patent and lack exclusionary rights altogether. Such parties “are not injured by a party that makes, uses, or sells the patented invention because they do not hold the necessary exclusionary rights.” Plaintiffs in this category lack constitutional standing. A non-exclusive license confers no constitutional standing to bring suit or even to join a suit. The Court placed Spacone in this third category.

The Court concluded that although Spacone had been given the naked right to sue infringers under the reorganization plan, Morrow was the patent title holder, holder of the right to sell the patent, to grant exclusive and nonexclusive licenses or transfer any of the rights that it holds to another party. The Federal Circuit noted that unfortunately for Spacone, the “liquidation plan contractually separated the right to sue from the underlying legally protected interests created by the patent statutes—the right to exclude.”

The Court went on to note that Spacone’s future beneficial ownership interest in whatever assets are held by his co-trustee when the wind-down of AHC’s business is completed does not affect the outcome of the standing analysis, finding that an equitable future interest in the patent is not tantamount to legal exclusionary interest as of the time this suit was initiated.

Judge Prost, in dissent, argued that Spacone should be considered a “category two” plaintiff. Under Judge Prost’s analysis, Spacone does suffer an injury in fact since he holds an equitable interest in the title to the patent as beneficiary to the liquidating trust, noting that under the reorganization plan, the liquidating trust explicitly holds the title to the intellectual property in trust for Spacone . Thus, in her view, “infringement of the patent diminishes its value and directly reduces the benefit enjoyed by Spacone.”

Patents / Standing of Exclusive Licensees

No Gaming the System for Standing
By Paul E. Poirot

Following closely on the heels of Morrow, et al. v. Microsoft Corp. (See this issue) and Propat Int’l Corp. v. RPost, Inc., (See IP Update Vol. 10, No. 1), U.S. Court of Appeals for the Federal Circuit has again refused to find standing in a case involving a purported exclusive licensee of a patent attempting to bring an infringement suit in its own name without joining the patent owner. Int’l Gamco v. Multimedia Games, Inc., Case. No. 07-1034 (Fed. Cir., Oct. 15, 2007) (Rader, J.).

International Gamco (Gamco) possessed an “exclusive enterprise license” (a combination of an exclusive territorial license and an exclusive field of use license). The Federal Circuit concluded that an exclusive enterprise licensee, like a field of use licensee, does not hold all substantial rights in the licensed patent within the licensed territory and therefore the licensee did not have standing to sue without joining the patent owner.

Gamco executed an Asset Purchase Agreement with International Game Technology (IGT), by which Gamco assigned the patent in suit to IGT, but reserved for itself rights to sublicense the patent in the New York State Lottery Market and to sue for infringement in that market. Later, Gamco and IGT entered an additional agreement under which IGT granted Gamco the “exclusive” right to sublicense the patent for “the lawful operation of lottery games authorized by the New York State Lottery in the state of New York.” This modification also gave Gamco exclusive rights to sue “for the past, present, and future infringement of the Patent, within the Territory.” Gamco then amended its existing complaint against Multimedia Games alleging infringement of the patent.

Multimedia Games moved to dismiss Gamco’s amended complaint for lack of standing. The trial court concluded that Gamco held an “exclusive enterprise” license—a hybrid between a territorial license and a field of use license. “Rather than being restricted only to a geographic area or only to specific kinds of conduct Gamco’s rights are restricted to the operations of the New York State Lottery, an enterprise of the State of New York.” The trial court then held that Gamco had standing to sue, but certified the question for appeal. The nature of the license was not certified for appeal.

The Federal Circuit held that Gamco did not have standing to sue without the patent owner, noting that the single infringing act of offering New York State Lottery games might subject the infringer to multiple suits, e.g., suit by Gamco under its “enterprise license” for the “lottery” games and a separate suit by IGT or some other game-specific licensee for other games. In reaching its decision, the Court distinguished territorial exclusive licenses, noting that such exclusive licenses exclude “all other persons, even the patentee, from [infringing the patent] within the district.” The Court did not reach the question of whether Gamco could participate in the suit if it joined the patent owner.

Practice Note: While the practice of dividing the enforcement and licensing rights in the same patent among different parties has recently become popular from a business and/or tax perspective, the Federal Circuit is only now addressing the legal effects of these arrangements. The Court’s repeated decisions denying standing to licensees that do not have legal title to the patents they seek to enforce casts doubt on the value and viability of such arrangements.

Patents / Damages

High Royalty Rates Justified by Margins and History
By Todd Hales

“[G]iven the contentious history between [the] two parties,” the U.S. Court of Appeals for the Federal Circuit found that a 29.2 percent royalty rate for infringement was reasonable and was not an abuse of discretion by the district court or based on clear error. Mitutoyo Corp. v. Central Purchasing LLC, Case Nos. 06-1312, -1343 (Fed. Cir., Sept. 5, 2007) (Mayer, J.).

Mitutoyo owns a patent directed to an electronic caliper. A 1994 settlement agreement between Mitutoyo and Central Purchasing resolved a 1992 patent infringement dispute involving the patent and provided that Central would refrain from any future importation or sale of infringing products. In 1995, Central unsuccessfully sought a declaratory judgment that the subject patent was invalid and unenforceable. Notwithstanding the settlement agreement and the failed declaratory judgment action, Central later began selling digital calipers. In 2003, Mitutoyo sued for infringement. The district court issued a summary judgment of infringement, which was based on a stipulated claim construction, and granted Mitutoyo damages based on a 29.2 percent royalty rate. Central appealed.

