IP Update, Vol. 20, No. 5

Venue in Patent Cases Limited by § 1400(b)

The Supreme Court of the United States has tightened restrictions on where patent infringement actions may be filed. In an 8–0 decision, the Supreme Court held that for purposes of venue in patent infringement actions, a domestic corporation “resides” only in its state of incorporation. As a result, a domestic corporation may only be sued for patent infringement in a judicial district (1) in its state of incorporation or (2) where the domestic corporation has committed acts of infringement and has a regular and established place of business. TC Heartland LLC v. Kraft Foods Group Brands LLC, Case No. 16-341 (Supr. Ct., May 22, 2017) (Thomas, Justice).

TC Heartland manufacturers flavored drink mixes and is incorporated under Indiana law and headquartered in Indiana. Kraft filed a patent infringement complaint in the US District Court for the District of Delaware accusing TC Heartland of infringing Kraft’s patents. TC Heartland argued venue was improper in Delaware under 28 USC § 1400(b) and moved to transfer the case to the US District Court for the Southern District of Indiana. Section 1400(b), also referred to as the patent venue statute, provides that “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” TC Heartland argued that venue was improper in Delaware because TC Heartland (1) did not reside in Delaware and (2) did not have a regular and established place of business in Delaware.

Both the district court and the US Court of Appeals for the Federal Circuit rejected TC Heartland’s arguments. The Federal Circuit focused on the interplay between the patent venue statute (§ 1400(b)) and the general venue statute (28 USC § 1391(c)), and concluded that for purposes of venue in a patent infringement action, a corporate entity resides in any judicial district in which the entity is subject to personal jurisdiction (IP Update, Vol. 19, No. 5). Applying this logic, the Federal Circuit found that since the District of Delaware could exercise personal jurisdiction over TC Heartland, TC Heartland resided in Delaware for purposes of venue under § 1400(b). TC Heartland appealed to the Supreme Court.

In its petition for certiorari, TC Heartland argued that the Federal Circuit, relying on the 2011 amendments to § 1391(c), improperly held that the 1957 Supreme Court decision in Fourco Glass v. Transmirra Prods. (where the Supreme Court concluded that for purposes of § 1400(b), a domestic corporation “resides” only in its state of incorporation) is no longer the prevailing law when determining where venue is appropriate in a patent infringement action (IP Update, Vol. 19, No. 12). In Fourco Glass, the Supreme Court rejected the argument that § 1400(b) incorporated the broader definition of “reside” as recited in the general venue statue of § 1391(c). The precise question presented to the Supreme Court was the same as that decided in Fourco: “whether 28 U.S.C. § 1400(b) is the sole and exclusive provision governing venue in patent infringement actions and is not supplemented by 28 U.S.C. § 1391(c).”

The Supreme Court reversed the Federal Circuit and held that the 2011 amendments to § 1391 did not modify the meaning of “reside” in § 1400(b) as interpreted by Fourco, and that therefore a domestic corporation “resides” in its state of incorporation for purposes of the patent venue statute. The Supreme Court found no indication that Congress intended to alter the meaning of the patent venue statute, as interpreted by Fourco, when it enacted the 2011 amendment. In fact, the Supreme Court noted that the holding in Fourco was even stronger now that § 1391(c) expressly states that it does not apply when “otherwise provided by law” and thus contemplates that other venue statutes, including the patent venue statute, may retain a definition of “reside” that conflicts with the default definition provided by the general venue statute. The Supreme Court also found that Congress did not ratify the Federal Circuit decision in VE Holding when it passed the 2011 amendment. Instead, the 2011 amendment undermined VE Holding, since that decision relied almost exclusively on the addition of the phrase “[f]or venue purposes of venue under this chapter” in the 1988 amendment. By deleting the clause “under this chapter” in the 2011 amendment, the wording of the current version of § 1391 became nearly identically to the 1948 version of § 1391. Thus, the Supreme Court found that the interpretation of § 1400 in Fourco remains the prevailing law in determining venue for patent infringement actions and as applied to corporations, “reside” in § 1400(b) refers only to the state of incorporation.

Practice Note: The Supreme Court’s decision will have a significant impact on patent litigation. First, the most immediate consequence is the likely diminishment of the Eastern District of Texas as a popular patent litigation forum, since most companies sued there are neither incorporated in Texas nor have a regular and established place of business in the Eastern District of Texas. Second, there may be a concomitant increase in the number of filings in Delaware (where many companies are incorporated) and the Northern District of California and Southern District of New York (where many companies are headquartered). Third, there will likely be increased motion practice as to whether a defendant has a “regular and established place of business” in a district sufficient to support venue under § 1400(b). Fourth, there may be an increase in the number of filings against the foreign parent corporations of US subsidiaries, since foreign defendants can be sued in any judicial district where personal jurisdiction is found. Finally, given that a plaintiff now likely must sue each defendant to a multi-party litigation in separate jurisdictions, there may be an increase in the use of multi-district litigation panels to address pre-trial issues. This could result in months of delay while motion practice before the multi-district litigation panel is resolved.

On-Sale Bar Under the America Invents Act

The US Court of Appeals for the Federal Circuit interpreted the scope of the on-sale bar provision, 35 USC § 102(a)(1), under the America Invents Act (AIA) and held that claims are invalid where there is public disclosure of a sale of an invention, even when the details of the invention are not public. Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., Case Nos. 16-1284; -1787 (Fed. Cir., May 1, 2017) (Dyk, J).

The Federal Circuit has long held that the on-sale bar of “old” 35 USC § 102(b) is triggered when an invention is made available to the public through a commercial offer or contract to sell a product embodying that invention and the sale is made public. Congress amended the text of § 102 to add the phrase “or otherwise available to the public” when identifying bars to patentability. Under “new” § 102(a)(1), patents issued on applications filed after March 2013 are barred from patenting if the invention is “described in a printed publication, or in public use, on sale, or otherwise available to the public” (emphasis added).

In a Hatch-Waxman suit brought by Helsinn Healthcare, the district court interpreted the new text as requiring a public sale or offer for sale of the invention only when the sale publicly discloses the details of the invention.

Helsinn asserted four patents for a pharmaceutical treating chemotherapy-induced nausea. Three of the patents issued on applications filed before enactment of the AIA, and the fourth patent issued on an application filed after the AIA’s effective date. All four asserted patents claim priority to a provisional patent application filed on January 30, 2003, making the critical date for the on-sale bar January 30, 2002. The district court was asked to determine whether a license and purchase agreement for the pharmaceutical (entered into while the pharmaceutical was in clinical trials) barred patentability. The license and purchase agreement was publicly announced and disclosed in US Securities and Exchange Commission filings prior to the critical date. For the three patents governed by pre-AIA law, the district court found that the sale was not invalidating because the invention was not “ready for patenting” before the critical date. For the fourth patent, governed by new § 102(a)(1), the district court found that the AIA changed the meaning of what constituted a public sale, and concluded that the on-sale bar is only triggered when the sale publicly discloses the details of the invention. Teva appealed.

The Federal Circuit reversed the district court’s finding that under either the old or new version of the on-sale bar the invention was not ready for patenting before the critical date. Precedent requires that for the on-sale bar to apply, (1) there must be a sale or offer for sale before the critical date, and (2) the invention must be ready for patenting. For the three pre-AIA patents, the Federal Circuit concluded that although the district court was correct that there was a qualifying offer for sale, the district court applied the wrong standard in assessing whether the invention was ready for patenting. Under Federal Circuit precedent, an invention is ready for patenting when there is evidence that it works for its intended purpose. This is a lesser showing than what the US Food and Drug Administration (FDA) requires to approve new drugs. In this case, the district court had found the claimed invention not ready for patenting because at the time of the critical date the drug was still in clinical trials. The Federal Circuit explained that reliance on FDA standards for approval was too demanding. The correct inquiry is whether, before the critical date, the claimed invention was working for its intended purpose of reducing nausea during chemotherapy. Because there was overwhelming evidence that the pharmaceutical was reduced to practice before the critical date, the district court erred in finding the invention not ready for patenting. The three pre-AIA patents were therefore barred under old § 102(b).

