Tag Archives: patent litigation

Full Scope Enablement — Magsil Corp. v. Hitachi Global Storage Techs., Inc.

Posted on August 15, 2012 by | Comments Off on Full Scope Enablement — Magsil Corp. v. Hitachi Global Storage Techs., Inc.

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

An often-overlooked aspect of patent drafting is the requirement under 35 U.S.C. § 112, ¶ 1 that the entire scope of the claims must be enabled by the disclosures in the specification. As can be seen from the Federal Circuit’s recent decision in Magsil Corp. v. Hitachi Global Storage Technologies, Inc., Case No. 2011-1221, the failure to fully enable a claim can have grave consequences.

The case involved read-write sensors for computer hard disk drive storage systems. The inventors claimed a method of manufacturing a tri-layer junction and the junction itself. Information is stored by varying the magnetization of an electrode on the hard disk. In one orientation, the resistance is higher than the other, which can be measured to determine whether the electrode is in a “0” or “1” state. At issue was the phrase “causes a change in the resistance by at least 10% at room temperature.” Past inventions were unable to achieve this large of a change, peaking at only 2.7%.

The problem for the patentee was the open-ended language of “at least 10%,” which the Court noted could include changes from 10% to infinity. The specification only described how to achieve changes between 10.0–11.8%, and was silent on how to achieve changes larger than that. The district court granted summary judgment for the defendant, finding that the claims were not enabled and therefore invalid, and the Federal Circuit affirmed.

The Federal Circuit reviewed the history of the full scope enablement requirement, which serves two purposes—(1) to ensure that the patentee adequately discloses the claimed invention and (2) to prevent claims that are broader than what is disclosed. The Court noted that “a patentee chooses broad claim language at the peril of losing any claim that cannot be enabled across its full scope of coverage.” Therefore, in order to meet the enablement requirement, “[t]he specification must contain sufficient disclosure to enable an ordinary skilled artisan to make and use the entire scope of the claimed invention at the time of filing” without undue experimentation.

In this case, the Court found that the claim was invalid because the specification did not enable the full scope of the claims. There was nothing in the specification that described how to achieve changes of the magnitude encompassed by the open-ended claim. In fact, the inventor testified that even he did not know how to create changes greater than 20%. Because “[t]he ‘922 patent specification only enables an ordinarily skilled artisan to achieve a small subset of the claimed range,” the Federal Circuit affirmed the district court’s summary judgment of invalidity.

This case provides an important practice pointer when drafting claims. While one is generally interested in drafting broad claims, it is important that the specification fully supports the range of the claims; otherwise, the entire claim might be invalid. This further suggests that drafters consider using dependent claims to narrow ranges or using so-called “picture” claims, which are more tightly focused on any embodiments known to the inventors at the time of the application.

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PATENT TROLLS: $29 Billion Cost!

Posted on August 10, 2012 by | Comments Off on PATENT TROLLS: $29 Billion Cost!

by: Henry M. Sneath, a shareholder at Picadio Sneath Miller & Norton, P.C.

Our friends at Thompson and Knight have provided the latest on the cost to businesses and society of Patent Troll litigation. The costs remain staggering.  We share their article with you and commend you to its reading. Thanks to author R. David Donoghue. See link below: http://www.retailpatentlitigation.com/2012/08/07/trolls-cost-society-29-billion-with-a-b-in-2011/#page=1

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Rogers v. Tristar Products–Federal Circuit Dismisses Pending Patent False Marking Appeal

Posted on June 7, 2012 by | 1 comment

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C. ()

When President Obama signed the Leahy-Smith America Invents Act, H.R. 1249, 112th Cong. (1st Sess. 2011), the patent false marking claims that had become so popular were essentially eliminated. Whereas before anyone could bring such a claim, regardless of whether they had actually suffered any injury, now only those who have “suffered a competitive injury” as a result of a violation of the marking statute have standing to sue. (See 35 U.S.C. § 292). The America Invents Act not only prohibits persons who have not suffered a competitive injury from suing in the future, it also divests the standing of plaintiffs in pending false marking cases from continuing to pursue those claims.

In Rogers v. Tristar Products, Inc., 2011-1494, -1495, the Federal Circuit had to decide if that divestment included cases on appeal, as well as cases current pending in district courts. After considering the clear language in the newly amended 35 U.S.C. § 292—“The amendments made by this subsection shall apply to all cases, without exception, that are pending on, or commenced on or after, the date of the enactment of this Act”—the Federal Circuit determined that all cases must be dismissed, regardless of where they were pending or what procedural posture they may be in, unless the plaintiff could demonstrate that it had suffered a competitive injury.

The Federal Circuit rejected plaintiff’s assertion that he had a property right in maintaining such a claim or that the retroactive elimination of his claim violated the Due Process Clause. The Court found that Congress had a legitimate justification for eliminating these types of claims and rationally made the requirements retroactive.

