Federal Circuit Rejects District Court’s Invalidity Finding Based on Key Tenets of Non-Obviousness

On July 17, 2017, the Federal Circuit issued a precedential decision heavily criticizing the district court’s obviousness analysis invalidating U.S. Patent No. 7,713,446, directed toward a product for the treatment of oncology disease.

In Millennium Pharmaceuticals, Inc., v. Sandoz, Inc., a Hatch-Waxman litigation, the Federal Circuit reversed the United States District Court for the District of Delaware’s finding of invalidity and vacated judgment that was entered based on collateral estoppel.  Nos. 2016-2066, 2016-1008, 2016-1009, 2016-1010, 2016-1109, 2016-1110, 2016-1283, 2016-1762, slip op. at 3 (Fed. Cir. July 17, 2017).  The Federal Circuit held that the district court clearly erred in a number of its legal conclusions in its determination of obviousness under 35 U.S.C. § 103. Continue reading

Join us for the Complimentary Webinar “SaaS Agreements – A View from the Customer’s Perspective”

Please join us on Tuesday, July 25 at 12:00 p.m. Central for the first session in Michael Best’s 2017 intellectual Property Webinar series “SaaS Agreements – A View from the Customer’s Perspective.”

By 2020, nearly 80 percent of all software will be provided as a service rather than as a copy with a license. Companies that are not already operating in the cloud, will be. In this complimentary webinar, attorneys Derek Stettner and Gregory Helding will discuss key points to consider when negotiating a Software as a Service (SaaS) contract, mainly from a customer’s perspective.

Discussion topics include ownership of customizations, data rights, information security and confidentiality, usage metrics, uptime and performance warranties, issue response and resolution times, and contract termination. Register here.

Future topics in the series include:

Post Sale Conditions and IP

Tuesday, August 29, 2017

12:00 – 1:00 p.m. Central

Presented by Kenneth M. Albridge and Jeffrey D. Peterson

Register here.

 IT Systems, Privacy, Data Security

Tuesday, September 26, 2017

12:00 – 1:00 p.m. Central

Presented Joseph A. Bichanich and Thomas J. Otterlee

Register here.

Marketing and Brand Enforcement / IP Theft Related to Patents and Trademarks

Tuesday, October 24, 2017

12:00 – 1:00 p.m.

Presented by Michelle E. Kouba

Register here.

Navigating the Public Use and On Sale Bars

Tuesday, November 28, 2017

12:00 – 1:00 p.m. Central

Presented by Kenneth M. Albridge and J. Donald Best

Register here.

If you are interested in any of these topics, but are unable to attend, please feel free to reach out to the blog editors. We would be happy to arrange an onsite training for you and your legal, technology and/or marketing teams as appropriate.

Genband v. Metaswitch Outlines Permanent Injunction Standards for Infringing Sales of Multicomponent Products

This week the Federal Circuit issued its decision in Genband US LLC v. Metaswitch Networks Corp., No. 2017-1148 (Fed. Cir. July 10, 2017) (precedential), which vacated a district court’s order denying a request for a permanent injunction in a case involving two competitors in the telecommunications industry. The opinion synthesizes and clarifies a prior series of rulings regarding the proper standards for evaluating irreparable harm in requests for injunctive relief regarding sales of multicomponent products.

In 2006, the Supreme Court reemphasized the four-factor equitable test that a patentee must satisfy to obtain a permanent injunction in a patent infringement action: (1) whether the patentee has suffered irreparable injury, (2) whether other remedies, such as monetary damages, are inadequate to compensate for that injury; (3) whether an injunction is warranted in view of the balance of hardships between the patentee and infringer; and (4) whether an injunction would adversely affect the public interest. eBay Inc. v. MercExchange LLC, 547 U.S. 388, 391 (2006). The Court emphasized that the ultimate decision whether to grant an injunction falls within the equitable discretion of the district courts. Id. at 394. Since eBay, the Federal Circuit has worked to craft guidelines for district courts applying the four-factor test, particularly where the infringing activity relates to multicomponent products. In a series of decisions in the long-running Apple v. Samsung dispute, the Federal Circuit held that demonstrating irreparable harm in such cases requires “some causal nexus” between infringing features of the defendant’s products and sales lost by the patentee. Apple, Inc. v. Samsung Elecs. Co., 735 F.3d 1352, 1364 (Fed. Cir. 2013) (Apple III); see also Apple, Inc. v. Samsung Elecs. Co., 678 F.3d 1314, 1324 (Fed. Cir. 2012) (Apple I); Apple, Inc. v. Samsung Elecs. Co., 695 F.3d 1370, 1374-75 (Fed. Cir. 2012) (Apple II); Apple, Inc. v. Samsung Elecs. Co., 809 F.3d 633, 640 (Fed. Cir. 2015) (Apple IV).

