Patent Docs

Ex parte Hakkani-Tur (PTAB 2018)

May 23, 2018

PTAB Affirms Patent Eligibility of Claims for Training a Spoken Language Understanding Classifier

By James Korenchan —

In a decision issued earlier this month, the U.S. Patent and Trademark Office Patent Trial and Appeal Board reversed the final rejection of all twenty pending claims in U.S. Application No. 14/846,486, for which the real party in interest is Microsoft. The claims at issue are directed to a system that trains a spoken language understanding (SLU) classifier based on user intent gleaned from user utterances (i.e., spoken natural language sentences and phrases, such as "send Mom an email"). In particular, the claimed invention involves collecting a variety of user utterances and semantically parsing the utterances (i.e., mapping the utterances into machine-understandable representations of their respective meanings) to generate a single graph that represents all the utterances in the form of nodes. The claimed invention then involves clustering (i.e., grouping) the utterances by similar user intent, and using the resulting groups to train the SLU classifier.

The claims had been rejected under 35 U.S.C. § 101 as reciting patent ineligible subject matter in the form of a mathematical calculation. Representative claim 1 is as follows, and the other independent claims recite similar limitations:

1. A system for training a spoken language understanding (SLU) classifier, comprising:

one or more computing devices, said computing devices being in communication with each other via a computer network whenever there is a plurality of computing devices; and

a computer program having program modules executable by the one or more computing devices, the one or more computing devices being directed by the program modules of the computer program to,

receive a corpus of user utterances,

for each of the user utterances in the corpus,

semantically parse the user utterance, and 

represent the result of said semantic parsing as a rooted semantic parse graph, 

combine the parse graphs representing all of the user utterances in the corpus into a single corpus graph that represents the semantic parses of the entire corpus and comprises a root node that is common to the parse graph representing each of the user utterances in the corpus,

cluster the user utterances in the corpus into intent-wise homogeneous groups of user utterances, said clustering comprising finding subgraphs in the corpus graph that represent different groups of user utterances, each of said different groups having a similar user intent, each of the subgraphs being more specific than the root node alone and more general than the full semantic parses of the individual user utterances,

use the intent-wise homogeneous groups of user utterances to train the SLU classifier, and

output the trained SLU classifier.

With the two-part Alice framework in mind, the key point of contention between the Appellant and the Examiner was whether the claim limitations involving the feature of clustering utterances based on user intent (referred to by the Appellant as "utterance intent clustering") are similar to the claim limitations at issue in McRO, Inc. v. Bandai Namco Games Am. Inc., 837 F.3d 1299, 1316 (Fed. Cir. 2016), and thus whether the reasoning in McRO applies in the present case. To this point, the Appellant argued that, similar to McRO, the claims focus on a specific improvement to a SLU subsystem that is not used by other SLU systems. The Appellant also argued that the utterance intent clustering feature recited by the claims is used to determine user intent in a way that is not found in conventional spoken dialog computing systems. For these reasons, the Appellant asserted that the claims amount to significantly more than any abstract idea.

The Examiner's arguments in support of the § 101 rejection were threefold. First, the Examiner plainly disagreed that the reasoning in McRO is applicable to the claims at issue. Second, the Examiner asserted that the utterance intent clustering is a mathematical calculation, and thus the improvement is not to a computer or other technology, but rather to the calculation itself. Third, in citing to various portions of App. No. 14/846,486 for alleged support, the Examiner asserted that SLU classifiers themselves are mathematical calculations, and thus that any limitations directed to training a SLU classifier are merely field of use limitations and do not add significantly more to the abstract idea of utterance intent clustering.

But the Board disagreed with the Examiner on all three points. The Board was quick to note that, although the portions of App. No. 14/846,486 cited by the Examiner might describe mathematical calculations, they do not discuss an SLU classifier, but rather discuss a method of developing the graph used to train the SLU classifier. In addition, the Board stated that the last two steps of claim 1 are more than just field of use limitations.

Yet the Board's reasoning for finding the claims patent-eligible was focused on differentiating the claims from those in McRO. In McRO, the patent-eligible claims were directed to a system of automating facial animation through the use of a specific set of rules. The McRO court found the claimed rules-based process was not the same as facial animation processes conventionally performed by human animators, and thus that the rules-based process provided a technological improvement and limited the claims to a specific, non-abstract animation process. In addition, the McRO court went as far to state that "processes that automate tasks that humans are capable of performing are patent eligible if properly claimed."

Here, although the claimed utterance intent clustering involves mathematical operations, the Examiner did not show that the utterance intent clustering is a process conventionally performed by humans. In fact, as the Board was sure to note, Appellant's own specification describes how the claimed utterance intent clustering differs from (and improves upon) conventional processes where spoken dialog applications incorporate "a pre-determined set of domains and user intents that are manually designed by domain experts." Before concluding that the claims are directed to patent-eligible subject matter, the Board provided an additional comparison to McRO:

Further, similar to McRO, the claims do not merely organize information into a new form. Rather, the utterance intent clustering limitation recites a specific order of steps (parsing utterances, combining all utterances into one graphs with a common root node, and then clustering into intent-wise homogeneous groups) that renders the information in a specific format used to create the desired results. McRO, 837 F.3d at 1315. The utterance intent clustering limitation, which produces intent-wise homogeneous groups that are then used to train the SLU classifier, is improving a technological process, as it is improving a specific process by which an SLU classifier is trained.

This decision is somewhat reminiscent of another statement by the McRO court which was not mentioned here by the Board — particularly that "processes that automate tasks that humans are capable of performing are patent eligible if properly claimed." Proper claiming of such processes is a line delicately walked by applicants operating in a variety of fields, and the buzzword "machine learning" certainly comes to mind in reading this decision. Classification and training are leading aspects of machine learning, and the Board's decision here gives further insight into how some panels at the Patent Office handle claims in this realm.

Ex parte Hakkani-Tur (PTAB 2018)
Panel: Administrative Patent Judges Allen R. MacDonald, Robert E. Nappi, and James W. Dejmek
Decision on Appeal by Administrative Patent Judge Nappi
Genetic Veterinary Sciences, Inc. v. LABOklin GmbH (E.D. Va. 2018)

May 22, 2018

By Donald Zuhn —

Earlier this month, in Genetic Veterinary Sciences, Inc. v. LABOklin GmbH, Senior District Judge Henry Coke Morgan, Jr. of the U.S. District Court for the Eastern District of Virginia granted a motion for judgment as a matter of law under Rule 50 of the Federal Rules of Civil Procedure filed by Plaintiff Genetic Veterinary Sciences, Inc. (doing business as Paw Prints Genetics) that claims 1-3 of U.S. Patent No. 9,157,114, which is assigned to Defendant University of Bern, are invalid under 35 U.S.C. § 101. Genetic Veterinary Sciences ("GVS") had initiated the dispute between the parties by filing a complaint for declaratory judgment of invalidity and noninfringement of the '114 patent.

