Trader Joe’s Co. v. Hallatt, 981 Fed. Supp. 2d 972 (W.D. Wash. 2013).

This case is currently awaiting a decision from the Ninth Circuit.  Case No. 14-35035.

Facts and Procedural History:

Trader Joe’s, a specialty United States (“U.S.”) grocery store, filed a Lanham Act trademark infringement and dilution action against Canadian grocery store owner, Michael Hallatt.  To stand apart from its competition in the U.S., “Trader Joe’s developed a rustic South Pacific-inspired theme.”  Brief for Appellant at 6, Trader Joe’s Co. v. Hallatt, (No. 14-35035).  Although Trader Joe’s has a website that displays its products, Trader Joe’s only sells its products at its retail grocery stores in order “[t]o maintain the exclusivity of its branded products.”  Brief for Appellant at 7, Trader Joe’s Co. v. Hallatt, (No. 14-35035).  Trader Joe’s has received several U.S. trademark registrations for its marks, including “the word TRADER JOE’S for retail store services in the field of specialty foods and beverages (Trademark Reg. No. 2,171,157); for processed foods (Trademark Reg. No. 1,424,176); and for beverages (Trademark Reg. No. 2,158,990).”  Brief for Appellant at 10, Trader Joe’s Co. v. Hallatt, (No. 14-35035).  Moreover, Trader Joe’s owns a registration for its stylized word mark TRADER JOE’S for retail services.  Id.  Trader Joe’s operates more than 390 retail grocery stores in “30 states and the District of Columbia, including 14 stores in the state of Washington.”  Trader Joes Co. v. Hallatt, 981 Fed. Supp. 2d at 974.

Appellee, Michael Norman Hallatt, is a U.S. resident alien and a Canadian citizen. Trader Joes Co. v. Hallatt, 981 Fed. Supp. 2d at 976.  Hallatt “owns and operates a grocery store in Vancouver, British Columbia, Canada, operating under the name Pirate Joe’s.”  Id. at 975.  Hallatt’s store previously operated under the name “Transilvania Trading.”  Id.  Hallatt concedes that “he and others at his direction have purchased products at Trader Joe’s paying full retail prices in the state of Washington.”  Id.  Hallatt then transported the products across state borders to Canada and sold the goods unmodified in Pirate Joe’s.  Id.  Hallatt also “publically acknowledges the products he sells were purchased from Trader Joe’s.”  Id.

According to Trader Joe’s Opening Brief, Pirate Joe’s displays an identical South Pacific themed trade dress.  Brief for Appellant at 11, Trader Joe’s Co. v. Hallatt, (No. 14-35035) (“Pirate Joe’s is decorated in a manner evocative of Trader Joe’s famous and distinctive trade dress, including a colorful mural depicting a ship at sea, products sold on wooden shelves and in baskets, and hand-drawn signage.”).  Hallatt admitted that Pirate Joe’s used Trade Joe’s paper grocery bags in the past, but alleges that such practice has ceased. Trader Joes Co. v. Hallatt, 981 Fed. Supp. 2d at 975.  Unpleased by Hallatt’s actions, Trader Joe’s alleged that Pirate Joe’s used its marks to pass as an approved Trader Joe’s retailer.  Id.  As such, Trader Joe’s filed its Complaint in federal court against Hallatt, alleging trademark infringement, unfair competition, and federal trademark dilution.  Id.  Trader Joe’s also brought claims under state court.  Subsequently, Hallatt moved to dismiss for lack of subject matter jurisdiction, arguing that the Lanham Act should not apply extraterritorially in this case.  Id.

Reasoning and Holding:

Upon Hallatt’s motion to dismiss for lack of subject matter jurisdiction, the Washington District Court engaged in a lengthy analysis of the extraterritorial application of the Lanham Act.  See Trader Joes Co. v. Hallatt, 981 Fed. Supp. 2d at 976-81.  The court recited the Ninth Circuit’s three Timberlane factors that the Circuit uses to determine whether extraterritorial application is appropriate: “(1) the defendant’s actions creates some effect on American foreign commerce, (2) the effect is sufficiently great to present a cognizable injury to plaintiff under the Lanham Act, and (3) ‘the interests of and links to American foreign commerce [are] sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.’”  Trader Joes Co. v. Hallatt, 981 Fed. Supp. 2d at 976 (citing Reebok Int’l v. Marnatch Enters., 970 F.2d 552, 554 (9th Cir. 1992)).