In Genband, the Federal Circuit revisited those decisions and the causal-nexus requirement. Genband accused Metaswitch of infringing several patents by selling complex telecommunications products. A jury found the asserted claims valid and infringed and awarded Genband over $8 million in damages. After a subsequent bench trial, the district court declined to issue a permanent injunction, concluding that Genband failed to establish as part of the irreparable harm inquiry that patented features drove demand for the infringing products. The district court cited the Apple v. Samsung line of cases in reaching its conclusion.

On review, the Federal Circuit concluded that it could not determine whether the district court had applied the correct legal standard. The court acknowledged that statements in the Apple cases could harbor ambiguity by framing the causal nexus inquiry in terms of whether patented features “drive demand” for the infringing products—i.e., whether the patented features must be the driver, or merely a driver, for consumer demand. Accordingly, the Federal Circuit explained that “it has been clear since at least Apple III” that the less rigorous standard applies. Thus, a patented feature need not be the sole reason that consumers purchase an infringing product to establish the required causal nexus. The patentee need only show that the patented features significantly influenced consumer demand, which can be established in a variety of ways, such as through evidence that the patented features significantly increased the appeal of the infringing products, evidence that omitting the patented features would make those products less desirable, or evidence that the patented feature is one of several features that consumers use to make purchasing decisions.

Because the district court offered scant analysis of the causal nexus requirement in its opinion, the Federal Circuit panel could not discern whether the district court applied the correct standard or whether doing so would make a difference in the outcome. Accordingly, the Federal Circuit concluded that remand was warranted for the district court to evaluate irreparable harm under the correct standard. The court also briefly addressed the district court’s ancillary conclusion that Genband’s delay in bringing suit and failure to request a preliminary injunction weighed against granting a permanent injunction. The Federal Circuit noted that various considerations could reasonably explain Genband’s choices without prejudging the harm resulting from Metaswitch’s infringement. But the court also rejected Genband’s position that a patentee’s choices about when to sue and whether to seek preliminary relief should be categorically irrelevant to the propriety of a permanent injunction, holding that the district court remained free to weigh those issues on remand.

The Federal Circuit’s decision provides helpful clarity for parties seeking or defending against permanent injunctive relief, particularly in high-tech sectors characterized by multi-component products and multi-purchaser markets. The court’s synthesis of the Apple v. Samsung cases provides substantial flexibility in what kinds of evidence can suffice to establish a causal nexus in the irreparable harm inquiry, and creative plaintiffs seeking injunctive relief can be expected to advance a variety of theories going forward.

Other Notable Decisions – Week of July 7, 2017

Google Inc. v. Intellectual Ventures II LLC, Nos. 2016-1543, 2016-1545 (Fed. Cir. July 10, 2017) (non-precedential). In Google, the Federal Circuit vacated and remanded part of a Patent Trial and Appeal Board decision that had upheld several claims over anticipation and obviousness challenges during inter partes review. The court held that the Board did not adequately explain its findings that the asserted prior art did not disclose certain limitations recited in the claims. In particular, the Board’s stated explanations that it did not agree with, or was not persuaded by, the petitioner’s positions fell short of providing an affirmative explanation of how and why the Board reached its conclusions. The Board also failed to identify or adopt affirmative contrary evidence to substantiate its findings and failed to address or even acknowledge various evidence submitted by the petitioner. This decision is another in a growing line of opinions in which the Federal Circuit has reversed or vacated AIA trial decisions based on the Board’s failure to adequately explain its factual findings and ultimate conclusions on patentability. Accordingly, Google v. I.V. highlights a key issue for parties considering appeal from an unfavorable Board decision, particularly in light of the court’s otherwise largely deferential review the Board has received.

Securus Techs., Inc. v. Global Tel*Link Corp., No. 2016-2573 (Fed. Cir. July 14, 2017) (non-precedential). The Federal Circuit reviewed another IPR decision in Securus, affirming the Board’s final written decision upholding the patentability of the challenged claims. Of note, the petitioner based its challenge in part on an issue of claim construction, arguing that a claim limitation that concluded with a colon followed by a series of additional steps separated by semicolons included only the first step immediately following the colon. As a general proposition, the court agreed that the colon following the first limitation “is indicative of a list of particulars to follow,” and the court further held that the most natural reading of the limitation was one that included not only the first step following the colon, but also all subsequent steps associated with the limitation. The court also noted that the specification supported that reading of the claims. The Securus decision provides an example of the importance that punctuation can have in the claim construction process—an important reminder to patent prosecutors and litigators alike.