The America Invents Act has effectively eliminated the nascent cottage industry of individuals suing companies for leaving expired patent numbers on its products. Companies no longer need to fear that they will be sued in such circumstances by individuals who likely have never used the products in question. Despite this, companies still need to be concerned about monitoring their products to make sure that they are appropriately marked. In the high stakes of patent litigation, defendants are still likely to look at whether they can bring false marking counterclaims if they are sued. As a competitor, it will be far easier (although by no means certain) to establish a competitive injury.

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U.S. Supreme Court Decides Kappos v. Hyatt

Posted on April 19, 2012 by | Comments Off on U.S. Supreme Court Decides Kappos v. Hyatt

By: Joseph R. Carnicella, intellectual property and commercial litigation attorney at Picadio Sneath Miller & Norton, P.C.

In Kappos v. Hyatt, 566 U.S. ___ (2012), decided on April 18, 2012, a unanimous Supreme Court affirmed a Federal Circuit decision that (a) a patent applicant faces no limitations on their ability to introduce new evidence in a Section 145 (35 U.S.C. § 145) proceeding beyond those already in place in the Federal Rules of Evidence and the Federal Rules of Civil Procedure, (b) the district court must take de novo factual findings of both new evidence presented on a disputed question of fact and the administrative record before the PTO, and (c) the district court may consider what weight to afford any new evidence taking into account whether the applicant had an opportunity to present the new evidence before the PTO.

In this case, Gilbert Hyatt (Respondent) filed a patent application that included 117 claims.  The PTO’s patent examiner denied each of the claims for lack of an adequate written description pursuant to 35 U.S.C. § 112.  Hyatt appealed the decision to the Board of Patent Appeals and Inferences (Board), and after receiving approval of 38 claims, Hyatt filed a Section 145 action in federal district court against the Director of the PTO (Petitioner).  In support of his position that the patent application included an adequate written description, Hyatt included a written declaration with his submission to the district court setting forth the portions of the patent specification that, in his opinion, supported the claims that were deemed unpatentable by the Board.  The district court refused to consider the declaration on the grounds that applicants are precluded from presenting new issues, at least in the absence of some reason of justice put forward for failure to present the issue to the PTO.  The district court then applied a deferential substantial evidence standard under the Administrative Procedure Act (APA) in reviewing only the PTO’s administrative record and subsequently granted summary judgment to the Director.

Hyatt appealed to the Federal Circuit, and a divided panel affirmed the district court’s decision that the APA imposed restrictions on the admission of new evidence in a Section 145 proceeding and that the district court’s review is not wholly de novo.  The Federal Circuit granted rehearing en banc and vacated the grant of summary judgment.  The Supreme Court granted certiorari following the ruling from the en banc court.  The Director argued before the Supreme Court that a district court should admit new evidence in a Section 145 action only if the proponent of the evidence had no reasonable opportunity to present the evidence to the PTO in the first instance.  Also, the Director argued that, when new evidence is introduced, the district court should overturn the PTO’s factual findings only if the new evidence clearly establishes that the agency committed error in its findings.

The Supreme Court began its analysis of the Director’s arguments by first reviewing the text of Section 145: “An applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences in an appeal under section 134(a) may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director . . . . The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Board, as the facts in the case may appear, and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law.”  The Supreme Court concluded that the plain text neither imposes unique evidentiary limits in district court proceedings nor establishes a heightened standard of review for factual findings by the PTO.

The Supreme Court next considered the Director’s argument that the statute should be read in light of traditional principles of administrative law under the APA.  The Director argued that (a) the district court should defer to the PTO’s factual findings and (b) in line with the traditional rule that a party first must exhaust administrative remedies, the district court should consider new evidence only if the party did not have an opportunity to present the evidence to the PTO.  The Supreme Court disagreed with the Director’s positions.  First, the Director conceded that Section 145 proceedings are not limited in the same manner as judicial review of an agency decision under the APA, which is typically limited to the administrative record.  The Supreme Court noted that the PTO cannot account for evidence that was not presented, and as a result, the district court must make its own findings de novo.  Also, the Supreme Court determined that administrative exhaustion does not apply to Section 145 because, while administrative exhaustion avoids premature interruption of the administrative process, the PTO’s process is complete by the time a Section 145 proceeding occurs.

The Supreme Court then analyzed the evidentiary and procedural rules in effect at the time when Congress enacted Section 145 in 1952.  The Supreme Court traced the history of Section 145 back to the 1836 Act, which established the Patent Office, and noted that the specific language in Section 145 originated in the 1870 Act.  According to the Supreme Court, in 1878, the relevant provision of the 1870 Act was codified by Congress as Revised Statute § 4915 (R.S. 4915), which served as the immediate predecessor to Section 145.  The parties agreed that R.S. 4915 and judicial interpretations of that statute provided the foundation for the understanding of Section 145.  The Supreme Court analyzed the two primary cases describing the nature of R.S. 4915, and concluded that Congress intended that applicants would be free to introduce new evidence in Section 145 proceedings subject to the rules applicable to all civil actions and that, where new evidence is presented to the district court, a de novo finding would be necessary.

