Intellectual Property

It sounds like a silly question, doesn’t it?  After all, self-driving cars represent innovative progress in technology, and patents are intended “to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”  U.S. Constitution, Article I, Section 8, Clause 8.

But not so fast — courts have found that many software-based inventions for automating known techniques are patent ineligible under 35 U.S.C. §101 (“§101”).  The reasoning is that these inventions merely represent abstract ideas, which are not patentable.  In fact, even when software was combined with standard hardware, such as computers, displays, cameras, and sensors, many courts have found that the inventions did not involve patent-eligible subject matter.  While this article does not focus on any particular patent, one could argue that certain aspects of self-driving cars are just attempts to automate, largely with the use of software and well-known hardware, what humans have been doing for over 100 years — driving cars while trying to avoid accidents.  Does that mean such patents would be rejected by the United States Patent and Trademark Office (“USPTO”) or invalidated by a court?

To analyze this issue in more detail, first we should consider the technology that many automobile and technology companies, such as Tesla, Volvo, Toyota, and Google, are developing to enable commercially viable, self-driving vehicles.  In fact, some of this technology is already on the road, and numerous patents have already been issued in the field.  The technology is based on the use of various combinations of sensors, cameras, computers, and software.  For example, radar sensors are used to detect the position of nearby vehicles.  Lidar, which uses lasers and sensors, can be used to measure the distance to objects, build a 3D map, and detect hazards, such as the edges of roads and lane markings.  Video cameras are used to detect obstacles such as pedestrians and other vehicles, as well as traffic lights and road signs.  Ultrasonic sensors in the wheels can be used to monitor car movements and detect curbs and other vehicles, such as for use in automatic parking.  But the heart of the system, which most would say is the most complex aspect, is the software that analyzes the data from all of the sensors and controls the car’s systems (e.g., steering, braking, and acceleration) to maneuver it safely.

What have courts said about the patentability of such software-based inventions?  In Alice Corp. v. CLS Bank, the U.S. Supreme Court looked at the patentability of certain claims under §101 by applying the two-step test it had set forth in Mayo v. Prometheus.  In applying the two-step test, first, a court should determine whether the claims are directed to an abstract idea.  If they are, the second step is to determine whether the claims include elements showing an inventive concept that transforms the idea into a patent-eligible invention.  While the Court in Alice stated it was treading carefully in invalidating the claims at issue and warned that applying the decision too broadly could “swallow all of patent law,” numerous patents have been invalidated by district courts in light of the decision in Alice.

At this point, the line between abstract idea and patentable invention has been blurred to the point that it is often difficult to determine whether an invention is patentable.  For example, the court in The Chamberlain Group LLC v. Linear LLC refused to invalidate claims for a monitoring and alarm system related to network communication between a controller and a movable barrier, such as a garage door.   As part of its reasoning, the court noted the claims were “not directed to a method for organizing human activity or computerizing a long-standing commercial practice.”  In contrast, other courts have found the use of computers, memory, transmitters, receivers, and networks not sufficient to save patent claims.  For example, the court in White Knuckle Gaming v. Electronic Arts invalidated claims on an Internet-based method for updating software because it was an abstract idea and performed on a conventional computer, server, and network.  In Visual Memory v. NVIDIA, the court found that categorical data storage was an abstract idea, stating it was a well-known technique performed by humans.  The court in Kinglite Holdings v. MicroStar invalidated a BIOS multitasking patent, stating that it was basically a process for doing two things nearly simultaneously and humans do that all the time.

This means that when asserting your patent in litigation, you will likely face a motion to dismiss on the pleadings or an early summary judgment motion if your patent is vulnerable to a §101 challenge.  In response, it will be necessary to 1) determine whether claim construction is necessary prior to a ruling, 2) argue what distinguishes your patent from an abstract idea, and 3) explain why your patent involves a sufficiently inventive concept that will transform an abstract idea into a patent-eligible invention under step two of the Mayo/Alice test.

In the case of software and sensors for self-driving cars, the system may be performing a task that humans often perform, but it is probably not doing it in the same manner that humans do.  There is a substantial difference between merely writing software to balance a checkbook using substantially the same steps a human would use and designing software that can drive a car.  That is because a human could not write down the steps or analysis techniques that one goes through to safely drive and navigate a car in all situations.  In fact, researchers have long been trying to understand how humans process images and signals received from the environment.  Therefore, one can argue that a self-driving car is not merely an automated implementation of the steps performed by a human.  Instead, a different approach and different algorithms suitable for computer implementation have been developed to accomplish the goal of driving.  We will have to wait to see if that distinction and argument will prevail.

