Author: FCBJ

Return Mail, Inc. v. USPS
868 F.3d 1350 (Fed. Cir. 2017)
Authored by Karla Dittmann

Statement of Facts: Appellant Return Mail, Inc. owns Patent No. 6,826,548 (“the ’548 patent”), a covered business method (“CBM”) patent for an invention that automated processing undeliverable mail caused by insufficient addressing. The invention subject to the ’548 patent was intended to ameliorate the historically labor-intensive process of handling returned mail. The invention did so by translating name and address information for mail into barcodes placed on mail items, allowing computers to read and process the information on the mail items. In January 2011, the ’548 patent underwent ex parte reexamination. The reexaminer cancelled all original claims and new claims 39–63 were issued.

Return Mail attempted but was unsuccessful in licensing the ’548 patent to the United States Postal Service (“Postal Service”). In February 2011, Return Mail filed suit against the United States in the Court of Federal Claims under 28 U.S.C. § 1498(a), alleging that the United States via the Postal Service “engage[d] in the unlicensed and unlawful use and infringement of the invention claimed in the ’548 patent.” 868 F.3d at 1355. In that suit, Return Mail’s prayer for relief called for “reasonable and entire compensation.” Id.

The Postal Service invoked its right to CBM review per the Leahy-Smith American Invents Act (“AIA”) in April 2011 and filed a petition with the USPTO for review of claims 39–44 (“the challenged claims”) of the ’548 patent. The Postal Service challenged the invention’s patentability by challenging the eligibility of the subject matter to be patented under § 101, anticipation under § 102, and obviousness under § 103. Return Mail responded, questioning (1) the merits of the Postal Service’s patentability challenge and (2) the Postal Service’s standing to bring a petition for CBM review under the AIA.

Procedural History: Return Mail filed a petition for CBM review with the PTAB. The PTAB determined that Postal Service had statutory standing and held all the challenged patent claims were directed to ineligible subject matter under 35 U.S.C. § 101. Return Mail appealed to the Federal Circuit. 

Questions Presented: The first issue is whether the PTAB’s decision should be vacated because the Postal Service failed to meet the statutory standing requirement to petition for CBM review.  The second issue is, if the Postal Service did have standing, whether the PTAB erred in its decision on the merits of subject matter ineligibility under § 101. 

Holding: The Federal Circuit affirmed the PTAB, holding that (1) Return Mail’s § 1498(a) suit against the Postal Service in the Court of Federal Claims qualified as a “suit for infringement” under § 18(a)(1)(B) and (2) that the challenged claims were abstract and thus directed to patent-ineligible subject matter.

Reasoning: On the first issue of whether the Postal Service had statutory standing to bring the petition before the PTAB, the court interpreted whether Return Mail’s § 1498(a) suit qualified as a “suit for infringement” under AIA § 18(a)(1)(B). Section 18(a)(1)(B) allows a person to file a petition for CBM review if the person has been sued for infringement of a patent or if the person has been charged with infringement under a patent. The court first looked to whether § 1498(a) suits qualify as a suit for infringement. The Federal Circuit rejected Return Mail’s assertion that government-related parties sued under § 1498(a) are excluded from petitioning for CBM review. The court further rejected Return Mail’s submission that § 1498(a)’s root in eminent domain as a jurisdictional basis to penetrate sovereign immunity for patent-related torts disqualifies it as the basis of a patent infringement suit. Additionally, where Return Mail argued that because the word infringement is absent from the text of the statute but is present in surrounding provisions, suits under § 1498(a) are not for infringement, the court highlighted the legislative history to determine that the provision was intended to broaden the Court of Federal Claims’s jurisdiction to include infringement actions against the government.

The court then turned to the scope of ‘infringement’ in § 18(a)(1)(B). The Postal Service argued that infringement is a general term to describe any situation in which “the accused activity meets all the limitations of a patent claim” 868 F.3d at 1362. Return Mail argued that infringement is a precise occurrence in the Patent Act, under which the government is immune. The Federal Circuit held that § 1498(a) suits fall within the scope of infringement in § 18(a)(1)(B) standing for petitions. For its statutory interpretation, the court looked to the plain meaning of the provision and determined that Return Mail’s narrow construction imposed additional conditions on the provision not present in the text because the text did not include any language limiting infringement to Patent Act actions.

The majority disagreed with the dissent’s conclusion that exclusion of governmental parties is derived from the word “person” in the language of § 18(a)(1)(B). While the dissent asserted that person explicitly excludes sovereigns, the majority concluded that the word person is not exclusive or presumptive in subject matter. The court, however, hinged its conclusion on neither Return Mail nor the Postal Service invoking this argument.

On the second issue of whether the PTAB erred in holding that claims 42–44 were directed to § 101 patent-eligible subject matter, the court used claim 42 as representative of the ream of claims. Because patent eligible subject matter under Patent Act § 101 entails “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof,” the court engaged the two-part test in Alice Corp. v. CLS Bank International (Alice) to determine whether claims qualify under § 101. 134 S. Ct. 2347 (2014).

Under Alice step 1, the claims surrounded automating the processing of mailing address data by encoding data of message addressing, and transferring certain electronic data if the sender did or did not want to receive corrected addresses for the addressee in question. The court rejected Return Mail’s assertion that because claims 42–44 handled data, a precedential abstraction, they merely involved an abstract idea without being directed to an abstract idea. Additionally, the court determined that the encoding and decoding mail technology did not detract from its abstractness because it was an existing business practice assisted by “generic computing technology.” 868 F.3d at 1368.

Under Alice step 2, the claims lacked an inventive concept. References to encoded data, and certain uses of the data provided new options for users but “amount to a basic logic determination of what to do given a user’s preferences” and did not transform the abstract idea into “something more,” i.e. an invention. Id. at 1369.

Dissenting Opinion: Judge Newman dissented, finding that the United States did not qualify as a “person” under § 18(a)(1)(B) based on the prevailing statutory use of person.  Judge Newman asserted that governmental agencies are created by statutes and act only under the authority of Congress. Further, Judge Newman found that subject matter jurisdiction issues are within the tribunal’s jurisdiction and are not automatically waived.  The decision of the PTAB should have been vacated because the proceeding was beyond the PTAB’s statutory authority.

 

 

 

 

 

 

 

In Re: Smith International, Inc.
871 F.3d 1375 (Fed. Cir. 2017)
Authored by Jane Thomas

Statement of Facts: Smith International, Inc. (“Smith”) owns the U.S. Patent 6,732,817 (“the ’817 patent”) titled “Expandable Underreamer/Stabilizer” which is directed to a downhole drilling tool for oil and gas operations. Smith, 871 F.3d at 1377. “The ’817 patent was originally granted with 73 claims. In 2012, Smith’s corporate parents, Schlumberger Holdings Corp. and Schlumberger N.V. (together “Schlumberger”), sued Baker Hughes, Inc. (“Baker Hughes”) in the United States District Court for the Southern District of Texas for, inter alia, infringement of the ’817 patent.” Smith, 871 F.3d at 1378. In response, Baker Hughes requested and received an ex parte reexamination of specific claims of the ’817 patent by the United States Patent and Trademark Office (“USPTO”). Additionally, in 2016, Smith also filed suit against Baker Hughes alleging infringement of the ’817 patent.

