Federal Circuit Clarifies How Venue Under TC Heartland Will Be Applied

Maier & Maier

In In re Cray Inc., No. 2017-129 (Fed. Cir. Sept. 21, 2017) the Federal Circuit issued a decision clarifying the Supreme Court’s ruling in TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017). This Supreme Court case had rejected long-standing patent venue precedent, clarifying that, for the purposes of the patent venue statute, a domestic corporation “resides” only in its state of incorporation. As such, a patent plaintiff is restricted to suing a domestic corporate defendant in its state of incorporation, or in a judicial district where the defendant allegedly has committed acts of infringement and has a “regular and established place of business”.

In the district court decision below, Raytheon Co. v. Cray, Inc., No. 2:15-cv-01554-JRG, 2017 WL 2813896 (E.D. Tex. June 29, 2017), Judge Gilstrap of the Eastern District of Texas had outlined a four-factor test for whether the defendant had a “regular and established place of business” in a district, requiring consideration of the following four factors:

(1) The extent to which a defendant has a physical presence in the district, including but not limited to property, inventory, infrastructure, or people.

(2) The extent to which a defendant represents, internally or externally, that it has a presence in the district.

(3) The extent to which a defendant derives benefits from its presence in the district, including but not limited to sales revenue.

(4) The extent to which a defendant interacts in a targeted way with existing or potential customers, consumers, users, or entities within a district, including but not limited to through localized customer support, ongoing contractual relationships, or targeted marketing efforts.

Applying this test, Judge Gilstrap found that venue was proper over the defendant, Cray, in the Eastern District, based on the fact that two sales employees of Cray worked from their homes within the district.

The Federal Circuit somewhat unsurprisingly overturned this determination, holding that venue was improper and the four-factor test was “not sufficiently tethered to [the] statutory language” and thus “fail[ed] to inform each of the necessary requirements of the statute.” Instead, the Federal Circuit set forth its own venue factors under TC Heartland, requiring that each element of a three-prong test be met before venue would be proper. Specifically:

“(1) there must be a physical place in the district;” (that is, there must be some physical, geographical location within the district in which the business of the defendant is carried out)

“(2) it must be a regular and established place of business;” (that is, business must be conducted in more than a sporadic fashion) and

“(3) it must be the place of the defendant” (that is, the defendant corporation rather than a mere employee of the defendant must operate or exercise control over that location).

Applying this test, the Federal Circuit found that the factors were not met, and an employee working from home on their own does not sufficiently “establish or ratify” the place of business as being a place of business of the defendant corporation.

Tribal Sovereign Immunity: Defense Against Inter Partes Review

Maier & Maier

On September 8, 2017, Allergan PLC (“Allergan”), a global pharmaceutical company, publicly announced the assignment of all Orange Book-listed patents for its dry-eye drug RESTASIS® to the Saint Regis Mohawk Tribe (“Tribe”) in upstate New York. In a unified statement about the transaction, the Tribe Council stated, “This is a viable and sound opportunity for the Saint Regis Mohawk Tribe to enter into the patent, technology and research sector as part of our overall economic diversification strategy.” Under the terms of the agreement, Allergan retains an exclusive license in the patents related to the product, while the Tribe receives an initial payment of $13.75 million and up to $15 million in annual royalties for the life of the patents. The patents are set to expire on August 27, 2024.

Allergan’s Chief Legal Officer, Bob Bailey, stated, “The Saint Regis Mohawk Tribe and its counsel approached Allergan with a sophisticated opportunity to strengthen the defense of our RESTASIS® intellectual property…” With the unorthodox transfer of ownership, Allergan aims to shield the RESTASIS patents from invalidity challenges at the Patent Trial and Appeals Board (“PTAB”) by asserting the Tribe’s sovereign immunity. In fact, on September 22, 2017, the Tribe did just that – filing a Motion to Dismiss the IPR proceedings for lack of jurisdiction based on tribal sovereign immunity.

