Federal Circuit Denies En Banc Rehearing in Mentor Graphics v. EVE-USA
In Mentor Graphics Corp. v. Eve-USA, Inc., Appeal Nos. 2015-1470, 2015-1554, 2015-1556, the Federal Circuit denied Synopsys’ and EVE’s petition for en banc rehearing on issues of lost profits apportionment and assignor estoppel.
Following the Federal Circuit’s decision in Mentor Graphics Corp. v. EVE-USA, Inc. on March 16, 2017, Synopsys and EVE petitioned the Federal Circuit for en banc rehearing on the assignor estoppel and apportionment issues. In the panel decision, the Federal Circuit affirmed the lost profits damages award and held that when the Panduit factors are met, no further apportionment is required. The Federal Circuit also held in the panel decision that assignor estoppel barred Synopsys from challenging the validity of the asserted patent.
The Federal Circuit denied Eve’s petition for rehearing en banc to consider whether the jury properly applied apportionment when calculating the damages due to lost profits. The concurrence, written by Judge Stoll and joined by Judges Newman, Moore, O’Malley, Reyna, and Wallach, concluded that it was proper for the jury not to apportion between the patented and unpatented features of the product, because the facts showed that the market value of the product was attributable to the patented features of the product and that there were no non-infringing alternatives. Thus, the Panduit factors, which include 1) demand for the patented product and 2) absence of non-infringing alternatives, were satisfied. Importantly, because the demand for the product was due to the patented features, the concurrence concluded that but-for causation was satisfied. As a result, further apportionment beyond showing that the Panduit factors were satisfied was unnecessary. Thus, the concurrence concluded that the jury had properly applied apportionment and, therefore, the Federal Circuit properly denied the petition for rehearing.
The dissent, written by Judge Dyk and joined by Judge Hughes, concluded that apportionment should have been applied even though the Panduit factors were satisfied. Specifically, according to the dissent, even if but-for causation is shown, damages for lost profits still must be apportioned between the patented and unpatented features of a multi-component product.
Judges Moore and Chen also wrote a separate concurrence explaining that the record and the arguments presented on the assignor estoppel issue were not sufficiently developed enough to warrant an en banc rehearing on the issue.
Federal Circuit Reverses Dismissal of Infringement Suit Relating to RV Slide-Out Room Seals
In Lifetime Industries, Inc. v. Trim-Lok, Inc., Appeal No. 2017-1096, the Federal Circuit held that direct infringement can result from the modification of a product manufactured by another.
Lifetime’s asserted patent was directed to a seal in combination with a recreational vehicle (RV) having a slide-out room as well as a method of attaching the seal to the RV. Trim-Lok allegedly manufactured the seals, but not the RV. The district court granted Trim-Lok’s motion to dismiss under Rule 12(b)(6), finding Lifetime had not adequately pleaded direct or indirect infringement. Although there was some dispute as to whether the pleading requirements of the now-abrogated Form 18 controlled Lifetime’s complaint, the Federal Circuit found that Lifetime’s complaint satisfied the Iqbal/Twombly standard for both direct and indirect infringement.
As to direct infringement, the Federal Circuit found that Lifetime’s allegations that an agent of Trim-Lok “directly” installed the seal on an RV were reasonably plausible and sufficient to allege that Trim-Lok made a seal-RV combination. The court noted that Trim-Lok need not make both components to infringe: “Commercial manufacture is not the only way that a combination can infringe. Limited internal manufacture and use can also infringe.”
As to indirect infringement, the Federal Circuit found that it was reasonable to infer Trim-Lok’s intent to infringe from Lifetime’s pleadings. Lifetime’s pleadings alleged that Trim-Lok had knowledge of the patent from previous Lifetime employees who now work for Trim-Lok, that Trim-Lok had never made or sold the accused seals before acquiring that knowledge, that the seals have no non-infringing use, and that Lifetime assisted in or directed the installation of the same type of seal on an RV, as an alternative to directly installing the seal. Finally, the Federal Circuit determined that the facts also sufficiently alleged contributory infringement, which only requires knowledge that the installation infringed Lifetime’s patent and not necessarily intent to infringe.
