Source: https://www.schwabe.com/newsroom-publications-12591
Timestamp: 2019-04-19 12:32:12+00:00

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Each year I try to make a presentation on the Federal Circuit cases I think are some of the most important of the past year. This year has been no exception in the number of interesting cases that have been decided. Entire papers have been written on each topic I mention below but in order to keep the length manageable I have tried to hit the high points but not deal with any singular topic in much detail. Feel free to contact me if you'd like to talk about any of them. Like most rulings in IP, these cases are all of interest, and we look forward to see the effect they'll have on future holdings, but sometimes wonder how they can be reconciled with past cases.
The biggest development in our field is the American Invents Act. This paper is not going to discuss the Act other than to the extent it is likely to affects practice before and rulings of the Federal Circuit. That being said, there is one aspect of the AIA that may dramatically affect practice before the Federal Circuit.
The AIA provides two new procedures for challenging patents: the post grant review and inter partes review. Beginning next month, these reviews will be handled by the Patent Trial and Appeal Board at the PTO. To prepare for this, according to Commissioner David Kappos, the PTO plans to hire 100 new administrative patent judges for the PTAB. The AIA provides that the Federal Circuit has exclusive appellate jurisdiction over appeals from the PTAB. Unlike the PTO, however, the Federal Circuit cannot expand the number of judges without action by Congress. In the current economic climate where all increases in federal spending will be looked at closely, the question is whether Congress will choose to add funding to the Federal Circuit to accommodate the additional cases that will follow establishment of these two new avenues in which patent validity may be challenged.
We will have a little time to see what the effects of these new AIA proceedings will be, since in September the post-grant review will only be available for business method patents and for certain interferences. Given that the PTO is to complete its examination within one year from the filing (extendible by the PTO upon a showing of good cause), the first appeals from post-grant reviews won't likely reach the Circuit until late 2013. But effective March 16, 2013, post grant review will be available for all patents filed under the "first inventor to file" system. Because it will take those patent applications at least a year to make it through the PTO, we won't likely see post grant reviews for those first inventor to file applications until mid-to-late 2015, and then the appeals in mid-to-late 2016. The AIA does give the PTO the discretion to limit the number of post grant reviews instituted in the first four years, so the effect of the new procedures might take a while to be apparent. But when it does kick in, the increase in the Circuit's workload is likely to be dramatic.
Replacement of inter partes reexamination with inter partes review might not affect the court's workload but the number of requests for inter partes reexamination has grown dramatically over the past few years (from 70 requests in 2006 to 281 requests in 2010) so the number of appeals from first inter partes reexamination and then inter partes review is likely to increase as well.
If Congress doesn't meaningfully increase the number of judges on the Circuit, the likely effect on practicing before the Circuit is (1) increasing the use of visiting judges, thereby introducing judges with less experience on patent matters, (2) expanding the use of non-precedential decisions and affirmances without opinion, (3) denying oral argument more often, and (4) expanding the Circuit's ADR program.
I think we all wonder about the likelihood of obtaining a preliminary injunction since the eBay case was decided. eBay Inc. v. MercExchange,LLC, 547 U.S. 388(2006). In the case we've been hearing so much about this week, Apple v Samsung, the Northern District of California denied Apple's motion for preliminary injunction back in December of 2011 based upon Apple's motion to stop all sales by Samsung of units that were competitive with Apple's iPhone and iPad products. The district court based its finding upon the likely invalidity of several of the Apple patents and the lack of irreparable harm. In May the Federal Circuit unanimously affirmed the denial as to Samsung smart phones, holding that Apple had failed to show any causal nexus between the infringement and consumers' decisions to purchase Samsung smart phones, which was necessary to establish irreparable harm. Apple Inc. v. Samsung Electronics Co., Ltd., 2012 U.SW. LEXIS 15005 (Fed. Cir. May 23, 2012). The court split on whether an injunction should be granted as to Samsung's tablet computer that competes with the iPad.
The Federal Circuit noted that if consumers purchased the product for reasons other than the patented feature, then the required nexus had not been proven. Notably, Apple had failed to present evidence of lost sales or substantial loss of market share. The court also noted that Apple's design patents began to issue in May of 2009 and the action was not filed until two years later. The Circuit reached the same decision as to one of the utility patents that was issued in December of 2008. The court noted that the delay in bringing an infringement action and seeking a preliminary injunction are factors that could suggest that the patentee is not being irreparably harmed by the infringement. The Circuit faulted the district court for its obviousness analysis, holding that the court erred in holding that there was a substantial question as to validity of one of the patents.
