IP Update, Vol. 22, No. 10

Flip It and Reverse It: Relation Back Requires Notice of Claims Arising out of Same Conduct, Transaction, Occurrence

Addressing the application of the relation-back doctrine, the US Court of Appeals for the Federal Circuit revived a lawsuit, finding that damages were available because the amended complaint that asserted new patents related back to the original complaint since there was complete overlap in the parties, some overlap in the accused products, and substantial overlap in the underlying science and technology. Anza Tech., Inc. v. Mushkin, Inc., Case No. 19-1045 (Fed. Cir. Aug. 16 2019) (Bryson, J).

Anza owns a patent that describes tools for bonding electronic components such as semiconductor chips to substrates and printed circuit boards using “wire bonding” (wires connecting a face-up chip to the substrate) or “flip-chip bonding” (directly soldering face-down chip to the substrate). Despite the two techniques disclosed in the specification, the claims of the patent are directed to a flip-chip bonding technique. Anza sued Mushkin, alleging infringement of the flip-chip bonding claims. During mediation, Mushkin provided a declaration that its products did not use flip-chip bonding and moved to dismiss the case. Anza agreed. Based on Anza’s concession, the district court granted Mushkin’s motion to dismiss, but permitted Anza to file an amended complaint.

Anza filed an amended complaint removing the originally asserted patent and alleging infringement of two new patents having claims directed to wire bonding techniques. The amended complaint included six of the 16 products that had been accused in the original complaint and added two new products that had not been previously accused. Mushkin filed a motion to dismiss, arguing that the new patent claims in the amended complaint did not relate back to the date of Anza’s original complaint because the claims did not arise out of the conduct, transaction or occurrence set out in the original complaint. The district court granted the motion, finding that the amended complaint did not relate back to the original complaint because the new claims did not relate to identical products and technology, and proof of infringement would require different evidence. Because Anza acknowledged that the infringing activity took place more than six years before the filing of the amended complaint, the district court found that the effect of the ruling was that the asserted claims in the amended complaint were time-barred. Anza appealed.

As a threshold issue, the Federal Circuit found that Federal Circuit law applied because determining whether newly alleged infringement claims relate back to the original complaint turns on “an analysis of the accused acts of infringement.” After providing a survey of the relation-back doctrine, the Court found that determining whether newly alleged claims in a different patent relate back to the date of the original complaint requires analyzing:

• The overlap of parties
• The overlap in the accused products
• The underlying science and technology
• Time periods
• Any additional factors that might suggest a commonality or lack of commonality between the two sets of claims.

Applying the five-factor test, the Federal Circuit found complete overlap in the parties, some overlap in the accused products, and substantial overlap in the underlying science and technology because the patents shared the same underlying technology and were focused on solving the same problem with the same solution of using a bonding tool with a tip of dissipative material. The Court found that the specific type of bonding technique claimed in the patents (flip-chip bonding versus wire bonding) was of secondary importance. The Court rejected the district court’s conclusion that proving infringement would require evidence of how the tools were used, instead of just that certain bonding tools were used, and found that determination would not be likely to result in a substantially different evidentiary showing to prove infringement of the claims asserted in the amended complaint.

Accordingly, the Federal Circuit concluded that the claims in the amended complaint that related to the six originally accused products related back to the date of the original complaint, and that § 286 did not wholly bar an award of damages. The district court’s dismissal as to those products was reversed. The Court also vacated the dismissal for the products that were added for the first time in the amended complaint and remanded that issue of whether the allegations regarding those products should relate back to the filing date of the original complaint (based on the five-factor test articulated in the decision) back to the district court.

Breach of Contract Claim Does Not Arise Under Patent Law

The US Court of Appeals for the Federal Circuit reversed a district court decision that retained jurisdiction over a breach of contract action, finding that the action did not sufficiently implicate issues of patent law and instead was simply a state law contract case for past royalties. Inspired Development Group, LLC and Mitchell Prine v. Inspired Products Group dba KidsEmbrace, LLC, Case No. 18-1616 (Fed. Cir. Sept. 18, 2019) (Prost, CJ).

Mitchell Prine formed Inspired Development after developing children’s car seat designs in the shape of cartoon and comic book characters. As part of the development, Prine obtained and assigned several patents to Inspired Development. Prine also formed and acted as CEO of a second company, KidsEmbrace, to sell the car seats. Inspired Development and KidsEmbrace entered into an exclusive patent licensing agreement that granted KidsEmbrace an exclusive license to practice the patents in exchange for royalties.

KidsEmbrace subsequently sought additional financing from a corporation named Boliari. As a condition of the investment, Inspired Development and KidsEmbrace executed a binding letter of agreement that required Inspired Development to transfer patent rights to KidsEmbrace in the event KidsEmbrace was acquired. In exchange, Inspired Development would receive a minimum royalty payment. After the deal was struck, Prine was removed as CEO and KidsEmbrace unilaterally terminated the exclusive patent licensing agreement.

Inspired Development filed suit against KidsEmbrace alleging breach of contract and other equitable state law claims. KidsEmbrace asserted counterclaims of breach of contract, fraud, negligent misrepresentation, restitution and breach of fiduciary duty. Both parties relied on diversity to establish subject matter jurisdiction. On summary judgment, Inspired Development lost its claim of breach of contract and equitable claims of unjust enrichment. Inspired Development appealed to the US Court of Appeals for the 11th Circuit.

The 11th Circuit spotted a potentially fatal problem: that diversity of citizenship might not exist. After closer examination, the parties admitted that they were not diverse and diversity jurisdiction did not apply. KidsEmbrace, however, attempted to anchor jurisdiction on a different basis, namely that federal jurisdiction existed because the case presented a federal question. The 11th Circuit remanded the subject matter question for the district court to consider in the first instance. The district court accepted KidsEmbrace’s argument that the breach of contract and equitable claims arose under patent law. The case returned to the 11th Circuit for review of that decision, and on appeal, the 11th Circuit transferred the appeal to the Federal Circuit to answer whether federal subject matter jurisdiction existed.

The Federal Circuit noted that under the Supreme Court of the United States’ 2013 decision in Gunn v. Minton, federal jurisdiction over a state law claim will lie if a federal issue is (1) necessarily raised, (2) actually disputed, (3) substantial and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress. Because the parties focused their dispute on the claim for unjust enrichment, the Court centered its analysis on that claim.

Starting with the first requirement of Gunn, the Federal Circuit found that a patent law issue was not raised by the unjust enrichment claim. Under Florida law, the elements for unjust enrichment are that the plaintiff conferred a benefit on the defendant who has knowledge thereof, the defendant voluntarily accepts and retains the benefit, and the circumstances are such that it would be inequitable for the defendant to retain the benefit without paying the plaintiff. The Court found that while it was possible that Inspired Development could succeed on its claim for unjust enrichment by showing patent infringement, it would also be possible for Inspired Development to succeed on its claim by showing that through the license conferred on KidsEmbrace, KidsEmbrace avoided litigation, acquired investment it may not have otherwise had, or succeeded in preventing competition for a certain length of time. The Court found that because Inspired Development did not have to demonstrate that KidsEmbrace actually practiced the patents, the question of infringement was not a necessary part of the claim.

