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Fish Federal Circuit Summary Service: Issue #315

March 11, 2008

Newsletters

Fish Federal Circuit Summary Service: Issue #315

March 11, 2008

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Commercial Use Exception Inapplicable Where Experimentation Performed By Purchaser Or To Meet Purchaser’s Requirements; Two Judges Urge Clarification In Experimental Use Exception Doctrine
Atlanta Attachment Co. v. Leggett & Platt, Inc.
Click here to download the case
Date: February 21, 2008
Panel: Mayer, Prost (concurring), Dyk (joining Prost’s concurrence)
Author: Mayer
District Court: N.D. Ga.
Trial Judge: Evans
Summary: Fed Cir reverses and remands summary judgment of infringement, no invalidity, and enforceability, because it determined that embodiments of the asserted claim was on sale before the critical date. The claim in suit relates to an automatic gusset ruffler machine. The patentee agreed to develop the invention at Sealy’s request, with the patentee sending to Sealy four prototypes one after the other to determine whether they fit Sealy’s requirements. The third prototype embodied every limitation of the claim.

First Pfaff prong: Addressing the commercial offer prong of the Pfaff test, the Fed Cir determined that “[a]lthough the third prototype was never actually delivered to Sealy, it was indeed sold to Sealy because Atlanta Attachment sent Sealy an invoice for the machine (an offer), and Sealy paid for the machine (an acceptance).” Slip op. at 6. The court rejected the patentee’s assertion that Sealy’s testing of the prototype shielded the whole period under the experimental use exception, because (i) “experimentation conducted to determine whether the invention would suit a particular customer’s purposes does not fall within the experimental use exception”; (ii) “[t]he fact that Sealy experimented with the prototypes is immaterial because the experimental use exception only concerns the actions of the inventors and their agents, and Sealy was not under the inventors’ control”; and (ii) the patentee “had presented a commercial offer for sale of the invention en masse” before the critical date. Slip op. at 6-7.

Second Pfaff prong: The Fed Cir further ruled that the second Pfaff prong requiring reduction to practice was met, because “the third prototype demonstrated the workability and utility of the invention” before the critical date. That the patentee refunded the amount paid by Sealy for the third prototype upon delivery of the fourth prototype did not demonstrate unsuitability of the third prototype to perform its intended purpose. Further, entitlement to perfect invention applies to the experimental use exception, which only applied to the commercial offer for sale prong of Pfaff, and not to the reduction to practice prong: “Consistent with the rule that later refinements do not preclude reduction to practice, it is improper to conclude that an invention is not reduced to practice merely because further testing is being conducted.” Slip op. at 9. Finally, the court disagreed that the third prototype’s inability to perform certain features could defeat reduction to practice where those features are not claimed.

Inequitable conduct: Because the patentee should have disclosed the sale of the third prototype during prosecution, the Fed Cir remanded the unenforceability issue to the district court.

Judge Prost’s concurrence: In her concurrence which Judge Dyk joined, Judge Prost indicated her agreement with the majority opinion, but wrote “separately, however, to point out the confusion in our caselaw regarding the applicability of the experimental use doctrine to the two prong test for the on-sale bar. . . . Without considering these issues in a comprehensive manner in future cases, we will never escape from the confused status of our current caselaw.” Concurring op. at 1. Specifically, Judge Prost noted two problems in the current law. First, “[i]f we were to accept that reduction to practice eliminates availability of the experimental use doctrine as a whole, the continuing viability of that doctrine would exist only between the time an invention is ready for patenting and the time it is reduced to practice.” Id. at 2. Second, the current cases “minimize the relevance of a distinction between ‘ready for patenting’ and reduction to practice, other than as relaxing evidentiary requirements for proving the on-sale bar.” Id. at 3.

KEYWORDS: ON SALE BAR (YES), REDUCTION TO PRACTICE (YES), INEQUITABLE CONDUCT (YES)

Fed Cir Construes Term “Binary Code”; Term Construed By Contrasting It To Another Term In the Claim
The Chamberlain Group, Inc. v. Lear Corp.
Click here to download the case
Date: February 19, 2008
Panel: Rader, Clevenger, Dyk
District Court: N.D. Ill.
Trial Judge: Moran
Summary: Fed Cir vacates preliminary injunction imposed based on an incorrect construction of the term “binary code” in the claims of a patent related to a remote-control garage door opening system. The district court construed “binary code” as “a code in which each code element may be either of two distinct kinds of values, which code may represent various kinds of letters and numbers including, but not limited to, a representation of a base 2 number.” Slip op. at 6. The construction thus focused on the form of the computer expression, rather than the meaning of the expression, and thus encompassed the defendant’s binary-coded trinary codes.

