IP News

Various claims of the '500 patent were asserted in a patent litigation suit in the United States District Court for the District of Delaware. See, id at 4. (citing Pi-Net Int'l Inc. v. JPMorgan Chase & Co., 42 F. Supp. 3d 579 (D. Del 2014). The district court found the claims to be invalid as indefinite, for lack of enablement, and for lack of a written description. See, In re Lakshmi Arunachalam, No. 2016-1607, at 4-5. Arunachalam's subsequent appeal of this decision was dismissed for “failure to prosecute after being unable to file a brief that complied with [the court's] word limit requirements.” See, id. at 5.

Certain claims of the '500 patent were also challenged in an inter partes review (IPR) before the PTAB. See, id. The PTAB found these claims to be unpatentable. See, id. Arunachalam appealed that decision, but that appeal was dismissed on collateral estoppel grounds because the district court had already declared the claims invalid. See, id. at 6. In its decision, the Federal Circuit determined that claim 17 of the '500 patent, which was not at issue in the district court litigation, was subject to collateral estoppel. See, id. The court found that Arunachalam had a “full and fair chance to litigate the validity of [the] patent” and collateral estoppel applied. Id. at 6, 7. In addition, the Federal Circuit stated that collateral estoppel was “not limited 'to patent claims that are identical. Id. at 6. Rather, it is the identity of the issues that were litigated that determines whether collateral estoppel should apply.'” Id. Particularly with respect to claim 17, the court noted that a specific “VAN switch” limitation, which was recited in unasserted claim 17, also appeared in the asserted and challenged claims. See, id.

Regarding the '556 patent, this patent was subject to an ex parte reexamination in which the PTAB found the claims unpatentable as anticipated and obvious. Arunachalam appealed this decision. The PTAB argued that Arunachalam's appeal should be dismissed under a collateral estoppel theory. It argued that all the challenged claims of the '556 patent “recite[s] a limitation [from the '500 patent] … held in JP Morgan to be indefinite or non-enabled.” Id. at 7. The Federal Circuit agreed, finding that collateral estoppel applies here because Arunachalam had a full and fair opportunity to litigate the validity of the patent, and the claims of the '556 patent have the same “identity of issues” as the '500 patent. Id. at 8. The court held that any differences between the two sets of claims were not material.

Federal Circuit Uses 'Rule of Reason' To Determine Patent Owner Had an Early Reduction to Practice

On Sept. 20, 2017, a Federal Circuit panel of Judges Newman, Lourie and Hughes issued a decision written by Judge Lourie in NFC Technology, LLC v. Matal, No. 2016-1808 (Fed Cir. 2017), remanding the case to determine whether a prototype created by NFC practiced the claimed invention and, therefore, antedated the prior art.

NFC Technology (NFC) owns U.S. Patent 6,700,551 (the '551 patent). In an inter partes review (IPR), the PTAB determined that the '551 patent was unpatentable as obvious. See, id. at 2. NFC argued that it created a prototype of the claimed invention before the priority date of a prior art reference at issue; however, the PTAB rejected this argument.

The '551 patent relates to a “near-field communication device” that uses electromagnetic induction to communicate over short distances. See, id. A goal of the invention was to communicate using both standards in a circuit that was simple and inexpensive. See, id. at 3. HTC Corporation (HTC) petitioned for IPR of the '551 patent, alleging that various claims were unpatentable as obvious over U.S. Patent 6,122,492 (the '492 patent). The filing date of the '492 patent was Feb. 8, 1999. See, id. NFC claimed that the inventor of the '551 patent reduced the invention to practice before Feb. 8, 1999. See, id. NFC claimed that, by September 1998, the inventor and his team sufficiently developed a prototype embodying the claimed invention, which they commissioned Concept Electronique, a chip fabrication company, to generate. Id. The inventor then wrote software for the prototype, tested it, and verified it conformed to the design. See, id.

NFC provided various forms of evidence to support these statements. See, id. at 4. HTC argued that “the documentation was only corroborated by [the inventor's] own testimony, and was therefore insufficient.” Id. at 4-5. HTC also argued that the prototype “did not work for its intended purpose or embody all of the claim limitations.” Id. at 5.

The PTAB determined “that NFC had not adequately demonstrated that [the inventor] had reduced the invention to practice before [the '492 patent's] priority date.” Id. Instead, the PTAB determined that the chip fabrication company had reduced the invention to practice because it “physically created the prototype.” Id. The PTAB wanted evidence that the inventor “conceived the claimed invention and communicated the underlying subject matter to [the chip fabrication company].” Id. at 5-6. They were not satisfied with NFC's evidence because the evidence did not explain “who conceived of the subject matter of the challenged claims and when that person or persons did so.” Id. at 6. In addition, the PTAB was not satisfied that NFC provided evidence that the inventor provided the chip fabrication company with his own design. See, id.

The Federal Circuit limited its analysis to whether the Board's findings and conclusions regarding the inventor's conception were supported. See, id. at 7. The Federal Circuit held that they were not. Id. The court stated that “a finding is supported by substantial evidence if a reasonable mind might accept the evidence as sufficient to support the finding.” Id. at 8 NFC argued “the independent documentary evidence adequately corroborates conception” under the rule of reason. Id. The Federal Circuit agreed that the documents corroborated the inventor's testimony. See, id. at 9. It took the evidence “as a whole” to determine that the documents corroborated the inventor's account of conception. See, id. at 10. The court noted numerous portions of the record that corroborated the inventor's testimony. See, id. at 10-11. For example, the court found that the PTAB improperly discounted a facsimile cover sheet and did not adequately consider its corroborative effect. That document “corroborates [the inventor's] testimony that he sent the prototype to fabrication in early September 1998.” Id. at 10. In addition, the Federal Circuit found that the chip fabrication company only communicated with the inventor when it came time to fabricate the prototype, and the inventor alone gave final approval to begin the fabrication. See, id. at 11. The court utilized the “rule of reason” in establishing that NFC's evidence corroborated the inventor's testimony.

The court then stated that the fabrication of the prototype by itself does not resolve the case. Instead, on remand, the PTAB must determine if the prototype “embodied the claimed invention” to determine if it antedates the prior art. Id. at 13.

*****
Jeff Ginsberg is a Partner of Patterson Belknap Webb & Tyler LLP and Assistant Editor of this newsletter. George Soussou is an associate at the firm.