From PLI’s Course Handbook Parallel Patent Litigation and Reexamination Proceedings 2007: Keeping Your Case on Track #13599
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11
INTERVENING RIGHTS AND THE POSSIBILITY FOR LAST-MINUTE HEROICS
Michael J. Sacksteder Fenwick & West LLP INTERVENING RIGHTS AND THE POSSIBILITY FOR
LAST-MINUTE HEROICS
Michael J. Sacksteder
Fenwick & West LLP Michael J. Sacksteder Fenwick & West LLP 555 California Street, 12th Floor San Francisco, CA 94104 (415) 875-2450 [email protected]
Michael J. Sacksteder is a partner in the Litigation Group at Fenwick & West LLP, a firm representing technology and life sciences companies, based in Silicon Valley. Mr. Sacksteder is resident in the firm’s San Francisco office.
Mr. Sacksteder’s practice focuses on litigation and dispute resolution concerning patents and other forms of intellectual property. He has litigated matters involving a wide variety of technological fields, including computer software, wireless and optical networking, seminiconductor circuitry and manufacturing, and nucleic acid microarrays.
Mr. Sacksteder has represented clients in all phases of litigation, from initial investigation through appeal. He recently represented Asyst Technologies in a patent infringement trial in United States District Court for the Northern District of California. The jury found Asyst’s patent valid and infringed, and awarded Asyst $74.7 million in damages.
Mr. Sacksteder is a graduate, magna cum laude, of Northwestern University School of Law, where he served as editor in chief of the Northwestern University Law Review.
Mr. Sacksteder would like to thank Terrance Pitts, a summer associate at Fenwick & West, for his assistance in the preparation of this paper. I. Introduction
Think of the doctrine of intervening rights as a potentially game-winning home run in the bottom of the ninth inning. Just when all seems lost – when the patent-in- suit has emerged from reexamination with amended claims that clearly read on your accused product and with virtual immunity against invalidity courtesy of inoculation by an extensive list of newly cited prior art references – the doctrine can erase some, or even all, of the damages that would otherwise result from a finding that the patent is valid and infringed. Born in the late 19th Century,1 expanded by the
Supreme Court in 1940,2 and first codified in the Patent Act of 1952,3 the doctrine can permit an accused infringer to continue activities that infringe claims that were amended during reexamination and to avoid liability for damages for such activities in the past. The doctrine’s applicability is usually not, however, as sure a thing as a Roy Hobbs round-tripper when the music on the soundtrack starts to swell. Intervening rights are mandatory only under relatively narrow circumstances, and only for physical things that have already been manufactured at the time the reexamination certificate is issued. While the equitable aspect of the doctrine can sometimes expand its applicability beyond that narrow range, an attempt at a broader application raises additional requirements. It is therefore important to understand the complexities of the doctrine and the prerequisites for it, in order to maximize the chances that the doctrine will be available when needed to snatch victory from the jaws of defeat.
II. What Are Intervening Rights?
The doctrine of intervening rights is codified in the second paragraph of 35 U.S.C. § 252. While Section 252 refers to “reissued” but not “reexamined” patents, 35 U.S.C.
§ 307 expressly permits intervening rights under Section 252 to apply equally to “[a]ny proposed or amended new claim determined to be patentable and incorporated into a patent following a reexamination proceeding.” All intervening rights enumerated under Section 252 are therefore available in reexamination cases as well.
The doctrine rests on a policy of promoting fairness and fostering certainty in formulating one’s business plans, and of maintaining the public’s right to use what is not claimed in the original patent.4 Claims that are amended during reexamination proceedings usually only have effect once a reexamination certificate is issued. Since the amended claims effectively did not exist before then (and the pre-amendment claims effectively never existed), the public had no notice of them, and the doctrine precludes a patentee from recovering for post-issue use, sale, or offer for sale of items that had already been made when the reexamination certificate emerged from the PTO. It may under some circumstances also preclude recovery for items where
“substantial preparation” had been made by that time or permit the continued practice of a process that had already begun or for which substantial preparation had been made.
