Source: https://www.mwe.com/en/thought-leadership/newsletters/2018/05/ip-update
Timestamp: 2018-10-15 11:01:32
Document Index: 61542201

Matched Legal Cases: ['§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 102', '§ 120', '§ 256', '§ 315', '§ 315', '§ 315', '§ 315', '§ 315', '§ 315', '§ 315']

IP Update | 05 | 2018 | Newsletters | Thought Leadership | McDermott Will and Emery
PATENTS / AIA / CONSTITUTIONALITY
In a 7-2 decision authored by Justice Thomas, the US Supreme Court held that inter partes review (IPR) proceedings—a congressionally created administrative processes in which the Patent and Trademark Office (PTO) may reconsider and cancel patent claims that were wrongly issued—are constitutional. In doing so, the Supreme Court affirmed several Federal Circuit decisions. Oil States Energy Srvs., LLC v. Greene’s Energy Group, LLC, Case No. 16-712 (Supr. Ct., April 24, 2018) (Thomas, Justice) (Breyer, Justice, concurring) (Gorsuch, Justice, dissenting).
The America Invents Act (AIA) created IPR proceedings to provide a procedure by which “any person other than the patent owner” may challenge the validity of a patent on the basis of prior art. IPR proceedings are discretionally instituted by the PTO’s Patent Trial and Appeal Board (PTAB or Board) and include many similar features to those found in Article III courts, including motion practice, discovery, depositions, cross-examination, evidence and an adversarial hearing before the Board. At issue before the Supreme Court was whether the revocation of a patent must be tried before an Article III court—thus rendering IPR proceedings unconstitutional. Prior to appeal and certiorari, the challenged claims of the patent at issue were found valid in the district court, but invalid by the Board in a parallel IPR.
In the Federal Circuit decision from which certiorari was granted, and in two others—MCM Portfolio LLC v. Hewlett-Packard Co. (IP Update, Vol. 19, No. 1) and Cascades Projection LLC v. Epson America, Inc. (IP Update, Vol. 20, No. 6)—the appellate court held that IPR proceedings are constitutional. In MCM, the Federal Circuit concluded that patents were a “public right” in that they flow entirely from a legislative regime, and therefore Congress could grant their review. In Cascades, the Federal Circuit rejected en banc an appeal citing MCM, with the dissent arguing that a more comprehensive analysis as to whether patent rights were public rights or private rights was warranted.
In upholding Congress’s authority to create IPR, Justice Thomas, writing for the majority, agreed with the Federal Circuit that patents were indeed a public right, and that IPR “falls squarely within the public rights doctrine” and thus does not encroach on the judicial powers. Reasoning, in part, that the grant of a patent by the government (the PTO) “gives the patent owner the ‘right to exclude others from making, using, offering for sale, or selling the invention throughout the United States,’” the Court found that a grant of a patent akin to the grant of a “public franchise.” Moreover, the grant of a patent “is a matter between ‘the public,’ who are the grantors, and the patentee.”
The Decision Is A Narrow One
The Court specifically noted that its decision addresses “only the precise constitutional challenges . . . raised,” and does not apply to whether infringement actions could be heard in a non-Article III forum, future due process challenges to IPR, or whether IPR would be constitutional “without any sort of intervention by a court at any stage of the proceedings”—surely setting the stage for further IPR related appeals.
Perhaps alluding to a deficiency in the appellant’s position or a prediction of future direction, the Court majority noted that the retroactive application of IPR (to patents granted before the AIA was enacted) was not formally challenged by the appellant, despite IPR not existing when the patent at issue was granted, and despite questioning as to whether IPR should be available retroactively for pre-AIA patents during oral arguments.
It is notable that many, if not most, patents were granted before the AIA and IPR proceedings came into existence. The Court’s limiting statements, including those regarding retroactive application, may set the stage for further constitutional challenges.
PATENTS / AIA / IPR / PARTIAL INSTITUTION
PATENTS / § 101 / ISSUE PRECLUSION
The Results Are In: Voter Verified’s Claims Are Patent Ineligible
Addressing issue preclusion and patent ineligibility stemming from a Rule 12(b)(6) motion to dismiss, the US Court of Appeals for the Federal Circuit affirmed the district court’s dismissal of Voter Verified’s patent infringement complaint, finding the claims at issue invalid under § 101. Voter Verified, Inc. v. Election Sys. & Software LLC, Case No. 17-1913 (Fed. Cir., Apr. 20, 2018) (Lourie, J).
In 2009, Voter Verified sued the predecessors of Election Systems & Software for infringement of a reissue patent directed to voting methods and systems that provide for “auto-verification” of a voter’s ballot. Through a series of summary judgment orders, the district court held that various claims were not infringed and not invalid under §§ 101 and 112 because Election Systems failed to present any arguments or evidence regarding invalidity for those claims. The issues went on appeal to the Federal Circuit, which affirmed the district court (IP Update, Vol. 15, No. 11).
In 2016, Voter Verified sued Election Systems in a different district court, alleging that Election Systems was infringing the same patent as in the earlier case. Election Systems moved under Rule 12(b)(6) to dismiss the complaint on the grounds that all of the claims of the same asserted patent were invalid under § 101. In response, Voter Verified argued that issue preclusion, also known as “collateral estoppel,” precluded Election Systems from re-litigating the § 101 issue, which Voter Verified contended was decided in the previous litigation. Nevertheless, the district court granted the motion, concluding that the Alice two-step analysis was a substantial change in the law that would prevent issue preclusion from applying in this case, and substantively, that all claims of the asserted patent were directed to patent-ineligible subject matter under § 101. Voter Verified appealed.
