By Kevin E. Noonan --
U.S. patent law grants patent owners the right to grant licenses to their patents in analogy to landlords granting rents to real property as a license to use without obtaining ownership. 35 U.S.C. §§ 261-262. But the complexities that can ensue, both in what is licensed and when it is licensed (and when those licenses expire) can be daunting to the extent that the parties don't always agree. Such a case was decided by the Federal Circuit in Roche Diagnostics Corp. v. Meso Scale Diagnostics, LLC.
The technology relates to immunoassays that use in electrochemiluminescence (ECL) and certain patents to that technology. As stated at the beginning of the Federal Circuit's majority opinion, "Meso doesn't own these patents." Nevertheless, Roche filed a declaratory judgment action to have the court confirm its right to practice the claimed invention in the face of Meso's assertions that it held an exclusive license to them from a prior owner, IGEN International, Inc. These rights stem from Meso's origins in a joint venture between IGEN and Mesoscale Technologies. Meso was to perform a Research Program in ECL technology and was granted a license for the intellectual property arising therefrom (although as the opinion explains the scope of that license is at issue in this case). Roche is also an IGEN licensee, having obtained licenses originally obtained by Boehringer Mannheim GmbH upon its acquisition of that company by Roche (those licenses being limited to certain clinical fields of use relevant to the issues here). IGEN and Roche terminated those licenses and entered into new ones in 2003, granting Roche a non-exclusive license to ECL technology that contained field-of-use restrictions to "human patient diagnostics" but also permitted "incidental" out-of-field use subject to a 65% royalty rate. Roche paid IGEN $1.4 billion for the new license. Coincident with this new license IGEN transferred its ECL technology to a new venture, BioVeris. Then, in 2007, a Roche subsidiary acquired BioVeris for about $600 million and, Roche contended, with this acquisition all field-of-use restrictions ceased.
Not so fast, said Meso, who filed suit alleging that Roche breached the terms of the 2003 license by abrogating the field-of use restrictions. This lawsuit, in Delaware Chancery Court, was unsuccessful, because that court held Meso was not a party to that license and that only BioVeris (now owned by a Roche subsidiary) could enforce the field-of-use restrictions. Nevertheless, Meso was sufficiently persistent that Roche filed this DJ action to have determined once and for all the status of the license and any attendant field-of-use restrictions on its ability to sells ECL-reliant equipment without incurring patent infringement liability.
At trial, a jury found Meso had an exclusive license to the asserted patent claims, and that Roche directly infringed claim 33 of U.S. Patent No. 6,808,939 and induced infringement of claim 1 of U.S. Patent No. 5,935,779 and claims 38 and 44 of U.S. Patent No. 6,165,729. Adding insult to injury (short term, as it turned out), the jury also found that Roche's infringement was willful; the jury awarded $137,500,000 in infringement damages. The trial court granted Roche's JMOL on the jury's willfulness determination and denied Meso's motion for enhanced damages, as well as rendering judgment of non-infringement on three other patents for which Meso did not assert compulsory counterclaims. This appeal followed.
The Federal Circuit affirmed-in-part, reversed-in-part, vacated-in-part, and remanded, in an opinion by Judge Prost joined by Judge Taranto; Judge Newman dissented but only with regard to the jury's verdict of direct infringement of claim 33 of the '939 patent. The opinion sets forth relevant provisions of the licenses; with regard to the license between IGEN and Meso the panel recognized two "prongs" of licensed technology arising from this provision:
2.1. IGEN Technology. IGEN hereby grants to [Meso] an exclusive, worldwide, royalty-free license to practice the IGEN Technology to make, use and sell products or processes (A) developed in the course of the Research Program, or (B) utilizing or related to the Research Technologies; provided that IGEN shall not be required to grant [Meso] a license to any technology that is subject to exclusive licenses to third parties granted prior to the date hereof. In the event any such exclusive license terminates, or IGEN is otherwise no longer restricted by such license from licensing such technology to [Meso], such technology shall be, and hereby is, licensed to [Meso] pursuant thereto [emphasis in license term].
