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Where Plaintiff operator of London Futures Exchange employed Defendant in position involving innovation, English Court of Appeal, Civil Division, holds that, under English patent statute, Plaintiff owned Defendant’s inventions dealing with electronic trading of various forms of futures contracts so that Defendant was unable to obtain U.S. patents on his system
The Plaintiff below was LIFFE Administration and Management, the operator of the London Futures Exchange. In July 2001, it had hired Dr. Pavel Pinkava (Defendant) as a manager in its Interest Rate Product (IRP) Management Team. By July 2004, Defendant had come up with a system which enabled the trading on an electronic exchange of various financial instruments not previously traded. Plaintiff promoted Defendant to senior manager in September 2004.
In January 2005, Defendant notified Plaintiff that he, not Plaintiff, was entitled to own the system and related inventions. The usual rule under English common and statutory law was that the development of inventions in the course of an employment normally lodged the patent rights in the employer, see Section 1(2)(c) Patents Act 1977. On April 23, 2005, Defendant filed four applications for United States Patents. The employment of Defendant by Plaintiff ended on July 13, 2005.
On July 20, 2005, Plaintiff filed proceedings in Chancery Division (Patents Court) claiming to be entitled to the confidential information relating to the system devised by Defendant and the patent applications based on it. On August 18, 2005, Defendant applied to the U.K. Patent Office pursuant to Section 12(1)(a) Patents Act 1997 claiming to own the four inventions referred to in
his U.S. patent applications and seeking a declaration that he was entitled to apply for the U.S. patents. The first instance court heard both sets of proceedings in January and February 2006.
In essence, the court ruled that (a) the inventions did not arise in the course of Defendant’s normal duties with Plaintiff, but that (b) Defendant had developed them in the course of duties specifically assigned by Plaintiff in December 2003. In his order of April 7, 2006, the court thus
declared that Plaintiff owned the inventions claimed in Defendant’s four U.S. Patent Applications. Defendant appealed, contending that the Judge was right as to conclusion (a) but wrong on conclusion (b). The English Court of Appeal (Civil Division), however, dismisses the appeal.
In the lead opinion, the Chancellor outlines the context of this controversy. “First, this appeal concerns the financial markets, as opposed to the commodity markets, comprising the foreign exchange, money, bond and equity markets. Each of them has an associated derivative market. As the lower court explained: ‘Derivatives are bilateral contracts, the financial value of which is directly dependent upon the magnitude or value of one or more underlying assets such as stocks, bonds, commodities or currencies. The design of derivatives makes them particularly attractive for speculators and those who wish to hedge against risk. Amongst the most common types of derivatives are swaps, futures and options.’”
“… [A] ‘swap’ is a contract whereunder two counter parties agree to exchange one asset or instrument for another. They have only ever (sic) been traded on the Over the Counter Market (OTC), overseen by the International Swaps Derivatives Association (ISDA). Relevant to this appeal are interest rate swaps (IRS), overnight index swaps (OIS), credit default swaps (CDS)
and credit index swaps (CIS).”
“[A] future, in its simplest form, is an agreement whereby on a particular date (‘the trade date’) one party agrees to buy from, or sell to, another party a particular asset or instrument at a predetermined price at some point in the future (‘the settlement date’). Such a contract is settled by reference to one ‘fixing’, requires no payment of periodic premiums from one party to the other and cannot be brought to a premature end via a credit event.”
“Other relevant features are that a future may be settled by reference to an index, such as the FTSE 100. Futures are only traded on an exchange. Options are similar to futures but give a right to buy or sell rather than imposing an obligation to do so and may be traded on or off exchange.”
“The essential structure of a futures contract remains the same whatever the particular fixing chosen. The principal challenge in designing a new futures contract is deciding what the market is interested in as a contract standard and making sure that the fixing is sufficiently robust, that is to say that it will be present at the settlement date and reasonably invulnerable to market manipulation. That is not to say that fixings are always straightforward.’”
“[The lower court] described the features of an exchange as a means of buying or selling a commodity or financial product. He pointed out the need for liquidity and, in the case of derivatives, for standardised contracts and credit risk protection. He described how exchanges such as Plaintiff have standardised contracts and have addressed the problems of credit risk
by the system of ‘margining’ whereby the contracts are split into pairs with the clearing house becoming a party to every trade.”
“Swaps, however, pose additional problems. Notably, they involve the making of periodic coupon payments and, in the case of CDSs and CISs, must cater for the possibility of credit events. As a practical matter, swaps were considered too complicated and too varied to be traded on exchange.”
“Plaintiff commenced business in 1982 as the London International Financial Futures Exchange [LIFFE]. Initially, it traded in seven financial futures. In 1984, it added futures based on the FTSE 100 Index. In 1992, it acquired the traded options business formerly carried on in the London Stock Exchange. In 1996, it acquired the business of the London Commodity Exchange which included trading in futures contracts based on sugar, coffee, cocoa and other commodities. In January 1999, Plaintiff developed futures contracts based on the Euro. In 2000, Plaintiff closed its trading floor having moved its markets on to the electronic trading system known as LIFE CONNECT in 1998.”
“Plaintiff’s products are divided into three categories, namely Commodities, Equity Derivatives and Interest Rates. For each category it has a Marketing and Product Management team. The function of each team is to develop new products or enhancements to existing products, launch the products and provide educational and support services to Plaintiff’s customers and other employees.”
“In the period material to this appeal, Plaintiff listed six types of future contract, with a parallel series of options, namely short term interest rate (STIR) futures, bond futures, individual equity futures, equity index futures, commodity futures, and swapnote futures. All of them are electronically traded on variations of a standard template.” [One of Plaintiff's directors also testified]. “He explained that the continued commercial success of Plaintiff depends upon two factors, the maintenance of industry leading trading technology and the development of
new products. He also explained, … that the importance of these two factors has increased dramatically during the last six or seven years as a result of a number of events which have transformed the exchange traded derivatives industry.”
“It has become progressively accepted that computer based markets are viable and offer advantages over floor based markets…. Exchanges are now able to compete more effectively with each other and without the protection previously provided by physical location. Market participants demand that exchanges offer them services on a competitive basis, especially in terms of cost, and product and market quality.”
“As a result of the shifts in the industry, the profitability of established products has been squeezed and it has become increasingly important to develop new products and achieve patent protection where possible. … [T]he derivatives business (both on and off exchange) has one of the fastest growth rates of any business in the world.”
Defendant Pinkava has an interesting background. “He has a Ph.D. in Physics from Imperial College, London. In addition, he is highly competent in mathematics and computer technology. Plaintiff engaged Defendant on July 21, 2001 as a product manager in the Interest Rate Team of the Plaintiff’s Marketing and Product Management department. The head of that team and his
supervisor was Ms. Amanda Sudworth.”
“The document relating to Employee Confidentiality, Intellectual Property and Inventions provided [in part] that: ‘documents, and other confidential information developed or created by or with your assistance during your employment in the course of carrying out your duties are [Plaintiff's] property and such rights or interest in any such property or information that you may have are prescribed by the law.’”
About a year after Defendant began working for Plaintiff, he wrote a Job Description in consultation with Ms. Sudworth. … The job title was stated to be Manager – Interest Rate Products, Product Management. The Job Purpose was [partially] described: “As part of the Interest Rate Product Management Team [IRPM], [Defendant] will be jointly responsible for the development of Euronext.liffe, Plaintiff’s interest rate product derivative range.”
“Under the heading “Key Accountabilities” it is stated, inter alia, that the Manager “will assist the IRPM team with all aspects of the IRP business at Euronext.liffe, from initial product development and maintenance through to marketing strategy and implementation.” [¶¶ 5 16]
Between 2001 and 2003, the OTC market in credit derivatives was burgeoning because of the standardization of contracts effected through ISDA and the introduction of two indices. First, J. P. Morgan and Morgan Stanley with Dow Jones created TRAC X. Secondly, Deutsche Börse and a group of investment banks devised iBoxx. Each index was to facilitate trade in credit derivatives as a tool to limit or increase credit risk exposure. As a result, Plaintiff, its members and competitors looked forward to an exchange tradeable contract.
The Defendant had a three hour meeting with a J. P. Morgan representative on January 5, 2004 … “J. P. Morgan explained to Defendant the basic principles of CDSs and CISs. [Defendant] was also told that TRAC X was an index designed by J. P. Morgan and Morgan Stanley. In 2003, rights had been given to Dow Jones. J. P. Morgan explained that they wanted a futures contract which could expand the market to new customers that could not trade CDSs and they also wanted to create a hedging tool. …”
“J. P. Morgan identified a number of problems in designing a future. These included the following. First, the spread (that is to say the price) of the TRAC X would be hard to use as a basis of any index product as it was discontinuous from one CIS generation to the next. Secondly, a future based on a total return index would be easier to construct but less intuitive to
use.” [¶ 21].
