Streck, Inc. v. Research & Diagnostic Systems, Inc. (Fed. Cir. 2011)

By Andrew Williams --

In Streck, Inc. v. Research & Diagnostic Systems, Inc., the Federal Circuit clarified that when a party to an interference appeals the decision of the Board of Patent Appeals and Interferences to a district court in a civil action pursuant to 35 U.S.C. § 146, and new evidence is submitted, the district court must conduct a de novo determination of the issue of priority.  The Federal Circuit also clarified that in a § 146 action in the district court, the junior party still has the burden of persuasion if new evidence is introduced, regardless of whether the Board awarded them priority.  Finally, the Court pointed out that the standard of proof for priority in a § 146 action is preponderance of evidence when the applications were initially copending at the Patent Office, in contrast to the clear and convincing standard that is required when priority to an issued patent is challenged in district court.

The technology at issue in Streck was blood composition controls for hematology instruments.  Prior to 1996, such instruments measured reticulocytes and white blood cells separately, because the various blood components would interfere with each other, causing error in counting or classifying.  As the instruments makers began attempting to develop an integrated analyzer that could measure the different blood components in the same sample, both Streck and Research & Diagnostic Systems ("R&D") sought to create an integrated control.  The difficulty that the inventors had to overcome was interference between the various blood components, and that the controls needed to be stable over extended periods of time.  Streck obtained a patent to such controls and sued R&D in the U.S. District Court for the District of Nebraska.  The jury found that R&D did not provide clear and convincing evidence that its inventor was the first to invent any of the claims without abandonment, suppression, or concealment, and the District Court entered judgment against R&D.

At about the same time, an interference was declared in the Patent Office between the two parties, with the Streck inventors being named the senior party.  In contrast to the outcome in the District Court, however, the Board awarded priority to the R&D scientist.  Streck then filed a § 146 action in the same Nebraska court, and the case was assigned to the same judge.  Based on a provision in 35 U.S.C. § 146, the PTO record was admitted.  However, the District Court also considered live testimony and evidence not before the PTO, and decided that priority should be awarded to Streck.  In appealing to the Federal Circuit, R&D objected to the procedure used by the District Court, the burden of proof it applied, and its ultimate findings and conclusions.

First, the District Court reviewed the facts of priority de novo on the entirety of the PTO record and the evidence at trial.  R&D argued that the Court was required to accept the findings of the Board if those findings were supported by substantial evidence.  This position was contrary to the controlling case Winner International Royalty Corp. v. Wang, 202 F.3d 1340 (Fed. Cir. 2000), which clearly held that "the admission of live testimony on all matters before the Board in a section 146 action, as in this case, makes a factfinder of the district court and requires a de novo trial."  Id. at 1347.  R&D's proposed standard is the same standard that the Federal Circuit is required to apply when an appeal is made directly to it from the Board (a § 141 action), as required by the Supreme Court in Dickinson v. Zurko, 527 U.S. 150 (1999).  The problem with R&D's position is that Winner considered Zurko, and still established the de novo trial requirement, because that is the purpose of a § 146 action -- to provide the ability to introduce new evidence, including live testimony.  R&D alleged that the standard had shifted since Winner, as evidenced by Agilent Technologies, Inc. v. Affymetrix, Inc., 567 F.3d 1366 (Fed. Cir. 2009).  However, the Agilent Court allowed the consideration of new evidence at the district court level without deference to the Board, even while stating that it was to "shor[e] up evidentiary gaps that may have been evident by the end of the inter partes interference procedure."  Id. at 1380.  R&D apparently took the position that if there were no "evidentiary gaps," then no new evidence could be introduced.  Nevertheless, Agilent is consistent with Winner, and is silent as to whether it was modifying the de novo standard, and as such, the Federal Circuit affirmed the District Court's de novo determination of the issue of priority under § 146.

One concern about using this de novo approach, however, is that it makes the hearing before the Board almost meaningless, and could result in potentially duplicative proceedings.  In almost every case, the losing party at the Board could contend that it needs the opportunity to elicit live testimony, and both parties will therefore be required to litigate the case anew.  This is true even though testimony subject to cross-examination can be presented before the Board, albeit as deposition testimony.  Nevertheless, the law on this issue is currently clear.  It will be interesting to see if the Supreme Court will comment on this issue with regard to § 146 actions in the Hyatt case, which is set to consider the standard for the related § 145 actions (appeals to district court from ex parte actions before the Board).

R&D also alleged that the District Court should have placed the burden of proof on Streck instead of R&D, because Streck appealed the case from the Board's decision.  However, the Federal Circuit distinguished between the burden of persuasion and the burden of production.  Because the civil proceeding was subject to de novo review, the burden of persuasion was still on R&D, regardless of the outcome before the Board.  It is apparent, however, that Streck had the burden of production, or in other words, they were the party that had to come forward with evidence at that stage of the litigation.  Of course, in a § 146 action, it is fairly trivial to clear such a hurdle, because the party with the burden of production can simply request live testimony.

The Federal Circuit also addressed the standard of proof.  However, Streck was awarded priority by a jury in the originally filed case where the standard was clear and convincing.  It is not surprising, therefore, that the District Court would come to the same conclusion in the § 146 action where the standard is the more lenient preponderance of the evidence, and it is not clear whether this standard was even challenged.

Finally, R&D challenged the District Court's findings and conclusions regarding whether its inventor had reduced the invention to practice before Streck's inventors.  To show possession of the subject matter sufficient to establish reduction to practice, an inventor must show or know that the invention will work for its intended purpose.  R&D questioned whether a count to "a hematology control" could have an intended purpose of being "free of inaccuracy due to interference from reticulocytes," as the Court found, requiring that the inventor have shown that there was no such interference.  The count itself did not include such a requirement.  Nevertheless, the District Court determined that if there was such interference, the invention could not properly be used as a control, and the Federal Circuit concluded that these findings were not clearly erroneous.  Therefore, the lower court's decision was affirmed.

Streck, Inc. v. Research & Diagnostic Systems, Inc. (Fed. Cir. 2011)
Panel:  Circuit Judges Newman, O'Malley, and Reyna
Opinion by Circuit Judge Newman

Comments

[Matthew Avery]

Very nice post. Thank you for putting all the key points of law in the first paragraph.