IP News

[a] making available to consumers [luggage with] a special lock having a combination lock portion and a … master key lock portion for receiving a master key …, the special lock also having an identification structure … that matches an identification structure previously provided to the luggage screening entity …, [b] marketing the special lock to the consumers …, [c] the identification structure signaling to a … luggage screening entity … that [it] has agreed to subject the special lock [to a] special procedure …, and [d] the luggage screening entity acting pursuant to a prior agreement to look for the identification structure while screening luggage and …, to use the master key … to, if necessary, open the … luggage.

Travel Sentry administers a system that enables a traveler to lock a checked bag while allowing the Transportation Security Administration (TSA) to open the lock, search the bag as needed, and then relock it. Travel Sentry entered into a Memorandum of Understanding (MOU) with the TSA by which Travel Sentry agreed to supply the TSA with master keys to open checked baggage secured with certified locks and setting forth additional responsibilities for each party.

In the decision below, the district court, relying on Akamai Technologies, Inc. v. Limelight Networks, Inc. (Akamai), 797 F.3d 1020 (Fed. Cir. 2015) (en banc), concluded that Travel Sentry and its licensees did not infringe, because there was no evidence that Travel Sentry had any influence on the third and fourth steps of Tropp's luggage inspection methods, which were carried out by the TSA. In reaching its decision, the district court noted that the TSA faces no consequences if it chooses not to use the master keys, does not need Travel Sentry to carry out mandated luggage screening, and does not take direction from Travel Sentry on how to perform luggage screening.

On appeal, the Federal Circuit panel framed the primary issue as whether TSA's performance of the final two steps of the claims is attributable to Travel Sentry. To address the issue, the panel first examined its decision in Akamai. In Akamai, the Federal Circuit reaffirmed that direct infringement requires that all steps of a claimed method be performed by or attributable to a single entity. Akamai also broadened the circumstances under which “attribution” may occur. For example, Akamai determined that the acts of others may be attributed to a single entity when that entity: 1) conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method by others; and 2) establishes the manner or timing of that performance.

Applying this test in Akamai, the Federal Circuit concluded under prong one that there was substantial evidence to establish that Limelight, the accused infringer, contractually required its customers to perform certain claim steps in order to use its Web service, and, under prong two, that Limelight established the manner of performance by providing precise instructions and live support to its customers.

The Travel Sentry panel next reviewed its application of the Akamai two-prong test in Eli Lilly and Co. v. Teva Parenteral Medicines, Inc. (Eli Lilly), 845 F.3d 1357 (Fed. Cir. 2017). The claim at issue in that case was to a medical treatment requiring the administering of three compounds to a patient. In Eli Lilly, the Federal Circuit concluded that doctors, who administered only the latter two compounds, nonetheless were direct infringers, because the doctors directed the patients to administer the initial compound to themselves at home as a precondition to treatment.

Of particular interest to the panel were Eli Lilly's admonitions that: (1) “conditioning” requires more than merely guiding an instructing; 2) conditioning does not necessarily require double-checking another's performance or making threats; and 3) conditioning the performance of a step does not require imposing a legal obligation to do so, or interposing that step as an unavoidable technological prerequisite to participation.

Turning to the facts of the case, the Travel Sentry panel observed that, as in Akamai and Eli Lilly, this case involved a third party, TSA, hoping to obtain access to certain benefits only available if it performs certain acts identified by, and under terms prescribed by the defendant, Travel Sentry.

The panel identified three specific errors that the district court committed in holding that TSA's actions could not be attributed to defendant Travel Sentry. First, the district court misidentified the relevant third-party actions as “the luggage screening mandated by Congress,” which, the district court contended, would have been performed by the TSA regardless of any benefit offered by Travel Sentry. Second, it misapprehended what types of “benefits” can satisfy Akamai's first prong. Third, the district court mischaracterized what is required to establish that one has “conditioned” a third party's participation in an activity or receipt of a benefit on the third party's performance of one or more claim steps.

With respect to the first prong of the Akamai test, the panel identified the relevant third-party activity as TSA's screening of luggage that it knows can be opened with the passkeys provided by Travel Sentry. The panel also concluded that a reasonable juror could find that the “benefit” to TSA contemplated in the MOU is the ability to open identifiable luggage using a master key, which would obviate the need to break open the lock. The mere fact that TSA entered into the MOU with Travel Sentry, according to the panel, implied that TSA believed it would receive some benefit from the arrangement, be it tangible (e.g., a reduction in the number of claims submitted by aggrieved travelers or an improvement in the health of its employees) or intangible (e.g., promotion of the public's perception of the agency).

