Standard Essential Patent Update – August 2018

Hogan Lovells

[co-author: Tobias Kempter]


Federal Circuit okays liberal pleading
Federal Supreme Court clarifies when replacing parts in patented devices amounts to infringement
PTO announces proposed rule change on claim construction
Federal Supreme Court clarifies purpose of definition of person skilled in the art
Federal Circuit denies rehearing on extent of factual analysis for § 101 challenges
Hearing date for UPCA complaint before German Constitutional Court remains unscheduled
Profits lost outside U.S. are recoverable, says Supreme Court
Higher Regional Court Karlsruhe rules that amount of security for enforcement of call-back/removal and destruction should be set at least as high as for injunction
Supreme Court to hear case on “secret sale” defense

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Infringement Court Not Bound by Claim Construction in Validity Proceedings –
“Smoking Articles with Reduced Ignition Proclivity Characteristics,” Higher Regional Court Düsseldorf, I-2 U 39/16 

In its judgment titled “Smoking articles with reduced ignition proclivity characteristics,” the Higher Regional Court Düsseldorf confirmed that an infringement court is not bound by claim construction in validity proceedings, including opposition and nullity proceedings—a decision viewed by many as patent owner friendly. The decision also underscores the significance of the German bifurcated system, in which German civil courts handle infringement and panels of the European Patent Office (EPO) and the German Federal Court handle validity.
The patent at issue relates to a cigarette paper having a reduced tendency for inflammation. According to the patent, this is achieved by applying a thin film (solution) on the cigarette. In opposition proceedings, a panel of the EPO decided the term “solution” did not include “suspensions.” In subsequent infringement proceedings, however, the Higher Regional Court ruled the opposite. It held that suspensions fall within the scope of the patent and found the same to be infringing. In doing so, the court stressed that it was not bound by an interpretation of the EPO; rather, the infringement court should make its own assessment on how to define claim features.
This decision may make it easier for parties to take contradictory or conflicting positions across validity and infringement proceedings. Not only did the Higher Regional Court find it was not bound by the EPO, it added that contradictory statements by a plaintiff in validity proceedings should only be taken into account under exceptional circumstances—in particular, only to the extent that (1) a patent owner has made a declaration in course of the validity proceedings that is directed at restricting the scope of the patent; (2) the patent has been maintained on the basis of this; and (3) the defendant to the infringement action was a party to the validity proceedings. This decision may therefore help patent owners seek a narrow claim construction in validity proceedings, while later insisting on a broader interpretation in infringement proceedings.


U.S. Patent Updates

Federal Circuit Okays Liberal Pleading – Disc Disease Solutions v. VGH Solutions, Federal Circuit (1 May 2018)

In November 2015, the Federal Rules of Civil Procedure were changed to eliminate a short form plaintiffs could use to file complaints for patent infringement. That form, in essence, allowed a plaintiff to simply identify the asserted patent(s) and the accused product(s) and generally allege that a defendant infringed. Notwithstanding the elimination of this template, pleading standards are often still fairly liberal. Under case law, plaintiffs must allege factual details sufficient to allow a “reasonable inference that the defendant is liable for the alleged misconduct.”

In this case, the plaintiff, Disc Disease Solutions, identified the accused products, but only generally alleged that those products met “each and every element of at least one claim” of the asserted patents. The plaintiff did not include any claim charts or element-by-element analysis of its infringement allegations. It only attached the asserted patents and photos of the accused products. The district court held that the complaint included insufficient detail to meet the required pleading standard. The Federal Circuit reversed.

The Federal Circuit concluded that the complaint, with the attached patents and photos of accused products, provided “fair notice” to the defendant. The court pointed out that the technology and patents were relatively simple. The photos of the accused products provided enough information to create a “reasonable inference” that the defendant might infringe. While the pleading standard has become stricter since the rule change in late 2015, the key takeaway here is that plaintiffs may be able to get away with bare pleading, if the technology and patents-at-issue are somewhat simple and can be understood on their face.


