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.  

Microsoft, and a Large Group of Powerful "Friends," Ask The Supreme Court to Eliminate the Clear and Convincing Evidence Standard for Patent Invalidity

In Microsoft Corp. v. i4i, U.S., No. 10-290, Microsoft is seeking certiorari on the question of whether the "clear and convincing" standard is appropriate in challenging patent validity in civil litigation. For most issues in civil litigation, such as the question of patent infringement, the party asserting the claim only needs to meet the lower “preponderance” standard. The question then, is why should patent validity be treated differently between private litigants, and should this always be the case?  For example, if the presumption of administrative correctness and deference to the USPTO are the justifications for the heightened evidentiary standard, why should the heightened standard apply when the prior art used to challenge a patent’s validity was not considered by the examiner during prosecution? These and other questions are being addressed by a powerful collection of amici that have submitted eleven briefs supporting Microsoft’s bid for high court review of this fundamental question of patent law.


As reported by BNA, the list of amici and their counsel include:

• 36 law, business, and economics professors, filed by Mark A. Lemley of the Stanford Law School;

• Acushnet Co., General Motors LLC, Pregis Corp., and SAP America Inc., by James W. Dabney and John F. Duffy of Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C.;

• Apple Inc., by Deanne E. Maynard of Morrison & Foerster, Washington, D.C.;

• CTIA—The Wireless Association, by Michael K. Kellogg of Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington, D.C.;

• Electronic Frontier Foundation, Public Knowledge, the Computer & Communications Industry Association, and the Apache Software Foundation, by Michael Barclay of the EFF, San Francisco;

• Facebook Inc., Intuit Inc., Netflix Inc., Newegg Inc., Toyota Motor Corp., and Trimble Navigation Ltd., by John D. Vandenberg of Klarquist Sparkman, Portland, Ore.;

• Google Inc., Verizon Communications Inc., Dell Computer Corp., Hewlett-Packard Co., HTC Corp., and Wal-Mart Stores Inc., by Paul D. Clement of King & Spaulding, Washington, D.C.;

• Intel Corp., by Dan L. Bagatell of Perkins Coie Brown & Bain, Phoenix;

• The Securities Industry and Financial Markets Association and the Clearing House Association, by John A. Squires of Chadbourne & Parke, New York;

• Teva Pharmaceuticals USA Inc., the Generic Pharmaceutical Association, and Cisco Systems, by Henry C. Dinger of Goodwin Procter, Boston; and

• Yahoo! Inc., by William C. Rooklidge of the Howrey law firm in Irvine, Calif.


This is clearly an issue that is worthy of attention as the outcome could represent a fundamental change in patent law.  i4i’s responsive brief is due on October 29, 2010, and a second wave of amicus briefs in support of the clear and convincing standard will likely follow.

Secondary Considerations are Primary in the Post-KSR Obviousness Analysis

Two recent Federal Circuit cases emphasize the importance of the so-called “secondary considerations of non-obviousness” in deciding the question of patent validity.  In Transocean v. Maersk Contractors, the Federal Circuit reversed the district court’s grant of summary judgment of obviousness because the district court did not give any weight to “significant objective evidence of nonobviousness” presented by the patentee, Transocean.  The Federal Circuit held that:

The district court erred by failing to consider Transocean’s objective evidence of nonobviousness…While it is true that we have held in individual cases that objective evidence of nonobviousness did not overcome the strong prima facie case – this is a case-by case determination. [citations omitted] To be clear, a district court must always consider any objective evidence of nonobviousness presented in a case.

Opinion at 11.



Two days after deciding Transocean, the Federal Circuit decided Geo M. Martin Co. v. Alliance Machine Sys. Int’l LLC, 2009-1132, -1151 (Fed. Cir., August 20, 2010). In Geo M. Martin, the Court affirmed the district court’s JMOL holding (following a hung jury) that the asserted claims were obvious as a matter of law. In this case, the district court properly considered the “secondary considerations” of non-obviousness, but concluded that they did not overcome the strong prima facie showing of obviousness. For several points argued by the patentee, such as commercial success, failure of others, and industry praise, the Federal Circuit found insufficient evidence of a nexus between the alleged “secondary consideration” and the claimed invention. In addition, the patent owner argued that alleged copying by others also supported a finding of non-obviousness. The timing of the alleged copying, however, had the opposite impact on the Court. Rather than supporting non-obviousness, both the district court and Federal Circuit found the evidence supported acts of “simultaneous invention” and that “simultaneous inventions, made ‘within a comparatively short space of time,” are persuasive evidence that the claimed apparatus ‘was the product only of ordinary mechanical or engineering skill.’” [citations omitted] Opinion at 20. When all was said and done, “[b]alancing all of the secondary considerations, this court agrees…the [patentees] evidence of non-obviousness, even if fully considered by a jury, would fail to make a difference in this case.”  Opinion at 21.