Addressing the second Gunn requirement, the Court found that the issue of whether KidsEmbrace actually used the patents was disputed, because KidsEmbrace denied that it manufactured or sold products within the scope of the patent.

Turning to the third Gunn factor, the Federal Circuit stated that the touchstone of “substantiality” is whether allowing state courts to resolve the case would undermine the development of a uniform body of patent law. The Court found that there was no substantial issue of patent law because:

• Inspired Development could prevail on its unjust enrichment claim without showing that KidsEmbrace’s products actually infringed.
• Any state court decision on a claim for unjust enrichment between the parties would not control numerous other cases.
• The government had no direct interest in a contract dispute between private parties.

Assessing the fourth Gunn factor, the Federal Circuit found that exercising federal jurisdiction would upset the balance of federal and state judicial responsibilities. The Court found that accepting KidsEmbrace’s argument that any breach of contract claim or related equitable claim involving a patent license must “arise under” patent laws would sweep numerous state-law claims into federal court. The Court also noted that finding a federal question because the contract here implicated a run-of-the-mill question of infringement or invalidity would affect the wider balance between state and federal courts because a plaintiff could invoke federal jurisdiction by doing little more than pleading allegations involving an embedded infringement or invalidity analysis.

Accordingly, the Federal Circuit found that the district court lacked subject matter jurisdiction and thus vacated the district court’s judgment and remanded for dismissal.

Patent Term Adjustment Denied for Interference-Related Delays

The US Court of Appeals for the Federal Circuit affirmed the US Patent and Trademark Office’s (PTO’s) calculation of patent term adjustment (PTA), finding that for purposes of PTA, time spent on a requested continued examination (RCE) of an application did not end once an interference was declared. Mayo Foundation for Medical Education and Research v. Andrei Iancu, Case No. 18-2031 (Fed. Cir. Sept. 16, 2019) (Lourie, J) (Newman, J, dissenting).

The American Inventors Protection Act compensates applicants for three broad classes of delays during the pendency of their patent application. One of these classes is a “B Delay,” which generally entitles the applicant to PTA for each day the application is pending beyond three years. While 35 USC § 154(b)(1)(B) generally “guarantee[s] . . . no more than 3-year application pendency,” that three-year period is subject to several exclusions, including “any time consumed by continued examination of the application requested by the applicant under section 132(b).”

Mayo owns a patent directed to antibodies for treating autoimmune diseases. Upon issuance of Mayo’s patent, the PTO calculated a PTA of 621 days with no B Delay. Mayo filed a request for redetermination, claiming that it was due 685 days because the examiner sua sponte reopened prosecution after termination of the interference, which was not RCE time under the relevant statute. Mayo calculated the RCE time as 148 days, which was the time between the filing of the RCE and the declaration of the interference. In support of its argument, Mayo claimed that RCE time ends once the PTO takes an official action indicating that all the pending claims are presumptively deemed allowable, and its claims were presumptively deemed allowable when the interference was declared. The PTO disagreed, finding that RCE time did not end when the interference was declared because the PTO may still determine questions of patentability in an interference. Mayo appealed.

The majority panel of the Federal Circuit agreed with the PTO, finding that while the PTO’s regulations do indicate that at least one claim in an application should be in condition for allowance before an interference is declared, the regulations also explicitly contemplate that the Patent Trial and Appeal Board (PTAB) may recommend further action by the examiner, including issuing a rejection. Accordingly, the Court affirmed the PTAB’s decision, finding that where an RCE had previously been filed, the time between termination of an interference and the date of mailing of the notice of allowance is time consumed by continued examination, and thus the PTO correctly determined that there was no B Delay.

In dissent, Judge Newman argued that the post-interference examination time should have been included in the adjustment calculation because it was an examination delay due to PTO procedures, and the majority’s holding was contrary to statute, regulation and policy that provides PTA for such delays.

Federal Circuit Sides with PTO on Applicant Delay in Patent Term Adjustment

In a case explaining what comprises an “applicant delay” in the context of a patent term adjustment (PTA), the US Court of Appeals for the Federal Circuit sided with the US Patent and Trademark Office (PTO) ruling that the time period it took an applicant to file a response that was in excess of the three-month deadline for responding to a final office action constituted applicant delay. Intra-Cellular Therapies, Inc. v. Iancu, Case No. 18-1849 (Fed Cir Sept. 18, 2019) (Chen, J).

As it did in the Mayo Foundation case issued two days earlier (IP Update, current issue), the Federal Circuit explained that § 154(b)(1) provides three types of statutorily defined delay caused by the PTO that will lead to accrual of PTA for the resulting patent, outlined in § 154(b)(1)(A), (B), (C). On the other hand, under § 154(b)(2)(C), when applicant conduct causes delay in the examination process, any PTA that has accumulated is reduced by that amount of applicant delay.

The applicable PTO rule, § 1.704(b), f, does not define what constitutes a proper “reply” for cutting off applicant delay but, as the Federal Circuit explained, the regulation “was promulgated against a backdrop of long-existing regulations governing patent prosecution practices. One fundamental principle that pervades these regulations is that a ‘final’ PTO action marks the end of normal prosecution as of right.”

During prosecution of Intra-Cellular’s application, the PTO issued a final action rejecting some claims and objecting to the others. On the three-month deadline for responding to the final action, Intra-Cellular filed a first response that continued to argue the merits of the final rejections and thus failed to comply with the requirements for a proper “reply” to a final action. The PTO concluded that Intra-Cellular’s first response did not prevent the accrual of applicant delay for purposes of calculating PTA for the resulting patent. Twenty-one days after filing its unsuccessful first response, Intra-Cellular filed a second response, overcoming all outstanding rejections and objections. The PTO issued a notice of allowance and concluded that the second response stopped the accrual of any further applicant delay. In calculating PTA, the PTO determined that the extra 21 days it took Intra-Cellular to file a successful response constituted applicant delay.

Not satisfied, Intra-Cellular filed a complaint in the US District Court for the Eastern District of Virginia seeking judicial review of the PTO’s PTA determination. The district court granted summary judgment in favor of the PTO, explaining that it considered the PTO’s PTA determination to involve a question of statutory interpretation performed by the agency, and therefore the determination was entitled to Chevron deference. Intra-Cellular appealed.

The Federal Circuit affirmed after examining the district court’s Chevron deference analysis.

At Step 1 of Chevron, the Federal Circuit looked at “whether the statute’s plain terms ‘directly addres[s] the precise question at issue.’” The question here was whether, under § 154(b)(2)(C)(i), an applicant’s final submission “that continues to argue the merits of the examiner’s rejection, without good cause, constitutes a ‘fail[ure] to engage in reasonable efforts to conclude prosecution’ such that applicant delay would accrue under the PTA statute.” The Court concluded that the statute did not address this question.

