IP Law Alert : Intellectual Property Lawyers & Attorneys : Gibbons Law Firm : Copyrights, Patent Infringement, Unfair Competition

Kodak’s recent bankruptcy filing raises a host of issues relating to intellectual property. Foremost among these is the need for any Kodak patent licensees to diligently monitor the on-going proceedings to ensure their rights are preserved in the thousands of patents in Kodak’s portfolio. Among these are some 1,150 digital imaging patents slated to be auctioned later this year.

U.S. bankruptcy laws provide the framework for dealing with patents owned by a debtor. In particular, section 365 of the Bankruptcy Code provides that Kodak, as the “debtor-in-possession,” has the right to assume or reject its “executory” contracts, contracts where the parties owe each other ongoing material obligations. Nearly all the patent licenses at issue likely will qualify as executory contracts. If Kodak rejects such an executory contract, the licensee may seek to collect damages for breach of contract, but any relief would be as an unsecured creditor, which typically is the lowest priority among other creditors.

A Gibbons-authored article on the intricacies of the issues recently was featured in The Business Advisor.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department.

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As anticipated, Eastman Kodak Co. filed a petition for Chapter 11 bankruptcy relief this morning in the United States Bankruptcy Court for the Southern District of New York. This development followed a recent flurry of patent infringement suits involving Kodak, and on the heels of Kodak’s unrequited efforts to license or sell off its substantial intellectual property (“IP”) portfolio.

Kodak recounted in its supporting affidavit its path of decline over recent years, citing, among other factors, liquidity challenges precipitated by difficulties collecting licensing fees from infringers of its intellectual property. The affidavit indicates that Kodak’s IP portfolio comprises nearly 9,000 U.S. patent and trademark registrations and applications, and over 13,000 foreign patents and trademarks registrations and applications. Thus, a critical component of its reorganization strategy is the sale of approximately 1,150 digital imaging patents. The patent portfolio has an estimated value of $2.2 to $2.6 billion, according to Kodak’s financing motion filed today. Kodak’s agreement with its lender, Citigroup, sets a June 30, 2012 deadline for Kodak to file a bidding procedures motion with the court with respect to the patent sale.

Between 2003 and 2010, Kodak generated approximately $450 million annually of licensing revenue from its digital-imaging patents. Last year, revenues shrank to $98 million. According to Kodak, the drop resulted largely from “infringers” employing a “strategy of delay in light of Kodak’s liquidity position.” Nevertheless, the digital-imaging portfolio is sure to generate significant interest. Readers should recall that last July, Nortel sold its patent portfolio in a bankruptcy auction. The sale of approximately 6,000 patents, including approximately 2,600 U.S. patents, yielded $4.5 billion in proceeds. According to one observer, Nortel represented the biggest skirmish to date in “a global commercial war being waged” wherein “patents have become the new lethal weaponry.”

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In 2006, the Chinese government pledged to foster future innovation in China by promoting science and technology development in key fields and enhancing innovation capacity. In the National Medium- and Long-Term Plan for Science and Technology Development (2006-2020) published by the State Council, China pledged that by 2020 research and development (“R&D”) investment will exceed 2.5% of China’s total GDP, and that progress of science and technology will contribute at least 60 percent to the country’s development.

As part of the effort in achieving these considerable goals, China has turned its focus towards increasing intellectual property filings with the State Intellectual Property Office (“SIPO”) for the Peoples Republic of China (“PRC”) and increasing intellectual property filings by Chinese businesses and inventors. While the quality of patents and the corresponding ability to enforce in China and abroad is a concern, in 2010, the SIPO for the PRC published the National Patent Development Strategy projecting that annual Chinese patent filings will reach 2 million by 2015. In support of this projection, SIPO published data indicates that growth in Chinese patent filings from 2005 to 2010 has been approximately 20%. Additionally, it was reported that the number of patent applications filed in China exceeded 300,000 in 2009.

As further evidence of China’s commitment in the international arena, the government now subsidizes Chinese corporation foreign and Patent Cooperation Treaty (“PCT”) filings. As a result, in 2010 and 2011 China was among the top four countries in PCT filings and in 2009 and 2010 two Chinese companies, ZTE Corporation and Huawei Technologies, were among the top five applicants using the PCT to obtain patent protection.

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Coming off a year that included the Smith-Leahy “America Invents Act,” 2012 portends to have some significant developments in IP law.

Decisions for IP practitioners and industry to watch for include:

• the Supreme Court’s decision in Caraco Pharm. Labs. Ltd. v. Novo Nordisk A/S, regarding “use codes” and section viii carve-outs under the Hatch-Waxman Act;
• the Supreme Court’s decision in Mayo v. Prometheus, regarding patentable subject matter, post-Bilski; and
• the Federal Circuit’s upcoming en banc decisions in McKesson and Akamai, regarding joint infringement liability.

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Last week in Warner Chilcott Labs Ireland Ltd. v. Mylan Pharms., the Federal Circuit vacated a grant of preliminary injunction in a Hatch-Waxman case by the District Court of New Jersey. The Federal Circuit acted after the lower court granted a preliminary injunction without either holding an evidentiary hearing or making any findings as to the defendants’ invalidity defense.

The case arises out of Mylan’s filing of an ANDA to market a generic version of Doryx. One month before the 30-month stay expired and Mylan having received tentative approval from the FDA, Warner Chilcott moved for a preliminary injunction against a possible at risk-launch by Mylan. Warner Chilcott’s infringement case turned on whether Mylan’s ANDA product had a “stabilizing coat” as required under the patent in suit. The parties submitted briefs and expert witness declarations, and the court heard oral arguments from both parties on the traditional four factors for injunctive relief: irreparable harm; likelihood of success on the merits; balance of hardships; and the public interest. However, the court did not hold a live evidentiary hearing to hear the testimony of the battling experts, citing scheduling demands and a pressing criminal trial. Instead, the court deferred addressing those issues until the upcoming bench trial. In addition, the court also declined to make any factual determinations as to Mylan’s invalidity challenge. Ultimately, the lower court acknowledged that there were questions of facts to be resolved on the issue of a “stabilizing coat” and it enjoined Mylan from marketing its ANDA product until after trial on the merits.

The Federal Circuit vacated and remanded the lower court’s decision. Writing for the court, Justice O’Malley held that it was an abuse of discretion under established Third Circuit law to grant a preliminary injunction without holding an evidentiary hearing when there were unresolved issues of fact in dispute. In addition, the Federal Circuit also faulted the lower court for making only passing reference to Mylan’s invalidity challenge, and its likelihood of success, without providing an adequate factual record for appellate review.

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Gibbons published an IP Law Alert this summer describing the forthcoming Intellectual Property Exchange International (“IPXI”). Along with providing background information about how the IPXI will monetize patents, and the process for listing an IP asset on the IPXI, this post discussed the growing pains associated with starting a financial exchange pegged to IP.

Since that posting, the IPXI has recently announced that it remains on track to begin operations in 2012 and has signed agreements with five entities: Philips, Com-Pac International, Rutgers University, Northwestern University and the University of Utah, to sponsor the Unit License Rights (ULRs) that are offered through the exchange. Additionally, IPXI has secured $10 million in additional funding from investors, including Philips and the Chicago Board Options Exchange. The IPXI was founded in 2009, but attracting licensees has been a challenge. Given the IPXI’s recent momentum, it will be interesting to see whether additional entities commit to the IPXI before its debut, or wait to commit until after the IPXI becomes operational.

Gibbons will continue to stay at the forefront of this, and other IP developments. For additional information about the IPXI, please go to the IPXI website at www.ipxi.com.

Jillian A. Centanni is an Apprentice in the Gibbons Intellectual Property Department.

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Oral argument was recently heard before the Federal Circuit in the appeal of AstraZeneca Pharms. LP. v. Aurobindo Pharma Ltd. AstraZeneca, along with IPR Pharmaceuticals, Inc., and The Brigham and Women’s Hospital, Inc., (“Plaintiffs) sued ten generic drug companies alleging infringement of US Patent Nos. 6,858,618 (“the ‘618 patent”) and 7,030,152 (“the ‘152 patent”) under the Hatch-Waxman Act. These patents claim methods of treatment using rosuvastatin calcium, which Plaintiffs market as Crestor®.

The ten generic drug companies had filed abbreviated new drug applications (“ANDA”) with the U.S. FDA seeking to market generic versions of the drug to treat nonfamilial hypercholesterolemia, homozygous familial hypercholesterolemia or hypertriglyceridemia, uses which were not covered by the two method of use patents, but were FDA approved uses.