The two sentences of the intervening rights paragraph of Section 252 therefore establish two distinct categories of intervening rights. The so-called “absolute intervening rights” of the first part are what they sound like – absolute.
That part requires the mandatory application of intervening rights under certain circumstances. The so-called “equitable intervening rights” of the second sentence are discretionary.
While they may apply in more circumstances than absolute intervening rights, the decision whether to grant equitable intervening rights requires consideration and balancing of a number of factors.
It is important to note that neither absolute nor equitable intervening rights apply to any claims in the reexamined patent that are “substantially identical” in scope to a claim in the original patent. This makes sense, because claims that survived reexamination continue their existence in their originally issued form, and the public would have had notice of those original claims. The first part of section 252 describes the conditions under which the original patent is surrendered and under what circumstances claims of the reissued or reexamined patent are continued from the original patent. According to section 252:
The surrender of the original patent shall take effect upon the issue of the reissued patent… but in so far as the claims of the original and reissued patents are substantially identical, such surrender shall not affect any action then pending nor abate any cause of action then existing, and the reissued patent, to the extent that its claims are substantially identical with the original patent, shall constitute a continuation thereof and have effect continuously from the date of the original patent. (Emphasis added.)
Therefore, any claims in the reissued or reexamined patent that are “substantially identical” to the original patent, are not protected by the defense of intervening rights.
However, if any of the claims of the reissued patented are not found to be substantially identical to the original patent, an accused infringer could then attempt to raise the defense.5 A. Absolute Intervening Rights
As noted above, absolute intervening rights arise under the first sentence of the second paragraph of section
252:
A reissued patent shall not abridge or affect the right of any person or that person’s successors in business who, prior to the grant of a reissue, made, purchased, offered to sell, or used within the United States, or imported into the United States, anything patented by the reissued patent, to continue the use of, to offer to sell, or to sell to others to be used, offered for sale, or sold the specific thing so made, purchased, offered for sale, used or imported unless the making, using, offering for sale, or selling of such thing infringes a valid claim of the reissued patent which was in the original patent. (Emphasis added.)
The statutory language both grants the rights and limits them:
“Shall not abridge or affect” – The right is not
discretionary; it is “absolute.”
“ Prior to the grant of reissue … continue” –
The accused infringer must have already been
making, using, selling or offering for sale the accused device (the “specific thing” discussed
in the next bullet point).
“ The specific thing” – Rights only apply to
physical things in existence at the time the
reexamination certificate issues.6 If the
alleged infringement is an offer for sale, it is
not enough for the offer to have occurred
before the reexamination certificate issued;
the specific items that were the subject of the
offer must have been manufactured by then as
well.7
“Unless … such thing infringes a valid claim
of the reissued patent which was in the
original patent.” If the accused device has
intervening rights under an amended claim but
infringes a surviving unamended claim,
absolute intervening rights do not apply. 8
Accordingly, absolute intervening rights are among the closest things the law provides to a “get out of jail free” card. There is, however, little subtlety to the application or limitations of such rights. If the statutory prerequisites are satisfied, such rights apply, often with a great deal of impact.
If any prerequisite is missing, the accused infringer will have to look to the less certain haven of equitable intervening rights for relief.
B. Equitable Intervening Rights
The second sentence of the second paragraph of section 252 establishes equitable intervening rights, which give courts discretion to invoke principles of equity to grant a broad set of rights for infringing activity occurring after issuance of a reexamination certificate.
The relevant sentence of section 252 states:
The court…may provide for the continued manufacture, use, offer for sale, or sale of the thing made, purchased, offered for sale, used or imported as specified, or for the manufacture, use, offer for sale, or sale in the United States of which substantial preparation was made before the grant of the reissue, and the court may also provide for the continued practice of any process patented by the reissue that is practiced, or for the practice of which substantial preparation was made, before the grant of the reissue, to the extent and under such terms as the court deems equitable for the protection of investments made or business commenced before the grant of the reissue. (Emphasis added.)
