Federal Circuit Review - December 2018
Assignor Estoppel Does Not Apply in the IPR Context
In Arista Networks, Inc. v. Cisco Systems, Inc., Appeal Nos. 2017-1525, 2017-1577, the Federal Circuit held that the plain language of 35 U.S.C. § 311(a) unambiguously leaves no room for assignor estoppel to apply in the IPR context.
Dr. David Cheriton is the named inventor of U.S. Patent No. 7,340,597 (“the ’597 patent”), which is owned by Cisco Systems, Inc. At the time of invention, Dr. Cheriton was employed by Cisco and assigned the invention claimed in the ’597 patent to Cisco. Dr. Cheriton later left Cisco and founded Arista Networks, Inc.
Arista filed an IPR petition, requesting review of certain claims of the ’597 patent. After instituting the IPR, the PTAB upheld some of the challenged claims as patentable, but invalidated others. On appeal, Arista argued that the Board erred in construing the term “broadcast,” and that this error caused the Board to improperly reject Arista’s obviousness challenge to certain claims of the ’597 patent. Cisco cross-appealed, arguing that the Board erred in refusing to apply the doctrine of assignor estoppel.
The Federal Circuit reversed and remanded with respect to Arista’s appeal and affirmed with respect to Cisco’s cross-appeal. The Federal Circuit noted that the Board’s construction of “broadcast” could not stand because it ignored the patentee’s use of the term, and excluded the only explicitly disclosed embodiment of broadcasting found in the ’597 patent. Instead, the Federal Circuit construed the term consistent with its use in the specification and remanded the case for the Board to reconsider the claims at issue in view of the new claim construction.
With respect to Cisco’s cross-appeal, the Federal Circuit first considered whether the issue of assignor estoppel was reviewable on appeal. Applying the Supreme Court’s decision in Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016), and the Federal Circuit’s decision in Wi-Fi One, LLC v. Broadcom Corp., 878 F.3d 1364 (Fed. Cir. 2018) (en banc), the Federal Circuit concluded that the application of assignor estoppel in the IPR context is reviewable because it is unrelated to the preliminary patentability assessment or the exercise of discretion not to institute. The court next considered whether assignor estoppel applies in the IPR context. In view of 35 U.S.C. § 311(a), which allows “a person who is not the owner of a patent” to file an IPR, the Federal Circuit concluded that Congress unambiguously left no room for assignor estoppel to apply in the IPR context.
Final Claim Construction in an IPR Need Not Be Identical to Proposed Claim Constructions, So Long as Parties Had Reasonable Notice and an Opportunity to Be Heard
In Hamilton Beach Brands, Inc. v. f'real Foods, LLC, Appeal No. 2018-1274, the Federal Circuit held that a party must file a cross-appeal when their argument requires modification of a decision. Additionally, the Federal Circuit held that under the APA, a final claim construction need not be identical to the proposed claim construction, so long as it is similar enough that the parties had reasonable notice and an opportunity to be heard.
Hamilton Beach Brands, Inc. (“Hamilton”) petitioned for inter partes review of U.S. Patent No. 7,520,662, owned by f'real! Foods, LLC (“f’real”). The PTAB upheld the patent as not obvious. Hamilton appealed.
As a preliminary matter, the Federal Circuit addressed f’real’s arguments that the IPR was time barred because f’real initially filed a complaint that it voluntarily dismissed, for lack of standing, more than one year before the IPR was filed. The Board found that f’real’s lack of standing to file the original complaint meant that the IPR was not time barred. The Federal Circuit found that, because accepting f’real’s argument on appeal would require a modification to the Board’s decision, a cross-appeal was required. F’real had not filed a cross-appeal. Accordingly the Federal Circuit declined to address the issue on appeal.
On the merits, Hamilton first argued that the Board violated the APA by changing claim construction theories midstream, without providing the parties an opportunity to respond, when it adopted a construction that neither party had requested nor anticipated. The Federal Circuit found that Hamilton had received adequate notice of f’real’s claim construction position through briefing and oral argument. Moreover, the Board’s construction was similar enough to f’real’s proposed construction that the change did not constitute an APA violation. F’real had proposed a construction requiring “at least one nozzle oriented towards a soiled area of the splash shield,” while the Board construed the term to be “a nozzle pre-positioned such that it points at the splash shield.”
The Federal Circuit also rejected Hamilton’s additional arguments, affirming both the Board’s claim construction and validity findings.
Reasonable Royalty Patent Damages Cannot Be Based on Sales of Non-Accused Products
In Enplas Display Device Corp. v. Seoul Semiconductor Co., Appeal No. 2016-2599, the Federal Circuit held that reasonable-royalty patent damages cannot include a royalty for sales of non-accused products.
Enplas filed a declaratory judgment action seeking to invalidate two Seoul Semiconductor Co. (“SSC”) patents related to lenses for backlighting display panels. SSC counterclaimed for induced infringement and damages. At trial, the jury found that Enplas had induced infringement of both patents and awarded $4 million and $70,000 as lump-sum reasonable royalties for the two patents, respectively.