The Federal Circuit upheld the infringement finding but reviewed the court’s damages findings. The Federal Circuit agreed with the district court that Mitutoyo failed to establish a market overlap between Central’s calipers and Mitutoyo’s calipers and, consequently, Mitutoyo was not entitled to lost profits. The district court also found that Central’s profit margin was 70 percent and that Mitutoyo’s profit margin was 29.2 percent, and imposed a 29.2 percent royalty rate. The Federal Circuit found this to be a reasonable royalty rate and disregarded Central’s arguments that the district court should have placed more emphasis on facts favoring a lower royalty rate, including figures other than profit margins. In support of its conclusion, the Court stated that the profit margins and the history of the two parties suggest that “it is unlikely that [patent owner] Mitutoyo would have been interested in less than a 29.2% rate.” However, the Court reversed the portion of district court’s damages award, finding clear error in the lower court’s inclusion of such sales in the royalty base.

Finally, the Federal Circuit disagreed with the district court’s dismissal of Mitutoyo’s willful infringement claim, finding that Central had knowledge of the patent at least as early as the 1995 declaratory judgment action. The Federal Circuit thus reinstated the willful infringement claim and remanded the matter to the district court try the claim.

Patents / Inequitable Conduct

Pro Se Applicant’s Fifteen Patents Buried Under Multiple Grounds of Inequitable Conduct
By Krista Vink Venegas, Ph.D.

The U.S. Court of Appeals for the Federal Circuit found a district court did not abuse its discretion in holding 15 patents unenforceable for multiple improprieties by the patentee. Nilssen, et al. v. Osram Sylvania, Inc., et al., Case No. 06-1550 (Fed. Cir., Oct. 10, 2007) (Lourie, J.).

Nilssen filed a patent infringement action against Osram, asserting patents for lighting products, including compact fluorescent light bulbs and ballasts for traditional fluorescent bulbs. Osram’s defenses included patent unenforceability for fraudulent procurement based on improper (1) submission of affidavits; 2) small entity payments; 3) claim of priority dates, 4) disclosure of co-pending patent litigation, and/or 5) disclosure of prior art. By the parties’ agreement, a trial date was granted on the issue of inequitable conduct.

During a six-day bench trial, Osram attacked Nilssen’s 11 asserted patents and four withdrawn patents. The court heard testimony from legal experts (on U.S Patent and Trademark Office procedures), technical experts (on the materiality of withheld prior art) and, most significantly, from Nilssen, the inventor and pro se applicant of the 15 patents. Ultimately, Nilssen’s self-professed knowledge of the patent statutes, USPTO procedures and case law cited during patent prosecution led to his demise. The district court found all 15 patents unenforceable.

The Federal Circuit found no fault with the district court’s rulings on the four withdrawn patents dropped late in the case and held that under the doctrine of infectious unenforceability, the court was justified in considering and ruling upon inequitable conduct of these four patents prior to determining if the same acts rendered the additional 11 related patents unenforceable.

The Court found no fault with the district court’s determination that each grounds supporting inequitable conduct was material to the asserted patents. The Court heavily deferred to the district court’s credibility determination of Nilssen’s trial testimony. “[T]his case presents a collection of … problems, which … indicated repeated attempts to avoid playing fair and square with the patent system. … Mr. Nilssen, while apparently gaining considerable knowledge of the patenting process, thought he did not need professional help. The result of this case, regrettably, proves that he was wrong.” Specifically, Nilssen’s intent to mispay fees was supported by Nilssen’s occasional payment of maintenance fees at the large entity rate. Nilssen’s intent to misclaim priority was supported by evidence of his priority strategy changes and contemporaneous letters expressing concern about obtaining new patents. Nilssen’s intent to hide the co-pending Motorola litigation was not excused by his testimony that he was unaware of the requirement to disclose related litigation, given his broad knowledge of other patent rules. Finally, the finding of intent to withhold prior art repeatedly cited in related patent applications was supported by Nilssen’s failure to provide any good-faith explanation for withholding the prior art.

Patents / Inequitable Conduct

No Explicit Teaching Necessary to Render Isolation of Stereoisomer from Mixture Obvious
By Lisa A. Kilday

Addressing the issue of the obviousness of a compound that is purified from a mixture of related chemical compounds, the U.S. Court of Appeals for the Federal Circuit reversed a district court’s pre-KSR finding of non-obviousness for Aventis’ leading ACE inhibitor, Altace^®. Aventis Pharma Deutschland GMBH and King Pharmaceuticals, Inc. v. Lupin, Ltd., Case Nos. 06-1530, -1555 (Fed. Cir., Sept. 13, 2007) (Linn, J.).

ACE inhibitors are a group of pharmaceutical compounds used primarily in the treatment of hypertension and congestive heart failure. Aventis and its competitor Schering created new ACE inhibitors, including ramipril. Ramipril has five carbon atoms, each of which can be spatially oriented in two different ways, designated either “R” or “S” depending on its configuration. SSSSR and SSSSS (also known as “5(S)”) are stereoisomers of each other—the fifth carbon atoms are simply configured differently.

Schering synthesized a mixture of 5S ramipril and its SSSSR stereoisomer, which became known as SCH 31925. Schering’s work led to two issued patents: U.S. Patent Nos. 4,587,258, which issued on May 6, 1986, and 5,348,944, which issued on September 20, 1994: the ’258 and ’944 patents, respectively. The two related patents and parent application disclosed ramipril, but did not describe the configuration of its stereoisomers. Aventis’ U.S. Patent No. 5,061,722 (the ’722 patent), which issued on October 29, 1991, claims ramipril in the S-configuration, known as “SSSSS” or “5(S)” stereoisomer.

