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Federal Circuit Holds the PTAB Must Apply Narrower Phillips Claim Construction Standard to Patents that Expire During Pendency of Re-exam

Posted in Patent Law

By:  Eric Caligiuri

In In re CSB-System Int’l, Inc., No. 15-1832 (Fed. Cir. Aug. 9, 2016), the Court of Appeals for the Federal Circuit recently held that patents that expire during a pending re-examination before the Patent Trial and Appeal Board (“PTAB”) should be examined under the Phillips standard of claim  construction, and not the broadest reasonable interpretation (“BRI”) standard.  Typically, in District Court litigation claims in issued patents are construed using the framework set forth in Phillips v. AWH Corp., which considers the plain meaning of the claim terms themselves in light of the intrinsic record.  However, during re-examination proceedings for unexpired patents, the PTAB uses the BRI standard.  The reason for using the broader BRI standard in re-examinations is that a patent owner before the Patent and Trademark Office (“PTO”) with an unexpired patent may amend the claims to narrow their scope, thus negating any unfairness that may otherwise result from adopting the broader BRI standard.eric_caliguiri_web

The patent at issue in In re CSB-System Int’l is U.S. Patent No. 5,631,953 (the “’593 patent”), entitled “circuit arrangement for integration of EDP systems in the utilization of telephone systems.”  The ’953 patent generally discloses a circuit arrangement for the integration of EDP systems in the utilization of telephone systems connected to the public telephone network ISDN or Euro ISDN.  The aim is to connect telephone installations to an EDP installation in such a way that all the functions of the EDP system can be used during the use of
the telephone installation.

As to the dispute, a third-party had requested ex parte reexamination of the ’953 patent, which was granted. As part of the reexamination proceeding, the patent examiner construed several of the ’953 patent’s claim terms. Pertinent here, the examiner refused to depart from the plain meaning of the term “personal computer” by not, as CSB had argued, inserting a limitation which would exclude personal computers that emulate terminals.  The examiner also declined to adopt CSB’s construction of the claim term “LAN server,” which sought to read in that the “LAN server” must provide shared services to other components on the LAN and to respond to requests from clients.

Based in part on the claim constructions, the examiner rejected some of the claims of the ’953 patent as anticipated by the prior art, and other claims as obvious in light of the prior art.  CSB appealed to the PTAB, and during the pendency of that appeal, the ’953 patent expired. The PTAB nonetheless decided to apply the BRI standard when analyzing the claim constructions entered by the examiner.  The PTAB ultimately agreed with the claim constructions and affirmed the examiner’s rejection of all claims of the ’953 patent.  CSB appealed the PTAB’s ruling to the Federal Circuit, arguing in part that the PTAB and the examiner had applied the wrong claim construction standard.

The Federal Circuit held that when a patent expires during a reexamination proceeding, the PTO should thereafter apply the narrower Phillips standard for claim construction. The Federal Circuit held as much regardless of whether this means that the PTAB applies a different standard than the examiner.  The Federal Circuit reasoned that “the BRI standard is not a monolithic standard that the Board can use even after a patent expires.” Instead, once a patent expires, the PTO and PTAB should apply the Phillips standard for claim construction.

However, while the Federal Circuit held that the PTAB erred in using the BRI standard, the PTAB’s use of the BRI standard did not produce a different result than the result reached using the Phillips standard.  The Federal Circuit held that even under the Phillips standard, there is no basis for limiting the claims as narrowly as CSB argued.  Specifically, the Federal Circuit did not agree with the narrow constructions for “personal computer” and “LAN server” proposed by CSB, even under the Phillips standard.  Thus, in the end, the Federal Circuit affirmed the PTAB’s decision to reject all claims of the ’953 patent in view of prior art presented during reexamination.

 

The Seattle Seahawks’ 12th Man Flies Again

Posted in Trademark Law

transparentIf you regularly follow our publication, you may remember when I discussed the Seattle Seahawks and their use of the Texas A&M trademark “12TH MAN” over a year ago. If not, that’s okay too. In short, I discussed how the Seattle Seahawks have been utilizing the Texas A&M trademark without permission and were facing legal action for infringement when the parties entered into their first licensing agreement in 2006 for $100,000 upfront and an additional $5,000 per year. This deal was subsequently renewed in 2011. I ended my previous article by acknowledging that the agreement was coming to an end and that there was likely to be a new, more lucrative deal in place due to the mark’s popularity among Seahawks fans.

