Patent Docs

Realtime Adaptive Streaming LLC v. Netflix, Inc. (Fed. Cir. 2022)

By Michael Borella --

Bad law often gives rise to creative legal arguments.  But the application of such creative lawyering is necessarily bounded by ethical rules and notions of fair dealing.  Patent eligibility, in its current incarnation, has been argued to be bad law by many.  The current judicial interpretation of 35 U.S.C. § 101 is at best vague and at worst a subjective inquiry in which the proclivities of the reviewer (whether patent examiner, administrative judge, or federal judge) often matter as much or more than the claims under review.  Such a situation is inexcusable, but still does not give a party license to engage in monkey business.

Case in point, Realtime asserted six patents against Netflix in the District of Delaware.  Netflix responded by filing seven petitions for inter partes review (IPR) of these patents, and moving to dismiss four of the patents from the Delaware proceeding on grounds of ineligibility under § 101.  All seven IPRs were instituted and a magistrate judge in Delaware recommended that Neflix's motion be granted.

But before the District Court judge could rule on the magistrate judge's eligibility report, Realtime voluntarily dismissed the Delaware case.  The next day, Realtime filed suit in the Central District of California asserting all six patents against Netflix again.  Realtime did this "despite having previously informed the Delaware court that transferring the Delaware action across the country to the Northern District of California would be inconvenient and an unfair burden on Realtime."  The California court had previously found some of Reatime's claims to be patent-eligible.

Netflix moved to transfer the new assertions back to Delaware and also requested attorney's fees for the California and Delaware cases, as well as the IPRs.  Again, Realtime voluntarily dismissed the case before the California judge had a chance to rule on the transfer.  Nonetheless, the judge had seen enough and awarded attorney's fees to Netflix for the California cases based on equitable considerations.  The judge did not, however, award attorney's fees for the Delaware cases or the IPRs.  Both parties cross-appealed to the Federal Circuit.

On review, that Court quickly concluded that the California court "reasonably found Realtime's conduct in the California actions 'improper,' 'exceptional,' and 'totally unjustified.'"  Given that the Delaware court was likely to rule against Realtime on the § 101 motions and that the California court was a more favorable forum for such issues, the Court found that "Realtime undoubtedly realized that by refiling in California, it could effectively erase the Delaware magistrate judge's fulsome and compelling patent-ineligibility analysis and findings."

The Court was further convinced by Realtime's behavior when it "resisted transfer back to the forum it originally chose."  Thus it affirmed the California court's finding that Realtime engaged in "impermissible forum shopping."

Combined, this was enough for the Federal Circuit to agree that Realtime acted in bad faith and that these acts were "sanctionable under a court's inherent power in view of the Ninth Circuit's standard."  Accordingly, "the district court did not abuse its discretion in awarding fees pursuant to its inherent equitable powers."

Moving on to Netflix's request for attorney's fees from the Delaware proceeding and the IPRs, the Federal Circuit agreed with the California court that there was no evidence of bad faith in the initial filing of the Delaware action.  Further, institution of the IPRs was insufficient to make Realtime's ongoing litigation efforts futile.  Thus, the Federal Circuit declined to reverse the California court with respect to the Delaware action and the IPR.

In sum, patent-eligibility is a mess.  But that still does not give one a second bite at the apple or support taking contrary positions at different points in litigation.  There is no reset button to press after an adverse ruling, just the appeals process.  Realtime should have known better and it paid the price.

Realtime Adaptive Streaming LLC v. Netflix, Inc. (Fed. Cir. 2022)
Panel: Circuit Judges Newman, Reyna, and Chen
Opinion by Circuit Judge Chen; opinion concurring-in-part and dissenting-in-part by Circuit Judge Reyna

BASF Plant Science, LP v. Commonwealth Scientific and Industrial Research Organisation (Fed. Cir. 2022)

By Kevin E. Noonan --

The consequences of joint development agreements, particularly under circumstances where later development is pursued independently by the parties, can create, inter alia, allegations of improper ownership and infringement if the agreements do not contemplate these possibilities and account (or attempt to account) for them.  Such was the case in the Federal Circuit's recent decision in BASF Plant Science, LP v. Commonwealth Scientific and Industrial Research Organisation.

The lawsuit involved a complicated set of licenses and co-development activities between the Commonwealth Scientific and Industrial Research Organisation (CSIRO), a research branch of the Australian government, and BASF.  CSIRO is assignee of U.S. Patent Nos. 9,926,579; 9,951,357; 9,970,033; and 9,994,880 (termed Group A patents), as well as Nos. 9,994,792 and 9,932,541, all of which involve genetic engineering of plants to produce oils, such as canola oil, non-native to these plants.  These claims were directed generally to production of Omega-3 long chain polyunsaturated fatty acids (abbreviated LC-PUFAs in the opinion) and specifically to eicosapentaenoic acid (EPA) and docosahexaenoic acid (DHA), both known to be beneficial to human heart health.  The commercial goal of the research was to produce oils to be used in farm-raised salmon and other fish to improve their nutritional value and flavor to be closer to free-range fish.  CSIRO and BASF (in collaboration in part and independently in part) pursued this effort beginning around the turn of the century, specifically introducing certain genes encoding enzymes in biosynthetic pathways (derived in microorganisms) for LC-PUFAs into plants including Brassica napus or rapeseed (that naturally produced canola oil).  At all relevant times, CSIRO's efforts were limited to introducing these enzymes into a laboratory strain called Arabidopsis thaliana; according to the Federal Circuit opinion CSIRO had not introduced these enzymes into commercially relevant species.  BASF, on the other hand, had introduced enzymes from the biosynthetic pathway into tobacco and linseed as well as Arabidopsis and a plant closely related to rapeseed, Brassica juncea.  Although during some of the time relevant to this lawsuit CSIRO and BASF were working together on a "focused research project," the opinion states that the parties were working on introducing different enzymes from the pathway.  Thereafter, the parties each developed collaborations with other commercialization partners; in BASF's case the partner was Cargill and their joint efforts resulted in BASF depositing recombinant seeds with the American Type Culture Collection (ATCC) in support of its own patent applications.

Licensing negotiations aimed at BASF obtaining a license to CSRIO's patents were not fruitful and BASF sued CSIRO (and other defendants no longer in this lawsuit) for a a declaratory judgment that it did not infringe (related to patents other than the ones in this lawsuit).  BASF thereafter filed an amended complaint naming only CSIRO.  In its answer, CSIRO asserted infringement of the six patents named in this lawsuit; claims 1, 31, 32, and 33 of the '357 patent were deemed representative and reproduced in the Federal Circuit's opinion:

1.  A recombinant plant cell which synthesizes eicosapentaenoic acid (EPA), comprising more than one heterologous polynucleotide, wherein said polynucleotides encode:
    a) a Δ6 desaturase, a Δ6 elongase and a Δ5 desaturase; or
    b) a Δ5/Δ6 bifunctional desaturase and a Δ5/Δ6 bifunctional elongase;
    wherein the more than one polynucleotides are operably linked to one or more promoters that are capable of directing expression of said polynucleotides in the cell, wherein the enzymes encoded by said polynucleotides comprise at least one desaturase which is able to act on an acyl-CoA substrate, and wherein the synthesis of EPA requires the sequential action of said enzymes.

31.  The plant cell of claim 1 which is a Brassica napus cell or Arabidopsis thaliana cell, wherein the heterologous polynucleotides encode a Δ6 desaturase, Δ6 elongase and a Δ5 desaturase.

32.  The cell of claim 31, comprising a heterologous polynucleotide encoding a Δ5 elongase which catalyzes the conversion of EPA to DPA [docosapentaenoic acid] in the cell.

33.  The plant cell of claim 32, wherein said cell is capable of synthesizing DHA.

(It was important for BASF's allegation that CSIRO's asserted claims did not satisfy the written description requirement that claim 1 was not limited to Brassica napus nor Arabidopsis thaliana cells while claims 31-33 were so limited.  Other asserted claims shared this pattern, wherein, inter alia, claim 5 of the '579 patent, claim 5 of the '033 patent, claim 1 of the '792 patent, and claims 15 and 20 of the '541 patent were limited to Brassica cells, whereas asserted claims 2 and 10 of the '880 patent were not.)

CSIRO's complaint also named Cargill, a BASF commercialization partner, as co-defendant.  BASF countered by asserting it owned the patents-in-suit through the co-development agreement with CSIRO entered into in 2008.  Cargill moved the trial court to dismiss them from the suit for lack of personal jurisdiction; the trial court denied the motion and the case went to trial.  The parties stipulated to infringement of all but the '541 patent, which the jury found was infringed.  The jury also found that BASF had not established the patents lacked adequate written description support but did find BASF co-owned the '792 patent due to the earlier co-development agreement.  The District Court ruled CSIRO had adduced insufficient evidence of willful infringement and precluded the jury from considering enhanced damages on this basis.  In addition, the Court dismissed the jury from hearing evidence of damages but held a separate bench trial in which the District Court denied an injunction and awarded an ongoing royalty on the infringed patents but no damages for past infringement.  Somewhat predictably, the parties appealed on those grounds where they lost at trial.

The Federal Circuit, in an opinion by Judge Taranto joined by Judge Chen and (in part) by Judge Newman ruled as follows:

First, we affirm the district court's determination that venue as to Cargill was proper in the Eastern District of Virginia.  Second, regarding the jury's verdict rejecting the written-description challenge to the asserted Group A patent claims, we affirm as to the claims that are limited to canola plants (the only ones either side meaningfully discusses), but we reverse as to the broader genus claims.  Third, we affirm the jury's verdict that five patents were not co-owned by BASF but reverse the contrary verdict as to the sixth, with the result that infringement of all valid claims of the six patents at issue is now settled.  Finally, on the remedy issues, we affirm the district court's refusal to submit willfulness to the jury and its decision on the evidentiary issue concerning past damages.  But we remand for reconsideration of the remedy, while leaving the current remedy in place pending such reconsideration.

On Cargill's venue challenge, the Federal Circuit agreed with the District Court that there was proper assertion of personal jurisdiction (which Cargill did not appeal) and venue.  Factors favoring venue included a "partnership" between BASF and Cargill, BASF's deposit of seed with the ATCC (which was within the trial court's jurisdiction and was deemed an infringing "use"), and it filing its declaratory judgment action in the District (these activities being "central to the partnership").  The panel rejected Cargill's reliance on Home Depot U.S.A., Inc. v. Jackson, 139 S. Ct. 1743 (2019), which related to the removal statute (28 U.S.C. § 1441(a)) based on "textual similarity" to 28 U.S.C. § 1400(b).  The issue in Home Depot involved removal rights to third party defendants, the position Cargill was in here.  While there was some force to Cargill's argument by analogy, the Federal Circuit held that Cargill had not provided "sufficient justification for departing from the ordinary meaning of the term 'defendant'" and thus venue was proper ("[i]n short, to hold that § 1400(b) covers third-party counterclaim defendants would require us to determine that, for patent suits only, two civil actions can exist in one lawsuit, with the counterclaim qualifying as a 'civil action for patent infringement' that triggers the protections of § 1400(b) for counterclaim defendants—except for the original plaintiffs who under General Electric [Co. v. Marvel Rare Metals Co., 287 U.S. 430 (1932)] would be held to have forfeited venue protection.").  And on the facts here upon which the District Court made its decision, the Federal Circuit found no basis for disturbing it.

Turning to the merits, the panel considered and affirmed the District Court's distinction that the asserted claims satisfied the written description requirement when limited to canola oil-producing species and related plants, but not satisfied more broadly for all plants.  Not required were "commercially desirable or other specific levels of production," however.  But the panel asserts that the evidence from the specification is focused on canola oil-producing plants and related species, as well as being supported by expert testimony from both parties, and provides working examples in Arabidopsis which "a very reliable model for Brassica napus" wherein "LCPUFA production in Arabidopsis was highly predictive of positive results in canola."

In this way the panel distinguished as being "materially different" the factual circumstances here with Nuvo Pharmaceuticals (Ireland) Designated Activity Co. v. Dr. Reddy's Laboratories Inc., 923 F.3d 1368 (Fed. Cir. 2019).  BASF's expert testimony to the contrary, that the skilled worker would not accept the Arabidopsis results as being predictive provided "no sound reason" in support of BASF's position that the patents-in-suit all failed to satisfy the written description requirement.  Moreover, the panel found CSIRO's "failure" to produce LCPUFA's in Brassica napus occurred due to focus on optimizing production in Arabidopsis thaliana rather than lack of possession of the claimed invention when limited to canola oil-producing species.

