Articles
The Federal Circuit: Key Recent IP Decisions in the United States that Any Company Should Know
China IP News
March 2010
Lim, Esther H.,
Hulse M.D., Tina E.
Article
With their increasing presence in U.S. markets, Chinese companies have become increasingly involved in patent litigation in the United States. As such, it is important for Chinese companies to understand and keep abreast of changes and developments in U.S. patent law. Understanding those changes and developments requires an understanding of the U.S. legal system and, in particular, the U.S. Court of Appeals for the Federal Circuit.
The Federal Circuit was formed in 1982. Before its formation, appeals from the U.S. Patent and Trademark Office (“PTO”) were heard by the U.S. Court of Customs and Patent Appeals, whereas appeals from patent infringement actions in the U.S. district courts were heard by regional circuit courts. Because different appellate courts would decide various patent issues differently, Congress established the Federal Circuit in Washington, D.C., to instill uniformity in reviewing patent-related decisions. In the United States, because the highest court, the U.S. Supreme Court, rarely hears patent cases and because the law requires all appeals for patent-related matters to be heard by the Federal Circuit, the primary source of U.S. patent law comes from the Federal Circuit.
The Federal Circuit currently includes sixteen judges (twelve judges on active status, and four judges on senior status) who have diverse backgrounds and experience. Historically, approximately one-third of the Federal Circuit’s cases have been patent matters. Moreover, several of the judges have technical degrees, and most of the judges hire law clerks (i.e., assistants who have graduated from law school) with technical degrees and/or patent experience to assist with their cases. Thus, the Federal Circuit is a unique appellate court with judges who have specialized knowledge and experience in patent law and technical subject matter.
The Federal Circuit has recently issued several key opinions that companies should be aware of due to their potential impact to their business and IP strategies. In 2008, the Federal Circuit heard In re Bilski, which is now pending before the U.S. Supreme Court. In 2009, the Federal Circuit decided two en banc cases: Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc., 576 F.3d 1348 (Fed. Cir. 2009) (en banc), and Abbott Laboratories v. Sandoz, Inc., 566 F.3d 1282 (Fed. Cir. 2009) (en banc). And the Federal Circuit’s en banc decision in Ariad Pharmaceuticals, Inc. v. Eli Lilly & Co. is expected in 2010.
Each of these cases, described in further detail below, raises issues in U.S. patent law about which all companies—domestic and foreign—should be aware.
Bilski v. Kappos: Patentable Subject Matter
In 2008, the Federal Circuit established a new test for patentable subject matter in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008). The court held that for a claimed method to be patentable under 35 U.S.C. § 101, the method must pass what has become known as the “machine-or-transformation test.” That is, a process must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing. The court held that the claimed invention directed to methods of hedging risks in the field of commodities trading failed this test.
Bilski appealed the Federal Circuit’s decision to the U.S. Supreme Court, which granted certioriari to address the propriety of the Federal Circuit’s machine-or-transformation test. Bilski argued that Supreme Court precedent interpreted § 101 to be extremely broad, only prohibiting the patenting of laws of nature, physical phenomena, and abstract ideas. In response, the Solicitor General stressed that § 101, even though broad, imposes meaningful limits on the scope of patent protection. As a result, the government argued that patent law protects technological and industrial processes, but not methods of organizing human activity, according to the government.
On November 9, 2009, the Supreme Court heard oral argument. The Justices posed difficult questions to both sides, asking Bilski’s counsel a series of hypotheticals, such as whether methods for tax avoidance, estate planning, and speed dating should be patent eligible. The Justices then asked the Deputy Solicitor General arguing for the USPTO how to restructure the Federal Circuit’s test.
The Supreme Court’s decision in Bilski is expected in spring 2010. In the meantime, the Federal Circuit continued to apply the “machine-or-transformation” test in 2009, rejecting claims in two out of three cases, but finding in the third case that claimed methods of treatment were patent eligible. Because the impact of Bilski has already been seen in fields of business methods, computer software, and biotechnology, the Supreme Court’s decision in Bilski may have a profound impact on patent strategy across all areas of technology.
Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc.: 35 U.S.C. § 271(f)
Title 35, § 271(f) creates a cause of action for patent infringement when “components” of a patented invention are “supplied” by or from a U.S. entity for assembly abroad. In Cardiac Pacemakers, Inc. v. St. Jude Medical, Inc., 576 F.3d 1348 (Fed. Cir. 2009) (en banc), the Federal Circuit decided en banc that § 271(f) does not apply to method claims. The Federal Circuit granted St. Jude’s petition for rehearing en banc to answer a single question: Does 35 U.S.C. § 271(f) apply to method claims, as well as product claims? In its opinion, the court stated that steps are the “components” of a method or process claim that “meet [the] definitional requirement of Section 271(f), but the steps are not the physical components used in [the] performance of the method.” Thus, the court held that the shipment of cardiac defibrillators abroad did not infringe claims directed to methods of heart stimulation under § 271(f). The court reasoned that § 271(f) could not apply because a method claim has only intangible steps, and because the term “supplied,” as used in the statute, implies the physical transfer of a tangible object. In so doing, the Federal Circuit overruled its earlier panel decision in Union Carbide Chemicals & Plastics Technology Corp. v. Shell Oil Co., 425 F.3d 1366 (Fed. Cir. 2006), which held that § 271(f) applied to the exportation of the catalyst and use of the patented method abroad.
