Design Patents on Truck Parts Are Valid

Author: Susan Meyer

In a recent decision, the Federal Circuit Court of Appeals ruled that design patents on Ford truck hoods and headlights are not invalid as functional articles, holding “the aesthetic appeal of a design to consumers is inadequate to render that design functional.” Automotive Body Parts Association v. Ford Global Technologies, LLC, No. 2018-1613 (Fed. Cir., July 23, 2019).

Design patents protect a “new, original and ornamental design for an article of manufacture.” 35 U.S.C. § 171(a). Established law prohibits design patents on primarily functional designs due to their lack of ornamentality. Utility patents, on the other hand, must be functional to be patentable. Valid design patents may contain some functional elements but may not claim a “primarily functional” design. “If a particular design is essential to the use of the article, it cannot be the subject of a design patent.” L.A. Gear, Inc. v. Thom McAn Shoe Co., 988 F.2d 1117, 1123 (Fed. Cir. 1993).

This case was brought by the Automotive Body Parts Association (ABPA), who asked the court to hold that the aesthetic appeal, and not the mechanical or utilitarian aspect, of a patent design may render it functional. The court declined to adopt the ABPA’s unique argument.

The designs at issue are below.

Ford testified that a design team, and not engineers, designed the ornamental features for the hood and headlights, and although engineers reviewed the final designs, there were no changes to the aesthetic designs based on engineering or functional requirements. The court stressed the importance of prior tests that looked at the presence or absence of alternative designs. Of course, there are a variety of hood and headlight designs available.

Overall, the court found the ABPA’s arguments that designs that derive commercial value from their aesthetic appeal are functional, would gut the principles of design patents: “The very thing . . . for which [the] patent is given is that which gives a peculiar and distinctive appearance, its aesthetic.” The commercial edge the design may give a patent owner is “exactly the type of market advantage manifestly contemplated by Congress in the laws authorizing design patents.”

This recent ruling from the Federal Circuit clarifies that design patent defendants should not focus on whether a design’s aesthetic appeal is functional, but rather focus on the functionality of the article of manufacture itself. Patent owners will do well to develop evidence early of invention by designers and not engineers, and of a variety of design options in the field to show the lack of functional necessity for the particular patented design.

About the author: Susan B. Meyer is a partner and co-chair of Gordon Rees Scully Mansukhani’s Intellectual Property Practice Group. She is a registered patent attorney whose practice focuses on intellectual property litigation, prosecution, and counseling for clients in a wide variety of industries and technologies. Ms. Meyer’s biography can be found here.

Amazon’s Patent Infringement Evaluation Program

Author: David Heckadon

Amazon has been quietly testing a program called “Utility Patent Neutral Evaluation” that allows patent owners who sell their products on Amazon’s website to challenge potential infringers who also sell products on Amazon’s website. At present, the program is by invitation only. The overall objective of the program is to reach decisions very quickly and relatively affordably. Since almost half of American retail ecommerce sales already passes through Amazon’s website (projected to reach 50% by 20211), the ability to have a patent infringer’s product quickly and fairly cheaply removed from the website is a very powerful tool for patent owners. Patent owners who simply don’t have the money to spend on a traditional patent lawsuit can now go after their infringers efficiently on Amazon.

The system itself is simple, and the full decision process takes no more than 4 months. First, the patent owner approaches Amazon and identifies the potential infringer (or infringers), selects 1 claim of a US utility patent that it believes is infringed, and requests an evaluation. The patent owner must also identify the purported infringing product by its Amazon Standard Identification Number or “ASIN.”

The patent owner pays Amazon $4,000. Amazon then notifies the potential infringer(s) and the infringer(s) must also pay $4,000 to Amazon.

The patent claims are then evaluated by an attorney selected by Amazon, and this attorney must return a decision in a matter of weeks. If the patent claim is found to cover the accused product, then Amazon will remove the product from its website within 10 days of the decision. The accused product will also be removed from the website if its seller does not agree to participate in the program.

The program is very streamlined. There are no depositions, no discovery, no document requests, no hearings, no trial, and no experts. There is also no appeal process. The whole process done in writing.

First, the patent owner contacts Amazon to start the process. After Amazon agrees to start the process, the patent owner has only 21 days to submit its arguments (limited to discussing 1 claim from 1 US utility patent). These written arguments are limited to 20 pages (not including claim charts or exhibits). The patent owner must pay the $4,000 to Amazon within 2 weeks of the start of the program.

Next, the seller must also pay $4,000 and is given 14 days to respond. The seller’s response is limited to 15 pages (not including claim charts or exhibits). The possible arguments the seller can made are actually quite limited. The seller can argue only: (a) non-infringement; or (b) invalidity based on sales of the patented product more than 1 year before the patent’s earliest effective filing date; or (c) that the patent has already been invalidated by a court or the Patent Office. Moreover, should the seller argue that the patented product has been on sale for more than a year before the patent’s earliest effective filing date, the evidence presented must be independently verifiable (i.e., affidavits and declarations are not permitted evidence). Should the seller decide not to participate in the program, or fail to pay their $4,000, the seller’s goods are automatically removed from Amazon’s website.

Finally, the patent owner is given 7 days to submit an optional reply to the seller’s response. No modifications to the above 21-day, 14-day, and 7-day schedule are permitted. Once the clock starts ticking, it cannot be turned off.

The attorney evaluator selected by Amazon is given only 14 days to make their decision. To further speed up the process, the attorney evaluator only has to provide the basis for their findings if they find in in favor of the seller. The evaluator uses a “likely or not likely” standard to determine infringement.

Any product determined to be infringing will be removed from Amazon’s website within 10 days of the evaluator’s final decision. Neither the patent owner nor the seller can contact the attorney evaluator regarding their final decision. The entire process is bound by confidentiality agreements and all parties agree not to seek discovery from the other participants, from Amazon, or from the attorney evaluator after the process has concluded.

After the evaluator makes their final decision, the winner then gets its money back, and the loser’s $4,000 is used to pay the attorney. Amazon states that it does not keep any of the money.

Of course, Amazon cannot run its own court system, and it cannot limit the rights of plaintiffs and defendants in court or at the Patent Office. As such, the patent owner can still go to court and sue for infringement (and damages). Conversely, the accused infringer can still go to court and file a Declaratory Judgement action or go to PTAB for a review of the patent in question. Amazon can’t limit these rights, and Amazon confirms it will respect all judgments and arbitrations concerning the patent in question. Amazon also states that it will comply with the evaluator’s decision pending any litigation or settlement. However, Amazon’s huge market power as the world’s largest retailer makes this new system a very fast, cost-efficient, and effective tool to shut infringing products out of the market.

In addition to pleasing patent owners, this new program can also be good news for defendant sellers. Specifically, prior to this program, sellers’ products were simply removed from Amazon’s website after a charge of patent infringement. As such, these sellers had no recourse other than obtaining a declaration of non-infringement from a federal court.

