Damage Award Must Reflect Apportionment of Incremental Value of Invention

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In Omega Patents, LLC. v. CalAmp Corp., [2020-1793, 2020-1794] (September 14, 2021), the Federal Circuit affirmed the judgment of infringement of the asserted claims of U.S. Patent No. 8,032,278, but vacated and remanded for a new trial on damages. The Federal Circuit also vacated the jury’s finding of direct infringement of U.S. Patent No. 6,756,885.  The patents relate generally to multi-vehicle-compatible systems that can remotely control various vehicle functions (for example, remote vehicle starting), and read the status of various vehicle devices (for example, battery health).

CalAmp appealed (1) the district court’s denial of JMOL that CalAmp’s customers did not directly infringe the ’885 patent (and in the alternative, CalAmp requests that we vacate the direct-infringement finding); (2) the district court’s denial of JMOL and a new trial on CalAmp’s infringement of the ’278 patent; and (3) the district court’s denial of remittitur and a new trial as to damages for the ’278 patent. Omega cross-appealed the district court’s de-termination of the ongoing royalty rate for infringement of the ’278 patent.

The Federal Circuit vacated the finding of direct infringement by CalAmp’s customers of the ‘885 patent because Omega’s decision not to appeal the final judgment of non-induced infringement frustrated the CalAmp’s right to appeal, and pointing out that the question of whether CalAmp’s customers directly infringed the asserted claims of the ’885 patent is moot.

The Federal Circuit also found that the district court properly denied JMOL and an new trial on the issue of infringement of the ‘278 patent.  CalAmp argued that that the district court improperly permitted Omega’s technical expert, Joseph McAlexander, to testify beyond the scope of his expert report.  The Federal Circuit found that the report “provided enough notice to CalAmp to adequate prepare its case, and noted that CalAmp deposed the expert in line with is ultimate trial testimony.

CalAmp also argued that Omega presented an improper “device code” theory to the jury upon which the jury relied and that Omega failed to present evidence that two claim limitations were met.  The Federal Circuit disagreed, and pointed out that there was adequate evidence of direct infringement.  The Federal Circuit further found that Omega failed to object to the allegedly improper evidence of infringement, waiving any objection thereto.  Finally, given the instructions that were given to the jury, the Federal Circuit said it must assume that the jury verdict rested on a proper theory.

On the issue of damages, CalAmp argued that the district court erroneously precluded its damages expert from testifying in rebuttal, and that Omega’s damages theory was legally flawed.  The Federal Circuit agreed that it was error to preclude CalAmp’s expert from testifying on rebuttal, simply because his direct testimony was excluded, and this exclusion was not appealed.  The Federal Circuit found that law of the case did not apply to preclude other testimony from the excluded expert.

The Federal Circuit concluded that ultimately, a new trial on damages was warranted. The jury awarded a $5.00-per-unit royalty for CalAmp’s infringement of the ’278 patent, and CalAmp argued that the $5.00 royalty figure  does not reflect apportionment and that Omega failed to show the incremental value of the ’278 patent (or that the patented improvement drove demand for the entire accused product), rendering the jury’s damages award unsustainable.  The patentee must in every case give evidence tending to separate or apportion the patentee’s damages between the patented feature and the unpatented features.  No matter what the form of the royalty, a patentee must take care to seek only those damages attributable to the infringing features.  Where multi-component products are involved, the governing rule is that the ultimate combination of royalty base and royalty rate must reflect the value attributable to the infringing features of the product, and no more.

Omega argued that because its claims included all the elements of the accused device, no apportionment was needed.  Citing Exmark v. Briggs & Stratton, the Federal said that even when the claims are directed to a product as a whole, the patent owner was still required to “apportion or separate the damages between the patented improvement and the conventional components of the multicomponent product” to ensure that the patent owner was compensated for the patented improvement.

