MVS Filewrapper® Blog: U.S. Supreme Court Addresses Jurisdiction In Patent Related Case

In an unanimous decision in Gunn v. Minton, the United States Supreme Court clarified:  (1) 28 U.S.C. § 1338(a) does not necessarily deprive state courts of subject matter jurisdiction for cases dealing with patent law, such as a legal malpractice claim asserted against an attorney representing someone in patent litigation; and (2) a state-based malpractice claim asserted a patent attorney does not necessarily evoke federal subject matter jurisdiction. 

Gunn represented Minton in a patent infringement suit.  During that suit Minton’s patent was held invalid as violating the “on sale” bar in 35 U.S.C. § 102(b) for leasing the subject matter of the patent more than one year prior to the date of the patent application.  Minton argued, in a motion for reconsideration, that the lease was part of testing and fit within the experimental use exception to the on sale bar.  The district court denied the motion and the Court of Appeals for the Federal Circuit affirmed the district court’s ruling.  Subsequently, Minton sued his attorneys for legal malpractice claiming that they failed to timely raise the experimental use argument, which resulted in the improper invalidation of his patent and loss of the patent infringement lawsuit.  This malpractice lawsuit was brought in Texas state court.  The attorneys that represented Minton in the patent infringement suit argued that regardless of the timing of the experimental use argument, it would have failed.  The Texas trial court agreed.  Minton appealed the ruling to the Texas Supreme Court.  On appeal Minton argued that the Texas court did not have proper subject matter jurisdiction because this claim properly fits under federal question jurisdiction pursuant to 28 U.S.C. § 1338(a), which provides exclusive federal jurisdiction thereby depriving state courts of jurisdiction.  The Texas Supreme Court ruled in favor of Minton’s argument and Gunn appealed the holding to the United States Supreme Court.

The United States Supreme Court held that § 1338(a) does not deprive state courts of subject matter jurisdiction over the malpractice claim because federal law did not create the cause of action.  Section 1338(a) only deprives state court jurisdiction where the cause of action is created by federal law.  Specifically, § 1338(a) states, “No state Court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents . . . .”  This cause of action, however, does not arise under the Patent Act; rather it is a state legal malpractice claim based on previous litigation arising under the Patent Act.  To determine whether federal jurisdiction would be proper at all the United States Supreme Court relied on its precedent Grable & Sons Metal and Prods., Inc. v. Darue Eng’g & Mfg. to determine whether a federal issue is actually disputed.  Grable provides four prongs that must each be met for federal jurisdiction to be proper over a state law claim.  The federal issue must be:  (1) necessarily raised, (2) actu­ally disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state bal­ance approved by Congress.  Slip. op. at p. 6 (citing Grable, 545 U.S. 308, 314 (2005)).  The Supreme Court held that Minton met the first two prongs, but failed on the third and fourth.  The Supreme Court’s analysis of the third prong determined that it did not matter how the state court handled the hypothetical questions related to the timing of the experimental use argument because either way it would not change the result of the actual patent litigation.  With respect to the fourth prong, the Court held that permitting state courts to engage in “a hypothetical patent issue” for the purpose of resolving a state legal malpractice claim does not disrupt the balance between state and federal responsibilities.  Id. at p. 12.  Moreover, the Court noted that states “have ‘a special responsibility for maintaining standards among members of the licensed professions.’”  Id. (quotation omitted).  The Court's conclusion was that no federal subject matter jurisdiction existed under 28 U.S.C. § 1338(a) and that state jurisdiction would be proper to handle this claim.  Therefore, the Texas Supreme Court's ruling was reversed.

