Recent Patent Case Law Update. Paul Berghoff McDonnell Boehnen Hulbert & Berghoff LLP Chicago

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1 Recent Patent Case Law Update Paul Berghoff McDonnell Boehnen Hulbert & Berghoff LLP Chicago

2 Bowman v. Monsanto (Supreme Court) 2

3 Bowman v. Monsanto (Supreme Court) Patent exhaustion allows the purchaser to use a patented item, but does NOT allow the purchaser to copy the patented item [T]he seeds he purchased (miraculous though they might be in other respects) did not spontaneously create eight successive soybean crops. 3

4 FTC v. Actavis (Supreme Court) 4

5 FTC v. Actavis (Supreme Court) Reverse payment settlement agreements are neither presumptively lawful nor unlawful Must be reviewed under the rule of reason [T]he size of the unexplained reverse payment can provide a workable surrogate for a patent s weakness.... 5

6 Gunn v. Minton (Supreme Court) 6

7 Gunn v. Minton (Supreme Court) State courts have subject matter jurisdiction over legal malpractice claims based on the alleged mishandling of patent infringement litigation No matter how the state courts resolve [the malpractice claim]... Minton s patent will remain invalid. 7

8 Bosch v. Pylon (Fed. Cir., en banc) 8

9 Bosch v. Pylon (Fed. Cir., en banc) Under 28 USC 1292(c)(2), one can appeal a judgment in a civil action for patent infringement... [that] is final except for an accounting. The Federal Circuit has jurisdiction over appeals from patent infringement liability determinations even if damages and/or willfulness issues have not been decided [W]e wish to make clear that district courts, in their discretion, may bifurcate willfulness and damages issues from liability issues in any given case. 9

10 Motiva v. ITC (Fed. Cir.) 10

11 Motiva v. ITC (Fed. Cir.) 19 USC 1337(a)(2) requires proof of a domestic industry based on, e.g., substantial investment in the licensing of the patented article. [T]he evidence demonstrated that Motiva s litigation was targeted at financial gains, not at encouraging adoption of Motiva s patented technology. 11

12 Fresenius v. Baxter (Fed. Cir.) 12

13 Fresenius v. Baxter (Fed. Cir.) The intervening [USPTO] decision invalidating the patents unquestionably applies in the present litigation, because the judgment in this litigation was not final. A judgment is final only if it adjudicates upon the entire merits leaving nothing further to be done except the execution of it. 13

14 Apple v. Samsung (Fed. Cir.) 14

15 Apple v. Samsung (Fed. Cir.) The Federal Circuit reversed the district courts preliminary injunction To establish a sufficiently strong casual nexus [for irreparable harm], Apple must show that consumers buy the Galaxy Nexus because it is equipped with the apparatus claimed in the 604 patent not because it can search in general, and not even because it has unified search. 15

16 In re Certain Electronic Devices (ITC) 16

17 In re Certain Electronic Devices (ITC) The Policy Statement expresses substantial concerns, which I strongly share, about the potential harms that can result from owners of standards-essential patents ( SEPs ) who have made a voluntary commitment to offer to license SEPs on terms that are fair, reasonable, and nondiscriminatory ( FRAND ), gaining undue leverage and engaging in patent hold-up, i.e., asserting the patent to exclude an implementer of the standard from a market to obtain a higher price for use of the patent than would have been possible before the standard was set, when alternative technologies could have been chosen. 17

18 In re Certain Electronic Devices (ITC) My decision to disapprove this determination does not mean that the patent owner in this case is not entitled to a remedy. On the contrary, the patent owner may continue to pursue its rights through the courts. 18

19 Brooks v. Dunlop (Fed. Cir.) 19

20 Brooks v. Dunlop (Fed. Cir.) The AIA s retroactive elimination of the qui tam provision of 35 U.S.C. 292 did not violate the Due Process or Intellectual Property Clauses Given Congress s legitimate concerns with respect to the cost and constitutionality of pending qui tam actions, we conclude that the retroactive application of amended 292 to pending actions was a rational means of pursuing a legitimate legislative purpose. 20