Turning to Step 2 of the Chevron analysis, the Federal Circuit examined “whether the Patent Office’s answer to the precise question at issue is based on a ‘permissible construction of the statute,’” explaining that “[w]e have ‘long recognized that considerable weight should be accorded to an [agency’s] construction of a statutory scheme it is entrusted to administer, and the principle of deference to administrative interpretations.’” Here, the Court rejected Intra-Cellular’s proposed interpretation of “reply” under § 1.704(b) as any bona fide attempt to address all rejections and objections in a PTO action, explaining that it incorrectly applies the standard for a compliant “reply” to a non-final action to the standard for reply to a final action.

The Court also noted that “under Intra-Cellular’s interpretation, an applicant would be allowed to continue to liberally argue and make amendments without accruing applicant delay as long as it addressed all outstanding issues in the final Office action. But treating this type of submission as a proper ‘reply’ would give the applicant the benefits of an RCE [request for continued examination] (which re-opens prosecution) without the concomitant PTA reduction that comes with an RCE.” This, said the Court, “clearly contravenes the structure of the existing PTA statute.”

PTAB Designates Three Opinions as Precedential

In General Electric Co. v. United Technologies Corp., Case No. IPR2017-00491 (PTAB July 6, 2017) (Weatherly, APJ) (designated precedential on Sept. 9, 2019), the Patent Trial and Appeal Board (PTAB) declined to institute review because the petitioner had properly filed a statutory disclaimer under 35 USC § 235(a) that disclaimed all of the claims challenged in the petition. Under 37 CFR § 42.107(e), if the patent owner files a statutory disclaimer “disclaiming one or more claims in the patent” prior to its preliminary response, “[n]o inter partes review will be instituted based on disclaimed claims.” For a disclaimer to be timely “recorded” in the US Patent and Trademark Office, the disclaimer must:

• Be signed by an authorized party
• Identify the claims of the patent to be disclaimed
• State the extent of the patentee’s ownership interest in the patent
• Include the required fee.

Having determined that the patent owner’s filing was proper and had timely disclaimed all of the challenged claims, the PTAB declined to institute review.

In Infiltrator Water Technologies, LLC v. Presby Patent Trust, Case No. IPR2018-00224 (PTAB Oct. 1, 2018) (Kennedy, APJ) (designated as precedential on Sept. 9, 2019), the PTAB vacated its institution decision based on the US Court of Appeals for the Federal Circuit’s decision in Click-to-Call (IP Update, Vol. 21, No. 9). The PTAB determined that because the petitioner had been served with a complaint more than one year prior to the filing date of the petition, it was time barred under § 315(b). Petitioner had argued that the holding in Click-to-Call was limited to whether voluntary dismissal nullified the effect of “service.” By contrast, the instant case was dismissed for lack of personal jurisdiction, which, according to Fed. R. Civ. P. 4(k), means that “service on a defendant is not effective when the district court that issued the summons lacks personal jurisdiction.” The PTAB disagreed, reasoning that Rule 4(k) governs when “[s]erving a summons or filing a waiver of service establishes personal jurisdiction over a defendant,” not whether a particular a complaint was “effectively served” or not done in a manner prescribed by law. Accordingly, the PTAB determined that dismissal for lack of personal jurisdiction does not nullify the effect of service for purposes of § 315(b).

In Cisco Systems v. Chrimar Systems, Inc., Case No. IPR2018-01511 (PTAB Jan. 31, 2019) (Weinschenk, APJ) (designated as precedential on Aug. 29, 2019), the PTAB determined that a petitioner is barred if it has previously filed an invalidity action in district court, even if it voluntarily dismissed that previously filed action. Under § 315(a)(1), a petitioner is barred if it (or its real party in interest) “filed a civil action challenging the validity of a claim of the patent.” In this case, petitioner argued that because it voluntarily dismissed its previously filed district court action, the dismissal nullified the prior filing as if it never existed. The PTAB disagreed, extending to § 315(a)(1) the same reasoning applied in Click-to-Call, where the Federal Circuit found that voluntary dismissal does not nullify being “served with a complaint” for purposes of § 315(b). Similarly, for purposes of “filing” under § 315(a)(1), a voluntary dismissal does not nullify its effect on a petitioner’s prior district court filing.

For CBM Review, Both Aspects of Technology Exception Must Be Addressed

In an opinion regarding a covered business method (CBM) review at the Patent Trial and Appeal Board (PTAB), the US Court of Appeals for the Federal Circuit adopted a new claim construction and found the PTAB’s decision on CBM review eligibility to be arbitrary and capricious. SIPCO, LLC v. Emerson Electric, Co., Case No. 18-1635 (Fed. Cir. Sept. 25, 2019) (Chen, J) (Reyna, J, dissenting in part).

Emerson filed a petition in 2016 for CBM review of a SIPCO patent. The PTAB found the patent CBM review eligible and held that SIPCO’s patent was invalid. SIPCO raised three issues on appeal:

• “Low-power transceiver” was improperly construed.
• Its patent did not qualify as a CBM patent under America Invents Act (AIA) § 18(d)(1).
• Its patent was a technology invention under 37 CFR § 42.301(b).

First, the panel majority found that the PTAB incorrectly construed the disputed term. The majority noted the “distinction between using the specification to interpret the meaning of a claim and importing limitations from the specification into the claim can be a difficult one to apply in practice.” Phillips. Grappling with this distinction, the majority found that the specification limited the term at issue, and that the intrinsic evidence was sufficiently clear such that extrinsic evidence was not necessary. Accordingly, the Court reversed the PTAB’s claim construction and adopted its own construction. Judge Reyna dissented on this issue.

Second, the Court found that it was not arbitrary and capricious for the PTAB to find that the patent was a financial product or service. A patent is eligible for CBM review if the invention is “sufficiently ‘used in the practice, administration, or management of a financial product or service.’” Versata Development Group.

Here, the Court found that the PTAB correctly assessed that the concept of “communicating financial information from a device associated with an ATM” was central to the claimed device, meaning the device was used in a financial product or service. Although the dependent claims with these concepts were disclaimed after institution, the Court nevertheless relied on such claims. Accordingly, it was not arbitrary and capricious for the PTAB to institute CBM review on a patent even where the claims giving rise to CBM review were disclaimed after institution.

Finally, the Court found that it was arbitrary and capricious for the PTAB to find that the patent was not a technological invention. AIA § 18(d)(1) excludes technological inventions from CBM review. The US Patent and Trademark Office has adopted a two-part test to define technological invention. First, the PTAB considers “whether the claim subject matter as a whole recites a technological feature that is novel and unobvious over the prior art.” 37 CFR § 42.301(b). Second, the PTAB considers whether the patent “solves a technical problem using a technical solution.” Id. A patent is ineligible for CBM review only if each part is not satisfied.

