IP Law Alert

Declaratory Judgment Jurisdiction Considerations in Patent Cases: The District of New Jersey Speaks

Todd M. Nosher — Thu, 16 May 2013 12:24:25 -0500

IP practitioners should read and heed Judge Martini’s recent decision in Medidata Solutions, Inc. v. DATATRAK Int’l, Inc., 2-12-cv-04748 (D.N.J. May 13, 2013, Docket 33), which addresses considerations for declaratory judgment jurisdiction in a patent dispute.

The case involved two patents owned by DATATRAK, the “parent” ‘087 patent, and the “child” ‘294 patent, which issued from a continuation application.

In March 2011, DATATRAK sued Medidata in the Northern District of Ohio for patent infringement of the ‘087 patent. That case was stayed in December 2011 pending reexamination of the ‘087 patent. At the end of December 2011, and then again at the end of March 2012, DATATRAK made public statements indicating it would vigorously prosecute its claims against Medidata as soon as reexamination by the USPTO was complete.

Several months later on July 31, 2012, while the Ohio case was stayed and the ‘087 patent reexamination was in progress, DATATRAK’s ‘294 patent issued as a continuation of its ‘087 patent. That same day, Medidata filed a Declaratory Judgment Action in the District of New Jersey pursuant to 28 U.S.C. §§ 2201, seeking declarations that it did not infringe the ‘294 patent and that the ‘294 patent was invalid on various statutory grounds. DATATRAK responded by filing a motion to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction. (DATATRAK also filed a motion to dismiss pursuant to Rule 12(b)(6) for failure to state a claim, and alternatively moved to transfer the action to the Northern District of Ohio under 28 U.S.C. § 1404. Only DATATRAK’s first basis -- its Rule 12(b)(1) argument -- is germane to this article.)

Judge Martini’s opinion set forth the standard for determining Article III jurisdiction by the District Court, based on the seminal decision in MedImmune Inc. v. Genentech, Inc., 549 U.S. 118 (2007), namely, “the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Id. at 127 (quotation omitted). The Court went on to note that under MedImmune’s “all the circumstances” benchmark, the Court should consider facts such as the prior litigation history between the parties on related patents; and the declaratory judgment defendant’s indication about protecting its patent rights against the declaratory judgment plaintiff.

Applying this framework to the facts before him, Judge Martini found it indisputable that DATATRAK sued Medidata in the Northern District of Ohio based on alleged infringement of the related ’087 patent; that after that case was stayed pending reexamination of the ‘087 patent, DATATRAK stated publicly its intent to resume its vigorous prosecution against Medidata once the stay was lifted; and that the ‘294 patent issued after that and it relates to the same subject matter and technology as the ‘087 patent. Accordingly, and based on the totality of the circumstances, the Court found the existence of an actual case or controversy sufficient to confer Article III jurisdiction, and dismissed DATATRAK’s motion to dismiss.

This decision once again highlights the jurisdictional interplay between (i) asserted and (ii) non-asserted, but related patents. For parties looking to assert similar declaratory judgment claims or hoping to rebut the same, careful attention should be made to the public record, including court dockets and SEC filings, for evidence of the patent holder’s intent to enforce its rights.

Todd M. Nosher is an Associate in the Gibbons Intellectual Property Department. Ralph A. Dengler, a Director in the Gibbons Intellectual Property Department, co-authored this post.

The Seed Giant Stands Tall: The Supreme Court Rules in Favor of Monsanto

James J. Kang — Tue, 14 May 2013 11:47:55 -0500

This Spring has been fruitful for seed giant, Monsanto. We reported earlier that Monsanto and rival DuPont entered into technology licensing agreements, ending nearly four years of patent and antitrust litigation. On Monday, May 13, Monsanto’s cornucopia arrived, with the Supreme Court ruling unanimously in its favor.

This case revolved around the question of whether the doctrine of patent exhaustion allowed a farmer who bought patented seeds to, without permission, reproduce the seeds through planting and harvesting. The seeds in question were glyphosate herbicide-resistant soybean seeds, covered under two patents issued to Monsanto. The glyphosate resistance is an inheritable trait that is passed on from generation to generation. Monsanto sold these seeds under special licensing agreements that allowed end users to plant the seeds in one season. The end user was authorized to consume or sell the resulting crops, but under agreement, was prohibited from planting the seeds from this second generation. Subsequent plantings would require subsequent purchases of the seeds. Therefore, an end user, not complying with the terms of the licensing agreement, could, through planting and harvesting, generate an infinite number of herbicide resistant soybean plants (and seeds) from a single seed. This would effectively end run a patent holder’s exclusionary rights to the invention.

Petitioner Vernon Bowman, an Indiana farmer, purchased the patented seeds each year for his first crop of planting seasons. However, for his late-season plantings starting in 1999, Bowman purchased seeds, normally intended for livestock feed or human consumption, from a grain elevator. Due to the widespread use of the Monsanto-patented seeds, it was reasonable to anticipate that some of the seeds purchased from the grain elevator would also have the patented herbicide-resistance. These late-season plantings were treated with glyphosate herbicide, and seeds from the surviving plants (presumably with the patented herbicide-resistance) were saved for future plantings. This process was repeated for a total of eight generations of soybean crops.

In 2007, Monsanto sued Bowman for patent infringement for these unauthorized plantings and saving of seeds. Bowman raised the doctrine of patent exhaustion as a defense, claiming that purchase of seed from the grain elevator was a prior authorized sale. The District Court rejected Bowman’s arguments, awarding Monsanto over $84,000 in damages for Bowman’s unauthorized use of the Monsanto’s patented seed technology. In 2011, the CAFC unanimously affirmed the District Court decision, explaining that although patent exhaustion allows for certain uses by an end user, the act of planting patented seeds for the purpose of generating more seed was an unauthorized replication.

The Supreme Court affirmed the Federal Circuit in an opinion delivered by Justice Kagan, holding that while the patent exhaustion doctrine would allow a farmer to resell or consume patented seeds purchased from a grain elevator, it would not allow a farmer to reproduce the seeds without the patent holder’s permission. The Court also rejected Bowman’s “blame-the-bean” argument that seeds naturally self-replicate and thus it was the seeds and not Bowman that made the replicas, noting that Bowman was not a passive observer, but instead, had intent, and carried out actions to select and harvest more patented seeds.

Stressing that the holding was limited to this particular situation, the Supreme Court left open the question of patent exhaustion for other patented, self-replicating technologies. However, it is likely that a patent exhaustion defense will fail to germinate in situations where an end user intentionally, and with some degree of control, causes an unauthorized replication to occur.

James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Estelle J. Tsevdos, a Director in the Gibbons Intellectual Property Department, co-authored this post.

Clash of MDL and AIA?

Ralph A. Dengler — Thu, 09 May 2013 10:33:30 -0500

We previously reported on the interplay between the Judicial Panel on Multi-District Litigation (“MDL”) under 28 U.S.C. § 1407(a) and the joinder rules under 35 USC § 299 of the America Invents Act (“AIA”).