21 Call them PRIMARY Considerations Leo Pharmaceutical v. Rea Apple v. ITC Federal Circuit reversed the Board (BPAI) and vacated the ITC for failing to give secondary considerations enough weight in determining nonobviousness 21

22 Ritz Camera v. SanDisk (Fed. Cir.) Walker Process antitrust claim relating to NAND flash memory products Federal Circuit held that a direct purchaser of product has standing to bring a Walker Process antitrust claim Even if there is no threat of infringement 22

23 Commil USA v. Cisco (Fed. Cir.) Communication protocols for handoffs between wireless base stations Federal Circuit vacated jury verdict of induced infringement and remanded for new trial Held that an accused inducer s good-faith belief of invalidity may negate the requisite intent for induced infringement. 23

24 Coming Attractions Supreme Court Burden of Proof Medtronic v. Boston Scientific Therasense and inequitable conduct Federal Circuit Deference Lighting Ballast Interplay of IPR and litigation -- Fresenius Standards essential patents 24

25 Thank You! 25

26 Update on Some Key Recent Patent Cases August 21, 2013 by Daniel L. Organ and Paul H. Berghoff 1 McDonnell Boehnen Hulbert & Berghoff LLP (Chicago) May you live in interesting times! The ancient Chinese curse applies with full force to the wave of major decisions overtaking the patent profession of late. The Supreme Court has been as active in the patent space as at any time since the 19 th century. A new legislative rewrite of the patent statute is in the books, but all of its implications are very far from having been fully absorbed into the system. Even the Executive Office has inserted itself onto the scene of late. Below is a summary of just a few of the key case law decisions that issued in the previous twelve months. These cases serve as a start down the path of understanding the ever-changing patent landscape in these interesting times. The Supreme Court of the United States Bowman v. Monsanto Co., 569 U.S., 133 S. Ct (2013) On May 13, 2013, Justice Kagan delivered a unanimous opinion of the Supreme Court, affirming the Federal Circuit. The Supreme Court held that the doctrine of patent exhaustion did not allow a farmer to purchase patented seeds and reproduce them through planting and harvesting without the patent holder s permission. Bowman was a farmer who purchased patented soybeans from Monsanto. He signed an agreement that prohibited him from replanting any Monsanto soybeans harvested from his initial soybean purchase. For his second crop, Bowman purchased commodity soybeans from a grain elevator. A large percentage of those soybeans were harvested Monsanto soybeans that had been sold to the grain elevator by other farmers. Bowman tested the second crop for the patented Monsanto trait, and harvested 1 Dan Organ is currently a 3L student at DePaul University College of Law and recently served as a summer associate at McDonnell Boehnen Hulbert & Berghoff LLP (MBHB) in Chicago. Paul Berghoff is one of the founders of MBHB and has over 30 years of patent litigation experience. He was also the recipient of IPO s 2011 President s Distinguished Service Award. 1

27 the soybeans demonstrating that trait. He harvested eight consecutive crops by planting and saving the harvested soybeans displaying the Monsanto trait. Monsanto found out and sued for patent infringement. Bowman raised the defense of patent exhaustion, arguing that the sale of soybeans from farmers to the grain elevator was a prior authorized sale and that Monsanto could not control the subsequent use of those articles. However, the Supreme Court countered by stating, the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto s permission. The Court focused on the notion that patent exhaustion protects the subsequent sale or use of the particular item sold, but does not allow the purchaser to reproduce the item. Bowman argued that exhaustion should apply here because soybean seeds were meant to be planted, and he was merely using the articles as they were intended. However, the Court reiterated that patent exhaustion does not protect the creation of new articles, which Bowman made by planting and harvesting the soybeans for eight consecutive years. In addition, the Court noted that the value of and investment in patents would plummet if copying were allowed after the first sale of the first patented article. Bowman s other argument was that soybeans naturally self-replicate, so he did not actually make copies or infringe the patent himself. Nonetheless, the Court stated that eight successive crops did not plant and harvest themselves, so his argument was without merit. The Court noted, however, that its holding was limited, recognizing that there may be future inventions in which self-replication might occur outside the purchaser s control. The Court declined, however, to determine whether exhaustion would apply in such cases. Fed. Trade Comm n v. Actavis, Inc., 570 U.S., 133 S. Ct (2013) On June 17, 2013, the Supreme Court overturned an 11th Circuit decision by holding that reverse payment agreements between brand name and generic pharmaceutical companies are not presumptively unlawful, but must be reviewed under a rule of reason analysis. 2