Defendant then left for the U.S. to help launch Plaintiff’s Eurodollar interest rate future. In his absence, Ms. Sudworth made a presentation to Plaintiff’s Executive Committee on the subject of a TRAC X future based on a document largely prepared by Defendant.” [¶ 23].
On July 1, 2004, Defendant attended a conference called the Futures and Options World Conference (FOWC). “Defendant was struck by one slide that the speaker from Eurex presented. After the seminar was over, and on the way home, Defendant came up with his first inventive insights. He appreciated that something the conference speaker had said in connection with the
problem of bringing credit derivatives on exchange was plainly wrong, and he realised how the problem could be overcome.” [¶ 25].
On September 13, 2004, Plaintiff promoted Defendant to Senior Manager. While Plaintiff did give Defendant a raise, all other terms and conditions of his employment remained unchanged. His responsibilities were described as: “Pricing analysis, Development of Credit Derivatives Products, Development of Pari mutuel technology, Development of OTC markets on Exchange, Strategic development of Margining. Some educational projects.” [¶ 27].
Defendant’s four U.S. Patent office applications state that “The inventions have the effect of making available new classes of derivatives over the pre existing legal and distributional channels of a futures exchange that can currently only accommodate futures and options.” [¶ 32].
In Patchett v Stirling Engineering Co. Ltd ., (1955) 72 R. P. C. 50, 56. Viscount Simonds succinctly expressed the common law principle in these words: “It is elementary that, where the employee in the course of his employment (i.e. in his employer’s time and with his materials) makes an invention which falls within his duty to make … he holds his interest in the invention, and in any resulting patent, as trustee for the employer unless he can show that he has a beneficial interest which the law recognises.”
“The common law position may, however, be varied by contract. Banks recommended that it should no longer be possible for employers so to impair the legal position of employee inventors. This means that an employer may not require his employees to assign to him any inventions which they may make in the future outside the course of their employment.” Patents Act 1977 Section 42(2) invalidates any contractual provision which diminishes the employee’s rights in inventions of any description. But the Act preserved the employee’s duty of confidentiality. Section 43(4) confirms that any right of Defendant to statutory compensation exists notwithstanding that patent protection for his inventions is obtainable in the United States but not in the U.K. [¶ 37].
The Chancellor rejects the notion that Defendant’s invention fell within his normal duties. “Defendant’s normal responsibilities included the design of new futures and options based upon financial products of these kinds. As his job description stated, he was responsible for the development of the interest rate product derivative range. That range did not extend to new
futures and options in other categories; nor did it extend to the development of products of altogether different kinds, such as swaps, which had never been traded on exchange before.”
“Secondly, it is correct that Defendant was not employed at a high strategic level or to design ‘blue sky’ products. Nevertheless his normal duties, … did include an obligation to develop new products and be creative in the area of the business in which he worked. He was recognised as a person who could come up with innovative ideas. He was known to have considerable academic and technical abilities. He was also known to be an ‘ideas’ man.” The task that Defendant was set was [not] at all straightforward. There was no obvious solution to it. There was a need to deal with credit events but no understanding as to how this was to be achieved. It was a matter of considerable debate in the industry as to the best way to proceed. Accordingly, it [was] likely that any solution that Defendant devised was likely to be innovative.”
“… [N]o one anticipated that Defendant would come up with the radical inventions which he did. I rather think that the expression ‘quantum leap’ is something of an exaggeration. Nevertheless, I accept that Defendant’s inventions are ground breaking and very clever. However, in my judgment, the application of Section 39(1) is not determined by the size of the invention.” [¶ 48].
“Defendant was throughout engaged in seeking to devise a product comparable to a future in respect of credit derivatives such as swaps and the project was ongoing in July 2004 when, as part of it, Defendant attended the FOWC, following which he had the creative insight which led to the inventions. For all these reasons, I respectfully disagree with the conclusion of [the court
below] that the normal duties of Defendant did not extend to the design of an exchange tradeable credit derivative.” [¶ 68].
“Thus, the Chancellor agrees with the lower court’s conclusion. First, … the collection of sections in the Patents Act 1977 dealing with Employees’ Inventions is more favorable to the employee than the previous common law rules. It introduced in Section 40 a statutory right to compensation for inventions made by an employee but which in accordance with Section 39 belong to the employer. It invalidated by Section 42(2) any contractual term by which the rights of an employee in inventions of any description are diminished. It is also true that the Act as a whole … was an Act ‘to establish a new law of patents’. But the Banks Committee considered that the common law test as to ownership was fair.”
“In these circumstances, there is no reason to interpret Section 39(1)(a) by reference to any assumption of an intention (a) to enact either a test substantially more favorable to the employee than the old common law test or (b) to reproduce exactly the old common law test. … The [statutory] test is an objective test. It is to be applied in the light of, and in consequence of, the prior conclusion that the invention was made in the course of the normal or specifically assigned duties of the employee. … ”
“The [Defendant's] second submission … was that in ascertaining whether an invention might reasonably be expected to result from the carrying out by an employee of his duties the qualities of the particular employee, whether positive or negative, are not relevant. I would reject this submission. The statutory test is an objective one but it is to be applied to the circumstances of the particular case. … [T]he expectation must arise from the carrying out of his duties by Defendant not just from the fact that it was Defendant, an intelligent and inventive man, who was to carry them out.”
“Thus the fact, if it be one, that someone of Defendant’s ability was likely to recognise that a departure from merely carrying out his duties, whether normal or specifically assigned, might reasonably be expected to lead to the invention in question would not satisfy the statutory test. But the reason … would be that there was no reasonable expectation that an invention might result from the performance of his duties, not that the abilities of Defendant were irrelevant.” [¶¶ 76 78].
” … Plaintiff has established that, in accordance with the terms of Section 39(1)(a) Patents Act 1977, it is the owner of the inventions [which are] the subject matter of the four U.S. Patent Applications. … [T]he inventions were made in the course of the normal duties of Defendant as an employee of Plaintiff rather than the specifically assigned duties on which [the judge below] founded his conclusion. … [I]n either case it was reasonably to be expected that an invention might result from the carrying out of those duties by Defendant. In those circumstances, I would dismiss this appeal.” [¶ 84].
The two other judges agreed but on somewhat different reasoning.
Citation: Liffe Administration & Management v. Pinkava, [2007] E.W.C.A. Civ. 217, 2007 WL 711497 (Ct. App. Civ. Div., March 15, 2007).
Filed in: 2007 International Law Update, Issue5
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In patent infringement suit by AT&T against Microsoft, U.S. Supreme Court holds that Section 271(f) of U.S. Patent Act does not apply to Microsoft’s sending of its Windows operating system to foreign computer makers who make copies thereof and install these upon their computers for sale abroad since Microsoft was not supplying “components” of AT&T’s patented speech processing software abroad
Under U.S. patent law, no infringement generally occurs when someone makes and sells a patented product in another country. Section 271(f) of the Patent Act enacted in 1984, however, created an exception. Subdivision (1) provides that infringement does occur when one “suppl[ies] … from the United States,” for “combination” abroad, the “components” of a patented invention.
This action between AT&T (Plaintiff) and Microsoft Corporation (Defendant) questions the applicability of Section 271(f) to computer software first sent from the U.S. to a foreign manufacturer on a master disk, or by electronic transmission, which the foreign recipient then copies so that it can install it on computers made and sold abroad.
Plaintiff holds a patent on a computer used to digitally encode and compress recorded speech. Defendant’s Windows operating system could potentially infringe that patent for Windows incorporates software code that, when installed, makes it possible for a computer to process speech in the manner claimed by the patent.
Defendant sells Windows to foreign manufacturers who install the software onto their computers. Either on a disk or by encrypted electronic transmission, Defendant sends each manufacturer a master version of Windows, which the manufacturer uses to make copies. The foreign manufacturer installs those copies (not the master version sent by Microsoft) on its computers. The foreign made computers are then marketed to users abroad.
In an infringement suit, Plaintiff alleged that Defendant is liable to it for the foreign installations of Windows. Its theory is that, by forwarding Windows to foreign manufacturers, Defendant “supplie[d] … from the United States,” for “combination” abroad, “components” of Plaintiff’s patented speech processing software. Thus, it was liable under Section 271(f) of the Act.
