Business Method Patents Are Limited by Federal Circuit in Bilski Decision

Case: In Re Bilski, Fed. Cir. No. 07-11130 (10/30/08)

The One Sentence Summary: Sitting en banc, the Federal Circuit held that a "process" under 35 U.S.C. § 101 is patentable when it is tied to a particular machine or apparatus or it transforms a particular article into a different state or thing.

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Patent Invalidity Due to Anticipation Requires that the Prior Art Include All Elements of the Claim Arranged or Combined as in the Claim

Case: Net Moneyin Inc. v. Verisign, Inc., Fed. Cir. No. 2007-1565 (10/20/08)

The One Sentence Summary: The panel upheld a finding of invalidity for failure to disclose a computer algorithm as supporting structure for a means-plus-function claim, but reversed the district court in finding anticipation of another claim because an anticipating reference must include all claim limitations arranged or combined as in the claimed invention.



Federal Circuit Holdings:

• The district court properly held that a claim including "means for generating an authorization indicia" was invalid for indefiniteness under 35 U.S.C. § 112 ¶ 6. The claim failed to include sufficient structure in the claim to rebut the presumption that it was a means-plus-function claim. Moreover, disclosure of a general purpose computer in the specification without disclosure of the algorithm for generating authorization indicia was not sufficient structure as required by section 112, paragraph 6.
• Plaintiff was not allowed to present a new and broader claim construction on appeal than that argued in the district court.
• A finding of anticipation under 35 U.S.C. § 102 requires that the single prior art reference disclose all the limitations of the invention "arranged or combined in the same way as in the claim." The reference relied upon by the district court to find anticipation of a claim did not meet this standard because it required picking parts of the protocols disclosed and recombining them to reach the invention.
  
• The district court did not abuse its discretion in denying a motion to amend the complaint to assert a previously-dropped claim of inducement of infringement.

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Antitrust Laws Did Not Prevent Reverse Payments to Generic Manufacturers to End Patent Validity Challenges

Case: In Re Ciprofloxacin Hydrochloride Antitrust Litigation, Fed. Cir. No. 2008-1097 (October 15, 2008)

The One Sentence Summary: Payments by a drug manufacturer to end patent invalidity claims did not violate antitrust laws because the anticompetitive effect was within the exclusionary scope of the patent.


What They Were Fighting About: Bayer had settled patent infringement claims against generic drug manufacturers with "reverse payments." The generic manufacturers had filed ANDA statements of intent to manufacture and challenged the validity of Bayer's patent for Ciprofloxacin (Cipro). The settlement agreements provided that Bayer would pay the generic manufacturers to dismiss their challenges to the patent and would supply Cipro for sale on the generic market. Plaintiffs sued Bayer and the generic defendants for federal and state antitrust violations. The district court ruled against plaintiffs on motions for dismissal and summary judgment, and plaintiffs appealed.

Federal Circuit Holdings:

• District court properly declined to find that the agreements were per se unlawful as unreasonable restraints of trade in violation of section 1 of the Sherman Act.
• "Any adverse anti-competitive effects within the scope of the ... patent [at issue] could not be redressed by antitrust law ... because a patent by its very nature is anticompetitive."
• The district court properly concluded that the settlement agreements were within the exclusionary scope of the patent.
  
• Settlement of patent disputes is to be encouraged despite the anticompetitive effect of ending a challenge to a patent's validity. The settlements did not prevent other generic manufacturers from filing ANDA statements and challenging the validity of the patents.
• The panel agreed "with the Second and Eleventh Circuits and with the district court that, in the absence of evidence of fraud before the PTO or sham litigation, the court need not consider the validity of the patent in the antitrust analysis of a settlement agreement involving a reverse payment."
• The district court properly concluded that the agreements did not prevent challenges by other manufacturers to the validity of the patent. The Hatch Waxman Act provisions for an Abbreviated New Drug Application provided significant incentives for companies to challenge patents, and the settlement agreements did not prevent other companies from challenging the patents.
• The district court properly concluded that there was no manipulation of the 180 day exclusivity period for the first ANDA filer.
• Summary judgment for defendants on state law antitrust claims was proper because no fraud occurred.
  

