IP News

Eastern District of Texas Transfers Two Patent Cases

In Odom v. Microsoft Corp., No. 08-331 (E.D. Tex. Jan. 30, 2009), Magistrate Judge John Love granted Microsoft's motion to transfer a patent infringement suit to the District of Oregon, holding that the Eastern District of Texas had no relevant connection to the case. The case was instituted by Oregon resident and solo inventor, Gary Odom.

The court analyzed both the public and private interest factors underlying every transfer analysis. With regard to the private interest factors, the Odom court found that the source of the evidence was a neutral factor because the allegedly infringing electronic software code was easily transferred. The court also ruled that the location of witnesses favored transfer since Microsoft had identified a number of witnesses located in Oregon and Washington who were relevant to its defenses. The court rejected plaintiff's argument that Microsoft was required to provide a list specifically identifying the name, location, and expected testimony of each of its anticipated witnesses. The court reasoned that such a requirement would only delay resolution of the transfer motion and, in any event, the plaintiff offered no list of witnesses located in Texas or randomly across the country. Further, citing the Federal Circuit's decision in In re TS Tech. USA Corp., No. 888, 2008 WL 5397522 at *5 (Fed. Cir. Dec. 29, 2008), the court indicated that since Microsoft's identified witnesses would need to travel an additional 1,700 miles to reach Tyler, TX, this factor must weigh considerably in favor of transfer.

The court also ruled that the public interest factors favored transfer. First, the court rejected plaintiff's arguments that the Eastern District of Texas had a localized interest merely because allegedly infringing products were sold within the district. The court ruled that under TS Tech, in patent cases, when a defendant sells products all over the country, no specific venue has a dominant interest in resolving the issue of patent infringement. To the contrary, the court agreed with Microsoft that Oregon had a strong local interest because it has extensive ties to the evidence that gave rise to the suit. Additionally, the court agreed that several contracts were signed in Oregon (and required interpretation of Oregon law) between plaintiff and Microsoft's patent counsel that gave rise to Microsoft's defenses of unclean hands and equitable estoppel.

Weighing all the factors, the court granted Microsoft's motion, finding that Oregon had identifiable ties to the parties, witnesses, and events while Texas had no “relevant connection” to the case.

In PartsRiver, Inc. v. Shopzilla, Inc., No. 07-cv-440 (E.D. Tex. Jan. 30, 2009), Judge David J. Folsom granted defendants' motion to transfer to the Northern District of California. In a brief analysis, the court reasoned that the plaintiff, six out of seven defendants, and the original patent owner had their principal places of business in California (the other defendant was located in Washington). The court further reasoned that the allegedly infringing Web sites, as well as many witnesses and documents, were located in California.

Petition for Writ of Certiorari Requests Consideration of Inequitable Conduct Test

On Jan. 23, 2009, Aventis Pharma S.A. and Aventis Pharms. Inc. filed a petition for a writ of certiorari to the Court of Appeals for the Federal Circuit (No. 08-937). Aventis' petition requested consideration of a Federal Circuit decision upholding a district court ruling that Aventis' patent covering Lovenox', a $2 billion anti-thrombosis drug, was unenforceable because of inequitable conduct. According to Aventis' petition, the district court found that a non-inventor expert who had submitted declarations distinguishing the prior art, had failed to disclose that his comparisons of the prior art and the claimed inventions were made at different dosages. Although there was no evidence that the non-inventor expert had actual knowledge that the omitted information was material and could have misled the PTO, the district court held, and the Federal Circuit affirmed, that the patent was unenforceable. The district court had reasoned that the omission was highly material and that under the Federal Circuit's “sliding scale” test of materiality and intent, it was Aventis' burden (which the district court found it failed to meet) to demonstrate that the intent of the omission was innocent. Aventis posed the question presented for the court's review as:

Whether a court may refuse to enforce an otherwise valid patent on the basis of an inequitable conduct determination premised on a sliding scale between intent and materiality, effectively permitting a finding of fraudulent intent to be predicated on gross negligence.

Special Master Recommends Granting Defendants' SJ Motions

In In re K-Dur Antitrust Litigation, No. 01-1652-JAG, MDL No. 1419 (D.N.J. Feb. 4, 2009), Special Master Stephen M. Orlofsky issued a 53-page report recommending that defendants Schering Plough Corp.'s (“Schering”) and Upsher-Smith Labs, Inc.'s (“Upsher”) motions for summary judgment be granted with respect to plaintiffs' (a class of wholesalers, hospitals, and other purchasers of Schering's K-Dur 20) claims that agreements between: 1) Schering and Upsher, and 2) Schering and former defendant ESI Lederle (“ESI”), settling ANDA litigations involving reverse payments, violated the Sherman Act.

