Alerts and Updates

Federal Circuit Alert

Winter 2007

Federal Circuit Rules En Banc on Intent Necessary to Establish Inducement Infringement

DSU Medical Corp. et al. v. JMS Co., Ltd., et al., Nos. 04-1620, 05-1048, 05-1052

In a December 13, 2006 decision, the Federal Circuit sitting en banc addressed the question of the level of intent necessary to establish inducement infringement under 35 U.S.C. §271(b). According to section 271(b) of the patent statute, "[w]hoever actively induces infringement of a patent shall be liable as an infringer." With no dissenting opinion, the Federal Circuit held en banc that an alleged infringer must be shown to know of the patent and actively and knowingly aided and abetted another's direct infringement, not merely knowingly induced the acts that constitute direct infringement.

DSU Medical Corporation owns U.S. Patent No. 5,112,311 ("the '311 patent") and is the exclusive licensee for U.S. Patent No. 5,266,072, both of which are directed to a guard for a winged-needle assembly that reduces the risk of accidental needle-stick injuries. DSU sued JMS Company, Ltd., a large Japanese medical supply company, and its supplier ITL Corporation Pty, Ltd. for patent infringement, inducement to infringe and contributory infringement. ITL is an Australian company that manufactures and sells the alleged infringing plastic needle guard to JMS in Malaysia and Singapore. ITL sold the plastic guard as a stand-alone product to JMS in an open clamshell configuration. JMS subsequently closed the guards around the needle assembly before distributing the combination to customers in the United States.

After a six-week trial, the jury found that JMS infringed the '311 patent, but entered a verdict finding that ITL did not engage in contributory infringement or inducement to infringe. The U.S. District Court for the Northern District of California entered a final judgment of infringement against JMS on certain claims of the '311 patent and of non-infringement for ITL.

After affirming the finding of infringement with respect to JMS, the Federal Circuit rejected DSU's arguments that ITL should have been found liable for contributory infringement under 35 U.S.C. §271(c) and inducing infringement under 35 U.S.C. §271(b). Judge Rader, writing for a three-judge panel on the question of contributory infringement, stressed that §271(c) has an explicit territorial limitation requiring contributory acts to occur in the United States and that, here, DSU failed to show that "ITL engaged in conduct (made sales) within the United States that contributed to another's direct infringement." Since the asserted '311 patent claims the plastic guard in a closed clamshell configuration with the needle assembly, the sale of the open clamshell guards in Malaysia and Singapore could not constitute an act of direct infringement or contributory infringement.

Due to conflicting precedent on the question of the level of intent necessary to establish inducing infringement, the Federal Circuit addressed the question en banc. Judge Rader, writing for ten circuit court judges, confirmed that to establish liability under section 271(b), a patent holder must prove that a defendant knows of the patent and actively and knowingly aided and abetted another's direct infringement. In so holding, the Federal Circuit confirmed the Court's precedent in Manville Sales Corp. v. Paramount Systems, Inc., 917 F.2d 544 (Fed. Cir. 1990) and rejected the Court's precedent in Hewlett-Packard Co. v. Bausch & Lomb, Inc., 909 F.2d 1464 (1990) to the extent it had been interpreted to require only proof that the purported infringer merely intended to engage in acts that constitute direct infringement.

In applying this standard to determining if ITL induced infringement, the three-judge panel held that the trial court "certainly did not abuse its discretion" in finding no infringement under section 271(b). Rather, the Federal Circuit found the record contained evidence that ITL did not believe its device infringed, including evidence that (1) ITL contacted an Australian attorney, who concluded ITL's accused product would not infringe; (2) JMS and ITL obtained letters from U.S. patent counsel advising that ITL's product did not infringe; and (3) testimony by an owner of ITL who participated in the design of the accused product that ITL had no intent to infringe the '311 patent.