In addressing the lone post-AIA patent, the Federal Circuit found that Congress did not change the meaning of the on-sale bar. Contrary to Helsinn’s argument that legislative floor statements limited the scope of the on-sale bar, the Federal Circuit explained that such statements only addressed public use, not an offer to sell. Moreover, the floor statements did not suggest that the sale or offer documents themselves must publicly disclose all the details of the claimed invention. As the Court noted, under AIA, “if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of the sale.” Here, the on-sale bar was triggered at the time the license and purchase agreement was made public, rendering the fourth asserted patent subject to the new § 102(a)(i) bar.

Practice Note: The Federal Circuit’s holding regarding the AIA amendments addresses public sales. This decision does not address whether a commercial sale that is confidential or not publicly disclosed would also trigger application of the on-sale bar for post-AIA patents.

District Court Ruling on Obviousness Does Not Bind PTAB

Addressing issues of motivation to combine and whether the Patent Trial and Appeal Board (PTAB) is bound by district court decisions of obviousness, the US Court of Appeals for the Federal Circuit found that the PTAB is not so bound, affirming the PTAB’s finding of obviousness. Novartis AG, et al. v. Noven Pharmaceuticals Inc., Case Nos. 16-1678; -1679 (Fed. Cir., Apr. 4, 2017) (Wallach J).

Novartis AG owns two patents for a transdermal drug patch containing rivastigmine. The patents were challenged in inter partes review (IPR), where the PTAB found the challenged claims unpatentable as obvious under § 103. By contrast, in a concurrent litigation, a district court analyzed the same arguments and prior art, and found the patents to be valid. Novartis appealed to the Federal Circuit, arguing that under Federal Circuit precedent, prior judicial decisions control the PTAB’s findings, and that the PTAB failed to show any motivation to combine the prior art.

Regarding Novartis’s argument that the PTAB should have been bound by the prior district court decision, the Federal Circuit disagreed on both factual and legal grounds. Factually, while the previous case may have been “substantively the same,” the presence of an additional piece of prior art and new declaratory evidence undercut Novartis’ argument that the facts were entirely the same. As the Court explained, different records may lead to different findings and conclusions. Legally, even had the records been exactly the same, the PTAB reviews patentability issues using a preponderance of evidence standard, while district courts require clear and convincing evidence to invalidate a patent. While the same evidence and argument will ideally result in the same findings, under the lower standard there is no mandate that the PTAB reach the same conclusion as a district court.

Novartis also argued that the PTAB erred by concluding that adding antioxidants to an acrylic polymer drug patch to prevent the degradation of the drug rivastigmine would have been obvious. Novartis argued that without any evidence of rivastigmine’s oxidative degradation, a person having ordinary skill in the art (PHOSITA) would not have been motivated to include an antioxidant to stabilize the rivastigmine in a transdermal patch. While the prior art taught that antioxidants can forestall the breakdown that occurs when drugs are exposed to acrylic polymers, such as those in a patch, there was no express teaching that rivastigmine breaks down. But the Court pointed out that prior art does not have to explicitly disclose a motivation to combine. Furthermore, the PTAB had reasonably concluded a PHOSITA’s level of skill would include organic chemistry training for analyzing and recognizing compound characteristics. That training would have allowed a PHOSITA to understand that rivastigmine had the potential to oxidatively degrade because of its chemical structure. That knowledge would motivate the PHOSITA to add antioxidants. Although Novartis argued that its expert’s testimony countered this argument, the Court would not give the expert evidence more weight than the PTAB already had.

No Due Process Violation in PTAB’s Treatment of References

Addressing issues of procedural due process and obviousness, the US Court of Appeals for the Federal Circuit affirmed a Patent Trial and Appeal Board (PTAB) decision to invalidate a patent in an inter partes review (IPR), despite the PTAB’s reliance on a reference that was not part of the institution decision. Novartis AG v. Torrent Pharm. Ltd., Case No. 16-1352 (Fed. Cir., Apr. 12, 2017) (Chen, J).

Novartis owns a patent related to a solid oral pharmaceutical composition comprising fingolimod and mannitol. Torrent filed an IPR challenging the claims in Novartis’ patent as obvious or anticipated. In its institution decision, the PTAB granted Torrent’s petition in part, instituting the IPR on obviousness grounds over the combination of prior art by Chiba and Aulton, and declining to institute on the proposed ground of anticipation by other prior art, Sakai, or obviousness over the combination of Chiba and Sakai.

In its final written decision (FWD) finding the patent invalid, the PTAB concluded that Chiba and Aulton disclose a solid oral form of fingolimod and mannitol as an excipient, respectively. The PTAB bolstered its findings with additional references, and relied on the Sakai reference as teaching a reason to combine fingolimod and mannitol. Novartis appealed.

Novartis argued that the FWD violated its due process by relying on Sakai. Citing Medichem, S.A. v. Rolabo (IP Update, Vol. 9, No. 2), Novartis also argued that the PTAB’s analysis of the motivation to combine was legally flawed because it did not expressly discuss mannitol’s disadvantages as a solid composition excipient.

The Federal Circuit dismissed Novartis’ due process argument. As the Court explained, the PTAB’s discussion of Sakai in the FWD was not inconsistent with its review of Sakai in the institution phase. Specifically, the PTAB declined to read Sakai as an anticipatory reference or as a main obviousness reference, because Sakai teaches a liquid formulation comprising fingolimod and mannitol, teachings not applicable to solid formulations. In the FWD, the PTAB merely used Sakai to support its conclusion that a skilled artisan would have expected mannitol to be compatible with fingolimod. Moreover, as the Court pointed out, the parties discussed the teachings of Sakai throughout the IPR proceedings, and in the same context as the PTAB in the FWD. Finally, the Court found that Novartis’ characterization of Sakai as the “missing link” in the PTAB obviousness findings was unjustified because other prior art of record also provides reinforcing reasons to combine Chiba and Aulton.

Additionally, the Federal Circuit found no error in the PTAB’s analysis of the motivation to combine. First, the Court noted that the record indicated that the PTAB did in fact consider mannitol’s negative properties, including discussing mannitol’s disadvantages and citing the relevant portions when rejecting Novartis’ teaching-away arguments. In addition, the Court noted that the PTAB’s treatment of mannitol’s negative properties was at least commensurate with Novartis’ perfunctory presentation of the issues to the PTAB. In addition, the Court clarified that Medichem does not require the PTAB to expressly discuss every negative and positive piece of evidence to evaluate a cursory argument, and that failure to explicitly discuss every piece of evidence does not by itself establish that the PTAB did not consider it.

Rule 36 Affirmance Can Create Issue Preclusion for Claim Construction

Addressing the scope of collateral estoppel from a Rule 36 affirmance, the US Court of Appeals for the Federal Circuit determined that despite the summary nature of such decisions and the absence of a written opinion outlining any reasons for affirmance, the prior judgment in this case had a preclusive effect on the issue of claim construction in the patent owner’s subsequent assertion of infringement. Phil-Insul Corp. v. Airlite Plastics Co., Case No. 16-1982 (Fed. Cir., Apr. 17, 2017) (O’Malley, J).

The patent at issue relates to insulated concrete forms (ICFs) used as molds for casting concrete walls. After the concrete sets in the mold, the ICFs remain in place to serve as insulation around the wall. The ICFs not only interconnect sideways, they also stack on top of each other, allowing the molds to reach the desired height for the final wall. The patent claimed a structure that made it “easier to interconnect” the stacked ICFs by having “adjacent” rows of “alternating projections and recesses” with “substantially the same dimension.”

In a first litigation between the patent owner, IntegraSpec, and a first defendant, Reward Wall, the district court construed the terms “adjacent” and “dimension” of asserted claim 1. Applying its construction, the district court granted Reward Wall’s motion for summary judgment of non-infringement. Because literal infringement was not at issue, the district court decided only whether Reward Wall’s products infringed under the doctrine of equivalents. IntegraSpec appealed the district court’s claim construction, and the Federal Circuit affirmed under Rule 36, which allows the Court to summarily affirm the judgment without a written opinion when certain conditions exist and the “opinion would have no precedential value.”

