Federal Circuit Update (March 2016)

March 24, 2016

Included in this March 2016 edition of Gibson Dunn’s Federal Circuit Update is a brief overview of the upcoming Federal Circuit Judicial Conference, a summary of the pending en banc case (Medicines Co.), and a practice update regarding a proposed change to one of the Federal Circuit’s internal operating procedures.  Also included are summaries of a number of key recent decisions related to patent exhaustion, the patent-agent evidentiary privilege, due process issues related to election of asserted claims, and the overlap between antitrust and inequitable conduct.  Gibson Dunn prevailed in two cases since our last update:  In Rembrandt Social Media, LP v. Facebook, Inc., No. 2014-1812 (Fed. Cir. Feb. 25, 2016), Gibson Dunn helped secure an affirmance of a judgment of non-infringement; and in Acorda Therapeutics Inc. v. Mylan Pharmaceuticals Inc., Nos. 2015-1456, -1460 (Fed. Cir. Mar. 18, 2016), Gibson Dunn successfully defended a denial of a motion to dismiss for lack of personal jurisdiction, broadening the availability of personal jurisdiction in ANDA patent infringement cases.

Federal Circuit News

The Federal Circuit will be holding its annual Federal Circuit Judicial Conference on April 11, 2016.  In addition to remarks by Chief Justice John Roberts of the Supreme Court, Chief Judge Sharon Prost of the Federal Circuit, and Solicitor General Donald B. Verrilli, Jr., the Federal Circuit judges will sit on a panel addressing questions about the state of the Court and general issues before it.  David Kappos, former Director of the U.S. Patent & Trademark Office, and Michelle Lee, who was recently confirmed as the Office’s new Director, will also sit as part of panels during the conference.  More information can be found here.

Upcoming En Banc Federal Circuit Cases

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).  Nine amicus briefs have been filed:  two in support of neither party (American Intellectual Property Law Association and the Intellectual Property Owners Association) and seven in support of Medicines Co. (The United States, Houston Intellectual Property Association, Biotechnology Innovation Organization, Gilead Sciences, Inc., Pharmaceutical Research and Manufacturers of America, Dr. Roberta Jean Morris, and Miller, Patti, Pershern PLLC).

Questions Presented:

(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 February 5, 2016, the Court amended Internal Operating Procedure #14 to clarify the timing for judges to circulate opinions regarding the denial of an en banc action.  According to the updated IOP:

If a judge indicates on an en banc poll sheet that he or she intends to file a separate opinion regarding the denial of an en banc action, then within six working days after the poll deadline ends, the judge will transmit his or her opinion to the other judges.  No later than three working days from the end of that six-day period, if a separate opinion is transmitted, any other judge may transmit a separate opinion.  Six working days after that three-day period, an order of the court and any separate opinions will be transmitted for issuance.

A redline of the change is available here, and the full text of the new IOP #14 is available here.

Key Case Summaries (Feb. – Mar. 2016)

Lexmark Int’l, Inc. v. Impression Prods., Inc., No. 2014-1617 (Fed. Cir. Feb. 12, 2016) (en banc): Patent exhaustion after the Supreme Court’s decisions in Quanta and Kirtsaeng.

The en banc Federal Circuit considered whether it should overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), and Jazz Photo Corp. v. ITC, 264 F.3d 1094 (Fed. Cir. 2001), in light of the Supreme Court’s decisions in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), and Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013).  In Mallinckrodt, the Federal Circuit held that a patentee does not exhaust its patent rights when it sells a patented article subject to a single-use or no-resale restriction that is lawful and clearly communicated to the purchaser.  976 F.2d at 708-09.  In Jazz Photo, the Federal Circuit held that a patentee who sells its patented articles abroad does not authorize the buyer to import the articles into the U.S. for sale or use.  264 F.3d at 1105.  Subsequently, the Supreme Court in Quanta held that patent rights had been exhausted when a sale was made by a licensed manufacturer, whose license gave it unrestricted authority to sell the patented product; and, in Kirtsaeng, the Court applied the statutory "first sale" doctrine of copyright law to copies of a copyrighted work lawfully made abroad.

