In another noteworthy year for patent law, the U.S. Supreme Court and Federal Circuit issued a

number of decisions that altered the patent landscape, including four Supreme Court decisions. The topics of the key cases included venue, patent exhaustion, patent eligible subject matter, and

several decisions interpreting provisions of the America Invents Act.

This White Paper summarizes and explains some of the most significant patent law cases decided in 2017. Each of these decisions has meaningful implications for patentees and

patent practitioners alike.

THE SUPREME COURT UPENDS PATENT VENUE, AND THE FEDERAL CIRCUIT REDEFINES THE TEST

TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514 (2017)

The Supreme Court's decision in TC Heartland has already reconfigured the landscape of patent litigation in the United States. The significance of TC Heartland was previewed in the 2016 version of this White Paper.1 Prior to the TC Heartland decision, Federal Circuit precedent provided that venue was proper in any judicial district in which the defendant was sub- ject to the court's personal jurisdiction. In practice, this stan- dard made the venue requirements for most patent litigation defendants a dead letter—the bulk of defendants in patent litigation are large entities, which are subject to the jurisdic- tion of many (if not all) of the 94 judicial district courts in the United States. As a result, a few courts (e.g., the Eastern District of Texas) became magnets for plaintiffs—and thus hotbeds for patent litigation—because they were perceived to be faster, to have more plaintiff-friendly judges, or to have jury pools more likely to render large verdicts. Prior to TC Heartland, these courts were handling more cases than most of the rest of the districts in the United States combined.

By reconsidering the venue provisions covering patent law, however, TC Heartland has disrupted that system. In TC Heartland, the Court addressed the interaction between the general venue statute (28 U.S.C. § 1391(c)) and the patent- specific venue statute (28 U.S.C. § 1400(b)). Specifically, the Court was asked to determine whether § 1391's definition of "residence" modifies the provisions of § 1400(b). According to

§ 1400(b), venue is proper in patent cases "where the defen- dant resides, or where the defendant has committed acts of infringement and has a regular and established place of business."2 Although § 1400(b) does not define the term "resides," § 1391(c) provides that entities (e.g., corporations) that are sued "shall be deemed to reside ... in any judicial district in which such [entity] is subject to the court's per- sonal jurisdiction."3 Relying on its holding in VE Holding Corp v. Johnson Gas Appliance Co.,4 the Federal Circuit held that § 1391(c) dictated that venue is proper for patent litigation in any district in which the defendant is subject to the court's personal jurisdiction.5

The Supreme Court reversed, holding that a defendant in a patent-infringement case "resides" only in the state in which

it is incorporated.6 Among other things, the Court relied on its 1957 decision in Fourco Glass: "In Fourco, this Court defini- tively and unambiguously held that the word 'reside[nce]' in

§ 1400(b) has a particular meaning as applied to domestic corporations: It refers only to the State of incorporation."7 Although Congress has amended § 1391 since Fourco was decided, Congress has not amended § 1400(b). Moreover, the Court found no evidence that Congress had intended to alter the Fourco decision by modifying § 1391. Accordingly, the Court reversed the Federal Circuit and held that a defendant in a patent case "resides" in its state of incorporation.8

The TC Heartland decision clarifies the "residence" prong of the patent venue statute. However, § 1400(b) also states that venue is proper "where the defendant has committed acts of infringement and has a regular and established place of business." Of course, the liberal pre-TC Heartland interpretation of "residence" meant that the second prong of § 1400(b) was rarely invoked, and, as a result, few cases explain what is required by those elements. Thus, following TC Heartland, as discussed below, it will be up to the Federal Circuit and district courts to give meaning to the second prong of § 1400(b).