In a second litigation (the subject of this appeal), IntegraSpec asserted dependent claim 2 against a second defendant, Airlite, arguing for a new claim construction of the same terms “adjacent” and “dimension.” In this case, the district court granted Airlite’s motion for summary judgment, finding that the Federal Circuit’s prior Rule 36 judgment had collaterally estopped IntegraSpec from seeking a new claim construction because the issue of claim construction had been fully and fairly litigated to finality. IntegraSpec appealed, arguing that Rule 36 opinions have no precedential value and therefore cannot create issue preclusion in other cases. IntegraSpec also argued that the construction of claim 1 in the prior case was a different issue, so it could not be estopped from litigating new claim construction issues raised with respect to claim 2 in the subsequent litigation.

The Federal Circuit disagreed. The Court explained that a Rule 36 judgment is preclusive as long as the issues are necessary to the Court’s final judgment. Because claim construction is a necessary first step to any infringement analysis, a summary judgment of non-infringement that is clearly based on resolving a claim construction dispute means that claim construction is an issue necessarily decided by appellate affirmance. Here the earlier district court’s judgment of non-infringement depended entirely on its claim construction of the terms “adjacent” and “dimension,” and the Federal Circuit affirmed that prior judgment. Thus, the prior claim construction was necessary to the previous judgment and had a preclusive effect.

In addition, the Federal Circuit rejected IntegraSpec’s argument regarding the new issue it allegedly raised under claim 2. Because claim 2 included all of the limitations of claim 1 and the same claim terms must be used consistently throughout the patent, this was effectively the same issue that was previously raised, was fully litigated and became binding on IntegraSpec with finality of the prior appeal.

Inter Partes Re-Examination Estoppel Saves Rejected Claims

Addressing statutory estoppel issues in connection with inter partes re-examination, the US Court of Appeals for the Federal Circuit ordered the Patent Trial and Appeal Board (PTAB) to dismiss a re-examination against certain of Fairchild’s claims, which the PTAB previously affirmed as being invalid. Fairchild (Taiwan) Corp. v. Power Integrations, Inc., Case No. 17-1002 (Fed. Cir., Apr. 21, 2017) (Reyna, J).

Power Integrations filed suit against Fairchild in 2008, alleging infringement of four patents covering certain semiconductor chips that operate as power supply controllers, useful for supplying power to electronic devices. Fairchild counterclaimed, alleging infringement of three patents. The district court bifurcated the liability and damages phases of the case prior to trial. After a ten-day trial on liability, the jury returned a mixed verdict finding Power Integration’s asserted claims were not invalid and that Fairchild infringed two of Power Integration’s patents. As for Fairchild’s patents, the jury found that the asserted claims were not invalid and that Power Integrations infringed one of the patents under the doctrine of equivalents. The district court entered its final judgment on liability on January 13, 2015. Fairchild appealed, and Power Integrations cross-appealed various issues; in particular, Power Integrations appealed the jury’s verdict that Fairchild’s asserted patent was not invalid as obvious over certain prior art. On December 12, 2016, the Federal Circuit issued its opinion, affirming the jury’s verdict that the asserted claims of Fairchild’s patent would not have been obvious over the cited prior art, and remanding the case to the district court to resolve other issues.

In June 2012, Power Integrations filed a request for inter partes re-examination of various claims of Fairchild’s patent. During the re-examination, the examiner issued a final rejection of all challenged claims on multiple grounds, including that all the claims asserted in district court litigation were obvious over the same prior art references as those considered by the jury. After the PTAB denied Fairchild’s request for rehearing, Fairchild appealed to the Federal Circuit. After the Federal Circuit decided the appeal of the district court case, Fairchild filed a motion for the Federal Circuit to vacate the PTAB’s re-examination determination with respect to the asserted claims, based on statutory estoppel under 35 USC § 317(b). At the same time, Fairchild asked the Federal Circuit to abandon its appeal of the remaining claims at issue in the re-examination.

The Federal Circuit agreed. As the Court explained, the applicable version of § 317(b) provides that “no inter partes reexamination proceeding can be brought or ‘maintained’ on ‘issues’ that a party ‘raised or could have raised’ in a civil action arising in whole or in part under 28 U.S.C. § 1338 once ‘a final decision has been entered’ in the civil action that ‘the party has not sustained its burden of proving the invalidity’ of the patent claim.” Disagreeing with Power Integrations, the Court noted that the validity of Fairchild’s patent was not at issue in the remand to the district court. The Court accordingly remanded the proceeding to the PTAB, with orders to dismiss the re-examination with respect to Fairchild’s asserted claims and to further enter a re-examination certificate invalidating the remainder of the claims.

Later Disclaimer Cannot Retroactively Dissolve Marking Requirement

The US Court of Appeals for the Federal Circuit vacated a district court judgment as it relates to marking, finding that the patent owner cannot use disclaimer to avoid the marking requirement (35 USC § 287) and thereby attempt to collect pre-notice damages. Rembrandt Wireless Techs., LP v. Samsung Elecs. Co., Ltd., Case No. 16-1729 (Fed. Cir., Apr. 17, 2017) (Stoll, J).

This case relates to an infringement action addressing patents claiming a system and method of communication between modems utilizing a modulation method. Samsung appealed several issues, among them the district court’s decision refusing to bar Rembrandt’s recovery of pre-notice damages based on Rembrandt’s failure to mark products that were covered by an asserted patent claim that Rembrandt disclaimed after filing its complaint.

Rembrandt licensed one of the patents at issue in this case to Zhone Technologies. The license agreement between Rembrandt and Zhone did not require Zhone to mark its products with the patent number, and Zhone sold unmarked products embodying claim 40 of the asserted patent. After receiving notice of Rembrandt’s patents on the filing of the complaint in this matter, Samsung moved to limit its potential damages pursuant to 35 USC § 287, the patent marking statute, based on failure of Rembrandt’s licensee to mark products covered by claim 40. Eight days after filing its complaint, Rembrandt withdrew claim 40 from its infringement allegations and filed a statutory disclaimer at the US Patent and Trademark Office, formally disclaiming claim 40. The district court denied Samsung’s motion to bar Rembrandt’s recovery of pre-notice damages, accepting Rembrandt’s argument that any prior obligation to mark products embodying claim 40 vanished once it disclaimed claim 40. Samsung appealed.

The Federal Circuit reversed, explaining that marking under § 287(a) is permissive, not mandatory. However, if a patent owner chooses not to mark, “no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice.” The Court rejected Rembrandt’s position that its obligation to mark its products embodying claim 40 vanished when Rembrandt disclaimed claim 40, concluding that it is irreconcilable with the statute’s purpose to notify the public of the patent rights associated with patented products. As the Court explained, while a disclaimer relinquishes certain rights of the patent owner, it cannot serve to relinquish any rights of the public. Because the marking statute’s focus is not only on the rights of the patentee but also on the rights of the public, the Court concluded that disclaimer cannot serve to retroactively dissolve the § 287(a) marking requirement.

On a related issue, the Federal Circuit found that whether the marking statute should attach on a claim-by-claim rather than on a patent-by-patent basis is a novel legal issue raised by Rembrandt that has not been squarely addressed in the Court’s prior decisions. Because the parties did not address this legal issue in briefing on appeal, the Court remanded to the district court to address this legal issue in the first instance.

Infringement Does Not Mean Injunction

Addressing claim construction and injunction issues, the US Court of Appeals for the Federal Circuit affirmed the district court’s decision that the defendant’s LED technology infringed plaintiff’s patent, and that the district court did not err in finding a lack of irreparable harm. Nichia Corp. v. Everlight Americas, Inc., Case Nos. 16-1585; -1618 (Fed. Cir., Apr. 28, 2017) (Stoll, J).

The case involved three patents covering the design and manufacturing of LEDs. LEDs are often manufactured in continuous sheets and then “singulated” into individual diodes, a process that can damage the LEDs. The patents claim specific configurations of LEDs that allow for more efficient singulation with fewer damaged LEDs.

