Intellectual Property Outlook:

Transcription

1 INTELLECTUAL PROPERTY LITIGATION Intellectual Property Outlook: Cases and Trends to Follow in 2018 By Robert M. Masters, Jonathan R. DeFosse, Timothy P. Cremen, and Kevin A. Ryan Attorney Advertising. Prior results do not guarantee a similar outcome Fried, Frank, Harris, Shriver & Jacobson LLP

2 Over the past several years, the U.S. Supreme Court has become increasingly involved in intellectual property law. In 2017 alone, the Court issued significant decisions addressing venue requirements for patent infringement cases, a U.S. manufacturer s liability for exporting components later incorporated into an infringing product, the ability of companies to copyright design features of useful articles, the First Amendment right to register disparaging trademarks, and the appropriate measure of damages for design patents. This year could rival or even surpass the last, with the Court already scheduled to address several potential high-impact issues, including the constitutionality of inter partes review (IPR) proceedings, the estoppel arising from those proceedings, and the ability of a patent owner to recover worldwide lost profits arising from infringement in the U.S. These forthcoming decisions, combined with district courts ongoing interpretation of the patent venue provisions, an interesting attorney fees issue before the Federal Circuit, several potential bills before Congress, and new regulations from the Patent Office, may make 2018 a very interesting year in intellectual property law.

3 WHAT S INSIDE Executive Summary Cases to Watch in Venue Issues to Watch in 2018 Following the TC Heartland Decision Intellectual Property Legislation to Watch in Intellectual Property Regulations to Watch in Conclusion Contacts

4 1 Executive Summary This article provides an overview of cases and issues to follow in 2018 that may have a significant impact on intellectual property law, along with an overview of proposed legislation and regulations affecting intellectual property rights. By way of summary: In Oil States v. Green s Energy, the Supreme Court will decide whether inter partes review (IPR) proceedings before the U.S. Patent and Trademark Office violate the U.S. Constitution by invalidating patent claims through a non-article III forum and without a jury. A finding that IPR proceedings are unconstitutional would radically disrupt the current patent enforcement landscape, where accused infringers routinely rely on IPR proceedings to challenge the validity of patents. Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 1

5 1. Executive Summary In SAS Institute v. Matal, the Supreme Court will decide whether the Patent Trial and Appeal Board is required to address, in its final written decision concluding an IPR, every patent claim that the petitioner originally challenged in its IPR petition. The decision may significantly impact the scope of estoppel arising from IPR. In WesternGeco v. ION Geophysical, the Supreme Court has been asked to address whether a patentee can recover foreign lost profits arising from infringement in the U.S. This case has the potential to expand the territorial reach of damages calculations and expose American exporters to worldwide damages for patent infringement in the U.S. In EVE-USA v. Mentor Graphics, the Supreme Court has been asked to address two issues: (i) the continued viability of the assignor estoppel doctrine; and (ii) whether it is necessary to apportion lost profit damages between patented and unpatented features. In Fourth Estate v. Wall-Street.com, the Supreme Court has been asked to resolve a circuit split concerning when a copyright owner may file a suit for infringement. Some circuits have held that an infringement suit can be filed as soon as the copyright owner files an application for registration. Other circuits have held that the suit must wait until the Copyright Office acts on the registration application. In Nantkwest v. Matal, an en banc panel of the Federal Circuit will consider whether the PTO can recover the attorneys fees it incurs in defending suits by patent applicants challenging the rejection of their patent applications. Following the Supreme Court s May 2017 decision in TC Heartland v. Kraft Foods restricting venue in patent cases, district courts in 2018 will be faced with a number of significant venue issues, including: (i) the circumstances under which venue can be based on the operations of a defendant s corporate affiliate; (ii) where an ANDA applicant has committed acts of infringement for the purposes of venue in Hatch-Waxman litigation; (iii) the ability to avoid TC Heartland by naming a foreign corporation as a defendant in addition to its U.S. subsidiaries; and (iv) whether a plaintiff can avoid TC Heartland by asserting non-patent claims and relying on the doctrine of pendent venue to establish venue for the patent claims. There are a number of interesting bills that Congress may consider in 2018, including a bill aimed at eliminating perceived problems in IPR proceedings (the STRONGER Act), a bill to prevent enforcement of design patents obtained for auto parts (the PARTS Act), and a bill aimed at preventing non-practicing entities from commencing proceedings before the International Trade Commission (the Trade Protection Not Troll Protection Act). Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 2

6 2 Cases to Watch in 2018 Oil States v. Greene s Energy: Constitutionality of Inter Partes Review In Oil States v. Greene s Energy Group, et al., No , the Supreme Court will consider whether inter partes review (IPR) violates Article III of the U.S. Constitution by adjudicating patent invalidity before the Patent Trial and Appeal Board (the Board ) rather than in an Article III Court. Should the Court decide that the present IPR regime violates the Constitution, it could end IPR as we know it. The decision could also cast doubt on the IPR decisions the Board has issued over the past five years and call Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 3

