L&A Federal Circuit Review

April 2016

Assignor Estoppel Bars Inventor’s Employer from Challenging Patent Owned by Inventor’s Previous Employer

MAG Aerospace Indus., Inc. v. B/E Aerospace, Inc., Nos. 15-1370, -1426 (Fed. Cir. Mar. 23, 2016)

In MAG Aerospace, assignor estoppel barred a challenge to the validity of patents where the patents’ inventor was later employed by the defendant.

MAG sued B/E alleging direct and indirect infringement of several patents directed to vacuum toilets for commercial aircraft. B/E, had never owned the patents-in-suit. However B/E had hired one of the inventors of the patents-in-suit, Mr. Pondelick, who had assigned his patent rights to his previous employer who then assigned them to MAG. The district court found that B/E could not challenge the validity of the patents-in-suit because it was in privity with Mr. Pondelick for the purpose of assignor estoppel.

Assignor estoppel is an equitable remedy that prohibits an assignor of a patent, or one in privity with an assignor, from attacking the validity of that patent when sued for infringement by the assignee. In other words, an assignor should not be permitted to assign something and later assert that what was assigned is worthless.

The Federal Circuit used an eight factor test to determine whether B/E was in privity with the assignor, Mr. Pondelick. The court considered: (1) the assignor’s leadership role at the new employer; (2) the assignor’s ownership stake in the defendant company; (3) whether the defendant company changed course from manufacturing non-infringing goods to infringing activity after the assignor was hired; (4) the assignor’s role in the infringing activities; (5) whether the assignor was hired to start the infringing operations; (6) whether the decision to manufacture the infringing product was made partly by the assignor; (7) whether the defendant company began manufacturing the accused product shortly after hiring the assignor; and (8) whether the assignor was in charge of the infringing operation.

Applying the eight factor test, the court found privity between B/E and Mr. Pondelick. B/E had used Mr. Pondelick’s knowledge concerning patented inventions to develop the accused product and B/E had hired Mr. Pondelick specifically to develop that product. Additionally, while Mr. Pondelick owned a negligible stake in the company, he was hired to a high-level position in the company and was subsequently promoted to Vice President and General Manager of the division that manufactured the accused infringing toilets. Based on these facts, the Federal Circuit held that the district court did not abuse its discretion in finding that assignor estoppel applied against B/E based on its privity with Mr. Pondelick.

Key Takeaways: The Federal Circuit has endorsed a relatively low bar for finding privity between an employee-inventor and his employer for the purpose of assignor estoppel. Clients should be mindful of an employee’s history of patent assignments with past employers, as this could limit the client’s ability to challenge those patents in future litigation.

Federal Circuit Lacked Jurisdiction to Hear Appeal of Refusal to Institute Inter Partes Review on “Redundant” Grounds

Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., No. 15-1116 (Fed. Cir. Mar. 23, 2016)

In Shaw Industries, the Federal Circuit reaffirmed that a decision by the Patent Trial and Appeal Board (PTAB) to institute inter partes review (IPR) is non-appealable. In so holding, the court addressed two related issues on estoppel and the existence of a redundancy doctrine.

Shaw Industries petitioned the PTAB for review of ACS’s patent relating to industrial yarn-threading equipment. Shaw proposed 15 grounds for invalidity of the challenged patent. The Board instituted review only on a subset of the proposed grounds, and denied the remaining grounds as redundant. Following review, the Board ruled that some, but not all, of the challenged claims were invalidated based on the instituted grounds. Shaw appealed the Board’s final decision, and argued that it should be allowed to attack the Board’s decision deeming some grounds to be redundant.

Section 314(d) of the Patent Act establishes that the PTAB’s decision on whether to institute IPR is non-appealable. Shaw argued that rather than challenging the decision to institute IPR, they were appealing the PTAB’s substantive decision that some grounds were redundant. The Federal Circuit disagreed, finding Shaw’s appeal to be a straightforward attack on the decision to institute.

Shaw alternatively petitioned for a writ of mandamus instructing the PTAB to reevaluate its decision on redundancy. Shaw’s main rationale for requesting this extraordinary remedy is that the estoppel provision in Section 315(e) of the Patent Act would have barred Shaw from raising in a district court any ground it could have raised in the IPR. The Federal Circuit denied the writ, arguing in dicta that estoppel would not attach for any grounds in a petition on which the Board did not institute review.

