Author: FCBJ

MasterMine Software, Inc. v. Microsoft Corp.
874 F.3d 1307 (Fed. Cir. 2017)
Authored by Amanda Irwin

Statement of Facts: MasterMine Software Inc. (“MasterMine”) brought a patent infringement action alleging Microsoft Corporation infringed two of its related patents, U.S. Patent Nos. 7,945,850 (“the ’850 patent”) and 8,429,518 (“the ’518 patent”). These patents describe a process by which a user of a customer relationship management (“CRM”) program can automatically generate an electronic worksheet in a spreadsheet application (such as Microsoft Excel). These electronic worksheets, known as pivot tables, “allow[] the user to quickly and easily summarize or view large amounts of CRM data” to mine for important insights in the customer data. 874 F.3d 1307, 1309. Microsoft sought a declaration that claims 8 and 10 of the ’850 patent and claims 1, 2, and 3 of the ’518 patent were invalid for indefiniteness because each claim covered two different classes of patentable subject matter.

Procedural History: The United States District Court for the District of Minnesota held that the term pivot table means “an interactive set of data displayed in rows and columns that can be rotated and filtered to summarize or view the data in different ways” Id. at 1312. Additionally, the district court held MasterMine’s claims 8 and 10 of the ’850 patent and claims 1, 2, and 3 of the ’518 patent were invalid for indefiniteness because they improperly claimed two different subject-matter classes. MasterMine appealed both the claim construction and indefiniteness determinations.

Questions Presented: First, whether the district court correctly defined pivot table. Second, whether the district court properly found the various MasterMine patent claims invalid for indefiniteness.

Holdings: The Federal Circuit affirmed the construction of pivot table but reversed the district court’s indefiniteness determination. The Federal Circuit held that Claims 8 and 10 of the ’850 patent and claims 1, 2, and 3 of the ’518 patent contained proper functional language, and remanded for further proceedings.

Reasoning: First, the Federal Circuit reviewed the claim construction de novo based solely on intrinsic evidence because “[t]he ultimate construction of the claim is a legal question” not a factual one. Id. at 1310. MasterMine argued that the district court improperly construed the term pivot table because the district court’s definition only recognizes tables that contain data and excludes similar devices that are empty or not yet filled. However, the claim language supports the district court’s construction because each time the claim references a pivot table, it refers to the data contained within. Additionally, the specifications in the patent further reinforce the district court’s definition, as they explain the concept and purpose of pivot tables as enabling a user to view and interact with the data gathered from the CRM program. MasterMine’s arguments that portions of the relevant code allow for the production of an empty pivot table were unpersuasive because both sides agree that the code is inoperable on its own. In light of the claim language, specification, and prosecution history, the court concluded that the district court properly construed pivot table.

Next, the court held that the district court had misapplied the precedent of a prior Federal Circuit case IPXL Holdings, LLC v. Amazon.com, Inc. Therefore, claims 8 and 10 of the ’850 patent and claims 1, 2, 3 of the ’518 patent were not invalid for indefiniteness. The Federal Circuit emphasized that since IPXL, it has repeatedly held that “while a claim directed to both a method and an apparatus may be indefinite, apparatus claims are not necessarily indefinite for using functional language.” Id. at 1313. The court distinguished MasterMine from IPXL precedent. Unlike IPXL, MasterMine did not claim to have patented the method for using the software, which would be impermissibly indefinite. Rather, MasterMine merely used permissible functional language to describe the capabilities of the claimed system.

Ultimately, finding all claims valid, the court remanded the case to the district court for additional proceedings.

 

 

Parkinson v. DOJ
874 F.3d 710 (Fed. Cir. 2017)
Authored by Marylenny Iglesias
 

Statement of Facts: The petitioner appeals the decisions by the Merit Systems Protection Board (“MSPB”). The MSPB sustained the petitioner’s dismissal as a special agent of the Federal Bureau of Investigation (“FBI”) for lack of candor, theft, and on-duty unprofessional conduct. The petitioner claims that he should have been able to raise an affirmative defense under 5 U.S.C § 7701(c)(2)(C). This provision of the statute applies to whistleblower reprisal. The petitioner alleged that he was removed from the FBI as retaliation for reporting to his chain of command the misconduct of two pilots. The petitioner’s report stated that two pilots misused FBI aircraft to solicit prostitutes, commit time and attendance fraud, and destroy equipment. After the petitioner made these allegations, he was demoted, received a low performance rating, reassigned and subsequently removed from the FBI. The FBI employee that received the petitioner’s whistleblower disclosure was among the personnel making the decision to remove him.

Procedural History: After the petitioner was dismissed from his role as an FBI special agent, he appealed his removal to the MSPB. The Administrative Judge sustained the petitioner’s removal. The MSPB affirmed. Then, a panel of the Federal Circuit granted review and sustained all charges except for the lack of candor charge, and additionally found that MSPB erred by not allowing petitioner to raise his affirmative defense. The Federal Circuit granted the Department of Justice’s petition to hear the case en banc.

Question Presented: In a MSPB action, can preference-eligible FBI employees raise an affirmative defense to an adverse employment action under 5 U.S.C. § 7701(c)(2)(C) regarding whistleblower reprisal?

Holding: No. FBI employees are excluded from raising this defense under 5 U.S.C. § 7511(a)(1), which limits the Civil Service Reform Act to certain employees. Even under 5 U.S.C. § 2303, decisions made by the Office of Professional Responsibility, the Office of the Inspector General, and the Director regarding whistleblower reprisal are not reviewable. Therefore, the MSPB did not err and the panel is reversed on this part.

Reasoning: The legislative history of the Civil Service Reform Act (“CSRA”) indicates that Congress did not intend the MSPB’s jurisdiction to extend to all adverse actions or employees of the federal government. Under the CSRA, covered employees are those defined in § 7511(a)(1). However, employees of some agencies, including the FBI, are excluded from coverage unless they are preference-eligible employees. Unlike the CSRA, which does not allow for an Individual Right of Action, the Whistleblower Protection Act allows federal employees to bring claims for actions that constitute whistleblower reprisal. The CSRA includes whistleblower retaliation as an affirmative defense. However, because the statute explicitly excludes FBI employees, FBI employees are not able to raise whistleblower retaliation as an affirmative defense under § 7701(c)(2)(C), even if they are preference-eligible employees.

FBI employees can raise a similar defense under § 2303 only when employees make whistleblower disclosures to the Department of Justice. Under § 2303, FBI employees, regardless of preference, do not have an Individual Right of Action (“IRA”) and must bring claims to the Office of Professional Responsibility, the Office of the Inspector General and the Director, Office of Attorney Recruitment and Management. The decisions made by the Office of Professional Responsibility, the Office of the Inspector General and the Director in determining whether there is any whistleblower reprisal against a person are similar to the considerations taken by Office of Special Counsel and the Board; therefore, no review is permitted. While the petitioner may dispute adverse employment actions to the MSPB, he may not raise the whistleblower reprisal defense because he is an FBI agent and, therefore, is not a covered employee. The decision to change remedies for whistleblower reprisal for preference-eligible FBI employees is up to Congress and not the courts to make. Even though the Whistleblower Reprisal Act has been debated multiple times in Congress, the FBI remedy provisions have not changed. Additionally, the court noted that because FBI employees can bring claims under § 203, any interpretation allowing FBI employees to use § 7701 would be superfluous. The court acknowledged that Congress’ reason for excluding FBI employees from asserting an affirmative defense under § 7701(c)(2)(c) resulted from the role of the FBI as an investigating counterintelligence agency. Congress felt that because the role of the FBI is sensitive in nature, it “require[s] as great a degree of insulation with regard to its personnel function as is practical.” Id. at 717. Although Congress removed the defense under § 7701, it placed the authority on the president so that any claims “would not be to the outside but to the Attorney General.” Id. The court concluded that it did not have jurisdiction to hear whistleblower reprisal claims from FBI employees.

Dissents: Judge Plager, joined by Judge Linn, opined that the majority opinion engaged in “an exhaustive parsing of statutes and legislative history in an effort to infer the ‘right’ answer.” 874 F.3d at 718. The majority opinion misconstrues what the case is in fact about—fairness. In this case, the petitioner is being judged by the defendant. The petitioner is making a claim against the FBI and the FBI is the one determining the outcome. When Congress gave certain veterans employed by the FBI preference-eligible status, it allowed these employees to have their complaints heard by the MSPB, a neutral third party. As a neutral third party, the MSPB is required to ensure that employees receive fair and equitable treatment, particularly when it comes to whistleblower reprisal. Though the petitioner could bring his case to MSPB, he could not defend himself from government action and receive fair treatment because he could not raise the affirmative defense of whistleblower reprisal. Even though the MSPB may consider whistleblowing as a mitigating factor in other circumstances in the petitioner’s case, the MSPB did not. Therefore, the petitioner was entitled to appeal to the court because MSPB did not give the petitioner a fair and proper hearing, thereby denying him due process.

