Federal Circuit Review - September 2019

| Irfan LateefDaniel Kiang

State Sovereignty Principles Do Not Allow a State to Bring a Patent Infringement Suit in an Improper Venue

In Board of Regents v. Boston Scientific Corp., Appeal No. 2018-1700, the Federal Circuit ruled that the patent venue statute governs actions filed by a state because state sovereignty does not apply when a state acts solely as a plaintiff in asserting patent infringement.

The Board of Regents of the University of Texas System (“UT”) and TissueGen Inc. sued Boston Scientific Corporation (“BSC”) for patent infringement in the Western District of Texas.  UT alleged that venue was proper because UT had sovereign immunity as an arm of the State of Texas, and it would violate the Eleventh Amendment and offend the dignity of the state to require it to pursue persons who have harmed it outside the State of Texas.  BSC moved to dismiss for improper venue, or alternatively to transfer the case.  The district court transferred the case to the District of Delaware, where BSC was incorporated.  UT appealed.

As a threshold matter, the Federal Circuit concluded that it had jurisdiction over UT’s appeal because “UT challenges the district court’s transfer order based on state sovereignty” and therefore the “case falls within the small class of orders excepted from the final judgment rule by the collateral order doctrine.”

On the merits, the Federal Circuit affirmed the district court’s transfer order.  The Federal Circuit held that the Eleventh Amendment and other asserted doctrines of state sovereign immunity do not apply where a state acts solely as a plaintiff.  When a state files an action in federal court invoking the federal court’s jurisdiction, it must abide by federal rules and procedures, including those relating to venue.


Nexus Analysis May Be Based on Novel Combination of Known Elements Considered as A Whole

In Henny Penny Corporation v. Frymaster LLC, Appeal No. 2018-1596, the Federal Circuit held that, with respect to secondary considerations of nonobviousness, nexus may be satisfied by showing that objective evidence is tied to a novel combination of known elements.

Henny Penny petitioned for IPR of a patent owned by Frymaster, claiming a system for measuring degradation in cooking oil using a TPM sensor.  The petition asserted obviousness in view of two references.  The first reference disclosed an apparatus for analyzing used oils in deep fryers, but did not mention monitoring TPMs.  The second reference disclosed monitoring oil degradation in deep fryers by detecting TPMs, but only after cooling the oil. The Board found that a person of ordinary skill would not have been motivated to integrate the second reference’s TPM sensor into the first reference’s system.  The second reference taught reducing temperature prior to measuring TPM to relieve heat stress on the TPM detector.  The first reference did not contemplate cooling before measurement.  The Board also found that Frymaster’s evidence of secondary considerations, including awards for its TPM sensor, supported nonobviousness.

The Federal Circuit affirmed.  Notably, the Federal Circuit rejected Frymaster’s argument of no nexus because the object of praise in the awards—a deep fryer with an integrated TPM sensor—was already taught by the second prior art reference.  But the novel combination of known individual elements claimed in Henny Penny’s patent was not known in the prior art.  And it was that claimed combination that had a nexus to the award.  The court recognized that a claimed combination as a whole (as opposed to a novel feature) can be the basis of nexus.


Federal Court Lacked Jurisdiction Over Contract Dispute Implicating Patent Infringement

In Inspired Development Group v. Inspired Products Group, LLC, Appeal No. 2018-1616, an allegation that a contract issue implicated patent infringement was not sufficient to invoke federal question jurisdiction.

Inspired Development sued Inspired Products Group, LLC, d/b/a KidsEmbrace, LLC (“KidsEmbrace”) for breach of contract and other related state-law claims in federal district court on the basis of diversity jurisdiction.  The district court granted summary judgment in favor of KidsEmbrace and Inspired Development appealed to the U.S. Court of Appeals for the Eleventh Circuit, where it was determined that diversity jurisdiction did not exist.  On remand, the district court accepted the argument from KidsEmbrace that the state-law breach-of-contract and equitable claims arose under federal patent law, and concluded that the suit invoked federal question jurisdiction.  The Eleventh Circuit transferred the case to the Federal Circuit to determine whether the parties’ claims arose under federal patent law.

After determining that none of the claims alleged a cause of action created by federal patent law, the Federal Circuit applied the four-part Gunn test to determine whether the claims nonetheless arose under federal law.  Gunn v. Minton, 568 U.S. 251 (2013).  Under Gunn, federal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.  While Inspired Development’s unjust-enrichment claim potentially raised a question of patent law regarding infringement, the terms of the written contract required payment to Inspired Development regardless of whether any products were made or sold that practiced the patents.  The Federal Circuit determined that the patent-infringement issue was not dispositive of whether Inspired Development was entitled to relief, and that finding a federal question merely because the contract at issue implicated a run-of-the-mill question of infringement or validity would undoubtedly impact the wider balance between state and federal courts.  The Federal Circuit found that none of the Gunn factors were met, and held that the district court lacked subject matter jurisdiction.  The case was vacated and remanded for dismissal.


PTAB Required to Interpret Regulation Concerning Which Patents Qualify for CBM Review

In Sipco, LLC v. Emerson Electric Co., Appeal No. 2018-1635, the Federal Circuit held that the language “unobvious over the prior art” in the USPTO’s regulation regarding whether a patent is for a “technological invention” for the purpose of determining whether the patent qualifies for CBM review is not necessarily coextensive with the meaning of “obvious” in the context of § 103.

Emerson petitioned for covered-business-method review of SIPCO’s patent. In instituting review, the Board determined that the patent was eligible for CBM review, finding that the claimed subject matter was not drawn to a technological invention because it did not “solve[] a technical problem using a technical solution” under the second prong of 37 C.F.R. § 42.301(b).  As part of its analysis, the Board rejected SIPCO’s argument that the claim term “low-power transceiver” should be limited to transceivers having a limited transmission range.  In its Final Written Decision, the Board concluded that the challenged claims were patent-ineligible under § 101 and obvious under § 103.

The Federal Circuit reversed the Board’s claim-construction determination and its finding that SIPCO’s patent did not meet the second prong of the “technological invention” definition in § 42.301(b), and remanded for further proceedings.  With respect to claim construction, the Federal Circuit reasoned that the specification correlated “low-power” with a limited transmission range, citing language in the specification that explained that a low-power transmitter was used to overcome problems associated with broader range transmission. Because the Federal Circuit found the intrinsic evidence sufficiently clear to construe the claim term, it found it unnecessary to consider extrinsic evidence relied on by the Board.  Under its construction, the Federal Circuit held that the claimed invention solved a technical problem (signal interference) with a technical solution (low-power, limited transmission range).  The Federal Circuit remanded for the Board to consider the first prong of § 42.301(b)— “whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art.”  The Federal Circuit noted that the Board should explain the meaning of the term “obvious” in the context of the regulation, declining to assume that the term is coextensive with obviousness under § 103.

Judge Reyna dissented, arguing that the majority improperly read a functional limitation into the claim from a preferred embodiment.