Standing Under California § 17200 Only Requires Injury From Business Practice

Drawing upon recent California Supreme Court rulings, the U.S. Court of Appeals for the Federal Circuit reversed a California federal district court’s dismissal of claims under the state’s unfair competition law, finding the court had wrongly dismissed the claims for lack of standing. Allergan, Inc. et. al. v. Athena Cosmetics, Inc. et. al., Case No. 10-1394 (Fed. Cir., May 24, 2011) (Gajarsa, J.).

Allergan, a manufacturer of an FDA-approved treatment for inadequate eyelash growth, Latisse®, brought suit alleging the defendants had infringed or induced infringement of multiple patents. Allergan also claimed defendants violated California’s unfair competition law, U.C.L. §§17200 et seq. With respect to the latter claim, Allergan contended that defendants’ manufacture, sale or marketing of hair/eyelash growth products that had not been approved by the FDA or state health regulators constituted unfair competition under the California statute.

The defendants countered that Allergan lacked standing because the statute only protects persons who have suffered a loss that is eligible for restitution. Restitution is a remedy that seeks to restore the status quo; it requires the plaintiff to have had an ownership interest in the money or property it seeks to recover. The district court found Allergan had no such interest in lost profits or market share because defendants’ profits derived from third-party consumers. Allergan appealed; its patent claims were stayed pending appeal of the unfair competition claim.

The Federal Circuit rejected the district court’s narrow view of the California unfair competition statute. While acknowledging that California voters had approved Proposition 64 to restrict standing requirements and address abuses that had resulted in frivolous lawsuits, the Court noted that the California Supreme Court’s decisions in two cases that were decided while the Allergan appeal was pending (Kwikset Corp. v. Superior Court of Orange County and Clayworth v. Pfizer, Inc.,), demonstrated that Proposition 64 did not limit standing solely to injuries compensable by restitution. Instead, a plaintiff need only allege an injury in fact that was the result of the unfair business practice. Applying this reasoning, the Court held that Allergan had adequately pleaded a claim under U.C.L. §17200.

Importantly, the Court also rejected the defendants’ claims that standing under U.C.L. §17200 required a plaintiff to have direct business dealings with a defendant. The Court denied that Proposition 64 added any such “business dealings” requirement to U.C.L. §17200 claims.

Practice Note: The Allergan decision demonstrates that while standing to file suit under §17200 is more limited than it was in the past, §17200 remains a potent tool that litigants can use to challenge a competitor’s practices.

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Vendor’s Economic Injury Is Insufficient to Establish DJ Jurisdiction, but Implicit Claim of Contributory Infringement Is Enough:

Patent / Declaratory Judgment Standing

The U.S. Court of Appeals for the Federal Circuit has now ruled that a supplier vendor has standing to commence a declaratory judgment action if a patent holder accuses the supplier’s customers of direct infringement and if the supplier’s product functions as a material component in the allegedly infringing system or the supplier’s product is used in the performance of the allegedly infringing method.   Arris Group v. British Telecommunications PLC, Case No. 10-1292 (Fed. Cir., May 19, 2011) (Dyk,  J.).

Arris makes and sells cable telephony and data products for use in networks with Voice over Internet Protocol (VoIP) telephone services.  British Telecommunications (BT) sent Arris’ customer, Cable One, a letter accusing Cable One’s network of infringing various system and method claims of the patents-in-suit.  Licensing discussions ensued.  BT sent Cable One a 118-page presentation comparing the patent claims to Cable One’s network, which included repeated identification of Arris’ products as meeting certain system claim elements and steps of the method claims.  BT’s presentation identified Cable One (not Arris) as a direct infringer.  Thereafter, at Cable One’s request, Arris became involved in the licensing discussions.  BT offered Cable One a license but declined to license Arris.  Arris filed a declaratory judgment action against BT; the district court dismissed the action, finding that Arris lacked standing because there was no case or controversy between Arris and BT.  Arris appealed.

The Federal Circuit rejected Arris’ argument that case or controversy exists because Arris has suffered an economic injury as a result of BT’s infringement threats.  The Court held that a mere adverse economic interest was insufficient to create declaratory judgment jurisdiction and that the Supreme Court’s MedImmune decision did not alter the prior law in this regard.  What is required to establish jurisdiction is an adverse legal interest of sufficient immediacy and reality.  However, the Federal Circuit found an adverse legal interest because BT implicitly asserted that Arris contributorily infringed the BT patents when it accused Cable One of direct infringement.  Arris’ products were “central” to the BT’s direct infringement allegations against Cable One and, for many of the asserted claims, BT identified Arris’ products as meeting virtually all of the claim elements.  The Court further found that, at a minimum, BT identified Arris’ products as satisfying at least one central element of every asserted claim.  BT allegations that Arris’ products complied with industry standards also suggested that Arris’ products were especially made or adapted for uses that infringe and are not staple articles of commerce.  Other relevant factors to the Court’s conclusion included Arris’ involvement in the prior licensing negotiations, as well as BT’s refusal to grant Arris a covenant not to sue.

Practice Note:   The “central” nature of Arris’ products in the infringement allegations entitled the Court to finding that standing existed.  However, the nature and quantity of contacts between the Arris and BT also strongly supported the Court’s conclusion.  Patent holders seeking to avoid declaratory judgment battles with indirect infringers should take care to minimize the nature of the allegations made about indirect infringers and should not rely on non-binding disclaimers that suppliers are not being accused of infringement.

One Year Post-Bilski : How the Decision is Being Interpreted by the BPAI, District Courts, and Federal Circuit -§101 Case Summaries v. 2.0: June 28, 2010 – June 27, 2011

One year ago, on June 28, 2010, the Supreme Court issued its decision in Bilski v. Kappos. The decision held that the machine-or-transformation test is not the exclusive test for patent eligibility, and that the three traditional exclusions of natural phenomena, abstract ideas, and laws of nature still apply. Since that time, 182 decisions involving statutory subject matter eligibility have been issued by the USPTO’s Board of Patent Appeals and Interferences (“the Board”). District Courts issued 6 decisions in the past year that substantively addressed statutory subject matter under § 101, while the Federal Circuit issued 3 decisions on the subject. The day after Bilski issued, the Supreme Court denied cert in In re Ferguson, and just recently picked up Mayo Collaborative Servs. v. Prometheus Labs for review.

Following is a summary of each decision that substantively discusses statutory subject matter under § 101 – from the Board and the Courts. Although the Board decisions are not precedential, they offer insight into what patent practitioners can expect in their own appeals. Similarly, both reported and unreported cases from the District Courts and Federal Circuit are provided to round out the statutory subject matter landscape. Section (I) outlines Board cases where the claims were found to be statutory. Section (II) outlines Board cases where the claims were found to be non-statutory. Section (III) provides a look at activity in the Courts.

Some trends from the Courts worth noting:

(1)  The District Courts appear to be very strict when reviewing statutory subject matter – out of the 6 District Court decisions that addressed § 101, only 2 found that the claims at issue were patent-eligible under § 101.

(2) The Federal Circuit has offered some relief for patent owners. Out of the 3 Federal Circuit decisions that addressed § 101, 2 found that the claims at issue were patenteligible.

(3) The Supreme Court is staying close to the patent-eligibility issue, having granted cert in the Prometheus case on appeal from the Federal Circuit.

Some trends from the Board worth noting:

(1) The number of decisions where the claims were held by the Board to be nonstatutory under §101 significantly outweighs the number of decisions where the Board found that the claims satisfied §101. There are about 2.5 non-statutory decisions for every 1 statutory decision.

(2) It is not unusual for the Board to raise a §101 rejection on its own, even if patent eligibility was not a subject on appeal, and was not briefed.

(3) The Board still relies heavily on the machine-or-transformation test, although it does look at other factors as well. For most claims that satisfied the machine-or-transformation test, the Board has found them to be patent-eligible without further analysis.

(4) Although it is not an official test, the “mental steps” doctrine rings true – if the claims can be performed purely in the human mind, then they will be non-statutory.

(5) Even if the specification is silent as to whether a computer readable medium can be read on a signal, the Board will likely read a signal into a claim reciting a computer readable medium, rendering it non-statutory.

(6) The panel of judges assigned to a particular appeal matters. As can be seen from the following, several of the Board judges rarely find a claim patent-eligible, and often raise previously non-existent §101 rejections.

(7) There are no guarantees. Similar claims have been treated differently by different panels, and some BPAI judges appear inconsistent in applying the law to seemingly similar claims.

