feb 2 2016 - skgf_saba-dc cle event

S K G F. C O M © 2016 Sterne, Kessler, Goldstein & Fox P.L.L.C. All Rights Reserved.2

2015 Patent Law Decisions That Should Not Go Unnoticed

Moderated by: Gaby Longsworth, Ph.D.

Presenters: Nirav Desai, Pratibha Khanduri, Ph.D.,& Krishan Thakker


Topics From 2015(1) Claim construction standard of review and means-plus-function

construction;

(2) Reviewability of the PTAB’s decision to institute IPR/CBM review;

(3) Test for split/divided infringement and defenses to induced infringement;

(4) Challenges to patent validity based on the on-sale bar; and

(5) Availability of post-expiration patent royalties.

S K G F. C O M © 2016 Sterne, Kessler, Goldstein & Fox P.L.L.C. All Rights Reserved.

Claim ConstructionPrati Khanduri


Teva Pharmaceuticals USA, Inc., et al.v.

Sandoz, Inc., et al. (2015)

Standard for Claim Construction Appellate Review


• “Blanket” de novo review of claim construction, including underlying factual determinations

• Markman v. Westview Instruments, Inc. (1996): Claim construction is a question of law within the province of a judge

• Markman did not expressly address the standard for appellate review of claim construction decisions

Standard Before Teva


• Teva overruled the Federal Circuit’s “blanket” de novo standard for appellate review of claim construction decisions

• New “mixed” standard• Ultimate construction is a question of law and must be reviewed de

novo• Underlying factual determinations based on intrinsic evidence

“amount solely to a determination of law” and must be reviewed de novo

• Underlying factual determinations based on extrinsic evidence must be reviewed for clear error

Teva Standard


Federal Circuit’s “blanket” de novo standard ran counter to FRCP 52(a)(6):

Findings of fact, whether based on oral or other evidence, must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court's opportunity to judge the witnesses’ credibility.

Teva Standard


Post-Teva Trend• Teva on remand

• Federal Circuit applied the new Teva standard—reached same decision

• Federal Circuit since Teva:• Applied the new standard in 63 cases• District court, PTAB (post-grant proceedings and prosecution), and ITC

• Federal Circuit’s reasons for not relying on extrinsic evidence and applying de novo standard similar to the “blanket” standard before Teva• District court’s construction was based entirely on intrinsic evidence• Intrinsic evidence was dispositive, even though district court relied on

extrinsic evidence • Extrinsic evidence was contrary to intrinsic evidence• District court’s factual findings were not supported


Teva: Practical Implications• Teva will likely alter outcome in only a small fraction of

cases—extrinsic evidence controls the ultimate construction• Highly technical cases where expert opinion is needed • Cases where intrinsic evidence is sparse• Cases that require extrinsic evidence for context or explanation

• Some district courts may rely more on extrinsic evidence and conduct evidentiary hearings to insulate their rulings from reversal (clear error review)• Courts might make extra effort to explicitly state credibility findings on

experts in their decisions


• Teva might give strategic options to litigants • A party may find strategic advantage in introducing extrinsic evidence • A party seeking to overturn district court’s construction may argue that

intrinsic evidence is dispositive and factual determinations are unnecessary• A party seeking to inject finality into district court’s construction may rely

heavily on extrinsic evidence

• Greater incentive to settle cases, particularly the ones where extrinsic evidence controlled the district court’s construction

• Teva will likely alter the behavior of patent applicants• Applicants may use more extensive definitions in patent applications to

reduce the need for extrinsic evidence during post-grant challenges

Teva: Practical Implications


Williamson v.

