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

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

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.

Drafting Broad Claims to Cover a Competitor is for Naught if the Specification Doesn’t Support Them

In Rivera v, ITC, [2016-1841] (May 23, 2017), the Federal Circuit affirmed the ITC’s decision that there was no violation of 19 U.S.C. §1337, because the claims of U.S. Patent No. 8,720,320 were invalid for lack of a written description.

The ‘320 patent relates to single brew coffee machines, which the patent divides into two categories: those configured to receive pods — small, flattened disk-shaped filter packages of beverage extract, and those configured to accommodate larger, cup-shaped beverage filter cartridges.  The ‘320 patent describes the invention as an adapter assembly configured to effect operative compatibility between a single serve beverage brewer and beverage pods.

The Federal Circuit noted that every embodiment in the ’320 patent shows a cup-shaped “receptacle,” adapted to receive a pod.  Although the claims originally filed referenced a pod adapter assembly, after seven years of prosecution none of the claims included any reference to a pod or a pod adapter assembly.  The accused products were adapted to receive loose coffee grounds.

The issue on appeal was whether the “pod adaptor assembly,” “pod,” and “receptacle” disclosures in the patent application as filed, the patent claim element “container . . . adapted to hold brewing material.”  The Commission concluded that the specification did not provide the necessary written description support for the full breadth of the asserted claims, because the specification was entirely focused on a “pod adaptor assembly” or “brewing chamber,” and did not disclose a container that was itself a pod or that contained an integrated filter.

The Federal Circuit noted that both parties analyze the written description issue under the assumption that the asserted claims read on the accused cup-shaped containers. While the parties further agreed that nothing in the ’320 patent explicitly described a pod adaptor assembly with a filter integrated into the cartridge, Rivera argued that the broad definition that pod:

is a broad term and shall have its ordinary meaning and shall include, but not be limited to, a package formed of a water permeable material and containing an amount of
ground coffee or other beverage therein.

in the specification provided adequate support. The Federal Circuit rejected Rivera’s argument, agreeing with the ITC and the intervenor.  The Federal Circuit noted the “underlying concern” of the ‘320 patent was compatibility between pods and cartridges. The Federal Circuit quoted extensively from the specification, noting the distinction between pods and cartridges “permeates the entire patent.”  The Federal Circuit said there was no hint or discussion of a cartridge or pod adaptor assembly or receptacle that also serves as the “pod.”  The Federal Circuit noted that the distinction carries through to every embodiment.  The Federal Circuit concluded that the “broad” definition of a pod
does not change the fact that however broad “pod” is, it must
still be distinct from pod adapter assembly.

The Federal Circuit made of point of stating that the Patent Owner agreed that the claim covered the accused product.  Setting the scope set the question of adequate written description. Otherwise, construing a claim in view of the specification would result in a narrower scope, rather than invalidity. Perhaps the claim could have been saved, but it wouldn’t cover what the patent owner wanted it to.

While the focus of patent scope is rightly on crafting the claims, to get the full scope of the carefully crafted claims, the specification needs to provide a written description and an enable disclosure.




Supreme Courts Reaffirms Fourco, and Limits Where Corporations Can Be Sued for Patent Infringement

In TC Heartland LLC v. Kraft Foods Group Brands LLC, [16–341] (May 22, 2017), the Supreme Court reversed the Federal Circuit and held that for purposes of the patent venue statute (28 U.S.C. 1400(b)), a corporation only resides where it is incorporated.

The Supreme Court looked back to its to its 1957 decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 226 (1957), where it concluded that for purposes of §1400(b) a domestic corporation “resides” only in its State of incorporation.  At the time, the Supreme Court rejected the argument that the broader definition of corporate “residence” in the general venue statute (28 U. S. C. §1391(c)) applied.

The Court noted that §1400(b) has not been amended since Fourco, although §1391(c) has been amended.  While one amendment stated that §1391(c) applies “for all venue purposes,” another amendment qualified “[e]xcept as otherwise provided by law.”  The Supreme Court concluded that the amendments to §1391 did not modify the meaning of §1400(b) as interpreted by Fourco, and held that a domestic corporation “resides” only inits State of incorporation for purposes of the patent venue statute.

This will certainly impact patent litigation in the Eastern District of Texas, because most patent defendants are not incorporated in Texas, and many do not have a “regular and established place of business” there.

