IP Update, Vol. 17, No. 5

Unanimous Supreme Court: “Exceptional” Patent Cases Determined at District Court’s Discretion with Appellate Review Only for Abuse

In two decisions authored by Justice Sotomayor issued on the same day, a unanimous* Supreme Court of the United States reversed two opinions of the U.S. Court of Appeals for the Federal Circuit relating to a district court’s ability to award fees to a prevailing party in patent litigation for an “exceptional case” and the standard of review to be applied by the Federal Circuit in reviewing a district court’s opinion on whether a case is “exceptional.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., Case No. 12–1184 (Supr. Ct., Apr. 29, 2014) (Sotomayor, Justice.) and Highmark, Inc. v. Allcare Health Management System, Inc., Case No. 12-1163 (Supr. Ct., Apr. 29, 2014) (Sotomayor, Justice.).

In the Octane Fitness case, the Supreme Court construed the text of 35 U.S.C. § 285 and rejected the prevailing framework for evaluating whether a case is “exceptional” under § 285 as unduly restrictive. The Supreme Court explained that, in accordance with its ordinary meaning, an “exceptional” case is simply one that “stands out from others with respect to the substantive strength of a party’s litigating position … or the unreasonable manner in which the case was litigated,” to be determined at the district court’s discretion under the totality of the circumstances based on a preponderance of the evidence.

In the companion Highmark case, the Supreme Court held that in view of its ruling in Octane Fitness, a district court’s finding of an “exceptional case” should be reviewed for an abuse of discretion, not de novo.

Octane Fitness v. ICON Health & Fitness

In Octane Fitness, the respondent, ICON, owned a patent relating to elliptical exercise equipment and sued its competitor, Octane Fitness, claiming that Octane Fitness’ elliptical machines infringed claims of the asserted patent. After the district court granted Octane Fitness’s motion for summary judgment that its products did not infringe ICON’s patent claims, Octane moved for attorneys’ fees under § 285. The district court applied the Brooks Furniture standard for determining whether the case was “exceptional.”

In Brooks Furniture, the Federal Circuit held that a case may be deemed “exceptional” under § 285 only in two limited circumstances: when there has been some material, inappropriate conduct, or when the litigation is both brought in subjective bad faith and is objectively baseless. The district court found that Octane Fitness could show neither that ICON’s claim was objectively baseless nor that ICON had brought it in subjective bad faith. Rather the district court found that ICON’s unsuccessful claims were neither “frivolous” nor “objectively baseless” and found no subjective bad faith on ICON’s part. On appeal, the Federal Circuit rejected Octane Fitness’ argument that the district court had “applied an overly restrictive standard in refusing to find the case exceptional under §285”and declined to “revisit the settled [Brooks Furniture] standard for exceptionality.” The Supreme Court granted certiorari to review the Brooks Furniture standard (IP Update, Vol. 16, No. 10).

In reviewing the history of § 285, the Supreme Court explained that prior to 1946, the Patent Act did not authorize the awarding of attorneys’ fees to the prevailing party in patent litigation. Under the so-called “American Rule,” each litigant paid for its own attorneys’ fees whether it won or lost the case. In 1946, Congress added a fee-shifting provision to the Patent Act, which provided that a court “may in its discretion award reasonable attorney’s fees to the prevailing party upon the entry of judgment in any patent case.” Still later, as part of the Patent Act of 1952, the provision in the 1948 Act was amended and re-codified as § 285, still in effect today: “The court in exceptional cases may award reasonable attorney fees to the prevailing party” (emphasis added).

As Justice Sotomayor explained, the addition of the word “exceptional” was not intended to change the scope of the 1946 amendment. The Supreme Court found that the text of the 1952 statute was “patently clear,” and stated that the only constraint on a district court’s discretion to award attorneys’ fees in patent litigation is that the power is reserved for “exceptional” cases. Because the Patent Act does not define “exceptional,” the Supreme Court assigned the term its ordinary meaning, looking to dictionaries and analogous statutes, and concluded that an “exceptional” case is “simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” The Supreme Court also concluded that district courts may determine whether a case is “exceptional” in a case-by-case exercise of their discretion considering the totality of the circumstances.

The Supreme Court rejected the litigation misconduct portion of the Brooks Furniture standard as too restrictive because it appeared to apply only to independently sanctionable conduct. The court explained that “sanctionable conduct” is not the appropriate benchmark. Rather, a district court may award fees in the rare case in which a party’s unreasonable conduct is “exceptional” enough to justify an award of fees even if the conduct is not sanctionable. The Supreme Court also found that the second prong of the Brooks Furniture standard, requiring a finding that the litigation was objectively baseless and that the claims were brought in subjective bad faith, to be unduly restrictive. The Court found that a case presenting either subjective bad faith or “exceptionally meritless claims” may suffice for a finding of an exceptional case.

The Supreme Court concluded that “[s]ection 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one.” In an aspect of the ruling that many will find as key, the court stated that the proof of an exceptional case is to be judged under the preponderance of the evidence standard, thereby exposing the parties to “share the risk of error in roughly equal fashion.”

Highmark, Inc. v. Allcare Health Management System, Inc.

The Federal Circuit’s “exceptional case” rulings in Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc. are multifaceted (IP Update, Vol. 15, No. 9) and were the subject of sharp intra-panel divisions in connection with consideration of en banc review (IP Update, Vol. 16, No. 1). However, the issue presented on appeal to the Supreme Court was a relatively simple one: What is the appropriate standard of review for a determination regarding exceptional case by the district court? The Supreme Court concluded that its finding in Octane settled the Highmark case. Because § 285 commits the determination of whether a case is “exceptional” to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion.

Justice Sotomayor explained that, traditionally, decisions based on “questions of law” are “reviewable de novo.” decisions based on “questions of fact” are “reviewable for clear error and decisions based on “matters of discretion” are “reviewable for ‘abuse of discretion’.” The Court explained that the text of the statute “emphasizes the fact that the determination is for the district court,” which “suggests some deference to the district court upon appeal.” The Supreme Court explained that the district court “is better positioned” to decide whether a case is exceptional because it lives with the case over a prolonged period of time, and that the question of exceptionality is “multifarious and novel,” not susceptible to “useful generalization” of the sort that de novo review provides and “likely to profit from the experience that an abuse-of-discretion rule will permit to develop.”

*Justice Scalia joined in the Octane Fitness opinion except as to footnotes 1–3.

Practice Note: Approximately one week after its decision in Octane Fitness and Highmark, the Supreme Court granted cert in Kobe Properties v. Checkpoint Systems, Case No. 13-788 (Supr. Ct., May 5, 2014) a case where the Federal Circuit had reversed a $6.6 million award of attorneys’ fees to a successful defendant (IP Update, Vol. 16, No. 5). In reversing the district court’s attorneys’ fee award, the Federal Circuit noted that “the requirements of § 285 were not met” because the suit was not “objectively baseless.” In granting cert, the Supreme Court vacated the Federal Circuit’s decision in Checkpoint Systems and remanded the case “for further consideration” in light of its decisions in Octane Fitness and Highmark. On May 14, 2014, in Side Update Solutions v. Accord North America, Case No. 13-1498, the Federal Circuit issued a non-precedential order remanding the case to the district court for further proceedings in light of Octane Fitness.

Federal Circuit to Judge Posner: eBay Analysis Is a Must

In a closely watched case involving a high-profile circuit court judge sitting (by designation) at trial and raising the hot button issue of whether the holder of a fair, reasonable and non-discriminatory terms, or FRAND-encumbered standard essential patent (SEP) was in essence barred from seeking injunctive relief, the U.S. Court of Appeals for the Federal Circuit (in a case that attracted a dozen amici briefs) affirmed Judge Posner’s ruling that the holder of the FRAND-encumbered patent in this case was not entitled to injunctive relief, but insisted that an eBay analysis is nevertheless required. Apple, Inc. et al. v. Motorola, Inc., et al., Case No. 12-1548; -1549 (Fed. Cir., April 25, 2014) (Reyna, J.) (Rader, C.J., dissenting-in-part) (Prost, J., concurring-in-part; dissenting-in-part).

Apple and Next Software (Apple) sued Motorola and Motorola Mobility (Motorola), asserting infringement of 15 patents. Motorola counterclaimed, asserting six of its own patents. Judge Posner, sitting by designation, short-circuited a jury trial by granting summary judgment as to all claims on grounds of non-infringement (in view of his construction of certain claim terms) and on grounds of insufficient evidence to show damages or the right to injunctive relief (the latter in view of his earlier decision to exclude the vast majority of both parties’ damages experts’ evidence). Judge Posner also suggested that Motorola was precluded from injunctive relief on its FRAND-encumbered SEP (IP Update, Vol. 15, No. 7).

Both parties appealed. On appeal, the Federal Circuit considered the issues of claim construction, the sufficiency of expert damage reports to show entitlement to a statutory “reasonable royalty” and whether the parties’ claims for injunctive relief were properly denied under eBay.

Means-Plus-Function Claim Element and “Inherent” Structure

With regard to one of the Apple patents in suit, the Federal Circuit explained that Judge Posner committed an error as to certain means-plus-function claim limitations. The patent is directed to controlling a touchscreen device with finger gestures. The claims recited reading a user’s finger gestures using “heuristics” (rules) to determine commands for the device: a vertical screen scrolling heuristic for determining that the one or more finger contacts correspond to a one-dimensional vertical screen scrolling command rather than a two-dimensional screen translation command based on an angle of initial movement of a finger contact with respect to the touch-screen display.

Judge Posner determined that notwithstanding the absence of the term “means,” the claim limitation was nonetheless a “means-plus-function” claim element, the function of the heuristic being the “determining” term.

Writing for the majority, Judge Reyna disagreed, finding that Motorola had failed to rebut the “strong presumption” that, as here, claims are not means-plus-function claims when the term “means” is not used. Rather, Reyna explained that the term “heuristic” has an inherent structure and meaning to one of ordinary skill in the art that prevents its treatment as a means-plus-function claim term.

On this issue, Judge Prost, in dissent, argued that the majority wrongly conflated the two-step means-plus-function claim analysis into a single step. Rather than first determining whether the claimed “heuristic” term was a means-plus-function claim element, then determining whether there was sufficient corresponding structure for the claimed function, Prost argued that the majority simply looked for sufficient corresponding structure. In Prost’s opinion, the term “heuristic” is a “vague concept that does not connote known, physical structure.” Prost did however, disagree with Judge Posner’s identified corresponding structure to the claimed function, finding it too limiting given the abundance of disclosure in the specification regarding finger gestures and related “heuristics.”

The Bar for Admissibility of Damages Testimony

The Federal Circuit next addressed whether the parties’ damages experts’ testimony was sufficient to show a reasonable royalty. Judge Posner had excluded each party’s expert on damages and granted summary judgment against most of the parties’ claims, concluding that neither was entitled to receive any damages.

The Federal Circuit reversed, finding that insofar as certain Apple patents were concerned, Judge Posner’s erroneous claim construction “alone, would require reversal and remand because the erroneous claim construction tainted the district court’s damages analysis.”

The Court also concluded that Judge Posner failed to consider the full scope of the expert opinions, explaining that rather than focusing on the reliability of the principles and methods used or the sufficiency of the facts and data relied upon, the district court substituted its own opinion. As an example, one of Apple’s experts isolated the value of finger gestures used in an Apple “Trackpad” product to estimate the value of the figure gesture heuristics, an analysis that the district court found inadequate: “[t]he fact that many consumers will pay more for a Magic Trackpad than for a mouse tells one nothing about what they will pay to avoid occasionally swiping unsuccessfully because their swiping finger wasn’t actually vertical to the screen.”

The Federal Circuit explained that the district court erred when it focused on just the heuristic limitation because the “proper inquiry evaluates the expert’s methodology in view of the full scope of the infringed claims.” Here, the Court found that the methodology used by Apple’s damages expert was “the product of reliable principles and methods.” The expert had attempted to isolate the value of the claimed features in an existing commercial product, relied on technical expert testimony, compared the computed reasonable royalty to related licenses and addressed the possibility of removing the asserted features from the accused devices. The Court concluded that such methodology and testimony was admissible. The Federal Circuit faulted Judge Posner for acting as both the gate-keeper and the fact-finder, when he should be only the gate-keeper:

“Whether [Apple’s expert’s] testimony was the product of reliable principles and methods is the focus of admissibility; whether the testimony produced a correct degree of estimation of the value of the … patent is a factual consideration reserved for the fact finder. Here, the district court resolved admissibility based upon its own view on the correct estimate of value for the … patent, a question that should have been reserved for the jury.”

