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Dispute on Arbitrability Needs an Arbitrator

by Paul Devinsky | Dec 2, 2021 | Patents

The US Court of Appeals for the Federal Circuit found that a license agreement between two parties required an arbitrator to determine whether a dispute between the parties had to be heard by an arbitrator. ROHM Semiconductor USA, LLC v. MaxPower Semiconductor, Inc., Case No. 21-1709 (Fed. Cir. Nov. 12, 2021) (O’Malley, J.)

MaxPower owns patents directed to silicon transistor technology and licensed said patents to ROHM Japan in a technology license agreement (TLA) that contained an arbitration clause applicable to any disputes arising from or related to the TLA, including disputes regarding patent validity. A dispute arose between the parties regarding whether the patents covered certain ROHM Japan products. After MaxPower notified ROHM USA that it was initiating arbitration under the TLA, ROHM USA filed a complaint for declaratory judgment of noninfringement of four MaxPower patents in a California district court. After MaxPower filed a motion to compel arbitration, the district court granted the motion and dismissed the district court action, finding that the TLA “unmistakably delegate[s] the question of arbitrability to the arbitrator.” ROHM USA appealed.

The issue on appeal rested on legal determinations concerning whether the parties agreed to arbitrate arbitrability. The Federal Circuit noted that “courts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clear and unmistakable’ evidence that they did so.” ROHM USA argued that its TLA with MaxPower lacked clear and unmistakable evidence of an agreement to arbitrate arbitrability, and that two provisions of the California Code of Civil Procedure (CCCP) were ambiguous regarding arbitrability. The Court noted that the CCCP sections cited by ROHM were explicitly superseded by another provision of the CCCP for international commercial arbitration.

ROHM USA then challenged the international nature of the case. ROHM USA attempted to position the matter as a dispute between two domestic corporations and stated that ROHM USA was not a signatory to the TLA at issue. The Federal Circuit concluded that ROHM USA clearly was covered by, and obligated under, the TLA, because the TLA explicitly applied to all subsidiaries of ROHM Japan. The Court also noted that the present case was “merely one aspect of a sprawling international dispute” involving MaxPower, ROHM Japan and ROHM USA.

ROHM USA also argued that the meaning of “may” in the CCCP’s statement that “[t]he arbitral tribunal may rule on its own jurisdiction” was ambiguous, but the Federal Circuit found that MaxPower’s interpretation of “may” as permissive (i.e., “may, if arbitrability is disputed”) made sense in the context of the TLA. The Court concluded:

In contracts between sophisticated parties, it is fair to hold the parties to all provisions of their contract, including those incorporated by reference. To hold otherwise would deprive sophisticated parties of a powerful tool commonly used to simplify their contract negotiations—adoption of provisions established by neutral third parties. And to refuse to give effect to the plain language of the contract, both its incorporation of the CCCP and the CCCP’s delegation of arbitrability to an arbitrator, would ignore [...]

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No More Bites at the Apple: Imminent and Non-Speculative Standing Still Required

by McDermott Will & Emery | Nov 18, 2021 | Patents

The US Court of Appeals for the Federal Circuit reiterated that a patent challenger did not have Article III appellate standing to obtain review of a final Patent Trial & Appeal Board (PTAB) ruling because the underlying district court proceedings had been dismissed with prejudice after the parties reached a settlement and license agreement. Apple Inc. v. Qualcomm Inc., Case Nos. 20-1683; -1763; -1764; -1827 (Fed. Cir. Nov. 10, 2021) (Prost, J.) (Newman, J., dissenting).

This is the second dispute between Apple and Qualcomm to reach the Federal Circuit. In the first appeal (Apple I), the Court found that Apple did not have standing to maintain an appeal from the PTAB because the parties had entered into a settlement agreement.