Sure enough, the deal that the Seahawks and Texas A&M reached is more lucrative than the previous deal. The Seahawks have agreed to pay $140,000 to Texas A&M upfront, plus $18,000 per year as a royalty fee for using the mark in the Pacific Northwest, an additional $10,000 per year to assist Texas A&M with its efforts to protect its trademark from would be infringers, and an undisclosed yearly fee, through 2021. Moreover, Texas A&M has also narrowed the scope of the license that it is granting to the Seattle Seahawks. Although the Seahawks have never utilized “12th Man” on their merchandise, they will no longer use the mark on the Ring of Honor or the team’s social media handles. Overall, this is favorable deal for Texas A&M, which will receive more money for a more restrictive license to the Seahawks.

Interestingly, I suspect the Seahawks do not have an issue with the narrowly tailored license in light of their recent conduct. Over the past few seasons, the Seahawks have shifted away from their use of “12TH MAN” in favor of “12” and “12s,” both of which the Seahawks have registered with the United States Patent and Trademark Office. The Seahawks own several “12” related trademarks, including without limitation, “WE ARE 12s,” “THE 12s,” “THE SPIRIT OF 12,” and “12.” So, it seems that although the Seahawks still obviously value their use of the “12TH MAN” mark, they are slowly distancing themselves from the mark and creating their own set of 12 marks, which I would not be surprised to see displace their use of the “12TH MAN” entirely by 2021. Of course, only time will tell.

Small Burger Chain Has a Beef With Chipotle

Posted in Copyright Law, Patent Law, Trademark Law

By: Scott Hervey

Chipotle’s entry into the burger business has a Boston based small burger chain up in arms.  The Boston burger spot, which has been in operation since 2010 and goes by the name Tasty Burger, has a beef with the brand Chipotle has chosen for its restaurants, Tasty Made.SHervey

Tasty Burger claims that Chipotle brand infringes on its trademark,  Despite a cease and desist letter and public threats of a lawsuit, Chipotle has publicly stated that it “fully intend(s) to move forward with the name Tasty Made for our burger restaurant and strongly believe that we are on solid footing in doing so.”

Why might Chipotle feel – or claim to feel – so secure in its brand choice.  Tasty Burger has superior common law rights; it has been using its mark since July 2010.  Additionally, Tasty Burger applied for a Federal trademark registration in December 2010 and was granted federal registration for its trademark in 2012.  On first blush, it seems that Tasty Burger has a strong case.  However, things may not be as they seem.

During the registration process for Tasty Burger’s trademark, the United States Patent and Trademark Office refused to register the trademark for Tasty Burger on the Principal Register because it is merely descriptive.  A mark is merely descriptive if it describes an ingredient, quality, characteristic, function, feature, purpose or use of the specified goods and/or services.  The trademark examiner assigned to the Tasty Burger application argued as follows:

In the present case, applicant is using the mark TASTY BURGER, stylized, and design, in connection with “Restaurant services.”   As indicated in the initial Office action, the wording TASTY BURGER describes good tasting hamburgers, an item presumably offered in applicant’s restaurants.  See the definitions enclosed with the initial Office action.

In addition, the applied-for mark shows the wording in stylized lettering.  However, the degree of stylization in this case is not sufficiently striking, unique or distinctive so as to create a commercial impression separate and apart from the unregistrable components of the mark.  See In re Sambado & Son Inc., 45 USPQ2d 1312 (TTAB 1997); In re Bonni Keller Collections Ltd., 6 USPQ2d 1224 (TTAB 1987). Furthermore, the design consists of a common geometric shape and merely functions as a background carrier for the word portion of the proposed mark.  Accordingly, the entire mark must be deemed to be merely descriptive.

In response to the refusal to register, Tasty Burger abandoned its request for registration on the Principal Register and sought registration on the USPTO’s Supplemental Register.  Marks that do not meet the Principal Register’s requirement of being inherently distinctive but that otherwise meet the technical requirements for registration are registrable on the Supplemental Register.  The benefits and protections for marks registered on the Supplemental Register do not compare to those granted to marks registered on the Principal Register.  Registration on the Principal Register is prima facie evidence of the mark owner’s exclusive right to use the mark nationwide in connection with the goods or services set forth in the registration.  The Supplemental Registration provides no such benefits; the owner of a mark registered on the Supplemental Register must rely on common law rights and must also prove that their mark actually functions as a trademark.

So is Tasty Burger’s claim cooked?  Maybe not.  Merely descriptive trademarks may become protectable through “acquired distinctiveness” or “secondary meaning.”  These are legal concepts by which a term that is descriptive may, through use, has become distinctive of the owner’s goods or services.  One of the ways a mark owner may establish secondary meaning is by showing exclusive and continuous use in commerce for the five years.

Tasty Burger has been using its mark since 2010.  As such, it will be able to establish a prima facie case that its mark is distinctive.  This in and of itself does not mean that Tasty Burger will be able to establish likelihood of confusion; a mark can be distinctive and still be highly suggestive and entitled to little protection.  In order to establish greater protection, Tasty Burger must introduce other evidence of acquired distinctiveness such as declarations from its customers, its advertising and promotional activities and market research and consumer reaction studies.

