Contributors: Akin Gump
Alleged Reasonable Royalty Apportionment Deficiencies an Issue for the Jury.
by Colin B. Phillips, Rachel J. Elsby & Daniel L. Moffett
District Court, Eastern District of Texas
In a memorandum order issued February 6, 2019, Magistrate Judge Roy S. Payne of the Eastern District of Texas denied the defendant’s motion to exclude the plaintiff’s experts’ testimony relating to reasonable royalty damages. The defendant, Samsung, attacked the experts’ testimony largely based on alleged failures to properly apportion royalties to the patented feature. However, the district court found that these attacks went to the weight of the evidence rather than the admissibility, and thus, the proper course would be to allow the testimony to go before the jury where Samsung could challenge it through cross-examination.
In the underlying litigation, the plaintiff, Red Rock Analytics, asserted U.S. Patent No. 7,346,313 directed to a system and method for transceiver calibration, against Samsung’s devices containing 802.11n and LTE transceivers. Red Rock’s damages expert, Roy Weinstein, calculated a reasonable royalty damages figure of $75.9 million through the expected date of trial and additional damages through the 2025 expiration date of the patent based in part on the analysis of Red Rock’s technical expert, Dr. Christopher Jones. Samsung moved to exclude Weinstein’s opinion as unreliable under Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993) and Federal Rule of Evidence 702. Samsung based this motion in part on alleged flaws in the experts’ apportionment methodology—that is, Samsung alleged that the plaintiff’s experts credited the asserted invention with an excessive portion of the accused devices’ overall value. Samsung also challenged Weinstein’s calculation of future damages through the expiration of the patent, as well as his application of the Georgia-Pacific factors.
Samsung’s first argument attacked Weinstein’s reliance on prior licenses. According to Samsung, the rates in these prior licenses fall within a range that the federal circuit directed the district court to evaluate for their value to standardization. Red Rock responded that there was no evidence that the licenses were impacted by standardization, and therefore, the rates contained in those licenses should be viewed as reflecting an actual negotiation of the patent’s value. The district court sided with Red Rock, finding that “[m]any of these arguments are really about comparability, more so than apportionment.” As a result, the district court declined to exclude Weinstein’s opinions on this basis and held that “whether these licenses are sufficiently comparable […] goes to the weight of the evidence, not its admissibility.” Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1326 (Fed. Cir. 2014) (emphasis added).
Samsung’s second argument attacked Dr. Jones’s analysis based on an alleged failure to connect the value of the accused devices to the patented features. Specifically, Samsung argued that it could have received comparable transceiver calibration benefits in the accused devices from the prior art systems and methods rather than from the asserted invention, and that Dr. Jones failed to subtract out the value attributable to features in the prior art. Red Rock argued that Dr. Jones considered the prior art processes but found that they did not contribute to the performance enhancements attributed to the patent. Again, the district court found the heart of Samsung’s arguments went more to the conclusions reached by Red Rock’s experts than their methodology. According to the district court, the methodology employed by Dr. Jones and Weinstein, by extension, was sufficiently reliable and grounded in the facts of the case. And, because Dr. Jones considered the claimed invention’s footprint in the marketplace, the testimony is admissible.
Samsung also took issue with Weinstein’s use of lump-sum payment licenses as a basis for determining a running royalty. In particular, Samsung argued that Weinstein inappropriately calculated an equivalence between a lump-sum license payment and a running royalty despite evidence showing that Samsung had a clear preference for the lump-sum payment. But again, the district court found Weinstein’s methodology reliable and refused to exclude his opinions on this basis.
Lastly, Samsung argued that Weinstein’s calculations of future sales of accused products through the expiration of the patent was unreliable because it held steady based on 2017 sales data and failed to account for the possibility of decreases in the overall market. In response, Red Rocks noted that Weinstein intended to revise his calculations based on additional evidence Samsung agreed to produce for 2018 sales, but that Weinstein’s model accounts for both increases and decreases in sales by holding sales constant. The district court denied Samsung’s motion as to this argument, holding that Samsung had not demonstrated that Weinstein’s calculation was based on pure speculation.
Throughout its decision, the district court emphasized that Samsung’s arguments primarily went to how the evidence should be weighed, rather than whether Red Rock’s experts’ opinions were unreliable. Consequently, the district court found that Samsung’s concerns were more appropriately addressed through traditional means of attacking evidence, i.e., vigorous cross-examination.
