By Andrew Williams —

In Streck, Inc. v. Research & Diagnostic Systems, Inc., the Federal Circuit clarified that when a party to an interference appeals the decision of the Board of Patent Appeals and Interferences to a district court in a civil action pursuant to 35 U.S.C. § 146, and new evidence is submitted, the district court must conduct a de novo determination of the issue of priority.  The Federal Circuit also clarified that in a § 146 action in the district court, the junior party still has the burden of persuasion if new evidence is introduced, regardless of whether the Board awarded them priority.  Finally, the Court pointed out that the standard of proof for priority in a § 146 action is preponderance of evidence when the applications were initially copending at the Patent Office, in contrast to the clear and convincing standard that is required when priority to an issued patent is challenged in district court.

The technology at issue in Streck was blood composition controls for hematology instruments.  Prior to 1996, such instruments measured reticulocytes and white blood cells separately, because the various blood components would interfere with each other, causing error in counting or classifying.  As the instruments makers began attempting to develop an integrated analyzer that could measure the different blood components in the same sample, both Streck and Research & Diagnostic Systems ("R&D") sought to create an integrated control.  The difficulty that the inventors had to overcome was interference between the various blood components, and that the controls needed to be stable over extended periods of time.  Streck obtained a patent to such controls and sued R&D in the U.S. District Court for the District of Nebraska.  The jury found that R&D did not provide clear and convincing evidence that its inventor was the first to invent any of the claims without abandonment, suppression, or concealment, and the District Court entered judgment against R&D.

At about the same time, an interference was declared in the Patent Office between the two parties, with the Streck inventors being named the senior party.  In contrast to the outcome in the District Court, however, the Board awarded priority to the R&D scientist.  Streck then filed a § 146 action in the same Nebraska court, and the case was assigned to the same judge.  Based on a provision in 35 U.S.C. § 146, the PTO record was admitted.  However, the District Court also considered live testimony and evidence not before the PTO, and decided that priority should be awarded to Streck.  In appealing to the Federal Circuit, R&D objected to the procedure used by the District Court, the burden of proof it applied, and its ultimate findings and conclusions.

First, the District Court reviewed the facts of priority de novo on the entirety of the PTO record and the evidence at trial.  R&D argued that the Court was required to accept the findings of the Board if those findings were supported by substantial evidence.  This position was contrary to the controlling case Winner International Royalty Corp. v. Wang, 202 F.3d 1340 (Fed. Cir. 2000), which clearly held that "the admission of live testimony on all matters before the Board in a section 146 action, as in this case, makes a factfinder of the district court and requires a de novo trial."  Id. at 1347.  R&D's proposed standard is the same standard that the Federal Circuit is required to apply when an appeal is made directly to it from the Board (a § 141 action), as required by the Supreme Court in Dickinson v. Zurko, 527 U.S. 150 (1999).  The problem with R&D's position is that Winner considered Zurko, and still established the de novo trial requirement, because that is the purpose of a § 146 action — to provide the ability to introduce new evidence, including live testimony.  R&D alleged that the standard had shifted since Winner, as evidenced by Agilent Technologies, Inc. v. Affymetrix, Inc., 567 F.3d 1366 (Fed. Cir. 2009).  However, the Agilent Court allowed the consideration of new evidence at the district court level without deference to the Board, even while stating that it was to "shor[e] up evidentiary gaps that may have been evident by the end of the inter partes interference procedure."  Id. at 1380.  R&D apparently took the position that if there were no "evidentiary gaps," then no new evidence could be introduced.  Nevertheless, Agilent is consistent with Winner, and is silent as to whether it was modifying the de novo standard, and as such, the Federal Circuit affirmed the District Court's de novo determination of the issue of priority under § 146.

One concern about using this de novo approach, however, is that it makes the hearing before the Board almost meaningless, and could result in potentially duplicative proceedings.  In almost every case, the losing party at the Board could contend that it needs the opportunity to elicit live testimony, and both parties will therefore be required to litigate the case anew.  This is true even though testimony subject to cross-examination can be presented before the Board, albeit as deposition testimony.  Nevertheless, the law on this issue is currently clear.  It will be interesting to see if the Supreme Court will comment on this issue with regard to § 146 actions in the Hyatt case, which is set to consider the standard for the related § 145 actions (appeals to district court from ex parte actions before the Board).