Turning to the merits of apportionment, the Federal Circuit concluded that Omega did not present sufficient evidence to the jury to sustain its damages award for infringement of the asserted claims of the ’278 patent. First, it said that Omega failed to show that its patented improvement drove demand for the entire product. Second, in the alternative, it said that Omega failed to show the incremental value that its patented improvement added to the product as apportioned from the value of any conventional features. Lastly, the Federal Circuit rejected Omega’s comparable-licenses theory, finding that flat fee licensing did not address “built-in apportionment” between the patented improvements and the conventional features of the accused products.  The Federal Circuit likewise concluded that Omega failed to show built-in apportionment based on specific the license agreements presented to the jury.   

There’s More to Invention in the U.S. than Butterscotch Ripple

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Willie Wonka famously said that invention is 93% perspiration, 6% electricity, 4% evaporation, and 2% butterscotch ripple. South Africa and Australia have removed the “perspiration” requirement allowing AI to be named the inventor on a patent. (South African issued Patent No. 2021/03242 earlier this year on an AI invention; and in August 2021, and an Australian Judge ruled in Thaler v. Commissioner of Patents, VID 108 of 2021, that the same AI invention qualified for patent protection). The EU and the US, however, are still insisting on a human inventor — or in terms of Wonka’s definition, some “perspiration.”

The Eastern District of Virginia cemented the human inventor requirement, saying in a September 2 opinion in Thaler v. Hirshfeld (1:20-cv-00903-LMB-TCB) that “[b]ased on the plain statutory language of the Patent Act and Federal Circuit authority” an artificial intelligence machine cannot be an inventor. The Court relied upon the statutory definition of inventor in 35 U.S.C.100(f): “the individual, or if a joint invention, the individuals collectively who invented or discovered the subject matter of the invention.” The Court explained that “Congress’s use of the term ‘individual’ in the Patent Act strengthens the conclusion that an ‘inventor’ must be a natural person.”

The Court found this conclusion buttressed by the Federal Circuit’s consistent holdings that under current patent law “inventors must be natural persons,” citing Univ. of Utah v. Max-Planck-Gesellschaft, 734 F.3d 1315, I323 (Fed. Cir. 2013), and Beech Aircraft Corp. v. Edo Corp., 990 F.2d 1237, 1248 (Fed. Cir. 1993)).

Since patents and patents laws are the creation of humans, the answer to the question of whether artificial intelligence can be the inventor on a patent may very well vary by jurisdiction. However, aside from the wording of the statute and precedent noted by the District Court, there are problems with executing the oath or declaration (which are only partly solved the AIA’s creation of the substitute statement), as well as with ownership and assignment that make AI inventorship problematic.

As we celebrate Labor Day in the United States, we note that labor — the “perspiration” — has not yet been removed as an ingredient of Wonka’s definition of invention in the U.S.

Argument of Criticality Undercut Position that Non-Disclosed Art was Merely Cumulative

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In Belcher Pharmaceuticals, LLC v. Hospira, Inc., [2020-1799] (September 1, 2021), the Federal Circuit affirmed the district court’s determination that Belcher’s Chief Science Officer engaged in inequitable conduct by withholding material information from the USPTO during prosecution of U.S. Patent No. 9,283,197.

During prosecution, Belcher argued that the prior art’s 2.2 to 5.0 pH range failed to render obvious the claimed range of 2.8 to 3.3 because the claimed range “was unexpectedly found to be critical . . . to reduce the racemization of l-epinephrine.”  The application was eventually discussing the reasons for allowance, the examiner explained that the cited art failed to render the claims unpatentable “in view of Applicant’s demonstration of criticality of a pH range between 2.8 and 3.3.”  The district court the found that the’197 patent was unenforceable for inequitable conduct. Regarding materiality, the district court found that Rubin withheld three items that were but-for material to patentability because they disclosed two aspects of the asserted claims: the pH range and the impurity levels.  The district court also found that Mr. Rubin acted with requisite intent to deceive the PTO, noting that Rubin knew that Belcher described the claimed pH range of 2.8 to 3.3 to the FDA as “old,” and described references in this range.  The district court found that when dealing with the PTO, the district court explained, Mr. Rubin did not merely withhold this information but also used emphatic language to argue that the claimed pH range of 2.8 to 3.3 was a “critical” innovation that “unexpectedly” reduced racemization.