Federal Circuit Affirms Obviousness of Cookie Packaging Patent
In Intercontinental Great Brands LLC v. Kellogg North America Company, et al., Appeal Nos. 2015-2082, 2015-2084, the Federal Circuit held that a patent relating to resealable cookie packaging was invalid as obvious and stated that secondary considerations need not be evaluated before drawing a conclusion about an artisan’s motivation to combine the elements of the claim.
Intercontinental’s (“Kraft”) asserted claims combined two kinds of cookie packaging: a frame surrounding a wrapper and a resealable label. On summary judgment, the district court found all claims invalid as obvious. All claim elements except the frame appeared in a single prior art trade publication, while the patent itself showed the frame was known in the art. The district court found that convenient opening and closing arrangements for food packaging was a known problem. The technology was a simple one, and the results of the combination were predictable and “grounded in common sense.” Because there was a known problem, and an obvious solution within the reach of a food packaging expert, the district court found the claims prima facie obvious. Kraft presented strong evidence of secondary considerations of nonobviousness including commercial success tied to the packaging, industry praise, and copying by Kellogg. However, the secondary considerations did not overcome “Kellogg’s extremely strong prima facie showing” of obviousness.
On appeal, Kraft argued that the district court did not properly weigh the objective indicia of nonobviousness, and further argued that objective indicia should be evaluated before drawing a conclusion about an artisan’s motivation to combine the elements of the claim. The Federal Circuit rejected those arguments. The court found that the district court reached its conclusion only after considering the objective indicia and following the sequence of steps advanced by the Supreme Court and Federal Circuit for determining obviousness. Even with a motivation proved, the record may reveal reasons that the court should not conclude that the combination would have been obvious. The district court’s phrasing of its conclusion that objective indicia “do not overcome Kellogg’s extremely strong prima facie showing” demonstrated that the district court did not reach its conclusion of obviousness before weighing the secondary considerations evidence.
In dissent, Judge Reyna argued that Supreme Court precedent did not support the legal concept of a prima facie case of obviousness. He argued that nothing in Graham or KSR required a prima facie showing of obviousness before weighing of objective indicia. The Federal Circuit should require consideration of all factual evidence, followed by a single legal determination. Such a framework would follow the recent Federal Circuit opinion in In re Cyclobenzaprine, which held that courts must consider all evidence before reaching a conclusion of obviousness.
Federal Circuit Rules That Claims Directed to Lubricated Wires Are Invalid Due to Obviousness Rather Than Inherency
In Southwire Company v. Cerro Wire LLC, Appeal No. 2016-2287, the Federal Circuit found a process claim obvious where the prior art disclosed the same process for the same purpose except for a single functional limitation that would have been neither unexpected nor unattainable.
In 2012, Cerro Wire filed a request for inter partes reexamination of a Southwire patent directed to a method of manufacturing an electric cable. The claims recite “a preselected lubricant” chosen to “provide a reduced coefficient of friction” which results in “at least about a 30% reduction” in pulling force required to install the cable. While the Summers reference did not explicitly teach a “30% reduction,” the Board found that it inherently taught that limitation because it taught reducing friction using a lubricant and it would have been obvious to select an appropriate lubricant to achieve the 30% reduction. Thus, the Board affirmed the Examiner’s obviousness rejection.
The Federal Circuit held that the Board erred in relying on inherency because it cited no evidence that the Summers process necessarily would achieve a 30% reduction. However, that error was harmless because the Board made other findings that supported obviousness. In particular, Summers taught the same process, for the same purpose, and there was no evidence that the claimed 30% reduction would have been unexpected or unattainable. Thus, the Federal Circuit affirmed.
