Patents Don’t Sue People, People Sue People

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On July 13, 2017, The Subcommittee on Courts, Intellectual Property and the Internet of the House Judiciary Committee held a hearing on The Impact of Bad Patents on American Businesses.  Such a loaded topic should strike fear in the hearts of the many of us who work diligently to protect our clients’ legitimate inventions. However, the statement of former Chief Judge of the Federal Circuit Paul R. Michel was a bright spot.  As Judge Michel correctly observed, “[p]atents are neither bad nor good.”

Judge Michel extended his long history of service to the patent community, detailing a recent sharp decline in the value of U.S. patents, which he attributes to, among other things, the failure of the three Branches of Government to adequately coordinate their interventions to improve performance of the system.  Judge Michel calls out the USPTO for implementing AIA reviews with procedures that, in certain respects, departed from Congressional intent.  He called out the Supreme Court for revolutionizing the law of patent eligibility, while providing wholly inadequate
guidance for those who must apply the new standards.  Finally he calls out Congress for focusing more on the relatively minor problem of frivolous assertion, rather than addressing the more significant issue of patent eligibility.

Judge Michel concludes that:

In view of all the developments of the past few years, to pile on still more patent “reform” at this juncture when the system is still reeling from the destabilizing and degrading effects of recent interventions by all three Branches seems inappropriate.

Hopefully, Congress will follow his very wise counsel.

 

 

Lack of Clarity for Reason for Denying Permanent Injunction Results in Remand

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In Genband US LLC v. Metaswitch Networks Corp., [2017-1148] (July 1-, 2017), the Federal Circuit vacated the denial of a permanent injunction, and remanded for reconsideration.

The jury found U.S. Patent Nos. 6,772,210; 6,791,971; 6,885,658; 6,934,279; 7,995,589; 7,047,561; 7,184,427; and 7,990,984 not invalid and infringed, and awarded $8,168,400 in damages, but the district court denied a permanent injunction.  The district court rested its denial entirely on the determination that Genband failed to show that it would suffer irreparable harm from continued infringement.  The court declared that Genband had to prove that “the patented features drive demand for the product.],” but the Federal Circuit could not be sure that the district court applied the proper nexus, i.e. whether the district court required that the patented feature be “the driver” or simply “a driver.”  The Federal Circuit said it is sufficient that the record established that the patented features  influence consumers’ perceptions of and desire for these products.  Based upon the district court’s opinion, the Federal Circuit had no basis for inferring that the district court actually used the correct standard, rather than an unduly stringent test, to interpret and apply the “drive demand” standard.

The Federal Circuit said that a patentee may be able to make the causal connection between infringement and the relevant lost sales through evidence of various kinds, e.g., that the infringing features significantly
increased the product’s desirability, that soundly supports an inference of causation of a significant number of purchasers’ decisions.

The Federal Circuit determined that remand was needed for the district court to clarify its how Genband’s evidence was not sufficient.

PTO Erred by Not Identifying Algorithm Corresponding to §112, ¶ 6 Element Before Invalidating Claims

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In IPCOM GmbH & Co. v. HRC Corp., [2016-1474] (July 7, 2017) the Federal Circuit found that the Board failed to conduct a proper claim construction of the “arrangement for reactivating the link” claim limitation, and we vacate and remand the obviousness rejections based on that limitation.

The IPR challenged U.S. Patent No. 6,879,830 (’830 patent), which describes and claims a method and system for handing over a mobile phone call from one base station to another base station.  The Federal Circuit noted that while the Board correctly identified  “arrangement for reactivating the link” was a means plus function element, it failed to properly construe that limitation. The Board rejected IPCom’s proposed three-step algorithm allegedly disclosed in the ’830 specification for performing the “arrangement for reactivating the link” function, but the Board failed to identify what it believed to be the correct algorithm from the specification; that omission led to an incomplete construction of the claim limitation and is incompatible In re Donaldson.  §112, ¶ 6 [now 112(f)] applies regardless of the context in which the interpretation of means-plus-function language arises, i.e., whether as part of a patentability determination in the PTO or as part of a validity or infringement determination in a court.  The Federal Circuit said that the PTO may not disregard the structure disclosed in the specification corresponding to such language when rendering a patentability determination.