Tasty Burger will have a strong position to argue that the Chipotle Tasty Made burger chain will infringe its common law rights in its Boston and Washington, DC locations.  Tasty Burger can take certain immediate actions that may increase its strength and leverage but whether Tasty Burger will prevent Chipotle from opening Tasty Made throughout the rest of the US remains to be seen.

 

Wearable Technology Raises Concerns Regarding IP, Data Privacy and Data Security

Posted in Cyberspace Law, Web/Tech

When fashion fuses with high tech, we see our friends show up with trendy wearables, such as smart watches, fitness bands, and even high-tech, designer purses.  But, trendiness aside, wearables raise numerous questions for designers, manufacturers and consumers relating to intellectual property, data privacy and data security.  For example, how does a company protect the technology for its latest smart watch?  Should they rely on patents, trademarks, copyrights or something else?  Who owns the rights to a designer tote with an embedded charging station—the fashion designer or the circuit designer?  Is your employer allowed to collect location and health data via sensor-infused fabric in your work uniform to improve productivity and wellness?  What happens when your fitness band is hacked, revealing personal health data that makes its way to your insurance company?  Can they raise your rates upon learning you have high blood pressure and have stopped working out?Jo-Dale-Carothers-015_web

The questions are unending and some answers are still unclear because laws, courts and contracts have not necessarily caught up with advances in this technology.  Further, the fashion and high tech industries have traditionally approached IP protection differently due to the different nature of their products.  Meanwhile, we have seen high-tech industry leaders (e.g., Apple, Fitbit, and Google’s parent, Alphabet), as well as non-practicing entities, actively amassing patents relating to wearables.  This indicates that licensing and litigation will soon escalate as new wearable products arrive in the marketplace.  We have already seen patent litigation related to products such as Ralph Lauren’s Ricky bag, which has an illuminable interior and charger for electronic devices, and Adidas and Textronic’s shirt with special fibers for sensing vital signs and communicating them to a smartphone.  But merely taking off-the-shelf electronics and making them “wearable,” may not be patentable.  Therefore, companies should consider combining patents on novel innovations that make the electronics wearable with other forms of IP protection for appearance, branding and expression to effectively protect their wearable technology.

Despite its recently soaring growth, wearable technology is not new.  For example, the first electronic hearing aid was constructed well over a hundred years ago.  By the 1980s, we saw digital watches with built-in calculators.  But constraints on size, power, weight, etc., limited the development and adoption of early wearable products.  Now, advances in technology have broadened current applications to include fitness, communication, medical monitoring and more.  In addition, tech companies have learned that widespread adoption of wearables requires that these high-tech accessories fit with current fashion trends.  No one wants to wear something that is clunky and doesn’t match their fashion sense or personality, right?  As a result, tech companies have teamed up with designer brands and hired experts from the fashion industry to co-develop and market wearables.

Today, wearables offer convenience and the potential to monitor and/or increase wellness, safety, productivity, sleep, etc.  But the wearer is often not the only one with access to the data collected, which raises privacy concerns and issues regarding data security.  For example, companies often make a wearer sign up for an account or load an app on a phone to use the wearable.  Then these companies collect, process, and perhaps back up the data along with the wearer’s account information.  These companies could share this information with advertisers who then target the wearer with ads for specific products based on current or past location, health statistics, exercise habits, etc.  We see this user-specific advertising on our phones and computers every day.  For example, since I recently searched for information on a particular car, ads for that car and similar cars are showing up when I use Facebook, browsers and other apps.  This example is rather benign, albeit a little annoying given that I already purchased the car I wanted.

But not all examples are so benign.  Now advertisers and others not only have information on your recent Google searches, but may also be able to gain real-time statistics and other information about your stress level, heart rate, blood pressure, location, etc.  The risks associated with dissemination of your health, location, and financial data are much higher than the mere sharing of information about a car you are interested in purchasing.  These risks also raise additional liability concerns for companies if the data is stolen or misused.  Therefore, it is crucial that companies safeguard against data breaches and understand the privacy rights of their employees and customers.  Some companies are even purchasing cyber insurance as protection against data breaches.  But merely having an insurance policy is not enough.  If your company doesn’t have the proper safeguards in place, such as updated security patches and practices, then the insurance company may not have to pay.

To advise clients in this area, attorneys must be knowledgeable about the technology and the integration of technology with fashion, as well as the legal issues surrounding IP, data privacy and data security.  For a particular client and product, it is critical to develop an integrated approach that effectively provides protection via a combination of utility and design patents, trade secrets, copyrights, trademarks and where appropriate, the lesser-used trade dress protection.  The goal is to use the appropriate IP mechanisms to protect all facets of wearable technology, including the electronics, software, functionality, packaging, marketing materials, appearance and the branding associated with it, while avoiding liability from breaches of data privacy or security.

