Daily Archives: April 23, 2011

Hyatt v. Kappos: A New Standard for the Admissibility of Evidence in a Section 145 Action

Abstract

When the Board of Patent Appeals & Interferences (the “Board”) of the United States Patent and Trademark Office (“PTO”) rejects a patent application, the applicant has two avenues available. He can appeal the decision to the United States Court of Appeals for the Federal Circuit. In that case, the record on appeal is the record from the PTO. New issues cannot be raised, and new evidence cannot be introduced. Alternatively, the applicant can file a civil action under Section 145 of the Patent Code in the U.S. District Court for the District of Columbia. As with an appeal, new issues cannot be raised. However, unlike an appeal, evidence not presented to the PTO can be introduced. In Hyatt v. Kappos, 625 F.3d 1320 (Fed. Cir. 2010), the en banc Federal Circuit recently held that there is no limitation in a Section 145 proceeding on the introduction of new evidence at the District Court level apart from limitations imposed by the Federal Rules of Evidence and the Federal Rules of Civil Procedure. Having twice had the time period extended, the PTO has until April 7, 2011, to seek certiorari.

Background

The Board confirmed the examiner’s rejection of 79 of the 117 claims in Hyatt’s patent application on the grounds that they failed to satisfy Section 112’s written description requirement. In the District Court, the PTO moved for summary judgment upholding the Board’s decision. In opposing the motion for summary judgment, Hyatt filed his declaration to provide additional support to refute the written description rejections. In granting the PTO’s motion, the Court refused to admit the declaration, holding that Hyatt had been negligent in not providing it to the PTO. Without new evidence, the Court employed the deferential “substantial evidence” standard and upheld the Board’s decision.

This decision was appealed to the Federal Circuit. On August 11, 2009, a divided panel issued its decision affirming the District Court’s exclusion of the declaration and the grant of summary judgment. This opinion was subsequently vacated. The en banc Court reversed the District Court’s decision. In the en banc decision, Judge Moore wrote the majority opinion, which was joined in by six other judges on the admissibility issue.

The En Banc Decision

After a lengthy review of the legislative history of the statute and prior statutes going back 200 years, the Court held that :

“35 U.S.C. § 145 imposes no limitation on applicant’s right to introduce new evidence before the District Court, apart from the evidentiary limitations applicable to all civil actions contained in the Federal Rules of Evidence and Federal Rules of Civil Procedure.” Id. at 1323.

The Court’s extensive review of the legislative history led it to conclude that Congress intended Section 145 to be a new “civil action in which an applicant would be free to introduce new evidence.”  Id. at 1327. Having determined that Section 145 did not impose any limitation on the evidence that could be presented in a Section 145 proceeding, the Court held that when new evidence was provided, review by the District Court would be de novo. If new evidence were not provided on an issue, substantial evidence would be the standard. In neither circumstance, was the patent applicant entitled to raise new issues in the proceedings. The Court indicated that its decision was supported not only by the legislative history, but Supreme Court precedent.

The Impact of the En Banc Decision

Although only about 30 Section 145 proceedings are filed in a year, the lack of limitation on the admissibility of evidence, coupled with de novo review for issues that rely on new evidence, indicate that the number of these actions will increase.

A patent applicant should pay particularly close attention during patent prosecution to make sure that all necessary legal issues have been raised.  New issues cannot be raised in Court, but new evidence can be presented on all issues. This includes live fact and expert testimony. Further, the pendency of a Section 145 proceeding will not shorten the patent term. Thus, for commercially important patent applications, a patent applicant should consider bypassing continuation practice and instead file a Section 145 proceeding to present a strong factual record to a new fact finder who will conduct a de novo review and decide the case without a jury.

National Labor Relations Board Once Again Rules that Bannering is Lawful

Now that the National Labor Relations Board is at full strength, it is finally addressing many important cases which have been pending for some time. In the recently announced decision of Southwest Regional Council of Carpenters (New Star General Constructors, Inc.), the Board ruled that bannering by the Carpenters Union did not violate the secondary boycott provisions of the Act, which proscribes threats of coercion against neutral employers in an effort to get them to cease doing business with a target company.