For a full review of §101 Case Summaries v. 2.0: June 28, 2010 – June 27, 2011 and the full text of this artilce please click here:

Supreme Court Grants Cert. In Mayo v. Prometheus

June 20th, in what may be an ominous turn for biotech IP law, the Supreme Court granted cert. for the second time in Mayo Collaborative Services v. Prometheus Labs., Inc, Supreme Court No. 10-1150. Post-Bilski, the Supreme Court granted cert., vacated and remanded the Fed.  Cir.’s decision, rendered December 17, 2010, (related posts are archived under “patentable subject matter”) that reaffirmed that claims involving methods of medical treatment coupled with determining the levels of metabolites of the administered drugs were directed to patentable subject matter, and were not directed to abstract ideas or phenomena of nature. 628 F.3d 1347 (Fed. Cir. 2010).

Is it pay-back time? In the decision below, the Fed. Cir. pointedly in fn. 2, declined to give weight to the “Metabolite Labs. dissent,” 548 U.S. 124) in which Justices Breyer, Souter and Stevens would have found claims to an assay for cobalamin deficiency patent-ineligible as involving “natural correlations and data-gathering steps.” The Prometheus claims are not without vulnerable points. The Fed. Cir. agreed that the steps recited comparing the determined level of the metabolite to a benchmark level and concluding that a need exists to increase or decrease the amount of the drug administered were mental steps and not per se patentable. The Fed. Cir. also held that the first steps of the claims – the administering and determining steps – were not merely data gathering steps, but were central to the claimed method of optimizing therapeutic efficacy of the treatment.

While two of the three Justices who wrote the Metabolite dissent have retired, the Court clearly feels that there are issues here that need resolution. However, it is difficult to see how “methods of medical treatment” could remain patentable subject matter if these claims are held not to be. While processes are s. 101 patentable subject matter, John L. White’s Chemical Patent Practice (1993) felt it necessary to include a section “Process of Treating Humans.” Paragraph three begins:

“Claims to the treatment of humans medicinally are now allowed. Ex parte Timmis (POBA 1959) 123 USPQ 581 (treatment of chronic myeloid leukemia). The fact the claimed process for modifying a function of the human body (combating the clotting of blood) involves a mental determination of the amount administered is not a bar to patentability where that portion is an incidental feature of the process. Ex parte Campbell et al., (POBA 1952) 99 USPA 51.”

These decisions are from the nineteen fifties not the eighteen fifties! In Prometheus, the Fed. Cir. explicitly noted that claims to methods of medical treatment are patentable subject matter. Are modern medicine and IP law about to part ways?

Adding Only Dependent Claims Is Error Correctible By Reissue

The U.S. Court of Appeals for the Federal Circuit held that patent applicants can file a reissue application that retains all original claims and adds only dependent claims. In re Yasuhito Tanaka (Fed. Cir., Apr. 15, 2011) (Linn, J.) (Dyk, J., dissenting).

Yasuhito Tanaka (Tanaka) appealed from the precedential decision of the Board of Patent Appeals and Interferences (the Board), holding that a reissue application that adds only dependent claims does not present the type of error correctible by reissue under 35 U.S.C. §251.  Tanaka filed a reissue application seeking to broaden claim 1 of his patent and did so within two years of the patent issuance.  Over the course of prosecuting the reissue application, Tanaka gave up on broadening claim 1 and presented original claims with a new dependent claim.  The examiner rejected the claims, asserting that no error has been specified that broadens or narrows the scope of the claims.  The rejection was made final.  Tanaka appealed to the Board.

The Board held that §251 “disallow[s] reissue applications that simply add narrow claims to the reissue patent when no assertion of inoperativeness or invalidity for the reasons set forth in § 251 can be made by the patentee.”  Therefore, the Board affirmed the examiner’s decision, whereupon Tanaka appealed to the Federal Circuit.

On appeal, Tanaka argued that the Board’s holding is inconsistent with long standing Court of Customs and Patent Appeals (CCPA) precedent such as In re Handel and In re Muller, as well as with Federal Circuit precedent such as Hewlett-Packard v. Bausch & Lomb.  The Federal Circuit agreed, noting that § 251 provides “[w]henver any patent is … deemed wholly or partly inoperative or invalidby reason of the patentee claiming more or less than he had a right to claim in the patent, the Director shall…reissue the patent.”  Referring to its precedent, the Federal Circuit noted that the term less means claiming fewer claims than patentee could have properly claimed rather than referring to the scope of protection.  In In re Handel, it was stated that adding dependent claims as a hedge against possible invalidity of original claims is a proper reason for asking for a reissue to be granted.

Accordingly, the Federal Circuit concluded that patent applicants can file a reissue application for purposes of adding only additional dependent claims.

Judge Dyk, in dissent, cited an 1883 Supreme Court case, Gage v. Herring, that in his view prohibited a reissue applicant from returning his original claims without amendment.

Supreme Court Rules That Knowledge Of Patent Is Required For Liability For Inducing Patent Infringement, But Willful Blindness Is Enough

Under section 271(b) of the Patent Act, a defendant in a patent infringement lawsuit may be held liable for inducing the infringement of a patent, i.e., causing another person to directly infringe a patent. However the language of the statute is not clear as to what conduct or intent is required for one to be liable for inducing infringement. Section 271(b) simply provides: “Whoever actively induces infringement of a patent shall be liable as an infringer.”

The U.S. Supreme Court recently grappled with the meaning of Section 271(b) in Global Tech Appliances, Inc. v. SEB S.A.U.S., No. 10-6, 5-31-2011, acknowledging that the statutory language regarding induced infringement is ambiguous, and attempting to clarify the requirements for liability under this section.

In Global Tech, defendant was accused of inducing infringement of a patent for an innovative deep fryer owned by SEB S.A. Defendant had purchased an SEB fryer in Hong Kong (thus it lacked U.S. patent markings), copied all of the fryer’s features except for cosmetics, retained an attorney to conduct a right-to-use study without telling the attorney that it had copied SEB’s design, and ultimately sold its fryers to companies that then resold them in the United States. A jury found defendant liable for inducing infringement and the Federal Circuit affirmed, stating that one may be liable for induced infringement where he “knew or should have known that his actions would induce actual infringements.” At issue before the Supreme Court was whether the standard applied for finding induced infringement (i.e., that defendant knew or should have known) was appropriate.

In considering Section 271(b), the Court explained that the phrase “induces infringement” could merely require that “the inducer lead another to engage in conduct that happens to amount to infringement,” (i.e., no knowledge that the induced act constitutes infringement) or “the inducer must persuade another to engage in conduct that the inducer knows is an infringement.” (Emphasis added.) In other words, as the Court pointed out, the statute fails to give any indication as to what, if any, intent is required for a defendant to be liable for inducing patent infringement.

After considering case law pre-dating enactment of the law on contributory patent infringement (including induced infringement) and finding it conflicting, the Court turned its attention to its decision in Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964) (“Aro II“). In Aro II, the Court determined the intent required for contributory infringement under Section 271(c). Under Section 271(c), a party is liable for patent infringement where it “offers to sell or sells . . . a component of a patented [invention] . . ., constituting a material part of the invention,knowing the same to be especially made or especially adapted for use in an infringement of such patent . . . .” In Aro II, the Court concluded that for contributory liability to attach under Section 271(c), knowledge of the existence of the patent that is infringed is necessary.

Based on the Aro II decision and the fact that Section 271(b) and 271(c) incorporate a similar ambiguity as to intent, the Court concluded in Global Tech that the same knowledge standard for contributory infringement under Section 271(c) is necessary for induced infringement under Section 271(b). Thus, the Court held that “induced infringement under § 271(b) requires knowledge that the induced acts constitute patent infringement.” A “deliberate indifference to a known risk that a patent exists is not the appropriate standard under § 271(b).”

The analysis does not end there however. The next step is the determination of what constitutes “knowledge” for liability for inducing infringement. Despite finding a “deliberate indifference” insufficient to meet this knowledge requirement, Global Tech Court went on to affirm the lower court rulings against the defendant in this case finding that the evidence was sufficient to support a finding of knowledge based on the defendant’s “willful blindness.” The Court reviewed the history of the doctrine of willful blindness and concluded that for the doctrine to apply, two requirements must be met: “(1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact.” In justifying the imposition of liability based on a defendant’s willful blindness, the Court distinguished willful blindness from recklessness and negligence explaining: “a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known of the critical facts.”

In Global Tech, the facts that sufficed to amount to willful blindness for liability for inducing infringement included defendant’s decision to copy an overseas model of SEB’s fryer (lacking patent markings) and its failure to inform its attorney from whom it sought a right-to-use opinion of that fact. Based on these facts, the Court concluded that defendant “subjectively believed there was a high probability that SEB’s fryer was patented, that [defendant] took deliberate steps to avoid knowing that fact, and that it therefore willfully blinded itself to the infringing nature of [purchasers’] sales.”

In summary, under the Court’s Global Tech decision, one may be liable for inducing infringement if he knew that the acts induced constitute an infringement. While a deliberate indifference to a known risk that a patent exists is insufficient to demonstrate induced infringement, willful blindness is enough.

