Our business model is to cultivate lawyers who know all there is to know about intellectual property, whether it be special requirements under the America Invents Act (AIA), patenting chemical compositions and pharmaceuticals, current developments in software patenting, or combating “bad patents” in federal court litigation.
On May 31, the Federal Circuit yet again demonstrated that a cohesive approach to determining patent eligibility under Section 101 continues to evade the patent bar and the bench.
By way of recap, the panel in Berkheimer v. HP stated that a determination of patent eligibility under Section 101 is a question of law based on underlying facts, and therefore the district court’s grant of summary judgment was improper as to some of the challenged claims.
In Aatrix Software v. Green Shades, the panel likewise held that factual issues underlying Section 101 precluded a dismissal under Rule 12(b)(6). Petitions for en banc review were filed in both cases. The Federal Circuit then denied both en banc petitions.
The en banc hearing decision, although per curium, is notable based on the issuance of concurring opinions by Judge Moore (joined by Dyk, O’Malley, Taranto and Stoll) and Judge Lourie (joined by Judge Newman), as well as a dissenting opinion by Judge Reyna. It is clear from the opinions that the proper approach under Section 101 is very much unsettled even among the Judges.
Although the vote tally was not released, the opinions suggest that Judges Lourie, Newman and Reyna believe that further guidance on Section 101 is warranted. Judges Moore, Dyk, O’Malley, Taranto and Stoll seem to be okay with the status quo and do not believe that Berkheimer or Aatrix dramatically change the Mayo/Alice analysis (note: Moore, Taranto and Stoll decided Berkheimer, Judges Moore, Reyna and Taranto decided Aatrix, with Reyna dissenting in part).
There are no tea leaves to read as far as Judges Wallach, Hughes, Prost and Chen as they did not sign onto an opinion.
Judge Moore: Federal Circuit is a Special Court but does not have Special Rules
Judge Moore wrote to underscore that the panel decisions “stand for the unremarkable proposition that whether a claim element or combination of elements would have been well-understood, routine, and conventional to a skilled artisan in the relevant field at a particular point in time is a question of fact.” Judge Moore helpfully provided a guide to validity challenges, noting “[e]very other type of validity challenge is either entirely factual (e.g., anticipation, written description, utility), a question of law with underlying facts (e.g., obviousness, enablement), or a question of law that may contain underlying facts (e.g., indefiniteness).”
For Federal Circuit watchers, Judge Moore noted that patent challenges under Section 101 are an invalidity challenge, and it “would be odd to suggest” otherwise. Specifically, the second step under Mayo and Alice is a factual inquiry. Because this is a factual inquiry, Judge Moore noted that procedural and evidentiary issues are decided based on the normal rules set forth in the Federal Rules of Civil Procedure and Federal Rules of Evidence.
In making this point, Judge Moore noted (perhaps humorously) that “[t]hough we are a court of special jurisdiction, we are not free to create specialized rules for patent law that contradict well-established, general legal principles.” Thus, as applied to Berkheimer, the absence/presence of issues of genuine material facts properly governed the partial grant and denial of summary judgment.
As applied to Aatrix, because Rule 12 requires the court to accept Plaintiff’s factual allegations as true, the presence of factual issues precluded dismissal under Rule 12(b)(6). Judge Moore noted, however, that neither Berkheimer nor Aatrix categorically stand for the proposition that Section 101 cannot be determined on a motion to dismiss or summary judgment (and noted recent affirmances of summary dispositions).
Judge Lourie: Somebody, save the baby!
Judge Lourie, in what will likely be cited in a cert petition, wrote to indicate that Section 101 issues “require attention beyond the power of this court” and “need clarification by higher authority, perhaps by Congress.” Judge Lourie does not take issue with the general proposition that patent protection should not be extended to laws of nature, natural phenomena, natural products, abstract ideas and principles. However, as Judge Lourie notes, the devil is in the details, and the two-step Mayo/Alice test has transformed “what used to be a fairly simple analysis” into a “complicated multiple-step consideration.”
Specifically, Judge Lourie questioned the need for step two, pointing out that if an idea has “something more” then by definition it is not an abstract idea, and the inquiry ends at step one. In closing, Judge Lourie implored “higher intervention” to address the Section 101 analysis “hopefully with ideas reflective of the best thinking that can be brought to bear on the subject.”