The en banc Federal Circuit (Taranto, J.) did not overrule Mallinckrodt or Jazz Photo.  The court held that Quanta involved a license with unrestricted authority to sell the patented product, and, thus, would not impact cases where the patentee placed single-use or no-resale restrictions on its patented products.  The Federal Circuit pointed to prior Supreme Court precedent in General Talking Pictures Corp. v. Western Electric Co., 304 U.S. 175, opinion on rehearing at 305 U.S. 124 (1938), where the Court observed that a patentee can preserve its patent rights through restrictions on the sales that licensees are authorized to make.  The court also distinguished Kirtsaeng given that the express "first sale" provision in the Copyright Act is not present in the Patent Act.

Judge Dyk (joined by Judge Hughes) dissented, arguing that Mallinckrodt was wrongly decided and cannot be reconciled with Quanta.  The dissent also argued that Jazz Photo remains good law only to the extent a patentee explicitly reserves its U.S. patent rights; otherwise, the patentee’s foreign sale would result in exhaustion.

In re Queen’s Univ. at Kingston, No. 2015-145 (Fed. Cir. Mar. 7, 2016) (Lourie, O’Malley, and Reyna, JJ.): Common law, non-attorney patent-agent privilege.

On writ of mandamus, the Federal Circuit recognized for the first time a privilege that applies to patent-agent communications.  The plaintiff, over its objections based on privilege, had been ordered to produce communications between the plaintiff and its non-attorney patent agents.  The plaintiff filed a petition for a writ of mandamus, seeking to force the district court to withdraw its order compelling the production of communications with the non-attorney patent agents.  The panel majority (O’Malley, J., joined by Lourie, J.) granted the petition, concluding that the communications were protected by a "patent-agent" privilege, even if counsel is not involved in the communication.  Relying on "reason and experience," the majority held that "the unique roles of patent agents, the congressional recognition of their authority to act, the Supreme Court’s characterization of their activities as the practice of law, and the current realities of patent litigation counsel in favor of recognizing an independent patent-agent privilege."  Judge Reyna dissented, arguing that new privileges should not be lightly created, and that none of the justifications identified by the majority or by the plaintiff overcame the presumption against creating new privileges.

Rembrandt Social Media, LP v. Facebook, Inc., No. 2014-1812 (Fed. Cir. Feb. 25, 2016) (Prost, C.J., Dyk and Taranto, JJ.) (non-precedential):  District court’s questioning of witnesses to clarify testimony.

Gibson Dunn successfully represented Facebook, Inc. in defending a judgment of non-infringement in the wake of accusations of judicial bias.  Rembrandt Social Media alleged that Facebook infringed two of its patents related to delivering content to web-based users.  The case was tried to a jury in the Eastern District of Virginia, which found that the asserted patent claims were not infringed and were invalid as obvious.  On appeal, Rembrandt raised a host of issues concerning infringement, invalidity, allegedly prejudicial questioning of a witness by the trial judge, and improper exclusions of expert testimony.  The Federal Circuit (Prost, C.J.) affirmed the judgment of non-infringement, and declined to reach the other issues related to invalidity and the exclusion of testimony.  With respect to the district court’s questioning of witnesses, the Federal Circuit explained that "it is settled beyond doubt that in a federal court the judge has the right, and often an obligation, to interrupt the presentations of counsel in order to clarify misunderstandings or otherwise insure that the trial proceeds efficiently and fairly."  The Court determined that the district court’s questioning was not an abuse of discretion because it was meant to clarify highly technical testimony.

Nuance Commc’ns, Inc. v. Abbyy USA Software House, Inc., Nos. 2014-1629, -1630 (Fed. Cir. Feb. 22, 2016) (Prost, C.J., Dyk and Chen, JJ.): Due process implications of requiring a plaintiff to elect only some of its asserted patents for trial.