Finally, in agreeing with the Federal Circuit that the district court may decide what weight to afford an applicant’s newly admitted evidence, the Supreme Court noted that the proper means for the district court to accord respect to decisions of the PTO would be through the court’s broad discretion over the weight to be given to such new evidence in Section 145 proceedings.

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Federal Circuit Finds License Negotiations Discoverable

Posted on April 10, 2012 by | Comments Off on Federal Circuit Finds License Negotiations Discoverable

By: Joseph R. Carnicella, IP Associate with Picadio Sneath Miller & Norton, P.C.

In In Re MSTG, Inc., Misc. Doc. No. 996, 2012 U.S. App. LEXIS 7092 (Fed. Cir. April 9, 2012), the Federal Circuit found that license negotiations between a patent holder and its licensees relating to reasonable royalties and damages are not protected by a settlement negotiation privilege.

MSTG sued various cell phone service providers claiming infringement of two patents.  MSTG eventually settled with all but one of the defendants (AT&T), wherein most defendants entered into settlement agreements and were granted licenses under the patents-in-suit and other patents owned by MSTG.  MSTG also licensed the patents-in-suit to a technology consortium around the same time period.

As part of the litigation, the amount of a reasonable royalty was a primary issue to the extent AT&T was found to infringe the patents-in-suit.  AT&T sought discovery into the negotiations of the settlement agreements and argued that such information was relevant in calculating a reasonable royalty.  MSTG’s damages expert offered an opinion relating to a reasonable royalty based on comparable licenses, industry survey results, and other published rates for similar technology.  The expert reviewed but discounted the pertinent license agreements on the grounds that the royalty rates were “litigation related compromises” and not comparable to a hypothetical negotiation between MSTG and AT&T.  AT&T then moved to compel the license agreements reviewed by the expert as well as the underlying negotiations.  The magistrate judge determined that the negotiation documents could disclose reasons why the parties reached the royalty agreements, which could provide guidance on whether such licenses could be considered in a calculation of a reasonable royalty between MSTG and AT&T.  The district court denied MSTG’s objections and agreed with the magistrate judge.

MSTG petitioned the Federal Circuit for a writ of mandamus, and the district court’s discovery order was temporarily stayed pending review.  MSTG asserted that, under Rule 501 of the Federal Rules of Evidence, the Federal Circuit should create a new privilege in patent cases that would prevent discovery of litigation settlement negotiations related to reasonable royalties and damages.  The Federal Circuit analyzed the relevant rules of procedure, rules of evidence and case law and concluded that settlement negotiations related to reasonable royalties and damage calculations are not protected by a settlement negotiation privilege.  Also, MSTG asserted that the district court abused its discretion by ordering the production of negotiation documents underlying the settlement agreements.  The Federal Circuit agreed with AT&T that, because the expert offered opinions that went beyond the four corners of the settlement agreements, MSTG could not deny discovery of that same information to AT&T.  The Federal Circuit did not address whether such settlement negotiation materials would be admissible in front of a jury.

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Federal Circuit Confirms That Abstract Mental Processes Are Not Patentable — CyberSource Corp. v. Retail Decisions, Inc.

Posted on August 19, 2011 by | Comments Off on Federal Circuit Confirms That Abstract Mental Processes Are Not Patentable — CyberSource Corp. v. Retail Decisions, Inc.

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

What constitutes patentable subject matter under 35 U.S.C. § 101 has been a topic of keen interest, especially since the Supreme Court issued its decision in Bilski v. Kappos, 130 S. Ct. 3218 (2010) that rejected the Federal Circuit’s machine-or-transformation test. On Tuesday, the Federal Circuit further clarified what can be patented, affirming a rejection under § 101 of a claim for detecting fraud in credit card transactions over the internet. Written by Judge Dyk, the unanimous decision in CyberSource Corp. v. Retail Decisions, Inc. (Case No. 2009-1358) found that claims involving mental processes that can performed by the human mind are not patent eligible.

The Underlying Claims

Two claims were at issue in CyberSource. They both involved a method for detecting fraud in credit card transactions over the internet by looking at the customer’s IP address. The claims were very broad with no specific algorithms for identifying fraud claimed.

The first was a method claim with no linkage to any physical structures:

3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:

obtaining information about other transactions that have utilized an Internet address that is identified with the [ ] credit card transaction;

constructing a map of credit card numbers based upon the other transactions and;

utilizing the map of credit card numbers to determine if the credit card transaction is valid.

