The Federal Bar Association Northern Virginia Chapter
Presents: Patent Litigation under the America Invents Act And Other Recent Developments 2013
Featuring: Representatives of the U.S. Patent and Trademark Office The Honorable Gerald Bruce Lee The Honorable Liam O’Grady The Honorable T. Rawles Jones, Jr. The Honorable John F. Anderson
Moderators: Charles B. Molster, III, Esq. Winston & Strawn LLP Damon W. D. Wright, Esq. Venable LLP Andrew R. Sommer, Esq. Winston & Strawn LLP
January 29, 2013, 3:00-5:00 p.m. Albert V. Bryan Courthouse 401 Courthouse Square Alexandria, VA 22314 TABLE OF CONTENTS
I. DISCOVERY IN PTO TRIAL PROCEEDINGS AND THE ROLE OF NON- PATENT PRACTITIONERS IN TRIALS ...... 1
A. Limited Discovery in Trial Proceedings Before the PTAB in General ...... 1
B. Testimony in Trial Proceedings Before the PTAB ...... 2
C. Document Discovery in Trial Proceedings Before the PTAB ...... 3
D. Non-Patent Practitioners in Proceedings Before the PTAB ...... 4
II. IMPACT OF NEW POST-ISSUANCE PTO PROCEEDINGS ON PATENT LITIGATION IN THE DISTRICT COURTS ...... 6
A. The Retirement of Inter Partes Reexamination ...... 6
B. Inter Partes Review ...... 9
1. Preliminary Proceedings ...... 9
2. Trial Proceedings ...... 11
3. Appeal ...... 13
4. Impact on Litigation Strategies ...... 13
C. Post-Grant Review ...... 16
1. Preliminary Proceedings ...... 16
2. Trial Proceedings ...... 17
3. Appeal ...... 19
4. Impact on Litigation Strategies ...... 19
D. Transitional Program for Covered Business Method Patents ...... 21
1. The Legislative Debate Over the Transitional Program for Covered Business Method Patents ...... 22
2. Patents Subject to the Transitional Program for Covered Business Method Patents . 25
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DC:723366.1 3. Key Differences Between Covered Business Method Patent Review and Post-Grant Review ...... 26
III. A SECOND BITE AT THE APPLE: HYATT V. KAPPOS – CREATING A NEW RECORD IN THE DISTRICT COURT FOLLOWING PTO PROCEEDINGS ...... 32
IV. PATENT TERM ADJUSTMENT SUITS AND THE EXELIXIS CASE ...... 34
A. Pending PTA Suits ...... 36
B. No Equitable Tolling of PTA Claims—Patentees Must File If They Want Adjustments 36
V. IS A SMALL PATENT CLAIMS COURT COMING? ...... 38
A. Factors Suggesting the Need for a Small Patent Claims Court ...... 38
1. Transaction Costs ...... 38
2. Reduced Litigation ...... 38
B. Would A Patent Small Claims Court Be Used in Practice?...... 39
1. Recent Interest in a Patent Small Claims Court ...... 39
2. Skepticism in the Proposed Small Claims Court ...... 40
C. What Might a Successful Patent Small Claims Court Look Like? ...... 40
1. Expeditious Litigation ...... 40
2. Floors and Caps on Recovery ...... 41
3. Availability of Other Remedies ...... 41
4. No Supplemental Claims ...... 42
5. Limited Ability to Remove the Case ...... 42
6. Jury Trial...... 42
7. Availability of Appellate Review ...... 43
VI. MULTI-DEFENDANT PATENT CASES POST-AIA JOINDER RULES UNDER § 299(a) ...... 44
A. New 35 U.S.C. § 299 ...... 44 -ii-
DC:723366.1 B. Judicial Interpretation and Reactions ...... 45
C. The Patentee Response to § 299 ...... 46
D. Response to Plaintiff’s New Theories of Joinder ...... 48
E. The AIA’s Joinder Provision And Multi-District Litigation (“MDL”) Consolidation Under 28 U.S.C. § 1407 ...... 49
1. Statutory Framework for MDL Consolidation ...... 49
2. Section 299 Does Not Prohibit MDL Consolidation ...... 50
3. Strategic Considerations for MDL Consolidation ...... 50
4. Guidance from the MDL Panel on Placement of Patent Cases ...... 51
F. Non-MDL Claim Construction Procedures Among Multiple Cases ...... 53
1. Consolidation ...... 53
2. Permissive Intervention ...... 54
3. Amicus Participation ...... 55
4. Stipulated Participation...... 56
5. Delayed Transfer ...... 57
6. Informal Participation ...... 58
7. Procedures in the Trailing Court ...... 58
VII. CONTINUING EVOLUTION OF PATENT DAMAGES LAW ...... 60
A. LaserDynamics: Background ...... 60
B. LaserDynamics: The Entire Market Value Rule ...... 63
C. LaserDynamics: Royalty Rate Apportionment ...... 64
D. LaserDynamics: The Admissibility of Settlement Agreements...... 66
E. LaserDynamics: Impact on Litigation Strategies ...... 67
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DC:723366.1 VIII. THERASENSE’S IMPACT ON INEQUITABLE CONDUCT AND NEW SUPPLEMENTAL EXAMINATION PROCEEDINGS ...... 68
A. Therasense, Inc. v. Becton, Dickinson & Co...... 68
B. Application of Therasense ...... 71
1. Therasense: On Remand ...... 71
2. American Calcar, Inc. v. American Honda Motor Co., Inc...... 73
3. American Calcar: On Remand ...... 74
4. Powell v. The Home Depot U.S.A., Inc...... 75
5. 1st Media, LLC v. Electronic Arts, Inc...... 75
6. Aventis Parma S.A. v. Hospira Inc...... 77
7. Pure Fishing Inc. v. Normark Corp...... 78
8. Parker Vision, Inc. v. Qualcomm Inc...... 79
9. Shire LLC v. Impax Labs., Inc...... 80
10. Network Signatures, Inc. v. State Farm Mutual Ins. Co...... 81
C. Supplemental Examination ...... 81
1. Scope of and Procedures for Supplemental Examination ...... 82
2. Modified Ex Parte Reexamination Procedures Following Supplemental Examination 85
3. PTO Discovery of Fraud...... 86
4. Supplemental Examination’s Impact on Litigation and Enforcement Strategies ...... 87
IX. WILLFUL INFRINGEMENT AFTER BARD PERIPHERAL VASCULAR, INC. V. W.L. GORE & ASSOCIATES ...... 91
A. Powell Foreshadows a Change ...... 91
B. Bard Acknowledges and Resolves the Powell Problem ...... 93
C. Considerations After Bard ...... 95 -iv-
DC:723366.1 D. Bard’s Early Returns—Few Changes Except Recognition of the Court’s Role ...... 96
X. UNIQUE ISSUES IN LITIGATION OVER STANDARDS ESSENTIAL PATENTS- REMEDIES ...... 98
A. Overview ...... 98
B. The Availability of Injunctive Relief and ITC Exclusion Orders ...... 100
1. Microsoft Corp. v. Motorola Inc...... 100
a. Anti-Suit Injunction: The District Court Enjoins Enforcement of a German Injunction ...... 101
b. The Ninth Circuit Affirms the District Court’s Anti-Suit Injunction ...... 103
c. The District Court Grant’s Microsoft’s Motion to Dismiss Claims for Injunctive Relief 105
2. United States Department of Justice and United States Patent and Trademark Office’s Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments...... 106
3. The Federal Trade Commission’s Position ...... 107
a. Amicus Brief at the Federal Circuit in the Apple Inc. v. Motorola Inc. Appeal .... 108
b. Third Party Submission: In the Matter of Certain Wireless Communications Devices, Portable Music and Data Processing Devices, Computers and Components Thereof, Inv. No. 337-TA-745 ...... 109
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DC:723366.1 I. DISCOVERY IN PTO TRIAL PROCEEDINGS AND THE ROLE OF NON- PATENT PRACTITIONERS IN TRIALS
In carrying out the statutory mandate that the Director promulgate rules governing the new trial proceedings before the PTAB within one year of enactment of the AIA,1 the PTO promulgated final rules and a set of guidelines that relate generally to trial practice before the PTAB. Two of these publications are germane to all trial proceedings before the PTAB. First, the PTO published Office Patent Trial Practice Guide (hereafter “Practice Guide”), which includes information related to the timing of trial proceedings and includes a sample scheduling order, discovery, protective orders, including a guidelines on proposing a protective order, and petitions and motions practice.2 The PTO also published Rules of Practice for Trials Before the Patent Trial and Appeal Board and Judicial Review of Patent Trial and Appeal Board Decisions; Final Rule (hereafter “Rules of Practice for Trials”).3 The latter final rule provides “a consolidated set of rules relating to Board trial practice for inter partes review, post-grant review, the transitional program for covered business method patents, and derivation proceedings.”4 This section focuses on two specific aspects of the rules: (1) availability and use of discovery and (2) the ability of non-registered patent practitioners to practice before the PTAB in trial proceedings.
A. Limited Discovery in Trial Proceedings Before the PTAB in General
One of the key differences between the new post-issuance review proceedings under the AIA and ex parte and inter partes reexamination is the availability of discovery. The AIA requires the PTO to provide parties with the ability to take limited discovery in inter partes reviews,5 post-grant reviews,6 and covered business method patent reviews.7 In these
1 See 35 U.S.C. § 316(a) (2012). 2 See Office Patent Trial Practice Guide, 77 Fed. Reg. 48756-48773 (Aug. 14, 2012). The predecessor to this was the Practice Guide for Proposed Trial Rules, 77 Fed. Reg. 6868 (Feb. 9, 2012). 3 See Rules of Practice for Trials, 77 Fed. Reg. 48612 (Aug. 14, 2012). 4 Id. at 48612. 5 35 U.S.C. § 316(a)(5) (requiring the Director to set “standards and procedures for discovery of relevant evidence” in inter partes review and limiting discovery to “deposition of witnesses submitting affidavits or declarations” and “what is otherwise necessary in the interest of justice”). 6 Id. § 326(a)(5) (requiring the Director to set “standards and procedures for discovery of relevant evidence, including that such discovery shall be limited to evidence directly related to factual assertions advanced by either party in the proceeding”). 7 AIA §18(a) (stating that covered business method patents will be reviewed in the same manner as post-grant reviews, with some exceptions). -1-
DC:723366.1 proceedings, “[u]nlike in proceedings under the Federal Rules of Civil Procedure, the burden of justifying discovery in Board proceedings would lie with the party seeking discovery.”8
The rules permit the parties to reach an agreement regarding the exchange of initial disclosures, which are described in the Practice Guide.9 The Practice Guide sets forth two options for initial disclosures. The first is first based on Fed. R. Civ. P. 26(a)(1)(A), and requires a disclosure identifying people with discoverable information, and copy or a description of documents (including electronically stored information) and things that are relevant to the proceeding.10 The second option provides for more extensive disclosures and focus on specific issues that might be present in the proceeding such as non-published disclosures and obviousness.11 If the parties agree to mandatory initial disclosures, they must submit their agreement to the Board by the time the patent owner’s response is to be filed.12 The initial disclosures are filed as exhibits by the parties.13 These initial disclosures will permit a party to “automatically take discovery of the information identified in the initial disclosures.”14 In the absence of an agreement, initial disclosures may be sought by motion.15 In the absence of initial disclosures, 37 C.F.R. § 42.51(b) provides that “[a] party is not entitled to discovery except as provided in paragraph (a) of this section, or as otherwise authorized in this subpart.”16
B. Testimony in Trial Proceedings Before the PTAB
In trial proceedings before the Board, direct testimony will be taken through affidavit.17 Affidavits may be presented “at any time to support a petition, motion, opposition, or reply.”18
8 Rules of Practice for Trials, 77 Fed. Reg. 48621 (Aug. 14, 2012). 9 37 C.F.R. § 42.51(a)(1) (“Parties may agree to mandatory discovery requiring the initial disclosures set forth in the Office Patent Trial Practice Guide.”). 10 See Practice Guide, 77 Fed. Reg. 48761-62 (Aug. 14, 2012). 11 Id.at 48762. 12 See 37 C.F.R. § 42.51(a)(1)(i). 13 Id. 14 Id. § 42.51(a)(1)(ii). 15 Id. § 42.51(a)(2). 16 37 C.F.R. § 42.51(b). 17 Rules of Practice for Trials, 77 Fed. Reg. 48622 (Aug. 14, 2012) (“To minimize costs, direct testimony would generally be taken in the form of an affidavit.”). See also 37 C.F.R. § 42.53(a) (“Uncompelled direct testimony must be submitted in the form of an affidavit.”). The rules do contemplate taking direct testimony by deposition. See 37 C.F.R. § 42.53(c)(3). However, before that deposition occurs, the party requesting the direct testimony must serve “[a] list and copy of each document under the party’s control and on which the party intends to rely,” and “[a] list of, and proffer of reasonable access to, anything other than a document under the party’s control and on which the party intends to rely.” Id. § 42.53(c)(3)(i)-(ii). A notice of deposition must also be filed and will limit the scope of the direct testimony. Id. § 42.53(c)(4)-(5)(i). -2-
DC:723366.1 The other party has the right to cross-examine an affiant or declarant within the testimony period of the trial,19 so long as the deposition occurs before an officer authorized to take oaths.20 Cross- examination will usually occur after supplemental evidence related to the direct testimony has been filed and at least a week before the deponent’s testimony needs to be included in a filing with the Board.21 The testimony must be transcribed into a deposition transcript and might also be live or recorded if the parties agree.22 The scope of cross-examination is limited to the scope of the direct testimony.23
Procedurally, depositions will proceed similar to depositions under the Federal Rules of Civil Procedure. Among other things, objections to the admissibility of deposition testimony must be made on the record at the time of the deposition.24 Furthermore, in order to preserve an objection made on the record, the objection must be raised in a timely filed motion to exclude the evidence.25 Unlike the Federal Rules of Civil Procedure, the party offering direct testimony from the deponent must bear “all costs associated with the testimony, including reasonable costs associated with making the witness available for the cross-examination.”26
C. Document Discovery in Trial Proceedings Before the PTAB
Document discovery in trial proceedings before the Board is automatic. The rules require the service of exhibits with the paper or testimony they are cited with.27 Any party submitting documentary evidence must also provide relevant information that is inconsistent with any
18 37 C.F.R. § 42.53(b)(1)). 19 37 C.F.R. § 42.51(b)(1)(ii). 20 37 C.F.R. § 42.53(b)(2). Depositions outside of the United States can be taken either upon agreement of the parties or as the Board directs. See 37 C.F.R. § 42.53(b)(3). 21 37 C.F.R. § 42.53(d)(2). The party seeking the deposition also gets to choose the order that the deponents will be presented. Id. 22 37 C.F.R. § 42.53(a). Even if the parties agree to a video deposition, the video may not be submitted to the Board without Board authorization. Id. 23 37 C.F.R. § 42.53(d)(5)(ii). 24 See 37 C.F.R. § 42.53(f)(8) (“Any objection to the content, form, or manner of taking the deposition, including the qualifications of the officer, is waived unless made on the record during the deposition and preserved in a timely filed motion to exclude.”). 25 Id. In the proposed rules, the Office made a distinction between motions to exclude and motions in limine. That distinction was eliminated in the final rules, which only refer to motions to exclude. See Rules of Practice for Trials, 77 Fed. Reg. 48646 (Aug. 14, 2012) (“As to the admissibility of evidence, the final rule eliminates the provision for motions in limine.”) But see 37 C.F.R. § 42.64 (titled “Objection; motion to exclude; motion in limine”). 26 37 C.F.R. § 42.53(g). 27 See 37 C.F.R. § 42.51(b)(1)(i). -3-
DC:723366.1 position advanced during the proceeding at the time the inconsistent statement is filed.28 The purpose of this requirement is to avoid the need to authorize additional discovery at the expense of delaying the proceedings.29
The rules provide parties with the ability to seek additional discovery beyond the limited depositions and documentary evidence outlined above. The rules permit additional discovery, but only in limited circumstances. First, the parties may agree to additional discovery.30 Second, a party may move for additional discovery, but must show that additional discovery is in the interests of justice, except in post-grant reviews where additional discovery is limited to evidence directly related to factual assertions advanced by either party in the proceeding.31
D. Non-Patent Practitioners in Proceedings Before the PTAB
The rules promulgated by the PTO governing trials before the PTAB permit non- registered attorneys to participate in trial proceedings. Specifically, the rules provide that motions for pro hac vice representation will be granted for good cause shown, and allow the Board to impose restrictions on any pro hac representation.32 The rules also require lead counsel to be a registered practitioner.33 If not already on file, a power of attorney must be filed to designate counsel.34 Because of the technically-complex nature of proceedings before the PTO, the PTO has indicated that “a motion to appear pro hac vice by counsel who is not a registered practitioner will be granted in limited circumstances.”35
In practice, the Board has been granting motions for pro hac vice representation where the attorney seeking pro hac vice representation is an attorney with substantial litigation
28 See 37 C.F.R. § 42.51(b)(1)(iii). As originally proposed, the rules also required the party submitting the information to explain the inconsistency. That requirement has been eliminated in the final rules. See Rules of Practice for Trials, 77 Fed. Reg. 48613 (Aug. 14, 2012). 29 Rules of Practice for Trials, 77 Fed. Reg. 48622 (Aug. 14, 2012). 30 See 37 C.F.R. § 42.51(b)(2). 31 See Rules of Practice for Trials, 77 Fed. Reg. 48719 (Aug. 14, 2012). 32 Id. § 42.10(c). 33 Id. § 42.10(a) (“If a party is represented by counsel, the party should designate a lead counsel and a back-up counsel who can conduct business on behalf of the lead counsel.”). Lead counsel, however, must be a registered practitioner. Id. § 42.10(c). 34 Id. § 42.10(b). 35 Rules of Practice, 77 Fed. Reg. 48618, 48629 (Aug. 14, 2012). Likewise, the revocation of a pro hac vice admission is also discretionary and may be done for “incompetence, unwillingness to abide by the Office’s Rules of Professional Conduct, and incivility.” Id. at 48618. -4-
DC:723366.1 experience and has specific knowledge about the matter at issue.36 For example, where an attorney has been representing either the petitioner or the patent owner in connection with district court litigation and has a number of years of litigation experience, pro hac vice representation has been permitted.37
Pro hac vice representation has not been universally permitted. In SAP America, Inc. v. Versata Development Group, Inc., CBM2012-00001, the PTAB denied pro hac vice admission to counsel for Versata based on proof that Versata’s litigation team had been held in violation of a district court protective order. These facts were not mentioned in the declaration of the attorney seeking admission.38 Therefore, the PTAB concluded that the movant had not carried its burden of demonstrating good cause for admission pro hac vice.39
A party may not automatically move for pro hac vice appointment because all motions must be authorized by the PTAB. However, in practice, the PTAB has created a procedure by which the PTAB authorizes such motions by permitting all such motions by both parties within a certain time period rather than having all parties seek leave to file individual motions.40
36 See, e.g., Bloomberg Inc. v. Markets-Alert Pty. Ltd., CBM2013-00005 (JYC), Paper No. 12 (Nov. 15, 2012). 37 See, e.g., Nissan N. Am., Inc. v. Collins, IPR2012-00037, Paper No. 16 (Dec. 10, 2012) (granting pro hac vice motion where attorney had 10 years litigation experience and was lead counsel for patentee in parallel district court litigation involving the same patent at issue in the PTAB trial proceeding). 38 See, e.g., SAP Am., Inc. v. Versata Development Group, Inc., CBM2012-00001, Paper No. 21 at 4 (Nov. 6, 2012). 39 Id. at 4-5. 40 See, e.g., Illumina, Inc. v. The Trustees of Columbia Univ., IPR2012-00007, Paper No. 24 (undated) (authorizing all parties to file motions for pro hac vice representation before a set date). -5-
DC:723366.1 II. IMPACT OF NEW POST-ISSUANCE PTO PROCEEDINGS ON PATENT LITIGATION IN THE DISTRICT COURTS
The Leahy-Smith America Invents Act (“AIA”) provides the public with new avenues to challenge patents before the PTO. 41 For example, the AIA provides for three new “trial” proceedings before the PTO, and specifically before the newly constituted Patent Trial and Appeal Board (“PTAB”).42 These proceedings were designed to resolve disputes quickly and cheaply, and to help improve patent quality.43
First, the AIA creates a new post-grant review proceeding that provides the public with a nine-month window of time to challenge a newly-issued patent (or reissued patent) on any statutory grounds.44 Second, last September marked the end of inter partes reexamination and its succession by inter partes review.45 Like inter partes reexamination, inter partes review is limited to consideration of challenges to validity based on patents and printed publications. Inter partes review is not available until after the time for a post-grant review has expired,46 although a “dead zone” was eliminated by the AIA Technical Corrections Act that made inter partes review unavailable for patents that were not subject to first to file for nine months after the patent issued.47 Third, Congress created a Transitional Program for Covered Business Method Patents, which may have been one of the most hotly-debated provisions during enactment of the AIA, as discussed in more detail in section II.D.1, infra.
A. The Retirement of Inter Partes Reexamination
The Optional Inter Partes Reexamination Procedures Act was enacted in 1999 and amended in 2002 and again in 2011.48 Inter partes reexamination was no longer available after
41 An earlier version of this section appears in DRAFTING PATENTS FOR LITIGATION AND LICENSING: 2012 CUMULATIVE SUPPLEMENT 132-34 (Bradley C. Wright, ed., 2012) (chapter 4, authored by Andrew R. Sommer) (reproduced with permission). 42 See Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284, at § 7 (Sept. 16, 2011) (hereafter “AIA § __”). 43 See, e.g., 157 CONG. REC. S5374 (Sept. 7, 2011) (statement of Sen. Leahy) (“[T]he bill will improve administrative processes so that disputes can be resolved quickly and cheaply without patents being tied up for years in expensive litigation” and will ensure that “higher quality patents issue in the future.”). 44 See 35 U.S.C. § 321(c). 45 See AIA § 6(c)(3)(C). 46 See id.; see also 37 C.F.R. § 42.102(a)(1)-(2). 47 See An Act to correct and improve certain provisions of the Leahy-Smith America Invents Act, H.R. 6621. 48 35 U.S.C. §§311-318; AIA § 6(c). -6-
DC:723366.1 September 15, 2012 and has been replaced by inter partes review.49 Before the enactment of the AIA, inter partes reexamination was instituted if a petition presented a substantial new question of patentability as to any one claim.50 Effective September 16, 2011, the AIA revised this standard to require a showing that there is a “reasonable likelihood that the requester would prevail with respect to at least 1 of the claims challenged in the request.”51 This standard is intended to be more difficult to meet than the substantial new question of patentability standard previously applied in the reexamination context.52
Prior to its retirement, inter partes reexamination was being used with increasing frequency. There may have been several reasons for this. For example, the number of the patents which were subject to inter partes review had increased over the years and the number of patent litigations filed between 2000 and 2010 increased substantially. Perhaps the uptick in use of inter partes reexamination was driven by considerations such as public familiarity with inter partes reexamination. During the life of inter partes reexamination, over 2,000 requests were filed. A summary of the filings through the end of the applicability of the statute are summarized in the graph below.53
49 AIA § 6(c)(3)(C); see also Revision of Standard for Granting an Inter Partes Reexamination Request, 76 Fed. Reg. 59055 (Sept. 23, 2011) (“The Office is also revising the rules governing inter partes reexamination to reflect the termination of inter partes reexamination effective September 16, 2012, which is provided for in the act.”); 37 C.F.R. § 1.913(b) (2011) (“Any request for an inter partes reexamination submitted on or after September 16, 2012 will not be accorded a filing date, and any such request will not be granted.”). 50 35 U.S.C. § 312(a)(2008). 51 AIA § 6(c)(3)(A)(i)(I)(aa). 52 See 157 CONG. REC. S5428 (Sept. 8, 2011) (statement of Sen. Leahy) (discussing the “heightened requirement” for post-issuance review of a patent and how the “new higher standard for post issuance review was created to make it even more difficult for these procedures to be used as tools for harassment”). The standard for ex parte reexamination remains unchanged. 53 The numbers are taken from the USPTO’s annual reports. (Relevant portions attached as Exh. A) -7-
DC:723366.1
In the last year of its existence, between October 1, 2011 and September 15, 2012, 661 requests for inter partes review were filed. As the deadline to file for inter partes reexamination came closer, the number of filings skyrocketed, with 392 filings in the last quarter inter partes reexamination was available.
Some of these requests were filed by parties that were charged with patent infringement that would find themselves unable to file either inter partes reexamination or inter partes review because of the statute of limitations applicable to inter partes review for those that had been sued for patent infringement, as discussed below.
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DC:723366.1 B. Inter Partes Review
Inter partes review is one of the new trial proceedings under the AIA. It became effective on September 16, 2012 and took the place of inter partes reexamination. Like reexamination, the only materials that can be relied on to challenge validity are patents and printed publications and only grounds of invalidity under 35 U.S.C. §§ 102 and 103 can be raised.54 Once instituted, the burden of establishing unpatentability of any claim is a preponderance of the evidence.55
More patents will be subject to inter partes review than were available for inter partes reexamination. Unlike inter partes reexamination—which could only be instituted on patents issuing from original applications filed on or after November 29, 199956—inter partes review is available for all patents, regardless of filing or issue date.57 Therefore, the PTO expects that inter partes review will be used more often than inter partes reexamination has been.58 As of January 27, 2012, the Board’s records show that 125 requests for inter partes review have been filed, and decisions on the petitions filed early on are now being rendered.59
An inter partes review has three main phases: preliminary proceedings, trial, and post- trial proceedings and appeal. These phases, and the rules implementing those phases, are discussed below.
