IP Update, Vol. 19, No. 5

Federal Circuit Confirms Broadening of Standard for Divided Infringement

In an opinion addressing divided infringement in view of the Supreme Court of the United States’ 2014 decision in Limelight Networks v. Akamai Technologies (IP Update, Vol. 17, No. 6) and the US Court of Appeals for the Federal Circuit’s subsequent revision of the applicable law on remand, the Federal Circuit vacated the district court’s finding of no infringement and remanded the case for further proceedings. Mankes v. Vivid Seats Ltd., Case Nos. 15-1500; -1501 (Fed. Cir., Apr. 22, 2016) (Taranto, J).

Mankes sued Vivid Seats for infringement of Mankes’s patent claiming an internet-based reservation system. Because it was undisputed that no one person performs all of the steps of the method claims at issue, Mankes’s infringement case depended on the law regarding divided infringement. In early 2015, the district court concluded that Mankes’s allegations were insufficient to establish direct infringement under § 271(a) and granted judgment on the pleadings to the defendants. Mankes appealed.

During the briefing on the merits appeal, the legal standards applied by the district court were altered by the Federal Circuit’s en banc opinion in Akamai Technologies v. Limelight Networks, which broadened the standard for divided infringement by relaxing the standard for attribution (IP Update, Vol. 18, No. 6). Under the old law, the district court found that Mankes had not alleged sufficient facts attributing the actions of local venues to those of the defendants, because Mankes had not alleged that the local venues were the defendants’ agents or were required by the defendants to take the particular actions that constituted the performance of steps. In Akamai, however, the Federal Circuit enumerated additional circumstances in which others’ acts may be attributed to an accused infringer to support direct infringement liability for divided infringement. In particular, the Federal Circuit articulated a standard that permits liability “when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance.”

In view of Akamai’s revision to the standards governing direct infringement, the Federal Circuit remanded the case to the district court. The panel recognized that when governing legal standards change during an appeal, it may be appropriate to remand the case for consideration under the new standards. The Federal Circuit further found that Mankes should have the opportunity to amend his complaint based on the new articulation of the divided-infringement standard.

Equitable Estoppel as Defense Against Non-Practicing Entities

In a decision strengthening the rights of defendants accused of infringement by non-practicing entities (NPEs), the US Court of Appeals for the Federal Circuit applied equitable estoppel to dismiss a suit based on the actions of an NPE’s predecessor-in-interest. The Federal Circuit found that the predecessor-in-interest’s business relationship with the defendant estopped the assignee NPE from pursuing its suit. High Point SARL v. Sprint Nextel Corp., Case No. 15-1298 (Fed. Cir., Apr. 5, 2016) (Reyna, J).

The patents-in-suit cover code division multiple access (CDMA) protocols, a method of sharing cell phone base stations among multiple users that saw widespread adoption across the United States. AT&T originally developed the patents. In 1996, AT&T spun off Lucent as a separate company and included the patents in that transaction. In 2000, Lucent spun off another company, Avaya, again including the patents. Eight years later, Avaya sold the patents to High Point.

The defendant, Sprint, had been working on CDMA networks since at least 1995, when it met with AT&T, among others, to discuss building an interoperable CDMA network for many different companies’ devices. In 1998 and 2000, Sprint, Lucent and Nortel had further discussions about building an interoperable network and entered into a series of cross-licensing agreements to develop their CDMA networks. Over time, as the networks expanded, these cross-licenses expired or failed to fully cover the networks. Nevertheless, Sprint continued building out its network using unlicensed telecom equipment from Samsung, Nortel and Motorola. As early as 2001, Sprint began using unlicensed equipment from Samsung in Puerto Rico, with other instances of unlicensed equipment being used in 2004 and 2008. At the end of 2008, High Point sued Sprint on the patents based on these unlicensed expansions.

Sprint raised the defense of equitable estoppel, which requires proof of three elements: misleading conduct by the patentee, reliance by the accused infringer, and prejudice to the accused infringer. Sprint’s argument was based on the discussions about building interoperable networks and the cross-licenses, combined with Avaya’s failure to sue on the patents-in-suit despite the seven years of alleged infringement. High Point countered that much of Sprint’s unlicensed equipment from Samsung and Motorola was never subject to a license or an interoperability agreement, so those discussions should be considered irrelevant. After the district court sided with Sprint, High Point appealed.

The Federal Circuit affirmed, noting that the combination of interoperability discussions and licensing, in addition to the years of silence on the alleged infringement, constituted misleading conduct upon which Sprint was entitled to rely. The Court further found that Sprint experienced both economic and evidentiary prejudice as a result of this reliance. The economic prejudice came from Sprint’s investment of billions of dollars in building its network, and the evidentiary prejudice arose from fading or lost information about the patents’ inventors.

Practice Note: It is important to always check the provenance of an asserted patent; conduct by prior owners can give rise to an equitable estoppel defense.

Once Again, Genetic Diagnostic Claims Found Unpatentable Under § 101

In a case relating to methods of detecting genetic variations, the US Court of Appeals for the Federal Circuit upheld the lower court’s dismissal under Fed. R. Civ. P. 12(b)(6) on the grounds that the claims are directed to patent ineligible subject matter. Genetic Tech. Ltd. v. Merial LLC, Case Nos. 15-1202; -1203 (Fed. Cir., Apr. 8, 2016) (Dyk, J).

Genetic Technologies’ patent claims methods of detecting a gene sequence that codes for a protein (a so-called coding sequence) in an indirect fashion, i.e., by detecting a separate region that does not code for a protein (a non-coding sequence) but happens to be genetically linked to the coding sequence (a phenomenon called linkage disequilibrium). The claims are not specific to any particular DNA coding or non-coding sequence, but are generic to the biological phenomenon that linkage disequilibrium can be used to perform such indirect detection of any DNA coding sequence. The district court granted defendants’ motion to dismiss for failure to state a claim on the grounds that the claims are drawn to non-eligible subject matter under 35 USC § 101. Genetic Technologies appealed.

Applying the two-step framework set forth in Mayo and Alice, the Federal Circuit first found that the claims are drawn to the law of nature exception (§ 101) and that linkage disequilibrium “is indisputably a universal, inherent feature of human DNA.” Because the claims are not limited in scope to any particular genes or DNA sequences, the patent “covers essentially all applications, via standard experimental techniques, of the law of linkage disequilibrium to the problem of detecting coding sequences of DNA.” Thus, the Court concluded that the claims are “directed to a natural law—the principle that certain non-coding and coding sequences are in linkage disequilibrium with one another.”

The Court then applied step two of the Mayo/Alice framework but did not find a sufficient “inventive concept” to render the claims patent eligible under § 101. Although the claims recite two implementation steps—“amplifying genomic DNA with a primer pair” and “analyzing the amplified DNA sequence to detect the allele”—the evidence showed that both steps were indisputably and clearly “well-known, routine, and conventional.” The Court found that the step of analyzing was nothing more than a mental process step, and further noted that even Genetic Technologies, during prosecution and in its specification, admitted that it did not invent any new physical techniques, but instead had discovered the biological phenomenon.