As in the earlier case, here Qualcomm asserted patent infringement in district court, and Apple filed petitions for inter partes review of the patent claims that Qualcomm asserted Apple had infringed. The PTAB instituted on four petitions. While the inter partes review proceedings were pending, the parties settled the district court litigation, whereby Apple received a license in exchange for royalty payments to Qualcomm. The parties filed a joint motion to dismiss Qualcomm’s district court action with prejudice, which the district court granted. Ultimately, the PTAB found that Apple failed to prove that the challenged claims were unpatentable. Apple appealed.

As in Apple I, Qualcomm moved to dismiss the appeal for lack of standing. Apple responded by arguing that “[a]lthough Apple continues to disagree with [Apple I], in light of that decision and the . . . order denying Apple’s petition for rehearing en banc, Apple believes that the present appeal can be resolved on the briefs without the need for oral argument.” The parties filed a joint motion to vacate oral argument, but the Federal Circuit instead held a consolidated oral argument. Apple reiterated its disagreement with the Court’s ruling in Apple I but admitted that the operative facts in this appeal were “the same.” The Court found that other than the specific difference of the patents in issue themselves, the operative facts were the same and the alleged failure of proof as to certain patent claims (regarding whether the petitioner had established them to be unpatentable) were the same. The Court further found that any specific patent differences were irrelevant since the settlement and license agreements in each case covered the patents in issue in that case.

Apple raised a “nuance” not “specifically addressed” in Apple I, namely that Apple I “did not explain why the threat of liability, if Apple ceases the ongoing payment and the agreement is terminated, is not a sufficient injury to support standing.” The Federal Circuit was not convinced that this nuance merited a different treatment because:

The Court would need to sit en banc to change Apple I, and panels of the Court are bound by stare decisis.
Apple acknowledged that this “nuance” was at the core of its denied en banc petition in Apple I.

Accordingly, [...]

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Federal Circuit Clarifies Venue in Hatch-Waxman Case

by Mike Baldwin | Nov 18, 2021 | Patents

Addressing venue in the context of a Hatch-Waxman case, the US Court of Appeals for the Federal Circuit explained that sending a paragraph IV notice letter to a company in the district is insufficient to establish venue. Celgene Corp. v. Mylan Pharmaceuticals Inc., Case No. 21-1154 (Fed. Cir. Nov. 5, 2021) (Prost, J.) The Court affirmed a district court finding that venue was improper since the defendant had not committed any acts of infringement and did not have a regular and established place of business in the district.

Celgene owns patents related to a multiple-myeloma drug that it markets and sells under the brand name Pomalyst. Mylan Pharmaceuticals Inc. (MPI) submitted abbreviated new drug applications (ANDAs) to the US Food & Drug Administration in order to bring a generic version of Pomalyst to market. Celgene filed suit in New Jersey against MPI and its related companies, Mylan Inc. and Mylan N.V. While Celgene is headquartered in New Jersey, MPI is based in West Virginia, Mylan, Inc. is based in Pennsylvania and Mylan N.V. is based in the Netherlands and Pennsylvania. The district court dismissed the case for improper venue (MPI and Mylan, Inc.) and for failure to state a claim (Mylan N.V.). Celgene appealed.

Citing Valeant v. Mylan, the Federal Circuit reiterated that venue for Hatch-Waxman cases must be predicated on past acts of infringement, and “it is the submission of the ANDA, and only the submission, that constitutes an act of infringement in this context.” Celgene argued that because MPI sent a paragraph IV notice letter from West Virginia to Celgene’s headquarters in New Jersey, acts of infringement occurred in New Jersey. Celgene also argued that since the notice letter was mandatory and the ANDA had to be amended to include proof of delivery, the delivery of the letter was “sufficiently related to the ANDA submission.” The Court disagreed, explaining that venue in Hatch-Waxman cases is focused on the submission of the ANDA itself, including acts involved in the preparation of an ANDA submission. The Court noted these acts must be part of the ANDA submission and that Celgene’s “related to” standard was impermissibly broad. The Court found that since the submission of the ANDA did not take place in New Jersey, venue there was improper.

