Patent Docs

Cumberland Pharmaceuticals Inc. v. Mylan Institutional LLC (Fed. Cir. 2017)

January 31, 2017

By Kevin E. Noonan —

The Federal Circuit had the opportunity to provide guidance on a question now in its twilight: what is the standard for determining who is the true inventor under pre-AIA 35 U.S.C. § 102(f), in Cumberland Pharmaceuticals Inc. v. Mylan Institutional LLC.

The question arose in ANDA litigation between patentee and NDA holder Cumberland Pharmaceuticals and Mylan. Cumberland's drug, Acetadote®, is an acetylcysteine composition substantially free of chelating agents, used as an antidote for acetaminophen overdose. Acetylcysteine was known in the art as an acetaminophen overdose antidote, but was also known to degrade (through oxidation) when contaminated by heavy metals. The prior art taught stable formulations of the compound required including a chelating agent, typically EDTA (edetate disodium). Cumberland’s U.S. Patent No. 8,399,445 claims stable formulations of the drug without chelating agents, encompassing Acetadote® and Mylan's generic version thereof.

Mylan filed its ANDA and provided Cumberland with a Paragraph IV letter for both the '445 patent and parent U.S. Patent No. 8,148,356, stipulating to infringement of the '445 patent. Cumberland dropped its assertion of the claims of the '356 patent and the case went to trial on validity of the '445 patent. Mylan asserted in its Paragraph IV letter and at trial that the Orange Book-listed '445 patent was invalid as being anticipated under 35 U.S.C. § 102(f) or obvious under § 103 based on the suggestion from the FDA during regulatory approval.

Mylan's allegation of derivation stemmed from Cumberland's FDA application, wherein the agency requested information on "scientific and regulatory justification for the inclusion of Edetate as a component in the drug product." Cumberland responded with a letter explaining that EDTA was included to stabilize the formulation, and that not including EDTA would raise safety and efficacy issues. Cumberland performed a stability study according to the FDA's suggestion following FDA approval of the combination product (acetylcysteine + EDTA), ironically, using a Mylan predecessor company as a CRO.

The findings of this study were that EDTA was unnecessary to avoid oxidative degradation, leading to the '455 patented formulations.

The District Court found that Mylan failed to show that the '445 patent claims were invalid under § 102(f) because no one at the FDA had conceived of the invention. On the obviousness issue, the District Court held that there would have been no expectation of success for making a formulation lacking EDTA in view of the "prevailing skilled-artisan view that chelating agents were necessary to prevent degradation of acetylcysteine."

The Federal Circuit affirmed, in an opinion by Judge Taranto joined by Judges Moore and Reyna. On the anticipation issue, the Federal Circuit reviewed the question of prior conception as a matter of law, while reviewing the anticipation issue for clear error as a question of fact. For derivation, the law requires that there be a prior conception from the true inventor and communication to the entity named as an inventor. For conception, the panel asserted that the complete conception required for establishing derivation was to provide Acetadote® (or other compound meeting all the other elements of the '445 claims) in the absence of EDTA or other chelating agent; this limitation, found in every claim, turned out to be the lynchpin of the Court's reasoning affirming the District Court's opinion. The Federal Circuit stated that the evidence of record had not shown the District Court that anyone other than the named inventors had conceived of the claimed invention, construed as being formulations wherein EDTA was removed (and not replaced by another chelator). Indeed, the FDA letter itself was evidence for the District Court and the panel that no one at the FDA had conception. According to the panel, "[a] request for justification of the inclusion of EDTA, supported by data, is not the same as a suggestion to remove it, let alone to remove it and not replace it with another chelating agent." Even if the FDA's request prompted the research that led to the invention, that was not enough for derivation. "The kind of general research suggestion at issue here, whatever its role in an obviousness analysis, does not establish the conception required for derivation," according to the panel. And further, "[i]t simply does not follow from the fact that the study ultimately became a commitment recited in the 2004 FDA approval that it was someone at the FDA who originally proposed the study, let alone conceived of the invention eventually claimed in the '445 patent." The language of the FDA's requirement to:

Commit to evaluate the potential benefit of Edetate disodium on the stability of the drug product. The study shall include a comparison of the current concentration of Edetate to a formulation with a lower concentration and no concentration of Edetate. Generate stability data from the new proposed formulations including compatibility stability with infusion bags.

was inconsistent with the limitation that the claimed formulation contained no other chelators.

Regarding Mylan's contentions that the claimed invention was obvious (which was based in the combination of the label of Acetadote® containing EDTA, several FDA documents related to the requirement for the study that formed the basis of their anticipation arguments, and a published patent application related to a particular use for the drug), the Federal Circuit affirmed the District Court's rejection of them based on Mylan's failure to establish that the skilled worker would have had a reasonable expectation of success. This conclusion, a question of fact reviewed for clear error, was in turn based on the express claim requirement that the acetylcysteine in the formulation be stable in the absence of EDTA, wherein stability was an express claim requirement. Citing both documentary and testimony evidence from the record (including evidence from Mylan that their scientists recognized a risk of acetylcysteine oxidation in the absence of chelators), the panel concluded that the District Court's determination was not clearly erroneous.

It can be expected with enactment of the Leahy-Smith America invents Act that the precedential value of this decision regarding pre-AIA Section § 102(f) of the Patent Act will be limited. However, who the true inventor is remains a necessary requirement for patents in the U.S. (even if who is rewarded with a patent between two inventors is now the winner of the race to the Patent Office rather than the party who conceived first). While the factual nature of the inquiry makes it less amenable to broad precedential rules (whatever "rule" can be gleaned with need to be applied to the facts in each case, which can be expected to vary widely), the Federal Circuit's opinion reinforces the principle that mere suggestion is not enough for conception and that a person who conceives the invention as claimed should (even now) be the person entitled to the patent.