One important limitation of this program is that it can only be used to challenge products that are sold by third-party sellers on Amazon’s website. As such, it cannot be used against products that are sold by Amazon itself. Currently, about 50% of the sales made through Amazon’s website are made by Amazon itself. 2 3 What this means is that only about half of the goods sold on Amazon’s website can be challenged under this new program (however, that percentage is expected to continually increase as Amazon continues to diversify to more sellers).

The program also has provisions to deal with multiple sellers of the accused infringing products. Specifically, each accused seller has to put up $4,000 to participate in the program. If none of the accused sellers remits its $4,000, then the accused goods are automatically removed from Amazon’s website. If multiple sellers lose, the $4,000 cost is divided evenly among them. Interestingly, however, if more than $4,000 has been paid by multiple sellers, the surplus funds received (i.e.: above the $4,000 paid to the attorney evaluator) are to be given to a charity selected by Amazon.

Other interesting provisions include instances where if the patent owner lists multiple products and only some of them are found to infringe the patent, then the patent owner pays $2,000, and the infringing sellers pay $2,000 (in even shares). Also, if the patent owner and the seller settle prior to the evaluation decision, the evaluator gets $1,000 (or $2,000 if settlement occurs after the patent owner’s reply has been filed).

Lastly, as can be seen, this new program is fundamentally different from traditional “early neutral evaluation” since it is not trying to get the parties to an agreement, or provide a non-binding evaluation of the merits of the case. It is also different from traditional mediation since the program is not intended to get the parties to settle. Amazon’s objective is speed and containment of cost in reaching a decision, not on trying to avoid costly litigation.

Amazon may now be the first private business entity to run its own patent infringement dispute resolution system. It will prove interesting to see what happens next as this system expands and is used more and more. It will also prove very interesting to see whether other retailers will try to develop similar programs or work together to build a system that they could all collaborate on.

About the author: David Heckadon is a registered patent attorney and a member of Gordon Rees Scully Mansukhani’s Intellectual Property Practice Group. Mr. Heckadon has a degree in mechanical engineering, and his practice focuses on patent prosecution, with particular emphasis on software technologies. Mr. Heckadon’s biography can be found here.
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1 fortune.com/2017/04/10/amazon-retail/
2 https://www.geekwire.com/2019/first-time-amazons-online-sales-make-less-half-entire-business/
3 https://www.statista.com/statistics/259782/third-party-seller-share-of-amazon-platform/

SCOTUS: AIA Does Not Limit Long-Standing “On Sale” Bar Precedent

Author: Patrick Mulkern

Summary

In a recent unanimous decision, the United States Supreme Court rejected a patentee’s argument that the America Invents Act (“AIA”) narrowed or otherwise affected the “on sale” bar rule governing secret sales, invalidating a patent because the subject matter had been subject to a confidential license agreement years prior to the precipitating application.1

Factual Background

Petitioner Helsinn Healthcare S.A. (“Helsinn”) is a Swiss pharmaceutical company that makes a drug for chemotherapy-induced nausea.2 In September 2000, Helsinn partnered with MGI Pharma, Inc. (“MGI”) to market and distribute the drug in the United States. Their license agreements included specific dosage information and required MGI to keep all Helsinn’s proprietary information confidential, but the fact of the license itself was announced in a joint press release.

In 2003, Helsinn filed a provisional application covering specific doses of its nausea drug.3 In May 2013, Helsinn filed the fourth of four applications that claimed priority to that 2003 date, ultimately issuing as U.S. Patent No. 8,598,219 (“the ‘219 Patent”).

Respondents Teva Pharmaceutical Industries, Ltd. and Teva Pharmaceuticals USA, Inc. (“Teva”) are generic drug manufacturers which sought FDA approval to market a generic version of Helsinn’s drug with the same dosage as that claimed in Helsinn’s ‘219 Patent. Helsinn sued Teva for infringement, but Teva claimedthe ‘219 Patent was invalid because the claimed dosage was “on sale” more than one year before the 2003 provisional application to which the ‘219 patent claimed priority.

The district court determined the “on sale” bar did not apply because, under its interpretation of the AIA, an invention is not “on sale” unless the challenged sale made the invention available to the public.4 The district court reasoned that, because the substance of the Helsinn-MGI license agreement had not disclosed the specific dosage, the sale did not make the invention public.

The Federal Circuit reversed, however, because “the details of the invention need not be publicly disclosed” for a sale to fall within the AIA’s “on sale” bar.5 Instead, it only mattered whether “the existence of the sale is public[.]”  According to the appellate court, here, the fact of the Helsinn-MGI agreement had been publicly announced in a joint press release.

Legal Background

The phrase “on sale bar” refers to the patent statute’s language, which prevents a person from receiving a patent if “the invention was . . . on sale” in the United States “more than one year prior to the date of the [patent] application[.]”6 Similar language has been a part of every patent statute since 1836—including the statute in force immediately before the AIA took effect. Then, in 2012, the AIA merely added the phrase “or otherwise available to the public.” Ultimately, the relevant AIA section read: “A person shall be entitled to a patent unless . . . claimed invention was . . . in public use, on sale, or otherwise available to the public[.]”7

The pre-AIA on sale bar had been held to apply when the product was “the subject of a commercial offer for sale” and was “ready for patenting.”8 The Supreme Court’s precedent had made clear (under the pre-AIA language) that the sale, or offer of sale, need not make the invention itself available to the public. Instead, for example, the Court in Pfaff held the inventor lost his rights without any regard to whether the offer of sale disclosed the details of the invention. Other cases have similarly focused only whether the invention was sold, not whether the details of the invention had been publicly disclosed.9 The Federal Circuit has agreed with these cases, consistently holding that even “secret sales” can invalidate a patent.10

This Decision

The Supreme Court began its analysis with a foundational canon of legislative analysis, presuming that “when Congress reenacted the same [on sale bar] language in the AIA, it adopted the earlier judicial construction of that phrase.”11 Justice Thomas noted how, in arguing as amici, the United States acknowledged that “adding the phrase ‘otherwise available to the public’ . . . would be a fairly oblique way of attempting to overturn that settled body of law.”12 Instead, the Supreme Court held, “[t]he addition of ‘or otherwise available to the public’ is simply not enough of a change for us to conclude that Congress intended to alter the meaning of the reenacted term ‘on sale.’”13 Thus, an inventor’s sale of an invention to a third party—even one who is obligated to keep the invention confidential—can qualify as prior art under § 102(a) of the AIA.14

Impact

While the new language of the AIA may have instilled some uncertainty about the new scope of the on sale bar, this decision answers those questions by clarifying that the on sale bar applies even to sales of an invention to a third party regardless of whether the sale results in the patented information being publicly known. Small companies who may look to license their inventions for testing or (like Helsinn) financial reasons during the development stages are on notice that they must be vigilant in filing their patent applications early. Specifically, in-house counsel should be constantly interfacing between the product development team and product commercialization team to understand the development timeline and what actions are being taken with respect to that product vis à vis any related patent applications.