The lower court had found irreparable harm in the tablet computer market so the district court's faulty analysis of validity was meaningful. Therefore, the Circuit did not uphold the denial of the injunction as to the tablet. However, the district court's decision was not reversed because the lower court had failed to address all four of the eBay factors. The issues of irreparable harm and inadequate remedies at law had been addressed, but the lower court had not considered the balance of hardships between the parties or whether the public interest would be disserved by a permanent injunction.
The opinion was published in May but because the case was not remanded to the Northern District until June 25, the district court had plenty of time to have the issues briefed again. Therefore, when the case was remanded the court was ready and on June 26 the district court granted a preliminary injunction barring the sale of Samsung's Galaxy tablet computer. Apple was required to post a $2.6 million bond to secure payment in the event infringement and validity are resolved differently at trial.
We see from these decisions that the Circuit is being careful about applying eBay and requiring that courts consider all four of the factors. Had counsel encouraged the district court back in December to rule on all four eBay factors, the Federal Circuit would have been in a position to reverse the denial of the injunction and not waste the month between publication of the opinion and the granting of the injunction as to the tablets. The decision also demonstrates that we must show a clear nexus between the patented features and the consumer's motivation to buy. Finally, the Circuit is telling us that if we want a preliminary injunction, we'd better be prompt in filing suit and moving for preliminary injunction. But practically speaking, we all know it can be difficult to develop the evidence necessary to support a nexus, with survey evidence of lost sales and loss of market share, and still meet the court's definition of timeliness. All in all, this case underscores how difficult it is to get preliminary injunctions in the post-eBay world.
See also the cases of Sciele Pharma Inc. v. Andrx Corporation, 2012 U.S. App. LEXIS 13513 (Fed. Cir. July 2, 2012) which reversed the granting of a motion for preliminary injunction because the court had incorrectly rejected defendant's arguments regarding motivation to combine in an obviousness analysis, and Kimberly-Clark Worldwide, Inc v. First Quality Baby Products LLC, 4531 F. Appx. 884 (Fed.Cir. June1, 2012) where the court vacated a preliminary injunction because defendant had raised "substantial questions" of patent validity. The Circuit held that preliminary injunctions should be denied as long as the alleged infringer's proffered defense "does not lack substantial merit."
In an 6-4 en banc decision the Federal Circuit held that patent claims resulting after reexamination do not invoke an infringer's intervening rights unless the claims are new or amended. Marine Polymer Technologies v. Hemcon Inc., 672 F.3d 1350 (Fed. Cir. 2012). The court thus affirmed the trial court's infringement finding, a $30 million damages award, and an injunction against a polymer manufacturer, as it reversed a Sept. 26 split Federal Circuit panel decision. The dissent concluded that, even though the asserted claims themselves were not amended in reexamination, the patentee's reexamination arguments and cancellation of six other claims—which successfully overcame an invalidity rejection—effectively narrowed the scope of the claims that remained.
This decision really puts the onus on the patent examiner to make sure that if a reexamination applicant is arguing features that are not in the claims, the claims must be amended. While the PTO is hiring hundreds of new examiners, it appears that the reexamination corps will continue to be made up of more experienced examiners. This is particularly important in view of this decision. According to the PTO, examiners handling reexaminations average 17 years of examining experience, and advancement to the reexamination unit is seen as a prestigious appointment. However, with the number of reexams growing, and with the advent of post grant review, the challenge will be to retain the quality that is needed if reexamination is to dramatically reduce litigation, as is hoped in the changes implemented in the AIA.
You will recall that last year in the Therasense en banc decision, the Federal Circuit toughened the test for successful assertion of the inequitable conduct defense in an attempt to address the "plague" of inequitable conduct allegations that are a part of the defense of so many patent infringement lawsuits. Therasense, Inc. v. Becton Dickinson and Co., 593 F.3d 1289 (Fed. Cir. 2011). According to the court, the "intent" prong is satisfied only by a showing of specific intent that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it. To meet the "materiality" prong, the Court adopted a "but for" test, requiring the challenger to show that "the PTO would not have allowed a claim had it been aware of the undisclosed art." An "egregious conduct" exception was added in the event the "but for" test is not met, for example, where a fraudulent affidavit is filed that might not have been critical to allowance.
But the case was decided on a slim 6 to 5 majority, with 4 of the 5 dissenters arguing for application of the PTO's Rule 56 "reasonable examiner's" standard on materiality.