Judge Reyna: The Sink is broken. We need to fix it.
Judge Reyna dismissed the majority’s “move along, there’s nothing to see here” approach to the “exceptional importance” of the Section 101 issues. Accordingly to Judge Reyna, the panel decision reduced the Mayo/Alice step two inquiry “into what is routine and conventional, rather than determining if an inventive concept expressed in the claims transforms the nature of the claims into a patent eligible application.” Judge Reyna noted that the bar has struggled to comprehend the panel decisions. He believed an en banc hearing was required in order to provide the patent bar with meaningful guidance.
Notably, Judge Reyna faulted the Aatrix decision that step two cannot be resolved on a motion to dismiss record as being “wholly unmoored” from established precedent holding that Section 101 eligibility is a matter of law. Judge Reyna believed that a Section 101 analysis is “analogous to contract interpretation” and thus should be decided based on the specification and the claims without resort to extrinsic evidence (unlike the Section 102/103 analysis).
Judge Reyna further warned that “the consequences of this decision are staggering” and that juries should not be deciding “whether a patent includes an inventive concept sufficient to survive Alice step two.”
Employee Agreements are important documents that define the obligations and expectations of both employees and employers. It is important to revisit such important documents on a regular basis to ensure that the provisions of your employee agreement reflect the current state of the law and best practices.
One area of an employee agreement that can be over-looked, or perhaps misunderstood, is intellectual property. Intellectual property, however, can be one of the most valuable assets of a company and should not be glossed over.
Below are three provisions of an employee agreement that may be missing or could use a tune-up.
Present Invention Assignment Clause
Does your employee agreement include a present assignment of an employee’s rights in inventions or just a future promise to assign? Rather than relying solely on a statement in an employee agreement that an employee “agrees to assign” or “will assign” his or her rights in inventions to the company, an employee agreement should actively state that the employee “hereby assigns” his or her rights in inventions to the company. The Federal Circuit has stated that such language can automatically assign an employee’s rights in inventions without the need for an additional act.
Invention Assignment Carve-out
You may be tempted to cast a wide net and draft an invention assignment clause that attempts to broadly assign all inventions of an employee to the company. Such broadly worded clauses can run afoul of state laws that require limitations to invention assignment clauses in employee agreements. The limitations described in some state laws can require that an employer provide notice to an employee that inventions made without company resources and/or that do not relate to a company’s business are not covered under the invention assignment clause of an employee agreement. States that have restrictions on invention assignment clauses in employee agreements include California, Delaware, Illinois, Kansas, Minnesota, Nevada, New Jersey, North Carolina, Utah and Washington. While states requiring restrictions are still in the minority, you may want to revisit the scope of an invention assignment clause in your employee agreement or risk that the clause be held enforceable.
The Defend Trade Secrets Act (DTSA) was passed into law in May of 2016. The DTSA creates federal and private causes of action for the misappropriation of trade secrets. The DTSA further requires employers to provide a notice of whistleblower immunity. The notice must state that no individual may be held civilly or criminally liable for the disclosure of a trade secret so long as the disclosure is made in confidence to a government official or to an attorney for the purpose of investigating a suspected violation of law or if the disclosure is filed in a lawsuit under seal. If the employer fails to provide such notice, the employer may not be awarded exemplary damages or attorney fees under the DTSA. Such notice can be included in an employee agreement to satisfy this requirement. In the event that the notice required by the DTSA is not provided, however, similar remedies may be available under the Uniform Trade Secrets Act (UTSA).
Contact your intellectual property attorney to review your employee agreement(s) for the above-noted provisions and other provisions that may need updating. As with all important legal documents, maintain a record of employees that have executed such documents and a repository for the signed copies.
July 6 is National Fried Chicken Day. Who decides such things? Apparently no one, or perhaps more accurately, anyone. For those needing outside validation, the people at the National Day Calendar are more than happy to endorse your declaration and put it on their calendar.
Assuming the bona fides of National Fried Chicken Day, a patent lawyer’s mind turns to Colonel Harland Sanders, who obtained two patents on his methods and apparatus for preparing fried chicken.
The first is U.S. Patent No. 3,156,177 on Food Preheating, Cooking and Warming Device:
Second, we have U.S. Patent No. 3245800 on Process of Producing Fried Chicken Under Pressure:
These are not just the patents of the day, but the patents of National Fried Chicken Day.
