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What Does it Take to Plead Trade Secret Misappropriation Under the DTSA?

by | Jun 24, 2021 |

Addressing the pleading standard under the Defend Trade Secrets Act (DTSA) and New Jersey Trade Secrets Act (NJTSA), the US Court of Appeals for the Third Circuit vacated the district court’s dismissal of a third amended complaint for trade secrets misappropriation and remanded for further proceedings. Oakwood Labs. LLC v. Thanoo, Case No. 19-3707 (3d Cir. May 8, 2021) (Jordan, J.)

Thanoo was a key player in Oakwood Laboratories’ Microsphere Project, a 20-year, $130 million project to develop injectable sustained-release drug products using a complex and rare microsphere technology. In 2013, Aurobindo approached Oakwood about a possible collaboration, specifically to involve Aurobindo’s manufacture of an active pharmaceutical ingredient for Oakwood. Subject to a nondisclosure agreement, Oakwood shared with Aurobindo confidential information, including a 27-page memorandum describing the Microsphere Project. Ultimately, Aurobindo declined to proceed, citing financial considerations. Aurobindo subsequently hired Thanoo. Although Thanoo told Oakwood that he was going to Aurobindo to work on standard injectable drugs and not microspheres, he immediately set up a research and development program concerning microspheres for Aurobindo. Aurobindo, which had no previous experience in microspheres, announced that it would have products ready for clinical testing in just one to four years, despite a relatively small investment of only $6 million. Oakwood sued Thanoo and Aurobindo for trade secret misappropriation under the DTSA and NJTSA, and for breach of contract and tortious interference.

On Thanoo’s motion, the district court dismissed Oakwood’s complaint, finding that it failed to provide specific allegations of what trade secrets were allegedly misappropriated and how Aurobindo allegedly used the trade secrets. Oakwood filed first, second and third amended complaints, each alleging with greater specificity the trade secrets associated with the Microsphere Project and expanding on the allegation that Aurobindo could not have proceeded so quickly from no experience to announcing near-complete development of microsphere products without using Oakwood’s trade secrets. Nonetheless, the district court dismissed each complaint as being insufficiently specific as to which particular trade secrets were allegedly misappropriated and the particular way in which Aurobindo allegedly used the trade secrets. The district court also held that, absent any product launch from Aurobindo, any harm from the alleged misappropriation was too speculative to support a claim. After dismissal of the third amended complaint, Oakwood appealed.

The Third Circuit reversed, concluding that Oakwood’s complaint sufficiently pled a claim for trade secret misappropriation under either the DTSA or the NJTSA. The Court explained that Oakwood had sufficiently identified its trade secrets by its allegation that information laying out its design, research and development (including identification of variables that affect the development), test methods and results, manufacturing processes, quality assurance, marketing strategies and regulatory compliance related to its development of a microsphere system were trade secrets. Oakwood had also identified a specific memorandum disclosed to Aurobindo under a confidentiality agreement as containing trade secrets, and attached other documents specifying in detail secrets related to the Microsphere Project.

The Court further found that Oakwood had sufficiently alleged misappropriation. Although there are several ways to [...]

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Federal Circuit Lacks Appellate Jurisdiction over Standalone Walker Process Claims

by and | Jun 24, 2021 | ,

The US Court of Appeals for the Federal Circuit ordered the transfer of a case asserting standalone Walker Process antitrust claims involving an unenforceable patent to the regional circuit, in this case the US Court of Appeals for the Fifth Circuit. Chandler v. Phoenix Services LLC, Case No. 20-1848 (Fed Cir. June 10, 2021) (Hughes, J.) The case originated in the US District Court for the Northern District of Texas, over which the Fifth Circuit has appellate jurisdiction. The decision to transfer was based on a subject matter jurisdiction analysis for Walker Process claims. The Federal Circuit reiterated that its precedent does not mandate exclusive Federal Circuit jurisdiction over all Walker Process cases.

In 2006, Phoenix Services and Mark Fisher (collectively, Phoenix) acquired a company called Heat On-The-Fly and its patent to protect a purported proprietary fracking process. Heat-On-The-Fly, and later Phoenix, sought to enforce the patent against numerous parties. During the patent application process, however, Heat On-The-Fly had failed to disclose numerous public uses of the fracking process prior to the application filing. In 2018, in an unrelated case, Energy Heating, LLC v. Heat On-The-Fly, the Federal Circuit, held that “failure to disclose prior uses of the fracking process rendered the . . . patent unenforceable due to inequitable conduct.” The plaintiffs in the case at hand, Ronald Chandler, Chandler MFG., Newco Enterprises and Supertherm Heating Services (collectively, Chandler), alleged that Phoenix’s continued enforcement of the patent violated Walker Process pursuant to § 2 of the Sherman Act.

