Wash Your Hands Before Meals and Before Going to Court; Unclean Hands Wipe out Recover for Valid and Infringed Patents

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In Gilead Sciences, Inc. v. Merck & Co., [2016-2302, 2016-2615] (April 25, 2018), the Federal Circuit affirmed the district court’s determination that the claims the jury found to be valid and infringed were unenforceable because of pre-litigation business misconduct and litigation misconduct attributable to Merck.

The Federal Circuit looked the the Supreme Court’s decision in Keystone Driller Co. v. General Excavator Co., for an explanation of unclean hands — there the Court held that a determination of unclean hands may be reached when “misconduct” of a party seeking relief “has immediate and necessary relation to the equity that he seeks in respect of the matter in litigation,” i.e., “for such violations of conscience as in some measure affect the equitable relations between the parties in respect of something brought before the court.”  The Federal Circuit noted that Merck argued that the connection between the misconduct and the litigation must be “material,” but failed to make clear to the Federal Circuit had that requirement affected the case.  The Federal Circuit noted that in the present case which involves clear misconduct in breaching commitments to a third party and clear misconduct in litigation, the “immediate and necessary relation” standard, in its natural meaning, is met if the conduct normally would enhance the claimant’s position regarding legal rights that are important to the litigation if the impropriety is not discovered and corrected.  The Federal Circuit found that considering the conduct as a whole the district court’s determination of unclean hands was adequately supported.

Specifically, the district court found that Merck violated the “firewall” understanding between Merck and Pharmasset, when at least one person involved in a conference call with Pharmasset was involved, and continued to be involved in Merck related patent prosecution, which the Federal Circuit characterized as “serious misconduct,
violating clear standards of probity in the circumstances.”  The improperly acquired knowledge influenced Merck’s filing of narrowed claims, a filing that held the potential for expediting patent issuance and for lowering certain invalidity risks.

The district court also found litigation misconduct, first in giving knowing false deposition testimony (presumably to hide the business misconduct) and false trial testimony. The Federal Circuit agreed with the district court that Merck’s litigation misconduct infects
the entire lawsuit, including the enforceability of the other patents in the suit.

Because the district court did not abuse its discretion in applying the doctrine of unclean hands, the Federal Circuit affirmed.

Inter Partes Review — If We’re Going to Have Them Then It’s All or Nothing

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In SAS Institute Inc. v. Iancu, the Supreme Court held that the when USPTO institutes inter partes review, it must all the grounds in the Petition, and cannot choose to limit its review to only some of the grounds.

The opinion was written by Justice Gorsuch, who if he had his druthers in Oils States (issued the same day) would have thrown out inter partes review altogether.  SAS petitioned for review of ComplementSoft’s software patent, but the USPTO, relying upon 37 CFR §42.108(a) only instituted inter partes review as to some of the challenged claims.  SAS unsuccessfully argued before the Federal Circuit that 35 USC §318(a), required the Board to decide the patentability of every claim.

Justice Gorsuch found that 35 USC §318(a) “provides a ready answer.”  He points out that §318(a) directs that if an inter partes review is instituted and not dismissed under this chapter, the Board “shall issue a final written decision with respect to the
patentability of any patent claim challenged by the petitioner. . ..”  He said “[t]his directive is both mandatory and comprehensive.”  After a brief analysis of the grammar, he concludes:

when §318(a) says the Board’s final written decision “shall” resolve the patentability of “any patent claim challenged by the petitioner,” it means the Board must address every claim the petitioner has challenged.

Judge Gorsuch said it would seem to be an easy case,

Where a statute’s language carries a plain meaning, the duty of an administrative agency is to follow its commands as written, not to supplant those commands with others it may prefer.

The USPTO Director’s argued that while every claim instituted must be decided, not every claim has to be instituted.  However, Justice Gorsuch dismissed this  because “partial institution” power appears nowhere in the text of §318, or anywhere else in the statute, and what can be found in the statutory text and context strongly counsels against the Director’s argument.