1. Preliminary Proceedings
Preliminary proceedings in an inter partes review begin with the filing of a petition. To be able to consider a petition for inter partes review, the statute mandates that it must be accompanied by the fee for inter partes review, must identify the real parties in interest, must include a written statement identifying the claims challenged, the grounds on which the challenge is based, and the evidence that supports the challenge to each claim.60 The petition
54 35 U.S.C. § 311(b). 55 Id. § 316(e) (“In an inter partes review instituted under this chapter, the petitioner shall have the burden of proving a proposition of unpatenability under a preponderance of the evidence.”); see also 37 C.F.R. § 42.1(d) (“The default evidentiary standard is a preponderance of the evidence.”). 56 See 37 C.F.R. § 1.913(a); American Inventors Protection Act, Pub. L. No. 106-113, §§ 4601-08, 113 Stat. at 1501 A-567 to -572 (codified as amended at 35 U.S.C. §§ 311-18)). 57 See, e.g., Changes to Implement Post-Issuance Review Proceedings, 77 Fed. Reg. 48711, 48724 (Aug. 14, 2012) (projecting that 460 petitions for inter partes review will be filed in fiscal year 2013, based in part on “an expansion in the number of eligible patents under the inter partes review provisions”). 58 See id. 59 Information on pending trials can be found at https://ptabtrials.uspto.gov/prweb. 60 35 U.S.C. § 312(a). -9-
DC:723366.1 must also include copies of patents and printed publications that are relied upon, any supporting affidavits or declarations of experts to support the petition,61 and the petition must be served on the patent owner or the patent owner’s designated representative.62
The statute gives the Director authority to set additional requirements for a petition for inter partes review.63 Under this authority, the PTO has promulgated 37 C.F.R. § 42.104(a), requiring the petitioner to identify the grounds for its standing to request inter partes review.64 As part of the written analysis of the claims challenged, the rules also require the petitioner to provide a proposed claim construction for each challenged claim.65 A filing date for the petition will only be granted if all of the requirements of 37 C.F.R. § 42.104 are met, it has been served on the correspondence address of record for the patent owner, and includes the fee.66
The AIA gives the patent owner the right to file a preliminary response to a petition for inter partes review before trial is instituted.67 The preliminary response can be used to object to any statutory defect in the petition.68 This will likely include any challenge to the eligibility of the patent for inter partes review, the petitioner’s standing to petition for inter partes review, as well as the merits of the challenge to the claims addressed in the petition.69 A patent owner has three months from the date the PTO issues a notice giving the petition for inter partes review a filing date to file a preliminary response.70 The patent owner may choose to expressly waive the
61 Id. § 312(a)(3)(A)-(B). 62 Id. § 312(a)(5). 63 Id. § 312(a)(4). 64 37 C.F.R. § 42.104(a) (“The petitioner must certify that the patent for which review is sought is available for inter partes review and that the petitioner is not barred or estopped from requesting an inter partes review of the patent.”). 65 See 37 C.F.R. § 42.104(b)(3) (requiring a petitioner to identify “[h]ow the challenged claim is to be construed,” and if it is to be construed under 35 U.S.C. § 112, ¶ 6, “the construction of the claim must identify the specific portions of the specification that describe the structure, material or acts corresponding to each claimed function”). The rules further indicate that “[a] claim for an unexpired patent shall be given its broadest reasonable construction in light of the specification of the patent in which it appears.” 37 C.F.R. § 42.100(b). 66 37 C.F.R. § 42.106(a)). 37 C.F.R. § 42.105 sets forth requirements for service of a petition for inter partes review. 67 See 35 U.S.C. § 313 (“If an inter partes review petition is filed under section 311, the patent owner shall have the right to file a preliminary response to the petition within the time period set by the Director, that sets forth the reasons why no inter partes review should be instituted . . . .”). 68 Id. 69 See Changes to Implement Post-Issuance Review Proceedings, 77 Fed. Reg. 48689 (Aug. 14, 2012). If a patent owner challenges the petitioner’s standing, the patent owner may be able to obtain preliminary discovery. Id. (“[A]dditional discovery may be authorized where patent owner raises sufficient concerns regarding the petitioner’s certification of standing.”). 70 See 37 C.F.R. § 42.107(b). -10-
DC:723366.1 right to file a response to expedite the proceedings under 37 C.F.R. § 42.107(b).71 While the patent owner can attack the petition on any grounds to show that an inter partes review should not be granted, under the proposed rules, the patent owner will not be able to present rebuttal testimonial evidence unless authorized to do so by the Board, but may provide documentary evidence in support of its claim that the inter partes review should not be instituted.72 To avoid an inter partes review, the patent owner may elect to disclaim certain claims of the patent as provided for under 35 U.S.C. § 253(a). In the event that a statutory disclaimer is filed, “[n]o inter partes review will be instituted based on disclaimed claims.”73
2. Trial Proceedings
The Director may not order an inter partes review unless the Director determines that, based on the information in the petition, “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.”74 Like the changes that the AIA made in the inter partes reexamination context, the “reasonable likelihood” standard is intended to be a more rigorous standard than the “substantial new question” standard that was employed in reexamination proceedings.75 Under the rules, the Board “may authorize the review to proceed on some or all of the challenged claims and on all or some of the grounds of unpatentability asserted for each claim.”76 Under the AIA, the Director has 3 months from either (1) receiving a preliminary response to the petition; or (2) in the absence of a preliminary response, the last date on which such response maybe filed.77 If a trial is instituted, the Director will notify the petitioner and patent owner in writing and will indicate the date on which the review will begin.78 The decision of whether to institute an inter partes review is not appealable.79
71 Id. 72 See 37 C.F.R. § 42.107 (a), (c). 73 37 C.F.R. § 42.107(e). 74 35 U.S.C. § 314. See also 37 C.F.R. § 42.108(c) (stating that “review shall not be instituted for a ground of unpatentability unless the Board decides that the petition supporting the ground would, if unrebutted, demonstrate that there is a reasonable likelihood that least one of the claims challenged in the petition is unpatentable”). 75 See Rules of Practice for Trials, 77 Fed. Reg. 48655 (Aug. 14, 2012) (referring to “the enhanced thresholds for instituting reviews set forth in 35 U.S.C. § 314(a), as amended”); 157 CONG. REC. S5322 (Sept. 6, 2011) (statement of Sen. Leahy) (“The current inter partes reexamination process has been criticized for being too easy to initiate and used to harass legitimate patent owners, while being too lengthy an unwieldy to actually serve as an alternative to litigation when users are confronted with patents of dubious validity.”). 76 37 C.F.R. § 42.108(a). 77 35 U.S.C. § 314(b). 78 Id. § 314(c). 79 Id. § 314(d). -11-
DC:723366.1 Once an inter partes review has been instituted, the patent owner can substantively respond to the petition.80 The default time period for filing a response is three months, although that can be altered by Board order.81 The patent owner may also choose to amend its claims in response to the petition and the decision to institute inter partes review.82 According to the Practice Guide, the patent owner’s amendments to the claims “are expected to be filed at the due dates set for filing a patent owner response.”83 The rules require a motion to amend the claims during an inter partes review to identify the support for each amendment under 35 U.S.C. § 112, ¶ 1, including any necessary support for an amendment that relies on an earlier-filed application for its filing date.84 The Board has discretion to deny a motion to amend, and may deny the motion where it does not respond to the ground of unpatentability raised in the trial or if it attempts to enlarge the scope of the patent claims or introduce new matter.85
Before responding to the challenges raised in the petition, the patent owner will have the opportunity to take limited discovery by seeking to cross-examine any witnesses that provided direct testimony by affidavit in support of the petition. The PTO rules endorse the Federal Rules of Evidence as the cornerstone for admissibility of evidence, and allow parties that have preserved objections to file motions to exclude evidence from consideration during the trial.86
The AIA also envisions the possibility that an inter partes review will be joined with another proceeding pending before the PTO.87 The statute not only provides for the joinder of parties to the inter partes review proceeding,88 but it also allows joinder to justify extending the time for completion of the inter partes review past the statutory 1-year period for completing an inter partes review.89 In the event that the same patent is involved in another proceeding before
80 Id. § 316(a)(8) (requiring the Director to promulgate regulations that “provide for the filing by the patent owner of a response to the petition under section 313 after an inter partes review has been instituted, and requiring that the patent owner file with such response, through affidavits or declarations, any additional factual evidence and expert opinions on which the patent owner relies in support of the response”); see also 37 C.F.R. § 42.120(a). 81 37 C.F.R. § 42.120(b). 82 See 35 U.S.C. § 316(a)(9), (d). 83 See Practice Guide, 77 Fed. Reg. 48766 (Aug. 14, 2012). 84 37 C.F.R. § 42.121(b). 85 37 C.F.R. § 42.120(a)(2). 86 37 C.F.R. § 42.64. 87 35 U.S.C. §§ 315(c), 316(a)(4), (12). 88 Id. § 315(c). 89 Id. § 316(a)(11). -12-
DC:723366.1 the PTO, the Board has the ability to “enter any appropriate order regarding the additional matter including providing for the stay, transfer, consolidation, or termination of any such matter.”90
After the parties have submitted their evidence and appropriate motions, they may request oral argument before the Board.91
The trial proceedings conclude when the Board issues a written decision with respect to the patentability of any challenged claims and any new claims that are added under 35 U.S.C. § 316(d).92 The rules governing inter partes review proceedings allow for rehearing if the party files a request within30 days of the final decision.93 A request for a rehearing tolls the time for appeal to no later than 63 days after the action on the request for rehearing.94
3. Appeal
After a final written decision has been issued in an inter partes review, a dissatisfied party may appeal that decision to the United States Court of Appeals for the Federal Circuit.95 Appeals under 35 U.S.C. §§ 145 or 146 are not permitted.96 Should a party appeal, any party to the inter partes review has the right to participate in the appeal.97 In addition to the requirements for an appeal set forth in the Federal Rules of Appellate Procedure and in the Rules for the United States Court of Appeals for the Federal Circuit, notice of an appeal of a final decision must also be served in accordance with 37 C.F.R. § 42.6.98 A notice of appeal must be filed with the Director of the PTO no later than 63 days after the final Board decision.
4. Impact on Litigation Strategies
As with inter partes reexamination, inter partes review has an estoppel provision. That provision prohibits the petitioner in an inter partes review from requesting or maintaining any
90 37 C.F.R. § 42.122; see also 37 C.F.R. § 42.3(a) (giving the Board the ability to “exercise exclusive jurisdiction over every involved application and patent during the proceeding, as the Board may order”); 37 C.F.R. § 42.72 (“The Board may terminate a trial without rendering a final written decision, where appropriate, including where the trial is consolidated with another proceeding or pursuant to a joint request under 35 U.S.C. 317(a) or 327(a).”). 91 35 U.S.C. § 316(a)(10). 92 Id. § 318(a). 93 37 C.F.R. § 42.71(d)(2) (“Any request must be filed . . . (2) Within 30 days of entry of a final decision or a decision not to institute a trial.”). 94 37 C.F.R. § 90.3(b)(1). 95 35 U.S.C. § 319. 96 See 35 U.S.C. § 141 (providing that “[a] party to an inter partes review . . . may appeal the Board’s decision only to the United States Court of Appeals for the Federal Circuit.”). 97 See 35 U.S.C. § 319. 98 See 37 C.F.R. § 90.2(a)(3)(ii). -13-
DC:723366.1 proceeding before the PTO with respect to a challenged patent claim “on any ground that the petitioner raised or reasonably could have raised during the inter partes review.”99 The provision further prohibits a petitioner from asserting invalidity in a civil action or an investigation before the United States International Trade Commission under section 337 of the Tariff Act of 1930 based on any “ground that the petitioner raised or reasonably could have raised during the inter partes review.”100
Perhaps the most important distinction between the estoppel provision following inter partes review as compared with the estoppel under the inter partes reexamination statute is that estoppel under the AIA’s inter partes review provisions takes effect after the final written decision of the Board, whereas the estoppel provision for inter partes reexamination became effective only after a “final decision.”101 Therefore, unsuccessful petitioners will be subject to an estoppel much earlier in the process than they would have been under the inter partes reexamination statutes.
Another impact that an inter partes review will have on litigation is the potential for intervening rights. The AIA provides that “[a]ny proposed amended or new claim determined to be patentable and incorporated into a patent following an inter partes review under this chapter shall have the same effect as that specified in section 252 for reissued patents . . . .”102 Thus, if a patent owner needs to amend or add replacement claims to avoid prior art, the patentee may be surrendering the right to receive damages for past infringement of the resulting patent claims. This is yet another reason why a patent applicant will want to ensure that it has claims of varying scope before a patent is issued in the first instance; it will improve the chances of being able to avoid prior art in an inter partes review and may preserve the ability to collect damages even if broader patent claims need to be amended during the inter partes review.
Beyond the obvious impacts of an estoppel and intervening rights caused by claim amendments, anticipated or pending litigation may be influenced by the inter partes review provisions of the AIA in several other ways. First, if a petitioner has filed a civil action challenging the validity of a patent, then that petitioner cannot seek inter partes review under the
99 35 U.S.C. § 315(e)(1). 100 Id. § 315(e)(2). 101 Compare 35 U.S.C. § 315(e)(2) (“The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a) . . . may not assert . . . that the claim is invalid . . . .”) with 35 U.S.C. § 313(c) (2010) (“A third-party requester whose request for an inter partes reexamination results in an order under section 313 is estopped from asserting at a later time . . . the invalidity of any claim finally determined to be valid and patentable on any ground which the third-party requester raised or could have raised during the inter partes reexamination proceedings.”). 102 35 U.S.C. § 318(c). -14-
DC:723366.1 AIA.103 This bar does not apply if the petitioner’s challenge to the validity of a patent claim is a declaratory judgment counterclaim.104 Therefore, a party faced with a threat of infringement must make an early decision about whether to proceed with a declaratory judgment claim and waive the right to participate in an inter partes review, or to seek inter partes review before or simultaneously with a declaratory judgment action. The statute appears to allow for another potential strategy. If the party charged with infringement has a good faith belief that it does not infringe the asserted patent, that party may file a complaint requesting a declaratory judgment of noninfringement, omitting any declaratory judgment claim related to invalidity of the patent. In this situation, the patent owner’s counterclaim of infringement will be compulsory and the accused infringer may answer that counterclaim by asserting an affirmative defense of invalidity. This seems to give a declaratory judgment plaintiff the flexibility of later seeking inter partes review without violating the provisions of the AIA.105
Second, should an accused infringer simultaneously file a petition for inter partes review and a declaratory judgment action seeking a declaratory judgment of invalidity, then the AIA operates to automatically stay the district court proceeding.106 The automatic stay can be lifted when: (1) the patent owner moves the court to lift the stay; (2) the patent owner files a civil action or counterclaim alleging infringement of the patent subject to the inter partes review; or (3) the petitioner moves the district court to dismiss the stayed district court action.107
The automatic stay provisions appear to provide the patent owner with an early strategy choice. If the patent owner wishes to proceed toward judgment on its allegations of patent infringement while the PTO is simultaneously resolving issues of validity during an inter partes review, the patent owner may file a counterclaim alleging infringement. If, however, the patent owner wishes to defer proceeding with the district court litigation and await the possibility of tying the petitioner’s hands under the estoppel provisions, the patent owner may elect to wait to take action in response to the declaratory judgment action.
Third, if the petitioner was sued by the patent owner before filing a petition for an inter partes review, the petitioner has one year from the date that the complaint was served to petition for an inter partes review.108 Under the statute, this provision “shall not apply to a request for
103 Id. § 315(a)(1). 104 Id. § 315(a)(3). 105 It appears that at least one party has attempted this approach; the PTO has not yet decided whether this complies with statutory requirements. 106 35 U.S.C. § 315(a)(2). 107 Id. § 315(a)(2)(A)-(C). 108 35 U.S.C. § 315(b). -15-
DC:723366.1 joinder under subsection (c),” and permits a petitioner to request to join into another pending inter partes review even if the one-year period has passed.109 From a strategy perspective, parties defending themselves against accusations of infringement must be prepared to make early strategy decisions about whether they wish to participate in an inter partes review in an attempt to challenge the patentability of the claims in the PTO rather that challenge them in a district court proceeding.
C. Post-Grant Review
Another post-issuance proceeding created by the AIA is the post-grant review. Although the post-grant review statutes took effect on September 16, 2012, post-grant review will be available only for patents described in AIA § 3(n)(1), which means that only patents based on applications filed after March 16, 2013.110 Thus, it goes without saying, that no requests for post-grant review have been filed at the PTO yet.
Post-grant review is procedurally similar to inter partes review under the AIA. Therefore, this section will primarily focus on the key differences between the proceedings as well as the differences in the proposed rules for post-grant review as compared to inter partes review.
1. Preliminary Proceedings
The scope of post-grant review is broader than inter partes review in that post-grant review allows for a petitioner to challenge any claim of an issued patent “on any ground that could be raised under paragraph (2) or (3) of section 282(b).”111 Because the range of available challenges to a patent is much broader for post-grant review when compared to inter partes review, Congress has limited the time period for requesting post-grant review. Specifically, the filing deadline for a post-grant review under the AIA is no later than 9 months after the date of
109 Id. 110 AIA § 18(f)(2)(A). 111 35 U.S.C. § 321(b). Section 282(b) paragraph (2) provides for invalidity of a patent for any reason set forth in Part II of Title 35 (including anticipation, obviousness, patent ineligibility) and paragraph (3) provides for invalidity for failure to meet any requirement of section 112 or section 251. See also Changes to Implement Post-Issuance Proceedings, 77 Fed. Reg. 48684 (Aug. 14, 2012) (“The grounds for seeking post-grant review will be available as compared with inter partes review. The grounds for seeking post-grant review includes any ground that could be raised under 35 U.S.C. 282(b)(2) or (3). Such grounds for post-gran review include grounds that could be raised under 35 U.S.C. 102 or 103 including those based on prior art consisting of patents or printed publications. Other grounds available for post-grant review include 35 U.S.C. 101 and 112, with the exception of compliance with the best mode requirement. In contrast, the grounds for seeking inter partes review are limited to issues raised under 35 U.S.C. 102 or 103 and only on the basis of prior art consisting of patents or printed publications.”). -16-
DC:723366.1 the grant of the patent or issuance of a reissue patent.112 Moreover, while post-grant review is available for reissue patents, there are restrictions. Under the AIA:
A post-grant review may not be instituted . . . if the petition requests cancellation of a claim in a reissue patent that is identical to or narrower than a claim in the original patent from which the reissue patent was issued, and the time limitations in section 321(c) would bar filing a petition for a post-grant review for such original patent.113
In light of this, if a reissued patent narrows the claims of the original patent, that reissued patent’s narrower (or reissued claims) cannot be placed into post-grant review unless that post- grant review is instituted within 9 months of the original patent being issued. This prevents would-be petitioners from getting a second bite at the post-grant review apple for claims that had issued in the original patent, but for which the time for seeking post-grant review had passed.
Like inter partes review, a post-grant review can be instituted if the petition shows that the information presented in the petition, if unrebutted, “would demonstrate that it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable.”114 But unlike inter partes review, post-grant review may be instituted if “the petition raises a novel or unsettled legal question that is important to other patents or patent applications.”115
The majority of the remaining criteria for a petition to institute post-grant proceedings, as well as the patent owner’s preliminary response to a petition for post-grant review are similar to those for inter partes review. Some limited exceptions include additional requirements for service of the petition,116and the handling of certain patents involved in interference proceedings.117
2. Trial Proceedings
Trial proceedings in post-grant review will be similar to trial proceedings in inter partes review. One notable exception is that the language of the AIA suggests that more discovery is available in a post-grant review than in an inter partes review. While section 316(a)(5) indicates
112 35 U.S.C. § 321(c). 113 Id. § 325(f). 114 Id.§ 324(a). 115 Id. § 324(b). The PTO has promulgated 37 C.F.R. § 42.208(d), which adopts regulations consistent with § 324(b), but has indicated that “[t]he expectation is that this ground for a post-grant review would be used sparingly.” Changes to Implement Post-Issuance Proceedings, 77 Fed. Reg. 48692 (Aug. 14, 2012). 116 37 C.F.R. § 42.205. 117 Id. § 42.200(d). -17-
DC:723366.1 that discovery “shall be limited to” depositions of affidavit witnesses and “what is otherwise necessary in the interest of justice,”118 section 326(a)(5) indicates that “discovery of relevant evidence” is permissible so long as that discovery is “limited to evidence directly related to factual assertions advanced by either party in the proceeding.”119 As promulgated by the PTO, 37 C.F.R. § 42.224(a) requires that a party seeking discovery beyond that contemplated by 37 C.F.R. § 42.51 show “good cause why the discovery is needed,” and acknowledges that the discovery will be “limited to evidence directly related to factual assertions advanced by either party in the proceeding.”120
As in inter partes review, after trial has been instituted, the owner of a patent involved in a post-grant review may file a response to the grounds raised in the petition.121
The statute also anticipates the possibility of joinder of parties to a post-grant proceeding.122 The rules governing post-grant review include a provision that gives the Board authority to handle other matters pending before the PTO during the pendency of a post-grant review, including the ability to “enter any appropriate order regarding the additional matter including providing for the stay, transfer, consolidation, or termination of any such matter.”123 Moreover, joinder of proceedings can be requested by the patent owner or petitioner, but “no later than one month after the institution date of the post-grant review for which joinder is requested.”124
The post-grant review statutes also provide that the Director must establish rules that allow either party the right to request oral argument.125
As with other trial proceedings before the Board under the AIA’s new provisions, all relief must be sought by motion, including the ability to amend claims. Like the inter partes review provisions of the AIA, the post-grant review statutes give the patent owner one
118 35 U.S.C. § 316(a)(5). 119 Id. § 326(a)(5). 120 37 C.F.R. § 42.224. 121 See 35 U.S.C. § 326(a)(8) (requiring the Director to promulgate regulations that “provid[e] for the filing by the patent owner of a response to the petition under section 3232 after a post-grant review has been instituted . . . ”). 122 Id. § 325(c) (“If more than one petition for post-grant review under this chapter is properly filed against the same patent and the Director determines that more than 1 of these petitions warrants the institution of a post-grant review under section 324, the Director may consolidate such reviews into a single post-grant review.”). 123 37 C.F.R. § 42.222(a). 124 Id. at § 42.222(b). 125 35 U.S.C. § 326(a)(10). -18-
DC:723366.1 opportunity to cancel claims or add a “reasonable number” of substitute claims.126 And like inter partes review, subsequent motions to amend claims in post-grant review are permitted only “upon the joint motion of the petitioner and the patent owner to materially advance the settlement of a proceeding . . . or upon the request of the patent owner for good cause shown.”127
As in inter partes review, the Board will issue a final decision in a post-grant review if no settlement is reached.128 This written decision will end the trial, and will give rise to the estoppels under the post-grant review statute.
3. Appeal
Appeal from an adverse decision in a post-grant review is available on the same terms as it is for inter partes review. A discussion of appeal that is equally applicable to post-grant review is found supra § II.B.3.
4. Impact on Litigation Strategies
For patents eligible for post-grant review, the availability of post-grant review will largely influence litigation decisions and strategy in the same way that inter partes review will. Some considerations are discussed supra § II.B.4.
There is one significant difference between the statutory schemes for post-grant review when compared with inter partes review as it pertains to litigation strategy. The post-grant review statute includes a provision specifically addressing considerations related to preliminary injunctions for newly-issued patents that are at issue in pending litigation. Specifically, section 325(b) provides:
If a civil action alleging infringement of a patent is filed within 3 months after the date on which the patent is granted, the court may not stay its consideration of a patent owner’s motion for a preliminary injunction against infringement of the patent on the basis that a petition for post-grant review has been filed under this chapter of that such a post-grant review has been instituted under this chapter.129
126 Id. § 326(d). 127 Id. § 326(d)(2). 128 Id. § 328(a). 129 35 U.S.C. § 325(b). -19-
DC:723366.1 This provision has some potentially significant implications. First, by expressly limiting a district court’s ability to stay consideration of a request for injunctive relief for patents that issued 3 months or less from the date a lawsuit is filed, this statute implies that a district court may stay consideration of a motion for a preliminary injunction in a civil action filed more than 3 months after the patent attacked in a post-grant review petition.130
Second, while this provision limits a district court’s ability to stay consideration of a preliminary injunction motion under certain circumstances, it does not limit a district court’s ability to consider the post-grant review petition or the PTO’s institution of a trial based on that petition when considering the “likelihood of success on the merits” prong for preliminary injunctive relief. This appears to be entirely permissible—and perhaps mandatory—based on Federal Circuit precedent. In Procter & Gamble Co. v. Kraft Foods Global, Inc.,131 the Federal Circuit vacated a stay and remanded a case to the district court to evaluate a motion for preliminary injunction. The Federal Circuit instructed the district court to “consider the current posture of the inter partes reexamination proceedings at the PTO when evaluating [the patent owner’s] likelihood of success on the merits.”132 When the Federal Circuit issued the Kraft Foods decision, the standard for instituting an inter partes reexamination was that the petitioner present a “substantial new question of patentability.”133 The standard for post-grant review has been heightened over the standard for seeking inter partes reexamination that was at issue under Kraft Foods; the Director needs to determine that “it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable.”134 Therefore, it bears to reason that district courts should not only consider whether a post-grant review trial has been instituted, but given the standard, that fact should be more persuasive than the institution of an inter partes reexamination has been in the past given the more strict standard applied to institute a post-grant review trial.
Patent owners considering litigating a newly-issued patent that will qualify for post-grant review may want to strongly consider filing a preliminary response to a petition for post-grant review under new section 323 because a denial of the petition will likely strengthen any motion
130 In effect, this provision might be viewed as loosening the standards announced in Procter & Gamble Co. v. Kraft Foods Global, Inc., 549 F.3d 842, 847, 89 USPQ2d 1085 (Fed. Cir. 2008), which held first that the Federal Circuit has jurisdiction to consider whether a stay pending inter partes reexamination while a motion for preliminary injunction was pending because the stay effectively put the patent owner out of court on its motion, and second that the district court abused its discretion when it refused to balance the four-factors required to establish the right to a preliminary injunction. 131 549 F.3d at 847. 132 Id. 133 35 U.S.C. § 312(a). 134 35 U.S.C § 324(a). -20-
DC:723366.1 for preliminary injunctive relief. On the flip side, those accused of infringing a patent that is subject to post-grant review have an incentive to file a request for post-grant review promptly because the institution of a trial based on the petition may have a significant impact on a motion for preliminary injunction if such a motion is a threat in a civil action over the patent.135
A third implication of section 325(b) is the fact that a statutory counterpart is not present for inter partes review. In light of the Federal Circuit’s decision in Kraft Foods, it appears that Congress did not intend to change the law regarding the need to consider a motion for preliminary injunction in any case involving a patent in which a request for preliminary injunction has been filed.136 It will be interesting to see how the courts address the differences in statutory language between sections 315 and 325 in the preliminary injunction context.
D. Transitional Program for Covered Business Method Patents
Section 18 of the AIA created the Transitional Program for Covered Business Method Patents. While a covered business method patent review “shall employ the same standards and procedures of, as post-grant review,”137 unlike post-grant review, which only applies to patents subject to the new first-inventor-to-file regime, the Transitional Program took effect on September 16, 2012.138 Like post-grant review, the grounds for attacking a qualifying business method patent include challenges to patent eligibility under section 101, definiteness, written description, and enablement under section 112, novelty under section 102,139 and obviousness under section 103, as well as proper compliance with the reissue statute under section 251.140 If a post-grant review is available for a particular patent, then a transitional business method patent review under section 18 of the AIA is not available.141
135 Given the anticipated timing to institute a post-grant review, which is currently expected to be about 6 months from the date of filing of the petition to permit time for the patent owner to respond and for the office to consider those papers, it appears unlikely that a decision to institute a post-grant review will be issued in time to influence a prompt motion for a preliminary injunction. However, in the event that a preliminary injunction is granted, if a post- grant review is instituted after a preliminary injunction is entered, the injunction may be short-lived and reconsidered after the institution of the trial. 136 See Aectra Refining & Marketing, Inc. v. United States, 565 F.3d 1364, 1370 (Fed. Cir. 2009) (“Congress is presumed to enact legislation with knowledge of the law and a newly-enacted statute is presumed to be harmonious with existing law and judicial concepts . . . .” (citing Cannon v. Univ. of Chi., 441 U.S. 667, 696-98 (1979)). 137 AIA §18(a). 138 Id. 139 With some limitations imposed by AIA § 18(a)(1)(C) for certain patents. 140 AIA § 18(a). 141 AIA § 18(a)(2) (“[T]he regulations [promulgated by the Director for transitional business method patent review] shall not apply to a patent described in section 6(f)(2)(A) of this Act during the period in which a petition for post- grant review of that patent would satisfy the requirements of section 321(c) of title 35, United States Code.”). -21-
DC:723366.1 Based on data collected from the Board’s website, since CBM review became available, 15 requests for a trial under section 18 have been filed, 5 of which were filed on the first day that the statute became effective. Ten of these requests were filed by a single entity: Liberty Mutual Insurance Company, and several of these requests filed by Liberty Mutual pertain to the same patent.142
The Transitional Program for Covered Business Method Patents was one of the most debated provisions of the AIA, and for that reason, the first subpart of this section highlights some of the key aspects of the debate over the Transitional Program and its provisions. These debates may lead to a challenge to the constitutionality of section 18. The second subpart will describe which patents are subject to covered business method patent review. The following subpart highlights key differences between the Transitional Program for Covered business method patents and the post-grant review provisions with a specific focus on the incentives that covered business method patents has for petitioners to bring their validity challenges before the PTO when compared to post-grant review.
1. The Legislative Debate Over the Transitional Program for Covered Business Method Patents
Debates in Congress ranged from the constitutionality of the provision to debates over whether the provision effected tort reform, on the one hand, or constituted a special interest ear mark. Proponents of section 18 of the AIA argued that the program was designed to right a wrong that was created by the State Street Bank decision.143 For example, bill sponsor in the House of Representatives, Congressman Smith, contended:
The America Invents Act reduces frivolous litigation over weak or overbroad patents by establishing a pilot program to review a limited group of business method patents that never should have been awarded in the first place. Section 18 deals with mistakes that occurred following an activist judicial decision that created a new class of patents called business method patents in the late 1990s. The PTO was ill equipped to handle the flood of business method patent applications.
142 See CBM2012-0002 (relating to U.S. Patent No. 6,064,970); CBM2012-0004 (same). 143 State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, 47 USPQ2d 1596 (Fed. Cir. 1998), overruled by In re Bilski, 545 F.3d 943, 959-60 & n.19, 88 USPQ2d 1385 (Fed. Cir. 2008), aff’d Bilski v. Kappos, 130 S.Ct 3218, 95 USPQ2d 1001 (2010). See also 157 CONG. REC. S5428 (Sept. 8, 2011) (statement of Sen. Coburn) (“Section 18 is designed to address the problem of low-quality business method patents that are commonly associated with the Federal Circuit’s 1998 State Street decision.”). -22-
DC:723366.1 Few examiners had the necessary background and education to understand the inventions, and the PTO lacked information regarding the prior art. As a result, the PTO issued some weak patents that have led to frivolous lawsuits. The pilot program allows the PTO to reexamine a limited group of questionable business method patents, and it is supported by the PTO.
* * * * *
We can no longer allow our economy and job creators to be held hostage to legal maneuvers and the judicial lottery.144
One key supporter, and proponent of the amendment that added Section 18 to the AIA, Senator Schumer, also characterized this provision as a litigation reform measure:
[W]e originally inserted [section 18] in the Senate to help cut back on the scourge of business method patents that have been plaguing American businesses. Business method patents are anathema to the protection of the patent system because they apply not to novel products or services but to abstract and often very common concepts of how to do business. Often business method patents are issued for practices that have been in widespread use for years, such as check imaging or one click checkout. Imagine trying to patent the one-click checkout long after people have been using it.
Because of the nature of the business methods, these practices aren’t as easily identifiable by the PTO as prior art, and bad patents are issued. Of course, this problem extends way beyond the financial services industry. It includes all businesses that have financial practices, from community banks to insurance companies to high-tech startups. Section 18, the Schumer-Kyl provision, allows for administrative review of those patents so businesses acting in good faith do not have to spend the millions of dollars it costs to litigate a business method patent in court.
* * * * *
144 157 CONG. REC. H4421 (Jun. 22, 2011) (statement of Rep. Smith); see also 157 CONG. REC. S5428 (Sept. 8, 2011) (statement of Sen. Durbin) (“Legislative history created during the earlier consideration of this legislation makes clear that the business method patent problem that Section 18 is intended to correct is fundamentally an issue of patent quality.”). -23-
DC:723366.1 The only people who have any cause to be concerned about section 18 are those who have patents that shouldn’t have been issued in the first place and who were hoping to make a lot of money suing legitimate businesses with these illegitimate patents. To them I say the scams should stop.
