Tag Archives: Supreme Court Patent Decisions

Supreme Court Reverses Federal Circuit Interpretation of Patent Venue: TC Heartland Holding Overturned

Posted by:  Henry M. Sneath, Esq. – Chair of the Intellectual Property Practice Group at Pittsburgh, Pa. law firm Picadio Sneath Miller & Norton, P.C. (PSMN® and PSMNLaw®). Mr. Sneath is also an Adjunct Professor of Law at the Duquesne University School of Law teaching Trade Secret Law, Trademark Law and the Law of Unfair Competition. He may be contacted at hsneath@psmn.com or 412-288-4013. See Website www.psmn.com .

The US Supreme Court overturned the Federal Circuit’s decision in TC Heartland v.  Kraft Foods and its longstanding interpretation of the patent venue statute and has reaffirmed that a corporation is a resident of the state in which it is incorporated. It had decided that question a long time ago, but the Federal Circuit and statutory changes to the general (non-patent) venue statutes had undermined the original decision of the Supreme Court in 1957 in Fourco Glass.  The court provided this analysis in TC Heartland:

“The patent venue statute,28 U. S. C. §1400(b), provides that ‘[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.’ In Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222, 226 (1957), this Court concluded that for purposes of §1400(b) a domestic corporation “resides” only in its State of incorporation.” 
In overturning the Fed. Cir. decision, the Court rejected the argument that 28 U.S.C. §1400 (patent venue statute) incorporates the broader definition of corporate “residence” contained in the general venue statute 28 U.S.C. 1391 as has been allowed by the Federal Circuit for years. This changes the longstanding practice of the Federal Circuit to interpret “residence” as being any state in which a defendant corporation simply conducts business. This interpretation has allowed unfettered forum shopping which generally results in shopping and filing in the Eastern District of Texas.

“We conclude that the amendments to §1391 did not modify the meaning of §1400(b) as interpreted by Fourco. We therefore hold that a domestic corporation “resides” only in its State of incorporation for purposes of the patent venue statute.” Justice Thomas authored the court’s opinion.

The big question is whether this will indeed reduce or eliminate the monopoly held by Texas on patent cases and whether it will simply shift it to Delaware where many corporations are incorporated. The court may take additional action or so too may the US Congress to prevent that simple shifting of venues from Texas to Delaware.

See the Opinion in TC Heartland v. Kraft Foods here: https://www.supremecourt.gov/opinions/16pdf/16-341_8n59.pdf

Henry Sneath 412-288-4013 and hsneath@psmn.com

Supreme Court Again Rewrites Patent Law on Enhanced Damages

by: Robert Wagner, intellectual property attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

SupremeCourtImage_1In a continuing trend of rejecting bright-line rules and multi-faceted tests created by the Federal Circuit, the Supreme Court last week issued an opinion in Halo Electronics, Inc. v. Pulse Electronics, Inc., (No. 14-1513) in which the Court unanimously vacated and remanded the Federal Circuit’s decision affirming the District Court’s decision not to award enhanced damages under the Federal Circuit’s precedent in In re Seagate Technology, LLC, 497 F.ed 1360 (Fed. Cir. 2007) (en banc). The Court found that the Seagate test was too rigid and did not give trial courts sufficient discretion to award enhanced damages under 35 U.S.C. § 284. Chief Justice Roberts wrote the decision for the Court.

Background

The Patent Act provides that the Court “the court may increase the damages up to three times the amount found or assessed.” 35 U.S.C. § 284. In response to this language, the Federal Circuit has created various tests for courts and litigants to following, culminating with its most recent pronouncement in Seagate. Under the Seagate test, “a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent,”without regard to “[t]he state of mind of the accused infringer.” This objective prong is not satisfied if the accused infringer later developed a reasonably defense at trial, even if that defense was not known or relied on during the time of the infringing conduct.

If the patentee can demonstrate objective recklessness, it must show by clear and convincing evidence that the risk of infringement “was either known or so obvious that it should have been known to the accused infringer.” If the patentee meets this subjective prong, the court is entitled to award enhanced damages.

