Fresh From the Bench: Precedential Patent Cases From the Federal Circuit
Enfish v. Microsoft – In an unusually pro-patent-eligibility opinion, the Circuit reverses a district court ruling that the claims of a patent directed to a "self-referential data base" are invalid under Alice and § 101. The panel also vacates a determination of anticipation under § 102. However, the panel affirms the district court's summary judgment of noninfringement so Microsoft escapes liability for its ADO.NET product.
Bilski and Alice and virtually all of the computer-related § 101 cases that the Circuit has analyzed involved claims that were directed to abstract ideas. Therefore, courts have needed to proceed to the second step of the Alice inquiry, which asks if there is some inventive concept in the application of the abstract idea. But here, the panel rules that the plain focus of the claims at issue is on an improvement to computer functionality itself, not on economic or other tasks for which a computer is used in its ordinary capacity. Therefore, the claims are not directed to a patent-ineligible abstract idea and there is no need to go to the second step of Alice's two step inquiry.
The district court also found the claims anticipated by the Microsoft Excel 5.0 software program, the spreadsheet that has been in public use since early 1994. However, the panel rules that finding anticipation required an inappropriately broad reading of the claims, and therefore reverses and remands the anticipation ruling.
Finally, as to infringement, the panel affirms the construction of "means for indexing" and agrees with the district court's ruling that the accused ADO.NET does not perform either step two (store the text value of a keyword in the index), or step three (store a pointer from the text value to the index).
Because a ruling finding patentable subject matter in a computer patent has been rare, that portion of the court's analysis is appended in our more detailed report on this case. Also appended is the PTO's May 19 memorandum to its examiners commenting on Enfish. The fact that the memorandum was sent shows that practitioners will be able to use Enfish when arguing that computer-related inventions may in fact be patent-eligible despite Alice and all of the subsequent decisions striking down claims under § 101.
TLI v. AV Automotive – The panel affirms the dismissal of a patent suit alleging that defendants infringe a patent relating to a method and system for taking, transmitting, and organizing digital images, agreeing with the district court that the claims do not recite patent-eligible subject matter under 35 U.S.C. § 101. In doing so, the panel distinguishes the patent in Enfish, which was directed to an improvement in the functioning of a computer, rather than simply adding conventional computer components to well-known business practices, or generalized steps to be performed on a computer using conventional computer activity. According to the panel and contrary to TLI's arguments on appeal, the claims here are not directed to a specific improvement to computer functionality. Rather, they are directed to the use of conventional or generic technology in a nascent but well-known environment, without any claim that the invention reflects an inventive solution to any problem presented by combining the two. As to the second step in Alice, the panel agrees with the district court that the claims' recitation of a "telephone unit," a "server," an "image analysis unit," and a "control unit" fail to add an inventive concept sufficient to bring the abstract idea into the realm of patentability.
The PTO's May 19 memorandum to its examiners (appended to the longer discussion of Enfish above) also comments on TLI, noting that it provides a contrast to the claims set forth in Enfish. According to the PTO, Enfish includes "non-abstract claims directed to an improvement to computer functionality" while TLI involves "abstract claims that are directed, for example, to generalized steps to be performed on a computer using conventional computer activity."
Intelligent Bio-Systems v. Illumina
The panel affirms the PTAB inter partes review finding of non-obviousness as to a patent directed to a method of labeling nucleotides in a DNA strand. In addition to finding that the Board's factual findings are supported by substantial evidence, the panel also affirmed the Board's decision to not consider arguments in petitioner appellant's reply brief because those arguments, including support by expert witnesses, were not in the initial petition. Unlike district court litigation—where parties have greater freedom to revise and develop their arguments over time and in response to newly discovered material—the expedited nature of IPRs bring with it an obligation for petitioners to make their case in their petition to institute an inter partes review.
This ruling is similar to that in Redline Detection, LLC v. Star Envirotech, Inc., 811 F.3d 435 (Fed. Cir. 2015), decided in December. While the 60 page limit restricts the arguments that can be made, expert declarations can and should be used. However, overly long expert witness declarations have been rejected on occasion where petitioner's arguments have been found not to be contained "within the petition." 35 U.S.C. § 312(a)(3). If necessary, a second IPR needs to be filed because we should not assume that additional evidence can be submitted under Rule 42.123(a), which permits the record to be supplemented within 30 days of institution.
Diamond v. Hyundai – Diamond Coating sued Hyundai, Kia and Nissan for infringement of patents directed to carbon coatings that reduce wear on contacting surfaces. The Circuit affirms the dismissal of the actions because agreements between Diamond and Sanyo, the original assignee of the patents-in-suit, did not confer patentee status on Diamond, allowing Diamond to sue Appellees without joining Sanyo.
Specifically, the panel rules that (1) the exclusive right to make, use, and sell is vitally important, and (2) the nature and scope of the patentee's retained right to sue accused infringers and license the patent are the most important factors in determining whether an agreement transfers sufficient rights to render the other party the owner of the patent. With respect to the first, Sanyo retains a right and license to make, use, and sell products covered by the patents-in-suit, and does not even grant Diamond a right to practice the patents. Thus, in this respect, Diamond unquestionably failed to acquire all substantial rights in the patents.
With respect to the second issue, Sanyo retained significant control over Diamond's enforcement and litigation activities. First, the license agreement conditions Diamond's litigation and enforcement activities on Sanyo's best interests. Second, the agreement cabins Diamond's authority to license the patents-in-suit. Third, the agreement limits Diamond's discretion to refrain from suing certain companies.
The license agreement therefore did not convey all of the substantial rights in the patents to Diamond, so Diamond is not a "patentee" under 35 U.S.C. § 281, and therefore does not have standing to maintain the suit without Sanyo being a party.
Following the district court's decision, Diamond and Sanyo executed nunc pro tunc agreements, which Diamond asserts effectively establish Diamond's status as a patentee. However, in Alps South v. Ohio Willow Wood the Circuit recently held that nunc pro tunc assignments are not sufficient to confer retroactive patentee status. Therefore, the panel rejects this argument of Diamond as well.
Intendis v. Glenmark – The panel affirms the judgment of the district court that the ANDA filing of a generic version of Finacea® Gel infringes under the doctrine of equivalents. What is interesting about this opinion is the clear statement that although intrinsic evidence in the specification may be informative to a DOE analysis, extrinsic evidence may also be used to identify how a function of a claim element may be viewed by one of ordinary skill in the art. In this case, Appellant argued that certain claim terms were never recited in the patent to have a specific function. However, the district court held and the Circuit agreed that Appellant's representations to the FDA that the claim term had a given function was enough to view the claim term as having the function.
The panel also took a relatively narrow view of an alleged disclaimer that is required for "a clear and unmistakable surrender of subject matter" under argument-based prosecution history estoppel. Applicants stated during prosecution that dependent claims that recited a range from 0 to 1% or 3% of a chemical could not logically include 0% of the chemical because they depend from an independent claim that clearly required the chemical. The panel found this statement to only be "clarifying" rather than a clear surrender of the subject matter.