The question has arisen whether courts can resolve the ambiguities and confusion of patentability under §101, or whether it is time for legislative action.  Some argue that the Federal Circuit and Supreme Court should give the district courts the guidance and clarification they need to predictably determine what is patent-eligible under §101.  David Kappos, former director of the USPTO, suggested the solution is to abolish §101.  Others suggest that amendment of §101 would be sufficient.  Until the issue is resolved, additional care must be taken when drafting patents to limit vulnerability to §101 challenges.

As everyone knows, in June, the United Kingdom passed the BREXIT referendum (driven by British voters), voting to exit the European Union.  What affect does BREXIT have on intellectual property rights in the United Kingdom and the European Union?  There is a two-year process of negotiation between the UK and the EU, provided for by law, to determine the specifics of the exit.  Until that process is completed, the UK remains an EU Member State.  There will be no immediate change in intellectual property rights, but, once the exit has been accomplished, certain intellectual property rights will be affected.

PATENTS

        European patents will not be affected by BREXIT.  The UK was and will continue to be a member of the European Patent Convention and the Patent Cooperation Treaty.  The EPC is not connected to the EU; it is a separate treaty among European nations, and the UK is a member nation.  The PCT is also not connected to the EU; it is an international treaty among countries worldwide, and the UK is a member state.  UK and non-UK patent applicants can continue to file their applications in the European Patent Office and designate the UK, so that they can obtain patents in the UK through the current EPO validation system.

However, BREXIT will significantly impact the EU’s new Unitary Patent and Unified Patent Court.  This new system provides for a single (unitary) patent in the EU and a separate court to enforce those patents.  The Unified Patent Court will handle only patent matters, including infringement and validity, and will have locations throughout Europe.  The court will have the authority to issue injunctions against infringers covering all of the EU, and can revoke patents throughout the EU.

BREXIT will delay implementation of the new Unitary Patent and Unified Patent Court system, which is set to go into effect in 2017.  The system is the subject of an EU initiative and agreement, which the UK and certain other countries must ratify.  It is unclear whether the UK will now ratify the agreement.  If the UK does not, the other EU members will have to amend the agreement or start over and draft a new agreement.

Even if the Unitary Patent and Unified Patent Court are implemented, however, the UK will not be participating, as the system is limited to members of the EU.  It is possible that the UK and the EU will negotiate a resolution to this issue by which the system moves forward, but that is unclear at this point.

TRADEMARKS

Of all of the types of intellectual property, European Union Trade Marks (“EUTMs”) will be the most affected by BREXIT.  The EUTM is a trademark that is valid and can be enforced in all member states of the EU.  Once the UK is out of the EU, the EUTM will have no effect in the UK.

The UK may adopt regulations that allow an EUTM to be automatically registered in the UK, maintaining the mark’s priority.  However, because trademark rights are based on use of the mark, the owners who want protection in the UK will have to show use of the mark in the UK, and those who want protection in the EU will have to show use in the EU.

EU trademark owners should consider where their marks are being used and will be used in the future, and plan to obtain trademark registration in both the EU and UK if necessary.  Because of this, it is expected that the UK Intellectual Property Office will be faced with a large increase in trademark applications, resulting in delays in registrations.

In addition, BREXIT will cause the enforcement of trademark rights to become significantly more complicated and costly.  Injunctions currently in place for EUTM owners will not be valid in the UK.  Owners will need to file new infringement actions in the UK courts to obtain new injunctions against infringers previously covered by an EU injunction.  In the future, trademark owners will need to file two infringement actions if their mark is registered in both the UK and the EU, one action in each court system.

Lastly, EUTM owners may face challenges to their EUTMs if their sole use was in the UK.  After the UK exits, these marks could be cancelled, revoked, or not renewed if they have not been used in the EU.

COPYRIGHTS

Copyrights will probably not be affected directly by BREXIT as copyright law in Europe is governed by the laws of each country.  The UK has its own copyright laws and is also a member of various international treaties protecting copyright.  Thus, rights of copyright owners in the UK will continue to be protected under both sets of laws.

