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Defend Trade Secrets Act Supports Sealing Information on Appeal

by | Jan 7, 2021 | ,

Addressing whether purported trade secret information ought to remain under seal on appeal, the US Court of Appeals for the Sixth Circuit ruled in a one-judge order that the Defend Trade Secrets Act (DTSA) provided a statutory basis that overcame the presumption of public access. Magnesium Machine, LLC v. Terves, LLC, Case No. 20-3779 (6th Cir. Dec. 10, 2020) (McKeague, J.)

This case presented the issue of what part of a record may be sealed on appeal—normally a routine question—in litigation that was anything but routine. According to the verified complaint, Magnesium Machine discovered a particular salt-based treatment for use on oil and gas tools. According to Magnesium, in the course of litigating a patent infringement suit against one of Magnesium’s suppliers, Terves and its counsel, McDonald Hopkins, obtained information reflective of Magnesium’s alleged trade secret from a third party pursuant to subpoena. Specifically, Magnesium claimed that particular language in a settlement agreement disclosed Magnesium’s trade secrets. The settlement agreement had been produced by the third party without any confidentiality designation. The complaint alleged violations of the federal DTSA and Oklahoma and Ohio state trade secrets acts.

Invoking the seizure provisions of the DTSA, Magnesium sought and obtained an ex parte order directing the US Marshals to seize Terves’s electronic equipment, including devices at Terves’ president’s home. That order did not last long. Following an evidentiary hearing (in which Terves participated) the day after the order was issued, the district court vacated the seizure order because Magnesium had not demonstrated misappropriation of a trade secret.

To appeal, Magnesium requested express findings of fact and conclusions of law. The district court explained that Terves and its lawyers subpoenaed materials in good faith, that the settlement agreement was produced without restriction (such as a confidentiality marking), that Terves’s lawyers did not impermissibly share the settlement agreement with Terves employees and that upon objection by Magnesium, Terves deleted its copies of the settlement agreement. Thereafter, on motions to dismiss, the district court concluded that Magnesium failed to allege misappropriation and that the litigation privilege protected Terves’ counsel.

Terves sought and obtained attorneys’ fees against Magnesium and its counsel for proceeding in bad faith. The district court found that Magnesium had every reason to know that its claims were baseless, because it was “well aware at the time the suit was filed that Defendants had received the allegedly secret information through legitimate discovery means and that it was provided to them without description.” Moreover, claiming that a three-word phrase in the settlement agreement purportedly disclosed trade secret information was “an intentional exaggeration/misrepresentation.” Indeed, other public statements had provided far more detail than the purportedly secret phrase, according to the district court.

On appeal, although Terves contended that the purported trade secret did not qualify as a secret, in the exercise of caution and on Magnesium’s request, Terves nonetheless sought to file a brief under seal. Judge David McKeague, acting on behalf of the Sixth Circuit, agreed that it was appropriate to seal the information, [...]

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Define Frustration: Appealing from Decision in Suit Against Co-Owner’s Wholly Owned Subsidiary with Major Issues Still Undecided

by | Oct 22, 2020 |

The US Court of Appeals for the Federal Circuit vacated a grant of summary judgment of non-infringement and remanded for resolution of numerous factual issues in a case addressing “extremely frustrating” issues involving the litigant’s failure to differentiate statutory prerequisites for bringing suit under 35 USC §262 and Article III standing, waiver of a co-owner’s right to refuse to join a patent enforcement action, and the existence of an express or implied license. AntennaSys, Inc. v. AQYR Techs., Inc., Case No. 19-2244 (Fed. Cir. Oct. 7, 2020) (O’Malley, J.).

AntennaSys and Windmill International are co-owners of the patent in suit. AntennaSys and Windmill entered into a license agreement pursuant to which Windmill acquired an exclusive license to AntennaSys’s one-half interest in the patent in two separate markets. In exchange, AntennaSys was entitled to a royalty of 3% of gross sales. Windmill was also required to create a wholly owned LLC, GBS Positioner, which would own both the license interest and Windmill’s ownership interest in the patent. In the event that Windmill failed to meet the minimum sales targets, the exclusive license became non-exclusive and either party was granted the right to commence a lawsuit against “third party” infringers.