Judge Linn, joined by Judge Plager, found that the majority opinion misconstrued the petitioner’s claim. The petitioner is requesting the court to review the “propriety of the FBI’s adverse employment action under 5 U.S.C § 7513(d).” Id. at 721. When Congress provided preference-eligible status to veterans, it allowed the MSPB to review the FBI’s action to determine if the actions would promote the efficiency of service. In cases where “the Agency action was procedurally flawed . . . or where the decision was not in accordance with [the] law,” the Agency’s actions are vacated. Id. at 722. Therefore, any action to remove an employee because of whistleblowing is not in accordance with the law. The petitioner’s whistleblower claims were required to be considered by the MSPB when making its determination. Moreover, the majority is inferring a limitation to preference-eligible employees raising claims of whistleblower protection that is counter to what is explicitly referred to in § 2303, under violations of law. In addition, any ambiguity in the statute should be interpreted in favor of the veteran. While there is a separate statute for FBI employees to bring whistleblower claims, the majority opinion did not address how it arrived at the conclusion that it is the only method for FBI employees to use. Judge Linn opines that the statute does not indicate exclusivity and that any reference to any employee should be construed as the offender (the whistleblower). Moreover, § 2303 of the statute does not reference any distinction between preference-eligible employees and non-preference eligible employees. Therefore, the majority is inferring a limitation for internal review for which Congress did not explicitly intend. In addition, the majority’s interpretation of § 7701(c)(2) is flawed because there is no superfluity since the statutes have different scope. Furthermore, § 7701 does not exclude the affirmative defense. Rather, the exclusion is in § 2303(b)(8), where there is no indication that the exclusion was meant to apply to § 2303(b). Moreover, the arguments that national security concerns merit internal review do not apply to preference-eligible employees because Congress granted review despite these concerns. Finally, all the cited post-CSRA cases have held that judicial review is available to the petitioner.

US Magnesium LLC v. United States
839 F3d. 1023 (Fed. Cir. 2016)
Authored by John Farmer

Statement of Facts: Magnesium can be produced using a method known as the Pidgeon process. During the Pidgeon process, dolomite, a material which contains magnesium, is crushed and formed into briquettes. The briquettes are then placed on stainless steel retorts. These retorts are placed under a vacuum and heated. The magnesium content of the briquettes vaporizes and then condenses into crowns of solid magnesium. The retorts used in this process must be replaced roughly every 60 days.

To evaluate anti-dumping measures regarding magnesium metal imports, in 2011 the Department of Commerce (“Commerce”) released a report concerning the Pidgeon process. In that report, Commerce decided on the normal value for magnesium by evaluating the value of the materials used in the Pidgeon process. The normal value is used to decide anti-dumping margins, by comparing the export price of a product with the price at which it is sold domestically. However, “when merchandise is exported from a nonmarket economy country, the normal value is constructed [. . .]” using a variety of factors. 839 F3d. 1023, 1024. In making the decision, Commerce classified the various components used in the process as either direct or indirect materials in the manufacturing process. The distinction involved determining whether the materials were used “as a direct cost of production, or as factory overhead.” 839 F3d. 1023, 1032. The normal value was predicated on the values of the direct materials.

Commerce’s administrative review listed the steel retorts as an indirect material when determining the normal valuation constructed by Commerce for magnesium metal, which affected the applicable anti-dumping margins. U.S. Magnesium challenged Commerce’s decision to classify the steel retorts as an indirect material.

Commerce entered an anti-dumping order concerning magnesium metal imported from the People’s Republic of China in May of 1995. Pure Magnesium from the People’s Republic of China, 60 Fed. Reg. 25, 691 (Dep’t of Commerce May 12, 1995). Fifteen years later, in May of 2010, Commerce provided a notice of opportunity to seek review of that order to interested parties. Tianjin Magnesium International (“TMI”) and US Magnesium, foreign and domestic producers of magnesium, respectively, requested that Commerce review export duties imposed on TMI. In 2011, Commerce published a review of magnesium exported from the People’s Republic of China. US Magnesium cited new evidence which challenged the decision to classify steel retorts as indirect materials in the production process, arguing that the decision was due to a fraudulent misrepresentation TMI made during the review process. Commerce deemed the challenge untimely. US Magnesium appealed the decision, and the United States Court of International Trade (Trade Court) remanded the case to Commerce to consider in light of the new evidence. Commerce determined that the new evidence did not constitute fraud on the part of TMI, and did not change the outcome of the decision to classify the retorts as an indirect material.

Procedural History: US Magnesium appealed to the Trade Court, challenging Commerce’s administrative review of magnesium exports from China with respect to steel retorts. The Trade Court sustained the final determination made by Commerce in 2015. TMI appealed to the Federal Circuit.

Question Presented: Whether the cost of steel retorts used in the Pidgeon process was correctly classified by Commerce as an indirect material in determining the normal value of exported magnesium metal from the People’s Republic of China.

Holding: Yes. In a majority opinion written by Circuit Judge Bryson, and joined by Chief Judge Prost, the Federal Circuit affirmed the Trade Court’s decision and sustained Commerce’s Final Results Redetermination to classify the steel retorts as an indirect material in determining the normal value of exported magnesium.

Reasoning: The court cited to 19 U.S.C. § 1516a(b)(1)(B)(i), which states that reviews of Commerce’s classifications of anti-dumping duties must be upheld unless “unsupported by substantial evidence on the record, or otherwise not in accordance with law.” They then examined whether substantial evidence had been provided to sustain the decision made by Commerce.

US Magnesium proffered several arguments as to why Commerce’s classification of the steel retorts did not meet the burden required to uphold the decision under the substantial evidence standard of review. First, it pointed to documents provided by TMI’s supplier which categorized the retorts as a direct cost. However, Commerce argued that although the supplier categorized the retorts in that manner, “TMI’s supplier grouped other expenses together with retorts, even though those other items are not considered material inputs.” 839 F3d. 1023, 1027. The Federal Circuit determined that, regarding the supplier’s documents, Commerce had shown that its determination was supported by substantial evidence.

US Magnesium’s second argument was that Commerce had deviated from its own standard test for determining whether a material is direct or indirect for evaluating the normal value. The test looks at: “1) whether the input is physically incorporated into the final product; 2) the input’s contribution to the production process and finished product; 3) the relative cost of the input; and, 4) the way the cost of the input is typically treated in the industry.” Certain Steel Nails from the People’s Republic of China, 78 Fed. Reg. 16651, 78 ITADOC 16651, Issues & Decision Memorandum, at Comment 4 (Dep’t of Commerce Mar. 5, 2013). US Magnesium contended that the retorts met both the second and fourth factor. However, Commerce determined its classifications of the retort were primarily based on the first factor, and since the retorts were not incorporated into the final product, they did not classify them as direct input. The Federal Circuit agreed with Commerce’s argument that no one factor was conclusive, nor were they the only factors to be considered. Rather, the Federal Circuit agreed with Commerce’s interpretation of Certain Steel Nails from the People’s Republic of China, that the correct standard of review considered all four factors as relevant but not determinative and also considered the totality of circumstances surrounding the review. The Federal Circuit again determined that Commerce had provided sufficient evidence to support its determination as reasonable, the applicable standard of review.

US Magnesium’s third argument was that Commerce did not follow its own guidelines regarding classification of frequently replaced components of the production process. They argued that precedent established a one-year minimum to qualify overhead, whereas the retorts are replaced every 60 days. Additionally, US Magnesium argued that Commerce had conflated ‘physical incorporation’ with ‘traceability’. US Magnesium contended that because the retorts were consumed during production, Commerce had incorrectly classified them as not traceable to specific magnesium products.

