IP Law Bulletin

Though the “25% Rule,” which presumes that 25 percent of the operating profit from the sale of an infringing good is a reasonable royalty rate, has been frequently relied upon as a starting point in calculating patent infringement damages for more than 40 years, the Federal Circuit recently held that this rule of thumb “is a fundamentally flawed tool.”  While patentees are entitled to a reasonable royalty rate (i.e., the rate that the parties would have agreed to in a hypothetical licensing negotiation before infringement occurred), the 25% Rule “fails to tie a reasonable royalty base to the facts of the case at issue.”

In Uniloc v. Microsoft, Uniloc sued Microsoft over Microsoft’s use of a mechanism for preventing non-licensed copying of software over multiple computers.  The accused product was Microsoft’s Product Activation feature of Microsoft’s Word XP, Word 2003, and Windows XP software programs.  Following a jury trial, the jury found that Microsoft willfully infringed the Uniloc patent and awarded Uniloc $388 million in damages.

The damages awarded Uniloc were based largely on a calculation by Uniloc’s expert that relied on the 25% Rule as starting point for determining a reasonable royalty rate.  The expert testified that the rule-of-thumb was not altered by the application of the Georgia-Pacific factors such that the reasonable royalty rate was 25 percent of the profits derived from each activation of Microsoft’s infringing software programs.  Though Uniloc’s expert used the lower end of the range of the estimated profit of $10 to $10,000 per activation, the expert ultimately calculated that based on the number of sales of the infringing products and the 25 percent royalty rate, the total royalty should amount to $565 million.

On appeal, the Federal Circuit ordered a new trial on the issue of damages, stating that the district court determination was “fundamentally tainted by the use of a legally inadequate methodology.”  While the Federal Circuit has “passively tolerated” such calculations in the past, the court held that this rule could no longer be relied upon in determining the reasonable royalty rate.  Further, the court concluded that relying on the 25% Rule as a starting point for applying the Georgia-Pacific factors is also prohibited.  “Beginning from a fundamentally flawed premise and adjusting it based on legitimate considerations specific to the facts of the case nevertheless results in a fundamentally flawed conclusion.”

The Court noted that the 25% Rule fails to consider the value of the patented invention, the availability of alternatives, the ease with which the invention could be designed around, the importance of the patented invention to the overall product, and the relationship between the parties.  As stated by Chief Judge Rader of the Federal Circuit, sitting by designation in IP Innovation v. Red Hat in the Eastern District of Texas, any damage theory must “account for the economic realities of [the] claimed component as part of a larger system.”  Case No. 2:07-cv-447 (E.D. Tex., March 2, 2010).  Indeed, damage calculations must be based on facts from, for example, technical experts, business documents, business personnel testimony, sales data, surveys, and comparable licenses, rather than on an expedient, but overly simplified rule-of-thumb.

While generic data giving average royalty rates in an industry can be useful, the patentee must lay a factual foundation to establish the relevance of any contract or analytical tool used by an expert to the facts of the case.  Because damage calculations are now necessarily more fact intensive, parties faced with litigating potential damages may benefit from discussing these considerations earlier with their qualified patent counsel or damage experts to better prepare for settlement negotiations or the damages portion of a patent infringement suit.

This advisory was prepared by Nutter's Intellectual Property practice.  For more information, please contact your Nutter attorney at 617-439-2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances.  Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

In a decision issued prior to the Supreme Court’s ruling in Bilski v. Kappos, the Federal Circuit reversed the district court’s determination that Prometheus’ asserted claims were directed to non-statutory subject matter. See Prometheus Laboratories, Inc. v. Mayo Collaborative Services (2009) (Prometheus I). In Prometheus I, the Federal Circuit panel relied on its own rationale in In re Bilski to conclude that Prometheus’ asserted claims met the machine-or-transformation test, which the Federal Circuit characterized as the “definitive test for determining the patentability of a process under § 101.” In Bilski, however, the Supreme Court ruled that though the machine-or-transformation can serve as a “useful and important clue” and “an investigative tool,” it is not the “sole” test for determining the patent eligibility of process claims. Accordingly, on the day after handing down the Bilski decision, the Supreme Court vacated and remanded Prometheus I for reconsideration in light of Bilski.  

In an opinion that largely mirrors its previous decision in Prometheus I, the Federal Circuit last month reaffirmed the ultimate conclusion that Prometheus’ claims are directed to patent eligible subject matter under 35 U.S.C. § 101. See Prometheus Laboratories, Inc. v. Mayo Collaborative Services (2010) (Prometheus II).

The asserted claims in Prometheus I and II are directed to methods that seek to optimize the therapeutic efficacy of thiopurine drugs such as 6-MP and AZA while minimizing their toxic side effects. The claimed methods typically include two distinct steps: (a) “administering” a thiopurine drug that can be metabolized in a subject, and (b) “determining” the levels of the drug’s metabolites in the subject. The measured metabolite levels can then be 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 treatment efficacy. Several of the asserted claims recite only the “determining” step.

On remand, the Federal Circuit limited briefing to the effect of Bilski on the Federal Circuit’s previous ruling in Prometheus I.  Regarding Bilski, Prometheus argued that the Supreme Court did not overrule the long-established view that claims that satisfy the machine-or-transformation test necessarily satisfy Section 101. Rather, Bilski only stands for the proposition that claims that do not satisfy the machine-or-transformation test are not necessarily non-patentable. Mayo, on the other hand, argued that the Supreme Court reaffirmed that “preemption” is the controlling standard for Section 101. That is, claims that wholly preempt all practical use of naturally occurring correlations (e.g., between metabolite levels and drug efficacy or toxicity) are invalid.

