LifeScan Scotland Ltd. v. Shasta Technologies, LLC. 3:11-cv-04494-WHO
Now here's a scenario that would offer Count Dracula a sweet tooth – er, a sweet fang. Like the proverbial manufacturer that makes razors to sell razor blades, LifeScan Scotland Ltd. makes the One Touch Ultra blood glucose meter and sells 40% of them at "below cost" and distributes the remainder for free. LifeScan then earns its bread and butter on the sale of disposable glucose test strips. The test strips incorporate electrical and chemical sensors necessary for the meter to do its work, and every time the customer uses the monitor, he or she must use—and then dispose of—a test strip. Shasta Technologies intended to skip straight to the profitable part of the business by developing a "half-price" disposable strip compatible with LifeScan's meters. And like Count Dracula eying an erstwhile sleeping victim, LifeScan bit back at this affront to its business model.
Before Shasta's strips could reach the market, LifeScan filed suit, claiming that Shasta infringed various patents. Among these was U.S. Patent No. 7,250,105, which generally claims a method of measuring the concentration of a substance [in this case glucose] in a sample liquid [blood] comprising the steps of (1) providing a measuring sensor device [the disposable strip], (2) applying a drop of blood to the strip, (3) using the glucose meter to measure the amount of glucose in the blood sample on the strip. LifeScan claimed that Shasta allegedly would indirectly infringe the method if it were allowed to manufacture and sell strips to customers, who would be the direct infringers.
In December 2012, when it appeared that the FDA was prepared to approve the Shasta strips, LifeScan sought—and won—a preliminary injunction preventing Shasta from bringing its strips to market, in the process overcoming Shasta's argument that the sale and distribution of LifeScan's meters exhausted the '105 patent because the meters substantially embody the claimed method. Judge Davila found that LifeScan was likely to establish that its patent was not exhausted on two grounds. First, because the patent requires the use of both a meter and a strip, "the sale of the meter by itself ... casts the applicability of exhaustion into doubt." Second, because it gives away some meters for free—and hence there is no "sale" that exhausts its patent. But Shasta, like Count Dracula's nemesis, Professor Van Helsing, had its defense in the ready.
Shasta appealed, and the Federal Circuit (Dyk and Prost, Reyna dissenting) saw Lifescan's position differently. 734 F.3d 1361.
LifeScan's primary argument was that by distributing its meters, it did not trigger exhaustion because the meters do not embody the claims of the '105 patent, which require both a meter and a test strip. Under Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), the crux of exhaustion is "whether a method or product patent is involved, is whether the product 'substantially embodies the patent'—i.e., whether the additional steps needed to complete the invention from the product are themselves 'inventive' or 'noninventive.'" Under this analysis, if the product in question has no "reasonable and intended noninfringing use"—in other words, if the only object of the sale of the product is to practice the method – the product embodies the method. Unsurprisingly, much like Count Dracula with his intended victims, there's only one thing LifeScan intends customers do with its glucose meters – that is, use them to test the amount of glucose in the blood being analyzed. And, the Circuit found nothing inventive about the strips: the '105 file history showed that the strips themselves were originally the subject of separate claims, but that all of these were rejected by the PTO. In allowing the method claim but not the separate claims to the strips, the examiner did not attribute an inventive feature to the strips themselves.
Judges Dyk and Prost also rejected LifeScan's second argument, that there could be no exhaustion where there is no "sale" of the meters that were given away for free. The circuit essentially held that "sale" is simply shorthand for giving something to someone who acquires legal title to it.
Everything seemingly wrapped up neatly like one of Van Helsing's patented (pun intended) wooden spikes to the heart, the Circuit held that "because we conclude that Shasta has established a patent exhaustion defense as a matter of law, we reverse the grant of a preliminary injunction" and remanded the case. So, that's it for the '105 patent, right? Shasta established patent exhaustion "as a matter of law," and it's out of the case.
We're talking Count Dracula here, people, and Dracula always has sequels....
Back in N.D. Cal, now in front of Judge Orrick, Shasta moved for a judgment on the pleadings with regard to the '105 patent. Which the court denied. Judge Orrick pointed to language in the footnotes of the Circuit's opinion that seem to indicate the intent to allow LifeScan to continue to attack patent exhaustion despite the "emphatic" holding. Judge Orrick likewise was uncomfortable with the limited factual record that was developed during the preliminary injunction motion—a theme that LifeScan played to in its opposition—particularly because the patent exhaustion involves questions of fact. Whether LifeScan, unlike Cout Dracula confronted by Van Helsing (or maybe Buffy the Vampire Slayer) with a wooden spike in hand, can survive summary judgment on the '105 with the weight of the Federal Circuit behind it is yet to be seen. But for now its claims remain pending in the Northern District. As Bram Stoker emphatically noted in his original work on his vampire legend: " We learn from failure, not from success!"
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