The Federal Circuit vacated the Board’s claim construction of the “arrangement for reactivating the link” limitation, and remanded for the Board to identify the corresponding algorithm (if any) in the specification in the first instance.  The Federal Circuit further vacated the determination of obviousness because the Board never identified any algorithm for the “arrangement for reactivating the link” limitation, the Board further erred by failing to evaluate whether the prior art disclosed that algorithm (or its equivalents).

 

Weak Infringement Position Makes Troll-like Behavior Exceptional

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In Adjustacam LLC v. Newegg, Inc., [2016-1882] (July 5, 2017) the Federal Circuit reversed the district courts decision not to award attorneys’ fees to defendant after plaintiff voluntarily dismissing its complaint after a Markman hearing.

AdjustaCam sued a large number of defendants for patent infringement, voluntarily dismissing most defendants early in the litigation.  The case against Newegg went through a Markman order and extended expert discovery.  However just before summary judgment briefing, AdjustaCam
voluntarily dismissed its infringement claims against
Newegg with prejudice. Newegg then filed a motion for
attorneys’ fees. The district court initially denied Newegg’s motion,
and Newegg appealed to Federal Circuit, which remanded in view of Octane Fitness.  On remand the district court again denied attorneys fees.

A district court abuses its discretion when its ruling rests on an erroneous legal conclusion or on a clearly erroneous assessment of the evidence.  The Federal Circuit held that the district court abused its discretion
by not awarding fees to Newegg for two independent reasons: (1) it failed to follow the Federal Circuit’s mandate on remand; and (2) its decision was based on “a clearly erroneous assessment of the evidence.”

As to the first reason, the Federal Circuit said that the district court erred by ignoring our mandate “to evaluate whether this case is ‘exceptional’ under the totality of the circumstances and a lower burden of proof”
in the first instance.  Instead of engaging in an independent analysis, the
district court adopted the previous judge’s factual findings wholesale, the Federal Circuit noting that the entirety of the court’s analysis based on those adopted fact-findings consists of three sentences. This wholesale reliance on the previous judge’s fact finding was
an abuse of discretion.

As to the second reason, the Federal Circuit found that the record developed over the past five years points to this case as standing out from others with respect to the substantive strength of AdjustaCam’s litigating position.  While the infringement claim may have been weak at the time of filing, after the district court’s Markman order, the lawsuit was baseless.  The Federal Circuit found that no reasonable factfinder could conclude that Newegg’s products infringe; therefore, AdjustaCam’s litigation position was baseless, and the district court’s conclusion otherwise was clearly erroneous.  The Federal Circuit further found that AdjustaCam litigated the case in an “unreasonable manner.”  The Federal Circuit also noted that AdjustaCam relied upon a supplemental declaration making new infringement arguments executed two years after the initial fees determination, although the Federal Circuit did not appear to consider that the standard for award of fees changed in the intervening two years.

The Federal Circuit concluded that the totality of the circumstances demonstrates other dubious behavior that, when considered collectively, warrants fees under § 285.

The Federal Circuit specifically commented on AdjustaCam’s damages model.  While asserting seemingly low damages against multiple defendants—or settling with defendants for less than the cost of litigation—does not necessarily make a case “exceptional” under § 285, asserting nuisance-value damages against many defendants, settled with them for widely varied royalty rates, and continuing to press baseless infringement
contentions well past an adverse Markman order and expert discovery as enough to tip the balance in favor of exceptionality.

Make Patents Great Again (or at least Make them STRONGER)

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Senators Coons, Cotton, Durbin, and Hirono have introduced the STRONGER Patents Act of 2017, proposing a large number of improvements to U.S. patent law.  While the Bill does a lot to improve patents from an inventor’s perspective, the Bill does leave undone at least a few critical issues:

  1.  The Bill does not fix the abstract idea issue under §101 created by Alice.
  2. The Bill does not fix the ambiguity in the definition of patentable subject matter under §102 recently brought to light in Helsinn.
  3. The Bill does not fix the requirement that a successful appellant still must reimburse the USPTO for unsuccessfully defending a rejection in district court, as recently explained in Nantkwest.

