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Precedential Patent Cases From the Federal Circuit in ‎the Past Week ‎

July 6, 2015


By Peter E. Heuser

Speedtrack – SpeedTrack filed suit against Office Depot and others based upon the use of software produced by Endeca. The Circuit affirms the district court's summary judgment that SpeedTrack's claims are precluded by a prior lawsuit in which the same software was found not to infringe. The ruling is based upon the Kessler doctrine, which precludes an infringement action against a customer of a seller who has previously prevailed because of invalidity or noninfringement of the patent. In this action the Circuit expands Kessler to permit customers to assert the defense, in addition to the manufacturer having that right. The Circuit distinguishes the Supreme Court's Rubber Tire case that limited Kessler to the product found not to infringe, only so long as the product to which the right applies retains its separate identity. ‎

The Medicines Company – The panel reverses a determination that the experimental use exception applies to pre-critical date sales of plaintiff's Angiomax blood thinning drug, which had sales of $600 million last year. Prior to the bar date plaintiff paid a supplier to perform services that resulted in the patented product-by-process being practiced, and thus a "sale" of services occurred prior to the bar date. Here the product was reduced to practice and the patentee knew it was reduced to practice. Therefore, the panel holds that the experimental use exception does not apply.

WesternGeco – Ever since 35 U.S.C. § 271(f) was passed to overrule the Supreme Court's Deepsouth decision, it has been an infringement to supply components from the U.S. and induce the combination outside of the country in a way to infringe the patent if the assembly took place in the U.S. But a divided panel rules that § 271(f) does not permit recovery of lost profits as a result of the infringer's customers using the infringing systems outside the U.S. The ruling eliminates over $100 million of a $124 million award covering lost profits and reasonable royalties to a manufacturer of systems for detecting ocean oil reserves. Citing Daubert, the entire panel also affirms the district court's exclusion of plaintiff's expert testimony as to a royalty that was not reasonably tied to the evidence or to any plausible legal theory. Finally, the entire panel finds, based on Seagate, that defendant's challenges to validity and infringement were not "‎objectively baseless" and therefore affirms the denial of WesternGeco's motion for enhanced damages even though the jury determined that defendant should have known its actions constituted infringement of a valid patent.

Daiichi – In a precedential ruling that will be of little interest to most practitioners and therefore is not discussed below, the Circuit affirms the district court's summary judgment dismissing Daiichi's challenge to the PTO's handling of its patent term adjustment. The panel ruled that the deadlines for such challenges are clear and Daiichi missed the deadline. For a more interesting discussion of patent term adjustments, see the Mohsenzadeh case discussed in our report of June 30.

Speedtrack, Inc. v. Office Depot, Inc. , Fed. Cir. Case No. 2014-1475 (June 30, 2015) .

The Prior Walmart Litigation

In November of 2006, SpeedTrack filed suit against Walmart, alleging that use of IAP software designed by Endeca, now an Oracle company, infringed its ‘360 patent. Endeca intervened and sought declaratory judgments of noninfringement and invalidity. Endeca then filed for reexamination of the patent and the court stayed its proceedings. The PTO subsequently confirmed patentability. After lifting its stay, the district court granted summary judgment of noninfringement in favor of Walmart and Endeca, ruling that because the accused IAP software uses numerical identifiers instead of descriptive words, IAP users did not use "category descriptions" as required by the '360 patent. The Circuit affirmed that judgment.

The Present Action

SpeedTrack filed its complaint in the present case while the Walmart action was pending, alleging that Appellees infringed the '360 patent based on their use of the same IAP software at issue in Walmart. After the Circuit issued its decision in Walmart, Appellees moved to dismiss SpeedTrack's complaint on grounds that the asserted infringement claims were barred by collateral estoppel, res judicata, issue preclusion or the Supreme Court's Kessler doctrine. The district court held that collateral estoppel did not apply but granted Appellees' motion based on res judicata (in part) and the Kessler doctrine (in full).

Though the district court granted summary judgment in favor of Appellees, it found that Appellees could not invoke collateral estoppel. The court explained that SpeedTrack could have raised its theory of infringement under the doctrine of equivalents in Walmart, but because it didn't do so, that issue was not "actually litigated," so collateral estoppel cannot bar SpeedTrack's claims under the doctrine of equivalents. As to res judicata, the district court found that SpeedTrack's infringement claims were barred to the extent they related to acts occurring on or before March 30, 2012—the date of the final judgment in Walmart. SpeedTrack argued that, even if its literal infringement claims were barred, it could still assert claims of infringement under the doctrine of equivalents because those claims were not asserted in Walmart, but the district court found that res judicata bars both claims that were brought as well as those that could have been brought. More significantly, the district court held that the Kessler doctrine precluded the entirety of SpeedTrack's suit.