Federal Circuit Reverses Eastern District of Texas Denial of Attorneys’ Fees Motion

A little over three years ago, the Supreme Court’s decisions in Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014) and Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744 (2014) drastically changed the Federal Circuit’s standards governing the award of attorneys’ fees under 35 U.S.C. § 285, making attorneys’ fees easier to recover in district court patent litigation and increasing deference toward fee decisions on appeal. In Highmark, the Supreme Court held that “an appellate court should review all aspects of a district court’s § 285 determination for abuse of discretion.” 134 S. Ct. at 1747. And in Octane, the Supreme Court explained that § 285 “imposes one and only one constraint” on that discretion—“[t]he power is reserved for ‘exceptional’ cases,” which the Supreme Court characterized as those standing out from others “with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” 134 S. Ct. at 1755-56. Since that time, the Federal Circuit has had a number of occasions to address § 285 determinations by the district courts and generally recognized the deference owed to the district courts in deciding fee motions. However, it also has recognized that deference is not absolute.

On July 5, 2017, the Federal Circuit issued a precedential decision in AdjustaCam, LLC v. Newegg, Inc., No. 2016-1882, slip op. (Fed. Cir. July 5, 2017), reinforcing the limits on a district court’s discretion to deny fee motions under Octane. In AdjustaCam, the Federal Circuit held that the United States District Court for the Eastern District of Texas abused its discretion by not awarding fees to the defendants because “its decision was based on a clearly erroneous assessment of the evidence.” Id. at 10 (quotations omitted). “Where a district court bases its decision on a clearly erroneous view of the evidence, as it did here,” the Federal Circuit explained, “the court abuses its discretion in denying fees.” Id. at 10.

The Federal Circuit had previously remanded the case with instructions to evaluate the defendants’ motion for fees under the new Octane standards. AdjustaCam, LLC v. Newegg, Inc., 626 F. App’x 987, 991 (Fed. Cir. 2015). On remand, however, the district court simply adopted the fact findings from its prior, pre-Octane exceptional case determination and concluded that the plaintiff’s infringement and validity arguments were not so weak, and its litigation conduct was not so poor, as to make the case stand out from others. The Federal Circuit disagreed.

First, the Federal Circuit found that while the plaintiff “may have filed a weak infringement lawsuit,” the “suit became baseless after the district court’s Markman order” because there was “no dispute” about how the accused products functioned and “no possible way for [the accused] products to infringe.” AdjustaCam, slip op. at 13-14. According to the Federal Circuit, those are “traits of an exceptional case” that “warranted” an award of fees. Id. at 14. The Federal Circuit also found that the plaintiff litigated the case in an unreasonable manner by repeatedly using “after-the-fact [expert] declarations” to press its frivolous arguments. Id. at 14-15. Finally, the Federal Circuit took note of “irregularities in [the plaintiff’s] damages model” and “the purported nuisance value of many of its settlements,” which the Federal Circuit concluded “should have played a role” in the district court’s exceptional case determination. Id. at 15-16. The Federal Circuit therefore reversed the district court’s decision and remanded the case with instructions to calculate attorneys’ fees.

The Federal Circuit’s decision in AdjustaCam is another example demonstrating that post-Octane, § 285’s authorization to award attorneys’ fees in exceptional cases has teeth.  And the decision illustrates how parties defending against nuisance-value lawsuits in plaintiff-friendly jurisdictions traditionally viewed as reluctant to award fees can nevertheless leverage the Octane standard to their advantage.

Other Notable Decisions – Week of July 7, 2017

Shinn Fu Co. of Am., Inc. v. Tire Hanger Corp., No. 2016-2250 (Fed. Cir. July 3, 2017) (non-precedential): In Shinn Fu, the Federal Circuit vacated and remanded a Patent Trial and Appeal Board decision granting a patent owner’s motion to amend in an inter partes review proceeding. The Federal Circuit concluded “that the Board erred by ignoring the manner in which [the petitioner] proposed its obviousness combinations in opposition to [the patent owner’s] motion to amend.” The patent owner’s combinations sought to modify “prior art references by adding features from particular references together,” whereas “the Board addressed the prior art references by removing elements from individual references to achieve the resulting combination and found no motivation to combine the reference in this manner.” “Because the Board did not provide any analysis with regard to the manner in which [the petitioner] proposed its key obviousness combination,” the Federal Circuit found it had “no meaningful way to review the Board’s patentability determination in light of [the petitioner’s] arguments.”