As the district court emphasized in the decision discussed here, the admissibility of expert opinions turns on the reliability of the methodology used, not the strength of the conclusions an expert ultimately reaches. And, although there may be more than one reliable approach in a single case, each particular approach must be evaluated for its relative strengths and weaknesses both for the purposes of admissibility and for its potential susceptibility to attack on cross-examination.
Red Rock Analytics, LLC v. Samsung Elecs. Co., No. 2:17-CV-101-RWS-RSP (E.D. Tex. Feb. 6, 2019)
Bar to File IPR Triggered by Declaratory Judgment Action, Even if Complaint Was Dismissed Without Prejudice
by Caitlin E. Olwell, Matthew George Hartman & Rubén H. Muñoz
Patent Trial and Appeal Board, 35 U.S.C. § 315(b), Inter Partes Review
In Ruiz Food Products, Inc. v. MacroPoint LLC, the Patent Trial and Appeal Board (PTAB) considered whether the time-bar provision of 35 U.S.C. § 315(a)(1) was triggered when a real party-in-interest had previously filed an action challenging the validity of patent claims, which had been dismissed without prejudice.
Petitioner Ruiz Food Products, Inc. identified FourKites, Inc. (“FourKites”) as a real party-in-interest in two inter partes review (IPR) petitions and disclosed that FourKites had previously filed an action for declaratory judgment of invalidity against the patents-at-issue. Despite the previously filed declaratory judgment action, Petitioner argued that 35 U.S.C. § 315(a)(1) did not bar institution of the IPR proceedings because FourKites’ declaratory judgment complaint had been dismissed without prejudice. In support of this argument, Petitioner relied on prior Federal Circuit and PTAB precedent for the proposition that dismissal without prejudice of a declaratory judgment action nullified the effect of service of that complaint and, therefore, could not act as a time bar under § 315(a)(1). See Graves v. Principi, 294 F.3d 1350, 1356 (Fed. Cir. 2002); Oracle Corp. et al. v. Click-to-Call Tech. LP, Case IPR2013-00312, slip op. at 17 (PTAB Oct. 30, 2013) (Paper 26) (precedential).
After the IPR proceedings were instituted, the Federal Circuit issued an opinion distinguishing Graves and vacating the PTAB’s final written decision in Oracle Corp. Specifically, in Click-to-Call Techs., LP v. Ingenio, Inc., the Federal Circuit held that service of a complaint in a patent infringement action can trigger the time-bar provision of 35 U.S.C. § 315(b) even if the complaint was later dismissed without prejudice. 899 F.3d 1321, 1325, 1334-35 (Fed. Cir. 2018) (en banc in relevant part). In light of the Federal Circuit’s decision in Click-to-Call with respect to § 315(b), Patent Owner MacroPoint LLC moved to dismiss the IPR proceedings and averred that the holding of Click-to-Call applied equally to § 315(a)(1) and, therefore, the IPR proceedings were time-barred. Petitioner, in response, argued that the Federal Circuit’s decision in Click-to-Call was cabined to § 315(b) and that a dismissal without prejudice still renders an action as if it had never been filed for purposes of § 315(a)(1).
Section 315 contains two provisions addressing time bars based on civil actions. The first provision, set forth as § 315(a)(1), governs actions brought by a petitioner or a real party-in-interest. Under § 315(a)(1), the PTAB may not institute IPR proceedings if a petitioner or real party-in-interest filed a civil action challenging the validity of a patent claim before the petition’s filing date. The second provision, set forth as § 315(b), governs actions brought by a patent owner. Unlike § 315(a)(1), which establishes a bar on the date that the petitioner or real party-in-interest filed an action challenging patent validity, the time bar under § 315(b) is triggered one year from the date a patent owner served a patent infringement complaint.
In determining whether the IPR proceedings were time-barred, the PTAB turned to the statutory language of 35 U.S.C. § 315. The PTAB explained that nothing in § 315(a)(1) provides any exceptions for complaints that are filed before an IPR petition but later dismissed. Moreover, as the Federal Circuit previously discerned in Click-to-Call regarding § 315(b), the PTAB concluded that Congress could have—but did not—include an exception in § 315(a)(1) for actions that were filed but later dismissed without prejudice. Just as the Federal Circuit in Click-to-Call found the language of § 315(b) to be plain and unambiguous, the PTAB held the same for § 315(a)(1). According to the PTAB, the plain and unambiguous text set forth in § 315(a)(1) did not include any exception regarding dismissals.