The genus claims presented a different story to the panel, which held that these claims were invalid for failure to satisfy the written description requirement.  The parties had "not given [the Court] much to work with" on this question according to the opinion, with disclosure and testimony being "focused" on canola oil-producing species.  The panel understood that "BASF has argued for the inadequacy of the written description as to all the asserted Group A claims on a common ground—that the magnitude of the leap from success in producing LC-PUFA in Arabidopsis to success in any other plant is too great for the written description to support claims to any other plant" (emphasis in opinion).  The panel agreed that CSIRO's disclosure was insufficient to show description beyond the narrow limitations of canola oil-producing plants.  (While the Court's reasons for coming to this conclusion are couched in whether CSIRO had possession of the invention outside the scope of canola oil-producing plants, the rationale blends here somewhat into the question of whether the disclosure enabled production in other plant species, bolstered by reference to experts' testimony regarding whether the skilled worker would have believed disclosure of the former would indicate possession of the latter.)

Regarding the patent ownership question, the Federal Circuit's opinion notes that BASF did not base its ownership claim on co-inventorship or sole inventorship by an inventor obliged to assign her rights to BASF.  The argument was limited to co-ownership and, according to the opinion, was based "entirely" on the prior co-development agreement between the parties.  The Court found this inadequate because, as a matter of contract interpretation BASF's ownership's claims were not supported.  The opinion cites to specific sections of the agreement, the Court finding three categories of ownership:  "(1) constructs that were developed under the Evaluation if they contained both CSIRO and BASF genes; (2) results, data, or information derived from the Evaluation respecting the CSIRO-BASF-gene-combination constructs developed under the Evaluation; and (3) Intellectual Property subsisting in the first two categories."  The panel appreciated BASF's co-ownership claims to rest solely on the third category, but the Court rejected this argument, saying that a reasonable jury could only find no co-ownership for any of the patents-in-suit.  But even though "none of the six patents claim the BASF-CSIRO-gene-combination constructs or properties of them or uses of them" BASF contended that CSIRO obtained the claims of these patents "by drawing on the lessons it learned from the experiments involving both BASF and CSIRO's materials" (emphasis in opinion).  This argument makes no legal sense to the panel because CSIRO's inventions would need to be considered inherent in the "results, data, or information" from the joint work for which BASF was not (and did not claim to be) a joint inventor.  Nor did it make commercial sense, because interpreting the agreement in this way would "create an ever-threatening cloud over independent post-[agreement] work and the investments in such work."  The opinion then dissected the claims of the patents-in-suit and affirmed the jury's verdict for all but one of them that BASF is not a co-owner.  And for the one patent where the jury found to the contrary (the '792 patent) the Court finds BASF's evidence for co-ownership equivalently lacking and relying on "an impermissible level of speculation."

With regard to the remedies decided by the District Court, the Court affirmed the District Court's decision that CSIRO could not submit its assertion of willful infringement to the jury nor that CSIRO was entitled to damages for past infringement.  Otherwise, the Court remanded based on the changes in the substantive determinations regarding infringement, invalidity, and ownership (albeit including in the opinion extensive assessments of the allegations by CSIRO of error, or lack of it, for consideration on remand).

Judge Newman's dissent was based solely on the co-inventorship issue for the '792 patent, the Judge being persuaded that the jury had substantial evidence with which to come to its conclusion that BASF was a co-owner of this patent.

BASF Plant Science, LP v. Commonwealth Scientific and Industrial Research Organisation (Fed. Cir. 2022)
Panel: Circuit Judges Newman, Taranto, and Chen
Opinion by Circuit Judge Taranto; opinion dissenting in part by Circuit Judge Newman

Bayer Healthcare LLC v. Baxalta Inc. (Fed. Cir. 2021)

By Kevin E. Noonan --

Last week, the Federal Circuit affirmed a jury verdict against Baxalta Inc., Baxalta US Inc., and Nektar Therapeutics for infringing Bayer Healthcare's patent to human blood clotting factor conjugates in Bayer Healthcare LLC v. Baxalta Inc.

Bayer Healthcare sued Defendants on U.S. Patent No. 9,364,520, alleging willful infringement by Baxalta's product, Adynovate®.  This product is a recombinant human Factor VIII (the blood clotting factor responsible for causing Hemophilia A) having the protein structural domains A1-A2-B-A3-C1-C2, wherein the B portion was specifically modified by addition of polyethylene glycol (PEG).  PEGylation is important because Factor VIII has an 11-hour half-life which requires frequent injections and leads to reduced patient compliance.  The prior art had disclosed "random" modification of Factor VIII with PEG, which had "several drawbacks" due to the multiplicity of PEGylations sites ("158 lysines, the two N-termini, and multiple histidines, serines, threonines, and tyrosines") in the Factor VIII protein, which led to heterogeneity in the species produced, including ones having deleterious effects on Factor VIII activity and ones having a multiplicity of PEG residues conjugated to the protein.

The '520 patent specification disclosed site-specific PEGylation at a site not at an N-terminal amine; claim 1 is representative:

1.  An isolated polypeptide conjugate comprising a functional factor VIII polypeptide and one or more biocompatible polymers, wherein the functional factor VIII polypeptide comprises the amino acid sequence of SEQ ID NO: 4 or an allelic variant thereof and has a B-domain, and further wherein the biocompatible polymer comprises polyalkylene oxide and is covalently attached to the functional factor VIII polypeptide at the B-domain.

(wherein the italicized portions of the claim identify claim language disputed in the litigation).

At trial, the District Court construed the term "isolated polypeptide conjugate" to mean "a polypeptide conjugate where conjugation was not random."  Specifically, the District Court held that during prosecution of the '520 patent, Bayer had disclaimed embodiments having random PEGylation.  Further, the District Court construed the term "at the B-domain" to mean "attachment at the B-domain such that the resulting conjugate retains functional factor VIII activity," rejecting Baxalta's proposed construction that the phrase should be construed to mean "at a site that is not any amine or carboxy site in factor VIII and is in the B-domain."  The District Court granted Defendants' pre-trial motion as a matter of law that there was no willful infringement, and a jury found that Defendants infringed claims 1-3 and 8 of the '520 patent.  The jury found against Defendants' counterclaim of non-enablement, and awarded Bayer $155,190,264 in reasonable royalty damages, based on a 17.78% royalty rate for $872,836,128 in Defendants' profits.  The District Court also denied Defendants' JMOL motions on the issues of infringement, enablement, and damages.  Bayer filed a motion under Federal Rule of Civil Procedure 59(a) for pre-verdict supplemental damages, which the District Court granted and awarded Bayer another $18,324,562.  The District Court also denied Bayer's motion for JMOL on willful infringement.  Both parties appealed.

The Federal Circuit affirmed, in an opinion by Judge Stoll, joined by Judges Newman and Linn.  The opinion first opined on the District Court's claim construction, which (because the District Court had not relied upon extrinsic evidence) was performed de novo, with regard to the interpretation of the terms "at the B-domain" and "random" PEGylation of the B portion of Factor VIII.  The opinion rejected Defendants' argument that the term "at the B-domain" should have been interpreted to exclude amine/lysine PEG conjugation.  The opinion sets forth its claim construction analysis by way of the factors enunciated in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc):  plain meaning of the claim terms, the specification, and the prosecution history.  The Federal Circuit found the plain meaning of the term "'[a]n isolated polypeptide conjugate' in which PEG 'is covalently attached to the functional factor VIII polypeptide at the B-domain'" does not require any particular amino acid residue to be PEGylated, saying that the claim "broadly requires PEGylation at the B-domain as a region."  The panel identified statements in the specification that supported this construction, and while acknowledging that PEGylation at cysteine residues was expressly disclosed, held that this disclosure did not limit the scope of site-specific PEGylation to just cysteine residues.  The Federal Circuit also disagreed with Defendants that the specification disparaged amine/lysine PEG conjugation, expressly based on Indivior Inc. v. Dr. Reddy's Laboratories, S.A., 930 F.3d 1325 (Fed. Cir. 2019); Gaus v. Conair Corp., 363 F.3d 1284 (Fed. Cir. 2004); and SciMed Life Systems, Inc. v. Advanced Cardiovascular Systems, Inc., 242 F.3d 1337 (Fed. Cir. 2001) (although the opinion states that it was a close question).  Rather than disparaging or disclaiming any particular type of conjugation with PEG, the panel held that the '520 patent specification disparaged random PEGylation (which is not the same thing).  Finally, the opinion held that nothing in the prosecution history was to the contrary, specifically in that it did not contain "a clear and unmistakable surrender of claims directed to non-random amine/lysine PEGylation."  While art cited by the USPTO included amine/lysine conjugation sites, taken as a whole and as understood by a person of ordinary skill in the art, the Federal Circuit held the rejection and cited art was directed to random PEGylation.  (And Defendants' citation of statements made in the prosecution of related European Patent Application No. 11153287.4 were unavailing, both on the merits and, in agreement with the District Court, "varying legal and procedural requirements for obtaining patent protection in foreign countries might render consideration of certain types of representations inappropriate for consideration in a claim construction analysis of a United States counterpart.")

With regard to the term "random," the Federal Circuit rejected Defendants' argument that the District Court had erred by not expressly defining the term, thus improperly leaving construction of this term to the jury.  The panel held that the District Court had "resolved the parties' differences" with regard to this term by addressing (and rejecting) Defendants' arguments that "(1) that 'random' conjugation means any conjugation at amines or carboxy sites; and (2) that 'random' conjugation means all heterogenous conjugation."  The Federal Circuit understood the District Court's construction did not exclude any degree of heterogeneity from PEG conjugation but rather that Bayer had disparaged embodiments with "a high degree of heterogeneity" (which was the problem with prior art embodiments of PEGylated Factor VIII preparations that distinguished Bayer's invention).  Reciting the District Court's construction, the opinion states that the District Court found (correctly) that "non-random conjugation neither required that each FVIII protein in a product such as Adynovate® be PEGylated in the same places (homogeneity among conjugates in the product) nor required that every PEG on each FVIII protein be in the B-domain (homogeneity within each conjugate)."  Accordingly, the Federal Circuit held that limiting the term "random" with reference to construction of the term "isolated polypeptide conjugate" to mean "a polypeptide conjugate where conjugation was not random" sufficiently defined the meaning of the word "random" in the claimed context, and that this was consistent with other district court decisions, including denial of Defendants' motion in limine on this issue.

The panel also affirmed as being supported by substantial evidence the jury's infringement decision, and consequently, that the District Court did not err in denying Defendants' motion for JMOL.  The opinion provided a synopsis of the parties' evidence, including differing expert witnesses on infringement, supported by Baxalta's submissions to FDA regarding the specificity with which its Factor VIII product comprised "controlled, targeted chemical addition of 20 [kilodalton] PEG conjugates to this FVIII B-domain" (emphasis in opinion), statements inconsistent with random PEGylation.

Similarly, the Federal Circuit held that there was substantial evidence for the jury's rejection of Defendants' non-enablement defense, particularly with regard to embodiments comprising non-random lysine PEGylation.  According to the opinion, "Bayer presented substantial evidence from which a reasonable juror could find that the specification's disclosure of instructions as to the reaction conditions required to practice the claimed invention using cysteine PEGylation were sufficient to enable not only non-random cysteine PEGylation at the B-domain, but also non-random lysine PEGylation at the B-domain."  Somewhat in contrast to recent, more stringent applications of the Federal Circuit's standards for enablement (see Amgen Inc. v. Sanofi and Idenix Pharmaceuticals LLC v. Gilead Sciences Inc.), this panel held that "the specification need not include a working example of every possible embodiment to enable the full scope of the claims," citing Alcon Rsch. Ltd. v. Barr Labs., Inc., 745 F.3d 1180, 1189–90 (Fed. Cir. 2014), and Amgen Inc. v. Hoechst Marion Roussel, Inc., 314 F.3d 1313, 1336–37 (Fed. Cir. 2003).

Defendants also appealed the jury's damages calculations and the basis thereof.  While agreeing with the District Court in rejecting Bayer's expert's 50-50 split royalty rate, the panel disagreed with several other assertions of error by Defendants.  These included the basis for the 17.78% reasonable royalty rate, which Defendants' argued relied on a "a flawed and speculative methodology—namely, asking the jury to pick a rate between the range of feasible rates presented by [Bayer's expert] as the reasonable rate."  The Federal Circuit held that "[t]he district court properly exercised its discretion in allowing Bayer to ask the jury to select a rate between the range presented," within the confines of a damages expert using "reliable methodology for determining the range of possible hypothetical negotiation royalty rates."  When, as here, a jury's damages award "fell within the range suggested by the patentee's damages expert" the Federal Circuit stated it was supported by substantial evidence, citing Rembrandt Wireless Techs., LP v. Samsung Elecs. Co., 853 F.3d 1370, 1382 (Fed. Cir. 2017), and that the District Court had not erred in permitting the jury to received Bayer's damage expert's testimony.  Defendants had had (and had exercised) the opportunity to cross-examine Bayer's expert on his methodology and damaged calculation, according to the opinion, and "ultimately, the jury evaluated his opinions and adopted a rate within his proposed range."  In the Federal Circuit's opinion there was nothing improper about the jury's damages calculation or award.