Cumberland Pharmaceuticals Inc. v. Mylan Institutional LLC (Fed. Cir. 2017)
Panel: Circuit Judges Moore, Reyna, and Taranto
Opinion by Circuit Judge Taranto
Eli Lilly & Co. v. Teva Parenteral Medicines, Inc. (Fed. Cir. 2017)

January 30, 2017

By Kevin E. Noonan —

From the nadir of the Supreme Court's allegations that the Federal Circuit "fundamentally misunderstood" the law of inducing infringement in Limelight Networks, Inc. v. Akamai Technologies, Inc., the nation's specialized patent appellate court has crafted a two-prong test for assessing when the actions of more than a single actor amount to literal infringement sufficient to support a determination of inducement. Akamai Technologies, Inc. v. Limelight Networks, Inc. (Fed. Cir. 2015) (en banc).

The case came to the Court from ANDA litigation between Eli Lilly and Teva and other ANDA filers over infringement under 35 U.S.C. § 271(e)(2) of U.S. Patent No. 7,772,209. The claims were directed to methods for administering pemetrexed disodium (sold by Eli Lilly as Alimta^®) after pretreatment with folic acid and vitamin B12. Claims 1 and 12 are representative as set forth in the opinion:

1. A method of administering pemetrexed disodium to a patient in need thereof comprising administering an effective amount of folic acid and an effective amount of a methylmalonic acid lowering agent followed by administering an effective amount of pemetrexed disodium, wherein the methylmalonic acid lowering agent is selected from the group consisting of vitamin B12, hydroxycobalamin, cyano-10-chlorocobalamin, aquocobalamin perchlorate, aquo-10-cobalamin perchlorate, azidocobalamin, cobalamin, cyanoco- balamin, or chlorocobalamin.

12. An improved method for administering pemetrexed disodium to a patient in need of chemotherapeutic treatment, wherein the improvement comprises:
    a) administration of between about 350 μg and about 1000 μg of folic acid prior to the first administration of pemetrexed disodium;
    b) administration of about 500 μg to about 1500 μg of vitamin B12, prior to the first administration of pemetrexed disodium; and
    c) administration of pemetrexed disodium.

(Where the italicized limitations were specifically at issue.) Here, the patient practices the step of the claim involving administering folic acid (which is available as a pill), and the physician administers B12 and pemetrexed by injection. The question of whether the existence of two actors (patients and physicians) practicing the claims creates a divided infringement situation that would vitiate literal infringement was clearly contemplated throughout the litigation, during the course of which the Federal Circuit and Supreme Court were considering the question. That both actors performed their individual steps of the claimed method was not disputed, but its effects on infringement liability, and whether Teva could be liable for inducing infringement was central to the dispute between the parties.

As the litigation progressed, defendants conditionally stipulated to induced infringement subject to being able to litigate the issue if (as it turned out) the Supreme Court reversed the Federal Circuit's contemporaneous standard. The District Court proceeded on the invalidity issues and held Eli Lilly's claims not to be invalid on obviousness and obviousness-type double patenting grounds nor were indefinite. After the Supreme Court's Akamai decision, the parties relitigated the infringement issues. The District Court used the label as evidence of infringement, wherein under FDA regulations Teva's label comprising instruction for administration of the drug would be identical to Eli Lilly's label. Based on this determination, the District Court found defendants had induced infringement, and this appeal followed.

The Federal Circuit affirmed, in an opinion by Chief Judge Prost joined by Judges Newman and Dyk. The opinion recognized the Supreme Court's overriding teaching that induced infringement requires a finding that literal infringement had occurred. Moreover, inducement also requires an intent to induce, which requires that the alleged infringer "knew or should have known" that her actions would induce infringement. In order for more than one actor to practice the steps of a claimed method and for literal infringement to lie, the Supreme Court-approved standard is that either one of the actors works at the "direction or control" of the other actor, or the actors form a joint enterprise. With regard to the question of "direction or control," the panel set forth the revised Akamai standard operationalized as a two-prong test. The first prong of that test is whether one actor "'conditions participation in an activity or receipt of a benefit' upon anothers' performance of one or more steps of a patented method," and the second prong is whether that actor "'establishes the manner or timing of that performance,'" citing the Court's Akamai decision following remand from the Supreme Court (italics in opinion). The District Court held that the first prong was satisfied because folate administration was a precondition for the physician administering B12 and the drug, and that the second prong was satisfied because the physician prescribed the dose and administration schedule to the patient.

With regard to the District Court's decision on the first prong, the Federal Circuit held that this determination was supported by the evidence of record. Contrary to Teva's argument that reduction of toxicity was not conditioned by a patient taking folate, the opinion states that what was conditioned was whether the physician administered the drug to the patient (i.e., a physician would only administer the drug if a patient had taken the prescribed amount of folate at the proper schedule):

What is relevant is whether the physician sufficiently directs or controls the acts of the patients in such a manner as to condition participation in an activity or receipt of a benefit—in this case, treatment with pemetrexed in the manner that reduces toxicities—upon the performance of a step of the patented method and establishes the manner and timing of the performance [italics in opinion].