7 2. Cases to Watch in 2018 into question the constitutionally of other administrative proceedings before the Patent and Trademark Office (PTO), such as Post Grant Review (PGR) and ex parte reexamination. Article III of the U.S. Constitution provides that [t]he judicial power of the United States, shall be vested in one Supreme Court, and in such inferior courts as the Congress may from time to time ordain and establish. Under this provision, Congress may not withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty. Stern v. Marshall, 564 U.S. 462 (2011). More concretely, if a suit is made of the stuff of the traditional actions at common law tried by the courts at Westminster in 1789, then the responsibility for deciding that suit rests with Article III judges in Article III courts. Stern, 564 U.S. at 484. The Supreme Court, however, has recognized exceptions to this rule where the dispute is a public right. These public right exceptions were originally quite narrow, including where the parties have consented to the adjudication, where the tribunal is acting as an adjunct to an Article III court (e.g., a district court s use of a magistrate), where the action would otherwise be blocked by sovereign immunity, and where the claim involved a matter historically determined by another branch (e.g., tariff disputes). The exceptions expanded in the 20th century to include instances where the case flows from a federal statutory scheme or is completely dependent upon adjudication of a claim created by federal law, and where Congress has devised an expert and inexpensive method for dealing with a class of questions of fact which are particularly suited to examination and determination by an administrative agency specially assigned to that task. Stern at But, in any event, the Supreme Court has cautioned that: (i) courts should err on the side of requiring Article III jurisdiction; (ii) even small encroachments on Article III courts are improper; and (iii) efficiency or convenience will not save an unconstitutional law or procedure. Stern at IPR is an administrative proceeding in the PTO, created in 2012 as part of the America Invents Act (AIA), that allows parties to challenge the validity of already-issued patents on the basis of printed prior art. A panel of three Administrative Patent Judges (APJs) of the Board presides over the proceedings, which are largely adversarial in nature. IPR is initiated by the filing of a petition asserting the invalidity of certain claims, to which the patent owner may respond. The APJ panel then decides whether to institute an IPR on a claim-by-claim basis. If instituted, the parties take discovery (albeit limited), file briefs arguing their positions, and participate in a hearing before the APJs. At the conclusion of the proceedings, the Board issues a final decision on the validity of the challenged patent claims. The decision is binding, but may be appealed to the Federal Circuit, which reviews findings of fact for substantial evidence and conclusions of law de novo. See 35 U.S.C In 2012, Greene s Energy filed an IPR petition challenging the validity of several claims of a patent owned by Oil States. The Board agreed to institute IPR and ultimately found the challenged claims invalid. Oil States appealed to the Federal Circuit, arguing that the Board s decision was substantively incorrect and that IPR proceedings are unconstitutional. Greene s, however, acknowledged that the Federal Circuit had already rejected the constitutional challenge in MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015). Without addressing constitutionality, the Federal Circuit affirmed the Board s decision. Oil States then filed a petition for a writ of certiorari, which the Supreme Court granted in June 2017, to consider whether IPR violates Article III. Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 4

8 2. Cases to Watch in 2018 Oil States argues that IPR violates Article III because Congress has delegated authority to a non-article III tribunal to adjudicate issues of patent validity that were traditionally the subject of suits at common law or in equity, and that the exceptions to Article III jurisdiction do not apply. In particular, Oil States contends that none of the original exceptions apply (e.g., the Board is not a true adjunct to the Federal Circuit and there is no consent because IPRs are instituted over the objection of the patent owner). Oil States also argues that the newer 20th century exceptions, dealing with claims intertwined with a federal statutory scheme or where there is an expert and inexpensive method for agency determination of the underlying facts, only apply where the rights arise from a new statutory obligation. In support of this position, Oil States cites a series of Supreme Court cases that allowed non-article III tribunals to address rights that did not exist at common law. 1 Unlike the rights at issue in these prior cases, Oil States argues that patent rights are private property rights that have long existed and been adjudicated by courts at law and equity for centuries. The respondents, Greene s Energy and the United States, assert that IPR is permissible under Article III because patent rights were not resolved exclusively by courts in England. Rather, respondents note that the King of England and the Privy Counsel both had the power to invalidate patents in 1789 and until the mid-1800s (although apparently unused since a time before the Founding). Respondents also argue that IPR is constitutional under the exceptions to Article III jurisdiction. First, respondents argue that a patent is a quintessential public right a right to a limited monopoly that is defined by Congress and awarded by an administrative agency. And respondents point out that the PTO has had the express authority to reevaluate and invalidate already issued patents for nearly four decades dating back to the creation of ex parte reexamination in As for the original public right exceptions, respondents argue that patentees consent to the periodic reevaluation of their patents because they apply for the patents knowing that IPR, PGR, and reexamination are available and could result in invalidation of their patent claims, and that the Board is acting as the Federal Circuit s adjunct. Respondents also assert that the 20th century exceptions apply that patent rights are so closely integrated into a public regulatory scheme that they are a matter appropriate for agency resolution. The Oil States case has drawn particularly intense interest from the intellectual property community. Twenty-nine amici, including major technology companies, generic pharmaceutical makers, and professional organizations such as the AIPLA and PTAB Bar Association, argue that IPR comports with the Constitution. On the other hand, 26 amici, including major pharmaceutical companies, conservative think tanks, and organizations such as the IEEE and IPO, argue that IPR is an unconstitutional agency adjudication. Oral argument was held in Oil States on November 27, The Court appeared to generally break along ideological lines, with the more conservative Justices more sympathetic to the constitutionally concerns advanced by Oil States. The Justices did not seem particularly interested in the issues surrounding the historical treatment of patents and instead focused on the applicability of the various exceptions to Article III jurisdiction and various practical issues. Worth noting is that Justice Sotomayor stated that for me... what saves this, even a patent invalidity finding, can be appealed to a court. And, in what could be considered a troubling sign for Oil States due to his swing-vote reputation, Justice Kennedy also pressured Oil States for precedent to support a position that Congress could not condition the issuance of a patent on a specific agreement that IPR was possible. 1 Atlas Roofing Co. v. OSHRC, 430 U.S. 442 (1976) (adjudication of new workplace safety claims); Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568 (1985) (adjudication of new pesticide registration compensation scheme); Commodity Futures Trading Comm n v. Schor, 478 U.S. 833 (1986) (new commodity client protection claims). Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 5