After Schering’s ’258 patent expired on January 27, 2005, Lupin filed an Abbreviated New Drug Application (ANDA), seeking approval for a generic version of ramipril. Aventis sued Lupin for infringement of the ’722 patent. In a pre-KSR bench trial, the district court concluded that the prior art, including Schering’s patents, neither taught ramipril “substantially free of other isomers,” nor would a person of ordinary skill in the art been motivated to isolate ramipril in the 5(S) configuration substantially free of other isomers. Notably, the district court held that the ’722 patent was neither anticipated nor obvious under the standard of clear and convincing evidence with the caveat that the ruling might have been in Lupin’s favor under a preponderance of evidence standard. Lupin appealed.

Noting that the “teaching, suggestion, or motivation” test was not meant to be applied as a “rigid and mandatory formula,” the Federal Circuit held that, in the chemical arts, the “reason or motivation” need not be an explicit teaching that the claimed compound will have a particular utility. The Court focused on whether a purified compound is prima facie obvious over a mixture that existed in the prior art. The Court focused on whether it is known that the purified compound is present in the mixture, whether the purified compound has similar properties to the mixture and whether one of ordinary skill in the art at the time of the invention would have known how to perform the purification. The Court held that the prior art provided sufficient reason to isolate the claimed purified compound from Schering’s mixture without an explicit teaching of purification of this mixture.

Practice Note: Generally, to rebut prima facie obviousness, the patentee must show that the claimed compound has unexpected properties over a mixture. As it relates to the chemical arts, it now appears that (under KSR), if the isolation of stereoisomers of a compound is known, the resulting purified product is less likely to be found innovative and more likely to be found to be the product of ordinary skill and common sense.

Patents / Claim Construction / Obviousness / Remedies

Vonage May Soon Hang Up
By Paul Devinsky and David Larson

In a high-visibility post-KSR case spawning three separate opinions from a three-judge panel of the U.S. Court of Appeals for the Federal Circuit, a majority of the panel upheld the claim construction jury instruction and obviousness as to two of the three patents in suit while vacating a $58 million jury award and the awarded royalty rate. Verizon Services Corp., v. Vonage Holdings Corp., Case Nos. 07-1240, -1251, -1274 (Fed. Cir., Sept. 26, 2007) (Dyk, J.), Michel, C. J., joins in part) (Gajarsa, J., joins in part).

Verizon filed suit against Vonage, asserting that Vonage’s system infringed three of Verizon’s patents: the ’574, ’711 and ’880 patents. The district judge held a claim construction hearing and issued a claim construction order construing a number of disputed terms.

After a jury trial, the jury found that the asserted claims of the ’574, ’711 and ’880 patents had been infringed and were not invalid as obvious. The jury awarded damages of $58 million and set a royalty rate of 5.5 percent to govern any future infringement. The district court issued a permanent injunction barring Vonage from further infringing the asserted claims, but stayed the injunction pending appeal as to present or existing customers. Vonage filed an emergency motion for stay seeking to extend the district court’s stay of the injunction pending appeal to new customers as well. The Federal Circuit fully stayed the injunction pending appeal and ordered expedited briefing.

Claim Construction

Vonage contended that at the Markman hearing the district court misconstrued a number of pertinent claim terms in each of the three patents. The district court used the same claim constructions in the jury instructions as it had articulated in its Markman decision. Finding that the district court did err in its jury instructions construing the claim terms of the ’574 and ’711 patents, the Court declined to answer the question of whether raising claim construction issues at the Markman stage excuses compliance with the Rule 51 requirement that a party object to a jury instruction at the time the district court proposes it.

However, with regard to the ’880 patent the Court noted that “because the trial record establishes that it indeed would have been futile for Vonage to object, at the jury charge conference, to the district court’s construction of the [disputed] claim term,” no further objection was necessary to preserve the claim of error. In fact, on the objection of Verizon’s counsel, the trial court excluded expert testimony relating to the issue of the alleged error, i.e., whether the term “localized wireless gateway system” should be limited to a system having a range of only a few feet. As to that claim term, the Federal Circuit reversed, finding “a clear disavowal” of the broader construction based on arguments made by Verizon to secure allowance of claims reciting the term in dispute in a later related application. The Court, citing Microsoft v. Multi-Tech Systems, rejected the argument that the disclaimer in the later application should not apply to the ’880 patent because it occurred after the ’880 patent issued.

As for the prejudice necessary to warrant a new trial, Vonage convinced the Court that “had the district court adopted Vonage’s proposed instruction,” certain devices would not infringe and that at trial Vonage was precluded from introducing evidence to that effect. The Court ordered a new trial on the ’880 patent. The Court also further limited claim scope of the ’880 patent by reference to a summary of invention that “begins with a description of the gateway system of the ‘present invention,’” noting that “[w]hen a patent thus describes the features of the ‘present invention’ as a whole, this description limits the scope of the invention.”

Obviousness

Vonage challenged the jury instructions on obviousness concerning the need to find a “suggestion in the prior art to combine the elements.” As to the ’574 and ’711 patents, the Court found no prejudicial error because the obviousness evidence centered on a single reference “and thus any alleged error in instructions requiring a finding of motivation to combine several references would have been harmless.” However, with respect to the remanded ’880 patent, the Court instructed the district “to consider in the first instance Vonage’s argument concerning alleged error in the instruction under KSR, and to consider the issue of prejudice.”

