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

The Court did, however, provide Myriad with a life raft regarding claims involving cDNA. According to the Court, synthesized cDNA that differed from the corresponding native DNA, and involved manipulation, did not fall under the “product of nature” exception of the patent statutes under §101, and thus were patentable. However, the Court added that in cases of cDNA corresponding to short stretches of intron-free native DNA, the “product of nature” exception could apply.

This landmark decision is likely to substantially affect holders of patents with isolated DNA claims. Such patents now appear to be vulnerable to invalidity contentions by potential infringers. This potentially could mark the end of future isolated DNA-related patent applications. Furthermore, research in such fields as medical diagnostics and testing may be disrupted, with innovators resorting to trade secret law in order to protect their intellectual property formerly secured by patents.

Another interesting issue for consideration is whether by analogy, issued patents and pending/future patent applications involving isolated proteins will face a similar fate, thereby further disrupting research in this arena.

The ramifications will become more evident in the coming years, but this decision will definitely change how biotechnology companies protect their inventions.

James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Estelle J. Tsevdos, a Director in the Gibbons Intellectual Property Department, co-authored this post.

The District Court granted Monsanto’s motion to dismiss for lack of subject matter jurisdiction. The Court found no actual controversy under the Declaratory Judgment Act, 28 U.S.C. § 2201(a), and no injury to OSGATA and others, traceable to Monsanto. In addition, the Court noted that Monsanto’s aggressive stance in regards to “patent-infringement suits against other, dissimilar parties . . .” by itself was insufficient to create subject matter jurisdiction.

In affirming the District Court’s dismissal, the Federal Circuit concluded that Monsanto’s website statement had a similar effect as a covenant not to sue, and that Monsanto was now judicially estopped from taking a contrary position in future litigation. Furthermore, the Court adopted OSGATA’s argument that “trace amounts” should be defined as approximately 1% and that Monsanto, who did not contest this, “disclaimed any intent to sue inadvertent users or sellers of seed that are inadvertently contaminated with up to one percent of seeds carrying Monsanto’s patented traits.”

Although this ruling went in favor of Monsanto, it could be viewed as a partial victory for both sides. Monsanto, and other patent holders for that matter, through the use of websites or other public messages, now appear to have another tool to stave off plaintiff standing in declaratory judgment actions. Farmers and seed sellers who wish to avoid the threat of future Monsanto patent infringement actions apparently might be able to do so by taking steps to ensure that their seeds are not contaminated with more than “trace” (greater than 1%) amounts of Monsanto’s transgenic seeds. Additionally, farmers seeking to challenge Monsanto’s patents potentially can avoid standing issues by alleging contamination in excess of 1%.

OSGATA and other appellants are considering an appeal to the Supreme Court. Stay tuned.

James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Estelle J. Tsevdos, a Director in the Gibbons Intellectual Property Department, co-authored this post.

Even without such legislation, District Courts can help by using their current sanctioning power more frequently when appropriate. Chief Judge Randall Rader of the Court of Appeals for the Federal Circuit made such an argument last week in an op-ed piece in The New York Times. Referencing § 285 and Rule 11 of the Federal Rules of Civil Procedure, Judge Rader explained that while courts currently have the tools to address the problems connected with certain patent troll litigations, they are seldom used. To this point, his closing words are instructive “Judges know the routine all too well, and the law gives them the authority to stop it. We urge them to do so.”

Todd M. Nosher is an Associate in the Gibbons Intellectual Property Department. Ralph A. Dengler, a Director in the Gibbons Intellectual Property Department, co-authored this post.

Recently, the assault on patent trolls has continued, on both the federal and state fronts.

Last week, the Patent Abuse Reduction Act was introduced in the U.S. Senate aimed to modernize the U.S. patent system. Among its proposals, the bill would amend “Form 18,” the model patent infringement complaint in the Federal Rules of Civil Procedure, to require patent infringement complaints to include detailed information not currently required. These include identifying each product or feature alleged to infringe the patent, including name or model number; a detailed explanation of how the asserted claim corresponds with the accused function; a description of the plaintiff’s principal business and right to assert the patent; and a list of every other suit in which the patent has been asserted thus far. (As practitioners know, Form 18 currently only requires minimal information, such as a statement that the plaintiff owns the patent and the defendant infringes; Form 18 itself already faces continued scrutiny following the Supreme Court's heightened pleading standards decisions in Twombly and Iqbal.)

Meanwhile, Vermont’s Attorney General announced last week a lawsuit against a patent troll for violating the state’s consumer protection laws, a case the state said was the first of its kind. The complaint describes the plaintiff’s activities as an unfair and deceptive practice, alleging that it essentially operated an extortion racket. The AG’s suit preceded a new Vermont law amending the State’s consumer protection laws to permit businesses to sue patent owners who allege infringement in bad faith. The new law sets forth certain circumstances of “bad faith assertions,” that would give rise to a cause of action, such as sending a license demand letter that does not detail how the recipient infringes. Accordingly, recipients of bad faith assertions can now sue the patent owner to recover damages under this state law claim.

Time will tell how these various new measures will stand up, particularly the Vermont law and its potential clash with U.S. patent laws. And, as importantly, how these various steps will impact patent troll activity -- if at all. Elmer Fudd’s time (still) may not have come.

Jillian A. Centanni is an Associate in the Gibbons Intellectual Property Department. Ralph A. Dengler, a Director in the Gibbons Intellectual Property Department, and Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Several months later on July 31, 2012, while the Ohio case was stayed and the ‘087 patent reexamination was in progress, DATATRAK’s ‘294 patent issued as a continuation of its ‘087 patent. That same day, Medidata filed a Declaratory Judgment Action in the District of New Jersey pursuant to 28 U.S.C. §§ 2201, seeking declarations that it did not infringe the ‘294 patent and that the ‘294 patent was invalid on various statutory grounds. DATATRAK responded by filing a motion to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction. (DATATRAK also filed a motion to dismiss pursuant to Rule 12(b)(6) for failure to state a claim, and alternatively moved to transfer the action to the Northern District of Ohio under 28 U.S.C. § 1404. Only DATATRAK’s first basis -- its Rule 12(b)(1) argument -- is germane to this article.)

Judge Martini’s opinion set forth the standard for determining Article III jurisdiction by the District Court, based on the seminal decision in MedImmune Inc. v. Genentech, Inc., 549 U.S. 118 (2007), namely, “the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Id. at 127 (quotation omitted). The Court went on to note that under MedImmune’s “all the circumstances” benchmark, the Court should consider facts such as the prior litigation history between the parties on related patents; and the declaratory judgment defendant’s indication about protecting its patent rights against the declaratory judgment plaintiff.

Applying this framework to the facts before him, Judge Martini found it indisputable that DATATRAK sued Medidata in the Northern District of Ohio based on alleged infringement of the related ’087 patent; that after that case was stayed pending reexamination of the ‘087 patent, DATATRAK stated publicly its intent to resume its vigorous prosecution against Medidata once the stay was lifted; and that the ‘294 patent issued after that and it relates to the same subject matter and technology as the ‘087 patent. Accordingly, and based on the totality of the circumstances, the Court found the existence of an actual case or controversy sufficient to confer Article III jurisdiction, and dismissed DATATRAK’s motion to dismiss.

This decision once again highlights the jurisdictional interplay between (i) asserted and (ii) non-asserted, but related patents. For parties looking to assert similar declaratory judgment claims or hoping to rebut the same, careful attention should be made to the public record, including court dockets and SEC filings, for evidence of the patent holder’s intent to enforce its rights.

Todd M. Nosher is an Associate in the Gibbons Intellectual Property Department. Ralph A. Dengler, a Director in the Gibbons Intellectual Property Department, co-authored this post.

In 2007, Monsanto sued Bowman for patent infringement for these unauthorized plantings and saving of seeds. Bowman raised the doctrine of patent exhaustion as a defense, claiming that purchase of seed from the grain elevator was a prior authorized sale. The District Court rejected Bowman’s arguments, awarding Monsanto over $84,000 in damages for Bowman’s unauthorized use of the Monsanto’s patented seed technology. In 2011, the CAFC unanimously affirmed the District Court decision, explaining that although patent exhaustion allows for certain uses by an end user, the act of planting patented seeds for the purpose of generating more seed was an unauthorized replication.

The Supreme Court affirmed the Federal Circuit in an opinion delivered by Justice Kagan, holding that while the patent exhaustion doctrine would allow a farmer to resell or consume patented seeds purchased from a grain elevator, it would not allow a farmer to reproduce the seeds without the patent holder’s permission. The Court also rejected Bowman’s “blame-the-bean” argument that seeds naturally self-replicate and thus it was the seeds and not Bowman that made the replicas, noting that Bowman was not a passive observer, but instead, had intent, and carried out actions to select and harvest more patented seeds.

Stressing that the holding was limited to this particular situation, the Supreme Court left open the question of patent exhaustion for other patented, self-replicating technologies. However, it is likely that a patent exhaustion defense will fail to germinate in situations where an end user intentionally, and with some degree of control, causes an unauthorized replication to occur.

James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Estelle J. Tsevdos, a Director in the Gibbons Intellectual Property Department, co-authored this post.

Unicom Monitoring, LLC v. Cencom, No. 06-01166, slip op. at 21 (D.N.J. April 19, 2013) (MLC). The Court also denied Unicom injunctive relief holding that it is not an automatic grant or even a presumptive result of finding liability. Instead, the prevailing patent holder must establish the four-part test as articulated in eBay. The second prong of the eBay test inquires into whether remedies available at law, such as monetary damages, are inadequate to compensate for that injury. The Court, guided by Judge Posner’s decision in Apple, Inc. v. Motorola, Inc. held that Unicom is not entitled to permanent injunction because it failed to show that monetary damages were inadequate to compensate for its injury. Here, as in Apple, Unicom failed simply to set forth its prima facie case of how much monetary damages it is entitled to. Further, the Court also considered that both parties are no longer producing or marketing the product as another factor denying injunctive relief.

Lisa H. Wang is a Director in the Gibbons Intellectual Property Department.

The Court also determined that claim 1 recites a mathematic formula and therefore falls under the law of nature exception to patentable subject matter. Chief Judge Davis compared claim 1 to the claims found invalid in Gottschalk v. Benson, which were directed to “converting one form of numerical representation to another,” Gottschalk v. Benson, 409 U.S. 63, 65 (1972). Like the claims in Benson, Chief Judge Davis found that claim 1 recites “a procedure for solving a given type of mathematical problem,” and therefore preempts “the mathematical formula and in practical effect” covers the algorithm itself. Id. at 65, 72.

Further, the Court concluded that although claim 1 “constitutes an improvement on the known method for processing floating-point numbers” disclosed in IEEE Standard 754, the “improvement over the standard is insufficient to validate Claim 1’s otherwise unpatentable subject matter.” Uniloc, Dkt No. 38 at 9. This reasoning buttressed the fact that even when tied to computing, “a patent on Claim 1 would cover vast end uses, impeding the onward march of science.” Id.

While this opinion might likely have minimal precedential influence, it nonetheless serves as a warning against asserting method claims that are not tied to a machine, are non-transformative, or are merely recited steps of a mathematical calculation.

Gibbons will continue to track the status of this case, and will report any further developments as they arise.

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

Looming over the horizon for Monsanto is the Supreme Court’s pending decision in Bowman v. Monsanto, a case involving the issue of patent exhaustion and self-replication relating to seed technologies. Oral arguments were heard by the Court on February 19, 2013. A decision in this case is expected in June 2013.

Gibbons will continue to monitor developments in this case.

James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Estelle J. Tsevdos, a Director in the Gibbons Intellectual Property Department, co-authored this post.

With the ruling in Kirtsaeng, and the subsequent non-decision in Ninestar, the discrepancy in the treatment of the first-sale doctrine and international exhaustion between copyright and patent law appears to be in conflict. This topic will likely be in play in subsequent Federal Circuit patent decisions.

In the meantime, it would be prudent for companies conducting international sales of U.S. patented products to carefully consider their business practices and their contract and licensing agreements, should the courts change patent first-sale doctrine and international exhaustion standards in light of Kirtsaeng.

Gibbons will continue to monitor the latest developments regarding the first-sale doctrine and international exhaustion in U.S. patent law, and will report any further developments as they arise.

James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Estelle J. Tsevdos, a Director in the Gibbons Intellectual Property Department, co-authored this post.

The language of section 24 states that “[t]he clerk of any United States Court for the district wherein testimony is to be taken for use in any contested case in the Patent and Trademark Office.” 35 U.S.C. § 24. Focusing on “testimony,” the Court considered the history of the Patent Act. Abbott, at 8. In section 1 of the Patent Act of 1861, sections 23 and 24 were a single sentence, specifically enacted to assist the PTO in obtaining “needed testimony.” Id. at 10. In its present form, section 23 allows the Director to establish rules for taking depositions as authorized by law in district court and to take such depositions for use by the PTO. 35 U.S.C. § 23. The panel considered section 24 as clarified by section 23 and construed “contested cases” as limited to include only those in which PTO regulations authorize the parties to take depositions. Id. at 14.

With regard to taking depositions, the panel reviewed PTO regulations and recognized that the regulations discriminate between matters before an examiner and matters before the board with specific mention of deposition powers in the latter and recognizing no such power in the former. Id. at 15-16. Accordingly, the Court held that 35 U.S.C. § 24 only empowers a district court to issue subpoenas for use in a proceeding before the PTO if the PTO’s regulations authorize parties to take depositions for use in that proceeding, i.e. proceedings before the board, including: interferences, derivation proceedings, and the new Board proceedings created by the AIA. Id.

Based on this decision, inter partes re-examination proceedings, held before an examiner, are not “contested cases” within the meaning of section 24, and, therefore subpoenas under section 24 are not available.

However, as suggested by the panel, section 24 subpoenas would be presumptively available in “adjudicative proceeding[s]” of the PTO, including the IPR, post-grant review (“PGR”) proceedings  under the transitional program for covered business method (“CBM”) patents introduced by the America Invents Act (“AIA). Id. at 15. Although a potentially significant tool, its application will no doubt be impacted by the general discovery limitations of PTO adjudicative proceedings relative to district court litigation. We will continue to monitor and report on issues and trends in PTO adjudicative proceedings under the AIA as experience grows with them.

John J. Cahill is an Associate in the Gibbons Intellectual Property Department.

In In re Seagate Tech, 497 F.3d 1360, 1371 (Fed. Cir. 2007), the Court expressly abandoned both the affirmative duty of care and the obligation to obtain an opinion of counsel to mitigate the risk of willful infringement. In its place, the Federal Circuit has imposed a recklessness-type standard comprising objective and a subjective prongs. “To establish willful infringement, a patentee must prove by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and “that this objectively defined risk was either known or so obvious that it should have been known to the accused infringer.” Id. However, in Seagate, willfulness remained an issue of fact for a jury. Two recent Federal Circuit cases have further altered the willfulness dynamic.

First, in Powell v. Home Depot, U.S.A. Inc., 663 F.3d 1221, 1236 (Fed. Cir. 2011), the Court considered whether the jury is the sole decider of whether an accused infringer reasonably relied upon a defense to patent infringement. Under circumstances where resolution of that inquiry turned on a legal question (e.g. a Markman ruling), a judge decides the issue as a matter of law. Then, in Bard Peripheral Vascular v. W.L. Gore & Assocs., 682 F.3d 1003 (Fed. Cir. 2012) (en banc), the panel held “that even though predicated on underlying mixed questions of law and fact, willfulness is best decided by the judge as a question of law subject to de novo review” because a judge is in the “best position for making the determination of reasonableness.” Id. at 1007.

On rehearing, in these cases, the Federal Circuit took the opportunity to expand the Court’s role and minimize the jury’s role deciding whether a patent infringer acted willfully. In deciding willfulness, the role of the fact finder is now limited to determining whether the infringer subjectively knew or should have known that it was infringing a valid patent.

Because the ultimate power of deciding willfulness is now in judges’ hands, it will likely be harder for patentees to win treble damages in patent cases. Accused infringers need not fear that a few bad facts may result in a finding of willfulness and an increase of a damages award.

Additionally, these rulings mean that the Federal Circuit will now moderate all appealed willfulness decisions de novo, without deference to District Court decisions. Importantly, it will be easier for defendants to succeed on Rule 50 motions when not faced with a “no reasonable jury” standard. Recently, in Harris Corp. v. Fed. Express Corp., 2012-1094, 2013 U.S. App. LEXIS 1142, 31-33 (Fed. Cir. Jan. 17, 2013), FedEx appealed the District Court’s denial of JMOL on the issue of willfulness. Throughout litigation, FedEx raised and argued substantial questions regarding infringement and validity. On appeal, the Federal Circuit vacated JMOL as to willfulness, citing its holding in Bard and the review of the Seagate “objective prong” evidence de novo. Because “[t]he ultimate legal question of whether a reasonable person would have considered there to be a high likelihood of infringement of a valid patent should always be decided as a matter of law by the judge.” Id. at 1008.

If not successful at trial, on the appeal, the issue of willfulness will be reviewed de novo, rather than for substantial evidence or clearly erroneous.

Pleadings of willful infringement likely will be limited to situations where the infringement was truly “willful.” The practical implication to in-house counsel is that the perceived risk of a charge of willful infringement and the associated financial risk declines. Defendants wanting to avoid treble damages should proceed carefully, considering any action that may affect its credibility with the judge; present its strongest non-infringement position; present a reasonable claim construction argument; present and preserve all reasonable defenses to liability.

Ultimately, considering the evolution of case law in this area, a reasonably prudent corporate counsel should consult outside counsel to strategize and ascertain the best approach when proceeding into and through a patent infringement action where a charge of willful infringement has been or could be plead.

Luis J. Diaz is a Director in the Gibbons Intellectual Property Department. John J. Cahill, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Where any concurrent District Court proceedings are stayed (yes, the first stay pending IPR was ordered last December), rules governing IPR proceedings before the PTAB envision minimal discovery. And, where the PTAB discovery rules appear vague, the PTAB is stepping up to deny litigators access to traditional discovery scope (often referred to as a “fishing expedition”), to keep the proceedings as intended – lean and mean.

Under the recently enacted rules, IPR practice permits parties to obtain mandatory discovery regarding initial disclosures. See Rule § 42.51. Additionally, the rules also permit “Limited Discovery,” defined as “Routine Discovery” and “Additional Discovery.” Id. “Routine Discovery” includes: “unless previously served or otherwise by agreement of the parties, any exhibit cited in a paper or in testimony;” “cross examination of affidavit testimony;” and “unless previously served, relevant information that is inconsistent with a position advanced by the party during the proceeding.” Id. Additional discovery contemplates everything that is unrelated to initial disclosures or “Routine Discovery.” Further, and unless on agreement of the parties, a “moving party must show that such additional discovery is in the interests of justice.” Id.

The recent decision in Garmin Int’l Inc., v. Cuozzo Speed Techs. LLC, IPR2012-00001 (PTAB March 5, 2013), tested the mettle of this limited discovery. There, Cuozzo, the patent owner, filed a motion for “Additional Discovery” seeking interrogatories, documents and requests for depositions. The PTAB panel held that Cuozzo’s motion for “Additional Discovery” was deficient under the “interests of justice standard.” Garmin at 16-17. The panel explained by highlighting five factors that must be considered, as follows:

1. More Than A Possibility And Mere Allegation – The mere possibility of finding something useful, and mere allegation that something useful will be found, are insufficient to demonstrate that the requested discovery is necessary in the interest of justice. The party requesting discovery should already be in possession of evidence tending to show beyond speculation that in fact something useful will be uncovered. (emphasis added) 

Id.

