Recent cases reveal that seeking a reasonable royalty as a copyright remedy can be an uncertain endeavor. Courts have differed regarding which evidentiary factors are relevant and necessary. Parties seeking to apply the reasonable royalty analysis frequently used in the patent litigation arena have sometimes found themselves successful, and other times frustrated.]]>

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In its recent decision in AstraZeneca Pharmaceuticals LP v. Apotex Corp., Nos. 2011-1182 – 2011-1190 (Fed. Cir. Feb. 9, 2012) (hereinafter the “AstraZeneca Decision”) (Rader*, Bryson & Linn), the Federal Circuit affirmed a District of Delaware decision dismissing an infringement case for failure to state a claim, pursuant to Fed. R. Civ. P. 12(b)(6). Defendants/appellees (collectively, “Appellees”) each filed an Abbreviated New Drug Application (“ANDA”) with Section viii statements, seeking approval for methods of use not claimed in a patent listed in the Orange Book.]]> U.S. Patent 6,858,618 (“the ’618 Patent”) claims methods of use to treat heterozygous familial hypercholesterolemia (“HeFH”), and U.S. Patent 7,030,152 (“the ’152 Patent” and, together with the ’618 Patent, the “Patents-in-Suit”) claims methods of use to lower the cardiovascular disease risk for individuals who have elevated circulating C-reactive protein (“CRP”). When the FDA approved AstraZeneca’s New Drug Application (“NDA”) to treat HeFH and elevated CRP, the FDA also approved rosuvastatin calcium to treat homozygous familial hypercholesterolemia (“HoFH”) and hypertriglyceridemia.

When Appellees filed their respective ANDAs with the FDA seeking to market generic rosuvastatin calcium, Appellees limited the claimed methods of use to those seeking to treat HoFH and hypertriglyceridemia, neither of which was the subject of a claim in either of the Patents-in-Suit. Pursuant to 21 U.S.C. § 355(j)(2)(A)(viii), an applicant filing an ANDA is permitted to file a statement (a “Section viii statement”) that the ANDA excludes all methods of use claimed in a patent contained in the Orange Book. Since Appellees limited their respective ANDAs to methods of use that were not claimed in a patent by AstraZeneca, Appellees each filed Section viii statements.

After commencing an action against Appellees relating to another patent relating to rosuvastatin calcium owned by AstraZeneca, AstraZeneca commenced another action against Appellees alleging infringement of the Patents-in-Suit pursuant to 35 U.S.C. § 271(e)(2). In particular, “AstraZeneca alleged that: (1) Appellees’ ANDAs, as filed, violated § 271(e)(2) as ‘application[s] for a drug the use of which is claimed’ in the ’618 and ’152 patents; (2) if approved by the FDA, Appellees’ proposed activities will induce infringement of the ’618 and ’152 patents; and (3) the FDA will require Appellees to make labeling amendments explicitly incorporating the indications covered by the ’618 and ’152 patents.” AstraZeneca Decision, at 10. Appellees moved to dismiss on a few grounds including that (1) the district court lacked subject matter jurisdiction because Appellees’ ANDAs did not contain Paragraph IV certifications relating to the Patents-in Suit and (2) the complaints failed to state a claim because Appellees’ ANDAs were not seeking approval for a method of use claimed in a patent. The district court dismissed AstraZeneca’s claims under Fed R. Civ. P. 12(b)(1) and 12(b)(6), holding that it lacked subject matter jurisdiction because the ANDAs excluded all methods of use claimed in the Patents-in-Suit and thus no claim existed under Section 271(e)(2), and, even if the court did have subject matter jurisdiction, AstraZeneca could not state a claim.

On appeal, the Federal Circuit held that the district court did have subject matter jurisdiction because AstraZeneca alleged that Appellees’ ANDAs infringed under Section 271(e)(2). As the Federal Circuit noted, 28 U.S.C. § 1338(a) provides that district courts have original jurisdiction over any civil action arising under an Act of Congress relating to patents. AstraZeneca Decision, at 12. When Congress enacted Section 271(e)(2), it created a new “‘highly artificial act of infringement’ … so that court could promptly resolve infringement and validity disputes before the ANDA applicant had engaged in the traditional statutorily defined acts of infringement.” AstraZeneca Decision, at pp. 12-13 (quoting Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 678 (1990); and citing Glaxo, Inc. v. Novopharm, Ltd., 110 F.3d 1562, 1569 (Fed. Cir. 1997)). Accordingly, and consistent with its decision in Allergan, Inc. v. Alcon Labs, Inc., 324 F.3d 1322 (Fed. Cir. 2003), the Federal Circuit held that once a patent holder alleges that an ANDA infringes its patents listed in the Orange Book under Section 271(e)(2), district courts have subject matter jurisdiction over the action. AstraZeneca Decision, at 13-14.

The Federal Circuit held, however, that AstraZeneca failed to state a claim under Section 271(e)(2). The Federal Circuit’s holding was based on the language of Section 271(e)(2) and its decision in Warner-Lambert Co. v. Apotex Corp., 316 F.3d 1348 (Fed. Cir. 2003). The Federal Circuit began by setting forth the language contained in Section 271(e)(2), which provides, in pertinent part, that:

It shall be an act of infringement to submit - (A) an application [i.e., an ANDA] under section 505(j) of the Federal Food, Drug, and Cosmetic Act [codified at 21 U.S.C. § 355(j)] for a drug claimed in a patent or the use of which is claimed in a patent … if the purpose of such submission is to obtain approval under such Act to engage in the commercial manufacture, use, or sale of a drug … claimed in a patent or the use of which is claimed in a patent before the expiration of such patent.