Finally, Defendants argued that the District Court had violated their Seventh Amendment rights by awarding pre-judgment damages under Fed R Civ Pro 59.  In doing so, according to the Federal Circuit, the District Court used actual sales data instead of projected amounts and applied the same 17.78% royalty rate on the amount of these actual sales.  "Under these circumstances," said the Federal Circuit, "we are not persuaded that the District Court's award constitutes an impermissible additur or an otherwise 'bald addition of something which in no sense can be said to be included in the verdict,'" citing Dimick v. Schiedt, 293 U.S. 474, 486 (1935) (the remainder of the Court's opinion making it clear that its judgment was limited to the facts in this case).

Regarding Bayer's appeal on the District Court's grant of Defendants' motion for JMOL on willful infringement, the panel held that there was insufficient evidence of the necessary "state of mind" having "a specific intent to infringe at the time of the challenged conduct" to support willfulness, citing Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1933 (2016) ("willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate").  The panel affirmed the District Court's decision even though "there was no dispute that Baxalta was 'aware of the '520 patent,'" because "Bayer merely 'assume[d] that [Baxalta] knew Adynovate[®] infringed because it involved pegylation at the B-domain of factor VIII."  The Federal Circuit rendered this opinion even in the face of testimony by Defendants' witnesses "concerning their awareness of the patent application that issued as the '520 patent" and representations to FDA regarding non-random PEGylation in Defendants' Adynovate® product.

Bayer Healthcare LLC v. Baxalta Inc. (Fed. Cir. 2021)
Panel: Circuit Judges Newman, Linn, and Stoll
Opinion by Circuit Judge Stoll

Vectura Ltd. v. GlaxoSmithKline LLC (Fed. Cir. 2020)

By Kevin E. Noonan --

Trial courts tend to get more than the benefit of the doubt when their decisions are viewed under the "abuse of discretion" standard, and juries similarly are affirmed unless there isn't substantial evidence supporting their verdicts.  Both these rubrics, which extend more generally to cases involving disputes outside patent law, were used by the Federal Circuit to affirm both the finding of infringement and a hefty ($89,712,069) damages calculation in Vectura Ltd. v. GlaxoSmithKline LLC.

The case arose involving Vectura's patented components for pulmonary administration for dry-powder inhalers, the components claimed in U.S. Patent No. 8,303,991.  Vectura asserted Claim 3, dependent on independent claim 1 as further limited to magnesium stearate as the "additive material" against GSK in the litigation:

1.  Composite active particles for use in a pharmaceutical composition for pulmonary administration, each composite active particle comprising a particle of active material and particulate additive material on the surface of that particle of active material, wherein the composite active particles have a mass median aerodynamic diameter of not more than 10 μm, and wherein the additive material promotes the dispersion of the composite active particles upon actuation of a delivery device.

(wherein the District Court's construction of the italicized limitations was at issue on appeal).

Vectura asserted this claim against three GSK accused infringing articles:

• Breo, which comprises two blisters, one containing a mixture of vilanterol, lactose, and magnesium stearate and the second containing a mixture of fluticasone and lactose, but not magnesium stearate.

• Anoro, which comprises two blisters, one containing a mixture of vilanterol, lactose, and magnesium stearate and the second containing a mixture of umeclidinium, lactose, and magnesium stearate.

• Incruse, which comprises only one blister, containing a mixture of umeclidinium, lactose, and magnesium stearate.

GSK's method of preparing its accused infringing articles was relevant to Vectura's infringement accusations:

GSK first mixes the lactose excipient with magnesium stearate in the absence of the active ingredient.  That step yields lactose particles that are discontinuously coated with magnesium stearate.  After a de-lumping step, GSK then mixes the lactose particles with the active ingredient.  In that step, small particles of the active ingredient are deposited onto the larger lactose particles, which are already coated with small particles of magnesium stearate.

The District Court construed two terms of Claim 3:

[T]he court construed the phrase "promotes the dispersion of the composite active particles" (the dispersion limitation) to mean "wherein a composition that contains one or more composite active particles has increased dispersion of the active material upon activating a delivery device for inhalation into the lungs by a patient, as compared to the same composition wherein unmodified active particles are substituted for the composite active particles.

The court construed the term "composite active particles."  GSK's proposed construction of that term included a process limitation requiring that the composite active particles be "formed by milling . . . using sufficient energy and duration to ensure sufficient break-up of agglomerates of both constituents, dispersal, and even distribution of additive over the active particles."  The district court rejected GSK's proposed construction, holding that the term "composite active particles" does not include a process limitation.  The court construed the term to mean "[a] single particulate entit[y/ies] made up of a particle of active material to which one or more particles of additive material are fixed such that the active and additive particles do not separate in the airstream."

The District Court found a "distinction without a difference" under this claim construction of GSK's process of mixing the active ingredient with magnesium stearate in the presence of lactose instead of in its absence.  The jury found that this claim was infringed and not invalid, and GSK appealed the District Court's denial of motions for judgment as a matter of law on infringement and damages.  This appeal followed (and did not involve the District Court's judgment that the claims were not invalid).

The Federal Circuit affirmed, in an opinion by Judge Bryson, joined by Chief Judge Prost and Judge Wallach.  GSK raised four issues on appeal:

• First, that the district court should have granted JMOL on infringement because "Vectura failed to present substantial evidence that the accused inhalers use additive material that "promotes the dispersion" of the active material," or in the alternative granted GSK a new trial.

• Second, that the district court should have granted JMOL on claim construction, wherein "the district court's construction of the term "composite active particles" was erroneous, requiring a new trial on infringement."

• Third, for a new trial on damages because of flaws in Vectura's expert's calculations.

• Finally, for a new trial on damages due to prejudicial arguments made to the jury regarding GSK sales made by Vectura's damages expert and counsel.

The Federal Circuit opinion set forth for the reader's convenience the standards of its review:  substantial evidence for jury verdicts, citing Personalized User Model, LLP v. Google Inc., 797 F.3d 1341, 1345 (Fed. Cir. 2015); and abuse of discretion for its new trial motion, citing Union Carbide Chems. & Plastics Tech. Corp. v. Shell Oil Co., 308 F.3d 1167, 1182 (Fed. Cir. 2002).

GSK argued that under the District Court's construction it was not disputed between the parties that Vectura had the burden to show "the use of magnesium stearate in the accused inhalers improves the dispersion of the active ingredient compared to identical products in which only the lactose excipient is coated with magnesium stearate."  GSK argued the District Court erred in denying its motion for JMOL on this issue because in its view the jury based its decision that Vectura had satisfied its burden on an allegedly flawed scientific test.  The asserted flaws had to do with whether the lactose alone was covered with magnesium stearate vs. coating the drug-containing particles and the lactose (wherein the latter composition was dispersed better in the lungs).  The Federal Circuit found GSK's argument was deficient because this test was not the only basis for the jury's determination.  The District Court found in denying JMOL that Vectura relied on aspects other than the flawed study and that there was "ample other evidence" the jury could have relied upon other than the putatively flawed study.  This included evidence that a magnesium stearate coating "helps overcome the tendency of the particles to stick together and therefore increases the dispersion of the particles in the lungs" and test results wherein GSK's accused infringing products showed the particles "were consistently associated with magnesium stearate."  The District Court also held that the jury was entitled to rely on GSK documentary evidence regarding satisfaction of the dispersal limitation in Claim 3.  Thus, according to the panel, the totality of the evidence developed below was sufficient to satisfy the substantial evidence standard for affirming the jury's verdict of infringement.

GSK's second argument on appeal was that proper construction of the claim limitation "composite active particles" required that these particles be produced by a "high-energy milling" process (which GSK argued does not describe their process).  According to GSK, the '991 specification discloses high-energy milling, and disclosure of this process was used during prosecution of the '991 patent to overcome a prior art reference.  Thus, according to GSK, a correct construction of the "composite active particles" requires the particles (and drugs made from those particles) to be made using a "high-energy milling" process.

On the merits, the Federal Circuit considered "this case [to] fall[] between two prior cases from this court: Continental Circuits LLC v. Intel Corp., 915 F.3d 788 (Fed. Cir. 2019), and Andersen Corp. v. Fiber Composites, LLC, 474 F.3d 1361 (Fed. Cir. 2007)."  In the Continental Circuits case, the Federal Circuit had refused to import a process limitation into an apparatus claim, whereas in the Anderson case, the Court had construed an apparatus claim to encompass a process limitation.  From these cases the panel enunciated a standard, wherein "process steps can be treated as part of the product claim if the patentee has made clear that the process steps are an essential part of the claimed invention."  As a practical matter, the opinion states this standard another way, saying the Court looks to "language of requirement, not preference."  Here, from the Federal Circuit's assessment of the '991 patent specification the Court reached the conclusion that the disclosure in the specification was more similar to the circumstance in the Continental Circuits case, where the specification set forth a preference but not a requirement for the process step (citing several instances in the specification supporting this view).  And with regard to the prosecution history, the opinion states the Court rejected GSK's argument because the distinction GSK raised to overcome the asserted prior art reference was directed at another aspect of the method for making the claimed composition.

With regard to damages, the Federal Circuit considered the parties' prior licensing history, wherein Vectura had previously granted GSK a nonexclusive license that had expired in 2016.  This license had had a "tiered structure" ("a royalty of 3% on its first 300 million British pounds in sales, 2% on sales between 300 million and 500 million pounds, and no additional royalties on sales above 500 million pounds") that Vectura's expert used as a "comparable license" in reaching her damages conclusions.  Significantly, however, the expert did not include the cap of no additional royalties after 500 million pounds, based on "changed circumstances."  In contrast. GSK's royalty rate was much lower (only 0.0187%).

GSK argued that Vectura's analysis was flawed because it used the "entire market value" approach rather than distinguishing the non-infringing components of the accused infringing articles.  The Court considered the damages theories to relate to "a rather unusual circumstance," because the choice is usually between where "an entire-market-value royalty base is appropriate only when the patented feature creates the basis for customer demand or substantially creates the value of the component parts, and apportionment is required when an entire-market-value royalty base is inappropriate," citing Virnetx, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1326 (Fed. Cir. 2014).  Here, however, the Court thought that any such apportionment is contained ("built-in") in the earlier license so re-apportionment was unnecessary.  The panel opined that the District Court properly credited Vectura's expert's testimony regarding the comparability of her damages calculations as a reasonable royalty and the terms of the earlier license.  And with regard to the lack of a royalty cap, the Court held that "[i]t was . . . permissible for the jury to credit Ms. Schenk's testimony and to award damages without applying a royalty cap."

GSK's other grounds for a new trial based on damages was that Vectura's damages expert and counsel mentioned the total sales of GSK's products and that this was prejudicial.  The District Court had found some of these references to be improper but in total that they were not so prejudicial as to warrant a new trial.  Asserting that "[o]n the issue of the impact of improper conduct at trial, the views of the judge who supervised the trial proceedings are entitled to considerable weight,"  Fineman v. Armstrong World Indus., Inc., 980 F.2d 171 (3d Cir. 1992), the Federal Circuit found these disclosures not to be sufficiently prejudicial for it to find the District Court's denial of JMOL to be an abuse of discretion.

Vectura Ltd. v. GlaxoSmithKline LLC (Fed. Cir. 2020)
Panel: Chief Judge Prost and Circuit Judges Bryson and Wallach
Opinion by Circuit Judge Bryson

Amneal Pharmaceuticals LLC v. Almirall, LLC (Fed. Cir. 2020)

By Kevin E. Noonan --

In Amneal Pharmacueticals LLC v. Almirall, LLC, the Federal Circuit professed to address a question it had not considered before:  whether attorney's fees and a exceptional case determination was available for fees and costs incurred when a patent owner defended an inter partes review (IPR) challenge before the Patent Trial and Appeal Board.  The Court decided they were not, based on Court of Claims and Patent Appeals (CCPA) precedent and its plain meaning reading of the statute.

The case arose over Almirall's U.S. Patent Nos. 9,161,926 and 9,517,219, which were listed in the Orange Book with regard to Almirall's ACZONE (dapsone) prescription acne treatment.  Prior to filing an ANDA, Amneal petitioned the PTAB for IPR individually against the '926 and '219 patents (the latter IPR and patent not being part of this appeal).  Thereafter, Amneal filed its ANDA and Almirall filed suit, alleging infringement only of the '219 patent.  Amneal filed a declaratory judgment counterclaim against the '926 patent (the subject of this appeal) and the parties attempted to settle, which negotiations included Almirall's offer to give Amneal a covenant-not-to-sue on the '926 patent.  The parties being unable to agree on settlement terms, the IPR was allowed to proceed to Final Written Decision, where the PTAB found Amneal had not established that the challenged '926 patent claims were unpatentable.  Amneal appealed but then moved the Federal Circuit for voluntary dismissal.

