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...