Federal Circuit Review – Issue 59 – July 17, 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, Bob Schaffer, Gerald Porter, Lindsay Henner and Tinh Nguyen

 

Personal Jurisdiction Remains Unchanged – Federal Circuit Declines “Stream-of-Commerce” Theory

Celgard, LLC v. SK Innovation Co., LTD., No. 2014-1807, 2015 U.S. App. LEXIS 11536 (Fed. Cir. Jul. 6, 2015) (Reyna, J.). Click Here for a copy of the opinion

Celgard sued SK Innovation (“SKI”) for infringement of U.S. Patent No. 6,432,586. Celgard’s ‘586 patent covers a ceramic composite coating that separates chemical cell components in lithium-ion batteries. This technology is used in rechargeable batteries for electronic vehicles and consumer electronic devices. Both Celgard and SKI are manufacturers of these lithium-ion battery separator membranes.

Celgard, headquartered in North Carolina, brought suit in the Western District of North Carolina. SKI, whose principal place of business is Seoul, Korea, moved to dismiss the suit for lack of personal jurisdiction. Following jurisdictional discovery, the district court granted SKI’s motion and adopted the magistrate judge’s conclusion that there was no basis for personal jurisdiction.

The Federal Circuit reviewed the district court’s determination of personal jurisdiction ‘de novo’ and focused on whether jurisdiction over SKI would be consistent with due process. The Court analyzed Celgard’s two proposed theories: (1) a “purposeful-direction” theory and (2) a “stream-of-commerce” theory.

Celgard’s “purposeful-direction” theory was premised upon car dealership advertisements in North Carolina. Celgard argued that SKI developed batteries for the 2015 Kia Soul EV as part of a joint venture and that the advertisements by Kia dealers demonstrated purposeful acts aimed at the forum state. However, the Court held that the activities of Kia dealers could not be imputed to SKI. Celgard failed to meet the “alter ego” and “agency” tests as there was no evidence that SKI had any relationship with the North Carolina car dealers.

The Court also rejected Celgard’s “stream-of-commerce” theory, because Celgard failed to show facts that would meet any precedential standard for personal jurisdiction. The Court reiterated the three standards as: (1) Justice Brennan’s “foreseeability” test from his plurality in Asahi Metal Industry Co. v. Superior Court of California, Solano County, 480 U.S. 102 (1987); (2) Justice O’Connor’s “substantial connection” test from her plurality opinion in Asahi Metal; and (3) Kennedy’s “intent to invoke or benefit from the protection of” the forum state from McIntyre Machinery. Celgard’s evidence failed to show that SKI’s accused battery separators were actually found in the forum state, or that a substantial presence in the state was foreseeable. The Court also noted that Celgard was not without remedy, because SKI consented to jurisdiction in New York. Accordingly, the Federal Circuit affirmed the district court’s ruling that personal jurisdiction over SKI could not be sustained in North Carolina.

 

Court Denies Fee Award Under Octane But Recognizes “Troll”-Like Behavior is Relevant Consideration

SFA Systems, LLC v. Newegg Inc., No. 2014-1712, 2015 U.S. App. LEXIS 11892 (Fed. Cir. Jul. 10, 2015) (O’Malley, J.). Click Here for a copy of the opinion

The Federal Circuit affirmed an Eastern District of Texas decision denying Newegg’s motion to recover attorneys’ fees from SFA Systems, Inc., in a patent suit relating to a computer-based sales system.  SFA, a non-practicing entity, sued Newegg and other online retailers for patent infringement.  The district court held a Markman hearing and issued a claim construction order largely favoring SFA.  In the same order, the district court denied Newegg’s motion for summary judgment on indefiniteness.  SFA then moved to dismiss the case and the parties entered into a covenant not to sue.  Newegg then filed a motion to recover its fees and costs.

Newegg argued that SFA was a non-practicing entity (a “patent troll”) and had filed many suits against many defendants, sufficient to demonstrate a pattern of harassing litigation meant to extract settlements. In the meantime, the Supreme Court decided the Octane Fitness case, which set forth a lower standard for proving an “exceptional case” justifying an award of fees.  Nevertheless, the district court, citing Octane Fitness, denied Newegg’s motion.  The district court noted that nothing in the Newegg litigation “stands out from others with respect to the substantive strength of [SFA]’s litigating position,” including SFA’s widespread litigation against several parties.

Newegg appealed to the Federal Circuit, arguing that the district court erred in finding the case was not “exceptional” because (1) Newegg would have prevailed on the merits, and (2) SFA filed the lawsuit in bad fait to obtain a nuisance value settlement.

First, the Federal Circuit found that Octane Fitness requires a determination of the strength of a party’s position and not the correctness or eventual success of that position.  In other words, SFA need not have been correct for its case to have been reasonable.  From this record, the district court did not abuse its discretion in finding that SFA’s litigation position was not so meritless as to stand out from the norm.

Second, the Federal Circuit found Newegg’s evidence of settlements SFA received from previous accused infringers was insufficient to show unreasonableness or misconduct.  Importantly, the Federal Circuit agreed that a pattern of litigation abuse characterized by repeatedly filing suit for the sole purpose of forcing settlement is relevant to the exceptional case determination under 35 USC § 285.  However, as the district court recognized, Newegg’s limited evidence did not support its claims of improper motivation.

 

35 U.S.C. § 324(e) Does Not Bar Judicial Review of Initial USPTO Determination That Patent is for a “Covered Business Method” (Versata I)

Versata Development Group, Inc., v. SAP America, Inc., No. 2014-1194, 2015 U.S. App. LEXIS 11802 (Fed. Cir. Jul. 9, 2015) (Plager, J.). Click Here for a copy of the opinion.