Howmedica v. Zimmer– Plaintiffs-Appellants Howmedica Osteonics and Stryker Ireland (collectively, "Stryker") appeal the district court's final judgment of noninfringement. Following claim construction, the district court ruled that Stryker could not rely on the doctrine of equivalents in presenting its infringement case because it had not included an allegation of infringement under the doctrine in its infringement contentions. The panel affirms the claim construction ruling, holding that, under the circumstances, construing the unclear claim terms at issue in light of the written description explanation is the proper claim construction technique. More significantly, the panel rules that the district court did not abuse its discretion in enforcing its clear local rules regarding the identification of infringement contentions. Here, where Stryker failed to identify the doctrine of equivalents as a basis for asserting infringement, the panel supports the district court in its admittedly harsh ruling that Stryker was limited to literal infringement. Based on this, the Circuit affirms the noninfringement ruling by the district court.
Merck v. Watson – The Circuit reverses a ruling that an offer for sale more than one year prior to the filing date of a patent application was not an invalidating bar under 35 U.S.C. § 102(b). Specifically, Merck sued Watson Laboratories, and Watson stipulated to infringement, relying exclusively on its on- sale bar defense. The district court rejected the defense but the panel finds that a faxed offer six months prior to the critical date that included price, delivery and payment terms was a barring offer for sale, rejecting Merck's argument that the offer was not barring because it did not include safety and liability terms, was never signed, and was ultimately withdrawn.
Enfish, LLC v. Microsoft Corp., Fed. Cir. Case 2015-1244 (May 12, 2016)
Enfish received a '604 and '775 patent in late 2000. The patents claim priority to an application filed in March 1995. The patents are directed to an innovative logical model for a computer database. A logical model is a model of data for a computer database explaining how the various elements of information are related to one another. A logical model generally results in the creation of particular tables of data, but it does not describe how the bits and bytes of those tables are arranged in physical memory devices. Contrary to conventional logical models, the patented logical model includes all data entities in a single table, with column definitions provided by rows in that same table. The patents describe this as the "self-referential" property of the database.
This self-referential property can be best understood in contrast with the more standard "relational" model. With the relational model, each entity (i.e., each type of thing) that is modeled is provided in a separate table. The document table might contain information about documents stored on the file repository, the person table might contain information about authors of the documents, and the company table might contain information about the companies that employ the persons.
In contrast to the relational model, the patented self-referential model has two features that are not found in the relational model: first the self-referential model can store all entity types in a single table, and second the self-referential model can define the table's columns by rows in that same table. The self-referential table stores the same information that is stored by the example relational model. However, all of the information about documents, persons, and companies are stored in a single table.
The patents teach that multiple benefits flow from this design. First, the patents disclose an indexing technique that allows for faster searching of data than would be possible with the relational model. Second, the patents teach that the self-referential model allows for more effective storage of data other than structured text, such as images and unstructured text. Finally, the patents teach that the self-referential model allows more flexibility in configuring the database.
Microsoft's accused ADO.NET provides an interface by which software applications can store, retrieve, and otherwise manipulate data stored in a database. Enfish alleges that ADO.NET creates and manipulates self-referential tables as part of its operation.
The district court entered summary judgment that all claims are invalid under § 101 as directed to an abstract idea; claims 31 and 32 of both patents are invalid under § 102(b) as anticipated by the prior public sale and use of Microsoft's Excel 5.0 product; and claim 17 is not infringed by ADO.NET. Given the length of the opinion, this excerpt will include only the panel's § 101 analysis.
A Determination Under Section 101 Requires Alice's Two-Step Analysis
Section 101 provides that a patent may be obtained for "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." This court, as well as the Supreme Court, has long grappled with the exception that "laws of nature, natural phenomena, and abstract ideas are not patentable." Ass'n for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107 (2013) (quoting Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012)). Supreme Court precedent instructs us to "first determine whether the claims at issue are directed to a patent ineligible concept." Alice Corp. Pty Ltd. v. CLS Bank Int'l, 134 S. Ct. 2347 (2014). If this threshold determination is met, we move to the second step of the inquiry and "consider the elements of each claim both individually and 'as an ordered combination' to determine whether the additional elements 'transform the nature of the claim' into a patent-eligible application." Id.
The Supreme Court has not established a definitive rule to determine what constitutes an "abstract idea" sufficient to satisfy the first step of the Mayo/Alice inquiry. Rather, both this court and the Supreme Court have found it sufficient to compare claims at issue to those claims already found to be directed to an abstract idea in previous cases. "The Court need not labor to delimit the precise contours of the 'abstract ideas' category in this case. It is enough to recognize that there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here." Alice. For instance, fundamental economic and conventional business practices are often found to be abstract ideas, even if performed on a computer.
In setting up the two-stage Mayo/Alice inquiry, the Supreme Court has declared: "We must first determine whether the claims at issue are directed to a patent ineligible concept." Alice, 134 S. Ct. at 2355. That formulation plainly contemplates that the first step of the inquiry is a meaningful one, i.e., that a substantial class of claims are not directed to a patent-ineligible concept. The "directed to" inquiry, therefore, cannot simply ask whether the claims involve a patent-ineligible concept, because essentially every routinely patent-eligible claim involving physical products and actions involves a law of nature and/or natural phenomenon—after all, they take place in the physical world. Rather, the "directed to" inquiry applies a stage-one filter to claims, considered in light of the specification, based on whether "their character as a whole is directed to excluded subject matter." Internet Patents Corp. v. Active Network, Inc., 790 F.3d 1343 (Fed. Cir. 2015); see Genetic Techs. Ltd. v. Merial L.L.C., 2016 WL 1393573, at *5 (Fed. Cir. 2016) (inquiring into "the focus of the claimed advance over the prior art").
The Supreme Court has suggested that claims "purporting to improve the functioning of the computer itself," or "improving an existing technological process" might not succumb to the abstract idea exception. See Alice. While it is true that the Court discussed improvements to computer-related technology in the second step of its analysis in Alice, that was because the Court did not need to discuss the first step of its analysis at any considerable length, see id. ("Petitioner acknowledges that its claims describe intermediate settlement . . . .").
We do not read Alice to broadly hold that all improvements in computer-related technology are inherently abstract and, therefore, must be considered at step two. Indeed, some improvements in computer-related technology when appropriately claimed are undoubtedly not abstract, such as a chip architecture, an LED display, and the like. Nor do we think that claims directed to software, as opposed to hardware, are inherently abstract and therefore only properly analyzed at the second step of the Alice analysis. Software can make non-abstract improvements to computer technology just as hardware improvements can, and sometimes the improvements can be accomplished through either route. We thus see no reason to conclude that all claims directed to improvements in computer-related technology, including those directed to software, are abstract and necessarily analyzed at the second step of Alice, nor do we believe that Alice so directs. Therefore, we find it relevant to ask whether the claims are directed to an improvement to computer functionality versus being directed to an abstract idea, even at the first step of the Alice analysis.