Windmill did not meet its sales targets. AntennaSys subsequently brought suit against AQYR Technologies, a wholly owned subsidiary of Windmill, for patent infringement and several state-law claims. The suit named Windmill as a co-defendant. Following claim construction, AntennaSys conceded that it could not prevail on its patent infringement claim under the court’s construction of one of the claim terms. In an apparent attempt to moot the affirmative defenses of invalidity and unenforceability, AntennaSys sought summary judgment of non-infringement, which the district court granted. Additionally, after a hearing where AntennaSys admitted that its state law claims were dependent on the success of its patent infringement claim, the court entered judgment in favor of defendants on the state law claims. AntennaSys appealed.

AntennaSys challenged the district court’s claim construction. Windmill and AQYR countered that the Federal Circuit need not reach the merits because AntennaSys “lacks standing” to bring an infringement action in federal court absent joining co-owner Windmill as a co-plaintiff.

The Federal Circuit agreed that the need to join Windmill as a co-plaintiff was a threshold question, but stressed that the issue did not affect AntennaSys’s Article III standing. Instead the issue stemmed from AntennaSys’s ability to satisfy the statutory prerequisites for bringing an infringement action. Under 35 USC § 262, each joint owner of a patent may make, use, offer to sell, or sell the patented invention without the consent of, and without accounting to, the other owners. Furthermore, in order to bring an action for infringement, all co-owners must be joined as plaintiffs. The Court acknowledged two exceptions to this rule: (1) when any patent owner has granted an exclusive license, and (2) when a co-owner waives its right to refuse to join an infringement action.

As the license in this case had morphed into non-exclusive status, the question became whether [...]

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Unlikely to Succeed: Preliminary Injunction Denied Despite Stipulation to Irreparable Harm

by | Aug 13, 2020 |

In a dispute over the terms of a settlement agreement, the US Court of Appeals for the Federal Circuit found that a patent owner was not entitled to a preliminary injunction despite a stipulation that it would be irreparably harmed if the accused infringer breached certain provisions of the agreement. Takeda Pharmaceuticals U.S.A., Inc. v. Mylan Pharmaceuticals, Inc., Case Nos. 20-1407, -1417 (Fed. Cir. July 31, 2020).

Takeda originally sued Mylan to prevent Mylan’s launch of a generic version of Takeda’s branded drug Colcrys. The parties ultimately settled under terms set forth in a settlement/license agreement, including a provision in Section 1.2(d) stating that Mylan would be entitled to launch a generic product after a Final Court Decision holding that all unexpired claims of the licensed patents that were asserted and adjudicated against a third party were either (i) not infringed or (ii) any combination of not infringed and invalid or unenforceable. The licensed patents included 17 Orange-Book-listed patents that Takeda had asserted against Mylan. The parties further agreed that a breach of this provision “would cause Takeda irreparable harm.”

While Takeda and Mylan were negotiating the settlement, another patent litigation that involved some of the licensed patents was ongoing (the West-Ward litigation). The West-Ward litigation involved a different party and a different drug product. Takeda did not assert all 17 patents in the West-Ward litigation. It only asserted eight and ultimately dismissed five with prejudice. On summary judgment, the district court in the West-Ward litigation found that the asserted claims of the remaining three patents were not infringed.

Mylan informed Takeda that it would launch its generic product, arguing that summary judgment in the West-Ward litigation triggered Section 1.2(d), allowing it to launch its generic product because all of the asserted claims remaining in the suit had been found not infringed. In response, Takeda filed a complaint alleging breach of contract and patent infringement, and sought a preliminary injunction to enjoin Mylan from its launch. The preliminary injunction motion was denied. Takeda appealed.

A plaintiff seeking a preliminary injunction must show (i) that it is likely to succeed on the merits, (ii) that it will suffer irreparable harm in the absence of preliminary relief, (iii) that the balance of equities tips in its favor, and (iv) that an injunction is in the public interest. The Federal Circuit’s decision focused on the first two factors: likelihood of success and irreparable harm.

The Federal Circuit’s analysis of the likelihood of success prong turned on the meaning of Section 1.2(d). Takeda argued that Section 1.2(d) had not been triggered because not all unexpired claims that were asserted in the West-Ward litigation had been found not infringed, specifically the asserted claims of the five withdrawn patents. Mylan argued that triggering Section 1.2(d) only required that all unexpired claims that had been asserted and adjudicated to be found not infringed or invalid, and because the asserted claims of the five dismissed patents were not adjudicated, it was not necessary that the dismissed claims be [...]

