The Federal Circuit Reviews the Standard for Preliminary Injunctions in Design Patent Cases

Titan Tire Corporation et al. v. Case New Holland Inc., et al. 2008-1078

In Titan Tire, the Federal Circuit affirmed the trial court’s denial of a preliminary injunction (“PI”) in a design patent case. (www.cafc.uscourts.gov/opinions/08-1078.pdf) The opinion begins with a recitation of the four factors required to obtain a preliminary injunction which “are of longstanding and universal applicability.” That is, the movant “must establish [1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.” Although a movant must satisfy all four factors in every case, the focus of Titan Tire was on the first factor. More particularly, the opinion provides an in-depth discussion regarding the respective evidentiary and procedural burdens for establishing (or defeating) a showing that a patent holder “is likely to succeed on the merits” in the face of a validity challenge to the asserted patent. Although Titan Tire is a design patent case, the discussion with respect to the burdens encountered in a PI motion are equally applicable to utility cases as well.

The court begins its analysis with the truism that “the patentee seeking a preliminary injunction in a patent infringement suit must show that it will likely prove infringement, and that it will likely withstand challenges, if any, to the validity of the patent.” When an alleged infringer is challenging patent validity in its defense of a PI, “the burden is on the challenger to come forward with evidence of invalidity, just as it would be at trial.” (Well, almost “as it would be at trial.” As discussed below, the accused infringer does not need to present “clear and convincing” evidence of invalidity to defeat a motion for a preliminary injunction.) After the accused infringer presents some evidence sufficient “to persuade the trial court that the patent is invalid, at this stage it is the patentee, the movant, who must persuade the court that, despite the challenge presented to validity, the patentee nevertheless is likely to succeed at trial on the validity issue.” In this context, “[w]hile it is not the patentee’s burden to prove validity, the patentee must show that the alleged infringer’s defense lacks substantial merit.”

How much evidence does an accused infringer need to present for a successful invalidity challenge during a preliminary injunction hearing? Clearly, the accused infringer needs to come forward with enough evidence (something more than a “mere scintilla”) to persuade the court that its invalidity defense has “substantial merit.” The court unequivocally stated, however, that “the alleged infringer at the preliminary injunction stage does not need to prove invalidity by the ‘clear and convincing’ standard that will be imposed at trial on the merits.” Instead, this heightened evidentiary burden is merely “a consideration for the judge to take into account in assessing the challenger’s case at the preliminary injunction stage.”

Obviousness of Design Patents

After discussing the standard for determining whether an invalidity defense is sufficient to defeat a PI motion, the court continued with a discussion of the standard for determining invalidity of a design patent.

Obviousness for design patents, like utility patents, is governed by 35 U.S.C. 103. When combining multiple references for an obviousness defense, the inquiry is “whether one of ordinary skill would have combined the teachings of the prior art to create the same overall visual appearance as the claimed design.” As discussed in Titan Tire, this typically involves identifying a “primary reference;” that is “something in existence, the design characteristics of which are basically the same as the claimed design.” Then, “other ‘secondary’ references ‘may be used to modify it to create a design that has the same overall visual appearance as the claimed design.’” Finally, to properly combine the references, the "secondary references must be 'so related [to the primary reference] that the appearance of certain ornamental features in one would suggest the application of those features to the other.'" Citations omitted. After reviewing this standard, the court reviewed the prior art of record and affirmed the district court’s holding that the accused infringer's invalidity defense had sufficient merit to defeat the PI.

Although dicta, the court pointed out that current test for obviousness of design patents may have similar flaws as the “point of novelty” test for infringement that was eliminated by the Federal Circuit's en banc decision is Egyptian Goddess. The court did not, however, take the opportunity to take on this issue. Instead, it simply pointed out that gyptian Goddess expressly states that “it is not a test for determining invalidity, but is designed solely as a test of infringement.” After noting this limitation, the Titan Tire court simply warns that “it is not clear to what extent, if any, the doctrine applicable to obviousness should be modified to conform to the approach adopted by this court in Egyptian Goddess.”