While Judge Prost concurred with the majority’s reversal of the exclusion of Apple’s expert’s testimony, she agreed with the district court that use of the Magic Trackpad to calculate the value of the claimed functionality was unreliable because that product was not a sufficiently comparable benchmark: “As even Apple concedes, the Trackpad contains none of the function asserted from the … patent.” According to Prost, this established a “highly questionable” starting point for a damages analysis—one that was properly excluded.

In connection with a different Apple patent, the district court excluded Apple’s damages expert’s testimony because that expert had relied on the testimony of Apple’s technical expert in forming his opinions. The district court’s concern was that one Apple expert relying on another Apple expert created unfair bias. The Federal Circuit reversed, finding that, “[e]xperts routinely rely upon other experts hired by the party they represent for expertise outside of their field.” Any bias in the damages calculations should be addressed by the jury, i.e.,deciding what weight should be given to such testimony and the testimony of the other expert relied on. “To the extent bias exists, cross-examination and the testimony of an opposing expert may be used to expose it. … The issue is one of evidentiary weight and not admissibility.”

For another of Apple’s patents, the district court excluded Apple’s damages testimony, and granted summary judgment that Apple was not entitled to any damages (not even a nominal reasonable royalty) for lack of evidence—even though Motorola had conceded infringement.

The Federal Circuit reversed, explaining that under 35 U.S.C. § 284, unless the evidence shows otherwise, the damages amount cannot be zero: “Finding that a royalty estimate may suffer from factual flaws does not, by itself, support the legal conclusion that zero is a reasonable royalty.” Rather, a court must award damages “in no event less than a reasonable royalty.” Thus, where infringement is found, the jury is required to determine what royalty is supported by the record, even if the amount is nominal. As the Court explained, an award of zero damages is appropriate only when the record in fact supports a zero royalty award. But here, the Court explained, Apple had presented evidence that the patent features held value because it showed consumer demand for the claimed features that would have taken Motorola months to design around.

As for Motorola’s patent damage position, after the district court excluded all of Motorola’s proposed damages testimony, it granted Apple’s motion for summary judgment that Motorola was entitled to no damages. While the Federal Circuit affirmed the exclusion of one of Motorola’s experts, a licensing expert who admitted he “knew nothing” about the patent and that he had chosen an arbitrary licensing rate not tied to the claimed invention, it reversed as to the remainder of Motorola’s damages testimony.

That remaining testimony included a reasonable royalty analysis of license agreements between Motorola and “all of the major” cellular phone makers in the United States, except for Apple. All of the license agreements treated the patent as an SEP—one of many such patents in Motorola’s standard-essential patent portfolio. The expert’s approach was to separate the value of the patent in issue from the total value of the portfolio and then analyze the design around value for not using certain cellular network types covered by the patent. This methodology was found sufficiently reliable to be admitted. The Federal Circuit explained that the district court “failed to recognize that [Motorola’s expert] did construct a cost estimate typically relied upon when calculating patent damages—the cost to license the technology.” Whether the “licenses are sufficiently comparable such that Motorola’s calculation is a reasonable royalty goes to the weight of the evidence, not its admissibility.”

Injunctions: It’s All About eBay

The Court next addressed whether Apple was entitled to an injunction for any of its patents, and whether Motorola was entitled to an injunction for its patent, even though it was standard essential.

The Federal Circuit first vacated the district court’s grant of summary judgment against Apple’s request for an injunction on the basis of its reversal of the claim constructions for those patents.

On this issue Judge Prost dissented, arguing that the first eBay injunction factor—irreparable harm—was sufficiently dispositive, and so, would have affirmed the district court’s grant of summary judgment, denying Apple an injunction. In Prost’s opinion, Apple failed to show sufficient evidence to establish a causal nexus between consumer demand and infringement of the claimed features, which was required to meet the “irreparable harm” prong of the eBay test.

Turning to Motorola’s request for injunction, the Federal Circuit affirmed the district court’s grant of summary judgment against Motorola. However, the Federal Circuit noted that the district court erred to the extent it applied a per se rule finding no injunction would lie for any FRAND-encumbered SEP. As the Court explained, such a rule ignores the analysis mandated by eBay, explaining that even a FRAND-encumbered SEP may possibly be the basis for an injunction under eBay, such as where the “infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect.” However, the Court recognized that such occurrences would likely be rare.

Judge Rader, dissenting on this issue, argued that there was enough evidence in the record to support the conclusion that Apple was unwilling to license Motorola’s SEP patents and that Motorola should have been afforded an opportunity to prove that at trial.

Judge Prost, while concurring in the judgment, dissented as to the circumstances under which an injunction might be appropriate when a FRAND-encumbered SEP is at issue. Rather than look to when an “infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect,” in Prost’s view “an injunction might be appropriate where, although monetary damages could compensate for the patentee’s injuries, the patentee is unable to collect the damages to which it is entitled.”

Practice Note: eBay remains the test for injunctive relief and any request for an injunction must include an eBay analysis, even for FRAND-encumbered SEPs. In other words, there is no per se rule. But to prevail in a request for injunctive relief, an SEP owner will be required to prove that the alleged “infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect.” It may be possible to address the issue as suggested by Judge Prost, i.e., by establishing that “although monetary damages could compensate for the patentee’s injuries, the patentee is unable to collect the damages to which it is entitled,” but whether that will ultimately attract a panel majority is an issue for another day.

Patent Owner Practicing the Patent Not Necessary to Secure Preliminary Injunction

Addressing whether a plaintiff that does not practice the asserted patent and did not itself invent the patent was entitled to a preliminary injunction against a competitor, the U.S. Court of Appeals for the Federal Circuit vacated a lower court’s order denying preliminary injunction and remanded, finding that a district court erred in its interpretation of the claims at-issue and that there was a likelihood of success on the merits on the issue of infringement. Trebro Mfg., Inc. v. FireFly Equipment, LLC, Case No. 13-1437 (Fed. Cir., Apr. 9, 2014) (Rader, C.J.)

Plaintiff Trebro sued FireFly Equipment for patent infringement on two patents directed to “sod harvesters,” which are vehicles having knives that cut sod pieces from the ground and related processes. The companies were competitors in the sod harvester industry. Trebro pursued a preliminary injunction on the asserted patent—a patent it had recently acquired and admittedly did not practice. The district court denied Trebro’s motion, finding that the accused product did not include an essential element required by the claims, and therefore Trebro did not show a likelihood of succeeding on its infringement claim. The district court also found that there was a question of novelty of the claimed invention. In addition, the court found that, despite evidence of ongoing competition harm through lost customers and market share, Trebro would not suffer irreparable harm because it did not have a product that practiced the asserted patent claims.

The Federal Circuit analyzed the four preliminary injunction factors: that the plaintiff is likely to eventually succeed on the merits of the case, that the plaintiff will suffer irreparable harm absent an injunction, that the balance of equities favor the plaintiff and that the public interest favors injunctive relief. The Federal Circuit disagreed with each of the district court’s conclusions. As to likelihood of showing infringement, the Federal Circuit found that the district court erred by importing the “bed frame” limitation into the claims from the preferred embodiment.

The Court also found that the district court erred in finding a substantial question as to the asserted patents’ validity, as the district court’s analysis did not adequately support a finding of either anticipation or obviousness. With respect to irreparable harm, the Federal Circuit explained that a “party that does not practice the asserted patent may still receive an injunction when it sells a competing product.”

The Federal Circuit further noted that the district court did not address the final two factors and provided observations based on the record that although not explicitly stated, mitigate in favor of an injunction (e.g., that defendant being the only non-licensed competitor in the market suggests that the patent will have significantly less value if plaintiff cannot use the patent to exclude an infringing product from the market).

Federal Circuit Grants Emergency Stay of Preliminary Injunction for Critical Medical Products *Web Only*

Less than one week after a district court granted a preliminary injunction, banning some U.S. sales of some of CoreValve’s heart valve system, the U.S. Court of Appeals for the Federal Circuit granted an emergency stay pending appeal. Edwards Lifesciences AG v. CoreValve, Inc., Case No. 14-1409 (Fed. Cir., Apr. 21, 2014 (per curiam) (Rader, C.J.) (Newman, J., dissenting). The decision postponed enforcement of Chief Judge Sleet’s order granting in part Edwards Lifesciences’ motion for a preliminary injunction against CoreValve’s products that allegedly infringe an Edwards Lifesciences catheter patent.

At the district court, Edwards Lifesciences sued CoreValve (a division of Medtronic) for infringement of a patent covering “a prosthetic heart valve to be delivered through the skin to patients’ aortic annuluses and thereby avoids traditional open heart surgery and its accompanying risks.” A jury awarded Edwards Lifesciences about $75 million in damages for the CoreValve Generation 3 Revalving System, which was ultimately upheld by the Federal Circuit. Edwards Lifesciences subsequently moved for a preliminary injunction to prevent sales of the CoreValve Generation 3 as soon as it obtained U.S. Food and Drug Administration (FDA) approval. After an evidentiary hearing on the public interest factor, the district court granted the injunction in part, but ordered the parties to reach a decision to allow a sufficient number of CoreValve Generation 3 to be sold for critically ill patients.

The district court first determined that Edwards Lifesciences would likely succeed on the merits, given that a jury had already found infringement. Even though the patent had expired on May 2, 2012, Edwards Lifesciences anticipated that under § 156 the U.S. Patent and Trademark office would grant an extension until March 22, 2016. CoreValve argued that § 156 limits the patent extension exclusion to only copies of Edwards Lifesciences product, the SAPIEN. But the court rejected that argument because the statute applies to all approved uses of the product: in this case, inserting artificial valves using a catheter.

Next the court found that Edward Lifesciences would be irreparably harmed because CoreValve’s sales of products would likely lead to price erosion and loss of sales, market share and revenue. In fact, CoreValve’s practices in Europe showed that it undercut prices and attempted to take over hospital contracts from Edwards Lifesciences. The court also found that the balance of hardships favored Edwards Lifesciences because it would have to compete with products covered by its own patent while CoreValve was already found to be a willful infringer.

As for the public interest, Edwards Lifesciences and CoreValve are the only two companies with products that allow doctors to insert artificial heart valves with a catheter rather than through open heart surgery. The evidence showed that Edwards Lifesciences’ product cannot be used in all patients, such that a complete ban would prevent some patients from receiving care. Thus, the court held that while there is a strong public interest in upholding patent rights, a carve-out would allow doctors to make appropriate medical decisions with all available products. On the record, the district court granted the requested injunction. CoreValve appealed to the Federal Circuit for a stay of the injunction.

The Federal Circuit, in granting an emergency stay of the injunction, was largely silent on its reasons for doing so. CoreValve argued that the injunction would prevent critically ill patients from receiving appropriate care. Edwards Lifesciences countered that CoreValve overstated the need for its product given the availability of Edwards’s own products. In the end, the Federal Circuit appears to have agreed that the stay would prevent needed products from reaching critically ill patients.

In dissent, Judge Newman would have denied the stay subject to an agreement between the parties that CoreValve could provide its products during appeal. Indeed, Judge Newman’s view tracked with Judge Sleet’s order balancing the “strong public interest favoring enforcement of patent rights” while providing the best option for patients.

Practice Note: The Federal Circuit’s decision in this case highlights that it is willing to allow sales of infringing products when there is at least some risk that critically ill patients may not receive needed treatment. Even the district court’s order granting the injunction in part recognized that at least some products should be sold. Patent holders with patents covering critical medical equipment should be aware of this risk, especially where equipment options and substitutions are limited. As Judge Newman’s dissent recognizes, even a stipulation among the parties could not prevent a stay from stopping sales of critical medical equipment. However, the Federal Circuit will not weigh in again on the appropriateness of such an injunction in this case, as the parties recently settled their dispute. Patent owners and potential defendants will have to wait for a similar case before the Federal Circuit provides further guidance in this area.