With respect to the first patent, Everlight argued that the district court erroneously construed the terms “leads” and “planar.” Regarding leads, the parties agreed that they were an electrically conductive part of the LED, but Everlight contended that the leads had to connect to a structure outside the LED. The district court disagreed, noting that the figures in the patent showed the leads connecting internally. The district court also disagreed with Everlight’s contention that “planar” was intended to mean flat, rather than merely two objects in the same plane, again citing intrinsic evidence. The Federal Circuit agreed with the district court on both issues.

As for the other two patents, Everlight argued that it did not infringe because the patents required an electrode “partially disposed” in the bottom surface of the LED recess. According to Everlight, the district court wrongly defined the “bottom” of the recess, arguing that the recess is the flat, lowest plane on the LED. The Federal Circuit disagreed, explaining that Everlight’s electrodes protruded through the bottom or the recess and that the recess need not be flat.

Everlight also challenged the district court’s decisions finding the patents not obvious. Again, the Federal Circuit affirmed the district court ruling. Although Everlight put forward prior art related to semiconductor and other general electronics manufacturing, the Court concluded this art inapposite based on the complexity of LED technology and the unique design considerations present in optoelectronics.

The Federal Circuit next turned to the patent owner’s cross-appeal regarding the district court’s denial of a permanent injunction. The district court denied the injunction based on a lack of meaningful competition between the parties and a lack of irreparable harm. The Federal Circuit affirmed both findings. Regarding meaningful competition, the Court found that although both parties sold LEDs, one sold to distributors and the other directly to customers, placing them in different markets. The Court also upheld the finding of no irreparable harm based on the patent owner’s licensing practices. Specifically, because the patent owner had licensed the technology to other parties, there were already other low-cost competitors, so there would be no irreparable harm from introducing another into the market.

The Breadth of an Injunction

In an unusual move, the US Court of Appeals for the Federal Circuit updated its original decision in Asetek, holding that the injunction no longer applied to the non-party in the case, except for aiding and abetting new violations by CMI. Asetek Danmark A/S v. CMI USA Inc., FKA Cooler Master USA Inc., Case Nos. 16-1026; -1183 (Fed. Cir., Apr. 3, 2017) (Taranto, J).

In its prior opinion, the Federal Circuit remanded but did not vacate an injunction against Cooler Master Co. Ltd., a Taiwanese supplier of computer components that was not part of the trial against its US distributor, CMI USA (IP Update, Vol. 20, No. 1). The Court kept the injunction in place against Cooler Master and CMI until modified by the lower court.

Chief Judge Prost dissented in that opinion, contending that the correct course of action would be to vacate the portions of the injunction that improperly reached Cooler Master. Judge Prost pointed out that the court had no basis to justify the injunction against Cooler Master in its own capacity. The only exception to that is under Rule 65(d) where Cooler Master assists CMI in acts of infringement.

Following the original opinion, CMI filed for a rehearing, which was partially granted. CMI argued that the Federal Circuit’s original opinion established a new rule that a pre-liability permanent injunction against a non-party is permissible pending a determination of liability. CMI asserted that this new rule violated two well-established canons: that everyone has a right to their day in court, and that actual success on the merits must precede a permanent injunction. CMI also argued that the Court’s remand of further proceedings to determine the relationship between CMI and Cooler Master before a final conclusion could be made about the scope of the injunction is an impermissible advisory opinion. In its revised opinion, the Federal Circuit agreed.

The original panel has now issued a new opinion that adopts Chief Judge Prost’s position and therefore deletes her partial dissent and the panel’s non-vacatur. The Court held that until further proceedings determine the proper reach of the injunction, it is vacated insofar as the injunction reaches conduct by Cooler Master that does not abet new violations by CMI.

Face It: Inventive Concept Bar Requires More than Simple Algorithm Addition

Addressing patent eligibility of software patent claims, the US Court of Appeals for the Federal Circuit found that a patent directed to abstract subject matter, even with a mathematical formula in the patent claims, did not amount to an inventive concept sufficient to render the abstract idea patent eligible. RecogniCorp, LLC v. Nintendo Co., Ltd., et al., Case No. 16-1499 (Fed. Cir., Apr. 28, 2017) (Reyna, J).

The patent at issue relates to the encoding and decoding of image data for building a composite facial image using constituent parts. According to the patent specification, pre-existing systems stored composite facial images in file formats that required significant memory and compression resources. The subject patent encoded each facial image using a variety of image classes that required less memory and bandwidth. After RecogniCorp sued Nintendo alleging patent infringement, Nintendo filed a motion for judgment on the pleadings on § 101 grounds. Notwithstanding the absence of a claim construction ruling, the district court agreed and granted the motion, holding that the claims were patent ineligible under § 101. RecogniCorp appealed.

The Federal Circuit affirmed, finding that the patent claims were directed to an abstract idea. Regarding step one of the Alice inquiry, the Court cited its decision in Digitech (IP Update, Vol. 17, No. 8) and found no material difference between the Alice step one analysis in Digitech, where the patent claims were found to be directed to an abstract idea, and the analysis for the process recited in the challenged claims of the subject patent. In both cases, a process started with data, added an algorithm and resulted in a new form of data. The Court dismissed the patent owner’s argument that the recitation of a mathematical formula in the challenged claims rendered the patent eligible in view of Diehr, explaining that one abstract idea being added to another abstract idea as recited in the challenged claims rendered the case distinguishable from Diehr.

Regarding step two of the Alice inquiry, the Federal Circuit cited its decisions in DDR Holdings (IP Update, Vol. 18, No. 1) and BASCOM (IP Update, Vol. 19, No. 8) for guidance. In DDR Holdings, the claims at issue overcame a specific challenge unique to the internet that amounted to an inventive concept. In BASCOM, the ordered combination of claim limitations was found to satisfy the requisite inventive concept by transforming “the abstract idea of filtering content into a particular, practical application of that abstract idea.” The Court found the RecogniCorp claims distinguishable from those at issue in DDR Holdings and BASCOM, explaining that the simple addition of a mathematical formula does not transform the abstract idea of encoding and decoding into patent-eligible subject matter, nor does the application of the abstract idea with a standard computer do so. Thus, the claims were found to be patent ineligible under Alice.

Sometimes It’s Better to Forgo Appeal

The US Court of Appeals for the Federal Circuit affirmed in part and reversed in part cross-appeals of two inter partes review (IPR) decisions (IPR2014-00295 and IPR2014-00476) based on various arguments relating to claim construction and prior art disclosure, and, in doing so, added to the list of challenged claims that the Patent Trial and Appeal Board (PTAB) had determined were unpatentable. Wasica Finance GmbH v. Continental Automotive Systems Inc., et al., Case Nos. 15-2078; -2079; -2093; -2096 (Fed. Cir., Apr. 4, 2017) (Schall, J).

In the PTAB proceedings, some of the challenged claims were found to be unpatentable and others not. The patent owner appealed, and the petitioner cross-appealed.

The Federal Circuit affirmed the PTAB, finding that a subset of challenged claims were anticipated or obvious in light of the cited prior art in two IPR decisions. The Court also affirmed the PTAB’s decision that another subset of challenged claims were not anticipated or obvious in light of the cited prior art. Finally, the Court reversed the PTAB’s decision that another claim was not anticipated or obvious in light of the cited prior art, thus adding to the list of claims found to be invalid.

In the appeal, patent owner/appellant Wasica disputed the constructions of the terms “electrical pressure signal,” “pressure transmitting signal” and “emittance.” Petitioner/cross-appellant Continental disputed whether the prior art met the disclosed “constant frequency” limitation and the construction of the term “bit sequence.” Wasica asserted that if the terms “electrical pressure signal” and “pressure transmitting signal” were properly construed to require the inclusion of numerical values, the prior art did not anticipate or render obvious the claims. The Federal Circuit confirmed the PTAB constructions, finding that there was no presentation disclaimer and that the patent specification disclosed both symbols and numerical values.

Wasica also argued that if the term “emittance” was properly construed to be limited to wireless communications, the prior art did not anticipate or render obvious other challenged claims. The Federal Circuit again confirmed the PTAB constructions, finding that the patent specification disclosed both wired and wireless systems.

