United States

In a decision that undoubtedly evoked a collective sigh of relief from the biotechnology community, the U.S. Court of Appeals for the Federal Circuit reversed a summary judgment of invalidity and held that methods for calibrating proper drug dosage satisfy the transformation prong of the Bilski machine-or-transformation test for patent-eligible subject matter under 35 U.S.C. section 101. Prometheus Laboratories, Inc. v. Mayo Collaborative Services, Case No. 08-1403 (Fed. Cir., Sept.16, 2009) (Lourie, J.).

Prometheus is the sole and exclusive licensee of two Mayo owned patents that claim methods for calibrating the proper dosage of thiopurine drugs, which are used for treating both gastrointestinal and non-gastrointestinal autoimmune diseases. The drugs are ultimately broken down by the body into various metabolites; the patents involve measurements of two of the metabolites, 6-methyl-mercaptopurine (6-MMP) and 6-thioguanine (6-TG). The patents claim methods that seek to optimize therapeutic efficacy while minimizing toxic side effects and typically include two separate steps: "administering" a drug that provides 6-TG to a subject and "determining" the levels of the drug's metabolites. The measured metabolite levels are then compared to pre-determined metabolite levels, "wherein" the measured metabolite levels "indicate a need" to increase or decrease the level of drug to be administered so as to minimize toxicity and maximize efficacy of treatment.

Prometheus marketed a PROMETHEUS Thiopurine Metabolites test that used the technology covered by the patents in suit. Mayo initially purchased and used Prometheus's test, but in 2004, Mayo announced that it intended to begin using and selling its own test. Prometheus sued Mayo for infringement and ultimately appealed to the Federal Circuit the district court grant of Mayo's motion for summary judgment of invalidity under § 101. The district court found that the "'administering' and 'determining' steps are merely necessary data-gathering steps for any use of the correlations" and that "as construed, the final 'wherein' clause is only a mental step."

On appeal, the Federal Circuit commenced its analysis by noting that the key issue is whether the claims are drawn to a fundamental principle (unpatentable) or an application of a fundamental principle (patentable). The Court noted that it articulated a "definitive test" for determining whether a process is patent-eligible under § 101 in Bilski. The Bilski machine-or-transformation test is a "two-branched inquiry," under which a patentee may show that a process claim satisfies § 101 either by showing that his claim is tied to a particular machine, or by showing that his claim transforms an article.

Regarding transformation, the Court concluded that the methods of treatment claimed in the patents-in-suit squarely fall within the realm of patentable subject matter because they "transform an article into a different state or thing," and this transformation is "central to the purpose of the claimed process." The Court pointed to the transformation of the human body following administration of a drug and the various chemical and physical changes of the drug's metabolites that enable their concentrations to be determined. The Court also noted that the asserted claims are in effect claims to methods of treatment, "which are always transformative when a defined group of drugs is administered to the body to ameliorate the effects of an undesired condition." The Court further opined that even for those claims lacking an administration step, patentability is undiminished because the determining step is also transformative and central to the claimed methods, as levels of 6-TG or 6-MMP cannot be determined merely by inspection and without some form of manipulation. Having concluded that the claimed methods meet the transformation prong under Bilski, the Court did not consider whether they also meet the machine prong.

Are Humans Animals?
By Robert H. Underwood

Addressing an interesting issue of patent claim construction, the U.S. Court of Appeals for the Federal Circuit, sitting as an expanded five-member panel, held that a human is an animal. Martek Biosciences Corporation v. Nutrinova, Inc, Case Nos. 08-1459, -1476 (Fed. Cir., Sept. 3, 2003) (Gajarsa, J.)(Lourie, J. dissenting-in-part).

Martek owns several patents that cover various aspects of making and using omega-3 highly unsaturated fatty acids. Nutrinova sells allegedly infringing products for human consumption. One of the patents claims a method for increasing the concentration of the omega-3 acids in an "animal." The district court concluded that the claim term "animal" does not include humans. Based on this claim construction, Martek stipulated in the district court that the claims were not infringed.

The Court, in a three-person majority opinion, concluded that a human is an animal. The Court reached this conclusion by following the well-established rule that when a claim term is explicitly defined in the specification, that definition controls. The patent specification states that "animal" means any organism belonging to the kingdom Animalia. According to the Court, the definition in the specification controls and, because it is undisputed that humans are members of the kingdom Animalia, the district court erred in limiting the term "animal" to exclude humans.

The majority was not persuaded by Nutrinova's assertions that the disclosure in the specification of a preferred use of the omega-3 acids to produce food products from economic food animals and the enumeration of preferred food animals, constitutes a clear intention to limit the term "animal" to exclude humans. Again relying on well-established precedent, the Court concluded that the scope the claimed invention is not so limited, because the specification does not clearly disclaim coverage of humans. In the majority's view, this was particularly true because Martek expressly defined "animal" broadly enough to encompass humans and also disclosed uses of the claimed invention that are applicable to humans.

In dissent, Judge Lourie while agreeing with the precedent relied on by the majority, concluded that this case presents an "unusual situation" in which the purported definition of the term "animal" does not comport with the full description of the invention. In the view of the dissent, based on the use of the term "animal" in the claims and specification, one of ordinary skill in the art would conclude that the term "animal" does not include humans.

Practice Note: While patentees can be their own lexicographers—and express definitions of claim terms in the specification are controlling—patent drafters should take steps to ensure that the broader written description of the invention and its embodiments comports with any express definitions. This case was heard by an expanded (five judge) panel of the Federal Circuit; a rather unusual circumstance. Judges Newman dna Moore joined in the panel decision and Judge Rader joined in the dissent.