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It’s Good to Be the Sovereign, Unless You Have an Exclusive Licensee

by | Aug 5, 2020 |

Addressing the interaction between state sovereign immunity under the 11th Amendment and joinder under the Federal Rules of Civil Procedure, a “fractured majority” of the US Court of Appeals for the Federal Circuit determined that an exclusive licensee could proceed with suit even though state sovereign immunity prohibited involuntary joinder of the patent owner. Gensetix, Inc. v. The Board of Regents of the University of Texas System, Case No. 19-1424 (Fed. Cir. July 24, 2020) (O’Malley, J.) (Newman, J., concurring in part and dissenting in part) (Taranto, J., concurring in part and dissenting in part).

In 2014, Gensetix indirectly licensed two patents covering cancer treatment methods from the University of Texas (UT), a state university. A subsequent confirmation between Gensetix and UT confirmed Gensetix’s exclusive license to the patents-in-suit, which required Gensetix to sue potential infringers and gave UT a secondary right to sue if Gensetix did not bring suit. The parties further agreed to cooperate regarding any infringement suit and that nothing in the agreement would waive UT’s sovereign immunity.

Three years later, Gensetix sued Baylor College of Medicine and others for patent infringement. Before filing the complaint, Gensetix asked UT, the legal patent owner, to join suit. UT declined, and Gensetix named it as an involuntary plaintiff. UT moved to dismiss itself from the lawsuit based on its sovereign immunity, and Baylor moved to dismiss because UT was a required party that could not be joined because of its sovereign immunity. The district court agreed with UT and Baylor, concluding that UT’s sovereign immunity prevented Gensetix from joining UT as a plaintiff and that the suit could not proceed without UT. Gensetix appealed.

The Federal Circuit reversed. The majority opinion, authored by Judge O’Malley, held that UT’s sovereign immunity prohibited its joinder as an involuntary plaintiff, but that Gensetix could proceed in its suit against Baylor notwithstanding UT’s absence. The Court affirmed the district court’s conclusion that UT’s 11th Amendment state sovereign immunity prohibited UT’s involuntary joinder. Reasoning that “[i]t is immaterial that there are no claims against UT, or that UT is named an involuntary plaintiff rather than an involuntary defendant,” the Court held that “Rule 19(a)(2) cannot be used to drag an unwilling UT into federal court” because “[t]he Eleventh Amendment serves to prevent ‘the indignity of subjecting a State to the coercive process of judicial tribunals’ against its will.” As for the exclusive licensee’s ability to proceed without UT, the Court explained that the district court abused its discretion by giving “controlling weight” to UT’s sovereign immunity, by failing to appreciate the alignment of interests between Gensetix and UT, and by ignoring that the license eliminated the risk of multiple suits because UT could not sue after Gensetix had done so.

Although both conclusions commanded a majority, they were different majorities. In a separate opinion, Judge Taranto agreed that UT could not be joined, but would also have held that Republic of Philippines v. Pimentel—a Supreme Court case requiring dismissal of claims where an absent [...]

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Unnamed Respondent Has Standing to Seek Rescission of ITC General Exclusion Order

by | Jul 30, 2020 |

The US Court of Appeals for the Federal Circuit affirmed a US International Trade Commission (ITC) decision denying a petition for rescission of a general exclusion order (GEO) prohibiting importation of products accused of patent infringement, because a post-investigation invalidity attack is not a changed condition warranting rescission. Mayborn Grp., Ltd. v. Int’l Trade Comm’n, Case No. 19-2077 (Fed. Cir. July 16, 2020) (Lourie, J.).

Several parties filed a complaint at the ITC against several respondents, not including Mayborn Group, Ltd., and Mayborn USA, Inc. The complaint alleged infringement of a patent disclosing a self-anchoring beverage container that prevents spills. The complainants sought a GEO barring importation of infringing goods by any party, including unnamed respondents such as Mayborn. In contrast to GEOs, limited exclusion orders only prohibit infringing goods imported by named respondents in an investigation. The ITC instituted an investigation, and the administrative law judge determined that two respondents were in default and liable for unfair acts (patent infringement) in connection with importation. The defaulting respondents did not raise any invalidity challenge during the investigation. On the administrative law judge’s recommendation, the ITC issued a GEO.