Damages and Remedies

After ordering a new trial on the ’880 patent, the Federal Circuit vacated the determination that Verizon is entitled to a damages award of $58 million and a royalty rate of 5.5 percent, “since the jury’s verdict gives no indication what portion of such damages were allocated to the infringement of the ’880 patent.”

Finally, the Court affirmed the injunction with respect to the ’574 and ’711 patents, noting that the district court finding of irreparable harm was not based on lost sales alone but included evidence of both price erosion and lost opportunities to sell other services to the lost customers.

Dissent
In his dissent-in-part, Chief Judge Michel disagreed with the disposition of the issues regarding the ’880 patent, as well as vacating the damage award, concluding that the district court correctly construed the terms of the ’880 patent.

Chief Judge Michel further argued that the district court’s jury instructions on obviousness were consistent with “the precedents of this court,” noting that the district court’s obviousness instructions did not require an explicit reason to combine to be found in the prior art references themselves. Rather, the district court instructed that such a reason could be gleaned from “the knowledge that was generally available to one of ordinary skill in the relevant art” and concluded that such an instruction passes muster under KSR

Practice Note: In a settlement announced on October 25, 2007 Vonage agreed to pay Verizon $120 million if the Federal Circuit denies its petition for rehearing, and $80 million if its petition for rehearing is granted. This settlement comes just 2 weeks after Vonage agreed to pay $80 million to Sprint Nextel to settle a similar patent suit.

Patents / Injunctions

Federal Circuit Affirms Injunction, but Reverses Contempt Finding Against Apotex
By Brian W. Nolan

The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s expansion of an earlier injunction via a contempt proceeding, but reversed the finding of contempt against Apotex for violating the earlier injunction. Abbott Laboratories v. Torpharm, Inc., et al., Case No. 07-1019 (Fed. Cir., Oct. 11, 2007) (Michel, C.J.; Dyk, J. concurring-in-part and dissenting-in-part.).

Apotex filed a first Abbreviated New Drug Application (ANDA) seeking to manufacture and sell a generic version of Abbott’s Depakote®, an anti-seizure medication. Judge Posner, sitting as trial judge, concluded that Apotex’s filing infringed the claims of the Abbott patents and enjoined Apotex from commercially manufacturing, using, selling or offering for sale generic divalproex sodium in the United States before the expiration of U.S. Patent Nos. 4,988,731 and 5,212,326. Undeterred, Apotex entered into an agreement with NuPharm to file a second ANDA for a new form of its generic divalproex sodium product. Abbott reacted with a new infringement lawsuit against both companies and initiated contempt proceedings against Apotex in the original lawsuit. Since Judge Posner found that the new product had no colorable differences from the product disclosed in the first ANDA, he modified the injunction to expressly cover the product of the new ANDA and held Apotex in contempt for violating the earlier injunction.

Apotex appealed to the Federal Circuit, arguing that the Hatch-Waxman Act did not confer jurisdiction on a district court to consider contempt proceedings for violating an injunction and that a contempt proceeding was an improper venue in which to determine infringement. Apotex also argued that an infringement determination can come only after a full trial under the Federal Rules of Civil Procedure.

A panel majority rejected both arguments and left undisturbed the district court’s decision to hold a contempt hearing and determine potential infringement by a new ANDA filing. The unanimous panel, however, reversed the district court’s contempt ruling, finding that the district court erred as a matter of law in interpreting the language of the original injunction. The Court stated that an injunction that is vague as to the proscribed conduct must be narrowly construed. The injunction in this case prevented Apotex from manufacturing, using, selling and offering for sale a commercial product in the United States. Apotex manufactured and used the product, but did so in Canada. Further, although the filing of a second ANDA constituted an artificial act of infringement under the Hatch-Waxman Act, the injunction did not expressly state that Apotex could not file a second ANDA. Therefore, the district court could not hold Apotex in contempt for violating the injunction.

Practice Note: Considering the requirement that a court must construe injunctions narrowly when considering whether activities not expressly stated within the injunction violate that injunction, it behooves patent owners to not seek only broad injunctions but to carefully craft proposed language to specifically ask for exclusion of all potentially infringing activities.

Patents / Inducement

Showing of Direct Infringement Requires Specific Proof
By Sabrina Chang

The U.S. Court of Appeals for the Federal Circuit overturned a jury verdict of vicarious liability based on inducement because the plaintiff failed to meet its underlying burden to prove direct infringement. ACCO Brands, Inc. v. ABA Locks Manufacturer Co., Ltd., Case No. 06-1570 (Fed. Cir., Sept. 12, 2007) (Lourie, J.).

A manufacturer, ABA Locks, and distributor, Belkin Components, were sued for selling products that allegedly infringe ACCO’s patents, which claim a locking system designed to prevent the theft of personal computers. The district court construed an essential element of the asserted claims relating to a method by which ACCO’s patented locks are used. At trial, under this construction, Belkin’s products were found to be capable of both infringing and non-infringing uses. The jury held that the defendants had willfully induced infringement of the asserted claims. ABA Locks appealed.

In revising, the Federal Circuit explain that in order to prevail, ACCO must establish that direct infringement has occurred and that the defendants knowingly induced the direct infringement with specific intent to encourage the direct infringement. Upon review, the Court determined that ACCO failed to prove its case, specifically in meeting the threshold requirement of showing direct infringement.