Ninth Circuit Weighs In on Compulsory Nature of Antitrust Claims and Choice of Law Issues
By Rachael Lewis and William Diaz

The U.S. Court of Appeals for the Ninth Circuit affirmed the lower court's dismissal of antitrust claims; finding that in the claims in issue were compulsory counterclaims that the defendant had failed to plead in response to a prior patent infringement lawsuit. The Court held that Destiny Tool failed to satisfy the pleading requirements for malicious prosecution and abuse of process under Ohio law. Destiny Tool v. SGS Tools Company, Case No. 07-17109, 2009 WL 2700319 (9th Cir., Aug. 27, 2009) (per curiam)(non-precedential)

SGS, Dauphin and Destiny manufacture and sell precision-cutting drill heads. In 2004, SGS and Dauphin filed a patent infringement suit against Destiny with respect to its "Improved Cutting Tool." After district court in Cleveland, Ohio, granted Destiny's motion to dismiss the case with prejudice, Destiny countered with claims against SGS and Dauphin in the Northern District of California for malicious prosecution, abuse of process, monopolization and attempted monopolization. Destiny claimed $2 million in damages in addition to attorneys' fees because of the initial patent infringement claim. The U.S. District Court for the Northern District of California dismissed Destiny's suit; Destiny appealed.

The parties disputed whether Ohio or California law governed the malicious prosecution and abuse of process claims. While acknowledging the state of California's interest in protecting its citizens from unwarranted and harassing litigation, the Ninth Circuit nevertheless concluded that Ohio's interests in limiting malicious prosecution and abuse of process claims "would be more severely impaired" if Ohio law was not applied in this case. This choice-of-law decision doomed Destiny's claims because Destiny admittedly did not adequately plead the more stringent elements for either claim under Ohio law.

The Ninth Circuit next addressed whether Destiny's antitrust counterclaims were compulsory or permissive in the Ohio patent infringement case, an issue unresolved by the Sixth Circuit and divided among the other circuits. The Ninth Circuit applied the Sixth Circuit's "logical relationship" test (Sanders v. First Nat'l Bank & Trust Co. in Great Bend), which asks "whether the issues of law and fact raised by the claims are largely the same and whether substantially the same evidence would support or refute both claims." The Ninth Circuit held that because the antitrust and patent claims raised the same legal, factual and evidentiary issues, the antitrust claims were logically related to the underlying patent claim and, therefore, compulsory. The Ninth Circuit admonished Destiny for "sleeping on its rights" by not filing the antitrust counterclaims until more than a year after the Ohio patent case was filed.

Practice Note: Destiny Tool v. SGS Tools Company is an important reminder that there is significant ambiguity concerning whether antitrust claims are compulsory if they relate to the patents at issue in a patent infringement action. A defendant in a patent infringement case should consider whether it has any potential antitrust claims against the plaintiff(s) and, based on the case law in the circuit in which the lawsuit is filed, should evaluate whether those claims are best brought as counterclaims to the patent infringement case.

Teachings Incorporated by Reference for Anticipation Purposes Need Not Be Individually Named
By Matthew E. Leno

Finding that material not explicitly contained in the single, prior art document may still be considered for purposes of anticipation if incorporated by reference into the document, the U.S. Court of Appeals for the Federal Circuit, reversed and remanded a district court's summary judgment that patents were not invalid for anticipation. Callaway Golf Company v. Acushnet Company, Case No. 09-1076 (Fed. Cir., Aug. 14, 2009) (Dyk, J.).

Callaway sued Acushnet asserting infringement of several patents directed to multi-layer polyurethane-covered golf balls by some of Acushnet's Titleist brand golf balls. Acushnet stipulated to infringement under the district court's claim construction—which was subsequently upheld by the Federal Circuit—leaving Acushnet with defenses of anticipation and obviousness.

Acushnet asserted anticipation based on a single prior art patent (Nesbitt) which expressly taught all but two limitations of the asserted claims. Acushnet argued, however, that these two limitations were in fact present in Nesbitt because they were incorporated by reference from a second prior art patent (Molitor). According to Acushnet, when properly viewed as a single reference, Nesbitt/Molitor anticipates the patents-in-suit as a matter of law. The district court granted summary judgment of no anticipation holding that while the relevant passage specifically incorporated the ionomer resins disclosed in Molitor, it did not indicate with sufficient specificity that it was incorporating Molitor's teaching of polyurethane. The Federal Circuit reversed. The Court re-affirmed that material not explicitly contained in a single document may still be considered for purposes of anticipation if incorporated by reference, provided that the document "identify with particularity what specific material it incorporates and clearly indicate where that material is found." The Federal Circuit stated that the relevant passage of Nesbitt "incorporates the entire list of foamable compounds disclosed by Molitor," which includes polyurethane and ionomer resins. The Court saw "no basis to differentiate between incorporation of the ionomeric resins disclosed in [Molitor] and the other compositions in the list." The specificity requirement apparently did not require individually naming each incorporated foamable compound, but instead permitted incorporating groups of teachings so long as those groups were identified with specificity.

Acushnet also contended that all asserted claims were obvious. The jury returned a verdict that one dependent claim was obvious, but that the independent claim from which it depended was not obvious. The district court recognized that this rendered the verdict inconsistent, but held the inconsistency harmless because Acushnet had infringed other claims that were found valid without inconsistency. The Federal Circuit agreed that the jury verdict was inconsistent because a "broader independent claim cannot be nonobvious where a dependent claim stemming from that independent claim is" obvious. Applying U.S. Court of Appeals for the Third Circuit law, the Court held that the inconsistency was not harmless and ordered a new trial. Instead, "where a reading of the verdicts that would solve the apparent inconsistency proves impossible [...] the appropriate remedy is ordinarily, not simply to accept one verdict and dismiss the other, but to order an entirely new trial."

