Federal Circuit Review - March 2020

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Attorneys and Clients Behaving Badly – Deliberately Withheld Offer for Sale Is Inequitable Conduct

In Gs Cleantech Corp. v. Adkins Energy LLC, Appeal No. 16-2231,withholding and obscuring evidence of a pre-critical date offer for sale rendered a patent unenforceable for inequitable conduct.

On August 1, 2003, CleanTech sent Agri-Energy a proposal offering an ethanol processing system for a 60-day trial (the “Proposal”). At the end of the trial, Agri-Energy could either purchase or return the system. Without disclosing the Proposal to its patent counsel, on August 17, 2004, CleanTech filed its patent application for the processing system. In subsequent patent applications, CleanTech declared that its representatives hand-delivered the Proposal to Agri-Energy on August 18, 2003. CleanTech’s counsel did not question its client’s declarations, despite having a copy of the Proposal email to Agri-Energy dated August 1, 2003. The USPTO ultimately issued CleanTech several patents covering its ethanol processing system.

In subsequent infringement litigation, the district court determined that the Proposal was a commercial offer for sale and evidence showed that the system was ready for patenting in August 2003. The Federal Circuit held this determination was not an abuse of discretion. The Federal Circuit also affirmed the ruling that both CleanTech and its counsel engaged in inequitable conduct. The Federal Circuit emphasized that CleanTech was aware of the statutory on-sale bar when it withheld the Proposal from the USPTO. CleanTech also made false declarations to the USPTO by stating that the Proposal was delivered to Agri-Energy on August 18, 2003, when documents showed it was actually delivered on August 1, 2003. The court ruled that CleanTech’s counsel also engaged in inequitable conduct for failing to verify and correct CleanTech’s false declaration.

Claims Including Computer Speed and Efficiency Improvements May Still Be Ineligible Under Section 101

In Customedia Technologies, LLC v. Dish Network Corporation, Dish Network LLC, Appeal No. 18-2239, claims directed towards an abstract idea were ineligible for patent protection even though the claims included features that improved computer speed and efficiency.

Dish Network petitioned for CBM review of two Customedia patents relating to delivering targeted advertisements. The PTAB found many of the claims of each patent ineligible under Section 101. Customedia appealed.

Customedia argued the claimed invention was not an abstract idea under Alice Step One because it improved data transfer speed and efficiencies by dedicating a section of the computer’s memory to advertising data. Even accepting that assertion as true, however, the Federal Circuit determined the claimed invention merely improves the abstract concept of delivering targeting advertisements using a computer as a tool. It did not improve the “functioning of the computer itself.” As for Alice Step Two, the claims merely invoked a “conventional receiver” that was “insufficient to supply the required inventive concept.” Thus, the Federal Circuit affirmed.

Disclaimer Not Required for Prosecution History to Limit Claim Scope

In Personalized Media Communication, LLC v. Apple Inc., Appeal No. 18-1936, the Federal Circuit ruled that prosecution history evidence need not rise to the level of disclaimer to inform the meaning of disputed claim limitations.

Personalized Media Communication (PMC) challenged the Patent Trial and Appeal Board’s construction of the claim limitation “an encrypted digital information transmission including encrypted information.” PMC argued that the disputed claim limitation should be construed narrowly to include only “digital transmissions.” The Board rejected PMC’s position, finding that the limitation did not exclude transmissions of information that is non-encrypted or analog. Based on this construction, the Board invalided the challenged claims over the cited prior art.

On appeal, the Federal Circuit affirmed-in-part and reversed-in-part the Board’s decision. In reaching its decision, the Federal Circuit acknowledged that, although the Board’s construction of the terms in light of the claim language and specification was plausible, the prosecution history evidence compelled a narrower construction. Here, the applicant’s claim amendments and consistent statements during prosecution clarified that the disputed claim limitation was limited to digital transmissions, even though the statements may not have risen to the level of disclaimer. Because it was undisputed that the cited prior art was not limited to digital transmissions, the Federal Circuit reversed the Board’s final written decision invalidating claims containing the disputed limitation.

