Patent Venue Statute Doesn’t Apply to Third-Party Counterclaim Defendant; Acts in Furtherance of Partnership May Be Imputed to Partner for Venue Purposes

By on March 24, 2022
Posted In Patents

The US Court of Appeals for the Federal Circuit affirmed a district court’s determination of proper venue, finding that the patent venue statute, 28 U.S.C. § 1400(b), does not apply to a third-party counterclaim defendant and that acts done by separate entities in furtherance of a partnership can be imputed to a partner for purposes of venue determination. The Federal Circuit also affirmed and reversed jury verdicts of adequate written description and patent co-ownership. BASF Plant Sci., LP v. Commonwealth Sci. and Indus. Rsch. Org., Case Nos. 20-1415; -1416; -1919; -1920 (Fed. Cir. Mar. 15, 2022) (Newman, Taranto, Chen, JJ.) (Newman, J., dissenting).

Commonwealth Scientific and Industrial Research Organisation (CSIRO), a research arm of the Australian government, owns six patents directed to the engineering of plants, particularly canola, to produce specified oils not native to the plants. BASF Plant Science is a plant biotechnology company. CSIRO and BASF each explored genetic modification of familiar oilseed crop plants, such as canola, to get them to produce omega-3 long-chain polyunsaturated fatty acids (LCPUFAs), commonly known as “fish oil,” that could be fed to farm-raised fish and are beneficial to human health. In 2007, CSIRO and BASF discussed a focused collaboration and in 2008 entered into a two-year Materials Transfer and Evaluation Agreement (MTEA) to advance that goal. In 2010, following the conclusion of the MTEA, CSIRO partnered with another Australian government entity, Grains Research and Development Corporation, and private company, Nuseed, to commercialize its products. CSIRO granted Nuseed an exclusive license to CSIRO’s LCPUFA technology and patents. In 2011, BASF entered into a commercialization agreement with Cargill. BASF developed a canola seed line that it used to apply for regulatory approvals, which Cargill used in cross-breeding work. As part of the joint project, BASF deposited seeds with the American Type Culture Collection (ATCC) to support BASF’s patent applications.

During this period, BASF and CSIRO entered negotiations for BASF to take a license to CSIRO’s LCPUFA technology, but the negotiations broke down. In 2016, Nuseed sent Cargill a letter identifying multiple CSIRO patents and inviting Cargill to discuss CSIRO’s omega-3 patent portfolio. In April 2017, BASF sued Nuseed in the District of Delaware, seeking a declaratory judgment that BASF did not infringe certain CSIRO patents listed in the 2016 letter. The District of Delaware dismissed the case for lack of jurisdiction.

In 2017, BASF filed a declaratory judgment action in the Eastern District of Virginia against CSIRO, Nuseed and Grains Research (collectively, CSIRO). CSIRO filed an answer and counterclaims asserting infringement of the asserted patents against BASF and Cargill. BASF entered the case as a party and asserted co-ownership of the asserted patents under the MTEA. Cargill moved to dismiss the counterclaims for lack of personal jurisdiction and improper venue. The district court denied the motion, determining that it had personal jurisdiction over Cargill and that venue was proper. Cargill did not dispute that it had a regular and established place of business in the Eastern District of Virginia but argued that it had not committed acts of infringement. The district court found that BASF’s deposit of seeds with the ATCC (located in Manassas, Virginia) was an infringing “use” that was attributable to Cargill given the partnership and close connection between it and BASF.

At trial, before the liability issues were submitted to the jury, the district court ruled on motions for judgment as a matter of law. The district court found triable issues regarding co-ownership of the asserted patents and the adequacy of written description support for seven of the eight challenged claims. On the issue of willfulness, the district court determined that there was no triable issue. Following the liability phase of the trial, the jury found infringement on the only claim for which infringement was disputed. The jury rejected BASF’s written description challenge and found that BASF co-owned one of the six asserted patents. At the remedy phase, the district court denied CSIRO’s request for an injunction but granted an ongoing royalty. The district court denied both parties’ motions for judgment as a matter of law and for a new trial. Both sides appealed.

Cargill appealed the district court’s rejection of its venue objection. BASF and Cargill appealed the jury verdicts of adequate written description and no BASF co-ownership of five of the six asserted patents. CSIRO appealed the jury verdict that BASF co-owned the sixth asserted patent. It also appealed several of the district court’s rulings limiting the scope of the granted remedy.

