MVS Filewrapper® Blog: Shifting Pre-Trial Strategy in the Wake of Alice and Ultramercial

Post by Paul S. Mazzola

 

Four recent Supreme Court cases involving patentable subject matter under 35 U.S.C. § 101 (Bilski v. Kappos, Mayo Collaborative Services v. Prometheus Laboratories, Inc., Ass'n for Molecular Pathology v. Myriad Genetics, Inc., and Alice Corp. v. CLS Bank International ) have had the practical effect of heightening the standard for patentability.  However, these cases may also be altering the way patent cases are handled in their early stages.

 

The Federal Circuit recently decided the case of Ultramercial, Inc. v. Hulu, LLC for a third time.  The case was originally filed in the Central District of California in 2009. Initially, the district court granted the defendant's pre-answer motion to dismiss under Rule 12(b)(6), finding the patent at issue did not claim patent-eligible subject matter.  In the first appeal, the Federal Circuit reversed the district court, and the Supreme Court vacated the decision of the Federal Circuit for further consideration in light of Mayo. On remand, the Federal Circuit again reversed the district court, finding it was improper to dismiss the suit by granting a Rule 12(b)(6) motion.  To that end, the court made several compelling statements regarding the interplay between such motions and the § 101 analysis.  The court stated, "[I]t will be rare that a patent infringement suit can be dismissed at the pleading stage for lack of patentable subject matter."  The court reasoned that issued patents are presumed to be valid, and "the analysis under § 101, while ultimately a legal determination, is rife with underlying factual issues." Adding that claim construction should be required if there are factual disputes, the court succinctly stated, "Rule 12(b)(6) dismissal for lack of eligible subject matter will be the exception, not the rule."

 

After a second petition for certiorari was filed with the Supreme Court, the Court decided Alice.  The holding in Alice—that an abstract idea is not patent eligible subject matter if "merely requires generic computer implementation"—was squarely relevant to the patent at issue in Ultramericial, leading the Supreme Court to again vacate the decision of the Federal Circuit for further consideration in light of Alice.

 

In applying Alice to the patent at issue in Ultramericial, the Federal Circuit held that the claims do not recite patent-eligible subject matter under § 101, but affirmed the motion to dismiss under Rule 12(b)(6).  In doing so, the court deviated sharply from the decisive language from its previous decision, but dedicated no discussion to reconcile why a motion to dismiss is the appropriate mechanism to dispose of a suit involving an issued patent in an infringement suit presumably "rife with underlying factual issues."  However, the concurring opinion of Judge Mayer was almost entirely devoted to this issue.  "First, whether claims meet the demands of 35 U.S.C. § 101 is a threshold question, one that must be addressed at the outset of litigation.  Second, no presumption of eligibility attends to the section 101 inquiry."  Describing section 101 as a "gateway" and a "sentinel" akin to establishing jurisdiction, Judge Mayer forwarded three benefits of resolving any issue of patentable subject matter at the outset of litigation: conserving judicial resources, thwarting vexatious infringement suits, and protecting the public. In addressing the district court opinion, Judge Mayer stated, "No formal claim construction was required because . . . no 'reasonable construction would bring the claims within patentable subject matter.'"  Regarding the presumption of validity for issued patents requiring clear and convincing evidence to the contrary, Judge Mayer noted "the PTO has for many years applied an insufficiently rigorous subject matter eligibility standard." Thus, Judge Mayer found, "[T]he district court properly invoked section 101 to dismiss Ultramercial's infringement suit on the pleadings."

 

Given the apparent shift by the Federal Circuit toward resolving issues of patent-eligible subject matter at the pleadings stage, defendants of infringement suits involving uncertain subject matter eligibility are more likely to use a motion to dismiss to try to avoid costly discovery and claim construction.  The opportunity for an alleged infringer to undercut an infringement suit at the pleadings phase may also impact litigation strategy, including whether such a motion should be pursued in conjunction with other mechanisms such as post-grant proceedings before the Patent Trial and Appeal Board.

 

 

 

MVS Filewrapper® Blog: Is the Supreme Court Re-Aiming Markman?

Post by Alex Christian

The 1996 United States Supreme Court decision in Markman v. Westview Instruments established a landmark change for claim construction in patent infringement cases.  That case established that the meaning of the claim language of a patent is a matter of law for a judge to decide, and not a matter of fact that should be determined by the jury. Since the decision, what is now known as a "Claim Construction Hearing" or a "Markman hearing" is now common place in patent infringement cases.  Nearly two decades after the Markman decision, the Supreme Court has taken a case with the potential to dramatically alter this aspect of patent litigation.