The '114 patent, which is entitled "Method of determining the genotype relating to hereditary nasal parakeratosis (HNPK) and nucleic acids usable in said method," is directed to in vitro methods for genotyping a Labrador Retriever in order to determine whether the Labrador Retriever is a genetic carrier of Hereditary Nasal Parakeratosis ("HNPK"), which causes fissures to appear on a dog's nose. Claims 1-3, which were at issue in this case, recite:

1. An in vitro method for genotyping a Labrador Retriever comprising:
    a) obtaining a biological sample from the Labrador Retriever;
    b) genotyping a SUV39H2 gene encoding the polypeptide of SEQ ID NO: 1 and
    c) detecting the presence of a replacement of a nucleotide T with a nucleotide G at position 972 of SEQ ID NO: 2.

2. The method according to claim 1, wherein the genotyping is achieved by PCR, real-time PCR, melting point analysis of double-stranded DNA, mass spectroscopy, direct DNA sequencing, restriction fragment length polymorphism (RFLP), single strand conformation polymorphism (SSCP), high performance liquid chromatography (HPLC), or single base primer extension.

3. The method of claim 1, wherein the genotyping utilizes a primer pair comprising a first primer and a second primer, each comprising a contiguous span of at least 14 nucleotides of the sequence SEQ ID NO: 2 or a sequence complementary thereto, wherein:
    a) said first primer hybridizes to a first DNA strand of the SUV39H2 gene;
    b) said second primer hybridizes to the strand complementary to said first DNA strand of the SUV39H2 gene; and
    c) the 3' ends of said first and second primers are located on regions flanking the position 972 of SEQ ID NO: 2, or of nucleotide positions complementary thereto.

Prior to trial, GVS filed a motion for summary judgment regarding validity of the '114 patent, which the District Court denied. GVS then filed a motion for reconsideration of the Court's denial of its motion for summary judgment, which the District Court also denied. At trial, following the close of GVS' evidence, LABOklin moved for judgment as a matter of law, arguing that no reasonable juror could find claims 1-3 of the '114 patent invalid. The District Court denied LABOklin's motion. After the close of LABOklin's evidence, GVS moved for judgment as a matter of law that claims 1-3 were invalid as not patent eligible, which the District Court granted.

In assessing the patent eligibility of claims 1-3 of the '114 patent, the District Court noted that the analysis follows the two-step framework set forth by the Supreme Court in Alice Corp. Ptv. Ltd. v. CLS Bank Int'l (2014). Pursuant to that framework, courts first determine whether the claims at issue are directed to a patent-ineligible concept, and if so, then consider the elements of each claim both individually and as an ordered combination to determine whether the additional elements transform the claim into a patent-eligible application. The District Court noted that this second step "represents a 'search 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.'"

In applying the Alice two-step framework to the claims at issue, the District Court "[r]eview[ed] Claim one (1) individually, and then as an ordered combination with Claims two (2) or three (3)," and determined that "Claim one (1) of the '114 Patent, even in combination with Claims two (2) and three (3), is directed to patent ineligible subject matter, namely the discovery of the genetic mutation that is linked to HNPK." The Court noted that as in Ariosa Diagnostics, Inc. v. Sequenom, Inc. (Fed. Cir. 2015), "[s]imilarly here, the methods claimed in the '114 patent begin and end with the discovery of a natural phenomenon," adding that "[t]he fact that the research to which the patent refers is conducted in a lab [i.e., noting that claim 1 recites an in vitro method] does not form a basis for transforming the discovery of a law of nature into patent eligible subject matter." According to the Court, "[p]arts (a), (b), and (c) of Claim 1, which break down how the mutation is discovered, do not provide anything apart from the scientific designation of the mutation," and "the mutation of the SUV39H2 gene at position 972 in a Labrador Retriever arises through a natural process."

In response to GVS' motion, LABOklin argued that claims 1-3 were patent eligible in view of the Federal Circuit's decisions in Vanda Pharmaceuticals Inc. v. West-Ward Pharmaceuticals Int'l Ltd., and Rapid Litigation Management Ltd. v. CellzDirect, Inc. The District Court noted that in Vanda, the Federal Circuit reasoned that the patent claim at issue "was distinguishable from a patent claim that was aimed at a natural phenomenon because the claim did more than simply recite how to discover the correlation between CYP2D6 and iloperidone, it additionally applied that discovery to a particular regimen of treatment." According to the Court, however, "Vanda is distinguishable from this case because the '114 Patent does not claim a method of applying the discovery—the presence a point mutation in the SUV39H2 gene—to a new method of treating Labrador Retrievers."

As for LABOklin's reliance on CellzDirect, the District Court indicated that this too was "misplaced." The Court noted that in CellzDirect, "the Federal Circuit held that a claim was not directed to natural law when it claimed a 'new and useful laboratory technique for preserving hepatocytes,'" and that "[t]he Federal Circuit was careful to distinguish its ruling from other cases where claims amounted to nothing more than 'observing or identifying the ineligible concept itself.'" According to the Court, "Claim 1 of the '114 Patent is not a new and useful laboratory technique," and "amounts to nothing more than 'observing or identifying' the natural phenomenon of a mutation in the SUV39H2 gene, which has been rejected by the Federal Circuit as a basis for satisfying Step 1 of Alice."

The opinion concludes by finding that contrary to the testimony of LABOklin's expert that claim 1 of the '114 patent recites a patentable method of discovery, "the evidence does not support Dr. Friedenberg's opinion that paragraphs (a), (b), and (c) of Claim 1 constitutes a method." In particular, the District Court determined that:

[P]aragraphs (a) through (c) merely provide the supplying of Labrador DNA in part (a), point to the location of the mutation in dog's DNA in (b), and in (c) describe and locate the point mutation. These three paragraphs constitute a discovery of a natural phenomenon, not a method.

With respect to claims 2 and 3, the District Court noted these claims "only contain a number of alternative methods to locate the mutation, all of the methods are well known and have been around for decades."

The Court indicated that "after translating the complex scientific jargon used in the patent, the result is that it contains a valuable scientific discovery of a natural phenomenon without any inventive concept which transforms it from patent ineligible subject matter to patent eligible subject matter." The Court therefore granted GVS' motion for judgment of invalidity as a matter of law.

Genetic Veterinary Sciences, Inc. v. LABOklin GmbH (E.D. Va. 2018)
Opinion & Order by Senior District Judge Morgan, Jr.
Praxair Distribution, Inc. v. Mallinckrodt Hospital Products IP Ltd. (Fed. Cir. 2018)

May 21, 2018

By Kevin E. Noonan —

Last week, the Federal Circuit found all patent claims invalid for obviousness in an inter partes review, in Praxair Distribution, Inc. v. Mallinckrodt Hospital Products IP Ltd. But the Court did not render its decision without engendering a judicial disagreement between the majority and Judge Newman on the proper role of the printed matter doctrine in obviousness determinations.