Practice Note: The Federal Circuit’s decision appears to be consistent with the framework and logic set forth in Mayo, Alice and the new life sciences subject matter eligibility examples issued by the US Patent and Trademark Office (see this issue’s article on the new examples for more information). The final word on application of this framework to life sciences inventions may soon be determined as a consequence of the pending certiorari petition in Ariosa v. Sequenom.

Federal Circuit Preserves Status Quo for Venue in Patent Cases

In a strongly worded opinion, the US Court of Appeals for the Federal Circuit denied a petition for a writ of mandamus and rejected arguments that Congress intended that a defendant accused of patent infringement be deemed to “reside” in its place of incorporation. In Re: TC Heartland LLC, Case No. 16-105 (Fed. Cir., Apr. 29, 2016) (Moore, J). In the absence of additional legislation, venue in patent cases is proper in any district where the defendant makes sales.

Kraft Foods Group accused TC Heartland of infringing Kraft’s patents based on sales of liquid water-enhancer products. Kraft brought the suit in Delaware, but Heartland moved to either dismiss the action or transfer venue to the Southern District of Indiana, where Heartland has its primary place of business. Although Heartland contended that it had no local presence in Delaware, the evidence established that Heartland shipped orders of the accused products into Delaware. The district court rejected Heartland’s theory that it did not “reside” in Delaware for venue purposes according to 28 USC § 1400(b) and also rejected the contention that the court in Delaware lacked specific personal jurisdiction.

After the district court’s denial of the request to dismiss or transfer, Heartland filed a petition for a writ of mandamus at the Federal Circuit. The majority of the amicus briefing that the petition attracted was directed to the impact the decision would have on filings in the Eastern District of Texas—the district court attracting by far the highest volume of patent filings.

The Federal Circuit’s venue analysis turned on the applicability of long-established precedent and an absence of evidence that Congress intended to overrule prevailing law. In 1990, the Federal Circuit held in VE Holding v. Johnson Gas Appliance that definition of corporate residence in the general venue statute (28 USC § 1391) applies to the patent-focused venue statute (§ 1400). Following this ruling, district courts uniformly adopted a broad understanding of “corporate residence” in patent cases. In 2011, Congress amended § 1391, subsections (a) and (c), changing the language preceding the definition of “corporate residence” from “For the purposes of venue under this chapter” to “For all venue purposes.” Heartland argued that with this change, Congress intended to alter the definition of corporate residence so as to nullify the effect of the Federal Circuit’s ruling in VE Holding.

Finding Heartland’s argument to be “utterly without merit or logic,” the Federal Circuit emphasized the lack of evidence supporting the view that Congress intended, through amendments in 2011, to codify Supreme Court of the United States precedent regarding the patent venue statute from 1957. To the contrary, the Federal Circuit pointed out that congressional reports over the years have consistently recognized that the broad understanding of corporate residence articulated in VE Holding is prevailing law. The Federal Circuit was similarly dismissive of Heartland’s arguments that it was not subject to specific personal jurisdiction, finding that Kraft’s infringement allegations were sufficiently related to shipments of accused product to Delaware.

Practice Note: Now that the Federal Circuit has declined to reinterpret the existing statutes governing venue in patent cases, any change in in the status quo would likely require congressional action. The Venue Equity and Non-Uniformity Elimination Act of 2016 remains pending in the Senate but has a low probability of passing before the upcoming presidential election. The bill would limit patent suits to courts more closely related to defendants or to the development of the patented technology. As recently as May 13, 2016, Senate Judiciary Committee Chairman Chuck Grassley (R-IA) confirmed that he does not plan to act on the bill, indicating that he will instead direct Congress towards more comprehensive patent reform efforts.

For a similar ruling, see Script Security Solutions v. Amazon.com (E.D. Tex.) (Bryson, J, sitting by designation) (IP Update, Vol. 19, No. 4).

Substantial Evidence or Clear Error? Aligning the Standard of Review for IPR Appeals

Denying Merck’s petition for rehearing en banc, the US Court of Appeals for the Federal Circuit refused to decide whether a more searching standard of review (i.e., clear error) is necessary for appeals from inter partes review proceedings. Merck & Cie v. Gnosis S.P.A., et al., Case No. 14-1779 (Fed. Cir., Apr. 26, 2016) (Gnosis I) (per curiam) (O’Malley, Wallach and Stoll, JJ, concurring) (Newman, J, dissenting). The Court refused rehearing of its panel decision affirming the finding by the Patent Trial and Appeal Board (PTAB or Board) of invalidity in an inter partes review (IPR).

In their concurrence to the denial of en banc review, three Federal Circuit judges acknowledged that the current “substantial evidence” standard is seemingly inconsistent with the purpose and content of the America Invents Act (AIA). Nevertheless, they expressed their belief that the Federal Circuit lacks authority to alter the standard of review for Board decisions, and that such is instead a question for Congress. Citing Gartside, the concurring judges noted that the Federal Circuit has consistently reviewed the Board’s factual findings, including in IPRs, for substantial evidence. Considering the intent of the AIA, however, the judges explained that Congress in effect created an adjudicative process involving a petitioner, a respondent and a merits proceeding that results in a resolution by administrative judges. Congress also intended IPR proceedings to be a cost-efficient substitute for federal district court litigation.

To the concurring judges, the question of review standard turns on whether Congress intended for IPR proceedings to replace district court litigation. In its Zurko decision, the Supreme Court of the United States refers to “clear error” review as the standard for “court/court” review, and to other standards of review contemplated by the Administrative Procedure Act as “court/agency” review. Under Zurko, if Congress meant to create an adversary, party-instituted proceeding to consider what would otherwise be considered by a district court, then review of a patentability decision in an IPR would be more like court/court review.

To support the notion that IPR examinations are “different in character” than other agency proceedings, such as inter partes reexaminations, the concurring judges noted that IPRs are reviewed in the first instance by three technically trained administrative patent judges (APJs) from the Board. Once instituted, the Board oversees various discovery obligations and hears oral argument. While Congress did not expressly state that IPRs were meant to be a direct substitute for district court proceedings, it enacted substantive and procedural changes that brought IPR proceedings in line with district court proceedings. Being bound by Zurko, however, the concurring judges felt compelled to review factual findings of the Board for substantial evidence, unless and until Congress or the Supreme Court expressly changes the standard.

In dissent, Judge Newman explained that en banc review is necessary to realign the appellate standard of review with the statutory purpose of the AIA. Newman noted her appreciation that a petitioner’s allegations of invalidity on the grounds of §§ 102 and 103 can lead to Board proceedings similar to trial in district courts, with discovery, evidence, testimony, briefs, hearings and a written decision. Board decisions can be appealed to the Federal Circuit but not reviewed by a district court. She noted that under the AIA, a final decision results in an estoppel against the petitioner from ensuing any litigation. This result carries significant consequences not only for the patent owner, but also for the petitioner. Judge Newman voiced particular concern about the Federal Circuit adopting a highly deferential standard of review for Board decisions, rather than the full and fair review that she believes aligns with the purpose of the AIA.