Cuozzo’s motion primarily related to secondary considerations of nonobviousness such as long-felt, but unresolved need, failure of others, commercial success and copying by others. Importantly, the PTAB noted with respect to all these requests that Cuozzo’s motion lacks any evidence or reasoning tending to show beyond speculation that the information to be discovered will be useful. Id at 7-8. “‘Useful’ means favorable in substantive value to a contention of the party moving for discovery.” Id. at 7.

2. Litigation Positions And Underlying Basis – Asking for the other party’s litigation positions and the underlying basis for those positions is not necessary in the interest of justice. The Board has established rules for the presentation of arguments and evidence. There is a proper time and place for each party to make its presentation. A party may not attempt to alter the Board’s trial procedures under the pretext of discovery.

Id at 6.

Garmin was not obligated to keep Cuozzo informed of its positions on substantive issues. Id. at 13. The panel held that if and when Garmin presents affidavit or declaration testimony to support a position, Cuozzo would have an opportunity to cross-examine. Id.

3. Ability To Generate Equivalent Information By Other Means – Information a party can reasonably figure out or assemble without a discovery request would not be in the interest of justice to have produced by the other party. In that connection, the Board would want to know the ability of the requesting party to generate the requested information without need of discovery.

Id. at 6.

With regards to Cuozzo’s discovery on whether Garmin charged an unusual premium for the “speed limit alert feature,” the PTAB determined that Cuozzo was not entitled to such discovery. Id. at 6-7. At its own cost, Cuozzo may conduct market surveys, independently acquire file histories and prior art publications, and solicit analysis and opinions of the state of the art. Id. at 7.

4. Easily Understandable Instructions – The questions should be easily understandable. For example, ten pages of complex instructions for answering questions is prima facie unclear. Such instructions are counter-productive and tend to undermine the responder’s ability to answer efficiently, accurately, and confidently.

Id. at 6-7.

5. Requests Not Overly Burdensome To Answer – The requests must not be overly burdensome to answer, given the expedited nature of IPR. The burden includes financial burden, burden on human resources, and burden on meeting the time schedule of IPR. Requests should be sensible and responsibly tailored according to a genuine need.

Id. at 7.

The PTAB reviewed both cost and the burden imposed for meeting the IPR time schedule. Id. at 15-16. Based on a total cost of $50,000 to $100,000 and the fact that the requests were not reasonably tailored, the panel denied the requests based on the speed limit alert feature. Id. at 15-16.

Interestingly, the panel called Cuozzo to task for mischaracterizing its “Additional Discovery” requests as “Routine Discovery.” Id. at 3. “Routine Discovery” is narrowly directed to specific information known to the responding party to be inconsistent with a position advanced by that party in the proceeding, and not broadly directed to any subject area in general within which the requesting party hopes to discover such inconsistent information.” Id. at 4. The panel noted that Cuozzo did not reference information known to Garmin to be inconsistent with positions taken in the petition. Id. Instead, “Cuozzo casts a wide net directed to broad classes of information which may or may not include anything inconsistent with positions taken by Garmin.” Id. The panel characterized Cuozzo’s attempt to label very broad requests as narrowly directed was misplaced. Id.

Based on this precedent, IPR may be an appropriate strategy for defendants in certain patent infringement cases.

John J. Cahill is an Associate in the Gibbons Intellectual Property Department.

Even in view of this new provision, some critics of the SHIELD ACT of 2013 suggest most defending parties will find that the path of undertaking a full-term litigation against an NPE in order to obtain a cost recovery is unrealistic and over-burdensome, and that the Act will prove to have a lesser impact on frivolous patent suits than intended.

Gibbons will continue to track the progress of this proposed legislation, as well as other related IP law developments.

James J. Kang is an Apprentice in the Gibbons Intellectual Department. Thomas J. Bean, a Director in the Gibbons Intellectual Property Department, co-authored this post.

In Integrated Cards, following a bench trial, the Court found the laches presumption applied, and inferred unreasonable delay and prejudice because a former owner’s knowledge of the infringing activity in 1996 (10 years prior to the suit being filed in 2006) was imputed to the present owner/plaintiff. Id. at *18. The Integrated Cards court also discussed that economic prejudice was inflicted to the defendant because it made “extensive investments” in products. Id. at *18-19. Ultimately, the laches defense prevented any damages arising prior to that suit commencing. Id. at *20. The Court did not, however, find equitable estoppel which, unlike laches, is a complete bar to damages. Id. at *23.

Here, PhatRat’s complaint states that Riddell has had knowledge of PhatRat’s patents for over six years, based upon the license offer sent to Riddell in 2006. This is well within the time period discussed by the Integrated Cards court for the laches presumption to apply.

A further area for defensive diligence by Riddell pertains to PhatRat’s narrative that the three inventors of the PhatRat patents have over 100 patents and that they developed their idea “over time through a series of patent applications, beginning as early as 1994.” This assertion may provide Riddell fertile grounds for invalidity searching, notwithstanding the statutory presumption that the PhatRat patents are valid. Likewise, the nature of the purported “exclusive” license and transfer of “all substantial rights” from the inventors to PhatRat will be a threshold area of scrutiny. Given Integrated Cards holding, discovery from the PhatRat patents’ assignors on what they knew and when about the accused infringer’s products, can be expected to develop the laches and potentially equitable estoppel defenses.

Ralph A. Dengler is a Director in the Gibbons Intellectual Property Department. Andrew P. MacArthur, an Associate in the Gibbons Intellectual Property Department, and Uzoamaka N. Okoye, an Associate in the Gibbons Business & Commercial Litigation Department, co-authored this post.

Given this background, several interesting issues may arise if the lawsuit progresses.

For one, Facebook may seek to invoke the equitable doctrine of laches as a defense. In a recent Eastern District of Virginia case, the court reiterated that the doctrine of laches “may bar a patentee’s recovery of pre-filing damages where (1) the patentee knew of his claim, but unreasonably delayed in filing suit and (2) that the delay caused material prejudice to the alleged infringer.” I/P Engine, Inc. v. AOL Inc., 2:11-cv-00512-RAJ-TEM, Dkt. 800 at 2 (E.D. Va. Nov. 20, 2012). As to the first element, an unreasonable period of delay is not clearly defined, but depends on the circumstances and begins when the patentee first had “actual or constructive knowledge of the defendant’s potentially infringing activities.” Id. at 3. A presumption of laches arises, however, “if there is a delay of six years or more once a party has actual or constructive notice of possible infringement.” Id. at 4. As to the second element, material prejudice, the patentee may show economic prejudice where the defendant will lose “monetary investments or incur damages, which likely would have been prevented by earlier suit.” Id. at 6.

In this case, the ’316 and ’362 patents issued in 2001 and 2002, respectively, and the inventor, Van Der Meer, passed away in 2004. Title to the patents-in-suit likely passed to Van Der Meer’s family sometime in 2004. Facebook publicly launched its website within Harvard as early as 2004, made the service available to the general public around September 26, 2006, and launched the “Like” button around February 9, 2009. Facebook thus may argue that the Van Der Meer family, for whom Rembrandt now is acting as agent, knew of their claim that the Facebook website may infringe the patents-in-suit and unreasonably delayed in filing suit. This delay may be calculated as follows: over eight years from the Van Der Meer family inheritance of the patents-in-suit (i.e., ~ 2004 to February 2013), over six years from the public launch of Facebook (i.e., September 2006 to February 2013), and just under four years from the introduction of the “Like” button (i.e., February 9, 2009 to February 4, 2013). Notably, a presumption of laches may be applicable based on the first two time periods, and would require a fact intensive inquiry as to what was done and when. Moreover, the applicability of the doctrine of laches may ultimately hinge on the introduction of the accused “Like” button and other features of Facebook and AddThis’s products.

In addition, the relationship between the Van Der Meer family and Rembrandt raises possible issues pertaining to standing. The Federal Circuit has held that there are two types of parties to patent suits in terms of standing: “[1] those that can sue in their name alone; and [2] those that can sue as long as the patent owner is joined in the suit.” Morrow v. Microsoft, 499 F.3d 1332, 1339 (Fed. Cir. 2007). Under the first type, which apparently is relevant here, for a party to bring suit under their name alone, that party must be the patentee, patent owner, assignee, or an exclusive licensee with all substantial rights in the patent. 35 U.S.C. § 281; Morrow, 499 F.3d at 1339. Presumptively, Van Der Meer’s patent rights were devised or passed intestate to Van Der Meer’s heirs; and, Rembrandt, who is acting as an agent for the Van Der Meer family, is a proper assignee or exclusive licensee of the patents-in-suit. Nonetheless, the bona fides of such standing, and the assignment records underlying it, likely will be scrutinized.

Gibbons will continue to track the status of this case and will report any significant developments as they arise.

The Market-Alerts decision highlights a significant new consideration for parties litigating CBM patents, particularly where the plaintiff is a non-practicing entity. Defendants should strongly consider post-grant review proceedings for CBM as a component of their defense strategies. Stay tuned for additional developments.

Ralph A. Dengler is a Director in the Gibbons Intellectual Property Department. Thomas J. Bean, a Director in the Gibbons Intellectual Property Department, and Christopher Viceconte, a Director in the Gibbons Business & Commercial Litigation Department, co-authored this post.

The parties to the agreement could rebut this presumption if they can:

demonstrate by clear and convincing evidence that the pro-competitive benefits of the agreement outweigh the anti-competitive effects of the agreement.

If a violation is found, the bill proposes that each party be subject to a civil penalty up to 3 times the value the party received for violating the bill.

We previously reported on the FTC's petition to the Supreme Court to resolve the apparent circuit split on the issue, where the Eleventh Circuit (followed by the Second and Federal Circuits) upheld reverse payments as long as the anti-competitive effects fall within the scope of the exclusionary potential of the patent, absent sham litigation or fraud; but the Third Circuit (and FTC) believe such payments are presumptively anti-competitive.

Gibbons will continue to monitor and provide updates on this important upcoming decision.

Lisa H. Wang is a Director in the Gibbons Intellectual Property Department. Christopher H. Strate, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Production of Code

Source code is discoverable if the defendant fails to meet its burden by providing specific objections. For example, in Marketlinx Inc. v. Industry Access Inc., et. al., No. 12-03496 (C.D. Cal. Jan. 2, 2013) (Olguin, MJ.) (ECF No. 84), the Court compelled the defendant, Instinet, to produce source code for each version of the accused product dating back to June 2005. The defendant argued that the plaintiff never demonstrated the relevancy of code before the patent issue date (i.e., March 2008) and generally objected to discovery as “overly broad” and “unduly burdensome.” The Court viewed the latter argument as conclusory, and dismissed the former because it is the defendant’s (not the plaintiff’s) burden to defeat a discovery request and regardless “courts generally allow discovery to extend to events before the period of actual liability so as to provide context.”

To protect the confidential or possible trade secret nature of source code, courts will look to any protective order or confidential agreement in place and whether technical documents and other materials can substitute for the code. In Impulse Tech. Ltd. v. Nintendo of America, Inc., et. al., No. 11-02519 (N.D. Ohio Sept. 19, 2012) (ECF No. 120), the Court granted plaintiff’s motion to compel because, although the security of the source code is a “weighty concern[],” the confidentiality agreement entered into previously between the parties was sufficient. But, not all courts are likewise convinced. The Court in MagicJack Vocaltec Ltd. v. NetTalk.com, Inc., No. 12-80360 (S.D. Fla. Oct. 18, 2012) (ECF No. 51) denied plaintiff’s motion to compel source code without prejudice because the Court was not “persuade[d] . . . that the source code is necessary to fully analyze Defendant's accused devices” based on dueling declarations filed, and did not think the agreed upon protective order provided enough protection or an “impregnable wall” and thus believed disclosure could be fatal to defendant’s business. See also Generac Power Sys. Inc. v. Kohler Co., No. 11-1120 (E.D. Wisc. Jun. 6, 2012) (ECF No. 32) (“Source code for programs is often one of the most valuable assets a company possesses.”); MVS Studio Inc. et al v. Bingo Bean LLC et al., No. 10-07675 (C.D. Cal. Jun. 24, 2011) (ECF No. 73) (Segal, MJ.) (permitting the production of source code with the agreed upon caveat that any party who violates the protective order will dismiss its claims with prejudice).

Technical documents and other materials may be sufficient to prevent discovery of source code. The Court in Generac Power denied a motion to compel source code because it was concerned about the code being used by the Plaintiff to improve its products and believed that other substitutes or reasonable accommodations were provided by the defendant, including software demonstration and manuals, which in the Court’s opinion would provide the same information. But see Edward D. Ioli Trust, et. al. v. Avigilon Corp., et. al., No. 10-00605, 2012 U.S. Dist. LEXIS 164425, *5-10 (E.D.Tex. Nov. 16, 2012) (ECF No. 279) (rejecting defendant Vigilant’s local patent rule interpretation that it could produce technical documents rather than source code and noting that it is not the plaintiffs’ burden to identify any deficiencies in defendant’s document production).

Even where the source code is treated as a trade secret, it may be discoverable with a particularized showing. In Fleming v. Escort, Inc., No. 09-105, 2010 U.S. Dist. LEXIS 101938, *4-6 (D. Idaho Sept. 24, 2010) (ECF No. 78) the defendant produced redacted source code claiming the unredacted portions relate to non-infringing products. In opposition, the plaintiff submitted a declaration from a professor claiming that the unredacted portions were necessary to understand the code. This persuaded the Court despite the code being “obviously highly sensitive trade secret material . . . .” See also Nazomi Commcns., Inc. v. Samsung Telcoms., Inc., No. 10-05545, 2012 U.S. Dist. LEXIS 76468, *10-12 (N.D. Cal. Jun. 1, 2012) (ECF No. 192) (“Given the sensitivity of source code, the Court is not inclined to order broad disclosure absent a more specific showing.") (citation omitted).

Courts have also discussed how the source code should be produced, including weighing the costs of production. In ProconGPS, Inc. v. Star Sensor, LLC, No. 11-03975, 2012 U.S. Dist. LEXIS 154868, *3-4 (N.D. Cal. Oct. 29, 2012) (ECF No. 92) the Court ordered the defendant to produce source code in a format that is “searchable, hierarchical, or contained developer notes” but only “[t]o the extent that the source code was originally maintained in” that format. Defendant originally produced 28,000 pages on a disc and thus made it harder for the plaintiff to review the code. See also MedioStream, Inc. v. Microsoft Corp., No. 8-369, 2010 U.S. Dist. LEXIS 110420, *20-22 (E.D. Tex. Oct. 18, 2010) (Everingham IV, MJ.) (ECF No. 468) (requiring code be produced in intelligible format, but Microsoft is not required to invest a “great expense” (i.e., millions of dollars) to duplicate its code repository).

Inspections and Depositions

Inspections of and depositions on source code are no less discoverable. In MobileMedia Ideas LLC v. HTC Corp., et. al., No. 10-00112 (E.D. Tex. Oct. 19, 2012) (ECF No. 211), the Court ordered the defendants, HTC Corporation and HTC America, Inc., to print 7,700 pages of its source code. The parties had agreed in a protective order that source code would be made available for inspection with the defendants agreeing to print any pages requested. MobileMedia as part of its inspection identified 1,000 out of 4,000,000 source files (or approximately 7,700 pages) to print. HTC refused because its “crown jewel” could inadvertently be disclosed and because all those pages would not be used at trial. The Court dismissed the arguments because discovery is broader than whether the evidence will ultimately be admitted at trial and MobileMedia represented that its print requests are narrowly tailored and will protect the code per the protective order.

Depositions on source code are “standard fare in patent cases.” Vasudevan Software, Inc. v. MicroStrategy, Inc., No. 11-06637 (N.D. Cal. Aug. 22, 2012) (Grewal, MJ.) (ECF No. 86) (ordering deponent to testify on the source code produced); Nomadix, Inc. v. Hewlett-Packard Co., et. al., No. 9-08441 (C.D. Cal. Jun. 21, 2011) (Kenton, MJ.) (ECF No. 395) (discussing, in a tentative decision, security measures in using source code at deposition, such as taking the deposition where the source code is located or where a secure laptop has been transported by a bonded carrier), discussed in (C.D. Cal. Jun. 28, 2011) (Kenton, MJ.) (ECF No. 397).

Summary

A source code request is a major milestone in patent litigation that cannot be taken lightly by either party. For accused infringers, they should first investigate whether they have documents and other information which would basically make the code superfluous. Also, the alleged infringers should research whether under state law the code is considered a trade secret, as in some jurisdictions, this may shift the burden of persuasion for source code production to the other party.

Next, alleged infringers should negotiate a protective order outlining the code’s scope (e.g., date, accused products only, versions, change logs, portion of the code only), availability (e.g., location, people, and number and length of reviews), format (e.g., native, paper or electronic form), uses (e.g., depositions), bates number procedure, and disclosure (e.g., penalties, logging and claw back) to ensure the confidentiality of its highly valuable source code and to ensure that accused infringers are not overly burdened in terms of cost and time.

Meanwhile, the patentee has its own considerations in seeking source code, such as using narrowly tailored requests and using a technical expert to explain in detail why certain code is necessary despite documents previously produced. This latter part is important in those jurisdictions that shift the burden if the code is given trade secret status.

In short, parties on either side of the “v.” must be fully cognizant of the considerations and issues surrounding source code discovery.

Andrew P. MacArthur is an Associate in the Gibbons Intellectual Property Department.

According to the Board’s Trial Order, SAP had demonstrated that it was more likely than not that the claims of the ’350 patent were unpatentable under 35 U.S.C. §§ 101 and 102. The Board also issued a Scheduling Order stating that an oral hearing be conducted by October 1, 2013. Accordingly, the schedule should provide a written decision by the Board in about one year from the January 9, 2013 Trial Order, as mandated by statute.

Gibbons will continue to monitor developments and to provide counsel in this emerging area of patent law practice.

John J. Cahill is an Associate in the Gibbons Intellectual Property Department.

Otsuka Pharm. Co., Ltd. v. Apotex Inc. et al., (citing Otsuka Pharm. Co., Ltd. v. Sandoz, Inc., No. 3:07-cv-1000, 2010 U.S. Dist. LEXIS 132595, at *52-53 (D.N.J. Dec. 15, 2010)). In its decision, the Federal Circuit agreed that the POSA would have considered the only marketed antipsychotic compounds at the time - clozapine and risperidone - as viable lead compounds and not the carbostyril compound developed by Otsuka.

Furthermore, the Federal Circuit concluded that the District Court properly rejected the defendants’ proposed lead compounds. It held that a POSA would not have understood that each of a “laundry list” of carbostyril derivative compounds disclosed in a prior art reference to possess the reported central nervous system controlling effects. Nor would a POSA select a compound that was inferior to other test compounds or shown not to be an acceptable therapeutic candidate.

Charles H. Chevalier is an Associate in the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Judge Andrews also found fault with AVM’s expert’s comparison of other AVM licenses to opine on what a reasonable royalty should be. In particular, the Court took exception to the expert’s reliance on prior licenses to entire patent portfolios, since only a single patent was before him in this case. The Court also discredited the expert’s reliance on an agreement involving a single patent, because the expert failed to compare the benefits and value of the technology covered there.