Mallinckrodt's patent-in-IPR, U.S. Patent 8,846,112, was directed to methods for providing nitric oxide gas as a treatment for dilating pulmonary blood vessels in neonates. However, the art recognized a side effect, pulmonary edema, for which infants with pre-existing left ventricular dysfunction (LVD) were at particular risk. A diagnostic assay (pulmonary capillary wedge pressure, or "PCWP") having greater than a specific value was taught in Mallinckrodt's patent to exclude infants at risk for this side effect. Claim 1 is representative of the claims invalidated by the Patent Trial and Appeal Board, while Claim 9 was found nonobvious in the Board's Final Written Decision:

1. A method of providing pharmaceutically acceptable nitric oxide gas, the method comprising:
    obtaining a cylinder containing compressed nitric oxide gas in the form of a gaseous blend of nitric oxide and nitrogen;
    supplying the cylinder containing compressed nitric oxide gas to a medical provider responsible for treating neonates who have hypoxic respiratory failure, including some who do not have left ventricular dysfunction;
    providing to the medical provider (i) information that a recommended dose of inhaled nitric oxide gas for treatment of neonates with hypoxic respiratory failure is 20 ppm nitric oxide and (ii) information that, in patients with preexisting left ventricular dysfunction, inhaled nitric oxide may increase pulmonary capillary wedge pressure (PCWP), leading to pulmonary edema, the information of (ii) being sufficient to cause a medical provider considering inhaled nitric oxide treatment for a plurality of neonatal patients who (a) are suffering from a condition for which inhaled nitric oxide is indicated, and (b) have pre-existing left ventricular dysfunction, to elect to avoid treating one or more of the plurality of patients with inhaled nitric oxide in order to avoid putting the one or more patients at risk of pulmonary edema. (italics denoting limitations found by the Board to implicate the printed matter doctrine)

9. The method of claim 7, further comprising:
    performing at least one diagnostic process to identify a neonatal patient who has hypoxic respiratory failure and is a candidate for inhaled nitric oxide treatment;
    determining prior to treatment with inhaled nitric oxide that the neonatal patient has pre-existing left ventricular dysfunction;
    treating the neonatal patient with 20 ppm inhaled nitric oxide, whereupon the neonatal patient experiences pulmonary edema; and
    in accordance with the recommendation of [claim 7], discontinuing the treatment with inhaled nitric oxide due to the neonatal patient's pulmonary edema.

(Italics denoting the limitations relied upon by the Board to find the claim non-obvious.)

The Board found claims 1-8, 10, and 11 to be obvious over a combination of four prior art references, but found claim 9 not to be obvious, its analysis for this claim resting on its construction of the phrase "in accordance with" (as discussed below).

The PTAB gave the limitations set forth in italics above to implicate the printed matter doctrine, insofar as they recited information transmitted to a doctor or other medical practitioner. These encompassed mental steps, according to the Board, and on these grounds were given no patentable weight in the Board's obviousness assessment. So construed, the Board found claims 1-8, 10, and 11 to be obvious because the skilled worker would have been motivated to combine the prior art, which disclosed the provisions of claim 1 having patentable weight (i.e., not disclosing the information regarding neonatal risk to nitric oxide (NO) administration). On the contrary the Board found claim 9 not obvious because the prior art did not teach excluding from NO treatment neonates identified using the method recited in the claim.

The Federal Circuit affirmed the Board's obviousness determination for claims 1-8, 10, and 11 and reversed the Board's finding that claim 9 was nonobvious, in a decision by Judge Lourie, joined by Chief Judge Prost and Judge Newman; Judge Newman filed a concurring opinion. As discussed in the opinion, Mallinckrodt argued that the Board's application of the printed matter doctrine for claim construction was improper and should be limited to determining whether the claims were invalid after the claims were construed. The Federal Circuit disagreed, holding that it was proper not to give printed matter patentable weight under these circumstances, and that the printed matter doctrine (and exclusion of these limitations) was proper when what the limitation recites is the content of the information provided according to the claims as recited here.

The Board and the panel majority did not apply the printed matter doctrine on grounds that the claims did not recite patent eligible subject matter under Section 101, but limited its consideration to obviousness, citing AstraZeneca LP v. Apotex, Inc., 633 F.3d 1042, 1064 (Fed. Cir. 2010), to the effect that merely adding an instruction sheet or other informational content to a drug product, even if required by the FDA for approval, is not sufficient to create a functional relationship that could form a basis for distinguishing the prior art.

The panel majority also rejected Mallinckrodt's further argument that considering whether the limitation encompassed "mental steps" was error, stating that the printed matter doctrine "and the §102 and §103 novelty and non-obviousness inquiries overlap," citing Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 90 (2012). The panel's analysis of claim 3 was relevant to patents interacting with thought by a medical practitioner, wherein:

[T]he potential benefit of treating the [neonatal patient] with 20 ppm inhaled nitric oxide vs. the potential risk that inhaled nitric oxide could cause an increase in PCWP leading to pulmonary edema in patients who have pre-existing [LVD], in order to arrive at a decision of whether or not to treat the [neonatal patient] with inhaled nitric oxide.

And this, according to the opinion, is equivalent to a doctor thinking about the information provided. Relevant to Judge Newman's concurrence (albeit not expressly directed to it), the opinion states that "adding an ineligible mental process to ineligible information still leaves the claim limitation directed to printed matter."

The opinion also rejected Mallinckrodt's argument that the term "pharmaceutically acceptable" incorporates the information contained in what the Board considered the printed matter. Instead, the Federal Circuit held that the term is related to "the physical condition of the gas" rather than how or to whom the gas is administered, and that this phrase does not impart a functional relationship with the information recited in the limitation excluded under the printed matter doctrine.

With regard to Mallinckrodt's assertion that the Board erred with regard to the secondary considerations of non-obviousness it asserted before the Board, the panel agreed that secondary considerations must be taken into account. Here, these were not relevant because the evidence for secondary considerations was based on the information that the Board and Federal Circuit determined had no patentable weight ("No patentable weight means no patentable weight.").

Turning to the question of the obviousness of claim 9, the opinion recognized this question turned on construction of the phrase "in accordance with," and whether there was a functional relationship between the "recommending" step and the "discontinuing treatment" step. For the purpose of deciding this question, the panel assumed the Board's construction was proper, stating that the claim "requires a medical provider to take a specific action, discontinuing treatment, as a result of the recommendation limitation," a construction that suffices to create a functional relationship which neither party nor the panel disputed. This "interrelating" the information with the "concrete step" of discontinuing treatment meant to the panel that the Board had not erred in finding a functional relationship between the two limitations.