In Unified Messaging Solutions, LLC v. United Online, Inc., et. al., 1-13-cv-00343 (N.D. Il. May 3, 2013) Judge Lefkow recently denied defendants’ motion to sever plaintiff’s infringement claims against them from pretrial consolidation in an MDL case, and rejected their argument that § 299 had been violated.

The Court held, inter alia, that Section 299’s prohibition on joinder did not “obviate a transferee court’s discretionary ability to order pretrial consolidation in multidistrict litigation. . . . The coordination that [defendants] advocate would thwart the court’s ability to manage the present litigation by transforming each case into an individual action circumventing the uniform rulings and judicial efficiency that the [MDL] intended . . . .” The Court also found that its order of pretrial consolidation did not implicate Section 299’s prohibition on consolidation of trials because “‘Section 1407 applies to pretrial proceedings’ while ‘Section 299 itself is silent as to the conduct of pretrial proceedings, nor does it mention Section 1407.’” (citing In re Bear Creek Tech., Inc., Patent Litig., 858 F. Supp. 2d 1375, 1377 (J.P.M.L. 2012). And, because the consolidated actions will ultimately be remanded to the trial courts from which they originated after the pretrial proceedings, the Court rejected movant’s argument.

Accordingly, practitioners can continue to expect consolidation of related litigations under 28 U.S.C. § 1407(a), where appropriate, despite the procedural transformations under the AIA.

Ralph A. Dengler is a Director in the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Inventors' Notebooks in a First-to-File Patent System

James J. Kang — Wed, 01 May 2013 10:11:56 -0500

Since March 16, 2013, the United States has been under a first-inventor to-file patent system. Although it has always been good scientific practice for inventors to keep and maintain laboratory notebooks, it was all the more important in a first-to-invent patent system. In light of the recent changes in U.S. patent law, will keeping and maintaining a laboratory notebook have any importance for patent applications filed under the new system?

Previously, if there was a dispute as to which independent party was first-to-invent, laboratory notebook records, among other materials, were routinely accepted in interference proceedings (priority proceedings before the patent office) as evidence of conception, reduction to practice, and diligence. However, under the current system, an independent inventor who fails to file first has little recourse.

As such, are laboratory notebooks still relevant at all, in terms of U.S. patent law? Certainly. Although interference proceedings are no longer available, inventors (petitioners) may request a derivation proceeding with the USPTO. These are available in the limited circumstances where it can be proved that the first-to-file party derived the invention from the true inventor and did so without authorization. It is the petitioner’s burden to show, with substantial evidence and at least one affidavit, that communication of the invention to the alleged deriver, and an unauthorized filing of a patent application occurred. A properly maintained laboratory notebook, as well as other means, documenting such communications would be helpful in providing much of the substantial evidence required.

Apart from derivation proceedings, laboratory notebooks will still remain important for the purposes of determining or correcting inventorship, determining prior user rights, and for pre-March 16, 2013 application issues (1.131 declarations, Interferences, etc.), which will still be relevant for years to come.

In short, despite the change to a first-inventor-to-file patent system, laboratory notebooks are here to stay.

James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Estelle J. Tsevdos, a Director in the Gibbons Intellectual Property Department, co-authored this post.

Patentee Prevails on Liability But Denied Damages

Lisa H. Wang — Mon, 29 Apr 2013 10:24:51 -0500

A recent non-published case from the District Court of New Jersey serves as a reminder that navigating the damages phase of patent infringement is just as important as proving liability.

In Unicom Monitoring, LLC v. Cencom, Inc., Judge Cooper court denied the patent owner damages despite the fact that it succeeded in proving infringement. The patent at issue covered a device for rerouting alarm reports through a telephone line. Defendant Cencom was found to infringe claim 1 of the patent. Before the trial on Unicom’s damages, Cencom moved for summary judgment to dismiss Unicom’s damages claim because it failed to present expert evidence. Cencom also moved for summary judgment on injunctive relief because Unicom failed to establish its burden under the factors articulated by the Supreme Court in eBay Inc. v. MercExchange, LLC. Cencom argued that the only proof Unicom provided supporting Unicom’s reasonable royalty position was attorney argument, Cencom’s sales records, and statements from Unicom’s owners. The Court held that while expert testimony is not required to prove reasonable royalties, it agreed with Cencom that Unicom failed to establish competent proof to support its claim.

A factfinder cannot be asked to speculate from numbers unsupported by law and divorced from expert guidance but rather the factfinder needs either clear guidance from an expert about how to apply complex calculations or simple factual proofs about what this patentee has previously accepted in factually analogous licensing situations.

Unicom Monitoring, LLC v. Cencom, No. 06-01166, slip op. at 21 (D.N.J. April 19, 2013) (MLC). The Court also denied Unicom injunctive relief holding that it is not an automatic grant or even a presumptive result of finding liability. Instead, the prevailing patent holder must establish the four-part test as articulated in eBay. The second prong of the eBay test inquires into whether remedies available at law, such as monetary damages, are inadequate to compensate for that injury. The Court, guided by Judge Posner’s decision in Apple, Inc. v. Motorola, Inc. held that Unicom is not entitled to permanent injunction because it failed to show that monetary damages were inadequate to compensate for its injury. Here, as in Apple, Unicom failed simply to set forth its prima facie case of how much monetary damages it is entitled to. Further, the Court also considered that both parties are no longer producing or marketing the product as another factor denying injunctive relief.

Lisa H. Wang is a Director in the Gibbons Intellectual Property Department.

Suffolk Tech. v. AOL et al., In Search of a Reasonable Royalty Post-Uniloc

Christopher H. Strate — Mon, 22 Apr 2013 08:44:14 -0500

On April 12, United States District Judge Ellis of the Eastern District of Virginia excluded the testimony of patentee Suffolk’s damages expert directed to a reasonable royalty based on the Nash Bargaining Solution, a kind of negotiation model. Suffolk’s expert used the Nash Bargaining Solution to determine that damages should be based on a 50/50 split of incremental profits. The Court struck this analysis, finding that the 50/50 split was analogous to the 25% rule previously rejected by the Federal Circuit in Uniloc v. Microsoft. (See infra).

As a matter of law, a patent owner is entitled to no less than a reasonable royalty for the use made of the invention by the infringer. The amount of the reasonable royalty is determined based on a hypothetical negotiation between a willing licensor and a willing licensee at the time that infringement began. Prior to 2011, one traditional method for determining a reasonable royalty was the 25% rule, which operated under the presumption that the licensee was entitled to 25% of the infringer’s gross profits on the accused device or process. This number would then be adjusted up or down based on the 15 factor test set forth in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). In the past, such method may have been relied upon by an expert facing a situation where the patent owner had not licensed the patent in suit and there were no known license agreements covering the relevant technology of that patent.

