IP News

Many industry groups support these patent litigation reform proposals; however, the judiciary in general, and the Federal Circuit judges in particular, remain skeptical. Federal Circuit's Chief Judge Rader discussed the legislative attempts to reform patent litigation at the Judicial Conference in the Eastern District of Texas at the end of October. In his view, “courts have the best tools to supply the correction” to the perceived patent litigation abuse problem, and just need to use those tools more aggressively. Similar views have been expressed by Judge O'Malley and former Federal Circuit Chief Judge Michel. In addition, the Judicial Conference wrote a letter to both Senate and House judicial committees, expressing its view that section 6 of the proposed House Bill H.R. 3309, directing the Judicial Conference to implement certain procedures and practices limiting discovery costs, goes against the process for amending the Federal Rules of Civil Procedure established by the Rules Enabling Act, which “has worked well for the last 80 years or so”.

U.S. Supreme Court Hears Oral Argument on Burden of Proof for Licensee-DJ Plaintiff

On Nov. 5, 2013, the Supreme Court heard oral argument in Medtronic Inc. v. Boston Scientific Corp., U.S., No. 12-1128, on the issue of who has the burden to prove infringement in a declaratory judgment suit brought by a non-breaching licensee of the patent-in-suit. Such DJ actions have been authorized by the Supreme Court's Medimmune decision, MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007). The question presented in Medtronic references MedImmune: “whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.” Medtronic Inc. v. Boston Scientific Corp., U.S., No. 12-1128, pet'n for cert. (Mar. 14, 2013). In this narrow type of DJ action, the patentee cannot counterclaim for infringement because the licensee claims it has not breached the license. The Federal Circuit placed the burden of proving non-infringement in such a case on the licensee as the only party who has a claim: “Medtronic is the party seeking this relief and Medtronic must bear the burden of proving it is entitled to such relief.” Medtronic Inc. v. Boston Scientific Corp., 695 F.3d 1266 (Fed. Cir. 2012).

Counsel for Medtronic argued that the patentee always has the burden to prove infringement, and that the Declaratory Judgment Act was not intended to shift burdens that would exist in a mirror patent-infringement suit. Therefore, the burden to prove infringement should be, as in that suit, on the patentee. The government supported Medtronic's position. Patentee's counsel argued that the parties stipulated that, first, letters written to Medtronic were not notices of infringement, and second, Medtronic, as a licensee, cannot be an infringer. Further, the burden of proof followed the “normal default rule” that the party seeking relief from the court has to prove that it is entitled to the relief it seeks ' therefore, the Federal Circuit correctly placed the burden on Medtronic. Justice Scalia remarked that such argument can be made in every DJ action, and the Supreme Court has repeatedly held that the burden does not shift. The difference from a regular DJ action, according to patentee's counsel, is that in the MedImmune-type action the patentee cannot bring a suit for infringement against the licensee. In addition, the dispute concerned claim coverage, not infringement. At least Justices Breyer and Kagan questioned whether an analysis of “claim coverage” is any different from a patent infringement determination. The Justices also raised the practical difficulty for a DJ plaintiff to prove a negative, to anticipate and rebut infringement theories for a high number of patent claims it could potentially infringe. A decision is expected in the current term, which ends in June 2014.

A Split Federal Circuit Denies En Banc Rehearing In Case Involving Finality Of a Judicial Decision

The Federal Circuit denied rehearing en banc Fresenius, USA, Inc. v. Baxter Int'l, Inc., No. 12-1334 (Nov. 5, 2013). This case concerns the finality of judicial decisions in view of a conflicting ruling from the USPTO. Baxter had won an infringement judgment against Fresenius, which a Federal Circuit panel upheld. Fresenius USA, Inc. v. Baxter Int'l, Inc., 582 F.3d 1288 (Fed. Cir. 2009). The panel then remanded the case to the district court for re-determination of certain damages issues. Id., at 1302. A parallel reexamination proceeding in the USPTO resulted in cancellation of Baxter's claims, which a second Federal Circuit panel upheld. In re Baxter Int'l, Inc., 678 F.3d 1357 (Fed. Cir. 2012). When an appeal from the district court's second attempt at a damages determination reached the Federal Circuit, the panel vacated the district court's judgment and dismissed the entire case, holding that the determination of Fresenius liability was not “sufficiently final” to avoid the effect of intervening cancellation of the patent claims. Fresenius USA, Inc. v. Baxter Int'l, Inc., 721 F.3d 1330, 1341 (Fed. Cir. 2013). Judge O'Malley, joined by two other judges, dissented from the denial of rehearing en banc, arguing that the infringement decision was sufficiently final to not be disturbed because only the amount of damages remained pending (relying on the recent en banc decision in Bosch LLC v. Pylon Manufacturing Corp., 719 F.3d 1305 (Fed. Cir. 2013), which clarified when a decision can be considered “final except for an accounting” for the purposes of appeal).

