Category: Case Summary

Patent Term Adjustment: PTO Rule Change via the Courts

In Exelixis, Inc. v. Kappos in the Eastern District of Virginia, Judge Ellis stated that the USPTO’s interpretation of the patent term extension for length of pendency is incorrect.

The rule that controls patent term adjustments for application pendency is  35 USC § 154(b), and section  35 USC §154(b)(1)(B)(i) states:

(B) GUARANTEE OF NO MORE THAN 3-YEAR APPLICATION PENDENCY.- Subject to the limitations under paragraph (2), if the issue of an original patent is delayed due to the failure of the United States Patent and Trademark Office to issue a patent within 3 years after the actual filing date of the application in the United States, not including-

(i) any time consumed by continued examination of the application requested by the applicant under section 132(b)

The Patent Office has interpreted this to mean that an RCE ends the term adjustment for delay by the Patent Office under Section B, regardless of when that RCE was filed.

Judge Ellis said this interpretation is contrary to the plain reading of the statute.  The court stated that the statute was not ambiguous, and its interpretation was very strong.  The court concluded:

The plain and unambiguous language of subparagraph (B) requires that the time devoted to an RCE tolls the running of the three year clock if the RCE is filed within the three year period. And, put simply, RCE’s have no impact on PTA if filed after the three year deadline has passed.

Though this decision may be appealed, it is significant.  Exelixis got a 114 day additional term for its patent.  Many other long-pending patents would likely receive equally large if not larger adjustments.

Patent owners can request a recalculation of the PTO’s Patent Term Extension for two months after a patent issues. The Request must be filed as described in MPEP 2735.

Therefore, my recommendation is that you review all patents that have issued in the last two months, and calculate the new patent term adjustment.  For older patents, you have up to six months to appeal the determination to the District Court, so if you have a key patent that may get a few more years validity, this path may be an available option.

The new simple term extension calculation is as follows.  First, determine whether your patent was pending for more than three years.  If so, check whether an RCE was filed within the three years.  If no RCE was filed in the first three years, then your patent term adjustment should be a day-for-day adjustment from the expiration of the three year period, until your patent actually issued.

I will update this post if an appeal is filed.

Patent License, Signed prior to Litigation, Cannot Prohibit Challenge of Patent Validity

The Second Circuit said, RATES TECHNOLOGY INC v. SPEAKEASY INC and others,  Tuesday that patent licensing agreements reached before litigation cannot be used to bar a licensee from later challenging the validity of a patent, even if the deal is called a legal settlement.  The court held that such an agreement, signed after accusations of infringement but before litigation, is void for public policy reasons under the Supreme Court’s decision in Lear, Inc. v. Adkins, 395 U.S. 653 (1969).

Rates Technology Inc. (RTI) notified Speakeasy that it believed Speakeasy was infringing its patents and offered to release Speakeasy from liability in exchange for a one-time payment.  It used a standard tiered pricing structure based on the size of the accused infringer measured by its annual sales.  RTI and Speakeasy entered into a Covenant Not to Sue, with a one-time payment of $475,000.  In addition to acknowledging the validity of the patents in question, and agreeing not to challenge their validity, the Convenant also included a liquidated damages clause, which said that Speakeasy would pay $12M if they assisted in any such challenge.

Subsequently, Speakeasy, then owned by Best Buy, was somehow affiliated with Covad.  When RTI asked Covad to license those same patents, Covad filed a Declaratory Judgment action.  RTI countersued, for violation of the Convenant not to Sue based on an allegation that Speakeasy and Best Buy assisted Covad in filing the DJ action.

The court noted that consent decrees, agreed to after the commencement of litigation, would estop future challenges to a patent’s validity.  Furthermore, they approvingly cite Flex–Foot, Inc. v. CRP in which the Federal Circuit held that a settlement, even without the entry of a consent decree, would likely not violate public policy.

Weighing for not holding the clause enforceable was that “neither side filed a lawsuit, and thus Speakeasy never had the opportunity to conduct discovery regarding the validity of RTI’s patent.”  The court noted that this meant that the defendant did not have a full opportunity to assess the validity of the patent, and there is no evidence that they had a genuine dispute.

As RTI argued, this may lead to more “sham litigation” in which a patent holding company files a lawsuit, prior to allowing a consent decree/settlement agreement, to ensure that its questionable patents’ validity not be challenged.  Given the enormous cost of patent litigation, defendants will have the incentive to settle, with a consent decree, to avoid the costs of litigation.  Whether or not a settlement filed prior to discovery will be sufficient to block later validity challenges remains an open question.

