Federal Circuit Review – Issue 58 – July 10, 2015

Each week in the Federal Circuit Review, we succinctly summarize the preceding week of Federal Circuit precedential patent opinions. We provide the pertinent facts, issues, and holdings. Our Review allows you to keep abreast of the Federal Circuit’s activities – important for everyone concerned with intellectual property. We welcome any feedback you may provide.

– Joe Robinson, Ryan Schneider, Bob Schaffer, John Morrissett and Tinh Nguyen


Damages for Lost Profits May Not Be Based On Extraterritorial Services Performed by an Infringer’s Customers Under § 271(f)

WesternGeco L.L.C. v. ION Geophysical Corp., No. 2013-1527,2014-1121, -1526, -1528, 2015 U.S. App. LEXIS 11411 (Fed. Cir. Jul. 2, 2015) (Dyk, J.) (Wallach, J., dissenting). Click Here for a copy of the opinion.

WesternGeco LLC sued ION Geophysical for infringement of several U.S. patents covering an oil deposit surveying device.  A jury found infringement and no invalidity on all asserted claims and awarded $93.4 million in lost profits and $12.5 million in reasonable royalties.  The lost profits were, in part, based on the loss of surveying contracts outside of the US.  WesternGeco manufactures the patented device, but does not sell it.  Instead, WesternGeco uses it to perform surveys for oil and gas companies.  ION Geophysical, in contrast, sold the patented device to competitors of WesternGeco.  WesternGeco successfully argued that its damages included $90 million of lost profits it would have earned if it had won surveying contracts that were ultimately awarded to ION’s customers for surveying in international waters.

ION appealed the jury verdict, arguing that (1) WesternGeco was not the owner of the asserted patents, (2) the trial court made several errors related to its grant of summary judgment of infringement of one patent claim, and (3) lost profits were incorrectly awarded for activities outside the U.S.  WesternGeco appealed the district court’s refusal to award enhanced damages for willful infringement.

First, the Federal Circuit held that the district court’s finding that WesternGeco owned the asserted patents was not clearly erroneous. The Federal Circuit held that where an earlier agreement provides for the transfer of an interest in a patent, the interest is automatically transferred by operation of the agreement, even if a formal assignment is not executed until later.

Second, the Federal Circuit addressed the summary judgment. It found that the jury was entitled to be advised that the claim had been disposed of by summary judgment and that, in the absence of an objection at trial, that party had waived an appeal as to the propriety of the other party referencing the grant of summary judgment at trial.

Third, the Federal Circuit held that WesternGeco could not receive lost profits for failure to win service contracts to be performed outside the U.S..  While § 271(f) is an exception to the general presumption against extraterritorial application of U.S. patent law, § 271(f) only applies to sales in the U.S. of components of patented inventions.  It cannot be used as a basis for awarding damages based on service contracts entered into, and performed outside the U.S..  However, despite this result, WesternGeco is not without remedy, as it can still recover a reasonable royalty.

Fourth, the Federal Circuit further held that the district court had not abused its discretion in refusing to award enhanced damages to WesternGeco.  To award enhanced damages, a patentee must show (1) that the infringer acted despite an objectively high likelihood that its conduct constituted patent infringement, and (2) that the likelihood was known or should have been known by the infringer.  Here, the jury found that ION knew, or should have known that its actions constituted patent infringement.  However, the district court did not abuse its discretion by holding that there was no objectively high likelihood of infringement because the defenses presented by ION at trial were neither unreasonable, nor objectively baseless. Thus, the district court did not abuse its discretion by failing to award enhanced damages.

Judge Wallach dissented, disagreeing with the majority’s refusal to allow a damages award to be based on lost foreign sales when infringement is based on § 271(f).  He believed that the presumption of extraterritoriality should be applied differently to questions of infringement and damages.  Even though infringement must be predicated on actions taken in the U.S., evidence of sales outside of the U.S. should be available to prove the scope of damages caused by that infringement.  Further, Congress intended this result when it enacted § 284, by entitling a patentee to “damages adequate to compensate for the infringement,” wherever those damages occur. Even though the patent was on a device, there is no statutory or doctrinal reason to exclude functionally related services from the definition of “lost profits” where the value of a patented device primarily comes from its use.  Accordingly, Judge Wallach would have affirmed lost profits based on the survey services performed outside of the U.S.


Federal Circuit Invalidates Claims Under the On-Sale Bar for Commercial Exploitation of the Invention Before the Critical Date

The Medicines Company v. Hospira, Inc., No. 2014-1469, 1504, 2015 U.S. App. LEXIS 11410 (Fed. Cir. Jul. 2, 2015) (Hughes, J.). Click Here for a copy of the opinion.

The Medicines Company (“TMC”) sued Hospira, alleging that Hospira’s ANDA filings infringed U.S. Pat. No. 7,582,727 and U. S. Patent No. 7,598,343 which claim pharmaceutical product bivalirudin produced by a method that minimizes impurity to an FDA approved level of 0.6%. Hospira argued that the patents were invalid under the on-sale bar of 35 U.S.C. §102(b) because TMC hired a third party manufacturer (Ben Venue) to prepare three batches of bivalirudin using an embodiment of the patented method more than a year before the patent applications were filed. The on-sale bar applies when, “before the critical date, the claimed invention (1) was the subject of a commercial offer for sale; and (2) was ready for patenting.” After bench trial, the district court upheld the validity of the claims, finding that the invention was ready for patenting but was not the subject of a commercial offer for sale. The court also found that the patents were not infringed. TMC appealed and Hospira cross-appealed.

