IP UPDATE

Impermissible Convoyed Sales Wash Away Damages Award

by Christian Tatum | Apr 3, 2025 | Patents

The US Court of Appeals for the Federal Circuit affirmed a district court’s finding of infringement but vacated its damages award because the award improperly included auxiliary products lacking any functional relationship to the infringed patent claim. Wash World Inc. v. Belanger Inc., Case No. 2023-1841 (Fed. Cir. Mar. 24, 2025) (Stark, Lourie, Prost, JJ.)

Belanger owns a patent related to a spray-type car wash system. A competitor, Wash World, filed for a declaratory judgment that its car wash system did not infringe the patent.

A jury returned a general verdict of infringement and awarded Belanger $9.8 million in lost profit damages. Wash World moved for judgment as a matter of law of noni nfringement based on the positions it previously raised and challenged the damages award. Wash World argued that Belanger failed to prove entitlement to lost profits for convoyed sales. The district court rejected Wash World’s arguments. Wash World appealed, challenging the district court’s constructions of three claim terms that Wash World argued were dispositive to noninfringement and the damages award for improperly including nearly $2.6 million in ineligible convoyed sales.

The Federal Circuit concluded that for two of the three claim terms, the constructions Wash World argued for on appeal were materially different from the constructions it urged the district court to adopt. The Federal Circuit emphasized that while a party is not confined to the precise wording of the constructions it advances at the district court, it must still present essentially the same dispute on appeal. Finding no exceptional circumstances, the Court deemed Wash World’s appellate positions on the two claims to be forfeited. As to the remaining term, the Court found that while Wash World had preserved the issue for appeal, the district court’s interpretation was correct.

On the issue of remittitur, the Federal Circuit first found that Wash World had properly preserved the issue for appeal and that even if it had not, exceptional circumstances would justify reaching the merits. The Court stated that it could discern the precise damages the jury awarded based on convoyed sales, and that the requirements for lost profits on such sales were plainly not satisfied.

The Federal Circuit explained that entitlement to lost profits for convoyed sales exists only where the unpatented products (e.g., dryers sold together with a patented car wash system) and the patented product together constitute a “functional unit,” like parts of a complete machine. The Court found that no evidence in the record could support such a finding and that damages awarded for sales of the unpatented products were thus improper. The Court further rejected Belanger’s argument that the jury’s return of a general verdict insulated the award from further scrutiny. The Court noted that based on the evidence presented, it was overwhelmingly likely that the jury’s verdict included the impermissible damages for convoyed sales. Therefore, the Federal Circuit instructed the district court on remand to remit $2.6 million in damages corresponding to sales of the unpatented components.

When Analyzing Likelihood of Confusion, It’s Not Just Location, Location, Location

by Abigail A. Rubinstein | Apr 3, 2025 | Trademarks

The US Court of Appeals for the Fourth Circuit vacated a district court’s decision finding no infringement that focused on only the geographic distance between the physical locations of the two users without considering the factors bearing on any likelihood of confusion. Westmont Living, Inc. v. Retirement Unlimited, Inc., et al., Case No. 23-2248 (4th Cir. Mar. 18, 2025) (Niemeyer, Benjamin, Berner, JJ.)

Westmont Living, a California corporation that operates several retirement communities and assisted living facilities on the West Coast, sued Retirement Unlimited, a Virginia corporation that operates retirement communities and assisted living facilities on the East Coast, for trademark infringement. Westmont, which operates and markets its facilities using the mark WESTMONT LIVING, alleged that Retirement opened a new facility using the name The Westmont at Short Pump for services identical to those provided by Westmont.

The district court entered summary judgment for Retirement. The district court acknowledged that many factors are potentially relevant to determining the likelihood of confusion, but it concluded that because the parties’ physical facilities were located “in entirely distinct geographic markets,” as a matter of law “consumer confusion [was] impossible.” The district court based its holding on the Second Circuit’s 1959 decision in Dawn Donut v. Hart’s Food Stores, which held that when parties use their marks in separate and distinct markets, there can be no likelihood of confusion. Westmont appealed.

