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Fresh From the Bench: Precedential Patent Cases From the Federal Circuit

September 20, 2016

Overview

McRO v. Bandai Namco – This appeal is from a grant of judgment on the pleadings that the asserted claims of two patents directed to lip synching in video games are invalid under § 101. The panel reverses, holding that the ordered combination of claimed steps, using unconventional rules that relate subsequences of phonemes, timings, and morph weight sets, is not directed to an abstract idea and is therefore patent-eligible under § 101. The patents at issue automate the process of animating the face of a character who is speaking, replacing a tedious and time consuming process previously used by animators. The panel reaches this decision under the first step of Alice and in doing so compares the case to the recent Enfish v. Microsoft and Rapid v. CellzDirectcases in which it reached the same result.

In its ruling, the opinion cites the Circuit’s 2015 Ariosa v. Sequenon case and asks if the claims at issue would preempt anyone from practicing the invention whether or not their system followed the same “rules” set forth in the claims. According to the opinion, thelimitations in claim 1 prevent preemption of all processes for achieving automated lip synchronization of 3-D characters. McRO has demonstrated that motion capture animation provides an alternative process for automatically animating lip synchronization and facial expressions. The specific structure of the claimed rules would prevent broad preemption of all rules-based means of automating lip synchronization, unless the limits of the rules themselves are broad enough to cover all possible approaches. According to the opinion, there has been no showing that any rules-based lip synchronization process must use rules with the specifically claimed characteristics. Concluding that the claims are not directed to an abstract idea, the panel rules that there is no reason to proceed to step two of the Alice analysis.

McRO is better known as Planet Blue, and is often retained by video game companies to assist with animations. The use of Planet Blue’s technology by Bandai Namco, as well as other defendants Sega, Disney, Sony, LucasArts and Warner Bros., resulted in the filing of these lawsuits, which were consolidated into a single action for pre-trial purposes.

This is the fourth such decision by the Circuit in the past four months, along with Enfish v. Microsoft, ‎Bascom Global v. AT&T, and Rapid v. CellzDirect,  all of which reversed district court invalidations based ‎on unpatentable subject matter. Prior to these decisions, the only post-Alice precedential Circuit decision upholding claims under a section 101 challenge was DDR Holdings v. Hotels.com, ‎decided in late 2014. These decisions provide us with several different examples of how to claim a wide variety of inventions to overcome section 101 attacks.

Stryker v. Zimmer – This case returns to the Circuit from the Supreme Court’s decision in Halo v. Pulse. Zimmer appealed from a final judgment that Stryker’s three patents directed to pulsed lavage devices were valid and willfully infringed. These devices deliver pressurized irrigation for certain medical procedures. In a prior decision the Circuit affirmed the jury’s findings and the jury’s award of damages to Stryker. However, applying the then-controlling test for willful infringement and enhanced damages under Seagate, the Circuit reversed the jury’s willfulness finding and vacated the associated award of treble damages and attorneys’ fees. The Supreme Court subsequently determined that the Seagate test regarding willfulness and enhanced damages unduly confines the ability of district courts to exercise the discretion conferred on them. Because the Circuit decided the willfulness question under the Seagate framework, the Supreme Court vacated the Circuit’s prior decision and remanded the case for further proceedings.

Because Halo was limited to the questions of willfulness and enhanced damages, the Supreme Court left the judgments on other issues undisturbed. In the present decision, the Circuit reaffirms the jury’s findings that Stryker’s patents were valid and infringed in light of the new willfulness standard articulated by the Supreme Court, and affirms the jury’s finding of willful infringement. However, the panel vacates and remands to the district court the award of treble damages, attorney fees and the finding that this was an exceptional case.

LifeNet Health v. LifeCell – In a decision rejecting many arguments of noninfringement and invalidity, the Circuit affirms a ruling in which LifeNet Health was awarded $34.7 million from LifeCell Corporation for infringement of a patent directed to plasticized soft tissue grafts suitable for transplantation into humans‎.  First, as to claim construction, the panel rejects LifeCell’s argument that O2 Micro v. Beyond ‎Innovation  required the district court to resolve a claim construction dispute, because of LifeCell’s failure to sufficiently request further construction of the relevant limitation ‎leading up to and during trial.‎ The panel also rejects LifeCell’s argument that LifeNet’s expert’s trial testimony regarding the nonremoval ‎of plasticizers from the internal matrix of the accused products deserves no weight. There was substantial evidence to support the jury’s determination ‎that plasticizer is not ‎removed from the “internal matrix” of the accused tissue grafts before ‎transplantation.

Based on the nonremoval limitation and under the law of divided infringement pursuant to BMC and the recent Akamai v. Limelight en banc decision, LifeCell also argued that it ‎cannot be liable for direct infringement because the nonremoval limitation cannot be met until an independent third party, such as a ‎surgeon, actually prepares and uses the accused products. The panel notes, however, that the preceding language in each asserted claim states that the relevant ‎plasticizers are already part of the tissue graft. The nonremoval limitation simply provides a negative ‎limitation that those plasticizers remain in the internal matrix prior to transplantation.‎ This limitation is met without action by a third party so the nonremoval limitation does not relieve LifeCell of direct ‎infringement.‎

Finally, the panel holds that the district court did not err in denying the JMOL or the motion for a new trial as to obviousness because there is substantial evidence to support the jury’s finding that the pertinent prior art does ‎not disclose a plasticized soft tissue graft. ‎

Wi-Fi One v. Broadcom – In an appeal of an IPR decision invalidating Wi-Fi’s patent claims, the panel rules that a Board’s decision that an IPR is not time-barred cannot be appealed. The Circuit already ruled on this issue in its 2015 Achates decision, but Wi-Fi argued that the Supreme Court’s subsequent decision in Cuozzo implicitly overruled Achates. Specifically, Wi-Fi argued that Broadcom was in privity with certain ‎entities that were involved in parallel district court ‎litigation involving the ’215 patent more than one year prior to the filing of Broadcom’s petition, and that because those ‎entities would be time-barred from seeking IPR of the ’215 patent, Broadcom was time-barred as ‎well pursuant to ‎§ 315(b).‎ Wi-Fi then cited to the language in Cuozzo noting that the Supreme Court was not precluding review of a final Board decision where there was a “due process problem with the entire ‎proceeding,” and that such “shenanigans” ‎may be properly reviewable under the Administrative Procedure Act.‎

The panel rejects the premise that this case involves the type of “shenanigans” being referenced in Cuozzo, noting that this case is more like what the Supreme Court described as “questions that are closely ‎tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter ‎partes review.”

