Federal Circuit Opens the Door for IPR Amendments

Maier & Maier

In Aqua Products, Inc. v. Matal, No. 2015-1177 (Fed. Cir. Oct. 4, 2017), an en banc Federal Circuit determined that it was improper for the Patent Trial and Appeal Board (PTAB) to place the burden of establishing the patentability of mid-IPR claim amendments on the patent holder.  Instead, the ruling determined that the burden should be placed on the petitioner to prove any amended claims are unpatentable.
Previous panels of the Federal Circuit had held that, if the patent owner in an inter partes review proceeding (IPR) wanted to amend the claims of the patent, the patent owner was required to show that the amended claims would be patentable over the prior art.
The en banc Federal Circuit in Aqua Products instead held that the AIA’s statutory language in 35 USC §316(e), which places the burden of proving a proposition of unpatentability by a preponderance of the evidence onto the petitioner in an IPR case, would likewise extend to claim amendments. While the en banc court produced five different opinions, a majority of judges held that the statute that establishes the evidentiary standard for IPRs, 35 U.S.C. § 316(e), was ambiguous with regard to whether the burden of persuasion of establishing the unpatentability of substitute claims should be on the petitioner. As such, the court was required to reach step two of Chevron. From this, the court reached two legal conclusions: first, that the PTO has not adopted a rule that is entitled to deference that would place the burden of persuasion on the patent owner, and, second, that in the absence of such a rule entitled to deference, the PTO was not entitled to place that burden on the patent owner.
However, even though this decision is likely to result in many more patents being able to survive the inter partes review process in some form or another, it is unlikely to be a permanent solution. The en banc decision is narrow and makes clear that the Patent Office would have the ability to again place the burden of persuasion for claim amendments back on the patent owner. The Federal Circuit noted that, because a majority of the judges in the en banc proceeding only overturned the PTO’s present amendment practice because they believed that the statute was ambiguous with regard to amendments, if an official interpretation of the statute was made by the Director of the Patent and Trademark office, the court would be required to give deference to it under the Chevron standard. However, to do this, the USPTO would have to first go through proper notice and comment stages for such rule-making.
There are also certain downsides to filing claim amendments for the patent owner. Any amended claim will likely be subject to “intervening rights,” where the change in scope of the claim restricts its applicability to past or present infringement. Because many if not most patents in IPR proceedings will also be involved in concurrent district court litigation, if an IPR can be used to force the patent owner to make an amendment to the asserted claims, the litigation may not be able to continue.

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.

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.

Updates from the Federal Circuit, March 2017

Daniel Ehrlich

Federal Circuit Applies Panduit Factors to Specific Feature

In Mentor Graphics Corp. v. EVE-USA, Inc., No. 15-1470 (Fed. Cir. March 16, 2017), the Federal Circuit determined that the Panduit factors could apply to a patented feature that represented only one part of a multi-component product, as well as to a patented product.
Under the Panduit test, a patentee is entitled to damages based on lost profits if it can establish (1) demand for the patented product, (2) an absence of acceptable non-infringing alternatives, (3) that it has the manufacturing and marketing capability to exploit the demand, and (4) the amount of profit it would have made.
In this case, Mentor Graphics asserted several patents against Synopsis, the parent company of EVE. A jury found that EVE’s “ZeBu” hardware emulator infringed one of Mentor’s patents, U.S. Patent No. 6,240,376 (the ‘376 patent), which covered a method for debugging source code. When arguing damages, Mentor had argued that it was entitled to lost profit damages for lost sales of its “Veloce” hardware emulators due to infringing sales of “ZeBu” emulators, because it would have made additional sales of the “Veloce” emulators if not for the infringing “ZeBu” sales. A jury found that Mentor satisfied all four Panduit factors, despite the fact that the feature was only one aspect of the “ZeBu” hardware emulator, and awarded lost profits.
Synopsis argued that the District Court erred in failing to apportion lost profits based on Mentor’s inventive contribution to the emulator, rather than based on the entire cost of the emulator. However, the Federal Circuit affirmed the decision of the District Court, finding that in the relevant market (suppliers of emulators to Intel, which consisted of Mentor Graphics and Synopsis), for each sale that EVE made, Mentor lost that exact sale. There were no non-infringing alternatives, and Intel would not have purchased the emulators if they lacked the claimed features. Therefore, it was appropriate for the District Court not to apportion the award of lost profits.