Gilead Warns: Examine Patent Portfolios for Double Patenting Pitfalls

Addressing invalidation of a patent for obviousness-type double patenting, the U.S. Court of Appeals for the Federal Circuit vacated and remanded a district court’s decision, finding that a later-issued, but first-expiring patent could invalidate a first-issued, but later-expiring patent if both patents are commonly owned and do not have a common priority claim. Gilead Sciences, Inc. v. Natco Pharma Ltd., Case No. 13-1418 (Fed. Cir., Apr. 22, 2014) (Chen, J.) (Rader, C.J., dissenting).

Gilead owns two patents directed to antiviral compounds and methods for their use. Gilead sued Natco Pharma (Natco) for infringement of the first of the two patents after Natco filed an Abbreviated New Drug Application (ANDA). Natco responded by arguing that this first patent was invalid for obviousness-type double patenting based on the second of the two patents (which was not even asserted by Gilead in the case).

In granting summary judgment against Natco, the district court relied on other district court cases finding that “a later-issued but earlier-expiring patent” cannot “serve as a double-patenting reference against an earlier-issued but later expiring patent.” Natco appealed.

On appeal, the Federal Circuit considered whether the non-asserted second patent–which issued after but expires before the first patent–can qualify as a double patenting reference against the first patent.

In its analysis, the Federal Circuit noted that both patents were issued to the same inventors and were commonly owned by Gilead, the first patent had a later priority date than the second patent and the first patent did not have a terminal disclaimer. However, the Federal Circuit also concluded that the second patent claimed an invention of which the first patent’s claims were obvious variants and was only issued because–due to a double patenting rejection–a terminal disclaimer was filed by the patentee to disclaim any patent term of the second patent that would have extended beyond that of the first patent.

The Federal Circuit considered various public policy concerns, including the potential for patentee gamesmanship during prosecution to try to obtain additional patent term exclusivity for obvious variants of their inventions. The Federal Circuit determined that the comparison of Gilead’s patent expiration dates should control, not merely the issuance dates. Accordingly, the Court moved away from traditional double patenting analysis that focuses on patent issuance because, as in this case, an earlier-issuing patent may not expire before a later-issued patent under the Uruguay Round Agreement Act. The Federal Circuit found that the first patent, although issued first and without a double patenting rejection, could later be invalidated for obviousness-type double patenting based on the later-issuing, non-asserted second patent.

Chief Judge Rader dissented, arguing that an expansion of the judicially created doctrine of obviousness-type double patenting was not warranted in this case. He argued that the majority overstated policy concerns to justify their decision and that, instead, the Federal Circuit should have exercised judicial restraint to avoid unforeseen consequences under the new first-inventor-to-file framework of the America Invents Act.

A Combination of References Need Only Provide a “Reasonable Expectation of Success”

Addressing the validity of a dosing regimen patent in Abbreviated New Drug Application (ANDA) litigation, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s summary judgment of invalidity of two patents, finding that a combination of prior art references does not need to describe the efficacy of a specific dosage regimen, only that there is a reasonable expectation of success. Hoffmann La-Roche Inc. v. Apotex Inc., Case No. 13-1128 (Fed. Cir., Apr. 11, 2014) (Bryson, J.) (Newman, J., dissenting).

After Apotex made an ANDA filing, Hoffmann La-Roche (Roche) sued for infringement of patents directed to methods of treating osteoporosis. Roche then moved for a preliminary injunction. The district court denied the motion, finding that Roche had failed to prove it was likely to succeed on the merits in view of Apotex obviousness defense. Roche appealed, and the Federal Circuit affirmed the denial of preliminary injunction.

While that appeal was pending, the district court granted summary judgment of invalidity based on obviousness. The lower court found that once-monthly oral dosing was established in the prior art and that the dosage level of 150 mg per month was suggested in a combination of several prior art references, or at least indicated as obvious to try. The district court found that Roche’s evidence of objective considerations of non-obviousness was insufficient to defeat Apotex motion for summary judgment. Roche appealed again.

The Federal Circuit reviewed the issue of obviousness of the dosage limitations and concluded that the prior art taught the desirability of a relatively infrequent dosing schedule. The Court rejected Roche’s argument that the art taught away from once-monthly dosing because it was widely believed as of the date of the invention that a bisphosphonate regimen with a dose-free interval longer than one or two weeks would not be effective. Roche argued that the prior art did not conclusively prove efficacy at the claimed once monthly dose. The Federal Circuit found, however, explained that Roche was trying to apply the wrong standard and that “conclusive proof of efficacy [at the claimed dosing interval] is not necessary to show obviousness.” Rather, all that is required is a reasonable expectation of success.

The Federal Circuit concluded that, in accordance with the total-dose concept, efficacy depends on the total oral dose given rather than the dosing schedule and that this taught by the prior art, which provided substantial guidance as to the total dose. One need only scale up a known-effective dose from a shorter interval regimen, stated the Court. The Federal Circuit confirmed that the evidence showed the total-dose concept can be used as an effective rule of thumb by a person of ordinary skill deciding how to scale to an efficacious intermittent dose.

Roche argued that there were disputed issues of fact as to whether the claimed dosage level and frequency were safe, noting a prior art study showed a higher incidence of diarrhea and number of dropouts with a daily 5 mg dose (which scales up to about 150 mg/month). However, the Federal Circuit stated the study taught that the side effect profile seemed to be safe. The Court found that there was no genuine issue of fact suggesting that the references taught away from the monthly 150 mg dose.

Roche also argued that the record showed that the 150 mg once-a-month dose was more effective than the 2.5 mg daily dose and that the superior effectiveness of the 150 mg and the drug’s nonlinear bioavailability at the claimed dosage level were unexpected. While the evidence supported superior efficacy at 150 mg monthly dose, as compared to 2.5 mg daily dose, the Federal Circuit found that the evidence did not rebut a strong showing that the prior art disclosed monthly dosing and provided a reason to set that dose at 150 mg. The Court also found that prior art suggested that there was a reasonable expectation of success with the 150 mg monthly dose. Using the same reasoning the nonlinear bioavailability of the drug did not rebut the prima facie showing of obviousness of a once month 150 mg dose. Specifically, Roche did not show that the increased level of bioavailability was responsible for improved osteoporosis treatment efficacy at the higher dose.

Judge Newman dissented, arguing that there is no suggestion in the prior art of record (showing a wide range of dosages and conditions) that showed or suggested the claimed combination of a single 150 mg once-a-month dose, nor the effectiveness and safety of this combination. Judge Newman stated that the majority adopted the argument that 150 mg is 30 times the daily dose of 5mg, but ignored the fact that the FDA refused to approve the 5 mg dose due to its toxic side-effects, a fact that lead away from the obviousness of a single dose 30 times larger.

Combining Two Drugs Is Not Always Obvious

Addressing the obviousness of combining two known hypertension medications, the U.S. Court of Appeals for the Federal Circuit upheld a ruling of non-obviousness where the prior art did not teach the drug combination and post-filing evidence showed unexpected benefits. Sanofi-Aventis Deutschland GMBH v. Glenmark Pharmaceuticals Inc., USA, Case No. 12-1489 (Fed. Cir., Apr. 21, 2014) (Newman, J.)

The plaintiffs sued Glenmark after the U.S. Food and Drug Administration (FDA) approved Glenmark’s abbreviated new drug application for a generic version of Tarka®, a hypertension drug. The asserted patent relates to combining trandolapril (an ACE inhibitor) and verapamil (a calcium channel blocker) to treat hypertension. Sanofi-Aventis, Aventis Pharma, Abbott GMBH, Abbott Laboratories (Abbott Labs) and Abbott Laboratories, Inc. (ALI) own or exclusively license the patent. Abbott Labs owns the new drug application (NDA) for Tarka, and ALI is the exclusive distributor. The plaintiffs sought damages due to Glenmark’s “at risk” launch of its generic drug.

Glenmark conceded infringement but challenged the patent as being obvious in a jury trial. According to Glenmark, combining ACE inhibitors with calcium channel blockers to treat pulmonary hypertension was well-known as of the priority date. Thus, any hypertension treatment containing both drugs would have been “obvious to try” and, under KSR, invalid. The jury rejected this argument, finding the patent was not invalid. After the district court entered judgment on the verdict, Glenmark appealed.

The Federal Circuit upheld the ruling. Undisputed evidence showed that the prior art did not suggest using the claimed combination for hypertension. Moreover, the Court observed that the record showed there were hundreds if not thousands of potential ACE and calcium channel blocker combinations, and prior art did not suggest which might work. The Court indicated that under those circumstances, Glenmark’s “obvious to try” argument failed.

In terms of objective evidence of non-obviousness, the Federal Circuit also found further support for the jury’s verdict in the form of Tarka’s unexpected superiority as a hypertension treatment over those in the prior art. Glenmark argued that evidence of the drug’s unexpected benefits was discovered too late (after filing of the application) to be considered in an obviousness analysis. The Court disagreed explaining “patentability may consider all of the characteristics possessed by the claimed invention, whenever those characteristics become manifest.”

Glenmark also asserted that co-plaintiffs Abbott Labs and ALI lacked standing, a prerequisite to recovering damages. According to Glenmark, Abbott’s alleged ownership of the Tarka New Drug Application (NDA) arose before Abbott licensed the patent, those licensing rights were a prerequisite to owning the NDA and later attempts by the plaintiffs to paper over problem through a “Confirmatory Agreement” were ineffective for lack of consideration.

The Court rejected these arguments, agreeing with the district court’s finding that the parties evinced a mutual intent to transfer and vest in Abbot Labs exclusive rights to the patent. This was revealed in Abbott’s ownership of the NDA, ALI’s exclusive distribution rights derived through Abbott, and other agreements between the parties. Finally, the Court noted that all entities in the license chain joined the suit, which eliminated the risk of multiple infringement suits.

Suppliers May DJ an NPE, But It Won’t Be Easy

Addressing declaratory judgment jurisdiction based infringement allegations against customers, the U.S. Court of Appeals for the Federal Circuit affirmed in part and reversed in part the district court’s finding of jurisdiction. Microsoft v. DataTern, Inc., Case No. 2-13-1184, consolidated with SAP AG and SAP America, Inc. v. DataTern, Inc., Case No. 2013-1185 (Fed. Cir., Apr. 4, 2014) (Moore, J.) (Rader, C.J., dissenting-in-part).

DataTern sued Microsoft and SAP customers in Texas, providing claim charts alleging infringement by use of Microsoft and SAP software. Several of the customers demanded indemnification. Microsoft and SAP filed declaratory judgment actions in the U.S. District Court for the Southern District of New York, which DataTern moved to dismiss for lack of subject matter jurisdiction. After the district court denied DataTern’s motion to dismiss, DataTern appealed.

The Federal Circuit rejected the argument that where there is no duty to indemnify, jurisdiction existed “solely because [Microsoft and SAP] customers have been sued for direct infringement.” The Court went on to hold that even if an obligation to indemnify existed, Microsoft and SAP would not be entitled to bring a separate declaratory judgment action in a different jurisdiction but would have to act to indemnify in the existing (customer) action. The Court was careful to note that “[w]e do not address whether Appellees would be entitled to file a declaratory judgment action if they were obligated to indemnify a customer who had not already been sued by DataTern.”

The Court also rejected the argument that the customer lawsuits automatically gave rise to jurisdiction over induced infringement allegations. To establish a substantial case or controversy concerning inducement, the patentee must make sufficient allegations to establish a reasonable potential that the accused inducer took an affirmative act to encourage infringement with the knowledge that the induced acts constituted patent infringement.

The Federal Circuit analyzed the customer claim charts to parse where DataTern based its allegation of direct customer infringement on instructions from Microsoft and SAP in user manuals and documentation. In those instances, where the claim charts specifically indicated that Microsoft and SAP had provided the instructions, the Federal Circuit found DJ jurisdiction. This resulted in DJ jurisdiction for Microsoft in one of two patents and for SAP on both patents.

The Federal Circuit rejected the district court’s reliance on DataTern’s counterclaims, for DJ jurisdiction, or DataTern’s allegations that referenced refusal to grant a covenant not to sue—finding these were post complaint facts that cannot support jurisdiction at the time of the filing of the complaint.

Microsoft also argued that DataTern’s aggressive litigation strategy, including suing more than 100 entities for infringement of the patents-in-suit, supported the existence of a substantial controversy. The Federal Circuit was “sympathetic” to the argument, but noted that DataTern’s litigation strategy focused on suing software users, not suppliers, and that there was no record evidence that Microsoft encouraged the acts that DataTern alleges result in direct infringement.