Almirall did not challenge the dismissal but moved that the Court grant it attorney's fees and costs incurred but only during the time between when the settlement negotiations broke down and the trial date in the IPR, as well as the fees and costs involved in defending against Amneal's motion to dismiss.  Almirall's argument that the case was exceptional and thus that fees and costs should be assessed against Amneal was that it was unreasonable for Amneal to have continued to pursue the IPR against the '926 patent after Almirall offered the covenant-not-to-sue and to remove the '926 patent from the Orange Book.

In an Opinion and Order issued by Judge Dyk, joined by Judges Lourie and Reyna the Federal Circuit refused to assess attorney's fees and costs against Amneal.  The panel based its decision, first, on the "American Rule" that generally in the U.S. (unless there is a recognized or statutory exception) "each party in a lawsuit ordinarily shall bear its own attorney's fees," quoting Hensley v. Eckerhart, 461 U.S. 424, 429 (1983).  The Court recognized that Congress has provided such an exception under the Patent Act, in Section 285, where (should a court find the case is exceptional) reasonable attorney's fees can be awarded to the prevailing party.  The opinion states that the Court finds no authorization in the statute for awarding such fees for proceedings before the Patent Office in an appeal to the Federal Circuit.

The Court reasoned that, first, being bound by CCPA precedent (under S. Corp. v. United States, 690 F.2d 1368, 1370 (Fed. Cir. 1982) (en banc)) the several occasions where that Court considered and denied attorney's fees petitions were binding.  These decisions include Reddy v. Dann, 529 F.2d 1347, 1349 (C.C.P.A. 1976), where the CCPA reasoned that the placement of Section 285 in Chapter 29 of the statute, which is concerned with infringement, indicated that such attorney's fees petitions were "clearly inapplicable to this court."  The CCPA reached the same conclusion in Meitzner v. Mindick, 549 F.2d 775, 784 (C.C.P.A. 1977), regarding an "exceptional interference," which precedent was followed by the district court in Bowmar Instr. Corp. v. Tex. Instr., Inc., No. F74-137, 1978 WL 21733, at *1 (N.D. Ind. Aug. 1, 1978).

The opinion also found no support for Almirall's petition in the plain meaning of the statute.  The determinative terms were that reference to "[t]he court" was limited to "judicial proceedings," relying on Blyew v. United States, 80 U.S. (13 Wall.) 581, 595 (1872), for meaning of terms like "case and "cause" as being limited to proceedings before a court, in a suit or action.

The opinion also finds support for analogous "fee-shifting" provisions in other statutes involving administrative proceedings, citing Kahane v. UNUM Life Ins. Co. of Am., 563 F.3d 1210, 1215 (11th Cir. 2009), regarding 29 U.S.C. § 1132(g)(1) and W. Watersheds Project v. U.S. Dep't of the Interior, 677 F.3d 922, 926–27 (9th Cir. 2012), regarding the Equal Access to Justice Act, 28 U.S.C. § 2412(d)).  The Court did not credit Almirall's cases asserted in support of its opinion to lead to a contrary result.  In Sullivan v. Hudson, 490 U.S. 877 (1989), the panel interprets the Supreme Court's decision permitting attorney's fees for administrative proceedings to be limited to cases "where 'a suit has been brought in a court,' and where 'a formal complaint within the jurisdiction of a court of law' remains pending and depends for its resolution upon the outcome of the administrative proceedings" (emphasis in opinion), which was not the case here.  And in its own Therasense v Becton Dickenson, the panel states that "we were clearly only referring to district court and appellate court proceedings."  (The panel also notes that PPG Indus., Inc. v. Celanese Polymer Specialties Co., 840 F.2d 1565, 1569 (Fed. Cir. 1988), not cited by Almirall, is consistent with its views, wherein the fees awarded were limited to those fees "incurred after the filing of a civil action, and the fees were awarded in that district court proceeding" and because the proceedings before the PTO were "intimately tied to the resolution of that action.")

There has been an increase in motions for attorney's fees and awards of such fee since the Supreme Court's decisions in Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.  This decision by the Federal Circuit draws a line limiting such awards for fees and costs incurred in PTAB proceedings (although the opinion notes is a footnote that sanctions provisions exist under PTAB rule for misconduct should the need for such sanctions arise).

Amneal Pharmaceuticals LLC v. Almirall, LLC (Fed. Cir. 2020)
Panel: Circuit Judges Lourie, Dyk, and Reyna
Opinion by Circuit Judge Dyk

Top Stories of 2019: #6 to #10

By Donald Zuhn –-

After reflecting upon the events of the past twelve months, Patent Docs presents its 13th annual list of top patent stories.  For 2019, we identified fifteen stories that were covered on Patent Docs last year that we believe had (or are likely to have) a significant impact on patent practitioners and applicants.  Yesterday, we counted down stories #15 to #11, and today, we count down stories #10 to #6, as we will work our way towards the top five stories of 2019.  As with our other lists (2018, 2017, 2016, 2015, 2014, 2013, 2012, 2011, 2010, 2009, 2008, and 2007), links to our coverage of these stories (as well as a few links to articles on related topics) have been provided in case you missed the articles the first time around or wish to go back and have another look.  As always, we love to hear from Patent Docs readers, so if you think we left something off the list or disagree with anything we included, please let us know.  In addition, we will be offering a live webinar on the "Top Patent Law Stories of 2019" on January 22, 2020 from 10:00 am to 11:15 am (CT).  Details regarding the webinar, which will focus on a handful of the most important stories on this year's list, can be found here.

10.  Federal Circuit Applies Doctrine of Equivalents (And Not Only in "Exceptional" Cases)

In May, the Federal Circuit dismissed Amgen's doctrine of equivalents argument in Amgen Inc. v. Sandoz Inc., stating that "[t]he doctrine of equivalents applies only in exceptional cases and is not 'simply the second prong of every infringement charge, regularly available to extend protection beyond the scope of the claims,'" citing its pre-Warner-Jenkinson v. Hilton Davis Chemical Co. precedent in London v. Carson Pirie Scott & Co., 946 F.2d 1534, 1538 (Fed. Cir. 1991).  The Court based its decision on the reasoning that "Sandoz does not infringe claim 7 under the doctrine of equivalents because its one-step, one-solution purification process works in a substantially different way from the claimed three-step, three-solution process" recited in Amgen's claims.  Four months later, the Federal Circuit issued an order modifying its opinion to read:  "The doctrine of equivalents applies only in exceptional cases and is not 'simply the second prong of every infringement charge, regularly available to extend protection beyond the scope of the claims.'"  In between its May decision and September order in Amgen, the Federal Circuit issued at least five decisions applying the doctrine of equivalents (and issued a sixth decision applying the doctrine in November).

The doctrine of equivalents is a Supreme Court-created patent doctrine that arose in Graver Tank & Mfg. Co. v. Linde Air Products Co., 339 U.S. 605 (1950) (an uncharacteristically pro-patent decision by the Court, the doctrine recognized that an "unscrupulous copyist" could practice a claimed invention without literal infringement in some circumstances, and as a consequence the patent right could be turned into a "hollow and useless thing").  The doctrine fell into disfavor at the Federal Circuit during the 1990's and arguably provided the first inkling to the Supreme Court that the Federal Circuit's patent jurisprudence would benefit from the Court's closer oversight.  In Warner-Jenkinson Co. v. Hilton Davis Chem. Co. and Festo v. Shoketsu Kinzoku Kogyo Kabushiki, the Supreme Court reiterated the vibrancy of the doctrine; nevertheless, its successful assertion has continued to decline.  Thus, the Federal Circuit's decision in UCB, Inc. v. Watson Laboratories Inc. in June, affirming a District Court's determination in ANDA litigation that the generic challenger's product infringed under the doctrine, was a welcome surprise.

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

• "Pharma Tech Solutions, Inc. v. Lifescan, Inc. (Fed. Cir. 2019)," November 27, 2019
• "Federal Circuit Issues Order Clarifying Status of Doctrine of Equivalents," September 5, 2019
• "Ajinomoto Co. v. International Trade Commission (Fed. Cir. 2019)," August 13, 2019
• "Eli Lilly & Co. v. Hospira, Inc. (Fed. Cir. 2019)," August 12, 2019
• "Amgen Inc. v. Coherus BioSciences Inc. (Fed. Cir. 2019)," August 11, 2019
• "Indivior Inc. v. Dr. Reddy's Laboratories, S.A. (Fed. Cir. 2019)," July 24, 2019
• "UCB, Inc. v. Watson Laboratories Inc. (Fed. Cir. 2019)," July 16, 2019
• "Amgen Inc. v. Sandoz Inc. (Fed. Cir. 2019)," May 12, 2019

9.  Federal Circuit Finds More Method of Treatment Patents Eligible

Following on the heels of its 2018 decision in Vanda Pharmaceuticals Inc. v. West-Ward Pharmaceuticals Int'l, the Federal Circuit issued two more decisions concerning the patent eligibility of method of treatment claims in 2019.  In Vanda, which made our Top Stories list last year (coming in at #12), the Federal Circuit affirmed a District Court decision finding that the claims of U.S. Patent No. 8,586,610, which are directed to methods of treating a patient suffering from schizophrenia with iloperidone, were not invalid under 35 U.S.C. § 101.  In April, the Federal Circuit decided Endo Pharmaceuticals Inc. v. Teva Pharmaceuticals USA, Inc., reversing a District Court decision holding the claims of U.S. Patent No. 8,808,737, which are directed to methods of using oxymorphone to treat pain in patients with impaired kidney function, to be ineligible under 35 U.S.C. § 101.  In reversing the District Court, the Federal Circuit determined that the asserted claims of the '737 patent were legally indistinguishable from the claims at issue in Vanda.  Only a few weeks earlier, the Federal Circuit decided Natural Alternatives International, Inc. v. Creative Compounds, LLC, reversing and remanding a District Court decision granting a motion for judgment on the pleadings that the asserted claims of six patents, which relate to the use of beta-alanine in dietary supplements to increase the anaerobic working capacity of muscle and other tissue, were not patent eligible.  The United States closed 2019 by filing a brief in response to a Supreme Court order inviting the Solicitor General to express the views of the United States on the petition for certiorari filed by Petitioners Hikma Pharmaceuticals USA Inc. and Hikma Pharmaceuticals International Ltd. (previously West-Ward Pharmaceuticals International Ltd.) in Hikma Pharmaceuticals USA Inc. v. Vanda Pharmaceuticals Inc.  The Solicitor General concluded that Vanda "is not an optimal vehicle for bringing greater clarity because the court of appeals majority arrived at the correct result," noting that "[i]n cases involving medical-diagnostic methods, by contrast, the Federal Circuit's recent decisions suggest that the court might well have reached different outcomes if it were not bound by the Mayo framework."  The Solicitor General therefore recommended that "[t]he Court should await a case in which lower courts' confusion about the proper application of Section 101 and this Court's precedents makes a practical difference."  The Supreme Court is scheduled to discuss Hikma's petition at Conference on January 10, 2020.

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

• "Solicitor General Recommends That Supreme Court Deny Certiorari in Hikma Pharmaceuticals v. Vanda Pharmaceuticals," December 8, 2019
• "Endo Pharmaceuticals Inc. v. Teva Pharmaceuticals USA, Inc. (Fed. Cir. 2019)," April 1, 2019
• "Natural Alternatives International, Inc. v. Creative Compounds, LLC (Fed. Cir. 2019)," March 19, 2019

8.  Supreme Court: Prevailing Applicants Not Liable for USPTO's Attorney's Fees

Last month, in Peter v. NantKwest, Inc., the Supreme Court considered whether the U.S. Patent and Trademark Office could compel an aggrieved applicant to pay its attorney's fees in a § 145 review, regardless of who wins or loses.  The Court unanimously rejected the USPTO's arguments.  In doing so, the Court bolstered the "American Rule" on attorney's fees and preserved § 145 proceedings as a financially viable option for review of adverse Patent Trial and Appeal Board (PTAB) decisions.  The decision expressly considered only patent reviews, but it also applies to analogous reviews of trademark decisions.  Thus, it has impact on cases far more broadly than just § 145 proceedings.

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

• "Peter v. NantKwest, Inc. (2019)," December 11, 2019
• "Peter v. NantKwest: PTO Faces Skeptical Justices over Assessment of Fees," October 7, 2019
• "Supreme Court Grants Certiorari in Iancu v. NantKwest, Inc.," March 4, 2019

7.  Supreme Court: Federal Government Cannot Petition for Review in AIA Post-grant Proceedings

In June, the Supreme Court determined in Return Mail, Inc. v. United States Postal Service that federal government agencies cannot avail themselves of America Invents Act (AIA) post-grant proceedings.  This decision was based on the Court's determination that the government is not a "person" as that term is used in relation to inter partes review (IPR), post-grant review (PGR), and covered business method (CBM) proceedings.  To parties accusing the federal government of infringing their patents, the decision means that they will be free of AIA post-grant challenges from the accused agency.