Hitachi Metals, Ltd. v. Alliance of Rare-Earth Permanent Magnet Indus., Nos. 2016-1824, 2016-1825 (Fed. Cir. July 6, 2017) (non-precedential): In Hitachi, the Federal Circuit largely affirmed the Patent Trial and Appeal Board’s unpatentability determinations in two related inter partes review proceedings.  The Federal Circuit mostly upheld the Board’s obviousness determinations based on “the Board’s findings that the prior art elements were well-known, one of ordinary skill would have known how to combine them, and the results of so doing would have been predictable.”  The Federal Circuit also upheld the Board’s anticipation determination, rejecting a claim construction challenge by the patent owner and reasoning “that the doctrine of claim differentiation requires” the Board’s construction.  The Federal Circuit, however, reversed the Board’s obvious determinations as to two dependent claims based on a separate claim construction issue.

IPCom GmbH & Co. v. HTC Corp., No. 2016-1474 (Fed. Cir. July 7, 2017) (precedential): In IPCom, the Federal Circuit affirmed the Patent Trial and Appeal Board’s obviousness findings in inter partes reexamination proceedings except as to a single means-plus-function limitation, which the Federal Circuit concluded was erroneously construed.  With respect to the claim construction issue, the Federal Circuit reaffirmed that § 112 ¶ 6 “applies regardless of the context in which the interpretation of means-plus-function language arises, i.e., whether as part of a patentability determination in the PTO or as part of a validity or infringement determination in a court.”  It then concluded that “[t]he Board’s analysis was erroneous because it never specified what it believed was the actual algorithm disclosed in the [challenged] patent for performing the [claimed] function.”  Instead, the Board “impermissibly treated the means-plus-function limitation in its patentability analysis as if it were a purely functional limitation.”  Accordingly, the Federal Circuit vacated the Board’s claim construction of that limitation and remanded “for the Board to identify the corresponding algorithm (if any) in the specification in the first instance.”

Federal Circuit Holds that the USPTO May Recover Attorneys’ Fees in Actions Under 35 U.S.C. § 145

On June 23, 2017, in Nantkwest, Inc. v. Matal, No. 2016-1794, slip op. (Fed. Cir. June 23, 2017) (precedential), the Federal Circuit held that the United States Patent and Trademark Office (USPTO) may recover the pro-rata share of the attorneys’ fees it incurs to defend an applicant’s appeal under 35 U.S.C. § 145.

Section 145 provides:

[a]n applicant dissatisfied with the decision of the Patent Trial and Appeal Board . . . may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the Eastern District of Virginia . . . . All the expenses of the proceedings shall be paid by the applicant.

35 U.S.C. § 145 (emphasis added). After prevailing at the district court on the merits, the USPTO filed a motion to recover over $110,000 of its fees under the § 145 expense provision, including nearly $80,000 in attorneys’ fees and a little over $30,000 in expert fees. Nantkwest, Inc., slip op. at 3. The district court granted the requested witness’ fees but denied the requested attorneys’ fees, citing the “American Rule” that “litigants pay their own attorneys’ fees, win or lose, unless as statute or contract [specifically and explicitly] provides otherwise. Id. at 3. The district court concluded that the “all expenses” provision was neither sufficiently specific nor explicit enough for the authorization of attorneys’ fees under the Rule. Id. at 3-4.

On appeal, the Federal Circuit initially questioned whether the American Rule was even applicable, given that the § 145 expense provision makes no reference to prevailing parties. Id. at 5. Nevertheless, it concluded that “even under this Rule, the expenses at issue . . . include the USPTO’s attorneys’ fees.” Id. at 6.

Relying on Wright & Miller on Federal Practice and Procedure, Black’s Law Dictionary, and the Supreme Court’s recent decision in Taniguchi v. Kan Pacific Saipan, Ltd., 132 S. Ct. 1997 (2006), the Federal Circuit observed that the term “expenses” generally is understood to include “costs” and “attorneys’ fees.” Id. at 7-10. And it found no merit in the applicant’s contention that the term “expenses” in § 145 was unclear in light of Congress’ enactment of statutory provisions authorizing recovery of “attorneys’ fees” in addition to “expenses” in other contexts. Id. at 9-11. Such usage, the Federal Circuit commented, “cannot be sufficient to dislodge the reasonable and ordinary meaning” of the term “expenses,” especially in the context of § 145 “where Congress explicitly authorized compensation for ‘all expenses of the proceedings.’” Id. at 10-11.

