[co-authors: Dr. Teresa Christof, Philipp Simon]
Supreme Court Upholds Constitutionality of IPRs, Requires PTAB to Decide Validity of All Challenged Claims -
Oil States Energy Services v. Greene’s Energy Group & SAS Institute v. Iancu (24 April 2018)
In a highly-anticipated decision, the Supreme Court in Oil States ruled that IPRs do not violate the U.S. Constitution. The challenge was based on a theory that patents provide private rights for patent owners that can only be revoked by a federal district court judge, pursuant to Article III of the Constitution. The Supreme Court rejected this theory, however, finding instead that the decision to grant a patent is a matter involving public rights, and Congress has significant discretion to create mechanisms outside of the courts to adjudicate disputes over public rights. The Court reasoned that IPRs are simply a reconsideration of—or “second look” at—the grant of such public rights, and Congress has the authority to delegate oversight to an administrative agency, like the U.S. Patent and Trademark Office (“PTO”). The Court made clear that its decision was narrow, only addressing the constitutionality of IPRs and not to be construed as opining on the Due Process or Takings Clauses of the Constitution.
On the same day, the Supreme Court decided SAS, which also involved IPRs. In SAS, the Court held that when the PTO institutes an IPR, it must decide the patentability of all of the claims that the petitioner has challenged. The Court contrasted the language of the Patent Act concerning IPRs and ex parte reexaminations. For ex parte reexaminations, the statute provides that the PTO has discretion over which claims to review, whereas the statutory language concerning IPRs does not afford the same discretion. The Court explained that the patent statute envisioned IPRs being guided by the initial petition, and as such, it is the petitioner, not the PTO, that defines the scope of review. This decision did not displace the standard for IPR institution, which requires petitioner to show “a reasonable likelihood” that it will prevail on “at least 1 of the claims challenged in the petition.” If the petitioner clears this hurdle, then the PTO must now, according to the Court, proceed to evaluate all challenged claims.
U.S. Patent Updates
Supreme Defect in Priority Claim Sinks Patent – Droplets, Inc. v. E*Trade Bank (19 April 2018)
The Federal Circuit affirmed a finding by the USPTO Patent Trial and Appeal Board (“PTAB”) that a priority claim to an earlier filed provisional application was faulty. As a result, the patent-at-issue was not entitled an earlier priority date and was found invalid as obvious in view of certain prior art. Had the priority claim been effective, it would have predated the prior art and may have avoided invalidity. The patent statute allows for claiming priority to an earlier-filed application so long as the later application includes a “specific reference to the earlier filed application.”
A key issue here is that the statute does not discuss further intermediary priority filings—only the “first application” and the later filed application that claims priority back to the first application. In this case, the patent-at-issue did not expressly state the full chain of priority; instead, it omitted intermediate applications in the priority chain between the original provisional application and the latest-filed application. This omission, according to the court, made the priority claim defective. The court held that the statute requires claiming priority to all applications in the priority chain, including all intermediate applications. Accordingly, if you are prosecuting patent applications in the U.S., take care to include the entire priority chain to ensure a perfected priority claim. Conversely, if accused of infringement, examine whether the asserted patent has a defective priority claim, as it could open the door to more prior art to challenge invalidity.
Supreme Court Hears Oral Arguments on Foreign Patent Damages – Westerngeco LLC v. Ion Geophysical Corp. (16 April 2016)
On 16 April, the Supreme Court heard oral arguments regarding whether lost profits are available for infringement arising under 35 U.S.C. § 271(f). That section of the Patent Act governs acts of patent infringement where components of a patented invention are supplied from the United States for use in foreign jurisdictions, where such use in the foreign jurisdiction would constitute infringement in the United States. In this case, the parties agree that only the infringing acts occurred domestically in the United States—any damages caused by the infringing acts were incurred in foreign jurisdictions.
