IP Update, Vol. 18, No. 2

Federal Circuit Affirms PTAB's Lack of Patentability Ruling in First-Ever AIA Review

Addressing for the first time an appeal of an America Invents Act review decision out of the U.S. Patent and Trademark Office’s (PTO’s) Patent Trial and Appeal Board (PTAB or Board), the U.S. Court of Appeals for the Federal Circuit affirmed the Board’s decision that a navigation system patent was invalid as obvious, finding that the Board’s broadest reasonable claim construction standard was correct and that decisions by the Board to institute post-grant reviews are not subject to appeal. In re Cuozzo Speed Techs., LLC, Case No. 14-1301 (Feb. 4, 2015) (Dyk, J.) (Newman, J., dissenting).

Cuozzo Speed Technologies (Cuozzo) owns a patent directed to a navigation system equipped with an interface that displays a vehicle’s current speed as well as the speed limit. Garmin International petitioned the Board for inter partes review (IPR). The Board granted the petition and instituted an IPR. After the trial, the Board issued a final written decision finding the challenged claims to be invalid as obvious. The Board also denied Cuozzo’s motion to amend. Cuozzo appealed.

On appeal, Cuozzo argued that the Board improperly instituted IPR because the Board relied on prior art that was not identified in the petition as grounds for IPR. The Federal Circuit concluded that 35 U.S.C. § 314(d) prohibits review of the decision to institute IPR even after final written decision. The Court determined that the provision was not limited to precluding review only before final decision, and instead excludes all review of the decision whether to institute review.

Cuozzo also argued that the Board erred in using the broadest reasonable construction in its determination of obviousness. The Federal Circuit also concluded that the AIA does not address on its face whether the broadest reasonable construction standard is appropriate. The Court, however, noted that the statute conveys to the PTO rulemaking authority, with which the PTO promulgated the regulation which provides for its claim construction standard. The Court noted that the PTO has been using the broadest reasonable construction standard for more than 100 years, and for that same period of time courts, including the Federal Circuit, have approved of it. The Federal Circuit found no indication that the AIA was designed to change that claim construction standard. To the contrary, the Court concluded that it could be inferred that Congress impliedly adopted the existing rule in enacting the AIA. In any event, the Court concluded that the PTO properly adopted the standard as part of the rulemaking authority vested upon it by Congress under the AIA.

With regard to the Board’s construction, the Federal Circuit (operating post-Teva) reviewed the underlying factual determinations concerning extrinsic evidence for substantial evidence and the ultimate construction of the claim de novo (IP Update, Vol. 16, No. 12). Finding no issue as to extrinsic evidence, the Court reviewed the construction de novo and found no error in the Board’s interpretation.

In dissent, Judge Newman argued that the PTAB should be required to use the same claim construction standard as district courts. Using this standard, according to Judge Newman, it would make it more difficult to find prior art to invalidate the patent. Judge Newman also argued that patent owners should be allowed to appeal institution decisions.

Practice Note: The Court did not decide the question of whether the decision to institute review is reviewable by mandamus after the Board issues a final decision or whether such review is precluded by § 314(d).

Wireless Does Not Mean "Without Wires"; "Streaming Video" Does Not Mean Emailing a Video File

Reviewing a final written decision of U.S. Patent Trial and Appeal Board (PTAB or Board), finding application claims unpatentable, the U.S. Court of Appeals for the Federal Circuit held that the Board erred in concluding that a prior art reference disclosing a removable memory card that could be used to transfer information via metal contacts thereby disclosed a “wireless” communications module, as well as that a prior art reference disclosing transmission of video files via email attachment or transmission of consecutive still images via email attachment thereby disclosed “streaming video.” In re Kevin R. Imes, Case No. 14-1206 (Fed. Cir., Jan. 29, 2015) (Moore, J.).

The application in issue is directed to a device for communicating digital camera image and video information over a network.

In rejecting claims directed to a wireless communication module, the examiner found that a prior art patent (Schuetzle) disclosed the claimed second wireless communications module. Schuetzle discloses a removable memory card that communicates information from a camera to a computer via metal contacts when the memory card is removed from the camera and inserted into the computer. The examiner concluded that because no wires were used, Schuetzle disclosed a “wireless communication module.” The Federal Circuit reversed, finding the “[t]he Patent Office’s construction of ‘wireless’ to include communications along metal contacts of the removable memory card and the computer system is inconsistent with the broadest reasonable interpretation in view of the specification,” which states: “[w]ireless refers to a communications, monitoring or control system[] in which electromagnetic or acoustic waves carry a signal through atmospheric space rather than along a wire.”

With respect to claims directed to streaming video, the examiner found that prior art reference (Knowles) disclosed the claimed streaming video as recited in the ’423 application. In rejecting the claims, the examiner relied upon Knowles’ transmission of a series of emails with still image attachments and Knowles’ transmission of an email with a video file as disclosing streaming video. The Federal Circuit reversed, finding the examiner’s construction unreasonable and “comports with neither the plain meaning of the term nor the specification,” which specifically distinguished streaming video from the transmission of still images and video files.

The Apparently Never-Ending Story of Bard v. W.L. Gore

In a case centered about patent that matured from an application filed 40 years ago, a case that has been pending for 12 years and that just completed its fourth engagement at the appellate level, the U.S. Court of Appeals for the Federal Circuit concluded that the defendant’s sale of vascular grafts made of Gore-Tex willfully infringed Bard’s patent. Bard Peripheral Vascular Inc. and C.R. Bard, Inc. v. W.L. Gore & Associates, Inc., Case No. 14-1114 (Fed. Cir., Jan. 13, 2015) (Prost, C.J.) (Hughes, J., concurring) (Newman, J. dissenting).

In the present appeal, two issues were presented: Gore’s standing and the district court’s imposition of a willful infringement multiplier.

Standing

Gore argued that since the named inventor of the patent-in-suit, Goldfarb, never assigned the patent to Bard in a written instrument, it had no standing to sue. Gore’s assertion was that Goldfarb granted Bard all substantial rights to the patent—resulting in a “virtual assignment,” even though there was no writing to that effect. Although this issue was peripherally raised in a prior appeal, the Federal Circuit took a new look and concluded that (§261 notwithstanding) the absence of a written instrument was not fatal since the original grant was an exclusive license with a right to sue for infringement—a grant that need not be reduced to writing. When challenged on standby by Gore in the district court, Bard established that the exclusive license grant (which included revisionary right to Goldfarb and field of use restrictions) was not a “virtual assignment” and was therefore not subject to the written instrument requirement of §261. The Federal Circuit found no error in the district court’s analysis.

Willful Infringement

In order to establish willful infringement, a patent owner must prove, by clear and convincing evidence, an objective threshold test, that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. In re Seagate Tech. This is sometimes referred to as the objective threshold test.

The second prong of the Seagate inquiry is subjective and looks at whether the objective risk was either known or so obvious that it should have been known to the accused infringer. Even though the second prong is subjective, it does involve an “objective assessment” of the strength of the accused infringer’s defenses. In its most recent prior decision in this case (IP Update, Vol. 15, No. 6), the Federal Circuit set a new standard for proving willfulness, explaining that the question of whether there was an objective risk of infringement is one to be decided by a court, not a jury. The Federal Circuit then remanded the case to the district court to consider, in the first instance, whether Gore had raised a “substantial question” as to validity or non-infringement. After the district court found Gore’s defenses were not objectively reasonable, this appeal followed.

On appeal, the panel rejected, based largely on its ruling on the issues presented in the earlier appeals, that Gore’s arguments as to each of its defenses were not objectively reasonable, the dissenting opinion by Judge Newman in these appeals notwithstanding.

Judge Hughes concurred in the decision based on the de novo review standard, but wrote separately to suggest that in view of the Supreme Court 2014 decisions in Highmark and in Octane Fitness (IP Update, Vol. 17, No. 5) it was time for the Federal Circuit to reconsider, en banc, the de novo review standard for willfulness. In Hughes view, “[a] more deferential standard of review would be consistent with the standards for reviewing mixed questions of law and fact in other contexts.”

As she did in the last two Federal Circuit decisions in this saga, Judge Newman voiced a strong dissent (IP Update, Vol. 15, No. 6), arguing that the majority simply parroted the district court’s finding without conducting a de novo review and failed to consider Gore’s reasonable defenses as obviating the objective prong of the willfulness inquiry. Rather, in Newman’s view, the panel simply searched out and repeated any adverse evidence it could find. Newman also dissented from the Court’s affirmance of the district court’s doubling of the damage award, arguing that even where willfulness is found, “it does not follow that punitive damages must be imposed.” Here, Newman argues that the Court failed to consider the many medical benefits and public interest imparted by Gore’s products, factors she argues “cannot be reconciled with the punitive doubling of damages.”

Practice Note: Gore has now petitioned the Federal Circuit to reconsider, en banc, whether the panel utilized the correct, de novo, standard of review (an echo of Judge Newman’s dissent that argued it did not) and further argued that notwithstanding the standard of review, the district court’s finding of objective recklessness should it be reversed.

Unauthorized Use of Patented Grape Plants Not an Invalidating Public Use

Addressing the issue of public use under 35 U.S.C. § 102(b) in the context of an unauthorized use open to the public, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s finding that the actions of third parties who obtained samples of two patented plant varieties in an unauthorized manner and planted them in their farms did not constitute a public use, finding that the plants were not accessible to the public. Delano Farms Co. v. California Table Grape Comm’n, Case No. 14-1030 (Fed. Cir., Jan. 9, 2015) (Bryson, J.).