Moreover, the Federal Circuit reasoned, the USPTO “relies on personnel from the Office of the Solicitor” who “received fixed salaries as compensation.” Id. at 12. Because they do not bill individual hours for their work or collect fees from those they represent, the Federal Circuit found that the overhead associated with their work is more precisely characterized as an “expense” to the government than a “fee.” Id.

Finally, the Federal Circuit rejected the applicant’s argument that the USPTO’s attorneys’ fees are not expenses of the proceeding because the USPTO would have to pay the attorneys’ salaries regardless of the lawsuit. Id. at 13-15. The Federal Circuit noted that it and other circuits have awarded fees to salaried employees where litigation requires diversion of resources, and that it could not be “credibly disputed that the USPTO dedicated time and resources of its attorneys to the defense of [the] litigation when it could have otherwise applied those resources to other matters.” Id. at 14-15. Accordingly, the Federal Circuit concluded that “§ 145 entitles the USPTO to compensation for the diversion of its resources in the defense of § 145 appeals.” Id. at 15.

The Federal Circuit’s holding in Nantkwest greatly increases the cost of pursuing a § 145 action in response to an adverse Board decision. As the facts of Nantkwest reveal, the USPTO’s ability to now recover its attorneys’ fees can be the difference between a low five-figure bill and six-figure bill at the conclusion of the proceedings. Those contemplating filing a § 145 action, instead of appealing to the Federal Circuit, will need to carefully evaluate whether incurring that additional expense is justified in the context of their specific circumstances.

Other Notable Decisions – Week of June 23, 2017

Cole Kepro Int’l, LLC v. VSR Indus., Inc., No. 2016-2258 (Fed. Cir. June 19, 2017) (non-precedential):  In Cole, the Federal Circuit affirmed a Patent Trial and Appeal Board determination of obviousness in an inter partes review proceeding. In doing so, the Federal Circuit concluded substantial evidence supported the Board’s finding that the patent owner’s “licensing evidence, while entitled to weight, did not overcome [the petitioner’s] prima facie case of obviousness.”  That evidence, according to the Federal Circuit, included the following: “(1) all of the submitted licenses convey rights beyond the [challenged] patent; (2) most of [the] licenses do not separately apportion the royalty rate for the [challenged] patent; (3) the per-unit royalty amounts ‘appear to be quite small compared to the value of the machine’; and (4) the lump-sum amount of at least one of the licenses is ‘difficult to square with [the patent owner’s] assertion that the total value of each of the licenses exceeded potential litigation costs.’” In addition, the Federal Circuit found the patent owner’s argument that the license agreements were not entered into for the purpose of settling patent infringement litigation was “significantly weakened by one of the submitted licenses, which expressly recites the parties’ wishes to resolve an ongoing patent litigation by entering into the licensing agreement.”

Nexlearn, LLC v. Allen Interactions, Inc., Nos. 2016-2170, 2016-2221 (Fed. Cir. June 19, 2017) (precedential): In Nexlearn, the Federal Circuit affirmed a district court’s dismissal of a patent infringement action for lack of personal jurisdiction.  The Federal Circuit concluded that the defendant’s pre-issuance activities directed toward the forum state were “not relevant” to the specific jurisdiction inquiry, reasoning that the plaintiff’s infringement claim did not “proximately arise from these actions” because they did not occur “during the term of the patent.” In addition, the Federal Circuit found that the defendant’s website, which included the forum state in a “dropdown” menu with billing-address information, and two post-issuance communications by the defendant arguably offering to sell the alleged infringing software in the forum were “too attenuated” to establish personal jurisdiction over the defendant.

Federal Circuit Finds Inventor Testimony Inadequate to Establish A Common Inventive Entity Under 35 U.S.C. § 102(e)

On June 15, 2017, the Federal Circuit rejected a patent owner’s attempt to establish with uncorroborated and conclusory inventor testimony that an alleged prior art reference was not “by another” under pre-AIA 35 U.S.C. § 102(e).

