'; April 2015 Newsletter

April 2015 Newsletter

April 1, 2015

Factual findings in claim construction must be reviewed for clear error on appeal

Recently, the U.S. Supreme Court found in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. that the factual findings in claim construction are subject to the clearly erroneous standard of review. The U.S. Court of Appeals for the Federal Circuit had previously held that the standard of review for claim construction was de novo, i.e., consideration without referencing the district court’s findings. Legal conclusions continue to be subject to de novo review.

The claims at issue in Teva referred to the “molecular weight” of the active ingredient in one of the company’s pharmaceuticals, but the patent did not specify the calculation method used to measure the weight. Sandoz argued that without a stated calculation method, the claim was open to several interpretations, which would render it indefinite and invalid. Teva argued that the measurement calculation method was known in the field. After testimony from experts on both sides, the district court found in favor of Teva. On appeal, the Federal Circuit reviewed the findings de novo and found in favor of Sandoz. The Supreme Court reversed and remanded.

According to John M. Augustyn, a member of Leydig’s Chicago office, the new claim construction standard of review gives more importance to a district court judge’s assessment of witness credibility.

“If there’s a dispute over molecular weight, you look at what the patent and file history say – the intrinsic evidence,” Augustyn says. “If they do not provide sufficient information, then you have to consult experts and other documents to understand what is known in the field – the extrinsic evidence. District court judges have a unique perspective during this process because they rule based on the full context of the expert testimony, while appellate judges only see the written transcript.”

In the Teva case, the U.S. Supreme Court also explained how to apply the clear error review. The court ruled that the import of intrinsic evidence must be reviewed de novo, as it is a matter of law. However, factual findings based on extrinsic evidence must be reviewed for clear error on appeal.

While the Federal Circuit will now be less likely to overturn district court decisions, H. Michael Hartmann, a member of Leydig’s Chicago office, recommends that practitioners prepare for complications earlier in the proceedings.

“In most cases, the Federal Circuit does not take issue with factual findings,” Hartmann says. “Now, rather than simplifying and making claim construction more predictable, we may want to develop a comprehensive factual record with expert testimony, for example. We can expect there will be more frequent evidentiary hearings associated with the normal Markman process, and there will be more fact witnesses than in the past. This might make the process more complex and expensive.”

With the increased importance of the district court decision, patent practitioners will want to make every effort to achieve the most favorable outcome at the district court level, Augustyn says. The Teva decision may create a much more difficult path to getting the decision overturned on appeal.

“Claim construction, in reality, often is a mixed question of law and fact – just like obviousness,” Hartmann says. “This will add an additional degree of complexity to both the Markman process and its appeal, and we may see it play out in post grant proceedings in the patent office, as well.”

Patent practitioners will watch closely for the effects of this decision as Teva is applied in more cases.

Jury ruled best voice for ‘ordinary consumer’ in trademark tacking

The U.S. Supreme Court recently settled a split in the lower courts’ handling of trademark tacking cases, ruling that juries are best suited for determining trademark priority as a matter of “an ordinary consumer’s understanding of the impression that a mark conveys.” Hana Financial, Inc. v. Hana Bank asked the court to decide the case based on whether trademark tacking is a question of law to be decided by a judge, or a question of fact to be decided by a jury. The court’s ruling upheld the U.S. Court of Appeals for the Federal Circuit’s method and decision.

The goal in trademark tacking is to extend earlier established trademark rights to the life of a trademark by tacking similar evolutions of the mark back to the priority date of the original mark. Proper tacking allows trademark owners to update or adjust their marks without abandoning the priority rights obtained through earlier uses. To do this, the trademark owner must prove that the revised and original marks create the same commercial impression for general consumers.

“What the court recognizes in this case is that trademark tacking relies on ordinary consumer impressions, so it is well within a jury’s boundaries to decide,” says Anne E. Naffziger, a member of Leydig’s San Francisco Bay Area office. “The decision sets a standard among the circuit courts, which will help in eliminating forum shopping in these cases. It might, however, create more bickering around jury instructions, so there will likely be closer scrutiny of jury instructions moving forward.”

The court recommends that petitioners in trademark tacking cases develop clear instructions for the jury, providing a clear understanding of how to apply the “relevant legal standard” properly.