Despite its long-standing use, the Federal Circuit in Uniloc v. Microsoft, 632 F.3d 1292 (Fed. Cir. 2011) struck down this approach -- holding that “the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation..., because it fails to tie a reasonable royalty base to the facts of the case at issue.” Id. at 1315.

Here, the Suffolk court found that the patentee’s expert’s use of the Nash Bargaining Solution suffered from the same deficiency. Whether or not this means that the Nash Bargaining Solution can never be used to assign a reasonable royalty for patents without comparable licenses, as required by law, remains to be seen. But, Suffolk exemplifies yet another challenge patent owners may face when attempting to prove reasonable royalty damages post-Uniloc.

Christopher H. Strate is an Associate in the Gibbons Intellectual Property Department.

Trade Secrets Litigation: DuPont Wins Property from U.S. Subsidiary as Part of its $920M Damages Award Against the Parent

Jillian A. Centanni — Tue, 16 Apr 2013 08:05:04 -0500

Kolon USA, Inc., the U.S. subsidiary of South Korea-based Kolon Industries Inc. (“Kolon”), recently was ordered by New Jersey District Court Judge Esther Salas to turn over its property to DuPont as part of DuPont’s efforts to enforce the $920 million damages award that DuPont won against Kolon during a 2011 trade secrets litigation in the Eastern District of Virginia.

This case, E.I. du Pont De Nemours & Co. v. Kolon Indus., Inc. a/ka/ Kolon Corp., has an interesting history: in 2009, DuPont sued Kolon in EDVA, including five of its executives, for allegedly stealing confidential information related to making Kevlar, an anti-ballistic fiber commonly used in body armor, military helmets, ropes, cables and tires. DuPont has been selling this fiber since 1965 and has spent more than $500 million in its marketing and production. Kevlar and Nomex, a fiber used in firefighting gear, together accounted for $1.5 billion of DuPont’s $38 billion in sales for 2011. Kolon began making the Heracrone line of fibers, its own version of DuPont’s Kevlar, in 2005.

In 2006, Kolon hired Michael Mitchell as a consultant to improve Kolon’s Heracrone products. Mitchell previously worked at DuPont for twenty-five (25) years as an engineer and as a marketing executive for DuPont’s Kevlar. Mitchell later was charged and pled guilty to trade secrets theft and obstruction of justice relating to his work while at Kolon, and stemming from his DuPont background. In March of 2010, he was sentenced to eighteen (18) months in prison. Although Mitchell pled guilty to stealing DuPont’s trade secrets, that did not release Kolon from liability. In September 2011, a federal jury in Virginia found Kolon and its U.S. subsidiary guilty for wrongfully obtaining DuPont’s proprietary information about Kevlar and granted a $920 million judgment against Kolon. The five individual executives at Kolon who were originally sued in 2009 still worked for Kolon in South Korea. Unfortunately for DuPont, the ruling from the Court in Virginia cannot itself prevent Kolon from selling its Heracrone fibers.

After DuPont obtained the $920 million judgment against Kolon in EDVA, DuPont obtained leave to execute the judgment outside of that district. Enter the District of New Jersey. DuPont registered the judgment in the DNJ under 28 U.S.C. § 1963, the statutory procedure for registering and enforcing judgments in other districts. During August of 2013, DuPont obtained a levy on the $920 million judgment by serving a Writ of Execution on Kolon USA, which currently owes Kolon $3.6 million.

In determining whether Kolon USA would be required to turn over its property, the New Jersey Court determined that DuPont satisfied the three requirements as set forth in N.J.S.A. 2A:17-63 regarding garnishment : 1) Kolon and Kolon USA have been noticed; 2) DuPont has obtained a valid levy upon the property and 3) Kolon USA has admitted the debt. Thus, DuPont’s application for a turnover order was granted.

Among the takeaways from this case is that if a subsidiary corporation owes its parent corporation money, the subsidiary may be required to turn over its property in order to satisfy a judgment against the parent.

Jillian A. Centanni is an Associate in the Gibbons Intellectual Property Department.

The Laws of Physics and Copyright Law: SDNY Rules that First-Sale Doctrine Does Not Apply to the Resale of "Used" Digital Media

James J. Kang — Fri, 12 Apr 2013 08:00:46 -0500

Owners of books and music in physical media form need not fear if ever they decide to sell, rent, or otherwise dispose of these copyright-protected materials. The first-sale doctrine permits such activities by extinguishing a copyright owner’s exclusive right of distribution of copyrighted items that have been lawfully sold or transferred. However, according to a recent federal court ruling, Capitol Records, LLC. v. ReDigi Inc., No. 12 Civ. 95 (S.D.N.Y. March 30, 2012) owners of digital versions of the same works may find it more difficult to sell, rent, or otherwise dispose of their digital files.

ReDigi Inc. (“ReDigi”) is a marketplace for buyers and sellers of “used” digital music files. Users can sell their legally purchased digital music by installing ReDigi’s “Media Manager” software. This software scans the user’s hard drive for digital music files purchased from iTunes, and will mark these as being eligible for sale. To avoid the possibility of copyright infringement, the Media Manager software considers all other digital music files, e.g. files downloaded from CDs or from other file-sharing websites, as ineligible for sale. The seller can then upload the eligible files onto ReDigi’s server. The Media Manager software monitors the seller’s computer to ensure that the uploaded files have not been retained. Other users can then purchase the digital music by downloading the files from the server.

In January 2012, Capitol Records, LLC (“Capitol”) brought suit against ReDigi, accusing ReDigi of violating Capitol’s exclusive rights of reproduction and distribution of many of its sound recordings. In his March 30 ruling, Southern District of New York District Court Judge Richard J. Sullivan agreed with Capitol, granting its summary judgment motion “on its claims for ReDigi’s direct, contributory, and vicarious infringement of [Capitol’s] distribution and reproduction rights.”

Judge Sullivan, citing the laws of physics, noted the impossibility of transferring a “material object” over the Internet. A file sent over the Internet from Point A to Point B is not a simple transfer of the same “material object.” Instead, it is a reproduction of the file from Point A, made at Point B. Therefore, the uploading and downloading of digital media files sold in ReDigi’s marketplace are, in essence, a combination of (unauthorized) reproductions and the distribution of those reproductions. Accordingly, the Court ruled that ReDigi violated Capitol’s digital media reproduction and distribution rights.

Under U.S. copyright law, the first-sale defense can be asserted by owners of a copyrighted item “lawfully made under this title . . . .” 17 U.S.C. § 109(a). This defense only applies against assertions of infringement of a copyright holder’s right of distribution. Because the Court ruled that digital music files sold by ReDigi’s marketplace were not “lawfully made,” but instead were unauthorized reproductions, the first-sale defense could not be asserted.

So what does this mean to owners of lawfully purchased digital media who wish to sell their files? For now, selling the hard drive where the files reside may be the safest option, barring a contractual arrangement with the copyright owner, to avoid infringement.

