Fresh From the Bench: Recent Patent Cases From the Federal Circuit
Apotex – The Circuit affirms unenforceability based upon the intentional withholding of material prior art, keeping true facts from an expert, and making affirmative misrepresentations of material facts. The panel notes that the actions come close to the misconduct that Therasense held could justify a finding of inequitable conduct without showing but-for materiality.
MPHJ – An NPE's writ of mandamus relating to the remand of a case that was removed to federal court is denied because the Circuit lacks jurisdiction. Therefore, Vermont's action contending that patent infringement demand letters violated consumer protection laws will be litigated in state court.
I/P Engine – In a concurring opinion Judge Mayer discusses Alice v. CLS Bank, and determines that the claims fall outside the ambit of §101.
Kilopass – In view of the Supreme Court's Octane Fitness decision, the Northern District of California reverses its prior denial of an attorney fee award, finding the case to be "exceptional."
Apotex, Inc., et al. v. UBC, Inc., et al., Fed. Cir. Case 2013-1674 (August 15, 2014)
Apotex appeals a finding that its '556 patent is unenforceable due to inequitable conduct. Apotex also appeals other determinations by the district court but because the panel finds that the court did not abuse its discretion in finding inequitable conduct, the court's judgment is affirmed on that basis.
The '556 Patent
The '556 patent is directed to a process for manufacturing an inhibitor used to treat hypertension.
Dr. Bernard Charles Sherman, founder and chairman of Apotex, wrote the '556 patent application and is its sole inventor. Dr. Sherman leads the development of Apotex's drug formulations and manufacturing processes, and has himself written approximately one hundred patent applications for Apotex.
The two accused products in this case, Univasc and Uniretic, constitute prior art to the '556 patent, both products having been sold in the U.S. more than one year before the filing date.
According to the panel, clear and convincing evidence demonstrates that Dr. Sherman engaged in material misconduct. First, Dr. Sherman was actively involved in the prosecution of the '556 patent and instigated the representations made on his behalf by his counsel and his expert Dr. Lipp. The '556 patent's specification, written by Dr. Sherman, omits important details regarding the prior art that were determined to have been known to him. Dr. Sherman's counsel was in constant communication with him during prosecution and kept him apprised of actions taken by the PTO and arguments made in response. The panel sees no reason to disturb the district court's finding that Dr. Sherman's attempt to disclaim knowledge and responsibility at trial was not credible. The court's finding that Dr. Sherman is responsible for the misconduct is not clearly erroneous.
Second, Dr. Sherman made affirmative misrepresentations of material facts. Apotex's internal tests showed that moexipril in Univasc is "mainly present" as moexipril magnesium. Dr. Sherman repeatedly asserted before the PTO that the process used to manufacture Univasc did not involve a reaction that would produce moexipril magnesium. Years after issuance of the patent, as part of its infringement case, Apotex confirmed through testing that Univasc indeed contains more than 80% moexipril magnesium. Dr. Sherman's assertions during prosecution regarding the absence of moexipril magnesium in Univasc were false.
Third, Dr. Sherman's misconduct was "but-for material" to the issuance of the '556 patent. The Examiner's rejections were based on the very same prior art that is the subject of Dr. Sherman's misrepresentations. The Examiner's erroneous belief regarding the prior art corresponds precisely with Dr. Sherman's repeated misrepresentations made through his counsel and his expert. The panel therefore concludes that the PTO would not have allowed the '556 patent but for Dr. Sherman's misconduct.
The panel notes that Dr. Sherman had no duty to disclose his own suspicions or beliefs regarding the prior art. The misconduct at issue, however, goes beyond failing to disclose a personal belief or alternative interpretations of the prior art; here, Dr. Sherman affirmatively and knowingly misrepresented material facts regarding prior art.
Because the panel affirms the district court's finding that the misrepresentations regarding the prior art were but-for material, it did not decide whether Dr. Sherman's conduct rises to the level of egregious misconduct such that materiality could have been presumed. However, the panel notes that Dr. Sherman's actions come close to the type of misconduct that in Therasense the Circuit held could justify finding inequitable conduct without showing but-for materiality. The panel finds particularly significant and inexcusable the fact that Dr. Sherman arranged for the preparation and submission of an expert declaration containing false statements instrumental to issuance of the patent.
