IP Advisor

New Patent Reform Legislation is on the Horizon for 2015

When the 113th Congress came to a close on January 3, 2015, all patent reform bills that have been introduced, but not passed, in the last two years expired. This includes the Innovation Act, H.R. 3309, which was the subject of bipartisan support and approval from the White House, and was passed by a 325-91 vote in the House. Although the Innovation Act seemed poised for action in the Senate Judiciary Committee, Senator Patrick Leahy (D-VT), Chairman of the Committee, announced on May 21, 2014 that the bill was being taken off the Committee’s agenda due to stakeholder disagreement.

Despite the failure of the Innovation Act, bipartisan support for patent reform remains strong, and with the recent turnover in Congressional seats during the 2014 mid-term election, odds are in favor of the introduction of new legislation aimed at patent reform in 2015. During a Chamber of Commerce summit on intellectual property on November 18, 2014, Chairman of the House Judiciary Committee, Bob Goodlatte (R-VA), announced that patent reform is high on the list of priorities for the 114th Congress, and new legislation will likely be introduced in 2015. Goodlatte has a history of supporting patent reform, and was the Innovation Act’s sponsor in the House in 2013.

It is not clear what provisions will be included in a new, 2015 patent reform bill, but with the new Republican majority in the 114th Congress, proposed legislation may include more aggressive reforms than the bills introduced in 2013 and 2014. Reportedly, the fee-shifting provision of the Innovation Act played a large role in the decision to scuttle that bill, and it remains to be seen whether new legislation would include such a provision, or it would be omitted in favor of a less controversial bill that could achieve swifter enactment.

The Supreme Court Has Several Patent Cases on its Docket for 2015

In 2015, the Supreme Court has decided one patent case with wide-reaching consequences, and will address two additional cases with important ramifications for patent practice. In Teva Pharm. USA, Inc. v. Sandoz, Inc., No. 13-854, 2015 WL 232131 (U.S. Jan. 20, 2015), the court ruled on the appropriate standard of review for claim construction determinations, and in 2015 the Court is also set to decide the duration of patent royalty agreements and whether a party’s good faith belief in the patent-in-suit’s invalidity is a defense to an induced infringement claim. The latter two cases are on the Supreme Court’s docket for argument in 2015.

The issue before the Court in Teva was whether a trial court’s claim construction decisions are reviewable de novo, as required by Federal Circuit precedent, or only for clear error, as Federal Rule of Civil Procedure 52(a) appeared to require. Following the Supreme Court’s decision in Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996), claim construction has been treated as a question of law to be decided by the trial judge rather than the jury. In interpreting Markman, the Federal Circuit established in Cybor Corp. v. FAS Technologies, Inc., 122 F. 3d 46 (Fed. Cir. 1996) that claim construction decisions were to be reviewed de novo on appeal. The Federal Circuit reaffirmed this position just last year in Lighting Ballast Control LLC v. Philips Electronics N.A. Corp., 744 F.3d 1272 (Fed. Cir. 2014).

On January 20, 2015, the Supreme Court vacated and remanded the Federal Circuit’s Teva v. Sandoz decision, holding that Rule 52(a)’s clear error standard of review applies to a district court’s findings of fact regarding “evidentiary underpinnings” of claim construction decisions. See Teva, 2015 WL 232131, at *3, *5. The Supreme Court clarified that, while under its Markman holding the “ultimate issue of the proper construction of a claim” is still a question of law subject to de novo review by the Federal Circuit, “subsidiary factfinding” determinations by the district court should be reviewed for clear error.  Id. at *7. The Teva opinion explains that when a district court consults extrinsic evidence to determine, for example, “the background science or the meaning of a term in the relevant art during the relevant time period,” it is evaluating a subsidiary factual question. Id. at *10. By contrast, when the district court evaluates a claim with reference to solely intrinsic evidence, the resulting claim construction will be considered a determination of law. Id. at *9.

While the Teva decision is poised to have lasting effect on appellate patent practice, another case on the Supreme Court’s docket, Kimble v. Marvel Enterprises, No. 13-720 (S. Ct.), is set to impact patent licensing negotiations and settlement of patent cases. The question presented by the petition for certiorari in Kimble, which was granted by the Court on December 12, 2014, is whether the Court should overrule its decision in Brulotte v. Thys Co., 379 U.S. 29 (1964) that a patent royalty agreement that extends beyond the patent’s expiration date is per se unlawful.