A close reading of the statutory language reveals that this sentence grants courts the discretion to protect two distinct types of activity: (1) continued manufacture, use, offer for sale or sale of physical things made after the reexamination certificate issued, provided that “substantial preparation was made” for such manufacture, use, offer for sale or sale, and (2) continued practice of a process covered by an amended claim of the reexamined patent, provided that the accused infringer was either already practicing the process before the reexamination certificate issued, or had made “substantial preparation” to do so.
The final clause, together with the language “may provide” at the beginning of the sentence, fixes the decision whether to grant intervening rights firmly within the court’s equitable discretion. Such discretion, together with such inherently imprecise language as “substantial preparation” (and the requirement that claims not be “substantially identical” as discussed above) renders decisions concerning equitable intervening rights inherently difficult to predict.
Nevertheless, as discussed in the remainder of this article, certain approaches could increase the likelihood of a grant of such rights.
The rationale underlying the doctrine of equitable intervening rights is to protect investments and promote fairness. An accused infringer may have undertaken substantial preparation for business activity or investments before reissue or issuance of a reexamination certificate and should not be penalized if the claims of the reissued or reexamined patent have either broadened or narrowed and are not substantially identical to the claims in the original patent.
The court in Seattle Box Co., Inc. v. Industrial Crafting and
Packing, Inc. (Seattle Box II), 756 F.2d 1574 (1985 Fed.
Cir.), confirmed this perspective.
[T]he new reissue claims in this case present a compelling case for the application of the doctrine of intervening rights because a person should be able to make business decisions secure in the knowledge that those actions which fall outside the original patent claims are protected.…As we have noted, the remedy of intervening rights is calculated to protect an infringer’s preexisting investments and business. Prior business commitments, such as previously placed orders and contracts, are one such example.9
While this perspective makes perfect sense in connection with claims that are broadened through reissue – after all, the broader claim coverage did not exist before reissue – it may initially seem puzzling when applied to claims that are narrowed through reissue or through reexamination. After all, by definition, anything that practiced the broader pre-reexamination claims would also practice the narrowed, amended claims.
The explanation is that prior to reexamination, the subsequently amended claim was probably invalid.
According to one court, the “purpose of equitable intervening rights is to protect investments which have been made in good faith on some perceived infirmity in the original patent.”10 When a claim must be narrowed to avoid prior art raised during reexamination, the “infirmity” in the original patent is its invalidity. The modifier “perceived” in the above quote is also likely to factor into the analysis. As part of the equitable analysis, a court may consider whether the accused infringer actually relied on the “perceived infirmity” in the pre-reexamination patent in deciding make an investment in the accused technology.
III. Application of Intervening Rights by Courts
A. “Substantially Identical” Claims
Before it arrives at its equitable analysis (or before determining whether to grant absolute intervening rights), a court must determine whether the amended claim is
“substantially identical” to the original claim. In many cases, the distinction between the two claims will be clear. When it isn’t, the Federal Circuit has held in one case, that “identical” means “at most, ‘without substantive change,’”11 and in a later case, that language which “merely clarif[ies]” does not satisfy the requirement for being substantially identical.12 The meaning of “identical” adopted by Federal
Circuit was eventually codified in an amendment to Section
252 in 2000 which changed “identical” to “substantially identical.”13 Prior to the codification of “substantially identical,” courts had generally taken the position that
“identical” did not mean literal identity but only that the scope of the claim in the original and reissued or reexamined patent had to be identical.14 Since the 2000 amendment to section 252, patentees have had clearer standards for making a determination of substantial identity.
When an original claim is amended in response to an examiner’s rejection of the original claim in view of prior art, courts typically, but not always, find that the original and amended claims are substantially identical.15 In Laitrum
Corp. v. NEC Corp., 163 F.3d 1342, 1349 (Fed. Cir. 1998), the Federal Circuit reversed the district court’s holding that
Laitrum’s claims in the reexamined patent were substantially identical. The patentee had amended its original claim during reexamination in response to a rejection based on prior art.16 Noting that that it is improper to read limitations into the claim from the specification, the Federal Circuit found that the original claims did not contain a limitation added in the amended claims and that the claims had thus changed in scope.17 To determine if a change is substantive, the court noted that there must be an “overall examination of the written description, the prosecution history and the language of the respective claims.”18
By contrast, in Engineered Data Products, Inc. v.