According to the panel, it was irrelevant that TSA screens luggage pursuant to a mandate from Congress— “what matters is how the agency accomplishes its luggage screening objective, and whether a benefit flows to TSA from the particular screening method it has chosen.” Slip Op. at 22-23.

The panel also decided that a reasonable jury could conclude that Travel Sentry “conditions” TSA's participation in the correctly defined activity or receipt of the correctly identified benefits on TSA's performance of the final two claim steps. The panel noted that the relevant “activity” is coextensive with the final two claim steps, and that whatever benefits flow to TSA can only be realized if TSA performs the final two claim steps.

With respect to the second prong of the Akamai test, the panel concluded that a reasonable juror could find that Travel Sentry has established the manner or timing of TSA's performance by entering into the MOU, providing — and, on request, replacing — master keys, and providing instructional materials. For further support, the panel noted that the Supreme Court's decision in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005), supported its holding, because Travel Sentry “has the right and ability to stop or limit [the infringement by] terminating the MOU and [discontinuing and/or changing lock design and production.]” Slip Op. at 29.

Accordingly, the panel vacated the district court's order granting of summary judgment of noninfringement. The panel also dismissed Travel Sentry's and several of its licensees' cross-appeal for attorney fees brought under 35 U.S.C. §285 since they were no longer “prevailing parties” to whom an award of attorney fees could be made. Id. at 29-30.

Patent Trial and Appeal Board Holds Sovereign Immunity No Defense to IPR Petition Brought by Accused Infringer

On Dec. 19, 2017, an expanded panel of Administrative Patent Judges at the Patent Trial and Appeal Board (PTAB) issued a majority opinion, authored by Chief Judge Ruschke, in Ericsson Inc. v. Regents of the University of Minnesota, Case Nos. IPR2017-01186, 1197, 1200, 1213, 1214, and 1219. The panel denied Regents of the University of Minnesota's (UMN's) claim of sovereign immunity from inter partes review. A concurring opinion was authored by Judge Bisk.

At issue was whether a State can claim Eleventh Amendment immunity from IPR proceedings and whether such immunity may have been waived as to these cases.

Regarding the preliminary question, whether immunity was available at all, the majority concluded that an IPR is an adjudicatory proceeding of a federal agency from which state entities are generally immune under the Eleventh Amendment. For support, the majority cited prior Board decisions and a Federal Circuit case, Vas-Cath, Inc. v. Curators of Univ. of Mo., 473 F.3d 1376, 1381-82 (Fed. Cir. 2007), establishing that Eleventh Amendment immunity is available in interference proceedings because they are sufficiently similar in procedure to civil litigation.

Proceeding to the question of waiver, the majority noted that there is no bright-line rule governing waiver of sovereign immunity, and cited controlling precedent as establishing that “the rule governing waiver of immunity by litigation conduct rests on the need to avoid unfairness and inconsistency, and to prevent a State from selectively using its immunity to achieve a litigation advantage.” Slip Op. at 7. Ultimately, the majority concluded that UMN had waived Eleventh Amendment immunity by filing an action in federal court alleging infringement of the challenged patent.

The majority decision was guided by Federal Circuit law recognizing a State's waiver of Eleventh Amendment immunity as to compulsory counter claims. As with compulsory counterclaims, a party served with a patent infringement complaint in district court must request IPR of the asserted patent within a designated time or be forever barred from doing so. Thus, according to the majority, it is reasonable to view a State that files a patent infringement action as having consented to an IPR of the asserted patent.

Though the majority recognized that a petitioner may be able to challenge validity in district court, it noted that IPR proceedings are different and that granting immunity would result in substantial unfairness and inconsistency. Accordingly, the panel denied the UMN's motion to dismiss.

Judge Bisk, in a concurring opinion, concluded that Eleventh Amendment immunity should not extend to IPR proceedings in the first place. Judge Bisk characterized IPRs as reevaluation proceedings rather than the administrative analog to civil litigation. Having availed itself of Patent Office procedures to secure its patent, Judge Bisk reasoned, a state university may not subsequently invoke sovereign immunity as a shield against reconsideration by the Patent Office in an IPR proceeding of whether the agency improvidently granted the patent monopoly in the first instance.

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Jeff Ginsberg is a Partner of Patterson Belknap Webb & Tyler LLP and Assistant Editor of this newsletter. David Cooperberg is an Associate with the firm.