9 2. Cases to Watch in 2018 If the Supreme Court finds IPR unconstitutional, patent infringement litigation will likely increase. Patent owners have been increasingly reluctant to commence litigation over the last few years due, at least in part, to concerns over the cost and risk of defending ancillary IPR challenges. If alleged infringers are no longer able to shift validity determinations to the Board, patent owners will be more likely to commence infringement litigation. The Oil States decision could also impact the IPR decisions the Board has issued since For example, if IPR is unconstitutional, courts will need to determine whether the thousands of patent claims invalidated in IPR over the past five years can be revived. Patent owners may also argue that claims that were voluntarily cancelled as a result of IPR should be reinstituted. A decision that IPR is unconstitutional is also likely to impact other PTO proceedings. For example, it is difficult to imagine PGR which is largely analogous to IPR surviving if IPR is unconstitutional. Even ex parte reexamination would be at risk if the Court holds that the PTO does not have the authority to invalidate patents once they are issued. We anticipate a decision in Oil States during the first half of SAS Institute, Inc. v. Matal: Scope of Final Written Decisions (and Estoppel) in Inter Partes Review Proceedings In the event that inter parties review (IPR) survives the constitutional challenge presented in Oil States, the Supreme Court will address a narrower procedural issue in SAS Institute, Inc. v. Matal (No ): whether the Patent Trial and Appeal Board (the Board ) is required to issue a final written decision with respect to every patent claim challenged in a petition for IPR. The decision in SAS Institute has the potential to significantly broaden the scope of both the Board s final written decisions and the estoppel arising from those decisions. A petition for IPR must identify each claim challenged and the grounds on which the challenge to each claim is based. 35 U.S.C. 312(a)(3). The patent owner may then file a preliminary response opposing the petition. Id. at 313. After considering the petition and the patent owner s response, the Board may institute IPR if it determines that there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition. Id. at 314(a). The Board s decision on whether to institute IPR is final and nonappealable. Id. at 314(d). Ultimately, [i]f an inter partes review is instituted and not dismissed, the Board shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner (Id. at 318; emphasis added), which may be appealed to the Federal Circuit (Id. at 319). The final written decision also estops the petitioner from later challenging the validity of any claims addressed in the decision on any ground that the petitioner raised or reasonably could have raised during th[e] inter partes review. Id. at 315. SAS filed a petition seeking IPR of claims 1-16 of U.S. Patent No. 7,110,936 (the 936 patent). While the Board agreed to institute review with respect to claims 1 and 3-10, it declined to institute review of claims 2 and 11-16, finding that SAS had failed to establish a reasonable likelihood that those claims were invalid. At the conclusion of the IPR, the Board issued a final written decision confirming the validity of claim 4 and cancelling claims 1, 3, and 5-10 as invalid. Consistent with its established practice, the Board did not address noninstituted claims 2 or in the final written decision. Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 6

10 2. Cases to Watch in 2018 On appeal to the Federal Circuit, SAS argued that the Board was required to issue a final written decision addressing each of the claims 1-16 that SAS challenged in its petition for inter partes review. In a 2-1 panel decision, the Federal Circuit rejected SAS s argument, holding that, under 318, the Board is only required to issue a final written decision with respect to claims for which inter partes review is actually instituted. SAS filed a petition for certiorari and the Supreme Court agreed to consider the following question: Does 35 U.S.C. 318(a), which provides that the Patent Trial and Appeal Board in an inter partes review shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner, require that Board to issue a final written decision as to every claim challenged by the petitioner, or does it allow that Board to issue a final written decision with respect to the patentability of only some of the patent claims challenged by the petitioner, as the Federal Circuit held? Before the Supreme Court, SAS argued that the plain language of 318 requires a final written decision addressing every claim challenged in a petition for IPR. SAS also argued that the Board lacks the authority to institute IPR of only a subset of the challenged claims and must institute review of all challenged claims under 314 if the petitioner establishes a reasonable likelihood of prevailing on any one of the challenged claims. SAS also asserts that the Board s partial-institution, partial decision approach undermines a principal aim of the America Invents Act ( AIA ) to resolve patent validity challenges more efficiently. And by refusing to consider and resolve the validity of all challenged claims, the Board forces the parties to litigate claims separately in both IPR proceedings and parallel district court actions. The U.S. Government defends the Board s practices. First, it took the position that SAS cannot challenge the Board s refusal to institute IPR of claims 2 and because the Board s institution decisions are nonappealable under 314(d). Second, the United States argued that 318 only requires a final written decision [i]f an inter partes review is instituted. Based on this language, it asserted that no final written decision is required with respect to noninstituted claims. Third, the United States argued that IPR still achieves the objectives of the AIA, even if it does not completely eliminate the need for district court litigation. For example, by allowing the Board to revisit the validity of a subset of claims, IPR can narrow the claims and arguments presented in the district court. If SAS prevails in compelling the Board to address all challenged claims in a final written decision, the consequences could be farreaching. For currently pending IPR proceedings, the Board would be required to issue final decisions addressing both instituted and noninstituted claims. Without ordering supplemental evidentiary proceedings, the Board would have little or no record for decisions on the noninstituted claims. The workload of the Federal Circuit on appeal would also likely increase in tandem with the broadened scope of the Board s appealable decisions. In the long term, the most profound impact of SAS s position would be on the scope of estoppel arising from IPR. As noted above, a petitioner is largely estopped from later challenging the validity of any claims addressed in a final written decision. By compelling the Board to address more claims in its final written decisions, the Court would dramatically increase the number of claims and arguments subject to estoppel under 315. Oral argument in SAS Institute was held on November 27, The Court appeared somewhat fractured along ideological lines regarding the viability of SAS s primary contention that 318 unambiguously requires the Board to issue a final written decision on every claim that a petitioner includes in its initial petition. We expect a decision in SAS Institute during the first six months of Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 7