On review the Federal Circuit noted that in view of the obviousness determination, the withheld information was “necessarily material to patentability.”  The Federal Circuit rejected the argument that these references were merely cumulative, in view of the inconsistent argument that the range disclosed in the withheld references was critical.   On the issue of intent, the Federal Circuit said that the district court found that although there was no direct evidence of deceptive intent, the evidence of record persuaded it clearly and convincingly that this is the only reasonable inference that can be drawn.  The Federal Circuit agreed that the reasons for withholding the references were “implausible and not credible.”

It is Irrelevant Whether Infringer Knew About the Patent; The Focus is Whether Patentee Gave Notice

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In Lubby Holdings LLC v. Chung, [2019-2286] (September 1, 2021), the Federal Circuit affirmed in part, reversed in part, the district court, and remanded for a new trial to determine the number of infringing products sold after the commencement of this action and for the determination of a reasonable royalty rate for the sale of these units.

Chung was found liable for infringing U.S. Patent No. 9,750,284 and the district court awarded damages of $863,936.10.  Chung argued that the district court erred in awarding damages for the sales of infringing products prior to the commencement of this action, which is the date Chung received actual notice of the ’284 patent under 35 U.S.C. § 287.

During trial, Chung moved for judgment as a matter of law under Federal Rule of Civil Procedure 50(a) as to damages, arguing that Lubby did not meet its burden to prove that it complied with 35 U.S.C. § 287’s marking requirement. The jury ultimately returned a verdict finding Chung liable for direct infringement of the ’284 patent and awarding in reasonable royalty damages. After trial, Chung renewed his motion for judgment as a matter of law under Rule 50(b), which was denied because “there was sufficient evidence to support the jury’s verdict at the close of trial.”

On appeal the Federal Circuit noted that Chung did not properly raise the issue of his direct infringement liability in his Rule 50(a) motion and raised it only in his Rule 59(a) motion, so its review was under the substantially constrained abuse-of-discretion standard of review applicable to Rule 59(a) motions.  Because there was evidence to support the finding that Chung made, offered to sell, and sold the accused devices, the finding of infringement had to be affirmed.  Chung argued that he could not be liable for infringement based on acts that he took on behalf of his company, unless it was appropriate to pierce the corporate veil.  The Federal Circuit said that this was not the standard: “Corporate officers can be personally liable for their own acts of infringement, even if those acts were committed in their corporate capacity.”  The Federal Circuit explained that a corporate officer cannot be found derivatively liable for the corporation’s infringement without piercing the corporate veil. However, a person is personally liable for his own tortious actions, even if committed as a corporate officer.

On the issue of “notice,” the Federal Circuit said that the patentee bears the burden of pleading and proving he complied with § 287(a)’s marking requirement. The burden of proving compliance with marking is and at all times remains on the patentee, but an alleged infringer who challenges the patentee’s compliance with § 287 bears an initial burden of production to articulate the products it believes are unmarked patented articles subject to § 287.   The alleged infringer’s burden is a burden of production, not one of persuasion or proof, and once the alleged infringer meets its burden of production, the patentee bears the burden to prove the products identified do not practice the patented invention.  The Federal Circuit found that Chung cleared this low bar, and plaintiff bore the burden of provide the products Chung identified did not practice the patented invention.  Because plaintiff failed to establish that it marked the products as required by § 287, it can recover damages only for the period that it provided actual notice to Mr. Chung, i.e. the date it filed suit.  The Federal Circuit rejected the argument that Chung had actual notice of the issuance of the patent, stating that “notice that the ’284 patent issued does not equate to actual notice under § 287.  The actual notice requirement of § 287(a) is satisfied when the recipient is informed of the identity of the patent and the activity that is believed to be an infringement, accompanied by a proposal to abate the infringement, whether by license or otherwise.  It is irrelevant under § 287 whether the defendant knew of the patent or knew of his own infringement. The correct approach to determining notice under § 287 must focus on the action of the patentee, not the knowledge or understanding of the infringer.”