Citrix Online, LLC et al. (Fed. Cir. 2015)

Means-Plus-Function Construction


• A patentee may claim its invention based on functionality—claims contain elements with associated functional language—under 35 U.S.C. § 112(f) (pre-AIA §112(6))

• §112(f)/ §112(6): An element in a claim for a combination may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof, and such claim shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof

• A claim element that invokes §112(f) is a means-plus-function limitation // means-plus-function claim

Means-Plus-Function Construction: Background


Means-plus-function limitations:• a spring means for keeping the door closed . . .• means for making said formulation stable . . .• anchoring means for securing said anchors to a bone segment



• Once a claim element is determined to be a means-plus-function limitation, then it must be limited to the corresponding structures described in the specification or their equivalents

• If the specification fails to disclose adequate corresponding structure, the claim element is deemed indefinite• POSA’s understanding cannot compensate for lack for structure in

the specification



• Whether the words of the claim are understood by persons of ordinary skill in the art to have a sufficiently definite meaning, as the name for a structure

• Importance of presence or absence of the word “means,” “means for,” or a similar generic, non-structural (nonce) term in the claim element

• Claim element using “means” with functional language – rebuttable presumption the element is a means-plus-function limitation• Presumption rebutted by showing that the claim recites sufficiently definite

structure for performing the claimed function

Means-Plus-Function Test Before Williamson


• Functional element without “means” – rebuttable presumption that the element is not a means-plus-function limitation• The strong presumption that is not readily overcome (Lighting World,

Inc. v. Birchwood Lighting, Inc. (Fed. Cir. 2004)) • Heightened bar for rebutting presumption overcome by showing that

“the limitation essentially is devoid of anything that can be construed as structure”

• Claim elements without “means” were seldom held as means-plus-function limitations

Means-Plus-Function Test Before Williamson


Holding:

• Unjustified to have a heightened burden for overcoming the presumption for a functional element without the word “means”

• No longer a “strong” presumption; rather, just a regular presumption as before Lighting World

• No need to show that the claim element is essentially devoid of anything that can be construed as structure to rebut the presumption

Means-Plus-Function Construction: Williamson


• Williamson Test: • Whether the words of the claim are understood by persons of ordinary skill

in the art to have a sufficiently definite meaning, as the name for a structure

• Presence or absence of the word “means” is still relevant• A functional element with word “means” – rebuttable presumption that the

element is a means-plus-function limitation (same as before)• A functional element without word “means” – rebuttable presumption that

the term is not a means-plus-function limitation (no strong presumption)• Presumption overcome by showing that the claim element fails to “recite

sufficiently definite structure” or recites “function without reciting sufficient structure for performing that function” (lower evidentiary requirement for rebuttal)

Means-Plus-Function Construction: Williamson Test


• Higher number of functional claims without the word “means” may now be deemed means-plus-function claims • Biotech/Chem/Pharma: Functional claims may be deemed means-plus-

function claims more frequently

• Increased need that the patents with functional claims describe adequate corresponding structures, and not just recite the functional language of the claim

• Broad functional claims may now be difficult to obtain

Williamson: Practical Implications


Reviewability of PTAB’s Institution Decisions in AIA Post-

Grant Proceedings


• Federal Circuit lacked jurisdiction to review PTAB’s institution decision in an IPR, even after a Final Written Decision [§314(d)]

• PTAB did not exceed authority by instituting an IPR of certain claims based on art that was not cited in the petition for those claims [§318(a)]

• Significance: PTAB has broad discretion in IPR institution decisions; parties without much recourse • Before Cuozzo, the Federal Circuit had already barred interlocutory review of PTAB’s

institution decisions, even by mandamus petition • Cuozzo extended the bar to PTAB’s institution decisions at conclusion of the proceedings• After Cuozzo, the parties are left with only one possible recourse—mandamus petition

after a final determination—strict standard, and available in certain situations “where the PTO has clearly and indisputably exceeded its authority”

Reviewability of Institution Decisions - IPR

In re Cuozzo Speed Technologies, LLC


Reviewability of Institution Decisions - CBM

• Review of PTAB’s final decision invalidating Versata’s patent under §101 in a CBM review

• Issues: i) whether Versata’s patent qualifies as a CBM patent; and ii) whether CBM review may be instituted based on §101

• Federal Circuit is prohibited from reviewing PTAB’s institution decision in a CBM review [§324(e)]

• Holding: • Federal Circuit can review the two issues as part of the Final Written

Decision, even though they were initially decided at institution

Versata Development Group, Inc. v. SAP America, Inc.