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

• "Return Mail, Inc. v. United States Postal Service (2019)," June 10, 2019
• "Supreme Court Hears Oral Argument in Return Mail v. U.S. Postal Service," February 19, 2019

6.  Congressional Effort to Reform § 101 Slows

In April, Senator Thom Tillis (R-NC), Chair of the Senate Judiciary Subcommittee on Intellectual Property, and Senator Chris Coons (D-DE), Ranking Member, joined by Representative Doug Collins (R-GA-9), Ranking Member of the House Judiciary Committee, and Representatives Hank Johnson (D-GA-4), and Steve Stivers (R-OH-15), released a "bipartisan, bicameral framework on Section 101 patent reform."  A month later, the group released a draft bill proposing significant changes to 35 U.S.C. § 101 and the law of patent eligibility.  The draft bill would completely eliminate the notion of a judicial exception to patent eligibility as well as clarify that the § 101 inquiry is separate from those of §§ 102, 103, and 112.  In other words, patentable subject matter under the draft bill would likely be as broad or even broader than the "anything under the sun that is made by man" language of Diamond v. Chakrabarty.  In June, the Senate Subcommittee on Intellectual Property held hearings on its proposal to revise 35 U.S.C. § 101, and in particular the draft bill that was released in May.  Chairman Tillis and Ranking Member Coons (with an occasional third senator in the room) heard testimony from forty-five individuals representing a broad swathe of patent expertise including industry executives and groups, inventors, a former Federal Circuit judge, former U.S. Patent and Trademark Office officials, and law professors.  Following those hearings, Senators Tillis and Coons released a statement regarding their takeaway from the hearings.  If anything, their statement reflected an understanding that the law needs to change, the Senators are committed to doing so, and that they still need to work out the details.  Despite the whirlwind of activity in April, May, and June, legislative progress has slowed since Senators Tillis and Coons released their statement at the end of June, and the patent community awaits the Senators' next move.

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

• "Biotech Prospects for Patent Reform," June 26, 2019
• "Senators Tillis and Coons Release Statement on Recent Patent Reform Hearings," June 26, 2019
• "Senate Subcommittee on Intellectual Property Holds Hearings on Proposed Revisions to 35 U.S.C. § 101," June 17, 2019
• "ACLU (Predictably) Opposes Patent Subject Matter Eligibility Proposal," June 3, 2019
• "Senate Proposal for Section 101 Reform: Effect on Biotech/Pharma Inventions," May 23, 2019
• "Congress Proposes Draft Bill to Change 35 U.S.C. § 101," May 23, 2019
• "Congress Releases Framework for Section 101 Reform," April 17, 2019
• "Law Review Article Advocates Supreme Court's Patent Eligibility Law is Unconstitutional," February 20, 2019

Peter v. NantKwest, Inc. (2019)

Supreme Court Rejects USPTO's Attempt to Recover Attorney's Fees in All District Court "Appeals" from PTAB Decisions

By Joshua Rich --

In Peter v. NantKwest, Inc., decided by the U.S. Supreme Court earlier today, the Court considered whether the U.S. Patent and Trademark Office could compel an aggrieved applicant to pay its attorney's fees in a § 145 review, regardless of who wins or loses.  The Court unanimously rejected the USPTO's arguments.  In doing so, the Court bolstered the "American Rule" on attorney's fees and preserved § 145 proceedings as a financially viable option for review of adverse Patent Trial and Appeal Board ("PTAB") decisions.  The decision expressly considered only patent reviews, but it also applies to analogous reviews of trademark decisions.  Thus, it has impact on cases far more broadly than just § 145 proceedings.

A patent applicant dissatisfied with a PTAB decision[1] has two options for review of that decision.  First, the applicant can appeal the decision to the U.S. Court of Appeals for the Federal Circuit under 35 U.S.C. § 141.  In such cases -- which are the vast majority of reviews of PTAB decisions -- the Federal Circuit considers only the record before the PTAB and reviews that record deferentially for administrative correctness.  Second, the applicant can also file a civil action in the U.S. District Court for the Eastern District of Virginia under 35 U.S.C. § 145 and introduce new evidence for consideration de novo.  One downside of the second route, however, is that "[a]ll of the expenses of the proceeding shall be paid by the applicant."  In NantKwest, Inc. v. Lee, which later became Peter v. NantKwest, the USPTO argued for the first time that those expenses included the salaries of the USPTO attorneys and paralegals trying the case, regardless of the outcome of the case.

The Supreme Court's starting point in considering the USPTO's argument was the "American Rule" on attorney's fees:  "Each litigant pays his own attorney's fees, win or lose, unless a statute or contract provides otherwise."  The USPTO argued that the American Rule didn't apply to § 145 proceedings because fee-shifting statutes usually reward only prevailing parties, and § 145 doesn't require the USPTO to be a prevailing party in order to recover expenses.  But the Court noted that there are exceptions to the prevailing party requirement, such as cases brought under the National Childhood Vaccine Injury Act; those exceptions are—and are required to be—extremely clear in order to create an exception to the American Rule.

Here, the Court found § 145 provides no such clarity.  The word "expenses" itself is ambiguous as to whether it would include attorney's fees.  Next, the phrase "expenses of the proceeding" is similar to the term of art "expensæ litis" (Latin for expenses of the litigation), which traditionally has excluded attorney's fees.  And the word "all" preceding "expenses of the proceeding" does not broaden the type of expenses recoverable, just the extent to which appropriate expenses are recoverable.  Thus, the American Rule applies, and the USPTO cannot recover its attorney's fees as expenses as a matter of right under § 145.

To the extent that there was any question remaining as to whether the USPTO's attorney's fees were expenses under § 145, the Court considered both statutory usage of the term "expenses" in other contexts and the USPTO's history of conduct in § 145 actions.  The terms "expenses" and "attorney's fees" appear in tandem numerous times in statutes, suggesting that the former does not always include the latter.  When expenses are defined as including attorney's fees, however, the definition is clear (in a way that it is not under § 145).  Perhaps most damning to the USPTO's case, however, was its own course of conduct.  For over 170 years, until the NantKwest case, the USPTO never argued that expenses under § 145 included attorney's fees.  Thus, neither the Patent Act nor other statutes provided a basis to vary from the American Rule.  The USPTO cannot recover its attorney's fees as a matter of right as expenses in a § 145 proceeding.

Although § 145 proceedings are quite rare, the Court's decision is important in preserving them as an option under any circumstances.  Applicants often appeal under § 141 not only because the record may be complete, but also because it is quicker and less costly.  The cost distinction would be even more extreme if the applicant had to pay the USPTO's attorney's fees, which could have easily doubled the cost of "expenses" due under the law.  The financial difference would have, as a practical matter, made § 145 review financially unfeasible.

For the Court, preserving the American Rule was also a key concern.  There are circumstances in which the American Rule does not apply in patent cases but those situations almost always arise under 35 U.S.C. § 285, which clearly allows for an award of attorney's fees.[2]  To allow attorney's fees to be collected under § 145, where the entitlement to fees is far less clear, would lower the bar for the recovery of fees under other statutes as well.  The ultimate effect would be a watering down of the American Rule, and a resulting increase in collateral litigation over attorney's fees.

Finally, the Trademark Act has procedures for review parallel to §§ 141 and 145.  In fact, a trademark case decided under the statute parallel to § 145, Shammas v. Focarino, 784 F.3d 219 (4th Cir. 2015), served as the strongest, most analogous precedent for the Federal Circuit's panel decision below awarding the USPTO attorney's fees automatically.  Today's Supreme Court decision undermines the reasoning of the Shammas case, and therefore should apply with full force to district court review of Trademark Trial and Appeal Board decisions as well.

Peter v. NantKwest, Inc. (2019)
Opinion by Justice Sotomayor, joined by Chief Justice Roberts and Justices Thomas, Ginsburg, Breyer, Alito, Kagan, Gorsuch, and Kavanaugh

[1] The procedures identified here, and the holding in the NantKwest case, apply only to the review of prosecution decisions, not post-grant proceedings such as inter partes review.

[2] Section 285 provides: "The court in exceptional cases may award reasonable attorney fees to the prevailing party."  Attorney’s fees are also sometimes awarded under Rule 11 of the Federal Rules of Civil Procedure, which has a similarly clear provision on the award of fees, or the Court’s inherent sanctions power.

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.

Cellspin Soft, Inc. v. Fitbit, Inc. (Fed. Cir. 2019)

By Michael Borella --

Background

Cellspin Soft Inc. (Cellspin) filed an infringement suit against Fitbit Inc. (Fitbit) and ten other defendants in the Northern District of California, asserting U.S. Patent Nos. 8,738,794, 8,892,752, 9,258,698, and 9,749,847.  These patents have a common specification and their claims are directed to a data capture device being connected to a mobile device so that captured data can be published to a web site.  The defendants moved the District Court to dismiss all counts under Rule 12(b)(6) or 12(c), alleging that the patents did not meet the eligibility requirements of 35 U.S.C.§ 101.  Ultimately, the District Court not only granted this motion, but also awarded the defendants attorney fees under § 285.  Cellspin appealed.

In Alice Corp. v. CLS Bank Int'l, the Supreme Court set forth a two-part test to determine whether claims are directed to patent-eligible subject matter under § 101.  One must first decide whether the claim at hand involves a judicially-excluded law of nature, a natural phenomenon, or an abstract idea.  If so, then one must further decide whether any element or combination of elements in the claim is sufficient to ensure that the claim amounts to significantly more than the judicial exclusion.  But elements or combinations of elements that are well-understood, routine, and conventional will not lift the claim over the § 101 hurdle.  While this inquiry is generally carried out as a matter of law, factual issues can come into play when determining whether something is well-understood, routine, and conventional.

The Claimed Inventions

As a representative example of the claimed inventions, the '794 patent "teaches a way to transfer and upload data automatically or with minimal user intervention using a data capture device and a mobile device."  Notably, a client application on the mobile device wirelessly receives data from the data capture device and then publishes this data to one or more websites.  Such a procedure takes place "automatically or with minimal user intervention."

Claim 1 of this patent recites:

A method for acquiring and transferring data from a Bluetooth enabled data capture device to one or more web services via a Bluetooth enabled mobile device, the method comprising:
    providing a software module on the Bluetooth enabled data capture device;
    providing a software module on the Bluetooth enabled mobile device;
    establishing a paired connection between the Bluetooth enabled data capture device and the Bluetooth enabled mobile device;
    acquiring new data in the Bluetooth enabled data capture device, wherein new data is data acquired after the paired connection is established;
    detecting and signaling the new data for transfer to the Bluetooth enabled mobile device, wherein detecting and signaling the new data for transfer comprises:
        determining the existence of new data for transfer, by the software module on the Bluetooth enabled data capture device; and
        sending a data signal to the Bluetooth enabled mobile device, corresponding to existence of new data, by the software module on the Bluetooth enabled data capture device automatically, over the established paired Bluetooth connection, wherein the software module on the Bluetooth enabled mobile device listens for the data signal sent from the Bluetooth enabled data capture device, wherein if permitted by the software module on the Bluetooth enabled data capture device, the data signal sent to the Bluetooth enabled mobile device comprises a data signal and one or more portions of the new data;
        transferring the new data from the Bluetooth enabled data capture device to the Bluetooth enabled mobile device automatically over the paired Bluetooth connection by the software module on the Bluetooth enabled data capture device;
        receiving, at the Bluetooth enabled mobile device, the new data from the Bluetooth enabled data capture device;
        applying, using the software module on the Bluetooth enabled mobile device, a user identifier to the new data for each destination web service, wherein each user identifier uniquely identifies a particular user of the web service;
        transferring the new data received by the Bluetooth enabled mobile device along with a user identifier to the one or more web services, using the software module on the Blue-tooth enabled mobile device;
        receiving, at the one or more web services, the new data and user identifier from the Bluetooth enabled mobile device, wherein the one or more web services receive the transferred new data corresponding to a user identifier; and
        making available, at the one or more web services, the new data received from the Bluetooth enabled mobile device for public or private consumption over the internet, wherein one or more portions of the new data correspond to a particular user identifier.

The other asserted claims are substantially similar, though they recite further variations including: (1) a polling mechanism through which the mobile device checks for and then pulls data from the data capture device, (2) establishing a connection between the mobile device and the data capture device using encryption, (3) the mobile device using the hypertext transfer protocol (HTTP) to transfer the captured data to the web sites, and (4) broader embodiments that do not use Bluetooth.