Insufficient Specificity to Constitute an Improvement to Computer Functionality

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In Universal Secure Registry LLC v. Apple, Inc., [2020-2044] (August 26, 2021), the Federal Circuit affirmed the dismissal under Rule 12(b)(6) that U.S. Patent Nos. 8,856,539; 8,577,813; 9,100,826; and 9,530,137 asserted by Universal Secure Registry because the four asserted patents were ineligible under 35 U.S.C. § 101.

Although the patents are otherwise unrelated, they are directed to similar technology—securing electronic payment transactions.  The district found the patents ineligible under both prongs of the Alice test, explaining that the claimed invention was directed to the abstract idea of “the secure verification of a person’s identity” and that the patents do not disclose an inventive concept—including an improvement in computer functionality— that transforms the abstract idea into a patent-eligible application.

The Federal Circuit began by noting that in cases involving authentication technology, patent eligibility often turns on whether the claims provide sufficient specificity to constitute an improvement to computer functionality itself.  Analyzing the claims of the four patents separately, the Federal Circuit determined that they were directed to abstract ideas, and did not include anything more to remove the claims from the realm of abstract ideas.

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Inadequate Written Description of Genus without Representative Species or Common Structural Features

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In Juno Therapeutics, Inc. v. Kite Pharma, Inc., [2020-1758] (August 26, 2021), the Federal Circuit reversed the jury verdict that claims of U.S. Patent No. 7,446,290, were not invalid for lack of written description, because it was not supported by substantial evidence.

A specification adequately describes an invention when it “reasonably conveys to those skilled in the art that the inventor had possession of the claimed subject matter as of the filing date.”  What is required to meet the written description requirement “varies with the nature and scope of the invention at issue, and with the scientific and technologic knowledge already in existence.” A mere wish or plan for obtaining the claimed invention is not adequate written description.  The Federal Circuit said that for genus claims using functional language, like the ones at issue in the case, the written description “must demonstrate that the applicant has made a generic invention that achieves the claimed result and do so by showing that the applicant has invented species sufficient to support a claim to the functionally-defined genus.”

On appeal Kite argued that the claims cover an enormous number (millions of billions) of candidates, only a fraction of which satisfy the functional binding limitation for any given target, and that the written description does not meet the written description requirement for this functional binding limitation.  Kite argues that the asserted claims are invalid for failing to satisfy the written description requirement because the patent discloses neither representative species nor common structural features of the claimed genus to identify which combinations would function as claimed.

The Federal Circuit agreed that no reasonable jury could find the ’190 patent’s written description sufficiently demonstrates that the inventors possessed the full scope of the claimed invention. The Federal Circuit said that the ’190 patent’s written description fails to provide a representative sample of species within, or defining characteristics for, the expansive genus claimed.  The Federal Circuit explained that this did not mean that a patentee must in all circumstances disclose the nucleotide or amino acid sequence of the claimed sequences to satisfy the written description requirement when such sequences are already known in the prior art.  But the written description must lead a person of ordinary skill in the art to understand that the inventors possessed the entire scope of the claimed invention.

The Federal Circuit concluded that substantial evidence does not support the jury’s verdict in Juno’s favor on the issue of written description, and reversed.

Damage Expert Testimony Limited by Unreliability, Failure of Disclosure, and Failure to Apportion

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In MLC Intellectual Property, LLC v. Micron Technology, Inc., [2020-1413] (August 26, 2021), the Federal Circuit affirmed the district court’s orders precluding MLC’s damages expert from characterizing certain license agreements as reflecting a 0.25% royalty, opining on a reasonable royalty rate when MLC failed to produce key documents and information directed to its damages theory when requested prior to expert discovery, and opining on the royalty base and royalty rate where the expert failed to apportion for non-patented features.