No Declaratory Judgment Standing Based on Foreign Lawsuits Against Foreign Customers
In Allied Mineral Products, Inc. v. OSMI, Inc., Appeal No. 2016-2641, the Federal Circuit held that subject matter jurisdiction for a declaratory judgment action does not exist when the patent holder has only sought to enforce a foreign patent against foreign customers of the declaratory judgment plaintiff.
Stellar filed infringement actions against Allied’s Mexican distributers in Mexico, accusing the distributors of infringing its Mexican patent. Allied, which does not allege it was obligated to indemnify the distributors, then filed a declaratory judgment action against Stellar in the Southern District of Florida seeking, among other things, a declaratory judgment of non-infringement of Stellar’s sister U.S. patent. The district court dismissed the complaint for lack of subject matter jurisdiction.
Subject matter jurisdiction requires a justiciable case or controversy. In particular, the Federal Court noted that Stellar sent notice letters to Allied’s Mexican distributors in Mexico, and it sued the distributors in Mexico. Stellar did not correspond with Allied regarding the Mexican Patent, nor did Stellar take any action in the U.S. or any action on the U.S. Patent. Thus, the Court determined it would merely be providing an advisory opinion if it were to reach the merits of Allied’s dispute. Accordingly, the Federal circuit affirmed the district court’s dismissal for lack of jurisdiction for failing to establish a case or controversy regarding Stellar’s U.S. patent in the United States.
Federal Circuit Denies Writ of Mandamus in Waymo v. Uber Case
In Waymo LLC v. Uber Technologies, Inc., Appeal Nos. 2017-2235, 2017-2253, the Federal Circuit held that an intervenor was not entitled to a writ of mandamus to protect a purportedly privileged document from production because a post-judgment appeal could provide an adequate legal remedy, and the intervenor did not establish that he held any privilege with respect to the disputed document.
Waymo LLC sued Uber Technologies, Ottomotto LLC, and Otto Trucking LLC alleging claims of patent infringement and violations of federal trade secret law. Waymo alleged that its former employee, Anthony Levandowski, improperly downloaded thousands of documents related to Waymo’s driverless vehicle technology and then left Waymo to found Ottomotto, which was subsequently acquired by Uber. Ottomotto and Uber retained Stroz Friedberg, LLC to investigate Ottomotto employees previously employed by Waymo, including Mr. Levandowski. Waymo sought to obtain the Stroz report during discovery and the District Court ordered its production. Mr. Levandowski appealed as an intervenor.
On appeal Mr. Levandowski requested that his appeal be treated as petitions for writ of mandamus, asserting that the discovery order will violate his Fifth Amendment right against self-incrimination, and that the constitutional aspect warrants immediate review. Second, Mr. Levandowski argued that he has an immediate right to appeal under the Perlman doctrine wherein “a third-party privilege holder may immediately appeal an order compelling a disinterested third party to produce privileged materials.”
The Federal Circuit held that Mr. Levandowski failed to satisfy the requirements for a writ of mandamus. The Court noted that Mr. Levandowski had an adequate alternative means of relief, because a post judgment appeal could result in the judgment being vacated and remanded for new trial, from which the protected material could be excluded from evidence. Furthermore, Mr. Levandowski could ask the district court to certify and the court of appeals to accept an interlocutory appeal. The Federal Circuit also noted that only exceptional circumstances amounting to a judicial usurpation of power, or a clear abuse of discretion will justify the invocation of a writ of mandamus. Here the district court did not err in finding that the common-interest doctrine, work-product protection, and the Fifth Amendment privilege did not apply, in part because any privilege in the report would belong to only Uber or Ottomotto.
The Federal Circuit also denied Mr. Levandowski’s invocation of the Perlman doctrine. The doctrine only applies where denial of immediate review would render impossible any review whatsoever, whereas Mr. Levandowski could appeal from a final judgment in the District Court. Additionally, Uber is not a disinterested party to the litigation, which is a requirement for application of the Perlman doctrine. Therefore, the Federal Circuit dismissed Mr. Levandowski’s appeal and denied the petitions for writ of mandamus.