Federal Circuit Changes Law for Post-Injunction Contempt Proceedings Against Modified Products

In TiVo, Inc. v. EchoStar Corp., et al., No. 2009-1374 (Fed. Cir. Apr. 20, 2011), a recent en banc decision, the Federal Circuit vacated an Eastern District of Texas court’s ruling that EchoStar was in contempt of the district court’s permanent injunction. Because the Federal Circuit considered the case en banc, the Federal Circuit was able to reconsider the two-step test it adopted in KSM Fastening Systems v. H.A. Jones Co., 776 F.2d 1522, 1532 (Fed. Cir. 1985), for determining whether a district court should hold a contempt proceeding. The Federal Circuit concluded that the KSM test was unsound and clarified the standards governing contempt proceedings in patent infringement cases.

The TiVo/EchoStar patent battle has been raging in the courts for the better part of 10 years. Following a win by TiVo in a jury trial in the Eastern District of Texas, Judge Folsom entered an injunction prohibiting EchoStar from undertaking certain activities in connection with its accused DVR products. The court subsequently found EchoStar in violation of the injunction and imposed contempt sanctions on top of the damages awarded by the jury. EchoStar appealed to the Federal Circuit and ultimately persuaded the Federal Circuit to consider the case en banc to clarify the standard for imposing contempt sanctions in a patent case.

In a unanimous portion of the opinion, the Federal Circuit held that there is no “good faith” defense to a charge of contempt. The court also overruled an often-misunderstood portion of the 1985 KSM case, which had set out a two-part test for deciding whether contempt proceedings were appropriate. The Federal Circuit changed the two-part KSM inquiry into a single statement: “What is required for a district court to hold a contempt proceeding is a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.”

With respect to the substantive standard applied to a contempt proceeding, the Federal Circuit reiterated that “the party seeking to enforce the injunction must prove both that the newly accused product is not more than colorably different from the product found to infringe and that the newly accused product actually infringes.” For the first portion of this analysis—determining whether there are more than “colorable differences”—the court clarified the appropriate comparison: “[O]ne should focus on those elements of the adjudged infringing products that the patentee previously contended, and proved, satisfy specific limitations of the asserted claims. Where one or more of those elements previously found to infringe has been modified, or removed, the court must make an inquiry into whether that modification is significant. If those differences between the old and new elements are significant, the newly accused product as a whole shall be deemed more than colorably different from the adjudged infringing one, and the inquiry into whether the newly accused product actually infringes is irrelevant. Contempt is then inappropriate.”

On the final key question—whether EchoStar’s conduct constituted contempt under the newly devised proper standard—two factions of the en banc court were sharply divided. EchoStar argued that the language of the injunction was too ambiguous to clearly proscribe the challenged conduct. The seven judge majority, in an opinion written by Judge Lourie, held that such an argument was unavailable as a matter of law because EchoStar never directly challenged the language of the injunction. According to the majority, “where a party has bypassed opportunities to present its asserted vagueness claim on appeal or through a motion to clarify or modify the injunction, the party cannot disregard the injunction and then object to being held in contempt when the courts conclude that the injunction covered the party’s conduct.” The five-member minority, in an opinion written by Judge Dyk, disagreed strenuously, on the grounds that “contempt cannot be based on an order susceptible to two reasonable readings, one of which does not cover the accused conduct.” Thus, the dissenting judges would have reversed the finding of contempt because “TiVo was obligated to show that the injunction clearly prohibited the substitution of new non-infringing software. It did not remotely satisfy this burden.”

One important message to take away from this case is that any defendant that is subject to an injunction in a patent case should immediately analyze the injunction to determine whether there is any potential ambiguity in its terms. If such ambiguity is present—or even potentially present—the defendant frequently may be well advised to raise any such issues immediately, through a motion to clarify/modify the injunction and/or an appeal to the Federal Circuit. Absent those protective measures, the ambiguity of an injunction will likely not provide the defendant with grounds to later oppose a contempt motion by the patentee.

A copy of the opinion can be found at http://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1374.pdf.

The Federal Circuit Affirms the Delaware District Court’s Summary Judgment of Invalidity for Failure to Disclose the Best Mode

In Wellman, Inc. v. Eastman Chemical Co., No. 2010-1249 (Fed. Cir. Apr. 29, 2011), the Federal Circuit affirmed the U.S. District Court for the District of Delaware’s grant of summary judgment on invalidity of Wellman’s patent claims for failure to disclose the best mode.

Plaintiff-patentee Wellman filed an action against Eastman Chemical, claiming it infringed U.S. Patent Nos. 7,129,317 (the ’317 patent) and 7,094,863 (the ’863 patent), which claim polyethylene terephthalate (PET) resins for use in plastic beverage containers. More particularly, the Wellman patents disclose “slow crystallizing” PET resins that purportedly retain exceptional clarity and do not shrink or become hazy from crystallization when “hot-filled” with product at temperatures of 180° C to 205° C.

Eastman Chemical defended by moving for summary judgment of invalidity on the grounds of indefiniteness and failure to set forth the best mode of practicing the claimed invention under 35 U.S.C. § 112, ¶ 1. The district court found that the patents were invalid, and Wellman appealed.

In its opinion, the Federal Circuit reaffirmed the law of “best mode.” Determining compliance with the best-mode requirement requires a two-prong inquiry. First, it must be determined whether, at the time the application was filed, the inventor possessed a best mode for practicing the invention. This is a subjective inquiry that focuses on the inventor’s state of mind at the time of filing. Second, if the inventor has a subjective preference for one mode over others, the court must then determine whether the inventor “concealed” the preferred mode from the public. The second prong inquires into the inventor’s disclosure of the best mode and the adequacy of that disclosure to enable one of ordinary skill in the art to practice that part of the invention. This second inquiry is objective, depending on the scope of the claimed invention and the level of skill required in the relevant art.

With respect to the first inquiry, the Federal Circuit agreed with the district court’s finding that the inventors possessed a best mode for practicing the invention. In particular, the district court found, based on the testimony of the inventors, that one inventor believed a specific formula for a slow-crystallizing, hot-fill PET called Ti818 to be the best mode of carrying out the claimed invention. The parties agreed that all but five of the asserted claims encompassed Ti818. Additionally, the Federal Circuit agreed with the district court that another inventor believed the use of carbon black (N990), an ingredient in its Ti818 PET formula, to be the best mode at the time of filing the application.

With respect to the second inquiry, the Federal Circuit agreed with the district court’s finding that Wellman effectively concealed the best mode from the public. Specifically, the district court found, and the Federal Circuit agreed, that Wellman effectively concealed the recipe for Ti818 by identifying preferred concentration ranges for certain ingredients that excluded those used in Ti818 and by identifying preferred particle sizes for an additive other than that used in Ti818. Thus, Wellman did not disclose the specific recipe for Ti818 or any other specific PET resin recipes. “By masking what at least one inventor considered the best of these slow-crystallizing resins, Wellman effectively concealed its recipe for Ti818.”

The Federal Circuit agreed with the district court and further held that Wellman not only failed to disclose its use of carbon black N990 in its Ti818 PET formula, but also deliberately chose to protect that ingredient as a trade secret, and, therefore, “intentionally concealed” the best mode. The Federal  Circuit found that the Wellman patents “lead away” from the use of carbon black N990 in Ti818.

While affirming the district court’s decision on invalidity based on the best mode, however, the Federal Circuit reversed the district court’s grant of summary judgment on the issue of indefiniteness. Specifically, the Federal Circuit found that the district court erred when it concluded that the patents did not provide sufficient guidance to those skilled in the art for construing the temperature (TCH) at which the sample crystallized the fastest during heating in a differential scanning calorimetry machine. The specifications of the patents supported construing the TCH term to require testing of amorphous materials.

The Federal Circuit affirmed the district court’s summary judgment that all asserted claims of the ’317 and ’863 patents that covered the PET recipe Ti818 were invalid for failure to disclose the best mode of practicing the claimed invention. The Federal Circuit, however, reversed the district court’s judgment that the asserted claims were indefinite under 35 U.S.C. § 112, ¶ 2, and remanded the case for further proceedings.

A copy of the opinion can be found at http://www.cafc.uscourts.gov/images/stories/opinions-orders/10-1249.pdf.

Supreme Court Upholds Inventor’s Ownership of Patent Rights Under the Bayh-Dole Act

On Monday, June 6, 2011, the Supreme Court held that the Bayh-Dole Act does not disturb the long-standing rule of patent law that ownership of patent rights vest in the inventor. In Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.,the Supreme Court affirmed the Federal Circuit’s ruling and held that the Bayh-Dole Act clarified “the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.” (Slip. Op. at 12). For the contractor to have rights in a patent, the inventor must have executed a valid assignment in favor of the contractor.

