The Board can Rely on a Party’s Arguments in an IPR, as Long as it Explains Why

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In Outdry Technologies Corp. v. Geox S.P.A., [2016-1769] (June 16, 2017), the Federal Circuit affirmed the Board’s determination that claims 1–15 of U.S. Patent No. 6,855,171 would have been obvious over a combination of prior art.

The ‘171 patents claims methods of waterproofing leather, particularly for the manufacture of shoes, clothes, or leather accessories by lining the interior surface of the leather with a semipermeable membrane.  The Board found that one reference showed all of the elements of the claimed method except for the size and density of the adhesive dots, and that the other references taught the size and density of the adhesive dots.

The Federal Circuit agreed with the Board’s construction of “directly pressing” as to mean “applying pressure without any intervening
materials or layers other than the recited adhesive.”  The Federal Circuit also discounted the “process for waterproofing leather” language of the claim, because it was in the preamble and was “simply a statement of intended use, not a separate claim limitation.”

The Federal Circuit rejected the patent owner’s argument that the Board failed to provide adequate motivation to combine the references.  After reviewing cases (Rovalma, Van Os, Arendi, Cutsforth, NuVasive, and Icon Health) where the Board did fail to provide adequate motivation, the Federal Circuit found that the Boards decision did not suffer from similar deficiencies.  The Federal Circuit said that the Board clearly articulated Petitioner’s arguments for why a person of ordinary skill in the art would have been motivated to modify the process of adhering dots to create waterproof and breathable leather with the secondary references disclosed glue patterns.  The Federal Circuit concluded that the Board engaged in reasoned decision making and sufficiently articulated its analysis in its opinion to permit review.

The Federal Circuit found that the Board’s reliance on petitioner’s arguments did not undermine its otherwise adequate explanation for finding a motivation to combine. The Federal Circuit noted that the Board did not reject the patent owner’s positions without clarity as to why it found petitioner’s arguments persuasive. It did not merely incorporate petitioner’s petition by reference, leaving uncertainty as to which positions the Board was adopting as its own. Nor was it other unclear what evidence the Board may or may not have relied
on to find a motivation to combine. The Federal Circuit said that the Board is “permitted to credit a party’s argument as part of its reasoned explanation of its factual findings”; it simply must “explain why it accepts the prevailing argument.”

 

Providing a Service Alone is not Contributory Infringement

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In the Cleveland Clinic Foundation v. True Health Diagnostics LLC, [2016-1766](June 16, 2017), the Federal Circuit affirmed that the asserted claims of U.S. Patent Nos. 7,223,552, 7,459,286, and 8,349,581 are not directed to patent-eligible subject matter, and that Cleveland Clinic failed to state a claim of contributory or induced infringement of U.S. Patent No. 9,170,260.

The patents were all directed to methods for detecting the risk of cardiovascular disease in a patient.  The district court next found the three testing patents patent ineligible under the two-step framework for analyzing patent subject matter eligibility under §101 articulated in Alice.  More specifically, the district court found that the testing patents’ claims were directed to a law of nature under Alice step one because the claims were directed to the correlation between MPO in the blood and the risk of cardiovascular disease.  Under Alice step two, the district court found there was no saving inventive concept, employing well-known methods to detect MPO, comparing MPO levels with a control value in what could be a bare mental process, and ultimately, instructing a user to apply a natural law.

The district court further found that True Health’s testing service was not a “material or apparatus” that could form the basis for a contributory infringement claim.  The district court further found that the Cleveland Clinic did not allege facts sufficient to show the specific intent to induce third parties to infringe.

The Federal Circuit affirmed the propriety of deciding §101 rejections at the motion to dismiss stage, before claim construction or significant
discovery has commenced.  On the merits, the Federal Circuit agreed that the claims of the testing patents were directed to multistep methods for observing the law of nature that MPO correlates to cardiovascular disease.  Because this relationship exists in principle apart from human action, the claims are directed to a patent ineligible law of nature.  The Federal Circuit found the case similar to Ariosa.  At step two of the Alice inquiry, the Federal Circuit agreed that the practice of the method claims
does not result in an inventive concept that transforms the natural phenomena of MPO being associated with cardiovascular risk into a patentable invention.

