Patent Docs

NeuroGrafix v. Brainlab, Inc. (Fed. Cir. 2019)

By Kevin E. Noonan --

One person's attempt at judicial economy can be another person's impermissible shortcut, and when it arises in the context of a summary judgment motion of noninfringement, it can amount to legal (or at least procedural) error on appeal.  Such is the case in NeuroGrafix v. Brainlab, Inc., decided last week by the Federal Circuit in the context of multidistrict litigation over magnetic image resonance (MRI) technology.

The case at bar arose when NeuroGrafix sued Brainlab for infringement of U.S. Patent No. 5,560,360; because NeuroGrafix concomitantly sued several other entities using (or producing) MRI technology, the cases were consolidated in the District of Massachusetts for pretrial activities.  The '360 patent is directed to "methods and systems for creating detailed images of neural tissues by using diffusion tensor imaging (DTI)" (a particular application of MRI technology).  As explained in the opinion, certain biological tissues behave differentially with regard to water diffusion.  Water diffusion in white matter in brain, for example, is anisotropic, meaning that diffusion along one axis (the long axis of an axon) is easier than diffusion along the cross-sectional axis.  Gray matter is isotropic; water diffusion rates cannot be distinguished based on direction.  These differences provide the basis for the claimed invention, wherein "pulsed magnetic field gradients are applied in two orthogonal (perpendicular) directions in a region containing the nerve tissues for which a precise image is sought."  In some tissues the directions to be interrogated are known from the nature of the tissue, while in others informative perpendicular directional pairs are determined empirically.  The differences noted above between isotropic and anisotropic tissues (or portions of tissues) "can be identified and visually differentiated from the surrounding structures by determining the areas of greater relative anisotropy."

This technology was claimed in representative claim 36 of the '360 patent:

36.  A method of utilizing magnetic resonance to determine the shape and position of a structure, said method including the steps of:
    (a) exposing a region to a magnetic polarizing field including a predetermined arrangement of diffusion-weighted gradients, the region including a selected structure that exhibits diffusion anisotropy and other structures that do not exhibit diffusion anisotropy;
    (b) exposing the region to an electromagnetic excitation field;
    (c) for each of said diffusion-weighted gradients, sensing a resonant response of the region to the excitation field and the polarizing field including the diffusion-weighted gradient and producing an output indicative of the resonant response; and
    (d) vector processing said outputs to generate data representative of anisotropic diffusion exhibited by said selected structure in the region, regardless of the alignment of said diffusion weighted gradients with respect to the orientation of said selected structure; and
    (e) processing said data representative of anisotropic diffusion to generate a data set describing the shape and position of said selected structure in the region, said data set distinguishing said selected structure from other structures in the region that do not exhibit diffusion anisotropy.

NeuroGrafix sued based on direct infringement (35 U.S.C. § 271(a)) and inducement of infringement (35 U.S.C. § 271(b)), and Brainlab counterclaimed for a declaratory judgment of invalidity.  After consolidation, the Massachusetts Court granted-in-part Brainlab's motion for summary judgment that NeuroGrafix was estopped by an earlier settlement agreement with one of Brainlab's suppliers (Siemens) and for NeuroGrafix's literal infringement allegations against individual medical practitioners, for failure to provide any of the exemplary medical practitioner defendants had actually used Brainlab's products.  After NeuroGrafix's unsuccessful attempt to amend its complaint to name Brainlab as a literal infringer, the Massachusetts Court granted Brainlab's second summary judgment motion of noninfringement "that users of the software do not commit direct infringement and therefore Brainlab could not be liable for induced infringement."  The basis for the purported lack of literal infringement was that users of Brainlab's product do not satisfy the "selected structure" limitation and the "do not exhibit the diffusion anisotropy" limitation.  With regard to the former limitation, Brainlab argued that the process of "selection" meant that a user knows the "existence and location" of whatever structure was interrogated before practicing the other limitations of the claimed methods.  Brainlab's product was not used in this way, according to its motion, but rather its software "automatically generates all tracts that intersect a certain volume, like a tumor, if they meet certain criteria," and those tracts "are not visible until after [its] software has been run."  Brainlab also argued that this limitation applied only to peripheral nerves, while its software was limited in application to brain.  Finally with regard to the anisotropy limitation, its construction required zero diffusion anisotropy which is not a property of gray matter in the human brain upon which its MRI-based methods were directed.

These arguments convinced the MDL Court, which granted summary judgment, although rejecting all of Brainlab's arguments.  Instead, the Court determined Brainlab was entitled to summary judgment because NeuroGrafix had not shown any evidence that users used the software in an infringing matter (there being "nothing in the record showing that either Brainlab or any of its customers actually uses [its software] in the manner hypothesized by Neuro[G]rafix").  The Court also held that it was possible to use Brainlab's software in ways that did or did not infringe.  Finally, the Court (albeit in a footnote) held that Brainlab did not induce infringement (outside Brainlab's "no induced infringement without literal infringement" argument) because NeuroGrafix had not provided evidence to permit the Court to infer "an affirmative intent to infringe."

NeuroGrafix moved for reconsideration before the MDL Court as well as the District Court after remand to consider Brainlab's counterclaim of invalidity.  That District Court (Northern District of Illinois) denied the motion, dismissed Brainlab's counterclaim, and entered judgment.  This appeal followed.

The Federal Circuit reversed, in an opinion by Judge Taranto joined by Judges Newman and O'Malley.  The basis for this decision was essentially procedural:  the MDL Court had granted summary judgment for NeuroGrafix's purported evidentiary failures under circumstances where NeuroGrafix, as non-movant, had no burden to produce evidence because Brainlab argued its software was incapable of infringing (based on its construction of the "selected structure" limitation).  The opinion cites the several iterations of this argument in Brainlab's motion, arguments, and expert testimony.  In opposition, NeuroGrafix had argued that Brainlab's software could be practiced in an infringing manner, asserting Brainlab's advertisements, and the MDL Court eventually agreed that Brainlab's software could be used in an infringing and non-infringing manner.  "That showing was sufficient for NeuroGrafix to defeat summary judgment," according to the Federal Circuit's opinion, because it raised a genuine issue of material fact and "[e]vidence of actual infringing uses" were not necessary.  After all, the opinion recites, "[a] court cannot grant summary judgment on a ground that was neither asserted by the movant nor made the subject of judicial action under Rule 56(f) that gave the nonmovant proper notice of the ground and of the obligation 'to come forward with all of her evidence,'" citing Celotex Corp. v. Catrett, 477 U.S. 317, 326 (1986).  "The MDL court's ruling was contrary to those basic principles in that it granted summary judgment against NeuroGrafix for its failure to come forward with evidence to answer a non-infringement ground that had not been asserted and of which it had not been given proper notice," according to the opinion.