MVS Filewrapper® Blog: New and Useful - February 21, 2013

·         In U.S. Polo Assoc., Inc. v. PRL USA Holdings, Inc., the Second Circuit Court of Appeals found that the natural zone of expansion doctrine did not permit the United States Polo Association (“USPA”) to expand its offerings into a line of fragrances and affirmed the district court’s entry of a permanent injunction prohibiting such use.  The USPA filed a declaratory judgment to approve use of its Double Horseman mark, accompanied by the words “U.S. POLO ASSN.,” “USPA,” and/or “1890,” in the sale of men’s fragrances.  PRL counterclaimed, seeking entry of a permanent injunction precluding such use—which the district court granted.  USPA’s argument was centered on the, so called, natural zone of expansion doctrine.  USPA argued that its history of selling branded apparel provided it with the right to expand into related markets, i.e., apparel sales give rise to the right to expand into fragrances.  The district court gave little weight to USPA’s survey and found that PRL’s survey gave strong evidence of a likelihood of confusion.  The Second Circuit found that the district court’s holdings regarding the survey evidence did not abuse its discretion and that the previous litigation and USPA’s history did not support USPA’s argued natural right to expand.

·         In Function Media, L.L.C. v. Google, Inc., the Federal Circuit Court of Appeals held that the denial of a pre-trial motion for summary judgment of non-infringement is not sufficient to show that the district court delegated claim construction to the jury.  Function Media (“FM”) sued Google for infringement of three patents directed at “facilitate[ing] advertising on multiple advertising outlets such as newspapers and websites.”  Slip op. at p. 2.  The district court held that one patent was invalid for being indefinite “because the specification did not disclose sufficient structure for its sole independent claim’s means plus function term ‘means for transmitting.’”  Id. at pp. 5–6 (citations omitted).  A jury found the asserted claims in other two patents invalid and not infringed.  FM moved for judgment as a matter of law (“JMOL”) that the claims were not invalid, which the district court granted with respect to four claims.  This did not alter the jury verdict of non-infringement. 

FM appealed on a number of grounds, including an assertion that the district court gave the claim interpretation to the jury.  The argument was based on the fact that the district court denied Google’s motion for summary judgment of non-infringement. FM argued that the denial of summary judgment demonstrated that there were unresolved issues regarding claim scope, which were subsequently left to the jury rather than construed by the court.  The Federal Circuit did not agree that the district court improperly gave the claim interpretation to the jury, the Federal Circuit stated, “We hold that the denial of a pre-trial motion for summary judgment of non-infringement does not, by itself, show that the district court delegated claim construction to the jury.  This is especially true where, as here, the jury was instructed to apply the district court's claim constructions.”  Id. at pp. 21–22. 

·         In Cephalon, Inc. v. Watson Pharma., Inc. , the Federal Circuit Court of Appeals reversed a district court’s holding of invalidity for lack of enablement stating, “Watson failed as a matter of law to show with clear and convincing evidence that Cephalon’s patents require undue experimentation to practice the invention.”  Slip op. at p. 2.  Throughout the discussion of enablement, the Federal Circuit highlighted that the burden is on Watson to show lack of enablement—undue experimentation—and to do so by clear and convincing evidence.  The district court’s analysis was that, “the disclosures lacked teachings directed to formulating and co-administering two separate dosage forms . . . to achieve an effervescent reaction.  The lack of disclosure of such methods of co-administration would, according to the court, necessitate undue experimentation to practice the invention.”  Id. at p. 11 (citations omitted).  Watson merely provided “[u] nsubstantiated statements indicating that experimentation would be ‘difficult’ and ‘complicated.’”  Id. at pp. 15–16.  The Federal Circuit found that these statements did not meet the standard of clear and convincing evidence to establish undue burden as opposed to reasonable experimentation.  As such, the Federal Circuit reversed the district court’s holding of invalidity and remanded.