The Claims at Issue Are Not Directed to a Patent-Ineligible Abstract Idea
For that reason, the first step in the Alice inquiry in this case asks whether the focus of the claims is on the specific asserted improvement in computer capabilities (i.e., the self-referential table for a computer database) or, instead, on a process that qualifies as an "abstract idea" for which computers are invoked merely as a tool. As noted infra, in Bilski and Alice and virtually all of the computer-related § 101 cases we have issued in light of those Supreme Court decisions, it was clear that the claims were of the latter type—requiring that the analysis proceed to the second step of the Alice inquiry, which asks if nevertheless there is some inventive concept in the application of the abstract idea. In this case, however, the plain focus of the claims is on an improvement to computer functionality itself, not on economic or other tasks for which a computer is used in its ordinary capacity.
Accordingly, we find that the claims at issue in this appeal are not directed to an abstract idea within the meaning of Alice. Rather, they are directed to a specific improvement to the way computers operate, embodied in the self-referential table.
Here, the claims are not simply directed to any form of storing tabular data, but instead are specifically directed to a self-referential table for a computer database. For claim 17, this is reflected in step three of the "means for configuring" algorithm described above. Specifically, claim 17 of the '604 patent recites:
A data storage and retrieval system for a computer
means for configuring said memory according to a logical table, said logical table including:
a plurality of logical rows, each said logical row including an object identification
number (OID) to identify each said logical row, each said logical row corresponding to a
record of information;
a plurality of logical columns intersecting said plurality of logical rows to define a plurality
of logical cells, each said logical column including an OID to identify each said logical column; and
means for indexing data stored in said table.
For both pairs of claims 31 and 32, this is reflected in other claim language. The necessity of describing the claims in such a way is underscored by the specification's emphasis that "the present invention comprises a flexible, self-referential table that stores data." ("The present invention improves upon prior art information search and retrieval systems by employing a flexible, self-referential table to store data.").
The specification also teaches that the self-referential table functions differently than conventional database structures. In finding that the claims were directed simply to "the concept of organizing information using tabular formats," the district court oversimplified the self-referential component of the claims and downplayed the invention's benefits. The court determined that the patents' self-referential concept could be satisfied by creating a table with a simple header row. But that is simply not the case. For example, step three of the algorithm described above explains that the table stores information related to each column in rows of that very same table, such that new columns can be added by creating new rows in the table. It is beyond debate that this is more than simply a header row.
Moreover, we are not persuaded that the invention's ability to run on a general-purpose computer dooms the claims. Unlike the claims at issue in Alice or, more recently in Versata Development Group v. SAP America, Inc., 793 F.3d 1306 (Fed. Cir. 2015), which Microsoft alleges to be especially similar to the present case, the claims here are directed to an improvement in the functioning of a computer. In contrast, the claims at issue in Alice and Versata can readily be understood as simply adding conventional computer components to well-known business practices. See Alice; Versata (computer performed "purely conventional" steps to carry out claims directed to the "abstract idea of determining a price using organization and product group hierarchies"); see also Mortgage Grader, Inc. v. First Choice Loan Servs. Inc., 811 F.3d 1314 (Fed. Cir. 2016) (claims attaching generic computer components to perform "anonymous loan shopping" not patent eligible); Intellectual Ventures I LLC v. Capital One Bank (USA), 792 F.3d 1363 (Fed. Cir. 2015) (claims adding generic computer components to financial budgeting); Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014) (claims applying an exchange of advertising for copyrighted content to the Internet); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350 (Fed. Cir. 2014) (claims adding generic computer functionality to the formation of guaranteed contractual relationships).
And unlike the claims here that are directed to a specific improvement to computer functionality, the patent ineligible claims at issue in other cases recited use of an abstract mathematical formula on any general purpose computer, see Gottschalk v. Benson, 409 U.S. 63, 93 (1972), see also Alice, or recited a purely conventional computer implementation of a mathematical formula, see Parker v. Flook, 437 U.S. 584 (1978); see also Alice, or recited generalized steps to be performed on a computer using conventional computer activity, see Internet Patents, 790 F.3d 1348-49 (claims directed to abstract idea of maintaining computer state without recitation of specific activity used to generate that result), Digitech Image Techs., LLC v. Electrs. For Imaging, Inc., 758 F.3d 1344 (Fed. Cir. 2014) (claims directed to abstract idea of "organizing information through mathematical correlations" with recitation of only generic gathering and processing activities).
Similarly, that the improvement is not defined by reference to "physical" components does not doom the claims. To hold otherwise risks resurrecting a bright-line machine-or-transformation test, cf. Bilski v. Kappos, 561 U.S. 593 (2010) ("The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible 'process.'"), or creating a categorical ban on software patents, cf. id. ("This Court has not indicated that the existence of these well-established exceptions gives the Judiciary carte blanche to impose other limitations that are inconsistent with the text and the statute's purpose and design."). Much of the advancement made in computer technology consists of improvements to software that, by their very nature, may not be defined by particular physical features but rather by logical structures and processes. We do not see in Bilski or Alice, or our cases, an exclusion to patenting this large field of technological progress.
In sum, the self-referential table recited in the claims on appeal is a specific type of data structure designed to improve the way a computer stores and retrieves data in memory. The specification's disparagement of conventional data structures, combined with language describing the "present invention" as including the features that make up a self-referential table, confirm that our characterization of the "invention" for purposes of the § 101 analysis has not been deceived by the "draftsman's art." In other words, we are not faced with a situation where general-purpose computer components are added post-hoc to a fundamental economic practice or mathematical equation. Rather, the claims are directed to a specific implementation of a solution to a problem in the software arts. Accordingly, we find the claims at issue are not directed to an abstract idea.
Because the claims are not directed to an abstract idea under step one of Alice, we do not need to proceed to step two. We recognize that, in other cases involving computer related claims, there may be close calls about how to characterize what the claims are directed to. In such cases, an analysis of whether there are arguably concrete improvements in the recited computer technology could take place under step two. Here, though, we think it is clear that the claims are not directed to an abstract idea, and so we stop at step one.
In re TLI Communications LLC Patent Litig. v. AV Automotive, L.L.C., Fed. Cir. Case 2015-1372, -1376, -1377, -1378, -1379, -1382, -1383, -1384, -1385, -1417, -1419, -1421 (May 17, 2016)
The '295 patent relates generally to an apparatus for recording of a digital image, communicating the digital image from the recording device to a storage device, and to administering the digital image in the storage device. The specification notes that a wide variety of data types can be transmitted, including audio and image stills. Moreover, cellular telephones may be utilized for image transmissions, and, at the time of the invention, it was known how to digitize, compress and transmit individual still pictures, such as photographs. Further, the specification recognizes that the prior art taught an image and audio communication system having a graphical annotation capability in which voice, data and image communications are used in telephone systems. But, when a large number of digital images are recorded and are to be archived in a central computer unit, then the organization of the data base becomes a problem. "In particular, the problems of locating the data of an image data file increase as the number of images increases." The invention seeks to solve this problem "by providing for recording, administration and archiving of digital images simply, fast and in such way that the information may be easily tracked."