The Markman hearing has become one of—if not the single—most important events in a patent infringement case.  In a Markman hearing, the Court is required to interpret any claims at issue in the case brought forth by the parties.  This usually includes extensive briefing, expert reports, expert testimony, and oral arguments before the Court. Markman hearings are so important and so influential that often the party who prevails in the Markman hearing will go to be the successful party—whether by trial or by settlement—in the case.

On October 15, 2014, the Supreme Court heard arguments on the case of Teva Pharmaceuticals v. Sandoz.  The case is centered on the question of what appellate rules should apply to claim construction decisions.  Currently, there is tension between the Federal Circuit case law and the Federal Rules of Civil Procedure regarding the way in which a district court's factual findings relating to claim construction are treated on appeal. The specific issue presented to the Supreme Court is:   

Whether a district court's factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires (and as the panel explicitly did in this case) or only for clear error, as Federal Rule of Civil Procedure 52(a) requires.

Among the issues addressed during oral arguments, a significant amount of the debate dealt with the framework through which to view patent claims: similar to statues, which receive a de novo review; or like contracts, for which the district courts are given deference for underlying conclusions. You can find the transcript to the oral arguments here.

This particular case highlights the complexities Markman hearings have introduced into patent litigation, and the potentially tenuous ground upon which patent litigation has settled in the last several decades.  Perhaps the most complex issue that could be raised by the Supreme Court's eventual decision in this case, is that Markman hearings are considered by some as a violation of a plaintiff patent-owner's 7th Amendment right to a jury trial.

For additional background on the Markman decision, see Ed Sease's article, "Markman Misses the Mark, Miserably" available here.

MVS Filewrapper® Blog: USPTO Patent Invalidation Precludes Judicial Equitable Remedies and Sanctions

The U.S. Court of Appeals for the Federal Circuit has issued a decision in ePlus, Inc. v. Lawson.  ePlus sued Lawson asserting infringement of two patents—U.S. Patent Nos. 6,023,683 ("the '683 patent") and 6,505,172 ("the '172 patent").  At trial, the district court held two of ePlus's asserted system claims and three of ePlus's asserted method claims not invalid, and the jury found those same claims infringed by Lawson. 

 

The district court entered an injunction against Lawson, precluding Lawson from "directly or indirectly making, using, offering to sell, or selling within the United States or importing into the United States any of the [adjudged infringing] product configurations and/or installation, implementation, design, configuration, consulting, upgrade, maintenance and support and training and other related and associated services and any colorable variations thereof (the “Infringing Products and Services”)." Lawson appealed, and the Federal Circuit reversed in part, holding the system claims invalid and two of three method claims not infringed.  The Federal Circuit remanded the case to district court to modify the injunction accordingly.

 

On remand the district court modified the injunction so that it only applied to infringement of claim 26 of the '683 patent—the sole remaining method claim.  Further, the district court found Lawson in civil contempt for violating the injunction.  Lawson appealed both the injunction and the contempt order.  While the appeal was pended, the United States Patent and Trademark Office ("USPTO") completed a reexamination of the '683 patent and determined that the sole remaining claim from the litigation—method claim 26—was invalid and cancelled.  In a separate appeal, the Federal Circuit affirmed the USPTO's invalidity determination.  Thus, the present appeal presented two questions:  (1) whether the district court’s modified injunction against Lawson should be set aside in light of the PTO's cancellation of the patent claim on which it was based; and (2) whether the civil contempt sanctions should be set aside. 

 

The Federal Circuit held there was no sufficient legal basis to maintain the injunction and that it must be set aside.  In support of this holding, the Federal Circuit noted, "It is well established that an injunction must be set aside when the legal basis for it has ceased to exist. . . .  Our court has applied these principles to an injunction barring infringement of patents later found to be invalid."  Because the sole remaining claim upon which the injunction was based had been invalidated—by the PTO; affirmed by the Federal Circuit—there was no legal basis for maintaining the injunction.

 

The Federal Circuit also held that the civil contempt sanctions should be set aside.  This was, in part, due to the fact that the injunction was not final and because it was a civil contempt order that was meant to compensate the ePlus for injury suffered as a result of the Lawson's infringing activity.  However, as the only remaining claim upon which the injunction was based was found invalid, the Federal Circuit concluded that "the compensatory award for the violation of the injunction must be set aside in light of the cancellation of claim 26."