The Federal Circuit disagreed with Mayo that the Supreme Court’s Bilski decision dictated a wholly different analysis or result. Rather, because the “administering” and “determining” steps are both transformative within the meaning of the machine-or-transformation test (albeit as an “investigative tool” rather than as a “definitive” test), the Federal Circuit arrived at the identical “clear and compelling conclusion” as in Prometheus I that the asserted claims comply with Section 101. Regarding the “administering” step, the transformation is of the human body and its components following the administration of a specific class of drugs and the various chemical and physical changes of the drugs’ metabolites that enable their concentrations to be determined. “The fact that the change of the administered drug into its metabolites relies on natural processes does not disqualify the administering step from the realm of patentability” as administering the drug itself is not a natural process. Regarding the “determining” step, the Federal Circuit reaffirmed that “[s]ome form of manipulation, such as the high pressure liquid chromatography method…, is necessary to extract the metabolites from a bodily sample and determine their concentration.” Though Mayo further argued that each of these are merely data-gathering steps for use of the correlations, the Federal Circuit concluded that the transformations are central to the method of treatment because measuring the levels of metabolites of administered drugs is what enables dosage adjustments to optimize efficacy or reduce toxicity during a course of treatment. Finally, the Federal Circuit reaffirmed that though the final “wherein” clauses of the asserted claims are mental steps that are not patent-eligible on their own, a subsequent mental step does not, by itself, negate the transformative nature of prior steps.

In Prometheus II, the Federal Circuit also concluded that the Bilski decision did not undermine its previous preemption analysis. As before, the Federal Circuit held that Prometheus’ claims are drawn to a particular application of a naturally occurring phenomenon and not to a law of nature itself. That is, the claimed steps involve a particular application of the natural correlations: the treatment of a specific disease by administering specific drugs and measuring specific metabolites. As such, the asserted claims do not preempt all uses of the natural correlation between metabolite levels and drug efficacy or toxicity, but rather utilize them in a series of specific steps. See also Diamond v. Diehr (“Their process admittedly employs a well-known mathematical equation, but they do not seek to preempt the use of that equation. Rather, they seek only to foreclose from others the use of that equation in conjunction with all of the other steps in their claimed process.”).

Like Bilski, the decision by the Federal Circuit in Prometheus II does little to shed light on the bounds of patent-eligible subject matter, especially with regards to business methods per se. Nonetheless, because the Federal Circuit continues to rely on the machine-or-transformation test as a “useful and important clue” in determining compliance with 35 U.S.C. § 101, applicants who draft claims to meet this test may continue to have a safe harbor.

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617.439.2000.

The Supreme Court issued a per curiam decision in Costco Wholesale Corporation v. Omega S.A. on December 13, 2010. The case concerns Omega’s attempt to prevent Costco from buying authentic Omega watches from resellers abroad and importing them for sale in the U.S. Because the goods at issue are authentic, Omega cannot attack the practice on counterfeiting grounds. Instead, Omega relies on a small copyrighted emblem placed on the underside of every watch to attack Costco’s practice using the right to control distribution of a work that is conferred by the Copyright Act. Costco’s defense hinges on the first sale doctrine, which prevents copyright owners from controlling re-sales of their goods by purchasers. The equally divided court affirmed the 2008 decision of the Court of Appeals for the Ninth Circuit without any opinion. The court’s equal division was possible because Justice Elana Kagan recused herself as a result of her earlier involvement in the case as Solicitor General. The Court’s affirmation lets stand the Ninth Circuit’s decision that copyrighted goods manufactured abroad are not “lawfully made” under the Copyright Act and are therefore not subject to the first sale doctrine. This means copyright owners who manufacture goods abroad can control their importation into the U.S., even after their initial sale. The decision may have far-reaching implications, as it appears to provide more protection to goods manufactured abroad than to those made in the U.S. However, the even split of the court, the absence of an opinion, and the fact that this question remains unresolved with respect to other intellectual property may indicate that this issue has not been considered for the last time.

To read the (very short) Supreme Court slip opinion, click here.

To read the Ninth Circuit opinion, click here.

The Supreme Court recently granted writs of certiorari to two intellectual property cases that could have a lasting impact on patent applicants, practitioners, and universities. In a case related to induced infringement, Global-Tech Appliances Inc. and Pentalpha Enters. Ltd. v. SEB SA, the Supreme Court will determine whether to overturn the ruling of the Federal Circuit that a potential infringer can have the necessary intent to commit induced infringement by acting with “deliberate indifference of a known risk.” As detailed in our March 15, 2010 issue, the Federal Circuit found Pentalpha knew of and disregarded an overt risk by copying everything but the cosmetics of the SEB deep fryer, and thus it had the necessary intent to induce infringement even though Pentalpha was not aware of the patent itself. In a case related to patent ownership stemming from the Bayh-Dole Act, Bd. of Trustees of Leland Stanford Jr. Univ. v. Roche Molecular Sys., the Supreme Court will determine the ownership rights of universities in inventions derived from federally sponsored research. Due to the lack of a proper assignment between Stanford and its faculty member, the faculty member assigned the rights in his invention to a third party company. The Federal Circuit ruled that Stanford did not have superior ownership rights over the third party company merely because the related research was federally funded. We will be keeping our eye on both of these cases and anticipate discussing the ramifications of the Supreme Court rulings in both cases on your business and practices. Stay tuned.

For Nutter’s analysis of the Federal Circuit decision in Global-Tech Appliances Inc. and Pentalpha Enters. Ltd. v. SEB SA from its March 15, 2010 issue of the IP Bulletin, click here.

To read the Federal Circuit decision in Global-Tech Appliances Inc. and Pentalpha Enters. Ltd. v. SEB SA,click here.

To read the Federal Circuit decision in Bd. of Trustees of Leland Stanford Jr. Univ. v. Roche Molecular Sys.,click here.

In recent weeks, the Court of Appeals for the Federal Circuit (Federal Circuit) decided a number of noteworthy patent cases. The cases that follow touch on a variety of issues, including claim construction, patentable subject matter, prior inventorship, standing, and industry standard compliance as evidence of infringement.

