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

September 21, 2017

Overview

In In Re Cray, the panel grants Cray’s petition for a writ of mandamus, ruling that the district court’s handling of the case is not consistent with its case law regarding what is “a regular and established place of business.” In First Data v. Inselberg, the panel affirms that there is no subject matter jurisdiction over a declaratory judgment action in which the party asserting infringement had previously assigned the patents to the accused infringer/declaratory judgment plaintiff. Idemitsu v. SFC affirms an IPR determination of obviousness, rejecting the patentee’s contention that arguments regarding the prior art were raised too late in the IPR process. NFC v. Matalinvolved a reversal of an IPR decision in which the Board found claims obvious despite NFC’s argument that it had created a prototype embodying the invention before the priority date of the cited prior art.

Thanks to my colleague Yuke Wang for his help with this week’s report. Any cases decided tomorrow will be included in next week’s report.

Pete Heuser

In Re: Cray Inc., Fed. Cir. Case 2017-129 (September 21, 2017)

The panel rules that the district court misinterpreted the scope and effect of Circuit precedent in determining that Cray maintained “a regular and established place of business” in the Eastern District of Texas within the meaning of 28 U.S.C. § 1400(b). Accordingly, the court’s refusal to transfer a case pursuant to 28 U.S.C. § 1406(a) was an abuse of discretion, and the Circuit grants Cray’s petition for a writ of mandamus and directs the case to be transferred to the Western District of Wisconsin.

This petition arises from a patent infringement action filed by Raytheon against Cray, which sells advanced supercomputers that Raytheon accuses of infringement. Cray is a Washington corporation with its principal place of business located there. It also maintains facilities in Chippewa Falls, Wisconsin and other locations. Although Cray does not rent or own an office or any property in the Eastern District of Texas, it allowed Mr. Douglas Harless to work remotely from his home in that district. Mr. Harless worked as a “sales executive” for approximately seven years with associated sales of Cray systems in excess of $345 million. Mr. Harless’s responsibilities also included new sales development in the Central U.S. and “management of key accounts within various industries. Mr. Harless provided price quotations to customers, listing himself as the account executive and the person who prepared the quotation. The communications also identified his home telephone number as his office telephone number with an Eastern District of Texas area code. Cray never paid Mr. Harless for the use of his home to operate its business, or publicly advertised or otherwise indicated that his home residence was a Cray place of business.

Cray moved to transfer this suit under 28 U.S.C. § 1406(a), which provides that “the district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” Because Cray is incorporated in the State of Washington, there is no dispute that the residency requirement of that statute cannot be met here under the definition provided in TC Heartland. The district court agreed that Cray does not reside in the district. Cray further argued that venue was improper in the Eastern District of Texas because Cray had neither committed acts of infringement, nor maintained a regular and established place of business within that district. The district court, however, rejected that argument, ruling that Mr. Harless’s activities were factually similar to the activities performed by the representatives in the Circuit’s 1985 case ofIn re Cordis, in which this court rejected a mandamus request to reverse an order denying transfer for improper venue.

Although the district court found that Cordis resolved this case, the court then went on “for the benefit of” other litigants and counsel to set out four factors for inquiries into what constitutes a regular and established places of business “in the modern era,” including physical presence, defendant’s representations, benefits received, and targeted interactions with the district.

After setting forth the high level of proof required for the grant of a writ of mandamus, the panel turns to § 1400(b). The panel’s analysis of the case law and the statute reveal three general requirements relevant to the inquiry: (1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant. If any statutory requirement is not satisfied, venue is improper under § 1400(b). The panel notes that it needs to interpret the meaning of  “where the defendant . . . has a regular and established place of business.” 28 U.S.C. § 1400(b). Thus, § 1400(b) requires that “a defendant has” a “place of business” that is “regular” and “established.” According to the panel, the district court’s four-factor test is not sufficiently tethered to this statutory language and thus it fails to inform each of the necessary requirements of the statute.

The district court erred as a matter of law in holding that “a fixed physical location in the district is not a prerequisite to proper venue.” This interpretation impermissibly expands the statute. The statute cannot be read to refer merely to a virtual space or to electronic communications from one person to another. But such “places” would seemingly be authorized under the district court’s test. While the “place” need not be a “fixed physical presence in the sense of a formal office or store,” Cordis, there must still be a physical, geographical location in the district from which the business of the defendant is carried out.

The second requirement for determining venue is that the place “must be a regular and established place of business.” The district court’s test fails to recognize that the place of business must be “regular.” A business may be “regular,” for example, if it operates in a steady, uniform, orderly, and methodical” manner. In other words, sporadic activity cannot create venue. The “established” limitation bolsters this conclusion. Accordingly, while a business can certainly move its location, it must for a meaningful time period be stable, established.

