A Plaintiff Requesting Disgorgement of Profits as a Remedy for Trade Secret Misappropriation does not have a 7th Amendment Right to a Jury Based Solely on the Request for Disgorgement
In Texas Advanced Optoelectronic (“TAO”) v. Renesas Electronics America (“Intersil”), Appeal Nos. 2016-2121, 2016-2208, 2016-2235, the Federal Circuit held that the plaintiff did not have a 7th Amendment right to a jury trial for damages related to disgorgement of profits for trade secret misappropriation.
TAO and Intersil are competitors that develop and sell ambient light sensors for use in electronic devices (e.g., smartphones). Merger discussions began so that Intersil could use one of TAO’s patented sensors. The companies did not merge, and Intersil released a product very similar to TAO’s sensor shortly after the companies parted ways. TAO sued, and the district court awarded TAO damages for patent infringement, trade secret misappropriation, breach of contract, and tortious interference with prospective business relations. Both TAO and Intersil appealed.
On appeal, the Federal Circuit upheld only one of TAO’s three trade secret misappropriation claims, but because there would still be liability based on the surviving claim, the error was harmless and thus the Federal Circuit upheld the verdict. However, the monetary reward was vacated and remanded in order to align the monetary award with the remaining claim and to determine the appropriate time period for monetary relief, including any “head-start period” after the trade secret was uncovered. Further, the Federal Circuit held that TAO had no 7th Amendment right to a jury decision on its request for disgorgement of profits as a remedy for trade secret misappropriation, based on analogy to related precedent in patent, copyright, and trademark law. Finally, the Federal Circuit also affirmed the patent infringement verdict; however, because double recovery for the same injury is inappropriate, the Federal Circuit held that the patent infringement damages were duplicative of a portion of the disgorgement award for trade secret misappropriation.
With respect to TAO’s cross-appeal, the Federal Circuit affirmed a summary judgment ruling that only a very small portion of the accused products were sold “within the United States,” because the evidence cited by TAO did not show the required domestic activity for the remaining portion of accused products. The Federal Circuit also vacated a denial of a permanent injunction against Intersil and remanded for additional analysis related to the irreparable harm and inadequacy of compensation elements of the eBay test for an injunction. Lastly, damages for willful infringement, breach of contract, and tortious interference were also vacated so that the district court, on remand, could resolve all issues together.
A Complaint Identifying Infringing Products and the Patents Allegedly Infringed, Accompanied by Statements that the Products Meet All Elements of at Least One Claim of the Asserted Patents, May be Sufficient to Meet the Iqbal/Twombly Pleading Standard
In Disc Disease Solutions Inc. v. VGH Solutions, Inc., Appeal No. 2017-1483, the Federal Circuit held that the plaintiff’s complaint, which attached the plaintiff’s asserted patents, identified the accused products by name and with photos, and alleged that the accused products met each and every element of at least one claim of the asserted patents, was sufficient to survive a motion to dismiss under Iqbal/Twombly because, given the simplicity of the technology, the defendant was provided fair notice of infringement.
Disc Disease sued VGH for infringement of two patents directed to spinal brace technology. The following day, amendments to the Federal Rules of Civil Procedure took effect, abrogating Rule 84 and Form 18. VGH filed a motion to dismiss under 12(b)(2) and 12(b)(6), and the district court granted VGH’s motion to dismiss with prejudice. The district court concluded that the abrogation of Rule 84 and Form 18 applied to Disc Disease’s complaint, and therefore the “Iqbal/Twombly” standard applied. The district court held that Disc Disease’s complaint did not meet the Iqbal/Twombly standard because it merely alleged that certain VGH’s products “meet each and every element of at least one claim” of Disc Disease’s patents, and failed to explain how the products infringe.
On appeal, Disc Disease argued that the district court improperly applied the Iqbal/Twombly pleading standard because Form 18 was in effect on the date the original complaint. The Federal Circuit, however, reversed and remanded for different reasons. The Federal Circuit instead held that Disc Disease’s allegations were sufficient under Iqbal/Twombly. The Court reasoned that for at least a simple technology such as this, the complaint appropriately identified the three accused products—by name and by attaching photos of the product packaging as exhibits—and alleged that the accused products met “each and every element of at least one claim of the [asserted patents], either literally or equivalently.” Such disclosures and allegations were sufficient to provide VGH fair notice of infringement of the asserted patents.