28 Solvay Pharmaceuticals owned a patent for a brand name drug called AndroGel. Actavis and another generic drug company filed Abbreviated New Drug Applications, and certified under Paragraph IV of the Hatch-Waxman Act that Solvay s patent was invalid or would not be infringed by the manufacture, use, or sale of their generic drugs. Solvay filed suit against the generic companies charging them with infringement of its presumptively valid patent. However, before the issues were resolved, the parties agreed to settle by entering into a reverse payment agreement. Under that agreement, Actavis and the other generic company agreed to stay out of the market for AndroGel until August, 2015, 65 months before Solvay s patent covering AndroGel expired. In exchange, the generic companies received millions of dollars in payments from Solvay. The issue before the 11 th Circuit was whether the reverse payment agreement violated antitrust law. The 11th Circuit held (and the dissent agreed) that there was no antitrust violation because absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent. However, the Supreme Court majority reversed, stating that antitrust analysis of a reverse payment agreement must go beyond merely comparing the agreement to the term of the patent or its earning potential, but must also include traditional antitrust factors such as anticompetitive effects, redeeming virtues, market power, and potentially offsetting legal considerations present under the circumstances. The Court reasoned that a reverse payment is an atypical settlement, where the party with no claim for damages walks away with money simply so it will stay away from the patentee s market. Thus, the full scope of antitrust analysis should apply. One major argument against applying normal antitrust scrutiny to reverse payment agreements was that it would require costly, complex, and time consuming litigation to demonstrate what would have happened absent the settlement. The Court rejected that argument, stating five reasons why it was not persuasive. First, this specific restraint (staying out of the market in return for money) has the potential for genuine adverse effects on competition. Second, the adverse effects of a reverse payment agreement may at least sometimes be unjustified, meaning that an antitrust analysis should be performed. Third, 3

29 where there is the threat of anticompetitive harm, the patentee likely has the power to bring about that harm in practice. Fourth, the necessary litigation is likely to be more feasible than the 11th Circuit imagined, because a determination of patent validity is normally not necessary to resolve an antitrust issue. Finally, the risk of antitrust liability does not prevent parties from settling; there are other ways to settle that do not involve the patentee paying generic companies. Thus, the Supreme Court declined to hold that reverse payment agreements were presumptively unlawful, but held that they should be analyzed under an antitrust rule of reason approach. Gunn v. Minton, 568 U.S., 133 S. Ct. 1059, 185 L. Ed. 2d 72 (2013) On February 20, 2013, the Supreme Court unanimously held that the 28 U.S.C. 1338(a) grant of exclusive jurisdiction to federal courts over claims arising under any Act of Congress relating to patents does not deprive state courts of subject matter jurisdiction over malpractice claims where the underlying case was patent infringement. Minton owned a patent related to securities trading, and filed an infringement suit against the National Association of Securities Dealers, Inc. (NASD) and the NASDAQ Stock Market, Inc. The district court found that Minton s invention was on sale more than one year prior to the date of the application, and thus his patent was declared invalid under the on-sale bar. In a motion for reconsideration, Minton argued for the first time that the activity more than one year prior to the application date fell within the experimental-use exception to the on-sale bar. The district court denied this motion, and the Federal Circuit affirmed because Minton failed to raise the experimental-use argument in a timely manner. Minton then brought a state malpractice action against Gunn, his council in the district court, arguing that Gunn s failure to raise the experimental-use argument earlier cost him the lawsuit. Gunn argued that even if the argument had been allowed, Minton would still have lost the infringement suit. The state court agreed, ruling in favor of Gunn. Minton then appealed, raising a new argument that his malpractice claim was based on an error in a patent case, and thus his claim fell under the exclusive 4