Trademark Assignability Laid Bare

Posted in IP Law Blog Lawyers In The News, Trademark Law

James-Kachmar-08_webCrazy Horse was a legendary Native American chief of the Oglala Lakota tribe who lived during the second half of the 1800s.  Unfortunately today, his name may be more familiar as a brand for various products, such as motorcycle gear, whiskey, rifles and strip clubs.  In Russell Road Food & Beverage, LLC v. Spencer, et al., the Ninth Circuit was faced with the issue of the assignability of the trademark “Crazy Horse” in a lawsuit between two strip club operators in Las Vegas, Nevada.

In Paris in 1951, Alain Bernardin, opened the infamous “Crazy Horse Saloon.”  Since that time, the “Crazy Horse” mark has seen numerous trademark battles beginning in 1967 London.  During the 1970’s, Crazy Horse night clubs opened throughout the United States, from Alaska to Florida.

In January 2006, a strip club owner from the Carolinas, Carl Reid, successfully registered the “Crazy Horse” and “Pure Gold’s Crazy Horse” marks with the USPTO for “entertainment services, namely, exotic dance performances.”  Years later, Russell Road and Spencer each attempted to register their respective “Crazy Horse” marks for their strip clubs but the USPTO rejected both of them on the grounds of “a likelihood of confusion with the Reid’s previously registered marks.”  Russell Road and Spencer then pursued different methods to secure the right to use the “Crazy Horse” mark.

Russell Roads obtained the right to use the “Crazy Horse” mark through an agreement with another strip club operator of the “Crazy Horse Too” clubs in Las Vegas.  In September 2007, the owner of that club sought to register the mark “Crazy Horse Too” but like the other “Crazy Horse” marks, the USPTO rejected it. Crazy Horse Too initiated a cancellation proceeding to which Reid, the original owner of the “Crazy Horse” mark, failed to timely respond.  A default was entered but before a default judgment could be rendered in favor of Crazy Horse Too, Reid and the owner of Crazy Horse Too agreed to resolve the dispute through a trademark co-existence agreement.  Under that agreement, Crazy Horse Too agreed to withdraw its challenge to the “Crazy Horse” mark and Reid consented to Crazy Horse Too’s “use and registration” of “any mark that includes the phrase Crazy Horse provided the mark does not contain the phrase pure gold.”  In 2011, Crazy Horse Too encountered financial difficulties and was dissolved.  A year later, Russell Road bought Crazy Horse Too’s rights under the trademark co-existence agreement for $2,500.

Spencer, on the other hand, went straight to the source. In August 201, Spencer formed Crazy Horse Consulting, Inc. (“CHC”) for the purpose of expanding the “Crazy Horse” brand. Later that year, Reid assigned his rights in the “Crazy Horse” trademark to CHC and the assignment was registered with the USPTO.

Following the registration, Spencer learned that Russell Road had a strip club in Las Vegas called Crazy Horse III.  Spencer notified Russell Road that its use of the “Crazy Horse” mark infringed on his trademark rights.  Rather than seeking a license from Spencer, Russell Road entered into a further assignment agreement with the former owner of Crazy Horse Too whereby Crazy Horse Too assigned all of its rights to Russell Road under the September 2009 trademark co-existence agreement.

Russell Road then filed suit against Spencer seeking a declaratory judgment that its use of the “Crazy Horse” mark did not infringe on Spencer’s trademark.  The lower court granted summary judgment to Russell Road finding that it had the right to use the “Crazy Horse” mark under a valid trademark co-existence agreement.  Spencer and CHC appealed that decision to the Ninth Circuit.

The Ninth Circuit began by recognizing that it was undisputed that a trademark owner could assign his or her trademark citing 15 U.S.C. §1060(a)(1).  Furthermore, when a trademark is assigned, the assignee “steps into the shoes of the assignor.”  This means that the assignee not only acquires all of the assignor’s rights, but also assumes any “burdens or limitations” on the use of the mark.  In addition to recognizing the assignability of trademarks, the Ninth Circuit observed that trademark co-existence agreements have long been enforceable.  Furthermore, like other contracts, trademark co-existence agreements could be assignable.

The Ninth Circuit found that the facts showed that it was undisputed that there was a valid trademark co-existence agreement between Reid and Crazy Horse Too.  The Court found that the undisputed evidence showed that Crazy Horse Too had lawfully assigned its rights under that co-existence agreement to Russell Road. Given that Russell Road had obtained the rights that Crazy Horse Too owned, Spencer and CHC had a duty to Russell Road by way of its obligations to Crazy Horse Too “not to oppose each other’s use of the Crazy Horse mark, to make reasonable steps to reduce the likelihood of confusion and so on.” The Ninth Circuit found it significant that the trademark co-existence agreement made it explicit that it would “be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and licensees.