The Circuit Affirms Based on the Kessler Doctrine

On appeal, the Circuit finds that the entire action is barred by the Kessler doctrine so does not get to the issue of whether some claims are barred by claim or issue preclusion. The Kessler doctrine "bars a patent infringement action against a customer of a seller who has previously prevailed against the patentee because of invalidity or noninfringement of the patent." Kessler v. Eldred, 206 U.S. 285 (1907). The Court specified that this right "attaches to its product—to a particular thing—as an article of lawful commerce." The Circuit has in the past recognized that Kessler granted a "limited trade right" that attaches to the product itself. MGA, Inc. v. Gen. Motors Corp., 827 F.2d 729 (Fed. Cir. 1987). More recently, the Circuit reaffirmed the continued vitality of Kessler, holding that it precludes some claims that are not otherwise barred by claim or issue preclusion. Brain Life, LLC v. Elekta, Inc., 746 F.3d 1045 (Fed. Cir. 2014).

Applying Kessler, the Circuit holds that it is Oracle's right that its customers should, in respect of the IAP software, be let alone by SpeedTrack. SpeedTrack does not dispute this conclusion. Instead, it argues that: (1) the right recognized in Kessler is one assertable, if at all, only by the product manufacturer or supplier, not by its customers; (2) Kessler does not apply where the manufacturer supplies only a component which is combined with other components and it is the combined configuration that infringes; and (3) Kessler is a doctrine which has been rendered obsolete by later developments in the law.

The Circuit Extends Kessler to Permit the Defense to be Raised by Customers

The issue of whether a customer such as Office Depot can invoke the Kessler doctrine has divided circuits, and the Federal Circuit has not addressed it. We conclude that the rationale underlying the Kessler doctrine supports permitting customers to assert it as a defense to infringement claims. Although Kessler focused exclusively on the manufacturer's rights and expressed no opinion on whether a customer could assert the defense, it recognized the fact that the manufacturer and customer's interests are intertwined, remarking that "no one wishes to buy anything if with it he must buy a law suit." Allowing customers to assert a Kessler defense is consistent with the goal of protecting the manufacturer's right to sell an exonerated product free from interference or restraint. A manufacturer cannot sell freely if it has no customers who can buy freely. Because it is a right that attaches to the noninfringing product, and it is a right designed to protect the unencumbered sale of that product, SpeedTrack's argument that the Kessler doctrine can only be invoked by a manufacturer must fail.

This Case Does Not Fall Within the Rubber Tire Exception to Kessler

SpeedTrack cites Rubber Tire Wheel Co. v. Goodyear Tire & Rubber Co., 232 U.S. 413 (1914) for the proposition that the trade right set forth in Kessler attaches to the product and "continues only so long as the commodity to which the right applies retains its separate identity." SpeedTrack argues that its patent claims are method claims that target Appellees' use of Oracle's software combined with their own hardware, software, and data. According to SpeedTrack, any protection for Oracle's product cannot shield acts combining Oracle's product with other components to practice a claimed method. But the allegations in SpeedTrack's complaint were directed specifically to Appellees' use of the IAP software to provide search functionality for their respective websites, not to any other components or any other activities. And, Appellees are invoking Kessler with respect to the same IAP software that acquired noninfringing status in Walmart, not as to other aspects of their computer systems. Therefore, SpeedTrack's attempt to distinguish Kessler on these grounds is without merit.

Kessler Remains Binding Precedent

Finally, SpeedTrack argues that the Kessler doctrine has been effectively displaced by modern preclusion principles, and became unnecessary when the Supreme Court authorized non-mutual collateral estoppel in Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971). The Circuit recognized in MGA that Kessler was issued "in the heyday of the federal mutuality of estoppel rule," when preclusion was limited to parties or privies in earlier litigation. As the facts of this case demonstrate, however, the Kessler doctrine is a necessary supplement to issue and claim preclusion: without it, a patent owner could sue a manufacturer for literal infringement and, if unsuccessful, file suit against the manufacturer's customers under the doctrine of equivalents. Or, a patent owner could file suit against the manufacturer's customers under any claim or theory not actually litigated against the manufacturer as long as it challenged only those acts of infringement that post-dated the judgment in the first action. That result would authorize the type of harassment the Supreme Court sought to prevent in Kessler when it recognized that follow-on suits against customers could destroy the manufacturer's judgment right.