The Patent examiner completing the reexamination allowed certain new claims, rejected certain claims as anticipated by International Publication No. WO 00/31371 (“Eddison”), found that certain claims were obvious over Eddison in view of U.S. patent 6,059,051 (“Jewkes”), and found that other claims were obvious over Eddison, Jewkes, and European Publication No. EP 0 246 789 (“Wardley”).

Procedural History: Smith appealed the examiner’s rejections to the United States Patent and Trademark Office Patent and Trial Appeal Board (“PTAB”). PTAB affirmed all the examiner’s rejections. In reexaminations, the Board gives claim terms their broadest reasonable interpretation in light of the claim language and specification. PTAB affirmed the examiner’s interpretation of the term “body” as a broad term that can encompass other components because it does not have any structural specificity by itself. PTAB interpreted that the term “body” was included within the claims without further limiting features and that the specification also did not define the term which permitted the examiner’s broad reading of the term. PTAB concluded that Smith’s additional arguments relied on incorrect claim construction. Smith appealed the PTAB’s decision to the Federal Circuit.

Question Presented: First, whether PTAB’s claim construction of the term “body” in the ’817 patent was accurate. Second, whether PTAB erred in evaluating the anticipation and obviousness determinations.

Holding: The court reversed PTAB’s decision, finding that PTAB’s construction of “body” was unreasonably broad and that the challenged claims were not unpatentable as obvious.

Reasoning: Judge Lourie, joined by Judges Reyna and Hughes, authored the Federal Circuit’s opinion. The court determined that, since all the claims included the term “body,” the decision about what this term means would be dispositive of all the claims. Smith argued that PTAB’s broad construction of “body” as a generic term encompassing all the tool’s internal components was unreasonable, especially because the specification described what the “body” was. The USPTO responded that PTAB had given the term “body” the broadest reasonable interpretation and that substantial evidenced supported the Board’s findings. The court followed judicial precedent that the standard of giving claims their broadest reasonable interpretation is acceptable, insofar as it does not give claims a legally incorrect interpretation. Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292, 1298 (Fed. Cir. 2015). The court agreed with Smith that the ’817 patent specification consistently described and referred to the body as a component distinct from the other components. The opinion stated that the correct inquiry in giving a claim term its broadest reasonable interpretation in light of the specification is an interpretation that corresponds with what and how the inventor describes his invention in the specification. PTAB argued that the specification in the ’817 patent did not define the claim term in dispute, which meant that the broad interpretation was reasonable. The court dismissed this argument, stating that this logic would mean that, if the specification did not include an express definition or disclaimer, then the broadest possible interpretation of a claim term would be employed even if other descriptions in the specification indicated a narrower definition. The court concluded that the “body” in the ’817 patent claims was a component distinct from other identified components in the specification. Finally, the court also concluded that the findings made by PTAB regarding Eddison were not supported by substantial evidence because these findings relied on incorrect claim construction. The court reversed all of PTAB’s rejections of the appealed claims because PTAB’s construction of the term “body” was unreasonably broad.

 

 

 

 

Lummi Tribe of the Lummi Reservation v. United States
870 F.3d 1313 (Fed. Cir. 2017)
Authored by Dana Florkowski

 

Statement of Facts: Appellees, the Lummi Tribe of the Lummi Reservation, Lummi Nation Housing Authority, Hopi Tribal Housing Authority, and Fort Berthold Housing Authority, which are an Indian tribe and three tribal housing entities (collectively “the Tribes”), qualified for and received block grants through the Native American Housing Assistance and Self-Determination Act of 1996 (“NAHASDA”). Congress enacted NAHASDA with the purpose of improving the housing conditions and socioeconomic status of Native Americans. NAHASDA includes a mechanism through which tribes can receive block grants to use to provide affordable housing for tribal members. One of the factors in determining NAHASDA eligibility is that the tribes must own and operate low-income housing units, called “Formula Current Assisted Stock,” (“FCAS”). If a tribe has units that qualify as FCAS and meets other factors, NAHASDA entitles the tribe to receive a yearly funding grant. The funding is calculated in accordance with NAHASDA guidelines. The recipients are limited in what they can do with the grant funds. If a grantee does not comply, the statute authorizes means by which the Department of Housing and Urban Development (“HUD”) may recapture the funds. HUD is authorized to terminate payments, reduce payments, limit the availability of payments, or provide a replacement housing entity for the recipient in the case of noncompliance.

In 2001, HUD determined that some of the Tribes’ NAHASDA grant-receiving dwelling units did not qualify as FCAS and that some previous grant funds had been improperly allocated. HUD informed the Tribes of the amount overfunded, the basis for the decision, and which housing units were not FCAS, and provided the Tribes with the opportunity to dispute these findings. HUD then eliminated the ineligible dwelling units from the funding and sought to recover the funding by deducting from future grants. This deduction amounted to $863,236 from Lummi, $249,689 from Fort Berthold, and $964,699 from Hopi.

Procedural History: The Tribes sued in the United States Court of Federal Claims (“Claims Court”) under the Tucker Act and Indian Tucker Act, alleging that HUD deprived them of grant funds to which they were entitled. The Tribes alleged that HUD misapplied the formula for determining grant eligibility and amount, and that they had been improperly denied a hearing to dispute the findings, to which they were entitled under 25 U.S.C. § 4165. The government filed a motion to dismiss for lack of jurisdiction, arguing that NAHASDA’s block grant provision was not money mandating. The Claims Court found that the grant provision language was money mandating because it “can fairly be interpreted as mandating the payment of compensation by the government.” Lummi Tribe of the Lummi Reservation v. United States, 99 Fed. Cl. 584, 594 (2011).

The Claims Court dismissed the Tribes’ claim that they were entitled to a hearing, but the Tribes moved for consideration and the court vacated. The Tribes amended their complaint to re-allege that HUD had violated procedures and argued that these violations rendered the fund decrease an illegal exaction. The government filed a second motion to dismiss, stating that HUD had complied with all requirements of NAHASDA. The Claims Court did not grant the motion, finding that HUD was, in fact, required to provide the Tribes with a hearing before deducting from their grant amounts.

The Claims Court transferred the case to Senior Judge Bruggink for trial. Judge Bruggink requested supplemental briefing on the issue of whether NAHASDA was money mandating and whether this affected the illegal exaction claim. The Claims Court reaffirmed the initial holding that NAHASDA was money mandating, but found that an illegal exaction claim was unsupported because the procedural elements of NAHASDA were not money mandating. The government then sought certification for interlocutory appeal regarding the issue of jurisdiction, and the Tribes sought reconsideration on the illegal exaction holding. The Claims Court denied reconsideration. The Tribes appealed to the Federal Circuit.

Questions Presented: First, whether these provisions of NAHASDA are money mandating, giving the Federal Circuit Court subject matter jurisdiction. Second, whether the procedural violations of the government’s actions rise to an illegal exaction claim. 