·         The United States Patent and Trademark Office published the final rules and guidelines governing First-Inventor-to-File.  (http://www.uspto.gov/news/pr/2013/13-10.jsp)  There were two separate Federal Register publications and each is briefly discussed below.  A more thorough discussion of each is forthcoming.

o   Changes to Implement First Inventor to File Provisions of Leahy-Smith America Invents Act

This publication sets forth the changes that will be necessary to implement the First-Inventor-to-File standards.  It addresses changes regarding each of the following:

§  The addition of definitions in the AIA to the rules of practice;

§  The submission of affidavits or declarations regarding:  disclosures in priority disputes under the first-to-file standards and prior public disclosures;

§  Standards regarding a U.S. Patent or Published Applications having a prior art effect as of the filing date of a foreign priority application;

§  Elimination of the provisions regarding statutory invention registrations; and

§  Adoption of requirements for nonprovisional applications filed on or after March 16, 2013, that claim priority to or the benefit of the filing date of an application filed prior to March 16, 2013.

o   Examination Guidelines for Implementing First Inventor to File Provisions of Leahy-Smith America Invents Act

This publication sets forth the changes the changes to the examination guidelines under the First-Inventor-to-File standard.  The publication is also meant to clarify and respond to questions provided during the public comment period regarding whether there is a requirement that the mode of disclosure by an inventor or joint inventor be the same as the mode of disclosure of an intervening disclosure.

MVS Filewrapper® Blog: Federal Circuit Addresses Subject Matter Jurisdiction in Patent-Related Cases

In Semiconductor Energy Lab. Co., Ltd. v. Yujiro Nagata, the Federal Circuit weighed in on federal subject matter jurisdiction and provided two important reminders:

(1)       Just because a cause of action originates from a patent, standards in the patent statute, or even from other patent litigation, it is the present cause of action and claims that dictate whether subject matter jurisdiction is proper; and

(2)       Subject matter jurisdiction, in this case federal question, must be sufficiently pled.

The background of this case is as follows:  Semiconductor Energy Laboratory (“SEL”) owns U.S. Patent 6,900,463 (“the ’463 patent”).  Dr. Yujiro Nagata (“Dr. Nagata”) is a named co-inventor of the ’463 patent.  Dr. Nagata assigned his rights in any applications and patents related to the ’463 patent to SEL’s founder in 1991.  He later signed a substitute Declaration and Assignment of those applications and patents.  Dr. Nagata assisted SEL in a patent infringement lawsuit during the span of 2002 and 2003. 

SEL sued Samsung for infringement of the ’463 patent in 2009.  Dr. Nagata was contacted by Samsung to serve as a fact witness, which he agreed to do.  Subsequently, SEL contacted Dr. Nagata assuming that he would cooperate with them during the litigation, as he had previously done.   During the litigation, Dr. Nagata testified that he did not sign the 1991 Declarations and Assignments, but that his signature was forged.  Samsung then argued that the ’463 patent was unenforceable because of inequitable conduct.  Due to Dr. Nagata’s testimony the lawsuit was settled for less money than SEL otherwise would have considered.

SEL went on to sue Dr. Nagata in federal court, with five claims:  (1) Declaratory Judgment – Violation of Federal Patent Law; (2) Declaratory Judgment – Anticipatory Breach of Contract; (3) Slander of Title; (4) Quiet Title; and (5) Unjust Enrichment.  SEL asserted that the claim for declaratory judgment of violation of federal patent law was a federal question—one of the two bases for federal subject matter jurisdiction—and sought supplemental jurisdiction for the other causes of action.  Dr. Nagata moved to have the case dismissed for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1).  The district court granted the motion and dismissed the case with prejudice.  SEL appealed. 

In order to invoke federal subject matter jurisdiction under federal question, the “complaint must either plead a federal cause of action or necessarily implicate a substantial issue of federal law.”  SEL v. Nagata, Slip op., at p. 5.  SEL’s argument in support of its “Declaratory Judgment – Violation of Federal Patent Law” claim was based on the doctrine of assignor estoppel.  The Federal Circuit summarized the doctrine of assignor estoppel as, “an equitable doctrine that prohibits an assignor of a patent or patent application, or one in privity with him, from attacking the validity of that patent when he is sued for infringement by the assignee.”  Id. at p. 6.  SEL argued that the doctrine should be extended to apply not only as a defense limiting arguments by assignors, but offensively to estop assignees from undermining the validity of a patent as well.  The Federal Circuit went on to note SEL did not plead or offer any precedent establishing that assignor estoppel is a federal cause of action.  As such, the Court concluded,

SEL thus effectively invites us to create a new federal cause of action recognizing a supposed violation of the assignor estoppel doctrine under the Declaratory Judgment Act. . . .  Despite SEL’s contentions, assignor estoppel is a form of estoppel, and with rare exception, estoppel is a shield; it is an affirmative defense, not a claim for relief on its own.

