Rehearing Wins Institution of Inter Partes Review

PTAB ALERT By Christopher Lacenere, Ph.D.. A member of our Patent Practice Group

In a rare move, the Patent Trial and Appeal Board (“the Board”) granted the institution of an inter partes review (“IPR”) upon a request for rehearing after initially denying its institution.  IPR2017-00731 Paper No. 29.  However, don’t expect such reversals to become commonplace.  This case involved a panel of administrative patent judges who were not sufficiently familiar with negative limitations in a patent claim. Consequently, upon being denied institution, the petitioner needed a rehearing to educate the judges on how to correctly interpret such limitations.

Hospira, Inc. (“Petitioner”) filed a petition requesting that claims 1-14 of U.S. Patent No. 7,846,441 (“‘441 patent”), owned by Genentech, Inc. (“Patent Owner”), be reviewed as being obvious over the prior art.  The ‘441 patent relates to the treatment of disorders, such as breast cancer, characterized by the overexpression of ErbB2, a transmembrane protein related to the epidermal growth factor receptor. Claim 1 recites a method of treating a cancer patient with an anti-ErbB2 antibody and a taxoid, “in the absence of an anthracycline derivative.”

Petitioner argued that claims 1-14 of the ‘441 patent were unpatentable as being obvious over Baselga 1996 and Baselga 1994.  Baselga 1994 teaches that ErbB2-overexpressing tumors grown in mice resulted in 35% growth inhibition following a treatment with either the 4D5 anti-ErbB2 antibody or paclitaxel (a taxoid) alone, and a 93% growth inhibition following treatment with a combination therapy of the antibody and paclitaxel.  A combination treatment of the antibody and doxorubicin (an anthracycline derivative) resulted in 70% growth inhibition.

The Board initially declined to institute an IPR.  Although it acknowledged that Baselga 1994 teaches the combined treatment of an anti-ErbB2 antibody with either a taxoid or with an anthracycline, but not with both, the Board nonetheless reasoned that nothing in Baselga 1994 or Baselga 1996 suggests that a person of ordinary skill in the art would have avoided anthracyclines in pursuing a combination therapy with an anti-ErbB2 antibody and a taxoid.  Without additional evidence or argument that a skilled artisan would have avoided anthracyclines, the Board concluded that Petitioner had not established a reasonable likelihood it would prevail in showing that the challenged claims would have been obvious over Baselga 1994 and Baselga 1996. More...

Federal Circuit Tells Patent Office: Rejecting Claims for Obviousness Must Be Better Supported

By Thomas Tuytschaevers. A member of our Patent Practice Group

The Court of Appeals for the Federal Circuit had recent occasion to remind the U.S. Patent and Trademark Office (“USPTO”) to be rigorous in its examination of patent applications. Patent practitioners should take note of In Re: Stepan Company and use its teachings to rebut improper rejections.

Stepan had filed a patent application claiming a water-based herbicidal concentrate including an herbicide (glyphosate salt) in solution with a surfactant system having a “cloud point” above at least 70°C.  Surfactants are known to enhance glyphosate’s herbicidal efficacy by providing better adherence to plant leaves, and a high cloud point (the temperature below which a solution becomes cloudy due to the surfactants becoming insoluble) facilitates production of the herbicidal concentrate.

Stepan attributed its desirable cloud point to the unexpected synergy of three ingredients of its surfactant system and their specified quantitative ranges.

The patent examiner rejected Stepan’s application as obvious over a previous patent to Pallas, even though Pallas does not teach a formulation with the same ingredients or claimed quantitative ranges, and fails to teach a cloud point above 70ºC.

The examiner took a shortcut familiar to many patent practitioners: Rather than finding Stepan’s invention in the prior art, the examiner concluded that it would be “routine optimization” to select and adjust the surfactants to the claimed range since (a) Pallas teaches that the surfactant component comprises “any combination of surfactants,” and (b) achieving a cloud point above 70ºC would be a simple matter of optimizing such a formulation since Pallas teaches that the ideal cloud point should be above 60ºC.

The Patent Trial and Appeal Board (“Board”) affirmed the rejection by adopting the examiner’s argument and determining that Stepan failed to rebut the examiner’s prima facie case of obviousness.

The Federal Circuit disagreed, vacated the Board’s decision, and remanded, finding that “the Board failed to adequately articulate its reasoning . . . and improperly shifted to Stepan the burden of proving patentability.”  The opinion makes several noteworthy points.

First, even when an obviousness rejection combines multiple embodiments from a single prior art reference, the rejection still requires a motivation to make the combination and a reasonable expectation that such a combination would be successful.  More...

By Thomas Carey. Chair of our Business Practice Group

The America Invents Act contemplates the possibility of multiple inter partes review (IPR) challenges to the same patent.  However, it authorizes the Patent and Trademark Office, in considering whether to institute an IPR, to take into account whether the same or substantially the same prior art or arguments were presented to the PTO in an earlier petition and to reject the later petition on the grounds of this redundancy.