The Medicines Co. v. Hospira, Inc., Fed. Cir. Case 2014-1469;1504 (July 2, 2015)

The Medicines Company owns the ‘727 and ‘343 patents directed to the drug bivalirudin, a synthetic peptide used as a blood thinner under the Angiomax® brand. From 1997 to October 2006, The Medicines Company purchased batches of Angiomax® from Ben Venue Laboratories. In 2005, Ben Venue created a batch of bivalirudin with levels of Asp-bivalirudin impurity that exceeded the FDA's approved maximum of 1.5%. Accordingly, The Medicines Company could not use the batch.

After another batch failure, The Medicines Company hired Dr. Musso to investigate and resolve the issue. Dr. Musso discovered that certain methods of adding a pH-adjusting solution during the compounding process minimizes the Asp-bivalirudin impurity to less than 0.6%. In July 2008, The Medicines Company filed patent applications for the '343 and '727 patents, which include product-by-process claims describing this discovery.

Over one year before filing these applications, however, The Medicines Company hired Ben Venue to prepare three batches of bivalirudin using an embodiment of the patented method. Each invoice for these services identifies a "charge to manufacture bivalirudin lot." Each invoice also states that the bivalirudin lot was or will be released to The Medicines Company. Each lot was marked with a commercial product code and a customer lot number, and was released to The Medicines Company for commercial and clinical packaging.

After the ‘727 and ‘343 patents issued, The Medicines Company sued Hospira, which was planning a generic version and was proceeding with ANDA filings. The district court construed the asserted claims and, after a bench trial, found the patents not infringed and not invalid as obvious, indefinite, or under the on-sale bar. The Medicines Company appeals the claim construction and finding of non-infringement. Hospira appeals the district court's holdings on obviousness, indefiniteness, and the on-sale bar.

Services Performed by Ben Venue Constitute a "Sale" More Than One Year Prior to the Filing Date

On appeal from a bench trial, we review a district court's legal determinations de novo and factual findings for clear error. Braintree Labs., Inc. v. Novel Labs., Inc., 749 F.3d 1349 (Fed. Cir. 2014). Invalidity under the on-sale bar is a question of law with underlying questions of fact.

The on-sale bar under 35 U.S.C. § 102(b) applies when, before the critical date, the claimed invention

(1) was the subject of a commercial offer for sale; and

(2) was ready for patenting. Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998).

The district court concluded that no commercial sale occurred because: (1) Ben Venue only sold manufacturing services, not pharmaceutical batches; and (2) the batches fall under the experimental use exception.

While the district court is correct that Ben Venue invoiced the sale as manufacturing services and title to the pharmaceutical batches did not change hands, that does not end the inquiry. The intent of invalidating claims under the on-sale bar is to preclude attempts by the inventor or his assignee to profit from commercial use of an invention for more than a year before an application for patent is filed. To ensure the doctrine is not easily circumvented, we have found the on-sale bar to apply where the evidence clearly demonstrated that the inventor commercially exploited the invention before the critical date, even if the inventor did not transfer title to the commercial embodiment of the invention.

The Medicines Company paid Ben Venue for performing services that resulted in the patented product-by-process, and thus a "sale" of services occurred. The sale of the manufacturing services here provided a commercial benefit more than one year before a patent application was filed. Ben Venue's services were performed to prove to the FDA that The Medicines Company's product met the already-approved specifications for finished bivalirudin product. Additionally, Ben Venue marked the batches with commercial product codes and customer lot numbers and sent them to The Medicines Company for commercial and clinical packaging, consistent with the commercial sale of pharmaceutical drugs. This commercial activity was not insignificant; each batch had a commercial value of over $10 million.

Accordingly, we find that the district court clearly erred in finding the Ben Venue sale of services did not constitute a commercial sale. To find otherwise would allow The Medicines Company to circumvent the on-sale bar simply because its contracts happened to only cover the processes that produced the patented product-by process.

This is not a case where the inventors have requested another entity's services in developing products embodying the invention without triggering the on-sale bar. See Trading Techs. Ina, Inc. v. eSpeed, Inc., 595 F.3d 1340 (Fed. Cir. 2010). The batches were prepared for commercial exploitation, and this is not the type of "secret, personal use" described in Trading Technologies.

Moreover, if a product that is offered for sale inherently possesses each of the limitations of the claims, then the invention is on sale, whether or not the parties to the transaction recognize that the product possesses the claimed characteristics. There is no dispute that the batches had the levels of Asp-bivalirudin required by the claims. Thus, it is irrelevant whether The Medicines Company knew that the process limitations of the asserted claims reliably and consistently produced levels of Asp-bivalirudin below 0.6%.