As shown in the summary below, what the bill primary does is bring balance to IPR/PGR proceedings.

Sections 102(a)/103(a) – Elimination of BRI

Sections 102(a)/103(a) amend 35 USC 316(a)/326(a) to construe claims in an IPR/PGR according to their ordinary and customary meaning, and considering any prior construction by a court.  The current application of “broadest reasonable interpretation” makes claims more vulnerable in an IPR/PGR.

Sections 102(b)/103(b) Clear and Convincing Evidence Standard

Sections 102(b)/103(b) amends 35 USC 316(e)/326(e) to require proof of invalidity by clear and convincing evidence.  The current burden of proof of “preponderance of evidence” makes claims more vulnerable in IPR/PGR than in a court where the burden is by clear and convincing evidence.

Sections 102(c)/103(c) Requires Standing to Initiate

Sections 102(c)/103(c) amends 35 USC 311(d)/321(d) to require that a Petitioner have standing, i.e., have been charged with infringement.  Currently anyone can bring an IPR/PGR, regardless of whether they have been charged with infringement; this section restricts who can initiate a proceeding.

Sections 102(d)/103(d) One Challenge Per Claim

Sections 102(d)/103(d) amend Amends 35 USC 314(a)/324(a) to add a subsection (2) that bars review of a claim if there has been a previously instituted IPR/PGR on that claim. This allows only one IPR or PGR on each claim.  It is not limited to the same petitioner, and is triggered by institution, not a final written decision.

Sections 102(e)/103(e) Interlocutory Appeal of Institution Decisions

Sections 102(e)/103(3) amend 35 USC 314(d)/324(c) and add 314(e)/314(f) allowing certain appeals of institution decisions.
New sections 314(e)/324(f) would permit appeals of institution decisions in procedural grounds, but not as to the substantive patent law determination of unpatentability.

Sections 102(f)/103(f) One Challenge Per Patent

Section 102(f)/103(f) amend 35 USC 315/325 to prevent a petitioner from filing a second IPR/PGR unless the patent owner has charged petitioner with infringement of additional claims. This limitation together with the new limitation in 314(a) of one IPR per claim, restricts multiple IPRs on a single patent.

Sections 102(f) Improved Estoppel in IPR’s

Section 102(f) amends 35 USC 315 to bar a petitioner after an institution decision from raising any 102 or 103 grounds in a court or ITC proceeding, unless based public use, on sale, or otherwise available to the public. This substantially strengthens estoppel, but it still leaves a gap allowing the use of non-documentary prior art that corresponds to documentary prior art,.  There is no parallel estoppel provision for PGRs.

Sections 102(g)/103(g) Defines Real Party in Interest

Sections 102(g)/103(g) amend 35 USC 315(f).325(g) to define real party in interest as anyone who directly or indirectly makes a financial contributes to the petition. This expands definition of real party in interest to anyone who funds the proceedings.

Sections 102(g)/103(g) Provides Discovery of Real Party in Interest

Sections 102(g)/103(g) amends 35 USC 316(a)(5)/326(a)(5) to add subpart (B) providing for discovery about the real parties in interest.
Expands discovery relating to real party in interest.

Sections 102(h)/103(h) Bars Institution after Final Court Decision

Sections 102(h)/103(h) amend 35 USC 315/325 by adding new subpart (c)(1) that bars institution of an IPR after final judgment by the ITC or a court as to the validity of the claim under 102 or 103.
Once the ITC or a court has ruled on the validity of a claim, no one can challenge the claim in an  IPR.  However, (c)(1) only bars institution, not maintenance of the IPR/PGR, and (c)(2) only requires termination if a validity determination is affirmed on appeal.  A losing litigant might be able to get a second shot at the patent by waiving appeal, and continuing an already instituted IPR.