This language, from 35 USC §325(d), could be read as providing a single, narrow basis for rejecting a request for an IPR that challenges a patent that was previously the subject of an IPR petition.  If so, doesn’t it follow that, if the petitioner raises different prior art from before, or presents a new argument, this provision requires the PTO to initiate the IPR?

In September 2017, the Patent Trial and Appeal Board (PTAB), an administrative law body of the PTO, rejected that contention.  It pointed to a separate provision of the America Invents Act, 35 USC §314(a), which makes the decision of whether or not to initiate an IPR a matter of the PTO’s discretion.  According to the PTAB, this general rule applies in the case of follow-on petitions as well as initial petitions.  In October 2017, the PTAB designated its September 2017 opinion as precedential.

In that case, a PTAB judge had denied the request of General Plastic Industrial Co., Ltd. that the PTAB commence an IPR. The petitioner requested a rehearing.  A panel of seven PTAB judges, including the Chief Administrative Patent Judge, denied this request.

The opinion does more than assert the PTO’s right to reject IPR petitions in its discretion.  It also listed factors that it will consider when faced with a follow-on petition asserted by the same party that asserted the first petition.  Here are the factors:

1. Whether the same petitioner previously filed a petition directed to the same claims of the same patent;
2. Whether at the time the first petition was filed the petitioner knew or should have known of the prior art asserted in the second petition;
3. Whether at the time the second petition was filed the petitioner already received the patent owner’s preliminary response to the first petition or received the Board’s decision on whether to institute review in the first petition;
4. The length of time that elapsed between the time the petitioner learned of the prior art asserted in the second petition and the filing of the second petition;
5. Whether the petitioner provides adequate explanation for the time elapsed between the filings of multiple petitions directed to the same claims of the same patent;
6. The finite resources of the PTAB; and
7. The requirement under 35 U.S.C. § 316(a)(11) to issue a final determination not later than one year after the date on which the Director formally institutes the IPR. More...

Federal Circuit Gives Life to Patent Claim Amendment Strategies in Inter Partes Review

By Robert Asher. Chair of our Patent Office Litigation Group

Inter partes review (“IPR”) has become the forum of choice for challenging the validity of patent claims. Introduced in 2012 as part of the America Invents Act, this proceeding is conducted by a panel of judges from the Patent Trial and Appeal Board (PTAB), which in turn is an administrative law body of the U.S. Patent and Trademark Office (PTO).

A petitioner presents prior art patents or publications that anticipate or make obvious a patent claim as issued. If the patent owner is unable to adequately distinguish the invention as defined by the language of the patent claim, that owner may move to amend the claim. If the amended claim language satisfies the judges, the patent can survive with newly issued but narrowed coverage defined by the amended claim.

As of April 30, 2016, the PTAB had completely denied 112 of 118 motions to amend in IPRs. Patent owners seeking to amend have clearly faced significant burdens and limitations imposed by the PTAB. Despite this history, we can expect to see an increase in motions to amend claims during inter partes review proceedings as a result of a recent en banc Federal Circuit decision. (The same is true for the less frequently filed post-grant reviews and covered business method reviews).

In Aqua Products v. Matal, the court struck down the PTAB practice of imposing on the patent owner the burden of proving the patentability of amended claims. Instead, the court has placed on the petitioner the burden of proving unpatentability by a preponderance of the evidence.

While a heavy weight has been lifted from its shoulders, the patent owner must still, as the one seeking to amend, meet certain responsibilities, the precise scope of which is not entirely clear.  At a minimum, the court requires in compliance with 35 USC §316(d)(3), the patent owner to show that the claim amendment does not enlarge the scope of any claims or add new matter. While they did not explicit say so, a majority of judges on the court seem open to the PTAB’s requiring a patent owner who seeks to amend a claim to demonstrate a patentable distinction over the unpatentability grounds set forth in the petition.

Bringing a motion to amend will be much easier than in the past because the patent owner is now free in its motion from having to show patentable distinctions over a wide variety of prior art, including any material art in the patent’s prosecution history, or of record in other proceedings before the PTO involving the patent, or that the patent owner makes of record in the current proceeding pursuant to its duty of candor and good faith.

The amendment process will be further eased if the patent owner is able to rely on arguments set forth in its Patent Owner Response (“POR”). Judge O’Malley and the four judges who signed on to her opinion believe it is fairly uncontroversial that a motion to amend must be decided on consideration of the entirety of the IPR record. Assuming this becomes PTAB practice, the patent owner may not need to cram all its supporting evidence into the 25 pages allotted for a motion to amend.

Relieved from distinguishing over countless pieces of prior art and authorized to rely on the arguments and evidence presented in the POR, patent owners will be much better able to adequately argue for  amended claims within the 25 pages. This may enable them to propose additional amended claims which they previously could not present because of lack of space in the pages permitted for their motion.

Petitioners are well advised to consider the potential for amendments to the claims of a patent before filing an IPR petition. Given that the time to respond to a motion to amend will likely be less than three months, it will be useful to get a jump on searching out prior art and excerpts from the art for use against such an amendment should it be presented.