In U.S. patent law, there has generally been a presumption against extraterritoriality. This appeared to appeal to at least one Justice, who commented that a “patent doesn’t run to the high seas, and so [patent owner isn’t] protected there.” However, other Justices seemed to latch on to the following analogy: if a French tourist is injured while visiting the U.S., leaving her unable to work, then that tourist would still be able to collect full damages under U.S. tort law even though the damages would accrue based on lost wages for being unable to perform her job in France. Translating that into patent law, some of the Justices appeared in support of allowing patent owners to recover full compensation for all forms of infringement. A decision is expected by Summer 2018.
Prior Claim Constructions by Courts Not Binding on PTAB – Knowles Electronics LLC v. Iancu (6 April 2018)
In a split decision, the Federal Circuit affirmed a PTAB claim construction decision that was broader than two previous claim construction decisions by courts on closely-related terms. The patent-at-issue in this case covered a cool microphone on a chip with a special housing for shielding a transducer when in use in a hearing aid. The PTAB construed the term “package” more broadly than the Federal Circuit had done twice before on closely-related claims.
In two prior decisions, the Federal Circuit held that the term “package” required “a second-level connection with a mounting mechanism,” but the PTAB in this case did not construe the term to require such a limitation. On appeal, the Federal Circuit said the PTAB’s broader construction was allowable and held that the prior claim constructions were not binding on the PTAB. The court commented that the prior decisions “in some circumstances . . . may be relevant to the PTAB’s later construction of that same disputed term.”
PTAB Must Clearly Articulate Rationale for Obviousness in IPRs – Arista Networks, Inc. v. Cisco Systems, Inc. (28 March 2018)
The Federal Circuit reversed a non-obviousness finding by the PTAB because the PTAB failed to “adequately explain its reasoning on a point that was central to its [obviousness] analysis.” The claims of Cisco’s networking patent-at-issue recited a concept of “tunneling” through an intermediate network. During the IPR, Arista presented a prior art reference that disclosed a concept akin to tunneling. Arista made a specific argument about how the prior art reference rendered the idea of tunneling obvious—a central argument to Arista’s obviousness claims. In its decision, the PTAB did not particularly address this argument and found that the prior art did not render Cisco’s patent obvious.
The PTAB has an obligation to issue final written decisions that are not arbitrary, capricious, or unsupported by substantial evidence. To fulfill this obligation, it must specifically address all arguments raised by the parties and explain its rationale for siding with one of the two. The failure to expressly address Arista’s obviousness argument in this case was reversible error, according to the Federal Circuit. Therefore, if the PTAB ever issues a final written decision in an IPR that you are involved in, examine the decision to ensure the PTAB specifically addressed all of your arguments; if the final written decision ignores any of your arguments, then there may be good arguments to appeal that decision.
Germany Patent Updates
Higher Regional Court Düsseldorf Clarifies Standards for Preliminary Injunctions and Personal Liability of Managing Directors – Higher Regional Court Düsseldorf, I-15 U66/17 (11 January 2018)
With this judgment, the Higher Regional Court Düsseldorf has further developed the standard for obtaining a preliminary injunction. In the same judgment, the court established further criteria regarding the personal liability of managing directors for patent infringement.
According to settled case law of the Higher Regional Court Düsseldorf (Decision Harnkatheterset), a preliminary injunction is regularly denied if the validity of the patent is not proven beyond doubt in any of the following: (1) a prior first instance validity judgment of the German Patent Court; (2) a prior decision of the opposition division of the European Patent Office; or (3) a validity determination by the German Patent and Trademark Office in inter-partes proceedings. As an exception to this requirement, a court may grant a preliminary injunction if exceptional circumstances prevail which make it unreasonable for the plaintiff to await the outcome of the pending opposition or nullity proceedings, even without such first instance decision. The case at hand constituted a case of such exceptional circumstances.