Continental and cross-appellant Schrader asserted that the prior art anticipated another challenged claim because it met the “constant frequency” claim limitation. The Federal Circuit disagreed, finding that the prior art reference was ambiguous about the disclosure of a “constant frequency,” and as such it did not anticipate the claim. In addition, the Court explained that Continental and Schrader could not shift their position on appeal to cure deficits that were not addressed in their petitions to the PTAB.

Finally, Continental and Schrader argued that the prior art did not anticipate or render obvious another challenge, if the term “bit sequence” was properly construed as a sequence of “one or more bits.” On this issue, the Federal Circuit agreed, finding that the specification disclosed an embodiment that contained only a single bit. Accordingly, the Court reversed the PTAB and found that additional claim to be invalid.

Interpretation of Means-Plus-Function Claim Limitations

Addressing claim construction issues in connection with “means-plus-function” limitations, the US Court of Appeals for the Federal Circuit affirmed the district court’s decision to uphold a non-infringement verdict based on a construction that introduced new functionality not explicitly recited in the means-plus-function claim. Core Wireless Licensing S.A.R.L. v. Apple Inc., Case No. 15-2037 (Fed Cir., Apr. 17, 2017) (O’Malley, J).

Core Wireless owns a patent directed to sending packet data in a cellular system. Core Wireless brought a patent infringement action against Apple, asserting that Apple infringed, among other things, a claim that requires “[a] mobile station connected with a cellular system, comprising means for sending uplink packet data to the system using a selected channel . . . characterized in that it also comprises: . . . means for comparing said threshold value of the channel selection parameter to a current value of the channel selection parameter for basis of said channel selection.” The district court construed this means-plus-function limitation to require that the mobile station have the capability to perform channel selection. Based on that construction, the jury found that Apple did not infringe any of the asserted claims.

According to 35 USC 112, ¶ 6, a means-plus-function limitation “shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof.” The broadest reasonable interpretation of a means-plus-function limitation is determined by the structure in the specification that is described as performing the function recited in the means-plus-function limitation.

On appeal Core Wireless argued that the district court erred in construing the means-plus-function limitation. According to Core Wireless, because the claim did not explicitly recite the mobile station as performing channel selection, it was not proper for the district court to introduce this new functionality into the claim.

The Federal Circuit disagreed and found that each embodiment of the claimed invention disclosed in the specification, the prosecution history and the extrinsic evidence supported the district court’s claim construction, which required the mobile station to have the capability to perform channel selection. First, all of the embodiments of the claimed mobile station disclosed in the specification showed the mobile station both performing the comparison and subsequently using the result of the comparison for channel selection. The prosecution history indicated that the applicant’s position during prosecution was that the mobile station performed the channel selection. Similarly, the invention disclosure described the mobile station as having the capability to perform channel selection.

Practice Note: A construction of means-plus-function limitations under 35 USC 112, ¶ 6 may introduce new functionality that is not explicitly required in the claim, if that functionality is required by the corresponding structure disclosed in the specification.

Prior Product Use Limits “Pharmaceutical Batches” Claims to Process Disclosed in Patent Example

The US Court of Appeals for the Federal Circuit concluded that claims directed to “pharmaceutical batches” must be produced in accordance with a particular patent example, upholding a finding of non-infringement as to one patent and reversing a finding of infringement as to another. The Medicines Co. v. Mylan, Inc., Case Nos. 15-1113; -1151; -1181 (Fed. Cir., Apr. 6, 2017) (Dyk, J).

Medicines has sold ANGIOMAX^®, which is used to prevent blood clotting in patients undergoing cardiac catheterization, since 2001—“well before the critical date of the patents in suit.” The original manufacturing process for ANGIOMAX^® resulted in “variable and sometimes high levels” of the impurity recited in the claims (Asp9), so Medicines developed an improved production process that employs an “efficient mixing” method to consistently produce batches with less than 0.6 percent Asp9. This improved process is the subject of the patents in suit.

Medicines asserted that Mylan’s proposed generic would infringe two patents, each of which claimed “pharmaceutical batches” that contained less than 0.6 percent of a particular impurity. One of the asserted patents recited process steps, including “efficient mixing”; the other patent did not. The district court concluded that Mylan’s proposed generic would satisfy the purity limitation but found that the generic was not made using “efficient mixing” as claimed. Accordingly, the district court granted summary judgment of non-infringement as to the claims requiring “efficient mixing” but held that Mylan infringed the remaining claims.

At the outset, the Federal Circuit explained that the claims could not be broadly construed to cover any pharmaceutical batches with less than 0.6 percent of the Asp9 impurity, because “[s]uch a construction would render the claims . . . invalid in light of Medicines’ numerous pre-critical-date sales of ANGIOMAX^® batches having Asp9 levels below 0.6 percent.” Ultimately, the Federal Circuit concluded that the claimed pharmaceutical batches must be made using a particular process—specifically, the efficient mixing process described in Example 5 of the asserted patents. As the Court explained, the term “batches” requires “the use of a process that achieves batch consistency,” and efficient mixing was the only such process the patents disclosed. The Court then construed “efficient mixing” to require the conditions of Example 5, because as “the only embodiment of efficient mixing, Example 5 is ‘highly indicative of the scope of the claims.’” Accordingly, “one of ordinary skill in the art would rely on Example 5 to ascertain the metes and bounds of ‘efficiently mixing.’”

The Federal Circuit acknowledged that Example 5 was described as “non-limiting” in the specification, but explained that because “no other part of the patents’ written description sufficiently teaches the affirmative steps that constitute efficient mixing . . . we think it entirely appropriate to limit the term ‘efficient mixing’ to the sole portion of the specification that adequately discloses ‘efficient mixing’ to the public.” Thus, “incorporat[ing] the efficient mixing conditions of Example 5 is necessary to ‘tether the claims to what the specification[] indicate[s] the inventor actually invented.’”

Medicines argued that the claims did not require use of a specific process, and that, instead, the “batches” limitation was satisfied “whenever an accused infringer consistently produces batches having Asp9 levels below 0.6 percent.” The Federal Circuit characterized Medicines’ construction as “unworkable” because “proof of infringement would necessitate forward-looking assessments of whether an accused infringer’s production of future or ‘potential’ batches would be likely to generate Asp9 levels greater than ‘about 0.6%.’” The Court also rejected Medicines’ construction as impermissible because it “attempts to claim all solutions to the identified ‘impurities’ problem, without describing the entire range of solutions to that problem.” The Court emphasized that “efficient mixing must be defined in terms of the particular process or processes identified in the specification.” Because Mylan’s manufacturing process did not meet the “efficient mixing” requirement, the Court concluded that Mylan did not infringe any of the asserted claims.

Practice Note: In cases where a known product is claimed based on an improved impurity profile, courts may construe the claims to require the process steps necessary to produce the impurity profile recited in the claims.

Third Circuit Declines to Send Pay-for-Delay Litigation to Federal Circuit

Addressing questions of federal jurisdiction, the US Court of Appeals for the Third Circuit ruled that it, and not the US Court of Appeals for the Federal Circuit, had jurisdiction over two consolidated appeals arising from dismissals in a pay-for-delay litigation involving patented drugs. In re: Lipitor Antitrust Litig., Case Nos. 14-4202; -4203; -4204; -4205; -4206; -4602; -4632; 15-1184; -1185; -1186; -1187; -1274; -1323; -1342 (3d Cir., Apr. 13, 2017) (Fisher, J).

Defendants Teva Pharmaceutical and Wyeth make Effexor XR, and defendants Pfizer and Ranbaxy Laboratories make Lipitor. Plaintiffs filed suit, claiming that the defendant drug manufacturers unreasonably diminished competition, in violation of the Sherman Antitrust Act, by engaging in so-called “reverse” payment settlements. Plaintiffs also alleged patent fraud and sham litigation as related theories to their claims. The Third Circuit consolidated the cases for purposes of the appeal.

