258-1. Federal Circuit Holds PTAB Ignored the Patent’s Core Innovation When Construing Language of a Claim

258-1. Federal Circuit Holds PTAB Ignored the Patent’s Core Innovation When Construing Language of a Claim

The United States Court of Appeals for the Federal Circuit recently issued a ruling reversing the Patent Trial and Appeal Board’s (“the Board”) determination that Kaken Pharmaceutical Co. and Bausch Health Companies Inc.’s (collectively, “Kaken”) patent was unpatentable for obviousness, holding that the Board erred in its claim construction of one claim limitation. See Kaken Pharm. Co. v. Iancu, 2018-2232, 2020 U.S. App. LEXIS 8018 (Fed. Cir. Mar. 13, 2020) (Before Newman, O’Malley, and Taranto, Circuit Judges) (Opinion for the Court, Taranto, Circuit Judge).

Kaken is the owner of U.S. Patent No. 7,214,506 (“the ’506 patent”) directed to claims and methods for “topically treating fungal infections in human nails,” and particularly to methods for treating onychomycosis. The ’506 patent further discloses onychomycosis is one class of superficial mycosis that particularly infects a nail. Superficial mycosis is a term used to define infections that attack tissues of “skin or visible mucosa.” The specification of the ’506 patent defines “skin” as “tissue including the three layers, being epidermis, de[r]mis and subcutaneous tissue, accompanied by pilus (hair), nail, [and various gladnulae] as appendages.” Additionally, the specification defines “nail” to include the “nail plate, nail bed, nail matrix, further side nail wall, posterial nail wall, eponychium and hyponychium,” and the tissue around each component. Despite including these detailed definitions of “nail” and “skin,” evidence presented to the Board argued that common usage differs from the proposed definitions in the specification.

The basis of this appeal stemmed from the claim construction of Claims 1 and 2 of the ’506 patent. Claim 1 discloses a method for treating a subject having onychomycosis using a therapeutically effective amount of an antifungal compound having a formula representing either triazole or imidazole. Dependent Claim 2 requires that the antifungal compound specifically be triazole.

In 2016, Acrux DDS Pty. Ltd. (“Acrux”) submitted a petition for inter partes review of Claims 1 and 2 of the ’506 patent to the Board. In particular, Acrux argued that a first set of three references teach “a method of topically treating onychomycosis with various azole compounds,” as disclosed in Claim 1. The first set of three references included Japanese Patent Application No. 10-226639 (“JP ’639”), U.S. Patent No. 5,391,367 (“the ’367 patent”), and a journal article authored by Hay et al. (“Hay”). Acrux additionally argued that a second set of two references teach that the antifungal compound can be triazole, as disclosed in Claim 2. The second set of two references included a secondary journal authored by Ogura et al. (“Ogura”) and Abstracts from a 1996 Conference (“Kaken Abstracts”). Acrux alleged that the ’506 patent was unpatentable as obvious with respect to three combinations of the cited references (1) JP ’639 in combination with Ogura or the Kaken Abstracts; (2) the ’367 patent in combination with Ogura or the Kaken Abstracts; and (3) Hay in combination with Ogura or the Kaken Abstracts.

During inter partes review, Kaken asserted that “treating a subject having onychomycosis” meant “treating the infection at least where it primarily resides in the keratinized nail plate and underlying nail bed.” However, the Board concluded that this definition was too narrow and, instead, found that onychomycosis included superficial mycosis, and thus “treating a subject having onychomycosis” includes treating an infection within the skin or visible mucosa. Using this broader definition of onychomycosis, the Board ultimately found that Claims 1 and 2 of the ’506 patent were obvious in view of each of the three combinations of cited references. Subsequently, Kaken appealed.

On appeal, the Federal Circuit reviewed the Board’s claim construction of the term “treating a subject with onychomycosis” with regards to the specification and prosecution history of the ’506 patent. Ultimately, the Federal Circuit found that the Board erred in its claim construction of “treating a subject having onychomycosis.”

