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Explain Yourself: “Untethered” Obviousness Determination Reversed

by | Aug 13, 2020 | ,

The US Court of Appeals for the Federal Circuit vacated in part and remanded a Patent Trial and Appeal Board (Board) determination of unpatentability because the Board did not adequately support its reasoning as to certain claims. Alacritech, Inc. v. Intel Corp., Case No. 19-1467 (Fed. Cir. July 31, 2020) (Stoll, J.).

Intel petitioned for inter parties review (IPR) of a patent owned by Alacritech that is directed to performing network processes on a dedicated network card (INIC) instead of on a computer’s central processing unit (CPU). Intel asserted that the claims would have been obvious over prior art Thia in view of Tanenbaum. The Board agreed, finding claims of the patent were obvious. Alacritech appealed.

Addressing the standard of review as set forth in the Administrative Procedure Act, the Federal Circuit explained that the Board is obligated to provide a record which shows the evidence on which its findings are based, as well as its reasoning in reaching its conclusions. While “perfect explanations” are not required, it must be sufficient for the Court to see that the agency has “done its job.” The Court found that the Board’s analysis as to three claims in the patent did not meet this standard.

The Court explained that the Board, after only briefly reciting the parties’ arguments, “merely concluded” that the relevant claim limitation was present in the subject claims and the prior art, and in so doing “misapprehend[ed] both the scope of the claims and the parties’ arguments.” The Court went on to explain that the crux of the dispute was where the claim limitation at issue took place—in the CPU (as in the prior art), or in the INIC (as required by the claims). The Court found that the Board’s analysis did not acknowledge this aspect of the parties’ dispute or explain how the prior art taught such a limitation. Without an explanation of its reasoning, the Court could not reasonably discern whether the Board followed the proper path in making its determination.

Intel argued that, while the Board did not itself expound on its reasoning, it did sufficiently support its position by citation to and adoption of Intel’s arguments. While the Federal Circuit noted that it has upheld Board determinations that flowed from the rejection or adoption of a party’s arguments, in this case the Board’s decision was “untethered from either party’s position.” Specifically, both parties focused their arguments on the Thia reference, while the Board relied on Tanenbaum to support its findings. Thus the Court was unable to infer the Board’s argument from those founded on a different basis.

The Federal Circuit also rejected as “fundamentally incorrect” Intel’s assertion that any evidentiary support in the record—even if not cited to by the Board—is sufficient to support the Board’s determination. The Court retorted that Intel’s sole citation to a footnote in a 2002 case was at odds with the clear precedent confining the Court’s review to the actual grounds on which the Board relied. Accordingly, the Court vacated the [...]

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Check Step One: It’s Not Ova until the Court Compares Claims

by | Aug 13, 2020 |

The US Court of Appeals for the Federal Circuit reversed a district court’s decision finding a patent directed to a method of sorting particles using flow cytometry technology ineligible under 35 U.S.C. § 101. The Federal Circuit also vacated the district court’s conclusion that the patent owner was precluded from asserting certain patents based on claim preclusion. XY, LLC v. Trans Ova Genetics, LC, Case No. 19-1789 (Fed. Cir. July 31, 2020) (Stoll, J.).

XY, Beckman Coulter and Inguran (collectively, XY) sued Trans Ova in 2016 for infringement of seven patents relating to technology for sex selection of non-human mammals. Trans Ova filed a motion for judgment on the pleadings, arguing that the asserted claims of one of the patents are ineligible under 35 U.S.C. § 101. Applying the Supreme Court’s two-step Alice framework for determining patent eligibility, the district court determined that the claims are ineligible under § 101. At Alice step one, the district court found that the patent’s sole independent claim was directed to the abstract idea of a “mathematical equation that permits rotating multi-dimensional data.” At Alice step two, the district court found that the asserted claims lacked an inventive concept because XY admitted that each claim element was known in the art.