The United States Department of Agriculture (USDA) patented table grape varieties known as the Scarlet Royal and Autumn King; it then exclusively licensed the two patents to the California Table Grape Commission (Commission), a California public agency that sublicenses the patents to California grape growers. The three plaintiffs, California grape growers who purchased grapevines covered by the patents through signed license agreements with the Commission, brought suit challenging the validity and enforceability of the plant patents.

Prior to the critical date for the public use bar under § 102(b), the USDA held an experimental variety open house at California State University, Fresno. Only mature fruit from the varieties were on display and visiting growers were not allowed to take any plant material relating to the unreleased varieties. Two grape growers, Jim and Larry Ludy, attended the open house and requested plant material for the Scarlet Royal and Autumn King from a USDA employee, Rodney Klassen. Even though he was not authorized to do so, Mr. Klassen subsequently met with the Ludys and gave them plant material for the Scarlet Royal and Autumn King (and others). Mr. Klassen advised the Ludys that the plant material should be kept secret and they were not to sell any of the resulting grapes until the varieties were commercially released. However, prior to the critical date for the subject patents, the Ludys grew the plants. Based on these findings, the district court found that the plaintiffs had not established by clear and convincing evidence that the Ludys’ use of the unreleased varieties constituted public use that invalidated the patents under § 102(b). The plaintiffs appealed.

The Federal Circuit rejected the plaintiffs’ argument that the Ludy’s sharing and growing of the plants with each other constituted public use, stating that secret or confidential third-party uses do not invalidate later-filed patents. Rather, such use must still be publicly accessible. Here, the findings of the district court clearly established that both Ludys knew that they were not authorized to have the plants and that they needed to conceal their possession of the plants. The Federal Circuit explained that an explicit confidentiality agreement is not required—only an evaluation of whether there were “circumstances creating a similar expectation of secrecy.” Additionally, while the Ludys grew the plants in locations that were visible from public roads, the Federal Circuit noted that the general public would not have been able to discern these plants from others growing on their fields because the unreleased varieties were not labeled and were of extreme limited populations in comparison to the total cultivation on the Ludy farms. The Federal Circuit concluded that the district court correctly held that the patents were not invalid under § 102(b) because the Ludys’ use of the plant varieties at issue was not public, even apart from the fact that the Ludys obtained the plant material in an unauthorized manner.

Legal Malpractice Claims Against Prosecuting Attorneys Belong in State Court *Web Only*

Addressing whether the federal district court had jurisdiction over state legal malpractice claims relating in part to the prosecution of patent applications, the U.S. Court of Appeals for the Federal Circuit held that the district court did not, and remanded the case to state court. NeuroRepair, Inc. v. Nath Law Group, Case No. 13-1073 (Fed. Cir., Jan. 15, 2015) (Wallach, J.).

In 2009, NeuroRepair filed its state legal malpractice suit in San Diego Superior Court against its patent law firm and an individual attorney in the firm. According to NeuroRepair, it was harmed by the defendants, including by being hindered in timely obtaining patents of the same scope it would otherwise have obtained.

The defendants removed the case to federal district court relying on 28 U.S.C. § 1338(a), which gives federal courts original jurisdiction over “any civil action arising under any Act of Congress relating to patents.” After the district court entered judgment in favor of the defendants. NeuroRepair appealed, challenging the district court’s jurisdiction.

Under Gunn v. Minton, a U.S. Supreme Court ruling that issued just months after the district court’s entry of judgment, a state cause of action may “arise under” federal patent law if it “involves a patent law issue that is (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.” (See IP Update, Vol. 16, No. 2). The Gunn court explained that “state legal malpractice claims based on underlying patent matters will rarely, if ever, arise under federal patent law for purposes of § 1338(a).”

Applying Gunn, the Federal Circuit concluded that the district court lacked jurisdiction over NeuroRepair’s claims. It found that none of the Gunn factors were met, except for the “actually disputed” factor, which was met because NeuroRepair’s ability to obtain patents in a timely manner and of the same scope absent the alleged misconduct was disputed.

Turning to the other factors, the Federal Circuit explained that patent law issues were not “necessarily raised” because the complaint set forth multiple bases under which a court could provide relief without ever reaching any patent issue.

The Federal Circuit also found that the patent issues were not “substantial.” To be “substantial,” the patent issue must be important “to the federal system as a whole,” not just to the parties. As the Court explained, non-exclusive factors that inform the “substantial” inquiry include whether “a pure issue of federal law is dispositive of the case,” and whether “the court’s resolution of the issue will control numerous other cases.” Here, the Federal Circuit concluded there was no dispositive “pure issue of federal law” because the relevant inquiry would likely focus on factual issues, as opposed to “the interpretation of federal law,” and because federal law was involved in only one of several elements needed to prevail and was “perhaps not even the most significant part of the state law cause of action.”

The Federal Circuit also observed that the state court’s resolution of any patent issue was unlikely to “control numerous other cases,” because patent law would apply only to the “hypothetical” issue of determining the validity of initial patent claims that never actually issued, as opposed to “affect[ing] the scope of any live patent” or “requir[ing] resolution of a novel issue of patent law.”

On the last Gunn factor, the Federal Circuit found that to the extent any federal interest was implicated, it did “not outweigh the especially great interests of the state in regulating that state’s lawyers.”

DOJ Issues Business Review Letter Pertaining to SSO Policy on Standard-Essential Patents and RAND Commitments

The Antitrust Division of the U.S. Department of Justice (DOJ) issued a business review letter stating that it would not challenge the Institute of Electrical and Electronics Engineers’ (IEEE’s) proposed revisions to its patent policy. Letter from Renata B. Hesse, Acting Assistant Att’y Gen., U.S. Dep’t of Justice (Feb. 2, 2015), available here.

The IEEE policy revisions attempt to “provide greater clarity on issues that have divided [patent holders] and standards implementers.” In doing so, the IEEE proposed four key changes to its patent policy.

First, the revised policy defines a reasonable rate to be “appropriate compensation to the patent holder for the practice of an Essential Patent Claim excluding the value, if any, resulting from the inclusion of that Essential Patent Claim’s technology in the IEEE Standard.” This definition seeks to provide compensation to the patent holder for the value of the patent before the essential patent claim was incorporated into the IEEE standard. The revisions, however, do not dictate a specific calculation methodology or specific reasonable and non-discriminatory (RAND) rates.

Second, the revised policy states that a patent holder that has submitted a letter of assurance (LOA) disclosing that its patent claims may be essential to a standard under development is not permitted to seek an injunction or exclusion order unless the standard implementer “fails to participate in, or to comply with the outcome of, an adjudication, including an affirming first-level review.”

Third, the policy seeks to clarify the meaning of non-discrimination. The revisions make clear that a patent holder cannot refuse to license to any implementers once an LOA has been submitted, regardless of where a standard implementer sits in levels of production. The purpose of this requirement is to prevent patent holders from discriminating against implementers that make components or sub-assemblies, rather than an end-use product.

Finally, the revised policy makes clear that where a patent holder’s LOA has indicated “reciprocity,” a potential standard implementer cannot both receive the benefit of the patent holder’s LOA and refuse to license to the patent holder the implementer’s own essential patent claims on the same standard.

Due to the potential concerns about the legality of its revisions under the antitrust laws, the IEEE requested that the DOJ review the patent policy and provide a statement on its current enforcement intentions.

In its business review letter, the DOJ declared that it does not presently intend to challenge the IEEE’s revisions. The DOJ concluded that harm is unlikely to result from the revised policy because its provisions are consistent with the direction of U.S. law interpreting RAND commitments.

The DOJ emphasized that the definition of RAND rates within the revised policy “provid[es] the patent owner with appropriate compensation, while assuring implementers that they will not have to pay any hold-up value connected with the standardization process.”

Addressing the ban on injunctions and exclusive orders for standard-essential patent holders, the DOJ praised the proposed revisions: “The threat of exclusion from a market is a powerful weapon that can enable a patent owner to hold up implementers of a standard. Limiting this threat reduces the possibility that a patent holder will take advantage of the inclusion of its patent in a standard to engage in patent hold up, and provides comfort to implementers in developing their product.”

USPTO Releases Examples for Interim Examination Guidelines for Determining Patent Eligibility Under 35 U.S.C. § 101

On January 27, 2015, the U.S. Patent & Trademark Office (USPTO) released examples to supplement the 2014 Interim Guidance on Patent Subject Matter Eligibility (the interim guidelines), which were released in December 2014. The USPTO cautioned that the examples were intended to be illustrative only, and that other fact patterns may have different eligibility outcomes.

The examples used the two-step analysis disclosed in the interim guidelines. Step 1 determines whether the claim is directed to one of the four statutory categories, i.e., a process, machine, manufacture, or composition. Step 2 is a two-part analysis. In Step 2A, the examiner determines whether the claim is directed to any of the judicially recognized exceptions (laws of nature, natural phenomena and abstract ideas). If no, the claim is eligible and examination should continue for patentability. If yes, the examiner proceeds to Step 2B to analyze whether the claim as a whole amounts to “significantly more” than the exception. If no, the claim is ineligible, and should be rejected under 35 U.S.C. § 101. If yes, the claim is eligible.

The examples are arranged into two parts. The first part includes four fact patterns with claims that are patent-eligible, several of which draw from decisions by the U.S. Court of Appeals for the Federal Circuit, and the second part includes four fact patterns with claims that were found ineligible by the Federal Circuit. Each of the examples shows how claims should be analyzed under the 2014 Interim Eligibility Guidance. All of the claims were analyzed for eligibility in accordance with their broadest reasonable interpretation.