Defendant disagreed. It argued that it makes no sense to classify unincorporated software as a “component” of an invention under Section 271(f) since it constitutes intangible information. Defendant also urged that the foreign generated copies of Windows actually installed abroad were not “supplie[d] … from the U.S.” Unpersuaded by these responses, the District Court held Defendant liable under Section 271(f), and a divided Federal Circuit panel affirmed.
On a grant of certiorari, the U.S. Supreme Court, on April 30, 2007, reverses the lower courts in a 7 to 1 vote. Because Defendant does not export from the U.S. the copies of Windows installed on the foreign made computers in question, it does not “suppl[y] … from the United States” “components” of those computers, and therefore is not liable under Section 271(f) as now couched.
A copy of Windows, not Windows in the abstract, qualifies as a “component” under Section 271(f). The provisions attach liability to the supply abroad of the “components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components.” Section 271(f)(1) (emphasis added).
The provision thus applies only to “such components” as are combined to form the “patented invention” at issue – here, Plaintiff’s speech – processing computer. Until expressed as a computer readable “copy,” (e.g., on a CD ROM) Windows – indeed any software detached from an activating medium – remains uncombinable. It cannot be inserted into a CD ROM drive or downloaded from the Internet; it cannot be installed or executed on a computer.
Abstract software code is a disembodied idea and as such, it does not match Section 271(f)’s categorization: “components” amenable to “combination.” Like a blueprint, Windows abstracted from a tangible copy no doubt is valuable information – a detailed set of instructions. A blueprint may exactly describe how to build and combine the components of a patented device, but it is not itself a combinable “component.”
While competent individuals can easily encode software instructions onto a computer readable medium, this fact does not lead to a different answer. The step of producing a copy is what makes software a usable, combinable part of a computer; whether or not it is easy, this extra step is vital. For instance, mechanics may cheaply use a variety of tools to generate the parts of a device. Those tools do not, however, become, “components” of the devices in which the parts are incorporated, at least not in any ordinary use of the term “component.”
Of course, Congress could have embraced within the scope of Section 271(f) not only a patented invention’s combinable “components,” but also “information, instructions, or tools from which those components readily may be generated.” It has not done so.
Under the wording of Section 271(f), the original parts supplied from the U.S. (and not foreign made copies thereof) actuate liability when assembled abroad to form the patented invention at issue. While copying software abroad is indeed cheap and easy, we can say the same about other items, such as keys copied from a master. Nothing in Section 271(f) instructs us to measure when duplication is easy and cheap enough to transmogrify a copy in fact made abroad into one “supplie[d] … from the United States.” The statutory text says nothing about copying; this weighs against having judges come up with the idea that the replication abroad of a master dispatched from the U.S. somehow amounts to supplying the foreign made copies from this country.
As the majority opinion reasons: “[a]ny doubt that [Defendant's] conduct falls outside Section 271(f)’s compass would be resolved by the presumption against extraterritoriality. … The presumption that United States law governs domestically but does not rule the world applies with particular force in patent law.”
“The traditional understanding that our patent law operate [s] only domestically and d[oes] not extend to foreign activities, … is embedded in the Patent Act itself, which provides that a patent confers exclusive rights in an invention within the United States. 35 U.S.C. Section 154(a)(1) (patentee’s rights over invention apply to manufacture, use, or sale ‘throughout the United States’ and to importation ‘into the United States’). See Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 531 (1972) (‘Our patent system makes no claim to extraterritorial effect’; our legislation ‘d[oes] not, and [was] not intended to, operate beyond the limits of the United States, and we correspondingly reject the claims of others to such control over our markets’).”
“As a principle of general application, moreover, we have stated that courts should ‘assume that legislators take account of the legitimate sovereign interests of other nations when they write American laws.” F. Hoffmann La Roche Ltd. v. Empagran S. A., 542 U.S. 155, 164 (2004); see EEOC v. Arabian American Oil Co., 499 U.S. 244, 248 (1991). Thus, [as] the United States accurately conveyed in this case: ‘Foreign conduct is [generally] the domain of foreign law,’ and in the area here involved, in particular, foreign law ‘may embody different policy judgments about the relative rights of inventors, competitors, and the public in patented inventions.’ Brief for United States as Amicus Curiae 28.”
“Applied to this case, the presumption tugs strongly against construction of Section 271(f) to encompass as a ‘component’ not only a physical copy of software, but also software’s intangible code, and to render ‘supplie[d] … from the United States’ not only [to] exported copies of software, but also [to] duplicates made abroad.”
“[Plaintiff] argues that the presumption is inapplicable because Congress enacted Section 271(f) specifically to extend the reach of United States patent law to cover certain activity abroad. But as this Court has explained, ‘the presumption is not defeated … just because [a statute] specifically addresses [an] issue of extraterritorial application,’ Smith v. United States, 507 U.S. 197, 204 (1993); it remains instructive in determining the extent of the statutory exception. See Empagran, 542 U.S., at 161 162, 164 165; Smith, 507 U.S., at 204.” [Slip op. 10].
“[Plaintiff] alternately contends that the presumption holds no sway here given that Section 271(f), by its terms, applies only to domestic conduct, i.e., to the supply of a patented invention’s components ‘from the United States.’ Section 271(f)(1). [Plaintiff's] reading, however, ‘converts a single act of supply from the United States into a springboard for liability each time a copy of the software is subsequently made [abroad] and combined with computer hardware [abroad] for sale [abroad.]‘ Brief for United States as Amicus Curiae 29.”
“In short, foreign law alone, not United States law, currently governs the manufacture and sale of components of patented inventions in foreign countries. If [Plaintiff] desires to prevent copying in foreign countries, its remedy today lies in obtaining and enforcing foreign patents. See Deepsouth, 406 U.S., at 531. [We note that Plaintiff] has secured patents for its speech processor in Canada, France, Germany, Great Britain, Japan, and Sweden. [Id. at note 17]. …”
“[Plaintiff] argues that the presumption is inapplicable because Congress enacted Section 271(f) specifically to extend the reach of United States patent law to cover certain activity abroad. But as this Court has explained, ‘the presumption is not defeated … just because [a statute] specifically addresses [an] issue of extraterritorial application,’ Smith v. United States, 507 U.S. 197, 204 (1993); it remains instructive in determining the extent of the statutory exception. See Empagran, 542 U.S., at 161 162, 164 165; Smith, 507 U.S., at 204.” [Slip op. 11]
The Court admits that reading Section 271(f) to bar foreign made copies of software from patent coverage may create a loophole in favor of software makers, but the Court is not convinced that a dynamic judicial interpretation of Section 271(f) would be appropriate here. The loophole is for Congress to weigh and to patch up if it finds such action warranted. Historically, Section 271(f) responded directly to a gap in U.S. patent law turned up by Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 ( 1972). In that case, the items exported were kits containing all the physical, readily assemblable parts of a machine (not an intangible set of instructions); foreign buyers would combine those parts abroad themselves (not foreign made copies of them). Having filled that hiatus, Congress did not take on other arguable gaps, such as the lacuna this Plaintiff describes.
Given the expanded extraterritorial thrust Plaintiff’s reading of Section 271(f) would entail, the Court decides to leave the patent protective determination Plaintiff desires to Congress. Cf. Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 431 ( 1984). No doubt Congress is aware of the ease with which anyone can copy electronic media such as software and, indeed, has not left these problems untouched. See the Digital Millennium Copyright Act, 17 U.S.C. Section 1201 et seq. Even if patent law should better adapt to the realities of software distribution, it is healthier for the judiciary to eschew forecasting Congress’ probable future disposition of this matter. Instead, Congress itself should decide whether to make any statutory changes based on focused legislative consideration.
Citation: Microsoft Corporation v. AT&T Corporation, 127 Sup. Ct. 1746; 2007 WL 1237838 (2007).
Filed in: 2007 International Law Update, Issue4
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In reviewing district court’s finding of supplemental jurisdiction over foreign patent infringement claims, panel majority of Federal Circuit finds abuse of discretion based on comity, judicial economy, convenience, and fairness
In an Oklahoma federal court, Jan Voda (Plaintiff) sued Cordis Corporation (Defendant) for the infringement of Plaintiff’s U.S. patents. Plaintiff owns several patents on exploratory catheters usable by cardiologists. Three patents are from the U.S., while it obtained one each in the European Union, Britain, France, Germany and Canada.