Meso asserted that its rights to the asserted patents stem from "prong (A)" of this license term, wherein the claimed technology "was developed in the course of the Research Program." The parties disagreed over the meaning of the word "developed" in this phrase, Roche contending it limited the licensed patents to those claiming newly invented technology while Meso's interpretation was without that limitation. The jury ultimately agreed with Meso and the District Court held that choice was one "between two reasonable views" in denying Roche's JMOL on this issue. (The jury also found Roche liable for inducement of infringement for technology falling under "prong B" but the Federal Circuit did not address this verdict because it reversed on other grounds discussed below.)
Roche reiterated its arguments before the Federal Circuit with insufficient avail to persuade a majority of the panel members. In addition to arguing the plain meaning of the word, Roche also asserted a "course of conduct" interpretation, to the extent that all the other parties to these agreements (Roche, IGEN, and BioVeris) had sold products that would have fallen within Meso's license throughout the period between 2003 and 2007 without Meso objecting. While agreeing that Roche's arguments "have considerable heft," the technology involved was claimed in the '779 and '729 patents (which predated the Research Program), for which the jury had found Roche liable for inducing infringement under 35 U.S.C. § 271(b) and which the panel unanimously agreed was erroneous. With regard to the jury's direct infringement verdict on the asserted '939 patent claim, this technology did not predate the Research Program. Moreover, the panel majority held that Roche had not preserved its argument that the evidence adduced in support of infringement was inadequate because it was relegated to a footnote. Accordingly, the majority affirmed the jury verdict that Roche directly infringed the '939 patent under 35 U.S.C. § 271(a).
Turning to Roche's liability for induced infringement, the Federal Circuit reversed because it found an absence of intent as well as an absence of an "inducing act" that would support liability. Citing the standards the Supreme Court enunciated in Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 765–66 (2011), the panel agreed with Roche that the District Court erred in applying a negligence standard ("known or should have known") rather than requiring a showing of specific intent (or "willful blindness") for finding inducement. And under this proper standard, the Federal Circuit held the jury's finding of infringement liability for inducement was "unsupportable."
A part of the panel's rationale was that the inducement finding (and the specific intent required to support it) was inconsistent with the District Court's grant of JMOL on willfulness, which is also assessed by a specific intent standard. In that JMOL grant the District Court stated that "at no time did Roche have a subjective intent to infringe (or induce infringement of) Meso's patent rights." (In a footnote, the Court noted that Meso had not cross-appealed the District Court's JMOL on willfulness. But somewhat curiously there was no mention in the opinion of the difference in the standard of proof between inducement, a preponderance, and willful infringement, clear and convincing evidence, and whether this difference should make a difference in the Court's conclusion.) The basis for the District Court's finding on willfulness was "Roche's reasonable interpretation of the contract provisions, [under which] Roche had no liability to Meso for patent infringement." A similar rationale underpinned the District Court's denial of Meso's motion for enhanced damages, wherein "[t]he evidence demonstrates that Roche had a good faith belief in its reasonable interpretation of the relevant contract provisions [and it also relied on Roche's] good faith, reasonable belief that the [BioVeris] acquisition meant the elimination of field-of-use restrictions—and, hence, no possibility of patent liability."
In a related issue, the Federal Circuit agreed with Roche that it had not committed any "inducing acts" within the "patent damages limitation period" under 35 U.S.C. § 286. The Court rejected Meso's argument that Roche's acts of inducement that arose during that period were continuing during the period where inducing acts would be subject to liability. But as the panel notes "[t]he district court did not cite any points of authority for this 'continuing-impact' standard, and neither does Meso," and contrary authority, specifically Standard Oil Co. v. Nippon Shokubai Kagaku Kogyo Co., 754 F.2d 345 (Fed. Cir. 1985), was both persuasive and controlling.
Finally, with regard to damages the Federal Circuit vacated and remanded on the principle that damages at trial had been imposed for direct infringement of the '939 patent and inducement of infringement on the '779 and '729 patents. In view of the Federal Circuit's decision that Roche was not liable for inducing infringement, Roche was entitled to a new damages trial under Omega Pats., LLC v. CalAmp Corp., 920 F.3d 1337, 1350 (Fed. Cir. 2019). In addition, the panel explicated the errors by the District Court in its apportionment calculus (or lack of it) regarding the extent to which the jury erred in arriving at the $137,500,000 damages award under Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers, Inc., 446 F.2d 295 (2d Cir. 1971).