R&D also alleged that the District Court should have placed the burden of proof on Streck instead of R&D, because Streck appealed the case from the Board's decision.  However, the Federal Circuit distinguished between the burden of persuasion and the burden of production.  Because the civil proceeding was subject to de novo review, the burden of persuasion was still on R&D, regardless of the outcome before the Board.  It is apparent, however, that Streck had the burden of production, or in other words, they were the party that had to come forward with evidence at that stage of the litigation.  Of course, in a § 146 action, it is fairly trivial to clear such a hurdle, because the party with the burden of production can simply request live testimony.

The Federal Circuit also addressed the standard of proof.  However, Streck was awarded priority by a jury in the originally filed case where the standard was clear and convincing.  It is not surprising, therefore, that the District Court would come to the same conclusion in the § 146 action where the standard is the more lenient preponderance of the evidence, and it is not clear whether this standard was even challenged.

Finally, R&D challenged the District Court's findings and conclusions regarding whether its inventor had reduced the invention to practice before Streck's inventors.  To show possession of the subject matter sufficient to establish reduction to practice, an inventor must show or know that the invention will work for its intended purpose.  R&D questioned whether a count to "a hematology control" could have an intended purpose of being "free of inaccuracy due to interference from reticulocytes," as the Court found, requiring that the inventor have shown that there was no such interference.  The count itself did not include such a requirement.  Nevertheless, the District Court determined that if there was such interference, the invention could not properly be used as a control, and the Federal Circuit concluded that these findings were not clearly erroneous.  Therefore, the lower court's decision was affirmed.

Streck, Inc. v. Research & Diagnostic Systems, Inc. (Fed. Cir. 2011)
Panel:  Circuit Judges Newman, O'Malley, and Reyna
Opinion by Circuit Judge Newman

By Donald Zuhn —

Today, the Federal Circuit affirmed the denial by the District Court for the Eastern District of Virginia of Plaintiff-Appellant M.R. Mikkilineni's motion under Fed. R. Civ. P. 60(b)(3) requesting relief from a final judgment due to alleged fraud by the U.S. Patent and Trademark Office.  In denying the motion, the Federal Circuit determined that Mr. Mikkilineni failed to show any evidence of fraud, misrepresentation, or misconduct by the USPTO.

In an earlier appeal arising from this case, the Federal Circuit dismissed Mr. Mikkilineni's challenge of the USPTO's Interim Patent Subject Matter Eligibility Examination Instructions ("Interim Guidelines") (see "Mikkilineni v. Stoll (Fed. Cir. 2010)").  Mr. Mikkilineni had filed an application claiming "a method to fall-asleep by learning to use the process-algorithm in the brain [to] transform brain-neurons into a different[]physical state and produce melatonin and serotonin . . . without the use of drugs," and his claims were subsequently rejected under 35 U.S.C. § 101 as being directed to non-statutory subject matter.  After responding to the Examiner's non-final rejection, Mr. Mikkilineni filed suit against the Commissioner of Patents, alleging that the USPTO violated 5 U.S.C. § 553(b)-(c) of the Administrative Procedure Act ("APA") by failing to provide notice and an opportunity to comment with respect to the Interim Guidelines, on which the § 101 rejection was based.  The Federal Circuit affirmed the District Court's dismissal of the case, finding that the Interim Guidelines are interpretive, rather than substantive, and were thus exempt from the notice and comment requirements of § 553 of the APA.

With respect to the instant appeal, Mr. Mikkilineni filed a motion under Fed. R. Civ. P. 60(b)(3) with the District Court, arguing that the USPTO had obtained the previous judgment based on fraud.  The District Court denied the motion, holding that Mr. Mikkilineni failed to meet the clear and convincing evidence standard, and instead was "merely repeat[ing] the legal arguments that he already presented."  The Federal Circuit affirmed, stating that:

Mr. Mikkilineni fails to show any evidence of fraud.  Instead, he reargues the merits of the First Appeal and accuses the PTO of fraud and misrepresentation for disagreeing with his positions.