District Court Proceedings

One month after the defendants filed the motion to dismiss, Cellspin filed a notice of supplemental authority.  The notice cited the recently-decided Aatrix Software, Inc. v. Green Shades Software, Inc. and Berkheimer v. HP Inc., two cases that established the contours of the factual analysis in the Alice test's second part.  Cellspin also amended its complaints to allege that the combination of elements recited by the claims was unconventional at the time the patents were filed.

Applying part one of the Alice test, the District Court found that the claims were directed to the abstract idea of "acquiring, transferring, and publishing data and multimedia content on one or more websites."  The District Court noted that "Cellspin failed to show that the data acquisition, transfer, and publication described in the '794 patent represents something more than a simple automation of a conventional (manual) process."

Moving on the part two, the District Court "concluded that the various claim elements, e.g., the data capture device and Bluetooth enabled mobile device, represent generic computer components performing as expected according to their ordinary use."  The District Court acknowledged that there was a factual dispute between the parties regarding whether the combination of these elements was well-understood, routine, and conventional.  But the District Court declined to take this factual dispute into account because, in the District Court's view, Berkheimer only applied to the summary judgment stage, and also because Cellspin did not identify where the specification described the unconventional aspects of the claimed inventions as alleged in the amended complaint.  Thus, all claims were found invalid under § 101.

A number of the defendants moved the District Court for attorney fees.  The District Court found that the case met the definition of "exceptional" under § 285 because the "claims were manifestly directed to an abstract idea" and "exceptionally meritless."  Further, the District Court determined that Cellspin litigated aggressively, noting that Cellspin amended "its complaint only three days prior to the hearing on the motions to dismiss."

The District Court further admonished Cellspin for "a refusal to analyze its patents critically before filing suit," noting that "Cellspin could have litigated a test case but instead chose to file and pursue aggressively fourteen lawsuits simultaneously."  The District Court recommended this approach because "Cellspin's patents are not presumed eligible under Section 101."

Based on these factors, the District Court awarded attorney fees to the defendants.

Appeal to the Federal Circuit

On appeal, the Federal Circuit re-applied the Alice test and also considered the attorney fees award.

Particularly, the Court found that, under part one of Alice, the claims were indeed directed to an abstract idea.  The Court determined that this outcome was required given the similarities between Cellspin's claims and those held abstract in In re TLI Communications LLC Patent Litigation ("claims reciting recording . . . transmitting . . . and storing digital images were directed to an abstract idea") and Elec. Power Grp., LLC v. Alstom S.A. ("claims reciting collecting information, analyzing it, and displaying certain results" are typically abstract in nature).

Moving on to part two of Alice, the Court looked to Cellspin's amended complaint for allegations that its claims are unconventional.  There, it found Cellspin's argument that "prior art devices included a capture device with built in mobile wireless Internet," and that "at the time of the patent priority date . . . the combined apparatus was bulky, expensive in terms of hardware, and expensive in terms of requiring a user to purchase an extra and/or separate cellular service for the data capture device."  Cellspin further argued that "it was unconventional to separate the steps of capturing and publishing data so that each step would be performed by a different device linked via a wireless, paired connection" and that doing so "allows data capture devices to be smaller and cheaper to build."  Additionally, Cellspin asserted that the ordering of the claimed elements was also unconventional, as prior art devices "forwarded data to a mobile device as captured," whereas the claims involve "establishing a paired connection between the mobile device and the data capture device before data is transmitted."  According to Cellspin, this has the advantage of data only being transmitted "if the mobile device is capable of receiving it."

As noted above, the District Court faulted Cellspin for not citing to support in the specification for these allegations.  But the Federal Circuit disagreed that this was required, noting that under Aatrix, "allegations in the complaint [are sufficient] to conclude that the disputed claims were potentially inventive."  The Court went on:

While we do not read Aatrix to say that any allegation about inventiveness, wholly divorced from the claims or the specification, defeats a motion to dismiss, plausible and specific factual allegations that aspects of the claims are inventive are sufficient.  As long as what makes the claims inventive is recited by the claims, the specification need not expressly list all the reasons why this claimed structure is unconventional.  In this case, Cellspin made specific, plausible factual allegations about why aspects of its claimed inventions were not conventional, e.g., its two-step, two-device structure requiring a connection before data is transmitted.  The district court erred by not accepting those allegations as true.

The Court also made it clear that Aatrix "expressly stated that patentees who adequately allege their claims contain inventive concepts survive a § 101 eligibility analysis under Rule 12(b)(6)."  Thus, the District Court's reliance on Berkheimer to discount Cellspin's allegations was misplaced.

Putting this all together, the Court stated "accepting the allegations stated above as true, we cannot conclude that the asserted claims lack an inventive concept . . . we have no basis, at the pleadings stage, to say that these claimed techniques, among others, were well-known or conventional as a matter of law."  A major factor that led the Court toward this conclusion was that "Cellspin did more than simply label [the claimed] techniques as inventive . . . [i]t pointed to evidence suggesting that these techniques had not been implemented in a similar way."  Thus, based on the allegations, the claims "recite a specific, plausibly inventive way of arranging devices and using protocols rather than the general idea of capturing, transferring, and publishing data," and cannot be found ineligible at this point in the case.

As the District Court's opinion was vacated, the attorney fees award was necessarily vacated as well.  To that point, the Federal Circuit clarified the principle that an issued patent has a presumption of validity:

This presumption reflects the fact that the Patent and Trademark Office has already examined whether the patent satisfies the prerequisites for issuance of a patent, including § 101.  While an alleged infringer may attempt to prove that the patent never should have issued in the first place, i.e., challenge its validity, the alleged infringer must prove that the patent does not satisfy these prerequisites before the patent loses its presumption of validity.  To the extent the district court departed from this principle by concluding that issued patents are presumed valid but not presumed patent eligible, it was wrong to do so.

The Court also found that the District Court erred when admonishing Cellspin for amending its complaints so close to the hearing thereon.  Looking to the record, the Court observed that "Cellspin's amendment was timely based on a scheduling order entered by the district court just three days before Cellspin's amendment," and that "Cellspin's decision to amend was also justified in light of Berkheimer and Aatrix, decided just a few weeks earlier."

Thus, both issues of patent eligibility and attorney fees were remanded to the District Court for further review.

Cellspin Soft, Inc. v. Fitbit, Inc. (Fed. Cir. 2019)
Panel: Circuit Judges Loruie, O'Malley, and Taranto
Opinion by Circuit Judge O'Malley

Tangelo IP, LLC v. Tupperware Brands Corp. (D. Del. 2019)

By Donald Zuhn --

Last week, in Tangelo IP, LLC v. Tupperware Brands Corp., District Judge Richard G. Andrews of the U.S. District Court for the District of Delaware denied a motion for exceptional case filed by Defendant Tupperware Brands Corp., finding that Tupperware Brands had failed to establish that the case was exceptional under 35 U.S.C. § 285.  Plaintiff Tangelo IP, LLC had filed suit against Tupperware Brands, alleging infringement of U.S. Patent No. 8,429,005.  Tupperware Brands responded by filing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the '005 patent was invalid under 35 U.S.C. § 101.  The District Court granted the motion, and Tupperware Brands then moved for a finding of exceptional case and requested attorneys' fees under § 285.

In determining that the case was not exceptional, the District Court noted that although it had found the '005 patent to be invalid under § 101, "that does not mean Plaintiff's contrary position was unreasonable."  In support, the Court cited SFA Sys., LLC v. Newegg Inc., 793 F.3d 1344, 1348 (Fed. Cir. 2015), for the proposition that "it is the substantive strength of the party's litigating position that is relevant to an exceptional case determination, not the correctness or eventual success of that position" (emphasis in opinion).

In response to Tupperware Brands' argument that Tangelo had "ignored substantial precedent dismissing analogous claims directed to concepts long-practiced in society," the Court noted that Tupperware Brands had "identifie[d] no precedent addressing claims analogous to those in the '005 patent, at least beyond the broad category of claims directed to 'concepts long-practiced in society.'"  Judge Andrews also noted that he had not identified any cases in which analogous claims had been found to be patent ineligible.

Judge Andrews concluded the opinion by distinguishing the instant case from his decision in Finnavations LLC v. Payoneer, Inc., 2019 WL 1236358 (D. Del. Mar. 18, 2019).  In Finnavations, Judge Andrews had granted motions for exceptional case and attorneys' fees based on claims that were "plainly directed at a patent ineligible concept," where there was "no question" that the patent at issue was invalid because the claims were analogous to those struck down in Alice.  Judge Andrews found the instant case to be "clearly a different situation," explaining that while he ultimately agreed with Tupperware Brands regarding the validity of the '005 patent, "there is room for argument."  Judge Andrews also pointed out that he was not aware of any precedent that leaves "no question" as to the validity of the '005 patent, "particularly in view of the somewhat opaque nature of § 101."  The Court therefore denied Tupperware Brands' motion for a finding of exceptional case.

Tangelo IP, LLC v. Tupperware Brands Corp. (D. Del. 2019)
Memorandum Order by District Judge Andrews

Finnavations LLC v. Payoneer, Inc. (D. Del. 2019)

Court Grants Exceptional Case/Attorney Fees When Software Patent Has Invalid Claims under § 101

By Joseph Herndon --

In the U.S. District Court for the District of Delaware, motions for an exceptional case and attorneys' fees were granted on the basis that the patent owner brought suit with a software patent having claims so "ugly" that they had no chance to survive a challenge under 35 U.S.C. § 101.  The case is Finnavations LLC v. Payoneer, Inc. and Finnavations LLC v. Stitch Labs, Inc.  Here, Defendant Payoneer Inc. filed a Motion for Exceptional Case and Defendant Stitch Labs, Inc. filed a Motion for Attorneys' Fees after prevailing in the action by invalidating the asserted patent under § 101.  The District Court granted each of these motions and offered some strong opinions on the invalidity of the patent.  However, it's difficult to see, based on current standards, how the patent claim is as "ugly" as the Court stated.

Background

Plaintiff sued Defendants on March 23, 2018, alleging infringement of U.S. Patent No. 9,569,755 ('755 Patent).  Defendants filed Motions to Dismiss for Failure to State a Claim based on patent ineligibility of the '755 Patent under 35 U.S.C. § 101.  The Court granted the motions, and specifically found that the '755 Patent was directed to the patent ineligible abstract idea of bookkeeping and did not contain an inventive concept.

The '755 Patent

The '755 Patent is directed to a "Financial Managment System," and is described as a system designed to facilitate the record keeping associated with online transactions to increase the amount of transaction data relating to an online purchase of goods or services that is retained by a personal financial management system.

Claim 1 recites:

1.  A method for transferring payment information to a personal financial management program comprising:
    invoking a financial assistant operating on a network device upon a determination of a transmission of transaction data to a commercial web server configured to conduct online financial transactions;
    intercepting, by the financial assistant on the network device, the transaction data in a first data structure comprising a plurality of components of transaction data, the first data structure compatible with conducting an online transaction with the commercial web server;
    copying, by the financial assistant on the network device, each component of the transaction data into a second data structure compatible with the personal financial management program, wherein the second data structure differs from the first data structure;
    entering, by the financial assistant on the network device, additional transaction data not included in the transmitted transaction data into the second data structure including at least one of a category and remarks; and
    transmitting, by the network device, the copied transaction data and the additional transaction data to the personal financial management program.

Analysis

The Patent Act provides that "in exceptional cases [the court] may award reasonable attorney fees to the prevailing party."  35 U.S.C. § 285.  Under the statute, there are two basic requirements:  (1) that the case is "exceptional," and (2) that the party seeking fees is a "prevailing party."

The Supreme Court defines an "exceptional" case as "simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated."  Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014).

Here, the Defendants are prevailing parties.  Thus, the only issue is whether the cases are exceptional.

The Court had a strong opinion that there was "no question" that the '755 Patent is patent ineligible under the Federal Circuit's current precedent.  Even though the Court noted that since Alice, the law of patent eligibility has perhaps become unpredictable and unclear, the Court stated that patents that look like those at issue in Alice are ineligible.  The Court issued further strong statements, declaring that "I have rarely been more confident in the patent ineligibility of a set of claims or more confident in the unreasonableness of a Plaintiff's decision to sue on a patent."  It seems that the Court easily found this case to be "one that stands out from others" with regard to the substantive weakness of Plaintiff's litigation position.

Even though the Examiner allowed the '755 Patent despite four separate § 101 rejections, the Court still found that the USPTO's decision to grant the patent does not relieve the patent holder from making an independent evaluation of the strength of the patent prior to suing.  The Court stated that the "issuance of a patent cannot and should not be a license to sue with abandon."  The Court further noted that patent examiners are non-lawyers, and an Examiner's opinion on the legal question of patent eligibility does not relieve a patent attorney from his or her obligation to make an independent assessment based on an evaluation of the relevant law.

The Court issued yet another strong opinion:

I have resolved scores of Section 101 motions and seen a wide array of validity arguments.  Usually the quality of an argument falls somewhere between good and mediocre.  Infrequently, I have encountered arguments which I would classify as bad.  Plaintiff's defense of the validity of the '755 Patent was not just mediocre or bad; it was ugly.