In Apple Inc. v. California Institute of Technology, IPR2017-00297, Paper 66, (June 29, 2018), the Patent Trial and Appeal Board (PTAB), en route to finding claims 19-21 of U.S. Patent No. 7,916,781 invalid, also denied the Patent Owner’s Motion for Sanctions. Patent Owner’s Motion (Paper 40) complained that “[d]uring cross-examination of Caltech’s witnesses, Dr. Mitzenmacher and Dr. Divsalar, Petitioner repeatedly failed to stay within the proper scope” which “violated numerous Board rules and orders, and was an abuse of the discovery process.”
Patent Owner noted that the cross examination of Dr. Divsalar’s 16-page declaration generated over 280 pages, and a wide range of topics. In sign of excellent witness preparation, “Dr. Divsalar reminded counsel over 100 times that questions were being directed to subject matter not discussed in his declaration.” Patent Owner had similar, but not as extensive complaints about the cross examination of Dr. Mitzenmacher, who was Patent Owner’s primary witness and submitted four declarations.
During a conference call, the Board indicated that “a typical remedy is to give no weight to such improperly elicited testimony,” but Patent Owner correctly pointed out in its motion that without further sanctions, “future parties will not be deterred from flouting the Board’s rules when the only risk is not gaining an advantage.”
In its Final Written Decision, the Board found that sanctions were not warranted because petitioner’s attempts to elicit testimony, “while inartful,” did not rise to the level of sanctionable conduct because they were reasonably related to the direct testimony. Ultimately, the Board adopted a no-harm, no-foul policy, finding sanctions unwarranted because Patent Owner suffered no harm.
In Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., [2016-2691, 2017-1875] (July 3, 2018), the Federal Circuit affirmed the district court’s judgments of infringement of U.S. Patent Nos. 6,212,079 and 6,538,908, but concluded that the entire market value rule cannot be used here to calculate damages, and therefore vacated the damages award and remanded for further proceedings.
The patents in suit related to power supply controller chips used in power supplies, such as chargers for electronic devices. While the case was pending in the district court, the Federal Circuit in VirnetX, Inc. v. Cisco Systems, Inc. explained that simply identifying the smallest salable unit is not necessarily sufficient to satisfy a patentee’s obligation to apportion for multi-component products with significant unpatented features.
Because Power Integrations’ royalty calculation in the first trial did not apportion beyond the “smallest salable unit,” and Power Integrations had disclaimed reliance on the entire market value rule, the district court granted a new trial on the issue of damages. The district court excluded Power Integrations’ expert testimony based on apportionment, but allowed its expert to present testimony based on the entire market value rule. The jury awarded $139.8 million in damages based on damages testimony that relied solely on the entire market value rule. The district court denied Fairchild’s motion for judgment as a matter of law or, in the alternative, for a new trial.
The Federal Circuit affirmed infringement of U.S. Patent No. 6,212,079 finding the verdict supported by substantial evidence, noting that the jury could have properly concluded that the claim terms “fixed frequency” and “non-varying” left open the possibility for minor frequency variations due to operating conditions.
The Federal Circuit also affirmed infringement of U.S. Patent No. 6,538,908 under the doctrine of equivalents, agreeing that adjusting a voltage limit of a power switch was an infringing equivalent of adjusting a current limit of a power switch. The Federal noted that Circuit Power Integrations’ expert testified that a value of voltage qualifies as a “value of current” because, under Ohm’s Law, current is equal to voltage divided by resistance.
The Federal Circuit also affirmed that equivalence was not precluded by prosecution history, and in particular to arguments distinguishing current and voltage in another application sharing the same specification. The Federal Circuit said that the claim language on its face is different than the language of the claims to which the prosecution argument was directed, and concluded that Fairchild failed to establish that the prosecution history is sufficiently clear as to create an estoppel.
On the issue of damages, the Federal Circuit agreed with Fairchild that the district court should have granted the new trial motion. The Federal Circuit said that a patentee is only entitled to a reasonable royalty attributable to the infringing features, and must in every case give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features. In the context of a utility patent, it is only the patented technology that is taken from the owner, so the value to be determined is only the value that the infringing features contribute to the value of an accused product.