Justice Gorsuch examined the statutory scheme for inter partes review, noting that it it a petitioner-driven process, not a PTO drive process.  Moreover while the Director is given discretion whether to institute, nothing suggests the Director enjoys a license to depart from the petition and institute a different inter partes review of his own design.  While §314 gives the Director discretion to institute if there is a reasonable likelihood the petitioner will prevail on at least one of the claims challenged in the petition, Judge Gorsuch explained that rather than contemplate claim-by-claim institution, this language anticipates a regime where a reasonable prospect of success on a single claim justifies review of all.

Justice Gorsuch also pointed that that §318’s requirement that the Final Written Decision address “any patent claim challenged by the petitioner.” and rejected that any grammatical discrepancy between §314’s reference to claims found in the petition, and §318’s reference to claims challenged by the petitioner, makes any difference.

Justice Gorsuch also rejected the Director’s argument for efficiency, finding each side offers plausible reasons why its approach might make for the more efficient policy, but ultimately pointing out that policy arguments are properly addressed to Congress, not the Supreme Court.

Justice Gorsuch also rejected the Director’s argument for Chevron deference, which if still valid, only applies where the Court is unable to discern’s the Congress’ meaning.  Justice Gorsuch had no uncertainty about the statutes’ “unmistakable commands.”

The final issue raised by the Director was whether partial institution was even reviewable, given the unappealability of institution decisions.  He pointed out that after Cuozzo, if a party believes the Patent Office has engaged in “shenanigans” by exceeding its statutory bounds, judicial review remains available consistent with the Administrative Procedure Act, which directs courts to set aside agency action “not in
accordance with law” or “in excess of statutory jurisdiction, authority, or limitations.”  Justice Gorsuch said that was precisely the sort of question before the court.

Because everything in the statute before it confirmed that SAS is entitled to a final written decision addressing all of the claims it has challenged, and nothing suggested the Court lacks the power to do so, the Supreme Court reversed the judgment of the Federal Circuit, and remanded the case for further proceedings consistent with this opinion.

Overall a banner day for the Federal Circuit — its a rare day that they bat .500 at 1 First St NE.

 

What the PTO Giveth, the PTO Can Taketh Away. IPRs are Constitutional. Get Back to Work.

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The Supreme Court has finally issued its opinion in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, holding that inter partes review does not violate the Constitution.  The majority opinion written by Justice Thomas states that reconsideration of the Government’s decision to grant a public franchise “falls squarely within the public rights doctrine, and Congress has “permissably reserved the the PTO’s authority to conduct that reconsideration,” and thus the PTO can do so without violating Article III of the Constitution.

The Opinion goes on to explain that the courts have long recognized that the grant of a patent is a matter involving public rights.  The Opinion notes that the determination of patentability is exercising an executive function, and need not be adjudicated in an Article III Court, and because inter partes review involves the same basic matter as the grant of a patent, it too falls on the public-rights side of the line.

Justice Thomas points out that the only difference between Inter partes review and the initial grant of a patent is that Inter partes review occurs after the issuance, but said that distinction doe snot make a difference.

On the issue of whether patents are private property, Justice Thomas agrees that they are, and are entitled to the same protection as any other property right that consists of a franchise.  Adding that as a franchise the patent can confer only the rights that the statute prescribes, and that statute provides for inter partes review.

Justice Thomas went on to dismiss the arguments based upon the historic role of courts in deciding patent matters, citing non-judicial validity determination by the the privy Council under English Law.  He also dismissed cases that appear to suggest that courts were the only authority to set a patent aside, noting that under the statutes at the time, this were true statements, but they do not address Congress’ authority to establish a different scheme.

Justice Thomas rejected the the argument that inter partes review was a judicial proceeding exercising judicial authority, noting that the Court has never adopted a “looks like” test, and stating that the fact that an agency uses court-like procedures does not necessarily mean that it is exercising judicial power.