Plaintiff argued that the law is unclear and that it made reasonable arguments in response to Defendants' motions.  But the Court disagreed and found that the claims of the '755 Patent are plainly directed at a patent ineligible concept and amount to no more than the underlying idea, and further that "[a]ny reasonable patent attorney with an understanding of Section 101 law could have predicted the outcome."

Thus, the Court found that Plaintiff should not have filed suit, asserting "the clearly patent ineligible claims of the '755 Patent."  The Court found that this decision was unreasonable under the law and Plaintiff's behavior should be deterred.  Thus, the Court granted Defendant Payoneer's Motion for Exceptional Case and Defendant Stitch Labs' Motion for Attorneys' Fees.

Commentary

At times, I believe I am a reasonable patent attorney with an understanding of § 101 law, and perhaps I could have predicted that the claims of the '755 Patent would face § 101 challenges, BUT, the claims at issue in this case are far from "ugly," and in view of the prosecution history, it would have been reasonable to consider the claims valid on their face.

The District Court made much of the claims looking like those at issue in Alice, which, if true, then of course they should be found invalid under § 101.  But the representative claim in Alice, shown below, appears far different, in my opinion, from the claims of the '755 Patent:

(Alice claim)   A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:
    (a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;
    (b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;
    (c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party's shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order, and
    (d) at the end-of-day, the supervisory institution instructing one of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

In particular, the claims of the '755 Patent are grounded in computer technology, and include exchange of data between network components.  This is not to say that the claim at issue in this case should survive a § 101 challenge, as the '755 Patent appears to be void of description to support a factual analysis that the invention solves a technical problem with a technical solution.  However, the patent owner would appear to be on sufficiently solid ground asserting this patent, as the claims were heavily tested during prosecution, and the USPTO issued the patent after a long examination process.  Since the claims at issue in this case differ from Alice in this way, the granting of motions for an exceptional case by the District Court are hard to accept.

Finnavations LLC v. Payoneer, Inc. (D. Del. 2019)
Memorandum by District Judge Andrews

Thermolife Int'l LLC v. GNC Corp. (Fed. Cir. 2019)

By Kevin E. Noonan --

Ever since the Supreme Court handed down its decisions in Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Mgmt. Sys., Inc. about five years ago, liberalizing (or at least simplifying) the law regarding awarding district court awards of attorneys' fees in patent cases under 35 U.S.C. § 285, those courts (and the Federal Circuit) have been assaying the metes and bounds of sanction-worthy behavior.  The Supreme Court's rubrics relied heavily on the sound discretion of the district court judge, another example of the Court's penchant for "knowing it when we see it" jurisprudence and (as applied to the attorneys' fees question) one without any guidance from the Court except to consider the "totality of the circumstances."  But, as expected, any behavior that could be characterized as "abusive" became much more in the § 285 crosshairs, particularly those involving plaintiffs suing a large number of putative defendants or that could be accused of performing a less than diligent pre-complaint filing investigation as required under the Federal Rules of Civil Procedure.  Both allegations were successfully made against plaintiffs Thermolife International LLC and the Board of Trustees of the Leland Stanford Junior University and affirmed by the Federal Circuit last week in Thermolife Int'l LLC v. GNC Corp.

The case arose over Stanford's U.S. Patent Nos. 5,891,459, 6,117,872, 6,646,006, and 7,452,916, directed to "methods and compositions involving the amino acids arginine and lysine, to be ingested to enhance vascular function and physical performance"; the '459, 926, and '006 patents had expired before litigation ensued (but infringing activity during the life of these patents was plead).  The '006 patent claimed compositions, while the other patents-in-suit claimed methods of using the claimed compositions for achieving the desired physiological effects.  The following claims were recited as representative of the issues before the Court:

Claim 1 of the '459 patent:

1.  A method of improving vascular NO activity of the vascular system of a human host by enhancing endothelial NO, said method comprising:
    administering orally as a dietary supplement to said host in accordance with a predetermined regimen a prophylactic dose in an amount sufficient to enhance endogenous endothelial NO, L-arginine or L-arginine hydrochloride, as other than a natural food source and in the absence of other amino acids and polypeptides as other tha[n] dietary supplements, to enhance the level of endogenous NO in the vascular system [emphasis in opinion].

Claim 1 of the '872 patent:

1.  A method for enhancing physical performance of a mammal prior to said physical performance, said method comprising:
    administering to said mammal prior to said physical performance as the active ingredient an amino acid composition consisting of at least one amino acid selected [from] the group consisting of arginine and lysine of at least about 60 mg/kg/day within 24 h of said physical performance [emphasis in opinion].

Claim 1 of the '916 patent:

1.  A method of enhancing nitric oxide production comprising orally administering to a human host in need thereof a composition comprising L-arginine or a physiologically acceptable salt thereof, wherein (i) said composition includes an amount of L-arginine or its physiologically acceptable salt sufficient to increase the level of nitric oxide production in said human host and (ii) said composition is a dietary or food supplement or a pharmaceutical composition in a form suitable for oral administration selected from the group consisting of a pill, a powder, a liquid, and a capsule, wherein said administering provides a daily amount rang-ing from 1 to 12 grams of L-arginine or its physiologically acceptable salt and wherein the composition further comprises at least one additional compound associated with production of nitric oxide other than L-arginine or a physiologically acceptable salt thereof [emphasis in opinion].

And claim 3 of the '006 patent:

3.  A composition comprising L-arginine or a physiologically acceptable salt thereof and at least one additional compound associated with production of nitric oxide other than L-arginine or a physiologically acceptable salt thereof, said composition excluding other amino acids which are not precursors of nitric oxide, wherein said composition is in a form suitable for oral administration selected from the group consisting of a pill, a powder, a liquid, and a capsule [emphasis in opinion].

Thermolife is the exclusive licensee of these patents and sued (over a 9-month period) multiple parties ("dozens" according to the Court, actually a total of 81, wherein a number of them settled for "seemingly small dollar amounts" that implied an intention by plaintiffs to obtain "nuisance-value settlements'), including surviving defendants GNC Corp., Hi-Tech Pharmaceuticals, Inc., and Vital Pharmaceuticals, Inc. for both direct (literal) infringement under 35 U.S.C. § 271(a) and indirect infringement under 35 U.S.C. §§ 271(b) and 271(c).  Relevant to the decisions in this case, plaintiffs alleged infringement by defendants' sale of specific products.

After finding all of the asserted claims invalid for anticipation and/or obviousness (conclusions not challenged on appeal), the District Court entertained and granted prevailing defendants' motion for attorneys' fees supported by two arguments.  First, that there was no basis to assert infringement against the specified products because they contained less than the at least 1 gram of L-arginine (or its hydrochloride salt) per serving as required by the asserted claims.  This was evident by inspection (on the ingredients recited on the bottles) or by "publicly available" analytical methods.  Defendants asserted these contentions in support of their argument that "plaintiffs did not conduct an adequate pre-suit investigation into infringement."  Also, defendants argued that the case was exceptional because plaintiffs' own expert testified that amounts less than one gram per serving of L-arginine (or its hydrochloride salt) were ineffective to enhance nitric oxide production (and hence that the method claim were also not infringed).  Defendants also argued that plaintiffs' pattern of suing multiple defendants and settling for nuisance value recoveries was evidence that the District Court properly found the case to be exceptional.  Plaintiffs did not (indeed, according to the decision could not) challenge the facts defendants set forth to support their arguments, but argued that there was insufficient evidence to support the conclusion that they had sued multiple parties to improperly extract nuisance-value settlements.

The District Court was persuaded by these arguments ("the pattern of action here is indeed one that strongly suggests Plaintiffs brought suit against many defendants without carefully reviewing their claims as a calculated risk that might yield nuisance-value settlements"; emphasis in opinion) and granted defendants' motion (amounting to awards of $903,890.13 to Hi-Tech and $406,131.76 to Vital; GNC did not move for attorneys' fees below).  This appeal followed, limited to the question of whether the District Court properly determined that this was a "special case" as required under the Supreme Court's Octane Fitness and Highmark decisions.

The Federal Circuit affirmed, in a decision by Judge Taranto joined by Judges Bryson and Stoll.  The Court noted that this case was unusual as not being directed (as most attorneys' fees cases tend to be) to plaintiff attorneys' trial conduct (there having been no trial on infringement) but rather on the question of whether the lawsuit should have been filed in the first instance.

As an initial matter, the Federal Circuit approved, as being properly within the exercise of the District Court's discretion, various procedural decisions below (striking trial counsel's untimely filed declaration regarding the extent of pre-filing investigation, for example).  Substantively, the panel held that the District Court had properly based its exceptional case determination on an issue (infringement) that had not been "fully litigated" in the underlying dispute, consistent with the Federal Circuit's decision in Lumen View Technology LLC v. Findthebest.com, Inc., 811 F.3d 479, 481–83 (Fed. Cir. 2016).  However, citing Spineology, Inc. v. Wright Med. Tech., Inc., 910 F.3d 1227, 1230 (Fed. Cir. 2018), the panel noted that while it is unusual to find support for an attorneys' fees award on unlitigated issues it is not an abuse of discretion by a district court.  And the Court noted that while such deference is not plenary:

To be sure, due process and other procedural rights must be respected in deciding the exceptional-case question as a precondition to awarding fees against a losing party[, a]nd more process may well be needed on a fees motion when the issue presented as a basis for fees has not previously been litigated there is no such denial of plaintiffs' procedural due process rights in this instance [citation omitted].

The panel also declined to impose ("retroactively") a requirement (unfulfilled here) of notice by plaintiffs (for example, by filing a Rule 11 motion) for their grounds of seeking attorneys' fees, inter alia, because of the unusual nature of this case where infringement was bifurcated in favor of a separate trial on validity.

Next the Court held that the District Court's consideration of the inadequacy of plaintiffs' pre-filing investigation also occasioned no abuse of discretion, particularly the lower court's restriction to considering only claim 1 of the '459 patent.  Nor was there error in the District Court finding that infringement required administering L-arginine (or its hydrochloride salt) at dosages of 1 gram.  This determination the opinion bases on "science," not claim interpretation, finding support in trial testimony regarding the amount of L-arginine (or its hydrochloride salt) required to have the claimed effect.  And thus the failure of the accused infringing articles to provide this dosage constituted a failure to perform an adequate pre-filing investigation when plaintiffs accused the non-infringing articles (and their use) of infringement.  This conclusion was supported both by the concentration and dosage amounts recited on the labels of the accused infringing articles and the failure of plaintiffs to perform any of the publicly known analytical techniques that would have shown that the 1 gram dosage was not administered according to defendants' formulations and instructions (including the absence of arginine in any form in one of the accused products).

With regard to the District Court's findings regarding litigation (mis)conduct, the opinion asserts that standing alone these would not be sufficient per se to support the award of attorneys' fees, particularly with regard to the number of suits and defendants and the (generally small) size of the awards.  But these activities were considered in the context of the rest of the evidence considered by the District Court, and in toto the award of attorneys' fees was not an abuse of discretion.

Finding no abuse of discretion by the District Court, the Federal Circuit affirmed.

Thermolife Int'l LLC v. GNC Corp. (Fed. Cir. 2019)
Panel: Circuit Judges Taranto, Bryson, and Stoll
Opinion by Circuit Judge Taranto

WesternGeco L.L.C. v. ION Geophysical Corp. (Fed. Cir. 2019)

By Donald Zuhn –-

Last June, the Supreme Court determined that $93.4 million in lost foreign profits awarded to WesternGeco L.L.C. for infringement under 35 U.S.C. § 271(f)(2) was a permissible domestic application of 35 U.S.C. § 284, and the Court therefore reversed the Federal Circuit's reversal of the award of lost profits damages and remanded the case (see "WesternGeco LLC v. ION Geophysical Corp. (2018)").  Earlier this month, the Federal Circuit decided, given the intervening invalidation of four of the five asserted patent claims by the U.S. Patent and Trademark Office's Patent Trial and Appeal Board, to remand the case back to the District Court for further proceedings on the lost profits award.

The dispute between the parties began when WesternGeco filed suit against ION Geophysical Corp. for infringement of claims 18, 19, and 23 of U.S. Patent No. 7,293,520; claim 15 of U.S. Patent No. 7,162,967; claim 15 of U.S. Patent No. 7,080,607; and claim 14 of U.S. Patent No. 6,691,038.  The patents relate to marine seismic surveys for discovering oil and gas deposits beneath the ocean floor.  Both WesternGeco and ION manufacture devices for steering streamers in marine seismic surveys; WesternGeco does not sell its device, but uses it to perform surveys abroad, and ION does not perform surveys, but sells its device to customers who perform surveys abroad.  At trial, ION was found to have infringed the asserted claims under 35 U.S.C. §§ 271(f)(1) and (2), and WesternGeco was awarded a reasonable royalty of $12.5 million and lost profits of $93.4 million.  The lost profits damages were based on the loss of ten surveys abroad, which WesternGeco argued it would have won but for ION's sales to WesternGeco's competitors.