A few weeks after the Therasense decision, the court had a similar case before it in American Calcar Inc. v. American Honda Motor Co., 651 F. 3d. 1318 (Fed.Cir. 2011). The district court based its decision that intent had been shown on the finding that the testimony of one of the inventors "lacked credibility," a finding that under the pre-Therasense "sliding scale" might have permitted an affirmance of the decision. The Federal Circuit reversed the district court, remanding for a determination of whether the "but for" materiality and "specific intent to mislead" had been proven.
Later in 2011 the Circuit considered another inequitable conduct case, Powell V. Home Depot U.S.A. Inc., 663 F. 3d 1221 (Fed. Cir. 2011). In that case, where Powell was awarded a treble damages and $24 million, the court stuck to its Therasense ruling and held that a patent applicant's failure to notify the PTO of a change in status for a petition to make special was no grounds for a finding of inequitable conduct under the "but for" materiality standard. Specifically, the grounds for filing the petition to make special became moot when Home Depot had agreed to the relief demanded by Powell, the patent applicant. The Circuit held that the conduct did not qualify as "but for" materiality, and the failure to update the PTO did not rise to the level of affirmative egregious misconduct that could support a finding of inequitable conduct.
Similarly in Cordis v. Boston Scientific, 658 F.3d 1347 (Fed. Cir. 2011), the Circuit agreed with the district court that the intent to deceive was not the single most reasonable inference of plaintiff's actions, and therefore affirmed the district court's rejection of the inequitable conduct defense .
But the Circuit will pay attention and hold unenforceable a patent that has been the result of clear inequitable conduct. In the case of Aventis Pharma S.A. v Hospira Inc., 11 USPQ2d 1742 (Fed. Cir. 2012), the district court had found the presence of inequitable conduct under the lower pre-Therasense standard of proof. In so doing, the lower court determined that the withheld references constituted "but for" materiality, and made distinct intent and materiality findings rather than employing the now-abrogated sliding scale approach. While the inventor had an explanation for why he withheld the reference, the court looked at other evidence highlighting the importance of the solution disclosed in the withheld art, and agreed with the district court's judgment that the inventor's explanation lacked credibility.
So if you've got a strong inequitable conduct case, make sure to get clear rulings by the jury and the court regarding "but for" materiality and specific intent, and you might, despite Therasense, get the Circuit to accept your arguments.
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) required that plaintiffs include enough facts in their complaint to make it plausible, not merely possible or conceivable, that they will be able to prove facts to support their claims. Ever since Twombly, and the follow-up case Ashcroft v Iqbal, 129 S.Ct. 1937 (2009), courts have looked hard to determine whether pleadings are merely conclusory with few factual allegations or if they provide facts sufficient to support the claim.
Twombly and Iqbal appear to be at odds with Form 18 of the Federal Rules of Civil Procedure, which was adopted after Twombly. Form 18 sets forth a very basic example of a patent infringement pleading, which would not appear to pass muster in view of Twombly and Iqbal.
In McZeal v. Sprint Nextel Corp., 501 F.3d 1354 (Fed Cir. 2007), the Federal Circuit deemed a complaint that tracked Form 18 to be sufficient, but just barely, even though it asserted infringement under the doctrine of equivalents. A divided panel found the pleading adequate, but it did suggest it was doing so because the plaintiff was pro se, and specifically stated that it was not condoning his method of pleading.
In June we finally receive some guidance from the Federal Circuit. In the case of In re Bill of Lading, 681 F. 3d 1323(Fed. Cir. 2012), the court held that a complaint following Form 18 necessarily satisfied the notice pleading requirements but that Form 18 does not apply to allegations of indirect infringement. Judge Newman dissented, arguing that a Form 18 complaint should normally be deemed insufficient to provide sufficient notice to alleged infringers.
In Bill of Lading there was a real dispute as to whether direct or indirect infringement was being alleged, and the case turned on the fact that the Circuit decided the complaint alleged direct infringement. This case, with the earlier McZeal case, illustrates the danger of using simple Form 18 pleadings in any instance, but especially where there are allegations of indirect infringement or infringement under the doctrine of equivalence.
Patentable Subject Matter under Section 101; Did Prometheus Make It Clear?
