Inside this edition of Baker Hostetler's Patent Watch:
If you have questions about the information presented in this Executive Alert, please contact Dr. Lawrence M. Sung (
Baker Hostetler's Intellectual Property Team.
[I]f new evidence is presented [in a § 145 action] on a disputed question of fact, the district court must make de novo factual findings that take account of both the new evidence and the administrative record before the PTO.
On April 18, 2012, in Kappos v. Hyatt, the U.S. Supreme Court (Thomas*) affirmed and remanded the U.S. Court of Appeals for the Federal Circuit judgment that affirmed the district court's summary judgment sustaining the USPTO Board of Patent Appeals and Interferences decision that upheld the patent examiner's rejection of 79 of the 117 claims of U.S. patent application Serial No. 08/471,702, which related to improved memory architecture having a multiple buffer output arrangement, as not supported by adequate written description. The Supreme Court stated:
Section 145 grants a disappointed patent applicant a "remedy by civil action against the Director." The section further explains that the district court "may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the [PTO], as the facts in the case may appear and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law." By its terms, § 145 neither imposes unique evidentiary limits in district court proceedings nor establishes a heightened standard of review for factual findings by the PTO.
In the absence of express support for his position in the text of § 145, the Director argues that the statute should be read in light of traditional principles of administrative law, which Congress codified in the APA. The Director notes that § 145 requires a district court to review the reasoned decision making of the PTO, an executive agency with specific authority and expertise. Accordingly, the Director contends that a district court should defer to the PTO's factual findings. The Director further contends that, given the traditional rule that a party must exhaust his administrative remedies, a district court should consider new evidence only if the party did not have an opportunity to present it to the agency. We reject the Director's contention that background principles of administrative law govern the admissibility of new evidence and require a deferential standard of review in a § 145 proceeding. Under the APA, judicial review of an agency decision is typically limited to the administrative record. But, as the Director concedes, § 145 proceedings are not so limited, for the district court may consider new evidence. When the district court does so, it must act as a factfinder. In that role, it makes little sense for the district court to apply a deferential standard of review to PTO factual findings that are contradicted by the new evidence. The PTO, no matter how great its authority or expertise, cannot account for evidence that it has never seen. Consequently, the district court must make its own findings de novo and does not act as the "reviewing court" envisioned by the APA. We also conclude that the principles of administrative exhaustion do not apply in a § 145 proceeding. The Director argues that applicants must present all available evidence to the PTO to permit the PTO to develop the necessary facts and to give the PTO the opportunity to properly apply the Patent Act in the first instance. [But] a primary purpose of administrative exhaustion "is, of course, the avoidance of premature interruption of the administrative process." That rationale does not apply here because, by the time a § 145 proceeding occurs, the PTO's process is complete. Section 145, moreover, does not provide for remand to the PTO to consider new evidence, and there is no pressing need for such a procedure because a district court, unlike a court of appeals, has the ability and the competence to receive new evidence and to act as a factfinder. In light of these aspects of § 145 proceedings -- at least in those cases in which new evidence is presented to the district court on a disputed question of fact -- we are not persuaded by the Director's suggestion that § 145 proceedings are governed by the deferential principles of agency review.
Having concluded that neither the statutory text nor background principles of administrative law support an evidentiary limit or a heightened standard of review for factual findings in § 145 proceedings, we turn to the evidentiary and procedural rules that were in effect when Congress enacted § 145 in 1952. Although § 145 is a relatively modern statute, the language in that provision originated in the Act of July 8, 1870 (1870 Act), and the history of § 145 proceedings can be traced back to the Act of July 4, 1836 (1836 Act).
We also agree with the Federal Circuit's longstanding view that, "where new evidence is presented to the district court on a disputed fact question, a de novo finding will be necessary to take such evidence into account together with the evidence before the board." [T]he district court acts as a factfinder when new evidence is introduced in a § 145 proceeding. The district court must assess the credibility of new witnesses and other evidence, determine how the new evidence comports with the existing administrative record, and decide what weight the new evidence deserves. As a logical matter, the district court can only make these determinations de novo because it is the first tribunal to hear the evidence in question. Furthermore, a de novo standard adheres to this Court's instruction [that the] proceeding be heard "upon the whole merits" and conducted "according to the ordinary course of equity practice and procedure."