Kimble is an appeal from a decision in which the Ninth Circuit “reluctantly” affirmed the trial court’s decision that the defendant Marvel was absolved of its obligation to pay royalties under an agreement that extended beyond the life of the patent, because the agreement was unenforceable under Brulotte. Petitioner argued that Brulotte relies on obsolete ideas about competition and economic theory. Indeed, the Brulotte decision has been widely criticized over the years both by courts and commentators. In response to a request from the Court, the Solicitor General filed an amicus brief suggesting that the petitioner has not met the high hurdle for overturning one of the Supreme Court’s statutory interpretation decisions. Oral argument will take place sometime in March or April of 2015.

Finally, rounding out the patent cases on the Supreme Court’s docket is Commil USA, LLC v. Cisco Systems, No. 13-896 (S. Ct.), in which the Court will address the question of whether it was error for the Federal Circuit to hold that a good faith belief in the invalidity of the patent-in-suit is a defense to induced infringement under 35 U.S.C. § 271(b).

At trial in the Eastern District of Texas, a jury initially found defendant Cisco liable for direct infringement, but not liable for induced infringement. Cisco had put on evidence at trial concerning its good faith belief that the patent-in-suit was invalid. A retrial was granted, during which Cisco was prohibited from arguing its good-faith belief in the invalidity of the patent-in-suit as a defense to induced infringement. The jury found for plaintiff on both direct and induced infringement. Cisco appealed, and the Federal Circuit reversed holding that Cisco was improperly denied the chance to argue its good faith belief in the invalidity of the patent-in-suit as a defense to induced infringement. The plaintiff filed a petition for certiorari to the Supreme Court.

Following a request from the Supreme Court, the Solicitor General filed an amicus brief agreeing with the plaintiff that even a good faith belief in the invalidity of the patent-in-suit is not a defense to an induced infringement claim. Certiorari was granted on December 5, 2014, and like Kimble, oral argument will take place sometime in 2015.

Background of the ITC’s Domestic Industry Requirement

The ITC is a federal administrative body that adjudicates cases under Section 337 of the Tariff Act involving importation of articles which allegedly constitutes unfair competition. To establish a violation of Section 337 based on the importation of articles allegedly infringing a patent, a complainant must show that “an industry in the United States, relating to the articles protected by the patent, … exists or is in the process of being established.”^[i]

This is known as the domestic industry requirement and has two prongs: a technical prong and an economic prong. Under the technical prong, the claimant must identify “domestic articles” that practice or exploit the patents at issue. A complainant can meet the economic prong by proving: (A) significant investment in plant and equipment relating to the domestic articles; (B) significant employment of labor or capital relating to the domestic articles; or (C) substantial investment in exploitation of the patent, including engineering, research and development, or licensing.^[ii]

Complainants most frequently rely on subsection (C) of the domestic industry requirement, which offers the greatest flexibility. Subsection (C) can be satisfied, for example, by non-practicing entities and foreign entities that are principally located outside the United States. This article focuses on the ITC’s significant decisions in 2014 involving subsection (C) of the economic prong of the domestic industry requirement and looks ahead to the issues that the ITC and Federal Circuit may confront in 2015.

The ITC’s Three Significant Decisions in 2014 Regarding Subsection (C) of the Economic Prong of the Domestic Industry Requirement

In Certain Integrated Circuit Chips and Products Containing the Same, the Commission outlined the contours for establishing a nexus between the domestic investments and the asserted patent, as required to prove “exploitation” of the patent under subsection (C).^[iii] The Commission explained that this nexus requirement ordinarily will be met where the patent arises from inventive work in the United States. However, complainants frequently rely on subsequent domestic investments because the inventive activity occurred long ago or took place outside the United States.

The Commission adopted a sliding scale for evaluating whether such investments are “substantial” enough to satisfy subsection (C), giving more weight to activities that are more closely related to the asserted patent and less weight to those less directly connected to the asserted patent. The Commission noted that in past investigations where the patents covered the domestic articles as a whole, for example cell phone cases or sandals, complainants were able to rely on domestic investments relating to the entire domestic articles.