Following issuance of the GEO, Mayborn continued to import potentially infringing products. The complainants notified Mayborn that they were working with US Customs and Border Protection (CBP) to enforce the GEO against Mayborn’s importations. In response, Mayborn petitioned the ITC to rescind the GEO pursuant to its power to rescind or modify an order if there is a change in the conditions that led to the GEO. Mayborn argued that the “changed condition” requirement was satisfied because it contends the asserted claims are invalid.. The ITC denied Mayborn’s petition, holding that a petitioner’s asserted discovery of invalidating prior art after the issuance of a GEO was not a changed condition. Mayborn appealed, arguing that the ITC erred in rejecting its request for rescission. The ITC alleged that Mayborn lacked standing to appeal because Mayborn’s alleged injury stemmed from the complainants’ threat to enforce the GEO rather than any act by the ITC.

The Federal Circuit affirmed, finding that Mayborn’s post-investigation invalidity challenge was not a basis for rescission of the GEO. The Court first addressed the ITC’s standing argument, and determined that Mayborn had standing because it was injured by the GEO and the GEO was enforced by the ITC. The ITC or CBP could act to enforce the GEO at any time. Mayborn had also lost sales and incurred other harm stemming from the complainants’ threats to assert the GEO, including reputational injury, market share loss and damaged business relationships. Standing did not require the ITC to have already barred importation of Mayborn’s products.

After finding that Mayborn had standing, the Federal Circuit determined that Mayborn’s invalidity challenge was not a permissible basis to seek rescission of the GEO for two reasons. First, although patent invalidity is an affirmative defense to patent infringement, the ITC is constrained to adjudicating patent validity only when a respondent raises an invalidity defense during an [...]

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Third Parties Not Responsible for Defective Motion to Seal

by | Jul 22, 2020 |

The US Court of Appeals for the Federal Circuit held that a district court did not abuse its discretion in denying reconsideration of a previous order denying a litigant’s defective motion to seal  with regard to the litigant’s own information, but vacated and remanded for further consideration with regard to third-party information. Uniloc 2017 LLC v. Apple, Inc., Case Nos. 19-1922, -1923, -1925, ‑1926 (Fed. Cir. July 9, 2020) (Mayer, J.).

Uniloc sued Apple for patent infringement in the Northern District of California. Apple moved to dismiss. The briefing on the motion included material that Uniloc had designated as highly confidential. Both parties filed motions to seal. Uniloc’s motions to seal covered quotations from published opinions and matters of public record, among other things. Uniloc’s supporting declarations included only boilerplate assertions of harm from disclosure. Non-party Electronic Frontier Foundation asked Uniloc to narrow its redactions, and when Uniloc declined, Electronic Frontier moved to intervene for the purpose of opposing Uniloc’s sealing motions. The district court denied the motions to seal as overbroad under the local rules, which require such motions to be narrowly tailored.

Uniloc sought an extension of time and ultimately filed a motion for leave to seek reconsideration. In that motion, it agreed to make public more than 90% of the material it had originally sought to seal. It also filed a new motion to seal the remainder. In support, it attached a much more specific declaration supporting sealing the more limited set of materials, as well as several declarations of third-party licensees, who stated that disclosure of their confidential information would be harmful to them. The court denied the motion seeking leave as not meeting the local rules’ requirements for reconsideration. The court also denied the narrower motion to seal, reasoning that Uniloc should have filed a proper motion to seal in the first instance. Uniloc appealed.

Uniloc argued that the district court had abused its discretion in denying the narrower motion to seal. In considering Uniloc’s argument, the Federal Circuit distinguished between Uniloc’s information and third-party information. Applying Ninth Circuit law, the Court held that the district court had not abused its discretion by strictly enforcing its local rules with regard to Uniloc’s information. Uniloc had violated the local rules in its motion to seal and subsequent motion for reconsideration. Moreover, the Court explained that notwithstanding the submission of a narrowly tailored motion, the burden is always on the moving party to provide compelling reasons for sealing, which Uniloc had failed to do.

Next, the Federal Circuit explained that third-party information “calls for an analysis not dependent on the overbreadth rationale” because third parties should not be harmed by a litigant’s failure to follow the local rules. Because the district court’s analysis had been based on overbreadth, the Court found that the district court “failed to make findings sufficient to allow us to adequately assess whether it properly balanced the public’s right of access against the interests of the third parties in shielding their . . [...]