Versata sued SAP for infringement of U.S. Patent No. 6,553,350 for a method of computer-based pricing of products. The invention of the ‘350 patent operates under a WHO/WHAT paradigm, where customers and products are arranged into respective hierarchical groups. SAP petitioned the USPTO’s Patent Trial and Appeal Board (PTAB) to institute a “covered business method” (CBM) review of the ‘350 patent. SAP alleged that the challenged patent claims failed to comply with 35 U.S.C. §§ 101, 102, and 112. In its decision to institute a CBM review, the PTAB concluded: (1) the ‘350 patent was a CBM; (2) it does not fall within the “technological invention” exception; (3) § 101 was applicable to patents reviewed under CBM process; and (4) “it is more likely than not that at least 1 of the claims . . . is unpatentable.” Subsequently, the PTAB issued its final written decision cancelling the claims as unpatentable under § 101. After the PTAB denied its request for rehearing, Versata appealed to the Federal Circuit.

The Federal Circuit determined that it has jurisdiction to review the PTAB’s decision to institute review of the ‘350 as “covered business method.” Although 35 U.S.C. § 324(e) states that “[t]he determination by the Director to institute a post-grant review . . . shall be final and nonappealable,” the Court held that judicial review of CBM status is not barred. According to the Court, a CBM determination limits the PTAB’s authority to institute a post-grant review and also limits its authority to invalidate a patent. These are distinct determinations and “do not become the same just because the agency decides certain issues at both stages of the process.” Referencing the AIA’s legislative history, the Court concluded that Congress’s purpose was to create a “relatively simple and expedited administrative process” for instituting review, which nonetheless “does not preclude . . . this court in [from] deciding contested questions regarding premises necessary to the agency’s ultimate . . . invalidation of the patent claims under the CBM authorization . . . .” In other words, a CBM determination in not merely a decision to institute review, and not appealable; it is a decision regarding the status of challenged patent claims and the applicable standards of patent validity – which can be appealed.”

The Court affirmed the PTAB’s conclusion that the ‘350 patent was a CBM. First, the Court looked to the statutory definition found in 35 USC § 18(d)(1) and concluded that “as a matter of statutory construction, the definition of ‘covered business method patent’ is not limited to products and services of only the financial industry, or to patents owned by or directly affecting the activities of financial institutions such as banks and brokerage houses.” The plain text of the statutory definition “on its face covers a wide range of finance-related activities . . . and makes no reference to financial institutions.” Second, the Court agreed with the PTAB that the challenged claims “did not constitute a technological invention.” Versata argued that the invention “leveraged the hierarchal data structures used by large companies to organize pricing information.” However, according to the Court, this was “not a technical solution but more akin to creating organizational management charts.”

The Court also affirmed the PTAB’s application of the “broadest reasonable interpretation” standard to claim constructions. The Court noted that even if that standard did not apply, “it is less than clear that the outcome in this case would be different under a different claim construction regime.” The Court therefore concluded that the PTAB’s interpretation of the claims was correct.

Finally, the Court affirmed that the challenged claims of the ‘350 patent were invalid under § 101. The Court pointed out that “both [its] opinions and the Supreme Court’s opinions over the years have established that § 101 challenges constitute validity and patentability challenges.” On the merits, the Court agreed with the PTAB’s Alice/Mayo analyses and its determination that the challenged claims were “directed to the abstract idea of determining a price, using organizational and product group hierarchies.” The Court further agreed that “none of the claims have sufficient additional limitations to transform the nature of any claim into a patent-eligible application of an abstract idea.”

Judge Hughes concurred that the patent claims were invalid under § 101 and agreed that the PTAB’s decision should be affirmed on the merits. However, he disagreed with the majority that the PTAB’s determination of CBM status is reviewable. According to him, “the plain language, structure, and purpose of the post-grant review provisions provide clear and convincing evidence that Congress . . . intended § 324(e) to bar review of the Board’s institution decisions at any time, even on appeal from the final written decision.”

 

35 U.S.C. § 324(e) Bars District Court Review of USPTO Decision to Institute CBM Review (Versata II)

Versata Development Group, Inc., v. Lee, No. 2014-1145, 2015 U.S. App. LEXIS 11994 (Fed. Cir. Jul. 13, 2015) (Plager, J.). Click Here for a copy of the opinion.

This appeal was a companion to Versata I, presented above. Here, Versata sued the PTO in district court, seeking to set aside the PTAB’s decision to institute CBM review of the ‘350 patent. The district court dismissed the case and held that it lacked subject matter jurisdiction. According to the court, “the AIA’s express language, detailed structure and scheme for administrative and judicial review, legislative purpose, and nature of administrative action evince Congress’s clear intent to preclude subject matter jurisdiction over the PTAB’s decision to institute patent reexamination [sic] proceedings.” Versata appealed.

The Federal Circuit affirmed, citing 35 USC §324(e), which provides that “[t]he determination [by the PTAB] whether to institute a post-grant review under this section shall be final and nonappealable.” The Court held, consistent with Versata I, that “adequate remedy lay in appeal to the Federal Circuit … at the final written decision stage.” Accordingly, the district court was correct in dismissing the case.

 

The following opinions are not reported in this newsletter:

Intellectual Ventures I LLC v. Capital One Bank, No. 2014-1506, 2015 U.S. App. LEXIS 11537 (Fed. Cir. Jul. 6, 2015) (affirming judgment of invalidity and non-infringement based on claim construction). Click Here for a copy of the opinion.

In re: Cuozzo Speed Tech., LLC, No. 2014-1301, 2015 U.S. App. LEXIS 11714 (Fed. Cir. Jul. 8, 2015) (affirming the PTAB’s claim construction and obviousness determination). Click Here for a copy of the opinion.