In the first part, the first example is a hypothetical claim and fact pattern that illustrates an eligible software invention that is not directed to an abstract idea. The second example is a recent Federal Circuit decision. The third and fourth examples are based on Federal Circuit decisions where claims were found to be eligible, but were drafted as hypothetical claims modified to prominently add an abstract idea for teaching purposes to facilitate analysis under the “significantly more” prong of the 2014 Interim Eligibility Guidance.

In the second part, the four examples show claims that were held ineligible by the Federal Circuit. The analysis sections are based on the court decisions but include exemplary hypothetical analyses under the interim guidelines.

Determining whether a claim satisfies Step 1 and Step 2A are relatively straightforward. Step 2B, which involves a determination of whether the claim as a whole adds significantly more to the abstract idea, is fact intensive, and promises to be highly disputed, at least until the USPTO releases the final examination guidelines.

The USPTO is seeking written comments on the interim guidelines. The period for submitting comments expires March 16, 2015.

No Exception for Energy Management Patent - CBM Review Instituted

In its decision to institute a covered business method (CBM) patent review of an energy management patent, the U.S. Patent and Trademark Office’s (PTO) Patent Trial and Appeal Board (PTAB or Board) agreed with the petitioner that the patent’s claims are broad enough to meet the financial prong of the eligibility test for CBM review. Opower Inc. v. Cleantech Business Solutions, Case No. CBM2014-00155 (PTAB, Jan. 12, 2015) (Easthom, APJ).

Petitioner Opower filed for CBM review of a patent owned by Cleantech Business Solutions pursuant to Section 18(d)(1) of the AIA (America Invents Act). The patent related to a method of energy management, specifically a method for generating an energy resource by monitoring the energy consumption of an individual, providing feedback to that individual about their energy consumption and reducing energy consumption based on that feedback. This reduction in energy consumption is disclosed to be a form of generating an energy resource.

Section 18(d)(1) of the AIA provides a program for persons sued or charged with infringement of a “covered business method patent,” which means “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.” Thus, to be eligible for CBM review a three-prong test must be satisfied. First, there must be a suit or charge of infringement. Second, at least one claim must be tied to a financial product or service. Finally, the patent cannot cover technological inventions.

The Board found that the petitioner satisfied the “charged with infringement” prong in view of infringement claim charts and other correspondence provided by the patent owner. For the financial prong, the Board considered the legislative history of the AIA, which explained that the definition of a CBM patent encompassed patents “claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.” Concluding that the claims of the Cleantech patent are directed to an “energy resource” that may be exchanged by energy consumers for items of value, including currency, credit, or other goods and services, the Board agreed with the petitioner that this was broad enough to tie the claims to a financial product or service.

As for the third and final prong (which is more of an exception to CBM review) the Board considered the requirements of 37 C.F.R. § 42.301(b) and the guidance provided in the PTO’s Patent Trial Practice Guide to determine whether a patent claims a technological invention. The Board considered “whether [1] the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art, and [2] solves a technical problem using a technical solution.” The petitioner submitted that the core of the claimed invention is a communications tool as opposed to hardware and that any hardware employed was currently existing and consisted of known technologies. The Board agreed and determined that the claims do not satisfy the first requirement of 37 C.F.R. § 42.301(b). “The patent specification describes known . . . techniques mixed with functional descriptions that involve known behavioral science applications.” The Board also agreed with the petitioner that the second requirement of the technical invention exception is not met because the claims involve a non-technical solution (information transfer) to a non-technical problem (energy management).

Thus, the Board instituted a CBM review of the patent.

Tangible Claim Elements Failed to Save Abstract Business-Method Patent

Further clarifying its views on subject-matter eligibility, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) determined that a patent describing the disposal of obsolete assets—for example, outdated computers—was directed to unpatentable subject matter despite its tangible, concrete steps of sealing the transport vehicle, disposing of the old computer and using a separate computer to manage the disposal process. Dell Inc. v. Disposition Servs. LLC, Case No. CBM2013-00040 (PTAB, Jan. 9, 2015) (Clements, APJ).

The patent described a way to dispose of tangible property, such as an old computer. The problem that the patent addressed was that vendors would dispose of the property improperly. Vendors instructed to destroy all parts of an old computer, for example, would instead sell some of the computer parts on the black market. To solve this problem, the patent described a business method for handling the obsolete property in a way that allows the property owners to verify that their disposal instructions were followed. The patented method included abstract concepts—such as creating records and receipts for the property both before and after disposal—as well as more tangible steps, such as using a computer and database to maintain the records and receipts. The patent also included tangible steps related to the logistics, such as loading the old computer into a truck, sealing the truck and then disposing of the computer.

Applying the first step in the Mayo subject-matter eligibility test, the PTAB determined that the patent’s subject matter was unpatentably abstract. Handling tangible property in a way that allows customers to verify that their instructions were followed constituted an unpatentable abstract idea. The patent owner had argued that its invention was patent-eligible because it used a system with a “specific defined recited structure” to achieve a “physical and tangible outcome.” The PTAB disagreed and responded that these steps, although “physical and tangible,” were insignificant extra-solution activities. The patent could be performed with simply a “pencil, paper, and truck,” and was therefore directed to an unpatentable abstract idea.

The PTAB then determined that no “inventive concept” existed to save the patent’s abstract idea. In other words, no additional elements transformed the abstract idea into a patentable application of that abstract idea. The patent’s “storing” of data in a “database” was tangible but not a meaningful limitation on the patent’s abstract idea. Any generic computer can store records in a database. The patent’s system claims were similarly problematic. Those system claims recited a “system process controller” and a “communications network,” but these were merely conventional components used for conventional functions—storing and transmitting. These tangible components constituted “insignificant extra-solution activity” that could not save the patent’s abstract idea.

PTAB Rejects Attempts to Expand the Scope of CBM Review

Addressing for the first time a request for covered business method (CBM) review by a generic drug maker facing an infringement suit under the Hatch-Waxman Act, the U.S. Patent and Trademark Office’s (PTO’s) Patent Trial and Appeal Board (PTAB or Board) denied institution of a CBM patent review on the grounds that the claims did not relate to a method or apparatus performing data processing or other operations with respect to a “financial product or service.” Par Pharm., Inc. v. Jazz Pharm., Inc., Case Nos. CBM2014-00149, -0150, -0151 and -0153 (PTAB, Jan. 13, 2015) (Murphy, APJ).

Jazz’s patents at issue relate to methods of controlling access to a prescription drug which is prone to being abused. The claimed method involved a central pharmacy and database that tracks all prescriptions for the drug based on communications from physicians and pharmacies. The database receives prescription requests, performs a series of checks to spot potential abuse, mails the drug to the patient only if the checks are passed and generates periodic reports to identify diversions in patient’s typical pattern of use.

The defendants are generic companies that had been sued by Jazz for infringement. Presumably realizing that invalidity challenges under 35 USC § 101 cannot be raised in an inter partes review (IPR) proceeding, the defendants sought to characterize the asserted patents as falling within the scope of the statutory definition of a covered business method patent.

The PTAB denied the defendants’ petition, noting that claims—read as a whole—do not relate to a “financial product or service” or recite “an activity involving the movement of money or extension of credit in connection with the sale of a prescription drug.” The PTAB rejected the defendants’ arguments that the patents are CBM-eligible on the grounds that the claimed methods would be used in commerce, are financial in nature and involve running the very business of a mail order pharmacy that ships directly to consumers. Along similar lines, the PTAB rejected defendants’ arguments that the claims are CBM-eligible because they require steps of contacting the patient’s insurance company and flagging that the patient paid cash. The PTAB concluded, instead, that reading the claim as a whole shows that those steps are performed for purposes of preventing abuse of a prescription drug, not for purposes of verifying payment for or insurance coverage of the drug.

The defendants argued that certain actions of the PTO support their argument that the patent is CBM-eligible, namely the PTO’s classification of one of the patents as Class 705 (including “billing systems based on entered medical codes”) and the examiner citing prior art billing systems during prosecution. The PTAB was not persuaded, however, noting that the actual claim language is the key feature to be considered and that the claims did not recite method steps used in billing or payment.

No Early Peek of Cross-Examination Documents *Web Only*

Addressing patent owner’s challenge to the accuracy of the translation of a foreign language reference that was relied upon in a petition for covered business method (CBM) review, the U.S. Patent and Trademark Office’s (PTO’s) Patent Trial and Appeal Board (PTAB or Board) granted the patent owner’s request to cross-examine the translator but denied the petitioner’s request for additional discovery relating to the allegation of inaccuracy, finding that cross-examination of the translator is permitted under the routine discovery rule but additional discovery of patent owner was not permitted. TD Ameritrade Holding Corp. v. Trading Techs. Int’l, Inc., Case Nos. CBM2014-00131; -00137 (PTAB, Jan. 22, 2015) (Medley, APJ.).

TD Ameritrade submitted CBM petitions related to two patents owned by Trading Technologies International (TTI). The CBM petitions were based on a prior art reference called TSE, published by the Tokyo Stock Exchange in Japanese. The TSE reference was submitted along with a 337-page translation thereof and a certification that the translation was true and accurate.

In response TTI requested to depose the translators, as TTI had reason to believe that the translation might be inaccurate. TD Ameritrade argued that this was not permitted per the routine discovery rule set forth in 37 C.F.R. § 42.51(b)(1). The Board explained that TTI may cross-examine the translators under the routine discovery rule, as TTI may investigate the accuracy of the translation once the translation has been submitted.