Judge Newman contended that precedent does not prohibit objective review of Board decisions, arguing that where Congress creates a new tribunal with the authority to substitute for district court actions, Zurko restrictions do not necessarily apply. She further argued that the AIA was designed to provide an “efficient and economical surrogate” for a district court’s determination of patent invalidity, as well as to bind and estop petitioners in any infringement proceedings. In her view, the substantial evidence standard does not conform to the statutory plan of the AIA, since Board proceedings provide a substitute for district court proceedings, and since access to a district court for review is eliminated. Judge Newman argued that given the substantive consequences, it is not reasonable to infer that the legislative intent was to apply the more deferential appealable review of correctness and clear error.

In South Alabama Medical Science Foundation v. Gnosis (Gnosis II), a companion appeal to Gnosis I, the petitioner sought en banc rehearing for the same reasons set forth by Merck & Cie in its petition. Judges O’Malley, Wallach and Stoll concurred in the denial, while Judge Newman dissented for the same reasons as in Gnosis I.

Patent Specification Trumps Claim Construction Canon in High-Stakes Reversal

Reversing a denial of judgment as a matter of law and vacating an $85 million jury verdict for patent infringement, the US Court of Appeals for the Federal Circuit held that a district court erred in its construction of two disputed claims terms and that no reasonable juror could find infringement under the correct construction. SimpleAir Inc. v. Google, Inc., Case Nos. 15-1251; -1253 (Fed. Cir., Apr. 1, 2016) (Wallach, J).

At trial, a jury found that Google infringed four asserted claims of a patent directed to a system and method for data communication connecting online networks with online and offline computers. The patent describes a system with both wired and wireless communications where the wireless system broadcasts “notification centric information.” For example, a notification can alert a user (via a wireless receiving device connected to a personal computer) that an email message has been received. The user then causes the computer to make a wired internet connection via a preferred browser to the internet to retrieve the message.

Each of the asserted claims requires the step of “instantaneously notifying said devices of receipt of said preprocessed data whether said computing devices are online or offline from a data channel associated with each device” (emphasis in original). The parties disagreed on the appropriate construction of the terms “data channel” and “whether said computing devices are online or offline from a data channel associated with each device.” The term “data channel” appears only in the claims and was added by prosecution amendment.

Google argued that the description of being either “online or offline” referred to the status of the wired internet connection, which is distinct from the separate connection directed to the wireless receiving device. As a result, Google further argued that a person of ordinary skill in the art would understand that the “data channel” of the claims referred to an internet connection that was separate from a channel used to receive notifications. It was uncontested that Google’s system relied on a single connection for both the internet connection and receiving notifications.

The patent owner argued that “data channel” was a well-understood term with different meanings depending on context. Siding with the patent owner, the district court provided a broad construction that relied on a reference to the term “data feeds” in the specification, which the patent owner argued was another way to convey the concept of data channel. The district court supported its construction by noting that Google’s construction would have rendered some of the claim language redundant.

On appeal, the Federal Circuit explained that the preference for giving meaning to all claim terms is not an inflexible rule that supersedes all other principles of claim construction, and that the claims must always be read in light of the entire patent specification. Citing multiple portions of the specification, the Court concluded that the data channel from which the device is “offline” must be different from the communication path used to receive notifications. The Court rejected the comparison of “data channel” to “data feeds,” providing support from the specification that the terms were used to describe different aspects of the invention. The Court found that the use of both “data feeds” and “data channel” in the patent’s claims also indicated that the inventor intended to use them differently.

The author is actively engaged in representation of matters for one of the defendant/appellants.

Claim Differentiation Should Not Contradict Specification

In the context of addressing claim construction issues, the US Court of Appeals for the Federal Circuit explained that the district court correctly declined to rely on the “plain and ordinary meaning” where the parties had a genuine dispute regarding claim scope, and that it is not appropriate to rely on the doctrine of claim differentiation where such reliance ignores the specification and excludes the preferred embodiment. Clare v. Chrysler Group LLC, Case No. 15-1999 (Fed. Cir., Mar. 31, 2016) (Moore, J).

The plaintiffs own two patents directed to a hidden storage compartment in the bed of a pickup truck that was designed to add storage without substantially altering the truck’s external appearance. According to the patents, the only visible modifications to the disclosed truck are two vertical lines in an external side panel. The hinge and latch of the hidden storage compartment are not visible from the exterior of the truck. The plaintiffs sued Chrysler for infringement of these two patents.

At issue are two claim limitations related to the external appearance of the truck, which the district court and the parties characterized as the “external appearance limitations.” The district court construed these limitations the same way, to mean that “the hinge portion is constructed such that the storage box is not obvious from the outward appearance of the pickup truck.” After the district court granted the defendant summary judgment, finding that the defendant’s accused truck includes a hinged panel that is clearly visible from the exterior of the truck, which makes the location of the storage box on the truck visually apparent, the plaintiffs appealed.

On appeal, plaintiffs argued, among other things, (1) that the district court should not have construed the disputed limitations, because their meaning was readily apparent to a lay person, and (2) that the district court erred by giving two different claim limitations the same construction.

The Federal Circuit was not persuaded. As to the first issue, the Court explained that “[a]lthough those words may be readily apparent to a lay person there existed a fundamental dispute regarding the scope of those limitations.” With respect to the second issue, plaintiffs noted that one of the disputed external appearance limitations required the pickup truck to have “an external appearance of a conventional pickup truck,” while the second limitation required the pickup truck to have “substantially” the same external appearance. According to the plaintiffs, based on the doctrine of claim differentiation, it was not proper for the district court to ignore the word “substantial” in the claim limitation. The Court explained that in this case, differentiating between the two sets of claim limitations would result in the exclusion of the specification’s description of the invention and the preferred embodiment. Here, based on the description of the invention in the specification, the Court concluded that a person of ordinary skill in the art would understand the two sets of limitations to have the same meaning.

Having affirmed the district court’s claim construction, the Federal Circuit also affirmed the summary judgment of no infringement, agreeing “that no reasonable juror could find that the hinged portion of the RamBox’s storage compartment was not obvious from the outward appearance of the accused trucks.”

Even Broadest Reasonable Interpretation Must Be Anchored in Specification

Addressing claim construction issues in the context of an ex parte reexamination, the US Court of Appeals for the Federal Circuit rejected the Patent Trial and Appeal Board’s (PTAB’s or Board’s) construction as unreasonable for failing to account for the disclosure of the specification, reversed the Board’s anticipation rejections and remanded the case with respect to certain obviousness rejections. In re: Man Mach. Interface Techs. LLC, Case No. 15-1562 (Fed. Cir., Apr. 19, 2016) (Stoll, J).

Man Machine owns a patent directed to a television or computer remote control with a multi-function thumb switch. A third party requested ex parte reexamination of the patent. In the ensuing reexamination, the examiner rejected the claims as both anticipated and obvious, relying on prior art directed to, among other things, a desktop mouse. The examiner construed the claim term “adapted to be held by the human hand” to include various “forms of grasp or grasping by a user’s hand,” such as the grasping of a desktop mouse. Further, the examiner construed the claim term “thumb switch” to “merely require that a switch . . . be capable of being enabled/activated by a thumb . . . not preclude[ing] another digit, i.e., index finger.” After the Board affirmed the examiner’s broad claim construction and rejections, Man Machine appealed.