Trans Ova also filed a motion to dismiss, arguing that the district court should hold XY’s infringement allegations barred by claim preclusion. The argument was based on XY’s 2012 lawsuit against Trans Ova on infringement of different patents directed to similar technology (which was pending on appeal when the 2016 case was filed). The district court granted Trans Ova’s motion to dismiss infringement allegations of three patents cited in the 2016 suit, and stayed proceedings on XY’s remaining causes of action pending the outcome of the 2016 suit’s appeal. XY appealed the district court’s dismissal decision.

On appeal, the Federal Circuit found that the district court erred in finding that the claims are directed to a mathematical equation under Alice step one. The Court concluded that the asserted claims are directed to a patent-eligible improvement of a method of sorting particles using flow cytometry technology, not to an abstract idea. XY’s claim described detailed improvements to a physical technique, a step-by-step method for a laboratory process, which is patent eligible.

As to the issue of claim preclusion, the parties’ only dispute was whether the district court properly concluded that XY’s 2012 and 2016 lawsuits present the same cause of action. A cause of action is defined based on the transactional facts from which it arises, which in a patent case include both the asserted patents and the accused activity. Claim preclusion will be triggered by different patents only if the scope of the asserted patent claims in the two suits is essentially the same.

XY argued that the district court erred by failing to compare the currently asserted patent claims to the previously asserted patent claims to determine whether the causes of action in the two lawsuits are essentially the same. The Federal Circuit [...]

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Unlikely to Succeed: Preliminary Injunction Denied Despite Stipulation to Irreparable Harm

by | Aug 13, 2020 |

In a dispute over the terms of a settlement agreement, the US Court of Appeals for the Federal Circuit found that a patent owner was not entitled to a preliminary injunction despite a stipulation that it would be irreparably harmed if the accused infringer breached certain provisions of the agreement. Takeda Pharmaceuticals U.S.A., Inc. v. Mylan Pharmaceuticals, Inc., Case Nos. 20-1407, -1417 (Fed. Cir. July 31, 2020).

Takeda originally sued Mylan to prevent Mylan’s launch of a generic version of Takeda’s branded drug Colcrys. The parties ultimately settled under terms set forth in a settlement/license agreement, including a provision in Section 1.2(d) stating that Mylan would be entitled to launch a generic product after a Final Court Decision holding that all unexpired claims of the licensed patents that were asserted and adjudicated against a third party were either (i) not infringed or (ii) any combination of not infringed and invalid or unenforceable. The licensed patents included 17 Orange-Book-listed patents that Takeda had asserted against Mylan. The parties further agreed that a breach of this provision “would cause Takeda irreparable harm.”

While Takeda and Mylan were negotiating the settlement, another patent litigation that involved some of the licensed patents was ongoing (the West-Ward litigation). The West-Ward litigation involved a different party and a different drug product. Takeda did not assert all 17 patents in the West-Ward litigation. It only asserted eight and ultimately dismissed five with prejudice. On summary judgment, the district court in the West-Ward litigation found that the asserted claims of the remaining three patents were not infringed.

Mylan informed Takeda that it would launch its generic product, arguing that summary judgment in the West-Ward litigation triggered Section 1.2(d), allowing it to launch its generic product because all of the asserted claims remaining in the suit had been found not infringed. In response, Takeda filed a complaint alleging breach of contract and patent infringement, and sought a preliminary injunction to enjoin Mylan from its launch. The preliminary injunction motion was denied. Takeda appealed.

A plaintiff seeking a preliminary injunction must show (i) that it is likely to succeed on the merits, (ii) that it will suffer irreparable harm in the absence of preliminary relief, (iii) that the balance of equities tips in its favor, and (iv) that an injunction is in the public interest. The Federal Circuit’s decision focused on the first two factors: likelihood of success and irreparable harm.

The Federal Circuit’s analysis of the likelihood of success prong turned on the meaning of Section 1.2(d). Takeda argued that Section 1.2(d) had not been triggered because not all unexpired claims that were asserted in the West-Ward litigation had been found not infringed, specifically the asserted claims of the five withdrawn patents. Mylan argued that triggering Section 1.2(d) only required that all unexpired claims that had been asserted and adjudicated to be found not infringed or invalid, and because the asserted claims of the five dismissed patents were not adjudicated, it was not necessary that the dismissed claims be [...]