 

The full opinion is available here.  

MVS Filewrapper® Blog: Federal Circuit Weighs in on Stays for Post-Grant Review

The Federal Circuit has issued an opinion in VirtualAgility Inc. v. Salesforce.com, Inc., providing clarification regarding how court should properly determine whether to stay litigation during later-requested post-grant PTO proceedings.  Under the America Invents Act, a district court is permitted, but not required, to grant such a stay.  The statute also provides a list of four factors that the district court is to consider when deciding whether to grant a stay of litigation:

 

(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;

(B) whether discovery is complete and whether a trial date has been set;

(C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and

(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

 

In January 2013 VirtualAgility Inc. ("VA") sued Salesforce.com, Inc. and a group of other businesses for infringement of U.S. Patent No. 8,095,413.  Salesforce then filed a petition with the Patent Trial and Appeal Board (PTAB) for a post-grant review of the patent under the Transitional Program for Covered Business Method Patents (CBM Program), asserting that all of the claims were patent-ineligible.

 

In May of 2013, Salesforce and the other defendants filed a motion to stay district court proceedings in accordance with AIA Section 18(b)(1).  In denying the motion, the District Court took into account the four factors provided by statute.  The District Court conducted its own
review of the file history, and determined that the PTAB would not likely cancel some or all of the claims, despite the he PTAB’s determination that the claims of the ’413 patent are more likely than not invalid.  The district court therefore determined that the first factor, simplification of the issues, was either neutral or slightly against a stay.  The district court also determined that the fourth factor, burden of litigation, had substantial overlap with the first and would only slightly favor a stay.  The court decided the second factor favored a stay because it was early on in the litigation, and the third factor weighed against a stay because VirtualAgility would suffer from lost market share and consumer goodwill, in addition to the fact that "VA would be unduly prejudiced 'because certain witnesses are of an advanced age.'"

 

The Defendants appealed the denial of the motion to stay to the Federal Circuit, which reversed the district court and concluded that the balance of the factors favored a stay pending the outcome of the CBM review.  The court held that the district court's review the PTAB's determination that the claims of the ’413 patent are more likely than not invalid was an error as a matter of law because under the statutory scheme district courts have no role in reviewing the PTAB’s determinations regarding the patentability of claims that are subject to CBM proceedings.  

 

The Federal Circuit agreed with the district court's determination that the second factor weighed in favor of a stay, but disagreed with the district court's determination that the third factor weighed heavily against a stay.  In concluding that the undue prejudice factor weighed only slightly against a stay, the Federal Circuit held that the district court erred in failing to take into account the fact that VA did not move for a preliminary injunction, and that if VA needed injunctive relief as soon as possible it would have pursued a preliminary injunction, or filed suit earlier. 

 

Ultimately, with three factors heavily favoring a stay and one slightly against a stay, the Federal Circuit Court of Appeals reversed district court and remanded the case with instructions to grant the motion to stay the litigation pending CBM review at the PTO.

 

The full opinion is available here.

MVS Filewrapper® Blog: PTO Interference Decisions do not Preclude Invalidity Defenses in Court

The Federal Circuit has issued a decision in AbbVie v. Janssen Biotech and Centocor Biologics, which relates to patents that broadly cover antibodies which can neutralize activity of human interleukin 12 (IL-12) and have useful application in the treatment of autoimmune disorders. The patent owner, AbbVie, sued Janssen and Centocor for infringement of the patents at issue.  At trial, the jury found that all of the asserted claims were invalid on the grounds of lack of written lack of description, enablement, and obviousness.  AbbVie appealed the district court's decision. 

 

On appeal, AbbVie asserted that the denial of its summary judgment was improper, because the district court erroneously held that Centocor was not collaterally estopped from raising invalidity defenses in the infringement action after the interference proceeding at the Patent and Trademark Office.  Collateral estoppel or issue preclusion can be invoked when the issue sought to be precluded was involved in an earlier matter, has actually been litigated, the issue was determined by final and binding judgment, and the determination of the issue was essential to the judgment. The court here reasoned that the proceedings and judgment from the Patent and Trial Appeal Board was not final as an action for interference was still pending at the district court level. Also, §146 of the Patent statute provides in relevant part that "[a]ny party to an interference dissatisfied with the decision of the [Board] on the interference, may have remedy by civil action, if commenced within such time after decision, not less than sixty days. . . ." Further, there is language in the statute which allows the district court to make a de novo review of findings of fact in situations where new evidence is presented following the Board's review. Because procedures are provided in the patent statute that allows for additional judicial remedies if a party to an interference action is not satisfied, the court held that Centocor was not collaterally estopped in this case from raising invalidity defenses in the infringement action.  However, the Federal Circuit's discussion also left open the possibility that collateral estoppel may have applied had Centocor appealed under §141 instead of bringing a civil action. 