That the Court's grounds for reaching this decision are substantially procedural is further evidenced by it mentioning, in the next judicial breath, that NeuroGrafix cannot sustain a claim for literal infringement based merely on Brainlab's software being "capable of" infringing; NeuroGrafix must establish uses of the software that actually infringes," according to the opinion.  As for the MDL court (and the impermissibility of judicial economy as the basis for its decision), the opinion states:

[T]he motion being considered by the district court in this case was one structured and limited by the movant.  The court was not free to look down the road and consider what the non-movant might need to establish to survive a differently structured, well-supported motion.

For similar reasons, the opinion disapproved the MDL Court's "apparent holding that Brainlab's advertisements and manual do not induce infringement as a matter of law."  Brainlab's argument, that "Brainlab cannot induce infringement of the asserted claims of the '360 patent" because "[a]bsent direct infringement, there can be no induced infringement" does not support the MDL Court's conclusion that "the relevant Brainlab materials merely suggested that an infringing use was possible rather than instructing how to use the software in an infringing manner," according to the panel, and "[t]o the extent that this conclusion was an independent basis for the MDL court's grant of summary judgment," the Federal Circuit reversed the lower court's summary judgment grant.

But while the judicial economy sauce may not be proper for the MDL Court goose, it is perfectly appropriate for the Federal Circuit gander with regard to the proper construction of the claim term "selected structure."  The judicial logic to this dichotomy is supported by the logic that, ultimately the question can come before the Court for de novo review so the question might as well be decided now.  Based on the evidence before it (and in the absence of any claim construction below), the panel concluded that "to 'select[] [a] structure' is simply to choose it as a subject for placement into the claimed process that starts with exposing a region to a magnetic field, proceeds to sensing a resonant response, and continues as claimed."  The Court based this construction on the plain meaning of the claim, the use of the term "select" in the specification, and the Court's perception of how the MDL Court considered the meaning of this term in rejecting Brainlab's argument that the selected structure needed to be known beforehand.  While laboring on this construction, the opinion also rejects claim construction arguments asserted by both parties.  For Brainlab, the panel rejected the argument that "tracks all fibers in an area cannot perform the method, because the tracking is not limited to a particular selected structure" as being inconsistent with the plain meaning of claim 36.  For NeuroGrafix, the panel rejected its "always infringes" contention that "selected structure" is equivalent to "region," which the opinion states "is the polar opposite of Brainlab's never-infringes contention, and [] is equally wrong" and "contradicts the claim language" because claim 36 uses these terms distinctly differently.

NeuroGrafix v. Brainlab, Inc. (Fed. Cir. 2019)
Panel: Circuit Judges Newman, O'Malley, and Taranto
Opinion by Circuit Judge Taranto

Additional Disclaimer: MBHB represented NeuroGrafix before the U.S. District Court for the Northern District of Illinois.  To the extent that this case summary contains any opinions, the opinions would be of Dr. Noonan and not NeuroGrafix or MBHB.

Aker Biomarine Antarctic AS v. Rimfrost AS (Fed. Cir. 2019)

By Donald Zuhn --

Earlier this month, in Aker Biomarine Antarctic AS v. Rimfrost AS, the Federal Circuit affirmed two final written decisions by the U.S. Patent and Trademark Office Patent Trial and Appeal Board finding claims 1-19 of U.S. Patent No. 9,028,877 and claims 1-20 of 9,078,905 to be unpatentable as obvious.  The '877 and '905 patents, which concern bioeffective krill oil, are assigned to Aker Biomarine Antarctic AS.

According to the patents, krill oil can be useful for "decreasing cholesterol, inhibiting platelet adhesion, inhibiting artery plaque formation, preventing hyper-tension, controlling arthritis symptoms, preventing skin cancer, enhancing transdermal transport, reducing . . . pre-menstrual symptoms or controlling blood glucose levels in a patient."  However, the patents also disclose that antarctic krill is challenging to use to produce krill oil because lipases degrade the oil during storage and transport.  Antarctic krill are small, swimming crustaceans found in the Antarctic waters of the Southern Ocean.  The '877 patent claims a method of producing krill oil and encapsulating it, and the '905 patent claims encapsulated krill oil of various compositions.  Claim 1 of the '877 patent, which the opinion indicates is exemplary, recites:

1.  A method of production of krill oil comprising:
    a)  providing krill;
    b)  treating said krill to denature lipases and phospholipases in said krill to provide a denatured krill product; and
    c)  extracting oil from said denatured krill product with a polar solvent to provide a krill oil with from about 3% to about 10% w/w ether phospholipids; from about 27% to 50% w/w non-ether phospholipids so that the amount of total phospholipids in said krill oil is from about 30% to 60% w/w; and from about 20% to 50% w/w triglycerides, wherein said steps a and b are performed on a ship.

Claim 12 of the '905 patent, which the opinion indicates is exemplary, recites:

12.  Encapsulated krill oil comprising:
    a capsule containing an effective amount of krill oil, said krill oil comprising from about 3% to about 10% w/w ether phospholipids; from about 27% to 50% w/w non-ether phospholipids so that the amount of total phospholipids in the composition is from about 30% to 60% w/w; and from about 20% to 50% w/w triglycerides.