The Court was not moved by ACCO’s reliance on the testimony of its expert as evidence that the accused product was capable of infringing use. The Court found Dr. Dornfeld’s testimony that the infringing use was the “natural and intuitive way to employ the device” to be unpersuasive in light of the existence of the product’s non-infringing use—especially as the non-infringing use had been explicitly identified in Belkin’s sales materials.

A patentee must “either point to specific instances of direct infringement or show that the accused device necessarily infringes the patent in suit … hypothetical instances of direct infringement are insufficient to establish vicarious liability.” The Court noted that anecdotal testimony or surveys of Belkin’s customers that Belkin encouraged the infringing use might have helped ACCO’s position.

Practice Note: This decision is merely a reminder that allegations of vicarious infringement must be clearly and objectively substantiated with evidence of the underlying direct infringement.

Patents / Obviousness

Error in Determining “Person of Skill in the Art” Results in Reversal of Validity Finding
By Astrid R. Spain and Deborah L. Cadena, Ph.D.

Finding clear error in a district court’s determination of the level of ordinary skill in the art, one of the Supreme Court Graham v. John Deere factors, the U.S. Court of Appeals for the Federal Circuit reversed the lower court’s validity finding. Daiichi Pharm. Co. v. Apotex, Inc., Case No. 06-1564 (Fed. Cir., July 11, 2007, nonprecedential opinion; Sept. 12, 2007, reissued as precedential opinion) (Archer, J.).

The patent claims in issue were directed to a method for treating bacterial ear infections by topically administering the antibiotic ofloxacin marketed by Daiichi as Floxin Otic solution, 0.3 percent. Apotex had filed an Abbreviated New Drug Application (ANDA) for a generic version Floxin Otic, certifying under Paragraph IV that the patent is invalid. Daiichi sued Apotex for infringement. At trial, Apotex argued that a prior art reference that taught the use of ear drops containing the gyrase inhibitor ciprofloxacin to treat middle ear infections rendered obvious the use of ofloxacin, also a gyrase inhibitor. The district court determined that a person of ordinary skill in the art “would have a medical degree, experience treating patients with ear infections, and knowledge of the pharmacology and use of antibiotics,” and thus, would be “a pediatrician or general practitioner.” The prior art reference recommended that “[gyrase inhibitors] should be used only in difficult cases and exclusively by the otologist.” Accordingly, the district court rejected Apotex’s argument that the use of the gyrase inhibitor ofloxacin to topically treat bacterial ear infections was obvious. Apotex appealed.

On appeal, Apotex argued that the district court erred in its determination that one having ordinary skill in the relevant art is properly defined as a pediatrician or general practitioner. Rather, Apotex argued that one having ordinary skill in the relevant art is properly defined as “a person engaged in developing new pharmaceuticals, formulations and treatment methods, or a specialist in ear treatments such as an otologist, otolaryngologist, or otorhinolaryngologist who also has training in pharmaceutical formulations.” The Federal Circuit commenced its review by noting that the technology art of the patent is the creation of a compound to treat ear infections without damaging a patient’s hearing. The Court pointed out that the named inventors were specialists in drug and ear treatments—not general practitioners or pediatricians. The Court also noted that the patent described the testing of ofloxacin on animals and that animal testing was traditionally outside the realm of a pediatrician or general practitioner. Finally, the Federal Circuit stated that while a pediatrician or general practitioner could prescribe ofloxacin, he or she would not have the training or knowledge to develop the claimed compound. The Court concluded, “Daiichi’s evidence as to why this reference did not render the invention of the … patent obvious was based on an improper determination of the level of skill in the art,.” and reversed the district court’s validity finding.

Patents / Prosecution

Breadth of Claim Interpretation During Examination
By Hosang Lee

Addressing an issue of breadth of claim interpretation during patent examination, the U.S. Court of Appeals for the Federal Circuit reversed the decision of the Board of Patent Appeals and Interferences (the Board), holding that appellant’s application is not anticipated by a cited reference and remand for completion of examination. In re Buszard et al., Case No 06-1489 (Fed. Cir., Sept. 27, 2007) (Newman, J.; Prost, J., dissenting).

Buszard’s claimed invention relates to a flame retardant composition that produces a flexible polyurethane foam and the flexible foamed article made from that composition. The U.S. Patent and Trademark Office (USPTO) rejected the claims as being anticipated by prior art that disclosed a rigid foam produced by chemical reaction of compounds that form a rigid foam, and a flexible foam produced by crushing the rigid foam. Buszard appealed to the Board, which in turn affirmed the examiner’s decision.

The Board interpreted claim term “flexible polyurethane foam reaction mixture” to mean “any reaction mixture which produces, at least ultimately, a flexible polyurethane foam.” Buszard argued that the prior art rigid foam product is chemically different from a flexible foam that is directly produced by polymerization without crushing and that this difference is readily understood by a person of ordinary skill in the art. While agreeing that a flexible foam and a rigid foam have different chemical structure and are produced from different chemical reactants, the USPTO argued that the rejection should be sustained because the USPTO is entitled to give claims their broadest reasonable interpretation during examination.

The Court agreed with the general proposition that in order to facilitate sharpening and clarifying the claims at the application stage, the patent claims may be given their broadest interpretation consistent with the specification. This is because during prosecution, while claims are subject to amendment, the patent examiner and the applicant—in the give and take of rejection and response—may work toward defining the proper metes and bounds of the invention.