In 2004, the Southwest Regional Council of Carpenters placed large 4 ft. x 20 ft. banners on various job locations proclaiming a “labor dispute” with owners and contractors doing business with two Utah companies. In addition, the Union sent letters to secondary employers asking them not to do business with either firm. Handbills were also distributed at various job sites advising the public of the connection between the secondary or neutral employers and the targeted companies. This occurred even though, at many of the jobsites, the targeted companies were not present. At the jobsites where they were present, the targeted companies also set up a dual gate system which the carpenters’ banners refused to comply with.

The targeted companies filed unfair labor charges alleging unlawful coercion of neutrals and unlawful inducement of employees to stop doing business with the targeted companies. The Board’s General Counsel proceeded with the complaints, but the Board disagreed that the banners were “signal pickets” in violation of the Act. The Board distinguished banners from pickets and held that, absent confrontational activity by the bannerers, as well as a direct request that neutral employees not work at the jobsites, the activity was not in violation of the secondary boycott provisions and was protected under the Act. In a dissent, Board member Brian Hayes noted that bannering was the equivalent of picketing and was located at entrances used by employees of neutral companies.

It would therefore appear that absent additional evidence of a union request for a work stoppage, bannering will not be found to violate the secondary provisions of the Act. Owners, neutral companies, as well as the target companies, should therefore establish at the outset of bannering that no work stoppage is sought by the union. If the union fails to provide this assurance, an unfair labor practice charge may be successful. The Board’s position may provide little comfort to the owner who may be subject to bannering for months, but at least may allow bona fide assurances that no work stoppages will result.

New Directions in the Federal Circuit: Motivation to Combine

Through two recent panels, both including Judge Lourie, the Federal Circuit expanded upon the Supreme Court’s leading obviousness case, KSR International Co. v. Teleflex, Inc., 550 U.S. 398 (2007), finding motivation to combine references to render the patents-in-suit invalid as obvious. Both panel decisions indicate the Federal Circuit’s increasing readiness to find motivation to combine, even when explicit motivation is not present in the references.

Moreover, in both cases the Court ruled on motivation to combine without the benefit of expert testimony, perhaps illustrating a growing willingness to decide obviousness on summary judgment. Both cases involved simple mechanical inventions, however, so it remains to be seen whether the Federal Circuit will apply its apparent openness to determining obviousness on summary judgment to more complicated technologies that may require the assistance of experts.

Wyers v. Master Lock Co.1

In Wyers v. Master Lock Co., 616 F.3d 1231 (Fed. Cir. 2010), cert. denied the Federal Circuit, reversing a jury decision that three trailer hitch lock patents were valid and infringed, found that even in the absence of expert testimony, judges can make a common sense determination to combine the prior art to find patent claims obvious and thus invalid. Prior to Wyers, the Federal Circuit rarely relied on common sense as the basis for finding a motivation to combine prior art. Wyers confirms that successful obviousness challenges are possible without expert testimony. On February 22, 2011, the Supreme Court declined to grant Wyers’ petition for a writ of certiorari.

Tokai Corp. v. Easton Enterprises, Inc.

InTokai Corp. v. Easton Enterprises, Inc.,—F.3d—, 2011 WL 308370 (Fed. Cir. 2011), the Federal Circuit in a split decision affirmed a grant of summary judgment which found the patents-in-suit to be invalid as obvious. Tokai’s March 3, 2011 petition for panel rehearing and rehearing en banc is pending.

Tokai’s patents relate to automatic child-safety mechanisms for safety utility lighters. Judge Lourie wrote for the majority:

It would have been obvious to one of ordinary skill and creativity to adapt the safety mechanisms of the prior art cigarette lighters… to fit a utility lighter as disclosed by [the prior art], even if it required some variation in the selection or arrangement of particular components.

The Court concluded that “the undisputed facts in this case – including the state of the prior art, the simplicity and availability of the components making up the claimed invention, and an explicit need in the prior art for safer utility lighters – compel a conclusion of obviousness.” The Court also affirmed the exclusion of expert declarations because Tokai failed to submit expert reports.