AstraZeneca Decision, at 14-15 (quoting 35 U.S.C. § 271(e)(2)) (alterations and emphasis added in original). The Federal Circuit then explained that it has previously “construed the term ‘the use’ as used in § 271(e)(2)(A) to mean ‘the use listed in the ANDA.’” AstraZeneca Decision, at 15 (quoting Warner-Lambert, 316 F.3d at 1356-60).

The Federal Circuit rejected AstraZeneca’s attempts to condense the language of Section 271(e)(2). AstraZeneca argued that a viable claim under Section 271(e)(2) only requires that the ANDA be for “a drug … the use of which is claimed in a patent….” The Federal Circuit “rejected this parsing of the statute because it ‘eviscerated an important part of the statutory provision by conflating the first and second clauses of § 271(e)(2)(A),’” and, therefore, also rejected the contention that filing an ANDA for any drug claiming any patented use constitutes infringement. AstraZeneca Decision, at 15-16 (quoting Warner-Lambert, 316 F.3d at 1355). The Federal Circuit then stated:

As we held in Warner-Lambert, a patented method of using a drug can only be infringed under § 271(e)(2) by filing an ANDA that seeks approval to market the drug for that use. [316 F.3d] at 1358–59. Thus, an ANDA seeking to market a drug not covered by a composition patent for unpatented methods of treatment cannot infringe under § 271(e)(2). AstraZeneca has not alleged, nor could it allege, that Appellees’ ANDAs seek FDA approval for uses of rosuvastatin calcium covered by the ’618 or ’152 patents as would be required to state a viable § 271(e)(2) claim.

AstraZeneca Decision, at 17.

AstraZeneca attempted to distinguish Warner Lambert on the grounds that the patent asserted in that case claimed a use that had not been approved by the FDA whereas the Patents-in-Suit contained uses that were approved by the FDA. The Federal Circuit rejected that argument because Section 271(e)(2) requires courts to analyze the scope of approval sought in the ANDA, and the statute defines infringement as filing an ANDA for “a drug claimed in a patent or the use of which is claimed in a patent.” 35 U.S.C. § 271(e)(2)(A).

As the Federal Circuit noted, Congress permitted generic manufacturers to limit the scope of ANDAs by excluding patented methods of use and, therefore, permitted generic manufacturers to avoid filing Paragraph IV certifications and a Section 271(e)(2) claim. To hold otherwise would have reduced the import of seeking approval of a generic based on a Section viii statement.

The Federal Circuit (Dyk*, Rader & Moore) recently weighed in on the long-disputed issue of privilege for settlement negotiations. On April 9, 2012, the Federal Circuit handed down its decision in In re MSTG, Inc., Misc. Dkt. No. 996. The Federal Circuit declined to create a privilege that would prevent disclosure of settlement negotiations during discovery. In so doing, the Court extended the scope of discovery into settlement negotiations, a trend beginning with ResQNet. In re MSTG, slip op. at 19 (“Our cases appropriately recognize that settlement agreements can be pertinent to the issue of reasonable royalties.” (citing ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869-73 (Fed. Cir. 2010))).]]> ResQNet and progeny, arguing relevance to determining an applicable reasonable royalty.

Initially, the magistrate judge denied AT&T’s request, finding them irrelevant. AT&T sought reconsideration on the grounds that MSTG’s expert opined on a reasonable royalty based upon the disclosed settlement agreements. Although the expert did not directly cite settlement negotiations, the magistrate judge, and later the district court, held that the “negotiations could shed light on why the parties reached their royalty agreements” and whether “the licenses could be considered a basis for calculating a reasonable royalty.” In re MSTG, slip op. at 4. The Federal Circuit stayed the disclosure of the negotiations pending outcome of the appeal.

Judge Dyk noted that the issue of whether settlement negotiations are privileged is a matter of first impression for the Federal Circuit. The Court also noted that district and circuit courts are divided on the issue. The Sixth Circuit is the only circuit court to adopt a settlement negotiation privilege, doing so in Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, 979-83 (6th Cir. 2003). The Seventh Circuit, where the Northern District of Illinois is located, expressly declined to adopt a settlement negotiation privilege in In re General Motors Corp. Engine Interchange Litigation, 594 F.2d 1106, 1124 n.20 (7th Cir. 1979). District courts in the Northern District of California and District of the District of Columbia have rejected a settlement negotiation privilege, while the Southern District of California and Eastern District of Texas have adopted the privilege in some regard.

The Federal Circuit relied on six factors the Supreme Court previously considered in assessing privileges generally and reasoned that there should be no newly-created privilege for settlement negotiations. In re MSTG, slip op. at 8 (“MSTG urges us to invoke Rule 501 of the Federal Rules of Evidence to fashion a new privilege in patent cases that would prevent discovery of litigation settlement negotiations related to reasonable royalties and damages.”).

First, the court looked to the policy decisions of the states. Acknowledging that many states have adopted a mediation privilege, the court did not find any state that recognized a privilege for settlement negotiations outside of mediation.