The Federal Circuit also found that neither MPI nor Mylan, Inc. had a regular and established place of business in New Jersey. Celgene argued both had a regular and established place of business based on places associated with Mylan employees as well as Mylan affiliates. In rejecting these arguments, the Court noted that the employees Celgene pointed to were working remotely from home, and that the employee’s home numbers were contained in business communications. However, the Court noted that there was no indication that the defendants owned, leased or rented the employees’ homes; participated in the selection of the homes; stored inventory there or took any other actions to suggest that they had an intention to maintain a place of [...]

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Federal Circuit Makes Clear: Prior Failures in the Art May Demonstrate Non-Obviousness

by Katherine Pappas | Nov 11, 2021 | Patents

Addressing the issue of obviousness of a patent directed toward a method of killing antibiotic-resistant bacteria using only visible light with no photosensitizer, the US Court of Appeals for the Federal Circuit reversed the Patent Trial & Appeal Board’s (PTAB) decision, finding no obviousness where the asserted prior art did not disclose a successful method that did not use a photosensitizer. University of Strathclyde v. Clear-Vu Lighting, LLC, Case No. 20-2243 (Fed. Cir. Nov. 4, 2021) (Stoll, J.) The Court held that the PTAB erroneously found a reasonable expectation of success where “[t]he only support for such a finding [was] pure conjecture coupled with hindsight reliance on the teachings in the [asserted] patent.”

Gram-positive bacteria, such as Methicillin-resistant Staphylococcus aureus (MRSA), are known to negatively affect health but effective methods of killing (or inactivating) such bacteria have been elusive. Photoinactivation is a way to kill antibiotic-resistant bacteria, and previous methods involved applying a photosensitizing agent to the infection and then activating the agent using light. Through experimentation, scientists at the University of Strathclyde discovered that application of visible (blue) light of wavelengths in the range of 400 – 420 nm was effective at inactivating bacteria such as MRSA without using a photosensitizing agent. The challenged patent claimed this method of using a photosensitizer for inactivating MRSA and other Gram-positive bacteria.

After Clear-Vu Lighting petitioned for inter partes review, the PTAB found the patent invalid as obvious in view of prior art disclosing methods of photoactivation using visible light. The university appealed.

The Federal Circuit reversed, finding that the prior art did not disclose all claim elements and there was no reasonable expectation of success in reaching the claimed invention by combining the prior art.

The Federal Circuit first addressed the PTAB finding that the prior art disclosed all claim limitations, finding that neither of the asserted prior art references taught or suggested “inactivation” of the bacteria without using a photosensitizer—as required by the claims. The Court noted that it “fail[ed] to see why a skilled artisan would opt to entirely omit a photosensitizer when combining [the] references,” finding it “particularly relevant” that one of the references actually “disclosed such a photosensitizer-free embodiment and was wholly unsuccessful in achieving inactivation.”

The PTAB also found that, based on a prior art teaching that “blue light may” inactivate “other bacterial cells that produce porphyrins,” a skilled artisan would have expected that MRSA could be inactivated by blue light without a photosensitizer due to the presence of porphyrins. In defense of the PTAB’s findings, Clear-Vu argued that support for the reasonable expectation of success could be found in the challenged patent itself. Citing its 2012 decision in Otsuka Pharm. v. Sandoz, the Federal Circuit harshly criticized this position, reiterating that the inventor’s own path to the invention is not the proper lens through which to find obviousness; “that is hindsight.”

The Federal Circuit explained that “not only is there a complete lack of evidence in the record that any bacteria were inactivated after exposure [...]

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Standing Challenge Brews Trouble in Trademark Dispute

by Paul Devinsky | Nov 4, 2021 | Trademarks

Addressing for the first time Article III standing in a trademark case, the US Court of Appeals for the Federal Circuit held that hypothetical future injury is insufficient to establish standing to oppose a trademark application. Brooklyn Brewery Corp. v. Brooklyn Brew Shop, LLC, Case No. 20-2277 (Fed. Cir. Oct. 27, 2021) (Dyk, J.)