 

 

 

 

ITC Can Block Imports for Trade Secret Misappropriation Outside the United States

ITC can block imports for trade secret misappropriation outside the United States

In Tian Rui Group v. ITC, the Court of Appeals for the Federal Circuit ruled that the International Trade Commission (ITC) can prevent the importation of products made by a trade secret process misappropriated abroad, if the trade secret was developed in the United States.

In this case, Amsted (and American company) uses a trade secret process to make railway wheels. They license a different process to companies in China and elsewhere. Tian Rui hired former employees of Amsted, in China, to learn Amsted’s secret process. They made wheels, using the secret process, and shipped them to the U.S.

Amsted asked the ITC to block Tian Rui’s importation of the wheels produced by this trade secret method. The ITC issued an exclusion order, which was appealed to the CAFC.

The ITC relied on 19 U.S.C. § 1337(a)(1)(A) which provides the ITC authority over “Unfair methods of competition and unfair acts in the importation of articles . . . into the United States” if it will substantially injure and industry in the U.S. The ITC previously has used this section to bar products based on a variety of non-statutory unfair acts, including trade secret misappropriation. However, this was a case of first impression, with respect to actions taking place entirely outside the United States.

The CAFC, in a 2-1 decision (Bryson & Schall for the majority, Moore dissenting) ruled that while U.S. laws generally do not apply extraterritorially (e.g. outside the United States), the prevention of domestic injury from importation of products made using unfair methods justifies applying the statute to such acts.

The court further held that unfair competition bed actions are Federal, and thus ruled by federal law. Since the statute addresses importation, and provides a remedy in the ITC, federal rules should apply. By federalizing trade secret law, they could reach the conclusion, without expressly suggesting that U.S. trade secret law has extraterritorial reach. The court also noted that the statute does not require the use of the trade secret in the United States.

This ruling, which may yet be appealed, gives a powerful new weapon to U.S. companies, who face unfair competition from abroad. Since the law relied upon is not limited to trade secret misappropriation, the impact of the ruling may be quite broad.

If you believe that a product that is being imported by a competitor was produced using unfair acts, you may consider going to the ITC for a faster path to removing that competing product from the U.S. market. Keep in mind that the ITC judgment does not result in damages awards, but in exclusion orders.

Legal Challenge to End of False Marking Claims in America Invents Act

The first challenge to the America Invents Act is against the termination of the private right to enforce false marking. The end to false marking, providing that the only private litigants with a claim are competitors who can show actual harm, became effective immediately after President Obama signed the America Invents Act. It applied to all cases, including those pending. Since then, numerous cases have been dismissed, including some sua sponte.

Ken Brooks had a pending case against Dunlop Manufacturing, in the Northern District of California, San Francisco for false marking, filed back in 2010. In response to Dunlop’s Motion to Dismiss, under the new America Invents Act rules, Mr. Brooks brings a constitutional challenge to the AIA. In his memorandum Mr. Brooks states that he relied upon the statutory right which existed prior to the passage of the AIA, and that this destroyed an existing property interest. He cites to U.S. ex re. Stevens v. State of Vermont Agency of Natural Resources (162 F.3d 195, 2nd Circuit 1998) which held that qui tam plaintiffs have a private property interest in the outcome of such cases.

While the brief is written rather flamboyantly, and likely to appeal to lay readers not the judge, the point is interesting. Mr. Brooks did in fact invest some amount of money in pursuing this case, in the clear expectation of recovery, if he could prove a violation of the false marking act.

Of course, the Supreme Court held unanimously in the United States v. Carlton that retroactive tax laws were constitutional, thus making it unlikely that Brooks would succeed in his claim.

Furthermore, there are at least two cases that held that qui tam actions for false marking are unconstitutional, prior to the passage of the America Invents Act. This may mean that the court would find the act a mere clarification of an existing standard.

The more interesting question is whether, if any challenge is successful, the entire statute would be thrown out, since the America Invents Act does not include a severability clause.

Via Greg Aharonian‘s eponymous newsletter.

Zynga v. Vostu Update

As I mentioned in my prior post, the US judge in this case slapped a temporary restraining order on Zynga, so they could not enforce a Brazilian injunction against Vostu. The Brazilian injunction was obtained without a full hearing, and without notifying Vostu, in Brazil, after Zynga sued Vostu in the US court.