The Federal Circuit first addressed the issue of whether the Supreme Court of the United States’ Alice decision was a substantial change in the law such that issue preclusion would not apply. Based on the first factor of a three-part test, the Federal Circuit explained that the Supreme Court in Alice applied the same § 101 test as it previously set out in Mayo and did not materially change it. Therefore, the Federal Circuit held that the intervening change in the law exception did not preclude the application of issue preclusion in the case.
The Court next analyzed the issue preclusion question under the 11th Circuit’s four-factor test, focusing on two of the factors that the parties contested. First, the Court agreed with Election Systems that the § 101 issue was never actually litigated; the district court dismissed the § 101 issue when Election Systems chose not to respond to those arguments during summary judgment briefing. Next, the Court found that the § 101 issue was not necessary to the judgment in the first district court action. Instead, the district court made decisions on both non-infringement and invalidity, but did not specify which were critical to its final judgment. Therefore, finding that issue preclusion did not attach to defendant’s motion to dismiss, the Court proceeded to its § 101 Alice analysis.
The Federal Circuit first grouped the asserted claims into a representative method claim and a representative system claim. Then, taking all of the factual allegations in the pleadings as true and as viewed in the light most favorable to the plaintiff, the Court found that the factual allegations presented did not prevent a § 101 determination. The Court then performed the two-step Alice test.
After considering the claims and the specification, the Federal Circuit determined that “the claims as a whole are drawn to the concept of voting, verifying the vote, and submitting the vote for tabulation.” These steps, the Court noted, are “nothing more than abstract ideas.”
Next, the Federal Circuit looked for an inventive concept in the claims sufficient to transform them into patent-eligible subject matter. The Court found only general-purpose computer functions being used to perform the abstract idea of voter verification. For example, the specification recited general computer-related devices such as “a standard personal computer,” “a visual display device” or “a laser printer.” The Court held that these standard components did not sufficiently transform the patent’s abstract ideas into patent-eligible subject matter.
Practice Note: This decision comes in the wake of the April 19, 2018, US Patent and Trademark Office (PTO) memo concerning “Changes in Examination Procedure Pertaining to Subject Matter Eligibility” following the Berkheimer v. HP, Inc., decision. In the memo, the PTO revises the procedures set forth in the MPEP for formulating a rejection for lack of subject matter eligibility. Specifically, with respect to the second step in the Alice analysis, the PTO instructs that “an additional element (or combination of elements) is not well-understood, routine or conventional unless the examiner finds, and expressly supports a rejection in writing” with one or more of the following that demonstrate the well-understood, routine, conventional nature of the additional element(s):
A citation to an express statement in the specification or statement made by an applicant during prosecution
A citation to one or more of the court decisions discussed in the relevant MPEP section
A citation to a publication that demonstrates the well-understood, routine, conventional nature of the additional element(s)
A statement that the examiner is taking official notice on the issue
With respect to the patent in the Voter Verified case, the Federal Circuit noted express statements in the specification to show why the claims simply recited general-purpose computers and standard components. The Court found no assertions in Voter Verified’s complaint that would have brought the “inventive concept” issue into dispute, presumably because none existed. Accordingly, patent drafters may consider, where applicable, making specific reference as to why some of the processing components are not well understood, routine or conventional. Of course, this may then require some expanded disclosure regarding those components.
PATENTS / EQUITABLE ESTOPPEL / INTERVENING RIGHTS
PATENTS / SWEARING BEHIND / 35 USC § 102(g)
Proof Conception Requires More Corroboration Than Inventor Testimony
Kamstrup filed a petition for inter partes review (IPR) of Apator’s patent, and the Patent Trial and Appeal Board (PTAB) instituted review of particular claims based in part on a published US patent application to Nielsen. The effective filing date of the Nielsen reference was 18 days before the filing date of the application that matured into Apator’s patent.
During the IPR proceeding, Apator attempted to swear behind the Nielsen reference. The PTAB rejected this attempt, finding that Apator’s only evidence of an earlier conception date consisted of statements by the inventor. In reaching its conclusion, the PTAB stated that “mere unsupported evidence of the alleged inventor, on an issue of priority, as to . . . conception and the time thereof, cannot be received as sufficient proof of . . . prior conception.” Having found that Apator was not entitled to an earlier conception date, the PTAB went on to find that the claims at issue were not patentable in view of the Nielsen reference. Apator appealed.
The Federal Circuit affirmed, finding that substantial evidence supported the PTAB’s finding that Apator failed to sufficiently corroborate the inventor’s testimony of conception prior to the effective filing date of the Nielsen reference. The Court stated that it was Apator’s burden to prove that the inventor conceived of the invention prior to the Nielsen reference’s effective filing date. After reviewing email evidence and the inventor’s testimony, the Court determined that Apator had failed to carry its burden because it did not proffer any evidence of the inventor’s conception that was not supported solely by the inventor himself. The Court found that the email evidence was not sufficient because “there are no indicia in either the body or header of the email indicating a file is attached, let alone a file [related to the invention].” The Court also found that the email evidence could only be interpreted with the assistance of the inventor’s testimony, and the supposedly attached file did not contain adequate evidence of its creation date.