ReDigi plans to appeal this decision, and has, since June 2012, been implementing ReDigi 2.0, which purportedly does not involve user and seller uploading and downloading.

Gibbons will continue to monitor developments concerning the first-sale doctrine and other copyright issues involving digital media.

James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Catherine M. Clayton, a Director in the Gibbons Intellectual Property Department, co-authored this post.

ITC Announces Exclusion Order Study

Ralph A. Dengler — Wed, 10 Apr 2013 12:38:08 -0500

Yesterday’s Federal Register included a public notice indicating the U.S. International Trade Commission’s (“ITC”) intention to solicit input from complainants who obtained exclusion orders from the ITC following proceedings under 19 U.S.C. § 1337 (“Section 337”).

Section 337 addresses unfair practices in the import trade, and especially, for enforcing U.S. intellectual property rights at the border. An exclusion order may be “limited” or “general,” and it prevents articles found to be infringing from being imported into the U.S.

With this Notice, the ITC is seeking feedback, via a three-question survey of complainants with exclusion orders presently in place, regarding the effectiveness of exclusion orders to prevent certain imports. This effort is part of the ITC’s study to examine the efficacy of exclusion orders in blocking the importation of infringing products. As a formality, the ITC must first gain approval from the Office of Management and Budget to fund the survey.

We previously reported on a recent ITC case that addressed whether a complainant had established facts necessary to circumvent a limited exclusion order to justify the issuance of a general exclusion order. We also recently reported on the interplay of Section 337 proceedings and trade secrets.

Gibbons will continue to monitor developments and to provide counsel regarding ITC matters and legal developments.

Ralph A. Dengler is a Director in the Gibbons Intellectual Property Department. Andrew P. MacArthur, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Gibbons Directors Robert Rudnick & Thomas Bean to Serve on Panel for Upcoming Gibbons Institute of Law, Science & Technology Event

Gibbons P.C. — Tue, 09 Apr 2013 10:03:06 -0500

Robert E. Rudnick and Thomas J. Bean, Directors in the Gibbons Intellectual Property Department, will serve as panelists at the upcoming Gibbons Institute of Law, Science & Technology event, "USTPO Patent Post-Issuance Proceedings Under the American Invents Act -- a New Frontier" on April 23.

Mr. Rudnick and Mr. Bean, along with Kenneth Corsello of IBM and other industry and academic leaders, will address post-grant proceedings under the American Invents Act (AIA), from both the patent owner's and challenger's perspectives, as well as discovery and other new rules of practice before the Patent Trial and Appeal Board (PTAB). CLE credits for New Jersey and New York will be offered.

For additional information or to register, please click here or contact Teresa Rizzo at teresa.rizzo@shu.edu.

Uniloc v. Rackspace - 35 U.S.C. § 101 Lockdown in the Eastern District of Texas

Robert E. Rudnick — Thu, 04 Apr 2013 08:40:57 -0500

In Uniloc USA, Inc. v. Rackspace Hosting, Inc., Eastern District of Texas Chief District Judge Leonard Davis granted Rackspace’s motion to dismiss Uniloc’s complaint under Fed. R. Civ. P. 12(b)(6) for failure to allege infringement of a patentable claim under 35 U.S.C. § 101. This ruling is notable for several reasons: the Court granted an early motion to dismiss for the defendant in a historically pro-patentee jurisdiction (E.D. Texas), and the early dismissal resulted from the court finding the patent invalid under 35 U.S.C. § 101.

Uniloc brought suit against Rackspace for infringement of claim 1 of U.S. Patent No. 5,892,697 (the “’697 Patent”), which is directed to a method for processing floating-point numbers. Floating-point numbers, which are often used in software, “have at least three fields: (i) a sign to indicate positive or negative; (ii) an exponent; and (iii) a mantissa, which is the body of the number.” Uniloc, Dkt. No. 38 at 1. Computation of floating-point numbers was standardized in Institute of Electrical and Electronics Engineers (“IEEE”) Standard 754 prior to invention of the ’697 Patent. The ’697 Patent, however, purports to disclose a method which increases computational efficiencies when compared to the IEEE Standard 754.

In finding claim 1 invalid under 35 U.S.C. § 101, the Court first analyzed the claim under the Federal Circuit’s machine-or-transformation test, which the Supreme Court has deemed “a useful and important clue” but “not the sole test” for determining patent eligibility. Bilski v. Kappos, 130 S. Ct. 3218, 3225-27 (2010). In applying the machine-or-transformation test, the Court noted that the steps of claim 1 do not recite a machine, and the mere manipulation of data in claim 1 does not satisfy the transformation prong. Uniloc, Dkt. No. 38 at 5.

The Court also determined that claim 1 recites a mathematic formula and therefore falls under the law of nature exception to patentable subject matter. Chief Judge Davis compared claim 1 to the claims found invalid in Gottschalk v. Benson, which were directed to “converting one form of numerical representation to another,” Gottschalk v. Benson, 409 U.S. 63, 65 (1972). Like the claims in Benson, Chief Judge Davis found that claim 1 recites “a procedure for solving a given type of mathematical problem,” and therefore preempts “the mathematical formula and in practical effect” covers the algorithm itself. Id. at 65, 72.

Further, the Court concluded that although claim 1 “constitutes an improvement on the known method for processing floating-point numbers” disclosed in IEEE Standard 754, the “improvement over the standard is insufficient to validate Claim 1’s otherwise unpatentable subject matter.” Uniloc, Dkt No. 38 at 9. This reasoning buttressed the fact that even when tied to computing, “a patent on Claim 1 would cover vast end uses, impeding the onward march of science.” Id.

While this opinion might likely have minimal precedential influence, it nonetheless serves as a warning against asserting method claims that are not tied to a machine, are non-transformative, or are merely recited steps of a mathematical calculation.

Gibbons will continue to track the status of this case, and will report any further developments as they arise.

Robert E. Rudnick is a Director in the Gibbons Intellectual Property Department. William A. Hector, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

An End to the Seed War: Monsanto and DuPont Call Off Their Patent and Antitrust Lawsuits as a Decision in Bowman v. Monsanto is Pending

James J. Kang — Tue, 02 Apr 2013 09:31:30 -0500

On March 25, seed giants DuPont and Monsanto entered into technology licensing agreements that ended their ongoing patent and antitrust lawsuits. According to the terms of the agreement, DuPont will pay at least $1.75 billion in licensing and royalty fees to Monsanto from 2014 to 2023. These payments include fixed royalty payments from 2014 to 2017, totaling $802 million, and per-unit based royalty payments from 2019 to 2023, subject to annual minimums, totaling $950 million. DuPont and Monsanto also will dismiss their respective patent and antitrust lawsuits, including the August 2012 damage award of $1 billion against DuPont that have been pending since 2009. Further details on these agreements can be found in DuPont and Monsanto’s joint March 26 press release and DuPont’s March 26 Form 8-K.