Sections 102(h)/103(h) Stays Proceedings Pending Court Appeal

Sections 102(h)/103(h) amend 35 USC 315/325 by adding new subpart (c)(2) which requires that the USPTO stay any IPR after the ITC or Court has entered a final judgment, while an appeal is possible or pending.  During concurrent IPR and litigation, if the ITC or Court gets to final judgment first, the IPR must be stayed pending appeal.

Sections 102(i)/103(i) Create Expedited Reexamination

Sections 102(i)/103(i) add a new 35 USC 316A/326A with a subpart (a)(3) that gives the patent owner the option to have a reasonable number of substitute claims examined in a new expedited IPR/PGR reexamination.

Sections 102(i)/103(i) Ease Burden of Amending Claims

Sections 102(i)/103(i) add new 35 USC 316A(c)(1)/326A(c)(1) defining amendment practice before the PTAB, and provides that the patent owner need only show that the amendment addresses the unpatentability on an instituted ground, meets the written description requirement, and does not enlarge the scope of the claims. New sections 316A(c)/326A(c) would relieve patent owners of the some of the burdens imposed by the PTAB in Idle Free Sys. v. Berstrom, Inc.

Sections 102(i)/103(i) Add Structure to Amendment Process

Sections 102(i)/103(i) add new 35 USC 316A(c)(2)/316A(c)(2)/  allowing petitioners to present new evidence to respond to amendments proposed by the patent owner, and allowing patent owner an opportunity to respond to new evidence submitted by petitioner.

Sections 102(i)/103(i) add new 35 USC 316A(c)(3)/326A(c)(3) allowing the PTAB to obtain an expedited patentability report.  Any party can respond to the report and the ordering of the report constitutes good cause for extending the proceeding beyond one year.

Sections 102(i)/103(i) also add new 35 USC 316A(c)(3) allowing the PTAB to order expedited reexamination on a claim in lieu of making a Final Written Decision on that claim.

Finally Sections 102(i)/103(i) also add new 35 USC 316A(d)/326A(d) allowing the patent owner to move for expedited reexamination in lieu of continuing the proceeding.  If granted, the patent owner must replace all of the instituted claims.  The petitioner has no right of appeal.

Section 104 Separates Institution and Final Written Decisions 

Section 104 amends 35 USC 6 to add subsection (c)(2) to provide that no board member who participates in an institution decision can also participate in hearing the review.  This eliminates the potential for confirmation bias, where a Board member who decided to institute also decides whether that institution decision was correct.

Section 105 Eliminates of Anonymous Reexaminations

Section 105 amends 35 USC 302(a) to require disclosure of the real party in interest in filing a request for reexamination.  This eliminates anonymous reexaminations.

Section 105 Restricts Reexaminations bu Defendants

Section 105 amends 35 USC 302 to add a subsection (d) barring reexamination more than a year after the requester is served with a complaint alleging infringement of the patent.

Section 106 Creates Presumption in Favor of Injunctions

Section 106 amends 35 USC 283 to provide a presumption that the patent owner is entitled to an injunction.  Gives effect the Constitutional mandate of exclusive rights to authors and inventors.

Section 107 Eliminates Fee Diversion

Section 107 Eliminates the diversion of USPTO user fees from the Office.

Section 108 Eliminates Knowledge of Patent from Inducement

Section 108 Amends 35 USC 271 to define inducement in subsection (b) as causing the actions that constitute infringement regardless of knowledge of the patent.

Section 108 Expands Inducement

Section 108 amends 35 USC 271(f) to add subsection (3)(A) to make inducement by the provision of an infringing design an act of infringement.

Section 108 also amends 35 USC 271(f) to add subsection (3)(B) to make inducement by the provision of an infringing specification an act of infringement.

Section 108 also amends 35 USC 271 to add section (j) eliminating the requirement for inducement or contributory infringement that the steps be performed by a single entity.

Section 109 Clarifies that Institutions of Higher Learning are Microentities

Section 109 amends 35 USC 123(d) to clarify that institutions of higher learning and their related patent foundations and other entities are microentities.  Nothing is done about their sovereign immunity in challenges to the patent.

