IP Update, Vol. 18, No. 12

Lost-Profits Damages Available Despite 50 Percent Price Disparity

The U.S. Court of Appeals for the Federal Circuit found that lost-profits damages were available in a situation where the accused product sold for half the price of the patentee’s product, and consequently remanded the case for reinstatement of the jury’s $45 million damages award. The other remaining appeal issues, generally relating to claim construction, were resolved in Akamai’s favor in a prior decision and are not further addressed here. Akamai Techs., Inc. v. Limelight Networks, Inc., Case Nos. 09-1372; -1380; -1416;-1417 (Fed. Cir., Nov. 16, 2015) (Linn, J.).

As the Federal Circuit has explained “[T]o collect lost profits, a patentee must show a reasonable probability that ‘but for’ the infringing activity, the patentee would have made the infringer’s sales.” In this case, Limelight argued that the district court committed legal error by allowing Akamai’s expert, Dr. Ugone, to present lost profits as a measure damages. Limelight argued that Dr. Ugone’s analysis of the percent of Limelight’s sales that would have gone to Akamai but for the infringement lacked a causal connection and was arbitrary.

Dr. Ugone opined that even though Limelight’s product was half the price of Akamai’s product, 75 percent of Limelight’s sales would have been made by Akamai but for the infringement. He justified his calculation in part on the relative inelasticity of demand for the product, meaning that the demand would not change much even as the price changed.

Dr. Ugone’s 25 percent adjustment for market elasticity was supported by evidence that Akamai and Limelight were direct competitors, “including statements by Limelight that Akamai was its largest competitor; [that] ‘Limelight and Akamai are, from a scale and quality standpoint, head and shoulders above the rest of . . . Limelight’s competition’; [that] demand was driven by end-users not customers; and [that] Akamai maintained a dominant market share despite Limelight’s infringing service and lower price.”

The Federal Circuit rejected Limelight’s argument that the price disparity necessarily meant that Limelight and Akamai were selling to different market segments. It distinguished its 1993 decision in BIC Leisure Prods., v. Windsurfing International, which held that lost profits were not available because the infringer and patentee sold to different market segments based on a 60 percent to 80 percent price disparity. The Court explained that in BIC Leisure the infringing sailboards “differed fundamentally” from the patentee’s boards, over a dozen competitors sold in the sailboard market, and demand for sailboards was relatively elastic. Here, in contrast, Akamai presented evidence that it and Limelight were direct competitors, both leaders in the field, and that demand was relatively inelastic.

Accordingly, the Federal Circuit concluded that lost-profits damages were available to Akamai and that Dr. Ugone’s 25 percent adjustment for market elasticity “was sufficiently grounded in economic principles to allow it.” The Federal Circuit did not, however, rule on whether the 25 percent adjustment was adequate or whether there was a sufficient evidentiary basis for the jury’s damages award, because it found that Limelight did not properly raise the issue for appeal, as opposed to the distinct legal challenge on the availability of lost profits.

The current remand order additionally confirms the Federal Circuit’s unanimous (per curium) en banc ruling on remand from the Supreme Court ruling (IP Update, Vol. 17, No. 6) that reinstated its affirmance of the jury’s verdict of infringement against Limelight for infringing a web content delivery patent even though Limelight’s customers carried out some of the steps so long as “all method steps can be attributed to a single entity.”(See IP Update, Vol. 18, No. 6 and report at 2015 WL 4760450.)

Federal Circuit Limits the Safe Harbor Provision and the Scope of § 271(g)

Addressing issues of infringement under 35 U.S.C. § 271(g) and the safe harbor provision of § 271(e), the U.S. Court of Appeals for the Federal Circuit upheld the district court’s ruling of non-infringement under § 271(g) and vacated the district court’s finding of non-infringement under 271(a) to the extent that finding was based on application of the § 271(e) safe harbor provision. Momenta Pharm., Inc. v. Teva Pharm., Inc. and Amphastar Pharmaceuticals, Inc., Case Nos. 14-1274, -1277 (Fed. Cir., Nov. 10, 2015) (Wallach, J.) (Dyk, J., concurring in part, dissenting in part).

Enoxaparin is an anticoagulant that helps to prevent blood clots. Momenta markets a generic version of enoxaparin, and is the assignee of a patent directed to a process used to ensure each batch of generic enoxaparin meets certain quality standards. Teva and Amphastar sought to enter the generic enoxaparin market. Teva used an Italian company to manufacture, analyze, test, package and label Teva’s generic version of enoxaparin, which Teva then imported into the United States. Unlike Teva, Amphastar manufactures its enoxaparin product within the United States. Momenta sued Teva and Amphastar for infringement of its patented process. The district court granted summary judgment that Teva’s and Amphastar’s sales in the United States did not constitute infringement under § 271(g) and that their conduct fell within the safe harbor from infringement provided by § 271(e). Momenta appealed.

Section 271(g) prohibits selling “within the United States a product which is made by a process patented in the United States.” In this case, the issue for the Court was whether Teva’s enoxaparin product was “made by” the claimed method. The Court ruled that the word “made,” as used in § 271(g), means “manufacture” and extends to the creation or transformation of a product, but does not extend to quality control steps, including testing to evaluate the properties of an already-synthesized substance. Because Momenta’s claimed process only involved evaluation of the properties of material that had already been made, the Court found that Teva’s and Amphastar’s enoxaparin product was not “made by” the claimed process.

Momenta also argues Amphastar’s use of the patented method within the United States infringes under § 271(a) and is not protected by the § 271(e)(1) safe harbor. The safe harbor provision of § 271(e) shields from infringement certain activities relating to submission of information to the U.S. Food and Drug Administration (FDA), including, for example, allowing generic drug manufacturers to perform the testing required for FDA approval before the patents in question expire. The safe harbor provision broadly encompasses pre-approval activities but does not shield post-approval “information that may be routinely reported to the FDA.”

In this case, the question for the Court was whether the information generated by Amphastar’s performance of the claimed process is of the type that is routinely (i.e., repeatedly, habitually, regularly) reported to the FDA. According to the Court, because Amphastar’s allegedly infringing activities involved post-approval quality control testing of each and every batch of enoxaparin, the information generated was of the type “routinely” recorded, retained and reported in accordance with FDA regulations and, therefore, was not protected by the § 271(e) safe harbor. Here, the Court drew a distinction between information that is “routinely” recorded and reported in this manner and “new” information that has not been previously submitted to the FDA. According to the Court, “new” information is information that may form the basis for supplemental applications or post-approval clinical trial results. Because the district court erred in finding that Amphastar’s activities fall within the § 271(e) safe harbor, the Court remanded the case to the district court to analyze the question of infringement under. § 271(a).

Judge Dyk dissented from the majority ruling as to non-infringement under § 271(g). According to Dyk, whether a particular product was “made by” a claimed process should be reviewed on a case-by-case basis and, in the context of enoxaparin, the claimed process is an integral part of the manufacturing process that should be covered under § 271(g).

