Federal Court Lacked Jurisdiction over DJ for Non-Infringement; Where Defendant Did not Own the Patent

In First Data Corp. v. Inselberg, [2016-2677, 2016-2696] (September 15, 2017), the Federal Circuit affirmed the district court’s dismissal of plaintiff’s declaratory judgment and defendant’s counterclaims.

The ownership dispute regarding Inselberg’s patent portfolio stemmed from a $500,000 loan that Interactive received from Bisignano, which  Inselberg personally guaranteed, and for which Interactive granted Bisignano a security interest in the portfolio of patents it owned at the time.  Inselberg and Interactive defaulted on the loan from Bisignano, and Inselberg and Bisignano entered into an agreement that purported to
convey Interactive’s patent portfolio to Bisignano.

Inselberg claimed that the assignment to Bisignano was invalid, and that Bisignano and First Data were infringers.  Bisignano and First Data brought a declaratory judgment action of non-infringement in Federal Court, and Inselberg brought an action in state court attacking the assignment to Bisignano, which Bisignano removed to Federal Court.  However the district court found that the rights at issue in the case were ownership rights turning on questions of state law, and remanded the case to state court, finding that there was no federal cause of action unless and until Inselberg recovers the patents.

The Federal Circuit agreed with the district court, and further found that the case was not ripe for adjudication Inselberg’s claim rests upon a contingent future event, that may not occur as anticipated or may not occur at all.  The Federal Circuit further found that the decision to remand was based on 28 U.S.C. § 1447(c), and thus Section 1447(d) precluded it from reviewing the district court’s remand order.

 

 

 

 

Accused Trade Secret Thief Failed to Make Uber Showing Required for Writ of Mandamus

In Waymo LLC v. Uber Technologies, Inc., [2017-2235, 2017-2253] (September 13, 2017), the Federal Circuit denied intervenor  Levandowski’s petition for a writ of mandamus.  Waymo alleges
that its former employee, Levandowski, improperly downloaded thousands of documents related to Waymo’s driverless vehicle technology and then left Waymo to found Ottomotto, which Uber subsequently acquired.  Before the acquisition closed, counsel for Ottomotto and Uber (but not counsel for Mr. Levandowski) jointly retained a law firm to investigate  Ottomotto employees previously employed by Waymo, including Mr. Levandowski.  Waymo sought to obtain the report, which the court permitted, and Levandowski unsuccessfully attempted to block with a write of mandamus.  The Federal Circuit said that a petitioner has to show three things to be entitled to the writ:

First, the party seeking issuance of the writ must have no other adequate means to attain the relief he desires—a condition designed to ensure that the writ will not be used as a substitute for the regular appeals process. Second, the petitioner must satisfy the burden of showing that his right to issuance of the writ is clear and indisputable. Third, even if the first two prerequisites have been met, the issuing court, in the exercise of its discretion, must be satisfied that the writ is appropriate
under the circumstances.

The Federal Circuit found that Levandowski failed the first test — establishing he had no other adequate remedy.  While Levandowski argued that an appeal after the disclosure was in effect no remedy, the Federal Circuit concluded that a post-judgment appeal by either Uber or Levandowski would suffice to protect the rights of Levandowski and ensure the vitality of attorney-client privilege.  The Federal Circuit went on to find that Levandowski failed to show that his right to issuance of the writ was clear and indisputable.  Finally, the Federal Circuit said that  Levandowski had not persuaded it to exercise its discretion here and overrule the District Court.

Mere Quantification of the Results of a Known Process is Not Patentable

In Southwire Co. v. Cerro Wire LLC, [2016-2287](September 8, 2017), the Federal Circuit affirmed the PTAB’s decision in an inter partes reexamination that the claims of U.S. Patent No. 7,557,301 on a method of making cable are unpatentable under 35 USC 103.

The invention related to the inclusion of lubricant in the plastic jacket of electrical cable that will migrate to the exterior of the sheath and lubricate the surface during installation.  The Board affirmed the Examiner’s rejection of the claims over prior art that included a fiber optic cable that can include a friction reducing additive that migrates to the surface of the cable jacket.  Although the prior art did not specifically teach some of the details, such as a 30% reduction in pulling force, the Board held that where the claimed and prior art products are produced by identical or substantially identical processes, a prima facie case of either anticipation
or obviousness has been established, and thus the claimed details were inherent.