The second was a “Beauregard claim,” which is a claim to a computer readable medium containing programing instructions regarding a particular process:

2. A computer readable medium containing program instructionsfor detecting fraud in a credit card transaction between a consumer and a merchant over the Internet, wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the steps of:

obtaining credit card information relating to the transactions from the consumer; and

verifying the credit card information based upon values of plurality of parameters, in combination with information that identifies the consumer, and that may provide an indication whether the credit card transaction is fraudulent,

wherein each value among the plurality of parameters is weighted in the verifying step according to an importance, as determined by the merchant, of that value to the credit card transaction, so as to provide the merchant with a quantifiable indication of whether the credit card transaction is fraudulent,

wherein execution of the program instructions by one or more processors of a computer system causes that one or more processors to carry out the further steps of;

[a] obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;

[b] constructing a map of credit card numbers based upon the other transactions; and

[c] utilizing the map of credit card numbers to determine if the credit card transaction is valid.

Claim 3 Is an Unpatentable Abstract Mental Process

The Federal Circuit found that the method of claim 3 was nothing more than an abstract mental process. While the Supreme Court in Bilski rejected the machine-or-transformation test as the sole test of patentability under § 101, the Federal Circuit began its analysis there. It found that the claim recited no machines and did not perform any transformations. Following Bilski, it considered whether the claim was nonetheless patent eligible. It concluded that it was not because the claim recites a mental process, which is unpatentable under the Supreme Court’s decision in Gottschalk v. Benson, 409 U.S. 63, 67 (1972). Here, all of the steps of claim 3 could be performed by the human mind using a pen and paper. The Court suggested that if claim 3 had recited a more complex algorithm that could not have been performed easily using pen and paper, the result may have been different.

Thus, claim 3’s steps can all be performed in the human mind. Such a method that can be performed by human thought alone is merely an abstract idea and is not patent-eligible under § 101. Methods which can be performed entirely in the human mind are unpatentable not because there is anything wrong with claiming mental method steps as part of a process containing non-mental steps, but rather because computational methods which can be performed entirely in the human mind are the types of methods that embody the “basic tools of scientific and technological work” that are free to all men and reserved exclusively to none.

Claim 2 Is Also an Unpatentable Abstract Mental Process

Claim 2 required a slightly different analysis. It basically recited the same method as in claim 3, but it tied it to a computer readable medium. The question was whether tying it to this structure created a machine that was patent eligible under § 101. The Federal Circuit concluded that it was not sufficient because the underlying invention was the method, not a manufacture for storing computer-readable information. To be patent eligible, the machine “must impose meaningful limits on the claim’s scope,” so the “the incidental use of a computer to perform the mental process of claim 3 does not impose a sufficiently meaningful limit on the claim’s scope.” Thus, claim 2 (like claim 3) was not patent eligible under § 101.

The Federal Circuit Is Looking Carefully at Software/Method Claims

Inventors seeking to patent computer software or method claims should consider this decision carefully. If the claims simply recite steps that a human could perform with pen and paper, there is a real chance that the claim might not be eligible for patenting. Merely adding a limitation requiring a computer to perform the steps may not be sufficient to overcome this problem. Courts can look behind the words of the claim to determine what the underlying invention is and whether the use of a computer is meaningful. As always, careful claim drafting is very important if an inventor wants to obtain and enforce his or her patent.

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Fixing Obvious Drafting Errors During Litigation — The CBT Flint Partners, LLC v. Return Path, Inc. Decision

Posted on August 18, 2011 by | Comments Off on Fixing Obvious Drafting Errors During Litigation — The CBT Flint Partners, LLC v. Return Path, Inc. Decision

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

In the CBT Flint Partners, LLC v. Return Path, Inc. decision last week (No. 2010-1202, -1203), the Federal Circuit considered when a court can rewrite a claim during litigation to fix mistakes in drafting. The Court concluded that a district court has the authority to rewrite claims to correct obvious errors even if there are multiple ways to “fix” the claim, as long as all the possible solutions leave the claim with the same scope and meaning.

The Claim at Issue

The patent at issue in CBT Flint involved an e-mail spam filtering system. One of the claim limitations required a computer to detect and analyze an e-mail. The patent drafters forgot the word “and” between these words, which led to problems. The claim at issue (with the problematic term highlighted) read:

13. An apparatus for determining whether a sending party sending an electronic mail communication directed to an intended receiving party is an authorized sending party, the apparatus comprising:

a computer in communication with a network, the computer being programmed to detect analyze the electronic mail communication sent by the sending party to determine whether or not the sending party is an authorized sending party or an unauthorized sending party, and wherein authorized sending parties are parties for whom an agreement to pay an advertising fee in return for allowing an electronic mail communication sent by the sending party to be forwarded over the network to an electronic mail address associated with the in-tended receiving party has been made.

