'; February 2019 Newsletter

February 2019 Newsletter

February 22, 2019

USPTO adopts federal courts’ narrower claim construction standard for post-grant proceedings

The days of conflicting claim construction standards between district court proceedings and post-grant proceedings are over. As of Nov. 13, 2018, the Patent Trial and Appeal Board (PTAB) stopped applying the Broadest Reasonable Interpretation (BRI) standard in new America Invents Act proceedings, instead adopting the standard the U.S. Court of Appeals for the Federal Circuit adopted in Phillips v. AWH Corp.

The consistency of standards in PTAB and district court proceedings will reduce the opportunities for gamesmanship previously enabled by the divergent approaches, says Leonard Hua, a shareholder in Leydig’s Chicago office.

“Being able to litigate a claim under two different standards created a situation where a patentee or challenger could make one claim construction argument in the district court, then turn around and make a wildly different and contradictory argument before PTAB,” Hua says. “Now, you have to pick the same horse to ride in both forums.”

The rule change, published in October 2018, revises 37 CFR § 42 to provide that claims in inter partes review (IPR), post-grant review, and covered business method proceedings “shall be construed using the same claim construction standard that would be used to construe the claim in a civil action under 35 U.S.C. § 282(b)…” The new standard applies only to petitions filed on or after Nov. 13, 2018; the BRI standard will continue to be used in proceedings initiated before that date.

PTAB’s adoption of a narrower standard is a positive development for patentees, says Thomas Canty, a shareholder in Leydig’s Frankfurt, Germany, office.

“Under the broader BRI standard, PTAB would essentially construe claims against the drafter such that if there were an ambiguity in a claim limitation, the PTAB would be obliged to resolve the ambiguity by choosing the broader of two reasonably possible alternatives,” he says. “That makes a lot of sense when applied by examiners during initial examination when the applicant has a full opportunity to amend to correct an unwanted interpretation. But the BRI makes less sense when applied by the PTAB during post-grant proceedings when the patentee’s ability to amend is much more limited.

“I expect that application of the Phillips standard, coupled with the Supreme Court’s recent decision requiring PTAB to issue a final written decision on every challenged claim in an IPR, will likely reduce institution rates and marginally decrease the number of successful challenges.”

Canty also expects the rule change will create efficiencies for the PTAB, the courts, and litigants since it requires PTAB to consider – though not necessarily adopt – claim construction determinations made in prior proceedings in district court.

“This decreases the likelihood or need for a second drawn out, costly claim construction fight before PTAB if a district court has already weighed in on the issue,” Canty says.

Supreme Court to resolve circuit split about trademark license rights in bankruptcy

Is a trademark licensee out of luck if a bankrupt licensor rejects its license agreement in a Chapter 11 proceeding? The Supreme Court will resolve a circuit court split on the question after granting certiorari in Mission Product Holdings, Inc. v. Tempnology, LLC.

The possibility that a trademark licensee may lose its rights if the trademark owner files for bankruptcy is one that licensees should prepare for when negotiating and drafting such agreements, says Michelle Zimmermann, a shareholder in Leydig’s Chicago office.

“If the Court affirms the First Circuit and finds that trademark license rights terminate upon rejection in bankruptcy, a licensee could see its entire business model suddenly upended without warning or recourse,” she says. “License agreements should include notice provisions regarding a licensor’s potential insolvency so the licensee has time to prepare for that outcome.”

At issue is Section 365 of the Bankruptcy Code. Section 365(a) allows a debtor in a Chapter 11 bankruptcy to “reject” executory contracts as part of its reorganization efforts. Such rejections are treated as breaches of contract with the effect of such breaches being the same as they would be under non-bankruptcy law.

Section 365(n) carves out an exception to a debtor’s broad rejection authority by limiting the right of a debtor to terminate certain enumerated intellectual property licenses, including those involving trade secrets, patents, and copyrights. Trademarks are notably not included in the list of protected intellectual property under that section.

After Tempnology filed for Chapter 11 bankruptcy protection, it rejected several contracts, including a trademark license agreement with Mission. After Mission objected to the rejection, the bankruptcy court concluded the rejection terminated Mission’s rights because Congress excluded trademarks from intellectual property protected under Section 365(n).