On the issue of contributory infringement, the Federal Circuit said that a party that provides a service, but no “material or apparatus,” cannot be liable for contributory infringement.  Because the defendant was merely providing testing services, the Federal Circuit agreed that the claim should be dismissed.  On the issue of inducement, the Federal Circuit observed that the mere knowledge of possible infringement by others does not amount to inducement; and that specific intent and action to induce infringement must be proven. The Federal Circuit found that merely providing test reports to physicians falls short of showing the specific intent and action to induce infringement of the ’260 patent.

 

General Statements in Petition and Institution Decision Did Not Give Patent Owner Fair Notice of the Grounds of Invalidity in the Final Written Decision

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In Emerachem Holdings, LLC v. Volkswagen Group of America, Inc., [2016-1984] (June 15, 2017), the Federal Circuit affirmed the Board’s decision that claims 1–2, 4–14, and 17–19 of U.S. Patent No. 5,599,758 were obvious, and vacated and remand as to claims 3, 16, and 20.

The ‘558 patent claims methods for regenerating a catalyst/absorber that has absorbed and oxidized nitrates and nitrites from the combustion gases of an engine.  The regeneration can be carried out in situ, without
removing and replacing the catalyst with a fresh, unreacted one.

The patent owner attempted to remove a reference under 102(e), with the declaration of the inventor, but the Board found the evidence insufficient.  The Federal Circuit agreed, noting that corroboration is always required of an inventor’s testimony about invention, although the level of corroboration depends upon the circumstances.

The patent owner was more successful in its argument under the APA that it was denied adequate Notice and Opportunity to Respond. Petitioner’s provided detailed claim charts, but only cited to a single reference for dependent claims 3, 16, and 20, and the Board’s institution decision only cited the same one reference as to these claims.  However the final written decision relied upon a different reference.

The Federal Circuit stated that in a formal adjudication, like an IPR, the APA imposes particular procedural requirements on the USPTO.  In particular, the agency must timely inform the patent owner of the matters of fact and law asserted, and give all interested parties the opportunity to submit and consider facts and arguments, and allow a party “to
submit rebuttal evidence as may be required for a full and true disclosure of the facts. 5 U.S.C. §§ 554(b)–(c), 556(d).

The Federal Circuit found that the Board denied patent owner its procedural rights guaranteed by the APA by relying on a new reference for its disclosure of limitations in dependent claims 3, 16, and 20.  The Federal Circuit rejected petitioner’s arguments that the patent owner had adequate notice of the reference from general comments about obviousness in the Petition.  The Federal Circuit also rejected petitioner’s arguments that the patent owner had adequate notice from general statements in the Institution Decision.  The Federal Circuit said that given the specificity with which the petition’s claim chart and the Institution Decision’s list of claims expressly identified particular references’ disclosures for some claims and not for others, it cannot be the case that the general statements relied upon provided sufficient notice that Stiles could be applied to all claims.

The Federal Circuit distinguished Cuozzo, because the institution decision gave the patentee notice of the prior art combination that
the final decision relied upon, even though the petition did not. In the current case, neither the petition nor the Institution Decision put the patentee on notice of the reference that would be used to reject claims 3, 16, and 20.  The Federal Circuit also distinguished Genzyme because  the patent owner had the opportunity to address the relied upon by the Board.

The Federal Circuit explained that it was not holding that the Board is constricted in its final written decision to citing only the portions of a reference cited in its Institution Decision — “word-for-word parity between the institution and final written decisions” is not required.  The questions was not whether the Board cited a different passage of a reference than what it specifically cited in the Institution Decision, rather the question was whether the Board provided adequate notice and opportunity to respond to the reference being used to reject claims 3, 16, and 20, given the specificity with which the Board itemized the
challenged claims with specific grounds for rejection in the Institution Decision. On this question, the Federal Circuit said that the Board did not.

Estoppel in CBMR is Both Reviewable and Determined on a Claim by Claim Basis

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In Credit Acceptance Corp. v. Westlake Services, [2016-2001](June 9, 2017), the Federal Circuit affirmed the PTAB decision that Westlake was not estopped to bring a CBMR challenge to U.S. Patent No. 6,950,807, and that the challenged claims of this patent were invalid under  35 U.S.C. § 101.