The Court’s “gate keeper” role under Federal Rule of Evidence 702, Daubert and its progeny is well-settled. Parties on either side of the “v.” must be cognizant of the standards governing expert testimony admissibility, particularly when it comes to patent damages. Additionally, the patentee, in seeking to maximize its claimed damages under the EMV rule, may have to conduct more discovery of non-party customers than in the past to support a claim that its patented feature drives the demand, given the possible significant difference in royalty damages based on the entire product as opposed to the apportioned, patented feature alone.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Christopher Viceconte, a Director in the Gibbons Business & Commercial Litigation Department, and Andrew P. MacArthur, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

We are also awaiting the launch of the Intellectual Property Exchange International, Inc. (IPXI) - the first exchange focused on IP.

Gibbons will continue to monitor these and other IP law developments. We wish all our readers a Happy New Year!

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Jillian A. Centanni, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

The Court agreed with Gilead -- and the above-listed District of Delaware opinions -- that a later-issued, earlier-expiring patent cannot invalidate an earlier-issued, later-expiring patent on the basis of obviousness-type double patenting. The Court reasoned that the ’375 patent cannot serve as a reference patent since it was issued after, and terminates before, the ’483 patent, and therefore does not unlawfully extend Gilead’s right to exclusivity. Accordingly, the Court found that the lifespan of Gilead’s patents was not a result of gamesmanship, but instead resulted from changes to the patent laws.

Todd M. Nosher is an Associate in the Gibbons Intellectual Property Department. Ralph A. Dengler, Counsel to the Gibbons Intellectual Property Department, co-authored this post.

Judge Essex recommended the issuance of a Limited Exclusion Order rather than a General Exclusion Order, reasoning that a General Exclusion Order under Section 337(d)(2) was not the appropriate remedy unless a complainant established a “pattern of circumvention” of a Limited Exclusion Order. The Commission Investigative Staff agreed with Judge Essex that a Limited Exclusion Order sufficed.

Despite these conclusions, Lutron continued to argue that a General Exclusion Order was warranted and that it was the only remedy providing permanent relief. Lutron maintained that previous ITC investigations relating to the products at issue had proven ineffective, as non-respondent infringers had since entered the market. As a result, Lutron argued that a Limited Exclusion Order would have little long term effect and required it to file additional complaints. In support of its argument, Lutron submitted additional evidence to the ITC that had not yet become available when it argued before Judge Essex. Specifically, Lutron provided the names of twenty-one (21) new infringers who had entered the U.S. market and also identified numerous potential entrants.

Ultimately, the ITC was persuaded by Lutron’s arguments and found that the evidence satisfied the requirements of Section 337(d)(2) relating to the issuance of a General Exclusion Order. In doing so, the ITC found Lutron had presented compelling evidence of an increased demand for the infringing products, along with a large and growing number of non-respondent foreign manufacturers intent on marketing and distributing the infringing products in the US. Also, the ITC accepted Lutron’s arguments that these infringers and potential infringers were not easily identifiable as they engaged in frequent name changes and used numerous intermediaries. The ITC ultimately disagreed with the Commission Investigative Staff’s conclusion that the barrier for entering the relevant market is relatively low, and found that Judge Essex had used the incorrect evidentiary standard and misinterpreted Section 337(d)(2) by requiring a “pattern of circumvention” as opposed to “circumvention.”

The ITC’s decision here seemingly bodes well for complainants in Section 337 actions, given the Commission’s finding that a complainant need not prove a “pattern of circumvention,” but rather, “circumvention,” to establish grounds for issuance of a General Exclusion Order.

Gibbons will continue to monitor developments in this important area of ITC law.

Owen J. McKeon is a Director in the Gibbons Intellectual Property Department. Ralph A. Denger, Counsel to the Gibbons Intellectual Property Department, co-authored this post.

Ultimately, the Court struck the offending parts of New Paradigm’s pleading, but granted leave to amend.

Again, and continuing the post-Twombly/Iqbal era trend, the lesson for practitioners is to exercise vigilance as to your pleadings.

Lisa H. Wang, is an Associate in the Gibbons Intellectual Property Department. Ralph A. Dengler, Counsel to the Gibbons Intellectual Property Department, co-authored this post.

In affirming the dismissal of RTI’s complaint and finding pre-litigation “no challenge” provisions void under Lear, the appeals panel reasoned that there is no discovery available (like in litigation) to properly assess and then challenge validity. The Court did, however, leave open whether similar post-litigation “no-challenge” provisions could be enforced.

The kingdom of Lear, however, might be short lived as RTI earlier this month petitioned for a writ of certiorari. RTI believes that the Second Circuit’s decision conflicts with the Federal Circuit’s ruling in Flex-Foot Inc. v. CRP Inc., 238 F.3d 1362 (Fed. Cir. 2001), which held that the enforcement of settlement agreements and res judicata outweigh the policy of challenging patent validity. Just recently, the Supreme Court requested that Speakeasy respond to the petition by early December. As background, generally most of the respondents (e.g., Speakeasy) initially waive their right to respond; however, before deciding whether to grant or deny certiorari, the Court in a select number of cases may request a response.

Gibbons will stay tuned to developments on this important front.

Andrew P. MacArthur is an Associate in the Gibbons Intellectual Property Department. Ralph A. Dengler, Counsel to the Gibbons Intellectual Property Department, co-authored this post.

Belkin took its case to the Federal Circuit and argued that once the Director found there was a substantial new question of patentability in view of one reference, then the examiner must review the claims in view of all of the prior art provided to it, including the three other references. In support of its position, Belkin relied on the fact that the Patent Office instructs the examiner in the Code of Federal Regulations (CFR) and Manual of Patent Examination and Procedure (MPEP) to conduct a “thorough investigation of the available prior art” during reexamination and to conduct reexamination “in view of all prior art.” (See 37 CFR §1.104; MPEP §2648.)

The Court, analyzing the statutory provisions for inter-partes reexam (pre-amendment under the America Invents Act) noted that 35 USC §312(a) provides that:

The Director must make a determination “whether a substantial new question of patentability affecting any claim of the patent is raised by the request [under § 311], with or without consideration of other patents or printed publications.” 

The Court also noted that 35 USC §313 provides that:

After the Director has determined that there is a substantial new question of patentability affecting a claim with respect to prior art, an inter partes reexamination is ordered “for resolution of the question.” 35 U.S.C. § 313. The question to be resolved is the substantial new question of patentability determined by the Director.

Based on the statute, the Court first concluded that the examiner could not apply prior art that the Director determined did not raise a substantial new question of patentability. The Court then went on to conclude that inter-partes reexam “may not include other prior art than what constituted the basis of the Director’s determination of a substantial question of patentability.” However, the Court did reserve judgment on whether such a standard would apply if the patent owner amended the claims during reexamination.

As to Belkin’s reliance on the MPEP and the CFR, the Court responded that a “casual reference to ‘all prior art’ in the MPEP or the regulations cannot be interpreted to trump the statutory command. Statutes rank higher than regulations, which rank higher than the MPEP.”

This decision not only affects the scope of inter partes reexam, but may also affect the scope of ex-parte reexam. Like inter-partes reexam, the statue for ex-parte reexam §303 provides that:

The Director will determine whether a substantial new question of patentability affecting any claim of the patent concerned is raised by the [reexamination request or the Director’s own determination].

The statute for ex-parte reexam §304, similar to the inter-partes section, provides that if:

The Director finds that a substantial new question of patentability affecting any claim of a patent is raised, the determination will include an order for reexamination of the patent for resolution of the question.

As a result, per the Federal Circuit’s analysis, it appears that the scope of ex-parte reexamination is also limited to the prior art that the Director determines raises a substantial new question of patentability. This may mean that an examiner may not apply additional prior art submitted during any reexamination proceeding against the claims subject to reexam, whether ex-parte or inter-partes. If an IDS disclosing additional prior art references is submitted to an examiner during reexamination, the examiner may be precluded from considering those references.

This decision may also affect the burden a defendant faces when relying on prior art that the examiner considered during reexamination. If the Director did not identify the prior art as the basis for reexamination, a defendant may argue that the burdens traditionally associated with asserting invalidity based on such prior art cannot apply because the examiner was acting outside the scope of his or her jurisdiction.

Gibbons will continue to monitor developments on this important front.

Christopher H. Strate is an Associate in the Gibbons Intellectual Property Department.

Travel Caddy countered that because the validity of the ’992 patent had not been included in the complaint involving the ‘992 parent patent, and no prior art or other information had been presented, there was nothing material in the litigation to disclose to the PTO. The CAFC agreed, concluding that the District Court’s ruling was in error. The CAFC held that there was not clear and convincing evidence that information material to patentability of the claims in the ’104 patent application was withheld, regardless of what might have been asserted as “relevant” to the application. Similarly, the CAFC ruled there was no clear and convincing evidence of any deceptive intent by Travel Caddy.

This decision further establishes that materiality and deceptive intent are separate requirements for which the burden for each must be met to prove inequitable conduct in a post-Therasense world. However, this heightened standard should not give practitioners a false sense of believing that inequitable conduct is dead. Rather, a fact specific inquiry regarding materiality, by omission or commission, is required.

Charles H. Chevalier is an Associate in the Gibbons Intellectual Property Department. Ralph A. Dengler, Counsel to the Gibbons Intellectual Property Department, co-authored this post.

In a dissenting opinion authored by Judge Linn (and joined by Judges Dyk, Prost and O’Malley), Judge Linn took issue with the majority’s holding that induced infringement may be found absent a finding of direct infringement. Judge Linn asserted that direct infringement is governed by section 271(a) of the Patent Act, and that section 271(a) in fact requires that “all steps of a claimed method be practiced, alone or vicariously, by a single entity or joint enterprise.” In essence, Judge Linn expressed that, opposed to the majority’s holding, “[the] well established doctrine of vicarious liability is the proper test for establishing direct infringement liability in the multi-actor context.”

In a separate dissenting opinion, Judge Newman disagreed with the opinions of the majority and Judge Linn, opining that “[the] en banc court has split into two factions, neither of which resolves the issue of divided infringement.” Judge Newman argued that the majority’s holding, as a “spontaneous judicial creation” that “interactive and collaborative infringement is not actionable,” was wrong and failed to address the issue on which the cases were taken en banc (and which was briefed by a considerable number of amici curiae). Judge Newman disagreed with Judge Linn’s assertion that section 271(a) requires infringement to be performed by a single entity, arguing rather that direct infringement is properly found with the performance of all claimed steps by multiple actors. Addressing the topic of remedies, Judge Newman suggested that each of the actors would be held liable in accordance with traditional tort principles as contributory infringers.

With the lack of agreement by a substantial majority of the panel, we suspect that there is a reasonable likelihood that one or more of the parties may successfully petition the Supreme Court to reconsider the en banc decision. In the meantime, the present holding may make it easier for method patent holders in, for example, the interactive computer services, medical diagnostics and personalized medicine spaces, to enforce their patents. In addition, practitioners should pay attention to the majority opinion’s instructions on remand, and particularly the need to demonstrate knowledge of the asserted patent, inducement of the steps claimed in the patent and that these steps were performed, in order to find liability.

Thomas J. Bean is Counsel to the Gibbons Intellectual Property Department. Ralph A. Dengler, Counsel to the Gibbons Intellectual Property Department, co-authored this post.

As part of the Court’s analysis, it evaluated five factors under federal Ohio law to determine whether the attorney-client privilege was waived for documents containing alleged legal communications. (The Court’s review of the e-mails suggested that attorney-client communications were implicated.)

Under the first factor, the Court found that Medex did not take reasonable precautions to prevent disclosure because it failed to provide a privilege log and failed to state “who reviewed the production . . . [and] what steps were taken to review the documents for privilege or whether the production was different in form from prior productions.” The number of inadvertent disclosures by Medex was also of concern to the Court under the second factor, given that over 4% (347/7,500) of the production represented inadvertent disclosures. Because the documents were relevant to IPI’s claims as well as not marked confidential (and not listed in a privilege log as discussed above), the Court found that the magnitude of disclosure was high under the third factor.

The fourth factor, like the previous three, favored waiver because Medex did not “follow the procedure in Federal Rule of Civil Procedure 26(b)(5)(B)” as it did not “identify any particular documents covered by the privilege, did not provide a proper privilege log and, beyond conclusory statements, Medex did not state a basis for the claimed privilege.” Under the last factor, the interests of justice, the Court relied on many of the same grounds discussed above as well as stating that Medex provided a “relatively weak response” and IPI relied on the disclosures. In sum, the Court found waiver and thus the emails produced would remain as such.

Discovery, and particularly document review, is one of the most expensive parts of litigation, and especially patent litigation. And, even with proper document review standards in place, as the name implies, inadvertent disclosures sometimes do occur. What does this all mean for practitioners?

A party needs not only to have a document review procedure in place that shows a sufficient review, but also to immediately provide a privilege log (but not a generic one), and seek to “claw back” any document(s) if inadvertent disclosure does occur. In litigation, each party is constantly working hard to discover that one document or obtain that one deposition quote or other advantage that will alter each party’s legal position vis-à-vis the other. For lawyers -- and clients -- it is tough to accept any such game changer based on something that could have been prevented with a little more factual and/or legal investigation.

Andrew P. MacArthur is an Associate in the Gibbons Intellectual Property Department.

The Public Patent Foundation’s amicus curiae brief focuses on patent law issues, and ultimately sides with Yums. The heart of its argument is that undeserved registrations harm the public because they “can be used to threaten and impede otherwise permissible, socially desirable, conduct.”

Gibbons will continue to monitor developments in this case, and its impact on Federal Court jurisdiction.

Catherine M. Clayton is a Director in the Gibbons Intellectual Property Department. Jillian A. Centanni, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Without considering whether 35 U.S.C. § 299 is applicable to additional defendants added after enactment of the AIA in cases filed prior to the AIA, the Court ruled that the defendants were not properly joined under Rule 20 or 35 U.S.C. § 299(a)(1). The Court’s rationale was that the claims against each defendant do not relate to “the same transaction, occurrence, or series of transactions or occurrences.” Memorandum Opinion and Order at 3, Norman IP Holdings v. Lexmark, 6:11-cv-00495-LED, (No. 253) (E.D. Texas August 10, 2012).

Judge Davis then ordered consolidation of the defendants under Rule 42 “as to all issues, except venue, through pretrial only” and noted that if transfer is appropriate in any of the cases, the Court would transfer the case after the Markman phase of the proceedings. Id. at 7. In support of his ruling, Judge Davis noted that consolidating the cases and retaining the cases through Markman proceedings would (1) conserve “judicial resources by requiring only one district court to address the underlying disputed claim term[s]” and (2) ensure that related cases “proceed initially on a consistent claim construction, thus avoiding inconsistent rulings.” Id. at 8. Judge Davis, however, cautioned that the ruling as to consolidation was not an invitation for the defendants to file additional venue transfer motions. Judge Davis noted that the Court has approximately 40 such motions to transfer pending. And, these 40 motions equate to approximately $12 million dollars spent by the parties “on an issue that does not move the ball down the field, but only seeks a new field upon which to play.” Id. at 8-9.

After enactment of the AIA, many plaintiffs have opted to “serially file multiple single-defendant . . . cases involving the same underlying patents.” Id. at 6. This presents administrative challenges for the Court and can lead to waste of judicial resources. As noted by Judge Davis, Rule 42 provides a mechanism to conserve judicial resources “via consolidation for common issues such as pretrial, Markman, or trial.” Id. at 7. Thus, parties to multiple single-defendant actions asserting the same patent(s) should consider the possibility of consolidation under Rule 42.

Yums further argues that Nike failed to carry its “heavy burden” of showing mootness, and notes that the lower court’s decision is inconsistent with “the strong federal policy favoring the full and free use of ideas in the public domain,” citing to Lear, Inc. v. Adkins, 395 U.S. 653, 674 (1969) (the seminal case invalidating “licensee estoppel,” that is, the notion that a patent licensee is estopped from challenging the validity of the underlying patent); as well as prior Supreme Court precedent rejecting restrictions on a litigants’ ability to challenge in federal court “the validity of claimed rights to exclude use of design and utilitarian conceptions.”

Gibbons will continue to monitor developments in this case, and its impact on federal court jurisdiction.

Catherine M. Clayton is a Director in the Gibbons Intellectual Property Department. Owen J. McKeon, a Director in the Gibbons Intellectual Property Department, and Ralph A. Dengler, Counsel to the Gibbons Intellectual Property Department, co-authored this post.

The Akamai and McKesson rulings followed earlier decisions in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), and later Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008), where the Court similarly curtailed the ability of a patent holder to assert joint infringement.

The en banc decisions from the Akamai and McKesson rehearings are anticipated to issue shortly, and surely will shape the playing field for joint infringement claims moving forward.

Gibbons will report on these decisions as they issue, with commentary regarding the repercussions for practitioners and the industry.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Thomas J. Bean, Counsel to the Gibbons Intellectual Property Department, co-authored this post.

Five circuits previously addressed the legality of reverse payment settlements in Hatch-Waxman actions. While earlier decisions in the D.C. Circuit and the Sixth Circuit held reverse payment settlements to be illegal, those decisions were based on agreements that extended beyond the scope of the patents-in-suit. See Andrx Pharms., Inc. v. Biovail Corp. Int’l, 256 F.3d 799 (D.C. Cir. 2001); and In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003). The Eleventh, Second and Federal Circuits held that reverse payments, if limited to the exclusionary zone of the patent, were acceptable. The Third Circuit in In re K-Dur Antitrust Litig., without qualification, held that reverse payments between patent holders and generic competitors constitute prima facie evidence of an antitrust violation. In its decision, the Third Circuit squarely rejected the “scope of the patent test” as limiting antitrust law, and held that reverse payments are contrary to public policy and Supreme Court precedent.

In reaching its decision, the Third Circuit placed a premium on public policy issues, stressing the importance of the Court in eliminating weak patents. Its view is that the scope of the patent test tends to protect companies with bigger wallets, that could pay off multiple challengers rather than risk losses in litigation. The Court rejects the scope of the presumption of patent validity, stating that “this presumption is intended merely as a procedural device and not a substantive right of the patent holder.” Slip op. at 27. The Court views patent validity as simply a “legal conclusion reached by the Patent Office,” noting that many patents are later found to be invalid or not infringed. Id.

The Third Circuit also emphasized the underlying goal of Hatch-Waxman - to “increase the availability of low cost generic drugs.” Slip op. at 31. In rejecting any analysis of the patent suit, the Court instead adopted the FTC’s view that any payment represents a quid pro quo for deferring entry beyond that which would have occurred as part of a reasonable litigation compromise. Id. at 33. The Court also sought to buttress its decision with the Supreme Court’s decision in Edward Katzinger Co. v. Chi. Metallic Mfg. Co., analogizing reverse payments with the situation where a licensor cannot be estopped from challenging a patent with a violative price fixing provision. Slip op. at 29 (citing 329 U.S. 394 (1947)).

The Third Circuit decided to enter the fray and has set up a clear circuit split, thus inviting the Supreme Court to join the issue. Practitioners should consider the ramifications of this decision for clients on both sides of the negotiation table. Gibbons P.C. will continue to track this reverse payment issue, including the likely certiorari petitions to the Supreme Court.

Sheila F. McShane is a Director in the Gibbons Intellectual Property Department. Jillian A. Centanni, an Apprentice in the Gibbons Intellectual Property Department, co-authored this post.

There to meet these expanding biotech clients' needs, the Gibbons Intellectual Property Group offers the largest intellectual property group among all general practice law firms in New Jersey, including ranks of attorneys with life sciences experience prepared to counsel on all aspects of IP law. Bill Epstein, Charlie Gaglia, George Gould, David De Lorenzi, Sheila McShane, Hain Swope, Estelle Tsevdos, Lisa Wang, Charles Chevalier, Jay Cahill and Jillian Centanni, among others, bring diverse and deep industry and legal experience to the firm’s IP practice, with vast acumen in handling issues from IP clearance, procurement to enforcement, monetization and litigation.

