Federal Circuit Reverses PTAB for Relying on Inherency, Rather Than Expectancy in Finding Claims Obvious
In Honeywell Int’l Inc. v. Mexichem Amanco Holding S.A. DE C.V., Appeal No. 2016-1996, the Federal Circuit held that inherent, but unknown, properties of a composition may be nonobvious if those properties are unpredictable or unexpected.
Mexichem and Daikin each filed requests for inter partes reexamination of a Honeywell patent directed to a mixture of an unsaturated hydrofluorocarbon (“HFO-1234yf”) and a lubricant (“PAG”) for use in air conditioning systems. The PTO granted the requests and merged the reexaminations into a consolidated proceeding. During reexamination, the examiner rejected many of the claims as obvious in view of a primary reference that expressly disclosed HFO-1234yf and secondary references that taught the use of PAG lubricants with hydrofluorocarbon (“HFC”) refrigerants. The examiner dismissed Honeywell’s evidence of unexpected stability of the composition as merely an inherent property.
The Board affirmed, reasoning that the skilled artisan would have arrived at HFO-1234yf with a PAG lubricant by routine testing. The Board noted that another reference (“Omure”) showed that a different unsaturated HFC was stable with PAG. The Board concluded that, in view of Omure, the skilled artisan “would no more have expected failure with respect to stability of combining [unsaturated HFCs] with PAG than would have expected success.” Honeywell appealed.
The Federal Circuit vacated and remanded, finding that the Board committed legal error by relying on inherency to find obviousness and in its analysis of motivation to combine. The Federal Circuit explained that what is important regarding properties that may be inherent, but unknown, is whether the properties are unexpected. The Federal Circuit also found that the Board shifted the burden to Honeywell to establish one of ordinary skill would have expected failure even though the burden is on the examiner to show a motivation to combine the references with a reasonable expectation of success. The Federal Circuit also held that the Board’s reliance on Omure constituted a new ground of rejection because the Board had rejected the examiner’s conclusions regarding evidence of unexpected results and relied instead on Omure to find Honeywell’s evidence as unpersuasive.
Board Must Construe Disputed Terms in IPR
In Homeland Housewares, LLC v. Whirlpool Corporation, Appeal No. 2016-1511, the Federal Circuit held that the PTAB must provide a construction of any disputed key terms to support its final written decision of anticipation or obviousness.
Homeland filed an IPR petition on a Whirlpool patent directed to an automated blending cycle in household blenders. In its final written decision, the Board declined to provide a construction for a key disputed term “a predetermined settling speed” and concluded that the patent was not anticipated. Homeland appealed to the Federal Circuit.
The Federal Circuit held that the Board was required to construe the disputed term. Because the Board did not rely on extrinsic evidence, the Federal Circuit reviewed de novo. The Federal Circuit rejected both parties’ proposed constructions, discounted unrebutted expert testimony as being inconsistent with the record, and determined that the broadest reasonable construction was “a speed that is slower than the operating speed and permits settling of the blender contents.” As a result of that construction, the Federal Circuit held that the patent was anticipated by the prior art.
Judge Newman dissented, arguing that it was not error for the Board to determine that a disputed term did not require construction. Judge Newman argued that the Board’s treatment of the disputed term was based on the specification, the prior art, and unrebutted expert testimony. Thus, the majority overstepped the appellate role by ignoring substantial evidence supporting the Board’s decision.
IPR Appellants Must Satisfy Article III Standing
In Personal Audio, LLC v. Electronic Frontier Foundation, Appeal No. 2016-1123, the Federal Circuit held that standing for an appeal to a federal court is based on the party seeking entry into the federal court.
Electronic Frontier Foundation (EFF) filed a petition for IPR challenging certain claims from a patent owned by Personal Audio. The PTAB issued a final written decision holding the challenged claims invalid as anticipated and/or obvious. Personal Audio appealed the PTAB’s decision.