Second, the court examined whether Congress has considered the issue of settlement negotiation privilege. The court found that Federal Rule of Evidence 408 cut strongly against a settlement negotiation privilege. Rule 408 does not allow settlement negotiations to “prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction.” Fed. R. Evid. 408(a). Rule 408, however, allows settlement negotiations to be admitted into evidence for any other purpose, including showing a witness’s bias, negating a contention of undue delay, or proving obstruction of a criminal investigation. Fed. R. Evid. 408(b). Essentially, the court found that because Rule 408 permits admission of settlement negotiations in some contexts, it would be inappropriate for a settlement negotiation privilege to prevent disclosure of the very evidence that Congress deems admissible.

Third, the court considered whether a settlement negotiation privilege appeared on the “list of evidentiary privileges recommended by the Advisory Committee of the Judicial Conference in its proposed Federal Rules of Evidence.” In re MSTG, slip op. at 13. A settlement negotiation privilege was not included among the nine privileges recommended, which the court found cut against its appropriateness.

Fourth, the court looked at whether a settlement negotiation privilege would “advance a public good.” Here, the court found that because settlements occur routinely without a privilege, there is no reason to create a settlement negotiation privilege to help facilitate settlements.

Fifth, any settlement privilege would require numerous exceptions due to the admissibility of evidence under Rule 408. Thus, the court reasoned that having a privilege with numerous exceptions would make it uncertain. Quoting the Supreme Court, the court noted that an uncertain privilege is little better than no privilege.

Finally, the court noted that there are already mechanisms in place that a court can use to protect and promote settlement negotiations. These include limiting the scope of discovery under Rule 26, entering protective orders to limit to whom information is disclosed, and creating a higher showing for discovery of confidential documents, such as tax forms. Although the court expressly declined to address what limits or showing might be required to obtain settlement negotiations, the court found that the existence of mechanisms to limit discovery cuts against the need to create a new privilege to protect and promote settlement negotiations.

The Federal Circuit affirmed, finding that the district court did not abuse its discretion in requiring disclosure of settlement negotiations, when the settlement agreements were already disclosed. The court reasoned that settlement negotiations might lead to information showing MSTG’s damages expert committed errors in his reasonable royalty analysis. In addition, although not referring directly to settlement negotiations, MSTG’s expert concluded that settlement agreements reflect a 75% discount on the reasonable royalty rate, which may be countered by the actual negotiations of those settlement agreements.

Based on its decision in In re MSTG, the Federal Circuit is taking a firm but flexible approach to the disclosure of settlement negotiations. Although there is no blanket privilege for settlement negotiations, there are still avenues through Rule 26, by which a litigant could limit or prevent the disclosure of settlement negotiations.

On March 20, 2012, the Supreme Court issued its much-anticipated decision in Mayo Collaborative Services, DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories, Inc., with potentially far-reaching ramifications for pharmaceutical and biotechnology companies, particularly those developing diagnostic methods and assays.]]>

Prometheus Laboratories, Inc. (“Prometheus”) was the exclusive licensee of the two patents-in-suit, which claim methods of optimizing therapeutic efficacy for the treatment of immune-mediated gastrointestinal disorders. The claims recite the steps of administering a thiopurine drug to a patient having such a disorder and determining the level of the thiopurine in the patient, along with a statement that the level of the thiopurine drug subsequently administered to the patient should be increased or decreased depending on the concentration of the drug in the patient’s system.

The Court began by noting the primary recognized exceptions to patent eligibility, namely that “laws of nature, natural phenomena, and abstract ideas are not patentable.” The Court did “recognize[], however, that too broad an interpretation of this exclusionary principle could eviscerate patent law[,…f]or all inventions at some level embody, use reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.”

After characterizing the “relationships between concentrations of certain metabolites in the blood and the likelihood that a dosage of a thiopurine drug will prove ineffective or cause harm” as a “law of nature,” the Court considered each of the steps recited in Prometheus’s patent claims, and concluded that the patents were invalid because “the claims inform a relevant audience about certain laws of nature; any additional steps consist of well-understood, routine, conventional activity already engaged in by the scientific community; and those steps, when viewed as a whole, add nothing significant beyond the sum of their parts taken separately.” The Court further stated that the decision is consistent with earlier Supreme Court cases, particularly Diamond v. Diehr and Parker v. Flook, because “post-solution activity that is purely conventional or obvious…cannot transform an unpatentable principle into a patentable process” (internal quotations omitted).

This case may present more questions to pharmaceutical and biotechnology companies than it resolves. While the Court concluded that Prometheus’s patent claims were not patent eligible because “any additional steps [beyond informing a relevant audience about certain laws of nature] consist of well-understood, routine, conventional activity already engaged in by the scientific community,” the Court set forth no standard for determining what further steps would be required to transform the method into patentable subject matter.

The decision is also noteworthy in that it appears to conflate the novelty and non-obviousness requirements for patentability under 35 U.S.C. §§ 102 and 103 with the issue of patent eligibility under 35 U.S.C. § 101. Indeed, the Court even “recognize[d] that, in evaluating the significance of additional steps, the §101 patent-eligibility inquiry and, say, the §102 novelty inquiry might sometimes overlap.” However, the Court did not enunciate the level of novelty and non-obviousness that a claimed diagnostic method must possess before it would be considered patent eligible under 35 U.S.C. § 101.

