Source: https://www.schwabe.com/newsroom-publications-13252
Timestamp: 2019-04-26 02:39:44+00:00

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Source - The Circuit determines that the district court did not abuse its discretion in sanctioning a law firm $200,000 under Rule 11 where its arguments in support of claim construction violated all of the applicable canons of construction and its arguments of infringement had no reasonable basis.
The patent in suit is directed to an input device in which a user can communicate with a computer by moving the input device — much like using a mouse, but in three dimensions. The input device sends commands to the computer based on the input device's three-dimensional position, attitude (i.e., orientation), and motion. In the preferred embodiment, these components include three accelerometers and three rotational rate sensors for measuring linear acceleration along, and rotational velocity about, three orthogonal axes. The preferred embodiment also includes a conventional microprocessor that is programmed to periodically read and numerically integrate over time digitized acceleration and rotational rate values to calculate the position, attitude, and motion values for the input device. However, the patent does not further explain how the numerical integration is performed, only that it is performed in a "conventional manner." The input device then outputs these values to the computer to facilitate the user's interaction with the computer.
The district court held that this term "integrator means" was not accompanied by an adequate disclosure in the specification, so the claim was determined to be indefinite. Specifically, the court determined that the patent did not disclose any algorithm for performing the recited integrating function, but instead simply stated that the recited integrating function was a "conventional microprocessor having a suitably ‎programmed read-only memory." The patent broadly discloses using "numerical integration," but this was determined to be an insufficient disclosure because "numerical integration is not a single algorithm, but rather a whole class of algorithms that can be used to calculate definite integrals."
Triton argues that merely using the phrase "numerical integration" is sufficient disclosure of an algorithm because numerical integration was well known to those skilled in the art. Triton then points out that its patent discloses a two-step algorithm for accomplishing the integrating function: (1) sampling measured values over time and (2) accumulating by continuously summing areas defined by the sampled values. Triton asserts that the patent discloses the sampling step as acquiring instantaneous values from the different sensors, formatting them to digital values, and then storing them for further processing. Triton contends that its patent discloses the accumulating step as "clearing all numeric integration accumulators" and continually performing numerical integration to compute the position and attitude values.
The panel rejects each of these arguments. It is certainly true that an algorithm can be expressed in many forms, including flow charts, a series of specific steps, mathematical formula, prose, and so on. However, merely using the term "numerical integration" does not disclose an algorithm—i.e., a step-by-step procedure—for performing the claimed function. As the district court correctly determined, numerical integration is not an algorithm but is instead an entire class of different possible algorithms used to perform integration. Disclosing the broad class of "numerical integration" does not limit the scope of the claim to the "corresponding structure, material, or acts" that perform the function, as required by ‎§‎112. Indeed, it is hardly more than a restatement of the integrating function itself. Disclosure of a class of algorithms "that places no limitations on how values are calculated, combined, or weighted is insufficient to make the bounds of the claims understandable." According to the panel, the district court correctly recognized that "although a person of skill in the art might be able to choose an appropriate numerical integration algorithm and program it onto a microprocessor, the patent discloses no algorithm at all." The panel thus concluded that the district court correctly found that the patent's disclosure of "numerical integration" does not satisfy the disclosure requirement of ‎§‎112 ¶ 6; "numerical integration" is not an algorithm.
The panel also held that Triton has waived its argument that its patent discloses a two-step algorithm that consists of sampling and accumulating. Triton did not make this argument to the district court. Triton also argues that one of skill in the art would have understood the bare disclosure of "numerical integration" as disclosing a particular two-step algorithm, but the panel determined that that argument, made for the first time on appeal, was also waived.
The Circuit affirms a determination of obviousness as to a Bristol-Myers-Squibb (BMS) patent covering its Baraclude® drug that is used for the treatment of hepatitis B, a product that in 2013 achieved U.S. sales of $289 million and worldwide sales of $1.5 billion. This action was filed in 2010, shortly after Teva filed an ANDA for its generic version of BMS's entecavir, a compound in Baraclude. Entecavir is a modified version of the natural nucleoside 2′-deoxyguanosine (deoxyguanosine). Entecavir is structurally identical to deoxyguanosine except for one difference: it has a carbon-carbon double bond (also known as an exocyclic methylene group) at the 5' position of the carbocyclic ring where deoxyguanosine has an oxygen atom.
Teva's obviousness argument focused on the selection of 2′-CDG as a lead compound from the prior art. 2′-CDG is a potent antiviral carbocyclic nucleoside analog that is structurally similar to the natural nucleoside deoxyguanosine, differing only in that it replaces an oxygen atom with a carbon atom at the 5' position. The following illustrations compare the chemical structures of 2′-CDG and deoxyguanosine.
After a bench trial, the district court found that at the time of BMS's invention, 2′-CDG was a lead compound for the development of antiviral drugs. Based on (1) the structural similarity between entecavir and 2′-CDG, (2) the teachings of the Madhavan reference, (3) the finding that the exocyclic methylene substitution would be a "small, conservative change" and (4) the "totality of the prior art" on 2′-CDG, the district court found that a skilled artisan would have been motivated to substitute an exocyclic methylene group at the 5' position of 2′-CDG, with a reasonable expectation of success of creating a compound with beneficial antiviral properties. The district court also analyzed secondary considerations of nonobviousness and found that although some of these considerations cut in favor of nonobviousness, Teva proved by clear and convincing evidence that claim 8 would have been obvious.