More specifically, the invention teaches manually or automatically assigning "classification data," such as a date or timestamp, to digital images and sending those images to a server. The server then extracts the classification data and stores the digital images, "taking into consideration the classification information." Claim 17 is representative:
17. A method for recording and administering digital images, comprising the steps of:
recording images using a digital pick up unit in a telephone unit,
storing the images recorded by the digital pick up unit in a digital form as digital images,
transmitting data including at least the digital images and classification information to a server, wherein said classification information is prescribable by a user
of the telephone unit for allocation to the digital images,
receiving the data by the server,
extracting classification information which characterizes the digital images from the received data, and
storing the digital images in the server, said step of storing taking into consideration the classification information.
Applying Step One of Alice, the Claims Are Simply Directed to the Abstract Idea of Classifying and Storing Digital Images in an Organized Manner
Turning to Alice step one, we must first determine whether the claims at issue are directed to a patent-ineligible concept, such as an abstract idea. At step one of the Alice framework, it is often useful to determine the breadth of the claims in order to determine whether the claims extend to cover a fundamental practice long prevalent in our system. But in determining whether the claims are directed to an abstract idea, we must be careful to avoid oversimplifying the claims because at some level, all inventions embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas, Alice. However, not every claim that recites concrete, tangible components escapes the reach of the abstract-idea inquiry.
On its face, representative claim 17 is drawn to the concept of classifying an image and storing the image based on its classification. While claim 17 requires concrete, tangible components such as "a telephone unit" and a "server," the specification makes clear that the recited physical components merely provide a generic environment in which to carry out the abstract idea of classifying and storing digital images in an organized manner. And the specification's emphasis that the present invention "relates to a method for recording, communicating and administering [a] digital image" underscores that claim 17 is directed to an abstract concept. TLI's characterization of the claimed invention also supports our conclusion at step one. In its briefs, TLI essentially parrots the disclosure of the '295 patent, asserting that claim 17 is "directed to a method for recording and administering digital images."
We recently clarified that a relevant inquiry at step one is "to ask whether the claims are directed to an improvement to computer functionality versus being directed to an abstract idea." See Enfish, LLC v. Microsoft Corp., No. 2015-2044, slip op. at *11 (Fed. Cir. May 12, 2016). We contrasted claims "directed to an improvement in the functioning of a computer" with claims "simply adding conventional computer components to well-known business practices," or claims reciting "use of an abstract mathematical formula on any general purpose computer," or "a purely conventional computer implementation of a mathematical formula," or "generalized steps to be performed on a computer using conventional computer activity." Contrary to TLI's arguments on appeal, the claims here are not directed to a specific improvement to computer functionality. Rather, they are directed to the use of conventional or generic technology in a nascent but well-known environment, without any claim that the invention reflects an inventive solution to any problem presented by combining the two. According to the '295 patent, the problem facing the inventor was not how to combine a camera with a cellular telephone, how to transmit images via a cellular network, or even how to append classification information to that data. Nor was the problem related to the structure of the server that stores the organized digital images. Rather, the inventor sought to "provide for recording, administration and archiving of digital images simply, fast and in such way that the information therefore may be easily tracked."
Likewise, the server is described simply in terms of performing generic computer functions such as storing, receiving, and extracting data. "The server includes a reception unit, an analysis unit which analyzes the data that is sent from the telephone unit with respect to classification information, as well as a memory for storing the digital images." But the functions of the server are described in vague terms without any meaningful limitations. In other words, the focus of the patentee and of the claims was not on an improved telephone unit or an improved server.
For these same reasons, the claims are not directed to a solution to a "technological problem" as was the case in Diamond v. Diehr, 450 U.S. 175 (1981). Instead, the claims, as noted, are simply directed to the abstract idea of classifying and storing digital images in an organized manner. Consistent with the Supreme Court's rejection of "categorical rules" to decide subject matter eligibility, Bilski v. Kappos, 561 U.S. 604 (2010), we have applied the "abstract idea" exception to encompass inventions pertaining to methods of organizing human activity. Here, we find that, like the claims at issue in Content Extraction which were directed to "collecting data," "recognizing certain data within the collected data set," and "storing the recognized data in memory," 776 F.3d at 1347, attaching classification data, such as dates and times, to images for the purpose of storing those images in an organized manner is a well-established "basic concept" sufficient to fall under Alice step 1. Lastly, although the claims limit the abstract idea to a particular environment—a mobile telephone system—that does not make the claims any less abstract for the step 1 analysis.
Applying Alice's Second Step, the Claims Fail to Transform the Abstract Idea into a Patent-Eligible Application of that Idea
It is well-settled that mere recitation of concrete, tangible components is insufficient to confer patent eligibility to an otherwise abstract idea. Rather, the components must involve more than performance of well understood, routine, conventional activities previously known to the industry. Alice. We agree with the district court that the claims' recitation of a "telephone unit," a "server," an "image analysis unit," and a "control unit" fail to add an inventive concept sufficient to bring the abstract idea into the realm of patentability.
In sum, the recited physical components behave exactly as expected according to their ordinary use. Although the claims recite that the abstract idea of classifying and storing digital images in an organized manner is carried out in a telephone system, the '295 patent fails to provide the requisite details necessary to carry out that idea. Just as "steps that do nothing more than spell out what it means to apply it on a computer cannot confer patent-eligibility," Intellectual Ventures I, 792 F.3d at 1371-72, here, steps that generically spell out what it means to apply it on a telephone network also cannot confer patent eligibility. Thus, we find that the '295 patent is directed to patent-ineligible subject matter and we affirm the district court's judgment.
Intelligent Bio-Systems, Inc. v. Illumina Cambridge Ltd., Fed. Cir. No. 2015-1693 (May 9, 2016)
Intelligent Bio-Systems, Inc. (IBS) appeals from a PTAB inter partes review a final written decision of non-obviousness as to a patent directed to a method of labeling nucleotides in a DNA strand held by Illumina Cambridge, Ltd. Three prior art references are at issue in this appeal. IBS argued to the Board that Ju in combination with Zavgorodny or Tsien in combination with Zavgorodny render the patent invalid as obvious pursuant to 35 U.S.C. § 103.
The Board decision was based on IBS's failure to demonstrate a motivation to combine the relevant references, and/or that a person of ordinary skill would have a reasonable expectation of success of developing the claimed invention. The Board also refused to consider petitioner IBS's reply brief and accompanying expert declaration because it found that IBS's reply was improper under two regulations: first under 37 C.F.R. § 42.23(b), which provides that a "reply may only respond to arguments raised in the corresponding opposition or patent owner response," and then under 37 C.F.R. § 42.6(a)(3), which states that "arguments must not be incorporated by reference from one document into another document."
According to the Board, IBS ran afoul of § 42.23(b) by presenting a new argument for the first time in its reply brief. That argument changed the unpatentability rationale from express reliance on Zavgorodny's deprotecting conditions, to asserting that those conditions would have been obvious to modify, as well as presenting new evidence to support the new rationale and explain the modifications to Zavgorodny.
The reply brief, moreover, was accompanied by an expert declaration that the Board found, which contains in-depth explanations and supporting documentary evidence not contained in the reply itself. In this way, the Board found, IBS ran afoul of § 42.6(a)(3) by improperly incorporating by reference arguments and evidence from the expert declaration into the reply brief.