Finally, the Court dismissed the Federal Circuit’s rationale for upholding the validity of Prometheus’s patents because “[w]hile it takes a human action (the administration of a thiopurine drug) to trigger a manifestation of this relation in a particular person, the relation itself exists in principle apart from any human action. The relation is a consequence of the ways in which thiopurine compounds are metabolized by the body—entirely natural processes.” It remains to be seen how or whether the Court would distinguish purely therapeutic methods, particularly those that involve new uses of known compounds, since the pharmacological activities of the compounds are “a consequence of the ways in which [the drugs] are metabolized by the body—entirely natural processes.”

In response to the Court's order, the flea market accused Louis Vuitton of forcing the flea market to do the luxury brand’s job, i.e., enforcement of Louis Vuitton trademarks, and that the company had other means by which to police counterfeiting, e.g., by alerting law enforcement agencies or by pursuing the vendors directly in civil or criminal court. Louis Vuitton responded that the flea market was infested with counterfeit merchandise and that the defendants simply turned a "blind eye" to the counterfeits.

This case should send a powerful message to commercial landlords of flea markets who suspect or have been warned that phony designer merchandise is being sold on their premises. While Louis Vuitton noted that suing the flea market was an extreme measure taken only once such measures are deemed necessary, this case should serve as a warning that established luxury brands, such as Louis Vuitton, police their marks vigilantly against contributory infringement, whether it be in the physical world or cyberspace.

Louis Vuitton already secured an important victory against online contributory trademark infringement where the defendant provided web-hosting for numerous websites that sold counterfeit Louis Vuitton products. See Louis Vuitton Malletier, S.A. v. Akanoc Solutions, Inc., 658 F.3d 936 (9th Cir. 2011). In Akanoc, Louis Vuitton sued the defendant for contributory trademark and copyright infringement and counterfeiting after the defendant failed to end service for the infringing sites, despite eighteen notices of infringement from Louis Vuitton. The trial and appellate courts found the defendant liable for contributory copyright and trademark infringement because of the way it had guided web users to the infringing sites and exercised direct control over and monitored the websites. The Akanoc case is analogous to the Eisenhauer Road Flea Market case in that both cases demonstrate that neither the real world nor the world wide web are safe havens for trademark infringement.

In Thorner v. Sony Computer Entertainment America, LLC (Case No. 2011-1114, Feb. 1, 2012) (Moore*, Rader & Aiken (D. Or. sitting by designation)), the Federal Circuit reiterated the prohibition against importing limitations from the specification and reversed a district court construction depending from consistent uses of the disputed phrase in the specification.

One claim construction dispute centered on the phrase “attached to said pad,” which the district court construed to mean that an actuator was attached to an exterior surface of the pad, based on the ‘941 specification. Thorner v. Sony Computer Entm’t Am. LLC, No. 09-cv-1894, 2010 WL 3811283, at *6 (D.N.J. Sept. 23, 2010). The district court relied on the specification’s use of the term “attached” only in embodiments with an actuator attached to a pad’s outside surface, and contrasted an embodiment which described as “embedded” an actuator inside the pad. Id. After claim construction, the parties stipulated to noninfringement and appealed. Slip Op. at 4.

The panel reversed, finding that the district court erred in its reliance on the specification and its uses of “attached” with embodiments with external actuators and “embedded” for an internal actuator. Slip Op. at 8.

[T]he specification never uses the word ‘attached’ when referring to an actuator located on the interior of a controller. We hold that this does not rise to the level of either lexicography or disavowal. Both exceptions require a clear and explicit statement by the patentee. It is not enough that the patentee used the term when referencing an attachment to an outer surface in each embodiment. [Slip Op. at 9 (citations omitted).]

The panel acknowledged that such use of distinct descriptors could amount to a redefinition, slip Op. at 9-10, but rejected the notion that the specification at hand was sufficiently clear in its redefinition or disavowal. Id. In so concluding, Thorner reiterated the axiom that claim terms are to be afforded the ordinary and customary meanings a skilled artisan would employ, see e.g., Phillips v. AWH Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005) (en banc), and recognized that the two potential exceptions—own lexicographer or express disavowal—factually did not apply. Slip Op. at 5.

To be a lexicographer “a patentee must ‘clearly set forth a definition of the disputed claim term’ other than its plain and ordinary meaning.” Slip Op. at 5 (citing CCS Fitness, Inc. v. Brunswick Corp., 288 F.3d 1359, 1366 (Fed. Cir. 2002)). Disclosing a single embodiment or referring to all embodiments consistently, do not satisfy the standard. Slip Op. at 5. Rather, the patentee must ‘“clearly express an intent’ to redefine the term.” Id. (citations omitted).

Express disavowal likewise requires a patentee to “demonstrate intent to deviate from the ordinary and accustomed meaning of a claim term by including in the specification expressions of manifest exclusion or restriction, representing a clear disavowal of claim scope.” Id. at 6 (citing Teleflex, Inc. v. Ficosa N. Am. Corp., 299 F.3d 1313, 1325 (Fed. Cir. 2002)). Exclusionary language may appear in either the specification or the prosecution history. Id. Disparaging a particular embodiment, characterizing an embodiment exclusively as the “present invention,” and confining the invention to “the embodiments … contemplated and disclosed herein,” may satisfy the disavowal standard under the appropriate circumstances. Id. (citing Scimed Life Sys., Inc. v. Advanced Cardiovascular Sys., Inc., 242 F.3d 1337, 1339, 1342-43 (Fed. Cir. 2001)).