Concurrences Provide Insight into Federal Circuit's Views on Stays Pending Re-Examination
By Christina A. Ondrick

The U.S. Court of Appeals for the Federal Circuit affirmed-in-part, reversed-in-part and vacated-in-part a district court's judgment on three of Fresenius' patents related to a hemodialysis machine integrated with a touch-screen user interface. Fresenius Medical Care Holdings, Inc. v. Baxter Int'l, Inc., Case Nos. 08-1306, -1331 (Fed. Cir., Sept. 10, 2009). (Gajarsa, J.) (Dyk, J. and Newman, J., concurring).

This appeal resulted in the relatively unremarkable finding that some of the claims were infringed and valid even though several similar claims were infringed but invalid. However, the relatedness between the valid and invalid claims sparked two separate concurring opinions concerning the suitability of a stay pending reexamination, an issue never briefed or debated by the parties.

Judge Dyk's concurrence indicates that he joined the majority opinion based on his understanding that on remand the district court was free to exercise its discretion to issue a stay pending the reexamination proceeding before the U.S. Patent and Trademark Office (USPTO). Specifically, Judge Dyk stated that, "[w]hile Fresenius did not establish the invalidity of [the] claims ... in the district court proceeding, those claims on their face are of dubious validity in light of our holding that [certain] claims are invalid. It is entirely possible that the U.S. Patent and Trademark Office will finally conclude that [the] claims [in issue] are also invalid."

In response, Judge Newman wrote a concurrence to argue that a stay pending reexamination would be inappropriate because there had already been a full trial and appeal and only a modification of the remedy remained on remand (i.e., consideration of an appropriate reasonable royalty). Judge Newman carefully extolled the virtues of reexamination, but at the same time cautioned against its potential for abuse by unsuccessful litigants. Specifically, Judge Newman stated "[a] stay of finality, after the issues of validity and infringement have been litigated and decided by the district court and appealed to the Federal Circuit, is a distortion of the role of reexamination." Newman continued, "I remain a strong supporter of the principle of reexamination. It can be a useful and powerful tool for the benefit of both patentees and those interested in restricting or eliminating adversely held patents. However, if routinely available to delay the judicial resolution of disputes, the procedure is subject to inequity, if not manipulation and abuse, through the delays that are inherent in PTO activity."

Practice Note: While Judge Dyk's and Newman's concurrences are dicta, they provide useful insights into the leanings of two Federal Circuit judges as well as into the principles the Court will consider in future decisions.

Tracking Prosecution History to a Narrow Claim Construction
By John C. Low, Ph.D.

Citing prosecution disclaimer from the patentee's assertions of its "simple" invention to overcome obviousness rejections, the U.S. Court of Appeals for the Federal Circuit affirmed the district court's claim construction, which included a negative claim limitation that disposed of plaintiff's case. RFID Tracker, Ltd. v. Wal-Mart Stores, Inc., et al., Case No. 08-1412, (Fed. Cir., Aug. 18, 2009) (Rader, J.; Linn, J.; Dyk, J.; per curiam) (non-precedential).

RFID sued Wal-Mart for infringement of its patent directed to an inventory control system that included radio frequency identification (RFID) tags, an interrogator/reader and a computer. Apparatus claim 1 of the patent recited an "interrogator/reader" that included a "field generator" and a "receiver." Method claim 15 of the patent recited "generating a field ... with an interrogator/reader." The district court construed the claim term "interrogator/reader" of claims 1 and 15 to mean "a field generator and a receiver, but not a transmitter." (Emphasis supplied.) Based on this negative claim limitation RFID Tracker stipulated to non-infringement. After the district court entered a final judgment, RFID Tracker appealed.

On appeal RFID Tracker argued that since the claim term in dispute used the open language "includes," the negative limitation in the district court's claim construction was inappropriate. Wal-Mart, citing to the prosecution, argued that RFID Tracker has disclaimed a broader construction during prosecution before the U.S. Patent and Trademark Office (USPTO). During prosecution, the applicant differentiated its claims over two § 103(a) references raised by the examiner, arguing that "its claimed interrogator/reader was simple, unlike the complex readers of the prior art that contained and used a transmitter to send commands to the tags," that "the interrogator/reader is nothing more than a receiver" and that "[t]he [claimed] method ... requires no polling and no transmission." To a similar rejection in a parent application, the applicant argued that, "the present technology only requires that the interrogator generate a field and receive tag signals," which it argued was a "fundamental" distinction.

The Federal Circuit, citing Computer Docking, noted that "a patentee may limit the meaning of a claim term by making a clear and unmistakable disavowal of scope during prosecution," and, citing N. Am. Container, further noted that "if the applicant unequivocally disavows claim scope, the doctrine of prosecution disclaimer applies even if the disclaimer results in a negative claim limitation." As for statements made in the parent application, the Court noted that "prosecution disclaimer may also arise from an applicant's statements in a parent patent application if the parent application relates to the same subject matter as the claim language at issue." The effect of the disclaimer is not negated either by the abandoned status of the parent application or "[t]hat the examiner did not rely on these statements, as the parent application never issued."

Thus, the Court affirmed the claim construction, noting "[i]n light of these statements during prosecution, RFID Tracker cannot now contend that the claimed interrogator/reader is anything more than 'simply a receiver and a field generator in its simplest form.'"

Res Judicata Applies Unless Material Differences Exist In Contested Limitations
By Isaac Crum

Clarifying the application of res judicata in patent cases, the U.S. Court of Appeals for the Federal Circuit held that an analysis of the "material differences" between the products in each case must focus only on the claim limitations being contested. Nystrom v. Trex Co., Inc., Case No. 09-1026 (Fed. Cir., Sept. 8, 2009) (Rader, J.) (Rader J., additional views regarding claim element vitiation).