The District Court held it had jurisdiction over Plaintiff’s U.S. claims, and granted him leave to amend his complaint to allege infringements of Plaintiff’s foreign patents. The Court later exercised jurisdiction over those added foreign claims based on 28 U.S. C. Section 1367, the supplemental jurisdiction statute.
Cordis U.S. filed an interlocutory appeal. The U.S. Court of Appeals for the Federal Circuit rules that the District Court had erred in granting leave to amend under Section 1367, and remands.
At the outset, the Court notes that the existence of supplemental jurisdiction over foreign patent claims based on claims of U.S. patent infringements is a matter that is unique to U.S. patent law. The law of the circuit applies. Section 1367 confirms the discretionary nature of supplemental jurisdiction. But it also requires that the claims of foreign patent infringement “form part of the same case or controversy under Article III.”
In this case, however, the Circuit Court need not reach this issue because the district court abused its discretion in finding supplemental jurisdiction under Section 1367(c). That section permits district courts to decline supplemental jurisdiction if (1) the claim raises a novel or complex issue of State law, or (2) the claim substantially predominates over the claim with original jurisdiction, or (3) the district court has dismissed all claims over which it has original jurisdiction, or (4) in exceptional circumstances, if there are other compelling reasons for declining to exercise jurisdiction.
The court below failed to apply Section 1367(c). Considerations of comity, judicial economy, convenience, fairness, and other exceptional circumstances form compelling reasons to decline supplemental jurisdiction in this case. See City of Chicago v. Int’l Coll. of Surgeons, 522 U.S. 156, 173 (1997).
“Plaintiff asserts (and one of the amicus curiae briefs suggests) that international treaties evince a trend of harmonization of patent law and thus, that allowing the exercise of supplemental jurisdiction over Plaintiff’s foreign patent infringement claims furthers the harmonization
goals underlying the treaties.”
“Regardless of the strength of the harmonization trend, however, we as the U.S. judiciary should not unilaterally decide either for our government or for other foreign sovereigns that our courts will become the adjudicating body for any foreign patent with a U.S. equivalent ‘so related’ to form ‘the same case or controversy.’ Cf. F. Hoffman La Roche Ltd. v. Empagran S. A.,
542 U.S. 155, 166 67 (2004) (finding ‘no convincing justification’ for providing such subject matter jurisdiction in antitrust context).”
“Permitting our district courts to exercise jurisdiction over infringement claims based on foreign patents in this case would require us to define the legal boundaries of a property right granted by another sovereign and then determine whether there has been a trespass to that right. … Based on the international treaties that the United States has joined and ratified as the ‘supreme law of the land,’ a district court’s exercise of supplemental jurisdiction could undermine the obligations of the United States under such treaties, which therefore constitute an exceptional circumstance to decline jurisdiction under Section 1367 (c)(4). …” [Slip op. 15]
Comity considerations also fail to support the district court’s finding of supplemental jurisdiction. Our federal courts have no legal duty to adjudicate foreign patent infringement claims. None of the relevant international agreements require otherwise. Neither the Paris Convention for the Protection of Industrial Property (September 5, 1970, 21 U.S. T. 1583,
24 U.S. T. 2140), nor the Patent Cooperation Treaty (PCT) (January 24, 1978, 28 U.S. T. 7645), nor the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) (April 15, 1994, 1867 U. N. T. S. 154, 33 I. L. M. 1144), grants jurisdiction to the courts of one member state to adjudicate the patents issued by another member state.
The Court sees no reason to supplant foreign courts in adjudicating their patent infringement claims. Therefore, comity and the principle of avoiding unreasonable interference with the authority of other sovereigns required the district court to decline supplemental jurisdiction under Section 1367.
As for the factor of judicial economy, the district court overlooked it. Consolidated multinational patent adjudication might possibly have some efficiencies. A major drawback, however, is the present lack of international mechanisms for the enforcement of U.S. judgments within the
nations that issued these patents.
Finally, the Act of State Doctrine may make the exercise of supplemental jurisdiction over foreign patent infringement claims fundamentally unfair. The Doctrine presumes that the acts of foreign sovereigns on their own soil are valid. Assuming arguendo that the granting of a patent is an Act of State, a U.S. court would not be able to inquire into the validity of a foreign patent.
Here, Plaintiff failed to show that validity would not arise in the present litigation. In sum, the district court abused its discretion in failing to decline supplemental jurisdiction under Section 1367(c) based on treaties that are the “supreme law of the land, ” along with considerations of comity, judicial economy, convenience, and fairness.
The dissenting judge notes that the certified question is merely the authority of a U.S. court to exercise its discretion to accept an amended complaint with foreign patent claims. U.S. courts routinely apply foreign law to resolve disputes.
“The principles of supplemental jurisdiction as applied to federal/state issues, 28 U.S. C. Section 1367, weigh on the side of the exercise of jurisdiction absent compelling reason …” [Slip op. 40].
Citation: Voda Corporation v. Cordis Corp., 478 F.3d 887, 81 U.S. P. Q. 2d 1789 (Fed. Cir. 2007).
Filed in: 2007 International Law Update, Issue2
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Federal Circuit concludes that, under 28 U.S.C. Section 1498, United States is liable for use of method patent only when it practices each and every step of patented process within its territory
The U.S. government contracted with Lockheed Martin Corporation (Lockheed) to design and build the F-22 fighter. Lockheed subcontracted for two types of silicide fiber products, (1) a pre-impregnated material made from Nicalon Silicon carbide fibers, and (2) silicide fiber made from Tyranno fibers. A factory in Japan partially carbonizes the Nicalon silicon carbide fibers and makes it into sheets which it then imports into the U.S. The Japanese are the sole makers of the raw Tyranno fibers but a U.S. company locally turns them into silicide fiber mats.
The Zoltek Corporation (plaintiff) is the assignee of U.S. Reissue Patent No. 34, 162 (the Re ’162 patent). The patent claims certain methods of manufacturing carbon fiber sheets with controlled surface electrical resistivity. Plaintiff brought suit against the U.S. in the Court of Federal Claims under Section 1498(a), alleging that the U.S. and Lockheed used the methods claimed in the Re ’162 patent for the F-22 without paying the owner thereof.
Section 1498 (a) states, in relevant part: “Whenever an invention described in and covered by a patent of the United States is used … by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture …”
The government moved for partial summary judgment. It contended that 28 U.S.C. Section 1498(c)(2000) barred plaintiff’s Section 1498(a) claims because they arose in Japan. Section 1498(c) limits the scope of claims under Section 1498(a) by disallowing “claim[s] arising in a foreign country”. The trial court denied the motion. Though it agreed that Section 1498(c) did block plaintiff’s claims under Section 1498(a), the court directed plaintiff to amend its complaint to allege an uncompensated taking under the Fifth Amendment.
Both sides sought permission to lodge an interlocutory appeal. The U.S. Court of Appeals for the Federal Circuit accepts the appeals. The Court affirms the trial court’s ruling that Section 1498(a) does preclude the infringement allegations On the other hand, it reverses and remands because the lower court had erred in holding that plaintiff could allege patent infringement as a Fifth Amendment taking.
As a sovereign, the federal government is ordinarily immune from any legal action though Congress can waive this immunity under certain specified conditions and limitations. In this case, though subsection (a) of Section 1498 does allow judicial recourse against the federal government for patent infringement, subsection (c) curtails this waiver.
“This court has held that ‘direct infringement under section 271(a) is a necessary predicate for government liability under section 1498.’ NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1316 (Fed. Cir. 2005) … We have further held that ‘a process cannot be used ‘within’ the United States as required by section 271(a) unless each of the steps is performed within this country.’ Id. at 1318. Consequently, where, as here, not all steps of a patented process have been performed in the United States, government liability does not exist pursuant to section 1498(a).” [Slip op. 3-4]
In a concurring opinion, Judge Arthur Gajarsa further explains that the issue revolves around whether plaintiff’s infringement claims do “arise” in a foreign country under Section 1498(c). Though Section 1498(c) does curtail the waiver of sovereign immunity, “[t]he question here is the extent of this curtailment when the government practices a patented process having multiple steps.” [Slip op. 13] As to the plaintiff’s Nicalon fiber allegations, a Japanese maker carried out all the steps of this process patent abroad. As such, the claim “arises in a foreign country” and Section 1498(c) bars the action.