Another interesting, but unanswered question, is the role of the Supreme Court’s decision in KSR in determining obviousness in the context of design patents. In particular, Titan Tire objected to the trial court’s reference to the passage in KSR that the “predictable use of prior art elements according to their established functions” would be indicative of obviousness since, it argued, design patents do not have functional elements. The Federal Circuit stated that “it is not obvious that the Supreme Court necessarily intended to exclude design patents from the reach of KSR,” but found that this question need not be resolved to dispose of the present case.

What are the take aways from Titan Tire?

• Preliminary injunctions represent extraordinary relief and are difficult to obtain. (Of course, we new that already). The Federal Circuit’s discussion in Titan Tire is likely to make it easier to defeat a PI motion based on a reasonably presented invalidity defense.
  
• The ordinary observer test of Egyptian Goddess does not have any bearing on the validity of design patents. The rational behind eliminating the “point of novelty” test, however, may continue to influence the validity inquiry in the future.
  
• We should expect to see KSR-based arguments raised more often in the context of design patents.

En Banc Decision Clarifies Scope of Product-By-Process Claims and Highlights Philosophical Divide in the Federal Circuit

En banc decisions from the Federal Circuit are rare. They serve to clarify the law, typically being invoked when conflicting precedent has been identified and needs to be reconciled. As such, en banc decisions are important. On May 18, 2009, the Federal Circuit issued its decision in Abbott Laboratories et al. v. Sandoz et al., 2007-1400, 1446 (http://www.cafc.uscourts.gov/opinions/07-1400.pdf). Most of the decision was panel-only. However, the Court, acting sua sponte, took on one issue en banc. That issue was the “proper interpretation of product-by-process claims.”

The Majority Holding

First, the law. The majority noted conflicting precedent from Federal Circuit panel decision regarding whether the process recitations in a product-by-process claims were properly construed as claim limitations. In other words, would an identical product, made by a different process, infringe a product-by-process claim? Making a long story short, the majority held that process recitations in a product-by-process claim are indeed claim limitations and if a product is made by a different process, there is no infringement.

Judge Newman’s Dissent

Judge Newman’s dissenting opinion, joined by J. Laurie and J. Mayer, is a 38 page dissertation taking issue with both the process used by the Federal Circuit in dealing with this issue en banc, and the substance of the majority’s holding.

Judge Newman is perhaps the Federal Circuit’s most consistent supporter of a strong patent system. Her opinions demonstrate a high level of respect both for patents and the patent bar. This dissent is fully consistent with these values.

First, the dissent is clearly unhappy with the perceived short-cutting of the en banc process in this case. For example, Judge Newman notes that the parties were not invited to brief or argue the en banc question and neither were amici. The dissenting opinion states that the Federal Circuit ran afoul of Fed. R. App. Proc. 34 and 35, as well as its own internal operating procedures, in taking on this issue without seeking such input. In Judge Newman’s view, those constituents likely to be effected by this change in the law should have been provided an opportunity to be heard.

Turning to the substance of the dissent, Judge Newman methodically dissects each case relied on by the majority and effectively points out why those cases fail to support the bright line test adopted by the majority. Rather, long standing authority, she points out, supports evaluating a product-by-process claim under a “rule of necessity” that traditionally allowed a patentee to claim the product by describing the process of manufacture when there was no known way of characterizing an otherwise novel product. Since both patentability and infringement were measured by the scope of the product, Judge Newman characterizes this approach as “pragmatic, fair, and just, for it attuned patent law and practice to the realities of invention.”

Practical Impact

From a practical standpoint, this decision will have limited impact since the use of product-by-process claims tend to be rare. (Indeed, its not even clear that they were appropriate in the case before the court since there were other claims involved that claimed the product based on measurable properties, rather than the process steps used to make the product). Nonetheless, the majority holding seems to present yet another small, but measurable, erosion of patent rights that are now available to inventors.