On Meso's cross-appeal regarding the three patents recited in Roche's DJ motion that the District Court held were not infringed because Meso did not state a compulsory counterclaim, the Federal Circuit agreed with Meso that while such an outcome might be appropriate for a future action involving these same patents the compulsory counterclaim doctrine does not bar assertion of these patents in the same proceeding. Thus, the Federal Circuit vacated and remanded for trial on these patents.
Judge Newman's dissent was based on her determination that Roche owned the '939 patent by virtue of their acquisition in the 2007 purchase from IGEN through BioVeris and thus Roche could not infringe its own patents. In her view, Meso has no rights to control the use of these patents outside the Research Program and she would reverse the District Court's denial of JMOL on the jury's verdict of direct infringement against Roche.
Roche Diagnostics Corp. v. Meso Scale Diagnostics, LLC (Fed. Cir. 2022)
Panel: Circuit Judges Newman, Prost, and Taranto
Opinion by Circuit Judge Prost; dissenting opinion by Circuit Judge Newman
A Reply to the New England Journal of Medicine
Editor's Note: Yesterday, we reported on a perspective, entitled "Patents, Profits, and the American People -- The Bayh–Dole Act of 1980," that was published in the August 29 issue of the New England Journal of Medicine. Earlier today, we received an e-mail from Joseph Allen, who noted that he had authored a reply to the NEJM article. His response was originally published on IPWatchdog, and is being republished here with the permission of IPWatchdog founder Gene Quinn. Patent Docs thanks Mr. Allen and Mr. Quinn for allowing us to republish Mr. Allen's response.
In its August 29, 2013 edition, the New England Journal of Medicine saw fit to print two "perspective" pieces attacking the Bayh-Dole Act. The primary article is by Dr. Howard Markel entitled "Patents, Profits, and the American People -- The Bayh–Dole Act of 1980." It repeats previously refuted charges that patenting and licensing federally funded inventions harms the public interest. To give the author due "credit," Dr. Markel does invent some new allegations as well which simply cannot go unanswered.
The Bayh-Dole Act was passed because Congress was rightly concerned that potential benefits from billions of dollars of federally funded research were lying dormant on the shelves of government. Government funded inventions tend to be very early stage discoveries -- more like ideas than products -- requiring considerable private sector risk and investment to turn them into products that can be used by the public.
Under prior patent polices, government agencies took such inventions away from their creators and offered them non-exclusively for development. There were no incentives for the inventors to remain engaged in product development. Not surprisingly, few such inventions were ever commercialized even though billions of dollars were being spent annually on government R&D. This failure spurred two Senators from opposing sides of the aisle, Birch Bayh of Indiana and Bob Dole of Kansas, to form a remarkable partnership seeking a remedy.
But here's how Dr. Markel characterizes the impetus for Senator Bayh's involvement:
In 1978, a group of constituents representing Purdue University lobbied Bayh to seek ways of reaping profits from government allocations for university-based research, arguing that although the United States spent billions of dollars annually funding more than half of all academic research and owned 28,000 patents, it had little to show for the investment.
Unlike Dr. Markel, I was actually in that meeting. Ralph Davis, who then ran Purdue's technology transfer office, is no longer with us to defend himself. Neither Ralph nor anyone else present was looking for "ways of reaping profits from government allocations for university-based research." Quite the contrary, Ralph said that Purdue had made several promising inventions under Dept. of Energy grants which would never benefit U.S. taxpayers unless they were effectively licensed and developed.
This motivation was reflected in Senator Bayh's statement on introducing the bill:
The bill addresses a serious and growing problem: hundreds of valuable medical, energy and other technological discoveries are sitting unused under government control, because the government, which sponsored the research that led to the discoveries, lacks the resources necessary for development and marketing purposes, yet is unwilling to relinquish patent rights that would encourage and stimulate private industry to develop discoveries into products available to the public.
The cost of product development exceeds the funds contributed by the government toward the initial research by a factor of at least 10 to 1. This, together with the known failure rate for new products, makes the private development process an extremely risky venture, which industry is unwilling to undertake unless sufficient incentives are provided.