In fact, 56 percent of business patent lawsuits come in to one court in the Eastern District of Texas. Why do they all go to one court? Not just because of coincidence. Why do people far and wide seek this? Because they know that court will give them favorable proceedings, and many of the businesses that are sued illegitimately spend millions of dollars for discovery and everything else in a court proceeding they believe they can’t get a fair trial in, so they settle. That shouldn’t happen, and that is what our amendment stops. It simply provides review before costly litigation goes on and on and on.145
Opponents of section 18 questioned the constitutionality of the provision, and contended that it effectuated a government taking of property without compensation under the Fifth Amendment to the United States Constitution. As pointed out by Congressman Sensenbrenner of Wisconsin, debates over the constitutionality of two provisions of the AIA, the Transitional Program for Covered Business Method Patents and the first-to-file provisions of the AIA marked “the first time in the history of the United States House of Representatives when a question serious enough to have a constitutional debate is being debated on the floor for 20 minutes.”146 During these debates, Congressman Manzullo articulated his belief that section 18 “creates a special class of patents in the financial services sector subject to their own distinctive post-grant administrative review and would apply retroactively to already existing patents,” constituting a “taking” of property under the Fifth Amendment.147
The Some in Congress viewed this portion of the AIA as a special interest bill for the financial services sector lobby. For example, one opponent of section 18 made the following remarks as the final bill was voted on by the Senate:
I am here to talk about how this legislation has a rifleshot earmark in it for a specific industry, to try to curtail the validation of a
145 157 CONG. REC. S5409-10 (Sept. 8, 2011) (statement of Sen. Schumer). 146 157 CONG. REC. H4421 (Jun. 22, 2011) (statement of Rep. Sensenbrenner). 147 157 CONG. REC. H4428 (daily ed. Jun. 22, 2011) (statement of Rep. Manzullo). But see 157 CONG. REC. S5375- 77 (Sept. 7, 2011) (letters from Hon. Michael W. McConnell regarding constitutionality of section 18 of the AIA). -24-
DC:723366.1 patent by a particular company. That is right, it is an earmark rifleshot to say that banks no longer have to pay a royalty to a particular company that has been awarded a patent and that has been upheld in court decisions to continue to be paid that royalty.
* * * * *
I object to this language that benefits the big banks but was never debated in the committee of jurisdiction, the Judiciary Committee. It was not debated. It was not voted on. It was not discussed there. It was put into a manger’s amendment which was brought to the Senate floor with little or no debate because people wanted to hurry and get the manager’s amendment adopted.148
Similar comments were made during debates regarding this provision in the House of Representatives:
[T]he litigation reform mentioned is really to retroactively undo a case that was fairly and squarely won in the courts. [T]hat section 18 is basically just a giveaway to the banks. There’s some good things in this bill. The post-grant review, overall it does more harm than good.149
Indeed, one patentee, Data Treasury, was mentioned during the final Senate vote on the AIA as a company whose patents were intended to be subject to section 18 review.150
In the end, however, the majority of both houses of Congress voted to approve section 18 in a bipartisan effort, and on September 16, 2011, the AIA was signed into law with a provision allowing an equivalent to post-grant review to challenge certain business method patents, regardless of when the patent applications leading to those patents were filed.
2. Patents Subject to the Transitional Program for Covered Business Method Patents
148 157 CONG. REC. S5408 (Sept. 8, 2011) (statement of Sen. Cantwell). 149 157 CONG. REC. H4432 (Jun. 22, 2011) (statement of Rep. Zoe Lofgren). 150 157 CONG. REC. S5432 (Sept. 8, 2011) (statement of Sen. Schumer) (“Just today, while the Senate has been considering the America Invents Act, Data Treasury—the company which owns the notorious check imaging patent and which has already collected over half a billion dollars in settlements—filed suit in the Eastern District of Texas against 22 additional defendants, primarily community banks. These suits are over exactly the type of patents that section 18 is designed to address, and the fact that they continue to be filed highlights the urgency of singing this bill into law and setting up an administrative review program at the PTO.”). -25-
DC:723366.1 Not all patents are eligible for covered business method patent review. The AIA defines “covered business method patent” as “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.”151 The AIA further requires the Director to issue regulations for determining whether a patent is for a technological invention.152 37 C.F.R. § 42.301(b) indicates that the PTO will determine whether something constitutes a “technological invention” on a case-by-case basis and will consider whether: (1) the “claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art” and (2) the claimed invention “solves a technical problem using a technical solution.”153
Because the question of whether a patent claims an invention for a “technological invention” turns in part on the question of whether the claimed invention solves a “technical problem” with a “technical solution,”154 patent drafters will want to ensure that inventions that otherwise might fall into the broad categories of activities described by Senator Schumer are described in terms of definite and concrete technical problems, and that the solution to that problem is described as being a technological solution. Doing so may reduce the chances that a section 18 review will be instituted any time a patent owner attempts to enforce a patent against an accused product that is used to process a financial transaction.
3. Key Differences Between Covered Business Method Patent Review and Post-Grant Review
While the procedures for covered business method patent review under section 18 largely track the procedures for post-grant review, there are some key differences.155 First, unlike post- grant review which must be filed within 9 months of the issuance of the patent or reissued patent, a section 18 review may be sought regardless of when the patent or reissued patent issued.156 Yet, while review under section 18 of the AIA may be sought at any time, “[a] person may not file a petition for a transitional proceeding with respect to a covered business method patent
151 AIA § 18(d)(1). 152 Id. § 18(d)(2). 153 37 C.F.R. § 42.301(b). 154 Id. 155 AIA § 18(a)(1) (“The transitional proceeding shall be regarded as . . . a post-grant review under chapter 35 of title 35, United States Code . . . .”). 156 Id. § 18(a)(1)(A) (stating that new section 321(c) would not apply to section 18 review). -26-
DC:723366.1 unless the person or person’s real party in interest or privy has been sued for infringement of the patent or has been charged with infringement under that patent.”157
A second key difference lies in prior art available for certain covered-business method patent reviews. In what has been described as an “ambiguous” provision which has wording that presents “a puzzle,”158 section 18(a)(1)(C) provides
(C) A petitioner in a transitional proceeding who challenges the validity of 1 or more claims in a covered business method patent on a ground raised under section 102 or 103 of title 35, United States Code, as in effect on the day before the effective date set forth in section 3(n)(1), may support such ground only on the basis of—
(i) prior art that is described by section 102(a) of such title of such title [sic] (as in effect on the day before such effective date); or
(ii) prior art that—
(I) discloses the invention more than 1 year before the date of the application for patent in the United States; and
(II) would be described by section 102(a) of such title (as in effect on the day before the effective date set forth in section 3(n)(1)) if the disclosure had been made by another before the invention thereof by the applicant for patent.159
This provision appears to allow petitioners to rely on prior art under section 102(a) as it existed before the passage of the AIA, and then creates another category of prior art in place of sections (b) through (g).
This new category of prior art appears to operate, at least in part, as a substitute for pre- AIA § 102(b) because it refers to prior art that “discloses the invention more than 1 year before
157 Id. § 18(a)(1)(B). 158 See Donald S. Chisum, America Invents Act of 2011: Analysis and Cross-References at 112 (Dec. 5, 2011) (available at http://www.chisum.com/wp-content/uploads/AIAOverview.pdf) (last visited Nov. 27, 2012). 159 AIA § 18(a)(1)(C). -27-
DC:723366.1 the date of the application for patent in the United States.”160 However, as one commentator has noted, subsection (ii)(I) refers to “the date of application for patent” instead of the “effective filing date” of a claimed invention, even though the AIA defines the latter term expressly.161 Applying the principle that different words in the same enactment typically carry different meanings, the phrase “before the date of application” may be interpreted to mean that the prior art only need to predate the filing date (rather than an earlier filing date) of the application for the patent being challenged. However, this interpretation may be viewed as being inconsistent with 35 U.S.C. § 120, which, as a matter of law treats later-filed application as having “the same effect” as the earlier-filed application if the requirements of section 120 are complied with.162
Subsection (ii) then adds an additional requirement when it refers back to section 102(a) and states that the prior art must also be covered by pre-AIA section 102(a) if the disclosure had been made by another before the invention thereof by the applicant for patent.163
This provision might be read to exclude prior art under § 102(e) from being used in a business method patent review. Such an interpretation, if intended by Congress, is not stated anywhere in the legislative history and does not appear to have a reasoned basis. There are at least three possible interpretations of this provision, none of which is completely satisfactory.
A first interpretation, and one which would allow petitioners to rely on prior art that is encompassed by pre-AIA § 102(e) would be to interpret the term “discloses” as not being limited to public disclosures, but as encompassing disclosures to the PTO in application filings that are not yet made public.164 This possible interpretation has some support in AIA §§ 3(b)(1)(B) and 3(b)(2)(B) which appear to draw a distinction between “subject matter disclosed” and subject matter that is “publicly disclosed” in setting forth exceptions to the definition of prior art, including disclosures included in patent applications. One potential problem with this interpretation is reconciling it with subsection (ii)(II)’s requirement that the prior art would fall within pre-AIA § 102(a) if it was by another before the invention by the applicant. Unpublished patent applications do not fall within pre-AIA § 102(a)’s enumerated categories regardless of who invented the subject matter.
160 AIA § 18(a)(1)(C)(ii)(I). 161 Manzo, et al., PATENT REFORM 2011 – THE LEAHY-SMITH AMERICA INVENTS ACT: COMMENTARY AND ANALYSIS 101 (2011). 162 See 35 U.S.C. § 120 (2010). 163 AIA § 18(a)(1)(C)(ii)(II). 164 Chisum, America Invents Act of 2011: Analysis and Cross-References, supra n. 158, at 113. -28-
DC:723366.1 A second interpretation is that Congress simply wanted to graft the statutory bar timing onto section 102(a)’s enumerated categories of prior art. Thus, this subsection might be interpreted as
The invention was known or used in this country, or patented or described in a printed publication in this or a foreign country more than 1 year before the date of the application for patent in the United States.165
Under this interpretation section 102(e) art is not available.
A third interpretation is that subsection (ii) should be read to require the following analysis: (1) review a reference to determine if it is more than one year before the filing of the application for the patent subject to the challenge;166 (2) evaluate the disclosure, regardless of who is responsible for it, as if it had been made by another before the date of invention by the applicant for the patent subject to the challenge.167 Under this interpretation, the pre-AIA § 102(a) language “known or used by others in this country” becomes “known or used by others or the applicant in this country.”168 One problem with this interpretation is that it would treat as prior art the applicant’s own knowledge of the invention (i.e., “known . . . by . . . the applicant.”). This interpretation is, however, consistent with the use of the word “disclosure” as opposed to “public disclosure” in section (ii)(I).169
A third key difference is that the post-grant review provisions regarding the district court’s inability to stay consideration of a patent owner’s preliminary injunction motion if the patent owner files suit within 3 months of the patent issuing is inapplicable to section 18’s transitional proceeding.170 Thus, under the AIA, district courts may stay consideration of a patent owner’s motion for preliminary injunction when a petition for transitional review of a covered business method patent has been filed. This will only be a relevant consideration for the six-month period between the effective date of reviews under section 18 and post-grant reviews because section 18(a)(2) indicates that if a post-grant review is available, then a transitional
165 Id. 166 AIA § 18(a)(1)(C)(ii)(I). 167 Id. § 18(a)(1)(C)(ii)(II). This is the interpretation suggested in Manzo, et al., PATENT REFORM 2011 – THE LEAHY-SMITH AMERICA INVENTS ACT: COMMENTARY AND ANALYSIS 102 (2011). 168 Id. 169 This interpretation would be further inconsistent with the interpretation of “date of the application for patent” as opposed to “effective filing date” of the claimed invention because it would essentially make earlier patent applications to which an issued 170 Id. -29-
DC:723366.1 business method patent review is not.171 Unfortunately, the PTO’s interpretation of this provision is not particularly helpful in terms of bringing clarity to the meaning of § 18(a)(1)(C).172
Another difference between transitional business method patent review and post-grant review is the application of the estoppel provision. Post-grant review’s estoppel provision will prevent a party from challenging validity on grounds that the “petitioner raised or reasonable could have raised during the post-grant review.”173 The estoppel arising from a section 18 review is narrower and only precludes a petitioner or the petitioner’s real party in interest from challenging the patent on litigation on “any ground that the petitioner raised during the transitional proceeding.”174 Notably, unlike the estoppel provisions associated with inter partes review and post-grant review, “privies” are not estopped from challenging a patent in district court litigation for the same reasons their privy raised during a section 18 review.175 Yet, privies are still estopped from going back to the PTO to challenge a patent on grounds that were, or reasonably could have been, raised during a section 18 review.176
A fifth difference between review under section 18 of the AIA and post-grant review under new chapter 32 pertains to the ability of a petitioner to challenge reissue patents. As discussed supra § II.C.1, post-grant review is not available to challenge claims of reissued patents whose claim scope is either the same or narrower than the originally-issued patent unless the originally-issued patent would be subject to post-grant review. Section 18 indicates that this limitation is inapplicable to transitional covered business method patent reviews.177 Therefore, any reissued patent that is asserted against a party may be subject to a review under section 18, presuming a post-grant review is not available.178
Unlike post-grant review under chapter 32, the statute relating to transitional business method patent review under section 18 includes a provision related to considerations that a district court must evaluate to determine whether a stay should be granted pending a review of a patent under section 18. A district court must consider (1) whether a stay will simplify the issues
171 Id., § 18(a)(2). 172 See 37 C.F.R. § 42.304(b)(2) (requiring identification of the “specific statutory grounds permitted under paragraph (2) or (3) of 35 U.S.C. 282(b), except as modified by section 18(a)(1)(C) . . .”). 173 35 U.S.C. § 325(e)(2). 174 AIA § 18(a)(1)(D). 175 See id., § 18(a)(1)(A). 176 Id. (excluding section 325(e)(2)—not section 325(e)(1)—from applying to a transitional business method patent review). 177 Id. 178 AIA § 18(a)(2). -30-
DC:723366.1 or streamline trial, (2) whether discovery is complete and a trial date set, (3) whether a stay will unduly prejudice the nonmoving party or give a tactical advantage to the movant, and (4) whether a stay will reduce the litigation burden on the parties and the court.179 These considerations are routinely considered by courts in determining whether to grant a stay.180 The district court’s decision on a motion to stay is immediately appealable to the Court of Appeals for the Federal Circuit.181 While a district court’s decision to grant or deny a stay is generally reviewed for an abuse of discretion,182 the AIA makes the review of a district court’s decision to grant or deny a stay pending a transitional business method patent review under section 18 subject to de novo review by the Federal Circuit.183
Finally, as the name suggests, section 18 review is a transitional program. The statute includes a sunset provision that results in the transitional program for business method patent reviews expiring on September 16, 2020.184 Any petition filed before September 16, 2020 may still result in a trial being instituted, and completed, under section 18.185
179 Id. § 18(b)(1). 180 See, e.g., Gryphon Networks Corp. v. Contact Center Compliance Corp., 792 F.Supp.2d 87, 90 (D. Mass. 2011) (“In deciding whether to enter a stay pending reexamination by the PTO, courts oftentimes consider the following factors: (i) whether a stay would unduly prejudice or present a clear tactical advantage to the non-moving party; (ii) whether a stay will simplify the issues in question and a trial of the case; and (iii) whether discovery is complete and a trial date has been set.” (internal quotations and citation omitted)). 181 AIA § 18(b)(2). 182 See, e.g., Gould v. Control Laser Corp., 705 F.2d 1340, 1341, 217 USPQ 985 (Fed. Cir. 1983). 183 AIA § 18(b)(2). 184 Id., sec. 18(a)(3)(A). 185 Id., sec. 18(a)(3)(B); see also 37 C.F.R. § 42.300(d). -31-
DC:723366.1 III. A SECOND BITE AT THE APPLE: HYATT V. KAPPOS – CREATING A NEW RECORD IN THE DISTRICT COURT FOLLOWING PTO PROCEEDINGS
The U.S. District Court for the Eastern District of Virginia is facing an influx of 35 U.S.C. § 145 civil actions – civil actions by which a plaintiff-patent applicant sues the PTO and seeks to have the Court grant the plaintiff’s application and issue a patent. With Section 9 of the AIA, venue for Section 145 civil actions moved from the U.S. District Court for the District of Columbia to the Eastern District of Virginia. Even more significant, with Kappos v. Hyatt, 566 U.S. __, 132 S.Ct. 1690 (2012), the U.S. Supreme Court held that the civil actions are not governed by the Administrative Procedures Act (“APA”), that new evidence is admissible, and that district judges must apply a de novo standard of review to all the evidence when new evidence is admitted.
In the PTO, when a patent application has been rejected twice by the examiner, the applicant may appeal to Patent Trial & Appeal Board (“PTAB”) for inter-agency review of the examiner’s decision to reject. If the PTAB determines that a patent application was properly rejected, an applicant may appeal to the Federal Circuit or file a civil action to obtain a patent in the Eastern District of Virginia. Where to turn after an adverse decision from the PTAB is an important, strategic decision. Consistent with its role as an appeals court, Federal Circuit is limited to reviewing the administrative record as it stood before the PTO. No new evidence may be presented to the Federal Circuit. The scope of review by the Federal Circuit is also limited by the APA, which generally requires a reviewing court to affirm the PTO’s decision if supported by “substantial evidence.”
After Kappos v. Hyatt, decided April 18, 2012, the best option may now be a Section 145 civil action in the Eastern District. In Hyatt, the U.S. Supreme Court rejected the PTO’s arguments that a Section 145 civil action should be governed by the APA, that no new evidence should be allowed, and that the district court should apply a deferential standard of review. Rather, the Court found that a Section 145 civil action is not governed by the APA, that “there are no limitations on a patent applicant’s ability to introduce new evidence in a § 145 proceeding beyond those already imposed by the Federal Rules of Evidence and Civil Procedure,” and that the district court does not act as a “reviewing court” envisioned by the APA but instead must make de novo factual findings that take into account both new evidence and that already in the PTO administrative record in deciding whether a patent should issue.
Thus, Hyatt opens the door for introducing new evidence and having the district court apply a de novo review without deference to the PTO’s earlier decision. Judge Trenga reinforced this analysis in a recent December 6, 2012 decision, BTG International, Ltd. v. Kappos, 2012 WL 6082910 (E.D. Va.). For additional background, see The Rocket Docket Takes On Rocket -32-
DC:723366.1 Science, authored by Damon W.D. Wright and Matthew R. Farley and published by IP Frontline (attached as Exh. B).
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DC:723366.1 IV. PATENT TERM ADJUSTMENT SUITS AND THE EXELIXIS CASE
Patent term in the United States was changed in 1995 to bring U.S. law into conformity with the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) as negotiated in the Uruguay Round.186 To ensure that USPTO delays did not penalize applicants with shorter patent terms, 35 U.S.C. § 154 was enacted to provide applicants with a period of Patent Term Adjustment (“PTA”) to account for those delays.187
With a few exceptions, Section 154 provides one day of extra patent term when the USPTO takes longer than certain specified times to examine the application, and one day of extra patent term for each day of pre-issuance prosecution pendency beyond the first three years, regardless of the cause of the extended pendency. The adjustment is calculated as a function of three delays188:
“A” delay: Adjustments to term based on USPTO delays pursuant to 35 U.S.C. § 154(b)(1)(A)(i)-(iv), which guarantee “prompt patent and trademark office responses”;
“B” delay: Adjustments to term based on the “[g]uarantee of no more than 3-year application pendency” accorded by 35 U.S.C. § 154(b); and
“C” delay: Adjustments to term based on USPTO delays pursuant to 35 U.S.C. § 154(C)(i)-(iii), which account for delays caused by interference proceedings, secrecy orders, and successful appellate reviews.
Prior to Wyeth v. Kappos, 591 F.3d 1364 (Fed. Cir. 2010), the USPTO had accorded patent term adjustments based on the greater of the “A” delay or “B” delays, based on its position that “A” delays inherently cause “B” delays and to accord an applicant adjustment on both types of delay would result in ‘double counting.’189 The USPTO also argued Section 154 was ambiguous on how to account for overlap.190
186 Prior to 1995, U.S. patent term ran 17 years from the date of patent issue, whereas now patent term runs 20 years from the earliest filing date. 187 The statutory scheme was amended to its present form as part of the American Inventors Protection Act enacted in 1999. 188 See http://www.uspto.gov/patents/process/search/public_pair/guidance/pta_calc_explanation.jsp. 189 591 F.3d at 1366-67. 190 Id. -34-
DC:723366.1 The Federal Circuit disagreed, finding that Section 154 contained no ambiguity and that “any overlap” could be easily detected “by examining the delay periods covered by the A and B guarantees.”191 The Federal Circuit further stated that Section 154 “makes it clear that no 'overlap' happens unless the violations occur at the same time” and “[b]efore the three-year mark, no ‘overlap’ can transpire between the A delay and the B delay because the B delay has yet to begin or take any effect.”192 Thus, “[i]f an A delay occur[red] on one day and a B delay … on a different day, those two days do not ‘overlap.’”193 Following Wyeth, which the USPTO elected not to pursue review of, PTA is now calculated as the sum of “A”, “B” and “C” delays minus “the number of days that an “A” delay occurred on the same calendar day with either a “B” delay or a “C” delay.”194
Another controversial aspect to the USPTO’s calculation of PTA is that it has long interpreted a Request for Continued Examination (“RCE”) filing by the Applicant to carve out “B” delay under Section 154(b)(1)(B)(i). This was subject of the recent decision by Judge Ellis in Exelixis, Inc. v. Kappos, 2012 WL 5398876 (E.D. Va. Nov. 1, 2012), which rejected the USPTO’s rule that “any time consumed by an RCE is subtracted from the PTA awarded under [Section 154(b)(1)(B)] regardless of when the RCE is filed.”195
In Exelixis, Judge Ellis reasoned that Section 154(b)(1)(B) “does not address RCEs filed after the running of the three year period nor does it require that the time consumed by an RCE filed after the running of the three year clock be deducted from the PTA.”196 The USPTO’s interpretation, Judge Ellis explained, ”in essence construed subparagraph (B) to punish the applicant for filing the RCE,” rather than viewing an RCE as a “valuable tool in the patent prosecution process.”197 Thus, in Judge Ellis’ opinion, RCEs should “have no impact on PTA if filed after the three year deadline has passed.”198 The USPTO is now appealing the Exelixis decision, which has since been cited as “well-reasoned” and fully adopted in Novartis AG v. Kappos, 2012 WL 5564736 (D.D.C. 2012).
191 Id. at 1369. 192 Id. at 1369-70. 193 Id. at 1370. 194 See http://www.uspto.gov/patents/process/search/public_pair/guidance/pta_calc_explanation.jsp. 195 Exelixis, 2012 WL 5398876, at *5; see also 37 C.F.R. § 1.703(b). 196 Id. at *7. 197 Id. 198 Id. at *8. -35-
DC:723366.1 A. Pending PTA Suits
With the passage of the AIA, Section 154(b)(4)(A) was amended so that all patent term adjustment appeals must be brought in the Eastern District of Virginia.199 A fair number of PTA recalculation suits have already been brought there (approximately 50), including ones by Biogen Idec MA (further arguing that the RCE carveout should end no matter when the RCE was filed once the PTO issues a notice of allowance)200 and Hypermed Imaging, Inc (further arguing “B” delay should apply even where the application was unintentionally abandoned for over a year during its pendency)201. Exelixis itself has at least one additional PTA suit pending.202 Of note is that as the USPTO answers in cases arguing for recalculation under Exelixis, they appear to be negotiating stays pending the Federal Circuit’s consideration of the Exelixis appeal.203
B. No Equitable Tolling of PTA Claims—Patentees Must File If They Want Adjustments
Following Wyeth, and now Exelixis, the question has been raised whether patentees may request recalculations for patents issued outside the 180-day limitation of Section 154(b)(4)(A) to timely challenge a PTA calculation on the grounds that the particular type of recalculation (first Wyeth, now Exelixis) was not previously available. Novartis indicates such ‘equitable tolling’ is not available.204
In Novartis, the patentee argued that argued that it lacked knowledge of its PTA claim until the Wyeth decision and that the 180-day limitation should have been equitably tolled at least until the USPTO indicated it would not seek further review of that decision.205 The patentee
199 AIA, § 9. 200 Biogen Idec MA v. Kappos, C,A. No. 1:12-cv-01171-LO-TCB, Dkt. No. 1 (E.D. Va). 201 Hypermed Imaging v. Kappos, C.A. No. 1:13-cv-00047-LMB-JFA, Dkt. 1 (E.D. Va.). One practitioner has cited Hypermed as an example of the types of factual situation the USPTO is expected to rely on in its Exelixis appeal as it illustrate how a patentee could manipulate the patent prosecution process to ensure that the patent falls under Exelixis. See Courtenay C. Brinckerhoff, Maximizing Patent Term under Exelixis (Jan. 24, 2013), available at http://www.lexology.com/library/detail.aspx?g=ab2bc9e1-a728-4034-9e86-1c06e7b02707. 202 See Exelixis v. Kappos, C.A. 1:12-cv-574-LMB-TRJ (E.D. Va.). 203 See, e.g., JELD-WEN, Inc. v. Kappos, C.A. 1:12-cv-01295-GBL-TCB, Dkt. 9 (E.D. Va.) (granting joint motion to stay pending decision on appeal in Exelixis). 204 2012 WL 5564736, *10. 205 Id. at *8. -36-
DC:723366.1 further argued that its lacked knowledge of its claims of miscalculation due to RCE filings until the issuance of Exelixis.206
The Novartis Court found these arguments unavailing.207 “Equitable tolling,” it reasoned, was “available [only] to a petitioner who has been diligent in pursuing his rights, but for whom some extraordinary circumstance stood in the way and prevented timely filing.”208 The patentee, however, “was free to raise the same issues that Wyeth and Abbott Laboratories raised in their lawsuits within the 180 days after their patents were granted,” and “a change in law [was] not such an extraordinary circumstance as to justify the application of equitable tolling.”209 The patentee has appealed the Novartis decision to the Federal Circuit, where briefing will begin soon.
Accordingly, for the time being, if a patent is believed to be entitled to additional PTA under Exelixis, patentees should be filing requests for reconsideration at the USPTO and then appeals at the Eastern District if these petitions are denied.210
206 Id. at *9. 207 Id. 208 Id. 209 Id. 210 It is noted the USPTO continued to deny petitions for PTA recalculation under Wyeth until Wyeth was affirmed by the Federal Circuit. It is expected the USPTO’s practice under Exelixis will be the same. -37-
DC:723366.1 V. IS A SMALL PATENT CLAIMS COURT COMING?
This section addresses proposals for a small patent claims court that would hear certain patent disputes, so long as the amount in controversy does not exceed a specified amount. First, the issues that the proposed small claims court would address are discussed. Next, this section examines whether the small patent claims court will actually be used. Third, and finally, a list of features that might be desirable for a small patent claims court are discussed.
A. Factors Suggesting the Need for a Small Patent Claims Court
1. Transaction Costs
Advocates of a small patent claims court cite expense is the primary reason for the development of such a court and procedures for litigating small patent infringement claims. Among patent infringement cases where less than one million dollars is at issue, the least- expensive quartile of cases average $380,000 in fees and expenses to get through trial and appeal.211 The most expensive quartile of cases where potential recovery is below one million dollars cost, on average, more than one million dollars to litigate.212 The near certainty that the transaction costs involved in litigating a small infringement claim will consume a significant portion of any damages recovered – or the entire award – appears to be the most compelling evidence demonstrating the need for an alternative means to litigate small patent infringement claims.
2. Reduced Litigation
Though reducing transaction costs for smaller patent owners (including solo inventors) is the most immediate objective, the creation of a small claims court would arguably – and counter intuitively – reduce litigation frequency and unburden federal courts. Creating an alternative forum for these cases to be adjudicated in a streamlined fashion could potentially lighten the federal docket significantly (it has been estimated that, in 2007 for instance, one-third of all patent cases in the federal docket involved less than one million dollars.213
Proponents have also asserted that there would be a substantial increase in the amount of unbiased predictive information available through the published decisions of the small claims
211 LAW PRACTICE MGMT. COMM., AM. INTELLECTUAL PROP. LAW ASS’N, REPORT OF THE ECONOMIC SURVEY I-90 (2007) [hereinafter AIPLA REPORT OF ECONOMIC SURVEY]. 212 Id. 213 Id. at I-90-91. -38-
DC:723366.1 court, and that this could encourage negotiation and increase settlement opportunities.214 This would work to offset any increase in litigation that results from lowered transaction costs.
B. Would A Patent Small Claims Court Be Used in Practice?
1. Recent Interest in a Patent Small Claims Court
The creation of a small patent claims court was first given serious consideration in 1990, when the ABA Section of Patent, Trademark, and Copyright Law adopted Resolution 401.4 in support of a small claims patent procedure.215 The idea was tabled soon thereafter, but has recently been resurrected. In 2012, Members of the American Bar Association Section of Intellectual Property Law formed the “Small” Patent Claims Court Task Force – comprised of federal judges, law professors, and intellectual law practitioners – to submit recommendations on how a small patent claims court might be created and operated.216
In addition, the US Patent and Trademark Office (USPTO) in 2012 issued a Federal Register Notice “seeking comments as to whether the United States should develop a small claims proceeding for patent enforcement.”217 The request for comment was motivated by “several recent discussions the USPTO has had with Federal judges, academia, private practitioners and various stakeholder groups and bar and industry associations, exploring the desire and need for a patent small claims proceeding in the United States.”218
In 2011, Congress instituted the ongoing Patent Pilot Program in the fourteen United States District Courts where patent cases are most frequently filed. The objective of the program, which requires at least three judge participant-volunteers in each District Court, is to expedite the adjudication of patent cases by increasing the number of judges with patent expertise.219 The Pilot Program approach is consistently echoed by commentators on the small patent claims court issue: any effort to expedite infringement adjudication while retaining
214 Robert P. Greenspoon, Is The United States Finally Ready for a Patent Small Claims Court?, 10 MINN. J. L. SCI. & TECH. 549, 552 (2009). 215 Federal Small Claims Procedure, 1990 A.B.A. SEC. PAT., TRADEMARK & COPYRIGHT L. COMM. REP. 194 (report of Ronald L. Yin, Chairman, Subcomm. B). 216 Task Force Presentation to the Council: “Small” Patent Claims Court, 2012 ABA SEC. INTELL. PROP. LAW 2. (hereinafter Task Force Presentation). 217 Request for Comments on a Patent Small Claims Proceeding in the United States, 77 Fed. Reg. 74830- 31 (Dec. 18, 2012) (attached as Exh. C). 218 Id. 219 Task Force Presentation, supra n. 216 at 19. -39-
DC:723366.1 judgment accuracy and decision uniformity across federal courts will necessarily rely on experienced judges specializing in the adjudication of patent infringement actions.220
Perhaps an argument against the need for a small patent claims court is the fact that individual district courts possess the freedom to implement their own local rules to govern patent cases, and this gives district courts the discretion to streamline many procedural aspects of the litigation process. The Northern District of California, for example, has instituted local rules to govern the scheduling and exchange of contentions during patent litigation.221 These rules have since been emulated by other district courts, and have been upheld by the Federal Circuit as a valid exercise in local rulemaking.222
2. Skepticism in the Proposed Small Claims Court
The argument that solo inventors and small businesses should be able to rely on the federal court system to enforce their patent rights is compelling; however, the increasingly prominent role of non-practicing entitles (“NPEs”) as plaintiffs in patent infringement litigation suggests that a pressing need for a small claims court may be illusory. NPEs eagerly purchase patent rights from inventors in order to file infringement claims against other parties, thereby removing many small inventors from the pool of potential infringement suit plaintiffs. Some NPEs appear to rely on expensive and protracted discovery and motions procedure of the current patent litigation system as leverage to extract pre-trial settlements from defendants. As a result, some NPEs – who presently constitute a high percentage of plaintiffs in patent infringement actions – may not be likely to utilize any new small patent claims adjudication option.