• In Re: Maximum Integrated Prods., Inc. Patent Litigation, MDL No. 2354 (June 11, 2012) (centralizing in W.D. of Pennsylvania fourteen actions pending in five districts and noting, inter alia, that Section 1407(a) does not require a “complete identity” or a “majority of common factual or legal issues” as a prerequisite). Importantly, the Panel specifically rejected respondents’ argument that the AIA “automatically trumped” the pretrial efficiencies that can be gained from MDL centralization;
• In Re: Parallel Networks, LLC (‘111) Patent Litigation, MDL No. 2355 (June 12, 2012) (centralizing in E.D. Texas nine actions pending in two districts and noting, inter alia, that common questions of fact existed and centralization would serve convenience and efficiency considerations);
• In Re: Nebivolol (‘040) Patent Litigation, MDL. No. 2364 (June 12, 2012) (centralizing in N.D. Illinois two actions pending in two districts and recognizing, inter alia, that actions involving complex pharmaceutical patents and generic challenges to same are “particularly well-suited” for MDL transfer);

IP practitioners should keep MDL in mind in multi-defendant suits, and perhaps more so in this era of the AIA.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

The ’148 Patent covers Mintz’s Jif-Pak products. Package Concepts & Materials, Inc., (“PCM”) filed a declaratory judgment action against Mintz, who in turn sued PCM for infringement alleging that PCM’s knitted meat encasement products infringe the ’148 Patent. In ruling on cross-motions for summary judgment, the District Court granted PCM’s and denied Mintz’s motions on validity and infringement.

The district correctly found all limitations in the prior art except the disputed limitation, that “each longitudinal and lateral strand of the netting arrangement intersect in locking engagement with one another.” The Court further determined that it would have been obvious to a person skilled in the art to include the “intersecting in locking engagement” claim limitation. Under a common sense analysis, the lower court reasoned that providing such a locking engagement for the intersection of each lateral and longitudinal strand would have been obvious to try when a checkerboard pattern on a meat product is desired.

On appeal of invalidity, the Federal Circuit reversed finding the District Court overreached and made a clear error to hold that it would have been “obvious to try” a locking engagement under a common sense approach. Slip Op. at 8. Common sense is nothing more than the knowledge and skill set of an ordinary meat encasement artisan. Id. at 8-9. The District Court used knitting references as analogous art to that of the claimed invention. Id. at 8. But the Court discounted that the relevant art was meat encasement. Id. Absent a record showing the pivotal knowledge resided within one of skill in the relevant art, the Federal Circuit held the lower court’s view was prohibited reliance on hindsight.

In overruling the obvious determination, the Federal Circuit found that the District Court also erred by using the invention to define the problem that the invention solves. The District Court had ruled that in solving the problem of forming a checker-board pattern, it would have been obvious to try the claimed solution, i.e., “fix each point of intersection.” Id. at 9. Chief Judge Rader construed this framing of the problem using the patented solution as another forbidden use of hindsight. Id.

Redefining the problem, the Federal Circuit held that PCM must prove by clear and convincing evidence that a person of ordinary skill in the art of meat encasement at the time of the invention would have recognized the problem and found it obvious to produce the meat encasement structure disclosed in the ’148 Patent to solve that problem. Id.

Finally, the Federal Circuit chided the lower court for failing to give substantive consideration to the objective indicia of non-obviousness. Id. at 10-11. Mintz presented considerable evidence of non-obviousness, including unexpected results, expert skepticism, copying, commercial success, praise by others, failure by others, and long-felt need. Id. at 11-12. The Federal Circuit characterized the objective indicia of non-obviousness as a powerful tool for avoiding subconscious reliance on hindsight and deemed its consideration as mandatory. Id. at 10.

The lower court had held PCM’s products do not infringe the ’148 Patent because they do not contain the claimed limitation requiring “longitudinal and lateral strands of said netting arrangement each intersecting in locking engagement with one another to form a grid-like pattern comprising a plurality of four-sided shapes.” Id. at 15. The CAFC upheld this part of the order of non-infringement because the PTO granted the ‘148 Patent based on the claim limitation that each longitudinal and lateral strand intersect in locking engagement.

Ultimately, the Federal Circuit could have simply upheld non-infringement. Yet, Mintz afforded the Court the opportunity to circumscribe hindsight in an “obvious to try” analysis.

John J. Cahill is an Associate in the Gibbons Intellectual Property Department.

The Court was likewise unmoved by Apple’s damages case. According to Judge Posner, Apple’s expert failed to show that a reasonable commercial design-around option was available to Motorola to support its damages claim, thus imparting a “reasonableness” aspect to the damages inquiry. Apple argued that even if it could not prove actual damages, it should be entitled to reasonable royalties. This argument did not persuade the Court which stated, “the statute 35 U.S.C. § 284 requires the award of a reasonable royalty, but to argue that this requirement exists even in the absence of any evidence from which a court may derive a reasonable royalty goes beyond the possible meaning of the statute.”

In sum, the Court’s decision left two of the world’s largest technology companies at a litigation stalemate for now. Until we hear from the Federal Circuit, patent litigants should pay heed to this decision in preparing proofs for damages and injunctions.

Robert E. Rudnick is a Director in the Gibbons Intellectual Property Department. Lisa H. Wang, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

In the patent context, a patent holder can divest a Federal Court of Article III jurisdiction over a defendant’s counterclaim for declaratory judgment of patent invalidity by covenanting not to sue. This verity was based on, e.g., Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1059-60 (Fed. Cir. 1995), and its progeny. More recently, however, the Federal Circuit has considered abandoning this Super Sack rule, as urged in a dissent by Judge Dyk. See Benitec Australia, Ltd. v. Nucleonics, Inc., 497 F.3d 1340, 1350-55 (Fed. Cir. 2007) (Dyk, J., dissenting). The decision also will potentially resolve a perceived split on the issue between the Second and Ninth Circuits.

If the Supreme Court agrees with the Yums Petitioners, the so-called “Super Sack covenant” would no longer be operative, potentially making it more difficult for patent owners to withdraw their patents once in litigation.

Practitioners should keep a careful eye out for this decision, and consider its ramifications for clients on both sides of the negotiations table.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Owen J. McKeon, a Director in the Gibbons Intellectual Property Department, co-authored this post.

We previously reported on decisions that scrutinized the sufficiency of various pleadings at the District Court level. Please see here and here.

An investigation from the International Trade Commission also provides another important caution, but this time for defendants. In Certain Dynamic Random Access Memory and NAND Flash Memory Devices and Products Containing Same, 337-TA-803 (April 11, 2012, Order No. 36) , the Court held that the respondents (which are the defendants in an ITC investigation) could not amend their notice of prior art because they failed to show why they “could not have uncovered publicly available patents and articles from widely known journals prior to” the deadline.

This ITC investigation shows that defendants--especially in the ITC where investigations move quickly--must promptly locate prior art or run the risk of eventually being precluded. The difference though between this investigation and In re Bill of Lading is that in the former the defendants had a limited amount of time to research prior art, while in the latter, the plaintiff possibly had the option of filing at a later date. Moreover, because the invalidity defense is of course critical to any defendant’s case, the loss of potentially explosive prior art will significantly alter each party’s strategic position whereas allegations of indirect infringement may be amended at a later date depending on the procedural posture of the case.

Andrew P. MacArthur is an Associate in the Gibbons Intellectual Property Department.

Practitioners need to be aware of this decision, as well as Rule 4(k)(2)’s applicability, whether or not it is raised by the parties. Indeed, Rule 4(k)(2) is an important factor in the calculus of determining personal jurisdiction over a foreign defendant accused of patent infringement.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

This denial was predictable based on last month’s Supreme Court decision in Kappos v. Hyatt. As we reported, in Kappos, regardless of whether “new” evidence previously was or could have been presented during proceedings before the PTO, the District Court, in a § 145 appeal (a companion to a § 146 appeal), must review any related factual conclusions affected by this new evidence de novo without giving deference to any prior decision or finding of the PTO.

Thus, consistent with Kappos, here, the District Court merely reviewed the evidence before the PTO with the “new” evidence presented solely in District Court de novo. Therefore, in this case, the high court had no cause to review the level of deference afforded administrative rulings.

John J. Cahill is an Associate in the Gibbons Intellectual Property Department.

A recent Wall Street Journal article on Twitter’s plan cited the “buzz” Twitter has started among principals at some tech start-ups, along with their insights on the present patent system, and the costs and inefficiencies inherent there. The article described that the IPA is viewed by some as a positive initiative to stem the chilling effect patent litigation has on innovation. Critics of Twitter’s move, the article reported, describe it as a public relations ploy, a “P.R.-and-pray strategy,” to discourage suits being brought against it. The impact of this development will be closely watched.

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

EMG Tech., LLC v. Dr. Pepper Snapple Group, Inc. Judge Davis denied in part and granted in part defendant’s motion to stay proceedings pending reexamination of two patents. As to the denial, the subject patent had reissued with amended claims, so the reason for staying the case relating to that patent was moot. Regarding the other patent, the Court noted that the reexamination itself arose in another patent action, not with the extant defendant, and the PTO had finally rejected all the claims. The Court thus ruled that a stay would not unduly prejudice the patentee and its ability to enforce its patent. The Court also found that a stay would simplify the issues in the case, which was consolidated with another case for purposes of Markman, and which involved the above reissued patent only. Finally, because considerable discovery still remained, the Court held this factor weighed slightly against a stay, but weighing all the factors as a whole, nevertheless granted the stay as to the second patent.

SSL Svces., LLC v. Citrix Sys., Inc. Judge Gilstrap denied defendant’s motion to stay a 2008 litigation pending ex parte reexamination initiated over one year after the case began. First, the Court found that patentee waited four years to enforce its patent rights, and that the pending reexamination might not finish until well after trial. (Citing Ambato, above.) As to the second factor, regarding simplification of issues, the Court reiterated its reasoning that it was unwilling to adopt a per se rule to stay cases pending reexamination, remarking that “the interests of justice will be better served by dealing with that contingency when and if it occurs, rather than putting this case indefinitely on hold.” (Again citing Ambato.) Finally, the Court found that the discovery and trial factor favored denying the stay, where over four million pages of discovery had been exchanged, substantive pre-trial procedures had been completed and just the scheduled trial remained to be carried out.

Practitioners thus should consider these decisions and their underlying factors when litigating patent cases.

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

Finally, as to the declaratory judgment counterclaims, defendant asserted counterclaims of non-infringement and invalidity, citing 28 U.S.C. § 2201 et seq., the Federal Declaratory Judgment Act, for the former. Here the court requested that defendant provide “a brief explanation . . . of the reason that patent infringement cases so often spawn counterclaims seeking declaratory judgments--counterclaims that are nothing more than the flipside of the complaints involved,” noting that “the practice cannot stem from any requirement in 35 U.S.C. §285, which [defendant’s] counsel cite as supporting part of the relief sought, for that provision permits the award of fees to the ‘prevailing party’ without reference to which side of the ‘v.’ sign that party occupies.

The decision there is consistent with other recent district court orders, such as Ferring v. Watson Labs, where the District of Nevada Court held the affirmative defense of invalidity was insufficiently pled; GemcoII LLC v. Electroimpact Inc., where the District of Kansas Court dismissed the counterclaims of invalidity and patent misuse as inadequate; and Armstrong Pump Inc. v. Hartman et al., where the Western District of New York Court dismissed counterclaims of patentability and invalidity for lacking adequate factual support.

The takeaway from all these cases is that practitioners on both sides of the “v.” must pay careful attention to the adequacy and sufficiency of their respective pleadings.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Lisa H. Wang, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

“[T]here are no limitations on a patent applicant’s ability to introduce new evidence in a §145 proceeding beyond those already present in the Federal Rules of Evidence and the Federal Rules of Civil Procedure.” Kappos, slip op. at 14. Specifically, the Court rejected importing principles of the Administrative Procedue Act, which provides that review is limited to the administrative record and affords deference to the administrative rulings. “[I]f new evidence is presented on a disputed question of fact,the district court must make de novo factual findings that take account of both the new evidence and the administrative record before the PTO.” Id. If no new evidence is introduced, then the Court reviews the action on the administrative record and deference will be given to PTO factual findings subject to the agency’s standard of review. As with any evidence introduced in a civil action, if the District Court questions its credibility or reliability based upon the proceedings before and findings of the Patent Office, the District Court may give less weight to evidence introduced by the applicant in a § 145 action. The Court rejected a heightened standard proposed by the Director, where only new evidence that could not reasonably have been provided to the agency in the first instance is admissible in a § 145 action. The Court also rejected the Director’s proposed clear error standard of review.

In concurrence, Justice Sotomayor, joined by Justice Breyer, opined that an applicant should be estopped from later introducing evidence it had purposely withheld, but “when a applicant fails to present evidence to the PTO due to ordinary negligence, a lack of foresight, or simple attorney error, the applicant should not be estopped from presenting the evidence for the first time in a §145 proceedings.” Id. at 2-3 (Sotomayor, J., concurring). Notably, Hyatt filed the application before the 1995 rule change and, therefore, any delay in issuance likely means additional revenue persisting for 17 years from the issue date.

The significance of a § 145 civil action is that it affords an applicant the opportunity to introduce new evidence after the close of the administrative proceedings. In practice, this ruling allows an applicant to proceed with an ex parte appeal as part of regular prosecution practice with the knowledge that a civil action, whereby new evidence, such as expert testimony or test data obtained after proceedings before the Board, is available. This is especially important in light of limitations in which testimony may be presented in an ex parte appeal.

With the Kappos v. Hyatt decision, patent practitioners now have new considerations when facing a patent application rejection.

John J. Cahill is an Associate in the Gibbons Intellectual Property Department.

Although the Eastern District of Texas’ proposed e-discovery order differs from the Federal Circuit’s Model Order, it reflects the intentions Chief Judge Rader had when he introduced the Model Order. Among the Chief Judge Rader’s other comments on the topic, he noted that some type of limitation on e-discovery is called for, regardless of the method and how closely it follows the Federal Circuit’s actual model.

Gibbons will continue to monitor e-discovery developments, and their impact on our clients.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Charles H. Chevalier, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

In 1996, Zoltek sued the United States under 28 U.S.C. § 1498(a), alleging that the invention covered by the RE ‘162 Patent was infringed because the resulting product was used or manufactured by or for the United States. The United States moved for partial summary judgment and argued that Zoltek’s claim arose in a foreign country and therefore, its sovereign immunity was not waived under 28 U.S.C. § 1498(c). In Zoltek I, the trial court held that § 1498 “does not [waive the Government’s sovereign immunity] as to all forms of direct infringement as currently defined in 35 U.S.C. § 271.” 51 Fed. Cl. 828, 837 (2002). Subsequently, both parties appealed after the trial court stayed Zoltek’s taking claim and denied the government’s motion in Zoltek II. 58 Fed. Cl. 688, 707 (2003). Then, the Federal Circuit reversed the trial court’s ruling that Zoltek could allege patent infringement as a Fifth Amendment taking under the Tucker Act and also held that Zoltek’s infringement allegations were precluded by § 1498, but for different reasons than the trial court. Zoltek III, 442 F.3d 1345, 1353 (Fed. Cir. 2006). Specifically, the majority stated § 1498(a) was the basis without looking at § 1498(c), and remanded the case.

On remand, Zoltek sought leave to amend its complaint to add a claim against Lockheed for infringement of the RE ‘162 Patent’s method claims under 35 U.S.C. § 271(g) and to transfer the claim to the Northern District of Georgia under 28 U.S.C. § 1631. The trial court held that Zoltek lacked jurisdiction against the government, but Zoltek had jurisdiction against Lockheed. Zoltek IV, 85 Fed. Cl. 409, 413, 418 (2009). As a result of the trial court’s ruling, Zoltek amended its complaint and the Court of Federal Claims certified to the Federal Circuit for interlocutory appeal the issue of whether 28 U.S.C. § 1498(c) must be interpreted to nullify any government contractor immunity provided for in § 1498(a) when a patent infringement claim arises in a foreign country.

In deciding this issue, the Federal Circuit looked at the two consequences that would result. The Federal Circuit had to either conclude that the patentee’s well-pleaded complaint of infringement failed to state a cause of action against both the government and the government’s contractor, or override the longstanding principle that a contractor working for the government was immune from individual liability for patent infringement occurring during the course of business. The Federal Circuit concluded that Zoltek III panel’s limitation of § 1498(a) to infringement under § 271(a) is inconsistent with the plain language of the statute and the panel misapplied the case law in deciding to limit § 1498(a). The panel’s ruling created at least three results that were meant to be avoided: 1) The ruling results in Lockheed having liability for conduct immunized by § 1498(a); 2) The ruling creates the possibility that the procurement of the United States’ military materiel could be interrupted by infringement actions against government contractors; and 3) The ruling spoils the Congressional intent in 35 U.S.C. §§ 154(a)(1), § 271(g), 19 U.S.C. § 1337, and 28 U.S.C. § 1498.

After reviewing the legislative intent of § 1498 and Zoltek III panel’s interpretation, the Federal Circuit held that 35 U.S.C. § 1498(a) creates an independent cause of action for direct infringement by the government or its contractors and is not dependent on 35 U.S.C. § 271(a). Under § 1498(a), the government has waived its sovereign immunity for direct infringement, which extends to acts under § 271(a) and § 271(g). When the product of a patented process is used in or imported into the United States, there is direct infringement for the purpose of a § 1498 action. Having ruled that the United States could be sued, its contractor, Lockheed, was found immune from suit. Additionally, the Federal Circuit held that 35 U.S.C. § 1498(c) does not apply in this case.

In dissent, Judge Dyk demonstrated just how far the Federal Circuit needed to reach to address the issue. The dissent argued that the certified order from the Court of Federal Claims did not confer appellate jurisdiction over the earlier dismissal of infringement claims against the United States, citing United States v. Stanley, 483 U.S. 669 (1987). Judge Dyk also disagreed with the majority’s interpretation of 35 U.S.C. § 1498(a), and would have held the United States immune from suit and permitting a suit against the contractor.

Vincent E. McGeary is a Director in the Gibbons Intellectual Property Department. Jillian A. Centanni, an Apprentice in the Gibbons Intellectual Property Department, co-authored this post.

Additionally, the Court also looked at other cases, Neilson v. Harford, Webster’s Patent Cases 295, 371 (1841), Bilski v. Kappos, and Gottschalk v. Benson, 409 U.S. 63 (1972), to support its position that appending conventional steps to laws of nature, natural phenomena and abstract ideas does not makes those laws, phenomena and ideas patentable. The Court continued to emphasize its concern that “patent law not inhibit further discovery by improperly tying up the future use of laws of nature.” Mayo, slip op. at 16. Notwithstanding, Prometheus Labs’ arguments to the contrary, the Court declined to change its conclusion that the claimed processes are not patentable. Here, the Court emphasized that its concern relates to “how much future innovation is foreclosed relative to the contribution of the inventor” and noted that “even a narrow law of nature [ ] can inhibit future research.” Id. at 20.

This decision undoubtedly will ripple across many industries, as patent practitioners attempt to apply the holding of the case.

Robert E. Rudnick is a Director in the Gibbons Intellectual Property Department. Jillian A. Centanni, an Apprentice in the Gibbons Intellectual Property Department, co-authored this post.

