APaTS : MedImmune

Patent Karma

admin — Thu, 05 Mar 2009 19:23:00 GMT

Who needs yoga when there's patent litigation? The Federal Circuit's decision in Revolution Eyewear Inc. v. Aspex Eyewear Inc. shows how holding on too tight can endanger the very thing to which one is attached. In Revolution Eyewear, the patent holder wouldn't release the right to claim patent infringement in the future even though it tried to conclude the litigation by offering a covenant not to sue. Using the wisdom of the ancients (and the decisions in MedImmune and Sandisk) the Federal Circuit found that the defendant still had standing to bring a declaratory judgment for patent invalidity and non-infringement in large part because of the time-limited nature of the proffered covenant. By refusing to let go, the patent holder ended up imperiling the very patent rights it sought to protect.

Heavy.

The Revolution Eyewear patent holder claimed infringement of a magnetized system used to connect a removable sunglass overlay to a pair of eyeglass frames. The years-long litigation history included an early summary judgment and previous trip to the Federal Circuit. Shortly before trial on all claims was scheduled to begin, the patent holder tried to end the lawsuit (including defendant's declaratory judgment action for invalidity and non-infringement) through the offer of the date-limited covenant not sue. Reversing the district court's dismissal of defendant's declaratory judgment action, the Federal Circuit found that defendant had shown the continuing existence of a justiciable controversy.

The court's decision rested in large part upon the fact that the proffered covenant only released infringing conduct through the date of dismissal of the suit. Though the defendant had pulled its allegedly infringing product from the market "out of an abundance of caution," it still had a large quantity on hand. Defendant showed that it could quickly return its product to the marketplace and would do so upon a determination of the patent's invalidity. During oral argument, the patent holder admitted that it would return to court if defendants re-introduced the product after the suit's dismissal and "refused to repudiate suit for future infringement."

The court said that, while the patent holder certainly had such a right, its retention preserved the controversy at a level-under MedImmune and Sandisk-of "sufficient immediacy and reality" to allow the defendant to pursue its declaratory judgment action. The court emphasized no actual infringement or active preparation to infringe was necessary for the justiciable controversy to exist.

Revolution Eyewear demonstrates the new powers held by accused infringer to control the pacing and the initiative in a dispute. By thoroughly considering both the timing of counterclaims and decisions as to how and when to bring products and designs on (and off) the market, accused infringers can gain a distinct strategic advantage.

Remember too that under the "totality of circumstances" test, the history and tenor of the litigation, and the clarity and definiteness of the record with regard to future business plans and litigation intentions takes on great importance. In the end, this record will be the dividing line between prohibited "advisory opinions" and actual controversies.

Patent holders seeking to temper this power are reminded that covenants not to sue are not necessarily fail-proof. Courts will look at the precise coverage intended by covenant and hold the patent holder to it-even if it means finding that the parties still have on ongoing controversy to resolve. One thing is certain: lack of clarity here will almost always lead to an unintended result.

More than ever, patent holders should meditate upon the consequences of rattling the litigation saber. A well-executed declaratory judgment may end up transforming unmindful patent litigation into the very thing that causes a next incarnation of patent invalidity-a rebirth no patent holder is interested in.

Cat in the Vat

admin — Mon, 21 Jul 2008 18:14:00 GMT

Look at that! Look at that! Prong Two just stepped in on the mat-or, perhaps more precisely, it showed up in the Federal Circuit's decision in Cat Tech LLC v. TubeMaster, Inc. Specifically, in Cat Tech, the Federal Circuit reviewed whether the changes the Supreme Court decision in MedImmune v. Genentech made to the first prong of the test for declaratory judgment jurisdiction in actions brought by potential infringers impacted the second prong of the same jurisdictional test. The test prior to MedImmune required that the declaratory judgment plaintiff (1) have a reasonable apprehension that the patentee will file suit and (2) conduct "meaningful preparation" to conduct potentially infringing activity. In MedImmune, the Supreme Court rejected the test's first prong in favor of a more lenient "totality of the circumstances" review. Until Cat Tech, however, no decision addressed MedImmune's impact on the second prong. Would it, too, have to go?

The answer- "No! No! It does not have to go!"

Instead, Cat Tech found that the second prong of "meaningful preparation" is still intact - at least as a factor working to determine whether a dispute is immediate and real, even under MedImmune's more lenient standards. Meaningful preparation toward potential infringing activity is important (but perhaps not a required element) in this fundamental inquiry because actual steps taken toward infringement are indicators of both "immediacy and reality."