One area that will likely be affected by BREXIT are laws governing internet service providers and information stored in the cloud.  The EU has been developing this area of law for the last several years.  At this point, however, it is uncertain whether the UK will have its own set of laws separate from the EU’s laws.

TRADE SECRETS

The EU has been working on a uniform trade secrets law, which will define trade secrets and provide uniform remedies.  If the EU adopts the law, the UK may be required to also adopt it depending on the method by which the exit is accomplished.  Again, it is uncertain how this will be resolved.

LICENSES

Licenses may be affected by BREXIT, depending on their terms.  Licensors and licensees should review existing licenses to determine whether the defined territory covers both the EU and the UK and whether the dispute resolution procedures will be applicable to the appropriate territory.  The parties may need to enter into amendments or new licenses to clarify their rights.

If you regularly follow our publication, you may remember when I discussed the Seattle Seahawks and their use of the Texas A&M trademark “12TH MAN” over a year ago. If not, that’s okay too. In short, I discussed how the Seattle Seahawks have been utilizing the Texas A&M trademark without permission and were facing legal action for infringement when the parties entered into their first licensing agreement in 2006 for $100,000 upfront and an additional $5,000 per year. This deal was subsequently renewed in 2011. I ended my previous article by acknowledging that the agreement was coming to an end and that there was likely to be a new, more lucrative deal in place due to the mark’s popularity among Seahawks fans.

Sure enough, the deal that the Seahawks and Texas A&M reached is more lucrative than the previous deal. The Seahawks have agreed to pay $140,000 to Texas A&M upfront, plus $18,000 per year as a royalty fee for using the mark in the Pacific Northwest, an additional $10,000 per year to assist Texas A&M with its efforts to protect its trademark from would be infringers, and an undisclosed yearly fee, through 2021. Moreover, Texas A&M has also narrowed the scope of the license that it is granting to the Seattle Seahawks. Although the Seahawks have never utilized “12th Man” on their merchandise, they will no longer use the mark on the Ring of Honor or the team’s social media handles. Overall, this is favorable deal for Texas A&M, which will receive more money for a more restrictive license to the Seahawks.

Interestingly, I suspect the Seahawks do not have an issue with the narrowly tailored license in light of their recent conduct. Over the past few seasons, the Seahawks have shifted away from their use of “12TH MAN” in favor of “12” and “12s,” both of which the Seahawks have registered with the United States Patent and Trademark Office. The Seahawks own several “12” related trademarks, including without limitation, “WE ARE 12s,” “THE 12s,” “THE SPIRIT OF 12,” and “12.” So, it seems that although the Seahawks still obviously value their use of the “12TH MAN” mark, they are slowly distancing themselves from the mark and creating their own set of 12 marks, which I would not be surprised to see displace their use of the “12TH MAN” entirely by 2021. Of course, only time will tell.

When fashion fuses with high tech, we see our friends show up with trendy wearables, such as smart watches, fitness bands, and even high-tech, designer purses.  But, trendiness aside, wearables raise numerous questions for designers, manufacturers and consumers relating to intellectual property, data privacy and data security.  For example, how does a company protect the technology for its latest smart watch?  Should they rely on patents, trademarks, copyrights or something else?  Who owns the rights to a designer tote with an embedded charging station—the fashion designer or the circuit designer?  Is your employer allowed to collect location and health data via sensor-infused fabric in your work uniform to improve productivity and wellness?  What happens when your fitness band is hacked, revealing personal health data that makes its way to your insurance company?  Can they raise your rates upon learning you have high blood pressure and have stopped working out?

The questions are unending and some answers are still unclear because laws, courts and contracts have not necessarily caught up with advances in this technology.  Further, the fashion and high tech industries have traditionally approached IP protection differently due to the different nature of their products.  Meanwhile, we have seen high-tech industry leaders (e.g., Apple, Fitbit, and Google’s parent, Alphabet), as well as non-practicing entities, actively amassing patents relating to wearables.  This indicates that licensing and litigation will soon escalate as new wearable products arrive in the marketplace.  We have already seen patent litigation related to products such as Ralph Lauren’s Ricky bag, which has an illuminable interior and charger for electronic devices, and Adidas and Textronic’s shirt with special fibers for sensing vital signs and communicating them to a smartphone.  But merely taking off-the-shelf electronics and making them “wearable,” may not be patentable.  Therefore, companies should consider combining patents on novel innovations that make the electronics wearable with other forms of IP protection for appearance, branding and expression to effectively protect their wearable technology.