Walker Process monopolization claims originate from a 1965 Supreme Court decision that recognized an antitrust cause of action under the Sherman and Clayton Acts when a party fraudulently obtains a patent for the purpose of attempted monopolization. Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp. To succeed on a Walker Process claim, a plaintiff must satisfy two elements:

  • The plaintiff must show that the defendant obtained the patent through knowing and willful fraud on the US Patent & Trademark Office and enforced that patent with knowledge of its fraudulent procurement.
  • The plaintiff must be able to satisfy all other elements for a Sherman Act monopolization claim.

Pursuant to 28 U.S.C. § 1295(a)(1), the Federal Circuit retains jurisdiction over any civil case arising under any act of Congress relating to patents. In this instance, the Federal Circuit stated that Walker Process antitrust claims may relate to patents “in the colloquial use of the term,” but under 1988 Supreme Court precedent, Christianson v. Colt Indus., the Federal Circuit’s jurisdiction only extends to cases where the cause of action is created under federal patent law, or where the plaintiff’s right to relief “necessarily depends on resolution of a substantial question of federal patent law.”

Here, the Federal Circuit relied on its own 2018 precedent where it analyzed subject matter jurisdiction for Walker Process claims. Xitronix Corp v. KLA-Tencor Corp. (Xitronix I). Xitronix I involved alleged fraud by the defendants to obtain a patent. The Court acknowledged [...]

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10th Circuit Falls into Line on Exceptionality Doctrine in Lanham Act Cases

by | Jun 17, 2021 |

Addressing whether the term “exceptional case” in the Patent Act differs in meaning from the same term used in the Lanham Act, the US Court of Appeals for the 10th Circuit upheld an award of attorneys’ fees granted under a motion filed under 15 U.S.C. 1117(a) and clarified that the exceptional case standard in the Lanham Act parallels the standard in the Patent Act. Derma Pen, LLC v. 4EverYoung Limited, et al., Case No. 19-4114 (10th Cir. June 8, 2021) (Lucero, J.)

In 2013, Derma Pen sued several companies for infringement of the “DERMAPEN” mark. Four years later, Derma Pen was granted a permanent injunction prohibiting the companies and “their officers, agents, servants, employees, attorneys, licensees, and anyone in active concert or participation with, aiding, assisting, or enabling Defendants” from using the mark. A few months later, Derma Pen filed for an order of contempt against one of the defendants, Stene Marshall, alleging that Marshall, with the help of other actors (related parties), had been violating the earlier-issued injunction. During the subsequent proceedings, despite being the plaintiff, Derma Pen routinely failed to meet its discovery obligations, causing the related parties to file as many as six discovery motions and resulting in the imposition of sanctions on Derma Pen.

Following an evidentiary hearing, the district court found Marshall in contempt of the injunction, but concluded that the related parties took no part in Marshall’s violation. Subsequently, the related parties moved for attorneys’ fees incurred in the contempt proceeding under the Lanham Act, 15 U.S.C. 1117(a). The district court granted the motion and awarded more than $190,000 in fees based on application of the “exceptional case” standard set forth in the Supreme Court of the United States’ 2014 decision in Octane Fitness v. Icon Health & Fitness. Specifically, the district court decided that the case was “exceptional” because:

  • Derma Pen produced “no evidence of damages.”
  • “[T]he evidence showed [Derma Pen] had no right to enforce the injunction.”
  • “[T]he evidence showed that [the] trademark was abandoned.”
  • “[M]onetary sanctions were imposed on” Derma Pen for misconduct and delay during discovery.
  • Derma Pen was “entitled to no relief against the [related parties].”

Derma Pen appealed.

The 10th Circuit affirmed the district court’s holding and fees award for the related parties, noting Derma Pen’s misconduct and delay during discovery. In so doing, the Court adopted the Octane Fitness standard as applicable to cases brought under the Lanham Act.

Practice Note: The 10th Circuit noted that it was acting consistently with other circuits that have considered application of the Octane standard to fee disputes under the Lanham Act, citing LHO Chicago River, L.L.C. v. Perillo (7th Cir. 2019) (collecting cases); Xereas v. Heiss (DC Cir. 2021); and Safeway Transit LLC v. Disc. Party Bus, Inc. (8th Cir. 2020).



