The Hottest Patent Law Issues Of 2016

Posted on Jan 3, 2017 in Articles

This article originally appeared in LAW360 on January 3, 2017.

It’s been a year since Law360 published The 13 Hottest Patent Law Issues of 2015. As we ring in the new year, it’s now time to look back at the most significant patent law issues of 2016.

Broadest Reasonable Interpretation

When Congress enacted the statute that created inter partes review, the U.S. Patent and Trademark Office created regulations providing for IPR claim interpretation to be based on the “broadest reasonable construction in light of the specification of the patent in which it appears.” The issue in Cuozzo v. Lee[1] was whether the USPTO should interpret patent claims in IPR proceedings employing “the broadest reasonable construction” — the same standard that is used in patent application examination — or with the narrower ”ordinary and customary meaning” standard that is used by the courts in inter partes litigation. The U.S. Supreme Court sided with the USPTO, and concluded that the USPTO had the authority to conduct IPR proceedings employing the broadest reasonable construction standard. The difference between using the two standards is significant; the standard used during IPR proceedings results in the availability of more prior art to potentially invalidate a patent.

Software Patents

Ever since Alice[2] was decided in 2014, the IP world has been witness to the invalidation of huge numbers of software patents. While the outlook has been grim, small glimmers of hope have emerged. In May of this year, the Federal Circuit applied the “Alice test” to software patent claims, in Enfish v. Microsoft[3], and found patent eligible subject matter. In the words of the court: “we find that the claims at issue in this appeal are not directed to an abstract idea within the meaning of Alice. Rather, they are directed to a specific improvement to the way computers operate … .” Soon thereafter, software patent claims were found to be valid in Bascom v.AT&T[4]: “an inventive concept that transforms the abstract idea into a patent-eligible invention must be significantly more than the abstract idea itself, and cannot be simply an instruction to implement or apply the abstract idea on a computer.” The court determined that “significantly more” existed and therefore the claimed subject matter was valid because it “cannot be said, as a matter of law, to have been conventional or generic.” In September, the court in McRO v Bandai[5] found that the claims in suit used “rules in a process specifically designed to achieve an improved technological result in conventional industry practice” and therefore met patent subject matter eligibility requirements. These cases offer useful guidance in order to draft software claims with patent-eligible subject matter.

USPTO Deference By the Courts

Chevron deference[6] is a long-standing doctrine whereby courts defer to an administrative agency’s interpretation of ambiguous statutes. While the doctrine requires that the agency’s interpretation be “reasonable,” many commentators have argued that the doctrine is severely flawed for a number of reasons, including violating “separation of powers” and the Administrative Procedures Act. The USPTO is rarely granted Chevron deference, but Cuozzo (see 1, above) is a notable exception. Is this the beginning of a substantial change in the deference courts provide to USPTO interpretation of ambiguous statutes? It is hard to say. In the meantime, a bill is making its way through Congress which, if voted into law, will result in Chevron deference being statutorily overruled. The future of Chevron deference is unclear.

PTAB Claim Amendments

Patent owners have voiced concern over the Patent Trial and Appeal Board’s frequent refusals to permit amendment of claims during IPR proceedings. In Nike v. Adidas[7], the PTAB refused to allow Nike to amend its patent claims because Nike’s motion to amend simply stated that proposed claims were patentable over prior art known to Nike and not part of the record of the proceedings. In an earlier decision (Idle Free) the board stated that a motion to amend would be successful only if the patent owner “persuade[s] the Board that the proposed substitute (or amended) claim is patentable over the prior art of record, and over prior art not of record but known to the patent owner.” The board refused Nike’s request to amend claims on the basis that Nike’s motion was merely “conclusory” and “facially inadequate.” The Federal Circuit, however, deemed that the board’s requirements related to the duty of candor, and thus stated that they could not see “how the statement used by Nike [to request amendment] would be inadequate, absent an allegation of conduct violating the duty of candor.” The Federal Circuit thus concluded that the board had relied upon “an improper ground on which to deny Nike’s motion to amend.” Hopefully, this decision will make it easier for patent owners to amend their claims in IPR proceedings.

Enhanced Damages

Under 35 U.S.C. §284, a court awarding damages for infringement “may increase the damages up to three times the amount found or assessed.” In Halo v. Pulse[8] the U.S. Supreme Court held that the Seagate framework that was used by the Federal Circuit to award enhanced damages was not proper. Seagate required that to be eligible for enhanced damages, a patent owner must first “show by clear and convincing evident that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and second that the risk of infringement “was either known or so obvious that is should have been known to the accused infringer.” The U.S. Supreme Court determined that Seagate was inconsistent with 35 U.S.C. 284 and instead “district courts are to be guided by [the] sound legal principles developed over nearly two centuries of application and interpretation of the Patent Act.” This decision will give district courts greater latitude in awarding enhanced damages. The opinion also a) reduced the patent owner’s burden of proof from “clear and convincing evidence” to “preponderance of the evidence,” and b) required that the Federal Circuit show more deference to district court damage enhancement decisions.

Venue

A significant percentage of patent infringement cases are filed in the Eastern District of Texas. When TC Heartland[9] filed a petition to dismiss or transfer an infringement suit based on improper venue, many companies took notice. Prior to 2011, the definition of corporate residence in the general venue statute, §1391(c), applied to the patent venue statute, 28 U.S.C. §1400. TC Heartland argued that as a result of a congressional amendment to the general venue statute in 2011, the corporate residence definition of 28 U.S.C. § 1391 no longer applied to the patent venue statute. The Federal Circuit disagreed. If the Federal Circuit had agreed with TC Heartland, a patent owner’s ability to establish venue in a patent infringement suit would have been narrowed. The U.S. Supreme Court has granted a petition for writ of certiorari.