Noting that Congress enacted § 271(f) to close the loophole that allowed infringers to ship an unassembled patented product abroad for later assembly, and also observing that the legislative history of § 271(f) was “almost completely devoid of any reference to the protection of method patents,” the Federal Circuit viewed its holding as “fully consistent with the legislative history” of § 271(f). Cardiac Pacemakers, 576 F.3d at 1364.
The Federal Circuit further followed the Supreme Court’s reasoning in Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007), and resorted to the presumption against extraterritoriality before concluding that § 271(f) cannot apply to method claims. In 2007, the Supreme Court held that a “master disk” is not a “component” for purposes of § 271(f) when it is copied abroad and then installed to form a system that would allegedly infringe AT&T’s patent. In other words, under § 271(f), software abstracted from a tangible copy is not itself a combinable component of a tangible manufacture. In reaching that conclusion, the Court stated: “Any doubt that Microsoft’s conduct [i.e., copying the master disk abroad,] falls outside § 271(f)’s compass would be resolved by the presumption against extraterritoriality.” Id. at 454-55.
Thus, in light of the Federal Circuit’s en banc clarification of the law, corporations now understand that a company may not be liable for infringing a method claim under § 271(f) by shipping a product abroad from the United States.
Abbott Laboratories v. Sandoz, Inc.: Product-by-Process Claims
In Abbott Laboratories v. Sandoz, Inc., 566 F.3d 1282 (Fed. Cir. 2009), in a portion of the opinion that the court took en banc sua sponte, the Federal Circuit clarified the scope of product-by-process claims by adopting the rule in Atlantic Thermoplastics Co. v. Faytex Corp. 970 F.2d 834 (Fed. Cir. 1992), and, to the extent it was inconsistent, overruling the holding in Scripps Clinic & Research Foundation v. Genentech, Inc., 927 F.2d 1565, 1583 (Fed. Cir. 1991). That is, the Federal Circuit held that process terms in a product-by-process claim serve as limitations of the claim. To support its decision, the majority cited Supreme Court precedent and case law from its sister circuits. According to the majority, the Supreme Court “consistently noted that process terms that define the product in a product-by-process claim serve as enforceable limitations.” Abbott, 566 F.3d at 1291.
The majority made clear that it did not question whether product-by-process claims are permissible claims. Rather, the majority limited the issue only to whether such claims are infringed by products made by processes other than the one claimed, and the court held they are not.
Because claim construction necessarily forms the basis for any patent analysis and is typically a hotly contested issue in patent litigation, the Abbott Laboratories case is therefore an important case to understand for any company with product-by-process claims in their patent portfolio.
Ariad Pharmaceuticals, Inc. v. Eli Lilly & Co.: Written Description v. Enablement
On August 21, 2009, the Federal Circuit granted a petition for rehearing en banc in Ariad Pharmaceuticals, Inc. v. Eli Lilly & Co., 560 F.3d 1366 (Fed. Cir. 2009). The court vacated its earlier panel decision in which it had reversed the district court and granted Eli Lilly and Company’s (“Lilly”) motion for judgment as a matter of law that Ariad Pharmaceuticals, Inc.’s (“Ariad”) patent failed to meet the written description requirement under 35 U.S.C. § 112, ¶ 1. Specifically, the court found that the specification did not show that the inventors had possession of the broadly claimed invention. Because the court held the claims were invalid for lack of written description, it did not reach the issue of enablement.
Judge Linn wrote a concurring opinion in which he specifically raised the question of whether written description should be a separate requirement from enablement. Judge Linn stated: “I write separately to emphasize, as I have before, my belief that our engrafting of a separate written description requirement onto section 112, paragraph 1 is misguided.” Ariad, 560 F.3d at 1380 (Linn, J., concurring). Judge Linn went on to state that “[t]his is an important issue that we have left unresolved. It is an issue that we would have been compelled to reach had the case been decided on enablement grounds.” Id. at 1381.
On August 21, 2009, the court vacated the earlier opinion and ordered an en banc hearing. Addressing Judge Linn’s concurrence, the court ordered the parties to address the following issues:
a) Whether 35 U.S.C. § 112, paragraph 1, contains a written description requirement separate from an enablement requirement?
b) If a separate written description requirement is set forth in the statute, what is the scope and purpose of the requirement?
Over twenty amicus briefs were filed by bar associations and companies. On December 7, 2009, oral argument took place and the decision is anticipated in 2010.
The patent bar eagerly awaits the Federal Circuit’s decision in this important case. If the court finds that written description is not a separate issue from enablement under § 112, ¶ 1, the impact on the patentability of claims—particularly in the biotechnology industry—could be profound.
Conclusion
The Federal Circuit has recently been very active, issuing important opinions and hearing important issues that likely affect any Chinese company with U.S. patents. Keeping up-to-date on the changing law is therefore critical to establishing and maintaining a successful patent strategy in the United States.