In his concurring opinion, Judge Reyna notes that he agrees with the majority that Wi-Fi One has neither shown Broadcom to be in privity with the Texas ‎Defendants nor a real party in interest in the Texas litigation. However, he writes separately to convey his sense that ‎this Court has jurisdiction to address the time bar question despite the statutory requirement that the ‎Board’s institution decisions “shall be final and nonappealable.” He thinks that a final decision concerning the time ‎bar set forth by 35 U.S.C. § 315(b) should be subject to review, and in any event, should be ‎reconsidered by an en banc Circuit.‎

Dynamic v. Schlumberger – The Circuit affirms the disqualification of counsel and dismissal without prejudice of a patent infringement suit. Dynamic sued Schlumberger for infringement, alleging that its ’319 patent was infringed by the use and sale of Petrel, a software platform used in the three dimensional visualization, mapping, and reservoir modeling of oil wells. Dynamic depended on Acacia’s legal department for the litigation of the case.  Attorney Charlotte Rutherford worked for Schlumberger before she joined Acacia’s legal group. At Schlumberger, Rutherford managed a copyright lawsuit involving Petrel, was involved in efforts to license Petrel to other companies, evaluated patentable aspects of Petrel, analyzed a competitor’s software that was the commercial embodiment of the ’319 patent, and assessed the risk of lawsuits against Petrel. While working for Acacia, Rutherford was not involved in the current lawsuit and she did not disclose confidential information about Schlumberger or Petrel to other Acacia attorneys.  However, she attended meetings with the inventors of the ’319 patent, other in house counsel, and outside counsel regarding the acquisition of the ’319 patent, and Schlumberger’s Petrel product was a topic of discussion at those meetings. Rutherford was also involved in the selection of outside counsel.     

The Circuit affirms the disqualification of Rutherford because she is irrebuttably presumed to have possessed Schlumberger’s relevant confidential information, and Rutherford’s work at Schlumberger was substantially related to her current work at Acacia. Other in house counsel were also disqualified by imputation but even without imputation, in attending meetings and making decisions such as retaining the outside counsel, Rutherford communicated to the other in house counselthat she supported the litigation strategy and in doing so, disclosed confidential information to the other Acacia attorneys.  Furthermore, Rutherford’s involvement in the selection of the outside counsel for the litigation against Schlumberger supports a finding of communication by conduct to the outside counsel. 

 
   

McRO, Inc. v. Bandai Namco Games America, Fed. Cir. 2015-1080, -1081, -1082, -1083, -1084, -1085, -1086, -1087, -1088, -1089, -1090, -1092, -1093, -1094, -1095, -1096, -1097, -1098, -1099, -1100, -1101 (September 13, 2016)

The ’576 patent and a continuation ’278 patent relate to automating part of a preexisting 3-D animation method. Animation of the character and lip synchronization preexisting the invention was generally accomplished by an animator with the assistance of a computer. Animators used “a ‘keyframe’ approach, where the artist sets the appropriate morph weights at certain important times (‘keyframes’)” instead of at every frame. Animators, using a computer, manually determined the appropriate morph weight sets for each keyframe based on the phoneme timings in the timed transcript. For each keyframe, the artist would look at the screen and, relying on her judgment, manipulate the character model until it looked right—a visual and subjective process. Because the pronounced phoneme and drawn keyframe corresponded in time, this prior art process synchronized the lips and facial expression of the 3-D character. A computer program would then interpolate between the keyframes set by the animator, creating the intermediate frames by determining the appropriate morph weight sets at intermediate points in time simply based on continuously transitioning between the keyframes.

Claim 1 of the ’576 patent is representative and dispositive of the asserted claims on appeal:

A method for automatically animating lip synchronization and facial expression of three dimensional characters comprising:

obtaining a first set of rules that define output morph weight set stream as a function of phoneme sequence and time of said phoneme sequence;

obtaining a timed data file of phonemes having a plurality of sub-sequences;

generating an intermediate stream of output morph weight sets and a plurality of transition parameters between two adjacent morph weight sets by evaluating said plurality of sub-sequences against said first set of rules;

generating a final stream of output morph weight sets at a desired frame rate from said intermediate stream of output morph weight sets and said plurality of transition parameters; and

applying said final stream of output morph weight sets to a sequence of animated characters to produce lip synchronization and facial expression control of said animated characters.

Patentability Under § 101

In Alice Corp. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014), the Court applied a two-step framework for analyzing whether claims are patent eligible. First, we determine whether the claim at issue is “directed to” a judicial exception, such as an abstract idea. The abstract idea exception prevents patenting a result where it matters not by what process or machinery the result is accomplished. If the claims are not directed to an abstract idea, the inquiry ends. If the claims are “directed to” an abstract idea, then the inquiry proceeds to the second step of the Alice framework.

In step two of Alice, we consider whether the claims contain an inventive concept sufficient to transform the nature of the claim into a patent eligible application. To do so we look to determine whether the claims contain “an element or combination of elements that is ‘sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself.’”

In Alice, the Court applied some of its § 101 jurisprudence that preceded the two-step framework, including Parker v. Flook, 437 U.S. 584 (1978) and Dia‎mond v. Diehr, 450 U.S. 175 (1981). In Flook, claims requiring the use of a specific equation were unpatentable because they “simply provided a new and presumably better method of calculating alarm limit values.” Flook. The mathematical “formula itself was an abstract idea” and “the computer implementation was purely conventional” because “the ‘use of computers for “automatic monitoring-alarming’” was ‘well known’.” Alice. “Flook stands for the proposition that the prohibition against patenting abstract ideas cannot be circumvented by attempting to limit the use of the idea to a particular technological environment.” Alice.

The claims in Diehr, in contrast, were patentable. The claims likewise “employed a ‘well-known’ mathematical equation.” Alice. A computer performed the calculations as part of a broader process for curing rubber, but “the process as a whole did not thereby become unpatentable subject matter.” Diehr. Instead, the Court looked to how the claims “used that equation in a process designed to solve a technological problem in ‘conventional industry practice.’” Alice. When looked at as a whole, “the claims in Diehr were patent eligible because they improved an existing technological process, not because they were implemented on a computer.” Alice.

1. The Limitations of Claim 1 of the ’567 Patent

The district court determined that claim 1 of the ’567 patent is “drawn to the abstract idea of automated rules-based use of morph targets and delta sets for lip synchronized three dimensional animation.” We disagree. We have previously cautioned that courts “must be careful to avoid oversimplifying the claims” by looking at them generally and failing to account for the specific requirements of the claims. TLI Commc’ns LLC Patent Litig., 823 F.3d 607 (Fed. ‎Cir. 2016)‎; see also Diehr. Here, the claims are limited to rules with specific characteristics. As the district court recognized during claim construction, “the claims themselves set out meaningful requirements for the first set of rules: they ‘define a morph weight set stream as a function of phoneme sequence and times associated with said phoneme sequence.’” They further require “applying said first set of rules to each sub-sequence of timed phonemes.”  Whether at step one or step two of the Alice test, in determining the patentability of a method, a court must look to the claims as an ordered combination, without ignoring the requirements of the individual steps. The specific, claimed features of these rules allow for the improvement realized by the invention.