In December 2001, Ron Nystrom sued Trex, alleging Trex's wood-composite boards infringed its patent. During the initial district court litigation the court construed three terms. Based on the court's construction, Nystrom conceded that he "lacked sufficient evidence to prove infringement" and summary judgment was granted. On appeal, the Federal Circuit affirmed two of the three constructions. On remand, Nystrom attempted to argue infringement under the doctrine of equivalents (See IP Update, Vol. 8 No. 9.) The district court held that Nystrom had waived that argument based on his prior concession. The Federal Circuit affirmed in a per curiam opinion.

Nystrom subsequently filed the instant case alleging that Trex's newer, "second-generation boards" infringe the patent-in-suit. The district court granted Trex summary judgment based on claim vitiation and argument based estoppel, but denied Trex's motion on res judicata and amendment-based estoppel. Nystrom appealed.

The Federal Circuit held that the district court erred in denying Trex's argument that the second suit was barred by the doctrine of res judicata. In particular, the Court held that in patent cases res judicata applies when the accused infringer shows that the accused product in the second suit is "essentially the same" as the product accused in the first litigation, i.e., there are no "material differences" between the two products. The Court held that the "material differences" inquiry must be limited solely to the contested claim limitations rather than the products as a whole.

In the Nystrom cases only two claim limitations were at issue. Allowing Nystrom to point to differences unrelated to the contested limitations would result in a repeat of the prior litigation with Nystrom arguing that the same elements of the accused devices meet the same contested limitations. This is the very situation that res judicata seeks to prevent.

Writing separately, Judge Rader also questioned the necessity of the doctrine of claim vitiation. The doctrine of claim vitiation only applies if a substantial limitation is not literally present. In such cases, however, the missing substantial limitation would also prevent a finding of infringement under the doctrine of equivalents. Thus, according the Judge Rader, the doctrine of claim vitiation is subsumed within the test for equivalents.

Follow the Bouncing Ball ... But Not Outside the United States
By Jeremy T. Elman

Addressing the issue of personal jurisdiction and territorial use for a patent infringement claim, the U.S. Court of Appeals for the Federal Circuit affirmed a district court's ruling that there was no personal jurisdiction over a foreign defendant and no use of the patented invention in the United States for the other defendant. Renata Marcinkowska v. IMG Worldwide, Inc., et al., Case No. 09-1213 (Fed. Cir., Aug. 20, 2009) (per curiam) (non-precedential).

This action arises from the staging of a tennis match between top players Roger Federer and Rafael Nadal in Mallorca, Spain in 2007, an event known as "The Battle of the Surfaces." The match featured a court with one side made of clay and the other side made of grass. The plaintiff, a former professional tennis player, owns a patent directed to a tennis court with different surfaces on each side of the net. Plaintiff sued the S&S, an advertising agency based in Argentina, and IMG, a sports marketing and management company incorporated in Ohio, for patent infringement, as well as claims under the Lanham Act and unfair trade practices and civil conspiracy under South Carolina law.

The Federal Circuit first found that there was no general or specific jurisdiction over S&S because they were based in Argentina, due to a lack of evidence of any contact by S&S with South Carolina (the state of residence of the plaintiff). Further, the plaintiff initiated contact with the defendant, and defendant did not enable third parties in South Carolina to infringe the patent-in-suit.

The Federal Circuit then looked at whether the alleged infringement, which occurred in Spain, could constitute patent infringement. After stating the general rule that "[t]he patent laws of the United States "do not, and were not intended to, operate beyond the limits of the United States," the Court analyzed whether IMG's use of a globally-accessible website promoting the match and promotion and broadcast of the match in the United States constituted "use" under the patent laws. The Court affirmed the district court's holding that this interpretation stretched the definition of "use" too thin because the hybrid tennis court was not "used" in the United States—it was "used" in Spain and that use was broadcast in the United States. The Federal Circuit similarly dismissed the plaintiff's other claims because the plaintiff failed to allege facts beyond that it was her "idea" that was used by defendants.

Practice Note: To infringe a patent, the use of the accused product or method must be in the physical boundaries of the United States, rather than foreign use that is reproduced or promoted in the United States.

Court Not Lured by Arguments for Attorneys' Fees
By Todd Hales

In a patent infringement suit about fishing lures, the U.S. Court of Appeals for the Federal Circuit stated that the appellant "provided no support whatsoever for its claims" and affirmed the district court's decision to deny granting attorneys' fees. Wedgetail v. Huddleston Deluxe, Case No. 09-1045 (Fed. Cir., Aug. 12, 2009) (Gajarsa, J.).

Wedgetail, Ltd. (Wedgetail) is the assignee of a patent directed to flexible fishing lure tails and appendages. Wedgetail filed suit against Huddleston Deluxe, Inc. (Huddleston), accusing Huddleston of infringing claims of its patent. After the district court held a claim construction hearing and issued its claim construction order, Wedgetail filed a motion to dismiss all claims with prejudice; in the motion it granted Huddleston a covenant not to sue. Huddleston opposed solely on the ground that Wedgetail's proposed order of dismissal would deprive Huddleston of the opportunity to seek attorneys' fees as the prevailing party. The district court granted Wedgetail's motion, dismissed all claims with prejudice, and ordered "that each party shall bear their own costs and attorney's fees." Huddleston immediately appealed.

The Court explained that the determination of whether a case is exceptional and, thus, eligible for an award of attorneys' fees under 35 U.S.C. § 285 is a two-step process. First, the district court must determine whether a case is exceptional, a factual determination reviewed for clear error. In patent infringement suits, the Federal Circuit has limited exceptionality to the following instances: "inequitable conduct before the PTO; litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or willful infringement." After determining that a case is exceptional, the district court must determine whether attorneys' fees are appropriate, a determination reviewed for an abuse of discretion. The Court noted that, absent litigation misconduct or inequitable conduct before the U.S. Patent and Trademark Office, it permits an award of attorneys' fees to an accused infringer "only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless."