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ITC's Exclusion Order in Cell Phone Chip Investigation Could Not Extend to Parties Not Named in Investigation

Case: Kyocera Wireless Corp. v. International Trade Commission, Fed. Cir. No. 2007-1493, -1494, -1495, -1496, -1497, -1498, -1499, -1514, -1573; 2008-1004, -1009, -1010, -1012, -1013, -1015, -1018, -1019 (October 14, 2008)

The One Sentence Summary: In reviewing the ITC's exclusion order regarding cell phone chips, the Federal Circuit affirmed claim construction, anticipation, and obviousness rulings, but vacated the remedy due to errors in finding induced infringement and in ordering a limited exclusion order against producers of downstream products who were not named as parties in the ITC investigation.



Federal Circuit Holdings:

• The ITC properly construed the claim term "different" in light of the specification.
• The GSM specification was properly construed as publicly available prior art, but was not a single anticipating reference because it consisted of many documents created at different times.
• The post-hearing decision by the Supreme Court in KSR did not allow Qualcomm to revive an obviousness defense that had not been asserted earlier.
• Broadcom failed to show direct infringement.
• The ITC's finding of inducement to infringe was vacated because the ITC did not make a finding of specific intent to infringe as required by the decision in DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1306 (Fed. Cir. 2006), that was issued after the ITC hearing. The matter was remanded for consideration in light of DSU.
• The Commission lacked authority under 35 U.S.C. § 1337(d) to issue its limited exclusion order against parties who made downstream products containing the accused devices but which were not named in the investigation.
  
  

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Patent Cases May Be Leaving the Eastern District of Texas Due to Fifth Circuit Opinion Ordering Transfer of Auto Accident Case

Case: In re Volkswagen of America, 5th Cir. 07-40058 (October 10, 2008)

The One Sentence Summary: The Fifth Circuit ordered the Eastern District of Texas to transfer a car crash product liability case from the Eastern District of Texas to Dallas, the site of the crash, leading patent attorneys to predict that patent infringement suits brought in the rocket docket in Marshall may now be transferred to other jurisdictions having a greater connection to the dispute.



Fifth Circuit Holdings:

• "A writ of mandamus should issue directing the transfer of this case from the Marshall Division of the Eastern District of Texas — which has no connection to the parties, the witnesses, or the facts of this case — to the Dallas Division of the Northern District of Texas — which has extensive connections to the parties, the witnesses, and the facts of this case."
  
  

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After Ten Years of Litigation and Three Appeals, Claims for Semiconductor Wafer Tracking Are Deemed Obvious

Case: Asyst Technologies Inc. v. Emtrak Inc., Fed. Cir. No. 07-1554 (10/10/08)

The One Sentence Summary: On the third appeal of a case involving patents for tracking semiconductor wafers through a manufacturing process, the panel affirmed the district court's finding on a judgment as a matter of law that the asserted claims were obvious in light of the test announced in the Supreme Court's KSR decision.



Federal Circuit Holdings:

• The substitution of a multiplexer for an electrical bus found in the prior art was obvious because multiplexers and buses were the two common ways for connecting and transmitting signals.
  
• The objective indicia of nonobviousness found by the jury — commercial success, long-felt need, and industry praise - were not linked to the features not disclosed by the prior art. Thus, the commercial success did not indicate that the invention was not obvious.
• The district court properly allowed defendant to introduce new invalidity defenses after the claim scope was interpreted by the Federal Circuit in a prior appeal.
  
  

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Implied Statutory Warranty to Deliver Goods Free from Rightful Claims by Third Parties Can Be Breached by Non-Frivolous Trademark Infringement Claims

Case: Pacific Sunwear of California, Inc. v. Olaes Enterprises, Inc., No. D051391 Fourth Dist., Div. One. (Oct. 9, 2008)

The One Sentence Summary: Unsuccessful trademark infringement claims asserted against the buyer of "Smile Now, Cry Later" Hot Sauce Monkey shirts supported the buyer's claim that the seller breached the statutory implied warranty of section 2312(3) of the California Uniform Commercial Code to provide goods that were free of "rightful claims."