The Federal Circuit concluded that although the claims should be given their broadest reasonable interpretation during a reexamination, such interpretation must still be reasonable in light of the claims and specification. In this case, the term “adapted to” narrowed the claim scope to a device made to be held in the human hand and having a switch designed for activation by a human thumb. The specification clearly describes a remote that is elongated and rounded so as to be held in a hand with the fingers positioned such that the “thumb switch” is operated by the thumb. The specification also repeatedly identifies the thumb switch as being designed for and operated by the thumb because of the amount of pressure it can provide. Moreover, the specification explicitly distinguishes the claimed remote from a desktop mouse and touts the benefits of the claimed remote for its ease of use. The Federal Circuit explained that the broadest reasonable interpretation cannot include that which is expressly disclaimed in the specification. Therefore, the Federal Circuit concluded that the claimed remote control “adapted to be held by a human hand” did not include a desktop mouse, and that the claimed “thumb switch” must be made or designed for a human thumb.

Under this narrower claim construction, the desktop mouse prior art was now inapposite, and therefore the Federal Circuit reversed the Board’s anticipation rejection. However, the Federal Circuit affirmed the obviousness rejections for a number of claims, where one prior art reference disclosed a remote control held by a hand and a second prior art reference disclosed a switch adapted for use by a thumb. The remaining obviousness rejections were vacated and remanded because neither party introduced arguments beyond challenging the claim construction on appeal.

Practice Note: The Supreme Court of the United States in Cuozzo Speed Technologies v. Lee (IP Update, Vol. 19, No. 1) (discussing the certiorari petition) will soon address the general question of the appropriate claim construction standard to be applied by the Board during post-grant proceedings under the America Invents Act. A decision is expected by the end of June 2016.

Design Patent Claim Construction Must Focus on Overall Design, Not Simply Nonfunctional Elements

Addressing claim construction issues in the context of a design patent, the US Court of Appeals for the Federal Circuit reversed the district court’s construction, finding that it failed to account for the overall ornamentation of the design. Sport Dimension, Inc. v. The Coleman Company, Inc., Case No. 15-1553 (Fed. Cir., Apr. 19, 2016) (Moore, J).

The design patent at issue related to a personal flotation device. The district court determined that the Coleman Company’s flotation device featured an armband and torso tapering that represented the best available design for a personal flotation device. The district court also looked to a related utility patent filed by Coleman in ultimately determining that the armband and torso tapering were functional elements. Having determined that the elements were functional, the district court eliminated the armbands and side torso tapering from the claim scope entirely. Coleman appealed.

Citing Ethicon, the Federal Circuit explained that it is improper to entirely eliminate a structural element from the claimed ornamental design, even when that element also serves some functional purpose. Such an approach departs from the established legal framework for interpreting design patent claims. The Court explained that design patents protect the overall ornamentation of a design, not an aggregation of separable elements. According to the Federal Circuit, by eliminating particular structural elements from the design patent’s claim scope, the district court improperly converted the claim scope from one that covers the overall ornamentation to one that covers individual elements.

The Federal Circuit then analyzed the overall design of Coleman’s personal flotation device, including the features ignored by the district court, and determined that the design was minimalist, with little ornamentation. The Federal Circuit agreed that the armband and torso features were indeed functional, and so the fact finder should not focus on the particular designs of those elements when determining infringement but rather should focus on what these elements contribute to the design’s overall ornamentation. In this case, because the overall design featured many functional elements and a minimalist overall ornamentation, the Court concluded that the overall claim scope is accordingly narrow. The case was remanded for consideration of infringement under the proper claim construction.

Infringement Counterclaim Confers Subject Matter Jurisdiction

Addressing jurisdictional issues, the US Court of Appeals for the Federal Circuit affirmed the district court’s conclusion that the patentee’s counterclaims for infringement independently gave rise to subject matter jurisdiction under 28 USC § 1338(a). Microsoft Corp. v. GeoTag, Inc., Case No. 15-1140 (Fed. Cir., Apr. 1, 2016) (Wallach, J).

GeoTag sued more than 300 entities in the Eastern District of Texas, accusing their store locator services of patent infringement. Many of the entities had purchased those services from Google. In response, Google sued GeoTag in the District of Delaware seeking declaratory judgment of invalidity and non-infringement. GeoTag answered and counterclaimed that Google’s AdWords product also infringed the patent at issue in the Eastern District of Texas. Google moved for, and the district court granted, summary judgment of non-infringement, holding that AdWords does not practice one of the claim elements.

While the summary judgment motion was pending, the Federal Circuit ruled in Microsoft Corp. v. DataTern, Inc. (IP Update, Vol. 17, No. 5) that suits against customers do not ordinarily confer declaratory judgment standing on a supplier. With the district court’s leave, Google filed a First Amended Complaint, which GeoTag moved to dismiss for lack of subject matter jurisdiction. GeoTag’s motion to dismiss alleged (1) that Google’s First Amended Complaint was deficient because there was not a substantial controversy “of sufficient immediacy” between the parties, and (2) that the counterclaims were compulsory (not permissive) and thus should be dismissed if the underlying declaratory judgment action lacks subject matter jurisdiction.

The district court denied GeoTag’s motion, holding (1) that Google’s First Amended Complaint established a substantial controversy of sufficient immediacy to warrant declaratory relief, and (2) that the counterclaims (which the district court deemed to be permissive) formed an independent basis for finding subject matter jurisdiction. GeoTag stipulated to the entry of final judgment and appealed.

On appeal, the Federal Circuit affirmed both the denial of the motion to dismiss, as well as the summary judgment order. The Court held that GeoTag’s patent-infringement counterclaims independently conferred subject matter jurisdiction on the district court, explaining that because GeoTag’s counterclaim actually charged Google with infringement of the patent, there was necessarily a case or controversy sufficient to support jurisdiction. The Court found it to be irrelevant whether the underlying complaint was deficient and did not reach the question. The Court also found it irrelevant whether the counterclaims were compulsory or permissive, noting that nothing in the text of § 1338 suggests that Congress conditioned its grant of jurisdiction on the nature of the counterclaim.

Regarding the summary judgment order, the Court rejected two challenges to the district court’s claim construction, reasoning that the construction of the appealed terms did not form the basis for the district court’s decision to grant summary judgment. Because there was no technical dispute as to how the AdWords product functions, the Court affirmed the summary judgment of non-infringement.

Practice Note: Declaratory judgment defendants should bring jurisdictional challenges before answering to avoid conferring jurisdiction through compulsory counterclaims. The Federal Circuit’s ruling forecloses the opportunity to reserve such a challenge until the counterclaims succeed or fail.

Prior Invalidity Judgment Stands Despite New Reexamined Claims

The US Court of Appeals for the Federal Circuit affirmed the district court’s denial of a motion to vacate a judgment of invalidity based on ineligible subject matter under § 101, despite the fact that the US Patent and Trademark Office (PTO) granted new amended claims after ex parte reexamination. Cardpool, Inc. v. Plastic Jungle, Inc., Case No. 14-1562 (Fed. Cir., Apr. 5, 2016) (Newman, J).