In this instance, the district court did not provide an explanation in its decision as to why it denied the grant of attorneys' fees. The Federal Circuit, however, explained that due to "the high level of deference owed to district courts on this issue and the limited circumstances that could qualify as exceptional, this court has not imposed a blanket requirement that a district court provide its reasoning in attorney fee cases." The Federal Circuit stated that "Huddleston directs us to nothing in the record here that could compel a finding of exceptionality or would otherwise suggest a need for the district court to provide its reasoning." The Federal Circuit continued, "Huddleston has failed to demonstrate either that the district court clearly erred in failing to find this case exceptional or that Huddleston was harmed by the district court's failure to entertain a motion for attorney fees." Although lacking explanation, the Court concluded that the district court's decision was supported by the record such that a remand would serve no purpose. Accordingly, the Federal Circuit affirmed the district court's decision in denying the award of attorneys' fees to Huddleston.

Practice Note: The deference afforded the district court in this case was tempered by the Federal Circuit's explanation that "a statement of the district court's reasoning is generally necessary to enable review when an attorney fees motion is granted, ... or when attorney fees are denied despite the presence of one or more of the circumstances listed above."

Federal Circuit to Consider Enablement and Written Description Requirements En Banc
By Kristin Connarn

Vacating an earlier panel decision that found Ariad Pharmaceuticals Inc.'s patent invalid, the U.S. Court of Appeals for the Federal Circuit granted Ariad's request for an en banc rehearing of its patent infringement suit against Eli Lilly and Co. over the drugs Evista and Xigris, agreeing to consider the issue of whether 35 U.S.C. §112 includes separate written description and enablement requirements. Ariad Pharmaceuticals, Inc. v. Eli Lilly and Co., Case No. 08-1248 (Fed. Cir., August 21, 2009) (en banc) (per curiam).

Ariad first filed suit in June 2002 to obtain royalties on Lilly's past and future sales of Evista (an osteoporosis treatment) and Xigris (a treatment for septic shock). A jury in the district court of Massachusetts found in 2006 that Ariad's patent was valid and that Lilly's Evista and Xigris products infringed. Ariad and its co-plaintiffs were awarded $65.2 million in back royalties and a 2.3 percent royalty on U.S. sales of the drugs until the expiration of the patent in 2019. The jury rejected Lilly's arguments that the asserted claims were invalid for anticipation, lack of enablement or lack of written description. Following a separate bench trial, the district court ruled that the asserted claims were directed to patentable subject matter and that the patent was not unenforceable.

Lilly appealed to the Federal Circuit on several issues in the case, and a three-judge panel ruled that four claims of the patent at issue were invalid for lack of written description. The Court maintained the holding that the patent was not unenforceable for inequitable conduct, however. Ariad petitioned the Federal Circuit for rehearing en banc in June.

The Court agreed to rehear Lilly's appeal of the judgment holding Lilly liable for infringing Ariad's patent, which covers methods of treating human disease by regulating natural cell-signaling activity. In its decision to grant an en banc hearing, the Court requested further briefing on two issues: whether patent law contained a written description requirement separate from an enablement requirement and, if so, what the scope of the written description requirement was.

The appeal will be heard en banc on the basis of the originally filed briefs, the additional briefing requested in the order and oral argument. The Federal Circuit also invited the U.S. Solicitor General's Office to submit an amicus brief in the case. Additional briefs of amici curiae will also be entertained and may be filed without leave of court.

USPTO Releases Post-Bilski Section 101 Examination Guidelines
By Eric M. Shelton

In response to the revised standards for patent eligibility set forth by the Federal Circuit in In re Bilski (see IP Update, Vol. 11, No. 11; certiorari granted), the U.S. Patent and Trademark Office (USPTO) issued revised guidelines for examination of patent claims under Section 101 at the end of August. The guidelines are available online at http://www.uspto.gov/web/offices/pac/dapp/opla/2009-08-25_interim_101_instructions.pdf.

Before the release of these guidelines, the USPTO's Board of Patent Appeals and Interferences (the BPAI or Board) appeared to take a narrow view of patent eligibility under the Bilski "machine-or-transformation" test. In contrast, the new guidelines appear to adopt a more moderate position, at least for computer-related or computer-implemented subject matter.

"Beauregard" claims, for media bearing computer instructions, continue to be recognized as a patent-eligible article of manufacture, if directed to a non-transitory, tangible, computer-readable storage medium. In view of the recent Nuijten decision, holding per se "signals" ineligible under Section 101, the USPTO officially considers the phrase "computer readable medium" too broad for eligibility. This is based on the position that if a claim as a whole covers both ineligible and eligible subject matter, it is to be considered ineligible.

Also, the USPTO officially accepts computer-implemented method claims, if such claims "clearly convey that [a] computer is programmed to perform the steps of the method." Specifically, the USPTO accepts that a programmed computer is a "particular machine" under the Bilski test—an issue which had expressly been left unresolved by the Bilski decision.

Of further interest for computer-implemented inventions, the USPTO noted that "electronic data that represents a physical object or substance" can serve as a transformed article under the transformation prong of the Bilski test. However, such data "should be more than an abstract value," and an eligible transformation requires more than mathematical manipulation—transformed data must have a different function or be suitable for a different use.

Additionally, the guidelines provide further guidance for applicants and examiners as to the general framework and details of examination for Section 101 subject matter eligibility. A number of charts and clarifications are offered that appear to provide greater predictability as to how the Bilski test is to be applied.