Inter Partes review (“IPR”) is an adjudicatory proceeding conducted by the Patent Trial and Appeals Board (“PTAB”) in which a petitioner can challenge the validity of any issued patent.[1] The proceeding became an available vehicle for post-grant opposition of patents one year after the enactment of the Leahy-Smith America Invents Act in 2011. An IPR proceeding is initiated by the filing of a petition requesting to cancel as unpatentable one or more claims of the patent in dispute.[2] While there is no time limit for requesting an IPR during the life of a patent, certain limitations may bar a party from utilizing the process. For instance, under 35 USC §315 (b), a party cannot file a petition more than one year after the date on which “the petitioner is served with a complaint alleging infringement of the patent.”[3] Furthermore, a party is barred from filing a petition if “before the date on which the petition for such a review is filed, the petitioner or real party in interest filed a civil action challenging the validity of a claim of the patent.”[4] Congress implemented both of these statutory bars to avoid the redundant and costly expenses of parallel USPTO and district court proceedings.[5]

On June 3, 2016, Mylan Pharmaceuticals Inc. petitioned for an IPR of U.S. Patent 8,685,930, then owned by Allergan, Inc., covering RESTASIS. The PTAB rendered a Decision to institute IPR on December 8, 2016. Mylan was later joined by Teva Pharmaceuticals USA, Inc. and Akorn Inc. (additional competitor generic drug manufacturers) in the IPR proceeding.

On September 8, 2017, Allergan filed a Patent Owner’s Updated Mandatory Notices to inform the PTAB that the Saint Regis Mohawk Tribe (“Tribe”) had become a real party-in-interest based on an Assignment. In the Patent Owner’s Updated Mandatory Notices, the Tribe made a special appearance to request the PTAB to stay all proceedings in the IPR pending resolution of the Tribe’s motion to dismiss the IPR based on sovereign immunity.

As a federally recognized, sovereign Indian Tribe, the Tribe asserts inherent sovereign immunity.[6]  Sovereign immunity is codified in the Eleventh Amendment to the U.S. Constitution, providing “Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.” The broad doctrine prohibits actions against foreign states in federal courts and administrative tribunals. Legal precedent also favors a successful defense.[7]

On September 19, 2017, the PTAB rendered an Order concluding that “briefing on the issue of Tribe’s alleged tribal sovereign immunity from these proceedings is warranted.” The Order authorized the Tribe to file a motion to terminate the IPR on the basis of sovereign immunity and the petitioners to file an opposition to the motion.

[1] See 35 U.S.C. §311.

[2] Id. Patentability of claims may only be contested on grounds under 35 U.S.C. §102 or §103, and only on the basis of prior art consisting of patents or printed publications. Id. Additionally, a petition may only be filed after the later of either nine months after the grant of the patent or the termination of a post-grant review proceeding. Id.

[3] 35 USC §315 (b)

[4] 35 USC 315(a)(1). Notice, however, that this provision does not bar a petitioner from filing both an IPR and a declaratory judgment action in federal court on the same day.

[5] See Rules of Practice for Trials Before the Patent Trial and Appeal Board, 77 Fed. Reg. 48,663 (Aug. 14, 2012).

[6] See Motion to Dismiss

[7] See Covidien LP v. University of Florida Research Foundation Incorporated; Neochord, Inc. v. University of Maryland Baltimore; Reactive Surfaces Ltd., LLP v. Toyota Motor Corporation