The Federal Circuit found that the Board erred in relying on inherency in making its obviousness determination. The use of inherency in the
context of obviousness must be carefully circumscribed because that which may be inherent is not necessarily known and that which is unknown cannot be obvious.  While the Federal Circuit has recognized that inherency may supply a missing claim limitation in an obviousness
analysis, the limitation at issue necessarily must be present in order to be inherently disclosed by the reference.  The Federal Circuit noted that the Board cited no evidence that the claimed 30% reduction in the pulling force would necessarily result from the claimed process, which contains no steps that ensure such reduction.

Thus the Federal Circuit found that the Board erred in relying on inherency without finding that Summers necessarily would achieve the claimed 30% reduction in pulling force, but rather finding that it
merely renders that limitation obvious. However, the Federal Circuit concluded that the Board’s error was harmless because it did not need to invoke inherency.

The Federal Circuit said that none of the patented steps differs in any material way from the process disclosed in the prior art, and there was no evidence that the claimed 30% reduction in pulling force would have been unexpected or unattainable.  In fact, the Federal Circuit said there was no evidence that the process disclosed in the prior art the at least 30% reduction.  Simply because the prior art never quantified the reduction in pulling force achieved by its disclosed embodiments
does not preclude the possibility, or even likelihood, that its process achieved the claimed at least a 30% reduction, especially since its stated purpose was the same.  The Federal Circuit concluded that In the
absence of any evidence that the claimed 30% reduction would have been unexpected in light of the prior art, there is no indication that the limitation is anything other than mere quantification of the results of
a known process.

 

as that

Follow-on IPR Petitions are Unfair to Patent Owners and an Inefficient Use of the Process

In General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha,  IPR2016-01357,  Paper 19, (September 6, 2017), and IPR2016-01358, IPR2016-01359, IPR2016-01360, and IPR2016-01361, an expanded panel of the PTAB denied reconsideration of the Decision Denying Institution.

Petitioner filed a first set of petitions seeking inter partes review of U.S. Patent No. 9,046,820 and U.S. Patent No. 8,909,094, which were denied based upon the merits. Nine months after the filing of the first set of petitions, Petitioner filed five follow-on petitions, two against the ‘820 patent, and three against the ‘094 patent, all of which were denied pursuant to 35 U.S.C. § 314(a) and 37 C.F.R. § 42.108(a).

In exercising its discretion to deny each of the follow-on petitions, the Board considered the seven NVIDIA factors:

  1. Whether the same petitioner previously filed a petition directed to the same claims of the same patent;
  2. Whether at the time of filing of the first petition the petitioner knew of the prior art asserted in the second petition or should have known of it;
  3. Whether at the time of filing of the second petition the petitioner
    already received the patent owner’s preliminary response to the first petition or received the Board’s decision on whether to institute
    review in the first petition;
  4. The length of time that elapsed between the time the petitioner learned of the prior art asserted in the second petition and the filing of the second petition;
  5. Whether the petitioner provides adequate explanation for the time
    elapsed between the filings of multiple petitions directed to the same claims of the same patent;
  6. The finite resources of the Board; and
  7. The requirement under 35 U.S.C. § 316(a)(11) to issue a final
    determination not later than 1 year after the date on which the Director notices institution of review

Applying these factors to the follow-on petitions, the Board concluded that the circumstances did not warrant institution of inter partes reviews.  As to Factor 1, the Board noted that the same claims of the same patent were at issue in the follow-on petitions as in the denied petitions.  As to Factors 2 and 3, the follow-on petitions were all filed nine months
after the filing of the first-filed petitions, and after Patent Owner had filed its Preliminary Responses to the first-filed petitions, and after the Board had denied institution, without any meaningful explanation for the delay. With respect to Factors 4 and 5, Petitioner provided no explanation of any unexpected circumstances that prompted the new prior art searches, or for the delay in doing so.  With respect to Factor 6, the Board found that its resources would be more fairly expended on initial petitions, rather than follow-on petitions.