With regards to claim construction of the term “treating a subject with onychomycosis,” in light of the specification, the Federal Circuit stated that the specification discloses onychomycosis is a particular type of superficial mycosis and superficial mycosis is a disease which is caused by infecting a nail of a human or animal. The Federal Circuit explained that this statement indicates that it is not proper to conclude that onychomycosis involves “invasion of any part of what is defined as the ‘nail,’ including parts other than the nail plate or nail bed, such as skin in its ordinary sense.”

Additionally, the Federal Circuit explained that the Board made an improper conclusion from the definition of “nail” in the specification. Although the specification defines “nail” as including the tissue surrounding the nail, this definition does not mean that, when the specification states onychomycosis is a disease involving infection of the nail, the infection could take place on any part of the nail. The Federal Circuit noted a disease that infects the nail plate or nail bed is still a disease that invades the nail, as the term is defined in the specification. By way of example, the Federal Circuit analogized that the statement that a particular disease “invades the body” would not mean that the particular disease could invade any part of the body.

Moreover, the Federal Circuit disagreed with the Board’s conclusion that, because the specification defines superficial mycosis as a disease that lies in the skin or visible mucosa, onychomycosis cannot be limited to only include infection of the nail plate and nail bed. The Federal Circuit clarified that disclosing onychomycosis as a type of superficial mycosis does not exclude onychomycosis from being limited to just the nail plate and nail bed (i.e., not the surrounding tissue), since the characterization of superficial mycosis provides for this definition and does not mandate that every type of superficial mycosis affect every type of “skin” structure.

Lastly, the Federal Circuit explained that the specification provided multiple statements indicating that the main purpose of the ’506 patent was to disclose a topical treatment that can effectively permeate the nail plate and treat infection of the nail plate and underlying nail bed. The Federal Circuit noted “[a] patent’s statement of the described invention’s purpose informs the proper construction of claim terms, including when the task is to identify the broadest reasonable interpretation.” See In re Power Integrations, Inc., 884 F.3d 1370, 1376–77 (Fed. Cir. 2018). Within the specification, Kaken pointed to prior treatments that were ineffective because they could not effectively permeate the nail plate and explained that an effective topical treatment, such as the disclosed technology of the ’506 patent, must have “good permeability, good retention, capacity and conservation of high activity in [the] nail plate.” Accordingly, the Federal Circuit found that the specification provided sufficient support for finding that the phrase “treating a subject with onychomycosis” should be construed narrowly as treating an infection that primarily resides in the nail plate and nail bed.

With regards to construing the term “treating a subject with onychomycosis,” in light of the prosecution history, the Federal Circuit found sufficient support for limiting the definition to a nail plate penetrating treatment of an infection inside or under the nail plate. United States patent law dictates that a patent’s prosecution history can “inform the meaning of claim language by demonstrating how the inventor understood the invention and whether the inventor limited the invention in the course of prosecution, making the claim scope narrower than it would otherwise be.” Phillips v. AWH Corp., 415 F.3d 1303, 1317 (Fed. Cir. 2005). The ’506 patent is a divisional patent arising from U.S. Patent App. No. 10/685,266. During prosecution, the examiner rejected the initial claims for obviousness-type double patenting over a patent directed to a process for treating mycosis because the examiner believed that the initial claims also were directed to a method for treating general mycosis. In its response, Kaken amended claim language and argued that mycosis and onychomycosis are distinct. In particular, Kaken asserted onychomycosis is a condition that “specifically affects the nail plate,” and the current invention discloses the unexpected ability of an anzolylamine deviate “to penetrate nail and be retained by the nail.” The examiner agreed with Kaken’s amendment and response and allowed the pending claims. In the examiner’s reasons for allowance, the examiner stated that “unexpectedly and in contrast to previously evaluated compositions/methods, the instantly claimed method cures the onychomycosis because the medicament upon direct administration to the nail, penetrates through the nail plate and eradicates the infection at the site.” The Federal Circuit concluded that this exchange between Kaken and the examiner during prosecution of the ’506 patent indicates a skilled artisan would clearly understand “treating onychomycosis” requires penetrating the nail plate to treat an infection inside the nail plate, or in the nail bed underlying the nail plate.

