Virginia IP Law : Virginia Intellectual Property Lawyer & Attorney : Troutman Sanders Law Firm : Technology & Patent Litigation

Below is a guest post from my colleague Merril Hirsh about a recent Federal Circuit decision on patent pools: 

On April 20, 2009, the Federal Circuit issued a 2-1 decision in Princo Corp. v. Int’l Trade Comm’n, analyzing whether there was "patent abuse" in the operation of a patent pool used for compact discs. The majority held that patent pools that are "too deep" (because they include unnecessary patents) could constitute an abusive tying arrangement (but that this one did not); and that patent pool that are "too wide" (because they also restrict the development of potentially alternative technology) could constitute an abusive agreement not to compete (and this one might). Read more about this important decision here.
 

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To start, I have to admit my bias in favor of having local patent rules for the U.S. District Court for the Eastern District of Virginia (the "EDVA") and was involved in the process of the proposal discussed below. With that disclosure, I urge you to consider and offer support for this proposal. Obviously, the judges of the EDVA will decide on their own whether to adopt any proposed changes to their Local Rules. That said, the support of practitioners and interested bar organizations cannot hurt and may well help. Below is the text from an email distributed to the members of the Virginia State Bar’s Intellectual Property Section:

Over the past several years, many U.S. district courts have adopted some form of local patent rules (see http://www.nyipla.org/public/PatentLocalRules.doc for a slightly out-of-date list of U.S. district courts that have adopted some form of local patent rules) to provide judges and parties with a roadmap for handling patent cases. There are no local rules for patent cases in the U.S. District Court for the Eastern District of Virginia (the "EDVA"), and, indeed, the manner in which Judges in the EDVA handle patent cases vary widely from district to district and judge to judge. Believing that the EDVA would benefit from the adoption of some local rules for patent cases, several members of this IP Section of the Virginia States Bar contacted Chief Judge James C. Spencer to gauge the judges'  willingness to consider a proposal for some sort of local patent rules and to clarify the procedure for having such a proposal considered by the Court. At that time, Chief Judge Spencer expressed a willingness to consider local patent rules and described the procedure for getting such proposed local rules considered, which involves submitting them to a Local Rules subcommittee of judges for consideration over the summer so that they can be vetted and presented at the Court's annual conference in the Fall. Thus, he suggested that any proposal be submitted by late May or early June. By way of further guidance and advice, Chief Judge Spencer suggested that the proposed rules not be too long or intricate, and that they afford the judges substantial discretion in implementing the proposed rules or procedures in their own cases.
 
With this guidance and timeline in mind, a small working group (involving Dabney Carr, Maya Eckstein, Dave Finkelson, Dana McDaniel, Chip Molster, Steve Noona, Bob Barrett and Robert Angle) worked to craft a proposal that balances the various competing factors and interests in EDVA patent litigation, promotes consistency amongst the divisions, and saves the parties involved time and money. Attached is a draft proposed Local Rule and model Pretrial Order. Without explaining all of the back-and-forth that went into them, the proposed Local Rule and model Pretrial Order are drawn from practices and procedures already used by some of the judges in the EDVA, require parties to produce relevant disclosures and encourage resolution of claim terms early in the case to ameliorate the problem of late claim construction overlapping with expert witness disclosures, and leave much of the implementation to the discretion of the individual judges (which was deemed necessary to have any chance of adoption by the Court as a whole). The draft proposal has been reviewed with Chief Judge Spencer and a few other EDVA judges, all of whom have been generally favorable to the proposal.  Before making a formal presentation of the proposed Local Rule and model Pretrial Order to the Court, however, the drafters of the proposed Local Rule and model Pretrial Order are seeking the review and support of this Section and other IP-related organizations in the state. 

Please review the attached draft Local Patent Rule and model Pretrial Order and provide any questions or feedback you may have to Bob Barrett at rbarrett@hunton.com by May 15.

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On March 27, 2009, Judge Brinkema ruled in Pequignot v. Solo Cup Company, 2009 U.S. Dist. LEXIS 26020 (E.D.Va. March 29, 2009), that 35 U.S.C. § 292 -- which prohibits false patent marking -- is "one of the few remaining qui tam statutes in American law." Matthew Pequignot, a licensed patent attorney, sued the Solo Cup Company ("Solo"), the well-known maker of many disposable cups, lids, plates, bowls and utensils, for falsely markings its products with two expired patents, U.S. Patent No. RE28, 797, entitled "Lid," and U.S. Patent No. 4,589,569, entitled "Lid for Drinking Cup," and for including the phrase "This product may be covered by one or more U.S. or foreign pending or issued patents" on products that were not protected by any patent or pending patent application. Solo moved to dismiss asserting that Pequignot lacked Article III standing because he failed to allege any actual or imminent injury. Solo also argued that Pequignot’s claims violated the constitutional separation of powers doctrine under Article II. Judge Brinkema rejected both arguments.