Federal Circuit Upholds Inertial Tracking System Claims In Thales Visionix v. United States

In Thales Visionix Inc. v. United States, No. 15-5150 (Fed. Cir. Mar. 8, 2017), the Federal Circuit reversed a decision of the Court of Federal Claims which had found the claims of a patent on an inertial tracking system invalid under 35 U.S.C. §101.
In particular, the patent at issue, U.S. Patent No. 6,474,159 (the ‘159 patent) had claimed an inertial tracking system having a first sensor on an object being tracked, a second sensor on a moving reference frame, and an element that determines the tracked object’s orientation relative to the moving reference frame using the signals of both sensors. Prior art systems had tracked the positions of the object and the moving reference frame relative to the earth and fused the data, which caused some error to build up over time which had to be periodically corrected.
Thales had alleged that the helmet-mounted display of the F-35 Joint Strike Fighter infringed the claims of the ‘159 patent. However, the Court of Federal Claims found that the claims were directed to an abstract idea, in particular the abstract idea of “using laws of nature governing motion to track two objects,” and as such were not patent-eligible under 35 U.S.C. §101.
The Federal Circuit reversed this decision, finding that the claims were nearly indistinguishable from the claims of Diamond v. Diehr in terms of patentability, and were patent-eligible under the Alice standard. In particular, the Federal Circuit characterized the claims as using mathematical equations in conjunction with inertial sensors “in a non-conventional manner to reduce errors in measuring the relative position and orientation of a moving object on a moving reference frame,” just as the claims in Diehr had been directed to using mathematical equations to reduce the likelihood of problems in rubber molding. The Federal Circuit stressed that the mere use of a mathematical equation does not “doom the claims to abstraction.” Since the claims did not seek to cover the general use of the mathematical equations, but merely sought to cover the application of the equations to the unconventional configuration of sensors, the claims were not directed to an abstract idea and were thus patent-eligible.

February 2017 Case Highlights

Maier & Maier

Supreme Court Overrules Life Techs v. Promega

In Life Technologies Corp. v. Promega Corp., No. 14–1538 (February 22, 2017), the Supreme Court overruled the Federal Circuit’s finding of induced infringement. Writing for a majority of the court, Justice Sotomayor determined that supplying a single component of a multi-component invention from the United States cannot be an infringing act under 35 U.S.C. §271(f)(1).

Promega’s patent had claimed a process for examining polymorphism in DNA samples. A subsidiary of Life Techs manufactured, overseas, genetic testing kits that included one component (Taq polymerase) that was manufactured by Life Technologies (“Life Techs”) in the US. The statute in question, 35 U.S.C. §271(f)(1), establishes infringement liability if a “substantial portion” of a claimed invention’s components are manufactured within the US and provided elsewhere. The Federal Circuit ascribed a qualitative meaning to the term, establishing that one single component could be a “substantial portion” if it was vital enough to the invention.

The Supreme Court found that, in the context of the statute, the term “substantial portion” is intended to be quantitative, rather than qualitative. The “qualitative” interpretation is intended to be covered by other law. As such, a single component, no matter how vital, can never be a “substantial portion” and thus cannot give rise to infringement liability under 35 U.S.C. §271(f)(1).

Federal Circuit Narrows CBM Eligibility

In Secure Axcess, LLC v. PNC Bank Nat’l Assoc., No. 16-1353 (Fed. Cir. February 21, 2017), the Federal Circuit overturned a covered business method patent review decision of the USPTO Patent Trial and Appeal Board (PTAB), on the basis that the patent fell outside of the statutory definition for a CBM patent.

Secure Axcess (“Secure”) had a patent for a computer security system and for a method for authenticating a web page. The PTAB found that the patent was directed to solving problems that might arise from customers of a financial institution attempting to access the web site of the financial institution, and determined that the patent therefore qualified as a CBM patent, because it was “incidental” to a financial activity.

The Federal Circuit found that, under section 18 of the America Invents Act, CBM review is only available for patents that claim “a method… for performing data processing or other operations used in the practice, administration, or management of a financial product or service [emphasis added].” It is not sufficient that a claim be “incidental” to financial activity; instead, it must actually have some financial activity element.