The Ninth Circuit then turned to various arguments raised by Spencer and rejected each of them in turn.  First, the Ninth Circuit found that the assignment of the trademark rights from Crazy Horse Too to Russell Road was supported by adequate consideration in that Russell Road had paid $2,500 for the assignment.  Next, Spencer argued that because Crazy Horse Too was not using the mark it had essentially “abandoned” it.   The Ninth Circuit found that even if Crazy Horse Too was not using the mark, this did not invalidate the trademark co-existence agreement.  That agreement had no requirement that Crazy Horse Too actually use the mark and therefore the “trademark abandonment” doctrine did not apply.  Spencer also argued that Crazy Horse Too could not assign its rights to Russell Road without Spencer’s consent but the Ninth Circuit rejected this argument finding that Spencer had not raised it with the lower court.

The Ninth Circuit affirmed the lower court’s summary judgment in favor of Russell Road and found that it had properly concluded that there had been a valid assignment of the rights under the trademark co-existence agreement between Reid and Crazy Horse Too.  The Russell Road case is a reminder that parties facing claims of trademark infringement should determine whether there is any basis for their use of a mark, such as through a valid assignment or trademark co-existence agreement.

James Kachmar is a shareholder in Weintraub Tobin Chediak Coleman Grodin’s litigation section.  He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes.  For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com.

INDUCED INFRINGEMENT BECOMES MORE DIFFICULT TO DEFEND

Posted in Patent Law

In Warsaw Orthopedic, Inc. v. NuVasive, Inc. (June 3, 2016) 2016 U.S. App. LEXIS 10092, the Federal Circuit Court of Appeals broadly interpreted the Supreme Court’s test for induced infringement, finding irrelevant the defendant’s belief that there was no infringement.

Warsaw and a related company, Medtronic, sued NuVasive for patent infringement.  NuVasive counterclaimed against Warsaw and Medtronic for infringement of its patent.  NuVasive’s patent covered methods used during surgery to detect a nerve and determine the distance to the nerve.  NuVasive alleged that Medtronic manufactured a device that surgeons used to directly infringe the method claims of NuVasive’s patent, and that Medtronic induced the surgeons’ infringement.  Medtronic contended that it had not induced infringement because it had a reasonable belief, under Medtronic’s narrow construction of the claims, that the device did not perform the claimed method.Audrey Millemann 03_web

The case was tried in the district court for the Southern District of California.  The court instructed the jury on the requirements for proving induced infringement, under 35 U.S.C. section 271(b), as set forth by the Supreme Court in Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011). Under Global-Tech, induced infringement requires proof that the defendant knew of the plaintiff’s patent and knew that the acts it induced were infringing.  Global-Tech also held that a plaintiff can prove the defendant’s knowledge that the induced acts were infringing by proof of the defendant’s willful blindness, which can be proved by circumstantial evidence.

At trial, the jury found that Medtronic had induced infringement of NuVasive’s patent by instructing the surgeons on the use of Medtronic’s device.  On appeal, the Federal Circuit affirmed the jury’s verdict.  The Supreme Court then decided Commil USA, LLC v. Cisco Systems, Inc., 191 L. Ed. 2d 883 (2015), which confirmed the Global-Tech test for induced infringement.

Medtronic filed a petition for certiorari in the Supreme Court, seeking an order vacating the Federal Circuit’s decision and remanding the case for further consideration under Commil.  In particular, Medtronic argued that NuVasive had not proved that Medtronic knew that the surgeons’ acts it induced were infringing.

The Supreme Court granted certiorari and remanded the case to the Federal Circuit.  On remand, the sole question before the Federal Circuit was whether NuVasive had produced substantial evidence that Medtronic knew, or was willfully blind to the fact, that the surgeons using their device infringed NuVasive’s patent.  Medtronic argued that it did not believe its device infringed the patent and that this belief negated the specific intent required for a finding of knowledge.

The Federal Circuit disagreed and affirmed its original decision.  The court held that Medtronic’s belief was objectively unreasonable, and that there was substantial evidence that Medtronic knew (or was willfully blind to the fact) that the surgeons infringed NuVasive’s patent.  In a concurring opinion, however, one of the judges pointed out that the majority based its conclusion solely on the evidence of direct infringement (that the surgeons’ use of the device performed the claimed method), not on any evidence of Medtronic’s knowledge or willful blindness.

This case appears to be a warning – if you think you may be inducing infringement of a patent, relying on your “reasonable” belief that there is no underlying direct infringement is a bad idea!