These cases do not break significant new ground on the law of obviousness, but do provide continuing guidance as to the growing importance of secondary considerations of non-obviousness in determining patent validity.

** One final note:  Congratulations to my Dorsey & Whitney partners Tom Vitt and Sri Sankaran, who successfully represented Alliance Machine Systems in the Geo M. Martin case.

Federal Circuit Further Refines Design Patent Analysis Post-Egyptian Goddess

Over the last few months, the Federal Circuit has issued three precedential opinions that provide further guidance (or some might say misguidance) regarding the analysis of design patents in the post Egyptian Goddess era.

Claim Construction and Functional Elements in Design Patents

NO INFRINGEMENT

On March 9, 2010, the Federal Circuit decided David A. Richardson v. Stanley Works, Inc. (2009-1354) and addressed the manner in which functional elements of a design patent should be addressed in claim construction and infringement of design patents. The patented design and a representative drawing of the accused "fubar" product are illustrated above. The district court construed Richardson's design patent by noting that what was claimed was that "shown and described in the '167 patent." The district court then continued by identifying those elements that were ornamental and excluding those elements that were deemed functional. Having so construed the claim, the district court held that the accused "fubar" did not infringe Richardson's design patent.

The Federal Circuit affirmed. With respect to claim construction, the Federal Circuit rejected the Richardson's position that Egyptian Goddess effectively overruled cases such as OddzOn Prods. v. Just Toys, Inc., 122 F.3d 1396 (Fed. Cir. 1997) where the court held that "[w]here a design contains both functional and non-functional elements, the scope of the claim must be construed in order to identify the non-functional aspects of the design as shown in the patent." The court further stated that "[a] claim to a design containing numerous functional elements, such as here, necessarily mandates a narrow construction." The court went on to discount the contribution of a myriad of functional elements in the claimed design and agreed with the district court's conclusion that "[f]rom the perspective of an ordinary observer familiar with the prior art, the overall visual effect of the Fubar is significantly different from the Stepclaw [patented design]."  From this ordinary observer's point of view, this holding had way more analysis than was needed to affirm - the two designs shown above are just too different.

Invalidity of Design Patents
On December 17, 2009, the court decided International Seaway Trading Corp. v. Walgreens Corp. (2009-1237), and held that the test for anticipation of a design patent is the same as the test for infringement, which is the "ordinary observer" test. The point of novelty test, abolished from the infringement analysis in Egyptian Goddess, is now a thing of the past in the validity context as well.  As a result, a piece of prior art need not be exact to anticipate a design patent claim, it must only satisfy the standards of the "ordinary observer" test.  "Just as 'minor differences between a patented design and an accused article's design cannot, and shall not, prevent a finding of infringement,' [cite omitted] so too minor differences cannot prevent a finding of anticipation."

Although dicta, the International Seaway court also discussed the test for obviousness of design patents. Here, the court stated that '[f]or design patents, the role of one skilled in the art in the obviousness context lies only in determining whether to combine earlier references to arrive at a single piece of art for comparison with the potential design or to modify a single prior art reference. Once that piece of prior art has been constructed, obviousness, like anticipation, requires application of the ordinary observer test, not the view of one skilled in the art." This sounds like something new. Indeed, in setting out this proposition, the court did not cite any precedent. Further, the "ordinary observer" test in this context may be viewed as inconsistent with the language of 35 U.S.C. 103(a) which states that a "patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." As noted above, the discussion regarding obviousness is properly viewed as dicta.  It will be interesting to see how the law of obviousness of design patent claims develops in future cases, or if it become essentially moot in view of the broader play that the "ordinary observer" gives to the anticipation analysis.

Will differences in the insole design prevent anticipation?

The subject matter in Int'l Seaway was a design for foam clogs. The Federal Circuit held that the district court incorrectly omitted certain features (the insole design illustrated above) from its validity analysis, based on whether those features would be visible during "normal use." The Federal Circuit held that "normal use should not be limited to only one phase or portion of the normal use lifetime of an accused product," such as the time when a shoe is being worn. Instead, "normal use in the design patent context extends form the completion of manufacture or assembly until the ultimate destruction, loss, or disappearance of the article." Noting that the insole design depicted in the patent would be visible at various points in the life cycle of the article, the Federal Circuit found that it was an error for the district court to ignore these features in the validity analysis simply because they were not visible when the shoe was being worn. The court remanded for the district court "for further proceedings on the limited issue of whether the differences in the insole patterns between the prior (Crocs) are and the patented designs bar a finding of anticipation or obviousness." This remand order is somewhat troubling. As noted in J. Clevenger's dissent, "the ordinary observer test requires assessment of the designs as a whole." "[T]he differences in the inner sole designs must be appreciated in conjunction with all of the design differences." J. Clevenger aptly concludes that "[p]artial judgments of anticipation on segments of a design prohibit assessment of designs as a whole, in violation of long-standing law... ."  Although preaching a "design as a whole" analysis, the majority's holding and remand order is clearly fostering an approach that will encourage a district court's "dissection of a design as a whole into its component pieces."