Despite its recently soaring growth, wearable technology is not new.  For example, the first electronic hearing aid was constructed well over a hundred years ago.  By the 1980s, we saw digital watches with built-in calculators.  But constraints on size, power, weight, etc., limited the development and adoption of early wearable products.  Now, advances in technology have broadened current applications to include fitness, communication, medical monitoring and more.  In addition, tech companies have learned that widespread adoption of wearables requires that these high-tech accessories fit with current fashion trends.  No one wants to wear something that is clunky and doesn’t match their fashion sense or personality, right?  As a result, tech companies have teamed up with designer brands and hired experts from the fashion industry to co-develop and market wearables.

Today, wearables offer convenience and the potential to monitor and/or increase wellness, safety, productivity, sleep, etc.  But the wearer is often not the only one with access to the data collected, which raises privacy concerns and issues regarding data security.  For example, companies often make a wearer sign up for an account or load an app on a phone to use the wearable.  Then these companies collect, process, and perhaps back up the data along with the wearer’s account information.  These companies could share this information with advertisers who then target the wearer with ads for specific products based on current or past location, health statistics, exercise habits, etc.  We see this user-specific advertising on our phones and computers every day.  For example, since I recently searched for information on a particular car, ads for that car and similar cars are showing up when I use Facebook, browsers and other apps.  This example is rather benign, albeit a little annoying given that I already purchased the car I wanted.

But not all examples are so benign.  Now advertisers and others not only have information on your recent Google searches, but may also be able to gain real-time statistics and other information about your stress level, heart rate, blood pressure, location, etc.  The risks associated with dissemination of your health, location, and financial data are much higher than the mere sharing of information about a car you are interested in purchasing.  These risks also raise additional liability concerns for companies if the data is stolen or misused.  Therefore, it is crucial that companies safeguard against data breaches and understand the privacy rights of their employees and customers.  Some companies are even purchasing cyber insurance as protection against data breaches.  But merely having an insurance policy is not enough.  If your company doesn’t have the proper safeguards in place, such as updated security patches and practices, then the insurance company may not have to pay.

To advise clients in this area, attorneys must be knowledgeable about the technology and the integration of technology with fashion, as well as the legal issues surrounding IP, data privacy and data security.  For a particular client and product, it is critical to develop an integrated approach that effectively provides protection via a combination of utility and design patents, trade secrets, copyrights, trademarks and where appropriate, the lesser-used trade dress protection.  The goal is to use the appropriate IP mechanisms to protect all facets of wearable technology, including the electronics, software, functionality, packaging, marketing materials, appearance and the branding associated with it, while avoiding liability from breaches of data privacy or security.

Crazy Horse was a legendary Native American chief of the Oglala Lakota tribe who lived during the second half of the 1800s.  Unfortunately today, his name may be more familiar as a brand for various products, such as motorcycle gear, whiskey, rifles and strip clubs.  In Russell Road Food & Beverage, LLC v. Spencer, et al., the Ninth Circuit was faced with the issue of the assignability of the trademark “Crazy Horse” in a lawsuit between two strip club operators in Las Vegas, Nevada.

In Paris in 1951, Alain Bernardin, opened the infamous “Crazy Horse Saloon.”  Since that time, the “Crazy Horse” mark has seen numerous trademark battles beginning in 1967 London.  During the 1970’s, Crazy Horse night clubs opened throughout the United States, from Alaska to Florida.

In January 2006, a strip club owner from the Carolinas, Carl Reid, successfully registered the “Crazy Horse” and “Pure Gold’s Crazy Horse” marks with the USPTO for “entertainment services, namely, exotic dance performances.”  Years later, Russell Road and Spencer each attempted to register their respective “Crazy Horse” marks for their strip clubs but the USPTO rejected both of them on the grounds of “a likelihood of confusion with the Reid’s previously registered marks.”  Russell Road and Spencer then pursued different methods to secure the right to use the “Crazy Horse” mark.