MLC sued Micron for infringing certain claims of U.S. Patent No. 5,764,571, entitled “Electrically Alterable Non-Volatile Memory with N-bits Per Cell,” which describes methods of programming multi-level cells.

Micron filed a motion in limine to preclude Mr. Milani from mischaracterizing the Hynix and Toshiba agreements as reflecting a 0.25% royalty rate. In addition, Micron moved to strike portions of Mr. Milani’s expert report under Rule 37 of the Federal Rules of Civil Procedure as being based on facts, evidence, and theories that MLC disclosed for the first time in Mr. Milani’s expert report. Micron had asked for MLC’s damages theories—as well as any facts, evidence, and testimony regarding any applicable royalty rate—during fact discovery in its Interrogatory Nos. 6 and 22 and during a Rule 30(b)(6) deposition of a corporate designee. Finally, Micron filed a Daubert motion, seeking to exclude Mr. Milani’s reasonable royalty opinion for failure to apportion out the value of non-patented features. The district court granted all three motions.

As to the first motion, the district court reasoned that Mr. Milani’s “testimony about the Hynix and Toshiba licenses containing a 0.25% royalty rate is not ‘based on sufficient facts or data’ and is not ‘the product of reliable principles and methods.’”  On appeal, the Federal Circuit noted that as a gatekeeper, the district judge was required to “ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.”  The Federal Circuit found no abuse of discretion on the exclusion of evidence, noting that instead of resting on an accepted scientific theory or technique, Mr. Milani’s testimony was is not sufficiently tethered to the evidence presented.

As to the second motion, the court concluded that “MLC never disclosed the factual underpinnings of its claim that the Hynix and Toshiba licenses ‘reflect’ a 0.25% royalty rate, and that pursuant to Rule 37(c)(1), this failure is a separate and independent basis for excluding evidence and argument that those licenses contain such a rate.”  The court said that because the information relied upon was never disclosed by MLC, MLC may not rely on this evidence to assert that the Hynix and Toshiba licenses ‘reflect’ a 0.25% rate.”  On appeal the Federal Circuit noted that under Rule 37(c)(1), when “a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.”  After examining the discovery responses, the Federal Circuit found that the district court did not abuse its discretion in finding that MLC did not properly disclose its claim that the Hynix and Toshiba licenses reflect a 0.25% rate, as well as the extrinsic documents relied on by Mr. Milani to show that the Hynix agreement reflects a 0.25% royalty rate.

As to the third motion, the district court held that Mr. Milani’s failure to apportion for non-patented technologies rendered his analysis unreliable and excludable.  On appeal, the Federal Circuit agreed that Mr. Milani did not properly apportion either the royalty base or the royalty rate to account for the patented technology, noting that it has repeatedly held that when the accused technology does not make up the whole of the accused product, apportionment is required.

Footnote in Brief Doesn’t Count; Anyway Construction for Infringement Construction can’t be From Validity

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In Commscope Technologies LLC v. Dali Wireless Inc., [2020-1817, 2020-1818] (August 24, 2021) the Federal Circuit reversed the district court’s denial of JMOL of no infringement of U.S. Patent No. 9,031,521, and affirmed denial of JMOL of invalidity.

U.S. Patent No. 9,031,521, relates to wireless communications with portable equipment and handsets, such as mobile phones.  The claim limitation at the center of the parties’ infringement dispute is the first step in the claimed operating phase: “switching a controller off to disconnect signal representative of the output of the power amplifier.”  On appeal CommScope argued that Dali failed to present evidence proving that the FlexWave meets the district court’s construction of the claim term “switching a controller off.” The Federal Circuit agreed.