Brooklyn Brewery brews and sells craft beers. Brooklyn Brew Shop (BBS) sells beer-making kits and related accessories. Between 2011 and 2016, the Brewery and BBS collaborated on the sale of co-branded beer-making kits. In 2011, BBS obtained a trademark in its name for beer-making kits. In 2014, BBS filed an application to register a mark in its name for several Class 32 goods, including various types of beer and beer-making kits, as well as Class 5 “sanitizing preparations.”

In 2015, the Brewery petitioned for cancellation of BBS’s 2011 trademark registration and filed a notice of opposition to BBS’s 2014 trademark application. The Trademark Trial & Appeal Board (TTAB) denied the petition for cancellation and rejected the opposition. The Brewery appealed.

On appeal, the Federal Circuit first addressed whether the Brewery had standing to appeal the TTAB’s decision. The Court noted that while it “ha[d] not yet had occasion to address Article III standing in a trademark case,” a party appealing a TTAB decision must satisfy both statutory and Article III requirements. The Court held that the Brewery did not have Article III standing to appeal the TTAB’s decision dismissing the opposition with respect to the Class 5 sanitizing preparations because the Brewery did not make or sell sanitizing preparations. The Court found the possibility that the Brewery might someday expand its business to include the sale of sanitizing preparations was not enough to establish the injury-in-fact prong of the Article III standing test. However, the Court found that the Brewery’s past involvement in the sale of co-branded beer-making kits with BBS was sufficient to establish the Brewery’s standing to challenge BBS’s registration and application for Class 32 beer-making kits.

On the merits, the Federal Circuit affirmed the TTAB’s decision with respect to BBS’s 2011 trademark registration. The Court agreed with the TTAB that the Brewery failed to establish inevitable confusion as to the beer-making kits and failed to establish that BBS’s mark was merely descriptive. The Court vacated the TTAB’s decision with respect to the 2014 trademark application, finding that the TTAB erred by not considering whether BBS proved acquired distinctiveness of its application and remanded for further proceedings.

Practice Note: Before seeking review of a TTAB decision in federal court, a party should ensure that it has satisfied the three-part test for Article III standing.

It’s Not Esoteric: Absent Ambiguity, Plain Contractual Language Governs

by Jenny Chen, Ph.D. | Nov 4, 2021 | Patents

Rudimentary principles of contract law stipulate that words in a contract that are plain and free from ambiguity must be understood in their usual and ordinary sense. Applying such principles, the US Court of Appeals for the First Circuit vacated a district court’s damages award of more than $1 million under a patent license agreement, finding that the release clause in a settlement agreement wiped out the licensee’s obligation to pay royalties and sublicense fees for use and sale that occurred before the effective date of release. The General Hospital Corporation; Dana-Farber Cancer Institute, Inc. v. Esoterix Genetic Laboratories, LLC, Laboratory Corporation of America Holdings, Case Nos. 20-2126; -2149 (1st Cir. Oct. 21, 2021) (Selya, J.)

BACKGROUND

The plaintiff hospitals own several diagnostic patents, and Laboratory Corporation of America Holdings (LabCorp) and its subsidiary, Esoterix Genetic Laboratories, are licensee to the patents. Under the master license agreement, the licensee is obligated to pay fees to the hospitals, including royalties and sublicensee incomes.

In 2014, Esoterix settled a lawsuit against QIAGEN in association with a sublicense agreement concerning the diagnostic patents. LabCorp and Esoterix agreed to pay a portion of the settlement amount paid by QIAGEN to the hospitals. The settlement agreement included a broad release clause under which the hospitals released Esoterix from “any and all” obligations, “known or unknown,” that may have arisen out of the patent rights or the license before the effective date (June 27, 2017), including “payment of any past royalties or other fees pursuant to the [license].”