But that is not "the end of the inquiry," according to the opinion. The correct question was whether claim 9 as a whole would have been obvious, and the panel held that it is. The obviousness question regarding claim 9 was based on one reference, to Bernsasconi (A. Bernasconi & M. Beghetti, Inhaled Nitric Oxide Applications in Paediatric Practice, 4 Images in Paediatric Cardiology 4 (2002)), which disclosed that children with preexisting LDV were at risk when treated with nitric oxide and should be monitored to minimize severe adverse event occurrence. The Board found that the reference taught "that [nitric oxide] may be given to patients with LVD, as long as those patients are monitored carefully during treatment," which was contrary to the panel's interpretation of the claim language. The Federal Circuit held that this interpretation of the language of claim 9 was incorrect, and when properly understood the teachings of the Bernasconi reference were not contrary to what was claimed. The Board's error: "[t]he Board conflated excluding a patient with LVD from nitric oxide treatment and discontinuing nitric oxide treatment in a patient with LVD after that patient experiences a pulmonary edema," according to the opinion. The claim does not exclude patients from nitric oxide treatment, but provides that the treatment be discontinued if pulmonary edema ensues.

The Federal Circuit found that the factual bases for the Board's non-obviousness determination were not supported by substantial evidence. Moreover, remand was not necessary because "[t]he Board's uncontested findings regarding Bernasconi render claim 9 obvious under the proper reading of the claim." According to the opinion, the Bernasconi teachings of "careful observation and intensive monitoring during [nitric oxide] inhalation" include discontinuing treatment if pulmonary edema developed as a result of the treatment. The undisputed facts in the panel's opinion were that nitric oxide treatment was known in the art; that pulmonary edema in response to the treatment was known in the art; that pulmonary edema was known to be a potentially fatal side effect of treatment; and that "discontinuing a treatment in response to a serious side effect was known in the prior art." On these facts:

"[T]here is only one permissible factual finding," [citing] Corning v. Fast Felt Corp., 873 F.3d 896, 903 (Fed. Cir. 2017), that "careful observation and intensive monitoring" of patients with LVD treated with nitric oxide, motivated by the dangerous possibility of a pulmonary edema known to result from that treatment, includes or at least suggests to a person of ordinary skill discontinuing nitric oxide treatment after a patient with LVD administered nitric oxide suffers a pulmonary edema.

The panel also faulted the Board's reliance on secondary considerations, finding insufficient nexus to the claimed invention.

Judge Newman's concurrence disagreed with the majority's reliance on the printed matter doctrine, on the grounds that there is no printed matter recited in the claims, only information ("[b]ecause claim limitations directed to mental steps may attempt to capture informational content, they may be considered printed matter lacking patentable weight in an obviousness analysis," according to the majority opinion). Judge Newman perceived the conflation between mental steps and the printed matter doctrine by the Board as sanctioned by the majority to be another extension of patent eligibility considerations into what should be a straightforward obviousness analysis, with resulting doctrinal confusion. And this has practical consequences, because by denoting the limitations as having no patentable weight as printed matter the obviousness analysis can be performed as precedent expressly forbids it from being done:

[T]he form of analysis whereby limitations are removed from the claim before the claim is analyzed for patentability, is contrary to the patent statute, which requires determination of patentability of the claimed subject matter as a whole. It is improper to pluck limitations out of the claims, as of "no patentable weight," and then to review patentability of the remainder. See In re Gulack, 703 F.2d 1381, 1385 (Fed. Cir. 1983) ("Under section 103, the board cannot dissect a claim, excise the printed matter from it, and declare the remaining portion of the mutilated claim to be unpatentable. The claim must be read as a whole."). The Board stated that it afforded no patentable weight to the "providing information" and "evaluating" limitations, but gave patentable weight to the "recommendation" limitation in claim 9. Such piece-meal analysis does not impart precision to patentability analysis.

As is frequently the case, Judge Newman makes the better argument. Perhaps due to Section 101 fatigue or because the Supreme Court's penchant for ignoring the statutory silos of eligibility, anticipation, and obviousness is contagious, the majority's decision imports the incoherence of eligibility law into the obviousness context (doing little to clarify the standards in either). And by extending the application of the printed matter doctrine to claims that don't recite printed matter, this precedential decision has the capacity to make mischief (having the Court's imprimatur) until such time that another panel can creatively avoid its application or in the unlikely event that the Federal Circuit considers the question en banc (an eventuality that seems likely only if the Court becomes enamored with this approach to invalidating claims on eligibility grounds under the auspices of an obviousness determination). Neither possibility can be particularly comforting to the patent community.

Praxair Distribution, Inc. v. Mallinckrodt Hospital Products IP Ltd. (Fed. Cir. 2018)
Panel: Chief Judge Prost and Circuit Judges Newman and Lourie
Opinion for the court by Circuit Judge Lourie; opinion concurring in the judgment by Circuit Judge Newman
SAP America, Inc. v. InvestPic, LLC (Fed. Cir. 2018)

May 20, 2018

By Michael Borella —

SAP America, Inc. (SAP) filed a declaratory judgment action in the Northern District of Texas, alleging that U.S. Patent No. 6,349,291 of InvestPic, LLC (InvestPic) was invalid under 35 U.S.C. § 101. The District Court invalidated the '291 patent during the pleadings stage. InvestPic appealed the ruling to the Federal Circuit.

Claim 1 of the '291 patent recites:

A method for calculating, analyzing and displaying investment data comprising the steps of:
    (a) selecting a sample space, wherein the sample space includes at least one investment data sample;
    (b) generating a distribution function using a re-sampled statistical method and a bias parameter, wherein the bias parameter determines a degree of randomness in a resampling process; and,
    (c) generating a plot of the distribution function.

Other independent claims recite similar subject matter.

According to the Court, "the '291 patent states that 'conventional financial information sites' on the World Wide Web 'perform rudimentary statistical functions' that 'are not useful to investors in forecasting the behavior of financial markets because they rely upon assumptions that the underlying probability distribution function ('PDF') for the financial data follows a normal or Gaussian distribution.'" The Court goes on to observe that "[such an] assumption, the patent says, 'is generally false': 'the PDF for financial market data is heavy tailed (i.e., the histograms of financial market data typically involve many outliers containing important information),' rather than symmetric like a normal distribution." As a consequence, "statistical measures such as the standard deviation provide no meaningful insight into the distribution of financial data," and traditional "analyses understate the true risk and overstate the potential rewards for an investment or trading strategy." In other words, real-world financial data does not fit a so-called bell curve, and any statistics based on the incorrect assumption that it does will be flawed.

As a solution to this problem, the '291 patent "proposes a technique that utilizes resampled statistical methods for the analysis of financial data, which do not assume a normal probability distribution." Accordingly, this technique "estimates the distribution of data in a pool (a sample space) by repeated sampling of the data in the pool," with replacement. A bias parameter is used to "specify the degree of randomness in the resampling process." Doing so purportedly results in a more accurate sample distribution.

The Supreme Court's Alice Corp. v. CLS Bank Int'l case set forth a test to determine whether claims are directed to patent-eligible subject matter under 35 U.S.C. § 101. One must first decide whether the claim at hand is directed to a judicially-excluded law of nature, a natural phenomenon, or an abstract idea. If so, then one must further decide whether any element or combination of elements in the claim is sufficient to ensure that the claim amounts to "significantly more" than the judicial exclusion. But generic computer implementation of an otherwise abstract process does not qualify as significantly more. On the other hand, a claimed improvement to a computer or technological process is typically patent-eligible.