The Bankruptcy Appellate Panel reversed, however, relying on the U.S. Court of Appeals for the Seventh Circuit’s decision in Sunbeam Products, Inc. v. Chicago American Manufacturing. Noting that a licensor’s breach of contract does not necessarily terminate a trademark licensee’s rights, the Seventh Circuit concluded in Sunbeam that since Section 365(g) deems a rejection to be a breach of contract, a licensee’s rights survive that rejection.

Ruling on Mission’s appeal, the U.S. Court of Appeals for the First Circuit saw things differently. In affirming the bankruptcy court’s initial decision, the First Circuit adopted the view of the Fourth Circuit by deciding that the effect of trademarks’ omission from 365(n) is the termination of a licensee’s rights to continue using the licensed mark upon rejection.

While it is unclear how the Supreme Court will resolve the divergent holdings on the issue, Stella Brown, an associate in Leydig’s Chicago Office, believes the Court may find one aspect of the First Circuit’s reasoning particularly compelling.

“A trademark licensor has on ongoing obligation to monitor and oversee the licensee’s use of its mark to prevent dilution or the abandonment of its mark,” she says. “As the First Circuit noted, imposing these continuing – and often costly – burdens on a bankrupt licensor seems contrary to the whole idea of rejection, which is to free a debtor from such burdens to facilitate a successful reorganization.”

Supreme Court to decide whether the government can institute AIA proceedings

Is the government a “person” who may file a petition to institute post-grant proceedings under the America Invents Act (AIA)? The Supreme Court will decide the issue after granting certiorari in United States v. Return Mail, Inc.

The issue is more than esoteric, as the federal government holds a large patent portfolio. While the case involved a Covered Business Method (CMB) proceeding under the AIA, the Court could issue a decision that would affect the government’s ability to initiate any AIA proceeding, says Eric Arnell, an associate in Leydig’s Frankfurt, Germany, office.

“The term ‘person’ is used throughout the AIA, so if the Court decides the federal government is indeed a “person” under the act, a broad ruling would apply to inter partes review and post-grant review proceedings as well,” he says.

The federal government had petitioned the Patent Trial and Appeal Board for a CMB review of Return Mail’s patent for a system and method of processing return mail.

Return Mail sought the high court’s review after adverse decisions in a CMB proceeding and the U.S. Court of Appeals for the Federal Circuit.

Neither the federal government nor Return Mail raised the issue of whether the government has standing as a “person” under the AIA in either the CBM proceeding or on appeal.  Instead, the issue was raised sua sponte by the Federal Circuit, which concluded, “[t]he AIA does not appear to use the term ‘person’ to exclude the government in other provisions” and, therefore, the use of the term “person” in AIA § 18(a)(1)(B) regarding CMB proceedings also does not exclude the government.

In a thorough and lengthy dissent, Judge Pauline Newman asserted, “[t]he law is clear that when a statute uses the term ‘person,’ it is presumed that Congress intended to exclude the [G]overnment.” Accordingly, although the AIA says the petitioner can be any person who is not the patent owner, “The government is not a ‘person’ to whom the post-grant procedures of the AIA are available.”

In addition to her statutory construction argument, Newman also reasoned that including the government as a “person” would undermine one of the core aspects of the AIA.

“The estoppel provision is the backbone of the AIA, for it is through estoppel that the AIA achieves its purpose of expeditious and economical resolution of patent disputes without resort to the courts,” Newman wrote. The majority’s position “would grant the United States the benefit of post-grant challenge in the PTO, but would omit the statute’s estoppel against raising the same challenge in court.”

The Court may find this outcome to be both unintended and unfair, says Robert Wittmann, a shareholder in Leydig’s Chicago office.

“While a private party is estopped in district court from pursuing invalidity claims which it brought or could have brought in an AIA proceeding, the government is essentially immune from this restriction,” Wittmann notes. “The Court may not be inclined to afford such a windfall for the federal government at the expense of private litigants.”

Supreme Court to decide extent of allowable cost awards in copyright litigation

By granting certiorari in Rimini Street, Inc. v. Oracle USA, Inc., the Supreme Court is set to resolve a circuit court split on the issue of whether recoverable “costs” in copyright cases are limited to those enumerated in the general cost statute of the Federal Rules of Judicial Procedure, or encompass a broader range of  “full costs,” such as expert fees, consultant fees, and electronic discovery costs.