In this case, the plaintiff requested a preliminary injunction against the defendant because the defendant had distributed razor blades. The plaintiff had become aware about this distribution in April 2017. The patent-in-suit expired in February 2018. In 2012, a nullity action was withdrawn after a preliminary opinion of the German Federal Patent Court had designated the patent as valid. The court in this case held that it would be unreasonable for the plaintiff to await the infringement judgment in the main proceedings because such judgment cannot be expected before the expiry of the patent in suit. Rather, effective legal protection can only be guaranteed by means of preliminary injunction proceedings.
In the same case, but on an unrelated legal question, the court ruled that the defendant's managing director was not personally liable for the patent infringement solely due to his position in the company, but rather because of his positive knowledge of the infringement of the patent-in-suit. The plaintiff's warning letter was addressed to the management board in general. In this case, the managing director cannot escape his liability simply by referring to his task in the company.
It remains to be seen whether future decisions will provide deeper information on which concrete measures are necessary and reasonable for a managing director in order to avoid liability.
Uncertainty After Constitutional Complaint
Against German UPC-Ratification Law Continues
The decision of the United Kingdom to leave the European Union has not been the only thing that brought unexpected uncertainty into whether and when the Unified Patent Court system would start working. A constitutional complaint made last summer against a German law, which had ratified the Unified Patent Court Agreement (UPCA), made things even more complicated. The German Constitutional Court (FCC) did not immediately refuse the complaint, but instead asked the German Federal President to put the execution of the ratification law on hold.
The FCC has called on 27 third parties, ranging from the German Federal Bar Association to the Federal States and the German Parliament, to submit amicus curiae briefs in the matter. In the meantime, the FCC has received a number of briefs that reason that the complaint is inadmissible or unfounded. Though the case has been listed among those that the FCC plans to decide in 2018, no hearing date has been set. One can only speculate about what this means for the possible outcome of the complaint.
Since the FCC did not immediately reject the complaint, it might be presumed that the FCC at least found the arguments against the ratification law noteworthy. If the FCC, after reviewing the amicus curiae briefs, deems the complaint admissible, a ruling on the case could be expected around the end of 2018. If the FCC refers one or several questions to the Court of Justice of the European Union (CJEU), the proceeding might not come to an end until 2019. As the UK will withdraw from the EU by March 2019, the German complaint adds even more pressure to the timetable and uncertainty to the process of ratification.
Federal Supreme Court Sets Boundaries: Generalization of "Digital Book" to "Display Device" is Inadmissible Added Matter – Federal Supreme of Germany, X ZR 63/15 (4 April 2018)
In “Digital Book,” the Federal Supreme Court established further criteria on the circumstances of when there is an “added matter” defense (also referred to in Europe as an “inadmissible extension”). This ruling clarifies the Federal Supreme Court's former decision X ZR 107/12 – Kommunikationskanal (“Communication Channel”). In “Communications Channel,” the Federal Supreme court ruled that a more general technical teaching that is claimed in a later application could claim priority to a parent application, if this general teaching could easily be derived from the earlier application. “Digital Book” now clarifies the limits of this approach.
According to the ruling, a later patent application is inadmissibly extended if (a) a specific feature (not claimed in the later application) is present in all preferred embodiments of the invention of the earlier application and (b) this feature is of significant importance for solving the task of the patent. In such case, the patentee may not claim protection for an embodiment without this feature in the later application. In the case at hand, all exemplary embodiments described in the parent patent application were related to the specific feature of a “digital book” and required use of the same. Particularly decisive was the fact that the parent application repeatedly emphasized the simple handling of a digital book: A digital book allowed reading literature containing an arbitrary number of pages with a lightweight and handy device. Among other things, the simple handling of a digital book was achieved by providing a swivel joint for folding the casing of the digital book open and shut.
The Court thus held that a display device—which was then claimed in the later application—encompassed devices different from a digital book. Accordingly, the Federal Supreme Court confirmed the assessment of the Federal Patent Court and considered that the generalization of the originally disclosed term “digital book” to “display device for reproduction of text and/or image information” amounted to an inadmissible extension. It remains to be seen whether this decision will affect the more generous standard of the Federal Patent Court, in applying the inadmissible extension doctrine in the future.