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“Method of Preparation” Claims Still Patent Eligible Under § 101 in Modified Opinion

by | Aug 13, 2020 |

The US Court of Appeals for the Federal Circuit denied an accused infringer’s petition for rehearing en banc and issued a modified opinion with additional analysis maintaining its prior finding that patent claims directed to a method of preparation were patent eligible. Illumina, Inc. v. Ariosa Diagnostics, Inc., Case No. 19-1419 (Fed. Cir. Aug. 3, 2020) (Lourie, J.) (Reyna, J., dissenting).

In its original decision in Illumina v. Ariosa, the Federal Circuit found that claims directed to methods of preparing a fraction of cell-free DNA that is enriched in fetal DNA were not directed to a patent-ineligible natural phenomenon. In its modified opinion, the Court again concluded that the claims were patent eligible under § 101 because they were not directed to a natural phenomenon, but to an exploitation of that natural phenomenon, by inventing a method for preparing a mixture enriched in fetal DNA that selectively removed maternal DNA. In the modified opinion, the majority further explained that the claimed size thresholds were not dictated by any natural phenomenon, but were “human-engineered parameters that optimize the amount of maternal DNA that is removed from the mixture and the amount of fetal DNA that remains in the mixture in order to create an improved end product that is more useful for genetic testing than the original natural extracted blood sample.” The Court emphasized that the claimed methods achieve more than an observation or detection of a natural phenomenon because the claims include “physical process steps that change the composition of the mixture, resulting in a DNA fraction that is different from the naturally occurring fraction in the mother’s blood.” The Court distinguished Myriad by stating that the claims were ineligible in that case because they covered a gene that the inventors isolated but did not invent, whereas in this case, the inventors claimed an innovative method using human-engineered size parameters to perform the separation—not the separated DNA itself. The Court concluded that the claimed methods were patent eligible under § 101 because they “utilize the natural phenomenon that the inventors discovered by employing physical process steps and human-engineered size parameters to selectively remove larger fragments of cell-free DNA and thus enrich a mixture in cell-free fetal DNA.”

Judge Reyna again dissented, arguing that the claims were patent ineligible under § 101 because they were directed to an undisputed natural phenomenon (i.e., the “surprising” discovery of size discrepancy of cff-DNA in a mother’s blood), and the application of the natural phenomenon used routine steps and conventional procedures that are well known in the art. He explained that “[l]ike in Alice, the claims here are directed to a natural phenomenon because they involve a fundamental natural phenomenon, that cff-DNA tends to be shorter than cell-free maternal DNA in a mother’s blood, to produce a ‘mixture’ of naturally-occurring substances.” Judge Reyna argued that the majority ignored the Court’s “claimed advance precedent” by reasoning that the claims belong in a distinct category of “method of preparation” claims, but such characterization should be treated [...]

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Glass Half Empty: Patent Reciting “Half Liquid” Is Indefinite

by | Aug 13, 2020 |

The US Court of Appeals for the Federal Circuit affirmed the district court’s finding that the asserted patent claims were invalid as indefinite because the meaning of the term “half-liquid” was not reasonably clear from the record. IBSA Institut Biochimique, S.A. v. Teva Pharms. USA, Inc., Case No. 19-2400 (Fed. Cir. July 31, 2020) (Prost, C.J.).

IBSA owns a patent directed to pharmaceutical formulations for thyroid hormones that enable a safe and stable oral administration. IBSA listed in the Orange Book the patent for Tirosint®, a soft gel capsule formulation containing the active ingredient levothyroxine sodium. Teva filed an abbreviated new drug application to market a generic version of Tirosint®, and IBSA responded by filing a lawsuit for patent infringement against Teva.