Although the PTO and AIA’s own sponsor, Rep. Lamar Smith (R-TX), came out in favor of Helsinn’s position—and against the Federal Circuit’s decision as “indefensible”—it is clear that Congress will need to be more explicit if it desires to overturn case law interpreting the on sale bar. Even though the PTO had taken the position that the AIA “does not cover secret sales or offers for sale,” this decision may likely cause an update to the Manual of Patent Examining Procedure.15

About the author: Patrick J. Mulkern is an associate in Gordon Rees Scully Mansukhani’s Intellectual Property Practice Group. His practice focuses on intellectual property litigation and transactional matters, with a particular emphasis on patent, trademark, and trade secret litigation. Mr. Mulkern is a registered patent attorney and his biography can be found here.

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1 See Helsinn Healthcare S.A. v. Teva Pharms. USA, Inc., Case No. 17-1229, 586 U.S. ___ (Jan. 22, 2019).
2 Id., Slip Op. at 2.
3 Id., Slip Op. at 3.
4 Id., Slip Op. at 4 (citing Helsinn Healthcare S.A. v. Dr. Reddy’s Labs. Ltd., 2016 WL 832089, at *45, *51 (D.N.J. Mar. 3, 2016)).
5 Id. (citing Helsinn Healthcare S.A. v. Teva Pharms. USA, Inc., 855 F.3d 1356, 1360 (Fed. Cir. 2017)).
6 Id., Slip Op. at 5-6 (quoting 35 U.S.C. § 102(b) (2006 ed.)).
7 Id., Slip Op. at 6 (quoting 35 U.S.C. § 102(a)(1) (2012 ed.)).
8 See Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 67 (1998).
9 See, e.g., Elizabeth v. Pavement Co., 97 U.S. 126, 136 (1878) (“It is not a public knowledge of his invention that precludes the inventor from obtaining a patent for it, but a public use or sale of it.”).
10 See, e.g., Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353, 1357 (Fed. Cir. 2001).
11 Helsinn, 586 U.S. at ___, Slip. Op. at 7.
12 Id., Slip Op. at 7-8 (quotations and citations omitted).
13 Id., Slip Op. at 8 (emphasis added).
14 Id., Slip Op. at 9.
15 See Manual of Patent Examining Procedure, § 2152.02(d) (9th Ed., 2018).

USPTO Practice Change Increases Fees for Multiple Reissue Patents and Allows for Refund of Surcharge Fees

Author: Kimberley Chen Nobles

Managing a patent portfolio often includes payment of maintenance fees to keep patent rights in force. While patent owners are accustomed to the fee based system, the new practice can result in a significant increase in fees to maintain multiple reissue patents. In addition, patent owners may have an opportunity to recoup fees paid to the US Patent and Trademark Office (USPTO). Recognizing certain fees can assist with planning and portfolio management.

The USPTO recently issued a new practice and guidance for maintenance fees with respect to multiple reissue patents.2 Maintenance fees are costs associated with maintaining a patent after the patent is granted and are due for the 3rd, 7th, and 11th anniversaries of the patent grant. Failure to pay the requisite maintenance fee can lead to loss of patent rights. Managing the timing of maintenance fee payments can avoid surcharges associated with the maintenance fees.

The following is an outline of how to identify which matters the new practice applies to, how to comply with the new practice, and an exemplary scenario.

USPTO Practice for Maintenance Fee Payments (and Possible Refund!)

Effective January 16, 2018, each utility reissued patent requires its own maintenance fees. This new practice replaces the former practice of only requiring payment of one maintenance fee in the latest reissue patent. Patent owners may have to budget additional funds for maintaining any multiple reissue patents.

What is a multiple-reissue patent?

A reissue patent is a patent grant that is issued to correct an error in an earlier patent grant. In some cases, multiple reissue patents are granted. Prior to the new practice, patent owners were only required to pay maintenance fees in the latest reissue patent for a multiple reissue patent family. The USPTO may reissue a single original patent as multiple reissued patents (35 USC 251(b), 37 CFR 1.77).

Example: Original patent is issued → Patent Owner initiates a Reissue proceeding to correct a defect in the patent → Multiple reissue patents issued (e.g., Reissue Pat 1 and Reissue Pat 2)

When are the fees due?

Maintenance fees are paid in windows, either 6 months before a due date, or six months following the due date. Payments in the 6-month window following a dude date require payment of a surcharge. The due dates for each window are three years and six months (3 ½ years), seven years and six months (7 ½ years), and eleven years and six months (11 ½ years), with the due dates calculated from the original patent date.

In the current fee schedule, the 3rd, 7th, and 11th anniversary fees are $1,600, $3,600 and $7,400, respectively.

 

Maintenance Fee Guidance

  • Identify Multiple Reissue Patents, Pending Reissue Applications, and Original Patents
  • Identify Maintenance Fee Payment Dates/Payments
  • Flag/Set fee payments for Multiple Reissue Patents
  • Determine if fee payments are due/have been paid within the period of January 16, 2018 to July 16, 2018
  • Determine if refunds should be requested for surcharge payments

What about payments made prior to January 16, 2018?

The new practice applies to payments made for maintenance fees on or after January 16, 2018 even if prepaid. For reissue matters that may have already been paid, check payments made from July 17, 2017 to January 15, 2018 (for multiple reissue matters). If a payment has been made, a separate maintenance fee may be required in any earlier reissued patent(s) and original patent if there is a pending reissue application.

Payments Made in Original Patent?

The new practice changes the procedure for original patents that are the basis for reissue patents and the basis for reissued applications. Maintenance fees remain due in the original patent whenever an application for reissue of the original patent is pending on the maintenance fee due date.

Payments Made for Reissue Application about to Issue?

Maintenance fee must be paid for the original patent to maintain the last reissued patent even when the reissue patent is expected to issue within the grace period.

Example Scenario – Pending Reissue Patent

For a 7 ½ year maintenance fee due date is Feb. 27, 2018, the new practice applies. In the scenario below, two reissue patents and one pending reissue application exist due to a previous reissue application. As a result, Maintenance fees for the 7 ½ year payment (e.g., $3,600 per reissue/pending reissue) must be made in both reissue patents and the original patent.

 

Requesting Surcharge Refund

While the surcharge fee of $160 based on the current fee scale is a fraction of some of the maintenance fees, Patent owners can request a refund of the surcharge under 37 CFR 1.20(h) for payments made from January 17, 2018 to July 16, 2018. As mentioned above, the surcharge cannot be waived at the time of payment. Refund requests must be made by January 16, 2019.