If a patent owner succeeds in amending its claim, it may later urge in court or in the PTO that the petitioner should be estopped from raising challenges it reasonably could have raised during the IPR. The estoppel provisions state “[t]he petitioner in an inter partes review of a claim in a patent…may not assert…that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during the inter partes review.” 35 USC §315(e). More...

Federal Circuit Is Finding More Inventions Patent-Eligible Despite Supreme Court’s Rigid Standard

By Bruce Sunstein. A member of our Patent Practice Group

The Supreme Court’s Prometheus (2012) and Alice (2014) decisions, discussed in these pages here and here, erected a wall of patent ineligibility that has stymied efforts at patenting most diagnostic methods and many categories of computer-related inventions.  While this wall of patent ineligibility is old news, it is noteworthy that the Federal Circuit has made and enlarged a hole in this wall through which some patent applications can now escape rejection.

The wall of patent ineligibility. In Prometheus and Alice, the Court eliminated from eligibility for patent protection any invention directed to what it said was an “implicit exception” in the patent laws.  That exception excludes patents for a law of nature, a natural phenomenon, or an abstract idea. The Court said that an invention of this type would be ineligible for patenting unless the claims in the application for the invention were deemed to define an “inventive concept” that amounts to “significantly more” than the law of nature, natural phenomenon, or abstract idea to which the patent claims are said to be directed.

The Court’s stated rationale for the decisions was that claims directed too closely to one of these concepts would improperly monopolize “the basic tools of scientific and technological work” resulting in a “preemption” of the advance of science and technology  Because the patent law already required patent claims to define a specific practical application of such a concept, the Court’s rationale makes little sense.

The Court has laid out a two-step process to determine whether the “implicit exception” to patent eligibility disqualifies claims in a patent application or a patent: (1) determine whether the patent claims are directed to a law of nature, natural phenomenon, or abstract idea, and (2) if so, determine whether those claims can escape ineligibility by defining an “inventive concept” that amounts to “significantly more” than the ineligible concept. Evaluating patent claims according to this two-step process is fraught with subjectivity.

The Federal Circuit fashions a hole in the wall. Although the Federal Circuit is bound by Supreme Court precedent, the parade of appeals since Alice has of necessity required the Federal Circuit to develop some rules for distinguishing between claims that are patent-eligible and claims that are not. Although the vast majority of decisions in this parade have affirmed ineligibility determinations, the Federal Circuit has decided a number of cases in favor of patent eligibility. DDR Holdings (2015, discussed here), Enfish (May, 2016, discussed here), and six more recent decisions point the way for at least some patent claims to get through the wall of patent ineligibility.

Rapid Litigation Management Ltd. v. CellzDirect, Inc. (July 2016) is the only one of these decisions that concerns the law-of-nature exception to patent eligibility. That case involved hepatocytes, which are a type of liver cell used for testing, diagnosis, and treatment. Before the invention in question, the hepatocyte cells were frozen in order to maintain them in inventory and, when needed, thawed for use. Because freezing damages these cells, it was thereafter necessary to determine which of the thawed cells remained viable. Refreezing the thawed cells was rejected as an option, owing to the damage inflicted by freezing the first time. The invention involved (A) subjecting previously frozen and thawed cells to density gradient fractionation to separate viable cells from non-viable ones; (B) recovering the viable cells; and (C) refreezing the viable cells.

The claims were invalidated in the lower court. In step one of the two-step process, the trial court held that the claims were “directed to an ineligible law of nature: the discovery that hepatocytes are capable of surviving multiple freeze-thaw cycles.” At step two, the court determined that “the patented process lacks the requisite inventive concept,” observing that, upon discovering the cells’ capability of surviving multiple freeze-thaw cycles, the inventors simply “reapplied a well-understood freezing process.”

The Federal Circuit reversed, finding that the claims are not simply directed to the ability of hepatocytes to survive multiple freeze-thaw cycles. Rather, the claims are directed to “a new and useful laboratory technique for preserving hepatocytes. This type of constructive process, carried out by an artisan to achieve ‘a new and useful end,’ is precisely the type of claim that is eligible for patenting.”

In CellzDirect, the technological wrinkle—refreezing of cells thought not to be able to withstand refreezing—made the difference in achieving eligibility status.  The different characterizations of this wrinkle by the Federal Circuit and the lower court highlight the subjective nature of the test that the Supreme Court now requires the lower courts to apply. More...

The Sale of a Patented Product Now Exhausts All U.S. Patent Rights

By Lawrence Green. A member of our Patent Practice Group

The Supreme Court has further limited the rights of patent owners, determining that, once a patentee sells a product either in the U.S. or abroad, it exhausts all of its U.S. patent rights in that product, regardless of any restrictions the patentee purports to impose.

The products at issue in Impression Products, Inc. v. Lexmark International, Inc. are toner cartridges used with laser printers.  Lexmark designs, manufactures and sells toner cartridges to consumers in the United States and around the globe.  It owns a number of patents that cover components of these cartridges and the manner in which they are used.

Lexmark structures its sales so as to encourage customers to return spent cartridges.  One way it does this is by selling cartridges at roughly a 20% discount through Lexmark’s return program.  A customer who buys cartridges through the return program owns the cartridges but, in exchange for the lower price, signs a contract agreeing to use the cartridges only once and to refrain from transferring the empty cartridges to anyone but Lexmark.