However, regarding the argument about frequently replaced components, the Federal Circuit cited cases in which a timeframe much shorter than a year had been used by Commerce in making its decision, such as Certain New Pneumatic Tires Off-the-Road Tires from the People’s Republic of China, in which a component was replaced every 2-8 days. 77 Fed. Reg. 14,495, 77 ITADOC 14,495, Issues & Decision Memorandum, at Comment 3 (Dep’t of Commerce Mar. 5, 2012). The court also rejected US Magnesium’s proposed interpretation of traceability as overly broad, and pointed to Commerce’s interpretation of traceability as correct, stating that traceability concerned “items that are continuously consumed during the production process and must continuously be replaced.” 839 F3d. 1023, 1030. The court ruled that it was reasonable for Commerce to have concluded in its assessments that the retorts were not directly traceable to specific magnesium products because they were not continuously consumed and replaced at a rate that would make them direct components.

US Magnesium’s fourth argument was that Commerce had neglected to consider industry wide practices regarding the classification of retorts. However, Commerce held that US Magnesium had provided inconclusive evidence in this regard. The Federal Circuit affirmed, stating that it was “reasonable for Commerce to find that no industry-wide practice had been shown.” 839 F3d. 1023, 1031.

Dissenting Opinion: Circuit Judge Newman opined that the majority had incorrectly balanced the factors of the Certain Steel Nails from the People’s Republic of China test. She argued that Commerce itself had previously – and in this case – contended that the first factor of the test, physical incorporation into the final product, was not determinative. The dissent pointed to the three other factors, regarding the material’s usage, cost, and industry practice regarding classification. Judge Newman opined that using the totality of circumstances, as well as the 4-part test, the retorts should be considered direct materials, and that Commerce had failed to provide sufficient evidence to rebut this argument. She pointed to the relative cost of the retorts in the production process, as well as US Magnesium’s evidence of industry-wide accounting practices regarding the retorts, as signs of their misclassification as indirect materials. She stated that “[d]irect input was shown to be the most reasonable, objective, and fair method of accounting for the cost of retort consumption in the Pidgeon process. There was not substantial contrary evidence.” 839 F3d. 1023, 1034.

Alvarado Hospital, LLC v. Cochran
868 F.3d 983 (Fed. Cir. 2017)
Authored by Antonio DiNizo

Statement of Facts: Prime Hospitals, an operator of inpatient hospital services under Medicare Part A, submitted payment claims to private contractors who make initial reimbursement determinations for inpatient hospital services providers. Prime Hospitals alleged that many of its claims for one-day inpatient stays (“short-stay claims”) were subjected to post-payment review and denied. Prime Hospitals appealed the denial of these short-stay claims through the Medicare appeal process, alleging the denials were part of a larger initiative to increase hospital claims denials. Prime Hospitals also claimed that, because of the increase in denials, the Center for Medicare & Medicaid Services (“CMS”) was overwhelmed by the number of hospital appeals of inpatient claim denials.

To reduce the number of appeals, CMS began offering a partial payment settlement of sixty-eight percent to health care providers in exchange for agreeing to dismiss appeals. Prime Hospitals allegedly accepted and executed a CMS settlement agreement on October 31, 2014, and claimed that CMS was contractually required to pay sixty-eight percent of Prime Hospitals’ 5,079 separate Medicare appeals—a total sum equaling $23,205,245. CMS ultimately refused to allow Prime Hospitals to participate in the settlement because CMS became aware of ongoing False Claims Act cases or investigations involving Prime Hospitals. Prime Hospitals claims the settlement agreement does not authorize CMS to exclude Prime Hospitals and filed a complaint for breach of contract, declaratory judgement, injunctive relief, and a writ of mandamus.

Procedural History: Plaintiffs-Appellants Prime Hospitals filed a complaint in the United States District Court for the Central District of California alleging CMS violated a settlement agreement. Prime Hospitals sought breach of contract, declaratory, injunctive, and mandamus relief. CMS filed a motion to dismiss on various grounds including lack of subject matter jurisdiction, and the district court denied CMS’s motion but elected to transfer the case to the Court of Federal Claims (“COFC”) because of the Tucker Act’s exclusive jurisdiction. The district court concluded that all causes of action and relief sought arose under the contract law, and were not about Medicare reimbursement law. Prime Hospitals appealed to the Federal Circuit, alleging the district court had subject matter jurisdiction and erred in transferring the case.

Questions Presented: First, does the COFC have exclusive subject matter jurisdiction under the Tucker Act, 29 U.S.C. § 1491, to adjudicate Prime Hospitals’ claim for breach of the settlement agreement? Second, does the COFC have subject matter jurisdiction over declaratory, injunctive, and mandamus relief claims that are made by inpatient service providers under the Medicare Act?

Holdings: First, the Federal Circuit held that the COFC has exclusive jurisdiction under the Tucker Act to adjudicate Prime Hospitals’ claim for breach of the settlement agreement because, though related to the Medicare Act, the settlement agreement is a separate claim and does not arise under the Medicare Act. Second, the Federal Circuit held that the COFC does not have jurisdiction over claims seeking declaratory, injunctive, and mandamus relief that are made by inpatient service providers under the Medicare Act.

Reasoning: The Federal Circuit reviewed the district court’s decision de novo under 28 U.S.C. § 1631. Transferring cases to another court is only permissible if the transferee court has subject matter jurisdiction over the claim at issue. Subject matter jurisdiction for the COFC is set forth in the Tucker Act, 28 U.S.C. § 1498(a). To establish Tucker Act jurisdiction, a plaintiff must identify a separate source of substantive law that creates a right to monetary damages against the United States. Contract law is a separate source of law compensable under the Tucker Act.

In addition to contract claims, the Supreme Court has recognized non-contractual bases for Tucker Act jurisdiction. In order for non-contractual claims to fall within the Tucker Act, the claimant must demonstrate (1) that the source of substantive law he relies on can fairly be interpreted as mandating compensation by the Federal Government; and (2) that Tucker Act jurisdiction is not preempted because the non-contractual source of substantive law has its own judicial review scheme.

The Medicare Act is a non-contractual source of substantive law that mandates compensation by the United States to private parties. The Medicare Act contains its own judicial review scheme for determining monetary damages that preempts Tucker Act jurisdiction over Medicare reimbursements. When a contract is a settlement agreement with the United States arising from a dispute under a statute that has its own judicial review scheme, the question remains whether Tucker Act jurisdiction over that contract claim is nevertheless preempted. The Supreme Court distinguishes actions on settlement agreements from actions under a law whose alleged violation gave rise to the settlement.

Basing its decision on this distinction, the Federal Circuit recognized that settlement agreements for money damages are within Tucker Act jurisdiction. Prime Hospitals’ enforcement of the settlement agreement was a separate action that did not contemplate review under the Medicare Act’s remedial scheme. While Prime Hospitals contended that the alleged settlement was brought to end its ongoing dispute with CMS, the facts at issue for Prime Hospitals’ breach claim were different from the facts underlying its reimbursement claim. Additionally, Prime Hospitals’ breach claim did not arise under the Medicare Act. In Heckler v. Ringer, 466 U.S. 602, 614–16 (1984), the Supreme Court determined that claims arise under the Medicare Act if (1) they are claims that should be paid for Medicare services; or (2) they are inextricably intertwined with the claim for benefits. The Federal Circuit found that the remedy Prime Hospitals sought failed to meet this test and did not arise under the Medicare Act. Prime Hospitals breach claim failed to satisfy prong one because it did not challenge a denial of reimbursements or seek a determination for services rendered. The claim failed to satisfy prong two because it involved separate issues and was completely separate from a substantive claim of benefits.

While Prime Hospitals’ breach claim for money damages fell outside of the Medicare Act’s remedial scheme and fell within Tucker Act jurisdiction, Prime Hospitals’ remaining claim for declaratory, injunctive and mandamus relief based on facts related to the underlying individual claims for reimbursement fell within the Medicare Act’s judicial review scheme. The Tucker Act does not generally confer jurisdiction over actions seeking declaratory or injunctive relief and none of the limited number of statutory exceptions to this rule applied to Prime Hospitals. Similarly, the COFC lacks jurisdiction to issue writs of mandamus pursuant to 28 U.S.C. § 1361. Thus, the Federal Circuit determined that the COFC did not have jurisdiction over these claims.