A semi-annual reporting period under the license agreement was due on June 30, 2017. Esoterix took the position that all royalties and sublicense income prior to June 27, 2017, were released, and thus only reported revenue and royalty information for the period of June 28 – 30, 2017. The hospitals sued to recover sublicense fees from QIAGEN to Esoterix. The district court found that Esoterix had not been released from its payment obligation for use and sales occurring before June 27, 2017, on the ground that Esoterix’s payment obligation had not originated until the payment deadline, which fell after the effective date of release. Esoterix appealed.

FIRST CIRCUIT DECISIONS

The First Circuit disagreed with the district court and concluded that the terms of the release agreement and the license agreement did not indicate that Esoterix’s obligation arose when the payments became due and payable (i.e., after the effective date of the release).

Following the Massachusetts law in accordance with the choice-of-law provision in the agreements, the First Circuit applied the principle that the plain meaning of the agreements governs, absent ambiguous provisions. The Court decided that the release agreement released Esoterix’s obligations in connection with the underling license agreement that may have arisen before the effective date. Taking into consideration the royalty and sublicensing fee provisions of the license agreement, the Court further decided that Esoterix’s financial obligation under the license agreement, including royalties and sublicense income, arose upon its sales and receipt of sublicensing income, which originated [...]

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This Case Is Both Hot and Exceptional—Attorneys’ Fees and Inequitable Conduct

by Paul Devinsky | Oct 28, 2021 | Patents

In a second visit to the US Court of Appeals for the Federal Circuit, after the Court affirmed a finding of unenforceability due to inequitable conduct based on “bad faith” non-disclosure of statutory bar prior sales on the first visit, the Court affirmed a remand award of attorneys’ fees based on a finding of exceptionality under 35 U.S.C. § 285. Energy Heating, LLC v. Heat On-The-Fly, LLC, Case No. 20-2038 (Fed. Cir. Oct. 14, 2021) (Prost, J.)

In its earlier decision, the Federal Circuit remanded the case after reversing a district court’s denial of attorneys’ fees, finding that while the district court correctly found that Heat On-The Fly (HOTF) committed inequitable conduct in failing to disclose to the US Patent & Trademark Office multiple instances of prior use of the claimed method, the district court failed to articulate a basis for denying attorneys’ fees other than that HOTF articulated substantial arguments (experimental use) against the finding of inequitable conduct.

On remand, the district court found the case “exceptional” because it “stands out from others within the meaning of § 285 considering recent case law, the nature and extent of HOTF’s inequitable conduct, and the jury’s findings of bad faith.” HOTF appealed.

HOTF contended that the district court abused its discretion by relying on the jury’s bad-faith finding because that finding “had nothing to do with the strength or weakness of HOTF’s litigation positions.” Citing the 2014 Supreme Court decision in Octane Fitness, the Federal Circuit rebuffed that argument, explaining that “HOTF made representations in bad faith that it held a valid patent [which] was within the district court’s ‘equitable discretion’ to consider as part of the totality of the circumstances of HOTF’s infringement case.”

HOTF also argued that the district court erroneously relied on the jury verdict in finding exceptionality because, since the jury found that HOTF did not commit the tort of deceit, it could not have engaged in inequitable conduct. The Federal Circuit rebuffed this argument as well, noting that inequitable conduct was tried to the district court—not the jury—resulting in a judgment of unenforceability that the Court affirmed in the prior appeal and that the jury’s finding of no state-law “deceit” had no bearing on inequitable conduct.

The Federal Circuit further explained that HOTF’s assertion that under the Court’s 2020 decision in Electronic Communication Technologies v. ShoppersChoice.com, the district court was not required to affirmatively weigh whether HOTF’s purported “lack of litigation misconduct” was incorrect. Rather, “the manner in which [patentee] litigated the case or its broader litigation conduct” is merely “a relevant consideration.” Under Octane, the test for whether a case is “exceptional” under § 285 is whether it is “one that stands out from others with respect to the substantive strength of a party’s litigating position . . . or the unreasonable manner in which the case was litigated.”

Finally, the Federal Circuit noted that the district court correctly explained that “[a] finding of inequitable conduct [...]