During claim construction, the parties disputed the construction of the term “half-liquid.” IBSA proposed that “half-liquid” should be construed to mean “semi-liquid,” while Teva argued that the term was indefinite or should be construed as “a non-solid, non-paste, non-gel, non-slurry, non-gas substance.” The district court began its analysis by acknowledging that the parties “agree that the intrinsic record does not define ‘half-liquid.’” IBSA argued that a priority Italian patent application’s use of the word “semiliquido” (translation: semi-liquid) in the same places where “half-liquid” was used in the patent at issue supported its position that the two terms were synonyms. The district court disagreed, noting several differences in the two patents that indicated that the different choice of terms was intentional. Further, the district court noted that the applicant originally used the term “semi-liquid” in a dependent claim during prosecution, but later removed this term, indicating that the applicant understood the terms to be different and intentionally chose not to use “semi-liquid” in the asserted claims. The district court also found IBSA’s extrinsic evidence (e.g., reliance on dictionary definitions, other patents and expert testimony) unpersuasive. The district court accordingly found the asserted patent claims invalid as indefinite because the meaning of “half-liquid” was not reasonably ascertainable from the record. IBSA appealed.

The Federal Circuit affirmed. The Court first found that the intrinsic record failed to establish the boundaries of the term “half-liquid.” The Court agreed with the district court’s analysis, finding that neither the claims nor the specification supported IBSA’s proposed construction. The Court also explained that the prosecution history reinforced the conclusion that the applicant understood “half-liquid” to be different from “semi-liquid,” because the applicant intentionally removed the term “semi-liquid” in a dependent claim during prosecution. The Court disagreed with IBSA’s suggestion that the district court refused to consider the foreign Italian priority document—rather, “when discrepancies between a foreign priority document and the U.S. filing exist, it may be proper to view the discrepancies as intentional.”

Turning to the extrinsic record, the Federal Circuit found that the district court did not clearly err in its analysis of the presented dictionary definitions, other patents and expert testimony. The Court noted that IBSA identified no scientific dictionaries containing the term despite IBSA’s argument that “half-liquid” would be a recognizable term [...]

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Hooked on Precedent or Something New

by | Aug 13, 2020 |

Highlighting internal disagreement regarding patent eligibility under § 101, a divided panel of the US Court of Appeals for the Federal Circuit issued a series of opinions revising and reissuing a previous opinion on § 101 patent eligibility for a mechanical invention and, in an even split, denied a petition for en banc review. American Axle & Manufacturing, Inc. v. Neapco Holdings LLC, Case No. 18-1763 D.I. 134 (Fed. Cir. Oct. 3, 2019) (Dyk, J.) (Moore, J., dissenting); id. D.I. 133 (denying en banc by a 6–6 vote).

In October 2019, a divided Federal Circuit panel in American Axle v. Neapco affirmed a district court finding that method claims for a mechanical invention were invalid under 35 U.S.C. § 101. The majority specifically found that the claimed invention was nothing more than a recitation of Hooke’s law, which undoubtedly is a law of nature. Judge Moore dissented, arguing that the majority improperly expanded the § 101 eligibility inquiry beyond its statutory gatekeeping function and distorted patent eligibility under § 101 and enablement under § 112.

Neapco filed a petition for rehearing and a petition for rehearing en banc. Several amicus briefs were also filed. Notably, retired Judge Paul R. Michel, formerly the chief judge of the Federal Circuit, filed an amicus brief in support of the en banc petition because he believed the panel’s original decision “conflicts with the Supreme Court’s and [Federal Circuit’s] precedent.”

In view of the petition for rehearing, the original panel modified and reissued its opinion. The Court affirmed its original decision that two of the three independent claims were invalid under § 101 (patent claims 22 and 36); however, the Court reversed its original decision invalidating claim 1. Regarding claims 22 and 36, the majority reiterated that the claims were merely an application of Hooke’s law and that it was simply applying Supreme Court and Federal Circuit precedent, analogizing this case to the Supreme Court’s 1853 O’Reilly v. Morse decision where the Supreme Court determined the patentability of claims directed to a natural law of using electromagnetic force to transmit messages. When responding to the dissent, the majority reiterated that it was not departing from prior precedent, and that its “holding is limited to the situation where a patent claim on its face and as construed clearly invokes a natural law, and nothing else, to accomplish a desired result.”