What They Were Fighting About: Oales sold Hot Sauce Monkey t-shirts to Pacific Sunwear. These shirts depict on the front, a monkey drinking a bottle of hot sauce and, on the back, the same monkey in apparent pain, expelling fire. Centered underneath each of the images is a two-word caption: on the front, the phrase "Smile Now"; on the back, the phrase "Cry Later." SNCL, the holder of a registered trademark for Smile Now, Cry Later, made trademark infringement claims against Pacific Sunwear. In the trademark litigation in Hawaii, the court denied a motion for preliminary injunction, finding there was no likelihood of confusion after which the case settled.

Pacific Sunwear then sued Olaes for breaching the statutory warranty that the Hot Sauce Monkey T-shirts were "free of the rightful claim of any third person by way of infringement or the like." (§ 2312(3).)

The trial court granted summary judgment for Olaes, holding that the underlying claims of infringement were not "rightful claims" in light of the federal court's ruling that there was no likelihood of confusion.

California Uniform Commercial Code section 2312 states as follows:

"(1) Subject to subdivision (2) there is in a contract for sale a warranty by the seller that

"(a) The title conveyed shall be good, and its transfer rightful; and

"(b) The goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.

"(2) A warranty under subdivision (1) will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.

"(3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications."

California Court of Appeal Holdings:

• The phrase "free of the rightful claim of any third person by way of infringement or the like" in California Uniform Commercial Code section 2312 should be interpreted by reference to the commentary to section 2-312 of the Uniform Commercial Code in the absence of other evidence of legislative intent as to the meaning of "rightful claim."
• The commentary to the Uniform Commercial Code makes it clear that the term "rightful claim" as used in the statute is intended to broadly encompass any nonfrivolous claim of infringement that significantly interferes with the buyer's use of a purchased good.
• Other states have interpreted their statutes enacting section 2-312 of the Uniform Commercial Code consistently with the commentary that a rightful claim need not be a meritorious claim.
• Public policy reasons also support interpreting section 2312 to extend to nonfrivolous claims. A merchant regularly dealing in goods of the kind has superior knowledge of potential claims and more incentive to resolve them than a buyer. Additionally, the parties can expressly contract to alter the implied warranty under section 2312.
• The existence of a reverse warranty from buyer to seller in the case of buyer-supplied specifications under section 2312(3) supports the interpretation of section 2312.
• Interpreting section 2312 to extend to nonfrivolous claims provides a clear allocation of risk that provides certainty to parties entering a commercial transaction.
• "[T]he warranty against rightful claims applies to all claims of infringement that have any significant and adverse effect on the buyer's ability to make use of the purchased goods, excepting only frivolous claims that are completely devoid of merit."
• Summary judgment against the plaintiff's warranty claim was inappropriate due to triable issues of fact as to whether the underlying infringement claim was nonfrivolous.
• Triable issues of fact precluding summary judgment also existed as to whether any damages such as Pacific Sun's litigation expenses were proximately caused by Olaes' failure to disclose the potential trademark claims by SNCL. The factual issues include whether Pacific Sun knew of the potential claims.
  
  

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Reissued Patent Claim Did Not Impermissibly Broaden the Scope of the Original Claim

Case: Predicate Logic, Inc. v. Distributive Software, Inc., Fed. Cir. No. 2007-1539 (10/9/08)

The One Sentence Summary: The district court erred in finding that claims for software analysis modified during reexamination were broader and different in scope than original claims.



Federal Circuit Holdings:

• A claim reissued after reexamination was not invalid due to broadening. The reissued claim was no broader because no hypothetical accused process could be conceived that would violate the reissued claim but not the original claim.
• Another reissued claim was not different in scope from the original claim, so activities before reissuance could still be infringing activities.
  
  

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District Court's Five Year Delay in Issuing Opinion After a Patent Trial Did Not Warrant Reassignment of the Case on Remand

Case: Cohesive Tech. Inc. v. Waters Corp., Fed. Cir. No. 08-1029 (10/7/08)

The One Sentence Summary: The panel considered several issues in affirming in part rulings by the district court on a dispute about patents for high pressure liquid chromatography, and refused to reassign the case despite a five year delay after trial before the district court issued its opinion.