In re Cray, 871 F.3d 1355 (Fed. Cir. 2017)

In re Cray provided the first opportunity for the Federal Circuit to consider a venue question following the Supreme Court's landmark decision in TC Heartland. In Cray, the Federal Circuit was left to wrestle with the previously ignored second prong of the patent-venue statute, § 1400(b), stating that venue is proper "where the defendant has committed acts of infringement and has a regular and established place of business."9

The Eastern District of Texas had denied a request to trans- fer venue made by defendant Cray Inc. ("Cray").10 Cray was incorporated in Washington state and had its headquarters there. Cray also had "facilities" in Minnesota, Wisconsin, and Houston and Dallas, Texas. (Neither Houston nor Dallas are within the Eastern District of Texas.) Although Cray did have two employees who worked remotely in the Eastern District of Texas, it did not "rent or own an office or any property" in that district.11 The employees did not maintain Cray products at their homes or have Cray advertising literature available, nor did Cray ever compensate the employees for their homes as part of its business.12 Nevertheless, the district court held that venue was proper in the Eastern District of Texas under the Federal Circuit's decision in In re Cordis Corp.13

The Federal Circuit reversed. It held that venue was not proper in the Eastern District of Texas. In so holding, the court set out "three general requirements relevant to the inquiry: (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."14 With respect to the first requirement, the court stated that there "must be a physical, geographical loca- tion in the district from which the business of the defendant is carried out." The court noted, for example, that in its Cordis decision, the defendant had used its employees' homes in the district to store products, advertising literature, and inventory.15

For the second requirement, the court emphasized "regular" and "established." The court noted that regularity required the business to be "steady" and not merely transient. Likewise, for "established," the court indicated that the place of business "must for a meaningful time period be stable."16 Thus, "if an employee can move his or her home out of the district at his or her own instigation, without the approval of the defendant, that would cut against the employee's home being considered a place of business of the defendant."17

Finally, the court emphasized that the place must be "of the defendant, not solely a place of the defendant's employee."18 The court offered additional guidance for this factor:

Relevant considerations include whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place. One can also recognize that a small business might operate from a home; if that is a place of business of the defendant, that can be a place of business satisfying the require- ment of the statute. ... Another consideration might be whether the defendant conditioned employment on an employee's continued residence in the district or the storing of materials at a place in the district so that they can be distributed or sold from that place. Marketing or advertisements also may be relevant, but only to the extent they indicate that the defendant itself holds out a place for its business.19

In view of the standard announced, the Federal Circuit vacated the district court's denial of Cray's motion and ordered the district court to transfer the case to an appropriate venue.20

In re Micron Tech., Inc., 875 F.3d 1091 (Fed. Cir. 2017) Another mandamus petition granted by the Federal Circuit in the wake of TC Heartland further fleshed out the importance of the Supreme Court's change in the trajectory of venue law. After the Supreme Court decided TC Heartland, a number of defendants in pending patent cases—particularly in the Eastern District of Texas—moved to change venue but were rebuffed by judges who had held that the defendants had waived venue challenges by not bringing them at the out- set of litigation, as Rule 12(h)(1) of the Federal Rules of Civil Procedure requires. When the defendants protested that they could not have brought such a motion at the outset of the case, because of the state of Federal Circuit law, the courts responded that TC Heartland was not actually a change in the law, because it just reaffirmed Fourco, which had been the law all along—meaning that the venue challenge was available to the defendants all along.

In Micron, the Federal Circuit held otherwise. Under Rule 12(g)

(2) of the Federal Rules, a venue objection is not waived if it was not "available to the party." The Federal Circuit "conclude[d] as a matter of law that it was not. The venue objection was not available until the Supreme Court decided TC Heartland because, before then, it would have been improper, given con- trolling precedent, for the district court to dismiss or to transfer for lack of venue."21

Though the Federal Circuit rejected the district court's finding of waiver, it went on to hold that there were other bases on which a district court might find a belated waiver objection to have been "forfeited": "We have not provided a precedential answer to the question whether the timeliness determination may take account of factors other than the sheer time from when the defense becomes available to when it is asserted, including factors such as how near is the trial, which may impli- cate efficiency or other interests of the judicial system and of other participants in the case. But we have denied mandamus, finding no clear abuse of discretion, in several cases involving venue objections based on TC Heartland that were presented close to trial."22