Claim Construction and Domestic Industry for Design Patents
On February 24, 2010, the Federal Circuit issued its opinion in Crocs, Inc. v. Int'l Trade Commission (2008-1596). In this case, the court reversed ITC determinations of no infringement and no domestic industry of Crocs' design patent. Despite earlier warnings from the Federal Circuit that construing a design patent claim in words, rather than by simple reference to the figures, was a risky proposition, the ITC issued a narrow claim construction that focused on areas of difference between the claimed design and the accused product. The Federal Circuit criticized the commission’s "concentration on small differences in isolation distracted from the overall impression of the claimed ornamental features." Instead, "[t]he proper construction requires a side-by-side view of the drawings of the [patent design] and the accused products." Despite some obvious differences apparent (to me at least) in some to these comparisons, the court found that "these side-by-side comparisons...suggest that an ordinary observer, familiar with the prior art designs would be deceived into believing the accused products are the same as the patented design."  Unfortunately, the Federal Circuit opinion does not reference the "prior art designs," so it is not clear how to evaluate the differences between the claimed design and the accused products.  (An example of the images shown in the Federal Circuit opinion are shown below in the first two images (side view).  The top view illustrated below as compared with Fig. 6 of the patent where not part of the Federal Circuit's side-by-side comparison.  I don't know that I would be deceived here, but I suppose that reasonable "ordinary observers" are free to differ.) 

"NEARLY IDENTICAL" - DESIGN PATENT INFRINGED

With respect to the domestic industry requirement, the court found that Crocs' products were indeed within the scope of the design patent and those products therefore satisfied the "technical prong" of the domestic industry requirement.

A Holding of Invalidity Deserves a Complete Analysis

Last week, in Steven Ritchie et al. v. Vast Resources, Inc. (2008-1528, -1529) the Federal Circuit summarily reversed the findings of the district court and held that the asserted patent (RE 38,924, http://www.google.com/patents?id=LasVAAAAEBAJ&dq=RE38924) was invalid as being obvious. (Yes, I know that it is far more appropriate to say that the asserted or challenged claims were found invalid, but in this case, the Court doesn't mention which claims were on appeal or which claims were actually held to be invalid.)

The subject matter of the patent is somewhat low tech –OK, its a sex toy made of a type of slippery glass known as “borosilicate glass.” Notwithstanding the apparent simplicity of the underlying . . . umm . . . technology, before reaching the Federal Circuit, the patent survived both initial examination and re-issue proceedings at the USPTO and was found to be valid and infringed at the district court.

Judge Posner, sitting by designation, wrote the opinion that was joined by Chief Judge Michel and Judge Bryson. (The opinion can be found at http://www.cafc.uscourts.gov/opinions/08-1528.pdf). Judge Posner clearly had some fun writing this opinion, which includes a number of jokes directed at the subject matter of the patent. I enjoyed reading the opinion. Unfortunately, in the end, the opinion is long on wit and generalities about obviousness, but is extremly limited with respect to providing any real guidance on the application of the obviousness inquiry post-KSR.

In this opinion, there is very little discussion of the actual claim limitations in question, how the prior art was applied to those limitations, or the actual basis for deciding why a person of ordinary skill in the art would arrive at the conclusion that the differences between the prior art and the claimed invention were indeed obvious. From the opinion, the reader merely knows that both sex toys and borosilicate glass are well known. It is quite possible that the conclusion reached by the Federal Circuti is correct, but that conclusion simply does not flow from the information provided in the opinion.

Finding a patent claim invalid is a significant holding. As such, a finding of invalidity in the first instance by the Federal Circuit should be supported by a more thorough analysis that clearly supports the holding. Even patents directed to sex toys deserve an informed analysis regarding the Graham factors before finding a patent invalid! In my own humble opinion, the obviousness inquiry should not be relegated to an amorphous analysis akin to pornography, e.g., an “I know it when I see it” approach.

Without question, some patents are directed to subject matter that is obvious and those claims should be invalidated. When those cases are presented, the Federal Circuit would better serve patent owners, defendants, district courts and the patent bar by providing an analysis that informs the process and clearly justifies the result.