The Federal Circuit affirmed the judgment regarding validity and inducement. But the court vacated the jury’s $4 million damages award for one of the patents, leaving undisturbed the $70,000 award on the other patent. Regarding the $4 million royalty, SSC’s damages expert had testified that, for practical reasons, the parties would not have agreed to a license limited to just the accused products, and would have agreed to a “premium” freedom-to-operate license to avoid the need to test and negotiate licenses for future potentially infringing lenses that Enplas might sell. The expert testified that the parties would have agreed to a lump sum royalty in a hypothetical negotiation that captured the accused products as well as other “potentially infringing” products. The Federal Circuit vacated the $4 million reasonable royalty award because a proper award cannot include products that were neither accused of infringement nor shown to infringe. The Federal Circuit also noted that, while lump-sum, paid-in-full royalties may be awarded in place of a running royalty on future sales, such award must be based on an estimate of the extent of future sales of accused products, rather than past sales of non-accused products.
Judge Newman dissented in part. She pointed out that Enplas did not appeal the district court’s Daubert ruling or motion in limine ruling related to SSC’s damages expert’s theory and testimony. She believed that Enplas’s motion, which was based on a lack of substantial evidence to support the damages verdict, was an end-run around the rules of evidence and unopposed expert testimony. She further believed that SSC’s expert testimony regarding a lump-sum “freedom to operate” license was reasonably based on what Enplas would have been willing to pay at a hypothetical negotiation under the circumstances, and that the appellate court should not create a hypothetical negotiation far removed from what parties regularly do during real-world licensing negotiations.
Out-of-Forum Business With Known In-Forum Connection Insufficient to Create Personal Jurisdiction
In Maxchief Investments Limited v. Wok & Pan, Ind., Inc., Appeal No. 2018-1121, the Federal Circuit held that, in the context of a suit for a declaration of non-infringement and invalidity of a patent, the “minimum contacts” prong of personal jurisdiction is satisfied only if the patentee directed some patent enforcement activity to the forum state.
Maxchief Investments Limited (“Maxchief”) is a Chinese manufacturer that distributes foldable tables in the United States through a Tennessee distributor, Meco. Meco sells the tables to retailers including Staples (a California resident) and Coleman (a Kansas resident). Wok & Pan, Ind., Inc. (“Wok”), also a Chinese company, owns patents directed to foldable tables. Wok filed a patent infringement lawsuit against Staples in California. Staples requested defense and indemnification from Meco, and Meco, in turn, sought defense and indemnification from Maxchief. In response, Maxchief filed a declaratory judgment action against Wok in Tennessee, seeking declarations of non-infringement and invalidity and alleging tortious interference with business relations under Tennessee state law. Maxchief claimed that Wok is subject to specific personal jurisdiction in Tennessee due to the effect Wok’s California lawsuit could have on Maxchief’s ability to continue distribution in Tennessee. Maxchief also argued that Wok created minimum contacts with Tennessee when it sent an infringement notice letter to Maxchief’s lawyer in Tennessee alleging infringement by Coleman, a Kansas resident. The district court dismissed the declaratory judgment claims for lack of personal jurisdiction and the tortious interference claim for lack of subject matter jurisdiction. Maxchief appealed.
The Federal Circuit affirmed. With respect to the declaratory judgment claims, the Federal Circuit held that, although Wok’s requested injunction against Staples might apply to distribution activities performed in Tennessee, the connection would be too attenuated to satisfy minimum contacts with Wok to the forum state. In addition, it was not enough that Wok “directed the lawsuit at an entity (Staples) that Wok knew had a Tennessee connection (Meco).” The Federal Circuit confirmed that the harmful ‘effects test’ for specific personal jurisdiction “continues to have viability, but only when the defendant’s conduct both has an effect in the forum state and was directed at the forum state by the defendant.” Furthermore, “the personal jurisdiction inquiry for patent declaratory-judgment claims focuses on patent enforcement activities directed at residents of a forum,” and Wok had only sought to enforce its patents against Staples in California. Additionally, Wok’s letter sent to Maxchief’s lawyer in Tennessee alleging infringement by Coleman, a Kansas company, is considered a contact with Kansas and not Tennessee. Moreover, basing jurisdiction on the mere sending of a patent-infringement notice letter does not meet the “fair play and substantial justice” prong of the personal jurisdiction test, because patentees are given latitude to inform others of their patent rights without subjecting themselves to jurisdiction.
With respect to the tortious interference claim, the Federal Circuit held that there was no personal jurisdiction over Wok, and thus did not consider the subject-matter-jurisdiction issues. The Federal Circuit explained that a notice letter typically satisfies “minimum contacts,” because the unique policy considerations for patent law do not apply to a tortious interference claim. However, because the notice letter was a contact with Kansas and not Tennessee, it did not suffice to establish personal jurisdiction over Wok in Tennessee. Thus, the Federal Circuit affirmed the dismissal of the declaratory-judgment and tortious-interference actions.