Accordingly, the Federal Circuit reversed the Board’s broad claim construction of “treating a subject having onychomycosis.” Because the Board relied on an improper claim construction when determining obviousness, the Federal Circuit further vacated and remanded the Board’s decision finding Claims 1 and 2 of the ’506 obvious.

The specification of a patent and prosecution history can provide evidence for proper construction of claim limitations. Statements in the specification that explain the disclosed technology’s purpose and core novelty can inform the proper construction of claim terms.

258-2. Equitable Considerations Can Warrant Departure from First-To-File Rule

The United States Court of Appeals for the Federal Circuit recently ruled on an appeal regarding a Pennsylvania district court’s decision to decline jurisdiction over a first filed declaratory judgment filed by Communications Test Design, Inc. (“CTDI”) in favor of a patent infringement suit filed six days later in a New York district court by Contec LLC (“Contec”). The Federal Circuit found that equitable considerations warranted departure from the first-to-file rule. See Communications Test Design, Inc. v. Contec, LLC., 2019-1672, 2020 U.S. App. LEXIS 8019 (Fed. Cir. Mar. 13, 2020) (Before O’Malley, Mayer, and Wallach, Circuit Judges) (Opinion for the Court, O’Malley, Circuit Judge).

CTDI is an engineering, repair, and logistics company with its principal place of business in Pennsylvania. CTDI developed and used “Gen3” and “Gen5” test systems within the United States for testing multimedia devices, such as set-top boxes. Contec operates a similar business, offering “repair, test and reverse logistics for electronics hardware used in a broad range of markets.” Contec owns two patents at issue in this case: (1) U.S. Patent No. 8,209,732, titled “Arrangement and Method for Managing Testing and Repair of Set-Top Boxes” and (2) U.S. Patent No. 8,689,071 titled “Multimedia Device Test System.”

This case arises out of a controversy developing over a number of years between Contec and CTDI. In September of 2017, Contec sent CTDI a letter to determine whether CTDI’s “Gen3” and “Gen5” test systems infringe any claims of the asserted patents. The parties exchanged numerous letters and emails between September of 2017 and September of 2018, and counsel for both parties met in person in June 2018, but the negotiations were not successful. In September of 2018, Contec’s counsel sent a letter to CTDI stating that the extrajudicial process for obtaining information regarding CTDI’s systems were insufficient without the full discovery obligations that would be required during litigation. The letter stated that Contec had a good faith basis to believe at least one claim of the asserted patents was infringed by CTDI’s test systems and gave a deadline for CTDI to indicate its willingness to discuss potential licensing terms. Contec warned that without such confirmation, it would sue for patent infringement, and Contec attached a draft of the proposed complaint to the letter.

In response to the letter, CTDI Charmain and CEO spoke with Contec’s CEO regarding a possible license for Contec’s patents on September 19, 2018. Later that same day, CTDI’s counsel sent an email to Contec’s counsel confirming that CTDI remained willing to consider licensing terms. The two CEOs agreed to discuss license terms in more detail on September 24. However, two days after accepting Contec’s request to discuss licensing terms, CTDI filed a declaratory judgement in the United States District Court for the Eastern District of Pennsylvania. On September 24, CTDI’s counsel emailed Contec’s counsel a copy of the declaratory judgment complaint and noted that official service would be held to allow for further discussion between the executives.