Justice Thomas was careful to emphasize the narrowness of the holding.  He pointed out that Oil States did not challenge the retroactive application of inter partes review, nor did it raise a due process challenge. Finally, Justice Thomas cautioned that the decision should not be misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause.

In closing, Justice Thomas noted that the disposition of the Article III issue, disposed of the Seventh Amendment issue, and concluded that because inter partes review does not violate Article III or the Seventh Amendment, the judgment of the Court of Appeals was confirmed.

Justice Gorsuch penned an interesting dissent joined by Chief Justice Roberts, but in the end what matters is inter partes reviews don’t violate Article III. So get back to work.

 

 

 

 

 

 

authority, and need not be , and further taht teh grant is a

Neither Express Agreement, nor Implied Agreement, Clearly Deprived a Putative Inventor of Standing to Challenge Inventorship of a Patent Under 35 USC 256

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In James v. J2 Cloud Services LLC, [2017-1506] (April 20, 2018), the Federal Circuit reversed the dismissal of James’ claim for correction of inventorship for lack of jurisdiction.

James alleged that he is the sole inventor of the subject matter claimed in U.S. Patent
6,208,638, on systems and methods for accepting an incoming message
over a circuit switched network and transmitting it over a packet switched network, which names Rieley and Muller as the inventors.  On defendant’s motion the district court dismissed the complaint for lack of Article III standing, concluding that James failed to allege facts sufficient to show that he has an ownership or financial interest in the patent.

To have Article III standing, a plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.  The Federal Circuit said that if Mr. James were to prevail on his allegations he would stand to gain concretely, whether through securing an entitlement to seek damages for past acts of infringement or otherwise.
Such a gain would be directly related to the merits of the claim and would redress the asserted injury of being deprived of allegedly rightful ownership.  The Federal Circuit said that in the absence of other facts, that is enough to give James Article III standing.

However, the district court found that James assigned away, or entered into an enforceable agreement to assign away, any ownership rights he may have had in
the patent.  However, the Federal Circuit concluded that he did not.  The Federal Circuit could not conclude that the Software Development Agreement precludes James from
retaining ownership rights in patents on his inventions, finding it “amenable to the construction that it does not assign, or promise to assign, patent rights that would
otherwise accrue to Mr. James as an inventor.”  The Federal Circuit reviewed the sections addressed by the district court or argued by the parties, and when considered in the light favorable to James, as they must be on a motion to dismiss, do not deprive James of constitution standing.

The Federal Circuit the addressed the the “hired to invent” doctrine of United States v. Dubilier Condenser Corp., 289 U.S. 178, 187 (1933), and Standard Parts Co. v. Peck, 264 U.S. 52, 59–60 (1924), under which an employer may “claim an employee’s inventive work where the employer specifically hires or directs the employee to exercise inventive faculties.”  The “hired-to-invent” rule is “firmly grounded in the principles of contract law,” and “[t]o apply this contract principle, a court must examine the employment relationship at the time of the inventive work to determine if the parties entered an implied-in-fact contract to assign patent rights.”  Whether the doctrine is viewed as a matter of federal law or a matter of the state law of implied-in-fact contracts, its applicability in a given case depends on the terms of the contractual relationship of the parties.  The Federal Circuit noted what it found an important distinction: the agreement was not with James personally, but with GSP.  Thus James was not himself an “employee” of, or personally hired by, defendant’s predecessor in interest.  Moreover, because the Software Development Agreement largely or even wholly defines the terms of the alleged “hiring” of James (actually of GSP),there is at least a factual dispute about any implied assignment or promise to assign.  Accordingly, the Federal Circuit found that it was improper to dismiss the case under Rule 12(b)(1) for lack of standing based on the hired-to-invent principle.

Counting Votes is a Abstract Idea, and Simply Automating the Process Doesn’t Make it Patentable

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In Voter-Verified, Inc., v. Election Systems & Software LLC, [2017-1930] (April 20, 2018), the Federal Circuit affirmed the district court’s determination that claims of
U.S. Reissue Patent RE 40,449 were directed to patent-ineligible subject matter and are thus invalid under 35 U.S.C. § 101.