From the outset, one can see that InvestPic was fighting an uphill battle. Claim 1 is mainly limited to a mathematical calculation, and the problem domain is that of financial services. Both math and money have been previously viewed as being per se abstract ideas under Alice.

Of course, this observation was not lost on the Court, as it wrote "[t]he focus of the claims, as is plain from their terms, quoted above, is on selecting certain information, analyzing it using mathematical techniques, and reporting or displaying the results of the analysis." According to the Court, all of these aspects have been previously found to be abstract, such as in the Electric Power Group v. Alstom S.A. decision.

The Court also differentiated claim 1 from the patent-eligible claims of McRO, Inc. v. Bandai Namco Games America Inc. In the latter case, the claims "were directed to the creation of something physical – namely, the display of lip synchronization and facial expressions of animated characters on screens for viewing by human eyes." According to the Court, the improvement in McRO was in "how the physical display operated (to produce better quality images), unlike (what is present here) a claimed improvement in a mathematical technique with no improved display mechanism." Furthermore, McRO "had the specificity required to transform a claim from one claiming only a result to one claiming a way of achieving it."

The Court further explained that the broad, mathematically-oriented (but patent-eligible) claims of Thales Visionix Inc. v. U.S. differed from InvestPic's invention because "the improvement was in a physical tracking system," while claim 1 "is not a physical-realm improvement but an improvement in wholly abstract ideas." Ultimately, the Court concluded that "the focus of the claims is not any improved computer or network, but the improved mathematical analysis."

Declaring the claims abstract, the Court moved on the second step of Alice. Here, InvestPic fared no better, as the Court stated "[w]e readily conclude that there is nothing in the claims sufficient to remove them from the class of subject matter ineligible for patenting and transform them into an eligible application," and (subtlety invoking Berkheimer v. HP Inc.) "there are no factual allegations from which one could plausibly infer that they are inventive." Particularly, all additional elements were either abstract themselves or (as recited in other claims) conventional computer components.

The Court therefore concluded:

There is, in short, nothing "inventive" about any claim details, individually or in combination, that are not themselves in the realm of abstract ideas. In the absence of the required "inventive concept" in application, the claims here are legally equivalent to claims simply to the asserted advance in the realm of abstract ideas—an advance in mathematical techniques in finance. Under the principles developed in interpreting § 101, patent law does not protect such claims, without more, no matter how groundbreaking the advance. An innovator who makes such an advance lacks patent protection for the advance itself. If any such protection is to be found, the innovator must look outside patent law in search of it, such as in the law of trade secrets, whose core requirement is that the idea be kept secret from the public.

Or, technical advances are likely patent-eligible, non-technical advances are not. Where one draws that line is critical and it is clear where this particular panel has drawn it.

Even under a generous reading of Alice and its progeny, these claims might be found lacking. But the difficulty with cases like this one is how they are applied. We have seen how the Electric Power Group case has been broadly viewed by the courts and the U.S. Patent and Trademark Office (USPTO) to contend that virtually any invention involving collection, processing, and output of information is ineligible. Clearly, this is improper, it can be rebutted in many situations, but the process for doing so requires time and money — something that small companies might not have.

When faced with an invalidity contention based on Electric Power Group or this case, one should focus on the specificity of the claims at hand and their ability to solve a technical problem (as opposed to a mathematical or financial problem), and explain how the claims here were significantly broader and vaguer. The crux of the problem is that this strategy still may not win the day, even for clearly technical inventions. The Alice test is ill-defined and has been applied subjectively and inconsistently by the Federal Circuit and USPTO. Until this aspect of the law is fixed, cases like this one may continue to haunt patentees.

SAP America, Inc. v. InvestPic, LLC (Fed. Cir. 2018)
Panel: Circuit Judges Lourie, O'Malley, and Taranto
Opinion by Circuit Judge Taranto
Conference & CLE Calendar

May 20, 2018

May 22, 2018 – "Sovereign Immunity and Patents at the PTAB and District Courts" (McDonnell Boehnen Hulbert & Berghoff LLP) – 10:00 am to 11:15 am (CT)

May 22, 2018 – "Last Party Standing: Who Has Standing to Appeal Administrative Decisions to the Federal Circuit?" (Federal Circuit Bar Association) – 3:00 pm to 4:30 pm (EST)

May 22, 2018 – "Nuances in Amending Patent Claims before the PTAB and Avoiding Tribal Immunity at the PTAB" (Intellectual Property Law Association of Chicago Litigation Committee) – 5:00 to 7:30 pm (CT), Chicago, IL

May 24, 2018 – "Divided Infringement after Travel Sentry v. Tropp: Direct Infringement Liability for Third-Party Conduct" (Strafford) – 1:00 to 2:30 pm (EDT)

May 31, 2018 – "Oil States and SAS: Implications of the Supreme Court's Decisions for Patent Practice" (Strafford) – 1:00 to 2:30 pm (EDT)

May 31, 2018 – "The Defend Trade Secrets Act Turns Two: New Perspectives and Analysis on the Current State of the Law" (LexisNexis) – 1:30 to 2:00 pm (ET)

June 4-7, 2018 – BIO International Convention (Biotechnology Innovation Organization) – Boston, MA

June 5, 2018 – "Functional Claiming for Software Patents: Leveraging Recent Court Treatment — Surviving 112(f) and Disclosing Functional Basis for Software to Meet Heightened Standard of Review" (Strafford) – 1:00 to 2:30 pm (EDT)

June 13-15, 2018 – Patent Fundamentals Bootcamp 2018: An Introduction to Patent Drafting, Prosecution, and Litigation (Practising Law Institute) – New York, NY

June 25-27, 2018 – Summit on Biosimilars (American Conference Institute) – New York, NY

July 18-20, 2018 – Patent Fundamentals Bootcamp 2018: An Introduction to Patent Drafting, Prosecution, and Litigation (Practising Law Institute) – San Francisco, CA

September 21, 2018 – "USPTO Post-Grant Patent Trials 2018: Change & Recalibration" (Practising Law Institute) – New York & Groupcasts in Philadelphia, Indianapolis, New Brunswick, NJ, Pittsburgh, and Mechanicsburg, PA
Webinar on Defend Trade Secrets Act

May 19, 2018

LexisNexis will be offering a webinar on "The Defend Trade Secrets Act Turns Two: New Perspectives and Analysis on the Current State of the Law" on May 31, 2018 from 1:30 to 2:00 pm (ET). Jyotin Hamid and Tricia Sherno of Debevoise & Plimpton LLP will discuss the influence of the Defend Trade Secrets Act (DTSA) on intellectual property and employment practice and the current state of the law including:

• How trade secret litigation has changed with the DTSA
• Establishing a trade secret and confidentiality under the DTSA
• The availability of the "inevitable disclosure" theory under the DTSA
• Remedies and damages available under the DTSA
• Notice provisions in employment agreements and employee confidentiality agreements
• Recent trade secret cases and emerging issues