• Although the issues were first determined at institution, they were necessarily implicated in the final merits determination and were fundamental to the PTAB’s “ultimate invalidation authority” in a CBM under AIA §18 or 35 U.S.C. § 321(b)– §18 gives PTAB specific invalidation authority for CBMs: “The Director may institute a

transitional proceeding only for . . . a covered business method patent”– §321(b) allows a petitioner to request post-grant review based on “any ground,” except

best mode– Strong presumption for reviewability of agency actions– §324(e) does not meet the high standard for precluding judicial review of PTAB’s

compliance with its invalidation authority granted under AIA §18

• Overlap of issues at institution and merits phase or their timing is not determinative

Reviewability of PTAB’s Institution Decisions - CBM

Versata, contd.


Reviewability of Institution Decisions - CBM

• PTAB’s erroneous decision in Versata—misidentification of the patent as not a CBM patent—would have barred the patent from CBM review altogether

• PTAB’s erroneous decision in Cuozzo—institution based on art not cited in the petition—was irrelevant because the art could have been cited in a later, properly-drafted petition, giving the PTAB authority to invalidate the patent

• Cuozzo did not rule on violation of the PTAB's ultimate authority to invalidate, which could not have been cured by a proper pleading

• There might be differences between statues addressing institution of IPRs (§314(d)) and CBM reviews (§324(e))

• Supreme Court denied Cert. on the PTO’s petition (10/15/15)

Versata, contd.


Developments After Cuozzoand Versata

• Achates Reference Publ’g, Inc. v. Apple Inc. (Fed. Cir. 2015)• Reaffirmed that PTAB’s institution decision in an IPR cannot be appealed• Versata is limited to the unique circumstances of a CMB review • PTAB’s determination whether a petition is time-barred [§315(b)] is not

appealable, even if it is reconsidered at the merits stage [§314(d)]—time bar “does not impact PTAB’s authority to invalidate” a patent claim; it only bars a particular petitioner from challenging the patent

• Overlap of issues at institution and merits phase is not determinative• Achates filed a petition for Writ of Certiorari (12/29/15)

• In re Cuozzo: Cert. granted (1/15/16)• Reviewability of PTAB’s institution decisions; suitability of BRI as a claim

construction standard in post-grant proceedings


Practical Implications• PTAB has significant freedom in institution determinations• PTAB’s institution decisions in IPRs and CBM reviews are not appealable• Some issues decided at institution, however, may be appealable after

PTAB’s final decision—issues fundamental to PTAB’s “ultimate invalidation authority”

• Determination whether a patent is a CBM patent• No guidance on what other issues may be fundamental to the PTAB's

ultimate invalidation authority• Parties do not have much options for challenging PTAB’s institution

decisions• Institution decisions may be reviewable by writ of mandamus after final

decisions in certain situations “where the PTO has clearly and indisputably exceeded its authority”—a strict standard


Joint Direct Infringement:

Akamai v. LimelightNirav N. Desai


Akamai v LimelightBottom line: Expands the ways an accused infringer may direct or control another party such that the two parties jointly directly infringe a method claim.

35 U.S.C. § 271(a):Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringements the patent.


U.S. Patent No. 6,108,703• What is claimed: methods of providing a network of servers that deliver

web page content to users at the direction of the primary server that hosts that web page

• A user loading a web page obtains at least some content from the best-suited network of provided servers

• A key aspect of the claimed methods is that the server hosting the web page controls what will be obtained from the content servers

• No dispute that Limelight’s customers perform some of the claimed steps


Representative Claim of the ’703 Patent

34. A content delivery method, comprising:

distributing a set of page objects across a network of content servers managed by a domain other than a content provider domain, wherein the network of content servers are organized into a set of regions;

for a given page normally served from the content provider domain, tagging at least some of the embedded objects of the page so that requests for the objects resolve to the domain instead of the content provider domain;

in response to a client request for an embedded object of the page:

resolving the client request as a function of a location of the client machine making the request and current Internet traffic conditions to identify a given region; and

returning to the client an IP address of a given one of the content servers within the given region that is likely to host the embedded object and that is not overloaded.