Implicit Redefinition of Claim Terms and Patentability of Printed Matter
– AstraZeneca LP v. Apotex, Inc. (November 1, 2010)

In AstraZeneca LP v. Apotex, Inc. the Federal Circuit reaffirmed that claim terms can be implicitly redefined in the specification, for example where the term is used throughout the specification in a manner consistent with only a single meaning.

The defendant, Apotex, filed an Abbreviated New Drug Application (ANDA) seeking FDA approval to manufacture and sell a generic version of Pulmicort®, a budesonide inhalation suspension developed and patented by AstraZeneca for treating asthma. AstraZeneca then filed a declaratory judgment action and moved to enjoin Apotex from distributing the generic.

Apotex challenged the validity of the asserted claims, which included both method of use claims and kit claims. The method claims recited administering a “budesonide composition” once daily. Apotex argued that the claimed “budesonide composition” should be construed to include budesonide encased in a liposome shell, once-daily administration of which was taught by a prior art patent. The court disagreed, finding that the patentee had implicitly defined “budesonide composition” in the specification to mean only compositions in which budesonide was dispersed in a solvent. The court noted that “the specification may reveal a special definition given to a claim term by the patentee that differs from the meaning it would otherwise possess” and that “the specification need not reveal such a definition explicitly.” Rather, “a claim term may be clearly redefined without an explicit statement of redefinition,” for example “when a patentee uses a claim term throughout the entire patent specification in a manner consistent with only a single meaning.” As a result, the recited “budesonide composition” differed from the prior art liposome-encased budesonide, and the validity of the method claims was affirmed.

Although the finding of implicit redefinition was helpful to the patentee in AstraZeneca, the case is an important reminder that care should be taken when drafting patent applications to avoid unintentionally redefining a claim term to have a narrower scope than intended.

The AstraZeneca court also addressed the issue of whether a kit claim directed to a known pharmaceutical in combination with a printed label indicating a new use of the pharmaceutical could give rise to a patentable invention.

The asserted kit claims recited the budesonide composition and a label indicating once-daily administration by nebulization. Apotex argued that the kit claims were invalid because the composition was known in the prior art, and because a printed label is of no patentable consequence. The court agreed, holding that printed matter is generally outside the scope of 35 U.S.C. §101, unless there is a functional relationship between the printed matter and its substrate. Here, the court found that “the instructions in no way function with the drug to create a new, unobvious product” and therefore the kit claims were invalid. The court also found the parties’ disagreement as to whether the “substrate” was the drug or the label to be immaterial, because under either interpretation the printed matter did no more than “explain how to use the known drug.”

Accordingly, patent applicants should not rely solely on printed matter in distinguishing their invention, and should instead recite other patentable features in the claims. Additionally, patentees who are considering asserting claims that recite printed matter should review the other features of the claim carefully to ensure that those features alone would withstand a validity attack.

Definition of “Prior Inventor” Under 35 U.S.C. §102(g) – Solvay S.A.
v. Honeywell International, Inc. (October 13, 2010)

The Federal Circuit in Solvay S.A. v. Honeywell International, Inc. held that a “prior inventor” under §102(g) must conceive of the invention and reduce it to practice in the United States. This clarification of the statute should be useful to those assessing whether a particular activity constitutes invalidating prior art.

The plaintiff, Solvay, sued Honeywell for infringement of its patent directed to methods for making HFC-245fa, an insulation agent commonly used in refrigeration and heat storage systems. Solvay appealed after the district court ruled that some of its asserted claims were invalid under 35 U.S.C. §102(g)(2).

The claimed invention was conceived and first reduced to practice in Russia by the Russian Scientific Center for Applied Chemistry (RSCAC). Pursuant to a research agreement, RSCAC reported its invention to Honeywell and provided detailed instructions for carrying out the inventive method. Honeywell subsequently began practicing the invention in the United States before the priority date of the asserted patent.  Based on these undisputed facts, the district court found that Honeywell was a “prior inventor” under §102(g)(2) and therefore held the asserted claims to be invalid.

On appeal, the Federal Circuit reversed. The court held that §102(g)(2) requires the prior invention to be made in the United States, and that “invention” requires both conception and reduction to practice. Here, conception occurred in Russia by RSCAC, an entity entirely separate and distinct from Honeywell. Honeywell’s United States activity, which merely involved following the detailed instructions of RSCAC, did not amount to conception in the United States. Accordingly, Honeywell was not a “prior inventor” under the statute, and the district court’s invalidity ruling was in error.

Standing for Subsequent Paragraph IV ANDA Filers – Teva
Pharmaceuticals USA, Inc. v. Eisai Co., Ltd. (October 6, 2010)

In Teva Pharmaceuticals USA, Inc. v. Eisai Co., Ltd., the Federal Circuit held that a subsequent Paragraph IV Abbreviated New Drug Application (ANDA) filer had standing to initiate a suit that could trigger the exclusivity period of the first-filer. Generic drug manufacturers who find themselves second in line for ANDA approval should consider whether their situation mirrors that in Teva, and thus whether initiating a suit to trigger a first-filer’s exclusivity period would be worthwhile.

By way of background, a manufacturer seeking to market a generic version of a previously-approved drug must file and receive approval of an ANDA and must submit a certification with respect to any patents on the drug that are listed in the FDA’s Orange Book. The first manufacturer to file a “Paragraph IV Certification” is entitled to 180 days of generic marketing exclusivity. Until the first-filer’s exclusivity period has run, the FDA may not approve ANDA applications by other manufacturers who have filed Paragraph IV certifications for the same patent. The exclusivity period begins when the first-filer commences marketing activity of the drug, or upon entry of a court judgment finding the patent invalid or not infringed, whichever happens first.

In the instant case, the Federal Circuit was asked to decide whether a subsequent Paragraph IV filer has Article III standing to seek declaratory judgment of invalidity or non-infringement and thereby trigger the first-filer’s exclusivity period. Here, the subsequent filer (Teva) sued the patent holder (Eisai) in an effort to start the 180 day window afforded to the first-filer (Ranbaxy Laboratories). The district court dismissed the case for lack of standing.