Practice Note: Post-Bilski eligibility for "business method" patent applications continues to appear to be difficult to establish, except for the express acceptance of certain computer-implemented method claims. The USPTO acknowledges that the guidelines are currently "interim instructions," pending a decision by the Supreme Court in Bilski v. Kappos, which is scheduled for argument November 2009.

On Its Face, Federal Circuit's Decision on Fraud Provides Substantial Relief to Trademark Registrants
By Suzanne Wallman and Joanne Ludovici-Lint

The U.S. Court of Appeals for the Federal Circuit has issued a significant decision to trademark owners on the issue of fraudulent procurement. In its decision, a panel of the Federal Circuit rejected the Medinol standard of fraud that has applied since 2003 and held that "a trademark is obtained fraudulently only if the applicant or registrant knowingly makes a false material representation with the intent to deceive the PTO." In re Bose Corp., Case No. 08-1448 (Fed. Cir., Aug. 31, 2009) (Michel, C. J.).

Since its 2003 Medinol v. Neuro Vasx decision, the Trademark Trial and Appeal Board has repeatedly cancelled trademark registrations that were procured based on material representations that a registrant "should have known" to be false, regardless if such representations were made through inadvertent mistake or mere oversight. The Medinol "should have known" standard of fraud essentially lowered the fraud standard to one of negligence and, many would argue, improperly subjected trademark registrants to cancellation of their trademark registrations when no bad faith or knowing intent to deceive the U.S. Patent and Trademark Office (USPTO) existed.

This issue often arises in the context of a use declaration in which an applicant or registrant makes a representation that its trademark is in use on all the recited goods or services when that is not the case. Under Medinol, inaccurate statements regarding use constituted fraud even when such inaccurate statements were made inadvertently and there was no deliberate intent to deceive the USPTO. The long-awaited decision in Bose heralds a return to the pre-Medinol fraud standard, which requires a specific intent to deceive. Equating the fraud analysis here to that used in Kingsdown Medical Consultants v. Hollister, the Federal Circuit's 1991 landmark en banc patent-based ruling regarding fraud on the USPTO during patent prosecution, the Federal Circuit insisted that fraudulent procurement under the Lanham Act also requires "a [knowing] false, material representation with the intent to deceive the PTO."

While the Federal Circuit's decision in Bose will likely result in a significant decrease in fraud-related cancellation proceedings at the USPTO, as well as in fraud claims brought as a defense in trademark litigation, there are a number of important questions that remain unanswered:

What is the standard of proof required to show a "subjective" or "willful" intent to deceive the USPTO when a declarant denies such intent?
How much proof will be required to show fraud by "clear and convincing evidence," the standard of proof deemed required under Bose?
Will a reckless disregard for the truth or falsity of a statement made to the USPTO be sufficient for a finding of fraud and what sort of conduct would qualify as reckless?
Is it enough to plead inadvertent mistake or ignorance when signing a section 8 and 9 declaration?
How will the decision in Bose affect future fraud cases?

These and other questions will likely be answered in future cases applying the Bose holding. In the meantime, good practice continues to call for trademark owners to maintain vigilance in confirming that filings with the USPTO are accurate.

Best Practices

Carefully review all trademark applications and renewals before filing. Collect and retain a representative sample of specimens evidencing use in commerce for each of the goods or services listed in the trademark application or registration. If possible, the statement of goods and services in trademark applications should be defined as broadly as possible (i.e., "juice" instead of "apple juice, orange juice and pineapple juice.")

Periodically review your existing trademark portfolio, confirming current use of all goods or services listed in trademark registrations and applications.

Discuss with counsel any potential "use" issues before instituting an enforcement proceeding involving a registered mark. Consult with counsel about the possibility of raising a fraudulently procured registration as a defense to an infringement claim.

The Third Circuit Defines "Use" in the Context of Counterfeiting Statute
By Leigh J. Martinson

The United States Court of Appeals for the Third Circuit determined that "use" with in the context of Section 2320(a) of the Trademark Laws does not require active employment of a counterfeit mark by displaying or offering an item displaying the mark for sale. United States of America v. Mamadou Diallo, Case No. 07-3641 (3rd Cir., July 31, 2009) (Smith, Circuit J.) (Pollak, Dist. J., sitting by designation, concurring).

In 2005, a Pennsylvania state trooper stopped Diallo's van because the license plate was not illuminated. During the stop, the state trooper notice a number of sealed plastics bags. When asked what was in the bags, Diallo responded that the bags contained clothes. On inspection, the trooper learned in the bags were stuffed with handbags displaying the Louis Vuitton "LV" mark. Diallo admitted the bags were his and produced a business license from Indianapolis. Despite this, the trooper arrested Diallo.

Diallo was indicted for trafficking in counterfeit goods in violation of 18 U.S.C. § 2320(a). At trial Diallo argued that based on the Supreme Court's interpretation of the word "use" in 18 U.S.C. § 924(c) in United States v. Bailey the jury had to find beyond a reasonable doubt that he actively employed the counterfeit mark on or in connection with the handbags by displaying or offering them for sale. He claimed that because the handbags were sealed in bags in the back of his van they had not been displayed or offered for sale.

The government argued that "use begins when [Diallo] bought them in New York, carried them along the highway for purposes of using them at his commercial venture to sell." The district court's instruction to the jury did not include a definition for "use." During deliberations, the jury questioned the court about the meaning of "use." After considering arguments from counsel on both sides, the court distinguished Bailey and instructed the jury using dictionary definitions that "use" means "[t]o make use of, to put into action or convert to one's service, to avail oneself of, to have recourse to or enjoyment of, to employ." After a short deliberation, the jury found Diallo guilty. Diallo appealed.