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Ninth Circuit Withdraws Opinion That Signaled Shift in Arbitration Landscape for Non-Signatories

by and | Jun 17, 2021 |

The US Court of Appeals for the Ninth Circuit issued an order withdrawing its opinion in Setty v. Shrinivas Sugandhalaya, where the Court affirmed the denial of a non-signatory’s bid to arbitrate its claims for trademark infringement against one of the signatories to a contract under Indian law. Setty v. Shrinivas Sugandhalaya LLP, Case No. No. 18-35573 (9th Cir. June 8, 2021). The Court did not provide any reasoning for the withdrawal but indicated that a new disposition will be filed in due course.



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Paris Court of Appeals Rejects Pharmaceutical Supplementary Protection Certificate Applications

by and | Jun 17, 2021 | ,

One of the conditions for obtaining an SPC is that “the product is protected by a basic patent in force”. The Court of Justice of the European Union (CJEU) clarified to what extent a product must be identified by the claims to meet this condition in Teva, Eli Lilly, and Royalty Pharma.

In Eli Lilly, the CJEU notes that an active ingredient which is not identified in the claims of a basic patent by means of a structural or functional definition cannot be considered to be “protected by a basic patent.”

The active ingredient does not, however, have to be identified in the claims by a structural formula. A functional definition of the active ingredient may suffice if it is possible to reach the conclusion on the basis of the claims (interpreted in light of the description of the invention) that they relate “implicitly but necessarily and specifically, to the active ingredient in question.

Click here to read the full article in our latest International News.



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What You Say Can and Will be Used Against You – Prosecution History and Prior Infringement Arguments

by | Jun 10, 2021 |

Noting patent owner’s prior litigation statements, the US Court of Appeals for the Federal Circuit upheld a district court ruling that a clear and unmistakable disclaimer in the prosecution history affected claim construction of an asserted patent. SpeedTrack, Inc. v. Amazon.com, Inc., Case No. 20-1573 (Fed. Cir. June 3, 2021) (Prost, J.)

In 2009, SpeedTrack filed suit against various online retailers alleging infringement of its patent directed to a method for accessing files in a filing system leveraging “category descriptions” to aid in organizing the files. The patent describes associating category descriptions with files using a “file information directory.” A “search filter” then searches the files using their associated category descriptions. A limitation that “the category descriptions hav[e] no predefined hierarchical relationship with such list or each other” was added during prosecution to overcome a prior art reference that leveraged hierarchical field-and-value relationships.

The district court initially adopted a proposed claim construction that lacked any reference to a field-and-value relationship, noting that the construction “account[ed] for the disclaimers made during prosecution.” Following a motion by SpeedTrack, the court concluded there was still a fundamental dispute about the scope of the claim term. After further analyzing SpeedTrack’s prosecution history, the court concluded that the history “demonstrate[d] clear and unambiguous disavowal of category descriptions based on hierarchical field-and-value systems” and issued a second claim construction order explicitly disclaiming “predefined hierarchical field-and-value relationships” from the scope of “category descriptions.” SpeedTrack subsequently stipulated to noninfringement under the second claim construction and appealed.

On appeal, the Federal Circuit stressed that prosecution-history disclaimer can arise from both claim amendments and arguments. Here, the prosecution history showed that the applicants “repeatedly highlighted predefined hierarchical field-and-value relationships” as a difference between the prior art and the patent claims in no uncertain terms. That SpeedTrack distinguished the prior art on other grounds did not moot its disclaimer statements.

The Federal Circuit also noted that SpeedTrack argued in litigation against another defendant that the purpose of the amendment was to distinguish the category descriptions from attributes that “have a ‘hierarchical’ relationship between fields and their values.” While the Court agreed with SpeedTrack that such litigation statements were not a disclaimer on their own (since they were not the inventors’ prosecution statements), these litigation statements further supported not accepting SpeedTrack’s arguments. The Court reminded SpeedTrack that it has cautioned (in Aylus and Southwall) that “the doctrine of prosecution disclaimer ensures that claims are not ‘construed one way in order to obtain their allowance and in a different way against accused infringers.’”