On appeal, the defendants argued that the cases should be transferred to the Federal Circuit because the Federal Circuit has exclusive jurisdiction over cases “arising under” federal patent law. The Third Circuit disagreed, explaining that where questions of patent law do not create the cause of action, but instead are related to a completely different form of relief, the claims do not “arise under” patent law. Here, the Third Circuit found that the plaintiffs’ primary claims in both cases arose under antitrust law, not patent law. The plaintiffs’ inclusion of patent fraud and sham litigation in their theory of an overarching anticompetitive scheme did not necessarily imply that there was an essential question of patent law that the Court was required to resolve. The Court reasoned that “patent law neither creates plaintiffs’ cause of action nor is a necessary element to any of plaintiffs’ well-pleaded claims” that the pharmaceutical companies sought to suppress competition by delaying generic competition for brand-name drugs. Relying on Supreme Court of the United States precedent, the Court reasoned that reverse-payment antitrust claims do not typically present a question of patent law. Jurisdiction, therefore, was appropriate in the Third Circuit.

Defendants also argued that the reverse payment allegation should be split from the patent fraud and sham litigation claims, and that the latter should be heard by the Federal Circuit. Again the Third Circuit disagreed, reasoning that it should not permit the defendants to re-write plaintiffs’ complaints, “which plead patent law-related theories as aspects of an overall monopolistic scheme.” The Court also noted that not all cases involving questions of patent law “arise under” patent law, as is required for exclusive jurisdiction to rest with the Federal Circuit.

Practice Note: Companies should be mindful that a cause of action alleging theories of patent law to support a claim created by an entirely different form of relief may not be transferred to the Federal Circuit. Instead, the court presiding over the litigation will likely have jurisdiction over the merits of the claims.

Supreme Court to Review Whether PTAB Must Address All Issues Raised in IPR Petition

Echoing Judge Newman’s dissent in the US Court of Appeals for the Federal Circuit’s decision in SAS Institute, Inc. v. ComplementSoft, LLC, Case Nos. 15-1346; -1347 (Fed. Cir., Nov. 7, 2016) (per curiam) (Newman, J, dissenting), the Supreme Court of the United States granted certiorari to consider the issue of whether the Patent Trial and Appeal Board (PTAB) must address all patentability issues raised in a petition for inter partes review (IPR). SAS Institute Inc. v. Lee, Case No. 16-969 (Supr. Ct., May 22, 2017) (cert granted).

Over the objections of the US Patent and Trademark Office, represented by the US Department of Justice (DOJ), the Supreme Court granted SAS Institute’s cert petition. The DOJ argued that the statute (35 USC § 318(a)) only requires the PTAB, in its final written decision, to address the claims for which review was granted, a practice that follows the congressional intent of the America Invents Act.

The DOJ position follows that of the Federal Circuit in the underlying case (IP Update, Vol. 19, No. 12), where the Federal Circuit, citing its own decision in Synopsis (IP Update, Vol. 19, No. 3), concluded that the statute only requires the PTAB to address the claims “as to which review was granted.” SAS filed a petition for rehearing and thereafter a petition for rehearing en banc, both of which were denied per curiam.

Issue: Whether 35 USC § 318(a), which provides that the PTAB in an IPR “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner,” requires the PTAB to issue a final written decision as to every claim challenged by the petitioner, or whether it allows the PTAB to issue a final written decision with respect to the patentability of only some of the patent claims challenged by the petitioner, as the Federal Circuit held.

Patent Holders Can Evade CBM by Disclaiming CBM Claims

Addressing petitioner’s urging that the Patent Trial and Appeal Board (PTAB) import the district court “time of filing” rule to institution decisions for covered business method (CBM) reviews, the PTAB once again held that disclaimed claims are to be disregarded when determining whether a patent is CBM eligible. Facebook, Inc., et al. v. Skky, LLC, Case No. CBM2017-00006 (PTAB, Apr. 11, 2017) (Easthom, APJ).

After Skky sued Facebook and Instagram in district court for infringement of numerous patents, including the patent in issue here, Facebook responded by filing both a petition for inter partes review and a petition for CBM review—the latter to advance its ineligible subject matter and insufficient written description attacks that are not permitted in an inter partes review.

Skky responded to the CBM petition by disclaiming certain dependent claims that recited financial activity, to thereby invoke a line of PTAB decisions holding that patent holders can disclaim claims directed to business methods to avoid CBM review. Facebook countered with various arguments attempting to overturn those holdings.

Facebook first argued that the PTAB should adopt the “time of filing” rule from US district courts whereby a complaint is considered based on the circumstances when it was filed, to prevent a defendant from depriving a plaintiff of its chosen forum by post-filing activity. The PTAB responded by pointing to long-established US Court of Appeals for the Federal Circuit precedent holding that disclaimed claims are treated as having never existed. The PTAB also concluded that the time of filing rule would contravene an America Invents Act provision stating that CBM review is permitted only if the patent “is” a CBM patent, rather than “was” one, and would violate a US Patent and Trademark Office regulation prohibiting institution based on disclaimed claims.

Facebook also attempted to invoke other PTAB decisions that held that disclaimed dependent claims can still be considered to show that the remaining independent claims could involve financial activity by being broad enough to encompass the dependent financial claims, but the PTAB rejected that argument and held that the remaining claims must require financial activity rather than merely contemplate it. The PTAB consequently denied institution.

Without Controlling Interest, Co-Defendants Are Not Real Parties-in-Interest in IPR

Addressing issues of estoppel and the standard to be considered a real party-in-interest, the Patent Trial and Appeal Board (PTAB) granted institution of a petition for inter partes review (IPR), rejecting the patent owner’s argument that the petition should be denied for failure to name the litigation co-defendants as real parties-in-interest. Panties Plus, Inc. v. Bragel International, Inc., Case No. IPR2017-00044 (PTAB, Apr. 12, 2017) (Weatherly, APJ).

Bragel sued Panties Plus (PPI) as well as PPI’s customers Charlotte Russe and Styles for Less for infringement of a breast form system. In response, PPI filed an IPR petition challenging the claims of the patent as being unpatentable under § 103. Bragel argued that PPI’s petition should be denied for failure to identify all of the real parties-in-interest—specifically, PPI’s co-defendants in the litigation. According to Bragel, because all of the co-defendants were represented by the same counsel, used the same expert and cooperated in the underlying litigations, PPI’s failure to name its customers as real parties-in-interest would permit the customers to evade the estoppel provisions of 35 USC § 315(e)(2). Bragel further contended that PPI’s failure to name its customers allowed it to unfairly extend the window during which the petition may be filed without running afoul of the time bar under 35 USC § 315(b).

The PTAB disagreed, concluding that Bragel failed to show that PPI’s customers controlled its participation in the IPR proceeding. The PTAB explained that “[m]ere status as a co-defendant is insufficient to establish that the customer defendants had the required control over the filing of the Petition in this proceeding.” The PTAB rejected Bragel’s estoppel argument, explaining that estoppel is not relevant when determining real party-in-interest status but is merely a pre-condition for justifying the application of estoppel. Rather, “control of a named party by an unnamed entity is the primary basis for determining whether the unnamed entity is a real party in interest.” Finding that PPI’s cooperation with and status as co-defendant with its customers in the underlying litigation did not demonstrate that such customers had control or influence over PPI’s conduct of the proceeding, the PTAB granted institution. As for Bragel’s “extension” argument, the PTAB found it irrelevant, because Bragel presented no argument that the petition was barred, or would have been barred, as a result of the addition of PPI’s customers.

Patent Owner Extinguishes IPR by Amending Claims

In a rare case where the Patent Trial and Appeal Board (PTAB) granted a motion to amend the claims in an inter partes review (IPR), the patent owner successfully canceled all claims subject to review by changing the dependency of one of the claims at issue. Amerigen Pharms. Ltd. v. Shire LLC, Case No. IPR2015-02009 (PTAB, Mar. 31, 2017) (Scheiner, APJ).

