Federal Circuit Update (July 2016)

July 27, 2016

This July 2016 edition of Gibson Dunn’s Federal Circuit Update discusses the Supreme Court’s recent reversal and remand of the Federal Circuit in Halo Electronics, Inc. v. Pulse Electronics, Inc. and affirmance of the Federal Circuit in Cuozzo Speed Technologies, LLC v. Lee.  The Update also includes a practice tip regarding the procedure and timing for appealing a final decision from the Patent Trial and Appeal Board in post-grant proceedings.  Also included are summaries of a number of key recent decisions including the recent en banc decision regarding the on-sale bar’s application to third-party manufacturing and opinions related to claim construction, a pair of decisions on the application of the Administrative Procedure Act to proceedings before the Board, patent eligibility under Alice step two, and the availability of preliminary injunctions for biosimilar products under the Biologics Act of 2009.  Gibson Dunn recently prevailed as appellee in Indacon, Inc. v. Facebook, Inc., No. 2015-1129 (Fed. Cir. June 6, 2016), securing an affirmance of a claim construction on behalf of Facebook and thus upholding the stipulated judgment of noninfringement in the district court.

Federal Circuit News

In June, the Supreme Court issued opinions in two highly anticipated patent cases.

In Halo Electronics, Inc. v. Pulse Electronics, Inc., the Supreme Court rejected the Federal Circuit’s two-prong Seagate test for enhanced damages under 35 U.S.C. § 284 as "unduly rigid" and inconsistent with the text of Section 284.  The Court also clarified the standard of proof and standard of review related to enhanced damages determinations. The new test eliminates Seagate‘s objective recklessness prong and focuses on the accused infringer’s subjective intent.  The Court lowered the burden of proof from clear and convincing evidence to a preponderance of the evidence for proving enhanced damages.  Finally, the Court held that the district court’s decision on whether to award enhanced damages is reviewed for an abuse of discretion. The Supreme Court’s ruling could make enhanced damages easier to obtain and uphold on appeal.

Cuozzo Speed Technologies, LLC v. Lee addressed two aspects of inter partes review ("IPR") practice before the Patent Trial and Appeal Board.  First, the Court clarified that the Board’s determination on whether to institute IPR is not appealable absent unusual circumstances.  The Court held that the presumption favoring judicial review of agency decisions was overcome by the by clear language of 35 U.S.C. § 314(d), the presence of an analogous "no appeal" provision in the reexamination statutes, the America Invents Act’s ("AIA") grant of broad authority to the PTO for conducting IPRs, and the overall Congressional objectives in creating IPRs. The Court, however, left open the possibility that judicial review might be available under the Administrative Procedure Act in certain circumstances.  Second, the Court held that the broadest reasonable interpretation standard applied by the Board was a reasonable exercise of rulemaking authority by the PTO.  The Court distinguished IPRs from judicial proceedings on a number of grounds, and found that these differences and the legislative history of the AIA showed that "Congress had designed a hybrid proceeding" and expressly delegated authority to the PTO.

On June 27, the Court granted certiorari in Life Technologies Corp. v. Promega Corp. to determine whether supplying a single, commodity component of a multi-component invention from the United States is an infringing act under 35 U.S.C. § 271(f)(1), exposing the manufacturer to liability for all worldwide sales.

Upcoming En Banc Federal Circuit Cases

There are no pending en banc cases.

Federal Circuit Practice Update

This month, we are highlighting the timing and procedure of appealing an adverse final decision by the Board in a post-grant proceeding to the Federal Circuit–a procedure that has become increasingly important since Congress passed the AIA.