With respect to the Tyranno fiber products, an overseas factory made the fibers but a U.S. company finalized the product in the United States. Even though the allegedly infringing conduct did not entirely take place within national boundaries, the courts interpret the phrase “claims arising abroad” expansively, thus “capturing any claim that does not arise entirely through domestic infringing conduct. In doing so, I reject any contention that the analysis depends on where any individual step of the claimed method was practiced.” [Slip op. 16]
“In sum, the infringing use of a patented method under Section 1498(a) consists of practicing all steps in the claimed method. Because the injury from infringement is intangible and not amenable to geographical reference, the cause of action cannot be said to arise where injury is suffered, and the Section 2680(k) cases are of limited value in interpreting Section 1498(c). I would thus look to where the infringing conduct occurred to ascertain where the claim arises.”
“In the first analysis, no particular step has primacy. But since a court must give the sovereign immunity waiver at Section 1498 a narrow construction, I must view the exclusion at Section 1498(c) broadly and resolve ambiguity in favor of immunity. For that reason, Section 1498(c) precludes an action premised on infringing use of a method claim if some steps of the method are practiced abroad. Since [plaintiff's ]Tyranno product claims fall within this construction, they are barred. Thus, the trial court properly concluded that it lacked jurisdiction over those infringement allegations.” [Slip op. 19]
Citation: Zoltek Corp. v. United States, No. 04-5100 , 2006 WL 827304 (Fed. Cir. March 31, 2006).
Filed in: 2006 International Law Update, Issue 4
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U.S. Supreme Court declines to review judgment that Canadian company’s BlackBerry wireless communicator infringes U.S. patents of plaintiff though its e-mail computers are located outside U.S.
The U.S. Supreme Court recently denied a petition for certiorari filed by Research in Motion (RIM), a firm based in Waterloo, Ontario. Research in Motion, Ltd. v. NTP, Inc., 126 S.Ct. 1174 (Jan. 23, 2006). The issue that RIM presented was essentially whether an Internet based global telecommunications system, such as the BlackBerry wireless e-mail system, is being used “within the United States,” under Section 271(a) of the U.S. Patent Act where components crucial to the system’s operation are located outside the United States. A denial of the writ is not generally regarded as precedential.
The U.S. Court of Appeals for the Federal Circuit had ruled for that RIM’s popular “BlackBerry” wireless hand-held communicator was infringing several U.S. patents owned by NTP, a Virginia company. See 418 F.3d 1282 (Fed. Cir. 2005) [replacing 392 F.3d 1336 (Fed. Cir. 2004)]. NTP won an injunction a year later to halt U.S. sales of the BlackBerry and to shut down the service, although the court stayed the ruling pending appeal.
Since its introduction in 1999, the BlackBerry system has revolutionized e-mail and data communications; it combines Internet and radio frequency (RF) technology in a way that almost instantly transmits data, including, but not limited to, duplicates of incoming e-mail messages, from an individual’s office computer network to his or her mobile BlackBerry wireless handheld device. The BlackBerry system is a two way system; it also enables an individual to compose an e-mail message on a BlackBerry handheld device and send it through his or her office computer network to an e-mail recipient anywhere in the world, including to other BlackBerry subscribers.
The fixed Canadian location and operation of the Network Control Center for North America (which serves more than 28 countries in addition to the United States) makes the BlackBerry system transnational in nature. Even more significant, the BlackBerry system has become critical for hundreds of thousands of federal, state, and local government personnel. These include officials responsible for national defense, homeland security, crisis management, and emergency response, and for those in the private sector (e.g., first responders; defense contractors) with whom government officials have to be able to communicate no matter what the circumstances.
The United States government recently stressed in a Statement of Interest filed with the district court, that it is crucial that any injunction entered in this action avoid disrupting governmental use of the BlackBerry system, since all three branches of the Government rely on the system, both for routine and urgent communications. Some 70% of RIM’s revenue comes from the U.S. where millions use the device.
NTP said the Supreme Court decision had “closed the final path for RIM to avoid liability for the infringement” and cleared the way for a lower court to issue the injunction. The two sides had reached a $450m settlement last March, but the deal fell through three months later. While RIM has asked the Federal Circuit to enforce the settlement, NTP has urged the court not only to grant it a permanent injunction, but also to award it lost royalty payments and $126m in damages.
Citation: Guardian Newspapers, Ltd., January 24, 2006, Financial Section, page 21 (byline of David Teather); 2006 WLNR 1255630.
Filed in: 2006 International Law Update, Issue 2
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In patent dispute between two major corporations, as matter of first impression, Federal Circuit finds that foreign-replicated copies of U.S. software are “supplied” abroad and hence may constitute infringement within the meaning of U. S. patent laws
The AT & T Corporation owns a patent for certain speech-encoding technology, Reissue Patent 32,580. To advance the international distribution of its Windows software, the Microsoft Corporation provides certain copies of the master versions to foreign computer manufacturers and authorized foreign “replicators.” Such copies of Microsoft Windows are installed on foreign-assembled computers and sold abroad. AT & T claimed that Microsoft’s Windows software contained certain speech codes that allegedly infringe its patent.
AT & T eventually sued Microsoft for patent infringement in a New York federal court. Microsoft sought to keep out any evidence of liability under 35 U.S.C. Section 271(f) for the replication abroad of Microsoft’s Windows operating system from a master version sent from the U.S. Section 271(f) provides, in relevant part: “Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention … in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer. …”
The parties eventually agreed to a stipulated final judgment holding Microsoft liable, but reserving its right to appeal. This is that appeal. The U.S. Court of Appeals for the Federal Circuit affirms over a dissent.
Microsoft has argued on appeal (1) that the master versions of its Windows software are not “components” within the meaning of Section 271(f); and (2) that such copies made abroad are not “supplied” from the U.S. The Court had decided the first issue while this case was pending. In Eolas Techs. Inc. v. Microsoft Corp., 399 F.3d 1325 (Fed. Cir. 2005), this Court held that software code may qualify for patenting, and that software could constitute a “component” of a patented invention.
The remaining matter of first impression then, is whether the software copies made abroad are “supplied” within the meaning of Section 271(f). The Court finds that there may be liability for such replication abroad.
“… Microsoft has taken full advantage of the replicable nature of software to efficiently distribute Windows® internationally. At the same time, however, Microsoft posits that Section 271(f) liability should attach only to each disk that is shipped and incorporated into a foreign-assembled computer. … We reject this theory of liability as it fails to account for the realities of software distribution. … [W]e cannot disregard the nature of the relevant technology and business practices underlying a particular litigation.”
“It is inherent in the nature of software that one can supply only a single disk that may be replicated – saving material, shipping, and storage costs – instead of supplying a separate disk for each copy of the software to be sold abroad. All such resulting copies have essentially been supplied from the United States. Where there are competing interpretations of a statute that imposes liability for certain acts, an interpretation that allows liability to attach only when a party acts in an unrealistic manner is unlikely to be correct. … We therefore reject Microsoft’s reading of Section 271(f).”[Slip op. 4]
The dissenter opines that the foreign manufacture of a mere component of a patented product cannot create liability in the U.S. under Section 271(f).
“The court’s proposition today that ‘the ‘supplying’ of software commonly involves generating a copy’ does not actually distinguish software components from physical components of other patented inventions. The only true difference between and supplying software components and physical components is that copies of software components are easier to make and transport. The ease of copying a patented component is not the proper basis for making distinctions under Section 271(f).”
“Possibly recognizing defects in its reasoning, this court limits its novel uncommon construction of ‘supplies’ to ‘software ‘components,’ [emphasis in original] [because for those inventions] the act of copying is subsumed in the act of ‘supplying,’ …’ Rather than ‘according the same treatment to all forms of invention,’ … this court creates a new rule that foreign copying of a component of a patented invention shipped from the U.S. gives rise to liability in the U.S. Apparently this rule applies only to software inventions. This application of ‘supplies’ solely to software components ignores this court’s case law that refuses to discriminate based on the field of technology. … The language of Section 271(f) does not discriminate based on field or form of technology, yet this court invents such a distinction.” [Slip op. 7]
Finally, the dissenter notes that the infringed-upon party has other remedies available for acts that occur abroad: it can enforce its foreign patent. The dissenter explains: “Section 271(f) protects foreign markets from domestic competitors. Section 271(f) does not, or at least did not until today, protect foreign markets from foreign competitors. This court’s expansion of Section 271(f) to offer protection to foreign markets from foreign competitors distorts both the language and the policy of the statute. This court should accord proper respect to the clear language of the statute and to foreign patent regimes by limiting the application of Section 271(f) to components literally ‘shipped from the United States.’ …” [Slip op. 9]
Citation: AT & T Corp. v. Microsoft Corp., 414 F.3d 1366 (Fed. Cir. 2005).