Matal v. Tam
137 S. Ct. 1744 (2017)
Authored by Patrick Eagan-Van Meter

Statement of Facts: In 2011, Simon Tam filed an application to register a trademark on his band’s name, “The Slants.” U.S. Trademark Application Serial No. 85472044 (filed Nov. 14, 2011). In re Tam, 785 F. 3d 567 (Fed. Cir. 2015). An attorney at the U.S. Patent and Trademark Office (“USPTO”) rejected Tam’s application for attempting to register a mark containing material disparaging to persons of Asian descent. Matal v. Tam, 137 S. Ct. 1744, 1751 (2017). Section 2(a) of the Lanham Act bars the government from approving trademarks that include material “which may disparage . . . persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.” 15 U.S.C. § 1052(a). Tam appealed this decision to the USPTO’s Trademark Trial and Appeal Board (“TTAB”). In his appeal, Tam cited his status as an Asian American and his lack of intent to disparage people of Asian descent, arguing his application was an attempt to reclaim a term previously used to insult them. Appeal Applicant’s Brief, Ex Parte Tam., No. 85472044, 2013 WL 6039240 (T.T.A.B. Feb. 19, 2013). While acknowledging the good intention underlying Tam’s use of the phrase, TTAB affirmed the USPTO attorney’s decision on the grounds that many Asian-Americans object to the term. In Re Tam, 108 U.S.P.Q. 2d 1305 (T.T.A.B. Sept. 26, 2013).

Procedural History: Tam appealed the TTAB decision to the Federal Circuit. A three-judge panel determined the record contained substantial evidence to support the TTAB’s decision that “The Slants” was offensive to people of Asian descent. Further, the panel found the Lanham Act bar to registering marks containing disparaging speech was not unconstitutionally vague. In re Tam, 785 F.3d 567 (Fed. Cir. 2015). However, a member of the Federal Circuit bench initiated a sua sponte request for a poll to rehear the case en banc, and the poll resulted in enough votes to empanel the entire circuit for a rehearing. In re Tam, 600 F. App’x 775 (Fed. Cir. 2015). The full panel reversed, finding the Lanham Act’s prohibition on approving offensive marks unconstitutional regardless of how disparaging the content is. In re Tam, 808 F.3d 1321 (Fed. Cir. 2015), as corrected (Feb. 11, 2016). The federal government petitioned for a writ of certiorari, which the Supreme Court granted. Lee v. Tam, 137 S. Ct. 30 (2016).

Question Presented: Does the Lanham Act’s disparagement clause violate the First Amendment?

Holding: Yes, § 2(a) of the Lanham Act, 15 U.S.C. § 1052(a), violates the Free Speech Clause of the First Amendment.

Reasoning: The Supreme Court unanimously held that § 2(a) of the Lanham Act is unconstitutional, but the justices’ reasoning varied. The majority opinion, authored by Justice Alito, found the disparagement clause constituted viewpoint discrimination and infringed the applicant’s First Amendment rights under an intermediate level of scrutiny. In reaching its conclusion, the majority began by holding that the review of disparagement content in the trademark approval process necessitates viewpoint discrimination. The Court dismissed arguments concerning the USPTO’s approval process as government speech, and did not reach the issue whether a trademark application is expressive or commercial speech.
The Lanham Act “evenhandedly prohibits disparagement of all groups,” applying to all races, political parties, and ideologies evenly. Matal, 137 S. Ct. at 1763. The opinion describes how marks containing potentially offensive material would be rejected whereas those with “happy-talk” receive approval. Id. at 1765. To the Court, a viewpoint does not lose its free speech protections simply for having offensive qualities. Id. at 1763 (“Giving offense is a viewpoint.”). This principle was established by the Supreme Court’s decision in Street v. New York, where the Court held that the public expression of ideas may not be prohibited simply because some people will find the ideas offensive. Street v. New York, 394 U.S. 576, 592 (“We have said time and again that ‘the public expression of ideas may not be prohibited merely because the ideas are themselves offensive to some of their hearers.’”). The disparagement clause bluntly discriminates against offensive viewpoints in favor of inoffensive ones and therefore is unconstitutional. Matal, 137 S. Ct. at 1764-65 (“[T]he disparagement clause is not ‘narrowly drawn’ to drive out trademarks that support invidious discrimination.”).

While all justices agreed the disparagement clause constitutes viewpoint discrimination, they diverged on the reasoning. Consequently, the Court did not establish a specific framework for evaluating a First Amendment challenge to federal trademark provisions. But taking the opinions together, a law must at least survive the intermediate-scrutiny analysis from Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980). This decision established that trademark regulations are subject to a constitutional balancing test to see if the law is narrowly tailored to further a compelling or substantial government interest against the prospect the rule will harm free expression. Id. The Matal majority opinion held a broad freedom of expression was a more substantial interest than protecting underrepresented groups from demeaning messages. 137 S. Ct. at 1764 (quoting United States v. Schwimmer, 279 U.S. 644, 655 (1929) (Holmes, J., dissenting) (“Speech that demeans on the basis of race, ethnicity, gender religion, age, disability, or any other similar ground is hateful; but the proudest boast of our free speech jurisprudence is that we protect the freedom to express ‘the thought that we hate.’”)). Next, Justice Alito on behalf of the plurality held that the disparagement clause’s restriction on “any trademark that disparages any person, group, or institution[,]” goes much further than preventing the discriminatory conduct it is supposed to prohibit. Matal, 137 S. Ct. at 1749 (emphasis in original).

Had the Court found that approved trademarks were government speech, the USPTO would not have an obligation to treat offensive and inoffensive trademarks equally. Government speech is not protected by the First Amendment. Id. at 1757. Unlike the government speech on license plates produced and distributed by states at issue in Walker v. Texas Division, Sons of Confederate Veterans, 135 S. Ct. 2239 (2015), the trademarks here are only registered by the federal government. The government “does not dream up these marks, and it does not edit marks submitted for registration.” Matal, 137 S. Ct. at 1758. Further, the USPTO must approve any application meeting the Lanham Act’s viewpoint neutral requirements. Id. The public does not view registration of a trademark to be a government endorsement of the message, and the USPTO “has made it clear that registration does not constitute approval of the mark.” Id. at 1758–59 (citing In re Old Glory Condom Corp., 26 USPQ 2d 1216, 1220, n. 3 (T.T.A.B. 1993)). The government also argued trademarks are government speech as the product of a government sponsored program that provides a forum for private speech. Justice Alito rejected this assertion on the grounds that government programs to promote private speech are still required to be viewpoint neutral. Matal, 137 S. Ct. at 1763.

Concurrences: Concurring in the decision, Justice Kennedy, along with Justices Ginsburg, Sotomayor, and Kagan, who concurred in part and concurred in the judgement, suggested an even more stringent review should apply to the disparagement clause. The opinion focused on the significant harm to minority viewpoint where the process singles out some messages for less favorable treatment based on the views expressed, and suggested strict scrutiny may apply to this type of review. Id. at 1767 (“[T]he viewpoint based discrimination at issue here necessarily invokes heightened scrutiny.”). Rejection of an application on disparagement grounds “reflects the government’s disapproval of the subset of messages it finds offensive.” Id. at 1766.

Diverging from the majority, Justice Kennedy opined that by funding the trademark program, the government has an affirmative obligation to “encourage a diversity of views from private speakers.” Id. at 1769. Preventing certain private speech from a government sponsored platform only on the grounds that it is distasteful to a portion of the public would be discrimination. Id. (“[O]ur cases are clear that viewpoint discrimination is not permitted where, as here, the Government expends funds to encourage a diversity of views from private speakers.”) (internal quotations and citations omitted). Justice Kennedy’s opinion explains the First Amendment is not reliant on “government benevolence[,]” rather it is a protected right of the people, to prevent those in power from silencing dissenting minority views. Id. Justice Thomas also concurred on the standard of review. His opinion asserted that strict scrutiny should always apply to any law restricting truthful speech based on its content, regardless if the speech can be characterized as commercial. Id.

Honeywell International Inc. v. Mexichem Amanco Holding S.A. DE C.V.
865 F.3d 1348 (Fed. Cir. 2017)
Authored by Grace Coller

Statement of Facts: Honeywell International Inc. (“Honeywell”) owns the ’366 patent, which uses both a 1,1,1,2-tetrafluoropropene (“HFO-1234yf”, an HFC compound) refrigerant and a polyalkylene glycol (“PAG”) lubricant in its heat transferring systems, such as air conditioners.

Mexichem Amanco Holding S.A. DE C.V. (“Mexichem Amanco”) and Daikin Industries (“Daikin”) (together, “Mexichem”) filed requests for inter partes re-examination of the ’366 patent from the Patent Trial and Appeal Board (“PTAB”). The PTAB consolidated the requests into a single proceeding.

The PTAB found that parts of the ’366 patent were not obvious over Japanese Patent H04-110388 (“Inagaki”). Its Examiner found that Inagaki expressly discloses HFO-1234yf. Additionally, the Examiner found that the secondary references provided—Magid, Acura/Patentee’s Admissions, and Bivens—merely teaches the use of PAG lubricants with HFC refrigerants. Therefore, the Examiner said that the claims would have been “obvious over the cited prior art at the time of invention.” Honeywell International Inc. v. Mexichem Amanco Holding S.A. DE C.V., 865 F.3d 1348, 1351 (Fed. Cir. 2017).