Federal Circuit Holdings:

• Patentee did not expressly disavow claim scope and limit the term "rigid" to exclude polymeric molecules by submitting a declaration distinguishing certain polymeric molecules in a prior art references as non-rigid.
• Expert testimony provided sufficient evidence that the accused particles were "rigid" as required by the claim construction.
• The district court erred in refusing to allow the jury to consider an "iffy" anticipation argument in light of the obviousness argument. Anticipation and obviousness are separate defenses, and a jury could find anticipation even if it did not find obviousness.
• The district court did not err in rejecting an inequitable conduct argument by finding no intent to deceive. The district court accepted witness testimony that the prosecuting attorney felt that the information withheld from the PTO (an expert's disagreement as to whether flow was "turbulent") was not material.
• The district court erred in construing the term "greater than about 30 microns" to exclude the accused device. Claims must be construed in light of the claim language, not in light of the accused device.
• The district court's construction improperly read out of the claim the "about" language. The phrase "greater than about 30 microns" is broader than "greater than 30 microns." The meaning of "about" in this context must be determined in light of the purpose of the limitation in the invention. In light of the variation in particle sizes cited in the specification, the panel concluded that the proper construction of “greater than about 30 μm” in claim 1 of the ’874 patent is: either (1) greater than 25.434 μm, or (2) both greater than 23.044 μm and of sufficiently large size to assure that the column is capable of attaining turbulence.
• The district court's finding of no literal infringement by 25 micrometer particles was in error due to the claim construction and issues of fact as to the diameter of the accused particles.
• Although the doctrine of equivalents can be applied to broad claims, the use of the word "about 30 micrometers" necessarily included the scope of claims that would be encompassed by the doctrine of equivalents.
• The panel remanded for a determination of whether 20 micrometer columns were an acceptable non-infringing substitute for the damage analysis.
• The court affirmed a finding of non-willfulness based upon a close question of whether the claims were limited to non-polymeric materials.
• Enhanced damages were not available absent willfulness.
• Despite a 5 year delay by the district court in issuing its opinion, the panel would not reassign the case to another judge.
  
  

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Patent for Controlling Gas Flows Invalidated for Inequitable Conduct Where Witness Could Not Explain the Failure to Disclose References to the PTO

Case: Praxair, Inc. v. ATMI, Inc., Fed. Cir. No. 2007-1483, 2007-1509, 9/29/08

The One Sentence Summary: The panel affirmed in part, reversed in part and remanded after considering inequitable conduct, indefiniteness, and claim construction challenges.



Federal Circuit Holdings:

• The panel affirmed the district court's finding of inequitable conduct and unenforceability of the '115 patent for failing to disclose restricted flow orifices that were similar to the capillaries claimed in a patent to control discharge of high pressure fluids and gases. The RFO prior art was highly material because it was inconsistent with statements made in the prosecution of the patent. There was no credible explanation of the reason why the reference was not submitted to the PTO (general statements of not having an intent to deceive were entitled to no weight, and the witness could not recall specifically why the reference had not been submitted). Thus, the court properly inferred intent to deceive the PTO.
• An inequitable conduct finding as to a second patent (the '609 patent) was reversed because there was no basis for a finding of high materiality. The prosecution history statements relied upon in establishing materiality for the '115 patent did not infect the prosecution of the '609 patent.
• The panel reversed the district court's conclusion that the '895 patent was unenforceable due to 35 U.S.C. section 112 indefiniteness in the term "port body." The port body was sufficiently described in the specification and figures, it was not exclusively defined by its functionality, and extrinsic evidence of an expert's inability to identify the port body did not affect the legal interpretation of the term.
• The district's court's claim construction of the term "flow restrictor" was incorrect in requiring "severe" flow restriction when that was simply a preferred embodiment. However, the panel rejected the broader construction of any flow restriction where the specification made clear that the very character of the invention as described in the specification required that the flow restriction be sufficient to prevent hazardous flows of gases.
• The district court properly relied on a dictionary definition for construction of the term "capillary" that was not contradicted by the specification.
• Although "uniformity" of capillaries was often mentioned in the specification, it was simply a preferred embodiment, and it was added as a limitation by dependent claims to earlier independent claims, and thus should not be part of the claim construction.
  
  

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