The Experimental Use Doctrine Does Not Apply

The court also clearly erred in finding that the experimental use doctrine bars the application of the on sale bar to the Ben Venue batches. Experimental use cannot occur after a reduction to practice. The Medicines Company asserts that it had not reduced the invention to practice when the batches were made because it did not appreciate the maximum impurity level limitation of the claimed invention until after twenty-five batches of bivalirudin were manufactured according to the new process. However, this is not a situation in which the inventor was unaware that the invention had been reduced to practice, and was experimenting to determine whether that was the case. The batches sold satisfied the claim limitations, and the inventor was well aware that the batches had levels of Asp-bivalirudin well below the claimed levels of 0.6%.

The Invention Was Ready for Patenting

An invention is ready for patenting when, before the critical date, the invention is reduced to practice; or is depicted in drawings or described in writings of sufficient nature to enable a person of ordinary skill in the art to practice the invention. Hamilton Beach Brands, Inc. v. Sunbeam Prods., Inc., 726 F.3d 1370 (Fed. Cir. 2013). The Medicines Company argues that the district court erred in finding its invention was ready for patenting because there was no reduction to practice and the inventors had not prepared drawings or written descriptions sufficient to enable a person skilled in the art to practice the invention. But because the invention was sold, for the reasons described above, we find that the Ben Venue batches reduced the invention to practice. Thus, the court did not clearly err in finding the invention was ready for patenting.

WesternGeco L.L.C. v. Ion Geophysical Corp., Fed. Cir. Case 2013-1527; 2014-1121; 1526; 1528 (July 2, 2015)

WesternGeco, a Schlumberger company, filed suit against ION for infringement of four patents relating to technologies used to search for oil and gas beneath the ocean floor. To search for oil and gas, ships tow a series of long streamers. Each streamer is equipped with a number of sensors. An air gun bounces sound waves off of the ocean floor. The sensors pick up the returning sound waves and, in combination with each other, create a map of the subsurface geology. This generated map can aid oil companies in identifying drilling locations for oil or gas. The jury found infringement and no invalidity with respect to all asserted claims for each of the four patents, and awarded $93,400,000 in lost profits and $12,500,000 in reasonable royalties. An additional $10 million in prejudgment interest would also likely be included.

Infringement under ‎§‎§‎ 271(f)(1) and (f)(2)‎ is Affirmed

WesternGeco's theory of infringement was based on, inter alia, 35 U.S.C. § 271(f)(1) and § 271(f)(2). Broadly speaking, (f)(1) prohibits supplying a substantial portion of the components of a patented system in a manner that actively induces their combination abroad, and (f)(2) prohibits supplying components that are especially adapted to work in a patented invention and intending that the components be combined abroad in a manner that would infringe if combined domestically.

Because the verdict was clear that the jury found liability under § 271(f)(2) for all asserted claims, we need not reach the issue raised by ION under (f)(1). ION's second challenge is to the district court's refusal to provide limiting instructions to the jury with respect to (f)(2). The district court held that, for both (f)(1) and (f)(2), WesternGeco was required to prove that ION intended that the components be combined abroad. In granting summary judgment on claim 18, the district court resolved this issue in favor of WesternGeco. The jury was entitled to be advised that this issue had been resolved against ION. Because ION's proposed instruction would have precluded that, it was overly broad, and the district court did not err in refusing to give the instruction.

Award of Lost Profts for Services to be Performed Abroad Was Not Appropriate

WesternGeco makes its product domestically and performs the surveys abroad on behalf of its customers. ION makes the DigiFINs domestically and then ships them overseas to its customers, who, in competition with WesternGeco, perform surveys abroad on behalf of oil companies. WesternGeco identified ten surveys for which it contends that, but for ION's supplying of DigiFINs to ION's customers, WesternGeco would have been awarded the contracts and made over $90,000,000 in profit. ION argues that WesternGeco cannot receive lost profits resulting from the failure to win these contracts because they all were to be performed on the high seas, outside the jurisdictional reach of U.S. patent law.

The presumption against extraterritoriality is well established and undisputed. As the Supreme Court ruled in Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007), "the presumption that United States law governs domestically but does not rule the world applies with particular force in patent law. The traditional understanding that our patent law operates only domestically and does not extend to foreign activities is embedded in the Patent Act itself, which provides that a patent confers exclusive rights in an invention within the United States." See also Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972).