Plaintiffs alleged that Defendants’ generic tablets, if approved by the FDA, will be prescribed and administered to human patients according to the Crestor® label to treat heterozygous familial hypercholesterolemia (“HeFH”) and for the primary prevention of cardiovascular disease, which uses will constitute direct infringement of the ‘618 and ‘152 patents, respectively. As noted, the ANDA filed by the Defendants did not embody a use claimed in the patents. Plaintiffs alleged the claimed uses will occur nonetheless because the generic label will mirror the Crestor® label, and will be uses that Defendants know or should know will occur. Therefore, Defendants will actively induce, encourage, aid and abet this prescription and administration, with knowledge and specific intent that these uses infringe Plaintiffs’ rights under the ‘618 and ‘152 patents.

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Gibbons P.C. is proud to announce that two practices within its Intellectual Property Department have achieved national and metropolitan rankings in the 2012 edition of Best Lawyers®, the oldest and most respected peer-review publication in the legal profession. In addition, Department Chair David E. De Lorenzi has been individually ranked in three different IP categories.

The Department was singled out for national rankings in the categories of Patent Law (Tier 2) and Intellectual Property Litigation (Tier 3). In addition, the Intellectual Property Litigation practice was ranked in the first tier of the Newark, New Jersey metropolitan rankings, while the Patent Law practice achieved a second-tier ranking for Newark. Mr. De Lorenzi was ranked in three different categories: Intellectual Property Litigation, Patent Litigation, and Patent Law.

Because Best Lawyers is based on an exhaustive peer-review survey in which more than 41,000 leading attorneys cast almost 3.9 million votes on the legal abilities of other lawyers in their practice areas, and because lawyers are not required or allowed to pay a fee to be listed, inclusion in Best Lawyers is considered a singular honor. Corporate Counsel has called Best Lawyers “the most respected referral list of attorneys in practice.”

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In the recent In re Klein decision, the Federal Circuit reversed the Board of Patent Appeals and Interferences’ decision because five separate obviousness rejections were not based on analogous art as compared to the claimed invention. In re Klein, 647 F.3d 1343, 1345 (Fed. Cir. 2011).

The claimed invention was a device for preparing sugar-water nectar for various species comprised of a vessel having a movable partition capable of separating water and sugar until it was desired to mix them. Id. at 1345-46. The partition could be inserted into the vessel at different tracks so that, when filled to a predetermined level, a nectar of the desired concentration of sugar would result from mixing the contents. Id. at 1350-51.

Three of the references (i.e., Roberts, Kirkman, and O’Connor) disclosed vessels, e.g. drawers, intended to retain dry objects each of which had the feature of movable partitions. Id. at 1348-51. The remaining two references (i.e., Greenspan and De Santo) disclosed vessels which would retain a liquid and mix it with a dry component or a second liquid to achieve a desired solution. These vessels contained barriers (also referred to as a “wall” or “partition” in the references) to prevent mixing of the contents until desired. Id. at 1351. The barriers were distinguished from the partitions of both Klein and the other groups of references (i.e., Roberts, Kirkman, and O’Connor) in that they were not movable. Id. at 1352.

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The New Jersey Intellectual Property Law Association (“NJIPLA”) will be hosting its first annual "Electronics, Telecom and Software Patent Practice Update" next Wednesday, November 9, 2011, from 12:00-5:15 pm at the New Brunswick Hyatt.

This informative event is co-chaired by Robert E. Rudnick, a Director in the Gibbons Intellectual Property Department and Vice President of the NJIPLA, who will also be a panelist at the event speaking on the recently enacted Leahy-Smith America Invents Act and its impact on patent protection in the electrical arts.

The full agenda for the event may be viewed here. To register for this event, click here.

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Following last month’s enactment of the Leahy-Smith America Invents Act (“AIA”), significant limitations on multidefendant infringement suits are now in effect. Specifically, the joinder provision of the AIA, 35 U.S.C. § 299, permits accused infringers to be joined in one action only if any right to relief is asserted against the parties jointly, severally, or arising out of the same transactions or occurrences; and, common questions of fact as to all defendants will arise in the case. Simply put, patentees can no longer sue multiple defendants in the same litigation based solely on allegations that they each have infringed the patent(s)- in-suit.

This provision was seemingly drafted to stem litigious practices by non-practicing entities (“NPEs,” sometimes called “patent trolls”) who name multiple defendants in order to press for nuisance value settlements. It likely will have immediate effects on the geographic distribution of patent infringement filings going forward. Notably, some practitioners believe the Eastern District of Texas -- a one time hotbed for multi-defendant litigations -- might see a decrease in such actions, with many of those suits instead being filed in Delaware, the State of incorporation for many litigants, as reported in IP Law360. Contesting venue in the District of Delaware would be an uphill battle for those entities already incorporated in the First State.

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Among other changes, the America Invents Act (“AIA”) includes the new 35 U.S.C. § 299. This statute purports to reduce the ability of a patent owner to join multiple, unrelated defendants in a single action, a tactic often used by litigious non-practicing entities (“NPEs”), who press for nuisance value settlements. In addition, the AIA commissioned the Government Accounting Office (“GAO”) to study the consequences of NPEs, to include their costs, benefits and economic impact.

But why the need for all this? According to Boston University School of Law Working Paper No. 11-45, “The Private and Social Costs of Patent Trolls,” (Sep. 19, 2011), lawsuits by NPEs, sometimes referred to as “patent trolls,” cost businesses half a trillion dollars of lost wealth from 1990-2010, and averaged over $80 billion over the past four years. And, while use of this latter moniker might be considered derogatory, recently, in Highland Plastics, Inc. v. Sorensen Research and Development Trust, 11-cv-2246 (C.D.Ca. Aug. 17, 2011), the court denied a motion to strike the term “patent troll” from the complaint, stating that patent troll “is a term commonly used and understood in patent litigation and is not so pejorative as to make its use improper.” Id., Dn. 21 at 3.

Visceral reactions to litigious NPEs, under other names, are well-entrenched in patent law jurisprudence. For example, almost 70 years ago, Judge Learned Hand ruled that a patent was invalid and should not remain in the art as a “scarecrow.” Bresnick v. United States Vitamin Corp., 139 F.2d 239, 242 (2d Cir. 1943). Years later, in Colida v. Sanyo North America Corp., 2004 U.S. App. LEXIS 26723, *4 (Fed. Cir. Dec. 2, 2004) (unpublished), the Federal Circuit noted an alternative name for trolls, patent “predators.”

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The New Jersey Intellectual Property Law Association (“NJIPLA”) will be hosting its first annual "Electronics, Telecom and Software Patent Practice Update" on Wednesday, November 9, 2011, from 12:00-5:15 pm at the New Brunswick Hyatt.

This informative event is co-chaired by Robert E. Rudnick, a Director in the Gibbons Intellectual Property Department and Vice President of the NJIPLA, who will also be a panelist at the event speaking on the recently enacted Leahy-Smith America Invents Act and its impact on patent protection in the electrical arts.

The full agenda for the event may be viewed here. To register for this event, click here.

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Gibbons P.C. will once again sponsor lunch at the upcoming Rutgers University/Blanche and Irwin Lerner Center for Pharmaceutical Management Studies Program on Thursday, October 27, from 12:00 - 1:00 pm at Rutgers Business School - Newark.

Prior to the luncheon, from 10:30 am - 12:00 pm, Gibbons attorneys Charles A. Gaglia, Jr. and Sheila F. McShane will present, "Patents and Intellectual Property Rights," a discussion of recent legal developments and trends affecting the pharmaceutical industry.

The full agenda for this two-day program may be viewed here.

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Patent litigation has some eccentricities that, some say, require special attention in the court system. One historical effort to address this was the creation of the Federal Circuit in 1982 and the exclusive jurisdiction it possesses to hear patent litigation appeals from all district courts around the nation. This exclusive jurisdiction based on subject matter and not geographic location is fairly unique in the judicial system. Patent litigation often involves complex technical issues to determine patent invalidity and infringement, unique procedural devices (e.g. Markman hearings), and intricate legal issues with technical and economic underpinnings (inequitable conduct, price erosion, lost profits, etc.). For these reasons, patent litigants often prefer to have an experienced judge hear and manage the dispute so that the fairest outcome is had. To address and analyze these and other issues, on January 4, 2011, Congress created the “Patent Pilot Program.”