PTO Announces Proposed Rule Change on Claim Construction (8 May 2018)

The U.S. Patent and Trademark Office (PTO) announced a proposed rule change to the claim construction standard used in post-grant challenges at the Patent Trial and Appeal Board (PTAB). Currently, PTAB proceedings use the broadest reasonable interpretation (BRI) standard for construing unexpired and proposed amended claims. The proposed rule change would abandon the BRI standard in favor of the Phillips claim construction standard, which is the same standard used in U.S. District Courts.

Under the BRI standard, a claim term is given its broadest reasonable construction “in light of the specification as it would be interpreted by one of ordinary skill in the art.” By comparison, the Phillips standard requires construing claim terms according to their “ordinary and customary meaning” that would be given by a person of ordinary skill in the art at the time of the invention. The Federal Circuit has confirmed that the BRI standard may provide, in some circumstances, the same interpretation as the Phillips standard. But, the BRI can also provide a broader claim interpretation, which can be helpful for invalidity. The PTO stated that its goal in proposing this rule change “is to implement a fair and balanced approach, providing greater predictability and certainty in the patent system,” as well as increased judicial efficiency.


Federal Circuit Denies Rehearing on Extent of Factual Analysis for § 101 Challenges – Berkheimer v. HP Inc., Federal Circuit (En Banc Rehearing Denied) (31 May 2018)

The Federal Circuit in Berkheimer reiterated the well-established principles governing § 101 challenges regarding patent eligible subject matter. First, it confirmed that “patent eligibility is ultimately a question of law.” Second, it stated that the analysis may require considering “underlying factual questions.” Under Alice, one of the primary factual considerations is “whether something is well-understood, routine, and conventional to a skilled artisan at the time of the patent.”

Following Berkheimer, two parallel petitions for full en banc rehearing were filed, asking the Federal Circuit to answer variations of the following question: is the threshold determination of patent eligible subject matter under § 101 a question of law that can be settled in a motion to dismiss or motion for summary judgment, or do the underlying factual considerations preclude a judge from making such determination? The parallel petitions were both denied by the Federal Circuit, but the issue remains hotly debated. As a result, it is possible that petitions could be filed at the Supreme Court, asking it to resolve these questions.

Interestingly, multiple Federal Circuit judges who voted to deny rehearing indicated in their decisions that Congress should intervene to clarify this and other issues in the § 101 jurisprudence. The PTO has also weighed in, issuing updated guidance to its patent examiners on 19 April 2018, after the Berkheimer decision. The guidance instructs that “an examiner should conclude that an element (or combination of elements) represents well-understood, routine, conventional activity only when the examiner can readily conclude that the element(s) is widely prevalent or in common use in the relevant industry,” and that such conclusion must be based upon a factual determination.

Profits Lost Outside U.S. Are Recoverable, Says Supreme Court – Westerngeco LLC v. Ion Geophysical Corp., U.S. Supreme Court (22 June 2018)

In a 7-2 decision, the Supreme Court held that patent owners can recover profits lost outside of the U.S. due to infringement. The specific statutory provision the court relied on, 35 U.S.C. § 271(f), states that it is an act of infringement to ship components from the U.S. to be incorporated into an infringing product overseas. The Court focused on the fact that under this provision, the infringing act occurs inside the U.S. — e.g., the act of exporting. Therefore, the Court reasoned that the lost profits from overseas sales are attributable to the domestic actions of the infringer.

The Court’s decision appears to be narrowly worded to apply only to acts of infringement under § 271(f), but the reasoning was based more broadly on equitable principles. The Court explained that damages awards are generally intended to put patent owners in the same place they would be absent the infringing act. The decision has been viewed by some as a win for patent owners, and, given the broad rationale, we may see some patent owners try to stretch the decision to obtain damages for other types of infringement occurring outside of the U.S.

Supreme Court to Hear Case on “Secret Sale” Defense – Helsinn Healthcare S.A. v. Teva Pharma. USA, Inc., U.S. Supreme Court (Cert. Granted) (25 June 2018)

The Supreme Court agreed to hear a case regarding potential changes to the on-sale bar rule in the America Invents Act (AIA). In general, the on-sale bar provides that sales of an invention that occur more than a year before the priority date of a patent can be used as prior art to invalidate the patent. The question to be decided by the Supreme Court is whether such sales are still invalidating under the AIA if they are “secret sales”—e.g., the buyer is obligated to keep the sale confidential.

