IP News

On April 3, 2012, SmartPhone sued Huawei in the Eastern District of Texas. The following day Huawei brought the instant action against Access, Acacia, and SmartPhone in the Central District of California. Huawei's complaint sought declaratory judgments of noninfringement and invalidity. Huawei also alleged that the assignment agreement prevented SmartPhone from asserting the patents against Huawei, because Huawei was a customer of Access and was thus a protected third-party beneficiary. Finally, Huawei sought a declaration that SmartPhone and Acacia were alter egos.

SmartPhone, Acacia and Access moved to dismiss Huawei's complaint. The district court granted the motion to dismiss the noninfringement and invalidity claims based on the first-to-file rule, and dismissed Huawei's third-party-beneficiary claim for failure to state a claim, ruling that on its face, the assignment agreement precluded the creation of any third-party beneficiaries. The district court dismissed Huawei's alter ego claim, reasoning that it was a compulsory counterclaim in the Texas infringement case, and thus must be brought there.

Huawei appealed the dismissal of its third-party beneficiary and alter ego claims. The Federal Circuit affirmed the dismissal of all claims, citing the first-to-file rule. See, Slip. Op. at 6. The Federal Circuit reasoned that because the parties did not contest the dismissal of the noninfringement and invalidity claims under the first-to-file rule, and because the Texas court could decide the issue of whether Huawei was a third-party beneficiary for purposes both of the forum selection clause and the enforcement-protection clause of the assignment agreement, there was no compelling reason to maintain the action in California. Id. at 7-8. Turning to the alter ego claim, the Federal Circuit stated that 'it makes no sense for this count to be adjudicated as a stand-alone claim in California while the relevant, substantive claims to which it directly relates are being litigated in Texas,' and that in fact 'SmartPhone's status as an alter ego to Acacia Research matters only insofar as it affects substantive rights' being litigated in Texas. Id. at 10'11.

Supreme Court Applies Atlantic Marine Standard to Forum Dispute in Patent Case

On Dec. 9, 2013, the United States Supreme Court vacated and remanded the Federal Circuit's decision in In re Broadcom Corp., 526 Fed. Appx. 960 (Fed. Cir. 2013). In Broadcom, the Federal Circuit had denied Broadcom's petition for a writ of mandamus to transfer the litigation from the Eastern District of Texas to the Southern District of New York.

In the underlying litigation, Azure Networks sued Broadcom and other defendants on a patent related to Bluetooth technology. Broadcom and other defendants, as well as the prior owner of the patent-in-suit, were members of an industry standards group for Bluetooth technology. Patentees and defendants executed a license agreement covering patent claims necessary to practice the Bluetooth technology. The license agreement contained a forum-selection clause which designated the state and federal courts of New York.

Azure Networks eventually acquired an exclusive license to the patent-in-suit and sued defendants in the Eastern District of Texas. Defendants moved to dismiss the case for improper venue, or to transfer to the Southern District of New York. The district court denied the motion, stating that despite the forum-selection clause, defendants had failed to show that the Southern District of New York was more convenient for the parties and witnesses. See, Mem. Op. and Order, Azure Networks, LLC v. CSR PLC, 6:11-CV-00139 (E.D. Tex. Jun. 25, 2012), ECF No. 197 at 6'8. Defendants then filed a writ of mandamus with the Federal Circuit.

The Federal Circuit affirmed the decision of the district court, citing the Fifth Circuit's decision in In re Atl. Marine Constr. Co., 701 F.3d 736, 739 (5th Cir. 2012), for the proposition that forum selection clauses must be analyzed under 28 U.S.C. '1404(a), and that the court may require the party seeking the transfer to prove that it is necessary. In re Broadcom, 526 Fed. Appx. at 964.

The U.S. Supreme Court granted certiorari and remanded the case back to the Federal Circuit for further consideration in light of its recent decision in Atlantic Marine, No. 12-929, 571 U.S. ___ (2013), where the Court had unanimously ruled that where parties have contractually agreed to a forum selection clause, the case should be transferred to the specified forum, absent unusual public interest factors. See, id. at 9.

Claimed Inventions Falling within Prior Art Ranges Require Secondary Considerations to Show Nonobviousness

On Dec. 11, 2013, a Federal Circuit panel of Judges Newman, Bryson, and Prost, issued an opinion in Galderma Laboratories L.P. v. Tolmar, Inc., No. 2013-1034. The majority opinion, authored by Judge Prost, overturned the district court's finding that the asserted claims of Galderma's patent were not invalid. The claims asserted at trial were directed towards an aqueous gel or cream containing 0.3% adapalene, which is used in the treatment of acne. The prior art taught the use of creams or gels containing 0.01%-1% adapalene for acne treatment, and that the possibility of side effects increased with the concentration of adapalene.