On the estoppel issue Westlake petitioned for CBMR review of all of the claims fo the ‘807, but the Board instituted only as to some of the claims,.  Westlake filed a second CBMR, and Credit Acceptance argued that Westlake was estopped to petition for a second review.  However, since the first CBMR had not yet resulted in a Final Written Decision, the Board found the estoppel argument premature.  After the Final Written Decision in the first CBMR, Credit Acceptance renewed its effort to terminate the second proceeding on estoppel grounds, but the Board decided that estoppel is applied on a claim by claim business, and thus the first proceeding did not impact the second proceeding.

At the outset, the Federal Circuit rejected Westlake’s and the USPTO’s position that the decision on estoppel was akin to a institution decision that is not reviewable.  After finding the estoppel provision was reviewable, the Federal Circuit went on to agree with the Board, that estoppel is determined in on a claim by claim basis.

As to the merits of the CBMR, The Federal Circuit noted that Board determined that the claims are directed to the abstract idea of “processing an application for financing a purchase,” and agreed.  The Federal Circuit said that each of the claims is directed to the abstract idea of processing an application for financing a purchase. The Court saw no meaningful distinction between this type of financial industry practice and “the concept of intermediated settlement” held to be abstract in Alice, or the “basic concept of hedging” held to be abstract in Bilski.

A Cease and Desist Letter Alone Does not Establish Personal Jurisdiction

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In New World International, Inc. v. Ford Global Technologies, LLC, [2016-2097](June 8, 2017), the Federal Circuit affirmed the dismissal of New World’s declaratory judgment complaint for lack of personal jurisdiction over Ford Global Technologies (FGTL).

FGTL sent New World a cease and desist letter accusing New World of infringing its design patents by selling various parts meant for use on Ford vehicles.  New World filed suit in the Northern District of Texas seeking a declaratory judgment of noninfringement and invalidity with regard to the design patents.  The district court found that FGTL’s cease and desist letters sent to New World in Texas were not sufficient to establish jurisdiction over FGTL. The court further found that FGTL’s license agreement with third party LKQ did not provide the court with specific personal jurisdiction over FGTL in the declaratory judgment suit, and the court accordingly dismissed the complaint.

The Federal Circuit applied its three part test, which considers: (1) whether the defendant purposefully directed its activities at residents of the forum; (2) whether the claim arises out of or relates to the defendant’s activities with the forum; and (3) whether assertion of personal jurisdiction is reasonable and fair.  The Federal Circuit has acknowledged that the defendant purposefully directs his activities at residents of the forum when the defendant sends a cease and desist letter to a potential plaintiff in that particular forum. And a subsequent declaratory judgment action by that potential plaintiff arises out of or relates to the defendant’s activity—namely, the cease and desist letter. However, under the third part of the test, however,
this court has held that it is improper to predicate personal jurisdiction on the act of sending ordinary cease and desist letters into a forum, without more.

The Federal Circuit noted that while the act of sending cease and desist letters is insufficient by itself to trigger a finding of personal jurisdiction, other activities by the defendant, in conjunction with cease and desist letters, may be sufficient. However, the Federal Circuit found no other activities of FGTL sufficient to establish jurisdiction.

“Means” Does Not Always Mean “Means Plus Function”

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In Skky, Inc. v. Mindgeek, S.A.R.L., [2016-2018] (June 7, 2017), the Federal Circuit affirmed the PTAB decision in IPR2014-01236 that all of the challenged claims in  U.S. Patent 7,548,875 were invalid for obviousness.

The ‘875 patent relates to a method of delivering audio and/or visual files to a wireless device.  The prosecution lasted almost seven years, and the claims were only allowed after they were amended to recite a “wireless device means.”  The Board determined that “wireless device means” was not a means plus function element, but even if it was it did not require a device with multiple processors.

The Federal Circuit said that in determining whether a claim term invokes § 112 ¶ 6, the essential inquiry is not merely the presence or absence of the word “means” but whether the words of the claim are understood by persons of ordinary skill in the art to have a sufficiently definite meaning as the name for structure.  It is sufficient if the claim term is used in common parlance or by persons of skill in the pertinent art to designate structure, even if the term covers a broad class of structures and even if the term identifies the structures by their function.