Id. at p. 7 (citations omitted).  In light of this, the Court held that the doctrine of assignor estoppel as applied to patent law was not at issue in this case, since here it was the assignee, Dr. Nagata, who was undermining the validity of the patent.  The court held that the underlying dispute in this case was an evidentiary one in the original case and the proper remedy were through the laws of evidence that permit impeachment and other methods of countering the credibility of a witness.  Therefore, the district court’s dismissal of the case was affirmed. 

This case raises two important points to consider when contemplating litigation.  The first is that the present cause of action and claims dictate whether subject matter jurisdiction is proper, despite the fact that the dispute may have evolved from the patent statute or even patent litigation.  The second is that the plaintiff’s complaint controls the litigation, or lack thereof when the case is dismissed under FRCP 12(b)(1).  In this case, this meant that although there was arguably a basis to seek extension of a federal law doctrine, the insufficiency of the pleadings precluded the federal court from fully addressing the issue.

Accent Packaging, Inc. v. Leggett & Platt, Inc.: Reminders on Claim Construction, Discovery Matters

In Accent Packaging, Inc. v. Leggett & Platt, Inc., the Federal Circuit affirmed in part and reversed in part the district court’s grant of summary judgment of non-infringement.  Accent is the assignee of U.S. Patents 7,373,877 (the '877 patent) and 7,412,992 (the '992 patent).  The patents are drawn to a wire tier device useful for baling and handling recyclables and solid waste to facilitate better handling.  Accent sued Leggett for patent infringement and violation of the Missouri Trade Secret Act.  Leggett filed a motion to dismiss the trade secret claim for failure to state a claim and the claim was dismissed.  During discovery, Accent’s expert inspected Leggett’s allegedly infringing device.  Leggett produced a redacted copy of its own patent application that Leggett argued covered its device, engineering drawings, marketing and promotional materials related to the device, and an operating manual for the device.  Accent filed a motion seeking additional discovery, including:  (1) information related to an alleged sale of Leggett’s device.; (2) a deposition pursuant to FRCP 30(b)(6) to address infringement and claim construction; and (3) production of the redacted parts of the previously produced patent application.  The district court denied the motion for additional discovery and both parties filed motions for summary judgment.  The district court denied Accent’s motion for summary judgment of infringement and granted Leggett’s motion for summary judgment of non-infringement.  Subsequently, Accent appealed to the Federal Circuit.  The Federal Circuit opinion provides three reminders:

Reminder #1:  Claim construction should allow the claim to cover the preferred embodiments

The '877 Patent

The district court granted summary judgment of non-infringement of the '877 patent largely based on its claim construction of the terms “each” and “a respective one.”  The court construed the terms to require four elongated operator bodies, with every operator body coupled only to one gripper, knotter, cutting element or cover.  On appeal, Accent argued that the pertinent claim language did not require that each elongated operator body be coupled to one and only one of those articulated elements.  The Federal Circuit overruled the district court’s claim construction of the terms “each” and “a respective one” stating the construction essentially excluded a preferred embodiment from the scope of the claims, as a preferred embodiment showed “two elongated operator bodies . . . operably coupled to both the knotter and the cover.”  In supporting this holding, the Federal Circuit quoted its previous holding in the 2004 case, On-Line Technologies, Inc. v. Bodenseewerk Perkin-Elmer GmbH stating, “We have held that ‘a claim interpretation that excludes a preferred embodiment from the scope of the claim is rarely, if ever, correct.’”  386 F.3d 1133, 1138 (Fed. Cir. 2004). 