 

The Court also discussed the written description requirement and acknowledged that in light of Ariad this requirement is separate from the concept of enablement. While AbbVie classified its claims as a set of human antibodies, they did not disclose any structural features to indicate a commonality within the genus.  The Federal Circuit found the claims to be invalid in view of Ariad's holding that "merely drawing a fence around a perceived genus is not a description of the genus" and the fact that the jury heard substantial evidence that AbbVie's patents described only one type of structurally similar antibodies which are not representative of the full variety of scope of the genus.  The court also emphasized the inherent vulnerability of patents to invalidity challenges based on lack of written description, where the areas of technology are unpredictable and difficult to prove a correlation between function and structures found within the genus. 

 

The court ultimately affirmed the district court's judgments in both the infringement action and the interference action. 

 

The full opinion can be found here.

MVS Filewrapper® Blog: The Ongoing Battle of Copyright Protection and Pre-1972 Sound Recordings

Federal Copyright Law generally protects works that are fixed in a tangible medium from unauthorized use, including copying, performance, exhibition, and broadcasting.  However, sound recordings from before 1972 are treated uniquely under the law—a situation that has resulted in real legal problems.

 

When enacted, the Federal Copyright Law preempted any state rights relating to copyright protection.  However, because the Copyright Act of 1909 failed to provide protection for sound recordings, and protection for sound recordings was not incorporated into the Federal Copyright Law until 1972, protection for sound recordings prior to 1972 is governed by various state law doctrines. 

 

In particular, the Federal Copyright Law retains several "safe harbors" concerning certain acts relating solely to sound recordings, such as broadcasting pre-1972 sound recordings over the radio. § 114 of the current Copyright Act allows for broadcast transmission of a protected sound recording.  However, some copyright holders are attempting to hold broadcasting companies liable for "unauthorized broadcast transmission" of pre-1972 sound recordings under various state misappropriation laws. A class action suit filed in September, 2013 in the Central District of California alleges that SiriusXM refuses to obtain licenses for transmission of pre-1972 recordings in violation of common law and California law, seeking payment for the use of thousands of songs.  Two additional class action suits have been filed in the Southern District of New York and the Southern District of Florida, alleging violation of New York and Florida law, respectively.  A fourth suit has also been filed in California state court by Capitol Records, Sony Music, UMG Recordings, Warner Music, and ABKCO Music. 


Currently, the federal courts are split on whether a state's misappropriation law establishes a cause of action to a copyright holder with a pre-1972 sound recording.  The outcome of these cases may help to clarify what protection is afforded to pre-1972 sound recordings, and under what law.

MVS Filewrapper® Blog: New and Useful - August 26, 2013

·         In University of Utah v. Max-Planck-Gesellschaft, the Federal Circuit held that a patent lawsuit between a state university and the officers of another state university is not a controversy between two states.  The case began when the University of Utah (“UUtah”) sued the Max Planck Institute and the University of Massachusetts (“UMass”) to correct inventorship of two patents—U.S. Patent Nos. 7,056,704 and 7,078,196.  The basis of UUtah’s claim was that the named inventor of the patents—Dr. Thomas Tuschl, a UMass Professor—incorporated the ideas of a UUtah Professor—Dr. Brenda Bass—and did not name her as an inventor.  UMass argued that the dispute was between two states as both UUtah and UMass are state institutions.  This presents constitutional law questions.  In particular, two provisions of the Constitution are at issue, Article 3, §2, cl.2 and the 11th Amendment.  The 11th Amendment provides sovereign immunity to state governments from any cause of action brought by citizens of another state in Federal Court.  However, Article III of the Constitution provides for state-versus-state lawsuits, for which the United States Supreme Court has original jurisdiction.  Thus, under UMass’s argument, only the United States Supreme Court should have jurisdiction to hear the matter.  In response to UMass’s argument, UUtah amended its complaint and substituted UMass with four UMass officials as defendants.  The district court held that the action was no longer a state-versus-state action and could proceed.  Immediate appeal was heard by the Federal Circuit, which affirmed the district court in a 2-1 decision.  Judge Moore provided a notable dissent arguing that UMass is an indispensable party and should be a named defendant and the case is in fact a controversy between two states.