The Stanford case arose from a joint research program in which a Stanford researcher conducted HIV-related research at Cetus Corp. Roche is the successor of Cetus. The researcher had “agree[d] to assign” any inventions to Stanford, and later did execute an assignment to Stanford for the specific patents. However, in the interim, the researcher signed a confidentiality agreement that provided he “will assign and do[es] hereby assign” to Cetus inventions arising out of the use of Cetus’s facilities. Following its precedent, the Federal Circuit ruled that the language in Stanford’s agreement to assign did not actually effect an assignment whereas the language of the assignment to Cetus did. Accordingly, Roche was the owner of the invention unless the Bayh-Dole Act vested ownership in Stanford. The Federal Circuit held it did not. (See our previous alert for a more detailed history.)

In affirming, the Supreme Court characterized the concept that the inventor owns the patent rights as basic to our patent laws since the passage of the first Patent Act in 1790. It found that Congress has divested inventors of this right in the past only by unambiguous language. It cited two instances, inventions concerning nuclear material or atomic energy and inventions made pursuant to contracts with NASA, where Congress unambiguously specified that the title would vest in the government. The Court observed that the language that divested the inventor’s rights in those instances was notably absent from the Bayh-Dole Act. Further, the Supreme Court found other language in the Bayh-Dole Act supported its view.

Justice Sotomayor wrote a concurring opinion to make clear that she did not view the majority opinion as resolving whether the Federal Circuit’s precedent was correct in interpreting Stanford’s agreement to assign as not actually effecting an assignment, particularly where the Bayh-Dole Act is implicated. Since Stanford did not challenge the Federal Circuit’s decision on that ground, she nonetheless agreed affirmance was appropriate.

Justice Breyer, joined by Justice Ginsburg, dissented. The dissent would have vacated and remanded the case because in their view, the answer to the question presented turned on matters on which the parties had not had a full opportunity to argue. One such matter was the Federal Circuit’s precedent on the interpretation of assignment agreements. The dissent did not view the majority opinion as foreclosing argument on this point by similarly situated parties in the future. The second matter not fully addressed was whether the Bayh-Dole Act should be interpreted to create a presumption of assignment by federally funded employees. While the concurring and dissenting Justices made clear their view that the Federal Circuit’s case law regarding the proper construction of agreements to assign remains open to challenge, the Federal Circuit’s precedent will remain controlling unless overruled by that court en banc or by the Supreme Court. Both are unlikely.

Thus, the first and best line of protection for academic and research institutions as well as private recipients of federal research dollars is the same as for other employers: review with competent counsel your policies and practices regarding assignments of inventions and the forms and agreements used in connection with such assignments and with agreements to assign. These must be drafted with the understanding that ownership initially vests with the inventor or, where more than one person contributes to the conception of the invention, with the inventors jointly.

Supreme Court Unanimously Maintains High Hurdle for Invalidity Defense

June 9th, the Supreme Court unanimously ruled1 that an accused infringer must prove its invalidity defense by clear and convincing evidence. Microsoft Corp. v. i4i Ltd. P’ship, — S. Ct. — 564 U.S. —, 2011 WL 2224428, slip op. at 1, 16 (June 9, 2011).2 In a case of first impression, the Court determined that this standard applies even when the United States Patent and Trademark Office (“Patent Office”) did not consider the evidence of invalidity currently before the jury in the patent examination process. Id. The hurdle for proving invalidity historically has been high and now remains high.

According to Justice Sotomayor (who wrote for the majority), “Congress specified the applicable standard of proof in 1952 when it codified the common-law presumption of patent validity.” Id. at 20. “Nothing . . . suggests that Congress meant to depart from that understanding to enact a standard of proof that would rise and fall with the facts of each case.” This decision thus keeps in place decades of existing jurisprudence and will continue to allow patent owners to value their portfolios based on past practices. Although accused infringers can take certain steps to minimize negative effects of the clear-and-convincing standard, “[a]ny recalibration of the standard of proof” is now solely in the hands of Congress. Id.

Historical Basis of Proving Invalidity

To receive patent protection, a claimed invention must meet the statutory requirements of patentability. The claimed invention, for example, must fall within certain patentable subject matter (§ 101), be novel (§ 102), be nonobvious (§ 103), and be disclosed in the patent application in sufficient detail to meet the enablement, best mode, and written description requirements (§ 112). Thus, the Patent Office issues a patent for a claimed invention only if its examiners determine that the claimed invention meets all of the statutory requirements. Once issued, a patent holder has the exclusive right to exclude others from using the claimed invention for the term of the patent.

An accused infringer, however, can escape liability for infringement by proving that the patent is invalid (i.e., that the Patent Office should not have issued it in the first place). Under § 282, however, “[a] patent shall be presumed valid” and “[t]he burden of establishing invalidity of a patent . . . rest[s] on the party asserting such invalidity.” 35 U.S.C. § 282. For over thirty years, the Federal Circuit has interpreted that section to require “a defendant seeking to overcome this presumption [to] persuade the factfinder of its invalidity defense by clear and convincing evidence.” Microsoft Corp., 2011 WL 2224428, slip op. at 3. According to Judge Rich, a principal drafter of the 1952 Patent Act, “Section 282 creates a presumption that a patent is valid and imposes the burden of proving invalidity on the attacker” by clear and convincing evidence. Am. Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.3d 1350, 1360 (Fed. Cir. 1984). “That burden is consistent and never changes.” Id.

Microsoft Unsuccessfully Challenged Federal Circuit’s Long-Standing Precedent

In 2007, i4i sued Microsoft claiming that Microsoft Word infringed its patent for an improved method for editing computer documents. Microsoft Corp., 2011 WL 2224428, slip op. at 4. In addition to denying infringement, Microsoft argued that § 102(b)’s on-sale bar rendered i4i’s patent invalid due to i4i’s sale of a software program, S4, prior to the filing of the i4i patent application. Id. The parties agreed that i4i had sold the S4 program prior to the filing of the patent at issue but looked to the jury to determine whether S4 embodied the claimed invention. Id. Relying on the undisputed fact that S4 was never presented to the Patent Office, Microsoft objected to i4i’s proposed instruction requiring the jury find proof of invalidity by clear and convincing evidence. Id. In its place, Microsoft requested a jury instruction limiting its burden of proof, “with regard to its defense of invalidity based on prior art that the examiner did not review during the prosecution of the patent-in-suit” to a “preponderance of the evidence.” Id. at 6 (internal quotation marks and citation omitted).

The District Court rejected Microsoft’s proposed instruction and instructed the jury that “Microsoft has the burden of proving invalidity by clear and convincing evidence.” Id. (internal quotation marks and citation omitted). Based on this instruction, the jury found that Microsoft had willfully infringed i4i’s patent and that Microsoft had failed to prove its invalidity defense. The Court of Appeals for the Federal Circuit affirmed, concluding that “the jury instructions were correct in light of [the] court’s precedent, which requires the challenger to prove invalidity by clear and convincing evidence.” i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 848 (Fed. Cir. 2010).

Supreme Court Rejected Microsoft’s Arguments—Invalidity Must Be Proved by Clear and Convincing Evidence

Microsoft sought certiorari from the Supreme Court as to (1) whether “a defendant in an infringement action need only persuade the jury of an invalidity defense by a preponderance of the evidence” and (2) whether “a preponderance standard must apply at least when an invalidity defense rests on evidence that was never considered by the [Patent Office] in the examination process.” Id. at 5-6. The answer to both of Microsoft’s questions is a clear and unqualified no.

In reaching this decision, the Court started with a common axiom of statutory interpretation: “Where Congress has prescribed the governing standard of proof, its choice controls absent ‘countervailing constitutional constraints.'” Id. at 6 (citing Steadman v. SEC, 450 U.S. 91, 95 (1981)). It then asked the next logical question—”whether Congress made such a choice” when it enacted § 282. To answer this question, the Court first analyzed the plain language of statute. The Court noted that the statute “establishes a presumption of patent validity, and it provides that a challenger must overcome that presumption to prevail on an invalidity defense”; however, the Court recognized that “it includes no express articulation of the standard of proof.” Id. Nevertheless, the Court concluded that Congress used the term “presumed valid” according to its settled meaning in the common law—a term encompassing “not only an allocation of the burden of proof but also an imposition of a heightened standard of proof.” Id. at 7-8.3

“The common-law presumption, in other words, reflected the universal understanding that a preponderance standard of proof was too ‘dubious’ a basis to deem a patent invalid.” Microsoft Corp., 2011 WL 2224428, slip op. at 8. Accordingly, when Congress declared that a patent is “presumed valid,” “the presumption encompassed not only an allocation of the burden of proof but also an imposition of a heightened standard of proof.” Id. Based on this wide-spread understanding of the common law term, the Court refused to conclude “that Congress intended to drop the heightened standard of proof from the presumption simply because § 282 fails to reiterate it expressly.” Id. at 9 (internal quotation marks and citation omitted). Rather, the Court concluded that it “‘must presume that Congress intended to incorporate’ the heightened standard of proof, ‘unless the statute otherwise directs.'” Id. (quoting Neder v. United States, 527 U.S. 1, 23 (1999)). Simply put, “[t]he language Congress selected reveals its intent not only to specify that the defendant bears the burden of providing invalidity but also that the evidence in support of the defense must be clear and convincing.” Id. at 12 n.7.