GBS Corp., No. 99-cv-00555-JLK, 2007 at *25 2007 Lexis
20974 (D. Colo. Mar. 23, 2007), aff’d, Engineered Data
Products, Inc. v. InfoSystem Solutions, LLC., No. 99-cv-
01889-JLK, 2007 Lexis 20975 at *2 (D. Colo. Mar., 23,
2007), a district court found that certain amended claims had not been substantively altered, even though those claims had been amended during reexamination due to rejection of claims based upon prior art. In the course of examining the
“plain language, specification and prosecution history” of the original patent, it also reviewed the patent examiner’s Statement of Reasons for Patentability and/or Confirmation and found that the amended claims had merely highlighted a limitation that was already in the original claims.19 Thus, according to the court, “[t]his is a situation in which the allowance of a rejected claim after amendment did not substantively change the scope of the claim.”20
However, the court held that other claims involving the same patent that had been amended during reexamination to overcome a prior art rejection had substantively changed during reexamination, therefore baring recovery of damages for alleged infringement of those claims before issuance of the reexamination certificate.21
B. Consideration of Equitable Factors
Courts may consider numerous factors in determining whether, and to what extent, to grant intervening rights to a patent defendant.
In Visto Corp. v. Sproquit Technologies, Inc., 413
F.Supp. 2d 1073 (N.D. Cal. 2006), the court recited a long list of factors to be considered: whether “substantial preparation” was made
by the infringer before the reexamination
certificate issued;
whether the infringer continued manufacturing
before the reexamination certificate issued on
advice of its patent counsel;
whether there were existing orders or
contracts;
whether non-infringing goods can be
manufactured from the inventory used to
manufacture the infringing product and the
cost of conversion;
whether there is a long period of sales and
operations before the reexamination certificate
issued from which no damages can be
assessed; and whether the infringer had made profits
sufficient to recoup its investment.22
Although published case law applying several of these factors is sparse to non-existent, each one should be considered in preparing to assert a defense of equitable intervening rights. Other factors may also come into play – for example, whether the alleged infringement is ultimately found to be willful.
1. Willful Infringement
A finding of willful infringement in a case where equitable intervening rights are sought provides the closest thing in this fuzzy area of law to a bright line rule:
Intervening wrongs will virtually always preclude a defendant from obtaining intervening rights.
Courts find the equitable nature of this species of intervening rights to be decisive in such cases. Relying on the doctrine of unclean hands, the Federal Circuit has recited the truism that “[one] who seeks equity must do equity” in affirming a district court’s denial of equitable intervening rights to a willful infringer.23 While the Federal Circuit technically merely found that the district court had not abused its discretion in that case, the finding of willful infringement was the only basis for affirming the district court, and in light of the Federal Circuit’s pronouncements, a willful infringer should not expect to succeed in seeking equity.
2. Reliance on Opinion of Counsel
Courts place significant weight on the question of whether an accused infringer relied on advice of counsel in support of its decision to practice its accused technology before the reissue or reexamination is complete. Remember that the policy behind equitable intervening rights is to
“protect an infringer’s preexisting investments and business,” provided that such investments are made in good faith.24
In one case, for example, the Federal Circuit considered the influence of the advice of counsel on the infringing patentee’s actions in reversing a district court’s ruling that equitable intervening rights did not apply to the infringing patentee. The accused infringer had relied on counsel’s advice in good faith before the reissue had been granted:
This advice-of-counsel was given to Industrial in April 1980, while the 617 patent was extant, some 3 months before the Re ‘373 patent was issued….From these facts, it is apparent that Industrial was attempting to design its spacer blocks…”around” the original ‘617 patent claims.25
The court also considered: (1) whether non-infringing goods could be manufactured from the inventory of the infringing product; (2) “the cost and ease of converting infringing items to non-infringing items”; and (3) whether the infringer was aware of the patent prior to reissue.26
In order to maximize the ability to show good faith reliance on counsel for pre-reexamination acts, the best approach appears for the opinion of counsel and the basis for seeking reexamination to rely on the same basis. A logical disconnect would likely arise from an attempt to rely on a non-infringement opinion in an effort to obtain intervening rights for claims amended during reexamination to avoid a determination of invalidity. Instead, the most convincing reliance argument would result from a situation in which the opinion of counsel and the reexamination both address invalidity based on the same prior art reference.