In addition the Board found that that Petitioner had modified its challenges in the follow-on petitions in an attempt to cure the deficiencies that the Board identified in its first-filed petitions, and that this shift tin Petitioner’s challenges was not the consequence of a position that Patent Owner surprisingly advanced or the Board surprisingly adopted.  The Board found that the filing of sequential attacks against the same claims, with the opportunity to morph positions along the way, imposes inequities on Patent Owner.

On rehearing the expanded Board rejected the arguments raised by petitioner.   The expanded board agreed that there is no per se rule precluding the filing of follow-on petitions, and noted that it has consistently considered a number of factors.  The Board recognized that an objective of the AIA is to provide an effective and efficient alternative to district court litigation, but also recognized the potential for abuse of the review process by repeated attacks on patents.  The Board said that multiple, staggered petitions challenging the same patent and same claims raise the potential for abuse. The absence of any restrictions on follow-on petitions would allow petitioners the opportunity to strategically stage their prior art and arguments in multiple petitions, using our decisions as a roadmap, until a ground is found that results in the grant of review.  This is unfair to patent owners and is an inefficient use of the inter partes review process and other postgrant review processes.

The Board recognized that there may be circumstances where multiple petitions by the same petitioner against the same claims of a patent should be permitted, said that the factors it uses represents a formulation of relevant considerations, and while there may be additional factors, the identified factors are a good baseline.  The Board reiterated that institution is committed the this discretion of the Commission, acting through the Board.  Reweighing the factors on rehearing, the Board found that six of the seven factors weigh against institution.

 

 

 

BRI-Proof Your Claims

There are many benefits to employing means + function claiming under 35 USC §112(f) and the Federal Circuit recently pointed out a new one: protecting your claims from the application by the Broadest Reasonable Interpretation (BRI) claim construction paradigm employed by USPTO in reexaminations. reissues, PGRs, IPRs and CBMRs. In IPCOM GmbH & Co. v. HRC Corp., [2016-1474] (July 7, 2017), previously discussed here, the Federal Circuit said that the PTO may not disregard the structure disclosed in the specification corresponding to means + function elements when rendering a patentability determination.

Thus including some means + function claims in a claim set may prevent the Patent Office from using BRI to stretch an otherwise valid claim to the point of invalidity.  Of course there are other benefits from means + function claiming, including:

  • It allows “gerrymandering” of claim scope through selectively  including or excluding corresponding structures in the specification.
  • It helps avoid problems with the disclosure/dedication doctrine, where disclosed but unclaimed subject matter cannot be covered by the doctrine of equivalents, and is dedicated to the public.
  • When claims are amended using means + function elements, statutory equivalents under §112(f) are available, even if prosecution history estoppel bars the doctrine of equivalents.

All of which suggest that means + function elements can be a valuable tool for getting the maximum claim scope.

 

 

 

 

 

Patents Don’t Sue People, People Sue People

On July 13, 2017, The Subcommittee on Courts, Intellectual Property and the Internet of the House Judiciary Committee held a hearing on The Impact of Bad Patents on American Businesses.  Such a loaded topic should strike fear in the hearts of the many of us who work diligently to protect our clients’ legitimate inventions. However, the statement of former Chief Judge of the Federal Circuit Paul R. Michel was a bright spot.  As Judge Michel correctly observed, “[p]atents are neither bad nor good.”

Judge Michel extended his long history of service to the patent community, detailing a recent sharp decline in the value of U.S. patents, which he attributes to, among other things, the failure of the three Branches of Government to adequately coordinate their interventions to improve performance of the system.  Judge Michel calls out the USPTO for implementing AIA reviews with procedures that, in certain respects, departed from Congressional intent.  He called out the Supreme Court for revolutionizing the law of patent eligibility, while providing wholly inadequate
guidance for those who must apply the new standards.  Finally he calls out Congress for focusing more on the relatively minor problem of frivolous assertion, rather than addressing the more significant issue of patent eligibility.

Judge Michel concludes that:

In view of all the developments of the past few years, to pile on still more patent “reform” at this juncture when the system is still reeling from the destabilizing and degrading effects of recent interventions by all three Branches seems inappropriate.

Hopefully, Congress will follow his very wise counsel.