TD Ameritrade sought additional discovery of documents in TTI’s possession supporting TTI’s theory that the translations are inaccurate. The Board denied TD Ameritrade’s request for the additional documents as TTI had not yet filed its Patent Owner Response to the CBM petition and had not yet raised the issue of the accuracy of the translation. Furthermore, the Board noted that a party that seeks to cross-examine a witness need not provide documents on which the party intends to rely on for cross-examination purposes days or weeks before the cross-examination. Rather, such documents, if not previously served on the opponent, need only be served at the deposition. The Board noted that providing cross-examination documents early would undermine the cross-examination process.

Claims Can Be Amended in IPR - Really!

In just the second instance since America Invents Act (AIA) / post-grant reviews became available, the Patent Trial and Appeal Board (PTAB or Board) allowed a patent owner to substitute new claims in its patents in the course of an inter partes review (IPR) proceeding. Riverbed Technology, Inc. v. Silver Peak Systems, Inc., Case IPR 13-00402 and 00403 (PTAB, Dec. 30, 2014) (Arbes, APJ).

The petitioner filed petitions for inter partes review of the claims of two of the patent owner’s patents. Rather than file a Patent Owner Response for each petition, the patent owner filed a Motion to Amend seeking to cancel all challenged claims and replace them with six new claims in each patent. The Board found that the patent owner met its burden of proof to demonstrate, by a preponderance of the evidence, the patentability of the proposed substitute claims for two of the substitute claims for each patent.

Proposed substitute claims “may not enlarge the scope of the claims of the patent.” 37 C.F.R. § 42.121(a)(2)(ii). The Board found that each permitted substitute claim included “all of the limitations of the corresponding claim for which it is a substitute, and add[ed] additional limitations” and therefore did not enlarge the scope of the original patent claims. The petitioner did not dispute that the substitute claims did not enlarge the scope of the original patent claims.

The patent owner cited paragraphs and figures of the patent applications to demonstrate “support in the original disclosure of the patent for each claim that is added or amended,” [37 C.F.R. § 42.121(b)], which the petitioner also did not dispute. The Board concluded that the patent owner made sufficient showing that the permitted substituted claims had written description support in the disclosures of the applications as filed.

The patent owner provided proposed interpretations for terms in the proposed substitute claims (again which the petitioner did not dispute), which the Board concluded were the broadest reasonable constructions in light of the specification in which they appear.

The patent owner bore the burden of proof to demonstrate patentability of its proposed substitute claims “over not just the prior art of record, but also prior art not of record but known to the patent owner” by identifying “specifically the feature or features added to each substitute claim,” and “com[ing] forward with technical facts and reasoning about those feature(s)” (citing Idle Free). On this issues the petitioner did raise a dispute, arguing that the patent owner only attempted to distinguish the proposed substitute claims over the prior art references at issue in the proceeding. However, the Board found that the patent owner addressed other prior art in addition to the prior art references at issue and prior art references of record. The petitioner also argued that the patent owner failed to provide a declaration from a technical expert in support of its arguments regarding patentability. However, the Board held that such declarations are not a prerequisite for a motion to amend.

Thus, the Board concluded that the patent owner had shown, by a preponderance of the evidence, that the permitted substitute claims were patentable over the prior art. Accordingly, the Board granted the patent owner Motion to Amend as to the permitted substitute claims.

Practice Note: When amending claims in an IPR, a patent owner is not required to provide a declaration from a technical expert, but the patent owner should address prior art not of record but known to the patent owner.

PTAB Designates Recent Ruling as Information: Proposed Complaints Do Not Trigger the Time-Bar Under § 315(b)

In a ruling recently designated as informative, the U.S. Patent and Trademark Office’s (PTO’s) Patent Trial and Appeal Board (PTAB or Board) rejected a patent owner’s argument that the petitions were time-barred, finding the petitioner was served with a complaint for purposes of 35 U.S.C. § 315(b) when the court granted the patent owner’s motion for leave and filed the amended complaint, rather than the date the motion for leave was filed with the amended complaint attached as an exhibit. TRW Automotive US LLC v. Magna Elecs., Inc., Case Nos. IPR2014-00293; -00294; -00296; -00297 and -00298 (PTAB, June 27, 2014) (Bunting, APJ).

On December 24, 2013, petitioner TRW filed two petitions for inter partes review (IPR) challenging Magna’s patent relating to an improved electronic rearview mirror system. Magna contended that these petitions were time-barred under § 315(b), which requires IPR petitions to be filed within a year of the petitioner being served a complaint alleging infringement. The Board concluded that TRW’s petitions were not time-barred because the complaint was not actually served until December 26, 2012, the date that the district court granted the motion for leave and filed the amended complaint.

On June 20, 2012, Magna filed a complaint in district court alleging TRW’s infringement of patents related to its electronic rearview mirror system (but not the challenged patent). On December 20, 2012, Magna filed a motion for leave to file a second amended complaint, which included the amended complaint as an exhibit. The amended complaint added the challenged patent. The court granted the motion and filed the amended complaint on December 26.

Magna argued that the amended complaint was served on December 20, when it was served automatically on TRW’s attorneys, who received a notice of electronic filing on December 20, in accordance with local rules of the court. TRW responded that a complaint cannot be served if it is not filed and a proposed complaint is not filed until the court grants leave. Magna also argued that under FRCP 15(a)(2), which allows a party to amend its pleading with opposing party’s written consent or the court’s leave, leave of the court was not needed because TRW consented to file the filing of the amended complaint on December 20.

The Board concluded that the amended complaint was not served on TRW for purposes of § 315(b) until the court had filed it, because TRW was not under the court’s authority or obliged to engage in litigation related to the challenged patent until that date. Prior to this date, the amended complaint was just a proposal. The Board also disagreed with Magna’s interpretation of FRCP 15(a)(2). Regardless of TRW’s consent on December 20 to allow Magna’s request to amend its pleading, Magna clearly left the matter in the court’s hands. Therefore, the amended complaint was not served until December 26, and TRW’s petition was not time-barred under § 315(b).

Failure to Name All Real Parties in Interest May Cause Termination of a Proceeding After Institution

Addressing the issue of identification of all real-parties-in interest in a petition, the U.S. Patent and Trademark Office’s (PTO’s) Patent Trial and Appeal Board (PTAB or Board) vacated a decision to institute inter partes review (IPR) and terminated the trial proceeding, finding that the petitioner failed to identify all of the real parties in interest in the petition. Atlanta Gas Light Co. v. Bennett Regulator Guards, Inc., Case No. IPR2013-00453 (PTAB, Jan. 6, 2015) (Boucher, APJ).

Atlanta Gas Light filed a petition for IPR, challenging all claims of a patent relating to an anti-icing device for gas pressure regulators. The petitioner is a direct, wholly owned subsidiary of AGL Resources. (AGLR). AGLR has officers, but no other employees, and operates as a holding company that conducts substantially all of its operations through its subsidiaries. AGLR has another subsidiary, AGL Services Company (AGLS), a sister company of the petitioner, that provides “support services (e.g., legal, supply chain, facilities) to various subsidiaries of AGLR,” such as the petitioner. After the patent owner sued the petitioner for infringement of the patent, the petitioner entered negotiations with McJunkin Red Man Corporation (MRMC) related to indemnity provisions of a supply agreement. Negotiations with MRMC involved officers for the petitioner, as well as for other AGLR subsidiaries. The Board noted that the evidence presented during the trial proceeding amounted to corporate blurring, stating that certain functions were referred to casually, both internally and externally, by the umbrella designations AGL or AGL Resources, although such functions were assigned to the different entities.

The Board concluded that the burden to identify all the real-parties-in-interest in the petition remained with the petitioner, finding that the patent owner provided sufficient rebuttal evidence that reasonably brought into question the accuracy of the petitioner’s identification of the real-parties-in-interest. In analyzing the issue of whether the petitioner had shown that the level of involvement was insufficient to conclude that AGLR was a real party in interest, the Board applied relevant factors that tipped in favor of finding AGLR to be a real-parties-in-interest in the proceeding. The Board concluded that the use of the umbrella term AGL Resources in referring to AGLR and its subsidiaries on letterheads, email addresses, website addresses, etc. created a pre-existing substantive legal relationship with the petitioner that justified binding AGLR to the proceeding. The Board also concluded that AGLR possessed sufficient control over the proceeding, as evidenced by AGLR’s involvement in the proceeding, to be a party-in-interest. These include the demonstrated participation of officers and employees of AGLR and AGLS. There was therefore, a lack of clarity over who actually financed the IPR filing fees and attorney costs.

Analyzing 35 U.S.C. § 312(a)(2), the Board concluded that the IPR petition should not be considered, finding that it was incomplete. The Board rejected the petitioner’s argument that the remedy is not termination of the IPR, stating that no instance has been found in which authorization to amend the petition to correct the identification of all real-parties-in-interest have been granted after trial institution. The Board noted that the petitioner failed to take necessary steps to put the merits of its position before the Board, noting that the petitioner did not request authorization to correct the petition even when it became aware that the patent owner challenged the petitioner’s identification of the real-parties-in-interest before institution of the proceeding. In addition, the Board noted that a corrected petition would be barred under 35 U.S.C. § 315(b), finding that correction of the petition as proposed would require assignment of a new filing date that would necessarily fall more than one year, since the petitioner was served with a complaint in the related litigation.

Petitioners Cannot Respond to Substantive Issue Raised in Preliminary Response

Addressing whether a petitioner in an inter partes review (IPR) can respond to a patent owner’s preliminary response, the U.S. Patent and Trademark Office’s (PTO) Patent Trial and Appeal Board (PTAB or Board) denied the petitioner’s motion to submit supplemental information after the patent owner filed a Preliminary Response, finding that the request amounted to a prohibited reply. VTech, Inc. v. Spherix Inc., Case No. IPR2014-01432 (PTAB, Jan. 21, 2015) (Chang, APJ).