Dali argued that the claim term “switching a controller off” meant “switching a controller to an off status,” and no further definition was needed.  CommScope, on the other hand, proposed that the claim term meant “[s]witching a controller to a nonoperating state.”  The district court agreed with CommScope, drawing a distinction between: (1) when the controller is turned off and (2) the effect on the system of turning the controller off.

Dali argued (in a footnote) that CommScope’s position was nonsense.  The Federal Circuit said that “an argument that is only made in a footnote of an appellant’s brief is forfeited.”  Further, even if the argument were in the body of the brief, it was insufficiently developed. Finally, and most importantly, the s irreconcilable with Dali’s statements in other portions of its brief.  Thus the Federal Circuit turned to the issue of infringement.  The Federal Circuit pointed out that Dali’s expert’s testimony never states that either the switch or the controller is rendered “nonoperating,” thus does not provide substantial evidence to support the jury’s finding that the accused product meets the district court’s claim construction.  Not only was there a lack of evidence to show that the accused product met the proper construction of the claims, there is unrebutted evidence showing the opposite.  CommScope points to the testimony of its expert, who testified that both the switch and the controller are continuously operating.

The Federal Circuit said that the burden is on a patent owner to show that “the properly construed claim reads on the accused device exactly.”  CommScope’s reliance on the claim terms as construed by the district court is not “hairsplitting,” as Dali argues, but instead properly shows that Dali failed to meet its burden at the district court and that no reasonable jury could have found otherwise.  Dali presented only a literal infringement case, and not a doctrine-of-equivalents alternative. Thus, Dali’s argument that the accused switch/controller is effectively “nonoperating” because it is not passing a feedback signal of the power amplifier of interest is irrelevant because Dali failed to produce evidence below to show that the accused controller is literally nonoperating, as the district court determined was required by the claim.

Finally, Dali’s arguments on infringement cannot stand in view of its arguments of no anticipation.  For these reasons, the Federal Circuit reversed the district court’s denial of CommScope’s motion for JMOL of no infringement of the ’521 patent and affirmed the judgment of the district court in all other respects.

Mmm, Mmm, Obvious

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In Campbell Soup Company v. Gamon Plus, Inc., [2020-2344, 2021-1019](August 19, 2021), the Federal Circuit reversed the PTAB determination that U.S. Design Patent Nos. D612,646 and D621,645 would not have been obvious.

The ’646 and ’645 patents, which each claim “[t]he ornamental design for a gravity
feed dispenser display, as shown and described. The ‘646 patent has one figure:

U.S. Patent No. D612646, Fig. 1

Most of the features in the drawings are shown in dashed lines meaning that they are not part of the claimed design. In the ‘646 patent, the only parts claimed, were athe label area, the can stops, and one of the cans:

The ‘645 patent similarly excludes most of the drawing, except the label area and the cylindrical object in the display.

Linz, discloses a similar dislay rack. that has a similar display area and stops:

Linz, U.S. Patent No. D405,622

After buying $31 million of display racks from Gamon, Campbell’s began buying similar displays from Trinity, which caused Gamon to sue Campbells. Campbells petitioned for inter partes review of Gamon’s patents. The Board held that Appellants had failed to prove unpatentability, finding that Linz is not similar
enough to the claimed designs to constitute a proper primary reference.
The Federal Circuit vacated and remanded, reasoning that the “ever-so-slight differences” the Board identified between Linz and the claimed designs did not
support its finding that Linz is not a proper primary reference. On remand, the Board again help that the patents had not been shown to be obvious. The Board reasoned Abbate was not a proper primary reference, and while Linz was a proper primary references, the claimed designs would not have been obvious over Linz alone or in combination with other references. The Board acknowledged that Linz had the same overall visual appearance as the claimed designs, but objective indicia nonobviousness, namely: commercial success, Campbell praise for the design, and the copying of the design.