As the specification confirms, the claimed improvement here is allowing computers to produce “accurate and realistic lip synchronization and facial expressions in animated characters” that previously could only be produced by human animators. As the district court correctly recognized, this computer automation is realized by improving the prior art through “the use of rules, rather than artists, to set the morph weights and transitions between phonemes.” The rules are limiting in that they define morph weight sets as a function of the timing of phoneme sub-sequences. Defendants do not dispute that processes that automate tasks that humans are capable of performing are patent eligible if properly claimed; instead, they argue that the claims here are abstract because they do not claim specific rules. This argument echoes the district court’s finding that the claims improperly purport to cover all rules. The claimed rules here, however, are limited to rules with certain common characteristics, i.e., a genus. Claims to the genus of an invention, rather than a particular species, have long been acknowledged as patentable.

Patent law has evolved to place additional requirements on patentees seeking to claim a genus; however, these limits have not been in relation to the abstract idea exception to § 101. Rather they have principally been in terms of whether the patentee has satisfied the tradeoff of broad disclosure for broad claim scope implicit in 35 U.S.C. § 112. It is self-evident that genus claims create a greater risk of preemption, thus implicating the primary concern driving § 101 jurisprudence, but this does not mean they are unpatentable.

The preemption concern arises when the claims are not directed to a specific invention and instead improperly monopolize “the basic tools of scientific and technological work.” Alice. The abstract idea exception has been applied to prevent patenting of claims that abstractly cover results where “it matters not by what process or machinery the result is accomplished.” A patent is not good for an effect, or the result of a certain process because such patents would prohibit all other persons from making the same thing by any means whatsoever. A patent may issue “for the means or method of producing a certain result, or effect, and not for the result or effect produced.” Diehr. We therefore look to whether the claims in these patents focus on a specific means or method that improves the relevant technology or are instead directed to a result or effect that itself is the abstract idea and merely invoke generic processes and machinery. Enfish, LLC v. Microsoft Corp., 822 F.3d 1327 (Fed. Cir. 2016); see also Rapid Litig. Mgmt. Ltd. v. CellzDirect, Inc., 2016 WL 3606624, at *4 (Fed. Cir. July 5, 2016).

2. The Claims Do Not Simply Use a Computer to Automate Conventional Activity

Claim 1 of the ’576 patent is focused on a specific asserted improvement in computer animation, i.e., the automatic use of rules of a particular type. We disagree with Defendants’ arguments that the claims simply use a computer as a tool to automate conventional activity. While the rules are embodied in computer software that is processed by general-purpose computers, Defendants provided no evidence that the process previously used by animators is the same as the process required by the claims. In support, Defendants point to the background section of the patents, but that information makes no suggestion that animators were previously employing the type of rules required by claim 1. Defendants concede an animator’s process was driven by subjective determinations rather than specific, limited mathematical rules. The prior art “animator would decide what the animated face should look like at key points in time between the start and end times, and then ‘draw’ the face at those times.” The computer here is employed to perform a distinct process to automate a task previously performed by humans. McRO states that animators would initially set keyframes at the point a phoneme was pronounced to represent the corresponding morph target as a starting point for further fine tuning. This activity, even if automated by rules, would not be within the scope of the claims because it does not evaluate sub-sequences, generate transition parameters or apply transition parameters to create a final morph weight set. It is the incorporation of the claimed rules, not the use of the computer, that “improved the existing technological process” by allowing the automation of further tasks. Alice. This is unlike Flook, Bilski, and Alice, where the claimed computer-automated process and the prior method were carried out in the same way.

Further, the automation goes beyond merely “organizing existing information into a new form” or carrying out a fundamental economic practice. The claimed process uses a combined order of specific rules that renders information into a specific format that is then used and applied to create desired results: a sequence of synchronized, animated characters. While the result may not be tangible, there is nothing that requires a method “be tied to a machine or transform an article” to be patentable. Bilski. The concern underlying the exceptions to § 101 is not tangibility, but preemption. Mayo.

The limitations in claim 1 prevent preemption of all processes for achieving automated lip synchronization of 3-D characters. McRO has demonstrated that motion capture animation provides an alternative process for automatically animating lip synchronization and facial expressions. Even so, we have recognized that “the absence of complete preemption does not demonstrate patent eligibility.” Ariosa Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371 (Fed. Cir. 2015). The narrower concern here is whether the claimed genus of rules preempts all techniques for automating 3-D animation that rely on rules. Claim 1 requires that the rules be rendered in a specific way: as a relationship between subsequences of phonemes, timing, and the weight to which each phoneme is expressed visually at a particular timing (as represented by the morph weight set). The specific structure of the claimed rules would prevent broad preemption of all rules-based means of automating lip synchronization, unless the limits of the rules themselves are broad enough to cover all possible approaches. There has been no showing that any rules-based lip-synchronization process must use rules with the specifically claimed characteristics.

Here, the structure of the limited rules reflects a specific implementation not demonstrated as that which “any animator engaged in the search for an automation process would likely have utilized.” Myriad. By incorporating the specific features of the rules as claim limitations, claim 1 is limited to a specific process for automatically animating characters using particular information and techniques and does not preempt approaches that use rules of a different structure or different techniques. When looked at as a whole, claim 1 is directed to a patentable, technological improvement over the existing, manual 3-D animation techniques. The claim uses the limited rules in a process specifically designed to achieve an improved technological result in conventional industry practice. Claim 1 is not directed to an abstract idea. Because we find that claim 1 is not directed to ineligible subject matter, we do not reach Alice step two.

 
   

Stryker Corp. v. Zimmer, Inc., Fed. Cir. 2013-1668 (September 12, 2016)

Stryker began selling battery powered, handheld pulsed lavage devices in 1993. That same year, Stryker filed the application which eventually gave rise to the patents at issue. The three patents in suit issued in 2000, 2001 and 2006. In 1998, Zimmer began to develop its new design of a portable pulsed lavage device, which came to market as the Pulsavac Plus range of products. Zimmer’s Pulsavac Plus products achieved a peak of $55 million in annual sales in late 2007.

In 2010, Stryker sued Zimmer under its three patents. The district court granted partial summary judgment in favor of Stryker, finding infringement of the ’807 and ’383 patents. The question of whether Zimmer infringed the asserted claim of the ’329 patent, as well as Zimmer’s invalidity defenses against all of the asserted claims, went to trial. The jury found that the products infringed the ’329 patent and that all of the asserted claims were valid. The jury awarded $70 million in lost profits. It further found that Zimmer had willfully infringed all three patents. The jury also found that Stryker had marked substantially all of its products covered by the patents-in-suit during the period it sought damages. The district court denied Zimmer’s JMOL motions, awarded trebled damages for willful infringement, found the case exceptional, awarded attorneys’ fees to Stryker, and imposed a permanent injunction.