The Fourth Circuit found that the district court failed to address the parties’ competitive marketing, the locations from which they solicit and draw their customers, the scope of their reputations, and any of the nine factors for determining likelihood of confusion in the Fourth Circuit under its 2021 decision in RXD Media v. IP Application Dev. The Court explained that while not every factor necessarily needs to be considered in the analysis, the district court erred by relying solely on the fact that the parties’ physical facilities were on opposite coasts, without considering the many other factors that might bear on whether Westmont had shown a likelihood of confusion.

The Fourth Circuit disagreed with the district court’s reliance on Dawn Donut, explaining that the case stands for a narrow principle that where businesses use the same mark in physically distinct geographical markets, and their marketing and advertising are confined to those markets, there won’t be a likelihood of confusion. Given increased potential customer mobility, the internet, and the reduced influence of local radio and newspaper advertising, it is far less likely today that two businesses would operate in such physically distinct geographical markets as when the Dawn Donut rule was promulgated. In this case, both parties advertised nationwide on the internet. The Court noted that it may be especially difficult for a casual consumer to distinguish between the two companies when engaging in online research about retirement living, and the physical distance of the parties’ facilities does not eliminate that risk. The Fourth Circuit concluded that the district court’s reliance on only the geographic distance between the physical facilities of the two companies [...]

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Fintiv Guidelines for Post-Grant Proceedings Involving Parallel District Court Litigation

by Sarah Mezini | Apr 3, 2025 | Patents

On March 24, 2025, the US Patent & Trademark Office (PTO) released new guidance that clarifies application of the Fintiv factors when reviewing validity challenges simultaneously asserted at the Patent Trial & Appeal Board and in district court or at the US International Trade Commission.

This guidance follows the PTO’s February 28, 2025, announcement reverting to its previous guidelines for discretionary denials of petitions for post-grant proceedings where district court litigation is ongoing. That announcement rescinded the PTO’s June 21, 2022, memorandum entitled “Interim Procedure for Discretionary Denials in AIA Post-Grant Proceedings with Parallel District Court Litigation,” which prevented the Board from rejecting validity challenges where there was “compelling evidence of unpatentability.”

Based on the new guidance, the Board is more likely to defer to the district court or the Commission if the Commission’s projected final determination date is earlier than the deadline for the Board’s final written decision. The PTO pointed out that a patent challenger’s stipulation not to raise the same invalidity arguments in other proceedings if the PTO institutes an inter partes review or post grant review is highly relevant but not dispositive.

This change in policy increases the likelihood that the Board will grant discretionary denials in situations involving parallel district court or Commission proceedings.

Detour Ahead: New Approach to Assessing Prior Art Rejections Under § 102(e)

by Benjamin Ediger, Ph.D. | Apr 3, 2025 | America Invents Act, Patents

The US Court of Appeals for the Federal Circuit established a more demanding test for determining whether a published patent application claiming priority to a provisional application is considered prior art under pre-America Invents Act (AIA) 35 U.S.C. § 102(e) as of the provisional filing date, explaining that all portions of the published patent application that are relied upon by the US Patent & Trademark Office (PTO) to reject the claims must be sufficiently supported in the provisional application. In re Riggs, Case No. 22-1945 (Fed. Cir. Mar. 24, 2025) (Moore, Stoll, Cunningham, JJ.)

Several inventors who work for Odyssey Logistics filed a patent application directed to logistics systems and methods for the transportation of goods from various shippers by various carriers across different modes of transport (e.g., by rail, truck, ship, or air). PTO rejected the application under § 102(e) in view of Lettich, which claimed the benefit of a provisional application (Lettich provisional), and as obvious in view of Lettich in combination with the Rojek reference.

The inventors appealed the Lettich rejections to the Patent Trial & Appeal Board, arguing that Lettich did not qualify as prior art under § 102(e). The Board initially agreed with the inventors, but the Examiner assigned to the application requested a rehearing, asserting that the Board applied the incorrect standard for § 102(e) prior art. The Board ultimately issued its decision on the Request for Rehearing, stating that it had jurisdiction over the Examiner’s request and that the Examiner’s arguments regarding Lettich’s status as prior art under § 102(e) “[we]re well taken.” The Board amended its original decision “to determine that Lettich is proper prior art against the instant claims.” The Board then reviewed and affirmed the Examiner’s anticipation and obviousness rejections. The inventors appealed.