The panel noted that it would review the conclusion of obviousness de novo, and the trial court's factual findings for clear error, and then explained the tests it would be applying to evaluate the obviousness. A party seeking to invalidate a patent as obvious must demonstrate "‘by clear and convincing evidence that a skilled artisan would have been motivated to combine the teachings of the prior art references to achieve the claimed invention, and that the skilled artisan would have had a reasonable expectation of success from doing so.'" Proctor & Gamble Co. v. Teva Pharms. USA, Inc., 566 F.3d 989, 994 (Fed. Cir. 2009). To establish obviousness in cases involving new chemical compounds, the accused infringer must identify some reason that would have led a chemist to modify a known compound. Takeda Chem. Indus., Ltd. v. Alphapharm Pty., Ltd., 492 F.3d 1350, 1357 (Fed. Cir. 2007). Generally, an obviousness inquiry concerning such "known compounds" focuses on the identity of a "lead compound." Eisai Co. Ltd. v. Dr. Reddy's Labs., Ltd., 533 F.3d 1353,1359 (Fed. Cir. 2008). A lead compound is a compound in the prior art that would be "a natural choice for further development efforts." Altana Pharma AG v. Teva Pharms. USA, Inc., 566 F.3d 999, 1008 (Fed. Cir. 2009).
BMS attacks the lower court's obviousness determination by contending that a skilled artisan would have had to make too many decisions to arrive at entecavir. The panel noted that after selecting a lead compound, the parties' experts agreed that a chemist in drug development would seek to make small, conservative changes to that structure. In drug development, it is common to modify a lead compound in an effort to "obtain a compound with better activity." With 2′-CDG as a lead compound, according to the panel, the record here amply supports the conclusion that one of ordinary skill in the art would have had a motivation to modify 2′-CDG's carbocyclic ring by substituting an exocyclic methylene group at the 5' position to make the patented compound, entecavir.
The panel concluded that BMS fails to establish any clear error in the district court's factual determinations, which are based on the prior art and expert testimony. In light of those factual findings, the panel agreed with the district court that Teva provided strong evidence of obviousness, given the use of 2′- CDG as a lead compound during the relevant time period, the "totality of the prior art," and the structural similarity between entecavir and 2′-CDG suggesting similar properties.
BMS also argues that a new chemical entity, as a matter of law, cannot be obvious when the claimed invention possesses unexpected properties. According to the panel, the Circuit had rejected this argument, holding that an unexpected result or property does not by itself support a finding of nonobviousness. In re Dillon, 919‎ F.2d 688, 697 (Fed. Cir. 1990) (en banc).
Turning to the secondary considerations, which must be factored into every obviousness analysis, the panel noted that those considerations do not necessarily control the obviousness determination. Here, the district court found evidence of some secondary considerations of nonobviousness, including commercial success, long-felt need, and unexpected results. On appeal, BMS focuses primarily on unexpected results.
BMS primarily relies on three contentions for unexpected properties: (1) high potency against hepatitis B, (2) a larger than expected therapeutic window, and (3) a high genetic barrier to resistance. The antiviral activity of entecavir, however, was not entirely unexpected because, as the district court found, it was already known in the prior art that 2′-CDG was effective against hepatitis. Thus, while the district court found that entecavir's degree of effectiveness was unexpected, it also noted that entecavir's "effectiveness against hepatitis B without known toxicity issues" was "not unexpected" in light of the structurally similar 2′-CDG. As for the high genetic barrier to resistance, the district court properly credited this attribute as an unexpected property.
As for BMS's arguments regarding evidence of commercial success and long-felt need, the panel found no clear error with the factual findings. The district court found that Baraclude® achieved commercial success based on sales and market share, but it was "less dynamic" than BMS represented. On long-felt need, three other drugs for treating hepatitis B were invented before the filing date of entecavir. These three drugs also gained FDA approval before entecavir. Therefore, the panel agreed with the district court that the evidence of long-felt need is of limited value to BMS.
After considering all of the findings for and against obviousness, as well as Teva's burden of proof, the panel saw no basis to disturb the district court's ultimate legal conclusion, and affirms the judgment that claim 8 of the '244 patent is invalid as obvious.
The Circuit affirms a ruling of the district court sanctioning a law firm $200,000 under Rule 11 for bringing a frivolous lawsuit. This is a patent infringement case in which Source and its counsel Pearl Cohen Zedek and Latzer contended that Source's patent was infringed by a flexible hydration reservoir manufactured and sold by Hydrapak called ‎the Reversible Reservoir II.