Practice Note: For pre-America Invents Act patent applications, it remains helpful to retain evidence of conception, such as witnessed lab notebooks, electronic files, and emails and attachments in full context.
PATENTS / AIA / § 120 PRIORITY CLAIM / INCORPORATION BY REFERENCE
PATENTS / ATTORNEYS’ FEES / COSTS
PATENTS / UNENFORCEABILITY
The US Court of Appeals for the Federal Circuit affirmed a district court finding of unenforceability, concluding that a patent owner’s unclean hands can render patents unenforceable based on a materiality standard of conduct that had an “immediate and necessary relation to . . . the matter in litigation,” which included conduct with the “objective potential” to affect the litigation. Gilead Sciences, Inc. v. Merck & Co., Inc. et al., Case No. 16-23102; -2615 (Fed. Cir., Apr. 25, 2018) (Taranto, J).
The case involved two Merck patents related to Hepatitis C treatment. Gilead, which had developed its own Hepatitis C treatments, sought declaratory judgment that the Merck patents were invalid. Merck counterclaimed. The jury ruled for Merck and awarded damages. Thereafter, the district court held a bench trial on Gilead’s equitable defenses, including unenforceability of the patents based on Merck’s unclean hands. The district court ruled in favor of Gilead, concluding that both pre-litigation and litigation misconduct attributable to Merck rendered the patents unenforceable. Merck appealed.
The Federal Circuit affirmed, applying a deferential standard of review of the lower court’s findings, and articulated the legal standard for unclean hands. The Court explained that “a determination of unclean hands may be reached when ‘misconduct’ of a party seeking relief has ‘immediate and necessary relation to the equity that he seeks in respect of the matter in litigation.’”
The Court endorsed the lower court’s identification of four instances of “misconduct”—two pre-litigation and two litigation business misconducts—and its finding that the conduct had immediate and necessary relationship to the equity that Merck sought to enforce its patents.
The two pre-litigation misconduct incidents stemmed from Merck’s interaction with Pharmasset, which was later acquired by Gilead. Pharmasset had developed PSI-6130 (the compound that led to Sofosbuvir, the active ingredient in Gilead’s Hepatitis C treatment). Pharmasset had agreed to allow Merck to evaluate PSI-6130 with the understanding that anyone involved in Merck’s internal Hepatitis C virus program would be excluded from the review. Merck, however, sent its patent counsel, Dr. Durette, who was involved with Merck’s Hepatitis C program, to attend a call discussing PSI-6130. After the call, Dr. Durette continued to prosecute Merck’s patents, including the applications that became the asserted patents.
The Federal Circuit found Dr. Durette’s participation in the call with Pharmasset and his continued prosecution of the asserted patents to be two instances of pre-litigation business misconduct attributable to Merck. The Court explained that the improperly acquired knowledge influenced Merck’s decision to file narrower claims, with the attendant potential for expedited patent issuance and lowered invalidity risk, which led directly to the acquisition of the asserted patents and thus was immediately and necessarily related to the equity of patent enforcement relief sought by Merck.
The two instances of litigation misconduct arose from Dr. Durette’s testimony and were found to be attributable to Merck. First, Dr. Durette testified during his deposition as Merck’s corporate witness that he did not participate in the call with Pharmasset, which he later conceded was false and which the district court found to be intentional. Second, Dr. Durette downplayed the effect of the Clark application (Pharmasset’s patent application containing PSI-6130’s structure published after the Pharmasset call but before the narrowing amendment), which the district court found “not credible” and “false.” The Federal Circuit explained that the district court had properly charged Merck with the consequences of Dr. Durette’s false testimony and that the testimony was relevant to the invalidity issues (i.e., whether the claimed inventions were derived from Pharmasset’s Clark application) and had an immediate and necessary relation to the equity of patent enforcement relief sought by Merck.
Practice Note: Patent prosecutors should ensure that they do not violate any firewalls, protective orders or agreements, and further should not continue prosecuting patents in the same subject matter after inadvertent (or, of course, deliberate) access to the confidential business information of others.
PATENTS / INVENTORSHIP / FEDERAL JURISDICTION
Gregory James filed a lawsuit asserting a claim for correction of inventorship under 35 USC § 256, along with state law claims for unjust enrichment, conversion, misappropriation and unfair competition. The complaint alleged that James was the sole inventor of the subject matter claimed in a patent directed to systems and methods “for accepting an incoming message over a circuit switched network and transmitting it over a packet switched network.” The patent named Jack Rieley and Jaye Muller as the inventors and was originally assigned to JFAX Communications, a company owned by Rieley and Muller.
The complaint alleged that a Software Development Agreement (SDA) was entered into between JFAX (for which Rieley signed) and GSP Software, a partnership of professional software developers and independent contractors (for which James signed). The SDA preamble stated that GSP “will develop software solutions for the exclusive use of JFAX” but did not mention patent rights, whereas it expressly required the assignment to JFAX of “all copyright interests” in the developed “code and compiled software.” The complaint also alleged that James developed the software and hardware components covered by the patent and assigned all copyrights in the code and compiled software to JFAX, but did not assign any patent rights.