Judge Reyna wrote a concurring opinion to criticize the PTAB for denying grounds for invalidity based on a poorly-defined “redundancy doctrine.” Judge Reyna found troublesome the fact that the Board contended no redundancy doctrine exists, despite numerous other Board decisions discussing, relying on and further developing the doctrine. Judge Reyna also took issue with the Board’s argument that it need not explain its rationale for instituting IPR, since the decision to institute is not appealable. He argued instead that the Board should be required to provide a reasoned basis for how or why grounds are deemed redundant, to comply with its obligations under the Administrative Procedures Act.

Key takeaway: The Federal Circuit has suggested that a patentee should not be barred from asserting in a district court grounds for invalidity on which the Board did not institute inter partes review. The concurrence in this case also sends a strong message to the Board to provide a better rationale when denying grounds for review as redundant. Beyond that, decisions to institute IPR remain unappealable.

Supreme Court to Decide Whether Apportionment Applies to Design Patent Damages

Samsung Electronics Co. v. Apple Inc., No. 15-777

On March 21, 2016, the Supreme Court granted certiorari on a design patent case for the first time in over 100 years.

Last year, the Federal Circuit ordered Samsung to pay damages of approximately $1 billion to Apple. A part of the award was based on Samsung’s infringement of three design patents covering mobile phones and tablets. Section 289 of the Patent Act states that a design patentee may be awarded an infringer’s total profits from the sale of an infringing device. Under the longstanding interpretation of this section, damages are awarded based on the entire device, without having to apportion those damages to only the profit attributable to the infringing design.

Following its loss at the Federal Circuit, Samsung petitioned for certiorari. Samsung argues that a mobile phone is made up of many articles of manufacture, including the case, screen, and processor, and that it should be liable for at most the proportion of total profits that are due to the particular infringing component. Samsung also argues that the statute implies a causation requirement, where the total profits are defined as those caused by the infringing feature. Apple counters that the plain text of the statute, allowing recovery of “total profits,” is strengthened by a clear legislative history in which Congress acted to override an earlier Supreme Court case that apportioned damages.

The specific question before the Supreme Court will be: Where a design patent is applied to only a component of a product, should an award of infringer’s profits be limited to those profits attributable to the component?

Samsung’s petition also presented a second question related to the scope of protection for a design patent that incorporates both ornamental and non-ornamental features. The Supreme Court declined to address this question.

The Supreme Court will take up this case next term.

Key takeaway: The design patent community is watching this case with intense interest. If the Supreme Court finds for Samsung, the value of design patents may be sharply reduced.

Communications Between a Patent Agent and a Client Concerning a Patent Prosecution are Privileged

In Re Queen’s University at Kingston, 2015-145 (Fed. Cir. March 7, 2016)

In In re Queen’s University at Kingston the Federal Circuit ruled that communications between a non-attorney patent agent and a client may be privileged, and thus protected from discovery in litigation.

The question of a patent agent privilege arose in the context of a patent infringement suit between Queen’s University at Kingston in Ontario, Canada, and Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. During discovery, Queen’s University refused to produce communications between university employees and non-lawyer patent agents discussing the prosecution of the patents-in-suit. Samsung filed a motion to compel discovery, which the district court granted. Queen’s University’s then filed a petition for a writ of mandamus to the Federal Circuit, arguing the communications were protected from discovery by a patent agent-client privilege.

The Federal Circuit granted mandamus, finding a patent agent privilege existed. The court relied on Supreme Court precedent that found Congress authorized the practice of law by non-attorneys and that the activities of patent agents before the Patent Office constitute the practice of law. The Federal Circuit held that this precedent confers a professional status on patent agents that justifies the recognition of the patent agent privilege. This privilege encompasses communications between non-attorney patent agents and their clients that are in furtherance of tasks which are reasonably necessary and incident to the preparation and prosecution of patent applications, or other proceeding before the Patent Office, including proceedings before the Patent Trial and Appeal Board.

The court clarified that the patent agent privilege did not extend to communications that are not reasonably necessary and incident to the prosecution of patents or other proceedings before the PTO. That includes communications with a patent agent who is offering an opinion on the validity of another party’s patent in contemplation of litigation, or for the sale or purchase of a patent, or on infringement.

The Federal Circuit remanded the case to the district court to assess whether Queen’s University’s claim of privilege was justified in light of its recognized patent agent privilege.

Judge Reyna dissented from the majority’s opinion, arguing that the court should hesitate before creating new privileges, and that there is no sufficient public interest or pressing need for a patent agent privilege at this time.

Key Takeaway: This decision establishes a nationwide independent patent-agent privilege. As such, clients will have greater freedom to work with patent agents without having to worry about waiving privilege in a future litigation.