While agreeing that Pequignot lacked Article III standing as a traditional plaintiff, Judge Brinkema held that § 292(b) confers standing on him to sue as a qui tam relator. Section 292(a) provides that whoever falsely marks a product with either a patent number, the words "patent" or "patent pending," or other words or numbers implying that the product is protected by a current or pending patent when it is not, and does so with the intent of deceiving the public, "[s]hall be fined not more than $500 for every such offense." Significantly, § 292(b) provides that "Any person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States." (Emphasis added). Judge Brinkema explained that § 292(b) meets five of the six elements of a qui tam statute:

It defines a wrong to the government as the false patent marking in violation of § 292(a). It imposes a statutory penalty of up to $500 per violation. It provides that "any person may sue for the penalty," regardless of whether or not such a person is personally harmed. Finally, it allows the suing person to receive half of the recovery from the suit, with the remainder going to the government.

Id. 2009 U.S. Dist. LEXIS 26020 at *18. Judge Brinkema also noted that "the Supreme Court and those courts that have adjudicated cases under § 292 have explicitly termed a § 292(b) a qui tam statute."  Id. at *18-19 (citations omitted). Accordingly, "[t]hese factors are more than sufficient to conclude that § 292(b) is indeed a qui tam statute, and therefore, that Pequignot has Article III standing, as a partial assignee of the government’s claims, to sue Solo."  Id. at *26.

Judge Brinkema swept aside Solo’s argument that such a construction of § 292(b) violates Article II by impermissibly undermining the Executive Branch’s ability to control qui tam litigation:

Enforcement of the substantive provisions of § 292 is not the type of executive function whose delegation to an authority not controlled by the Executive Branch would presumptively raise serious Article II questions.

Id. at *37. Judge Brinkema appeared to rue her decision to deny the motion to dismiss, describing the survival of § 292(b) as a qui tam statute as "likely an accident of history."  "The only practical impact of the qui tam provisions of § 292(b) appears to be its potential to benefit individuals, such as the plaintiff in the case at bar, who have chosen to research expired or invalid patent markings and to file lawsuits in the hope of financial gain."  Id. at *42.  Judge Brinkema invited Solo and other potential defendants to seek revision of it in Congress as has been done with other qui tam statutes. Until then, however, Pequignot opens the door for other qui tam plaintiffs to get into the potentially lucrative game of suing product manufacturers who continue to mark their products with expired patents.

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The Federal Judicial Center has recently published a draft “Patent Case Management Judicial Guide” which is available on-line.  The Patent Case Management Guide is described as a “comprehensive, user-friendly, and practical judicial guide for managing patent cases” that addresses the distinctive case management challenges of patent litigation.  

The Guide is primarily intended to be a resource for district judges. Like past Federal Judicial Center publications, such as the Manual for Complex Litigation and the Reference Manual on Scientific Evidence, the Patent Case Management Guide is likely to become widely used by district judges as an authoritative source for best practices for patent case management. 

The Patent Case Management Guide includes guidelines on

• preliminary injunctions
• discovery
• claim construction
• summary judgment
• trial management
• ANDA cases
• a “Patent Law Primer” for judges
• patent local rules from the Northern District of California and the District of New Jersey
• Model Patent Jury Instructions from the Northern District of California (2007) and the National Jury Instruction Project (December, 2008). 

The Patent Case Management Guide is authored by Professor Peter Menell of the Berkeley Center of Law and Technology, Lynn Pasahow at Fenwick & West LLP, James Pooley at Morrison & Foerster LLP and Matthew Powers at Weil, Gotshal & Manges LLP. The Judicial Advisory Board for the Guide includes district judges from around the country, including Judge Payne of the Eastern District of Virginia, as well as three Federal Circuit Judges.

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What does it mean to you?

A few years ago, every patent attorney was on pins and needles awaiting the decision from the Court of Appeals for the Federal Circuit (“CAFC”) in AWH v. Phillips describing the method  courts should use to determine the scope of a claim of a patent. Controversy had been dividing the judges of the CAFC, blogs blossomed discussing the issue, water cooler arguments were frequent, more paper was consumed by amicus briefs than all the stimulus bills, attorneys argued for the proper balance of intrinsic and extrinsic evidence, patent attorneys with engineering degrees happily drew complex flow charts describing claim construction, those were days. 

Four years later, we all know how to properly construe a claim according to the CAFC. We don’t talk about it anymore; patentable subject matter, obviousness, licensing, and the authority of the USPTO occupy our time and energy. 