Turning to the specific facts of this case, the Court rejected the USPTO argument that the product made from mechanical crushing of the rigid foam is the same as the flexible product of a flexible form reaction mixture, noting this theory was not mentioned by the examiner or the Board and thus gave Buszard no opportunity to refute it during examination and appeal. In addition, the Court found the theory to be without record evidence or support. The Court concluded that no matter how broadly “flexible foam reaction mixture” is construed, it is not a rigid foam reaction mixture and that it is not a reasonable claim interpretation to equate “flexible” with “rigid,” or to equate a crushed rigid polyurethane foam with a flexible polyurethane foam. Thus, the Court reversed the anticipation rejection.

In dissent, Judge Prost argued that the majority failed to follow Federal Circuit precedent, in terms of claim interpretation during prosecution. As explained by Judge Prost, in the content of an infringement suit, courts take on the difficult task of analyzing the claim terms to ascertain the meaning the terms would have to a person of ordinary skill in the art as of the filing date of the patent application. Courts thus examine the claims, the specification, the prosecution history and possibly extrinsic evidence, all in an effort “to determine what the applicant regards as his invention.” However, Judge Prost reminded us that one need not engage in a guessing game during prosecution. If a claim term is ambiguous or confusing, the applicant can clarify it. If an applicant wants a claim term to have a specific meaning, the applicant can either amend the claim to expressly convey that meaning or otherwise provide an express definition for the claim term. In light of these differences, Judge Prost would find that the claim language in issue could reasonably be interpreted to include the mixture disclosed in the prior art (which is capable of producing a flexible polyurethane foam) and that if Buszard seeks a narrower interpretation, he should simply amend his claim.

Patents / Public Use

Use “Rule of Reason” to Determine Sufficiency of Corroborating Evidence
By Kevin Roddy

Addressing the issue of the sufficiency of evidence that corroborates a witness’s testimony concerning invalidating activities, the U.S. Court of Appeals for the Federal Circuit held that evidence is analyzed under the “rule of reason” test, which involves an assessment of the totality of the circumstances including an evaluation of all pertinent evidence. Adenta GMBH v. OrthoArm and American Orthodontics, Case Nos. 06-1571, -1598 (Fed. Cir., Sept. 19, 2007) (Lourie, J.).

OrthoArm patented a new type of bracket for holding orthodontic braces and assigned patent rights to American Orthodontics. American Orthodontics agreed to pay an ongoing royalty to OrthoArm. American Orthodontics also distributed Adenta’s products. In a contract between American Orthodontics and Adenta, the companies agreed to share royalty payments. However, after entering into the contract, Adenta came to believe that the patent was invalid and threatened to stop paying its share of the royalties. American Orthodontics responded with threats, leading Adenta to file for declaratory judgment, asserting that the patent was invalid and unenforceable. OrthoArm moved to dismiss the suit for lack of subject matter jurisdiction on the ground that Adenta never had a reasonable apprehension that it would be sued by American Orthodontics and that Adenta and American Ortho conspired to contest the validity of the patent.

Under the newly developed MedImmune precedent, declaratory judgment jurisdiction arises when a patentee asserts its patent rights against another party’s activity or planned activity. No actual infringement is required, nor is any cessation of royalty payments. Here, the Court found jurisdiction because the patent holder had threatened to assert its rights if Adenta failed to pay royalties, thus creating a substantial controversy.

Turning to the merits of the invalidity claim and using the “rule of reason” as to the quantum of evidence required, the Court noted that in order to demonstrate public use under § 102(b), testimony from a single individual is insufficient to invalidate a patent. Rather, some corroborating evidence must always be presented. Once that threshold is passed, a jury may evaluate the validity of a patent considering all of the evidence as a whole. Here, during the trial, Adenta argued that the patent claims were invalid based on the public use or sale of its orthodontic bracket in a trade show, which was held more than one year before the priority date of the patent. Adenta presented five witnesses to testify that the invention had been shown at a trade show. In addition, Adenta produced a letter from Adenta’s German patent attorney to Adenta’s U.S. patent attorney instructing the U.S. attorney to file an application on the bracket within a year of the trade show. Despite OrthoArm’s attempts to discredit the evidence, the Court found that the corroboration threshold was met and that the fact-finder had not committed clear error in considering all of the evidence.

Patents / Claim Construction

Arguments Made During Prosecution May Limit Claim Scope
Contact: Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit reversed the district court’s claim construction, noting that arguments made during the prosecution considered with the understanding of a person of ordinary mechanical skill will trump the plain meaning of a claim term. Harvey D. Gillespie v. Dywidag Systems International, USA, Case No. 06-1382 (Fed. Cir., September 6, 2007) (Newman, J.).

Gillespie sued Dywidag for infringement of its patents directed to a mine roof bolt used for reinforcing and supporting the rock formation above a mine roof. Dywidag conceded the presence of all claim elements in the accused device except the element of a “drive collar … having an outer surface defining a drive head that accepts a driving mechanism for rotating [the bolt].” The figures in the Gillespie patents show a drive collar shaped like a hexagonal nut surrounding the bolt. Because of its shape, the drive collar can be grasped and turned from the outside. In contrast, the bolt head of the Dywidag structure contains a square, recessed key socket. A device may be inserted into the socket for the purpose of turning the bolt. The outer surface of the bolt head is cylindrical and thus difficult to grasp and turn.