The asserted claim recites in pertinent part: "a rod having a first end and a second end…; and a sealer comprising an elongated rigid member.…, the slot being narrower than the diameter of the rod, so that ‎the sealer is only to be slidingly mounted sideways over the rod.‎" The accused unit has a sealing member, called a slider, which attaches to six elements, called "catches," located on the outside of two plastic lips that run along each side of the water reservoir's mouth. The catches guide the slider along the container's plastic lips, thereby locking the slider in place, preventing detachment.
Shortly after Source filed its action, Hydrapak filed a sanctions motion under Rule 11. Several months later the parties filed cross motions for summary judgment as to infringement. The court ordered that the two law firm partners involved in the case and the law firm were jointly liable for $187,308.65. Source filed two notices of appeal, one ‎addressing the district court's denial of Source's ‎motion for reconsideration of the Rule 11 Order and the ‎second addressing the district court's merits decision. ‎Source subsequently dropped its motion for reconsideration appeal. The appeal on the ‎merits of the district court's decision moved forward, and the Circuit summarily affirmed ‎the district court's decision.‎ Hydrapak argued it should receive attorney's fees for defending against the terminated reconsideration motion, and the district court agreed, raising the sanction amount to $200,054.00.
Applying the law of the Second Circuit, the panel noted that liability for Rule 11 violations requires only a showing of objective unreasonableness on the part of the attorney or client signing the papers and a district court's imposition of Rule 11 sanctions is reviewed under an abuse of discretion standard.
Source argued to the district court that the slot/rod limitation (i.e., "the slot being narrower than the diameter of the rod, so that the sealer is only to be slidingly mounted sideways over the rod") should be construed to mean "the slot is narrower than the diameter of the rod together with the container folded over it, so that the sealer is only to be slidingly mounted sideways over the rod and the container." But according to the panel, Source simply added words to the actual claim language, thus changing the relevant comparison from the slot to the diameter of the rod to the slot to the diameter of the rod added to the thickness of the container folded over it. According to the panel, Source had the ability to draft the claim that way but did not.
The panel also looked to the specification and the prosecution history, both of which support the plain meaning of the claim language. Source argued that Hydrapak's proposed construction would render claim 1 nonsensical but, according to the panel, Source should have known a court may not rewrite a claim even if giving a disputed claim its plain meaning would lead to a "nonsensical result." Source also cites several cases to argue it is proper to rely on the purpose of the invention in construing the claim. According to the panel, the district court properly determined that "claim construction is a function of the words of the claim not the ‘purpose' of the invention," and that Source's construction "violates nearly every tenet of claim construction and amounts to a wholesale judicial rewriting of the claim." The panel therefore determined that the district court did not abuse its discretion in imposing Rule 11(b)(2) sanctions based upon Source's frivolous claim construction arguments.
Source argues that Hydrapak's sealing member literally included a "slot narrower than the diameter of the rod, so that the sealer is only to be slidingly mounted sideways over the rod" but the panel concluded that this argument did not present, even under Source's proposed construction, a reasonable basis for alleging the accused unit literally infringed.
The district court found that Source's opposition to the Rule 11 motion did "not even contain any product measurement that would tend to show whether Hydrapak's products infringe under any version of claim construction." The panel found that Source was not prepared and failed to offer any legitimate evidence supporting a reasonable belief that it had a meritorious direct infringement claim.
Source argues that its doctrine of equivalents arguments were objectively reasonable, but the panel found that its only argument in support was the assertion that Hydrapak infringed "either literally or under the doctrine of equivalents." Source failed to offer any legal or factual support for this conclusory statement. Counsel was obligated to come forward with a showing of exactly why, prior to filing suit, they believed their claim of infringement under the doctrine of equivalents was reasonable. Source did not comply with this requirement, so under these circumstances the panel ruled that the district court did not abuse its discretion in finding a Rule 11 violation.
While the panel did not comment on it, it may have been that the law firm was held to a higher standard of investigation prior to filing because it also prepared and prosecuted the patent in suit. Here the district court and the Circuit repeatedly referenced the specification and the prosecution history in rejecting Source's arguments. That factor may also have affected the decision to sanction counsel and not Source for filing and pursuing the action.
This case brings to mind the recent case of Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749‎ (2014) holding that an exceptional case under 35 U.S.C. ‎§ 285 ‎ is simply one ‎that stands out from others with respect to the ‎substantive strength of a party's ‎litigating position ‎‎ (considering both the governing law and the facts of the case) or ‎the ‎unreasonable manner in which the case was ‎litigated. District courts may determine whether a ‎case ‎is "exceptional" in the case-by-case exercise of their ‎discretion, considering the totality of ‎the ‎circumstances. ‎The Court thus lowered the bar for assessment of attorney fees in a patent case. Previously, it will be recalled, Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., ‎‎393 F. 3d 1378 (2005) had controlled, and in that case the Circuit ‎held a ‎case to be exceptional under §285 only "when there has ‎been some material inappropriate ‎conduct related to the matter in litigation, such as willful infringement, ‎fraud or inequitable ‎conduct in procuring the ‎patent,‎ misconduct during litigation, vexatious or ‎unjustified litigation, ‎conduct that violates Fed. R. Civ. P. 11, or like ‎infractions." Octane was not cited in the Source opinion.

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