The Federal Circuit agreed that We agree with MindGeek that “wireless device means” does not invoke § 112 ¶ 6 because it recites sufficient structure.  Although the term uses the word “means” and so triggers a presumption, the full term recites structure, not functionality. The claims do not recite a function or functions for the wireless device means to perform, and “wireless device” is “used in common parlance . . . to designate structure. The Federal Circuit further found that “wireless device means” did not require multiple processors, noting that at least one disclosed embodiment was exclusively software, and thus it would be improper to construe  “wireless device means” to require multiple processors.

The Federal Circuit found that substantial evidence supported the Board’s claim construction, and its resulting finding of obviousness.

 

Motivation to Enforce Patent Rights Does Not Make Case Exceptional

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Checkpoint Systems, Inc. v, All-Tag Security S.A., [2016-1397] (June 5, 2017), the Federal Circuit reversed the award of attorneys fees.

Checkpoint sued under U.S. Patent No. 4,876,555 relates to improved anti-theft tags that are attached to merchandise.  After a jury trial, the patent was found not infringed, invalid, and unenforceable, and the court found the case to be “exceptional” because   Checkpoint’s expert witness based his infringement opinion on examination of imported tags that were manufactured by All–Tag in Switzerland, although the
accused tags were manufactured by All–Tag in Belgium.  The Federal Circuit reversed the attorney fee award because there was evidence that the Swiss products were made on the same machines and the Belgian products.  Certiorari was granted, and the case was remanded for further proceedings consistent with Octane Fitness and Highmark.  The district court agreed that Checkpoint’s claims were not frivolous, but nonetheless found the case to be exceptional, explaining: frivolousness is not required to find exceptionality under Section 285.  The district court’s determination was based upon three findings: (1) Checkpoint’s motivation in bringing the lawsuit, (2) inadequate pre-suit investigation, and (3) the failure of Checkpoint’s expert to inspect the correct accused product.

As the Checkpoints motivation, the Federal Circuit said that enforcement of the statutory right to exclude is not an “exceptional case” under §285.  While the Federal Circuit agreed that “motivation” to harass or burden an opponent may be relevant to an “exceptional
case” finding, “motivation to implement the statutory patent right by bringing suit based on a reasonable belief in infringement is not an
improper motive.”  The Federal Circuit found no evidence of harassment or abuse, and noted that Checkpoint’s claim survived summary judgment and a Daubert hearing.

The district court also found the expert’s failure to test an accused product supported the exceptional case finding and fee award.  The Federal Circuit noted that there no representation by All–Tag that the accused products were different from the tested products, and the district court did not so find.  Thus the failure to test the accused products did  not support an exceptional case ruling.

Denial of Attorneys’ Fees Reversed because District Court Conflated Rule and 35 USC 285

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In Rothschild Connected Devices  Innovations, LLC v. Guardian Protection Services, Inc., [2016-2521] (June 5, 2017), the Federal Circuit reversed and remanded the determination that Appellee Rothschild Connected Devices Innovations, LLC had not engaged in conduct sufficient to make the litigation “exceptional.”

Rothschild’s sued ADS, alleging that ADS’s home security system infringes U.S. Patent No. 8,788,090.  ADS responded that the ’090 patent covers patent ineligible subject matter under 35 U.S.C. § 101, and that prior art anticipates claim 1 of the ’090 patent, an offered to settle if Rothschild paid ADS its attorneys fees and costs of $43,330.  When Rothschild rejected the offer, ADS next filed a motion for judgment on the pleadings, and sent Rothschild a “Safe Harbor Notice” pursuant to Federal Rule of Civil Procedure 11(c)(2).  In response, Rothschild voluntarily moved to dismiss its action, and ADS opposed the motion and filed a cross-motion for attorneys fees pursuant to § 285.

The District Court granted Rothschild’s Motion to Dismiss and denied ADS’s Cross-Motion for attorneys’ fees, finding that Rothschild did
not engage in conduct sufficient to make the action “exceptional”
under § 285, noting that Rothschild’s decision to voluntarily withdraw its
complaint within the safe harbor period is the type of reasonable conduct Rule 11 is designed to encourage.

