January 27, 2016
Gibson Dunn is pleased to announce its inaugural edition of the Federal Circuit Update, a bimonthly electronic newsletter designed to provide our clients and friends with a concise summary of recent activity at the U.S. Court of Appeals for the Federal Circuit, and a companion to Gibson Dunn’s annual Federal Circuit Year In Review. Each edition of the Update will provide an overview of recent Court news, a list of upcoming en banc cases, information on Federal Circuit practice, and important precedential case highlights–all at a glance.
In this issue, we profile the newest member of the Court, Judge Kara Stoll; provide brief summaries of the two pending en banc cases, Lexmark International and Medicines Co.; and summarize the proposed rule changes now pending at the Federal Circuit. We also present a summary of a number of key decisions related to a due process challenge to inter partes review, registration of scandalous, immoral, or disparaging trademarks, ITC jurisdiction over electronic data, and due process protections during inter partes review. We hope you enjoy this January 2016 edition of the Federal Circuit Update.
Federal Circuit News
Circuit Judge Kara Farnandez Stoll, the Federal Circuit’s newest judge, was unanimously confirmed by the Senate on July 7, 2015, and took the oath of office on July 17, 2015. Prior to joining the Court, Judge Stoll had been a partner at IP law firm Finnegan, Henderson, Farabow, Garrett & Dunner LLP and worked as a patent examiner for six years prior to receiving her law degree from Georgetown University Law Center. She has a Bachelor of Science in electrical engineering from Michigan State University.
The Federal Circuit has scheduled oral argument in a mandamus petition testing the limits of venue and forum shopping in patent infringement cases in In re TC Heartland LLC, Misc. No. 16-105, for March 11, 2016 at 2:00 p.m. in Courtroom 201. This petition and numerous amici seek to overturn or reconsider VE Holdings Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), which has been used to justify a liberal choice of venue in patent infringement cases for over 25 years.
The Supreme Court recently granted certiorari in Cuozzo Speed Techs., LLC v. Lee, No. 15-446, to address the question whether the Patent Trial and Appeal Board ("PTAB") may construe claims in accordance with their broadest reasonable interpretation duringinter partes review and whether a decision to institute inter partes review is unreviewable under 35 U.S.C. § 314(d), which states that such a determination "shall be final and nonappealable."
This spring, the Federal Circuit will host an open judicial conference for the bench and bar on Monday, April 11, 2016 at The Grand Hyatt, 1000 H Street, N.W., Washington, D.C. More information is available here.
Upcoming En Banc Federal Circuit Cases
Lexmark Int’l, Inc. v. Impression Prods., Inc., Nos. 2014–1617, 2014–1619 (Fed. Cir.): Exhaustion of extraterritorial and use-restricted sales.
Lexmark sells printer cartridges as either "regular" cartridges (without any limitations on future use) or "return program" cartridges (sold at a discount with an obligation to return after a single use). Lexmark possesses patents that allegedly cover the return program cartridges. Impression refurbishes and resells return program cartridges that Lexmark sold both in the United States and abroad. The district court held that patent exhaustion was triggered by Lexmark’s domestic sales, but not by Lexmark’s foreign sales. The Federal Circuit sua sponte ordered that the appeal be heard en banc after the appeal was argued before the original panel. The case was argued before the en banc court on October 2, 2015 (recording available here).
(a) The case involves certain sales, made abroad, of articles patented in the United States. In light of Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), should this court overrule Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001), to the extent it ruled that a sale of a patented item outside the United States never gives rise to United States patent exhaustion?
(b) The case involves (i) sales of patented articles to end users under a restriction that they use the articles once and then return them and (ii) sales of the same patented articles to resellers under a restriction that resales take place under the single-use-and-return restriction. Do any of those sales give rise to patent exhaustion? In light of Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), should this court overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), to the extent it ruled that a sale of a patented article, when the sale is made under a restriction that is otherwise lawful and within the scope of the patent grant, does not give rise to patent exhaustion?
Medicines Co. v. Hospira, Inc., Nos. 14-1469, 14-1504 (Fed. Cir.): The on-sale bar’s application to third-party manufacturing.
Medicines hired a third party to manufacture a drug on its behalf over a year before filing for patents that allegedly covered that drug in product-by-process claims. The panel held the patents were invalid as being offered for sale before the critical date (decision available here). The briefing for the en banc case is still in progress and an oral argument has not yet been scheduled.