On appeal, the Federal Circuit reversed the lost profits award as being based on an unauthorized extraterritorial application of the patent laws.  WesternGeco petitioned for certiorari, which the Supreme Court granted, and the Court vacated the Federal Circuit's decision and remanded for further proceedings consistent with the Supreme Court's decision in Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923 (2016).  On remand, the Federal Circuit again reversed the lost profits award, vacated the District Court's denial of enhanced damages, and remanded to the District Court for further consideration in light of Halo.  On remand, the District Court awarded WesternGeco $5 million in enhanced damages.  The parties then stipulated to the reasonable royalty amount, which ION paid, and agreed not to appeal the enhanced damages award, but did not stipulate to the lost profits award.  WesternGeco again petitioned for certiorari, requesting review of the Federal Circuit's decision on lost profits.  The Supreme Court again granted the petition, reversed the Federal Circuit's decision on lost profits, and remanded the case back to the Federal Circuit.

In a parallel proceeding before the PTAB, the Board determined that four of the six asserted patent claims (i.e., all but claim 23 of the '520 patent and claim 14 of the '038 patent) we unpatentable.  While the case above was pending in the Supreme Court, the Federal Circuit separately affirmed the PTAB's decision.  Of the two remaining claims, it is uncontested that only claim 23 of the '520 patent can support WesternGeco's lost profits award.

On remand from the Supreme Court again, ION challenged the fully paid and satisfied reasonable royalty award as well as the lost profits award based on the PTAB's subsequent invalidation of four of the six asserted patent claims.  With respect to the reasonable royalty award, ION argued that the calculation of the reasonable royalty would be affected by the invalidation of claims and sought a new trial, citing Fresenius USA, Inc. v. Baxter International, Inc., 721 F.3d 1330 (Fed. Cir. 2013), as holding that a judgment cannot be final for purposes of intervening patent invalidations if any part of the litigation remains pending, and that the lost profits award was still being litigated.  In rejecting ION's challenge to the reasonable royalty award, the Federal Circuit disagreed with ION's interpretation of Fresenius, noting instead that "Fresenius made clear that it does not allow reopening of a satisfied and unappealable final judgment."  In particular, the Federal Circuit pointed out that "ION and WesternGeco entered into a compromise agreement resolving all of the issues in the case except for the lost profits award," and that "ION cannot now reopen the agreed and fully paid unappealable final judgment on the reasonable royalty based on the subsequent invalidation of a subset of asserted patent claims."

With respect to the lost profits award, ION first argued that the District Court erred when it denied ION's renewed motion for judgment as a matter of law on the theory that WesternGeco was not entitled to lost profits because ION and WesternGeco are not "direct competitors" (since ION only sells devices and WesternGeco only sells surveys).  The Federal Circuit, however, was not persuaded by ION's argument, noting that "WesternGeco's and ION's devices competed by performing the same types of functions for surveys," and that "there was sufficient evidence in the record for the jury to conclude that the products did compete."

ION also argued that the lost profits award could not be sustained because of the intervening invalidation of four of the five asserted claims supporting the award.  The Federal Circuit noted that the jury found all of the asserted claims to be infringed and made a single lost profits award, but that the jury instructions and verdict form did not instruct the jury to award damages based separately on infringement of each of the asserted claims.  The Federal Circuit also noted that WesternGeco did not cite to any specific testimony that infringement of claim 23 of the '520 patent was necessary to perform the ten surveys that WesternGeco had contended it lost.  The Federal Circuit indicated that to sustain the lost profits award, the record must establish that there was no dispute that the technology covered by claim 23 of the '520 patent, independent of the technology covered by the invalidated claims, was required to perform the surveys at issue.  Pointing out that the District Court was in a better position to consider the issue in the first instance, the Federal Circuit remanded to the District Court to determine whether a new trial on lost profit damages is required, stating that "[t]he district court may deny a new trial on lost profits if, but only if, it concludes that WesternGeco established at trial with undisputed evidence that '520 patent claim 23 covers technology necessary to perform the surveys upon which the lost profits award is based."

The Federal Circuit concluded by reinstating sections I, II, and IV of its decision in WesternGeco I and sections I and II of its decision in WesternGeco II, determining that those sections were not affected by either the initial vacatur and remand from the Supreme Court or the Supreme Court's subsequent decision in WesternGeco III, and affirming-in-part, vacating-in-part, and remanding.

WesternGeco L.L.C. v. ION Geophysical Corp. (Fed. Cir. 2019)
Panel: Circuit Judges Dyk, Wallach, and Hughes
Opinion by Circuit Judge Dyk

Top Stories of 2018: #6 to #10

By Donald Zuhn –-

After reflecting upon the events of the past twelve months, Patent Docs presents its 12th annual list of top patent stories.  For 2018, we identified fifteen stories that were covered on Patent Docs last year that we believe had (or are likely to have) a significant impact on patent practitioners and applicants.  Yesterday, we counted down stories #15 to #11, and today we count down stories #10 to #6 as we work our way towards the top five stories of 2018.  As with our other lists (2017, 2016, 2015, 2014, 2013, 2012, 2011, 2010, 2009, 2008, and 2007), links to our coverage of these stories (as well as a few links to articles on related topics) have been provided in case you missed the articles the first time around or wish to go back and have another look.  As always, we love to hear from Patent Docs readers, so if you think we left something off the list or disagree with anything we included, please let us know.  In addition, we will be offering a live webinar on the "Top Patent Law Stories of 2018" on January 16, 2019 from 10:00 am to 11:15 am (CT).  Details regarding the webinar, which will focus on a handful of the most important stories on this year's list, can be found here.

10.  Does Unsettled § 101 Jurisprudence Preclude Attorneys' Fees

In December, in SAP America, Inc. v. InvestPic, LLC, the Northern District of Texas awarded $679,420.46 in attorneys' fees to SAP America after the Federal Circuit affirmed an earlier decision of the District Court finding InvestPic's '291 patent invalid under 35 U.S.C. § 101.  SAP America was successful in its attempt to obtain attorney's fees based on a supposedly weak litigating position under § 101.  However, since Alice v. CLS Bank, just about any patent involving software or a business method can have its validity challenged under § 101.  Moreover, not even the federal courts have been able to crack the § 101 egg.  It is well-known that multiple federal judges have commented on the record that Alice was hard to apply in practice.  In addition, Judge Wu of the Central District of California criticized Alice for setting forth an "I know it when I see it" test.  Judge Pfaelzer, a colleague of Judge Wu, wrote that the Supreme Court's patent-eligibility cases "often confuse more than they clarify [and] appear to contradict each other on important issues."  In July, in Interval Licensing LLC v. AOL, Inc., the Federal Circuit's Judge Plager wrote that the post-Alice § 101 inquiry "renders it near impossible to know with any certainty whether the invention is or is not patent eligible."  And these are just a few examples of judicial confusion.  There are more.  For example, in September, in Gust, Inc. v. AlphaCap Ventures, LLC, the Federal Circuit ruled 2-1 that § 101 jurisprudence was too murky to be used as the basis of an attorney's fees award.  Writing in a concurring-in-part and dissenting-in-part opinion, Judge Plager concluded:

This emperor clearly has no clothes; we need not wait for our children to tell us this.  The legitimate expectations of the innovation community, as well as basic notions of fairness and due process, compel us to address this § 101 conundrum.

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

• "SAP America, Inc. v. InvestPic, LLC (N.D. Tex. 2018)," December 10, 2018
• "Gust, Inc. v. AlphaCap Ventures, LLC (Fed. Cir. 2018)," September 30, 2018
• "Interval Licensing LLC v. AOL, Inc. (Fed. Cir. 2018)," July 24, 2018
• "Cellspin Soft, Inc. v. Fitbit, Inc. (N.D. Cal. 2018)," July 12, 2018
• "SAP America, Inc. v. InvestPic, LLC (Fed. Cir. 2018)," May 20, 2018

9.  En Banc Federal Circuit: USPTO Not Entitled to Attorneys' Fees in § 145 Appeals

In July, the Federal Circuit handed down an en banc decision in NantKwest, Inc. v. Iancu, regarding the question of whether under 35 U.S.C. § 145 an applicant must pay the U.S. Patent and Trademark Office's attorneys' fees as part of the "expenses" the statute mandates, regardless of whether the applicant won or lost the case.  The District Court had rejected the Office's argument that it was entitled to recover attorneys' fees (and other expenses), and a divided panel of the Federal Circuit reversed the District Court's decision and ordered payment of the Office's fees.  The Federal Circuit chose to review the panel's decision sua sponte, and the en banc Federal Circuit affirmed the District Court's decision, over a spirited dissent, holding that the Office was not entitled to its attorneys' fees in appeals under § 145.

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

• "NantKwest, Inc. v. Iancu (Fed. Cir. 2018) (en banc)," July 29, 2018

8.  Supreme Court to Decide Whether Government Can File Petitions for Post-Grant Review

In October, the Supreme Court granted certiorari in Return Mail, Inc. v. U.S. Postal Service, in order to answer the question whether the government can bring post-grant review proceedings under the Leahy-Smith America Invents Act (AIA).  Specifically, the Supreme Court agreed to review whether the government is a "person" under the AIA, as is required to file a petition seeking the institution of AIA review proceedings.  The case began with Return Mail seeking to license its '548 patent, which claims methods, computer programs, and systems for processing undeliverable or returned mail, to the Postal Service.  Instead of licensing the '548 patent, however, the Postal Service filed a petition for ex parte reexamination with the U.S. Patent and Trademark Office.  The USPTO instituted the reexamination proceeding, but eventually confirmed the validity of the patent.  Return Mail then filed a complaint against the Postal Service in the Court of Federal Claims.  While that action was pending, the Postal Service filed a petition seeking the institution of covered business method (CBM) review of the '548 patent.  Return Mail opposed the institution of the CBM review​ on both substantive and procedural grounds, including that the Postal Service lacked standing to file a CBM petition.  Both the PTAB and a majority of the Federal Circuit panel hearing the appeal found that the Postal Service satisfied the requirement that it be a "person."  The Supreme Court granted certiorari on the issue of whether the government is a "person" in the context of the AIA's CBM proceeding.  Thus, by the middle of next year, we should know whether government agencies are "persons," permitted to bring AIA proceedings.

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

• "Supreme Court to Decide if Government Can Bring AIA Proceedings," October 29, 2018

7.  Supreme Court: PTAB Must Render Final Written Decision on All Challenged Claims

In April, the Supreme Court reversed the judgment of the Federal Circuit in SAS Institute Inc. v. Iancu, with Justice Gorsuch (joined by the Chief Justice and Justices Kennedy, Thomas, and Alito) providing a textual explication of the inter partes review (IPR) statute in deciding that the U.S. Patent and Trademark Office was compelled to render a Final Written Decision (FWD) on all claims challenged by a petitioner in its IPR petition.  This decision overruled the Patent Office's practice that the Director (through the Patent Trial and Appeal Board) could institute an IPR on less than all challenged claims and then limit the FWD to only the instituted claims.  Just two days after the Supreme Court's decision, the U.S. Patent and Trademark Office issued Guidance regarding how the PTAB will apply the Court's mandate in SAS Institute.  In particular, the Office noted that for all pending and future-filed petitions, the Board will institute on all challenged claims so long as the petitioner has shown a reasonable likelihood of invalidating at least one of the claims, and for cases where the Board has engaged the parties in partial institution proceedings, the Board "may" issue an order "supplementing the institution decision to institute on all challenges raised in the petition."

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

• "USPTO Issues Guidance on Supreme Court Ruling in SAS v. Iancu," April 26, 2018
• "SAS Institute Inc. v. Iancu (2018)," April 24, 2018

6.  Supreme Court to Decide Whether AIA Changed Application of On-sale Bar

In June, the Supreme Court granted certiorari on Helsinn Healthcare's petition to overturn the Federal Circuit's decision in Helsinn Healthcare v. Teva Pharmaceuticals that its patents were invalid by application of the on-sale bar under 35 U.S.C. 102(b).  The Question Presented in the petition was as follows:

Whether, under the Leahy-Smith America Invents Act, an inventor's sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention.

The issue is specifically related to the question of whether the AIA changed the application of the on-sale bar.  In December, the Supreme Court heard oral argument in this case.  The Supreme Court's decision will likely land this case on our Top Stories list again next year.

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

• "Supreme Court Hears Oral Argument in Helsinn v. Teva," December 6, 2018
• "Supreme Court Grants Certiorari in Helsinn Healthcare v. Teva Pharmaceuticals," June 26, 2018