Holdings: The Federal Circuit held that NAHASDA is not money mandating because a “simple money judgment” would not be an appropriate remedy and because the funds that are mandated by the statute are restricted in nature. As such, the court does not have subject matter jurisdiction to hear this case under the Tucker or Indian Tucker Acts. On the second issue, the court held that the procedural failures did not result in an illegal exaction because illegal exactions must derive from property taken from a claimant, not funds unawarded.

Reasoning: A statute is money mandating in one of two ways – first, it may be written in such a way that it can “fairly be interpreted as mandating compensation by the Federal Government for . . . damages sustained;” or, second, it may expressly or implicitly grant the claimant the right to recover damages. See Blueport Co., LLC v. United States, 533 F.3d 1374, 1383 (Fed. Cir. 2008) (quoting United States v. Mitchell, 463 U.S. 206, 216-17 (1983) (internal quotation marks omitted)). The court reasoned that NAHASDA, on the other hand, mandates reimbursement of an equitable nature. The court relied on National Center for Manufacturing Sciences v. United States, 114 F.3d 196 (Fed. Cir. 1997) which provides two points that are relevant to the case at hand – that “simple money damages” would not be appropriate, and that the use of funds is restricted and is a product of a cooperative and ongoing relationship. See Id., 114 F.3d at 201.

In the present case, the court reasoned that NAHASDA does not authorize the Tribes to receive actual payment of money damages; rather, it provides for strings-attached grant funding. There are restrictions on what the Tribes can do with money received through NAHASDA, and the disbursement of these funds cannot be labeled as damages. While the Tucker Act does provide a venue to obtain equitable relief, this is only when such relief is ancillary to an underlying claim for monetary relief.

The Tribes also argued that the alleged procedural failures resulted in an illegal exaction, but the court found this argument unpersuasive. An illegal exaction must include property taken away from the claimant, not money merely left unawarded to the claimant, as it was in this case. See Norman v. United States, 429 F.3d 1081, 1095 (Fed. Cir. 2005). The Federal Circuit Court therefore rejected the illegal exaction claim and found there was no jurisdiction.

After concluding its reasoning in the case, the court expressed its misgivings with the government’s actions and stances in this case and related litigation. In Modoc Lassen Indian Housing Authority v. United States Department of Housing and Urban Development, 864 F.3d 1212, 2017 WL 3140877 (10th Cir. July 25, 2017), the government took essentially the opposite position. In Modoc, the government argued that the return of overpaid funds from the government to tribes under NAHASDA did, in fact, constitute money damages. Id. at 1217. This meant that the payment of money damages was protected against through 5 U.S.C. § 702. Id. at 1225. The Tenth Circuit in Modoc ultimately agreed with the government’s position in that case and found that awarding “money damages” through NAHASDA would violate § 702. Id. at 1225. The Federal Circuit noted the inconsistencies in the government’s arguments in these two cases in its opinion, but ultimately found the government’s present argument, that the NAHASDA statute does not bring forth a case for Tucker Act damages, to be persuasive. It vacated and dismissed the case for lack of subject matter jurisdiction.

 

Sandoz Inc. v. Amgen Inc.
137 S. Ct. 1664 (2017)
Authored by Kendyl Green

Statement of Facts: In May 2014, Sandoz, Inc. (“Sandoz”) filed an application with the Food and Drug Administration (“FDA”) seeking approval to market a filgrastim biosimilar product under the name Zarxio, referencing Amgen Inc.’s (“Amgen”) Neupogen. Filgrastim is a biologic used to stimulate the production of white blood cells. On July 7, 2014, the FDA notified Sandoz that it had accepted the company’s application for review. The next day, Sandoz gave notice to Amgen that it had submitted an application to the FDA and that it intended to market Zarxio immediately upon receiving the FDA’s approval. Sandoz did not provide the requisite application and manufacturing information pursuant to § 262(l)(2)(A) and told Amgen that it could sue for infringement under § 262(l)(9)(C).

Consequently, Amgen sued Sandoz for patent infringement in October of 2014. Amgen also brought two claims under California’s unfair competition law which prohibits “any unlawful . . . business act or practice.” Cal. Bus. & Prof. Code Ann. §17200 (West 2008). A business act or practice is unlawful if it violates a rule in a state or federal statute. Referencing state law, Amgen first accused Sandoz of engaging in unlawful conduct when it did not provide the application and manufacturing information pursuant to § 262(l)(2)(A). Second, Amgen claimed Sandoz provided notice of commercial marketing under § 262(l)(8)(A) before the FDA had licensed its biosimilar. Amgen sought an injunction to enforce disclosure of the application and manufacturing information as well as disclosure of commercial marketing after the FDA licensed its biosimilar. Sandoz counterclaimed and sought declaratory judgment, asserting that the patent was invalid and, therefore, not infringed and that Sandoz had not violated the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”).

While this case was pending at the United States District Court for the Northern District of California, the FDA licensed Zarxio and Amgen was given another notice of commercial marketing. The district court granted partial judgment to Sandoz on its BPCIA counterclaims and dismissed Amgen’s unfair competition claims with prejudice. Consequently, Amgen appealed to the Federal Circuit. The Federal Circuit granted an injunction pending appeal against marketing Zarxio. Furthermore, the court affirmed the district court’s ruling to dismiss the state-law claim based on the alleged violation of § 262(l)(2)(A) because Sandoz did not violate the BPCIA for failing to disclose the application or manufacturing information. Additionally, the Federal Circuit found that the remedies stated in the BPCIA were the exclusive remedies for an applicant’s failure to comply with § 262(l)(2)(A). The court further noted that the applicant may provide notice of commercial marketing only after the licensure of the biosimilar. Consequently, it extended the injunction to bar Sandoz from marketing Zarxio until 180 days after the second notice was given.

Procedural History: The district court granted partial judgment to Sandoz on its BPCIA counterclaims and dismissed the unfair competition claims with prejudice. Amgen appealed to the Federal Circuit, which granted an injunction pending appeal against the commercial marketing of Zarxio. Subsequently, the Federal Circuit affirmed in part, vacated in part, and remanded the cases. The Federal Circuit affirmed the district court’s dismissal of Amgen’s state-law claim of Sandoz’s violation of § 262(l)(2)(A). The court found that Sandoz did not violate the BPCIA by failing to disclose its application and manufacturing information and that the BPCIA remedies are the exclusive remedies if an applicant fails to comply with § 262(l)(2)(A). The Federal Circuit also held that an applicant may provide effective notice of commercial marketing only after the FDA has licensed the biosimilar. It extended its injunction to 180 days after the date Sandoz provided its second notice. The Supreme Court of the United States granted certiorari.

Questions Presented: First, whether a court may enforce by injunction, under state or federal law, § 262(l)(2)(A)’s requirement that an applicant provide the sponsor with its application and manufacturing information. Second, whether an applicant may provide effective notice before FDA licensure of the biosimilar.

Holding: First, the Court vacated the issue of whether a court may enforce a violation of § 262(l)(2)(A) by an injunction under federal law. The Supreme Court remanded the issue of whether an injunction may be applied under state law, since this is a state court question. Second, the Court found that an applicant may provide notice either before or after FDA licensure. The Court found that Sandoz did not violate § 262(l)(8)(A) when it gave notice to Amgen before the filgratsm biosimilar product was licensed. Therefore, the Federal Circuit erred in issuing a federal injunction that prohibited Sandoz from marketing Zarxio until 180 days after licensure. Lastly, the Court remanded the case to the Federal Circuit to determine whether Sandoz’s failure to disclose its application and manufacturing information was “unlawful” under California unfair competition law. The Court vacated in part, reversed in part, and remanded the cases to the Federal Circuit. 