Filed in: 2005 International Law Update, Issue 9
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In patent action by U.S. drug company, Supreme Court of Canada decides whether to allow appeal of Canadian drug company from order issued under recent patent regulations (which sought to conform to Agreement on Trade Related Aspects of Intellectual Property Rights and North American Free Trade Agreement) imposing freeze period on defendant’s new drug based mainly on presence of same public domain substance in both plaintiff’s and defendant’s anticancer drugs
During the 1970s, the National Cancer Institute, a U.S. government funded organization learned that the bark of the Pacific yew (taxus brevifolia) contained paclitaxel, an anticarcinogenic substance, and put this data into the public domain. Since the yew bushes died when stripped of their bark, however, doubts arose on whether drug companies could turn out enough quantities for pharmaceutical production.
The respondents here include Bristol-Meyers Squibb headquartered in New York City plus its Canadian subsidiary (collectively BMS). In the following decade, BMS produced a drug containing paclitaxel, later marketed as Taxol. In the course of that work, it secured several Canadian patents which involved new formulations and new methods of administering the medicine. None of these patents applied to paclitaxel as such.
Working independently of BMS, the appellant, Biolyse Pharma Corporation (BPC) found out that it could extract paclitaxel from a different species of yew (taxus canadensis) without killing the trees. It applied to the Minister of Health for a notice of compliance (NOC) in order to put its product on the market. The Minister required BPC to submit a New Drug Submission (NDS) rather than an Abbreviated New Drug Submission (ANDS), contending that its different botanical source and its claims for new and different uses for the medicine prevented any reliance on BMS’s Taxol as a Canadian reference product.
BPC then submitted independent clinical studies. The Minister approved the safety and efficacy of the BPC product as a new drug and issued it an NOC in 2001. BMS sought to quash this NOC, however, claiming that its issuance had turned on a finding of bioequivalence to the BMS product.
In a reversal of policy, Parliament in 1993 repealed the compulsory licence provisions of the Patent Act and canceled all compulsory licences issued on or after December 20, 1991. In part, these changes flowed from international duties accepted by Canada under the Agreement on Trade Related Aspects of Intellectual Property Rights, 1869 W.N.T.S. 299 (TRIPS). Some may have thought that Canada’s compulsory licensing system might also clash with Canada’s obligations under the North American Free Trade Agreement, Can. T.S. 1994/02, in particular Art. 1709(10), signed at the end of 1992.
The new statute abrogated the usual regulatory lag of two years before a generic manufacturer could obtain an NOC. To prevent the generic companies from abusing these “early working” and “stockpiling” exceptions, however, the government also laid down the Patented Medicines (Notice of Compliance) Regulations (PMR). These allowed a patent owner to submit a patent list of any drug that includes a “medicine.”
If another manufacturer later asks for a NOC for the same drug this “second person” may serve a Notice of Allegation (NOA) that the “first person’s” patent list is not a proper bar. It may contend, for instance, that the first person is not in fact the owner or exclusive licensee in Canada of the drug, or that the patent(s) have expired, or are invalid, or that the applicant would not infringe any claim for the medicine itself and no claim for the use of the medicine.
After being served with an NOA, the innovator may ask for an order barring the Minister from issuing a NOC until all of the listed patents have expired. This application activates a 24 month statutory freeze on the issuance of a NOC.
On an application for judicial review, the motions judge found that BPC had neither applied for, nor obtained, regulatory approval on the basis of bioequivalence. He ruled that, even though neither BMS nor BPC had any patent claim to paclitaxel, Section 5(1.1) of the NOC Regulations caught BPC because paclitaxel was present in both the BPC and the BMS products. The motions judge quashed the NOC and the Federal Court of Appeal upheld that decision. In a six-to-three decision, the Supreme Court of Canada allows BPC’s appeal.
In the majority’s view, the Minister was entitled to issue the NOC to BPC on the basis of its NDS without making it subject to the statutory freeze. Reading the NOC Regulations to grant BMS a monopoly merely by showing the presence of a public domain medicine like paclitaxel in its product would provide no value to the public in return for the monopoly BMS seeks. When we interpret the NOC Regulations in their proper context, and especially in light of the wording of the statutory power that authorized them, the NOC Regulations do not have the broad effects claimed by BMS.
Parliament enacted the reform legislation in question to protect the rights of patentees to the extent of barring generic manufacturers from marketing “copy cat drugs” until the expiry of all relevant patents. Under the NOC Regulations, the court hearing the prohibition application has no discretion to lift the stay even if it thinks the innovator’s case for interim relief is weak. Nor does the court have a discretion to leave the contending parties to their remedies under the Patent Act. The “second person’s” application for a NOC simply goes into a “deep freeze” until the statutory procedures have played themselves out.
Moreover, Section 5(1.1) of the NOC Regulations does not apply to innovative drugs. The courts should limit it to applications for generic copies of patented drugs in the circumstances had in mind by the regulator.
Furthermore, since Biolyse did not rely on bioequivalence, its product did not fall within the scope of Section 5(1) of the NOC Regulations either. The product was properly treated as an innovator drug, rather than a “copy cat drug,” and neither Sections 5(1) nor 5(1.1) had any application.
Applying the modern approach to statutory interpretation, a court cannot take the word “submission” in Section 5(1.1) out of this context. It also has to look to the scope of the regulation-making power in Section 55.2(4) of the Patent Act; it permits a generic manufacturer to work the patented invention within the 20 year period (“the early working exception”) to the extent necessary to obtain a NOC at the time the patent(s) expired and to “stockpile” generic product towards the end of the 20 year period to await lawful market entry. Thus, the judge must consider the grammatical and ordinary sense of the words and give the precise scope of the word “submission” in Section 5(1.1) a purposive interpretation within this context.
Secondly, in analyzing the more specific schemes of the Patent Act and the Minister’s regulation making power, it is apparent that the NOC Regulations are directed to persons who are making use of the “patented invention” which is not necessarily co extensive with the patented drug or the patented claims. BMS has no patent on paclitaxel and the mere fact that paclitaxel is found in the Biolyse product does not mean that Biolyse took advantage of BMS inventions for the purpose of “early working” a generic copy or “stockpiling” looking toward the expiration of the BMS patents.
Moreover, the limiting words of Section 55.2(4) do not disturb the usual requirement that regulations must fall within the regulation making power. The “plain meaning” adopted by the Federal Court of Appeal in this case would suggest that Section 5(1.1) is ultra vires the very specific authority granted by Section 55.2(4).
Finally, the internal structure of the NOC Regulations supports a narrower interpretation. The word “submission” also appears in Section 4(1), which provides the template upon which the drafters modeled Section 5(1.1).
Moreover, the courts have ruled that Section 4(1) does not apply to all submissions. Any other interpretation of Section 4(1) would allow innovator companies to sidestep the time limits applicable to patent lists by simply making corporate or technical changes to their filing by way of a supplementary NDS. In this context, the courts have found that an unqualified and unrestricted interpretation of the word “submission” would be destructive of regulatory intent.
The majority further explains. “The broad interpretation urged by BMS would lead to an absurd result. The ‘medicine’ in the drug to which the patent list relates need not itself be patented, or indeed owe anything to the ingenuity of the ‘first’ person. It could be a ‘medicine’ whose usefulness was discovered by somebody else (as in the case of paclitaxel) or something in the public domain as common as penicillin.”
“So long as such ‘medicine’ shows up as a component, however minor, in the chemical composition of the drug to which the patent list relates, the ‘second person’ (including an innovator who is seeking to manufacture a new and useful drug) is barred from proceeding to market by the automatic statutory freeze, and this ‘bar’ will continue for so long as the patent list holder can ‘evergreen’ its product by resorting to patentable improvements or other components or additions, be they ever so minor. This would stifle competition and innovation in the pharmaceutical industry and produce a result at odds with what the regulator was trying to achieve.” [¶ 66]
“In my view, Section 5(1.1) does not apply to innovative drugs. It should be confined to applications for generic copies of patented drugs in the circumstances contemplated by the regulator, i.e., where a manufacturer makes a submission for a NOC for a drug which contains a medicine that it purports to copy from another generic but in fact copies from the innovator company that has filed the patent list.”