Where multicomponent products are accused of infringement, the royalty base should not be larger than the smallest salable unit embodying the patented invention. Use of the entire market value of a multi-component product that includes a patented component cannot help but skew the damages horizon for the jury, regardless of the contribution of the patented component to this revenue. The Federal Circuit said that Admission of evidence of the entire market value only serves to make a patentee’s proffered damages amount appear modest by comparison, and to artificially inflate the jury’s damages calculation beyond that which is adequate to compensate for the infringement.
The Federal Circuit noted that the entire market value rule allows for the recovery of damages based on the value of an entire apparatus containing several features when the feature patented constitutes the basis for consumer demand. However, if the product has other valuable features that also contribute to driving consumer demand — patented or unpatented — then the damages for patent infringement must be apportioned to reflect only the value of the patented feature.
In the present case, both parties agreed that the accused products contained other valuable features as well, yet Power Integrations presented no evidence about the effect of those features on consumer demand or the extent to which those features were responsible for the products’ value.
The Federal Circuit said that the entire market value rule is appropriate only when the patented feature is the sole driver of customer demand or substantially creates the value of the component parts. It is not enough to merely show that the patented feature is viewed as essential, that a product would not be commercially viable without the patented feature, or that consumers would not purchase the product without the patented feature. The Federal Circuit said that when the product contains other valuable features, the patentee must prove that those other features did not influence purchasing decisions.
Because the evidence presented by Power Integrations was insufficient as a matter of law to invoke the entire market value rule, the Federal Circuit vacated the award of damages and remand for a new trial.
In Aatrix Software, Inc. v. Green Shades Software, Inc., [2017-1452] (June 1, 2018), the Federal Circuit denied rehearing en banc of the panel decision. Judge Moore, concurring, explained that Aatrix stands for the unremarkable proposition that whether a claim element or combination of elements would have been well-understood, routine, and conventional to a skilled artisan in the relevant field at a particular point in time is a question of fact.
As this is a factual question, the normal procedural standards for fact questions must apply, including the rules in the Federal Rules of Civil Procedure applicable to motions to dismiss or for summary judgment and the standards in the Federal Rules of Evidence for admissions and judicial notice.
Turning to the case at hand, Judge Moore noted that when patent eligibility is challenged in a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), the Court must apply the well-settled Rule 12(b)(6) standard which is consistently applied in every area of law: A motion to dismiss for failure to state a claim must be denied if “in the light most favorable to the plaintiff and with every doubt resolved in the pleader’s favor — but disregarding mere conclusory statements — the complaint states any legally cognizable claim for relief.”
Judge Moore noted that the second amended complaint in Aatrix included “concrete allegations … that individual elements and the claimed combination are not well-understood, routine, or conventional activity” and that nothing in the limited record at the Rule 12(b)(6) stage refuted these allegations, so there was no legal basis to affirm the dismissal of the complaint.
In Royal Crown Company, Inc. v. The Coca-Cola Company, [2016-2375] (June 20, 2018), the Federal Circuit vacated the TTAB’s dismissal of Royal Crown’s opposition to Coca-Cola’s registration of various ZERO marks for soft drinks and sports drinks including the term ZERO.
Noting that Royal Crown did not offer direct consumer evidence (surveys or testimony), nor did it offer dictionary evidence linking ZERO to soft drinks, offering only indirect evidence of competitor use of ZERO, the Board concluded that Royal Crown had failed to demonstrate that ZERO is generic for the genus of goods. On the issue of descriptiveness, the Board found the evidence, including a five year old survey, indicated that ZERO had acquired distinctiveness.
On appeal, the Federal Circuit concluded that the Board erred in its legal framing of the genericness inquiry in two ways: it failed to examine whether ZERO identified a key aspect of the genus at issue, and it failed to examine how the relevant public understood the brand name at issue when used with the descriptive term ZERO.
The Federal Circuit further found that that the Board should have first assessed the level of the marks’ descriptiveness before determining whether Coca-Cola had shown acquired distinctiveness, because absent such a finding, it would not be possible to review whether the evidentiary record can support a finding of acquired distinctiveness.
On genericness, the Federal Circuit said the critical issue was whether members of the relevant public primarily use or understand the term sought to be protected to refer to the genus of goods or services in question. The Federal Circuit said that evidence of the public’s understanding of the term may be obtained from any competent source, such as purchaser testimony, consumer surveys, listings in dictionaries, trade journals, newspapers and other publications.