Rimfrost AS petitioned for inter partes review of both patents, and the Board determined that claims 1–19 of the '877 patent and claims 1–20 of the '905 patent would have been obvious in view of U.S. Patent Application Publication No. US 2010/0143571 ("Brievik"), International Publication No. WO 2007/123424 ("Catchpole"), and Fricke et al., Lipid, Sterol and Fatty Acid Composition of Antarctic Krill (Euphausia superba Dana), 19 LIPIDS 821 (1984) ("Fricke 1984") (with respect to claim limitations requiring treating the krill with heat to denature lipases and extracting the krill oil with a polar solvent), or Catchpole and Fricke 1984 (with respect to compositions, wherein Catchpole was relied on for disclosing the total, ether, and non-ether phospholipid parameters recited in the claims, and Fricke 1984 was relied on for disclosing the triglyceride levels recited in the claims).  Before the Board, Aker disputed whether a person of skill would have been motivated to combine the references with a reasonable expectation of success and whether the prior art taught away from using krill oil to treat inflammatory conditions. The Board rejected those arguments and found the claims to be unpatentable as obvious.  Aker appealed.

On appeal, Aker argued that a person of skill would not have been motivated to combine the asserted references, and with regard to the '905 patent, challenged the Board's finding that the prior art did not teach away from using krill oil to treat inflammatory conditions.  With respect to its first argument, Aker contended that because the krill oils analyzed in the references were obtained using different starting materials and extraction methods, a person of skill in the art would not have combined the teachings of the references.  In support of its argument, Aker pointed to the testimony of its expert, who opined that a person of skill in the art would have thought it was "not scientifically valid" to choose lipid components from multiple references, and that Rimfrost's expert admitted that the ether phospholipid content of Fricke 1984's krill oil was at most 1.5% (as opposed to "from about 3% to about 10%" as recited in Aker's claims).

The Federal Circuit disagreed with Aker's first argument, however, finding that the Board's decision was supported by substantial evidence.  In particular, the Court indicated that "[a]fter weighing the evidence, the Board found that the lipid components of krill oil can be extracted using any number of suitable solvents, that the proportions of the components could be varied in predictable ways, and that the resulting extracts could be blended to produce a final krill oil product."  While Aker asked the Court to credit the testimony of its expert over that of Rimfrost's expert, the Court determined that the Board was well within its discretion to credit Rimfrost's expert.  With respect to Aker's argument that Rimfrost's expert admitted that the ether phospholipid content of Fricke 1984's krill oil was at most 1.5%, the Court indicated that it was "not persuaded that the Board relied on Fricke 1984's ether phospholipid content for its obviousness holding," finding instead, that "the Board relied on those values from Catchpole and combined them with the triglyceride content in Fricke 1984."

Regarding Aker's second argument that the prior art did not teach away from using krill oil to treat inflammatory conditions, the Court again disagreed, finding that the Board's decision was supported by substantial evidence.  Although Aker cited Tanaka et al., 59 BIOSCI. BIOTECH. BIOCHEM. 1389 (1995), for the proposition that the art was concerned with the presence of ether phospholipids in foodstuffs such as krill oil, the Court explained that:

Here, perhaps most probative is the fact that, at the time of the invention, encapsulated krill oil was on sale and generally recognized as safe.  Given that krill oil with ether phospholipids was on sale and, absent any evidence suggesting that the capsules were somehow pro-inflammatory or dangerous, the Board's finding that the art did not teach away from supplements containing krill oil is certainly supported by substantial evidence.

Finding the decisions of the Board holding claims 1–19 of the '877 patent and claims 1–20 of the '905 patent unpatentable as obvious to be supported by substantial evidence, the Court therefore affirmed the Board's decisions.

Aker Biomarine Antarctic AS v. Rimfrost AS (Fed. Cir. 2019)
Nonprecedential disposition
Panel: Circuit Judges Lourie, Plager, and Taranto
Opinion by Circuit Judge Lourie

USPTO Seeks Comments on Patenting AI-based Inventions -- Updated

By Aaron Gin --

The public comment period regarding patenting of artificial intelligence (AI), which was scheduled to close on October 11, 2019, has been extended until November 8, 2019.  In a Notice posted August 27, 2019, USPTO Director Iancu sought public input on issues relating to AI-based inventions in an effort to determine whether further AI-specific guidance should be provided to the Examiner corps.

The Notice centered around twelve questions involving topics ranging from AI patent policy to whether new forms of intellectual property protection are needed.  The questions are summarized as follows:

1.  What are the main elements of an AI-based invention?

2.  What are the different ways that a natural person can contribute to conception of an AI invention and be considered a proper inventor?

3.  Do current patent laws regarding inventorship need to be revised to take into account inventions where an entity or entities other than a natural person contributed to the conception of an invention?

4.  Should an entity other than a natural person, or company to which a natural person assigns an invention, be able to own a patent on the AI invention?

5.  Are there any patent eligibility considerations unique to AI inventions?

6.  Are there any disclosure-related considerations unique to AI inventions? Does there need to be a change in the level of detail an applicant must provide in order to comply with the written description requirement, particularly for deep-learning systems that may have a large number of hidden layers with weights that evolve during the learning/training process without human intervention or knowledge?

7.  How can AI-based patent applications best comply with the enablement requirement, particularly given the unpredictability of certain AI systems?

8.  Does AI impact the level of a person of ordinary skill in the art? If so, how? For example: Should assessment of the level of ordinary skill in the art reflect the capability possessed by the AI itself?

9.  Are there any prior art considerations unique to AI inventions?

10.  Are there any new forms of intellectual property protections that are needed for AI inventions, such as data protection?

11.  Are there any other issues pertinent to patenting AI inventions that the USPTO should examine?

12.  Are there any relevant policies or practices from other major patent agencies that may help inform the USPTO's policies and practices regarding patenting of AI inventions?

Responses to the request for public comment could lead to new and/or revised examining guidance (and practices) at the PTO.  In the Notice, Director Iancu stated that such new guidance could help "promote the reliability and predictability" of patenting AI inventions.

Notably, the USPTO appears to be trying to understand whether current patent laws should be revised to take into account inventions where "an entity or entities other than a natural person" contributed to the conception of an invention.  That is:  for inventions arising, at least in part, through AI (e.g., machine learning systems), can or should the AI be eligible to be named as an inventor or an applicant?