Starting with the second element, the Court found that SIPCO’s patent was indeed a technical invention because “the claimed invention implements a communication system that connects an unconnected, remote device with a central station.” According to the Court, the claims combined various communication elements in a particular way to address a specific technical problem, and therefore the second part of the test was not satisfied. Thus, the PTAB’s decision on the second part was arbitrary and capricious.

Returning to the first part of the technological invention test, the Federal Circuit declined to comment on whether it was satisfied because the PTAB did not address the issue in its final written decision. Accordingly, the Court remanded to the PTAB with instructions to consider the first part of the test and vacated the PTAB’s findings of patent eligibility.

New Arguments in IPR Reply Are out of the Frying Pan, into the Fryer

On appeal from a Patent Trial and Appeal Board (PTAB) finding of non-obviousness, the US Court of Appeals for the Federal Circuit found that a petitioner could not raise an “entirely new rationale” for combining two references in an obviousness inquiry in its reply. Henny Penny Corporation v. Frymaster LLC, Case No. 18-1596 (Fed. Cir. Sept. 12, 2019) (Lourie, J).

Frymaster owns a patent directed to a system for measuring the state of cooking oil degradation in a deep fryer. During frying, cooking oil gradually degrades and loses its cooking capacity, generating impurities called total polar materials (TPMs). The patent claims at issue required a TPM sensor to be positioned within an adapter located between the drain and return pipes to measure an electrical property that is indicative of TPMs.

Henny Penny (HPC) filed a petition for inter partes review (IPR) against Frymaster’s patent, asserting that certain claims of the patent were obvious in view of two prior art references, Kauffman and Iwaguchi. In its petition, HPC asserted that Kauffman taught all of the limitations of the claims at issue except a TPM sensor in the structural layout of a deep fryer. Specifically, Kauffman taught an apparatus for detecting undesirable properties in “used oils, lubricants, and fluids” with an electrode positioned between the drain and return lines connected to a fluid reservoir, but did not specifically identify TPM as a property to be measured. Iwaguchi taught measurement of TPMs in a deep fryer, but required diverting the oil to a separate detection vessel comprising a TPM sensor. This diversion process cooled the oil, preventing degradation of the sensor and improving its functionality. In its petition, HPC argued that a person of ordinary skill would have been motivated to adapt the TPM sensor of Iwaguchi into the system described in Kauffman.

After the PTAB instituted HPC’s petition, Frymaster argued that integrating Iwaguchi’s temperature-sensitive TPM probe into Kauffman would not yield a predictable outcome. In response, HPC modified its obviousness theory in its reply, arguing that Kauffman’s sensor alone would have been capable of monitoring TPMs, and that Iwaguchi only taught the desirability of observing TPMs to gauge oil quality. Frymaster objected to HPC’s reply argument as a new theory that was not presented in the petition.

In its final written decision, the PTAB disregarded HPC’s new obviousness theory, focusing only on the original obviousness argument. The PTAB found that a person of ordinary skill in the art would not have been motivated to integrate Iwaguchi’s TPM sensor into Kauffman’s system because Iwaguchi taught cooling the oil before taking the TPM measurement, and adding a diversion and cooling loop to Kauffman would add additional complexity and inefficiencies. The PTAB also found that evidence of secondary considerations supported non-obviousness because Frymaster had won industry praise from two industry organizations and one customer. Accordingly, the PTAB held that the instituted claims were not unpatentable. HPC appealed.

On appeal, HPC argued that the PTAB procedurally erred by too narrowly construing the obviousness theories raised in the petition, and that the PTAB also erred in its conclusion of non-obviousness. The Federal Circuit rejected both arguments.

The Federal Circuit found that the PTAB did not err by holding HPC to the obviousness theory presented in the petition. While the new obviousness theory relied on the same two references, HPC had admitted at the oral hearing that the theory presented in the reply was not in the original petition. The Court noted that because of the expedited nature of IPR proceedings, it is of the utmost importance that petitioners adhere to the requirement that the initial petition identify with particularity the evidence that supports the challenges to each claim. As a result, an IPR petitioner cannot raise entirely new arguments in its reply.

The Federal Circuit also upheld the PTAB’s non-obviousness finding. The Court found that Kauffman’s system did not contemplate cooling the oil, and that following Iwaguchi’s method of diverting and cooling the oil in Kauffman’s system would introduce “additional plumbing and complexity” and lead to “decreased efficiency.” In light of these trade-offs, the Court found that substantial evidence supported the PTAB’s finding that there would have been no motivation to combine the two references. The Court also found that the PTAB’s analysis of Frymaster’s evidence of secondary considerations involving industry praise was not erroneous because the patent claims were commensurate in scope with Frymaster’s product and the evidence of praise was generally directed to the claimed invention as a whole as well as to the integrated TPM sensor.

Practice Note: When filing an IPR petition, it is essential not only to identify each prior art reference being asserted, but also to assert every rationale for combining any prior art references.

Basket Case: Article Name Limits Design Patent Claim

The US Court of Appeals for the Federal Circuit affirmed a district court finding that the article descriptor used in a design patent limited the scope of the claimed design. Curver Luxembourg, SARL v. Home Expressions Inc., Case No. 18-2214 (Fed. Cir. Sept. 12, 2019) (Chen, J).
Curver Luxembourg was granted a design patent entitled “Pattern for a Chair.” Curver’s design patent claims an “ornamental design for a pattern for a chair” and includes figures that show the design, as illustrated in Figure 1 below, from different perspectives. However, none of the figures illustrates a chair.

Home Expressions manufactured and sold baskets that incorporated the design, as illustrated below.

Curver sued, asserting that Home Expressions’ basket incorporating the design infringed Curver’s design patent. Home Expressions filed a motion to dismiss, arguing that Curver’s design patent only protected the design as applied to a chair. The district court granted the motion, explaining that the “scope of a design patent is limited to the ‘article of manufacture’––i.e., the product––listed in the patent,” which in Curver’s design patent would be “a chair.” Curver appealed.

Curver argued that the figures in its design patent illustrated a “three-dimensional panel structure that includes the ornamental Y patterns,” and that the “three-dimensional panel” was a “component” of a product. Thus, a product that applied a design pattern to a basket could infringe a design patent that claimed the design for a chair.

The Federal Circuit, applying the “ordinary observer” test for design patent infringement, concluded that the design patent at issue was limited to chairs since the article of manufacture as recited in the claim was a chair. The Court, therefore, affirmed the district court’s dismissal of the complaint.

Federal Circuit Cans Prior Art Exclusion for “Ever-So-Slight” Design Differences

In what it described as an “unusual situation” involving design patents, the US Court of Appeals for the Federal Circuit reversed a Patent Trial and Appeal Board (PTAB) factual determination, finding that the PTAB erroneously excluded a prior art reference as a proper primary reference when the reference created “basically the same” visual design impressions. Campbell Soup Co. et al. v. Gamon Plus Inc., Case Nos. 18-2029, -2030 (Fed. Cir. Sept. 26, 2019) (Moore, J) (Newman, J, dissenting).