We were taught to understand (or construe) a claim, initially -

Intrinsic evidence is used:

• The language of the claims themselves is construed directly; and

• This construction may be modified based upon:

  • The description of the invention and the definition of claim terms in the specification; and statements and arguments in the prosecution history of the patent.

Then, if necessary, extrinsic evidence may be used:

• Unbiased extrinsic evidence such as dictionaries; and

• Potentially biased extrinsic evidence such as expert testimony may be used last to complete our understanding. 

Of course, this method still allows for significant creativity, argument and other fun in construing the claims for litigation and opinion work. 

One significant part of the analysis is often overlooked. Though claim construction is a matter of law, the goal of claims construction is to determine the meaning of a claim as understood by a person of ordinary skill in the art at the time of filing. 

This cannot be emphasized enough; claims are to be interpreted as understood by one skilled in the art. Too often, I encounter inventors or patent owners that do not focus on an understanding of the claims – they leave it to their attorneys. Attorneys all too often accept this responsibility. A proper claim construction determines the value and the validity of a patent. Though understanding a claim can be difficult, patent holders and attorneys should carefully review all the claims together to confirm that come to a proper understanding of how the claims may be understood by one skilled in the art. It is important that clients and attorneys have a meeting of the minds over claim meanings or the claims should be amended.

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A recent ruling in a Federal District Court in the Eastern District of Virginia could make patent term extensions available to many more patented pharmaceuticals. 

First a little background: Generally, a patent issuing from the USPTO is given an enforceable term that begins on issuance of the patent and ends twenty years from the filing date of the patent. In some cases, however, the United States Patent and Trademark Office (“USPTO”) may grant an extension to the normal patent term ("Patent Term Extensions") for patents claiming pharmaceuticals.  The Patent Terms Extensions may be granted to compensate for delays occurring during the approval process of the Food and Drug Administration. For successful pharmaceuticals, each day of patent term is extremely valuable and this approval process may consume a significant portion of the valuable patent term. To compensate for government delay, the patent term extension statute, 35 U.S.C. § 156(a)(5)(A), allows the patent owner to recapture some of the economic benefit or their patent term lost during the approval process. A patent term may be extended for a patent claiming a pharmaceutical if permission for the commercial marketing or use of the “product” is the first permitted commercial marketing or use of the “product” under the provision of law causing the delay. In PhotoCure, the ED VA had to consider what the term "product" means in the statute.

PhotoCure ASA patented (U.S. Patent No. 6,037,267) and applied for FDA approval of methyl aminolevulinate hydrochloride (“MAL hydrochloride”) for the treatment of actinic keratosis, a pre-cancerous skin lesion. After issuance, PhotoCure applied for a patent term extension in the USPTO to compensate for term "lost" during its FDA approval process, but the patent term extension was denied. In reaching their decision, the USPTO interpreted the term “product” in 35 U.S.C. § 156(a)(5)(A) to mean an “active moiety.” An “active moiety” is considered by the USPTO to be a portion of a compound that is responsible for its pharmacological activity. The USPTO cited the commercial marketing for a different compound with the same “active moiety,” aminolevulinic acid ("ALA"), as the first permitted commercial marketing of the "product," MAL hydrochloride. The chemical structures or ALA and MAL hydrochloride are below:

                                 ALA                                                         MAL hydrochloride

Though the compounds are not identical they are similar, the USPTO decided that MAL hydrochloride has the same “active moiety” as previously marketed ALA and is, therefore, not elgible for a patent term extension.

PhotoCure sued the USPTO in the Eastern District of Virginia. In its decision, the ED VA boldly struck down the USPTO interpretation of “product” as meaning merely an “active moiety. The ED VA held that sharing an active moiety should not be the test for whether “product” has already be permitted to be commercially marketed. The court held that by using the term "product" the statute requires a comparison of the entire “active ingredient." The court held that the compounds were structurally different and, therefore, different “products” under the law. The court further stated that the USPTO’s decision to deny a PTE based merely on an "active moiety" was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law” under the Administrative Procedure Act. It is expected that the USPTO will appeal the case to the Federal Circuit to provide clarity in this important issue to the patent bar and the pharmaceutical industry.

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On April 2, the Senate Judiciary Committee passed a compromise version of S. 515, the Patent Reform Act (the “Act”). The original bill can be found here, and the amended bill is here.  A few observations on the Act’s impact on litigation in Virginia:

Venue

• The original bill limited venue in most patent cases to districts where the defendant is incorporated, has its principal place of business or has a “regular and established physical facility . . . that constitutes a substantial portion of [its] operations.” This provision would have shifted cases from popular plaintiff’s forums like the Eastern District of Texas to the homes of high-tech companies such as California, Delaware and New Jersey/New York and perhaps Virginia, based on the high-tech presence in Northern Virginia.