Case Timeline• Feb. 28, 2008: Jury finds Limelight directly infringes; awards $45.1M• June 30, 2008: District court denies Limelight’s motion for JMOL• July 14, 2008: Muniauction decision issues.• April 24, 2009: District court grants reconsideration in light of Muniauction, grants JMOL

that Limelight does not infringe.• December 10, 2010: Federal Circuit affirms JMOL of non-infringement.• August 31, 2012: Federal Circuit en banc decision reverses JMOL, finds Limelight liable

for indirect infringement.• June 2, 2014: Supreme Court remands back to Federal Circuit, noting "the possibility that

[we] erred by too narrowly circumscribing the scope of § 271(a)".• May 13, 2015: Federal Circuit panel on remand finds no direct infringement, affirms District

Court’s JMOL of non-infringement. • August 13, 2015: Federal Circuit en banc decision sets forth new way to attribute steps to

an entity and finds Limelight liable for direct infringement.


Holding SummaryFinder Date Infringes Does Not

InfringeJury – Awards $45.1m Feb. 28, 2008 XDistrict Court (JMOL) – Denied June 30, 2008 XDistrict Court (after Muniauction) –Reversed

April 24, 2008 X

Federal Circuit (panel) – Affirmed Dec. 10, 2010 XFederal Circuit (en banc) – Reverses Aug. 31, 2012 XSupreme Court – Remands for reconsideration

June 2, 2014 X

Federal Circuit (panel) – Affirms DC JMOL of NI

March 13, 2015 X

Federal Circuit (en banc) – Affirms jury Aug. 13, 2015 X


Divided Infringement Before Akamai v Limelight

• The acts of others had been attributed to the alleged infringer in three ways:

(1) Agency - if the alleged infringer acts through an agent (applying traditional agency principles)

(2) Contractual - if the alleged infringer contracts with another to perform one or more steps of a claimed method

(3) Joint enterprise - the acts of participants in a joint enterprise (as defined in tort law) can be attributed to each other


Akamai v. Limelight (Federal Circuit en banc, per curiam)

• Direct infringement lies “where all steps of a claimed method are performed by or attributable to a single entity.”

• BUT the Court adds a new way to attribute acts to an entity:(1) Direct or control performance:

• (A) Principle-agent relationship (apply traditional agency principles) • (B) Contractual arrangement to perform one or more steps • (C) “[W]hen an alleged infringer conditions participation in an activity

or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance” - NEW

(2) Joint enterprise


The Federal Circuit’s Analysis:“[C]onditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method”

• If customer wants to use the service, they must tag the content• Contract delineates the steps customers perform to use Limelight’s

service (including tagging and serving content)• Contract requires customers to provide information necessary for the

service• Serving is up to the customer: if a customer’s server is down, Limelight’s

delivery network need not perform

“Accordingly, substantial evidence indicates that Limelight conditions customers’ use of its content delivery network upon its customers’ performance of the tagging and serving method steps.”


The Federal Circuit’s Analysis:“[E]stablishes the manner or timing of that performance”

• Limelight engineer assists with implementation/installation• Limelight provides step-by-step instructions on how to integrate a

hostname into webpages (includes the tagging step, which must be performed in order for service to work)

• Limelight engineers available for troubleshooting

“In sum, Limelight’s customers do not merely take Limelight’s guidance and act independently on their own. Rather, Limelight establishes the manner and timing of its customers’ performance so that customers can only avail themselves of the service upon their performance of the method steps.”


Practice Takeaways and What to Watch for in 2016

• Easier to establish direct infringement by multiple parties. Pro-patent owner

• Opens the door to even more avenues to attribute acts to an entity• “In the future, other factual scenarios may arise which warrant

attributing others’ performance of method steps to a single actor. Going forward, principles of attribution are to be considered in the context of the particular facts presented.”

• IP attorneys should work closely with contract attorneys to review contracts with customers, suppliers, and partners for language that could implicate joint direct infringement.

• Supreme Court review? Limelight filed petition for cert on Jan. 26.


Induced Infringement: Commil v. Cisco


Commil: Background• Bottom Line: Supreme Court held good faith belief in invalidity is

NOT a defense to induced infringement.• Commil USA owned U.S. Patent No. 6,430,395 (“the ’395

patent”) related to “a method of providing faster and more reliable handoffs of mobile devices from one base station to another as a mobile device moves throughout a network area.”

• 35 U.S.C. § 271(b): Whoever actively induces infringement of a patent shall be liable as an infringer.