Dywidag argued that its structure for accepting a driving mechanism was located on the inner surface of the bolt head or collar, rather than the outer surface. However, the district court ruled that the term “outer surface” in the claims does not mean only the exterior surface of the drive head but also included surfaces exterior to an inner portion of the bolt. Dywidag appealed.

The Federal Circuit found that a person of ordinary mechanical skill would not construe the term “outer surface” of the drive collar to include a collar whose interior, not exterior, accepts the drive tool. Although the surface need not be hexagonal, it must be outer with respect to the collar. Furthermore, the Federal Circuit found that Gillespie, as patent applicant, used this same meaning of “outer surface” when he distinguished a prior art reference during prosecution, arguing that the prior art reference “appears to be cylindrical on the outside, thus impractical for being rotated by a mine roof bolting machine.” The Court found that when making this argument, Gillespie clearly used the “outer” to refer to the outside surface of the bolt head. Although Gillespie argued that the distinction was not material to the grant of the patent, the Federal Circuit nevertheless held that Gillespie should be held to what he declared the term “outer surface” meant during the prosecution of the patent.

Patents / Double-Patenting

Delay in Presenting New Claims Not a Basis for Double Patenting Rejection
Contact: Paul Devinsky

The U.S. District Court for the District of Columbia overturned a decision by the Board of Patent Appeals and Interferences (the Board) of the U.S. Patent and Trademark Office (USPTO), affirming an examiner’s refusal to grant a reexamination certificate because the patent’s claims were allegedly invalid for obviousness-type double patenting. Takeda Pharmaceuticals Co., LTD., v. Dudas, Civ. No. 06-1640 (D.D.C., Sept. 18, 2007) (Hogan, C.J.).

Issued in 1996, U.S. Patent No. 5,583,216 (the ’216 patent) claims priority back to 1974. The second patent in this priority chain, U.S. Patent No. 4,298,606 (the ’606 patent), claims chemicals referred to as cephem products and discloses methods for making them. It was not until 1990 that Takeda actually filed claims directed to the methods, which ultimately issued in the ’216 patent. In 1998, an anonymous third party requested reexamination of the ‘216 patent, alleging that cephem product claims of the ’606 patent rendered the process claims of the ’216 patent invalid for obviousness-type patenting. The examiner agreed, and the Board upheld the decision on the grounds that the process claimed in the ’216 patent was disclosed in the ’606 patent and that the process claims of the ‘216 patent were patentably indistinct from the ’606 patent’s product claims because there were no credible alternative methods for making cephem products. The Board also faulted Takeda for the 15-year delay in presenting the method claims.

On appeal, Takeda argued that process claims of the ’216 patent and product claims of the ’606 patent were patentably distinct because alternative methods exist for making the cephem products. Takeda sought to introduce a declaration (the Duggan declaration) that disclosed such alternate methods for making cephem products. The USPTO did not dispute the substance of the Duggan declaration, but rather sought to have it excluded for not having been provided to the Board previously and for raising new issues. The Court disagreed, noting that it was long-settled case law that an appeal from the Board to a district court, as opposed to the Federal Circuit, allowed applicants to introduce new evidence. The USPTO also argued that, even if considered, the Duggan declaration is irrelevant because the alternate cephem synthesis methods described in the Duggan declaration were not known at the time of filing of the ’216 patent. The Court concluded that courts may look at evidence arising after the date of filing when conducting a double-patenting analysis. As such, the Duggan declaration was proper and relevant to the issue of obviousness-type double patenting. The Court cited Federal Circuit case law for the proposition that, where a patented product can be made by a process other than the patented process, no double-patenting exists between the two. The Court also noted that it failed to find any case law supporting a theory that Takeda’s 15-year delay in filing the process claims of the ’216 patent should render such claims invalid for obviousness-type double patenting. The Court granted summary judgment, ordering the USPTO to issue a reexamination certificate.

Patents / Civil Procedure

State University Waives Eleventh Amendment Immunity
By Stephen J. Gaudet, Ph.D.

Addressing the issue of whether a state university can waive its Eleventh Amendment immunity by expressly agreeing to federal jurisdiction in an agreement, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s holding that the University of Massachusetts at Lowell (the University) waived its immunity by agreeing to submit to jurisdiction in an appropriate federal court. Baum Research and Development Co., Inc. v. University of Massachusetts at Lowell, Case No. 06-1330 (Fed. Cir., Oct. 10, 2007) (Newman, J.).

The University and Baum entered into a license agreement that included a provision that the “agreement will be construed … according to the laws of the State of Michigan and all parties agree to … submit to jurisdiction in the appropriate State or Federal Courts.” Subsequently, Baum filed suit in a Michigan district court, claiming that the University breached the agreement and infringed the patents. The University responded by asserting immunity from the suit based on the Eleventh Amendment, which in essence bars non-consensual suits against a state or state entity in a federal court. The district court denied the University’s motion to dismiss, stating that any immunity had been waived by the agreement. After a jury found for Baum on the contract claim, the University filed a post-trial motion reasserting its claim of immunity. The district court again denied the motion and stayed further proceedings pending appeal.