In addition, since an intervening rights defense would be based on the original, later-invalidated claims, an opinion of counsel should focus on the original claims (and should obviously predate) the issuance of the reexamination certificate. Finally, since there can be no reliance on an opinion of counsel before it exists, such an opinion should be obtained as soon after receiving notice of the patent as possible. It is unlikely that acts taken after receiving notice of the patent, but before obtaining the opinion, would fall within the protection of equitable intervening rights.
3. Business-Related Factors
In order to determine whether intervening rights would “protect an infringer’s preexisting investments and business,”27 courts examine the nature and extent of such investments and business. Orders placed and contracts that existed before the issuance of a reexamination certificate are often important, as is any other evidence that shows a line of business which should equitably be permitted to continue based on the accused infringer’s earlier reliance on the patent’s invalidity. However, a showing of substantial investment in one’s business, by itself, is not likely to be sufficient.28
C. Procedural Issues
The defense of intervening rights has been raised at several stages in litigation – from preliminary injunction motions29 to trial. Because of the factual nature of a number of the factors considered for equitable intervening rights, that defense seems generally unsuitable for summary judgment.
There is no strict requirement for the defense to be pleaded in an accused infringer’s answer (or declaratory judgment complaint) as long as adequate notice is provided to avoid prejudice to the patentee. So courts have discretion under the liberal terms of Rule 15(b) of the Federal Rules of
Civil Procedure to permit the defense to be raised at trial even if not pleaded.30
However, courts presumably may also have discretion to deny an attempt to raise the defense under those circumstances as well. Accordingly, the best practice is to plead the defense if a basis for it appears to exist, and if such a basis arises during the course of the lawsuit (for example, if a reexamination certificate issues while the litigation is underway), to amend the pleadings, if possible, or otherwise promptly provide notice of the defense to the patentee.
The defense of intervening rights must at least be raised at trial as an affirmative defense.31 In Underwater
Devices Inc. v. Morrison-Knudsen Co., Inc., 717 F.2d 1380,
1388 (Fed. Cir. 1983), the court found that by not raising the defense of intervening rights at trial, the accused infringer had forfeited the right to make a claim of intervening rights on appeal. Similarly, in Windsurfing Intl., Inc. v. AMF, Inc.,
782 F.2d 995, 1003 (Fed. Cir. 1986), the court found that although the accused infringer had raised the defense of intervening rights at trial, it offered no evidence to support its assertion and therefore could not reassert its claim at a post- trial hearing.
In spite of these holdings, in a bifurcated case, where there is one trial for liability and another for damages, the accused infringer may be able to wait until the patent owner secures a liability judgment and then advance an intervening rights defense in the damages trial.32 In BIC Leisure
Products, Inc. v. Windsurfing Intern., Inc., 1 F.3d 1214, 1221
(Fed. Cir. 1993), the court agreed that even though the accused infringer, BIC Leisure Products, did not plead the defense of absolute intervening rights, it could raise the defense during the damages trial because “the absolute intervening rights defense did not become an issue until
Windsurfing secured a liability judgment against BIC.”33 IV. Conclusion
Intervening rights is by no means the most common defense to arise in patent lawsuits. But as the reexamination process gains in popularity, the defense is more likely to be available. In order to optimize the chances for a successful intervening rights defense, some foresight is necessary:
Track the progress of reexaminations
involving patents already asserted (or likely to
be asserted) to determine the impact of
amendments to the original claims.
Consider the inventory of “specific things” in
inventory at the time a reexamination
certificate is likely to issue in order to
maximize the benefit of a finding of absolute
intervening rights.
Obtain and rely on an opinion of counsel
based on prior art asserted in reexamination.