1. A first-inventor-to-file system and limitation of the one year grace period (Sec. 2);
2. A Post-grant review proceeding (Sec. 5);
3. New inter partes review proceeding (Sec. 5a);
4. Preissuance submission by third parties (Sec. 7);
5. USPTO fee-setting authority and USPTO funding (Secs. 9 and 10);
6. A supplemental examination proceeding (Sec. 11);
7. Elimination of the best mode defense (Sec. 15.); 
8. A transitional post-grant review of covered business method patents (Sec. 18); and
9. A change to the False Marking Statute (Sec. 2).

The House of Representatives introduced their own version of the Patent Reform Bill (House of Representatives Bill No. H.R. 1249) on March 30, 2011. The House bill is very similar to the Senate bill, but includes some notable differences. The first-inventor-to-file system and limitation of the one year grace period is the same in the passed Senate bill and recently introduced House bill. Regarding the post-grant review and inter partes review proceedings, however, the House bill changes some of the standards of review and time limits in the Senate bill.

Below is a summary of some of the key features of the Senate bill, followed by a short analysis describing some important differences in the House bill.

1) First-inventor-to-file-system

The Senate bill moves to a first-inventor-to-file system, which would become effective 18 months after its enactment. The Senate bill eliminates current 35 U.S.C. § 102(g) and interferences, and questions of conception, diligence, reduction to practice, abandonment, suppression, and concealment. 

Moving to a first-to-file system fundamentally changes other aspects of 35 U.S.C. §§ 102 and 103 (new 35 U.S.C. §§ 102 and 103 language provided on page 7). The Senate bill significantly reduces the present one-year grace period, which applies to prior art or disclosures from any source, be it derived from the inventor or from another. Under the Senate bill, that one-year grace period is limited to scenarios where the disclosure was (1) derived from the inventor or (2) made public after the inventor publicized his invention. In practical terms to a patent practitioner, the Senate bill severely limits the ability to antedate or use § 1.131 declarations to swear behind prior-filed references (when the applicant was prior inventor). The Senate bill would remove any possibility to swear behind prior art references or disclosures in, for example, the following cases:

1. References (not derived from the inventor) that are published by another less than one year before the effective filing of the patent application. 
    
2. Some Section 102(e) secret prior art references.

For example, there would be no possibility to swear behind patent applications filed more than one year before the effective date of the patent application at issue, but published less than one year before that effective date.  

The Senate bill appears to limit public uses or sales of the invention before the effective filing date. Under the current law, sales and offers-to-sell do not constitute a loss of right of a patent if those sales or offers-to-sell occurred less than one year before the effective filing date of the application. Any such grace period appears to be removed. This, however, may depend on the definition of "disclosure" made by the inventor. The Senate bill allows for "disclosures" made by the inventor if "1 year or less before the effective filing date" of the patent application. If sales or offers-to-sell constitute "disclosure," then the rules regarding sales and offers-to-sell of the invention (at least in the United States) would remain the same. 

The Senate bill also removes geographic limitations for public uses or sales of the invention. Under the current law, an invention is not patentable if it was in public use or on sale in the United States more than one year prior to the effective filing date of the application (§ 102(b); or it was known or used by others in the United States prior to the date of invention (§ 102(a)). The Senate bill removes these geographical limitations. 35 U.S.C. § 102 of the Senate bill states that an invention is not patentable if it was "patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention." No limit to the United States is stated. Thus, public use, sales, and knowledge by others, anywhere in the world could result in the loss of right to a patent.

House bill provides the exact same language regarding 35 U.S.C. §§ 102 and 103. 

2) Post-grant review

The Senate bill provides another way for a third party to challenge a patent. The post-grant review has some interplay with the new inter partes review, which is summarized next. The post-grant review procedure includes the following features:

• Allows third parties to file a petition within nine months from when the patent issues. 
   
• Third party may challenge any claim of the patent based on any provision of the statute (i.e., §§ 101, 102, 103 and 112). In other words, it is not limited to just prior art references as in present inter partes and ex parte Reexamination.
   
• The standard for whether a post-grant review will be conducted by the "Director" is: 

if "information presented in the petition, if not rebutted would demonstrate that it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable." The determination for conducting a post-grant review "may also be satisfied by showing that the petition raises a novel or unsettled legal question that is important to other patents or patent applications." § 324.

• The patent owner may file a statement to challenge the petition. 
   
• The determination to proceed with a post-grant review is not appealable.
   
• Post-grant reviews will be handled by a Patent Judge (Patent Trial and Appeal Board).
   
• Post-grant reviews may not be instituted if the petitioner has filed a civil action challenging the validity of the patent. § 325.
   
• If an infringement claim is filed within three months of the issuance of a patent, the court cannot stay the consideration of the patent owner's motion for preliminary injunction against infringement due to the filing of petition of a Post-grant review or Post-grant review was granted. § 325.
   
• The Director is given broad discretion on how to regulate the post-grant review process, including for example procedures for submitting supplemental information, procedures for discovery, and providing either party with the right to an oral hearing. § 326.
   