The district court determined that there were three possible ways to fix this problem—(1) remove the word “detect”; (2) remove the word “analyze”; or (3) add the word “and” between the words “detect” and “analyze.” Because it felt that it was debatable which solution should be used, it concluded it lacked the authority to rewrite the claim. Thus, it found the claim indefinite under 35 U.S.C. § 112, ¶ 2 and granted summary judgment in favor of the defendant. The Federal Circuit reversed.

Case Law History for Rewriting Claims

The Federal Circuit noted that courts have long had the power to fix obvious drafting mistakes, citing to the Supreme Court’s decision in I.T.S. Rubber Co. v. Essex Rubber Co., 272 U.S. 429, 442 (1926). The Court further noted that it held in Novo Industries L.P. v. Micro Molds Corp., 350 F.3d 1348, 1357 (Fed. Cir. 2003) that“[a] district court can correct a patent only if (1) the correction is not subject to reasonable debate based on consideration of the claim language and the specification and (2) the prosecution history does not suggest a different interpretation of the claims.”

The Court determined that the district court erred because the three alternative solutions it was considering were not meaningfully different when viewed from the perspective of one skilled in the art. The concepts of “detecting” and “analyzing” were implicit in the rest of the claim, even if one of these terms was explicitly deleted. Thus, the scope and meaning of the claim were the same regardless of which solution the district court could have adopted. In these situations, the district court does have the authority to fix this kind of obvious mistake.

Practice Pointers and Takeaways From This Case

While this case suggests that courts are willing to bail out patentees and fix mistakes in claims during litigation, patentees should not rely on courts fixing their problems for them. In this particular case, the Federal Circuit found that the three possible solutions were all functionally identical. That will not always be the case, and, it is far more likely it will not be the case.

Obviously, the best practice is not to make mistakes in the first place, but that is often easier said than done. Patentees should be especially vigilant about reviewing the claims during prosecution to make sure that there are no mistakes. In addition, patentees should make sure to review the final, published version from the Patent Office, as mistakes sometimes do happen in the printing process. If a mistake happens after issuance, there are mechanisms to correct a patent (e.g., a certificate of correction). Finally, if a patentee is going to sue on a patent, it is especially important to review the patent again to make sure there are no mistakes. Don’t count on the court to bail you out!

The other takeaway from this case from the defense viewpoint is that courts may be more reluctant to find claims indefinite for obvious mistakes or typographic errors. Significant errors are still likely to doom patent claims, but it is not prudent to count on minor errors sinking them, too.

The bottom line with minor mistakes is that neither side should be confident in how a court will react. It may fix them, but it may not. And how a court will act likely depends on some very specific facts.

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Federal Circuit Sanctions Non-Practicing Entity for Baseless Lawsuit — Eon-Net LP v. Flagstar Bancorp

Posted on August 2, 2011 by | Comments Off on Federal Circuit Sanctions Non-Practicing Entity for Baseless Lawsuit — Eon-Net LP v. Flagstar Bancorp

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

Non-practicing entities (NPEs) are often criticized for bringing meritless lawsuits against companies with the sole intention of forcing settlements by offering amounts far less than the cost of litigation. Even though the claims may be baseless or tenuous at best, the cost of fighting often far outweighs the settlement demands. Faced with paying a relatively small amount to assure the case goes away versus paying substantially more to defeat the claim through litigation, companies will often acquiesce to the settlement demands even if they feel that they have not infringed a valid patent.

On Friday, the Federal Circuit issued a decision in Eon-Net LP v. Flagstar Bancorp, (No. 09-1308) reminding defendants that there are other options for defendants facing frivolous lawsuits. The Court in a unanimous decision affirmed a district court’s decision to award over $600,000 in attorney fees and sanctions under 35 U.S.C. § 285 and Rule 11 against an NPE for filing a frivolous patent infringement lawsuit. The Federal Circuit panel consisted of Judges Lourie, Mayer, and O’Malley.

Eon-Net LP—Non-Practicing Entity

Eon-Net LP (and its related companies) are NPEs that have filed over a hundred lawsuits against a variety of different defendants. They typically offer to settle cases for $25,000–$75,000, based on the amount of the defendant’s sales, which are amounts far lower than the potential damages or the litigation costs. This is the typical non-practicing entity

35 U.S.C. § 285 and Attorney Fees in Exceptional Cases

A district court has the discretion under § 285 to award attorney fees to the prevailing party in a patent infringement lawsuit if it determines the case is “exceptional.” The Federal Circuit, while indicating that it will review these determinations, also indicated that it will not lightly disturb a court’s finding because of the court’s lengthy and personal experience with the case, the parties, and the attorneys.