The panel determines that the district court did not clearly err in finding that Dr. Sherman knew, or at least had a strong suspicion, that he was seeking to patent the very same process used to obtain an already existing and widely available drug. Dr. Sherman's statements were not mere advocacy for a preferred interpretation; his statements were factual in nature and contrary to the true information he had in his possession. It is immaterial that, at that time, Dr. Sherman had no direct knowledge of UCB's actual manufacturing process or had determined the exact amount of moexipril magnesium present in Univasc. He knew enough to recognize that he was crossing the line from legitimate advocacy to genuine misrepresentation of material facts. In the aggregate, Dr. Sherman's conduct evidences a pattern of lack of candor. The panel agrees with the district court that deceptive intent is the single most reasonable inference that can be drawn from the evidence, and therefore rules that the district court did not abuse its discretion in holding the '556 patent unenforceable due to inequitable conduct.
Comments: In Therasense the en banc Federal Circuit was careful not to limit the exception for affirmative egregious acts to the filing of an unmistakably false affidavit. Therasense, Inc. v. Becton, Dickinson & Co., 649 F. 3d 1276, 1293 (Fed. Cir 2011). At the time, the majority noted that it needed to be "sensitive to varied facts and equitable considerations," but has yet to clarify what if anything other than the filing of a false affidavit could justify a "non-but-for" ruling of unenforceability.
State of Vermont v. MPHJ Technology Investments, LLC, Fed. Cir. Case 2014-1481 (August 12, 2014)
MPHJ is a non-practicing entity that has sent thousands of patent infringement demand letters to businesses that use certain network scanner systems. MPHJ wrote to various businesses operating in Vermont, requesting the recipient to confirm it was not infringing MPHJ's patents or, alternatively, to purchase a license. If MPHJ did not receive a response, follow-up correspondence was sent stating that an infringement suit would be filed.
The State of Vermont has been engaged against NPE's in the past and this is not the first action Vermont's Attorney General has filed against MPHJ. In the present action filed in state court, Vermont alleges that MPHJ engaged in unfair and deceptive trade practices, stating that the demand letters contained false and misleading statements. MPHJ removed the case to the U.S. district court, asserting jurisdiction based on federal question and diversity. The State moved to remand the case back to state court for lack of subject matter jurisdiction. MPHJ opposed the State's motion, and filed a motion to dismiss for lack of personal jurisdiction and for sanctions under Rule 11 and 28 U.S.C. §1927. The sanctions motion also requested dismissal, asserting that the State's complaint was frivolous, that the complaint failed to plead that the alleged conduct was both objectively and subjectively baseless, and that the complaint was preempted by MPHJ's right to enforce its patents.
Without deciding any other motions, the district court granted the State's motion to remand. The court stated that the complaint did not raise a substantial question of patent law, and that "the State is targeting bad faith conduct irrespective of whether the letter recipients were patent infringers" or the patents were invalid. The court pointed out that MPHJ's preemption assertion was a defense to its allegedly unfair and deceptive practices, and that a defense cannot provide a basis for federal subject matter jurisdiction.
MPHJ appealed the remand to state court and filed a petition for a writ of mandamus.
Jurisdiction over the remand
MPHJ argued to the Circuit that the district court abused its discretion (1) in effectively denying its motion for sanctions; (2) by refusing to decide the motion to dismiss for lack of personal jurisdiction before deciding subject matter jurisdiction; and (3) in "effectively amending the Original Complaint and then declining to exercise jurisdiction over the complaint as amended, or in remanding the case without first deciding a controlling federal question of preemption under the First Amendment and federal patent law."
In deciding whether appellate jurisdiction is present, the Circuit first quoted from 28 U.S.C. Section 1447(d):
An order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise.
According to the panel, the Supreme Court has held that this provision applies only to remands based on the grounds specified in § 1447(c)—namely, a defect in removal procedure or lack of subject matter jurisdiction. Here the district court remanded on a ground provided in § 1447(c); that is, in the district court's view the complaint did not raise a claim or question of federal law to give rise to federal jurisdiction. Section 1447(d) precludes the Circuit from second-guessing the district court's jurisdiction determination regarding subject matter.