• The proceeding can be terminated by settlement of the parties or by a final decision of the board. § 327.
   
• Final decisions are appealable to the Federal Circuit. 

3) New inter partes Reexamination (now called inter partes review)

As stated above, the timing for inter partes review interplays with the post-grant review system. A request for inter partes review can be filed only on the later of nine months after the issuance of a patent or after a post-grant review is terminated. (§ 311(c)). Other features include:

• The standard for granting a request for inter partes review has changed in the Senate bill to "a reasonable likelihood that the petitioner will prevail with regard to at least one claim," thereby raising the standard from a "substantial new question of patentability" under current inter partes reexamination. § 314(a).
   
• The scope of review is still patents and printed publications, i.e., only challenging the patentability of one or more claims under §§ 102 or 103. § 311(b).
   
• Unlike the current inter partes reexamination, the Senate bill's inter partes review proceeding will be held before a Patent Judge (Patent Trial and Appeal Board).
   
• The inter partes review may be terminated by settlement or by a final decision of the board. § 317.
   
• The Director is given broad authority to establish regulations and how the proceedings will be carried out. For example, giving each party the right to an oral hearing, establishing procedures for submitting supplemental information, setting standards for discovery. § 316.
   
• The decision to proceed with inter partes review is not appealable § 314(d).
   
• Allows a preliminary response to be filed by the patent owner to explain why no inter partes review should be instituted. § 313.
   
• The Senate bill prohibits an inter partes review from being initiated or maintained if the petitioner has filed a civil action challenging the validity of a claim of the patent or if more than six months have passed since the petitioner was served with a complaint alleging infringement. § 315(a and b).
   
• The Senate bill includes estoppel provisions as provided in inter partes reexamination and does not allow for broadening of the claims. § 315(e).
   
• The final decision by the board may be appealed to the Federal Circuit. § 319.

4) Preissuance submission by third parties

This provision of the Senate bill allows for third parties to file publications or patents for consideration to the USPTO if the submission is made in writing before the notice of allowance or the later of: 1) 6 months after the application for patent is first published; or 2) the date of the first rejection of any claim by the USPTO. The brief language is provided below.

GENERAL.  Any third party may submit for consideration and inclusion in the record of a patent application, any patent, published patent application, or other printed publication of potential relevance to the examination of the application, if such submission is made in writing before the earlier of

A.    the date a notice of allowance under section 151 is given or mailed in the application for patent; or
 

B.     the later of
 

                                                                 i.      6 months after the date on which the application for patent is first published under section 122 by the Office, or
 

                                                              ii.      the date of the first rejection under section 132 of any claim by the examiner during the examination of the application for patent.

5) USPTO fee-setting authority and USPTO funding 

Currently, Congress diverts some fees collected by the PTO for government operations. It has been estimated that about $800 million in collected patent fees have been diverted over the past two decades. The Senate bill eliminates fee diversion by amending 35 U.S.C. § 42(c).

6) Supplemental Examination Proceeding

The Senate bill provides an additional, streamlined supplemental examination similar to an ex parte reexamination. The proceeding permits a patent owner to request "supplemental examination" for the USPTO to "consider, reconsider or correct information believed [by the patent owner] to be relevant to the patent." The standard for granting such a request is that the information raises a "substantial new question of patentability," which is the same as the current ex parte reexamination standard. In this proceeding, the patent owner does not have the right to file a patent owners statement. The proceeding appears to also be a means to correct any "inequitable" conduct during the prior examination. "A patent will not be held unenforceable on the basis of conduct relating to information that had not been considered, was inadequately considered, or was incorrect in a prior examination of the patent if the information was considered, reconsidered, or corrected during a supplemental examination of the patent.  The making of a request under subsection (a), or the absence thereof, shall not be relevant to enforceability of the patent under section 282."

7) Elimination of the best mode defense

The best mode under section 112 is still a condition for patentability. Best mode, however, cannot be used as a defense for which a patent may be invalid or unenforceable. The Senate bill language is as follows:

 (3) Invalidity of the patent or any claim in suit for failure to comply with:
 

A.    any requirement of section 112, except that the failure to disclose the best mode shall not be a basis on which any claim of a patent may be canceled or held invalid or otherwise unenforceable; or
 

B.     any requirement of section 251.

8) Transitional post-grant review of covered business method patents

The Senate bill provides a post-granted review proceeding to determine the validity of business method patents. The proceeding is limited to petitioners who have been sued or charged with patent infringement of the particular business method patent.

9) False-Marking Statute

The Senate bill limits false-marking suits to the United States or any person who suffered a competitive injury as a result of a false-marking violation.

Key Differences in the House Bill

Again, the first-inventor-to-file system and limitation of the one year grace period is the same in the House bill. The big differences in the House bill relate to the post-grant review and inter partes review proceedings. The House bill changes some of the standards for determining whether to proceed and the House bill includes some important language regarding stay of other proceedings, such as patent infringement litigation. In general, the House bill's changes are not favorable to the patentee. The House bill makes it easier to proceed with an inter partes review by lowering the standard and the House bill appears to make it easier to stay patent infringement actions in civil courts until these proceedings are terminated.

1) Post-Grant Review

The House bill expands the window of the post-grant review to twelve months after the issuance of a patent (rather than nine month window in the Senate bill). The House bill also permits review on the standard of "a novel legal question that is important to other patents or patent applications."