The '992 Patent

Accent appealed the district court’s claim construction of the term “of at least about ninety degrees.”  The asserted claims of the '992 patent require, “a mount for [the] cover permitting the cover to be pivoted away from said knotter to a knotter access position remote from said wire-maintaining position and through a pivot arc of at least about 90?.”  Accent argued that Leggett’s device would pivot through the required ninety degrees if it weren’t for its SafeLatchTM stop.  The district court held that this was “a distinction without a difference, noting “[t]he SafeLatchTM stop is in fact part of the . . . device.”  Accent also argued that the device infringed the '992 patent because the SafeLatchTM stop can be easily removed, which permits the cover to pivot at least ninety degrees.  The Federal Circuit found this argument unpersuasive, again citing its own precedent:  “[A] device does not infringe simply because it is possible to alter it in a way that would satisfy all the limitations of a patent claim.” High Tech Med. Instrumentation v. New Image Indus., Inc., 49 F.3d 1551, 1555 (Fed. Cir. 1995).  In light of this reasoning, the Federal Circuit affirmed the district court’s summary judgment of non-infringement of the '992 patent.

Reminder #2:  Plausibility in pleading also applies to discovery motions

As noted above, Accent’s motion for additional discovery was denied by the district court.  Accent appealed this ruling and the Federal Circuit affirmed the district court’s ruling.  The Federal Circuit stated that Accent’s problem was “that it never ‘set forth a plausible basis for believing that specified facts . . . probably exist.’”  Slip op. at 10 (quoting Raby v. Livingston, 600 F.3d 552, 561 (5th Cir. 2010).  The Federal Circuit found it important that Accent had received “extensive information” regarding Leggett’s allegedly infringing device through production, and Accent’s counsel and expert had thoroughly inspected the device.  Despite all this evidence, “Accent failed to set forth a plausible basis for believing that additional discovery” was necessary.  Moreover, the evidence already present suggested the facts were opposite Accent’s argument.  Thus, the Federal Circuit affirmed the district court’s denial of Accent’s motion for additional discovery.

Reminder #3:  Sufficient factual material to render plausibility is required for all claims

Accent appealed the district court’s dismissal of the trade secret claim arguing that the court ruled on the motion before Accent even had a chance to respond in writing to the motion to dismiss.  Accent’s trade secret misappropriation claim was based on the argument that the specifications and tolerances of its commercial device constituted trade secrets.  Accent argued that Leggett misappropriated those secrets by copying Accent’s commercial device delivered to one of Accent’s customers.  However, the Federal Circuit found it important that Accent’s own complaint acknowledged that its commercial device was sold in the regular stream of commerce.  Thus, the device was not subject to reasonable efforts to maintain its secrecy.  In affirming the district court’s grant of summary judgment for Leggett, the Federal Circuit relied on Twombly and Iqbal, holding that the “complaint fails to state a claim to relief that is plausible on its face.”

MVS Filewrapper® Blog: New and Useful - February 6, 2013

·         In Allergan, Inc. v. Barr Labs the Federal Circuit affirmed a decision by the District of Delaware finding that Barr Laboratories, Inc. and Sandoz Inc. had infringed a patent owned by Allergen, Inc., and finding the patent-in-suit valid.  Barr and Sandoz each filed abbreviated new drug applications (ANDA) for a generic version of the drug covered by the Allergen patent, and both ANDAs asserted that the Allergen patent was invalid or would not be infringed by the manufacture, use, or sale of the new drugs for which the applications were submitted.  Allergen sued Barr and Sandoz for infringement, and the suits were consolidated for a bench trial on invalidity and infringement.  The district court construed a single disputed claim and determined Allergen had defined the disputed term in such a way in the specification as to cover the Barr and Sandoz products.  The district court also declined to adopt the defendants’ arguments for invalidity based on obviousness.  The defendants’ obviousness case at trial relied on the testimony of an expert.  However, the district court determined that the expert’s testimony was undermined by his lack of credibility, as exposed on cross-examination.  As a result, the district court declined to review the prior art references and weigh their import absent the guidance of an expert, and therefore concluded that Barr and Sandoz had failed to prove obviousness.  The defendants appealed both the infringement and invalidity determinations, specifically asserting that the district court erred in not reviewing the prior art references and weighing their import notwithstanding the problems with the expert testimony.