Ex-Employee’s Arbitration Agreement Did Not Bind Parties in Trade Secret Case Where Ex-Employee Was Intervenor
In Waymo LLC v. Uber Technologies, Appeal No. 2017-2130, the Federal Circuit held that an arbitration clause in an employment agreement between a trade secret owner and its former employee does not require arbitration of a claim for trade secret misappropriation, because the trade secret claim does not rely on the employment agreement.
Plaintiff Waymo and Defendants Uber, Ottomoto, and Otto Trucking are companies developing autonomously controlled vehicles. Intervenor Levandowski is an ex-employee of Waymo that Waymo accused of misappropriating documents for the benefit of the Defendants. The employment agreement between Waymo and Levandowski included an arbitration clause, and Defendants sought to compel arbitration in the present suit based on the arbitration clause in the employment agreement. The district court denied the motions to compel arbitration.
The Federal Circuit affirmed the district court’s decision, noting that Defendants were not signatories to the arbitration contract. Under the Kramer test, non-signatories to an arbitration contract are bound if 1) the claims are “intimately founded and intertwined with the underlying contract” and 2) when “concerted misconduct by the nonsignatory and another signatory” is alleged that is “intimately connected with the obligations of the underlying agreement.” Kramer v. Toyota Motor Corp., 705 F.3d at 1128-29. Scrutinizing Waymo’s complaint, the Federal Circuit noted that the employment agreement was only “referenced,” but the claims did not “rely” on the agreement. The agreement was referenced in the complaint only to establish that Waymo had taken reasonable measures of secrecy, rather than as a basis for the trade secret claims. As such, the Kramer test was not met, and the non-signatory Defendants were not entitled to arbitration.
Federal Circuit Clarifies Standard for Infringing Use of a System Claim
In Intellectual Ventures LLC v. Motorola Mobility LLC, Appeal No. 2016-1795, the Federal Circuit held that, in order to “use” a patented system, an accused infringer must control and benefit from each and every element of the claimed system.
Intellectual Ventures filed a district-court action against Motorola alleging infringement of two patents. The jury found all the asserted claims infringed and not invalid, and the district court denied Motorola’s motions for judgment as a matter of law. Motorola appealed.
The Federal Circuit held that substantial evidence supported the jury’s verdict regarding validity of the asserted claims. The Federal Circuit found that the scope of a disputed claim was limited when viewed in light of the specification and therefore satisfied the written description requirement. Furthermore, the court found that the jury’s non-obviousness findings for the asserted claims were supported by substantial evidence because the jury was entitled to credit the testimony of one expert witness over another. Therefore, the Federal Circuit affirmed the district court’s judgment regarding invalidity.
However, the Federal Circuit also held that substantial evidence did not support the jury’s verdict regarding infringement. The Court explained that direct infringement under Centillion requires that an infringing “use” of “system comprising” claims requires the direct infringer to control and benefit from each and every element of the claimed system. The Court rejected the district court’s holding that the accused infringer need only benefit from the system as a whole. Because no evidence was presented that Motorola’s customers or Motorola itself benefited from each limitation of the claim, the Federal Circuit reversed the district court’s judgment regarding infringement.
Judge Newman concurred in part and dissented in part. Judge Newman concurred with respect to noninfringement, but disagreed with the majority’s holding that an infringer must benefit from each element of a system claim. Judge Newman also argued that no reasonable jury could have found the asserted claims to be non-obvious.
Federal Circuit Affirms Obviousness of Claims Directed to Organic Light-Emitting Materials
In Idemitsu Kosan Co., LTD v. SFC Co. Ltd, Appeal No. 2016-2721, the Federal Circuit affirmed the invalidity of a patent relating to OLED materials and held that extrinsic evidence is not required to rebut attorney argument in an inter partes review.
SFC filed a petition for IPR of Idemitsu’s patent relating to organic light-emitting materials. The Board issued a final written decision holding all challenged claims unpatentable as obvious. Idemitsu appealed.