The House bill also includes a new section providing guidance regarding requests for stays in other proceedings. The House bill includes considerations the courts should make regarding whether to grant a stay in a "civil action" (including patent infringement litigation as well as actions before the International Trade Commission); the court "shall decide" whether to grant the stay based on "whether the stay, or denial thereof, will simplify the issues . . . and streamline the trial." (§ 330).

2) Inter partes review

The House bill differs from the Senate bill by keeping the old standard for proceeding with a reexamination -- a substantial new question of patentability (rather than showing a "reasonable likelihood that the petition would prevail with respect to at least one of the claims challenged in the petition" in the Senate Bill).

The inter partes review timing period is changed due to the expansion of the post-grant review window. A petition can be filed for an Inter partes review from the later of twelve months after the issuance of a patent or after a post-grant review is terminated. 

The House bill also includes a new section not in the Senate version regarding requests for stays similar to the post-grant review. The House bill provides guidance when a party seeks a stay in a "civil action" (including patent infringement litigation as well as actions before the International Trade Commission); the court "shall decide" whether to grant the stay based on "whether the stay, or denial thereof, will simplify the issues . . . and streamline the trial" (§ 320).

Senate Bill S23

§ 102. Conditions for patentability; novelty

 (a) NOVELTY; PRIOR ART. A person shall be entitled to a patent unless:

1. the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; or
    
2. the claimed invention was described in a patent issued under section 151, or in an application for patent published or deemed published under section 122(b), in which the patent or application, as the case may be, names another inventor and was effectively filed before the effective filing date of the claimed invention.

 (b) EXCEPTIONS.

1. DISCLOSURES MADE 1 YEAR OR LESS BEFORE THE EFFECTIVE FILING DATE OF THE CLAIMED INVENTION. 

• A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if:

A.       the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or
 

B.        the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.

2. DISCLOSURES APPEARING IN APPLICATIONS AND PATENTS.

•  A disclosure shall not be prior art to a claimed invention under subsection (a)(2) if: 

A.       the subject matter disclosed was obtained directly or indirectly from the inventor or a joint inventor;
 

B.        the subject matter disclosed had, before such subject matter was effectively filed under subsection (a)(2), been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or
 

C.        the subject matter disclosed and the claimed invention, not later than the effective filing date of the claimed invention, were owned by the same person or subject to an obligation of assignment to the same person.
 

 (c) COMMON OWNERSHIP UNDER JOINT RESEARCH AGREEMENTS Subject matter disclosed and a claimed invention shall be deemed to have been owned by the same person or subject to an obligation of assignment to the same person in applying the provisions of subsection(b)(2)(C) if:

1. the subject matter disclosed was developed and the claimed invention was made by, or on behalf of, 1 or more parties to a joint research agreement that was in effect on or before the effective filing date of the claimed invention;
    
2. the claimed invention was made as a result of activities undertaken within the scope of the joint research agreement; and
    
3. the application for patent for the claimed invention discloses or is amended to disclose the names of the parties to the joint research agreement.

(d) PATENTS AND PUBLISHED APPLICATIONS EFFECTIVE AS PRIOR ART. For purposes of determining whether a patent or application for patent is prior art to a claimed invention under subsection (a)(2), such patent or application shall be considered to have been effectively filed, with respect to any subject matter described in the patent or application

1. if paragraph (2) does not apply, as of the actual filing date of the patent or the application for patent; or
    
2. if the patent or application for patent is entitled to claim a right of priority under section 119, 365(a), or 365(b), or to claim the benefit of an earlier filing date under section 120, 121, or 365(c), based upon 1 or more prior filed applications for patent, as of the filing date of the earliest such application that describes the subject matter.

§103. Conditions for patentability; nonobvious subject matter

A patent for a claimed invention may not be obtained, notwithstanding that the claimed invention is not identically disclosed as set forth in section 102, if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains. Patentability shall not be negated by the manner in which the invention was made.

This article was originally posted on Sheppard Mullin's Life Sciences Law blog, which can be found at www.lifescienceslawblog.com.

Authored by:

Don J. Pelto
(202) 772-5362
dpelto@sheppardmullin.com

and

Andrew Keith
(202) 772-5367
akeith@sheppardmullin.com

(A) Supreme Court cases only found inequitable conduct where there had been “but for” causation.

(B) Rule 56(b)(2) would swallow Rule 56(b)(1).

(C) Equitable doctrines should not be used to punish; rather, the PTO can and should fill any void by policing misconduct.

(D) Anything less than “but for” causation will maintain the status quo, whereby applicants dump information while attempting to avoid characterizing or explaining that information.

The PTO argued that Rule 56(b) should be applied because:

(A) The “but for” standard allows too much mischief, while the “reasonable examiner” standard is too vague and causes “pathological overcompliance.”

(B) Adjustment of the intent inquiry and Exergen (requiring specific pleading) will mitigate flooding.

(C) The PTO should have the first crack at information, so the market is not disrupted years later, and then an ex post analysis done via litigation.

Defendants argued that the PTO standard at the time of prosecution should be applied because:

(A) Applicants should be judged by the standard to which the PTO held them.

(B) Rule 56 is narrower than the reasonable examiner standard, and therefore not overly broad or vague.

