Wednesday, June 13, 2012

Stating A Claim for Patent Infringement

Since 2007 when the Supreme Court decided Bell Atlantic v. Twombly, 550 U.S. 544 (2007), there has been debate (and motion practice) over what is required in a complaint to adequately plead a cause of action for patent infringement.  The debate centers on the tension between recent Supreme Court decisions (Twombly and Iqbal) which require pleading enough facts to “state a claim to relief that is plausible on its face” and Form 18 that is found in the Federal Rules of Civil Procedure, which requires only bare notice pleading.  This issue was squarely presented in R &L Carriers v. Drivertech LLC et al.,  2010-1493, Fed. Cir. June 7, 2012.

In R & L Carriers, the complaint alleged counts of contributory infringement and inducement against a number of defendants.  In pleading these counts of indirect infringement, the complaint alleged that certain of defendant’s customers were directly infringing the asserted patent.  The district court found that the allegations of direct infringement did not contain sufficient factual allegations to plausibly establish that any actor performed all steps of the asserted method claim and therefore did not satisfy the pleading requirements of Iqbal and Twombly.  Further, the district court found that the facts set forth in the complaint demonstrated that the accused systems actually had numerous non-infringing uses and, therefore, found that the allegations of contributory infringement could not be sustained.  Finally, the court held that the complaint failed to plausibly plead that the defendants had the requisite specific intent to induce infringement.  The amended complaint was dismissed.

With respect to direct infringement, the Federal Circuit reversed and held that “as long as the complaint in question contains specific factual allegations to meet the requirements of Form 18, the complaint has sufficiently pled direct infringement.”  Opinion at 19.  In discussing the pleading requirements for direct infringement, the Court pointed out that “Form 18 and the Federal Rules of Civil Procedure do not require a plaintiff to plead facts establishing that each element of an asserted claim is met…Indeed, a plaintiff need not even identify which claims it asserts are being infringed.” Opinion at 17.  Addressing the interplay between recent Supreme Court precedent and Form 18, the majority opinion states that “to the extent the parties argue that Twombly and its progeny conflict with the Forms and create differing pleadings requirements, the Forms control..”  Opinion at 15.

In addressing the counts of indirect infringement, the Court found that “[t]he Forms are only controlling for causes of action for which there are sample pleadings.”  Opinion at 20.  “[B]ecause Form 18 addresses only direct infringement, we must look to Supreme Court precedent for guidance regarding the pleading requirements for claims of indirect infringement.” Id.  In other words, to adequately plead indirect infringement, the complaint must plead facts sufficient to plausibly establish each element of the cause of action.  With respect to contributory infringement, this includes, inter alia, facts sufficient to establish that the accused components have no substantial non-infringing uses.  For inducement, this requires facts sufficient to reasonably infer that the defendant had the specific intent to induce infringement.  Merely reciting the elements without a factual pleading to support those elements will not suffice.
The Court found that the detailed factual allegations set forth in the complaint actually undermined the allegation of contributory infringement by establishing that the accused products have substantial non-infringing uses. “Where a product is equally capable of, and interchangeably capable of, both infringing and substantial non-infringing uses a claim for contributory infringement does not lie.”  Opinion at 23.  In this case, the Federal Circuit found that plaintiff’s complaint “supplies the very facts which defeat its claims of contributory infringement.”

Turning to inducement, with its specific intent element, the complaint included allegations that defendants’ employees had made statements touting the benefits of the patented method and that these statements were made after the defendant had received a cease and desist letter making it aware of the asserted patent.  Under these facts, the Federal Circuit agreed that sufficient facts were pled to make a plausible allegation that defendants “intended to induce its customers to use its products to practice the patented method and did so with knowledge of the patent.”  Opinion at 29.  At the pleading stage, the  “’plausibility requirement…simply calls for enough facts to raise a reasonable expectation that discovery will reveal’ that the defendant is liable for the misconduct alleged.”  Opinion at 30, citing Twombly.  Here, the Federal Circuit found that the complaint was sufficient to meet this standard.