Next, the PTAB considered Petitioner’s argument that § 315(a)(1) is inapplicable to the present circumstances because of background legal principles concerning dismissals. The background legal principle on which Petitioner relied was the same as that considered in Click-to-Call—i.e., that a dismissal without prejudice leaves the parties in the same legal position as if the complaint was never filed. In Click-to-Call, however, the Federal Circuit found such principle to be “anything but unequivocal.” Relying on the Federal Circuit’s reasoning, the PTAB rejected Petitioner’s argument and concluded that Petitioner’s proffered background legal principle cannot justify applying a dismissal exception to the plain, unambiguous statutory language of § 315(a)(1).
The PTAB then considered and rejected Petitioner’s three alternative arguments for why FourKites’ complaint should not trigger the time bar of § 315(a)(1). First, the PTAB dismissed Petitioner’s argument that FourKites’ complaint did not implicate § 315(a)(1) because it was a counterclaim, not a complaint. While § 315(a)(3) provides that a counterclaim of invalidity does not constitute a “civil action” to trigger the time bar of § 315(a)(1), the PTAB explained that there was no ambiguity in the statutory language that could justify interpreting “counterclaim” from § 315(a)(3) to include FourKites’ declaratory judgment action. Second, despite Petitioner’s attempts to argue otherwise, the PTAB held that Patent Owner did not waive any objection to institution under § 315(a)(1) by failing to object prior to institution of the IPR proceedings because this is a jurisdictional issue that cannot be waived. Third, the PTAB considered Petitioner’s argument that FourKites’ complaint should not constitute a “civil action” because the complaint was dismissed for lack of subject matter jurisdiction. Without addressing how this issue may be decided after Click-to-Call, the PTAB found Petitioner’s argument unavailing because the district court did not actually dismiss FourKites’ complaint for lack of subject matter jurisdiction.
Accordingly, the PTAB held that institution of the IPR petitions was time-barred by 35 U.S.C. § 315(a)(1). It therefore lacked jurisdiction over the IPR proceedings.
A potential IPR petitioner must not only avoid filing a declaratory judgment action of invalidity, but must also ensure that no such action has been filed by a real party-in-interest. A declaratory judgment action of invalidity—even if dismissed without prejudice—triggers the bar provision of § 315(a)(1) and forecloses the filing of an IPR.
Ruiz Food Products, Inc. v. MacroPoint LLC, Case IPR2017-02016 & IPR2017-02018, Paper 22 (Feb. 14, 2019).
PTAB Denies IPR Institution Where Petitioner Used Same Prior Art and “Substantially Similar” Arguments
by Andy Rosbrook, Matthew George Hartman & Rubén H. Muñoz
Patent Trial and Appeal Board, Prior Art, 35 U.S.C. § 102, 35 U.S.C. § 103, Inter Partes Review
The Patent Trial and Appeal Board (PTAB or “Board”) recently denied the institution of an inter partes review (IPR) petition where the Patent Office had previously considered the asserted prior art, despite Petitioner’s attempt to present that prior art in a different way.
The Petitioner, ZTE (USA) Inc., filed an IPR petition challenging U.S. Patent No. 7,397,431 (the “’431 Patent”), directed to a multilevel antenna structure. This was not the first time the ’431 Patent had been challenged—it was previously the subject of an earlier IPR petition, four inter partes reexamination proceedings, one ex parte reexamination proceeding, three district court lawsuits, and a Federal Circuit appeal.
The Petitioner relied on three prior art references from the earlier ex parte and inter partes reexaminations. Petitioner, however, presented these references to the Board in a new way by (i) combining previously uncombined references and (ii) arguing that the ’431 Patent was obvious under 35 U.S.C. § 103 in light of a reference that was previously used as anticipatory prior art (under § 102). Petitioner also submitted new and detailed evidence about the characteristics of the patented antenna, including plots, graphs, and an expert declaration to explain them.
