July 31, 2017
This July 2017 edition of Gibson Dunn’s Federal Circuit Update discusses four recent Supreme Court decisions covering venue, exhaustion, biosimilars, and offensive trademarks, and two Federal Circuit cases regarding inter parties review now pending before the Supreme Court. This update also includes summaries of the two appeals pending before the en banc court, also regarding inter partes review procedures. Also included is an overview of the process for cross-appealing before the Federal Circuit, as well as summaries of a pair of key recent decisions relating to fee awards that reach opposite results.
The Supreme Court continues to be very active in its review of Federal Circuit decisions, issuing four opinions in the last two months.
In TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341 (May 22, 2017) (available here) (in-depth analysis by Gibson Dunn available here), the Court reversed the Federal Circuit’s decision and long-standing precedent allowing patent suits to be filed anywhere that personal jurisdiction existed over a defendant. Consistent with its earlier precedent, the Court held that, instead, a "domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute [28 U.S.C. § 1400(b)]."
In Impression Products, Inc. v. Lexmark International, Inc., No. 15-1189 (May 30, 2017) (available here) (earlier Gibson Dunn coverage available here), the Court addressed international patent exhaustion and post-sale restrictions. The Court held that: (1) "[a] patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose"; and (2) "[a]n authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act."
In Sandoz Inc. v. Amgen Inc., Nos. 15-1039, 15-1195 (June 12, 2017) (available here), the Court held that under 42 U.S.C. § 262(l) from the BPCIA a biosimilar manufacturer does not need to wait for FDA approval before giving its 180-day notice to the manufacturer of the corresponding biologic that it intends to commercially market the biosimilar, and that that the biosimilar manufacturer can give the 180-day notice "before or after receiving FDA approval." In addition, the Court held that, where a biosimilar manufacturer fails to provide the manufacturer of the corresponding biologic a copy of the biologics application as required under Section 262(l), courts cannot provide recourse through an injunction under federal law. The Court remanded to the Federal Circuit to determine whether a state-law injunction is available.
In Matal v. Tam, No. 15-1293 (June 19, 2017) (available here) (in-depth analysis by Gibson Dunn available here), the Court addressed the constitutionality of the Lanham Act’s disparagement clause. The Court held the disparagement clause, "which denies registration to any mark that is offensive to a substantial percentage of the members of any group," violates the First Amendment’s free speech clause. In reaching that conclusion, the Supreme Court held that trademarks "are private, not government speech."
The Supreme Court has also granted certiorari on two cases from the Federal Circuit:
Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712
Constitutionality of inter partes review under Article III and the Seventh Amendment
SAS Institute Inc. v. Matal, No. 16-969
The number of claims that must be addressed by the Patent Trial and Appeal Board in a final written decision during inter partes review
In re Aqua Prods., Inc., No. 15-1177 (Fed. Cir.): Allocations of the burdens of persuasion and production when a patent owner moves to amend in an inter partes review proceeding.
The PTAB instituted an inter partes review proceeding against Aqua’s patent, which relates to automated swimming pool cleaners. Aqua moved to amend the challenged claims to distinguish the cited prior art. The PTAB, however, denied Aqua’s motion, determining that Aqua failed to carry its burden of showing patentability of the proposed substitute claims over the prior art of record. On appeal, the PTO intervened to defend the PTAB’s decision. The Federal Circuit affirmed (decision available here). Eight amicus briefs have been filed: three in favor of neither party (American Intellectual Property Law Association, Intellectual Property Owners Association, and Houston Intellectual Property Law Association), three in favor of Aqua Products (Case Western Reserve University School of Law Intellectual Property Venture Clinic and Ohio Venture Association, Pharmaceutical Research and Manufacturers of America, and Biotechnology Innovation Organization), and two in favor of the PTO (Askeladden, L.L.C. and Internet Association et al.). Oral argument was heard on December 9, 2016.
(a) When the patent owner moves to amend its claims under 35 U.S.C. § 316(d), may the PTO require the patent owner to bear the burden of persuasion, or a burden of production, regarding patentability of the amended claims as a condition of allowing them? Which burdens are permitted under 35 U.S.C. § 316(e)?
(b) When the petitioner does not challenge the patentability of a proposed amended claim, or the PTAB thinks the challenge is inadequate, may the PTAB sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion, or a burden of production, lie?
Wi-Fi One, LLC v. Broadcom Corp., No. 15-1944 (Fed. Cir.): The Federal Circuit’s jurisdiction to review the PTAB’s determination that a petitioner is not time-barred under 35 U.S.C. § 315(b).