Russell Roads obtained the right to use the “Crazy Horse” mark through an agreement with another strip club operator of the “Crazy Horse Too” clubs in Las Vegas.  In September 2007, the owner of that club sought to register the mark “Crazy Horse Too” but like the other “Crazy Horse” marks, the USPTO rejected it. Crazy Horse Too initiated a cancellation proceeding to which Reid, the original owner of the “Crazy Horse” mark, failed to timely respond.  A default was entered but before a default judgment could be rendered in favor of Crazy Horse Too, Reid and the owner of Crazy Horse Too agreed to resolve the dispute through a trademark co-existence agreement.  Under that agreement, Crazy Horse Too agreed to withdraw its challenge to the “Crazy Horse” mark and Reid consented to Crazy Horse Too’s “use and registration” of “any mark that includes the phrase Crazy Horse provided the mark does not contain the phrase pure gold.”  In 2011, Crazy Horse Too encountered financial difficulties and was dissolved.  A year later, Russell Road bought Crazy Horse Too’s rights under the trademark co-existence agreement for $2,500.

Spencer, on the other hand, went straight to the source. In August 201, Spencer formed Crazy Horse Consulting, Inc. (“CHC”) for the purpose of expanding the “Crazy Horse” brand. Later that year, Reid assigned his rights in the “Crazy Horse” trademark to CHC and the assignment was registered with the USPTO.

Following the registration, Spencer learned that Russell Road had a strip club in Las Vegas called Crazy Horse III.  Spencer notified Russell Road that its use of the “Crazy Horse” mark infringed on his trademark rights.  Rather than seeking a license from Spencer, Russell Road entered into a further assignment agreement with the former owner of Crazy Horse Too whereby Crazy Horse Too assigned all of its rights to Russell Road under the September 2009 trademark co-existence agreement.

Russell Road then filed suit against Spencer seeking a declaratory judgment that its use of the “Crazy Horse” mark did not infringe on Spencer’s trademark.  The lower court granted summary judgment to Russell Road finding that it had the right to use the “Crazy Horse” mark under a valid trademark co-existence agreement.  Spencer and CHC appealed that decision to the Ninth Circuit.

The Ninth Circuit began by recognizing that it was undisputed that a trademark owner could assign his or her trademark citing 15 U.S.C. §1060(a)(1).  Furthermore, when a trademark is assigned, the assignee “steps into the shoes of the assignor.”  This means that the assignee not only acquires all of the assignor’s rights, but also assumes any “burdens or limitations” on the use of the mark.  In addition to recognizing the assignability of trademarks, the Ninth Circuit observed that trademark co-existence agreements have long been enforceable.  Furthermore, like other contracts, trademark co-existence agreements could be assignable.

The Ninth Circuit found that the facts showed that it was undisputed that there was a valid trademark co-existence agreement between Reid and Crazy Horse Too.  The Court found that the undisputed evidence showed that Crazy Horse Too had lawfully assigned its rights under that co-existence agreement to Russell Road. Given that Russell Road had obtained the rights that Crazy Horse Too owned, Spencer and CHC had a duty to Russell Road by way of its obligations to Crazy Horse Too “not to oppose each other’s use of the Crazy Horse mark, to make reasonable steps to reduce the likelihood of confusion and so on.” The Ninth Circuit found it significant that the trademark co-existence agreement made it explicit that it would “be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and licensees.

The Ninth Circuit then turned to various arguments raised by Spencer and rejected each of them in turn.  First, the Ninth Circuit found that the assignment of the trademark rights from Crazy Horse Too to Russell Road was supported by adequate consideration in that Russell Road had paid $2,500 for the assignment.  Next, Spencer argued that because Crazy Horse Too was not using the mark it had essentially “abandoned” it.   The Ninth Circuit found that even if Crazy Horse Too was not using the mark, this did not invalidate the trademark co-existence agreement.  That agreement had no requirement that Crazy Horse Too actually use the mark and therefore the “trademark abandonment” doctrine did not apply.  Spencer also argued that Crazy Horse Too could not assign its rights to Russell Road without Spencer’s consent but the Ninth Circuit rejected this argument finding that Spencer had not raised it with the lower court.

The Ninth Circuit affirmed the lower court’s summary judgment in favor of Russell Road and found that it had properly concluded that there had been a valid assignment of the rights under the trademark co-existence agreement between Reid and Crazy Horse Too.  The Russell Road case is a reminder that parties facing claims of trademark infringement should determine whether there is any basis for their use of a mark, such as through a valid assignment or trademark co-existence agreement.