The district court rejected Tolmar's obviousness case, finding that Tolmar had failed to prove obviousness by clear and convincing evidence. In doing so, the district court relied heavily on evidence showing that 0.1% adapalene was considered the optimal concentration for acne treatment, and that increasing the concentration increased the incidence of certain side effects.

The Federal Circuit disagreed, stating that while the ultimate burden of proving obviousness rests on Tolmar, 'where there is a range disclosed in the prior art, and the claimed invention falls within that range, the burden of production falls upon the patentee to come forward with evidence that: 1) the prior art taught away from the claimed invention; 2) there were new and unexpected results relative to the prior art; or 3) there are other pertinent secondary considerations.' Slip Op. at 9. Turning to the prior art, the Federal Circuit found that while 0.1% was considered optimal, that was not the same as teaching away from 0.3%, because the art did not explicitly criticize or discourage the higher concentration. Id. at 11. The Federal Circuit also found that while 0.3% adapalene was better tolerated than expected, this was 'a difference in degree, not kind' and was thus not probative of nonobviousness. Id. at 12. Finally, the Federal Circuit found that Galderma's evidence of commercial success was 'of minimal probative value,' because, while their product was successful, it was not brought on to the market until long after conception of the claimed invention occurred. Id. at 14-15.

In dissent, Judge Newman criticized her colleagues' lack of deference to the trial court's findings of fact. See, Dissent Slip Op. at 3. She also disagreed with the majority's ruling that once the defendant has shown that an invention falls within a range known in the prior art, it is the patentee's burden to produce evidence showing that the invention was not obvious. This rule places new obstacles in the path of improvement patents. Id. at 19.

Howard Shire is a partner and Wyatt Delfino is an associate in the New York office of Kenyon & Kenyon LLP.

Federal Circuit Affirms Dismissal of Customer's Third-Party-Beneficiary Claim under First-to-File

On Dec. 3, 2013, a Federal Circuit panel of Judges Reyna, Mayer, and Taranto issued a unanimous opinion, authored by Judge Taranto, in Futurewei Technologies, Inc., and Huawei Device USA, Inc. v. Acacia Research Corp., and Access Co. Ltd, and Smartphone Technologies, LLC., No. 2013-1090, upholding the district court's dismissal of plaintiff's claims in its action in the Central District of California.

Access, the owner of the five patents-in-suit, entered into an exclusive license agreement with Acacia. The license expressly disclaimed the creation of third-party-beneficiary rights, but also barred Acacia from asserting the patents against Access's customers or end-users, and set California as the venue for any dispute arising out of the agreement. Acacia subsequently assigned all of its rights in the patents to SmartPhone Technologies.

On April 3, 2012, SmartPhone sued Huawei in the Eastern District of Texas. The following day Huawei brought the instant action against Access, Acacia, and SmartPhone in the Central District of California. Huawei's complaint sought declaratory judgments of noninfringement and invalidity. Huawei also alleged that the assignment agreement prevented SmartPhone from asserting the patents against Huawei, because Huawei was a customer of Access and was thus a protected third-party beneficiary. Finally, Huawei sought a declaration that SmartPhone and Acacia were alter egos.

SmartPhone, Acacia and Access moved to dismiss Huawei's complaint. The district court granted the motion to dismiss the noninfringement and invalidity claims based on the first-to-file rule, and dismissed Huawei's third-party-beneficiary claim for failure to state a claim, ruling that on its face, the assignment agreement precluded the creation of any third-party beneficiaries. The district court dismissed Huawei's alter ego claim, reasoning that it was a compulsory counterclaim in the Texas infringement case, and thus must be brought there.

Huawei appealed the dismissal of its third-party beneficiary and alter ego claims. The Federal Circuit affirmed the dismissal of all claims, citing the first-to-file rule. See, Slip. Op. at 6. The Federal Circuit reasoned that because the parties did not contest the dismissal of the noninfringement and invalidity claims under the first-to-file rule, and because the Texas court could decide the issue of whether Huawei was a third-party beneficiary for purposes both of the forum selection clause and the enforcement-protection clause of the assignment agreement, there was no compelling reason to maintain the action in California. Id. at 7-8. Turning to the alter ego claim, the Federal Circuit stated that 'it makes no sense for this count to be adjudicated as a stand-alone claim in California while the relevant, substantive claims to which it directly relates are being litigated in Texas,' and that in fact 'SmartPhone's status as an alter ego to Acacia Research matters only insofar as it affects substantive rights' being litigated in Texas. Id. at 10'11.