On appeal, the Federal Circuit held that a generic drug company’s injury (i.e., exclusion from the market) is fairly traceable to the patent holder’s actions because “but-for” the patent holder’s decision to list a patent in the Orange Book, FDA approval of the generic drug company’s ANDA would not have been independently delayed by that patent. The court went on to state that “when an Orange Book listing creates an ‘independent barrier’ to entering the marketplace that cannot be overcome without a court judgment that the listed patent is invalid or not infringed—as for Paragraph IV filers—the company manufacturing the generic drug has been deprived of an economic opportunity to compete.” The court thus found that Teva had Article III standing for a declaratory judgment suit because such a suit redresses this alleged injury by eliminating the potential for the corresponding listed patent to exclude the generic drug from the market.

Industry Standard Compliance as Evidence of Infringement –
Fujitsu Limited v. Netgear Inc. (September 20, 2010)

The Federal Circuit in Fujitsu Limited v. Netgear Inc. held that an accused product’s compliance with an industry standard covered by an asserted claim can be evidence of infringement. The court’s holding should help dramatically reduce the time and cost required to litigate cases involving standards-compliant accused products.

The plaintiffs, Fujitsu, Phillips, and LG, sued Netgear for infringement of their respective patents directed to wireless communication technologies. Each of the patents related to at least one of two popular wireless standards: the “IEEE 802.11 Standard” and the “WMM Specification.” The plaintiffs are part of a licensing pool that purports to include patents that any manufacturer of 802.11 and WMM compliant products must license.

After claim construction, the plaintiffs moved for summary judgment of infringement, arguing that by simply complying with the standard, Netgear necessarily infringed the asserted claims. The district court denied the motion, holding that the plaintiffs must show evidence of infringement for each accused product.

On appeal, the Federal Circuit held that a district court may rely on an industry standard in analyzing infringement. If the district court construes the claims and finds that the reach of the claim includes any device that practices a standard, then this can be sufficient for a finding of infringement. The court reasoned that, while claims should be compared to an accused product, if the accused product operates in accordance with a standard, then comparing the claims to that standard is the same as comparing the claims to the accused product. In addition, the court found that public policy favored such an approach, as it would be a waste of judicial resources to separately analyze every accused product when it is undisputed that the accused products practice the standard. The court recognized that an accused infringer is of course free to either prove that the claims do not cover all implementations of the standard, or to prove that its product does not practice the standard.

The court further noted that, in some cases, the standard may not provide the level of specificity required to establish that practicing the standard would always result in infringement. Likewise, when the relevant section of the standard is optional, then standards compliance alone would not establish that that accused product implements the optional section. Because the instant case involved one of these exceptions, the district court’s denial of summary judgment was affirmed.

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617.439.2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.

In National Pork Bd. v. Supreme Lobster and Seafood Co., Opp. No. 91166701 (TTAB June 11, 2010) the pork industry successfully prevented an applicant from registering the mark “THE OTHER RED MEAT” for fresh and frozen salmon on the basis that granting this mark registration would dilute the fame of its own mark “THE OTHER WHITE MEAT.”

U.S. trademark owners, even those with famous marks, historically have had a hard time stopping people from adopting parodies of their trademarks on different goods. For example, a few years back, Louis Vuitton failed to stop the Haut Diggidy Dog company from selling dog treats under the mark “CHEWY VUITTON.”

In principle, the U.S. trademark laws have long offered protection to the owners of famous marks from dilution by others. However, the courts have been reluctant to put parody marketeers out of business because of a stringent test the U.S. Supreme Court announced in 2003. In the Moseley v. V Secret Catalogue case, the owners of the “VICTORIA’S SECRET” trademark for lingerie tried to stop Moseley from selling adult products under the “VICTOR’S SECRET” mark. The Supreme Court reversed the lower court decision and held that owner of the famous mark had to prove actual harm, not simply a likelihood of harm, to be entitled to relief under a “dilution by tarnishment” cause of action.

Following the Moseley decision, in 2006, Congress passed the Trademark Dilution Revision Act (TDRA), which revised the U.S. trademark laws to make it easier for trademark owners to stop free rides on the coattails of famous marks. Section 1125(c) now provides, in pertinent part:

Subject to the principles of equity, the owner of a famous mark that is distinctive, inherently or through acquired distinctiveness, shall be entitled to an injunction against another person who, at any time after the owner’s mark has become famous, commences use of a mark or trade name in commerce that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark, regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury.

(Emphasis added.) The TDRA, in essence, reversed the ruling in the Moseley case and lowered the bar by requiring only a showing of a likelihood of harm to obtain relief.

Section 1125(c) actually provides two causes of action: “dilution by tarnishment” or “dilution by blurring.” Tarnishment presumably addresses situations like the Moseley case, where the VICTORIA’S SECRET mark could be sullied by association with sex toys and the like. Blurring, on the other hand, addresses situations where use of the same or a similar mark on unrelated goods simply impairs the distinctiveness of the famous mark.

The TDRA also enumerates the factors that are to be taken into account when “dilution by blurring” is alleged:

In determining whether a mark or trade name is likely to cause dilution by blurring, the court may consider all relevant factors, including the following:

(i) The degree of similarity between the mark or trade name and the famous mark.

(ii) The degree of inherent or acquired distinctiveness of the famous mark.

(iii) The extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark.

(iv) The degree of recognition of the famous mark.

(v) Whether the user of the mark or trade name intended to create an association with the famous mark.

(vi) Any actual association between the mark or trade name and the famous mark.

Even with the new statutory rights provided by the TDRA, famous trademark owners have not had a easy time preventing dilution (as the 2007 “CHEWY VUITTON” case, mentioned above, demonstrates). Few cases have gone to trial to provide clear guidance on what type of evidence is needed to prove dilution, especially dilution by blurring.