However, the court affirmed the ruling as to the lack of ripeness of the infringement claim, citing its holding in Warner-Lambert Co. v. Apotex Corp., 316 F.3d 1348 (Fed. Cir. 2003) that Section 271(e)(2) does not encompass “speculative” claims for infringement. Importantly, the Federal Circuit noted that regardless of a possible future occurrence, the infringement analysis under § 271(e)(2) is limited to whether the accused infringer’s ANDA seeks approval for activities that would constitute infringement of the asserted patents. Accordingly, it could not conclude that the FDA would require the ANDA filers to amend their applications in the future, in part because the statutory framework of the Hatch-Waxman Act provides for the affirmative carving out of patented indications under 21 U.S.C. § 355(j)(2)(A)(viii).

This decision is significant for generic drug manufacturers who seek such a carve out of non-patented, approved indications. Industry -- and perhaps legislative -- reaction will be closely watched.

Charles A. Gaglia, Jr. is Counsel to the Gibbons Intellectual Property Department. R. Hain Swope, Counsel to the Gibbons Intellectual Property Department, co-authored this post.

Inequitable conduct also has the potential to act as a poison pill. Once it was committed during the original examination, the patent applicant could not cure the deception, for instance by submitting withheld information through a subsequent reexamination or reissue application. The effect of such a finding could also spread to other patents within the same family rendering the entire family unenforceable.

Applying this standard, courts have found patents unenforceable for a variety of reasons, such as withholding prior art, failing to disclose relevant translations, submitting false affidavits, and not disclosing the best mode of practicing the invention.

But, in 2011, both the Federal Circuit and the Congress made significant changes to the law as it relates to inequitable conduct.

First, on May 25, 2011, the Federal Circuit issued an en banc opinion in Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011) reforming and tightening the materiality and intent standards. As to materiality, the Court rejected the reasonable examiner approach and established a “but-for” standard. “When an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.” As to intent, the court recognized that direct evidence is not always available and indirect evidence may be relied upon. However, a finding of intent based on indirect evidence must be “the single most reasonable inference able to be drawn from the evidence.” Also, the Court held that the sliding scale approach was no longer appropriate.

Second, on September 16, 2011, President Obama signed the America Invents Act into law. Included in this Act is the creation of a Supplemental Examination option that will enable a patent owner to “cure” previous transgressions. A Supplemental Examination will permit a patent owner to “request supplemental examination of a patent in the Office to consider, reconsider, or correct information believed to be relevant to the patent.” Once the patent owner submits information to the USPTO through this procedure, the information cannot be used as a basis for finding the patent unenforceable. However, the “cure” provision will not apply if the allegation is first pled with particularity in a civil action or first set forth with particularity in an ANDA notification letter.

Taken together, it is believed that these reforms will significantly reduce the number of patents found to be unenforceable and the number of inequitable conduct defenses raised.

One question that may arise is whether the Federal Circuit is willing to reconsider its opinion in Therasense in view of the fact that Congress has provided an avenue through which a patent owner may cure discrepancies that arose during the original prosecution. In its opinion, the court expressed that its motivation for changing the law stemmed in part from the number of inequitable conduct defenses raised in pleadings, the fact that inequitable conduct is the “atomic bomb” of patent law and that it could not be cured through reissue or reexamination. However, now that Congress has provided patent owners with the opportunity to come clean, will the Federal Circuit be willing to find patents unenforceable in view of a lower showing of materiality or intent based on the rationale of its prior holdings?

Christopher H. Strate is an Associate in the Gibbons Intellectual Property Department.

In the alternative, Plaintiff requested that rather than dropping the parties, the Court sever and consolidate the cases for pre-trial purposes under Fed. R. Civ. P. 42(a). Id. at 3. The Court rejected that request finding the Defendants are each entitled to an individualized defense of claim construction, non-infringement, and invalidity. Id.

This case was filed on August 12, 2011, which is prior to the joinder provision of the America Invents Act (“AIA”) becoming effective. Attorneys at Gibbons have previously discussed some of the AIA’s provisions, including how that provision could limit the number of defendants in one case.

Andrew P. MacArthur is an Associate in the Gibbons Intellectual Property Department.

Also, as of November 2011, the SIPO of the PRC and the United States Patent and Trademark Office (“USPTO”) extended the Patent Prosecution Highway Pilot Program between the two nations. Under the Patent Prosecution Highway, “an applicant receiving a written opinion or an international preliminary examination report from either the SIPO or the USPTO that at least one claim in a PCT application has novelty, inventive step, and industrial applicability may request that the other office fast track or expedite examination of corresponding claims in corresponding applications.”

Moreover, China amended the Patent Law of the PRC in 2009 to revamp the Chinese national patent system. The impact of the amendment to the Patent Law is two-fold. First, it enhances China’s position to meet the goals highlighted above. Second, it attempts to align Chinese patent practice with much of the rest of the world. For example, in the recent amendment, China has retained a utility model patent, which is available in many countries worldwide with the United States being one exception. The utility model patent provides protection for a product’s shape or structure or combination thereof with a 10-year term from its filing date. Utility model applications are favorable to establishing rapid patent rights because they are cost effective, there is no substantive application examination, and rights are normally granted within one year from the filing date. The 2009 amendment to the Patent Law also provides rules and regulations for exploiting these utility model patents both alone and in conjunction with a more traditional invention patent. While traditionally not exploited by foreign filers, the utility model is utilized by many Chinese entities. For example, a Chinese patent infringement case based on a utility model patent granted to Chint Group resulted in a 335 million yuan ($45 million) verdict in a court of first instance against rival Schneider Electric of France. Thus, a foreign corporation considering entry into China should take into account the advantages of a utility model patent, especially for important products.

In addition, many changes were made to the Patent Law to assuage the fears of foreign corporations in conducting technology focused business with China. For example, China is a first to file system, and a recent amendment changed its patent law to one of absolute novelty. Thus, often feared patent hijacking, whereby a third-party could theoretically seek patent protection in China for another’s invention first disclosed outside China is now illegal under Chinese law. Overall, the 2009 amendments to the Patent Law have augmented China’s position as a trade partner and provide a basis to encourage foreign investment in technology and innovation in China.

In sum, China is driving its intellectual property system to grow at an astounding rate. While this presents great opportunity, the relative newness, complexity, and evolving nature of Chinese intellectual property laws, rules and regulations may create certain risks. In the next 10 to 20 years the Chinese intellectual property system will likely undergo substantial development and change. Thus, when evaluating whether to invest its technology and intellectual property in the Chinese market, a foreign entity should not only consider the current state of China’s intellectual property laws, rules and regulations, but should also take into account likely future evolution of the Chinese intellectual property system. The challenge is to help clients become competitive and successful in doing business in China by developing a solid intellectual property strategy that assists navigation of the Chinese legal, regulatory and business environment.

John J. Cahill is an Associate in the Gibbons Intellectual Property Department.

In the trademark realm, the 2d Circuit’s decision in Louboutin, regarding trademarking colors.

Locally, the New Jersey Trade Secrets Act is expected to be signed into law, which will codify the State’s common law practice regarding trade secrets. Also, implementation of the Southern District of New York’s 18-month pilot program on conducting complex litigations will be underway.

On the national level, the launch of the Intellectual Property Exchange International (“IPXI”), an exchange for commoditizing patents and other IP assets is expected in June.

And finally, just as on-going developments with and implementation of the Smith-Leahy America Invents Act progresses, Congress will continue to address the Stop Online Piracy Act.

Gibbons, with offices in Newark, Trenton, New York City, Wilmington and Philadelphia will continue to remain at the forefront of these, and all other IP law developments.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Jillian A. Centanni, an Apprentice in the Intellectual Property Department, co-authored this post.

Although the preliminary injunction decision was vacated, the Federal Circuit permitted the district court to enter a temporary restraining order until a consolidated preliminary injunction hearing and bench trial on the merits can be held. Thus, Mylan’s success at the Federal Circuit may only be a pyrrhic victory as it may be temporarily restrained until the merits of the patent case are resolved at trial.

Lisa H. Wang is an Associate in the Gibbons Intellectual Property Department. John J. Cahill, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

The issue before the district court hinged on standing to sue under 35 U.S.C. § 271(e)(2)(A), i.e., whether a cause of action was made out with respect to Defendants’ proposed uses relative to the patents’ claims. The relevant language of 35 U.S.C. § 271(e)(2)(A) is:

2) It shall be an act of infringement to submit -

(A) an application under section 505(j) of the Federal Food, Drug, and Cosmetic Act or described in section 505(b)(2) of such Act for a drug claimed in a patent or the use of which is claimed in a patent.

Before the Delaware District Court, Defendants moved to dismiss for lack of subject matter jurisdiction, arguing that the Hatch-Waxman Act created an infringement claim only if the generic manufacturer sought approval for the specific methods of treatment claimed by the patent. According to Defendants, Plaintiffs case under 35 U.S.C. § 271(e)(2)(A) lacked merit because of the generics’ non-infringing uses. The district court agreed with Defendants and Plaintiffs appealed.

In oral arguments before the Federal Circuit in November, Plaintiffs argued that the mere filing of an ANDA for rosuvastatin calcium tablets was an act of infringement under the Hatch Waxman Act even though the ANDA was for non-infringing uses of the drug. Plaintiffs also urged that there was enough evidence in the generic manufacturer’s proposed labeling and elsewhere to support the likelihood of induced infringement.

Chief Justice Rader and Justice Moore pointed out several times during oral arguments that in order for 35 U.S.C. § 271(e)(2)(A) to apply, it requires that the ANDA seek approval for the use of a drug which is claimed in a patent. In this case, the ANDA does not seek approval for a patented use. The Justices cited the Warner-Lambert Co. v. Apotex Corp. decision, which held that “where a product has substantial non-infringing uses, intent to induce infringement cannot be inferred even when the [alleged inducer] has actual knowledge that some users of its product may be infringing the patent.” Warner-Lambert Co. v. Apotex Corp., 316 F.3d 1348, 1365 (Fed. Cir. 2003). “[I]nducement requires that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another’s infringement.” DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1306 (Fed. Cir. 2006) (en banc in relevant part). Plaintiffs argued that Warner Lambert did not apply to the facts at hand.

Chief Justice Rader also indicated to Defendants’ counsel that due to the limited uses in the ANDA, there was a substantial likelihood the generics would induce infringement. He raised the question as to whether the generic companies could win an inducement to infringement suit.

A decision for AstraZeneca would strengthen method of treatment patents for prescription drugs and expand the reach of Hatch-Waxman. Gibbons P.C. will stay tuned to this development.

Charles A. Gaglia, Jr. is Counsel to the Gibbons Intellectual Property Department.

The District of Delaware already is a well-respected and busy patent lawsuit venue, with seasoned jurists and a modern, accessible courthouse in a metropolitan area. Gibbons P.C., with offices in Delaware, New Jersey, New York and Pennsylvania will continue to stay at the forefront of this and other AIA-related developments, and remains available to counsel on all aspects of intellectual property law.

Todd M. Nosher is an Associate in the Gibbons Intellectual Property Department.

With the new AIA provision and the GAO commission in place, it is not clear what the future holds for NPEs. Further, the International Patent Exchange International (“IPXI”), set to debut in January 2012, plans to offer a commodities-like market for licensing patents that may reduce NPE activity, or at least provide another alternative way to monetize patent assets. Only time will tell how these measures will impact NPE activity.

Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Catherine M. Clayton, a Director in the Gibbons Intellectual Property Department, co-authored this post.

The Judicial Conference Committee on Court Administration and Case Management is responsible for running the pilot program. The Chief Judge of each participating court with the Administrative Office of the U.S. Courts and the Director of the Federal Judicial Center will periodically deliver status reports to Congress on whether the participating court has developed expertise and improved efficiencies in patent cases and whether the court has seen more or less patent cases since participating in the Pilot Program.

The fourteen courts that are participating in the program are:

Eastern District of New York
Southern District of New York
Western District of Pennsylvani
District of New Jersey
District of Maryland
Northern District of Illinois
Southern District of Florida
District of Nevada
Eastern District of Texas
Northern District of Texas
Western District of Tennessee
Central District of California
Northern District of California
Southern District of California

Certain courts have selected their “patent” judges and provided details on the program. Click on the links below for more information

The Northern District of Illinois
The District of New Jersey
The Southern District of New York
Northern District of Texas

While it is obviously too early to determine whether the Program is meeting its goals, many feel this initiative is a positive step toward ensuring patent litigants receive a fair and effective resolution to legitimate patent disputes.

To obtain an exclusion order, however, an ITC complainant must meet the “domestic industry” requirement. More particularly, the complainant must establish an industry in the United States relating to the articles protected by the patent by satisfying two requirements. 19 U.S.C § 337 (a)(2). First, a technical prong, the Complainant must prove that it or its licensee is practicing at least one claim of the asserted patent. Second, an economic prong, the Complainant must demonstrate, with respect to that patented product, that one or more of the following exists in the U.S.:

(A) significant investment in plant and equipment;

(B) significant employment of labor or capital; or

(C) substantial investment in its exploitation, including engineering, research and development, or licensing.

19 U.S.C § 337 (a)(3).

In Certain Coaxial Cable Connectors and Components Thereof and Products Containing Same, the complainant PPC sought to enforce U.S. Patent No. D440,539 (the “‘539 patent”) which describes an ornamental design for a coaxial cable connector, and exclude multiple foreign manufacturers from importing infringing connectors. Notably, PPC did not manufacture the connectors, own a plant or equipment in the United States, or employ workers in the United States. In an attempt to establish the domestic industry requirement, PPC instead relied on legal expenses it incurred in litigation relating to its enforcement of the ‘539 patent. Specifically, PPC argued that its enforcement was substantial resulting in exploitation by the licensing of its ‘539 patent. Thus, PPC argued it met the domestic industry requirement and deserved the protection of an ITC exclusion order.

The administrative law judge (“ALJ”) at the ITC who initially considered PPC’s argument agreed and issued an Initial Determination of infringement of the ‘539 patent. On review, the Commission considered several factors towards establishing whether the expense activities on behalf of the subject patent were substantial and related to licensing, including: establishing a licensing program; serving cease and desist letters; making a concerted effort to license the patent; filing and conducting a patent infringement litigation; conducting settlement and licensing negotiations before suit was filed or while suit was ongoing; and negotiating, drafting and executing a license.

In its Opinion, the Commission rejected PPC’s argument that it met the domestic industry requirement by incurring litigation expenses relating to asserting and defending the validity of the ‘539 patent. On remand, the ALJ found that while PPC had incurred legal expenses related to the negotiation and drafting of a licensing agreement, and therefore had made at least some investment with respect to licensing of the ’539 design patent, it had failed to establish that litigation expenses relating to that patent were related to a substantial investment in licensing. Specifically, the ALJ found that PPC’s sole license resulted from numerous litigations that had multiple objectives, not all of which were based on the ’539 patent at issue. Ultimately, the ALJ concluded that it would be inappropriate to treat most of the incurred legal fees as an investment in licensing of the ’539 patent.

PPC maintained that these expenses were a “substantial investment in exploitation” in licensing the patent. Earlier this week, the Federal Circuit considered PPC’s appeal of the ITC’s decision and affirmed the finding that, although § 337 does not specify whether litigation expenses incurred in enforcing a patent may be used as evidence to establish domestic industry, litigation expenses alone do not constitute a domestic industry.

Although the Federal Circuit’s ruling firmly establishes that litigation expenses alone are insufficient to meet the domestic industry requirement, it did note that it was not ruling that a single license can never satisfy the domestic industry requirement based on a substantial investment in licensing. The Court posited that a complainant’s litigation expenses may well satisfy § 337’s domestic industry requirement if it can prove the expense activities were substantial, on behalf of the subject patent and related to licensing.

Owen J. McKeon is a Director in the Gibbons Intellectual Property Department. John J. Cahill, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

The motivation to engage in scorched earth e-discovery is often directed towards inflicting as much financial pain as possible on the other party, with masses of production never used and probably never reviewed by the requestor. This can happen particularly when there is an inherent imbalance in the amount of discovery required from the respective parties. For example, in Hatch-Waxman pharmaceutical patent litigations, development of a drug product may have taken years, and involved hundreds of people scattered over several continents. The discovery, (and especially e-discovery), that is arguably relevant can take years to collect and produce, with costs easily running well into millions of dollars. On the other hand, the challenging generic may only have a few redwelds of relevant information to produce.

The same dynamic holds true for patent troll cases. Trolls, non-practicing entities that hold and assert patents against businesses, carry a limited discovery burden. However, they can exert significant financial stress on alleged infringing companies because of extensive communications exchanged through years of product development and extensive manufacturing, marketing and financial documentation and communications.

Will district courts adopt the Model E-Discovery Order? Likely they will. District courts judges welcome any guidance offered, particularly in the area of e-discovery, and especially anything that can assist in the management of difficult and complex patent cases. The Model Order also affords the courts flexibility; it can always be modified by individual judges upon a showing of good cause.

Another question that is probably more difficult to answer is whether the patent Model Order will be adopted in other types of large, complex civil litigations. That answer may be: it depends. The focus of the Model is on e-mail and that type of document, in and of itself, is generally not that important to patent litigation claims such as infringement or invalidity. However, in non-patent cases, where claims often turn on a “smoking gun” e-mails, the madness may continue.

Sheila F. McShane is a Director in the Gibbons Intellectual Property Department. Mark S. Sidoti, Chair of the Gibbons E-Discovery Task Force, co-authored this post.

During the pendency of the district court proceedings, HemCon requested reexamination of the ’245 Patent with the United States Patent and Trademark Office (“PTO”). The examiner, in rejecting all of the claims, initially adopted a different claim construction than that of the district court. The examiner also determined “biocompatible” meant “low variability, high purity, and little or no detectable reactivity.” Further, the examiner noted that the district court’s construction was inconsistent with the numerous dependent claims that required a specific elution test score of zero, one or two.

Marine Polymer argued that the district court’s interpretation should be adopted and “biocompatible” should be construed to mean “no detectable biological reactivity.” Marine Polymer then cancelled the six original dependent claims that had specifically required an elution test score of 1 or 2. The language of the remaining claims, including all of the claims HemCon had been found to infringe by the district court, was unchanged.

Intervening rights do not apply where the accused product “infringes a valid claim of the reissued patent which was in the original patent.” 35 U.S.C. § 252. Therefore, intervening rights are available only if the original claims have been substantively changed, and in determining whether substantive changes have been made, the court must discern whether the scope of the claims has changed, not merely whether different words are used.

The Federal Circuit found that in narrowing the definition of “biocompatible” by argument, all of the remaining claims of the ’245 Patent had been substantively narrowed thereby substantially changing the scope of the claims. The Federal Circuit therefore determined that absolute intervening rights under the statute applied in this case. The specific products made before the date of reissue, which infringed the new reissue claims, were absolutely free of the reissued patent and may be used or sold after the date of the reissue without regard to the patent.

Under the Patent Statute, there are two types of intervening rights: (1) absolute intervening rights, which bar claims for infringement based on specific products that were manufactured before the reissue or reexamination; and (2) equitable intervening rights, which bar claims for infringement for new products and newly manufactured versions of prior existing products made after the reissue or reexamination. See 35 U.S.C. §§ 252, 307.

The Federal Circuit remanded to the District Court to determine whether the fact based doctrine of equitable intervening rights applies. The doctrine of equitable intervening rights allows the court to permit the continued manufacture, use, or sale of additional products covered by the reissued or reexamined patent when the accused infringer made, purchased, or used identical products before the reissue or reexamination date. It also protects a newly created product that was not of a type produced before the reexamination if the accused infringer made substantial preparations for manufacture of the product before the reissue or reexamination.

Charles A. Gaglia, Jr. is Counsel to the Gibbons Intellectual Property Department.