TRIALS #1 and #2 (Eastern District of Texas)

• Trial # 1 - In 2007, Commil USA brings action against Cisco alleging direct infringement and induced infringement of the ’395 patent.

• The jury concludes that the ’395 patent was valid and Cisco was liable for direct infringement but not liable for induced infringement, awards Commil USA $3.7 million.

• Commil filed a motion for a new trial on induced infringement and damages, granted “based upon the prejudicial effect of ‘Cisco's counsel's improper religious comments.’”

• Trial # 2 - Only on issues of induced infringement and damages.• Cisco raises a defense to inducement that it had “good-faith belief that Commil’s patent was invalid”• Court rules that evidence of good-faith belief of invalidity is inadmissible as a good-faith belief in

invalidity is not a defense to induced infringement.• Over Cisco’s objection, the jury was instructed that it could find induced infringement if “Cisco

actually intended to cause the acts that constitute…direct infringement and that Cisco knew or should have known that its action would induce actual infringement”

• The jury determined that Cisco was liable for induced infringement and awarded Commil USA $63.7 million.


Federal Circuit (Newman, Prost, and O’Malley)

• Cisco appeals to the Federal Circuit on two issues:

• Ground #1: Was the jury instruction in error for stating that negligence, and not knowledge, was the scienter requirement for induced infringement.• Held: Instruction was error, relying on Global-Tech Appliances, Inc. v.

SEB S.A.• Ground #2: Was it error to not allow Cisco’s evidence of its “good-faith”

belief that the ’395 patent was invalid.• Held: Error to exclude Cisco’s evidence of “good-faith” belief.


Supreme Court• Justice Kennedy delivered the opinion of the Court, in which Justices

Ginsburg, Alito, Sotomayor, and Kagan joined. Justice Thomas joined Parts II-B and III of the opinion.

• Scalia filed a dissenting opinion in which Chief Justice Roberts joined.• Issue #1: Scienter requirement in the jury instruction

• Kennedy reaffirms “knowledge” standard from Global-Tech, writing “[Global-Tech] requires proof the defendant knew the acts were infringing. And the Court’s opinion was clear in rejecting any lesser mental state as the standard.”


Supreme Court (cont’d)• Issue #2: Is good-faith belief in invalidity a defense to inducement• Simple answer: “It is not. The scienter element for induced infringement

concerns infringement; that is a different issue than validity”• “Were this Court to interpret §271(b) as permitting a defense of belief in

invalidity, it would conflate the issues of infringement and validity.”• “Allowing this new defense would also undermine [the] presumption

that…patent is ‘presumed valid.’”• No such defense is necessary as there are measures to declare a patent

invalid, e.g., IPRs, ex parte reexams, affirmative defense of invalidity.


Supreme Court (cont’d)• The Court goes on to say that there are safeguards in place to protect

from frivolous lawsuits.• “The Court is well aware that an ‘industry has developed in which firms

use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.’”

• “Nonetheless, it is still necessary and proper to stress that district courts have the authority and responsibility to ensure frivolous cases are dissuaded. If frivolous cases are filed in federal court, it is within the power of the court to sanction attorneys for bringing such suits.”

• Octane Fitness


Dissenting Opinion (Scalia, joined by Roberts)

• A “good-faith” belief in the invalidity of a patent negates the scienter required for induced infringement.

• “It follows, as night the day, that only valid patents can be infringed. To talk of infringing an invalid patent is to talk nonsense.”

• “Because only valid patents can be infringed, anyone with a good-faith belief in a patent’s invalidity necessarily believes the patent cannot be infringed. And it is impossible for anyone who believes that a patent cannot be infringed to induce actions that he knows will infringe it.”

• An alleged inducer who succeeds in this defense does not thereby call a patent’s validity into question. He merely avoids liability for a third party’s infringement of a valid patent, in no way undermining that patent’s presumed validity.”

• “I may add, however, that if the desirability of the rule we adopt were a proper consideration, it is by no means clear that the Court’s holding, which increases the in terrorem power of [non-practicing entities], is preferable.”


Practice Takeaways and What to Watch for in 2016

• Getting an opinion of invalidity won’t help with inducement anymore. • Noninfringement will, and claim construction is key.• Move to dismiss improperly pled inducement claims… but do your

homework.• More NPE suits?• Further Supreme Court involvement? Court issued a GVR order in

Medtronic v. NuVasive on Jan. 19 to consider how Commil impacts the case.