The Patent Pilot Program is a 10-year project designed to determine whether changes are needed in the way Courts resolve patent disputes due to the complexities, both technical and procedural, unique to patent related disputes. In the Patent Pilot Program, participating district courts will select a group of judges to hear patent cases. It is intended that these designated patent judges will hear the majority of the patent cases filed in their jurisdiction. When a patent case is initially filed in the participating district, it will be randomly assigned to all judges in the district, regardless of whether they have been specially designated to hear patent cases. If that judge was not specially designated as a patent judge, that judge can either accept or decline the patent case. If the case is declined, the case is then randomly assigned to one of the designated “patent” judges. One aim of the program is to specially train certain judges to hear and manage patent cases and to study the differences in reversal rates and disposition times between the “patent” and “non-patent” judges.

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On October 25, 2011, The Gibbons Institute of Law, Science & Technology and the New Jersey Intellectual Property Law Association are proud to present "The Ninth Annual Fall Lecture Series" featuring the Honorable Joel Pisano who will present his observations from the bench on two recent, much-awaited intellectual property law decisions: Therasense v. Becton Dickson and Microsoft v. i4i. In Therasense, the Federal Circuit finally resolved key inequitable conduct issues that had been in a state of vacillation for decades. In Microsoft, Justice Sotomayor presented the majority opinion on the standard of proof required for patent invalidity, a key consideration for all practitioners.

For additional information or to register, please click here.

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The Federal Circuit’s Myriad Genetics decision, Ass’n for Molecular Pathology v. U.S. Patent and Trademark Office, 99 U.S.P.Q. 2d 1938 (Fed. Cir. 2011), which invalidated most of the method claims in the patents at issue, brings to mind a concern about the value of method claims, particularly to the pharmaceutical industry.

The Myriad Genetics patents at issue included two types of method claims relating to human genetics: one involved determining whether a female patient had abnormal BRCA1/2 genes by comparison of BRCA1/2 gene and BRCA 1/2 RNA from the patient’s tumor sample to those from a non-tumor sample; the second was an activity screening method for anticancer drugs that compared the growth of a host cell transformed with a cancer-causing BRCA gene in the presence and absence, respectively, of the test compound.

The practice of these method claims abroad would not necessarily raise an infringement issue in the U.S. because neither type entails the importation into the U.S. of a product that would potentially infringe the Myriad Genetics composition claims or method claims. Rather, only data from the results of the method claims need be imported. The methods could be practiced in the absence of a claim to the BRCA genes themselves since the technology for isolating the genes, their sequences and the means of transforming host cells therewith are within the skill of the art.

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Earlier this week the Federal Circuit affirmed an International Trade Commission (“ITC”) decision by refusing to find a patent owner complainant’s litigation expenses satisfied the “domestic industry” requirement of 19 U.S.C § 337. The Court’s decision in John Mezzalingua Assocs. (d/b/a PPC, Inc.) v. International Trade Comm’n, 2010-1536 (Fed. Cir. October 4, 2011) is a blow to ITC complainants, in particular, non-practicing entities intent on relying solely on patent litigation expenses to establish the domestic industry requirement of § 337.

Patent owners are increasingly filing § 337 actions before the ITC seeking an “exclusion order” - an order that blocks infringing products from being imported to the United States. Section 337 is intended to protect domestic manufacturers by excluding importation of infringing products by foreign competitors. Although the ITC cannot award damages for a violation of § 337, an exclusion order is an effective tool for stopping the importation of infringing goods. Indeed, the threat of an exclusion order often provides patentees with a significant bargaining chip during negotiations involving patent disputes.

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On September 27, 2011, Chief Judge Randall Rader of the Federal Circuit announced that the Advisory Council of the Federal Circuit unanimously adopted a Model Order regarding e-discovery in patent cases. Its purpose is to serve as a “starting point” for district courts to streamline and reduce e-discovery costs, emphasizing email production limits.

E-mail discovery must be phased in after initial disclosures and production of basic documentation about patents, prior art, accused devices and financials have progressed. E-mail document requests must be propounded on specific issues; global requests will not cut it. Most importantly, e-mail discovery requests are required to be specifically limited as to custodians, search terms and timeframes, with only five custodians and five search terms per custodian per party permitted, absent a showing of distinct need. The Model Order mandates cost shifting for disproportionate electronic production requests, and also that inadvertent production of privileged documents does not constitute waiver.

The Model Order was motivated by cost concerns in patent litigations, based upon the finding that these types of cases “stood out for their high discovery expenses.” Thomas E. Willging et al., Discovery and Disclosure Practice, Problems, and Proposals for Change: A Case Based National Survey of Counsel in Closed Federal Civil Cases 38-39 (Fed. Judicial Ctr. 1997). Chief Judge Rader more expansively remarked that “the greatest weakness of the US court system is its expense,” and that the burden of extensive e-requests generally outweighs any benefit, noting that e-discovered documents rarely appear on trial exhibit lists and even more rarely are seen in appeals. All this is true.

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The Federal Circuit recently found that intervening rights can apply to a claim that has been narrowed by argument only during a reexamination.

In Marine Polymer Technologies, Inc. v. HemCon, the Federal Circuit recently found that narrowing a claim by argument only changes the substantive scope of the claim for purposes of intervening rights. Specifically, a claim term that is changed during reexamination without changing a word in the claim can still substantively narrow the scope of a claim. Therefore, upon reissue of the patent, an infringer would have “… absolute intervening rights with respect to products manufactured before the date of reissue.”

Marine Polymer alleged infringement of certain claims of its U.S. Patent No. 6,864,245 (the “’245 Patent”). During the district court Markman proceedings, the definition of only one claim term, biocompatible p-GlcNAc, was in dispute. The term “biocompatible” appears in every claim of the ’245 Patent. Both plaintiff and defendant proposed term constructions. The District Court reject their proposals and adopted its own, concluding that biocompatible p-GlcNAc meant “polymers… with low variability, high purity, and no detectable biological reactivity as determined by biocompatibility tests.” Based on this claim construction, the district court granted summary judgment of literal infringement for all of the seven asserted claims.

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Two cases decided last month highlight the somewhat disparate pleading standards in patent infringement actions among districts after Twombly and Iqbal. In The Nielsen Co. v. comScore, Inc., a plaintiff in the Eastern District of Virginia overcame a motion to dismiss infringement claims. Case No. 11-cv-168 (E.D.Va. Aug. 19, 2011) (Davis, J.). The court held that the claims for direct infringement met the lenient pleading standard of Form 18 provided under the Federal Rules. While in Medsquire LLC v. Spring Med. Sys. Inc., the district court for the Central District of California granted the defendant’s motion to dismiss. 2-11-cv-04504 (C.D. Cal. August 31, 2011) (Nguyen, J.). The court held the plaintiff’s Form 18 pleading resulted in conclusory statements that failed to include any facts identifying the relevant aspect of the [accused product] that infringed the patents and the complaint was insufficient to meet the “plausibility” standard set forth in Twombly and Iqbal.

Despite the heightened standard created in Twombly and Iqbal, district courts generally have not required heightened pleadings in the patents context with regard to direct infringement. In McZeal v. Sprint Nextel Corp., a pre-Iqbal decision, the Federal Circuit set a low bar for pleading direct infringement holding that the allegations of a pro se plaintiff must only meet the requirements of Form 18 of the Federal Rules. 501 F.3d 1354 (Fed. Cir. 2007). Furthermore, Federal Rule 84 expects a court to accept a pleading made in conformance with the forms as sufficient. Thus, for most districts the sufficiency of a Plaintiff’s direct infringement allegations can be met by following the dictates of Form 18. The Court in Medsquire, however, distinguished McZeal on the grounds that Plaintiff was represented by sophisticated counsel and the fact that the McZeal decision came before the holding in Iqbal.