The appeal hinged on the meaning of the word "use" in § 2320(a), in which the statue failed to define. The Third Circuit explained that "the act of using related to the counterfeit mark," thus distinguished Bailey which described more than one type of "use." The court determined that it was unnecessary to restrict the meaning of the expansive term "uses" in § 2320 as the Supreme Court did in Bailey. In the court's view, "an ordinary and natural reading of 'uses' gives effect to Congress's intent 'to control and prevent commercial counterfeiting' by reaching a stream of illegal commerce and not simply its point of sale." The court determined that the district court's instruction on this point it was "reasonable and normal" and that the jury charge, taken as a whole, accurately submitted the issues to the jury.

The Effect of Stipulated Dismissal
By Amol Parikh

Finding that the plaintiff created a genuine dispute of material fact regarding the copyrightability of the subject matter in dispute, the U.S. Court of Appeals for the Tenth Circuit vacated the district court's grant of summary judgment and remanded the case for further proceedings. R.W. Beck, Inc. v. E3 Consulting, LLC, Case No. 08-1344 (10th Cir., Aug. 14, 2009) (Hartz, J.).

Beck and E3 are competing firms that provide consulting services in connection with the financing of energy-related projects. In the typical course of business, both companies analyze various aspects of a project, including technical, environmental, regulatory and commercial aspects of the project, then submit an independent engineer's report memorializing any such analysis.

In 2006, E3 created one such report for Calyon Corporate and Investment Bank in connection with the financing of two coal-fired cogeneration plants owned by Windsor Financing (the Windsor Report). Beck contends that a section in the Windsor Report was copied from similar sections included in two of Beck's reports dating back almost 20 years, including a report for the Sacramento Power Authority (the Sacramento Report) and a report for the Orange Cogeneration Limited Partnership Project (the Orange Report). Beck filed suit against E3, raising a claim for copyright infringement under the federal Copyright Act and claims for unfair competition, unjust enrichment and deceptive trade practices under Colorado law. E3 moved to dismiss the complaint for failure to state a claim. The lower court, treating the motion to dismiss as a motion for summary judgment since both parties referred to materials outside of the pleadings, granted summary judgment to E3 on all claims. Beck appealed.

On appeal, the court affirmed the dismissal of the unfair competition and unjust enrichment claims as being pre-empted by the Copyright Act. The court also affirmed the judgment on the deceptive trade practices claim because Beck cannot establish that the alleged deceptive practice significantly impacted the public.

As to the copyright claim, E3 argued that most of the language at issue in the copyrighted Beck report is not protected by copyright law because Beck took the language from a third-party report that predated the Sacramento and Orange Reports, as well as that the language in those reports was not protected because it had not been copyrighted and had entered the public domain.

With regards to the original author issue, the court noted that to prevail on its copyright claim, Beck must establish that it possesses valid copyrights in the Sacramento Report and Orange Report and that E3 copied protected elements of that report. In the district court proceedings E3 presented evidence in the form of a declaration from a current E3 employee who was previously employed by Beck and was involved in the preparation of the Sacramento Report and the Orange Report, stating that the language from the Sacramento and Orange Reports were taken from a report that was prepared by a third party. In response, Beck filed a declaration of two managing employees who asserted that E3's declarant would not have been permitted to copy a third-party report and also authenticated other Beck reports (predating the third-party report) that contained essentially the same pertinent language as the Sacramento Report and Orange Report. Viewing this evidence, the court found that there was a genuine issue of material fact as to whether the language in the Sacramento Report and Orange Report was original to Beck that should preclude summary judgment.

The court also rejected E3's argument that the language in Beck's reports was taken from earlier reports, that the language in those reports was not protected by copyright and that it had entered the public domain. The court found that the Sacramento Report and Orange Report had not entered the public domain because Beck produced evidence that it had previously copyrighted these earlier reports and had affixed copyrights notices to them. As before, the court found conflicting evidence as to E3's originality and public-domain arguments that preclude summary judgment on these issues.

The court also noted that E3 had raised two additional arguments on appeal that it had not raised at the district court. First, E3 argued that Beck's claim for copyright infringement must fail because it is an attempt to protect ideas rather than expressions in violation of the functionality requirement of the copyright laws. Under the functionality requirements, when a work describes how to perform a task or function, there is no copyright protection for the knowledge that is conveyed. E3 argued that Beck's complaint relates to only an alleged copying of functional elements of the report, namely, the concepts of "disclaiming liability, qualifying assumptions, and identifying standard risk factors with respect to the reported findings and conclusions."

E3 argued on appeal that under the merger doctrine, Beck was improperly seeking protection of ideas that may only be expressed in a limited number of ways. The merger doctrine limits protection when a given idea is inseparably tied to a particular expression. E3 argued that there are only so many ways to express disclaimer liability and as a result, Beck's form of expression is not protected under the merger doctrine. Noting that that there was considerable force to these arguments, the court noted that nevertheless they could not be relied on to affirm summary judgment made on other grounds because the arguments relating to functionality and merger were raised for the first time on appeal. The court noted that Beck should have had an opportunity to respond further to the new argument before the district court.

Webcasting Music Services Not "Interactive" When Users Cannot Directly Control the Songs They Hear
By Sara E. Coury

The U.S. Court of Appeals for the Second Circuit affirmed a district court judgment that an internet radio service was not an "interactive service" within the meaning of the Digital Millennium Copyright Act (DMCA) and hence was not liable for copyright infringement for failure to pay license fees. Arista Records, LLC, et al. v. Launch Media Inc., 2009 U.S. App. LEXIS 18843 (2nd Cir., Aug. 21, 2009) (Wesley, J.).

Arista Records, Bad Boy Records, BMG Music and Zomba Recording LLC (collectively, BMG) sued Launch Media, claiming that Launch's internet radio website, or "webcasting" service, LAUNCHcast was an "interactive service" under the DMCA, and, therefore, Launch Media was required to obtain individual licenses from BMG to play BMG's sound recordings. After the district court denied cross motions for summary judgment motion, the jury found for Launch Media. BMG appealed.