The Board first considered whether to exercise its discretion under 35 U.S.C. § 325(d) to deny institution because the asserted prior art was previously presented to the Patent Office. In doing so, the Board weighed six non-exclusive “Becton Dickinson” factors:
- the similarities and material differences between the asserted prior art and the art from the earlier examinations;
- the cumulative nature of the asserted prior art and the art evaluated during the earlier examination;
- the extent to which the currently-asserted art was evaluated during the earlier examination;
- the extent of the overlap between arguments in the current and earlier proceedings;
- whether a petitioner has explained how the Patent Office erred when evaluating the art in the earlier proceeding; and
- the extent to which additional evidence and facts presented in the petition warrant reconsideration of the earlier-asserted art and arguments.
Becton, Dickinson & Co. v. B. Braun Melsungen AG, Case IPR2017-01586, slip op. at 17-18 (PTAB Dec. 15, 2017) (Paper 8) (informative).
The Board found that the first five factors all weighed in favor of denying institution. The first and second factors were analyzed briefly. The references were identical to the ones previously considered, and so were necessarily cumulative. The third factor—the extent to which the art was previously examined—also favored denying institution. The Board walked through the record of the earlier ex parte and inter partes reexaminations and determined that the references were presented substantively to the Patent Office and considered during those proceedings.
In considering the fourth factor, the Board compared the principal arguments made by Petitioner as to what the prior art taught, and found that those arguments were “substantially similar in many respects” to the previously presented arguments. Accordingly, the Board found that this factor weighed in favor of denying institution. The Board did note that the references were being presented as a new combination and under § 103, but these facts appear to have played little or no role in the Board’s evaluation of the fourth factor.
The fifth factor also weighed in favor of denying institution because the Petitioner did not identify any errors in the Patent Office’s earlier analysis.
The sixth factor was the only one the Board found to weigh in favor of institution. In particular, the Board found that presentation of additional evidence about the characteristics of the antenna, supported by an expert declaration, weighed in favor of additional consideration by the Board.
The Board weighed all six factors as a whole and determined that the first five factors—all dealing with the similarity of the prior art and arguments—outweighed the Petitioner’s presentation of additional evidence.
Although the Board could have stopped there, it also exercised its discretion to deny institution under 35 U.S.C. § 314(a) on the grounds that an IPR would be cumulative of a co-pending district court proceeding. That co-pending case was likely to go to trial before the Board would issue a final written decision and the same prior art and arguments were already under consideration by the district court. Thus, the Board found that instituting IPR “would be contrary to the goal of the AIA to provide an efficient alternative to district court litigation” and denied institution under § 314(a) as well.
ZTE (USA) Inc. v. Fractus, S.A., Case IPR2018-01451 (PTAB Feb. 19, 2019) (Paper 12).
Where a patent has survived previous challenges at the Patent Office, a Petitioner will want to carefully differentiate the asserted prior art and arguments from those at issue in earlier proceedings, using the Becton Dickinson factors as a guide. Presenting the same art in different combinations or under different sections of the Patent Act (e.g., § 103 instead of § 102) may not be enough to justify institution.
Grace Period for Deadlines Falling on Weekends and Holidays Applies to One-Year Time Bar for Filing IPR Petitions After Being Sued for Infringement, PTAB Says
by Thomas W. Landers IV, John Wittenzellner & Charles Everingham IV
Patent Trial and Appeal Board, 35 U.S.C. § 315(b), Inter Partes Review
In Samsung Electronics Co. v. Immersion Corp., the Patent Trial and Appeal Board (the “Board”) recently determined that the statutory “grace period” for deadlines falling on weekends and holidays extends to the one-year time bar for filing inter partes review (IPR) petitions under 35 U.S.C. § 315(b). Accordingly, even though Samsung filed its petition two days after the § 315(b) deadline, the Board nonetheless instituted review because the deadline fell on a Saturday, and Samsung filed the Petition on the following Monday.
On August 4, 2017, Immersion served Samsung with a complaint alleging infringement of U.S. Patent No. 6,429,846 (the “’846 patent”) in the Eastern District of Texas. On Monday, August 6, 2018, Samsung filed a petition for IPR of the ’846 Patent. Immersion argued that the IPR cannot be instituted because the petition was untimely under § 315(b). Under that provision, “[a]n inter partes review may not be instituted if the petition . . . is filed more than 1 year after . . . the petitioner is served with a complaint alleging infringement of the patent.” 35 U.S.C. § 315(b). Samsung argued that its petition was nonetheless timely because the § 315(b) deadline fell on a Saturday and 35 U.S.C. § 21(b) provides a general “grace period” for deadlines falling on weekends and holidays. Specifically, under 35 U.S.C. § 21(b), “[w]hen the day, or the last day, for taking any action . . . in the United States Patent and Trademark Office falls on Saturday, Sunday, or a Federal holiday within the District of Columbia, the action may be taken . . . on the next succeeding secular or business day.”