A unanimous U.S. Supreme Court determined March 20 that claims on methods of use in the field of personalized medicine—adjusting a drug dosage after observing a patient's reaction to a drug administration—do not constitute patent-eligible subject matter under 35 U.S.C. §101. Mayo Collaborative Services v. Prometheus Laboratories Inc., 132 S. Ct. 1289 ( 2012). Overturning the Federal Circuit, the court said that to transform an unpatentable law of nature into a patent-eligible application of such a law, one must do more than simply state the law of nature while adding the words "apply it." The court concluded that the steps of the claims at issue in this case failed to add enough to the inventive concept of Prometheus Laboratories' patents—the correlations between metabolite levels and effectiveness of the drug.
The Federal Circuit in a 2009 ruling overturned a lower court's finding of patent ineligibility. The Circuit determined that the claims met the transformation prong of its then-definitive machine-or-transformation test. The Supreme Court, however, declared the machine-or-transformation test to be a valuable tool, but not determinative. Bilski v. Kappos, 130 S. Ct. 3218 (2010). After Bilski, the court granted Mayo's petition for cert in the instant case, vacated the appellate court's panel decision, and remanded the case to the Federal Circuit for reconsideration in light of the Bilski decision. On remand, the Circuit again confirmed the patentability of the disputed claims. Prometheus Laboratories Inc. v. Mayo Collaborative Services, 628 F.3d 1347 (Fed. Cir. 2010).
The Supreme Court's opinion began by citing the "intersection" of two basic principles. While the court has repeatedly said that laws of nature, natural phenomena, and abstract ideas are not patentable, it has added that an application of such laws, phenomena, or ideas may be patent eligible. The court thus set the question as "whether the claimed processes have transformed these unpatentable natural laws into patent-eligible applications of those laws." After describing the Prometheus claims in more detail, the court asked, "To put the matter more precisely, do the patent claims add enough to their statements of the correlations to allow the processes they describe to qualify as patent-eligible processes that apply natural laws? We believe that the answer to this question is no."
The administering step failed because it merely identified a "pre-existing audience" of doctors treating the relevant diseases at issue here.
The determining step failed because "methods for determining metabolite levels were well known in the art. … Purely ‘conventional or obvious' ‘[pre]-solution activity' is normally not sufficient to transform an unpatentable law of nature into a patent-eligible application of such a law."
The wherein step failed because it simply told the targeted audience about the law of nature.
The ordering of the three steps added nothing to confer patent eligibility, the court said, because "the combination amounts to nothing significantly more than an instruction to doctors to apply the applicable laws when treating their patients."
The court thus concluded: To put the matter more succinctly, the claims inform a relevant audience about certain laws of nature; any additional steps consist of well-understood, routine, conventional activity already engaged in by the scientific community; and those steps, when viewed as a whole, add nothing significant beyond the sum of their parts taken separately. For these reasons we believe that the steps are not sufficient to transform unpatentable natural correlations into patentable applications of those regularities.
In the month prior to Prometheus the Federal Circuit acknowledged the protectability of business method patents in Fort Properties Inc. v. American Master Lease LLC, 101 USPQ2d 1785 (Fed. Cir. 2012), but found that a method of creating a tax-deferred real estate investment instrument did not rise to the level of patentable subject matter under 35 U.S.C. § 101. The patent was directed to an investment tool method designed to enable property owners to buy and sell properties in a way that complies with IRS tax deferred exchanges. The Circuit found that the method claim was tied to the physical world through deeds, contracts and real property but the claims were held invalid under 101 because physical activities surrounding the deeds, contracts and real property were deemed insufficient to render the claims patentable.
Just after the Fort Properties case the Circuit decided MySpace Inc. v. GraphOn Corp, No 2011-1149 (Fed. Cir. 2012), in which the majority refused to evaluate eligibility under section 101, noting that section 101 issues "can be murky and should be avoided wherever possible." The claims at issue were found to be obvious and anticipated by the prior art. The dissent thought the court should have addressed the patentable subject matter issue, arguing that section 101 was a better tool for weeding out patents of doubtful quality, and for establishing a high bar for patentable subject matter to prevent a chilling of creative endeavor.
In a case decided just a few weeks ago the Circuit determined, in a split decision, that computerized methods of eliminating risk in bank funds exchanges are in fact patent eligible. CLS Bank International v. Alice Corp., No.2011-1301 (Fed. Cir. 7/9/12). Here the majority analyzed the "inventive concept" (a term introduced by the Supreme Court in Prometheus) of the patent claims asserted by looking at the claims as a whole. The dissent argued that the majority did not identify the inventive concept but the majority noted that the dissent ignored claim limitations. But the entire panel agreed that a method claim cannot become patent eligible by the expression of an abstract idea for storage on a computer media.