11 2. Cases to Watch in 2018 WesternGeco v. ION Geophysical: Ability to Recover Lost Profits for Foreign Sales In WesternGeco LLC v. ION Geophysical Corp., No , the Supreme Court has granted certiorari to consider whether a patentee who has shown infringement in the United States can recover damages for the profits that it lost on sales outside of the United States resulting from the infringement. The decision in WesternGeco could substantially expand the scope of damages available against companies that manufacture allegedly infringing products or components in the United States and then export those components. The WesternGeco case arose from a dispute over underwater surveying technology exported from the United States. In particular, WesternGeco developed and patented technology to allow lateral steering of an array of sensors towed behind a boat for finding oil and gas fields. In 2009, WesternGeco sued ION Geophysical for infringement under 271(f), alleging that ION had exported components of the patented invention from the United States. WesternGeco alleged that ION s foreign customers then combined the components and used the infringing systems to compete with WesternGeco in performing underwater surveys in international waters. A jury found ION liable for infringement and awarded WesternGeco $12.5 million in reasonable royalties and $93.4 million in lost profits related to sales outside the United States. ION appealed and the Federal Circuit reversed the award of lost profits. In a 2-1 panel decision, the court held that the presumption against the extraterritorial application of U.S. laws prevented WesternGeco from recovering lost profits on foreign sales. On petition for writ of certiorari, WesternGeco argued that the Federal Circuit erred in applying the presumption against extraterritoriality for damages arising under 271(f). WesternGeco noted that the act of infringement under 271(f) exporting components from the United States occurs in the United States. WesternGeco contended that, as long as the predicate act of infringement occurs in the United States, a patent owner is entitled to an award for any damages arising from the infringement, even if those damages are related to injuries occurring outside of the United States. WesternGeco also criticized the Federal Circuit s decision as effectively precluding a patent owner from ever recovering lost profits under 271(f) and thereby incentivizing infringers to engage in the very conduct that 271(f) sought to curtail exporting the components of a patented invention for assembly abroad in order to avoid the consequences of infringement. ION opposed certiorari, arguing that awarding lost profits on foreign sales extends the reach of U.S. patent law beyond the borders of the United States. ION also noted allowing foreign lost profits for infringement arising under 271(f) would place an infringer in a worse position than it would face for infringement under 271(a), where foreign lost profits are not available. ION asserted that it would not make sense to require the exporter of components of a patented invention (an infringer under 271(f)) to pay foreign lost profits when a company that manufactures the entire patented invention (an infringer under 271(a)) and then exports it would not be responsible for foreign lost profits under current precedent. In May 2017, the Supreme Court invited the Solicitor General to make a submission expressing the views of the United States. The United States then submitted a brief supporting WesternGeco s position and arguing that damages for infringement under any provision of 271 should compensate the patent owner for any injuries arising from the infringement, even if those injuries are sustained outside of the United States. Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 8

12 2. Cases to Watch in 2018 On January 12, 2018, the Supreme Court granted certiorari. The case has the potential to significantly alter the available damages in patent infringement cases. In particular, if WesternGeco ultimately prevails, companies that export infringing products (or components of infringing products) may be liable to the patent owner for lost profits the patent owner suffers in foreign markets due to competition with the infringing products. Such a change in law would be particularly important to American manufacturers with significant exports. Further, if the Court permits recovery of worldwide lost profits, the decision may also impact where companies in certain industries seek patent protection. EVE-USA v. Mentor Graphics: Assignor Estoppel and Apportionment of Lost Profit Damages In EVE-USA, Inc. v. Mentor Graphics Corp., No , the Supreme Court has been asked to grant certiorari to consider two issues: (1) whether the assignor of a patent (and the assignor s privies) may later contest the patent s validity; and (2) whether a patentee must apportion lost profits damages to account for the unpatented features of a multi-component product. The patent at issue in EVE-USA U.S. Patent No. 6,240,376 concerns emulation technology used to test the design of microchips. The two inventors, Dr. Alain Raynaud and Dr. Luc Burgun, were employees of, and assigned their invention to, Mentor Graphics. Both subsequently left Mentor Graphics and formed EVE, which was then acquired in 2012 by Synopsys, Inc. Around the time of the acquisition, Synopsys filed a declaratory judgment suit against Mentor Graphics asserting that the 376 patent was invalid. Mentor Graphics responded with counterclaims accusing Synopsys and EVE of infringement. Before trial, the district court granted Mentor Graphics summary judgment on Synopsys s invalidity arguments based on assignor estoppel. Assignor estoppel is an equitable doctrine that prevents one who has assigned the rights to a patent (or patent application) from later contending that what was assigned is a nullity. The estoppel also operates to bar other parties in privity with the assignor, such as a corporation founded by the assignor. Diamond Scientific Co. v. Ambico, Inc., 848 F.2d 1220 (Fed. Cir. 1988). The court concluded that Synopsys through the acquisition of EVE was in privity with the inventors of the 376 patent and, as such, could not argue that the 376 patent was invalid. Following the summary judgment ruling, the remainder of case proceeded to trial, where the jury found infringement and awarded Mentor Graphics more than $36 million in lost-profits damages. Synopsys moved to set aside the damages award, arguing that Mentor Graphics failed to apportion its lost profits among the patented and unpatented features of its emulators. Synopsis noted that Mentor Graphic s emulators have more than a thousand features and portions of the profits lost on the sales of those emulators should be attributed across the features. Synopsys also argued that Mentor Graphics failed to show that the patented features drove consumer demand for emulators and, as such, was not entitled to the full value of its lost profits under the entire market value rule ( EMVR ). See LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 67 (Fed. Cir. 2012) ( If it can be shown that the patented feature drives the demand for the entire multi-component product, a patentee may be awarded damages as a percentage of the revenues or profits attributable to the entire product. ). The district court rejected Synopsys s arguments and denied the motion. On appeal, a three-judge panel of the Federal Circuit affirmed the district court s holdings on assignor estoppel and the apportionment of damages. Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275 (Fed. Cir. 2017). Synopsys then filed a Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 9