Judge Newman in a separate dissent argued that allowing a patentability determination made by an executive branch agency, i.e., the USPTO, to disturb the judgment of an Article III court violates separation of powers.

Federal Circuit Explains Exhaustion of Method Patents

The Federal Circuit clarified its views on exhaustion of method patents in two opinions, Keurig, Inc. v. Sturm Foods, Inc., No. 2013-1072 (Fed. Cir. Oct. 17, 2013) and LifeScan Scot., Ltd. v. Shasta Techs., LLC, No. 2013-1271 (Fed. Cir. Nov. 4, 2013). In the Keurig case, the Federal Circuit upheld a district court's grant of summary judgment of no infringement based on exhaustion. Keurig, a company selling coffee brewing machines and individual cartridges for use in those machines, sued Sturm who is selling cartridges for use in Keurig brewers, asserting indirect infringement of method claims from two patents. The asserted claims were directed to methods of using a coffee brewer with a disposable cartridge to make coffee. Even though the disposable cartridges were separately patented, Keurig did not assert its cartridge patent against Sturm. The Federal Circuit panel held that the patent rights in the asserted method claims 'were exhausted by its initial authorized sale of Keurig's patented brewers,' and upheld summary judgment of no infringement. Keurig, No. 2013-1072, slip op. at 7. In doing so, the Federal Circuit rejected Keurig's reliance on the 'substantial embodiment' test of Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617 (2008), explaining that Quanta test does not apply when the combination sold by the patentee is patented, as it was here. The Federal Circuit also stated in dicta that the patent exhaustion doctrine is 'focused on the exhaustion of the patents at issue in their entirety, rather than the exhaustion of the claims at issue on an individual basis.' Id., at 8. Judge O'Malley filed a separate opinion concurring in the judgment only, criticizing the majority's view that exhaustion applies to entire patents, not individual asserted claims.

In the Lifescan case, the Federal Circuit overturned a district court's preliminary injunction against Shasta, Lifescan's competitor in the market of blood glucose monitoring systems. The Federal Circuit held that the patentee is not likely to succeed on the merits because 'Shasta has established a patent exhaustion defense as a matter of law.' Lifescan, No. 2013-1271, slip op. at 8. Lifescan invented and patented a method for testing blood glucose level that includes a disposable test strip with two measuring electrodes, and a reading device for analyzing the results. Neither the device nor the test strips are separately patented. Lifescan manufactures and sells glucose monitoring systems and test strips, selling the meters at a price below cost or even distributing them for free, and attempts to make profits on the selling of the test strips. Shasta was alleged to indirectly infringe Lifescan's method patent by selling competing disposable test strips for use in Lifescan meters. The Federal Circuit panel held, relying on Quanta, that distribution of the Lifescan meters, even when they were distributed for free, exhausted the asserted method patent because the meter itself 'substantially embodies the method claims' of the asserted patent. Lifescan, No. 2013-1271, slip op. at 17. Existence of a potential non-infringing use does not negate exhaustion where the use in question is that contemplated by the patent itself. Id. at 12-13. In his dissent, Judge Reyna argued that the test strips, not the meter itself, embodied the patented method, and therefore the patent was not exhausted by the distribution of Lifescan meters.'

Jeffrey S. Ginsberg is a partner, and Ksenia Takhistova is an associate in the New York office of Kenyon & Kenyon LLP.

New Patent Litigation Reform Bills Introduced

As of this writing, several patent litigation reform bills are pending in the Senate and the House. On Oct. 24, 2013, House Judiciary Chairman Goodlatte introduced his Innovation Act, H.R. 3309, and a substitute bill on November 18. On Oct. 30, 2013, Senate Judiciary Committee Chairman Hatch introduced Patent Litigation Integrity Act, S.1612. And on Nov. 18, 2013, Hatch and two co-sponsors introduced another patent litigation reform bill, the “Patent Transparency and Improvements Act of 2013,” S. 1720.'The stated goal of these and the other litigation reform bills that have been introduced this year is to counter abusive litigation practices by so-called “non-practicing entities” (NPEs, also called “patent assertion entities,” or “trolls”) ' companies that own patents but do not manufacture or sell the patented products or services, using instead the patents' power to exclude others to obtain royalty payments from companies practicing the patented inventions.