In EmeraChem Holdings, LLC v. Volkswagon Group of Am., Inc., No. 2016-1984, slip op. (Fed. Cir. June 15, 2017) (precedential), the Federal Circuit largely affirmed an obviousness determination by the Patent Trial and Appeal Board in an inter partes review proceeding based on a prior art patent listing some, but not all, of the inventors listed on the challenged patent. Section 102(e) provides: “A person shall be entitled to a patent unless . . . the invention was described in patent granted on an application for patent by another filed in the United States before the invention thereof by the applicant for patent . . . .” 35 U.S.C. § 102(e) (2010) (emphasis added). “The statute’s reference to ‘by another’ means that an application issued to the same inventive entity cannot qualify as § 102(e) prior art.” EmeraChem, slip op. at 5. “However, the relevant question is not whether references list different inventors, but whether the portions of the reference relied on as prior art, and the subject matter of the claims in question, represent the work of a common inventive entity.” Id. at 5-6. (quotations omitted).

On appeal, the patent owner argued that the inventors of the challenged patent solely conceived of and invented the subject matter in the alleged prior art reference that was cited against the patent, relying on an inventor declaration to that effect. Id. at 6. The inventor’s testimony, the patent owner argued, established a common inventive entity and required reversal of the Board’s determination that the reference was prior art.  Id.

The Federal Circuit disagreed, finding that the inventor declaration “by itself fail[ed] to demonstrate that the portions of [the reference] relied upon as prior art and the subject matter at issue in the [challenged patent] share a common entity.” Id. According to the Federal Circuit, the declaration amounted to “a naked assertion by an inventor that he and a co-inventor are the true inventors of the passages cited.” Id. “Nothing in the declaration itself, or in addition to the declaration,” the Federal Circuit said, “provides any context, explanation, or evidence to lend credence to the inventor’s bare assertion.” Id.

Nevertheless, the Federal Circuit refused to “hold that corroboration of an inventor’s declaration is required in every case.” Id. It also commented that “it cannot be the case that the high degree of corroboration emphasized” in cases like Woodland Trust v. Flowertree Nursery, Inc., 148 F.3d 1368 (Fed. Cir. 1998) and Sandt Technology, Ltd. v. Resco Metal & Plastics Corp., 264 F.3d 1344 (Fed. Cir. 2001) “is required across the board,” observing that “even non-documentary, circumstantial evidence may sufficiently corroborate” in certain cases. EmeraChem, slip op. at 10. Instead, the Federal Circuit merely held “in this case” that the declaration was insufficient. Id. at 10-11.

Though the Federal Circuit in EmeraChem suggested that the corroboration requirement on inventor testimony may be flexible in certain circumstances, the outcome of the case serves as an important reminder that less is not more when relying on an inventor’s testimony regarding inventive facts.

Other Notable Decisions – Week of June 16, 2017

One-E-Way, Inc. v. Int’l Trade Comm’n, No. 2016-2105 (Fed. Cir. June 12, 2017) (precedential): In One-E-Way, the International Trade Commission found that a patentee’s asserted claims, which recited the term “virtually free from interference,” were invalid as indefinite. The Federal Circuit reversed, emphasizing that “relative terms and words of degree do not render patent claims invalid” if the “claims, viewed in light of the specification and prosecution history, inform those skilled in the art about the scope of the invention with reasonable certainty.” Having found that the specification and prosecution history of the patents-in-suit provided “a clear line such that it informs those skilled in the art about the scope of the invention with reasonable certainty,” the Federal Circuit reasoned that “[t]he term ‘virtually’ does not expand ‘free from interference’ without end: it simply requires that the claimed invention does not allow for eavesdropping.” “Thus,” the Federal Circuit concluded, “the term ‘virtually free from interference’ satisfies the requirements of § 112 ¶ 2.”

Cleveland Clinic Found. v. True Health Diagnostics LLC, No. 2016-1766 (Fed. Cir. June 16, 2017) (precedential): In Cleveland Clinic, the Federal Circuit affirmed a district court’s dismissal order based on findings of patent ineligibility and failure to state a claim for contributory and induced infringement. The Federal Circuit found no error in the district court’s analysis of “representative claims” for purposes of determining patent eligibility, reasoning that “the claims are substantially similar and linked to the same law of nature.” It also rejected the patentee’s argument that the district court should have undertaken claim construction and developed the factual and expert report before analyzing patent eligibility, noting that the Federal Circuit has “repeatedly affirmed § 101 rejections at the motion to dismiss stage, before claim construction or significant discovery has commenced.” Regarding the contributory infringement claim, the Federal Circuit found that the defendant merely provided “testing services”—not a “material or apparatus” as required by § 271(c)—and therefore could not be liable for contributory infringement. As to the induced infringement claim, the Federal Circuit found that the patentee had failed to “show specific intent and action” on behalf of the defendant to induce infringement.