Judge Rader dissented in part and would have held that the totality of the circumstances supported declaratory judgment jurisdiction over both patents. He argued that the majority improperly reviewed each alleged fact in isolation. Rader argued that Microsoft’s lawsuit would resolve DataTern’s claims in the most efficient manner in a single focused lawsuit. DataTern and other patent licensing plaintiffs “would like to find a way to keep Microsoft and other major corporations on the sidelines while seeking numerous settlements with their customers who cannot afford the cost of a major lawsuit.”

Practice Note: Suppliers may have some opening to bring a declaratory judgment action to resolve cases against their customers, but the facts have to align. In all likelihood Judge Rader is correct and NPEs will use this opinion to carefully avoid supplying the facts needed for declaratory judgment jurisdiction. As noted by the dissent, the majority decision was of “special importance because it shows DataTern and its successors a way to achieve that lucrative objective.”

Design Patents Go to the Dogs: District Court Not Required to Provide an Express Verbal Description of the Claimed Design

Addressing the nature of analyzing primary and secondary references for purposes of determining whether a design patent is obvious, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s summary judgment of invalidity with respect to two ornamental designs of sports jerseys intended to be worn by dogs, finding that the district court did not err by failing to provide an express verbal description of the claimed design. MRC Innovations, Inc. v. Hunter Mfg., LLP, Case No. 13-1433 (Fed. Cir., Apr. 2, 2014) (Prost, J.).

Mark Cohen, the principal shareholder of MRC, is the named inventor on two design patents relating to football and baseball jerseys for dogs. Prior to the suit, Hunter Manufacturing purchased dog jerseys from Cohen and his companies. When Cohen informed Hunter that he would no longer sell to Hunter over payment issues, Hunter sought and found alternative suppliers. Soon after, Cohen, through MRC, sued Hunter for design patent infringement. The district court found the two design patents invalid as obvious on Hunter’s motion for summary judgment. MRC appealed.

MRC argued on appeal that there were significant differences between the primary references and the patented designs. Specifically, Hunter pointed to three distinct differences from the primary reference: a V-neck collar versus a round neck, an interlock fabric panel on the side rather than mesh and ornamental stitching on the back. MRC argued that these differences would have been apparent if the district court had translated the claimed design into an express verbal description.

The Federal Circuit considered whether the claimed design would have been obvious to a designer of ordinary skill, an inquiry which entails combining a primary reference with secondary references. Primary references must be a single reference with “basically the same” characteristics of the claimed design. Determining whether a reference is basically the same requires consideration of the visual impression of the patented design as a whole and may be determined “almost instinctively” by a judge. Citing to its decision in High Point (IP Update, Vol. 16, No. 10), the Court explained that in evaluating a primary reference, the district court must describe the claimed design in words so the parties and appellate courts can determine the district court’s reasoning. The Federal Circuit concluded, however, that this description does not have to be express if the district court is clear in defining the relevant design characteristics.

Here, the Federal Circuit found that the district court’s identification of five similarities and three differences between the claimed design and primary reference was sufficient to paint a clear picture of the claimed design. The Court also agreed that the claimed design created “basically the same” overall visual impression as the primary reference.

The Federal Circuit also addressed MRC’s argument that the district court failed to explain why a designer would combine the primary and secondary references. The Court found that the mere similarity in appearance itself provides the suggestion to combine. Further, the Court found that because all the references were dog jerseys, they fulfilled the requirement that the references be “so related.” The Court rejected MRC’s argument that even if the combination was proper, it did not contain the presence of additional ornamental surge stitching running down the rear of the jersey, finding that this feature was de minimis and would have been obvious in light of the references.

The Federal Circuit further agreed that MRC’s secondary considerations relating to commercial success, copying and acceptance by others did not alter the analysis. MRC failed to provide sufficient evidence and did not demonstrate a nexus between the claimed design and the secondary considerations.

Just How Open Is that Automated Exchange?

Addressing allegations that a lower court made erroneous pretrial rulings regarding the nature of the accused product, the U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s judgment of non-infringement, finding that the lower court did not improperly limit the product that could be accused of infringement. Chicago Board Options Exchange, Inc. v. International Securities Exchange, LLC, Case No. 13-1326 (Fed. Cir., Apr. 7, 2014) (Reyna, J.).

International Securities Exchange (ISE) sued the Chicago Board Options Exchange (CBOE) for infringement of a patent directed to an automated exchange for trading financial instruments. ISE alleged that CBOE’s Hybrid Trading System, which included a fully automated component called CBOEdirect, as well as a manual element that relied on open-outcry aspects of trading, infringed the automated trading patent. CBOE moved for summary judgment of non-infringement, and the district court granted the motion. ISE appealed.

The Federal Circuit reversed the lower court’s finding of non-infringement based on interpretation of certain key claim terms, including “automated exchange,” and remanded the case for further proceedings. (See IP Update, Vol. 15, No. 5.)

On remand, the parties could not agree on the proper jury instruction for the term “automated exchange.” Ultimately, the court issued an instruction, adopting the Federal Circuit’s previous claim construction which required that an automated exchange be fully computerized and does not include manual open-outcry aspects for matching or allocating trades. The district court concluded that the issue for the jury revolved around whether CBOE’s systems included open-outcry aspects. In view of the court’s description of the factual dispute for trial, ISE stipulated to non-infringement and appealed.

In this appeal, ISE argued that the court erred by limiting the scope of the accused product to CBOE’s Hybrid Trading System, which included open-outcry aspects, as opposed to the more narrow CBOEdirect system, which did not.

The Federal Circuit found that the district court’s pretrial rulings were not in error and that the district court correctly framed the factual issue for the jury in requiring a showing by ISE that the accused CBOE system did not include any open-outcry aspects. The Court found that the district court did not improperly limit the accused product to the Hybrid system, but instead “expressly invited ISE” to show that either the Hybrid system as whole, or the more narrow CBOEdirect system infringed the claims. Thus, the Federal Circuit found that in order to prevail, ISE must demonstrate that CBOE direct is separate from the open-outcry aspects of Hybrid. The Court also found that this factual issue was unresolved during the previous appeal. Accordingly, the Court found that allowing the unresolved issue to go to the jury did not violate the Federal Circuit mandate to the district from the prior appeal.

The Federal Circuit also addressed the district court’s ruling that one of the claims (a means plus function claim) was invalid for indefiniteness for failing to disclose corresponding structure. The Court reversed the ruling, finding that “the specification discloses an algorithm for matching the remaining orders on a pro rata basis.” Accordingly, the Court found that the district court erred in finding that there was clear and convincing evidence that the specification did not disclose sufficient corresponding structure.

What Is "a Patient?"

On appeal from summary judgment, the U.S. Court of Appeals for the Federal Circuit construed “a patient” to mean “a population of patients,” overturning the district court’s construction and vacating the infringement ruling. Braintree Labs, Inc. v. Novel Labs, Inc. The dissent would have held the term to mean “one or more patients,” as the district court had determined. Case No. 13-1438 (Fed. Cir., Apr. 22, 2014) (Prost, J.) (Moore, J., dissenting).

This Hatch-Waxman litigation concerns an Abbreviated New Drug Application (ANDA) filed by Novel Laboratories, Inc. (Novel) for a generic version of the SUPREP® Bowel Prep Kit (SUPREP), a product used to purge the bowel prior to colonoscopy. Braintree held a patent that covers SUPREP and sued Novel for infringement. SUPREP’s advantage over other purgatives is that it comprises a relatively small fluid volume but does not cause the life-threatening electrolyte level changes that can occur with other low-volume purgatives. This key trait is embodied in the disputed claim term “wherein the composition does not produce any clinically significant electrolyte shifts.” The district court held that this term is limited by the preambular “a patient,” which it defined as “one or more patients.” Relying on this construction, the district court held that Novel’s generic product infringed.

Novel appealed, arguing that construing “a patient” to mean “one or more” would improperly result in infringement even when 99 out of 100 patients did experience significant electrolyte shifts, as long as at least one did not. Braintree countered that the term “a patient” must mean “one or more,” because to hold otherwise would lead to the incorrect conclusion “that no infringement can occur if SUPREP causes a clinically significant electrolyte shift in a single patient.”

The Federal Circuit agreed with Novel, concluding that the disputed term means “a patient population.” The Court also echoed Novel’s reasoning, stating that to hold otherwise would lead to the “absurd result of infringement even if a composition causes clinically significant electrolyte shifts in a large percentage of patients.” In support, the Court cited to sections of the specification that discussed the product’s performance “in patients” and whether “normal people” tolerated it.

In dissent, Judge Moore argued that precedent held the plain and ordinary meaning of “a patient” is “one or more” when used with “comprising,” as should be the case here: “In the few instances where we have ever deviated from this general rule, we concluded that the intrinsic evidence made it clear that the patentee intended ‘a’ to mean one and only one.” Yet the Court did not point to such definitive evidence or apply such reasoning here. Neither did the Court cite to a clear statement redefining the singular “a patient” as a plural “patient population.” Instead, it tried to avoid the “absurd result” of infringement where a product meets the claim limitations one out of 100 times. While Judge Moore agreed that this was a concern, it “is a question of damages, not infringement.” According to Judge Moore, the Court was improperly rewriting this term to avoid a finding of infringement.

Eastern District of Texas Can’t Keep Every Case Filed There

Granting a defendants’ petition for a writ of mandamus, the U.S. Court of Appeals for the Federal Circuit ordered the U.S. District Court for the Eastern District of Texas to transfer a case filed against Toyota to the U.S. District Court for the Eastern District of Michigan. In re Toyota Motor Corporation, Case No. 14-113 (Fed. Cir., Apr. 3, 2014) (Taranto, J.).

The plaintiff, AVS, is a subsidiary of the patent licensing company Acacia Research. AVS brought the lawsuit in the Eastern District of Texas five months after it was incorporated in the Western District of Texas. Some of the patents at issue are in the same family of patents that were previously litigated in the Eastern District of Michigan.

Defendants Toyota and Gulf States filed motions to sever the claims against the Gulf States defendant from the claims against the remaining Toyota defendants, transfer the resulting action against only Toyota to the U.S. District Court for the Eastern District of Michigan and stay the claims against Gulf States in the Eastern District of Texas pending resolution of the Eastern District of Michigan case. The Eastern District of Texas did not rule on the motions to sever and stay separately from the request to transfer. Rather it focused on whether the standards for transferring the claims against Toyota were met and ruled that they were not, finding that the convenience factors did not indicate that a transfer to the Eastern District of Michigan was warranted. Notably, the court did not find that any transfer factors favored the Eastern District of Texas, several transfer factors favored the Eastern District of Michigan and two factors were neutral. Toyota filed a writ of mandamus of the Federal Circuit.

The Federal Circuit disagreed with the district court’s denial of the request to transfer and found that “the district court’s analysis presents a clear overall picture: nothing favors the transferor forum, whereas several factors favor the transferee forum. The analysis may not show that the transferee forum is far more convenient. But that is not what is required. With nothing on the transferor-forum side of the ledger, the analysis shows that the transferee forum is clearly more convenient.” (Emphasis in original.) The Federal Circuit held that the district court’s denial of the motion to transfer was “a clear abuse of discretion.” The Federal Circuit also ordered the district court to address the motions to sever and stay in light of Toyota’s “clear right to transfer.”

Balancing Venue, Transfer Factors at the Federal Circuit

The U.S. Court of Appeals for the Federal Circuit denied two writs of mandamus filed by defendants requesting the Federal Circuit to direct district courts to transfer patent litigations to other districts. As these were mandamus actions, and the cases were filed in the U.S. District Court for the Eastern District of Texas, the burden on the petitioners was to show that under Federal Circuit test in TS Tech and applying the eight-factor test, the district court’s denial of transfer was so patently erroneous as to amount to a clear abuse of discretion.

In In re Altair Engineering, Inc., Case No. 14-120 (Fed. Cir., Ap. 23, 2014) (Lourie, J.) (non-precedential), the petitioner, Altair, sought a writ of mandamus directing the U.S. District Court for the Eastern District of Texas to transfer its case to the U.S. District Court for the Eastern District of Michigan. While the district court found that the sources of proof factor weighed slightly in favor of transfer, the court denied transfer because there were three then-pending cases in the Eastern District of Texas that involved the same patent and plaintiffs. Accordingly, the Federal Circuit found that the district court properly denied transfer based on the judicial economy of maintaining all four related actions in the same court.