The panel also noted that the District Court's conclusions on this point were supported by the Physician Prescribing Information and Patient Information comprising the FDA-approved label as well as expert testimony (wherein both parties' experts agreed on the importance of folate pre-administration). Finally on this point, the panel stated that such "conditioning" did not require that a legal obligation be imposed on one of the parties or that the step comprise an "unavoidable technological prerequisite to participation."

With regard to the second prong, the District Court and the panel relied upon the product label. This information comports with the dosage amounts and frequencies encompassed by the asserted claims. Expert testimony supported the finding that it was the physician who prescribed folate (in administered amount and frequency) to the patient.

Taken as a whole, the panel found no reversible error in the District Court's factual determinations.

The panel then turned to whether Eli Lilly had established that defendants exhibited the requisite intent to induce infringement, which required evidence of specific intention and acts and not mere knowledge of the patent in suit. The District Court once more relied on the generic product label (identical to Eli Lilly's label). The District Court and the Federal Circuit rejected Teva's argument that the label was not sufficient to provide specific evidence of inducement, because it purportedly did not show how physicians (the direct infringer) do act rather than as they may act. The panel's reaction to that argument was that "[t]he question is not just whether [those] instructions describ[e] the infringing mode, . . . but whether the instructions teach an infringing use such that we are willing to infer from those instructions an affirmative intent to infringe the patent," citing Takeda Pharm. USA, Inc. v. West-Ward Pharm. Corp. and that "it is irrelevant that some users may ignore the warnings in the proposed label," citing AstraZeneca LP v. Apotex, Inc. Also relevant to the panel's decision was that the label (in both the Physician Prescribing Information and Patient Information) emphasized how important folate administration was for reducing toxicity associated with administration of the drug. This portion of the opinion concludes "[i]n sum, evidence that the product labeling that Defendants seek would inevitably lead some physicians to infringe establishes the requisite intent for inducement."

With regard to the invalidity issues, the opinion first considered Teva's indefiniteness contentions. The factual basis for these were that the term "vitamin B12" was indefinite, because there were various species of the vitamin (claimed as vitamin B12, hydroxycobalamin, cyano-10-chlorocobalamin, aquocobalamin perchlorate, aquo-10-cobalamin perchlorate, azidocobalamin, cobalamin, cyanocobalamin, or chlorocobalamin); the District Court found that the term meant cyanocobalamin based on expert testimony. The panel noted that it does not defer to this expert testimony because satisfaction of the statute is a question of law. But the opinion does note that the question of how the skilled worker would understand the term is a question of fact reviewable for clear error, and found no such error in the District Court's finding (a definition that was supported even by defendant's expert). Upon consideration of how the term was used in the claims, and despite some apparent inconsistency in claim language, the Federal Circuit agreed that the skilled worker would have understood the meaning of the term.

With regarding to obviousness, the panel referenced the District Court's "thorough opinion" that the prior art did not motivate the skilled worker to practice the claimed method, and specifically that the skilled artisan would not have been motivated to "(1) use folic acid pretreatment with pemetrexed; (2) use vitamin B12 pretreatment with pemetrexed; or (3) use the claimed doses and schedules of folic acid and vitamin B12 pretreatments with pemetrexed." The focus of these determinations was that the art did not show any correlation between pemetrexed toxicity and vitamin B12 deficiency (although there was evidence of a correlation with folate deficiency). Expert testimony from both sides established that there was no recognition in the art that vitamin B12 deficiencies were associated with cancer treatment with antifolate compounds. Nor was there evidence from the art that B12 would have been routinely administered (or that its administration schedules would have been routine) in cancer treatment. The panel made similar determinations in affirming the District Court's finding that the claims of the '209 patent were not invalid under the obviousness-type double patenting doctrine.

Eli Lilly benefited in this case by having prevailed at the District Court, in large part due to the burden of finding clear error to overcome the District Court's decision. But the opinion does set forth an affirmation of the Court's two-prong test for finding that more than one actor can perform the steps in a claimed method sufficient to satisfy the unitary standard for finding literal infringement.

Eli Lilly & Co. v. Teva Parenteral Medicines, Inc. (Fed. Cir. 2017)
Panel: Chief Judge Prost and Circuit Judges Newman and Dyk
Opinion by Chief Judge Prost
In re Schweickert (Fed. Cir. 2017)

January 29, 2017

USPTO's Conclusion of Obviousness Rendered Primary Reference Unsatisfactory for Intended Purpose

By Joseph Herndon —

In a nonprecedential opinion, the Federal Circuit vacated a decision by the Board and remanded the case on appeal from the USPTO. This appeal arose from a decision of the Patent Trial and Appeal Board in an ex parte reexamination, which concluded that all of the claims in U.S. Patent No. 7,574,272 were unpatentable as obvious over two prior art references. The Federal Circuit vacated the Board's obviousness conclusion because it was based on findings not supported by substantial evidence, a conclusion all too commonly issued by the USPTO.

The '272 patent is directed to a portable media player that minimizes power consumption during transfer of data from a spinning storage medium (such as a CDROM) to other memory in the player. The portable media player generally consists of off-the-shelf components, but notably, a storage device has a motor that is only enabled when the system requires a data transfer from the spinning storage media in storage device to a buffer. The motor consumes a significant amount of power when active, and so by selectively enabling the motor, power consumption is reduced.