Those interested in registering for the webinar, can do so here.
Webinar on Functional Claiming for Software Patents

May 19, 2018

Strafford will be offering a webinar entitled "Functional Claiming for Software Patents: Leveraging Recent Court Treatment — Surviving 112(f) and Disclosing Functional Basis for Software to Meet Heightened Standard of Review" on June 5, 2018 from 1:00 to 2:30 pm (EDT). Cory C. Bell and Doris Johnson Hines of Finnegan Henderson Farabow Garrett & Dunner will guide IP counsel on functional claiming in software patents and USPTO prosecution, examine recent court treatment, and explain how to navigate the issue of functionality given the uncertainties in the prosecution and litigation contexts. The webinar will review the following issues:

• What has the impact of the Williamson decision been on functional claim interpretation for software patents?
• What are the benefits and limitations of using functional claims for software patents?
• What are the lessons from recent decisions regarding functionality in software patents?

The registration fee for the webcast is $297. Those interested in registering for the webinar, can do so here.
Anacor Pharmaceuticals, Inc. v. Iancu (Fed. Cir. 2018)

May 16, 2018

By Donald Zuhn —

On Monday, the Federal Circuit affirmed the determination by the U.S. Patent and Trademark Office's Patent Trial and Appeal Board in an inter partes review that claim 6 of U.S. Patent No. 7,582,621 is unpatentable for obviousness. On appeal, Anacor Pharmaceuticals, Inc., the assignee of the '621 patent, challenged the Board's reasoning in finding claim 6 to be invalid.

The '621 patent is directed to the use of 1,3-dihydro-5-fluoro-1-hydroxy-2, 1-benzoxaborole, also known as tavaborole, as a topical treatment for fungal infections that develop under fingernails and toenails. In particular, the '621 patent discloses that tavaborole can be used to treat a fungal infection known as onychomycosis, most frequently caused by dermatophytes (in approximately 90% of cases), which is a group of fungi that includes the genus Trichophyton and the species Trichophyton rubrum. However, onychomycosis can also be caused by another fungus, a yeast known as Candida albicans (in 5% of cases). The single claim at issue on appeal was claim 6, which depends from claim 4, which depends in turn from claim 1. Claims 1, 4, and 6 recite:

1. A method of treating an infection in an animal, said method comprising administering to the animal a therapeutically effective amount of 1,3-dihydro-5-fluoro-1-hydroxy-2,1-benzoxaborole, or a pharmaceutically acceptable salt thereof, sufficient to treat said infection.

4. The method of claim 1, wherein said infection is onychomycosis.

6. The method of claim 4, wherein said onychomycosis is tinea unguium.

Tinea unguium is onychomycosis caused by a dermatophyte.

In 2015, the Coalition for Affordable Drugs X LLC filed a petition requesting inter partes review of all twelve claims of the '621 patent, and the Board ultimately determined that the claims would have been obvious in light of the combination of International Application No. PCT/GB95/01206 ("Austin") and U.S. Application No. 10/077,521 ("Brehove"). Austin discloses: (a) the use of oxaboroles — boron heterocycles that include a five-member ring containing three carbon atoms, one oxygen atom, and one boron atom — as fungicides; and (b) that tavaborole, an oxaborole, has antifungal activity and is a highly effective agent for inhibiting a variety of fungi, including C. albicans. Brehove discloses: (a) the use of boron heterocycles in a topical composition to treat onychomycosis; (b) that two dioxaborinanes — boron heterocycles that include a six-member ring containing three carbon atoms, two oxygen atoms, and one boron atom — were shown in in vitro testing to have powerful potency against C. albicans; and (c) in in vivo tests on five individuals with onychomycosis, the fungal infection was successfully treated by topical application of the two dioxaborinanes.

In its final written decision, the Board determined that Austin discloses that tavaborole is a known fungicide with particular potency against C. albicans, and that molecular weight was the most important factor in predicting whether a molecule would penetrate the nail plate. In particular, the Board noted that of the seven tested compounds listed in Table 9 of Austin, tavaborole was the most effective against various fungi, including C. albicans, and of the nine compounds listed in Table 8 of Austin, tavaborole had the lowest molecular weight. The Board also determined that Brehove disclosed the treatment of onychomycosis with boron heterocycles and that Brehove's compounds were effective against C. albicans. The Board concluded that one of ordinary skill in the art would have used Austin's tavaborole in Brehove's topical treatment of onychomycosis with a reasonable expectation of success. While acknowledging that "neither Austin nor Brehove expressly teaches whether the disclosed compounds exhibit any activity against dermatophytes" (with respect to claim 6), the Board determined that "the weight of the evidence favors Petitioner's argument" because the skilled artisan would have expected that tavaborole, which shares functional activity with the compounds of Brehove against C. albicans would also share functional activity against other fungi responsible for onychomycosis, namely dermatophytes.

On appeal, Anacor argued that: (1) the Board violated due process and the procedural requirements of the Administrative Procedure Act by failing to provide Anacor with adequate notice of, and an opportunity to respond to, the grounds of rejection ultimately adopted by the Board; (2) the Board improperly shifted the burden of proof by requiring the patent owner to disprove obviousness; and (3) the Board incorrectly concluded that the compounds of Austin are structurally similar to the compounds of Brehove. In an opinion authored by Judge Bryson, and joined by Judge Reyna and Judge Stoll, the Federal Circuit rejected Anacor's challenges to the Board's reasoning and upheld the Board's conclusion that claim 6 of the '621 patent is invalid for obviousness.

With respect to Anacor's first argument, based on its assertion that the Petitioner shifted to a new theory of obviousness and that the Board adopted that new theory without giving Anacor proper notice or an opportunity to respond to it, the Federal Circuit rejected such assertion, finding instead that "the Board's final written decision was based on the same combination of references—Austin and Brehove—and the same series of inferences that the petition proposed." In response to Anacor's related assertion that the Petitioner had impermissibly relied on new evidence, not included in the petition, to satisfy its burden of showing a prima facie case of obviousness, the Federal Circuit noted that:

There is . . . no blanket prohibition against the introduction of new evidence during an inter partes review proceeding. In fact, "the introduction of new evidence in the course of the trial is to be expected in inter partes review trial proceedings and, as long as the opposing party is given notice of the evidence and an opportunity to respond to it, the introduction of such evidence is perfectly permissible under the APA" [citing Genzyme Therapeutic Prod. Ltd. P'ship v. Biomarin Pharm. Inc., 825 F.3d 1360, 1366 (Fed. Cir. 2016)].

Moreover, the Court also noted that of the three references (in addition to Austin and Brehove) cited by the Board in its final written decision, Anacor discussed two of the references in its patent owner's response and related submissions, one of Anacor's experts admitted to familiarity with the third reference (which related to two earlier installments by the same author that were cited in that expert's declaration), another Anacor expert was questioned about the third reference during his deposition, and Anacor discussed the third reference during the hearing before the Board. The panel therefore concluded that "Anacor was not denied its procedural rights with respect to the theory of obviousness adopted by the Board or any evidence relied on by the Board."