In Warsaw Orthopedic, Inc. v. NuVasive, Inc. (June 3, 2016) 2016 U.S. App. LEXIS 10092, the Federal Circuit Court of Appeals broadly interpreted the Supreme Court’s test for induced infringement, finding irrelevant the defendant’s belief that there was no infringement.

Warsaw and a related company, Medtronic, sued NuVasive for patent infringement.  NuVasive counterclaimed against Warsaw and Medtronic for infringement of its patent.  NuVasive’s patent covered methods used during surgery to detect a nerve and determine the distance to the nerve.  NuVasive alleged that Medtronic manufactured a device that surgeons used to directly infringe the method claims of NuVasive’s patent, and that Medtronic induced the surgeons’ infringement.  Medtronic contended that it had not induced infringement because it had a reasonable belief, under Medtronic’s narrow construction of the claims, that the device did not perform the claimed method.

The case was tried in the district court for the Southern District of California.  The court instructed the jury on the requirements for proving induced infringement, under 35 U.S.C. section 271(b), as set forth by the Supreme Court in Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011). Under Global-Tech, induced infringement requires proof that the defendant knew of the plaintiff’s patent and knew that the acts it induced were infringing.  Global-Tech also held that a plaintiff can prove the defendant’s knowledge that the induced acts were infringing by proof of the defendant’s willful blindness, which can be proved by circumstantial evidence.

At trial, the jury found that Medtronic had induced infringement of NuVasive’s patent by instructing the surgeons on the use of Medtronic’s device.  On appeal, the Federal Circuit affirmed the jury’s verdict.  The Supreme Court then decided Commil USA, LLC v. Cisco Systems, Inc., 191 L. Ed. 2d 883 (2015), which confirmed the Global-Tech test for induced infringement.

Medtronic filed a petition for certiorari in the Supreme Court, seeking an order vacating the Federal Circuit’s decision and remanding the case for further consideration under Commil.  In particular, Medtronic argued that NuVasive had not proved that Medtronic knew that the surgeons’ acts it induced were infringing.

The Supreme Court granted certiorari and remanded the case to the Federal Circuit.  On remand, the sole question before the Federal Circuit was whether NuVasive had produced substantial evidence that Medtronic knew, or was willfully blind to the fact, that the surgeons using their device infringed NuVasive’s patent.  Medtronic argued that it did not believe its device infringed the patent and that this belief negated the specific intent required for a finding of knowledge.

The Federal Circuit disagreed and affirmed its original decision.  The court held that Medtronic’s belief was objectively unreasonable, and that there was substantial evidence that Medtronic knew (or was willfully blind to the fact) that the surgeons infringed NuVasive’s patent.  In a concurring opinion, however, one of the judges pointed out that the majority based its conclusion solely on the evidence of direct infringement (that the surgeons’ use of the device performed the claimed method), not on any evidence of Medtronic’s knowledge or willful blindness.

This case appears to be a warning – if you think you may be inducing infringement of a patent, relying on your “reasonable” belief that there is no underlying direct infringement is a bad idea!

On July 11, 2016, the U.S. Court of Appeals for the Federal Circuit ruled in a unanimous en banc decision in The Medicines Co. v. Hospira Inc., Federal Circuit case number 2014-1469, that to be “on sale” under pre-AIA 35 U.S.C. § 102(b), a product must be the subject of a commercial sale or offer for sale, and that a commercial sale is one that bears the general hallmarks of a sale pursuant to Section 2-106 of the Uniform Commercial Code.   If the product is “on sale” more than one year before the filing of an application for a patent, any issued patent is invalid and patent protection is lost.  The issue before the Court in Medicines Co. was whether a product is “on sale” under 35 U.S.C. § 102(b) when the product is produced by a third-party contract manufacturer.

The two patents at issue, U.S. Patent Nos. 7,582,727 (“the ’727 patent”) and 7,598,343 (“the ’343 patent”), are FDA Orange Book listed as covering Angiomax, which is the trade name of a form of bivalirudin.  Bivalirudin is a synthetic peptide comprised of twenty amino acid residues. Bivalirudin drug products are used to prevent blood from clotting and are regarded as highly effective anticoagulants for use during coronary surgery.  However, the bivalirudin active pharmaceutical ingredient is too acidic for human injection without further processing.  Thus, the patented compounding process produces Angiomax by creating a bivalirudin solution and then adjusting the solution’s pH with a base while controlling the creation of impurities.  The ’727 patent and ’343 patent contain product and product-by-process claims for pharmaceutical batches of the improved bivalirudin drug product.