In a blog post on the USPTO "Director's Forum," Deputy Director of the USPTO Laura Peter remarked that comments from the public regarding this Notice will allow the USPTO to "continue to ensure the appropriate balance in the administration of our IP system," and consider "if new legal rights are needed in the wake of more advanced AI."

Written comments can be provided by email to AIPartnership@uspto.gov during the period for comment, originally slated to end October 11, 2019, but which has been extended to November 8, 2019.  Written comments will be made available for public inspection.

For additional information regarding this and other related topics, please see:

• Request for Comments on Patenting Artificial Intelligence Inventions (FR Doc. 2019-18443)
• Laura Peter, "USPTO announces Federal Register Notice on artificial intelligence patent issues," Director's Forum: A Blog from USPTO's Leadership, August 26, 2019.
• Aaron Gin, "Intelligent Machines – Engines of Intellectual Property Creation?" Snippets, Spring 2018

USPTO Meets Pendency Goals for FY2019

By Donald Zuhn --

Earlier today, the U.S. Patent and Trademark Office announced via an e-mail to its stakeholders and in a post on the Director's Form Blog that the Office had achieved its long-term goals of reducing first action pendency to less than 15 months and reducing total pendency to less than 24 months for the 2019 fiscal year (see chart below).  The Office noted that it averaged 14.7 months for first action pendency and 23.8 months for total pendency for the fiscal year, which ended on September 30, which "marks the USPTO's lowest first action pendency since January 2002, despite total application filings nearly doubling in that time, from 353,000 in FY 2002 to 667,000 in FY 2019."

In its FY 2018 Performance and Accountability Report, the Office had established targets of 14.5 months for first action pendency and 23.8 months for total pendency (see "USPTO Releases Performance and Accountability Report for FY 2018").  For FY2018, the Office had achieved an average first action pendency of 15.8 months and an average total pendency of 23.8 months.

In announcing that the Office had met its goals to reduce patent examination pendency, the Office indicated that at the same time, it had "maintained and indeed improved the quality of our examination."  The Office also noted that the efforts of its employees on increasing efficiencies to accelerate the overall patent examination process had resulted in, for example, a decrease in the average processing time for an amendment filed in a patent application from 26.2 days to 6.8 days.

The Office pointed out that it will now "redouble our efforts to optimize pendency using considered analytics that make sense," including improving how cases are routed to examiners and how examination time is allocated to examiners.  With respect to first action pendency, the Office will now "strive to meet in as many cases as possible the time frames outlined by the patent term adjustment statute (35 U.S.C. 154b)," which means issuing a first office action in no more than 14 months.

OSI Pharmaceuticals, LLC v. Apotex Inc. (Fed Cir. 2019)

By Kevin E. Noonan --

Last week, the Federal Circuit overturned an obviousness determination in an inter partes review by the Patent Trial and Appeal Board in OSI Pharmaceuticals LLC v. Apotex Inc.  The Court also reaffirmed its holdings in earlier-decided cases that applying the IPR portion of the Leahy-Smith America Invents Act to patents arising from applications filed before enactment of the AIA is not unconstitutional.

The challenged patent, U.S. Patent No. 6,900,221, was listed in the Orange Book for OSI's cancer treatment Tarceva® (erlotinib), an epidermal growth factor receptor (EGFR) inhibitor used in the treatment of non-small cell lung cancer (NSCLC).  The opinion explains that NSCLC was the leading cause of cancer deaths in 2001, amounting to greater than one million cases.  At that time, chemotherapy was the standard therapy but was limited by the toxicity of most cancer chemotherapeutic agents, which showed little specificity in killing normal as well as cancer cells.

Efforts during the timeframe of the earliest claimed priority date of the '221 patent were directed to EGFR inhibitors, but (importantly for the Court's decision) the opinion notes that "many of these [EGFR inhibitors] failed in clinical trials."  One reason for these negative outcomes, according to the opinion, is that "[c]ancer treatment is highly unpredictable" and that while some promising compounds were effective in vitro, such successes were "a poor proxy for how effective that drug actually was in treating cancer in vivo (i.e., in the body)" (the opinion citing several reasons for these results).  The opinion also recites the regulatory hurdles prospective drugs much overcome, and that "[a] great majority of therapies for NSCLC failed in clinical trials" (including the 1,631 new drugs for treating NSCLC between 1990 and 2005, and the mere 7 that were approved by the FDA, one of which was OSI's erlotinib).

Before the Patent Trial and Appeal Board, Petitioner challenged claims 44-46 and 53 of the '221 patent for being unpatentable as obvious:

44.  A method for the treatment of NSCLC (non small cell lung cancer), pediatric malignancies, cervical and other tumors caused or promoted by human papilloma virus (H[P]V), Barrett's esophagus (pre-malignant syndrome), or neoplastic cutaneous diseases in a mammal comprising administering to said mammal a therapeutically effective amount of a pharmaceutical composition comprised of at least one of N-(3-ethynylphenyl)-6,7-bis(2-methoxyethoxy)-4-quinazolinamine, or pharmaceutically acceptable salts thereof in anhydrous or hydrate forms, and a carrier.

45.  The method of claim 44, wherein the treatment further comprises a palliative or neo-adjuvant/adjuvant monotherapy.

46.  The method of claim 44, wherein the treatment further comprises blocking epidermal growth factor receptors (EGFR).

53.  The method of claim 44 for the treatment of non-small cell lung cancer (NSCLC).

The asserted prior art disclosed "a class of '4-(substituted phenylamino)quinazoline derivatives which are useful in the treatment of hyperproliferative diseases, such as cancers, in mammals" (Schnur); a scientific review article summarizing studies related to cell signaling mechanisms and molecules like EGFR involved therein with regard to malignant tumors (Gibbs); and OSI's 10-K filing with the Security and Exchange Commission.  Schnur discloses 105 different compounds including erlotinib (a "preferred" compound) and that this compound could be used as a treatment for cancers of many tissues, including lung (but not specifically NSCLC).  Gibbs discloses that erlotinib was in clinical development, with "good anti-cancer activity in preclinical models."  The Gibbs reference discloses other references that did not reference erlotinib for use in treating NSCLC and had no data regarding the use of erlotinib for treating NSCLC.  OSI's 10-K discloses the company's efforts to obtain FDA approval of erlotinib for treating NSCLC (as well as several other tumor types).  This disclosure was limited to Phase I and Phase II clinical trials and there were no clinical trial data in the document.