C. What Might a Successful Patent Small Claims Court Look Like?
1. Expeditious Litigation
A small claims court must establish procedures to expedite litigation and thereby contain the expenses and protracted schedules that characterize patent infringement litigation in its present form. These procedures may include expedited claim construction and invalidity challenges; early initial disclosures of relevant documents and potential witnesses; limited discovery, including use of Judge Rader’s Model e-Discovery Order; and emulating current
220 See Greenspoon, supra n. 214 at 565-66; Task Force Presentation, supra n. 216 at 18. 221 N.D. Cal. Patent R. 1-1 to 4-7 (2008). 222 O2 Micro International Ltd. v. Monolithic Power Systems, Inc., 467 F.3d 1355, 1363-66 (Fed. Cir. 2006). -40-
DC:723366.1 procedures followed in “rocket dockets” (such as the Eastern District of Virginia) to streamline pre-trial practice and trial schedule.223
2. Floors and Caps on Recovery
In light of litigation costs, the jurisdiction of any small patent claims court jurisdiction would likely be defined according to maximum and minimum damage amounts claimed. As to the minimum amount to file suit in small patent claims court, the “Small” Patent Claims Court Task Force recommended there be no fixed minimum amount, but determined that a sworn, good faith affidavit as to the damages requested would be adequate to discourage frivolous suits.
As to a maximum amount, the Task Force recommended that jurisdiction be limited to cases involving no more than $3 million in liability exposure, on the theory that the amount of an infringement claim roughly corresponds to the eventual complexity and expense of litigation. Provided that the median cost to litigate a “small” infringement claim stood at $650,000 in 2011, the Task Force concluded that plaintiffs seeking more than $3 million in damages would be motivated to file infringement suits even without the small patent claims court option.224
3. Availability of Other Remedies
Recognizing that the financial impact of an injunction may exceed the $3 million maximum amount for damages, the Task Force nevertheless recommended that a small claims court be authorized to grant injunctive relief, based on the rationale that injunctive relief protects “an essential right under the patent laws, i.e., to exclude competitors from infringing a patent.”225 Concerning other remedies, the Task Force recommended against permitting enhanced damages on the rationale that the additional discovery required unnecessarily increase the cost and timeline for final adjudication.226
223Task Force Presentation, supra n. 216 at 13. 224 AIPLA REPORT OF THE ECONOMIC SURVEY (2011) at 35 (defining “small” claims as those in which less than $1 million is at risk). 225 Task Force Presentation, supra n. 216 at 10. 226 The Task Force observed further that, even where a decision of willfulness was reached, only 6% of such cases resulted in an enhanced damages award. -41-
DC:723366.1 4. No Supplemental Claims
Another important aspect of any small patent claims court or procedure would be the need to contain the scope of litigation. Accordingly, present proposals for a small patent claims court deny jurisdiction over any supplemental claims, other than counterclaims stemming from the patent at issue in the original claim. This is intended to permit the court to adjudicate claims quickly and efficiently by keeping its focus specifically on discrete infringement actions.
5. Limited Ability to Remove the Case
The 1990 ABA Resolution 401.4 provided for removability of small claim suits to ordinary federal court. Permitting removal arguably erases many of the efficiencies gained from small claims procedures, and fighting an attempted removal of the case would also add costs and delay to resolution of the dispute.
In light of these concerns, proposals have suggested that removal ought to be limited to narrower circumstances. The AIPLA Task Force, for example, recommended that a plaintiff only be permitted to remove the case where discovery establishes willful infringement or a potential damages entitlement exceeding the $3 million jurisdictional ceiling.227 For a defendant, the Task Force would prohibit removal after an answer has been filed.
6. Jury Trial
While successful small patent claims courts in other countries, such as the Patents County Court (“PCC”) in England, have streamlined the adjudication process by providing exclusively bench trials, jury trials are required in the United States for patent infringement actions – unless waived.228 The elimination of jury trials in Resolution 401.4 ensured a streamlined adjudication process, but likely ran afoul of the Seventh Amendment. To avoid thorny constitutional issues, a small patent claims court must provide a jury trial to either party requesting it, but should at the same time encourage litigants to waive the jury trial in favor of a bench trial.
Commentators, including Paul Greenspoon, have described how incentives to waive a jury trial might be structured. The court, in exchange for waiver of the jury trial, would be able to offer litigants an expedited proceeding in which all case-in-chief evidence will be taken as written evidence, allowing for live cross-examination during trial. Any plaintiff demand for a jury trial will be granted, but, for example, the court may then limit the plaintiff’s case-in-chief to one full day of evidence, and bifurcate the damages issue – meaning damages will be tried
227 Task Force Presentation, supra n. 216 at 12. 228 Markman v. Westview Instruments, Inc., 517 U.S. 370, 377 (Fed. Cir. 1996). -42-
DC:723366.1 before the same jury, but only after a liability verdict. Bifurcation is generally viewed negatively by most plaintiffs. A potential parallel strategy to encourage defendants to waive the jury trial would be to limit rebuttal evidence to one day, and have all affirmative defenses bifurcated.229
7. Availability of Appellate Review
Regular appeals from the decisions of the small patent claims court have the potential to increase expenses and delay a final decision. The median disposition time for patent case appeals in the U.S. Court of Appeals for the Federal Circuit was 11.2 months in fiscal year 2011.230
Among proposals to curtail the number of appeals from small patent claims court decisions, two stand out. First, any appeal could first be required to the U.S. Court of Appeals for the Federal Circuit’s existing Appellate Mediation program. In light of the fact that 54% of patent appeals entering into the Mediation program in fiscal year 2011 were settled, this appears to be a viable means to cut down on appellate traffic in small claims.231 Alternatively, and as a means to weed out non-meritorious appeals, any losing appellant could be required to pay all fees, including attorney fees and court costs, to the appellee.
229 Greenspoon, supra n. 214 at 564. 230 See U.S. COURT OF APPEALS FOR THE FED. CIRCUIT, MEDIAN TIME TO DISPOSITION IN CASES TERMINATED AFTER HEARING OF SUBMISSION (“Exhibit B”). 231 See U.S. COURT OF APPEALS FOR THE FED. CIRCUIT, CIRCUIT MEDIATION OFFICE STATISTIC 2011 CALENDAR YEAR (2012) (“Exhibit C”). -43-
DC:723366.1 VI. MULTI-DEFENDANT PATENT CASES POST-AIA JOINDER RULES UNDER § 299(a)
A. New 35 U.S.C. § 299
The AIA also created new section 299, which was intended to codify the interpretation of Federal Rule of Civil Procedure 20(a) from the case of Rudd v. Lux Products Corp.,232 and overruling a case from the Eastern District of Texas called MyMail Ltd. v. America Online, Inc.233 The Rudd court explained:
After researching the issue, the Court determines that [the approach of MyMail] . . . is in the minority. This Court follows the prevailing approach of this District and numerous others that have concluded that a party fails to satisfy Rule 20(a)’s requirement of a common transaction or occurrence where unrelated defendants, based on different acts, are alleged to have infringed the same patent. . . . Moreover, allegations that unrelated defendants design, manufacture and sell similar products does not satisfy Rule 20(a)’s requirement.234
New section 299 reads:
(a) JOINDER OF ACCUSED INFRINGERS.—With respect to any civil action arising under any Act of Congress relating to patents, other than an action or trial in which an act of infringement under section 271 (e)(2) has been pled, parties that are accused infringers may be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, or counterclaim defendants only if—
(1) any right to relief is asserted against the parties jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process; and
232 No. 09-cv-6957, 2011 WL 148052 (N.D. Ill. Jan. 12, 2011). 233 223 F.R.D. 455 (E.D. Tex. 2004). This case is expressly cited in H.R. Rep. No. 112-98, at 55 n.61, as being abrogated by the AIA. 234 Rudd, No. 09-cv-6957, 2011 WL 148052, at *3. -44-
DC:723366.1 (2) questions of fact common to all defendants or counterclaim defendants will arise in the action.
(b) ALLEGATIONS INSUFFICIENT FOR JOINDER.—For purposes of this subsection, accused infringers may not be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, based solely on allegations that they each have infringed the patent or patents in suit.
(c) WAIVER.—A party that is an accused infringer may waive the limitations set forth in this section with respect to that party.
The statute speaks in mandatory terms, permitting joinder “only if” certain requirements are met.235 The first condition is that the allegations against “the parties” arise out of “the same transaction, occurrence, or series of transactions of occurrences” and that these transactions or occurrences relate to the “same accused product or process.”236 The second condition is that “questions of fact common to all defendants . . . will arise” in the case.237 Section 299(a) exempts Hatch-Waxman litigation from these requirements.238
Section 299(b) makes explicit what section 299(a) leaves implicit: that allegations that the defendants are infringing the same patent or patents is insufficient to justify joinder or consolidation for trial.239 Congress spoke clearly to eliminate the inequities caused when multiple unrelated defendants were required to try their cases in the same short period of time simply because they were accused of infringing the same patent.240
B. Judicial Interpretation and Reactions
Courts have recognized § 299 as providing a “new set of rules” for joinder of defendants in patent cases.241 “[J]oinder under the AIA is more stringent than joinder pursuant to Federal
235 35 U.S.C. § 299(a). 236 35 U.S.C. § 299(a)(1). 237 35 U.S.C. §299(a)(2). 238 Id. § 299(a). 239 Id. § 299(b). 240 See Joe Matal, A Guide to the Legislative History of the America Invents Act: Part II of II, 21 FED. CIR. B.J. 539, 590-93 (2012). 241 See, e.g., Novartis Vaccines & Diagnostics, Inc. v. MedImmune, LLC, No. 11-84-SLR, 2012 WL 3150524 (D. Del. Aug. 2, 2012). -45-
DC:723366.1 Rule 20.”242 Yet, § 299 does not change “the authority of a court to order pre-trial consolidation of related patent cases.”243
While § 299 is applicable only to complaints filed after the September 16, 2011 passage of the AIA,244 Courts have been severing patent cases initially brought against multiple unrelated defendants since the enactment of § 299 and often cite § 299 as persuasive authority to support severance.245 These decisions generally reinforce what the statute says. But the cases address permissive joinder of parties in the wake of § 299 in a wide variety of contexts and provide useful guideposts as to what may be acceptable joinder, and what may not be acceptable. Some of the principles emerging from the cases addressing § 299 are discussed below.
C. The Patentee Response to § 299
Patentees have tried a number of ways to attempt to join multiple defendants in a single suit, both in cases filed before the AIA and those filed after its passage. Some of the things plaintiffs have tried, albeit unsuccessfully include:
Filing suit against a combination of defendants who are manufacturers or sellers alongside defendants who are retailers or resellers of the manufacturers’ products;246
242 Motorola Mobility, Inc. v. Apple Inc., No. 1:12-cv-20271-RNS, 2012 WL 3113932 (S.D. Fla. Jul. 31, 2012). 243 C.R. Bard, Inc. v. Med. Components, Inc., No. 2:12-cv-32-TS-EJF, 2012 WL 3060105, *2 (D. Utah Jul. 25, 2012). 244 In re EMC Corp., 677 F.3d 13151, (Fed. Cir. 2012) (concluding § 299 “is not retroactive, applying only to ‘any civil action commenced on or after the date of enactment of th[e] Act” (internal citation and quotation omitted). 245 See, e.g., Lektron, Inc. v. GE Lighting, Inc., No. 11-cv-413, 2012 WL 1085486 at *3 (N.D.Okla. Mar. 30, 2012) (finding that § 299 “supports the Court’s holding” that case should be dismissed for misjoinder even though it was “enacted after this case was filed”); H-W Tech. L.C. v. Apple, Inc., 3:11-cv-651, 2012 WL 3072776 at *3 (N.D. Tex. July 5, 2012) (recognizing that the majority approach that it is misjoinder under Rule 20 to join “unrelated defendants, based on different acts, are alleged to infringe the same patent” is “in line with” the policy justifications for § 299). 246 See, e.g., Digitech Image Technologies, LLC v. Agfaphoto Holding GmbH, No. 8:12-cv-1153- ODW(MRWx), 2012 WL 4513805 (C.D. Cal. Oct. 1, 2012) (acknowledging that “Digitech joined all Defendants together in a creative way,” by “spinning a web” of retailers who sell cameras from multiple manufacturers, and manufacturers who sell cameras to multiple retailers, but concluding that transactions “within the commerce stream do not constitute the same transactions or series of transactions.”); Mednovus, Inc. v. QinetiQ Group PLC, No. 2:12-cv-03487-ODW(JCx), 2012 WL 4513539 (C.D. Cal. Oct. 1, 2012) (rejecting the notion that joinder was appropriate if different defendants were in the same commerce stream); Brandywine Commcn’s Techs. LLC v. Apple Inc., No. 6:11-cv-1512-Orl-KRS, 2012 -46-
DC:723366.1 Filing suit against members of the same trade associations;247
Filing suit against parties whose products implement the same technical interoperability standards;248 and
Filing suit against defendants that use the same or very similar components in the products accused of infringement.249
Some of the things that Plaintiffs have tried, with more success, include:
Accusing defendants of acting in concert or infringing a patent jointly, thereby giving rise to joint and several liability;250 and
Filing suit against a single defendant manufacturer and a reseller or end-user of that manufacturers’ products.251
WL 527057 (M.D. Fla. Jan. 24, 2012) adopted by Brandywine Commcn’s Techs. LLC v. Apple Inc., No. 6:11-cv-1512-Orl-36DAB, 2012 WL 527180 (M.D. Fla. Feb. 17, 2012) (“While Plaintiff identifies some products that appear to be related to one or more Defendants, it fails to identify any product that is common to all Defendants.”). 247 See Body Science LLC v. Boston Scientific Corp., 846 F. Supp. 2d 980 (N.D. Ill. 2012) (membership in the Continua Health Alliance consortium was insufficient to establish appropriate joinder under Rule 20 because “[s]imply being a member of an industry organization does not indicate that Defendants have jointly designed, developed, manufactured, marketed, or sold their Accused Products”); Motorola Mobility, Inc. v. Apple Inc., No. 1:12-cv-20271-RNS, 2012 WL 3113932 (S.D. Fla. Jul. 31, 2012) (finding that two defendants who were both members of the Open Handset Alliance could not be joined by virtue of their membership in that organization). 248 MedSquire LLC v. Quest Diagnostics, Inc., No. 2:11-cv-04504-JHN-PLAx, 2011 WL 7710203 (C.D. Cal. Dec. 1, 2011) (pre-AIA case finding that allegations that products complied with the same technical interoperability standard could not justify joinder because plaintiff had not shown that all possible implementations of the standard infringe and therefore would be required to show that each of the accused products infringed); Body Science, 846 F. Supp. 2d at 989 (finding, in the pre-AIA context that an allegation that products all implemented Bluetooth® standard did not justify joinder because there were four versions of Bluetooth® and plaintiff had not plead any commonality in its complaint). 249 See, e.g., Golden Bridge Tech., Inc. v. Apple Inc., 2:12-cv-4014-ODW (FFMx), 2012 WL 3999854 (Sept. 11, 2012) (finding that despite contested allegation that defendants used the same baseband processors in their mobile phones, the accused products were sufficiently different such that the cause of action did not arise out of the same transaction or occurrence); Norman IP Holdings, LLC v. Lexmark Int’l Inc., 6:12-cv-508, 2012 WL 3307942, at *3 (E.D. Tex. Aug. 10, 2012) (applying pre- and post-AIA joinder rules and concluding that “allegations regarding common use of ARM processor designs are not sufficient to show that there is a common transaction or occurrence among the defendants warranting joinder”). 250 See, e.g., Lantig Deutschland GmbH v. Ralink Tech. Corp., 5:11-cv-00234 EJD, 2012 WL 1536070 (S.D. Cal. Apr. 30, 2012) (granting leave to amend complaint to add related corporate defendant where plaintiff was seeking damages jointly and severally from defendants). -47-
DC:723366.1 D. Response to Plaintiff’s New Theories of Joinder
In response to the evolving strategies employed by plaintiffs, defendants have:
Successfully moved to dismiss based on misjoinder under the AIA;252
Customer defendants sued with manufacturers regarding the same accused product have successfully moved to stay the action against the customer under the “customer suit” doctrine;253
In addition, defendants (and in some instances plaintiffs too) have also implemented a number of strategies to consolidate a multiplicity of separately-filed actions, which previously would have likely been filed as a single action, including:
Consolidating multiple actions from multiple venues for pre-trial purposes pursuant to 28 U.S.C. § 1407;254 and
Consolidating multiple actions from a single venue for pre-trial purposes pursuant to Fed. R. Civ. P. 42.255
251 See, e.g., Motorola Mobility, Inc. v. TiVO, Inc., No. 5:11-cv-53-JRG, 2012 WL 2935450, *2 (E.D. Tex. Jul. 18, 2012) (performing a “limited restructuring” of the litigation to require TiVO to pursue claims against Time-Warner related to its use of Motorola products in one suit, and Time-Warner’s use of Cisco products in another suit); Omega Patents, LLC v. SkyPatrol, LLC, No. 1:11-cv-24201-KMM, 2012 WL 2339320 (S.D. Fla. Jun. 19, 2012) (finding joinder proper where one defendant reconfigures, modifies, and rebrands product sold to it by other defendant); Novartis Vaccines, 2012 WL 3150524 (D. Del. Aug. 2, 2012) (permitting joinder, in the pre-AIA context, of three defendants, each of whom used an identical third party product in their distinct processes). 252 See, e.g., Mednovus, Inc. v. QinetiQ Group PLC, No. 2:12-cv-3487, 2012 WL 4513539 (S.D. Cal. Oct. 1, 2012) (granting motion to dismiss for misjoinder and finding that the allegations of the complaint were “facially insufficient to meet § 299’s heightened standard for joinder”). 253 See, e.g., Pragmatus Telecom, LLC v. Advanced Store Co., Inc., C.A. No. 12-088-RGA, 2012 WL 2803695, at *1–2 (D. Del. July 10, 2012) (post-AIA case staying claims against customers in favor of claims against manufacturer under customer suit doctrine). 254 See, e.g., In re Unified Messaging Solutions LLC Patent Litig., MDL No. 2371, 2012 WL 3143862 (J.P.M.L. Aug. 3, 2012) (consolidating pre and post-AIA cases into a single MDL proceeding for coordinated pretrial proceedings). 255 See, e.g., C.R. Bard, 2012 WL 3060105, *2 (denying consolidation, but finding that “the AIA does not affect the authority of a court to order pre-trial consolidation of related patent cases. This Court does not view consolidation in these cases as violative of the spirit of the AIA.”). -48-
DC:723366.1 E. The AIA’s Joinder Provision And Multi-District Litigation (“MDL”) Consolidation Under 28 U.S.C. § 1407
One consequence of § 299’s misjoinder provision is the proliferation of serially-filed cases, oftentimes in multiple venues in lieu of a single action against multiple defendants in one forum, which was common practice prior to enactment of the AIA. As a result, MDL practice has gained prominence in patent cases.
1. Statutory Framework for MDL Consolidation
The U.S. Code provides that “[w]hen civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings.”256 The MDL Panel257 broadly construes “common questions of fact” to include “common questions of law” such as claim construction.258
Transfer for consolidation may be initiated by a party in an underlying action, or by the MDL Panel on its own initiative.259 The statute provides broad criteria for deciding when such treatment is warranted, permitting transfer where it will serve “the convenience of parties and witnesses and will promote the just and efficient conduct of such actions.”260
Under the statute, only a “civil action” may be transferred and the transfer is only for “pretrial” purposes.261 Discrete issues or claims cannot be transferred.262 While the transferee district will ordinarily be one in which one of the underlying cases is pending, the Panel may
256 28 U.S.C. § 1407(a). 257 The MDL Panel consists of seven sitting federal judges who are appointed by the Chief Justice of the United States Supreme Court. Currently the Panel Chairman is the Honorable John G. Heyburn II (W.D. Ky.) The other members of the Panel are: the Honorable Kathryn H. Vratil (D. Kan.), the Honorable W. Royal Furgeson, Jr. (N.D. Tex.), the Honorable Paul J. Barbadoro (D.N.H.), the Honorable Marjorie O. Rendell (3d Cir.), the Honorable Charles R. Breyer (N.D. Cal.), and the Honorable Lewis A. Kaplan (S.D.N.Y.). 258 See, e.g., In re Cygnus Telecomm. Tech., LLC Patent Litig., 177 F. Supp. 2d 1375, 1376 (J.P.M.L. 2001) (“All actions can thus be expected to share factual and legal questions concerning such matters as patent validity, prior art, obviousness and interpretation of the claims of the patent.”). 259 28 U.S.C. § 1407(c). 260 Id. § 1407(a). 261 Id. 262 Id.; see also In re Gadolinium Contrast Dyes Products Liability Litig., 536 F. Supp. 2d 1380, 1382 (J.P.M.L. 2008) (holding that MDL consolidation places “all actions” before a single judge, including common and unique issues, but noting that certain claims may be remanded for trial before others). -49-
DC:723366.1 send the case to any district.263 In addition, the statute is broadly drafted to allow the transferee court wide latitude in structuring how best to “consolidate” or “coordinate” the proceedings.264
2. Section 299 Does Not Prohibit MDL Consolidation
In light of the AIA, plaintiffs are now filing cases alleging infringement of the same patents against single defendants in courts dispersed throughout the country. In response, an increasing number of MDL petitions are being sought in patent cases, often by defendants, but sometimes by plaintiffs as well. Some have argued that this is an end-run around § 299’s misjoinder provision. The Judicial Panel on Multi-District Litigation (“JPML”) and the Federal Circuit have rejected such notions. For example, in In re Bear Creek, the JPML held that the AIA “does not alter [the Panel’s] authority to order pretrial centralization” of cases under § 1407.265 Shortly thereafter, the Federal Circuit reiterated in In re EMC in the context of a pre- AIA case that “[c]ommon pretrial issues of claim construction and patent invalidity may also be adjudicated together through the multidistrict litigation procedures of 28 U.S.C. § 1407.”266 Accordingly, filing dispersed cases throughout the country and then seeking to consolidate them for pre-trial purposes pursuant to § 1407 appears to be a viable strategy for plaintiffs to effectively achieve pre-AIA joinder (at least for pre-trial purposes) post-AIA. As will be discussed further below, plaintiffs have less control over which court an MDL action will be consolidated before, which may add an element of uncertainty to these types of cases.
3. Strategic Considerations for MDL Consolidation
MDL consolidation may also be a strategy utilized by a defendant who is involved in one of several pending patent cases involving the same plaintiff and same patent(s). In addition to the efficiencies and cost-sharing involved with working together with similarly situated
263 See, e.g., In re Webvention LLC (‘294) Patent Litig., 831 F. Supp. 2d 1366, 1367 (J.P.M.L. 2011) (“While we are typically hesitant to centralize litigation in a district in which no constituent action is pending, the circumstances in this litigation justify doing so.”). 264 See, e.g., In re Bear Creek Tech., Inc. (‘722) Patent Litig., 858 F. Supp. 2d 1375, (J.P.M.L. May 2, 2012) (“We choose instead to leave the degree of coordination or consolidation of involved actions to the sound discretion of the transferee judge.”). 265 858 F. Supp. 2d at 1378. See also In re Maxim Integrated Prods, Inc. Patent Litig., 867 F. Supp. 2d 1333, 1335 (J.P.M.L. 2012) (“While the AIA changed the landscape of patent litigation—particularly the filing of actions against multiple unrelated defendants and the right to a separate trial when defendants are only accused of violating the same patent—it does not follow that the mere possibility of factual disputes regarding a particular invalidity defense or the infringement of a particular product that might need to be presented to a jury (or juries) is sufficient to deny centralization of actions otherwise involving common factual questions.”). 266 677 F.3d at 1360. -50-
DC:723366.1 defendants on common defenses, a defendant will likely want a “seat at the table” for Markman, a critical event in any patent case.
In some instances, however, seeking MDL consolidation may not be a desirable strategy for a defendant. For example, if there is a high likelihood that the case will be transferred by the Panel to a district perceived to be less favorable to a defendant, that would weigh against bringing a motion for MDL consolidation. Additionally, where a defendant successfully moves to transfer an action out of a district pursuant to 28 U.S.C. § 1404, moving for MDL consolidation may be counterproductive. While there is no prohibition to seeking MDL consolidation following a successful transfer under § 1404, doing so may risk MDL consolidation back in the original forum. Any attempt to consolidate the cases in a forum other than the forum where the cases were originally brought may be unsuccessful, especially if other cases remain in the original forum with more advanced schedules.
In sum, the decision whether to seek MDL consolidation as a defendant, or any other form of coordinated proceedings (discussed below), will require a case-by-case analysis in light of the unique dynamics of each case.
4. Guidance from the MDL Panel on Placement of Patent Cases
In determining where to send patent cases that are consolidated for pre-trial purposes, the MDL Panel has generally followed the below guidelines:
The Panel is likely to consolidate in a court where the judge has experience with the patented technology.267
To the extent that any Markman proceedings have taken place, the court conducting those proceedings is more likely to get the case.268
267 See, e.g., In re Tramadol Hydrochloride Extended Release Capsule Patent Litig., 672 F. Supp. 2d 1377, 1378 (J.P.M.L. 2010) (centralizing cases in front of judge in light of judge’s “intimate familiarity with the two patents” and in light of the fact that the judge had “already invested substantial time and effort in familiarizing himself with the complex issues that these actions present”); In re Katz Interactive Call Processing Litig., 481 F. Supp. 2d 1353, 1355 (J.P.M.L. 2007) (centralizing cases in front of judge who “has prior judicial experience with some of the patents involved in this docket and is thus already familiar with the technology underlying these patents”). 268 See In re Parallel Networks, LLC, (‘111) Patent Litig., MDL No. 2355, 2012 WL 2175762 at *2 (J.P.M.L. June 12, 2012) (centralizing cases in front of judge who had already construed three claim terms as he was “unquestionably the jurist most familiar with the merits of this litigation and the involved patent”). -51-
DC:723366.1 The Panel is less likely to consolidate patent cases that do not share common patents-in-suit.269
The Panel is also less likely to consolidate if the movant does not show commonality of issues between the pending cases.270
The Panel is likely to consolidate in front of a judge who the Panel is confident will handle the case in a “prudent” manner, but whose docket is not overly- crowded, including with other MDL cases.
The Panel may be more likely to consolidate in a court where the first-filed action is pending.271
However, the Panel generally appears untroubled by slowing down earlier-filed cases as a consequence of consolidation.272
The Panel may be more likely to consolidate a patent case in a court that has local patent rules and is participating in the Patent Pilot Program.273
269 See In re Charles R. Bobo Patent Litig., 829 F. Supp. 2d 1374, 1375 (J.P.M.L. Dec. 13, 2011) (“The two actions in the Eastern District of Texas involve patents, defendants and a plaintiff different from those in the actions pending in the Central District of California, and the cases in each district are at different stages in the proceedings. Moreover, the Central District of California actions involve other patents that are not part of the same patent family.”). 270 See, e.g., In re Select Retrieval, LLC (‘617) Patent Litig., MDL No. 2377, 2012 WL 3244218 at *1 (J.P.M.L. Aug. 8, 2012) (“Proponents also have shown no evidence of common claims construction terms. Nor has it been determined at this stage of the litigation whether defendants will assert common invalidity arguments as to the ′617 patent.”). 271 See, e.g., In re Papst Licensing Digital Camera Patent Litig., 528 F. Supp. 2d 1357 (J.P.M.L 2007) (“The first-filed action (Casio) has been pending in the District of District of Columbia for about a year, and discovery has progressed further in Casio than in any other action.”); see also In re Innovatio IP Ventures LLC Patent Litig., MDL No. 2303, 2011 WL 6890252 at *1 (J.P.M.L. Dec. 28, 2011) (centralizing cases in forum where first action was filed). 272 See, e.g., In re Unified Messaging Solutions LLC Patent Litig., MDL No. 2371, 2012 WL 3143862 at * 2 (J.P.M.L. Aug. 3, 2012) (centralizing cases for pre-trial purposes even though it “could result in some delay” to the most progressed cases because even those cases “can still realize the benefits of centralized proceedings”). 273 See, e.g., In re Maxim Integ. Prods. Inc. Patent Litig., MDL No. 2354, 2012 WL 2126807 at *3 (J.P.M.L. June 11, 2012) (centralizing cases in the Western District of Pennsylvania in front of Judge Fischer in part because the “Western District of Pennsylvania is participating in the national Patent Pilot Program, and Judge Nora Barry Fischer is one of the judges participating in that program” and further noting that “the district was an early leader in establishing Local Patent Rules”). -52-
DC:723366.1 The Panel may be more likely to consolidate in a court where the most actions are pending, or the most defendants are present.274 F. Non-MDL Claim Construction Procedures Among Multiple Cases
In light of the importance of Markman, where MDL consolidation is not a viable or preferred alternative but multiple actions are proceeding around the country, a defendant may still attempt to participate in Markman proceedings in another case (especially the earliest Markman), either formally or informally. Various procedural mechanisms for such participation are discussed below.