The Federal Circuit mentioned a variety of actions by a losing party that can make a case exceptional—(1) litigation misconduct, (2) unprofessional behavior, (3) misconduct in getting the patent at issue, and (4) bringing an objectively baseless litigation in bad faith. The Court found that Eon-Net’s litigation misconduct and filing of a baseless infringement action in bad faith made the case exceptional.

The Eon-Net case is pretty much a checklist for what not to do in filing a lawsuit. First, Eon-Net intentionally destroyed potentially relevant documents prior to filing suit. Next, it failed to participate in the litigation process in good faith by not offering constructions for any of the disputed claim terms, lodging incomplete and misleading evidence with the court, and submitting contradictory declarations. In short, “[t]he district court also found that [Eon-Net’s principal] displayed a ‘lack of regard for the judicial system’ and that Eon-Net and [its principal] had a ‘cavalier attitude’ towards the ‘patent litigation process as a whole.’” Taken together, the Federal Circuit found this behavior unprofessional.

The Federal Circuit also affirmed the finding that Eon-Net filed a baseless lawsuit in bad faith. The written description in the patent clearly refuted Eon-Net’s need construction to find infringement, which it should have known before filing suit.

In finding that Eon-Net filed suit for an improper purpose, the Federal Circuit looked beyond the litigation before it and to Eon-Net’s history of filing what it considered to be “extortionate” lawsuits with settlement demands far lower that the litigation costs. “The record supports the district court’s finding that Eon-Net acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement from Flagstar.” On its face, the Court’s analysis brings into question the entire business model for many NPEs.

In addition, the Court was troubled by the disproportionate and asymmetric discovery costs often present in cases like these. NPEs will often have little, if any, relevant documents or personnel to depose. In contrast, defendants may have enormous amounts of potentially relevant documents and witnesses. Because discovery costs are generally borne by the producing party, an NPE can force a defendant to expend hundreds of thousands or millions of dollars during discovery—costs that it will never have to bear because of the dearth of information it has.

Finally, the Court was troubled by the fact that NPEs are rarely put at risk in these kinds of lawsuits. They do not typically sell any products, so there is no chance of a patent infringement, unfair competition, or antitrust counterclaim. The only risk is the loss of the patent itself, which is typically only one of a number of licensing revenue sources. There is no chance that they will face increased competition from a competitor if they lose.

Taken together, the Federal Circuit had no problem with the finding that Eon-Net filed a baseless lawsuit in bad faith for an improper purpose sufficient to warrant a finding that this was an exceptional case.

Rule 11 Sanctions

In addition to awarding attorney fees, the Federal Circuit also affirmed the district court’s imposition of Rule 11 sanctions because Eon-Net and its attorneys failed to perform a reasonable pre-suit investigation. While Eon-Net’s counsel did examine Flagstar’s website before filing suit, they did not perform an objective evaluation of the claim terms when assessing infringement.

What Can We Learn From This Decision?

This decision is really a slap in the face to NPEs and indicates that the Federal Circuit does not take kindly to litigants filing baseless claims to extort settlements from defendants. While this decision serves as a warning to NPEs and their attorneys, it also serves as a cautionary tale for other litigants.

First, the decision emphasizes the need to conduct a proper pre-filing investigation, which should include a claim-by-claim analysis of infringement and the potential construction of any key claim terms. Depending on the nature of the allegedly infringing product, this analysis may be difficult. For example, if claim limitations are not observable from inspecting the product (such as limitations contained in source code), the attorneys will need to make educated assumptions about how the allegedly infringing product works and be ready to defend the legitimacy of those assumptions, if necessary.

Second, plaintiffs need to be aware that the obligation to preserve potentially relevant evidence begins before they file the lawsuit. Intentionally destroying documents before filing a lawsuit can have serious consequences, and if a company had a standard document destruction policy, it must determine if that policy needs to be suspended before (not after) filing suit.

Third, litigants need to take the litigation seriously and respect the process, even if it feels cumbersome or annoying at times. Flippant comments, like those made by Eon-Net’s principal, can come back to haunt a losing party. Ignoring the process or filing half-hearted papers can cause serious problems.

Finally, this case is a real indictment of the standard NPE business model of making extremely low settlement offers to entice defendants to not fight the lawsuit. Many NPEs use this business model with lawsuits of questionable merit knowing that defendants will be reluctant to fight the lawsuit given the prospective costs. This decision may serve as a wake-up call for NPEs and their attorneys to be more careful in what suits they file.  Given that Eon-Net only makes between $25,000–$75,000 per settlement, a $600,000 fee award against it likely is a substantial hit to its business. In addition, this decision will haunt Eon-Net in all future proceedings and likely lead to more awards against it if it continues to bring these kinds of meritless lawsuits.