Through these agreements, DuPont will have broad access to Monsanto’s Genuity® Roundup Ready 2 Yield® and Genuity® Roundup Ready 2 Xtend™ patented seed technologies. Monsanto, in turn, will have access to several of DuPont’s crop-disease resistance and corn defoliation patented technologies.

This truce is likely to help DuPont and Monsanto, both market giants, to remain dominant in seed markets. Collectively, DuPont’s Pioneer seed unit and Monsanto generated sales in excess of $20 billion in 2012.

Looming over the horizon for Monsanto is the Supreme Court’s pending decision in Bowman v. Monsanto, a case involving the issue of patent exhaustion and self-replication relating to seed technologies. Oral arguments were heard by the Court on February 19, 2013. A decision in this case is expected in June 2013.

Gibbons will continue to monitor developments in this case.

James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Estelle J. Tsevdos, a Director in the Gibbons Intellectual Property Department, co-authored this post.

Patent and Copyright First-Sale and International Exhaustion Standards to Remain in Conflict ... For Now!

James J. Kang — Mon, 01 Apr 2013 15:41:30 -0500

On the heels of its March 19, 2013, decision in Kirtsaeng v. John Wiley & Sons, Inc., where the Supreme Court held that international exhaustion , i.e., an ex-U.S. first-sale rule applies to copyrights, the Court has surprisingly denied Ninestar Technology Co. Ltd.’s (“Ninestar”) petition for certiorari to consider whether international exhaustion applies to patents.

In our previous report on the Kirtsaeng decision, we discussed the key points of the Court’s holding. It would seem reasonable to assume that the application of the ex-US first-sale rule should apply similarly to both copyrights and patents. However, a key distinction is that the first-sale rule in copyright law has a statutory basis under the Copyright Act (17 U.S.C. §109), whereas the first-sale rule in patent law is grounded in common law. Interestingly, Justice Breyer, delivering the majority opinion in Kirtsaeng, wrote, “[t]he common law doctrine makes no geographical distinctions . . . .” This appears to conflict with recent Federal Circuit holdings involving the first-sale rule in patent law, such as Jazz Photo Corp. v. Int’l Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001) and Fuji Photo Film Co. v Jazz Photo Corp., 394 F.3d 1368 (Fed. Cir. 2005).

In the present case, Petitioner Ninestar carried out the practice of purchasing used Epson inkjet cartridges outside of the U.S., refilling the cartridges, and then importing the refilled cartridges for sale in the U.S. The International Trade Commission (“ITC”) ruled that Ninestar’s refilled cartridges violated Epson’s U.S. patents and issued general exclusion, limited exclusion, and cease and desist orders, prohibiting Ninestar from importing and selling the cartridges in the U.S. Ninestar continued its practice, and the ITC subsequently levied civil penalties against Ninestar in the amount of $11,110,000. Ninestar appealed the ITC ruling to the Federal Circuit, arguing that the first-sale doctrine extinguished Epson’s U.S. patent rights. The Federal Circuit affirmed the ITC’s ruling, applying the Jazz Photo standard that ex-US sales or manufacturing activity does not exhaust U.S. patents.

With the ruling in Kirtsaeng, and the subsequent non-decision in Ninestar, the discrepancy in the treatment of the first-sale doctrine and international exhaustion between copyright and patent law appears to be in conflict. This topic will likely be in play in subsequent Federal Circuit patent decisions.

In the meantime, it would be prudent for companies conducting international sales of U.S. patented products to carefully consider their business practices and their contract and licensing agreements, should the courts change patent first-sale doctrine and international exhaustion standards in light of Kirtsaeng.

Gibbons will continue to monitor the latest developments regarding the first-sale doctrine and international exhaustion in U.S. patent law, and will report any further developments as they arise.

James J. Kang is an Apprentice in the Gibbons Intellectual Property Department. Estelle J. Tsevdos, a Director in the Gibbons Intellectual Property Department, co-authored this post.

IPXI Clears U.S. Department of Justice Hurdle ... Will It Launch?

Jillian A. Centanni — Thu, 28 Mar 2013 09:39:43 -0500

We have reported extensively on the pending Intellectual Property Exchange International (“IPXI”), the world’s first proposed exchange for licensing intellectual property.

In an email blast sent Wednesday morning, Ian McClure, the Director at IPXI, indicated that the Department of Justice (“DOJ”) concluded an eight-month business review of IPXI and issued a Business Review Letter (“BRL”) that highlighted IPXI's benefits and efficiencies. Importantly, according to IPXI, the DoJ declined to take any enforcement position against the IPXI at this time, as it did not know if IPXI’s activities would raise competitive concerns after operating. The BRL noted several benefits to the IPXI model, including increased licensing efficiency, sublicense transferability and greater transparency.

IPXI apparently requested this review as an essential step prior to launching the new exchange. The email also indicated that the IPXI now is poised to announce shortly the official launch of the marketing period for its first offerings.

Gibbons will stay tuned about this exciting development ...

Jillian A. Centanni is an Associate in the Gibbons Intellectual Property Department.

Kirtsaeng v. John Wiley & Sons, Inc.: U.S. Supreme Court Reverses Lower Courts and Determines That International Copyright Exhaustion is Now the Rule

Jillian A. Centanni — Wed, 27 Mar 2013 15:25:54 -0500

Online resellers, used book stores, art galleries, and museums, among others, apparently can now breathe a sigh of relief and continue to display and resell goods originally sold or manufactured outside of the U.S., without the specter of a potential copyright infringement action looming on the horizon.

Last week, in Kirtsaeng v. John Wiley & Sons, Inc., the U.S. Supreme Court, on a 6-3 vote, held that the “first sale” doctrine applies to copies of a copyright-protected work lawfully made abroad. Under copyright law, the “first sale” doctrine states that “the owner of a particular copy or phonorecord lawfully made under this title . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” 17 U.S.C. § 109(a). If a copy is made abroad and imported into the United States without the copyright owner’s permission, there is copyright infringement under § 106(3). In other words, international copyright exhaustion (once an authorized sale of a U.S. copyright-protected work is made outside of the U.S., the copyright in that work is “exhausted,” so subsequent reselling may occur) is now the rule.

Petitioner Supap Kirtsaeng (“Kirtsaeng”), a citizen of Thailand moved to the United States in 1997 to further his education. While studying in the United States, Kirtsaeng began a side business of purchasing and importing foreign edition English language textbooks from Thailand. These textbooks were authorized foreign editions published by a wholly-owned foreign subsidiary of Respondent John Wiley & Sons (“Wiley”). These textbooks were substantially similar to textbooks meant for the United States market, but were less expensive. Kirtsaeng resold these textbooks in the United States for profit.