Honeywell appealed to the PTAB, claiming that Inagaki does not teach the use of HFO-1234yf refrigerant with any particular lubricant, let alone the PAG lubricant, and that it teaches the HFO refrigerant to be combined with “immiscible lubricants, such as those commonly employed in the prior art.” Id. (emphasis in original). Honeywell also claimed that at the time of its invention, HFO refrigerants were disfavored and known to be unstable and reactive; and PAG lubricants were known to be hygroscopic and therefore unstable as well. Therefore, because they were both considered to be unstable, ordinary skill in the art “would not have been led by Inagaki to combine HFO-1234yf . . . with a PAG lubricant.” Id. Secondary evidence submitted by Honeywell included: unexpected stability of HFO-1234yf with PAG over other similar lubricants; longstanding need for environmentally-favorable compositions; and skepticism over whether such environmentally-favorable compounds existed.

The PTAB agreed with its Examiner and rejected some claims of the ’366 patent as obvious. It found first that PAGs were known lubricants for HFC refrigerants, as evidenced by Magid, Acura/Patentee’s Admissions, and Bivens. So, because Inagaki teaches that known HFC refrigerants are compatible with known lubricants, it would have been obvious to combine HFC-1234yf with PAG.

Second, PTAB rejected Honeywell’s argument that the combination would not have been obvious due to its unexpected stability. The PTAB said that HFO-1234yf’s stability when combined with PAG is an “‘inherent propert[y] of an otherwise known refrigerant’ that could not confer patentable weight to the claimed mixture.” Id. at 1352 (emphasis in original). It also rejected this argument in light of JP H5-85970A (“Omure”), which states that a different unsaturated propene HFO compound has relatively superior stability in PAG. Therefore, the PTAB reasoned that, “although Honeywell’s evidence persuasively shows the unpredictability of ‘how various refrigerants would have reacted with various lubricants,’” Omure says that one of ordinary skill in the art would no more have expected failure than success with respect to the stability of HFOs and PAGs. Id. at 1353. In other words, one of ordinary shill would have eventually come up with the combination through mere routine testing.

Lastly, the PTAB said there was a lack of nexus between Honeywell’s secondary evidence and its claimed composition.

Procedural History: Honeywell timely appealed to the Federal Circuit the PTAB’s decision that the claim was obvious.

Specifically, Honeywell argued that the PTAB erred in “(1) finding a motivation to combine the references with a reasonable expectation of success, (2) rejecting Honeywell’s objective evidence, and (3) relying on a new ground of rejection when it relied on Omure, without giving Honeywell notice and opportunity to respond.” Id. at 1353.

Questions Presented: Whether the claim of Honeywell’s ’366 Patent would have been obvious over the cited prior art at the time of invention.

Specifically, whether the PTAB erred in (1) finding a motivation to combine the references with a reasonable expectation of success, (2) rejecting Honeywell’s objective evidence, and (3) relying on a new ground of rejection when it relied on Omure, without giving Honeywell notice and opportunity to respond.

Holding: The Federal Circuit vacated and remanded the case, finding that the PTAB erred in its analysis and, therefore, its decision.

Reasoning: As to the first question presented, the Federal Circuit found that the PTAB “committed legal error by improperly relying on inherency to find obviousness and in its analysis of motivation to combine the references.” Id. at 1354. The Federal Circuit reasoned that the PTAB originally dismissed Honeywell’s evidence regarding unpredictability and unexpected properties of the claimed combination by saying they were inherent and not of patentable weight. However, the PTAB then relied on that same evidence, conceding that it persuasively established “overall unpredictability” in the art. But then the PTAB dismissed the claim because the claimed combination’s stability unpredictability would have led to routine testing which would have led to the claimed combination’s obvious discovery.

As to the second question presented, the Federal Circuit found that the PTAB erred in dismissing Honeywell’s objective evidence of unpredictability in the art. Specifically, the PTAB erred in reasoning that one of ordinary skill would no more have expected failure than success in combining HFO-1234yf and PAG. The PTAB’s reasoning was that “one of ordinary skill would not have expected success, because Honeywell’s evidence persuasively established the “overall unpredictability” in the art, but then glossed over that finding with a “routine testing” rationale because Honeywell did not persuasively prove an expectation of failure.” Id. at 1356 (emphasis in original). The Federal Circuit then held that saying one would no more have expected failure than success is not a valid reason for finding an invention to be obvious.

Finally, as to the third question presented, the Federal Circuit agreed that the PTAB relied on a new ground of rejection in its reliance on Omure, because the Examiner did not mention or rely on it in his findings and, therefore, Honeywell did not have notice and opportunity to respond to it. The PTAB rejected the Examiner’s conclusions about evidence of unexpected results and instead used Omure to hold the evidence to be unpersuasive. Therefore, the Federal Circuit held that this was a new ground of rejection and, thus, the decision must to be vacated and remanded so that Honeywell may have adequate notice and opportunity to respond to it.

Dissenting Opinion: Judge Wallach concurred with the majority’s decision to vacate and remand the decision, but disagreed with the majority’s conclusion that the PTAB relied on a new ground of rejection when it used Omure as a basis of rejecting Honeywell’s evidence of unexpected results. Judge Wallach reasoned that the Omure discussion alone does not necessitate a different result because it was not the “principal evidence upon which the [PTAB]’s rejection was based.” Id. at 1359 (quoting In re Leitham, 661 F.3d 1316, 1320 (Fed. Cir. 2011) (citation omitted)). Instead, this discussion was merely an explanation of why Honeywell’s evidence did not overcome the Examiner’s obviousness determination. Therefore, because it was an explanation of an existing rejection, rather than a new rejection itself, it was not a new ground for rejection to which Honeywell was entitled notice and opportunity to respond.

In re Cray Inc.
871 F.3d 1355
Authored by Samantha Farish

Statement of Facts: Cray Inc. (“Cray”) sells advanced supercomputers. Raytheon Company (“Raytheon”) brought a patent infringement suit against Cray in the United States District Court for the Eastern District of Texas. Cray is incorporated in Washington and keeps its principal place of business there. Cray facilities are also maintained in parts of Minnesota, Wisconsin, California, and Texas. The offices belonging to Cray in Texas are not within the Eastern District (the “District”), where Raytheon brought the suit.

Raytheon asserted that venue was proper because of the residence of Cray’s sales executive, Mr. Douglas Harless. Cray allowed Mr. Harless to work remotely while residing in the Eastern District of Texas. A company map that identified Mr. Harless as a named account manager also provided the location of his personal home. He communicated with customers from this home, but kept no Cray merchandise or product literature there. Cray provided Mr. Harless with administrative support from the Minnesota office. When the usage was business related, Cray reimbursed Mr. Harless for his internet fees, cell phone services, and gas mileage. Cray did not pay Mr. Harless to operate its business out of his home and it never advertised publicly that this residence was a place of business.

Procedural History: Cray brought a Rule 12(b)(3) motion to dismiss for improper venue pursuant to 28 U.S.C. § 1400(b), which establishes appropriate venue for patent infringement claims. Cray thus sought transfer of the case under § 1406(a). Cray asserted venue was improper because (1) it did not reside in the District; (2) it had not committed any acts of infringement in the District; and (3) Cray had no regular and established place of business within the District. The lower court denied the motion. The issue on appeal is a petition for a writ of mandamus reversing the lower court’s denial and directing the case be transferred.

Questions Presented: First, did the lower court commit error by applying incorrect law when it denied Cray’s motions for improper venue and transfer? If so, should a writ of mandamus be issued in this case?

Holding: First, yes, the lower court committed error when it incorrectly construed precedent as the basis for denial of a motion to dismiss for improper venue. Therefore, a writ of mandamus is appropriate to decide a basic and undecided legal question. Case remanded.

Reasoning: The Federal Circuit found that the lower court misapplied the holding of In re Cordis Corp., 769 F.2d 733 (Fed. Cir. 1985). The lower court failed to apply Cordis with the context of the Supreme Court’s recent decision, TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S.Ct. 1514, 1517 (2017). Because the lower court did not correctly apply precedent in reaching its decision, the court found that its denial of Cray’s motion to transfer was an abuse of discretion.

