Leydig, Voit & Mayer - Intellectual Property Law
Volume 17, Issue 3
Unanimous Supreme Court relaxes enhanced damages test for patent infringement
The odds of patent infringement plaintiffs obtaining enhanced damages may increase after the Supreme Court concluded in June that the existing test for awarding such damages had “the effect of insulating some of the worst patent infringers from any liability for enhanced damages” based solely on “the strength of [their] attorney’s ingenuity.”
“The court just put intentional infringers on notice that they will not be able to escape liability for enhanced damages simply because their lawyers were able to come up with a plausible defense that has no relation to the infringer’s actual knowledge or intent,” says David M. Airan, a member in Leydig’s Chicago office.
Writing for a unanimous court in the consolidated cases of Halo Electronics v. Pulse Electronics and Stryker Corp. v. Zimmer, Chief Justice John Roberts overturned the enhanced damages standard established by the U.S. Court of Appeals for the Federal Circuit in In re Seagate Technology, LLC.
In Seagate, the Federal Circuit held that a patent owner seeking treble damages, as authorized under Section 284 of the Patent Act, must first “show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” The plaintiff must then demonstrate “again, by clear and convincing evidence, that the risk of infringement was either known or so obvious that it should have been known to the accused infringer.”
Rejecting the two-part Seagate test, the Court said the principal problem was “that it requires a finding of objective recklessness in every case before district courts may award enhanced damages.” This threshold requirement insulates many of the most culpable offenders from liability, including the “wanton and malicious pirate who intentionally infringes another’s patent – with no doubts about its validity or any notion of a defense – for no purpose other than to steal the patentee’s business,” Roberts wrote.
Under the Seagate test, the chief justice concluded, “someone who plunders a patent – infringing it without any reason to suppose his conduct is arguably defensible – can nevertheless escape any comeuppance under §284” based on their attorney’s after-the-fact creativity.
A number of technology companies submitted amicus briefs urging the court to maintain the strict standards established by Seagate, concerned that an increased ability to obtain enhanced damages would embolden patent “trolls” and stifle innovation. Roberts addressed these concerns by emphasizing that enhanced damages should not be awarded in “garden-variety cases” but “should generally be reserved for egregious cases typified by willful misconduct.”
Airan agrees that so long as treble damages are still reserved for cases of intentional infringement, fears of an increase in litigation and punishing damages awards are probably overblown.
“I do not think the court’s decision now makes it a free-for-all on enhanced damages,” he says. “But I do think it cuts off an escape route for brazen infringers.”
Planned marketing of generic drug strongly favors Hatch-Waxman jurisdiction
A generic drug manufacturer’s plans to market its product in Delaware were sufficient to subject the company to specific jurisdiction there, the U.S. Court of Appeals for the Federal Circuit recently ruled in two related cases. The decisions mean that Hatch-Waxman suits against generic drug manufacturers can be filed – and most likely will have to be defended – in virtually any jurisdiction in the country after the generic drug company files its abbreviated new drug application (ANDA).
“Since most ANDA approvals are likely to result in marketing the generic drug in all or most states, the court’s holdings effectively create a framework for establishing nationwide specific jurisdiction in these cases,” says Kenneth P. Spina, a member in Leydig’s Chicago office.
Mylan Pharmaceuticals, Inc. filed two ANDAs with the U.S. Food and Drug Administration (FDA) seeking approval to market generic versions of two unrelated drugs manufactured by Acorda Therapeutics, Inc. and AstraZeneca AB. Exercising their rights under the Hatch-Waxman Act, which deems that the certification filed as part of an ANDA is an artificial act of patent infringement, Acorda and AstraZeneca brought separate infringement suits against Mylan in the U.S. District Court for the District of Delaware.
Mylan moved to dismiss both complaints, asserting that it lacked the minimum contacts sufficient to confer personal jurisdiction in the state.
Affirming the district court’s decisions, the Federal Circuit held that Mylan’s ANDA filings, combined with its distribution channels reaching Delaware, satisfied the minimum contacts standard. “Mylan’s ANDA filings constitute formal acts that reliably indicated plans to engage in marketing of the proposed generic drugs,” the court wrote, concluding that “Mylan’s ANDA filings, including its certifications regarding the patents at issue here, are thus suit-related, and they have a substantial connection with Delaware because they reliably, non-speculatively predict Delaware activities by Mylan.”