For the full opinion, see: http://www.fedcir.gov/opinions/04-1620.pdf

Federal Circuit Reinforces Principle that Discovery of Unknown Property of a Known Product Is Not Patentable

Abbott Lab., et al. v. Baxter Pharm. Products, Inc., et al., Nos. 06-1021, 06-1022, 06-1034

In a November 9, 2006 decision, the Federal Circuit overturned a lower court decision and found the asserted patent anticipated due to prior art and, therefore, invalid. In a decision by Circuit Judge Gajarsa, a unanimous three-judge panel rejected a finding of validity in which the U.S. District Court for the Northern District of Illinois concluded that even though the prior art reference disclosed the same method and composition, it was directed to a different purpose and, therefore, did not anticipate the patent at issue.

Abbott Laboratories and Central Glass Company, Ltd. ("Abbott") sued Baxter Pharmaceutical Products, Inc. and Baxter Pharmaceutical Healthcare Corp. ("Baxter") for infringing a patent directed to an improvement for delivering sevoflurane, an inhalation anesthetic, to patients. The composition of sevoflurane was well-known when Abbott shipped its initial sevoflurane product. However, due to degradation of Abbott's original sevoflurane product on the shelf, Abbott was forced to issue a recall.

After investigation, Abbott discovered the source of the problem was exposure of sevoflurane to Lewis acids, which cause sevoflurane to degrade. Abbott discovered that adding water protects sevoflurane from the degradation reaction since the water binds to and deactivates the Lewis acids. A deliberate addition of water to sevoflurane was counter to the conventional wisdom of the time. Thus, Abbott obtained Patent No. 5,990,176 ("the '176 patent") directed to method and composition for degradation-prevention of sevoflurane.

At trial, Baxter contended that Patent No. 5,684,211 ("the '211 patent") anticipated the '176 patent. The prior art '211 patent disclosed a technique for purifying sevoflurane for use as an inhalation anesthetic that involved the addition of water. The District Court concluded that the '211 patent did not anticipate, noting that prior to the '176 patent no one knew Lewis acids degraded sevoflurane and no one was aware of the stabilizing effect water would have to prevent Lewis acid degradation. Relying on Bristol-Myers Squibb Co. v. Ben Venue Labs., Inc., 246 F.3d 1368 (Fed. Cir. 2001) in which the Federal Circuit held that "newly discovered results of known processes directed to the same purpose are not patentable because such results are inherent," the District Court concluded that the '211 prior art patent did not anticipate the '176 patent since it was not "directed to the same purpose," noting that the prior art disclosed adding water as an intermediate step in the manufacture of sevoflurane and its purpose was not to produce sevoflurane in its final useable form.

In addressing the intersection of the discovery of unknown properties and anticipation, the Federal Circuit first cited extensive case law, going as far back as 1892, to reinforce the principle that a reference may anticipate even when the relevant properties of the prior art disclosure were not appreciated at the time. The Court proceeded to reject the District Court's application of the purpose-based distinction of Bristol-Myers Squibb, noting that this case was only applicable to process claims, not composition claims. The Federal Circuit also disagreed with the lower court's conclusion that the processes described in the '176 patent were not "directed to the same purpose" as applied in Bristol-Myers Squibb. Finding that both the '211 and '176 patents disclosed methods which help to ensure that sevoflurane will be of high purity at the time it is administered to patients, the Federal Circuit concluded the lower court had taken an overly narrow view of the purpose of the invention disclosed in the '211 patent. As a result, the Federal Circuit reversed and found the '176 patent invalid as anticipated by the '211 patent.

For the full opinion, see: http://fedcir.gov/opinions/06-1021.pdf

Federal Circuit Emphasizes Strength of Presumption Against Applying 35 U.S.C. §112 ¶6 When Claim Term "Means" Is Absent

Massachusetts Institute of Technology, et al. v. Abacus Software, et al., Nos. 05-1142, 05-1161, 05-1162, 05-1163

In an appeal of a claim construction ruling, the Federal Circuit emphasized that a heavy presumption applies when traditional means-plus-function terminology is absent in the claim. In the September 13, 2006 ruling, the Federal Circuit found the term "circuitry" by itself connotes structure and, when combined with claim language describing the function of the circuit, provided sufficient structure to one of ordinary skill in the art to avoid treatment under 35 U.S.C. §112 ¶6.