After assessing SpeedTrack’s prior statements, the Federal Circuit considered whether the disclaimer was clear and unmistakable. The Court concluded it was. In rejecting SpeedTrack’s argument that prior decisions not expressly finding disclaimer supported that prosecution statements were not clear and unambiguous, the Court noted the construction had not been fully considered in those judgments. Similarly, the Court rejected the notion that the district court’s issuance of a second claim construction order showed there was no clear and [...]

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Submarine Sunk: Patent Prosecution Laches Pops GATT Bubble

by | Jun 10, 2021 |

Addressing for the first time whether the US Patent & Trademark Office (PTO) can assert prosecution laches as a defense in a civil action brought under 35 U.S.C. §145, the US Court of Appeals for the Federal Circuit held that the PTO could assert prosecution laches as a defense against four patent applications in a case where the plaintiff delayed presenting the claims for these applications over a period of at least 10 years. Hyatt v. Hirshfeld, Case Nos. 2018-2390; -2391; -2392; 2019-1038; -1039; -1049; -1070 (Fed. Cir. June 1, 2021) (Reyna, J.)

Gilbert Hyatt is well known for having built a prolific patent application portfolio based on nearly 400 initial filings made just before the United States changed from an issuance-based patent exclusivity system to a filing-based patent exclusivity system under the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). By 2003, those 400 initial filings had exploded into 45,000 independent claims. Hyatt’s applications were so labor intensive that the PTO developed a separate examining unit specifically dedicated to their review. Many of these applications have been rejected.

After the PTO finally rejected four of Hyatt’s computer software patent applications, in 2005 Hyatt filed a § 145 action in the district court. Throughout the litigation, the PTO argued that Hyatt had routinely delayed prosecuting his patent applications and never complied with his verbal agreement with the PTO to streamline each application to apply for only one invention. Ultimately, after a five-day bench trial, the district court found that the PTO failed to prove it had taken sufficient action to advance prosecution of Hyatt’s applications. The PTO appealed.

Resolving the threshold issue on appeal of whether prosecution laches is even available to the PTO in a § 145 action, the Federal Circuit explained that the right to assert laches as an affirmative defense flows naturally from the PTO’s rights to reject applications based on laches and defend such rejections on appeal in the Federal Circuit on the same grounds. Any other conclusion, the Court recognized, would create incongruence and undermine the PTO’s authority. Such a defense is available even if raised for the first time in the district court, as “§145 actions open the door to new evidence.”

The Court found significant errors in the district court’s application of prosecution laches law. First, the Federal Circuit held that the district court too narrowly focused on the PTO’s specific conduct without considering the totality of the circumstances, including delays caused by Hyatt’s sweeping amendments and prosecution of other patent applications, as well as the relative costs and burdens of examining Hyatt’s gargantuan application portfolio. The Court was particularly critical regarding the district court’s assignment of blame to the PTO in its attempts to manage the unwieldy task before it.

After reviewing the evidence presented by the PTO, the Federal Circuit found that the PTO had amassed significant evidence of Hyatt’s delay of prosecution of his applications—i.e., “patterns of prosecution conduct [that] created a perfect storm that overwhelmed the [...]

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IP Ownership Considerations in Multi-jurisdictional Software Development Agreements

by and | Jun 10, 2021 | , , , ,

As a result of the healthcare sector’s growing dependence on software, health IT companies are increasingly taking advantage of globalisation to engage contractors in low wage jurisdictions to develop their user-facing software applications. This can trigger unforeseen legal risks owing to the differing laws across jurisdictions related to the ownership and transfer of intellectual property (IP) rights.

At the most extreme end, best practices in some jurisdictions are unenforceable or even impermissible in others. In view of these issues, it is strongly recommended that a company looking to take advantage of cross-border contracting for critical development eorts should carefully consider the choice of law provisions in their agreements, and engage with local counsel to ensure proper vesting of intellectual property rights.

An inability to demonstrate proper ownership of such rights can be a substantial obstacle for later financings or in corporate activities. Depending on the jurisdictions involved, a contracting company may need to concern itself with at least three types of IP in the software that is developed on its behalf: copyrights, moral or author’s rights, and patents.

Click here to read the full article in our latest edition of International News.