The case of Bancorp Services, LLC v. Sun Life Assurance Company of Canada (U.S.), No. 2011-1467 (Fed. Cir. July 26, 2012) provides an interesting contrast to CLS. Here the claims at issue were found to be non-statutory under section 101. The court held that mere implementation of the claimed system and method on a computer did not suffice for patentability, and in order to salvage an otherwise patent-ineligible process, a computer must be integral to the claimed process. In the claims at issue, the computer did not play a significant part of the performance of the system, and this is what distinguished the case from CLS. In fact, the claims were quite similar to those in Bilski, which did not meet either prong of the machine or transformation test. What we can take away from this case is that we need to get into the details of implementation to find out how the computer pays a significant part in the implementation of the business method, and then we need to make sure to describe that in the claims.
It will be interesting to see now how the Circuit will address new issues of patentable subject matter, and whether Prometheus will have a meaningful affect in the court's analysis, or whether Bilski will continue to be the touchstone for computer-based inventions. It will also be interesting to see if scholars or the Federal Circuit can reconcile earlier cases such as Diamond v Diehr, 450 U.S. 175 (1981), which held that as long a natural law (there a formula) is applied to a particular problem, that should be patentable subject matter. Prometheus tells us you really need to be concrete in your application to the problem or the Circuit will likely follow Prometheus and not Diehr.
Shortly after the Prometheus ruling was published the Supreme Court vacated the Federal Circuit's decision in Association of Molecular Pathology, et al. v. Myriad Genetics, Inc., 132 S.Ct. 1794 (2012) and remanded it to the Federal Circuit to be considered in light of Prometheus. Myriad involves isolated human DNA molecules that are associated with an increased risk of developing breast and/or ovarian cancer. The Federal Circuit oral argument in Myriad took place just last week so the Federal Circuit will once again be asked to weigh in on a section 101 case of great interest. Hopefully the trend of split decisions will end so practitioners can get the guidance we need.
Patents asserted against Intuit's Quicken and QuickBooks personal finance software products were found to be invalid for indefiniteness under the second paragraph of 35 U.S.C. §112. Noah Systems Inc. v. Intuit Inc.,No. 2011-1390 (Fed. Cir. 4/9/12). The basis of the holding was that the patent specification must include the supporting algorithm for each and every functional limitation in a computer system claim. The claims at issue include a means-plus-function limitation with two associated functions. The Circuit faulted the lower court's findings of no algorithm support whatsoever. However, it concluded that support for only one function—access to data—was a "partial disclosure" and that no support was provided for the other function—adding, deleting, changing, reviewing, and processing the data. A partial disclosure should be treated no differently than a "no algorithm" disclosure, the Circuit held, affirming the district court's decision not to allow evidence on how a person skilled in the art would understand that other function.
The case of Ergo Licensing LLC v. Carefusion 303 Inc., No. 2011-1229 (Fed. Cir. 3/26/12) shows how divided the court is on some 112 issues but also reveals that computer-based means-plus-function patent claims are at risk as being held indefinite. In a split decision, the Circuit affirmed a summary judgment that "control means" as it relates to computer processing, with few exceptions, must be described by an algorithm in the patent specification. The dissent argued that the patent description at issue in this case is standard. The court's decision, according to the dissent, "taints thousands of heretofore innocent patents." This may well be true so care must be taken to use a variety of claim language to define the inventions we are attempting to protect.
The Ergo decision is consistent with Typhoon Touch Technologies Inc. v. Dell Inc., No. 2009-1589 (Fed. Cir. 11/4/11), which held that it is not necessary for a means-plus-function claim pertaining to a computer-implemented innovation to include the mathematical algorithm as long as the algorithm is recited in prose in the specification.
En banc review currently underway in two similar cases. In Akamai Technologies, Inc. v. Limelight Networks, Inc., 2010-1291 (Fed. Cir.), a unanimous panel of the Federal Circuit had ruled that only an agency relationship or a contractual obligation can support a finding of joint infringement liability by two parties who together but not independently infringe the steps of a method claim.
McKesson Technologies, Inc. v. Epic Systems Corp., 2010-1291 (Fed. Cir.) involves a patent on a method of communication between health care providers and patients over the internet. The defendant Epic licenses software that allows health care providers to create personalized web pages for their patients. A majority of the panel found no joint infringement under section 271(a), requiring that for liability the health care provider must have direction or control over the patient's part in the infringement. The dissent accepted McKesson's argument that this decision, as well as the one in Akamai, contravenes ordinary principles of law involving concerted action.
