L&A Federal Circuit Review

March 2016

As part of our ongoing effort to keep clients and friends informed of important legal updates, we are pleased to provide the L&A Federal Circuit Review, a monthly publication highlighting recent Federal Circuit and Supreme Court decisions. Each monthly review summarizes a few decisions and the key takeaways. Please contact your lead L&A attorney for additional details.

Presence of Functional Language in Apparatus Claim Does Not Invalidate Claim as Indefinite

UltimatePointer, L.L.C. v. Nintendo Co., No. 15-1297 (Fed. Cir. Mar. 1, 2016)

In UltimatePointer, the Federal Circuit held that apparatus claims are not indefinite for using functional language.

UltimatePointer owned a patent that describes a handheld pointing device that can be used to control a cursor on a projected computer screen. UltimatePointer alleged that the Nintendo Wii video game system infringed several claims of UltimatePointer’s patent. Nintendo countered that a limitation in several apparatus claims requiring “an image sensor, said image sensor generating data . . .” was indefinite because the functional language made it unclear whether the claims were infringed when the apparatus was created, or when it “generated data”. The District Court agreed with Nintendo, finding that the challenged claims were invalid as indefinite.

On Appeal, the Federal Circuit held that the apparatus claims were not indefinite for using functional language. The Court concluded that the “[c]laims at issue here make clear that the ‘generating data’ limitation reflects the capability of that structure rather than the activities of the user.”

Key Takeaway:  The presence of functional language in an apparatus claim will not render the claim indefinite if it is clear that the language merely reflects the capability of the claimed structure, and not an action that must be performed to infringe the claims.

Claim Construction Standard in Inter Partes Review Broadens Obviousness Determination

PPC Broadband, Inc., v. Corning Optical Commc’ns RF, LLC, No. 15-1361 (Fed. Cir. Feb. 22, 2016)

In PPC Broadband, the Federal Circuit affirmed a Patent Trial and Appeal Board (PTAB) finding of obviousness in an inter partes review based on the broadest reasonable interpretation of the claims. The PTAB’s decision was affirmed even though the Federal Circuit acknowledged that a different outcome would likely have resulted under the claim construction standard used in district courts.

PPC held several patents covering a coaxial cable. In inter partes review, claims of the patents were found to be obvious in light of two prior art references. The finding turned on a question of claim construction. PPC argued the claim term “continuity member” required a continuous or consistent connection, both in time and space. However, the PTAB found the broadest reasonable construction of the term merely required spatial continuity, i.e., a physical connection that extends through the post, continuity member, and the nut.

The Federal Circuit affirmed the claim construction and the finding of obviousness. It agreed with PPC that a narrower construction of “continuity member” would have been proper under the claim construction standard used in district courts. However, the PTAB’s construction was reasonable under the standard applied in inter partes review. Accordingly, it affirmed the Board’s finding of obviousness based on the broadest reasonable interpretation of the claims.

Key Takeaway:  In inter partes review, the broadest reasonable construction of a claim term may be affirmed even where it would not be the correct construction in a district court litigation.

Patent Exhaustion Does Not Apply to Patented Products First Sold Outside of the U.S., or Inside the U.S. With Lawful Restrictions

Lexmark Int’l, Inc. v. Impression Products, Inc., No. 14-1617 (Fed. Cir. Feb. 12, 2016) (en banc)

In an en banc decision, the Federal Circuit held that a patentee does not exhaust its patent rights when selling a patented article subject to a lawful, clearly communicated single-use / no-resale restriction. The Court further held that sales of a patented article abroad do not authorize the importation and re-sale or use of that article within the United States. The Court declined to apply two recent Supreme Court decisions suggesting a contrary result, finding them not directly on point.

Lexmark owned patents that cover printer cartridges and their use. It gave its customers a choice when buying a patent-protected printer cartridge: they could choose a “Regular” cartridge, and pay full price, or a “Return Program” cartridge, which is sold at a discount but subject to a single-use/no-resale restriction. The Defendant, Impression, with knowledge of the single-use/no-resale restriction, purchased Return Program cartridges domestically and physically modified the them to enable re-use within the United States. Impression also purchased Regular cartridges internationally to import and re-sell them within the United States. Impression argued that Lexmark had exhausted its patent rights within the United States with the initial sales of the printer cartridges through its return program, and by selling unrestricted cartridges abroad.