Gamon owns two design patents directed to a gravity feed can dispenser rack. After being sued for patent infringement by Gamon, Campbell Soup and Trinity Manufacturing petitioned for inter partes review of Gamon’s design patents on the grounds that the claims were obvious in view of two prior art references, Linz and Samways.

In its 2012 decision in Apple v. Samsung, in the context of design patents, the Federal Circuit defined a primary reference as a single reference that creates “basically the same” visual impression as the claimed design. If a primary reference exists, then secondary references may be used to modify the primary reference to create a design that has the same overall visual appearance as the claimed design. The PTAB applied the “basically the same” test to the prior art references submitted by Campbell Soup, finding that neither Linz nor Samways was a proper primary reference since neither disclosed a design similar enough to the Gamon’s design. Specifically, the PTAB stated that that it would require adding a hypothetical can to Linz’s design before comparing it to Gamon’s claimed design, which is improper under the design “in existence” test. Similarly, the PTAB found that Samways could not serve as a primary reference because it would require significant modifications in its shape and dimensions and removal of parts to create a design that was “basically the same” as the Gamon design. Accordingly, the PTAB found that Gamon’s patent was not obvious. Campbell Soup appealed.

The Federal Circuit affirmed the PTAB’s decision that Samways could not serve as a primary reference because of its substantial difference from Gamon’s design. However, in what it described as an “unusual situation,” the Court disagreed with the PTAB with respect to Linz and vacated the PTAB’s factual determination that Linz was not a proper primary reference. The Court noted that the parties did not dispute that the claimed designs of the Gamon patents and the Linz design were both made to hold a cylindrical object in the display area. Rather, the dispute centered on “the dimensions of a can that would be used in Linz in comparison with that in the claimed designs.” The Court dismissed this as “ever-so-slight differences” in design in light of the overall similarities between the Linz and Gamon designs. Thus, the Court found that the PTAB’s conclusion that Linz was not a proper primary reference was not supported by substantial evidence, and remanded the case for further proceedings.

Judge Newman dissented, arguing that the PTAB correctly applied the law of design patents in determining that Linz could not serve as a primary reference. According to Judge Newman, the majority erred in modifying the Linz design with a judicial insertion of the missing can to create a design more similar to the Gamon design for determination of obviousness.

Rare but Not Exceptional: Doctrine of Equivalents Does Not Require Exceptional Case

On petition for panel rehearing, the US Court of Appeals for the Federal Circuit stripped the phrase “applies only in exceptional cases and” from its previous opinion, but otherwise denied the petition. Amgen, Inc. v. Sandoz Inc., Case Nos. 18-1551, -1552 (Fed. Cir. Sept 3, 2019) (per curiam).

In its underlying opinion, the Federal Circuit noted that the doctrine of equivalents “applies only in exceptional cases and” is not regularly available as a method to extend protection beyond the literal scope of the claims (IP Update, Vol. 22, No. 6). In response to the petition for rehearing, the Court narrowed its prior holding by removing the language limiting application of the doctrine of equivalents to only “exceptional cases.”

Practice Note: The Federal Circuit’s order clarifies that Amgen v. Sandoz was not intended to change the law with respect to the application of the doctrine of equivalents. As always, litigants should be careful to allege the doctrine of equivalents in appropriate circumstances and may not use it to read limitations out of the claims.

Don’t Mess with Texas? State Sovereignty Doesn’t Make Plaintiff Immune to Venue Transfer

The US Court of Appeals for the Federal Circuit rejected the arguments of a state university in support of sovereign immunity and affirmed the district court’s decision to transfer the case to the District of Delaware. Board of Regents of the University of Texas System, TissueGen, Inc. v. Boston Scientific Corporation, Case No. 18-1700 (Fed. Cir. Sept. 5, 2019) (Stoll, J).

The Board of Regents of the University of Texas System (UT) and TissueGen Inc. sued Boston Scientific Corporation (BSC) for patent infringement in the Western District of Texas alleging that several BSC stent products infringed patents owned by UT. Although BSC is a Delaware corporation with its principal place of business in Massachusetts, UT asserted that venue was proper in the Western District of Texas because UT has sovereign immunity as an arm of the State of Texas. UT argued that “it would offend the dignity of the State to require it to pursue persons who have harmed the State outside the territory of Texas, and the State of Texas cannot be compelled to respond to any counterclaims, whether compulsory or not, outside its territory due to the Eleventh Amendment.”

BSC filed a motion to dismiss for improper venue, noting that BSC does not own or lease any property or maintain a business address in the Western District of Texas. BSC has only 46 employees in the Western District of Texas, all of whom maintain home offices and do not work in spaces that are owned, leased or controlled by BSC. The district court granted BSC’s motion and transferred the case to the District of Delaware, relying on the 2107 Supreme Court decision TC Heartland v. Kraft Foods (IP Update, Vol. 20, No. 5) to establish that venue is proper where a defendant resides or has a regular and established place of business. The district court rejected UT’s sovereign immunity arguments in opposition to the transfer, emphasizing the lack of claim or counterclaim against UT to place it in the position of a defendant. UT appealed the district court’s transfer order.

As an initial matter, the Federal Circuit found that although transfer orders are interlocutory and generally cannot be appealed immediately, UT’s challenge to the district court’s transfer order on the basis of state sovereignty brought this case within the small class of orders excepted from the final judgment rule of the collateral order doctrine. On the issue of the propriety of the transfer order, the Federal Circuit held that the sovereignty principles asserted by UT did not grant it the right to bring suit in an otherwise improper venue.

While the Federal Circuit agreed that UT is an arm of the State of Texas and is thus entitled to the same sovereign rights as Texas, the Court found that 11th Amendment immunity applies only to suits against a state and not suits brought by a state, because the latter do not force an unconsented suit upon the state. This holding is consistent with the Federal Circuit’s 1977 decision in Regents of the University of California v. Eli Lilly in which the Court found that 11th Amendment immunity did not apply to the Regents of the University of California (UC) in a patent infringement case brought by UC against Eli Lilly. Thus, because UT was acting solely as a plaintiff, suing BSC for patent infringement with no claims or counterclaims brought by BSC, sovereign immunity did not apply, and UT could not rely upon it to challenge the transfer of the case to Delaware.

Although the issue was not raised at the district court, the Federal Circuit next addressed UT’s argument that the Original Jurisdiction Clause ensures that a state cannot be forced to sue in a court located in another state. The Federal Circuit found that UT’s interpretation of several Supreme Court cases went too far and pulled snippets from various cases out of context in an effort to support its arguments. Specifically, none of the cases cited by UT supported the proposition that states may sue in any forum regardless of venue rules. Instead, the cases supported the proposition that states may sue in lower courts in addition to the Supreme Court of the United States. Further, UT never sought to invoke original jurisdiction, instead bringing this suit pursuant to 28 USC §§ 1331 and 1338(a). Whether UT could have instituted this suit as an original proceeding in the Supreme Court was thus irrelevant.