Judge Dyk also noted that the majority’s decision may create a loophole in the law of § 271(g) infringement with respect to purification and other quality-control processes. Specifically, the material subject to the claimed process was removed from, and not returned to, the commercial batch. As a result, according to the majority, the material that became the final commercial product was not “transformed by” the claimed process. By parsing the process in this way, the majority drew a distinction between quality control steps done using samples that are incorporated in the final product, which may fall within the purview of § 271(g), and quality control steps done using samples not incorporated into the final commercial product, which may be exempt from § 271(g).

Written Description Standard for Negative Claim Limitations

Do negative claim limitations need to adhere to a heightened written description standard? That was the question the U.S. Court of Appeals for the Federal Circuit addressed in an appeal from a inter partes reexamination, rejecting a heightened standard, the Court concluded that “properly described, alternative features are sufficient to satisfy the written description standard of 35 U.S.C. § 112, ¶ 1.” Inphi Corp. v. Netlist, Inc., Case No. 15-1179 (Fed. Cir., Nov. 13, 2015) (O’Malley, J.).

Inphi petitioned for inter partes reexamination of a Netlist patent directed to a memory module. After the examiner rejected more than 30 claims as obvious, the patent owner, Netlist, amended the claims to include a negative limitation, after which the examiner withdrew his objections.

As background, the patent relates to computer memory modules that comprise a printed circuit with upwards of a dozen “random access memory” (RAM) chips (sometime on both sides of the circuit board) for short-term storage. When plugged into a computer’s memory slot, a memory module receives multiple command and control signals that are defined by the Joint Electron Device Engineering Council (JEDEC)—a standards body much like the IEEE, but with a focus on computer memory. While memory modules are typically required to send and receive standard signals to be compatible with computer memory systems, memory module makers are free to adjust on-module signaling to improve, for example, capacity and/or performance. The Netlist patent claims methods and apparatus for such improvements.

To save the claims, Netlist added a limitation excluding the use of three standard signals —CAS, RAS, and bank-address signals—as “chip select” signals, but allowing the use of other standard signals as “chip select” signal.

After the examiner withdrew his objection, the requestor, Inphi appealed the amended claims to the Patent Trial and Appeal Board (Board), arguing Netlist introduced a negative claim limitation lacking support from the specification and, as a result, failing to satisfy the written description requirement (§ 112, ¶ 1). The Board affirmed the examiner’s allowance of the amended claims and denied Inphi’s request for a rehearing. Inphi appealed.

Relying on Santarus v. Par Pharm., (IP Update, Vol. 15, No. 10), Inphi argued that the Court’s precedent demanded a heightened written description standard for negative claim limitations requiring that the specification “describe[e] a reason to exclude the relevant limitation.” Inphi further asserted that the “reason to exclude” necessitates something more that describing alternative features—such as describing the advantages of excluding the feature, or the disadvantages of including it—and that Netlist’s patent failed to expressly articulate a reason to exclude the RAS, CAS and bank address signals. The Federal Circuit took issue with Inphi’s recitation of the standard.

Reconciling its decision in Santarus with its existing jurisprudence on written description, the Court clarified that Santarus describes one way of satisfying a negative limitation, not the only way. Listing advantages and/or disadvantages of the claim exclusion is therefore unnecessary when the specification “properly describes alternative feature of the patented invention.”

Applying the deferential substantial evidence standard, the Court concluded that the patent specification and JEDEC documents incorporated by reference supported the Board’s finding that Netlist had adequately described the added negative limitation.

Practice Note: For future guidance, the Federal Circuit noted that if the specification foreclosed on the negative limitation, then the amendment would be improper and the patent invalid—as was the case with In re Bimeda Research & Dev. Ltd., (IP Update, Vol. 16, No. 8).

A Negative Claim Limitation Lacking Support In Specification Can Narrow Claim Scope

Addressing the issue of whether the district court properly relied on dictionary definitions when construing a negative claim limitation that was the basis for a summary judgement of non-infringement, the U. S. Court of Appeals for the Federal Circuit answered in the affirmative, holding that courts can rely on dictionaries so long as the dictionary definition does not contradict any definition found in or ascertained by a reading of the intrinsic evidence. Imaginal Systematic, LLC v. Leggett & Platt, Case No. 14-1845 (Fed. Cir., Nov. 10, 2015) (O’Malley, J.).

Leggett & Platt (L&P) designs and manufactures equipment used to assemble box springs. Imaginal Systematic (Imaginal) filed suit against L&P alleging that an L&P stapling machine infringed an Imaginal patent directed toward a process of assembling box springs.

The district court granted summary judgement of non-infringement on the grounds that L&P stapling machine that used a camera as an input to a computer does not satisfy a claim limitation requiring the stapler not use vision- or sight-based control. Imaginal appealed, arguing that the district court improperly constructed the negative claim limitation to obviate infringement. Imaginal asserted that the district court defined the negative limitation too broadly.

The asserted claim requires moving a fastener tool “without the use of a vision guidance tool.” Since such a negative limitation is exclusionary rather than inclusionary, the typical arguments regarding claim breadth asserted by parties in litigation are reversed. Typically, patentees will argue for a broad construction of a claim element so as to encompass an accused product, while accused infringers will seek a narrow construction so as to avoid infringement. However, when a negative limitation is in issue, it is the patentee who will typically argue for a narrow construction in order preserve the claim scope, while the accused infringer will argue for a broader construction which tends to limit the claim scope.

Patentees frequently act as their own lexicographers, which is why courts initially refer to the specification when construing claim terms. However, when the specification alone is insufficient for claim construction, courts are free to rely on dictionaries. In this case, the specification did not explicitly define the term “vision guidance tool,” and so the court looked to the ordinary dictionary meaning of the words “vision” and “guidance.” The court’s construction resulted in a construction of a negative claim limitation that was sufficiently broad to exclude the accused product.

Imaginal’s argument that the limitation should be construed to only exclude the vision guidance system disclosed in the specification failed because while the patentee could have defined the term such that it was restricted to a specific embodiment, it did chose not do to.

Practice Note: If required to introduce a negative claim limitation during prosecution, practitioners should try to insure the intrinsic evidence will support a narrow construction.

Claim Construction—It Depends On the Meaning of “Is”

Addressing claim construction issues in the context of an inter partes review, the U.S. Court of Appeals for the Federal Circuit concluded that the Patent Trial and Appeal Board’s (PTAB or Board) construction of the term “is connected” was erroneous, even under the broadest reasonable interpretation (BRI) standard. Straight Path IP Group, Inc. v. Sipnet EU S.R.O., Case No. 15-1212 (Fed. Cir., Nov. 25, 2015) (Taranto, J.) (Dyk, J. dissenting).

The patent at issue, held by Straight Path, described a system for allowing voice and video communications despite changing IP addresses in which the system would query a server as to whether a user “is connected to a computer network” by having the server search the database for “any stored information corresponding” to the user. Relying on a small portion of the specification, the PTAB agreed with the petitioner, Sipnet, that the term “is connected to a computer network” included users that had previously been connected or registered with the server, even where those users were no longer connected at the time of the query. This broad interpretation invalidated many of the patent’s claim as anticipated or obvious in light of prior art. Straight path appealed.