This is probably a good thing.  It has been estimated that at much as 40% of patent cases are filed in the Eastern District of Texas, and that is not healthy for the patent system.  It is probably not a good thing for Marshall, Texas, which has enjoyed a patent litigation bonanza for many years.


AIPLA Proposes New 101 to Save the Patent System

The AIPLA has proposed a new Section 101:

35 U.S.C. § 101—Inventions Patentable

(a) Eligible Subject Matter.—Whoever invents or discovers any useful process, machine, manufacture, composition of matter, or any useful improvement thereof, shall be entitled to a patent therefor, subject only to the conditions and requirements set forth in this title.

(b) Sole Exceptions to Subject Matter Eligibility.—A claimed invention is ineligible under subsection (a) only if the claimed invention as a whole exists in nature independent of and prior to any human activity, or can be performed solely in the human mind.

(c) Sole Eligibility Standard.—The eligibility of a claimed invention under subsections (a) and (b) shall be determined without regard to the requirements or conditions of sections 102, 103, and 112 of this title, the manner in which the claimed invention was made or discovered, or whether the claimed invention includes an inventive concept.

This proposed version of 101 would eliminate the “abstract idea” exception created by the Supreme Court, and which the courts have been unwilling (and unable) to properly define, and which has denied protection to inventors or novel and useful computer related inventions.

It is about time that the patent bar solved the patentability problem it created.  Hopefully this proposal or something similar will end the  tyranny that is the Alice v. CLS.

Posted in 101

Function/Way/Result Test Causes Headaches in Chemical Cases; Substitute Insubstantial Differences Test

In Mylan Institutional LLC v. Aurpbindo Pharma Ltd., [2017-1645] (May 19, 2017), the Federal Circuit affirmed the grant of a preliminary injunction against the infringement of U.S. Patent 9,353,050 on a triarylmethane dye used to map lymph nodes.

The district court found that Aurobindo did not raise a substantial question of validity of the ’050 patent based on its arguments that the process patent is invalid: under §112, §102, and §103.  Regarding the §112 challenge, the Federal CIrcuit agreed that “by HPLC” was a
common and well-understood way of designating or determining purity, as seen in “numerous sources,” including other patents and the scientific literature.  Regarding the §103 challenge, the Federal Circuit agreed that it did not raise a substantial question regarding motivation to combine the
references or a reasonable expectation of success. Regarding the §102  challenge, the Federal Circuit agreed that the conflicting evidence did not raise a substantial question as to the patent’s validity.

On the likelihood of success, the Federal Circuit noted the unusual nature of a preliminary injunction issuing in the case of infringement under the doctrine of equivalents.  The Federal Circuit said that the law on the doctrine of equivalents as applied to chemical materials is not clear,
and its misapplication can lead to unsound results.  In particular the Federal Circuit noted that while the function/way/result tset may be suitable for analyzing mechanical devices, it often provides a poor framework for analyzing other products or processes — particular in the chemical arts.

In reviewing the district court’s equivalence analysis, the Federal Circuit found that either the did not address the “way” prong of the function/way/result test, or it did so incorrectly.  While the district court correctly found that manganese dioxide and silver oxide performed the same function, there is room for sufficient doubt as to whether silver oxide and manganese dioxide oxidize isoleuco acid in the same way so as to satisfy the “way” prong of the function/was/result test.

The Federal Circuit explained the headaches that can be caused using the function/way/result test (as opposed to insubstantial differences test) in chemical cases:

consider the well-known compounds aspirin and ibuprofen, which chemists would not usually consider to be structural equivalents under the insubstantial differences test. Chemical compounds are characterized
by their structures, and these two compounds differ substantially in structure (see appendix). However, the two compounds would seem to be substantial equivalents under the FWR test. They each provide analgesia and anti-inflammatory activity (“function”) by inhibiting
prostaglandin synthesis (“way”) in order to alleviate pain, reduce fevers, and lessen inflammation (“result”).

The Federal Circuit observed that a compound may appear to be equivalent under the function/way/result, but not under the substantiality of the differences test, and concluded that the substantial differences test may be more suitable than function/way/result for determining equivalence in the chemical arts.

Thus the Federal Circuit modified the preliminary injunction to eliminate the process patents as the basis for the preliminary injunction, but left the injunction intact as to the ‘050 product patent.  The Federal Circuit found no error in the district court’s courts conclusion that there was no substantial question about the validity of the patent, and agreed with the district court’s finding of irreparable harm.