The court went on to outline one particular possibility of for- feiture: "a defendant's tactical wait-and-see bypassing of an opportunity to declare a desire for a different forum, where the

course of proceedings might well have been altered by such a declaration. We do not here say how such a claim of forfeiture ultimately should be analyzed."23 The panel thus remanded for the district court to consider any such claim of forfeiture that might be made. On remand, the District of Massachusetts granted the defendant's (Micron's) motion and transferred the case to the District of Delaware.24

Although Cray and Micron provide the first glimpses of a developing area of venue law, district courts and the Federal Circuit will certainly continue to wrestle with these questions in 2018 and beyond.

PATENTABILITY: THE FEDERAL CIRCUIT ADDRESSES LAWS OF NATURE

Thales Visionix Inc. v. United States, 850 F.3d 1343 (Fed. Cir. 2017)

One of the most unsettled areas of patent jurisprudence arises out of the Supreme Court's recent decisions concern- ing patent eligibility, under 35 U.S.C. § 101.

In Thales, the Federal Circuit addressed issues of patentability relating to abstract ideas in the course of overturning a decision from the Court of Federal Claims. The subject matter of the patent involved an inertial tracking system used to calculate the position, orientation, and velocity of objects in three-dimensional space. Such sensors are used in a variety of applications, including aircraft navigation and virtual reality simulators. According to the patent, traditional systems measured inertial changes relative to the earth, whereas the claimed invention measures changes relative to a moving ref- erence frame. These improvements are said to increase the accuracy of positional information and eliminate hardware needed in traditional devices. However, the Court of Federal Claims held that all claims of the patent were directed to ineli- gible subject matter under 35 U.S.C. § 101.25 The court held the claims were directed to the abstract idea of using the laws of nature to track two objects and provided no inventive concept beyond an abstract idea.

Relying on the Supreme Court's 1981 decision in Diamond v. Diehr,26 the Federal Circuit reversed and found the claims patentable. In Diehr, the Supreme Court found claims utilizing "the Arrhenius equation" to calculate curing times for molding

rubber were patentable. The Court held that although math- ematical formulas alone are not patent-eligible, claims with mathematical formulas implemented "in a structure or process which, when considered as a whole, is performing a [patent- able] function" are valid.27 Because the claims were directed to an improvement in the rubber curing process, not simply a mathematical formula, they were held valid.

The Federal Circuit found the claims in Thales "nearly indistin- guishable" from those in Diehr.28 The court held that while the claims use mathematical equations to "determine the orientation of the object relative to the moving reference frame, the equa- tions ... serve only to tabulate the positon and orientation infor- mation in [the] configuration."29 Thus, the claims "are not merely directed to the abstract idea of using a 'mathematical equation'" but, instead, are "directed to systems and methods that use iner- tial sensors in a non-conventional manner to reduce errors. ..."30

Emphasizing their decision, the Federal Circuit stressed that just because "a mathematical equation is required to complete

[a] claimed method and system does not doom the claims to abstraction."31 Thus, Thales may be useful when prosecut- ing claims relying on laws of physics and nature. Practitioners can argue that rather than tying up laws of nature, the inven- tion consists of an application of principles to a configuration of elements.

THE FEDERAL CIRCUIT CONTINUES TO INTERPRET THE AMERICA INVENTS ACT

Each year since the America Invents Act ("AIA") went into effect in 2012, the Federal Circuit and Supreme Court have addressed its many provisions. 2017 proved no different.

Secure Axcess, LLC v. PNC Bank National Association, 848 F.3d 1370 (Fed. Cir. 2017)

In Secure Axcess, the Federal Circuit built on several recent decisions clarifying the scope of covered business method ("CBM") patent review. In 2015, the Federal Circuit rejected an argument that CBM patents included only "products and ser- vices such as credits, loans, real estate transactions, securi- ties and investment products, and similar financial products and services."32 Then, in 2016, the Federal Circuit rejected the determination of the Patent Trial and Appeal Board ("PTAB") that "whether a particular patent is a CBM patent involved determining 'whether the patent claims activities that are financial in nature, are incidental to a financial activity, or com- plementary to a financial activity.'"33 According to the court, because the emphasized phrases were not part of the govern- ing statute, they did not govern the determination of whether a patent qualified for CBM patent review. In Secure Axcess, the court further sought to clarify the standard for whether patents qualify for CBM patent review.