With respect to Anacor's second argument that the Board improperly shifted the burden of proof by requiring the patent owner to disprove obviousness, Anacor contended that the record provided no basis to conclude that tavaborole's activity against dermatophytes would be expected. The Federal Circuit, however, noted that:

In light of the fact that approximately 90 percent of all onychomycosis cases are attributable to dermatophytes, and in the absence of any evidence that patients with dermatophyte-based onychomycosis were excluded from the in vivo testing, it is highly likely that at least some of the five cases discussed by Brehove involved dermatophyte infections.

The panel therefore concluded that "substantial evidence supports the Board's findings that a person of ordinary skill in the art would have been motivated to combine the pertinent teachings of Austin and Brehove and would have had a reasonable expectation of success in doing so."

Finally, with respect to Anacor's third argument that the Board incorrectly concluded that the compounds of Austin are structurally similar to the compounds of Brehove, the Federal Circuit determined that "although there is only limited structural similarity between the compounds disclosed in Austin and Brehove, . . . in light of the combination of the structural and functional similarities between the compounds, substantial evidence supports the Board's findings."

Anacor Pharmaceuticals, Inc. v. Iancu (Fed. Cir. 2018)
Panel: Circuit Judges Reyna, Bryson, and Stoll
Opinion by Circuit Judge Bryson
In re BigCommerce, Inc. (Fed. Cir. 2018)

May 15, 2018

By Kevin E. Noonan —

The proper application of the patent venue statute, 28 U.S.C. § 1400(b) in the wake of the Supreme Court's decision in TC Heartland LLC v. Kraft Foods Group Brands LLC (2017), under recent Federal Circuit precedent (see In re Cray, Inc.) continues to be explicated in the district courts. The most recent episode in this continuing saga is a mandamus order handed down by the Federal Circuit today in In re BigCommerce, Inc. Specifically, the Court held:

[W]e hold that for purposes of determining venue under § 1400(b) in a state having multiple judicial districts, a corporate defendant shall be considered to "reside" only in the single judicial district within that state where it maintains a principal place of business, or, failing that, the judicial district in which its registered office is located.

This is a considerable restriction on the already limited venue options open to plaintiffs, which limited proper venue to states where the defendant resides (its state of incorporation) or "where the defendant has committed acts of infringement and has a regular and established place of business."

The case arose in the Eastern District of Texas, Marshall Division, where respondents Diem LLC and Express Mobile Inc. individually filed patent infringement suits against BigCommerce. BigCommerce filed a motion to dismiss for improper venue in the Diem case, and a motion to transfer in the Express Mobile case; each of these motions was denied by the District Court. As noted in the Federal Circuit's Order, "[i]t is undisputed that BigCommerce has no place of business in the Eastern District of Texas" (rather, its registered office and headquarters is in Austin, which is in the Western District of Texas). Nevertheless, the Diem court ruled that "a domestic corporation resides in the state of its incorporation and if that state contains more than one judicial district, the corporate defendant resides in each such judicial district for venue purposes" and the Express Mobile court found nothing in plaintiff's argument that distinguished this reasoning.

The Federal Circuit issued a mandamus order overturning these decisions, despite the acknowledged "heavy burden" placed on a petitioner for obtaining one, by Judge Linn joined by Judges Reyna and Hughes. The Court found "exceptional circumstances" here, specifically that "basic" and "undecided" questions were involved as required by the Supreme Court in Schlagenhauf v. Holder, 379 U.S. 104, 110 (1964). The order states there is "no doubt" that venue is proper for a domestic corporation only in its state of incorporation, but that there is inconsistent precedent regarding whether venue is limited in states having more than one judicial district. The Court also recognized that this issue had not been addressed in its Cray decision and thus "will inevitably be repeated," further justifying issuing the writ in this case. In this regard the order also notes that the magistrate's decision in the Diem case, that BigCommerce had waived its venue objections, was "clearly incorrect as a matter of law" under the Court's In re Micron Tech., Inc., 875 F.3d 1091 (Fed. Cir. 2017) precedent.

The Court's substantive decision, that "a domestic corporation incorporated in a state having multiple judicial districts [does not] 'reside[]' for purposes of the patent-specific venue statute, § 1400(b), in each and every judicial district in that state" was based, according to the order, on "the statute's language, history, purpose, and precedent." The plain language of the statute recites "judicial district" in the singular which has been held in other contexts as meaning a single place according to the panel, citing Hertz Corp. v. Friend, 559 U.S. 77, 93 (2010); NLRB v. Canning, 134 S. Ct. 2550, 2561 (2014); and Rumsfeld v. Padilla, 542 U.S. 426, 434 (2004). The order finds that the history of § 1400(b) is consistent with this construction, citing language in the 1897 predecessor to the current statute and that Congress did not intend to change the scope of the statute in its revisions in 1948, citing the Supreme Court's decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957). The panel also considered this reading consistent with the broader venue provisions of 28 U.S.C. § 1391(c) (1952), and that Congress had evinced an intent that venue in patent cases should be more limited than in general civil litigation contexts, citing Brunette Mach. Works, Ltd. v. Kockum Indus., Inc., 406 U.S. 706, 713 (1972) for this proposition.

The panel also found that the term "resides" was "a term of art that had a settled meaning in the law" consistent with limiting venue to the judicial district where a patent infringement defendant resides. The order cites Federal Practice treatise as well as Supreme Court precedent, including Galveston, H. & S.A. Ry. Co. v. Gonzales, 151 U.S. 496, 504 (1894), and Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561 (1942), as well as Fourco in support of the "well-established" status of the meaning of "resides," with Stonite being particularly relevant; there, two corporate defendants were "both incorporated in the state of Pennsylvania but maintained principal places of business in different judicial districts (like here, there being Eastern and Western judicial districts in Pennsylvania).

The Court's Order also reviewed and rejected three arguments from respondents. The first was that the use of "resides" in earlier Supreme Court cases (including Stonite) is in tension with later Supreme Court cases (including Fourco). The Federal Circuit rejected this argument almost out of hand, saying that the Court did not address the issue in Fourco at the judicial district level of granularity, "and set a necessary but not necessarily sufficient condition for corporate residence for venue under § 1400(b)" (emphasis in order). The second argument, that modern business circumstances counseled a "more flexib[le]" approach was "a non-starter," the panel stating that "'[t]he requirement of venue is specific and unambiguous; it is not one of those vague principles which, in the interest of some overriding policy, is to be given a 'liberal' construction," quoting Olberding v. Ill. Cent. R.R. Co., 346 U.S. 338, 340 (1953), as cited in Schnell v. Peter Eckrich & Sons, Inc., 365 U.S. 260, 264 (1961), and saying that "[s]uch policy-based arguments are best directed to Congress." Finally, the order addresses the question generally regarding how venue should be properly decided in multi-judicial district states. First, the proper district for venue would be the district in which the defendant has a principal place of business (if there is such a place in the state), citing Galveston, H. & S.A. Ry. Co. v. Gonzales, 151 U.S. 496, 504 (1894). And the Court noted that a "principal place of business" is not the same as "a regular and established place of business" as required by other aspects of the statute, the order citing Hertz Corp. v. Friend, 559 U.S. 77, 93 (2010). In the absence of a "principal place of business" in a state in which a defendant is incorporated, the "default' should be the judicial district in which the corporation has its registered office or agent, calling this a "universally recognized foundational requirement of corporate formation."