The court found that all three factors disfavored extraterritorial application.  In its analysis, the court combined the first two factors of the Timberlane test, stating that a plaintiff need only demonstrate that there is “some” effect on U.S. foreign commerce.  Trader Joes Co. v. Hallatt, 981 Fed. Supp. 2d at 977 (citing to Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406, 428 (9th Cir. 1977)).  The court reasoned that “all alleged infringement takes place in Canada and Trader Joe’s cannot show economic harm,” so “there is no economic harm to Trader Joe’s because the products were purchased at Trader Joe’s at retail price.”  Id. at 977.  Comparing this case to Love v. Associated Newspapers, Ltd., 611 F.3d 601 (9th Cir. 2010), the court found the chance of confusion in Canada is likewise too great a stretch to claim harm in the U.S.  Id. (“Like in Love, any ‘goodwill’ related harm is too tenuous to support a cognizable Lanham Act claim when all infringing conduct is abroad.”).

The court balanced seven other relevant factors in analyzing the third factor of the Timberlane test.  Trader Joes Co. v. Hallatt, 981 Fed. Supp. 2d at 978.  Those seven relevant factors include: “The degree of conflict with foreign law or policy, the nationality or allegiance of the parties and the locations or principal places of business of corporations, the extent to which enforcement by either state can be expected to achieve compliance, the relative significance of effects on the United States as compared with those elsewhere, the extent to which there is explicit purpose to harm or affect American commerce, the foreseeability of such effect, and the relative importance to the violations charged of conduct within the United States as compared with conduct abroad.” Id. at 978 (citing Reebok, 970 F.2d at 555).  The only one of the seven relevant factors that the court found in favor of Trader Joe’s was nationality or allegiance of parties and locations of corporations.  Specifically, the court concluded that “Hallatt’s connections with the U.S. are likely sufficient to support extraterritorial jurisdiction.”  Id. at 979.  The court, nevertheless, decided that application of the Lanham Act could potentially conflict with Canada’s trademark law (and Trader Joe’s had two pending trademark applications in Canada).  Id.  After an evaluation of the Timberlane factors, the court found that it does not have subject matter jurisdiction in this case.  Id. at 980.

Two months after the decision, Judge Marsha J. Pechman dismissed Trader Joe’s remaining state law claims, finding that no party in the lawsuit was a Washington resident, all of the alleged wrongful conduct occurred out of state, and any harm to Washington residents was “extremely tangential.”  Order Granting Motion to Dismiss Amended Complaint at 10-11.  As such, Judge Pechman dismissed the case with prejudice. Trader Joes Co. v. Hallatt, 981 Fed. Supp. 2d at 981; Order Granting Motion to Dismiss Amended Complaint at 11.

Appeal:

Trader Joe’s appealed the district court decision.  In its Opening Brief, Trader Joe’s argues that the Lanham Act “is one of the few statues that Congress specifically extended beyond the borders of [the U.S.]”  Brief for Appellant at 27 (citing Steele v. Bulova Watch Co., 344 U.S. 280, 283, 286 (1952)), Trader Joe’s Co. v. Hallatt, (No. 14-35035).  Trader Joe’s asserts that Pirate Joe’s conduct is analogous to the defendant’s conduct in SteeleId. at 30-31.  Specifically, Trader Joe’s contends that “Hallatt’s activities in the United States – most notably obtaining goods from Trader Joe’s stores – were ‘essential steps in the course of business consummated abroad,’” and therefore, the U.S. purchases were part of Hallatt’s “unlawful scheme.”  Id. at 31 (citing Steele, 344 U.S. at 287).  Accordingly, Trader Joe’s submits that “[b]ecause the scheme directly involves U.S. domestic commerce, there is no need to consider whether Hallatt’s activity has ‘some effect’ on U.S. foreign commerce.”  Id. at 34 (citing Reebok Int’l Ltd. V. Marnatech Enters., Inc., 737 F. Supp. 1515, 1518 (S.D. Cal. 1989)).

Nevertheless, Trader Joe’s asserts that the Timberlane factors are satisfied in this case.  Brief for Appellant at 35, Trader Joe’s Co. v. Hallatt, (No. 14-35035).  Addressing the first two Timberlane factors jointly, Trader Joe’s argues that a customer who purchases a defective product – a product that does not adhere to Trader Joe’s quality control procedures – from Pirate Joe’s “would not be able to tell whether the defect is the fault of Trader Joe’s,” and thus “the customer would likely view Trader Joe’s less favorably, causing harm to the reputation and goodwill that Trader Joe’s has carefully cultivated over the past 40 years.”  Id. at 36-37.  Trader Joe’s contends that any issues with TRADER JOE’S branded products sold at Pirate Joe’s “would inevitably travel back to the United States, where it would injure Trader Joe’s reputation and goodwill.”  Id. at 37.