Judge Lourie wrote a dissenting opinion, arguing that while the term “financial” was not found within the claims, the exemplary embodiments described in the patent deal exclusively with online banking, and the patent has been asserted exclusively against financial institutions. Therefore, although the claims do not recite the intended use of the invention, she contended that they should not have to do so for the PTAB to find that the claims recite an invention “used in the practice of a financial product.”

Federal Circuit Declines to Interpret Claims In Light of Limiting Terms in Provisional

In MPHJ Techn. Invs., LLC v. Ricoh Ams. Corp., No. 16-1243 (Fed. Cir., February 3, 2017), the Federal Circuit upheld an inter partes review decision of the PTAB invalidating the claims of a patent. The patent in question, owned by MPHJ, claimed a computer data management system and method for enabling virtual copying by scanning a document and emailing the scanned copy.

The USPTO construed the claims of the patent as requiring that scanning and emailing of a document be done either in separate steps or in one step. MPHJ argued that several statements included in the provisional application had “expressly limited the scope of the invention” to a one-step copying and sending process. However, these statements had been deleted from the non-provisional patent application.

The Federal Circuit determined that the deletion of the limiting statements in the provisional application was significant. Without them, the patent contained no suggestion of an intent to limit the claims expressly to a one-step operation. The court found that a skilled artisan would find the deletion significant, and would conclude that the inventor considered the one-step operation to be optional rather than obligatory.

Judge O’Malley wrote a dissenting opinion, arguing that, because the patent made repeated references to a one-step operation, and incorporated the entire provisional application by reference in the specification, the patentee did the opposite of deleting the limiting statements, and the claims should be interpreted accordingly.

Apple Inc. Patent Revived After Federal Circuit Reverses PTAB Decision

Timothy Maier

On September 19, 2016, the Federal Circuit issued an opinion in In Re: Lemay, in which it reversed the Patent Trial and Appeal Board’s (“PTAB”) denial of Apple Inc.’s patent application directed to a method of streaming online videos to a portable device.  The Federal Circuit’s opinion addresses the topic of claim construction.

 

BACKGROUND

The patent application at issue, filed back in December 2007, recites a method of interacting with a graphical user interface primarily through finger contact and gestures on a touch-sensitive display.[1]  A USPTO examiner rejected the application as obvious over various combinations of prior art, mainly US. Patent No. 7739271 (“Cook”) and U.S. Patent Publication No. 2007/0024646 (“Saarinen”). The PTAB affirmed the rejection on the majority of claims, agreeing with the Examiner that one skilled in the art would have recognized that the combination of Cook and Saarinen teaches or suggests the disputed limitations of the invention. Specifically, the PTAB’s final written decision found all but two of the disputed claims to be unpatentable in view of the cited prior art references.  Apple subsequently filed an appeal, contesting, among other issues, the PTAB’s rejection of claims as obvious and arguing the USPTO’s “sparsely reasoned” decisions ignored important evidence.

In a split decision (2-1), the three-judge Federal Circuit panel found there was not enough evidence to support the PTAB’s determination that Cook and Saarinen teach the subject elements of the disputed claims. The opinion acknowledged that the ultimate determination of obviousness is a question of law, but noted that the determination is based on underlying factual findings.[2] The Federal Circuit reviews the PTAB’s factual determinations for substantial evidence and its legal determinations de novo.[3] The ruling focused its analysis on the first claim of the patent application, as the parties agreed it would be representative of the rest. As noted in the opinion, a claim is considered representative when the arguments presented in support of that claim apply to other claims grouped with such so that all grouped claims rise and fall based on the representative claim.[4]

 

No Substantial Evidence Supports the PTAB’s Finding that Cook and Saarinen Teach Each and Every Limitation of the Claimed Invention

The first issue presented was whether the Cook reference taught the element recited in the final clause of claim 1, which requires “that ‘in response to detecting (1) a finger gesture on a respective icon in the plurality of icons, displaying, on the touch screen display of the portable electronic device, (2) a corresponding list of information about online video items.” Simply put, the invention claims the use of touch screen icons like “Most Viewed” and “Featured” to bring up corresponding lists of YouTube and other website videos. According to Lemay, the tapping of the user’s finger, for example on the “Most Viewed” icon, and the resulting display of video titles and associated information illustrate the two elements in the final clause of claim 1, respectively.