1 Link to Official Notice: https://www.uspto.gov/sites/default/files/documents/reissue-mf-pay.pdf?utm_campaign=subscriptioncenter&utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term

2 Link to FAQs: https://www.uspto.gov/sites/default/files/documents/faqs-reissue-mf-pay.pdf?utm_campaign=subscriptioncenter&utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term

About the author: Kimberley Chen Nobles is a partner in Gordon Rees Scully Mansukhani’s Intellectual Property practice group. She focuses her practice on representation of technology companies worldwide in transactional and litigation matters involving patents, trademarks, copyrights, and trade secrets.  Ms. Nobles’ biography can be found here.

The State of Design Patent Infringement Damages Calculations Following the Battle Between Apple and Samsung

Author: Mike Khoury

Many people have heard of the patent dispute between Apple and Samsung dating back to a 2011 Northern District of California lawsuit. In a legal battle that has lasted over 6 years, gone through two jury trials, and endured appeals to the Federal Circuit and U.S. Supreme Court, one issue remains uncertain: the measure by which to calculate damages in a design patent infringement case.

In 2011, Apple sued Samsung for infringing upon iPhone design patents. The following year, a jury awarded Apple $399 million in design patent infringement damages—Samsung’s entire profit from sales of the infringing phones. Samsung appealed, arguing that the jury’s damage award should have been limited to only part of the profit (as only part of the phone’s design was copied from Apple). After the Federal Circuit affirmed the jury’s award, Apple Inc. v. Samsung Electronics Co., 786 F.3d 983 (Fed. Cir. 2015), the Supreme Court granted certiorari and reversed. Samsung Elecs. Co. v. Apple, Inc., 137 S. Ct. 429, 434 (2016).

At the center of the Supreme Court’s decision is the damages provision specific to design patents under 35 U.S.C. § 289. In relevant part, section 289 reads: “Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit[.]” (emphasis added).

In interpreting section 289 for the first time, the Supreme Court explained that “[a]rriving at a damages award under § 289 . . . involves two steps. First, identify the ‘article of manufacture’ to which the infringed design has been applied. Second, calculate the infringer’s total profit made on that article of manufacture.” Samsung Electronics, 137 S. Ct. at 434. As used in section 289, the term “article of manufacture,” the Supreme Court continued, “encompasses both a product sold to a consumer and a component of that product.” Id. In other words, “reading ‘article of manufacture’ in § 289 to cover only an end product sold to a consumer gives too narrow a meaning to the phrase.” Id. at 436 (emphasis added). However, not surprisingly, the Supreme Court stopped short of establishing a test for identifying the article of manufacture under section 289 and remanded to the Federal Circuit for reassessing damages. The Federal Circuit, in turn, remanded the case to the district court for further proceedings. Apple Inc. v. Samsung Elecs. Co., 678 Fed. Appx. 1012 (Fed. Cir. Feb. 7, 2017).

The case is now back before Judge Lucy Koh of the Northern District of California. On October 22, 2017, after Apple and Samsung briefed the issue, Judge Koh ordered a new trial. In her order, Judge Koh adopted a test proposed by the Department of Justice (“DOJ”) in an amicus brief filed in the Supreme Court appeal in this case. “The test for determining the article of manufacture for the purpose of § 289 shall be the following four factors: [1] The scope of the design claimed in the plaintiff’s patent, including the drawing and written description; [2] The relative prominence of the design within the product as a whole; [3] Whether the design is conceptually distinct from the product as a whole; and [4] The physical relationship between the patented design and the rest of the product, including whether the design pertains to a component that a user or seller can physically separate from the product as a whole, and whether the design is embodied in a component that is manufactured separately from the rest of the product, or if the component can be sold separately.” Apple Inc. v. Samsung Elecs. Co., No. 11-CV-01846-LHK, 2017 U.S. Dist. LEXIS 177199, at *111 (N.D. Cal. Oct. 22, 2017)

This test is short of a victory for either side. As Judge Koh notes, and as expected, the plaintiff bears the burden of persuasion on identifying both the relevant article of manufacture as well as the amount of total profit on the sale of that article. Id. If plaintiff succeeds in meeting both, only then does the burden shift to defendant to present evidence of an alternative article of manufacture and any deductible expenses. Id. at *111-12.

To date, it remains unclear whether this test will withstand scrutiny. That said, given that both Apple and Samsung suggested in their briefs at least some level of acceptance of the test, it is unlikely either party will challenge it. It is likely, however, that Apple and Samsung will settle their dispute short of another trial. A settlement means that, at least for now, the test will not be challenged. Since Judge Koh’s order is not binding on any court, it will be interesting to see whether other courts in the Northern District and within the Ninth Circuit will adopt the same test. But even then, short of an appeal to the Federal Circuit, the issue remains unresolved. For now, though, Judge Koh’s order provides some much-needed guidance.

A more promising appeal, however, comes from Columbia Sportswear North America, Inc. v. Seirus Innovative Accessories, Inc., Case No. 3:17-cv-1781-HZ (S.D. Cal. 2017), a Southern District of California design patent infringement case and the first case involving a jury verdict awarding damages after the Supreme Court’s Samsung decision. Like Judge Koh, Judge Marco Hernandez in Columbia Sportswear also adopted the DOJ’s test, and on September 29, 2017, the jury awarded Columbia $3 million in damages.

Judgement in Columbia Sportswear was entered on November 22, 2017. The parties have 30 days to appeal.

Stay tuned.

Further Venue Guidance for Patent Infringement Suits

Author: Conor McElroy

As anticipated, the Supreme Court’s May 22, 2017 TC Heartland LLC v. Kraft Foods Group Brands LLC, 581 U.S. ____ (2017) ruling, which recognized 28 U.S.C. §1400(b) as the exclusive statute governing venue in patent infringement actions, has presented district and circuit courts with the opportunity to provide further guidance on §1400(b). Section 1400(b) states, “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” Before TC Heartland, the vast majority of cases only addressed the first prong (“where the defendant resides”) due to the fact that the first prong’s standard was relatively easy to meet. Essentially, venue was proper anywhere a defendant was subject to personal jurisdiction. TC Heartland changed the analysis by determining that “resides” for purposes of §1400(b) only includes the state of incorporation. As a result, more litigants increasingly rely on the second prong (“where the defendant has committed acts of infringement and has a regular and established place of business”), which is therefore, being addressed and analyzed more by the courts.