Federal Agencies Have Standing to File CBM

Maier & Maier

In Return Mail, Inc. v. USPS, 16-1502, the Federal Circuit ruled that the United States Postal Service had standing to challenge Return Mail’s patent claims in a Covered Business Method proceeding (CBM), despite not being sued for patent infringement under the Patent Act.  Under 37 CFR 42.302, a petitioner may not file to institute covered business method review, unless the petitioner, real party in interest, or a privy of the petitioner has been sued for infringement of the patent or has been charged with infringement under the patent.  Being “charged with infringement” is defined as a real and substantial controversy regarding infringement, such that the petitioner would have standing to bring a declaratory judgment action.
Return Mail sued the USPS under 28 U.S.C. § 1498(a), a provision providing a cause of action against the federal government when a patented invention is used or manufactured by or for the United States without a license or right do so.  The Federal Circuit ruled that the claim under 28 U.S.C. § 1498(a) qualified as a suit for infringement for purposes of standing.  The opinion noted that infringement is a prerequisite to § 1498(a) liability.
The CBM raised other concerns regarding estoppel, since the current CBM estoppel provision only applies to petitioners litigating in district court or the ITC, not the United States Court of Federal Claims, where a claim under § 1498(a) is litigated.  However, the Federal Circuit indicated that this concern should be addressed by Congress, not the courts.
On review, the Patent Trial and Appeal Board found Return Mail’s claims covering methods of processing undeliverable mail items to be patent-ineligible.

Iancu Nominated for USPTO Director

Maier & Maier

It was announced on Friday, August 25, 2017, that Andrei Iancu has been nominated for Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office (USPTO).   Iancu will replace Joseph Matal, who has been serving as interim Director since Michelle Lee’s resignation in June.

Andrei Iancu comes from a successful career in private practice, where he currently serves as managing partner of Irell & Manella LLP.  Iancu is also currently an adjunct professor at UCLA School of Law. He has handled all aspects of intellectual property, including prosecution and litigation.  His primary focus has been intellectual property litigation, where he has extensive experience representing both patent owners and alleged infringers in Federal Courts and in post-grant proceedings at the USPTO.  In addition to his representative matters, Iancu has been recognized for his publications, including several on the patent eligibility of software.

Some members of the IP community are touting his experience representing patent owners against large technology companies as reflecting a pro-patent ideology.  Some of his more notable casework includes the successful representation of TiVO Corporation enforcing patent rights against tech giants including AT&T, Motorola, Microsoft, Cisco, and EchoStar.  The cases led to over $1.5 billion in payments to TiVo.  Iancu has also successfully represented defendants of patent infringement claims, such as Ariosa Diagnostics, Inc. in Ariosa Diagnostics, Inc. v. Sequenom, Inc, resulting in cancellation of Sequenom’s patent as an ineligible natural phenomenon under 35 U.S.C. 101.

The nomination of Andrei Iancu, ends a long period of speculation over the new Administration’s plans for the USPTO, which were amplified by Michelle Lee’s resignation as Director in June.  However, the confirmation process is likely to endure for several months to come.

USTR Makes IP a Focus of NAFTA Renegotiation

Maier & Maier

Earlier this month, the US Trade Representative (USTR), Robert Lighthizer, released a detailed and comprehensive summary of the negotiating objectives for the US’s forthcoming renegotiation of the North American Free Trade Agreement (NAFTA). The text of these objectives are available in a press release here.

In particular, the USTR seeks to add a substantive section on intellectual property, aimed at “ensur[ing] provisions governing intellectual property rights reflect a standard of protection similar to that found in U.S. law.” Listed objectives include securing greater compliance with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), particularly with respect to meeting enforcement obligations under TRIPS; eliminating government involvement in the violation of intellectual property rights, such as through cybertheft and piracy; and “prevent[ing] the undermining of market access for U.S. products through the improper use of a country’s system for protecting or recognizing geographical indications, including failing to ensure transparency and procedural fairness and protecting generic terms.” The last objective appears to be aimed at the increasing levels of protection that have been offered by some countries to products with geographical indications, such as champagne or Parmesan cheese.

Federal Circuit Rules Trial Court Abused Discretion by Not Awarding Attorney Fees

Maier & Maier

In AdjustaCam v. Newegg, No. 2016-1882 (Fed. Cir. July 5, 2017), the Federal Circuit reversed the denial of attorney fees based on the Octane Fitness standard, determining that the trial court had abused its discretion by not awarding fees.