Conducting a de novo review, the Federal Circuit overturned the Board’s construction of the contested claim limitation. According to the Court, the present tense “is” in the claim term “is connected to the computer network” plainly means that the query transmitted to the server seeks to determine whether the second unit is connected at the time the query is sent. The Court went on to explain that, where the claim language is particularly clear, “the specification plays a more limited role than in the common situation where claim terms are uncertain in meaning.” The Court explained that unless there is a disclaimer or redefinition, either explicit or implicit, the proper construction of any claim language must, among other things, “stay[] true to the claim language.”

In this case, the specification does not provide a basis for reasonably adopting a construction that contradicts the plain meaning of the claim language. Rather, the portion of the specification cited by the Board—which says no more than that the unit is active and online at the time of registration—does not expressly or implicitly redefine the phrase “is connected.” Indeed, as the Federal Circuit noted, the specification further explains that the server “may use the timestamps to update the [online] status of each processing unit”; meaning that the specification recognizes the temporal nature of the status of actually being online.

Judge Dyk dissented from the majority, relying on Phillips to argue that the specification is always highly relevant to the claim construction. He also referenced prior Federal Circuit cases in which the Court had found, based on the specification, that claims requiring “real time data” did not require instantaneous data.

Unless Defined Beyond Ordinary Meaning, Narrow Terms Are Bounded by Their Ordinary Meaning

Addressing claim construction issues, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s summary judgment ruling, finding that the district court properly construed the disputed claim limitation based on its ordinary meaning. Advanced Steel Recovery, LLC v. X-Body Equipment, Inc., Case No. 14-1829 (Fed. Cir., Nov. 12, 2015) (Stoll, J.).

Advanced Steel sued X-Body alleging infringement of a patent related to loading shipping containers with bulk material for storage or transport. At issue was the proper construction of the term “proximate end.” Noting that the specification did not expressly define this term, the district court construed “proximate end” to mean “the extreme or last part lengthwise.” Based on this construction, the district court found that the “connection point” of the accused device was not at the “proximate end” and granted summary judgment of non-infringement in X-Body’s favor. Advanced Steel appealed.

On appeal, Advanced Steel faulted the district court for narrowly construing “proximate end” to mean the extreme or absolute edge of the container packer. According to Advanced Steel, the term should have been construed as the “back half” or “the portion or region that is opposite the distal end.” But, as the Federal Circuit explained, Advanced Steel’s argument misrepresents the district court’s construction. The district court did not actually construe “proximate end” as the “extreme edge,” “absolute edge,” but instead used the disjunctive “or” to show that the proximate end of the container packer includes not just the “extreme” end, but also the “last part.” The Court found that the district court’s construction was consistent with the plain and ordinary meaning of the claim term, and consistent with the specification, which in every figure shows the disputed connection point being at the extreme edge. The Court rejected Advanced Steel’s argument that the patent depicted the “proximate end” as being offset from the absolute edge, stating that the district court’s construction of “proximate end” allowed for such an offset to coexist. The Court also rejected Advanced Steel’s reliance on alternative dictionary definitions, explaining that these dictionaries’ definitions were not inconsistent with the district court’s construction.

In affirming the district court’s no literal infringement ruling, the Court agreed that the “connection point” of the accused device was not at the “proximate end” because it was nearly one-third away from the extreme end. As for the doctrine of equivalents, the Court agreed that the range of equivalents did not extend to the connection point of the accused device. Here, the Court found that Advanced Steel failed to meet its burden of showing that the accused device performed substantially the same way as the claimed invention, explaining that Advanced Steel’s expert referred to features of the accused device that corresponded to other claim limitations.

Practice Note: Claim terms that appear as narrow or limiting on their face will be interpreted as such unless the specification contains additional definitions or descriptions showing that one of ordinary skill in the art intended to define the claim terms beyond their ordinary meaning.

Federal Circuit Supports PTAB’s “One-Bite” Petition Procedural Rules but Vacates PTAB Opinion

While the U.S. Court of Appeals for the Federal Circuit supported the Patent Trial and Appeal Board’s (PTAB or Board) application of procedural rules to limit the petitioners to one bite at the IPR petition apple, it nonetheless vacated and remanded a Board opinion based on a possible misapplication of those rules. Ariosa Diagnostics, Inc. v. Verinata Health Inc., Case Nos. 15-1215; -1226 (Fed. Cir., Nov. 16, 2015) (Taranto, J.).

Challenging another patent concerning prenatal diagnostic methods (Ariosa Diagnostics, v. Sequenom, IP Update, Vol. 18, No. 7), Ariosa Diagnostics filed a petition for inter partes review, asserting that the patent claims were obvious over several prior art references. Two expert declarations filed along with Ariosa’s petition each referred to an exhibit as evidence of the background knowledge of one or ordinary skill. The petition did not explicitly rely on the exhibit as a ground of unpatentability.

In contrast to its petition, Ariosa’s reply focused more heavily on the teachings of the exhibit as substantive prior art. In its reply the petitioner even submitted a new expert declaration that included testimony going to patentability based on the exhibit. The Board viewed this as a new argument, replacing the teachings of the originally cited references upon which patentability arguments in the petition were based, with the teachings of the exhibit. Because “a reply may only respond to arguments raised in the corresponding . . . patent owner response” and the Board did not see “why [the exhibit] could not have been presented as part of the asserted ground of unpatentability in the first instance,” the Board decided it would accord “this aspect of [the expert’s] testimony no weight.”

Separately, the Board also rejected the petitioner’s reliance in its reply on newly identified portions of the cited prior art references. The petitioner had tried to use these portions to rebut arguments that two of the cited references could not be combined. The Board ultimately concluded that the petitioner had not established obviousness by a preponderance of the evidence and upheld the challenged claims. The petitioner appealed.

The Federal Circuit vacated and remanded the Board’s decision while expressing full support for the Board’s enforcement of its procedural rules. First, regarding the testimony based on the exhibit, the Federal Circuit found that the arguments based on the exhibit were properly raised in the Petition so the testimony could not have been properly excluded as a new argument. The Court stated that there were permissible grounds for the Board to exclude the evidence, but it could not discern the grounds upon which the evidence was given no weight. Further, the Federal Circuit could not discern whether any error in that regard had a dispositive effect. Thus, the Court vacated the Board’s order and remanded to give the Board an opportunity to explain the effect of the erroneous “no weight” determination. Second, regarding the newly identified portions of the previously cited references, the Federal Circuit affirmed the Board’s exclusion of the evidence as properly grounded in applicable regulations and congressional intent to balance fairness and expediency. In sum, the Federal Circuit upheld the Board’s practice of strictly applying procedural rules to promote expediency even as it remanded the order for the Board to consider whether it had applied those rules correctly.

Practice Note: The PTAB practice of requiring petitioners to make all of their arguments and cite all of their evidence in the Petition is sanctioned by the Federal Circuit. Subject (of course) to page limitations, petitioners should err on the side of over-inclusiveness when presenting evidence in their petitions.

Patent Owner Should Have Left “Good Enough” Alone

Addressing issues of obviousness and procedural issues related to the use of declarations, the U.S. Court of Appeals for the Federal Circuit affirmed in part and reversed in part a decision by the Patent Trial and Appeal Board (PTAB or Board), finding that all claims of the patent at issue were invalid. Belden Inc. v. Berk-Tek LLC, Case No. 14-1575 (Fed. Cir., Nov. 5, 2015) (Taranto, J.).