A claim of direct infringement under Form 18 requires only: an allegation of jurisdiction and the specific patent law infringed; the identification of the patent and a statement that the plaintiff owns the patent; an identification of at least one infringing product; a statement that the defendant has been infringing the patent “by making, selling, and using” the product and a demand for relief. Under a Form 18 complaint, a plaintiff is not required to plead specifics as to how an allegedly infringing product works. See e.g. Adiscov, LLC v. Autonomy Corp., 762 F.Supp.2d 826 (E.D.Va. 2011), Mark IV Indus. Corp. v. Transcore, L.P., Case No. 09-cv-418 (D.Del. Dec. 2, 2009); Sharafabadi v. University of Idaho, Case No. 09-cv-1043 (W.D. Wash. Nov. 27, 2009); Automated Transactions, LLC v. First Niagara Fin. Group, Inc., Case No. 10-cv-00407 (W.D.N.Y. Aug. 31, 2010); Traffic Info., LLC v. Yahoo! Inc., Case No. 09-cv-246 (E.D.Tex. April 13, 2010); Microsoft Corp. v. Phoenix Solutions, Inc., 741 F.Supp.2d 1156 (C.D. Cal. 2010); and Apple Inc. v. Eforcity Corp., Case No. 10-cv-03216 (N.D. Cal. Apr. 5, 2011).

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On October 3, The Gibbons Institute of Law, Science & Technology will host its annual "Federal Circuit Year in Review" event at Seton Hall Law School. Ralph A. Dengler, Counsel to the Gibbons Intellectual Property Department, along with a panel of practitioners and jurists, including Chief Judge Brown and District Judge Simandle of the District of New Jersey, will review and discuss the Federal Circuit's key decisions from 2011, and their practical and future implications for the bar. These discussions will include cases involving damages; inequitable conduct; jurisdiction and venue; licensing; patentability of business methods; and preservation of ESI in anticipation of litigation, among other topics.

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On Thursday, September 8, 2011, the Senate passed the America Invents Act and President Obama is expected to sign the legislation this week. Every 2 years since 2005, Congress has taken up the issue of patent reform to address issues surrounding patent validity (e.g. first-to-file v. first-to-conceive; best mode), patent prosecution (e.g. opposition proceedings; inventor’s oath), and patent litigation (e.g. forum shopping, damages, willful infringement, patent unenforceability).

One significant change in patent law provided by this Act is changing U.S. law from a first-to-conceive system to a first-to-file system. The first-to-conceive system was considered helpful to individual inventors and small companies with limited resources by giving them time to develop their inventions and to file patent applications. However, this system created uncertainty about who would have priority of invention and what prior art could be considered when assessing the validity of a patent. The U.S. was also out of step with the rest of the world, because it was the only country that used first-to-conceive.

In addition to creating greater certainty about a patent’s date of invention, this reform will have a significant effect on how patent practitioners advise their clients about obtaining protection for their inventions. The first-to-file system may increase the pressure to file patent applications quickly after conception and before commercial reduction to practice, as is common in Japan.

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On Tuesday, September 6, 2011, the Senate invoked cloture on H.R. 1249, also known as the America Invents Act, making it almost a done deal for passage of this Act. One reason that this bill has succeeded over its predecessors is that, with one major exception, there is little difference between the House and Senate versions. The passage of H.R. 1249 will mark the culmination of a 6-year process to pass patent reform legislation that started with H.R. 2795.

The USPTO has provided a summary of the key provisions of H.R. 1249. One provision omitted from this bill but present in failed predecessors is the issue of damages. This generated significant opposition in the past. While H.R. 1249 is not without detractors, it reflects the compromise reached among individual inventors, universities, large and small business concerns. The most controversial provisions in the bill are the following:

• First Inventor to File. Transitions from a “first-to-invent” to a “first-inventor-to-file” patent system while maintaining a 1-year grace period for disclosures by the inventor.

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$12.5 billion for 17,000 patents! $4.5 billion for 6,500 patents! These purchases by Google and a group spearheaded by Microsoft and Apple represent a shift in the value of respective patents. However, valuing patents is not a simple task, but requires proper attorney diligence to ensure the purchase of patents is done in an efficient manner as not all companies have the resources of Google and the Microsoft group.

In the first deal, Google allegedly paid a premium for 17,000 patents of Motorola Mobility. Some speculate that this was done to ward off lawsuits from Apple, Microsoft, Oracle, and the like targeting the Android, including application developers and manufacturers for the phone. Or maybe it was because Google's chief legal officer believes that a smart phone is possibly subject to approximately 250,000 potential patent claims. (In a related patent deal, Google obtained 1,000 patents from IBM after the Nortel deal, which is discussed below, fell through.)

In the second deal, the Microsoft group purchased 6,500 patents from a Nortel bankruptcy auction at 4.5 times the seller's valuation. This purchase was possibly done with future patent litigation and/or licensing in mind.

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While invention promoters and IP registration firms claim to assist present and future IP holders, some have been found to offer little or nothing of value in exchange for the thousands of dollars paid to them. Here are ways to investigate these firms and learn about your rights to avoid being treated unfairly.

Invention Promoters
There are several resources available to help investigate and weed out unscrupulous invention promoters. The Federal Trade Commission offers a Consumer Alert listing the “sweet-sounding promises” of promoters that may do little or nothing in return for the fees they collect. Complaints regarding invention promoters can be filed with the FTC.

The U.S. Patent and Trademark Office maintains a Scam Prevention webpage as a public forum for the publication of complaints concerning invention promoters. The USPTO does not investigate or participate in any legal proceedings, but will forward any complaints to the invention promoter and will publish any response on the USPTO public web forum.

Under the American Inventors Protection Act of 1999, invention promoters are required by law to describe their business practices and disclose all invention promotion companies they have been affiliated with over the last 10 years before entering into a promotion contract with a customer.

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With the importance of Intellectual Property to a company’s bottom line, maximizing that value continues to command a prominent role. “Monetizing” an IP asset, such as a patent, is typically done by licensing, where the patent owner, or licensor, and the party wishing to use the patented technology, the prospective licensee, negotiate conditions and terms of use of the patented technology.

The Chicago-based Intellectual Property Exchange International (“IPXI”), debuting in 2012, bills itself as “[T]he world’s first financial exchange focused on IP rights.” The IPXI will strive to eliminate current licensing inefficiencies like cost, lack of transparency and time consumption, by creating an open market for IP assets, where the intangible IP asset will become a commodity via a Unit License Right (“ULR”) contract. A ULR contract is the IPXI mechanism by which IP asset owners will be able to license technology in a non-discriminatory manner using a standard form license and on publicly disclosed terms. Each ULR contract will give the buyer the right to use a pre-established unit of IP, such as the right to make or sell up to a certain quantity of product covered by the asset.

The process for listing an IP asset on the IPXI will be analogous to that of an initial public offering on other financial exchanges: an IP owner (or “Sponsor”) will submit the proposed asset for consideration and consultation, due diligence by a “Selection Committee” at the IPXI will take place, including publication on the IPXI website of the proposed ULR contract and a comment period by IPXI Members. Following any revisions to the draft proposal, the Selection Committee will render a final decision about the ULR contract. If in agreement, the Sponsor then will assign or exclusively license the asset to a special purpose vehicle (“SPV”) formed by an IPXI affiliate, which will serve as master licensor for offering the ULR contracts. (Think of the SPV as a specialist on a financial exchange that is trying to link up buyers and sellers of a certain commodity.) Parties to the ULR contract agree to arbitrate any disputes, with the SPV ensuring compliance with the ULR contract terms and overseeing any necessary arbitration.

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In a unanimous 8-0 concurrence (CJ Roberts took no part), Microsoft Corp. v. i4i Ltd. Partnership, 564 U.S. (2011) (Decided June 9, 2011), the Supreme Court approved the Court of Appeal for the Federal Circuit’s long standing rule that clear and convincing evidence is required to prove a patent invalid. In unequivocal language, the Court held that 35 U.S.C. § 282 “requires an invalidity defense to be proved by clear and convincing evidence.” Slip Op. at 1.

In its counterclaim to i4i’s willful infringement suit, Microsoft sought a finding that i4i’s patent was invalid and unenforceable as being barred by an on-sale bar. There was no challenge by i4i to Microsoft’s allegation that there was a prior sale more than one year prior to the patent application of a computer program known as S4. However, the parties did argue whether the S4 program embodied the claimed invention. Relevant to the issue before the Court, Microsoft objected in the court below that i4i’s jury instruction requiring the invalidity defense to be proved by a showing by clear and convincing evidence was improper. Rather Microsoft sought an instruction that for art not presented to the Examiner during prosecution of the application, to prove invalidity the burden should be a preponderance of the evidence. The District Court rejected Microsoft’s position, the jury found the patent valid and infringed, and the Federal Circuit affirmed.