Regarding claim 1, the majority reversed its original decision because the claim had an additional limitation that could cause the claim to not merely be an application of Hooke’s law. Because the district court did not address this limitation, the majority remanded the case so the district court could address this issue in the first instance.

Judge Moore maintained her dissent, arguing that the majority was announcing a new patentability test: the “Nothing More” test. She argued that the decision created a new test for instances when claims are directed to a natural law even though no natural law is specifically recited in the claims. Judge Moore further reiterated [...]

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It’s Good to Be the Sovereign, Unless You Have an Exclusive Licensee

by | Aug 5, 2020 |

Addressing the interaction between state sovereign immunity under the 11th Amendment and joinder under the Federal Rules of Civil Procedure, a “fractured majority” of the US Court of Appeals for the Federal Circuit determined that an exclusive licensee could proceed with suit even though state sovereign immunity prohibited involuntary joinder of the patent owner. Gensetix, Inc. v. The Board of Regents of the University of Texas System, Case No. 19-1424 (Fed. Cir. July 24, 2020) (O’Malley, J.) (Newman, J., concurring in part and dissenting in part) (Taranto, J., concurring in part and dissenting in part).

In 2014, Gensetix indirectly licensed two patents covering cancer treatment methods from the University of Texas (UT), a state university. A subsequent confirmation between Gensetix and UT confirmed Gensetix’s exclusive license to the patents-in-suit, which required Gensetix to sue potential infringers and gave UT a secondary right to sue if Gensetix did not bring suit. The parties further agreed to cooperate regarding any infringement suit and that nothing in the agreement would waive UT’s sovereign immunity.

Three years later, Gensetix sued Baylor College of Medicine and others for patent infringement. Before filing the complaint, Gensetix asked UT, the legal patent owner, to join suit. UT declined, and Gensetix named it as an involuntary plaintiff. UT moved to dismiss itself from the lawsuit based on its sovereign immunity, and Baylor moved to dismiss because UT was a required party that could not be joined because of its sovereign immunity. The district court agreed with UT and Baylor, concluding that UT’s sovereign immunity prevented Gensetix from joining UT as a plaintiff and that the suit could not proceed without UT. Gensetix appealed.

The Federal Circuit reversed. The majority opinion, authored by Judge O’Malley, held that UT’s sovereign immunity prohibited its joinder as an involuntary plaintiff, but that Gensetix could proceed in its suit against Baylor notwithstanding UT’s absence. The Court affirmed the district court’s conclusion that UT’s 11th Amendment state sovereign immunity prohibited UT’s involuntary joinder. Reasoning that “[i]t is immaterial that there are no claims against UT, or that UT is named an involuntary plaintiff rather than an involuntary defendant,” the Court held that “Rule 19(a)(2) cannot be used to drag an unwilling UT into federal court” because “[t]he Eleventh Amendment serves to prevent ‘the indignity of subjecting a State to the coercive process of judicial tribunals’ against its will.” As for the exclusive licensee’s ability to proceed without UT, the Court explained that the district court abused its discretion by giving “controlling weight” to UT’s sovereign immunity, by failing to appreciate the alignment of interests between Gensetix and UT, and by ignoring that the license eliminated the risk of multiple suits because UT could not sue after Gensetix had done so.

Although both conclusions commanded a majority, they were different majorities. In a separate opinion, Judge Taranto agreed that UT could not be joined, but would also have held that Republic of Philippines v. Pimentel—a Supreme Court case requiring dismissal of claims where an absent [...]

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PTAB May Reject Substitute Claims Under Any Basis of Patentability

by | Aug 5, 2020 | ,

The US Court of Appeals for the Federal Circuit considered for the first time whether a district court’s invalidity determination, when made final after all appeals are exhausted, divests the Patent Trial and Appeal Board (PTAB) of jurisdiction in a co-pending inter partes review (IPR) proceeding involving the same claims, and held that it does not. The Court also held that in an IPR proceeding, the PTAB is free to reject proposed substitute claims for failing to meet the subject matter eligibility requirements of § 101. Uniloc 2017 LLC v. Hulu, LLC, Case No. 19-1686 (Fed. Cir. July 22, 2020) (Wallach, J.) (Dyk, J., dissenting).