 

 

Patent Rights are So Anemic, They’re Exhausted on First Sale

The Supreme Court in Impression Products, Inc. v. Lexmark International, Inc., has once again reversed the Federal Circuit, holding that a sale of a patented product by (or on behalf of) the patent owner, whether in the U.S. or outside the U.S. exhausts the patent owner’s rights, allowing any subsequent purchase to use the patented patented product without infringing the patent.  The Supreme Court allowed that the first purchaser might be bound by contractual restrictions imposed by the patent owner, but said that these restrictions do not apply to subsequent purchasers, in effect allowing the first purchaser to sell more that the first purchaser acquired.

Since its the Supreme Court — the decision must be correct, but the Court did appear to get one thing wrong.  In his opinion, Chief Justice Roberts said “extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit form the extra control that the patentees retain.”  While it may not have made a difference, the Court did not really examine the benefits of post sale restrictions.

In the case before it, post sale restrictions allowed Lexmark to make its products robust enough to be reused without fear that its own recycled products would be used against it.  While there are a number of strategies that Lexmark might employ post Impression Products, one would certainly be to redesign their products so that can only be used once.  This may clog the landfills, but it allows Lexmark to capture the value of its innovation.

Another example of the benefits of post sale restriction is in the pricing patented products for the local market.  A pharmaceutical manufacturer that sells a life saving daily medication for $2 in the U.S., might sell the same medication in a poorer country for less — this maximizes manufacturer’s revenue, and it makes the therapy more available.  However in a world with patent exhaustion, the manufacturer has to consider the effect of the potential reimportation of the drug, and may have to deny access to the therapy at a locally affordable price.

One can imagine a number of similar scenarios where post-sale patent restrictions not only benefit the patent owner, but the public at large.  While it might “clog the channels of commerce” if the patent owner imposed restrictions that were not apparent from the product, it seems a minor burden if the product is prominently labeled with the restrictions, and contrary to the Supreme Court’s assessment, such restrictions can provide more than a “little benefit.”

In the wake of Impression Products, there are certainly strategies that patent owners can follow to avoid the negative effects of exhaustion.  Prominent placement of trademarks on products is one strategy: If Lexmark’s cartridges had an embossed message: “Genuine Lexmark Toner Inside.”  Could a third party refill the cartridges and sell them? It may be possible to avoid the effects of foreign exhaustion through the use of separate entities, although this may require that manufacturing be moved off-shore, so that the U.S. Patent owner imports the products for the U.S. market, but does not otherwise participate in the manufacture and sale.

Congress should consider acting to restrict patent exhaustion, at least in the case of products that are prominently marked, and it should also consider restricting patent exhaustion for foreign sales.  These sales are often made in territories where the U.S. patent holder has no protection, and may even be facing competitive price pressure.  Finding the importation into the U.S. of a product sold abroad is an infringement, is no greater burden on commerce than finding the importation into the U.S. of a third party product is an infringement.  It is already an expectation that moving a product across a border can be an act of infringement.

The Supreme Court’s decision in Impression Products makes it harder for patentees to wring the full value of their innovations from their commercialization.  However, there still are strategies that patentees can take to address the more aggressive application of exhaustion, and Congress should reweigh the burden on commerce versus the benefits of allowing patentees to retain some control over the patented inventions.

 

Lack of Proof That Infringement was But For Cause of Lost Sales or Price Erosion Defeats Permanent Injunction

In Nichia Corp. v. Everlight Americas, Inc., [2016-1585, 2016-1618] (April 28, 2017), the Federal Circuit affirmed the district court’s judgment that U.S. Patent Nos. 8,530,250, 7,432,589, and 7,462,870, directed to LED devices, were valid and infringed, as well as the district court’s denial of a permanent injunction.

The Federal Circuit affirmed the district court’s construction of “lead,” rejecting the argument that it should have been construed to mean “the conductive portion of the device that makes an electrical connection to a structure outside of the device” rather than “the portion of the device that conducts electricity.”  The Federal Circuit also affirmed the district court’s construction of “planar,” rejecting the argument that it should have been construed to mean “no measurable surface variation,” rather than “in a substantially same plane.” Thus the Federal Circuit affirmed the finding of infringement.

With respect to validity, the Federal Circuit found substantial evidence supported the district court’s conclusion that some of the references asserted were not analogous, that claim elements were missing from other references, and that there was a lack of motivation to combine,  and thus that the patents were not proven obvious.