13 2. Cases to Watch in 2018 petition for en banc review, which the Federal Circuit denied. Mentor Graphics Corp. v. EVE-USA, Inc., 870 F.3d 1298 (Fed. Cir. 2017). In a concurrence to the en banc denial joined by five other judges, Judge Stoll explained that it was proper for the jury to base the lost profits damages on the entire market value of Mentor Graphic s emulators, noting that the jury applied the general test for awarding lost profits articulated in Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 572 F.2d 1152, 1156 (6th Cir. 1978). Id. at Under that general test, the jury considered the demand for the patented product and the absence of noninfringing alternatives. Id. Judge Stoll agreed with the three-judge panel that these considerations, in effect, acted as a proxy for the requirement under the EMVR that the patented feature was the driver of consumer demand. Id. On the other hand, Judges Dyk and Hughes dissented, taking the position that, because the factual findings necessary to satisfy the Panduit factors are a necessary predicate for lost profits, the result here is that true apportionment will never be required for lost profits. Id. at In November 2017, Synopsys filed a petition for a writ of certiorari seeking review of the Federal Circuit s decision. Synopsys first asked the Court to grant review of the doctrine of assignor estoppel, noting that the Supreme Court has already abolished the similar doctrine of licensee estoppel in Lear, Inc. v. Adkins, 395 U.S. 653 (1969). According to Synopsys, assignor estoppel must also be rejected because it is a judge-made rule that has no statutory basis and conflicts with the paramount public interest of allowing challenges to potentially invalid patents. Synopsys also criticizes the Federal Circuit s extension of assignor estoppel to cover a wide variety of privies, arguing that the rule harms the economy and limits employee mobility because companies will be reluctant to hire employees if that comes at the cost of the waiver of invalidity defenses. Second, Synopsys asked the Court to grant review of the Federal Circuit s apportionment holding. Synopsys argues that the Federal Circuit s decision results in apportionment no longer being required for lost profits damages. Rather, Synopsys posits, a patentee will always be entitled to the entire value of its lost profits whenever it can meet the general requirement of showing that there is consumer demand for the accused (multi-component) product and an absence of noninfringing alternatives. Synopsys argues that this result would be contrary to 150 years of Supreme Court precedent requiring that damages including lost profits be apportioned among patented and unpatented features. The petition in EVE-USA was filed November 30, Mentor Graphics originally waived its right to file a brief in opposition to certiorari, but the Supreme Court requested a response. Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 10

14 2. Cases to Watch in 2018 Fourth Estate v. Wall-Street.com: Timing of Copyright Registration In Fourth Estate Public Benefit Corp. v. Wall-Street.com, No , the Supreme Court has been asked to resolve a circuit split regarding when a copyright owner is authorized to file a lawsuit alleging infringement. Pursuant to 17 U.S.C. 411, no civil action for infringement of the copyright... shall be instituted until... registration of the copyright claim has been made in accordance with this title. The petition in Fourth Estate asks the Supreme Court to resolve whether registration of the copyright claim is made (i) when a copyright holder submits an application for registration, or (ii) when the Copyright Office acts on the application. Given that processing of registration applications in the Copyright Office typically takes between six and 10 months, and the statute of limitations for copyright infringement is three years, the distinction is important. Fourth Estate, the petitioner in this case, is a news organization that licenses its works to other companies. The respondent, Wall- Street.com, allegedly copied and distributed certain of Fourth Estate s works after the termination of a license between the two companies. Fourth Estate filed applications to register copyrights for the allegedly infringing works. While the applications were pending, Fourth Estate filed a lawsuit against Wall-Street.com. Wall-Street.com then moved to dismiss the complaint, arguing that 411 barred the lawsuit because registration of the copyright claim had not yet been made (i.e., that the applications were not yet registered because they were not formally approved). The district court agreed and granted Wall-Street.com s motion. On appeal, the Eleventh Circuit affirmed. The court explained that the Copyright Act defines registration as a process that requires action by both the copyright owner and the Copyright Office (i.e., the filing of an application and the office s approval). Specifically, the court looked to 17 U.S.C. 410(a), which states that [w]hen, after examination, the Register of Copyrights determines that the copyright application is in good order, the Register shall register the claim and issue to the applicant a certificate of registration.... The court noted that the use of the phrase after examination in 410(a) makes explicit that an application alone is insufficient for registration. Also, the court was concerned that the Copyright Office would effectively lose the power to refuse registration if registration was made upon filing. See 17 U.S.C. 410(b). In reaching this decision, the Eleventh Circuit aligned itself with the Tenth Circuit and expressly rejected the contrary rulings of the Fifth and Ninth Circuits. In its petition for certiorari, Fourth Estate argues that the circuit split is entrenched and is unlikely to be resolved without further action by the Court, pointing to the current even divide between the four circuits that have addressed the issue. Moreover, Fourth Estate points out that the First and Second Circuits have recognized the split without addressing it, the Seventh Circuit has issued contradictory dicta in separate cases, and several district courts in other circuits have recognized the split and reached differing conclusions on the proper interpretation of 411. On the merits, Fourth Estate argues that, for the purpose of 411, registration is effectuated upon the filing of an application. Fourth Estate supports this by pointing out that the Copyright Act does not define registration and uses that term in various statutory sections to refer to the actions by both the Copyright Office and the copyright holder. Fourth Estate further argues that, because 411(a) also permits a copyright holder to institute a civil action even if the Copyright Office rejects the registration application, registration must logically refer to actions of the copyright holder. Fourth Estate also asserts that copyrights are not granted by the Office and instead come about by the virtue of the creation of the work, thus making the owner s rights independent of an affirmative government grant. Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 11