The Board held that "a person of ordinary skill 'would have combined Gibbs or OSI 10-K with Schnur and had a reasonable expectation of success of achieving the invention of challenged claims 44 and 53.'"  Specifically, the Board found that all the limitations of claims 44 and 53 were disclosed in the Schnur reference except treatment of NSCLC with erlotinib, and this element of the claims was disclosed in OSI's 10-K or in the Gibbs disclosure that erlotinib "appear[s] to have good anti-cancer activity in preclinical models, with an acceptable therapeutic index particularly in patients with non-small cell lung cancer" (albeit without any disclosure of clinical data to support these activities).  The Board entered judgment in the IPR that claims 44-46 and 53 were invalid for obviousness, and OSI appealed.

The Federal Circuit reversed, in an opinion by Judge Stoll, joined by Judges Newman and Taranto.  While acknowledging that the Board's factual findings were due deferential, "substantial evidence" review, citing Dickinson v. Zurko, 527 U.S. 150, 162 (1999), "'[m]ere speculation' is not substantial evidence," citing Intellectual Ventures I LLC v. Motorola Mobility LLC, 870 F.3d 1320, 1331 (Fed. Cir. 2017).  The panel used the district court standard to illustrate that "substantial evidence is not a fixed quantum of evidence, and may only be determined with respect to the standard of proof," citing Eli Lilly & Co. v. Aradigm Corp., 376 F.3d 1352, 1363 (Fed. Cir. 2004) (although the relevance to the issue before the Court is not immediately apparent).  Nevertheless, the opinion states that "[t]he same point logically applies to review of the Board's finding," citing In re Hotels.com, L.P., 573 F.3d 1300, 1302 (Fed. Cir. 2009).

Applying these standards, the panel held that the Board's finding was not supported by substantial evidence because:

As an initial matter, in reaching its conclusion, the Board misinterpreted the asserted references to teach more than substantial evidence supports.  When the references are properly read, the Board's finding that the asserted references provide a reasonable expectation of success also is not supported by substantial evidence.  To be clear, the claims require only treatment of a mammal with erlotinib—efficacy in humans is not required.  But the asserted references do not disclose any data or other information about erlotinib's efficacy in treating NSCLC.  The record does not contain any clinical (human) data or pre-clinical (animal) data.  It does not even include in vitro (test tube) data regarding erlotinib's effect on NSCLC.  At the same time, it is undisputed that NSCLC treatment was highly unpredictable with an over 99.5% rate of failure for drugs entering Phase II clinical studies.  On this record, we are not persuaded that a reasonable factfinder could conclude that a person of ordinary skill would have reasonably expected success based on the combination of Schnur and Gibbs or Schnur and OSI's 10-K.

The opinion then sets out, for each reference, the deficiencies in the Board's understanding of the references and why alone or in combination they don't support an obviousness determination by substantial evidence.  Gibbs, according to the panel, is merely a reference article with no independent data of its own, and the data of others it does disclose does not include data showing that erlotinib could be used to treat NSCLC.  The references cited by Gibbs (who submitted a declaration in support of patentee during the IPR) that disclosed erlotinib did not disclose its use for treating NCSLC and the references disclosing NSCLC treatments did not disclose erlotinib, according to the opinion.

Turning to the question of whether the cited art would provide the required reasonable expectation of success, the panel held that "properly read" the cited art did not.  Regarding the combination of the Schnur and Gibbs references, "the asserted references do not disclose any information about erlotinib's efficacy in treating NSCLC in a mammal" according to the Court.  The Schnur reference "fails to disclose any in vitro or in vivo efficacy data for erlotinib or otherwise suggest the use of erlotinib to treat NSCLC" and Gibbs, "[p]roperly read in context,[] discloses only that erlotinib inhibits the EGFR and has good anti-cancer activity in some cancers, not including NSCLC."  The absence of any data "or other promising information regarding erlotinib's efficacy in treating NSCLC," combined with the "highly unpredictable nature of treating NCSLC" precluded in the Court's view these references from providing the skilled worker with a reasonable expectation of success regarding the claimed inventive methods.

With regard to the combination of the Schnur reference and OSI's 10-K document, the Court found fault with the Board's reliance on the existence of Phase I and Phase II clinical trials in the 10-K document, again without any data or reference to data showing that erlotinib could successfully treat NSCLC.  The panel also placed the Board's reliance on the 10-K statements in the context of the failure of 1,630 putative EGFR-directed anti-cancer compounds (a 99.5% failure rate), and faulted the Board for not considering this evidence when weighing the reasonableness of any likelihood for success the 10-K disclosed information would have had on the skilled artisan.  "These references provide no more than hope—and hope that a potentially promising drug will treat a particular cancer is not enough to create a reasonable expectation of success in a highly unpredictable art such as this" according to the opinion.

The United States intervened over OSI's other grounds for appeal, questioning the constitutionality of subjecting to inter partes review proceedings patents arising from applications filed before passage of the Leahy-Smith America Invents Act.  The opinion notes that only after oral argument in this case did the Federal Circuit decide that applying IPR to pre-AIA patents is not a constitutional violation, in Celgene Corp. v. Peter, 931 F.3d 1342, 1362 (Fed. Cir. 2019); and Arthrex, Inc. v. Smith & Nephew, Inc., No. 2018-1584, 2019 WL 3938271, at *7 (Fed. Cir. Aug. 21, 2019).  In the face of this precedent, OSI conceded and the panel entered judgment in accordance with its earlier decisions that applying the IPR statute to pre-AIA patents is not unconstitutional.