Trader Joe argues that the third Timberlane factor also favors a finding of subject matter jurisdiction. Id. at 42.  Likewise, Trader Joe’s accesses all seven sub-factors.  For the third sub-factor, Trader Joe’s asserts that because “Hallatt . . . admitted to hiring people in the state of Washington to purchase TRADER JOE’S-branded products for him,” he has “an even stronger ‘presence’ in the United States.”  Id. at 47 (citation omitted).  As such, Trader Joe’s asserts that Hallatt orchestrated the activities in the U.S. and is a permanent U.S. alien, his presence in the U.S. is strong, despite his Canadian citizenship.  Id.  Further, Trader Joe’s argues that the sixth sub-factor weighs in its favor because “[i]t was entirely foreseeable that by selling TRADER JOE’S-branded goods outside Trader Joe’s quality control structure, the goodwill and reputation of a U.S. company would be hurt in the United States.”  Id. at 49 (citing to Reebok, 970 F.2d at 557 (finding it “undeniabl[y]” foreseeable that defendant’s products sold in Mexico border towns would damage plaintiff’s brand in the United States).

Finally, Trader Joe’s claims that the district court erred in dismissing Trader Joe’s state law dilution claim and its CPA claim.  Id. at 50-57.  Focusing on the fact that Trader Joe’s operates 18 stores in Washington, Trader Joe’s asserts that a large portion of the resulting dilution from sick Vancouver residents will be felt in Washington.  Id. at 54.  Also, Trader Joe’s argues that the defendant’s conduct in “trade or commerce” is satisfied because “Hallatt engages in a persistent pattern of ‘trade or commerce’ by traveling into Washington, purchasing products from Trader Joe’s stores. . ., exporting the goods to Canada, and reselling them.”  Id. at 57.  Accordingly, Trader Joe’s urges the Ninth Circuit to reverse the district court’s decision.

Hallatt, on the other hand, argues that the district court properly dismissed Trader Joe’s Lanham Act claims for lack of subject matter jurisdiction, reiterating the district court’s reasoning.  Brief for Appellee at 10-20.  Hallatt analyzes the seven sub-factors of the Timberlane test and echoes the district court’s reasoning with all but one factor – the only factor found against him.  Id. at 32.  Finally, Hallatt argues that the district court properly dismissed Trader Joe’s state law claims and Washington Consumer Protection Act claims.  Id. at 39-54.

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Prior Use Rights v. Patent Protection

By Julie Shursky

Before the enactment of the Leahy-Smith America Invents Act (“AIA”), the prior user rights defense was limited to business method patents.  35 U.S.C. § 273 (2006) (restricting the defense to patent claims for “a method of doing or conducting business”), amended by Leahy-Smith America Invents Act, Pub. L. No. 112-29, sec. 5(a), 125 Stat. at 297.  The AIA, however, amended the language of Section 273, such that the defense is now applicable to any “process” or any “machine, manufacture, or composition of matter used in manufacturing or other commercial process.”  35 U.S.C. § 273(a) (2011).  Further, Section 273 states that an accused infringer must prove, by clear and convincing evidence, that the patented subject matter was “commercially used” in the United States at least a year prior to the effective filing date of the claimed invention.  35 U.S.C. § 273(a)(2).  This expanded prior user rights defense under the AIA applies to any patent issued on or after September 16, 2011.  Pub. L. No. 112-29, sec. 5(c), 125 Stat. 284, 299 (2011).  To qualify for the defense, the accused infringer must establish strict requirements that limit the defense’s applicability to very rare situations:

  • The use must be a good faith commercial use in the United States. Since the commercial use must be in the United States, some foreign commercial activity will not qualify.
  • The use must occur at least one year before the earlier of (1) the effective filing date of the asserted patent; or (2) the date on which the claimed invention was disclosed to the public in a manner that qualified for the prior art exception from under AIA. 35 U.S.C. 102(b); 35 U.S.C. 273(a), (e)(2) & (4).
  • The use must be in connection with (i) an “internal commercial use” or (ii) an arm’s length sale or transfer of a useful end result of the internal commercial use. 35 U.S.C. § 273(a)(1).

The AIA also sets forth several important limitations to the defense:

  • The prior commercial use defense is “personal,” which means it cannot be separately licensed, transferred, or assigned to a third party, except that the defense can be transferred as part of a good faith transfer of an entire business or relevant line of business.
  • In the event that the defense is transferred as part of such a good faith transfer, the defense may only be asserted for use at sites where the use occurred prior to the later of the date of the transfer or the effective filing date of the claimed invention. If the purchaser begins practicing the commercial use at the new sites after the effective filing date and after the transfer takes place, those uses will not qualify for the defense.
  • The defense is not a “general license,” which means that it does not provide a general license to all the claims of the asserted patent. For example, if a party qualifies for the defense, but only has practiced claims 1-5 of a patent, that does not mean the party can also practice claims 6-10 of the same patent without being liable for infringement.
  • The defense is not available if the commercial use is derived from the patentee or persons in privity with the patentee.
  • If the commercial use is abandoned, the defense may not be relied upon with respect to activities that occur before the abandonment. Certain legislative history, however, suggests that processes that are used periodically or seasonally may still qualify for the defense (i.e., the periodic or seasonal use does not render them abandoned), even though they are not continuous.