The Federal Circuit also rejected UT’s argument that it had the right to sue for patent infringement in its forum of choice based on the inherent powers of a state sovereign. The Court held that by voluntarily appearing in federal court, UT had voluntarily invoked the federal court’s jurisdiction and therefore must abide by federal rules and procedures—including venue rules—like any other plaintiff.

Practice Note: When a state sues in federal court, it waives sovereign immunity with respect to its asserted claims, subjecting itself to the jurisdiction of the federal courts and thus the federal statutory provisions that govern the allocation of cases among the courts.

Counterclaim Plaintiff Estopped from Antitrust Claims in Co-Pending Case

The US Court of Appeals for the Federal Circuit held that a counterclaim plaintiff was estopped from relitigating antitrust claims in a separate action where the prior judgment allegedly involved separate and alternative grounds for dismissal. Intellectual Ventures I, LLC v. Capital One Financial Corporation, Case No. 18-1367 (Fed. Cir. Sept. 10, 2019) (Bryson, J).

Capitol One brought antitrust counterclaims against Intellectual Ventures (IV) in a patent infringement action in the US District Court for the Eastern District of Virginia. Capitol One asserted that IV was engaged in monopolization and attempted monopolization under Section 2 of the Sherman Act and the unlawful acquisition of assets in violation of Section 7 of the Clayton Act. Capitol One alleged that IV violated these antitrust laws by acquiring a large portfolio of weak or unenforceable patents for commercial banking services and using the threat of serial litigation to extort unreasonable licensing fees from Capitol One. The Virginia district court ultimately found that Capitol One failed to adequately plead a relevant market and dismissed its antitrust counterclaims.

During the pendency of the Virginia action, IV brought new patent infringement claims against Capitol One in the US District Court for the District of Maryland. Capitol One moved to add antitrust counterclaims based on the same factual and legal theories as the Virginia action. The Maryland court granted summary judgment in favor of IV, finding that Capitol One was estopped from asserting its antitrust counterclaims. Capital One appealed.

The Federal Circuit affirmed. Applying Fourth Circuit law, the Court explained that collateral estoppel is warranted when:

• The issue of fact is identical to the one previously litigated.
• The issue or fact was actually decided in the prior proceeding.
• The issue or fact was critical and necessary to the judgment in the prior proceeding.
• The judgment was valid and final.
• The party foreclosed has had a full and fair opportunity to litigate the issue.

In this case, Capitol One argued that the third requirement was not met because an issue or fact cannot be “critical or necessary” when there are two alternative and independent grounds for the judgment.

The Federal Circuit rejected Capitol One’s argument for two reasons. First, it found that the grounds for dismissal were not separate and independent but in fact were integrally related because the first issue necessarily adjudicated the second issue. Second, the Court found that even if the grounds for dismissal were actually independent, collateral estoppel would still apply because the case involved defensive rather than offensive collateral estoppel. That is, the counterclaim defendant was seeking to preclude the counterclaim plaintiff from relitigating its claims. The Federal Circuit reasoned that courts are less cautious about applying defensive collateral estoppel where, as here, the two cases are co-pending. Because all of the alternative grounds for dismissal present in the first case equally applied to the second case, Capitol One was aware of the danger of estoppel and had incentive to litigate its antitrust claims to the fullest in the first case. Although Capitol One tried to argue that it alleged two factually distinct relevant markets, Capitol One failed to challenge the Virginia court’s characterization of the market, resulting in a valid final judgment based on the same material facts and issues.

Practice Note: Litigants should be mindful that a final decision on the merits in another related case can be used to preclude a party from raising the same issues in the later-filed case, even if that final determination is grounded in alterative reasons supporting the judgment.

In the Pink: Lack of Personal Jurisdiction Results in Dismissal of Non-Infringement Verdict

Addressing personal jurisdiction in a declaratory judgment action, the US Court of Appeals for the 10th Circuit reversed the district court’s bench trial verdict, finding that the district court lacked specific personal jurisdiction over the defendant. C5 Med. Werks v. CeramTec GmBH, Case No. 17-1173 (10th Cir. Sept. 11, 2019) (Eid, J).
CeramTec is a German producer of ceramics and ceramic components for medical prostheses. CeramTec’s products use a chromium-based ceramic composite that causes the products to appear pink. CeramTec has promoted its products at trade shows, including three trade shows held in Colorado. Previously, CeramTec owned a patent for the use of chromium-based materials in its products. Shortly before its patent expired, it applied for a trademark registration for the color pink for its hip joint component, eventually securing a Supplemental Registration. CeramTec then attempted to enforce its trademark against C5 Medical Werks, a Colorado-based manufacturer of pink ceramic components for medical prostheses. CeramTec seized C5’s products from a tradeshow in Paris, France, and sent C5 a cease-and-desist letter in Colorado.
C5 later filed an action in Colorado seeking declaratory judgment of non-infringement and cancellation of CeramTec’s trademark registration. C5 filed a motion to dismiss based on lack of personal jurisdiction. The case eventually proceeded to a bench trial, where the district court found in favor of C5 and entered declaratory judgment of non-infringement. CeramTec appealed, challenging the district court’s exercise of personal jurisdiction and the merits of the bench trial verdict.
The 10th Circuit held that the district court did not have personal jurisdiction over CeramTec and reversed the decision with instructions that the case be dismissed. Because CeramTec did not have a physical presence or customers in Colorado, the Court reasoned that the district court would only have personal jurisdiction if CeramTec had “minimum contacts” with Colorado—i.e., if CeramTec had purposefully directed its activities to Colorado, and C5’s injuries arose out of CeramTec’s Colorado-related activities.
The 10th Circuit found that CeramTec did not have minimum contacts. CeramTec’s attendance at trade shows in Colorado were not purposeful because CeramTec did not choose where the trade shows were held; it only chose to attend the trade show, regardless of the location. The Court further found that CeramTec’s enforcement activities were not sufficient for personal jurisdiction. CeramTec’s seizure of C5’s products occurred in France, not Colorado, and C5 failed to demonstrate how CeramTec’s seizure of products abroad affected any transactions in Colorado. Finally, the Court found that CeramTec’s cease-and-desist letter sent to C5 in Colorado failed to confer jurisdiction in C5’s declaratory judgment action. Because the Court determined that the district court lacked personal jurisdiction over CeramTec, it did not reach the merits of the case.

Owners of Enjoined Company Personally Liable for Monkeying Around with Injunction

The US Court of Appeals for the 11th Circuit affirmed a district court’s finding of civil contempt against a corporate defendant and its two individual shareholders for failing to make all reasonable efforts to comply with an injunction. PlayNation Play Systems, Inc. v. Velex Corporation, Case. No. 18-12828 (11th Cir. Sept 24, 2019) (Marcus, J).