The '272 patent describes that data transfer generally occurs when the central processing unit executes instructions from memory to transfer compressed digital data from storage device to buffer. Once the compressed digital data is received by buffer, that data is then sent through a high-speed serial bus to CODEC, where it can be converted to decompressed analog data, and ultimately sent to an audio output device, such as a pair of headphones. The optimization of the data transfer process from storage device to CODEC relies on the structure and organization of buffer. In particular, the buffer may be readily broken down into a number of individual buffers, and each individual buffer is entirely "lockable" — that is, at any given time, a buffer storing compressed digital data is temporarily locked such that the data cannot be overwritten, even while neighboring buffers are receiving new compressed digital data from the storage device.

The "lockable" feature of the buffers is the touchstone of the claimed invention because it limits how much compressed digital data can be reloaded into buffer at any given time, thereby reducing the frequency in which storage device has to be activated and the motor therein enabled. Claim 1 is representative of the claimed invention:

1. A portable media player comprising:
    a processor that executes commands;
    a random-access-memory component that stores compressed data in more than two different random-access-memory buffer areas, each random-access-memory buffer lockable and unlockable by the processor;
    a codec component, controlled by the processor, that reads compressed data from a locked random-access-memory buffer, the locked random-access-memory buffer selected from among the more than two different random-access-memory buffer areas and locked by the processor to prevent writing of the locked random-access memory buffer by another component, and that generates a decompressed signal from the read compressed data that is rendered by a data-rendering component;
    a non-volatile, mass-storage component that stores compressed data and that writes compressed data, under control of the processor, to unlocked random-access memory buffers; and
    a battery power supply to provide electrical power to the processor, random-access memory component, codec component, data-rendering component, and non-volatile, mass-storage component.

The Ex Parte Reexamination

The USPTO instituted an ex parte reexamination of all of the claims of the '272 patent. During the reexamination, the Examiner concluded that the patent claims were obvious in light of several, two-reference combinations. On appeal, the Board affirmed the examiner's conclusion of obviousness, relying on only one combination: references to U.S. Patent No. 6,332,175 (Birrell) and U.S. Patent No. 5,842,015 (Cunniff).

Birrell is directed to a portable audio player that stores compressed audio data on an internal storage unit such as a hard disk drive, and loads that data into an internal RAM, from where the data can be played. An audio player's play control logic monitors the amount of unplayed compressed data that remains in the RAM as that data is being played from the RAM. Once the play control logic recognizes that the amount of unplayed, compressed data in the RAM has fallen below a threshold, the play control logic copies additional compressed data from the storage unit into the RAM. Keeping the RAM continually filled with an adequate amount of compressed data ensures that there is no break in audio output.

Cunniff discloses a hardware resource manager, or a software program, for use in a computer system that controls access to a hardware resource by several application programs. The hardware resource manager includes a shared memory buffer that has a semaphore (a type of lock) that controls how many application programs can access the hardware resource at any given point in time. The semaphore protects the hardware resource manager from having more than one application program write to the shared memory buffer at a time, which preserves the integrity of the shared resources of the shared memory buffer. In other words, the semaphore ensures that the application programs do not overwrite each other's commands or data stored in the audio shared memory buffer.

In affirming the Examiner's conclusion of obviousness, the Board explained that there was no reason why Birrell would not have benefited from the advantages of including Cunniff's semaphore mechanism. The Board asserted that Cunniff's semaphore mechanism is readily applicable to Birrell because Birrell plays data stored in the RAM and also copies data from the disk drive to the RAM. As such, modifying Birrell to include Cunniff's semaphore mechanism would have been a predictable use of prior art elements according to their established functions — an obvious improvement. And the Board also noted that the fact that a lockless implementation may be used in Birrell did not persuade it that an implementation using locks would not have been obvious because although the use of locks adds additional complexity and computations, an implementation using locks is within the knowledge of a skilled artisan.

The Federal Circuit disagreed with the Board on four counts, summarized below.

First, the Federal Circuit found that the Board never sufficiently justified why Cunniff's semaphore would provide an "obvious improvement" to Birrell. At oral argument, the PTO argued that it would have been obvious to substitute Birrell's play control logic with Cunniff's semaphore. But the Federal Circuit found this substitution to be illogical as it would leave Birrell void of the mechanism it relies on to monitor when the compressed data in the RAM has fallen below a level such that additional data from the storage unit needs to be copied over into the RAM. Loss of this mechanism would thus strip Birrell of the ability to timely copy additional data into the RAM to ensure continuous playing of an audio file. In other words, removing the play control logic defeats the purpose of Birrell's system.

Second, as an alternative argument, the Board contended that Birrell's RAM is similarly situated to Cunniff's limited shared resource, and thus Birrell would have benefited from the addition of the access control provided by Cunniff's semaphore. But the Federal Circuit found that this contention was not supported by substantial evidence. The Federal Circuit found that this record describes no problem in Birrell that would be resolved by the semaphore in Cunniff.

Third, the Federal Circuit found that even if the semaphore in Cunniff were readily applicable to the RAM in Birrell, the Board did not explain why or how a skilled artisan would further configure or manipulate Birrell's RAM such that there would be multiple lockable buffers as claimed in the '272 patent. The Board attempted to address this deficiency at oral argument by reference to figures in Birrell, but the Board's decision neither addressed how Birrell or Cunniff disclosed multiple, lockable buffers nor relied upon any of the figures.

Fourth, the Federal Circuit noted that a "lockless" Birrell worked without trouble and that the application of Cunniff's semaphore to Birrell's RAM would add additional complexity and computations to Birrell. Given these findings, the Board needed to explain why a skilled artisan would still have a reason to combine Birrell and Cunniff to achieve the claimed invention. Although the Board asserted that Birrell would have benefited from the advantages of Cunniff's semaphore mechanism, the Board did not explain why this is so.