On Sale Bar: TMC v. Hospira

Krishan Y. Thakker


35 U.S.C.§102(b) (pre-AIA)A person shall be entitled to a patent unless ‐ . . . (b) the invention was . . . in public use or on sale in this country, more than one year prior to the date of application for patent in the United States.

Rationale:• Prompt and widespread disclosure of new inventions & prohibits

exploitation of exclusivity• Gives inventor a reasonable amount of time to determine if worthwhile• Prohibits withdrawal of an invention from the public domain that the

public believes is freely available due to commercialization


On-Sale Bar Requirements

Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 67 (1998)

• Before critical date

(1) Commercial Offer for Sale of an Embodiment of the Patent (2) Invention is Ready for Patenting

a) Reduced to Practice? ORb) Inventors Knew Invention Work

for Intended Purpose? ANDc) Embodiment of Claims?


Commercial Offer: No “Supplier” or “Non-Public Sale” Exception (pre-AIA)

The OSB applies to any commercial offer or sale, even if made by the patentee’s own supplier.

The OSB applies even if a patentee’s commercial activities take place in secret.

Special Devices Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001)


Ready For Patenting:Two Ways

A party must prove that the inventor, before the critical date:

• Embodied or performed a process that [inherently] met all the claim limitations; and

• Determined that the invention would work for its intended purpose; OR

• Actually/constructively reduced invention to practice by preparing drawings/ other descriptions sufficiently specific to enable a POSA to practice invention:

(1) expert testimony regarding what an inventor should have known; (2) inventor’s actual knowledge of test results; or (3) documentary evidence demonstrating inventor’s prior knowledge.

Cooper v. Goldfarb, 154 F.3d 1321, 1327 (Fed. Cir. 1998)

If invention must be ready for patenting at time of offer, second prong of Pfafftest is superfluous.


Ready For Patenting: Experimental Use Negation

• Permits an inventor to conduct testing to refine the invention without losing the right to obtain a patent.

• Experimentation must go to the claimed features; but no “experimental use” after reduction to practice.

• Parties to the transaction or the inventor need not recognize that the product possesses the claimed characteristics.

• Factors include: • Amount of control/monitoring over experiment;• Length;• Existence of payments or secrecy obligations;• Commercial exploitation and nature of contacts made with customers.

EZ Dock v. Schafer Sys, Inc., 276 F.3d 1347, 1358 (Fed. Cir. 2002)


TMC v. Hospira, Inc.: Background

• TMC alleged Hospira infringed its two patents. • Patents contained product-by-process claims over methods of making the drug to reduce

impurity. Critical date: 7/27/07 (pre-AIA).• TMC purchased batches from Ben Venue. Due to “failing” high impurity batch, TMC hired a

consultant to investigate, who discovered methods of adding a pH-adjusting solution during the compounding process to minimize an impurity to less than the FDA’s maximum of 1.5%.

• Claim 1 of ’343 patent:… said batches prepared by a compounding process comprising:(i) dissolving bivalirudin in a solvent to form a first solution;(ii) efficiently mixing a pH-adjusting solution with the first solution to form a second solution, wherein the pH adjusting solution comprises a pH-adjusting solution solvent; and(iii) removing the solvent … and wherein the batches have a maximum impurity level of Asp 9-bivalirudin that does not exceed about 0.6% as measured by HPLC.


District CourtHospira argued on sale bar:1. BV prepared 3 validation batches & 8 commercial batches using the patented method.

• Invoices identified “charge to manufacture Bivalirudin lot” and commercial product codes.

• TMC paid $347,500 for 3 validation batches (60k vials valued at over $20m) and then $1.2m for 8 commercial batches (224k vials valued at over $80m).

2. TMC entered Distribution Agreement with BV’s U.S. distributor (ICS): “Title to and risk of loss to each order of Product shipped to Distributor hereunder passed to Distributor upon receipt of Product.”

Held: Patents not infringed but valid.Reduction to practice: invention = process which produced the batches with requisite level.No commercial sale: (1) manufacturing services; (2) payment for experiments (sua sponte); (3) ICS Agreement not sales contract as payments made for future services (contract to contract).