Appellant Belden owns the patent at issue, which relates to a method of producing a transmission cable. Petitioner and cross-appellant Berk-Tek challenged the validity of the patent’s claims in an inter partes review (IPR), arguing that they are obvious in view of a combination of prior art references. The Board ultimately concluded that some of the claims were obvious, but that other claims were patentable. Specifically the Board found that certain dependent claims relating to twisted pairs of conductors were patentable because Berk-Tek had not explained why a person of ordinary skill in the art would have had sufficient reason to combine the references as proposed. The patent owner appealed.

On appeal, the Federal Circuit agreed with the Board’s conclusion that certain claims were obvious, but then went on to find that the remaining claims, the patentability of which had been confirmed by the Board, were obvious as well. Despite reviewing the Board’s factual findings under the substantial-evidence standard of review, the Court found that the Board erred in concluding that the prior art did not provide a sufficient reason for making the proposed combination. The Court noted that the Board had identified, in a prior art reference, the importance of aligning conductors with a core for subsequent twisting in a stranding device. According to the Court, this evidence pointed to a motivation of a skilled artisan to arrive at the methods of the dependent claims in question.

The Federal Circuit also affirmed the Board’s denial of Belden’s motion to exclude an expert declaration that Berk-Tek had submitted as part of its reply. Belden’s motion to strike the declaration argued that Berk-Tek should have submitted it as part of the original petition because it was necessary to support Belden’s prima facie case of obviousness. The Board disagreed, concluding that the declaration was not necessary to establish a prima facie case and also that the declaration was responsive to the arguments and evidence submitted in Belden’s response. In affirming the Board’s decision, the Court noted that the Board provided Belden with adequate opportunities to address the declaration, including an opportunity to cross-examine the declarant. Belden could also have sought additional procedural opportunities to rebut the declaration, such as disputing the substance of the declaration at oral hearing, moving for permission to submit a sur-reply and requesting that the Board waive or suspend any regulation that Belden believed would impair its ability to respond to the declaration. Without the Board’s denial of any such requests, the Court was unable to conclude that Belden was denied a meaningful opportunity to respond to the grounds of rejection.

Directing a Known Treatment to a Sub-Population of Patients Is Obvious

Addressing obviousness issues, the U. S. Court of Appeals for the Federal Circuit affirmed the district court’s invalidity conclusion, agreeing that the elements present in the prior art—including earlier disclosed genus claims—would have given a person of ordinary skill a reasonable expectation of successfully treating a subset of patients. Prometheus Labs, Inc. v. Roxane Labs., Inc., Case Nos. 14-1634, -1635 (Fed. Cir., Nov. 10, 2015) (Dyk, J.).

In 2009, Roxane filed an Abbreviated New Drug Application (ANDA) seeking approval to sell a generic version of the branded pharmaceutical Lotronex. Lotronex is a Prometheus product used to treat various irritable bowel syndrome (IBS) symptoms. Prometheus responded by filing a district court action against Roxane.

IBS is a condition with multiple forms, each form diagnosed based on a patient’s symptoms. For example, IBS-D refers to diarrhea-predominant symptoms, IBS-C refers to constipation-predominant symptoms, and IBS-M refers to mixed symptoms. The asserted patent’s claims are directed to treatment of female IBS patients with IBS-D who have experienced diarrhea-predominant symptoms for at least six months and who have moderate pain. The asserted patent followed an earlier Prometheus patent (the “prior art patent”), now expired, that also covered treating IBS symptoms with alosetron but did not distinguish between the various forms of the condition.

Following a bench trial, the district court found all of the asserted claims obvious. According to the district court, the prior art patent taught treatment of IBS with alosetron in a manner virtually identical to the asserted claims, and the results of the asserted claims were not unexpected in view of research findings that the drug would have increased efficacy for female IBS-D patients exhibiting symptoms for more than six months. The district court also concluded that the remaining evidence relating to secondary considerations of non-obviousness was insufficient to overcome the showing of insubstantial differences between the claimed inventions and the prior art. Prometheus appealed.

On appeal, the Federal Circuit affirmed the conclusion of obviousness under § 103, finding that the district court’s opinion was supported by specific evidence showing that the limitations of the asserted claims (i.e., IBS-D symptoms or female patients with symptoms for more than six months) were either known in the medical literature or common practice.

Prometheus also argued that secondary considerations of non-obviousness in the form of commercial success, unexpected results and long-felt need overcame the teachings of the prior art. The Federal Circuit disagreed, noting that Prometheus did not submit evidence demonstrating a nexus between the commercial success of the branded drug and the asserted patent. Instead, the drug’s commercial success could be attributed to other variables such as the drug compound disclosed in the prior art patent, marketing campaigns and pricing of the product to stimulate sales. The Federal Circuit confirmed that while the burden of proof to demonstrate obviousness always rests with the party challenging validity, once a prima facie case of invalidity has been introduced through appropriate evidence, the patentee is well advised to introduce rebuttal evidence. In other words, here, Roxane had the burden of proof but Prometheus had the burden of production for secondary considerations such as commercial success.

Practice Note: The opinion discusses circumstances where a narrow species claim can be non-obvious and patent-eligible despite an earlier disclosure of a genus, noting in dicta that the genus-species distinction “may have particular relevance in the field of personalized medicine.” The decision seems to offer important guidance as to when claims directed to a particular subset of patients may be patent eligible, noting that directing a specific treatment to patients with a particular gene may reflect a new and useful invention even if the treatment method was generally known in the prior art.

Propriety of a Certificate of Correction Requires Assessment of the Teachings of the Specification as a Whole

In affirming that a certificate of correction may properly be used to correct a later-discovered error in a chemical diagram, the U.S. Court of Appeals for the Federal Circuit looked to the teachings of the specification as a whole to determine that the certificate merely conformed the erroneous diagram to the rest of the specification and did not change the scope of the claims. Cubist Pharms., Inc. v. Hospira, Inc., Case Nos. 15-1197; -1204; -1259 (Fed. Cir., Nov. 12, 2015) (Bryson, J.).

The patent at issue relates to novel pharmaceutical formulations of daptomycin, a prior art antibiotic originally discovered by Eli Lilly in the 1980s. The specification and claims refer to daptomycin as “Formula 3,” and the specification describes the identity of Formula 3 in three different ways. First, the specification refers to the compound as an “A-21978C cyclic peptide” and cites to another U.S. patent as describing such peptides as the result of a very specific bacterial fermentation process. Second, the specification refers to the Formula 3 compound as “LY146032,” which was the internal code name used by Eli Lilly to refer to daptomycin. Third, the specification contained a diagram depicting the compound’s chemical structure.

It turned out that the structural diagram of the compound identified as Formula 3 and depicting daptomycin was inaccurate in one respect. The chemical diagram mistakenly labeled the amino acid asparagine as the “L” stereoisomer, rather than the “D” stereoisomer. At the time the patent was filed, it was universally believed that the daptomycin compound included the L-isomer of asparagine. Many years after the patent issued, however, researchers determined that the compound known as daptomycin actually contained the D-isomer, not the L-isomer. Cubist successfully obtained a certificate of correction from the U.S. Patent and Trademark Office (USPTO) that substituted the D-isomer for the L-isomer.