Scrupulously avoid willful infringement (and
its indicia). Consider and document the timing of
preparations, contracts, etc., in order to
coincide with reliance on opinion of counsel.
If these steps are taken, the chances may increase that the doctrine of intervening rights will save the day when all seems lost. 1 Jonathan A. Platt, Protecting Reliance on the Patent System: The Economics and Equities of Intervening Rights, 47 Case W. Res. L. Rev. 1031, 1041 (1997). 2 See Sontag Chain Stores Co. v. National Nut Co. of California, 310 U.S. 281 (1940) 3 Donald S. Chisum, 4A Chisum on Patents § 15.02 (2007). 4 John M. Skenyon, et. al., Patent Damages Law and Practice § 5.48 (2006). 5 See BIC Leisure Prods., Inc. v. Windsurfing Intl., Inc., 1 F.3d 1214, 1220 (Fed. Cir. 1993). 6 Id. at 1221. 7 Shockley v. Arcan, Inc., 248 F.3d 1349, 1360 (Fed. Cir. 2001). 8 John M. Skenyon, et. al., Patent Damages Law and Practice § 1.29 (2006). 9 Seattle Box Co., Inc. v. Industrial Crafting and Packing, Inc. (Seattle Box II), 756 F.2d 1574 (Fed. Cir. 1985). 10 Allied Tube & Conduit Co., 125 F. Supp. 2d 987, 1004 (D. Ariz. 2000). 11 Seattle Box Corp., Inc. v. Industrial Crating & Packing, Inc. (Seattle Box I), 731 F.2d 818, 827 (1984 Fed. Cir.). 12 Westvaco Corp. v. International Paper, 991 F.2d at 742 (“To the extent the reissue claims change ‘the precise placement of the material layers within the structure,’ the claim cannot be construed as mere clarification, but must be construed as changing the scope of the original claim.”). 13 Chisum, supra, note 3, § 15.05 (1)(b)(ii) (2007) (citing Seattle Box I, 731 F.2d at 827). 14 Kevin L. Russell, 5 Federal Circuit Patent Case Digests § 23:26 (citing Kaufman Co., Inc. v. Lantech, Inc., 807 F.2d 970, 977 (Fed. Cir. 1986) (adopting definition that “identical” means at most “without substantive change” and rejecting assertion that any amendments made during reexamination are substantive thereby entitling infringer to an intervening right) (citing Seattle Box I, 731 F.2d at 827)); see also Slimfold Mfg. Co., Inc. v. Kinkead Industries, Inc., 810 F.2d 1113, 1115. 15 Chisum, supra note 3, at §15.05 (1)(b)(vi) (discussing Laitrum Corp. v. NEC, 163 F.3d 1342 (Fed. Cir. 1998)). 16 Laitrum Corp., 163 F.3d at 1346-47. 17 Id. at 1348. 18 Id; see also Laser Design Int’l, LLC v. BJ Crystal, Inc., Nos. 03-1179 JSW, C 03-3905 JSW at *7, 2007 WL 735763 (N. D. Cal. Mar. 7, 2007) (denying motion for summary adjudication due to question of material fact regarding prosecution history of claims in question). 19 Id. at *25. 20 Id. 21 Id. at *36. 22 Visto Corp., v. Sproqit Techs., Inc., 413 F.Supp 2d 1073, 1089 (N.D. Cal. 2006). 23 Shockley, 248 F.3d at 1361; see also Allied Tube, 125 F.Supp. 2d at 1004 (“[C]ourts only grant equitable intervening rights to parties acting in ‘good faith’ who ‘innocently’ develop and manufacture the infringing good.”). 24 Seattle Box II, 756 F.3d at 1580. 25 Id. at 1580. 26 Id. 27 Id. 28 Visto, 413 F. Supp. 2d at 1091. 29 Id. at 1090-91. 30 Id. 31 Skenyon, supra note 8. 32 Robert A. Matthews, 4 Patent Digest § 25.91 (2007). 33 BIC Leisure Products, Inc., 1 F.3d at 1221.