According to Nicole E. Kopinski, an associate in Leydig’s Chicago office, these decisions bring some clarity to jurisdictional questions left open after the Supreme Court’s decision in Daimler AG v. Bauman.
“After the Mylan decision, an ANDA filer may be subject to specific personal jurisdiction in any state where the ANDA filer intends to market and sell its proposed product, so long as considerations of fairness are met,” Kopinski says. “For that reason, plaintiffs may be less likely to file protective suits in the generic drug company’s home state as a hedge against jurisdictional challenges.”
This decision, however, may not be the final word on jurisdiction in Hatch-Waxman cases, as Mylan has requested an en banc review of the panel decision.
News briefs
- The Supreme Court has granted certiorari in Samsung v. Apple, agreeing to address the issue of the amount of damages that Samsung owes Apple for infringing its design patents. Specifically, the court will consider the question, “Where a design patent is applied to only a component of a product, should an award of infringer’s profits be limited to those profits attributable to the component?”
- To “protect the public” from “unlawfully broad” claims, the Supreme Court decided to preserve the “broadest reasonable” claim construction standard of the U.S. Patent and Trademark Office, to which some patent owners attribute the high patent invalidation rate in America Invents Act (AIA) proceedings. The district court construction standard, which considers the meaning that a term would have to one of ordinary skill in the art at the time of invention, will not be used in AIA proceedings.
- The Supreme Court unanimously ruled in Kirtsaeng v. John Wiley & Sons that courts should put a heavy, though not dispositive, emphasis on whether the losing party’s claims were “objectively unreasonable” when deciding whether to award attorney fees to the prevailing party in Copyright Act actions.
First post-grant review decisions issued under America Invents Act
In its first post-grant review decisions issued under the America Invents Act, the Patent Trial and Appeal Board (PTAB) invalidated two patents for being directed to unpatentable “abstract ideas” under the framework established by the Supreme Court in Alice Corp. v. CLS Bank Int’l.
American Simmental Association v. Leachman Cattle of Colorado LLC involved two patents that described methods ranchers can use to determine the market value and genetic quality of livestock. The PTAB agreed with the petitioner’s assertion that the claims were largely directed to applications of mathematical formulas and algorithms, which are patent-ineligible abstract ideas, and that the elements of the claim did not amount to “significantly more” than the abstract idea itself, as required for patentability under Alice.
No U.S. use of mark required to bring unfair competition claim
U.S. companies that adopt and use a well-known foreign trademark could be subject to unfair competition claims under Section 43(a) of the Lanham Act, even if the foreign mark has never been used in the U.S., the U.S. Court of Appeals for the 4th Circuit recently ruled in Belmora LLC v. Bayer Consumer Care AG.
“The law of passing off just became a lot broader,” says Tamara A. Miller, a member in Leydig’s Chicago office. “There is no more free pass to use a foreign trademark that has not been previously used in the United States, since foreign trademark owners can now claim a protectable interest here under Section 43(a).”
Since 1976, Bayer has used the trademark “Flanax” for naproxen sodium tablets sold in Mexico. Bayer sells the same product in the U.S. using the familiar mark “Aleve,” but has never used the “Flanax” trademark north of the border.
After Belmora began selling naproxen sodium tablets in the U.S. using the name “Flanax,” the Trademark Trial and Appeal Board (TTAB) cancelled Belmora’s “Flanax” mark following a cancellation action initiated by Bayer. In response to Belmora’s appeal in Virginia seeking reversal of the TTAB’s cancellation, Bayer filed false advertising and false association claims against Belmora in California under Section 43(a) of the Lanham Act. Both cases were subsequently consolidated in Virginia, where the district court dismissed Bayer’s Section 43(a) claims on the basis that Bayer lacked standing to bring such claims since it had not used the “Flanax” trademark in the U.S.
The 4th Circuit reversed and remanded. Relying on the Supreme Court’s guidance in Lexmark International, Inc. v. Static Control Components that courts must apply “traditional principles of statutory interpretation” in construing the Lanham Act, the court distinguished between trademark infringement claims under Section 32 and false association/false advertising claims under Section 43(a).