A recent decision by the U.S. Trademark Trial and Appeal Board (TTAB), however, provides a detailed roadmap for proving dilution by blurring claims. (Although the TTAB lacks the injunctive powers of federal district courts, it follows the same standards in ruling on applications for registration.) National Pork Bd. v. Supreme Lobster and Seafood Co. involved a challenge by the pork industry to the attempt by an applicant to register the mark “THE OTHER RED MEAT” for fresh and frozen salmon.

The National Pork Board is a quasi-governmental agency formed by the Pork Promotional, Research and Consumer Information Act (a.k.a. the Pork Act) of 1985 to “promote consumption of pork and pork products.” It collects a fee on all hogs sold in the U.S. and has spend over 500 million dollars since 1987 on pork “demand enhancement activities.” It owns U.S. registrations on “THE OTHER WHITE MEAT” mark for “association services namely promoting the interests of the members of the pork industry,” as well as for cookbooks, brochures about pork, pens, pencils, crayons, bumper stickers, t-shirts, sweatshirts, aprons, jackets and hats, among other things.

The Supreme Lobster and Seafood Company, on the other hand, is a bantamweight distributor of seafood to supermarkets and restaurants in the greater Chicago area.

By seeking registration of the “THE OTHER RED MEAT” mark, Supreme Lobster essentially signed up for a cage fight with the Pork Board at the TTAB, where the proceedings follow the federal rules of civil procedure but all testimony is submitted in writing without any right to a trial by jury or opportunity to challenge live witnesses.

The National Pork Board mounted a case that one would have expected from a 900 pound gorilla. It presented testimonial depositions from its CEO, and its vice-presidents of operations, industry relations, and “demand enhancement,” as well as it former staff economist and its directors of brand strategy, retail marketing, consumer marketing, and culinary niche marketing.

Perhaps more importantly, the National Pork Board presented survey evidence that the the TTAB found persuasive on several issues. It presented a fame study conducted by Northwestern University in 2000 in which twenty-five slogans were compared in over a thousand telephone interviews. This survey concluded that “THE OTHER WHITE MEAT” slogan was the fifth most recognized slogan in the U.S. (recognized by over 80% of adult respondents) and allowed the TTAB to conclude that “THE OTHER WHITE MEAT” mark was not only famous but “part of the fabric of popular culture in the United States.”

The Pork Board also presented a dilution survey that it commissioned at the outset of the litigation in 2007. An independent survey company conducted interviews in which a screener played a recording of the Supreme Lobster slogan and then asked “Thinking about the slogan you just heard [The Other Red Meat], do any other advertising slogans or phrases come to mind?” Thirty-five percent responded with the Pork Board’s mark.

The TTAB also found the two marks were highly similar and noted that Supreme Lobster’s CEO admitted in his deposition that he knew of the Pork Board’s mark when he picked his slogan. Based on all of these factors, the TTAB concluded that the applicant’s mark, “The Other Red Meat,” was likely to dilute by blurring the Pork Board’s “THE OTHER WHITE MEAT” mark.

The TTAB decision provides very useful guidance for the owners of famous marks in terms of how to use survey evidence to prove the fame of their marks and likelihood of dilution (despite some criticism of the use of leading questions in the Pork Board’s dilution survey).

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.

On August 7, 2010, Elena Kagan officially assumed office as an Associate Justice of the Supreme Court of the United States. Justice Kagan was born in New York, New York and has earned degrees from Princeton, Oxford, and Harvard Law School, where she served as supervising editor of the Harvard Law Review.

Justice Kagan clerked for Abner Mikva of the U.S. Court of Appeals for the District of Columbia Circuit and for Justice Thurgood Marshall of the Supreme Court of the United States. She also worked as an associate at Williams & Connolly, LLP, as professor at the University of Chicago Law School and at Harvard Law School, and as associate counsel to President Clinton. Justice Kagan also served as deputy assistant to the President for Domestic Policy, as Deputy Director of the Domestic Policy Council, and as the 11th dean of Harvard Law School. President Obama nominated her to serve as the 45th Solicitor General of the United States and then to serve as an Associate Justice of the Supreme Court.

Leading up to Justice Kagan’s confirmation, much was written about the relative lack of a “paper trail” from which one might infer her position on certain issues. Indeed, as a non-judge, she had never authored a court decision or opinion prior to joining the Supreme Court. In addition, Justice Kagan has written comparatively few journal articles and other scholarly papers. As a result, Justice Kagan’s views on the law of intellectual property remain mostly a mystery.

Nonetheless, Justice Kagan certainly does have experience with IP issues. For example, as Solicitor General, she oversaw her office’s handling of the Bilski¹ case. In that case, the Solicitor’s Office supported the Federal Circuit’s “machine or transformation” test for determining patent eligible subject matter under 35 U.S.C. §101 and argued that the petitioner’s claims were directed to an unpatentable method of organizing human activity.  

During her time as Solicitor General, Justice Kagan was also involved in the Able Time² trademark case, in which her office opposed the petitioner’s argument they were free under the Tariff Act to import items bearing a registered trademark, so long as the trademark owner did not yet make the same item.  

Justice Kagan also has experience with copyright issues. While she was Solicitor General, her office opposed certiorari in Cable News Network, Inc. v. CSC Holdings, Inc., 129 S.Ct. 2890 (2009), a copyright case concerning remote-storage DVR technology.In the brief, Justice Kagan’s office supported the lower court’s holding that the technology wouldn’t violate copyright holders’ rights, and argued that the technology was a fair use. Her office also submitted an amicus brief in the Reed Elsevier³ case, arguing that a federal statute requiring registration of a copyrighted work before an action for infringement can be instituted did not limit the subject-matter jurisdiction of the federal courts.