Notably, the Court rejected Microsoft’s attempts to distinguish nearly century’s worth of otherwise clear case law: “Squint as we may, we fail to see the qualifications that Microsoft purports to identify in our cases.” Id. at 10. Likewise, the Court rejected Microsoft’s argument that the Federal Circuit’s interpretation of § 282 must fail, because applying that interpretation of the phrase “presumed valid” renders superfluous the statute’s additional phrase, “[t]he burden of establishing invalidity of a patent . . . shall rest on the party asserting such invalidity.” Id. at 12. Although Justice Sotomayor (writing for the majority) seems to agree with Microsoft that the Federal Circuit’s interpretation renders some of the statute superfluous, the Court reminded Microsoft that “the canon against superfluity assists only where a competing interpretation gives effect ‘to every clause and word of a statute.'” Id. (citing Duncan v. Walker, 533 U.S. 167, 174 (2001)). The Court thus found the rule inapplicable here, where “no interpretation of § 282—including the two alternatives advanced by Microsoft—avoids excess language.” Id. at 13.

In addressing Microsoft’s second, more limited argument, the Court rejected Microsoft’s request for a variable standard of proof:

Our pre-1952 cases never adopted or endorsed the kind of fluctuating standard of proof that Microsoft envisions. And they do not indicate, even in dicta, that anything less than a clear-and-convincing standard would ever apply to an invalidity defense raised in an infringement action. . . . Nothing in § 282’s text suggests that Congress meant to depart from that understanding to enact a standard of proof that would rise and fall with the facts of each case.

Id. at 15-16.

Accused Infringers Have Options

The accused infringer, however, is not without options. Although the Court steadfastly affirmed the heightened standard of proof, it recognized that “new evidence supporting an invalidity defense may carry more weight in an infringement action than evidence previously considered by the [Patent Office].” Id. at 17. Indeed, the Patent Office’s judgment may lose significant force if it did not have all the material facts before it. Id. In turn, this may make it easier for the accused infringer to satisfy its burden (e.g., to use the new evidence to persuade the jury of a patent’s invalidity by clear and convincing evidence). Id. Accordingly, if faced with new evidence of invalidity, an accused infringer should consider taking the following actions:

  1. Request a jury instruction on the effect of new evidence not considered by the Patent Office. When requested, such an instruction “most often should be given.” Id. “When warranted, the jury may be instructed to consider that it has heard evidence that the [Patent Office] had no opportunity to evaluate before granting the patented.” Id.
  2. If the parties dispute whether the evidence presented to the jury differs from the evidence previously before the Patent Office, seek an instruction mandating that the jury consider that question. Id. at 18. “The jury may be instructed to evaluate whether the evidence before it is materially new, and if so, to consider that fact when determining whether an invalidity defense has been proved by clear and convincing evidence.” Id. (citing Mendenhall v. Cedarapids, Inc., 5 F.3d 1557, 1563-64 (Fed. Cir. 1993)).
  3. Remember that the clear and convincing standard of proof is an evidentiary standard that applies only to questions of fact to the trial court. Microsoft Corp. v. i4i Ltd. P’ship, — S. Ct. — 564 U.S. —, 2011 WL 2224428, at *12 (June 9, 2011) (Breyer, J., concurring). Accordingly, separate “factual and legal aspects of an invalidity claim . . . by using instructions based on case-specific circumstances that help the jury make the distinction.” Id. at *13. In addition, use interrogatories and special verdicts “to make clear which specific factual findings underlie the jury’s conclusions.” Id. “By preventing the ‘clear and convincing’ standard from roaming outside its fact-related reservation, courts can increase the likelihood that discoveries or inventions will not receive legal protection where none is due.” Id.

Conclusion

Despite Microsoft’s valiant challenge, yesterday’s unanimous opinion keeps the hurdle high for parties trying to show that a patent is invalid. Although accused infringers are not without their options, any modification of the clear and convincing standard itself now requires an Act of Congress.

___________________
1All eight participating Justices concurred in the judgment.  Justice Sotomayor delivered the opinion of the Court, in which Justices Scalia, Kennedy, Ginsburg, Breyer, Alito, and Kagan joined.  Justice Breyer filed a concurring opinion, in which Justices Scalia and Alito joined.  Although Justice Breyer joined the Justice Sotomayor opinion in full, he wrote separately to emphasize that the clear and convincing standard of proof applies only to questions of fact, not to questions of law.  Justice Thomas filed an opinion concurring only in the judgment.  According to Justice Thomas, the heightened standard of proof applies because § 292 is silent and therefore does not alter the common-law rule.  Chief Justice Roberts took no part in the consideration or decision of the case.
2This case marks the third patent-law case released by the Supreme Court during the past two weeks.  Earlier this week, the Court ruled that the Bayh-Dole Act does not eclipse inventors’ rights. See Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 563 U.S. —, 2011 WL 2175210 (June 5, 2011).  On May 31, 2011, the Supreme Court ruled that induced infringement of a patent required knowledge that the induced acts constituted patent infringement.  See Global-Tech Appliances, Inc. v. SEB S.A., — S. Ct. —, 2011 WL 2119109 (May 31, 2011).  Each of these cases affirmed the Federal Circuit.
3Indeed, the Court concluded that by the time Congress enacted the 1952 Patent Act, “a common core of thought” unified the decisions of courts across the country:

“[O]ne otherwise an infringer who assails the validity of a patent fair upon its face bears a heavy burden of persuasion, and fails unless his evidence has more than a dubious preponderance.  If that is true where the assailant connects himself in some way with the title of the true inventor, it is so a fortiori where he is a stranger to the [claimed] invention, without claim of title of his own.  If it is true where the assailant launches his attack with evidence different, at least in form, from any theretofore produced in opposition to the patent, it is so a bit more clearly where the evidence is even verbally the same.”

Id. (citing Radio Corp. of Am. v. Radio Eng’r Labs, Inc., 293 U.S. 1, 8 (1934).  As Justice Cardozo put it, “there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence.”  Radio Corp. of Am., 293 U.S. at 2.

Supreme Court: Evidence Of Invalidity Must Be “Clear And Convincing”

On June 9, 2011, the Supreme Court rejected Microsoft’s contention that a preponderance of the evidence should be sufficient to establish patent invalidity in an 8-0 (Roberts abstained) opinion, which affirmed the Fed. Cir.’s opinion (for a change). (The decision can be found at the end of this post.) The Court interpreted Congress’ intent in 35 USC 282 to preserve the presumption of validity of a patent claim unless an attacker can meet the burden of presenting “clear and convincing” evidence of invalidity.

The Court also rejected the notion that some sort of “fluctuating standard of proof” should apply in situations in which the evidence relied upon was not considered by the PTO during prosecution. Even if the primary rationale behind the clear and convincing standard, that the PTO applied its expertise correctly, “seems much diminished’ (citing KSR 550 US 398), the Court held that Congress “codified the common-law presumption of patent validity and, implicitly the heightened standard of proof attached to it” and that standard of proof must still be met. The Court suggested that, in such cases, the jury could be instructed that it could give weight to the fact that the evidence before it is “materially new” when determining if clear and convincing evidence of invalidity had been presented.

Common Sense Variation Is Unpatentable

Affirming the district court’s grant of summary judgment of invalidity, the U.S. Court of Appeals for the Federal Circuit held that a common-sense variation of known technology is unpatentable.   Odom v. Microsoft Corp., Case Nos. 11-1160 (Fed. Cir., May 4, 2011) (Lourie, J.).

In August 2008 James Odom brought suit against Microsoft, alleging infringement of its patent directed to both a method for manipulating groups of “tools” in “toolbars” commonly found in computer software applications, as well as to the ability to use the divider to hide or display selected tools, by Microsoft’s Office 2007, a suite of office productivity software.  During the litigation, Odom’s counsel withdrew from the case and, failing to retain new counsel, Odom moved to dismiss his claims without prejudice.  The district court granted Odom’s request to dismiss but declined to dismiss Microsoft’s declaratory judgment counterclaims.  Microsoft subsequently moved for summary judgment of non-infringement and invalidity.