Although the prior user rights defense under the AIA is a powerful tool to defend against patent infringement claims, there is a caveat to the defense, which is that the accused infringer must maintain sufficient records of its prior use.  The records should be detailed enough to preserve the defense with respect to each claim that may be asserted.

 

Since the law is new, there is a lack of clarity on limitations, such as the ability of the prior user to expand the capacity of the use, the ability to implement improvements, the requirements of the continuousness of the use, and what constitutes a “commercial use” as required under the statute.  The intention behind the prior user defense, however, is not only to provide for fairness to a prior inventor, but also to boost the rights of a trade secret holder against the rights of a later patent holder.  See 157 Cong. Rec. S5319 (daily ed. Sept. 16, 2011) (statement of Rep. Smith).  Specifically, the sponsors of the AIA intended to broaden the amendment in order to insulate businesses from having to disclose their internal processes or manufacturing materials.  See, e.g., 157 Cong. Rec. H4483 (daily ed. June 23, 2011) (statement of Rep. Smith) (“The prior-use defense is not overly expansive and will protect American manufacturers from having to patent the hundreds or thousands of processes they already use in their plants.”); 157 Cong. Rec. S5426 (daily ed. Sept. 8, 2011) (statements of Sen. Blunt and Sen. Leahy) (discussing that “the prior user rights provided under section 5 of H.R. 1249 will allow developers of innovative technologies to keep internally used technologies in-house without publication in a patent”).  Therefore, a major driving factor behind broadening the prior-user defense was to shield manufacturers who owned trade secrets from subsequent patent-infringement claims.

 

 

Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292 (Fed. Cir. 2015)

By Julie Shursky

Facts:

  • Proxyconn, Inc. (“Proxyconn”) filed suit against Microsoft Corporation (“Microsoft”), accusing Microsoft of infringing its U.S. Patent No. 6,757,717 (“the ’717 patent.”) Microsoft, 789 F.3d at 1295.  This appeal arises from the inter partes review (“IPR”) of the ’717 patent.  Id.
    • The ’717 patent “relates to a system for increasing the speed of data access in a packet switched network.” at 1295.
  • The United States Patent and Trademark Office, Patent Trial and Appeal Board (“Board”) issued a final written decision, finding all but one of the instituted claims (claim 24) to be unpatentable under 35 U.S.C. § 102 and additionally under 35 U.S.C. § 103.  Id. (citing to Microsoft Corp. v. Proxyconn, Inc., IPR2012-00026 and IPR2013-00109, Paper No. 73 (PTAB Feb. 19, 2014).  The Board further denied Proxyconn’s motion to amend.  Id.
  • Microsoft appeals the Board’s determination that claim 24 is patentable. Proxyconn cross-appeals, “challenging the Board’s use of the broadest reasonable interpretation (“BRI”) standard of claim construction during IPRs, its unpatentability determinations, and its denial of Proxyconn’s motion to amend.”  Id.

BRI Standard for Claim Construction:

  • At issue was the Board’s construction of the phrase “a gateway . . . connected to said packet-switched network in such a way that network packets sent between at least two other computers” recited in claim 6. Id. at 1298 (citing to ’717 patent, col. 10 l. 64-col. 11. l. 12) (emphasis in original).
  • Before the Board, Proxyconn argued that the term “two other computers” referred only to the sender and receiver computers, while Microsoft contended that the term “two other computers” could represent any two computers that are connected on the network to a gateway, including a caching computer. Id. at 1298.  The Board agreed with Microsoft’s interpretation, finding that “the ‘two other computers’ were not limited just to the sender/computer and the receiver/computer,” and therefore concluded that the reviewed claims were not patentable.  Id.
  • Upon review, the Federal Circuit disagreed with the Board’s conclusion, finding that the phrase “two other computers” could not include the caching computer. Id. at 1299.  First, the panel noted that claim 6 of the ’717 patent separately recited the “two other computers” and the caching computer.  Id. (citing to ’717 patent, col. 10 l.54- col. 11 l. 12).  Specifically, the panel reasoned that, “[n]ot only are the ‘two other computers’ recited independently from, and in addition to, the gateway and caching computers, the word ‘other’ denotes a further level of distinction between those two computers and the specific gateway and caching computers recited separately in the claim.”  Id.  The Federal Circuit further found that “in each instance where [two other computers] is used, the phrase . . . describes components that are separate and distinct from the gateway and the caching computer.”  Id.
  • Accordingly, the court found that the specification clearly identified that caching computer and the “two other computers” to be “separate and distinct components of the overall system.” Id.  To expand “two other computers” to include the separately identified caching computer unreasonably broadens the language in the claims and specification.  Id.  Therefore, the Court “vacate[d] the Board’s findings of unpatentability of claims 6, 7, and 9 and remand[ed] for proceedings consistent with [the] opinion.”  Id.
  • For similar reasons, the panel disagreed with the Board’s conclusion “that the terms ‘sender/computer’ and receiver/computer’ were broad enough to include the intermediary gateway and caching computers.” Id. at 1300.  Rather, the Court concluded that such an interpretation “does not reasonably reflect the language and disclosure of the ’717 patent.”  Id.  Accordingly, the Court also vacated the Board’s findings of unpatentability of claims 1, 3, 10, 22, and 23 and remanded back to the district court.