The Supreme Court Rejects this 2-step Process

While initially recognizing that “[t]he Seagate test reflects, in many respects, a sound recognition that enhanced damages are generally appropriate under § 284 only in egregious cases,” it found that the test “is unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts.”

In particular, the Court was troubled by the fact that an accused infringer could avoid enhanced damages in cases where it intentionally ignored the patentee’s patent if its lawyers could later develop a reasonable defense during litigation that was never relied on previously. Under the Seagate test, a patentee could never get past the first objective prong.

Having said that, the Court also stressed that enhanced damages should still be the exception, and not the rule. It traced the history of enhanced damages and noted that they were typically reserved for egregious cases and were “vindictive or punitive” in nature. The Court cautioned that a trial court’s discretion to grant enhanced damages is not boundless and that the Federal Circuit is in a unique position to evaluate the exercise of that discretion based on its long history of dealing with patent cases.

Finally, the Court rejected a clear and convincing evidentiary standard for proving entitlement to enhanced damages. Under § 284, only a preponderance of the evidence is necessary to obtain enhanced damages.

The Court concluded by stating:

Section 284 gives district courts the discretion to award enhanced damages against those guilty of patent infringement. In applying this discretion, district courts are “to be guided by [the] sound legal principles” developed over nearly two centuries of application and interpretation of the Patent Act. . . . Those principles channel the exercise of discretion, limiting the award of enhanced damages to egregious cases of misconduct beyond typical infringement. The Seagate test, in contrast, unduly confines the ability of district courts to exercise the discretion conferred on them. Because both cases before us were decided under the Seagate framework, we vacate the judgments of the Federal Circuit and remand the cases for proceedings consistent with this opinion.

Justice Breyer’s Concurrence

While agreeing with the majority’s opinion, Justice Breyer wrote separately to caution that awards of enhanced damages should be made only in egregious circumstances.

He also noted that an award of enhanced damages requires conduct beyond simple knowledge of a patent by the infringer. Justice Breyer explained that there are several legitimate reasons why an infringer may be aware of a patent that do not rise to the level of willful misconduct required. He also noted that opinions of counsel of non-infringement or invalidity are not required to defeat a claim for enhanced damages. For one thing, they can be extremely expensive and can deter legitimate innovation or otherwise upset the proper balance between the patent laws and promoting the progress of the science and useful arts.

Finally, he noted that enhanced damages are not a mechanism for compensating patentees for litigation expenses or other infringement-related costs. There are difference statutory provisions that address those concerns.

Conclusion

This is yet another case in which the Supreme Court has struck down a bright-line rule or multi-faceted test developed by the Federal Circuit. The Federal Circuit has tended to create these rules and tests in an effort to provide more clarity and certainty in the patent arena, even if these rules and tests lack a strong statutory basis. In contrast, the Supreme Court seems less concerned about clarity and certainty, and is more concerned in treating the patent laws like any other area of the law. It has repeatedly rejected efforts by the Federal Circuit to treat the patent laws as somehow different than other laws or not bound by the same rules and procedures. The Halo decision is another decision that brings the patent laws closer to the rest of the law.

Supreme Court Upholds Brulotte Rule Preventing Post-Expiration Patent Royalties

by: Robert Wagner, intellectual property attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

In a 6-3 decision authored by Justice Kagan, the United States Supreme Court in Kimble v. Marvel Entertainment, LLC (No. 13-720) upheld the long-standing rule previously announced in Brulotte v. Thys Co., 379 U. S. 29 (1964), that patentees cannot charge royalties for the use of an invention after the patent covering the invention has expired. Justice Alito, joined by Chief Justice Roberts and Justice Thomas, dissented and would have abolished the rule announced in Brulotte.

We previously discussed the Ninth Circuit’s decision in this case here.