The panel stated it is of the utmost importance that petitioners in IPR proceedings adhere to the requirement that the initial petition identify "with particularity" the "evidence that supports the grounds for the challenge to each claim." 35 U.S.C. § 312(a)(3). "All arguments for the relief requested in a motion must be made in the motion. A reply may only respond to arguments raised in the corresponding opposition or patent owner response." 37 C.F.R. § 42.23(b). Once the Board identifies new issues presented for the first time in reply, neither this court nor the Board must parse the reply brief to determine which, if any, parts of that brief are responsive and which are improper. As the Board noted, "it will not attempt to sort proper from improper portions of the reply."
IBS chose which grounds of invalidity to assert in its petition and it chose not to assert this new one. Specifically, a new theory of invalidity was presented by reference to new evidence, citing "a number of non-patent literature references which were not relied upon to support unpatentability in the Petition." The Board did not err in refusing the reply brief as improper under 37 C.F.R. § 42.23(b) because IBS relied on an entirely new rationale to explain why one of skill in the art would have been motivated to combine Tsien or Ju with a modification of Zavgorodny.
Unlike district court litigation—where parties have greater freedom to revise and develop their arguments over time and in response to newly discovered material—the expedited nature of IPRs bring with it an obligation for petitioners to make their case in their petition to institute. While the Board's requirements are strict ones, they are requirements of which petitioners are aware when they seek to institute an IPR.
Diamond Coating Technologies, LLC v. Hyundai Motor America, Fed. Cir. Case 2015-1844, -1861 (May 17, 2016)
Diamond Cannot Sue Without Sanyo Unless It Received All Substantial Rights in the Patents-in-Suit from Sanyo
A patentee shall have remedy by civil action for infringement of his patent. 35 U.S.C. § 281 (2012). A "'patentee' includes not only the patentee to whom the patent was issued but also the successors in title to the patentee." Id. § 100(d). A party may become the successor-in-title to the patentee. § 261, ¶ 2 ("Patents, or any interest therein, shall be assignable in law by an instrument in writing.").
In 2011, Diamond and Sanyo signed a Patent Assignment and Transfer Agreement ("PATA") and an Ancillary Agreement. When the patents-in-suit issued, the inventors assigned the patents to Sanyo. Sanyo then conveyed to Diamond various rights to and interests in the patents-in-suit via the PATA.
Diamond alleges the PATA provides Diamond with "legal title to the patents-in-suit," such that it is the successor-in-title to the patents-in-suit. Because it is the successor-in-title, Diamond continues, it meets the definition of "patentee" under § 281. And because it is a patentee under § 281, Diamond argues that it may sue Appellees without joining Sanyo.
Agreements transferring patent rights occur by assignment or license. An assignment of patent rights operates to transfer title to the patent, while a license leaves title in the patent owner and transfers something less than full title and rights. To create an assignment, a contract must transfer: (1) the entire exclusive patent right, (2) an undivided interest in the patent rights, or (3) the entire exclusive right within any geographical region of the United States. An agreement that does not transfer one of these three interests is merely a license.
In this case, Diamond asserts "patentee" status only as the alleged recipient of "the entire exclusive patent right" (not an undivided interest or a geographically limited entire exclusive right). On its face, "the entire exclusive patent right" must include all substantial rights in the patent. We therefore must ask whether Diamond received all substantial rights in the patents-in-suit or, instead, whether Sanyo retained substantial rights. Unless Diamond received all substantial rights in the patents-in-suit at the time it filed suit in the District Court, it was not a "patentee" (allegedly without a joint owner). If Diamond was not a patentee, it could not bring this suit by itself. And since Diamond did not take the opportunity provided by the District Court to join Sanyo, the District Court properly dismissed the suit.
At the Time of Suit, Diamond Did Not Have All Substantial Rights in the Patents-in-Suit
The District Court held that the PATA did not convey all substantial rights in the patents-in-suit to Diamond. In particular, it held that the following terms of the PATA weighed against finding a transfer of substantial rights: (1) Diamond could not assign the PATA to another party without Sanyo's consent; (2) Sanyo retains an economic interest in future proceeds, including any that arise from infringement litigation; (3) "Sanyo retains a license to make, use, and sell products covered by the patents-in-suit"; and (4) "Sanyo retains significant control over the decision to enforce the patents" because the PATA "conditions enforcement on consideration of the best interests of Diamond and Sanyo."
Diamond challenges these findings. It argues that "the PATA vests Diamond with the sole right to exclude others," "nothing in the PATA divests Diamond's sole right to sue," "Diamond could assign or sell the patents-in-suit," "Sanyo's economic interest did not deprive" Diamond of patentee status; "Sanyo's non-exclusive license did not affect" Diamond's patentee status, and "Sanyo did not control Diamond's ability to enforce the patents-in-suit." Thus, Diamond contends that the PATA transferred to it all substantial rights in the patents-in-suit.
We have observed that (1) the exclusive right to make, use, and sell is vitally important, and (2) the nature and scope of the patentee's retained right to sue accused infringers and license the patent are the most important factors in determining whether an agreement transfers sufficient rights to render the other party the owner of the patent.
With respect to the first, Diamond does not possess sufficient rights to make, use, or sell the patented invention. A licensor's retention of a limited right to develop and market the patented invention indicates that the licensee failed to acquire all substantial rights. Sanyo retains a right and license to make, use, and sell products covered by the patents-in-suit. Section 2.4(a) of the PATA provides Sanyo with "a world-wide, royalty free, non-exclusive, non-sublicensable, non-transferable right and license to practice the methods and to make, have made, use, distribute, lease, sell, offer for sale, import, export, develop and otherwise dispose of and exploit any" products covered by the patents-in-suit, including any "foundry or contract manufacturing activities that Sanyo currently undertakes or may undertake in the future." Indeed, the PATA does not even grant Diamond a right to practice the patents-in-suit. Section 5.1.1 of the PATA limits Diamond to the "prosecution, maintenance, licensing, litigation, enforcement and exploitation" of the patents-in-suit and explains that Diamond "shall engage in no other business or activity." Thus, in this respect, Diamond unquestionably failed to acquire all substantial rights in the patents-in-suit.
Diamond contends that the court should construe "exploitation" in Section 5.1.1 of the PATA to mean "practice" and "sell," such that the PATA provides Diamond with sufficient rights to make, use, and sell the patented invention. "Practice" and "sell" appear in Section 2.4(a) of the PATA. J.A. 204. If the parties intended for Diamond to possess the rights to practice and sell the patents-in-suit, Section 2.4(a) indicates that they knew how to say so.