Claim 24 is Patentable:

  • Ultimately at issue in claim 24 is whether the term “comparing” is the same as the term “searching. Id. at 1301-02.  The Federal Circuit concluded that the two terms were not identical, and thus agreed with the Board.  Id. at 1302 (“Based on the clear language of the specification, the Board was correct in concluding that the broadest reasonable interpretation of ‘searching for data with the same digital in said network cache memory’ includes searching in a set of potentially many data objects.”).

Anticipation:

  • The Court also agreed with the Board that “the download requests that DRP’s client sends to the server after receiving the index from the server and comparing it to the local index meets the ‘receiving a response signal’ limitation of claim 11,” and thus concluded that DRP anticipates claims 11, 12, and 14 of the ’717 patent. Id. at 1303.

Board’s Denial of Proxyconn’s Motion to Amend Claims 1 and 3:

  • Proxyconn also challenged “the Board’s denial of its motion to amend claims 1 and 3.” Id. at 1303.  Proxyconn argued that the Board exceeded its own authority “by imposing the additional requirements of [a prior Board opinion] and by relying on the DRP reference” rather than exclusively relying on statutes and regulations governing motions to amend.  Id. at 1305-06.
  • Proxyconn sought to substitute claims 35 and 36 with claims 1 and 3 respectively. Microsoft argued that the substituted claims were not patentable for anticipation by the DRP reference.  Id. at 1305.  Proxyconn made several other arguments, but failed to argue that substitute claims 35 and 36 were patentable over the DRP reference.  Id.
  • Prior to addressing the arguments on either side, the Federal Circuit reviewed the legal framework governing amendments during IPR proceedings. Id. at 1303.
    • Under the America Invents Act (“AIA”), Congress granted specific authority to the Board in relation to IPR proceedings. Id. 1303-04.  Specifically, the Board promulgated two regulations under the AIA that are relevant to this case: (1) “37 C.F.R. § 42.20, which applies generally to motions practice,” and (2) “37 C.F.R. § 42.121, which imposes specific requirements on the amendment process.”  Id. at 1304.
    • In addition to the two regulations, the Board also issued a six-member panel decision in Idle Free Systems, Inc. v. Bergstrom, Inc., IPR012-00027, 2013 WL 5947697 (PTAB June 11, 2013), where it provided further recitation of several important requirements for a patent owner’s motion to amend. Id. at 1304.  According to Idle Free, the Board requires a patentee to show that the substitute claim is patentable over prior art that is “known to the patent holder.”  Id.  Although the Idle Free decision is not binding, the Board frequently relies on that decision in denying motion to amend.  Id.
  • First, the Federal Circuit agreed with the Board that “§ 42.121(a)(2) is not an exhaustive list of grounds upon which the Board can deny a motion to amend.” Id. at 1306.  Next, the Court determined that it is in the Board’s discretion to choose between rulemaking and adjudication.  Id. at 1307.  Given the Board’s lack of experience with motions to amend, the Federal Circuit agreed that the Board should retain the ability to deal with such motions on a case-by-case basis to ensure an effective administrative process.  Id.   As such, the Court recognized that “there is merit to [the Board’s] arguments,” in not creating a black letter rule on motions to amend, and thus held that the Board has not “abused its discretion in choosing adjudication over rulemaking.”  Id. at 1307.
  • Finally, since the Board’s reliance on the DRP reference “was front and center throughout the course of the proceedings” and Proxyconn “was [not] taken by surprise,” the Federal Circuit found that “the Board acted permissibly in requiring Proxyconn to establish the patentability of substitute claims 35 and 36 over the DRP reference.” Id. at 1308.

Lessons Learned:

  • In this decision, the Federal Circuit provides guidance on how the BRI standard should apply during IPR proceedings. Further, by affirming the Board’s denial of a patentee’s motion to amend, the Federal Circuit resolved the issue of whether the patentee bears the burden of proving patentability of proposed claim amendments during an IPR proceeding.  Specifically, the Federal Circuit determined that the Board has discretion in adjudicating that a patentee must show that its proposed substitute claims are patentable over prior art.

The Aereo Decision

By Evan Jensen

The Aereo decision gives the impression of the Supreme Court twisting itself into knots to find a reason why Aereo is infringing. And ultimately the Court decided to help broadcasters kill off the competition, rather than push broadcasters to innovate.