The Federal Circuit requested briefing from the parties on whether EFF had standing to participate in the appeal in view of Consumer Watchdog v. Wisconsin Alumni Research Foundation, 753 F.3d 1258 (Fed. Cir. 2014), which held that a PTAB petitioner that does not meet the Article III case-or-controversy requirement does not have standing to invoke federal judicial power, and thus does not have standing to appeal a PTAB decision on inter partes reexamination. Here, the Federal Circuit explained that Article III standing is not a requirement to file an IPR petition at the USPTO, however the party seeking review of a PTAB decision in a federal court must have Article III standing.
In this appeal, Personal Audio is the party that sought federal judicial review of the PTAB’s decision, not EFF. The PTAB’s decision caused Personal Audio to experience loss of its patent claims, which is a sufficient alteration of its legal rights to confer standing under Article III. Therefore, Article III standing for this appeal was satisfied by Personal Audio acting as the appellant, and the Federal Circuit determined that EFF was not constitutionally excluded from defending the PTAB’s decision.
On the merits, Personal Audio argued that the PTAB’s decision was based on erroneous construction of certain claim terms. The Federal Circuit determined that the PTAB did not err in its claim constructions and therefore affirmed the PTAB’s judgment of unpatentability.
Statements on a Commercial Product Do Not Inherently Avoid Customer Confusion
In In re: i.am.symbolic, LLC, Appeal Nos. 2016-1507, 2016-1508, 2016-1509, the Federal Circuit held that a statement added to the identification of goods did not avoid confusion with an existing, registered, unrestricted mark where the statement did not change the overall commercial impression of the mark and did not meaningfully limit the goods or trade channels.
i.am.symbolic, LLC (“Symbolic”) attempted to register I AM as a trademark. The examining attorney refused registration on the grounds of likelihood of confusion with previously registered I AM marks (“senior marks”). Symbolic then amended the identification of goods in the application registration to include the statement “associated with William Adams, professionally known as ‘will.i.am’” (“the Restriction”). Nevertheless, the examiner continued to refuse registration on the grounds of likelihood of confusion.
On appeal, the PTAB considered the DuPont factors governing analysis of the likelihood of confusion and affirmed the examiner’s refusal to register the I AM mark. The PTAB explained that the language of the Restriction merely highlighted an association will.i.am and did impose a meaningful limitation on Symbolic’s goods .
On appeal to the Federal Circuit, Symbolic argued that the PTAB erred by ignoring the Restriction. Specifically, Symbolic contended that the Restriction was a subject-matter limitation distinguishing the connotation and commercial impression of the mark, the nature of the goods and the channels of trade.
The Federal Circuit rejected Symbolic’s argument and affirmed the PTAB, explaining that (1) a likelihood of confusion existed at least because the mark, I AM, was pronounced in the same way and was legally identical to the senior marks, (2) that the Restriction did not change the meaning or overall commercial impression of the I AM mark, and (3) despite the fact that the senior marks could not be associated with will.i.am, the Restriction did not fundamentally change the goods or trade channels by associating the goods with a celebrity (will.i.am). Moreover, the Federal Circuit clarified that even if the Restriction was a meaningful limitation on the goods or trade channels, a junior applicant cannot avoid a likelihood of confusion with unrestricted registrations merely by restricting the goods in the junior application.
Attorneys’ Fees in Trademark Cases Now Follow Octane Fitness
In Romag Fasteners, Inc. v. Fossil, Inc., Appeal Nos. 2016-1115, 2016-1116, 2016-1842, the Federal Circuit held that the standard for awarding attorneys’ fees under Octane Fitness in patent cases also applies to trademark claims brought under the Lanham Act.
Romag sued Fossil for, inter alia, patent and trademark infringement. The jury returned a verdict in favor of Romag finding both patent and trademark infringement, which was affirmed by the Federal Circuit in a prior appeal. In view of the infringement rulings, Romag sought attorneys’ fees in the present case. The district court granted fees under the Patent Act, but declined to do so under the Lanham Act because Fossil’s conduct did not meet the Second Circuit’s (pre-Octane Fitness) standard for attorneys’ fees under the Lanham Act.