OSI Pharmaceuticals, LLC v. Apotex Inc. (Fed Cir. 2019)
Panel: Circuit Judges Newman, Taranto, and Stoll
Opinion by Circuit Judge Stoll

Peter v. NantKwest: PTO Faces Skeptical Justices over Assessment of Fees

By Joshua Rich --

On the first day of the 2019-20 term, the Supreme Court heard oral argument in Peter v. NantKwest, Inc.,[1] a case raising the question of whether a patent applicant should be responsible to pay all of the PTO's attorneys' fees in a § 145 "appeal"; it did not go well for the government.  With the Supreme Court's new procedures, the Deputy Solicitor General arguing the case was able to set forth the three main points of the government's case in two uninterrupted minutes.  After that, he was barraged by pointed questions.  Morgan Chu of Irell & Manella, arguing for NantKwest, faced less difficult questions and was better able to turn them to his advantage.  Ultimately, the argument left the impression that the Justices are very skeptical of the government's desire to recover attorneys' fees as "expenses" of a  § 145 action regardless of whether the applicant prevails.

The NantKwest case arose after a patent applicant lost an argument at the Patent Trial and Appeal Board.  A dissatisfied applicant has two options after an adverse PTAB decision:  a routine appeal of the agency decision to the Federal Circuit under the Administrative Procedure Act under 35 U.S.C. § 141, or a civil action the U.S. District Court for the Eastern District of Virginia under 35 U.S.C. § 145.  The § 145 action allows for fulsome discovery, introduction of new evidence, and de novo review of the decision.  However, it requires that "[a]ll of the expenses of the proceeding shall be paid by the applicant."  35 U.S.C. § 145.

Since the enactment of the statute in 1839, the PTO has required patent applicants to pay certain costs arising from a § 145 action, such as travel expenses, expert fees, and document reproduction.  For the first time in 170 years, however, the PTO demanded that NantKwest pay its attorneys' fees from the § 145 appeal.  The District Court rejected the PTO's demand but, on appeal, a split panel of the Federal Circuit agreed that NantKwest should be liable for the PTO's attorneys' fees regardless of the outcome of the appeal.  The full Federal Circuit then reheard the decision en banc and rejected the panel's decision.  The Supreme Court granted certiorari exclusively on the issue of whether the statute's requirement that the applicant pay "all of the expenses" meant that it would be required to pay attorneys' fees, win or lose.

During oral argument, the PTO spelled out three arguments to support its position.  First, the term "expenses" unambiguously includes costs, but is necessarily broader than the legal term of art "costs," and therefore may include fees.  Second, Congress has directed that the PTO cover fees that are sufficient to cover its operating costs (including the personnel fees it incurs, such as agency solicitors) and § 145 can be part of the fee schedule that approximates the costs of various actions "in a rough and ready way."  Third, applicants have § 141 available as an alternative means of review of an adverse decision (without any obligation to pay the PTO's personnel fees), and therefore something more would be expected of applicants pursuing review under § 145.

The Justices then jumped on the Deputy Solicitor General in rapid, bipartisan succession.  First, Justice Ginsburg established that § 145 and the parallel trademark provision being considered as part of the same argument are the only provisions in the entirety of the Federal Code in which the government has suggested the term "expenses" alone would include attorneys' fees.[2]  Then, Justice Kavanaugh raised a question to make sure that this was the only statute under which attorneys' fees could be awarded to the government as a losing (non-prevailing) party, which the Justice described as a "radical departure."  In its defense, the PTO argued that while it would be unusual for an adversarial proceeding involving the government, it wouldn't be unusual when compared to other aspects of patent prosecution in which the Office charges various fees.  But that led Justice Gorsuch to pounce on the issue and ask what more the PTO could charge -- "The electric bill?  The sewage bill?  Other things that were required in order to be able to litigate these cases?"[3]  And again, the Office had little response:  such costs might be part of the fully burdened rate for personnel costs, but might also be considered in patent applications generally.  More fundamentally, the PTO had no response for why it hadn't attempted to collect attorneys' fees for 170 years.  Both Justice Breyer and Justice Gorsuch were quite troubled by the long practice of not seeking to recoup fees.  And they seem less than satisfied by the Deputy Solicitor General's attempt to shorten the time until only 2011, when the PTO became self-funding by statute (which nonetheless involved a delay before seeking fees).

Like the PTO, NantKwest raised three basic arguments.  First, the "American Rule" is a bedrock principle of U.S. litigation, creating a strong presumption that parties bear their own fees in the absence of a clear statement to the contrary.  Second, this is a radical departure from the American Rule in which a party can be held liable for the opposite party's attorneys' fees not only if it loses -- a rare, but not unprecedented departure from the American Rule -- but also if it prevails.  Third, there are 3,274 Federal statutes that use the term "expenses" without discussing attorneys' fees, and none of them, except the two at issue here, even arguably would include attorneys' fees within their scope.

The Chief Justice started the questioning by asking why this wasn't analogous to a very costly filing fee, as is seen with certain agency filings.  NantKwest refused to take the bait and instead insisted that this was an adversarial litigation in which the PTO was seeking attorneys' fees as part of the litigation, not a filing fee, which necessarily implicated the American Rule.  Justice Ginsburg, who had earlier betrayed her leanings, asked if there were any words other than explicitly calling for attorneys' fees that would do.  Mr. Chu offered some other options to show that there were no "magic words" required.  In response to questions from Justices Sotomayor, Kagan, and Kavanaugh, he made it clear that the statute would have to provide some indication that attorneys' fees were intended (not just personnel costs) because the American Rule is such a strong presumption.  He discussed what expenses beyond costs might be included in the statutory recovery, always distinguishing attorneys' fees.  Mr. Chu then seemed to enlist Justices Breyer[4] and Alito on his side, both by arguing the strength of the American Rule and pointing out the extensive length of consistent practice of the PTO not seeking attorneys' fees under § 145.  Finally, he pointed out that the case would likely affect other statutory provisions that discuss "expenses" without reference to attorneys' fees, including provisions relating to customs forfeitures and taxpayers' property.