Impact of Wyers and Tokai

These decisions support a summary judgment strategy for invalidity claims in three ways: (1) by making it easier to find a motivation to combine, (2) by not requiring expert testimony to establish a motivation to combine and, (3) in cases where a strong prima facie case of obviousness is established, by making it difficult for secondary considerations to save the patents. “[T]he ultimate inference as to the existence of a motivation to combine references may boil down to a question of ‘common sense,’ appropriate for resolution on summary judgment,” Wyers, 616 F.3d at 1240, and “expert testimony concerning motivation to combine is unnecessary and, even if present, will not necessarily create a genuine issue of material fact.” Id. at 1239, citing KSR, 550 U.S. at 427.

Tokai also makes it challenging for a simple mechanical patent to withstand an obviousness challenge particularly when there is a known need.

For a more in-depth look at this issue, please click here.

New York Court Rules Parties to International Arbitration May Attach New York Assets as Security Even Without Personal Jurisdiction

In a case of first impression, the New York Appellate Division ruled in March 2011 that parties to an international arbitration may attach assets located in New York as security for a future award in the arbitral proceeding.  This is the case even if the New York courts lack personal jurisdiction over the parties and even if the underlying dispute has no connection whatsoever to New York.

In a case of first impression, the Appellate Division, First Department, of the State of New York ruled in March 2011 that parties to a foreign arbitral proceeding may attach assets located in New York as security for a future award in the proceeding—even when there is no connection to New York by way of personal or subject matter jurisdiction.  The Appellate Division’s decision, which was a ruling of first impression, provides the only judicial affirmation to date of changes that the New York Legislature made to New York’s Civil Practice Law and Rules (CPLR) in 2005.  In light of the ruling, the New York courts will likely see a proliferation of motions for orders of attachment by foreign parties to international arbitrations.

The case in question, Sojitz Corp. v. Prithvi Info. Solutions Ltd., N.Y. Slip Op. 01741, 2011 WL 814064 (1st Dep’t March 10, 2011), concerned a dispute between Sojitz Corporation, a Japanese compay with its principal place of business in Tokyo, and Prithvi Information Solutions, an Indian company with its principal place of business in Hyderabad, India.  The parties’ dispute arose out of a contract, entered into in Delhi, whereby Sojitz agreed to provide telecommunications equipment manufactured in China to Prithvi in India.  As such, the transaction at issue had nothing to do with the United States, much less with New York state.  Moreover, neither Sojitz nor Prithvi regularly engaged in business in New York, such that the New York courts would have personal jurisdiction over the companies.

In August 2009, Sojitz made an ex parte motion in the Supreme Court of New York for an order of attachment against Prithvi.  In this motion, Sojitz stated that it intended to commence an arbitration against Prithvi in Singapore within 30 days of the order of attachment (inasmuch as the parties’ contract required Singapore arbitration), and alleged that, if the requested attachment order was not granted, Prithvi might dissipate its New York assets pending the completion of the Singapore arbitration.  The Supreme Court granted Sojitz’s motion and issued an order, under CPLR 7502(c), attaching a $18,500 debt owed to Prithvi by a company in New York, which was Prithvi’s only asset in New York state.  In so doing, the court held that it had the authority to attach the New York assets of a foreign party solely as security for a possible future award in an arbitration pending abroad.

On appeal, Prithvi maintained that it does not have any offices in New York, is not licensed to do business in New York and has no bank accounts, real estate or employees in New York.  Prithvi also maintained that the transaction in question had nothing to with the the United States.  Accordingly, Prithvi argued that because the New York courts do not have personal jurisdiction over it, or subject matter jurisdiction over the parties’ dispute, the lower court overstepped its authority in issuing the attachment order.

In rejecting Prithvi’s argument and affirming the lower court’s order of attachment, the Appellate Division held that there was “nothing fundamentally unfair about an attachment for security pending arbitration in a proper [foreign] forum.”  In reaching this decision, the court gave a brief summary of the development of the law in New York with respect to interim measures in support of arbitrations.   Until relatively recently, this form of interim relief was only available to parties in domestic proceedings.  However, in 2005, the New York Legislature amended CPLR 7502, explicitly empowering the courts of New York to issue preliminary injunctions and attachments in aid of all arbitrations, including those involving foreign parties or in which the arbitration is conducted outside of New York.  CPLR 7502(c) reads in relevant part as follows:

The supreme court … may entertain an application for an order of attachment or for a preliminary injunction in connection with an arbitration that is pending or that is to be commenced inside or outside this state, whether or not it is subject to the United Nations convention on the recognition and enforcement of foreign arbitral awards, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief.