The Reissue patent in suit was directed to voting methods and systems that provide for
“auto-verification” of a voter’s ballot.  The parties have previously litigated the validity and infringement of the patent prior to Alice v. CLS Bank, and thus a threshhold issue was whether Alice was a “substantial change” in the law such that issue preclusion does not apply.  The Federal Circuit held that Alice was not a substantial change in the law (noting that it was a mere application of Mayo), but nonetheless concluded that issue preclusion did not apply because §101 invalidity was never “actually litigated” — and in fact was “barely considered,” and in any event the issue of invalidity under §101 was not necessary to the judgment in the first district court action.

Have decided that consideration of §101 was not barred, the Federal Circuit turned to whether the claims of RE 40,449 did in fact claim patentable subject matter.  Election Systems argued that the claims are directed to the abstract idea of “voting and checking
the accuracy of a paper election ballot,” which represents only a well-established human activity. Because the patent only discloses use of general purpose computers, and the invention is essentially automating a fundamental human activity, Election Systems argued that this was insufficient to transform the the claimed abstract idea into
patent-eligible subject matter.

The Federal Circuit agreed that the claims were directed to patent ineligible subject matter.  Even though the claims encompassed both methods and systems, the Federal Circuit found no distinction between them for § 101 purposes, as “they simply recite the same concept.”  The Federal Circuit said that the claims as a whole are drawn to the concept of voting, verifying the vote, and submitting the vote for tabulation, and noted that humans have performed this fundamental activity that forms the basis of our democracy for hundreds of years.  The Federal Circuit concluded that these steps were therefore nothing more than abstract ideas.  The Federal Circuit further found that there was no inventive concept in the claims sufficient to transform them into patent-eligible subject matter. Neither party disputed that the claims recite the use of general purpose computers that carry out the abstract idea, and the case law has consistently held that
use of standard components are not sufficient to transform abstract claims into patent-eligible subject matter.

 

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While §315(b) Determinations are Appealable, in the Case the Board Got it Right

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In Wi-Fi One, LLC v. Broadcom Corporation, [2015-1944] (April 20. 2016), the Court of Appeal for the Federal Circuit, after deciding en banc that the PTAB’s decisions relating to §315(b) time-bars were appealable, affirmed the PTAB’s  determination that the petitioner in three related IPR’s were not time-barred.

The Federal Circuit said that a review of the Board’s decisions, in the context of the arguments Wi-Fi made at each stage, show that the Board did not apply a legally erroneous standard in deciding the “real party in interest, or privy” issue.  The Board correctly found that petitioner Broadcom was not in privity with the parties in the prior litigation.

The Federal Circuit also affirmed the Board’s denial of additional discovery on the issue of privity, noting that the Board explored the discovery issue in detail and applied the proper legal test for finding privity or real party in interest status under section 315(b).  Under these circumstances, the Federal Circuit declined to hold that the Board abused its discretion when it concluded that additional discovery was not warranted in this case.  Finally, the Federal Circuit rejected the patent owner’s contention that the Board did not adequately explain its rulings on the §315(b) issue, noting the Board’s multiple and detailed discussions of the section 315(b) issue, the Federal Circuit said that the “Board cannot fairly be accused of not providing an adequate explanation for its decision on that question.”

 

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There is no Transitive Property of Priority Claims; a Patent Must Contain a Specific Reference to Each Prior-Filed Application

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In Droplets, Inc., v. E*Trade Bank, [2016-2504, 2016-2602] (April 19, 2018), the Federal Circuit affirmed the Board’s decision finding all claims of U.S. Patent No.
8,402,115 invalid as obvious over a published grandparent application due to an improper priority claim.

This application claimed priority to it’s immediate parent application, and to its ultimate  great grand parent application, but failed to mention a priority claim between the parent application the grand parent application, or between the grand parent application and the great grand parent application:

One might think that if B claims priority to A, C claims priority to B, and D claims priority to C, that this is sufficient for D to get credit for the filing date of A. D After all should D be entitled to priority of C, C should get the priority of B and B should get the priority of A.  However, that is not how the Federal Circuit interpreted Sections 119 and 120 in this case, nor how it has interpreted these statutes in the past.