PTAB Estoppel

Shaw v. Automated Creel[10] addressed the issue of whether estoppel applied to uninstituted grounds in an IPR proceeding. Shaw proposed six grounds to institute an IPR proceeding, but the board instituted the IPR proceeding based on only two of the six grounds. Estoppel based on grounds raised in an IPR proceeding is covered by 35 U.S.C. § 315(e), which states that estoppel is created “on any ground that the petitioner raised or reasonably could have raised during that inter partes review” (emphasis added). As four of the grounds were raised before the IPR began, and the IPR was not instituted on the basis of those grounds, the Federal Circuit concluded that estoppel was not created for those grounds. Estoppel therefore applied only to the grounds on which the IPR was instituted.

PTAB Deference

Although Merck v. Gnosis[11] was decided at the end of 2015, this case drew attention this year when the Federal Circuit denied en banc review and the U.S. Supreme Court refused to grant a petition for writ of certiorari. The basis of a petition for en banc review was that the Federal Circuit should have reviewed the board’s factual findings with a “clear error” standard of review — rather than the lower “substantial evidence” standard. The Federal Circuit denied the petition. Circuit Judge Kathleen O’Malley wrote: “This court is bound by binding Supreme Court precedent … to apply the substantial evidence standard of review to factual findings by the Board … I agree with the dissent to the extent it argues that a substantial evidence standard of review makes little sense … But the question is one for Congress.”

On-Sale Bar

In an en banc decision, the Federal Circuit ruled that for a product to be “on sale” under 35 U.S.C. § 102(b), the product “must be the subject of a commercial sale or offer for sale, and that a commercial sale is one that bears the general hallmarks of a sale … .”[12] More than one year before filing a patent application, The Medicines Company paid a drug manufacturer to prepare several batches of the product that was ultimately patented. Upon being sued for patent infringement, Hospira argued that the transaction between The Medicines Company and their manufacturer was a “sale” that invalidated the asserted patent. The Federal Circuit disagreed. Noting that a sale “is a contract between parties to give and pass right of property for consideration” the court concluded that an invalidating sale under §102(b) had not occurred because 1) the inventor had been sold manufacturing services and not embodiments of the invention; 2) a “commercial” sale had not occurred (“The focus must be on the commercial character of the transaction, not solely on the identity of the participants”); and 3) “stockpiling” does not trigger an on-sale bar.

Patent Exhaustion

Lexmark sells its patented printer cartridges with the restriction that used cartridges must be returned to Lexmark. Some cartridges are sold within the United States while other cartridges are sold internationally. Impression recycles and resells used Lexmark cartridges. In Lexmark v. Impression[13], the Federal Circuit concluded that Impression infringed Lexmark’s patent: “… a patentee, when selling a patented article subject to a single-use/no-resale restriction that is lawful and clearly communicated to the purchaser, does not by that sale give the buyer, or downstream buyers, the resale/reuse authority that has been expressly denied.” The court further held that when a U.S. patented product is sold to a foreign buyer, importation of the product into the U.S. by the buyer infringes the patent. The U.S. Supreme Court has granted a petition for writ of certiorari and oral argument will take place next year.

Laches Within the Statute of Limitations

Seven years after accusing First Quality of patent infringement, and with no other communication in the interim, SCA filed suit for patent infringement. First Quality argued laches as a defense even though the statute of limitations had not expired. The Federal Circuit agreed with First Quality and the patent was found to be unenforceable. A petition for writ of certiorari was granted and, last month, the U.S. Supreme Court heard oral argument[14]. At issue is whether laches is a defense for patent infringement based on the copyright case Petrella v. Metro-Goldwyn-Mayer[15] (in which it was determined that laches cannot be invoked as a bar for a copyright claim brought within the statute of limitations). A decision is expected from the U.S. Supreme Court next year.

– By Lawrence E. Ashery

[1] Cuozzo Speed Technologies, LLC v. Lee, 579 U. S. ____ (2016).

[2] Alice Corp. v. CLS Bank International, 573 U.S. ____, 134 S. Ct. 2347 (2014)

[3] Enfish, LLC v. Microsoft Corp., No. 15-1244 (Fed. Cir. 2016)

[4] Bascom Global Internet Services, Inc. v. AT&T Mobility LLC, No. 15-1763 (Fed. Cir. 2016)

[5] McRO, Inc. v. Bandai Namco Games America, No. 15-1080 (Fed. Cir. 2016)

[6]  Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)

[7] Nike, Inc. v. Adidas AG, No. 14-1719 (Fed. Cir. 2016)

[8] Halo Electronics, Inc. v. Pulse Electronics, Inc. 579 U.S. ____ (2016)

[9] In re TC Heartland, LLC, No. 16-105, (Fed. Cir. 2016 ).

[10] Shaw Industries Group Inc. v. Automated Creel Systems Inc., 817 F. 3d 1293 (Fed. Cir. 2016).

[11] Merck & Cie v. Gnosis S.P.A., No. 14-1779(Fed. Cir. 2015)

[12] The Medicines Company v. Hospira, No. 14-1469 (Fed. Cir. 2016)

[13] Lexmark International , Inc. v. Impression Products, Inc., Nos. 14-1617, -1619 (Fed. Cir. 2016)

[14] SCA Hygiene Products Aktiebolag First Quality Baby Products, LLC, Supreme Court Docket No. 15-927 (2016)

[15] Petrella v. Metro-Goldwyn-Mayer, 134 S. Ct. 1962 (2014)