• The amended bill replaced those venue provisions with a very short new subsection, 28 U.S.C. §1400(c), which provides that “for the convenience of the parties and witnesses, in the interest of justice,” a district court shall transfer a patent case “upon a showing that the transferee venue is "clearly more convenient” than the current venue. (emphasis added).

• The “clearly more convenient” language comes from In re Volkswagen, 545 F.3d 304, 315 (5th Cir. 2008) (en banc) and In re TS Tech, 551 F.3d 1315 (Fed. Cir. 2008). Some commentators have characterized the amendments as “codifying” TS Tech, but the true impact is likely to be more muddled. Since the Act does not alter 28 U.S.C. § 1404(a), courts may well continue to apply their existing venue transfer standards and ignore the “clearly more convenient” standard. More likely, courts will simply add the “clearly more convenient” standard to their existing analysis.

• In Virginia, a “clearly more convenient” standard may produce fewer venue transfers. In several post-TS Tech decisions, transfer has been denied as not “clearly more convenient” where parties, evidence or witnesses are located in several forums. See Novartis Vaccines & Diagnostics, Inc. v. Hoffman LaRoche, Inc., 2009 U.S. Dist. LEXIS 14656 (E.D. Tex. Feb. 3, 2009) (transfer denied where drug developed in North Carolina, manufactured in Colorado, processed in Michigan or Switzerland, packaged in New Jersey and sold nationwide). Under Virginia federal court precedent, by contrast, transfer is often granted if the parties are not located in Virginia and Virginia is not the “center of accused activity.” See GTE Wireless v. Qualcomm, 71 F.Supp. 2d 517, 519 (E.D.Va. 1999). Thus, a “clearly more convenient” standard may shift the focus from whether the case has ties to Virginia to whether the case has ties to a particular transferee district. That accused activity is occurring nationwide, for instance, would count against transfer rather than, as it presently does, in favor of transfer.

District Court Pilot Program

• The amended bill establishes a 10-year pilot program for patent cases in at least six U.S. District Courts. Courts included in the program must be among the 15 districts with the largest number of patent cases or that have adopted local patent rules. At least three of the courts must have more than 10 active judges (including three judges who have requested and been designated to hear patent cases), and at least three must have fewer than 10 active judges (including two designated patent judges). The pilot program includes $5 million a year for education of judges and hiring patent law clerks. Cases would still be randomly assigned to all judges, but non-patent judges could decline to accept patent cases.

Venue for Patent and Trademark Appeals

• A technical amendment in the Act moves venue for civil actions appealing various decisions of the PTO, BPAI and TTAB from the District Court in Washington, D.C. to the Eastern District of Virginia. Such actions include civil actions appealing decisions by the BPAI relating to patent rejections (35 USC 145) and interferences (35 USC 146), civil actions appealing decisions by the PTO relating to patent term adjustments (35 USC 154(b)(4)(A)), civil actions appealing decisions of the TTAB relating to registration of a trademark (15 USC 1071(b)(4)), and civil actions appealing suspensions or exclusions from practice before the PTO (35 USC 32). Though such actions are relatively rare, this change could increase the volume of patent practice in Virginia.

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The Eastern District of Texas led the country in patent case filings in 2008 with 306, more than 100 cases more than the next two districts (the Central District of California with 198 and the Northern District of California with 171).

In two recent cases, though, the Fifth Circuit and the Federal Circuit overturned rulings from the Eastern District of Texas denying motions to transfer venue. In the Federal Circuit case, In re: TS Tech USA Corp., 551 F. 3d 1315 (Fed. Cir. 2008), decided on December 29, the Court held that the district judge had committed a “clear abuse of discretion” in refusing to transfer a case to Ohio when the relevant evidence and witnesses were located in Ohio, Michigan and Canada.

In the three months since TS Tech was decided, there have been 9 rulings on motions to transfer venue from the Eastern District of Texas. Five of those motions have been granted and four have been denied. Transfer has been denied where the relevant evidence or witnesses was not confined to a specific forum or region but are located around the country or in other countries, even if the case has no strong connection to Texas. Transfer has been granted where most of the parties, witnesses or evidence are located in one particular forum or where the plaintiff or the inventors are located outside of Texas.

Tellingly, since TS Tech, patent case filings in the Eastern District of Texas appear to be plummeting. So far in 2009, the Eastern District of Texas has fallen into fourth place, behind the Central District of California, the Northern District of California and the District of New Jersey. On average, filings in the Eastern District of Texas appear down approximately 40% off last year’s rate, while filings in the next three most popular districts appear on pace with last year. See Stanford IP Litigation Clearinghouse (registration required).

Here in Virginia, patent case filings are in line with average filings in 2008. The drop in filings in Texas, though, could mean that the Eastern District of Virginia, with its fast docket and the presence of a number of high technology companies in the district, may become even more popular for patent case filings.

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