Generally, the cases dismissing direct infringement claims have done so because the complaint failed to allege any details of specific infringing products. Requiring a plausibility standard, these courts found complaints merely alleging the defendant was ‘selling goods that infringe Plaintiff’s ... patent’ or ‘upon information and belief Defendant was infringing’ was insufficient under Twombly/Iqbal. While it is probably not necessary to identify each infringing device and the aspects thereof, a Plaintiff must cite examples of infringing devices and allege some information about the circumstances giving rise in the complaint. Otherwise, Form 18 provides nothing more than a short and plain statement and offers little to show that the pleader is plausibly entitled to relief as necessitated by Twombly and Iqbal. See e.g. Li Ming Tseng v. Marukai Corp. USA et al., Case No. 09-cv-00968 (C.D. Cal. Nov. 13, 2009); In re Papst Licensing Litigation, 602 F. Supp. 2d 17 (D.D.C. 2009); Realtime Data, LLC v. Stanley, Case No. 09-cv-326 (E.D.Tex. June 10, 2010); Elan Microelectronics Corp. v. Apple, Inc., Case No. 09-cv-01531 (N.D. Cal. Sept. 14, 2009); Bender v. LG Electronics U.S.A., Inc., 09-cv-02114 (N.D. Cal. Mar. 11, 2010); and Fifth Market, Inc. v. CME Group, Inc., Case No. 08-cv-520 (D.Del. May 14, 2009).

Other district courts have streamlined discovery using Local Patent Rules requiring early, detailed, and binding disclosures of infringement contentions, followed by corresponding non-infringement and invalidity contentions in short order. These Local Patent Rules narrow cases even more effectively than heightened pleading requirements. Thus, districts adopting Local Patent Rules, such as Massachusetts, New Jersey, WD of Pennsylvania, ED of North Carolina, Northern District of Georgia, WD of Washington, Minnesota, SD of California, ND of Illinois, ED of Texas, SD of Texas, and ND of California are less likely to dismiss a claim properly plead under Form 18 and McZeal and more likely to find it meets the Twombly/Iqbal standards.

In contrast to direct infringement, District Courts have almost uniformly applied a higher standard for pleading claims of indirect infringement. Furthermore, there is no form for indirect infringement analogous to Form 18. Since Iqbal, Courts have required specific factual allegations showing knowledge and intent to induce or contribute to infringement by another. Some cases appear to suggest that to satisfy Twombly/Iqbal, a claim of indirect infringement must include: facts showing how the alleged infringer either induced or contributed to another party’s direct infringement; an allegation that the alleged infringer knew of the patent at the time of the infringing activities; for induced infringement, an allegation that the alleged infringer specifically intended to induce infringement; for contributory infringement, an allegation that the alleged infringer knew that the combination for which his component was especially designed was both patented and infringing. See e.g. Desenberg v. Google Inc., Case No. 08-cv-10121 (S.D.N.Y. July 30, 2009); Friday Group v. Ticketmaster, Case No. 08-cv-01203 (E.D. Mo. Dec. 12, 2008). See also Elan Microelectronics Corp. v. Apple, Inc., Case No. 09-cv-01531 (N.D. Cal. Sept. 14, 2009); Sharafabadi v. Univ. of Idaho, Case No. 09-cv-1043 (W.D. Wash. Nov. 27, 2009); Eolas Techs., Inc. v. Adobe Sys., Inc., 09-cv-446 (E.D.Tex. May 6, 2010); Halton Co. v. Streivor, Inc., 10-cv-00655 (N.D. Cal. May 21, 2010); Taurus IP, LLC v. Ford Motor Co., 539 F. Supp. 2d 1122 (W.D. Wis. 2008) and both Medsquire and Nielsen.

Vincent E. McGeary is a Director in the Gibbons Intellectual Property Department. John J. Cahill, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Some predict that application and claim quality will decrease with the “race” to file applications. However, the quality of European patents under a similar first-to-file system has shown that this will unlikely be the case. Moreover, 35 U.S.C. §102, as revised, provides a unique protection for inventors that publish or publicly disclose their invention less than one year before filing their patent application. Under this new standard, third party patent application filings or publications that occur after the inventor’s publication or public disclosure will not be invalidating prior art. A company or inventor that makes the decision to pursue a patent in the United States only and in no other country, and who wants to obtain the earliest possible priority date, may consider publishing their invention or an embodiment of their invention on their website first. This will provide the practitioner and the client time to prepare a thorough patent application to submit to the Patent Office. One point of caution, though, is that this provision is unique to U.S. patent law and will cause the applicant to forego any opportunity to file for patent protection on the same invention in foreign countries.

One element of uncertainty that will be created by this Act, at least for the next five to ten years, is the definition of invalidating prior art. Prior to this reform, decades of case law had been established to define what was necessary for prior art to be invalidating because it was “known,” “used,” “patented,” “described in a printed publication,” “in public use” or “on sale.” However, 35 U.S.C. §102, as amended, has introduced a new standard of “otherwise available to the public.” The statute does not define this phrase and it will take time for the Federal Circuit to sort out. While this Act has created some certainty as to what may qualify as invalidating prior art with respect to the invention date, it has introduced a new level of uncertainty as to what types or quality of publications or events may qualify as invalidating prior art.

While first-to-file reform may be one of the most significant changes in U.S. patent law provided by the America Invents Act, other provisions relating to patent validity, prosecution and litigation will also have significant effects, and will be discussed in later Gibbons P.C. postings.

Christopher H. Strate is an Associate in the Gibbons Intellectual Property Department.

• Post-Grant Review Proceedings.

(i) Replaces “optional interpartes reexamination” with “interpartes review” to be conducted by Patent Trial and Appeal Board within 1 year. The threshold showing is “reasonable likelihood” that the petitioner will prevail based on published prior art. The estoppel standard is “raised or reasonably could have raised” before the USPTO and the courts. Appeals are directed to the Federal Circuit.

(ii) Establishes a “post-grant review” before the Patent Trial and Appeal Board to review validity of issued patents within 9 months of grant on any patentability issue. The threshold showing is "more likely than not" that at least 1 claim is unpatentable. The estoppel standard is “raised or reasonably could have raised” before the USPTO and the courts.

(iii) Establishes an 8-year transitional post-grant review proceeding for review of the validity of business method patents for financial products or services by defendants accused of infringement.

(iv) Allows a pre-issuance submissions procedure for published prior art but not public, use, sale or improper inventorship, which current 35 U.S.C. 122(c) continues to provide for. Submission must be made before the earlier of (a) allowance, or (b) later of 6 months after the date of application publication or the date of first rejection.

• USPTO's Fee Setting Authority and Funding. Provides the Director with fee setting authority to cover operating and administrative costs. This authority is subject to a 7 year sunset clause. Fees in excess of appropriated amounts still require authorization under the Appropriations Act.

Practitioners should take note of the effective dates for the key provisions as they differ. The “first-inventor-to-file” provision takes effect 18 months from the passage of the Act for patents and applications with a claim having an effective date on or after the bill is passed. Post-grant review proceedings such as inter partes review, post-grant review, certain business method review, and pre-issuance submissions, become effective 1 year after enactment and applies to patents issued before, on, or after that effective date. The USPTO's fee setting authority takes effect immediately upon passage of the Act.

Luis J. Diaz is a Director in the Gibbons Intellectual Property Department. Lisa H. Wang, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Regarding Microsoft’s alternative argument that a preponderance standard should be applied at least to evidence before the fact finder that was not before the Patent Office, the Court found that its pre-codification cases never “adopted that kind of fluctuating standard of proof . . . .” Slip Op. at 15. Plus, the Court found there was nothing in the text of s 282 to suggest that Congress meant to enact a sliding scale for the standard of proof. Slip Op. at 16.

In his concurrence, Justice Breyer called for special jury verdict forms that separate legal conclusions from factual findings. He called on courts to keep the “standard within its proper legal bounds by separating factual and legal aspects of an invalidity claim,” Breyer concurrence Slip Op. at 1. Separating these aspects might keep non-novel, obvious subject matter from improperly retaining legal protection.

This decision adds certainty to patent enforcement. Patentees’ right to exclude is secure in all but those patents which are susceptible to invalidity challenges meeting the clear and convincing standard, and accused infringers will have to continue to formulate invalidity challenges which meet that standard.

Richard J. Katz is Counsel to the Gibbons Intellectual Property Department.

Following a bench trial, the district court determined that claims 1-4 of the ’551 patent were invalid due to obviousness in light of the ’382 patent and U.S. Patent No. 4,225,410. In addition, and of relevance to the present decision, the district court held the ’551 Patent as unenforceable for inequitable conduct because of Therasense’s failure to disclose its representations to the EPO regarding the European counterpart to the ’382 patent.

Therasense appealed the decision of the district court to the Federal Circuit. In a 2010 decision rendered by a three-judge panel, the judgment of inequitable conduct and unenforceability was upheld (with a dissenting opinion by Judge Linn). Subsequently, the Court granted a petition made by Therasense for an en banc rehearing.

In the en banc decision, the Court vacated the district court’s judgment of inequitable conduct , and remanded for reconsideration in accordance with the new inequitable conduct standards. Five judges (Newman, Lourie, Linn, Moore and Reyna) fully joined a majority opinion authored by Judge Rader. Judge O’Malley authored a separate opinion, concurring in part and dissenting in part with the majority opinion. Judge Bryson authored a dissenting opinion, joined by three judges (Gajarsa, Dyk and Prost).

In the majority opinion, Judge Rader traces the origins of the inequitable conduct doctrine to a trio of early 20th century Supreme Court decisions (Keystone Driller Co., Hazel-Atlas Glass Co. and Precision Instrument Manufacturing Co.) that applied the doctrine of unclean hands in dismissing patent cases in which the patentee engaged in “particularly egregious misconduct, including perjury, the manufacture of false evidence, and the suppression of evidence.” Since this time, he argues that the standards for finding inequitable conduct have relaxed to encourage patentees’ full disclosure of prior art to the PTO, and that available remedies for inequitable conduct have become an “atomic bomb” encompassing unenforceability of the entire patent at issue and other related patents, initiation of other causes of action (for example, including antitrust and unfair competition claims), and assertions of “exceptional” case status obtaining enhanced damages. The majority opinion summarizes these effects as follows:

While honesty at the PTO is essential, low standards for intent and materiality have inadvertently led to many unintended consequences, among them, increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality. This court now tightens the standards for finding both intent and materiality in order to redirect a doctrine that has been overused to the detriment of the public.

In tightening the standards, the majority opinion reminds that the intent standard has for some time required the accused infringer to “prove by clear and convincing evidence that the [patentee] knew of [an omitted reference], knew that it was material, and made a deliberate decision to withhold it.” Because the intent and materiality present “separate requirements,” the opinion withdraws the so-called “sliding scale” provision “where a weak showing of intent may be found sufficient based on a strong showing of materiality, and vice versa.” While intent may be inferred from indirect and circumstantial evidence, it may not be inferred “solely from materiality,” and in order to meet a clear and convincing standard, must be the “single most reasonable inference able to be drawn from the evidence” and “sufficient to require a finding of deceitful intent in the light of all the circumstances.”

The majority asserts that elements of a higher intent standard were previously applied from time to time without reducing the number of inequitable conduct actions brought before the courts, and on this basis holds that an adjustment to the current materiality standard is needed as well. The majority opinion references Corona Cord as “[supporting] a [heightened] but-for materiality standard,” and holds that this standard is to be applied as a general matter, bur “recognizes an exception in cases of affirmative egregious conduct.” While the opinion provides examples of such conduct (for example, “such as the filing of an unmistakenly false affidavit”), it provides no particular test. The opinion expressly declines to adopt the definition of materiality adopted by the PTO in 37 C.F.R. § 1.56:

[Information] is material to patentability when it is not cumulative to information already of record or being made of record in the application, and

(1) It establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or

(2) It refutes, or is inconsistent with, a position the applicant takes in:

(i) Opposing an argument of unpatentability relied on by the Office, or

(ii) Asserting an argument of patentability

Judge O’Malley’s concurs with the majority’s decision to vacate and remand to the district court for reconsideration of its inequitable conduct holding, and with the majority’s holdings that a specific finding of intent to deceive the PTO must be made independently from a finding as to materiality and without application of the “sliding scale,” and that intent may be found from inferential evidence only when “the single most reasonable inference able to be drawn from the evidence.” He dissents from the remainder of the majority opinion (and from the dissenting opinion) by finding that each “[strains] too hard to impose hard and fast rules.” His opinion asserts that , because inequitable conduct is “based in equity,” courts should remain flexible to apply discretion based on “the necessities of the particular case.”

Like Judge O’Malley, Judge Bryson in his dissenting opinion agrees with the majority that the intent standard requires a showing of specific intent to deceive the PTO, and that the intent and materiality standards each require showings by clear and convincing evidence without application of the “sliding scale” provision. The dissenting opinion however disagrees with the majority’s but-for standard for materiality, arguing instead for the continued application of the PTO standard expressed in 37 C.F.R. § 1.56:

With respect to the issue of materiality, the majority has adopted a test that has no support in this court’s cases and is inconsistent with a long line of precedents dating back to the early years of this court. The effect of the majority’s new test, moreover, does not merely reform the doctrine of inequitable conduct, but comes close to abolishing it altogether. … I would adhere to the materiality standard set forth in the PTO’s disclosure rule for two basic reasons: First, the PTO is in the best position to know what information examiners need to conduct effective and efficient examinations. … Second, the higher standard of materiality adopted by the majority will not provide appropriate incentives for patent applicants to comply with the disclosure obligations the PTO places upon them.

Judge Bryson also dissents from the majority’s decision to vacate and remand to the district court for reconsideration of its inequitable conduct holding, finding that the present district court holding is not subject to reversible error.

Time will tell whether the Federal Circuit’s decision in Therasense will lead to reductions in the incidence of unwarranted inequitable conduct claims made by accused infringers during patent litigation, and in the volume of marginally relevant prior art disclosures made by patentees during patent prosecution. Because of the advantages provided until now in basing inequitable conduct claims on highly material omissions in order to obtain a sliding scale reduction in the level of proof required for the intent element, many of the claims made to date may in fact satisfy the new materiality standard. This may sufficiently embolden accused infringers to continue to raise such claims at nearly the same rate even if the heightened intent standard causes such claims to have a lower success rate. Similarly, patentees may find that it is easier to continue present liberal prior art disclosure practices during patent prosecution than to be more selective about prior art disclosures as may be allowed in accordance with the heightened standards. In this decision, the differing opinions among the judges on the en banc panel and the relatively bright-line rules adopted by the majority in contrast to other applications of the unclean hands doctrine may invite the Supreme Court’s favorable response to a further petition for certiorari.

Thomas J. Bean is Counsel to the Gibbons Intellectual Property Department.

In the en banc decision, seven judges joined in a majority opinion authored by Judge Lourie, while five judges joined in a dissenting-in part-opinion filed by Judge Dyk. The Court unanimously overruled a two-step framework defined in KSM Fastening Sys., Inc. v. H. A. Jones Co. for initiating contempt proceedings based on a product redesign as “unworkable.”

The two-step KSM framework requires a district court to first decide whether a contempt hearing is an “appropriate setting” by comparing the redesigned product with the original product to determine whether there is “more than a colorable difference” between the two products, such that “substantial open issues with respect to infringement” exist. If this threshold is unmet, the district court may then proceed to determine whether the redesigned product continues to infringe the claims.

The Court found that the two-step inquiry of KSM “confuses the merits of contempt with the propriety of initiating contempt proceedings.” In its place, the Court holds that the district court may be allowed broad discretion to determined the propriety of a contempt proceeding based simply on “a detailed accusation from the injured party setting forth the alleged facts constituting the contempt.”

EchoStar argued that a contempt proceeding is improper in any case where a defendant, in redesigning an infringing product, has engaged in “diligent, good faith efforts to comply with the injunction” and has an “objectively reasonable basis” to believe that its actions are in compliance with the injunction. The Court disagreed with this argument, citing Additive Controls & Measurement Sys., Inc. v. Flowdata, Inc. for the proposition that “a lack of intent to violate an injunction alone cannot save an infringer from a finding of contempt.”

For a finding of contempt, the Court cited Abbott Labs. v. TorPharm, Inc. as requiring proof both that the newly accused product is “not more than colorably different from the product found to infringe,” and that the newly accused product “actually infringes.” The Court clarified that the colorable difference portion of the test is not determined simply by judging whether the redesigned product continues to infringe, but rather by focusing on differences between the infringing features of the original product and the modified features of the newly accused product. Citing a decision by the U.S. Supreme Court in Cal. Artificial Stone Paving Co. v. Molitor, the Court stated that “the primary question on contempt should be whether the newly accused product is so different from the product previously found to infringe that it raises ‘a fair ground of doubt as to the wrongfulness of the defendant’s conduct.’”

The Court was divided as to whether provisions in an injunction order can be directly challenged as vague and overbroad in a contempt proceeding. Although the majority agreed that “in certain circumstances vagueness can operate as a defense to contempt,” it stated with reference to the Supreme Court’s opinion in McComb v. Jacksonville Paper Co. that the contempt defendant who has an earlier opportunity to present a vagueness claim on appeal or clarify or modify an injunction by motion “cannot disregard the injunction and then object to being held in contempt when the courts conclude that the injunction covered the [defendant’s] conduct.” In the dissenting-in part-opinion, Judge Dyk disagreed with the majority’s interpretation of McComb, and suggested that the pertinent question is not whether or not the injunction is invalid for vagueness, but rather “whether contempt is appropriate where the injunction does not clearly prohibit the challenged conduct.”

While the Court’s ruling simplifies and arguably lowers the threshold for initiating contempt, it may raise the threshold for finding a colorable difference by narrowing the inquiry to only the product features that were originally relied upon for establishing infringement. As a result, patent owners may prefer in some cases to file a new infringement lawsuit against a redesigned product rather than entering into a contempt proceeding. The present decision suggests that it may be in the interests one or more of the parties to challenge ambiguities in injunctive order at the time it is granted rather than later on within the context of a contempt proceeding.

Thomas J. Bean is Counsel to the Gibbons Intellectual Property Department.

Centillion Data Systems, Inc. accused Quest Communications International and other Quest companies of infringing U.S. Patent No. 5,287,270. The claims-in-suit are directed to a system for presenting cost-of-service information to a customer, and recite server-side elements (a storage means, a data processing means, a transferring means) and a client-side element (a personal computer data processing means). Quest’s customer phone call transaction records are stored on the server-side storage means, and the data processing means generates a summary report as specified by the customer. The transferring means transfers the transaction records and summary reports to a customer, where the personal computer data processing means perform additional processing on the transaction records.

Centillion held that the customer “puts the system as a whole into service, i.e., controls the system and obtains benefit from it.” Centillion at 10. It did not matter to the court that the back-end processing was “physically possessed” by Quest and not the customer. What did matter to the court was that “but for the customer’s actions, the entire system would never have been put into service.” Id. at 11. The court reasoned that “[b]y causing the system as a whole to perform [server-side] processing and obtaining the benefit of the result, the customer has ‘used’ the system under [35 U.S.C.] § 271(a).” Id. at 10. The Federal Circuit held that the district court erred as a matter of law when it concluded that no single party could be liable for use of the patented invention. Id. at 11.

Prior to this decision, a patentee would likely have thought it necessary to name both a web-based enterprise and the enterprise’s third-party server farm host as joint infringers. By extending Centillion, the patentee could now assert that the web-based enterprise alone controls the claimed system and obtains benefit from the system. Naturally, patent claims are better drafted to capture a single class of infringers, and patent applicants would be wise to keep this in mind as they review the claims of their patent applications drafted during prosecution of the patent.