On rebuttal, the Deputy Solicitor General attempted to lessen the importance of the long practice of foregoing fees by calling "an atmospherically unhelpful point," but asserting that it didn't fall within any recognized doctrinal category.  He then pointed out that NantKwest had argued about what might or might not be covered, but had failed to propound any test that could be applied in future cases to determine what expenses would be recoverable.  However, the PTO's practice itself hadn't been consistent:  sometimes it charged for travel, sometimes it didn't; sometimes it charged for printing; sometimes it didn't.

All in all, the Justices' questions put the PTO in a difficult position, while NantKwest was able to parry the blows easily.  Given the thrust of the argument, it would be surprising if the PTO were to prevail on the recovery of attorneys' fees under § 145; indeed, it would be surprising if even two or three of the justices did not apply the American Rule once again.

[1] The case has been known as NantKwest, Inc. v. Matal and NantKwest, Inc. v. Iancu.  See https://www.patentdocs.org/2017/06/nantkwest-inc-v-matal-fed-cir-2017.html and https://www.patentdocs.org/2018/07/nantkwest-inc-v-iancu-fed-cir-2018-en-banc.html for a more extensive discussion of the history of the case.

[2] Ultimately, Justice Ginsburg made it clear that she simply wasn't buying the government's argument, saying, "I can see the argument, Mr. -- Mr. Stewart, that the word 'expenses' could include attorneys' fees, but I don't understand the argument that expenses alone must include attorneys' fees."

[3] Perhaps farcically, Chief Justice Roberts asked if the government would be sending NantKwest a bill for the Supreme Court argument.  While the Deputy Solicitor denied it, the question pointed out that there wasn't as clear a division between § 141 and § 145 as the government might like.

[4] In a bit of a surreal exchange, Justice Breyer created a predicate for another question with the following exchange:

JUSTICE BREYER: Is -- you probably, I'm just looking at your resume here, have experience in this patent area.  Is that true?

CHU: Yes.

It was more than a bit of an understatement to say that Morgan Chu "probably" has experience in the patent area.

USPTO Proposes Revisions to PTA Rules in View of Supernus v. Iancu

By Donald Zuhn --

On Friday, the U.S. Patent and Trademark Office published a notice of proposed rulemaking in the Federal Register (84 Fed. Reg. 53090), in which the Office proposes certain revisions to the rules of practice concerning Patent Term Adjustment (PTA) in view of the Federal Circuit's decision in Supernus Pharm., Inc. v. Iancu.  In particular, the Office proposes revising the period of reduction of PTA in the following provisions of 37 C.F.R. § 1.704:

• Deferral of issuance of a patent (37 C.F.R. § 1.704(c)(2));
• Abandonment of an application (37 C.F.R. § 1.704(c)(3));
• Submission of a preliminary amendment (37 C.F.R. § 1.704(c)(6));
ª Submission of papers after a decision by the Patent Trial and Appeal Board or by a Federal court (37 C.F.R. § 1.704(c)(9)); and
• Submission of papers after a notice of allowance under 35 U.S.C. § 151 (37 C.F.R. § 1.704(c)(10)).

According to the Office's notice, the proposed changes will specify a period of reduction corresponding to "the period from the beginning to the end of the applicant's failure to engage in reasonable efforts to conclude prosecution" as opposed to the consequences to the Office of applicant's failure to engage in reasonable efforts to conclude prosecution.

In Supernus Pharmaceuticals, Inc. v. Iancu, the Federal Circuit reversed the entry of summary judgment by the District Court for the Eastern District of Virginia, which concluded that the U.S. Patent and Trademark Office had not erred in calculating the PTA for U.S. Patent No. 8,747,897.  During prosecution of U.S. Application No. 11/412,100, which issued as the '897 patent, the Examiner issued a final Office Action, and Supernus responded by filing a Request for Continued Examination (RCE).  After filing the RCE, Supernus was notified that an opposition had been filed in related European Patent No. EP 2 010 189 (which had issued from a European application corresponding to an International application that claimed priority from the '100 application).  One hundred days after the European Patent Office's notification of the opposition, Supernus filed a supplemental Information Disclosure Statement (IDS) citing the Notice of Opposition and other documents concerning the opposition.  The USPTO ultimately issued the '100 application as the '897 patent, determining that the '897 patent was entitled to 1,260 days of PTA.  The Office's PTA determination included an assessment of 886 days of applicant delay, of which 646 days were assessed for the time between the filing of the RCE and the submission of the supplemental IDS.  Supernus filed a request for Reconsideration of Patent Term Adjustment, but the Office rejected Supernus' request, concluding that the 646-day reduction in PTA was proper.

Supernus challenged the Office's PTA determination in the Eastern District of Virginia, contending that it was entitled to at least 546 of the 646 days of PTA reduction (i.e., the period of time between the filing of the RCE and the EPO notification of opposition).  The District Court granted summary judgment in favor of the USPTO, finding that the USPTO did not err in the PTA calculation for the '897 patent.

In January, the Federal Circuit reversed the District Court's grant of summary judgment in favor of the USPTO, finding that because there were "no identifiable efforts" that Supernus could have undertaken in the time period between the filing of an RCE during prosecution of the application that issued as the '897 patent and the mailing of an EPO notification of opposition for a European counterpart patent (which resulted in Supernus filing a supplemental Information Disclosure Statement during prosecution of the '897 patent), Supernus had not failed to engage in reasonable efforts to conclude prosecution during that time period.  The Federal Circuit noted in Supernus that "Congress expressly granted the USPTO authority to determine what constitutes reasonable efforts [under 35 U.S.C. § 154(b)(2)(C)(i)], but the USPTO lacks any authority to exceed the statutory 'equal to' limitation by including the 546-day time period during which it does not contend that Supernus failed to undertake reasonable efforts to conclude prosecution."  The Court therefore found the USPTO's PTA reduction for the '897 patent to be inconsistent with the PTA statute, accorded no deference to the USPTO's application of the regulations at issue in the circumstances of this case, and reversed and remanded the District Court's summary judgment order.