In its opinion, the Court traced the origin of the clear and convincing standard to almost two decades before the invalidity defense was codified in § 282 by the Patent Act of 1952. In 1934, the Court found that “there is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence.” Radio Corp. of America v. Radio Engineering Laboratories, Inc., 293 U. S. 1, 2 (1934) (tracing the origins of the presumption through nearly a century of case law). The i4i Court adhered to the common-law jurisprudence that “a preponderance standard of proof was too ‘dubious’ a basis to deem a patent invalid.” Slip Op. at 8 (internal citations omitted). The Court determined that at the time Congress enacted the 1952 Patent Act, the presumption imposed a “heightened standard of proof.” Id.

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On May 25, 2011, the Court of Appeals for the Federal Circuit handed down an en banc decision in Therasense, Inc. v. Becton, Dickinson & Co., revamping the standards used for judging patentees’ inequitable conduct in patent infringement cases. Significantly, the decision raises the bar for accused infringers wishing to demonstrate the requisite intent and materiality needed to support a finding of inequitable conduct. In particular, the decision reaffirms that intent and materiality standards are to be independently applied, and establishes a “but-for” test for materiality that is satisfied only when a patent claim would not have been allowed in prosecution but-for an alleged bad act (for example, a failure to disclose certain prior art references). It is hoped that the heightened standards will reduce the incidence of unwarranted inequitable conduct claims made by accused infringers during patent litigation, and reduce the volume of marginally relevant prior art disclosures made by patentees during patent prosecution.

Therasense sued Becton, Dickinson (“BD”) in the United States District Court for the Northern District of California, inter alia, for infringing U.S. Patent No. 5,820,551. Abbott filed the original application leading to the ’551 patent in 1984. The ’551 patent involves disposable blood glucose test strips for diabetes management. When blood contacts a test strip, glucose in the blood reacts with an enzyme on the strip, resulting in the transfer of electrons from the glucose to the enzyme. A mediator transfers these electrons to an electrode on the strip. Then, the electrons flow from the strip to a glucose meter, which calculates the glucose concentration based on the electrical current.

During prosecution, the original application saw multiple rejections for anticipation and obviousness, including repeated rejections over U.S. Patent No. 4,545,382, another patent owned by Therasense. In 1997, Therasense amended the claims to claim a new sensor that did not require a protective membrane for whole blood. Therasense asserted that this distinguished over the sensors disclosed by the ’382 patent, whose electrodes allegedly required a protective membrane. In response to a request by the examiner, Therasense submitted a declaration to this effect in the U.S. Patent and Trademark Office (“PTO”). Several years earlier, while prosecuting the European counterpart to the ’382 patent, Therasense made representations to the European Patent Office (“EPO”) arguing that such a membrane could be used in their invention but was not required. This representation was not disclosed to the examiner examining the original application leading to the ‘551 Patent.

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On April 20, 2011, the Court of Appeals for the Federal Circuit handed down an en banc decision in TiVo, Inc. v. EchoStar Corp. that outlines new rules for contempt proceedings against a new or modified product when the original product has been barred subject to a permanent injunction. The decision is significant in that the new rules lower the burden faced by the patent owners to initiate such proceedings. The decision also illustrates the importance of clarifying the scope of injunctive orders at the time of entry.

TiVo sued EchoStar in 2004 in the United States District Court for the Eastern District of Texas for infringing U.S. Patent No. 6,233,389. Based on a jury finding in favor of TiVo, the District Court entered a judgment on the verdict and a permanent injunction against EchoStar in 2006. The injunction prohibited EchoStar from making, using, offering to sell or selling the infringing products (the “infringement” provision), and required EchoStar to disable certain infringing features for products placed with end users (the “disablement” provision). In response to an appeal by EchoStar (which was not directed to the injunction), the Federal Circuit issued a decision in 2008 that, inter alia, finalized the injunction order.

Shortly thereafter, TiVo moved in the District Court to find EchoStar in contempt of the order based on certain design-around activities it initiated as an alternative to disablement. The District Court issued a decision finding EchoStar in contempt in 2009. A panel of the Federal Circuit affirmed the District Court’s decision in 2010. The present decision resulted from EchoStar’s petition for rehearing en banc. Interestingly, the rehearing drew briefs from twenty amici. In the wake of the en banc decision, the parties agreed to a settlement on May 2, 2011, in which EchoStar will pay $500M to TiVo in exchange for a license to the ‘389 Patent.

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Following a recent Federal Circuit decision, a patentee might now be able to assert a system claim against a single infringer for operating a distributed system, rather than naming joint infringers hosting portions of the distributed system. This is significant for entities that do business on-line, particularly enterprises with a cloud computing business model. Whereas in the past a patentee may have had to allege direct infringement among joint infringers (e.g., individual users, enterprises, and information technology system providers), and perhaps prove vicarious liability, now it may be possible to bring a direct infringement action against a sole infringer that might not be in possession of the complete system. E-commerce businesses, web-based providers of business services, providers of software as a service, electronic market makers, and other enterprises that use third-party server farms to host part, or all, of their system might now be named as the sole infringer. A patentee could perhaps now sue a competitor for infringement without having to sue the infringer’s IT provider. This could be particularly advantageous in cases where the patentee and the infringer share providers, and will permit the patentee to sue without jeopardizing its own business relationship with the provider.

In Centillion Data Systems (Centillion Data Sys., LLC v. Quest Commc’ns Int’l, Inc. et al., No. 2010-1110, -1131, slip op. (Fed. Cir. Jan. 20, 2011)), the Federal Circuit addressed direct infringement for use of a system claim where a single actor was not in possession of all the claimed system elements. Id. at 7. Here the court extended its analysis of the control and beneficial use doctrine, which the court applied in its Blackberry® opinion (NTP, Inc. v. Research in Motion, Ltd. 418 F.3d 1282 (2005)). In NTP, the court extended the extraterritoriality of U.S. patent law by finding that the location of use is “the place at which the system as whole is put into service” by exercise and beneficial use of the system. Id. at 1317.

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On February 9, 2011, the U.S. Patent & Trademark Office (USPTO) issued Supplementary Examination Guidelines for Determining Compliance With 35 U.S.C. § 112 and for Treatment of Related Issues in Patent Applications (the “Guidelines”). The Guidelines have immediate effect, but the USPTO will consider written comments received by April 11, 2011. Part 1 of the Guidelines pertains to the provisions of 35 U.S.C. § 112, 2 regarding claim definiteness, while Part 2 of the Guidelines pertains to the examination of so-called “computer-implemented functional claim limitations.”

In Part 1 of the Guidelines, a 3-step process is described for the examination of patent claims under 35 U.S.C. § 112, 2. Step 1 begins with an interpretation of the claims. The Guidelines emphasize that examiners must assign a “broadest reasonable interpretation” to claim terms that is consistent with the patent specification and reasonable from the perspective of “one of ordinary skill in the art.” Step 2 focuses on determining whether the claims as interpreted are “definite” and “clearly and precisely inform persons skilled in the art of the boundaries of protected subject matter.” Examples of indefinite claiming include: 1) “functional claiming” that recites a feature “by what is does rather than what it is,” 2) “terms of degree” which fail to include “some standard for measuring that degree,” 3) “subjective terms” for which the scope “must depend solely on the unrestrained, subjective opinion of a particular individual” and 4) “improper Markush groups” which define a number of different “species” of the claim term that fail to share either a “single structural similarity” or a “common use.” Step 2 also provides guidelines for interpreting so-called “means for” and “step for” limitations under 35 U.S.C. § 112, 6.

Step 3 concludes the examination process with guidelines for resolving any indefinite claim language identified in step 2. The Guidelines make clear that it is the examiner’s duty to provide a “sufficient explanation” of the indefinite language as part of a “clear record,” and to practice the principles of “compact [patent] prosecution” so that “the applicant has the chance to provide evidence of patentability and otherwise reply completely at the earliest opportunity.” Notably, examiners are encouraged to attempt to resolve indefiniteness issues with the patent applicant early on by interview before formally rejecting the patent application on indefiniteness and other grounds.

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In a decision that highlights the import of assigning or licensing intellectual property assets during corporate reorganization, a district court recently ruled that a plaintiff patentee was not entitled to lost profit damages based on the patent at issue in an infringement action. In Duhn Oil Tool, Inc. v. Cooper Cameron Corporation (CAED January 24, 2011) Duhn Oil Tool, Inc. filed suit against Cooper Cameron Corporation alleging patent infringement. Following discovery, the defendant filed a motion for partial summary judgment arguing that the plaintiff patentee was not entitled to lost profits damages.