15 2. Cases to Watch in 2018 The parties briefs in Fourth Estate were distributed for the January 5, 2018 conference, during which the Court invited the Solicitor General to participate. Given the relative rarity of these invitations, and the Court s practice of often accepting the Solicitor General s recommendations on certiorari, this will be a case to watch in the next few months. Nantkwest v. Matal: Attorney Fee Awards in Actions Challenging PTO Decisions In Nantkwest, Inc. v. Matal, No , an en banc panel of the Federal Circuit will consider whether the U.S. Patent and Trademark Office ( PTO ) is entitled to recover attorneys fees incurred in actions commenced in the Eastern District of Virginia by patent applicants dissatisfied with a decision of the Patent Trial and Appeal Board (the Board ). Under 35 U.S.C. 145, [a]n applicant dissatisfied with the decision of the... Board in an appeal [of an examiner s rejection] under section 134(a) may... have remedy by civil action against the Director in the United States District Court for the Eastern District of Virginia. If an action is brought under 145, the court may adjudge that such applicant is entitled to receive a patent for his invention and authorize the PTO to issue the patent. Section 145 also provides that [a]ll the expenses of the proceedings shall be paid by the applicant. Nantkwest was the assignee of a patent application filed in 2001 for a method of treating cancer. After several years in examination, the patent was rejected for obviousness and the Board affirmed on appeal under 134(a). Nantkwest then opted to challenge the Board s decision by filing an action in the Eastern District of Virginia under 145. The PTO prevailed in the action and then sought to recover its attorneys and expert witness fees under the all expenses provision of 145. The district court awarded the expert witness fees to the PTO, but denied the PTO s request for attorneys fees. The basis for the court s ruling was the American Rule a judicial doctrine whereby each party is responsible for its own fees. The court found that the PTO had failed to articulate a statutory provision that clearly and explicitly allow[ed] them to overcome the American Rule and recover attorneys fees, as the all expenses provision of 145 is not sufficiently explicit. On appeal, a three-judge panel of the Federal Circuit reversed, finding that the heavy economic burden of challenges under 145 should be shouldered by the applicant regardless of the outcome of the proceedings. The court held that the American Rule does not apply because the statute specifically authorized the award of expenses and, under Taniguchi v. Kan Pacific Saipan, Ltd., 132 S. Ct (2012), expenses is boarder than costs and encompasses attorneys fees. The court also found that attorneys fees may be recovered even if the attorneys representing the PTO were salaried employees. On August 31, 2017, the panel opinion was vacated so that the Federal Circuit can hear the appeal en banc. The grant of en banc review was issued sua sponte. Given the relative rarity of en banc review in the Federal Circuit, this will also be a case to watch. Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 12

16 3 Venue Issues to Watch in 2018 Following the TC Heartland Decision On May 22, 2017, the Supreme Court issued its decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, No , restricting venue in patent infringement cases. The decision altered 30 years of precedent that allowed patent infringement cases to be filed in any judicial district where the defendant is subject to personal jurisdiction. Following TC Heartland, a domestic corporation may only be sued for patent infringement in (1) the state where it is incorporated; or (2) a state where it has committed acts of infringement and has a regular and established place of business. The impact of the TC Heartland decision has been widespread, as we have chronicled on our Into the Heartland webpage, which collects and analyzes every post-tc Heartland decision Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 13

17 3. Venue Issues to Watch in 2018 Following the TC Heartland Decision on venue in patent cases. As discussed below, there are a number of venue issues that are worth following in 2018 as district courts apply TC Heartland. Continuing Shift in Where Patent Cases Are Filed Almost immediately following TC Heartland, a shift occurred in where patent infringement cases are filed. As the below chart indicates, new case filings in the Eastern District of Texas since TC Heartland have dropped dramatically. From May through December 2016, 37.96% of new cases were filed in the Eastern District. Over the same period in 2017, only 13.94% of new cases were filed in that judicial district. At the same time, the percentage of new cases filed in Delaware and the Northern District of California has doubled. Top 10 Districts Post-TC Heartland 80% Percentage of All Patent Cases Filed 70% 60% 50% 40% 30% 20% 10% 0% 11.64% 38.00% 6.27% 3.40% 5.40% 3.43% 5/22-12/31 ' % 0.63% 1.54% 2.77% 23.14% 13.35% 9.09% 6.90% 5.87% 5.37% 5/22-12/31 ' % 1.65% 1.74% 1.53% D.Del. E.D.Tex. C.D.Cal N.D.Cal. N.D.Ill. D.N.J. S.D.N.Y. S.D.Tex. S.D.Cal. S.D.Fla. We expect these broader filing trends to continue. One interesting issue to watch in 2018 is whether patentees will invoke MDL procedure as a mechanism to consolidate cases filed across multiple venues. Ability to Base Venue on the Operations of Related Entities One issue that has begun to recur with some frequency is whether a plaintiff may base venue on the operations of a defendant s corporate affiliates. A number of courts have held that the operations of an affiliate cannot be imputed to a defendant for the purposes of venue so long as the related entities have maintained their formal corporate separateness. See, e.g., Ascion, LLC v. Tempur Sealy International, Inc., No. 15-cv (E.D. Mich. Oct. 13, 2017) (Slip Op.); Symbology Innovations, LLC v. Lego Systems, 2017 U.S. Dist. LEXIS (E.D. Va. Sept. 28, 2017); Blue Spike, LLC v. Nook Digital, LLC, 2017 U.S. Dist. LEXIS (E.D. Tex. July 28, 2017). The District of Delaware, however, has hinted at a more flexible approach. In several decisions, Judge Stark has indicated that he may be willing to allow venue based on the presence and activities of a corporate family Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 14