The Federal Circuit affirmed the district court’s determination that venue as to Cargill was proper in the Eastern District of Virginia. The patent venue statute provides for venue in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business. Cargill argued that the statute barred venue over it because Cargill did not reside in and did not commit acts of infringement in the district. The Court, citing the Supreme Court’s 2019 decision in Home Depot U.S.A., Inc. v. Jackson, explained that the patent venue statute does not provide venue protection to a third-party counterclaim defendant such as Cargill. The Court rejected Cargill’s argument that relied on the 2017 Supreme Court decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, which held that the federal removal provision does not give removal rights to a third-party counterclaim defendant. Noting the textual similarity of the patent venue statute to the federal removal provision, the Court found no reason to read the patent venue statute other than in accordance with Home Depot. The Court also found that even if the patent venue statute reaches a third-party counterclaim defendant, it was satisfied because Cargill had a regular and established place of business in Virginia and had committed an act of infringement in Virginia when BASF deposited seeds at the ATCC because BASF’s act could be imputed to Cargill. Although Cargill asserted that the deposit served BASF and that Cargill received no benefit from the act, the Court found this claim to be contrary to the parties’ agreement and found that the act was done in furtherance of the parties’ partnership.

The Federal Circuit also affirmed the jury verdict rejecting the written description challenge directed to the “species” of canola but reversed as to the broader genus claims reaching any plant cells and not limited to canola. As to the canola patent claims, the Court found that substantial evidence, including working examples and the prominence of canola in the specification, allowed the jury to properly find adequate written description support. As to the broader genus claims, however, BASF presented thin but unrebutted evidence that success in certain plant cells did not automatically mean success in all plant cells. The Court found that the jury had no reasonable basis to reject BASF’s evidence and reversed.

On the issue of co-ownership, the Federal Circuit affirmed the jury verdict that BASF had no co-ownership of five of the asserted patents but reversed as to the sixth. BASF argued co-ownership based on the MTEA, which created joint ownership of intellectual property, defined as the results, data or information derived from the work carried out under the agreement, including CSIRO-BASF gene-combination constructs. BASF conceded that none of the asserted patents claimed the CSIRO-BASF gene-combination constructs but argued that CSIRO obtained its patents by drawing on the lessons learned from the experiments involving both BASF’s and CSIRO’s materials. The Court found that inventions drawn on the lessons of earlier work are not inherent in or elements of the earlier work. The Court also note that BASF’s interpretation did not make commercial sense because the parties understood that each would learn lessons from the collaboration and would continue to work in the field when the two-year agreement ended. Under BASF’s interpretation, any independent post-MTEA work would be burdened with uncertainty because of the threat of a co-ownership challenge. The Court accordingly found that substantial evidence supported the jury verdict of no co-ownership in five of the six asserted patents and found that no substantial evidence supported the jury verdict of co-ownership in the sixth asserted patent, effectively finding that BASF had no ownership interests in any of the asserted patents.

As to the willfulness issue, the Federal Circuit agreed with the district court that CSIRO had presented insufficient evidence of willfulness for a reasonable jury to find in its favor. Willfulness requires a showing that the accused infringer has a specific intent to infringe at the time of the challenged conduct. The Court explained that CSIRO only presented facts showing knowledge of the asserted patents, including the fact that certain BASF witnesses were aware of and kept track of CSIRO patents, along with evidence of infringement. The issue of willfulness was thus properly barred from the jury’s consideration.

Finally, the Federal Circuit found no reversible error in the district court’s denial of an injunction. As to the calculation of the ongoing royalty that the district court ordered, however, the Federal Circuit found that internal inconsistency in the district court’s analysis warranted a remand for reconsideration. In calculating a baseline for a reasonable royalty, the district court disregarded license agreements involving profit-sharing arrangements for research and development on the basis that they were not competitor agreements, but still considered other non-competitor agreements. The Court also directed the district court to reconsider its denial of an injunction in light of the parties’ new circumstances, including CSIRO having entered the commercial market. The Court accordingly left the district court’s remedy in place pending reconsideration and remanded for further proceedings.

Judge Newman dissented from the majority’s reversal of the jury’s verdict that BASF and CSIRO were joint owners of the sixth asserted patent. Relying on CSIRO’s trial testimony, Judge Newman argued that there was substantial evidence supporting the co-ownership verdict, including evidence that CSIRO incorporated BASF genetic materials and research results from the collaboration, and that the patented materials “contain both CSIRO and BPS genes.” In response to the majority’s criticism of the reliance on the trial testimony, which was not cited by BASF, Judge Newman noted that the testimony was not disputed before the jury and the facts were not challenged on appeal. Judge Newman argued that the majority’s reversal of the jury verdict on the sixth asserted patent did not meet the requirements for appellate reversal of jury verdicts. For the other five patents, Judge Newman stated that at least two of the patents presented a closer call but that substantial evidence may support the jury verdicts of no co-ownership.

Paul Devinsky
Paul Devinsky advises clients on patent, trademark and trademark litigation and counseling, as well as copyright counseling. He is also active in intellectual property (IP) licensing, transactions and due diligence, as well as post-issuance US Patent and Trademark Office (USPTO) proceedings such as reissues and inter partes review, covered business method patent review and post grant review, and appellate (Federal Circuit) advocacy. Read Paul Devinsky's full bio.