The PTAB instituted an inter partes review proceeding against Wi-Fi One’s patent. Wi-Fi One argued that Broadcom was time-barred under 35 U.S.C. § 315(b) from seeking review because Broadcom was in privity with time-barred district court litigants. The PTAB disagreed, determining that Wi-Fi One did not establish that Broadcom had sufficient control over district court litigation to support a privity finding. On appeal, the Federal Circuit held that it does not have jurisdiction to review the PTAB’s determination that Broadcom was not time-barred, holding that the Supreme Court’s decision in Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016), did not implicitly overrule prior Federal Circuit precedent on the issue (decision available here). To date, two amicus briefs have been filed in support of Wi-Fi One (WesternGeco LLC and 3DS Innovations, LLC), eight amicus briefs have been filed in support of neither party (Jeremy Cooper Doerre, New York Intellectual Property Law Association, Federal Circuit Bar Association, Intellectual Property Owners Association, Boston Patent Law Association, Professors of Patent and Administrative Law, American Intellectual Property Law Association, and Biotechnology Innovation Organization), and three amicus briefs have been filed in support of Broadcom (Oracle, Intel, and Apple). Oral argument was heard on May 4, 2017.
Should this court overrule Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015) and hold that judicial review is available for a patent owner to challenge the PTO’s determination that the petitioner satisfied the timeliness requirement of 35 U.S.C. § 315(b) governing the filing of petitions for inter partes review?
Cross-Appealing. Cross-appealing is "only necessary and appropriate" if a party "seeks to enlarge its own rights under the judgment or to lessen the rights of its adversary under the judgment." Bailey v. Dart Container Corp. of Mich., 292 F.3d 1360, 1362 (Fed. Cir. 2002). For example, if a district court finds an asserted patent not infringed and not invalid, and the Federal Circuit modifies the non-infringement judgment and remands, the district may only reopen the invalidity judgment on remand if the defendant had cross-appealed the invalidity finding. Lazare Kaplan Int’l, Inc. v. Photoscribe Techs., Inc., 714 F.3d 1289, 1297 (Fed. Cir. 2013).
Unlike other federal courts of appeal, the Federal Circuit does not does not permit "protective" or "conditional" cross-appeals, i.e., appeals that preserve challenges to the trial court or agency’s rulings in the event that the court of appeals modifies the judgment. Aventis Pharma S.A. v. Hospira, Inc., 637 F.3d 1341, 1343 (Fed. Cir. 2011). Instead, the appellee is "free to devote as much of [its] responsive briefing as needed to flesh out additional arguments and alternative grounds for affirming the judgment on appeal," but the appellee is "not free . . . to game the system by filing a cross-appeal to obtain the final word: this is neither fair to the appellant nor an efficient use of the appellate process." Id.
Procedurally, the party that first files a notice of appeal is designated the appellant; if the notices of appeal are filed on the same day, the plaintiff below is designated the appellant, and the other party is referred to as either the appellee or the cross-appellant. Fed. R. App. P. 28.1(b). The briefing structure in a case that involves a cross-appeal includes four briefs.
The Appellant’s Principal Brief. The Appellant’s Principal Brief addresses issues raised in the appellant’s notice of appeal. The Appellant’s Principal Brief has a blue cover and is limited to 14,000 words. Fed. R. App. P. 28.1(d); Fed Cir. R. 28.1(b)(1)(A). The Appellant’s Principal Brief must at least include the contents specified in Rule 28(a) of the Federal Rules of Appellate Procedure and must comply with Rule 28(a) of the Federal Circuit Rules. Fed. R. App. P. 28.1(c)(1).
The Appellee’s Principal and Response Brief. Due 40 days after the Appellant’s Principal Brief, the Appellee’s Principal and Response Brief responds to issues raised in the Appellant’s Principal Brief and may address all the issues in the appellee’s notice of appeal. Fed. Cir. R. 31(a)(2); Fed. R. App. P. 28.1(c)(2). The Appellee’s Principal and Response Brief has a red cover and is limited to 16,500 words. Fed. R. App. P. 28.1(d); Fed Cir. R. 28.1(b)(2)(A). The Appellee’s Principal and Response Brief must at least include the contents specified in Rule 28(a) of the Federal Rules of Appellate Procedure and must comply with Rule 28(a) of the Federal Circuit Rules, except that this brief need not include a statement of the case unless the appellee is dissatisfied with the appellant’s statement. Fed. R. App. P. 28.1(c)(2).
The Appellant’s Response and Reply Brief. The Appellant’s Response and Reply Brief must be filed within 40 days of the Appellee’s Principal and Response Brief and can respond to all issues raised in the Appellee’s Principal and Response Brief. Fed. Cir. R. 31(a)(3)(A); Fed. R. App. P. 28.1(c)(3). The Appellant’s Response and Reply Brief has a yellow cover and is limited to 14,000 words. Fed. R. App. P. 28.1(d); Fed Cir. R. 28.1(b)(1)(A). The Appellant’s Response and Reply Brief must at least include the contents specified in Rule 28(a)(2)–(8) and (10) of the Federal Rules of Appellate Procedure, except that the following need not appear unless the appellant is dissatisfied with the appellee’s statement: the jurisdictional statement, the statement of the issues, the statement of the case, and the statement of the standard of review. Fed. R. App. P. 28.1(c)(3).