Cardpool sued Plastic Jungle for infringement of a patent directed to computer-implemented online gift card exchange technology. Plastic Jungle raised defenses of obviousness and patent ineligibility. The district court granted Plastic Jungle’s motion to dismiss with prejudice pursuant to Fed. R. Civ. P. 12(b)(6) on § 101 grounds and entered final judgment in favor of Plastic Jungle. Cardpool filed an appeal to the Federal Circuit and, in the interim, filed a request with the PTO for ex parte reexamination.

While reexamination was pending, the Federal Circuit affirmed per curiam the district court’s dismissal based on patent ineligibility. A few weeks later, the PTO issued an ex parte reexamination certificate, amending the asserted claims and finding them patentable under § 103. The Federal Circuit granted Cardpool’s request for rehearing, vacated the per curiam affirmance of invalidity and remanded the case to the district court “to determine what actions, if any, are appropriate in light of the reexamined claims.”

On remand, the parties jointly moved for vacatur of the prior judgment. The parties had reached a resolution and moved for voluntary dismissal without prejudice. The district court, however, denied the motion, stating, “[j]ust because a PTO examiner allowed the amended claims does not mean the reexamination certificate can displace a district court judgment following a contested motion to dismiss . . . .” Cardpool appealed.

The Federal Circuit, reviewing the district court action for abuse of discretion, affirmed the denial of vacatur, noting the Supreme Court of the United States’ instruction in U.S. Bancorp v. Bonner Mall P’ship that “vacatur must be decreed for those judgments whose review is . . . ‘prevented through happenstance,’” i.e., “where a controversy presented for review has ‘become moot due to circumstances unattributable to any of the parties.’” Here, Cardpool, the losing party, had voluntarily sought ex parte reexamination and amended its claims, so it was squarely within the district court’s discretion to decline to vacate its prior judgment.

Cardpool, citing Aspex v. Marchon (IP Update, Vol. 15, No. 4), expressed concern that the judgment dismissing its claims with prejudice would have a preclusive effect on its ability to assert the new amended claims against Plastic Jungle or a successor-in-interest. In Aspex, the Federal Circuit had held that because of a prior dismissal with prejudice, the patentee was estopped from pursuing reexamined claims that were not materially different from the original claims and thus did not create new legal rights.

The Federal Circuit explained that claim preclusion does not somehow “automatically” arise, but that its applicability depends on the factual circumstances. Here, the validity of the original claims was adjudicated, but only as to § 101 issues, while the validity of the reexamined claims was not adjudicated. Therefore, the preclusive effect, if any, of the district court’s prior judgment in this case would “depend[] on the facts and issues of the reexamination and invoke[] equity as well as law.” The district court did not abuse its discretion in denying the parties’ request for vacatur.

New Trial Granted in View of Expert’s Misconduct Despite JMOL on Unrelated Grounds

Addressing the issue of whether a new trial is warranted in view of an expert’s misconduct, notwithstanding a judgment as a matter of law (JMOL) of non-infringement on unrelated grounds, the US Court of Appeals for the Federal Circuit reversed the district court’s denial of the motion and remanded for a new trial. Rembrandt Vision Technologies, L.P. v. Johnson & Johnson Vision Care, Inc. Case No. 15-1079 (Fed. Cir., Apr. 7, 2016) (Stoll, J) (Dyk, J, dissenting).

Rembrandt sued Johnson & Johnson Vision Care (JJVC) for patent infringement over JJVC’s Acuvue Advance^® and Oasys^® contact lenses. At trial, the parties disputed whether JJVC’s lenses satisfied two claim limitations: the “soft” limitation and the “surface layer” limitation. A jury found in favor of JJVC.

It later came to light that both parties’ experts engaged in misconduct, but the dishonesty of Rembrandt’s witness, Dr. Beebe, played out in front of the jury. Dr. Beebe “imploded” on the stand during cross examination; the court struck his testimony relating to testing conducted to establish that the accused lenses met the soft limitation, because it was so vastly different from his direct testimony and his expert report. When faced with JJVC’s motion for JMOL of non-infringement based on the soft limitation, however, Rembrandt cited only Dr. Beebe’s stricken testimony in response. The court granted JJVC’s JMOL, and the Federal Circuit affirmed (IP Update, Vol. 16, No. 9).

Later, Rembrandt learned that JJVC’s expert, Dr. Bielawski, who presented evidence regarding the surface layer limitation (but not the soft limitation) had testified falsely. Specifically, Dr. Bielawski provided false testimony regarding his background and his personal involvement in the testing done to establish that the accused lenses did not meet the surface layer limitation. Dr. Bielawski also withheld data that contradicted his trial testimony on the surface layer limitation.

In view of this new information, Rembrandt moved for a new trial under Fed. R. Civ. P. 60(b)(3), which permits a court to “grant a new trial in cases involving ‘fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party.’” The district court denied Rembrandt’s motion because “JJVC’s counsel was not complicit in the false testimony and because Rembrandt was not prevented from fully and fairly presenting its case.” Rembrandt appealed.

The Federal Circuit explained that the “fully and fairly” requirement only necessitated a showing that “timely production of the documents would have made a difference in the way Rembrandt’s counsel approached the case or prepared for trial.” Under this framework, the Court found that Rembrandt had been prevented from fully and fairly presenting its case. In particular, the Court emphasized that JJVC’s non-infringement argument at trial centered on the surface layer limitation, and noted that Rembrandt’s knowledge of “the weaknesses in JJVC’s evidence regarding the surface layer limitation could well have changed the nature of the entire proceedings.” The Federal Circuit also found that the district court had erred in requiring proof of JJVC’s complicity in Dr. Bielawski’s misconduct.

According to the dissent, with respect to the “fully and timely” presentation point, the district court’s ruling was based on JJVC’s successful judgment of non-infringement based on the soft limitation. The dissent would have affirmed the district court’s ruling because Dr. Bielawski’s false testimony on “an entirely different issue” had no bearing on Rembrandt’s failure to “produce any credible evidence on one element of its case.” The majority, however, was willing to give Rembrandt a second chance on the soft limitation in view of Dr. Bielawski’s misconduct.

The majority adopted a different view of the JMOL, explaining that it had been granted “not because of the merits of JJVC’s non-infringement position, but because [the] exclusion of Dr. Beebe’s unreliable testimony compelled that result.” The majority seemed troubled by the fact that JJVC won based on the malfeasance of Rembrandt’s expert, while all along its own expert had engaged in conduct that was “at least as egregious.”

Practice Note: At least in some circumstances, expert misconduct can effectively undo a successful and unrelated JMOL motion, giving the moving party another bite at the apple.

PTO Releases Updated Examiner Guidelines on Subject Matter Eligibility in Life Sciences Space

The US Patent and Trademark Office (PTO) released its May 2016 Subject Matter Eligibility Update to improve examiner correspondence with regard to subject matter eligibility rejections. The update reflects the PTO’s response to public comments on the July 2015 Update on Subject Matter Eligibility (IP Update, Vol. 18, No. 8). The 2016 update includes six new subject matter eligibility examples, five of which are directed to life sciences subject matter.