Failure to Name All Inventors in a Patent Application May Result in a Rejection of the Application under pre-AIA 35 U.S.C. § 102(f)
In In Re Verhoef, Appeal No. 2017-1976, the Federal Circuit held the plaintiff’s application was unpatentable under pre-AIA 35 U.S.C. § 102(f) because he did not name the correct inventors in his application.
After relations with a co-inventor (Lamb) soured, VerHoef abandoned a previously-filed patent application listing two inventors (VerHoef and Lamb) and filed a substantially identical application listing himself as the sole inventor. The Examiner rejected all claims of the later-filed application as unpatentable under pre-AIA 35 U.S.C. § 102(f). VerHoef appealed to the Patent Trial and Appeal Board (“the Board”), which concluded that Lamb was a joint inventor of the claimed invention, and sustained the Examiner’s rejection.
The Federal Circuit affirmed the Board’s decision. The Federal Circuit found that Lamb qualified as an inventor because she contributed an essential feature of the invention that was not insignificant in quality or well known in the art. Because the application did not name the correct inventors and the applicant did not file a request to correct inventorship, the Federal Circuit held that the Board properly sustained the Examiner’s rejection of the claims under § 102(f).
District Court Must Articulate a Reasonable Basis for Denying Attorney’s Fees Where Inequitable Conduct Was Found
In Energy Heating, LLC. v. Heat On-The-Fly, LLC, Appeal Nos. 2016-1559, 2016-1893, 2016-1894, the Federal Circuit found that a district court must articulate a reasonable basis for denying attorneys’ fees under § 285 if it found inequitable conduct.
Heat-on-the-Fly’s (HOTF) patent relates to hydraulic fracturing, or “fracing” (sometimes referring to as “fracking”). Before the critical date, HOTF conducted 61 fracing operations using the technology claimed in the patent. HOTF did not disclose these pre-critical-date activities to the patent office during prosecution. The district court found HOTF’s inventor intended to deceive the patent office and concluded the patent was unenforceable for inequitable conduct. However, the district court declined to award attorneys’ fees under 35 U.S.C. § 285.
The Federal Circuit found that the district court’s explanation for denying attorney’s fees was unclear and did not permit the Court to determine whether the district court abused its discretion. Accordingly, the Federal Circuit vacated the district court’s denial of attorney’s fees and remanded for further consideration. Specifically, the Federal Circuit noted that the district court had found that the patent was unenforceable for inequitable conduct, but nevertheless denied an award of attorneys’ fees on the grounds that HOTF “provided a meritorious argument against the finding of inequitable conduct.” A finding of inequitable conduct requires clear and convincing evidence of a specific intent to deceive. To meet this standard, the specific intent must be the “single most reasonable inference able to be drawn from the evidence.” Therefore, the district court’s finding that HOTF’s arguments were “meritorious” was unclear and at odds with the inequitable conduct finding. While declining to hold that attorneys’ fees should always be awarded in inequitable conduct cases, the Federal Circuit held that a district court must articulate a reasonable basis for denying attorneys’ fees where inequitable conduct has been found.
The Existence of a Business Relationship is not Sufficient to Establish Privity
In Westerngeco LLC v. ION Geophysical Corporation, Appeal Nos. 2016-2099, -2100, -2101, -2332, -2333, -2334, the Federal Circuit held that a party may not be time-barred from instituting an IPR despite having a business relationship with a defendant in an earlier-filed infringement suit where the party was not in privity with that defendant.