Richard J. Katz is Counsel to the Gibbons Intellectual Property Department.

The court went on to hold that, as a matter of law, the plaintiff patentee’s lost profits damages for any alleged infringement of its patent should be limited to the time period it “…proves it actually practiced the invention and earned or lost income from these operations.” The further held that the precise date of transfer of operations was a question of fact.

The outcome in this case is illustrative of the pitfalls which await patentees, and intellectual property owners in general, who do not consider the implications corporate reorganization may have on their ability to protect and enforce intellectual property assets.

Owen J. McKeon is a Director in the Gibbons Intellectual Property Department.

FRAUD

 One strategy that has met with mixed results has been to attack the sufficiency of a plaintiff’s complaint on the basis that false marking is a fraud-based claim subject to heightened pleading standards mandated under Fed. R. Civ. P. 9(b). This defense was successfully employed by the defendants in a recent case before the United States District Court for the Southern District of Florida. In Herengracht Group, LLC v. Intelligent Products, Inc., the plaintiff alleged that Intelligent Products, Inc. had falsely marked a disposable pet waste disposal bag commercially known as the “Mutt Mitt.” Intelligent Products sought dismissal of the complaint pursuant to Rules 9(b) and 12(b)(6). The Herengracht Group attempted to establish the requisite “intent to deceive” with conclusory assertions that the defendants were “sophisticated companies, experienced with leveraging patents and other intellectual property” and had been doing so for two decades. The court found plaintiff’s assertions were inadequate and granted Intelligent Products’ motion to dismiss. Citing Graco, the court noted that “These allegations alone do not supply enough factual matter to suggest an intent to deceive, and amount to nothing more than ‘mere labels and conclusions’ prohibited by Twombly.”

AFFIRMATIVE DEFENSES

In Oakley, Inc. v. Bugaboos Eyewear Corp., Bugaboos Eyewear asserted false marking counterclaims against Oakley, Inc. Oakley filed a motion to amend its answer to the counterclaims, asserting thirteen additional affirmative defenses. Bugaboos Eyewear objected to eleven of the thirteen affirmative defenses. First, Bugaboos argued that the defenses of laches and unclean hands could not be asserted against a party standing in the shoes of the federal government. The court disagreed, citing a Ninth Circuit case involving the Clean Air Act finding that the defense of laches “must be invoked sparingly in suits brought to vindicate the public interest.” The court found that laches and unclean hands were proper affirmative defenses to a false marking claim.

The court denied Oakley’s motion to add the additional affirmative defenses, finding that they did nothing more than reframe elements that the counterclaimants were required to prove, and did not actually constitute affirmative defenses. Among the affirmative defenses Oakley sought to add was one based upon advice of counsel. The court noted that in Pequignot, the defendant used advice of counsel in order to rebut the presumption that it had marked its products with intent to deceive the public. The Oakley court concluded that advice of counsel was not an affirmative defense, but instead formed part of the “intent to deceive” analysis. In a recent opinion, the Oakley court dismissed Bugaboos’ false marking counterclaim in its entirety, finding that the warranty card where the allegedly false marking appeared did not constitute advertising as defined by the statute. As these two recent cases illustrate, defendants have been forced to inject some creativity into their attempts to short circuit what may become costly and protracted litigation.

As long as false marking suits continue to be filed at a rapid clip, defendants will be forced to explore new strategies to defend against them.

Of these factors, the court focused on the convenience of the parties and witnesses, the sources of proof, and local interests. The Federal Circuit disagreed with the Eastern District’s conclusion that the convenience of the parties was a neutral factor. Rather, the Federal Circuit found that this factor weighed in favor of the defendants because a substantial number of party witnesses, in addition to the inventor and prosecuting attorneys, resided within the Northern District of California, and transferring the case there would substantially reduce potential costs associated with airfare, meals, lodging, and work productivity.

The Federal Circuit next noted that the ability to subpoena witnesses also favored transfer to the Northern District of California. The Eastern District of Texas would not have the ability to compel the appearance of witnesses from any of the parties to the case other than Texas resident Dell. Having the case before the Northern District, on the other hand, would be invaluable in the event that process would be required to hale relevant witnesses into court.

The source of proof issue again favored the defendants. Many defendants noted that evidence related to such pivotal issues as research, design, development, testing and marketing of accused products would likely be located within the state of California. In comparison, not a single party to the litigation identified any likely source of proof that would be found within the Eastern District of Texas.

Last, the Federal Circuit found that the local interest factor favored transfer. The Federal Circuit noted that although nationwide sale of an accused product does not necessarily give rise to a substantial interest in any single venue, significant connections between a particular venue and the events that give rise to a suit could favor a specific venue. The court noted that in this case, the company asserting the harm and many of the companies alleged to have caused that harm were residents of California, as were the inventor and patent prosecuting attorneys.

In light of its analysis, the Federal Circuit reversed the ruling of the Eastern District of Texas, and ordered that the case be transferred to the Northern District of California. Many plaintiffs are drawn to the Eastern District of Texas due to its reputation as a “plaintiff-friendly” forum. Regardless of whether this reputation is deserved, any plaintiff considering filing suit within that district would be well advised to review In Re Acer America Corp., and to ensure that it has substantial and meaningful contacts within the district, sufficient to defeat a motion to transfer.

Because these amendments are new and their bounds untested, counsel and clients should remain careful when communicating with testifying experts in connection with a litigation.

Under 21 U.S.C. § 355(j)(2)(A)(viii) a generic seeking approval from the FDA for a method of use not claimed in a ‘method of use patent’ for a listed drug must submit a statement declaring the patent does not claim such a use and must remove any mention of the patented method of use from the generic drug label. During its review of Apotex’s label, the FDA concluded that Apotex could omit references to the claimed “once-daily” dosing without sacrificing safety and efficacy. The FDA also found that the downward titration language did not “teach” once-daily dosing. The Federal Circuit disagreed, noting that the FDA is not the arbiter of patent infringement issues and that the mere existence of non-infringing uses does not preclude infringement.

The case is particularly interesting because of the dilemma that Apotex faced. It could not sell its drug without including the FDA-mandated downward titration language. Nonetheless, it was precisely that language that resulted in sales of the drug being enjoined.

John J. Cahill is an apprentice in the Gibbons Intellectual Property Department.

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"American economic security is threatened in a way Congress has failed to recognize. Our biggest challenge is stemming the outflow of jobs, talent, technology and manufacturing. All four losses drain away national economic power. All result from the same cause: chronic under-financing of our innovation infrastructure. Although invisible, it is our nation’s greatest asset. Strengthening it can assure our prosperity and restore our technological leadership. We urgently need to increase invention and make new products that Americans and others will need, want and buy. To increase innovation, however, we must increase investment.

And it is needed immediately because we are already losing our international lead in technology and our global competitiveness. In a recent study, the United States came in dead last of the 40 top technology countries in the world in strengthening its innovation infrastructure over the last decade. Foreign inventive activity has surged to the point where filings in the United States Patent and Trademark Office by foreign entities now equal filings by Americans. Filings in the Chinese patent office by Chinese companies show exponential advances in twelve out of twelve top technologies.

Public finance for increased investment in innovation, however, is not available. It has been exhausted by the cost of two, concurrent and continuing wars and a decade of fiscal mismanagement, saddling us with a huge annual debt payments and recent annual budget deficits of many hundreds of billions of dollars, and this year of $1.5 Trillion. In this recession when tax revenues are down, obtaining even a modest increase in public R&D funding will be difficult, if not impossible. Actually, the challenge will be to avoid cuts in government R&D funding. The Administration recently instructed all agencies except the Defense Department to plan for a 5% reduction. At best, agency budgets will be frozen. Anyway, private investment has always supported much R&D by research-based companies, universities, and other innovators. Only increased private finance, then, can fund the needed increase in research and development. But how do we incentivize increased private investment in innovation? The answer is simple: strengthen the intellectual property systems – patents, trademarks, trade secrets, copyright, but especially patents. What we most need is faster, sounder patent grants, plus swifter, stronger, subtler court enforcement. After all, no one can be expected to invest without confidence in a return. Patents, and the protection of investment they afford, provide the only incentives strong enough to cause a big enough increase in private investment in innovation.

A primary engine of American recovery and resurgence therefore will have to be an improved patent system. Without that, both short-term recovery and long-term prosperity will be stunted. By “system”, I mean primarily the Patent and Trademark Office and the Federal courts, which, along with the International Trade Commission, afford the only mechanisms to enforce patent rights.

Using patents to spur both economic and technological advances is hardly a new idea. They have been a primary engine of economic growth and technological progress since 1790 when the First Congress passed the first Patent Act. Unlike today’s Congress, the founders knew patents promote national prosperity, economic growth, and technological progress. Patents have promoted repeated surges of technological advance, the most recent in the information technology revolution of the 1990’s. Notice that this was the last time our country had a balanced budget. And now, bio-tech shows promise of another surge.

Note, too, that if we strengthen the patent system, the job creation needed if our country is to rehire the 15 million unemployed workers, half from the recent recession, and add 13 million new jobs by 2018 to absorb a growing labor force will naturally follow. So will migrations of the technologically talented. If more R&D is done here, they will come here and stay, at least if we fix our broken visa system. Otherwise, foreign talent studying at our research universities will all return home. Our own leading technologists will also go elsewhere, just as is now happening with U.S. companies such as Intel and Applied Materials. Both will soon open large research laboratories headed by their top American researchers, not in California but in China.

A few commentators, despite all evidence, still assume the nation could afford a large increase in public R&D funding. Others assume that even though public revenue is unavailable, the needed R&D can be funded by company revenues. But that is not realistic. Most innovative companies are new and small. Many do not yet make profitable products. Some do not yet sell any products. Yet the majority of new technologies and 75% of new jobs are now being created by small, young, companies. Therefore, the firms with the least revenue to support their R&D are those most needing and deserving private investment. Biotech start-ups are only one example. Without it, many of them will die. With it, medical science, public health and national wealth will surge. Besides, 2/3 of the economic growth and ¾ of the new jobs since WWII came from innovation, and technology-related jobs pay 2.5 time average salaries.

Well, what is wrong with the present patent system? First, and foremost: delay -- health and welfare-diminishing, wealth-reducing, job- destroying, technology-impeding delay. In some technologies it now takes, at least, 4-6 years even to get a patent. The product life-cycle is often shorter than that. For all technologies the average wait is three years. That is two times longer than in 1990. Too long! And it is going up. Even worse, because nearly all applications must by law be published at 18 months, foreign competitors can pirate inventions for years before the patents issue, for until then patent owners have no rights against infringements whether produced here or imported. No wonder foreign competitors minutely monitor the PTO website! The story is told that thousands of Chinese engineers sit at computers reading U.S. patent applications rather than doing research in labs.

Why such extensive delay? Because for two decades the patent office has been grossly underfunded. And it is still losing ground. It operates entirely on user fees paid by applicants and patent owners -- fees that were set by Congress six years ago -- at levels that do not support necessary operations. The PTO lacks sufficient numbers of examiners, especially experienced examiners, and modern computer systems. Imagine, the government’s own technology agency using decades-old computer technology! These are the principal reasons delays are so long.

The patent system is failing primarily because the patent office is failing. In a single, blunt word, the patent office has become dysfunctional. Applications have tripled, and the PTO simply cannot keep up. Over 735,000 applications sit unread in a warehouse in Alexandria, Virginia. Note that the warehoused applications equate to almost two years worth of filings. Although some 490,000 applications are being examined, their progress is far too slow. And every year another 460,000 more are filed. Of the 1.2 million applications currently awaiting final disposition, only about 350,000 complete the examination process each year. So the backlog, already intolerable, is actually growing by 110,000 applications per year. It is now four times the backlog of 1990.

There are too few examiners – mostly young engineers and scientists -- and too few with experience. Nearly one third of the examiner workforce has been at the PTO for less than 3 years. But it takes at least 3 years for new examiners to become both competent and efficient. Faulty decisions by inexperienced examiners, like delay itself, harm the system and therefore innovation; such examiners allow patent claims they should reject, blocking innovation, and reject ones they should allow, causing further unnecessary delays and costs for Board appeals. And the lack of quality assurance undermines the presumption of patent validity provided by law and also the credibility of patents in the eyes of the media, academia and the Congress.

The trial courts too are hobbled. Most lack sufficient numbers of judges to expeditiously enforce good patents and invalidate bad ones. Almost 100 judicial vacancies remain unfilled, the highest vacancy rate in the history of the country. Most of these have gone unfilled for many, many months, and some for years. That means the courts are normally 12% understaffed. And almost 100 additional district and circuit judgeships are desperately needed but have yet to be authorized by Congress despite repeated requests by the Judiciary for two decades. So, the courts struggle with almost 200 too few judges because of two decades of Congressional neglect, just like the Congressional neglect of the patent office.

The result of course is long litigation delays that diminish the value of patents and add uncertainty that impedes invention and economic growth. Most patent infringement cases now take 3-5 years to verdict, with each appeal adding at least another year. Like patent examinations, litigations are simply too slow both for the pace of technological advances and for domestic and global markets. Delay must be cut at least in half, and soon. Because of delays caused by chronic underfunding of the Judiciary, innovation incentives are shrinking just when the nation needs them to be growing.

The gears of our patent system seem seized up. Ironically, Congressional inaction is discouraging private action. Obviously we need to strengthen and speed up both examinations and litigations, but only public funds can jump start the process. How so? Although PTO operations should remain financed by user fees, it needs an emergency transfusion of public money to overcome its warehouse backlog of 735,000 and equip it to keep up with the annual influx of 460,000 new applications. It needs thousands of additional examiners and salary increases to retain experienced, quality examiners. Most of all, it needs new computer systems and new space to house the existing workforce, as well as new hires. At present, two thousand of the six thousand examiners work at home, as the PTO lacks sufficient workspace for one-third of its workforce. Thus, even if Congress finally raises the fees, which it should, resolving the current crisis still requires a large infusion of public money. That is because much of the fee revenue arrives only years after the patents issue as maintenance fees. But money is needed now. Deferral will have corrosive consequences that cannot be undone. Therefore, I suggest the following emergency steps:

First, a one-time capital investment in the PTO of one billion dollars. It could be spent over the next several fiscal years, but it should be authorized and appropriated promptly. That should be enough to replace the IT systems, which the Director correctly calls “moribund,” and secure work space for the examiners. It probably could also pay for new hires to beat down the backlog.

Second, the Congress must guarantee by law that the PTO can spend an amount equal to the user fees paid by patent applicants and holders. Between 1992 and 2010, Congress diverted $759 million in fees paid to the PTO by patent holders and applicants and directed them instead to other governmental activity. In this year alone, Congress will siphon off an estimated $230 million in PTO user-paid fees. Essentially, PTO users have unwittingly been paying an additional tax subsidizing governmental expenditures that have nothing to do with PTO functions. Permanently ending this Congressional practice, called “fee diversion”, is a necessary precondition to reviving the PTO. If Congress continues spending user fees for other purposes, raising fee levels will have little effect.

But there is a Catch-22. If public R&D funding is already “maxed out” and other public funding otherwise already committed, then how could Congress find a billion dollars for the PTO? Well, when Congress wishes, it freely spends many billions of dollars, such as the $700 billion it provided to Wall St. I suggest only $1 billion, once. Just $1 billion, spread over several years, but provided soon.

Is my suggestion realistic? Yes, if Congress were to follow proper priorities. This public investment is absolutely necessary to our country’s short-term and long-term prosperity.

Well, would such capital investment fix everything that is wrong with the patent office? Maybe not everything, but certainly all the big problems. And, without it, other reforms will surely not suffice. Although other remedial steps are also necessary, most have already been started, at least on a pilot basis, by the new Director, David Kappos. But without an immediate, large, one-time dose of public funding, even his very sound leadership initiatives cannot produce the needed results and do so fast enough. In fact, despite his initiatives, the examiner corps is still shrinking, losing 500 examiners in the last several years. A net loss is again predicted for this year. So just when the patent office needs more examiners, it has fewer.

In his recent testimony before a House Appropriations Subcommittee, Director Kappos admitted that it will take many years to achieve timely examinations even if in the next two fiscal years Congress allows him to hire 1,000 new examiners per year. But since each year 500 leave, the total gain would only be 1,000, not 2,000. A much larger increase in examiners is needed to eliminate the backlog of 735,000 warehoused applications and assure timely examination of 460,000 new applications. My estimate is 3,000 additional examiners are needed if the PTO is to examine all incoming applications within one year.

What else? First, let the PTO open satellite offices in places like Detroit, and Houston, and hire unemployed engineers, patent agents and patent attorneys who are already experienced IP professionals. They can be productive immediately, unlike new graduates who need years of training. But again, Congressional authorization is probably needed. Under current law, most employees must work at the PTO campus in Alexandria, Virginia, or at home with regular reporting in person if living over 50 miles away.

Second, pay examiners better. Congress also controls the pay structure for examiners. But the gap between the examiner pay schedule and the General Schedule for non-technical civil servants is shrinking. Industry, I am sure, would willingly pay higher fees to enable the PTO to pay more competitive salaries to retain skilled examiners. Congress should raise these fees and pay levels.

What about ending the delays in court? In addition to promptly filling nearly 100 vacancies and Congress adding the nearly 100 judgeships long requested, what else could be done?

First, more frequent use of expert special masters to do claim construction and magistrate judges to police discovery would help. Second, discovery should be narrowed. If discovery were limited largely to evidence that can actually be used at trial, much delay as well as excess cost could be avoided. Staging discovery by issue also looks promising. But both require closer judicial supervision which in turn requires more magistrate and district judges.

The bottom line is this: unless Congress invests more in the America patent system, private investors will not. We must encourage investors to boost their investments in order to surge American R&D. The PTO and the courts both need more money, more space and more adjudicators. Congress must “prime the pump”. Only then can private investment take over. This is the only practical way to increase innovation and restore our nation’s competitive advantage. This strategy could restore us as the technology leader of the world, increase private and public revenues and stock values, raise our standard of living and create millions of new, high-paying jobs. With so clear and compelling a strategy, Congress need not hesitate to act.

But because members don’t understand that patents increase prosperity, they must first hear from you, from private sector leaders in law, business, media, and academia. The question is: Will you advocate these reforms to Congress?"

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

Pequignot v. Solo Cup Revisited

On June 10, 2010, the Federal Circuit decided Pequignot v. Solo Cup Company, largely affirming the holding of Judge Leonie Brinkema of the United States District Court for the Eastern District of Virginia. Defendant Solo Cup had prevailed at the district court when Judge Brinkema held that Pequignot failed to establish that Solo Cup had acted with deceptive intent with respect to its falsely marked products. The decision clarified several key points.

First, the Federal Circuit confirmed that an article that was covered by an expired patent is the same as an unpatented article. This determination is important, because it satisfies the first prong of the false marking statute, which requires the marking of an unpatented article by the defendant.

Second, the court addressed burden shifting with respect to establishing deceptive intent to deceive the public, which is the second prong of the false marking statute. The court noted that “the combination of a false statement and knowledge that the statement was false creates a rebuttable presumption of intent to deceive the public, rather than irrebuttably proving such intent.” According to the court, not only may defendants rebut this presumption, but “the bar for proving deceptive intent here is particularly high, given that the false marking statute is a criminal one . . .” The court held that the standard of proof of intent for false marking is a “preponderance of the evidence.” Interestingly, the court also held that in regard to false marking related to expired patents, the “presumption of intent is weaker.” A defendant may not defeat an inference of an intent to deceive with “blind assertions of good faith.” The court confirmed that Solo had successfully rebutted the presumption when it provided evidence that it had relied on advice of counsel, and had carried out a plan to replace molds with unmarked ones as they wore out over time. When Pequignot was unable to raise a genuine issue of material fact showing otherwise, the case was decided in Solo’s favor.