While recognizing that “the district court’s construction may represent an ordinary or customary reading of ‘binary code,'” the Fed Cir construed the term to mean “binary number” because (i) the use of the terms “binary code” and “trinary code” in the same claim indicated that “binary” meant 2 and “trinary” meant 3; (ii) the specification is inconsistent with the district court’s adopted construction; and (iii) although the district court’s construction allowed “binary code” to encompass values expressed in “trinary code,” the specification and the claims do not allow “binary code” to include “trinary code.” “Thus, the district court’s construction of “binary code” is internally inconsistent and contradictory to the rest of the patent. To resolve this contradiction and preserve the independent meaning of ‘binary code’ as compared to ‘trinary code’ in the ‘544 patent, this court reads ‘binary code’ as limited to binary numbers, and ‘trinary code’ as limited to trinary numbers.” Slip op. at 12. Because the claim construction affected the likelihood of success on the merits in proving infringement, the Fed Cir vacated the preliminary injunction.

KEY WORDS: PRELIMINARY INJUNCTION (NO), CLAIM CONSTRUCTION (NARROW)

Defendant’s Evidence Only Needs To Cast Doubt on Validity of Patent To Avoid Preliminary Injunction; Return of “Motivation to Combine” Test
Erico Int’l Corp. v. Vutec Corp.
Click here to download the case
Date: February 19, 2008
Panel: Newman (dissent), Rader, Dyk
Author: Rader
District Court: N.D. Ohio
Trial Judge: O’Malley
Summary: Fed Cir vacates preliminary injunction based on substantial question as to the validity of method claims, which relate to J-shaped hooks used to support lengths of cable in the installation of electrical and communication cables.

On appeal, the Fed Cir sustained the district court’s determination that the defendant did not show a likelihood of success on its inequitable conduct defense, because there was inadequate evidence of intent to defraud. The court of appeals also agreed that the defendant did not present any evidence to support its on-sale bar defense.

However, the Fed Cir ruled that the defendant presented a viable obviousness defense based on the combination of a reference with a published industry standard. At the preliminary injunction stage, “a defendant need not prove actual invalidity. … Thus, a showing of a substantial question of invalidity requires less proof than the clear and convincing standard to show actual invalidity.” Slip op. at 8. The Fed Cir found that a substantial question of obviousness existed in the case, because the combination disclosed the claimed method and the inventor’s own testimony “show[ed] an implicit motivation to combine the prior art.” Id. at 9. The Fed Cir found the secondary considerations to be insufficient to overcome the evidence raising doubt about the validity of the patent: The defendant’s “invalidity challenge based on obviousness cast enough doubt on the validity of Claim 17 to negate likelihood of success on the merits as to infringement of a valid patent.” Id. at 11.

In dissent, Judge Newman criticized the majority opinion because “[m]y colleagues on this panel have not only applied an incorrect standard to the preliminary injunction factor of likelihood of success on the merits, but they have also departed from the policy guidance of precedent” from the Supreme Court. Dissent op. at 1. Arguing that the district court properly exercised its discretion to preserve the status quo, Judge Newman wrote that “[m]y colleagues have applied an incorrect criterion. The correct criterion is not whether there is a ‘substantial question’; it is whether the defendants have shown that they are likely to succeed on the merits, on the standards and burdens of proof as would prevail at trial.” Id. at 2.

KEY WORDS: LIKELIHOOD OF SUCCESS ON THE MERITS (NO), INVALIDITY (YES), OBVIOUSNESS (YES), MOTIVATION TO COMBINE (YES), PRELIMINARY INJUNCTION (NO)

Whether Employment Contract Automatically Assigns Rights Or Is a Promise To Assign Is a Question of Federal Circuit Law; No Jury Trial Rights on Standing Question; Jurisdictional Discovery Required For Critical Issues
DDB Techs., L.L.C. v. MLB Advanced Media, L.P.
Click here to download the case
Date: February 13, 2008
Panel: Newman (dissent-in-part, concur-in-part), Clevenger, Dyk
District Court: W.D. Tex.
Trial Judge: Yeakel
Summary: Fed Cir affirms dismissal of statute of limitation and equitable defense, affirms determination that no jury trial was necessary on issue of standing, and vacates judgment based on improper denial of jurisdictional discovery. The defendant argued that the inventor’s employment agreement at the time he made the invention gave partial ownership to the inventor’s former employer, which was not a party to the suit. The district court agreed with the defendant’s argument and dismissed the suit for lack of standing.