On the other hand, a complainant asserting a patent relating to a feature of a product must establish a specific link between the domestic investments and the patented feature. Complainant Realtek in Certain Integrated Circuit Chips asserted a patent relating to bond pad technology for integrated circuits, and the inventive work leading to the patent had been performed overseas. Realtek relied on its domestic investments in other technologies for enabling integrated circuits to achieve faster communication, but those investments did not relate to the patented bond pad feature.

Although Realtek’s domestic investments unquestionably related to the domestic articles, the Commission found there was no nexus between Realtek’s domestic investments and its patented bond pad technology. The Commission did not reach the question of whether Realtek’s domestic investments were “substantial,” applying its sliding scale analysis, since Realtek had failed to establish a nexus between the investments and the asserted patent. Realtek appealed to the Federal Circuit, but the appeal was voluntarily dismissed.

In 2014, the Commission also specifically addressed the standards for satisfying subsection (C) based on investments in licensing in two opinions. In Certain Computers and Computer Peripheral Devices,^[iv] a majority of the Commission held that a complainant relying on domestic investments in licensing activities must prove that domestic articles practice the patents and cannot meet this requirement by identifying the allegedly infringing articles.

In reaching this decision, the majority acknowledged that its past practice had not been to require a complainant to identify domestic articles when relying on domestic investments in licensing. The majority believed that the Federal Circuit had recently announced a requirement that there must be “articles protected by the patent” under subsection (C), requiring the Commission to change its approach.^[v]

The Federal Circuit had held that this requirement was satisfied because the patented technology was found in both the licensed products and the accused products, concluding: “As long as the patent covers the article that is the subject of the exclusion proceeding, and as long as the party seeking relief can show that it has a sufficiently substantial investment in the exploitation of the intellectual property to satisfy the domestic industry requirement of the statute, that party is entitled to seek relief under section 337.”^[vi]

While the Commission acknowledged that the Federal Circuit’s statements could be read to suggest that a complainant can rely on the accused products to satisfy the domestic industry requirement, the majority of the Commission rejected this interpretation. The Commission instead held that other domestic articles are required, for example domestic articles offered by licensees, but rejected the respondents’ argument that licensing investments must drive production of these domestic articles to satisfy subsection (C). Since the non-practicing complainant Technology Properties Limited (TPL) failed to identify any licensee’s domestic articles practicing the asserted patents, the Commission found no domestic industry. TPL did not appeal.

In a dissent, former Commission Chair Aranoff argued that Congress enacted subsection (C) in 1988 to permit a complainant to obtain relief in the ITC by relying on domestic investments that exploit the asserted intellectual property right without having to show the existence of domestic articles. She argued that the Federal Circuit had not imposed a requirement that a complainant relying on investments in licensing show the existence of domestic articles.

In the second opinion, Certain Optical Disc Drives,^[vii] the Commission reversed an administrative law judge’s (ALJ’s) initial determination, reaffirming that a complainant’s licensing investments need not relate to adoption and development of domestic articles to satisfy subsection (C). The Commission nevertheless noted that licensing that drives adoption and development could be “potentially relevant,” but did not explain how this would affect the analysis.^[viii] This investigation remains pending before the ALJ.

Looking Ahead to 2015 and Beyond

As the Commission continues to refine the contours of the domestic industry requirement under subsection (C), a number of questions remain to be addressed. With respect to the nexus requirement, it remains to be seen how the Commission will apply its sliding scale mode of analysis to domestic investments that have some relationship to the patented technology but that are not exclusively focused on the patented technology.

For example, how much weight will the Commission give to domestic investments in broad aspects of product design which include the specific patented technology? If the asserted patent claims a product that incorporates both the innovative feature and prior art elements, can a complainant rely on its investment directed to the prior art elements because the asserted claims cover the product as whole?