These cases were argued to the en banc Circuit late last year but neither decision has been announced. The court's rulings will help determine just how enforceable method claims are when direct infringement of a method claim requires actions by two different entities.
Federal Circuit upholds enforcement of trade secret misappropriation outside of the U.S.
Late last year in TianRui Group Co. v. International Trade Commission, 661 F. 3d 1322 (Fed.Cir. 2011) the court confirmed that Section 337 of the Tariff Act of 1930 (19 U.S.C. 1337) permits exclusion of articles made by processes protected under domestic trade secret laws where the underlying act of misappropriation occurred entirely outside of the U.S. The court also held for the first time that such investigations are governed by federal common law and not state law. Finally, in yet another important part of the decision, the court clarified that Section 337 investigations involving non-statutory IP rights do not require proof that the domestic industry practices the rights at issue. In so holding, the court found that importation of articles into the U.S. provided a sufficient domestic nexus under Section 337 as long as it is demonstrated that the importation causes or at least threatens to cause domestic injury.
Licenses often provide language that the licensee admits validity of the patent and agrees not to challenge validity in court or in a PTO proceeding. Those provisions are normally not enforceable in court under Lear v Adkins, 395 U.S. 653 (1969). To overcome the effect of such unenforceability, as part of the settlement of a lawsuit patentees often insist on a consent decree admitting validity, stating that the admission constitutes both claim and issue preclusion. It has long been held in that instance that the public policy of finality of litigation trumps the public interest in seeing questionable patents invalidated. See, Foster v. Hallco Mfg. Co., Inc., 947 F.2d 469 (Fed. Cir. 1991). However, since the Medimmune case there has been some confusion about whether these earlier cases are still good law. Medimmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007). We know the Medimmune case for its holding that a nonrepudiating licensee can attack validity and establish a case or controversy in a declaratory judgment action. With the coming of post grant review, and its easier and less expensive forum for attacks on validity, this issue is going to be an important one in the Federal Circuit.
In a case decided by the Second Circuit two weeks ago, Rates Technology Inc. v. Speakeasy Inc., 2012 U.S. App. LEXIS 15489 (2d. Cir. 2012), the court held that a no-challenge clause in a pre-litigation settlement is not enforceable. In so holding, the court reviewed the public policies of finality of litigation, sanctity of contract, and invalidation of questionable patents, and ruled that this matter was much like that in Massillon-Cleveland-Akron Sign Co. v. Golden State Advertising Co., 444 F. 2d 425 (9th Cir. 1971). The court therefore concluded that Lear's strong policy of encouraging validity challenges should permit such an attack in a pre-litigation settlement.
A very similar case, In re Baxter International Inc., 67 F.3d 1357 (Fed. Cir. 2012), also involved a litigated patent that was now the subject of a reexamination based upon prior art that was not before the district court. In 2009 the Circuit affirmed a district court judgment of validity as a matter of law. In a reexamination proceeding following that decision, the Board of Patent Appeals and Interferences considered the Circuit's prior ruling but nonetheless found the patent invalid as being obvious, based in part upon prior art not considered by the district court or by the Circuit in the earlier decision. The Circuit affirmed the BPAI, citing In re Swanson, noting that the BPAI is not bound by the court's prior determination. Judge Newman, who dissented in CEC, also dissented here, arguing that the majority's decision permits administrative nullification of a final judicial decision.
As long as Swanson is followed, parties will generally be free to pursue reexamination regardless of previous litigation when there is a substantial new question of patentability. But is the AIA's different standard as to validity going to make a difference? That is, requiring a showing that "it is more likely than not that a claim is unpatentable" instead of whether or not there is "a substantial new question of patentability" One wouldn't think so because the CEC and Baxter majorities focused on the fact that this was new art and not that there was a different standard of proof in accepting the reexamination request.
Another case, Bunzl Processor Distribution v. Kappos, 2012 U.S. App. LEXIS 9983(Fed. Cir. May 23, 2012), authored by the dissenting judge Newman in CEC, refused a request to stay an appeal from a pending inter partes reexamination in which the same patent that was simultaneously being litigated in district court. She ruled that a stay was inappropriate, especially since the district court case had not even gotten to trial. The defendant was losing in the reexamination and had filed a declaratory judgment action in court to get another shot at validity. Judge Newman noted that the cases may result in inconsistent decisions, and this is precisely what happened in CEC. But where, as in Bunzl, the cases are proceeding simultaneously, the likelihood of different prior art being presented in the two proceedings, which was found to be critical in CEC, is perhaps reduced.