Timing.  When faced with a final decision, a party can request rehearing before the Board 30 days from "the entry of a final decision."  37 C.F.R. § 42.71(d)(2).  If no request for rehearing is filed, a party can appeal by filing a notice of appeal within 63 days of the final Board decision.  Id. § 90.3(a)(1).  Should a party file a request for rehearing, the time for noticing an appeal will be "reset . . . to no later than sixty-three (63) days after action on the request"–in other words, the time to notice an appeal is extended to 63 days after the Board decides the request to rehear.  Id. § 90.3(b)(1).  Because the Board seeks to decide requests for rehearing within one month, filing a rehearing can be expected to extend the period for noticing the appeal to approximately 123 days.  See Office Patent Trial Practice Guide, 77 Fed. Reg. 48,756, 48,768 (Aug. 14, 2012).  A party may also request an extension of time to file an appeal pursuant to section 90.3(c).

Procedure.  Three filings are required to properly notice an appeal to the Federal Circuit.  First, as previously discussed, a party must file a notice of appeal with the Board.  A party that notices an appeal must also send a letter to the Director of the PTO and file a separate notice of appeal at the Federal Circuit.  37 C.F.R. § 90.2(a)(1)–(2).  Thus, an appellant must file three notices of appeal–with the Board, the Director of the PTO, and the Federal Circuit.  Within 40 days of receiving a notice of appeal, "the Director shall transmit to the . . . Federal Circuit a certified list of the documents comprising the record" in the PTO.  35 U.S.C. § 143; Fed. Cir. R. 17(b)(1).  After the PTO serves the certified list, the briefing begins, and appellant has 60 days to serve and file its opening brief.  Fed. Cir. R. 31(a)(1)(B).

Key Case Summaries (June – July 2016)

Medicines Co. v. Hospira, Inc., Nos. 2014-1469, -1504 (Fed. Cir. July 11, 2016) (en banc):  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.  When the manufacturing was complete, the contract manufacturer then "sold" the products to Medicines pursuant to the manufacturing contract.  The panel reversed the district court, concluding that the patents were invalid as being offered for sale before the critical date.

In a unanimous decision, the en banc court (O’Malley, J.) held that, to be "on sale" under § 102(b), a product must be the subject of a commercial sale or offer for sale, based on the general hallmarks of a sale pursuant to Section 2-106 of the Uniform Commercial Code.  The en banc court therefore affirmed the district court’s finding that the mere sale of manufacturing services by a contract manufacturer to an inventor to create embodiments of a patented product does not constitute a "commercial sale" of the invention.  The court reasoned that, in this case, manufacturing services were sold to the inventor; the invention was not.  According to the court, moreover, the facts show that the inventor maintained control of the invention when he obtained the manufacturing services and that "stockpiling" alone does not trigger the on-sale bar.

Indacon, Inc. v. Facebook, Inc., No. 2015-1129 (Fed. Cir. June 6, 2016):  Scope of term without an established meaning is limited to what is disclosed in the specification.

Indacon filed suit against Facebook, alleging infringement of two patents relating to the insertion of automatically generated hyperlinks in a database.  The district court construed "alias" and three related "link" terms–"custom link," "custom linking relationship," and "link term"–all in favor of Facebook.  Indacon subsequently stipulated to noninfringement in light of the constructions and appealed.  The Federal Circuit (Stoll, J.) adopted Gibson Dunn’s arguments on appeal and affirmed the district court’s ruling. 

With respect to the "link" terms–"custom link," "custom linking relationship," and "link term"–the district court had determined that the system must allow a user to define a link "using a chosen term that allows each instance of the term" to be identified as a link.  On appeal, Indacon argued that the construction was wrong insofar as it excluded instances in which less than all instances of a term are linked.  But the Federal Circuit agreed with Facebook that because the "link" terms had no accepted meaning in the art, "they ordinarily cannot be construed broader than the disclosure in the specification."  Significantly, the court’s analysis affirms the ongoing viability of Irdeto Access, Inc. v. Echostart Satellite Corp., 383 F.3d 1295, 1300 (Fed. Cir. 2004), and provides defendants with a powerful tool to limit the scope of a term that does not have an established meaning in the art.