The new examples, which include hypothetical claims that would and would not be found subject matter eligible, should help life sciences patent prosecutors in attempting to draft claims in such a manner as to avoid § 101 rejections. The examples include claims directed to a vaccine; a method of diagnosing and treating a disease; a dietary sweetener; methods for screening for gene alterations, hybridizing gene sequences and amplifying gene sequences; and a process for hydrolyzing fat molecules. The examples offer some controversy as well, however. One example discusses a specific method of detecting a disease in a patient that would be subject matter eligible, while a narrower method of diagnosing the disease in a patient would not be subject matter eligible.

The PTO also issued a memorandum to the patent examiners providing examination instructions relating to subject matter eligibility under § 101. When formulating § 101 rejections, the examiners are to follow the two-step analysis set forth in the 2014 Interim Guidance on Patent Subject Matter Eligibility. According to the PTO memorandum, under Step 2 of the Interim Guidance, an examiner should

• Identify the applicant judicial exception (law of nature, natural phenomenon, abstract idea) to the patent eligible categories under § 101 by referring to what is recited in the claim, and explain why it is considered an exception (emphasis in original)
• Identify, with specificity, any additional elements in the claims beyond the identified judicial exception
• Explain the reason(s) that the additional elements taken “individually . . . and as a combination,” do not result in the claims as a whole amounting to significantly more than the judicial exception (emphasis in original)

When the claims do not expressly recite the applicable judicial exception, the rejection must also explain what subject matter the claim limitations describe and explain why the described subject matter is directed to a judicial exception.

Examiners are instructed to cite to appropriate court decisions to support a finding that the subject matter recited in the claim language is an abstract idea. If an examiner determines that a claim recites a law of nature or a natural phenomenon, the rejection should identify the specific law of nature or natural phenomenon. If an examiner determines that a claim recites a product of nature, the examiner should explain why the product does not have markedly different characteristics from its naturally occurring product.

If an examiner determines that particular claim elements are well-understood, routine, conventional activities to those in the relevant field, the rejection should explain why the courts have recognized, or those in the relevant field of art would recognize, that those claim limitations are well-understood, routine, conventional activities. While examiners are instructed not to use the PTO examples of subject matter eligibility for a rejection, applicants can use the examples in support of their arguments for patentability.

If an applicant properly challenges the eligibility rejection, the examiner must provide a rebuttal in the next office action if the rejection is maintained. If an applicant challenges an abstract idea identification and the office action did not cite a decision by the Supreme Court of the United States or the US Court of Appeals for the Federal Circuit finding a similar abstract idea, the examiner is instructed to cite such a decision in rebuttal (if the rejection is maintained). If an applicant provides evidence or a specific argument that additional elements are not well-understood, conventional or routine activities, examiners are instructed to reevaluate whether the additional elements are well understood, conventional or routine.

The PTO memorandum concluded with a reminder that an amendment that merely adds a generic computer, generic computer components or a programmed computer to perform generic computer functions would not, for that reason at least, overcome an eligibility rejection.

Practice Note: The May 2016 Subject Matter Eligibility Update, PTO memorandum and subject matter eligibility examples do not constitute substantive rulemaking and do not have the force of law. Therefore, drafting claims in accordance with the subject matter eligibility examples is not a guarantee that a federal court will hold that an allowed claim is subject matter eligible under § 101.

Financial Hook for CBM Review Can Be Shallow but Must Be Rooted in Claims

Addressing the eligibility standard for covered business method (CBM) patent reviews, the Patent Trial and Appeal Board (PTAB or Board) recently issued two decisions in cases involving very similar technology that may signal the Board’s increased focus on the claims of the challenged patent as the basis for eligibility. Qualtrics, LLC, v. OpinionLab, Inc., Case No. CBM2016-00003 (PTAB, Apr. 13, 2016) (DeFranco, APJ); Google Inc. v. Zuili, Case No. CBM2016-00008 (PTAB, Apr. 25, 2016) (White, APJ).

In Qualtrics, the challenged patent was directed to a system and method for soliciting “page-specific” feedback from website users. Viewable icons on web pages allow parties to obtain feedback from website users through a rating scale or question box that appears in the browser’s window. The underlying software collects and stores users’ reactions for subsequent reporting to interested parties.

After reviewing the challenged claims, the Board found that the patent was not eligible for CBM review. Petitioners argued that the invention related to a financial product because the specification stated that the “claimed invention may be used in connection with websites that conduct ‘commercial transactions.’” The Board rejected that argument, explaining that nothing in the claims themselves was “rooted in the financial sector,” and that the claims were not “limited to a monetary transaction.” Even though the specification mentioned the invention’s possible applicability to the financial sector, no claim language necessarily tied the claims to the commercial transaction described in the specification. And even though the specification indicated that the invention might be available “for a fee” and may provide a “value” for the website, that language was merely incidental to the broader applicability of the claimed invention. Accordingly, the Board found that none of the claims were eligible for CBM review.

At the other end of the spectrum, the panel in the Google case found that at least one challenged claim was eligible for CBM review. As in Qualtrics, the patent at issue was directed to providing website content. The claims described various ways of identifying clicks on a website and distinguishing between valid and invalid clicks. The patent owner argued that because the specification indicated that the invention could be used broadly for almost any type of web search provider, and because there was no requirement that fees be paid to use the claimed invention, the claims were not directed to a financial product or service.

The Board disagreed, focusing on the language of claim 1 that limited the web pages to those “associated with a plurality of merchants.” Using the word “merchants” as a hook, the Board tied this language to examples in the specification showing that the invention uses “advertising and that an objective of the invention is to ‘fairly invoice merchants’ by identifying fraudulent click activity.” After determining that the claims were not directed to a technological invention, the Board determined that the challenged claims were eligible for CBM review.

Practice Note: In light of these recent decisions, petitioners seeking CBM review are advised to tie specific claim language to a financial product or service. A mere reference in the specification to a potential relationship to financial products or services, without some way to link that reference to the claim, may not be sufficient to qualify the patent for CBM review. Similarly, patent owners hoping to avoid CBM review would be wise to disassociate the claim language from any financial applicability that may be discussed in the specification.

How to Apply Phillips to CBM Review

Addressing the claim construction standard for a covered business method (CBM) patent review, the Patent Trial and Appeal Board (PTAB or Board) granted the patent owner’s request to use the Phillips claim construction standard, noting that this request fell within the then-upcoming (now in force) Amendments to the Rules of Practice for Trials Before the PTAB. Beauty Systems Group, LLC v. Intellectual Ventures I LLC, Case No. CBM2016-00029 (PTAB, Apr. 26, 2016) (Turner, APJ).

A patent owner involved in a CBM review requested that the claims be construed under the Phillips standard. In support, the patent owner noted that the subject patent would likely expire before any final written decision in the proceeding, and that the claim construction provided in the petition would likely change under the Phillips standard because of the claim construction positions adopted by the petitioner in related district court proceedings. The petitioner responded that the Board previously addressed the claim construction standard for expiring patents, and noted its concern about any delay in the proceedings.