WesternGeco (WG) asserted numerous patents in an infringement suit against ION Geophysical Corp. (ION). In 2012, a jury found the patents infringed and not invalid. WG next asserted its patents against Petroleum Geo-Services (PGS). PGS filed an IPR alleging invalidity of the asserted patents. WG argued that PGS’ IPR was time-barred because ION was served with a patent infringement complaint over a year before the IPR petitions were filed, and because ION was a “privy” of PGS by virtue of a customer‑manufacturer business alliance. The Board disagreed that ION was a privy of PGS, instituted review, and found the challenged claims were either anticipated by, or obvious over, several prior art references. WG appealed the Board’s decisions to the Federal Circuit, arguing that PGS’s IPR should have been time-barred
The Federal Circuit affirmed the Board’s decision that ION was not a privy of PGS. To determine whether two parties are in privity within the context of U.S.C. § 315(b), the Federal Circuit stated that the inquiry is “highly fact-dependent,” and that the Board ought to engage in a “flexible analysis on a case-by-case basis.” Here, the Federal Circuit found that there was substantial evidence to support the Board’s finding that ION was not in privity with PGS, including: (i) no evidence that ION directed, funded, or controlled PGS’s IPR petitions; (ii) ION and PGS are distinct and unrelated corporate entities; (iii) customer-manufacturer relationship alone is not sufficient warrant finding ION and PGS in privity; and, (iv) the non-specific indemnity provision between PGS and ION did not warrant finding of privity. Thus, because ION and PGS were not in privity, PGS’s IPR petitions were not time-barred under U.S.C. § 315(b).
Having decided that PGS’s IPR petitions were not barred, the Federal Circuit went on to review the Board’s determinations of anticipation and obviousness. The Federal Circuit affirmed because substantial evidence supported the Board’s unpatentability findings.
Foreign Corporations May Be Sued in Any District Where They Are Subject to Personal Jurisdiction
In In Re: HTC Corporation, Appeal No. 2018-130, the Federal Circuit held that the patent venue statute, 28 U.S.C. § 1400(b), does not apply to foreign corporations, which may be sued in any district where they are subject to personal jurisdiction.
HTC Corporation and its U.S. subsidiary HTC America, Inc. were sued for patent infringement in the District of Delaware. HTC Corporation is a Taiwanese corporation with its principal place of business in Taiwan. HTC America, Inc. is a Washington corporation with its principal place of business in Seattle, Washington. HTC Corporation and HTC America filed a motion to dismiss for improper venue under Rule 12(b)(3) or, in the alternative, to transfer the case to the Western District of Washington under 28 U.S.C. §§ 1404(a) or 1406(a). The district court found that venue in Delaware was improper as to HTC America, but was proper as to HTC Corporation. The plaintiffs dismissed their suit against HTC America without prejudice, and HTC Corporation petitioned the Federal Circuit for a writ of mandamus directing the District of Delaware to vacate its order denying HTC Corporation’s motion to dismiss for improper venue.
A writ of mandamus is only issued when (1) the petitioner has no other adequate means to attain the relief desired; (2) the petitioner demonstrates a “clear and indisputable” right to the issuance of the writ; and (3) the issuing court is satisfied that the writ is appropriate under the circumstances. Addressing the first element, the Federal Circuit stated that the petitioner had an adequate remedy to reverse the adverse venue ruling – an appeal from final judgment. The court held that it is not enough to argue that hardship or even an unnecessary trial will result from delay. The court distinguished motions under Rule 12(b)(3) and § 1406(a), which are based on venue being improper, from those under § 1404(a), which condition transfer on “the convenience of parties and witnesses, in the interest of justice.” The court explained that the aggrieved party in the latter situation ordinarily does not have an adequate remedy by direct appeal after final judgment because a reversal on venue grounds would require the parties and witnesses to appear in a second trial, which would rarely promote the convenience of the parties and witnesses.
The Federal Circuit also addressed the second element of the mandamus standard, and found that Delaware was a proper venue for a suit against HTC Corporation. The district court had found venue proper in Delaware under the “long-established rule” that suits against foreign corporations are outside the scope of special and general federal venue laws and may be brought in any judicial district where the defendant is subject to personal jurisdiction. The Federal Circuit agreed, and explained that applying the patent venue statute to foreign corporations would create a venue gap for certain defendants where a federal court has jurisdiction, but no proper venue to exercise jurisdiction exists. The court found that neither the patent venue statute, nor the 2011 Federal Courts Jurisdiction and Venue Clarification Act, showed a clear legislative intent to alter the established rule that venue laws do not protect alien defendants, or to create a venue gap for certain defendants. Since HTC Corporation had other adequate means to attain the desired relief and venue in Delaware was proper, the Federal Circuit denied the petition for writ of mandamus.