30 jurisdiction of federal courts because of 28 U.S.C. 1338(a). Thus, Minton argued, the state court case should be vacated and he should be free to start over in federal district court. The Supreme Court determined that federal jurisdiction over a state law claim will lie if a federal issue was (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress. Applying that inquiry to the present case, the Supreme Court held that a federal issue was necessarily raised and actually disputed. However, the Court noted that to meet the substantial requirement, the federal issue must have been important to the federal system as a whole, not merely important to the particular parties in the immediate suit. The Court found that Minton failed on this point. The answer to whether a hypothetical experimental-use argument would have prevailed had no impact on the prior federal patent litigation; Minton s patent would remain invalid with either result. Thus, although the experimental-use argument was important to the parties, it was posed in a hypothetical sense and not substantial in the relevant sense, i.e. significant to the federal system as a whole. Therefore, the Court held that malpractice claims based on underlying patent infringement suits were properly litigated in state court. 28 U.S.C. 1338(a) does not deprive state courts of subject matter jurisdiction in this case. The Federal Circuit Robert Bosch, LLC v. Pylon Mfg. Corp., F.3d, 107 U.S.P.Q. 2d 1113 (Fed. Cir. 2013) (en banc) On June 14, 2013, an en banc Federal Circuit held that 28 U.S.C. 1292(c)(2) conferred jurisdiction on the Federal Circuit to entertain appeals from patent infringement actions where neither a trial for damages nor a determination of willfulness had been decided. Bosch sued Pylon in district court for patent infringement. The district court bifurcated the issues of liability and damages and, after a jury trial, entered a judgment only on the issue of liability. Both parties appealed the judgment, and Bosch filed a motion to dismiss for lack of jurisdiction. The Federal 5

31 Circuit sua sponte granted a rehearing en banc to determine whether it had jurisdiction under 28 U.S.C. 1292(c)(2). 28 U.S.C. 1295(a)(1) grants the Federal Circuit jurisdiction over any appeal from a district court arising under any Act of Congress relating to patents, where there has been a decision that ends the litigation on the merits and leaves the district court with nothing to do but execute the judgment. This is known as the final judgment rule. 28 U.S.C. 1292(c)(2) contains an exception to the final judgment rule, however, allowing the Federal Circuit jurisdiction over an appeal from a civil action for patent infringement that would otherwise be appealable if it is final except for an accounting. The issue before the en banc Federal Circuit was whether an accounting encompassed a trial on damages and willfulness for the purposes of 1292(c)(2). The majority, as well as Circuit Judges Moore and Reyna, agreed that a determination of a patentee s damages was included in the scope of an accounting. Both the text and history of the statute, as well as the relevant case law, supported the notion that an accounting included both a determination of the infringer s profits as well as a determination of damages. This conclusion was based on four points. First, Congress expanded jurisdiction under 1292 in 1948 to include the words civil actions instead of the more restricted suits in equity. This change avoided the dissent s argument that an accounting was something meant to be performed only by a special master in equity, and thus does not include a trial for damages today. Second, issues historically decided by an accounting are the same as those decided during damages trials today. Third, the reasons articulated by Congress for allowing appellate jurisdiction over patent cases that are final except for an accounting, i.e. the wasted cost of performing an accounting if the outcome is reversed on appeal, apply in the same way to a trial for damages. Finally, stare decisis militates in favor of jurisdiction where liability has been established but a damages trial remains. Thus, the Court determined that an accounting encompasses a trial for damages. The majority also held that a determination of willfulness was included in the meaning of an accounting, based on historic examples of accounting proceedings. The Court noted that Bosch was 6