In a decision granting in part and denying in part a petition for inter partes review (IPR), the Patent Trial and Appeal Board (PTAB) held that membership in a defensive patent aggregator does not by itself render members real parties-in-interest to proceedings brought by the aggregator. Unified Patents, Inc. v. Uniloc Luxembourg S.A., Case No. IPR2017-02148 (PTAB, Apr. 17, 2018).
Unified Patents is a defensive patent aggregator and describes itself as a “deterrence entity” that is “designed to deter NPE [non-practicing entity] activity” within certain industrial “zones.” Unified Patents seeks to accomplish the “deterrence” by bringing validity challenges in proceedings before the US Patent and Trademark Office.
Unified Patents filed an IPR petition against a patent that Uniloc is asserting in district court against several of Unified Patents’ members (member-defendants). In the petition, Unified Patents identified itself as the sole real party-in-interest and certified that no other party exercised or could exercise direction, funding or control over its participation in this proceeding, the filing of this petition, or the conduct of any ensuing trial. Uniloc filed a preliminary response, arguing that the petition should be denied because Unified Patents failed to identify the member-defendants as real parties-in-interest. In support of its argument, Uniloc asserted that had the member-defendants not contracted with and paid money to Unified Patents, Unified Patents would not have had the desire or the resources to file the petition against Uniloc’s patent.
The PTAB rejected Uniloc’ argument, declining to deny institution for failure to name all real parties-in-interest. The PTAB found no evidence that any other entity was controlling the proceeding, reasoning that the mere fact that members provide payment to Unified Patents for a subscription to its services was insufficient to show that such members were funding the instant IPR. The PTAB noted that the evidence did not show an obligation on Unified Patents’ part to file an IPR petition on behalf of any member in return for payment, nor did it show that Unified Patents’ members have any control over when and how Unified Patents spends the revenue received from its members. Thus, although the member-defendants contributed indirectly to the funding of the IPR and would stand to benefit from the invalidation of the challenged patent, the PTAB held that the member-defendants were not real parties-in-interest.
Practice Note: The PTAB’s requirement of actual control or direct financing leaves the door open for multiple proceedings to be brought against the same patent by, for example, a district court defendant, a patent aggregator in which the defendant is a member, and investors in the defendant. As a result, various parties representing the same or similar interests are likely to bring—and patent owners may expect to face—multiple challenges to the validity of a patent.
Petitioner Beware – Claim Construction Choice Can Make or Break Your Case
Addressing the requirements to institute an inter partes review (IPR), the Patent Trial and Appeal Board (PTAB) denied a petition because it failed to map the challenged claims to the asserted prior art using the claim construction that the petitioner believed was correct. Hologic, Inc. v. Enzo Life Sciences, Inc., Case No. IPR2018-00019 (PTAB, Apr. 18, 2018) (Paper 17) (Fitzpatrick, APJ) (Yang, APJ, concurring) (Paulraj, APJ, dissenting).
Enzo owns a patent directed to nucleic acid detection technology that can be used to diagnose genetic defects by isolating or separating certain genetic materials. Enzo sued Hologic for patent infringement in district court. In response, Hologic filed a petition for IPR challenging various claims of Enzo’s patent. Enzo filed an unopposed motion for a district-court-type Phillips claim construction because the challenged patent would expire less than 18 months from entry of the Notice of Filing Date Accorded to the Petition. The PTAB granted the motion, agreeing that the district court claim construction standard would apply.
During the co-pending district court litigation, Enzo proposed broader constructions for certain disputed terms while Hologic proposed narrower constructions for those terms. In its IPR petition, Hologic had to decide whether to use its own narrower proposed claim construction from the litigation or Enzo’s broader proposed claim constructions. Reasoning that Enzo’s broader proposed claim construction would be the path of least resistance to arguing unpatentability, Hologic challenged the claims under Enzo’s broader construction. To preserve its district court arguments, however, Hologic stated that it considered Enzo’s proposed construction to be erroneous.
The applicable PTAB regulations require that IPR petitions identify how the challenged claims are to be construed and how the challenged claims are unpatentable. The PTAB explained that this rule required Hologic to present a case for unpatentability under the claim construction that Hologic considered to be correct. Since Hologic only presented its challenge under Enzo’s proposed claim constructions, the PTAB found that the petition did not explain how the challenged claims were unpatentable under the construction that Hologic believed was correct, and therefore denied institution.
In dissent, APJ Paulraj asserted that the majority opinion forces a petitioner “into an untenable Hobson’s choice of adopting—as its own—Patent Owner’s proposed constructions from the district court proceeding, (which may not necessarily be favorable to its non-infringement positions) in order [to] be allowed to present its unpatentability arguments in this proceeding.” Paulraj argued that it should be appropriate for an IPR petition to present unpatentability arguments under a patent owner’s proposed constructions, even if the petitioner disagrees with those constructions.
Practice Note: When seeking a district-court-type Phillips claim construction in an IPR proceeding, a petitioner should propose in its petition the constructions it is seeking in any co-pending district court litigation.
During an IPR proceeding, the patent owner, Volstar Technologies, asserted that the PTAB should have denied institution under § 315(b) because the petitions were filed more than one year after the petitioner (Superior Communications), the real party-in-interest or the petitioner’s privy was served with a patent infringement complaint. Volstar identified two prior district court actions asserting infringement of the challenged patent that it contended gave rise to a time bar: a 2012 case against AT&T, in which AT&T was a privy to Superior, according to Volstar, and a case against Superior filed in 2013. Both cases were pending for more than one year and were ultimately dismissed without prejudice pursuant to Fed. R. Civ. P. 41(a).