AdjustaCam (a subsidiary of NPE Acacia Research) had sued Newegg for infringement of U.S. Patent No. 5,855,343 (“the ’343 patent”), which issued in 1999 and is entitled “Camera Clip.” The Markman hearing interpreting the claims in this case had interpreted a limitation of the claims, “rotatably attached,” to mean that each of the camera and support frame would have to rotate around a single axis. Newegg’s allegedly infringing product made use of a ball-and-socket joint, and as such the interpretation necessarily excluded Newegg’s product. AdjustaCam continued to pursue the case.

Newegg moved to dismiss the case with prejudice on the grounds that AdjustaCam’s infringement allegations were objectively baseless, and also demanded attorney’s fees. The court denied the motion and Newegg appealed. While the appeal was pending, the Supreme Court decided Octane Fitness, which clarified the standard for obtaining fees. The Federal Circuit remanded the case in order for the trial court to determine whether it was an “exceptional case” under the new standard.

The trial court reassigned the case to a new judge, who determined that the case was not “exceptional.” The Federal Circuit reversed this, finding that the District Court abused its discretion by failing to evaluate whether the case was exceptional based on the totality of the circumstances. Specifically, the Federal Circuit found that the evidence submitted by AdjustaCam showed that its lawsuit was baseless, that AdjustaCam failed to advance any arguments as to why Newegg’s products could be considered to infringe the claims as interpreted by the Markman order, and that AdjustaCam litigated the case in an “unreasonable manner.” Specifically, AdjustaCam had made “repeated use of after-the-fact declarations,” served a new expert report on Newegg the day of that expert’s deposition, filed a supplemental declaration without disclosing it as new on appeal, and had a pattern of filing cases against multiple defendants in order to settle for less than the cost of litigation.

Bipartisan Group of Senators Introduce “STRONGER Patents Act of 2017”

Maier & Maier

In late June, three Democratic senators (Chris Coons (D-DE), Dick Durbin (D-IL), and Mazie Hirono (D-HI)) and one Republican senator (Tom Cotton (R-AR)) introduced the “STRONGER Patents Act of 2017.” This bill appears to have been motivated by a recent report from the U.S. Chamber of Commerce that had been heavily critical of the U.S. patent system, ranking it tenth in the world, down from a rank of first in their previous report. The legislators have claimed, in a one-pager released by Senator Coons’s office, that the bill would “enact balanced reforms to restore the U.S. patent system to the world’s gold standard.”

The bill includes a number of significant revisions to the inter partes review (IPR) and post-grant review (PGR) procedures set forth by the America Invents Act, as well as several attempts to legislatively overturn Supreme Court decisions. Four of the most significant are as follows:

  • First, the bill would significantly narrow the scope of who can institute an IPR or PGR and introduce greater estoppel rules. The proposed legislation states that “the Director shall not authorize an inter partes review to be instituted on a claim challenged in a petition if the Director has previously instituted an inter partes review or post-grant review with respect to that claim.’’ IPRs and PGRs would also only be able to be petitioned for by entities that have been sued for infringement or that have been threatened with such a suit. This would bring post-grant actions into greater conformity with the rules for filing a declaratory judgment in federal district court.

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Supreme Court Clarifies Biosimilar Legislation in Sandoz

Maier & Maier

On June 12, the Supreme Court also handed down another patent-related opinion in Amgen Inc. v. Sandoz Inc., a case dealing with the Biologics Price Competition and Innovation Act, a small 17-page subchapter contained within the Affordable Care Act (“Obamacare”). This subchapter deals with generic “biologics,” very-large-molecule drugs typically synthesized from biological sources such as recombinant DNA technology. The biologic at issue in this case is filgrastim, a G-CSF glycoprotein.

Typically, when patent protection on a drug expires, the producer of a generic drug can enter the market with an exact copy of the formerly-patented drug, which greatly simplifies the process of FDA approval. However, in the case of biologics, the generic drugs are not always exact copies, and may instead be “biosimilars” that are slight variations on the original drug, and which originally required separate FDA approval. The law at issue here (the BPCIA) was intended to streamline the FDA approval process for biosimilars.