Shire owns a patent related to dosage forms for the delivery of drugs that treat attention-deficit hyperactivity disorder in an immediate dose and at least one delayed, enteric dose with a rapid release (marketed as Adderall XR®). Amerigen filed a petition requesting IPR of Shire’s patent, which the PTAB instituted. After institution, Shire filed a motion to amend, cancelling all of the claims on which trial had been instituted and proposing one substitute claim. Specifically, Shire’s motion sought to replace instituted claim 25 with the following substitute claim 26:

Claim 25. The pharmaceutical composition of any one of claims 2, 13 or 18 to 20 wherein the pharmaceutically active amphetamine salt in (a) and (b) comprises mixed amphetamine salts.

Claim 26. The pharmaceutical composition of any one of claims 2[[,]] or 13 or 18 to 20 wherein the pharmaceutically active amphetamine salt in (a) and (b) comprises mixed amphetamine salts.

The proposed substitute claim 26 was identical to multiple dependent claim 25, except that dependencies from instituted claims 18–20 were deleted.

The PTAB noted that claim 25 was part of the trial only to the extent it depended from claims 18–20, and that “the practical effect of substituting proposed claim 26 (which depends from claim 2 or claim 13) for claim 25 would be to leave no instituted claim remaining in the trial.” Notably, in instituting IPR on claims 18–21, 23 and 25, the PTAB differentiated claim 25 as having limitations that were dependent from claim 2 and limitations that were dependent from claims 18–20. The PTAB did not institute the IPR with respect to claim 2, and Amerigen did not challenge the patentability of claim 13.

Amerigen argued that Shire’s motion should be denied because Shire failed to demonstrate the patentability of proposed substitute claim 26, as required by the PTAB’s Idle Free decision (IP Update, Vol. 17, No. 1). According to Idle Free, the burden is on the patent owner to show “the substitute claim’s patentable distinction over not only the prior art asserted in the petition, but also all prior art of record in the initial patent prosecution, reissue proceeding, prior litigations and other prior art known to [the] patent owner.”

The PTAB disagreed, explaining that Idle Free only applies where a feature “is added to each substitute claim, as compared to the challenged claim it replaces.” In this case, the substitute claim merely cancelled the three claims dependent on instituted claims 18–20 while preserving the two claims dependent on non-instituted claims 2 and 13, and “[e]ffectively, no claim [was] amended” because no other changes to the claims were being made. In granting Shire’s motion to amend, the PTAB held that a patent owner is not required to prove “that original non-amended claims are patentable over all potential prior art, especially non-instituted claims.”

Whose Unregistered Trademark Is It Anyway?

Expressly adopting for the first time a test to determine whether a manufacturer or distributor is the owner of an unregistered trademark in the absence of a contractual ownership clause, the US Court of Appeals for the Third Circuit held that the manufacturer is the presumptive owner unless the distributor is able to rebut that presumption using the factors laid out in the McCarthy Test. Covertech Fabricating, Inc. v. TVM Building Products, Inc., Case No. 15-3893 (3d Cir., Apr. 18, 2017) (Krause, J).

Covertech is a Canadian corporation that manufactures protective packaging and reflective insulation. In 1998, Covertech entered into a verbal agreement with TVM, designating TVM as the exclusive distributor of Covertech’s rFOIL brand insulation products in the United States. The rFOIL brand includes several different products, some of which are registered trademarks. As part of the agreement, TVM was required to refrain from selling competitor products in the United States. In 2007, Covertech terminated the distribution agreement for untimely payments and because Covertech learned that TVM was purchasing products from another manufacturer and passing them off as Covertech’s. TVM assured Covertech that the sales were a mistake, and shortly thereafter the parties entered into a new verbal agreement. In late 2010 or early 2011, Covertech again terminated the agreement after learning that TVM was still purchasing products from Covertech’s competitors. TVM nevertheless continued to market products under the rFOIL brand, requiring Covertech to repeatedly demand that TVM discontinue the unauthorized sales and use of its trademarks.

Covertech ultimately sued TVM, and the district court found for Covertech on all claims. As part of the dispute, the district court relied on the First Use Test to determine that Covertech was the owner of an unregistered mark falling under the rFOIL brand. TVM appealed.

On appeal, the Third Circuit acknowledged that the First Use Test, which adheres to the “first-in-time, first-in-right” principle, is typically the proper test to determine ownership of unregistered trademarks, but that it is an “imperfect fit” for the “exclusive and noncompetitive manufacturer-distributor relationship,” where the distributor is often the one making the initial sale of goods at the manufacturer’s direction. As the Court explained, the McCarthy Test (named after Prof. Thomas McCarthy), not the First Use Test, is the proper test to determine whether the manufacturer or the exclusive distributor is the owner of an unregistered mark where there is no contract dictating otherwise. Under the McCarthy Test, the manufacturer is the presumptive owner of the unregistered trademark unless the distributor can rebut the presumption relying on the following six factors:

• Which party invented or created the mark?
• Which party first affixed the mark to the goods sold?
• Which party’s name appeared on the packaging and promotional materials in conjunction with the mark?
• Which party exercised control over the nature and quality of goods on which the mark appeared?
• To which party did customers look as standing behind the goods (e.g., which party received complaints and which party issued replacements and/or refunds)?
• Which party paid for the advertising and promotion of the products?

As the Third Circuit explained, “[t]he presumption and rebuttal factors of the McCarthy test place a thumb on the ownership scale in favor of the manufacturer, but invite courts to consider various indicia of ownership designed to elicit the roles and responsibilities of the parties and the expectations of consumers in order to gauge whether, in a given case, the distributor and not the manufacturer operated as the rightful owner of the contested mark.”

Applying the McCarthy Test to the facts at hand, the Court found that four of the factors favored Covertech, factor three was inconclusive, and factor six weighed in TVM’s favor. The Third Circuit concluded that Covertech was the proper owner of the mark. The Court also clarified that “[e]ven if the balance was in equilibrium, such a result would still be insufficient to overcome Covertech’s presumptive ownership.”

Time to Zoom In on Application of DMCA Safe Harbor Defense

In reversing a district court grant of summary judgment in favor of a social media platform, the US Court of Appeals for the Ninth Circuit ordered a deeper look at the degree to which the common law of agency affects a safe harbor defense to copyright infringement under § 512(c) of the Digital Millennium Copyright Act (DMCA). Mavrix Photographs, LLC v. LiveJournal, Inc., Case No. 14-56596 (9th Cir., Apr. 7, 2017) (Paez, J).

Mavrix, a photography agency specializing in celebrity vacation photos, sued LiveJournal for copyright infringement when 20 of its photographs were posted to a popular LiveJournal celebrity news community called “Oh No They Didn’t!” (ONTD). Mavrix did not utilize LiveJournal’s available notice and takedown procedures to notify LiveJournal of the infringements. When the lawsuit was filed, however, LiveJournal removed the posts containing the allegedly infringing photographs. At the district court, LiveJournal moved for summary judgment, citing the § 512(c) safe harbor provision under the DMCA, which protects service providers from liability for unintentional copyright infringement due to the service providers’ storage and hosting of copyrighted material posted “at the direction of” a third-party user so long as the service providers follow certain notice and takedown requirements under the DMCA. Finding that the § 512(c) safe harbor shielded LiveJournal from liability for copyright infringement arising from the Mavrix photos posted to its ONTD community, the district court granted summary judgment in favor of LiveJournal. Mavrix appealed.

On appeal, the Ninth Circuit examined whether Mavrix’s photos were truly “posted at the direction of the user” so as to trigger the § 512(c) safe harbor, or whether instead the posting of photographs that were first reviewed and approved by LiveJournal’s community moderators could be attributed to LiveJournal directly. The Court explained that the posting of the photos, rather than the submission, was the critical inquiry, and indicated that the case would turn on whether the acts of the LiveJournal community moderators could be attributed to LiveJournal. On this point, the Court determined that the district court erred in rejecting Mavrix’s argument that the moderators were LiveJournal’s agents, thereby making LiveJournal liable for their acts.