An overriding theme of the Federal Circuit's opinion is that the Board did not substantiate its decision. Rather, the Board, at best, merely posited that a skilled artisan could combine Birrell and Cunniff, notwithstanding any difficulties, and would do so because these references were within the knowledge of a skilled artisan. But in view of the record, this broadly-stated conclusion suffers from hindsight bias.

Thus, the Federal Circuit vacated the Board's decision and remanded for further proceedings consistent with the opinion.

This decision by the Federal Circuit is a nice example that can be useful during prosecution of patent applications, and responding to obviousness rejections. All too often, an Examiner will pick and choose portions of multiple references, and conclude that it would have been obvious to one of ordinary skill in the art to modify the primary reference resulting in the claimed invention. But, many times, what is missing from the rejection is any justification for doing so, or more importantly, an explanation of why or how a skilled artisan would configure or manipulate the primary reference to achieve the claimed invention. Even though some pieces of the claimed invention are found in the prior art combination, the Examiner is still tasked with the responsibility of explaining how one would modify the primary reference to arrive at the claimed invention.

In re Schweickert (Fed. Cir. 2017)
Nonprecedential disposition
Panel: Circuit Judges Newman, Chen, and Stoll
Opinion by Circuit Judge Chen
Conference & CLE Calendar

January 29, 2017

January 31, 2017 – "Patent Mistakes in the Administrative State" (John Marshall Law School Center for Intellectual Property, Information & Privacy Law) – 12:00 to 1:30 pm, Chicago, IL

January 31, 2017 – "Proving and Avoiding Inequitable Conduct in Patent Prosecution and Litigation — Leveraging Court Treatment Post-Therasense and the AIA's Answer to Inequitable Conduct Issues" (Strafford) – 1:00 to 2:30 pm (EST)

January 31, 2017 – "Drafting for Alice in 2017: Trends and Best Practices" (LexisNexis) – 2:00 pm (ET)

February 1, 2017 – "Patent Litigation 2017: The Courts and Patent Trial and Appeal Board" (Federal Circuit Bar Association) – 10:00 am to 5:00 pm (PT), Santa Clara, CA

February 1, 2017 – "Waiting for Heartland: Venue Tactics Until the U.S. Supreme Court Decision" (Intellectual Property Owners Association) – 2:00 to 3:00 pm (ET)

February 22, 2017 – "Patent-Eligibility Update: Abstract Ideas in the Federal Circuit and USPTO" (McDonnell Boehnen Hulbert & Berghoff LLP) – 10:00 am to 11:15 am (CT)

March 9-10, 2017 - Advanced Patent Law Seminar (Chisum Patent Academy) – Cincinnati, OH.

***Patent Docs is a media partner of this conference or CLE
Webinar on Drafting for Alice

January 29, 2017

LexisNexis will be offering a webinar/teleconference entitled "Drafting for Alice in 2017: Trends and Best Practices" on January 31, 2017 at 2:00 pm (ET). Gene Quinn of IPWatchdog.com, Kate Gaudry of Kilpatrick, Townsend & Stockton, and Kenneth Corsello of IBM will discuss best practices for software patents and predictions for 2017. The webinar will review the following issues:

• Provide an overview of the pro-patent eligibility decisions of the Federal Circuit since May 2016;
• Discuss what must be included in your software patent applications in order to maximize the likelihood of obtaining a favorable outcome; and
• Explore where the law seems to be heading and best practices for innovators and their representatives to stay ahead of the curve.

Those interested in registering for the webinar, can do so here.
IPO Webinar on Venue Tactics

January 29, 2017

The Intellectual Property Owners Association (IPO) will offer a one-hour webinar entitled "Waiting for Heartland: Venue Tactics Until the U.S. Supreme Court Decision" on February 1, 2017 from 2:00 to 3:00 pm (ET). Jeffrey Bragalone of Bragalone Conroy PC, Colette Reiner Mayer of Morrison & Foerster LLP, and Michael Smith of Siebman, Burg, Phillips & Smith LLP will consider likely and suggested moves for plaintiffs and defendants over the next months while litigants wait for the U.S. Supreme Court decision in TC Heartland. Among the issues to be considered by the panel will be:

• Will there be a surge of complaints filed in Eastern District of Texas (EDTX) before June?
• What new plaintiff strategies might emerge in EDTX or elsewhere, such as an uptick in cases against customers or distributors?
• Will this lead to more use of MDL in patent cases?
• The definition of "a place of business" has not mattered for decades, but it could in the future. Is a sales representative enough to establish venue?
• Do you need an inventory of products?
• What will happen to cases pending in EDTX if the Supreme Court changes the law?
• Will it matter at what stage the litigation is pending?
• What will be the retroactive time window for appealing an EDTX decision or judgment if the law changes?

The registration fee for the webinar is $135 (government and academic rates are available upon request). Those interested in registering for the webinar can do so here.
Why President Trump Is Wrong about Trans-Pacific Partnership Agreement

January 26, 2017

By Kevin E. Noonan —

On Monday, President Trump made good on one of his signature campaign promises and notified the other twelve countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) considering ratifying the Trans-Pacific Partnership (TPP) Agreement that the United States was withdrawing from the treaty and he would not ask Congress to ratify it. The President's stated reasons for doing so, reiterated many times last year, was that the treaty was bad for American workers and part of a pattern of trade agreements that had taken jobs from U.S. workers and encouraged businesses to offshore capital and production capacity in favor of countries where labor was cheaper than in the U.S.