Without an Immediate and Real Controversy, Consumer of Patented Product Did Not Have Standing for Declaratory Judgment
In AIDS Healthcare Foundation, Inc. v. Gilead Sciences, Inc., Appeal No. 2016-2475, the Federal Circuit held that a consumer of a patented product did not have standing under the Declaratory Judgment Act to challenge the validity of the patents covering the product.
AIDS Healthcare—a medical care provider that buys AIDS drugs covered by Gilead’s patents—filed a declaratory judgment action seeking to invalidate Gilead’s patents. AIDS Healthcare argued there was declaratory jurisdiction, because (1) it unsuccessfully encouraged generic manufacturers to infringe (2) Gilead refused to grant a covenant not to sue, and (3) public policy favors invalidating weak patents. The Federal Circuit affirmed a finding of no declaratory-judgment jurisdiction. There was no “substantial controversy” with sufficient “immediacy and reality.” There was no present infringement, no threat of or possibility of infringement litigation, and no meaningful preparation to infringe. Regarding public policy, the court noted that the Hatch-Waxman Act already balances policy interests of preserving the patent incentive while enabling validity challenges by ANDA filers. Any further policy change would require new legislation.
Post-Grant-Review Petitioner Had Article III Standing to Appeal PTAB Decision
In Altaire Pharmaceuticals, Inc. v. Paragon Bioteck, Inc., Appeal No. 2017-1487, the Federal Circuit held that a post-grant-review (PGR) petitioner had standing to appeal an unfavorable PTAB final written decision, where the petitioner intended to file an ANDA for the patented product as soon as possible and the patent owner filed a declaratory-judgment action seeking to terminate a contract between the parties early.
Altaire and Paragon entered an agreement whereby Paragon would pursue FDA approval for a drug developed and manufactured by Altaire. Without approval or participation from Altaire, Paragon filed a drug patent application that eventually issued as the ’623 patent. Altaire sued Paragon for breach of contract and Paragon counterclaimed for, among other things, a declaratory judgment giving Paragon the right to terminate the contract early. Altaire petitioned the PTAB for post-grant review, arguing that the claims were obvious over certain drug lots that Altaire manufactured before the patent’s priority date. The PTAB instituted PGR but determined that Altaire failed to prove obviousness. In reaching this conclusion, the PTAB determined that Altaire failed to timely qualify its declarant as an expert, and the PTAB did not consider the declarations or Altaire’s test data submitted therewith.
On appeal, the Federal Circuit first addressed Altaire’s standing to appeal the PTAB’s decision. Under the parties’ agreement, Altaire could not manufacture a competing (infringing) product until the agreement was terminated. The Federal Circuit found that because Altaire intended to file an ANDA for the product once the parties’ agreement terminated, and because Paragon was actively seeking a declaratory judgment that it could terminate the agreement early, injury to Altaire was inevitable. Altaire’s injury was compounded by the likelihood that it would be estopped from arguing that the patent was obvious on the same grounds it had argued in the PGR proceeding. The Federal Circuit held that Altaire had Article III standing to appeal the PTAB’s decision. The Federal Circuit then found that the PTAB abused its discretion by failing to consider the declarations and test data submitted by Altaire. Critically, the regulation governing submission of technical test data (37 C.F.R. § 42.65(b)) does not require submission by an expert.
Judge Schall dissented on the standing issue. He stated that standing requires that the appellant allege an injury that is actual and imminent, not conjectural and hypothetical. Because Altaire cannot infringe the patent until the agreement is terminated, the case lacked the requisite immediacy for standing. Judge Schall also stated that estoppel “does not constitute an injury in fact when the appellant is not engaged in any activity that would give rise to a possible infringement suit.”
Under Federal Circuit Law, Plaintiff Bears the Burden of Showing that Venue Is Proper
In In Re ZTE (USA) Inc., Appeal No. 2018-113, the Federal Circuit held that Federal Circuit law, rather than regional circuit law, governs venue in patent cases. Additionally, the burden is on the plaintiff to show that venue is proper.
ZTE USA was sued in the Eastern District of Texas for patent infringement and promptly moved to dismiss or transfer the case for lack of venue. Applying Fifth Circuit law, the magistrate judge determined that ZTE USA, as the objecting defendant, had the burden to show that venue was improper. The magistrate further found that ZTE USA had contracted with a call center in the Eastern District of Texas to handle ZTE USA related calls, which constituted a regular and established place of business. ZTE USA filed a petition for a writ of mandamus with the Federal Circuit seeking to reverse the decision.