In Cordis, the Federal Circuit similarly reviewed a petition for a writ of mandamus which sought dismissal of a patent infringement case based on improper venue. The court denied issuing the writ because it found a rational and substantial basis in support of the lower court’s denial of the improper venue motion. In affirming the lower court, the Federal Circuit found that the question of proper venue is not whether the defendant has a fixed physical presence such as a formal office or store. However, Cordis did not reference the statutory language used in § 1400(b). TC Heartland, 137 S.Ct. at 1517, made it clear that § 1400(b) is the standard for venue in patent cases. This statute was meant to narrow the courts previously allowing patent cases by conferring jurisdiction to more permanent jurisdictions. Given this purpose, the Federal Circuit cautioned that the standard of venue in § 1400(b) requires more than the minimum contacts that may be necessary when applying general venue law. This section specifies that a patent infringement action can be brought anywhere the defendant resides or has committed acts of infringement and within the district in which he has a regular and established place of business.

Applying this standard to determine whether venue was proper in this case, the court found three requirements. First, the district must contain a physical place. The Federal Circuit was critical of the lower court’s holding that a fixed physical place is not a prerequisite for proper venue. While this need not be a formal office or store, as in Cordis, venue requires some physical geographical location where business is conducted.

Second, the place of business must be regular and established. The court found that a regular business is not sporadic, but steady and orderly. A series of acts is necessary. Further, to be an established business, the court stressed the importance of permanence. Here, the employee could move his home out of the district without Cray’s approval. The court found this is not regular and established.

Third, venue is only proper if the business is the defendant’s place. The court found that this element requires the defendant to ratify or establish a place for the purpose of the business. Here, the physical location was an employee’s residence and thus did not belong to Cray.

The Federal Circuit held that the facts could not support a finding that Cray has a regular and established place of business in the Eastern District of Texas. By misconstruing precedent, the lower court found that venue was proper and thus failed to address arguments regarding where the case should be transferred. The case was remanded for that purpose.

 

 

 

 

Yanko v. United States
869 F.3d 1328 (Fed. Cir. 2017)
Authored by Lauren Farruggia

Statement of the Facts: Both part-time and full-time federal employees receive paid time off for weekday federal holidays. If part-time and full-time federal employees are required to work on holidays, they are entitled to premium pay, provided that their work is not in excess of eight hours and is not overtime work. Occasionally, however, federal holidays fall on days in which a federal employee is not scheduled to work. 5 U.S.C. § 6103(b)(1)(A) and Executive Order No.11,582, § 3(a), 36 Fed. Reg. 2957 (Feb. 11, 1971) provide “in-lieu-of” holidays for certain employees whose basic work-week of five workdays is Monday through Friday. Accordingly, these federal employees receive time off on Friday for holidays that occur on a Saturday, and receive time off on Monday for holidays that occur on a Sunday. Employees entitled to in-lieu-of holidays who are required to work on those holidays earn premium pay. The Office of Personnel Management (“OPM”) regulations interpreting the statute and Executive Order prohibit part-time employees from receiving in-lieu-of holidays if the holiday falls on the part-time employee’s non-workday.
Plaintiff Michael Yanko (“Yanko”) has worked as a part-time federal employee of the U.S. Department of Veterans Affairs for six years. He regularly works five days per week, from Sunday through Thursday. As a part-time employee, Yanko does not receive in-lieu-of holidays that fall outside of his ordinary workweek. Yanko brought a class action complaint in the Court of Federal Claims on behalf of himself and all similarly-situated part-time GS and WG federal employees, alleging that part-time federal employees are entitled to premium pay for work performed on an in-lieu-of holiday. Yanko alleged that OPM’s regulations are contrary to the statute and the executive order, and sought the premium pay to which he would have been entitled had he been credited with in-lieu-of holidays for the past six years of his employment.

Procedural History: The U.S. Court of Federal Claims rejected Yanko’s claim, holding that the governing statute and Executive Order fail to provide part-time employees with a right to in-lieu-of holidays when federal holidays fall on days outside the employees’ normal workweek. In so holding, the Court of Federal Claims determined that the statute and Executive Order’s use of the term “basic workweek” refers only to full-time employees. Yanko challenges on appeal the construction of the statute and the executive order.

Questions Presented: Whether under section 6103(b) and Executive Order 11,582 part-time federal employees are entitled to in-lieu-of holidays when federal holidays fall on days on which they are not scheduled to work.

Holdings: The Federal Circuit affirmed the Court of Federal Claims and held that the relevant statute and Executive Order do not unambiguously apply to part-time employees. The court held that OPM’s interpretation that basic workweek applies only to full-time employees was reasonable.

Reasoning: The Federal Circuit first struck down Yanko’s argument that part-time federal employees are employees within the meaning of the relevant statute and Executive Order providing for premium pay during in-lieu-of holidays. The Federal Circuit determined that basic workweek refers to a standard 40-hour workweek worked by full-time employees, finding support, first, in the Federal Employees Pay Act of 1945, Pub. L. No. 79-106, 59 Stat. 295, which contained the core provisions governing the establishment of a basic administrative workweek of 40 hours for full-time federal employees. Next, the Federal Circuit looked to Executive Order No. 10,358, which provided in-lieu-of holidays to federal employees for the first time. The Federal Circuit noted that this Executive Order did not explicitly apply to part-time employees. Additionally, the Federal Circuit found dispositive an opinion drafted by the Comptroller General with respect to Executive Order No. 10,358, which determined that the Executive Order’s holiday benefit provisions apply only to full-time employees. Further, the Federal Circuit was persuaded by the Comptroller General’s finding that basic workweek related only to employees who regularly work a 40-hour workweek. These early measures established the framework for the challenged statute and Executive Order; accordingly, the Federal Circuit found no historical support for Yanko’s contention.

The Federal Circuit also afforded Chevron deference to OPM’s interpretation of the statute and Executive Order as only applicable to part-time employees. The Federal Circuit found that OPM’s position was long-standing and consistent and should accordingly be afforded broad deference.

 

 

 

Credit Acceptance Corp. v. Westlake Services
859 F.3d 1044 (Fed. Cir. 2017)
Authored by Christopher Carchia

Statement of Facts: Credit Acceptance Corp. (“CAC”) is the assignee of the ’807 patent which has both system and method claims allowing a customer to choose a product from a dealer’s inventory. The example given is a car dealership’s database for its inventory and matching that inventory with possible financing options using a prospective customer’s financial information. Westlake Services (“Westlake”) petitioned the Patent Trial and Appeal Board (“PTAB”) for a Covered Business Method (“CBM”) review of all patent claims (1–42), claiming that the patent claims are ineligible for patenting under 35 U.S.C. § 101.

Procedural History: In March of 2014, PTAB instituted review on claims 1–9, 13, and 34–42 and did not institute review on claims 10–12 and 14–33. Three months later, the Supreme Court issued its decision in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014) which vacated the decision in Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335 (Fed. Cir. 2013) (“Ultramercial II”) which further developed understanding of 35 U.S.C. § 101. In August 2014, Westlake filed a second petition for CBM review due to the Supreme Court’s decision in Alice, challenging claims 10–12 and 14–33 as patent-ineligible under § 101. In November 2014, the Federal Circuit issued a revised Ultramercial decision, Ultramercial, Inc v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014) holding the claims patent-ineligible under § 101. Based on these two new decisions, PTAB instituted review of claims 10–12 and 14–33.

PTAB rejected the argument that Westlake was estopped from challenging claims 10–12 and 14–33 because of the existence of the first proceeding. PTAB determined the estoppel claim was not ripe because there was not a final written decision in the first proceeding. In March 2015, PTAB issued a final written decision as to claims 1–9, 13, and 34–42 stating that those claims were un-patentable under 35 U.S.C. § 101. CAC then moved to terminate the second proceeding arguing that Westlake was estopped by 35 U.S.C. § 325(e)(1) (providing for estoppel of claims in proceedings before the Patent Office) from challenging claims 10–12 and 14–33 because a final written decision of the first proceeding had been issued. PTAB denied CAC’s motion, stating that estoppel under § 325(e)(1) was decided on a claim-by-claim basis, therefore Westlake was not estopped on claims 10–12 and 14–33 because the first proceeding only decided claims 1–9, 13, and 34–42.

In January 2016, PTAB issued a final written decision in the second CBM proceeding finding that claims 10–12 and 14–33 were un-patentable under 35 U.S.C. § 101. CAC appealed this second decision, arguing that Westlake should have been estopped from maintaining the second proceeding in which it challenged claims 10–12 and 14–33 and that PTAB’s § 101 decision was in error. Westlake opposed and the United States Patent and Trademark Office (“USPTO”) intervened to support PTAB on all issues.

