Competing Policy Interests Cause PTAB to Deny Request to Vacate Final Written Decision in View of Settlement
by Jenna Marie Pellecchia, Rachel J. Elsby & Rubén H. Muñoz, Akin Gump
On April 12, 2018, the Patent Trial and Appeal Board (PTAB) denied a patent owner’s request to vacate a final written decision that was issued before the parties settled their dispute. While recognizing that parties should be incentivized to settle disputes independently, the PTAB found that inter partes reviews (IPR) “encompass important public policy considerations that go beyond the dispute between the parties, such as the negative effects that unpatentable claims may have on the economy or the integrity of the patent system.”
In the final written decision, which issued on January 30, 2017, the PTAB entered an adverse judgment against the patent owner as to three claims and found the remaining two claims anticipated. The patent owner appealed the PTAB’s final written decision to the Federal Circuit. Before receiving a decision on appeal, however, the parties settled their dispute. Following settlement, the patent owner filed an unopposed motion requesting that the Federal Circuit dismiss the appeal and remand the case to the PTAB to allow the patent owner to file a motion to vacate the final written decision. The Federal Circuit granted the motion, but took “no position as to whether the Board should grant the motion to vacate.”
In its unopposed motion to vacate, the patent owner argued that vacating the final written decision is appropriate because the law and sound public policy favor and encourage settlements. If the PTAB refused to vacate the final written decision, thereby requiring the parties to endure a full appeal, the patent owner argued that there would be no incentive for parties to settle their disputes after a final written decision has been entered.
The PTAB disagreed. Citing 37 CFR § 42.74(a), the PTAB emphasized its authority to independently determine questions of patentability, even after parties settle, in order to promote the public policy favoring the cancellation of any claim that has been shown to be unpatentable on the merits. Recognizing the competing public policy interests that are inherent in the IPR statutes and regulations, the PTAB held that it would be against the public interest to vacate the final written decision simply because the parties settled after the decision issued.
Importantly, the PTAB highlighted several times that the settlement occurred after the issuance of the final written decision. This ruling reinforces the PTAB’s continued reluctance to terminate or nullify proceedings that have reached the final written decision stage.
Dish Network Corporation v. TQ Beta LLC, IPR2015-01756 (PTAB)
District Court Holds That Distributor Relationships Alone Do Not Establish Venue
by Justin J. Chi, Matthew George Hartman & Daniel L. Moffett, Akin Gump
A federal district court in the Southern District of Texas recently addressed venue issues relating to supplier-distributor relationships. Given the defendant’s lack of physical presence in the district, Chief Judge Lee Rosenthal granted defendant’s motion to transfer venue.
Plaintiff Wet Sounds Inc. (“Wet Sounds”) sued defendants PowerBass, USA, Inc. (“PowerBass”), Dow Electronics, and AV Audio Vision, Inc. for patent infringement in the Southern District of Texas. PowerBass moved to dismiss Wet Sound’s complaint or, alternatively, to transfer venue to the Central District of California. PowerBass has no physical presence in the Southern District of Texas. Wet Sounds, however, argued that PowerBass is “inseparably commingled” with its codefendants, who distribute PowerBass products in Houston, and therefore has a regular and established business in the district. Wet Sounds argued that retail dealerships in Houston authorized to sell PowerBass products were distribution centers that satisfied the physical presence requirement established in In re Cray. In addition, Wet Sounds amended its original complaint to include federal and common law claims of trademark infringement.
In its April 17, 2018 order, the Court distinguished between the type of distribution centers discussed in In re Cray and the distribution centers used by PowerBass. In re Cray stated that the physical presence requirement is met if a defendant uses an employee’s home “like a distribution center.” Here, PowerBass’s distributors are not employees of PowerBass. The Court held that, because there is “no record evidence that PowerBass owns, leases, or controls the third-party distributors in the Houston area,” PowerBass did not have the necessary regular and established place of business in the Southern District of Texas for purposes of venue.
Wet Sounds also argued that defendants’ jointly infringing acts warranted venue in the Southern District of Texas. The Court rejected that argument, stating that, even if judicial economy supported keeping defendants in the district, the Court’s options are limited when venue is not proper.