Claims Using Naturally Occurring Phenomenon in Method of Preparation Found Patent-Eligible

In Illumina, Inc. v. Ariosa Diagnostics, Inc., Appeal No. 19-1419, a use of a natural phenomenon in a method of preparation claim was found patent-eligible under § 101.

Illumina, Inc. (“Illumina”) sued Ariosa Diagnostics, Inc. (“Ariosa”) alleging infringement of patents directed to methods of extracting fetal DNA from the blood of a pregnant woman based on the size difference between fetal DNA and maternal DNA. The District Court for the Northern District of California granted summary judgment in favor of Ariosa, ruling that Illumina’s patents were invalid under 35 U.S.C. § 101 as being directed to a natural phenomenon.

Illumina appealed and the Federal Circuit reversed, finding that Illumina’s patents were directed to patent-eligible subject matter. The court acknowledged that Illumina had discovered a natural phenomenon – the difference in size between fetal and maternal DNA – but concluded that Illumina’s claims were not directed to the natural phenomenon. Rather, the Federal Circuit found the claims were directed to methods that utilize the natural phenomenon, e.g., separation of the fetal DNA based on size using centrifugation, chromatography, electrophoresis, or nanotechnology.

Judge Reyna dissented.

En Banc Federal Circuit Denies Rehearing of Holding that Severance of an Unconstitutional Restriction in the America Invents Act Is Consistent with Congressional Intent and Is the Least Disruptive Solution

In Arthrex, Inc. v. Smith & Nephew, Inc., Appeal No. 18-2140, Federal Circuit judges who concurred in the denial of rehearing en banc opined that a judicial fix to a constitutional infirmity of a statute was proper because it solved the constitutional problem while preserving the remainder of the statute and minimizing disruption to the system set up by the statute. They explained that a prospective judicial fix does not remedy past harm, and that a new hearing was an appropriate remedy for cases that remain open.

In Arthrex, Inc. v. Smith & Nephew, Inc. (Arthrex I), a panel of Federal Circuit judges found administrative patent judges (APJs) are principal officers of the United States who must be appointed by the President of the United States pursuant to the Appointments Clause of the United States Constitution. The panel then determined that severing a portion of the America Invents Act (AIA) restricting removal of APJs would be sufficient to reclassify APJs as inferior officers, rendering the remainder of the statute constitutionally valid, capable of functioning independently, and consistent with Congress’s basic objectives in enacting the statute. The panel vacated and remanded the PTAB decision and ordered that a new panel of APJs be designated and a new hearing granted.

The appellant and appellees, as well as intervenor United States, filed petitions for rehearing en banc. The petitions for rehearing were denied. Circuit judges Moore and O’Malley each wrote an opinion concurring in the denial, and circuit judges Dyk, Hughes and Wallach wrote independently to dissent from the denial.

The dissenting opinions raised three main issues: (1) The remedy of severing the removal provision of the AIA was contrary to Congressional intent because “[r]emoval protections for administrative judges [are] an important feature of the AIA”; (2) the severance remedy does not require a remand for a new hearing before a new panel because the Arthrex I “judicial fix” should be applied retroactively, rendering the appointment of the PTAB judges constitutional; (3) Arthrex I relied on a narrow test for the distinction between superior and inferior officers based on agency supervision, and APJs should be classified as inferior officers upon consideration of other factors, such as the officer’s authority to formulate agency policy.

The concurring judges agreed that the Arthrex I fix was consistent with Congressional intent and precedent and was the least disruptive solution. The judges noted that the Arthrex I decision would result in at most 81 remands. In their view, Congressional intent would be best served by preserving an agency mechanism for challenging the validity of issued patents and such considerations outweighed the protection of government employees. Further, the decision did not prevent Congress from legislating to provide an alternative fix if it chooses to do so. The concurring judges viewed the severance as a prospective constitutional fix that only prevents future harm, and they contrasted it with the retroactive remedy of a new hearing, which was required to cure the past harm. On the merits, the concurring judges agreed with the panel’s finding that the Director lacked “sufficient control over the [PTAB’s] decision before it issues on behalf of the executive” and lacked the authority to remove APJs at will and without cause.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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