First, the court held that a CBM patent must "contain at least one claim to the effect that the method or apparatus is 'used in the practice ... of a financial product or service[.]'"34 In other words, it is not enough for a patent's specification to allude to financial products or services if none of the patent's claims is directed to those subjects.35 Of course, the determination of whether a patent qualifies for CBM patent review will depend on how those claims are construed, which in turn depends on the content of the specification. However, "the written description alone cannot substitute for what may be missing in the patent 'claims,' and therefore does not in isolation determine CBM status."36

Second, the court underscored its prior holding in Unwired Planet: It is not enough for a patent to be "incidental to a finan- cial activity" to qualify for CBM patent review. According to the Federal Circuit, the PTAB had violated this principle by looking beyond the scope of the patent to determine whether the patent qualified for CBM patent review. Specifically, the PTAB had considered the "litigation history of [the] patent owner[,] in which it sued a large number of defendants who could be described as 'financial' in their business activities."37 The Federal Circuit stated that the PTAB's analysis improperly shifted the focus away from the claim language: "[A] patent owner's choice of litigation targets could be influenced by a number of consid- erations[.] ... Those [considerations] do not necessarily define a patent as a CBM patent, nor even necessarily illuminate an understanding of the invention as claimed."38

The court then held that the patents at issue did not qualify for CBM patent review. Although the patent purported to relate to "computer security," the specification included references that suggested the technology could be employed by banks and other financial institutions.39 The specification also sug- gested the technology was appropriate for "customer and merchant" situations. Nevertheless, the court held that the pat- ent did not qualify for CBM patent review because the claims, as construed, did not meet the relevant standard. According to the court, "just because the invention could be used by various institutions that include a financial institution, among others, does not mean a patent on the invention qualifies under the proper definition of a CBM patent."40

Helsinn Healthcare S.A. v. Teva Pharm. USA, Inc., 855 F.3d 1356 (Fed. Cir. 2017)

The Federal Circuit offered guidance on the on-sale bar under the AIA in Helsinn. The sale of products before the filing of a patent application has long been a bar on patentability in the United States. However, with the enactment of the AIA, changes to the statutory language defining the on-sale bar left open issues for interpretation.

Under pre-AIA § 102, an invention was barred from patenting when it was "on sale in [the United States], more than one year prior to the date of the application for patent" regardless of whether the sale was known to the public.41 Post-AIA § 102 bars patentability for sales made worldwide that are "on sale, or otherwise available to the public."42 Thus, the new rule left open the question of what constitutes a "public sale."

In Helsinn, the patents at issue related to palonosetron, a drug that reduces chemotherapy-induced nausea and vomiting. Two years before the filing of the patent application, Helsinn entered into a marketing and distribution agreement with MGI Pharma, Inc. The contracts included a license and supply/pur- chase agreement, which were both contingent on regulatory approval of palonosetron. The terms of the agreements were announced in a joint press release of the two corporations and in MGI's Form 8-K filings with the SEC. Under the license agreement, MGI agreed to pay $11 million, plus further royalties on the distribution of palonosetron. Under the supply/purchase agreement, MGI agreed to purchase exclusively from Helsinn and Helsinn agreed to supply the palonosetron products to MGI. Notably, the details of the invention were not disclosed in the agreements. Nevertheless, Teva sought approval to market a generic version of palonosetron on the grounds that Helsinn's patent was invalid under the on-sale bar provision.