Regardless of whether these arguments have merit, the President was wrong to withdraw from the TPP, which was generally favorable to American interests and would have had no effect on the U.S. job market. This is because the provisions of the treaty favored American innovators, specifically biotechnology and pharmaceutical companies but all creative industries (including film, recording artists, and writers, among others) whose efforts are not offshored. Indeed, as the U.S. Trade Representative has documented in his Special 301 Report every year (see "U.S. Trade Representative Issues 2016 Special 301 Report"), counterfeiting of creative works (videos, phonorecords and CDs, videogames, feature films, and the like) work a considerable hardship on creative companies in the U.S. that employ millions of workers. These folks are not just the creative talent (with whom the President may have a contentious relationship) but all the grips, camera operators, electricians, special effects people, and others that are listed seemingly ad infinitum at the end of every movie, even ones without apparent special effects. It also includes all the support staff, caterers, tutors for young actors, crowd control people, and even lawyers involved in the creative process. Counterfeiting is a global problem and the TPP, like most trade agreements, either contained provisions directed at limiting the effects of such counterfeiting or set out a framework for signatory countries to do so.

For pharmaceuticals, similar albeit more pernicious consequences can be expected to arise from the President's decision. Pharmaceutical companies act from a global perspective, so that events happening abroad influence their strategies worldwide. There are two possible outcomes for the TPP now that the U.S. has withdrawn. The first is that the remaining countries fail to ratify the agreement (or that the number who do fall under the requirement that signatories make up 34% of global GDP) and the status quo remains. But that status quo is that there is no market exclusivity for biologic drugs in many of these countries. Accordingly, U.S. biopharma companies will need to rely on patent protection and enforcement country-by-country to protect their investment in providing drugs to these countries. This is a much more expensive proposition that the regulatory exclusivity (a minimum of 8 years of market exclusivity) provided for in the TPP. Without this protection, provided by signatory governments preventing biosimilar drugs to be marketed until the exclusivity term expired, biosimilar competition will be immediate, or as soon as possible. Companies like Samsung's Bioepsis biosimilar subsidiary, and others, can be expected to enter the biosimilar market as soon as their development pathway will allow. Alternatively, the remaining countries may still ratify the treaty; in that case the benefits to biopharma companies in those countries would still accrue. But if the TPP is ratified in the remaining countries, it may behoove U.S. biologic drug companies to partner with or resource their biologic drug production to an affiliate in a TPP country in order to reap the 8-year market exclusivity benefits under the treaty. This will not improve prospects for jobs in the U.S. or bring jobs home; indeed, it will reduce the need to produce in the U.S. these drugs for sale in the TPP countries.

Another possibility is that China (which has voiced an interest in being involved in the agreement) may ask to be allowed to enter the TPP and in America's absence it will be the Chinese and not the Americans that will be the dominant power among TPP countries. This is unlikely to inure to our benefit and while consistent with a broad retrenchment into a more isolationist, "America First" stance such an outcome will mean that Chinese (or Indian, or Russian, or Brazilian) interests rather than American interests will be at the global forefront.

The fact is that economic realities are what is behind American job loss. This happens for reasons that know no national borders, such as automation, which has taken jobs from automobile and other factory workers worldwide. There are also national and regional effects, such as the cheaper costs of manual labor and disregard for proscriptions against child labor in some countries, factors against which Americans are unlikely to be prepared to compete. American influence, such as the pressure put on companies like Apple and Nike, can have some effect in ameliorating the extent to which practices like child labor are utilized. But this influence is diminished not strengthened by an American abandonment of its leadership role in the world.

The Trump administration has plans to "renegotiate" the North American Free Trade Agreement (NAFTA), despite indications that the treaty has been a net positive for the U.S. economy. We may also expect that other trade agreements, like the Trans-Atlantic Trade and Investment Partnership (TTIP) and the Trade in Services Agreement (TiSA), are also at risk. It is logical to expect such an outcome, insofar as you cannot have an international trade agreement based on an "America First" policy; other countries are unlikely to agree to the kind of one-sided agreement this would require. Like President Bush's "Coalition of the Willing" during the Iraq War, only those countries dependent on the U.S. would agree to be involved and those are not our most profitable trading partners.

The fact is that global economics preclude the kind of repatriation of certain jobs to the U.S. that is the basis for the President's policies. America's advantage with regard to the rest of the world rests on the stability of our institutions and the creativity of our people. The TPP promoted our creative advantage, but the isolationist policies behind our withdrawal do nothing to expand American competitiveness and influence in the world. Withdrawal from the TPP was a mistake, and one we will likely come to regret when none of the purported benefits of walking away from the treaty come to pass.
Aleynikov Conviction Reinstated by New York Appellate Court

January 25, 2017

By Josh Rich —

Sergey Aleynikov was tried and convicted on criminal charges by both a Federal and a New York state jury; both times, his conviction was reversed. But his luck on appeal may have run out. The Appellate Division, First Department, of the New York Supreme Court (the intermediate state appellate court for Manhattan) reversed the trial court's order of dismissal after a jury conviction for unlawful use of secret scientific material.

Mr. Aleynikov was employed by Goldman Sachs writing code; on his last day of employment, he transferred parts of the source code for Goldman's high frequency trading program to a foreign website for his own future use.[1]

He was tried originally in the U.S. District Court for the Southern District of New York and convicted of violations of the Economic Espionage Act and National Stolen Property Act. Those convictions were reversed by the U.S. Court of Appeals for the Second Circuit because the source code had not itself been a product placed in interstate commerce (under the EEA) and was intangible property, not a "good" (under the NSPA).