Here, potential infringer TubeMaster had designed four different configurations of a system for loading catalyst into multi-tube chemical reactors similar to that used by patent holder Cat Tech. The patented system used unique spacing to prevent broken catalyst and dust from falling into the catalyst tubes-thereby preventing uneven or incompletely loaded reactor tubes. TubeMaster's designs also used spacing to prevent uneven loading but the spaces were of a different size.

In addition to generating AutoCAD drawings for each of its four configurations, TubeMaster had successfully manufactured one of its configurations and was ready to deliver products under any configuration "within a normal delivery schedule" after receiving an order. Further, the company did not expect to make substantial modifications to its loading device designs after the beginning of production. The court found these actions to be significant, concrete steps sufficient to satisfy the test's second prong. The fact that TubeMaster had not created any sales literature or begun advertising its alternate configurations was a factor to be considered, but did not negate the immediacy and reality of the controversy.

In Cat Tech the Federal Circuit makes clear that declaratory judgment jurisdiction isn't automatic even when immediacy and reality prerequisites are met. Rather, a district court has discretion in deciding whether to entertain its jurisdiction. Here, the court found most persuasive the fact that, without the exercise of the district court's jurisdiction, TubeMaster would have to "bet the farm"- choose between abandoning its catalyst loaders or risk an award of treble damages in an infringement suit from Cat Tech. TubeMaster convinced the Federal Circuit that its situation was precisely the type of dilemma the Declaratory Judgment statute was intended to ameliorate.

Cat Tech certainly adds a new dimension to the post-MedImmune declaratory judgment landscape. Practitioners on both sides of the patent law aisle will want to take its lessons under serious advisement because:

Whether it's a prong or circumstance of the totality,
Expect a DJ when the controversy becomes reality.

Beeeep Beeeep Beeeep

admin — Thu, 23 Aug 2007 15:07:00 GMT

Benitec Australia, Ltd. v. Nucleonics, Inc....(read more)

Patent Law's New Math: Medimmune + KSR ≥ Your License Agreement

admin — Fri, 18 May 2007 13:16:00 GMT

MedImmune, Inc. v. Genentech, Inc. and KSR International Co. v. Teleflex Inc....(read more)

You Show Me Your . . . Patent and I’ll Show You My . . . DJ

admin — Fri, 04 May 2007 13:56:00 GMT

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The Cost of Cake

admin — Thu, 26 Apr 2007 11:10:00 GMT

The patent law bar is in a dither over the Supreme Court's decision in MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (U.S. 2007). MedImmune changes the rules for when a patent licensee may use a declaratory judgment (DJ) action to challenge a licensed patent. Before MedImmune, a licensee usually had to stop paying royalties and breach the license in order to bring a federal court action challenging the validity or enforceability of licensed patents-a requirement, it appeared, dictated by the rules regarding subject matter jurisdiction. Under the old rules, there simply wasn't a case or controversy sufficient to support federal court jurisdiction unless the licensee stepped up to the plate and took enough action to create adversity and a "reasonable apprehension" of suit.

The MedImmune decision changes the ante. Now, a patent licensee may remain in good standing under the license and still bring a DJ action to challenge the validity or enforceability of the licensed patent. Under the MedImmune decision it seems unhappy licensees can have their cake and eat it too.

Certainly, licensors can expect a flurry activity in MedImmune's wake as licensees seek to leverage the decision to their advantage, particularly when the license includes a package of patents. Whether through audit, threats, or actual litigation, some licensees may use a MedImmune club to challenge the validity or enforceability of involved patents in order to negotiate lower royalty rates.

Our take? Not so fast.

Many licenses contain contractual provisions stipulating to the validity and enforceability of the licensed patents. How courts will handle these provisions is still anyone's guess. Should they be deemed enforceable, licensee DJ actions and threats thereof will lose much of their possible bite.

Licensors also can and should evolve their license agreements to obviate the potential problems MedImmune raises. Contract language requiring tripled royalties or attorneys fees as a penalty for unsuccessful challenges will certainly reduce frivolous actions. Licensors may also begin to include termination provisions giving them the right to terminate the license for all patents in a package upon a challenge to the validity or enforceability of a particular one.

Licensors may even use litigation itself as a way to control validity or enforceability challenges. Licensors could file a complaint for infringement, which the licensee would answer with a counterclaim asserting invalidity and a counterclaim asserting unenforceability. Getting the desired license would require the licensee to enter into a binding settlement or consent judgment resolving from the outset patent validity and enforceability.

As these and other MedImmune-influenced provisions roll out, licenses will learn that the decision is not the free-for-all many have made it out to be. In the long run, we believe that licensees will still have to pay, and maybe even pay more, in order to have their cake.