Unfair Competition Claims Arise at the Time of the Alleged Conduct
November 16, 2006
Last Month at the Federal Circuit - December 2006
Judges: Bryson, Archer, Linn (author)
[Appealed from: C.D. Ca., Judge Otero]
In Optivus Technology, Inc. v. Ion Beam Applications S.A., Nos. 05-1518, -1534, -1575 (Fed. Cir. Nov. 16, 2006), the Federal Circuit reversed the district court’s dismissal of the claim by Optivus Technology, Inc. (“Optivus”) under California unfair competition law and reversed the grant of SJ to Ion Beam Applications S.A. (“IBA”) on Optivus’s Lanham Act claim. Further, the Federal Circuit affirmed the district court’s grant of SJ to IBA on Optivus’s claims under the Florida Deceptive and Unfair Trade Practices Act (“Florida Unfair Trade Act”) and for intentional interference with prospective economic advantage (the “intentional interference” claim), the grant of SJ holding the patents-in-suit invalid and not infringed, and the denial of IBA’s motion to amend the pleadings.
Optivus and Loma Linda University Medical Center (“Loma Linda”) are the licensee and assignee of both patents-in-suit, respectively. The patents-in-suit, U.S. Patent Nos. 4,870,287 (“the ’287 patent”) and 5,260,581 (“the ’581 patent”), both relate to the use of proton beams in cancer therapy. The ’287 patent discloses a proton beam therapy facility in which a proton beam is generated and delivered to one or more treatment rooms. The ’581 patent discloses a safety system for a multiroom proton beam therapy facility such that the system verifies the authenticity of a request for proton beam treatment.
In 1999, the University of Florida (“Florida”) signed a nonbinding letter of intent with Optivus for purchasing proton beam therapy systems. After expiration of the letter in March 2000, Florida considered systems from other vendors and eventually signed a contract with IBA to purchase its proton beam therapy system. Subsequently, Optivus sued IBA for infringement of the ’287 and ’581 patents. The complaint was amended to add Loma Linda as a coplaintiff and to include claims for unfair competition under California law, the Florida Unfair Trade Act, and the Lanham Act, and for intentional interference. IBA filed counterclaims seeking DJs of invalidity and noninfringement of the ’287 and ’581 patents. After the claim construction hearing, IBA filed a motion to amend its answer to add a defense of unenforceability of the patents-in-suit due to inequitable conduct.
The district court dismissed the California unfair competition law claim for failure to exhaust administrative remedies and granted SJ to IBA for the Florida Unfair Trade Act claim, the Lanham Act claim, and the intentional interference claim. The district court also granted SJ to IBA that the ’287 and ’581 patents were invalid and that the ’287 patent was not infringed.
On appeal, the Federal Circuit reversed the district court’s dismissal of Optivus’s California unfair competition law claim, concluding that because Optivus is not seeking to contest an agency decision, it has no administrative remedy to exhaust. Instead, the Court noted that the significance of the interim letter sent from the FDA to IBA, indicating that IBA’s medical device had not yet been approved, and upon which Optivus relied for its claim, was an issue for the district court to consider in assessing whether California unfair competition law had been violated.
With regard to Optivus’s claim that IBA violated the Florida Unfair Trade Act, the Federal Circuit affirmed the district court’s award of SJ on this claim, noting that the alleged misconduct by IBA occurred before the date the Florida Unfair Trade Act was amended to allow a person (as opposed to a consumer) to bring a claim under the Act. Although Optivus argued that SJ was improper because the losses resulting from IBA’s misconduct occurred after the Florida Unfair Trade Act was amended, the Federal Circuit explained that Optivus’s argument “ignores the principle that legislation is presumed not to be retroactive and that ‘the legal effect of conduct should ordinarily be assessed under the law that existed when the conduct took place.’” Slip op. at 11 (citation omitted).
The Federal Circuit reversed the district court’s grant of SJ on the Lanham Act claim. In reviewing the record, the Court agreed with the district court’s determination that there were contested facts as to the materiality of IBA’s financing statement to Florida pledging that IBA would finance $50 million of the proposed system. However, while the district court found that the financing statement was not material for the purposes of the Lanham Act, the Federal Circuit determined that statements in the record created a question of fact as to whether the financing statement played a factor in Florida choosing a vendor for the proton beam therapy. Accordingly, in view of the contested facts, the Federal Circuit reversed.
With regard to the intentional interference claim, the Federal Circuit agreed with the district court that Optivus failed to show that a business relationship between Optivus and Florida, which must be demonstrated to assert an intentional interference claim, existed at the time of IBA’s alleged misconduct. The court noted that “[a] business relationship is generally ‘evidenced by an actual and identifiable understanding or agreement which in all probability would have been completed if the defendant had not interfered.’” Id. at 14 (citation omitted). Because IBA’s alleged misconduct occurred after the letter of intent between Optivus and Florida expired and the relationship clearly ended, the Federal Circuit affirmed the district court’s award of SJ to IBA on this claim.
With respect to the ’287 patent, the Federal Circuit affirmed the district court’s SJ holding of invalidity. The Court rejected Loma Linda’s argument that the ’287 patent was not rendered obvious by a University of Washington facility (“Washington facility”) because it teaches away from the ’287 patent. The Court stated that the Washington facility’s use of neutrons, rather than protons, to treat cancer did not discourage a person of ordinary skill in the art from modifying the reference to enable proton therapy. The Federal Circuit declined to question the status of another reference, the Conceptual Design Report (“CDR”), as prior art because Loma Linda did not dispute the assertion that the CDR was prior art in its response to IBA’s motion for SJ. The Court also found Loma Linda’s argument that there is a motivation to combine the Washington reference with the CDR unpersuasive. Further, the Court noted that because the CDR discusses the use of protons and neutrons in the treatment of cancer and the advantages of protons over other particle therapy methods, a person of ordinary skill in the art would have been led to combine the Washington reference with the CDR. Finally, the Court found that the district court properly applied the relevant patent laws and properly placed the initial burden on IBA to support its SJ motion and then shifted the burden of production to Loma Linda to produce evidence demonstrating a genuine issue for trial.
Turning to the other patent, the Federal Circuit also affirmed the district court’s grant of SJ that the ’581 patent is invalid. Claim 1 of the ’581 patent requires “verifying the authenticity of one of the beam request signals.” The district court’s construction of this step, which was not disputed by any party, was “to confirm or establish the genuine or trustworthy nature of one of the beam request signals from one of the treatment rooms.” Id. at 21. Because the district court merely interpreted the “verifying” step as to “confirm or establish authentication,” without regard to whether it was before or after the signal has been sent, the Federal Circuit concluded that the district court did not err in finding that the Fermilab National Accelerator Laboratory Neutron Facility (the “Fermilab facility”) read on the “verifying step” and rendered the ’581 patent obvious. Moreover, because Loma Linda did not raise the issue below of whether the Fermilab facility employed a safety system with the “beam path configuration signal,” as recited in the claims of the ’581 patent, the Federal Circuit considered this separate issue waived.
Regarding the denial of IBA’s motion to amend the pleading to add a defense of patent unenforceability due to inequitable conduct after the motion cut-off date, the Federal Circuit noted that a party must show “good cause” for not having amended its complaint before the time specified in the scheduling order expired. In this case, IBA’s motion was not supported by any evidence, was inexcusably delayed, would result in prejudice to Loma Linda and Optivus, and was likely filed in bad faith. Therefore, the Court affirmed the district court’s denial of the motion.