The ’329 Patent

According to claim 2, the only asserted claim of the ‘329 patent, the handpiece comprises a “hollow housing,” which includes a “handle,” and, in relevant part in this case, “an electric motor spaced between the top and bottom of said handle and located in said handle” adjacent to an irrigation tube within the housing. Zimmer contends, as indicated by the arrows below, the motor in its accused device is not located in the handle—rather, it is located in the “nub” of the handpiece, the protrusion behind the barrel.

Stryker 329 Patent

During claim construction, Zimmer took the position that no construction was necessary and that the claim term “handle” could be understood as having its plain and ordinary meaning. Stryker proposed to construe the term “handle” as “a portion of a device designed to be held by a hand or hands.” The district court adopted Stryker’s proposed construction.

On appeal, Zimmer also raises the prosecution history of the ’133 application, the parent of the application that issued as the ’329 patent. During the ’133 application’s prosecution, Stryker sought to overcome a rejection of claim 39 based on a prior art reference which described a pistol-shaped device with a barrel and a handle. Stryker traversed the rejection by arguing that the motor of the prior art handpiece was “not in the handle or at an angle to the barrel.” Zimmer contends that claim 39 included the limitation “locating said motor in said handle,” which is the same limitation at issue in the construction of “handle” in claim 2 of the ’329 patent. Therefore, Zimmer argues, Stryker’s statement disclaimed designs in which the motor is located in the barrel or nub of a pistol-shaped handpiece. The district court denied Zimmer’s motion for summary judgment of noninfringement based on this argument, finding that the prosecution disclaimer was insufficiently “clear and unmistakable” because claim 39 of the ’133 application had additional limitations that were absent in claim 2 of the ’329 patent.

The district court’s analysis was flawed, however, because this was not a case in which the purported disclaimers are directed to specific claim terms that have been omitted or materially altered in subsequent applications (rather than to the invention itself). There was no difference in the language describing the limitations as between the two claims at issue; rather, the limitation of claim 2 was included within claim 39. There is no reason why a disclaimer on a limitation within a narrower claim would not apply to the identical limitation within the broader claim, as the same concerns about the prior art would relate to both.

Infringement is a question of fact, and we must give a substantial degree of deference to the jury’s verdict. At trial, Stryker presented evidence indicating that a medical professional could hold Zimmer’s Pulsavac Plus by the nub behind the barrel, where the motor was located. In addition, Stryker presented evidence that the barrel of the Pulsavac Plus was called a “barrel grip” in an associated patent application, and the barrel included indentations that would allow the device to be used while held by the barrel. Stryker also persuaded the jury that it was reasonable to infer that if the nub behind the barrel was also shaped such that it was at least capable of being held, then it would be “a portion of the device designed to be held by hand,” in accordance with the district court’s construction of “handle” in the claim at issue. In light of the evidence presented at trial as a whole, along with the prosecution history, we do not find that “reasonable minds could come to but one conclusion” that Zimmer did not infringe claim 2 of the ’329 patent. Accordingly, we affirm.

Infringement of the ’807 Patent

Zimmer argues that the district court erred in granting summary judgment of infringement of the ’807 patent’s asserted claims. Zimmer’s argument on appeal centers on whether its products include, as required for all the asserted claims, “a front end for receiving the discharge tube and the suction tube.” This limitation describes the interface between the nozzles at the front end of the handpiece and the nozzles of a removable tip that includes discharge and suction tubes. Zimmer argues that the claim language requires that there be male openings on the tip that fit into the female nozzles on the handpiece. Therefore, Zimmer contends that the accused devices do not infringe because they are designed with female openings on the tip that fit into tapered male nozzles on the handpiece. To support its position, Zimmer relies on various dictionary definitions of “receive,” which it argues all have some variant of the verbs “to contain” or “to hold.” Zimmer argues that this meaning is consistent with the specification, which discloses a single embodiment in which the neck of the suction tube “seats in” the drain tube—and, specifically, that this configuration is designed to avoid “leakage of the fluid and material as it flows in the drain tube.”

The district court noted that, in its view, “Zimmer’s reading of ‘receive’ is artificially narrow.” Instead, the district court reasoned that “the word ‘receives’ in this context can only mean that one part of the device connects directly with another part of the device.” Thus, the district court found that Zimmer infringed. While it is a close case, we do not find that the district court erred in granting summary judgment of infringement based on the record before it.

Validity of the ’807 Patent

Zimmer also appeals the district court’s holding that the asserted claims of the ’807 patent were anticipated by its prior art Var-A-Pulse device, the predecessor of the Pulsavac Plus. Stryker argues that the Var-A-Pulse device does not anticipate because it is missing the “lock assembly” limitation of the asserted claims, which require that there be “a lock assembly mounted to the front end of said body for releasably securing the discharge tube and the suction tube to said body.” The district court adopted Stryker’s proposed construction of the term “lock assembly” as “components that work together to secure or fasten the tip to the handpiece.” In the Var-A-Pulse device, the tip was attached to the handpiece in such a way that the tip nozzles fit into interior housing grooves at the front of the handpiece, which were then held together by friction. Zimmer argues that under the district court’s construction, the limitation was present in the prior art because the nozzles were “secured or fastened” when they were fit in the interior housing groove.

At trial, Zimmer presented evidence that included the Var-A-Pulse’s technical documentation, which indicated that the tip should be “secured” to the handpiece, as well as testimony from various Stryker witnesses admitting that the tip nozzles were fastened to the handpiece when they were inserted. However, the jury ultimately found that there was no clear and convincing evidence that the Var-A-Pulse device anticipated the ’807 patent’s asserted claims. In light of the evidence that was presented, we find that a reasonable jury could have reached this verdict. Accordingly, we affirm.

Validity of the ’383 Patent

At trial, Zimmer argued that the asserted claims of the ’383 patent were obvious at the time of the invention in light of U.S. patents to Grulke, Drews II, and Bales. Zimmer contends that all of the limitations of the ’383 patent’s asserted claims were collectively present in the prior art references. Stryker does not directly dispute this point. Instead, it principally argues that because the designs claimed by Grulke and Drews II each exclude certain components described in the claims, one of ordinary skill in the art would not have been motivated to combine these references. In brief, Grulke disclosed a pulsed lavage system that uses a pneumatic, rather than an electric, motor. Drews II disclosed a pulsed irrigation system, powered by an electric motor, that is used as an eye wash.