The Federal Circuit held that patent venue was a substantive issue of patent law and that the magistrate judge had incorrectly applied Fifth Circuit law instead of Federal Circuit law. The Court then determined that the plaintiff in a patent case has the burden of showing proper venue. Turning to the question of whether the call center was a regular and established place of business, the court held that an arms-length contract with the call center, without more, was insufficient to show a regular and established place of business. Instead the lower court should have considered the level of control ZTE USA exerted over the call center. The Federal Circuit then remanded the case back to the lower court to determine venue in light of the Federal Circuit’s decision.
Federal Circuit Focuses on Location of Allegedly Infringing Acts, Rather than Contract Language, In Finding Personal Jurisdiction Over a Foreign Corporation
In M-I Drilling Fluids UK Ltd. v. Dynamic Air Ltda., Appeal No. 2016-1772, the Federal Circuit found specific personal jurisdiction over a foreign corporation proper when the foreign corporation allegedly committed acts that infringe a U.S. patent on a U.S.-flagged ship, regardless of whether the contract from which those acts arose specifies where the acts should take place.
M-I Drilling Fluids UK Ltd. and M-I LLC (together, “M-I”) sued Dynamic Air Ltda. (DAL) for patent infringement in the District of Minnesota based on allegedly infringing acts committed on U.S.-flagged ships in international waters. DAL is a Brazilian corporation with its principal place of business in Brazil. DAL is a subsidiary of Dynamic Air Inc. (DAI), a Minnesota corporation with its principal place of business in Minnesota. The allegedly infringing acts arose out of a contract for DAL to perform work for another Brazilian company, wherein the contract did not identify the ships on which DAL would be required to make installations. DAL moved to dismiss, arguing that the court lacked specific personal jurisdiction over DAL under Federal Rule of Civil Procedure 4(k)(2). The district court found that because the contract did not specify the location of the work being performed and that the choice of ship was due to unilateral activity of the other Brazilian company, DAL did not purposefully avail itself of the privilege of conducting activities within the U.S. and therefore dismissed the case for lack of specific personal jurisdiction.
The Federal Circuit found that the district court erroneously focused on the contract, rather than the allegedly infringing acts. Because DAL installed allegedly infringing systems on U.S.-flagged ships and continued to maintain those systems, the Federal Circuit found that specific personal jurisdiction over DAL comported with due process and reversed the district court’s dismissal. The Federal Circuit assumed for purposes of this appeal that U.S.-flagged ships constitute U.S. territory because DAL had assumed this fact in its motion in the district court.
Federal Circuit Reaffirms that Petitioner in an IPR May Introduce Evidence Not Included in the Petition in Specific Instances
In Anacor Pharmaceuticals, Inc. v. IANCU, Appeal No. 2017-1947, the Federal Circuit reaffirmed that a petitioner in an IPR may introduce new evidence not included in its petition if: 1) the evidence is a reply to evidence introduced by the patent owner; or 2) the evidence documents the knowledge that skilled artisans would bring to bear in reading the prior art identified as producing obviousness.
Coalition for Affordable Drugs X LLC (“the Coalition”) petitioned for an inter partes review of a patent owned by Anacor. The Board held all of Anacor’s claims unpatentable for obviousness. In its final written decision, the Board cited two references that were not cited in Coalition’s petition.
On appeal, Anacor argued that the Board violated due process and the procedural requirements of the Administrative Procedure Act (“APA”) by failing to provide Anacor with adequate notice of, and an opportunity to respond to, a new theory of obviousness and new evidence not presented in the petition. The Federal Circuit found that Anacor was not denied its procedural rights with respect to the theory of obviousness adopted by the Board because the final written decision was based on the same combination of primary references and the same series of inferences that the petition proposed. The Federal Circuit observed that there is “no blanket prohibition against the introduction of new evidence during an inter partes review proceeding” and held Anacor had sufficient notice and opportunity to respond to the additional references. The Federal Circuit further observed, citing its prior decision in Genzyme Therapeutic Prod. Ltd. P’ship v. Biomarin Pharm. Inc., 825 F.3d 1360, 1366 (Fed. Cir. 2016), that a petitioner may introduce new evidence following the IPR petition stage if it is a legitimate reply to evidence introduced by the patent owner or if it is employed “to document the knowledge that skilled artisans would bring to bear in reading the prior art identified as producing obviousness.”
