Recent Developments in Patent Law

1
Recent Developments in Patent Law

• Supreme Court
• and
• Federal Circuit Cases

Russell J. Genet Nixon Peabody, Chicago
2

• MedImmune, Inc. v. Genentech, Inc.
• 127 S. Ct. 764 (January 9, 2007)

3
Supreme Court Opinion

• Question Does D.J. Act require a licensee to
  terminate or breach license agreement before
  seeking declaratory judgment of
  invalidity, unenforceability, or
  non-infringement?
• Answer No.

4
Supreme Court Opinion

• Court has jurisdiction over a declaratory
  judgment suit brought by a licensee in good
  standing, where the licensee
• Paid royalties
• Under protest
• With a reservation of its rights after the patent
  holder demanded royalties for a product it
  believed was covered under the terms of the
  license.

5
Supreme Court Opinion

• Basically the question in each case is whether
  the facts alleged, under all the circumstances,
  show that there is a substantial controversy,
  between parties having adverse legal interests,
  of sufficient immediacy and reality to warrant
  the issuance of a declaratory judgment.
• Medlmmune, 127 S.Ct. at 771.

6
Supreme Court Opinion

• The requirements of a case or controversy are
  met where payment of a claim is demanded as a
  right and where payment is made, but where the
  involuntary or coercive nature of the exaction
  preserves the right to recover the sums paid or
  to challenge the legality of the claim. Citing
  Altvater v. Freeman, 218 U.S. 259 (1943)
• Medlmmune, 127 S.Ct. at 773.

7
Supreme Court Opinion

• Reasonable apprehension of suit test used by
  the Federal Circuit to determine if an actual
  case or controversy exists when a party seeks a
  declaration of invalidity or non-infringement
  contradicts the Supreme Courts decisions on
  jurisdiction.
• Medlmmune, 127 S.Ct. at 774 n.11.

8
Post-MedImmune DecisionsActual Case or
Controversy Exists

• SanDisk Corp. v. STMicroelectronics, Inc., 480
  F.3d 1372 (Fed. Cir. 2007).
• SanDisk need not bet the farm, so to speak,
  and risk a suit for infringement by cutting off
  licensing discussions and continuing in the
  identified activity before seeking a declaration
  of its legal rights.
• We hold . . . that where . . . a patentee
  asserts rights under a patent based on certain
  identified ongoing or planned activity at another
  party and where that party contends that it has
  the right to engage in the accused activity
  without license, an Article III case or
  controversy will arise . . .

9
Post-MedImmune DecisionsActual Case or
Controversy Exists

• Teva Pharmaceuticals USA, Inc. v. Novartis
  Pharmaceuitcals, Corp., 482 F.3d 1330 (Fed. Cir.
  2007) (using all the circumstances test).
• Crutchfield New Media LLC v. Hill Associates,
  2007 U.S. Dist. LEXIS 33264 (S.D. Ind. May 4,
  2007)
• Finding that letter from patent holder regarding
  patents, licenses, and prior suits brought by
  patent holder on patents in suit to be sufficient
  under all the circumstances test.

10
Impact of MedImmune

• Licensing negotiations may lead to DJ actions
  more easily.
• License agreement provisions
• agree to validity and infringement
• agree not to challenge validity
• agree not to challenge validity/infringement
  unless discontinue royalty payments

11

• KSR International Co. v. Teleflex Inc.
• 127 S. Ct. 1727 (April 30, 2007)

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KSR The Supreme Opinions

• The combination of familiar elements according
  to known methods is likely to be obvious when it
  does no more than yield predictable results.
• Predictable results ? Obvious
• A court must ask whether the improvement is
  more than the predictable use of prior art
  elements according to their established
  functions.
• Old elements, same functions ? Obvious

13
KSR The Supreme Opinions (contd)

• Common sense teaches, however, that familiar
  items may have obvious uses beyond their primary
  purposes, and in many cases a person of ordinary
  skill will be able to fit the teachings of
  multiple patents together like pieces of a
  puzzle.
• Common sense in applying broad range of prior
  art ? Obvious

14
KSR The Obviousness Test

• Graham v. John Deere Co. provides primary
  analysis
• Scope and content of prior art
• Differences between prior art and claimed
  invention
• Level of ordinary skill in the art
• Presence or absence of secondary indicia of
  non-obviousness
• TSM test can still be used, but weakened