This decision shows that fighting the fight can sometimes be worth the battle and help to deter other NPEs from coming after a company. Unfortunately, it is still likely a losing proposition for the defendants. Even in this best-case scenario, they are generally only compensated for their litigation costs, not all of the other costs of being a defendant (such as lost employee time, opportunity losses, and the damage to their image by being involved in a lawsuit). There is no windfall for defendants in these circumstances.

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Federal Circuit Holds That Isolated Genes Are Patent Eligible — Association for Molecular Pathology v. Myriad Genetics

Posted on August 1, 2011 by | 1 comment

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

The patentability of genes and genetic testing remains a controversial topic, enough so that the Supreme Court granted cert in Mayo Collaborative Services v. Prometheus Laboratories to address some of these issues. (See our prior post). On Friday, the Federal Circuit issued a lengthy and fractured 105-page decision in Association for Molecular Pathology v. Myriad Genetics, Inc. (No. 10-1406) that held that claims to an isolated DNA molecules were patentable subject matter under 35 U.S.C. § 101. Judge Lourie delivered the decision of the Court, Judge Moore concurred in part, and Judge Bryson concurred and dissented in part.

Background

The patents at issue are directed a test to screen for mutations in BRCA genes that correlate with an increased risk of breast and ovarian cancer. The inventors identified markers in DNA sequences from individuals with inherited breast and ovarian cancers. This knowledge allowed Myriad to create diagnostic testing services for women.

Myriad began sending cease-and-desist letters to doctors who performed testing that it believed infringed its patents. A number of doctors and researchers then filed a declaratory judgment action against Myriad Genetics, Inc., claiming that certain claims in seven of Myriad’s patents were invalid because they contain patent-ineligible subject matter under 35 U.S.C. § 101. The district court agreed with the plaintiffs and invalidated all fifteen challenged claims. The Federal Circuit reversed as to three of the claims (in a 2–1 decision) and unanimously affirmed the district court’s decision as to the remainder.

The Claims at Issue

Myriad’s claims fell into three broad categories: (1) three composition claims, (2) a screening method claim, and (3) eleven comparing/analyzing method claims. The Federal Circuit found that the first two types were patent-eligible under § 101, but the third type was not.

The composition claims were for two “isolated” human genes (BRCA1 and BRCA2) that are free-standing portions of a larger, native DNA molecule and synthetic complementary DNA molecule (cDNA). In essence, these isolated genes are sections of DNA that has been cleaved from a naturally-occurring DNA molecule. Myriad isolated the portions of the naturally-occurring DNA molecule that correlated with the cancer and patented it.

The screening method claim recites the steps of growing host cells transformed with an altered BCRA gene in the presence of a potential cancer therapeutic, determining the growth rate of these cells, and comparing the growth rate of the host cells. The comparing/analyzing method claims, on the other hand, simply call for comparing samples from a tumor of the isolated genes from a patient with a non-tumor sample.

The Court Finds the Composition Claims Are Patentable Subject Matter

Before making its determination, the Court traced the state of the law regarding § 101 by looking at the Supreme Court’s decisions in Diamond v. Chakrabarty, 447 U.S. 303 (1980) and Funk Borthers Seed Co. v. Kalo Inoculant Co., 333 U.S. 127 (1948). These decisions involved whether man-made, living microorganisms are patentable under § 101.

Ultimately, the Federal Circuit concluded that § 101 requires that a composition’s identity must be “markedly different” in comparison with what exists in nature for the composition to be patent-eligible:

The distinction, therefore, between a product of nature and a human-made invention for purposes of § 101 turns on a change in the claimed composition’s identity compared with what exists in nature. Specifically, the Supreme Court has drawn a line between compositions that, even if combined or altered in a manner not found in nature, have similar characteristics as in nature, and compositions that human intervention has given “markedly different,” or “distinctive,” characteristics.

Judge Lourie found that Myriad’s composition claim satisfied this test because the isolated genes, while they could be found inside a naturally-occurring DNA molecule, had distinct chemical identities and natures different from the DNA molecule once they were removed. The isolated genes are not the same molecules as exist in the body, and the creation of these isolated genes requires human intervention. He rejected the argument that the isolated genes are merely purified forms of a natural material.

Judge Moore, in her concurrence, reached the same result. She found that a fragment of a DNA sequence has different properties and different physical characteristics than the parent DNA from which it is obtained. In addition, the cDNA gene is entirely different than the naturally-occurring DNA molecule because introns are removed and it contains the opposite (complementary) sequence of RNA. The exact cDNA gene is not found in nature, so it is easily patent-eligible.

In his dissent, Judge Bryson sharply disagreed with respect to the non-cDNA composition claims. He would have held that any gene that is found in nature, even if found within a larger DNA molecule, is unpatentable. Judge Bryson analogized these genes to minerals discovered in the earth. Simply extracted a naturally-found mineral is not patentable, so simply extracting a naturally-found gene from DNA should not be patentable.