Reasoning: Writing for the majority, Justice Thomas held that, in making the determination to issue an injunction, a court may not impose an injunction under federal law if an applicant fails to provide the sponsor with an application and manufacturing information. Unlike the Federal Circuit, which found that failing to disclose this information qualified as artificial infringement, the Supreme Court determined that Sandoz’s failure to disclose its application was not an act of artificial infringement and thus not remedial under § 271(e)(4). Rather, the Court cited § 262 (l)(9)C), which provides a remedy for an applicant’s failure to turn over its application and manufacturing information by authorizing the sponsor to bring a declaratory-judgment action for artificial infringement. According to the statutory context, because there was already an express remedy in the BPCIA, federal law may not enforce the disclosure requirement through another form of remedy like an injunction. The Supreme Court declined to resolve the issue of whether failure to disclose the information was “unlawful” under California unfair competition law because it is a question of state law.

In determining the second issue, the Supreme Court explained § 262(l)(8)(A) describes that an applicant “shall provide notice to the reference product sponsor not later than 180 days before the date of the first commercial marketing of the biological product licensed under subsection (k).” Since the segment “of the biological product licensed under subsection (k)” refers only to “commercial marketing” and not to “notice,” a biosimilar must be “licensed” only before “commercial marketing.” 137 S. Ct. at 1668. Therefore, it does not matter whether an applicant provides notice before or after receiving approval from the FDA because the statutory provision only contains the explicit timing requirement of having a license 180 days before marketing.

Concurring Opinion: Justice Breyer joined the opinion of the Court in his concurrence. He stated that the Court reasonably interpreted the statutory terms. Nevertheless, in his view, Congress implicitly delegated authority to the FDA to interpret the terms according to its experience in administering the statute. If the FDA later determines that a different interpretation would better serve the statute’s objectives, it may modify or veer from the Court’s interpretation.

 

 

 

Halo Electronics, Inc. v. Pulse Electronics, Inc.
136 S. Ct. 1923 (2016)
Authored by Solangel Gonzalez

Statement of Facts: Halo and Pulse are electronic components suppliers. Halo alleges that Pulse infringed its patents and sued Pulse in 2007 after Pulse failed to license rights to the patents. The jury found that Pulse infringed Halo’s patent and determined that there was a high probability that the patents were willfully infringed; however, the United States District Court for the District of Nevada declined to award enhanced damages because Halo failed to show objective recklessness under the first step of Seagate. 

Procedural History: Halo appealed the district court’s decision and Pulse timely cross-appealed to the Federal Circuit. The Federal Circuit affirmed the district court and used a two-prong analysis from In re Seagate Technology, LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc), which entails an objective and subjective inquiry. Halo Elecs., Inc. v. Pulse Elecs., Inc., 769 F.3d 1371, 1382–83 (Fed. Cir. 2014), vacated and remanded, 136 S. Ct. 1923 (2016). First, a patentee must demonstrate that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent. Id. Second, the patentee must demonstrate that this objectively-defined risk was either known or so obvious that it should have been known to the accused infringer. Id. The Federal Circuit found that the district court did not err in holding the objective prong of the willfulness inquiry was not satisfied because, although Pulse was unsuccessful in challenging the validity of the Halo patents, Pulse raised a substantial question as to the obviousness. Id. Halo appealed to the Supreme Court. 

Question Presented: Whether the Federal Circuit’s Seagate test, a rigid two-part test for enhancing patent infringement damages, is the proper test under 35 U.S.C. § 284.

Holding: No. The Court rejected the Federal Circuit’s Seagate test as inconsistent with § 284. The Court acknowledged that the Seagate test correctly recognized that enhanced damages are appropriate only in egregious cases, but found the test to be unduly rigid.

Reasoning: Chief Justice Roberts delivered the Court’s opinion. The Court rejected the idea that a defendant had to be objectively reckless. Instead, it reasoned that the rigidity in Seagate’s objective recklessness prong shields many of the most culpable infringers from punishment. For example, even if the infringer musters a reasonable, but ultimately invalid, defense at trial, that defense would protect the infringer from enhanced damages under the Seagate test. This hold true  even though he may not act based on the defense or was even aware of it. Furthermore, infringers who deliberately infringe with no defense would also be shielded by requiring objectively reckless behavior. Instead, the Court observed that culpability is measured against the actor’s knowledge when the challenged conduct occurred. Thus, the Court concluded that courts should account for the circumstances of each case and exercise discretion in a manner free from the Seagate test constraints.

Second, the Court rejected the clear and convincing standard of proof and adopted the lower preponderance of the evidence standard generally applied to infringement, noting that the statute does not impose any specific evidentiary burden and historical practice does not support a heightened standard.

Third, the Supreme Court rejected the Federal Circuit’s standard of appellate review for findings on willful infringement under the Seagate test.  Instead of using a three-part review with varying standards, the Court adopted the simple abuse of discretion standard.

Concurring Opinion: Justice Breyer, joined by Justice Kennedy and Justice Alito, expressed his views on three limitations that 35 U.S.C. § 284 imposes to produce uniformity in its application. First, willful misconduct does not mean that a court can award enhanced damages only because the infringer knew about the patent. Second, the majority opinion does not weaken the rule specifying that an infringer’s failure to obtain the advice of counsel may not be used to prove willfulness.  Third, enhanced damages should not be used to reimburse patentees for litigation costs or expenses.

Smart System Innovations, LLC, v. Chicago Transit Company
873 F.3d 1364 (Fed. Cir. 2017)
Authored by Jamie Huelskamp

Statement of Facts: Smart Systems Innovations, LLC (“SSI”), appellant, brought suit against Chicago Transit Authority et al. (collectively “appellees”) in the United States District Court for the Northern District of Illinois claiming infringement of four patents, United States patent numbers: 7,566,003 (“’003 Patent”), 7,568,617 (“’617 Patent”), 8,505,816 (“’816 Patent”) and 8,662,390 (“’390 Patent”) (collectively the “Asserted Claims”). The Asserted Claims relate to methods for using bankcards, instead of traditional fare cards, in a mass transit system. The ’003 Patent and the ’617 Patent provided a method of entry for mass transit riders by using funds from an existing credit or debit card and, at the same time creating, a time record of the ride on the bankcard. The ’816 Patent and the ’390 Patent provide methods of configuring and processing information related to transit accounts in the mass transit system. Appellees filed a motion for judgment on the pleadings avowing that under 35 U.S.C. § 101 (2012) the Asserted Claims are patent ineligible.

Procedural History: The district court found for appellees Chicago Transit Company et al, granting their motion upon a finding that the claims were patent ineligible under § 101 because they were “[d]rawn to the abstract concept of a fundamental commercial transaction, paying for a fare . . . ”, Smart Systems Innovations, LLC v. Chicago Transit Authority, 2015 U.S. Dist. LEXIS 89628, at *16 (N.D. Ill. July 2015), and didn’t have a level of inventiveness necessary to overcome that, see id. at *22. Pursuant to Federal Rule of Civil Procedure 54(b), the district court entered a final judgment on the claims. SSI appeals the district court’s granting of appellees motion on the pleadings. 