Plaintiffs Massachusetts Institute of Technology and Electronics for Imaging, Inc. asserted Patent No. 4,500,919 ("the '919 patent"), which is directed to a color processing system for producing copies of color originals, against a total of 214 defendants. Plaintiffs appealed a claim construction ruling by the U.S. District Court for the Eastern District of Texas after entry of stipulated final judgment dismissing the infringement claims. The Federal Circuit vacated the claim construction ruling and remanded the case for further analysis of the disputed claim construction terms of the '919 patent. The claim limitation in dispute and the subject of the claim construction ruling was: "aesthetic correction circuitry for interactively introducing aesthetically desired alterations into said appearance signals to produce modified appearance signals."

The Eastern District of Texas concluded that aesthetic correction circuitry was a means-plus-function limitation and, therefore, pursuant to the statutory requirement of 35 U.S.C. §112 ¶6, the claim scope was limited to the structure disclosed in the specification of the '919 patent. In reversing, the Federal Circuit began its analysis by noting that because this claim limitation did not contain the term "means," there is a presumption that the claim limitation is not a means-plus-function limitation. However, the presumption can be overcome if it is shown that the claim term fails to recite "sufficiently definite structure" or recites function "without reciting sufficient structure for performing that function."

Relying on technical dictionary definitions, the Court found the term "circuitry" by itself connotes structure in contrast with generic terms such as "mechanism" and "device." The Federal Circuit also noted its own precedent in which the term "circuit," combined with a description of the function of the circuit, provided sufficient structure to one of ordinary skill in the art to avoid treatment under 35 U.S.C. §112 ¶6. With respect to the '919 patent, the Court found the disputed claim limitation did not describe a mere circuit, but rather provided further structure by describing "the operation of the circuit" and, therefore, sufficient structure to avoid §112 ¶6 treatment.

The Federal Circuit emphasized the strength of the presumption that 35 U.S.C. §112 ¶6 does not apply when the term "means" does not appear in a claim and noted that the circumstances have to be unusual to overcome the presumption. The Court also rejected an approach in which means-plus-function treatment applies unless the claim term denotes a specific structure, stating "we have held that it is sufficient if the claim term is used in common parlance or by persons of skill in the pertinent art to designate structure, even if the term covers a broad class of structures and even if the term identifies the structures by their function," and cited Lighting World Inc. v. Birchwood Lighting, Inc., 382 F.3d 1354 (Fed. Cir. 2004).

For the full opinion, see: http://www.fedcir.gov/opinions/05-1142.pdf

Federal Circuit Revisits the Lear Doctrine

Go Medical Industries, Pty., Ltd., et al. v. Inmed Corp., et al., Nos. 05-1241, 05-1267, 05-1558

In this October 27, 2006 decision, the Federal Circuit revisited the long-standing doctrine of Lear v. Adkins, 395 U.S. 653 (1969) and held that a licensee is not relieved from royalty payments unless it actually ceases payment of royalties and provides notice to the licensor that the reason for ceasing payment is because the licensed patent is deemed invalid.

In Lear, the Supreme Court abolished the doctrine of licensee estoppel that had barred licensees from challenging the validity of a patent upon finding the doctrine inconsistent with patent and antitrust policy. As a result, a licensee may cease payments due under a license and contractual royalty provisions will not be enforced during the time the licensee is challenging patent validity in the courts. The Federal Circuit subsequently clarified that the Lear doctrine does not prevent a patentee from recovering royalties until the date the licensee first challenges the validity of the patent. Studiengesellschaft v. Shell Oil, 112 F.3d 1561 (Fed. Cir. 1997). In Go Medical, the Federal Circuit again addressed the issue of when the licensee's obligation to pay royalties expires where the underlying patent is eventually declared invalid.