For the Purposes of the Patent Venue Statute, a Corporation Resides Only in the Single Judicial District Where it Maintains a Principle Place of Business, or the Judicial District in Which its Registered Office is Located
In In Re: BigCommerce, Inc., Appeal No. 2018-122, the Federal Circuit held that a corporation incorporated in a state having multiple judicial districts “resides,” for purposes of the patent venue statute, only in the single judicial district within that state where it maintains a principal place of business, or failing that, the judicial district in which its registered office is located.
Diem and Express Mobile each filed patent infringement suits against BigCommerce in the District Court for the Eastern District of Texas. BigCommerce is incorporated in the State of Texas and lists its registered office as being located in Austin, Texas, where it is also headquartered. Austin lies in the Western District of Texas. It was undisputed that BigCommerce has no place of business in the Eastern District of Texas.
In light of the Supreme Court’s decision in TC Heartland, which reaffirmed that a domestic defendant corporation “resides” under the patent venue statute, 28 U.S.C. § 1400(b), only in its state of incorporation, BigCommerce moved to dismiss Diem’s case and transfer Express Mobile’s case, arguing that it resides only in the Western District of Texas. In both cases, the district court concluded that venue in the Eastern District of Texas was proper, and explained that a domestic corporation incorporated in a state having multiple judicial districts “resides in each such judicial district for venue purposes.”
The Federal Circuit granted BigCommerce’s petitions for Writ of Mandamus and vacated the order denying the motion to dismiss in Diem’s case and the order denying the motion to transfer in Express Mobile’s case. The Federal Circuit noted that different district courts have come to different conclusions about whether a corporation “resides” under § 1400(b) in every judicial district within its state of incorporation when the state has more than one judicial district. The Federal Circuit held, however, that the express language of § 1400(b) indicates that Congress did not intend for residence to include all judicial districts. Instead, a domestic corporation incorporated in a state having multiple judicial districts “resides” for purposes of § 1400(b) only in the single judicial district within that state where it maintains a principal place of business, or failing that, the judicial district in which its registered office is located.
Claims Directed to Systems and Methods of Performing Certain Statistical Analysis are Patent Ineligible under 35 U.S.C. § 101
In SAP America, Inc. v. InvestPic LLC, Appeal No. 2017-2081, the Federal Circuit held that claims directed to systems and methods for performing certain statistical analyses of investment information were patent ineligible on the pleadings because no facts were asserted from which a non-abstract improvement may be plausibly inferred. Advances within the realm of abstract ideas, no matter how groundbreaking, are insufficient to render a claim patent eligible.
SAP moved for judgement on the pleadings that all the claims of InvestPic’s patent, directed towards various systems and methods for performing certain statistical analyses of investment information, are patent ineligible under 35 U.S.C. § 101. The district court granted the motion and InvestPic appealed.
Under the first step of the Alice two-step framework, the Federal Circuit found the “focus” of InvestPic’s claims to be plainly on the abstract concepts of selection, mathematical analysis, and display of information. The Federal Circuit distinguished InvestPic’s claims from those previously found to be patent eligible under Federal Circuit precedent, finding that unlike those claims, InvestPic’s claims were directed to improvements that were outside the “physical realm.” The Federal Circuit reiterated that limiting the collection and analysis of information to a particular content or source, such as “real investments,” does not make a claim less abstract.
Under the second step of the Alice framework, the Federal Circuit concluded that all of the claim details identified by InvestPic were themselves abstract and/or unsupported by any factual allegations by which one could plausibly infer they were inventive. Some claims recited databases and processors, but based on the claims themselves and the specification, the Federal Circuit found these limitations required “no improved computer resources” and, accordingly, amounted to “a recitation of what is ‘well-understood, routine, [and] conventional.’” Finding no plausibly alleged innovation outside of the abstract realm, the Federal Circuit affirmed.