 

33 Weintraub Tobin Attorneys Named Among 2016 Super Lawyers and Rising Stars

Posted in Uncategorized

Super Lawyers has released its Northern California, Southern California, and San Diego lists of outstanding attorneys for 2016, on which 33 Weintraub Tobin attorneys have been included. Three Weintraub Tobin attorneys received special honors in their respective regions. To learn more, click here: http://bit.ly/29Wsut4

Star award against curtain background

En Banc Federal Circuit Rules A Product Must be the Subject of a Commercial Sale or Offer for Sale to Trigger On-Sale Bar

Posted in Copyright Law, Trade Secrets

By:  Eric Caligiuri

On July 11, 2016, the U.S. Court of Appeals for the Federal Circuit ruled in a unanimous en banc decision in The Medicines Co. v. Hospira Inc., Federal Circuit case number 2014-1469, that to be “on sale” under pre-AIA 35 U.S.C. § 102(b), a product must be the subject of a commercial sale or offer for sale, and that a commercial sale is one that bears the general hallmarks of a sale pursuant to Section 2-106 of the Uniform Commercial Code.   If the product is “on sale” more than one year before the filing of an application for a patent, any issued patent is invalid and patent protection is lost.  The issue before the Court in Medicines Co. was whether a product is “on sale” under 35 U.S.C. § 102(b) when the product is produced by a third-party contract manufacturer. 01-Caliguri-Er-15EX-web

The two patents at issue, U.S. Patent Nos. 7,582,727 (“the ’727 patent”) and 7,598,343 (“the ’343 patent”), are FDA Orange Book listed as covering Angiomax, which is the trade name of a form of bivalirudin.  Bivalirudin is a synthetic peptide comprised of twenty amino acid residues. Bivalirudin drug products are used to prevent blood from clotting and are regarded as highly effective anticoagulants for use during coronary surgery.  However, the bivalirudin active pharmaceutical ingredient is too acidic for human injection without further processing.  Thus, the patented compounding process produces Angiomax by creating a bivalirudin solution and then adjusting the solution’s pH with a base while controlling the creation of impurities.  The ’727 patent and ’343 patent contain product and product-by-process claims for pharmaceutical batches of the improved bivalirudin drug product.

Critically, plaintiff Medicines Co. (“MedCo”) did not sell Angiomax to the public before filing for the patents, but instead used a third-party contract manufacturing organization, Ben Venue Laboratories (“Ben Venue”), to ensure the drug met U.S. Food and Drug Administration requirements.  Thus, the Federal Circuit’s opinion touched on an important issue in the patenting of pharmaceuticals and other products, such as semiconductors: the use of contract manufacturers and the manufacturing processes necessary to produce these products.

The dispute at issue here traces back to August 2010, when MedCo sued Hospira in the United States District Court for the District of Delaware, alleging that two of Hospira’s ANDA filings infringed certain claims of the ’727 patent the ’343 patent.  After a three-day bench trial in September 2013, the district court found the patents not invalid and not infringed.  In considering invalidity, the court had to determine whether the invention was sold or offered for sale before the critical date under § 102(b), i.e. was it subject to the on-sale bar.

Applying the two-step framework of Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), the district court found that the three batches Ben Venue manufactured for MedCo did not trigger the on-sale bar.  Pfaff’s two-step framework requires that the claimed invention was (1) the subject of a commercial offer for sale; and (2) ready for patenting.  The district court concluded that the first prong of Pfaff was not met because the claimed invention was not commercially offered for sale prior to the critical date.  The court reasoned that the transactions between MedCo and Ben Venue were sales of contract manufacturing services in which title to Angiomax always resided with MedCo.  The court also found that because the batches were for FDA “validation purposes,” the batches were not made for commercial profit, but were for experimental purposes, thus avoiding the on-sale bar.

On appeal, a panel of the Federal Circuit reversed the district court’s ruling regarding the applicability of the on-sale bar, finding MedCo “commercially exploited” the invention before the critical date, even if it did not transfer title to Angiomax.  The panel also found the experimental use exemption did not apply because the invention had already been reduced to practice, so MedCo could not have been experimenting.  At the request of MedCo, the Federal Circuit vacated the panel’s ruling to consider the case en banc.

Applying § 102(b) in light of Pfaff, the Federal Circuit en banc concluded that the transactions between MedCo and Ben Venue did not constitute a commercial sale of the patented product.  The full Court affirmed the district court’s conclusion that those transactions were not invalidating under § 102(b), and reversed the panel’s determination.  The Court reasoned that the sale of manufacturing services by a contract manufacturer to an inventor to create embodiments of a patented product for the inventor does not constitute a “commercial sale” of the invention.  MedCo did not market or release its invention by contracting with Ben Venue, but only paid the company to make batches of the drug because it did not have the manufacturing capabilities to do it in-house.  The Court saw no reason to treat MedCo differently than a company with in-house manufacturing capabilities.  “There is no room in the statute and no principled reason…to apply a different set of on-sale bar rules…depending on whether [a company] outsources manufacturing or manufactures in-house.”  Instead, the focus of the on-sale bar analysis should be on what makes a sale “commercial” in “the most well-understood sense of that term…as distinct from merely obtaining some commercial benefit from a transaction.”