On appeal, Idemitsu argued that the Board erred in finding a motivation to combine disclosures from a prior art reference by making one of two assumptions: (1) a POSITA would have expected all disclosures in the reference to meet the claimed limitations, or (2) a POSITA would have expected some disclosures to meet the claim limitations, while others would not. The Federal Circuit determined the Board did not make the first assumption. Although the petitioner made arguments based on the first assumption, the Board’s decision merely restated the petitioner’s argument, but did not adopt it. With respect to the second assumption, Idemitsu contended this assumption was raised too late in the proceeding because it did not appear in the petition or the Board’s institution decision. The Federal Circuit disagreed, explaining that the proceeding progressed through a natural chain of back-and-forth arguments and counterarguments with one party necessarily getting the last word.
Idemitsu further contended that the Board engaged in improper fact-finding without the benefit of extrinsic evidence such as expert testimony to resolve arguments based on the second assumption. But both parties’ positions were based on only attorney arguments, so the Federal Circuit determined it was appropriate for the Board to weigh and resolve the competing arguments without additional extrinsic evidence. The Federal Circuit therefore affirmed the Board’s decision.
Lawsuit Seeking to Invalidate Patent Assignment Does Not Create Subject Matter Jurisdiction for Declaratory Judgment
In First Data Corporation v. Inselberg, Appeal Nos. 2016-2677, 2016-2696, the Federal Circuit held that subject matter jurisdiction for declaratory judgment of noninfringement does not exist if the party threatening to assert a patent admits it does not own the patent.
First Data owned several patents via an assignment from Inselberg. Inselberg filed suit in state court asserting only state-law claims seeking to invalidate the assignment. First Data filed various counterclaims, including a counterclaim for declaratory judgement of noninfringement. First Data removed the action to the U.S. District Court for the District of New Jersey. Inselberg moved to dismiss the patent claim and remand the state-law claims back to state court.
The district court granted the motion because Inselberg was not the owner of the patents when it filed suit and the state-law ownership issues did not depend on any federal law or statute. First Data appealed.
The Federal Circuit determined that Inselberg did not hold title to the patents and would not hold title unless a court determined that the assignment was invalid. Inselberg therefore did not own any patents for which First Data could seek declaratory judgment of noninfringement. The Federal Circuit thus affirmed the district court’s dismissal for lack of jurisdiction and its remand to state court.
Federal Circuit Finds Inventor’s Testimony Regarding Reduction to Practice Sufficiently Corroborated by Documentary Evidence
In NFC Technology, LLC v. Matal, Appeal No. 2016-1808, corroboration of an inventor’s testimony to prove invention is determined by a “rule of reason” analysis in which the evidence is considered as a whole.
HTC filed a petition for inter partes review (IPR) of NFC’s patent. The Board rejected NFC’s argument that a prototype product was a reduction of the claimed invention to practice before the priority date of a cited reference. The Board found that NFC had not adequately provided evidence to corroborate the inventor’s testimony regarding conception and the inurement to NFC of third-party activity relating to the prototype. The Board therefore invalidated several of NFC’s claims as obvious, and NFC appealed.
Inurement is a question of law and conception is a question of law based on subsidiary factual findings. An inventor’s testimony alone is insufficient to prove conception—some form of corroboration must be established. Corroboration of the testimony is determined by a “rule of reason” analysis under which the evidence must be considered as whole. Here, the Federal Circuit found that the inventor’s testimony relating to conception was adequately corroborated by documentary evidence taken “as a whole.” With respect to inurement, the court first noted that corroboration of every factual issue contested by the parties is not a requirement of the law. In view of the significant amount of time that had passed, the court found that the evidence submitted by NFC adequately corroborated the inventor’s testimony that the third party had produced the prototype according to the inventor’s design and at his direction.
Thus, the Federal Circuit reversed the Board’s determinations relating to conception and inurement. The court noted that conception and inurement did not resolve the case and remanded to the Board for determination of whether the prototype embodied the claimed invention.