Although we reject the Director's proposal for a stricter evidentiary rule and an elevated standard of review in § 145 proceedings, we agree with the Federal Circuit that the district court may, in its discretion, "consider the proceedings before and findings of the Patent Office in deciding what weight to afford an applicant's newly-admitted evidence." Though the PTO has special expertise in evaluating patent applications, the district court cannot meaningfully defer to the PTO's factual findings if the PTO considered a different set of facts. For this reason, we conclude that the proper means for the district court to accord respect to decisions of the PTO is through the court's broad discretion over the weight to be given to evidence newly adduced in the § 145 proceedings.
The Director warns that allowing the district court to consider all admissible evidence and to make de novo findings will encourage patent applicants to withhold evidence from the PTO intentionally with the goal of presenting that evidence for the first time to a nonexpert judge. We find that scenario unlikely. An applicant who pursues such a strategy would be intentionally undermining his claims before the PTO on the speculative chance that he will gain some advantage in the § 145 proceeding by presenting new evidence to a district court judge.
For these reasons, we conclude that there are no limitations on a patent applicant's ability to introduce new evidence in a § 145 proceeding beyond those already present in the Federal Rules of Evidence and the Federal Rules of Civil Procedure. Moreover, if new evidence is presented on a disputed question of fact, the district court must make de novo factual findings that take account of both the new evidence and the administrative record before the PTO. In light of these conclusions, the Federal Circuit was correct to vacate the judgment of the District Court, which excluded newly presented evidence under the view that it "need not consider evidence negligently submitted after the end of administrative proceedings." The judgment is affirmed, and the case is remanded to the Court of Appeals for further proceedings consistent with this opinion.
If you have questions about the material presented above, please contact Dr. Lawrence M. Sung (
Intellectual Property Team.
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Joinder of independent defendants is only appropriate where the accused products or processes are the same in respects relevant to the patent. But the sameness of the accused products or processes is not sufficient.
On May 4, 2012, in In re EMC Corp., the U.S. Court of Appeals for the Federal Circuit (Rader, Dyk,* Moore) granted EMC's petition for a writ of mandamus to order the U.S. District Court for the Eastern District of Texas to sever and transfer claims to various other U.S. district courts in a case involving U.S. Patents No. 5,771,354, No. 5,901,228, No. 6,411,943 and No. 7,080,051, which related to off-site computer data storage. The Federal Circuit stated:
We must here address as a matter of first impression whether mandamus can be an appropriate means to test a district court's discretion in ruling on motions to sever and transfer. While transfer motions are governed by regional circuit law, motions to sever are governed by Federal Circuit law because joinder in patent cases is based on an analysis of the accused acts of infringement, and this issue involves substantive issues unique to patent law. We thus apply Federal Circuit law to determine the availability of mandamus, and to the underlying issue of whether the motion to sever should be granted....
We conclude that mandamus is available as a remedy. With regard to the "no other means" requirement, there is no meaningful distinction between a petitioner's seeking review of an order denying transfer because the district court clearly abused its discretion in applying the § 1404(a) factors and a petitioner's seeking review of an order denying a motion to transfer because the district court clearly abused its discretion by not severing the claim as a predicate to determining whether to transfer. In either case, a defendant would not have an adequate remedy for an improper failure to transfer or sever the case by way of an appeal from an adverse final judgment because the defendant would be unable to demonstrate "that it would have won the case had it been tried in a convenient [venue]."...
We turn to the issue of severance. We first note the unusual circumstances from which this petition comes before us. Recently, Congress addressed the issue of joinder in patent cases in section 19 of the Leahy-Smith America Invents Act, which was signed into law just days after this petition was filed. While petitioners argue that joinder here would be improper under the new and old rules, they wisely refrain from arguing that the new 35 U.S.C. § 299 itself mandates this outcome. As a general rule, we do not give statutes retroactive effect "unless Congress clearly indicates its intention to do so." This new provision is not retroactive, applying only "to any civil action commenced on or after the date of the enactment of th[e] Act." The timing of this petition means that our decision will only govern a number of cases that were filed before the passage of the new joinder provision....