Question Presented: Whether the ’003 Patent, the ’617 Patent, the ’816 Patent and the ’390 Patent, the Asserted Claims, are patent ineligible under 35 U.S.C. § 101. 

Holding: Yes. The Asserted Claims are patent ineligible under 35 U.S.C. § 101 because under the two-step framework provided in Alice Corp. Pty Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014), the Asserted Claims were directed to an abstract idea and did not include enough transformational elements to make them patent-eligible.

Reasoning: Judge Wallach, joined by Judge Reyna, writing for the majority of the court, affirmed the district court’s finding for Chicago Transit Authority. The court looked to the two-step framework for patent eligibility set out in Alice, 134 S. Ct. at 2347, which first considers whether the claim falls outside of patent eligibility by being a “law of nature, natural phenomenon, [or] abstract idea”, and then considers when looking at the totality of the elements, whether they transform the nature of the claim enough to make the claim patent eligible. See Smart Systems Innovations, LLC v. Chicago. Transit Authority, 873 F.3d at 1367 (Fed. Cir. Oct. 18, 2017) (quoting 134 S. Ct. at 2354–55). Considering Alice step one, the court concluded, “the claims are directed to the collection, storage, and recognition of data.” Id. at 1372. And as such, don’t meet the abstract idea exception for claims that improve a technological process. Considering Alice step two, the court agreed with the district court’s conclusion that the Asserted Claims failed to amount to an inventive concept because they simply utilized common computer parts. The court focuses on precedent that an improvement is not an abstract idea. The majority dismissed SSI’s other arguments (the patents don’t preempt another abstract idea and the claims are connected to a machine). Preemption of another abstract idea is only one aspect in the second step of the Alice framework and the machine the Asserted Claims are tied to involve generic computer parts, and so not transformational.

Dissenting in Part and Concurring in Part: Judge Linn dissented in part and concurred in part from the majority’s opinion. Judge Linn separated the Asserted Claims into two groups: (1) the ’003 Patent and the ’617 Patent, and (2) the ’817 Patent and the ’390 Patent. In the dissenting part of the opinion, Judge Linn disagreed with the majority that the ’003 and ’617 Patents were directed to abstract ideas. In so finding, Judge Linn underscored Congress’s intention for patent laws to be interpreted broadly, stating that nearly every patent contains an underlying abstract idea. As such, the abstract idea exception should be applied narrowly, looking at the specific language of the claims and the specification. These two patents, Judge Linn states, do more than relate to financial transactions in mass transit because they don’t just process payments. The claims provide for the manipulation of financial data that provide for access to a mass transit system in a novel way. “The claims recite more than a function and instead cover a specifically stated means to accomplish the function of transit system access by comparing bankcard data to a locally stored white list of approved bankcards.” Id. at 1382. As such, Judge Linn dissented from the majority’s finding that the ’003 Patent and the ’617 Patent are patent ineligible.

In the concurring part of the opinion, Judge Linn reluctantly states that the ’816 Patent and the ’390 Patent claims utilized more general language regarding collecting information for mass transit rides using a bankcard, which as a “fundamental economic practice”, see Alice, 134 S. Ct. at 2356, is an abstract idea. Judge Linn, however, cautions that these types of patent limitations “risk[] foreclosing innovation and inhibiting human ingenuity.” Smart Systems, 873 F.3d at 1377. The Judge states that almost every claim has an underlying abstract idea and disagrees with the exclusion of such a large class of claims, but nonetheless, is bound by precedent to place them within this category of exceptions. As such, Judge Linn concurred with the majority on the patent ineligibility of these two claims.

 

 

 

 

Cisco Systems, Inc. v. ITC
873 F.3d 1354 (Fed. Cir. 2017)
Authored by Ethan Green

 

Statement of Facts: On January 27, 2015, Cisco Systems, Inc. (“Cisco”) brought a complaint alleging that Arista Networks, Inc. (“Arista”) was infringing six of Cisco’s patents based on its imports of certain “network devices, related software, and components thereof.” The six patents in question were: U.S. Patent No. 7,162,537 (“’537 patent”); U.S. Patent No. 8,356,296 (“’296 patent”); U.S. Patent No. 7,290,164 (“’164 patent”); U.S. Patent No. 7,340,597 (“’597 patent”); U.S. Patent No. 6,741,592 (“’592 patent”); and U.S. Patent No. 7,200,145 (“’145 patent”).

Based on the questions presented to the Federal Circuit, the only patents relevant to the appeal are ’537 and ’597, which are briefly described below. The ’537 patent pertains to a data management system in network devices. 873 F.3d at 1357. Specifically, the ’537 patent provides a method to improve the functionality of network devices which normally use different subsystems to complete different tasks. This practice is inefficient and makes completing certain network tasks difficult. However, the ’537 patent describes a centralized database that enables each subsystem to function independently and complete specialized tasks. Id. at 1358.

The ’597 patent provides a method to secure communications devices with a logging module. Id. Previously, logging modules were targets of hackers who could infiltrate the entire network device by reconfiguring a single subsystem, but the ’597 patent contemplates a logging module that can identify attempted attacks on a subsystem by detecting configuration and subsystem changes. Id.

Arista sells network switches that connect devices to networks and facilitate data routing primarily to computer data centers. Arista sells both fixed and modular switches that each use software called Extensible Operating System (“EOS”). EOS functions through agents which complete discrete tasks and are coordinated through a database called SysDB. Additionally, EOS includes ProcMgr, a process manager that runs and monitors agents based on content in EOS’s file system directories. Id. at 1359. Cisco challenges Arista’s importation of fully assembled switches that were not installed with EOS software. Arista installed EOS software on the imported switches abroad to test the compatibility but removed the software before importation, only to reinstall the EOS software on the switches once inside the United States.

Procedural History: On January 27, 2015, the International Trade Commission (“ITC”) commenced an investigation under 19 U.S.C. § 1337 (2012) (“§ 337”) after Cisco alleged in a complaint that Arista’s imports of network devices and software infringed six of their patents: the ’537, ’296, ’164, ’597, ’592, and ’145 patents. In February of 2016, following this investigation, an Administrative Law Judge (“ALJ”) for the ITC concluded that Arista had violated § 337 with respect to the ’537, ’592, and ’145 patents. The ALJ did not find a § 337 violation with respect to the ’597 and ’164 patents. The ’296 patent had been terminated from the investigation based on Cisco’s motion on August 20, 2015. Cisco and Arista each filed a petition for review before the ITC. In June of 2016, the ITC affirmed the ALJ’s findings with respect to all five patents and issued a limited exclusion order against Arista’s imports of “certain network devices, related software, and components thereof.” Arista appealed the ITC’s claim construction of a ’537 patent term and the scope of the ITC’s exclusion order to the Federal Circuit. Cisco cross-appealed the ITC’s conclusion regarding infringement of the ’597 patent.