Last, some practitioners had hoped that the Federal Circuit would use the Pequignot decision to revisit the “per article” standard of fines determined in the Bon Tool case. However, the Court threw cold water on such hopes, finding that because the other issues were case dispositive, a determination relating to the assessment of damages was rendered moot, vacating Judge Brinkema’s holding to the contrary at the district court level.

Developments Since Pequignot

Two recent cases have been decided in the district courts of Texas and Florida that address the level of specificity required by a plaintiff when pleading a false marking cause of action. In Patent Compliance Group, Inc. v. Interdesign, Inc., the defendant sought dismissal of the case based partly on a failure to state a claim upon which relief may be based and for failure to plead its false marking claim with requisite specificity under Fed. R. Civ. P. 9(b). In its complaint, plaintiff alleged that the defendant “intended to deceive the public by marking the Patent Expired Product with the ‘842 patent after its expiration.” In support of its allegation, plaintiff attached a copy of the patent, establishing the expiration date, as well as a picture of the actual product labeled with the expired patent number. The court held that this was a sufficient showing to survive the defendant’s motion to dismiss the complaint. Although the court declined to decide whether false marking claims were subject to the heightened fraud pleading standard of Rule 9(b), the court stated that, “[a]rmed with actual documentation that a product was falsely marked, a court may draw an inference of the defendants’ knowledge simply by the finite nature of patents and the ordeal an entity must go through to actively create and maintain a patent . . . Similarly, an actual photograph of a product recently injected into the stream of commerce with an expired patent number also creates an inference of a false statement.” The court cited to Pequignot, noting that defendant’s conclusory statements that it acted in good faith were insufficient to rebut the inference of deceptive intent.

In Advanced Cartridge Technologies, LLC v. Lexmark International Inc., the court took a more skeptical view of the plaintiff’s complaint. Although the Interdesign court specifically avoided the issue of whether Rule 9(b) is applicable to false marking cases, the United States District Court for the Middle District of Florida cited to the rule in holding that that the plaintiff’s complaint was factually deficient. Specifically, the court noted that, “Providing only sparse factual detail, the complaint utterly fails to state with particularity the circumstances constituting fraud.” The court dismissed the false marking claim, but provided the plaintiff leave to refile the complaint with the required degree of specificity.

A Legislative Fix on the Horizon?

In response to the unexpectedly high level of false marking litigation, legislators are scrambling to craft a fix. The Patent Reform Act of 2010 is currently under consideration by Congress (H.R. 4954).  If passed, this legislation would eliminate qui tam suits by requiring plaintiffs to show competitive injury related to false marking. Damages would be assessed in a manner “adequate to compensate for the injury,” as opposed to the current statute, which allows a fine of up to $500 for each article. The legislation as drafted would apply to all pending cases. However, it is not clear when or if this legislation will ever be enacted.

The Court found its basis for rejecting Bilski’s process claims on the grounds that these claims represented an attempt to patent “abstract ideas.” Making reference to its prior opinions in the Benson, Flook and Diehr cases, the Court found that Bilski’s claims “[explained] the basic concept of hedging,” and that this concept represented “an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook.” The Court reasoned that the patent eligibility of these claims would impermissibly “pre-empt used of [hedging] in all fields, and would effectively grant a monopoly over an abstract idea.”

Justice Stevens, writing for himself and joined by Justices Ginsberg, Breyer and Sotomayor, concurred in the judgment of the Court but found that it was unclear how the grounds for rejecting Bilski’s claims as an abstract idea found sufficient support from the Court’s case law. Justice Stevens suggested that because, business methods have historically fallen outside of the subject matter that the Court has considered as patent-eligible, a “wiser” holding would find that Bilski’s claims were patent-ineligible as describing “only a general method of engaging in business transactions.” Justice Breyer, writing for himself and joined in part by Justice Scalia, concurred in the judgment of the Court to emphasize several aspects of the decision receiving full endorsement by the Court.

In Bilski, the Court continues a trend beginning with the KSR and eBay decisions for overturning “bright line” rules set forth by the Federal Circuit on patent questions. The Court asserts that, while disapproving an “exclusive” machine-or-transformation test for determining patent-eligible processes, it has not foreclosed the Federal Circuit’s ability to develop other “limiting criteria.” Nevertheless, it is likely that the Federal Circuit will proceed to craft such criteria henceforth with great caution, and with ample reference to the Court’s prior opinions. It remains to be seen how the United States Patent & Trademark Office will contribute to this process. In the interim, patent applicants would be wise to continue to draft business method claims that satisfy the machine-or-transformation test, and that clearly delimit the claimed method when performed by a machine in a manner defined by the operation of the machine.

The Gibbons Institute of Law, Science & Technology at Seton Hall Law School will present a free webinar - Understanding the Supreme Court's Bilski Decision - on Thursday, July 1, at 9:00 am. For more information or to attend this program, please visit the Gibbons website.

Robert E. Rudnick is a Director in the Gibbons Intellectual Property Department. Thomas J. Bean, Counsel to the Gibbons Intellectual Property Department, assisted in the preparation of this post.

The Dual Requirements for Written Description Are Part of 35 U.S.C. §112

With respect to a patent specification, the first paragraph of 35 U.S.C. § 112 sets forth that the specification shall contain a written description of:

1. the invention; and
2. the manner of making and using the invention (the enablement requirement)

Therefore, there are two requirements set forth in this statute with respect to the written description, one as to the invention and the other as to enablement (the manner of making and using the invention). The case of In re Barker, 194 U.S.P.Q. 474 (C.C.P.A. 1977) explicitly articulated that 35 U.S.C. §112 first paragraph set forth these two separate requirements for written description. To provide a written description of the invention, the specification must include a written description of each and every element of the claimed subject matter. This was enunciated by the Federal Circuit in Lockwood v. American Airlines. In the Lockwood case, the Federal Circuit specifically stated that:

It is the disclosure of the application that counts. Enablement of a filing date does not extend to subject matter which is not disclosed but which would be obvious over what is expressly disclosed.

The Written Description Requirement Has Been The Backbone of U.S. Patent Law Well Before 1967

The requirement for written description was reiterated by the C.C.P.A. in In re Ruschig. In Ruschig, the C.C.P.A. specifically held that a description of a genus does not constitute a description of a claimed subgenus unless that specific claimed subgenus is specifically described in the specification. The Ruschig case was directed to whether the specification contained a written description of a specific claimed compound. The claimed compound in Ruschig had a phenyl group substituted with chlorine and the C.C.P.A., in a prosecution and interference setting, held that there was no written description of this compound even though the application disclosed that phenyl ring could be substituted with chlorine or bromine. Discussing the written description requirement of 35 U.S.C. §112, first paragraph, the C.C.P.A. stated as follows:

Appellants refer to 35 USC 112 as the presumed basis for this rejection and emphasize language therein about enabling one skilled in the art to make the invention, arguing therefrom that one skilled in the art would be enabled by the specification to make chlorpropamide. We find the argument unpersuasive -- the question is not whether he would be so enabled but whether the specification disclosed the compound to him, specifically, as something appellants actually invented.

379 F.2d at 995.

Ariad May Not Affect the Law as to the Written Description Requirement and Its Dual Nature

The outcome of the per curiam appeal in the Ariad case may not affect the law as to the written description requirement and its dual nature because the appeal does not challenge these requirements for written description. The issue in Ariad is whether the describing of a claimed method which utilizes a compound to regulate by altering the transcription factor of specific genes to express proteins is sufficient to provide a written description for this method, even though no specific compound is disclosed for such regulation. Therefore, the Ariad application claims the use of any compound which provides a specific function and the issue is whether this description is sufficient for a written description of the invention and to enable the invention. The issue presented in Ariad is not directed to the fact that there is no new matter claimed which is not disclosed but whether the written description of the invention in chemical and biotech cases requires the definition of compounds by structure, formula, chemical name or physical properties and not by function. Therefore, the Ariad case never really challenges the basic requirements of 35 U.S.C. §112 for written description that, for at least 40 years, have and remain instrumental to the operation of the U.S. patent system.


William H. Epstein is Counsel to the Gibbons Intellectual Property Department.

Differences Between Biological and Chemical Drugs

One of the critical differences between biological drugs and chemical drugs is that biological drugs are made by living cells whose DNA has been modified by introduction of the gene of interest to synthesize the active component. Compared to small molecule drugs made up of only a few dozen atoms, biological drugs can consist of many thousands of atoms making up the protein, which is folded into a complex three-dimensional structure. Living cells synthesizing biological drugs must be grown and maintained in a highly controlled sterile environment and any contamination (viruses, bacteria, mold, etc.) can have catastrophic consequences. The innovator company may seek to protect products and processes -- including gene isolation, cell-line creation, maintaining cell growth and isolation and purification of the biological drug from the cells -- through patents or trade secrets. Follow-on companies will not likely have access to the products or processes and will likely seek to design around any relevant patents.

Argument for a Longer Exclusivity Period

BIO argues that recent trends have been towards narrowing biotech patents, and therefore a substantial exclusivity period is necessary because reliance on patents alone cannot guarantee incentives to foster innovation of biological drugs. This argument may have some support. In an unpublished paper, two law professors stated that for composition of matter patents on biotech drugs:

There does not appear to be a single appellate-level decision in which a patent on the active ingredient of a biotech drug has been found valid and infringed.

The paper also noted that competitors can circumvent patent protection by shifting production of the biotech drugs to foreign countries where no patent protection exists or where enforcement is weak or nonexistent. Although the paper concludes that multiple barriers exist to entry of biosimilars thereby promoting competition and lowering costs, it agrees that a reasonable basis exists for a twelve-year exclusivity term to support innovation of biological drugs.

It appears that a longer term data exclusivity period may be gathering support as a number of organizations and legislators were recently reported to back follow-on biologics bills containing 12-year data exclusivity terms.

The exclusivity debates mark the ongoing dialog in establishing a regulatory pathway for biosimilar drugs. In the upcoming months, we will explore, in a series of posts, the legal and regulatory landscape concerning biosimilars and any notable commercial activities by the pharmaceutical industry as they relate to patents.


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

A few years later, during prosecution of the ‘551 patent, the prosecuting attorney, who was familiar with the EPO opposition proceedings, established a new point of novelty before the USPTO to advance the prosecution of the ‘551 patent. That new point of novelty was that never before was the sensor known to work without a membrane. This assertion directly contradicted an earlier statement made by the applicant during the EPO opposition proceedings.

The Federal Circuit affirmed the district court’s finding of invalidity of U.S. Pat. No. 5,820,551 due to inequitable conduct by applying the standard recently summarized by the Federal Circuit in McKesson Info. Solutions, Inc. v. Bridge Med., Inc.

To establish inequitable conduct by failure to disclose, the asserting party must show materiality of the information and the intent to deceive. The trial court held that the prosecuting attorney knew that to disclose the EPO opposition arguments would defeat the patent grant before the USPTO. The trial court then balanced the levels of materiality and intent, and found the withheld information “richly material” and that the prosecuting attorney had no explanation for his conduct, and that this was proved by clear and convincing evidence.

As we previously posted, a patent applicant’s duty of disclosure may also extend to references and office actions in “similar” but unrelated, co-pending patent applications. The Therasense and McKesson cases show continued development in the caselaw of inequitable conduct. Stay tuned for future developments.

While considering the post trial motions, the Court examined the Federal Rules of Evidence to consider whether the expert’s testimony met the evidentiary threshold. In particular, the court examined the following relevant Federal Rules of Evidence which state: 

Rule 704 . . . testimony in the form of an opinion or inference otherwise admissible is not objectionable because it embraces an ultimate issue to be decided by the trier of fact.

Rule 705 . . . The expert may testify in terms of opinion or inference and give reasons therefor without first testifying to the underlying facts or data, unless the court requires otherwise. The expert may in any event be required to disclose the underlying facts or data on cross-examination.

Rule 103 . . . (a) Error may not be predicated upon a ruling which admits or excludes evidence unless a substantial right of the party is affected, and (1) Objection. In case the ruling is one admitting evidence, a timely objection or motion to strike appears of record, stating the specific ground of objection, if the specific ground was not apparent from the context . . .

The Court stated the expert’s opinion, while conclusory and unsupported, not only satisfied the evidentiary threshold, but fit these rules “as the hand the glove.” But the Court further noted that the Federal Circuit’s Koito decision made clear that, on the issues of anticipation, obviousness, and doctrine of equivalents, the unsupported opinion even of a qualified expert is simply not “substantial evidence” adequate to support a jury verdict. The District Court further explained the tension between the patent laws and the Federal Rules of Evidence:

The central holding of Daubert runs precisely to the contrary – lower federal courts are not permitted to engraft additional hurdles on the admissibility of evidence beyond those found in the Rules themselves. Despite the express teaching of Daubert, this is exactly what Federal Circuit jurisprudence does, at least on the issues of anticipation, obviousness, and doctrine of equivalents.

Notwithstanding Rules 704 and 705, Federal Circuit case law renders legally inadequate the opinions of qualified experts on the ultimate issues of anticipation, obviousness, and doctrine of equivalents unless the bases therefor are spelled out on the record.

Although the tension between the Federal Rules of Evidence (with their statutory authority) and the decisions of the Federal Circuit (with their precedential authority) seems irreconcilable, it is not open to a district court to chose one in disregard of the other. Both requirements necessarily must be followed. (citations and footnotes omitted)

After recognizing the tension between the two areas of law, the Court noted that the expert’s opinion was fatally flawed since its bases were never explained and the jury therefore was not entitled to credit. Absent the expert opinion, the jury had no basis to resolve the issue of obviousness of claims 9-11 and the matter ought not have been given to them to consider. The Court then ordered a new trial on the issues of infringement and invalidity of claims 9-11.

After being illuminated to the hidden disconnect between the two areas of law, Judge Young stated that he would revise his judicial procedures to avoid this issue by, at the earliest possible moment when an expert opinion is proffered on the issues of obviousness, anticipation, written description, or doctrine of equivalents, ruling sua sponte on the adequacy of the testimony. In this manner, Judge Young noted that Judge Lungstrum’s thoughtful opinion in Sprint v. Vonage No. 05-2433, 2007 WL 2572417, at *2 (D. Kan. 2007) would serve as a useful guide.

As a practical matter and to avoid the situation presented in this case, patent litigators should carefully scrutinize all expert testimony being offered by the opposing party. If such testimony lacks the requisite basis, appropriate preemptive relief should be obtained (e.g. through a motion in limine).

Similarly, in a case where the parties requested construction of sixteen terms, Judge Crabb of the Western District of Wisconsin denied the parties’ requests for an early claim construction hearing, stating that “neither [party] met its burden with respect to the need for claims construction.” Semiconductor Energy Laboratory Co., Ltd. v. Samsung Elec. Co., Ltd., No. 09 cv-01, 2009 WL 3731959, at *1 (W.D. Wis. Nov. 4, 2009). In Samsung, the Court issued an order requiring the parties to “persuade the court that construction of each specified term [wa]s necessary to resolve a disputed issue concerning infringement or invalidity.” The Court had issued this order to “avoid devoting judicial resources to the issuance of advisory opinions on the construction of claim terms about which the parties ha[d] no concrete dispute.”

Practice tip: When litigating a patent infringement case, in addition to studying any local patent rules that may be in effect in the jurisdiction in which you are litigating, it is advisable to review decisions by your particular judge and others in the district to see whether the court has been imposing limits on the number of terms they will construe, and if so, be prepared to limit the number of terms and phrases to those most important to your case.

Pequignot v. Solo Cup Company

In Pequignot, Solo Cup initially moved to dismiss for failure to state a claim. Judge Leonie M. Brinkema denied the motion, holding that marking an article with an expired patent number was tantamount to a false marking under the statute. The court found that an article once protected by an expired patent was no different than an article that had never been covered by a patent. The court next denied Solo Cup’s motion to dismiss for lack of subject matter jurisdiction, finding that although Pequignot did not have traditional standing under Article III of the Constitution, the false marking statute was a true qui tam statute, and Pequignot was entitled to recover as an assignee of the government’s claim for any harm that resulted from the false marking of products.

Pequignot’s suit was ultimately derailed on summary judgment when Solo Cup produced evidence that it had relied upon advice from counsel that it was permissible to mark the articles after the patent had expired, taking into account that it would have cost Solo Cup nearly $ 2 million to replace the equipment used to produce the marked lids. Solo Cup’s outside attorneys had advised that such expensive and burdensome steps were unnecessary so long as the equipment was replaced with non-marked substitutes as the parts wore out over time.

Last, the court determined that Pequignot’s suggested construction of the term “offense” to mean “each article” was unsupported. Judge Brinkema held that an “offense” was to be defined as a distinct decision by a defendant to falsely mark an article. Although this issue was not case dispositive, it may be subject to attack on appeal based on Federal Circuit's recent holding in The Forest Group, Inc. v. Bon Tool Company. In that case, the Federal Circuit held that the statutory fine should be assessed on a "per article" basis as opposed to the "per decision to mark" basis favored by Judge Brinkema.

Stauffer v. Brooks Brothers, Inc.

Stauffer’s suit was deemed dead on arrival, and was dismissed for lack of standing. The hypothetical nature of the allegations found within Stauffer’s complaint proved fatal. Stauffer’s allegation that Brooks Brothers’ conduct “wrongfully quelled competition with respect to such bowtie products thereby causing harm to the economy of the United States” was rebutted by declarations and exhibits submitted by Brooks Brothers showing that the adjustolox mechanism was not made by the defendants, but instead by a third party that also sold the mechanism to Brooks Brothers competitors, which actually fostered competition. Finding the standing issue to be dispositive, the court declined to address the failure to state a claim motion.

Lessons For Business Owners

Although the false marking suits brought by Pequignot and Stauffer have to date proved to be unsuccessful (both cases are currently on appeal before the United States Court of Appeals for the Federal Circuit), the suits could have been avoided entirely with some simple preventative planning on the part of the defendants. If it is not feasible to remove an expired patent number, a company should be prepared to produce evidence to that effect. Widely available services such as the USPTO’s internet patent database, and Google’s Patent Search, make it easier than ever for a consumer to access information about almost any patent marking affixed to any product. In a struggling economy, a large corporation with some improperly marked products could provide a tempting target for an enterprising consumer. Even if the likelihood of a plaintiff winning such a suit is remote, companies should take proactive steps to avoid becoming embroiled in litigation.

As you sow, so shall you reap, and in the flurry of legislative activity that has recently ensued, the proposed presumption shift has now made its way into a proposed amendment to antitrust laws. On October 15, 2009, the Judiciary Committee of the U.S. Senate passed a bill that could effectively ban the use of reverse payments to settle Hatch-Waxman actions. The bill, known as the Preserve Access to Affordable Generics Act, would amend the Clayton Antitrust Act, and as initially proposed, would have made reverse payments per se illegal. The bill was subsequently amended to make the payments presumptively illegal, where the presumption can be rebutted upon a showing of a promotion of competition under a clear and convincing standard.

The new proposed legislation again raises the classic dilemma: at what point do antitrust curbs impermissibly cut into patent exclusivity? Given that reverse payments are viewed favorably by both branded drug companies and generics because they provide business flexibility for Hatch-Waxman action settlements, future fights on this issue inevitably remain to be fought.


Sheila F. McShane is a Director in the Gibbons Intellectual Property Department.