The main provisions that exist in some form in both the House and Senate bills are: 1) a revised '285 of title 35 of the United States Code, mandating that a losing party pay winning party's attorneys' fees and expenses, unless the losing party can demonstrate that its position was “substantially justified;” 2) transparency of patent ownership provision, containing a new requirement for the patentee to disclose anyone with a financial interest in either the patents or the patentee, and its “ultimate parent entity”; 3) a customer-suit exception provision, allowing stays of actions against customers if a customer agrees to be bound by the outcome of the suit against the manufacturer; 4) protection of IP licenses in bankruptcy; 5) a codification of obviousness-type double-patenting for first-inventor-to-file patents; 6) a provision narrowing estoppel against the petitioner in a post-grant review proceeding to grounds actually raised during the proceedings; and 7) a provision requiring the PTAB to use a district-court claim construction standard instead of the USPTO's “broadest reasonable interpretation” in Post-Grant and Inter Partes Reviews proceedings. See, H.R. 3309, S. 1612, S. 1720. In addition, the Senate Bill S. 1720 contains a section bringing certain baseless “bad-faith” demand letters under the FTC rules, as an unfair or deceptive trade practice. A separate bill addressing demand letters, the “Demand Letter Transparency Act,” was introduced in the House on Nov. 19, 2013.

Many industry groups support these patent litigation reform proposals; however, the judiciary in general, and the Federal Circuit judges in particular, remain skeptical. Federal Circuit's Chief Judge Rader discussed the legislative attempts to reform patent litigation at the Judicial Conference in the Eastern District of Texas at the end of October. In his view, “courts have the best tools to supply the correction” to the perceived patent litigation abuse problem, and just need to use those tools more aggressively. Similar views have been expressed by Judge O'Malley and former Federal Circuit Chief Judge Michel. In addition, the Judicial Conference wrote a letter to both Senate and House judicial committees, expressing its view that section 6 of the proposed House Bill H.R. 3309, directing the Judicial Conference to implement certain procedures and practices limiting discovery costs, goes against the process for amending the Federal Rules of Civil Procedure established by the Rules Enabling Act, which “has worked well for the last 80 years or so”.

U.S. Supreme Court Hears Oral Argument on Burden of Proof for Licensee-DJ Plaintiff

On Nov. 5, 2013, the Supreme Court heard oral argument in Medtronic Inc. v. Boston Scientific Corp., U.S., No. 12-1128, on the issue of who has the burden to prove infringement in a declaratory judgment suit brought by a non-breaching licensee of the patent-in-suit. Such DJ actions have been authorized by the Supreme Court's Medimmune decision, MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007). The question presented in Medtronic references MedImmune: “whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.” Medtronic Inc. v. Boston Scientific Corp., U.S., No. 12-1128, pet'n for cert. (Mar. 14, 2013). In this narrow type of DJ action, the patentee cannot counterclaim for infringement because the licensee claims it has not breached the license. The Federal Circuit placed the burden of proving non-infringement in such a case on the licensee as the only party who has a claim: “Medtronic is the party seeking this relief and Medtronic must bear the burden of proving it is entitled to such relief.” Medtronic Inc. v. Boston Scientific Corp., 695 F.3d 1266 (Fed. Cir. 2012).

Counsel for Medtronic argued that the patentee always has the burden to prove infringement, and that the Declaratory Judgment Act was not intended to shift burdens that would exist in a mirror patent-infringement suit. Therefore, the burden to prove infringement should be, as in that suit, on the patentee. The government supported Medtronic's position. Patentee's counsel argued that the parties stipulated that, first, letters written to Medtronic were not notices of infringement, and second, Medtronic, as a licensee, cannot be an infringer. Further, the burden of proof followed the “normal default rule” that the party seeking relief from the court has to prove that it is entitled to the relief it seeks ' therefore, the Federal Circuit correctly placed the burden on Medtronic. Justice Scalia remarked that such argument can be made in every DJ action, and the Supreme Court has repeatedly held that the burden does not shift. The difference from a regular DJ action, according to patentee's counsel, is that in the MedImmune-type action the patentee cannot bring a suit for infringement against the licensee. In addition, the dispute concerned claim coverage, not infringement. At least Justices Breyer and Kagan questioned whether an analysis of “claim coverage” is any different from a patent infringement determination. The Justices also raised the practical difficulty for a DJ plaintiff to prove a negative, to anticipate and rebut infringement theories for a high number of patent claims it could potentially infringe. A decision is expected in the current term, which ends in June 2014.