Outdry Techs. Corp. v. Geox S.p.A., No. 2016-1769 (Fed. Cir. June 16, 2017) (precedential): In Outdry, the Federal Circuit affirmed an obviousness determination by the Patent Trial and Appeal Board in an inter partes review proceeding, and rejected a patent owner’s arguments that the Board failed to adequately articulate a reason to combine the prior art. The Federal Circuit acknowledged that it has “criticized the Board for failing to adequately explain it findings.” “Missing from those Board decisions,” the Federal Circuit explained, “were citations to evidence, reasoned explanations, or explicit findings necessary . . . to review for substantial evidence.” It concluded, however, that “[t]he Board’s decision here does not suffer from similar deficiencies,” finding that the Board “identified a precise and specific reason why a person of ordinary skill in the art would have been motivated to modify [the prior art], explained why one of skill would have been so motivated, and cited evidence in the references to support its reasoning.” The Federal Circuit also emphasized that “[a]ny motivation to combine references, whether articulated in the references themselves or supported by evidence of the knowledge of a skilled artisan, is sufficient to combine those references to arrive at the claimed [invention]”—it “need not be the same motivation articulated in the patent for making the claimed combination.”

Federal Circuit Concludes that the PTAB’s Estoppel Determinations Under 35 U.S.C. § 325(e)(1) Are Appealable

On June 9, 2017, the Federal Circuit issued a precedential decision addressing whether an estoppel determination by the Patent Trial and Appeal Board under 35 U.S.C. § 325(e)(1) is appealable. In Credit Acceptance Corp. v. Westlake Services, No. 2016-2001, slip op. (Fed. Cir. June 9, 2017), the Federal Circuit concluded that it was.

The appeal related to two parallel Covered Business Method (CBM) proceedings involving the same patent and the same petitioner. The first proceeding was instituted on certain claims prior to the Supreme Court’s decision in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014), and the second was instituted on the remaining claims in view of the developments in 35 U.S.C. § 101 jurisprudence following that decision. The proceedings then continued in parallel until the first proceeding concluded with a final written decision finding the instituted claims unpatentable under § 101. The patent owner subsequently moved to terminate the second proceeding, arguing that the petitioner was estopped from challenging the remaining claims in the second proceeding under § 325(e)(1). The Board rejected this argument, reasoning that estoppel under § 325(e)(1) applies on a claim-by-claim basis.

Section 325(e)(1), which governs PGR and CBM proceedings, provides as follows:

Proceedings before the Office.—The petitioner in a post-grant review of a claim in a patent under this chapter that results in a final written decision under section 328(a), or the real party in interest or privy of the petitioner, may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that post-grant review.

Id. On appeal, the Federal Circuit agreed with the Board on the merits, concluding that § 325(e)(1) “does not apply in a subsequent proceeding to claims upon which the Board declined to institute review.” See Credit Acceptance Corp., slip op. at 12-15. Before reaching the merits, however, the Federal Circuit decided as a “threshold matter” whether the issue was even appealable. See id. at 7-12. The petitioner, joined by the United States Patent and Trademark Office (Patent Office), argued that it was not. The Federal Circuit disagreed.

The Patent Office, for its part, argued that “the Board’s estoppel decision is akin to a decision to institute review, which is nonappealable.” Id. at 7. Rejecting this argument, the Federal Circuit characterized the estoppel provision of § 325(e)(1) and the comparable IPR provision, § 315(e)(1), as “distinct” from the issues addressed in Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016), where the Supreme Court held that “Board decisions are nonappealable where the grounds for attacking the decision to institute inter partes review consist of questions that are closely tied to the application of statutes related to the Patent Office’s decision to initiate inter partes review.” Credit Acceptance Corp., slip op. at 7-8 (quotations omitted).

Section 325(e)(1), the Federal Circuit emphasized, “does not refer to ‘institution’ decisions and in fact is not limited to institution decisions”—by its terms, it can “operate to terminate a proceeding even where there existed no cause for termination at the time a petition was instituted.” Id. at 8-9. Moreover, the Federal Circuit commented, “it would be inconsistent to hold that a Board decision on estoppel under § 325(e)(1) is nonappealable but that a decision on estoppel under the parallel provision applicable to district court and ITC proceedings is appealable.” Id. at 10. Reasoning that application of “different appealability standards between the Board and district courts (and the ITC) could lead to conflicting outcomes,” the Federal Circuit found that the “practical need for uniformity weighs strongly in favor of appealability.” Id. at 10-11. The Federal Circuit thus concluded that “the estoppel dispute in this case is neither a challenge to the Board’s institution decision, nor is it closely tied to any statute related to the Patent Office’s decision to initiate CBM review.” Id. at 11 (quotations omitted).