Naffziger points out that the opinion does not say that juries will be responsible for deciding issues of trademark tacking in all instances.

“The Supreme Court’s opinion does not say that a judge can never decide a trademark tacking issue,” Naffziger says. “In instances of motions for summary judgment or judgment as a matter of law, a judge will be called upon to rule.”

Federal Circuit defers to patent office in reviewing IPR decisions

The U.S. Court of Appeals for the Federal Circuit recently decided the first appeal of an inter partes review (IPR) final decision, In re Cuozzo Speed Technologies, LLC. The Patent Trial and Appeals Board (PTAB) found in favor of the patent challenger, Garmin, determining that the three claims in question were invalid as obvious. The Federal Circuit deferred to the PTAB decision and provided further clarification on two foundational issues concerning its relationship with the patent office in IPRs.

First, the Federal Circuit ruled that the patent office’s decision on whether to institute an IPR in the first instance is almost never reviewable by the appellate court. According to Gregory C. Bays, a member of Leydig’s Chicago office, this will help to clarify what issues can be raised on appeal at the Federal Circuit.

“The way it turned out gives the PTAB a lot of discretion,” Bays says. “In this particular case, the PTAB granted review of a patent under grounds that were not raised by the petitioner who was challenging the patent. It gives the PTAB the leeway not only to determine whether to institute an IPR but also whether to go outside the grounds raised by the petitioner. That should favor patent challengers, as it will be that much easier to get an IPR petition granted.”

The Federal Circuit’s decision to decline to review the PTAB’s decision on whether to institute an IPR should cause patent owners to become more proactive at the start of the IPR process. An IPR begins with a petition filed by a patent challenger, explains Wesley O. Mueller, a member of Leydig’s Chicago office. The patent owner then has the option to respond to the petition or wait to see if the petition is granted by the PTAB. Waiting potentially leaves the patent owner in an unfavorable situation, however.

“Careful consideration should be given to providing a preliminary response to an IPR petition,” Mueller says. “Based on the current statistics, the patentability of at least some of the claims is likely to be called into question. But even if they are not, the patent owner should carefully consider the issues raised in the petition to be sure that both the patent’s validity can survive the IPR and that the patent can be asserted after the IPR has concluded. This interplay between infringement and validity should be considered prior to the PTAB’s decision on whether to institute, or else the patent owner may be left with little or no opportunity to be heard.”

The second major issue decided in Cuozzo is that the PTAB may construe the patent claims at issue under their broadest reasonable interpretation – an issue that was not directly addressed in the America Invents Act (AIA), the birthplace of IPR.

Although the court indicated that the broadest reasonable interpretation standard has been the unofficial standard of patent office proceedings for more than a century, the decision may be unnerving to some patent practitioners because of parallel litigation that may be occurring simultaneously with the IPR process.

“The way in which these controversies often arise,” Mueller says, “is that the patent subject to an IPR is either in litigation or litigation is being contemplated. Both parties should consider claim construction positions taken in the different forums. In the district court, the patent owner will want to advance a claim construction that covers the accused product. On the other hand, the patent owner will seek a construction that preserves the validity of the patent in the IPR. The timing of the litigation and IPR often plays a key role in determining strategy and avoiding inconsistent positions.”

From the standpoint of the challengers, the broadest reasonable interpretation will introduce more prior art into the IPR, making it easier to invalidate the patent.

“It is still a situation where the IPR favors the patent challenger,” Bays says. “For challengers, this decision has reinforced the use of IPRs as a way to challenge patents. On the other side, if you are a patent owner, filing a preliminary response to the petition generally had been disfavored historically, but now that preliminary response may be your only chance to avoid an IPR by raising, for example, a technical deficiency or failure of proof in the petition.”

According to Muller, the current statistics that a challenger will succeed in invalidating at least some claims in an IPR are significant – as much as 70 or 80 percent. With the first appellate review of an IPR decision, the effects of the AIA are starting to come to the forefront of patent litigation. Patent practitioners will have to keep adjusting their strategies as the AIA continues to change the landscape.