In 2008, Wiley sued Kirtsaeng for copyright infringement under 17 U.S.C. §§ 106(3) and 602, as Kirtsaeng imported the books without authorization, and later resold them, allegedly infringing on Wiley’s exclusive right to distribution and related import prohibition. Kirtsaeng argued that the books he acquired were “lawfully made” and since he acquired them legitimately, the “first sale” doctrine permitted him to resell them or dispose of them without the copyright owner’s further permission. The District Court held that the “first sale” defense was unavailable because the “first sale” doctrine did not apply to “foreign-manufactured goods” and the Second Circuit agreed.

The key to the Supreme Court’s holding that the “first sale” doctrine applies to copies of a copyrighted work lawfully made abroad turned on the meaning of the phrase “lawfully made under this title.” The difference between Wiley’s interpretation and Kirtsaeng’s interpretation was whether the phrase imposed a geographical limitation. The Supreme Court agreed with Kirtsaeng that this language imposed a non-geographical limitation made “in accordance with” or “in compliance with” the Copyright Act, thus permitting the doctrine to apply to copies manufactured abroad with the copyright owner’s permission. The Supreme Court looked at the language of 17 U.S.C. § 109(a), its context, and the “first sale” doctrine’s common-law history in determining that Kirtsaeng’s interpretation was correct.

This ruling will have a substantial impact on how the publishing, music, motion picture and other copyright-oriented industries will conduct business overseas. It is likely that these industries will put pressure on Congress to amend the Copyright Act.

In addition, this ruling highlights the dichotomy between the views of international exhaustion in the copyright and patent arenas. International copyright exhaustion is now that law of the land, but this is certainly not the case for patents. The Supreme Court recently denied Ninestar Technology Co. Ltd.’s petition for a writ of certiorari to consider whether an initial authorized sale outside of the United States of a patented item exhausts the patent rights to that item. Furthermore, the Federal Circuit’s recent decisions in patent cases have rejected international exhaustion of patent rights.

Gibbons will continue to monitor developments concerning the “first sale” doctrine and international exhaustion of intellectual property rights.

Jillian A. Centanni is an Associate in the Gibbons Intellectual Property Department. James J. Kang, an Apprentice in the Gibbons Intellectual Property Department, co-authored this post.

The Patent Expert Pivot

Andrew P. MacArthur — Mon, 25 Mar 2013 09:27:22 -0500

Parties to patent infringement actions heavily rely on experts to explain their “case.” The finder of fact, whether judge or jury, often views them as detached guides who truly understand the often esoteric subject technology, or other issues, given the expert’s credentials. Patent issues such as infringement, claim construction, validity, enforceability and damages, which are critical to a case, may rise or fall on these experts. Accordingly, and despite their “expert” status, there is no shortage of considerations surrounding them.

Sometimes, a party's expert just does not work out, and a substitute (possibly late in a case), may become an issue. Replacing or substituting new experts is not guaranteed: courts apply different standards to assess these situations, resulting in a variety of results.

Even if the original experts remain, practitioners must carefully work with them to ensure all necessary information is provided, while preventing the exposure of privileged or otherwise immunized communications. Recent jurisprudence likely will require the production of all communications, information or documents relied on or considered by the experts, although proving either or both might be contentious.

Vetting an expert early and diligently can avoid the problems arising with a substitute expert. The full article on this subject explores in detail recent case law and considerations for IP practitioners.

Andrew P. MacArthur is an Associate in the Gibbons Intellectual Property Department.

Federal Circuit Limits Discovery in Inter Partes Re-examination Proceedings

John J. Cahill — Fri, 22 Mar 2013 08:12:42 -0500

We reported last week on the discovery limitations under United States Patent and Trademark Office (“PTO”) guidelines as they pertain to inter partes review (“IPR”) proceedings. On Wednesday, in Abbott Labs. v. Cordis Corp., the Federal Circuit ruled that discovery is not allowed in inter partes re-examinations.

The case stemmed from Abbott’s motion to quash two subpoenas duces tecum issued by Cordis which sought documents for use in a pending IPR re-examination. Id. at 2. In the underlying action, Cordis sued Abbott in the District Court for the District of New Jersey for infringement of two of its patents directed to drug-eluting stents. Id. at 3. The PTO agreed to inter partes re-examination of the patents and by office action, the examiners found both patents obvious. Id. at 3-4. Cordis requested that subpoenas be issued ordering Abbott to produce documents for use in the pending re-examinations. Id. at 4. In particular, Cordis asserted that it believed these documents would help establish evidence copying of and other secondary considerations towards a finding of non-obviousness. Id. Cordis relied on 35 U.S.C. § 24 as its basis for issuance of these subpoenas. Id. at 2. Section 24 states, in relevant part, “the provisions of the Federal Rules of Civil Procedure relating to the attendance of witnesses and to the production of documents and things shall apply to contested cases in the Patent and Trademark Office.” 35 U.S.C. § 24. The District Court for the Eastern District of Virginia had granted the subpoenas in the pending PTO re-examinations, however, in separate action before the PTO, Cordis’ petitions were denied. Abbott, at 4-5.

On appeal, the Federal Circuit recognized that the AIA replaced inter partes re-examinations with inter partes review proceedings (IPR). Id. at 15. While the Court noted, and, as previously reported, IPR proceedings expressly permit depositions, it also recognized that there is no such allowance in re-examinations. Id. The Court considered whether and which type of PTO cases permit such discovery. Id. at 2. Writing for the panel comprised of Chief Judge Rader and Circuit Judge Reyna, Circuit Judge Dyk found that on review of the express language of section 24, its relationship with adjacent provisions of title 35, its legislative history, and the interpretation given to it by other courts, section 24 only empowers a district court to issue a subpoena for use in a “contested case” and that inter partes re-examinations are not “contested cases” under section 24. Id. at 6, 18.

The language of section 24 states that “[t]he clerk of any United States Court for the district wherein testimony is to be taken for use in any contested case in the Patent and Trademark Office.” 35 U.S.C. § 24. Focusing on “testimony,” the Court considered the history of the Patent Act. Abbott, at 8. In section 1 of the Patent Act of 1861, sections 23 and 24 were a single sentence, specifically enacted to assist the PTO in obtaining “needed testimony.” Id. at 10. In its present form, section 23 allows the Director to establish rules for taking depositions as authorized by law in district court and to take such depositions for use by the PTO. 35 U.S.C. § 23. The panel considered section 24 as clarified by section 23 and construed “contested cases” as limited to include only those in which PTO regulations authorize the parties to take depositions. Id. at 14.

With regard to taking depositions, the panel reviewed PTO regulations and recognized that the regulations discriminate between matters before an examiner and matters before the board with specific mention of deposition powers in the latter and recognizing no such power in the former. Id. at 15-16. Accordingly, the Court held that 35 U.S.C. § 24 only empowers a district court to issue subpoenas for use in a proceeding before the PTO if the PTO’s regulations authorize parties to take depositions for use in that proceeding, i.e. proceedings before the board, including: interferences, derivation proceedings, and the new Board proceedings created by the AIA. Id.