It is clear that where defendants are alleged to be jointly liable, they may be joined under Rule 20 because the transaction-or-occurrence test is always satisfied. But the language of Rule 20 makes clear that joinder is not limited to such situations. Defendants may be joined if "any right to relief is asserted against them jointly, severally, or in the alternative," so an allegation of joint liability is not required. . . . In imposing both the transaction-or-occurrence requirement and the requirement of a common question of law or fact, Rule 20 makes clear that the existence of a single common question of law or fact alone is insufficient to satisfy the transaction-or-occurrence requirement. In the present context the mere fact that infringement of the same claims of the same patent is alleged does not support joinder, even though the claims would raise common questions of claim construction and patent invalidity. . . . Thus, independent defendants satisfy the transaction-or-occurrence test of Rule 20 when there is a logical relationship between the separate causes of action. The logical relationship test is satisfied if there is substantial evidentiary overlap in the facts giving rise to the cause of action against each defendant. In other words, the defendants' allegedly infringing acts, which give rise to the individual claims of infringement, must share an aggregate of operative facts. . . . Where different products or processes were accused of infringing the same claims, the "not dramatically different" standard would inevitably be satisfied. The petitioners here point out the difficulties that would be presented by joinder of claims involving "different" products or processes, and point to cases outside the Eastern District of Texas that have refused joinder where the products or processes are "different."
We agree that joinder is not appropriate where different products or processes are involved. Joinder of independent defendants is only appropriate where the accused products or processes are the same in respects relevant to the patent. But the sameness of the accused products or processes is not sufficient. Claims against independent defendants (i.e., situations in which the defendants are not acting in concert) cannot be joined under Rule 20's transaction-or-occurrence test unless the facts underlying the claim of infringement asserted against each defendant share an aggregate of operative facts. To be part of the "same transaction" requires shared, overlapping facts that give rise to each cause of action, and not just distinct, albeit coincidentally identical, facts. The sameness of the accused products is not enough to establish that claims of infringement arise from the "same transaction." Unless there is an actual link between the facts underlying each claim of infringement, independently developed products using differently sourced parts are not part of the same transaction, even if they are otherwise coincidentally identical.
In addition to finding that the same product or process is involved, to determine whether the joinder test is satisfied, pertinent factual considerations include whether the alleged acts of infringement occurred during the same time period, the existence of some relationship among the defendants, the use of identically sourced components, licensing or technology agreements between the defendants, overlap of the products' or processes' development and manufacture, and whether the case involves a claim for lost profits. The district court enjoys considerable discretion in weighing the relevant factors.
In exercising its discretion, the district court should keep in mind that even if joinder is not permitted under Rule 20, the district court has considerable discretion to consolidate cases for discovery and for trial under Rule 42 where venue is proper and there is only "a common question of law or fact." Common pretrial issues of claim construction and patent invalidity may also be adjudicated together through the multidistrict litigation procedures of 28 U.S.C. § 1407. On the other hand, even if a plaintiff's claims arise out of the same transaction and there are questions of law and fact common to all defendants, "district courts have the discretion to refuse joinder in the interest of avoiding prejudice and delay, ensuring judicial economy, or safeguarding principles of fundamental fairness." In a complicated patent litigation, a large number of defendants might prove unwieldy, and a district court would be justified in exercising its discretion to deny joinder "when different witnesses and documentary proof would be required."
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[Under New Jersey law] a required element of the causation proof [of legal malpractice by patent counsel] is for the plaintiff to demonstrate that the invention would have been patentable.