The Federal Circuit reversed. The Court agreed that the invention had been ready for patenting, because the invention was sold and the Ben Venue batches reduced the invention to practice. However, the Court found that the “sale” of manufacturing services between TMC and Ben Venue was a “commercial sale.” The services provided a “commercial benefit” to TMC, i.e., the services were performed to prove to the FDA that the product met the approved specifications. Furthermore, the batches were marked with commercial product codes and customer lot numbers and were sent to TMC for commercial and clinical packaging. The Court also found the commercial value of the batches significant; each batch had a value of over $10 million. Because the batches were prepared “for commercial exploitation,” the district court erred in finding that the sale of services was not a commercial sale.

The Court also concluded that the experimental use exception did not apply since “experimental use cannot occur after a reduction to practice.” Here, the invention was reduced to practice – the batches sold “satisfied the claim limitations,” and TMC was aware that the batches had impurity levels well below the claimed levels.


The PTO’s 180-Day Filing Deadline of the Optional Interim Procedure for PTA Reconsideration Request Is Not Arbitrary and Capricious

Daiichi Sankyo Com. Ltd. v. Lee, No. 2014-1280, 2015 U.S. App. LEXIS 11413 (Fed. Cir. Jul. 2, 2015) (Reyna, J.). Click Here for a copy of the opinion.

Under 35 U.S.C. §154, the term of a patent may be adjusted to account for delays (A and B) during prosecution attributable to the PTO. The statute also allows a patentee to challenge the PTO’s determinations of patent term administratively or judicially. Under administrative review, the statute authorizes the PTO to promulgate regulations that create procedures for requesting reconsideration of the agency’s determination. For judicial review, the statute allows a patentee to bring an action against the Director in the District Court for the District of Columbia within 180 days after the date of issuance.

In 2010, the Federal Circuit decided Wyeth v. Kappos, 591 F.3d 1364 (Fed. Cir. 2010), where it required the PTO to “extend a patent’s term for everyday of A or B Delay where those delays did not occur on the same day and to extend the term by one day for each day the A and B delays did occur on the same day.” After Wyeth, the PTO adopted an “Interim Procedure” and “Optional Interim Procedure” for requesting reconsideration. The Interim Procedure gave a patentee two months from the date of issuance to file the request. For patents issued before March 2, 2010, the Optional Interim Procedure allowed a patentee to file for reconsideration up to 180 days after the date of issuance, provided that the sole basis for the request was to correct the pre-Wyeth PTA calculation. Consequently, the Optional Interim Procedure was available only to patents issued from August 5, 2009, to March 1, 2010.

Daiichi owns U.S. Patent No. 7,567,135; U.S. Patent No. 7,342,014 and U.S. Patent No. 7,365,205 that were affected by Wyeth. The ‘135 patent was issued within 180 days of the March 2, 2010 deadline and was eligible for the Optional Interim Procedure. The ‘014 and ‘205 patents were issued before August 5, 2009, and, therefore, were not eligible. Daiichi filed a petition requesting reconsideration of the PTA for the ‘014 and ‘205 patents and a petition to waive the time limitations due to “extraordinary situations,” i.e., the Wyeth decision. The PTO dismissed both waiver petitions and rejected the requests for reconsideration as untimely. Daiichi filed requests for reconsideration of the dismissals, which the PTO again rejected.

Daiichi then brought an action alleging that the PTO violated the APA and 35 U.S.C. §154(b) by: (1) miscalculating the terms for the ‘014 and ‘205 patents and (2) refusing to reconsider its PTA in light of Wyeth. The district court granted summary judgment in favor of the PTO, and Daiichi appealed.

The Federal Circuit affirmed, holding that “the PTO has not erroneously interpreted the law.” The agency acted within its discretion under §154(b)(3) to “prescribe regulations establishing procedures for the … determination of patent term adjustments” in adopting the 180-day period for the Optional Interim Procedure. The PTO also acted within its discretion in denying Daiichi’s requests for reconsideration and provided “ample reasoning for considering only requests filed within 180 days of the patent grant.” The PTO pointed to the 180-day statutory judicial review period as an indication of Congress’ intent to resolve PTA issues “more expeditiously than allowed under the [6-year] administrative challenge period.” Additionally, the PTO’s conclusion that “it was unlikely that Congress intended for the period for administrative review to extend beyond the period in which that administrative review could be challenged in the district court” was consistent with the express provisions of the statute.

The Court also rejected Daiichi’s argument that “the PTO’s disparate treatment” of patents issued on and before August 5, 2009, was arbitrary and capricious. Since the PTO denied all other similar requests for reconsideration of PTA for patents issued before August 5, 2009, it had acted consistently with similarly situated patentees. The Court also rejected the argument that equitable tolling applied. Daiichi was treated identically to other similarly situated patentees who were unable to show extraordinary circumstances. Additionally, patentees who could not take advantage of the Optional Interim Procedure could still judicially challenge the PTO’s determination. The Court concluded that it was neither arbitrary nor capricious for the PTO to choose a filing deadline that mirrors the 180-day judicial filing deadline. Accordingly, the Federal Circuit affirmed.


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