·         In Skinmedica v. Histogen, the Federal Circuit affirmed summary judgment of non-infringement.  Skinmedica asserted infringement of two of its patents covering methods for producing dermatological products containing “novel cell culture medium compositions.”  The Federal Circuit noted that “[d]uring prosecution of the ’494 patent, the inventors limited their claimed inventions to pharmaceutical compositions comprising cell culture medium conditioned by animal cells only in three-dimensions” in order to overcome an anticipation rejection.  Histogen cultures cells beginning with “one- or two-dimensional growth” on beads that “evolves into a three-dimensional growth phase in which the cells crawl off the beads.”  On appeal Skinmedica argued “that the district court erroneously excluded beads from the definition of ‘culturing . . . cells in three-dimensions.’”  The Federal Circuit, however, found no basis to overturn the district court’s construction of the phrase “culturing . . . cells in three-dimensions.”  This was because the patents-in-suit define “three dimensional culturing” to exclude beads by “expressly confin[ing] culturing with beads to two-dimensional culturing.”  In light of this, the Federal Circuit affirmed the district court’s grant of summary judgment of non-infringement. 

·         In Ex parte Mewherter, the Patent Trial and Appeal Board held that a software composition cannot meet the requirements of patentable subject-matter under § 101 unless the invention excludes transitory media such as signals and carrier waves.  Independent claim 16 was rejected under § 101.  Claim 16 recited in pertinent part, “A machine readable storage medium having stored thereon a computer program for converting a slide show presentation for use within a non-presentation application.”  The Examiner rejected the claim arguing that the phrase “machine-readable storage medium” encompassed transitory media “such as signals, carrier waves, etc.”  The patent Applicant—IBM—countered that the term “storage” differentiates the claimed invention from the non-patentable subject matter “machine-readable medium” because it requires permanent storage.  The Board, however, affirmed the Examiner’s rejection noting that the specification failed to exclude transitory signals from its definition of “machine-readable storage medium.”  As a result, the Board held that one of skill in the art would construe the term to encompass transitory media and not be limited exclusively to permanent storage media.

MVS Filewrapper® Blog: New and Useful - April 23, 2013

·         In K-Tech Telecoms v. Time Warner Cable, the Federal Circuit confirmed that the standard for evaluating the adequacy of complaints alleging direct patent infringement remains Form 18 of the Appendix of Forms to the Federal Rules of Civil Procedure ("Form 18").  K-Tech filed separate complaints against Direct TV and Time Warner Cable (“TWC”) on the same day, alleging infringement of four patents.  Direct TV and TWC each moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), asserting the complaint, as filed, lacked sufficient factual specificity to state a cause of action for direct patent infringement.  K-Tech sought, and was grated, leave to amend the complaints.  After K-Tech filed its amended complaints, TWC and Direct TV again moved to dismiss under 12(b)(6).  The district court granted the motions to dismiss, stating that the amended complaints failed to cure the defects with the original complaint, namely that the complaints did not explain why K-Tech believed the defendants were utilizing the methods and products protected by the asserted patents, rather than using other noninfringing methods and products, and therefore failed to meet the standards articulated in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).  K-Tech appealed the dismissal two weeks before the Federal Circuit issued its decision in R+L Carriers, Inc. v. DriverTech LLC (In re Bill of Lading Transmission & Processing System Patent Litigation), 681 F.3d 1323 (Fed. Cir. 2012). The Federal Circuit consolidated the appeals.

On appeal, K-Tech argued that the amended complaints complied with Form 18 and that the district court applied the incorrect standard.  The defendants argued that sufficiency with respect to Form 18 must be interpreted in light of Twombly and Iqbal, and Ninth Circuit law, and that the amended complaints failed to meet either the plain language of Form 18 or the requirements of Twombly and Iqbal.  The court relied on its recent decision in R+L Carriers in reasserting the sufficiency of Form 18 for pleading patent infringement, and that to the extent any conflict exists between Form 18 and Twombly/Iqbal, the form controls.  Because Form 18 does not include any indication that a patent holder must explain why it believes that a defendant is utilizing the methods and products protected by the asserted patents, rather than using other noninfringing methods and products, such assertions are not required to survive a motion to dismiss.  Further, the court held that the failure of K-Tech to identify a particular allegedly infringing device or devices—by name, model number, or otherwise—did not bar K-Tech from filing a complaint in accordance with Form 18, stating, “A defendant cannot shield itself from a complaint for direct infringement by operating in such secrecy that the filing of a complaint itself is impossible. Nor is a defendant immune from a direct infringement claim because he does not make a ‘device’ but, rather, infringes through a system or method.” 