Mikkilineni v. Stoll (Fed. Cir. 2010)
Nonprecedential disposition
Panel: Chief Judge Rader and Circuit Judges Lourie and Moore
Per curiam opinion

By Donald Zuhn —

In an appeal decided last month, the Federal Circuit reversed a decision by the District Court for the Southern District of New York awarding prejudgment interest to Plaintiffs-Appellees Sanofi-Aventis, Sanofi-Synthelabo, Inc., and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership ("Sanofi"); affirmed the District Court's denial of a motion for leave to file a supplemental answer, affirmative defenses, and counterclaims by Defendants-Appellants Apotex Inc. and Apotex Corp. ("Apotex"); and affirmed the District Court's holding that Apotex Inc. is jointly and severally liable for all damages.  The appeal was the third heard by the Court regarding clopidogrel bisulfate tablets, which are sold by Sanofi under the brand name Plavix®.  In the first appeal, the Federal Circuit affirmed the District Court's grant of a preliminary injunction (see "Sanofi-Synthelabo v. Apotex, Inc. (Fed. Cir. 2006)").  In the second appeal, the Federal Circuit affirmed the District Court's judgment that Sanofi's U.S. Patent No. 4,847,265 was not invalid, infringed, and not unenforceable (see "Sanofi-Synthelabo v. Apotex, Inc. (Fed. Cir. 2008)").

Seeking approval to market a generic clopidogrel bisulfate tablets, Apotex filed an Abbreviated New Drug Application (ANDA) with the FDA.  In response to Apotex's ANDA filing, Sanofi brought suit against Apotex for infringement of the '265 patent, which triggered a thirty-month stay of FDA approval for Apotex's ANDA, pursuant to 21 U.S.C. § 355(j)(5)(B)(iii).  Eight months after the stay expired, the FDA approved Apotex's ANDA.

Prior to FDA approval, the parties began settlement negotiations that culminated in a tentative agreement.  Under that agreement, Sanofi granted a license to Apotex, allowing it to begin selling generic clopidogrel bisulfate tablets before the '265 patent expired, and agreed not to launch an authorized generic during the pendency of the license.  The Federal Trade Commission objected to the agreement, in part because of the provision not to launch an authorized generic (FTC approval was required as a result of a previous litigation involving Bristol-Myers Squibb Company, which is an owner of Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership).  As a result of the FTC's objections, Sanofi withdrew the agreement and the parties reinstituted settlement negotiations.

Two months later, the parties entered into a second settlement agreement that did not include a provision prohibiting Sanofi from launching an authorized generic.  Instead, the BMS executive negotiating the agreement orally promised Apotex that Sanofi would not launch an authorized generic during the pendency of the license.  However, when BMS presented the second settlement agreement to the FTC for approval, it did not disclose the oral agreement.  After Apotex subsequently disclosed the oral agreement to the FTC, the FTC requested written certification from BMS that there was no oral promise not to launch an authorized generic.  Although BMS provided such certification, the second settlement agreement was not approved pending an investigation into the existence of the oral agreement.

Subject to a regulatory denial provision in the second agreement, Apotex launched its clopidogrel bisulfate product.  In response, Sanofi moved for a preliminary injunction, which the District Court granted.  The District Court then held a bench trial regarding liability, finding the '265 patent to be valid and enforceable, and bifurcating on the issue of damages.

During the damages stage, Apotex sought leave to file a supplemental answer, in which Apotex alleged that the '265 patent was unenforceable for patent misuse due to BMS's failure to disclose the oral agreement to the FTC and its subsequent false certification to the FTC.  The District Court denied Apotex's motion, determining in part that BMS's actions likely did not constitute patent misuse.  Sanofi, meanwhile, moved for summary judgment on the issue of damages, noting that the second settlement agreement set Sanofi's "actual damages" as 50% of Apotex's net sales.  The District Court granted Sanofi's motion, and ordered Apotex to pay $442,209,362 in damages (50% of Apotex's net sales) and an additional $107,930,857 in prejudgment interest, rejecting Apotex's argument that the second settlement agreement precluded an award or prejudgment interest.  The District Court also held that Apotex Inc. and Apotex Corp. were jointly and severally liable for the damages.