The Federal Circuit found the Board’s approach erroneous, asking the wrong question in assessing the alleged genericness of ZERO. The Federal Circuit said the Board’s approach failed to consider that a term can be generic for a genus of goods or services if the relevant public understands the term to refer to a key aspect of that genus. The test is not just whether the relevant public would use the term to describe the genus, but also whether the relevant public would understand the term to be generic. A term is generic if the relevant public understands the term to refer to part of the claimed genus of goods or services, even if the public does not understand the term to refer to the broad genus as a whole.
The Federal Circuit found that the Board failed to consider whether the relevant consuming public would consider the term ZERO to be generic for a subcategory of the claimed genus of beverages, i.e., the subcategory of the claimed beverages encompassing the specialty beverage categories of drinks with few or no calories or few or no carbohydrates.
The Federal Circuit remanded so that the Board could examine whether the term ZERO, when appended to a beverage mark, refers to a key aspect of the genus. The Court said ZERO need not be equated by the general public with the entire broad genus in order for the term to be generic.
On acquired distinctiveness, the Federal Circuit said that Board erred by failing to first determine exactly what Coca-Cola’s burden was. An applicant’s burden of showing acquired distinctiveness increases with the level of descriptiveness: a more descriptive term requires more evidence of secondary meaning. However, the Board did not make any finding as to the degree of descriptiveness conveyed by the term ZERO in the marks and, thus, did not assess Coca-Cola’s evidence through an exacting lens.
In Adidas AG v. Nike, Inc., [2018-1180, 2018-1181] (July 2, 2018), the Federal Circuit granted Adidas’ motion to remand the appeal back to the Patent Trial and Appeal Board (PTAB) to consider the non-instituted grounds in Adidas’ Petitions for Inter Partes Review against Nike’s U.S. Patent Nos. 7,814,598 and 8,266,749.
The PTAB’s final written decision found that Nike’s patents were not unpatentable on the instituted grounds, but did not reach a second, non-instituted grounds. After the Supreme Court’s decision in SAS, Adidas promptly moved to remand for the Board to consider the non-instituted ground. The Federal Circuit agreed, as it had in several other cases, that remand was appropriate without first deciding the appeal of the claims and grounds already before it.
In Sirona Dental Systems GmbH v. Institut Straumann AG, [2017-1341, 2017-1403] (June 19, 2018), the Federal Circuit affirmed-in-part, vacated-in-part, and remanded-in-part the PTAB’s determination that claims 1-8 of U.S. Patent No. 6,319,006 were unpatentable, while claims 9-10 were patentable.
The patent related to a drill template to precisely place a pilot hole for a tooth implant. The parties each provided their own translation of the primary references, and based upon these different translations disputed whether the reference digitally inputs structures of the mouth or movements of the mouth into the simulation. Sirona focused on the references’ disclosure of a “recording bow,” which only measures movement of the jaw joint, not surface structures. However, the Federal Circuit agreed with the district court that this was not dispositive in light of the references’ other disclosures.
In addition to agreeing with the Board about the content of the prior art, the Federal Circuit also found substantial evidence also supported the Board’s finding that a person of ordinary skill in the art would have been motivated to combine the references, and affirmed the determination that claims 1-8 would have been obvious.
Sirona also complained that the Board violated the Administrative Procedure Act when it determined that Sirona’s recording bow argument was not relevant and put together its own obviousness theory based on Bannuscher’s input of “geometry data,” which does not appear in the petition. While the Federal Circuit agreed that it would not be proper for the Board to deviate from the grounds in the petition and raise its own obviousness theory, it held that the Board’s unpatentability determination did not deviate from the grounds alleged in the petition.
The Federal Circuit noted that the Board cited the same portions of the reference as the Petition, and said the Board “did not change theories simply because the petition did not use the exact words.” The Federal Circuit also noted that Sirona spent much of its response addressing the very argument that it complained was new.
Sirona also challenged the denial of its contingent motion to amend. On this point, the Federal Circuit agreed. The final written decision, which issued prior to Aqua Products, improperly placed the burden on Sirona to demonstrate that the proposed substitute claims were patentable. The Federal Circuit vacated the Board’s denial of Sirona’s contingent motion to amend and remand for the Board to reconsider in light of Aqua Products.
On the cross appeal, the Federal Circuit affirmed the finding that claims 9 and 10 were patentable, noting that there was no error in the Board’s decision not to decide grounds of unpatentability not raised in the petition.