Since 2002, PlayNation sold children’s outdoor playground equipment, including swing sets and attachable rings, ropes and swings, under the trademark GORILLA PLAYSETS. Velex later began to sell doorway pull-up bars and attachable accessories for children under the mark GORILLA GYM. PlayNation sued Velex for trademark infringement. The trial court found that Velex had infringed PlayNation’s trademark, and permanently enjoined Velex from manufacturing, marketing, distributing or selling its products under the GORILLA GYM mark. The 11th Circuit affirmed the injunction in an earlier opinion (IP Update, Vol. 22, No. 6).

After the district court entered the injunction, PlayNation learned that Velex had shipped products bearing the infringing mark to four customers. PlayNation moved for contempt against both Velex and its two individual shareholders/corporate officers. In its defense, Velex argued that it had made substantial efforts to comply, and put forth evidence that two of the infringing shipments were the fault of Velex’s shipping vendor and distributor.

The district court held Velex and its shareholders in civil contempt and ordered them to pay $1,500 in compensatory damages, plus PlayNation’s attorneys’ fees of more than $46,000. Velex appealed.

The 11th Circuit affirmed. While the Court accepted Velex’s argument that it had made “substantial efforts” to comply with the injunction, including adopting a new trademark and building a new website, it had not made “all reasonable efforts” to comply and had not done so in a timely manner. At least one infringing shipment was the fault of Velex’s own employee, who had entered the wrong code into Amazon’s distribution system. This, said the 11th Circuit, violated the injunction and was sufficient to hold Velex and its two shareholders in contempt. The Court concluded that Velex had failed to promptly implement a system to prevent shipment of infringing goods and failed to properly instruct its employees and third parties with whom it worked to comply with that system.

Velex also argued that the award of more than $46,000 in attorneys’ fees—an amount that dwarfed the $1,500 in compensatory damages—was unjustified because Velex had in good faith attempted to comply with the district court’s order. The 11th Circuit rejected that argument, explaining that willful contempt is not a prerequisite to an award of attorneys’ fees. Instead, the ability to recover attorneys’ fees for bringing a successful contempt proceeding is an incentive for the plaintiff to monitor the defendant’s compliance with court orders. Seen in that light, the award of attorneys’ fees to PlayNation was both reasonable and justifiable.

Practice Note: A party that has been enjoined from using a trademark should immediately implement a thorough and defensible strategy to halt all use of the infringing mark by both itself and its distributors and vendors, or risk being held in contempt. The 11th Circuit here agreed that Velex had made “substantial” efforts to comply, but held that it did not make “all reasonable” efforts to comply. Evidence of just a few infringing shipments was enough to hold Velex and its individual shareholders liable.

You Can Have Some Lovin’—But No Personal Jurisdiction

The US Court of Appeals for the Sixth Circuit dismissed claims against a recording artist and music publishing company for, finding that the court lacked personal jurisdiction over one of the accused artists, a UK resident, in a suit related to allegations of copyright infringement where the infringement allegations lacked a nexus to the venue where the suit was brought. Parker v. Winwood, Case No. 18-5305 (6th Cir. Sept. 17, 2019) (Griffin, J) (Donald, J, dissenting).

The appeal in this case addressed whether Mervyn Winwood was subject to personal jurisdiction in Tennessee. Mervyn Winwood is the lesser-known brother of pop-rock star Steve Wynwood, who is perhaps best known for his 1986 smash hit “Higher Love,” along with such memorable songs as “The Finer Things,” “Back in the Highlife” and “Valerie.” Mervyn and Steve wrote the hit song “Gimme Some Lovin’” in 1965. The plaintiffs alleged that Mervyn and Steve and their company infringed the plaintiffs’ copyright by lifting a bass line from plaintiffs’ song “Ain’t That a Lot of Love” and using it in “Gimme Some Lovin.’” In the district court, Steve and his company won summary judgment of non-infringement. The claims against Mervyn were dismissed for lack of personal jurisdiction. Plaintiffs appealed.

The Sixth Circuit panel majority determined that there could be no specific personal jurisdiction over Mervyn, who resides in the United Kingdom, because Mervyn’s suit-connected conduct lacked a substantial nexus with Tennessee. The plaintiffs contended that Mervyn’s alleged willful copyright infringement, which occurred in England, qualified as purposeful activity in Tennessee because Mervyn intentionally harmed Tennessee residents. But the Sixth Circuit held that this argument was foreclosed by Walden v. Fiore. There, the Supreme Court of the United States held that a federal district court in Nevada lacked jurisdiction over a defendant from Georgia who, in Georgia, created a false affidavit knowing it would harm two plaintiffs in Nevada. To find jurisdiction in such scenarios, the Court explained, would be to mistake a plaintiff’s forum connections for a defendant’s forum connections. The Court also rejected a “steam of commerce” theory of personal jurisdiction because there was no evidence Mervyn had specifically directed the distribution of “Gimme Some Lovin’” in Tennessee.

The Sixth Circuit panel majority also rejected plaintiffs’ argument that the district court had jurisdiction under Fed. R. Civ. P. 4(k)(2). That rule provides personal jurisdiction over a defendant if (1) the defendant is not subject to jurisdiction in any state’s courts of general jurisdiction, and (2) exercising jurisdiction in consistent with the US Constitution and laws. The Sixth Circuit wrote that “exercising jurisdiction over Mervyn would conflict with due process because he has not purposely availed himself of the privilege of acting in Tennessee.”

In her dissent, Judge Donald chided the majority for failing to view the evidence in the light most favorable to plaintiffs, and argued that under the stream of commerce “plus” approach for assessing “purposeful availment” (as articulated in the 1997 Supreme Court case Asahi Metal Indus. v. Superior Court), “personal jurisdiction over a defendant exists based on a product’s availability in the forum state when the defendant placed the product into the stream of commerce and there is evidence of some ‘[a]dditional conduct . . . [that] may indicate an intent or purpose to serve the market in the forum State.’” Donald argued that the conclusion by the majority “that Plaintiffs could not properly assert personal jurisdiction over Mervyn because Plaintiffs did not set forth evidence or affidavits establishing jurisdiction . . . is incorrect, as Plaintiffs have submitted evidence supporting the district court’s ability to exercise personal jurisdiction over Mervyn.” She then reviewed declaration evidence, including evidence regarding a nationwide distribution agreement, in support of personal jurisdiction.

Practice Note: It appears that the Sixth Circuit misapplied Rule 4(k)(2), which comes into play precisely when minimum contacts with the forum state and any particular state are lacking but the defendant does have minimum contacts with the United States itself. In any event, Mervyn Winwood will go on to rock another day.

Of Passion, Prejudice and Punitive Damages

Addressing an issue of damages, the US Court of Appeals for the Ninth Circuit vacated the district court’s grant of punitive damages in favor of the plaintiff, finding “passion and prejudice” mitigated finding of “malice”. Waverly Scott Kaffaga, as Executrix of the Estate of Elaine Anderson Steinbeck v. The Estate of Thomas Steinbeck et al., Case No. 18-55336 (9th Cir. Sept. 9, 2019) (Tallman, J).