The Federal Circuit vacated and remanded, determining that the district court erred in failing to apply the Octane Fitness standard to the Lanham Act. The Federal Circuit noted that the language of the Patent Act and the Lanham Act for attorneys’ fees is identical, and the discussion in the legislative history of the Lanham Act describing a strong connection to the Patent Act further supports using the same standard. The Federal Circuit also determined that the district court made several errors in awarding fees to Romag under the Patent Act.
Judge Newman agreed that the Octane Fitness standard should apply to trademark cases. She dissented in part, however, because she believes the panel majority departed from the required deferential review of the district court’s award of attorneys’ fees with respect to the patent issues.
Restrictions and Guidance on the BPCIA Paragraph (l)(2)(A)
In Amgen Inc. v. Hospira, Inc., Appeal No. 2016-2179, the Federal Circuit held that in litigation under the Biologics Price Competition and Innovation Act (“BPCIA”), the Federal Circuit lacks jurisdiction to review interlocutory appeals of orders denying discovery of undisclosed paragraph (l)(2)(A) information; additionally, a sponsor under the BPCIA can form a Rule 11 basis to bring a patent infringement claim even if a biosimilar applicant withholds paragraph (l)(2)(A) information.
Hospira filed a subsection (k) abbreviated application for a biosimilar of a biological product developed by Amgen. Pursuant to the information disclosure requirements of the BPCIA, Hospira provided a copy of its subsection (k) application to Amgen as required by paragraph (l)(2)(A). Hospira did not separately provide information describing the cell-culture medium used in its manufacturing process, instead claiming such information was included in its subsection (k) application. Despite Amgen’s complaints, the parties continued with the “patent dance.” Amgen ultimately sued Hospira on two patents unrelated to the cell-culture processes. Following Hospira’s refusal to provide discovery regarding its cell culture medium, Amgen filed a motion to compel discovery. The district court denied the motion because the composition of the cell-culture medium was not relevant to asserted patents. Amgen filed an interlocutory appeal to the Federal Circuit and alternatively sought a writ of mandamus ordering the district court to compel discovery.
The Federal Circuit held that it did not have jurisdiction over the interlocutory appeal under the collateral order doctrine because the discovery order was not “effectively unreviewable” on appeal from a final judgment. The Federal Circuit declined to find an exception to the general rule that interlocutory appeals are not available for discovery orders, finding that the lack of immediate appeal would not undermine the statutory purpose of the BPCIA.
The Federal Circuit also denied Amgen’s request for a writ of mandamus, because the district court correctly denied Amgen’s motion on the basis that the discovery was not relevant to the asserted patents. In view of Amgen’s decision not to list or bring suit on the cell-culture patents, Amgen was not entitled to discovery related to those patents during litigation. Because a sponsor must have a good-faith belief that a patent listed under paragraph (l)(3)(A) “could reasonably be asserted,” Amgen argued that it would be prevented from asserting its cell-culture patents under the BPCIA unless Hospira was compelled to disclose the composition of the cell-culture medium. The Federal Circuit disagreed, noting that the statute does not penalize a mistaken good-faith belief, and that the listing of a patent under paragraph (l)(3)(A) requires the applicant to provide a detailed, claim-by-claim statement regarding invalidity, unenforceability, or non-infringement. The Court also explained that a sponsor can satisfy Rule 11 if it forms a belief based on an inquiry limited by an applicant’s withholding of information.
Federal Circuit Finds Patent Claims Directed to Improved Computer Memory Patent Eligible
In Visual Memory LLC v. Nvidia Corporation, Appeal No. 2016-2254, the Federal Circuit held that claims reciting an improved computer memory system were patent eligible under section 101.