Questions Presented: First, whether the ITC properly constructed the ’537 patent claim by requiring router configuration data to be stored in said database. Second, whether the ITC erred in granting the limited exclusion order prohibiting importation of “network devices, related software and components thereof” that infringe the ’537, ’592, and ’145 patents which was properly supported by specific findings that the components of the accused products contribute to or induce infringement of the ’537 patent. Third, whether the ITC’s determination that Arista’s accused products do not infringe the ’597 patent was supported by substantial evidence.

Holdings: First, the ITC properly constructed the ’537 patent claim as requiring router configuration data to be stored in said database. Second, the ITC correctly crafted the limited exclusion order after sufficiently articulating its findings that the components of Arista’s accused products induce infringement of the ’537 patent. Third, the ITC’s ’597 patent noninfringement determination was supported by substantial evidence. The Federal Circuit affirmed the Commission’s final determination and exclusion order.

Reasoning: First, the Federal Circuit affirmed the ITC’s claim construction of the ’537 patent. The relevant claim term here is “said router configuration data managed by said database system and derived from configuration commands supplied by a user and executed by a router configuration subsystem before being stored in said database.” Id. at 1361. The Federal Circuit agreed with the ITC, who required that router configuration data be stored in said database. Id. Arista first challenged the grammatical construction of the claim, but based on the ordinary meaning of the specification and claims of the ’537 patent, the Federal Circuit found it clear that the patent addresses the management of router configuration data, not user-supplied commands as Arista contends. Arista additionally challenged the claim construction on the grounds of prosecution history, by asserting that the applicant made statements that indicated they understood the ’537 patent invention stored user commands and that understanding should govern. Id. at 1362.  However, the Federal Circuit found this challenge unconvincing because the applicant clarified that configuration data was the resulting information stored in a database, not user-supplied commands. The Federal Circuit therefore held such vague language from the prosecution history could not support altering the scope of the claim. Id.

Second, the Federal Circuit affirmed the ITC’s articulation of its findings that the accused Arista products induced infringement of the ’537 patent. The Federal Circuit acknowledged the ITC’s broad discretion in determining a remedy and noted that Arista’s hardware was devised to run EOS and SysDB and does so upon each boot of the switch. Id. at 1363. As a result, because Arista’s switch hardware includes every individual component, the exclusion order properly barred the importation of components of the infringing Arista products. Id.

Third, the ITC’s determination of noninfringement of the ’597 patent was supported by substantial evidence because the claim required the accused system to detect a configuration change, but the ITC found that the accused products instead inferred whether that system was functioning. Although Cisco contends that inferring is a form of detection, the ITC had evidence that ProcMgr could not definitively identify whether a configuration changed because it did not have access to a subsystem’s configuration. Id. Because evidence demonstrated that ProcMgr could only infer that a change might have occurred, not what the specific change was, the Federal Circuit affirmed the ITC’s noninfringement determination. Id. at 1363–64.

Bayer Pharma AG v. Watson Laboratories, Inc.
874 F.3d 1316 (Fed. Cir. 2017)
Authored by Devin Jacobs

Statement of Facts: On April 25, 2012, Bayer Pharma AG, Bayer Intellectual Property GmbH, and Bayer HealthCare Pharmaceuticals (collectively “Bayer”) sued Watson Laboratories, Inc., Actavis, Inc., and Actavis Pharma, Inc. (collectively “Watson”) alleging infringement of three patents assigned to Bayer. Bayer Pharma AG v. Watson Labs., Inc., 183 F. Supp. 3d 538 (D. Del. 2016). The patents at issue were U.S. Patent No. 6,362,178 (“the ’178 patent), U.S. Patent No. 7,696,206 (“the ’206 patent”), and U.S. Patent No. 8,613,950 (“the ’950 patent”). Id. at 544. These patents protected the formulation of Bayer’s drug STAXYN® (vardenafil hydrochloride orally disintegrating tablets (“ODT”)), which is an orally disintegrating medication for the treatment of erectile dysfunction (“ED”). Id. at 543.

Watson counterclaimed for declaratory judgment of noninfringement of the ’178 and ’206 patent, but later both parties agreed to a Stipulation and Order stipulating to some claims brought by Bayer as long as they were valid and enforceable. Id. at 543-44. Watson raised an obviousness defense for all infringement claims stemming from the ‘950 patent. Id at 544. The United States District Court for the District of Delaware (the “district court”) held a bench trial where it ruled that the asserted claims of patents ’178 and ’206 were not obvious. Id. During post-trial briefing, the parties stipulated to infringement of the ’950 patent and this claim went on to be decided by the district court. Id. Bayer asserted that Watson infringed on claims 9 and 11 of the ’950 patent by using sorbitol and mannitol as the sugars in their formulation and using an immediate-release formula. Watson raised an obviousness defense regarding the infringement of the ’950 patent based on multiple references showing a motivation to: (1) create an ODT formulation of vardenafil; (2) select mannitol and sorbitol as sugar alcohols; and (3) make the ODT formulation immediate-release.

Procedural History: The district court held that Watson had not established by clear and convincing evidence that developing a generic vardenafil orally disintegrating tablet in the manner protected by the patent was obvious to a person of skill in the art and Watson had infringed upon the ’950 patent. Watson appealed to the Federal Circuit.

Question Presented: Whether claims 9 and 11 of the ’950 patent would have been obvious to a person of skill in the art.

Holding: Yes, claims 9 and 11 of the ’950 patent would have been obvious to a person of skill in the art. The Federal Circuit reversed.

Reasoning: Judge Moore, joined by Judges Lourie and O’Malley, authored the Federal Circuit’s opinion. The Federal Circuit applied the four-factor test for obviousness found in Graham v. John Deere Co., 383 U.S. 1, 17–18 (1966). The relevant factual determinations for obviousness are: “(1) the scope and content of the prior art; (2) the differences between the prior art and the claims at issue; (3) the level of ordinary skill in the art at the time the invention was made; and (4) objective evidence of nonobviousness, if any.” In re Kubin, 561 F.3d 1351, 1355 (Fed. Cir. 2009) (citing Graham v. John Deere Co., 383 U.S. 1, 17–18 (1966)). For the first part of the test, the Federal Circuit found that the district court had exhibited clear error when it found that the record did not contain any indications that ED drugs would be good candidates for ODT formulations. The Federal Circuit relied on six references that Watson’s expert witness cited to find that at the time of Bayer’s original patents the prior art contained references that a person of ordinary skill would have sought to formulate an ODT formulation of vardenafil. Exacerbating the district court’s error in this factor was its reliance on the commercial availability of ODT formulations of ED drugs at the time of the ’950 patent’s priority date. The Federal Circuit clarified that the commercial availability is not the proper inquiry, but whether any motivation found in references or supported by the knowledge of a skilled artisan would be sufficient to show the scope of the art. See Outdry Technologies. Corp. v. Geox S.p.A., 859 F.3d 1364, 1370–71 (Fed. Cir. 2017).