The purpose of this restriction is to prevent other companies, known as remanufacturers, from acquiring empty Lexmark cartridges, refilling them with toner and reselling them at a much lower price than the price for the new ones sold by Lexmark.

As we reported in 2016, the Federal Circuit, in an earlier stage of this litigation, held that Lexmark could lawfully reserve rights with respect to the patented cartridges as long as the reservation did not run afoul of other laws, such as the antitrust laws. This holding applied to cartridges sold both in the U.S. and abroad.

According to the Federal Circuit, reserving patent rights did not conflict with the common law’s antagonism to restrictions on a purchaser’s right to transfer his ownership rights because patent rights are part of the statutory regime that trumps common law.  The Federal Circuit defiantly reaffirmed its holding in Mallinckrodt Inc. v. Medipart, Inc. (1992), even though that decision had been effectively overridden by the Supreme Court’s 2002 decision in Quanta Computer, Inc. v. LG Electronics, Inc.

The Supreme Court was blunt in rejecting the Federal Circuit’s analysis. The lower court “got off on the wrong foot” with its view that the exhaustion doctrine does not require a patent owner to hand over its full “bundle of rights” whenever it sells a patented article:

The misstep in this logic is that the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is instead a limit on “the scope of the patentee’s rights.” The right to use, sell or import an item exists independently of the Patent Act.  What a patent adds–and grants exclusively to the patentee– is a limited right to prevent others from engaging in those practices. Exhaustion, however, extinguishes that exclusionary power.

More...

States Are Cracking Down on Cybersecurity Laggards

By Thomas Carey. Chair of our Business Practice Group

On May 23, the attorneys general of 47 states and the District of Columbia reached a settlement with Target Corporation of enforcement actions brought after a 2013 breach of the retail chain’s computer system.  That breach famously compromised credit and debit card information of 40 million customers.

The headline that most commonly came out of this settlement is that Target agreed to pay $18.5 million to the states.  This article is not about that penalty, because the more far-reaching aspect is the detailed obligations to ensure security that the state AGs have imposed upon Target.

To a degree, these measures resemble the requirements recently imposed on banks, insurance companies and brokerage houses by the New York Department of Financial Services.  Taken together, the Target settlement and the New York regulations reflect a growing expectation among the states that companies take strong measures to safeguard their data and that of their customers.

Both the settlement and the regulations require the adoption of a formal information-security program that details administrative, technical and physical safeguards.  While the Target settlement is directed to data regarding consumers and their credit cards, the New York regulations require financial institutions to protect all non-public information.  This would include, for example, customer lists, vendor lists, computer source code and unpublished patent applications.

Both the settlement and the regulations require the appointment of an executive experienced in information security.  That officer must advise both the CEO and the board of directors about the company’s security posture and risks.  The regulations, more specifically, require this information security officer to report at least annually to the board of directors, including details of successful or unsuccessful efforts to gain unauthorized access to the company’s systems.

The settlement goes further than the New York regulations in requiring Target to scan and map the connections between its cardholder data environment (CDE) and the rest of its computer network and to segregate the CDE from the other parts of the network. To do so, Target must restrict or disable all unnecessary network programs that provide access to the CDE.

In addition, the settlement requires Target to deploy a file-integrity monitoring system that notifies personnel of unauthorized modifications to critical applications or to operating system files within the CDE.

Both the settlement and the New York regulations require an evaluation of the cybersecurity measures of vendors to ensure they comply with the company’s cybersecurity policy.  The regulations limit this scrutiny to those vendors that maintain, process, or otherwise are permitted access to the company’s nonpublic information. Presumably, the settlement is meant to be limited in the same fashion, but its language is not clear on this point.  The New York regulations pertaining to vendors do not go into effect until March 1, 2019. More...

The On-Sale Bar Remains A Mighty Obstacle to Patentability, Even If The Sale Involves No Public Disclosure of the Invention

By Dorothy Wu Chiang. A member of our Patent Practice Group

In passing the America Invents Act (the “AIA”) in 2011, Congress changed the statutory language concerning the “on-sale bar.”  The bar prevents a party from patenting an invention that has been sold or offered for sale more than one year before the application date. The AIA added the phrase “or otherwise available to the public” to the statute. On its face, the phrase could be seen to impose a new requirement – public disclosure of the technology – in order for the on-sale bar to make a patent unavailable, but the Federal Circuit Court of Appeals recently ruled in Helsinn v. Teva Pharmaceuticals that despite the new language, the on-sale bar continues to apply to sales that do not involve a disclosure of the invention.

Helsinn owned four patents covering intravenous formulations of palonosetron that reduce the impact or likelihood of chemotherapy-induced nausea and vomiting. Because palonosetron was already known in the art, the novel feature of the patents was the unexpectedly low dosage, 0.25mg, of this substance. Because all four patents claimed priority to the same provisional application, they had the same effective filing date of January 30, 2003. However, three patents were subject to pre-AIA patent law, whereas the fourth was subject to the AIA.