In deciding the issue, the Board noted that the Amendments to the Rules of Practice for Trials Before the PTAB would go into effect just six days after the Board’s decision, and that those new rules would govern the instant proceeding. Under the new rules, the broadest reasonable interpretation claim construction standard applies to claims in an unexpired patent that will not expire before a final written decision is issued. By contrast, pursuant to 37 CFR § 42.300(b), if a party certifies that the patent-at-issue will expire within 18 months from the entry of the petition, the party can request the Phillips-type construction. Under the new rules, the request and the certification must be made in the form of a motion under § 42.20 within 30 days of the petition.

In this case, the patent owner agreed to file the necessary stipulation regarding the patent’s expiration, and although more than 30 days had passed since the filing of the petition, the Board agreed to waive the timing requirement. Thus the Board authorized the petitioner to file a briefing detailing any changes to the claim construction adopted in the petition as well as additional claim constructions. The petitioner will be allowed to respond but will not be allowed to raise any new grounds of unpatentability.

Is Machine-or-Transformation Test Unnecessary Under Alice/Mayo?

Addressing the application of the “machine-or-transformation test” in the context of a covered business method (CBM) patent review, the Patent Trial and Appeal Board (PTAB or Board) concluded that all of the challenged claims are likely unpatentable under 35 USC § 101 and agreed to institute the CBM patent review. Brookshire Grocery Company v. NexusCard, Case No. 2015-00183 (PTAB, Mar. 28, 2016) (Chung, APJ) (Fitzpatrick, APJ, concurring).

Kroger and Brookshire Grocery (collectively, the petitioner) requested a CBM review of a patent directed to a method of processing merchandise discounts based on a computerized membership system. The only ground of unpatentability asserted by the petitioner was lack of patent-eligible subject matter under 35 USC § 101. The petitioner argued that the challenged claims were directed to a “membership discount program,” which is “an abstract, mental process because the recited steps can be performed manually or using pen and paper by replacing computing components with manual and human equivalents.”

The patent owner responded that the challenged claims were not directed to a mere “membership discount program,” but rather to a discount program where “a consumer/person becomes a member and for becoming a member is entitled to, and in fact receives, a discount.” The Board was not persuaded, concluding that the challenged claims were directed to an abstract idea that was not meaningfully different from the ideas found to be abstract by the Supreme Court of the United States and the US Court of Appeals for the Federal Circuit. The Board also concluded that the challenged claims did not include an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application, because the claims only use conventional components that perform routine, conventional activity.

With regard to the machine-or-transformation test, the patent owner asserted that the challenged claims were tied to a particular machine because they included the use of a membership ID with memory storage means, communication means, a scanner and a printer, and that those elements were not general purpose computers. The patent owner also argued that case law supported its argument that the claimed “communication means” should be construed to cover a cash register and a credit card, and that those are “special purpose” computers. The Board again disagreed, noting that “the cited cases have nothing to do with the machine-or-transformation test in this case because the ‘communication means’ at issue in this case is not a computer programmed to perform any specific algorithm disclosed in the specification.” Accordingly, the Board concluded that the challenged claims did not satisfy the transformation test.

In his concurring opinion, APJ Fitzpatrick joined all aspects of the decision to grant the CBM petition except for the analysis of the machine-or-transformation test. He cited to Bilski for the proposition that

The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age—for example, inventions grounded in a physical or other tangible form. But there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age. As numerous amicus briefs argue, the machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.

Fitzpatrick observed that the test is of little, if any, value in determining the patent eligibility of the claims in the present case. He also concluded that in light of application of the legal framework set out in the Alice/Mayo decisions, the machine-or-transformation test is wholly unnecessary.

Bucking the Trend: PTAB Grants Motion to Amend, Allows Grouping of References

In a rare move, the Patent Trial and Appeal Board (PTAB or Board) granted a motion to amend in an inter partes review (IPR), allowing entry of substitute claims to replace the original claims acknowledged by the patent owner as being unpatentable. This is only the sixth time the Board has granted such a motion. Shinn Fu Company of America and Shinn Fu Corp. v. The Tire Hanger Corp., IPR 2015-00208, Paper 24 (PTAB, Apr. 22, 2016) (DeFranco, APJ).

The petitioner filed a request for IPR of a patent directed to a method of handling the wheel of a motor vehicle while the vehicle is elevated on a hydraulic lift for repair. The patent owner elected not to file a response to the challenger’s petition, thereby waiving any arguments in defense of the patentability of the challenged claims. Instead, the patent owner filed a motion to amend, requesting to replace the original claims with a new claim set that included additional claim limitations. During oral argument, the patent owner acknowledged that the original claims were not patentable.

In an IPR proceeding, claims are not amended (or added) as a matter of right; the patent owner must request authorization from the Board. In doing so, the patent owner bears the burden to establish that it is entitled to the proposed new or amended claims, and also must demonstrate the patentability of such claims over all known prior art.

In response to the patent owner’s motion, the petitioner argued that the patent owner failed to distinguish the proposed substitute claims from relevant prior art cited on the face of the patent. The Board disagreed, explaining that there is “no requirement that a patent owner analyze expressly every individual reference cited during prosecution of the challenged patent, particularly where, as here, there are many different permutations of the cited prior art.” Instead, when the references are duplicative, it is acceptable to group the references together according to their teachings without necessarily individually addressing every reference that contains essentially the same teaching. The Board thus concluded that the patent owner met its burden of proof in demonstrating that the proposed substitute claims were patentable over the relevant prior art and were entitled to entry.

Practice Note: Although a patent owner is allowed to file a motion to amend or cancel claims in an IPR, in practice the Board has denied these motions in the vast majority of cases to date. A recent US Patent and Trademark Office study reported that of the completed America Invents Act trials in which the Board had decided the merits of a motion to amend or substitute claims, the motion was granted in full or in part in only 5 percent of the cases (six of the 118 trials). Given these statistics, the “grouping approach” adopted by the Board in this case is instructive for patent owners seeking to amend their claims in view of a large number of prior art references, which is typically the case for IPRs where the challenged patent is also involved in co-pending litigation.

Possible, Probable Features of Prior Art Do Not Establish Inherency

In two different decisions denying inter partes review (IPR) petitions, the Patent Trial and Appeal Board (PTAB or Board) reiterated that inherency assertions must be premised on features that necessarily arise from the prior art reference. Alarm.com Inc. v. Vivint, Inc., Case No. IPR2015-02204, Paper No. 14 (PTAB, Mar. 31, 2016) (Boudreau, APJ); Benitec Biopharma Ltd. v. Cold Spring Harbor Lab., Case No. IPR2016-00016, Paper No. 8 (PTAB, Mar. 31, 2016) (Snedden, APJ).