The Board agreed with Samsung and rejected Immersion’s three arguments for why § 21(b) should not apply. First, Immersion argued that § 21(b) is a “general standard” that “must yield to Section 315(b)’s specific jurisdictional limitations,” which prohibit the Board from “instituting inter partes review unless th[e] timeliness precondition [of § 315(b)] is satisfied.” The Board rejected that argument because the two statutes are not in conflict. Rather, § 21(b) “is complementary to deadline-setting provisions such as those found in Section 315(b).”
Second, Immersion argued that the Federal Circuit has “refused to create exceptions to Section 315(b) that are not found in the text of that provision.” The case Immersion relied on—Click-to-Call, Techs., LP v. Ingenio, Inc., 899 F.3d 1321, 1329–32 (Fed. Cir. 2018)—rejected a “proposed exception” to § 315(b), namely that a voluntarily-dismissed complaint does not trigger the one-year time bar. The Board distinguished that case because “the argument rejected in Click-to-Call was an attempt to create a non-statutory exception to § 315(b), and § 21(b) creates a statutory grace period that applies to ‘any action’ in the PTO.”
Third, Immersion argued that “§ 21(b) should not apply in these circumstances because the Petition could have been filed electronically on Saturday, August, 4, 2018.” The Board rejected that argument because “most, if not all, filings in the PTO can now be made electronically,” and it was not willing to conclude that § 21(b) is effectively obsolete.
Although the Board ultimately determined that Samsung’s petition was timely, the decision is a useful reminder that parties should always docket and keep a close eye on deadlines triggered by statute and be sure to file papers within the statutory windows. Moreover, the decision suggests that PTAB panels might apply the § 21(b) grace period broadly to “any action” in the Patent Office, so parties should consider whether the statute applies to their facts before spending part of their limited word count on arguments about timeliness.
Samsung Elecs. Co. v. Immersion Corp., IPR2018-01468, Paper 10 (PTAB Feb. 20, 2019).
District Court Rules IPR Estoppel Does Not Extend to an Obviousness Defense That Was Based In Part on Evidence Describing a Prior Art Product
by Dorian Ojemen, John Wittenzellner & Rubén H. Muñoz
District Court, Obviousness, Prior Art, 35 U.S.C. § 315(e)(2) estoppel
In Oil-Dri Corp. of Am. v. Nestlé Purina Petcare Co., Judge Kennelly of the Northern District of Illinois denied Plaintiff’s motion for summary judgment on Defendant’s obviousness defense, holding that inter partes review (IPR) estoppel did not preclude Defendant from raising a prior art patent in combination with evidence describing a prior art product.
Plaintiff Oil-Dri moved for summary judgment that Defendant Nestlé Purina should be estopped from raising the Shinohara patent in the district court because it could have reasonably raised it in the related IPR proceeding. In fact, the judge previously assigned to the case, Judge St. Eve, had ruled that Nestlé Purina was estopped from raising an anticipation defense based on the Shinohara patent.
Nestlé Purina argued that the earlier ruling on anticipation does not extend to an obviousness defense for several reasons. First, the obviousness combination—which is based not only on the Shinohara patent, but also on additional evidence describing a prior art product—is different ground than the precluded anticipation ground. Second, Nestlé Purina could not have asserted the obviousness combination at the Patent Trial and Appeal Board (PTAB) because the scope of an IPR is limited to “patents or printed publications” and does not extend to other types of evidence related to a prior-art product.
Upon consideration of the parties’ respective positions, the court denied Oil-Dri’s motion for summary judgment. In doing so, the court determined that Oil-Dri did not carry its burden of showing that estoppel was appropriate because it did not present evidence sufficient to show that printed materials describing the prior-art product qualified as “printed publications.” According to the court, if such printed materials qualified as “printed publications,” Nestlé Purina could have presented the obviousness combination to the PTAB and it would have been precluded in district court.
Where there is evidence that a petitioner had reasonable access to printed materials corresponding to, or describing, a product that it could have proffered during the IPR process, a party cannot avoid estoppel simply by pointing to its finished product (rather than the printed materials) during litigation. However, a patent owner asserting estoppel under 35 U.S.C. § 315(e) in district court must present evidence showing that any printed materials relied upon by an accused infringer were available upon a reasonable search.