(C) Rule 56(b)(2) can be taken very literally. It is not about whether, for example, an invention is obvious at all, but whether it is obvious over the references relied on by the PTO. Further, disputes are not generally about Rule 56(b)(2).

(D) The real problem is with overpleading, and not with excessive findings of inequitable conduct. Exergen and tightening the intent requirement should help with this.

(E) The “but for” standard will permit misconduct, which the PTO cannot appropriately police.

The Court did not seem inclined to adopt a “but for” standard of causation. At least Judges Lourie, Dyk, and Moore expressed concern. Judge Lourie noted that the Supreme Court has struck down not just the patents that were procured by fraud, but additional patents as well. Judge Gajarsa raised some hypotheticals, seemingly pointing out that it would be hard to determine when a “but for” standard is met, and that it left much room for bad actors. Judges Linn and Dyk expressed concerned that the “but for” standard would require an accused infringer to prove that prior art would have resulted in at least a rejection.

At least Judges Dyk, Newman, Moore, and Bryson also expressed concern about Rule 56(b)(2). The PTO acknowledged that applicants are currently “flooding” the PTO with references. Judge Dyk pointed out that Rule 56(b)(2) is “exactly what the law pretty much is right now.” Judge Dyk posed a hypothetical, asking what if there is a “tiny sliver of scientific opinion that is contrary to the position you are giving.” The PTO responded that this would need to be disclosed, but could be done in context. Judge Prost also repeatedly asked the parties how many people in the last ten years have been disciplined by the PTO for lack of candor. No one could answer.

Judge Newman noted that inequitable conduct is being pled in a large number of cases, but sustained in a small number of cases. This creates a “profound” litigation burden, and many small entities cannot afford to defend such charges. She did not see a reason that this would change if 56(b) remained an applicable standard. Judge Moore expressed that she was “having trouble seeing daylight between current Rule 56 and the reasonable examiner standard,” and later followed up that it’s “(b)(2) that seems to be the real problem.”

Judge Linn’s questioning indicated he was concerned with defendants’ proposal to track PTO standards, because the PTO can change its standards at any time, including back to the “reasonable examiner” standard.

B. Intent

Aside from the facts of the case, the parties and the PTO seemed to agree that intent needed to be clarified. In particular, both the PTO and the Defendants argued that flooding of the PTO should be mitigated not by departing from Rule 56(b), but by: (1) following Kingsdown to require subjective intent and reject the standard requiring only that one “should have known” the materiality of the misrepresentation or undisclosed information; and (2) requiring that any inference of intent must be the single most reasonable inference.

C. Balancing of Materiality and Intent

Judge Gajarsa took issue with the “tie-up of materiality with intent before we find intent.” Defendants argued that materiality can support a finding of intent, but only if there is other evidence as well (e.g., motivation to deceive and knowledge). Defendants thus admitted that it is not proper to infer intent solely from materiality.

D. Specific Facts of the Case

Overall, the arguments regarding the specific facts of the underlying case repeated the briefing and the arguments in the underlying appeal and trial. Defendants contended that the facts fit squarely within the Rule 56(b)(2) “inconsistent” standard of materiality, that this was an egregious case, that there were adverse credibility findings, a finding of motivation to deceive, awareness, and an intentional decision not to disclose.

Abbott argued that if the Court finds the “should have known” standard is improper, then the decision must be reversed. Judge Moore noted the adverse credibility findings, however, and that Judge Alsup only recited the standard, rather than relied on it. Abbott responded that there was no evidence that Attorney Pope and Dr. Sanghera actually appreciated the materiality. Rather, Judge Alsup focused on the interpretation of the EPO briefs. Judge Dyk asked if the facts would satisfy the “but for” test. Abbott denied this, contending that the disclosures related to different substantive issues.

E. Implications for the Inequitable Conduct Doctrine

Although we cannot predict how the Federal Circuit will come out on these issues, it seems obvious that the Federal Circuit will adjust the standard for materiality for purposes of determining whether a patent was procured through inequitable conduct. The Court seems very unlikely to adopt a “but for” standard of materiality. On the other hand, the parties seem to agree that the “reasonable examiner” standard is vague, overly broad, and therefore promotes overdisclosure. Further, the fact that numerous judges expressed concern regarding Rule 56(b)(2) suggests that the Federal Circuit may either tighten up the (b)(2) inquiry in inequitable conduct litigation or do away with it altogether.

The Federal Circuit also appears likely to clarify the intent standard. The Court will likely make clear that “should have known” is not good enough (per Kingsdown), and reinforce that the inference of intent must be the single most reasonable inference (per Star Scientific and Scanner). It remains to be seen whether, and if so to what extent, the Court will allow materiality to serve as a basis for inferring intent. Historically, judges have often inferred intent at least partly from materiality.

Notably, retired Federal Circuit Chief Judge Paul Michel projected at a November 12, 2010 Intellectual Property Owners Association webinar that there will be multiple opinions, both dissents and concurrences. He further predicted that there will be some modest adjustments to the materiality and intent inquiries. Additionally, he thought the Federal Circuit will take care not to push the initial burden of explaining any failure to disclose onto those associated with the patent prosecution.

This article was originally posted on Sheppard Mullin's Life Sciences Law Blog, which can be found at www.lifescienceslawblog.com.

Authored By:

Gray M. Buccigross
(858) 720-7427
gbuccigross@sheppardmullin.com