With the increased use of inter partes reexamination and perhaps inter partes review once it becomes available, we are likely to see more defendants using PTO proceedings after being unsuccessful in court. Patentees have always served document requests directed to "all pertinent prior art of which defendant is aware," and such requests are more critical than ever to make sure all of the pertinent art is before the court. It is difficult for defendants to withhold prior art but as in CEC, once the defendant loses an infringement action, they typically retain other counsel who often have their own searching resources that are able to develop additional prior art. These cases show that the fight is never over even after a final judgment and appeals are exhausted. Or perhaps once the standard for reexam is changed from "substantial new issue of patentability" to "reasonable likelihood that one or more claims will be invalidated," Judge Newman will convince her colleagues that this "litigation is never done" approach makes no sense.
This week the Federal Circuit decided Grober v. Mako Products, No. 2010-1519 (Fed. Cir. 7/30/12), another case involving simultaneous court and reexamination proceedings. In this case the litigation was before the Federal Circuit on a claim construction issue. The defendant argued that statements the patentee had made in the co-pending reexamination could be used to interpret the claim language at issue in the court proceeding. The Federal Circuit ruled that such statements were fair game for consideration on claim construction. Here the statements were not found to be persuasive and the court ruled for the patentee, but this presents yet another risk to the patentee in being involved in two co-pending proceedings. The question might also be asked if the defendant/reexamination petitioner made arguments in the reexamination, whether those could those be used against it at trial or before the Federal Circuit. There would seem to be some balance and fairness in that approach.
Medimmune held that even though the declaratory judgment plaintiff may not have a reasonable apprehension of being sued, a case or controversy can still exist if the dispute is "definite and concrete" as distinguished from asking for an opinion advising what the law would be upon a hypothetical state of facts. The Federal Circuit recently applied the Medimmune holding in 3M Co. v. Avery Dennison Corp., No. 2011-1339 (Fed. Cir. 3/26/12). In 3M the parties had for years been in litigation over other, related patents. The present case was filed almost a year after a telephone conversation in which Avery's counsel told 3M's counsel that its products "may infringe," and offered a license. When the license was rejected, Avery's counsel apparently said that an analysis of 3M's product supported a conclusion of infringement. The district court dismissed the case based upon lack of subject matter jurisdiction, because of the "informality" of the parties' interactions, that Avery had not presented 3M with a detailed analysis of alleged infringement, and as a result of Avery's not setting a strict deadline by which 3M had to respond.
3M, in combination with Medimmune, shows how careful a patentee has to be in raising an infringement issue. While parties usually hate to be the one to initiate litigation, where a patentee is open to suit in a remote forum, the only safe practice appears to be to file suit in a more favorable forum prior to initiating such contact.
Perhaps not surprisingly, district courts continue to struggle with KSR's language that factfinders must be able to resort to common sense in making the determination of obviousness. KSR International Co v. Teleflex Inc., 550 U.S. 398 (2007).In Mintz v. Dietz & Watson Inc., No. 2010-1341 (Fed. Cir. 5/30/12) the district court granted defendant's motion for summary judgment because the invention was simply a "common sense improvement on the prior art." The technology at issue was a type of netting for encasing meat products that created a desirable checkerboard pattern on the meat's surface but could be peeled away without peeling away the meat with it. The simple technology led the court to combine teachings from the knitting art, exercising what it described as "common sense."
The Federal Circuit found the district court's analysis to be erroneous in several respects. First, the court ruled that the art was properly the meat encasing art and not the knitting art. Second, the Circuit noted that the district court failed to consider the objective indicia: (1) praise in the industry (and by the defendant); (2) copying by defendant; (3) long felt need; and (4) commercial success. The Circuit noted that the objective indicia were particularly important with simple technologies, thereby preventing the factfinder from slipping into an analysis based on hindsight.
While the Circuit's decision is not surprising, it provides a reminder that exercising common sense does not dispense with the need to follow the traditional Graham v. Deere analysis. Graham v. John Deere, 383 U.S. 1(1966).