The Court also found that the doctrine of pendent venue was not applicable to this case. Pendent venue allows a case to proceed in a jurisdiction where venue is proper as to one claim and improper as to other claims, but all of the claims arise from a common set of facts. The Court explained that most courts have rejected the application of pendent venue in patent cases. Because the primary claims at issue in this case were patent infringement claims, rather than the federal and common law trademark infringement claims later added by Wet Sounds, pendent venue was not justified.
Wet Sounds, Inc. v. PowerBass USA, Inc., No. 4:17-cv-03258 (S.D. Tex. April 17, 2018, Memorandum and Opinion Granting in Part and Denying in Part the Motion to Dismiss or Transfer Venue) (Rosenthal, C.J.).
Ten-Year Silence After Initial Cease-and-Desist Letter Is Sufficiently Misleading as to Provide Basis for Equitable Estoppel
by Jay K. Tatachar, Rachel J. Elsby & Daniel L. Moffett, Akin Gump
The District Court for the Central District of California recently found that plaintiff Akeso Health Sciences, LLC’s 10-year delay in filing its patent infringement claims justified granting defendant Designs for Health, Inc.’s (DFH) motion for summary judgment on equitable estoppel grounds.
Akeso initiated the lawsuit on October 18, 2016, alleging that DFH’s Migranol™ product indirectly infringed claims of U.S. Patent No. 6,500,450 (the “’450 patent”). The ’450 patent relates to a dietary supplement for the treatment of migraine headaches. In its complaint, Akeso accused DFH of indirectly infringing certain claims of the ’450 patent due to various instructions and implications on the label of the Migranol migraine treatment product. The dispute, however, originated more than 10 years earlier, on April 18, 2006, when an attorney for Akeso’s founder, Curt Hendrix, sent a cease-and-desist letter to DFH regarding its Migranol product. On April 27, 2006, DFH’s attorney responded that DFH would fully analyze the patents and respond no later than May 12, 2006. No further communications were exchanged between the parties until Akeso filed the lawsuit.
In its motion for summary judgment, DFH argued that Akeso was equitably estopped from asserting the ’450 patent based on the 10-year delay between the parties’ last communication and Akeso filing its lawsuit for infringement. To succeed on its equitable estoppel defense, DFH was required to establish the following: (1) Akeso, through misleading conduct (or silence), led DFH to reasonably infer that it did not intend to enforce its patent against DFH; (2) DFH relied on that conduct; and (3) DFH would be materially prejudiced if Akeso were allowed to proceed with its claim.
Because the parties agreed that Akeso never took steps to mislead DFH, the court framed the first element as “whether the ten-year silence after Hendrix issued his cease-and-desist letter, alone, is sufficiently misleading as to provide a basis for equitable estoppel.” In finding that Akeso’s delay was sufficiently misleading, the court reasoned that, for a period of silence to be misleading, the initial contact leading to silence must be “adversarial” in that it can be reasonably viewed “as a threat of an infringement suit” rather than a “license negotiation.” Here, the cease-and-desist letter explicitly requested an immediate cessation of manufacturing and distribution, as well as the destruction of all inventory of the accused product. At no point did the letter suggest that licensing was a possibility. Therefore, when Hendrix failed to follow up on his threats in the letter, DFH could have interpreted this as a relinquishment of the infringement claims. The court further noted that this finding was bolstered by 35 U.S.C. § 286’s limitation of damages to the six years prior to filing a complaint. That is, the “patentee’s failure to preserve over four years’ worth of potential lost profits is reasonably interpreted as an abandonment of its claims.”
The court further found that DFH adequately demonstrated that it relied on Akeso’s silence based on a declaration submitted by DFH’s chairman. The declaration explained that, had Hendrix diligently pursued the infringement claims, DFH would have considered modifying the Migranol label or composition. Instead, it chose to increase its investment in Migranol over the 10-year period. Second, in finding that DFH adequately demonstrated prejudice, the court noted that DFH’s marketing and investment efforts in Migranol yielded sales that nearly quadrupled revenue. Now, “[a]fter ten years of failing to follow up on its threat of infringement, DFH would be undeniably prejudiced if the Court allowed Akeso to bring forth its claims only after DFH made substantial investments in its product.”
Akeso Health Sciences, LLC v. Designs for Health, Inc., No. 2:16-cv-07749 (C.D. Cal. April 26, 2018) (Otero, J.)