Oil-Dri Corp. of Am. v. Nestlé Purina Petcare Co., No. 15 C 1067 (N.D. Ill. Feb. 22, 2019)
Authorized Sale of a Product Does Not Exhaust Patent Rights Against Upstream Parties in the Chain of Commerce
by Jason Weil, John Wittenzellner & Daniel L. Moffett
District Court, Infringement, Patent Exhaustion Doctrine, Technology, Western District of Washington
A district court in the Western District of Washington denied Adaptics Ltd.’s (“Adaptics”) motion for summary judgment of patent exhaustion, which was based on a theory that an authorized sale by a downstream reseller can exhaust patent rights against an upstream manufacturer. The plaintiff, Perfect Company (“Perfect”), alleged that two of Adaptics’ app-based products infringed Perfect’s U.S. Patents No. 8.829,365 and No. 9,772,217. Perfect also sued Apple Inc. (“Apple”), alleging that Apple’s sale of Adaptics’ products infringed the same patents.
Perfect ultimately settled with Apple, agreeing not to sue Apple or Apple’s customers for infringement of the asserted patents. That settlement included a carve out excluding from the agreement Perfect’s infringement claims against Adaptics. Adaptics filed a motion for summary judgment alleging that, despite the carve out, Perfect’s settlement with Apple exhausted Perfect’s patent rights in the accused products. If it did not, Perfect could recover twice on the value of its patent. Perfect disagreed, arguing that patent exhaustion only applies to subsequent, downstream purchasers after an initial authorized sale; it does not apply to upstream manufacturers.
The court agreed with Perfect, holding that “because patent exhaustion only applies to the patentee’s rights against downstream transfers, Perfect’s settlement with Apple did not exhaust its rights against Adaptics.” The court characterized Adaptics’ argument as requiring “a novel, upstream-oriented application of patent exhaustion that has no support in case law.” In reaching this conclusion, the court first walked through the Supreme Court’s recent Impression Products, Inc. v. Lexmark International, Inc., 137 S. Ct. 1523, 1532-33 (2017) decision relating to patent exhaustion. The court noted that Adaptics is likely correct that the settlement authorized Apple and all of Apple’s customers to sell products manufactured by Adaptics, exhausting Perfect’s rights against Apple and Apple’s customers. But that was irrelevant to Perfect’s rights against Adaptics itself because Impression Products related to the rights of subsequent owners to use or resell a product. And the other district court cases that considered Adaptics’ upstream patent exhaustion arguments had similarly rejected them.
The court then addressed Adaptics’ argument that Perfect would be recovering twice for the same infringement. The court rejected this theory as well, explaining that Adaptics’ and Apple’s alleged infringement was not the same act of infringement. According to the court, Adaptics’ infringement necessarily occurred before any authorized sales by Apple. And, in any event, when a patentee settles with a downstream distributor, both parties are necessarily aware of the existence of the infringing manufacturer and presumably account for that by limiting the settlement to less than the patent’s full value. Thus, there was no danger that Perfect was recovering twice for the same infringement.
When negotiating a settlement or developing a reasonable royalty damages theory, parties should always account for the existence of both upstream and downstream links in the chain of commerce. In this case, Apple apparently determined that carving out Adaptics’ conduct from the settlement agreement was in its interest. The lack of upstream patent exhaustion, as the court observed, would tend to support a lower royalty or settlement amount for the reseller. But in other cases, it may be in the reseller’s interest to include the upstream manufacturer in the settlement to insure a continued supply of the accused product.
Perfect Co. v. Adaptics Ltd., 14-cv-3714-RBL (W.D. Was. Mar. 19, 2019) (Dkt. No. 425)
Dual-Purpose, Patent Analysis Documents Found Immune from Discovery under Work Product Doctrine
by Brock F. Wilson, Rachel J. Elsby & Daniel L. Moffett
District Court, Privilege
In Limestone Memory Systems LLC v. Micron Technology, Inc. et al., the Discovery Master ruled that, under 9th Circuit law, pre-suit, patent analysis documents qualified for immunity from discovery under the work product doctrine, despite having a dual purpose, because the business and legal elements of the documents were inextricably intertwined.