On this second trip to the Federal Circuit the Federal Circuit agreed that Linz creatd the same overall visual appearance as the claimed designs. However, as to objective indicia, the Federal Circuit found that the Board erred in presuming a nexus between any commercial success and the claimed designs. The Board found that the unclaimed portions of the desings were insignificant to the ornamental design, but the Federal Circuit held that: “[i]n determining coextensiveness, the question is not whether unclaimed features are insignificant to a product’s ornamental design. The question is instead whether unclaimed features are
“insignificant,” period. The Federal Circuit explained that the purpose of the coextensiveness requirement is to ensure that nexus is presumed only when the
product “is the invention disclosed and claimed. The Federal Circuit said by limiting its analysis to ornamental significance, the Board simply did not answer the relevant
question: whether the commercial produtc “is the invention.”

Under the correct legal standard, substantial evidence does not support the Board’s finding of coextensiveness, the Federal Circuit finding that at most, the claims cover only a small portion of the commercial product: its label area, cylindrical object, and stops. Thus it was improper to presume a nexus between the claimed invention and the commercial success, and it was up to Gamon to establish a nexus, which it failed to do.

The Board found nexus from the success and praise for the label area, but the Federal Circuit pointed out, this was not new. To establish nexus, Gamon needed to present evidence that the commercial success and praise of the commercial product derived from those “unique characteristics.” The evidence of commerical success presented was tied only to the label area, which was old. The Federal Circuit rejected testimony of the inventor tying the commercial success to the label area, noting that it was both self-serving and unssupported by any other evidence. Furthermore the Federal Circuit rejected the Boards view that in design patent cases, objective indicia need not be linked to the claimed design’s unique characteristics.

The Federal Circuit also relied upon evidence of copying as establishing non-obviousness, saying that even if there were copying, that alone did not overcome the strong evidence if obviousness.

Weighing all of the Graham factors, including (1) the Board’s finding that, from the perspective of a designer of ordinary skill, Linz creates the same overall visual impression as the claimed designs and (2) copying by Trinity of the claimed designs’ unique characteristics, the Federal Circuit concluded that the claimed designs would have been obvious over Linz.

Federal Circuit Holds PTO Can’t Recover Expert Witness Fees under 35 USC § 145

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In Hyatt v. Hirshfeld, [2020-2321, 2020-2323, 2020-2324, 2020-2325] (August 18, 2021), the Federal Circuit affirmed the district court’s denial of an award of the USPTO’s expert witness fees in defending a civil action under 35 USC § 145 brought by patent applicant Hyatt.

In a prior appeal the Federal Circuit held that 35 USC § 145 does not entitle the USPTO to recover its attorneys fees. The Patent Office also sought reimbursement of its expert witness fees under 35 U.S.C. § 145, which provides that “[a]ll the expenses of the proceedings shall be paid by the applicant.” The Patent Office cited a string of district court decisions awarding expert witness fees under the statute, but the district court found that these cases lacked any reasoning regarding the American Rule presumption against fee shifting, and noting recent Supreme Court emphasis of that presumption, the district court denied an award of expert fees.

The Federal Circuit agreed with the district court that 35 USC § 145 was not sufficiently specific to overcome the presumption against fee-shifting. The Federal Circuit said that No magic words are needed to override the American Rule, but the requirement that Congressional intent be specific and explicit is a high bar. The Federal Circuit said that vague terms like “costs” are also not enough.

The Federal Circuit looked to the Supreme Court’s decsion in NantKwest, noting that although the Court’s holding that attorney’s fees are not shifted does not inherently dictate that expert fees cannot be shifted, much of the Court’s reasoning in NantKwest applies equally with respect to expert fees. Tracking that decision, the Federal Circuit found the dictionary definitions of the words in the statute, the language of the statute, and the fact that in other stautes Congress specifically included expert fees, suggested that the central logic of NantKwest is applicable to its decision here, indicating that § 145 does not shift expert witness fees.

The Patent Office emphasized the long string of cases awarding expert witness fees, but the Federal Circuit said that longstanding practice is not enough to overcome the American Rule presumption.