The district court granted Microsoft’s motions for summary judgment, holding that the asserted claims of the patent were invalid for obviousness and not infringed by Office 2007.   In so finding, the court stated that the asserted claims presented “one of the clearest” cases of obviousness that had come before it because Odom had simply “cobbled together various pieces of what was already out there in a manner … that would have been obvious to anyone skilled in the art at the time of the invention.”  Odom appealed.

On appeal, Odom argues that the district court erred in its obviousness analysis by looking at separate pieces of the claimed invention rather than the invention as a whole, by impermissibly applying hindsight in determining obviousness, and argued that the manipulatable sections of the composite toolbar disclosed in the prior art are very different from the claimed tool groups.  The Federal Circuit disagreed.  The Court found that user-manipulatable toolbars (which can be customizing according to user preferences and which include groups of command buttons’ or toolbars) were known in prior art at the time the patent in suit was filed.  The Court found that the only difference between the prior art and the patent in suit was that the groups of tools claimed in the patent are on a single toolbar.  Citing KSR, the Court held that this difference “is an insignificant advance.”

Since it would have been a trivial change for a person of skill in the art designing such alterable tool groups to add an indicator that could indicate any altered condition of the tool group, the Federal Circuit concluded that the district court did not err in determining that the manner in which patent divides up toolbars into groups, and the claimed manipulation of tool groups, would have been a common sense variation for a person of skill in the art.

The Federal Circuit also rejected Odom’s arguments of secondary considerations and reiterated that weak secondary considerations generally do not overcome a strong prima facie case of obviousness.

Joint (Direct) Infringement Still Requires Control … But Stay Tuned

A sharply divided panel of the U.S. Court of Appeals for the Federal Circuit, addressing the requirements for direct infringement if more than one party performs the steps of the patented method, ruled that the doctor-patient relationship was insufficient to show that the patient was acting under the direction or control of the doctor.   McKesson Techs. Inc. v. Epic Sys. Corp., Case No. 10-1291 (Fed. Cir. Apr. 12, 2011) (Linn, J.) (Bryson, J. concurring) (Newman, J., dissenting).

McKesson’s patent is directed to a method of electronic communication between healthcare providers and patients involving personalized web pages for doctors and their patients.  Epic’s MyChart software allows healthcare providers to associate medical records with a personalized web page.  Epic did not directly use the software, but licensed MyChart to doctors  who provided the software as an option for their patients’ use.  McKesson sued Epic for inducement of infringement.  Both McKesson and Epic agreed that the first step of McKesson’s method claim (“initiating a communication”) was performed by the patient, while the remaining steps were performed by doctors.  McKesson alleged that this was sufficient to attribute the “initiating a communication” step to the doctors.  The district court disagreed and granted summary judgment in favor of Epic.  McKesson appealed.

The panel affirmed the district court’s ruling, stating that under BMC Resources v. Paymentech (see IP Update, Vol. 10, No. 10), Muniauction v. Thomson (see IP Update, Vol. 11, No. 7) and Akamai Techs. v. Limelight Networks (see IP Update Vol. 14, No. 1), which was vacated by an en banc order (see IP Update, this edition), there can only be joint infringement if there is an agency relationship between the parties who perform the method steps or when there is a contractual obligation on the part of one party to the other to perform the steps.   The patients were not agents of the doctors, nor did the doctors require their patients to use the software; therefore, the panel rejected McKesson’s argument that the doctor-patient relationship gave the doctor effective control over the “initiating a communication” step.

Judge Newman, in dissent, attacked the entire line of precedent beginning with BMC Resources, arguing that the limitations on the finding of joint infringement announced in that case contradicted both prior Federal Circuit and Supreme Court precedent and holding that previous cases had taken the position that direct infringement could be performed by two parties acting in concert, regardless of whether there was any sort of agency or other relationship between the parties.  Seemingly inviting a request for rehearing en banc, the dissent noted that these prior cases “never had an en banc reversal” and therefore should be considered the law of the circuit until an en banc panel found otherwise.

Judge Bryson’s concurrence also seemed to invite a request for rehearing en banc, noting that “the decision in this case is correct in light of this court’s decision in BMC Resources, Muniauction and Akamai Technologies.  Whether those decisions are correct is another question, one that is close enough and important enough that it may warrant review by the en banc court in an appropriate case.”

Practice Note:

As of the time of press, McKesson’s expedited consideration of a request for a rehearing en banc was granted and the Federal Circuit issued an en banc order identifying the following questions to be addressed:

1.      If separate entities each perform separate steps of a method claim, under what circumstances, if any, would either entity or any third party be liable for inducing infringement or for contributory infringement?  See Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565 (Fed. Cir. 1983).

2.      Does the nature of the relationship between the relevant actors—e.g., service provider/user; doc-tor/patient—affect the question of direct or indirect infringement liability?

On April 20, 2011, the Federal Circuit granted en banc review of its decision in Akamai (see IP Update, this edition) on essentially the same issue.

Supreme Court Leaves Standard for Patent Invalidity Unchanged

Earlier today, the U.S. Supreme Court issued its much-anticipated opinion in Microsoft Corp. v. i4i L.P. The Court had granted certiorari to consider the question of whether section 282 of the Patent Act, 35 U.S.C. § 282, requires a defense of patent invalidity to be proven by clear and convincing evidence. Contrary to what many commentators were expecting, the Court left the burden of proof for invalidity defenses unchanged-defendants still must prove any invalidity defense by clear and convincing evidence.

The Court focused on early cases cited by the plaintiff/appellee, including a 1934 opinion written by Justice Benjamin N. Cardozo that stated “there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence.” Based on such decisions, the Court determined it was well understood prior to the passage of the current Patent Act in 1952 that the presumption of validity could be overcome only by clear and convincing evidence. Accordingly, when Congress enacted section 282, which set forth a presumption of validity, the Court found that Congress intended to adopt the existing burden of proof for overcoming the presumption. The Court held that “[u]nder the general rule that a common-law term comes with its common-law meaning, we cannot conclude that Congress intended to ‘drop’ the heightened standard proof [sic] from the presumption simply because [section] 282 fails to reiterate it expressly.”

The Court did not accept Microsoft’s alternative argument that the burden of proof should be different for invalidity defenses based on prior art references not considered by the U.S. Patent and Trademark Office (PTO) in granting an asserted patent. The Court did, however, recognize the “commonsense principle” that “new evidence supporting an invalidity defense may ‘carry more weight’ in an infringement action than evidence previously considered by the PTO. . . . Simply put, if the PTO did not have all material facts before it, its considered judgment may lose significant force.” Thus, the Court noted that “a jury instruction on the effect of new evidence can, and when requested, most often should be given. When warranted, the jury may be instructed to consider that it has heard evidence that the PTO had no opportunity to evaluate before granting a patent.”

Justice Breyer (joined by Justices Scalia and Alito) also filed an interesting concurrence stressing that the clear-and-convincing standard applies only to factual issues relating to invalidity defenses, and not to legal questions. “Where the ultimate question of patent validity turns on the correct answer to legal questions-what these subsidiary legal standards mean or how they apply to the facts as given-today’s strict standard of proof has no application.” The concurring Justices thus urged district courts to keep these issues separate “by using instructions based on case-specific circumstances that help the jury make the distinction or by using interrogatories and special verdicts to make clear which specific factual findings underlie the jury’s conclusions.” For years, some members of the U.S. Court of Appeals for the Federal Circuit have been urging district courts and litigants to use verdict forms and jury interrogatories that ask for more detail about the factual findings underlying decisions on issues such as obviousness, but those efforts have met with mixed results. It will be interesting to see whether these comments from three Supreme Court Justices will have any significant effect on how patent cases are actually tried.

Reexamination Practice: One Size Does Not Fit All

Recently, there was a reexamination roundtable at the Patent Office last week where ideas for reexamination reform were proposed.  The Patent Office listened and took notes.  Relatively, it was a very productive meeting overall.  As the various speakers presented their comments to the questions posed by the Office, it was a clear reminder how everyone views reexamination differently:

  • Patent Owners who are trying to enforce their patents want a fair system that will not amount to a tool of delay and thin or meritless attacks on their patents;
  • Businesses and in-house counsel need a predictable system that can be used to challenge inferior patents and nuisance assertions;
  • Judges need to know that if a case is stayed pending reexamination, there will be a reasonably expedient final decision that can be used for the litigation;
  • Examiners need time and tools to help process unusually large and complicated reexaminations; and
  • The Patent Office needs clear rules that are fair to both sides, and can reach finality of a reexamination with special dispatch.

But right now we don’t have adequate metrics to know the situation, much less to measure progress.  What exactly does that mean?