“That is not this case. Where an applicant relies on bioequivalence, it will be caught by Section 5(1). On the facts here, neither Section 5(1) nor Section 5(1.1) applies. Accordingly, I conclude that the Minister was entitled to issue the NOC to the appellant Biolyse on the basis of its NDS without subjecting Biolyse to the statutory freeze.” [¶ 69]
“If BMS believes that the Biolyse product infringes its patent(s), it has recourse to the usual remedies under the Patent Act. The NOC ought not to have been quashed, and the appeal should be allowed. [¶¶ 70-71]
Citation: Bristol Myers Squibb Co. v. Canada, 2005 S.C.C. 26; [2005] S.C.J. No. 26 (Sup. Ct. Canada, May 19).
Filed in: 2005 International Law Update, Issue 6
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English Chancery Court dismisses infringement suit by U.S. pharmaceutical company because narrow wording of its U.K. patent for osteoporosis medication left way open for defendant’s lawful use of different form of sulphonic acid in similar manufacturing process
The plaintiff (or claimant), Merck & Co. Inc., is a pharmaceutical company incorporated in the United States. It owned patents in the U.S. and U. K. describing a way to make monosodium alendronate or MA. MA had proved useful in suppressing bone resorption. So many physicians worldwide were prescribing it to treat bone diseases such as osteoporosis that it may well be the most widely used treatment for that condition.
Generics (U.K.) Ltd. (the defendant) was in the business of supplying pharmaceutical products in the United Kingdom. At some point, it notified the plaintiff that it intended to market a medication in the U.K. in which MA made in India by a company called CIPLA would be the active ingredient.
It also furnished the plaintiff with a confidential explanation of the CIPLA process for making its product and gave the plaintiff a limited time to admit non infringement under the U.K. patent. Absent such a concession, defendant assured plaintiff that it planned to go to court to obtain a declaration to that effect.
Within the time limit, the plaintiff itself filed suit in the Chancery Division, an English court of first instance. The suit claimed infringement of claim 1 of its English Patent by the CIPLA method as depicted by the defendant. In effect, plaintiff urges that the CIPLA process appropriates the entire value of its invention. The Chancery Court, however, ends up dismissing plaintiff’s claim.
Under the U. K. Patents Act of 1977 (the Act) and the European Patent Convention of 1973 (EPC) [13 I.L.M. 271(1974), 15 I.L.M. 5(1976)], the monopoly sought by a patentee clearly has to be comprehensible to the patent reader, the Court notes. The reader has to be able to define the limits of the prohibited field before he sets out to make a rival product or to install a competing process.
“A patent is a document written by the patentee for publication to the world at large and designed not only to set out clearly what the invention is but to describe the monopoly sought in unambiguous terms. It is supposed to be comprehensible to members of the relevant trade simply on reading.” [¶ 34]
In the instant case, however, the notional reader of the Patent could not have been sure of the protective scope the plaintiff intended. For example, he would be uncertain whether that protection reached the use of any sulphonic acid in the manufacturing process as well as the methanesulfonic acid (MSA) specified in claim 1 of the Patent.
“[Plaintiff] was keen to focus on the CIPLA process and to say that, whatever the Patent’s scope, that process fell within it. However, as noted above, the proper approach is to construe the Patent and its claims in the absence of the infringement and only when this has been done, to look at the [alleged] infringement. One of the advantages of this is that it allows one to appreciate the full breadth of the monopoly asserted.” [¶ 23]
“A patent is a document written by the patentee for publication to the world at large and designed not only to set out clearly what the invention is but to describe the monopoly sought in unambiguous terms. It is supposed to be comprehensible to members of the relevant trade simply on reading. If our law has reached the stage where [as here] experiments and extensive expert evidence is admissible to aid in construing patents, then it suggests that something has gone wrong.” [¶ 34]
“Whatever the judicial attempts to give guidance, the bedrock on which construction must be based consists of the statutory provisions which determine the form of a patent and the function of its parts. They are to be found in the Act … and the … EPC.”
“The Act provides in part as follows: ‘Article 69 [of the EPC] should not be interpreted in the sense that the extent of the protection conferred by a European patent is to be understood as that defined by the strict, literal meaning of the wording used in the claims, the description and drawings being employed only for the purpose of resolving an ambiguity found in the claims. Neither should it be interpreted in the sense that the claims serve only as a guideline and that the actual protection conferred may extend to what, from a consideration of the description and drawings by a person skilled in the art, the patentee has contemplated. On the contrary, it is to be interpreted as defining a position between these extremes which combines a fair protection for the patentee with a reasonable degree of certainty for third parties.” [¶ 35]
“It is [the patentee's] duty to communicate his invention and his assertion of monopoly to the public in language it will understand. He is warned by the Protocol that his exclusive rights will not necessarily extend to everything which, from a reading of the specification, it can be seen that he contemplated.”
“Furthermore the drafting of the specification and claims has to be considered against the background that no one is forced to apply for a patent or to seek as wide protection as possible. The patentee can be taken to be aware of the fact that there is always a balance to be achieved between width of protection and validity. It is up to the patentee to choose the level of risk he wishes to run.” [¶ 38]
“Notwithstanding the adaptability of scientific language, the patentee is not expected to be omniscient or to exhibit super human thoroughness in drafting. He may not be able to foresee future developments which will be useable with his invention but which make no material difference to the way it works.”
“Furthermore the patentee may choose a form of language which emphasises which features of an invention are important and which are not. … If there is a variant to the latter, which obviously does not affect the way in which the invention works, the notional reader may be reasonably confident that the inventor wanted to cover this variant as well. In these types of cases, the monopoly is likely to extend to the new variant.” [¶ 42]
“The courts are not a branch of social services whose job it is to help the infirm or the unwise and the Protocol does not require them to be so. There is no cannon [sic] of construction which would justify the courts in granting a patentee more protection than that which, objectively assessed, he indicated he wanted. Indeed to do so would not be ‘fair’ to the patentee. It could expose him to a greater risk of invalidity than he was prepared to shoulder [cite].” [¶ 47]
” … I am not persuaded that the patent should be construed so as to give protection for the wider family of sulphonic acids. The claimant is caught on the horns of a dilemma. If, as the claimant asserts, it is obvious that other sulphonic acids besides MSA would work in the same way, then there are only two possibilities. Either the patentee, sharing the knowledge and skills of the notional addressee, must have been aware of this or he was not.”
“In the former case, the decision to refer only to MSA in the specification and claims is likely to have involved a decision on his part not to seek protection for all the other sulphonic acids. In the latter case, he was not aware of the possibility of using any other sulphonic acid and in this respect the claim accurately reflects what he wanted a monopoly for.”
“It is not necessary to consider which of these two possibilities is the most likely, but it is noticeable that the patentee not only does not refer to any other sulphonic acid or even hint that any other acid might work, but he ventures no opinion as to why MSA works and why the prior art failed.”
“That lacuna is not filled by looking at the prior art referred to expressly in the patent. In particular, as noted above, [plaintiff's] U.S. Patent No 4,407,761, which uses chlorobenzene as the solvent and in which the product goes solid, does not refer to this as a defect, does not address the question of why it solidifies nor does it touch upon the reason why the solvent does not work (assuming, of course, that solution of the end product was something which that inventor was trying to achieve which is not what the U.S. patent suggests).”
“In my view the notional reader could not be reasonably confident that the inventor wanted to cover sulphonic acids other than MSA. … [T]he reader is entitled to assume that the patentee thought at the time of the specification that he had good reason for limiting his monopoly to MSA and intended to do so. In those circumstances, to widen out the protection is not an act of fairness to the patentee, nor does it give reasonable certainty to third parties.” [¶ 60].
For the above reasons, the Court holds that the importation of products made to the CIPLA process would not infringe the claimant’s Patent. It therefore dismisses claimant’s petition.
Citation: Merck & Co Inc. v. Generics (U.K.) Ltd., [2003] E.W.H.C. 2842 (PAT.), [2003] All E.R. (D) 418 (Nov.) (Chancery Division, Nov. 27).
Filed in: 2003 International Law Update, Issue12
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Relying in part on successful patent infringement suit against New York co-conspirator in Wisconsin federal court, plaintiff persuaded Irish Supreme Court to restore Irish co-conspirator to list of active Irish companies in aid of plaintiff’s damage suit in Bermuda courts
Orlaford Limited filed statutory proceedings in the Irish courts against the three last known directors in which it asked to have the dissolved Deauville Communications Worldwide Limited put back on the Irish Register of Companies. It also requested the court to declare that the officers of Deauville are to be liable for any debts or liabilities incurred by or on behalf of Deauville. In addition, it petitioned to have all legally required annual returns sent to the Registrar of Companies. (The Registrar and the tax authorities were “notice parties.”)