A Hypothetical Claim Drafted in Response to an Ensnarement Defense Cannot Narrow the Original Claim
In Jang v. Boston Scientific Corp., Appeal Nos. 2016-1275, 2016-1575, the Federal Circuit affirmed vacatur of a jury verdict of infringement under the doctrine of equivalents where the patentee failed to assert a proper hypothetical claim in response to an ensnarement defense.
In 2002, Jang assigned patents to Boston Scientific in exchange for a lump-sum payment and additional payments contingent on sales of any stents covered by the patents. Boston Scientific eventually began selling a stent that Jang believed practiced the patents. In 2005, he sued Boston Scientific for breach of contract for failing to make the additional payments, arguing Boston Scientific practiced the claims either literally or under the doctrine of equivalents.
A jury found that Boston Scientific’s stents did not literally fall within the claims of Jang’s patents but that the stents were equivalent to the claimed invention. After trial, the district court heard Boston Scientific’s ensnarement defense to Jang’s doctrine-of-equivalents claim. A doctrine-of-equivalents claim cannot “ensnare” or cover the prior art. A “hypothetical claim” analysis is one test for ensnarement. In response to an ensnarement defense, a patentee must propose a hypothetical claim that 1) illustrates the alleged infringement and 2) is broader than the patented claim. If that hypothetical claim does not ensnare the prior art, then the prior art does not bar application of the doctrine of equivalents. The court found that Jang failed to propose a satisfactory hypothetical claim and thereby failed to prove that his doctrine-of-equivalents theory did not ensnare the prior art, so the court entered judgment for Boston Scientific.
The Federal Circuit affirmed, finding that one of Jang’s hypothetical claims, while broader in some ways than the asserted claim, was narrower in other aspects and thus was flawed. The Federal Circuit observed that a patentee’s hypothetical claim may not add any narrowing limitations. Additionally, “the district court was under no obligation to undertake a hypothetical claim analysis” on the patentee’s behalf because the patentee bears the burden of “proposing a proper hypothetical claim that only broadens the issued asserted claims.”
Federal Circuit Clarifies Patent Venue After TC Heartland
In In Re: Cray Inc., Appeal No. 2017-129, the Federal Circuit held that for a defendant to have a “regular and established place of business” within the meaning of 28 U.S.C. § 1400(b), it must (1) have a physical place in the district; (2) that is a regular and established place of business; and (3) that is the place of the defendant.
Raytheon sued Cray in the Eastern District of Texas for patent infringement. Cray moved to transfer the suit under 28 U.S.C. § 1406(a). Cray argued that it did not “reside” in the district in view of the Supreme Court’s TC Heartland decision. The district court agreed because it was undisputed that Cray was incorporated in the State of Washington. Cray further argued that venue was improper in the district because Cray had neither committed acts of infringement nor maintained a regular and established place of business within the district. The district court rejected that argument. Cray petitioned for a writ of mandamus.
At the Federal Circuit, the primary dispute concerned whether the home of one of Cray’s employees, located in the Eastern District of Texas, constituted “a regular and established place of business” of Cray. The mere fact that Cray allowed its employee to work from home in the Eastern District of Texas was insufficient to make that home “the place of the defendant.” The Federal Circuit distinguished In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985), where transfer was denied because it was clear that the defendant’s business specifically depended on employees being physically present in the district. Here, the facts did not show that Cray maintained a regular and established place of business in the Eastern District of Texas; they merely showed that there existed within the district a physical location where an employee of the defendant carried on certain work for his employer. Accordingly, the Federal Circuit granted Cray’s petition for a writ of mandamus and directed the district court to transfer the case.
Notably, the Federal Circuit rejected the four-factor “venue test” which Judge Gilstrap used in exercising his decision to deny Cray’s transfer motion. The Federal Circuit said that the test ran afoul of § 1400(b)’s statutory language, noting that “[t]he district court’s four-factor test is not sufficiently tethered to this statutory language and thus it fails to inform each of the necessary requirements of the statute.”