Questions Presented: First, does the Federal Circuit have jurisdiction to review a PTAB determination under 35 U.S.C. § 325(e)(1)? Second, does estoppel under 35 U.S.C. § 325(e)(1) apply to claims that were not instituted for review when a final written decision was issued for some of the claims petitioned for review? Third, did PTAB commit error by determining that claims 10–12 and 14–33 were patent ineligible?

Holdings: First, a majority on the Federal Circuit concluded that the court had jurisdiction to review the estoppel argument brought under 35 U.S.C. § 325(e)(1). Second, the majority found that Westlake was not estopped from having CBM review under 35 U.S.C. § 101 for claims 10–12 and 14–33 because 35 U.S.C. § 325(e)(1) (estoppel) does not apply in subsequent proceedings to claims that PTAB declined to review. Third, the majority found that claims 10–12 and 14–33 were not directed to patent-eligible subject matter under 35 U.S.C. § 101. The latter two holdings affirm PTAB’s holdings below.

Reasoning: Westlake and the USPTO argued that an estoppel determination by PTAB under 35 U.S.C. § 325(e)(1) was not appealable and therefore the Federal Circuit had no jurisdiction to review the finding that Westlake was not estopped. The USPTO argued that, under 35 U.S.C. § 324(e), the determination whether to institute post-grant review “shall be final and nonappealable.” The USPTO argued that the decision on estoppel was like a decision to institute review, which is not appealable. The majority then looked to Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016), that considered the parallel “no appeal” statute for inter partes review under 35 U.S.C. § 314(d). Cuozzo held that PTAB decisions are non-appealable “where the grounds for attacking the decision to institute inter partes review consist of questions that are closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review.” Cuozzo at 2141. The majority distinguished the current case and 35 U.S.C. § 325(e)(1) from Cuozzo and 35 U.S.C. § 314(d) by finding that § 325(e)(1) is not limited only to institution decisions. The majority then referenced its interpretation of 35 U.S.C. § 317(b) (2006) in In re Affinity Labs of Texas, LLC, 856 F.3d 883 (Fed. Cir. 2017), which held that the “maintain” language of § 317(b) (similar to the language in § 325(e)(1)) terminates an inter partes reexamination proceeding already in progress when there is a final decision (of the issue) in a civil action and applied this reading to the “maintain” language in § 325(e)(1). Additionally, the majority noted that the Leahy-Smith America Invents Act (“AIA”), Pub. L. No. 112-29. § 18, 125 Stat. 284, 329-31 (2011), adopted the 35 U.S.C. chapter 32 provisions on post-grant review. See SightSound Technologies, LLC v. Apple Inc., 809 F.3d 1307 (Fed. Cir. 2015). Using substantially similar language as § 325(e)(1), § 18(a)(1)(D) of the AIA applies estoppel to district court and International Trade Commission proceedings. The majority found no evidence that the Federal Circuit lacked jurisdiction to consider estoppel issues arising from the district court or International Trade Commission. The majority believed it would therefore be inconsistent to allow for appeal of a decision on estoppel from the district court while not allowing appeal of a PTAB decision on estoppel. The majority noted that allowing the Federal Circuit to have jurisdiction over estoppel from written decisions of the district courts but not from PTAB could lead to conflicting outcomes without a clear way to correct PTAB’s decision in subsequent proceedings. The majority also cited the need for uniformity between estoppel decisions from the district courts and PTAB as strongly in favor of finding appealability here.

CAC argued that under 35 U.S.C. § 325(e)(1) estoppel applies to a claim previously subject to review “that results in a final written decision under section 328(a).” Additionally, CAC argued that a final decision under § 328(a) applied to all claims “challenged” in a petition, not just the claims for which review was instituted. Further, CAC argued that reading the two statutes together, § 325(e)(1) and § 328(a) apply estoppel to all claims challenged in a petition where any part of the petition results in a final written decision even if there are claims challenged for which review was not instituted. The Federal Circuit found that a final written decision did not cover claims that had not been instituted; therefore, a final written decision is not a final determination of patentability of non-instituted claims. In Synopsys v. Mentor Graphics Corp., 814 F.3d 1309 (Fed. Cir. 2016), the Federal Circuit interpreted language in § 318(a) and found that claims for which PTAB did not institute inter partes review could still be litigated in district court and that PTAB can institute inter partes review on a claim-by-claim basis. Further, the Federal Circuit found that § 318(a) (at issue in Synopsys) was identical to § 328(a) in relevant part and that they only require PTAB to address claims for which review was granted in a final written decision. The Federal Circuit therefore concluded that, since there was not a final determination, there was no estoppel. The Federal Circuit also relied on Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., 817 F.3d 1293 (Fed. Cir. 2016) where the petitioner had requested inter partes review on three separate grounds; however, PTAB only instituted review on two of those grounds. PTAB then issued a final written decision upholding the claims over the two instituted grounds. 817 F.3d at 1297. On appeal in Shaw, the Federal Circuit held that the inter partes review statute only applied to grounds the petitioner raised or reasonably could have raised during the first review. Further, because the third ground for petition was denied, it was not raised nor could have reasonably been raised during the instituted inter partes review. Here, the Federal Circuit adopts the reasoning of these inter partes review cases because the inter partes review and covered business method review statutes have the same language and were enacted together under the AIA. The majority defers to the Supreme Court’s decision in IBP, Inc. v. Alvarez, 546 U.S. 21 (2005) which stated that the “normal rule of statutory interpretation [is] that identical words used in different parts of the same statute are generally presumed to have the same meaning.” Id. at 34.

Under Alice’s two-step analysis on the issue of patentability, the first question is whether the claims are directed toward an abstract idea. Alice Corp. v. CLS Bank Int’l., 134 S. Ct. 2347. If yes, then the court searches for an “inventive concept–i.e., an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” Id. at 2355. The majority agreed with PTAB’s finding below that the claims were directed at an abstract idea. CAC’s arguments that the claims were not abstract because they “improve the functionality of the general purpose computer by programming fundamentally new features” 859 F.3d at 1055, and that the claim was not directed at the abstract idea of financial processes, but to configuring a computer system to combine data from multiple sources to create a report of possible finance options, failed to sway the majority. Citing Enfish, LLC v. Microsoft Corp., 822 F.3d 1327 (Fed. Cir. 2016) the Federal Circuit found that the cases make clear neither the automation of a manual process using generic computer parts nor an invention’s communication between previously unconnected systems amounts to an improvement in computer technology. Under Enfish, 822 F.3d 1327 the inquiry is whether the focus of the claims is on a specific improvement in computer capabilities or on a process that qualifies as an abstract idea for which the computer is merely a tool. Claims that qualify as abstract ideas for which computers are merely tools are not patentable. Using this framework the majority found that the claims at issue here were focused on a method of financing where the computer was simply a tool, stating that collecting information is within the realm of abstract ideas, citing Electric Power Group, LLC v. Alstom S.A., 830 F.3d 1350 (Fed. Cir. 2016). The majority also found that data processing to facilitate financing is ineligible for patenting as an abstract concept, citing Mortgage Grader, Inc. v. First Choice Loan Services, Inc., 811 F.3d 1314 (Fed. Cir. 2016).

Under the second step of the Alice analysis, 134 S. Ct. 2347, PTAB below had found that the claims were not an inventive concept and the majority here agreed. CAC argued that before the ’807 patent, computers were unable to perform the claimed process and the claims improve the arduous task of manual automobile financing because it provides software that allows computers to supplant and enhance the existing series of steps, which computers were not previously configured to do. The Federal Circuit, citing Alice, 134 S. Ct. 2347, found that merely configuring generic computers to supplant and enhance a manual process is ineligible for patenting. The Federal Circuit found it significant that the claims did not provide any details as to any non-conventional software for enhancing the financing process, citing Electric Power Group, 830 F.3d at 1354.

Finally, CAC also argued that PTAB’s decision was legally defective because PTAB did not analyze the claims as an “ordered combination” to determine if there was an inventive concept. Alice, 134 S. Ct. at 2355. The Federal Circuit also rejected this argument, finding that PTAB did adequately consider the claims as an ordered combination and found it significant that CAC did not clearly identify any particular inventive concept that PTAB overlooked.