1. Consolidation
Where multiple cases involving a common question of law or fact are proceeding “before the [same] court,” the Federal Rules of Civil Procedure allow the court to “join for hearing or trial any or all matters at issue” or more broadly to “consolidate the actions.” See FED. R. CIV. P. 42(a). Thus, unlike §1407(a), Rule 42 expressly contemplates consolidation for a limited purpose, such as Markman proceedings. The rules do not appear to expressly contemplate an attempt to formally consolidate matters pending in actions in different districts for a limited purpose, such as Markman.275
One mechanism for dealing with multiple defendants in the same court is the designation of a “Lead Defendant” for purposes of Markman. This approach has recently been implemented (and challenged) in the Eastern District of Texas. For example, in Geotag, Inc. v. Circle K Stores, Inc., et al.,276 the Court entered a scheduling order in twenty consolidated actions, requiring that “one Defendant will be designated as the Lead Defendant for briefing and arguing
274 See, e.g., In re Optical Disk Drive Prods. Antitrust Litig., 701 F. Supp. 2d 1382, 1383 (J.P.M.L. 2010) (consolidating cases in the Northern District of California where “[m]ost of the actions are already pending”); In re Bear Creek, 2012 WL 1523340 at * 4 (consolidating cases in the District of Delaware where ten actions were pending and where “most of defendants and [the plaintiff] are incorporated”). 275 However, Fed. R. Civ. P. 1 arguably provides the Courts with broad discretion in handling all matters pending before them. Fed. R. Civ. P. 1 (“These rules govern the procedure in all civil actions and proceedings in the United States district courts, except as stated in Rule 81. They should be construed and administered to secure just, speedy, and inexpensive determination of every action and proceeding.”). While the Rules do not expressly deal with coordinated Markman hearings between different districts, such a proceeding would appear to be within the spirit of the rules. See, e.g., In re Eli Lilly & Co. (Cephalexin Monohydrate) Patent Litig., 446, F. Supp. 2d 242, 243 (J.P.M.L. 1978) (“[C]onsultation and cooperation among the three concerned district courts, if deemed appropriate by those courts, coupled with the cooperation of the parties, would be sufficient to minimize the possibility of conflicting pretrial rulings.”). 276 No. 2:11-cv-405-MHS (E.D. Tex.) -53-
DC:723366.1 the claim constructions issues raised in this case.”277 The order provides that the Lead Defendant is required to fully brief Markman, and to coordinate with other defendants, including briefing all claim terms requested by substantially all of the defendants.278 The Court expects the Defendants to reach a cost-sharing agreement regarding costs incurred by the Lead Defendant.279 Finally, once all Markman briefing is complete, any non-Lead Defendant may seek leave “to submit briefing on additional issues.”280
J. Crew, a defendant in one of the Geotag actions, filed an emergency motion objecting to the “Lead Defendant” procedure, arguing that it violated Due Process.281 In a brief order, the Court denied J. Crew’s motion.282 The court first noted that while J. Crew objected to the procedure, it did “not propose any substitute procedure.”283 The Court further justified its approach because it “mimics the accepted procedure of assigning lead parties in complex cases, such as in multidistrict litigation and class action suits.”284 The Court also noted that the procedures allow the non-Lead Defendants to file a letter brief to address “issues specific to that defendant that are not addressed in the common briefing” and that nothing prevented the defendants from dividing up argument and briefing of claim terms to the extent that they could agree to do so.285 Finally, the court was “unpersuaded that its procedure deprives J. Crew of any constitutional right.”286
2. Permissive Intervention
The Federal Rules provide that a district court “may permit anyone to intervene” in an action who “has a claim or defense that shares with the main action a common question of law or fact.”287 While a non-party may intervene for a limited purpose, we are not aware of any
277 Id., Dkt No. 415 at ¶ 5 (Aug. 3, 2012). 278 Id. 279 Id. 280 Id. 281 Id., Dkt No. 422. 282 Id., Dkt No. 424. 283 Id. at 1. 284 Id. 285 Id. at 2. 286 Id. 287 See Fed. R. Civ. P. 24(b)(1)(B). -54-
DC:723366.1 reported cases where permissive intervention has been allowed for the limited purpose of participating in Markman, or any other factually analogous circumstances.288
Intervening, even for a limited purpose, may prove particularly troublesome where a defendant has been granted transfer out of the court in which the first Markman proceeding is to occur. Because such intervention would likely be “permissive,” it may prove difficult to convince a judge who has already transferred a defendant out of his or her court to let that defendant back in for purposes of Markman.
3. Amicus Participation
Participating in a case as an amicus may be another procedural tool that a non-party could use in a district court action, even when attempts to intervene have proven unsuccessful.289 Although the Federal Rules of Civil Procedure do not expressly contemplate amici, district courts may allow a non-party to participate in proceedings as an amicus, and have broad discretion to do so.290
Because there is no federal rule governing amicus participation in district courts, the courts will “often look for guidance to Rule 29 of the Federal Rules of Appellate Procedure, which applies to amicus briefs at the federal appeals level.”291 “Generally, a district court grants amicus curiae status where: ‘(1) the petitioner has a ‘special interest’ in the particular case; (2) the petitioner's interest is not represented competently or at all in the case; (3) the proffered
288 See, e.g., Trbovich v. UMW, 404 U.S. 528, 539 (1972) (remanded with direction to allow limited intervention); see also LG Elec. Inc. v. Q-Lity Computer Inc., 211 F.R.D. 360, 364 (N.D. Cal. 2002) (“A nonparty seeking to intervene need not intervene as a full party to the litigation, but may intervene for a limited purpose.”); see also AstraZeneca AB v. Dr. Reddy Labs, Ltd., 2010 WL 4387519 at *7 (D.N.J. Oct. 29, 2010) (denying non-party’s motion to intervene for the limited purpose of litigating all invalidity defenses to the patent-in-suit). 289 See, e.g., Teva Pharms. USA v. Sebelius, 638 F. Supp. 2d 42, 59 (D.D.C. 2009) (denying motion to intervene, but allowing non-party to file amicus brief). 290 See, e.g., Conservancy of SW Florida v. U.S. Fish & Wildlife Serv., 2010 WL 3603276 at * 1 (M.D. Fl. Sept. 9, 2010) (“It is well-settled that a district court has broad discretion to grant the request of a non- party to file an amicus brief.”); Liberty Lincoln Mercury, Inc. v. Ford Marketing Corp., 149 F.R.D. 65, 82 (D.N.J. 1993) (“District courts have broad discretion to appoint amicus curiae.”); Washington Gas Light Co. v. Prince George Co. Council, 2012 WL 832756 at * 3 (D. Md. Mar. 9, 2012) (granting non-party’s motion to appear as an amicus); Tafas v. Dudas, 511 F. Supp. 2d 652, 660-61 (E.D. Va. 2007) (same). 291 See Washington Gas Light, 2012 WL 832756 at *3. -55-
DC:723366.1 information is timely and useful; and (4) the petitioner is not partial to a particular outcome in the case.’”292
We are not aware of any reported decision where a non-party has sought to appear as an amicus in connection with Markman proceedings. Nevertheless, filing an amicus brief could potentially be a tool where a non-party defendant wishes to take divergent or additional positions from those taken by the defendants in the first case. From a strategic perspective, the filing of an amicus brief might effectively allow the citation of additional evidence or the presentation of different, additional arguments in support of claim constructions that were eliminated because of page constraints from the briefs of the parties to the case.
There may be additional limitations to participating as an amicus. For example, even if a party is allowed to file an amicus brief, the court still may not allow the party to participate at oral argument.293 Moreover, even if a brief is allowed, an amicus may be limited to briefing the issues that the parties have chosen to present.
4. Stipulated Participation
Assuming agreement among the parties and the courts, the parties may be able to fashion stipulations that would allow a defendant in a trailing case to formally participate in the Markman proceedings in the original case. The trailing court might require that the parties agree to be bound by the Markman order issued in the original case as a condition of allowing this procedure. In addition, both courts would have to agree to this type of procedure.294
292 See Conservancy of SW Florida, 2010 WL 3503276 at *1; see also United States v. Farber, 2006 WL 2417272 at *1 (D.N.J. Aug. 21, 2006) (holding that a district court “may grant leave to appear amicus curiae if ‘it deems the proffered information timely and useful’”). 293 See Apple, Inc. v. Samsung Elec. Co., Ltd., No. 11-cv-1846, Dkt No. 276 (N.D. Cal. Sept. 30, 2011) (granting Verizon Wireless and T-Mobile’s motion to file amicus briefs, but denying T-Mobile’s motion to participate in oral argument; finding that “T-Mobile is not a party to this litigation, and the attorneys for Samsung and Apple are fully capable of arguing the issues without the assistance of third-party counsel.”). 294 Local rule reform could be considered here as well. A District Court has the power to create local rules “governing its practice.” FED. R. CIV. P. 83(a)(1). Such rules “must be consistent with—but not duplicate—federal statutes and rules adopted under 28 U.S.C. §§ 2072 and 2075 . . . .” Id. Local rules requiring the parties to take specific actions to coordinate Markman proceedings with cases in other districts would be consistent with the Federal Rules, see, e.g., Fed. R. Civ. P. 1, and as pointed out above, there is no rule that is inconsistent with that practice. -56-
DC:723366.1 5. Delayed Transfer
Where a defendant is sued in one district, but wishes to transfer to a different district pursuant to §1404(a), another option would be for the defendant to delay filing the transfer motion until after the Markman proceedings have concluded. Such a delay in seeking transfer, however, may well be grounds for denial of the transfer motion.295
Some courts have decided to defer transfer issues until after Markman to avoid the issues discussed above. For example, in Innovative Communications Technologies, Inc. v. Vivox, Inc.,296 Judge Doumar denied defendants motion to transfer on the eve of the Markman hearing, but expressly indicated that he would allow the defendants to re-file their transfer motions following Markman.297
Similarly, Chief Judge Leonard Davis of the Eastern District of Texas has recently indicated that he will delay transferring cases out of his court until after a coordinated Markman occurs.298
The Federal Circuit has not yet weighed in on these procedures. There is, however, briefing currently before the court, citing Norman IP, that argues that failing to resolve an early transfer motion is effectively a “usurpation of the powers that Congress assigned to the multidistrict litigation panel” and may allow a plaintiff to “manipulate venue.”299
295 See, e.g., Church & Dwight v. Mayer Labs., Inc., 2010 WL 3907038 at *6 (D.N.J. Sept. 28, 2010) (finding that “delay in filing its motion to transfer is a consideration that may weigh in the balance of equities in favor or against transfer”); see also Document Generation Corp. v. Allscripts, LLC, 2009 WL 2824741 at *3 (E.D. Tex. Aug. 27, 2009) (“While a Court may consider a party's unreasonable delay in deciding a motion to transfer venue, Defendants cite to no case in which a Court denied a motion to transfer venue solely because the movant delayed filing its motion until after it had received the Plaintiff's infringement contentions.”). 296 No. 2:12-cv-7, 2012 WL 4738979 (E.D. Va. Oct. 3, 2012). 297 Id. at *8. 298 See, e.g., Norman IP Holdings v. Lexmark Int’l Inc., No. 6:11-cv-495, 2012 WL 3307942 (E.D. Tex. Aug. 10, 2012) (“[I]n the event that transfer is appropriate, the Court shall retain the case through the Markman phase of the proceedings. Once the Markman opinion issues, any pending orders to transfer shall become effective.”). 299 See Reply Br. of Petitioners in In re EMC Corp., No. 13-142, D.I. 29 at 6, 12 (Fed. Cir. Nov. 7, 2012). See also In re Flight Trans. Corp. Securities Litig., 764 F.2d 515, 516 (8th Cir. 1985) (holding that an attempt to transfer a case, but retain jurisdiction for certain purposes, is inconsistent with the power granted to the original court by § 1404(a)); id. (“Since the District Court's order attempts both to transfer the cases to Pennsylvania and to retain jurisdiction in Minnesota, it exceeds the transfer power conferred -57-
DC:723366.1 6. Informal Participation
In circumstances where formal participation in the earlier Markman proceeding cannot be achieved (or is not desirable), a defendant may still be able to use its good offices with the defendants in the original case to participate informally in the first Markman proceedings. This may be especially successful in cases where defendants are in a common industry, and are routinely involved in joint defense groups in related matters, such that reciprocity will prevail over time.
One benefit of such an approach is the opportunity to influence the first proceeding without being legally bound by the result in the first case. One downside is that a non-party has no ability to advocate for a different position than the position advanced by the named defendant(s) in the first case. There are also privity and estoppels issues that should be carefully considered before participating, even informally, in another case.
7. Procedures in the Trailing Court
When a defendant in a trailing case participates in the first Markman proceeding through any of the mechanisms discussed above, the trailing court will still be required to determine the effect of the first court’s Markman ruling. As a general legal matter, even though a subsequent court is not legally bound by a prior claim construction ruling, the ruling may be given significant deference.300
To gain clarity, a defendant in a trailing court may wish to propose a mechanism for addressing any prior Markman opinions during the scheduling phase of the case. Courts may treat the Markman orders from earlier cases differently, depending in part on the level of participation by the defendant in that earlier Markman proceeding, and the Court’s own view of the case and the law. Procedural options for a trailing court range from a complete adoption of the first court’s Markman ruling, with no opportunity for review in the trailing court, to completely ignoring the first court’s Markman ruling and conducting Markman from a blank slate.
The most deferential option would be a procedure whereby the trailing court would adopt the first Markman as its own, without any opportunity for the trailing defendant to address the
under § 1404(a).”); id. (“[S]o far as we know a transfer for purposes of trial only is an animal unknown to the law.”). 300 See, e.g., Weeks Marine, Inc. v. TDM America, LLC, 2011 WL 6217799 at *10 (D.N.J. Dec. 14, 2011) (holding that “where a patent’s claims have been construed in a prior litigation, a court may defer to the prior claim construction” but recognizing that “it is not necessarily bound by it”). -58-
DC:723366.1 constructions in its own case. A court could conceivably try to implement this procedure in the event that a defendant formally participate in the first Markman, or seeks a stay pending the first Markman. While a trailing defendant would likely still be able to challenge the constructions adopted from the first court in the form of a motion for reconsideration of the order adopting the constructions in the trailing court, any such challenge would likely be reviewed under a deferential standard. At a minimum, the trailing court would be obligated under the law to construe any disputed terms that the first court did not address.301
A less deferential option would be that the trailing court would agree to adopt the Markman order as a preliminary/tentative opinion, and invite the parties to submit limited briefing regarding any terms as to which they disagree with the constructions adopted by the first court (and any additional terms not construed by the first court). The trailing court would then enter its own Markman order adopting and/or modifying the constructions as necessary.
Another variant would be for the trailing court to simply schedule Markman dates off of the Markman order in the first case. A less efficient option would be for Markman to proceed in parallel in different courts.
Given the different ways in which a court may treat the Markman order from another court, including how that may differ based on whether a trailing defendant participated in the Markman in the earlier case, a strategy for participation in the earlier Markman should be considered during the scheduling phase in the trailing case. This may help to reduce the uncertainty associated with how the trailing court will handle the Markman order from the earlier case.
301 See 02 Micro Int’l Ltd v. Beyond Innovation Tech. Co., Ltd., 521 F.3d 1351, 1360 (Fed. Cir. 2008) (“When the parties raise an actual dispute regarding the proper scope of these claims, the court, not the jury, must resolve that dispute.”). -59-
DC:723366.1 VII. CONTINUING EVOLUTION OF PATENT DAMAGES LAW
The Federal Circuit issued a number of opinions discussing certain aspects patent damages law during the past year. Perhaps most instructive was the court’s opinion in LaserDynamics, Inc. v. Quanta Computers, Inc., 694 F.3d 51 (Fed. Cir. 2012). In LaserDynamics, the Court further discussed several continually evolving issues of importance to patent practitioners and courts—the entire market value rule (“EMVR”), royalty rate apportionment and the admissibility of settlement agreements.
A. LaserDynamics: Background
The case was appealed to the Federal Circuit following two trials related to the infringement of and damages for a patent directed to a method of optical disc discrimination. In short, the patented method “enables an optical disc drive to automatically identify the type of optical disc—e.g., a compact disc (‘CD’) versus a digital video disc (‘DVD’)—that is inserted into an optical disc drive (“ODD”).”302
In August 2006, LaserDynamics brought an infringement action against Quanta Computer Inc. (“QCI”) and Quanta Storage Inc. (“QSI”). QSI is a manufacturer of ODDs. QCI, on the other hand, is an assembler of laptop computers. 303 QCI does not manufacture ODDs, but installs them into computers as instructed by its customers (e.g. Dell, HP, Gateway).304 QCI then sells assembled computers to its customers.
Based on certain pre-trial rulings, LaserDynamics dropped its claims against QSI and proceeded to trial only on an inducement claim against QCI.305 At trial, LaserDynamics argued that it was entitled to “2% of the total sales of laptop computers by QCI.”306 During the damages period for the first trial, QCI sold approximately $2.53 billion worth of laptop computers in the United States, which allegedly incorporated the patented technology.307 Relying on information from technical experts, plaintiff’s damages expert assumed that the patented technology “provided an important and valuable function that was present in all ODDs currently in use, and that the presence of this function was a prerequisite for any laptop computer to be successful in
302 Id. at 56. 303 Id. at 58. 304 Id. 305 Id. at 60. 306 Id. 307 Id. -60-
DC:723366.1 the marketplace.”308 Further, because QCI sold laptop computers, not ODDs, LaserDynamics’ expert viewed laptop sales as the appropriate royalty base.309
With respect to his royalty rate, the expert began by finding that 6% would be a reasonable royalty rate to pay for the ODD alone.310 In support of this rate, LaserDynamics’ expert relied on comparable rates from two licensing programs involving DVD technology undertaken by third parties and an industry royalty survey by the Licensing Executive Society.311 From these sources, the expert concluded that 6% would be an appropriate rate for the patented technology. The expert did not deem sixteen lump sum license agreements to the patent-in-suit between the plaintiff and third parties as establishing a royalty rate, although he conceded that the hypothetical negotiators would be aware of the licenses.312 To account for the fact that the patent covered ODDs, but his royalty base was laptop computers, LaserDynamics’ expert “apportioned” the royalty rate by reducing his 6% rate to 2% because “the ODD is responsible for one-third of the value of the laptop computer containing such an ODD.”313
Prior to trial, QCI sought to limit damages to $232,376 and to preclude LaserDynamics’ expert from offering any opinion to the contrary because his opinion was unreliable in that it ignored the established licensing practices of the plaintiff.314 QCI did not challenge the expert’s opinion on EMVR grounds, or his proffered royalty rate.315 The court did not rule on QCI’s motion, but did deny a related motion in limine on similar grounds.
At trial, LaserDynamics’ expert argued that the plaintiff was entitled to damages consisting of 2% of the $2.53 billion in laptop sales made by QCI, for total damages of approximately $52 million.316 The jury ultimately returned a verdict in favor of the plaintiff for $52 million.317 Defendant moved for remittitur or a new trial, arguing that the verdict was excessive and against the great weight of evidence.318 For the first time in its post-trial briefs,
308 Id. 309 Id. 310 Id. 311 Id. 312 Id. at 61. 313 Id. 314 Id. 315 Id. 316 Id. at 61. 317 Id. at 63. 318 Id. -61-
DC:723366.1 QCI argued that the expert’s testimony should have been excluded due to his improper use of the EMVR and his unsupported royalty rate “apportionment.”319
The district court granted QCI’s motion, finding that LaserDynamics’ expert had “improperly invoked the EMVR.”320 Because the expert had failed to show that the patented method drove demand for the laptops, the court found that the use of laptop revenues as his royalty base was improper.321 The court, however, did not view the expert’s 6% per ODD rate as clearly excessive, and instead used that percentage multiplied by the average ODD sales price to arrive at a remittitur damages amount of $6.2 million.322 Plaintiff declined the remittitur damages and instead chose to have new trial on damages.
Prior to the second trial, QCI renewed its objections to a 6% per ODD/2% per laptop methodology as violating the EMVR. The district court granted QCI’s motion.323 But, the district court “permitted [LaserDynamics’ expert] to put on evidence regarding a 6% running royalty rate damages model based on ODD average price, but subject to certain restrictions regarding proof of comparability to the hypothetically negotiated license.”324 QCI also moved to exclude a litigation settlement between BenQ and the plaintiff.325 That motion was denied.326 Notably, another thirteen license agreements to the patent-in-suit were entered into between the first and second trials. Thus, in total “twenty-nine licenses were entered into evidence in the second damages trial,” all of which “were for lump sum amounts of $1 million or less.”327
At the second damages trial, LaserDynamics’ expert argued that damages “should be $10.5 million based on a running royalty of 6% of the average price of a standalone ODD.”328 QCI’s expert argued that the proper damages award was a lump sum of $1.2 million.329 The jury ultimately returned a verdict of $8.5 million. The appeal followed.
319 Id. 320 Id. 321 Id. 322 Id. at 64. 323 Id. 324 Id. 325 Id. 326 Id. at 65. 327 Id. at 58. 328 Id. at 65. 329 Id. -62-
DC:723366.1 B. LaserDynamics: The Entire Market Value Rule
The court began its discussion of the EMVR by noting that “some products are made of many different components, one or more of which components may be covered by an asserted patent, while other components are not.”330 The court then confirmed that the EMVR “is a narrow exception” to the general rule that “royalties be based not on the entire product, but instead on the ‘smallest salable patent practicing unit.’”331 “In effect, the EMVR acts as a check to ensure that the royalty damages being sought . . . are in fact ‘reasonable’ in light of the technology at issue.”332
The court then “reaffirm[ed] that in any case involving multi-component products, patentees may not calculate damages based on sales of the entire product, as opposed to the smallest salable patent-practicing unit, without showing that the demand for the entire product is attributable to the patented feature.”333 The court went on to note that one error that manifests itself by improperly admitting EMVR evidence is that it allows the plaintiff to put a large number before the jury and argue that its damages “appear modest by comparison, and to artificially inflate the jury’s damages calculation.”334
With respect to the specific facts of the case, the court found that LaserDynamics’ expert “unquestionably advanced an EMVR theory in the first trial” by using 2% of QCI’s laptop sales as his damages model.335 Given that the LaserDynamics’ expert did not prove that the “patented disc discrimination method drove demand for laptop computers” use of the EMVR was impermissible.336
As for the showing of demand, the court reiterated that “it is not enough to merely show that the disc discrimination method is viewed as valuable, important or even essential to the use of the laptop” or that a laptop without the patented method would be “commercially unviable.”337 In other words, “proof that consumers would not want a laptop computer without such features is
330 Id. at 66. 331 Id. at 67. 332 Id. 333 Id. 334 Id. at 68. 335 Id. (“[T]he fact remains that the royalty was expressly calculated as a percentage of the entire market value of a laptop computer rather than a patent-practicing ODD alone.”). 336 Id. 337 Id. -63-
DC:723366.1 not tantamount to proof that any one of those features alone drives the market for laptop computers.”338 Instead a “higher degree of proof . . . must exist to support an EMVR theory.”339
The court further noted that the LaserDynamics’ expert did not conduct “any market studies or consumer survey to ascertain whether the demand for a laptop computer is driven by the patented technology.”340 At best, the plaintiff proved that almost all computers sold include ODDs and that customers would be hesitant to purchase a computer without an ODD.341 Because that evidence was insufficient to support application of the EMVR, the court upheld the district court’s grant of a new trial on damages after the first trial.342
The court also rejected that “practical and economic necessity compelled” plaintiff to use laptop sales as a royalty base.343 The court was not persuaded by plaintiff’s argument that “the parties would have had to use the value of the entire laptop computer as the royalty base in structuring the hypothetical license agreement, as it reflects the only true market value of anything QCI sells.”344 The court brushed aside that argument by noting that a per-unit running royalty rate is not the only form of a reasonable royalty.345 Instead, the court found, the parties may have agreed on a lump sum as “evidenced by the many license agreements to the [patent-in- suit] in the record.”346 Moreover, the court found no reason why the plaintiff could not derive “ODD values from third parties, industry practices, etc.”347
C. LaserDynamics: Royalty Rate Apportionment
As for the LaserDynamics’ expert’s “one-third apportionment to bring his royalty rate down from 6% per ODD to 2% per laptop,” the court noted that the rates “appear[] to have been plucked out of thin air based on vague qualitative notions of the relative importance of ODD technology.”348 The court noted that there was a “complete lack of economic analysis to quantitatively support the one-third apportionment” and found that it “echoe[d] the kind of
338 Id. 339 Id. 340 Id. at 69. 341 Id. 342 Id. 343 Id. 344 Id. at 70. 345 Id. 346 Id. 347 Id. 348 Id. at 69. -64-
DC:723366.1 arbitrariness of the 25% rule that we recently and emphatically rejected.”349 This apportionment error alone would have justified a new trial.350
The Federal Circuit also held that the trial court erred in allowing the jury in the second trial to hear the plaintiff’s 6% per ODD damages theory over QCI’s Daubert challenge.351 The court began with the familiar proposition that “[a]ctual licenses to the patented technology are highly probative as to what constitutes a reasonable royalty for those patent rights because such actual licenses most clearly reflect the economic value of the patented technology in the marketplace.”352 Indeed, “[a]ctual licenses to the patents-in-suit are probative not only of the proper amount of a reasonable royalty, but also of the proper form of the royalty structure.”353 With respect to other licenses, “alleging a loose or vague comparability between different technologies or licenses does not suffice.”354
In light of these general principles, the court held that the two license data points that the LaserDynamics’ expert relied on (License Executive Survey and DVD-related licensing programs) in arriving at his 6% rate were not sufficiently comparable to the patented technology.355 And, that his 6% rate was untethered from the patented technology and the nearly 30 lump sum licenses to the patent-in-suit that the expert essentially ignored.356
Thus, the court held that the expert’s 6% running royalty theory “cannot be reconciled with the actual licensing evidence, which is highly probative of the patented invention’s economic value in the marketplace, and of the form that a hypothetical license agreement would likely have taken.”357 On remand, plaintiff was instructed that it may not use the 6% running royalty rate theory.358 But, the court further clarified that it was not saying that a running rate could not be used or that the past licenses created an “absolute ceiling” on the amount of damages.359 Rather “[f]ull consideration of all the Georgia-Pacific factors might well justify a
349 Id. 350 Id. 351 Id. at 79. 352 Id. 353 Id. at 79-80. 354 Id. at 79. 355 Id. at 80. 356 Id. at 81. 357 Id. at 80. 358 Id. at 81. 359 Id. -65-
DC:723366.1 departure from the amount or even the form of [plaintiff’s] past licensing practices, given the appropriate evidence and reasoning.”360
D. LaserDynamics: The Admissibility of Settlement Agreements
The court also reviewed the trial court’s decision not to exclude the $6 million BenQ settlement agreement from the second trial.361 The court began from the general proposition that the “propriety of using prior settlement agreements to prove the amount of a reasonable royalty is questionable.”362 The court then cited ResQNet and noted that it had “recently permitted such reliance under certain limited circumstances.”363 The court further noted that even in allowing such consideration, it had “cautioned” the district court “to consider the license in its proper context within the hypothetical negotiation framework to ensure that the reasonable royalty rate reflects ‘the economic demand for the claimed technology.’”364
Turning to the settlement agreement in question, the court held that the facts underlying the agreement included that it was entered into shortly before trial where the defendant would have been at a significant procedural and tactical disadvantage based on certain “harsh” sanctions imposed on it by the trial court.365 “The $6 million lump sum license fee is six times larger than the next highest amount paid for a license to the patent-in-suit, and ostensibly reflects not the value of the claimed invention but the strong desire to avoid further litigation under the circumstances.”366 The court further noted that the twenty-nine other licenses in the record, which did not involve “the unique coercive circumstances of the BenQ settlement” were “far more reliable indicators of what willing parties would agree to in a hypothetical negotiation.”367 Thus, the court held that the probative value of the agreement at issue here was “dubious in that it has very little relation to demonstrated economic demand for the patented technology.”368
360 Id. 361 Id. at 77-78. 362 Id. at 77. 363 Id. 364 Id. 365 Id. at 78. 366 Id. 367 Id. 368 Id. -66-
DC:723366.1 E. LaserDynamics: Impact on Litigation Strategies
Damages experts, and attorneys working on damages issues, will be wise to heed the guidance set forth in LaserDynamics in developing and responding to damages theories, including, at a minimum:
Only invoke the EMVR when it is economically justified by sufficient evidence, including a showing of consumer demand;
In showing consumer demand, quantitative evidence (including market studies and consumer surveys) will seemingly be given persuasive weight, whereas general testimony that the patented feature is merely “important” or “essential” may not suffice;
Actual licenses to the patents-in-suit are likely to be highly probative;
The use of settlement agreements may be permissible, but will require proof that they are properly analyzed in the hypothetical negotiation context and that the rates reflect “the economic demand for the claimed technology;”
Alleging a loose or vague comparability between different technologies or licenses will be insufficient; and
Royalty rates should be grounded in sound record evidence, and not “plucked out of thin air based on vague qualitative notions.”