In April 2001, Helsinn signed two agreements with MGI Pharma, Inc., which markets and distributes pharmaceuticals. The license required an initial $11M payment and set a future royalty on distributed products. Because Helsinn was still conducting its Phase III trials, the agreements could be terminated if the product failed to gain FDA approval. The companies issued a joint press release regarding the deals, and MGI submitted redacted copies of the agreements, which kept the dosage and agreed prices secret, in its Form 8-K filing with the Securities and Exchange Commission.

Helsinn received FDA approval for its product in July 2003 and filed its patent applications thereafter. In 2011, Teva filed an Abbreviated New Drug Application with the FDA to pursue a generic version of Helsinn’s drug, whereupon Helsinn sued for infringement.

The trial court ruled that the supply and purchase agreement was a contract for future sales under pre-AIA law, which rendered three of the four patents invalid due to the on-sale bar. However, the court interpreted the phrase “or otherwise available to the public” to imply that, in order for the on-sale bar to apply under the AIA, the offeror must have publicly disclosed the claimed features of the patented subject matter. Because MGI had redacted the dosage from agreements submitted with its Form 8-K filing, the sale was not “public” and could not invalidate Helsinn’s last patent. More...

Why China Should Top Your List of Countries for Foreign Patent Filing

By Bruce Sunstein. A member of our Patent Practice Group

China’s revamped patent system and its giant economy have now put China front and center on the patent map—even though, until recently, China was an intellectual property backwater, off of most radar screens as a place for filing patents.

This picture has changed. In 2015, more than 1 million patent applications were filed in China,[i] whereas the 2015 total for patent filings in the United States was fewer than 600,000.[ii] In 2015, China issued 359,316 patents,[iii] whereas the US issued 298,407 utility patents.[iv] In that same year the Chinese courts accepted more than 109,000 new IP cases, of which 11,607 were civil patent cases.[v] By contrast, 5,830 patent litigations were launched in the U.S.[vi]

In 2014, China established specialized IP courts in Beijing, Shanghai and Guangzhou.[vii] Chinese courts issue injunctions over 99% of the time to the winning parties,[viii] whereas in the United States, the Supreme Court’s 2006 eBay decision[ix] has reduced the rate at which injunctive relief is granted to less than 75%.[x] In Beijing IP court patent litigations, foreign plaintiffs have won about 81% of the time, a success rate that is similar to that of domestic plaintiffs.[xi] In addition to the ready availability of injunctive relief, the prospect of serious damages is now real in China.  The Beijing IP court awarded $7.2 million in December 2016 to Watchdata Data Systems Co. Ltd. in an infringement action brought against Hengbao Co. Ltd. [xii]

China’s new focus on intellectual property protection is not altruistic, but is motivated by China’s desire to foster the advancement of its science and technology.  Nonetheless, this emphasis has also benefited foreign companies.[xiii]

Moreover, the size of China’s economy and its role as a major exporter of goods make China’s patent system even more important. By some measures, China’s current gross domestic product (GDP) has reached approximately $11 trillion. (Other measures make it even larger.) China’s economy stands second only to that of the United States, with a GDP of about $19 trillion. By comparison, the GDP of the entire European Union, made up of approximately 28 member countries, stands at approximately $16 trillion. More...

[i] See Wayne Sobon, “The surprising rise of China as IP powerhouse,” Tech Crunch, posted April 11, 2017, available at https://techcrunch.com/2017/04/11/the-surprising-rise-of-china-as-ip-powerhouse/; WIPO Press Release November 23, 2016, available at http://www.wipo.int/pressroom/en/articles/2016/article_0017.html

[ii] Sobon, id., and USPTO statistics available at https://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm.

[iii] WIPO, id.

[iv] USPTO, id.

[v] Sobon, id.; Eugene Low, Skip Fisher and Deanna Wong, Hogan Lovells, “The big picture on IP litigation in China,” LimeGreen IP News, posted May 27, 2016, available at http://www.limegreenipnews.com/2016/05/the-big-picture-on-ip-litigation-in-china/.

[vi] Sobon, id.; Lex Machina 2015 End-of-Year Trends, available at https://lexmachina.com/lex-machina-2015-end-of-year-trends/

[vii] Erick Robinson, “Defending a patent case in the brave new world of Chinese patent litigation,” Intellectual Asset Management (issue 81) January/February 2017, page 9.

[viii] Robinson, id.

[ix] eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).

[x] Christopher Seaman, “Permanent Injunctions in Patent Litigation After eBay:  An Empirical Study”, 101 Iowa L. Rev. 1949, 1982 (2016), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2632834

[xi] Sobon, id.; see also Robinson, id.

[xii] Matthew Bultman, “China Becoming More Attractive For Foreign Patent Owners,” Law360, April 19, 2017, available at https://www.law360.com/articles/914779/print?section=ip.

[xiii] Robinson, id.; Bultman, id.

