Federal Circuit Review – January 2014

Reckless Conduct Required for Attorneys’ Fees Award

In Kilopass Technology, Inc. v. Sidense Corp., Appeal No.13-1193, the Federal Circuit vacated and remanded a denial of a motion seeking an award of attorneys’ fees.

Kilopass sued Sidense for patent infringement. The district court granted summary judgment of noninfringement to Sidense. The Federal Circuit affirmed. While that appeal was pending, Sidense filed a motion in the district court seeking an award of attorneys’ fees under 35 U.S.C. § 285, which the district court denied. Sidense appealed the district court’s denial of that motion.

An issue on appeal was whether the district court required too great a showing to establish subjective bad faith. The district court relied on MarTec, LLC v. Johnson & Johnson, 664 F.3d 907, 916 (Fed. Cir. 2012), which requires that the “patentee’s case must have no objective foundation, and the plaintiff must actually know this.” The Federal Circuit found that the district court erred and that a defendant need only prove reckless conduct to satisfy the subjective prong of the § 285 analysis. Similarly, the Federal Circuit found that the district court erred in analyzing the subjective prong of § 285 by focusing first and only on subjective good faith. The Federal Circuit stated that the primacy of objective evidence over assertions of subjective good faith is well established through case law. Thus, the Federal Circuit vacated and remanded for consideration of whether Kilopass acted in bad faith in light of the totality of the circumstances, with particular attention paid to the objective merits of Kilopass’s claims and other objective evidence indicative of bad faith. 

ITC Cannot Exclude Products for Inducing Acts of Direct Infringement that Occur after Importation

In Suprema, Inc. v. U.S. International Trade Commission, Appeal No. 12-1170, the Federal Circuit vacated in part and affirmed in part an exclusion order and a related cease and desist order from the International Trade Commission, and affirmed a claim construction and finding of non-infringement by the ITC in a related appeal.

Cross Match asserted before the ITC that Suprema violated 19 U.S.C. § 1337(a)(1)(B)(i) by importing fingerprint scanners that infringed three different patents either directly or by inducement. The following findings of the ITC were at issue on appeal: (1) that Suprema induced direct infringement of a patented method in a first patent by its importer Mentalix; (2) that some of Suprema’s imported scanners directly infringed a second patent; and (3) that there was no infringement of a third patent. The Federal Circuit affirmed the second and third findings, but vacated the portion of the ITC’s exclusion order based on the first finding.

Suprema challenged on appeal the ITC’s ability to predicate a violation of § 1337(a)(1)(B)(i) on alleged induced infringement, where the underlying direct infringement occurred after importation. The majority agreed with this argument and held that the plain language of the statute did not give the ITC authority to exclude products for inducing acts of direct infringement that occur only after importation. In reaching this conclusion the majority examined the text of § 1337 as well as its own precedent regarding induced infringement. The majority highlighted the language of the statute prohibiting importation or articles that infringe in the present tense. Under Federal Circuit case law, induced infringement under § 271(b) does not occur unless there is an underlying act of direct infringement, and thus the majority reasoned that articles could not be currently infringing under § 271(b) where direct infringement was yet to occur. Therefore, the Federal Circuit held that the ITC “may not invoke inducement to ban importation or of articles which may or may not later give rise to direct infringement of Cross Match’s patented method based solely on the alleged intent of the importer.”

Based on the above determinations, the majority vacated the exclusion order and related cease and desist letter as they pertained to products inducing infringement of the first patent after importation. The panel affirmed the exclusion order as to products directly infringing the second patent. The case was remanded for proceedings in accordance with this decision.

The dissent agreed with the majority on all points except for the application of § 1337(a)(1)(B)(i) to induced infringement. Because the ITC was created and empowered to prevent unfair trade practices, the dissent would have upheld the Commission’s authority to prevent importation of goods inducing infringement after importation. The dissent discussed at length how the decision of the majority goes against the clear congressional intent behind the ITC, and will enable easy circumvention of the legislative objectives of § 1337. 

Disclosure of Using .1% of Ingredient Makes Using .3% Obvious

In Galderma Laboratories, LP v. Tolmar, Inc., Appeal No. 13-1034, the Federal Circuit reversed the district court’s finding of nonobviousness.

Tolmar filed an Abbreviated New Drug Application (“ANDA”) seeking approval to market a generic version of Differin Gel, a medication for the treatment of acne containing 0.3% by weight adapalene. Galderma sued Tolmar in the District of Delaware, alleging infringement of four patents claiming compositions and methods of treating acne using topical adapalene compositions. Tolmar argued that the patents were invalid as obvious under 35 U.S.C. § 103 and presented three pieces of prior art to support its argument. The district court rejected Tolmar’s obviousness case.

A majority of the Federal Circuit panel voted to reverse. The Federal Circuit found that the district court erred in placing a burden on Tolmar to provide a motivation to alter the prior art. The Federal Circuit then analyzed secondary considerations of obviousness and concluded that the patents at issue were invalid as obvious. The Federal Circuit found that, even though the prior art taught that 0.1% adapalene was the standard or optimal concentration of adapalene, this did not necessarily teach away from tripling the adapalene dose. Further, even though the higher dose of adapalene did not have the side effects that would be expected from tripling the dose used in the prior art, the Federal Circuit held that this was not probative of non-obviousness. The Federal Circuit also found the evidence of the commercial success of Galderma’s product to be of limited probative value in assessing obviousness. Finally, the majority noted that the mere fact that generic pharmaceutical companies seek to market a generic version of a drug does not demonstrate commercial success indicating non-obviousness.

The dissent argued that the question of obviousness in the case was a close call. According to the dissent, the majority failed to identify clear error in the district court’s findings, distorted the burdens of proof and production, and relied “on their own factual determinations and creative theories of law” in its analysis. The dissent presented its own analysis of the prior art, and argued that clear error had not been shown in the district court’s analysis of secondary considerations.