Hulu filed an IPR petition challenging claims of Uniloc’s patent directed to adjustable software licensing for digital products. After the PTAB instituted review, Uniloc filed a motion for substitute claims, conditional on whether the PTAB found the original claims unpatentable. Before the PTAB issued its final determination and before it ruled on the motion for substitute claims, a district court, in a related proceeding, held Uniloc’s asserted claims invalid as directed to patent-ineligible subject matter. Shortly thereafter, the PTAB issued a final written decision finding the challenged claims unpatentable over the prior art, and it found the substitute claims unpatentable under § 101. Uniloc appealed the PTAB’s use of § 101 to invalidate its substitute claims.

While Uniloc’s appeal of the Hulu IPR was pending, the Federal Circuit affirmed the district court’s invalidity finding as to the original claims. With respect to the Hulu appeal, the Federal Circuit ordered the parties to address whether the appeal was moot in view of the ultimate finality with respect to invalidity of the original claims, thereby divesting the PTAB of jurisdiction over the IPR.

The majority held that the finality of the district court’s invalidity finding did not necessarily divest the PTAB of authority to consider substitute claims. It determined that the mootness issue was waivable, and that Hulu had waived the argument because it failed to raise mootness during the pendency of the IPR at the time the district court issued its decision. Even if Hulu had not waived the argument, the majority found that the PTAB’s authority to consider substitute claims does not depend on any live dispute about the original claims, as long as the motion to amend in the IPR was timely filed.

As to the PTAB’s rejection of the claims under § 101, the majority held that although the PTAB is restrained in an IPR proceeding to invalidating a patent’s original claims only under the anticipation and obviousness grounds raised in the petition, the PTAB may use other invalidity tools as a “new ground of rejection” for substitute claims, including for lack of patentable subject matter under § 101. The majority also suggested that other grounds of patentability would be within the scope of the PTAB’s authority, including rejections under the various subsections of § 112. The majority was concerned that limiting the PTAB’s review might force it to issue substitute claims that fail to meet all the statutory [...]

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Eighth Circuit Cools Off Antitrust Claims Based on Alleged Patent Fraud

by | Aug 5, 2020 |

The US Court of Appeals for the Eighth Circuit affirmed a grant of summary judgment dismissing antitrust and tortious interference claims based on fraudulent procurement of patents where the plaintiff failed to show a knowing and willful intent to deceive the US Patent and Trademark Office (PTO). Inline Packaging, LLC v. Graphic Packaging International, LLC, Case No. 18-3167 (8th Cir. June 18, 2020) (Smith, J.).

Inline Packaging and Graphic Packaging are manufacturers of susceptor packaging, a specialized food packaging used for microwaving frozen foods. Graphic developed the susceptor design in partnership with Nestlé in 2005. The packaging was redesigned from a prior patent obtained several years earlier. Although Graphic’s computer-aided design drafter was listed as the sole inventor of the redesigned packaging claimed in the asserted patent, Nestlé’s engineer provided feedback that was implemented into the design, including the addition and deletion of certain features of the packaging.

In 2014, Nestlé held an auction to select the next manufacturer of its susceptor packaging. Nestlé originally selected Inline as the supplier of its susceptor packaging, but later awarded 90% of the susceptor packaging business to Graphic after Graphic notified Nestlé that Inline would likely infringe on Graphic’s patents. In June 2015, Graphic initiated patent litigation against Inline. In July 2015, Inline brought an antitrust suit against Graphic alleging that Graphic monopolized the susceptor packaging market using anticompetitive practices in violation of federal and state antitrust laws. To support its antitrust claims, Inline alleged that Graphic fraudulently procured the asserted patents, made baseless litigation threats and engaged in predatory discount bundling through the use of multi-year supply agreements. At the time the lawsuit was initiated, Graphic was the dominant supplier of susceptor packaging, with an almost 95% share of the US market. The district court granted summary judgment in favor of Graphic, dismissing Inline’s claims. Inline appealed.