In finding the IPR petition timely, the PTAB noted that the voluntary dismissal of both actions without prejudice under Rule 41(a) nullified the existence of those prior actions, relying on US Court of Appeals for the Federal Circuit precedent holding that Rule 41(a) dismissals leave the parties “as though the action had never been brought.” The PTAB reasoned that the nullified prior litigation cannot form the basis of a bar under § 315(b).
Volstar attempted to distinguish the present case from the Federal Circuit rule, relying on a Tolling Agreement entered into by the parties to the prior litigation, which it argued should be viewed in conjunction with the dismissal of the prior actions as effectively creating a dismissal with prejudice. In support, Volstar argued that the Tolling Agreement prevented Superior from seeking damages it would otherwise have been entitled to seek. The PTAB disagreed, explaining that the Tolling Agreement cannot change the de jure legal effect of the dismissal, and distinguished cases cited by Volstar where only some claims were dismissed without prejudice and where a “without prejudice” dismissal led to consolidation of an action with a related case where the claims were continually litigated. Accordingly, the PTAB found that the IPR petition here was not subject to a § 315(b) bar because Volstar failed to rebut that the dismissals of the prior cases without prejudice rendered those cases a nullity for purposes of the § 315(b) one-year rule.
Practice Note: Patent owners should exercise caution when dismissing under Rule 41(a), because if an action is dismissed without prejudice, the PTAB will not consider how long the underlying action was pending in terms of determining whether an IPR petition is barred. Petitioners should be aware that where a prior action is dismissed without prejudice under Rule 41(a), IPR petitions may still be filed more than one year after the petitioner is served with the complaint, regardless of the duration of pendency of the prior action.
AIA / IPR / RECONSIDERATION OF INSTITUTION DECISION
IPR Petition for Hair Loss Treatment Patent Restored
In an unusual ruling, the Patent Trial and Appeal Board (PTAB) granted a petitioner’s request for rehearing and instituted inter partes review (IPR) on a previously denied ground, finding that it previously had applied an overly restrictive standard when analyzing whether the patented invention would have been obvious. Incyte Corporation v. Concert Pharmaceuticals, Inc., Case No. IPR2017-01256 (PTAB, Apr. 9, 2018) (Hulse, APJ) (Fitzpatrick, APJ, dissenting in part).
Concert Pharmaceuticals owns a patent with claims covering CTP-543, a chemical compound being evaluated for treatment of hair loss. According to Concert, the compound was discovered by applying deuterium chemistry to modify ruxolitinib to create a deuterated ruxolitinib resistant to cytochrome P450-mediated oxidative metabolism, resulting in improved safety, efficacy and tolerability compared to its non-deuterated counterpart.
Incyte filed an IPR petition challenging Concert’s patent on anticipation and obviousness grounds. In its institution decision, the PTAB denied the petition on all grounds. Incyte subsequently requested rehearing on two obviousness grounds, arguing that the PTAB erred by applying a narrow legal standard for finding “structural obviousness” and requiring it to show that one of ordinary skill in the art would have been motivated to deuterate ruxolitinib to obtain compounds with superior properties. Specifically, Incyte argued that the patented claims were obvious in view of cited references’ disclosure of a genus of deuterated ruxolitinib compounds, identification of particular sites associated with oxidative metabolism, and the ability to create new derivatives with improved safety and/or efficacy. Incyte also argued that a motivation to modify a lead compound need not be fueled by a pursuit of improvement but rather could arise from an expectation to obtain compounds with “similar properties.”
The PTAB agreed with Incyte. Regarding the first part of the test for structural obviousness, while noting that Incyte did not conduct a formalistic lead-compound analysis, the PTAB nonetheless found that ruxolitinib’s useful properties would have motivated a chemist to make structurally similar compounds. Regarding the second part of the test, the PTAB found that expert testimony and statements made by Concert’s CEO evidenced recognition that the deuterated variants would have been expected to possess at least similar efficacy and safety profiles to that of the non-deuterated compounds. The PTAB concluded that it had substantively misapplied the law by requiring an express motivation in the prior art to modify a lead compound.
In rebuttal, Concert relied on its own expert testimony as well as evidence of unexpected properties of deuterated analogs. The PTAB found that competing testimonial evidence forwarded by the parties raised a genuine issue of material fact that required resolution via an IPR proceeding.
The majority also disagreed with an alternate theory of obviousness forwarded by Incyte based on a US Food and Drug Administration label. However, APJ Fitzpatrick dissented in part, finding that Incyte made a sufficient showing that the label was both a printed publication and prior art to the claims of the challenged patent, and that there was a reasonable basis to examine this alternate theory of obviousness.
Litigation Continuity Means Earlier Time Bar Date
The Patent Trial and Appeal Board (PTAB) denied petition for inter partes review (IPR) as time barred under 35 USC § 315(b) when a first-filed district court complaint was dismissed without prejudice because there was continuity of infringement litigation due to a second complaint filed before the dismissal of the first complaint. Fujifilm Corp. v. Sony Corp., Case No. IPR2018-00060 (PTAB, Apr. 20, 2018) (Paper 8) (Boucher, APJ).