On the basis of the record presented at trial, we agree with the district court that a reasonable jury could conclude that one of ordinary skill in the art would not have been motivated to combine the Grulke and Drews II references, even in light of the examiner’s rejection of related claims on the basis of this combination. This is sufficient to affirm the district court’s determination that Zimmer did not show, by clear and convincing evidence, that the ’383 patent’s claims were obvious. For this reason, we need not reach other issues, including the evidence of secondary considerations of nonobviousness.

Enhanced Damages

After taking into consideration the circumstances of a particular case, a court may exercise its discretion and award enhanced damages under 35 U.S.C. § 284. Halo. “However, such punishment should generally be reserved for egregious cases typified by willful misconduct.” In making its willfulness determination, the district court applied the standard we had previously articulated in Seagate, which required a patentee to establish, by clear and convincing evidence, both that there was an objectively high likelihood that the accused infringer’s actions constituted patent infringement, and that the risk was “either known or so obvious that it should have been known to the accused infringer.” The Supreme Court rejected this approach and explained that “the subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless.” The Supreme Court also rejected the use of a clear and convincing standard in favor of a preponderance of the evidence standard.

On appeal, Zimmer did not appeal the jury’s finding of subjective willfulness under the Seagate test. On the record in this case, willful misconduct is sufficiently established by the jury’s finding. The jury made its determination under the clear and convincing evidence standard, which is a higher standard than is now necessary. We therefore affirm the jury’s finding of willful infringement.

In doing so, we think the best course is to vacate the award of enhanced damages and remand to the district court for consideration of this issue. As Halo makes clear, the decision to enhance damages is a discretionary one that the district court should make based on the circumstances of the case, “in light of the longstanding considerations . . . as having guided both Congress and the courts.” Thus, it is for the district court to determine whether, in its discretion, enhancement is appropriate here.

Attorneys’ Fees

The district court’s award of attorneys’ fees was based solely on its determination that Zimmer was liable of willful infringement. Though we uphold the district court’s willfulness determination, it does not necessarily follow that the case is exceptional. As with the determination of whether enhanced damages are appropriate, “district courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014). Because there exist further allegations of litigation misconduct in this case and because the standard for finding an exceptional case has changed since the district court issued its ruling regarding attorneys’ fees, we remand this issue for further consideration.

 
   

 

LifeNet Health v. LifeCell Corp., Fed. Cir. 2015-1549 (September 16, 2016)

LifeNet’s ’200 patent claims plasticized soft tissue grafts suitable for transplantation into humans. The ’200 patent explains that tissue grafts are typically preserved and provided in a dehydrated state, such as through freeze drying, then rehydrated before implantation. The patent explains that the freeze drying process is not optimal: it can cause the tissue to become brittle with a tendency to fracture; it requires time in the operating room to rehydrate the tissue; and even after rehydration the tissue’s properties do not approximate that of normal tissue, and the graft can fail. The ’200 patent’s “plasticized” tissue grafts avoid these problems. The tissue is preserved not by freeze drying but by replacing the tissue’s water with biocompatible plasticizers, such as glycerol, that provide the hydrating functions of water. These plasticized grafts exhibit properties similar to that of normal tissue and avoid the rehydration process required for freeze-dried tissue. All of the asserted claims require that “one or more plasticizers are not removed from an internal matrix of the plasticized soft tissue graft prior to transplantation into a human” (or “the non-removal limitation”). For example, claim 1 recites:

1. A plasticized soft tissue graft suitable for transplantation into a human, comprising:

a cleaned soft tissue graft having an internal matrix; and

one or more plasticizers contained in said internal matrix;

said one or more plasticizers are not removed from said internal matrix of said plasticized soft tissue graft prior to transplantation into a human.

The non-removal limitation was added to the claims during prosecution in response to a rejection.  LifeCell’s accused products are soft tissue grafts preserved in a plasticizer solution called Solution E. Users of the accused products are instructed to soak the tissue grafts in saline solution for a minimum of two minutes prior to implantation and that a significant amount of plasticizers are removed during this two minute rinse. LifeCell contends there is no evidence to suggest that surgeons have ever implanted the accused products without following those instructions.

During claim construction, the parties disputed the meaning of several terms, including the nonremoval limitation. The parties’ dispute centered on the degree of plasticizer removal—whether this limitation required that no plasticizer be removed (LifeCell’s position) or allowed for some, but not all, plasticizer to be removed (LifeNet’s position). The district court concluded in its Markman order that construction of the entire term was unnecessary, observing that the two-word phrase “‘not removed’ is easily understood by a person of ordinary skill in the art to have its plain meaning that no plasticizers are removed prior to transplantation.” The district court later denied LifeCell’s motion for summary judgment that this limitation rendered claims 1 and 4 indefinite for allegedly including a method step in an apparatus claim.

At trial, LifeCell argued noninfringement based on evidence showing that as much as 50% of the plasticizer in the accused products is removed during the two minute saline rinse, but the jury found that LifeCell’s accused tissue grafts infringed and awarded LifeNet $34,741,971 in damages.

Discussion

First, LifeCell argued that the district court erred by allowing the jury to resolve a dispute about the scope of the limitation “said one or more plasticizers are not removed from an internal matrix of the plasticized soft tissue graft” and that, because the accused products do not meet this limitation, JMOL of noninfringement is warranted. LifeCell also argues that JMOL of no direct infringement is warranted because, regardless of how the limitation is construed, LifeCell itself does not directly infringe; rather, independent surgeons or their assistants prepare the grafts for transplantation. LifeCell further argues that claims 1 and 4 are invalid as indefinite for covering both an apparatus and, through the nonremoval limitation, a method of using that apparatus. Separately, LifeCell contends that the district court misconstrued “plasticized soft tissue graft” and that, under the correct construction, LifeCell does not infringe as a matter of law. Finally, it seeks JMOL of invalidity on grounds that the asserted claims are either anticipated by the Werner reference or rendered obvious over Werner and the knowledge of a person of ordinary skill. In the alternative, LifeCell seeks a new trial on infringement or invalidity.

A. LifeCell Failed to Object to the Construction of Critical Claim Limitation to Support an O2 Micro Argument

LifeCell argues that the court’s failure to resolve a legal dispute regarding the scope of the limitation ‎“said one or more plasticizers are not removed from an internal matrix of the plasticized soft tissue ‎graft prior to transplantation,” ‎constituted error under O2 Micro International Ltd. v. Beyond Innovation Technology Co., 521 F.3d 1351 (Fed. Cir. 2008). In O2 Micro, we held that “when the parties raise an actual dispute regarding the proper scope of claims, the court, not the jury, must resolve that dispute.”  There is not necessarily an O2 Micro issue, however, whenever further claim construction could resolve the parties’ dispute. For instance, the fact that shortly before trial a party became dissatisfied with its own proposed construction and sought a new one does not give rise to an O2 Micro violation. Here, in light of LifeCell’s failure to sufficiently request further construction of the relevant limitation leading up to and during trial, we find that it fails to properly raise an O2 Micro issue.