Dissenting Opinion: Judge Mayer dissented in part. Judge Mayer agreed that the challenged claims were patent ineligible however, Judge Mayer did not believe that the Federal Circuit had jurisdiction to review a decision by the PTAB “to deny a motion to terminate a post-grant review proceeding as barred by 35 U.S.C. § 325(e)(1).” 859 F.3d 1044, 1057 (Fed. Cir. 2017) (J. Mayer dissenting). Judge Mayer found that, in Cuozzo 136 S. Ct. 2131 (2016), the Supreme Court decided that the Federal Circuit had no jurisdiction to review determinations about the application and interpretation of statutes closely tied to USPTO’s decision to initiate reviews. Judge Mayer stated that 35 U.S.C. § 325(e)(1) was closely related to the USPTO’s decision to initiate review because when the statute applies, estoppel bars the PTAB from instituting review on a challenge to a claim on any ground raised or that reasonably could have been raised during the earlier review. Further, Judge Mayer found that PTAB’s decision as to whether a petitioner can or cannot bring or maintain a claim before the USPTO is a “central aspect of the determination to institute review,” 859 F.3d at 1058, and is barred from appellate review under 35 U.S.C § 324(e), which makes the Director of the USPTO’s decision on whether to institute review of the challenged claims final and un-appealable. Judge Mayer bases his decision on Husky Injection Molding Systems Ltd. v. Athena Automation Ltd., 838 F.3d 1236 (Fed. Cir. 2016) where the Federal Circuit found that it did not have jurisdiction to review whether PTAB had correctly resolved a question of assignor estoppel. The court in Husky found that assignor estoppel only prevents certain petitioners from challenging a patent (as opposed to affecting PTAB’s authority to declare claims unpatentable) which was part of the ban on review of decisions to institute challenges to claims. Judge Mayer analogizes assignor estoppel to § 325(e)(1) estoppel in that they both only affect who can petition for review and therefore reflected on PTAB’s decision to institute claim review.

Impression Products, Inc. v. Lexmark International, Inc.
137 S. Ct. 1523 (2017)

Authored by Cara M. Arnold

Statement of Facts: Lexmark International, Inc. (“Lexmark”) is a printer manufacturer that designs and sells toner cartridges around the world. To prevent remanufacturers from acquiring the empty Lexmark cartridges from purchasers to refill and resale at lower prices, Lexmark gave purchasers two options: (1) buy a cartridge at full price without restrictions; or (2) buy a cartridge at a discount through Lexmark’s “Return Program.” If a customer purchased a cartridge through the Return Program, the customer had to sign a contract agreeing to use it only once and to refrain from conveying the empty cartridge to anyone but Lexmark. Lexmark sued remanufacturer Impression Products, Inc. (“Impression Products”) for patent infringement with respect to Return Program cartridges that Lexmark sold within the United States and all cartridges that Lexmark sold abroad that Impression Products imported into the country. Lexmark alleged that because it expressly prohibited reuse and resale of the Return Program cartridges, Impression Products infringed Lexmark patents when they refurbished and resold them. Additionally, with respect to the cartridges sold abroad, Lexmark claimed that foreign sales do not trigger patent exhaustion unless the patentee expressly or implicitly transfers or licenses its rights, so Impression Products infringed Lexmark’s patent rights by importing and selling these cartridges into the country without Lexmark’s authorization. Impression Products believed that Lexmark’s sales, both in the United States and abroad, exhausted its patent rights in the cartridges, so Impression Products was free to refurbish and resell them, and to import them if acquired abroad.

Procedural History: In 2010, Lexmark filed a patent infringement suit against Impression Products. The United States District Court for the Southern District of Ohio denied Impression Product’s motion to dismiss with respect to cartridges that had been sold abroad and granted Impression Product’s motion to dismiss with respect to the Return Program cartridges that had been sold domestically. Lexmark and Impression Products appealed to the Federal Circuit, and the Federal Circuit, en banc, ruled for Lexmark with respect to both groups of cartridges. For the Return Program cartridges, the Federal Circuit relied on a previous decision in Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (1992) and held that a patentee may sell an item and retain the right to enforce, through patent infringement lawsuits, clearly communicated, lawful restrictions on post-sale use or resale. Lexmark International, Inc. v. Impression Products, 816 F.3d 721, 735 (2016). Since Impression Products knew about Lexmark’s restrictions and those restrictions were lawful, Lexmark did not exhaust its patent rights and could sue Impression Products for patent infringement. As for the cartridges that Lexmark sold overseas, the Federal Circuit again relied on a previous decision, Jazz Photo Corp. v. International Trade Commission, and held that when a patentee sells a product abroad, it does not exhaust its patent rights over that item. 264 F.3d 1094 (2001); 816 F.3d at 726–27. Therefore, Lexmark was free to sue Impression Products for patent infringement when it imported these cartridges. In December 2016, the Court granted certiorari.

Questions Presented: First, whether a patentee that sells an item under express restriction on the purchaser’s right to reuse or resell the product may enforce that restriction through an infringement lawsuit. Second, whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply.

Holdings: No, a patentee that sells an item under express restriction on the purchaser’s right to reuse or resell the product may not enforce that restriction through an infringement suit. Yes, a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply. The Federal Circuit’s judgment is reversed and remanded for further proceedings.

Reasoning: Beginning with the Return Program cartridges that were sold in the United States, the Court concluded that Lexmark exhausted its patent rights in these cartridges after sale. The doctrine of patent exhaustion has imposed a limit on the right to exclude for many years. A patentee may set the price and negotiate contracts with purchasers, but it may not, by virtue of his patent, control the use or disposition of the product after ownership passes to the purchaser. Thus, the sale immediately terminates all patent rights to that item. This idea is traced back to the common law’s refusal to permit restraints on the alienation of chattels, and Congress has repeatedly revised the Patent Act in line with this principle. The Federal Circuit reached a different result due to flawed logic. It explained that a patentee’s decision to sell an item “presumptively” grants authority to the purchaser to use it and resell it. The Federal Circuit further noted, however, that the patentee does not have to hand over the full set of rights every time. The issue with this is that the exhaustion doctrine is not a presumption about the authority that comes along with a sale.  Instead, it limits the scope of the patentee’s rights. The limited right a patent adds and grants exclusively to a patentee—to prevent others from using, selling or importing an item—is extinguished by the exhaustion doctrine. Thus, a sale transfers the right to use, sell, or import because those rights come along with ownership, and the buyer is free from an infringement lawsuit because there is no exclusionary right left to enforce. Additionally, the Court clarified that the same analysis applies to licensees. A patentee may enforce limitations on its licensees with contractual provisions, so long as the licensee complies with the restrictions in its contract with the patentee. An authorized sale by the licensee nonetheless exhausts all patent rights in the item sold.

As for the cartridges that were sold abroad, the Court concluded that an authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act. The Court relied on its 2013 decision in Kirtsaeng v. John Wiley & Sons, Inc. to apply the “first sale” doctrine to patent law. 568 U.S. 519 (2013). In Kirtsaeng, the Court held that the “first sale doctrine,” which provides that a copyright owner loses the power to restrict the purchaser’s freedom “to sell or otherwise dispose of …” the copy after the copyright owner sells it, applies to copyrighted work lawfully made and sold abroad. 568 U.S. at 525. The Court analogized patent exhaustion and copyright exhaustion because the doctrines are similar and have the same purpose.  The first sale doctrine, like the patent exhaustion doctrine, originated in the common law’s refusal to permit restraints on alienation of chattels. Neither the common law on first sale nor patent exhaustion makes geographical distinctions. The Federal Circuit agreed with Lexmark’s argument that patent exhaustion did not apply outside of the United States and held that patentees may maintain patent rights in a foreign sale. However, the Court explained that restrictions and locations are irrelevant when it comes to the sale of patented goods. What is relevant is the patentee’s decision to make the sale. Exhaustion is triggered by the patentee’s decision to give that item up and receive whatever fee it decides appropriate.

Concurring/Dissenting Opinion: Justice Ginsburg agreed with the majority’s holding regarding domestic exhaustion, but she disagreed with the majority’s holding on international exhaustion. Patent laws are territorial and vary by country. A sale abroad operates outside of the U.S. patent system, thus it makes little sense to say that the same exhausts an inventor’s U.S. patent rights. Justice Ginsburg dissented from the majority’s decision in Kirtsaeng and adheres to the view that a foreign sale should not exhaust U.S. copyright protections. Additionally, although patent law and copyright law may be similar, they are not “identical twins.” Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 439  n. 19 (1984). Copyright protections, unlike patent protections, are synchronized across countries.  Consequently, patent protection should not be diminished when considered in the context of a foreign sale.