During her time at Harvard Law School, Justice Kagan was a proponent of the school’s Berkman Center for Internet & Society, and was credited with recruiting Lawrence Lessig and other prominent IP scholars.

In sum, while Justice Kagan’s judicial philosophy on intellectual property issues is thus far unknown, there is no question that she has considerable experience in the field.

¹Bilski v. Kappos, 130 S.Ct. 3218 (2010).
²Able Time, Inc. v. United States, 129 S.Ct. 2864 (2009).
³Reed Elsevier, Inc. v. Muchnick, 130 S.Ct. 1237 (2009).  

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.

In In Re Suitco Surface Inc., the Federal Circuit reaffirmed its support of the Broadest Reasonable Interpretation Standard (“BRI”) standard. It is well settled law that the USPTO applies a different claim interpretation standard during the examination and reexamination process than the courts apply when construing the claims of an issued patent. Examiners at the USPTO give the words in claims their “broadest reasonable meaning” “consistent with the specification,”  “as they would be understood by a person of ordinary skill in the art.” The Federal Circuit applies a different standard of review to USPTO claim constructions. The Federal Circuit reviews interpretations by the USPTO under a reasonableness standard while it reviews district court interpretations of claims in issued patents de novo (without deference).

The main justification for the BRI standard is to ensure adequate public notice of the scope of the patent. During prosecution, the USPTO can stretch the meaning of the application’s claims to their broadest reasonable bounds and the applicant can then engage the examiner with argument or amendment. Through this process ambiguities can be addressed and clarifications made to ensure the scope of the patent is commensurate with the inventor’s contribution. Application of the BRI standard also helps prevent the USPTO from incorrectly granting a patent based on a narrow interpretation that is later invalidated by a court through a broader interpretation that encompasses invalidating prior art.

The BRI standard, however, has been met with some criticism. Critics note that application of a different standard in examination than in the courts results in two different “inventions,” which is contrary to the patent statute¹. They also note that the BRI standard can cause the USPTO to incorrectly reject applications due to overly-broad interpretations. And they note that the BRI standard adds another level of uncertainty to the already uncertain and unpredictable process of claim construction.  

In In Re Suitco Surface Inc., the USPTO rejected certain claims of U.S. Patent No. 4,944,514 (the “’514 patent”), as anticipated during a reexamination proceeding. The ’514 patent claims a “floor finishing material” for use on athletic courts, bowling lanes, and other “floor surfaces made of wood, linoleum, terrazzo, [or] concrete.” The invention is essentially a protective layer for a floor made from a flexible thin plastic sheet that is attached to the top surface of the floor with an adhesive layer. Lines, logos, and other decorations can be etched to the underside of the sheet before it is installed.  

Although the ’514 patent was an issued patent, its claims were reviewed without deference under the BRI standard by an examiner, and later by the Board, because it was the subject of an ex parte reexamination. The Board affirmed the examiner’s rejection of claim 4 in view of either Amos (U.S. Patent No. 3,785,102) or Barrett (U.S. Patent No. 4,543,765) and claim 8 in view of Amos. Claim 4 of the ’514 patent, written in Jepson claim format, is as follows:

On a floor having a flat top surface and an improved material for finishing the top surface of the floor, the improvement comprising:   

at least one elongated sheet including a uniform flexible film of clear plastic material having a thickness between about one mil and about twenty-five mils and 

a continuous layer of  adhesive material disposed between the top surface of the floor and the flexible film, the adhesive layer releasably adhering the flexible film onto the top surface of the floor. (emphasis added).

In its rejection, the Board construed the term “material for finishing the top surface of the floor” to mean “requiring a material that is structurally suitable for placement on the top surface of a floor.” The Board therefore construed the claim such that the material could be used as an intermediate layer placed below other layers rather than just as a top finishing layer. In response to the Board’s construction, the Federal Circuit held that “[a] material cannot be finishing any surface unless it is the final layer on that surface.” The Court concluded that the Board’s interpretation did not “reasonably reflect the plain language and disclosure of the ’514 patent” noting that under the Board’s construction, “a prior art reference with carpet on top of wood, on top of tile, on top of concrete, on top of a thin adhesive plastic sheet” would anticipate claim 4.   

Chief Judge Rader, writing an opinion joined by Judges Prost and Moore noted that although the USPTO is to give claims their broadest reasonable construction, “[t]he broadest-construction rubric coupled with the term ‘comprising’ does not give the USPTO an unfettered license to interpret claims to embrace anything remotely related to the claimed invention. Rather, claims should always be read in light of the specification and teachings in the underlying patent.” Here, the Board’s construction was contrary to the express language of the claim and the specification which disclosed a clear plastic material that is to be the final treatment or coating of a surface and not some intermediate layer. The court concluded that the Board’s construction was unreasonable in light of the claim and specification and remanded the case back to the USPTO for a new validity analysis using the appropriate standard.  

A second important issue the Federal Circuit declined to address was what deference, if any, the USPTO should give to a district court’s or the Federal Circuit’s construction of a claim in a subsequent reexamination. The ’514 patent had already been the subject of extensive litigation when the Court heard this appeal. The United States District Court for the Northern District of Illinois had construed claim terms after a Markman hearing and granted summary judgment to the defendant two different times. Each time, the Federal Circuit also construed claim terms and vacated and remanded. After the second remand, the defendant filed a request for reexamination which led to this appeal.  Notably, the first time the Federal Circuit reviewed the ’514 patent it held that “[i]n the context of claim 4, ‘finishing’ clearly refers to providing a clear, uniform layer on the top surface of a floor.” On this appeal, Suitco argued that the Board should have been bound by the Federal Circuit’s earlier construction of “material for finishing” and in the alternative, “that the Board’s adopted construction [was] unreasonable.” The Federal Circuit held that it did not need to address the first argument “because even under the broadest-construction rubric, the USPTO’s construction [was] unreasonable.”