In the context of domestic industries based on licensing, the key question will be whether the Federal Circuit in a future case will agree with the Commission’s majority view that the Federal Circuit created a requirement that domestic articles must exist and that those articles cannot be the imported articles accused of infringement. As explained above, a former Commission Chair disagreed with the majority’s view, and the majority even acknowledged that the Federal Circuit’s statements could be understood to mean that the accused articles could satisfy the requirement.

Furthermore, assuming that there is a domestic articles requirement, is there any floor for the amount of domestic articles which can support a domestic industry? Can a complainant license a small participant in the marketplace and rely on that licensee’s articles? What is the relevance of the fact that such licensing may be focused on generating revenue after the patented technology has proven successful, rather than on driving its adoption?

Moreover, are entities which have been unable to license their patents despite substantial effort foreclosed from seeking relief in the ITC? This would seem to constitute a “production” requirement in effect, even though the Commission repeatedly rejected arguments that licensing must drive production. For example, if a university seeking to exclusively license patents on a new material is unable to come to terms with a partner because a foreign infringer is importing the material, is the university unable to obtain relief in the ITC? If university researchers had made a sample of the new material, could the university then rely on its substantial licensing efforts?

In addition, it is unclear whether there are any timing restrictions on the existence of the domestic articles. For instance, if the foreign infringer was previously licensed, can the complainant rely on the existence of the licensed products prior to their becoming unlicensed infringing products, or must licensed products continue to exist at the time the complaint is filed? In other words, must the patent owner find a new licensee before it can file a complaint in the ITC?

We can expect that the domestic industry requirement will continue to evolve in 2015 and beyond, hopefully providing answers to some of these open questions.

Note: This article was originally published on Law360 on Jan. 8, 2015.

Two trademark cases the U.S. Supreme Court heard in its October 2014 term could change how parties approach litigation strategy in the Trademark Trial and Appeal Board (TTAB) and district court.

The first case, B&B Hardware, Inc. v. Hargis Industries, Inc., was argued on December 2, 2014 by Goodwin Procter (which represents petitioner B&B Hardware) and presents the issue of whether the TTAB’s finding of a likelihood of confusion between two trademarks precludes the parties from relitigating that issue later in infringement litigation in U.S. District Court. The Court is likely to issue an opinion in B&B by the spring.

The second case, Hana Financial, Inc. v. Hana Bank, was argued on December 3, 2014. The Court issued a unanimous decision in Hana on January 21, 2015, holding that the question of “commercial impression,” which determines whether the trademark doctrine of tacking should apply, is an issue of fact to be decided by a jury.

B&B Hardware

B&B involves two different types of fasteners: SEALTIGHT and SEALTITE. The first fastener, branded SEALTIGHT, is a high-end self-sealing fastener manufactured by Arkansas-based B&B Hardware, Inc. and marketed to the aerospace industry. The second type of fastener, branded SEALTITE, is a low-end self-sealing fastener manufactured by Texas-based Hargis Industries, Inc. and marketed to the construction industry.

When Hargis applied to the Patent & Trademark Office (PTO) for registration of the mark SEALTITE, B&B opposed. (The PTO permits an interested party to oppose the registration of another mark if the interested party believes the mark is likely to cause confusion with its own mark.) The two parties conducted discovery, took depositions, and submitted argument to a three-panel board of administrative law judges on the TTAB. The TTAB determined that the two marks were likely to confuse the public even though they served different industries and were marketed to different customers.

Hargis continued to use the SEALTITE mark, and B&B filed a district court action seeking to enjoin Hargis’s use of the SEALTITE mark and to recover damages resulting from customer confusion. B&B argued that the TTAB’s determination of likelihood of confusion should preclude the district court from deciding the likelihood of confusion issue, and that the district court action should be limited to issues that were not already determined by the TTAB. The district court, however, held that TTAB determinations of likelihood of confusion are not binding on federal courts, and refused to admit the TTAB decision as evidence to the jury. The case was submitted to the jury, which found that the marks were not likely to cause confusion. The Eighth Circuit affirmed the district court, and B&B appealed to the Supreme Court.

The primary issue before the Court is whether the TTAB’s finding of a likelihood of confusion between two trademarks should have precluded the relitigation of the issue in a later action in the district court.