Federal Circuit Decides that “Have Made” Rights are Implied, Unless Expressly Omitted

When a patent license grants the rights to “make, use and sell” a patented product, and reserves “all rights not expressly granted to [a licensee],” does the licensee have the right to have the licensed product made by another on its behalf? That question was answered in Corebrace LLC v. Star Seismic LCC, Fed. Cir. 2008-1502 (May 22, 2009)(www.cafc.uscourts.gov/opinions/08-1502.pdf) which held that: “A grant of a right to ‘make, use, and sell’ a product, without more, inherently includes the right to have a third party make the product. A clear intent shown in a contract to exclude ‘have made’ rights can negate what would otherwise be inherent.” Simply stated, “have made” rights are in, unless they are expressly carved out of the license.

Corebrace makes it clear that this implied “have made” right is not a “sublicense” right (which was expressly prohibited in the license granted to Star Seismic). Instead, this implied right emanates from a Court of Claims decision which stated that “[a license to make, use, and sell] is not restricted to the production by the licensee personally or use by him personal or sales by him personally. It permits him to employ others to assist him in the production and in the use and in the sale of the invention.” Carey v. United States, 326 F.2d 975, 979 (Ct. Cl. 1964).

PRACTICE POINTS IN VIEW OF COREBRACE:

As a patentee, if you do not want to extend “have made” rights, the license grant should include unambiguous language that explicitly preclude such rights.

As a licensee, despite the clear holding in Corebrace, it is still good practice to expressly include “have made” rights in the license grant. Patent licenses are contractual rights that are evaluated under state law. In Corebrace, the governing law was Utah. Since the Supreme Court of Utah was silent on this issue, the Federal Circuit looked to its own precedent to decide this issue. A case originating from a different state could end up with a different result.

What about the third-party supplier? In Corebrace, the action was between the patentee and the licensee. The third-party manufacturer supplying Star Seismic was not a party to the action. Although Star Seismic was conferred implied “have made” rights, it is not clear (at least to me) that this implied right would extend upstream and protect the third-party manufacturer who is making the product. Authorized sales by the licensee clearly “exhaust” patent rights with respect to downstream purchasers, but does an authorized purchase have the same effect upstream? If the purchase is authorized, does that imply that the sale is also authorized? Those are questions for another day...please let me know your thoughts on this.

Bilsky Taken Up By Supreme Court

Will the Scope of Patent Eleigible Subject Matter be Redefined?

In a decision that is viewed as a bit of a surprise to many, the Supreme Court has granted certiorari in Bilsky v. Doll, U.S. No. 08-964, to review the en banc Federal Circuit decision which held that “[a] claimed process is surely patent-eligible under §101 if it is (1) ties to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” (In re Bilsky, 545 F.3d 943 (Fed. Cir. 2008))

The Bilsky decision, which appears to define a bright line test for patent eligible subject matter, fails to provide guidance in some important areas. For example, is a general purpose computer operating with unique software a “particular apparatus”? Also, can the transformation of data alone qualify as “transform[ing] a particular article into a different state or thing"? With these questions unanswered, the impact of Bilsky’s “machine-or-transformation” test has been most significant in the software and business method sectors, with §101 rejections being more common from the USPTO and §101 now being a real and viable defense in patent litigation. Indeed, the court in the Middle District of Florida just recently invalidated an asserted patent under 35 U.S.C. § 101 in the case of Every Penny Counts, Inc. v. Bank of America Corp., 07-CV-0042.

The Supreme Court agreed to hear two questions:

(1) Whether the Federal Circuit erred by holding that a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (“machine-or-transformation” test), to be eligible for patenting under 35 U.S.C. §101, despite this Court's precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas.”

(2) Whether the Federal Circuit's “machine-or-transformation” test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect “method[s] of doing or conducting business.” 35 U.S.C. §273.

Where will this lead? Good question. The Supreme Court has not been particularly kind to patent owners and broad patent rights in its recent decisions. Then again, the Supreme Court has not been particularly kind to the Federal Circuit either. Its past decisions over the years on the question of patentable subject matter, however, tend to avoid bright line standards and lean towards a more liberal scope of patentable subject matter, but certainly don’t embrace the scope of “anything under the sun made by man” as the Court once suggested. Merely taking the case, however, means that a definitional moment in the area of patentable subject matter is likely on the horizon. Now, its time for the waiting to begin and for the amici to enter the fray.