A Split Federal Circuit Denies En Banc Rehearing In Case Involving Finality Of a Judicial Decision

The Federal Circuit denied rehearing en banc Fresenius, USA, Inc. v. Baxter Int'l, Inc., No. 12-1334 (Nov. 5, 2013). This case concerns the finality of judicial decisions in view of a conflicting ruling from the USPTO. Baxter had won an infringement judgment against Fresenius, which a Federal Circuit panel upheld. Fresenius USA, Inc. v. Baxter Int'l, Inc., 582 F.3d 1288 (Fed. Cir. 2009). The panel then remanded the case to the district court for re-determination of certain damages issues. Id., at 1302. A parallel reexamination proceeding in the USPTO resulted in cancellation of Baxter's claims, which a second Federal Circuit panel upheld. In re Baxter Int'l, Inc., 678 F.3d 1357 (Fed. Cir. 2012). When an appeal from the district court's second attempt at a damages determination reached the Federal Circuit, the panel vacated the district court's judgment and dismissed the entire case, holding that the determination of Fresenius liability was not “sufficiently final” to avoid the effect of intervening cancellation of the patent claims. Fresenius USA, Inc. v. Baxter Int'l, Inc., 721 F.3d 1330, 1341 (Fed. Cir. 2013). Judge O'Malley, joined by two other judges, dissented from the denial of rehearing en banc, arguing that the infringement decision was sufficiently final to not be disturbed because only the amount of damages remained pending (relying on the recent en banc decision in Bosch LLC v. Pylon Manufacturing Corp., 719 F.3d 1305 (Fed. Cir. 2013), which clarified when a decision can be considered “final except for an accounting” for the purposes of appeal).

Judge Newman in a separate dissent argued that allowing a patentability determination made by an executive branch agency, i.e., the USPTO, to disturb the judgment of an Article III court violates separation of powers.

Federal Circuit Explains Exhaustion of Method Patents

The Federal Circuit clarified its views on exhaustion of method patents in two opinions, Keurig, Inc. v. Sturm Foods, Inc ., No. 2013-1072 (Fed. Cir. Oct. 17, 2013) and LifeScan Scot., Ltd. v. Shasta Techs., LLC, No. 2013-1271 (Fed. Cir. Nov. 4, 2013). In the Keurig case, the Federal Circuit upheld a district court's grant of summary judgment of no infringement based on exhaustion. Keurig, a company selling coffee brewing machines and individual cartridges for use in those machines, sued Sturm who is selling cartridges for use in Keurig brewers, asserting indirect infringement of method claims from two patents. The asserted claims were directed to methods of using a coffee brewer with a disposable cartridge to make coffee. Even though the disposable cartridges were separately patented, Keurig did not assert its cartridge patent against Sturm. The Federal Circuit panel held that the patent rights in the asserted method claims 'were exhausted by its initial authorized sale of Keurig's patented brewers,' and upheld summary judgment of no infringement. Keurig, No. 2013-1072, slip op. at 7. In doing so, the Federal Circuit rejected Keurig's reliance on the 'substantial embodiment' test of Quanta Computer, Inc. v. LG Elecs., Inc ., 553 U.S. 617 (2008), explaining that Quanta test does not apply when the combination sold by the patentee is patented, as it was here. The Federal Circuit also stated in dicta that the patent exhaustion doctrine is 'focused on the exhaustion of the patents at issue in their entirety, rather than the exhaustion of the claims at issue on an individual basis.' Id., at 8. Judge O'Malley filed a separate opinion concurring in the judgment only, criticizing the majority's view that exhaustion applies to entire patents, not individual asserted claims.

In the Lifescan case, the Federal Circuit overturned a district court's preliminary injunction against Shasta, Lifescan's competitor in the market of blood glucose monitoring systems. The Federal Circuit held that the patentee is not likely to succeed on the merits because 'Shasta has established a patent exhaustion defense as a matter of law.' Lifescan, No. 2013-1271, slip op. at 8. Lifescan invented and patented a method for testing blood glucose level that includes a disposable test strip with two measuring electrodes, and a reading device for analyzing the results. Neither the device nor the test strips are separately patented. Lifescan manufactures and sells glucose monitoring systems and test strips, selling the meters at a price below cost or even distributing them for free, and attempts to make profits on the selling of the test strips. Shasta was alleged to indirectly infringe Lifescan's method patent by selling competing disposable test strips for use in Lifescan meters. The Federal Circuit panel held, relying on Quanta, that distribution of the Lifescan meters, even when they were distributed for free, exhausted the asserted method patent because the meter itself 'substantially embodies the method claims' of the asserted patent. Lifescan, No. 2013-1271, slip op. at 17. Existence of a potential non-infringing use does not negate exhaustion where the use in question is that contemplated by the patent itself. Id. at 12-13. In his dissent, Judge Reyna argued that the test strips, not the meter itself, embodied the patented method, and therefore the patent was not exhausted by the distribution of Lifescan meters.'

Jeffrey S. Ginsberg is a partner, and Ksenia Takhistova is an associate in the New York office of Kenyon & Kenyon LLP.