In one case, Alarm.com sought IPR of Vivint’s patent for a remote equipment monitoring system with various functions carried out by a “server.” The primary reference asserted was a manual for a prior art system called Scadaware. Vivint asserted that the manual failed to disclose the claimed “server,” and disputed Alarm.com’s reliance on features divided between two separate components of the system. Alarm.com responded that it was possible to program one of the two components to carry out both functions, and that this reprogramming probably occurred in practice. The Board found this rationale to be insufficient, explaining that “it is not enough to find that a prior art device is capable of being modified to operate in a manner that would anticipate the claims.” The Board also rejected the argument that the second component of the system could perform the functions. Treating the argument as being based on inherency, the Board explained that inherency “may not be established by probabilities or possibilities. The mere fact that a certain thing may result from a given set of circumstances is not sufficient.” For these reasons, the Board refused to institute IPR.

In another case, Benitec sought IPR of Cold Spring’s patent related to methods for silencing gene expression using RNA interference, without triggering an anti-viral response. The claimed method called for RNA molecules having a nucleotide length within a specific range. Benitec primarily relied on a later-filed patent that claimed priority to an earlier-filed provisional application. Anticipation turned on the question of whether the provisional application supported any claim of the later-filed patent, as required by Dynamic Drinkware (IP Update, Vol. 18, No. 10). Because the patent and its provisional application listed different ranges of nucleotide lengths, Benitec relied on a portion of the provisional listing nucleotide length as an important consideration for avoiding an anti-viral response and claimed that the permissible lengths were already “widely known” in the art. The Board treated this as an inherency argument but pointed to the lack of any expert submission by Benitec that could have shown that the claimed range would have necessarily flowed from the provisional application. The Board thus rejected the petitioner’s anticipation position, as well as a “kitchen sink” obviousness position, and denied institution.

Copyright Claim Accrues when Ownership Dispute Becomes Explicit

The US Court of Appeals for the Seventh Circuit concluded that a company’s attempt to regain ownership of the copyright in marketing materials it had been hired to create was not timely under the Copyright Act or under California contract rules, and that a claim for copyright ownership only accrues when a dispute over ownership becomes “explicit.” Consumer Health Information Corp. v. Amylin Pharmaceuticals, Inc., Case No. 14-3231 (7th Cir., Apr. 15, 2016) (Sykes, J).

Consumer Health Information (CHI) created educational materials for Amylin Pharmaceuticals to help Amylin market a new diabetes drug. The agreement between the parties, dated 2006, assigned all rights to the copyright in the material to Amylin.

In 2013, CHI filed a lawsuit claiming copyright infringement based on Amylin’s use of the educational materials, arguing that CHI was the owner of the copyright in the materials and that Amylin was not authorized to use, copy or publish the materials. CHI claimed that it had not been paid for some of its work, that the agreement between the parties was procured in violation of the California State law economic duress doctrine, and that the statute of limitation does not apply to contract defenses. CHI further argued that the lawsuit was timely filed under the separate-accrual rule.

Amylin moved to dismiss the lawsuit, and the district court agreed, holding that CHI’s contract recession claim was barred by California’s four-year statute of limitation. The district court further held that the Copyright Act’s three-year statute of limitation was applicable to CHI’s copyright ownership claim. Because the claim accrued in March 2006 when the agreement was executed, the lawsuit was not timely filed under the Copyright Act either. CHI appealed.

Under the separate-accrual rule, each infringing use of copyrighted material triggers a new three-year limitations period. If the separate-accrual rule applied, CHI’s claims concerning allegedly infringing acts that occurred within the three years preceding its suit would be timely.

The Seventh Circuit affirmed the district court’s decision, holding that the separate-accrual rule that applies in the traditional copyright-infringement context does not apply if the suit concerns copyright ownership rather than infringement. “We’re persuaded by the unanimous line of cases from our sister circuits and now hold that when the gravamen of a copyright suit is a question of copyright ownership, the claim accrues when the ownership dispute becomes explicit—that is, when the claimant has notice that his claim of ownership is repudiated or contested.” CHI knew when it signed the agreement in 2006 that Amylin owned the copyright via express assignment. Therefore, CHI’s lawsuit to reclaim the copyright ownership was more than four years too late and barred by the statute of limitation.

The Seventh Circuit further explained that CHI misunderstood the legal rule and its own litigating position. “Amylin didn’t sue Consumer Health to enforce the contract. Consumer Health sued Amylin asking for rescission as a necessary predicate to a claim of copyright ownership and recovery of damages for infringement. In short, Consumer Health is asserting fraud and economic duress offensively, not defensively, and as such cannot avoid the statute of limitations.”

Laches (in Patent Cases) and Copyrightable Subject Matter to Be Reviewed

Laches

The Supreme Court of the United States granted certiorari to review a patent case on the law of laches. SCA Hygiene Products v. First Quality Baby Products, Case No. 15-927 (Supr. Ct., May 2, 2016).

In its cert petition, SCA argued that the en banc decision of the US Court of Appeals for the Federal Circuit conflicts with the Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer (IP Update, Vol. 17, No. 5) that, under the Copyright Act, laches cannot bar damages claims brought within a statutory limitations period, even though the initial violation may have occurred years earlier. SCA also argued that the Federal Circuit observes a presumption in favor of laches that is inconsistent with Supreme Court precedent.

The question presented is: Can the defense of laches bar a claim for patent infringement brought within the Patent Act’s six-year statutory limitations period (35 USC § 286), and if so, to what extent?

In SCA, the Federal Circuit granted en banc review to determine if the Supreme Court’s Petrella decision required a change to the law of laches in patent cases (IP Update, Vol. 18, No. 10). In a 6–5 decision, the Federal Circuit held that in terms of patent infringement actions, Petrella did not require a change in the laches rule set out by the court in 1992 in A.C. Aukerman v. R.L. Chaides Constr. Rather, the en banc Court explained that notwithstanding the provisions of § 286, Congress codified the laches defense in § 282 when it included an unenforceability defense in that statute. Thus, the Court found that laches could bar a damages claim even for acts occurring within the six-year period of § 286.

The Federal Circuit also held, however, that Petrella requires a change in the Aukerman rule that only pre-suit damages may be barred by laches. The Court explained that the availability of injunctive relief or ongoing royalties now depends on an analysis of the circumstances of the delay under the Supreme Court’s 2006 decision in eBay, Inc. v. MercExchange.

Copyrightable Subject Matter

The Supreme Court also granted certiorari in a copyright case arising from the US Court of Appeals for the Sixth Circuit and presenting the issue of copyrightability of cheerleader uniforms. Star Athletica, L.L.C. v. Varsity Brands, Inc., Case No. 15-866 (Supr. Ct., May 2, 2016).

The question presented is: What is the appropriate test to determine when a feature of a useful article is protectable under § 101 of the Copyright Act?

In Star, a split panel of the Sixth Circuit held that the arrangement of colors, stripes, chevrons, zigzags and other designs on a cheerleading uniform are copyrightable, separate from utilitarian aspects of the uniform itself (IP Update, Vol. 18, No. 9). The Court rejected the argument that the pictorial, graphic or sculptural features are simply performing a decorative function (which is itself a “utilitarian aspect of an article”) and are therefore not separable from the utilitarian aspects of the cheerleading uniform. The dissent argued that the case turned on how “function” is defined (i.e., in terms of the decorations in issue), which would determine whether the designs were copyrightable.