Background

Web BlasterIn 1990, Kimble developed a web-shooting toy that allowed children to shoot foam strings from their hands like Spider-Man. He obtained a patent (U.S. Pat. No. 5,072,856) on his invention and offered it to Marvel Entertainment. Marvel declined, but soon afterwards came out with a similar toy. Kimble sued Marvel for patent infringement, and the parties ultimately settled the case. As part of the settlement, the parties entered into a license agreement that provided an up-front lump sum payment to Kimble along with a perpetual 3% royalty.

Some time later, Marvel discovered the Brulotte decision, which neither side was aware of during the settlement discussions, and moved for a declaration that its obligation to pay royalties expired when the patent expired. The district court, citing Brulotte, sided with Marvel, as did the Ninth Circuit. The Ninth Circuit, however, criticized the rationale of Brulotte, and the Supreme Court took up the case.

Analysis

The patent statute provides that patent owners have exclusive rights to the use and sale of their inventions for a limited period of time. Once that time expires, the invention falls into the public domain and can be used freely by anyone in this country.

The rule in Brulotte was announced as a way of preventing patent owners from extending their exclusive rights beyond the lifetime of the patent. The concern was that patent owners could use license agreements to force others to pay royalties long after the patent expired, which would artificially extent the lifetime of the patent.

Recently, economists have challenged the anti-competitive basis for the Brulotte ruling and noted that in some instances, allowing post-expiration royalties allows the user to obtain lower royalty rates (albeit spread out of a longer time), which can be pro-competitive behavior.

Justice Kagan, writing for the majority, ultimately decided that the principle of stare decisis controlled the outcome of the case. Brulotte was decided back in 1964 and represented the Court’s interpretation of the patent statute. In the case of statutory construction issues, the Court is disinclined to reverse itself without a significant reason for doing so. She noted that in the more than 50 years since the decision, Congress has not chosen to use its legislative powers to overrule this decision. She also noted that the economic concerns were far from conclusive.

The majority also noted that there were several ways that parties can construct license agreements that meet the limitations of Brulotte. For instance, parties can agree to spread out payments after the expiration of the patent, as long as the use/sale giving rise to the royalty occurred before the patent expired. Parties can also create hybrid agreements that include royalties for other intellectual property (such as trade secrets) if the royalty amount decreases after expiration of the patent.

In the end, the majority felt that there was not a sufficient reason to overrule Brulotte. Therefore, it affirmed the lower court’s rulings that the post-expiration royalties were barred.

The Dissent

The dissent took a different view. They felt that the economic rationale behind Brulotte was flawed and did not deserve deference. They also questioned the notion that Brulotte was decided by construing the patent statute. Instead, they felt that the decision was improper policymaking that should be overruled.

With respect to the particulars of the this case, they were concerned that the parties negotiated a resolution being unaware of the Brulotte rule, only to have Marvel come in afterwards and upset the prior agreed arrangement once it learned of Brulotte. Had the parties been aware of Brulotte during negotiations, they might have reached a different arrangement.

Conclusion

The Kimble decision does not change the state of the law. In a rather unusual move for the Supreme Court in the patent arena, they have maintained the bright-line rule that patent royalties based on actions that occur after a patent expires are not enforceable. Practitioners should be aware of this rule when crafting royalty agreements to structure them in a way to avoid this issue.

No Good Faith Invalidity Defense to Induced Infringement, Supreme Court Holds

by: Robert Wagner, intellectual property attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

SupremeCourtImage_1The Supreme Court issued another patent law opinion today; this time focusing on whether a good-faith belief that a patent is invalid can be a defense to a claim of induced infringement. In Commil USA, LLC v. Cisco Systems, Inc. (No. 13-896), the Court concluded in a 6-2 decision that the answer is no, reversing the Federal Circuit. Justice Kennedy delivered the opinion for the Court, and Justices Scalia and Roberts dissented. (Justice Breyer took no part in the decision.)

Background

Commil holds a patent relating to short-range wireless networks (Patent No. 6,430,395). It sued Cisco under direct and in6430395 Imageduced infringement theories, contending that Cisco directly infringed by making and using network equipment and induced others to infringe by selling them the network equipment that they used in an infringing manner. Eventually, after significant motion practice, a reexamination at the Patent Office, and multiple trials, Commil prevail on both theories. The Federal Circuit reversed on two grounds. First, it found an error in the jury instructions regarding induced infringement that would have allowed a finding in Commil’s favor based on negligence, instead of actual knowledge. And, second, it found that the district court improperly barred Cisco from arguing as a defense that it had a good-faith belief that the patent was invalid.

