Federal Circuit Finds Obviousness Where Invention Merely Confirms Prior Art, And Ownership Required for Contributory Infringement

In PharmaStem Therapeutics, Inc. v. Viacell, Inc., et al, 491 F.3d 1342; 83 U.S.P.Q.2d 1289 (Fed. Cir. 2007), the Federal Circuit affirmed a Judgment as a Matter of Law (JMOL) finding non-infringement and reversed a JMOL finding there was no invalidity.  At the District Court of Delaware, a jury found infringement of PharmaStem’s two patents, and found that they were not invalid.  After the jury verdict, a JMOL was granted finding non-infringement, and another was rejected upholding the patents’ validity.  Both parties filed appeals, challenging both rulings.

The infringement analysis provided by the plaintiff regarding a claimed composition of matter was predicated primarily on the defendants’ advertising materials, and not on any direct analysis to show infringement of all elements.  The defendant’s advertising materials did not illustrate all the elements of the invention, and the plaintiff’s expert witness who testified regarding infringement of the composition patented based their testimony on these advertising materials, not on additional direct testing of defendant’s service.  Because the testimony was no more than an interpretation of the advertising materials and was not aided by the expert’s expertise, it was not an abuse of discretion for the district court to strike the testimony in its JMOL.

The infringement of the claimed method was alleged under a theory of contributory liability under 35 U.S.C. § 271(c).  Because the defendants were holding the property in bailment for the families, and provided only a service, its does not constitute a “sale or offer for sale” as required by 35 U.S.C.§ 271(c).

Lastly, statements in the patent specifications regarding prior art bound the plaintiffs, despite expert testimony at trial that a skilled practitioner would expect the proof illustrated by the invention to be successful.  Simply engaging in the routine research to confirm what was otherwise inferred by prior art did not raise the invention to the level of novelty.

Nature of the Invention

Both patents in this suit, U.S. Patent No. 5,004,681 and continuation-in-part U.S. Patent No. 5,192,553, relate to the medical use of cryogenically frozen cells to rebuild an adult’s immune system after it has been compromised.  Blood is drawn from an infant or umbilical cord, cryogenically frozen, and may be used for hematopoietic recomposition.

The claims at issue in this appeal are as follows:

Claim 1 of the ‘681 patent:

A cryopreserved therapeutic composition comprising viable human neonatal or fetal hematopoietic stem cells derived from the umbilical cord blood or placental blood of a single human collected at the birth of said human, in which said cells are present in an amount sufficient to effect hematopoietic reconstitution of a human adult; and an amount of cryopreservative sufficient for cryopreservation of said cells.

Claim 13, an independent claim, of the ‘553 patent:

A method for hematopoietic or immune reconstitution of a human comprising:(a) isolating human neonatal or fetal blood components containing hematopoietic stem cells; (b) cryopreserving the blood components; (c) thawing the blood components; and (d) introducing the blood components into a suitable human host, such that the hematopoietic stem cells are viable and can proliferate with the host.

Expert Testimony Supporting Infringement of ‘681 Patent

On appeal, infringement of the ‘681 patent was limited to whether the defendants provided a composition “in an amount sufficient to effect hematopoietic reconstitution in a human adult” from a single unit of cord blood.  PharmaStem did not provide direct testing of samples to show that Defendants’ cord blood contained enough stem cells, but provided indirect evidence from defendants’ advertisements, scientific evidence of stem cells in general, and expert testimony.

On motion for JMOL, the district court, and the Federal Circuit here agreed, that the indirect evidence presented was not enough to constitute substantial evidence to support infringement.  Similarly, generalized advertisements about the uses of cord blood were made by the defendants’ advertisements, for example:  reciting successes of cord blood transplants in children and adults related to the children, transplants by the company itself, and company-specific advertisements of transplants to adults.  However, none of the advertisements indicated that single units of cord blood were used or successful at reconstitution post-transplant.  The Federal Circuit notes this as particularly relevant because “in most cases, the physicians [performing transplants] regarded a single unit as insufficient for an adult transplantation.”

The expert testimony provided by PharmaStem was stricken by the district court because the testimony was primarily an interpretation of the defendants’ marketing materials, and the testimony was not aided by the expert’s expertise in the field.  The Federal Circuit agreed, stating “[we agree that] the defendants’ materials did not constitute sufficient proof of infringement of the ‘681 patent and that those materials did not become proof of infringement when Dr. Hendrix read those materials back to the jury from the witness stand.”