Considering the summary judgment record with regard to the organizational structure of the LiveJournal community moderators, and more specifically the moderators involved with the ONTD community, the Ninth Circuit found that there existed genuine issues of material fact as to whether the moderators were LiveJournal’s agents under the common law of agency. In particular, the Court found that the evidence presented issues of material fact regarding whether the moderators had actual and/or apparent authority to act for LiveJournal, including evidence suggesting that LiveJournal’s policies provided explicit roles and authority to its moderators, that LiveJournal “relies on moderators as an integral part of its screening and posting business model,” and that LiveJournal maintained “significant control” over ONTD and its moderators. However, the Court also noted that other evidence may call into question the level of control that LiveJournal asserts over the conduct of its moderators, who are “free to leave and go volunteer their time in any way they see fit.” Moreover, the Court noted that any fact finder must also resolve whether LiveJournal’s moderators provide only accessibility-enhancing activities with regard to posted content (which does not incur liability for infringing posts), or whether their activities extend beyond the “automatic and limited manual activities”—such as reformatting posts or even screening for infringement—that courts have previously found to be merely accessibility enhancing.

Finding remand to be warranted, the Ninth Circuit noted that a fact finder must resolve the dispute regarding the status of the LiveJournal moderators as agents, and whether the Mavrix photos were posted at the direction of the users. In addition, the Court explained that under the DMCA, a fact finder must also determine whether LiveJournal had actual or “red flag” knowledge of the infringements, and whether LiveJournal financially benefitted from infringements that it had the “right and ability to control,” beyond just the capacity to remove or block access to posted content.

Thus, the Ninth Circuit reversed the grant of summary judgment in favor of LiveJournal and remanded for trial to address the factual questions relating to the application of the § 512(c) safe harbor with regard to LiveJournal’s business model.

Who Wore It Best? Virtually Identical Fabric Design Supports Inference of Copying

The US Court of Appeals for the Ninth Circuit affirmed that it is permissible to infer copying, even absent evidence of access, where the accused design and the copyright are so overwhelmingly identical that the possibility of independent creation is precluded. Unicolors, Inc. v. Urban Outfitters, Inc., Case No. 15-55507 (9th Cir., Apr. 3, 2017) (Orrick, J, sitting by designation).

Unicolors designs and sells fabrics in the apparel markets. In 2008, Unicolors purchased the rights to an artwork (source artwork), made minor alterations to the design so that it could be printed onto bolts of fabric, and renamed the derivative design as PE1130 (subject design). Later, Unicolors registered its “Flower 2008” collection, which included the subject design, with the US Copyright Office. Unicolors went on to sell approximately 14,000 yards of fabric bearing the subject design between 2008 and 2011.

In late 2010, Urban Outfitters developed a women’s dress with a fabric design similar to the subject design. Two years later, Unicolors sent Urban Outfitters a cease-and-desist letter, then filed a copyright infringement suit.

The district court granted Unicolors’ motion for summary judgment that Urban Outfitters infringed the copyrighted fabric designs, and, after a two-day jury trial, Urban Outfitters’ infringement was found to be willful. Urban Outfitters appealed, challenging the district court’s application of the subjective “intrinsic test,” its finding of a valid registered copyright and the jury’s verdict.

The intrinsic test is the second part of a two-part analysis (extrinsic test being the first inquiry) to determine whether particular works are substantially similar or strikingly similar. Unlike the extrinsic test, which requires an overlap of concrete elements in the designs based on objective criteria, the intrinsic test is subjective. It asks “whether the ordinary, reasonable person would find ‘the total concept and feel of the works’ to be substantially similar.”

At summary judgment, Unicolors conceded that its evidence regarding access was limited and that it could not link its design to Urban Outfitters other than appealing to the wide dissemination of its fabric design prior to Urban Outfitters’ release of the accused dress design. Finding this argument insufficient, the district court focused on Unicolors’ alternative argument that the designs were so strikingly similar that such similarity could only be attributed to copying. Urban Outfitters appealed.

On appeal, the Ninth Circuit agreed with the district court’s approach, rejecting Urban Outfitters’ assertion that even if a court finds striking similarity, it cannot find “copying” without some evidence of access.

The works were found to be virtually identical and, given their complexity and the striking similarity between them, the Court explained it was “unnecessary to consider the possibility [that the accused dress] was the product of independent creation, coincidence, a prior common source, or any source other than copying.” As the Court further explained, summary judgment for plaintiff was appropriate where the “works are so overwhelmingly identical that the possibility of independent creation is precluded.” Indeed, “[i]f courts were never permitted to grant summary judgment in favor of plaintiffs on the issue of copying, even for identical works, the effect of Rule 56 would be substantially diluted.”

The Ninth Circuit also disagreed with Urban Outfitters’ assertion that there were disputed facts as to whether the subject design was included in Unicolors’ Flowers 2008 collection registration. Even though Unicolors properly submitted a copy of PE1130 (the subject design), Urban Outfitters questioned whether the subject design was included, because the name PE1130 was not on the certificate and because the source artwork was listed as excluded material. However, under Alaska Stock (IP Update, Vol. 17, No. 4), the Court noted that omitting the title of a work in a registration collection does not bar copyright protection as long as Unicolors had rights to the component works. Further, the fact that the source artwork was listed as excluded material was of no import because the infringement action was based on the derivative work, not the source artwork. Indeed, “good faith mistakes do not invalidate registration of a derivative work.”

Finally, the Ninth Circuit concluded that there was substantial evidence to support the jury’s verdict of willful copyright infringement.

Absent Commercial Use, Copyright Law Likely Preempts Right of Publicity Claims

In a right of publicity case, the US Court of Appeals for the Ninth Circuit upheld a district court decision granting a motion to strike under California’s anti-SLAPP statute on the basis of copyright preemption. Maloney v. T3Media, Inc., Case No. 15-5563 (9th Cir., Apr. 5, 2017) (Smith, J).

Patrick Maloney and Tim Judge, both former student athletes, brought a class-action suit against T3Media for violation of their rights of publicity (ROP) under California state law and common law, and brought unfair competition claims based on T3Media’s use of plaintiffs’ images on its website, which sells licensed photographs from the National Collegiate Athletic Association Photo Library chronicling newsworthy sporting events using thumbnail images and brief descriptions regarding the people and events contained therein. The district court granted T3Media’s motion to strike the ROP claims on the basis of federal copyright law preemption, and declined to reach the other defenses. Maloney appealed.

In a lengthy decision, the Ninth Circuit agreed with the district court that preemption applied under the appropriate test, explaining that the subject matter of the ROP state claim fell within “the subject matter of copyright as described in 17 USC §§ 102 and 103,” and that the ROP rights asserted by plaintiffs were “equivalent to the rights contained in 17 USC § 106, which articulates the exclusive rights of copyright holders.” Specifically, the photographs at issue were “original works of authorship fixed in a tangible medium” as required under § 102. The Court also concluded that plaintiffs waived their opportunity to argue that the rights they asserted against T3Media were not equivalent to the exclusive rights of copyright holders to “display, perform, reproduce, or distribute” copies of a copyrighted work, because that issue was raised only by amicus curiae, not by the plaintiffs at the district court level.

Plaintiffs argued that prior precedent created a distinction between a person’s likeness used in a photograph and a person’s likeness used in other ways, such as in a moving picture or musical recording. The Ninth Circuit, however, agreed with the district court’s dismissal of that argument, stating that such precedent “did not mint a categorical rule that publicity right claims relating to a likeness in a photograph are not subject to preemption” and drawing numerous distinctions in the cases cited by plaintiffs. The Court emphasized that such cases looked at how the likeness was used (commercial versus non-commercial) and whether the purpose of a plaintiff’s ROP claim is to “vindicate misuse of an individual’s likeness” rather than attempting to stop the distribution, display or performance of a copyrighted work.

The Ninth Circuit pointed out that T3Media offered the photographs of historic/newsworthy sporting events under a non-exclusive license that permitted only a single copy of the image for non-commercial art use. There was no advertising or merchandise sold by T3Media that would imply an endorsement of its website by plaintiffs, and T3Media did not use the likenesses apart from describing the content of the thumbnail images.

Accordingly, the Ninth Circuit held that the district court did not err in its dismissal of plaintiffs’ claims with prejudice based on copyright preemption.

Practice Note: To make an end-run around preemption, a plaintiff must show in its ROP claim that the use of the plaintiff’s likeness is used in a commercial sense, rather than simply being captured in an artistic work for personal use.