The Federal Circuit found the denial of attorneys’ fees was an abuse of discretion.  The Federal Circuit found that the district court clearly erred by failing to consider Rothschild’s willful ignorance of the prior art.  The Federal Circuit further found that the district court misjudged Rothschild’s conduct in the other litigation is brought.  Finally the Federal Circuit found that the district court improperly conflated Rule 11 with 35 U.S.C. § 285.

The Federal Circuit remanded the case for further consideration of the attorneys’ fees reward by the district court.

 

Patent Rights are So Anemic, They’re Exhausted on First Sale

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The Supreme Court in Impression Products, Inc. v. Lexmark International, Inc., has once again reversed the Federal Circuit, holding that a sale of a patented product by (or on behalf of) the patent owner, whether in the U.S. or outside the U.S. exhausts the patent owner’s rights, allowing any subsequent purchase to use the patented patented product without infringing the patent.  The Supreme Court allowed that the first purchaser might be bound by contractual restrictions imposed by the patent owner, but said that these restrictions do not apply to subsequent purchasers, in effect allowing the first purchaser to sell more that the first purchaser acquired.

Since its the Supreme Court — the decision must be correct, but the Court did appear to get one thing wrong.  In his opinion, Chief Justice Roberts said “extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit form the extra control that the patentees retain.”  While it may not have made a difference, the Court did not really examine the benefits of post sale restrictions.

In the case before it, post sale restrictions allowed Lexmark to make its products robust enough to be reused without fear that its own recycled products would be used against it.  While there are a number of strategies that Lexmark might employ post Impression Products, one would certainly be to redesign their products so that can only be used once.  This may clog the landfills, but it allows Lexmark to capture the value of its innovation.

Another example of the benefits of post sale restriction is in the pricing patented products for the local market.  A pharmaceutical manufacturer that sells a life saving daily medication for $2 in the U.S., might sell the same medication in a poorer country for less — this maximizes manufacturer’s revenue, and it makes the therapy more available.  However in a world with patent exhaustion, the manufacturer has to consider the effect of the potential reimportation of the drug, and may have to deny access to the therapy at a locally affordable price.

One can imagine a number of similar scenarios where post-sale patent restrictions not only benefit the patent owner, but the public at large.  While it might “clog the channels of commerce” if the patent owner imposed restrictions that were not apparent from the product, it seems a minor burden if the product is prominently labeled with the restrictions, and contrary to the Supreme Court’s assessment, such restrictions can provide more than a “little benefit.”

In the wake of Impression Products, there are certainly strategies that patent owners can follow to avoid the negative effects of exhaustion.  Prominent placement of trademarks on products is one strategy: If Lexmark’s cartridges had an embossed message: “Genuine Lexmark Toner Inside.”  Could a third party refill the cartridges and sell them? It may be possible to avoid the effects of foreign exhaustion through the use of separate entities, although this may require that manufacturing be moved off-shore, so that the U.S. Patent owner imports the products for the U.S. market, but does not otherwise participate in the manufacture and sale.

Congress should consider acting to restrict patent exhaustion, at least in the case of products that are prominently marked, and it should also consider restricting patent exhaustion for foreign sales.  These sales are often made in territories where the U.S. patent holder has no protection, and may even be facing competitive price pressure.  Finding the importation into the U.S. of a product sold abroad is an infringement, is no greater burden on commerce than finding the importation into the U.S. of a third party product is an infringement.  It is already an expectation that moving a product across a border can be an act of infringement.

The Supreme Court’s decision in Impression Products makes it harder for patentees to wring the full value of their innovations from their commercialization.  However, there still are strategies that patentees can take to address the more aggressive application of exhaustion, and Congress should reweigh the burden on commerce versus the benefits of allowing patentees to retain some control over the patented inventions.

 

A Patent Case is Not Final and Appealable Until It’s All Over but the Counting

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In Halo Electronics, Inc. v. Pulse Elecctronics, Inc., [2016-2006](May 26, 2017), the Federal Circuit dismissed Pulse’s appeal from the district court’s decision awarding prejudgment interest because it lacked jurisdiction.

The Federal Circuit said that the Order that Pulse appealed from could not be a final order because the district court never resolved the parties’ dispute regarding the date from which to begin calculating prejudgment
interest or set the amount of prejudgment interest to be awarded to Halo.  As a result, there is no final decision because the district court has not “determine[d], or specif[ied] the means for determining the amount” of prejudgment interest.