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German Competition Authority Files Amicus Brief in SEP Litigation

by | Jul 1, 2020 |

In 2019, Nokia filed a series of patent infringement complaints against Daimler before several German courts. Nokia alleged that connected cars made by Daimler infringed Nokia’s patents. Nokia considered the relevant patents as essential for certain wireless communication standards. Nokia v. Daimler, Case No. 2 O 34/19 (Mannheim District Court). On 18 June 2020, the litigation took a surprising turn: The German competition authority, the Federal Cartel Office (FCO), filed an amicus curiae brief with the relevant patent infringement courts (FCO docket no. P-66/20). (more…)



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Munchkin Is Luv-n This Win

by | Jun 17, 2020 | ,

Reversing an award of attorney’s fees, the US Court of Appeals for the Federal Circuit found that a district court abused its discretion in making an exceptional-case determination where patent and trademark infringement claims were reasonable. Munchkin, Inc. v. Luv N-Care, LTD., Admar International, Inc., Case No. 19-1454 (Fed. Cir. June 8, 2020) (Chen, J.).

Munchkin sued LNC for trademark infringement, unfair competition, trade dress infringement and patent infringement based on LNC’s no-spill drinking cups. LNC filed a petition for inter partes review (IPR) with the Patent Trial and Appeal Board (PTAB). While the IPR was pending, Munchkin voluntarily dismissed all of its non-patent claims with prejudice. The PTAB subsequently found Munchkin’s patent was unpatentable. After the PTAB’s finding, Munchkin dismissed its patent infringement claim.

LNC filed a motion for attorney’s fees under 35 U.S.C. § 285 and 15 U.S.C. § 1117(a), arguing that the trademark and trade dress infringement claims were substantively weak and that Munchkin should have been aware of the weakness of the patent’s validity. The district court agreed that the case was exceptional and granted LNC’s motion. Munchkin appealed.

The Patent Act and Lanham Act allow courts to award reasonable attorney’s fees to the prevailing party, but only in exceptional cases. The Federal Circuit reviewed the district court’s award for abuse of discretion under the Ninth Circuit standard for attorney’s fees as set forth in Octane Fitness LLC v. ICON Health & Fitness, Inc. (IP Update, Vol. 17, No. 5). The Supreme Court in Octane Fitness held that an exceptional case is “one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”

The Federal Circuit noted that the district court’s exceptional-case determination rested on issues that were not fully litigated before the court. Addressing the patent infringement claim, the Court first found that the district court’s claim construction ruling favored Munchkin, creating a serious hurdle for LNC’s invalidity challenge. However, to find the case exceptional, the district court dismissed its own Markman construction as merely a non-final interim order. The Court found that was not the right question, and instead, the relevant question was whether Munchkin’s validity position was reasonable—not whether there is a possibility of reconsideration of the claim construction.

LNC argued that Munchkin was unreasonable in maintaining its patent infringement lawsuit once the PTAB instituted the IPR because, based on the statistics, it was more likely than not that the patent would be found invalid. The Federal Circuit disagreed, stating clearly that IPR statistics combined with the merits outcome is not enough. What is required is a “fact-dependent, case-by-case” analysis. The Federal Circuit found nothing unreasonable about Munchkin’s patent infringement claim.

Addressing the trademark claims, the Federal Circuit determined that Munchkin cannot be faulted for litigating a claim it was granted permission to pursue. Since the district court allowed Munchkin to amend its complaint, finding no grounds for prejudice, bad faith [...]

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Chalk One Up to the Knock-Off

by | May 27, 2020 | ,

Addressing issues of design patent infringement, copyright infringement, trade dress infringement and unfair competition, the US Court of Appeals for the Federal Circuit affirmed a district court’s grant of summary judgment on all claims. Lanard Toys Limited v. Dolgencorp LLC, Ja-Ru, Inc., Toys “R” Us-Delaware, Inc., Case No. 2019-1781 (Fed. Cir. May 14, 2020) (Lourie, J.).

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Where Should This Case Go? Appeals Court Tosses Venue Motion to Dismiss

by | May 19, 2020 |

Addressing for the first time whether a court must consider the adequacy of an alternative forum in its forum non conveniens analysis, the US Court of Appeals for the Federal Circuit affirmed the denial of a defendant’s motion to dismiss under forum non conveniens. In re Fortinet, Inc., Case No. 20-120 (Fed. Cir. May 1, 2020) (Dyk, J.).

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