The Federal Circuit found the claims invalid. First, the court confirmed that an agreement contracting for the sale of a claimed invention is indeed a commercial sale, regardless of the agreement's contingency on regulatory approval.43 The court held that "a contract for sale that includes a condition precedent is a valid and enforceable contract."44

Second, the court held that "if the existence of the sale is pub- lic, the details of the invention need not be publicly disclosed in the terms of sale."45 The court reasoned that requiring dis- closure of the invention as a condition would be a "founda- tional change in the theory of the statutory on-sale bar."46 Further, it concluded that "there is no indication in the [legisla- tive history]" of an intention to overrule prior cases where the on-sale bar was applied when "the public could not ascertain the claimed invention."47

The court distinguished this ruling from The Medicines Co. v. Hospira Inc.48 (where a pre-filing confidential contract for mar- keting/distribution and stockpiling of materials was held not invalidating) because Medicines involved a secret contract for marketing/distribution services and did not involve the inven- tion itself being placed on sale. Practitioners should heed the warnings of Helsinn in preserving the confidentiality of all aspects of a pre-filing sale.

Aylus Networks v. Apple Inc., 856 F.3d 1353 (Fed. Cir. 2017)

As a matter of first impression, in Aylus the Federal Circuit held that statements made by patent owners during inter partes review ("IPR") proceedings can be considered for claim construction and relied on to support a finding of prosecution disclaimer in a district court.

Patent owner Aylus Networks owns a patent relating to a sys- tem and method for streaming and displaying media con- tent between devices on the same Wi-Fi network. Aylus sued Apple for its "AirPlay" feature, claiming it infringed Aylus's patent. Apple countered by filing two petitions for IPR, in which all claims but two were instituted. Apple then moved and was granted summary judgment of non-infringement of the non- instituted claims, based on a limiting construction argued in Aylus's preliminary responses to the IPR petitions.

On appeal, the Federal Circuit held that prosecution estoppel applies to statements made in IPRs, both before and after the petition is granted. The court ruled that although the doctrine arose in the context of pre-issuance prosecution, the doctrine has been applied in other post-issuance proceedings before the PTO, such as reissue and reexamination proceedings.49

The court reasoned that "[e]xtending the prosecution dis- claimer doctrine to IPR proceedings will ensure that claims are not argued one way in order to maintain patentability and a different way against accused infringers."50 This, the court said, '"promote[s] the public notice function of the intrinsic evi- dence and protect[s] the public's reliance on definitive state- ments made during IPR proceedings.'"51

The court rejected Aylus's argument that pre-institution IPR statements are not part of an IPR proceeding. The court held that "for the purposes of a prosecution disclaimer ... the dif- ferences between the two phases of an IPR [are] a distinction without a difference."52 The court held that both preliminary and non-preliminary responses are "official papers" in which the "patent owner can define claim terms and otherwise make representations about claim scope to avoid prior art...."53

Following Aylus, patent owners should be cautious of state- ments made in IPRs, and petitioners should be opportunistic in using IPR statements to estop contrary arguments in district courts. Although the Aylus court did not address whether (i) IPR statements apply to subsequent IPRs or (ii) statements made in district courts apply to IPRs, given the non-limiting extension of the doctrine, it seems possible that they could.

Aqua Prods., Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017) (en banc)54

In a narrow 6–5 en banc decision, the Federal Circuit over- turned its previous rulings in holding that the burden of persuasion in IPR proceedings must always remain on the petitioner. This decision upends the current motion-to-amend proceedings before the PTAB (in which patent owners had the burden to prove patentability) and shifts the burden of persuasion to the petitioner to prove unpatentability of claims amended during IPRs.

The case began when Zodiac Pool Systems filed an IPR chal- lenge against Aqua Products's patent for a motorless jet-pro- pelled pool cleaner. After institution, Aqua Products moved to amend claims, which was denied by the Board for Aqua Products's failure to demonstrate patentability. In a decision analyzed in last year's version of this White Paper,55 Aqua Products's subsequent appeal was upheld by the Federal Circuit; however, en banc reconsideration was granted. The en banc panel vacated the Board's final written decision and remanded with instructions to assess patentability of the amended claims "without placing the burden of persuasion on the patent owner.56

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