In 1988, the plaintiff exclusively licensed its rights under Patent No. 4,652,259 ("the '259 patent") to defendant's predecessor-in-interest, Medical Marketing Group, Inc. ("MMG"). The '259 patent is directed to a catheter that reduces the risk of urinary tract infections. In 1992, MMG urged the plaintiff to sue when C.R. Bard entered the market with a competing catheter. As a result of a patent litigation against C.R. Bard, the '259 patent was declared invalid by a District Court in March 1999. In August 2000, the Federal Circuit reversed the District Court's decision and the case settled shortly thereafter.

Meanwhile, in June 1999, MMG notified the plaintiff that in view of the District Court's invalidity ruling, it "no longer had a contract" with the plaintiff and indicated that it was placing its royalty payments in escrow until the validity of the patent was resolved on appeal. Thereafter, the plaintiff terminated the license agreement in August 1999 and sought damages for patent infringement and breach of contract. The litigation ended in favor of MMG as the '259 patent was once again found invalid. The jury awarded damages on the breach of contract theory. However, the District Court applied the Lear doctrine to preclude royalties owed after March 1999, when the '259 patent was initially found invalid in the C.R. Bard litigation.

On appeal, the Federal Circuit vacated the District Court's reduction of contract damages and remanded the case. Pursuant to Lear, the Federal Circuit reiterated its prior holding that a licensee "cannot invoke the protection of the Lear doctrine until it (i) actually ceases payment of royalties, and (ii) provides notice to the licensor that the reason for ceasing payment of royalties is because it has deemed the relevant claims to be invalid." Studiengesellschaft v. Shell Oil, 112 F.3d 1561 (Fed. Cir. 1997).

Under the facts of the case, the Court found that the C.R. Bard litigation had no effect on the contractual relationship between the parties since the invalidity finding was still pending appeal. The Court also noted that MMG's June 1999 notification did not state that it was ceasing payment because it deemed the '259 patent invalid. Instead, the June 1999 letter reported that MMG was placing the royalty payment in escrow until the validity of the patent was resolved on appeal. The Federal Circuit also found it significant that MMG did not file its own declaratory judgment suit and concluded that MMG was contractually obligated to pay royalties until the plaintiffs terminated the licensee agreement in August 1999.

For the full opinion, see: http://www.fedcir.gov/opinions/05-1241.pdf

Despite Jury Findings Supporting Inequitable Conduct, Federal Circuit Affirms Decision that Patent Was Enforceable

Kemin Foods, L.C., et al. v. Pigmentos Vegetales Del Centro S.A. DE C.V., Nos. 05-1479, 05-1480, 06-1002

In an appeal from the U.S. District Court for the Southern District of Iowa, the Federal Circuit concluded that even when a jury makes advisory findings that the patentee failed to disclose material information to the Patent Office and acted with deceptive intent, "the court retains discretion to decide whether the patentee's conduct is sufficiently culpable to render the patent unenforceable." Citing to Hoffmann-La Roche, Inc. v. Promega Corp., 323 F.3d. 1354, 1359, 1372 (Fed. Cir. 2003). In light of the lower court's findings that the Poultry Science article was not "highly material" and that the showing of deceptive intent was "not compelling," the Federal Circuit affirmed the District Court's holding declining to render the '714 patent unenforceable.

This patent infringement suit involved two patents: Patent No. 5,382,714 ("the '714 patent"), which is directed to a purified lutein product containing no traces of toxic chemicals, and Patent No. 5,648,564 ("the '564 patent"), which claims a process for producing purified lutein. Lutein is a carotenoid incorporated into dietary health supplements. The '714 patent was owned by Catholic University of America and exclusively licensed to plaintiff Kemin Foods, L.C., and the '564 patent was assigned to Kemin Foods. Defendant Pigmentos Vegetales Del Centro S.A. DE C.V. ("PIVEG") counterclaimed, seeking a declaratory judgment that the two patents were invalid as obvious and unenforceable based on alleged inequitable conduct before the Patent Office.