In Bard Peripheral v. W.L. Gore, No. 2010-1510 (Fed. Cir. 6/14/12), the Circuit has ruled that the "objective prong" of the test for willful patent infringement is a question of law to be decided by a judge and review de novo on appeal. In Seagate, the Circuit defined a two-prong test for willfulness that requires clear and convincing evidence (1) "that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent" and (2) that the infringer had knowledge (or should have known) of this risk. In re Seagate Technology LLC, 497 F. 3d 1360 (Fed. Cir. 2007). This new ruling could result in summary judgments prior to trial or, where there are mixed questions of law and fact, the jury would be allowed to determine the relevant facts, such as those related to anticipation or obviousness. The ultimate legal question of whether a reasonable person would have considered there to be a high likelihood of infringement of a valid patent, would then be decided as a matter of law by the judge.
This ruling will presumably make findings of willful infringement even more difficult and unlikely. Is that a good thing? Perhaps. But in any event, we will likely see fewer such decisions based upon emotion or worse yet prejudice against one side or the other.
In Uniloc USA v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011), the Court held that the 25% rule of thumb that many lower courts had used to determine what percentage of an infringer's profits should go to the patent owner was a fundamentally flawed tool. In ResQNet.com Inc. v. Lansa Inc., 594 F.3d 860 (Fed. Cir. 2010), the Court vacated an award because plaintiff's damages expert used licenses that bore no relationship to the claimed invention to establish a baseline royalty of 12.5%. Lucent Technologies Inc. v. Gateway Inc., 580 F.3d 1301 (Fed. Cir. 2009) ruled that the jury's award lacked sufficient evidentiary support as to running royalty agreements to arrive at a lump-sum damages award.
In two other decisions Judge Rader, sitting with district courts, helped clarify the law as to the entire market value rule (Cornell v. Hewlett-Packard, 2009 U.S. Dist. LEXIS 41408 (N.D.N.Y. 2009)) and the role of the district courts as gatekeepers to exclude inappropriate expert testimony under Daubert (IP Innovation LLC v. Red Hat Inc., 2010 U.S. Dist. LEXIS 139920 (E.D. Tex. 2010)).
In these decisions the Federal Circuit and Chief Judge Rader have emphasized the need for greater rigor in presenting, challenging, and reviewing a claim for patent infringement damages. The recent rulings appear to have had an impact: a recent study from PricewaterhouseCoopers reports that the 2010 median patent damages award was $1.8 million—the lowest since 1995. The Bard case, discussed above, holding that the objective recklessness willfulness issue is to be decided by the court, will also likely have an effect in reducing damage awards. So for plaintiffs, we need to exercise our imagination and our powers of advocacy to beat back the trend, while defendants need to be sure to make full use of the help the Federal Circuit has provided.
According to the Federal Circuit, settlement negotiations that go to reasonable royalties and damage determinations are not protected under Rule 408 and thus are discoverable. In re MSTG Inc., Misc. No. 996 (Fed. Cir. 4/9/12). The court denied a petition for writ of mandamus to vacate a lower court's discovery order in the settlement of a dispute involving mobile phone patents. The Circuit held that the trial court did not abuse its discretion when it ordered the production of documents relating to settlement negotiations between the plaintiff and third parties. These negotiations were part of other suits to enforce the same patent, the other suits having been settled. The settlement agreements had been produced but the parties disagreed on whether the negotiations that led up to the agreements were to be made available to counsel. The Circuit held the negotiations to be discoverable because the communications that take place during negotiations that could be beneficial in determining reasonably royalties and damage calculations.
The issue of whether settlement negotiations are privileged is an issue of first impression, the Circuit said, noting that there appeared to be a circuit split on the issue. Thus, the court concluded that mandamus was appropriate here.
According to the court, the rule protects not only settlements between the parties in the litigation, but also settlements and negotiations involving third parties. However, "In enacting Rule 408, Congress did not take the additional step of protecting settlement negotiations from discovery," the court said. That is, while Rule 408 prohibits the introduction of settlement agreements to prove or disprove a disputed claim, it "specifically permits such evidence … for any other purpose."
I think most of us assume that such negotiations will not be discoverable. While they are not likely to be admissible or even discoverable to show that the parties were willing to compromise their positions to settle a case, MSTG presents a real risk, so any such exchanges concerning royalties and financial data that are presented in writing should be presented based on the assumption they may in fact be discoverable and admissible in court.
It is difficult to think of a time when the Federal Circuit and the Supreme Court have been considering such interesting cases involving so many different IP issues. Leahy-Smith adds to the mix, so the next couple of years will be a time to keep close tabs on the decisions of both courts.

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