Extrinsic Evidence May Be Used to Interpret an Anticipating Reference
In Monsanto Technology LLC v. E.I. Dupont De Nemours, Appeal No. 2017-1032, the Federal Circuit held that extrinsic evidence can be used to find that an allegedly anticipating reference necessarily includes relevant claim limitations.
E.I. DuPont de Nemours & Co. (“DuPont”) sought inter partes reexamination of a patent owned by Monsanto Technology LLC directed to a process for mating soybean lines to produce soybeans having a specified fat content. During the inter partes reexamination, DuPont submitted an allegedly anticipating prior art reference that disclosed various processes for mating soybean lines, along with two declarations that analyzed the fat content of the resultant plants. Relying on the declarations, the PTAB found that the prior art reference would “necessarily result” in plants having the claimed fat content. Accordingly, the PTAB found the relevant claims of Monsanto’s patent were anticipated. Monsanto appealed to the Federal Circuit, arguing that the PTAB erred by relying on the declarations to reject the asserted claims for anticipation, which Monsanto believed contained secret and non-prior art data.
The Federal Circuit affirmed the PTAB’s decision. The Federal Circuit held that substantial evidence supported the PTAB’s finding that the prior art reference inherently anticipated the asserted claims, in view of the two declarations. Concerning Monsanto’s argument that the declarations did not qualify as prior art, the Federal Circuit explained that “[e]xtrinsic evidence may be used to interpret the allegedly anticipating reference.” Finally, in response to Monsanto’s argument that the declarations were “secret data” because they were not published, the Federal Circuit explained that the declarations were offered in support of the prior art already of record and that such reliance on extrinsic evidence is proper in an inherency analysis.
Time-Bar Determinations Under § 315(b) Are Subject to Judicial Review
In Wi-Fi One, LLC v. Broadcom Corporation, Appeal No. 2015-1944, the Federal Circuit held that time-bar determinations under § 315(b) are subject to judicial review.
Ericsson filed a complaint for patent infringement against a third party in district court in 2010. Broadcom was not a defendant in that litigation. In 2013, Broadcom filed three IPRs against each of the patents asserted in the Ericsson litigation. Ericsson subsequently transferred ownership of the patents to Wi-Fi, who argued that the IPRs were time-barred because Broadcom was allegedly in privity with the prior defendants. The Board denied Wi-Fi’s motion for discovery, held that the IPRs were not time-barred under § 315(b), and found the challenged claims unpatentable. Wi-Fi appealed to the Federal Circuit.
The initial Federal Circuit panel determined the Board’s time-bar decision was not subject to judicial review. Specifically, § 314(d) states that “the determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.” Wi-Fi petitioned for en banc review.
The Federal Circuit held en banc that a § 315(b) time-bar determination is subject to judicial review. Noting the strong presumption in favor of judicial review of agency actions and the lack of clear legislative history on the issue, the Federal Circuit held that § 314(d)’s prohibition of judicial review applies only to determinations “under this section” (i.e., § 314). As such, § 314(d)’s prohibition does not preclude judicial review of a decision not to institute under § 315—the time-bar statute. The Federal Circuit distinguished Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016), because that decision prohibited judicial review of determinations “closely related to the preliminary patentability determination or the exercise of discretion not to institute.” By contrast, § 315(b)’s time bar “has nothing to do with the patentability merits or discretion not to institute.”
Judge Hughes, joined by Judges Lourie, Bryson, and Dyk, dissented. The dissent argued that Congress barred judicial review of the Director’s decision to institute in § 314(d), and Cuozzo confirmed that § 314(d) applies to the merits of the petition and closely related issues such as timeliness under § 315(b).
Virus Scanning Patent Claims Found Patent Eligible; Apportionment of Royalty Base Required Where Smallest, Identifiable Technical Component Still Includes Non-Infringing Features
In Finjan, Inc. v. Blue Coat Systems, Inc., Appeal No. 2016-2520, the Federal Circuit held that claims directed to behavior-based virus scanning, as opposed to the traditional code-matching method, constituted a patent-eligible improvement in computer functionality. Additionally, the Federal Circuit held that for reasonable royalty damages, apportionment beyond the smallest, identifiable technical component of an accused product is required if the technical component contains non-infringing features.
Finjan filed a lawsuit against Blue Coat Systems for infringement of four patents relating to computer software for identifying and protecting against malware. A jury found that Blue Coat infringed each of the four asserted patents and awarded reasonable royalty damages. After a bench trial, the district court concluded that one of the asserted patents was directed to patent-eligible subject matter under Section 101. Blue Coat appealed the district court’s finding of patent eligibility, the jury’s finding of infringement and the damages award.