In considering the defendant’s motion, the court considered the implications of corporate reorganization involving the plaintiff patentee. As a result of a stock acquisition and restructuring of operations, all of the plaintiff patentee’s operations were transferred to a non-party parent. Although the plaintiff patentee continued to operate as a business entity post-acquisition, it was no longer involved in the business operations relating to the goods and services subject to the patent at issue in the litigation.

The district court ruled for the defendant and granted partial summary judgment on grounds that, as of the date of transfer of operations, the non-party parent alone incurred business expenses, made profits and suffered losses. The court found that the plaintiff patentee had neither “assigned the patent-in-suit to [non-party parent] nor granted a license to [non-party parent].” As such, plaintiff patentee was not entitled to lost profits damages after the date of reorganization, the time at which its parent took over operations relating to the patent at issue.

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Courts continue to wage a valiant effort to create consistency and provide guidance in the numerous false marking cases launched in the aftermath of Bon Tool. Defendants accused of false marking may seek dismissal on the basis that plaintiff lacks standing. In so doing, defendants often argue that plaintiff was not in the business and suffered no competitive injury as a result of false marking.

This strategy was effectively foreclosed when the Court of Appeals for the Federal Circuit reversed and remanded the Southern District of New York’s holding in Stauffer v. Brooks Brothers. In that case, the Federal Circuit concluded that the government’s right to have its laws effectively applied provided sufficient basis for a qui tam plaintiff to bring an action on its behalf. As a result, false marking defendants now seek alternative defensive strategies, including attacks on the sufficiency of the complaint and assertion of affirmative defenses. To see the results of two such attempts, see the discussion after the jump.

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In Re Acer America Corp. is the latest in a growing body of opinions authored by the Federal Circuit finding that the United States District Court for the Eastern District of Texas has abused its discretion in denying the transfer of a case to a more convenient venue under 28 U.S.C. § 1404(a). The United States Court of Appeals for the Fifth Circuit launched the opening salvo against the Eastern District’s unwillingness to transfer cases in its In re Volkswagen of America, Inc. opinion, and the Federal Circuit repeatedly has followed suit, granting writs of mandamus in favor of transfer in In re Nintendo Co., In re Hoffman-La Roche, Inc., In re Genentech, and In re TS Tech.

In the instant case, the U.S. District Court for the Eastern District of Texas denied a motion by twelve defendants seeking to transfer a patent infringement case to another district. The transfer motion was based primarily on the fact that all but one of the U.S.-based defendants were headquartered in California. Dell, as the lone Texas-based defendant, operates its headquarters outside of the Eastern District, 300 miles from Marshall, Texas, where the litigation was pending before Judge Everingham.

The Federal Circuit began its analysis by applying the public and private factors used in a forum non conveniens analysis. The private factors of the analysis include (1) the relative ease of access to sources of proof; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practical problems that make a trial easy, expeditious and inexpensive. The public factors to be considered are (1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflicts of laws or in the application of foreign law.

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The Federal Circuit’s recent decision in AstraZeneca LP v. Apotex Inc. illustrates the tension that generic drug manufacturers may face between complying with FDA labeling requirements and avoiding trespassing on others’ patent rights. In that decision, the Federal Circuit affirmed the District Court of New Jersey’s ruling enjoining Apotex’s “at risk” launch of a generic version of an inhaled corticosteroid for asthma patients. In short, AstraZeneca owned a method patent on once-daily dosing of the drug at issue. Although Apotex omitted all references to once-daily dosages from its product label, it was required by the FDA to include “downward titration” language that encouraged patients to reduce their daily intake of the drug to the lowest dose that provides a beneficial effect. AstraZeneca argued that this language induced patients to infringe its method patent, and the court agreed.

For its part, Apotex argued that it lacked the specific intent required to induce infringement because its product label did not instruct patients to engage in the infringing once-daily dosing, and because its instructions allowed for non-infringing use of the drug. The Federal Circuit was not persuaded. Rather, it agreed with the lower court that the language encouraging reduced intake would necessarily result in some users engaging in AstraZeneca’s patented method. The court also found that Apotex’s attempt to design its label around the infringing use showed that it had the requisite knowledge and intent to induce infringement.

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On October 7, 2010, the U.S. Patent & Trademark Office (USPTO) issued a press release announcing the adoption of new procedures for measuring the quality of patent examination that will be implemented during the start of the 2011 fiscal year. After requesting public comment in both the Federal Register and Official Gazette and holding two round table discussions, a joint USPTO-Patent Public Advisory Committee (PPAC) Task Force developed a new composite quality metric including seven factors, and an associated procedure for obtaining measurements, identifying systemic problems and providing remediation through examiner training.

Currently, the USPTO measures the quality of patent examination according to two factors: (1) the quality of the action setting forth allowance or final rejection of the application; and (2) the quality of the actions taken during the course of examination;. In the October 7 press release, USPTO describes these two factors as “useful but insufficient measurements of patent examination quality.”

Under the new procedures, the USPTO will use seven quality measurements, which are described in detail in the USPTO publication "Adoption of Metrics for the Enhancement of Patent Quality Fiscal Year 2011." In addition to the two factors presently used, the new composite metric will also measure: (3) the use of best search practices in the examiner’s initial search for prior art; (4) the use of best examination practices in the first action on the merits; (5) trends in compact and efficient examination as reflected in aggregate USPTO data; (6) the perceptions of applicants and practitioners as measured by surveys; and (7) the perceptions of examiners as measured by surveys. While the USPTO presently measures the perceptions of applicants and practitioners, this factor was not previously incorporated within the composite metric.

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Recently, the U.S. District Court for the Southern District of New York ruled that a generic drug manufacturer may not be required to provide advance notice to the innovator of their intent to launch at-risk a competing product. This decision is noteworthy in that it contrasts with the practice in the District Court of New Jersey where at least one generic company has been ordered to provide advance notice to the brand companies of an impending at-risk launch.

In Teva et al. v. Sandoz, Inc., 08-7611 (S.D.N.Y. October 12, 2010), the district court for the Southern District of New York, denied Teva's request for 10 days advance notice of Sandoz’s launch at risk of a generic version of Copaxone®. The court held that, “[w]hile other courts may have, in other circumstances, ordered generic drug makers to provide another party with notice of its intent and ability to launch, the Court finds that it is unnecessary to do so here.” The court found that Sandoz had no legal obligation to provide Teva with advance notice, particularly since there are no regulatory impediments by the FDA barring entry of Sandoz’s generic product. As such, the court held that ordering Sandoz to provide advance notice would effectively require it to disclose confidential business information to Teva. The court also dismissed Teva’s argument that advance notice could potentially avoid “saddling” the court with an emergency request for a temporary restraining order, noting that Fed. R. Civ. P. 65 sufficiently addresses any such concerns.

Lisa H. Wang is an Associate in the Gibbons Intellectual Property Department.

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A Message from the Chair, David E. De Lorenzi:

On Tuesday, October 5, 2010, at 6:00 pm, the Gibbons Institute of Law, Science & Technology and the New Jersey Intellectual Property Law Association (NJIPLA) will host the 8th Annual Fall Lecture Series, "Inventing Our Way Out of Joblessness," featuring The Honorable Paul R. Michel, Former Chief Judge of the U.S. Court of Appeals for the Federal Circuit. Additional speakers include:

• Briana Bergen, Bristol-Myers Squibb
• Caren Khoo, Verizon Corporate Services Group Inc.
• David Opderbeck, Associate Professor of Law, Seton Hall University Law School
• Daniel Shulman, Pactiv Corporation

This event will be held at the Newark Club, located adjacent to Seton Hall Law School, in Newark, New Jersey. For additional event details, please click here.

As discussed in my previous blog, "Former Judge Paul Michel Discusses Proposed Changes to US Patent System," Judge Michel spoke, for the first time since his retirement, at the Global Intellectual Property Center of the U.S. Chamber of Commerce on July 21, 2010, providing commentary on the current state of the nation's patent system and how the system can be improved to bolster US economic growth. He will discuss similar topics on October 5.

David E. De Lorenzi is Chair of the Gibbons Intellectual Property Department.

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A Message from the Chair, David E. De Lorenzi:

"Congress Needs to Act" is the first article published by Judge Paul R. Michel since his retirement from the Federal Circuit, where he served as the Chief Judge. Judge Michel's below speech was given on July 21, 2010, at the Global Intellectual Property Center of the U.S. Chamber of Commerce, providing commentary on the current state of the nation's patent system and how the system can be improved to bolster US economic growth.