The third requirement when determining venue is that “the regular and established place of business” must be “the place of the defendant.” As the statute indicates, it must be a place of the defendant, not solely a place of the defendant’s employee. Employees change jobs. Thus, the defendant must establish or ratify the place of business. It is not enough that the employee does so on his or her own. Relevant considerations include whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place. One can also recognize that a small business might operate from a home; if that is a place of business of the defendant, that can be a place of business satisfying the requirement of the statute.

Another consideration might be whether the defendant conditioned employment on an employee’s continued residence in the district or the storing of materials at a place in the district so that they can be distributed or sold from that place. Marketing or advertisements also may be relevant, but only to the extent they indicate that the defendant itself holds out a place for its business. The district court is correct that a defendant’s representations that it has a place of business in the district are relevant to the inquiry. Potentially relevant inquiries include whether the defendant lists the alleged place of business on a website, or in a telephone or other directory; or places its name on a sign associated with or on the building itself. But the mere fact that a defendant has advertised that it has a place of business or has even set up an office is not sufficient; the defendant must actually engage in business from that location. In the final analysis, the court must identify a physical place, of business, of the defendant.

The panel then applies the foregoing test to the present case, and concludes that the facts cannot support a finding that Cray established a place of business in the Eastern District of Texas. Thus venue cannot exist there under § 1400(b). Cray seeks transfer to the Western District of Wisconsin, but Raytheon prefers transfer to the United States District Court for the Western District of Texas. Section 1406(a) provides that “the district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” Section 1406(a) provides that “the district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” Because the district court determined that venue was proper, it did not address the parties’ arguments regarding where the case should be transferred. That determination is left for the district court on remand.

Read the full opinion

First Data Corp. v. Inselberg, Fed. Cir. Case 2016-2677, 2696 (September 15, 2017)

The Circuit affirms the dismissal of a declaratory judgment for lack of subject matter jurisdiction because the claimant did not own the patents allegedly being asserted, and dismisses an appeal of a remand to state court, ruling that the Circuit has no jurisdiction to hear that appeal.

Eric Inselberg is the inventor of systems in which audiences interact with live events, such as concerts and football games. The ownership dispute regarding Inselberg’s patent portfolio stems from a $500,000 loan that Inselberg’s company “Interactive” received from Bisignano in 2010. Inselberg and Interactive defaulted on the loan, and Inselberg and Interactive conveyed Interactive’s patent portfolio to Bisignano. Shortly thereafter, Bisignano became the CEO of First Data, which took a royalty-free license under the patents.

Inselberg later took the position that the assignment agreement in which the patents were conveyed to Bisignano had severe problems that likely made it void. Inselberg then sent Bisignano and First Data a draft state court complaint, which asserted that Inselberg and Interactive were the true owners of the patents and were entitled to sue for infringement. In response, Bisignano and First Data filed a complaint in the District of New Jersey seeking declaratory judgment regarding the validity of the assignment agreement and Bisignano’s ownership of the patent portfolio.

Inselberg and Interactive then filed a complaint in New Jersey Superior Court, asserting state law claims, including that the assignment agreement was invalid and that the patents were owned by them, not Bisignano. Bisignano and First Data filed an answer that included counterclaims requesting a declaratory judgment of noninfringement of the patents. After filing their answer and counterclaims, Bisignano and First Data removed the state court action to the District of New Jersey. However, the district court dismissed the federal claims and remanded the state law claims back to state court.

The panel affirms the dismissal of the federal declaratory judgment action filed by Bisignano and First Data, holding that the district court lacked subject matter jurisdiction, since Inselberg did not own the patents, and therefore could not sue for infringement.  

As to the remand back to state court, the panel notes that, whether the Circuit can review the district court’s remand depends on whether the district court remanded the claims under 28 U.S.C. § 1447. If it did, the order remanding the case “is not reviewable on appeal or otherwise.” If the district court remanded the case after declining to exercise supplemental jurisdiction under 28 U.S.C. § 1367(c), however, then “the remand order is not based on a lack of subject matter jurisdiction for purposes of §§ 1447(c) and (d). The panel finds that the district court’s analysis was based on a lack of subject matter jurisdiction, so § 1447(d) precludes the Circuit from reviewing the district court’s remand order.

Read the full opinion

Idemitsu Kosan Co., Ltd. v. SFC Co. Ltd., Fed. Cir. Case 2016-2721 (September 15, 2017)

The Circuit affirms an IPR decision invalidating the claims of an Idemitsu patent directed to an electroluminescence device as being obvious, and rejects Idemitsu’s argument that SFC’s argument relating to the teachings of a patent to Arakane was raised too late because it did not appear in SFC’s petition or the Board’s institutional decision.

The ’648 patent claims a light-producing device containing an organic medium layer between an anode and cathode to emit light when a voltage is applied through the electrodes. The organic medium layer comprises an arylamine compound and a derivative compound.  The Board found that Arakane teaches two compounds corresponding to the arylamine compound and the derivative compound to be combined to form the organic medium layer of the claimed device. On appeal, Idemitsu argued that the Board erred in finding that Arakane taught combining those particular compounds for the purpose of creating a light emitting layer.  Specifically, Idemitsu argued that Arakane features a requirement about an “energy gap” of the compounds, but the Board made no findings with respect to the energy gap relationship of the compounds corresponding to the ’648 patent’s components. 