With respect to the second issue, "retaining control of licensing or litigation activities is critical to demonstrating that the patent has not been effectively assigned to the licensee." Sanyo retained significant control over Diamond's enforcement and litigation activities. First, the PATA conditions Diamond's litigation and enforcement activities on Sanyo's best interests. Section 5.1.4 of the PATA states that Diamond, "in its reasonable sole discretion," "shall pursue the licensing, litigation, enforcement and other exploitation of the patents-in-suit to generate revenue for so long as Diamond determines in good faith, taking into consideration the best interests of Diamond and Sanyo, that it is commercially reasonably to do so." Second, the PATA cabins Diamond's authority to license the patents-in-suit. Section 5.2.2 of the PATA explains that Diamond "shall not" license the patents-in-suit jointly with patents owned by another party absent Sanyo's prior written consent. Third, the PATA and Ancillary Agreement limit Diamond's discretion to refrain from suing certain companies. As the District Court observed, the agreements provide
a list of companies which Diamond "reserves the right not to assert the patents-in-suit against." Sanyo "acknowledges and agrees" that Diamond' s decision not to seek enforcement against these companies "shall not form a basis for alleging that Diamond breached any obligation under the PATA." Furthermore, Diamond may not add companies to the list "in bad faith or in a manner that would reasonably be viewed as circumvention of the business objectives" of the [PATA].
The District Court properly concluded that, "if [Diamond] had unfettered discretion on enforcement, then [the list] would be superfluous." Section 5 and Appendix 2 of the Ancillary Agreement also provide a list of "companies that Sanyo reasonably believes represent licensing opportunities" and restrict Diamond's ability to remove companies from that list. These provisions show that Sanyo retained significant control over Diamond's enforcement and litigation activities.
The PATA and the Ancillary Agreement therefore did not convey all of the substantial rights in the patents-in-suit to Diamond. Accordingly, we hold that Diamond is not a "patentee" under 35 U.S.C. § 281.
Precedent Bars Consideration of the Nunc Pro Tunc Agreements
Following the District Court's decision in Diamond, Diamond and Sanyo executed nunc pro tunc agreements, purportedly "to clarify the parties' original intent; namely, to grant full ownership of the patents in question to Diamond." Diamond asserts these nunc pro tunc agreements effectively establish Diamond's status as a patentee. We conclude they do not.
In Alps South, LLC v. Ohio Willow Wood Co., we held that nunc pro tunc assignments are not sufficient to confer retroactive patentee status. 787 F.3d 1379 (Fed. Cir. 2015). Although Diamond contends that the nunc pro tunc agreements cure its patentee problems, it concedes that the panel should affirm based on Alps South unless there is intervening authority from an en banc panel of this Court or the Supreme Court. Because neither the en banc court nor the Supreme Court has overruled Alps South, we reject Diamond's argument.
Intendis GMBH v. Glenmark Pharmaceuticals Inc., USA., Fed. Cir. Case 2015-1902 (May 16, 2016)
The sole independent claim 1 of the '070 patent recites "a composition that comprises: (i) azelaic acid as a therapeutically active ingredient in a concentration of 5 to 20% by weight, (iii) at least one triacylglyceride in a concentration of 0.5 to 5% by weight, . . . and (vi) lecithin . . . ." '070 patent, col. 6, lines 28-39 (emphases added). Glenmark submitted an ANDA to the FDA seeking to market a generic version of Finacea® Gel. The district court concluded that claims 1-12 of the '070 patent were infringed [by the ANDA] under the doctrine of equivalents and not invalid. This appeal followed.
I. Infringement Under the Doctrine of Equivalents Is Affirmed
One way to show equivalence is by showing on an element-by-element basis that "the accused product performs substantially the same function in substantially the same way with substantially the same result as each claim limitation of the patented product," often referred to as the function-way-result test. Glenmark's non-infringement argument was based on the claim elements triglyceride and lecithin (collectively, "claimed excipients"), which are recited in the sole independent claim 1. The district court found that the claimed excipients were met under the doctrine of equivalents. Specifically, the court found that isopropyl myristate in Glenmark's generic product ("Glenmark's excipient") performs substantially the same function as the claimed excipients.
On appeal, Glenmark argues that the '070 patent itself is silent on the question of whether lecithins or triglycerides function as penetration enhancers. According to Glenmark, this absence of support in the patent for the notion that the claimed excipients function as penetration enhancers is fatal to Appellees' infringement case. Glenmark argues that not a single literature reference in evidence identified lecithin or triglyceride as a penetration enhancer.
We have never held that a patent must spell out a claim element's function, way, and result in order for the doctrine of equivalents to apply as to that element. Certainly, a patent's disclosure is relevant and can at times be dispositive of the function. The proper analysis focuses on the claimed element's function in the claimed composition, not a function that element could perform in the abstract divorced from the claimed composition. The relevant inquiry is what the claim element's function in the claimed composition is to one of skill in the art, and a fact finder may rely on extrinsic evidence in making this factual determination.
Fatal to Glenmark's argument is its own ANDA submission repeatedly referring to the claimed excipients (triglyceride and lecithin) as penetration enhancers. We see no reason why a court acting as a fact finder should ignore a party's representation to a federal regulatory body that is directly on point.
II. The Ruling on Infringement Does Not Result in the Claims Encompassing the Prior Art
The district court determined that a proper hypothetical claim included the claimed excipients and Glenmark's excipient. We agree with the district court's determination that its infringement finding under the doctrine of equivalents did not impermissibly read on the prior art.
III. There Is No Prosecution History Estoppel
We have recognized that prosecution history estoppel can occur during prosecution in one of two ways, either (1) by making a narrowing amendment to the claim ("amendment-based estoppel") or (2) by surrendering claim scope through argument to the patent examiner ("argument-based estoppel").
The district court rejected Glenmark's argument that the '070 patent applicants surrendered a lecithin-free composition (e.g., Glenmark's proposed generic product) as an equivalent during prosecution. During prosecution, the examiner noted that two dependent claims could include zero lecithin. Applicants responded that those range limitations clearly did not include zero because they "are only in claims dependent on independent claims, which clearly require lecithin." Regardless, applicants amended the two dependent claims to recite a lecithin "concentration of from more than 0 to 1%" and "concentration of from more than 0 to 3%," respectively, noting that they were "amended to expressly state what has already been made clear on the record."
We see no error in the district court's analysis. Argument-based estoppel only applies when the prosecution history "evinces a clear and unmistakable surrender of subject matter." Applicants' clarifying statement, "Since the dependent claims must limit the independent claims, the meaning is clear that zero amounts are not included," did not clearly and unmistakably disavow claim scope to distinguish prior art. Amendment-based estoppel does not apply because the amendment was not a narrowing amendment made to obtain the patent. Rather, this record demonstrates that the amendment to the dependent claims was a clarifying amendment. The amendment was, as the comments themselves make clear, a clarifying amendment and it does not give rise to prosecution history estoppel.
IV. The District Court's Ruling of Nonobviousness Is Affirmed
The district court correctly concluded that the asserted claims would not have been obvious. We discern no clear error in the district court's finding that a skilled artisan would not have been motivated to combine the prior art or in finding no reasonable expectation of success based on the evidence of record. Moreover, we see no clear error in the court's findings with respect to objective indicia of nonobviousness.
Howmedica Osteonics Corp. v. Zimmer, Inc., Fed. Cir. Case 2015-1232, -1234, -1239 (May 12, 2016)
Because the claim construction discussion was a fairly ordinary one, the following excerpt is the part of the opinion discussing the affirmance of noninfringement due to Stryker's failure to identify the doctrine of equivalents as a basis for infringement.