In summary:  for direct infringement, Form 18 is sufficient.  For Indirect infringement (or other cause of action not covered by a specific Form),  Twombly and its progency control and the complaint must set forth a factual basis to support a reasonable inference that each element of the cause of action is satisfied.  For contributory infringement, use caution in pleading facts that may establish non-infringing uses for an accused product.

Tuesday, June 12, 2012

In re Baxter: A Second Bite at the Apple Was Sweet

A couple of weeks back, the Federal Circuit decided In re Baxter, affirming a patent office Board decision of obviousness. 2011-1073, May 17, 2012.  That result, by itself, is hardly noteworthy.  The Board was addressing a patent in an ex parte reexamination, that not surprisingly, was brought by a defendant involved in a patent infringement action, Fresenius, USA , Inc.  So, an unsurprising result, with an unsurprising history.  Why then, are we even talking about this case?  OK, here is the twist.  In the litigation, the district court held that Fresenius failed as a matter of law to meet its burden to prove invalidity of the asserted claims.  That decision was appealed and the Federal Circuit affirmed, holding that “Fresenius failed to present any evidence- let along substantial evidence- that the structure corresponding [to one claim element] existed in the prior art.”  Fresenius USA, Inc. v. Baxter, Int’l 582 F.3d 1288, 1299 (Fed. Cir. 2009).  Now, three years later, based on largely the same (but not quite identical) prior art, the Federal Circuit affirmed the Board decision that the same claims previously affirmed are indeed invalid as obvious. 

Why the different result?  The short answer is that the Board decision is based on a different evidentiary standard, there is no “presumption of validity” in reexaminations, and the standard of appellate review for board decisions is deferential, applying a “substantial evidence” standard.  The original holding in Fresnius was not that the asserted claims were valid.  It was a holding affirming that the defendant did not meet the clear and convincing standard to establish invalidity.  In contrast, in order to reverse the Board's finding of invalidity, the Federal Circuit would have had to find that the decision was not supported by substantial evidence.  In this case, the Federal Circuit found the Board’s decision was well supported.  Opinion 14-15.

The Baxter decision highlights tension in the roles of the district court and the patent office.  Typically, when a party looses an issue and all appeals are exhausted, that issue cannot be relitigated by that party.  Typically, government agencies are bound by final decisions of the courts.  However, the Baxter court deferred to Congress and its own precedent noting that “Congress has provided for a reexamination system that permits challenges to patents by third parties, even those who have lost prior judicial proceedings.”  Opinion at 15.   As a result, unless Congress decides to change the reexamination statute, the possibility remains that a party seeking to invalidate a patent can take two full bites at the apple.

Judge Newman presented a ten page dissent in which she argues that the Board decision amounted to improper “agenc[y] nullification of this court’s final decision” and violated principals of law of the case, litigation repose, estoppel and issue preclusion.  I am a huge fan of Judge Newman, and many of her arguments are (as usual) compelling.  But, there are a couple of points about her dissent that I don’t quite understand.  She argues that “[a] patent that has been adjudicated to be valid cannot be invalidated by administrative action, any more than a patent adjudicated to be invalid can be restored to life by administrative action.”  District courts to not find patents “valid,” however.  When a patent survives a validity challenge at the district court, the court is finding that the challenged claims are not invalid based on the evidence presented.  Finding a patent claim invalid in a subsequent agency action with a different party (the PTO), different evidentiary record, and different procedural standard does not seem at all inconsistent.   The other point causing me angst deals with issue preclusion and estoppel.  Even though the reexamination was initiated by Fresnius, it was an ex parte proceeding and the patent office, not Fresnius, was the party to the decision being appealed.  Since the patent office was not a party to the district court action, it is unclear why issue preclusion and estoppel should attach with respect to the patent office.