“The amounts at issue here can be significant,” says Kevin Parks, a shareholder in Leydig’s Chicago office. “If potential copyright plaintiffs understand they could be on the hook for tens of millions of dollars in litigation costs if they lose, that would certainly have a chilling effect on borderline copyright claims.”

The general cost statute that applies to all federal litigation unless otherwise stated – 28 U.S.C. §§ 1920 and 1821 – allows a prevailing party to recover six categories of so-called “taxable costs:” clerk and marshal fees, transcript fees, printing and witness disbursements, copying costs, docket fees, and compensation for court-appointed experts.

Section 505 of the Copyright Act, however, provides that in copyright litigation, a court may allow a prevailing party to recover its “full costs.” That is exactly what a district court in California did in the litigation between Oracle and Rimini Street, awarding Oracle nearly $20 million in costs, including $12.8 million in costs that Rimini Street argued were non-taxable and, therefore, not recoverable.

The U.S. Court of Appeals for the Ninth Circuit affirmed the award, ruling as it had in previous cases that “full costs” under Copyright Act can include litigation expenses beyond those listed in the general cost statute. This puts the Ninth Circuit at odds with the Eighth and Eleventh Circuits, which have limited copyright awards to taxable costs.

An inclination among many of the justices to strictly construe statutory language may portend the Court overturning the Ninth Circuit and limiting recovery of costs in copyright cases, especially considering the specific facts of this case, says Kyle Migliorini, an associate in Leydig’s Chicago office.

“Rimini Street’s underlying conduct was particularly egregious, and many of the expenses Oracle incurred were necessary because of Rimini Street’s bad acts,” Migliorini notes. “But there is nothing in either statute to suggest that an award of costs should take into consideration a litigant’s misconduct. The Court may well see the plain language as limiting recoveries to taxable costs, as is the case for other litigants in federal court.”


New Canadian trademark laws to come into effect June 17, 2019

The Canadian government has confirmed that long-awaited updates and amendments to Canadian trademark law will go into effect as of June 17, 2019. Notably, as of that date Canada will join the Madrid Protocol, permitting extensions of International Registrations into Canada, and the Nice Agreement, extending the international classification system to Canada. The update to Canada’s trademark laws includes a few other key changes including:

Declarations of Use will no longer be required prior to registration for new trademark applications, or for any applications pending as of June 17, 2019;

Trademark applicants after June 17, 2019, will no longer be required to state a basis for a Canadian trademark application (i.e. intent to use in Canada or existing use in Canada); and

Registrations that issue after June 17, 2019, and all renewals due after June 17, 2019, will be registered and/or renewed for a 10 year term, as opposed to the current 15 year term.

Leydig is prepared to implement these changes. Clients with further questions should contact a Leydig attorney for further information.

Leydig Awards

  • U.S. News and World Report - Best Lawyers "Best Law Firms" has awarded Leydig National Tier 1 rankings in Patent Law and Trademark Law.
  • LMG Life Sciences has recommended Leydig in the fields of patent prosecution, strategy, and management, and Bruce Gagala, Salim Hasan, John Kilyk and Steven Sklar have been named Life Science Stars.

Leydig Announces

  • Brian Loker joins our Walnut Creek office as Counsel. He holds a Bachelor’s degree in Mechanical Engineering from the University of California, Berkeley, and a law degree from DePaul University’s College of Law.
  • Stephanie Winner joins our Walnut Creek office as a Senior Patent Agent. She holds a Bachelor’s degree in Electrical Engineering and a Master’s degree in Electrical Engineering and Computer Science from MIT.
  • Sean Pryor joins our DC office as a Patent Agent. He holds a Bachelor’s degree in Mechanical Engineering from the University of Maryland.

Leydig Spotlight: The SME Education Foundation has provided more than $33 million in grants, scholarships and awards and has supported student outreach and education programs through its partnerships with corporations, foundations, organizations and individual donors. Through their scholarships and unique SME PRIME schools initiative, the organization fosters and supports student interest and achievement in advanced manufacturing. Leydig attorney Pamela Ruschau sits on the Foundation’s Board of Directors