Supreme Court Applies Atlantic Marine Standard to Forum Dispute in Patent Case

On Dec. 9, 2013, the United States Supreme Court vacated and remanded the Federal Circuit's decision in In re Broadcom Corp ., 526 Fed. Appx. 960 (Fed. Cir. 2013). In Broadcom, the Federal Circuit had denied Broadcom's petition for a writ of mandamus to transfer the litigation from the Eastern District of Texas to the Southern District of New York.

In the underlying litigation, Azure Networks sued Broadcom and other defendants on a patent related to Bluetooth technology. Broadcom and other defendants, as well as the prior owner of the patent-in-suit, were members of an industry standards group for Bluetooth technology. Patentees and defendants executed a license agreement covering patent claims necessary to practice the Bluetooth technology. The license agreement contained a forum-selection clause which designated the state and federal courts of New York.

Azure Networks eventually acquired an exclusive license to the patent-in-suit and sued defendants in the Eastern District of Texas. Defendants moved to dismiss the case for improper venue, or to transfer to the Southern District of New York. The district court denied the motion, stating that despite the forum-selection clause, defendants had failed to show that the Southern District of New York was more convenient for the parties and witnesses. See, Mem. Op. and Order, Azure Networks, LLC v. CSR PLC, 6:11-CV-00139 (E.D. Tex. Jun. 25, 2012), ECF No. 197 at 6'8. Defendants then filed a writ of mandamus with the Federal Circuit.

The Federal Circuit affirmed the decision of the district court, citing the Fifth Circuit's decision in In re Atl. Marine Constr. Co., 701 F.3d 736, 739 (5th Cir. 2012), for the proposition that forum selection clauses must be analyzed under 28 U.S.C. '1404(a), and that the court may require the party seeking the transfer to prove that it is necessary. In re Broadcom, 526 Fed. Appx. at 964.

The U.S. Supreme Court granted certiorari and remanded the case back to the Federal Circuit for further consideration in light of its recent decision in Atlantic Marine, No. 12-929, 571 U.S. ___ (2013), where the Court had unanimously ruled that where parties have contractually agreed to a forum selection clause, the case should be transferred to the specified forum, absent unusual public interest factors. See, id. at 9.

Claimed Inventions Falling within Prior Art Ranges Require Secondary Considerations to Show Nonobviousness

On Dec. 11, 2013, a Federal Circuit panel of Judges Newman, Bryson, and Prost, issued an opinion in Galderma Laboratories L.P. v. Tolmar, Inc., No. 2013-1034. The majority opinion, authored by Judge Prost, overturned the district court's finding that the asserted claims of Galderma's patent were not invalid. The claims asserted at trial were directed towards an aqueous gel or cream containing 0.3% adapalene, which is used in the treatment of acne. The prior art taught the use of creams or gels containing 0.01%-1% adapalene for acne treatment, and that the possibility of side effects increased with the concentration of adapalene.

The district court rejected Tolmar's obviousness case, finding that Tolmar had failed to prove obviousness by clear and convincing evidence. In doing so, the district court relied heavily on evidence showing that 0.1% adapalene was considered the optimal concentration for acne treatment, and that increasing the concentration increased the incidence of certain side effects.

The Federal Circuit disagreed, stating that while the ultimate burden of proving obviousness rests on Tolmar, 'where there is a range disclosed in the prior art, and the claimed invention falls within that range, the burden of production falls upon the patentee to come forward with evidence that: 1) the prior art taught away from the claimed invention; 2) there were new and unexpected results relative to the prior art; or 3) there are other pertinent secondary considerations.' Slip Op. at 9. Turning to the prior art, the Federal Circuit found that while 0.1% was considered optimal, that was not the same as teaching away from 0.3%, because the art did not explicitly criticize or discourage the higher concentration. Id. at 11. The Federal Circuit also found that while 0.3% adapalene was better tolerated than expected, this was 'a difference in degree, not kind' and was thus not probative of nonobviousness. Id. at 12. Finally, the Federal Circuit found that Galderma's evidence of commercial success was 'of minimal probative value,' because, while their product was successful, it was not brought on to the market until long after conception of the claimed invention occurred. Id. at 14-15.

In dissent, Judge Newman criticized her colleagues' lack of deference to the trial court's findings of fact. See, Dissent Slip Op. at 3. She also disagreed with the majority's ruling that once the defendant has shown that an invention falls within a range known in the prior art, it is the patentee's burden to produce evidence showing that the invention was not obvious. This rule places new obstacles in the path of improvement patents. Id. at 19.

Howard Shire is a partner and Wyatt Delfino is an associate in the New York office of Kenyon & Kenyon LLP.