Section 110 Expedites Infringement Actions by Small Business

Section 110 Creates a Patent Pilot program for expediting infringement cases involving small businesses.
110

Section 110 Makes Search Information More Widely Available

Section 110 amends Section 41(i) to required that the USPTO make freely available the patent and trademark information available at its Public Search Facilities.

Sections 201-203 Regulates Rogue and Opaque Letters

Sections 201-203 empower the FTC to take action against the bad faith assertion of patent rights.

Section 204 Preempts State Anti-Troll Laws

Section 204 preempts state laws on patent demand letters, but allows the states to enforce the federal prohibition of rogue and opaque letters

Independence Day Patents

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Inventors are constantly working, and holidays are no exception.  In fact holidays seem to be a source of inspiration for many inventors, and Independence Day is no exception:

What says Independence Day better than the patriotic grill cover in U.S. Patent No. D49032?Perhaps the centennial medal of U.S. Patent No. D9103?Perhaps the centennial watch charm from U.S. Patent No. D7164:

 

 

 

Written Description Must Support Claims; Not Exclude Alternatives

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In The Board of Trustees of the Leland Stanford Junior University v. The Chinese University of Hong Kong, [2015-2011] (June 27, 2017), the Federal Circuit vacated the PTAB’s determination in an interference that Stanford’s claims were unpatentable for lack of written description, because the Board relied on improper evidence to support its key
findings and did not cite to other substantial evidence to support its findings.

Whether a patent claim satisfies the written description requirement of 35 U.S.C. § 112, paragraph 1, depends on whether the description clearly allows persons of ordinary skill in the art to recognize that the inventor
invented what is claimed.  Substantial evidence supports a finding that the specification satisfies the written description requirement when the essence of the original disclosure conveys the necessary information—regardless of how it conveys such information, and even when the disclosure’s words are open to different interpretations.

The Board determined that Stanford’s patent does not disclose the random massively parallel sequencing of nucleic acid sequences claimed in the later-added claims such that a person of skill in the art would have concluded that the Quake inventors were in possession of the method
claimed.  The Board concluded from the language of the specification that the specification referred to targeted, rather than the claimed random sequencing.  The specification specifically mentioned an Illumina sequencer, but in evaluating the specification, the Board relied upon information about a Roche sequencer.  Further the Board’s finding that the language did not exclude targeted sequencing ignores the fact the description might support both random and targeted sequencing.

The Federal Circuit said that the Board’s task was to determine whether the specification’s description discloses random sequencing, as recited
by the later-added claims, not whether the description does not preclude targeted MPS sequencing. The Federal Circuit said that the Board’s
error on this issue is compounded by its failure to explain the meaning of key sentences and phrases in the specification’s discussion of the sequencing process, and its failure to compare these statements to the claim limitations.

For these reasons the Federal Circuit vacated the interference decisions and remanded for the Board to reconsider whether Quake’s relevant patents and applications satisfy the written description requirement.  The Federal Circuit specifically instructed the Board to examine whether a person of ordinary skill in the art would have known, as of the priority date, that the specification’s reference to Illumina products meant random sequencing as recited in the claims, by examining the record evidence as
to pre-filing date art-related facts on Illumina products.  The Federal Circuit said that the Board may include an analysis of whether the record contains testimony or evidence, relevant to this written description analysis, showing that any post-filing date publications contain art-related facts on random sequencing or Illumina products existing on the filing date.

 

A §145 Action May Not Be As Appealing as a Trip to the Federal Circuit

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In Nantkwest, Inc. v. Matal, [2016-1794] (June 23, 2017), the Federal Circuit reversed the denial of attorneys fees to the USPTO in successfully defending civil action under 35 USC §145 brought by a patent applicant.  The statute provides that the applicant must pay “[a]ll of the expenses of the proceeding . . . regardless of the outcome.” The district court held that “expenses” did not include attorneys fees.

The Federal Circuit found that the ordinary meaning of “expenses” as defined in dictionaries and the Supreme Court’s interpretation of this term lend significant weight to the conclusion that when Congress used the phrase “all expenses,” it meant to include attorneys’ fees.  Accordingly, the Federal Circuit held “[a]ll expenses of the proceedings”
under § 145 includes the pro-rata share of the attorneys’ fees the USPTO incurred to defend applicant’s appeal.