Hospira argued that the USPTO erred by issuing the certificate of correction, because the change in the structural diagram resulted in a broadening of the claims from the L-isomer compound to the D-isomer compound. Hospira noted that this difference was meaningful because, although daptomycin—which contains the D-isomer—is a very powerful antibiotic, the L-isomer version of the compound is a much less effective antibiotic.

The district court and Federal Circuit agreed that the certificate of correction was appropriately issued because it did not, as Hospira alleged, cause an alteration in claim scope. In particular, because the “specification as a whole” made clear that the compound being claimed as “Formula 3” was always intended to be the prior art compound daptomycin, “D-asparagine was covered both before and after correction.” As one example, the Court noted that the particular bacterial fermentation process cited in the patent is one that necessarily and inevitably results in daptomycin, not the L-isomer variant. Moreover, the Court noted that it was well known in the art that the Lilly code LY146032 referred to daptomycin, not the L-isomer variant. According to the Court, even though the patentee and the art in general were originally mistaken about the correct asparagine isomer in daptomycin, there was no mistake or doubt that the patentee did, in fact, intend to refer to daptomycin in the patent. For these reasons, the certificate merely served to “conform the structural diagram of Formula 3 to the compound described in the specification and covered by the claims.”

In a related argument, Hospira argued that the claims were invalid for lack of written description because the specification did not disclose the features or structure of daptomycin containing the D-isomer. The Court rejected this argument as well, again invoking the teachings of the specification as a whole. In particular, the Court noted that “Formula 3” in the claims clearly refers to daptomycin and that the specification describes “relevant identifying characteristics” that are sufficient to distinguish daptomycin from other compounds not falling within the scope of the claims. The Court concluded that a skilled person reading the specification would understand the inventors to be in possession of daptomycin, notwithstanding the error in the original structural diagram of Formula 3.

Violation of ITC Consent Order Can Be Based on “Infringement” of Invalid Claims

Reviewing the International Trade Commission’s (ITC or Commission) finding of a violation of a consent order, a divided panel of the U.S. Court of Appeals for the Federal Circuit concluded that a subsequent finding that the patents for which the violation was asserted were invalid did not require either the violation or fine to be overturned. DeLorme Publishing Co. et al. v. Int’l Trade Comm’n, Case No. 14-1572 (Fed. Cir., Nov. 12, 2015) (Moore, J.) (Taranto, J., dissenting in part).

The case arose from a Commission enforcement action based on a consent order entered into by appellant DeLorme in April 2013, in which it agreed not to import products that infringed the claims of a patent owned by BriarTek IP “until the expiration, invalidation, and/or unenforceability of the [. . . ] Patent.” One month later, BriarTek complained that DeLorme was violating the consent order by importing non-infringing components, which were then turned into infringing products. The Commission began an enforcement proceeding, found there was a violation and fined DeLorme over $6 million. DeLorme appealed. In parallel with the enforcement proceeding, DeLorme filed a declaratory judgment action seeking invalidation of all claims asserted at the Commission. After the Commission’s ruling, the district court granted summary judgment that all of the claims which DeLorme was accused of infringing at the ITC were invalid. BriarTek appealed, and the district court’s ruling was sent to the same panel.

DeLorme made two arguments on appeal: that the consent order did not reach importation of non-infringing products which became infringing after importation and that the subsequent district court invalidity ruling nullified the consent order. The panel disagreed with both arguments.

As for the importation argument, the panel found that the consent order prohibited the “sale or offer for sale after importation” of products that infringed BriarTek’s patents, and that was sufficiently broad to reach DeLorme’s conduct. As for the nullification argument, the panel found that the language allowing for importation “until…invalidation…of the Patent” was prospective-looking, not retroactive, and therefore until there was a final ruling on invalidity DeLorme could be found in violation of the consent order.

Ironically, the panel also unanimously upheld the district court’s finding that the claims on which the violation was based were invalid. However, the majority also noted that “[b]ecause our concurrently issued affirmance … is still reviewable, the Consent Order continues to be binding on DeLorme even now” and upheld the Commission’s fine.

Judge Taranto dissented based on the panel’s affirmance of the district court invalidity ruling arguing that the case should be remanded to the Commission for consideration of whether the invalidity finding should have an effect on the fine for violation.

Bare Allegations of Customer Indemnification Not Enough for CBM Standing

In a decision denying institution on a covered business method (CBM) review petition, the Patent Trial and Appeal Board (PTAB or Board) declined to institute a proceeding, finding that the petitioner lacked of standing. The Board concluded that merely having a customer-supplier relationship and an indemnity agreement with an accused infringer did not confer standing on a supplier sufficient to pursue a CBM review on behalf of its customer. Acxiom Corp. v. Phoenix Licensing, LLC, CBM2015-00134 (Nov. 19, 2015) (S. G. White, APJ).

The case began when Phoenix Licensing sued two of Acxiom’s clients, Gerber Life Insurance and AAA Life Insurance, for patent infringement related to services purchased from Acxiom. Gerber then sought indemnification from Acxiom. Acxiom and its clients brought CBM petitions against seven of Phoenix’s patents. After Acxiom’s clients settled, leaving it alone on the CBM petitions, Phoenix called Acxiom’s standing into question.

For a party to have standing to file a CBM petition, § 18(a)(1)(B) of the America Invents Act (AIA) requires a patentee to allege infringement against that party or another party they have a special relationship with, such as being a privy or a real-party-in-interest. Acxiom argued that it qualified as either a real-party-in-interest or privy of Gerber because of its customer-supplier relationship and Gerber’s indemnification demand. The Board disagreed, citing Acxiom’s failure to produce sufficient evidence to prove the special relationship.

Acxiom had submitted two pieces of evidence relevant to special relationship with Gerber: a “Services and Data” agreement between the companies and a declaration from Acxiom’s senior account executive responsible for Gerber. With respect to the Services and Data agreement, the Board noted that Acxiom heavily redacted the contract, blacking out all but two paragraphs of the 12-page document. One paragraph showed that Acxiom agreed to provide services to Gerber but did not explain the nature of the services. The second paragraph provided for indemnification, as long as a party made a proper written demand. The declaration merely stated that Gerber made such a demand.

The Board concluded that the evidence was insufficient to prove privity or a relationship that could confer standing. For instance, Acxiom failed to provide the actual demand for indemnification or any correspondence related to it. The evidence also did not show that the agreement applied over the time period when Gerber could ask for indemnification. Finally, the Board noted that the contract only included an agreement to provide services. Without more clarity on the nature of those services, the Board could not conclude that there was any type of “special relationship” between Gerber and Acxiom. Consequently, the Board denied institution of the CBM review.

Practice Note: The America Invents Act imposes stricter standing requirements for CBM reviews than for IPR proceedings. A CBM petitioner must ensure that if it is not a directly accused infringer, it submits sufficient evidence to meet the CBM standing requirements in order to sustain its petition.