In assessing factor two of the Graham test, the Federal Circuit looked at whether the district court erred in finding that a person of ordinary skill in the art would not have been motivated to use sorbitol and mannitol as the sugars in an ODT formulation. The Federal Circuit did not discredit the lower court’s credibility determination but found their reliance only on the commercial availability of products using sorbitol and mannitol in ODT formulations to be clearly erroneous. The Federal Circuit relied on references submitted by Watson which showed that other references used these sugars in ODT formulations in the past and had certain benefits in their texture, taste, and manufacturing ease.

The district court in assessing factor three, the level of skill at the time of the ’950 patent, held that a skilled artisan would have first pursued a delayed-release formulation rather than immediate-release and such a distinction supports a finding of teaching away. The Federal Circuit found that the district court did not commit clear error in their evaluation of a skilled artisan’s considerations in formulations, but did find that the district court’s finding of teaching away was improper. The Federal Circuit stated that teaching away was not relevant because even if “better alternatives exist in the prior art[, this] does not mean that an inferior combination is inapt for obviousness purposes.” In re Mouttet, 686 F.3d 1322, 1334 (Fed. Cir. 2012). The Federal Circuit clarified that an artisan need not select the best option, only a suitable option to achieve the relevant goal.

Finally, the Federal Circuit assessed the fourth Graham factor of objective evidence of obviousness. The Federal Circuit agreed with the district court’s finding that STAXYN®’s unexpected increased duration of action when compared with Levitra® (STAXYN®’s non-ODT predecessor) lent support to Bayer’s claim of nonobviousness.

The Federal Circuit weighed each of the four factors and concluded that claims 9 and 11 of the ’950 patent would have been obvious to a person of skill in the art, reversing the district court’s holding that Watson failed to prove their obviousness defense by clear and convincing evidence.

In re Micron Technology, Inc.
875 F.3d 1091 (Fed. Cir. 2017)
Authored by Christian Lake

Statement of Facts: In June 2016, President and Fellows of Harvard College (“Harvard”) filed a patent infringement case (the “Patent Case”) against Micron Technology, Inc. (“Micron”) in the United States District Court for the District of Massachusetts (the “district court”). Harvard alleged that venue in the District Court of Massachusetts was proper under 28 U.S.C. §§ 1391(b) and 1400. On August 15, 2016, Micron moved to dismiss Harvard’s case under Federal Rule of Civil Procedure (“FRCP”) 12(b)(6) for failure to state a claim, but did not include any objection to venue in the district court under FRCP 12(b)(3).

In May 2017, the Supreme Court decided TC Heartland LLC v. Kraft Foods Group Brands LLC (“TC Heartland”) and held that 28 U.S.C. § 1400(b)’s residence requirement for proper venue against a patent defendant is satisfied only in the corporate defendant’s state of incorporation. 137 S. Ct. 1514, at 1517 (2017).

After the Supreme Court’s decision in TC Heartland, Micron, which was not incorporated in Massachusetts, filed a motion in the district court to either dismiss or transfer Harvard’s case for improper venue. The district court denied Micron’s motion, and held that Micron had waived any venue objections when Micron failed to object to venue at the time it filed its motion to dismiss under FRCP 12(b)(6). The district court also rejected Micron’s contention that TC Heartland was a change of law which made the waiver rule under FRCP 12(h)(1)(A) inapplicable due to the objection being unavailable to Micron at the time it filed its FRCP 12(b)(6) motion.

Procedural History: Micron petitioned the Federal Circuit for a writ of mandamus to reverse the district court’s order and to either dismiss Harvard’s case for improper venue or to transfer the case to either the District of Delaware, where Micron was incorporated, or the District of Idaho, where Micron had its corporate headquarters. Micron, Articles, https://www.micron.com/about/our-commitment/governance/articles (last visited Nov. 19, 2017). Conversely, Harvard asked the Federal Circuit to deny Micron’s petition, or alternatively to vacate the district court’s order and to remand for consideration of 28 U.S.C. § 1400(b)’s allowance of venue where the acts of infringement have occurred and where the defendant has an established place of business. The district court had not considered § 1400(b)’s venue provisions because the court held that Micron waived its venue objection, which made further venue determinations pointless.

Questions Presented: First, is mandamus a proper remedy for Micron’s disagreement with the district court on whether it waived its venue objection? Second, did TC Heartland effect a change of controlling law such that the waiver rules under FRCP 12(h)(1)(A) were inapplicable to Micron? Third, was dismissal, transfer, or remand of Harvard’s case to the district court the proper remedy if Micron had not waived its venue objection prior to filing its 12(b)(3) motion?

Holdings: First, mandamus was appropriate in this case to answer the “basic, undecided” legal question of whether TC Heartland effected a change of controlling law regarding venue in a patent-infringement lawsuit. Second, TC Heartland did change the applicable law and Micron had not, therefore, waived a venue objection made consistent with the reasoning contained in TC Heartland. Third, the appropriate remedy in this case was to vacate the district court’s order denying Micron’s 12(b)(3) venue objection, and to remand the case to the district court for further consideration of other potential forfeitures of venue outside of waiver.

Reasoning: Under 28 U.S.C. § 1651(a), only exceptional circumstances that amount to either judicial usurpation of power or a clear abuse of discretion justify the issuance of mandamus, and the Federal Circuit listed three requirements that must all be met to justify issuance of a writ of mandamus. Those requirements are: 1) the petitioner must have no other adequate means to attain the relief; 2) the right to issuance of the writ is clear and indisputable; and 3) the court must be satisfied the writ is appropriate under the present circumstances. 875 F.3d at 1095. The Federal Circuit held that mandamus was proper in this case because of the basic and undecided legal question among the district courts regarding venue objections in the wake of TC Heartland. Absent issuing a writ of mandamus here, Micron, and other similarly-situated defendants, would suffer and judicial administration would continue to be inefficient in the face of the uncertainty regarding venue in patent infringement cases after TC Heartland.

Moving to the substance of Micron’s petition, the Federal Circuit first addressed the waiver provision contained within FRCP 12(h)(1). Under FRCP 12(h)(1), a party waives an FRCP 12(b)(2‒5) objection if such an objection was omitted in a party’s initial motion to dismiss, yet was available to that party at the time of the initial motion to dismiss, pursuant to FRCP 12(g)(2). To determine the availability of Micron’s venue objection, the Federal Circuit focused on the existing law at the time Micron filed its FRCP 12(b)(6) motion to dismiss and held that Micron’s venue objection was not available in August 2016. The Federal Circuit reasoned that Micron’s venue objection could not have been made prior to TC Heartland because the existing law prior to TC Heartland would have made Micron’s 12(b)(3) motion improper and, therefore, unavailable.

The Federal Circuit interpreted FRCP 12(h)(1)’s availability requirement in accordance with “common-sense,” and held that availability must be determined at the time of the motion to dismiss; not based on some hypothetical availability of relief pending changes to the existing law. Because futile objections are deemed unavailable under FRCP 12(h)(1) and 12(g)(2), Micron’s 12(b)(3) motion was not available in the pre-TC Heartland context. However, the sharp change in applicable law regarding venue in patent-infringement cases after TC Heartland gave effect to Micron’s venue objection. Thus, the Federal Circuit held that Micron did not waive its FRCP 12(h)(1) venue objection, despite not advancing it earlier in the proceeding, because prior to TC Heartland such an objection would have been futile.