More broadly, the Court explained that a commercial benefit alone is not enough to trigger the on-sale bar of § 102(b); the transaction must be one in which the product is “on sale” in the sense that it is “commercially marketed.”  As a general proposition, the Court instructed that one should look to the Uniform Commercial Code (“UCC”) to define whether a communication or series of communications rises to the level of a commercial offer for sale.  However, the Court also cautioned that while “[t]he UCC has been recognized as the general law governing the sale of goods, [it] is another useful, though not authoritative, source in determining the ordinary commercial meaning of” terms used by the parties.

Given that the en banc Federal Circuit had found that there was no commercial sale of the inventions in the ’727 and ’343 patents, the Court declined to reach a ruling on the experimental use finding.  However, the Court did make clear that the panel’s statement that there can be no experimental use after a reduction to practice is inaccurate.  Finally, the Court addressed the issue of “stockpiling” by an inventor and clarified that “stockpiling” by the purchaser of manufacturing services is not improper commercialization under § 102(b).

Both the panel and en banc Federal Circuit only considered whether the patents were invalid under the on-sale bar, and did not consider other issues related to claim construction, infringement, and invalidity on other grounds.  Thus, the case has been remanded back to the original Federal Circuit panel for further proceedings on these issues and is still far from over.

Fair Use and Youtube – A Creator’s Take

Posted in Cyberspace Law, IP Law Blog Lawyers In The News, Web/Tech

Scott-Hervey-10-web6/25/16-  At the 7th Annual  VidCon in Anaheim, CA , Weintraub Tobin Shareholder Scott M. Hervey and Rian Bosak, Head of Network Operations Full Screen, presented  “Fair Use and Youtube- A Creator’s Take” to a standing room only audience of digital media creators and industry professionals.  Check out their presentation below:

 

WATCH OUT! SUPREME COURT OPENS DOOR TO TREBLE DAMAGES IN PATENT CASES!

Posted in Copyright Law, Patent Law

Up until now, it has been nearly impossible for a plaintiff to recover enhanced (up to treble) damages in patent infringement cases.  The current test for enhanced damages, set forth by the Federal Circuit Court of Appeals in 2007 in In Re Seagate Technology, LLC, 497 F.3d 1360 (2007), was so rigid that it essentially slammed the door on plaintiffs seeking enhanced damages.  On June 13, 2016, however, the Supreme Court decision changed all that, in a unanimous decision in Halo Electronics v. Pulse Electronics, 2016 U.S. LEXIS 3776 (June 13, 2016).  The Court opened the door for plaintiffs to recover enhanced damages – no one is sure yet how far – but it is clear that plaintiffs have been given a boost and would-be infringers a cause for anxiety.

In Halo, the Court made three rulings that affect patent infringement suits.  First, the Court changed the test for recovery of enhanced damages from a rigid test to a flexible one.  Second, the Court lowered the plaintiff’s burden of proof for enhanced damages.  Third, the Court eased the standard of appellate review of district courts’ decisions on enhanced damages, leaving the district courts with more discretion and making it more difficult for defendants to overturn awards of enhanced damages.Audrey Millemann Full

The patent laws permit a trial court, in its discretion, to award enhanced damages to a plaintiff who prevails in a patent infringement suit.  35 U.S.C. § 284.  In Seagate, the Federal Circuit held that in order to obtain enhanced damages under § 284, a plaintiff had to prove willful infringement.  The court established a two-part test for willfulness.  The first part is objective – the plaintiff must show that there was an objectively high likelihood that the defendant’s actions were infringing.  This part of the test, referred to as “objective recklessness,” is determined by the judge based on the record, and cannot be found if the defendant raises a substantial question during the litigation as to noninfringement or invalidity.  The second part of the Seagate test is subjective – the plaintiff must show that the defendant knew or should have known that its actions were risking infringement.  The Seagate court held that a plaintiff must prove both parts of the test by clear and convincing evidence.  In Seagate, the court also established three different standards for appellate review: de novo for objective recklessness, substantial evidence for subjective knowledge, and abuse of discretion for the decision to award enhanced damages.