Variation in Size and Complexity

For example, perhaps we should be tracking reexamination progress based on complexity:

  • Some reexaminations involve 5 claims.  Some involve 50 claims.  There is no reason why a 50 claim reexamination should take the same amount of time and resources as a 5 claim reexamination.
  • One reexamination may involve 4 grounds of rejection and another may involve 8.
  • One reexam request is 50 pages.  One is 2000 pages.
  • One reexamination involves several petitions.  Another involves no petitions.
  • One reexamination involves substantial claim amendments (including, adding new claims).  Another involves cancellation of claims.  Yet another has no amendments.

We could be counting claim volume as a metric, as opposed to just disposition of matters without regard to claim volume.  We could be tracking the disposition of petitions, pages of reexamination request, volume of SNQs, or any number of other metrics indicative of the size or complexity of a matter.

Variation in Timing – Especially due to Procedural Variations

Perhaps we should be tracking more information about pendency and measurement of time.  We should get more visibility into the timing of reexaminations at various stages.  Our current understanding of PTO statistics on reexaminations is that they often cite the time to NIRC.  That does not seem fair to the CRU, because the statistics do not seem to separate the amount of time in the CRU from the amount of time at the BPAI or the Federal Circuit.  That means that the pendency of reexaminations will scale with the numbers of appeals filed.  Perhaps the number in appeals is statistically strong or weak enough that this metric is a reliable indicator of pendency, but I do not see enough information to discern that.  And as the volume of cases increases, any change in appeal volume would change the statistical significance of past numbers.  Anyone with better insight and information is encouraged to send that to me and it will be posted if appropriate.

A Little More Data Would Go a Long Way

One size does not fit all when it comes to reexamination.  Of course, you cannot measure everything, but you also cannot manage what you do not measure.  A bit more detail in the figures would go a long way to measuring progress in the future.

Perils of Reissue – Recapture Doctrine Has Teeth!

Patent owners beware! Over the past year, the Federal Circuit has issued two major rulings1 which stand as a warning to patent owners that when requesting reissue of an arguably defective patent, if you attempt to broaden aspects of the claims relating to subject matter surrendered during prosecution of the defective patent,2 courts (and now likely the U.S. Patent Office as well) will extensively examine the “entire” prosecution history of the defective patent and its family to determine if you are attempting to recapture the surrendered subject matter.3 This means that the review will not only include the prosecution history of the “defective” patent undergoing reissue, but also the prosecution history of any and all “ancestor patent applications.”4 The warning is out. Improper recapture of surrendered subject matter will not be tolerated.

The unfortunate result of the Federal Circuit’s zealous desire to prevent improper recapture, however, is that: pursuit of claims of a broader or mixed scope through the reissue process can be tantamount to walking through a mine field that grows with the number of patent applications added to the patent’s family. If patent owners and portfolio managers desire to enlarge the scope of the claims of an issued patent,5 the reissue application must be applied for within two years from the grant date of the issued patent. Due to these broaden reissue difficulties, it may be prudent to make a determination of whether broader claims are desired much earlier in an application process and prior to patent grant/issuance to avoid the broaden reissue route.

One of the better available routes or strategies, for example, appears to be to pursue such broadened or mixed-scope claims through use of one or more continuation or divisional applications at some point prior to issuance/grant of the patent, e.g., after issuance of a notice of allowance. This continuation or divisional strategy can help patent owners avoid the reissue process, which under certain circumstances, arguably now seems to be best reserved for neutral or narrowing claim amendments6 such as: to account for newly discovered prior art, changes in the legal landscape7 or other impetus which may cause there to be a question as to the validity of the patented claims, to correct an error in the patent disclosure,8 to correct a foreign or domestic priority claim, or to add an additional non-surrendered species, thereby leaving broaden reissue reserved only as a procedure of last resort.

Rule Against Recapture

Section 251 of Title 35 of the U.S. Code allows patent owners to “enlarge the scope of the claims of the original patent” if “through error without any deceptive intention…the patentee claim[ed]…less than he had a right to claim in the [original] patent.” Deliberate withdrawal or amendment of claims or specific arguments limiting the scope of terms used in a claim to obtain a patent, however, are not considered to involve the type of “error” contemplated by Section 251.9 As such, in accordance with the statute, the patentee may not utilize the reissue process to broaden the claims of a patent to recapture subject matter surrendered10 through deliberate amendments or through specific arguments made during prosecution to overcome prior art.

Two recent court rulings out of the Federal Circuit, In re Mostafazadeh11 and MBO Laboratories Inc.12 further highlight and explain this requirement.

In re Mostafazadeh (“Mostafazadeh”)

In April 1998, inventors Mostafazadeh and Smith filed a patent application directed to semiconductor packaging, which issued as a patent in March 2000. During prosecution, the inventors amended the independent claims to add a claim element describing a “circular attachment pad” and argued that “circular” attachment pads were novel—no assertions were made that non-circular attachment pads were novel.13 The application was allowed as a result of the amendment and the patent issued as U.S. Patent No. 6,034,423 (“the ‘423 patent”). The inventors did not file a continuation application in order to pursue claims of a broader or different scope prior to the patent issuing.

In December 2001, the inventors filed a reissue application, deleting the “circular” shape requirement and declaring that the original claims of the ‘423 patent were partially inoperative because the “circular” shape feature of the attachment pad limitation was unduly limiting. The examiner rejected the reissue claims as violating the recapture doctrine, noting that the circular attachment pad limitation was argued during prosecution of the ‘423 patent “to be both critical to the invention and distinguishing over the prior art.” The inventors appealed to the Board of Patent Appeals and Interferences (“Board”), which affirmed the examiner’s rejection. Having been rebuffed by the Board, the inventors appealed to the Federal Circuit, asserting, in essence, that the reissue claims were materially narrower than the pre-amended version of the patent claims because they retained the “attachment pad” limitation.14

The Federal Circuit, however, disagreed, finding that the inventors failed to demonstrate material narrowing because use of a non-circular attachment pad was “well known in the prior art.”15 The court also found that additional narrowing features unrelated to the surrendered subject matter were insufficient to avoid recapture.16 In other words, to avoid the effects of the recapture doctrine, the reissue claims must retain at least material portions of the surrendered subject matter, and the remaining portions must serve the purpose of the addition of the original surrendered subject matter – i.e., to differentiate the reissue claims from the prior art. Even substantial material narrowing to other elements of the reissue claims will not allow patent owners to avoid this requirement.

MBO Laboratories Inc. (“MBO”)

Beginning in November 1990, MBO’s inventors submitted a series of patent applications covering a hypodermic safety syringe designed to minimize needle-stick injuries through the use of a needle positioned within a guard sleeve. These patent applications included a continuation-in-part application (“the ‘013 application”) which issued as U.S. Patent No. 5,395,347 (“the ‘347 patent”), and a continuation application (“the ‘772 application”) claiming priority to the ‘013 application filed one day prior to issuance of the ‘347 patent. After receiving a notice of allowance for the ‘772 application, MBO subsequently abandoned it and filed a new continuation application (“the ‘803 application”) with additional claims, which issued as U.S. Patent No. 5,755,699 (“the ‘699 patent”) without objection. MBO did not file a continuation application in order to pursue claims of a broader or different scope prior to the patent issuing, and no other applications in the application chain or family were pending.17

Slightly more than one year after issuance of the ‘699 patent, MBO requested a broadening reissue of the ‘699 patent, apparently fearing that the claims could be interpreted to cover only a retractable needle that retracts into a fixed guard, and not the arguably equivalent feature of a fixed needle and slidable guard. Surprisingly, in spite of the fact that during prosecution of the ‘772 application, MBO distinguished its invention from cited prior art, in essence, by arguing that MBO’s invention included the retractable needle limitation, the USPTO allowed the reissue without objection, which resulted in U.S. Patent No. RE 36,885 (“the RE ‘885 patent”).18

In 2003, MBO filed suit against Becton, Dickinson & Co. (“Becton”) asserting infringement of various claims of the RE ‘885 patent, which included three original claims copied without amendment from the ‘699 patent and four claims added during the reissue process. During the course of the litigation, Becton challenged the four reissue claims as being invalid under the recapture rule—arguing that the reissue claims recaptured subject matter surrendered during patent prosecution. The District Court agreed, holding that the four added claims were invalid. The District Court, however, also held that all claims including the original claims were invalid.19  MBO in an appeal to the Federal Circuit requested clarification.20

In discussing whether the patentee surrendered any subject matter, which necessarily requires a review of prosecution history, the Federal Circuit clarified that the determination of the existence of surrender of a claim’s scope, includes surrendered subject matter made not only while prosecuting the original application directly resulting in the original patent (i.e., the ‘699 patent), but also subject matter surrendered in any precedent divisional, continuation, or continuation-in-part application (here both the ‘722 and ‘013 applications).21 The original claims, however, remain unaffected by the recapture rule.22

Moral of This Story

As shown by these recent Federal Circuit cases, violation of the recapture rule results in invalidity of the offending reissue claims, but does not result in invalidity of claims that are not subject to the rule (i.e., original and non-violating amended claims). Depending upon the outcome of a review of the file history of the patent application that would result in the original patent (if still pending), any pending child, ancestor, or sister applications, and issued patents, as well as a determination of whether or not either of the pending ancestor or sister patent applications have a written description that would adequately support claims having the desired scope,23 there often is a likelihood that a broaden reissue would not provide the ability to achieve the same claim scope as could be achieved through the filing of one or more continuation or divisional applications or by amending the claims of the respective pending application. As such, one can surmise that had there been a child, ancestor, or sister patent application pending at the time the respective patent owners in these cases determined that their respective issued patents had insufficient claim scope, the claims of any such pending patent application could have been amended; or additional claims could have been added, or an additional continuation or divisional application claiming priority to the respective patent application strategically could have been filed, to provide broader scope of coverage. Accordingly, these recent Federal Circuit cases highlight the perils of the reissue process, show that the Recapture Doctrine still has teeth, emphasize the importance and benefits of strategic use of continuation or divisional applications and other actions by applicants prior to patent grant/issuance, and of course, warn of the potential hazards lurking in patent prosecution file histories.