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DC:723366.1 VIII. THERASENSE’S IMPACT ON INEQUITABLE CONDUCT AND NEW SUPPLEMENTAL EXAMINATION PROCEEDINGS
A. Therasense, Inc. v. Becton, Dickinson & Co.369
Over the 13 year prosecution history of the ‘551 patent-in-suit in Therasense, the U.S. Patent and Trademark Office (“USPTO”) had rejected the original application multiple times for anticipation and obviousness over the prior art ‘382 patent also owned by the patentee. After studying the rejections, counsel for the patentee adopted a new approach and argued that the ‘551 patent was neither obvious nor anticipated because of specific language in the ‘382 patent specification, i.e., that the ‘382 patent required a particular component. Counsel presented this argument, and the patentee submitted a declaration from its director of research and development to support this argument. However, the patentee’s European lawyers were prosecuting the European counterpart to the ‘382 patent, and they argued that the identical language in the specification of the European counterpart to the ‘382 patent made the component merely optional.
The district court held that the ‘551 patent was unenforceable for inequitable conduct because the applicant did not disclose to the USPTO its briefs to the EPO regarding the interpretation of the prior art ‘382 patent.370 The Federal Circuit panel affirmed the finding of unenforceability with a dissent by Judge Linn.371 Upon rehearing the appeal en banc, the Federal Circuit vacated the inequitable conduct judgment and remanded.372
The majority opinion written by Chief Judge Randall Rader began with a history of the judicial doctrine of inequitable conduct and traced the roots of the doctrine to three Supreme Court decisions addressing unclean hands. Although developing out of these unclean hands decisions, inequitable conduct developed several significant differences from unclean hands. In particular, inequitable conduct could be found from non-disclosure of information to the PTO, included a remedy of unenforceability for the entire patent, and had a different test—materiality and intent.
Because of these significant differences from unclean hands, inequitable conduct came to be a standard litigation tactic. Indeed, some statistics indicated that inequitable conduct is
369 This section is based on a briefing prepared by Winston & Strawn LLP in 2011. See http://www.winston.com/siteFiles/Publications/Briefing_Thereasense_5_27_11.pdf (all rights reserved). 370 See Therasense, Inc. v. Becton, Dickinson & Co., 565 F.Supp.2d 1088 (N.D. Cal. 2008). 371 See Therasense, Inc. v. Becton, Dickinson & Co., 593 F.3d 1289 (Fed. Cir. 2010). 372 See Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011) (en banc). -68-
DC:723366.1 alleged as a defense in 80% of patent infringement cases. According to the majority, “inequitable conduct has plagued not only the courts but also the entire patent system.”373 In particular, the court explained how patent prosecutors are now “burying” patent examiners with prior art references to avoid allegations of inequitable conduct.374 In summary, the “low standards for intent and materiality have inadvertently led to many unintended consequences, among them, increased adjudication cost and complexity, reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO backlog, and impaired patent quality.”375 Responding to these perceived problems with the judicial doctrine of inequitable conduct, the court tightened the standards for both intent and materiality.
As to intent, the court required that “[i]n a case involving nondisclosure of information, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference.”376 In other words, a party alleging inequitable conduct must prove three things by clear and convincing evidence: 1) the applicant knew of the reference, 2) the applicant knew the reference was material, and 3) the applicant made a deliberate decision to withhold it. The court explicitly rejected the notion that a specific intent to deceive can be proven merely by showing that an applicant knew of a reference, should have known it was material, and decided not to submit it.377
The Federal Circuit also rejected the notion that a determination of intent can spring from a determination of materiality. Both the use of a “sliding scale” of intent and materiality and an inference of intent from a determination of sufficiently high materiality were explicitly rejected.378
There remains a possibility of showing intent to deceive by way of indirect and circumstantial evidence, but an accused infringer must prove that a specific intent to infringe is the single most reasonable inference to be drawn from the evidence. In other words, “when there are multiple reasonable inferences that may be drawn, intent to deceive cannot be found.”379
As to materiality, the Federal Circuit explained that it previously had raised the intent standard in an effort to “reduce the number of inequitable conduct cases and that this approach
373 Therasense, 649 F.3d at 1289. 374 Id. 375 Id. at 1290. 376 Id. (emphasis in original) (quoting Molins PLC v. Textron, Inc., 48 F.3d 1172, 1181 (Fed. Cir. 1995)). 377 Id. at 1290. 378 Id. 379 Id. at 1290-91. -69-
DC:723366.1 “did not cure the problem of overdisclosure of marginally relevant prior art to the PTO.”380 Thus, to further address the issue of overdisclosure, the court also raised the standard for materiality to a ‘but-for’ standard.
As a general matter, prior art is material “if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.”381 In making this determination, courts are to apply the preponderance of the evidence standard and give claims their broadest reasonable construction. Because inequitable conduct is an equitable doctrine hinging on fairness, such a doctrine should only apply “in instances where the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim.”382
The court recognized an exception to the but-for standard in the case of “affirmative acts of egregious misconduct, such as the filing of an unmistakably false affidavit . . . .”383 By treating such misconduct as material, the court intended to strike a balance between encouraging honesty before the PTO and preventing unfounded accusations of inequitable conduct.
The Federal Circuit firmly rejected the use of PTO Rule 56 in determining materiality, finding it overbroad in many regards. The court explicitly held that information will not necessarily be material merely because it either: 1) establishes a prima facie case of unpatentability or 2) refutes or is inconsistent with a position taken by the applicant in opposing an argument of unpatentability or asserting an argument of patentability.384
Applying these new standards, the district court in this case found materiality based on PTO Rule 56 not on the but-for materiality standard. The district court also found intent to deceive based on a should have known as opposed to the knowing and deliberate standard. Accordingly, the court remanded for the district court to reconsider in light of the standards set forth in this opinion.385
Judge O’Malley concurred-in-part,386 agreeing with the underlying rationale of the decision and with the intent standards, and dissented-in-part as to the materiality standards set forth. Judge O’Malley proposed to overrule those cases which render all claims of a wrongly
380 Id. at 1291. 381 Id. 382 Id. at 1292. 383 Id. at 1293. 384 Id. at 1293-95. 385 Id. at 1295-96. 386 Id. at 1296-1302. -70-
DC:723366.1 procured patent unenforceable and suggests that “in the exercise of its discretion, a district court may choose to render fewer than all claims unenforceable, may simply dismiss the action before it, or may fashion some other reasonable remedy, so long as the remedy imposed by the court is commensurate with the violation.”387 The materiality standard suggested by Judge O’Malley would include conduct where 1) but for the conduct the patent would not have issued; 2) the conduct constitutes a false or misleading representation of fact; or 3) the district court finds that the behavior undermines the integrity of the PTO’s process.388 She agreed with the majority that Rule 56 is overbroad and district courts should not be directed to rely on it to determine materiality.389
Judge Bryson dissented, joined by Judges Gajarsa, Dyk and Prost.390 The dissenting opinion supports the majority on the issues of intent and the holding that intent and materiality must be proven separately, disagreeing only on the proper standard to apply in determining materiality. The dissenting opinion would continue to rely on PTO Rule 56.
B. Application of Therasense
Since the Federal Circuit handed down its en banc opinion in Therasense, its effects have been seen in several in numerous cases. While not entirely impossible to prove, inequitable conduct has become more difficult to demonstrate. This section surveys recent opinions on inequitable conduct.
1. Therasense: On Remand
After Therasense was remanded back to Judge Alsup, he one again held the patent in suit to be unenforceable for inequitable conduct.391 The accusations of misconduct in Therasense centered on the failure to provide briefs that the patent owner was submitting to the European Patent Office regarding the European counter-part to the U.S. patent.
During prosecution of the United States patent application, the examination began focusing on whether a specific membrane needed to be recited in the patent claims. The examiner had located prior art that indicated that a membrane was “optionally, but preferably” present in the sensor.392 The examiner invited the applicant to submit a declaration about how
387 Id. at 1299 (quoting Columbus Bd. Of Educ. v. Penick, 443 U.S. 449, 465 (1979)). 388 Id. at 1300. 389 Id. 390 See id. at 1303-20. 391 Therasense, Inc. v. Becton, Dickinson & Co., 864 F.Supp.2d 856 (N.D. Cal. 2012). 392 Id. at 863. -71-
DC:723366.1 one of skill in the art would have understood the passage in the prior art to determine whether the claims without the membrane were patentable.393 The applicants submitted a declaration suggesting that one of ordinary skill in the art would have understood the phrase in the prior art to require the use of a membrane when whole blood was being analyzed.394 The claims were then allowed.
Before this exchange with the USPTO took place, the patentee had a dispute with the European Patent Office (EPO) over the very same prior art phrase “optionally, but preferably”395 when the patentee was trying to secure rights in the prior art patent in Europe. There, the applicant argued that the phrase had the exact opposite meaning that it was telling the PTO that it had.396
The district court concluded that had the examiner been presented with the arguments that the patentee had made about this language in the prior art prosecution before the EPO, it would not have allowed the patent-in-suit to issue, thereby establishing that the statements were but-for material.397 Judge Alsup also went on to find that the individuals making representations to the USPTO knew that the statements in the EPO briefs were material to patentability, and that had they been submitted, the patent would not likely have issued.398
In reaching its final conclusion that the EPO briefs were withheld intentionally, and that the patent was unenforceable, Judge Alsup explained:
On the overall evidence, moreover, intent to deceive is the single most reasonable inference. This Court has re-read its earlier decision, the trial record, and re- affirms all factual findings, leaving out the “should have known” phrase with apologies, and emphasizing that Dr. Sanghera and Attorney Pope actually knew of the materiality of the withheld EPO briefs. Again, the single most reasonable inference is that Dr. Sanghera and Attorney Pope had the specific intent to deceive the PTO by withholding the EPO briefs. This finding is based on clear
393 Id. 394 Id. at 860-61. 395 Id. at 862. 396 Id. 397 Id. 398 Id. at 865. -72-
DC:723366.1 and convincing overall trial evidence whether or not Abbott's explanations are taken into account.399
2. American Calcar, Inc. v. American Honda Motor Co., Inc.
In American Calcar, Inc. v. American Honda Motor Co., Inc.,400 the Federal Circuit affirmed certain holdings related to inequitable conduct and vacated others, and remanded. Before the district court, the patentee had asserted numerous patents against the defendant for various aspects of computer systems in a car. The court held three patents unenforceable for inequitable conduct.401 The findings of inequitable conduct were affirmed in part and vacated for reevaluation under the en banc decision in Therasense.
Addressing the materiality requirement, the panel agreed with the district court’s conclusion that the withheld prior art was material. This was, indeed, the same prior art that the jury concluded rendered the claims invalid.402 The panel also stated that even though other patents were found not anticipated by certain prior art, that same prior art could still be material for purposes of considering inequitable conduct.403 Satisfaction of the lower preponderance standard used by the U.S. Patent and Trademark Office (PTO) during prosecution could justify a finding of materiality, even when a jury properly finds that the prior art would not meet the clear and convincing standard after issuance.404
The panel also vacated and remanded the finding of intent because the district court used the now-eviscerated “sliding scale.” Instead, the district court was directed to make specific findings on “whether any of the three inventors knew that withheld information was material and whether they made a deliberate decision to withhold it.”405
399 Id. at 867. 400 651 F.3d 1318 (Fed. Cir. 2011). 401 Id. at 1322-23. 402 Id. 1333. 403 Id. at 1334. 404 Id. (“Even though the jury rejected Honda’s invalidity arguments, both on anticipation and obviousness, as to the Search patents based on the 96RL system, the withheld information may be material if it would have blocked patent issuance under the PTO’s preponderance of the evidence standard, given those patents’ claims their broadest reasonable construction.”). 405 Id. at 1335. -73-
DC:723366.1 3. American Calcar: On Remand
On remand, the Court asked the parties to submit additional briefing on the inequitable conduct issue and the parties narrowed the focus of the dispute.406 Once again, the district court found that the patents-in-suit were unenforceable for inequitable conduct.
With respect to materiality, the district court found that “the operational details of the 96RL navigation system are material” to the patent.407 The court also rejected the patentee’s attempt to show that the features that were found to be material were cumulative to references already before the USPTO.408 The Court concluded that the evidence showed that the 96RL prior art was the “platform” for the alleged inventions and that his company prepared a demo system based on that very platform for Honda.409
Addressing the intent prong, the Court found that “there is no direct evidence of intent to deceive the PTO.”410 Looking to the circumstantial evidence, the Court concluded that “circumstantial evidence weighs overwhelmingly in favor of a finding of intent to deceive.”411 The inventor knew the details of the system, he mentioned the system in his patent application, he based the figures in his patent application on the prior art system, he admitted that he had personal experience with the prior art system and they led him to the claimed inventions, and he prepared a demonstration system based on the prior art system.412 The patentee tried to demonstrate that the inventor had a good faith belief that his invention was different than the prior art, and that he thought the prior art was immaterial.413 The Court rejected this argument because it was based on the belief that the type of information being presented by the system was different, not that the material parts of the claimed invention were different than the prior art.414
Turning to the final prong under Therasense—i.e., whether the decision to withhold prior art was deliberate, the district court found that it was. The patentee argued that a logical inference from the evidence was that the inventor was negligent in failing to provide details of
406 Am. Calcar, Inc. v. Am. Honda Motor Co., Inc., No. 06cv2433, 2012 WL 1328640 (S.D. Cal. Apr. 17, 2012). 407 Id. at *8. 408 Id. at 409 Id. 410 Id. at *9. 411 Id. 412 Id. 413 Id. 414 Id. -74-
DC:723366.1 the system to his patent attorney, and that the inventor was inexperienced prior to filing the patent applications that led to the patents in the suit.415
4. Powell v. The Home Depot U.S.A., Inc.
In Powell v. The Home Depot U.S.A., Inc.,416 the patentee brought suit for infringement of a patent related to a radial arm saw guard sued. After the patentee prevailed before the jury on infringement, willfulness and obtained a damages award, the district court held that the patent was not unenforceable for inequitable conduct. The Federal Circuit affirmed.
On inequitable conduct, the relevant facts are as follows: the alleged infringer hired the patentee to develop the radial arm saw guards for its stores. The patentee developed the device and offered samples, which the alleged infringer copied for production by a different manufacturer. Meanwhile, the patentee filed a patent application and a Petition to Make Special, seeking expedited review by the PTO because he thought he was obligated to supply devices to the alleged infringer. He failed to update the record when it became clear the alleged infringer had used a different manufacturer to supply the device. The alleged infringer argued this omission was inequitable conduct, but the district court balanced the equities in the patentee’s favor.417
On appeal, the Federal Circuit affirmed, but used different reasoning in light of its en banc opinion in Therasense, which issued during the pendency of the appeal. In light of Therasense’s ‘but for’ materiality standard, the Federal Circuit found that the conduct with respect to the petition to make special was not material, and “is not the type of unequivocal act . . . that would rise to the level of ‘affirmative egregious misconduct.’”418 In short, there is no inequitable conduct “[w]here . . . the patent applicant fails to update the record to inform the PTO that the circumstances which support a Petition to Make Special no longer exist.”419
5. 1st Media, LLC v. Electronic Arts, Inc.
This was an appeal from a district court judgment finding a patent invalid for inequitable conduct under pre-Therasense case law. The Federal Circuit reversed.
415 Id. at *10. 416 663 F.3d 1221 (Fed. Cir. 2011). 417 Id. at 1227-28. 418 Id. at 1235. 419 Id. -75-
DC:723366.1 In this case, it was undisputed that the inventor and the attorney were aware of three related applications that the defendants claimed were material to patentability of the patent claims.420 These applications were prosecuted by the attorney of record in the patent-in-suit, and the patent applications shared large portions of text between them.421
The Federal Circuit found this to be insufficient evidence of inequitable conduct because, according to the Federal Circuit, there was insufficient evidence of intent to deceive.422 Specifically, both the inventor and the attorney testified that they did not appreciate the materiality of the references, and the inventor testified that the non-disclosure of the prior art was “an oversight that got lost in the cracks at that time and wasn’t a conscious decision not to report [the prior art].”423 The attorney indicated he had no recollection why the references were not disclosed, but later testified to being very busy, and that disclosing one of the references to the PTO might have just been overlooked.424 The prosecuting attorney and the inventor also claimed that they did not believe two of the references were really all that relevant to the patent application being prosecuted.425
In reversing the decision under Therasense, the Federal Circuit repeated that negligence in failing to disclose prior art is inadequate.426 On the record before it, the Federal Circuit found that “the record does not support the inference that Lewis and Sawyer deliberately chose to withhold” a prior art reference.427 Importantly, the Court held that even if the inventor and applicant knew the reference was material that, “cannot by itself prove, let alone clearly and convincingly prove, that any subsequent non-disclosure was based on a deliberate decision” and to hold otherwise “would effectively eviscerate Therasense’s test for mens rea.”428 Thus, absence of proof of a deliberate decision to withhold material prior art was fatal to the inequitable conduct claim in this case. The Court concluded that this explanation was
420 1st Media, LLC v. Elec. Arts, Inc., 694 F.3d 1367, 1370 (Fed. Cir. 2012). 421 Id. 422 Id. 423 Id. at 1371. 424 Id. 425 Id. 426 Id. at 1374. 427 Id. at 1375. 428 Id.; see also id. at 1376 (“Ultimately, for all of the references, the evidence supports only that Lewis and Sawyer (1) knew of the references, (2) may have known they were material (which this court does not reach), and (3) did not inform the PTO of them. But that is not enough.”). -76-
DC:723366.1 insufficient because the inventor had selectively disclosed some information on the prior art system, but not other information.429
Finally, the Court considered evidence of good faith intent, including the commission of a prior art search and submission of the manual for the prior art system during reexamination. With respect to the prior art search, the Court concluded that “the prior art search does not rebut or address any of the facts surrounding” the failure to disclose the prior art system.430 Moreover, the submission of materials during reexamination did not “provid[e] a complete picture of the functionality of the 96RL navigation system,” and therefore did not “negate the other evidence and the inferences to be drawn therefrom.”431
6. Aventis Parma S.A. v. Hospira Inc.
Aventis Pharma S.A. v. Hospira Inc. is another case in which the Federal Circuit left the door open for inequitable conduct claims, and in fact affirmed a finding of inequitable conduct by the district court.432 Aventis Pharma S.A. and Sanofi-Aventis U.S., LLC (collectively, “Sanofi”) filed suit against Hospira, Inc., Apotex Inc., and Apotex Corp. under 35 U.S.C. § 271(e) for infringement of U.S. Patents Nos. 5,750,561 (“‘561 patent”) and 5,714,512 (“‘512 patent”). The ‘561 and ‘512 patents are pharmaceutical patents related to a formulation of the cancer drug docetaxel. The district court held that claim 5 of the ‘561 patent (“Claim 5”) and claim 7 of the ’512 patent (“Claim 7”) were invalid for obviousness and that the ‘561 and ‘512 patents were unenforceable for inequitable conduct. Sanofi appealed. The Federal Circuit affirmed.
With respect to the materiality prong of the inequitable conduct test, the Court looked to its conclusion that it had already reached regarding the fact that the withheld references invalidated the claims of the patents.433 With respect to intent, the Federal Circuit looked to the inventor’s excuses for not disclosing the references first. The inventors maintained that they believed that their experiments on the prior art were failures and therefore did not need to be disclosed to the PTO.434 The Federal Circuit indicated that the district court did not err in
429 Id. (“That he disclosed some information about the system and withheld other information demonstrates a deliberative process, not an accident or a mistake.”). 430 Id. at *11. 431 Id. 432 Aventis Pharma S.A. v. Hospira, Inc., 675 F.3d 1324 (Fed. Cir. 2012). 433 Id. at 1334 (“[w]e have affirmed the district court’s finding that the . . . patents were invalid based on, inter alia, the withheld . . . references. Because such references are necessarily material to patentability, the district court did not err in finding that the materiality requirement was established.”). 434 Id. at 1335. -77-
DC:723366.1 concluding that an intent to deceive was the most plausible inference because the evidence contradicted the explanation and the inventor lacked credibility.435 The fact that the prior art shaped the inventor’s thinking in coming up with the claimed invention appears to be an important factor in whether the prior art should have been disclosed and whether an inference of deceptive intent and intention to withhold prior art will be found. Moreover, the selection of other prior art, which discussed the problem to be solved, but not the proposed solution to the problem included in other prior art references, was also indicative of an intent to withhold and deceive.436
7. Pure Fishing Inc. v. Normark Corp.
In this opinion, which addressed numerous issues including validity and inventorship, the district court denied a plaintiff’s motion for summary judgment of no inequitable conduct.437 This ruling came on the heels of a finding that the named inventor was not the inventor of the subject matter claimed, and that the asserted claims were invalid.438
The Court recounted in detail the facts supporting the defendant’s claim that the named inventor was not the true inventor. Specifically, the named inventor had meetings with one of his colleagues, who was in turn meeting with another company to develop improved fishing lines. During the named inventor’s deposition testimony, he conceded that the parameters that ultimately defined the claimed invention had come from his colleague.439 And, his colleague’s notes showed that he obtained the parameters from a third party during meetings.440
In denying the motion of no inequitable conduct, the Court found that the named inventor’s statement “that he was the sole inventor was necessarily a failure to disclose that he was not,” and that the failure to disclose the truth in this context was material “because the patent would not have issued had [the named inventor] disclosed this information.”441
Moreover, the Court found that the failure to disclose a commercial product that had been on sale for more than a year—and which had just been held to be invalidating prior art on
435 Id. 436 Id. 437 See Pure Fishing, Inc. v. Normark Corp., 3:10-cv-2140-CMC, Dkt. 278 (D.S.C. Dec. 11, 2012). 438 Id. at 31, 34, 38. 439 Id. at 16-21. 440 Id. 441 Id. at 43. -78-
DC:723366.1 obviousness grounds—was also material.442 The Court focused on the fact that the argument that “there was no prior art which would bridge the gap between” two prior art references led to the allowance of the claims. The Court explained that the patentee “could not have made this argument if sales of [the prior art product] had been disclosed.”443
While the district court noted that the intent prong would be “more challenging” for the defendant to prove, there was “sufficient circumstantial evidence of intent to mislead to raise a genuine issue of material fact for trial.”444 Specifically, the named inventor knew he was saying that he was the inventor, and he was also aware of the properties of the prior art device since he set its parameters for production.445 This, according to the district court, was enough circumstantial evidence of intent to warrant trial.
8. Parker Vision, Inc. v. Qualcomm Inc.
In the Parker Vision case, the plaintiff, Parker Vision had sued Qualcomm for infringement of six patents.446 Qualcomm defended the allegations by claiming that the patents were obtained by inequitable conduct, stemming from inequitable conduct committed during the prosecution of one of the six patents-in-suit.447 Qualcomm presented three theories of inequitable conduct: (1) that the inventor and prosecuting attorney “buried” material prior art by submitting so much art it overwhelmed the examiner; (2) that the inventor and attorney belatedly disclosed material prior art; and (3) that the attorney materially misrepresented the teachings of four prior art references when arguing for patentability.448 Parker Vision moved to strike the affirmative defenses and to dismiss the counterclaims for inequitable conduct. The Court granted the motion in part.
The district court first dismissed the theory that the inventor and attorney “buried” material prior art. The district court first relied on the Federal Circuit’s colorful language from Therasense regarding the “hangman’s noose” and the need for patent practitioners to submit any art that someone might later argue was material.449 When examining Qualcomm’s inequitable conduct allegations through the lens of whether an intent to deceive is the most reasonable
442 Id. 443 Id. 444 Id. 445 Id. at 43-44. 446 See Parker Vision, Inc. v. Qualcomm Inc., 3:11-719-RBD-TEM, Dkt. 238 at 2(Jan. 22, 2013). 447 Id. at 3. 448 Id. 449 Slip op. at 3-4 (quoting Therasense, 649 F.3d at 1289). -79-
DC:723366.1 explanation for the actions, the Court concluded that “an equally if not more reasonable inference is that ParkerVision aimed to insulate itself from such claims by over-disclosing references.450
The district court also dismissed the second theory of inequitable conduct—i.e., that the inventor and attorney intentionally withheld material references until the patent was about to issue, when the applicants had the obligation to provide it to the PTO in connection with a Petition to Make Special.451 The district court noted that the Federal Circuit had recently decided that failure to provide certain information relevant to a Petition to Make Special was not inequitable conduct after Therasense.452 Here, the district court concluded that Qualcomm’s theory could not survive Therasense’s but-for materiality test because “the PTO was aware of the . . . reference, as evidenced by the reference’s citation on the face of the patent, and still issued the patent.”453 The Court explained that “[o]ne cannot assume that a PTO examiner is an ignorant rube who is easily misled by attorney argument, hyperbole, or understatement.”454
The district court refused to dismiss Qualcomm’s last theory of inequitable conduct, which claimed that the attorney prosecuting the patent misrepresented the teachings of the prior art to the examiner.455 The district court admitted that a ruling of inequitable conduct might hav a “chilling effect” on arguments before the PTO, and expressed skepticism about Qualcomm’s theory.456 Nonetheless, the district court found that Qualcomm’s pleading passed muster under Rule 9 and could not be dismissed at the pleading stage.457
9. Shire LLC v. Impax Labs., Inc.
This suit involves a branded drug manufacturer and two competitors seeking FDA approval for a generic version of the patent product.458 The patentee sought to dismiss the defendants counterclaims related to inequitable conduct and an exceptional case declaration
450 Id. at 4. 451 Id. at 4-5. 452 Id. at 6 (citing Powell v. Home Depot U.S.A., Inc., 663 F.3d 1221, 1235 (Fed. Cir. 2011)). 453 Id. 454 Id. at 6-7. 455 Id. at 7. 456 Id. at 8. 457 Id. The Court warned Qualcomm that it “should also understand that the Court will supervise carefully the material misrepresentation theory going forward, and if it ultimately prove specious, the Court may impose sanctions.” Id. at 9. 458 Shire LLC v. Impax Labs., Inc., No. C 10-5467 RS Dkt. 234 (N.D. Cal. Dec. 27, 2012). -80-
DC:723366.1 under 35 U.S.C. § 285.459 The patentee argued that the defendants had not alleged inequitable conduct with particularity under Rule 9(b) when examined through the Federal Circuit’s opinion in Therasense.460 The district court disagreed.
The district court first determined that while Therasense was instructive, it “does not provide guidance as to whether Impax pleaded sufficient facts to state a claim” in the case at bar.461 The court concluded that Impax had identified (1) what prior art was withheld, (2) who concealed it, (3) and how the prior art was material—i.e., it allegedly invalidated one or more claims of the patents. Therefore, the district court allowed the defendants to proceed with their inequitable conduct counterclaims and defenses.
10. Network Signatures, Inc. v. State Farm Mutual Ins. Co.
A deceptive petition to revive a patent for failure to pay maintenance fees was the basis for a finding that the resulting patent was unenforceable for inequitable conduct in the Network Signatures, Inc. v. State Farm Mutual Insurance Co. case.462 The district court concluded that the attorney’s statement contained in a petition to revive a patent after failure to pay a maintenance fee was false and material. The petition included the representation that the failure to pay the maintenance fee was unintentional. That was a false representation because the party making the statement was aware that someone involved in the process believed that the patent was intentionally abandoned. Although the court held that such a statement was not egregious misconduct within the meaning of Therasense because there was “insufficient evidence of subsequent steps taken to deceive the PTO or activities rising to the level of paying witnesses to lie or creating false articles with deceptive attribution to make such a finding,” the court held that the misstatement was “but-for” material because the PTO would not have revived the patent if it knew the facts.463 Thus, the patent was held to be unenforceable.
C. Supplemental Examination
The AIA created another post-issuance process available only to patent owners: supplemental examination.464 Supplemental examination was devised as a way to permit patent
459 Id. at 2. 460 Id. 461 Id. at 3. 462 Network Signatures, Inc. v. State Farm Mutual Ins. Co., 2012 WL 2357307 (C.D. Cal. Jun. 13, 2012). 463 Id. at *8-9. 464 An earlier version of this section appears in DRAFTING PATENTS FOR LITIGATION AND LICENSING: 2012 CUMULATIVE SUPPLEMENT 132-34 (Bradley C. Wright, ed., 2012). -81-
DC:723366.1 owners who have recognized a mistake during the prosecution of their patent to have a wide variety of additional information considered by the PTO, and to the extent that information raises a substantial new question of patentability, have the patent placed into a modified ex parte reexamination process.465
This section will cover certain aspects of supplemental examination as defined under the AIA and the PTO’s final rules for supplemental examination. The first section describes the scope and procedures for supplemental examination. The second section describes the modified ex parte reexamination proceeding that will be used if the PTO determines that information presented during supplemental examination raises a substantial new question of patentability. The third section will address the Patent Office’s statutory obligation to refer fraudulent behavior to the Attorney General and the PTO’s proposed interpretation of those requirements. The final section will discuss potential implications that supplemental examination may have on litigation and enforcement strategies.