32 unable to point to anything in the text of the statute or legislative history that would indicate Congress intent to disturb the practice of determining willfulness as a part of an accounting. Accordingly, the Federal Circuit held that 28 U.S.C. 1292(c)(2) conferred jurisdiction over a patent infringement appeal where liability had been determined, but issues of damages and willfulness remained. Motiva, LLC v. Int l Trade Comm n, 716 F.3d 596 (Fed. Cir. 2013) On May 13, 2013, the Federal Circuit upheld an International Trade Commission (ITC) decision, holding that Motiva failed to prove that an industry for its patented technology existed or was in the process of being established, as required by Section 337 of the Tariff Act of 1930, found at 19 U.S.C (a)(2). Section 337 prevents the importation of articles that infringe a valid and enforceable United States patent if an industry in the United States relating to the articles protected by the patent either exists or is in the process of being established. This is known as the domestic industry requirement, and can generally be met by showing either evidence of a market for the patented invention, or sufficient investment in licensing efforts related to the invention. Motiva sought to prevent Nintendo s importation of the Wii video game system, asserting that it infringed Motiva s patent. At the time of the suit, Motiva did not have a market for its patented technology, but attempted to meet the domestic industry requirement by using its substantial investment in litigation against Nintendo as proof of investment in licensing efforts. Motiva had no actual licensees, but argued that the Nintendo litigation was sufficient investment towards licensing because the outcome of the litigation would have a major impact on future licensing activity. The Federal Circuit determined that Motiva s investment in litigation could satisfy the domestic industry requirement only if it was substantial and directed toward a licensing program that would encourage adoption and development of articles that incorporated Motiva s patented technology. However, the Federal Circuit found that Motiva s investment was not directed toward a licensing 7

33 program, nor was it directed toward encouraging adoption of Motiva s patented technology, but instead was targeted at financial gains. Motiva waited 3 years after Nintendo began importing before seeking relief. In addition, Motiva never sought a preliminary injunction. These findings led the Court to the conclusion that Motiva s investment in litigation was not motivated by efforts to increase licensing or create a market for its product. Therefore, Motiva s litigation activities did not satisfy the domestic industry requirement of Section 337. Apple Inc. v. Samsung Electronics Co., 695 F.3d 1370 (Fed. Cir. 2012) On October 11, 2012 the Federal Circuit overturned a preliminary injunction, granted by the Northern District of California, because Apple failed to establish a strong causal nexus between the alleged harm to Apple and the alleged infringement by Samsung, and thus failed to prove that it would suffer irreparable harm. Apple owns U.S. Patent No. 8,086,604 directed toward an apparatus for unified search that used heuristic modules to search multiple data storage locations with a single search query. Apple claimed infringement of this patent by the Samsung Galaxy Nexus smart phone, specifically Samsung s Quick Search Box (QSB) application. In addition to the infringement claim, Apple sought a preliminary injunction against Samsung to prevent sales of the Galaxy Nexus. The district court granted the injunction based on the alleged infringement of the 604 patent. The Federal Circuit overturned the injunction, focusing on the irreparable harm and likelihood of success elements of a preliminary injunction. To establish irreparable harm, the patentee must show, (1) absent an injunction, it will suffer irreparable harm, and (2) that a sufficiently strong causal nexus relates the alleged harm to the alleged infringement. To show a strong causal nexus, the Federal Circuit required Apple to prove that consumer demand for the accused product was driven by the infringing feature (the QSB application). The Court determined that Apple failed to meet this burden. Apple presented limited evidence attempting to show that Apple s unified search application, Siri, drove demand for the Apple iphone, and thus the same was true for the QSB and Galaxy Nexus. The Court 8