Settlement Agreements Can Provide a Yardstick for Measuring Damages in Subsequent Patent Infringement Lawsuits

By Kerry Timbers. Co-Chair of our Litigation Practice Group

It’s easy to state that a patentee who proves infringement is entitled to recover from the infringer no less than a reasonable royalty.  It’s a lot harder to determine how to quantify these “reasonable royalty” damages.  In Prism Tech. v. Sprint Spectrum, L.P., the Federal Circuit says that, in many circumstances, judges and juries can rely on prior settlement agreement licenses as a guide to deciding these damages.

Sprint was found to infringe patents owned by Prism that involve managing access to protected information provided over “untrusted” networks. Sprint pointed to several low-rate Prism settlements in arguing for a low royalty rate, but sought to exclude a significantly higher-rate 2012 Prism settlement with AT&T.  The trial court denied Sprint’s request and allowed consideration of all the settlement agreements, and a Nebraska jury awarded Prism $30 million in reasonable royalty damages.

Prior guidance from the Federal Circuit had been murky at best:  A settlement agreement license was considered good evidence of a reasonable royalty “sometimes. . . and sometimes not.”  Without more to go on, district courts were left to view settlements through their own lens in deciding whether to allow them to be considered.

In Prism, the Federal Circuit affirmed the use of the AT&T settlement license and identified  factors which weigh in favor of using a prior settlement agreement to measure a reasonable royalty, including:

• the technology is the same or comparable
• the uses of the technology by the earlier licensee and the current infringer are comparable
• no significant market changes have transpired between the time of the settlement and the relevant time for determining the royalty
• where several patents or technologies are involved, the settlement agreement itself identifies the parties’ assessment of value of the patent or technology at issue
• in the earlier settlement, the licensee was not at risk for enhanced damages (which might artificially increase the settlement amount)
• the settlement was completed when the litigation was far along (indicating both that the parties are well informed, and that avoiding future litigation costs is not a primary motivation for settlement)

The Federal Circuit  noted that Prism had adequately demonstrated the comparability of the AT&T settlement license and the royalty rate to be assessed against Sprint.  Prism introduced expert testimony to support several of these factors, including the comparability of the technology, Sprint’s and AT&T’s uses of the patented technology, and the lesser uses made by licensees in the lower-rate settlements. More...

The Federal Circuit Limits the Scope of Covered Business Method Proceedings

By Bruce Sunstein. A member of our Patent Practice Group

The America Invents Act (AIA), signed into law in 2011, gave birth to a variety of post-grant proceedings by which patents can be attacked after issuance in the Patent and Trademark Office (PTO).  For example, the AIA permits a challenger to request an inter partes review (IPR), in which the only question is whether previously ignored prior art should invalidate the issued patent.   In the case of financial services patents, a challenger can request a covered business method (CBM) review, in which the challenger can raise any argument that would have been a basis for denying the patent in the first place.

These proceedings load the dice against the patent owner. As of the end of March 2017, a total of 6700 petitions had been filed for these types of proceedings, of which 6139 (92%) were IPRs and 510 (7%) were for CBMs. About 65% of the IPRs that resulted in final written decisions invalidated all claims of the patent.  For CBM review, this figure exceeds 80%.

Secure Axcess, LLC v. PNC Bank National Association, decided February 21, 2017, was a CBM review in which the Patent Trial and Appeal Board (PTAB) invalidated all the claims for obviousness. Although the Federal Circuit affirms PTAB decisions in post-grant proceedings 77% of the time, in this case the Federal Circuit reversed, vacating the invalidation, and therefore revived the Secure Axcess patent, ending the case then and there without a remand.

The Secure Axcess patent concerned computer security with a focus on authenticating a web page. The patent’s description referenced a bank, and for that reason, among others, the PTAB concluded that the patent should be subject to CBM review because it concerned “the practice, administration, or management of a financial product or service” called out by the statute. The PTAB noted that all of the defendants sued by Secure Axcess in litigation involving this patent were banks and that “‘customer interfaces’ and ‘Web site management and functionality,’” which were covered by the patent, were “ancillary activities. . . of a financial product or service.” More...

We’re Not in Texas Anymore: Supreme Court Drastically Limits Where You Can Sue for Patent Infringement

By Brandon Scruggs. A member of our Litigation Practice Group

The Supreme Court’s recent decision in TC Heartland v. Kraft Foods dramatically restricts where patent lawsuits can be brought.  Previously, a patent owner could sue an accused infringer in any district where the infringer was subject to personal jurisdiction, which often meant anywhere that products accused of infringement were sold.  For products sold nationwide, this led to lawsuits in odd places – courts that offered tactical advantages to plaintiffs but were often thousands of miles from either party.

Now, the Supreme Court has ensured that patent litigation plaintiffs can sue domestic corporate defendants only in either: 1) the defendant’s state of incorporation; or 2) where the defendant has committed acts of infringement and has a regular and established place of business.  This sea change in the patent litigation landscape tilts the balance in favor of defendants.