Critically, plaintiff Medicines Co. (“MedCo”) did not sell Angiomax to the public before filing for the patents, but instead used a third-party contract manufacturing organization, Ben Venue Laboratories (“Ben Venue”), to ensure the drug met U.S. Food and Drug Administration requirements.  Thus, the Federal Circuit’s opinion touched on an important issue in the patenting of pharmaceuticals and other products, such as semiconductors: the use of contract manufacturers and the manufacturing processes necessary to produce these products.

The dispute at issue here traces back to August 2010, when MedCo sued Hospira in the United States District Court for the District of Delaware, alleging that two of Hospira’s ANDA filings infringed certain claims of the ’727 patent the ’343 patent.  After a three-day bench trial in September 2013, the district court found the patents not invalid and not infringed.  In considering invalidity, the court had to determine whether the invention was sold or offered for sale before the critical date under § 102(b), i.e. was it subject to the on-sale bar.

Applying the two-step framework of Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), the district court found that the three batches Ben Venue manufactured for MedCo did not trigger the on-sale bar.  Pfaff’s two-step framework requires that the claimed invention was (1) the subject of a commercial offer for sale; and (2) ready for patenting.  The district court concluded that the first prong of Pfaff was not met because the claimed invention was not commercially offered for sale prior to the critical date.  The court reasoned that the transactions between MedCo and Ben Venue were sales of contract manufacturing services in which title to Angiomax always resided with MedCo.  The court also found that because the batches were for FDA “validation purposes,” the batches were not made for commercial profit, but were for experimental purposes, thus avoiding the on-sale bar.

On appeal, a panel of the Federal Circuit reversed the district court’s ruling regarding the applicability of the on-sale bar, finding MedCo “commercially exploited” the invention before the critical date, even if it did not transfer title to Angiomax.  The panel also found the experimental use exemption did not apply because the invention had already been reduced to practice, so MedCo could not have been experimenting.  At the request of MedCo, the Federal Circuit vacated the panel’s ruling to consider the case en banc.

Applying § 102(b) in light of Pfaff, the Federal Circuit en banc concluded that the transactions between MedCo and Ben Venue did not constitute a commercial sale of the patented product.  The full Court affirmed the district court’s conclusion that those transactions were not invalidating under § 102(b), and reversed the panel’s determination.  The Court reasoned that the sale of manufacturing services by a contract manufacturer to an inventor to create embodiments of a patented product for the inventor does not constitute a “commercial sale” of the invention.  MedCo did not market or release its invention by contracting with Ben Venue, but only paid the company to make batches of the drug because it did not have the manufacturing capabilities to do it in-house.  The Court saw no reason to treat MedCo differently than a company with in-house manufacturing capabilities.  “There is no room in the statute and no principled reason…to apply a different set of on-sale bar rules…depending on whether [a company] outsources manufacturing or manufactures in-house.”  Instead, the focus of the on-sale bar analysis should be on what makes a sale “commercial” in “the most well-understood sense of that term…as distinct from merely obtaining some commercial benefit from a transaction.”

More broadly, the Court explained that a commercial benefit alone is not enough to trigger the on-sale bar of § 102(b); the transaction must be one in which the product is “on sale” in the sense that it is “commercially marketed.”  As a general proposition, the Court instructed that one should look to the Uniform Commercial Code (“UCC”) to define whether a communication or series of communications rises to the level of a commercial offer for sale.  However, the Court also cautioned that while “[t]he UCC has been recognized as the general law governing the sale of goods, [it] is another useful, though not authoritative, source in determining the ordinary commercial meaning of” terms used by the parties.

Given that the en banc Federal Circuit had found that there was no commercial sale of the inventions in the ’727 and ’343 patents, the Court declined to reach a ruling on the experimental use finding.  However, the Court did make clear that the panel’s statement that there can be no experimental use after a reduction to practice is inaccurate.  Finally, the Court addressed the issue of “stockpiling” by an inventor and clarified that “stockpiling” by the purchaser of manufacturing services is not improper commercialization under § 102(b).

Both the panel and en banc Federal Circuit only considered whether the patents were invalid under the on-sale bar, and did not consider other issues related to claim construction, infringement, and invalidity on other grounds.  Thus, the case has been remanded back to the original Federal Circuit panel for further proceedings on these issues and is still far from over.