• TMC appealed D. Del.’s non-infringement finding; Hospira cross-appealed that claims invalid under OSB.

• Held (reversed no commercial sale and affirmed ready for patenting): “inventor commercially exploited the invention before the critical date, even if the inventor did not transfer title”. • Transactions = $100m.• No ‘supplier’ exception exists. BV’s commercial sale of services

resulted in patented product-by-process.• BV’s services proved to FDA that TMC’s product met pre-approved

specs; irrelevant whether TMC knew limitations of claims produced levels of bivalirudin below 0.6%, as batches had such levels.

• TMC’s commercial packaging was consistent with the sale of drugs.

Federal Circuit


CAFC rehearing en banc• On Nov. 13, 2015, CAFC vacated prior opinion & granted TMC’s petition for en banc rehearing.

• TMC argued CAFC expanded OSB beyond scope.• Hospira (now owned by Pfizer) launched generic drug after CAFC held patents invalid.

Probably non-issue, given non-infringement ruling.Issues: (1) “Commercial sale” despite no title transfer? - gamesmanship concerns re: early

commercialization/stockpiling; remove flexibility in deciding “commercial offer”.(2) Sale commercial or experimental? – CAFC to address exception for sale of services. (3) Overrule “no supplier exception”? - small manufacturers at risk, as need suppliers to make

experimental batches for trials. But §102(b) not differentiate who sells invention. And “experimental use” negation is still a safeguard.

• Hospira’s en banc brief filed Jan. 11, 2016.• AIPLA’s neutral amicus brief filed Jan. 19, 2016: partially overrule Special Devices to recognize

certain supplier transactions do not trigger the OSB.• TMC’s response due Feb. 24, 2016; Hospira’s reply due Mar. 10, 2016.


What To Watch For In 2016• Impact of AIA:

• Foreign activity.• 3rd party activities judged against disclosure by inventors, not 1-year bar

date. • AIA 102(b)(1) (exceptions): 1 year grace period for: 1) inventor

disclosure; 2) inventor-originated disclosure; 3) inventor or inventor-originated prior public disclosure.

• Open Qu.: “Public” sale requirement? Ex. Guidelines state that Senate comments suggest that “public availability” should be requirement for “on sale” activities under new 102(a)(1).• Do only “public” (non-secret; undefined) sales qualify as prior art,

overturning decades of CAFC case-law?


AIA (applications filed, with claims entitled to priority date, after 3/16/13)


Practical Implications?Patentees• IP: regularly update IP counsel + conduct audits over R&D. File provisionals early + regularly.

Develop early claim strategies + match with critical development dates.• Sales: use more likely experimental if there is no sale within the claim limitations.• Control/access: 1) retain control over experiments & ensure only authorized testers have

access; 2) observe invention’s fitness for purpose, not customer-suitability; 3) confidentiality agreements + restrict access to R&D; 4) enter service manufacturing agreements (title retention clauses; contingent on Hospira).

Defendants• Early discovery over 1) pre-critical date development/supply contracts; 2) batch records to

ascertain monetary consideration; 3) whether product, even for testing, meets all claim limitations, and substantiate with testimony and claim charts.

• § 282 Notice: be prepared to meet obligations (30 days pre-trial) and try to only rely on patentee’s documents.

• “Public Use” theory: early marketing activities, including negotiations, over invention where inventor secretly uses process that don’t reach level of an “offer” but carry commercial purpose.


Post-Expiration Patent Royalties:

Kimble v. Marvel


Background• Kimble issued Patent No. 5,072,856 in 1990; expired May 25, 2010• The ’856 patent relates to a “Toy Web-Shooting Glove” which allows a

user to shoot webs from the palm of the user’s hand • The webbing is string foam from a pressurized can

Marvel Entertainment owns the rights to the Spider-man character.


• Kimble tried to sell patent to Marvel but no deal made; Marvel marketed similar toy.• Kimble sued Marvel; lost infringement yet won breach. Both appealed, but settled.