On November 4, 2011, Stryker sued Zimmer in the District of New Jersey for infringing the '243 patent. On May 17, 2012, Stryker served its initial infringement contentions asserting literal infringement of several claims—without asserting infringement under the doctrine of equivalents ("DOE"). However, Stryker also stated:
To the extent that any of the limitations of the asserted claims are not deemed to be literally infringed in the manner set forth in Exhibit A, Stryker contends that they are infringed under the doctrine of equivalents. In the event that a claim limitation is deemed to be missing under a literal infringement analysis (e.g., due to claim construction), Stryker reserves the right to demonstrate the presence of a substantial equivalent of such an element and pursue infringement claims under the doctrine of equivalents.
On July 9, 2013, the district court issued its Markman opinion and order. As a result of the construction, Stryker could no longer prove literal infringement by any of the Appellees. But even after the adverse claim constructions, Stryker did not move to amend its infringement contentions to include the DOE.
Stryker then moved for entry of final judgment or entry of partial final judgment under Fed. R. Civ. P. 54(b)—based on the "sleeve" construction as to Zimmer and Wright and the "essentially midway" construction as to Smith. In its briefing, Stryker stated it had infringement arguments against Wright and Zimmer regarding the "essentially midway" construction under the DOE. The district court denied Stryker's motion and ordered summary judgment briefing. Zimmer et al. moved for summary judgment.
On November 24, 2014, the court issued an opinion and order granting Zimmer et al.'s motions for summary judgment of non-infringement. The court determined that Stryker's failure to amend its infringement contentions to include a DOE infringement theory precluded Stryker from asserting that theory in opposition to Zimmer et al.'s motions for summary judgment. The court noted that Stryker could not assert infringement under the DOE generally and also stated Stryker was specifically precluded from asserting the DOE theory of infringement with respect to the "essentially midway" construction. Stryker did not argue for literal infringement under the court's "essentially midway" construction. As a result, the court granted Zimmer et al.'s motions for summary judgment based on the "essentially midway" construction. The court also granted Zimmer's and Wright's motions for summary judgment of non-infringement based on the court's "sleeve" construction. The court expressed no opinion as to whether Smith would be entitled to summary judgment on the basis of the "sleeve" construction.
The District Court Did Not Abuse Its Discretion in Enforcing Its Local Patent Rules
We now examine whether the district court abused its discretion in applying its local rules to preclude Stryker from arguing infringement under the DOE. We affirm decisions in which the district court enforced its own local rules, unless it is "clearly unreasonable, arbitrary, or fanciful; based on erroneous conclusions of law; clearly erroneous; or unsupported by any evidence." Monolithic, 467 F.3d at 1366–67; Mortgage Grader, Inc. v. First Choice Loan Servs. Inc., 811 F.3d 1314 (Fed. Cir. 2016). In light of this highly deferential review standard, we are not able to conclude that the district court abused its discretion.
The district court determined that Stryker could not assert any DOE theory of infringement because Stryker failed to comply with the court's Local Patent Rules ("LPR"). LPR 3.1(e) requires that a patentee's infringement contentions state "whether each limitation of each asserted claim is alleged to be literally present or present under the doctrine of equivalents in the Accused Instrumentality," unless a design patent is at issue. The district court noted that Stryker failed to set forth specifically any DOE theory in its original infringement contentions nor did it allege DOE in later amended contentions. Indeed, Stryker never sought to amend its infringement contentions to include the DOE. And the court also determined that Stryker's reserving its right to assert the DOE did not satisfy LPR 3.1(e).
We defer to the district court when interpreting and enforcing local rules so as not to frustrate local attempts to manage patent cases according to prescribed guidelines. Genentech, Inc. v. Amgen, Inc., 289 F.3d 761 (Fed. Cir. 2002). The local rules clearly required Stryker, as the party asserting infringement, to state whether it asserted infringement under the DOE in its infringement contentions. The local rules also clearly envisioned that Stryker could seek to amend its infringement contentions. LPR 3.7 allows for amendment by court order upon a timely application and showing of good cause. LPR 3.7(a) specifically notes that "a claim construction by the [c]ourt different from that proposed by the party seeking amendment" may, absent undue prejudice to the adverse party, support a finding of good cause.
Stryker never sought to amend its infringement contentions to include the DOE, so it cannot demonstrate that it satisfied the LPR requirements. Although the result may seem harsh, we find no abuse of discretion in the district court applying its rather clearly stated rule. Indeed, we have failed to find an abuse of discretion in similar circumstances. In Genentech, we affirmed the district court's ruling that Genentech failed to comply with a local rule requiring that a DOE theory be included in its claim chart. As a result, Genentech was barred from proceeding with a DOE theory of infringement.
Stryker's arguments on this point are not persuasive. Stryker first attempts to shift the focus from the LPR by arguing that the district court abused its discretion in permitting Zimmer et al. to move for summary judgment. Stryker reasons that the district court should have granted it final judgment on the same terms as its proposed consent judgment—although not all Appellees agreed to those terms. We observe that this argument ignores the district court's actual decision and does not address Stryker's failure to abide by the local rules. Moreover, Stryker did not appeal the denial of its motion for entry of final judgment.
Stryker next argues that it had no need to allege a DOE theory of infringement until after claim construction. This may have been true, but it still does not excuse Stryker's failure to follow the local rules. Even if Stryker had no reason to amend until after claim construction, Stryker could have sought amendment after the Markman order. Stryker asserts that a litigant cannot be forced to foresee and incorporate all possible claim constructions into its initial infringement contentions. This may be true, but the local rules provide for opportunity to seek amendment of its contentions for this very reason. See LPR 3.7(a) (discussing claim construction).
Stryker focuses on language in Monolithic, 467 F.3d at 1366, that "if a local patent rule required the final identification of infringement and invalidity contentions to occur at the outset of the case, shortly after the pleadings were filed and well before the end of discovery, it might well conflict with the spirit, if not the letter, of the notice pleading and broad discovery regime created by the Federal Rules." Of course, we agree, but we highlight the very next sentence from the same opinion: "But we see nothing in the Federal Rules that is inconsistent with local rules requiring the early disclosure of infringement and invalidity contentions and requiring amendments to contentions to be filed with diligence." Id. (emphasis added).
With respect to amendment, Stryker argues there was no opportunity or reason to amend after the Markman order, because discovery had been stayed. Zimmer et al. note a number of discrepancies with this argument, which Stryker does not contest. Zimmer et al. note that Stryker engaged in discovery after the Markman order by requesting samples of the accused products—and that Zimmer et al. provided such samples. Zimmer et al. note that the district court then entered an order ending discovery two months after the Markman order, because Stryker conceded at a status conference that it could not prove infringement.
Moreover, when seeking entry of a final judgment, Stryker contended it had a DOE argument, but Stryker refused to disclose the basis for that argument. Stryker does not appear to contest any of these points. Even if Stryker did contest these points, the record reflects that Stryker had time to seek amendment of its infringement contentions but failed to do so. In light of the record we cannot conclude that the district court abused its discretion in applying its local rules to prevent Stryker from asserting the DOE when it did.