The enactment of § 271(f) expanded the territorial scope of the patent laws to treat the export of components of patented systems abroad (with the requisite intent) just like the export of the finished systems abroad. The genesis of § 271(f) lays in the decision in Deepsouth, where the Court determined that a domestic manufacturer who manufactured components of an infringing product and then exported those components abroad without first combining them was not an infringer under § 271(a). In response, Congress enacted § 271(f), which overruled Deepsouth to impose liability on domestic entities shipping components abroad (with the requisite intent), just as if they had manufactured the infringing product itself in the U.S. There is no indication that in doing so, Congress intended to extend the United States patent law to cover uses abroad of the articles created from the exported components.

The leading case on lost profits for foreign conduct is Power Integrations, Inc. v. Fairchild Semiconductor Ina Inc., 711 F.3d 1348 (Fed. Cir. 2013). There, the patentee lost contracts to supply a prospective customer with computer chips in the U.S. and abroad because the accused infringer became a competitor for such contracts as a result of the U.S. infringing sales. If the accused infringer had been precluded from U.S. infringement, the patentee alleged that the accused infringer could not have competed for the contracts which necessarily involved supplying chips both in the U.S. and abroad.

We rejected the argument that the patentee should recover world-wide lost profits.‎ "Our patent laws do not thereby provide compensation for a defendant's foreign exploitation of a patented invention, which is not infringement at all. Rather, we find neither compelling facts nor a reasonable justification for finding that the patentee is entitled to 'full compensation' in the form of damages based on loss of sales in foreign markets which it claims were a foreseeable result of infringing conduct in the United States." "The entirely extraterritorial production, use, or sale of an invention patented in the United States is an independent, intervening act that, under almost all circumstances, cuts off the chain of causation initiated by an act of domestic infringement." See also Halo Elecs., Inc., v. Pulse Elecs., Inc., 769 F.3d 1371 (Fed. Cir. 2014) ("Following Halo's logic, a foreign sale of goods covered by a U.S. patent that harms the business interest of a U.S. patent holder would incur infringement liability under § 271(a). Such an extension of the geographical scope of § 271(a) in effect would confer a worldwide exclusive right to a U.S. patent holder, which is contrary to the statute and case law.").

The Dissent's Arguments are Unpersuasive

The dissent raises three principal arguments in favor of allowing WesternGeco to recover lost profits resulting from failing to win the contracts to perform the seismic surveys on the high seas.

First, the dissent identifies Supreme Court cases it believes approved awards of lost profits for foreign sales. None of these cases is remotely similar to this one. To be sure, they suggest that profits for foreign sales of the patented items themselves are recoverable when the items in question were manufactured in the United States and sold to foreign buyers by the U.S. manufacturer. There is no such claim here.

Second, the dissent argues that the surveys should be recoverable as "convoyed sales" of the domestically manufactured components of the infringing DigiFINs. But, WesternGeco did not raise this argument before the district court or this court. And, the dissent points to no case extending the convoyed sales doctrine to cover sales of related products or services abroad. We see no basis for extending § 271(f)(2) to cover lost profits resulting from the use abroad of U.S. manufactured goods or components thereof in light of the "particular force" of the presumption against extraterritoriality in our patent laws. Certainly in drafting ‎§‎ 271(f)(2), Congress did not provide for liability in convoyed-sales situations.

Third, the dissent expresses concern that our ruling today might effectively prevent WesternGeco from recovering lost profits at all, as the surveys were conducted on the high seas and were outside of the territorial reach of any patent jurisdiction in the world. This may or may not be the case. Indeed, WesternGeco does not contend that it is barred from recovering in the jurisdiction in which the services contracted were negotiated and signed, nor does it contend that it is barred from recovering in the jurisdiction from which the ship performing the seismic surveys is flagged. In any event, the possible failure of liability provides no basis for ignoring the presumption against extraterritoriality.

Comment: An additional argument that WesternGeco presented is that Power Integrations applies to infringement under § 271(a)–(b), not infringement under § 271(f). The majority points out that, by its terms, § 271(f) operates to attach liability to domestic entities who export components they know and intend to be combined in a would-be infringing manner abroad. A construction that would allow recovery of foreign profits would make § 271(f), relating to components, broader than § 271(a), which covers finished products. In fact, § 271(f) was designed to put domestic entities who export components to be assembled into a final product in a similar position to domestic manufacturers who sell the final product domestically or export the final product. Just as the U.S. exporter of a final product cannot be liable for use abroad, so too the U.S. exporter of the component parts cannot be liable for use of the infringing article abroad.


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