Based on this decision, inter partes re-examination proceedings, held before an examiner, are not “contested cases” within the meaning of section 24, and, therefore subpoenas under section 24 are not available.

However, as suggested by the panel, section 24 subpoenas would be presumptively available in “adjudicative proceeding[s]” of the PTO, including the IPR, post-grant review (“PGR”) proceedings under the transitional program for covered business method (“CBM”) patents introduced by the America Invents Act (“AIA). Id. at 15. Although a potentially significant tool, its application will no doubt be impacted by the general discovery limitations of PTO adjudicative proceedings relative to district court litigation. We will continue to monitor and report on issues and trends in PTO adjudicative proceedings under the AIA as experience grows with them.

John J. Cahill is an Associate in the Gibbons Intellectual Property Department.

Treble Damages for Willful Patent Infringement Become Elusive

Luis J. Diaz — Wed, 20 Mar 2013 08:10:40 -0500

Accused patent infringers continue to breath easier as an ever more challenging path to treble damages persists. Recent decisions from the Court of Appeals for the Federal Circuit placed the objective prong of the In re Seagate test toward establishing willful infringement squarely with a judge. The impact on appeal has taken effect.

Under 35 U.S.C. § 271(a), direct patent infringement is a “strict liability” offense. In certain cases, 35 U.S.C. § 284 may provide “up to three times” actual damages. A determination that the accused infringer willfully infringed is used to determine whether enhanced damages are warranted. Finisar Corp. v. DirecTV Group, Inc. 523 F.3d 1323, 1339 (Fed. Cir. 2008).

Historically, willful infringement was a question of fact reserved for a fact finder to decide under a negligence type standard of reasonableness. Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983). If a potential infringer was on actual notice of another’s patent rights, the Federal Circuit imposed an affirmative duty of due care to obtain competent opinion from counsel before the potential infringer makes, uses, offers to sell, or sells the subject of the patented invention. Id. at 1390. A jury determined whether the alleged infringer’s defenses to patent infringement were “reasonable” and whereby the accused infringer’s failure to produce opinion resulted in an adverse inference. See Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1572-1573 (Fed. Cir. 1988); see also Kloster Speedsteel AB v. Crucible, Inc., 793 F.2d 1565, 1579-80 (Fed. Cir. 1986).

In In re Seagate Tech, 497 F.3d 1360, 1371 (Fed. Cir. 2007), the Court expressly abandoned both the affirmative duty of care and the obligation to obtain an opinion of counsel to mitigate the risk of willful infringement. In its place, the Federal Circuit has imposed a recklessness-type standard comprising objective and a subjective prongs. “To establish willful infringement, a patentee must prove by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and “that this objectively defined risk was either known or so obvious that it should have been known to the accused infringer.” Id. However, in Seagate, willfulness remained an issue of fact for a jury. Two recent Federal Circuit cases have further altered the willfulness dynamic.

First, in Powell v. Home Depot, U.S.A. Inc., 663 F.3d 1221, 1236 (Fed. Cir. 2011), the Court considered whether the jury is the sole decider of whether an accused infringer reasonably relied upon a defense to patent infringement. Under circumstances where resolution of that inquiry turned on a legal question (e.g. a Markman ruling), a judge decides the issue as a matter of law. Then, in Bard Peripheral Vascular v. W.L. Gore & Assocs., 682 F.3d 1003 (Fed. Cir. 2012) (en banc), the panel held “that even though predicated on underlying mixed questions of law and fact, willfulness is best decided by the judge as a question of law subject to de novo review” because a judge is in the “best position for making the determination of reasonableness.” Id. at 1007.

On rehearing, in these cases, the Federal Circuit took the opportunity to expand the Court’s role and minimize the jury’s role deciding whether a patent infringer acted willfully. In deciding willfulness, the role of the fact finder is now limited to determining whether the infringer subjectively knew or should have known that it was infringing a valid patent.

Because the ultimate power of deciding willfulness is now in judges’ hands, it will likely be harder for patentees to win treble damages in patent cases. Accused infringers need not fear that a few bad facts may result in a finding of willfulness and an increase of a damages award.

Additionally, these rulings mean that the Federal Circuit will now moderate all appealed willfulness decisions de novo, without deference to District Court decisions. Importantly, it will be easier for defendants to succeed on Rule 50 motions when not faced with a “no reasonable jury” standard. Recently, in Harris Corp. v. Fed. Express Corp., 2012-1094, 2013 U.S. App. LEXIS 1142, 31-33 (Fed. Cir. Jan. 17, 2013), FedEx appealed the District Court’s denial of JMOL on the issue of willfulness. Throughout litigation, FedEx raised and argued substantial questions regarding infringement and validity. On appeal, the Federal Circuit vacated JMOL as to willfulness, citing its holding in Bard and the review of the Seagate “objective prong” evidence de novo. Because “[t]he ultimate legal question of whether a reasonable person would have considered there to be a high likelihood of infringement of a valid patent should always be decided as a matter of law by the judge.” Id. at 1008.

If not successful at trial, on the appeal, the issue of willfulness will be reviewed de novo, rather than for substantial evidence or clearly erroneous.

Pleadings of willful infringement likely will be limited to situations where the infringement was truly “willful.” The practical implication to in-house counsel is that the perceived risk of a charge of willful infringement and the associated financial risk declines. Defendants wanting to avoid treble damages should proceed carefully, considering any action that may affect its credibility with the judge; present its strongest non-infringement position; present a reasonable claim construction argument; present and preserve all reasonable defenses to liability.

Ultimately, considering the evolution of case law in this area, a reasonably prudent corporate counsel should consult outside counsel to strategize and ascertain the best approach when proceeding into and through a patent infringement action where a charge of willful infringement has been or could be plead.

Luis J. Diaz is a Director in the Gibbons Intellectual Property Department. John J. Cahill, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

Gibbons Director Ralph Dengler Highlighted in NJBIZ

Gibbons P.C. — Thu, 14 Mar 2013 09:00:57 -0500

NJBIZ, the premier weekly newspaper covering the business community in New Jersey, published its inaugural intellectual property supplement fall 2012. Gibbons P.C. was a go-to firm for expert commentary in the issue, with Intellectual Property Department Director Ralph A. Dengler highlighted in two articles.

Intellectual property is a natural focus for NJBIZ, given New Jersey’s prominence in the pharmaceutical, technology, telecommunications, and other key industries. The economic recovery, slow though it has been, has spurred businesses to once again invest in research and development, invent new products, file for more patents, and license their products. In addition, competition from new overseas markets is impacting the state’s businesses.

NJBIZ sought out Mr. Dengler for background information because of his extensive experience litigating patent, trademark, copyright, trade secret, and unfair competition matters. Mr. Dengler has litigated across diverse technologies and arts involving business methods, chemical compounds, computers, electronics, food containers and packaging, magazines, marine dredging, and pharmaceuticals. He writes regularly on the areas of IP law and licensing related matters.