Schering marketed a controlled-release potassium chloride supplement under the brand name K-Dur'. K-Dur was covered by a patent ('the '743 patent”) owned by Key Pharmaceuticals, Inc. (“Key”), a division of Schering. Specifically, the '743 patent was directed to a potassium chloride tablet with a coating material comprising ethylcellulose where “said ethylcellulose has a viscosity greater than 40 cp.” The viscosity limitation was added during prosecution in response to a rejection over the prior art.

On Aug. 8, 1995, Upsher filed a Paragraph IV ANDA certifying that the viscosity of ethylcellulose in its product was outside the claimed range and that it could not infringe under the doctrine of equivalents because prosecution history estoppel operated as a bar to the same. On Dec. 15, 1995, Key sued Upsher in the District of New Jersey alleging infringement of the '743 patent. After the conclusion of discovery, Upsher moved for summary judgment with respect to infringement. The court held oral argument on Upsher's motion the day before trial was scheduled to begin. The next morning, the parties finalized a settlement agreement, which provided that: 1) Upsher would not market a potassium chloride tablet prior to Sept. 21, 2001; 2) effective Sept. 1, 2001, Schering would grant Upsher a non-royalty bearing non-exclusive license to make its potassium chloride tablet; 3) Upsher would grant Schering licenses on six Upsher products; and 4) “in consideration for the licenses, rights and obligations described in paragraphs 1 through 10″ of the agreement, Schering would pay to Upsher a total of $60 million.

On Dec. 29, 1995, ESI sought FDA approval for a sustained release potassium chloride tablet and filed a Paragraph IV Certification that its product did not literally infringe the '743 patent. Schering (through Key) filed suit, and, following court-supervised mediation, the parties agreed that: 1) Schering would pay ESI $5 million plus an additional $10 million if ESI's ANDA was approved by July 1999 (with payment incrementally decreasing if ESI's ANDA was approved in 2002); 2) Key would grant ESI a royalty free, non-exclusive license under the '743 patent beginning Jan. 1, 2004; and 3) prior to expiration of the '743 patent, ESI would not apply for, sponsor, or support an application for AB rating for any potassium chloride product with respect to K-Dur, or conduct, sponsor, file, or support a substitutability or equivalence study of a potassium chloride product with respect to K-Dur.

On March 30, 2001, the FTC filed a complaint against Schering, Upsher, and ESI's parent company alleging that the aforementioned agreements violated Section 5 of the FTC Act. Following a lengthy trial, the administrative law judge hearing the case rejected the FTC's position and, applying a rule-of-reason analysis, held that there was no basis to predict the outcome of the patent litigation and that the agreements were therefore not outside the exclusionary scope of the '743 patent. The full FTC commission reversed the ALJ, holding that the agreements were per se illegal, but the Eleventh Circuit reversed the FTC's decision.

In the instant action, defendants argued that their summary judgment motions should be granted unless the plaintiffs could show either: 1) that Schering's underlying patent litigation was “objectively baseless”; 2) that the '743 patent was procured by fraud; or 3) that terms of the settlements extended the patent's coverage beyond its exclusionary scope. The plaintiffs argued that defendants' legal framework was incorrect and that a per se approach was appropriate, as had been applied in a similar case by the Sixth Circuit (In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003)) and advocated by at least one antitrust scholar.

The Special Master recommended that defendants' summary judgment motions be granted. The Special Master distinguished the Sixth Circuit's decision and agreed with other circuit courts holding that a rule of reason approach should apply, and only then if it could be shown that the agreements extended beyond the patent's exclusionary scope. The Special Master found that the '743 patent gave Schering the right to exclude infringing products until Sept. 5, 2006, and that each of the Upsher and ESI settlement agreements allowed the generic makers to enter the market before this time. Further, the Special Master declined to conduct an ex post facto inquiry into the infringement issues that were resolved by the parties' settlement. The Special Master additionally determined that Schering's infringement suits were not objectively baseless. Specifically, the Special Master relied on the uncertainty at the time of the Upsher settlement regarding the law of prosecution history estoppel ' thus rejecting plaintiffs' argument that prior to settlement, Upsher was virtually certain to prevail.

Jeffrey S. Ginsberg is a partner and Matthew Berkowitz is an associate in the New York office of Kenyon & Kenyon LLP.