18 3. Venue Issues to Watch in 2018 Following the TC Heartland Decision in Delaware. See, e.g., Mallinckrodt IP, et al. v. B. Braun Medical Inc., No. 17-cv-0365 (D. Del. Dec. 14, 2017) (Slip Op.); Javelin Pharmaceuticals, Inc. et al. v. Mylan Laboratories Ltd., No. 16-cv-0224 (D. Del. Dec. 1, 2017) (Slip Op.). We expect that this issue will reach the Federal Circuit in 2018 so that the court can provide clarity on whether it is necessary to pierce the corporate veil in order to base venue on the operations of a defendant s affiliates. Meaning of Act of Infringement in Hatch-Waxman Cases One of the most hotly debated venue issues in 2018 will be the standard for showing that a generic pharmaceutical company has committed acts of infringement in a state that may form the basis for venue in Hatch-Waxman litigation. Under 28 U.S.C. 1400(b), a patent infringement case may be brought in a judicial district where the defendant has committed acts of infringement and has a regular and established place of business. Acts of infringement are defined in the Patent Act and generally include making, using, offering to sell, selling, and importing a patented invention. See 35 U.S.C. 271(a). The general definition of acts of infringement, however, does not apply in the context of Hatch-Waxman litigation. Indeed, under 271(e)(1), making, using, or selling a product shall not be an act of infringement if done solely for uses reasonably related to the development and submission of information as part of an Abbreviated New Drug Application ( ANDA ). Instead, 271(e)(2) provides that the submission of an ANDA shall be an act of infringement. If the submission of an ANDA is the only act of infringement available as a basis for venue in Hatch-Waxman litigation, patentees in those cases will be severely restricted in their choice of forum. Beyond a defendant s state of incorporation, cases could only be brought in the jurisdictions where the ANDA was submitted (and only if the defendant also maintains a regular and established place of business in that jurisdiction). In an effort to ease the restrictions on venue in ANDA cases (and perhaps in view of its outsized share of those cases), the District of Delaware has offered a novel interpretation of 1400(b). In particular, Judge Stark has held that a defendant has committed acts of infringement in Delaware whenever the defendant s planned future conduct includes making sales of an approved drug in Delaware. See Bristol-Myers Squibb Co. v. Mylan Pharmaceuticals Inc., No. 17-cv-379-LPS (D. Del. Sept. 11, 2017) (Slip Op. at 17). Again, we expect this issue to reach the Federal Circuit in 2018, giving the court the opportunity to decide whether a defendant has committed acts of infringement when it intends to infringe in the future. Suing a Foreign Parent Company to Anchor Venue The TC Heartland decision does not apply to foreign corporations, which may still be sued for patent infringement in any judicial district where they are subject to personal jurisdiction. Following TC Heartland, several plaintiffs filed suits naming both foreign parent corporations and their U.S. subsidiaries as defendants. The apparent goal of this pleading practice was to use the foreign parent corporations as a basis to establish venue in jurisdictions where venue was otherwise improper solely over U.S. subsidiaries. The strategy met with limited success in 2017, with at least two courts finding that the claims against the U.S. subsidiaries must still be transferred for improper venue. See Sharp Corp. v. Hisense Electric, Co., et al., 17-cv (S.D.N.Y. Dec. 22, 2017); Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 15

19 3G Licensing, S.A. v. HTC Corp., et al., No. 17-cv-0083 (D. Del. Dec. 18, 2017). The practice, however, is unlikely to abate in 2018 and we expect to see a number of decisions on whether foreign parent corporations can be named as defendants in order to anchor venue for claims against their U.S. subsidiaries. Adding Non-Patent Claims as a Basis for Pendent Venue Another strategy that plaintiffs have pursued to avoid TC Heartland s restrictive venue rules is arguing that the doctrine of pendent venue allows a court to assert venue over patent claims so long as venue is proper in the judicial district on some other basis. For example, plaintiffs have sought to plead patent infringement claims alongside non-patent claims, such as unfair competition claims under the Lanham Act. Plaintiffs then argue that courts can exercise pendent venue over the patent claims because venue is proper with respect to the non-patent claims. Few cases addressed the doctrine of pendent venue in 2017, but we expect to see this argument raised with increasing frequency in Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 16

20 4 Intellectual Property Legislation to Watch in 2018 There are a number of proposed IP-related bills that are worth watching in 2018, which we summarize below. H.R. 2189, Trade Protection Not Troll Protection Act of 2017 (introduced on Apr. 27, 2017) The intent of H.R is to amend the U.S. International Trade Commission s ( ITC ) enabling statute to make it more difficult for patent trolls to file complaints. Because current law is designed to protect American businesses from unfair import and trade practices, an ITC complainant must show that it has a domestic industry related to any asserted patents. This is demonstrated by Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 17