The Appellee’s Reply Brief. The Appellee’s Reply Brief is filed 14 days after Appellant’s Response and Reply Brief and may only respond to arguments raised in Appellant’s Response and Reply Brief regarding the issues in the appellee’s notice of appeal. Fed. Cir. R. 31(a)(3)(B); Fed. R. App. P. 28.1(c)(4). The Appellee’s Reply Brief has a gray cover and is limited to 7,000 words. Fed. R. App. P. 28.1(d); Fed Cir. R. 28.1(b)(3). The Appellee’s Reply Brief must at least include the contents specified in Rule 28(a)(2)–(3) and (10) of the Federal Rules of Appellate Procedure. Fed. R. App. P. 28.1(c)(4).
Rothschild Connected Devices Innovations, LLC v. Guardian Protection Servs., Inc., No. 2016-2521 (Fed. Cir. June 5, 2017): Deficient early case diligence and motivation for a litigation campaign supports fee award.
Plaintiff, part of the Rothschild high-volume patent assertion group, sued over fifty companies in the Eastern District of Texas on U.S. Patent No. 8,788,090, accusing scores of seemingly disparate Internet-related products of infringement. Rothschild’s fifty-eight lawsuits were consolidated before Judge Gilstrap.
While a number of defendants settled, ADS Security refused to settle. Instead, ADS served a Rule 11 notice letter, asserting that the ‘090 patent claimed ineligible subject matter, as well providing Rothschild with notice of alleged invalidating prior art. ADS offered to settle if Rothschild paid ADS’s attorneys’ fees and costs. After Rothschild refused, ADS filed a motion for judgment on the pleadings and also sent a "Safe Harbor Notice" under Federal Rule of Civil Procedure Rule 11(c)(2). Rothschild moved to dismiss ADS voluntarily, and ADS moved for its attorneys’ fees under section 285. The district court denied ADS’s fees motion, holding that Rothschild had set forth "non-conclusory and facially plausible arguments supporting patent eligibility" and that its intent in filing "numerous other suits" did not make the case exceptional. Rather, the district court held that Rothschild’s voluntary dismissal was "the type of reasonable conduct Rule 11 is designed to encourage."
The Federal Circuit disagreed. First, the Federal Circuit (Prost, C.J.) held that Rothschild could not have had a good faith belief in the validity of the ‘090 patent after it failed to investigate prior art raised in ADS’s Rule 11 letter. Second, citing Octane Fitness, the panel reaffirmed that the "motivation" behind a litigation campaign may justify fee shifting, holding that the lower court ignored "undisputed evidence regarding Rothschild’s vexatious [pattern of] litigation." Third, the panel held that the district court erred by conflating Rule 11 with the standard for fee shifting, which does not require "independently sanctionable" conduct. Finally, in concurrence, Judge Mayer opined that the ‘090 patent "falls far beyond the bounds of section 101," describing Rothschild’s complaint as "frivolous on its face."
Checkpoint Sys., Inc. v. All-Tag Security S.A., No. 2016-1397 (Fed. Cir. June 5, 2017): Deficient early case diligence and motivation for a litigation campaign does not itself support fee award.
On the same day as the Rothschild decision, a different Federal Circuit panel reached the opposite result on fee shifting. Checkpoint asserted U.S. Patent No. 4,876,555, which claimed security tags for merchandise. Although Checkpoint’s claims survived summary judgment, Defendant All-Tag prevailed, obtaining a verdict that the patent was invalid, unenforceable, and not infringed. In seeking fees, All-Tag presented evidence that "Checkpoint never looked at the accused products" before filing suit. In granting an award of fees, the district court cited this deficient pre-suit investigation, as well as Checkpoint’s motivation behind its litigation campaign, which was allegedly designed to "interfere improperly" with competitors’ businesses "to protect [Checkpoint’s] own competitive advantage."
The Federal Circuit reversed. The panel (Newman, J.) noted that Checkpoint had sufficient evidence to survive summary judgment, and that "a party is entitled to rely on a court’s denial of summary judgment … as an indication that the party’s claims were objectively reasonable." In addition, All-Tag had not proven that the unaccused products inspected by Checkpoint before filing suit were materially different from the accused products. The court then held that the district court abused its discretion in considering Checkpoint’s motivation for its litigation campaign. "[P]atent law provides the statutory right to exclude those that infringe a patented invention. Enforcement of this right is not an ‘exceptional case’ under patent law." The Supreme Court’s statement in Octane Fitness that a party’s "motivation" for filing suit can be considered in determining fees requires a showing of "harassment or abuse," which was lacking in this case.
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:
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])
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