Goodwin Procter partners William M. Jay, Ira J. Levy and Robert D. Carroll represented B&B before the Supreme Court. Mr. Jay argued the case before the Supreme Court.

Hana

Hana involves the trademark doctrine of tacking. The doctrine allows a trademark holder to extend the priority date of a trademark back to the earlier priority date of a related, but different trademark. When tacking occurs, it allows a senior mark holder to use the priority date of its original mark for both the original mark and the revised mark. The test that permits tacking is whether the senior user’s original and revised marks create the same “commercial impression” to customers.

In Hana, defendant Hana Bank presented evidence in district court of its earlier use of the mark HANA OVERSEAS KOREAN CLUB, which later evolved to HANA WORLD CENTER and ultimately HANA BANK. The plaintiff, Hana Financial, Inc., argued that it used its mark HANA FINANCIAL before Hana Bank began using the mark HANA BANK, and that the “commercial impression” question should be an issue of law decided by a judge, not a jury. The district court and the Ninth Circuit both held that the issue of tacking is a question of fact to be decided by a jury.

The Court issued an opinion on January 21, 2015, in which it resolved a split of authority in the Courts of Appeals, and held that the “commercial impression” test to determine whether trademarks may be tacked is a question of fact that generally should be decided by a jury. The Court held that “[a]pplication of a test that relies upon an ordinary consumer’s understanding of the impression that a mark conveys falls comfortably within the ken of a jury.” 574 U.S. ____ (2015) (slip op. at 4).

Both the tacking issue in Hana and the likelihood-of-confusion issue in B&B will affect the strategy and presentation of trademark cases for practitioners across the country.

Publications

“Supreme Court Torn On Fla. Judicial Campaign Funding Rule”
Law360
January 20, 2015
Quoted: William M. Jay

“Lawyers Weigh In On High Court Claim Construction Ruling”
Law360
January 20, 2015
Quoted: Douglas J. Kline

“Domestic Industry Continued To Evolve At ITC In 2014”
Law360
January 8, 2015
Authors: Alexandra Valenti

“Industry Report is to Shape Trade Agenda”
IGPA Conference Bulletin
December 5, 2014
Quoted: Frederick H. Rein

“Wind River action looks to spell the end of exporter ‘encryption complacency’”
WorldECR
October 2014
Quoted: Jacob R. Osborn

“Biosimilar or Biodifferent: How a Name Will Shape the Market for Biosimilars”
Pharmaceutical Outsourcing
September/October 2014
Authors: William G. James

“Understanding Alice: Step 1 Of Mayo Analysis At PTAB”
Law360
October 17, 2014
Authors: Ce Li

“EDP security co. awarded $780K”
Massachusetts Lawyers Weekly
September 11, 2014
Quoted: Douglas J. Kline

Upcoming Events

PLI Seminar: Advanced Licensing Agreements 2015
January 28, 2015

Goodwin Procter partner Brett Schuman will present the session, "Litigation and Case Law Issues for Licensing Lawyers."  This presentation will focus on recent case law updates that relate to licensing, or impact on the underlying strength and value of IP assets.

2015 GPhA Annual Meeting
February 9, 2015

The GPhA 2015 Annual Meeting attracts nearly 700 attendees who gather to gain insight on how the nation's most critical health and regulatory issues will impact the generic industry and the consumers who benefit from access to affordable medicines. Goodwin Procter will host a client reception in conjunction with this event. Chris Holding has been invited to speak on the legal panel titled "Actavis, Valuations and Fairness Opinions." Elaine Herrmann Blais will serve as the panel moderator.

Intellectual Property Protection in China from A-Z
February 12, 2015

Goodwin Procter partner Mark Abate will participate in the New York Intellectual Property Law Association (NYIPLA) and the New Jersey Intellectual Property Law Association (NJIPLA) program, "Intellectual Property Protection in China from A-Z."  Mr. Abate will participate in a panel entitled, "Chinese Infringements at Home – U.S. Border Control."

ACI’s 7th Annual Advanced Forum on ITC Litigation & Enforcement
February 24, 2015

Goodwin Procter's Mark Abate will host a panel discussion, "Hypothetical and Breakout Discussions: An Interactive Debate on How to Prove Domestic Industry in the Current Landscape."