21 4. Intellectual Property Legislation to Watch in 2018 showing that the complainant: (i) uses the patent in the United States; and (ii) makes a significant investment, such as in plants, equipment, labor, capital, engineering, R&D, or licensing, related to the patent in the United States. In some instances, non-practicing entities ( NPEs ) have been able to satisfy this requirement by showing that they have either undertaken a substantial licensing program or that their licensees have made the required substantive investments. Many operating companies that are targets for NPE litigation consider the reliance on licensing activity to be abusive and inconsistent with the purpose of the ITC. H.R seeks to address this perceived abuse by modifying the definition of domestic industry and by giving new powers to the administrative law judges ( ALJs ) at the ITC. First, the bill modifies the domestic industry requirement to specify that an NPE s own investment in licensing must be substantial and result in the adoption and development of articles that incorporate the patented invention. The practice of securing licenses from companies after they have developed and adopted the accused technology would not establish a domestic industry. Second, the bill specifically prohibits the complainant from relying upon substantive activities by its licensees to show domestic industry, unless, again the license leads to the adoption and development of articles that incorporate the patent or other asserted IP. Third, the bill would allow an ALJ to identify the domestic industry requirement as a dispositive issue at the outset of the case. After such identification, the ALJ could then expedite fact-finding on the requirement and issue an initial determination on the issue within 100 days of the commencement of the investigation. Finally, the bill would allow the ITC to make a public interest determination at the beginning of the case rather than at the end to terminate the investigation in whole or in part after considering how an exclusion order would affect: (1) the public health and welfare; (2) the U.S. economy (including competitive conditions); (3) the production of like or directly competitive articles by the complainant and its licensees; and (4) domestic consumers. S. 1390, STRONGER Patents Act of 2017 (introduced on June 21, 2017) The STRONGER Patents Act aims to make several changes to post-grant proceedings before the U.S. Patent and Trademark Office (PTO), including to inter partes review (IPR). The changes in the STRONGER Patents Act have largely been sought by critics of IPR, such as entities in patent-reliant industries (such as pharmaceutical companies) who are concerned with the rate of invalidation in proceedings before the PTO. To allay these concerns, the proposed legislation would: Require that the claim construction standard used in district court litigation be applied in post-grant proceedings (rather than the current broadest reasonable interpretation standard); Require that the clear and convincing evidentiary standard used to prove invalidity in district court litigation be applied in post-grant proceedings (rather than the current preponderance of the evidence standard); Establish a standing requirement for bringing post-grant challenges; Allow for interlocutory appeal of decisions to institute IPR; Prohibit petitioners from requesting IPR to challenge a claim that was already the subject of an IPR proceeding; Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 18

22 4. Intellectual Property Legislation to Watch in 2018 Define any entity providing financial support to a petitioner as a real party in interest to the post-grant proceeding, such that the entity will be bound by the decision and estopped under 315(e); Bar review of a patent if a federal court or the ITC had previously reviewed its validity; and Create a new ex parte process for amending claims. The STRONGER Act also proposes overturning the Supreme Court s decision in ebay v. MercExchange, 547 U.S. 388 (2017), which made it more difficult to obtain an injunction in patent infringement cases. The STRONGER Act would reestablish a presumption in favor of awarding injunctive relief upon a finding of patent infringement. S. 812, PARTS Act of 2017 (introduced on Apr. 4, 2017) The PARTS Act would preclude lawsuits alleging infringement of design patents for the component parts of motor vehicles. The goal of the bill is to protect consumers by supporting the aftermarket car parts industry. Sponsors of the legislation have noted that car companies currently control over 70 percent of the collision repair market and have increasingly sought to protect their dominant position with design patents on the component parts of their cars. The bill would apply to any patent filed or issued before, on, or after the effective date of the bill. H.R. 1695, Register of Copyrights Selection and Accountability Act (passed House on Apr. 26, 2017, pending in Senate) H.R would change the appointment process for the Register of Copyrights. Under current law, the Librarian of Congress hires the Register. H.R would make the Register s position subject to Presidential appointment and the advice and consent of the Senate. The proposed bill would give the Register a ten-year, renewable term, subject to termination only for cause. Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 19

23 5 Intellectual Property Regulations to Watch in 2018 There are also a number of proposed IP-related regulations that we are watching in Improving the Accuracy of the Trademark Register, 82 Fed. Reg. 93 (May 16, 2017) The U.S. Patent and Trademark Office (PTO) sought comments on a proposed procedure to expedite third-party challenges to trademarks based on abandonment or nonuse. This procedure would utilize new pleading and evidentiary rules to make the Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 20

24 5. Intellectual Property Regulations to Watch in 2018 process faster and more efficient by limiting discovery and eliminating hearings. The Trademark Trial and Appeal Board would also have an expedited timeframe to issue a decision. Comments on the proposal were accepted through August 14, Attorney-Client Privilege for Matters Before the Patent Trial and Appeal Board, 82 Fed. Reg (Nov. 7, 2017) This new rule gives communications between a client and a patent practitioner that are reasonably necessary and incident to the scope of the practitioner s authority the same protections of privilege under Federal law as if that communication were between a client and an attorney.... A patent practitioner is defined to mean a person who has fulfilled the requirements to practice patent matters before the USPTO. This rule also applies equally to foreign patent practitioners. The effect of the rule is to give communications made between patent agents and their clients legal protection from discovery in proceedings before the PTO. Setting and Adjusting Patent Fees During Fiscal Year 2017, 82 Fed. Reg (Nov. 14, 2017) Effective January 18, 2018, routine fees to obtain a patent, such as filing, search, examination, and issue fees, will increase under this rule. Also, entities who meet the definition for small or micro will continue to pay reduced fees and are eligible for a discount. Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 21

25 6 Conclusion We expect 2018 to be another year of significant developments in the intellectual property arena. Both the courts and practitioners will continue to grapple with the evolution of the law and critical intellectual property issues that have far-reaching impact on how companies choose to pursue, litigate, and invest in intellectual property. Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 22

26 CONTACTS Scott W. Doyle Robert M. Masters Jonathan R. DeFosse Timothy P. Cremen Fried Frank Intellectual Property Outlook: Cases and Trends to Follow in 2018 friedfrank.com 23