Sony owns a patent directed to a tape cassette that has a magnetic tape and a solid-state memory. Sony filed a patent infringement complaint against Fujifilm in the Southern District of New York. Fujifilm accepted service of the complaint on August 22, 2016. On May 8, 2017, Sony withdrew the patent from the New York action and on the same day filed a new complaint alleging infringement of the patent in the Southern District of Florida. The claims for infringement of the patent were dismissed in the New York action without prejudice on May 9, 2017.
Fujifilm filed a petition for IPR on October 11, 2017. Sony filed a preliminary response arguing that the petition was time barred because it was filed more than one year after service of the complaint in New York. In response, Fujifilm argued that the relevant date for determining time bar under § 315(b) was the date of service of the complaint in the Florida action. The PTAB disagreed, finding that because the parties remained engaged in a dispute first raised in the New York action and continued in the Florida action without interruption, the service of the complaint in New York was the relevant date for determining whether the petition was time barred under § 315(b). Because the New York complaint was served more than a year before the IPR petition was filed, the PTAB denied institution.
Practice Note: Patent owners should file a new complaint well before withdrawing a first one to ensure continuity of litigation.
TRADEMARKS / ATTORNEYS’ FEES / FIRST-FILED RULE
Addressing for the first time whether attorneys’ fees should be included in an award of costs under Fed. R. Civ. P. 41(d), the US Court of Appeals for the Second Circuit affirmed the district court’s decision to include such fees, but nonetheless vacated and remanded the district court’s dismissal of the complaint pursuant to the “first-filed” rule. Horowitz v. 148 South Emerson Assocs. LLC, Case No. 16-3912-cv (2d Cir., Apr. 20, 2018) (Walker, J).
In May 2011, four colleagues opened a restaurant in Montauk, New York, called the Sloppy Tuna. They created various corporate entities, including Montauk U.S.A., LLC, (Montauk) which owned the intellectual property associated with the Sloppy Tuna, and 148 South Emerson Associates LLC (Associates), which owns and operates the restaurant. In 2016, Montauk sued Associates in district court alleging Lanham Act violations as a result of Associates’ use of the Sloppy Tuna trademarks after the license agreement between the parties was terminated.
The district court dismissed the complaint without prejudice pursuant to the “first-filed” rule and ordered Montauk to pay Associates’ costs, including attorneys’ fees, in defending a Georgia state court action for breach of contract regarding Associates’ use of the Sloppy Tuna trademarks, among other things. Furthermore, the district court rejected the claim that Michael Meyer (one of the four colleagues who created the Sloppy Tuna) did not have a derivative right to act on behalf of Associates.
On appeal, the Second Circuit acknowledged “New York’s general disfavor of derivative litigation,” but agreed with the district court that, in this case, it would be inequitable to prevent Meyer from acting on behalf of Associates “because it would effectively require the LCC to pay license fees to one 50% member [] at the expense of the other 50% member [] who would be barred from appearing in the suit.”
The Second Circuit, however, vacated and remanded the district court’s dismissal pursuant to the “first-filed” rule, which requires that if there are two competing lawsuits, the suit that was filed first should (typically) have priority. The district court dismissed the case, citing a state appellate case in Georgia. However, since that case was subsequently transferred to the same district court and assigned to the same district judge that was presiding over this case, “none of the considerations motivating the district court’s application of the ‘first-filed’ rule remain. . . . The able district judge is perfectly capable of consolidating them as necessary.”
Finally, the Second Circuit affirmed the district court’s decision to require Montauk to pay the costs, including attorneys’ fees, incurred by Associates in the Georgia state action. Fed. R. Civ. P. 41(d) provides that “[i]f a plaintiff who previously dismissed an action in any court files an action based on or including the same claim against the same defendant, the court . . . may order the plaintiff to pay all or part of the costs of that previous action.” Despite Montauk’s arguments to the contrary, the Court found that the instant action was based on the same claims as the Georgia state action (ownership and/or use of the Sloppy Tuna trademarks), stating that “[t]his is the precise type of litigation tactic that Rule 41(d) is meant to deter,” namely “forum shopping and vexatious litigation.”
Practice Note: The issue of whether attorneys’ fees may be included with costs under Rule 41(d) has resulted in a circuit split: the Sixth Circuit has held that attorneys’ fees are never available under Rule 41(d), whereas the Eighth and 10th Circuits have held the opposite. The Fourth, Fifth and Seventh Circuits have decided that attorneys’ fees may only be included when the statute that serves as the basis for the original suit allows for attorneys’ fees.
In this case, the Second Circuit followed the Eighth and 10th Circuits, noting that “the entire Rule 41(d) scheme would be substantially undermined were the awarding of attorneys’ fees to be precluded” because these actions typically only result in “minor costs to the adversary other than attorneys’ fees, which may be substantial.”
“Backyard” Grill Summary Judgment Gets Burned
Reversing summary judgment in a trademark infringement dispute over the use of the term “Backyard” on grills, the US Court of Appeals for the Fourth Circuit found that the district court erred because there were genuine issues of disputed fact concerning key factors in the likelihood-of-confusion analysis. Variety Stores, Inc. v. Wal-Mart Stores, Inc., Case Nos. 17-1503; -1644; -1906 (4th Cir., Apr. 24, 2018) (Floyd, J).