·         In Lazare Kaplan Int’l, Inc. v. Photoscribe Techs., Inc., the Federal Circuit reversed a decision by the U.S. District Court for the Southern District of New York granting summary judgment of invalidity of two claims of a patent owned by Lazare Kaplan (“LK”), and asserted against  Photoscribe Technologies, Inc. and the Gemological Institute of America (collectively “Photoscribe”).  The Federal Circuit also reversed the district court’s granting of a motion under Federal Rule of Civil Procedure 60(b) filed by Photoscribe that vacated the district court’s prior judgment finding the same claims not invalid.  LK sued Photoscribe alleging infringement of Lazare Kaplan’s patent covering systems and methods for microinscribing gemstones.  In the ensuing trial, the asserted claims of the LK patent were adjudged not invalid and not infringed, either literally or under the doctrine of equivalents.  LK appealed the judgment of noninfringement, but Photoscribe did not appeal the judgment that the asserted claims were not invalid.  On appeal, the Federal Circuit vacated the judgment as based on erroneous claim construction and remanded the case.  On remand, the district court retried both the invalidity and infringement issues, and granted Photoscribe’s motions for summary judgment of invalidity and for relief from the prior judgment under Rule 60(b) while denying LK’s motion for summary judgment of infringement.  LK again appealed the district court’s ruling.

The Federal Circuit, in the second appeal, reversed the grant of relief under Rule 60(b) and vacated the finding of invalidity, with instructions to the district court to reinstate the original judgment of non-invalidity.  The court concluded that the district court erred by allowing Photoscribe to address validity on remand despite its failure to file a cross-appeal from the adverse final judgment on validity in the original trial.  The court also concluded that under Second Circuit precedent, Rule 60(b) could not provide the relief granted by the district court.  The court then remanded the case again, with instructions for the district court to assess infringement under the construction the Federal Circuit had set forth in the prior appeal. 

 

Judge Dyk dissented in the opinion, arguing that the inconsistency of allowing the patentee to assert infringement based on a broad claim construction while defending against invalidity based on a narrower claim construction should be alleviated by Rule 60(b), notwithstanding the fact that Photoscribe did not appeal the original judgment that the asserted claims were not invalid. 

 

 

·         In Aspex Eyewear, Inc. v. Zenni Optical LLC, the Federal Circuit affirmed a decision by the US District Court for the Southern District of Florida holding that Aspex was collaterally estopped from pursuing the suit against Zenni based on earlier litigation between Aspex and Altair Eyewear, Inc. for infringement of the same patents.  The previous Altair litigation involved the same three patents, U.S. Patents No. 5,737,054 (the ’054 patent), No. 6,012,811 (the ’811 patent), and No. 6,092,896 (the ’896 patent), with many of the same claims asserted.  The district court in the Altair litigation held that the ’811 and ’896 patents were not infringed, and the asserted claim of the ’054 patent was invalid for obviousness.  The district court’s rulings were affirmed by the Federal Circuit. 

The district court applied the Altair rulings to the issues in the suit against Zenni, holding that the accused products were materially indistinguishable and the previous decisions settled the question of whether the accused Zenni product could infringe the asserted patents, and Aspex was therefore collaterally estopped from bringing suit against Zenni.  Aspex appealed the district court’s decision, arguing that the issues at stake were not identical because the claim terms that were construed and applied in the Altair litigation were not the same as the claim terms requiring construction in the Zenni suit. The Federal Circuit concluded that every claim asserted against Zenni contained the same limitation, in the same context, that was previously determined to be dispositive of non-infringement.  As a result, even though some of the claims asserted against Zenni were not construed of applied, this did not create a new issue to defeat preclusion.  The court further determined that Aspex had a full and fair opportunity to litigate the asserted patents, and the selection of additional claims for litigation and additional terms for construction could not override the holding of non-infringement.

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: 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.

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