15
KSR The Obviousness Test (contd)

• Additional guidelines to consider
• Introduction of new or different functions
• Unexpected results
• Results that far surpass those existing in the
  art
• A long passage of time without achieving the
  invention in view of the cited art

16
KSR A Sneak Peak at the Future?

• The Court hints that the presumption of validity
  is at risk.
• We need not reach the question whether the
  failure to disclose Asano during the prosecution
  of the Teleflex patent voids the presumption of
  validity given to issued patents, for claim 4 is
  obvious despite the presumption. We nevertheless
  think it appropriate to note that the rationale
  underlying the presumption that the PTO in its
  expertise, has approved the claim seems much
  diminished here.
• KSR, 127 S.Ct. at 1745.

17
KSR What Does It All Mean?

• Top quality patent applications are important to
  survive invalidity challenges.
• More obviousness rejections from PTO more
  difficult to obtain patents
• Patent litigation may take longer increased
  invalidity challenges
• District Court Judges may give less deference to
  Fed. Cir. precedent

18
KSR What Does It All Mean? (contd)

• Prior art not cited during prosecution may be
  given extra weight
• Increased burden is placed on patentee to
  establish non-obviousness
• Obvious to try can now lead to invalidity
• Reexaminations will likely become more prevalent

19

• In re Seagate Tech.
• 497 F.3d 1360 (Fed. Cir. 2007)

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Willfulness Before Seagate

• Potential infringer has affirmative duty to
  exercise due care to determine whether or not he
  is infringing a known patent.
• Underwater Devices inc., v. Morrison-Knudsen
  Co., 717 F.2d 1380, 1389-90 (Fed. Cir. 1983)
• Affirmative duty ? non-infringement/invalidity
  opinions
• Willfulness avoided by advice of counsel
  defense

21
Willfulness After Seagate

• Willfulness requires objective recklessness
• A patentee must show by clear and convincing
  evidence that the infringer acted despite an
  objectively high likelihood that its actions
  constituted infringement of a valid patent.
• In re Seagate, 497 F.3d at 1371.

22
Willfulness After Seagate

• Patentee must also demonstrate that this
  objectively-defined risk . . . was either known
  or so obvious that it should have been known to
  the accused infringer.

23
Willfulness After Seagate

• Underwater Devices overruled
• No affirmative obligation to obtain opinion of
  counsel

24
Willfulness after Seagate

• Willfulness depends on prelitigation conduct
• Remedy for post-filing willful infringement
• Preliminary Injunction

25
Effects of Seagate

• Enhanced damages for willfulness limited to
  prelitigation conduct
• Need for Preliminary Injunction proceedings must
  be considered
• Asserting advice of counsel defense does not
  waive privilege or work product with trial
  counsel
• Opinions likely not needed post-filing

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Seagate Unanswered Questions

• What is waiver scope if opinion counsel trial
  counsel?
• What is waiver scope if opinion counsel
  in-house counsel?
• Is enhanced damages limited to willfulness?
• Exactly how will the objective recklessness
  standard be applied?

27

• Nilssen v. Osram Sylvania, Inc.,
• 504 F.3d 1223 (Fed. Cir. 2007)

28

• Lessons in inequitable conduct . . .
• what not to do.

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Nilssen Inequitable Conduct

• Disclose any relationship of affiants with
  applicant.
• Relationship is material to credibility and
  content of affidavits
• Failure to disclose ? inequitable conduct

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Nilssen Inequitable Conduct

• 2. Always pay proper entity fees
• Improper payment of small entity fees ?
  inequitable conduct
• Licensing to large entity large entity fees
• 37 C.F.R. 1.27

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Nilssen Inequitable Conduct

• 3. Ensure you claim priority properly
• Claiming improper priority ? inequitable conduct

32
Nilssen Inequitable Conduct

• It is not necessary for a holding of inequitable
  conduct that an examiner rely on a claim for
  priority or that entitlement to an earlier
  priority date be expressly argued in order to
  overcome prior art.
• Nilssen, 504 F.3d at 1233.

33
Nilssen Inequitable Conduct

• A claim for priority is inherently material to
  patentability because a priority date may
  determine validity, whether an issue arises in
  prosecution or later in court challenges to
  validity.
• Nilssen, 504 F.3d at 1233.