In this case, Micron sought production of several documents related to the evaluation and acquisition of certain patents—documents Micron characterized as being created for a business purpose. However, Limestone refused to produce the documents on the bases of attorney-client privilege and work product immunity, and a motion to compel followed.
Micron argued that Limestone lacked standing to withhold the documents that Limestone’s parent company created before it acquired the patents-in-suit, some of which were created before Limestone existed as a corporation. According to Micron, Limestone could not anticipate litigation before it existed. Micron also argued the documents were not entitled to privilege or work product protections because they were created for a business purpose, i.e., evaluating the patents for potential acquisition, not for litigation. More specifically, Micron argued that, under Griffith v. Davis, 161 F.R.D. 687, 698 (C.D. Cal. 1995), the documents could not qualify as attorney work product because they were “dual-purpose”—having been created for a business purpose, even if they also touched on legal issues—and would have been created even if the complaint had never been filed.
Limestone countered that for documents providing business and legal advice that is “inseparably interrelated,” the Torf standard supplanted the “primary purpose” standard, and as a result, its documents should be protected. According to Limestone, under United States v. Torf (In re Grand Jury Subpoena), 357 F.3d 900, 907 (9th Cir. 2004), “the test for [such] work-product protection is not whether litigation was a primary or secondary motive behind the creation of a document, but rather whether, under the totality of the circumstances, it can fairly be said that the document was created because of anticipated litigation.” Limestone further reasoned, “[c]learly, there is no reason to exercise an option on a patent if there is a legal decision not to assert such a patent.”
Notably, neither party distinguished the legal standards to be applied to documents withheld as work product versus documents withheld on the basis of attorney-client privilege. In its decision, the Discovery Master clarified these standards, emphasizing that for privilege to apply, a communication must be made for the purpose of securing or providing legal advice. And when the communication involves in-house counsel with business responsibilities, the “primary purpose” of the communication must have been to obtain or provide legal advice. In contrast, work product is an immunity that protects documents if they are “prepared or obtained because of the prospect of litigation,” regardless of “whether litigation was a primary or secondary motive” in their creation. And this is true even if the documents are created prior to acquisition of the asserted patents because one consideration for acquisition could be possible litigation strategy.
Applying these standards, the Discovery Master found several of Limestone’s documents qualified for work product protection because “the business and legal elements of counsel’s advice [in them were] inextricably intertwined.” The “business analysis was permeated by a concurrent legal purpose, namely evaluating the legal strength and enforceability of the asserted patents.” The Discovery Master reasoned that Limestone’s parent company intended to enforce the asserted patents and created the withheld documents concurrently with the preparation of the complaint, which was filed soon after the patents were acquired.
The Discovery Master also held several of Limestone’s documents protected by the attorney-client privilege because “despite the fact that a business evaluation of the patents-in-suit and the Non-Acquired Patents may have been occurring simultaneously through parallel channels and in some instances involving outside counsel, each of the specific communications  was generated primarily for the purpose of obtaining legal advice.” In other words, the documents would not have been generated if Limestone and its parent were merely engaged in their regular business of evaluating and purchasing patents.
On the other hand, the Discovery Master ordered Limestone to produce some of the documents on its privilege log, including email chains and attachments, because based solely on their contents, he could not determine whether they should be privileged or constitute work-product. The Discovery Master noted that Limestone had not provided sufficient evidence to conclude that they should, highlighting that it had not provided declarations by any of the persons who authored or received the documents.
Parties involved in discovery of pre-suit documents should consider whether such documents were created with litigation in mind. If so, those documents may be protected by work-product immunity or as privileged, but those labels should be applied thoughtfully based on the applicable legal standards. Parties desiring to protect documents that have concurrent business and legal purposes may have the best chance of excluding them from discovery if they explicitly state their legal purpose in the documents themselves. And, if it is not clear from the four corners of the documents, supplemental evidence, such as declarations from those persons involved in their creation or communication, may support a claim that protection should apply.