Judge Michel will be a featured speaker on these same topics in October at the Gibbons Institute/NJIPLA Fall program in Newark, New Jersey. More details on the October program will be posted next month.

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When the United States Court of Appeals for the Federal Circuit decided Bon Tool, it unwittingly triggered an avalanche of litigation against major corporations brought under 35 U.S.C. § 292, the false marking statute. The opinion resolved a split of authority regarding whether a manufacturer of a product could be subjected to a fine based on each article that had been falsely marked, or each decision to mark the article. Combined with the fact that the qui tam nature of the false marking statute obviated the need to establish traditional Article III standing, a new breed of patent trolls sprung into existence seemingly overnight, dedicated to the task of tracking down mis-marked products, and seeking to share half of a maximum $500 per falsely marked item bounty. The economic appeal in bringing such suits is obvious. A major manufacturer could potentially produce millions of falsely marked articles. Even if a court decided not to assess the full $500 penalty (which it has discretion to do), a successful plaintiff could still stand to reap a sizeable award based on the sheer number of falsely marked articles injected into the stream of commerce. Since that time, several cases have been decided that have helped to provide guidance to litigants on both sides of this rapidly evolving area of law.

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The Gibbons Institute of Law, Science & Technology hosted a webinar on July 1 to discuss the U.S. Supreme Court decision in Bilski v. Kappos that addressed the limitations on the patentability of business methods. More than 50 people listened to this webinar, which featured Erik Lillquist, Senior Associate Dean and Professor of Law, Seton Hall University School of Law; Robert E. Rudnick, Director, Intellectual Property, Gibbons P.C., and David W. Opderbeck, Associate Professor of Law and Director, Gibbons Institute of Law, Science & Technology, Seton Hall University School of Law.

The panelists reviewed, analyzed and discussed the implications of this decision with regard to patent protection in those industries employing business method and related software patents. Of particular interest to industry professionals and patent practitioners, Robert Rudnick provided a helpful list of best practices and tips for obtaining corresponding patent protection and enforcement in view of this important Supreme Court decision.

The webinar has been archived online and can be accessed by clicking here.

Robert E. Rudnick is a Director in the Gibbons Intellectual Property Department.

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On June 28, 2010, the Supreme Court handed down a highly anticipated decision affirming the Federal Circuit in Bilski v. Kappos. At issue in Bilski was the patentability of a claimed business method or process for hedging against the risk of price changes in an energy market. The Court unanimously affirmed the Federal Circuit’s decision to reject Bilski’s process claims as being unpatentable, but split in its opinion as to the grounds for rejecting the claims.

The majority opinion of the Court was delivered by Justice Kennedy, joined in full by Chief Justice Roberts, Justices Thomas and Alito, and joined in part by Justice Scalia. The Court held that the “machine-or-transformation” test applied by the Federal Circuit to reject Bilski’s business method claims is not the sole test to be considered in determining whether a claimed process is a “patent-eligible” process. In particular the Court stated that the test may be insufficient for determining the patentability of inventions concerning emerging technologies including, for example, software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression and the manipulation of digital signals.

The Court rejected the outright exclusion of process claims directed to so-called “business methods,” finding that the scope of such an exclusion was unclear and that Congress’ “prior use” defense to the infringement of business method claims as expressed in 35 U.S.C. §§ 273 (a)(3), (b)(1) would be meaningless if such claims were fully excluded from consideration as patent-eligible inventions.

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On April 2, 2010, the USPTO issued a press release and published in the Federal Register a request for comment on a proposed change that would effectively give applicants a 12-month extension to the current provisional application period. Under the current rules, an applicant must file a nonprovisional application within 12-months after the filing of a provisional application pursuant to 35 U.S.C. § 119(e) and must thereafter complete any missing parts to that application within a time period of up to a maximum of seven months.

The latest proposed revision to the missing part practice would now give applicants an additional 12-month period under which to complete this application. Even with the new proposed revision, a nonprovisional application must still be filed within the first 12-month period following the filing of a provisional application and have a properly executed oath or declaration along with at least one claim. Applicants, however, will now be given up to a year rather than seven months to complete the nonprovisional application by payment of the required search fee and a nominal late payment surcharge. It should be noted that this change would not affect foreign filings, which must still be filed within 12 months after the filing date of a provisional application in accordance with the Paris Convention for the Protection of Industrial Property. Also, by exploiting the delayed payment, an applicant foregoes his right to opt not to have the patent application published at 18 months from the provisional patent application filing date.

The USPTO believes that by providing this additional time, applicants may now “ascertain the value of their inventions, thereby helping applicants decide whether to incur the additional costs associated with pursuing patent rights.” While initially expending only a relatively low cost to file the application, the applicant may now take the additional 12-month period to focus their time and efforts on commercialization. Additionally, the USPTO explained that, under the current statutory scheme, applicants routinely file several nonprovisional applications, which are dependant on various provisional applications. By providing an additional 12-month period, the USPTO believes that this will “help applicants focus on their most important applications and conserve USPTO resources.”

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Recently certain members of the patent law bar have expressed surprise that the Federal Circuit has used the written description requirements of 35 U.S.C. §112, first paragraph to invalidate patents such as the University of California’s patent directed to insulin in Regents of the University of California v. Eli Lilly & Co., and Genentech’s patent directed to production of human growth hormone in Genentech, Inc. v. Novo Nordisk A/S. This issue has come to the forefront again in Ariad’s pending per curiam appeal from the Federal Circuit decision in Ariad Pharms., Inc. v. Eli Lilly & Co., vacated and rehearing en banc granted. Oral argument in the case was held on December 7, 2009. In the case under appeal, the Ariad patent was held not to meet the written description requirements of 35 U.S.C. §112, first paragraph.

The surprise of the patent bar to the Federal Circuit’s use of this written description requirement and the dual nature of this requirement to invalidate patents reminds me of the exclamation of the police chief in the movie Casablanca, upon being handed his winnings from roulette, “I’m shocked, shocked to find that gambling is going on here.” Written description and the dual requirements of 35 U.S.C. § 112 first paragraph for written description have been the bulwark of United States prosecution, especially interference practice for at least 35 years.

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Several bills are currently pending in Congress establishing expedited marketing approval pathways for biosimilar drugs. The proposed pathways are analogous to the pathway for small molecule chemical drugs established by the passage of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act. The Hatch-Waxman Act includes a data exclusivity provision whereby the FDA is prohibited from approving a competitor’s drug application relying on the innovator’s data for a statutory period of time. Recent debates concerning the biosimilar bills have focused on the data exclusivity period. These debates highlight the differences between biological drugs and small molecule chemical drugs and why a longer exclusivity period may be necessary to fill the “patent protection gap.”

Debate on Data Exclusivity Period

Under the Hatch-Waxman Act, a five-year exclusivity period is permitted for a new chemical entity. A three-year exclusivity period is permitted for new clinical investigations of small molecule drugs and other exclusivity periods are granted as incentives to develop drugs for children or small patient populations. With regard to biosimilars, proposals on data exclusivity terms have ranged from no exclusivity period to over 12 years. House bill H.R. 1427 sponsored by Representative Henry Waxman provides for five years of exclusivity while H.R. 1548 sponsored by Representative Anna Eshoo provides for an exclusivity period of up to 14.5 years. An FTC report questions whether any data exclusivity period is necessary, suggesting that existing patent protection and market-based pricing would offer sufficient incentive for biological drug development. The Biotechnology Industry Organization (BIO) counters that the FTC’s report failed to account for the advantage given to follow-on companies who rely on the innovator’s development and research work. In addition, BIO also notes that reliance on patent protection for biological drugs may be inadequate since the biosimilar regulatory approval pathway creates a “patent protection gap.”

Patent Protection Gap

According to BIO, a “patent protection gap” exists because a biosimilar drug is not required to be the “same” as the innovator drug. Representative Waxman’s bill requires only that the biologically similar drug have “no clinically meaningful differences between the biological product and the referenced product would be expected in terms of the safety, purity and potency if treatment were to be initiated with the biological product instead of the referenced product.” In other words, if the biosimilar drug is shown to have no “clinically meaningful difference” when compared to the innovator drug, it can theoretically gain approval even though the biosimilar drug may be different in structure, administration, or mechanism of action.