On September 11, 2017, the U.S. District Court for the District of Delaware issued two decisions regarding venue challenges in patent cases. In Boston Sci. Corp. v. Cook Grp., Inc., No. 15-980-LPS-CJB, 2017 U.S. Dist. LEXIS 146126 (D. Del. Sept. 11, 2017) and Bristol-Myers Squibb Co. v. Mylan Pharms., Inc., No. 17-379-LPS, 2017 U.S. Dist. LEXIS 146372 (D. Del. Sept. 11, 2017), the District Court gave instructions on various aspects of post-TC Heartland §1400(b), including the burden of proof for a venue challenge, and whether TC Heartland effected an intervening change of law for waiver purposes. As for its analysis of the second prong of §1400(b), the court looked to the words of the statute, as well as some of the few decisions that applied the second prong, and determined that a permanent and continuous physical presence is required. In further elaborating, the Court noted circumstances that did not amount to a permanent and continuous presence. Specifically, simply doing business in a district or being registered to do business in a district, merely demonstrating that a business entity has sufficient “minimum contacts” with a district for purposes of personal jurisdiction, maintaining a website that allows consumers to purchase a defendant’s goods within the district, and simply shipping goods into a district are all insufficient to demonstrate that a defendant has a regular and established place of business in the district. In Boston Scientific, the court granted the defendants’ motion to transfer the case because there was not a regular and established place of business in Delaware, while in Bristol-Myers Squibb, the court ordered further discovery into how the defendant operated its business.

On September 21, 2017, the Federal Circuit also issued post-TC Heartland guidance. In In re Cray Inc., No. 2017-129, 2017 U.S. App. LEXIS 18398 (Fed. Cir. Sept. 21, 2017), the court reversed the District Court for the Eastern District of Texas’s denial of motion to transfer. In doing so, the court identified three general requirements relevant to the §1400(b) “regular and established place of business” venue inquiry. First, there must be a physical place in the district. This “place” need not be a formal office or store, but there must still be a physical, geographical location in the district from which the business of the defendant is carried out.” Therefore, mere virtual spaces or electronic communications do not meet the definition of “place.”

Second, the place must be a regular and established place of business. “Regular” means the business operates in a “steady, uniform, orderly, and methodical manner,” while “established” requires that the place in question must be “settled certainly, or fixed permanently.” Finally, the business must be “the place of the defendant.” In other words, “the defendant must establish or ratify the place of business.” Relevant considerations for this factor include whether the defendant owns or leases the place and whether the defendant conditioned employment on the employee’s continued residence in the place of business. In applying these venue requirements to the specifics of the case, the Federal Circuit found that the facts involving an employee’s home being located in the Eastern District of Texas “do not show that [the defendant] maintains a regular and established place of business in the Eastern District of Texas; they merely show that there exists within the district a physical location where an employee of the defendant carries on certain work for his employer.” Thus, the court ruled that case should have been transferred.

While the foregoing cases help to clarify how venue challenges in patent infringement cases may be evaluated, the question of proper venue is often a fact-specific inquiry. Nevertheless, as case law after TC Heartland grows, and as more and more §1400(b) challenges are litigated, the contours and confines of what the “regular and established place of business” prong requires will be clarified. But for now, TC Heartland and cases following it continue to adopt a more restrictive view on venue and the requirements for proper venue.

Impression Products v. Lexmark: The Patent Exhaustion Doctrine both at Home and Abroad

Author: Conor McElroy

On May 30, 2017, the U.S. Supreme Court held that patent rights in a product are exhausted by the sale of that product, regardless of any restrictions imposed by the patent holder or where the sale occurred. The case, Impression Products, Inc. v. Lexmark International, Inc., 581 U.S. ___ (2017), involved the domestic and international refurbishing and resale of patented toner cartridges in violation of contractual restrictions agreed upon by initial purchasers. Chief Justice John Roberts authored the opinion and was joined by all of the Justices besides Justice Ginsburg (concurring in part and dissenting in part) and Justice Gorsuch (who took no part in the consideration or decision of the case).

According to 35 U.S.C. § 154(a), a patent holder has a twenty year period to “exclude others from making, using, offering for sale, or selling [its] invention throughout the United States or importing the invention into the United States.” Anyone who violates these rights “without authority” may be liable for patent infringement under 35 U.S.C. § 271(a). Yet, this liability does not apply when a patent holder’s rights “exhaust” through a sale of the patented product. The new owner of the product and all subsequent owners are no longer potentially liable for patent infringement.

In this case, Lexmark, a seller of printer toner cartridges, incorporated explicit restrictions in the sales contracts for cartridges as part of its Return Program that limited buyers of the cartridges to using the cartridges once and then transferring the empty cartridge back to Lexmark. Impression Products, a remanufacturer of empty toner cartridges, bought empty Lexmark Return Program cartridges from U.S. and non-U.S. purchasers in order to refill them with toner and then resell them. As an owner of several patents in these cartridges, Lexmark argued that Impression Products infringed their patents by refurbishing and reselling the cartridges despite the unambiguous prohibition of reuse and resale. Furthermore, Lexmark claimed that Impression Products’ importation of cartridges sold abroad into the U.S. also constituted patent infringement. The two issues before the Court were: (1) whether a patent holder’s sale of a patented product under the express restriction that the product not be reused or resold may enforce the restriction through a patent infringement lawsuit; and (2) whether a patent holder’s rights are exhausted when its product is sold abroad, where U.S. patent laws do not apply.

The Court began by analyzing the Return Program cartridges that Lexmark sold in the U.S. After citing a string of Supreme Court cases dealing with patent holder (“patentee”) rights being exhausted after an authorized sale, the Court recognized that it “has long held that, even when a patentee sells an item under an express restriction, the patentee does not retain patent rights in that product.” For instance, in a recent case, Quanta Computer, Inc. v. LG Electronics, Inc. 553 U.S. 617 (2008), the Court found that a patentee’s use restrictions included in sales of microprocessors could not be invoked to allege patent infringement. With the well-settled line of precedent, the Court had no problem concluding that “[o]nce sold, the Return Program cartridges passed outside of the patent monopoly, and whatever rights Lexmark retained are a matter of the contracts with is purchasers, not the patent law.” The Court also rejected the Federal Circuit’s holding that patent exhaustion is a default rule but a patentee can withhold the authority to use and sell an item, which then allows enforcement of the restriction through patent infringement lawsuits. The Court explained that “the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is a limit on the scope of the patentee’s rights.” When customers purchase products, they purchase the rights associated with ownership (the right to use, sell, or import the product) not the patentee’s authority to exercise those rights.

As for Lexmark’s other claim that Impression Products’ importation of Lexmark’s patented cartridges into the United States made it liable for patent infringement, the Court determined that there was no reason not to apply patent exhaustion to foreign sales. Lexmark argued that the Patent Act specifically limits patent holders’ monopoly on the making, using, selling, and importing of its products to acts that occur in the United States. Since the U.S. Patent Act does not apply to acts that occur outside the United States, Lexmark argued that there could not be patent exhaustion from its sales since there were no patent rights abroad to exhaust. The Court disagreed. First, the Court noted that the “first sale doctrine” of copyright law, which cuts off copyright owners’ power to restrict the ability of a purchaser of a copy of the copyrighted work from selling or otherwise disposing of that particular copy, applied equally to copies made and sold in the U.S. and those made and sold internationally. See Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013) (holding that the first sale doctrine applied equally to domestic and international sales of copies of textbooks). Since copyright law and patent law share a strong similarity and purpose, “differentiating the patent exhaustion and copyright first sale doctrines would make little theoretical or practical sense.” Furthermore, nothing in the history of the Patent Act indicated that there should be a deviation from the borderless common law principal that restraints on alienation are to be avoided. Thus, the Court ruled that “restrictions and location are irrelevant; what matters is the patentee’s decision to make a sale.”