Marvel bought the patent in “hybrid” agreement: 1) Transfers patent & non-patent rights for inseparable royalties; one rate for all;2) Over $500k + 3% royalty on “net product sales” of Web Blasters and those

infringing patent; 3) No end date for royalties (“continue for as long as kids want to imitate

Spider-Man”); Marvel paid Kimble > $6m.• Marvel & Hasbro entered licensing agreement for Web Blasters w/ “Extra Value

Items”; Hasbro paid royalties. But Hasbro declined sublicense for royalties to Kimble. • Marvel became aware of Brulotte, stopped paying Kimble & demanded repayment.• Kimble sued for breach & Marvel counter-claimed for patent misuse & declaratory

judgment to cease royalties post-expiration.• If Hasbro deal not occurred, Marvel continued paying Kimble post-expiration.

Background


Brulotte v Thys Co.,379 U.S. 29 (1964)

• Patent royalties unenforceable and unlawful per se if payments accrue post-patent term expiration.

• Dealt with the sale/licensing of patents, covering hop-picking machines, to farmers. • Annual royalty (even post-patent expiration) & assignment precluded. • Terms/restrictions same before and after expiration.

• 35 U.S.C. 154.—grant from date patent issues until 20 years from U.S. filing date.

• Art. 1 § 8 U.S. Const.: granted inventors “exclusive right” to make, use, or sell discoveries “for limited times”.


Alternatives to Patent Misuse• Brulotte:

• Allows deferred payments for pre-expiration use of a patent into the post-expiration period (e.g., 10% royalty for 20 year life of patent amortized over 40 years).

• Allows royalties to run until the last-expiring patent in multi-patent agreement.

• Allows post-expiration royalties if tied to non-patent right (e.g., trade secret, copyright, etc).

• No bar on business arrangements, other than royalties, that enable parties to share the risk and rewards (e.g., joint ventures).


• D. Ariz. rejected Kimble’s claim for breach, applying Brulotte: • No distinction between royalties for patent rights/infringing

toys vs. non-patent rights/non-infringing toys (probably as appeal over “no infringement” ruling pending during settlement).

• Patent used as leverage to negotiate.

• 9th Cir. affirmed – patent royalties unenforceable for post-expiration period unless “agreement provides a discount for non-patent rights from the patent-protected rate.”

Background


Supreme Court Ruling(6:3; J. Kagan for Majority)

• Acknowledged Brulotte prevents some parties from entering into desired deals.• Kimble did not show empirical evidence “connecting Brulotte to decreased innovation.”• To overcome stare decisis:

(a) Eroded doctrinal underpinnings (but §154 has been amended without overruling Brulotte; parties rely on this precedent when structuring business arrangements); or

(b) Brulotte is unworkable (but it is a simple bright-line rule; rule of reason would cause high litigation costs & unpredictable results).

Dissent: (1) overrule Brulotte and replace with a rule of reason test; (2) post-expiration royalties do not extend monopoly as do not prolong right to exclude; (3) if patentee/licensee aware of Brulotte, likely agreed to higher payments during term; (4) deferred agreements are economically efficient and increase competition where parties

unsure if a patented invention will yield value, since they encourage R&D investment in ideas that do not yield immediately marketable products.


With Great Power … Comes Great Responsibility

Decision filled with references to the Marvel character — including mentions of superpowers, a "web of precedents" and the fact that the Web Blaster toy lets kids "do whatever a spider can" — J. Kagan closed with a direct quotation of Spidey's signature line:

What we can decide, we can undecide. But stare decisis teaches that we should exercise that authority sparingly," she wrote, adding citation: "S. Lee and S. Ditko, Amazing Fantasy No. 15: 'Spider-Man,' p. 13 (1962) ("In this world, with great power there must also come — great responsibility.")


Takeaways For 2016• Identify non-patent rights & discount the non-patent from the patent rate.

• Insert a royalty “sunset” provision for expiring patent rights; otherwise Brulotte is the implied default rule for all IP rights.

• Ensure royalties run until latest-running patent, or “step-down” royalty applies upon patent expiration.

• Specify that deferred/amortized payments are either for pre-expiration use or are tied only to non-patent rights.

• Brulotte/Kimble applies to both settlement and licensing agreements.

• Creative license structures e.g., JVs or cross-licensing.


Thank You

feb 2 2016 - skgf_saba-dc cle event

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