Variety Stores sells lawn and garden products, such as grills, at its stores located in 16 states and the District of Columbia. In 1997, Variety acquired the trademark “The Backyard” for retail services in the field of lawn and garden supplies. At the time the original owner of the mark applied to register the mark with the US Patent and Trademark Office (PTO), the examiner did not require proof of secondary meaning. At some point after acquiring the mark, Variety began using the marks “Backyard” and “Backyard BBQ” for selling grills.
In late 2010, Wal-Mart decided to adopt a private label for its grills and related goods. In the process of researching available marks, Wal-Mart’s legal counsel advised the marketing team not to use “Backyard Barbeque” and “Backyard BBQ.” Wal-Mart also knew of Variety’s registration for “The Backyard.” Despite these risks, Wal-Mart decided to adopt “Backyard Grill,” began selling grills under that mark in late 2011 and applied to register the mark shortly thereafter.
Variety learned of Wal-Mart’s “Backyard Grill” application and opposed it at the Trademark Trial and Appeal Board. After limited discovery, Variety sued Wal-Mart in district court, asserting claims of trademark infringement and unfair competition under federal law and related state law claims. Variety moved for partial summary judgment on liability, and the district court granted Variety’s motion. The district court found that Variety owned protectable registered and common-law trademarks, and that Wal-Mart’s use of “Backyard Grill” caused a likelihood of confusion. Ultimately, the district court ordered Wal-Mart to disgorge $32.5 million in profits. Wal-Mart appealed.
On appeal, the Fourth Circuit found that the district court erred in finding that four likelihood-of-confusion factors weighed in favor of Variety: (1) the strength of Variety’s mark, (2) the similarity of the marks to consumers, (3) Wal-Mart’s intent to confuse and (4) actual confusion.
Strength of Variety’s Mark
The Fourth Circuit found that Variety’s mark was conceptually weak. While the PTO did not require proof of secondary meaning at the time Variety’s “The Backyard” mark was registered, that does not end the inquiry. See Grayson O. v. Agadir International (IP Update, Vol. 20, No. 7). A suggestive mark, even if it is inherently distinctive, can still be conceptually weak when others in the field widely use the mark. Wal-Mart presented evidence of such use, and the Fourth Circuit found that the district court failed to credit this evidence. The Fourth Circuit noted that conceptually weak marks may be considered strong if they have sufficient commercial strength. Here, both parties submitted evidence concerning the commercial strength of Variety’s mark, and the Fourth Circuit found this to be in genuine dispute. Because the commercial strength was disputed, the overall strength of Variety’s mark was also genuinely disputed. The Court therefore found that the district court erred in weighing this factor in Variety’s favor.
Similarity of the Marks to Consumers
The Fourth Circuit also found a genuine dispute of material fact with respect to mark similarity. While both marks include “backyard,” Wal-Mart’s mark displays the word “grill” in larger font than “backyard,” and thus that term could be viewed as the dominant feature of the mark.
Wal-Mart’s Intent to Confuse
The Fourth Circuit found that Wal-Mart’s awareness of Variety’s “The Backyard” registration and legal advice related to Wal-Mart’s adoption of “Backyard Grill” created a genuine dispute of material fact. While a jury could infer bad faith based on Wal-Mart’s knowledge of Variety’s registration, a jury could also find that Wal-Mart did not act in bad faith because it largely followed its counsel’s advice and did not know of Variety’s use of “Backyard BBQ” on grills.
The Fourth Circuit found that the district court erred in giving Wal-Mart’s survey—which showed a lack of actual confusion—little weight in deciding Variety’s summary judgment motion. At the summary judgment stage, the Court admonished the district court for weighing the evidence.
While the majority of the likelihood of confusion factors ultimately weighed in favor of Variety, because the strength of Variety’s mark, Wal-Mart’s intent to confuse and evidence of actual confusion were genuinely disputed, the Fourth Circuit found that the ultimate question of likelihood of confusion was genuinely disputed and the district court erred in granting summary judgment.
Practice Note: Legal advice concerning trademark clearance and selection is ordinarily privileged, but the privilege will be waived in the event the allegedly infringing party relies on advice of counsel to show that there was no intent to confuse. Understanding the circumstances of clearance and selection is a critical step in early case assessment.
COPYRIGHTS / SCOPE OF COPYRIGHT / NON-PROTECTABLE ELEMENTS
The US Court of Appeals for the Ninth Circuit examined the extent to which copyright protection can be granted in the expression of an idea based on elements first found in nature, and finding only a “thin copyright” in the plaintiff’s work, affirmed the district court’s summary judgment in favor of the defendant. Peter A. Folkens v. Wyland Worldwide, LLC, et al., Case No. 16-15882 (9th Cir., Feb. 2, 2018) (Gould, J).
In 2014, wildlife artist Peter A. Folkens sued Robert T. Wyland and his galleries (together, Wyland) for copyright infringement, alleging that Wyland’s 2011 painting “Life in the Living Sea,” depicting an underwater scene consisting of various fish, aquatic plants and three dolphins—two of which are crossing—infringed Folkens’s 1979 pen and ink illustration depicting two dolphins crossing each other as one dolphin swims horizontally and the other vertically. After applying the Ninth Circuit’s extrinsic test of substantial similarity to assess copyright infringement, the district court granted summary judgment for Wyland. The court found that the main similarity between “Life and the Living Sea” and Folkens’s “Two Dolphins” illustration was the depiction of two crossing dolphins, and that the idea of dolphins swimming underwater close together in a manner resulting from “dolphin physiology and behavior” is not a protectable element under copyright.