(a) Do the circumstances presented here constitute a commercial sale under the on-sale bar of 35 U.S.C. § 102(b)? (i) Was there a sale for the purposes of § 102(b) despite the absence of a transfer of title? (ii) Was the sale commercial in nature for the purposes of § 102(b) or an experimental use?
(b) Should this court overrule or revise the principle in Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001), that there is no "supplier exception" to the on-sale bar of 35 U.S.C. § 102(b)?
Federal Circuit Practice Update
On December 3, 2015, the Federal Circuit posted a notice of proposed changes to its Rules of Practice, and invited comments by January 4, 2016. The Court provided a redline and a summary of the revisions, many of which stem from the Court’s conversion to electronic filing. The recent amendments to Federal Circuit Rules 28(a)(12) and 28(f), and Rule 30(b)(4)(E), relating to the pagination and marking of appendices and supplemental appendices have also been made final, effective January 4, 2016, and therefore are not included in the December 3, 2015 proposed changes.
Some of the most important proposed revisions to the Federal Circuit’s Rules of Practice include:
The Federal Circuit also posted a notice of a proposed change to Attorney Discipline Rule 8(b), which is open for public comment until January 22, 2016. The Court provided a redline of its proposed change, which would provide panels with discretion to schedule a hearing in cases of reciprocal discipline under Rule 2(b) or resignation under Rule 2(c).
Key Case Summaries (Nov. 2015 – Jan. 2016)
Ethicon Endo-Surgery, Inc. v. Covidien LP, No. 2014-1771 (Fed. Cir. Jan. 13, 2016) (Newman, Dyk, and Taranto, JJ.): Statutory authority for and constitutionality of PTAB regulations on composition of IPR panels.
In Ethicon, the Federal Circuit addressed the propriety of the same panel of administrative patent judges making both the institution and final decision in an inter partes review.
The Court (Dyk, J.) first dealt with a threshold issue of whether 35 U.S.C. § 314(d)–which states that "[t]he determination by the Director whether to institute an inter partes review shall be final and nonappealable"–bars review of the PTO’s decision to use the same panel for institution and final decision. The Court held that section 314(d) did not bar review, because Ethicon was not challenging the institution decision, but only alleged defects in the final decision for being composed of the same panel members.
Turning to the merits, the Court noted that there is "nothing in the Constitution or the statute that precludes the same Board panel from making the decision to institute and then rendering the final decision." This does not violate due process because that practice is "analogous to a district court determining whether there is a ‘likelihood of success on the merits’ and then later deciding the merits of the case" and akin to combining investigate and adjudicatory functions into a single body.
Judge Newman dissented, noting that the AIA vests institution authority in the Director and final decision authority to the administrative patent judges, making it clear that Congress intended for two different bodies to make the institution and final decisions.
In re Tam, No. 2014-1203 (Fed. Cir. Dec. 22, 2015) (en banc): Constitutionality of statute prohibiting registration of scandalous, immoral, or disparaging trademarks.
This case addressed the constitutionality of section 2(a) of the Lanham Act, which bars the PTO from registering scandalous, immoral, or disparaging marks. At issue was the name of Mr. Tam’s Asian-American dance-rock band–"The Slants"–which the PTO refused to register because it was disparaging to a substantial component of people of Asian descent.
The en banc Court (Moore, J.) held that section 2(a) violated the First Amendment’s protections on free speech because the government’s refusal to register disparaging marks amounts to viewpoint discrimination subject to strict scrutiny, and the government had not argued that section 2(a) would survive such scrutiny. Because the government did not offer any substantial interests justifying the restrictions, and because the restrictions did not directly and materially advance the government’s asserted interests and were not narrowly tailored to achieve such interests, section 2(a) would also be unconstitutional under the intermediate scrutiny applied to commercial speech. Judge O’Malley (joined by Judge Wallach) and Judge Dyk (joined, in parts, by Judges Lourie and Reyna) filed concurring opinions, and Judges Lourie and Reyna filed dissenting opinions.
Commonwealth Sci. & Indus. Research Org. v. Cisco Sys., Inc., No. 2015-1066 (Fed. Cir. Dec. 3, 2015) (Prost, C.J., Dyk and Hughes, JJ.): Impact of a patent being standard essential in the reasonable royalty analysis.
Cisco challenged a damages award of $16 million for its infringement of a patent that covers wireless communication protocols and is a standard-essential patent ("SEP") for the 802.11 wireless standard. The patent, however, was not encumbered with an obligation to license on reasonable and non-discriminatory ("RAND") terms. Cisco argued (1) that the district court erred by basing its damages model on the value of comparable licenses, rather than on the value of the smallest salable patent-practicing unit, and (2) that the district court failed to account for any extra value accruing to the patent from the fact that it is an SEP.