Claim 1 of Visual Memory’s asserted patent recites a “computer memory system connectable to a processor and having one or more programmable operational characteristics, said characteristics being defined through configuration by said computer based on the type of said processor . . . wherein a programmable operational characteristic of said system determines a type of data stored by said cache.” The district court determined that the claims were directed to the abstract idea of “categorical data storage” and that the other features of the claim (main memory, cache, bus, and processor) were generic and conventional. The district court granted NVIDIA’s motion to dismiss for failure to state a claim.
The Federal Circuit disagreed and found that the claims were not directed to an abstract idea under Alice step one, but rather were directed to “an improved computer memory system.” The court stated that the claims “focus[ed] on a ‘specific asserted improvement in computer capabilities’—the use of programmable operational characteristics that are configurable based on the type of processor.” The benefits provided by the claimed system were described in the specification: the system could be used with a variety of different processors while remaining efficient and outperformed prior art systems even though it used a smaller memory cache. Thus, the Federal Circuit concluded that the system was not directed to patent ineligible subject matter.
In dissent, Judge Hughes criticized the majority for applying too low a level of abstraction in view of the “level of generality or abstraction expressed in the claims themselves.” He found that “the ‘programmable operational characteristic’ [was] a black box for performing the abstract idea of storing data based on its characteristic, and [that] the patent lack[ed] any details about how that [was] achieved.”
Infringement of System Claims by Use Does Not Require Direct Control Over All Elements
In Georgetown Rail Equipment Company v. Holland L.P., Appeal No. 2016-2297, the Federal Circuit held that a party can use a patented system for purposes of infringement by transmitting data to a third-party with instructions to process using the claimed steps. Additionally, lost profits may be awarded based on a market reconstruction where the infringer had a contract to sell infringing goods, but no actual sales.
Georgetown and Holland are competitors in the market for systems to automatically inspect tie plates on railroad tracks. In 2012, both companies participated in a head-to-head challenge to demonstrate their services to a potential customer: Union Pacific Railroad. After the demonstration, Union Pacific signed a contract with Holland to supply systems on an as-needed basis. Georgetown sued Holland for infringing its patent covering a system for inspecting track. The District Court granted a preliminary injunction and Holland never actually made sales to Union Pacific. A jury found that Holland infringed and awarded Georgetown its lost profits.
On appeal, Holland argued that it could not be a direct infringer because it did not process the data using the patented method—processing was subcontracted to a third party. The Federal Circuit disagreed, finding that a jury could reasonably believe that Holland exercised control of and benefited from the patented system regardless of the fact that a third party processed the data. The Federal Circuit explained that Holland had used the entire system for the purposes of infringement when it gathered information and sent that information with instructions to the third-party to analyze that information. By requesting third-party processing, Holland “put into service” the patented system, demonstrating both control of and benefit from the system.
Holland further argued that because it did not have any infringing sales, its infringement was not the but-for cause of Georgetown’s alleged lost profits. The Federal Circuit again disagreed, finding that Georgetown’s expert’s analysis of the Union Pacific contract, even without sales, provided sufficient evidence for the jury to award lost profits. The Federal Circuit noted that they have affirmed lost profits awards based on a wide variety of reconstruction theories and that the court would not re-weigh the evidence that the jury found persuasive.
A Desire for Simplicity Does Not Teach Away From Unmentioned Modifications
In Nidec Motor Corporation v. Zhongshan Broad Ocean Motor Co., Appeal No. 2016-2321, the Federal Circuit held that a prior art reference’s general preference for a simple device does not teach away from more complex modifications to achieve predictable results.
Broad Ocean filed an IPR petition challenging certain claims of Nidec’s patent relating to low-noise heating, ventilating, and air conditioning (HVAC) systems. The Board held that the challenged claims were obvious over the combination of Bessler and Kocybik. Bessler describes an HVAC system, but does not describe the claimed sinewave commutation, which lowers vibrations by using a more gradual voltage change than a traditional square-wave commutation. Kocybik discloses the use of sinewave commutations, but not in HVAC systems. The Board held it was obvious to combine the conventional HVAC system of Bessler with the sinewave commutation described in Kocybik to achieve predictable results. Nidec appealed.