The Eighth Circuit reviews grants of summary judgment de novo to determine whether a genuine dispute of material fact exists and whether judgment is entitled as a matter of law. Here, all inferences were viewed in the light most favorable to Inline. Section 2 of the Sherman Act prohibits monopolizing, or attempting to monopolize, any part of the trade or commerce among the several states. To prove a violation of Section 2, a claimant must show that an entity possessed monopoly power in the relevant market and willfully acquired or maintained such monopoly power through anticompetitive conduct rather than as the result of fair competition (e.g., by means of a superior product or business acumen).

The Eighth Circuit first considered whether Graphic fraudulently procured the asserted patents. Patent fraud, also known as Walker Process fraud, can support a monopolization claim where the defendant procured the patent at issue by knowing and willful fraud on the PTO, or maintained and enforced the patent with knowledge of the fraudulent manner in which it was obtained. Knowing and willful fraud requires an intent to deceive or inequitable conduct. The Court reasoned that this standard requires clear and convincing [...]

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The Naked Truth About Trademark Cancellation: Only Harm, No Proprietary Interest Required

by | Aug 5, 2020 |

The US Court of Appeals for the Federal Circuit determined that a contracting party that contractually abandoned any proprietary interest in a mark may still bring a cancellation action if it can “demonstrate a real interest in the proceeding and a reasonable belief of damage.” Australian Therapeutic Supplies Pty. Ltd. v. Naked TM, LLC, Case No. 19-1567 (Fed. Cir. July 24, 2020) (Reyna, J.) (Wallach, J., dissenting).

Australian sold condoms with the marks NAKED and NAKED CONDOMS, first in Australia in early 2000, then in the United States in 2003. Two years later, Australian learned that Naked TM’s predecessor had registered a trademark NAKED for condoms in September 2003. Australian and Naked TM communicated by email regarding use of the mark for a few years. Naked TM contended that the parties reached an agreement; Australian disagreed and said no final terms were agreed upon. Australian filed a petition to cancel the NAKED trademark registration. Ultimately, and after trial, the Trademark Trial and Appeal Board (TTAB) concluded that Australian lacked standing because it had reached an informal agreement that Naked TM reasonably believed was an abandonment of any right to contest Naked TM’s registration of NAKED. Thus, the TTAB found that Australian lacked a real interest in the proceeding because it lacked a proprietary interest in the challenged mark. Australian appealed.

The Federal Circuit reversed. First, the Court clarified that the proper inquiry was a matter of proving an element of the cause of action under 15 USC § 1064 rather than standing. The Court explained that, contrary to the TTAB’s conclusion, “[n]either § 1064 nor [its] precedent requires that a petitioner have a proprietary right in its own mark in order to demonstrate a cause of action before the Board.” Assuming without deciding that the TTAB correctly determined that Australian had contracted away its rights, the Court found that fact irrelevant. Ultimately, even though an agreement might be a bar to showing actual damages, a petitioner need only show a belief that it has been harmed to bring a petition under § 1064.

The Federal Circuit found that Australian had a reasonable belief in its own damage and a real interest in the proceedings based on a history of two prior applications to register the mark, both of which the US Patent and Trademark Office rejected on the basis that they would have created confusion with Naked TM’s mark. The Court rejected Naked TM’s argument that Australian’s abandonment of those applications demonstrated there was no harm, instead concluding that Australian’s abandonment of its applications did not create an abandonment of its rights in the unregistered mark. Moreover, as a prophylactic rationale, the Court explained that Australian’s sales of products that might be found to have infringed the challenged registration also create a real interest and reasonable belief in harm.

Judge Wallach dissented. Although he agreed that the TTAB erred by imposing a proprietary-interest requirement to bring suit under § 1064, he disagreed that Australian properly demonstrated an alternative, legitimate interest—i.e., a belief [...]

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