The Supreme Court’s Halo decision is a single decision issued in two cases:  Halo Electronics v. Pulse Electronics and Stryker Corp v. Zimmer, Inc.  In the Halo case, plaintiff Halo and defendant Pulse competed in electronic components.  Halo owned patents for electronic packages with transformers used to attach to circuit boards.  Halo offered Pulse the opportunity to license the patents.  Pulse declined and continued to sell the accused products, after deciding that the patents were not valid.  Halo sued Pulse.  The jury found that Pulse had infringed the patents and that the infringement was likely willful.  Halo sought enhanced damages, but the district court denied the request on the grounds that Pulse had asserted a defense at trial that was not baseless, such that the first part of the Seagate test could not be met.  On appeal, the Federal Circuit affirmed.

In Stryker, Stryker and Zimmer competed in the sale of an orthopedic surgical device.  Stryker sued Zimmer for patent infringement, and won a jury verdict of $70 million for willful infringement.  The willfulness was based on evidence that Zimmer had flagrantly decided to copy Stryker’s products.  The district court awarded an additional $6.1 million in damages and trebled the award, for a total of over $228 million.  On appeal, the Federal Circuit affirmed the finding of infringement, but reversed the award of treble damages, relying on the same rationale as in the Halo case, that the defendant had presented reasonable defenses at trial, such that the first part of the Seagate test could not be met.

The Supreme Court explained that § 284 provides a district court with discretion to award enhanced damages and does not specifically limit that discretion.  Halo, at *14.  However, the Court emphasized that the district court’s discretion should only be exercised in “egregious” cases.  Id. at *15.  Egregious cases are those in which the defendant’s conduct is “wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or . . . characteristic of a pirate.”  Id. 

In tossing out the Seagate test, the Court said that the first part of the Seagate test – objective recklessness – is wrong because it excludes defendants who wantonly infringe a patent, but later, during litigation, assert a defense that they may not even have known existed at the time of the infringement.  Id. at *16-17.  According to the Court, “someone who plunders a patent – infringing it without any reason to suppose his conduct is arguably defensible – can nevertheless escape any comeuppance under §284 solely on the strength of his attorney’s ingenuity.”  Id. at *17.  The Court found no basis under §284 for a threshold requirement of objective recklessness, holding that a defendant’s culpability should be “measured against the knowledge of the actor at the time of the challenged conduct.”  Id.  The Court further found that the high burden of proof of clear and convincing evidence was inappropriate and not consistent with § 284.  Id. at *20.

The Court set forth the proper test for enhanced damages, at *19:

“[C]ourts should continue to take into account the particular circumstances of each case in deciding whether to award damages, and in what amount.  Section 284 permits district courts to exercise their discretion in a manner free from the inelastic constraints of the Seagate test.  Consistent with nearly two centuries of enhanced damages under patent law, however, such punishment should generally be reserved for egregious cases typified by willful misconduct.”

Thus, in discarding the Seagate test, the Court did not replace it with a new test.  Instead, the Court simply held that the Seagate test is “unduly confining” and that district courts should “be guided by sound legal principles developed over nearly two centuries of application and interpretation of the Patent Act . . . [and limit] the award of enhanced damages to egregious cases of misconduct beyond typical infringement.”  Id. at *24.

Lastly, the Court changed the standard of review of a district court’s decision on enhanced damages.  The Court held that because the district court has full discretion to award enhanced damages, its discretion should be subject to a single standard of review, abuse of discretion.

Halo has significant ramifications for patent owners and potential infringers, and for patent litigation itself.  Among them are:

  • Because the test is now more flexible and because the plaintiff’s burden of proof is lower, there may be more patent infringement cases filed.
  • Because the accused infringer may face allegations of willfulness that will likely survive to trial, cease and desist letters from patent owners to accused infringers may carry more weight.
  • Because the test is now determined by the defendant’s conduct at the time of the infringing acts, plaintiffs may conduct more extensive discovery into the defendant’s knowledge and when the defendant had that knowledge.
  • Without the benefit of the objective recklessness part of the Seagate test, defendants will have a more difficult time obtaining summary judgment of no willfulness; thus, the issue of willfulness and the plaintiff’s supporting evidence of the defendants willfulness will be presented at trial.
  • Because defendants will not want to risk evidence of willfulness at trial and an award of enhanced damages, settlement discussions will become more important, and more cases may settle before trial.
  • Because the “new” test is more flexible and because the burden of proof on the plaintiff is lower than under Seagate, plaintiffs may be more likely to recover enhanced damages at trial.
  • Because the test is now determined by the defendant’s conduct at the time of the infringing acts, companies developing new technology may become more diligent in conducting early infringement and invalidity analyses of key patents in their industry.
  • For the same reason, defendants may become more cautious in how they conduct themselves during the development of new technology, and in the written records of their conduct.

While most view Halo as very favorable to patent owners, its effect will not be known until the district courts start applying the test and the Federal Circuit rules on their decisions.  Until that time, potential infringers may not really know what type of conduct will result in enhanced damages, and should act accordingly.