The Federal Circuit remanded the case for the district court to enter an additional award of $78,592.50 in favor of the Director.

Although it may seem unfair that an applicant losing an appeal has to pay the Office’s cost in successfully defending the appeal of a rejection, as the Federal Circuit pointed out, this is how Congress chose to allocate the cost of an appeal to the district court.  What is unfair, however, is that this is how Congress chose to allocate the cost of an applicant’s successful appeal of an improper rejection as well.  Thus, an applicant faced with an improper rejection who brings an action under §145 and wins, is still on the hook for the Patent Office’s attorneys fees.  This unfair result alone might suggest that Congress did not intent to include attorneys’ fees in “expenses,” otherwise Congress is putting a high price on justice.

So why would an applicant chose to take a PTAB decision to district court, rather than appeal to the Federal Circuit?  The principal reason is that the PTAB may have pointed out an evidentiary defect in the applicant’s case.  If the applicant appeals to the Federal Circuit the record is fixed, and if the PTAB was correct about the defect, the Federal Circuit will simply affirm the PTAB.  However, in an action under §145 the applicant can introduce additional evidence, for example a declaration by the inventor, or by an expert, or perhaps even evidence of objective indicia of non-obviousness.  This could allow the applicant to obtain a patent, when an appeal would otherwise be futile.  Depending upon the importance of the invention, this might well be worth an additional $78,000 or so.

However is a §145 action the only way to obtain this result?  Perhaps not.  One might assume that if you do not appeal the PTAB decision that it becomes final and res judicata will prevent the application from ever getting the claims that the were the subject of the appeal. This would be a good reason to pursue the §145 action.  However, the underlying assumption may be wrong.  In In re Donohue, 226 USPQ 619 (Fed. Cir. 1985), the Federal Circuit held that the Patent Office should not apply res judicata where the applicant made a different record, for example by supplying a new affidavit or declaration:

Appellant has made a record different from that in Donohue I by submitting the Fields affidavit. This new record presents a new issue of patentability with respect to whether the previously sustained anticipation rejection can still be maintained. In view of this new issue, the PTO properly declined to make a formal res judicata rejection . . .

226 USPQ 621.  As long as Donohue remains good law, a patent applicant can file an RCE or even a continuation, supplement its records, and continue to prosecute claims whose rejection was affirmed by the PTAB (and not have to spend $80,000 on the the USPTO’s expenses in a §145 action.

It is still unfair that a successful applicant in a §145 action has to pay for the unsuccessful efforts of the USPTO in defending an improper rejection, but at least the applicant has an alternative route to continue to pursue the claims after an unsuccessful appeal to the PTAB.

Lack of Enablement in Provisional Application Results in Loss of Priority

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In Storer v. Clark, [2015-1802] (June 21, 2017) the Federal Circuit affirmed PTAB’s decision awarding priority in an interference to Clark, on the grounds that Storer’s provisional application did not enable the interference subject matter.

The subject matter in dispute involved methods of treating hepatitis C by administering compounds having a specific chemical and stereochemical structure.  Storer was issued U.S. Patent No. 7,608,600, and Clark challenged priority of invention and moved to deny Storer the priority date of its provisional application.  Clark argued that the application did not enable the claimed compound, while Storer argued that the compounds were readily obtained based on the provisional application and the prior art.

Enablement was relevant for validity and to the issue of whether the provisional application was a constructive reduction to practice.  It is a question of law, and is reviewed without deference, although the factual underpinnings of enablement are reviewed for substantial evidence.

Analyzing the disclosure under the factors set forth in In re Wands, the Board determined that undue experimentation would be required to produced the claim compounds from the provisional application’s disclosure.

The Federal Circuit began its analysis noting that the boundary between a teaching sufficient to enable a person of ordinary skill in the field, and the need for undue experimentation, varies with the complexity of the
science.   While the specification need not recite textbook science, it must be more than an invitation for further research.  Further, while the application need not disclose what is well-known in the art, it is the specification, not the knowledge of one skilled in the art, that must supply the novel aspects of an invention in order to constitute adequate enablement.

