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“Competing Patents” Not Sufficient to Confer DJ Jurisdiction

June 24, 2011

Decision icon Decision

Last Month at the Federal Circuit - July 2011

Judges: Rader, Clevenger, Linn (author)

[Appealed from: S.D. Fla., Judge Gold]

In Creative Compounds, LLC v. Starmark Laboratories, No. 10-1445 (Fed. Cir. June 24, 2011), the Federal Circuit affirmed the district court’s grant of SJ of infringement and validity with regard to one patent, but reversed a determination of DJ jurisdiction over a competing patent. The Court also vacated the district court’s invalidity determination as to the competing patent due to lack of jurisdiction, but affirmed the Court’s denial of leave to amend an unclean hands defense.

Creative Compounds, LLC (“Creative”) and Starmark Laboratories (“Starmark”) are competitors, having independently patented similar formulations of creatine, an amino acid derivative that is naturally present in muscle tissue. Creatine is a central component of the metabolic system. Creatine is commonly used by bodybuilders looking for a steroid-free way of improving athletic performance. The patents relate to creatine formulations that increase the bioavailability of creatine. Starmark’s U.S. Patent No. 7,109,373 (“the ’373 patent”) is directed to creatine salts comprising two molecules of creatine acid and one molecule of dicarboxylic acid. Creative’s U.S. Patent No. 7,129,273 (“the ’273 patent”) is directed to dicreatine malate compounds, unlike Starmark’s ’373 patent, which claims a genus of possible creatine salts.

Creative’s ’273 patent issued approximately one month after Starmark’s ’373 patent issued. After receiving a notice of allowance for the ’373 patent, Starmark’s predecessor, SAN Corporation (“SAN”), mailed letters to purchasers of dicreatine malate compounds to advise the industry that its ’373 patent would soon issue. Creative viewed SAN’s letters as threatening and mailed its own letters to the industry regarding the soon-to-issue ’273 patent for dicreatine malate compounds. In addition to advising the industry that it received a notice of allowance for the ’273 patent, Creative included a letter from its patent counsel that stated that, “[e]ven if SAN is correct that a patent will issue from its application, the [’373] patent will not be enforceable because of [Creative’s] prior inventions and work.” Slip op. at 6 (third alteration in original). Although SAN did not receive Creative’s letters, it heard about them when its customers refused to license the ’373 patent because of them. Starmark was formed in October 2006, and all rights, title, and interest in the ’373 patent were assigned to Starmark.

In 2007, Creative sued Starmark, seeking DJ that the ’373 patent was invalid and not infringed. In its answer to the complaint, Starmark alleged infringement of the ’373 patent and sought DJ that the ’273 patent was invalid. Starmark subsequently filed a motion for SJ on all counts. Creative then filed a motion to amend its unclean hands defense and to dismiss Starmark’s DJ action concerning the ’273 patent for lack of subject matter jurisdiction. The district court granted Starmark’s motion for SJ on all counts and denied Creative’s motion to amend and dismiss. Creative appealed on four grounds: (1) the district court’s grant of SJ that the ’373 patent is not invalid; (2) the district court’s grant of SJ that the ’373 patent is infringed; (3) the district court’s denial of the motion to dismiss Starmark’s DJ counterclaim; and (4) the district court’s denial of Creative’s motion to amend its Answer.

On appeal, the Federal Circuit first considered the validity of the ’373 patent. As an initial matter, the Court rejected Creative’s argument that the district court applied the wrong burden of proof for Creative to establish invalidity of Starmark’s patent. Because the ’273 and ’373 patents were copending and there is no patentable distinction between claim 1 of the ’273 patent and claim 3 of the ’373 patent, Creative argued that it was entitled to prove invalidity by the preponderance of the evidence instead of by clear and convincing evidence. Starmark disagreed, arguing that the parties never stipulated to common claimed subject matter, Creative did not present evidence of common claimed subject matter, and Creative did not plead a count under 35 U.S.C. § 291 for interfering patents.

The Federal Circuit agreed with Starmark, holding that “an accused infringer cannot obtain the benefit of the lower burden of proof that prevails in an interference proceeding simply by alleging, as a defense to infringement, that the asserted patent is invalid based upon a co-pending patent unless common claimed subject matter is first identified and an adjudication of priority is sought.” Id. at 11. The Court confirmed that an accused infringer must prove invalidity by clear and convincing evidence under 35 U.S.C. § 282 because each claim in a patent is presumed valid.