Indacon also challenged the district court’s construction of "alias," which the district court construed as being limited to a "textual expression that the user can define to serve as an alternative name or label."  The court affirmed the district court’s construction, finding that it was supported by the specification and Summary of the Invention, as well as by the unchallenged construction of the word "term" meaning a textual expression.

SAS Inst. Inc. v. ComplementSoft, LLC, Nos. 2015-1346, -1347 (Fed. Cir. June 10, 2016): The Board’s adoption of a new construction in the final decision that no party argued violates the APA notice requirements.

SAS Institute filed an IPR petition to review the patentability of a development environment for generating source code.  The Board instituted an IPR proceeding on some, but not all, of the patent claims challenged by SAS Institute.  In the institution decision, the Board construed the term "graphical representations of data flows," and neither party challenged the construction.  The Board then found all of the instituted claims except claim 4 unpatentable over the prior art.  In doing so, however, the Board used a different construction of "graphical representations of data flows" than it had in the institution decision.

The Federal Circuit (Stoll, J.) vacated the Board’s decision.  Although the Federal Circuit agreed with the Board’s new construction, the court determined that the Board’s procedure did not comport with the APA procedural requirement that persons "entitled to notice of an agency hearing shall be timely informed of . . . the matters of fact and law asserted."  The court stated that the PTO cannot "change theories in midstream without giving respondents reasonable notice of the change and the opportunity to present argument under the new theory."  Judge Newman dissented in part to restate her views that the Board’s practice of instituting an IPR proceeding on some but not all of the claims challenged by a petitioner does not comport with the AIA.

Genzyme Therapeutic Prods. Ltd. v. Biomarin Pharm. Inc., Nos. 2015-1720, -1721 (Fed. Cir. June 14, 2016):  The Board can rely on prior art in the final decision not addressed in the institution decision without violating the APA if the argument was raised in reply. 

Biomarin filed an IPR petition arguing that claims of two patents owned by Genzyme were unpatentable as obvious.  In its institution decision, the Board cited prior art related to in vitro experiments.  Genzyme argued in its response that a person of ordinary skill in the art would not find the in vitro experiments predictive of results in a human patient.  Biomarin’s reply brief then cited two in vivo studies that had not been mentioned in the Board’s institution decision.  The Board found the claims at issue to be obvious, and in the final written decision, the Board referenced the two in vivo studies as part of its analysis of the state of the art at the time of the invention.

The Federal Circuit (Bryson, J.) affirmed the Board’s decision and held that there is no requirement that an institution decision "anticipate and set forth every legal or factual issue that might arise in the course of the trial."  Rather, the critical question for compliance with the APA and due process is whether the parties have received "adequate notice of the issues that would be considered, and ultimately resolved, at that hearing."  The court determined that Genzyme had sufficient notice that the Board might cite the in vivo studies in its final written decision because Genzyme had raised the in vivo argument and then addressed the cited studies during the oral hearing.  The court also noted that Biomarin’s raising of these studies in its reply brief did not change the outcome because IPR proceedings have procedural mechanisms for dealing with new evidence raised in a reply:  Genzyme could have moved to exclude the new references or asked for leave to file a surreply to address the new references, but Genzyme failed to take advantage of either procedural option.

Bascom Global Internet Serv., Inc. v. AT&T Mobility LLC, No. 2015-1763 (Fed. Cir. June 27, 2016): Generic computer and software elements can be § 101 eligible if the particular order combination was an improvement over the prior art.

Bascom sued AT&T in district court, alleging infringement of certain patent claims directed to filtering content over the Internet.  The district court granted AT&T’s motion to dismiss under 35 U.S.C. § 101, holding that the patent was directed to an abstract idea–filtering content–and that the claims lacked an otherwise inventive concept. 