With respect to patent eligibility, the Federal Circuit affirmed the district court’s finding that the claims were not directed toward an abstract idea for two reasons. First, the claims were drawn to behavior-based virus scanning which analyzes a downloadable code and determines whether it performs potentially dangerous or unwanted operations. This was different than the traditional method of code-matching virus scanning. The Federal Circuit determined that this was an improvement in computer functionality. Second, the results of the behavior-based virus scan are attached to a new type of file which enables a computer security system to perform tasks that it could not do before. Also, the claims recited more than a mere result and provided specific steps for generating a security profile that identifies suspicious code and links it to a downloadable code.
As for damages, Blue Coat argued that Finjan failed to sufficiently apportion damages to the infringing functionality of the accused product in calculating a royalty base for the reasonable royalty award for one of the asserted patents. Finjan asserted that it satisfied the apportionment requirement because it calculated its royalty base by using the “smallest, identifiable technical component” of the accused product. The Federal Circuit stated that the use of the “smallest, identifiable technical component” did not insulate Finjan from the “essential requirement” that the reasonable royalty award be based on the incremental value of the patented invention. Because the “smallest, identifiable technical component” of the accused product also included non-infringing features, it was not a proxy for the incremental value of the patented technology and further apportionment was required. Further, Finjan’s sole evidence supporting its royalty rate was testimony that the royalty rate was based on a 2008 verdict obtained by Finjan in another lawsuit. This was insufficient to support the royalty rate because Finjan failed to tie the facts of the prior lawsuit to the facts of this case. The Federal Circuit found that Finjan failed to present a damages case for one of the asserted patents that could support the jury’s verdict and remanded for a determination of whether Finjan waived its right to establish reasonable royalty damages under a new theory and whether to order a new trial on damages.
Improperly Drafted Employment Agreement Leads to Dismissal of Patent Case Due to Lack of Standing
In Advanced Video Technologies LLC v. HTC Corporation et al., Appeal Nos. 2016-2309, 2016-2310, 2016-2311, the Federal Circuit held that a co-inventor did not transfer ownership interests in a patent under a California employment agreement that included a “will assign” provision, a trust provision, and a quitclaim provision.
Advanced Video sued the defendants for patent infringement. The district court dismissed the case, finding that Advanced Video lacked standing because a co-inventor had not assigned ownership rights in the patent pursuant to the Employment Agreement and was not a party to the action.
The Federal Circuit agreed with the district court that the future-tense “will assign” language in the Employment Agreement did not itself effect an assignment. Furthermore, the trust provision undermined the existence of an immediate assignment because an inventor could not immediately assign patent rights and at the same time hold them in trust. Even if Advanced Video was a beneficiary of a trust, the Federal Circuit explained that, under California trust law, generally the beneficiary is not the party in interest and may not sue in the name of the trust. Finally, the quitclaim provision of the Employment Agreement merely waived the co-inventor’s rights to patents that were assigned. However, as no patent rights were ever assigned, the Federal Circuit found that the quitclaim provision was inapplicable. Accordingly, Advanced Video did not have full ownership of the patent, and because the co-inventor was not a party to the suits and had not consented to the suits, Advanced Video lacked standing and the district court’s dismissal of the cases was affirmed.
Judge O’Malley concurred that the judgment was compelled by binding precedent but argued that the precedent serving as the predicate for the case was wrong. The concurring opinion examined Federal Rule of Civil Procedure 19, case law addressing joinder under Rule 19, and the Patent Act itself, concluding that that Rule 19, which allows for involuntary joinder, should be applied to cases such as the instant case. The concurring opinion then called for the Federal Circuit to reconsider en banc its precedent that a co-owner or co-inventor cannot be involuntarily joined pursuant to Rule 19.
Judge Newman dissented, arguing that Advanced Video had full ownership of the patent and standing to sue. Judge Newman argued that the Employment Agreement, including the “will assign,” trust, and quitclaim provisions, demonstrated a mutual intent and understanding of employer and employee to effect an assignment of patent rights. Judge Newman also disagreed with the majority’s findings regarding the trust, arguing that the trust vested immediately upon creation of an invention under the Employment Agreement, and that the beneficiary could act on behalf of the trust if the trustee were absent or inactive.
Damages Must Be Apportioned Between the Patented Improvement and the Conventional Components
In Exmark Manufacturing Company v. Briggs & Stratton Power Products Group, Appeal No. 2016-2197, the Federal Circuit held that reexaminations of patents confirming validity are not dispositive of validity in district court. Furthermore, when a patent covers the infringing product as a whole, damages must be apportioned between the patented improvement and conventional components, and expert testimony on damages must adequately tie a proposed reasonable royalty to the facts of the case.