The consequences of our inadequate government patent policy have not gone unnoticed. In the energy area, bureaucratic delays caused by case-by-case review of each patent application are now running behind by almost two years. . . .
But nowhere is the patent situation more disturbing than in biomedical research programs. Many people have been condemned to needless suffering because of the refusal of agencies to allow universities and small businesses sufficient rights to bring new drugs and medical instrumentation to the marketplace. The exact magnitude of this situation is unknown, but we are certain that the cases we have uncovered to date are but a small sample of the total damage that has been done and will continue to be done if Congress does not act.
Dear Colleague letter from Senator Birch Bayh on the introduction of Bayh-Dole, Sept. 6, 1978.
Senator Bayh's wife was then suffering from a cancer which would later take her life. Senator Bayh was very grateful for the help she received from the doctors at the National Institutes of Health. His determination to enact Bayh-Dole to ensure that new treatments for relieving human suffering were being developed was driven by a passionate concern for patients, not "reaping profits."
Markel repeats the discredited allegation that technology licensing was more successful before Bayh-Dole than claimed by proponents of the law. This charge used to be widely circulated leading my colleagues Norman Latker and Howard Bremer to look up the actual source materials the critics cited. Perhaps not surprisingly, they found the critics were misreading the data. See "The Bayh-Dole Act and Revisionism Redux," pp. 9-10.
Dr. Markel lightly dismisses as "[m]ore difficult to confirm" the meticulous work that Lori Pressman and her team (which included economists at the Department of Commerce) put into a ground breaking study estimating the significant economic impact of university patent licensing on the U.S economy. Lori documented the methodology behind the study which until now, no one has challenged. Perhaps Dr. Markel's "difficulty" would be solved if he actually read the paper. To make it easy, here's the link: "The Economic Contribution of University/Nonprofit Inventions in the United States: 1996-2010."
Adding insult to injury, Markel continues: "Indeed, the law's many critics question how much it has actually benefited the economy (as opposed to individuals and stakeholders) and the extent of its social costs."
Here's some data that may help Dr. Markel and the other critics:
• Since 1980 more than 9,000 new firms have been created around university inventions, more than 4,000 of which are still in business. These companies tend to locate in the same state as the university, spurring economic growth.
• 705 new companies were created by university patented inventions in FY 2012 alone, along with 591 new commercial products introduced for consumers to use. Not a bad performance in an economy otherwise stuck in the doldrums.
• There are now more than 40,000 active licenses and options in place on university inventions, the majority of which are with small businesses.
• No new drugs were commercialized when the government took inventions away from universities before Bayh-Dole. Since then at least 153 are now on the market fighting the scourge of disease world-wide according to a study published in the New England Journal of Medicine. See "The Role of Public-Sector Research in the Discovery of Drugs and Vaccines."
A new Forbes magazine analysis calculates that it now costs $5 billion to develop a new drug -- expenses that are borne by the private sector. If the critics ever get their way and succeed in undermining Bayh-Dole, we could return to the days when we again pull the plug on drugs developed from federally funded research. One has to wonder where those suffering will then turn for relief. It's unlikely the critics will be able to offer them much solace.
While not in Dr. Markel's article, publications covering it surmised from his characterization of its legislative history that enactment of Bayh-Dole was "fluke ridden" (University of Michigan Health.org) or a "rocky and somewhat inglorious road to passage by a lame duck Congress" (Tech Transfer News blog). Such language reflects a fundamental lack of understanding of the legislative process. Bayh-Dole passed on its merits in the full light of day, not through any legislative sleight of hand.
The bill not only went through all of the steps for passing a new law that you read about in civics class, it was subjected to additional scrutiny not normally required for legislation: it needed a unanimous vote of approval in the closing days of the Congress. Bayh-Dole was even attacked by its bureaucratic opponents after enactment who sought to undermine the new law by wrecking the regulations needed for its implementation. See "The Enactment of Bayh-Dole, An Inside Perspective."
Dr. Markel saves his "best" for last:
It's time for Congress to recalibrate Bayh-Dole. Profits and patents can be powerful incentives for scientists, businesspeople, and universities, but new and ongoing risks -- including high prices that limit access to lifesaving technologies, reduced sharing of scientific data, marked shifts of focus from basic to applied research, and conflicts of interest for doctors and academic medical centers -- should be mitigated or averted through revisions of the law. All Americans should be able to share in the bounties of federally funded research.