34
Nilssen Inequitable Conduct

• 4. Disclose pending litigation involving related
  subject matter.
• Failure to disclose litigation ? inequitable
  conduct

35
Nilssen Inequitable Conduct

• Where the subject matter for which a patent is
  being sought is or has been involved in
  litigation, the existence of such litigation and
  any other material information arising therefrom
  must be brought to the attention of the U.S.
  Patent and Trademark Office. Examples of such
  material information include evidence of possible
  prior public use or sales, questions of
  inventorship, prior art, allegations of fraud,
  inequitable conduct, and violation of duty of
  disclosure. Another example of such material
  information is any assertion that is made during
  litigation which is contradictory to assertions
  made to the examiner. Environ Prods., Inc. v.
  Total containment, Inc., 43 USPQ2d 1288, 1291
  (E.D. Pa. 1997). Such information might arise
  during litigation in, for example, pleadings,
  admissions, discovery including interrogatories,
  depositions, and other documents and testimony.
• MPEP 2001.06(c)

36
Nilssen Inequitable Conduct

• The existence of the litigation itself is
  material information that an examiner needs to
  have.
• It signals to the examiner that other
  material information relevant to patentability
  may become available through the litigation
  proceedings.
• Nilssen, 504 F.3d at 1234.

37

• LG Electronics v. Bizcom Electronics et al.,
• 453 F.3d 1364 (Fed. Cir. 2006)

38
Patent Exhaustion at the Supreme Court

• Quanta Computer Inc. v. LG Electronics,
• U.S., No. 06-937, argued Jan. 16, 2008

39
Facts

• LG licensed microprocessor patents to Intel
• Defendants bought microprocessors from Intel
• License did not authorize purchasers of
  microprocessors to combine them with non-Intel
  products
• Intel gave notice of this restriction to
  purchasers
• LG filed suit on system patents

40
Federal Circuit Ruling

• LGs sale to Intel was conditional
• License expressly disclaimed allowing computer
  manufacturers to combine chips with non-Intel
  components
• Patent exhaustion did not apply to combination
  patents
• Lawsuit against purchasers of licensed
  microprocessors was allowed

41
Issues Raised By LG Case

1. Can patent rights granted for article patents
   cause exhaustion of rights in system patents?
2. Can a patentee extract royalties twice for a
   licensed product?
3. Should article claims and system claims be
   put in separate patents?
4. Buyers of licensed products may need to perform a
   due diligence of license/notices related to
   product.
5. Sellers of licensed products may have to provide
   notices to buyers of limited rights.

42

• In re Bilski,
• No. 2007-1130 (Fed. Cir.)

43
In re Bilski

• Argument, May 8, 2008 at 200 p.m.
• en banc review
• The fate of business method patents at stake

44
In re Bilski

• Claim 1
• A method for managing the consumption risk costs
  of a commodity sold by a commodity provider at a
  fixed price comprising the steps of
• (a) Initiating a series of transactions between
  said commodity provider and consumers of said
  commodity wherein said consumers purchase said
  commodity at a fixed rate based upon historical
  averages, said fixed rate corresponding to a risk
  position of said consumer
• Identifying market participants for said
  commodity having a counter-risk position to said
  consumers and
• Initiating a series of transactions between said
  commodity provider and said market participants
  at a second fixed rate such that said series of
  consumer transactions.

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Federal Circuit Questions

• Does Claim 1 claim patent-eligible subject matter
  under 35 U.S.C. 101?
• What standard should govern whether a process is
  patent-eligible under 101?
• 3.(a) Whether claimed subject matter is not
  patent-eligible because it constitutes an
  abstract idea or mental process?

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Federal Circuit Questions

• 3.(b) When does a claim that contains both
  mental and physical steps create patent-eligible
  subject matter?
• 4. Whether a method or process must result in a
  physical transformation of an article or be tied
  to a machine to be patent-eligible under 101?
• 5. Should the court reconsider State Street Bank
  and ATT v. Excel cases should they be overruled?

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• Russell J. Genet
• Nixon Peabody, LLP
• 161 N. Clark Street
• 48th Floor
• Chicago, Illinois 60601
• rgenet_at_nixonpeabody.com
• 312-425-8516 (direct dial)

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