The petitioners, VTech and Uniden, filed a petition for IPR challenging the validity of a patent owned by Spherix. The patent owner filed a Preliminary Response arguing that the Board should not institute IPR because there was no reasonable likelihood that petitioners would prevail.

The patent owner contended, among other things, that certain claims of a prior art patent cited by the petitioners could not constitute prior art because the petitioners failed to establish whether the challenged claims were part of the initial application or whether the claims were part of a preliminary amendment filed well after the filing date of the patent owner’s patent.

During a conference call with the Board, the petitioner requested authorization to file a motion to submit supplemental information. More specifically, the petitioner sought permission to file the patent prosecution history of the prior art patent to show that the cited claims were supported by the original disclosure, and therefore, qualified as prior art.

The patent owner opposed the petitioner’s request citing 37 C.F.R. §§ 42.64 and 42.123, and argued that filing supplemental information, prior to institution, is not allowed. The Board agreed with the patent owner and stated that the patent owner’s “proposed submission essentially would amount to a reply to Spherix’ Preliminary Response on a substantive issue, and such a reply is not permitted.”

Practice Note: When filing a petition for IPR, it would be prudent to confirm the claims of cited prior art patents are supported by the original disclosure, and to include the prosecution history of the cited references.

Expert Witness Testimony Normally Improper for Preliminary Response *Web Only*

Clarifying what is impermissible “new” evidence for a Patent Owner Preliminary Response in an inter partes review (IPR), the Patent Trial and Appeal Board (PTAB or Board) ordered that the patent owner’s exhibit, in the form of an expert report on patentability from a related district court litigation, be ignored and not considered in the determination of whether to institute the proceeding. B/E Aerospace, Inc. v. Mag Aerospace Industries, LLC, Cases IPR2014-00510; -00511; -00513 (PTAB, Jan. 20, 2015) (Kauffman, APJ.).

The petitioner sought review of the Mag Aerospace’s patents directed to modular vacuum toilets, such as those that might be used on a commercial airplane. The patents covered so-called line-replaceable units, LRUs, which the patents described as being easily replaceable components intended to make maintenance or repair of vacuum toilets easier. In its Preliminary Response, patent owner Mag Aerospace relied heavily on and included as an exhibit a rebuttal expert report prepared for the parallel district court action. The arguments against institution of the IPR extensively cited to the expert report to rebut the petitioner’s invalidity arguments and to conclude that the challenged claims were patentable.

The petitioner immediately call foul, challenging the expert report as being “new” testimony evidence, and therefore prohibited at that stage of the proceedings by 37 C.F.R. § 42.107(c). After conferring with the parties, the PTAB , agreeing with the petitioner, issued an order on the conduct of the proceedings. The Board explained that, while it had (in another IPR proceeding) found that a declaration submitted in a district court action was not “new” testimony under 37 C.F.R. § 42.107(c), absent compelling reasons in the interest of justice, the rule nevertheless barred the submission of new testimony on patentability. The Board noted that generally a patent owner is only permitted to submit testimonial evidence in its post-institution response, not in its preliminary response. According to the Board, the prior proceeding relied upon by the patent owner was distinguishable because the exhibit at issue was not testimony regarding patentability of any claim under review in that proceeding. The Board explained that new testimonial evidence offered by a patent owner prior to institution might be permissible under the “interests of justice” standard, where such evidence addresses issues relating to a petitioner’s standing. However, because the expert report here addressed patentability and not just issues relating to the standing, the Board concluded that the report and associated arguments in the Preliminary Response not be considered in connection with the institution decision.

Practice Note: A key take-away from this case is that the Board will not consider testimonial evidence in a preliminary response unless that evidence is offered to address issues relating to standing or is otherwise shown to be in the interests of justice. Examples include an IPR petition’s improper or incomplete listing of related parties and privies.

Would Have Been Obvious to Combine Prior Art that Mentions an Object with Standard Textbook that Describes that Object

Addressing the merits in an inter partes review of a patent for improved computer graphics calculations, the U.S. Patent and Trademark Office Patent Trial and Appeal Board (Board) found all challenged claims unpatentable. Intel Corp. v. FuzzySharp Technologies, Inc., IPR2014-00001 (PTAB Jan. 13, 2015) (McKone, APJ). The Board concluded that an ordinary artisan would have combined a primary reference with a textbook explaining an object mentioned in that reference.

FuzzySharp asserted two related patents against Intel in the U.S. District for the Northern District of California, and Intel responded by filing inter partes review (IPR) petitions against both patents. In the review against the parent patent, Intel asserted that nine claims were anticipated by an article on a computer rendering algorithm and a tenth claim was rendered obvious by that article in combination with a computer graphics textbook. Intel also supplied a declaration from an MIT professor stating that the textbook was a standard textbook in the field of computer science.

FuzzySharp’s response was silent as to eight of the nine claims alleged to be anticipated, so the Board found them unpatentable. For the ninth claim, which required a three-dimensional “bounding volume,” FuzzySharp argued that the prior art article only disclosed two-dimensional cells. But the Board noted that the cells were associated with values corresponding to depth and thus concluded that they constituted three-dimensional volumes. FuzzySharp also advanced a teach-away argument, but the Board rejected that argument as irrelevant to anticipation.

The Board then turned to the remaining claim, which required three-dimensional surfaces with varying levels of detail. Intel admitted that the article lacked this disclosure but pointed to the textbook as providing the missing limitation. Intel asserted that the references would have been combined because the article discussed extending the algorithm to objects called “Bézier patches,” which the textbook described as being three-dimensional surfaces with varying levels of detail. The Board agreed that an ordinary artisan faced with the identification of such objects in the article would have looked to the standard textbook for an explanation of what those objects are and would have thus combined the references. The Board dispensed with FuzzySharp’s remaining teach-away arguments and held the claim to be unpatentable.

No Markman Prior to Oral Argument in IPR *Web Only*

Addressing whether the U.S. Patent and Trademark Office (PTO) will conduct a separate Markman hearing prior to an oral argument in an inter partes review (IPR), the Patent Trial and Appeal Board (PTAB or Board) refused, but invited either party to use a portion of its allotted time during oral arguments for a technology tutorial or a presentation on claim construction. Dr. Michael Farmwald and RPX Corp. v. ParkerVision, Inc., Case IPR2014-00946 (PTAB, Jan. 26, 2015) (Gerstenblith, APJ.).

Dr. Farmwald owns a patent that is generally directed to techniques for down-converting electromagnetic signals. ParkerVision filed a petition for IPR, challenging some of the claims of the patent. After institution, Dr. Farmwald requested that the Board include, in the trial schedule and prior to the final hearing, a technology tutorial and a Markman hearing (to determine how the claims should be constructed). ParkerVision did not oppose. However, the Board denied the request, indicating that either party was free to use part of its allotted time during the oral hearing for a technology tutorial or a presentation on its claim construction positions.

You Can't Win if You Don't Play

In two related final written decisions, the U.S. Patent and Trademark Office (PTO) Patent Trial and Appeal Board (PTAB or Board) invalidated numerous claims across two separate patents after the patent owner decided to not file a preliminary response to the inter partes review (IPR) petitions. Librestream Technologies, Inc. v. Thomason, Case Nos. IPR2014-00368 (Paper 17);-00369 (Paper 18), (PTAB, Jan. 4, 2014) (Droesch, APJ).

The patents at issue relate generally to remote assistance by a technician or technicians of a wireless system. The petitioner filed two petitions for inter partes review of the patents, asserting that several of the patented claims were invalid as obvious over the prior art.

The IPR petitions were initially filed against Wireless Remote Systems LLC, the patent owner prior to October 1, 2014 (the patents were assigned to a third party after institution). Following institution, the parties unsuccessfully attempted to reach a settlement. As a result of the failed negotiations, the patent owner indicated that it would be unable to file a patent owner’s response by the due date. The PTAB extended the date for the patent owner to file, but ultimately counsel for Wireless Remote Systems affirmatively notified the PTAB that they would not file a response. Wireless Remote Systems confirmed this decision in a subsequent conference call with the PTAB.

In its final written decisions, the PTAB stressed that “[t]o prevail on its challenges to the patentability of the claims, Petitioner must prove unpatentability by a preponderance of the evidence.” Given that the patent owner declined to file a response, the PTAB was ultimately left with only the petitioner’s arguments to analyze in determining whether the petitioner had met its burden of proof.

For each claim analysis performed by the PTAB, there were of course no patent owner’s arguments to rebut positions taken by the Petitioner. Thus, the PTAB predictably determined that “[u]pon consideration of Petitioner’s position and evidence proffered in support of its position,” that the petitioner had shown by a preponderance of the evidence that the challenged claims were unpatentable as obvious over the prior art.

Practice Note: If a patent owner wants its patent to survive inter partes review, it cannot rely on the PTAB to generate rebuttal arguments to the evidence and arguments presented by the petitioner.

PTAB Excludes Documents Corroborating Publication Date as Hearsay but Admits Librarian Testimony *Web Only*

In a final written decision, the U. S. Patent and Trademark Office Patent (PTO) Trial and Appeal Board (PTAB or Board) granted in part the patent owner’s motion to exclude certain documents purporting to corroborate the publication date of the prior art. Notwithstanding this exclusion, however, the Board admitted testimony from a librarian regarding the publication of the prior art and found the patent at issue invalid. Toyota Motor Corporation v. American Vehicular Sciences LLC, PTAB-IPR2013-00417 (PTAB, Jan, 2015) (Anderson, APJ)

Toyota filed a petition requesting an inter partes review (IPR) of claims of a patent belonging to American Vehicular Sciences (AVS). After institution of the IPR, AVS voluntarily cancelled all but one of the claims at issue.