The Method Claims

The decisions with respect to the method claims were much easier for the Court, and the Judges unanimously agreed. The comparing/analyzing claims were not patent eligible because they amounted to nothing more than the mental steps of comparing two genes. There was no transformation involved, so they were not patent eligible. The screening method claim, on the other hand, had a number of transformations central to the purposes of the claimed process. Thus, it was patent eligible.

Standing to Bring the Action

A significant part of the decision also addressed whether any of the plaintiffs had standing to bring the claim under the Declaratory Judgment Act. All three Judges agreed that at least one of the doctors did have standing. For those interested in standing issues and what is sufficient under the Declaratory Judgment Act, this decision is an interesting read.

The Takeaways

The Federal Circuit seems to have a different test for genetic materials than other compositions. All three Judges agreed that extracting a naturally-found mineral or element from a rock would not be eligible for patent protection. Under the majorities’ holding, however, extracting genetic material from a naturally-occurring DNA molecule is eligible for patent protection (assuming the other requirements of the Patent Act can be met). The decision maintains a long history of allowing patents in the field of genetics.

It will be interesting to see if this case is addressed en banc or whether the Supreme Court will weigh in on these issues in its upcoming case in Mayo Collaborative Services. Given the sharp dissent in this case, and the importance of these types of patents, it is unlikely that we have seen the last of these decisions.

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Federal Circuit Hears Oral Arguments on Constitutionality of Patent False Marking Statute

Posted on July 8, 2011 by | Comments Off on Federal Circuit Hears Oral Arguments on Constitutionality of Patent False Marking Statute

by: Robert Wagner, intellectual property attorney at Picadio Sneath Miller & Norton, P.C.

Yesterday, the Federal Circuit heard oral arguments in FLFMC, LLC v. Wham-O, Inc. (No. 2011-1067) to decide whether the patent false marking statute (35 U.S.C. § 292) is constitutional under the “Appointments” and “Take Care” clauses of the United States Constitution (Article II, Sections 2 and 3). The panel is comprised of Judges Linn, Dyk, and Prost, and attorneys representing FLFMC, Wham-O, the US government, and the Chamber of Commerce of the United States of America argued before the Court. An audio recording of the argument can be heard here.

The district court below (from the Western District of Pennsylvania) dismissed FLFMC’s lawsuit, finding that it lacked standing to bring the action, and FLFMC appealed to the Federal Circuit.

It is difficult to predict how the Court will rule from the argument yesterday, but we can get an idea of some of the key issues that the Court is wrestling with. The argument chiefly focused on two key issues—(1) is there a sufficient government notice requirement in the statute and (2) does the government have sufficient control over the litigation to satisfy its constitutional obligations?

Does § 292 Require Notice to the Government?

As to the first issue, counsel for FLFMC noted that there is a provision for giving the USPTO notice of any lawsuit involving a patent (35 U.S.C. § 290) and many plaintiffs are giving the government notice as a matter of routine practice. Counsel for Wham-O countered that many plaintiffs are not giving notice under § 290 or otherwise and that § 290 only requires notice within 30 days of filing suit, by which time many cases have been settled and dismissed. In either case, the government is not getting adequate notice to fulfill its constitutional obligations. The government conceded that the notice under § 290 does not specifically indicate that the lawsuit involves allegations of false marking, so the government would have to specifically investigate every patent case filed to determine whether it involved false marking, as opposed to infringement, for example.

The Court clearly was concerned about the apparent lack of notice, and the panel questioned whether it could create a notice requirement to preserve the constitutionality.

Does the Government Have Sufficient Control of the Litigation?

The other key issue was the government’s ability to intervene and control the litigation. On its face, the statute is silent about government control and intervention. Counsel for FLFMC argued that the Federal Rules of Civil Procedure give the government the right to intervene because it has a stake in the outcome of the lawsuit, and that the Court can look to these Rules in determining the constitutionality. The Court seemed to accept this argument. Counsel for Wham-O countered that while the government may be able to intervene, it has no ability to control the litigation. It cannot force a dismissal of the lawsuit or reject a settlement. It can only ask the Court for assistance, which puts the government in no better a position that any other amicus or intervenor. There was also some dispute over whether civil litigants should be precluded from bringing suit if the government has already filed a criminal action.

What’s Next?

Given the tenor of the argument, it seems safe to say that the Court has some concerns about the constitutionality of the false marking statute. Whether those concerns rise to the level of invalidating the statute is another question. What will be interesting is how the decision in this case will affect the legislation pending in Congress that rewrites the false marking statute (HR 1249, § 16 and S 23, § 2(k)). Should the Court hold that the current false marking statute is unconstitutional, it may require Congress to revisit the amendments to that statute.

Additional Materials

  • The parties’ Federal Circuit briefs can be found here.
  • The District Court order finding no standing can be found here.

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