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Means-Plus-Function Claims: Don’t Forget the “Way”

by Paul Devinsky | Oct 21, 2021 | Patents

The US Court of Appeals for the Federal Circuit affirmed a lower court’s findings of noninfringement, in part because the plaintiff had failed to prove the “way” element of the function-way-result test for a first means-plus-function claim, and because the specification lacked disclosure of a structure for the “way” to perform a second means-plus-function claim. Traxcell Techs., LLC v. Sprint Commc’ns Co., Case Nos. 20-1852, -1854 (Fed. Cir. Oct. 12, 2021) (Prost, J.); Traxcell Techs., LLC v. Nokia Sols. & Networks Oy, Case Nos. 20-1440, -1443 (Fed. Cir. Oct. 12, 2021) (Prost, J.)

Traxcell asserted several related patents against multiple defendants in parallel litigations. One of the patents related to self-optimizing network technology for making “corrective actions” to improve communications between a wireless device and a network (SON patent). The SON patent included two means-plus-function limitations. One of the other patents related to network-based navigation in which the network, as opposed to the wireless device, determined the device’s location (navigation patent).

Traxcell asserted the SON and navigation patents against Verizon and Sprint in one action and the SON patent against Nokia in another. In both cases, the magistrate judge entered a claim construction order construing several common terms of the asserted patents and determining that the claims of the SON patent were indefinite. The lower court adopted the magistrate’s recommendations and subsequently granted summary judgment for all three defendants on each of the patents. Traxcell appealed. The issues on appeal related to infringement and indefiniteness of means-plus-function claims.

First, Traxcell disputed the lower court’s grant of summary judgment for Sprint on the SON patent, arguing that Sprint’s accused technology included a structural equivalent to the disclosed structure under the function-way-result test. The asserted claim required a “means for receiving said performance data and corresponding locations from said tower to correcting radio frequency signals of said radio tower,” the corresponding function of which was “receiving said performance data and corresponding locations from said tower and correcting radio frequency signals of said tower.” The Federal Circuit explained that the disclosed structure of this means-plus-function limitation was a “very detailed” algorithm in the patent. Citing more than two decades of precedent, the Court emphasized that infringement of means-plus-function claims requires proof of three things: That the accused structure performs the (1) identical function, (2) in substantially the same way (3) with substantially the same result, as the disclosed structure. Because Traxcell neglected to even address at least nine steps of the algorithm, i.e., the disclosed structure, with respect to Sprint’s accused system (opting instead to focus on the function and result), the Court affirmed the lower court’s finding of noninfringement.

Second, the lower court found another claim of the SON patent indefinite based on the specification’s failure to disclose the necessary structure for its means-plus-function limitation. Traxcell did not appeal the indefiniteness finding itself, but sought leave to amend the claim to cure the indefiniteness, the denial of which Traxcell raised on appeal. The Federal Circuit explained that a “means-plus-function claim is indefinite [...]

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NDA Forum Selection Clause Doesn’t Bar IPR in Response to Subsequent Infringement Suit

by Paul Devinsky | Oct 21, 2021 | Patents

The US Court of Appeals for the Federal Circuit affirmed the denial of a preliminary injunction that would have forced the accused infringer to seek dismissal of its petitions for inter partes review (IPR) based on a forum-selection clause in an earlier nondisclosure agreement (NDA). Kannuu Pty Ltd. v. Samsung Elects. Co, Ltd., Case No. 21-1638 (Fed. Cir. Oct. 7, 2021) (Chen, J.) (Newman, J., dissenting).

Kannuu is a start-up that develops media-related products, including certain remote control search-and-navigation technology. Samsung explored licensing the technology and entered into an NDA with Kannuu. The NDA included a forum-selection clause, which stated that any legal action “arising out of or relating to this Agreement or the transactions contemplated hereby must be instituted exclusively” in a New York state or federal court. The negotiations were unsuccessful. Several years later, Kannuu sued Samsung for alleged infringement of five patents relating to the same technology and alleged breach of the NDA. Samsung petitioned for IPR of the five patents, and two of the petitions resulted in institution. Kannuu filed for a preliminary injunction to force Samsung to dismiss the IPRs that had been instituted. The district court denied the preliminary injunction. Kannuu appealed.