It is well settled that copyright law does not protect an idea per se, but instead protects the manifestation or expression of an idea. Therefore, on appeal, Folkens argued that his depiction of the crossing dolphins was a unique expression of the idea of dolphins swimming underwater. To bolster his claims, Folkens alleged that the dolphins in his illustration were posed by professional animal trainers in an enclosed environment and did not appear in nature in such a configuration.
The Ninth Circuit explained that proving copyright infringement requires a plaintiff to demonstrate (1) ownership of a valid copyright and (2) copying of the constituent elements of the work that are original. Since Folkens’s ownership of the copyright was not in dispute, on appeal the Court only had to determine whether the two works were substantially similar so as to constitute improper copying by the defendants.
Typically, summary judgment is not favored to decide questions of substantial similarity in copyright cases unless “no reasonable juror could find substantial similarity of ideas and expression.” Here, the Ninth Circuit relied on an objective extrinsic test, which focuses on articulable similarities between specific expressive elements in the works at issue. Because the parties agreed that the element of similarity between the works was the two dolphins crossing, the Court’s key inquiry became whether the crossing of the dolphins was a protectable element under copyright law.
In its analysis, the Ninth Circuit first dismissed the idea that the positioning of the dolphins by a trainer removed the possibility of summary judgment, noting that the assistance of animal trainers “does not in itself dictate whether the pose could be found in nature.” Citing its own well-known copyright decision in Satava v. Lowry (pertaining to glass jellyfish sculptures), the Court reaffirmed that ideas first expressed in nature are the “common heritage of human kind,” and copyright law may not be used by one artist to prevent another from depicting such ideas as expressed by nature. At the same time, however, the Court was careful not to foreclose all copyright protection in the depiction of live animals, noting that an artist’s original expression and contributions, such as lighting, perspective and background, may earn copyright protection, but only “thin” or “narrow” protection.
The Ninth Circuit determined that although Folkens did hold such a thin copyright in his expression of the two dolphins in dark water with certain light ripples, those protectable elements were not substantially similar to Wyland’s crossing dolphins, and thus Wyland’s work was not an infringement. Since the crossing of dolphins under the sea is an “idea first expressed in nature,” the Court explained that the only similar element of the works—the positioning of the dolphins—was not protectable under copyright law, and affirmed the district court’s grant of summary judgment in favor of Wyland.
Contract Law or Copyright Law – What’s the Confusion?
The US Court of Appeals for the Fifth Circuit reversed the district court’s grant of summary judgment on a claim of copyright infringement, holding that the district court erroneously conflated a copyright holder’s federal statutory cause of action with a downstream licensee’s state contract law defense, and that the copyright holder had created a genuine issue of material fact with regard to the time period and scope of the license issued to the defendant. Alexander Stross v. Redfin Corporation, Case No. 17-50046 (5th Cir., Apr. 9, 2018) (per curiam).
Alexander Stross, a photographer and real estate broker, licensed some of his images to the Austin/Central Texas Realty Information Service (ACTRIS). ACTRIS is a multiple listing service (MLS) that compiles real estate listings into a searchable database for area real estate agents and brokers. According to the rules of ACTRIS, any user who uploads a listing to the database grants to “ACTRIS (and its service providers and licensees) an irrevocable, worldwide, paid up, royalty-free, right and license to include the Listing Content in the MLS Compilation.” In order for brokers and realtors to download listings from ACTRIS, they must sign a sublicense agreement (the Participant Content Access Agreement (PCAA)), which incorporates the ACTRIS rules and provides a non-exclusive, limited-term, revocable license, subject to the participant’s compliance with the ACTRIS rules.
Stross filed a complaint in 2015 alleging direct and contributory copyright infringement by Redfin. The claims included use of more than 1,800 of Stross’ photographs in a manner he believed violated both the ACTRIS rules and his copyrights, including use to support an estimate on a property or to advertise prior sales by a particular real estate agent. Redfin had gained access to listings, including Stross’ listings and photographs, by signing a PCAA with ACTRIS. Moreover, Stross had also noted that Redfin “encouraged its users to post his sold home photographs to social-media sites like Facebook and Pinterest through ‘share’ buttons, and that it provided an online ‘Collections’ album for users to save his photographs for ‘design ideas’ and ‘fun’—separate from any anticipated real-estate transaction.” The district court held that Stross lacked standing to sue Redfin because he was not a party to the ACTRIS-Redfin PCAA and that Redfin’s licensed use of the photographs shielded it from Stross’ allegations of direct infringement, thereby granting Redfin’s motion for summary judgment. Stross appealed.
The Fifth Circuit reversed the grant of summary judgment, explaining that “whether Stross may sue (under federal law) for copyright infringement is a separate question from whether Redfin can prove (under state law) that it has a meritorious license defense,” and found that “the district court conflated these inquiries.” Stross did not sue for breach of contract; he sued for copyright infringement and “created a genuine issue of material fact” with regard to the time period and scope of the license issued to Redfin. “Simply put, because Stross fulfills the statutory requirements of the Copyright Act, he has a valid claim. He does not lose his right to bring this claim just because Redfin raises a downstream sublicense in its defense.”
Hyperlink Privilege as a Special Case – Renewed Strengthening of the Rights Holders by the ECJ Decision Cordoba / Renckhoff