The Federal Circuit next addressed Creative’s arguments that the ’373 patent is invalid under 35 U.S.C. §§ 102(e)-(g). Starmark argued that there was at least one missing element in each of Creative’s invalidity theories, and the Court agreed.

Creative first argued that the ’373 patent is invalid under § 102(g)(2) because of Creative’s prior invention. The Court found, however, that Creative failed to prove prior conception, the prerequisite to finding prior invention, rejecting Creative’s reliance on an e-mail in which there was speculation that the method of making dicreatine malate should be like that of making creatine citrate. The Court found that Creative failed to present any evidence that the e-mail would constitute conception of subject matter within the scope of even a single claim of the ’373 patent. Moreover, the Court found that Creative’s “bald assertion” of diligence during the eighteen months between the alleged conception and Creative’s first reduction to practice failed to raise a genuine issue of material fact as to diligence, a required element of Creative’s § 102(g) defense. Id. at 14. Accordingly, the Court rejected Creative’s invalidity theory under § 102(g).

The Federal Circuit also rejected Creative’s argument that Starmark derived the invention from the ’273 patent inventor, Derek Cornelius, which would render the ’373 patent invalid under § 102(f). In order to establish derivation, Creative was required to prove both prior conception of the invention by another and communication of the conception to the patentee. Creative’s only evidence on this issue was the deposition testimony of inventor Cornelius. The Court reminded that “an inventor’s testimony respecting the facts surrounding a claim of derivation or priority of invention cannot, standing alone, rise to the level of clear and convincing proof.” Id. at 15 (citing Price v. Symsek, 988 F.2d 1187, 1194 (Fed. Cir. 1993)). The Court concluded that, in the absence of any other factual basis for Creative’s derivation defense, there were no genuine issues of material fact, entitling Starmark to JMOL.

The Federal Circuit also rejected Creative’s third invalidity argument that the ’373 patent is invalid under § 102(e), because Creative failed to provide any testimony from one skilled in the art identifying each claim element and explaining how each claim element is disclosed in the prior art references. Because Creative failed to raise a single genuine issue of material fact as to any of its three invalidity theories, the Court affirmed the grant of SJ finding the ’373 patent not invalid.

The Federal Circuit next turned to Creative’s argument that the process for manufacturing its creatine product does not infringe Starmark’s method claims in the ’373 patent. The Court found, however, that, under 35 U.S.C. § 295, Creative had the burden of establishing that its product was not made by the processes claimed by Starmark. Because Creative failed to argue how or why the process employed to create its product does not infringe the ’373 patent, the Court affirmed the grant of SJ of infringement.

Turning to the issue of subject matter jurisdiction over the ’273 patent, the Court reminded that subject matter jurisdiction in DJ actions exists when “the facts alleged, under all the circumstances, show that there is a substantial controversy, between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a [DJ].” Id. at 20 (quoting MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)). In response to Creative’s argument that the district court erred in denying Creative’s motion to dismiss Starmark’s DJ counterclaim of invalidity of the ’273 patent, Starmark argued that the dispute concerning the two competing patents was in itself enough to show a case or controversy. The Court disagreed. The Court found that Creative never accused Starmark of infringing the ’273 patent, leaving Starmark’s motion for DJ unsupported. Instead, Creative sent a letter to SAN’s customers before Starmark came into existence. The Court also found that no interference proceeding had been established. While the Court agreed with Starmark that a fight over competing patents can demonstrate an underlying interference cause of action under 35 U.S.C. § 291, that an interference does not require an infringement allegation, and that the district court could adjudicate the validity of either interfering patent in a § 291 action, the Court disagreed that the parties had established an interference. Neither party filed an action under § 291 and neither party established the existence of an interference or sought adjudication as to any common claimed subject matter. The Court noted that Starmark had, at most, an economic interest in clarifying its customers’ rights under Creative’s patents. Because such an economic interest alone cannot form the bases of an “actual controversy” under the DJ Act, the Court reversed the determination of jurisdiction.

Finally, the Federal Circuit affirmed the district court’s denial of Creative’s motion to amend its unclean hands defense. Because the Court found that Creative sought leave to amend nine months after the date for such amendments as set forth in the Scheduling Order, under Eleventh Circuit law, the Court concluded that the district court did not abuse its discretion in denying Creative’s motion to amend.