Schwabe, Williamson & Wyatt PC

PATENT CASE OF THE WEEK

Communication Test Design, Inc. v. Contec, LLC, Appeal No. 2019-1672 (Fed. Cir. March 13, 2020)

This week’s Case of the Week explores two important procedural issues: a court’s discretion to decline to hear a declaratory judgment case and the first-to-file rule in federal courts.

The plaintiff (“CTDI”) and Contec had long been squabbling about whether CTDI infringed Contec’s patents. Letters and emails had been exchanged over the course of more than a year. In September 2018, Contec sent a letter to CTDI threatening suit and attaching a copy of a draft complaint. A deadline to take a license was provided as September 19. On that day, CTDI’s CEO spoke on the phone with Contec’s CEO about a possible license, and the parties agreed to speak again on September 24. Later that same day, CTDI sent an email to Contec’s counsel stating that it would consider potential terms that were proposed for a license, and “encourag[ing] a continued conversation between executives.”

Two days later, CTDI filed a declaratory judgment complaint in the Eastern District of Pennsylvania. On September 24, the day the executives were scheduled to speak again, CTDI’s counsel emailed Contec’s counsel a copy of the declaratory judgment complaint, but stated that service would be held off temporarily to allow further discussion. The complaint was served about a month later. On September 27, Contec filed its own complaint in the Northern District of New York.

Contec thereafter moved to dismiss, or, in the alternative, transfer or stay CTDI’s complaint pending the New York action. The district court dismissed the complaint, clearly not enamored with CTDI’s deception in stringing Contec along on the possibility of agreeing to a license, so as to give it the ability to file its complaint first.

CTDI appealed, arguing that the district court abused its discretion by failing to respect the first-to-file rule. The Federal Circuit affirmed.

First the Court noted the permissive language “may” in the Declaratory Judgment Act, 28 U.S.C. § 2201(a):

In a case of actual controversy within its jurisdiction … any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.

Citing Supreme Court authority, the Federal Circuit noted that this provides district courts discretion whether to declare the rights of litigants. The question was whether dismissing CTDI’s suit was an abuse of that discretion. To answer that, the Court considered the first-to-file rule, which generally states that the first complaint filed takes preference over later-filed actions seeking similar relief. Later filed suits may be stayed, transferred, or dismissed pending resolution of the first-filed action, even if the first-filed action is declaratory. However, exceptions are allowed in “considerations of judicial and litigant economy.” The Court noted, citing past precedent, that “a party’s intention to preempt another’s infringement suit when ruling on the dismissal of a declaratory action” is a relevant consideration. Thus, courts in this situation enjoy a “double dose of discretion”: the discretion concomitant to the declaratory judgment act, and also the discretion to apply the first-to-file rule.

In this case, the Court held that the district court properly exercised its discretion in both respects. CTDI’s declaratory judgment suit was clearly “anticipatory.” Additionally, the ongoing negotiations gave the district court discretion to avoid entertaining a declaratory judgment action. Finally, the district court properly weighed other relevant factors, including the location of witnesses, party headquarters, and the like. On balance, these factors favored the suit in New York.

In sum, the Court held the district court did not abuse its discretion in dismissing the case.

The opinion can be found here.

ALSO THIS WEEK:

Kaken Pharm. Co., Ltd. et al. v. Iancu, Appeal No. 2018-2232 (Fed. Cir. March 13, 2020)

In an appeal from an inter partes review, the Federal Circuit vacated the PTAB’s obviousness determination based on an erroneous claim construction. The patent was directed to topical treatments for fungal infections in fingernails and toenails, and at issue was whether the phrase “treating a subject having onychomycosis” was limited to penetrating the nail plate to treat an infection in or under the nail plate, or included treating infections of the skin or visible mucosa. Noting that a patent’s statement of the invention’s purpose informs the proper construction of the claim terms, the Court found the patent’s description of an effective treatment as conserving high activity in the nail plate, and the ineffectiveness of prior treatments in permeating the nail plate, supported the narrower construction. The narrower construction was also supported by arguments and amendments made during prosecution.

The Board had relied on the patent’s characterization of “onychomycosis” as “a kind … of superficial mycosis … in the nail,” where “superficial mycosis” was characterized as a disease of the “skin,” and “nail” was defined to include skin structures surrounding the nail plate. The Court found that just as “a statement that a particular disease invades the body would not imply that it can invade any part of the body,” the patent’s broad definition of “nail” did not compel a conclusion that onychomycosis included infections of the surrounding skin structures. Similarly, “skin” was broadly defined in the patents to include the “nail,” which the Court found did not foreclose onychomycosis from being limited to the nail. Because the Board’s claim construction was unreasonably broad, the Federal Circuit vacated its obviousness determination and remanded for further proceedings.

The opinion can be found here.

Personalized Media Comm’ns, LLC v. Apple Inc., Appeal No. 2018-1936 (Fed. Cir. March 13, 2020)

In this appeal from the U.S. Patent Trial and Appeal Board, the Federal Circuit addresses issues relating to claim construction in an IPR. The Court disagreed with the PTAB’s analysis of the prosecution history, and held that statements made during prosecution, even if not an unmistakable disavowal, can still inform claim construction. Specifically, an applicant’s explanatory remarks in an amendment, as well as an applicant’s repeated and consistent remarks during prosecution, can define a claim term where the claim language and specification fail to provide meaningful guidance. The Court thus held that the PTAB erred by effectively requiring the prosecution history evidence to rise to the level of disclaimer to inform the meaning of a disputed claim term.

The opinion can be found here.

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