The first point was not at issue before the Supreme Court. Only the second issue, whether a good-faith (but ultimately incorrect) belief that a patent is invalid is a defense to a claim of induced infringement. The Supreme Court found that it is not a defense.

Holding

The Court first looked at the induced infringement statute, 35 U.S.C. § 271(b), which provides that “[w]hoever actively induces infringement of a patent
shall be liable as an infringer.” Citing its previous decision in Global-Tech Appliances, Inc. v. SEB S. A., 563 U. S. ___ (2011), the Court stated that to be liable for induced infringement, a patentee must show that the defendant knew both of the patent and that the induced acts constituted infringement of the patent.

Before considering the good-faith defense, the Court took time to specifically reject Commil and the government’s position that induced infringement only requires knowledge of the patent. Under Global-Tech, induced infringement requires both the knowledge of the patent and the knowledge that the induced acts infringe the patent. Therefore, a good-faith belief that there was not infringement can be a defense to induced infringement.

Having dispensed with that argument, the Court next turned to the heart of the matter–whether a good-faith belief that the patent is invalid can be a defense. The Court started with the language of the statute, which only is concerned with infringement, and it noted that patent infringement and invalidity are separate issues. It further considered the effect that allowing such a defense might have on patent owners. Under the Patent Act, all issued patents are presumed valid and to allow such a defense would undermine that presumption and its effect. The Court noted that an invalidity defense is not a defense to infringement; it is a defense to liability (although it did note the truism that an invalid patent cannot be infringed). Finally, the Court was concerned that allowing such a defense would only increase the burdens of litigation.

Taken together, it concluded that knowledge or intent regarding invalidity was not relevant to whether someone induced another to infringe.

Dissent

Justice Scalia, joined by Chief Justice Roberts, dissented. First, they agreed with the majority’s opinion relating to the Global-Tech decision and that induced infringement requires proof that the defendant knew of the patent and knew that the induced acts infringed the patent. They disagreed over the central issue in the case and would have found that a good-faith belief that the patent was invalid is a defense to a claim of induced infringement.

The dissent rejected the majority’s analysis based primarily on the truism that only valid patents can be infringed. If a defendant has a good-faith belief that the patent is invalid, then it would have a good-faith belief that the acts were not causing infringement of a valid patent.

Teva Pharmaceuticals v. Sandoz–Supreme Court Changes Appellate Review of Claim Constructions

by: Robert Wagner, intellectual property attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

SupremeCourtImage_1Yesterday, the Supreme Court issued another opinion in the patent arena in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. (No. 13-854). In this decision, the Court  considered what deference, if any, that appellate courts should have when reviewing a district court’s claim construction. In a 7–2 opinion authored by Justice Breyer (Justices Thomas and Alito dissenting), the Court reaffirmed that appellate courts review claim constructions de novo, but held that underlying factual determinations made by a district court should be reviewed under a clear error standard. Thus, this is somewhat of a mixed bag decision whose practical importance is unclear.

Reasoning of the Court

The Court started off by reaffirming its determination in Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996) that claim construction is a question of law for the courts, even when it may require evidentiary determinations. The Court then noted that Federal Rule of Civil Procedure 52(a) sets the framework for an appellate court’s review of findings of fact made by a district court. Under Rule 52(a)(6), a court of appeals must not set aside a district court’s findings of fact unless they are clearly erroneous. Under the Court’s precedent, this standard applies to all types of factual findings made by a district court, including findings relating to subsidiary and ultimate facts. The Court then found that there was no exception to Rule 52(a) for patent cases, either by statute or based on its case law. Based on this determination, the Court concluded that appellate courts must review factual findings made by a district court during the claim construction process under a clear error standard of review, and not a de novo standard.