The Federal Circuit noted that consistent with 35 U.S.C. § 120 and 37 C.F.R. § 1.78,
MPEP § 201.11 III.C. provides detailed guidance on how to claim priority from multiple prior-filed applications. It states that the reference to the prior applications must identify
all of the prior applications and indicate the relationship (i.e., continuation, divisional, or continuation-in-part) between each nonprovisional application in order to establish copendency throughout the entire chain of prior applications.

The Federal Circuit rejected Droplets’ characterization of the issue as “hypertechnical.”  The Federal Circuit also rejected Droplets’ more creative argument that the priority claim was incorporated by reference from the application whose priority was properly claimed, finding §120’s “specific reference” requirement does not contemplate incorporation by reference.

The Federal Circuit reiterated that a patent must contain a specific reference to each prior-filed application to be entitled to those applications’ earlier filing dates, and added that incorporation by reference cannot satisfy this statutorily mandated specific reference requirement. Because the patent at issued contained only a reference to its immediate parent, and not its grand parent, or great grand parent, the Federal Circuit affirmed the Board’s decision finding all claims of the patent invalid as obvious.

Reexamined Claims were Sufficiently Different that Equitable Estoppel Did Not Apply

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in John Bean Technologies Corp. v. Morris & Associates, Inc., [2017-1502] (April 19, 2018), the Federal Circuit reversed the district court’s grant of summary judgment based on its finding of equitable estoppel, and remanded for proceedings consistent with this opinion.

In 2002, Morris wrote Bean that its recently issued U.S. Patent 6,397,622 was invalid over certain prior art, and demanding cessation of statements regarding infringement of the patent to Morris’ customers.  Eleven years later, Bean filed a request for ex parte reexamination, which after amending the existing claims to overcome the art identified by Morris, and adding new claims, issued in 2014.

Bean sued Morris on the reexamined U.S. Patent 6,397,622, and the district court granted Morris summary judgment based upon equitable estoppel.  Equitable estoppel which is an absolute bar to a patentee’s infringement action, consists of three elements: (1) the patentee engages in misleading conduct that leads the accused infringer to reasonably infer that the patentee does not intend to assert its patent against the accused infringer; (2) the accused infringer relies on that conduct; and (3) as a result of that reliance, the accused infringer would be materially prejudiced if the patentee is allowed to proceed with its infringement action.

The Federal Circuit noted the unusual nature of the case — namely that the finding of equitable estoppel was based on conduct before the issuance of the rights being asserted — the reexamination claims.  However relying upon the principles undergirding
the issuance of reexamination claims, i.e. that (1) reissue claims cannot be broader than the original claims; and (2) a patentee cannot assert reexamination claims to obtain damages prior to the issuance date of the reexamination certificate (unless they are identical in scope).  The Federal Circuit found that the amendments made during reexamination were both substantial and substantive. The Federal Circuit concluded that because the asserted claims did not exist at, or were substantively altered since, the time Morris wrote to Bean, Bean could not have engaged in misleading conduct or silence with respect to those claims.

The Federal Circuit allowed that there may be cases where the reexamined
claims contain fewer amendments such that the reexamined claims do not differ in
scope from the original claims, and might be considered identical for purposes of applying equitable estoppel, but found that is not the situation in the present case, and thus the district court abused its discretion in applying equitable estoppel to bar Bean’s infringement action.

It Costs $440,000 to Dismiss a Case for Lack of Standing, but Plaintiff Had to Pay it

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In Raniere v. Microsoft Corp., [2017-1400, 2017-1401] (April 18, 2018), the Federal Circuit held that the district court did not err in finding that Microsoft and AT&T were the prevailing parties under 35 U.S.C. § 285  (2012), and did not abuse its discretion in awarding attorneys’ fees and costs.