As to Nichia’s appeal, the district court held that Nichia failed to show that it had suffered irreparable harm and that remedies at law provided Nichia inadequate compensation.  The Federal Circuit agreed that Nichia failed to show irreparable harm, and thus did not reach the adequacy of compensation issue.  The Federal Circuit said that an injunction in patent law must be justified like any other: the moving party must satisfy the court that relief is needed. Applying “well established principles of equity” the Federal Circuit found the showing of irreparable harm lacking.

The district court noted the absence of meaningful competition between the parties.  The district court also found that Nichia had failed to establish past irreparable harm, or the likelihood of irreparable harm in the future based on lost sales” or “based on price erosion.”  The district court further found that Nichia’s licensing of the patents to major competitors suggested that harm from “infringement of the patents-in-suit is not irreparable.”  Finally, the district court found that Nichia’s licensing practices have made multiple low-priced non-infringing alternatives from competitors available to replace the accused Everlight products if such products were not available.

The Federal Circuit deferred to the district court because the court heard these arguments as the original finder of fact and concluded to the contrary, carefully weighing both parties’ evidence.  The Federal Circuit agreed that that parties sold in different markets, and Nichia failed to prove that any competition between the parties was meaningful.  The Federal Circuit noted that Nichia failed to show the infringement was the “but for” cause of even one lost sale, or the “but for” cause of price erosion.

The Federal Circuit rejected a rule that the patentee’s licensing activities automatically barred injunctive relief, but had no problem with considering licensing activities as a factor.  Because Nichia failed to establish one of the four equitable factors, the court did not abuse its discretion in denying Nichia’s request for an injunction.

It is interesting that principles of equity can defeat the Constitutionally established “exclusive rights” to inventions and discovery, yet principals of equity are insufficient to extend laches to patent cases.

IPR Estoppel: Ripe for Gamesmanship?

In Douglas Dynamics LLC, v. Meyer Products LLC, [14-cv-886-jdp] (D. Wisc. Document # 68 April 18. 2017), the district court considered the scope of estoppel after an IPR. The Court identified three categories of potentially estopped grounds:

  1. Grounds not petitioned.
  2. Grounds petitioned but not instituted
  3. Grounds instituted.

As to the instituted grounds, these are clearly estopped.  As to the grounds petitioned but not instituted, after weighing the competing policy considerations, the court concluded that these were not estopped, citing Verinata Health, Inc. v. Ariosa Diagnostics, Inc., No. 12-cv-5501, 2017 WL 235048, at *3 (N.D. Cal. Jan. 19, 2017) (collecting cases). Finally with respect to the grounds not petitioned, the court concluded that these were grounds that could have been raised, and thus were estopped.  The Court cited SAS Inst., Inc. v. ComplementSoft, LLC., 825 F.3d 1341, 1354 (Fed. Cir. 2016) (Newman, J., dissenting), as well as Precision Fabrics Grp., Inc. v. Tietex Int’l, Ltd., No. 13-cv-645, 2016 WL 6839394, at *9 (M.D.N.C. Nov. 21, 2016); Clearlamp, LLC v. LKQ Corp., No. 12-cv-2533, 2016 WL 4734389, at *8 (N.D. Ill. Mar. 18, 2016).

The impact of this decision, is that the PTAB’s decision not to institute on a particular grounds actually hurts the patent owner, because estoppel does not apply.  A patent owner would be much better off if the ground were instituted, and denied.  Then, the challenger could not re-raise the grounds in court.

While the district court’s decision that the grounds that were not included in the petition were grounds that “could have been raised” and thus estopped, this determination creates a perverse incentive for patent challengers.  A patent challenger is much better off including these grounds in the IPR petition, perhaps in a way that essentiall guarantees they won’t be instituted, thereby insulating these grounds from the application of estoppel.  The district court noted that it is not bound by a refusal to institute, and while it will consider the PTAB’s reasoning “to the extent it is persuasive”, if the reason for not instituting is that the grounds were not completely developed, a district court likely would allow the challenger not only to re-present the grounds, but to more fully develop it.

While the PTAB has the discretion not to institute an IPR, when they do so, they aren’t doing any favors for a Patent Owner.  The PTAB should liberally institute IPRs on the grounds that challengers present.  Denying the grounds in the final written decision instead of the institution decision better protects the  Patent Owner.