Unlike many Supreme Court decisions, the Court then went on and attempted to clarify how appellate courts should review claim constructions from district courts. When a court considers intrinsic evidence to the patent (the patent claims, specification, drawings, and prosecution history) when determining its construction, appellate courts are to review those determinations using a de novo standard of review. However, when a district court considers extrinsic evidence (such as expert testimony), any factual findings related to that extrinsic evidence must be reviewed on a clear error basis. Finally, the ultimate construction is still to be reviewed on a de novo basis, even if it contains issues of fact.

Consequences of the Decision

As with any decision, it is sometimes hard to predict the consequences immediately after the decision issues. But, there are some take-aways from this decision. First, district courts will likely have to do some more work, especially when they are making factual determinations relating to claim construction. District courts will now have to make those findings explicit if they expect the Federal Circuit to give the findings deference.

Second, parties will have to consider whether introducing more extrinsic types of evidence will be beneficial or harmful to their cases. It may be that in certain circumstances a party will feel so confident of its position before a district court that it will want as many factual determinations as possible to support its hoped-for ruling by the district court. On the other hand, if it ultimately loses on construction, those factual findings will make it harder for to argue for reversal. So, parties will need to be careful in thinking about what makes the most sense in their particular circumstance.

Third, it will be interesting to see what the Federal Circuit does. The Supreme Court confirmed that the ultimate decision is still made on a de novo basis. This means that the Federal Circuit may simply accentuate or minimize the factual findings as needed to affirm or reverse based on its own interpretation, which may make little practical difference in the outcomes of cases.

Many claim constructions do not turn on factual findings relating to extrinsic evidence, so this decision is unlikely to radically change how patents are litigated. In the margins, where factual determinations and understandings are truly important, it likely makes sense to give deference to the district court, especially when it had the chance to hear live testimony by experts on disputed issues and to weigh issues of credibility.

For some further initial impressions of the Court’s decision, check on this article on the Patently-O blog, in which Professor Crouch talked with a number of patent law experts for their impressions.

Supreme Court Relaxes Standards for Awarding Attorneys’ Fees in Patent Cases

by: Robert Wagner, patent attorney at the Pittsburgh law firm of Picadio Sneath Miller & Norton, P.C. ()

Law and MoneyAs we noted earlier, the United States Supreme Court has taken a renewed interest in intellectual property and patent cases as of late. In Octane Fitness, LLC v. Icon Health & Fitness, Inc., No. 12-1184, the Supreme Court reversed the Federal Circuit’s long-standing standard for determining whether to award attorneys’ fees to the prevailing party in a patent infringement action. Now, prevailing parties need only show by a preponderance of the evidence that the case was “simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” And, this decision lies in the sound discretion of the trial court.

In Octane Fitness, ICON sued Octane Fitness for infringement of U.S. Patent No. 6,019,710. The district court granted summary judgment in favor of Octane Fitness, but declined to award attorneys’ fees under 35 U.S.C. § 285, finding that the infringement claims were not frivolous, objectively baseless, or brought in bad faith. Octane Fitness appealed, arguing that the Federal Circuit’s standard for awarding fees under § 285 was too restrictive, but the Federal Circuit disagreed. The Supreme Court granted certiorari to clarify the standard.

In a unanimous decision written by Justice Sotomayor, the Supreme Court looked to the statute, which reads in its entirety:

The court in exceptional cases may award reasonable attorney fees to the prevailing party.

Finding that the Patent Act provides no definition or guidance beyond this statement, the Court looked to the common understanding of the term “exceptional” and to when the provision was enacted and the standards that it was meant to codify.

“Exceptional,” the Court found, was meant to encompass things that are out of the ordinary, unusual, or special. The Court further concluded that Congress intended that courts be given discretion to determine when something was exceptional.

Putting these together, the Court held that courts have the discretion to award attorneys’ fees when a case “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”

The Court rejected the Federal Circuit’s more rigid approach of limiting fee awards only when there has been litigation misconduct or if the party’s position was brought in bad faith and was objectively baseless.  Moreover, the Court found no basis to require the prevailing party to prove its entitlement to fees by clear and convincing evidence.