In In re Groupon, Inc., Case No. 14-118 (Fed. Cir., Apr. 23, 2014) (Lourie, J.) (non-precedential), the petitioner, Groupon, sought a writ of mandamus directing the U.S. District Court for the Eastern District of Texas to transfer its case to the U.S. District Court for the Northern District of Illinois. Groupon argued that the bulk of the witnesses were in the Northern District of Illinois and the transferee venue had a stronger local interest. The district court found that the sources of proof factor did not weigh in favor of transfer because plaintiff was headquartered in the Eastern District of Texas, the patented invention was developed in the Eastern District of Texas and multiple witnesses (both plaintiff’s witnesses and third-party witnesses) were located in the Eastern District of Texas. The Federal Circuit found that the district court did not abuse its discretion given that only one more non-party witness was located in the transferee venue than in E.D. Tex.

Pre-AIA Statute Did Not Give Patent Owner in an Ex Parte Reexamination the Right to Bring an Action in District Court *Web Only*

Addressing whether a patent owner involved in a pre-America Invents Act (AIA) ex parte reexamination, could challenge an adverse reexamination decision in a district court action under 35 U.S.C. § 145, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s ruling that it lacked subject matter jurisdiction, finding that § 145 does not authorize a patent owner, in a pre-AIA ex parte reexamination, to bring suit in a district court challenging the Board’s action. In re Teles AG Informationstechnologien, Case No. 12-1297 (Fed. Cir., Apr. 4 2014) (Dyk, J.).

Teles owned a patent directed to a method for transmitting data in a telecommunications network and switch for implementing said method. In 2007, prior to the enactment of the AIA, a third party submitted a petition for ex parte reexamination. During reexamination, the examiner rejected the claims as being obvious over a combination of prior art references. Teles appealed the rejection to the Board of Patent Appeals and Interferences (the Board). The Board affirmed the examiner’s rejection. Teles sought review of the Board’s decision in the United States District Court for the District of Columbia pursuant to § 145. The district court dismissed the case for lack of subject matter jurisdiction, noting that Teles was a patent owner, not a patent applicant, and at the same time transferred the case to the Federal Circuit. Teles appealed.

As an initial matter, the Federal Circuit determined that the district court erred by dismissing the case and then transferring it. After a dismissal, there was nothing to transfer. Regardless, the Federal Circuit reviewed the case as if it had been transferred properly.

Turning to the legislative history of § 145, the Federal Circuit noted the statue was amended in 1999 to state that an applicant dissatisfied with the decision of the Board may, unless appeal has been taken to the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the District Court of Columbia. The Court also noted that, at that same time, Congress (for the first time) amended § 134 to distinguish between “a patent applicant,” “a patent owner,” and “a third party.” Congress also amended § 141 to state “[a] patent owner in any reexamination proceeding dissatisfied with the final decision in an appeal to the Board… under section 134 may appeal the decision only to the United States Court of Appeals for the Federal Circuit.” The Federal Circuit concluded these amendments on their face precluded a patent owner from appealing the Board’s decision to the district court under § 145. Only the Federal Circuit is a proper venue for such an appeal.

The Federal Circuit rejected Teles’ argument that an action to district court by the patent owner was permitted because such an action was not an “appeal.” The Court further rejected the argument that an action in district court was available to a patent owner because another pre-AIA statute, § 306, stated that a patent owner had recourse under § 145 in district court, finding that the § 306 language was a drafting error. Finally, the Federal Circuit noted that during the legislative history of the AIA, Congress recognized the error in § 306 and corrected it in the implementation of the AIA.

The Federal Circuit then turned to the Board’s rejection of Teles’s claims as being obvious. The Court rejected Teles’ argument that the Board’s decision rests on an incorrect claim interpretation. In interpreting the claims, the Board construed the claim recitation “means to produce the control signal” under § 112 ¶ 6 and further agreed with the examiner that the function of producing the control signal requires monitoring factors related to demands of quality. The Board refused to limit those factors to only a bandwidth quality as suggested by Teles.

Teles argued that Board’s claim construction is incorrect in view of the inventive concept defined by the inventor (monitoring the bandwidth of a particular transfer). To this end, Teles argued that the Supreme Court’s decision in Mayo requires that the “inventive concept” of the application be used in the claim construction. The Federal Circuit disagreed, explaining that the Supreme Court in Mayo referred to “inventive concept” only in analyzing whether the claims are directed toward a patentable subject matter and not whether the claims are novel and nonobvious.

Federal Circuit to Review Consideration of Induced Infringement at the ITC En Banc *Web Only*

The U.S. Court of Appeals for the Federal Circuit has granted en banc review in the case of Suprema, Inc. v. International Trade Commission in order to consider whether the ITC has jurisdiction to consider allegations of induced infringement under 35 U.S.C. § 271(b) in situations where there is no direct infringement until after importation. Suprema, Inc. v. International Trade Commission, Case No. 12-1170 (Fed. Cir., May 13, 2014) (non-precedential order).

In the panel decision (IP Update, Vol. 16, No. 12), the Federal Circuit ruled that an exclusion order based on a violation of § 337 may not be predicated on a theory of inducement where direct infringement does not occur until after importation.

Standards and Injunctions Under EU Competition Law

In two decisions issued in April 2014, the European Commission (the Commission) provided further clarification as regards the circumstances in which patentees can seek injunctions to protect their standard-essential patents (SEPs) pursuant to European competition law.

The Samsung Case

In 2012, the Commission raised objections in relation to injunctions that Samsung sought against one of its competitors on the basis of its patents essential to the 3G mobile technology. Although it is legitimate for a patent holder to protect its SEPs through injunctions, the Commission considered the use of such injunctions abusive in this case because Samsung had previously committed to license its SEPs on fair, reasonable and non-discriminatory (FRAND) terms.

In order to remedy these concerns, Samsung offered voluntary commitments, which, in its April 2014 ruling, the Commission rendered legally binding. Specifically, Samsung has committed, for a period of five years, not to seek any injunctions in the European Economic Area (EEA) on the basis of its SEPs for smartphones and tablets against any ‘willing licensee’ who agrees to a specified licensing framework, under which the parties have up to 12 months to reach an agreement, and in case no agreement is reached, any dispute over the determination of the FRAND terms should be decided by a court or by an arbitrator.

The Motorola Mobility Case

The Commission issued a prohibition decision against Motorola, holding that Motorola’s seeking and enforcement of a SEP-based injunction against Apple in Germany constituted an infringement of Article 102 of the Treaty on the Functioning of the EU. The SEPs in this case related to the GPRS standard, an important industry standard for mobile and wireless communications.

The Commission found that, despite Motorola’s prior commitment to license the SEPs on FRAND terms, and the fact that Apple was “willing” to enter into the licence on such terms, the company sought and enforced an injunction against Apple and requested that Apple give up its rights to challenge the validity, essentiality or infringement of Motorola’s patents. The Commission held that such conduct was abusive and that implementers of a standard should be able to challenge the validity of a patent and still be considered willing licensees.

The “Safe Harbor”

The Commission reiterates that “recourse to injunctive relief is generally a legitimate remedy for patent holders in case of patent infringements. (…) The two cases are therefore not about eliminating the use of injunctions by patent holders.” However, the Commission adds that a patentee may be abusing its position of dominance under EU competition law if the SEP holder has given a voluntary commitment to license its SEPs on FRAND terms and the company against whom an injunction is sought is “willing” to enter into a licence agreement on such FRAND terms.

Practice Note: The Samsung and Motorola Mobility cases have created a pro-licensee “safe harbor” from SEP injunctions, under which a licensee can show that it is “willing” by agreeing that a court or an arbitrator shall determine the FRAND terms in case the parties fail to do so bilaterally. The rationale behind such an approach is that it protects the licensee in cases where the SEP holder may be abusing its position of dominance by preventing other companies from entering the market.

Whilst, at first sight, it may seem that the Commission has solved the issue of FRAND-encumbered SEPs and injunctions, in practice these two cases may (in hindsight) have served only to create further questions and uncertainty. In particular, the Commission does not define what constitutes a “willing licensee.” Instead, the regulator argues that this should be determined on a case-by-case basis either by a court or an arbitral tribunal, taking into account the specific circumstances of each case. Whilst it is reasonable to leave this task to a competent judicial body, the Commission has not given any guidance to adjudicators as to how they ought to identify and define willing licensees. Indeed, in the Huawei v. ZTE case that is currently pending before the Court of Justice of the European Union (CJEU), the regional court of Düsseldorf submitted a series of questions relating to the concept of a willing licensee, in particular asking whether abuse of a dominant market position in the SEP licensing context is to be presumed merely as a consequence of the licensee’s willingness to negotiate.

Similarly, the Commission has not provided any explanations as to what constitutes a FRAND royalty rate or, more importantly, how these rates ought to be calculated. Again, the authority believes that such determination should be left to the courts and arbitration tribunals, without however providing them with any guidance to fulfill this task. Such an approach is not only associated with the risk of having divergent judgments and interpretations across the different Member State courts, but also fails to consider the practical implications that will ultimately affect the way businesses plan and structure licensing deals. More specifically, because the Commission is indicating that adjudicators are best placed to determine FRAND royalties, this creates legal uncertainty as companies can no longer rely on themselves to self-assess the potential risks and implications of a technology transaction.

It thus appears that technology companies may confront something of a legal vacuum. Whilst they might look to the courts for further guidance, the courts themselves seem to be waiting for clarifications from the Commission. This begs the question whether antitrust intervention against (similarly sized) innovators that are active in one of the most competitive industries was necessary in the first place.

It seems that the Commission, the domestic courts and national antitrust authorities will likely struggle with these issues for years to come.

Rule of Reason and Market Power

Applying the laws of the U.S. Court of Appeals for the Seventh Circuit in an appeal that no longer contained a patent claim, the U.S. Court of Appeals for the Federal Circuit affirmed the grant of summary judgment on Desotech’s five antitrust claims, tortious interference claims and their claims under the Illinois Uniform Deceptive Trade Practices Act (UDTPA). DSM Desotech Inc. v. 3D Systems, Inc., Case No. 008-1531 (N.D. Ill.), aff’d, Case No. 13-1298 (Fed. Cir., Apr. 18, 2014) (Schall, J.).

DSM Desotech (Desotech) is a manufacturer of resins used in stereolithography (SL) machines, and 3D Systems Corp. (3DS) is a manufacturer of both various models of SL machines and the resins used in those machines. SL machines are a type of “rapid-prototyping technology which construct prototypes specifically by solidifying resin in a cross-section of each layer of a prototype until the design is completed. Other technologies, such as 3D printing, digital light processing and additive or subtractive technologies are also considered to be “rapid-prototyping technology.” While these technologies perform largely the same purpose, they differ in size, speed and accuracy.

The dispute between Desotech and 3DS arose over 3DS’s practice of equipping some of its machines with Radio Frequency Identification (RFID) capability to detect the resin being used in a 3DS SL machine. If the resin was not a 3DS-approved resin, then the machine shut down. While Desotech had two of its resins approved by 3DS, negotiations on the approval of additional Desotech resins broke down. Desotech filed suit, alleging multiple federal and state antitrust claims (including monopolization, attempted monopolization, tying and restraint of trade), state law tortious interference claims and patent infringement.

The district court granted the defendants motion for summary judgment on the antitrust claims, concluding that Desotech had failed to put forth sufficient evidence that either the SL machines or the SL resin constituted an independent market, that 3DS’s conduct was anticompetitive and that Desotech had suffered an antitrust injury. The court also dismissed one of the tortious interference claims. The parties then stipulated to dismissal of the other tortious interference claims and the patent infringement claim and this appeal followed.

On appeal, although a patent claim no longer existed, the Federal Circuit explained that its jurisdiction remained with respect to the remaining claims pursuant to 28 U.S.C. § 1295(a)(1). Further, the Federal Circuit applied 7th Circuit precedent in reviewing the grant of summary judgment, which in this case was a de novo standard.

The Federal Circuit noted that the primary antitrust claims included both per se and rule of reason tying claims. Desotech alleges that 3DS tied sales of resin, the tied product, to sales of SL machines, the tying product. They further contended that 3DS enacted its tying scheme through contracts, which would invoke per se antitrust liability and through its RFID technology (a technological tie), which would invoke rule of reason analysis. To prevail on either claim—and the claims of monopolization, attempted monopolization and restraint of trade— Desotech would need to prove that SL machines constituted an independent product market for antitrust purposes. For the purposes of summary judgment, however, Desotech only needed to put forth sufficient evidence for a reasonable jury to find a distinct product market.