Exmark sued Briggs for infringement of a patent directed to a lawn mower having improved flow control baffles. Three separate reexaminations confirmed the patentability of Exmark’s patent. The district court, relying solely on the fact that the claim at issue had survived multiple reexaminations, granted summary judgment that the claim was not invalid. Following a jury award of damages for willful infringement, the district court denied Briggs’s motion for a new trial on damages.
On appeal, the Federal Circuit vacated the district court’s summary judgment of no invalidity. Although the district court stated it had given the reexaminations “some, though not determinative, weight,” the Federal Circuit disagreed, finding that the conclusory opinion written by the district court offered no other explanation for its determination. In doing so, the Federal Circuit found the district court had improperly deferred entirely to the PTO and neglected its obligation to reach an independent conclusion. The higher “clear and convincing” standard of proof in district court does not preclude the district court from reaching a different conclusion on validity than that reached by the PTO. In particular, because the district court suggested it was adopting a broader claim interpretation than that applied by the PTO during the reexaminations, the district court was required to independently assess validity in view of that construction.
The Federal Circuit also vacated the jury’s damages award. While the Federal Circuit agreed that it was permissible to apportion damages through the royalty rate rather than the royalty base, it found that Exmark’s expert failed to adequately tie her proposed royalty rate of 5% to the facts of the case. The Federal Circuit noted that the expert considered the Georgia-Pacific factors, but she failed to explain the extent to which those factors impacted the royalty calculation. It was not sufficient to analyze the Georgia-Pacific factors without carefully tying those factors to the proposed royalty rate. Additionally, the expert’s analysis ignored the value added by components covered by other patents as well as non-patented elements such as durability, reliability, and branding. The Federal Circuit remanded to the district court for new determinations of invalidity and damages, including, if necessary, a new trial on damages.
Section 121 Safe Harbor Does Not Protect Patents Issued on CIP Applications
In In re: Janssen Biotech, Inc., Appeal No. 2017-1257, the Federal Circuit held that a patent owner cannot retroactively bring a continuation-in-part patent within the scope of § 121 during reexamination by removing the new matter and designating it as a divisional.
The ’471 patent was a continuation-in-part (CIP) of two other patent applications. During reexamination, Janssen amended the ’471 patent to remove the new matter and designated it as a divisional of one of the other applications. Janssen then argued that the safe harbor provisions of 35 U.S.C. § 121 shielded the ’471 patent claims from a double patenting rejection. The Examiner maintained the rejections. The Board affirmed, holding that Janssen could not acquire the benefits of § 121 by amending the application during reexamination. Janssen appealed.
The Federal Circuit affirmed the Board’s decision, relying on a strict application of the plain language of § 121. Section 121 provides that a double patenting reference “shall not be used as a reference . . . against a divisional application or against the original application or any patent issued on either of them.” Accordingly, the § 121 safe harbor applies only if the application was designated as a divisional application before the patent originally issued. The Federal Circuit followed the reasoning from its recent decision G.D. Searle LLC v. Lupin Pharamceuticals, Inc., 790 F.3d 1349 (Fed. Cir. 2015), in which it held that a patent owner could not acquire the benefits of § 121 by amending a CIP application to be a divisional application during reissue proceedings. The Federal Circuit left open the question of whether amending an application to be designated as a divisional application before issuance would be sufficient to bring the challenged patent within the scope of the safe harbor protections.
PTAB May Issue Adverse Judgment Before an IPR Is Instituted
In Arthrex, Inc. v. Smith & Nephew, Inc., Appeal No. 2017-1239, the Federal Circuit held that the PTAB acted within the scope of 37 C.F.R. § 42.73(b) by entering an adverse judgment against a patent owner where, before the Board issued an institution decision on an IPR petition, the patent owner disclaimed all challenged claims, but did not request adverse judgment.
Smith & Nephew and Arthrocare filed an IPR petition on certain claims of an Arthrex patent. Before the Board issued an institution decision, Arthrex disclaimed the challenged claims and filed a Preliminary Response, stating that it was not requesting an adverse judgment under 37 C.F.R. § 42.73(b). Nevertheless, the Board entered an adverse judgment against Arthrex. As a result of the adverse judgment, estoppel attached that, in part, prevents Arthrex from obtaining a claim in any other patent that is not patentably distinct from the disclaimed claims. Arthrex timely appealed the Board’s decision. Smith & Nephew and Arthrocare moved to dismiss the appeal for lack of subject-matter jurisdiction.
The Federal Circuit affirmed the Board’s decision to enter an adverse judgment. First, with regard to whether the Federal Circuit lacked subject matter jurisdiction, the court held that an adverse judgment by the Board is appealable. The court reasoned that the statutory appeal bar of 35 U.S.C. § 314(d) relating to institution decisions is not applicable. The court also determined the right to appeal final written decisions under 35 U.S.C. § 319 does not cabin the right to appeal an adverse final judgment under § 1295. Second, the Federal Circuit held that the Board properly entered an adverse judgment pursuant to its regulation under § 42.73(b). The Federal Circuit determined that § 42.73(b) defines the circumstances in which estoppel applies and concluded the basis for estoppel should not turn on whether claims are cancelled before or after IPR is instituted.