The Federal Circuit determined that the district court had not abused its discretion in denying the preliminary injunction, distinguishing between an NDA (which relates to confidentiality) and a patent license agreement (which relates to patent rights). The Court explained that because the forum selection clause was in an NDA, patent infringement defenses did not “arise out of or relate to this Agreement or the transactions contemplated thereby.” In other words, the patent infringement defenses were too attenuated from the subject matter of the NDA to be governed by the forum selection clause therein. The Court noted that whether any patent claim was held invalid would not affect Kannuu’s breach of contract claim arising from an alleged breach of the NDA.

In dissent, Judge Pauline Newman reasoned that a patent license was one of the “transactions contemplated” by the NDA. Therefore, she would have found that the patent infringement defenses were within the scope of the forum selection provision of the NDA.

Practice Note: The Federal Circuit noted how a failed licensing negotiation commonly leads to a subsequent infringement suit. Parties should craft provisions of the NDA regarding forum selection and related issues (e.g., choice of laws) to explicitly include or exclude potential infringement litigation from their scope.

PTO’s Financial Benefits from IPR Don’t Render PTAB Unconstitutional

by Christopher M. Bruno | Oct 21, 2021 | Patents

A split panel of the US Court of Appeals for the Federal Circuit concluded that the structure and functions of the Patent Trial & Appeal Board (PTAB) survived yet another constitutional challenge, this time based on the PTAB’s fee and compensation structure, lack of director review over the institution decision and applicability of the Takings Clause. Mobility WorkX, LLC v. Unified Patents LLC, Case No. 20-1441 (Fed. Cir.) (Dyk, J.) (Newman, J., dissenting).

With the dust barely settled after the Supreme Court’s ruling in US v. Arthrex, Inc. that the PTAB’s rendering of final written decisions without director review violated the Appointments Clause, this case presented a whole new slate of potential deficiencies with the PTAB. Although none of these deficiencies were initially raised with the PTAB, the Court exercised its discretion to nonetheless consider the challenges based on publicly available records that it could judicially notice.

The first challenge, already made in many other cases, was that the Federal Circuit remand for the director to consider a rehearing petition in view of Arthrex. This remedy, already afforded in other post-Arthrex challenges, was a simple grant. Yet, here, Mobility asked for something more, arguing that because the director did not resolve the inter partes review (IPR) within the 12-month statutory period, the director must confirm the claims or dismiss the IPR. The Court declined to rule on this issue, instructing Mobility to raise the issue on remand.

The issue receiving the most attention by the Federal Circuit was Mobility’s claims that the PTAB’s fee structure and bonus payments to administrative patent judges (APJs) based on their workload violated the Due Process Clause. According to Mobility, the APJs have a financial incentive to institute IPRs (i.e., significant fees), which provide a significant benefit to the agency. But the Court concluded that the APJs (even the leadership APJs) have only an attenuated role in budget control and thus have an insignificant interest in the financial health of the US Patent & Trademark Office as a whole. Because Congress holds the purse strings and the more significant budget responsibilities fall on the director and the president, the majority held that little connection existed between institution decisions and the agency’s overall financial health, which was consistent with the Court’s own precedent regarding reexaminations and other circuits’ precedents regarding executive agency fee collection. This attenuated connection differentiated the PTAB’s collected fees from Supreme Court cases that found due process violations based on the structure of certain executive courts presided over by a mayor who also held concomitant budget responsibilities.

Similarly, the Federal Circuit held that the APJs’ incentive to render a certain number of decisions—i.e., APJs receive bonus payments if they earn at least 84 decisional units, and the number of decisions is part of performance evaluation—did not provide an unconstitutional incentive to institute. The majority reasoned that ample alternative means existed for the APJs to earn their bonuses, namely, the ability to volunteer for non-America Invents Act (AIA) decisions (such as [...]

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