1. Scope of and Procedures for Supplemental Examination
Supplemental examination under the AIA was made available to patent owners starting on September 16, 2012.466 Since that time, only two requests for supplemental examination have been granted filing dates by the PTO.467 Supplemental examination, available only to patent owners, provides a quick way to have the relevance of a wide variety of additional information or arguments considered or reconsidered by the Patent Office.468 The Office is statutorily required to complete its review of a request for supplemental examination within 3 months of the request being filed.469 A supplemental examination is concluded when the Director issues a
465 See generally AIA § 12 (codified at 35 U.S.C. § 257); Markup of H.R. 1249, the America Invents Act: Hearing Before the House of Representatives’ Committee on the Judiciary, 112th Cong. 150-151 (statements of Reps. Johnson and Issa, Members of the House Comm. on the Judiciary); 157 Cong. Reg. S5411 (Sept. 8, 2011) (statement of Sen. Hatch). 466 AIA § 12(c). 467 See Supp. Exam. Control Nos. 96/000,007 (filed Oct. 31, 2012) & 96/000,008 (filed Dec. 5, 2012). 468 35 U.S.C. § 257(a) (permitting a patent owner to “request supplemental examination of a patent in the Office to consider, reconsider, or correct information believed to be relevant to the patent”); Changes to Implement the Supplemental Examination Provisions of the Leahy-Smith America Invents Act and to Revise Reexamination Fees; Final Rule, 77 Fed. Reg. 48828 (Aug. 14, 2012) (hereafter “Changes to Implement Supplemental Examination”) (codified at 37 C.F.R. § 1.601(a)) (limiting supplemental examination to “the owner(s) of the entire right, title, and interest in the patent,” requiring proof of ownership, and prohibiting “[a]ny party other than the patent owner . . . from filing papers or otherwise participating in any manner in a supplemental examination proceeding”). The rationale underlying this requirement is that since the terms of a patent can be changed during an ex parte reexamination, if ordered, such changes must be binding on all parties having an ownership interest in the patent. See Changes to Implement Supplemental Examination, 77 Fed. Reg. 48832. 469 35 U.S.C. § 257(a) (“Within 3 months after the date a request for supplemental examination meeting the requirements of this section is received, the Director shall conduct the supplemental examination and shall conclude -82-
DC:723366.1 certificate indicating whether the information presented raises a substantial new question of patentability.470 If any information raises a substantial new question of patentability, then the Director will order a modified ex parte reexamination of the patent to address each substantial new question of patentability identified during the supplemental examination.471
The PTO’s rules regarding supplemental examination are driven in large part by the need to complete supplemental examination within three months. For example, the PTO has limited the number of “items” that can be considered during supplemental examination to no more than twelve.472 A wide variety of “items” of information may be submitted, including: patents, publications, videos, audio recordings,473 court documents, email messages, advertisements, sales receipts, corrections to declarations submitted under 37 C.F.R. §§ 1.131 or 1.132, potential issues involving the specification or written description under 35 U.S.C. § 112, patent eligibility issues under 35 U.S.C. § 101, and issues involving priority dates of the claims.474 While the PTO has limited the number of items that can be submitted in a single request for supplemental examination, it has not limited the number of requests for supplemental examination that can be
such examination by issuing a certificate indicating whether the information presented in the request raises a substantial new question of patentability.”); Changes to Implement Supplemental Examination, 77 Fed. Reg. 48830 (“The Office must conclude a supplemental examination within three months of the date on which the request for supplemental examination is filed.”); 37 C.F.R. § 1.620(a) (effective Sept. 16, 2012) (“Within three months after the filing date of a request for supplemental examination, the Office will determine whether a substantial new question of patentability affecting any claim of the patent is raised by any of the items of information presented in the request.”). 470 35 U.S.C. § 257(a); 37 C.F.R. § 1.625(a) (effective Sept. 16, 2012) (“A supplemental examination proceeding will conclude with the electronic issuance of a supplemental examination certificate. The supplemental examination certificate will indicate the result of the determination whether any of the items of information presented in the request raised a substantial new question of patentability.”). 471 See 35 U.S.C. § 257(b) (“If the certificate issued under subsection (a) indicates that a substantial new question of patentability is raised by 1 or more items of information in the request, the Director shall order reexamination of the patent.”); 37 C.F.R. § 1.625(b) (effective Sept. 16, 2012). 472 See Changes to Implement Supplemental Examination, 77 Fed. Reg. 48830 (“This final rule increases the proposed limit from ten to twelve, thus permitting a request for supplemental examination to contain up to twelve items of information.”) ; 37 C.F.R. § 1.605(a) (effective Sept. 16, 2012) (“Each request for supplemental examination may include no more than twelve items of information believed to be relevant to the patent.”). As originally proposed, however, the proposed rules would have only allowed for ten items of information to be submitted by the patent owner. Id. (“The Office proposed to limit each request for supplemental examination to tem items of information.”). 473 Because the PTO does not have the ability to retain records in unwritten form, the PTO has indicated that it will only accept transcripts of audio or video along with corresponding still images, if necessary. See Changes to Implement Supplemental Examination, 77 Fed. Reg. 48833. 474 Id. at 48833. -83-
DC:723366.1 filed by the patent owner,475 so long as the request for supplemental examination is filed during the period of enforceability of the patent.476
The request itself must be detailed, although not as detailed as the PTO originally proposed in its proposed rules.477 Under the final rules, in addition to the required fee for filing a supplemental examination and for any subsequent ex parte reexamination, and document size fees, the request must include: (1) an identification of the patent number for which supplemental examination is sought; (2) a list of items of information that are to be considered, reconsidered, or corrected; (3) a list of other proceedings within the PTO that relate to the patent for which supplemental examination is requested; (4) an identification of each claim for which supplemental examination is requested; (5) a “detailed explanation of the relevance and manner of applying each item of information to each claim”; (6) a copy of the patent, and any disclaimers or certificates for that patent; (7) a copy of each item of information that is not a patent or U.S. Patent publication, and, where necessary, a translation of relevant non-English portions; (8) a summary of relevant portions of any document over 50 pages; and (9) an identification of the owner or owners of the entire right, title and interest to the patent requested to be examined.478 These requirements mirror those required to commence an ex parte reexamination.479
A request for supplemental examination may contain the following additional content: (1) a cover sheet itemizing each part of the request; (2) a table of contents; (3) an explanation of how the claims patentably distinguish over the items of information; and (4) comments on why the items of information either do or do not raise a substantial new question of patentability.480
475 See 37 C.F.R. § 601(c) (effective Sept. 16, 2012) (“A request for supplemental examination of a patent may be filed at any time during the period of enforceability of the patent.”). 476 The “period of enforceability” limitation is not found in the statute, but has rather been inferred by the PTO because “the Office believes that Congress did not intend the Office to expend resources on the supplemental examination of a patent which cannot be enforced. See Changes to Implement Supplemental Examination, 77 Fed. Reg. 48833. “The period of enforceability is determined by adding six years to the date that the patent expires.” Id. 477 Public comments on the PTO’s proposed rules indicate that they were too burdensome, so the PTO’s final rules removed certain requirements such as requiring claim interpretations for means-plus-function limitations under § 112(f) and for a discussion of each limitation of a claim for which supplemental examination is requested and how it is supported by the specification. See, e.g., Changes to Implement Supplemental Examination, 77 Fed. Reg. 48830; 37 C.F.R. § 1.610 (effective Sept. 16, 2012). 478 See 37 C.F.R. § 1.610(b)(1)-(9) (effective Sept. 16, 2012). 479 Changes to Implement Supplemental Examination, 77 Fed. Reg. 48830 (“[T]his final rule adopts content requirements for a request for supplemental examination that are comparable to the requirements for a request for supplemental examination.”). 480 37 C.F.R. § 1.610(c)(1)-(4) (effective Sept. 16, 2012). -84-
DC:723366.1 While a request for supplemental examination will be granted a filing date without meeting the requirements of 37 C.F.R. § 1.610(c), a request that does not include everything required by 37 C.F.R. § 1.610(b), and fall under the maximum allowed “items of information,” and meet certain formatting requirements, will not be granted a filing date.481
Once a supplemental examination has been accepted by the PTO the office will make a determination of whether a substantial new question of patentability exists within 3 months of the date of filing of the request.482 If the patent owner becomes aware of any additional proceedings before the PTO related to the patent being examined, the patent owner must inform the office of that proceeding.483 The submission under proposed 37 C.F.R. § 1.620(d) must be limited to notifying the PTO of the concurrent proceeding.484 Examiner interviews are expressly prohibited during the supplemental examination phase.485 Moreover, a patent owner may not amend the claims during supplemental examination.486
2. Modified Ex Parte Reexamination Procedures Following Supplemental Examination
If the PTO identifies one or more substantial new questions of patentability, the PTO must order reexamination of the patent.487 The reexamination proceeding will be ex parte and will follow the general procedures outlined in chapter 30 of title 35, with several exceptions. First, the patent owner will not be permitted to file a statement as otherwise permitted by 35 U.S.C. § 304 and 37 C.F.R. § 1.530.488 Second, the scope of the reexamination proceeding will be far broader than a typical reexamination proceeding under 35 U.S.C. §§ 302 et seq. While typical ex parte reexamination proceedings are limited to the consideration of patents or printed
481 37 C.F.R. § 1.610(d) (“The filing date of a request for supplemental examination will not be granted if the request is not in compliance with §§ 1.605, 1.615, and tis section, subject to the discretion of the Office.”). 482 35 U.S.C. § 257(a); 37 C.F.R. § 1.620(a) (effective Sept. 16, 2012). 483 See 37 C.F.R. § 1.620(d) (effective Sept. 16, 2012). 484 Changes to Implement Supplemental Examination, 77 Fed. Reg. 44835 (“The notice may not include any discussion of the issues present in the current supplemental examination proceeding or in the identified post patent Office proceeding(s). If the paper containing the notice is not so limited, the paper will be held to be improper, and will be processed as an unauthorized paper pursuant to § 1.620(c).”); see also 37 C.F.R. § 1.620(d) (effective Sept. 16, 2012). 485 See 37 C.F.R. § 1.620(e) (effective Sept. 16, 2012). 486 See 37 C.F.R. § 1.620(f) (effective Sept. 16, 2012). 487 35 U.S.C. § 257(b); 37 C.F.R. § 1.625(b) (effective Sept. 16, 2012). 488 35 U.S.C. § 257(b) (stating that “the patent owner shall not have the right to file a statement pursuant to section 304”); 37 C.F.R. § 1.625(d)(1) (effective Sept. 16, 2012) (same). -85-
DC:723366.1 publications,489 an ex parte reexamination ordered under new section 257(b) will resolve substantial new questions of patentability involving a broad range of issues from novelty and obviousness to enablement and patent eligibility.490
Although amendments to claims are not permitted during the supplemental examination proceeding itself, a patent owner may amend its patent claims after the first office action is issued during the reexamination proceedings.491 Issues raised by claim amendments or by any subject matter added or deleted from the patent may be addressed in an ex parte reexamination ordered under section 257(b).492
Finally, the PTO adopted a final rule that requires disclosure of information that is material to patentability under the same standard for an initial examination of a patent (i.e., 37 C.F.R. § 1.56) rather than the standard applicable to ex parte reexamination (i.e., 37 C.F.R. § 1.555(b)).493 This is because the scope of the issues that may be considered during supplemental examination is broader than the information that can be considered during ex parte reexamination.494
3. PTO Discovery of Fraud
The supplemental examination provisions of the AIA also include provisions about what the PTO should do in the event that it determines a fraud has been perpetrated on the Office. Specifically, new section 257(e) provides:
If the Director becomes aware, during the course of a supplemental examination or reexamination proceeding ordered under this section, that a material fraud on the Office may have been
489 35 U.S.C. §§ 301-302 (2010). 490 Changes to Implement Supplemental Examination, 77 Fed. Reg. 48828 (“The information that may be presented in a request for supplemental examination is not limited to patents and printed publications, an d may include, for example, issues of patentability under 35 U.S.C. 101 and 112”); see also 35 U.S.C. § 257(b) (stating that “the Director shall address each substantial new question of patentability identified during the supplemental examination, notwithstanding the limitations in chapter 30 relating to patents and printed publications or any other provision of such chapter”); 37 C.F.R. § 1.625(d)(2)-(3) (effective Sept. 16, 2012) (same). 491 See Changes to Implement Supplemental Examination (Proposed Rulemaking), 77 Fed. Reg. 3672 (Jan. 25, 2012) (“[B]ecause the ex parte reexamination proceeding does not exist prior to the order under 35 U.S.C. 257 and the patent owner is precluded from filing a statement under 35 U.S.C. 304, no amendment may be filed from the time the request for supplemental examination is filed, until after the issuance of an initial Office action on the merits in any ex parte reexamination ordered under 35 U.S.C. 257.”). 492 37 C.F.R. § 1.625(d)(3) (effective Sept. 16, 2012). 493 See 37 C.F.R. § 1.625(d)(4) (effective Sept. 16, 2012). 494 Changes to Implement Supplemental Examination, 77 Fed. Reg. 48836. -86-
DC:723366.1 committed in connection with the patent that is the subject of the supplemental examination, then in addition to any other actions the Director is authorized to take, including the cancellation of any claims found to be invalid under section 307 as a result of a reexamination ordered under this section, the Director shall also refer the matter to the Attorney General for such further action as the Attorney General may deem appropriate. Any such referral shall be treated as confidential, shall not be included in the file of the patent, and shall not be disclosed to the public unless the United States charges a person with a criminal offense in connection with such referral.495
As one representative noted during debates over amendments to the supplemental examination provisions, use of this statute is expected to be extremely rare because a “wrongdoer would have to admit the invalidating information that it worked so hard to conceal.”496 Moreover, the PTO has proposed interpreting the phrase “material fraud” to be narrower than the standard for inequitable conduct announced in the Federal Circuit’s en banc decision in Therasense, Inc. v. Becton, Dickinson & Co.497 This further suggests that use of this section should be very rare, as the PTO indicated in the Federal Register accompanying the final rules.498
Notwithstanding this, patent owners should be extremely careful in crafting requests for supplemental examination particularly if redacting documents, summarizing relevant portions of documents, or translating documents pursuant to the PTO’s requirements for supplemental examination. Such activities if conducted without care might give rise to the appearance of an attempt to mislead the PTO and could potentially result in the use of this section depending on the nature of the errors.
4. Supplemental Examination’s Impact on Litigation and Enforcement Strategies
The most obvious impact that supplemental examination has on litigation and enforcement of a patent is its ability to eliminate claims of inequitable conduct based on items of information submitted to the PTO for supplemental examination. The statute prohibits a court
495 35 U.S.C. § 257(e). 496 Markup of H.R. 1249, the America Invents Act: Hearing Before the House of Representatives’ Committee on the Judiciary, 112th Cong. 140 (statement of Rep. Johnson, Member of the House Comm. on the Judiciary). 497 649 F.3d 1276 (Fed. Cir. 2011) (en banc). 498 Changes to Implement Supplemental Examination, 77 Fed. Reg. 48829 (“The Office anticipates such instances will be rare.”). -87-
DC:723366.1 from holding a patent unenforceable “on the basis of conduct relating to information that had not been considered, was inadequately considered, or was incorrect in a prior examination of the patent if the information was considered, reconsidered, or corrected during a supplemental examination of the patent.”499
This provision is not without exceptions. First, it does not apply to bar an allegation of inequitable conduct that is “pled with particularity” or raised with particularity in a notice under 21 U.S.C. § 505(j)(2)(B)(iv)(II) before the request for supplemental examination was filed.500
This exception will likely give rise to a strategic battle ground in litigation. The statutory language requires that the claim of inequitable conduct be “pled with particularity” in a civil action or “set forth with particularly” in a notice under 25 U.S.C. § 505(j)(2)(B)(iv)(II). Under the Federal Circuit’s decision in Exergen Corp. v. Wal-Mart Stores, Inc.,501 the pleading of an allegation with particularity must include detailed allegations about “the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO,” and the pleading of knowledge and intent must be adequate to “reasonably infer that a specific individual (1) knew of the withheld material information or the falsity of the material misrepresentation, and (2) withheld or misrepresented this information with a specific intent to deceive the PTO.” Moreover, under the Federal Circuit’s Therasense502 decision, materiality must be evaluated by determining whether the patent would have been granted but for the alleged material act or omission. Therefore, to the extent that an accused infringer raises inequitable conduct in litigation, a patent owner may simultaneously seek to immunize itself from the defense by requesting supplemental examination while simultaneously challenging the sufficiency of the pleading under the standards announced in Exergen, Therasense, and Fed. R. Civ. P. 9(b). To the extent that the pleading is disallowed, the patent owner’s supplemental examination request will likely be deemed earlier filed, and the exception to the bar on unenforceability embodied in section 257(c)(2)(A) will be inapplicable.
The second exception to the prohibition on rendering a patent subject to supplemental examination unenforceable is that a patent owner cannot invoke the bar on unenforceability if a civil action under 35 U.S.C. § 281 or an ITC proceeding is brought before the supplemental examination and any subsequent reexamination are concluded before the action is brought.503 In essence, the statute forces a patent owner to wait until supplemental examination (and a
499 35 U.S.C. § 257(c). 500 Id. § 257(c)(2)(A). 501 575 F.3d 1312, 1328-29, 91 USPQ2d 1656 (Fed. Cir. 2009). 502 649 F.3d at 1295-96. 503 35 U.S.C. § 257(c)(2)(B). -88-
DC:723366.1 subsequent reexamination) has concluded before bringing suit before the conduct will be immunized from allegations of inequitable conduct.
The language employed in this provision gives rise to potential litigation strategies. Unlike other provisions of the AIA, which differentiate between actions brought by a patent owner from declaratory judgment actions brought by accused infringers, this provision does not make such a distinction.504 Instead, it appears to govern any action for enforcement of a patent, regardless of whether the patentee initiates the litigation or is responding to a declaratory judgment action by filing a compulsory counterclaim for infringement of a patent. In light of this difference, under one view of the consequences of the plain statutory language, an accused infringer may be able to preclude a patent owner from immunizing a patent from claims of inequitable conduct by filing a declaratory judgment action either before the patent owner seeks supplemental examination, or while a supplemental examination or subsequent reexamination proceeding is still pending. Therefore, an accused infringer that has a viable inequitable conduct defense might be incentivized to pursue litigation in an effort to avoid the consequences of the bar to unenforceability that is erected following supplemental examination and, if ordered, reexamination.
Accused infringers have other strategy decisions to make in the event that a patent that they are accused of infringing is placed into supplemental examination. Specifically, accused infringers may want to challenge that patent under one of the other post-issuance mechanisms available to challenge a patent in order to ensure that their positions on the prior art or other bases for alleged invalidity are before the PTO. In the event that this happens, under the proposed rules the patent owner must notify the PTO of the existence of the concurrent proceeding under the proposed rules.505 A patent owner will want to ensure that it has complied with this requirement or potentially risk being accused of inequitable conduct as a consequence of the supplemental examination procedure.
Given these considerations, patent owners will want to carefully consider whether supplemental examination is a viable way to avoid the consequences of mistakes during prosecution. If there were mistakes or if in conducting a pre-suit investigation, the patent owner becomes aware of issues that an accused infringer might raise during litigation in an attempt to
504 Compare 35 U.S.C. § 315(a)(1)-(3) (describing consequences of actions brought by an accused infringer on inter partes review proceedings) with id. § 257(c)(2)(B) (not distinguishing between an action initially brought by a patentee under 35 U.S.C. § 281 from a claim for infringement brought as a compulsory counterclaim to a declaratory judgment action). 505 See 37 C.F.R. §§ 1.620(d) (effective Sept. 16, 2012). The PTO has indicated that it “anticipates that a patent for which supplemental examination is requested is likely to be involved in other post-patent Office proceedings . . . .” See Changes to Implement Supplemental Examination, 77 Fed. Reg. 48835. -89-
DC:723366.1 avoid liability, a patent owner might be better off seeking supplemental examination before raising the potential infringement issues with the accused infringer. If successful during supplemental examination, the patent will emerge stronger to the benefit of the patent owner.
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DC:723366.1 IX. WILLFUL INFRINGEMENT AFTER BARD PERIPHERAL VASCULAR, INC. V. W.L. GORE & ASSOCIATES
This past June, in Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 682 F.3d 1003 (Fed. Cir. 2012), the Federal Circuit held that the first prong of the willfulness test established in In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc)506 is a question of law to be decided by the trial court subject to de novo review, even though that determination can involve mixed questions of law and fact.507 Accordingly, going forward, a jury’s role in determining objective recklessness will be limited to determining the underlying facts relevant to defenses contended to be reasonable.
A. Powell Foreshadows a Change
While it had laid out certain limits on the bounds of the Seagate test,508 before Powell v. The Home Depot U.S.A., Inc., 663 F.3d 1221 (Fed. Cir. 2011), the Federal Circuit had not provided further guidance to District Courts on who was to answer the questions mandated by that test.
Powell involved an infringement suit against Home Depot involving a patent alleged to cover the radial arm saw guards installed in Home Depot stores across the United States.509 The inventor of the patent had a long-time business relationship with Home Depot as its point-of- contact for the installation and repair of radial arm saws.510 After a rash of injuries relating to the
506 The test established in Seagate requires the patentee to prove 1) that an alleged infringer acted despite “an objectively high likelihood that its actions constituted infringement of a valid patent;” (the “objective recklessness” prong) and 2) that the “objectively high likelihood” was “either known or so obvious that it should have been known” (the “subjective recklessness” prong). 497 F.3d at 1371. 507 Bard, 682 F.3d at 1006-07 (applying reasoning provided in Miller v. Fenton, 474 U.S. 104, 113-14 (1985) that “as a matter of sound administration of justice, one judicial actor is better positioned than another to decide the issue in question” when “issue falls somewhere between a pristine legal standard and a simple historical fact” to conclude that “the court is in the best position for making the determination of reasonableness.”). 508 See, e.g., Spine Solutions v. Medtronic Sofamor Danek USA Inc., 620 F.3d 1305, 1310-11 (Fed. Cir. 2010) (stating “the ‘objective prong of Seagate tends not to be met where an accused infringer relies on a reasonable defense to a charge of infringement.”); Uniloc USA Inc. v. Microsoft Corp., 632 F.3d 1292, 1310 (Fed. Cir. 2011) (“If the accused infringer’s position is susceptible to a reasonable conclusion of no infringement, the first prong of Seagate cannot be met.”); see also Black & Decker Inc. v. Robert Bosch Tool Corp., No. 2007-1243 (Fed. Cir. Jan. 7, 2008) (nonprecedential) (“[B]oth legitimate defenses to infringement claims and credible invalidity arguments demonstrate the lack of an objectively high likelihood that a party took actions constituting infringement of a valid patent.”). 509 Powell, 663 F.3d at 1226-27. 510 Id. at 1227. -91-
DC:723366.1 use of such saws, Home Depot began seeking a solution to fix the saws to prevent injuries or otherwise remove the saws from its stores.511 The inventor, recognizing that removal of the saws would hurt his business, developed a saw guard prototype and presented it to Home Depot, who ordered several production units.512 He then filed a patent application on the concept.513 Unbeknownst to him, Home Depot contacted another company to build nearly identical copies of the inventor’s saw guard for $2,000 less per unit.514
Once the inventor’s patent issued, he sued Home Depot for infringement.515 A jury unanimously determined that Home Depot literally and willfully infringed the saw guard patent, and awarded $15 million in damages.516 The trial judge enhanced damages by an additional $3 million.517 Home Depot appealed.518
On appeal, Home Depot argued it did not satisfy the objective prong of the willful infringement inquiry 1) because the district court denied the inventor’s request for a preliminary injunction and 2) because of the closeness of Home Depot’s inequitable conduct case.519 In response, the inventor contended that Home Depot’s arguments concerned issues not presented to the jury, and that the jury’s verdict was supported by substantial evidence.520 The inventor also contended that the question of willful infringement, under the objective prong, was a question of fact reserved only for the jury.521
The Federal Circuit responded by dividing consideration of issues of fact from issues of law, holding that “whether an accused infringer’s reliance on a particular issue or defense is reasonable is a question for the court when the resolution of that particular issue or defense is a matter of law.”522 But “[w]hen the resolution of a particular issue or defense is a factual matter, however, whether reliance on that issue or defense was reasonable under the objective prong is
511 Id. 512 Id. 513 Id. at 1228. 514 Id. 515 Id. 516 Id. 517 Id. 518 Id. 519 Id. at 1235-36. 520 Id. at 1236. 521 Id. 522 Id. -92-
DC:723366.1 properly considered by the jury.”523 However, where “separate issues of fact and law are presented by an alleged infringer as defenses to willful infringement, the objective recklessness inquiry may require analysis by both the court and the jury.”524
Thus, under Powell, whether jury or judge (or both) would decide the objective prong of the Seagate test would have depended on the particular invalidity and noninfringement defenses raised. For example, in cases where both anticipation and obviousness defenses were raised, the jury would evaluate whether the anticipation defense was reasonable (as anticipation is a question of fact), while the judge would evaluate whether the obviousness defense was reasonable (as the ultimate determination of obviousness is a question of law). In Powell, where the two issues raised by Home Depot on appeal (injunctive relief and inequitable conduct) were both questions of law, the Federal Circuit held the district court properly considered both issues in analyzing whether the patentee proved the objective prong of the willful infringement inquiry.525
Because it would have necessarily involved several steps and different decisions by jury and judge, the Powell scheme was regarded by at least some as “needlessly complex” and suffering from a “fundamental flaw that could lead to erroneous findings.”526 As the Federal Circuit provided no guidance on how the division of labor between judge and jury should be applied in practice, these same practitioners began suggesting that to truly salvage the Seagate test as workable, the judge alone should be charged with determining objective recklessness.527
B. Bard Acknowledges and Resolves the Powell Problem
Recognizing “that simply stating that willfulness is a question of fact oversimplifies the issue,” the Federal Circuit in Bard held that “the objective determination of recklessness, even though predicated on underlying mixed questions of law and fact, is best decided by the judge as a question of law subject to de novo review.”528
The panel based its decision on Supreme Court reasoning that “the decision to label an issue a ‘question of law,’ a ‘question of fact,’ or a ‘mixed question of law and fact’ is sometimes
523 Id. at 1236-37 (citing Uniloc, 632 F.3d at 1311). 524 Id. at 1237. 525 Id. 526 Sean M. Murray, Can The Seagate Standard Be Salvaged?, Law360, December 6, 2011, available at http://knobbe.com/pdf/2011-December-Can-The-Seagate-Standard-Be-Salvaged.pdf. 527 Id. 528 Bard, 682 F.3d at 1007. -93-
DC:723366.1 as much a matter of allocation as it is of analysis,”529 and that “[w]hen an ‘issue falls somewhere between a pristine legal standard and a simple historical fact, the fact/law distinction at times has turned on a determination that, as a matter of sound administration of justice, one judicial actor is better positioned than another to decide the issue in question.’”530 Following this reasoning, the panel expressed its belief that “the court is in the best position for making the determination of reasonableness.”531
With this change, even where “the objective prong turns on fact questions, as related, for example, to anticipation, or on legal questions dependent on the underlying facts, as related, for example, to questions of obviousness, the judge [will] remain[] the final arbiter of whether the defense was reasonable, even when the underlying fact question is sent to a jury.”532 The panel felt this change consistent with similar holdings in other parallel areas of law, such as the judge’s sole responsibility for determining enhanced damages and attorneys' fees under 35 U.S.C. § 285, and the Supreme Court's precedent on “sham” litigation.533
Thus, under the new practice:
In considering the objective prong of Seagate, the judge may when the defense is a question of fact or a mixed question of law and fact allow the jury to determine the underlying facts relevant to the defense in the first instance, for example, the questions of anticipation or obviousness. But, consistent with [the Bard holding], the ultimate legal question of whether a reasonable person would have considered there to be a high likelihood of infringement of a valid patent should always be decided as a matter of law by the judge.534
The panel then remanded the underlying case so that the trial court could apply the correct standard to the question of willfulness in the first instance, and more specifically, so that the court could determine, “‘based on the record ultimately made in the infringement proceedings,’ whether a ‘reasonable litigant could realistically expect’ those defenses to succeed.”535
529 Id. at 1006 (citing Miller v. Fenton, 474 U.S. 104, 113-14 (1985)). 530 Id. 531 Id. at 1007. 532 Id. 533 Id. 534 Id. 535 Id. at 1008. -94-
DC:723366.1 C. Considerations After Bard
At least one practitioner has opined on the several considerations that both patentee and accused infringer will face after Bard.536 These considerations include:
The new standard itself—under which it is solely the trial judge’s responsibility to determine whether the objective prong of the Seagate test is met;
That there will no longer be opportunity for a patentee to cloud the jury’s determination of objective recklessness with evidence relating to the accused infringer’s subjective intent;
That evidence relating to the reasonableness of an adjudged infringer’s noninfringement and invalidity defenses will not be ignored because of its complexity and the strength of those defenses will be fully considered;
That as a result of the new sequencing it will be less likely that a patentee will prevail on the issue of willfulness, because the patentee will need to clearly demonstrate to the trial judge that the objective prong of Seagate has been met. This may drive patentees to have more reasonable expectations as to potential damages, possibly leading to more settlements;
That trial court judges may choose to bifurcate the issue of willful infringement as a matter of course, similar to the practice of Judge Robinson in the District of Delaware, or consider conducting special proceedings prior to trial (similar to Markman) to determine whether the patentee has established objective recklessness;
That summary judgment may now become a more effective vehicle to dispose of willfulness allegations, especially where claim construction issues make for a close case; and
Finally, that because the determination of objective recklessness is now subject to de novo review on appeal, the clearly erroneous standard will no longer control in determining whether a finding of willful infringement will survive. Instead the
536 John T. Gallagher, The Evolution of the Standard for Establishing Willful Infringement—After Five Years the Objective Recklessness Component of Seagate Is Now a Question of Law, 84 PTCJ 683 (August 17, 2012). -95-
DC:723366.1 Federal Circuit will be charged with a complete review of all evidence supporting or refuting objective recklessness.537
D. Bard’s Early Returns—Few Changes Except Recognition of the Court’s Role
District Courts around the country have begun to apply Bard to decide the issue of willfulness. Although courts in the Eastern District of Virginia do not appear to have yet written any opinions citing Bard, an early trend has developed in other district courts that the determination of objective recklessness will be undertaken after trial. Indeed, at least one District Court has stated its belief that Bard contemplates a decision on the objective prong after the jury has deliberated on other aspects of willfulness, in view of the Bard panel’s instructions that “when the defense is a question of fact or a mixed question of law and fact[, that] the jury [are] to determine the underlying facts relevant to the defense in the first instance.”538
This sequencing occurred in Carnegie Mellon University v. Marvell Technology Group, Ltd., where Judge Nora Fischer of the Western District of Pennsylvania found that because there were “mixed questions of law and fact” in regards to the accused infringer’s defenses, she would submit “special interrogatories to the jury on the disputes of fact, while reserving for [the Court] the ultimate question of law.”539 She found the procedure adopted in another post Bard case, Sargent Manufacturing Co. v. Cal-Royal Products, Inc.540 instructive, where the Court presented questions of fact related to objective recklessness of willful infringement to the jury in the form of interrogatories and after the jury answered the interrogatories, the Court resolved the legal question of objective recklessness.541 Ultimately, these questions were presented to the jury, which answered them in the affirmative and awarded a $1.1 billion verdict.542 As can be seen from a review of the jury verdict form, the jury was still asked to opine whether it believed the defendant had “an objectively reasonable defense” to plaintiff’s claims of infringement.543 Post-
537 The Federal Circuit recently declined to rehear en banc whether the objective recklessness determination is subject to de novo review, see Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 701 F.3d 1351 (Fed. Cir. 2012). 538 Cook Inc. v. Endologix, Inc., 1:09-CV-01248-TWP, 2012 WL 3779198 (S.D. Ind. Aug. 30, 2012); see also Carnegie Mellon University v. Marvell Technology Group, Ltd., 09-290, 2012 WL 5463669, *2 (W.D. Pa. Nov. 2, 2012). 539 Id., slip op. at 3-4 (citing Koninklijke Philips Electronics N.V. v. Cinram Int'l, Inc., CIV.A. 08-0515, 2012 WL 4074419 at *5 (S.D.N.Y. Aug. 23, 2012). 540 3:08-CV-408 VLB, 2012 WL 3101691 at*2 (D. Conn. July 27, 2012). 541 Id. 542 Carnegie Mellon University v. Marvell Technology Group, Ltd., 09-290, Dkt. No. 762 (W.D. Pa. Dec. 26, 2012). 543 Id. -96-
DC:723366.1 trial motions have not yet been filed, and Judge Fischer has not yet ruled on whether damages will be enhanced.