With respect to the '714 patent, both the invalidity and inequitable conduct allegations stemmed from an article in Poultry Science, which was known to the president of Kemin Foods during prosecution of the '714 patent but was never disclosed to the Patent Office. In order to establish a patent is unenforceable for inequitable conduct, the Federal Circuit confirmed that a District Court must find the patentee failed to disclose material information to the Patent Office and acted with deceptive intent, and that the patentee's conduct was "sufficiently culpable" to render the patent unenforceable. Although Kemin Foods' president was not a named inventor, defendant alleged that he was sufficiently involved with prosecution of the patent to have acquired a duty of disclosure to the Patent Office.

At the end of trial, the jury found that the defendant failed to meet its burden of proving by clear and convincing evidence that the asserted claim of the '714 patent would have been obvious in view of the Poultry Science article. However, in response to special interrogatories posed by District Court Judge Gritzner of the Southern District of Iowa, the jury, acting in an advisory capacity, found the Poultry Science article was material to the patentability of the '714 patent and that the president of Kemin Foods withheld the article with deceptive intent. Nonetheless, the District Court concluded that the "levels of materiality and intent are not so high as to warrant a finding of culpable intent such that the '714 patent should be held unenforceable." Defendant appealed.

The Federal Circuit affirmed the District Court's ruling on inequitable conduct. With respect to materiality, the Federal Circuit found no particular evidence or any argument by defendants that would compel a finding the prior art was "highly" material. In so finding, the Federal Circuit noted that the prior art did not render the patent invalid and that the evidence suggested that the method disclosed in the article may not work as intended. Relying on this evidence, the Court concluded that the withheld article was not "highly material."

Turning to the issue of intent, the Federal Circuit agreed with the District Court's conclusion that PIVEG did not make a "strong showing of intent to deceive" the Patent Office. The Federal Circuit noted that the '714 patent was directed to lutein fit for human consumption, and the Poultry Science article did not contemplate using lutein in humans. Because of the difficulty in removing toxic chemicals from luteins, a necessary step before human consumption, the Federal Circuit found the explanation from Kemin Foods' president that he didn't consider the article material plausible. The Federal Circuit also noted that Kemin Foods' president was only tangentially involved in the prosecution of the underlying patent as evidenced by the more than two-year lapse between the time he became aware of the article and the start of prosecution.

For the full opinion, see: http://www.fedcir.gov/opinions/05-1479.pdf

Supreme Court to Consider Extraterritorial Reach of U.S. Patent Law

Microsoft Corp. v. AT&T Corp., No. 05-1056

On October 27, 2006, the Supreme Court agreed to review the question of whether damages for infringement of a U.S. patent can extend to software products copied and sold abroad. The controversy arises from a dispute between Microsoft and AT&T concerning digital speech compression code in Microsoft Window's operating system software. The case has potential significant ramifications for international patent licensing and could resolve the question of whether U.S. patent law extends to software products sold outside the United States.

Microsoft sends master copies of the Window's operating system software to foreign manufacturers for copying and assembly into computer systems sold abroad. In July 2005, the Federal Circuit affirmed a ruling that Microsoft was liable for both U.S. and foreign sales of the Windows software. Microsoft was found liable for the foreign sales under 35 U.S.C. §271(f), which permits a finding of patent infringement if "a substantial portion of the components of a patented invention" are supplied from the United States "in such manner as to actively induce the combination of such components outside the United States."

The specific issues certified by the Supreme Court for consideration are: (1) whether digital software code may be considered a "component of a patented invention" under section 271(f)(1), and (2) whether copies of such a "component" made in a foreign country are "supplied ... from the United States" under section 271(f)(1). Oral arguments are scheduled for February 21, 2007.

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