IP News

Federal Circuit: Halo Electronics Sent Back to District Court

On Aug. 5, 2016, a Federal Circuit panel of Judges Lourie, O'Malley, and Hughes issued a unanimous decision, authored by Judge Lourie, in Halo Electronics, Inc. v. Pulse Electronics, Inc., Case Nos. 2013-1472, 2013-1656. The case was on remand from the Supreme Court after its June 13, 2016 decision, which held that the Federal Circuit erred in applying the “unduly rigid” test for enhanced damages under the framework in In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc). The Federal Circuit, following the Supreme Court's guidance, vacated the district court's original ruling declining to enhance damages, reasoning that that decision was made under the now-abandoned Seagate test.

Halo had originally sued Pulse in 2007 for infringement of U.S. Patents Nos. 5,656,985, 6,297,720, and 6,344,785 (collectively, “the Halo patents”). The district court had granted Pulse's motion for summary judgment: 1) that it did not directly infringe the Halo patents with respect to products Pulse manufactured, shipped, and delivered to buyers outside the United States; and 2) that its infringement was not willful with respect to products Pulse did sell and deliver within the United States, and so enhanced damages under 35 U.S.C. '284 were inappropriate. On appeal from the district court, the Federal Circuit applied the Seagate two-part test for willful infringement and enhanced damages, and ultimately affirmed each holding of the district court. On the question of enhanced damages, the Supreme Court held that the Seagate test was impermissibly rigid, and remanded the case to the Federal Circuit for further proceedings.

Because the Supreme Court only granted certiorari on the question of when to apply enhanced damages, the Federal Circuit merely restated its reasoning in affirming the remainder of the district court's holdings, including finding that products Pulse manufactured, shipped, and delivered to buyers outside the United States did not directly infringe the Halo patents. In so doing, the court noted its previous holdings that a sale does not occur “within the United States for purposes of liability under '271(a) based solely on negotiation and contracting activities in the United States when the vast majority of activities underlying the sales transaction occurred wholly outside the United States.”

The court explained the Supreme Court rejection of Seagate's two-prong analysis, noting in particular that a court need not find “objective recklessness ' before ' award[ing] enhanced damages.” The Federal Circuit highlighted the Supreme Court's comment that Seagate 's threshold requirement of objective recklessness “excludes from discretionary punishment many of the most culpable offenders.” The Federal Circuit went on to vacate the district court's original determination that enhanced damages were not warranted, instructing the lower court to “exercise its discretion and to decide whether, taking into consideration the jury's unchallenged subjective willfulness finding as one factor in its analysis, an enhancement of the damages award is warranted.”

Federal Circuit: Burden of Proof Doesn't Shift to Patent Owner After IPR Institution

On July 25, 2016, a Federal Circuit panel of Judges Newman, O'Malley, and Chen issued a unanimous opinion, authored by Judge O'Malley, in In Re: Magnum Oil Tools Int'l, Ltd., No. 2015-1300. The panel reversed the U.S. Patent and Trademark Office Patent Trial and Appeals Board's (PTAB) decision in an inter partes review (IPR) proceeding that held all challenged claims of U.S. Patent No. 8,079,413 (the “'413 patent”) obvious under 35 U.S.C. '103.

As part of a dispute over the '413 patent and other related patents, McClinton Energy Group, LLC (McClinton) petitioned for IPR of the '413 patent, owned by Magnum Oil Tools International, Ltd. (Magnum). After McClinton and Magnum settled the underlying dispute, Magnum appealed the PTAB's determination that the challenged claims of the '413 patent were obvious, and the U.S. Patent and Trademark Office (PTO) intervened to defend the PTAB's decision.

Magnum argued that the PTAB improperly shifted the burden of proof to Magnum, impermissibly requiring that it refute McClinton's assertions of obviousness. The PTO argued that once the PTAB found that a petition was likely to succeed on the merits, the burden of production shifted to the patent owner to refute the petitioner's claims of obviousness. The Federal Circuit agreed with Magnum, explaining that “the notion of burden-shifting is inapposite because the patentee's position is that the patent challenger failed to meet its burden of proving obviousness.” The Federal Circuit further noted that “[t]his is especially true where the only issues to be considered are what the prior art discloses, whether there would have been a motivation to combine the prior art, and whether that combination would render the patented claims obvious.” The court then found the PTAB's “final written decision ' replete with examples where, rather than require McClinton to prove its assertion of obviousness, the [PTAB] improperly shifted the burden to Magnum to disprove obviousness.” The court ultimately reversed the PTAB's decision, explaining that “[w]here, as here, it is clear that the [PTAB] did not require the petitioner to support its claim of obviousness by a preponderance of the evidence, we must reverse.”

Federal Circuit Grants Rehearing En Banc for Burden of Proof in Motions to Amend in IPR Proceedings

On Aug. 12, 2016, Federal Circuit Chief Judge Prost and Judges Newman, Lourie, Dyk, Moore, O'Malley, Reyna, Wallach, Taranto, Chen, and Hughes issued a per curiam order granting Aqua Products, Inc.'s (Aqua) petition for a rehearing en banc, vacating its earlier decision in In re Aqua Products, Inc., 823 F.3d 1369 (Fed. Cir. 2016). The original petitioner before the U.S. Patent and Trademark Office Patent Trial and Appeals Board (PTAB) declined to participate in the original appeal, and the U.S. Patent and Trademark Office (PTO) intervened to defend the PTAB's original decision.

After the PTAB granted inter partes review (IPR) of U.S. Patent No. 8,273,183 (the “'183 patent”), Aqua moved to amend several claims of the '183 patent, adding additional limitations and arguing that the prior art did not render the substitute claims obvious. The PTAB denied Aqua's motion to amend, reasoning that, without analysis or evidence, the added limitations were within the ordinary skill. Aqua appealed that denial of its motion to amend, arguing that the PTAB “regulations requiring the patentee to demonstrate that an amended claim is patentable over the art of record are unsupported by statute, and that the [PTAB's] interpretation of those regulations impermissibly places the burden on the patentee to show non-obviousness.” In its initial decision, the Federal Circuit disagreed with Aqua and affirmed the PTAB's decision, explaining that “[g]iven our precedent, this panel cannot revisit the question of whether the [PTAB] may require the patentee to demonstrate the patentability of substitute claims over the art of record.” The panel then went on to reject Aqua's remaining arguments as to why amendment of the challenged claims was warranted.

The order granting rehearing en banc instructed Aqua and the PTO to focus their briefing on two questions: 1) “When the patent owner moves to amend its claims under 35 U.S.C. '316(d), may the PTO require the patent owner to bear the burden of persuasion, or a burden of production, regarding patentability of the amended claims as a condition of allowing them? Which burdens are permitted under 35 U.S.C. ' 316(e)?”; and 2) “When the petitioner does not challenge the patentability of a proposed amended claim, or the [PTAB] thinks the challenge is inadequate, may the [PTAB] sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion, or a burden of production, lie?”

Briefing is scheduled to be completed by Nov. 10, 2016, and oral argument is scheduled for Dec. 9, 2016.

Howard Shire is Editor-in-Chief of this newsletter and a Partner in the New York office of Kenyon & Kenyon LLP. Benjamin H. Weissman is an associate in Patterson Belknap Webb & Tyler LLP's litigation department, based in the New York office.