The Suitco case is an example of what some patent practitioners see as a common problem?examiners’ unreasonable application of the BRI standard. The Suitco decision should prove useful for patent applicants when they face what they feel are unreasonable claim constructions by the USPTO under the BRI standard.        

¹See Dawn-Marie Bey & Christopher A. Cotropia, The Unreasonableness of the Patent Office’s “Broadest Reasonable Interpretation” Standard, 37 AIPLA Q.J. 285, 294 (2009).

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.

Over the past ten years, the small Texas city of Marshall (population under 24,000) has been the capital of patent litigation. The combination of a fast docket, rigid local patent rules that expedite discovery and slow claim construction, plaintiff-favorable juries, and a disdain for transferring cases to other districts has made the Eastern District and Marshall, Texas a favorite forum in which to bring patent infringement actions. Recent challenges to some of these perceptions, however, raise doubts as to whether the Eastern District is still the patent-friendly district it once was and whether the Eastern District’s popularity may now be waning.

Emergence of the Eastern District as a Patent Hotbed

Soon after Judge T. John Ward was sworn into the federal bench in 1999, patent filings in the Eastern District exploded. In 2002, 32 patent cases were filed in the Eastern District, but by 2006 that number had grown to 234 new patent cases. Over 300 new suits were filed in 2008.

One of Judge Ward’s first acts was to issue local patent rules that laid out strict guidelines and provided for early discovery deadlines. These early deadlines quickly pushed cases forward and forced defendants to spend time, effort, and money at a much earlier stage than in some other districts. Further, the guidelines made certain deadlines, such as the claim construction hearing and the trial date, largely immovable.  Plaintiffs entered the Eastern District knowing that defendants would be unable to continuously delay trial. As a result, the Eastern District became known as a rocket docket with fast moving cases. The quick turn around to trial and the early onset of potentially expensive discovery costs were also viewed by patent plaintiffs as promoting settlement of cases early rather than late; a result that many plaintiffs, especially patent “trolls,” prefer to a full-blown and expensive trial.

Despite promoting early settlement, facing a trial is a real possibility as the Eastern District sends the second highest percentage of cases to trial among common patent forums. Further, the jury pool likely to sit on these trials is largely pro-plaintiff. A recent study determined that over 90% of potential jurors in the district favor protecting inventions through patents, 76% say they “strongly favor” patent protection, and 25% believe that the USPTO “rarely or never” makes mistakes in awarding patents. This pro-plaintiff lean was demonstrated in Centocor, Inc. v. Abbott Laboratories (07-cv-00139, E.D. Texas)(Ward), where a jury awarded $1.67 billion in damages after a trial that lasted just one week.

Many defendants who find themselves in the Eastern District would prefer to have their case transferred to another forum. Historically, however, the judges of the Eastern District have been very reluctant to do so, only granting approximately 33% of transfer motions, while other districts see transfer motions granted at rates closer to 50%. Due to this low success rate, many attorneys have declined to file motions to transfer at all, even when a connection to the Eastern District appears lacking.

The Turning of the Tide

The surrounding environment that made the Eastern District of Texas a favorite place to bring patent suits may now have changed. While the Eastern District may have once been a rocket docket, the tremendous amount of patent cases brought in the district have bogged down the court. It now takes approximately 16 months for a case to be disposed of, ranking the Eastern District 28th among common patent districts, and it takes approximately 25 months for a case to go to trial, ranking the Eastern District seventh among its contemporaries. In contrast, it takes the Western District of Wisconsin approximately six months to dispose of a matter and eight months to bring the case to trial.

The percentage of plaintiff-favorable verdicts has also declined in recent years. Though plaintiff’s emerge victorious in a comparatively high 40.3% of cases that go to trial (relative to the country-wide average of 32.5%), that number has fallen from as high as 75% in the past. The Eastern District now ranks sixth among common patent forums, behind even its neighboring forum, the Northern District of Texas, and that district’s top-ranked 55.1% plaintiff win percentage.

Finally, the Federal Circuit has recently acted to reign in the worst abuses of discretion regarding denial of motions to transfer. In 2008, the Federal Circuit reviewed the mandamus petition of In re TS Tech¹. The court overruled the Eastern District and ordered the district to transfer the case, in part because there were no witnesses, parties, or evidence located in the forum. A short time later, the Federal Circuit ordered the Eastern District to grant transfer in In re Genetech², holding, among other things, that the Eastern District improperly relied on its “central location” between participants on the West and East coasts. In late 2009, the Federal Circuit next decided In re Hoffman-La Roche Inc.³ and In re Nintendo Co.⁴ In Hoffman, the court again rejected the Eastern District’s refusal to transfer while also noting that the shipment of 75,000 pages of documents to the Plaintiff’s attorney in Texas in anticipation of litigation was an attempt to manufacture a Texas connection and manipulate venue, and that such manipulation is viewed unfavorably. In Nintendo, the Federal Circuit again held that the “centralized location” of the Eastern District was an improper consideration.

As a result of these developments, the Eastern District appears to have lost some of its luster for patent plaintiffs. In the Fall of 2008, the rate of new patent cases filed in the Eastern District fell from 15.5 suits per month to 7.5 suits per month. The Eastern District, which had been the first in the number of patent case filings in 2008, fell to fifth in 2009. Additionally, by early 2009, the number of motions to transfer venue filed by defendants had increased by 270%.

Shift in Tactics for Patent Plaintiffs

The Eastern District is still one of the most popular patent districts, and patent plaintiffs who choose the Eastern District have changed their tactics to attempt to keep the cases from being transferred. In response to increased scrutiny over the Texas connections to these patent lawsuits, plaintiffs have used such tactics as incorporating or opening an office in the Eastern District, pre-selecting experts and other witnesses that are local, or including de minimis local defendants in the patent suit such as local “mom and pop” companies.  