This decision may have substantial consequences going forward in patent cases, for both plaintiffs and defendants. Because the Court has emphasized that this decision is left to the discretion of the trial court, and the standard is much more flexible, one would expect to see more courts awarding fees. In theory, this will act as a deterrent for bringing frivolous patent claims and may reduce some of the more objectionable patent troll cases. But, it may also put more pressure on defendants with weaker defenses to settle, rather than to litigate at all costs. Only time will tell to see what effects come from this decision.

Busy IP Docket for US Supreme Court Upcoming

Sneath, Henry 2012 headshotBy: Henry Sneath, Chair of the Intellectual Property practice at Picadio Sneath Miller & Norton, P.C.  hsneath@psmn.com or 412-288-4013

The US Supreme Court has a very busy IP docket in the next few months. Close watchers of the court predict a continuing focus on IP cases. Our friends at AIPLA provide a nice summary of the oral argument schedule of IP cases through April. We will follow these cases and post any important decisions. See AIPLA link below: http://www.aipla.org/resources2/reports/2014/Pages/140214AIPLA-Direct.aspx

Significant Interest in Alice Corp. v. CLS Bank Int’l Case at Supreme Court

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

SupremeCourtImage_1The Supreme Court granted certiorari in Alice Corp. Pty. Ltd. v. CLS Bank International, (No. 13-298), to address the boundaries of what constitutes patent eligible subject matter under 35 U.S.C. § 101 and, more specifically, whether and to what extent software is patent eligible. We’ve been following this case since it was at the Federal Circuit (see our prior post here) and noted the chaos that emerged from the Federal Circuit’s en banc decision that could not decide on the proper standards for software patent eligibility.

Since Alice Corp. filed its petition for a writ of certiorari, 34 amicus briefs have been filed, indicating the importance of this case to the patent community. (To read the briefs, click here). The briefs have been circulated to the justices, and oral argument is scheduled for March 31, 2014.

As numerous commentator’s have pointed out (see, e.g., here), software has been patent-eligible subject matter for almost 50 years and accounts for a significant number of granted patents. A decision by the Supreme Court that software is not patent eligible would have huge repercussions throughout the patent and software worlds. We will be monitoring the case and will report on the oral argument, once it occurs.

Supreme Court Holds That Reverse Payments May Give Rise to Antitrust Violations

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

SupremeCourtImage_1Today, the United States Supreme Court in a 5-3 decision authored by Justice Breyer in Federal Trade Commission v. Actavis, Inc., No. 12-416, held that reverse payments by a patent holder to an accused infringer to settle a patent infringement lawsuit may implicate antitrust concerns and may be actionable. The Court declined to find that such payments are either per se actionable or immune from the antitrust laws. Instead, such payments must be analyzed under a “rule of reason” approach.

The case arose out of a “paragraph IV” patent infringement lawsuit brought by a pharmaceutical manufacture (Solvay Pharmaceuticals) against a generic manufacturer (Actavis). Solvay  filed a New Drug Application in 1999 for a brand-name drug called AndroGel that is used in testosterone replacement therapy. In 2003, Solvay obtained a patent covering the drug, which was disclosed to the FDA. Later in 2003, Actavis filed an Abbreviated New Drug Application for a generic equivalent to AndroGel, and asserted, under paragraph IV of the Hatch-Waxman Act, that it did not infringe Solvay’s patent because the patent was invalid and it did not infringe. Solvay promptly filed suit alleging infringement under 35 U.S.C. § 271(e)(2)(A).

In 2006, the parties settled the litigation. Actavis agreed to not bring its generic drug to market until 2015 (which was 65 months prior to the expiration of Solvay’s patent) and to promote AndroGel to urologists. In return, Solvay agreed to pay Actavis $19–$30 million annually for nine years. Solvay reached similar agreements with other generic manufacturers.