To find a distinct product market in the 7th Circuit, a plaintiff must “set forth economic evidence [such as data and analyses] showing whether products are good substitutes for one another.” Desotech, however, relied on the “practical indicia” of identifying the existence of a product market set forth in the seminal (1962) Supreme Court decision in Brown Shoe: distinct prices, the product’s peculiar characteristics and uses, industry or public recognition of the submarket as a separate economic entity, and sensitivity to price changes. Even though the Federal Circuit eventually explained that the undisputed facts that support these four indicia as alleged by Desotech are not supportive enough of their claim to survive summary judgment, the Court also noted that the district court properly granted summary judgment solely based upon the fact that the 7th Circuit does not accept such practical indicia to prove a market.

Desotech also argued the existence of a distinct product market for SL resin. Under this theory, a manufacturer without power in a primary market may still have power in an aftermarket if the purchase of the primary product “locks in” the customer to purchasing from the manufacturer in the aftermarket. Desotech argued that after purchasing an expensive SL machine from 3DS, a purchaser is unable to switch machines to alternative technologies due to the high cost of switching. The Federal Circuit noted under the 1992 Supreme Court case of Kodak v. Image Tech.Servs., Inc. lock-in theory, only purchasers of the primary market product who were unaware of the lock-in before purchasing the device are relevant to the lock-in analysis. In this case, only seven of 268 customers purchased their SL machines before learning of the RFID lock. The Court determined that since only seven of 268 customers were locked in, there were not substantial number of customers locked in to the product to be able to exert market power. Therefore, because Desotech failed to prove an independent market for SL machines or resins, the Federal Circuit affirmed the district court’s grant of summary judgment.

Supreme Court Keeps Raging Bull Copyright Suit in the Ring

The U.S. Supreme Court of the United States, in a 6-3 ruling, resolved a conflict among the circuits courts, holding that the equitable defense of laches cannot be invoked to preclude a claim for damages that is brought within the Copyright Act’s three-year statute of limitation window under § 507(b). Justice Ginsburg’s majority opinion was joined by Justices Thomas, Alito, Sotomayor and Kagan. The Supreme Court’s analysis focused on the “gap-filling, not legislation-overriding” purpose of laches and addressed the U.S. Court of Appeals for the Ninth Circuit’s failure to recognize that the copyright statute of limitations “itself takes account of delay” because a successful plaintiff can obtain retrospective relief only three years back from the time of suit for each new instance of infringement. Justice Breyer wrote a dissent joined by Chief Justice Roberts and Justice Kennedy. Petrella v. Metro-Goldwyn-Mayer, Inc. et. al., U.S. Case No. 12-1315 (Supr. Ct., May 19, 2014) (Ginsburg, Justice) (Breyer, Justice, dissenting).

Background of the Case

The alleged infringing work at issue is the 1963 copyrighted screenplay for the film Raging Bull. Although Frank Petrella wrote the screenplay (as well as a book and a second screenplay) in cooperation with his longtime friend and the film’s subject, boxer Jake LaMotta, the U.S. copyright registration for the 1963 screenplay listed Frank Petrella as the sole author of the work. In 1976, Frank Petrella assigned his rights (including renewal rights) in the 1963 work to a production company, and subsequently, United Artists Corporation, a subsidiary of defendant Metro-Goldwyn-Mayer Inc. (collectively, MGM), acquired the motion picture rights to Frank Petrella’s book and screenplays.

Under the Copyright Act, works published before 1978 are granted protection for an initial period of 28 years, renewable for a period of up to 67 years. Congress provided that the author’s heirs inherit the renewal rights in a work, and in Stewart v. Abend (1990) the Supreme Court held that if an author who has assigned his rights away “dies before the renewal period, then the assignee may continue to use the original work [to produce a derivate work] only if the author’s successor transfers the renewal rights to the assignee.”

Because Frank Petrella died in 1981, i.e., during the initial term of the copyright in the screenplay, the renewal rights in the work reverted to his heirs. Accordingly, in 1991, Frank Petrella’s daughter, Paula Petrella (Petrella), timely renewed the copyright in the 1963 screenplay, and became the sole owner of the copyright in the work. In 1998, Petrella informed MGM of her ownership of the copyright and for nearly two years, Petrella threatened to take legal action against MGM for any further exploitation of the Raging Bull motion picture, a derivative work of the 1963 screenplay. Despite Petrella’s notice, however, MGM released a new edition of Raging Bull on DVD and Blu-ray formats.

In January 2009, Petrella filed suit for copyright infringement. Because § 507(b) of the Copyright Act provides that “[n]o civil action shall be maintained under the [Act] unless it is commenced within three years after the claim accrued,” Petrella only sought relief for MGM’s infringement of Raging Bull that occurred on or after January 6, 2006.

Citing the 18-year delay between the 1991 renewal of the copyright and Petrella’s commencement of the suit in 2009, MGM moved for summary judgment based on the equitable doctrine of laches. The district court granted MGM’s motion, and the 9th Circuit affirmed the laches-based dismissal, finding that MGM was prejudiced by the delay and noting that Petrella had delayed her claims because the film hadn’t made money in the years prior to the suit.

The Supreme Court Decision

The Supreme Court granted certiorari to resolve a conflict among the circuits on the application of the equitable defense of laches in copyright infringement suits brought within the three-year look-back period prescribed in the Copyright Act.

MGM insisted that the defense of laches must be available to prevent a copyright owner from “sitting still, doing nothing” and waiting to see how an infringer may profit from an investment in a copyright. The Supreme Court, however, stated that it is not problematic for a copyright owner to wait and see whether an infringer’s exploitation of a work undercuts the value of that work so as to determine if the cost of litigation is justified. Thus, the Court found that § 507(b)’s “three-year limitation period … allows a copyright owner to defer suit until she can estimate whether litigation is worth the candle.”

As Justice Ginsberg observed, § 507(b)’s three-year limitation period “coupled to the separate accrual rule” means that a copyright owner might miss out on damages prior to the three-year look-back period, “but her right to prospective injunctive relief should … remain unaltered.”

MGM also argued that a copyright owner’s delay in bringing suit will result in the loss of necessary or useful evidence. Rejecting the argument, the Supreme Court found that Congress must have been aware of that issue when it granted reversionary renewal rights to an author’s heirs to be exercised at a later date. Furthermore, the court found that plaintiffs are equally affected by the potential loss of evidence, as the burden of proving infringement falls on the plaintiff. Finally, the Court explained that the doctrine of equitable estoppel remains available to protect the alleged infringer if the infringer is harmed by a copyright owner’s intentionally misleading representations in delaying suit.

In the end, the Supreme Court held that the lower courts erred in treating laches as a complete bar to Petrella’s copyright infringement suit. Finding that Petrella’s suit was commenced within the bounds of § 507(b), the Court found that Petrella properly notified MGM of her claims before it invested millions of dollars in creating a new edition of Raging Bull and that allowing Petrella’s suit to go forward would put at risk only a fraction of the income that MGM had earned during that period. Moreover, any remedies in this case would not require the destruction of the film nor any hardship on innocent third parties, such as consumers who had purchased copies of the film.

In reversing and remanding the judgment of the Ninth Circuit, however, the Supreme Court held that if Petrella were to prevail on the merits, the district court could take account of Petrella’s delay in commencing suit to determine the appropriate injunctive relief and to assess profits. But, the Court also stated that any delay must be considered in connection with MGM’s early knowledge of Petrella’s claims, the protection that MGM may have achieved through a declaratory judgment action, any protection that MGM received under the separate-accrual rule and the court’s authority to order reasonable injunctive relief.

The Dissent

In his dissent, Justice Breyer argued that the majority’s holding disables the federal courts from addressing laches as an equitable doctrine, regardless of a plaintiff’s delay in bringing a copyright suit. In particular, the dissent focused on the challenges that were created for MGM due to Petrella’s delay in bringing suit, such as the deaths of certain key witnesses and the amount of marketing dollars that MGM spent developing and marketing a new edition of the film.

The dissent also disagreed with the majority’s opinion stating that the doctrine of equitable estoppel is not a suitable substitute for laches, noting that there is “no reason to erase the [laches] doctrine from copyright’s lexicon, not even in respect to limitations periods applicable to damages actions.” As Justice Breyer observed “[l]ong delays do not automatically prove inequity, but, depending on the circumstances, they raise that possibility.”

Copyright Statute of Limitation Trigged on Actual or Constructive Notice

Addressing the issue of accrual of a claim for copyright infringement, the U.S. Court of Appeals for the Second Circuit upheld the lower court’s denial of summary judgment for the defendants, concluding that the statute of limitations under the Copyright Act did not bar the plaintiff’s infringement claims because copyright infringement claims do not accrue until actual or constructive discovery of the infringement. Psihoyos v. John Wiley & Sons, Inc., Case Nos. 12-4874; -5069 (2d Cir., Apr. 4, 2014) (Lohier, J.).

In November 2010, John Wiley & Sons, Inc. (Wiley) discovered its unauthorized use of a pair of photographs taken by professional photographer Louis Psihoyos in several of its textbooks and sought a retroactive licensing arrangement with him. Upon Psihoyos request for full disclosure, Wiley admitted to unauthorized use of two additional photographs. In March 2010, Psihoyos sued Wiley for copyright infringement for publication of eight of his photographs in textbooks from 2005 to 2009. Wiley moved for summary judgment, arguing that many of Psihoyos’s claims were barred by the three-year statute of limitations because they arose from alleged infringements that occurred more than three years prior to the suit.

Section 507(b) of the Copyright Action requires civil actions for copyright infringement to be commenced within three years after the claim accrues. The district court concluded that an infringement claim does not “accrue” until the copyright holder discovers, or with due diligence should have discovered, the infringement (the so‐called “discovery rule”). The court determined that Psihoyos’s infringement claims were not barred by the statute of limitations because Psihoyos did not discover the infringements until 2010, well within three years of filing suit, despite exercising reasonable diligence. Wiley appealed.

The 2d Circuit cited its previous use of discovery rule for copyright claims under § 507(b) and rejected Wiley’s attempts to distinguish those cases on the ground that they involved co‐ownership claims. Wiley urged the Court to adopt an “injury rule” in case of copyright infringement actions relying on TRW, where the Supreme Court had reversed a decision of the U.S. Court of Appeal for the Ninth Circuit, which had employed the discovery rule as a default unless Congress had expressly legislated otherwise. TRW concerned the Fair Credit Reporting Act (FCRA), which provides that the statute of limitations runs from “the date on which the liability arises.” Holding that the text and structure of FCRA evince Congress’ intent to preclude judicial implication of a “discovery” rule for FCRA claims, the Supreme Court concluded that the most natural reading of the FCRA is that Congress implicitly excluded a general discovery rule by explicitly including a more limited one.

The 2d Circuit refused to apply different accrual rules for ownership and infringement claims, both of which are governed by § 507(b). Rather, the 2d Circuit agreed with other circuits which have considered the issue of claim accrual in the context of infringement claims and have found that the text, structure, legislative history and underlying policies of the Copyright Act comport with the use of discovery rule, not the injury rule.

Banana Lady Performance Not Copyrightable

The U.S. Court of Appeals for the Seventh Circuit affirmed the district court’s decision dismissing a copyright infringement claim and holding that the organizers of an event at which plaintiff performed a singing telegram dressed in a banana costume did not infringe or induce infringement of plaintiff’s asserted copyrights because immediately after her performance the organizers told the attendees that photographs of the performance may only be taken for personal use, as permitted by plaintiff. Conrad v. AM Community Credit Union, Case No. 13-2899 (7th Cir., Apr. 14, 2014) (Posner, J.).

The plaintiff, Catherine Conrad (aka the Banana Lady), a singing telegram performer, was hired by the defendant to sing at a trade association event, dressed in a banana costume. Conrad told the arrangers that the members of the audience were not allowed to take photographs or videos of her performance except for their personal use. The arrangers of the event in turn informed the attendees. Photos and videos were taken and the Banana Lady filed suit, alleging infringement of her copyright in her performance.

After the district court dismissed the copyright infringement claim, ruling that Conrad had failed to state a claim, Conrad appealed.