This case dealt with certain regulatory requirements set forth in the BPCIA for new biosimilars. Subsection (l) of the law establishes a process by which an applicant for a biosimilar license can exchange information with the company that originally obtained FDA approval for the drug. One of the first requirements of this process is that the new applicant “shall provide” to the original company “a copy of the application submitted [to the agency],” so that the original company can evaluate the biosimilar for possible infringement of any of its unexpired patents.

In the present case, the new applicant, Sandoz, did not provide a copy of the application it had filed to the original company or “sponsor,” Amgen. This created a question of whether the sponsor was entitled to obtain a copy of the application filed by the applicant.

The Supreme Court, like the Federal Circuit before it, determined that Amgen was not entitled to a federal injunction to force Sandoz to turn over the application (though the two courts used different reasoning). The BPCIA establishes that the filing of a biosimilar application allows the sponsor to immediately bring an action for “a declaration of infringement, validity, or enforceability of any patent that claims the biological product or a use of the biological product.” On this basis, other injunctive relief is foreclosed, and Amgen would need to sue Sandoz for patent infringement and seek discovery on the application in order to obtain it.

A separate requirement of the BPCIA requires the applicant to provide notice to the sponsor that it is going to market a generic biosimilar, no later than 180 days before it plans to do so. In this case, Sandoz had provided notice before the FDA approved the biosimilar, so that it would be able to market the biosimilar immediately after approval. This created a question of whether Sandoz needed to wait until after the biosimilar had actually been approved before providing this notice.

The Supreme Court determined that there was no requirement for Sandoz to wait for the FDA to approve the biosimilar, and that the statute only set forth a single timing requirement (i.e. marketing can be made 180 days after notice) and not two timing requirements (i.e. marketing can be made 180 days after notice and after FDA approval). The Federal Circuit had come to the opposite conclusion.

The main effect of this case is to accelerate the marketing of biosimilars. Generic drug manufacturers may be able to market biosimilars immediately, or very soon after, FDA approval (provided FDA approval takes more than 180 days) rather than needing to wait an extra half-year to market the drug. This can often bring in hundreds of millions of dollars in extra revenue for the generic manufacturer.

The different reasoning used by the Supreme Court as to the question of injunctive relief also means that sponsoring drug companies may be able to seek injunctive relief in state court. While the Federal Circuit had ruled that the Patent Act, 35 U.S.C. § 271(e)(4), prevented Amgen from obtaining an injunction, the Supreme Court instead ruled that a section of the BPCIA did so, and determined that this did not cut off state law remedies.

 

Supreme Court to Review Constitutionality of Post-Grant Proceedings in Oil States

Maier & Maier

On June 12, the Supreme Court granted certiorari in Oil States vs. Greene’s Energy Group, et al., a case dealing with the constitutionality of the post-grant challenge procedures established by the America Invents Act (AIA). The Federal Circuit, below, had upheld the constitutionality of these procedures.

The petition for writ of certiorari submitted by Oil States presented three questions:

  1. Whether inter partes review – an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents – violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.
  2. Whether the amendment process implemented by the PTO in inter partes review conflicts with Court’s decision in Cuozzo Speed Technologies, LLC v. Lee, 136 S.Ct. 2131 (2016), and congressional direction.
  3. Whether the “broadest reasonable interpretation” of patent claims – upheld in Cuozzo for use in inter partes review – requires the application of traditional claim construction principles, including disclaimer by disparagement of prior art and reading claims in light of the patent’s specification.

The Supreme Court granted certiorari only as to the first question.

The petitioner, Oil States, has based much of their argument on an 1898 decision from the Supreme Court, McCormick Harvesting Mach. Co. v. Aultman & Co., 169 U.S. 606 (1898). This decision held that “the Patent Office had no power to revoke, cancel, or annul” an issued patent, because once the patent has issued, “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.” Oil States charges that the USPTO has acted contrary to McCormick and has unconstitutionally revoked patents through the post-grant challenges made available under the AIA, such as inter partes review.