In order to determine whether LAUNCHcast qualified as an "interactive service" under the DMCA as a matter of law, the Second Circuit considered the legislative history of copyright protection for sound recordings. Congress first extended copyright protection to sound recordings in the 1971 Sound Recording Act, which did not include a right of performance. Then in 1995, Congress passed the Digital Performance Right in Sound Recordings Act, granting sound recording copyright holders an exclusive, but "narrow," right to broadcast sound recordings via digital audio transmissions through paid subscriptions services and "interactive services." Finally in 1998, Congress passed §114 (j)(7) of the DMCA, expanding "interactive service" to include "those that are specially created for a particular individual." Section 114 (j)(7) was aimed at preventing the loss of record sales resulting from the availability of interactive digital media that would provide consumers with a degree of control which would reduce their need to purchase music.

The Second Circuit analyzed the LAUNCHcast service to determine whether it would provide a substitute for purchasing records. The court found that while LAUNCHcast does provide users with music tailored to their preferences, it does not provide sufficient control to users such that users would choose it over purchasing music, noting that users have almost no ability to control or predict the specific songs pooled for selection to a their playlist. Further, the selection of songs for the playlist is governed by rules that prevent the users' explicitly rated songs from being anywhere near a majority of the songs on the playlist, and LAUNCHcast does not allow users to view the unplayed songs on the playlist, therefore users cannot choose the songs they wish to hear.

Tenth Circuit Overturns Grant of Summary Judgment Despite Defendant's "Powerful Arguments" Regarding Interpretation of Copyright Ownership License
By Jeremiah A. Armstrong

Analyzing an allegedly ambiguous contract in a complicated, multi-million dollar dispute over source code copyrights for the Unix operating system, the U.S. Court of Appeals for the Tenth Circuit reiterated that "powerful arguments" are insufficient to warrant summary judgment and remanded for a trial. The SCO Group, Inc. v. Novell, Inc., Case No. 08-4217 (10th Cir., Aug. 24, 2009) (McConnell, J.).

In 2003, SCO sued IBM for copyright infringement for use of Unix source code in the Linux operating system. Due to 1995 and 1996 contracts for transfer of certain Unix assets between SCO's predecessor and Novell, SCO claimed ownership of the copyrights asserted against IBM. When Novell publicly claimed it maintained ownership of the copyrights in dispute, SCO then sued Novell for slander of title. In 2007, the district court granted summary judgment affirming Novell's copyright ownership.

The Tenth Circuit weighed Novell's argument for strict, plain language contract construction against SCO's argument that extrinsic evidence should be considered due to vague contract language. Applying California law, the court first determined that the two contracts should be considered as a unified document for purposes of assessing any ambiguities. As a result, extrinsic evidence of the business negotiators' intent is relevant to the interpretation of the combined instrument. Next, the court stepped through the extensive extrinsic evidence offered by the parties to interpret the contract. Ultimately, the court found that the admissible evidence presented by Novell was not "so one-sided as to warrant summary judgment."

Practice Note: This case underscores the risks parties take when executing intellectual property transfer agreements that define the assets using broad product categories, rather than detailing the rights by explicit registration identification or at least by distinct product description.

Whether a Process Is a Trade Secret Requires Consideration of the Process Elements in the Aggregate
By Alissa R. Misun

The U.S. Court of Appeals for the Tenth Circuit reversed the district court holding that because process elements were known, the process was not a trade secret. Applying Colorado law, the Tenth Circuit determined that while individual components of a process may be considered when determining whether the process is a trade secret, the process must be considered in the aggregate. Hertz v. Luzenac Group, Case No. 06-1324 (10th Cir., Aug. 11, 2009) (Holmes, J.).

Luzenac America, sells various formulations of talc known as 604AV. Two of Luzenac's former employees (collectively Hertz) were involved with the technical marketing and selling of 604AV. After leaving Luzenac, Hertz contracted to develop and market talc for another company. After Luzenac sent a cease-and-desist letter, Hertz filed an action for declaratory judgment. Luzenac counterclaimed for, among other things, misappropriation of trade secrets. Hertz filed for summary judgment on this issue.

To determine whether the manufacturing process of 604AV was a trade secret, the district court applied the test of Colorado Supply, which examines six factors. In reversing the district court, the Tenth Circuit found the district court made three major errors in its trade secret analysis.

First, the district court did not consider the manufacturing process in the aggregate. Instead, it focused on individual elements, some of which Luzenac admitted were publicly known. The Tenth Circuit observed that under Rivendell "a trade secret can exist in a combination of characteristics, each of which, considered separately, is in the public domain, but, taken together, may yield a competitive advantage that results in a protectable trade secret." Thus, the district court erred in failing to consider the process as a whole.

Second, the district court did not view the evidence in the light most favorable to the nonmovant, Luzenac. In considering whether the individual elements of the process were in fact secret, the district court made several determinations of fact. This bolstered the Tenth Circuit's conclusion that Hertz did not meet the standard for summary judgment.

Third, the district court incorrectly focused on the steps that Luzenac did not take to protect the secrecy of the information. While the owner of a trade secret must take reasonable steps to protect the secrecy of the trade secret, the owner need not take extreme and unduly expensive measures. The district court dismissed the measures Luzenac took to protect its trade secrets as "ceremonial." As the Tenth Circuit noted, there are always more precautions that could have been taken, but this does not mean that the actual precautions taken were unreasonable under the circumstances. Therefore, the court found multiple issues of material fact that should have precluded summary judgment on the issue of misappropriation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

IP Update - September 2009

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