After the Federal prosecution failed, the Manhattan District Attorney's office charged Mr. Aleynikov with two counts of unlawful use of secret scientific material and one count of unlawful duplication of computer related material. The jury convicted him of only one count of unlawful use of secret scientific material. Even that conviction was overturned by the trial judge on a post-trial motion, but the DA appealed.

Two questions were posed on appeal, based on the language of the unlawful use of secret scientific material statute. The statute reads:

A person is guilty of unlawful use of secret scientific material when, with intent to appropriate to himself or another the use of secret scientific material, and having no right to do so . . . , he makes a tangible reproduction or representation of such secret scientific material by means of writing, photographing, drawing, mechanically or electronically reproducing or recording such secret scientific material.[2]

First, did Mr. Aleynikov have an "intent to appropriate to himself or another the use of secret scientific material," based on his transfer of the source code to the foreign website? Second, was transferred code "a tangible reproduction or representation of such secret scientific material"?

The appellate court addressed the second question first, trying to figure out what a "tangible" reproduction would be. In that context, the appellate court sought to avoid "hypertechnical or strained interpretations" of the statutory language. However, despite the statute having been enacted in 1967 (well before the advent of the internet) and the general rule that criminal statutes are construed based on the knowledge of the time of enactment, the appellate court turned to Black's Law Dictionary. From there, it understood that "tangible" meant that something would be required to have "physical form and characteristics."

The trial court found that computer code would not have physical form; the appellate court found that it would. In doing so, the appellate court found that the source code might not be tangible, but that Mr. Aleynikov made a tangible reproduction of it when he copied it onto a physical hard drive on a server where it took up physical space and was physically present. In reaching that conclusion, the court found that the statute had been drafted with "broad generalized language that fits squarely into today's digital world," despite the impossibility of visualizing saving code on a server at the time of drafting. Notably, the court rejected a conflict with the Second Circuit's decision that the source code was "intangible property" by distinguishing between the source code and the copy that Mr. Aleynikov had made. Although that appears to be a distinction without a difference, it was sufficient for the appellate court to find the relevant material fit within the scope of the statute.

Having reached that conclusion, the appellate court turned to whether Mr. Aleynikov had intended to "appropriate" the scientific material. New York's Penal Law defines "appropriate" as exercising control over property either (1) permanently or (2) "for so extended a period or under such circumstances as to acquire the major portion of its economic value or benefit."[3] In considering whether Mr. Aleynikov would be exercising control over the relevant code, the trial court focused on the effect on Goldman Sachs's use of the code and found that it would have had none. But the appellate court created a sharp distinction between the two subsets of control, focusing on only Mr. Aleynikov for permanent control and only Goldman Sachs for the second definition. It thus found that Mr. Aleynikov's conduct fell within the scope of the statutory offense because he had no intent to return the code. Notably, however, the definition of "appropriate" is not specific to the secret scientific material offense; the appellate court was seemingly making new law for the entirety of the New York Penal Code.

Mr. Aleynikov has already signaled that he intends to seek review in New York's highest court. There, the battle will be between narrowly construing the criminal statute to preserve its original intent and the overall integrity of the Penal Code and broadly construing it to cover clearly improper conduct. As has happened in all of Mr. Aleynikov's trials and appeals, the court will have to consider what to do when the pace of technology far outstrips the development of the criminal law.

[1] More details on Mr. Aleynikov’s actions and the prior cases can be found in a Summer 2015 snippets article and a July 6, 2015 Patent Docs post.
[2] N.Y. Pen. L. § 165.07.
[3] N.Y. Pen. L. § 155.00[4].

For additional information regarding this topic, please see:
• "Another Aleynikov Trade Secrets Case Ends with Narrower Statute," July 6, 2015
PTAB Bar Association Webinar on Thursday, January 26, 2017

January 25, 2017

The newly formed PTAB Bar Association will be hosting a webinar entitled "Industry Perspective on PTAB Proceedings – Important Issues and What Industry Insiders Seek from PTAB Counsel" from 1:00 pm to 2:00 pm Eastern on Thursday, January 26, 2017. This "kick-off" webinar will be free to members and non-members, but CLE credit will not available (however, credit for future webinars will be available). The Panelists include Kenneth Maikish, Litigation Counsel at Google; David Killough, Assistant General Counsel in the Litigation, Competition and Compliance Group of Microsoft's Corporate, External, and Legal Affairs department; Steve Chiang, Director of Patent Analysis and IP Counsel at RPX Corporation; and Mark Rachlin, Senior Patent Litigation counsel for GlaxoSmithKline. Those interested in registering can do so here.
Spex Technologies Inc. v. Apricorn (C.D. Cal. 2017)

January 24, 2017

Computer-Related Data Security Patents Found to Recite Patent Eligible Subject Matter

By Joseph Herndon —

Spex sued Apricorn for infringing U.S. Patent Nos. 6,088,802 and 6,003,135 in the U.S. District Court for the Central District of California. Apricorn moved to dismiss the complaint due to the patents at issue being directed to abstract ideas under 35 U.S.C. § 101.