It is unclear how the Supreme Court will rule on this case. Several commentators have noted that the Supreme Court has, in the recent past, typically granted certiorari to Federal Circuit patent cases in order to overrule them; as the Federal Circuit upheld the constitutionality of these procedures, the Supreme Court may intend to strike them down. It is also noted that a majority of the Justices of the Supreme Court have adopted “private property” interpretations of patents in other cases, and as such they may find McCormick to be persuasive.

However, the constitutionality of post-grant procedures has been challenged in a number of cases, and the Supreme Court may have wished to take this case just to settle the issue. It is also noted that the facts of McCormick could be limited to the narrow facts of the case. When McCormick was decided, the USPTO did not have a revocation power expressly granted to them by Congress, and the USPTO now has such a power. The Supreme Court may decide that Congress can grant the USPTO jurisdiction over an issued patent and has properly done so.

Supreme Court Narrows Patent Venue Law in TC Heartland, Likely Limiting Future Suits in the Eastern District of Texas

Maier & Maier

In TC Heartland LLC v. Kraft Foods Group Brands, LLC., 581 U. S. ____ (2017), the Supreme Court substantially narrowed the law of patent venue, preventing a patent owner from filing an infringement suit against a defendant in any district court where the defendant is subject to personal jurisdiction. Instead, patent owners will only be able to bring suit in districts in states where a defendant is incorporated, or in districts where there has been an act of infringement and the defendant has a regular and established place of business.

The ruling required the Supreme Court to reconcile two venue statutes: 28 U.S.C. § 1391, which sets forth the requirements for venue generally, and 28 U.S.C. § 1400(b), which sets forth venue requirements specific to patent infringement. The patent venue statute, 28 U.S.C. § 1400(b), stipulates that “Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” However, the general venue statute, 28 U.S.C. § 1391, allows a patent owner to file suit in any judicial district where the defendant “resides;” under 28 U.S.C. § 1391(c)(2), a corporate defendant is deemed to “reside” in any district in which the corporation would be subject to personal jurisdiction.

Past Supreme Court precedent, Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), had established that §1400(b) is not supplemented by §1391. However, in 1988, Congress amended §1391, to state that  “[f]or purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” The Federal Circuit found, in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990), that this amendment had made §1391 applicable to patent infringement actions. Congress again amended §1391 in 2011, to state that “[e]xcept as otherwise provided by law… this section shall govern the venue of all civil actions brought in district courts of the United States.”

In this case, Kraft sued TC Heartland in the District of Delaware, where TC has no meaningful presence but does have the minimum contacts necessary for personal jurisdiction.  TC moved to dismiss or transfer the case based on improper venue, citing §1400(b). The District Court rejected these arguments based on Federal Circuit precedent and the Federal Circuit denied a writ of mandamus.

The Supreme Court decided, in a unanimous opinion, that Fourco was still good law and that §1400(b) is not supplemented or replaced by §1391. The Supreme Court based this decision on the fact that Congress never indicated that it had intended to overrule Fourco when it amended §1391 to apply to “all venue purposes” in 1988. Further, if Congress had overruled Fourco by amending §1391 to apply to “all venue purposes,” then, by essentially the same reasoning, Congress had reestablished Fourco by clarifying that §1391 applied “except as otherwise provided by law.”

The most significant effect of this case is expected to be a substantial reduction in the number of patent lawsuits filed in the Eastern District of Texas, which is often chosen for patent litigation because it is perceived to be friendlier to patent owners. Approximately 35% of all patent litigations currently pending have been filed in the Eastern District of Texas, and this case is likely to create a flood of motions to dismiss for improper venue or motions to transfer to a new district.

However, the District of Delaware, also a patent-owner-friendly district, is expected to take up the mantle of the Eastern District of Texas as the patent forum of choice. The District of Delaware is already a very popular patent forum (often the second most active for patent litigation), and as many corporations are incorporated in Delaware there are likely to be few questions of improper venue even under §1400(b).