In May, the USPTO issued a Federal Register notice notifying stakeholders of the impact of the Supernus decision on its PTA determinations (see "USPTO Issues Notice on Impact of Federal Circuit's Supernus Decision on PTA Procedures").  In its earlier notice, the Office indicated that it was "modifying its patent term adjustment procedures in view of the decision."  However, that notice stated that "the USPTO will continue to make the patent term adjustment determinations indicated in patents under the existing regulations using information recorded in its PALM [Patent Application Locating and Monitoring] system," and that a patentee who believes there were no identifiable efforts it could have undertaken to conclude prosecution of an application (as Supernus argued with respect to the '897 patent) "may raise the issue in a timely request for reconsideration of the patent term adjustment, providing any relevant information that is not recorded in the USPTO's PALM system."

In the Office's latest notice regarding the impact of the Federal Circuit's Supernus decision, the Office points out that "[t]he Federal Circuit in Supernus held that a reduction of patent term adjustment under 35 U.S.C. 154(b)(2)(C) must be equal to the period of time during which the applicant failed to engage in reasonable efforts to conclude prosecution of the application."  As a result, the Office is now proposing revisions to certain provisions of 37 C.F.R § 1.704 for consistency with the Federal Circuit's decision in Supernus.  The Office's notice explains that the Federal Circuit's decision in Supernus involved a reduction in PTA under the provisions of 37 C.F.R. § 1.704(c)(8), which specifies a period of reduction of PTA equal to "the number of days, if any, beginning on the day after the date the initial reply was filed and ending on the date that the supplemental reply or other such paper was filed," which "corresponds to 'the period from the beginning to the end of the applicant's failure to engage in reasonable efforts to conclude prosecution,' except in the rare situation in which such period includes 'a period of time during which there is no identifiable effort in which the applicant could have engaged to conclude prosecution.'"  The Office notes that "[w]hile the Federal Circuit decision in Supernus involved 37 CFR 1.704(c)(8), there are several provisions in 37 CFR 1.704(c)(1) through (c)(14) whose period of reduction corresponds to or includes the consequences to the Office of applicant's failure to engage in reasonable efforts to conclude prosecution, rather than 'the period from the beginning to the end of the applicant's failure to engage in reasonable efforts to conclude prosecution.'"

Marked-up versions of the rules that the Office has proposed revising are as follows:

1.704 Reduction of period of adjustment of patent term.

* * *

(c)  * * *

(2)  Deferral of issuance of a patent under § 1.314, in which case the period of adjustment set forth in § 1.703 shall be reduced by the number of days, if any, beginning on the date a request for deferral of issuance of a patent under § 1.314 was filed and ending on the earlier of the date a request to terminate the deferral was filed or the date the patent was issued;

(3)  Abandonment of the application or late payment of the issue fee, in which case the period of adjustment set forth in § 1.703 shall be reduced by the number of days, if any, beginning on the date of abandonment or the date after the date the issue fee was due and ending on the earlier of:
    (i)  The date of mailing of the decision reviving the application or accepting late payment of the issue fee; or
    (ii)  The date that is four months after the date the grantable petition to revive the application or accept late payment of the issue fee was filed;

* * *

(6)  Submission of a preliminary amendment or other preliminary paper less than one month before the mailing of an Office action under 35 U.S.C. 132 or notice of allowance under 35 U.S.C. 151 that requires the mailing of a supplemental Office action or notice of allowance, in which case the period of adjustment set forth in § 1.703 shall be reduced by the lesser of:
    (i)  The number of days, if any, beginning on the day after the mailing date that is eight months from either the date on which the application was filed under 35 U.S.C. 111(a) or the date of commencement of the original Office action or notice of allowance national stage under 35 U.S.C. 371(b) or (f) in an international application and ending on the date of mailing of the supplemental Office action or notice of allowance; the preliminary amendment or
    (ii)  Four months other preliminary paper was filed;

* * *

(9)  Submission of an amendment or other paper after a decision by the Board of Patent Appeals Trial and Interferences Appeal Board, other than a decision designated as containing a new ground of rejection under § 1.19641.50(b) of this title or statement under § 1.19641.50(c) of this title, or a decision by a Federal court, less than one month before the mailing of an Office action under 35 U.S.C. 132 or notice of allowance under 35 U.S.C. 151 that requires the mailing of a supplemental Office action or supplemental notice of allowance, in which case the period of adjustment set forth in § 1.703 shall be reduced by the lesser of:
    (i)  The number of days, if any, beginning on the day after the mailing date of the original Office action decision by the Patent Trial and Appeal Board or notice of allowance by a Federal court and ending on the mailing date of the supplemental Office action or notice of allowance; amendment or
    (ii)  Four months other paper was filed;

(10)  Submission of an amendment under § 1.312 or other paper, other than a request for continued examination in compliance with § 1.114, after a notice of allowance has been given or mailed, in which case the period of adjustment set forth in § 1.703 shall be reduced by the lesser of:
    (i)  The number of days, if any, beginning on the day after the mailing date of the notice of allowance under 35 U.S.C. 151 and ending on the date the amendment under § 1.312 or other paper was filed and ending on the mailing date of the Office action or notice in response to the amendment under § 1.312 or such other paper; or
    (ii)  Four months;

While the Office notes that "prior notice and opportunity for public comment for the changes proposed by this rulemaking are not required pursuant to 5 U.S.C. 553(b) or (c), or any other law," the Office has issued the notice of proposed rulemaking in order "to benefit from the public's input."  Those interested in submitting comments regarding the proposed revisions to §§ 1.704(c)(2), (c)(3), (c)(6), (c)(9), and (c)(10), must do so by December 3, 2019.  Comments may be submitted by e-mail to:  AD38.comments@uspto.gov; by regular mail addressed to:  Mail Stop Comments-Patents, Commissioner for Patents, P.O. Box 1450, Alexandria, VA 22313–1450, marked to the attention of Kery Fries, Senior Legal Advisor, Office of Patent Legal Administration, Office of the Deputy Commissioner for Patent Examination Policy; or via the Federal eRulemaking Portal.