The 7th Circuit affirmed the district court’s decision, concluding that among the deficiencies with Conrad’s infringement claim was that “the performance itself was not copyrighted or even copyrightable, not being fixed in any tangible medium of expression.” Nevertheless, the court proceeded with its analysis stating that “photos and videos made by members of the audience could conceivably have been either reproduction of, or works derivative of the protectable elements of Conrad’s performance, such as the costume.” If so, Conrad would have the exclusive right to create or license reproductions of and derivative works from works that she had validly copyrighted, 17 U.S.C. 106(1), (2). In addition, the Copyright act forbids unauthorized recording of a musical performance, 17 U.S.C. 1101(a), and unauthorized display of copyrighted musical or choreographic work, § 106(5). However, Conrad did not allege that any of those rights had been violated. Also Conrad sued the organizers, not the individual attendees. The organizers could only be liable for inducing infringement, i.e., if they had encouraged the attendees to infringe Conrad’s copyrights. But the organizers had done the opposite by informing attendees not to use videos and photographs they took for anything other than personal use.

The court noted however that although Conrad claimed to have a registered copyright in her banana suit, they doubted that a banana suit could be copyrighted as they were “surprised to discover” that banana suits are a common consumer product.

The court also urged the district court to stop Conrad’s abuses. Conrad’s “abuse of the legal process by incessant filing of frivolous lawsuits” should be stopped, and the court suggested that the lower courts “consider enjoining her from filing further suits until she pays her litigation debts.”

Ninth Circuit Affirms Plaintiff’s Lack of Standing for Failure to List Copyright as Bankruptcy Asset

In a concise, unpublished decision, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s grant of summary judgment in favor of the defendants in a copyright suit on the grounds that the plaintiff lacked standing. Voss v. Knotts et al., Case No. 12-56168 (9th Cir., Apr. 8, 2014) (per curiam).

In his bankruptcy schedules, the plaintiff failed to list the copyright at issue in the case. Thus, the 9th Circuit agreed with the district court and determined that the bankruptcy estate owned the copyright and plaintiff lacked standing to bring the action. The Court found there was “no basis” to substitute in the bankruptcy estate on appeal, and reasoned that “a substitution of parties would not change the fact that the district court did not err” in its holding.

The CJEU Takes Tough Stance on Downloading from Unlawful Sources

Following a reference from the Supreme Court of the Netherlands, the Court of Justice of the European Union (CJEU) held that EU law precludes member states from having national copyright laws that do not distinguish between reproductions for private use made from lawful sources and those made from unlawful sources, irrespective of the availability of effective technical protection measures (TPMs). ACI Adam BV v Stichting de Thuiskopie, Case No. C-435/12 (CJEU 2014).

Background

Under the EU Copyright Directive, member states are permitted to lay down an exception to the exclusive right of a copyright holder to make private copies of a work. Where such exception is provided for in a national law for the benefit of a third person, such third person must provide copyright holders with fair and adequate compensation in return. In the Netherlands, such fair and adequate compensation takes the form of a private copying levy, payable to Stichting de Thuiskopie (Thuiskopie), which then distributes the levy to the rights holder. The amount of the levy is determined by the foundation Stichting Onderhandelingen Thuiskopie (SONT).

The claimants in this case, including ACI Adam, are importers and/or manufacturers of blank data media such as CDs and CD-Rs. They are therefore subject to the Dutch private copying levy. They brought proceedings against Thuiskopie and SONT alleging that the amount of the copying levy had been incorrectly determined as it erroneously took into account harm suffered by copyright holders as a result of copies made from unlawful sources.

The Supreme Court of the Netherlands found that the EU Copyright Directive does not explicitly state whether reproductions made from unlawful sources must be taken into account when determining “fair compensation” and therefore referred three questions to the CJEU. They are summarized as follows:

• Is the exception that is permitted under the EU Copyright Directive limited to reproductions made from lawful sources?
• If that is the case, taking into account the three-stage test set out in the directive, are national laws that do not distinguish between reproductions made from lawful and unlawful sources contrary to the directive or any other rule of law?
• Is this answer affected by the availability of TPMs?

Judgment

The CJEU found that the exception provided under the EU Copyright Directive must be interpreted strictly. This exception is to be applied only in cases which do not conflict with the normal exploitation of the copyright and do not unreasonably prejudice the legitimate interest of the rights holder. The CJEU held that the EU Copyright Directive must be understood “as meaning that the private copying exception admittedly prohibits copyright holders from relying on their exclusive right to authorise or prohibit reproductions with regard to persons who make private copies of their works.” However, this does not mean that copyright holders must tolerate infringements that may accompany the making of private copies. In other words, the private copying exception does not cover reproductions for private use made from unlawful (unlicensed) sources.

The CJEU further found that this interpretation was in line with the underlying objectives of the Copyright Directive. If member states had the option of adopting legislation that allowed reproductions for private use to be made from an unlawful source, the result would clearly be detrimental to the proper functioning of the internal market. Such national legislation would encourage piracy and would unreasonably prejudice copyright holders.

Lastly, the court looked at the “fair compensation” offered to rights holders in the Netherlands. According to the case law of the CJEU, the purpose of such compensation is to compensate copyright holders for private copies made of their protected works without their authorization. The levy system imposed in the Netherlands is not imposed directly on the end users making the copies, but on the manufacturers and importers of data storage media, who may pass on the amount of that levy in the price charged for the product. The burden of that levy is thus ultimately borne by the private user. In this context, the CJEU emphasised that the levy system imposed by a national government must ensure that a fair balance is maintained between the rights and interests of authors (the recipients of the fair compensation) and the rights of the users of the protected subject matter.

The court held that the Dutch legislation failed to respect that balance. The failure to distinguish between lawful and unlawful sources results in a situation where all users who purchase reproduction equipment subject to the levy are indirectly penalized. This is because they bear the burden of the levy that is determined regardless of the lawful or unlawful nature of the reproduction source. They therefore inevitably contribute towards the compensation for the harm caused by reproductions for private use made from an unlawful source. Users therefore find themselves required to bear an additional cost in order to be able to make private copies (a cost that cannot be considered negligible).

Practice Note: The CJEU found that EU law, and more particularly the EU Copyright Directive, prohibits national legislation that fails to distinguish between private copies made from lawful sources and those made from counterfeited or pirated sources. Whether (or not) there exists applicable technological measures to combat the making of unlawful private copies, does not affect that finding.

Director’s Decision on Inter Partes Review Institution Is the Final Word

In three opinions, each addressing a slightly different issue regarding the reviewability of the U.S. Patent and Trademark Office (USPTO) director’s decision on whether or not to institute an inter partes review (IPR), the U.S. Court of Appeals for the Federal Circuit consistently denied requests to review the director’s decision, finding that the Court lacked jurisdiction to hear an appeal from the institution decision and that parties lack a “clear and indisputable right” to challenge it. St. Jude Med., Cardiology Div., Inc. v. Volcano Corp., Case No. 14-1183 (Fed. Cir., Apr. 24, 2014) (Taranto, J.); In re Dominion Dealer Solutions, LLC, Misc. Docket No. 109 (Fed. Cir., Apr. 24, 2014) (Taranto, J.); In re The Procter & Gamble Co., Misc. Docket No. 121 (Fed. Cir., Apr. 24, 2014) (Taranto, J.).

In St. Jude Medical, St. Jude appealed to the Federal Circuit from the USPTO director’s denial of a petition to institute an IPR. The patentee and the Director moved to dismiss the appeal. In analyzing its jurisdiction to hear the appeal, the Federal Circuit explained that an inter partes review consists of two distinct steps: first, the decision on whether to institute the proceeding, which is governed by 35 U.S.C. § 314; and second, the conduct of the proceeding and resultant decision on the merits, which are governed by §§ 316 and 318.

The Federal Circuit explained that the director’s decision at the first step is nonappealable. In reaching its decision, the Court quoted the statute: “The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.”

In Dominion, Dominion’s petition for an IPR, like St. Jude’s, was denied by the director. Dominion petitioned the Federal Circuit to issue a writ of mandamus to order the director to institute an IPR. In denying Dominion’s petition, the Federal Circuit found that Dominion lacked a “clear and indisputable” right to challenge the director’s decision, a prerequisite for mandamus relief. Without deciding the issue, the Federal Circuit noted that Dominion had also challenged the director’s decision in district court and the district court had found that § 314(d) precluded judicial review of the Director’s decision.

Finally, in Procter & Gamble, the Federal Circuit held that the director’s decision to grant a petition for an IPR is similarly ineligible for mandamus relief. Procter & Gamble, like Dominion, had petitioned the Federal Circuit for a writ of mandamus to reverse the director’s decision on institution. The Federal Circuit first noted that, under § 314(d), it lacked jurisdiction to hear an appeal from the director’s decision on institution. Then, as in Dominion, the Federal Circuit found that Procter & Gamble lacked a clear and indisputable right to challenge the Director’s decision, and was thus not entitled to mandamus relief.

Only an Owner of a Patent Can Appeal Final Decisions from the PTAB

Addressing a patent owner’s standing under 35 U.S.C. § 141 to appeal decisions from the United States Patent and Trademark Office’s (PTO) Patent Trial and Appeal Board (PTAB) in an inter partes reexamination proceeding, the U.S. Court of Appeals for the Federal Circuit dismissed an appeal brought by an assignor of all right, title and interest in a patent, finding that a cause of action only lies for the patent owner. Vaillancourt v. Becton Dickinson & Co., Case No. 13-1408 (Fed. Cir. Apr. 24, 2014) (Rader, C.J.).

Appellant Michael Vaillancourt appealed from a PTAB ruling dismissing his request for rehearing of the Board’s earlier decision to affirm the examiner rejections of the claims in an inter partes reexamination. Vaillancourt was the owner of the patent when Becton Dickinson & Company requested an inter partes reexamination. The reexamination resulted in rejections of claims of the patent. Vaillancourt appealed the rejections to the Board. Approximately one year later, while the reexamination appeal was still pending, Vaillancourt assigned “the entire right, title and interest in the patent “including full and exclusive rights to sue upon and otherwise enforce” to VLV. VLV initiated a lawsuit against Becton Dickinson for infringement of the patent. Although Vaillancourt was the sole owner of VLV, it was indisputable that he was no longer an owner of the patent. Eventually, the PTAB affirmed all of the examiner’s rejections. Despite the fact that he was no longer the owner of the patent, Vaillancourt requested a rehearing with the PTAB in his own name. The PTAB denied Vaillancourt’s request to alter the prior affirmance of the examiner’s rejections. Vaillancourt appealed, identifying himself in the notice of appeal as both the patent owner and appellant.

The Federal Circuit dismissed the appeal for lack of a cause of action. The Court found that, under § 141, only a patent owner “dissatisfied with the final decision in an appeal to the Board . . . may appeal the decision only to the United States Court of Appeal for the Federal Circuit.”

Vaillancourt acknowledged that he had assigned his entire right, title, and interest in the patent to VLV, but claimed that he was the sole owner of VLV and therefore was authorized to file the appeal. The Federal Circuit rejected this argument, noting that it carried no weight in the face of the statutory requirement. The owner of the patent was VLV, which did not bring the appeal or appear before the court. Vaillancourt had no cause of action, the Court dismissed his appeal.

It Is “Quite Clear” that USPTO’s Decision Not To Institute an IPR Is “Final and Nonappealable”

Addressing whether a district court has subject matter jurisdiction over a decision to deny an inter partes review made by the United States Patent and Trademark Office (PTO) Patent Trial and Appeal Board (PTAB), the U.S. District Court for the Eastern District of Virginia granted the PTO’s motion to dismiss for lack of subject matter jurisdiction, finding that the language of the pertinent statute is “quite clear” that a determination not to institute an IPR is final and nonappealable. Dominion Dealer Solutions, LLC v. Lee, Civil Action No. 3:13CV699 (E.D. Va., Apr. 18, 2014) (Payne, J.).

Plaintiff Dominion Dealer Solutions (Dominion) was sued in a California district court by AutoAlert, Inc. for allegedly infringing five patents. In response, Dominion filed petitions seeking IPR for those five patents. Dominion also filed a motion to stay the patent infringement litigation in the California district court in view of the pending IPR petitions. The stay was granted “pending final exhaustion of all pending IPR proceedings, including any appeals.” Subsequently, the PTAB denied Dominion’s petitions for IPR. Dominion filed requests for rehearing on its petitions, which were also denied.