The petitioner nonetheless further argued that the Federal Circuit, under 35 U.S.C. § 141(c), is only permitted to review a final written decision of the Board, and that the order denying the patent owner’s motion to terminate is not a final written decision. Id. The Federal Circuit quickly dispensed with the petitioner’s argument, noting that “[b]ecause the statute prohibits an estopped petitioner from maintaining a proceeding, the Board necessarily found that [petitioner] was not estopped when it issued its final written decision,” which the patent owner had properly appealed from. Id. at 12. Accordingly, the Federal Circuit concluded that it had “jurisdiction to review the [patent owner’s] estoppel argument regarding 35 U.S.C. § 325(e)(1).” Id.

Though the Federal Circuit’s holding was limited to § 325(e)(1) and the facts of the case did not involve an estoppel determination at the institution stage, the decision seems likely to provide substantial guidance regarding the appealability of other statutory estoppel determinations made in connection with post-grant proceedings under the America Invents Act. At a minimum, it is another important decision in this continually developing area of law. Cf. Husky Injection Molding Sys. Ltd. v. Athena Automation Ltd., 838 F.3d 1236 (Fed. Cir. 2016) (finding no jurisdiction to review the Board’s application of the equitable doctrine of assignor estoppel).

Other Notable Decisions – Week of June 9, 2017

New World Int’l, Inc. v. Ford Global Techs., LLC, No. 2016-2097 (Fed. Cir. June 8, 2017) (precedential): In New World, the Federal Circuit affirmed a district court’s dismissal of a declaratory judgment action for lack of personal jurisdiction. In doing so, the Federal Circuit reiterated its past holdings “that it is improper to predicate personal jurisdiction on the act of sending ordinary cease and desist letters into a forum, without more.” It also held that “the mere existence of an exclusive license does not support a finding of specific jurisdiction” absent an obligation “to defend or enforce the patent.” Though the defendant had an exclusive licensee doing business in the forum, the Federal Circuit found that the defendant retained “nearly complete control over the patent enforcement decision.” The Federal Circuit therefore concluded that the defendant’s “pertinent contacts” with the forum were “limited to . . . cease and desist letters” and insufficient to support the exercise of specific personal jurisdiction.

Rothschild Connected Devices Innovations, LLC v. Guardian Protection Servs., Inc., No. 2016-2521 (Fed. Cir. June 5, 2017) (precedential): In Rothschild, the Federal Circuit reversed a district court’s denial of a request for attorney fees pursuant to 35 U.S.C. § 285. The Federal Circuit found that the district court “clearly erred by failing to consider the [plaintiff’s] willful ignorance of the prior art” presented by the defendant in a Rule 11(c)(2) safe-harbor notice and prior correspondence, and rejected the defendant’s reliance on “conclusory and unsupported statements” from the defendant’s counsel and founder claiming a good faith belief in the validity of the patent-in-suit. It also found that the district court “erred as a matter of law when, as part of its analysis, it stated that an attorney fee award under § 285 would contravene the aims of Rule 11’s safe-harbor provision,” reasoning that “[w]hether a party avoids or engages in sanctionable conduct under Rule 11(b) is not the appropriate benchmark.”

Checkpoint Sys., Inc. v. All-Tag Security S.A., No. 2016-1397 (Fed. Cir. June 5, 2017) (precedential): In Checkpoint, the Federal Circuit reversed a district court’s award of attorney fees under 35 U.S.C. § 285. The Federal Circuit rejected the district court’s conclusion that the lawsuit was brought for an improper purpose (e.g, to interfere with the defendant’s business and to protect its own competitive advantage), finding that no “harassment or abuse” was shown. “[M]otivation to implement the statutory patent right based on a reasonable belief in infringement,” the Federal Circuit emphasized, “is not an improper motive.” The Federal Circuit also found the plaintiff’s survival of summary judgment and Daubert motions to be indicative of the objective reasonableness of the plaintiff’s claims. According to the Federal Circuit, the record showed “that the charge of infringement was reasonable and the litigation was not brought in bad faith or with abusive tactics.”