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The Federal Circuit’s recent decision in Therasense, Inc. v. Becton, Dickinson & Co., No. 2008-1511 (Fed. Cir. Jan. 25, 2010) held that applicant’s statements made in proceedings before foreign patent offices may be required disclosures in prosecution before the USPTO (“PTO”), particularly when those statements directly contradict other statements made during prosecution. From the court’s holding: “An applicant’s earlier statements about prior art, especially one’s own prior art, are material to the PTO when those statements directly contradict the applicant’s position regarding that prior art in the PTO.”

The Therasense case involved U.S. Pat. No. 5,820,551, for a strip electrode used to measure the level of glucose in blood. The ‘551 patent is related to an earlier U.S. patent and its European counterpart. The statement “Optionally, but preferably when being used on live blood, a protective membrane surrounds both the enzyme and the mediator layers, permeable to water and glucose molecules” appeared in the specifications of all three patents.

In 1993, the European patent was revoked in an opposition proceeding based on a German reference. In a successful appeal to withdraw the revocation, the patentee distinguished the patented invention’s “optionally, but preferably” membrane requirement from the German reference, which required a membrane.

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Judge Young recently wrote a colorful and entertaining decision addressing a “disconnect between the Federal Rules of Evidence and the substantive doctrines of patent law [that] seems to have gone totally unremarked both by the patent bar and evidence scholars.” In the end, Judge Young ruled that the patent laws on obviousness trump the Federal Rules of Evidence. NewRiver, Inc. v. Newkirk Products, Inc., C.A. No. 06-12146-WGY, Memorandum & Order (D. Mass. Dec. 16, 2009).

Plaintiff NewRiver brought a patent infringement action against the defendant Newkirk. After trial, the jury returned a verdict finding that Newkirk infringed claims 9-11 but that certain claims of the patent in suit, including the infringed claims 9-11, were invalid as obvious. The parties then filed various post trial motions including two filed by NewRiver: (1) a motion for judgment as matter of law that claims 9-11 are valid and not obvious; and (2) a motion for a new trial.

The Court reviewed the sufficiency of the evidence regarding the invalidity of claims 9-11, and found that evidence “sparse.” Indeed, the only evidence of invalidity of claims 9-11 consisted of the defendant’s expert reading the claim into evidence and concluding that the claims would have been obvious to a person skilled in the art. The expert did not identify any prior art, did not show where the limitations of the claims were in the prior art, or how the combined prior art references made the claims obvious. NewRiver did not object, and the issue of invalidity of claims 9-11 went to the jury with the only evidence being the expert’s unsupported opinion.

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Some courts, whether by local patent rule or by individual order, are restricting the number of patent claim terms they are willing to construe. For example, the Northern District of California’s Local Patent Rule 4-1(b) directs parties to “jointly identify the 10 terms likely to be most significant to resolving the parties’ dispute, including those terms for which construction may be case or claim dispositive.” Other courts, such as the District of Massachusetts, have memorialized a suggestion that “no more than ten (10) terms per patent be identified as requiring construction.” See Appendix to D. Mass. Local Rule 16.6, section (B)(4)(d).

In jurisdictions with local patent rules but without specific rules limiting the number of terms that the court will construe, some judges are going beyond the local rules to impose such limits. For example, Judge Clark of the Eastern District of Texas has required parties to identify “no more than ten (10) disputed claim terms for construction,” in order to “secure the just, speedy and inexpensive determination” of the case. Hearing Components, Inc. v. Shure, Inc., Civ. No. 9:07-104, 2008 WL 2485426, at *1 (E.D. Tex. June 13, 2008). There, the parties had originally submitted about twenty terms for construction.

In other jurisdictions without specific local patent rules, some judges have likewise imposed limits on the number of terms they will construe. For example, Judge Sleet of the District of Delaware struck a joint claim construction chart that contained competing constructions for thirty-one claim terms or phrases spanning four patents. See Grape Technology Group, Inc. and KGB, Inc. v. Jingle Networks, Inc., Civ. No. 08-408 (D. Del.), Docket Entry 35 (Order dated Oct. 20, 2009). There, the Court ordered the parties to file an amended claim construction chart within five days, limited to ten disputed terms per patent-in-suit.

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What do adjustable bow ties have in common with disposable coffee cup lids? Not much, other than the fact that they have recently been at the center of false patent marking suits brought against major corporations not by competitors, but consumers. In each case, a consumer noticed that markings on certain products referred to patents which had long since expired.

While most ordinary consumers would not attribute much significance to such a finding, these were no ordinary consumers. They were patent attorneys who, by virtue of their profession, were familiar with the false marking statute of the Patent Act. So when Matthew Pequignot sat down to his morning coffee and noticed that the lid of his cup was marked with an expired patent, he proceeded to file Pequignot v. Solo Cup Company. And when Raymond Stauffer noticed that his Brooks Brothers adjustlox bow-tie was affixed with an expired patent number, he initiated Stauffer v. Brooks Brothers, Inc.

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Is an end coming for reverse payment settlements of Hatch-Waxman litigations?

The FTC, like Wile E. Coyote chasing The Road Runner, has been doggedly challenging settlements between brand name pharmaceutical companies and generics to resolve Hatch-Waxman litigations. Reverse payments settlements, which the FTC calls “pay-for-delay” deals, where Hatch-Waxman litigations are settled by the brand name drug company’s payment to the generics to stay off the market, have been the main target of the FTC since the late 1990’s. The FTC’s position is that reverse payments impermissibly thwart less expensive generic drugs from timely reaching consumers. While there is a circuit court split on the issue, the recent trend of courts, including the Federal Circuit, has been that reverse payments are acceptable because they are “within the exclusionary zone of the patent and thus [cannot] be redressed by federal antitrust law.” In re Ciprofloxacin (“Cipro”) Hydrochloride Antitrust Litig., 544 F.3d 1323, 1327 (Fed. Cir. 2008), cert. denied 129 S. Ct. 2828 (2009).

The Supreme Court has yet refused to weight in on reverse payments, denying certiorari this past summer despite the FTC’s, and, more recently, the DOJ’s entreaties to take up the issue in the Cipro case. Previously, the DOJ had remained on the sidelines in reverse payment fights, but under the Obama administration’s guidance, the DOJ is now advocating that reverse payments be prohibited. The DOJ’s position on the issue has struck the path for the new kid on the block in the war on reverse payments: Congress.

In Cipro, DOJ’s briefing to the Supreme Court advocated a presumption shift: that a prima facie antitrust claim for reverse payments could be established by showing only that the settlement was a result of consideration provided to the generic by the branded patentee, accompanied by the generic withdrawal of its challenge. The prima facie case could then, however, be rebutted upon a showing that reverse settlement did not unreasonably restrain competition.

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During a recent AIPLA-sponsored discussion at the USPTO, patent practitioners met with heads of various Technology Centers to discuss USPTO caseloads and recent events. One of the more interesting topics was the increasing number of disclosures from applicants in light of McKesson and more recent inequitable conduct cases and measures that may be taken by the USPTO and practitioners in response.

In McKesson Information Solutions, Inc. v. Bridge Medical, Inc., 2006-1517 (Fed. Cir. 2006) the Court of Appeals for the Federal Circuit affirmed a district court’s finding of inequitable conduct for failure to disclose materials to the USPTO in violation of an applicant’s duty of disclosure under 37 C.F.R. 1.56. In that case, the patent attorney handled two similar, yet unrelated, pending patent applications before the USPTO and did not disclose in connection with one patent application certain documents, such as an office action and a prior art reference, cited in the other similar patent application.

In view of McKesson, patent practitioners may give additional consideration to disclosing office actions and references between related patent applications as well as office actions and references found in unrelated, yet similar patent applications. As the number of related applications and similar patent applications grows, the disclosure process may become more challenging due to the number of documents to cite and the timing of disclosure. For example, if, after a patent application has been allowed, an office action appears in a related or similar patent application, then the applicant may file an Information Disclosure Statement (IDS) disclosing the office action and along with a mandatory and costly payment for a Request for Continued Examination (RCE) to reopen prosecution of the allowed patent application so that the Examiner may review the office action and references cited therein.

During the discussion at the USPTO, the participants considered options such as a special “After-allowance RCE” of reduced price that would pay for the Examiner to review references disclosed by the applicant in the situation described above. Also of note was a suggestion that a feature be implemented within the USPTO’s electronic database that would allow applicants to link applications to allow office actions and references to be automatically disclosed between applications. This issue is on the USPTO’s radar, so stay tuned for developments.


Frank A. Bruno is a Director in the Gibbons Intellectual Property Department.

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