Dominion then filed an action in a Virginia district court under the Administrative Procedures Act (APA), alleging that the PTAB’s decisions were arbitrary, capricious, an abuse of discretion and contrary to law. The PTO filed a motion to dismiss for lack of subject matter jurisdiction.

In resolving the PTO’s motion, the Virginia district court interpreted two statutes: the portion of the APA that the Supreme Court has stated “confers a general cause of action” to object judicial review of agency action, and the portion of the Leahy-Smith America Invents Act (AIA) that governs the institution of inter partes review by the PTO.

While recognizing that the APA generally provides the ability to obtain judicial review of agency action, the court noted that the APA does set forth several limitations on the grant of judicial review. One such limitation is when other statutes preclude judicial review. Determining whether and to what extent a particular statute precludes judicial review, courts look at the express language of the statute, as well as the structure of the statutory scheme, its objections, its legislative history and the nature of the administrative action involved. The court found that there is a strong presumption under the APA that Congress intended to permit judicial review of agency actions.

The Virginia district court found that the AIA rebutted the strong presumption, and rejected Dominion’s arguments otherwise. The court found that the wording of the AIA—that “[t]he determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable”—was “quite clear.”

The court rejected Dominion’s argument that its case in Virginia district court was not an appeal, in view of the fact that Dominion made the tactical decision to present its complaint as an “appeal” to avoid triggering the end of the stay in the California district court.

The court also rejected Dominion’s argument that the statute did not preclude an appeal to the Virginia district court of the PTAB’s construction of the relevant legal standards. The court noted that this argument was belied by the legislative history of the AIA, which indicates that Congress intended the AIA and the IPR process to decrease the volume of patent litigation in the federal courts and streamline the patent administration process.

The court further rejected Dominion’s argument that the “final and nonappealable” language only precluded decisions to grant IPR and was not applicable to decisions denying IPR. The court again relied upon the express language of the AIA itself, finding Dominion’s position “clearly untenable.”

First Patents Survive Inter Partes Review Fully Intact

In the past several months, decisions have been rendered in the first wave of inter partes reviews filed under the American Invents Act (AIA). The early IPR decisions of the Patent Trial and Appeal Board (PTAB) have, in general, not been kind to patent owners, with most challenged claims being cancelled. Now, in two related inter partes review (IPR) proceedings, the PTAB found for the patent owner on all grounds of review. ABB Inc. v. ROY-G-BIV Corp., Cases IPR2013-00036 and IPR2013-00282, IPR2013-00074 and IPR2013-00286 (PTAB, Apr. 11, 2014) (Giannetti, APJ.).

ABB filed two separate petitions for review of each of two ROY-G-BIV owned patents. ROY-G-BIV had earlier asserted each against ABB. The patents are both directed to essentially the same technology: a system for facilitating the creation of hardware-independent motion control software. The patents describe a high-level motion control application programming interface (API) made of functions that are correlated with driver functions associated with controlling a mechanical system that generates movement based on a control signal. The object of the invention is to isolate the application programmer from the complexity of hardware devices, which often have a manufacturer-specific motion control command language and functionality that is highly hardware-dependent.

For each patent, ABB filed its second IPR petition after the Board instituted proceedings for the first petition on only one of the eight proposed grounds and on only a subset of the claims challenged. In each of the second petitions, ABB initially asserted additional multiple grounds of invalidity, but then filed a motion to limit the proceeding to obviousness grounds based on a set of prior art common with the first IPR proceeding. After institution of the related proceeding, each initial IPR included a single obviousness ground based on a set of prior art that was common with the related second IPR. The two IPRs for each patent were then joined.

At trial, ROY-G-BIV attempted to ante-date two of the three references that were common to all grounds. For support, the patent owner submitted testimony of its founder, who was also the chairman, chief technical officer and a named co-inventor on both patents. Due to the lack of independent corroborating evidence regarding both conception and diligence, the Board concluded that the patent owner was unsuccessful and that the two references were properly considered prior art.

However, the patent owner also contended that various limitations of the claims, limitations common to the two patents, were not taught or suggested by the core set of prior art references that ABB relied on. The patent owner relied on expert testimony from the author of one of the three core references, an individual who had engaged in research with and co-authored articles with the author of one of the other primary references. Even though ABB countered with the testimony from two experts, the PTAB ultimately found the testimony of the patent owner’s expert to be most persuasive and determined that key limitations were not taught or suggested by the prior art.

Practice Note: It seems the expert testimony relied on by the patent owner that was found by the Board to be most credible was in part a consequence of the fact that the testimony was from an author of one of the petitioner’s prior art references.

Keeping Score at the PTAB

In the final written decisions of five inter partes reviews (IPRs) the Patent Trial and Appeal Board (PTAB) overwhelmingly sided with the petitioner, canceling 124 out of 126 claims under review.

Motorola v. Mobile Scanning

The PTAB cancelled all challenged claims and denied patent owner Mobile Scanning Technologies’ motion to amend the claims. The IPR was instituted on grounds of anticipation and obviousness. The patent in issue disclosed an adapter that would electronically couple to a personal data assistant (PDA) and included a laser or other light source that could be modified into a digital signal to transfer information to the PDA. A significant issue raised during claim construction was the construction of the term “personal data assistant.” Mobile Scanning argued for a construction that included synchronization functionality between the PDA and a host computer. However, the Board noted that Mobile Scanning did not cite to any disclosure in the patent specification that supported importing a synchronization function into the claims, nor did the patent owner provide any support for its proposed definition of synchronization. The Board thus refused to limit the claims to a device capable of performing a synchronization function. The Board further denied Mobile Scanning’s motion to amend on the basis that the proposed amendments were neither supported by the written description, nor did they add patentable subject matter. Motorola Solutions, Inc. v. Mobile Scanning Techs., LLC, IPR No. IPR2013-00093 (PTAB, Apr. 24, 2014) (McNamara, APJ).

Adidas v. Nike

The PTAB granted the portion patent owner Nike’s motion to amend that requested cancellation of 46 challenged claims, but denied the portion requesting the substitution of four new claims. The IPR was instituted on grounds of anticipation and obviousness. The patent related to articles of footwear having a textile “upper,” which is secured to a sole structure. In its decision, the Board noted that an inter partes review is more adjudicatory than examinational in nature, and as such the patent owner bears the burden of establishing that it is entitled to the relief requested (in terms of a motion to amend). Nike argued that the proposed substituted claims were patentable over all known prior art, including prior art known to Nike. Further, Nike argued that substitution of the four new claims was proper because the new claims did not enlarge the scope of the original claims. While the Board was persuaded that Nike’s substituted claims did not enlarge the scope of the original claims, it nevertheless denied substitution of the new claims concluding they were not patentable over prior art. In doing so the Board acknowledged that the patents found to be prior art were not cited during the prosecution history of the Nike patent. The Board remarked that conclusory statements such as “and other prior art known to Nike” are facially inadequate to demonstrate patentability. Adidas AG v. NIKE, Inc., IPR No. IPR2013-00067, (PTAB, Apr. 28, 2014) (Arpin, APJ).

Practice Note: IPR2013-00067 is a relatively rare example of an inter partes review not associated with any companion litigation.

Berk-Tek v. Belden

The PTAB cancelled all but two of the 77 challenged claims in these three IPRs. The patents in issue related to high performance data cables utilized in communication systems, which ostensibly reduce crosstalk. Berk-Tek LLC v. Belden Techs. Inc., IPR No. IPR2013-00058, (PTAB, Apr. 28, 2014) (Kauffman, APJ); Berk-Tek LLC v. Belden Techs. Inc., IPR No. IPR2013-00059, (PTAB, Apr. 28, 2014) (Kauffman, APJ); Berk-Tek LLC v. Belden Techs. Inc., IPR No. IPR2013-00069, (PTAB, Apr. 28, 2014) (Kauffman, APJ).

Practice Note: On March 18, 2014, the Board also cancelled four of the six challenged claims of another of Belden’s high performance data cable patents. In IPR2013-00057, the Board spared the two surviving claims because the petitioner was deemed to have provided insufficient reason why a person of ordinary skill in the art would have combined prior art teachings.

Munchkin, Inc. v. Luv N’ Care, Ltd.

The PTAB found the sole claim of design patent owner Luv N’ Care’s patent to be unpatentable as obvious over its own prior art, and denied Luv N’ Care’s motion to amend the patent claim. The patent in question claimed a design for a child’s “sippy cup” and was asserted in a district court action. In its obviousness determination, the Board focused on two prior art designs of Luv N’Care. Luv N’ Care did not argue that its patent claim was distinct from those designs, but rather that the designs were not prior art at all. However, the Board determined that the challenged patent did not reasonably convey to those skilled in the art that the inventor had possession of the claimed design, because of differences in the design of the spout, and that the underlying application was therefore not entitled to the filing date of the earliest claimed priority application. Therefore the cancelled claim was found to be obvious in light of the earlier design. Further, the Board found that the patent owner’s proposed amended claim sought to enlarge the scope of the original claim, and the motion to amend the patent was subsequently denied. Munchkin, Inc. and Toys “R” Us, Inc. v. Luv N’ Care, Ltd., IPR No. IPR2013-00072, (PTAB, Apr. 21, 2014) (Fitzpatrick, APJ).

Practice Note: The patent owner, in moving to amend its patent claim, effectively argued that the proposed amended claim was not broader than the issued claim because “to an ordinary observer” the design would appear “substantially the same.” The PTAB definitively rejected Luv N’ Care’s argument, observing that it was unaware of “any authority that has applied the ‘ordinary observer’ test” to compare the scope of two design patent claims.

Battle of the ANDROIDS

In a decision that provides useful guidance on what constitutes abandonment, the U.S. Court of Appeals for the Seventh Circuit upheld a district court ruling that Google did not infringe on a third party’s alleged rights in the mark ANDROID DATA after the mark had been abandoned based on non-use. Erich Specht, et al., v. Google, Inc., Case No. 11-3317 (7th Cir., Apr 4, 2014) (Rovner, J.).

In 1998, Erich Specht started using the ANDROID DATA trademark in connection with a business that licensed his e-commerce software and offered website hosting and design services, as well as computer consulting services. He filed a trademark application for the ANDROID DATA trademark, and the registration issued in 2002—just as Specht’s business started winding down. After 2002, his use of the ANDROID DATA trademark was extremely limited. Specht kept his phone service for the company until 2003, he kept his website at androiddata.com until 2005, and he only made a handful of attempts to use of the mark after 2005.

During this time, another company, Android, Inc., started developing the Android operating system. Google purchased Android, Inc., in 2005 and released a public beta of the Android software in 2007. After this beta release, use of the Android platform grew, and Google filed an application to register the ANDROID trademark. The U.S. Patent and Trademark Office rejected Google’s application, based on Specht’s prior registration for ANDROID DATA.

Specht then sued Google for federal trademark infringement, federal unfair competition, common law trademark infringement and violation of the Illinois Deceptive Trade Practices Act, all based on Google’s use of the ANDROID trademark. Google responded with counterclaims seeking a declaration that Specht had abandoned the ANDROID DATA mark and asking the district court to cancel the ANDROID DATA trademark registration. On summary judgment decision, the district court found that the ANDROID DATA mark had been abandoned based on non-use without any intent to resume use and cancelled Specht’s trademark registration. Specht appealed.

In affirming the district court, the 7th Circuit explained that use of a trademark is discontinued with no intent to resume use, a trademark owner forfeits its rights and the trademark is considered abandoned. According to the Lanham Act, “[n]onuse for three consecutive years shall be prima facie evidence of abandonment.” Here, the court agreed that Specht’s sporadic use of the ANDROID DATA mark after 2002 did not constitute bona fide trademark use of the mark, and Specht had already abandoned the ANDROID DATA trademark when Google started using ANDROID in commerce in 2007.

The appellate court also confirmed that the district court had the authority to cancel a trademark registration, explaining that where “a registrant’s asserted rights to a mark are shown to be invalid, cancellation is not merely appropriate, it is the best course.”

Practice Note: The decision includes a useful discussion of certain acts that will not constitute trademark use. In particular, Specht’s efforts to sell the assets of his business, his operation of a website bearing the ANDROID DATA trademark (without providing any goods or services) and his “sporadic attempts to solicit business” through an unsuccessful mass mailing and a failed bid to license software to a third party were all insufficient to show continued use of the mark.