I/P Engine, Inc. v AOL Inc. et al., Fed. Cir. Case 2013-1307-1313 (August 15, 2014)
In a non-precedential split decision the Circuit found claims to be obvious that were directed to a method for filtering Internet search results that utilizes both content-based and collaborative filtering. The interesting part of the case is Judge Mayer's analysis of patentable subject matter under Alice Corp. v. CLS Bank, 134 S. Ct. 2347, 2359 (2014). Judge Mayer opines that the asserted claims disclose no new technology, but instead simply recite the use of a generic computer to implement a well-known and widely-practiced technique for organizing information, they fall outside of the ambit of §101. And, according to Judge Mayer, if this determination had been made in the first instance as directed by the Supreme Court, unnecessary litigation, and early two weeks of trial and imposition on citizen jurors, could have been avoided.
His concurring opinion noted that Alice made clear that abstract ideas untethered to any significant advance in science and technology are ineligible for patent protection, concluding that a computer-implemented system for mitigating settlement risk fell outside section 101 because it did not "improve the functioning of the computer itself" or "effect an improvement in any other technology or technical field." 134 S. Ct. at 2359.
According to Judge Mayer, I/P Engine's claimed invention, which describes a system which filters information for relevance to a user's query using combined content and collaborative data, does not pass muster under section 101. The asserted claims do not meet subject matter eligibility requirements because they do not "improve the functioning of the computer itself" or "effect an improvement in any other technology or technical field." Alice, 134 S. Ct. at 2359. To the contrary, the use of search engines was well-established and the clear advantages of combining content-based and collaborative filtering were widely recognized at the time of the claimed invention.
Kilopass Technology, Inc. v. Sidense , N.D. Cal. (August 14, 2014)
Judge Susan Illston of the Northern District of California reverses her prior ruling denying defendant Sidense's motion for attorney fees in view of the more lenient standard set forth in Octane Fitness for finding cases "exceptional" under 35 USC § 285. It will be recalled that in Octane Fitness LLC v. Icon Health & Fitness Inc., 134 S. Ct. 1749, 188 L. Ed. 2d 816 (2014), the Supreme Court held that an exceptional case is one that merely stands out from others, rejecting the prior Federal Circuit standard that required a showing of bad faith.
The patent in suit is directed to various memory devices and arrays of those devices. The district court previously determined that Sidense's systems did not infringe, but denied a motion for attorney fees based on the strict standards the Federal Circuit had dictated had to be met to grant such an award. The Federal Circuit vacated the district court's judgment denying fees and remanded - for consideration of whether Kilopass acted in bad faith in light of the totality of the circumstances.
Before the district court considered the remand, the Supreme Court issued its decision in Octane, ruling that a showing of bad faith on the part of one of the parties was not necessary in order to be entitled to attorney fees but instead a case may be exceptional simply if it stands out from others with respect to the substantive strength of a party's litigating position or the unreasonable manner in which the case was litigated. District courts may determine whether a case is "exceptional" in the case-by-case exercise of their discretion, considering the totality of the circumstances.
Applying the Octane test, Judge Illston finds that Kilopass failed to conduct an adequate pre-filing investigation. The theories of infringement that Kilopass asserted during the present action were objectively baseless, and its claims for literal infringement were meritless. Moreover, Kilopass litigated the present action in an unreasonable manner by shifting its theories of infringement late in the litigation without following the proper procedures for amendment of contentions, and engaging in conduct that at times amounted to gamesmanship. This is a case that stands out from others with respect to the substantive strength of plaintiff's litigating position and the unreasonable manner in which the case was litigated. Accordingly, based on the totality of the circumstances in the present action, the Court, exercising its sound discretion, concludes that the present action is an exceptional case under 35 U.S.C. § 285.
Having found that the present action is an exceptional case under § 285, the judge turned to the issue of whether an award of attorney fees is justified. The decision whether or not to award fees is still committed to the discretion of the trial judge, and ‘even an exceptional case does not require in all circumstances the award of attorney fees.'
In determining whether to award attorney's fees, the trial judge may consider the closeness of the case, the tactics of counsel, the conduct of the parties, and any other factors that may contribute to a fair allocation of the burdens of litigation as between winner and loser. Based on these factors, the Court concludes that an award of attorney's fees in the present action is appropriate.