A copy of the Court’s slip opinion is available here.

The Federal Circuit Interprets the On-Sale Bar Under the America Invents Act

Author: Robert Andris

On May 1, 2017, the Federal Circuit Court of Appeals took its first opportunity to interpret the on-sale bar provision of 35 U.S.C. Section 102 under the Leahy-Smith America Invents Act (“AIA”). In Helsinn Healthcare v. Teva Pharmaceuticals, Nos. 2016-1284, 2016-1787, 2017 US App Lexis 7650 (Fed. Cir. May 1, 2016), the court held that the AIA did not change the meeting of the on-sale bar and there was overwhelming evidence that, before the critical date, the patented invention at issue in that case was reduced to practice and ready for patenting.

The case at bar involved four patents covering the pharmaceutical product known as Aloxi. This composition contains the active ingredient palonosetron. Aloxi was sold by plaintiffs as approved for the prevention and treatment of cancer chemotherapy- induced nausea and vomiting (“CINV”). Three of the patents-in-suit were governed by the patentability requirements of the pre-AIA version of Section 102, while one patent was governed by the new language of Section 102 as provided in the AIA. Plaintiff filed suit against various generic drug manufacturers. After an 11-day bench trial, the district court in New Jersey issued a one-page Memorandum of Decision. The court held that the patents were infringed, not invalid as obvious, and that the requirements for the on-sale bar under either version of the statute were not met. The Federal Circuit Court of Appeals reversed and entered judgment in favor of defendants.

The appellate panel focused its opinion entirely on the pre- and post-AIA versions of the on-sale bar. In cases involving patents with effective filing dates before March of 2013, the old version of the on-sale bar applies. Interpretation of the pre-AIA version of the on-sale bar is governed by the two-step frame-work enunciated by the Supreme Court in Pfaff v. Wells Electronics, 525 U.S. 55 (1998). There, the Court held that: (1) there must be a sale or offer for sale; and, (2) that the claimed invention must also be ready for patenting at least one year before the critical in order for the on-sale bar to apply.

More recently, in Medicines Co. v. Hospira, 827 F.3d 1363 (Fed. Cir. 2016), an en banc panel of the Federal Circuit interpreted when there was “a sale or offer for sale” for purposes of the bar. In order to qualify, the exchange in question must be “analyzed under the law of contracts as generally understood” and “must focus on those activities that would be understood to be commercial sales and offers for sale . . .” According to the Uniform Commercial Code (“UCC”), a sale occurs when there is a “contract between parties to give and to pass rights of property for consideration which the buyer pays or promises to pay the seller for the thing bought or sold.” Because the plaintiff in Helsinn admitted that it entered into a Supply and Purchase Agreement with a third party many years before the first application was filed, and despite the fact that the Agreement was conditioned on FDA approval, the court found an offer for sale had been made and, therefore, the first element of Pfaff was met. Likewise, the court found that the three pre-AIA patents met the ”ready for patenting” element because the Supply and Purchase contract disclosed all of the relevant limitations of the patents themselves, including the precise compounds involved as well as dosages.

Turning to the revised version of the on-sale bar, the court noted that, before the AIA, Section 102(b) barred the patentability of an invention that was “ . . . in public use or on sale in this country, more than one year prior to the date of the application for patent.” Under the AIA, however, new Section 102(a)(1) bars patentability if the invention was “ . . . in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.” Plaintiff argued that Congress’ addition of this “available to the public” language added the requirement that the invention be disclosed to the public in order for the bar to apply. The Federal Circuit disagreed, stating: “Requiring such disclosure as a condition of the on-sale bar would work a foundational change in the theory of the statutory on-sale bar.” Instead, the same requirements of a commercial offer and readiness for patentability apply. Accordingly, for the same reasons, the Federal Circuit held that in Helsinn, the first three patents were barred and the fourth patent was likewise invalid.

For a copy of the slip opinion, click here.

TC Heartland Likely to Bring a Sea Change in Patent Venue Law and the End of Forum Shopping

On December 14, 2016, the U.S. Supreme Court granted certiorari in TC Heartland LLC v. Kraft Food Brands Group LLC to decide the following issue:

Whether the patent venue statute, 28 U.S.C. § 1400(b), which provides that patent infringement actions ‘may be brought in the judicial district where the defendant resides[,]’ is the sole and exclusive provision governing venue in patent infringement actions and is not to be supplemented by the statute governing ‘[v]enue generally,’ 28 U.S.C. § 1391, which has long contained a subsection (c) that, where applicable, deems a corporate entity to reside in multiple judicial districts.

The determination of this issue has potentially significant consequences for accused infringers and their counsel who have routinely faced patent suits in distant venues with plaintiff-friendly local rules and procedures that together drive settlements often unrelated to the value of the asserted technology. As the Petitioner TC Heartland (“Petitioner”) and the amici curiae in support of the cert petition have noted, the Federal Circuit’s unwavering adherence to its holding in VE Holdings Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990) has created conditions that allow rampant forum shopping by plaintiffs and even forum selling by certain district courts. Petitioner and the amici argue that forum shopping and forum selling undermines the economic utility of patent system and ultimately destabilizes public confidence in the judiciary. These important policy concerns, together with strong legal arguments that the Federal Circuit’s holding in VE Holding was misguided, will likely signal the end of an era in patent litigation and restore treatment of patent venue to a pre-1990 scope.

TC Heartland is an Indiana limited liability company headquartered in Indiana. Kraft Food Brands (“Respondent”) is organized and exists under Delaware law and has its principal place of business in Illinois. Respondent sued Petitioner in the United States District court for the District of Delaware, alleging Petitioner’s liquid water enhancer products infringed three patents owned by Respondent. Petitioner moved to dismiss the complaint for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2). Petitioner also moved to either dismiss the action or transfer venue to the Southern District of Indiana under 28 U.S.C. §§ 1404 and 1406. Petitioner contended that the accused products were designed and manufactured in Indiana and that a mere 2% of its sales in 2014 were shipped to destinations in Delaware at the sole direction of one of its national customers based in Arkansas. Petitioner therefore argued that because it had no local presence in Delaware, was not registered to do business there, and had not solicited sales in Delaware, Delaware was not the “judicial district where the [Petitioner] resides” within the meaning of 28 U.S.C. § 1400(b). Petitioner also argued that the district court was bound by the Supreme Court’s opinion in Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957), and that the 2011 amendments to § 1391 repealed the statutory language upon which the Federal Circuit’s decision in VE Holding relied in circumventing Fourco.