In the present case, the patent owner, Helsinn, entered a license agreement with a third-party customer. While the fact that Helsinn had entered into a license was public, the actual details of the claimed invention (i.e., the pharmaceutical drug subject of the sale to that customer) were not. The license agreement with the third party customer was entered into more than one year before Helsinn filed for its patent. Before the AIA, the statutory language of the on-sale bar stated that an entity was entitled to a patent unless the invention was “in public use or on sale in this country, more than one year prior to the date of application.” Because it did not specify or suggest that the sales had to be public, secret sales and public sales alike were invalidating.

Under the AIA, however, the on-sale bar language was changed to say that an entity is entitled to a patent unless the invention was “in public use, on sale or otherwise available to the public” at least one year prior to the date of application. Patent owner Helsinn is urging that the “otherwise available to the public language”—which was not included in the pre-AIA version of the statue—means that sales must make an invention available to the public in order to be invalidating. Defendant Teva disputes that language modifies the on-sale bar. The Court is expected to hear the case later this year.


Germany Patent Updates

Federal Supreme Court Clarifies When Replacing Parts in Patented Devices Amounts to Infringement – “Trommeleinheit,” Federal Supreme Court of Germany, X ZR 55/16

In its recently published decision, “Trommeleinheit,” the German Federal Supreme Court clarified its case law when replacing spare and wear parts in patent protected devices amounts to patent infringement. Manufacturers of patented printers have previously raised the issue in front of courts. They argued that using printer cartridges of other manufacturers in “their” printers infringes their patents on the printers. Prior cases have been fought very hard over this issue of high commercial importance, because, in many industries, manufacturers make more profit from the sale of spare and wear parts (e.g., printer cartridges) than from the sale of the original device (e.g., printer).

According to settled German law, a (somewhat artificial) distinction between a mere repair of the patented device and a so-called “new manufacturing” of the same has to be drawn in order to decide whether replacing spare and wear parts in the device infringes patents covering the device. In its earlier decision “Palettenbehälter II” (X ZR 97/11), the Federal Supreme Court had stated that a replacement of spare and wear parts amounts to patent infringement if the prevailing perception of the customers is that the replacement is more than a mere act of “repair,” which preserves the identity of the product as a tradeable good. The Federal Supreme Court, in the instant case, clarified that standard.

In its current decision, the German Federal Supreme Court stated that for cases in which the spare and wear parts are not traded as a distinct product, a “fictive consumer perception” based on normative factors shall not be applied for deciding the repair vs. “new manufacturing” question. The Federal Supreme Court thereby overruled the Higher Regional Court Düsseldorf.

The Court explained that an infringing “new manufacturing” only occurs if the spare and wear parts provide the technical (or economical) advantages of the patented invention. Under this clarified standard, it would not be an infringing “new manufacture” if the spare and wear parts only interact with other parts that actually achieve the advantages materialized within the patent.
This decision is likely to limit the patent holders’ prospects of success in comparable situations, as it appears to have established a higher burden of proving infringement based on a “new manufacturing.” The mere act of exchanging certain spare and wear parts will now be less likely to amount to patent infringement – even if they are mentioned in the patent claim.


Federal Supreme Court Clarifies Purpose of Definition of Person Skilled in the Art – “Wärmeenergieverwaltung,” Federal Supreme Court of Germany, X ZR 14/16

With this recently published judgment, the German Federal Supreme Court (the Court) clarified the purpose of the definition of the person of ordinary skill in the art (POSITA). It is well-established that each court that deals with patent matters has to set out, in its judgments, the education and expertise of persons skilled in the art vis-à-vis the patents-in-suit. The Federal Supreme Court has now held that the definition of this person serves to define a fictitious person from whose point of view the patent in suit and the prior art have to be evaluated. According to the court, this definition cannot be based on claim construction or inventive step considerations, since such would amount to inadmissible hindsight.