The Federal Circuit (Prost, C.J.) affirmed a district court’s refusal to hold a second trial on patents the plaintiff did not elect to assert in a first trial.  Nuance initially asserted eight patents against defendant Abbyy, but at trial limited its case to fifteen claims in four patents.  After trial, Nuance asked for a second trial with respect to the patents not tried in the first case.  The district court refused and entered final judgment on all patents.  On appeal, Nuance contended that it was denied due process.  The Federal Circuit rejected the argument because Nuance actively participated in winnowing the claims for trial and did not object until after it had lost at trial.  The court concluded that, "[a]lthough clearer guidance from the District Court as to the consequences of Nuance’s decision to narrow the case might have been preferable, ultimately the responsibility was on Nuance to timely notify the District Court as to any objection to the court’s procedures."

TransWeb, LLC v. 3M Innovative Props. Co., No. 2014-1646 (Fed. Cir. Feb. 10, 2016) (Wallach, Bryson, and Hughes, JJ.):  Antitrust damages for bringing suit on a patent found unenforceable due to inequitable conduct.

The Federal Circuit (Hughes, J.) affirmed an award of treble damages under the antitrust laws based on inequitable conduct.  3M sued TransWeb for patent infringement, and TransWeb counterclaimed, seeking a declaratory judgment of invalidity and antitrust damages.  The district court determined that the patents were invalid and unenforceable due to inequitable conduct, and awarded approximately $26,000,000 in antitrust damages, which was calculated by trebling the cost to TransWeb in defending itself against the infringement claims.  On appeal, 3M challenged the award of antitrust damages, arguing that antitrust damages were unwarranted because TransWeb failed to show a link between the cost of the litigation (i.e., the attorneys’ fees) and an impact on competition.  The Federal Circuit affirmed.  While the Court agreed that, in order to be treated as antitrust damages, the damages must "stem from a competition-reducing aspect or effect of the [3M’s] behavior," the Court went on to explain the unlawful act here (bringing a suit based on a patent known to be fraudulently obtained) constituted an attempt to gain a monopoly.  The Court held that the attorneys’ fees "flow directly from this unlawful aspect of 3M’s act," and that the fees are "attributable to this anticompetitive aspect."  The fees were, therefore, held to be "antitrust injury," and the Court affirmed the district court’s trebling of the damages award.

Acorda Therapeutics Inc. v. Mylan Pharm. Inc., Nos. 2015-1456, -1460 (Fed. Cir. Mar. 18, 2016) (Newman, O’Malley, and Taranto, JJ.):  Specific personal jurisdiction in ANDA cases.

Gibson Dunn successfully represented drug manufacturers Acorda and AstraZeneca in an appeal challenging personal jurisdiction over appellant Mylan.  This dispute arose from Mylan’s filing of an Abbreviated New Drug Application (ANDA) with the FDA, which sought approval to market generic versions of the drugs sold by Acorda and AstraZeneca.  Mylan certified that the Orange Book patents were invalid or would not be infringed under paragraph IV of 21 U.S.C. § 355(j)(2)(A)(vii).  Acorda and AstraZeneca sued in Delaware district court under 35 U.S.C. § 271(e)(2)(A), and Mylan moved to dismiss for lack of personal jurisdiction.  Both district courts concluded that there was personal jurisdiction over Mylan. 

The Federal Circuit (Taranto, J.) held that a finding of specific personal jurisdiction over Mylan in Delaware did not violate Mylan’s due process rights based on Mylan’s intent to market and sell the drugs throughout the United States, including in Delaware.  The Court rejected a bright-line rule that specific personal jurisdiction cannot be based only on intended future contact.  Rather, where, as here, the defendant has taken costly and concrete steps (including by filing an ANDA application) indicating an intent to market and sell the drugs in a state, the minimum-contacts standard is satisfied.  Judge O’Malley concurred, arguing that the case was more easily resolved as a matter of general personal jurisdiction because Mylan registered in Delaware and appointed an in-state agent for service of process, and thereby consented to general personal jurisdiction in the state. 

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:

Mark A. Perry – Washington, D.C. (202-887-3667, [email protected])
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:
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])

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])

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