For over twenty years, many patent owners filed infringement lawsuits in perceived pro-patent jurisdictions that often have few ties to either the patent owner or the accused infringer.  For example, the Eastern District of Texas (in rural areas like Marshall and Tyler) and the Eastern District of Virginia (home of the “rocket docket”) became popular venues for patent infringement because of shorter time-to-trial schedules, higher patent-owner success rates, and trends towards higher damage awards.^[1]

For similar reasons, many patent owners have also filed patent lawsuits in the Western District of Wisconsin (in Madison) and the Middle District of Florida (with courthouses in Tampa and Orlando).  Defendants often hated those forums because the tactical advantages for patent owners are usually tactical disadvantages for accused infringers.  And plaintiffs’ choice of those forums often forced defendants to litigate cases in inconvenient places thousands of miles from home.

The longtime enabler of forum-shopping had been the Federal Circuit, the court that hears all appeals from patent decisions in the trial courts.  In its 1990 decision in VE Holding, the court interpreted a patent-specific venue statute, 28 U.S.C. § 1400(b), in conjunction with a general venue statute, 28 U.S.C. § 1391(c).

The patent-specific statute states that a patent infringement lawsuit can be brought in the district where the defendant either (a) resides or (b) has committed acts of infringement and has a regular and established place of business.  The general venue statute states that a corporate defendant will be deemed to reside anywhere it is subject to personal jurisdiction for the lawsuit in question.  In combination, the Federal Circuit interpreted the two venue statutes to allow patent owners to sue accused infringers in any district where the infringer was subject to personal jurisdiction.

In coming to this conclusion, the Federal Circuit disregarded an authoritative precedent.  In Fourco Glass (1957), the Supreme Court had held that the general venue statute did not apply to patent cases and that, for purposes of the patent venue statute, a domestic corporation “resides” only in its state of incorporation.  The Federal Circuit brushed aside Fourco by reasoning that later amendments to the general venue statute rendered the Supreme Court’s interpretation irrelevant. More...

^[1]See, e.g., PricewaterhouseCooper’s 2017 Patent Litigation Study, at 22-23, available at https://www.pwc.com/us/en/forensic-services/publications/patent-litigation-study.html

“Anyone Could’ve Come Up with That Invention.” Oh, Really. Prove It!

By Jonathan DeBlois. A member of our Litigation Practice Group

Not every great discovery can become a patent.  Many useful innovations, like DNA sequences, simply cannot be patented, because they are natural phenomena.  Yet others may be rejected because they are anticipated by previous inventions or for other reasons recognized by law. On the other hand, countless famously terrible ideas, like the sheep treadmill and jet-powered surfboard, actually were patented.

To be patentable an invention must satisfy several requirements.  One of the most significant is that the invention cannot be obvious in light of existing inventions.  This requirement is so important that even an issued patent can be found invalid (hence unenforceable) if the invention is deemed obvious.

Naturally, many people accused of patent infringement contend that the asserted invention was obvious.  Anyone making this argument must first show that all elements of the patented invention were present in existing inventions, and second point to a motivation to combine those elements.

The second part of the obviousness test requires that the challenger show that someone skilled in the art would have been motivated to combine the prior-art references to produce the claimed invention with a reasonable expectation of success.  In other words, the accused infringer must explain that this hypothetical skilled person would have recognized elements of the asserted invention in prior references and been motivated to combine them to create the same invention.

Although this test is at least a decade old, its second part (why someone would have been motivated to make the combination) is often overlooked. As an example of an insufficient obviousness defense, if I was arguing that the jet-powered surfboard was obvious, I might point out that surfboards already existed, and jet engines already existed, therefore a jet-powered surfboard is an obvious combination.  Notice how I left out any explanation of why those existing parts would have been combined?  Skipping that last step is not allowed.  More...

Give Me a ©! Supreme Court Examines Cheerleader Uniforms and Gives Designers a Means to Protect Their Creations

By Joel Leeman. A member of our Litigation Practice Group

It’s not surprising that people who wear plain black robes all day rarely discuss clothing design.  What, then, prompted the Supreme Court justices to consider whether the arrangements of stripes, chevrons and color blocks on cheerleader uniforms are protectable by copyright?  The main reason is that the lower courts had disagreed on the correct test for determining when a graphic feature qualifies as copyrightable subject matter.  In any event, the high court’s decision should be a boon to the fashion and design industries.

We usually associate copyright with creative literary and artistic works. By contrast, industrial designs are not broadly covered by the copyright statute, primarily because such designs are governed by utilitarian considerations, not by the aesthetic concerns that are the province of copyright law.  Thus, a cheerleader’s uniform, apart from any decorative elements, is considered functional and cannot be copyrighted.

Artistic vs. Utilitarian
Those decorative elements, however, were precisely the focus of the dispute that reached the Supreme Court. In Star Athletica v. Varsity Brands, the court relied on a reading of the copyright statute so straightforward that it’s a wonder other courts hadn’t come up with it themselves.

Justice Thomas wrote that a feature incorporated into the design of a useful article is eligible for copyright protection if the feature (1) can be perceived as a two- or three-dimensional work of art separate from the useful article, and (2) would qualify as a protectable graphic work – either on its own or fixed in some other tangible medium of expression, if it were imagined separately from the useful article into which it is incorporated.