A Solution to Business Problems May Not Be a Technological Invention

Addressing the standard for instituting a covered business method (CBM) review, as well as patent eligibility issues under 35 U.S.C. § 101, the Patent Trial and Appeal Board (PTAB or Board) found patents related to payment data eligible for CBM review and that the petitioners would more likely than not prevail on their Section 101 challenge. Apple Inc. v. Smartflash LLC CBM2015-00121 (PTAB, November 10, 2015) (Anderson, APJ); Apple Inc. v. Smartflash LLC CBM2015-00123 (PTAB, November 10, 2015) (Plenzler, APJ); Apple Inc. v. Smartflash LLCCBM2015-00124 (PTAB, November 10, 2015) (Elluru, APJ); Apple Inc. v. Smartflash LLC CBM2015-00127 (PTAB, November 10, 2015) (Elluru, APJ); Google Inc. v. Smartflash LLC CBM2015-00125 (PTAB, November 16, 2015) (Elluru, APJ); Google Inc. v. Smartflash LLCCBM2015-00126 (PTAB, November 16, 2015).

The petitioners sought CBM reviews for patents related to data storage and access systems that enable downloading and paying for data. AIA § 18(d)(1) defines the term “covered business method patent” as a “patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.” The petitioners argued that the claims were directed to payment data (“transmitting the requested data in connection with payment validation,” in one of the challenged patents, and “performing data processing and other operations used in practice, administration, or management of a financial activity and service,” in another of the challenged patents).

The patent owner, Smartflash, argued that the patents were not CBM-eligible. According to the patent owner, AIA § 18(d)(1) should be interpreted narrowly to cover only technology used specifically in the financial or banking industry. The Board disagreed, noting that the U.S. Court of Appeals for the Federal Circuit has expressly determined that “the definition of ‘covered business method patent’ is not limited to products and services of only the financial industry.” Moreover the legislative history indicates that the phrase “financial product or service” is to be interpreted broadly.

The Board also concluded that patents do not fall within § 18(d)(1)’s exclusion for “technological inventions,” because their claims do not recites a technological feature that is novel and unobvious over the prior art. Moreover, according to the Board, the problem being solved by the claims of these patents was a “business problem—data piracy.” For these reasons, the Board found that these patents were eligible for CBM review.

On the merits, the Board concluded that the petitioner would more likely than not prevail on its claim that the patents are not direct to eligible subject matter under 35 U.S.C. § 101. The Board was not persuaded by the patent owner’s arguments that the claimed solution is “necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks,” which was found eligible by the federal Circuit in DDR Holdings v. Hotels.Com (IP Update, Vol. 18, No. 1). Instead, the Board found that the claims merely apply conventional computer processes to restrict access to data based on payment, which is not sufficient to “transform the nature of the claim” into a patent-eligible application of an abstract idea.

Settle with All Stakeholders Before Trying to Terminate an IPR

In a case where the patent owner settled out of an IPR proceeding with the petitioners but not with a party seeking joinder, the Patent Trial and Appeal Board (PTAB or Board) instituted inter partes review of all the challenged claims based on the joining party’s petition and granted its joinder motion. Qualcomm Inc. v. Bandspeed, Inc., IPR2015-00314;-01577 (PTAB, Nov. 16, 2015) (Boucher, APJ).

Marvell Semiconductor and MediaTek filed a petition to institute inter partes review of certain claims of a patent owned by Bandspeed. Bandspeed did not file a preliminary response. Soon after Marvell and the patent owner settled the underlying dispute and filed a joint motion to terminate that was granted. The next day, the PTAB instituted an inter partes review based on the MediaTek petition. Soon afterwards Qualcomm filed a petition along with a motion seeking to join both the MediaTek and Marvell IPR petitions.

While Qualcomm’s motion was pending, MediaTek settled with the patent owner and the parties jointly filed a motion to terminate that was granted by the Board, but only as to MediaTek, not the patent owner. The PTAB stated that it would revisit the Motion to Terminate as to the patent owner after ruling on the pending joinder motion. The patent owner filed a paper it called a preliminary response to Qualcomm’s petition, but according to PTAB “the Preliminary Response [did] not respond to any of the arguments and evidence presented in the Qualcomm Petition, aside from indicating that absent joinder, Qualcomm would be barred from filing a petition under 35 U.S.C. § 315(b).” In the Board’s view, “Patent Owner used the Preliminary Response as an unauthorized sur-reply to the Motion for Joinder.” Since the patent owner did not seek, nor did the PTAB grant authorization for the additional briefing on the joinder motion, the PTAB did not consider arguments presented by the patent owner in its preliminary response to the Qualcomm petitions.

Soon after, the Board granted Qualcomm’s Motion for Joinder, noting that Qualcomm’s petition was “in all material respects the same as the petition in” the Marvell/MediaTek IPR petitions. Further, the expert declaration relied on by Qualcomm appeared to be an exact copy of the expert declaration as part of the Marvell/MediaTek petition. Accordingly, the PTAB instituted an inter partes review on the same grounds.

The filing date of Qualcomm’s petition satisfied the one month joinder requirement of 37 CFR 42.122(b). In permitting Qualcomm’s joinder, the PTAB explained:

If the Director institutes an inter partes review, the Director, in his or her discretion, may join as a party to that inter partes review any person who properly files a petition under § 311 that the Director, after receiving a preliminary response under § 313 or the expiration of the time for filing such a response, determines warrants the institution of an inter partes review under § 314.

The patent owner opposed Qualcomm’s Motion for Joinder, arguing that it would discourage early settlement. Specifically, the patent owner argued as follows:

A contrary decision would mean far fewer settlements will occur in multi-defendant cases until at least one month after institution of an IPR (possibly several months after institution if the original petitioner and patent owner must wait to see if another defendant is permitted to join after that defendant files a motion to join) because the patent owner will always be concerned that even if it settles with the original petitioner, another defendant will seek to join or be permitted to join the instituted IPR that would otherwise likely be terminated, depriving the patent owner of much of the value of its settlement with the original petitioner.

The PTAB was unpersuaded. It characterized the patent owner’s argument as “speculative attorney argument unsupported by evidence,” noting that MediaTek did not oppose the joinder and yet the patent owner was able to reach settlement with MediaTek. The PTAB stated that it was “unpersuaded that joinder in this case will, as a policy matter, discourage settlement.”

"Exclusive Ownership” Is Not Necessary for Standing in an IPR

Addressing the standing requirement for participating in an inter partes review (IPR), the U.S. Patent Trial and Appeal Board (PTAB or Board) held that, unlike district court, there is no “exclusive ownership” requirement for a patent owner to participate in an IPR proceeding. Legend3D Inc. v. Prime Focus Creative Services Canada Inc., IPR2015-01350 (PTAB, Nov. 19, 2015) (Kinder, APJ).

The petitioner, Legend3D, filed a petition to institute an IPR, Prime Focus Creative Services Canada (PFCSC) filed a power of attorney designating certain practitioners as counsel of record, along with a statement under 37 C.F.R. 3.73(b) detailing ownership changes of the patent at issue. PFCSC’s preliminary response stated that it is the patent owner and that Legend3D’s petition should be denied or dismissed for failing to identify all of the real-parties-in-interest. Specifically, PFCSC argued that two entities—Northwater Capital and Augustus Ventures – have a substantial financial interest in Legend3D and therefore these companies could have exercised control over the Petition.