Raniere sued for infringement of a total of five patents (U.S. Patent Nos. 6,373,936, 6,819,752, 7,215,752, 7,391,856, and 7,844,041), and Microsoft and AT&T challenged Raniere’s standing.  Rainiere and the other inventors assigned the underlying inventions to Global Technologies, Inc.  In May 1996, GTI was administratively dissolved.  In December 2014, Raniere executed a document on behalf of GTI, claiming to be its president and “sole owner,” that purportedly transferred the asserted patents from GTI to himself.

Microsoft challenged Raniere’s standing, and the district court ordered Raniere to produce documentation proving his representations. The district court found that the documents produced by Raniere failed to indicate that Raniere had an ownership interest in GTI at any time or that Raniere had the right to assign the patents at issue from GTI to himself.  Given Raniere’s failure to produce evidence to support his standing, the district court permitted Appellees to conduct limited discovery into the standing issue and stayed the cases pending its resolution.  The parties suspended discovery when they began negotiating terms of settlement, but Raniere refused
to finalize the settlement. AT&T then filed a motion for an order to show cause why the action should not be dismissed under Federal Rule of Civil Procedure 41(b) for
lack of standing.

The district court found that Raniere’s testimony surrounding the alleged transfer contradicted Raniere’s earlier representations and was “wholly incredible and untruthful. Moreover, the district court found that Raniere’s conduct demonstrated “a clear
history of delay and contumacious conduct.”  In a subsequent fees motion the district court award fees.  AT&T submitted evidence that it incurred $395,050.30 in attorney fees and $13,917.10 in costs, and Microsoft submitted evidence that it incurred
$176,166.40 in attorney fees and $2,073.68 in costs.  The district court found Appellees were not entitled to fees spent on certain matters after the district court issued its stay order. And, the district court reduced the lodestar for both Appellees by twenty percent due to duplication of efforts between Microsoft and AT&T attorneys. In view of these determinations, the district court awarded $300,295.71 to AT&T and $143,719.26 to Microsoft in attorney fees and costs.

The Federal Circuit agreed that the Appellees were the prevailing parties, and that the district court did not abuse its discretion finding the case exceptional and awarding fees. The Federal Circuit, noting that the district court was in a better position to determine whether a case is exceptional, had no reason to disturb the district court’s well-reasoned determination.  The Federal Circuit also concluded that the district court’s discretionary determination of fees and costs is well-supported and reflects the court’s careful consideration of the relevant billing rates, invoices, and records.

 

Lack of Corroboration Caused Claim of Prior Invention to Fail

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In Apto Miitors APS v. Kamstrup, [2017-1681] (April 17, 2018) the Federal Circuit affirmed the Board’s determination that U.S. Patent No. 8,893,559 was anticipated by Nielsen, U.S. Patent App. Pub. No. 2012/0006127, finding substantial evidence supported the Board’s finding that Apator failed to sufficiently corroborate the
inventor testimony of earlier conception.

An inventor can swear behind a reference by proving he conceived his invention before the effective filing date of the reference and was diligent in reducing his invention to practice after that date.  However, that when a party seeks to prove conception
through an inventor’s testimony the party must proffer evidence corroborating the inventor’s testimony.  The sufficiency of the proffered corroboration is determined
by a “rule of reason” analysis in which all pertinent evidence is examined, but even under the rule of reason analysis, the evidence of corroboration must not depend solely on the inventor himself.

The evidence of prior conception included emails sent by the inventor transmitting drawings and presentations, but the only identification of the attachments was by the inventor.  The Federal Circuit noted the catch-22 of corroboration: Apator attempts to corroborate the inventor’s testimony with the emails and the drawings, but the emails and drawings can only provide that corroboration with help from the inventor’s
testimony.

The Federal Circuit concluded that a reasonable mind could conclude that Apator
failed to proffer evidence corroborating the inventor’s testimony regarding conception, and accordingly held that substantial evidence supports the Board’s finding
that Apator has not established prior conception.