On June 25 the Supreme Court’s decision in the ABC v Aereo case came down.[1] The Supreme Court sided with ABC and the other broadcasters against Aereo. In its opinion, the Court held that Aereo’s transmissions are public performances and that therefore Aereo is infringing on copyrights owned by ABC and the other petitioners.

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The Patent Wars

By Evan Jensen

Patents protect the lifeblood of tech companies- the technology that powers their products. Large tech companies with complex products need many patents in order to protect their technology. But huge patent accumulation for defensive purposes leads to a nasty impasse where even if there were legitimate infringement, it would be irrational to sue because it is just too difficult and dangerous.

Large companies can use patents as weapons to attack their competitors. And when those companies own a massive stockpile of patents that cover critical technology in consumer products, a patent fight can become a knock-down, drag-out fight where the winner takes home all the marbles. In some respects a large patent stockpile resembles a nuclear weapon stockpile.

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Typhoon Touch v. Dell: Claims Saved From Aristocrat Invalidity But No Infringement Found

By Chris Reaves

A massive infringement suit against the major players in the touch-screen mobile market ended in the Federal Circuit, which confirmed that two patents required that a computer have specific software installed, not merely the capacity to run said software should it be installed.  In a small comfort to the patent holder, the Circuit also reversed a holding that certain patent claims were unsupported means-plus-function claims, finding that a textual description of the procedure involved qualified as an “algorithm” for Aristocrat purposes.

Background

In 1988, prosecution began on a chain of patent applications that culminated in Patents No. 5,379,057 (‘057) and No. 5,675,362 (‘362), issued in 1995 and 1997 respectively.  Both patents disclosed a “portable, keyboardless computer” with components including “a touch-sensitive screen … configured for entry of responses” and an “application generator for generating [at least one] data collection application and for creating different functional libraries”.

Typhoon Touch Technologies, Inc., the present assignee of the patents, sued numerous producers of tablets and smart phones for infringement of the patents.  However, in examining the claims at issue, the district court found that some were invalid as indefinite, and regardless that none were infringed as construed.  It therefore dismissed the case, and Typhoon Touch appealed the dismissal to the Federal Circuit.

Ruling 1: Devices Must Be Configured to Perform Function In Order to Infringe

Typhoon first protested the district court’s decision that, in various means-plus-function terms, the allegedly infringing structure “must perform the recited function”.  Under the rule of Microprocessor Enhancement Corp. (520 F.3d 1367), Typhoon argued, it was sufficient that the structure could be configured or programmed to perform the function, and therefore devices without said programming could still infringe.  The Circuit panel was unmoved, stating that although Microprocessor did allow for infringement by a structure already capable of performing a required function, it did not reach one that first needed to be “specifically so programmed or configured.”

Additionally, the district court had interpreted “keyboardless” to have its ordinary meaning: “without a mechanically integrated keyboard.”  The specification stated that the device was “keyboardless in that it does not require a keyboard for use”, which according to Typhoon redefined “keyboardless” to mean it could take input without a physical keyboard even if it had one.  However, although the Circuit acknowledged that a patentee may change the ordinary meaning of a term in the specification, it found no evidence of that in the instant case.  To the contrary, the specification was full of criticism of the use of mechanical keyboards in general, and never once disclosed a device with an integrated keyboard.

The panel also found no importance in Typhoon’s argument that the district court “constru[ed] the claims in order to target the accused devices and demonstrate their non-infringement.”  Rather, it stated, “[I]t is not inappropriate for a court to consider the accused devices when construing claim terms, for the purpose of ‘claim construction’ is to resolve issues of infringement.”

The Circuit therefore upheld all constructions of the district court. As Typhoon conceded that its patents were not infringed under the district court’s construction, the panel also upheld the judgment of non-infringement.

Ruling 2: Software Means-Plus-Function Claims Require Only a Procedure

In a Pyrrhic victory for Typhoon, the Circuit reversed the decision of invalidity for three claims that included a “means for cross-referencing said responses…” The district court had held these to be indefinite under § 112 ¶ 2, finding no “algorithm” in the description to perform the function, as required for software means-plus-function claims by Aristocrat Technology (521 F.3d 1328).  However, the Circuit found the district court’s interpretation of “algorithm” too restrictive in the context of computing.  A step-by-step procedure was sufficient – computer code was certainly not required – and although the Typhoon patents did not disclose this procedure through a flow chart, a “prose” disclosure in the text of the description served the same purpose.

“[T]he amount of detail that must be included in the specification depends on the subject matter that is described and its role in the invention as a whole, in view of the existing knowledge in the field of the invention.”  Because the specification described the steps of the cross-referencing procedure in terms that “a programmer of ordinary skill” could implement, the Circuit found the claims were supported and reversed the district court’s holding of indefiniteness.  It was no “concession,” as the district court felt it was, that Typhoon admitted “the specific algorithm connoting the structure of the means for cross-referencing element is not explicitly disclosed in the specification.”