As to the remaining claim, AVS contested that Toyota’s prior art was published before the effective filing date of the challenged patent, June 7, 1995, but conceded that if the reference was found to be prior art, it anticipated the patent claim. Consequently, the only issue before the Board was whether the reference submitted by Toyota was published before the effective filing date and therefore prior art within the meaning of 35 U.S.C. § 102(a).

The reference was a technical article bearing a 1995 copyright date, but lacking a publication date. It was Toyota’s burden to establish that the article had been published before June 7, 1995. Toyota submitted evidence including webpages and an award received by the author for the article, all purporting to establish that the article had been published in January of 1995. In addition, Toyota submitted affidavits, one from the author of the article and the other from a library and archive assistant with the publisher of the article, both attesting that the article at issue had been published in January of 1995.

AVS moved to exclude all Toyota’s corroborating evidence, including testimony, on the basis that it was all hearsay not subject to any exception under Federal Rule of Evidence 803. Toyota opposed, arguing that the webpages were business records subject to the hearsay exception. The Board disagreed and that evidence was excluded. With respect to the award made to the author of the article, Toyota argued that it was only being offered to refresh the author’s recollection as to when the article was published. The Board disagreed and excluded the award as hearsay as well on the grounds that it was an out of court statement being offered to prove the truth of the publication date. As for the two affidavits, the Board denied AVS’ motion to exclude and admitted both.

Minimal weight was given to the author’s testimony since nearly 20 years had passed since he had written the article and he did not provide any explanation of why he would have any personnel knowledge of its publication date or that he had any involvement with its publication. On the other hand, considerable weight was given to the librarian’s testimony. The Board found that her testimony established by a preponderance of the evidence that the article had been published in January of 1995. “What matters is the statement of [the librarian], in her official capacity relating to archived information of [the publisher], that [the article] was made available [to] the public in January of 1995.”

Practice Note: Notably, AVS elected not to cross-examine the librarian, and therefore, the credibility of her testimony was not challenged. Had AVS done so, it is likely that the Board would still have admitted her testimony into evidence. However, it is impossible to speculate as to whether an effective cross-examination could have damaged her direct (affidavit) testimony to the point where Toyota could not carry its burden of proof.

Reduced Deposition Time in Related AIA Proceedings

In an order regarding deposition times for expert witnesses in three related inter partes reviews (IPRs), the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) ruled that total deposition time may be reduced relative to the total time that would be available in three unrelated proceedings. Petroleum Geo-Services Inc. v. WesternGeco LLC, Case Nos. IPR2014-00687; -00688; and -00689 (PTAB, Jan. 21, 2015) (Daniels, APJ).

Under 37 C.F.R. § 42.53(c), each deposition in a proceeding may include seven hours of cross-examination, four hours of redirect examination and two hours of recross. The patent owner requested each expert witness be available for the full allowable time given the existences of three separate proceedings—a total of 39 hours. After petitioner sought relief, the PTAB ruled that, because the three patents at issue here were related as continuations of the same application, a reasonable time period was 17 hours total: 12 hours for cross-examination, three hours for redirect examination and two hours for recross.

Untimely Presentation of Updated Mandatory Notice is Not a Cause for Termination *Web Only*

Addressing a petitioner’s untimely Updated Mandatory Notice following a merger, the U.S. Patent and Trademark Office’s (PTO) Patent Trial and Appeal Board (PTAB or Board) denied a patent owner’s motion to terminate an inter partes review (IPR) proceeding, finding that an untimely filing may be excused by the Board if the petitioner shows good cause and the patent owner suffers no prejudice or delay in justice. Valeo North America, Inc. v. Magna Electronics, Inc., Case Nos. IPR2014-00220; -0021; -0022; -0027 (PTAB, Jan. 8, 2015) (Clements, APJ).

In the course of an IPR, one of original petitioners, Valeo, merged with another entity to become Valeo North America. However, Valeo North America failed to update its Mandatory Notice to accurately list the real parties of interest after the merger. As Valeo North America was not listed as a real party of interest, the patent owner moved to terminate the proceedings. The petitioner responded that the motion should be denied as the identification of real-parties-in-interest was proper at the time the petitions were filed; post-filing changes to real-party-in-interest information is governed only by regulation, not by statute; the Board has discretion to waive or suspend regulations, and to accept or excuse late-filed papers; and the present circumstances justify acceptance of the petitioner’s Updated Mandatory Notice. The Board agreed with the petitioner and determined that the late filing of the Updated Mandatory Notice did not result in any prejudice or delay and the patent owner failed to identify any prejudice from the delay. Thus, the Board found that consideration of the petition on the merits would be in the interests of justice and denied the motion to terminate the proceedings.

PTAB is Unimpressed by Over-Lawyering *Web Only*

Addressing a patent owner’s objections to demonstrative exhibits, the U.S. Patent and Trademark Office’s (PTO’s) Patent Trial and Appeal Board (PTAB) overruled the objection of the patent owner’s representative and encouraged the parties to resolve additional disputes prior to the hearing. Medtronic, Inc. v. Norred, Case Nos. IPR2014-00110, -00111, and -00395 (PTAB, Jan. 23, 2015) (Weatherly, APJ).

The patent at issue relates generally to an aortic heart valve that can be placed inside a patient without the need for open heart surgery. The petitioner filed two petitions for inter partes review (IPR) of the patent, asserting that several of the patented claims were invalid as anticipated and/or obvious.

The dispute between the parties centered on the petitioner’s demonstrative exhibits. The patent owner raised objections to 73 out of 106 demonstrative exhibits and provided a summary of its objections only moments before a conference call with the PTAB. In an effort to streamline the conference call, the PTAB asked the patent owner to present its “single best objection from among the 73 presented.” The patent owner argued that the title of one slide was a mischaracterization of the testimony provided below the title. The PTAB overruled the patent owner’s representative objection and noted that the panel would give no evidentiary weight to argumentative characterizations of evidence such as those that appear in the title of any slide.

The PTAB refused to hear any further argument during the conference call related to the patent owner’s remaining objections and instructed the parties to resolve the remaining objections between themselves in advance of their scheduled hearing. The PTAB further stated that the patent owner would be permitted, at the outset of the hearing, to raise any remaining objections; however, the time spent resolving any remaining objections would be charged to the patent owner.

The PTAB also reminded the parties that arguments at the oral hearing would be limited to those arguments raised in a paper, as well as that the hearing would be an improper venue for introducing new arguments or evidence.

Geographic Location Mark Not Always Primarily Geographically Descriptive

The U. S. Court of Appeals for the Federal Circuit reversed a Trademark Trial and Appeal Board (Board) decision, concluding that the trademark NEWBRIDGE HOME was not primarily geographically descriptive of the goods because the location of the source of goods, namely Newbridge, Ireland, was not a place generally known to the American public. In Re The Newbridge Cutlery Company, Case No. 13-1535 (Fed. Cir., Jan. 15, 2015) (Linn, J.).

Newbridge Cutlery makes various types of housewares, kitchen wares and silverware under the name NEWBRIDGE HOME. It sells its products worldwide but its headquarters are in Newbridge, Ireland. In October, 2010, Newbridge filed a trademark application for its NEWBRIDGE HOME mark for various goods, including housewares, kitchen wares and silverware. The Patent and Trademark Office (PTO) rejected the application as primarily geographically descriptive because of the name NEWBRIDGE in the application.

In order for an examiner to refuse registration under section 1052 (e)(2), the examiner must show that the mark sought to be registered is the name of a place known generally to the public, and the public would make a goods/place association, i.e., believe that the goods for which the mark is sought to be registered originate in that place, and the source of the goods is the geographic region named in the mark. The Board affirmed the examiner’s decision concluding that Newbridge, Ireland is a place generally known to the public. In doing so, they relied on the size of the town (the second-largest in County Kildare), its mention on internet websites and its inclusion in the Columbia Gazetteer of the World.

Newbridge appealed the decision, arguing that NEWBRIDGE is not primarily geographically descriptive. The Federal Circuit agreed, concluding that Newbridge, Ireland is not a place generally known to the relevant American public and that the decision by the Board was not supported by substantial evidence. The size of the town, its mention on internet websites and its inclusion in the Columbia Gazetteer of the World does not provide evidence that the American purchasers are aware of this information or know about the town Newbridge in Ireland. The Court did also not agree with the Board’s position that information available on the internet should be considered known to the relevant public. The Court concluded that Newbridge has other geographical and non-geographical meanings and that many maps and atlases do not even include the town of Newbridge, Ireland. The Court therefore reversed the Board’s decision and held that NEWBRIDGE HOME is not primarily geographically descriptive.

Practice Note: Mere use of a geographic location name in a mark should not automatically warrant rejection by the PTO.

Pomegranate Health Benefit Claims Were False, Misleading

In an opinion addressing the amount and type of scientific evidence required to substantiate disease treatment and prevention claims, the U.S. Court of Appeals for the District of Columbia upheld the Federal Trade Commission’s finding that claims regarding the benefits of pomegranate juice with respect to various medical conditions were false or misleading but reduced (from two to one) the number of randomized, controlled trials demonstrating statistically significant results required to support future disease-related claims. POM Wonderful, LLC, et al. v. Federal Trade Commission, Case No. 13-1060 (D.C. Cir., Jan. 30, 2014) (Srinivasan, J.).