As part of its response, Legend3D challenged PFCSC’s standing to participate in the IPR, arguing that a security agreement purportedly transferred title of the patent from PFCSC to a financial institute. According to Legend3D, the conveyed interest is actually a mortgage, which resulted in a full transfer of title and ownership of the patent at issue. Citing Waterman v. Mackenzie, Legend3D argued that because the financial institute is the only rightful patent owner, it must be a party to the IPR, so PFCSC lacks standing to file a preliminary response.

The Board rejected the petitioner’s reliance on Waterman, explaining that Waterman only addresses the issue of standing to bring a patent infringement suit in district court. By contrast, there is no similar exclusive ownership requirement for a patent owner to prosecute an IPR proceeding before the U.S. Patent and Trademark Office (USPTO). Rather, pursuant to 37 C.F.R. §42.9 “[a]n owner of a part interest in the subject patent may move to act to the exclusion of an inventor or a co-owner” where a co-owner is unable or refuses to prosecute the proceeding. The Board determined PFCSC, as the patent owner, met the requirements to participate in the IPR by filing the appropriate notices identifying itself as the patent owner and real-party-in-interest and identifying lead counsel.

The Board also noted the petitioner’s request for additional discovery on the standing issue was “troubling” because discovery for an IPR does not being until a trial is instituted. Any pre-institution discovery must be closely scrutinized. At this point, the petitioner did not persuade the Board, beyond speculation, that additional discovery will establish that PFCSC does not have a right to participate in the proceedings.

Inter Partes Review Is Not for Pending Claims

Addressing the issue of the utility of consolidating an inter partes review (IPR) with an ex parte reexamination proceeding, the U.S. Patent and Trademark Office’s (PTO) Patent Trial and Appeal Board (PTAB or Board) denied a request to consolidate an IPR and reexamination proceeding, finding inherent tension between the two as well as jurisdictional issues. After reviewing the statutory basis for consolidation and the purpose of IPRs and reexamination proceedings, the Board denied the Petitioner’s attempt to inject amended claims pending in a reexamination proceeding, into an IPR proceeding. Ford Motor Co. v. Signal IP, Inc., Case No. IPR 2015-00860 (PTAB, Nov. 17, 2015) (Cocks, APJ).

The challenged patent is directed at a control system for a hybrid car or other vehicle. The petitioner, Ford, filed a motion to consolidate two separate IPRs and a reexamination proceeding. Ford’s petition requested the Board exercise its discretion under 35 U.S.C. § 315(d) to combine the three proceedings. The focus of Ford’s motion were amended claims pending in the reexamination proceeding that would, at the conclusion of the reexam, become ripe for assertion against it in a related litigation.

In denying the motion, the Board initially pointed out the inherent tension between an IPR and reexamination proceeding. An IPR is adjudicatory in nature, while a reexamination proceeding is simply an examination. Also IPRs are governed by specific and accelerated time periods for consideration and resolution as mandated by Congress. Reexamination proceedings are not subject to similar temporal restrictions. These procedural differences discourage consolidation.

The Board further pointed to the facts of the motion to show this was especially an inappropriate instance for consolidation. All of the claims at issue in the IPRs had been disclaimed or would be cancelled upon the issuance of the reexamination certificate. Although the reexamination proceeding was stayed, once the IPR was complete the stay would be lifted and the reexamination proceeding could then resume, providing the patent owner the opportunity to quickly resolve (in the reexamination) all disclaimed and cancelled claims involved in the IPRs without disturbing the IPR schedule. This would be in line with the Board’s goal of a just, speedy and inexpensive resolution of the proceedings.

Importantly, the Board recognized that Ford’s particular concern in its request for consolidation were new claims that had been added via amendment during the reexamination proceedings, claims that could be asserted against Ford in the pending litigation. Ford argued it would not be able to challenge them through IPR. However, the Board rejected this argument as a basis for granting the motion as the scenario was only a hypothetical at the time and there remained other forums for a party to challenge the patentability of amended claims in a reexam.

Further, the Board pointed out the new claims Ford sought to challenge were not yet patent claims and that, under § 311(b), IPRs can only be used to challenge issued claims. Therefore, amended claims pending in a reexamination were not within the scope of this statute. Similarly, the Board found that Ford provided no explanation as to how § 315(d), which is directed to proposed amendments to claims during an IPR, provided jurisdiction to evaluate amended claims pending in a reexamination proceedings.

Foreign Proceedings Do Not Trigger § 315(b) Time Bar

Clarifying the meaning of “complaint” for purposes of the 35 U.S.C. § 315(b) one-year time bar for instituting an inter partes review (IPR), the Patent Trial and Appeal Board (PTAB or Board) concluded that a proceeding in a foreign country does not trigger the § 315(b) bar. Micron Tech. Inc. v. Mass. Institute of Tech., et al., IPR2015-01087 (PTAB, Nov. 5, 2015) (Galligan, APJ).

The petitioner, Micron, requested IPR of an MIT patent relating to using a laser in cutting parts of a circuit. Under §315(b), an IPR “may not be instituted if the petition requesting the proceedings is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.” MIT argued that Micron’s request should be rejected as time-barred because Micron was served with a complaint more than one year before the petition was filed. Specifically, Micron was served with a “Petition for Corporate Reorganization Claim Assessment,” filed in Tokyo District Court on December 22, 2012. MIT contended that this is a “complaint” within the meaning of § 315(b).

MIT argued that the Petition for Corporate Reorganization Claim Assessment is “materially indistinguishable from ordinary infringement litigation” in the United States because it follows comparable procedures and imposes comparable consequences. MIT noted that the petitioner itself asserted that a U.S. litigation over the same patent was “redundant” with the Japanese proceedings. MIT also cited three prior PTAB decisions for the proposition that the term “complaint” in § 315(b) is not limited to formal complaints in federal court, as well as a policy argument that its interpretation of § 315(b) prevented petitioners from using the IPR as a tool for harassment and duplicative litigation.

The Board was not persuaded. According to the Board, none of the decisions cited by MIT determined that a proceeding in a foreign country triggered a bar under § 315(b). Moreover, the record did not contain any authority that a Japanese bankruptcy court can render a decision that is legally binding in the United States concerning the validity of a U.S. patent. For these reasons, the Board concluded that Micron’s petition was not time-barred under § 315(b).

It Can Happen: PTAB Alters Final Written Decision on Rehearing

In a rare decision granting a petitioner’s rehearing request, the Patent Trial and Appeal Board (PTAB or Board) reversed its earlier position in a final written decision where it found that the petitioner had not shown that certain dependent claims of a challenged patent were unpatentable, explaining that its earlier decision overlooked a material fact and found that the petitioner had shown by a preponderance of evidence and that two challenged dependent claims would have been obvious. In granting the rehearing request, the Board explained that when overlooking a material statement in a petition is sufficient grounds to grant rehearing. Square, Inc. v. REM Holdings 3, LLC, Case IPR2014-00312 (PTAB, Nov. 20, 2015) (Bisk, APJ.)

After filing its petition for inter partes review (IPR) of a REM patent directed to magnetic card readers used with cellular phones, the Board instituted review of all claims (1-17) of the patent on grounds of obviousness. After the trial, the Board issued its final written decision in which it found that claims 1, 2, 6-7 and 10-17 had been shown to be unpatentable. The Board found, however, that the petitioner had failed to meet its burden of proof that dependent claims 3-5 and 8-9 were unpatentable. Square filed a request for rehearing, explaining that the Board had overlooked a prior art teaching that the petitioner cited showing the feature the Board found to be missing in the art.