Eastern District of Texas Transfers Two Patent Cases

In Odom v. Microsoft Corp., No. 08-331 (E.D. Tex. Jan. 30, 2009), Magistrate Judge John Love granted Microsoft's motion to transfer a patent infringement suit to the District of Oregon, holding that the Eastern District of Texas had no relevant connection to the case. The case was instituted by Oregon resident and solo inventor, Gary Odom.

The court analyzed both the public and private interest factors underlying every transfer analysis. With regard to the private interest factors, the Odom court found that the source of the evidence was a neutral factor because the allegedly infringing electronic software code was easily transferred. The court also ruled that the location of witnesses favored transfer since Microsoft had identified a number of witnesses located in Oregon and Washington who were relevant to its defenses. The court rejected plaintiff's argument that Microsoft was required to provide a list specifically identifying the name, location, and expected testimony of each of its anticipated witnesses. The court reasoned that such a requirement would only delay resolution of the transfer motion and, in any event, the plaintiff offered no list of witnesses located in Texas or randomly across the country. Further, citing the Federal Circuit's decision in In re TS Tech. USA Corp., No. 888, 2008 WL 5397522 at *5 (Fed. Cir. Dec. 29, 2008), the court indicated that since Microsoft's identified witnesses would need to travel an additional 1,700 miles to reach Tyler, TX, this factor must weigh considerably in favor of transfer.

The court also ruled that the public interest factors favored transfer. First, the court rejected plaintiff's arguments that the Eastern District of Texas had a localized interest merely because allegedly infringing products were sold within the district. The court ruled that under TS Tech, in patent cases, when a defendant sells products all over the country, no specific venue has a dominant interest in resolving the issue of patent infringement. To the contrary, the court agreed with Microsoft that Oregon had a strong local interest because it has extensive ties to the evidence that gave rise to the suit. Additionally, the court agreed that several contracts were signed in Oregon (and required interpretation of Oregon law) between plaintiff and Microsoft's patent counsel that gave rise to Microsoft's defenses of unclean hands and equitable estoppel.

Weighing all the factors, the court granted Microsoft's motion, finding that Oregon had identifiable ties to the parties, witnesses, and events while Texas had no “relevant connection” to the case.

In PartsRiver, Inc. v. Shopzilla, Inc., No. 07-cv-440 (E.D. Tex. Jan. 30, 2009), Judge David J. Folsom granted defendants' motion to transfer to the Northern District of California. In a brief analysis, the court reasoned that the plaintiff, six out of seven defendants, and the original patent owner had their principal places of business in California (the other defendant was located in Washington). The court further reasoned that the allegedly infringing Web sites, as well as many witnesses and documents, were located in California.

Petition for Writ of Certiorari Requests Consideration of Inequitable Conduct Test

On Jan. 23, 2009, Aventis Pharma S.A. and Aventis Pharms. Inc. filed a petition for a writ of certiorari to the Court of Appeals for the Federal Circuit (No. 08-937). Aventis' petition requested consideration of a Federal Circuit decision upholding a district court ruling that Aventis' patent covering Lovenox', a $2 billion anti-thrombosis drug, was unenforceable because of inequitable conduct. According to Aventis' petition, the district court found that a non-inventor expert who had submitted declarations distinguishing the prior art, had failed to disclose that his comparisons of the prior art and the claimed inventions were made at different dosages. Although there was no evidence that the non-inventor expert had actual knowledge that the omitted information was material and could have misled the PTO, the district court held, and the Federal Circuit affirmed, that the patent was unenforceable. The district court had reasoned that the omission was highly material and that under the Federal Circuit's “sliding scale” test of materiality and intent, it was Aventis' burden (which the district court found it failed to meet) to demonstrate that the intent of the omission was innocent. Aventis posed the question presented for the court's review as:

Whether a court may refuse to enforce an otherwise valid patent on the basis of an inequitable conduct determination premised on a sliding scale between intent and materiality, effectively permitting a finding of fraudulent intent to be predicated on gross negligence.

Special Master Recommends Granting Defendants' SJ Motions

In In re K-Dur Antitrust Litigation, No. 01-1652-JAG, MDL No. 1419 (D.N.J. Feb. 4, 2009), Special Master Stephen M. Orlofsky issued a 53-page report recommending that defendants Schering Plough Corp.'s (“Schering”) and Upsher-Smith Labs, Inc.'s (“Upsher”) motions for summary judgment be granted with respect to plaintiffs' (a class of wholesalers, hospitals, and other purchasers of Schering's K-Dur 20) claims that agreements between: 1) Schering and Upsher, and 2) Schering and former defendant ESI Lederle (“ESI”), settling ANDA litigations involving reverse payments, violated the Sherman Act.