Nidec argued that Bessler teaches away from Kocybik because Bessler was designed to reduce the complexity of HVAC systems and the teachings of Kocybik would increase the complexity of the system. The Federal Circuit disagreed and affirmed the Board because Bessler did not even mention sinewave commutation, much less discourage the use of sinewave commutations. Bessler’s desire for a simple system that did not require the use of certain components did not teach away from sinewave commutations.
Federal Circuit Reverses Obviousness Finding for Lack of Sufficient Reasoning
In In re: Stepan Company, Appeal No. 2016-1811, the Federal Circuit reversed a PTAB’s finding of obviousness over a single reference because it failed to adequately articulate its reasoning.
Stepan filed a patent application with claims directed towards a combination of surfactants. The examiner rejected the independent claim as obvious over a single prior art reference, finding that it would have been a matter of routine optimization to arrive at the claimed surfactants. The PTAB adopted the Examiner’s findings and agreed that the claims would have been obvious.
The Federal Circuit vacated and remanded the PTAB’s decision. The Federal Circuit found four errors in the PTAB’s decision. First, the PTAB failed to establish a prima facie case of obviousness because it did not explain why it would have been a matter of routine optimization to arrive at the claimed surfactants. An obviousness analysis is required to provide some rational underpinning explaining why routine optimization would produce the claimed invention. The Federal Circuit further faulted the PTAB for 2) failing to articulate a reason why a skilled artisan would have had a reasonable expectation of success, 3) disregarding evidence from the prior art tending to show that surfactant combinations were expected to lack properties claimed by Stepan, and 4) impermissibly shifting the burden to prove patentability to Stepan. The PTAB should not have shifted the burden to Stepan because the PTAB had not established a prima facie case of obviousness for two reasons: first, it failed to explain its finding of routine optimization and, second, it had not accounted for all elements recited by the claims.
Judge Lourie filed a dissent. He acknowledged that the PTAB’s decision was not without flaw, but believed that the decision was not erroneous. Judge Lourie took the position that the prior art nearly anticipated the claims and that obviousness based on a single prior art reference does not require a finding of reasonable expectation of success to make conventional modifications and look for improved properties or parameters.
PTAB Abused Its Discretion in IPR by Refusing to Admit Expert’s Inconsistent Testimony
In Ultratec, Inc. v. Captioncall, LLC., Appeal Nos., 2016-1706, -1707, -1710, -1712, the Federal Circuit held that the PTAB’s refusal to admit an expert’s allegedly inconsistent trial testimony without explaining the basis for the refusal was an abuse of discretion.
Ultratec and CaptionCall were involved in simultaneous district court litigation and numerous IPRs. CaptionCall’s expert in the IPRs also gave testimony during the district court trial, where the jury found the patents valid and infringed. Ultratec alleged that this testimony was inconsistent with the expert’s IPR declarations and immediately filed a request for authorization to file a motion to submit the expert’s inconsistent trial testimony for consideration in the IPRs. Ultratec was instructed that no evidence could be filed with its request and that it must not discuss the contents or types of documents it sought to enter. The PTAB denied authorization without providing an opinion and later issued a final decision, relying heavily on CaptionCall’s expert’s testimony, and holding the patents invalid as anticipated or obvious.
The Federal Circuit held that the record evidenced that Ultratec had satisfied the statutory requirements for authorization to file a motion to admit the allegedly conflicting testimony. The trial testimony could not have been obtained earlier, and admitting the inconsistent trial testimony would have furthered the interests of justice as it bore on the credibility of CaptionCall’s expert. The Federal Circuit further held that PTAB offered no reasoned basis for its refusal to grant authorization.
The Federal Circuit also noted three problems with the PTAB’s procedures that contributed to the errors in the case. First, the PTAB lacked the necessary information to make a reasoned decision by prohibiting discussion of the content and type of documents that Ultratec sought to enter. Second, the PTAB’s procedures allowed it to make significant evidentiary decisions without explaining those decisions. Third, the PTAB’s procedures impeded meaningful appellate review of agency decisionmaking due to the lack of written records and opinions.