Patent exhaustion doctrine limited to ‘authorized acquirers’

The recent decision in Helferich Patent Licensing LLC v. The New York Times Co. has patent owners considering opportunities to assert their claims after the first sale. In Helferich, the U.S. Court of Appeals for the Federal Circuit ruled that patent exhaustion doctrine extends to the end users of handsets licensed by mobile phone manufacturers, but not to third parties that deliver content to those same licensed handsets. The court decided that the third parties, including The New York Times and J.C. Penney, were not “authorized acquirers” in the line of purchase, and therefore capable of infringing the ostensibly licensed patent.

According to Steven P. Petersen, a member of Leydig’s Chicago office, this decision has significantly limited the perceived scope of the patent exhaustion doctrine and might dash the hopes of users assuming the logic of the U.S. Supreme Court decision in Quanta Computer, Inc. v. LG Electronics, Inc. could be extended to suit their needs.

“In Quanta, the Supreme Court ruled that the product ‘essentially’ embodied the claims of the patent, so the patent owner could not recover against the customer for using the product,” Petersen says. “Helferich was very careful in crafting the claims, directing some toward the handset technology and some toward the content providers, so it had the opportunity to assert different claims than were licensed to the handset manufacturers.”

This decision shows that users cannot rely on a broad interpretation of the patent exhaustion doctrine, Petersen explains. It could be good news for patent owners, however, as this logic would support asserting multiple aspects of a patent, as long as each has a unique, carefully crafted claim.

Patent office interim guidance on abstract ideas under final review

In December, the U.S. Patent and Trademark Office issued interim guidelines for determining subject matter eligibility for abstract ideas – a hot topic since last year’s decision in Alice Corporation Pty. Ltd. v. CLS Bank International, et al. The interim guidance follows a June 2014 preliminary guideline issued by the patent office and addressed to its examining corps, which states that patent eligibility for abstract ideas should be analyzed by the same method as is used for natural phenomena. Before Alice, the patent office’s guidelines in its Manual of Patent Examining Procedure (MPEP), the main point of reference for its examining corps, suggested different approaches for determining the patent eligibility of those claims.

The interim guidelines are published in the Federal Register and were open for comment until mid-March. According to John B. Conklin, a member of Leydig’s Chicago office, the patent office’s Office of Patent and Legal Administration will issue final guidelines based on the comments, which will then be incorporated into the next update of the MPEP. The examining corps is already relying on these interim guidelines for determining patent eligibility of abstract ideas.

“These interim guidelines are simply the patent office following through on its initial response to Alice in the preliminary guidelines issued last June,” Conklin says. “It remains to be seen how the guidelines are finalized, but they are unlikely to change in a substantial way in response to the comment period. It will be interesting to watch the decisions of district courts faced with patent eligibility issues to see if they cite the patent office guidelines to support whatever detailed analyses they undertake to implement Alice.”

Moving forward, Conklin recommends taking additional time while drafting and amending claims involving software and business methods to make sure the claims take into account the latest developments in the district courts, including relying on Alice to determine issues of patent eligibility.

“Don’t look to the patent office for that task,” Conklin says. “The guidelines are no assurance that the examining corps’ implementation of the guidelines will be in keeping with the latest trends in the courts. They may diverge in time.”

Leydig Awards

29 Leydig lawyers were named as Leading Lawyers by Leading Lawyers Network in Intellectual Property Law in 2015.

Michael J. Brandt has been named a Rising Star in Intellectual Property Law in 2015 by Leading Lawyers Network.

World Trademark Review 1000 identified Leydig, Voit & Mayer as one of the top 2015 trademark firms in Illinois, specifically recognizing Mark J. Liss, Tamara A. Miller, Kevin C. Parks, Claudia W. Stangle, and Lynn A. Sullivan.

Leydig has been awarded top rankings by Managing Intellectual Property’s 2015 IP Stars awards, receiving recognition in the categories of Bio/Life Sciences, Patent Contentious, Patent Prosecution, Trademark Contentious and Trademark Prosecution.

Elizabeth M. Crompton has been named a Rising Star in 2015 by Washington D.C. Super Lawyers.

Leydig Announces

H. Michael Hartmann to speak at AIPLA spring meeting on April 30, 2015.

Jeremy M. Jay was a featured speaker at the IPO Education Foundation Day’s PTO Day on March 10, 2015.

Kevin C. Parks was a featured speaker at the John Marshall Law School’s Annual IP Law Conference on February 27, 2015.

Xavier Pillai was a featured speaker at the American Chemical Society’s National Meeting on March 22, 2015.