The Federal Circuit vacated and remanded the Board’s decision. With respect to whether Lettich qualified as § 102(e) prior art, the Court found that the Board’s analysis was incomplete. The Court concluded that the Board correctly applied the test set forth in the Federal Circuit’s 2015 decision in Dynamic Drinkware v. National Graphics by determining that the Lettich provisional supported at least one of Lettich’s as-published claims. However, the Court found that this test was insufficient because all portions of the disclosure that are relied upon by the PTO to reject the claims must also be sufficiently supported in the priority document. Although the PTO asserted that the Board had conducted this additional analysis, the Federal Circuit disagreed and vacated and remanded for the Board to determine whether the Lettich provisional supported the entirety of the Lettich disclosure that the Examiner relied on in rejecting the claims.

Hatch-Waxman Litigation Expenses Are Deductible Under Internal Revenue Code § 162(a)

by Matthew J. Blaney | Apr 3, 2025 | Life Sciences

The US Court of Appeals for the Federal Circuit upheld a US Court of Federal Claims ruling that Hatch-Waxman Act litigation expenses are ordinary and necessary business expenses under § 162(a) of the Internal Revenue Code, entitling an abbreviated new drug application (ANDA) filer to deduct litigation expenses incurred defending against a patent infringement lawsuit. Actavis Labs. FL, Inc. v. United States, Case No. 23-1320 (Fed. Cir. Mar. 21, 2025) (Chen, Cunningham, Stark, JJ.)

Actavis filed ANDAs with the US Food and Drug Administration (FDA) seeking approval to market and sell a generic version of a drug already offered for sale in the United States. Per the Hatch-Waxman Act, filing an ANDA is an act of patent infringement where the ANDA holder seeks FDA approval prior to the expiration of the new drug application (NDA) holder’s patent. Following Actavis’s filing, the NDA holder brought a patent infringement lawsuit against Actavis.

Actavis subsequently treated litigation expenses incurred in defending the patent infringement lawsuit as ordinary and necessary expenses. Actavis deducted those litigation expenses on its tax returns for that year. However, the Internal Revenue Service (IRS) considered these expenses to be nondeductible capital expenditures since they were incurred “in pursuit of an intangible capital asset: namely, FDA approval to lawfully market a generic drug product in this country.”

Actavis eventually paid its tax liability but then sued the IRS in the Court of Federal Claims to recover what Actavis considered an overpayment of its taxes. The claims court agreed with Actavis, holding that Hatch-Waxman litigation expenses were deductible as ordinary and necessary business expenses. The IRS appealed.

The Federal Circuit affirmed. When determining whether Hatch-Waxman litigation expenses are deductible under Code § 162(a), the Federal Circuit uses two tests to settle the issue: the “origin of the claim” test and the “most significant benefit” test. However, as the Court emphasized, regardless of which test applied, Actavis prevailed.

The Federal Circuit first explained that Actavis prevailed under either test because patent infringement (not the FDA approval process) is what triggers incurring litigation expenses. Further evidence that the “origin of the claim rests in the patentholder’s decision to sue, and not in the ANDA filer’s decision to seek drug approval from the FDA, is the fact that infringement litigation cannot provide the ANDA filer what it wants – only the FDA can,” the Court stated.

Relying on the Third Circuit’s 2023 decision in Mylan v. Comm’r of Internal Revenue, the Federal Circuit delved into the fairness aspect of allowing Hatch-Waxman litigation expenses to be deductible. Citing Mylan, the Court explained that generic manufacturers defending against patent infringement suits “obtain no rights from a successful outcome. They acquire neither the intangible asset of a patent nor an FDA approval.” The Court also noted that brand-name drug companies in Hatch-Waxman lawsuits may deduct litigation expenses incurred while enforcing their patent rights. “[I]mposing very different tax treatment on the warring sides in an ANDA dispute, as the Commissioner advocates, is at odds with the careful statutory [...]

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