In the proceedings below, the Magistrate Judge determined that it had specific personal jurisdiction over Petitioner based on a stream-of-commerce type theory under Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1571 (Fed. Cir. 1994). The Magistrate Judge also rejected Petitioner’s arguments that the 2011 amendment to 28 U.S.C. § 1391 altered the general venue statute and thereby nullified the Federal Circuit’s holding in VE Holding. Accordingly, the judge held that venue was proper based upon a finding of personal jurisdiction.

The district court adopted the Magistrate Judge’s report in full and expressly concluded that Congress’ 2011 amendments to 28 U.S.C. § 1391 “did not undo” the Federal Circuit’s decision in VE Holding. Petitioner timely petitioned the Federal Circuit for a writ of mandamus. The Federal Circuit affirmed the district court’s order, stating that “[t]he arguments raised concerning venue have been firmly resolved by VE Holding, a settled precedent for over 25 years[,]” and asserted that the Supreme Court’s interpretation of patent venue in Fourco is “no longer the law.”

Taking a Step Back: Brief History of Patent Venue Law

Under Section 48 of the Judiciary Act of 1897, Congress limited jurisdiction in patent cases to districts where the defendant inhabited or had a place of business and committed infringing acts. (Act of March 3, 1897, c. 395, 29 Stat. 695.) In 1942, the Supreme Court unequivocally concluded that “Congress did not intend the Act of 1897 to dovetail with the general provisions relating to the venue of civil suits, but rather that it alone should control venue in patent infringement proceedings.” Stonite Prods. C. v. Melvin Lloyd Co., 315 U.S. 561, 563 (1942). Then, in 1948, Congress enacted 28 U.S.C. § 1400(b), which, consistent with the Judiciary Act of 1897 and the Supreme Court’s holding in Stonite, provided:

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.

The newly codified title 28 also included a provision, § 1391, for “venue generally,” which stated in relevant part:

(c) A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes.

In 1957, following a circuit split that developed over whether corporate residence under § 1391 applied to the term “resides” in § 1400(b), the Supreme Court held that the patent venue statute was to be read in isolation and not within the context of the general venue statute: “28 U.S.C. § 1400(b) . . . is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. [§] 1391(c).” Fourco , 353 U.S. at . The Supreme Court’s holding in Fourco has never been overruled.

In 1988, Congress changed the statutory language in § 1391 from defining residence “for venue purposes” to defining residence “for purposes of venue under this chapter.” Petitioner and amici in support of the cert petition argue that there is no legislative history to suggest that Congress intended this minor change to the statutory language to supplant Supreme Court precedent or otherwise impact the patent venue statute. In fact, the legislative history shows a Congressional intent to further constrain corporate venue rather than expand it: “[A] corporation that confines its activities to Los Angeles (Central California) should not be required to defend in San Francisco (Northern California).” H.R. Rep. No. 100-889, at 70 (1988). Nonetheless, in 1990, the Federal Circuit deviated from longstanding Supreme Court precedents and the plain language of the statute when it determined that the ministerial amendments to 28 U.S.C. § 1391 in 1988 effectively overruled Stonite and Fourco. VE Holding, 917 F.2d at 1584. The Federal Circuit held that “the first test for venue under § 1400(b) with respect to a defendant that is a corporation, in light of the 1988 amendment to § 1391(c), is whether the defendant was subject to personal jurisdiction in the district of suit at the time the action was commenced.”

As a result of the Federal Circuit’s holding in VE Holding, numerous amici curiae argue that the Federal Circuit effectively expanded the scope of 28 U.S.C. § 1400(b) to permit filing of patent lawsuits in any federal district court where the accused products are sold. See, e.g., In re TC Heartland, LLC, No. 2016-105, at 10 (Fed. Cir. Apr. 29, 2016) (holding that jurisdiction is proper in a patent suit “where a nonresident defendant purposefully shipped accused products into the forum through an established distribution channel and the cause of action for patent infringement was alleged to arise out of those activities”). In at least one recent case, the Federal Circuit held that there was personal jurisdiction in Delaware over a defendant who had never sold an accused product in Delaware because the defendant’s application for drug approval indicated a prospective desire to sell the drug nationally. Acorda Therapeutics Inc. v. Mylan Pharmaceuticals Inc., 817 F.3d 755, 764 (Fed. Cir. 2016). The Federal Circuit concluded this planned future conduct satisfied the minimum contacts requirement, and nothing in the court’s opinion suggests that such conduct would not give rise to personal jurisdiction in every jurisdiction. Id. at 762-63.

Finally, in 2011, Congress enacted further amendments to § 1391, adding section (a), entitled “Applicability of Section.” This section currently reads: “Except as otherwise provided by law . . . (1) this section shall govern the venue of all civil actions brought in district courts of the United States . . . .” 28 U.S.C. § 1391(a)(1) (2012). Shortly thereafter, the Supreme Court interpreted § 1391 as governing venue where a more specific venue provision is lacking. See Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, 134 S. Ct. 568, 577 n.2 (2013) (noting “[s]ection 1391 governs ‘venue generally,’ that is, in cases where a more specific venue provision does not apply” and citing by way of example 28 U.S.C. § 1400 as “identifying proper venue for copyright and patent suits”).

TC Heartland’s petition for writ of certiorari seeks a restoration of Supreme Court’s interpretation of § 1400(b) under Fourco and reversal of the decision below.

Arguments in Support of TC Heartland

The brief of amici curiae 56 professors of law and economics persuasively argues that VE Holding ignores fundamental canons of statutory construction, namely that Congress does not alter vital details of a regulatory schemes by vague changes to ancillary provisions, and that a statute should not be read so as to render parts of it mere surplusage. For example, under the Federal Circuit’s interpretation in VE Holding, the latter half of § 1400(b) would be largely superfluous. That is, the term “resides” in § 1400(b) must have some definition other than “a regular and established place of business,” since § 1400(b) already provides that patent venue is proper where the defendant has a “regular and established placed of business.”

The Electronic Frontier Foundation (EFF) as amicus curiae argues that the Federal Circuit’s holding in VE Holding should be overruled in light of existing Supreme Court precedent and the plain language of the patent venue statute in order to cure – in its view – the fundamental lack of fairness and protection to defendants. The EFF also persuasively argues that whereas personal jurisdiction provides sufficiently reliable limits on personal jurisdiction in non-patent suits, the same does not hold true for patent cases because the Federal Circuit has also more-or-less adopted an expansive stream-of-commerce-type theory, holding personal jurisdiction is proper where “defendants, acting in consort, placed the accused [product] in the stream of commerce, they knew the likely destination of the products, and their conduct and connections with the forum state were such that they should reasonably have anticipated being brought into court there.” Beverly Hills Fan, 21 F.3d at 1566. Therefore, the current state of Federal Circuit law often permits essentially nationwide personal jurisdiction.