These can be called the separability and independent-existence requirements. The first, which the court said is usually easy to satisfy, involves finding elements that have “pictorial, graphic or sculptural” qualities, to quote the statutory language. The independent-existence prong necessitates concluding that the separately identified features can exist apart from the utilitarian aspects of the article in question.

Look at the two images below, which are typical of the five designs that Varsity Brands charged Star

with unlawfully copying.

Applying its two-part test, the court concluded that the arrangements of colors and shapes are (1) separable from the uniforms, and (2) could be imagined in another medium, say, on a painter’s canvas.

The statute requires only that the combination of stripes, chevrons and piping qualify as a non-useful, and therefore copyrightable, graphic work on its own. In short, copyright protection extends to pictorial, graphic, and sculptural works regardless of whether they were created as free-standing art or–as with the cheerleader uniforms–as design features of useful articles. More...

Supreme Court Reduces Risk to Patent Owners Who Are Slow to Bring a Patent Infringement Lawsuit

By Robert Asher. Co-Chair of our Patent Practice Group

Upending long-settled judicial decision-making, the U.S. Supreme Court has struck down the application of laches to patent damages. Under that judge-made doctrine, a patent owner who unreasonably delays in filing suit may be denied a recovery of past damages. As of the March 21 decision in SCA Hygiene Products Aktiebolag v. First Quality Baby Products, that defense against patent damages has been eliminated.

The availability of a laches defense had imposed on patent owners a sense of urgency when they learned of infringement. Waiting longer than six years to sue would have obligated the patent owner to prove that the delay was not unreasonable and did not prejudice the defendant.

If a court found that patent owner’s delay in filing suit was unreasonable and prejudicial, even a delay shorter than six years could have resulted in a dismissal of a claim for damages. Delay might cause prejudice if evidence favorable to the defendant went missing, or if helpful witnesses suffered faded memories or died, or the defendant made economic decisions that it might not have made if litigation had started earlier.

But given the exorbitant cost of patent litigation, to bring a lawsuit when the infringement was just getting started may not have offered a potential reward large enough to justify the cost. A patent owner might have found itself in a bind – file early and face the financial pressures of going after a smaller reward or delay filing and risk the potential defense of laches.

The Supreme Court’s decision removes timing of the lawsuit as a concern for patent owners. The decision reversed over a century of judicial decisions by giving new emphasis to the matter of timing as set out in the patent statute. That statute provides that damages may be awarded only for infringements taking place not more than six years before suing for patent infringement.

Acting in step with its  decision in the Raging Bull copyright case, Petrella v. Metro-Goldwyn-Mayer, Inc., which limited the laches defense in copyright cases, the Court deferred to the congressional judgment as to the limitations on damages. It ruled that Congress allows a patent owner to pursue up to six years of back damages, and the courts should not cite laches to substitute their own judgment as to the effect timing of a lawsuit should have on damages. More...

Expanding the Reach of Pharmaceutical Patents: Generic Manufacturer Held Liable For Inducing Infringement By Physicians and Patients

By W. John Keyes, Ph.D.. A member of our Patent Practice Group

Pioneer pharmaceutical firms are sure to welcome the boost to their patent portfolios resulting from a recent opinion by the Court of Appeals for the Federal Circuit.  In the wake of Eli Lilly v. Teva, infringement may now be found even where the defendant follows none of the steps in a patented method of treatment and no single actor performs all the steps of that method of treatment. Depending on the wording of the patent claims and the content of the prescribing information provided with their products, generic pharmaceutical manufacturers might not escape liability even if some steps of the method are performed by physicians and others by patients.

The claims of Eli Lilly’s patent are directed to methods of administering the chemotherapy drug pemetrexed after pretreating a patient with two common vitamins –folic acid and vitamin B12.  The pretreatment is designed to reduce the toxicity of pemetrexed.  Eli Lilly markets pemetrexed under the brand name ALIMTA®, and the drug is used to treat certain types of lung cancer and mesothelioma.

The patent owner sued a number of generic pharmaceutical manufacturers, including Teva, to prevent their launch of a generic version of ALIMTA® with accompanying product literature that would allegedly infringe methods of treatment claimed by the patent.  The district court found that no single actor performed all the steps of the asserted claims because the actions of both physicians and patients were required.  Nonetheless, by applying the theory of divided infringement, the court attributed direct infringement to physicians and held the generic manufacturers liable for inducing that infringement.

As for the pretreatment of patients with folic acid and vitamin B12, physicians administered the vitamin B12 (and the pemetrexed), while patients self-administered folic acid with guidance from physicians.  The judicial analysis therefore weighed liability under a theory of divided infringement, an area of law which has recently undergone important developments.

Specifically, the Akamai V decision (2015) has broadened the circumstances in which others’ acts may be attributed to a single actor to support direct-infringement liability.  The Federal Circuit held that one person can be deemed accountable for directing or controlling another person’s performance if the first person (1) conditions participation in an activity or receipt of a benefit upon the performance of one or more steps of a patented method, and (2) establishes the manner or timing of that performance.  The question in Eli Lilly v. Teva thus became: Did physicians direct or control patients to self-administer folic acid within the meaning of this two-part test? More...