The Federal Circuit concluded that substantial evidence supported the Board’s findings that the synthetic schemes in Storer’s provisional application did not enable a person of ordinary skill to produce the target compounds without undue experimentation.

 

Oh, No, Toto An Interactive Website Won’t Bring You to Kansas

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In Nexlearn, LLC v. Allen Interactions, Inc., [2016-2170, 2016-2221](June 19, 2017), the Federal Circuit affirmed the dismissal of a complaint for patent infringement for lack of personal jurisdiction.

NexLearn sued Allen Interactions in the District of Kansas alleging infringement of U.S. Patent No. 8,798,522 and breach of contract.  Allen Interactions, a Minnesota corporation, moved to dismiss NexLearn’s complaint for lack of personal jurisdiction.  Allen Interactions argued it was not subject to specific or general jurisdiction in Kansas due to its limited contacts with the forum, which it argued amounted to a single sale unrelated to the accused product that represented less than 1% of its revenue over the past five years.

NexLearn did not argue general jurisdiction in its briefing, and drawing all reasonable inferences in favor of NexLearn, the district court held that NexLearn failed to allege that Allen Interactions had sufficient contacts with Kansas to permit the exercise of specific jurisdiction.

On appeal the Federal Circuit applied a three-part test, in which it determines whether: (1) the defendant purposefully directed its activities to the forum State; (2) the claims arise out of or relate to those activities (collectively, the minimum contacts prong); and (3) the assertion of jurisdiction is reasonable and fair.

The Federal Circuit discounted Allen Interactions’ activities prior to the patent issuance as irrelevant to patent infringement.  The Federal Circuit also agreed that forum selection provisions in an expired NDA and EULA agreement unrelated to the infringement, likewise did not subject Allen Interactions to specific jurisdiction in Kansas.

The Federal Circuit then considered Allen Interaction’s website. NexLearn argued that the fact that “Kansas” was in a drop down menu for billing address showed that Allen Interaction was targeting Kansas.  However the Federal Circuit found that Allen Interaction’s address selector may indicate its amenability to selling the accused product to Kansas residents, but it does not establish minimum contacts
arising out of or related to the infringement claim. The Federal Circuit said that while a Kansas resident could purchase the accused product from the Allen’s website, what was missing was any evidence that such
a sale has taken place, or that any Kansas resident ever even accessed the website.  The Federal Circuit explained that the website:

is conceptually no different than operating an out-of-state store. That a store would accept payment from a hypothetical out-of-state resident and ship its product there does not create a substantial connection for an infringement claim between the store and the hypothetical resident’s forum State. The store’s willingness to enter future transactions with out-of-state residents does not, without more, show purposeful availment of each State in which it would, but has not yet, provided or even offered a sale.

The Federal Circuit said that something more is needed—whether it be actual sales, targeted advertising, or contractual relationships—to
connect the defendant’s infringing acts of making, using, offering, or selling its product with the forum State. While what is sufficient may vary from case to case, the Federal Circuit said that it cannot be that the mere existence of an interactive website, like the existence of an out-of-state store, is suit-related conduct creating a substantial connection with the forum state.

The Federal Circuit also found that Allen Interaction’s email to a NexLearn employee regarding new features of the accused software product, and an offer to a NexLearn employees of a free trial of the accused software product were insufficient.  However the Federal Circuit rejected the district court’s rationale that this was because it was unilateral conduct on NexLearn’s part.  Instead, the Federal Circuit found that the email was a mass-email advertisement that did not show that that Kansas was a target market.  The mailing of one advertisement to
all of its nationwide subscribers did not create a substantial connection with Kansas.

Similarly with respect to the offer of a free trial, the Federal Circuit disagreed that this was irrelevant, but simply that single offer of a
free trial is too attenuated to establish minimum contacts with Kansas.

The Federal Circuit affirmed the dismissal of the patent infringement claim, and the supplemental claim for breach of contract as well.