The Federal Circuit (Prost, C.J.) rejected Cisco’s first argument that all damages models must begin with the value of the smallest salable patent-practicing unit. The Court approved the district court’s methodology of basing the valuation of the asserted patents on comparable licenses and then adjusting the rates to account for differences in the technologies and economic circumstances of the contracting parties.
The Court agreed with Cisco, however, that the district court erred by not basing the royalty on the value of the patented feature, instead of the value added by being a SEP, as set forth in Ericsson, Inc. v. D-Link Systems, Inc., 773 F.3d 1201 (Fed. Cir. 2014). The Court rejected the patentee’s argument that the Ericsson rule applies only to SEPs encumbered with an obligation to license on RAND terms, reasoning that regardless of RAND obligations, a reasonable royalty calculation must remove any value that artificially accrues to a patent due to the adoption of a standard. Here, the district court had inappropriately increased the royalty award because the patent was essential to the 802.11 standard. The court therefore vacated the damages award and remanded for the district court to adjust the award to account for the standard-essential nature of the patent.
Clearcorrect Operating, LLC. v. Int’l Trade Comm’n, No. 2014–1527 (Fed. Cir. Nov. 10, 2015) (Prost, C.J., Newman and O’Malley, JJ.): ITC jurisdiction over electronic data.
The Federal Circuit considered whether the International Trade Commission ("ITC") has jurisdiction to issue an exclusion order on the importation of electronic data. The ITC held that it had jurisdiction to regulate the importation of such data.
The Court (Prost, C.J.) concluded that section 337 of the Tariff Act of 1930 applies to tangible articles, not intangible electronic data. Dictionaries from the time routinely defined "article" as a "material thing," and because electronic data is not a "material thing," it is excluded from the ITC’s jurisdiction. The Court also noted that the agency’s interpretation did not warrant Chevron deference, because the statute was not ambiguous and because reading "article" broadly enough to cover nonmaterial things such as electronic information would render significant portions of the Act superfluous. Judge O’Malley wrote a concurrence to explain her belief that this was an "extraordinary" circumstance in which Congress did not intend to delegate gap-filling authority to the ITC. Judge Newman dissented, arguing that the Commission’s jurisdiction should not be limited to the kinds of technology in existence in the 1930s.
Belden, Inc. v. Berk-Tek LLC., Nos. 2014–1575, –1576 (Fed. Cir. Nov. 5, 2015) (Newman, Dyk, and Taranto, JJ.): Consideration of arguments made for the first time in reply in an inter partes review.
Berk-Tek petitioned for inter partes review of all of the claims of U.S. Patent No. 6,074,503. In a final written decision, the PTAB cancelled some of the claims as obvious, but upheld others. The Federal Circuit (Taranto, J.) affirmed the Board’s obviousness finding with respect to the invalidated claims, but reversed the Board’s determination that other claims were valid.
The Court also rejected Belden’s argument that the Board improperly relied on arguments raised for the first time in Berk-Tek’s reply briefing, in violation of 37 C.F.R. § 42.23(b). The Court concluded that section 42.23(b) did not preclude consideration of arguments raised in reply briefing, and identified the various procedural protections and opportunities to respond to petitioner’s arguments afforded to patent owners. A patent owner may (1) file a preliminary response to argue against institution, (2) file a post-institution response to defend the claims, (3) file at least one set of written comments, (4) obtain an oral hearing, (5) cross-examine an affiant, (6) move for additional discovery, (7) move to exclude evidence, and (8) file surreplies. And where a petitioner submits a new expert declaration with its reply briefing, the patent owner can cross-examine the expert and move to file observations on the cross-examination, move to exclude the declaration, dispute the substance of the declaration at the oral hearing, move for permission to submit a surreply responding to the declaration’s contents, and request that the Board waive or suspend a regulation that the patent owner believes impairs its opportunity to respond to the declaration. The Court thus rejected Belkin’s procedural challenge, noting the similarities in procedural due process protections between inter partes review and district court litigation.
Upcoming Oral Argument Calendar
For a list of upcoming arguments at the Federal Circuit, please click here.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit. Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert:
Appellate and Constitutional Law Group:
Theodore J. Boutrous, Jr. – Los Angeles (213-229-7000, [email protected])
Thomas G. Hungar - Washington, D.C. (202-955-8500, [email protected])
Caitlin J. Halligan – New York (212-351-4000, [email protected])
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