Failure to Provide an Unconditional Covenant Not to Sue Kept Case and Controversy Alive

In ArcelorMittal v. AK Steel Corp., [2016-1357] (May 16, 2017), the Federal Circuit affirmed the summary judgment invalidating claims 24 and 25 of U.S. Patent No. RE44153.

On appeal, ArcelorMittal argued it never asserted claim 24 and 25, noting that ArcelorMittal never contested defendant’s statements that the validity of claims 24 and 25 was at issue.  The Federal Circuit found this tacit acceptance of Defendants’ representations about the litigation status of claims 24 and 25 reflected ArcelorMittal’s continued attempt to assert those claims.

ArcelorMittal also argued that the dispute became moot when ArcelorMittal conditionally tendered its covenant not to sue to Defendants.  The Federal Circuit said that although a patentee’s grant of a covenant not to sue a potential infringer can sometimes deprive a court of subject matter jurisdiction,the patentee “bears the formidable burden of showing” “that it ‘could not reasonably be expected’ to resume its enforcement efforts against” the covenanted, accused infringer.  The Federal Circuit said that this that requires ArcelorMittal to show that it
actually granted a covenant not to sue to Defendants, and that the covenant enforceably extinguished any real controversy between the parties related to infringement of the RE’153 patent.  The Federal Circuit found that at no time before the court entered summary judgment did ArcelorMittal unconditionally assure Defendants and their customers that it would never assert RE’153 claims 24 and 25 against them.  The Federal Circuit noted that this result was entirely within ArcelorMittal’s control — it could have, but never did delivered an unconditional, executed covenant not to sue.

Turning to the merits of the case, the Federal Circuit found that the district court correctly implemented its mandate by limiting the analysis to noninfringement and commercial success of RE’153 claims 24 and 25.


In Determining Whether a Case “Stands Out,” It was Not Improper to Consider Patent Cases Generally

In Nova Chemicals Corp. (Canada) v. Dow Chemical Co., [2016-1576] (May 11, 2017), the Federal Circuit affirmed the district court’s determination that the case was “exceptional” under 35 USC 285, and the award of $2.5 million in attorneys’ fees.

After a patent infringement trial which resulted in a $61 million award to Dow, in a proceeding for supplemental damages, the patent was found to be invalid for indefiniteness.  After uncovering what it claimed was evidence of fraud on the part of Dow and its counsel, Nova filed an action for relief from the initial judgment. The district court dismissed the action, and Dow sought sanctions and attorneys fees under 35 USC 285.  The district agreed with Dow finding NOVA’s claims for relief “just didn’t stand
up” and were “not even plausible.”

The Federal Circuit found nothing exceptional in the mere fact that NOVA filed a separate action because that was the only option available to challenge the earlier judgment.  However,  the Federal Circuit found that the substantive strength of a NOVA’s position could, and did, independently support an exceptional-case determination.

Nova also argued that it was error to compare the case to all patent cases, pointing out with this baseline an action to set aside a prior judgment would always be exceptional because, by necessity,it would
“stand out” from the traditional patent infringement case.  The Federal Circuit decline to hold that the district court erred in comparing this case to other patent cases more generally.  The Federal Circuit found that any concern regarding the district court’s comparison was tempered by the fact that it did not hold that this case stood out merely because NOVA requested that a prior judgment be set aside.



Patent Owner Statements During an IPR Disclaimed Claim Scope

In Aylus Networks, Inc., v. Apple, [2016-1599] (May 11, 2017), the Federal Circuit affirmed summary judgment of non-infringement of U.S. Patent No. RE 44,412 on systems and methods for implementing digital home networks having a control point located on a wide area network.

Apple argued that it did not practice the claim requirement “wherein the CPP logic is invoked to negotiate media content delivery between the MS and the MR” recited in the two asserted claims 2 and 21.  Apple argued that this language required that only the CPP logic is invoked to negotiate media content delivery between the MS and the MR, and based upon this construction the district court granted summary judgment.

In construing the “wherein the CPP logic is invoked to negotiate media content delivery between the MS and the MR” limitation, the district court relied on statements made by Aylus in its preliminary responses to Apple’s petitions for IPR of the ’412 patent, finding these  statements
“akin to prosecution disclaimer.”  On appeal Aylus argued that statements made during an IPR cannot be relied on to support a finding of prosecution disclaimer, and that even if they can, the statements it made did not constitute a clear and unmistakable disclaimer of claim scope.