Despite the language of Hoffman denigrating forum manipulation, these tactics have not elicited much response from the courts. The Eastern District recently rejected a defendant’s argument that a case should be transferred because the plaintiff moved its location from Michigan to Texas in order to manipulate venue. The court declined to “scrutinize the litigants business decisions” in order to determine whether this move served a business purpose or was a mere tactic to manipulate venue. Similarly, the Federal Circuit, in a nonprecedential order, denied a writ for mandamus despite stating that the plaintiff’s status as a “Texas entity,” formed two months prior to suit and headquartered in the office of its litigation counsel, was “not entitled to significant weight.” The court reasoned that the defendant had failed to show that the proposed forum was more convenient.  

In one instance, however, the court severed local Texas defendants from the case and transferred the rest of the matter to the Northern District of California when it became apparent that the Texas defendants were added in an attempt to keep the matter in the district.  The circumstances of this case, however, show that it may be a potential outlier. The case was pending when TS Tech was decided, and the plaintiff seemingly acknowledged that it had amended the complaint to add local parties specifically to avoid the implication of TS Tech. A plaintiff who includes local Texas companies from the beginning of the suit will likely find it easier to avoid this same fate, so long as claims against those local companies appear nonfrivolous.
    
Future of Patent Litigation in the Eastern District

Over the past decade, the Eastern District has been one of the most popular forums among patent plaintiffs for bringing suit. Though it can no longer be considered a rocket docket by virtue of its own success in attracting numerous law suits, and a plaintiff’s chance of success at trial has slightly diminished over time, the Eastern District remains the fifth most popular destination for plaintiffs.

The real danger to the Eastern District’s continued dominance is the Federal Circuit’s recent crack down on abuse of discretion in denying motions to transfer when cases have little connection to the district. While this increased scrutiny will, no doubt, preclude the filing of many cases that have no pretense of any connection to Texas, inventive plaintiff’s attorneys have already adjusted to this new landscape by devising ways to manufacture such a connection. So far, these new methods have avoided judicial scrutiny, and it seems likely that patent plaintiffs will continue to choose to forum shop in the Eastern District of Texas.

¹In re TS Tech USA Corp (Fed. Cir. 2008).
²In re Genetech, Inc. (Fed. Cir. 2009).
³In re Hoffman-La Roche Inc., 541 F.3d 1115 (Fed. Cir. 2008).
⁴In re Nintendo (Fed. Cir. 2010).

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.

The Supreme Court handed down its long-awaited decision on “business method” patents in the case of Bilski v. Kappos (No. 08-964, June 28, 2010) last month and, in a rare instance of unanimity, the justices agreed that Bilski’s method of hedging risks in commodity trading was not eligible for patent protection. The Court took the simplest approach, relying on long-standing precedent that one cannot patent an abstract idea to conclude that Bilski’s method of hedging commodity trades was not a patent-eligible process but, rather, just an ineligible abstract idea.

Although it affirmed the judgment of the Court of Appeals for the Federal Circuit, the Supreme Court rejected that court’s rationale. Writing for the majority, Justice Kennedy said that the so-called machine-or-transformation standard adopted by the Federal Circuit as a litmus test of patent eligibility violated principles of statutory interpretation and posed a risk of obscuring the underlying objectives of the patent system. Under that test, a method is deemed eligible for patenting only if it is tied to a specific machine implementation or it transforms an article from one state to another. "The machine-or-transformation test may well provide a sufficient basis for evaluating processes," said Kennedy, but "should not be the sole criterion for determining the patentability of inventions in the Information Age." Justice Kennedy did not specify any other criterion per se, but he suggested that it ought to be in line with the Supreme Court precedent against patenting abstract ideas and that it be less extreme than the machine-or-transformation standard.

Kennedy refused to categorically exclude business methods from patent-eligibility, suggesting that “… the Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject matter…." It was on this point that the Court lacked unanimity. In a separate opinion, Justice Stevens traced the history of patent law from early English common law and American jurisprudence to the last comprehensive revision of the U.S. Patent laws in 1952. Stevens concluded that Congress never intended to make any methods of doing business patentable. According to him, “[t]he breadth of business methods, their omnipresence in our society, and their potential vagueness also invite a particularly pernicious use of patents that we have long criticized.” Justices Ginsberg, Sotomayor, and Breyer were in agreement with Stevens.

Writing separately and joined by Justice Scalia, Justice Breyer counseled the lower courts not to infer from yesterday's opinion any support for the Federal Circuit's earlier test of patent eligibility from State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998). In that case, the Federal Circuit had ruled that any method which produced a “useful, concrete and tangible result” was patentable. That was the prevailing standard until it was repudiated by the same court in Bilski, in 2008. Breyer saw little value in re-adopting that standard, ridiculing the prior test as having led to granting of patents that ranged from the “somewhat ridiculous to the truly absurd."

The Bilski decision leaves many questions unanswered. Following its time-honored traditions, the Court chose to avoid far-reaching pronouncements and let the law of patent-eligible subject matter evolve in due course. Those who seek business method patents in the future, however, will need to be wary since Justice Stevens and the other three Justices who joined in his concurring opinion clearly share the view that business method patents are not authorized by U.S. Patent laws. Indeed, future decisions from the Federal Circuit may limit the boundaries of patent-eligibility for business methods, as Justice Kennedy’s majority opinion advised that “[i]f the Court of Appeals were to succeed in defining a narrower category…of patent applications that claim to instruct how business should be conducted, and then rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas, this conclusion might well be in accord with controlling precedent.” The majority opinion also left open the possibility that the Federal Circuit could define “other limiting criteria that…are not inconsistent with [the Patent Act’s] text.”

Hence, in the short term, applicants seeking business method patents will need to draft their claims in a way that avoids their rejection as merely “abstract” ideas. Moreover, since both Kennedy’s and Steven’s opinions agreed that the “machine-or transformation” test is, while not an exclusive test, nevertheless “a useful and important clue” for determining patent-eligibility, applicants who draft claims to meet this test may well continue to have a safe harbor.

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.

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