Thus, the contraction of proper venue for suing patent infringement defendants continues, with this current decision limiting venue to those districts having the closest ties with the accused infringer. It would not be incorrect to count this decision as another judicial encroachment on the ability of patentees to assert their patents.

In re BigCommerce, Inc. (Fed. Cir. 2018)
Panel: Circuit Judges Reyna, Linn, and Hughes
Order by Circuit Judge Linn
In re ZTE (USA) Inc. (Fed. Cir. 2018)

May 15, 2018

By Andrew Williams —

Since the Supreme Court's decision in TC Heartland LLC v. Kraft Foods Group Brands LLC last year, there have been hundreds of district court cases that have determined (or reconsidered) whether venue was proper. Correspondingly, because there have been "basic" and "undecided" issues necessary to address the effect of the TC Heartland case, the Federal Circuit has granted a few petitions for Writ of Mandamus because "[t]hese issues are likely to be repeated and present sufficiently exceptional circumstances . . . ." For example, the Court explained in In re Cray what constitutes a "regular and established place of business," and in In re Micron whether defendants have or have not waived their venue defense. This week, the Court granted two more petitions to address additional implications of the Supreme Court's case. In one of these cases, In re ZTE (USA) Inc., the Court addressed the question about which party has the burden in establishing whether venue is proper (or improper) in a particular case. In this case, the Federal Circuit vacated an Eastern District of Texas order denying a motion to dismiss for improper venue and instructed the District Court to place the burden of persuasion with regard to the propriety of venue on the Plaintiff.

The underlying case was American GNC Corporation v. ZTE Corporation, No. 4:17-cv-00620-ALM-KPJ, and was filed in the Eastern District of Texas. The case was initially filed in the Marshall Division, but was transferred to the Sherman Division before the motion on venue was denied. On October 4, 2017, Magistrate Judge Johnson recommended denying a motion to dismiss for improper venue. In so doing, she noted that "[a]lthough courts are not uniform in their views as to which party bears the burden of proof with respect to venue, the majority of Fifth Circuit cases hold that the burden is on the objecting defendant to establish that venue is improper." She also found that ZTE USA had a dedicated call center in Plano, Texas. And even though ZTE USA alleged that the call center was established in partnership with a third party and did not qualify as a regular and established place of business, Magistrate Judge Johnson found that ZTE USA had failed to meet its burden to show that the call center was not. U.S. District Judge Mazzant adopted the report and recommendations over ZTE USA's objections, and denied the motion to dismiss on November 7, 2017.

After determining that this issue was "amenable to resolution via mandamus," the Federal Circuit analyzed whether it involved a question "'related' to 'substantive matters unique to the Federal Circuit . . . .'" The Court had already determined in In re Cray that whether venue was proper under § 1400(b) was an issue unique to patent law. Moreover, the Court explained that which party bears the burden of persuasion for a legal rule is often treated as a substantive question, citing Supreme Court precedent from 1942 to the recent Medtronic, Inc. v. Mirowksi Family Ventures, LLC case from 2014. In addition, the Court pointed out that all appeals from cases that involve § 1400(b)-venue questions will come to it, so uniformity at the lower court level will "obviate any uncertainty . . . ." As a result, the Federal Circuit concluded "that the patent-specific nature of §1400(b) also implicates the burden for satisfying that statute, and should be analyzed under this court's law."

The Federal Circuit next analyzed the question of which party bears the burden. Interestingly, the Court could not find a case in which the issue had been addressed in its 37-year history. However, prior to the formation of the Federal Circuit, the regional circuits handled challenges to venue in patent cases by placing the burden on Plaintiffs. Even though this precedent might not have been binding on the Court, it was persuasive. Moreover, the Court noted that the restrictive nature of the patent-specific venue statute (as opposed to the more general venue statute of § 1391) supports placing the burden on the Plaintiff. Correspondingly, the Court held that "as a matter of Federal Circuit law, that upon motion by the Defendant challenging venue in a patent case, the Plaintiff bears the burden of establishing proper venue."

Finally, with regard to the merits of the venue determination, the Federal Circuit held that the District Court did not make a proper showing because it essentially rested on the fact that ZTE USA failed to meet its burden. Even though In re Cray dealt with the alleged "place of business" being an employee's house and not a call center, it did establish what is required to show whether the second prong of the venue statute is established, namely "(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant." Therefore, the lower court was required to "give reasoned consideration to all relevant factors or attributes of the relationship in determining whether those attributes warrant iQor's call center being deemed a regular and established place of business of ZTE USA." Because the District Court did not do this, the Federal Circuit vacated and remanded.

So what will be the impact of this decision? For district courts that have already been placing the burden on Plaintiffs, there will not be much effect. However, the districts where the question of proper venue has probably been addressed the most, namely Delaware and the Texas districts (located in the Third and Fifth Circuits respectively), the courts have been placing the burden on the defendants that move to dismiss or transfer. Therefore, there might be a shift in the outcome in such cases. For example, for ANDA cases, the District of Delaware and the Northern District of Texas had created two different tests for whether venue is proper in the Hatch-Waxman context. Chief Judge Stark from the Delaware court in Bristol-Myers Squibb Company v. Mylan concluded that "the 'acts of infringement' an ANDA filer 'has committed' includes all of the acts that would constitute ordinary patent infringement if, upon FDA approval, the generic drug product is launched into the market." On the other hand, Chief Judge Lynn of the Northern District of Texas in Galderma Laboratories, L.P. v. Teva Pharmaceuticals USA, Inc. focused on the act of infringement being the submission of the ANDA. It is unlikely that In re ZTE (USA) will impact this split. Chief Judge Stark has been allowing limited venue discovery in such cases, and this is unlikely to change based on the recent decision. And in Galderma, because neither party alleged that Teva USA had prepared or submitted its ANDA from Texas, there was no act of infringement found (and thus the issue of whether there was a "regular and established place of business" was moot). Nevertheless, moving forward, defendants will have little to lose in bringing a motion to dismiss or transfer because of improper venue in all but the clearest cases, so plaintiffs will need to be prepared for such challenges (ideally before the complaint is filed).

In re ZTE (USA) Inc. (Fed. Cir. 2018)
Panel: Circuit Judges Reyna, Linn, and Hughes
Order by Circuit Judge Linn

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