On appeal, Apotex argued, in part, that the District Court erred by awarding Sanofi prejudgment interest, holding Apotex Inc. and Apotex Corp. jointly and severally liable, and denying Apotex's motion for leave to file a supplemental answer.  With respect to the award of prejudgment interest, Apotex contended that as a result of paragraph 14(ii) of the second settlement agreement, Sanofi contractually limited its full recovery to 50% of Apotex's net sales.  Paragraph 14(ii) states:

If the litigation results in a judgment that the '265 patent is not invalid or unenforceable, Sanofi agrees that its actual damages for any past infringement by Apotex, up to the date on which Apotex is enjoined, will be 50% of Apotex's net sales of clopidogrel products . . . .  Sanofi further agrees that it will not seek increased damages under 35 U.S.C. § 284.

Apotex also noted that paragraph 10 of the agreement, which defined the amount Sanofi would reimburse Apotex for Apotex's investment in inventory, expressly provided for a separate interest payment, in contrast with paragraph 14(ii).  The District Court, however, determined that because the second settlement agreement only explicitly limited damages, the agreement did not preclude an additional award of interest on those damages pursuant to 35 U.S.C. § 284.

In reversing the District Court's award of prejudgment interest, the Federal Circuit concluded that the parties intended that the phrase "actual damages" in the second settlement agreement include all damages necessary to compensate Sanofi for Apotex's infringement, and because prejudgment interest is a form of compensatory damages, the majority concluded that the District Court had erred in awarding additional prejudgment interest pursuant to 35 U.S.C. § 284.  The Federal Circuit explained that:

By agreeing to a simple formula to quantify Sanofi's "actual damages" in paragraph 14(ii), the parties avoided litigating a potentially complex issue.  Such certainty is beneficial to both parties.  Apotex benefited by knowing the exact amount of its potential liability.  Sanofi benefited because it could fix damages without having to resort to further litigation, including complex and potentially lengthy discovery.  These benefits disappear, however, if prejudgment interest is not included in "actual damages" since — as demonstrated here — the parties must engage in further litigation over an additional large liability.

On the issue of liability, Apotex argued that Apotex Inc. was not liable for damages because Apotex Inc. never engaged in the "commercial manufacture, use, offer to sell, or sale within the United States or importation into the United States of an approved drug," as required by 35 U.S.C. § 271(e)(4)(C).  Apotex noted instead that while Apotex Inc. manufactured the drug in Canada, Apotex Corp. imported the drug and made all commercial sales in the United States.  Apotex contended that Apotex Inc. could not be held liable for infringement under § 271(e)(4)(C) because Sanofi failed to present evidence that Apotex Inc.'s actions took place in the United States.  In affirming the District Court's determination that Apotex Inc. was jointly and severally liable for Sanofi's damages, the Federal Circuit pointed to the second settlement agreement, which defined Sanofi's compensatory damages from Apotex's infringement, and broadly defined "Apotex" to include "Apotex Inc. and Apotex Corp., collectively and individually, and including any entity now or hereafter owned or controlled by any of them."

Finally, with respect to Apotex's supplemental answer, the Federal Circuit determined that "BMS's failure to disclose the oral side deal with Apotex, and its false certification to the FTC regarding the same, in no way broadened the scope of the ’265 patent grant."  As a result, the Federal Circuit determined that "[t]he district court properly rejected Apotex's patent misuse defense as futile," citing Princo Corp. v. International Trade Commission, 616 F.3d 1318 (Fed. Cir. 2010) (en banc), for the proposition that "the key inquiry under the patent misuse doctrine is whether . . . the patentee has impermissibly broadened the physical or temporal scope of the patent grant and has done so in a manner that has anticompetitive effects," and adding that "[p]aragraph 14 of the Settlement Agreement states the way damages shall be measured, and does not mention that such damages shall be free of the routine award of interest."

Judge Newman, dissenting with respect to the reversal of the District Court's award of prejudgment interest, argued that the second settlement agreement "did not alter the general rule that prejudgment interest is awarded on damages for patent infringement."  As to the interest provision in paragraph 10 of the second settlement agreement, she stated:

That the parties, in a different section of the Agreement dealing with purchase of inventory, expressly provided for payment of interest on those purchases, does not support the panel majority's theory, for prejudgment interest on sale of inventory is not the established rule, as is prejudgment interest on infringement damages.

Sanofi-Aventis v. Apotex Inc. (Fed. Cir. 2011)
Panel: Circuit Judges Newman, Schall, and Moore
Opinion by Circuit Judge Moore; opinion dissenting-in-part by Circuit Judge Newman