The Federal Trade Commission found that the settlements were designed primarily to limit competition in the marketplace. In essence, Solvay was simply paying the generic manufacturers to stay out of the marketplace, which would have the side effect of increasing prices for consumers. The FTC then brought an antitrust lawsuit against the drug manufacturers.

The District Court found that the FTC’s allegations did not state a claim under the antitrust laws and dismissed the case. The Eleventh Circuit affirmed. They held that absent an allegation of sham litigation, it was not an antitrust violation to reach these kinds of settlements when the restrictions expired prior to the expiration of the patent in question.

Justice Breyer, writing for the majority, disagreed with the Eleventh Circuit’s blanket rule based on the expiration date of the patent. Instead, the Court held that courts must use a “rule of reason” approach and consider the purpose behind the settlement before they can determine whether the settlements run afoul of the antitrust laws.

In reaching this conclusion, the Court considered that the patent may, in fact, not be valid, and there is a strong public interest in removing invalid patents that is frustrated if these kinds of settlements are allowed. The Court also considered the unusual nature of these settlements—where a patent holder pays substantial amounts to the accused infringer. This was not a case where the two parties met in the middle on a settlement figure or where the accused infringer had more valuable counterclaims. Finally, the legislative history behind the Hatch-Waxman Act suggested that Congress was not attempting to justify settlements like these.

The Court also considered the countervailing interest of encouraging settlements and allowing parties to reach mutually-agreeable resolutions. Despite that important interest, the Court was not willing to create blanket immunity for these kinds of settlements. It was concerned that these settlements have a very real potential to hinder competition.

The Court will also quick to note that it would not hold such reverse payment settlements as per se violations. It recognized that some reverse payments may be justified because they save litigation costs, allow for increased distribution of the drug, or will help develop new markets. In the end, the relevant question for antitrust purposes is why did the parties enter the agreement? “If the basic reason is a desire to maintain and to share patent-generated monopoly profits, then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.”

The Court then remanded the case back for further proceedings. Justices Breyer wrote the opinion of the Court and was joined by Justices Kennedy, Ginsburg, Sotomayor, and Kagan. Chief Roberts dissented and was joined by Justices Scalia and Thomas. Justice Alito took no part in the decision.

Supreme Court Rules That Genes Are Not Patentable Subject Matter

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

SupremeCourtImage_1Today, the United States Supreme Court unanimously ruled in Association for Molecular Pathology v. Myriad Genetics, Inc., No. 12-398, that a naturally-occurring DNA segment (or gene) is not patent eligible even if it has been isolated from a genome (reversing the Federal Circuit). The Court also ruled that cDNA (complementary DNA) is patent eligible because it is not naturally occurring (affirming the Federal Circuit). Justice Thomas wrote the opinion for the unanimous Court, and Justice Scalia wrote a short concurrence. We have been following this case for some time (see herehere, and here).

The Court began by restating its position that laws of nature, natural phenomena, and abstract ideas are not patentable subject matter under 35 U.S.C. § 101. The question for the Court was whether Myriad’s patents claimed any new and useful composition of matter.

To answer this question, the Court looked at what Myriad claimed. With respect to the DNA claims, Myriad claimed the DNA segment it found in nature, and it did not change or alter any of the genetic information in that segment. Because it claimed something naturally found in nature, it was not patent eligible subject matter.

With respect to the cDNA claims, the Court reached a different result. The cDNA is not found in nature, but is created in the laboratory. This key difference meant that it was patent eligible subject matter. The Court did not address whether these claims met the other requirements of the patent statute, such as §§ 102, 103, and 112.

The Court was also very clear on what it was not deciding in this case. There were no method claims at issue, such as an innovative method for manipulating genes. Similarly, there were no  claims directed to how this new knowledge might be applied to achieve some useful result. The Court suggested (without holding) that those types of claims would be patent eligible. Finally, it noted that the claims were not directed to naturally occurring genetic code that had been altered to create some new and not natural DNA. The Court refused to suggest how it might address claims like those.

In the end, the Court stated that “[w]e merely hold that genes and the information they encode are not patent eligible under § 101 simply because they have been isolated from the surrounding genetic material.”