From 2003 to 2010, POM Wonderful’s marketing materials cited medical studies that purported to support the daily consumption of pomegranate juice for the treatment, prevention and/or reduction of risk of heart disease, prostate cancer and/or erectile dysfunction. A number of these advertisements, however, mischaracterized the evidence underlying such claims by failing to disclose the studies’ limitations (e.g., non-statistically significant findings, small sample size, reliance on post-hoc analyses) and/or the existence of published data suggesting pomegranate juice is not associated with the described benefits. An administrative law judge concluded the company lacked sufficient evidence to substantiate several health benefit claims and ordered the company to cease and desist from making such claims about any food, drug or dietary supplement unless the claims are non-misleading and supported by competent and reliable scientific evidence. On appeal, the full Federal Trade Commission (FTC or the Commission) upheld the administrative law judge’s decision to impose liability and broadened the scope of the injunctive order to specify that, for the purposes of substantiating claims that a product cures, mitigates, treats or prevents a disease, the company must have two double-blind, randomized controlled trials yielding statistically significant results.

The company appealed the Commission’s order on several grounds (e.g., alleging violations of the FTC Act, Administrative Procedure Act, and the First Amendment). The D.C. Circuit affirmed the Commission’s finding of liability, noting it had no basis to set aside the conclusion that the company’s advertisements were false and misleading. The court agreed with the company, however, that the requirement for two supportive randomized controlled trials before claiming a causal relationship between consumption of pomegranate products and the treatment or prevention of disease was overly burdensome and therefore failed Central Hudson scrutiny.

In applying the Central Hudson standard, the court emphasized that the two-trial threshold would require manufacturers to expend substantial resources to support such trials and that consumers would be denied access to useful, truthful information about products with a demonstrated capacity to treat or prevent serious disease where such claims are supported by the results of a single trial, regardless of that trial’s quality. The court acknowledged that there is precedent for the FTC’s imposition of a two-trial requirement, but noted that the previous application of that standard had been confined to narrow circumstances based on concerns specific to a particular class of products (i.e., comparative claims regarding the efficacy of over-the-counter analgesics). As such, the D.C. Circuit upheld the Commission’s order, but only insofar as it required disease-related claims to be supported by a single randomized controlled trial.

Practice Note: The court explicitly stated that the decision to reduce the required number of randomized controlled trials to one was based on the FTC’s failure to offer adequate justification for the two-trial standard in this specific case, and should not be construed as a blanket prohibition on the imposition of a two-trial requirement.

First Sale and Copyright Misuse Doctrines Available to Extinguish Rights to Products Purchased in Gray Market

In a short majority opinion, the U.S. Court of Appeals for the Ninth Circuit concluded that once a copyright claimant conceded that it authorized a first sale of the watches in a foreign jurisdiction, the first sale doctrine barred its copyright claims against a downstream retailer for selling those watches it bought on the gray market. Applying Kirtsaeng, the 9th Circuit affirmed the district court’s grant of summary judgment to Costco. In a lengthy concurrence, Judge Wardlaw agreed in the result but disagreed with the legal basis for the majority opinion. He would have relied instead on copyright misuse. Omega S.A. v. Costco Wholesale Corp., Case No. 11-57137 (9th Cir., Jan. 20, 2015) (Nelson, J.) (Wardlaw, J., concurring).

In 2003, Omega obtained a copyright for a Globe Design that it engraves on the back of its Seamaster watches and began selling its watches worldwide. Costco purchased 117 watches bearing the Globe Design on the “gray market,” but only sold 43 of them before Omega sued for copyright infringement.

After the district court granted Costco summary judgment based on the equitable defense of copyright misuse, Omega appealed.

Section 602 of the Copyright Act makes unauthorized importation of copyrighted goods into the United States a violation of the owner’s exclusive right to distribute. Trying to take advantage of §602, Omega asserted that it affixed the Globe Design to its watches. The district court concluded that “[b]y affixing a barely perceptible copyrighted design to the back of some of its watches, Omega did not provide—and did not seek to provide—creative works to the general public.” The district court concluded this was a misuse of Omega’s limited monopoly over its copyrighted Globe Design.

However, on appeal the panel majority did not rely on copyright misuse. Rather, because Omega had conceded that it authorized a first sale of the watches in a foreign jurisdiction, the panel majority, citing Kirtsaeng, concluded that Omega’s copyright distribution and importation rights expired. In other words, because the first sale was authorized, the 9th Circuit explained that third parties were free to import and resell the goods without consent of the copyright owner. Here, Costco purchased the watches from a vendor who bought them from unidentified third parties who legitimately bought them from Omega in a foreign market.

In his concurrence, Judge Wardlaw argued that the majority erroneously concluded that the Omega watches were properly the subject of copyright protection at all. As explained by Wardlaw, the first-sale doctrine applies only where the distributed copy is of an item that is a proper subject of copyright protection. Here, since Omega’s watches are “useful articles” that are not typically copyrightable, the concurrence argues they are not the proper subject of copyright protection in the first place. Further, Wardlaw notes that Omega did not argue infringement of its watches; rather it argued infringement of its distribution rights of the copyrighted Globe Design.

The doctrine of copyright misuse “forbids the use of the copyright to secure an exclusive right or limited monopoly not granted by the Copyright Office.” Judge Wardlaw concluded that Omega essentially admitted that it used its copyright to restrict unauthorized retailers from selling genuine Omega watches procured from the gray market and to thereby control U.S. imports, all in an effort to decrease competition against its authorized dealers. In fact, Omega conceded that the “whole purpose” of creating the Globe Design was to prevent unauthorized retailers from selling its watches. In Judge Wardlaw’s view, the fact that Costco members could no longer buy genuine Omega watches at a discount reflects the anti-competitive impact of Omega’s copyright misuse.

Practice Note: Copyright protection is limited. Affixing a copyrighted design on a “useful article” may be insufficient to confer copyright protection especially where the acknowledged purpose behind the design was motivated by a desire to limit competition and to control importation of non-counterfeit goods into the U.S.

Eleventh Circuit Clarifies "Willfulness" Standard in Copyright Infringement Actions *Web Only*

In an unpublished decision, the Court of Appeals for the Eleventh Circuit clarified its standard for willful copyright infringement when it affirmed the district court’s grant of summary judgment finding that the defendants infringed copyrights in two different rain boot designs, but that such infringement was not willful. Olem Shoe Corp. v. Washington Shoe Corp. Case No. 12-11227 (11th Cir., Jan. 12, 2015) (Eaton, J.) (non-precedential).

In 2009 and 2010, Washington Shoe sent cease-and-desist letters to Olem regarding its sales of women’s rain boots that infringed copyright registrations in Washington Shoe’s own “Zebra Supreme” and “Ditsy Dots” boot designs. Olem filed an action for a declaration of non-infringement of Washington Shoe’s copyrights, and Washington Shoe counterclaimed to obtain relief for copyright infringement and other state and federal claims. The court granted summary judgment to Washington Shoe for Olem’s copyright infringement, but also granted summary judgment to Olem on Washington Shoe’s claims of willful copyright infringement by adopting a rule from a 1999 U.S. Court of Appeals for the Second Circuit case which states that willfulness can be found only where a party “recklessly disregarded the possibility” that it was infringing a copyright. Both sides appealed.

On appeal, the 11th Circuit reviewed the “reckless disregard” standard that was adopted by the district court and determined that the proper standard for willfulness should be taken from patent decisions, such as the 2007 en banc Federal Circuit decision in In re Seagate Ten which require the intellectual property rights holder to show “that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent… [and to] also demonstrate that this objectively-defined risk…was either known or so obvious that it should have been known to the accused infringer.”

Using this revised standard, the 11th Circuit found no evidence that Olem knew of Washington Shoe’s copyrights and chose to violate them. First, the initial cease-and-desist letters sent by Washington Shoe to Olem did not create a triable issue of fact with regard to the question of willfulness, because those letters did not include reference to Washington Shoe’s copyright registration numbers or deposit copies filed with the U.S. Copyright Office, nor did the letters provide samples of the boot designs that Washington Shoe claimed were infringed. Therefore, the letters provided nothing from which Olem could have determined that the copyright claim was legitimate. Furthermore, after receiving the cease-and-desist letters, Olem stopped certain shipments and requested further information from Washington Shoe to try to determine whether Washington Shoe’s assertions of copyright infringement were true. Accordingly, the 11th Circuit found that a reasonable jury could find that Olem did not have “sufficient credible information to provide an ‘objectively high likelihood’ that it was infringing Washington Shoe’s copyrights.”

The 11th Circuit rejected Washington Shoe’s contention that because the Olem boots were “strikingly similar” to Washington Shoe’s “Zebra Supreme” and “Ditsy Dots” boots, such similarity should have been a “signpost” that objectively increased the probability of infringement. Instead, the 11th Circuit found that the striking similarity between the parties’ boots may be a basis for finding that the boots had been copied, but it does not give rise to the inference that Olem recklessly disregarded the likelihood that it was infringing Washington Shoe’s copyrights—otherwise, under this argument, all infringements become willful infringements. Washington Shoe also argued that Olem’s sourcing of its boots from China, a “well-known . . . source of infringing goods,” provided evidence of reckless disregard of infringement, which the 11th Circuit found to be unpersuasive.

Finding no evidence in the record that Olem actually knew it was infringing Washington Shoe’s copyrights, and because the evidence cited by Washington Shoe did not raise a genuine issue of material fact with respect to Olem’s reckless disregard, the 11th Circuit concluded that the district court did not err in granting summary judgment to Olem on the issue of willfulness.