The Federal Circuit noted that Arthrex had waived any challenge to the PTO’s authority to adopt a regulation providing for estoppel on the cancellation of a patent or claim. In concurrence, Judge O’Malley expressed doubts about the PTO’s authority to issue adverse judgments prior to institution. Judge Newman dissented, noting her belief that the plain language of § 42.73(b) prevents an adverse judgment before an institution decision.
Final Decision by Board Invalidating a Patent Has Preclusive Effect on Co-Pending IPR
In MaxLinear, Inc. v. CF CRESPE LLC, Appeal No. 2017-1039, the Federal Circuit reiterated that final written decisions by an administrative tribunal can have a preclusive effect.
MaxLinear filed an IPR petition on claims of a CF CRESPE patent. The Board instituted review on the independent claims and certain dependent claims and ultimately issued a final written decision upholding the patentability of the challenged claims. In its final written decision, however, the Board limited its analysis to the independent claims and did not separately analyze the dependent claims. MaxLinear appealed the Board’s decision of patentability.
Pending the appeal, the Board issued final written decisions for two other IPR proceedings concerning the same CF CRESPE patent but considering different prior art and brought by a third party. In these proceedings, which were subsequently affirmed by the Federal Circuit, the Board held that certain claims of the CF CRESPE patent were unpatentable, including the independent claims that were held patentable in the IPR proceeding that was the subject of this appeal.
The parties agreed that the prior decisions in the other two IPR proceedings that were upheld by the Federal Circuit had a preclusive effect in this proceeding. The Federal Circuit noted that in light of the decision in B&B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293 (2015), the parties could hardly argue otherwise. Issue preclusion prevents a party from re-litigating an issue and applies in the administrative context. Accordingly, the Federal Circuit held that the decisions in the two other IPR proceedings finally resolved the issue of unpatentability of the independent claims. However, because the Board failed to separately analyze the dependent claims, the Federal Circuit remanded and instructed the Board to consider the patentability of the dependent claims in view of the prior art cited in the other IPR proceedings. The Federal Circuit noted that collateral estoppel is not limited “to patent claims that are identical” and instructed the Board to decide whether the remaining claims are patentably distinct from the independent claims.
Claims Directed to a Specific Improvement Over Prior Systems for Presenting Information on Small Displays Are Patent Eligible Under § 101
In Core Wireless Licensing S.A.R.L. v. LG Electronics, Inc., Appeal No. 2016-2684, 2017-1922, the Federal Circuit held that claims directed to a specific improvement over prior systems for summarizing and presenting information on display interfaces for electronic devices are patent eligible under 35 U.S.C. § 101.
Core Wireless sued LG alleging infringement of patent claims directed to improved display interfaces, particularly for electronic devices with small screens. The improved interfaces allow a user to more quickly access data and applications in electronic devices by displaying a limited list of commonly accessed functions and data. LG moved for summary judgment that the claims constituted patent ineligible subject matter under 35 U.S.C. § 101 because they were directed to the abstract idea of displaying a summary window while an application is unlaunched. The district court found that the claims were not directed to an abstract idea because the claims recited concepts such as “summary window” and “unlaunched application,” which are specific to devices like computers and cellphones. The jury found all asserted claims to be infringed and not anticipated. The district court denied LG’s motions for judgment as a matter of law of non-infringement and anticipation. LG appealed to the Federal Circuit.
The Federal Circuit affirmed the district court’s decision. Concerning § 101, the Federal Circuit noted that the claims recited a specific improvement over conventional user interface methods resulting in an improved user interface for electronic devices. In its analysis, the Federal Circuit pointed to claim limitations that disclose the specific manner of displaying a limited set of information to the user. It also highlighted language in the specification indicating that the claims were directed to an improvement in the functioning of computers, particularly those with small screens. Finding that the asserted claims were not directed to an abstract idea, the Federal Circuit did not proceed to the second step of the Alice inquiry. Concerning LG’s motions for judgement as a matter of law, the Federal Circuit rejected LG’s argument that the relevant claims were anticipated. Finally, the Federal Circuit rejected LG’s non-infringement arguments based on the construction of “unlaunched state” as “not running” rather than “not displayed.”
Judge Wallach dissented in part, arguing that the district should have construed “unlaunched state” to mean “not running” as LG proposed, instead of “not displayed.” In his analysis, Judge Wallach pointed to the distinct and independent meanings of “display” and “launch” as used in the claims as well as the specification.