According to LifeCell, the court should have instructed the jury that the asserted claims prohibit the removal of any plasticizer from any part of the tissue graft, i.e., whether that plasticizer is bound to the internal matrix or nonbound in the gaps and voids of the tissue graft. As an initial matter, we observe that LifeCell’s arguments relate not only to the degree of nonremoval required but also, more pertinently, from where those plasticizers are not to be removed. Regarding the degree of removal, the court agreed with LifeCell at the Markman stage to the extent the two word phrase “‘not removed’ means that no plasticizer is removed.” The court did not, however, go on to discuss the second issue: from where those plasticizers are not to be removed. Indeed, the parties did not dispute at the Markman stage that the nonremoval, as expressly recited in the asserted claims, is directed to “the internal matrix of the tissue graft.”

The problem with LifeCell’s argument is that it did not timely request modification of the district court’s claim construction. LifeCell asserts that it raised the claim construction dispute with the district court, pointing us to a motion in limine, objections and arguments made during trial, and a Rule 50(a) JMOL motion. However, in those instances, LifeCell merely sought to exclude testimony contrary to the court’s claim construction (which, to be clear, was “no further construction needed”) or to have the court instruct the jury as to the degree of removal. LifeCell did not dispute that the plasticizer could not be removed “from the internal matrix of the soft tissue graft.” The court granted in part LifeCell’s motion in limine but expressly allowed LifeNet to “offer testimony that the plasticizers removed do not come from the internal matrix.” The court also overruled objections at trial on the same evidentiary issue. In doing so, the court made clear that it was not construing the limitation at issue to bar removal of plasticizer from the gaps and voids of the tissue graft. Nevertheless, LifeCell did not request a new or modified claim construction. In its Rule 50(a) motion for JMOL filed at the close of LifeNet’s infringement case, LifeCell continued to present the issue as a factual one, arguing that LifeNet offered testimony in violation of the court’s in limine order and that there was insufficient evidence to find infringement.

LifeCell’s objection to the instructions at the end of trial was also insufficient to raise the O2 Micro issue. LifeCell merely asked the court to replace “No further construction needed” with a plain-meaning construction consistent with the court’s prior statements: “Plain meaning, that no plasticizer is deliberately removed from the internal matrix of the soft tissue graft prior to transplantation into a human.” Even if the court had agreed to that jury instruction, it would not have been the claim construction that LifeCell now seeks on appeal. LifeCell did not ask for clarification of what constitutes removal “from the internal matrix.” In fact, the parties agreed to the construction of “internal matrix,” as expressly defined in the specification to mean “the intercellular substance of such soft tissue including for example ligaments and tendons, including collagen and elastin fibers and base matrix substances.” LifeCell never asked the court to adopt its argument that “internal matrix” is synonymous with “tissue graft.”

B. There Was Substantial Evidence to Support the Verdict ‎that Plasticizer Is Not Removed Before ‎Transplantation

We reject LifeCell’s argument that LifeNet’s expert Dr. Kaplan’s trial testimony regarding the nonremoval of plasticizers from the internal matrix of the accused products “deserves no weight” because it supposedly contradicted his Markman declaration. But in the declaration excerpt, he was speaking to an advantage of the claimed invention over the prior art, not to the degree of difficulty of removing plasticizer from the internal matrix. Nor did Dr. Kaplan say that plasticizer can never be removed from the internal matrix, only that, in the context of the technology at issue, such removal would disrupt the matrix.

We also reject LifeCell’s assertion that LifeNet’s witnesses agreed that an internal matrix is the same as a tissue graft, such that the asserted claims prohibit removal of plasticizer from anywhere in the tissue graft. As noted above, the parties agreed to the construction of “internal matrix,” which was drawn from an express definition in the specification that did not refer to voids or gaps, and Dr. Kaplan’s testimony was consistent with that construction.

Against this background, we find that there was substantial evidence to support the jury’s determination that plasticizer is not removed “from the internal matrix” of the accused tissue grafts before transplantation. The district court did not err in denying JMOL or a new trial on noninfringement.

C. The Nonremoval Limitation Does Not Relieve LifeCell of Direct Infringement

Based on the nonremoval limitation and under the law of divided infringement, LifeCell also argues that it cannot be liable for direct infringement regardless of how that limitation is construed. Direct infringement of an apparatus claim requires that each and every limitation set forth in a claim appear in an accused product. Direct infringement of a method claim requires all steps of the claimed method to be performed by or attributable to a single entity. BMC Res., Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007). Although we may attribute a third party’s performance of method steps to a single entity, see Akamai Techs., Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir. 2015) (en banc), LifeNet did not pursue an attribution theory at trial.

LifeCell posits that the nonremoval limitation cannot be met until an independent third party, such as a surgeon, actually prepares and uses the accused products, and it is unknown at the time that LifeCell sells a graft if and how that graft will be used for transplantation. LifeNet counters that “the final product that leaves LifeCell’s hands is complete and infringes in that condition” without affirmative action by a third party. We agree with LifeNet. Functional limitations recited in the negative may describe a capability or structural element. Here, the preceding language in each asserted claim states that the relevant plasticizers are already part of the tissue graft. The nonremoval limitation simply provides a negative limitation that those plasticizers remain in the internal matrix prior to transplantation.

LifeCell relies on Cross Medical Products, Inc. v. Medtronic Sofamor Danek, Inc., 424 F.3d 1293 (Fed. Cir. 2005), and Centillion Data Systems, LLC v. Qwest Communications International, Inc., 631 F.3d 1279 (Fed. Cir. 2011), to argue that there can be no direct infringement by a single entity when a limitation is absent until a third party takes action. However, those cases are distinguishable. The claimed inventions in Cross Medical and Centillion affirmatively required action by a third party. Here, in contrast, the nonremoval limitation clarifies that the recited plasticizer has not been removed and, because the plasticizer is biocompatible, can remain in the internal matrix of the tissue graft during transplantation, i.e., it need not ever be removed. This limitation is met without action by a third party. It is satisfied by the graft from the moment it is manufactured unless and until the plasticizer is removed from the internal matrix before transplantation. Therefore, the nonremoval limitation does not relieve LifeCell of direct infringement.

D. The Claims Are Not Indefinite for Covering Both an ‎Apparatus and a Method of Using That Apparatus ‎

LifeCell also contends that because the non-removal limitation describes a method of use while the remainder of claims 1 and 4 describes an apparatus, those claims are indefinite for covering both an apparatus and a method of using that apparatus. As explained above, however, the nonremoval limitation defines a property of the recited plasticizer in that the plasticizer is biocompatible and does not need to be removed from the internal matrix before transplantation in the context of apparatus claims 1 and 4, so no later action by a user of the tissue graft is necessary.