34 held that this was not strong enough evidence of a causal link. The Court also looked at Apple s survey evidence, which did not include QSB in the top five reasons consumers select Android-based smartphones. Thus, Apple failed to prove a strong causal link between demand for the Galaxy Nexus and the allegedly infringing QSB application, so the irreparable harm requirement was not met. The Court noted that its irreparable harm analysis would normally end the matter, however in the interest of judicial economy it decided to address one aspect of the likelihood of success prong, as it might be an important issue on remand. The Court weighed in on claim construction issues specific to the 604 patent, holding that Samsung s construction of a key limitation in claim 6 was correct, and therefore Apple was not likely to succeed on its infringement claim. Brooks v. Dunlop Mfg. Inc., 702 F. 3d 624 (Fed. Cir. 2012) On December 13, 2012, the Federal Circuit affirmed a district court decision holding that the America Invents Act (AIA) retroactive elimination of the qui tam provision of 35 U.S.C. 292 did not violate the Due Process Clause or the Intellectual Property Clause of the Constitution. Prior to the enactment of the AIA, Brooks filed a qui tam (informer s) suit alleging that Dunlop violated 292 by including patent numbers on its products that were expired and invalidated. Section 292 makes it unlawful for any person to engage in specific acts of false patent marking. Subsequent to Brooks filing suit, the AIA enactment amended 292 in several respects. First, the amended 292(a) provided that only the United States may sue for the penalty authorized by that subsection. In lieu of a qui tam provision, amended 292(b) authorized actions for damages by any person who has suffered a competitive injury as a result of a violation. In addition, the AIA expressly provided that these amendments applied to all cases that were pending on, or commenced on or after the enactment of the AIA. After the amendments took effect, Brooks lacked standing to bring a suit because under 292(a), he was not the United States, and under 292(b), he could not allege any right to damages for a competitive injury. Therefore, the court dismissed his suit. 9

35 Brooks appealed to the Federal Circuit. First, he argued that Congress could not apply the AIA amendments to pending qui tam actions, because the amendments were not justified by a rational legislative purpose as required by the Due Process Clause. The Court countered by noting that the legislative purpose Congress sought was to rein in the surge of abusive false marking litigation. This goal was attained, through rational means, by allowing suits to be brought only by those parties that actually suffered a competitive injury as a result of the false marking. The court found that this purpose was rational, and thus the AIA amendments to 292 met the burden of the Due Process Clause. Second, Brooks argued that he created a contract with the United States by filing a lawsuit against Dunlop. He argued that 292 was a unilateral offer which he accepted by filing suit, and which was repudiated when Congress made the amendments retroactive. However, the Court noted that the words offer or acceptance did not appear anywhere in 292, and the legislative history and case law showed no indication that his argument was correct. Thus, the Court found no evidence of a contract. Finally, Brooks argued that the retroactive elimination of the qui tam provision violated the Intellectual Property Clause, U.S. Const. art. I, 8, cl. 8. The Court determined, however, that the retroactive elimination of qui tam suits did not affect the scope of Congress patent power, but rather implicated Congress judgment in effectuating and maintaining a patent system, well within Congress rights. Thus, the 292 amendments did not violate the Intellectual Property Clause. Executive Orders On August 3, 2013, Ambassador Michael Froman, the U.S. Trade Representative, issued a rare Executive Order disapproving of the ITC s prior determination in the ongoing battle between Apple and Samsung over smartphone technology. The ITC had found that Apple infringed a number of standardsessential patents belonging to Samsung and issued an exclusion order and a cease and desist order against the iphone. 10

36 Ambassador Froman s Order discussed the policy considerations involving standards-essential patents and cited extensively to the Department of Justice s Policy Statement on the topic. As stated in the Executive Order: The [DOJ s] Policy Statement expresses substantial concerns, which I strongly share, about the potential harms that can result from owners of standards-essential patents ( SEPs ) who have made a voluntary commitment to offer to license SEPs on terms that are fair, reasonable, and non-discriminatory ( FRAND ), gaining leverage and engaging in patent hold-up, i.e., asserting the patent to exclude an implementer of the standard from a market to obtain a higher price for use of the patent than would have been possible before the standard was set, when alternative technologies could have been chosen. The Executive Order went on to make it clear, however, that this reversal of the ITC s determination was strictly based on policy grounds and does not mean that the patent owner in this case is not entitled to a remedy. On the contrary, the patent owner may continue to pursue its rights through the courts. And is there anyone who doubts that Samsung and Apple will indeed continue to pursue [their] rights through the courts? 11