      On appeal, the Federal Circuit confirmed the district court’s claim construction and infringement determination.  The Federal Circuit also confirmed the district court’s determination with respect to the expert witness and the resulting conclusions regarding invalidity and obviousness.  Specifically, the court held that the district court did not err in its decision because the case was sufficiently complex to require expert testimony in making the determination of obviousness, and “common sense and logic were not sufficiently illuminating in this case to carry Barr and Sandoz's burden of proving obviousness.”

 

 

·       In Arkema Inc. v. Honeywell International, Inc. the Federal Circuit reviewed a district court’s denial of declaratory judgment jurisdiction for a case involving two suppliers of an automotive coolant.  Arkema Inc. brought a declaratory judgment action seeking judicial determination that its plans to supply automotive coolant to car manufacturers would not infringe Honeywell’s U.S. patents.  This declaratory judgment action followed foreign litigation wherein Honeywell asserted European patents coving the same technology against Arkema.  After the litigation commenced, Honeywell obtained two additional patents, and Arkema sought to amend its complaint to include declaratory judgment on these two additional patents.  The district court denied Arkema’s motion, concluding that there was insufficient case or controversy for the court to exercise declaratory judgment jurisdiction.  The district court then certified for appeal its order denying Arkema’s motion. 

   

The Federal Circuit reversed the district court, addressing each of the district court’s rationales for declining jurisdiction in turn.  In particular, the Federal Circuit held that the district court’s reliance on Arris Grp., Inc. v. British Telecommc’ns PLC was misplaced because while acts of direct infringement by a customer are sufficient to support DJ action by a supplier, they are not necessary.  Further, the appellate court concluded that “[t]here is no requirement that Arkema identify the particular manufacturers that will purchase the [automotive coolant] or the particular automobile purchasers who will purchase the cars from the manufacturers, or the particular dates on which this will occur.”  The Federal Circuit instead concluded that the basis for Arkema’s declaratory judgment jurisdiction was formed by the foreign litigation of the same technology along with contracts entered into by Arkema with customers for the supply of the automotive coolant.  The case was remanded for reconsideration.

·         In Accent Packaging, Inc. v. Leggett & Platt, Inc. the Federal Circuit reversed a grant of summary judgment by the United States District Court for the Southern District of Texas for the alleged infringer, Leggett & Platt.  The district court granted summary judgment of non-infringement based on it construction of the terms “each” and “a respective one” within the phrase “with each of the operator bodies being operably coupled with a respective one of said gripper, knotter, cutting element and cover.”  The district court construed the terms to mean that there could only be a single function for a single “operator body,” and as a result the accused device could not infringe the claims because it used operator bodies with multiple functions.  Accent appealed the grant of summary judgment, challenging the district court’s claim construction. 

The Federal Circuit reversed the grant of summary judgment, concluding that the district court improperly construed the terms at issue.  The appellate court, conducting its own de novo claim construction, determined that the narrow construction asserted by Accent was improper because it excluded the preferred embodiment disclosed in the specification.  The court held that the preferred embodiment featured an elongated operator body that is operably coupled to one or more operator elements, and because “a claim interpretation that excludes a preferred embodiment from the scope of the claim is rarely, if ever, correct” (On-Line Techs., Inc. v. Bodenseewerk Perkin-Elmer GmbH, 386 F.3d 1133, 1138 (Fed. Cir. 2004)), the district court’s claim construction doing just that was erroneous.  Based on the Federal Circuit’s own claim construction, it remanded the case and ordered the district court to grant summary judgment of infringement to Accent.  A more in depth analysis of this case will be posted shortly.

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