Post-Case Analysis

The Circuit’s requirement of specific configuration seems not only sound but necessary, at least in the context of hardware and software.  Modern computers are quite capable of being programmed to run any number of procedures.  Once one has a computer meeting the hardware elements of a claim, no matter how general those elements, one can always install the software elements later, but that should not make the computer alone an infringement.  Presumably, the software is part of what makes the patent patentable, or the prosecutor would have patented the hardware alone, so a valid construction should not effectively make the software elements moot.  (Of course, if the hardware itself is specially designed to run the software in question, contributory infringement principles apply even without a software installation.  But this assumes the hardware has no other uses, and here it did.)

The opinion did not even address an argument that Typhoon tried to emphasize during oral arguments: that the patent claimed priority back to 1988, when hardware capable of executing the software (now ubiquitous) was itself new and arguably inventive.  This issue was beside the point.  Typhoon did not patent the hardware itself; it patented the hardware combined with software (at minimum, the “application generator”).  Again, if it did so because the hardware by itself was not new and unobvious even in 1988, removing the software requirement would have been a gross misreading of what the Patent Office had granted.  If it did so because the prosecutors were too focused on the software and did not consider the potential of the hardware alone, this serves as a lesson to future prosecutors: always remember to claim pieces as well as the whole, if the pieces are also inventive.  One never knows for sure which pieces might be discarded and which might come to dominate the market.

In regards to the “keyboardless” definition, the lesson is simply to remember that CCS Fitness (288 F.3d 1359) asks you to “clearly” redefine terms if you plan to do so.  Do not count on a court to pick up on subtleties and make the inference you want; be explicit with language such as “we define the term X herein to mean…”  Alternatively, use more natural terminology in the first place, such as, in this case, “capable of keyboardless data entry.”

In an interesting aside, the Circuit endorses a court molding its construction around the defendant’s claims, or at least focusing on the most applicable elements.  This approach would mean that the construction of a claim may vary depending on its first alleged infringer.  Issue preclusion applies to Markman constructions, albeit inconsistently and not in all circumstances (see RF Delaware (326 F.3d 1255), which applies a regional circuit’s law of preclusion).  And invalidation of a claim is binding in all courts even if a different construction would have saved the same claim.  It may be wise, therefore, to consider where and how a patent’s boundaries will be tested before deciding which infringing device to sue over first.

As is often the case, even the patent owner’s victories show where it could have drafted a better patent.  As Typhoon stated in oral arguments, had the cross-referencing procedure disclosed in the description been converted to a figure or flow chart, “we wouldn’t be here.”  The attorney meant it as an argument in support of validity, but it’s also a warning to future prosecutors: next time, include the flow chart.  Sometimes, it is the difference between a procedure a skilled programmer can understand and one she can’t, and even if not, it helps the judge understand it.

The opinion is available at: http://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1589.pdf

Oral arguments may be heard at: http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2009-1589.mp3

Federal Circuit Defines Language of 35 U.S.C. § 271(e)(2) in a Hatch-Waxman Controversy

By Kevin M. Repper

In the case of AstraZeneca Pharmaceuticals LP v. Apotex Corp., No. 2011-1182 (Fed. Cir. 2012), Astrazeneca holds the rights to three patents related to the drug rosuvastatin calcium. Two of the three patents involve methods of using rosuvastatin compounds. One of which is a method of treating heterozygous damilial hypercholesterolemia (HeFH) and the other is a method of lowering cardiovascular disease risk for individuals who have normal cholesterol levels but demonstrate elevated circulating C-reactive protein (CRP). The method of use patents expire in 2021 and 2018, respectively.

Apotex, a generic pharmaceutical manufacturer, filed an Abbreviated New Drug Applications (ANDA) with the FDA seeking to market generic rosuvastatin for treating hypercholesterolemia (HoFH) and hypertriglycerdemia while omitting or “carving out” patented indications directed towards the treatment of HeFH and elevated CRP. Under the Hatch-Waxman Act, the filed ANDA must provide a list of all the related patents and if the method of use patents do not claim a use for which the applicant is seeking approval, an applicant may instead submit a statement under 21 U.S.C. § 355(j)(2)(A)(viii) averring that the ANDA excludes all uses claimed in the patent (Section viii). Apotex properly submitted the Section viii statements regarding Astrazeneca’s method patents.

Astrazeneca brought an action against Apotex alleging that Apotex’s ANDAs, as filed, violated § 271(e)(2) because the use of the drug is claimed in AstraZeneca’s method patents. According to § 271(e)(2),  “it shall be an act of infringement to submit an application…for a drug claimed in a patent or the use of which is claimed in a patent…if the purpose of such submission is to obtain approval under such Act to engage in the commercial manufacture, use, or sale of a drug…claimed in a patent of the use of which is claimed in a patent before the expiration of such patent.” Astrazeneca argued that because their method patents claim any use of the drug, Apotex’s filed ANDA falls within the meaning of § 271(e)(2) and has infringed on their patents.