The Court held that Lexmark’s restricted sales within the U.S. did not exhaust its patent rights.  In Quanta Computer, Inc. v. LG Electronics, Inc., the Supreme Court held that a patentee’s sale to a licensee, with a restriction that the licensee’s customers could not combine the patented product with unpatented components, did give rise to patent exhaustion. At issue in this appeal was whether Quanta broadly overruled Federal Circuit precedent regarding sales with restrictions. The majority held that Quanta was limited to the patentee-licensee scenario in that case, and did not reach the Federal Circuit’s general rule barring application of the patent exhaustion doctrine to sales subject to a lawful use or re-sale restriction.

The Court also held that Lexmark’s unrestricted sales outside the U.S. did not exhaust its patent rights. It considered whether the Supreme Court’s 2013 holding in Kirtsaeng v. John Wiley & Sons, Inc., controlled. In that case, the first sale of a copyrighted work abroad exhausted the copyright holder’s rights in the United States. However, the Federal Circuit found the statutory first sale doctrine for copyrights was distinguishable from the common law doctrine of exhaustion in patent law.

Judge Dyk filed a dissent, joined by Judge Hughes. The dissenters argued Quanta overruled Federal Circuit precedent regarding restricted sales in the U.S., and that foreign sales should exhaust U.S. patent rights, at least under the facts in this case.

Key Takeaway: Lawful and clearly communicated restrictions on use and resale of a patented article will not exhaust patent rights within the United States. Further, sales outside the borders of the U.S. of a patented article will not exhaust patent rights in that article within the U.S.

Pre-Issuance Damages May Be Based on Defendant’s Actual Knowledge of a Pre-Issuance Publication Even Without Affirmative Notice from Patentee

Rosebud LMS Inc., D/B/A Rosebud PLM, v. Adobe Systems Inc., No. 2015-1428 (Fed. Cir. Feb. 9, 2015)

In Rosebud, the Federal Circuit affirmed summary judgement denying the patentee damages for infringing activity prior to the issuance of the patent-in-suit. However, the Court held that a patentee could be entitled to pre-issuance damages based on a defendant’s own actual knowledge of the publication of the patent application.

Rosebud first sued Adobe in 2010 on a patent for a method of enabling collaborative work over a network. That suit was dismissed in 2011. In 2012, Rosebud sued Adobe again on a continuation of its earlier patent. That suit was dismissed in 2014. Also in 2014, Rosebud sued Adobe on the continuation of its second patent. Adobe argued that it stopped using accused technology in 2013, after the third patent published but before it issued. Rosebud did not dispute that there was no post-issuance infringement, but argued it should have been entitled to pre-issuance damages.

Section 154(d) of the Patent Act provides that a patentee may be entitled to a reasonable royalty on infringement of the claims of a published patent application, prior to issuance, where the defendant had actual notice of the application. The Court held that “actual notice” did not require the patentee itself to notify the defendant of the patent application.

Rosebud asserted that Adobe had knowledge of the published patent application on the basis of their knowledge of the earlier patents and the prior litigation between the parties relating to the parent and grandparent patents. Rosebud also asserted Adobe had knowledge because Adobe generally followed and sought to emulate Rosebud’s products.

The Federal Circuit found that Rosebud had not established pre-issuance knowledge by Adobe. Knowledge of prior patents in the same family did not imply knowledge of the instant patent publication, and importantly, knowledge of its claims. Nor was the evidence sufficient to support a reasonable inference that Adobe’s general counsel must have investigated the published application while researching previous cases, or Rosebud generally. The Court affirmed summary judgment of no entitlement to damages under Section 154(d).

Key Takeaway:  Pre-issuance damages may be available to a patentee where there is evidence the defendant had actual notice of the published patent application, including its claims, even if the patentee itself did not provide the notice.