The Circuit affirms the Board’s finding that Arakane’s teaching to combine an HT compound with an ET compound to produce a light emitting layer is separate from its description of the energy gap. While Arakane may indicate that a particular combination is undesirable for its own purposes, the reference can nevertheless teach that combination if it remains suitable for the claimed invention.

Idemitsu also argued that the Board should not have engaged in fact-finding as to the teachings of Arakane without the benefit of expert testimony. But here, Idemitsu provided no supporting evidence for its own position – that Arakane teaches away. SFC has the ultimate burden of establishing unpatentability but it is not required to rebut mere attorney argument with expert testimony. The Board weighed the parties’ competing arguments – each relying on the text of Arakane itself – and found SFC’s reading to be more plausible. According to the panel, that is precisely what the Board is supposed to do. 

The Circuit is not persuaded by Idemitsu’s contention that SFC raised various obviousness arguments too late, since neither the Board’s regulations nor the APA requires the institution decision or the petition of the IPR to anticipate and set forth every legal or factual issue that might arise in the course of the trial.  The back-and-forth that took place during the IPR shows that what Idemitsu characterizes as an argument “raised too late” is simply the by-product of one party necessarily getting the last word.

Comment: The Circuit has in the past been critical of the Board for not providing an opportunity to a party to rebut arguments presented late in the IPR process. See, for example, the Circuit’s EmeraChem v. Volkswagen case decided just three months ago. However, the panel feels that was not the situation in Idemitsu, citing the holding of the Circuit’s 2016 Genzyme Therapeutic case: “There is no requirement, either in the Board’s regulations, in the APA, or as a matter of due process, for the institution decision to anticipate and set forth every legal or factual issue that might arise in the course of the trial.” The panel might have also cited its 2017 Novartis v. Torrent Pharmaceuticals decision for a similar holding. The cases seem to be fairly consistent in affirming Board decisions where the appellant has been on notice of an argument even if the argument was not fully developed until the filing of the final brief.

Read the full opinion

NFC v. Matal, Fed. Cir. Case 2016-1808 (September 20, 2017)

The panel reverses and remands an IPR decision in which the Board found claims obvious despite NFC’s argument that it had created a prototype embodying the invention before the priority date of the cited prior art. The panel determines that third party work on the prototype inured to NFC’s benefit, but remands for the Board to determine whether NFC presented evidence sufficient that the prototype embodied the claimed invention.

The patent at issue is directed to devices using electromagnetic induction to communicate information over short distances. NFC’s ’551 patent claims a priority date of March 25, 1999, the filing date of its French patent application. HTC petitioned for IPR based on a patent to Sears, which bears a filing date of February 8, 1999. NFC responded that Bruno Charrat, the named inventor in the ’551 patent, and his team at Inside Technologies reduced the invention to practice on or before November 1998.  NFC’s general theory of the case was that Charrat had conceived the invention by June 1998, and then worked with a team at Inside to design a device embodying the invention (“the M210H device”). By September 1998, NFC claimed, Charrat and his team had sufficiently developed the device that they commissioned Concept Electronique (“CE”), a chip fabrication company, to generate printed circuit board (“PCB”) layouts for the M210H device. In support, NFC presented evidence in the form of various dated and undated documents, including lab notebooks, wiring diagrams, test data and Charrat’s testimony.

According to the panel, the Board’s findings as to the contents of the documents are either inconsistent with the documents themselves or do not adequately consider the portions of the documents that support corroboration. Taken as a whole, the documents corroborate Charrat’s account of conception, product development and later fabrication of the prototype.

The Board also was unpersuaded that NFC had provided sufficient evidence to demonstrate that CE produced the prototype according to Charrat’s design and at his direction. The Board found this lack of documentation counseled towards a conclusion that Charrat’s activities were not corroborated, considering that we have, in the past, “found significant ‘the absence of any physical record to support the oral evidence,’ despite ‘the ubiquitous paper trail of virtually all commercial activity’ that normally exists ‘in modern times,’” quoting Woodland Trust v. Flowertree Nursery, Inc. (Fed. Cir. 1998).

The panel finds the Board’s reliance on Woodland Trustmisplaced because that case involved an alleged public use that continued for about a decade, but was unsupported by any documentary evidence. Charrat’s account is corroborated by the initial data sheet that began the project, communications with CE, and documents generated after Charrat and Inside received the prototype and began to test it. Corroboration of every factual issue contested by the parties is not a requirement of the law.

Because the Board assumed, but did not decide, that the prototype embodied the claimed invention, that issue must be decided on remand in order to determine whether Sears can be antedated.

Read the full opinion

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