The Court analyzed the claims under the two-step Alice framework for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent eligible applications of those concepts. That framework requires that first, the Court determine whether the claims at issue are directed to one of those patent-ineligible concepts. If so, then the second step requires the Court to search for an "inventive concept" by considering the elements of each claim — both individually and as an ordered combination — to determine whether the additional elements transform the nature of the claim into a patent-eligible application. If the claims at issue are directed to a patent-ineligible concept and the elements of each claim do not transform it into a patent-eligible application, then the claims are patent-ineligible under 35 U.S.C. § 101.

The Court denied the motion, and found that the claims at issue are not directed to a patent-ineligible abstract idea, and thus, the Court did not analyze the claims under step two.

Looking at the patents, the '802 patent is entitled "Peripheral Device with Integrated Security Functionality," and the '135 patent is entitled "Modular Security Device." The patents at issue cover a device and the systems/methods that occur between that device and a host computer. The '135 patent specifically describes a modular, typically portable, device (as well as the methods employed by such a modular device, and the systems including such a modular device and host computing device with which the modular device communicates) that can communicate with a host computing device to enable one or more security operations to be performed by the modular device on data stored within the host computing device. In addition, the '802 patent is similar and adds that the invention relates to a peripheral device that can communicate with a host computing device to enable one or more security operations to be performed by the peripheral device on data stored within the host computing device, data provided from the host computing device to the peripheral device, or data retrieved by the host computing device from the peripheral device.

Independent claim 11 of the '802 patent is representative and is reproduced below:

11. A peripheral device, comprising:
    security means for enabling one or more security operations to be performed on data;
    target means for enabling a defined interaction with a host computing device;
    means for enabling communication between the security means and the target means;
    means for enabling communication with a host computing device; and
    means for mediating communication of data between the host computing device and the target means so that the communicated data must first pass through the security means.

Independent claim 57 of the '135 patent is representative and is reproduced below:

57. For use in a modular device adapted for communication with a host computing device, the modular device comprising a security module that is adapted to enable one or more security operations to be performed on data and a target module that is adapted to enable a defined interaction with the host computing device, a method comprising the steps of:
    communicating with the host computing device to exchange data between the host computing device and the modular device;
    performing one or more security operations and the defined interaction on the exchanged data;
    mediating communication of the exchanged data between the host computing device and the modular device so that the exchanged data must first pass through the security module; and
    operably connecting the security module and/or the target module to the host computing device in response to an instruction from the host computing device.

The Court noted that under step one of the analysis, a court needs to consider whether a patent claim's "character as a whole" is "directed to" excluded subject matter, such as an abstract idea. During this step, a court needs to avoid oversimplifying a patent's claims because, to a certain extent, all inventions are built from abstract ideas.

The Court noted that there is a distinction between (1) systems or methods that simply use a computer and (2) systems or methods that improve computer technology.

1. Systems or Methods that Simply Use a Computer are Abstract Ideas

The Court reviewed prior Federal Circuit cases to identify examples in which claims were directed to Abstract Ideas. One example includes claims directed to mathematical algorithms, including those executed on a generic computer, are abstract ideas. Without additional limitations, a process using mathematical algorithms to alter existing data is not patent eligible. Another example includes the concept of data collection, recognition, and storage, generically recited, will be considered an abstract idea.

2. Systems or Methods that Improve Computer Technology Are Not Abstract Ideas

The Court noted, however, that other courts have found that claiming an improvement in computer capabilities does not always entail claiming an abstract idea. Here, the Court highlighted the Enfish case, in which the Federal Circuit determined that a logical model for a computer database was not abstract because it was "designed to" improve the way that a computer stores and retrieves data. The Court also highlighted the McRO case, in which the Federal Circuit determined that the claims were limited to achieving automated lip synchronization of 3-D characters, and it had a computer conduct a task that humans did not previously perform. Therefore, the Federal Circuit in McRO determined that the claims were directed to improving automated lip-synchronization, and not directed to an abstract idea.

Applying this analysis to claim 11 of the '802 patent, the Court found that claim 11 is not directed to an abstract idea. The Court found that claim 11 is tied to a specific structure, which is a peripheral device, and produces a technological improvement. The invention addresses security problems pertaining to peripheral devices, and the "means" components of claim 11 describe a physical structure that contains a combination of components, in contrast to a method or system that uses a general computer, to secure access to secret information. Thus, the Court found that claim 11 is not directed to an abstract idea, and did not need to review the claim under step 2 of the section 101 analysis.

Applying this analysis to claim 57 of the '135 patent, the Court again found that claim 57 is not directed to an abstract idea. The preamble of the claim describes a series of steps that a modular device can use with a host computing device. The Court noted that the steps occur "to enable one or more security operations to be performed on data and a target module that is adapted to enable a defined interaction with the host computing device . . . ." Therefore, the steps in claim 57 occur for the purpose of creating a technological improvement, which is to enhance security operations, so this claim is not an abstract idea.

The Court did note that while a full Alice analysis of step two was not performed, it would appear that the technological improvements in the context of peripheral devices are inventive concepts.

Thus, the Court denied the motion to dismiss.

The analysis by the Court was very conclusory, but a welcome surprise. With respect to the device claim, the analysis indicated that because a specific structure is recited (e.g., "means" components), the functions are tied to a particular application and is patentable subject matter. This appears to be a good way to address claim 11, and allow any novelty/obviousness challenges to occur separately. Claim 57 appears stronger in that the functions are necessarily rooted in computer technology, and the Court was convinced that this created a technological improvement. Such strategies are seen as the best ways to overcome section 101 challenges.

Spex Technologies Inc. v. Apricorn (C.D. Cal. 2017)
Order Regarding Motion to Dismiss by Judge James V. Selna

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