E. LifeCell’s Proposed Construction of “Plasticized Soft Tissue Graft” Is Not Correct, So the District Court Did Not Err in Denying JMOL of Noninfringement Or a New Trial

LifeCell separately argues that the district court erred in its construction of “plasticized soft tissue graft.” The district court construed this limitation to require, inter alia, that “free and loosely bound waters of hydration in the tissue have been replaced with one or more plasticizers.”

LifeCell contends that the district court mistakenly failed to also require that the tissue graft be “dehydrated,” in the sense that the tissue can only have “low residual moisture.” Under that construction, LifeCell contends there can be no infringement as a matter of law because the accused products have at least 60% moisture.

Although LifeCell is correct that the written description repeatedly uses the word “dehydrated,” it does so broadly. For example, the specification discusses “soft tissue which is preserved by dehydration, such drying methods including for example, freeze-drying, and/or sublimation and/or air drying and/or liquid substitution.” Although the specification states that “the present invention provides a dehydrated or freeze dried plasticized bone or soft tissue product, preferably containing less than 5% residual moisture,” we decline to confine the claims to such an embodiment where, as in this context, there is no indication that the patentee intended for the claims and the embodiments in the specification to be strictly coextensive. There is no support for the proposition that the claimed soft tissue graft must be dehydrated to a certain degree or completely desiccated. The addition of the word “dehydrated” to the claim construction would be redundant of the requirement for plasticizer to replace some water, which is already properly part of the district court’s construction.

We decline to adopt LifeCell’s proposed construction of “plasticized soft tissue graft,” and LifeCell does not otherwise argue that the jury’s infringement verdict lacks substantial evidence. Therefore, we do not disturb the court’s denial of JMOL of noninfringement or a new trial on this ground.

F. LifeCell Fails to Provide a Basis for Disclosure of a “Plasticized Soft Tissue Graft” Outside of Werner, ‎So the District Court Did Not Err in Denying JMOL or New Trial on Obviousness‎

Finally, we address LifeCell’s argument that the asserted claims are either anticipated by Werner or obvious in view of Werner and the knowledge of a person of ordinary skill. At trial, LifeNet disputed whether Werner meets two limitations of the asserted claims: “cleaned” and “plasticized soft tissue graft.” LifeCell argues on appeal that “the evidence allows only one reasonable conclusion”—that Werner discloses both limitations and therefore anticipates the asserted claims. Alternatively, it argues that Werner at most would lack a sufficient degree of “cleaning” the tissue, which would have been an obvious modification to a person skilled in the art at the time of the invention.

With respect to a “plasticized soft tissue graft,” the district court construed that limitation to specifically require, inter alia, that plasticization occur “without altering the orientation of the collagen fibers, such that the mechanical properties, including the material, physical and use properties, of the tissue product are similar to those of normal hydrated tissue.” LifeCell does not direct us to any evidence from its affirmative case to support its burden of showing that Werner discloses a “plasticized soft tissue graft.” LifeCell focuses on trying to undermine Dr. Kaplan’s testimony that Werner’s process renders the mechanical properties of tissue different from native tissue. A review of the record shows that there is substantial evidence to support a jury finding that Werner does not disclose a plasticized soft tissue graft under the district court’s construction. Since there is substantial evidence to support a finding that Werner fails to disclose “plasticized soft tissue graft,” we need not reach the “cleaned” limitation. The district court did not err in denying LifeCell’s request for JMOL or a new trial with respect to anticipation.

LifeCell only argues obviousness on appeal with respect to the “cleaned” limitation. It does not point to any evidence that a “plasticized soft tissue graft,” if not disclosed by Werner, would have been an obvious modification to a person of ordinary skill in the art. As LifeCell fails to provide a basis for disclosure of a “plasticized soft tissue graft” outside of Werner, the district court also did not err in denying JMOL or a new trial on obviousness.

 
   

Wi-Fi One, LLC v. Broadcom Corp., Fed. Cir. 2015-1944 (September 16, 2016)

This is an appeal from the decision in an inter partes review in which the Board held various claims of a patent owned by Wi-Fi One to be anticipated.  In 2013, Broadcom petitioned for IPR of the ’215 patent, challenging numerous claims. Wi-Fi argued that Broadcom was barred from seeking review of the patent because Broadcom was in privity with certain entities that were involved in parallel district court litigation involving the ’215 patent. Because those entities would be time barred from seeking inter partes review of the ’215 patent, Wi-Fi argued that Broadcom was time barred as well. See 35 U.S.C. § 315(b). Wi-Fi filed a motion seeking discovery designed to support its argument, but the Board denied the motion. It found that Wi-Fi has not provided evidence to show that there is more than a mere possibility that the sought-after discovery even exists.

The Board instituted IPR review of the ’215 patent, finding that there was a reasonable likelihood that the challenged claims were anticipated by a U.S. patent to Seo. Wi-Fi argued there was no anticipation but the Board rejected those arguments. Finally, the Board held that Wi-Fi had not shown that Broadcom was in privity with the district court defendants, and therefore Broadcom was not barred from filing a petition for inter partes review.

On appeal, Wi-Fi continues to press its argument that Broadcom was barred from petitioning for IPR because it was in privity with a time-barred district court litigant. Pursuant to ‎35 U.S.C. § 315(b)‎, the Board may not institute IPR “if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.”

In Achates the Circuit Held that ‎§ 314(d)‎ Prohibits Appeal of the Decision to Initiate IPR Based on the Time-Bar ‎§ 315(b)‎

This court has previously addressed whether a patent owner can argue on appeal that the Board improperly allowed a privy of a time-barred district court litigant to pursue an inter partes review. The statute governing the Board’s institution of inter partes review provides that “the determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.” 35 U.S.C. § 314(d). In Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015), we held that section 314(d) “prohibits this court from reviewing the Board’s determination to initiate IPR proceedings based on its assessment of the time-bar of § 315(b), even if such assessment is reconsidered during the merits phase of proceedings and restated as part of the Board’s final written decision.” Wi-Fi argues that the Supreme Court’s recent decision in Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016), implicitly overruled Achates. In Cuozzo the patent owner challenged the Board’s institution decision, arguing that the Board should not have instituted inter partes review, because the petition failed to “identify, in writing and with particularity, each claim challenged, the grounds on which the challenge to each claim is based, and the evidence that supports the grounds for the challenge to each claim.” 35 U.S.C. § 312(a)(3). Based on the language of section 314(d), the Supreme Court held that the Board’s decision on that issue was unreviewable.

Cuozzo Did Not Implicitly Overrule Achates

We see nothing in the Cuozzo decision that suggests Achates has been implicitly overruled. The Supreme Court stated that the prohibition against reviewability applies to “questions that are closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review.” Section 315 is just such a statute. The time bar set forth in section 315 addresses who may seek inter partes review, while section 312 governs what form a petition must take. Both statutes govern the decision to initiate inter partes review.