Schering marketed a controlled-release potassium chloride supplement under the brand name K-Dur'. K-Dur was covered by a patent ('the '743 patent”) owned by Key Pharmaceuticals, Inc. (“Key”), a division of Schering. Specifically, the '743 patent was directed to a potassium chloride tablet with a coating material comprising ethylcellulose where “said ethylcellulose has a viscosity greater than 40 cp.” The viscosity limitation was added during prosecution in response to a rejection over the prior art.

On Aug. 8, 1995, Upsher filed a Paragraph IV ANDA certifying that the viscosity of ethylcellulose in its product was outside the claimed range and that it could not infringe under the doctrine of equivalents because prosecution history estoppel operated as a bar to the same. On Dec. 15, 1995, Key sued Upsher in the District of New Jersey alleging infringement of the '743 patent. After the conclusion of discovery, Upsher moved for summary judgment with respect to infringement. The court held oral argument on Upsher's motion the day before trial was scheduled to begin. The next morning, the parties finalized a settlement agreement, which provided that: 1) Upsher would not market a potassium chloride tablet prior to Sept. 21, 2001; 2) effective Sept. 1, 2001, Schering would grant Upsher a non-royalty bearing non-exclusive license to make its potassium chloride tablet; 3) Upsher would grant Schering licenses on six Upsher products; and 4) “in consideration for the licenses, rights and obligations described in paragraphs 1 through 10″ of the agreement, Schering would pay to Upsher a total of $60 million.

On Dec. 29, 1995, ESI sought FDA approval for a sustained release potassium chloride tablet and filed a Paragraph IV Certification that its product did not literally infringe the '743 patent. Schering (through Key) filed suit, and, following court-supervised mediation, the parties agreed that: 1) Schering would pay ESI $5 million plus an additional $10 million if ESI's ANDA was approved by July 1999 (with payment incrementally decreasing if ESI's ANDA was approved in 2002); 2) Key would grant ESI a royalty free, non-exclusive license under the '743 patent beginning Jan. 1, 2004; and 3) prior to expiration of the '743 patent, ESI would not apply for, sponsor, or support an application for AB rating for any potassium chloride product with respect to K-Dur, or conduct, sponsor, file, or support a substitutability or equivalence study of a potassium chloride product with respect to K-Dur.

On March 30, 2001, the FTC filed a complaint against Schering, Upsher, and ESI's parent company alleging that the aforementioned agreements violated Section 5 of the FTC Act. Following a lengthy trial, the administrative law judge hearing the case rejected the FTC's position and, applying a rule-of-reason analysis, held that there was no basis to predict the outcome of the patent litigation and that the agreements were therefore not outside the exclusionary scope of the '743 patent. The full FTC commission reversed the ALJ, holding that the agreements were per se illegal, but the Eleventh Circuit reversed the FTC's decision.

In the instant action, defendants argued that their summary judgment motions should be granted unless the plaintiffs could show either: 1) that Schering's underlying patent litigation was “objectively baseless”; 2) that the '743 patent was procured by fraud; or 3) that terms of the settlements extended the patent's coverage beyond its exclusionary scope. The plaintiffs argued that defendants' legal framework was incorrect and that a per se approach was appropriate, as had been applied in a similar case by the Sixth Circuit (In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003)) and advocated by at least one antitrust scholar.

The Special Master recommended that defendants' summary judgment motions be granted. The Special Master distinguished the Sixth Circuit's decision and agreed with other circuit courts holding that a rule of reason approach should apply, and only then if it could be shown that the agreements extended beyond the patent's exclusionary scope. The Special Master found that the '743 patent gave Schering the right to exclude infringing products until Sept. 5, 2006, and that each of the Upsher and ESI settlement agreements allowed the generic makers to enter the market before this time. Further, the Special Master declined to conduct an ex post facto inquiry into the infringement issues that were resolved by the parties' settlement. The Special Master additionally determined that Schering's infringement suits were not objectively baseless. Specifically, the Special Master relied on the uncertainty at the time of the Upsher settlement regarding the law of prosecution history estoppel ' thus rejecting plaintiffs' argument that prior to settlement, Upsher was virtually certain to prevail.

Jeffrey S. Ginsberg is a partner and Matthew Berkowitz is an associate in the New York office of Kenyon & Kenyon LLP.