The Federal Circuit determined that the USPTO erred in its finding that Cook teaches these elements (in combination with Saarinen, which teaches a touch screen and finger gestures). The Court explained that the USPTO cited two distinct “list[s] of information” corresponding to an icon when the claim had earlier provided the antecedent basis for “the plurality of icons” and their corresponding lists of information. In particular, the Court noted “if the ‘list of information’ corresponding to an icon is represented by album titles, artist names, and release dates generated as the results of the search query, the same list cannot also be represented elsewhere as a list of track titles.”

The second issue presented was whether the Cook reference taught “displaying . . . a first list of information about online video items in a plurality of lists of information about online video items,” as is recited in the first clause of claim 1.  Appellants argued that the use of the word “items” indicates that “the first list of information must be about multiple online video items.” The USPTO, on the other hand, argued that Lemay’s argument “misses the mark” because the “sample(s)” illustrated in Cook Figure 3B are the “items” referred to in claim 1, and the “list of information” corresponding to these items is the list of search results illustrated in Figure 3B.

The Federal Circuit sided with the Appellants, finding the USPTO’s reasoning to be “internally inconsistent.” Specifically, the majority explained that “[i]f each of the three sets of title, artist, and price information constitutes one of the ‘lists of information,’ it cannot also be correct that the search results as a whole … constitute one of the lists.” The majority therefore disagreed with the PTAB’s conclusion that Cook discloses “a first list of information about online video items…” The majority additionally noted that “if each of the three sets of title, artist, and price information constitutes one of the lists of information, then each such list corresponds only to a single item,” rather than multiple “online video items.”

Lastly, the majority determined that there is no substantial evidence to support the PTAB’s obviousness determination for three dependent claims, as they depend on nonobvious independent claims.

 

DISSENT

In her dissent, U.S. Circuit Judge Kimberly A. Moore argues that there was substantial evidence to support the PTAB’s finding that Cook and Saarinen disclose the disputed limitations of claim 1. Unlike the majority, Judge Moore contends that the claim’s “plurality of lists of information about online video items” is a different element from the same claim’s “a corresponding list of information about online video items.” In particular, she argues that there is no antecedent basis to support limiting “a corresponding list” to one of the “plurality of lists.” She also states that the limitations themselves use different words to describe the two different lists of information. Finally, she explains that during prosecution, the USPTO gives terms their broadest reasonable construction, which, in her view, further suggests a differentiation between the terms “a corresponding list” and “the plurality of lists.”

 

CONCLUSION

Although the deposition is nonprecedential, the Federal Circuit’s reversal of the PTAB’s ruling takes an unusual turn in favor of the patent applicant. Typically, the standard of appellate review makes it difficult to challenge the PTAB’s factual findings as to what is taught by the prior art. These findings are upheld if supported by substantial evidence, “something less than the weight of the evidence but more than a mere scintilla of evidence.” However, in this case, the Federal Circuit sided with Apple Inc., finding that no substantial evidence supported the PTAB’s factual findings.

 

[1] See U.S. Patent Publication No. 2008/0320391

[2] See In re Gartside, 203 F.3d 1305, 1316 (Fed. Cir. 2000). The underlying factual findings include (1) “the scope and content of the prior art,” (2) “differences between the prior art and the claims at issue,” (3) “the level of ordinary skill in the pertinent art,” and (4) the presence of secondary considerations of nonobviousness, such as “commercial success, long felt but unsolved needs, [and] failure of others.” Graham v. John Deere Co. of Kan. City, 383 U.S. 1, 17–18 (1966).

[3] Substantial evidence is “‘such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.’” In re Applied Materials, Inc., 692 F.3d 1289, 1294 (Fed. Cir. 2012) (quoting Consol. Edison Co. v. N.L.R.B., 305 U.S. 197, 229 (1938)).

[4] See 37 C.F.R. § 41.37(c)(1)(iv) (2012) (“For each ground of rejection applying to two or more claims, the claims may be argued . . . as a group (all claims subject to the ground of rejection rise and fall together).