The first article featuring Mr. Dengler, “Patent reform’s effect on litigation unclear,” discussed whether or not new policies will help minimize invention-related lawsuits, detailing the new patent reform law and its ability to streamline the patent process. According to Mr. Dengler, “the law’s effect on litigation won’t be known for some time because the first-to-file system won’t take effect until March 16, and it will take years for the first patent applications to work their way through the new regime.”

In “Small firms wary of first-to-file provision,” NJBIZ details how patent reform could have a large impact on small, innovative companies. Mr. Dengler explains why larger established businesses, as well as international concerns, will likely benefit from the changes.

Limitations on Discovery in Inter Partes Review Proceedings

John J. Cahill — Tue, 12 Mar 2013 09:02:45 -0500

Companies accused of patent infringement have a number of basic alternatives to contemplate: settle the matter; defend the suit; or consider resort to a post grant patent proceeding at the United States Patent and Trademark Office (USPTO). With an eye towards cost, risk and accurate resolution, inter partes review (IPR) proceedings are an attractive alternative to settling or defending.

IPR proceedings are adjudicated by a panel of three Administrative Patent Judges (APJs) at the Patent Trial and Appeal Board (PTAB), who determine the validity of the patent at issue. In addition to a law degree and extensive patent law experience, APJs have a technical degree and are generally assigned to a case based on knowledge in a particular area of science. Therefore, a case with any scientific or technical complexity might be suitable for resolution before a PTAB panel. According to some researchers, an IPR proceeding should prove to be about an order of magnitude more cost effective than standard District Court litigation. And, while the average time to trial in District Court is about 27 months, by statute, an IPR hearing will go to decision within one year.

In District Court litigation, a predominant cost and consumption of litigation resources stems from discovery, both fact and expert. Here is where IPR might be an attractive option.

Where any concurrent District Court proceedings are stayed (yes, the first stay pending IPR was ordered last December), rules governing IPR proceedings before the PTAB envision minimal discovery. And, where the PTAB discovery rules appear vague, the PTAB is stepping up to deny litigators access to traditional discovery scope (often referred to as a “fishing expedition”), to keep the proceedings as intended – lean and mean.

Under the recently enacted rules, IPR practice permits parties to obtain mandatory discovery regarding initial disclosures. See Rule § 42.51. Additionally, the rules also permit “Limited Discovery,” defined as “Routine Discovery” and “Additional Discovery.” Id. “Routine Discovery” includes: “unless previously served or otherwise by agreement of the parties, any exhibit cited in a paper or in testimony;” “cross examination of affidavit testimony;” and “unless previously served, relevant information that is inconsistent with a position advanced by the party during the proceeding.” Id. Additional discovery contemplates everything that is unrelated to initial disclosures or “Routine Discovery.” Further, and unless on agreement of the parties, a “moving party must show that such additional discovery is in the interests of justice.” Id.

The recent decision in Garmin Int’l Inc., v. Cuozzo Speed Techs. LLC, IPR2012-00001 (PTAB March 5, 2013), tested the mettle of this limited discovery. There, Cuozzo, the patent owner, filed a motion for “Additional Discovery” seeking interrogatories, documents and requests for depositions. The PTAB panel held that Cuozzo’s motion for “Additional Discovery” was deficient under the “interests of justice standard.” Garmin at 16-17. The panel explained by highlighting five factors that must be considered, as follows:

1. More Than A Possibility And Mere Allegation – The mere possibility of finding something useful, and mere allegation that something useful will be found, are insufficient to demonstrate that the requested discovery is necessary in the interest of justice. The party requesting discovery should already be in possession of evidence tending to show beyond speculation that in fact something useful will be uncovered. (emphasis added)

Id.

Cuozzo’s motion primarily related to secondary considerations of nonobviousness such as long-felt, but unresolved need, failure of others, commercial success and copying by others. Importantly, the PTAB noted with respect to all these requests that Cuozzo’s motion lacks any evidence or reasoning tending to show beyond speculation that the information to be discovered will be useful. Id at 7-8. “‘Useful’ means favorable in substantive value to a contention of the party moving for discovery.” Id. at 7.

2. Litigation Positions And Underlying Basis – Asking for the other party’s litigation positions and the underlying basis for those positions is not necessary in the interest of justice. The Board has established rules for the presentation of arguments and evidence. There is a proper time and place for each party to make its presentation. A party may not attempt to alter the Board’s trial procedures under the pretext of discovery.

Id at 6.

Garmin was not obligated to keep Cuozzo informed of its positions on substantive issues. Id. at 13. The panel held that if and when Garmin presents affidavit or declaration testimony to support a position, Cuozzo would have an opportunity to cross-examine. Id.

3. Ability To Generate Equivalent Information By Other Means – Information a party can reasonably figure out or assemble without a discovery request would not be in the interest of justice to have produced by the other party. In that connection, the Board would want to know the ability of the requesting party to generate the requested information without need of discovery.

Id. at 6.

With regards to Cuozzo’s discovery on whether Garmin charged an unusual premium for the “speed limit alert feature,” the PTAB determined that Cuozzo was not entitled to such discovery. Id. at 6-7. At its own cost, Cuozzo may conduct market surveys, independently acquire file histories and prior art publications, and solicit analysis and opinions of the state of the art. Id. at 7.

4. Easily Understandable Instructions – The questions should be easily understandable. For example, ten pages of complex instructions for answering questions is prima facie unclear. Such instructions are counter-productive and tend to undermine the responder’s ability to answer efficiently, accurately, and confidently.

Id. at 6-7.

5. Requests Not Overly Burdensome To Answer – The requests must not be overly burdensome to answer, given the expedited nature of IPR. The burden includes financial burden, burden on human resources, and burden on meeting the time schedule of IPR. Requests should be sensible and responsibly tailored according to a genuine need.

Id. at 7.

The PTAB reviewed both cost and the burden imposed for meeting the IPR time schedule. Id. at 15-16. Based on a total cost of $50,000 to $100,000 and the fact that the requests were not reasonably tailored, the panel denied the requests based on the speed limit alert feature. Id. at 15-16.

Interestingly, the panel called Cuozzo to task for mischaracterizing its “Additional Discovery” requests as “Routine Discovery.” Id. at 3. “Routine Discovery” is narrowly directed to specific information known to the responding party to be inconsistent with a position advanced by that party in the proceeding, and not broadly directed to any subject area in general within which the requesting party hopes to discover such inconsistent information.” Id. at 4. The panel noted that Cuozzo did not reference information known to Garmin to be inconsistent with positions taken in the petition. Id. Instead, “Cuozzo casts a wide net directed to broad classes of information which may or may not include anything inconsistent with positions taken by Garmin.” Id. The panel characterized Cuozzo’s attempt to label very broad requests as narrowly directed was misplaced. Id.

Based on this precedent, IPR may be an appropriate strategy for defendants in certain patent infringement cases.

John J. Cahill is an Associate in the Gibbons Intellectual Property Department.