Merck & Cie v. Watson Laboratories, Inc., Fed. Cir. Case 2015-2063, -2064 (May 13, 2016)
Watson appeals final judgment holding that Merck's '168 patent is not invalid under the on-sale bar of 35 U.S.C. § 102(b). For the reasons discussed below, we reverse.
The application for the '168 patent was filed on April 17, 2000, and it issued on August 27, 2002. In 2013, Merck brought suit against Watson, accusing Watson of infringing claim 4 of the '168 patent by filing ANDAs seeking approval to manufacture and market generic versions of the Safyral® and Beyaz® oral contraceptive products. Because Watson stipulated to infringement if claim 4 was valid, the only issue for trial was validity. Following a bench trial, the district court held that claim 4 was not invalid under the on-sale bar. Although the court determined that MTHF was ready for patenting by September 1998, it concluded that there had been no invalidating commercial offer for sale or sale of the product.
The Fax Was an Invalidating Commercial Offer for Sale
Our patent laws deny a patent to an inventor who applies for a patent more than one year after making an attempt to profit from his invention by putting it on sale. Section 102(b)'s on-sale bar is triggered when a claimed invention is: (1) ready for patenting; and (2) the subject of a commercial offer for sale prior to the critical date. Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998).
Here, because Merck does not challenge the district court's determination that MTHF was ready for patenting by September 1998, our focus is on whether there was an invalidating commercial offer to sell the product prior to the critical date—April 17, 1999. In making this determination, we apply traditional contract law principles. Only an offer which rises to the level of a commercial offer for sale, one which the other party could make into a binding contract by simple acceptance (assuming consideration), constitutes an offer for sale under § 102(b)."
By August 1998, Weider had decided that it did not wish to enter into a partnership with Merck to market MTHF in the United States. Weider informed Merck, however, that it wanted to purchase two kilograms of MTHF on a stand-alone basis. In response, on September 9, 1998, Martin, a Merck manager, sent Weider a signed fax directing it to send its order for the purchase of MTHF to him directly, explaining that he would "arrange everything." Martin stated that the price for the MTHF would be $25,000 per kilogram, that payment terms were "60 days net," and that the product would be delivered, free of charge, to Weider's U.S. facility. Martin assured Weider, moreover, that if it needed more than two kilograms of MTHF, Merck had "no problem . . immediately" delivering additional quantities.
Martin's September 9, 1998, fax was not an unsolicited price quote sent to numerous potential customers. See Restatement (Second) of Contracts § 26, cmt. c (1981) (explaining that a "relevant factor" in determining whether an offer has been made is "the number of persons to whom a communication is addressed"). To the contrary, that fax was sent in direct response to Weider's request to purchase two kilograms of MTHF. Martin's detailed fax—providing essential price, delivery, and payment terms—contained all the required elements to qualify as a commercial offer for sale. Notably, Martin did not qualify his offer to sell MTHF. To the contrary, he expressly invited Weider to send its purchase order to his attention and assured it that he would "arrange everything."
Merck argues that Martin's September 9, 1998, fax was not an invalidating commercial offer because "neither Weider nor Merck ever acted as if Merck had made a binding offer to sell MTHF. This contention is belied by the record, which shows that in the weeks following Martin's fax both Merck and Weider proceeded on the understanding that Merck had made an unequivocal offer to sell MTHF. A week after receiving Martin's fax, Weider sent Merck an email confirming that it would "order 2 KG of MTHF" for delivery to its Utah facility. It also asked for the "MTHF safety data sheets" and the "certificate of analysis" it needed to complete its purchase order, as well as a certificate of insurance naming Weider as an additional insured. On September 25, 1998, Merck provided Weider with technical and safety information on the MTHF product. Merck further stated that it would provide a certificate of insurance naming Weider as an additional insured after the MTHF was "dispatched." Soon thereafter, on October 8, 1998, Merck sent Weider a letter confirming that Weider had placed a "first order" for two kilograms of MTHF. Regardless of whether the communications between Merck and Weider in the fall of 1998 were sufficient to establish a binding contract for the sale of MTHF, they confirm that, at a minimum, both parties understood that Martin's September 9, 1998, fax was an offer to sell the product. Although Merck ultimately failed to deliver any MTHF to Weider—possibly because it subsequently decided to pursue a more lucrative exclusive licensing arrangement with one of Weider's competitors, —this is not dispositive. An offer to sell is sufficient to raise the on-sale bar, regardless of whether that sale is ever consummated. See Hamilton Beach Brands, Inc. v. Sunbeam Prods., Inc., 726 F.3d 1370 (Fed. Cir. 2013) (explaining that the on-sale bar applies to a commercial offer regardless of whether the parties execute a binding contract). There is no requirement that the sale be completed.
The District Court's Analysis Is In Error
The district court concluded that Merck's September 9, 1998, fax did not qualify as an invalidating commercial offer because MTHF was "a potentially dangerous new drug," and "important safety and liability terms, which Dr. Buchholz testified were standard in the industry, were missing." We do not find this reasoning persuasive. First, the record provides no credible support for the conclusion that MTHF—which is simply a crystalline form of the natural isomer of folate produced by the human body—is a "dangerous new drug." Second, Buchholz's testimony failed to establish that any "industry standard" terms were missing from Martin's September 9, 1998, fax. Buchholz asserted that certain safety and apportionment of liability provisions would likely be included in a standard industry contract or supply agreement. Buchholz's testimony was insufficient, however, to demonstrate that it was standard practice in the industry to include such provisions in an offer to sell a particular product on a standalone basis. Finally, and most importantly, Buchholz's conclusory testimony cannot trump the unambiguous documentary record. While Buchholz testified that Merck would not have sold MTHF to Weider without first resolving safety and liability issues, his testimony was squarely contradicted by Martin's September 9, 1998, fax in which he agreed to "arrange everything" and "immediately" supply Weider with two or more kilograms of MTHF.
There Is Nothing In the Confidentiality Agreement Suggesting that an Offer Is Valid Only If Signed
Merck further contends that Martin's September 9, 1998, fax was not an invalidating offer to sell MTHF because the Confidentiality Agreement, which Weider and Merck executed in February 1998, required any "definitive agreement" to be "signed by both parties." This argument is unavailing. As a preliminary matter, Merck and Weider executed the Confidentiality Agreement during a period when they were contemplating entering into a broad-ranging joint venture relationship. Merck points to nothing in that agreement indicating that it was intended to have any applicability to a stand-alone product purchase. Even assumingarguendo, however, that the Confidentiality Agreement can be stretched to cover a standalone purchase of MTHF, it does not help Merck, as nothing in the Confidentiality Agreement suggests that an offer is valid only if it is signed by both parties.
Merck contends, however, that because section 5.2 requires any agreement to be signed by both parties, "no fax or other communication could be a legally binding offer to sell unless it invited the other party to counter-sign it and such counter-signature would create the required 'definitive agreement.'" We disagree. Nothing in the Confidentiality Agreement suggests that an offer for sale and a completed sales agreement must be contained in the same document. Thus, Martin's September 9, 1998, fax qualifies as a commercial offer to sell MTHF notwithstanding the fact that it did not invite Weider to accept that offer by signing the fax and returning it to Merck.