However, the court took a different stance. The court understood the term “use” from § 271(e)(2) to mean “the use listed in the ANDA.” Accordingly, the court held that it is not necessarily an act of infringement under § 271(e)(2) to submit an ANDA for a drug if just any use of that drug is claimed in a patent; rather, infringement of method claims under § 271(e)(2) requires filing an ANDA wherein at least one “use” listed in the ANDA is claimed in a patent. The court concluded that there can be no cause of action for infringement of a method of use unless the accused ANDA actually seeks approval for a patented indication.

An obvious solution for patent holders is to patent the drug itself. Astra has a patent that claims rosuvastatin compounds and pharmaceutical compositions containing such compounds, however the patent was due to expire years prior to the expiration of the method patents. Also, Apotex is challenging the validity of the composition patent in another co-pending litigation. Other solutions may include determining as many methods of treatment for as many diseases as you can and patenting those methods. This however takes a lot of time and a lot of resources.

Another possible option would be to patent the method of what the drug actually does in the body in addition to the disease that the drug treats. For example, rosuvastatin calcium serves to reduce circulating cholesterol by competitively inhibiting 3-hydroxy-3-methylglutaryl-CoA reductase. A patentable method claim of rosuvastatin calcium could have been a method of inhibiting 3-hydroxy-3-methylglutaryl-CoA reductase.  This method claim would likely be broad enough to cover most methods of treatment of any particular disease, especially if the diseases were listed the specification. Therefore, the court may have ruled that the use was in fact covered by the claims.

Federal Circuit Finds Noninfringment of System Claim Since No Single Entity Owns Each Element of Claim

In McKesson Tech, Inc. v. Epic Systems Corp., 98 USPQ2d 1281 (Fed. Cir. 2011), McKesson is the owner of U.S. Patent No. 6,757,898 (the ‘898 patent).  The ‘898 patent is directed to a communication method between doctors and patients in which patients are able to access webpages with customized content specific to the doctor and patient, such as allowing appointments and providing prescription refill requests.  Continue reading

Supreme Court Defines Inducement Standard to Include Willful Blindness of Patent Being Infringed

Supreme Court Mildly Narrows Federal Circuit Standard of Deliberate Indifference

In Global-Tech Appliances v. SEB S.A., 563 U.S.____; 98 USPQ2d 1665 (2011), SEB, a French maker of home appliances, filed a lawsuit against Pentalpha for direct infringement and active inducement of another in infringing of U.S. patent 4,995,312. Pentalpha is a wholly owned subsidiary of Global-Tech Appliances, Inc.

SEB designed an innovative deep fryer and obtained patent ‘312 in 1991, subsequently SEB commenced production of the fryer under the T-Fal brand in the Untied States. Sunbeam products, a U.S. competitor of SEB, requested Pentalpha Enterprises Ltd. to supply it with deep fryers of specific specification. While developing a fryer for Sunbeam, Pentalpha purchased a SEB fryer, in Hong Kong, which did not bear a patent identifier. Pentalpha copied all but the cosmetic details of the SEB fryer. Pentalpha then retained an attorney to perform a right-to-use study, but failed disclose that the design was copied directly form the SEB fryer. The attorney failed to locate the SEB patent, and in August 1997 issued a letter stating that in his opinion Pentalpha’s fryer did not infringe any of the patents he had found. Continue reading

Supreme Court Upholds the Clear and Convincing Standard for Invalidity Defense to Patent Infringement

In Near Unanimous Decision, Supreme Court Confirms Established rule    

In Microsoft Corp. v. i4i LTD. Partnership, 179 L. Ed. 2d 770; 79 U.S.L.W. 3567 (2011), i4i owns a patent for an improved method for editing computer documents.  i4i brought suit against Microsoft for willful infringement of that patent. Microsoft counterclaimed and sought a declaration of invalidity under 35 U.S.C. §102(b), claiming that the “invention” had been on sale in the United States for greater than one year prior to the filing of the patent.

Specifically, the parties agreed that a program known as S4 was sold by i4i in the Untied States for greater than a year prior to filing of the patent in question. The parties however, disagree that S4 embodied the invention claimed in i4i’s patent.  Moreover, since the source code for S4 was destroyed, Microsoft could only rely on testimony to prove what S4 embodied.  At the conclusion of trial, Microsoft objected to i4i’s proposed jury instruction that Microsoft was required to show that the S4 program anticipated the claimed invention by clear and convincing evidence, and relied upon the fact that the S4 program was never before the United States Patent and Trademark Office (USPTO) while the application was pending.   The District Court overruled Microsoft’s objection, and the jury found both infringement and willful infringement of the i4i patent.  The Federal Circuit affirmed the District Court’s decision relying on established case law. Continue reading