In its initial final written decision, the Board concluded that claims 4 and 9 had not been demonstrated to be unpatentable, further noting that review of claims 3 and 8 had been instituted based on a combination of the same two prior art references asserted against claims 4 and 9 but also a third prior art reference. The Board initially agreed with the patent owner that, for the asserted ground of invalidity against claim 4 and 9, the petition referred only to a figure in one of the two primary references for a teaching of the limitation “the read head and said one or more resistors are contained within a housing,” and the Board was not persuaded that the primary references taught that limitation. In its rehearing request, the petitioner explained that the Board had failed to discern that the original petition provided an independent description regarding the third reference and its teaching of the feature recited in claims 4 and 9.

In the rehearing decision, the Board agreed that it had indeed overlooked the portion of the claim chart in the petition where the petitioner had specifically stated that the third reference taught the subject limitation. Summarizing the testimony given at the oral hearing, the Board noted that it had agreed with the petitioner that the third reference taught a housing for enclosing components, but it had concluded that it was constrained by “insufficient facts in the record to support that claims 4 and 9 are unpatentable” over the three-reference combination proposed by petitioner. Responding to this point, in a reply authorized by the Board, the patent owner argued that the original petition failed to describe that the third reference taught the subject limitation, not that the reference did not actually teach it. The Board, acknowledging it had overlooked the specific claim chart statement about the third reference, concluded that the petitioner had met its burden for granting rehearing with respect to claims 4 and 9. However, the Board left undisturbed its initial decision regarding claims 3, 5 and 8.

Practice Note: In denying rehearing for claims 3 and 8, the Board noted that petitioner had, for the first time in the proceeding, advanced the argument in the rehearing request that the patent owner had acquiesced that the subject matter of those claims was found in the prior art. The petitioner acknowledged that these arguments were new but urged the Board to waive its rule against such a new argument in “the interests of justice” and “to prevent the Federal Circuit from being forced to reverse and remand this case.” The Board declined, noting that it had not instituted review of those claims on the ground including the third reference, so its decision regarding claims 4 and 9 was left undisturbed.

PTAB Grants Patent Owner Request for Sur-reply to Defend Reduction to Practice Claim

Addressing whether a patent owner may file a sur -reply brief in an inter partes review (IPR) proceeding, the Patent Trial and Appeal Board (PTAB or Board) granted the request, but limited the size of the sur-reply and the scope to an issue that first arose in petitioners reply brief. HTC Corp. v. NFC Technology, LLC, Case No. IPR2014-001198 (PTAB Nov. 19, 2015) (Arpin, APJ).

NFC sued HTC for patent infringement on two patents related to near field communication technology; HTC filed petitions for inter partes review against both patents. The Patent and Trademark Office (PTO) instituted the review proceedings and the district court stayed the litigation.

In one of its petitions, HTC relied on a prior art patent whose priority date was less than two months earlier than the patent under review. In response, the patent owner, NFC attempted to antedate the prior art patent by establishing an earlier reduction to practice. NFC’s response was accompanied by various exhibits, as well as declarations by the inventor and others who worked on his team.

The petitioner deposed all of the declarants except for one. The hold-out declarant resided in France and refused to travel to the U.S. for a deposition based on unspecified personal reasons. After the Board rejected patent owner’s offer of a videoconference deposition, the petitioner moved to strike that particular declaration. The Board interpreted its rules as requiring parties to make their declarants available for deposition in the United States and consequently granted the motion. The declaration was thus expunged from the record, and those portions of patent owner’s responsive brief that relied on the declaration were given no weight. The petitioner then filed its reply brief, which disputed the reduction to practice claim for, among other things, lack of corroboration.

The patent owner sought permission to file a sur-reply, arguing that, because it bore the burden of showing reduction to practice, it should be given the opportunity to respond to the arguments and evidence raised in the petitioner’s reply. The Board granted the motion, citing a Federal Circuit opinion that blessed such sur-replies, as well as prior Board decisions that authorized sur-replies in similar situations. However, the Board limited the sur-reply to a mere five pages and restricted its scope to only allow patent owner to address the petitioner’s arguments regarding the reduction to practice issue. The Board also barred the patent owner from introducing any new evidence or additional testimony along with its sur-reply.

Single Claim Approach for Trade Secret Misappropriation

The U.S. Court of Appeals for the Sixth Circuit affirmed the district court decision holding that a plaintiff is precluded from filing a claim based on alleged ongoing misbehavior when an allegation of trade secrets misappropriation has been resolved, and the plaintiff’s prior attempt to get an injunction or forward-looking relief was rejected. Allied Erecting & Dismantling Co. v. Genesis Equip. & Mfg., Case No. 14-3563 (6th Cir., Nov. 3, 2015) (Norris, J.).(concurrence, White, J)

Allied Erecting & Dismantling (Allied), founded in 1973 by John Ramun, is in the field of industrial dismantling and scrap processing, including the design, development, and manufacture of related specialized equipment. Allied is a direct competitor of Genesis Equip & Mfg. (“Genesis”). While John Ramun’s son Mark worked at Allied, they developed innovative multi-use demolition machine attachments, called the Allied MT. Various sizes and types of jawsets, including a steel beam cutter and a concrete crusher were available, allowing the Allied MT operator to perform different tasks with just one tool. Mark had detailed information relating to the Allied MT and the related trade secrets. When Mark left the company, he took a laptop with him that contained 15,000 pages of documents. Two years later, Mark joined Allied’s competitor Genesis. Sometime thereafter, Genesis released its own multiuse tool called the LXP and the Versi Pro. Allied filed a lawsuit based on the misappropriation of the Allied MT trade secrets by Genesis and Mark Ramun.

The district court held Genesis and Mark Ramun jointly and severally liable for misappropriation of Allied’s trade secrets under the Ohio Uniform Trade Secrets Act and awarded damages based on unjust enrichment. The jury did not award damages for Allied’s lost profits or any punitive damages against Genesis. The court further refused to grant Allied’s motion for a permanent injunction against Genesis. On appeal, 6th Circuit affirmed the district court’s refusal to grant Allied an injunction or royalties going forward.

Allied then brought a new action against Genesis, alleging that Genesis continued to sell equipment that was based on the misappropriated Allied MT technology and trade secrets. Allied also alleged that Genesis’s use of the Allied MT after the verdict triggered a new claim and triggered a new statute of limitations start date. The district court disagreed, concluding that the use of Allied’s trade secrets by Genesis constituted a continuing misappropriation that related back to a single claim, namely the wrongful acquisition of the Allied MT secrets in 2003 that was discovered in 2005, and that therefore the new lawsuit was time-barred. Allied appealed.

The 6th Circuit affirmed dismissal of the subsequent suit under the Ohio Uniform Trade Secrets Act, finding that the “single claim approach” of the uniform trade secrets statute means that once a trade secrets owner is denied forward-looking relief, like an injunction or ongoing royalties, the misappropriator cannot be sued again for using the secrets that it has now effectively paid for.