The lawsuit related to decades of litigation among the heirs to John Steinbeck’s registered copyrights to his works, including The Grapes of Wrath, Of Mice and Men, East of Eden and The Pearl. When Steinbeck died in 1968, he left interest in his works to his third wife, Elaine. Steinbeck’s two sons by a previous marriage each received $50,000. In the 1970s, the sons obtained rights in their father’s works when interests in works were renewed pursuant to US Copyright law.

In 1983, changes in the law prompted Elaine and the sons to enter into an agreement that provided each of them with an equal share of the royalties and gave Elaine “complete power and authority to negotiate, authorize and take action with respect to the exploitation and/or termination of rights” in the works. In 2003, Elaine passed away, and her daughter, Waverly Kaffaga, assumed the role of successor under the 1983 agreement. The sons challenged the validity of the 1983 agreement, and the US Court of Appeals for the Second Circuit determined that the agreement was valid and enforceable. Despite losing in court, one of the sons, Thomas Steinbeck, along with his wife Gail and Gail’s media company, filed a lawsuit in California asserting rights to the works that the courts had already told them they did not have. The district court held, and the Ninth Circuit affirmed, that the Steinbecks’ claims were barred by collateral estoppel.

Kaffaga countersued Thomas and Gail for their attempts to assert various rights in the works despite having no rights. Those attempts led to multiple Hollywood producers abandoning negotiations with Kaffaga to develop screenplays for the works. The district court granted Kaffaga summary judgment on her breach of contract and slander of title claims, citing many detailed facts it believed supported those claims. The district court let the jury decide on her claim of tortious interference. The jury unanimously found for Kaffaga and awarded $5.25 million in compensatory damages and $7.9 million in punitive damages, including $6 million against Gail individually.

On appeal, the Ninth Circuit found clear support in the record for the lower court’s decisions, save for one—punitive damages. There, the appellate court noted that although Kaffaga had the better argument, and although there was ample evidence of defendants’ malice in the record to support the jury’s verdict, triggering punitive damages, Kaffaga missed one key piece of evidence.

Under California law, there is a “passion and prejudice” standard that measures the amount of punitive damages against the ratio between damages and the defendant’s net worth. It is the plaintiff’s burden to place into the record “meaningful evidence of the defendant’s financial condition” to support a defendant’s ability to pay.” Thus, for the punitive damage award to stand, the record needed to contain sufficient evidence of Gail’s assets, income, liabilities and expenses. Here, Kaffaga failed. Although Gail testified that she received approximately $120,000 to $200,000 per year from domestic book royalties, Kaffaga introduced no estimate of Gail’s potential income from the four television series and six feature films in development, nor did she introduce an estimate of the total value of Gail’s other intellectual property assets. The Ninth Circuit found that Kaffaga failed to meet her burden of placing into the record “meaningful evidence” of Gail’s financial condition showing that she had the ability to pay any punitive damages award as required by California law. The Ninth Circuit therefore vacated the almost $6 million punitive damages award.

Practice Note: When seeking punitive damages in California, the moving party must place “meaningful evidence” of the non-moving party’s financial condition and ability to pay any punitive damages awarded, including their assets, income, liabilities and expenses. If there are problems obtaining such evidence during discovery, procedures such as a motion to compel or proposing an appropriate adverse inference instruction at trial are in order.

Ninth Circuit Preserves LinkedIn Competitor’s Data-Scraping Rights

The US Court of Appeals for the Ninth Circuit affirmed a preliminary injunction forbidding professional networking platform LinkedIn from denying data analytics company hiQ access to publicly available LinkedIn profiles. HiQ Labs, Inc. v. LinkedIn Corporation, Case No. 17-16783 (9th Cir. Sept. 9, 2019) (Berzon, J) (Wallace, J, concurring).

HiQ sells “people analytics” focused on predictive employee data allowing employers to identity skill gaps, offer trainings and retain valuable employees. HiQ’s data is largely obtained by scraping public LinkedIn profiles with automated bots.

In 2017, after LinkedIn launched its Talent Insights product, which analyzed its own users’ data to provide employers with data-driven information for improving hiring, retention and professional development, LinkedIn sent a cease-and-desist letter to hiQ. The letter demanded that hiQ stop accessing and copying LinkedIn’s data from public profiles and asserted violations of the Computer Fraud and Abuse Act (CFAA) and the Digital Millennium Copyright Act, as well as claims under the California penal code and common law of trespass.

In response to the demand letter, hiQ immediately filed suit in federal district court seeking injunctive relief and a declaratory judgment that LinkedIn could not lawfully invoke the asserted claims against it. Granting hiQ’s motion for the preliminary injunction, the district court ordered LinkedIn to remove, and to refrain from implementing, any technical barriers to hiQ’s access to the LinkedIn public profiles. LinkedIn appealed.

The Ninth Circuit explained that a plaintiff seeking a preliminary injunction much establish that:

• It is likely to succeed on the merits.
• It is likely to suffer irreparable harm absent the injuncion.
• The balance of equities tips in its favor.
• The injunction is in the public interest.

The court also explained that the preliminary injunction stage requires it to focus only on whether hiQ has raised serious questions on the merits of the factual and legal issues presented, and does not yet require an attempt to resolve the legal dispute between the parties.

On the issue of irreparable harm, the Ninth Circuit found that the survival of hiQ’s business was threatened since the entire business depends on being able to access public LinkedIn member profiles. The Court also agreed with the district court on the balance of the equities, finding that the privacy interests of individuals who have otherwise opted to maintain a public LinkedIn profile do not outweigh hiQ’s interests in continuing its business.

Turning to the likelihood of success, the Ninth Circuit limited its inquiry to whether hiQ raised serious questions going to the merits of the claims at issue. The Court determined that hiQ raised serious questions as to the merits of its claim for tortious interference of contract, as well as the merits of LinkedIn’s legitimate business purposes defense. But the Court primarily focused on whether hiQ had raised a serious question as to the scope of the statutory coverage of the CFAA, which prohibits intentionally accessing a computer without authorization. More particularly, the Court considered whether the CFAA is limited to covering computer information for which authorization or access permission (such as a password) is required, and thus whether access of a public LinkedIn profile would fall outside of the CFAA.

The Ninth Circuit noted that there are significant public interests on both sides of the dispute, but found in favor of hiQ’s position, i.e., that giving a company such as LinkedIn a complete monopoly over the collection and use of data that it does not own (but only licenses from users) would disserve the public interest. Therefore, finding that hiQ established all of the elements required for a preliminary injunction, the Court affirmed the injunction and remanded for further proceedings.

In his concurring opinion, Judge Wallace agreed with issuance of the injunction, but warned about the use of appeals from a preliminary injunction as an attempt to obtain an appellate court’s opinion on the merits.