Contributory Infringement of ‘553 Patent For Bailees

Regarding the ‘553 patent, none of the accused infringers enacted all four steps (a-d) of the patented method solely.  The defendants withdrew the blood (a), froze the blood (b), thawed the blood (c), and then transferred the blood to transplant physicians who transplanted the blood (d).  The only theory of infringement of patent ‘553 raised in the trial and the appeal is contributory infringement under 35 U.S.C. § 271(c).  Section 271(c) states: “Whoever offers to sell or sells . . . a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention . . . shall be liable as a contributory infringer.”

The Federal Circuit held that to be held liable according to 35 U.S.C. § 271(c), there must be a sale or offer for sale which requires as a prerequisite that the accused infringer be the owner of the component of the method.  The defendants acted as bailees for the blood which was actually owned by the families that requested it drawn because the blood was drawn at the families’ request, and the defendants contractually agree to return the same sample upon request.  Because there was no actual sale by the owners, merely a transfer by bailees, there is no infringement under § 271(c).

The Federal Circuit rejected the argument that the sale of a service may satisfy contributory infringement under 35 U.S.C.§ 271(c).  While the court notes that it may satisfy 35 U.S.C.§ 271(b) (inducement of infringement), the sale of a service does not satisfy the plain language requirement that indicates the sale of an actual good, and moreover is supported by the legislative history.

In addition, the defendants did not sell the service to the transplanters, but sold services to the families, and merely transferred the cells to the transplanters at the families’ direction and therefore was not a sale to the transplanters.

Obviousness

To invalidate the patents for obviousness, the defendants had to prove that both one skilled in the art would have reason to attempt to make the composition or practice the method, and there would have been a reasonable expectation of success.  On this appeal, the issue was whether there would have been an expectation of success, which for this patent was construed to mean whether cord blood could be successfully used in transplants for hematopoietic reconstitution.

At trial, PharmaStem’s expert stated there were problems with previous transplant tissues, including adult blood; it was not believed in the field that blood was suitable; and that researchers were surprised at the successful result.  In addition, “[t]he cornerstone of Dr. Bernstein’s testimony at trial was that none of the prior art showed that cord blood contains stem cells” and that it was not conclusively established until the disclosure in the first patent.  Several of the prior art references did, however, state that there are stem cells in cord blood, which Dr. Bernstein described as an error in nomenclature.  In the patent specification itself, the inventors stated “hematopoietic stem cells have been demonstrated in human umbilical cord blood,” which discredits Dr. Bernstein’s assertion that there was mistaken nomenclature in the prior art.  Because admissions in the specification are binding on the applicant, the jury was not free to disregard this admission and must have accepted the existence of prior art showing that a person of ordinary skill in the art would have believed that cord blood contains stem cells.

The experiments conducted by the inventors which confirmed the existence of stem cells, while advancing the field of art, did not rise to the level of nonobviousness.  Citing the Supreme Court’s decision in KSR v. Teleflex, 127 S.Ct. 1727, 82 U.S.P.Q.2d 1385, (2007), the Federal Circuit held that the inventors “used routine research methods to prove what was already believed to be the case,” and the conclusions draw from them were “not inventive in nature.”  In this case, because the patented invention arose from routine research which only proved what was believed to be true, it does not rise to the level of patentability.  It was not a case of “varying all parameters [until success is found] . . . where the prior art gave either no indication of which parameters were critical or no direction as to which of many possible choices is likely to be successful.”  In re O’Farrell, 853 F.2d 894 (Fed. Cir. 1988).  Each step of the process used to verify the existence of stem cells in cord blood and the patented method were set out in the specification as present in the prior art. 

Significance for Patent Applicants and Owners

PharmaStem Therapeutics highlights the importance of ownership and control in order to show contributory infringement to infringe.  If possible, assemblers, distributors and shippers should include contractual language that establishes similar bailment defenses which are otherwise unavailable where the actual sales are established.  For patent owners and applicants, PharmaStem Therapeutics confirms the need for adequate claim coverage to obtain direct infringement under 35 U.S.C. §271(a).  The bailment defense, while applicable under the wording of 35 U.S.C. §271(b), does not apply to infringement under 35 U.S.C. §271(a).

Moreover, for applicants drafting new applications, PharmaStem Therapeutics highlights the need to ensure the specification does not contain unnecessary admissions against interest.   Specifically, it was an admission against interest in the specification which undercut the parent owner’s evidence of non-obviousness, and thus removed the most powerful evidence of non-obviousness needed to show patentability under KSR v. Teleflex, 127 S.Ct. 1727, 82 U.S.P.Q.2d 1385, (2007).  Moreover, as was also the case in SafeTCare discussed below, such statements can be used to construe patent claims and disclaim both literal coverage and coverage under the doctrine of equivalents. Therefore, unnecessary statements characterizing the prior art should be removed from specifications.

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