Oh my, where to begin? Would Dr. Markel feel better knowing that a survey of academic researchers concluded that "patenting does not seem to limit research activity significantly, particularly among those doing basic research," with only 1% of their random sample of 398 academic respondents reporting a project delay of more than a month due to patents on knowledge inputs necessary for their research, and none reporting abandoning of a research project due to the existence of patents? See Final Report to the National Academy of Sciences' Committee Intellectual Property Rights in Genomic and Protein-Related Inventions: Patents, Material Transfers and Access to Research Inputs in Biomedical Research (Sept. 20, 2005).
Would he feel better knowing that Bayh-Dole has not shifted the focus of federal R&D from basic to applied research? See "The Bayh-Dole Act and Revisionism Redux," pp. 11-12. This is hardly surprising as federal agencies fund research either in pursuit of expanding the frontiers of knowledge or to meet their mission needs. With industry abandoning basic research, being able to partner with our unparalleled public research institutions is a tremendous competitive advantage for the United States. Bayh-Dole makes this possible.
Perhaps Dr. Markel will feel better knowing that all Americans can only share in the bounty of federally funded research when embryonic ideas are taken from the lab and turned into new products they can actually use, while creating new jobs and companies where they can work. The United States is leading the world in this regard -- thanks to the Bayh-Dole Act.
About the Author
Joesph Allen is a 30-year veteran of national efforts to foster public/private sector commercialization partnerships, and author of numerous articles on technology management for national publications. Mr. Allen served as a Professional Staff Member on the U.S. Senate Judiciary Committee with former Senator Birch Bayh (D-IN), and was instrumental in working behind the scenes to ensure passage of the historic Bayh-Dole Act. Mr. Allen has served as the Executive Director of Intellectual Property Owners, Inc., a trade association representing major R&D companies, he was involved in the creation of the Court of Appeals for the Federal Circuit, and he also served at the U.S. Department of Commerce as the Director of the Office of Technology Commercialization. From 1992 until 2004, Mr. Allen was with the National Technology Transfer Center (NTTC), becoming President in 1997. Clients included NASA, the Department of Defense, EPA, the Department of Veterans Affairs, and the Department of Commerce. Between 2004 until 2007, Mr. Allen was the Vice President and General Manager of the West Virginia High Technology Consortium Foundation. In 2008, he founded Allen & Associates to continue to facilitate public/private partnerships between universities, federal laboratories, and industry.
For additional information regarding this and other related topics, please see:
• "NEJM Perspective Calls for Recalibration of Bayh-Dole Act," September 10, 2013
• "Senator Leahy Urges NIH to Use March-In Rights on Myriad BRCA Test," July 17, 2013
• "Patent Docs Author Testifies at Genetic Diagnostic Testing Hearing," February 16, 2012
• "AUTM Survey Shows Significant Increases in University Patent Filings and Issuances in FY2010," October 5, 2011
• "USPTO Recognizes 30th Anniversary of Bayh-Dole Act," December 9, 2010
• "University Start-ups and Licensing Activity Held Steady During Recession," October 7, 2010
• "AUTM Survey Shows Drop in Issued Patents," March 9, 2010
• "BIO Comes out Swinging against SACGHS Report," February 4, 2010
• "Patent Haters Take Notice! University Innovation Fuels Robust Economic Activity," IPWatchdog, August 7, 2013
• "Intellectual Dishonesty About Bayh-Dole Consequences," IPWatchdog, May 10, 2013
• "The Good Steward -- Turning Federal R&D into Economic Growth," IPWatchdog, August 2, 2012
• "University Tech Licensing Has Substantial Impact on Economy," IPWatchdog, December 10, 2012
• "AUTM Survey: University Licensing Strong Despite Economy," IPWatchdog, December 17, 2010
• "Statement of Senator Birch Bayh on the 30th Anniversary of the Bayh-Dole Act," IPWatchdog, December 5, 2010
Posted at 11:55 PM in Licensing, Media Commentary, Patent Legislation | Permalink | Comments (2)