Limestone Memory Systems LLC v. Micron Technology, Inc. et al, 8-15-cv-00278 (CACD 2019-02-19, Order) (Roy Silva)
PTAB: Federal Circuit’s Click-to-Call Holding Applies to Statutory Bar Under 35 U.S.C. § 315(a)
by Melissa R. Gibson, Matthew George Hartman & Rubén H. Muñoz
Federal Circuit, Patent Trial and Appeal Board, 35 U.S.C. § 315(b), Inter Partes Review
The Patent Trial and Appeal Board (the “Board”) vacated its institution decision and terminated an inter partes review (IPR) filed by Mylan Pharmaceuticals, Inc. (“Mylan”) based on Mylan’s prior counterclaim seeking a declaratory judgment of invalidity in district court. The IPR had been joined by Dr. Reddy’s Laboratory Inc. (DRL), but because DRL was also time-barred pursuant to § 315(b), the Board terminated the proceeding.
On August 24, 2017, Mylan filed an IPR against Pozen and Horizon Pharma USA, Inc. (the “Patent Owners”). In their preliminary response, Patent Owners contended that the petition was barred pursuant to § 315(a) because the petition was filed after Mylan asserted a counterclaim for declaratory judgment of invalidity of U.S. Patent No. 9,200,698 (the “’698 Patent”) in a civil action where the ’698 Patent had not been asserted. Initially, the Board had found that Mylan was not barred because the counterclaim of invalidity directed to the ’698 Patent was voluntarily dismissed without prejudice. Shortly after institution, the Board instituted DRL’s petition and granted its motion to join the Mylan IPR proceeding with the understanding that DRL’s petition was time-barred pursuant to § 315(b)’s absent joinder. During the pendency of the proceeding, however, the Federal Circuit issued its decision in Click-to-Call Technologies, LP v. Ingenio, Inc., 899 F.3d 1321, 1329 (2018), which held that the statutory time bar of § 315(b) applies even if the litigation triggering the bar was voluntarily dismissed without prejudice. Thus, the Board authorized the parties to file briefs addressing the effect of Click-to-Call’s holding on the instant proceeding.
The Board concluded that although the Click-to-Call decision directly addressed § 315(b), the Federal Circuit’s reasoning applied equally to § 315(a). The Board noted that § 315 governs the relationship between IPRs and other actions; § 315(a) concerns actions by the petitioner triggering the bar and § 315(b) concerns actions by the patent owner triggering the time bar. According to the Board, similar to the Federal Circuit’s analysis of the language of § 315(b) in Click-to-Call, the language in § 315(a) is plain and unambiguous and contains no exceptions or exemptions for filing civil actions that are later dismissed. The Board, therefore, concluded that the difference in actors (i.e., petitioner for § 315(a) versus patent owner for § 315(b)) does not justify imposing radically different outcomes for voluntary dismissal of civil actions. The Board reasoned that the petitioner’s filing of a civil action triggers the bar pursuant to § 315(a)(1) regardless of whether the action is later dismissed.
Next, the Board determined that Mylan’s invalidity counterclaim constituted the filing of a civil action challenging the validity of the ’698 Patent thereby triggering the time bar pursuant to § 315(a)(1). Although § 315(a)(3) provides that a counterclaim challenging the validity of a claim of a patent does not constitute a civil action challenging validity of the patent, the Board relied on the legislative history to conclude that this language did not include a counterclaim asserting invalidity of a patent that was not asserted in the complaint. Because it was undisputed that the complaint in the civil action did not assert that Mylan infringed the ’698 Patent—and that Mylan introduced the ’698 Patent into the litigation by challenging its validity through a counterclaim—the Board found that Mylan’s counterclaim did not qualify as a “counterclaim” under § 315(a)(3). Instead, the Board determined that it constituted a “civil action challenging the validity of a claim of the patent” pursuant to § 315(a)(1).
Finally, the Board concluded that the appropriate remedy was to vacate its institution decision and terminate the proceeding. The Board found that the regulations expressly grant the Board broad authority to dismiss a petition where appropriate and to terminate a trial without rendering a final written decision. See 37 C.F.R. §§ 42.71(a), 42.72, 42.5(a). In addition, the Board vacated its decisions instituting DRL’s petition and granting DRL’s joinder motion. The Board concluded that it lacked authority to join DRL to Mylan’s barred petition, and absent joinder, DRL’s petition was time-barred. Thus, the proceeding was terminated.
An accused infringer in a district court action that is considering filing a counterclaim seeking declaratory judgment of invalidity against an unasserted patent must also recognize the potential IPR bar triggered under 35 U.S.C. 315(a).
Mylan Pharms. Inc. v. Horizon Pharma USA, Inc., IPR2017-01995, Paper 71 (PTAB 2019)