Noting that Section 32 specifically limits suits to trademark owners that have used their mark in commerce and registered them, the court concluded that the inclusion of such a limitation “makes clear that Congress knew how to write a precondition of trademark possession and use into a Lanham Act cause of action when it chose to do so. It has not done so in § 43(a)...”.
Belmora is an extreme case, since the company’s packaging and advertising clearly tried to trade off of Bayer’s goodwill for a trademark for an identical product widely known in an adjacent country. Nevertheless, the decision should still give U.S. trademark holders pause before they adopt and use a foreign trademark, advises Stella M. Brown, an associate in Leydig’s Chicago office.
“What Belmora says is that you cannot trade off of the goodwill of a foreign mark just because it has not been used here,” Brown says. “A foreign mark owner may be able to demonstrate a protectable interest regardless of prior use.”
In May, Belmora filed a petition for reconsideration en banc, and the petition was denied.
Defend Trade Secrets Act creates federal cause of action and new remedies
With President Obama’s May 11, 2016, signature on the Defend Trade Secrets Act (DTSA), American companies now have a powerful new tool to address misappropriation of their trade secrets.
Passed with bipartisan support, the DTSA adds a federal cause of action and novel remedies – including ex parte seizure of misappropriated assets – to the patchwork of state trade secret laws that until now were the only avenues for pursuing employees, competitors, and others who wrongfully obtained and used a company’s trade secrets.
The ability to pursue trade secret claims in federal court is in and of itself significant, says Charles H. Mottier, a member in Leydig’s Chicago office.
“Now that federal courts have subject matter jurisdiction over trade secret claims, plaintiffs can avail themselves of all of the advantages of pursuing these claims in federal court, such as an often speedier docket, federal civil procedure, and the likely appointment of a magistrate to oversee discovery and settlement discussions,” Mottier says.
In addition to more traditional remedies such as compensatory and exemplary damages, injunctive relief, and recovery of attorney fees, the DTSA also provides for the ex parte seizure by law enforcement of misappropriated trade secrets in extraordinary situations. Mottier says that while seizure is an extraordinary remedy plaintiffs can now seek in trade secret cases, businesses should pursue this remedy with caution.
“You will want to have a compelling claim before you try to seize assets,” Mottier says. “Not only is the bar high for such relief, but the plaintiff can be responsible for damages and attorney fees under the act if it is ultimately found to have been a wrongful seizure.”
Another feature of the DTSA is the immunity it provides employees if they disclose trade secrets in a whistleblower capacity.
This is important for employers because the DTSA specifies that some of the law’s remedies will be unavailable if they do not include notice of these whistleblower rights “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”
While the law does not specify the exact language for the notice, “all companies should amend their employment or non-disclosure agreements to include language outlining the employee’s rights under the DTSA,” Mottier advises. “Without that language, employers can not recover punitive damages or attorney fees in an action against an employee for malicious misappropriation, or a bad faith claim of misappropriation.”
Leydig Awards
Intellectual Asset Management (IAM) 1000 – The World’s Leading Patent Professionals 2016 has selected Leydig as a leading intellectual property litigation, transaction and prosecution firm. The publication specifically recognized John B. Conklin, Bruce M. Gagala, H. Michael Hartmann, John Kilyk, Jr. and Charles H. Mottier.
Managing IP – IP Stars has recognized Pamela J. Ruschau and Claudia W. Stangle as two of the Top 250 Women in IP in 2016.
Chambers USA has included Leydig among the top intellectual property law firms in Illinois, and specifically recognized
H. Michael Hartmann.
Washington D.C. Super Lawyers has named Jamaica P. Szeliga a Rising Star.
Leydig Announces
Leydig welcomes the following summer associates to its Chicago office:
- Kelly Marco attends George Washington University Law School and holds both a bachelor’s and a master’s degree in pharmaceutical sciences from The State University of New York at Buffalo.
- James Sanner attends the University of Illinois College of Law and holds a master’s degree in microbiology and molecular genetics from Rutgers University, as well as a bachelor’s degree in molecular and cellular biology from the University of Illinois.
- Catherine Taylor attends the IIT Chicago-Kent College of Law and holds a bachelor’s degree in molecular and cellular biology from the University of Illinois Urbana-Champaign.
- Colin Wright attends Northwestern University Pritzker School of Law and holds a bachelor’s degree and a master’s degree in mechanical engineering from Union College.