The Brazilian order has been stayed by the Brazilian court, while Vostu appeals. The US judge has therefore disolved the TRO, and said that no injunction is likely to be forthcoming. Zynga filed a stipulation with the court in which it said it would not pursue the recovery of any damages in Brazil that were recoverable in the U.S. litigation.

The two cases are going on in parallel again, but the US court has the damages issue in hand. Given that Zynga will not pursue damages in Brazil, they may choose to stop litigation there.

Be careful where you file your case: A Lesson from Zynga v. Vostu

If you look at the pictures you will see why Zynga said “ it is one thing to be inspired by Zynga games, but it is entirely different to copy all of our key product features…”

Vostu’s purpose, according to Zynga is to copy literally every feature of every Zynga game.

Zynga sued Vostu in District Court in California, on June 16th.

Then, they filed another lawsuit on August 2nd in Brazil, Vostu’s home country. The Brazilian judge granted an injunction quickly, telling Vostu it had to shut down its games within 48 hours.

The U.S. District Judge, Edward Davila was not amused. He issued an order restraining Zynga from enfordcing the Brazilian decision. In particular, he noted “Zynga—which chose the U.S. forum first—now seeks to enforce an injunction it obtained abroad that would paralyze this Court’s ability to decide this case.”

So, while Zynga won a round in Brazil, their decision to file the case initially in the U.S. prevents them from enforcing the Brazilian court’s decision.

Lesson learned: Choose your jurisdiction carefully. Especially when looking for an injunction, consider finding a fast jurisdiction, and filing there first. U.S. judges will not look kindly upon a later suit impacting their jurisdiction.

Reviving the Non-Analogous Art Argument

In their first case since the Supreme Court’s KSR v. Teleflex (2007) decision, the Federal Circuit strongly re-affirmed the rule that obviousness cannot be based on references from non-analogous art in the precedential opinion of In re Arnold G. Klein.  Surprisingly, the opinion did not even mention KSR.

Continue reading “Reviving the Non-Analogous Art Argument”

Declaratory Judgment and the Supplier

A unanimous three judge panel of the Federal Circuit found in Arris Group v. British Telecommunications (decided May 19, 2011) that if a supplier’s customer is accused of infringement, there may be sufficient Article III case or controversy for a declaratory judgment action by the supplier, even if the supplier was never directly accused of infringement.

In this case, BT contacted a customer of Arris Group (Cable One), claiming they infringed a patent, and pointed to their use of Arris products specifically. There were a series of communications, discussing Cable One’s use or non-use of BT’s patents. Arris then filed for Declaratory Judgment.

The lower court found that Arris did not have standing, since there was no Article III case in controversy, because there was no adverse legal relationship, or reasonable apprehension of imminent suit.

The Federal Circuit reversed the lower court, and relied on MedImmune’s standard of “the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” MedImmune, 549 U.S. at 127.

Arris’ argument that it had standing because it suffered an economic injury, because of the likelihood that its customer would stop using its product, was quickly discarded. The Federal Circuit noted that MedImmune affirmed that economic injury alone is not sufficient to confer standing, and that an “adverse legal interest” was still required.

However, the unanimous court then turned around and stated that while the economic injury of having a customer accused of infringement is insufficient, the risk of contributory infringement charges is enough to provide standing for a declaratory action.  The court also noted the numerous communications between BT and Arris, and the fact that Arris was “directly and substantially involved in BT’s infringement and licensing negotiations.”

If you are a company accusing someone of infringement, be aware of the risk of an implied assertion that the supplier is committing contributory infringement.  If your communications imply such contributory infringement, and you communicate directly with that supplier, you are quite likely opening yourself up to a declaratory judgment suit.

Instant Messaging Considered Sufficient for Changing Contract Terms

A district court in Florida found in CX Digital v. Smoking Everywhere that a communication via instant messenger between company representatives was sufficient to modify the terms of the contract.

In this case, CX Digital was a referrer who had a contract with Smoking Everywhere to refer a maximum of 200 customers per day to their site, for an agreed-upon payment. In an Instant Messenger communication with the Vice President of Advertising, CX Digital asked about the removal of the limit. The VP agreed stating “No Limit.” This was held by the court to be sufficient to modify the contract terms, and bind Smoking Everywhere to the same per referred client payment for an unlimited number of referrals.

Lesson for in-house folks: Train your people that use IM, and realize that it’s not considered oral communication. And pro-actively, put in your contracts that instant messaging, voicemail, blog posting, or oral communications are insufficient to alter the contract.

h/t: Eric Goldman’s post