Wi-Fi also argues that the reviewability ban is limited to issues arising under section 314, because of the statutory text providing that a determination by the Director whether to institute inter partes review “under this section” is not reviewable. 35 U.S.C. § 314(d). This court explicitly rejected that argument in Achates. Nothing in Cuozzo casts doubt on that interpretation of the statute, especially in light of the fact that the Supreme Court held that the particularity requirement, which is contained in section 312, is nonappealable. Wi-Fi has not pointed to anything in Cuozzo that casts doubt on that reasoning despite the following language in Cuozzo clarifying the scope of the preclusion of review:

[W]e do ‎not categorically preclude review of a final decision ‎where a petition fails to give “sufficient notice” such ‎that there is a due process problem with the entire ‎proceeding, nor does our interpretation enable the ‎agency to act outside its statutory limits by, for ‎example, canceling a patent claim for ‎‎“indefiniteness under § 112” in inter partes review.  Such “shenanigans” ‎may be properly reviewable in the context of § 319 ‎and under the Administrative Procedure Act, ‎which enables reviewing courts to “set aside agency action” that is “contrary to constitutional ‎right,” “in excess of statutory jurisdiction,” or “arbitrary [and] capricious.”‎

Wi-Fi argues that the Board’s denial of its request for discovery on the time-bar issue is an example of the “shenanigans” that the Supreme Court in Cuozzo suggested would be reviewable. We disagree. To hold that such a ruling falls within the narrow exception to the Supreme Court’s unreviewability holding would render routine procedural orders reviewable, contrary to the entire thrust of the Cuozzo decision.

Judge Reyna’s Concurring Opinion

I agree with the majority that Wi-Fi One has neither shown Broadcom to be in privity with the Texas Defendants nor a real party in interest in the Texas litigation. I write separately to convey my sense that this Court has jurisdiction to address the time bar question despite the statutory requirement that the Board’s institution decisions “shall be final and nonappealable.” 35 U.S.C. § 314(d). I believe that the legal distinction that exists between an “institution” decision and a final decision compels that the decision in this case is a final decision, not an institution decision. A final decision concerning the time bar set forth by 35 U.S.C. § 315(b) should be subject to review. In any event, I think this issue should be reconsidered by an en banc Circuit.

 
   

Dynamic 3D Geosolutions LLC v. Schlumberger Ltd., Fed. Cir. 2015-1628, -1629 (September 12, 2016)

Rutherford worked for Schlumberger from 2006 to the middle of 2013.  While at Schlumberger, Rutherford occupied senior counsel, director, and deputy general counsel positions in its intellectual property department.  Rutherford was also involved in a “Goldstar” project that evaluated patentable aspects of Petrel and assessed the risk of lawsuits against it.  One competitor’s product analyzed during this project was Austin Geomodeling’s RECON software.  Austin Geomodeling filed a patent application in 2007 that eventually issued as the ’319 patent in 2011.  RECON is supposedly the commercial embodiment of the ’319 patent, which is directed to systems and methods of combining seismic and well log data into a real time, interactive three-dimensional display.

Rutherford joined Acacia in 2013.  Shortly after joining Acacia, Rutherford twice met with the inventors of the ’319 patent to discuss Acacia’s acquisition of the patent and possible future litigation.  She also participated in a telephone call with the law firm Collins, Edmonds, Pogorzelski, Schlather & Tower PLLC (“CEP”) and one of her subordinates regarding the ’319 patent.  At the meetings and in the call, Schlumberger’s Petrel product was discussed as a potential target of patent infringement litigation.  Her subordinate and CEP prepared a recommendation to acquire the ’319 patent and to sue Schlumberger, and Rutherford “approved” or “concurred” in that recommendation.  The ’319 patent was bought and assigned to Dynamic 3D.  Rutherford and her subordinate also jointly made the decision to hire CEP as the outside counsel.

The Disqualification of Rutherford

The accused features of Petrel existed in the older versions that Rutherford was exposed to, and she was involved at Schlumberger in efforts to license Petrel to other companies.  She was involved in a project specifically evaluating a product later accused of infringement by Acacia, and the risks of such an infringement suit.  That evidence created an irrebuttable presumption that she acquired confidential information requiring her disqualification.   

Rutherford’s work at Schlumberger was substantially related to her current work at Acacia.  An attorney’s representation does not need to be relevant in the evidentiary sense to be substantially related, but rather need only be akin to the present action in a way reasonable persons would understand as important to the issues involved. Rutherford was not involved in the current suit, but because Acacia failed to screen her from the case, Rutherford is irrebuttably presumed to have possessed Schlumberger’s relevant confidential information, which is substantially related to the current case. She was properly found to have been disqualified.   

The Disqualification of Other In-House Counsel

The district court noted that conflict rules for firms also apply to corporate legal departments. Dynamic and Acacia failed to show that knowledge of Schlumberger’s confidential information should not be imputed to Acacia’s other in house counsel.  To the contrary, Acacia admitted that there was no ethical screening wall or other objective measures implemented to prevent confidential information from being used, to disadvantage Schlumberger. Even without imputation, in attending meetings and making decisions such as retaining CEP as outside counsel, Rutherford communicated to the other in house counsel that she supported the litigation strategy and thereby disclosed confidential information to the other Acacia attorneys.  

The Disqualification of CEP

Even beyond presumptions, Rutherford’s involvement in the selection of CEP as outside counsel and in the litigation against Schlumberger supports a finding of communication by conduct. The arguments of Dynamic and Acacia focus on presumptions and actual disclosure, ignoring the totality of the duty owed to clients.  Here, Rutherford disregarded the duty of loyalty and communicated confidential information not only to other in house counsel but also to outside counsel.

Dismissal Without Prejudice

Dynamic’s pleadings were drafted by lawyers presumed to possess Schlumberger’s confidential information. The significant prejudice that Schlumberger would face, if the case were to continue, outweighs the harsh result of dismissal.

Related Case

Schlumberger sued Rutherford in Texas state court in March 2014, presenting evidence that she retained copies of confidential and privileged information, including that relating to Petrel, for purposes of providing it to Acacia. The court dismissed all but the breach of contract claim for violating her confidentiality agreement, finding that Texas statutes protected Rutherford’s First Amendment rights to petition and association, as well as her “communication” with outside counsel and in house counsel regarding the acquisition of the ’319 patent, and the decision to sue Schlumberger.  The court sanctioned Schlumberger for bringing the suit, ordering payment of $600,000 in attorneys’ fees and sanctions. Schlumberger challenged the decision to dismiss almost all of the claims, but the state appellate court dismissed that appeal for lack of jurisdiction over an interlocutory appeal. 

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