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Navigating the Interplay Between the ITC, PTAB and District Courts

by | Jun 3, 2021 |

Recent changes in intellectual property law in the US International Trade Commission (ITC), the Patent Trial and Appeal Board (PTAB) and federal US District Courts have had major impacts on litigation strategy and business operations. Within these venues, key changes often run parallel to each other, and understanding and maximizing the interplay between them is critical to formulizing an IP strategy. A panel of McDermott attorneys, including Charlie McMahon, Amol Parikh, Jay Reiziss and Jiaxiao Zhang, recently hosted a webinar exploring these issues in collaboration with IAM and Lexology. Click here to watch their discussion of the complexities of these related developments as well as innovative and practical insights to help you navigate them.

KEY TAKEAWAYS

  • The rate at which the PTAB institutes petitions for Inter Partes Review (IPR) has been steadily declining, with a newer low expected this year. The falling institution rate over the last several years is attributable in part to discretionary denial under § 314(a).
  • Until 2020, there was still uncertainty behind the contours of how the PTAB’s discretionary denial would be applied when there was a co-pending district court or ITC proceeding. Last year, the PTAB designated as precedential its decision in Apple v. Fintiv, setting forth factors intended to guide the discretionary decision to institute when there are parallel proceedings.
  • Post-Fintiv, it looks less likely that litigants will be able to simultaneously pursue district court litigation and a PTAB proceeding. One of the benefits of the PTAB is the lower burden of proof to demonstrate that a patent is unpatentable. Removing this tool from the litigation toolbox could have a profound impact on defensive strategy.
  • It is still unclear how the PTAB’s Finitiv decision will apply to ITC investigations. Fitness technology companies, among others, have since asked the PTAB’s Precedential Opinion Panel (POP) to determine whether Fintiv should apply to parallel ITC investigations.
  • There have also been additional developments at the ITC related to the use of licensing to satisfy the domestic industry requirement. The pending Advancing America’s Interests Act (AAIA) would significantly change how complainants can rely upon licensing activities to establish a domestic industry.

 



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It’s Highlighted and Verified: Reversal of PTAB Non-Obviousness Decision

by | Jun 3, 2021 |

In a relatively unusual outcome, the US Court of Appeals for the Federal Circuit reversed a Patent Trial & Appeal Board (Board) decision finding non-obviousness in an inter partes review (IPR). Becton, Dickinson, and Co. v. Baxter Corp. Englewood, Case No. 20-1937 (Fed. Cir. May 28, 2021) (Dyk, J.)

Becton petitioned the Board for IPR of Baxter’s pre-America Invents Act (AIA) patent, directed to a system for preparing patient-specific doses and a method for telepharmacy. The Board decided that the patent claims were not shown to be invalid as obvious, but also found that Baxter’s secondary considerations evidence was “weak.” Becton appealed based on two contested limitations: a verification limitation and a highlighting limitation. The Federal Circuit reversed the Board, concluding that the challenged claims were obvious and explained that weak evidence of secondary considerations could not overcome the strong showing of obviousness.

First, the Federal Circuit decided that the Board erred in finding that a prior art reference that taught a remote pharmacist may verify a dose preparation did not render obvious a claimed method where a remote pharmacist must verify. The reference made clear that a non-pharmacist could not further process work without the verification step. Baxter’s own expert witness conceded that, in accordance with the teachings of the prior art, a non-pharmacist would be disciplined for continuing to process dose preparation without authorization. The Court concluded there was no significant difference between the teaching in the prior art reference and Baxter’s verification requirement.

Second, the Federal Circuit decided that the Board erred in finding that the “highlighting” limitation as it relates to a set of drug preparation steps on a computer was non-obvious. In what it characterized as a “close case,” the Board decided that a prior art reference’s teachings highlighting patient characteristics when dispensing repackaged medication did not make obvious highlighting, in a drug formulation context, prompts for additional information. Citing KSR v. Teleflex, the Court explained that the “combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results.” The reference taught highlighting in terms of various inputs and information delivered. Becton’s expert testified that one of ordinary skill would understand from the reference that other information, such as prescription order information, could be displayed on the user interface. Baxter’s expert did not contradict Becton’s expert. Because “a person of ordinary skill is also a person of ordinary creativity, not an automaton,” the Board erred in using that one reference as the only source for what one of ordinary skill would consider.

Lastly, Baxter unsuccessfully argued that under pre-AIA 35 U.S.C. § 102(e)(2), one of the patent references was ineligible as prior art. Sec. 102(e)(2) provides that a prior art reference may be a “patent granted” on another’s application filed in the United States before the invention by the applicant. Baxter argued that since the claims of the reference were cancelled after a 2018 IPR, the reference no longer qualified as a “patent granted” [...]

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