The Sojitz court noted that CPLR 7502(c) “provides several substantive and procedural safeguards intended to permit attachment consistent with due process.”  Among other things, the statute requires the movant to demonstrate that any award issued by the arbitrators in the foreign country would be rendered ineffectual if the relief was not granted.  In addition, the statute provides that if the foreign arbitration is not commenced within 30 days after the attachment order is granted, the order “shall expire and be null and void.”

The decision in Sojitz is the first time that a New York court has ever ruled on the legality and due process implications of CPLR 7502(c).  As it is often difficult to obtain security attachment orders for international arbitrations, the Sojitz  decision is likely to make New York an attractive venue for international parties seeking to preserve assets while they arbitrate in a foreign country.

Stipulations Regarding Time Loss Compensation May Tie Employers’ Hands

Pursuant to state’s worker compensation statutes, injured workers can receive paid medical treatment and compensation for lost earnings, which is known as “time loss.” Employers often stipulate that a worker has suffered an injury on the job in order to streamline the process and ensure that the worker receives compensation as soon as possible. That stipulation may have a significant impact later if the worker and/or the employer decide to appeal the resulting time loss award.  In Chunyk & Conley/Quad-C v. Braw, 156 Wn. App. 246 (2010), such an employer stipulation resulted in the Court’s setting aside a jury verdict that a worker was not injured.

In Chunyk, the worker had fractured her right wrist while playing softball resulting in an arm cast, and while at work, she slipped carrying patient binders because of the pain in her wrist. Her right arm contracted at the elbow, her hand contracted into a claw, and her whole arm became sensitive. She was one armed, slow and awkward, in pain, mentally distracted and suffered memory loss. Washington Labor & Industries (“L&I”) determined that she had sustained an industrial injury when the patient binder struck her cast and the injury aggravated her pre-existing non-work related wrist fracture (i.e., the softball game injury). The employer, for whatever reason, stipulated that such on-the-job incident had caused the worker’s injuries. The worker then began working off the clock, sleeping at the job, and/or taking work home. Her supervisor reprimanded her for taking patient files to her house. Believing that the employer would eventually fire her, the worker quit.  She took a new administrative nursing job and experienced the same limitations. She was then fired. She then worked as a home companion for an elderly woman, providing home care services. Again, she was fired. At this point, she stopped working.

L&I determined that her industrial injury caused a “temporary total disability” so that she was entitled to time loss compensation for approximately four years. This time loss award included money for chronic pain and depression. Her initial employer challenged L&I’s earning capacity determination, asserting that the worker could in fact find a job (as she had done on two separate occasions after leaving the employer). At trial, several physicians testified that the worker’s chronic pain syndrome and depression were unrelated to the industrial injury and challenged L&I’s diagnosis of the extent of her claimed injuries. The worker had extensive family history problems, which were alternate explanations for her claimed depression. The jury agreed, overturned L&I’s determination, and found that the worker was not entitled to four years of time loss compensation.

The worker appealed and argued that, because the employer had previously stipulated her work injury caused these conditions, the employer should not have been allowed to contest the “time loss” award. The reviewing Court agreed and held that the judge engaged in reversible error by allowing the jury an opportunity to evaluate whether the workplace injury, in fact, caused her chronic pain and depression.

The takeaways from Chunyk are that employers should participate and contest any claim for workers’ compensation, and also not stipulate to causation. Delaying or failing to participate in the claim process and/or administrative review can lead to an accepted condition that will entitle the worker to time loss payments. Thus, a prudent employer will be on top of workers’ compensation claims and participate in the process to ensure fair and adequate handling of claims and to limit time loss payments. Another takeaway from Chunyk is that softball can be dangerous – both for the worker and the employer.