At the time Orlaford filed its Irish petition, it had an action pending against Deauville in the Bermuda courts. The Bermuda lawsuit sought damages based on claims that Deauville, with intent to injure Orlaford, conspired with other persons to bring about the breach of a license agreement. The agreement entitled Orlaford to get royalties from the use of the so-called “Rogers patent.” In the meantime, Deauville had dropped off the Irish Register of Companies. Orlaford contended that the Section 12(B)(3) action was necessary to a successful result in the Bermuda litigation.
Respondents raised the following two defenses. First, they contended that Orlaford was not a “creditor” of Deauville at the time they filed their petition within the meaning of the applicable legislation, i.e., Section 12 B(3) of the 1982 Principal Act (Companies) Act. Second, it was argued that petitioners had not brought forth enough evidence to show they were acting in good faith. The High Court ruled in Orlaford’s favor and granted the requested orders.
On appeal to the Supreme Court of Ireland, the Court dismisses the appeal. On the locus standi issue, respondents had argued that Orlaford was, at best, nothing more than Deauville’s “contingent or prospective” creditor. They pointed to other sections of the Act that expressly included such creditors and relied on the absence of such explicitness in Section 12(B)(3). The Court rejects these contentions.
“Unless there were authority to the contrary, I would be inclined to the view that the word ‘creditor’ in Section 12(B)(3) should be read as extending to contingent or prospective creditors. It would seem unjust that the question whether a person is entitled to have the company restored to the register for the purpose of recovering a judgment against them should be determined by whether their claim against the company is for a liquidated sum in which case they would unarguably be a ‘creditor’ or takes the form of a claim for unliquidated damages.” [N/A]
Quoting a leading case on point, the present Court declares. “Where one is concerned with those who might feel a legitimate grievance because a company has been struck off it seems to me that one should look somewhat generously at the word ‘creditor’ which precedes the phrase ‘feels aggrieved’. Put another way, I doubt very much whether in using the word ‘creditor’ simpliciter the legislature can have been intending thereby to differentiate between those creditors whose debts are fixed and ascertained and those whose debts are contingent or prospective, providing redress for the grievances of the former but ignoring the grievances of the latter. In short, I think it would be wrong to construe the word ‘creditor’ narrowly.” [N/A]
“Since the events which are claimed to give rise to the cause of action are alleged to have happened before April 18th, 1999, the day on which Deauville was struck off, it is clear, that adopting the reasoning of the English courts …, Orlaford should be regarded as being a ‘creditor’ for the purposes of the application to restore Deauville to the register.” [N/A]
The second defense was that petitioner had not produced enough evidence before the lower court that it was prosecuting the petition below in good faith. The Supreme Court disagrees. It points to the affidavit filed below by a Canadian attorney who has been co-ordinating Orlaford’s legal affairs on a world wide basis. According to the affiant, Orlaford had at all material times the sole right to obtain royalties on U.S. and foreign sales of footwear making use of a system of footwear lights invented and patented by Nicholas A. Rogers, i.e., the “Rogers patent.” A New York company called BBC International Ltd. had gotten an exclusive license from Orlaford to exploit the Rogers patent throughout the world. The consideration was to pay the agreed upon royalties to Orlaford.
The affidavit further declares that, in 1995, Orlaford found out that BBC had wrongfully copied the Rogers patent. Aided by others, it was making and selling lighted footwear without paying Orlaford the royalties to which it was entitled under the license agreement. Orlaford brought a 1996 patent infringement action against BBC and others in a Wisconsin federal court. In the course of the litigation, Orlaford learned that Deauville had gotten a license from BBC and had conspired with BBC and others to defraud Orlaford of its proper royalty payments. The federal court ruled for Orlaford, awarding it $5,600,000.
Another attorney for Orlaford produced the original license agreement between Rogers and BBC and a copy of the patent which he averred had been duly assigned to Orlaford. A senior officer and director of BBC deposed in August 1996 that Deauville was selling lights under an agreement between BBC and Deauville.
The Supreme Court agrees with the High Court’s conclusion on this issue. “Assuming that the [chances-of-success] test … is also appropriate where a court is deciding whether ‘it is just’ that the company should be restored to the register, I have no doubt that it was satisfied by Orlaford in this case. The lawyers who conducted inquiries on their behalf into the alleged infringement of their intellectual property rights have sworn affidavits in which they have said that Deauville were involved in such activity and they have exhibited the relevant depositions in earlier proceedings in support of those averments. It is clear that the learned High Court judge was entitled to conclude that, at the least, the claim by Orlaford might succeed and that there was nothing to indicate that the proceedings were frivolous or vexatious or were not being bona fide maintained by Orlaford.” [N/A]
Citation: In the Matter of Deauville Communications Worldwide Ltd., 2001/169 (Sup. Ct. Ire. March 15, 2002).
Filed in: 2002 International Law Update, Issue 8
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In international patent dispute involving therapeutic plant extract, Federal Circuit finds no conflict between French court decisions enforcing intent of parties to foreign development contract and U.S. patent law, and affirms summary judgment for failure to join all patent co-owners as plaintiffs
In April 1985, the Societe Civile D’Investigations Pharmacologiques D’Aquitane of Bordeaux, France (hereinafter “SCIPA”), entered into a joint development contract, concerning the development of new products for medical use, with Horphag Overseas Limited of the English Channel Islands (hereinafter “Horphag”). The contract specified that the parties would jointly file any patent applications resulting from said collaboration. The contract clearly stated that any litigation concerning the interpretation or implementation of the contract would remain under the exclusive jurisdiction of the courts of Bordeaux, France.
On April 9, 1985, a United States patent application (‘360 patent) was filed, listing Jacques Masquelier of SCIPA as the sole inventor of a method for extracting an active ingredient from plants able to counteract the aging of cells. Eight days prior to this filing, Masquelier had assigned his rights in the prospective ‘360 patent to SCIPA and Horphag. In 1994, SCIPA further granted its rights in this ‘360 patent to International Nutrition Company of Liechtenstein (hereinafter “INC”). Horphag filed suit in the Bordeaux court the following year to void the assignment to INC. In 1996, Masquelier reconfirmed his assignment to INC of any rights that may revert to him.
The Bordeaux court held that the 1994 assignment of rights was void. Masquelier had violated French statutes barring joint owners from unilaterally assigning or granting their ownership stakes in patents. Furthermore, the court also voided the 1996 confirmatory assignment of rights on the grounds that Masquelier had lost these rights the first time he assigned them in 1994. Since INC had received no interest in the ‘360 patent from Masquelier’s void assignment of rights, it therefore retained no rights regarding the ‘360 patent.
INC brought suit in the Connecticut federal court, alleging copyright infringement of the ‘360 patent by Horphag and other affiliates. The court extended international comity to the Bordeaux decisions because they had the power to determine ownership interests under the joint development contract, and because they were not seriously contrary to American principles of law. The district court further found that INC retained no ownership interest in the ‘360 patent and therefore lacked the ability to bring claims of copyright infringement against Horphag. An appeal followed.
The U.S. Court of Appeals for the Federal Circuit affirms the district court decision to extend international comity to the decisions reached by the Bordeaux courts. In particular, the Court finds (1) that the Bordeaux courts are courts of competent jurisdiction, (2) that granting comity would not violate the laws and public policy of the forum state and its residents and (3) that the Bordeaux court abided by fundamental standards of procedural fairness. These factors justified the U.S. district court in declining to exercise jurisdiction in a case already adjudicated in France.
The Court rejects INC’s argument that infringement of a U.S. patent requires adjudication under U.S. patent law. The French court retained proper jurisdiction to determine who owned the U.S. patent based upon a French contract, and had decided that INC did not, in fact, own the referenced U.S. patent.
The Court further upholds the Bordeaux court’s decision nullifying SCIPA’s 1994 attempted share assignment. French Intellectual Property Law provides that joint owners generally may assign their respective shares at any time.
On the other hand, the remaining joint owners retain the right of preemption for three months from the date one of the parties makes known its intent to divest itself of ownership. SCIPA’s 1994 assignment took place without notice to Horphag, thereby preventing Horphag from asserting its rights of preemption, and rendering the referenced assignment void.
Furthermore, the Court agrees that Masquelier could not assign any greater interest in 1996 than he possessed at that time. By assigning equal portions of his interest in 1985 to SCIPA and Horphag, he relinquished any ownership interest in the future ‘360 patent, leaving him no interest to assign in 1996.
Citation: Int’l Nutrition Co. v. Horphag Research Ltd., 257 F.3d 1324 (Fed. Cir. 2001).
Filed in: 2001 International Law Update, Issue8
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