In the case in question, the patent-in-suit referred to a method and system for managing thermal energy in a building that had a duct for elevator systems. It was known in the art that equipping elevator shafts with ventilation systems resulted in energy losses. The patent-in-suit provided a solution that it said reduced energy losses while still complying with standard safety requirements. The plaintiff (e.g., patent challenger) claimed that the alleged invention was not patentable. The Federal Patent Court—in Germany, the first instance court for all patent validity actions—declared the patent invalid for lack of inventive step. According to the court, the subject matter of the patent-in-suit would have been obvious to a POSITA—an expert in heating, ventilation, and air-conditioning technologies with experience in developing elevators. The defendant (e.g., patent owner) appealed this decision to the German Federal Supreme Court.

In the appeal, the defendant/appellant argued that its patent was valid, in part because the lower court’s POSITA definition was incorrect. The appellant urged that a POSITA could not be defined because no expert at the time of the priority date of the patent had come up with a similar solution to the stated problem. The Federal Supreme Court agreed that the appellant’s patent was valid, but disagreed with the appellant’s reasoning, which appeared to conflate defining the POSITA and evaluating inventive step. The court held that whether the “solution” (as set forth in the patent) would have been obvious to a POSITA has to be decided based on the criteria for inventive step—not based on the POSITA definition. Therefore, the validity of the patent was confirmed notwithstanding any alleged mistaken POSITA definition. Yet, even applying the lower court’s POSITA definition, the Federal Supreme Court still found that it was an error for the lower court to deny patentability.


Hearing Date for UPCA Complaint Before German Constitutional Court Remains Unscheduled As the due date for the withdrawal of the United Kingdom from the European Union approaches, the complaint against a German law which ratified the Unified Patent Court Agreement (UPCA) remains undecided. Though the case was filed in the summer of 2017 and has been listed among those that the German Federal Court (FCC) plans to decide in 2018, a hearing date has still not been set. The FCC has been busy deciding other cases on its 2018 list, but one cannot predict based on this which case(s) will be next in line, as the FCC does not necessarily schedule hearings in the order set forth in its list.

Notwithstanding this, the proceedings could conclude sooner than expected if the FCC deems the complaint inadmissible. Should the case be admitted, a ruling could be expected around the end of 2018, assuming a hearing date is set soon. If not, or should the FCC refer one or more questions to the Court of Justice of the European Union (CJEU), the proceeding might not come to an end until 2019. Since only German ratification is still pending out of the required signatories (i.e., Germany, France, UK) for the UPCA to come into force, the hope is that the FCC will treat the matter in a timely manner. As the UK will withdraw from the EU by March 2019, swiftness at the FCC will be of the essence for the UPCA to come into force before Brexit.

Amount of Security for Enforcement of Call-Back/Removal and Destruction Should Be Set at Least as High as for Injunction – Higher Regional Court Karlsruhe, 6 U 169/16

Under German law, first instance decisions in patent infringement proceedings can be enforced even if the decision is on appeal. In most cases, however, enforcement requires the plaintiff to provide a bond, in case the first instance decision is revoked on appeal and the defendant suffers damages due to the enforcement during the appeal. In the past, it has been the general practice of German courts to set different bonds for the different remedies requested by plaintiffs. Typically, a higher bond is required for enforcing an injunction, while lower bonds are required for other remedies (e.g., damages, recall or removal of infringing products, or destruction of infringing products).

The Higher Regional Court Karlsruhe—one of the top three German Appeals Courts for patent matters—clarified in its above-referenced decision that if a first instance ruling provides multiple remedies (e.g., an injunction, an obligation to call back and remove infringing products from the market, or an obligation to destroy patent infringing products), such remedies should be considered as a unit, rather than separately, when it comes to question of setting a bond. Among other reasons, the enforcement of claims for removal and destruction were found, in essence, to be a de facto enforcement of an injunction.

Therefore, the court concluded that the amount of security a claimant needs to provide to enforce all or any one claim of a first instance decision should be the total amount or value for all claims together. Such amount is determined by the court in its discretion. The court added that the claimant’s valuation of past and future infringements could be used as a reference point in this determination, unless the defendant can establish that that valuation would be insufficient to cover its potential damages from any enforcement.

[View source.]

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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