With respect to Olem’s cross-appeal on the issue of copyright infringement, the 11th Circuit affirmed the district court’s decision and found that Washington Shoe owned valid copyrights for the boot designs at issue, and that Washington Shoe had established copying of the boots by demonstrating that its original works and Olem’s infringing works were “strikingly similar.” This degree of similarity between the boots made it unnecessary to determine whether Olem had access to the original boots, since such “striking similarity” of the works allows a presumption of copying which precludes the possibility of independent creation, coincidence or prior common source. In affirming the district court’s full decision, the 11th Circuit also denied Olem’s motions for relief from the judgment and for sanctions.

Allocation of Copyright Damages for Co-Owners

Addressing for the first time the issue of whether a partial owner of a copyright can be awarded infringement damages for his co-owner’s share, the U.S. Court of Appeals for the Fifth Circuit determined that a partial copyright owner may recover 100 percent of the damages from infringement of the copyright. In re Isbell Records, Inc., Case Nos. 13-40878; 14-40545 (5th Cir., Dec. 18, 2014) (Higginson, J.).

Alvertis Isbell (Bell) is the former president of Bellmark Records, which was in the business of owning sound recordings. Bell was also the owner of the music publishing company, Alvert Music. The writers and producers of the song “Whoomp! (There It Is),” a group called Tag Team, entered into an exclusive producer’s agreement (Recording Agreement) with Bellmark for the ownership of the sound recordings and the payment of royalties for “Whoomp!”. The Recording Agreement assigned to Bellmark’s affiliated designee publisher 50 percent of the rights, title and interests to the copyrights and any registration and copyright applications relating thereto and 50 percent of those rights to Tag Team.

Following Bellmark’s 1997 filing for bankruptcy, DM Records purchased Bellmark’s assets. The assets subject to the sale were not defined, but rather included “all property of the company.” Upon purchasing Bellmark’s assets, DM began exploiting the composition copyright to the song “Whoomp!”. Bell, doing business as Alvert Music, sued DM for copyright infringement in 2002, seeking a declaratory judgment that Alvert Music—not DM, as purchaser of Bellmark’s assets—is the rightful owner of the composition copyright for “Whoomp!”. Bell also sought damages for infringement. After several procedural events, the case went to trial in 2012.

The court found that Bellmark’s affiliated designee publisher was Alvert Music and, thus, that Alvert Music was the owner of “Whoomp!”, holding DM was liable for copyright infringement. Following the court’s finding of liability, the jury found actual damages of over $2 million and statutory damages of almost $135,000. After several post-trial motions were denied, DM appealed this case to the 5th Circuit. Along with several procedural issues, DM appealed the jury’s damages award as erroneous for awarding Bell 100 percent of the copyright damages, even though he was found to own only 50 percent of the copyright.

The 5th Circuit affirmed the district court. The 5th Circuit distinguished Edward B. Marks, in which the U.S. Court of Appeals for the Second Circuit held that “the recovery shall be confined to the plaintiff’s own part,” i.e., its “proper share” of any damages. Marks dealt with the nonjoinder of a copyright co-owner and did not involve a situation where there was evidence from which the jury could find that the plaintiff was administrator for all of the royalties. The 5th Circuit pointed out that, in this case, there was testimony that Bell is the administrator of one hundred percent of the royalties and is responsible for accounting to the owner of the other half of the copyright, Tag Team. As such, the court found that the jury could have determined that Bell was properly awarded 100 percent of the royalties, from which it could pay Tag Team its share.

Practice Note: The proper redress in a case where in infringement damages are awarded to one of two co-owners of a copyright is through a suit between the co-owners and not in further litigation against the defendant.

Contempt Charge Vacated Based on Valid Assertion of Attorney Client Privilege

Finding that a district court had not provided procedural due process to an attorney for a sanctioned party, and that the district court abused its discretion in imposing sanctions for civil contempt against the attorney, the U.S. Court of Appeals for the Fifth Circuit vacated sanctions imposed against an attorney that had properly asserted a privilege defense and affirmatively had taken steps to remedy unknowingly false prior misstatements of fact to the district court. Waste Management of Washington, Inc. v. Kattler et al., Case No. 13-20356 (5th Cir., Jan. 14, 2015) (Owen, J.).

At the district court, an employer, Waste Management of Washington (WM), sued a former employee, Dean Kattler, for alleged violation of an employment agreement by accepting a job with a competing company. Shortly after the suit was filed, the district court issued a temporary restraining order instructing Kattler to produce two classes of discovery—Kattler’s personal electronic devices and forensic images of devices either provided by Kattler’s new employer or used by Kattler while at his new employer. Shortly thereafter, the district court issued a preliminary injunction and ordered Kattler to produce all devices to WM within two days that had not been given to Kattler by the new employer. The new order did not account for the fact that Kattler’s attorney, Moore, had asserted concerns about breaches of the attorney-client privilege that would result in complying with the expanded order. At the same time, the attorney also denied the existence of a certain thumb drive to WM based on representations made by his client, Kattler.

About one month later, the plaintiff moved for a show-cause hearing as to why Kattler should not be held in contempt for failure to produce a personal iPad device. Moore again raised privilege concerns in response to produce the iPad device, which the court acknowledged, but ordered that the device should be produced anyway. At that time, Moore represented to the court that the thumb drive did not exist. The court did not issue sanctions at that time. After the hearing, Kattler informed Moore that the thumb drive did exist, which prompted Moore to consult with a professional responsibility expert and withdraw from representing Kattler within the week. Kattler soon produced a declaration describing the existence of the thumb drive.

Kattler’s new attorney produced an image of the iPad device, but not the device itself, and the relevant information regarding which Kattler asserted attorney-client privilege had been electronically blocked. WM again moved for a show-cause hearing for sanctions for failure to produce the iPad device itself. The district court’s notice of hearing in response to that motion referred to the docket entry ordering the previous show-cause hearing, which named only Kattler as the potential contemnor, not Moore. At the second hearing, the court found both Kattler and Moore in contempt for failure to produce either the iPad device or a viable image of the device, and for misleading the court about the existence of the thumb drive. Moore appealed.

Finding that Moore’s alleged contempt did not occur inside the courtroom, the 5th Circuit held that adequate notice of a charge of contempt was due to Moore, and that due to the form of the notice simply referring back to the first hearing identifying only Kattler, Moore did not receive such notice. The 5th Circuit also found that the district court abused its discretion in issuing a contempt order as to the thumb drive because Moore had been misled by his own client about the existence of the drive, thereby creating an inability to comply with the court’s order, and Moore had taken immediate remedial measures to rectify the misstatement. The 5th Circuit also found that Moore’s previous good-faith claim of attorney-client privilege could serve as a valid defense to the finding of contempt as to the forensic image of the iPad. Finally, the 5th Circuit excused Moore from contempt as to production of the iPad device itself to ambiguity in previous orders about its production. The 5th Circuit found that the lack of production was excusable given the ambiguity and that the assertion of privilege would protect the device itself and compelling production would require Moore to violate the attorney-client privilege.

Duty to Defend Only Triggered Where Subject Activities Are Specified in the Policy *Web Only*

Finding that the specific allegations made in a plaintiff’s civil petition filed against an insurance policy holder did not meet the specifications of the insured’s policy, the U.S. Court of Appeals for the Fifth Circuit upheld a declaratory summary judgment of no duty to defend in favor of the insurance provider under Mississippi Law. Nationwide Mutual Insurance Co. v. Gum Tree Prop. Management, LLC, Case No. 14-60302 (5th Cir., Jan. 14, 2015) (per curiam).

At the district court, the insurance company, Nationwide, sought a declaratory judgment of no duty to defend after corporate policy holders, Gum Tree and Southern Group, were sued by a competitor after one of the policy holders hired a competitor’s ex-employee. The competitor’s ex-employee had signed a non-compete agreement effective for one year and a confidential non-disclosure agreement. The competitor alleged that the ex-employee wrongly used the competitor’s information to solicit customers for the policy holders. Based on those facts, the competitor asserted 13 causes of action against the policy holders. The policy holders requested that the insurance company defend them in their lawsuit under nine separate policies. For purposes of the case, the 5th Circuit found that the relevant provisions of the individual policies were substantially the same.

Reviewing the grant of summary judgment de novo, the 5th Circuit compared the allegations contained in the competitor’s petition to the text of the insurance policies to determine whether the duty to defend had been triggered. The 5th Circuit rejected the policy holders’ assertion that a denial of an allegation of intentional conduct made in the competitor’s petition established a “true fact” sufficient to trigger the duty to defend. Instead, the 5th Circuit held that a denial of an allegation was only an assertion.

The 5th Circuit similarly rejected the policy holders’ arguments that the insurance company’s duty to defend was triggered by allegations of personal injury. Each of the policies provided coverage for “personal injury” or “personal and advertising injury” as those terms were further defined in the policy. Per the relevant policies, “personal injury” only occurred in instances where a plaintiff alleges either disparagement or invasion of privacy. Reviewing common dictionary definitions of those terms, the 5th Circuit found that there was no specific allegation by the competitor of either occurrence, and further, that the competitor was not a “person” within the meaning of the policy. As to the policies covering allegations of “personal and advertising injury,” the 5th Circuit also found that the district court had properly concluded that there was no demonstrable connection between any advertising and an alleged advertising injury. Instead, the 5th Circuit concluded that alleged injury resulted from the alleged misappropriation of trade secrets and that the tort claim could have been brought in the absence of any advertising.