The Federal Circuit rejected Aylus’s first argument, holding that statements made by a patent owner during an IPR proceeding can be relied on to support a finding of prosecution disclaimer during claim construction.  After briefly reviewing the disclaimer doctrine, and noting that disclaimer have been applied in post-issuance proceedings before the patent office, such as reissues and reexaminations, the Federal Circuit said that extending the prosecution disclaimer doctrine to IPR proceedings will ensure that claims are not argued one way in order to maintain their patentability and in a different way against accused
infringers.  The Federal Circuit noted that several district courts have already held that statements in an IPR can be considered for prosecution disclaimer.  The Federal Circuit also rejected Aylus argument that statements in a Patent Owner’s Preliminary Response don’t count as a disclaimer because they are made pre-institution.

The Federal Circuit then turned to the question of whether Aylus’s statements in the IPR were sufficiently “clear and unmistakable.”  After examining the statements themselves, and the fact that the statements worked — avoiding IPR for the subject claims — the Federal Circuit agreed with the district court that the statements represent
an unequivocal and unambiguous disavowal, and found no
error in the district court’s claim construction.


Not Necessarily Unfair to Reply on Patent Owner’s Submissions in Obviousness Finding, but Board Failed to Provide Adequate Explanation

In Rovolma, S.A. v. Bohler-Edelstahl GmbH & Co., KG, [2016-2233] (May 11, 2017), the Federal Circuit vacated the Board’s Final Written Decision in IPR2015-00150, finding the Board did not set forth its reasoning in sufficient detail to determine whether the Board’s decision was substantively supported and procedurally proper, and remanded the case.

Bohler petitioned for inter partes review of all four claims of U.S. Patent No. 8,557,056, arguing that the claims should be construed to cover the specific chemical compositions described in the specification, regardless of whether they were created according to the recited process steps.  Rovalma successfully argued that the claims should be construed to require the process steps, but the Board then used Rovalma’s evidence of enablement to find the claims obvious.

The Fedeal Circuit noted the importance of clarity with respect to obviousness determinations, and noted that it has repeatedly
insisted on explanations in reviewing the adequacy of the Board’s analysis—both as a matter of obviousness law and as a matter of administrative law.  However, the Federal Circuit found that the Board did not sufficiently lay out the basis for its implicit findings regarding serveral of the process limitations in the claims, noting that the Board simply found that these steps would have been obvious in view of Rovalma’s submissions, with no explanation of the evidentiary basis for those determinations.  The Federal Circuit noted that petitioner did not provide any explanation regarding the process claim elements that the Board could adopt as its own.  The Federal Circuit also found that the Board did not adequately explain what would motivate a person of ordinary skill to make the modifications.  Finally, the Federal Circuit found that Board did not adequately explain why a person of ordinary skill in the art would have reasonably expected success.

The Federal Circuit rejected Rovalma’s argument that the Board was precluded from relying on a patent owner’s submissions in determining that the claims, as construed by Patent Owner, would have been obvious over the Petitioner-asserted prior art.  The Federal Circuit said that this took the rule of Magnum Oil Tools too far.  Magnum Oil Tools rejected the PTO’s position that the Board is free to adopt arguments on behalf of petitioners that could have been, but were not, raised by the petitioner during an IPR, and simply required the Board to base its decision on
arguments that were advanced by a party, and to which the opposing party was given a chance to respond.”  This does not preclude the Board from using submissions of the Patent Owner to support invalidity arguments of which Patent Owner adequate notice and opportunity to be heard.

The Federal Circuit suggested that a Petitioner may commit forfeiture when it receives notice of the Patent Owner’s claim construction (in the Patent Owners’ response) and chooses not to present a case for unpatentability under that construction when it had the opportunity, in its Reply.

As to Rovalma’s challenge that it was not given notice and an opportunity to respond, the Federal Circuit said that because it could not sufficiently determine which inferences the Board drew from Rovalma’s submissions, it would not decide whether the Board violated Rovalma’s procedural rights. The Federal Circuit said that to make that decision, it would need
to be able to determine what evidence the Board relied on to support its implicit factual findings, how the Board interpreted that evidence, and what inferences the Board drew from it.