The Federal Circuit (Chen, J.) vacated the district court’s order and remanded.  The Court explained that prior art filtering systems typically involved an individualized filtering system on the end-user’s computer or a universal filtering system on a server.  The purported invention combined the best aspects of both prior art systems:  it claimed a system in which a remote server filtered content based on individualized rules for an end-user.  Applying Alice‘s two-step test, the Court determined that it was a "close call" as to whether the claims were directed to an abstract idea.  The court therefore moved to step two.  While the Court agreed that each of the individual elements was well-known in the art, the Court determined that there was no evidence in the record to indicate that the particular ordered combination claimed–using individualized filters on a remote server–was a generic combination.  Indeed, according to the patent’s specification, this was the improvement over the prior art.  Judge Newman concurred, arguing that it would be more efficient if district courts decided issues of patentability (e.g., §§ 102, 103, 112) before deciding issues of eligibility (i.e., § 101).

Amgen Inc. v. Apotex Inc., No. 2016-1308 (Fed. Cir. July 5, 2016):  Availability of a preliminary injunction for biosimilar products under the Biologics Act of 2009.

In 2014, Apotex filed an application for an FDA license to market a product biosimilar to Amgen’s FDA-licensed Neulasta®.  Under 42 U.S.C. § 262(l), companies developing biosimilar products can use an abbreviated pathway to gain approval for a biosimilar product without having to repeat all of the work of the "reference product sponsor."  Biosimilar-product companies are allowed, but not required, under § 262(l)(2)(A) to notify the reference-product company that the FDA has accepted the biosimilar application.  The biosimilar-product company then cannot apply for a license until four years after the reference product received its license.  The biosimilar-product license cannot be made effective until 12 years after the reference product received its license.  The company with the biosimilar product also cannot begin commercial marketing until it has (1) received a license from the FDA, even if the license is not yet effective; (2) notified the reference-product company of the forthcoming commercial marketing; and (3) waited 180 days after such notice to the reference-product company.

Here, Apotex sent Amgen a § 262(l)(2)(A) notice, and the companies exchanged subsequent disclosures as required by § 262(l).  During this disclosure process but before the FDA had issued a license to Apotex, Apotex sent Amgen a letter stating that it was thereby providing notice of future commercial marketing.  Amgen sued Apotex for infringement and filed a motion for a preliminary injunction that would require Apotex to forego all commercial marketing until Apotex had provided post-licensure notice of commercial marketing, followed by the statutory post-notice 180-day period.  The district court granted the preliminary injunction.

The Federal Circuit (Taranto, J.) affirmed the lower court’s issuance of the preliminary injunction.  The court held that the commercial marketing notice is a standalone provision that must be given after the FDA has issued a license for the biosimilar product and that pre-licensure notices have no legal effect.  The court determined that the language of § 262(l)(8)(A) is "categorical" and held that the requirement of "180 days’ post-licensure notice before commercial marketing . . . is a mandatory one enforceable by injunction whether or not a (2)(A) notice was given."  The court also rejected Apotex’s argument that § 262(l)(9)(B) makes a declaratory-judgment action the exclusive remedy for violations of § 262(l)(8)(A); the court held that the statute included no text providing for exclusivity of the remedy and no such exclusivity could be inferred.

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:

Blaine H. Evanson – Los Angeles (213-229-7228, [email protected])
Blair A. Silver – Washington, D.C. (202-955-8690, [email protected])

Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: 

Appellate and Constitutional Law Group:
Mark A. Perry – Washington, D.C. (202-887-3667, [email protected])
James C. Ho – Dallas (214-698-3264, [email protected])
Caitlin J. Halligan – New York (212-351-4000, [email protected])

Intellectual Property Group:
Josh Krevitt – New York (212-351-4000, [email protected])
Wayne Barsky - Los Angeles (310-552-8500, [email protected])
Mark Reiter – Dallas (214-698-3100, [email protected])

© 2016 Gibson, Dunn & Crutcher LLP

Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.