The Federal Circuit vacated the PTAB’s decisions in all IPRs and remanded with instructions to admit and consider the trial testimony. The Federal Circuit further instructed the PTAB to consider the impact of the testimony both on the specific patents at issue and the expert’s credibility as a whole.
An Eminent Domain Suit Against the U.S. Government Confers Standing to Petition for CBM Review
In Return Mail, Inc. v. United States Postal Service, Appeal No. 2016-1502, the Federal Circuit held that a Section 1498(a) lawsuit against the government for the unlicensed use or manufacture of a patent confers standing on the government to petition for CBM review.
Return Mail filed suit against the United States Postal Service (Postal Service) in Claims Court under 28 U.S.C. § 1498(a), alleging infringement and unlicensed use of its patent directed to an improved method of returning undeliverable mail to senders. The Postal Service filed a petition for CBM review of the asserted claims. The PTAB granted the petition and invalidated certain claims under § 101.
On appeal, Return Mail argued that the Postal Service did not have standing to petition for CBM review because AIA § 18(a)(1)(B) provides standing only for a person who has been sued for infringement or charged with infringement.
As a threshold matter, the Federal Circuit determined whether it had authority to review the PTAB’s determination that the Postal Service had standing to petition for CBM review. The AIA includes a “no appeal” provision, stating that the determination whether to institute review is final and nonappealable. The Federal Circuit found that because the standing requirement at issue limits the PTAB’s authority to invalidate a patent through CBM review, the Federal Circuit can review the PTAB’s determination of whether standing has been satisfied.
Section 1498(a) is an eminent domain statute providing an avenue for suing the government, which would otherwise be immune from suit. Return Mail argued that, because § 1498(a) is grounded in eminent domain, it is not a suit for infringement. The Federal Circuit rejected Return Mail’s argument, explaining that, although § 1498(a) actions are independent and not identical to infringement actions under the Patent Act, the distinctions do not relate to the underlying basis of liability: patent infringement. The Federal Circuit further found that the “sued for infringement” requirement of AIA § 18(a)(1)(B) is broad enough to encompass suits under § 1498(a).
The Federal Circuit next affirmed the PTAB’s § 101 findings, finding that the claims were directed to the abstract idea of relaying mailing address data, and that the claims only recited routine, conventional activities such as identifying undeliverable mail items, decoding data, and creating output data.
The dissenting opinion, filed by Judge Newman, argued that the United States and the Postal Service do not qualify as a “person” for purposes of AIA § 18(a)(1)(B), and that therefore CBM review is not available to the government and government agencies.
PTAB Must Explain Inconsistent Inter Partes Reexamination Findings
In Vicor Corporation V. Synqor, Inc., Appeal No. 2016-2283, the Federal Circuit held that the PTAB must provide a reasoned basis for making inconsistent findings in related reexaminationss that involve the same evidence of obviousness.
Vicor requested inter partes reexamination of two related SynQor patents. SynQor submitted the same evidence of nonobviousness in both proceedings, including evidence of commercial success, industry recognition, initial skepticism of experts, unexpected results, and copying by competitors. In the first reexamination, the Board relied solely on SynQor’s objective evidence of nonobviousness and found that evidence persuasive. In the second reexamination, issued on the same day by the same panel, the Board found that the same evidence was not persuasive. The Board did not explain why it reached different outcomes. The Board also made inconsistent findings as to whether a skilled artisan would be motivated to combine two prior art references.
The Federal Circuit vacated in part and remanded based on the Board’s inconsistent and unexplained holdings on essentially the same record. While the court noted that its opinion “should not be read to suggest agency error whenever an agency reaches inconsistent outcomes in similar, related cases,” the court held that, under these circumstances, the Board “must at least provide some reasoned basis for its opposite holdings, if it chooses to maintain those same, opposing results.”