On May 4, 2012, in Minkin v. Gibbons P.C., the U.S. Court of Appeals for the Federal Circuit (Rader, Dyk,* Moore) affirmed the district court's summary judgment that Gibbons did not engage in legal malpractice in prosecuting the application that issued as U.S. Patent No. 6,012,363, which related to a hand tool called extended reach pliers (ERP). The Federal Circuit stated:
[We have] jurisdiction in patent attorney malpractice cases such as this one, in which the plaintiff is required to establish that, but for attorney negligence, he would have obtained valid claims of sufficient scope that competitors could not easily avoid.... The crux of Minkin's allegations is that Gibbons negligently drafted patent claims overly narrow in scope, constituting legal malpractice. Because state law creates Minkin's cause of action for legal malpractice, this court must apply the law of New Jersey to decide whether Gibbons is liable. To establish legal malpractice in New Jersey, a variation on the tort of negligence, a plaintiff must demonstrate in its case-in-chief: (1) the existence of an attorney-client relationship imposing a duty of care upon the attorney; (2) breach of that duty, defined as deviation from the standard of care; (3) proximate causation; and (4) damages. This case hinges on the third prong, that is, whether Gibbons's actions proximately caused the loss to Minkin.
New Jersey law provides several ways of establishing proximate causation in malpractice cases, including a "suit-within-a-suit." The suit-within-a-suit approach applies where recovery depends on success in the underlying matter and "aims to clarify what would have taken place but for the attorney's malpractice." New Jersey trial courts commonly employ this approach where the parties agree to that process. There can be no causation demonstrated under the suit-within-a-suit rubric for patent prosecution malpractice where any claim drawn to the alleged invention would have lacked patentability ab initio. Thus, a required element of the causation proof is for the plaintiff to demonstrate that the invention would have been patentable. Malpractice suits in a patent prosecution context most frequently arise where attorney negligence results in a final PTO rejection. Here, Minkin complains not that a patent did not issue, but that the allowed claims were drafted too narrowly to protect the ERP against competitors, namely Danaher. Because the parties agree that the "suit-within-a-suit" analysis applies, Minkin must prove by preponderant evidence that alternate claim language would have been deemed patentable by the PTO and that it would have read on the Danaher tool....
In granting summary judgment, the district court held that Minkin failed to raise a genuine dispute of material fact regarding patentability. Specifically, Minkin provided no evidence showing that [two alternate claims for the Minkin ERP proposed by Minkin's expert Richard Gearhart] would have overcome an obviousness rejection at the PTO.... In its motion for summary judgment, Gibbons identified § 103(a) issues with respect to the alternate claims, submitting expert opinion questioning Minkin's ability to obtain even broader scope in light of the record. Because it was Minkin's ultimate burden at trial to establish nonobviousness, it bore the burden on summary judgment of demonstrating a disputed material fact regarding this essential element of its case, especially given that Gibbons put § 103(a) directly at issue.
Minkin defends that it would have been too cumbersome in the first instance to "prove a negative" by addressing every potential combination of prior art that could be used in an obviousness rejection. Minkin suggests that merely distinguishing each prior art reference individually was sufficient to defeat summary judgment, reflecting actual practice before the PTO where applicants often await an examiner's specific § 103(a) rejections before discussing nonobviousness. We recognize that applicants do not typically prove "validity" against all prior art, and only show that claims are not invalid over references cited against them. But the order of typical prosecution practice is irrelevant to the procedural posture here. Malpractice cases under a suit-within-a-suit framework require as part of the plaintiff's case-in-chief a demonstration of the likelihood of patentability. In the context of summary judgment, we hold that the district court was obligated to determine whether Minkin could satisfy its ultimate burden of showing patentability in light of Gibbons's motion....
The challenge for Gibbons all along, as noted by the district court, was drafting broadly in the face of such a crowded art field. Including a 3:1 pivot ratio limitation was the final compromise to the claim language agreed on by the examiner and inventor in an effort to secure patentability. The language of the issued '363 patent, however, is entirely distinct from the alternate claim language drafted by Gearhart, who attempts to capture more scope for purposes of this litigation. An inference of nonobviousness does not attach to the alternate claims by virtue of the issued '363 patent because the claim terms are different. The fact that the ERP was ultimately deemed nonobvious after handling a prototype does not mean that an examiner would necessarily decide the same thing if the claims were broader. We therefore refuse to conclude that an examiner would have allowed Gearhart's alternate claims of greater scope just because the more narrow '363 patent issued after an in-person interview.