The Federal Circuit agreed with the district court’s analysis, finding that immunity in this particular case was expressly waived by the license agreement. Relying on Supreme Court precedent in College Savings Bank, the Court noted that a state waives its immunity when it clearly makes manifest its intention to submit to federal jurisdiction, provided this intention is “unequivocally expressed.” The Court did, however, admonish against general “sue-and-be-sued” clauses, noting that such clauses have been held insufficient to waive immunity in the Supreme Court’s Port Authority decision. However, the Federal Circuit agreed with the district court that provision in the subject agreement met the requirements of College Savings Bank. The Federal Circuit also rejected the argument that the University acted in an ultra vires manner, stating that the record lacks sufficient support for the argument that the University and its officials did not have authority to enter into the agreement which provided for waiver of immunity.

Practice Note: In protecting and preserving immunity, a state or one of its entities should be careful in considering those provisions of an agreement that dealing with dispute resolution and governing law. Reviewers should keep in mind the “unequivocally expressed” test as articulated in College Savings Bank, as well as the admonishment provided in Port Authority.

Patents / Civil Procedure

Pro Se Litigants Held to Lesser Standard to State a Patent Infringement Claim
By Todd Hales

Seemingly because of a lesser standard applied to pro se litigants, a plaintiff was able to convince the U.S. Court of Appeals for the Federal Circuit to overturn a district court’s dismissal for failure to state a claim in his complaint, which spanned over 95 pages. McZeal v. Sprint Nextel Corp., Case No. 06-1548 (Fed. Cir., Sept. 14, 2007) (Archer, J.; Dyk, J., concurring-in-part and dissenting-in-part).

McZeal, a prolific pro se litigant, filed suit against Sprint Nextel alleging, inter alia, infringement of his U.S. patent through use of a particular Motorola i930 cellular telephone. Following an initial hearing and a motion by Sprint Nextel to dismiss the case for failure to state a claim, the district court concluded that the complaint failed to state a claim and subsequently denied McZeal’s request to amend the complaint. McZeal appealed.

The Federal Circuit noted that, as recognized by the Fifth Circuit and the Supreme Court, pro se litigants should be granted leeway on procedural matters, such as pleading requirements. The Federal Circuit acknowledged the five elements for stating a patent infringement claim, as identified by Federal Rules of Civil Procedure Form 16 (2006), but simplified the analysis by reciting the Supreme Court’s explanation in Bell Atlantic as to what is necessary for a claimant to state a claim: “Federal Rule of Civil Procedure 8(a)(2) requires only ‘a short and plain statement of the claim showing that the pleader is entitled to relief,’ in order to ‘give the defendant fair notice of what the … claim is and the grounds upon which it rests.’” The Federal Circuit elaborated, “[i]t logically follows that a patentee need only plead facts sufficient to place the alleged infringer on notice as to what he must defend.” The Court after identifying how McZeal’s complaint, factually meager though it was, pled sufficient facts to place Sprint Nextel on notice as to what it must defend, vacated the district court’s dismissal of McZeal’s complaint and remanded the case to “provide an opportunity for the district court to require McZeal to delineate his patent and trademark infringement claims and the evidence supporting these claims.”

In dissent, Judge Dyk argued that because of McZeal’s extensive litigation experience, he should not be entitled to a lesser standard as a pro se litigant and that McZeal’s conclusory allegations without supporting factual averments should not sustain his claim for patent infringement under the Doctrine of Equivalents.

Trademarks / Infringement

Distributor Not Vicariously Liable for Trademark Infringement
By Jeremy T. Elman

Addressing issues of trademark infringement and breaches of various fiduciary duties, the U.S. Court of Appeals for the Eleventh Circuit affirmed the district court, holding the unauthorized use of a trademark by a retailer was not attributable to the distributor of the product. Optimum Technologies, Inc. v. Henkel Consumer Adhesives, Inc., 496 F.3d 1231 (11th Cir., Aug. 22, 2007) (Birch, J.).

Optimum manufactured a two-sided adhesive product to prevent slippage of rugs and mats on various surfaces. Optimum had the trademark for “Lok-Lift” in connection with the product. Henkel Consumer Adhesives (HCA) was a distributor of a number of consumer goods to various retailers such as Home Depot and Lowe’s. The parties agreed that HCA would distribute Optimum’s “Lok-Lift” product to its retailers.

The parties’ relationship was “uneventful” between 1994 and 1998, but HCA began internally developing its own adhesive carpet tape product called “Hold-It.” In 2002, without informing Optimum, HCA began replacing the “Lok-Lift” product at its retailers with its new “Hold-It” product. HCA used similar packaging for its replacement “Hold-It” product and continued to feature the “Lok-Lift” product on its website. Many of the retailers believed that the “Hold-It” product was simply a new version of the “Lok-Lift” product. Thus, in many instances, retailers confusingly used the products, often placing the defendant’s “Hold-It” product on shelves labeled for plaintiff’s “Lok-Lift” product. Optimum contended this created a likelihood of confusion attributable to defendant under 15 U.S.C. § 1114(1)(a).

The Eleventh Circuit held that the “pivotal question” was whether the retailers’ confusing uses were attributable to HCA, the distributor. The court affirmed the district court’s ruling that HCA did not “use” the plaintiff’s mark at the retail level, so the plaintiff failed to support the “use” requirement of a trademark infringement claim under § 1114(1)(a) or an unfair competition claim under § 1125(a). The Court determined that the defendant never used the plaintiff’s mark since the retailers were the only “users” of the product. The Court held that “[a]ny alleged confusion in this case, even if present, was not directly attributable to HCA, the alleged infringer.” The Court also declined to consider the plaintiff’s belated allegation of contributory infringement, since it was not pled and “there is no separate statutory provision for contributory trademark infringement.”

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IP Update, Vol. 10, No. 10, October 2007

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