Upending the (Un)intended Consequences of VE Holding

TC Heartland and the amici in support of TC Heartland’s petition argue forcefully that the consequences of the Federal Circuit’s holding in VE Holding have been overwhelmingly negative and contend that virtually limitless venue under the VE Holding construct has corrupted the underpinnings of the patent system. Whether this is an overly dramatic view of patent law may depend on what side of the courtroom a particular patent litigator sits, but certain underlying facts cannot be disputed. For example, it is true that the Eastern District of Texas still sees a disproportionate number of patent case filings. On average, a quarter of all patent cases are filed in that district – one with a relatively small population and relatively few companies – and in 2015, this figure spiked to 44% of all patent-infringement cases. (By contrast, the Northern District of California, a district of more than double the population and home to many companies, sees only 4-5% of all patent-infringement cases filed annually.) In the Eastern District of Texas’s banner year of 2015, Judge Rodney Gilstrap, referred to as the “busiest patent judge” in the country, heard a quarter of all patent cases filed nationwide. TC Heartland argues that this kind of undue case concentration diminishes the integrity of the patent system. The amici agree, pointing to nuisance-value settlements that arise when patentees have unfettered ability to file in the Eastern District of Texas and then take advantage of the local rules to extract settlements tied to the costs of litigation rather than the value of the asserted technology.

The amici also argue that the Eastern District of Texas, among other districts, have been attempting to attract patent-infringement cases through the use of patent-holder-friendly local rules, standing orders, and other judge-specific practices. For instance, TC Heartland and the amici argue that the time to rule on motions to transfer (150 additional days on average) and the timing and scope of discovery place undue settlement pressure on accused infringers. They argue that ultimately the whole system suffers when monetary settlements are reached as a result of defendants seeking to avoid the burden and cost of discovery and protracted litigation instead of a good faith belief in the legitimacy of the patented technology and its value to society. TC Heartland seeks to upend these practices through its appeal. At the end of the day, these policy arguments regarding the integrity of the overall system may be more persuasive to the Supreme Court justices than any statutory interpretation arguments advanced in the appeal.

The Federal Circuit’s decisions and general confusion at the district court level have set the stage for the Supreme Court to settle this issue. This case promises to be particularly important for large companies accused of patent infringement, as the Supreme Court’s decision will determine whether they may be haled into any forum in the United States or instead into a limited number of venues under § 1400(b). The recent trend of the high court’s limiting access to the federal courts and its propensity for reversing the Federal Court over the last decade strongly suggest a decision in TC Heartland’s favor, a sea change in the practice of patent litigation, and the end of forum shopping in patent cases. Oral arguments in this appeal are set for Monday, March 27, 2017.

Apple v. Samsung – Supreme Court

The United States Supreme Court has decided one of the most contentious ongoing legal battles, Samsung Electronics v. Apple, No. 15-777, slip op. (Dec. 6, 2016). On October 11, 2016, the two companies faced off on how much of a $399 million patent infringement award Samsung must pay. Samsung argued that the damages awarded in the case should be greatly reduced to just the profits attributable to the parts that infringed upon Apple’s patents, instead of profits based on the entire phone.

The underlying statute, 35 U.S.C. § 289, states that any person who applies a patented design “to any article of manufacture” is “liable . . . to the extent of his total profit.” The question at issue—one that the high court had not yet interpreted before this case—is the definition of “total profit”: Should the patent holder be entitled to damages based on profits from the entire device, or only profits attributable to the infringing parts?

The Federal Circuit had upheld the Northern District of California’s decision that Samsung’s product infringed Apple’s design and utility patents and diluted Apple’s trade dresses.1 The Court also upheld the district court’s damages award for the design patent infringement. The design patents were based on the design elements on the front face of the iPhone, the design features that extended to the bezel of the iPhone, and “the ornamental design for a graphical user interface for a display screen or portion thereof.” These elements served as the bases for the overall look of the first-generation iPhone in 2007, which, at the time, changed the way other companies began designing their phones. On appeal, Samsung relied on a basic causation argument that Apple had failed to establish that infringement of its limited design patents resulted in any Samsung sales or profits. The Federal Circuit rejected this argument, instead expressly holding that based on the statutory language and prior case law, Section 289 expressly authorized the award of the totality of profits from the article of manufacture bearing the patented design.2 The appellate court also expressly rejected Samsung’s argument that the damages should be limited to the portion of the sales attributed to the infringing product.

The Supreme Court granted certiorari for the limited question of the meaning of Section 289. The Justices’ questioning centered on how to create a test that determines what drives the sale of a product and subsequently what profits should be attributed to such component parts. A popular analogy compared the Volkswagen Beetle to the iPhone. Justice Kagan noted that, “nobody buys a car, even a Beetle, just because they like the way it looks,” but acknowledged that the primary reason for its success could be because of its design. Samsung argued that determining that a company is permitted damages based on total profit for infringing a narrow design patent could produce an absurd result. Samsung argued that, for example, if someone was found to infringe a design patent for a cup holder in a car, to permit them total profits on the sale of the whole car would be absurd.

On December 6, 2016, Justice Sotomayor delivered the opinion for a unanimous Court, holding that the relevant “article of manufacture” for a Section 289 damage award should not be based on the end product sold to the consumer, but rather may be based only on a component of the product. Samsung Electronics v. Apple, No. 15-777, slip op. at 6.  Rejecting the Federal Circuit’s holding that “components of the infringing smartphones could not be the relevant article of manufacture because consumers could not purchase those components separately from the smartphones,” id. at 7-8, the Supreme Court instead held that “the ‘total profit’ for which Section 289 makes an infringer liable is thus all of the profit made from the prohibited conduct, that is, from the manufacture or sale of the ‘article of manufacture’ to which [the patented] design or colorable imitation has been applied,” id. at 5. To determine the calculations the high court created a two-part test: (1) identify the “articles of manufacture” to which the infringed design has been applied; and (2) calculate the infringer’s total profit made on that article of manufacture. Id. However, the Court declined to engage in any analysis of the two-part test and did not provide any guidance to district courts or the Federal Circuit on how to implement the test. Id. at 8. Thus, this area of law will continue to be shaped as the lower courts attempt to analyze damages under Section 289 with the new two-part test.

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1 Apple Inc. v. Samsung Elecs. Co., 786 F.3d 983 (Fed. Cir. 2015).
2 Design patent infringement has long required a different calculation of damages than utility patent infringement. To calculate damages for infringement of utility patents, causation is required to be proved and damages are limited to lost profits caused by the infringement, whereas for infringement of design patents, damages equal to whole products sold were awarded. Section 284 states, “upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonably royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” 35 U.S.C. § 284.