New Standards for Litigants in Patent Cases: Inequitable Conduct is No Longer a Boiler Plate Defense

In recent years, an all too common defensive strategy to patent infringement claims has been to cry foul on the patent-holder and allege misconduct during the patenting process. Inequitable conduct, a judicially created equitable doctrine, is a defense to patent infringement allegations, which if successfully proven, can bar enforcement of the patent. However, inequitable conduct allegations may not have the same legal luster they once held based on the recent Federal Circuit holding in Therasense, Inc. v. Becton, Dickinson & Co.

Years of fluctuating opinions on the issue of inequitable conduct and its remedies, coupled with the over-use of the defense, has “plagued not only on the courts but also the entire patent system.” Fearing the guillotine-like effects of inequitable conduct charges, those applying for patents have deluged the PTO (Patent and Trademark Office) with often hundreds of unnecessary documents in an attempt to comply with the disclosure requirements during the patenting process. Such document submissions have created a backlog at the PTO. Moreover, fearing their clients may lose a patent infringement claim, an estimated “80 percent of patent infringement cases included allegations of inequitable conduct” as a defense. However, those days may now be over as Therasense will likely be a dramatic game-changer in the strategic side of patent litigation.

The Federal Circuit’s en banc decision under Chief Judge Rader sets forth new standards for establishing a defense of inequitable conduct. First, the opinion clarified what is meant by the term intentionally deceive: “to prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO.” Rather than the amorphous criteria for intent that previously included negligence, gross negligence, and that the applicant “should have known,” now claims must be supported by clear and convincing evidence. Further, if nondisclosure of information regarding prior art is the foundation of an inequitable conduct claim, there must be clear and convincing evidence that the “applicant made a deliberate decision to withhold a known material reference.” Thus, a defendant can no longer just point to a general nondisclosure, but rather, must have sufficient evidence to show the applicant “knew of the reference, knew that it was material, and made a deliberate decision” to withhold it from the PTO.

Unlike cases that treat intent and materiality interchangeably, Judge Rader clarified that the two are “separate requirements” under an inequitable conduct defense. This distinction abolishes the use of a “sliding scale” by courts whereby a weak showing of intent could simply be supplemented with a strong showing of materiality and vice versa. Because these two elements are separate, neither can be inferred based on the existence of the other, forcing courts to now “weigh the evidence of intent to deceive independent of its analysis of materiality.”

The court also discussed the form of proof for intent, recognizing that “direct evidence of deceptive intent is rare,” therefore allowing judges to make inferences from “indirect and circumstantial evidence.” Because varying judicial inferences previously encouraged the proliferation of inequitable conduct claims, the court established that a clear and convincing evidence standard again must be met. However, the specific intent to deceive must be the “single most reasonable inference able to be drawn from the evidence.” Therefore, if “multiple reasonable inferences” as to the applicant’s intent can be drawn, then the defense will fail to meet this heightened standard.

Second, the ruling held that “but-for materiality” is required to prove inequitable conduct on the part of an applicant. The stringent standard of but-for materiality comes down to a simple question- had the PTO known of the prior art that an applicant failed to disclose, would the PTO have allowed their claim? If the PTO “would not have allowed a claim had it been aware of the undisclosed prior art,” the prior art is but-for material. However, like with most rules, the court carved out an exception– but-for proof is not necessary in cases of “affirmative egregious conduct”. Thus, if a company filed an “unmistakably false affidavit” then the misconduct is per se material. According to Judge Rader, this exception will help to restore a needed balance in patent law between encouraging “honesty before the PTO” and reducing “unfounded accusations of inequitable conduct.”

Finally, the remedy for inequitable conduct was dramatically changed. Previously, the remedy for inequitable conduct had earned itself the title of being the “‘atomic bomb’ of patent law” because of its far-reaching and potentially devastating financial, reputational and intellectual effects. A successful inequitable conduct defense could “render[] the entire patent unenforceable,” was unable to be “cured by reissue or reexamination” and could “spread from a single patent to render unenforceable other related patents and applications in the same technology.” Thus, once the trigger was pulled on an inequitable conduct defense, a company’s entire patent portfolio could face the firing squad. However, this majority holding recognized the concept of basic fairness undergirding the doctrine of inequitable conduct and held that courts should limit their application of the complete unenforceability remedy to “instances where the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim.”

The Therasense ruling will require patent attorneys to curb their inclination to over-use the defense of inequitable conduct and may alleviate the prior art research pressures of filing for a patent. Attorneys will also need to revise their trial strategies since those who do not update their playbook with the Federal Circuit’s new rules will likely fail on their inequitable conduct allegations. With stricter standards for proving intent and materiality and new limits on the application of inequitable conduct as a remedy, courts can predict more hesitation from alleged patent-infringers and the PTO can expect less prior art paperwork flooding their office.

Federal Circuit Attempts to Eradicate the Plague of Inequitable Conduct, Sets New Standards

The Federal Circuit issued its much anticipated en banc decision in Therasense, Inc. v. Becton, Dickinson & Co. on May 25, 2011 regarding inequitable conduct by patent applicants and attorneys during prosecution of patents. The Federal Circuit established a new standard for materiality and clarified its contradictory precedent on intent to deceive—the two factual predicates that must be established to prove inequitable conduct.  The Court thus recognized the problems created by the overuse of inequitable conduct claims by litigants and the differing standards applied by federal courts in evaluating issues of materiality and intent to deceive.

Inequitable conduct is an affirmative defense to a claim of patent infringement. At its most fundamental level, the battle cry of inequitable conduct is an assertion that the patent applicant or lawyer acted fraudulently before the United States Patent and Trademark Office. Therefore, notwithstanding any finding of infringement, the patent should be rendered unenforceable.

Because of the frequency with which it is plead, the potential devastating effects it has on the rights of the patent owner, the potential harm it may cause to the reputation of patent lawyers associated with the prosecution of the patent and the harm it has caused the examination process before the Patent and Trademark Office, the Federal Circuit has described inequitable conduct as both an “atomic bomb” and a “plague” on the patent system.

Court Creates “But-For” Test for Materiality

The Court laid out a new test for materiality that significantly raises the bar. With one exception, the Federal Circuit explained that information is material only when a claim would not have been allowed by the Patent and Trademark Office had the office been aware of the information. The one exception to this “but-for” test is in cases of affirmative egregious misconduct. For example, where the patent applicant “deliberately planned and carefully executed scheme[s]” to defraud the Patent and Trademark Office or courts, such information and misconduct is always material.

Court Adopts “Single Most Reasonable Inference” Test for Intent

Addressing the “intent” prong, the Federal Circuit clarified that a party must show, by clear and convincing evidence, that the patentee made a deliberate decision to withhold a known material reference. The Court was careful to note that the intent prong is independent of the materiality prong and that the sliding scale approach where a party could demonstrate a lower level of intent if the information was highly material is no longer acceptable. Instead, to meet the test, the evidence must be sufficient to require a finding of deceitful intent in light of all the circumstances. The specific intent to deceive must be the single most reasonable inference able to be drawn from the evidence. Finally, the Court noted that a patentee need not offer any good faith explanation to counter a finding of intent until the accused infringer first proves a threshold level of intent to deceive by such clear and convincing evidence.

Overall, the Federal Circuit adopted a more stringent standard for proving inequitable conduct that is likely to reduce the high number of meritless inequitable conduct claims in litigation. Notwithstanding the high hurdles introduced by way of this landmark opinion, patent applicants still need to take care in managing the disclosure of information during prosecution and be ever mindful of material information including disclosures and arguments made in related foreign applications.