Furthermore, the Federal Circuit held that, prior to TC Heartland, the district court was bound by the Federal Circuit’s opinion in V.E. Holding Corp. v. Johnson Gas Appliance Co., which defined “resides” under § 1391 and § 1400 as any jurisdiction in which the defendant could be subject to the personal jurisdiction of the district court therein. 917 F.2d 1574, 1578 (Fed. Cir. 1990). Since venue was proper in the District Court of Massachusetts under the holding in V.E. Holding Corp. at the time Micron made its initial 12(b)(6) motion, any 12(b)(3) venue objections prior to the change in applicable law under TC Heartland were futile and unavailable. Thus, the Federal Circuit held that Micron had not waived its 12(b)(3) motion for dismissal due to improper venue in August 2016.

The Federal Circuit next discussed the proper resolution of Micron’s appeal. In so doing, the Federal Circuit considered additional reasons why a district court could find that a defendant such as Micron could no longer present a venue defense, such as when a defendant has equitably forfeited a venue objection. In Neirbo Co. v. Bethlehem Shipbuilding Corp., the Supreme Court held that venue is a privilege that may be lost or forfeited if not asserted seasonably, or if the conduct of the asserting party justifies denial of the privilege. 308 U.S. 165, 168 (1939). However, the Federal Circuit noted that, on remand, any finding of forfeiture by the district court must be in accordance with the decisional framework set forth by the Supreme Court in Dietz v. Bouldin, Inc., 136 S. Ct. 1885. In Dietz, the Supreme Court held that forfeiture is an appropriate exercise of the District Court’s inherent powers where: 1) it is a reasonable response to the problems presented in the case at hand; and 2) the exercise of such power is not contrary to express grants or limitations on the powers of the court. Id. at 1891–92.

After determining the applicable forfeiture laws, the Federal Circuit refrained from making a final determination on Micron’s venue objection. Instead, the Federal Circuit focused on other circumstances where forfeiture had been found, such as where venue objections were presented close to trial. Such a wait-and-see approach can lead to a finding of forfeiture, according to the Federal Circuit. The Federal Circuit then remanded the case to the district court for consideration of other justifications for disallowance of Micron’s venue objection beyond waiver.

 

AgustaWestland North America, Inc. v. United States
880 F.3d 1326 (Fed. Cir. Jan. 23, 2018)
Authored by Brittany Norfleet

Statement of the Facts: The Tucker Act provides the Court of Federal Claims (“CFC”) with jurisdiction over alleged violations of statutes or regulations regarding the procurement of property or services. 28 U.S.C. § 1491 (b)(1). On April 3, 2014, in response to President Obama’s 2012 plan to reduce the nation’s defense budget, the United States Army issued Army Execution Order 109-14, which formally implemented the Aviation Restructure Initiative (“Initiative”). The Initiative called for the divestment of TH-67 training helicopters and also designated the UH-72A Lakota helicopter the Army’s Institutional Training Helicopter. The Army initially considered a sole-source acquisition of these helicopters. However, on September 19, 2014, AgustaWestland North America, Inc. (“AgustaWestland”) filed a Complaint for Declaratory and Injunctive Relief in the CFC claiming that the Execution Order was a procurement decision that violated the Competition in Contracting Act (“CICA”) and provisions of the Federal Acquisition Regulation (“FAR”). While the Tucker Act and CICA do not adequately define the term procurement, the Federal Circuit has decided that Section 403(2) is the appropriate definition to be used for the CFC to establish jurisdiction. See Distributed Solutions, Inc. v. United States, 539 F.3d 1340, 1345 (Fed. Cir. 2008). Thus, a procurement includes “all stages of the process of acquiring property or services, beginning with the process for determining a need for property or services and ending with contract completion and closeout.” Id. at 1345. The Government decided to forgo its solicitation of a sole-source contract and the CFC stayed the proceedings at that time. However, the Army had previously contracted with Airbus Helicopter, Inc. (“Airbus”) in 2006 to procure UH-72A Lakota helicopters. The contract allowed for the Government to exercise an option to purchase up to 483 UH-72A helicopters until September 30, 2015. The Government ultimately exercised that option, but ended up 16 helicopters short of its need. On December 10, 2015, the Government issued a Justification and Approval (“J&A”) to acquire the extra 16 helicopters from Airbus through a sole-source contract without proceeding through a full and open competitive bidding process. The Government’s justification for the sole-source contract was the unnecessary delay if it proceeded with a competitive bidding process and the duplicative costs that would be involved. Following the issuance of the J&A, AgustaWestland filed a Supplemental Complaint and Motion for Preliminary Injunction arguing that the Government’s actions were arbitrary and capricious.

Procedural History: The CFC found for AgustaWestland, holding first that the Execution Order on April 3, 2014 was a procurement and, therefore, the court had jurisdiction to review it. The court then supplemented the administrative record and considered additional evidence to conduct a proper judicial review. Using that additional evidence, the court found that the J&A violated the CICA and FAR and the Government’s decision to proceed with a sole-source contract absent full and open competition was arbitrary and capricious. The CFC enjoined the Government from proceeding with or awarding the sole-source contract. The United States appealed to the Federal Circuit.

Questions Presented: First, whether the CFC had jurisdiction to review the Army Execution Order. Second, whether the CFC abused its discretion when supplementing the administrative record. Third, whether the Government’s acquisition of UH-72A Lakota helicopters from Airbus through a sole-source contract absent a full and open competition was arbitrary and capricious.

Holdings: (1) No. The Army Execution Order was not a procurement decision subject to review. (2) Yes. It was an abuse of discretion to consider supplemental evidence outside that of the administrative record. (3) No. The sole-source contract Justification and Approval was not arbitrary and capricious. The Federal Circuit vacated the CFC decision.

Reasoning: The Federal Circuit first found that the CFC improperly exercised Tucker Act jurisdiction when reviewing the Execution Order because under Distributed Solutions the Order did not meet the definition of a procurement. 539 F.3d 1340, 1345 (Fed. Cir. 2008). Instead, the Order merely suggested replacing the old training helicopters with new UH-72s and did not discuss the procurement of the UH-72A Lakota helicopters. The Federal Circuit next held that the CFC did abuse its discretion when it considered evidence outside of the administrative record. The Federal Circuit found the court’s explanation for why it was necessary to supplement the record too general and insufficient and, therefore, an abuse of discretion under Axiom Resource Management, Inc. v. United States, 564 F.3d 1374 (Fed. Cir. 2009). Finally, the Federal Circuit found the Government’s Justification and Approval adequate and not an arbitrary and capricious action on behalf of the agency. The Federal Circuit explained that the reasons given by the Government for the why a sole-source noncompetitive contract award was necessary were sufficient. First, the CICA provides an exemption to competitive bidding when the property or services sought are available from one particular place and there is no adequate alternative source. Second, the Federal Circuit found that the Government’s explanation for the sole-source procurement met the requirements set forth by the FAR, including providing a sufficient summary of the market research conducted prior to issuing the J&A and providing estimates of the duplicative costs that would be incurred if they proceeded with a competitive bidding process. Therefore, the Government’s sole-source contract J&A was not arbitrary and capricious.