Equitable defenses: The Fed Cir rejected the patentee’s defenses of waiver based on the co-owner’s failure to assert its interests in the patents in suit, estoppel by laches based on unreasonable delay, and estoppel by acquiescence based on former employer’s alleged representation. Whether a contract automatically assign certain ownership rights in patents is a question of federal law: “Although state law governs the interpretation of contracts generally, the question of whether a patent assignment clause creates an automatic assignment or merely an obligation to assign is intimately bound up with the question of standing in patent cases. We have accordingly treated it as a matter of federal law.” Slip op. at 8 (internal citations omitted). Applying Federal Circuit law to the question of automatic assignment, the Fed Cir ruled that the employment contract was not merely a promise to assign, but automatically vested the former employer with co-ownership rights in the invention by using the language “agrees to and does hereby grant and assign” in the employment contract. Because the ownership rights would automatically vest into the former employer if the remaining requirements of the contract were met, Texas law barred the equitable defenses.

No jury rights on standing issue: Applying Federal Circuit law on an issue of first impression, the court of appeals determined that the ownership and standing factual issues were not so intertwined with the questions of infringement and invalidity as to implicate the right to a jury trial on the standing question. “We therefore reject DDB’s argument that the district court erred by holding a preliminary hearing, rather than awaiting jury trial on the merits, to resolve the jurisdictional issues.” Slip op. at 12.

Jurisdictional discovery: While decisions related to additional discovery are reviewed under regional circuit law, Federal Circuit precedent controls the disposition of a request for jurisdictional discovery. Because the contract language is ambiguous and extrinsic evidence must be considered in determining whether the patent related to the scope of employment, the Fed Cir reviewed the competing factual arguments and determined that discovery was crucial to the central factual issues in dispute: “In general we give substantial deference to a district court’s decisions on issues of discovery. However, under the circumstances of this case, given the central relevance of the information sought in discovery, it was an abuse of discretion for the district court to deny DDB [patentee] jurisdictional discovery, including document and deposition requests.” Id. at 16.

Dissent-in-part/concurrence-in-part: In her separate opinion, Judge Newman agreed with the remand for additional discovery, but criticized the majority for (i) prematurely deciding that the equitable defenses were unavailable, even though further discovery would take place on remand, (ii) applying federal, instead of state, law in determining the rights of the inventor and his former employer, (iii) denying jury trial rights where the scope of the employment agreement was still subject to further discovery, and (iv) ignoring the available procedures under FRCP 19 for joining involuntary parties if those parties were necessary to the action.

KEY WORDS: EQUITABLE DEFENSE (NO), FEDERAL CIRCUIT LAW (YES), JURY TRIAL (NO), JURISDICTIONAL DISCOVERY (YES)

Fed Cir Judges Argue That Claims To Signals Should Be Patentable Under Section 101
In re Nuijten
Click here to download the case
Date: February 11, 2008
Trial Court: (en banc denial) BPAI
Summary: Judge Linn, joined by Judges Newman and Rader, dissented from the Fed Cir’s denial of the petition for rehearing en banc. The dissent argued that In re Nuijten’s holding that something transient cannot constitute a manufacture under section 101, conflicted with CCPA precedent in In re Breslow, 616 F.2d 516 (C.C.P.A. 1980), and Supreme Court case law in Diamond v. Chakrabarty, 447 U.S. 303 (1980). The dissent further questioned the interplay of sections 101 and 103, where the PTO rejected claims directed to a signal but allows claims to a storage medium containing the same signal: “The distinctions that are drawn between signals and storage media containing those signals would appear to apply equally to the distinctions between software and hardware and are artificial at best.”

KEY WORDS: EN BANC (NO), STATUTORY SUBJECT MATTER (NO), OBVIOUSNESS

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