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DC:723366.1 X. UNIQUE ISSUES IN LITIGATION OVER STANDARDS ESSENTIAL PATENTS-REMEDIES
A. Overview
Technical standards are critical for the proper operation of the computers we use, the information services we consume, and the proper operation of the world’s telecommunications infrastructure. By standardizing technology, entire markets for standards-compliant products can be created practically overnight. Hardware and software must be developed that comply with the new standard. These products must be integrated into an end-product. Accessories such as cables, computer peripherals, and even other software can be developed to complement the standardized technology. Labor and service markets are created too. Yet, the participants in those markets become locked into the technology required to be compliant with the particular standard. Thus, where the technology necessary to comply with a standard is protected by patent rights, market participants must produce products that infringe the patent to sell products into the market for standards-compliant products.
The existence of patent rights in situations where technology has been standardized poses unique problems. For example, a participant in the standards development process might manipulate the process by injecting technology and urging its adoption by the standards body, knowing that it is secretly obtaining patent protection. If successful in having the standards body adopt the technology, once a patent issues, the participant may then seek to enforce its patent against the entire standard-practicing industry and force market participants to pay super-competitive royalties because they are locked into a particular standard. This is referred to as “patent holdup.”544 Different standards development organizations (SDOs) (also referred to as standards setting organizations (SSOs)) take different approaches in addressing the problem of hold-up.
Some organizations require the standard to be open. In the context of an open standard, all participants in the standards setting process agree that they will allow all others to practice their patented technology in standards-compliant products if that technology ends up in an adopted standard. Examples of this include the USB Implementers Agreement and the Bluetooth Implementers Agreement.
Other SDOs require participants to disclose the existence of potentially essential patent properties and represent whether the patent owner will grant licenses on reasonable and
544 See, e.g., Mark A. Lemley, Ten Things toDo About Patent Holdup of Standards (And One Not to Do), 48 B.C. L.REV. 149 (2007). -98-
DC:723366.1 nondiscriminatory terms (RAND) or fair, reasonable and nondiscriminatory terms (FRAND).545 After considering these commitments (or lack thereof), the standards body can presumably make an informed decision on whether to adopt the technology at issue and potentially need to pay the royalties to the patent owner or whether to go in another direction, perhaps at some cost to the efficiency or effectiveness of resulting standardized technology. Examples of organizations requiring parties to disclose their licensing intentions include the Institute of Electrical and Electronics Engineers (IEEE) and the European Telecommunications Standards Institute (ETSI).
The latter scenario presents issues that are cropping up more and more in the patent litigation context. For example, what happens when a patentee fails to disclose the existence of patent rights? In answering this question, courts have applied concepts of waiver and estoppel.546 Those charged with infringement of standards essential patents have raised patent misuse as well.547 Does a party charged with infringement have any claims against the patent owner? Some Courts—including the Third Circuit—have recognized claims ranging from breach of contract to antitrust claims under Section 2 of the Sherman Act may be available to the accused infringer.548
Perhaps even thornier issues lurk on the remedies side of a patent case involving standards essential patents. What is a RAND royalty and how is it determined? Is injunctive relief—or an exclusion order from the International Trade Commission (“ITC”)—available to those with the right to enforce standards-essential patents?
Patent suits involving patents alleged to be essential to practicing standards are on the rise, with many non-practicing entities getting more involved in such litigation.549 Litigating
545 Different standards organizations refer to the commitment to license on specific terms differently. Some, like ETSI, chose to refer to it as FRAND, while others like IEEE, refer to it as RAND. For purposes of simplicity, we will refer to the commitment to grant licenses as a “RAND” commitment. 546 Qualcomm, Inc. v. Broadcom Corp., 548 F.3d 1004 (Fed. Cir. 2008). 547 Network-1 Security Solutions, Inc. v. Alcatel-Lucent USA Inc., No. 6:11-cv-492-LED, Def. Hewlett- Packard Co.’s Ans. To Am. Compl. and Counterclaims (Jun. 11, 2012 E.D. Tex.) (Ninth Affirmative Defense). Hewlett-Packard has contends that since the patentee had granted royalty-free licenses, the patentee has an obligation to license HP on a royalty-free basis, and its failure to do so restrains competition and constitutes misuse. Id. ¶ 62. See also Nokia Corp. v. Apple Inc., No. 09-791-GMS, Apple Inc.’s Third Am. Ans., Defenses, and Counterclaims at ¶¶ 136-141 (Feb. 24, 2011 D. Del.). 548 Broadcom Corp. v. Qualcomm, Inc., 501 F.3d 297 (3d Cir. 2007). 549 This is perhaps due to the ease of attempting to prove infringement following the Federal Circuit’s decision in Fujitsu Ltd. v. Netgear Inc., 620 F. 3d 1321 (Fed. Cir. 2010). In that case, the Federal Circuit held that a patentee can prove infringement by reading a patent on a standard and showing that the patent covered all ways of practicing the standard, and proving that the product was advertised as supporting the standard. 620 F.3d 1326-29. At that point, it remained up to the accused infringer to show either (1) that -99-
DC:723366.1 patent cases involving standards essential patents presents numerous issues. Of the issues raised in such cases, we will focus first on the present state of the law of remedies. More specifically, we will examine the current state of the law in attempting to answer the question: “what is RAND and how is it determined?” Second, we will look at the state of the law as it pertains to the availability of injunctive relief to prevent continued use of patented technology.
B. The Availability of Injunctive Relief and ITC Exclusion Orders
Besides money damages, patentees may be given equitable relief in the form of an injunction if the patentee can show that the traditional equitable factors favor granting an injunction.550 However, when standards essential patents are concerned, is injunctive relief proper? Does it make a difference when the patentee made a representation that it would grant licenses on RAND terms? Can the International Trade Commission issue an exclusion order for infringement of a standards-essential patent? These questions are being raised with increasing frequency in litigation. This section examines several cases where the courts have addressed the question of injunctive relief in the context of cases involving standards essential patents.
1. Microsoft Corp. v. Motorola Inc.
In the fall of 2010, Motorola sent a letter to Microsoft asking Microsoft to take a license to a number of Motorola standards essential patents related to video compression and WiFi technology. Microsoft responded in part by filing a lawsuit in the Western District of Washington for breach of contract, alleging that Motorola had breached its commitments to the IEEE and International Telecommunications Union to license patents essential to the 802.11 WiFi standards and the H.264 video compression standards on RAND terms. Motorola filed a countersuit alleging infringement of several of its patents in the Western District of Wisconsin, and also filed a suit in Mannheim, Germany on two of its European patents. While the German court was considering whether Microsoft had infringed the patents and whether to issue an injunction, Microsoft filed a motion with the Western District of Washington for a temporary restraining order preventing Motorola from enforcing any injunction that might issue from the German court. Judge Robarth granted the restraining order, later converted it into a preliminary injunction, and was affirmed on appeal by the Ninth Circuit.
the particular portion of the standard in question was optional or (2) that the product did not practice the standard in the way described in the standard. Id. 550 See eBay v. MercExchange, 547 US 388 (2006). -100-
DC:723366.1 a. Anti-Suit Injunction: The District Court Enjoins Enforcement of a German Injunction
In making its ruling, the Judge Robarth noted that the law on how to determine when the Court could preclude a party from enforcing a foreign injunction—i.e., grant an anti-suit injunction—was less than clear.551 Therefore, to be complete, Judge Robarth, in his ruling from the bench analyzed both the traditional factors for obtaining a preliminary injunction under the Ninth Circuit’s Winters case, as well as factors reflected in some of the leading anti-suit injunction cases: Applied Medical, Gallo, and In re Unterweiser.552
Addressing the traditional preliminary injunction factors “out of caution [more] than anything else,”553 the Court concluded that Microsoft would be irreparably harmed by an injunction in Germany because Microsoft’s “contracts with its vendors for Windows and Xbox will be severely affected by an injunction issued by the German court.”554 According to the Court, Microsoft would suffer irreparable harm because “it would place Microsoft at the position of a negotiation in Germany with the threat of an immediate injunction hanging over its head.”555
With respect to balancing the hardships between the parties, the Court found that Microsoft would clearly suffer more harm than Motorola if Motorola could not enforce a German injunction:
[I]f I do nothing, Microsoft may need to begin removing Windows and Internet Explorer products from the market, or face the negotiation under threat, which I mentioned earlier; while Motorola will simply be required to keep the status quo, if I grant the temporary restraining order, until this court can adjudicate the RAND issues before it.556
The Court honed in on two facts when evaluating the public interest. First, the Court believed that “having disputes properly before an American court resolved in the United States as opposed to a foreign court is a legitimate matter of public interest.” 7:9-12. Second, the Court
551 See Microsoft Corp. v. Motorola Inc., No. 10-01823-JLR, Hearing Tr. (W.D. Wash. Apr. 11, 2012) (hereafter “Hearing Tr.”). 552 Applied Med. Distrib. Corp. v. Surgical Co., 587 F.3d 909 (9th Cir. 2009); E & J. Gallo Winery v. Andina Licores S.A., 446 F.3d 984 (9th Cir. 2006); In re Unterweser Reederei GmbH, 438 F.2d 888 (5th Cir. 1970). 553 Hearing Tr. at 7:17-18. 554 Id. at 5:24-6:3. 555 Id. at 6:8-10. 556 Id. at 6:23-7:7. -101-
DC:723366.1 held that “the public interest is in having standards essential patents being accessible to all comers under fair and just considerations.”
Turning to the anti-suit injunction considerations, the Court stated that the parties were really in agreement over whether the same parties were involved in the United States and German actions.557 Then the Court addressed what it called the real “battleground in this,” which was whether the United States action could resolve the German one.558 Although noting that the law applied a “bright letter” rule: “[A]nti-suit injunctions are only appropriate when the domestic action is capable of disposing of all of the issues in the foreign action,”559 the Court concluded that the cases only obeyed this rule in theory—not in practice.560
The Court sided with Microsoft on this issue. Specifically, the Court noted that Motorola had declared that it would license its patents to the International Telecommunications Union’s H.264 video compression standard on RAND terms. Moreover, when Motorola approached Microsoft demanding that Microsoft take a license, Motorola offered to license not only United States patents, but foreign ones too.561 Because the Court viewed its role in the dispute as including an obligation to determine “the worldwide RAND . . . . the RAND rate for Motorola’s standard essential patents subject to the ITU agreement,” it concluded that the Court’s ruling would have direct impact on the German proceeding.562 If the German court were to issue an injunction, “it would sharply usurp the ability of this court to determine whether or not an injunction is appropriate,” and “where this court to determine that an injunction for any standard essential patent was improper, it would dispose of the issue in the German action with respect to the issuance of an injunction . . . .”563
Turning to the second anti-injunction suit factor, Judge Robarth had to address whether “the foreign litigation would frustrate a policy of the forum issuing the injunction”—i.e., whether an injunction in Germany would frustrate the proceedings in the Western District of Washington.564 As foreshadowed by the earlier discussion, the Court found that it would. The Court concluded that a German injunction would be inconsistent with a ruling that an injunction
557 Id. at 7:25-8:3. 558 Id. at 8:4-7. 559 Id. 8:14-18. 560 Id. at 8:18-23. 561 Id. at 9:4-25. The Court said that “[i]f Motorola did not want its foreign patents subject to this court’s jurisdiction, then it would not have provided them as part of the offer letter to Microsoft.” Id. at 10:25. 562 Id. at 10:1-17. 563 Id. at 11:11-18. 564 Id. at 12:3-9. -102-
DC:723366.1 is impermissible for standards essential patents, and suggested that Motorola engaged in forum shopping in an attempt to race to an injunction in Germany.565
Examining the final prong of the anti-suit injunction test, the Court evaluated “whether the impact on comity would be tolerable.”566 The Court concluded that an injunction would be tolerable because the parties had chosen to litigate in Washington state on a “more inclusive basis” than the proceeding in Germany and that the German interests were “substantially more limited.”567 Thus, the Court enjoined Motorola from enforcing any injunction that it might receive in Germany for a limited time period.568
b. The Ninth Circuit Affirms the District Court’s Anti-Suit Injunction
Motorola sought interlocutory appeal from the Ninth Circuit.569 After a detailed recounting of the procedural background that gave rise to the dispute, the Ninth Circuit examined the district court’s anti-suit injunction under an abuse of discretion, examining factual findings for clear error, and legal interpretation de novo and concluded that the district court’s injunction should be affirmed.570
Specifically, the Ninth Circuit held that there were three key inquiries in determining whether to grant an anti-suit injunction. First, it needed to determine whether the parties and issues in the two actions is the same.571 Second, it needed to look to the Unterweser factors to
565 Id. at 12:13-25. 566 Id. at 13:1-7. 567 Id. at 13:1-14:3. 568 Judge Robarth later converted the temporary restraining order into a preliminary injunction until he had the opportunity to determine whether Motorola could seek injunctive relief. See Microsoft Corp. v. Motorola Inc., et al., No. 10-01823-JLR Dkt. 318 (W.D. Wash. May 14, 2012). 569 The Ninth Circuit indicated that it—not the Ninth Circuit—had jurisdiction over the appeal because Microsoft’s complaint sounded in contract—not patent. Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 881 (9th Cir. 2012). Thus, under Holmes Group, Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826 (2002), the appeal was appropriately before the Ninth Circuit. Notably, the Ninth Circuit did not disclose the amendments to 28 U.S.C. § 1295(a)(1), which implement the “Vornado fix” as it has come to be known. See Joe Matal, A Guide to the Legislative History of the America Invents Act: Part II of II, 21 Fed. Cir. B.J. 539, 539 (2012). Presumably, the Vornado-fix was inapplicable because Motorola’s patent infringement counterclaims were not deemed compulsory counterclaims to Microsoft’s claims for breach of contract. See Microsoft, 696 F.3d at 878 (“[T]he district court ruled that Motorola’s patent claims were not compulsory counterclaims to Microsoft’s contract claims.”). 570 Microsoft, 696 F.3d at 881. 571 Id. -103-
DC:723366.1 determine if any of them—not all of them—applied.572 Finally, it needed to determine whether the impact on comity would be “tolerable.”573
With respect to the first factor, the Court noted that the parties did not dispute that both the action in the Western District of Washington and the German action were the same.574 Moreover, in evaluating whether the issues were the same, the Court did not need to look at the sameness of the issues “in a technical or formal sense, but ‘in the sense that all the issues in the foreign action . . . can be resolved in the local action.’”575 The Ninth Circuit held that Microsoft’s contract claims, which centered around whether Motorola had the ability to enjoin Microsoft’s sales in light of its RAND commitments to the ITU, could resolve the question of whether the German injunction should issue.576 The Court reasoned that the preliminary injunction would not usurp the sovereign power of the German courts, because “[w]hen [the alleged contract between Motorola and third parties such as Microsoft] is enforced by a U.S. court, the U.S. court is not enforcing German patent law, but, rather, the private law of the contract between the parties.”577
Speaking to the second factor—whether any Unterweser factors apply—the Ninth Circuit indicated that the district court’s conclusion that Motorola’s German litigation was vexatious could not be disturbed. The Ninth Circuit indicated that the German suit was vexatious, not in that it lacked merit, but rather that it appeared to be an attempt to leverage injunctive relief in an attempt to put Microsoft under pressure to resolve the dispute rather than allowing the district court to weigh in on Motorola’s RAND commitments.578
Finally, the Ninth Circuit held that the impact on comity was “tolerable.” Again, the Ninth Circuit held that the district court did not abuse its discretion in granting the injunction. Specifically, the Ninth Circuit held that the impact on comity was tolerable because (1) the dispute was a private dispute between private parties; (2) there were no public international issues in play; (3) Motorola’s suit appeared to be retaliatory, and was filed only after Microsoft’s; and (4) the anti-suit injunction was tailored to allow the district court the time to complete the trial on the issue of whether Motorola could enjoin Microsoft in light of its
572 Id. at 881-82. 573 Id. at 881. 574 Id. at 883. 575 Id. at 882-83. 576 Id. at 884-85. 577 Id. at 884. 578 Id. at 886 (referring to the perception that Motorola’s actions were to “interference with the court’s ability to decide the contractual questions already properly before it”). -104-
DC:723366.1 commitments to SSOs and rule on the issue (rather than completely preclude enforcement of the injunction).579
c. The District Court Grant’s Microsoft’s Motion to Dismiss Claims for Injunctive Relief
The proceedings before the district court proceeded to a trial in which the district court would determine a RAND rate, and “range” for the patents Motorola contended were essential to the H.264 and 802.11 standards.580 That trail concluded in November 2012, and the parties are awaiting the Court’s decision.
Following the trial, the district court granted Microsoft’s motion to dismiss Motorola’s request for injunctive relief for infringement of the patents Motorola was asserting against Microsoft.581 The Court granted that motion, finding that “Motorola cannot show irreparable harm or that monetary damages would be inadequate” compensation for infringement.582
With respect to the irreparable harm prong, the Court concluded that because “it is now clear that at some point in the future (either by agreement of the parties or by court adjudication a license agreement for the Motorola Asserted Patents will become a reality,” and “Microsoft will pay royalties under any license agreement from the time of infringement within the statute of limitations, this license agreement will constitute Motorola’s remedy for Microsoft’s use of” the patented technology.583 In light of these facts and the procedural posture of the case, the Court concluded that Motorola could not show irreparable harm.
Turning next to the adequate remedy at law prong, the Court also concluded Motorola could not show that this predicate to injunctive relief was satisfied. In light of Motorola’s commitment to license patents on RAND terms, the Court concluded that the true question in the litigation was “not if, but when and under what terms, a license agreement would be established between Microsoft and Motorola.”584 Since the Court concluded that Motorola was obligated to license Microsoft, royalties under such a license constitute an adequate remedy at law.585
579 Id. at 888. 580 See, e.g., Microsoft Corp. v. Motorola, Inc., No. C10-1823JLR, 2012 WL 5993202, *4-5 (W.D. Wash. Nov. 30, 2012). 581 Id. at *5. 582 Id. 583 Id. at *6. 584 Id. at *7. 585 Id. -105-
DC:723366.1 Turning its attention back to the anti-suit injunction, the Court explained that it would extend the preliminary injunction obtained with respect to the German litigation to encompass all of Motorola’s H.264 essential patents, worldwide. The Court explained:
With respect to duration, the court stated that it would remove the anti-suit injunction after adjudicating the propriety of injunctive relief. . . . That time has now arrived. The court's decision dismissing Motorola's request for injunctive relief for the Motorola Asserted Patents logically extends to all of Motorola's H.264 standard essential patents. This is so because the RAND litigation in this matter involves not only the Motorola Asserted Patents, but all of Motorola's H.264 standard essential patents on a worldwide basis. Indeed, the basis for the court's dismissal of injunctive relief for the Motorola Asserted Patents is in no way specific to those patents, but instead is the very fact that litigation in this matter has progressed to the point that it is now clear that a license agreement will result for all of Motorola's H.264 standard essential patents.586
Thus, the Western District of Washington case has, at least for now, eliminated Motorola’s chances of obtaining injunctive relief against Microsoft for infringement of its essential patents.
2. United States Department of Justice and United States Patent and Trademark Office’s Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments
On January 8, 2013, the DOJ and USPTO jointly issued a policy statement taking a position on the availability of injunctive relief when standards essential patents are infringed.587 In this statement, the DOJ and USPTO endorse an approach to injunctive relief that falls short of establishing a bright-line prohibition on injunctions and exclusion orders for infringement of standards-essential patents. Specifically, the policy statement suggests that injunctive relief and ITC exclusion orders may be appropriate in limited circumstances, such as where the accused infringer refuses to pay a reasonable rate for the patented technology, or in instances in which the accused infringer is beyond the jurisdiction of the Article III courts.588
586 Id. 587 See United States Dep’t of Justice & United States Patent & Trademark Off., Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (Jan. 8, 2013) available at http://www.justice.gov/atr/public/guidelines/290994.pdf (last visited Jan. 26, 2013) (hereafter “Policy Statement on Standards Essential Patents”). 588 See Policy Statement on Standards Essential Patents at 7. -106-
DC:723366.1 The agencies explain that the patentee’s choice to encumber a patent property with a RAND commitment “may . . . affect the appropriate choice of remedy for infringement of” such a patent:
In some circumstances, the remedy of an injunction or exclusion order may be inconsistent with the public interest. This concern is particular acute in cases where an exclusion order based on a F/RAND-encumbered patent appears to be incompatible with the terms of a patent holder’s existing F/RAND licensing commitment to an SDO. A decision maker could conclude that the holder of a F/RAND-encumbered, standards-essential patent had attempted to use an exclusion order to pressure an implementer of a standard to accept more onerous licensing terms than the patent holder would be entitled to receive consistent with its F/RAND commitment—in essence concluding that the patent holder had sought to reclaim some of its enhanced market power over firms that relied on the assurance that F/RAND-encumbered patents included in the standard would be available on reasonable licensing terms under the SDO’s policy. Such an order may harm competition and consumers by degrading on of the tools SDOs employ to mitigate the threat of such opportunistic actions by the holders of F/RAND- encumbered patents that are essential to their standards.589
In arriving at their conclusion, the DOJ and USPTO acknowledged that a patentee’s voluntary commitment to license on RAND terms “may be implicitly acknowledging that money damages, rather than injunctive or exclusionary relief, is the appropriate remedy for infringement in certain circumstances.”590
3. The Federal Trade Commission’s Position
The Federal Trade Commission has been very active in the field of standards essential patents and whether injunctive relief should be available to a patentee that establishes infringement of a standards essential patent. This section summarizes some of the key submissions, comments, and actions by the FTC.591 At bottom, the FTC’s stance appears to be more aggressive than the position taken by the Department of Justice and the Patent Office, and would make injunctive relief for infringement of standards essential patents in only a very narrow set of circumstances.
589 Id. at 6. 590 Id. at 5 n.11. 591 The FTC has also recently reached an agreement with Motorola Mobility LLC and Google Inc., and has entered a consent order. That order is attached as Exh. D to these materials, but is not discussed here. -107-
DC:723366.1 a. Amicus Brief at the Federal Circuit in the Apple Inc. v. Motorola Inc. Appeal
This appeal is from Judge Posner’s disposition of Apple and Motorola’s litigation that was pending in the United States District Court for the Northern District of Illinois.592 After excluding both parties’ damages experts, Judge Posner turned to the question of whether Motorola could obtain injunctive relief for Apple’s infringement of Motorola’s standards- essential ’898 patent. Judge Posner concluded Motorola’s RAND licensing commitments were inconsistent with an award of injunctive relief. After reaching this conclusion, Judge Posner determined that the court was unable to award any relief, and that the case must be dismissed.
On appeal, the FTC submitted an amicus brief addressing only the question of whether Motorola could obtain injunctive relief for infringement of the essential ’898 patent. The FTC urged the Federal Circuit to adopt the view that injunctive relief should be very rare when standards essential patents were concerned:
Commissioner Rosch concurs in the submission of this brief. He is of the view that issuance of injunctive relief is inappropriate where the patent holder has made a FRAND commitment for a standard essential patent, even if the patentee contends that it has met its FRAND obligation. In his view, a FRAND pledge appears to be, by its very nature, a commitment to license; if so, seeking injunctive relief would be inconsistent with that commitment. Commissioner Rosch thus submits that if a court concludes that a party, or its predecessor in interest, made a FRAND commitment with respect to a [standard essential patent], an injunction should be denied for that patent. In his view, the only exception to this is when the licensee refuses to comply with the decision of a federal court or some other neutral arbitrator defining the FRAND terms.593
The FTC contended in its brief that hold-up was a genuine problem; that once the public became locked into complying with a particular standard, the patentee was no longer obligated to obtain royalty payments not just on the value of the patented invention, but also on “the costs and
592 See Apple Inc. v. Motorola, Inc., No. 11-CV-8540 (N.D. Ill). Judge Posner presided over this case by designation. 593 Apple Inc. v. Motorola, Inc., Nos. 2012-1548, 2012-1549, Br. of Amicus Curiae Federal Trade Comm’n Supporting Neither Party at 2 n.3 (Fed. Cir.). See also id. at 11 (“A fortiori, a commitment to offer a license to all comers on FRAND terms should be sufficient to establish that a reasonable royalty is adequate to compensate the patentee for infringement by any particular implementer willing and able to abide by those terms.”). -108-
DC:723366.1 delays of switching away from the standardized technology.”594 The FTC expressed concern that injunctive relief in such cases breaks “the connection between the value of an invention and its reward—a connection that is the cornerstone of the patent system.”595 “[A] royalty negotiation that occurs under the threat of an injunction may be heavily weighted in favor of the patentee in a way that is in tension with the RAND commitment High switching costs combined with the threat of an injunction could allow the patentee to obtain unreasonable licensing terms despite its RAND commitment because implementers are locked into practicing the standard.”596 This, according to the FTC, “may allow the holder of a RAND-encumbered SEP to realize royalty rates that reflect the investments firms make to implement the standard, rather than the competitive value of the patented technology, which could raise prices to consumers while undermining the standard-setting process.”597
Finally, the FTC indicated that granting injunctive relief for infringement of a standards essential patent was contrary to the public interest in promoting innovation. The FTC stated that injunctive relief may extract higher royalties for the party that obtained the injunctive relief, and sap royalties from other companies that also contributed technology to the standard.598 “Injunctive relief should not be permitted to allow the owner of a standard-essential patent subject to a RAND obligation to appropriate for itself the value created by numerous other innovators that build on or contribute to the standard at issue.”599 Thus, the FTC proposed a hard-line stance against injunctive relief that would be used as a bargaining tool to allow the patentee to obtain higher royalties for infringement than might be obtained without the threat of injunctive relief.
b. Third Party Submission: In the Matter of Certain Wireless Communications Devices, Portable Music and Data Processing Devices, Computers and Components Thereof, Inv. No. 337-TA- 745
The FTC made statements similar to those made in the Apple v. Motorola appeal to the ITC in June 2012, indicating that it did not believe that an exclusion order was appropriate when
594 Id. at 5. 595 Id. 596 Id. at 6. 597 Id. at 6. 598 Id. at 12-13. 599 Id. at 13. -109-
DC:723366.1 infringement of a standard essential patent was demonstrated.600 The FTC made several interesting proposals to the ITC related to the issuance of an exclusion order when standards essential patents are the basis for the finding of a violation of section 337.
Specifically, the FTC proposed that the “ITC could find that Section 337’s public interest factors support a denial of an exclusion order unless the holder of a RAND-encumbered SEP has made a reasonable royalty offer.”601 The FTC recognized that this may leave an aggrieved patentee without a remedy at the ITC.602 “Alternatively, the ITC could delay the effective date of its Section 337 remedies until the parties mediate in good faith for damages for past infringement and/or an ongoing royalty for future licensed use, with the parties facing the respective risks that the exclusion order will (i) eventually go into effect if the implementer refuses a reasonable offer or (ii) be vacated if the ITC finds that the patentee has refused to accept a reasonable offer.”603
600 See In the Matter of Certain Wireless Communication Devices, Portable Music and Data Processing Devices, Computers and Components Thereof, Inv. No. 337-TA-745, Third Party United States Federal Trade Commission’s Statement on the Public Interest (Jun. 6, 2012). 601 Id. at 4. 602 Id. 603 Id. -110-
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