Following the filing of the Pennsylvania action on September 21, 2018, Contec moved to dismiss CTDI’s complaint on November 13, 2018. Contec argued that CTDI had filed the Pennsylvania action “in bad faith during active licensing discussions, only after inducing Contec to refrain from filing its own complaint against CTDI in a different forum.” Contec requested that the court decline exercising jurisdiction over the action and dismiss the complaint in favor of the later-filed New York action.

The District Court granted Contec’s motion and dismissed CTDI’s complaint. The District Court reasoned that, although the first-filed action is preferred because of the first-to-file rule, equitable considerations favored the later-filed Contec suit. In coming to its decision, the district court relied on the timing and content of the communications between the two parties. The Court found that, although CTDI had the right to break off negotiations and resort to litigation, it did not have the right to “string Contec along just long enough to get the judicial drop and file this lawsuit in its own backyard.” The Court noted that the communications revealed CTDI’s “nefarious motive” and its conduct was “inconsistent with the policy of promoting extrajudicial dispute resolution.” The District Court considered additional factors in its analysis, finding CTDI’s declaratory judgement interfered with ongoing negotiations, and that the convenience of the parties and availability of witnesses also weighed in favor of New York being a more convenient forum than Pennsylvania.

The Federal Circuit reviewed the findings of the of the district court for abuse of discretion. According to CTDI, the Pennsylvania action should have taken “precedence” because there was no “sound reason” to depart from the first-to-file rule. CTDI asked the Federal Circuit to find an abuse of discretion, reverse the district court’s dismissal, and remand for further proceedings on the merits of the declaratory judgment action. Alternatively, CTDI asked for an evidentiary hearing so that the district court could make factual findings regarding CTDI’s alleged motive for filing the declaratory judgment.

The Federal Circuit carefully considered the record of the parties’ dispute up to the filing of the competing actions and concluded that several factors warranted a departure from the traditional first-to-file rule, which favored the forum of the first-filed case. The Federal Circuit found that: “(1) CTDI filed its declaratory judgment complaint in anticipation of Contec’s patent infringement complaint; (2) CTDI’s suit interfered with ongoing negotiations between the parties and did not serve the objectives of the Declaratory Judgement Act;... (3) on balance, the Northern District of New York is a more convenient forum”; and (4) the district court did not abuse its discretion.

With respect to finding the declaratory judgment in anticipation of Contec’s later filed suit, the Federal Circuit explained that its decision to dismiss the suit was based on a careful analysis of the parties’ pre-filling actions and communications to make the determination that CTDI was not acting in good faith when it induced Contec to delay the filing of its suit with a pretense of good faith negotiations.

With respect to interfering with ongoing negotiations, the Federal Circuit reasoned that “[i]nterference with ongoing negotiations” provided “another sound reason that would make it unjust to exercise jurisdiction over the declaratory judgment action.” Commc’ns Test Design, 367 F. Supp. 3d at 358 (internal quotations omitted). Here, the Federal Circuit found that, given that license negotiations were ongoing when the declaratory judgement was filed, “CTDI took advantage of the fact that Contec deferred filing its compliant based on Contec’s reasonable belief that licensing discussions were taking place in earnest, with the obvious hope that litigation would not be necessary.” Id. at 359.

With respect to the greater convenience of the New York forum, the Federal Circuit court noted that Contec witnesses, its record databases, and three of the six inventors of the patents resided in New York, and five of the inventors, considered key witnesses, were beyond the subpoena power of the Eastern District of Pennsylvania. Considering all relevant factors, the Federal Circuit found that New York was a more convenient forum, on balance. Because all of the factors weighed in favor of New York as the more appropriate forum, the Federal Circuit found that the district court had not abused its discretion.

With respect to CTDI’s alternative plea for remand for an evidentiary hearing, the Federal Circuit held that no such hearing is necessary. CTDI argued that Contec’s motion to dismiss was “akin to a factual attack on subject matter jurisdiction” and relied on procedures used by district courts in the context of reviewing factual challenges to subject matter jurisdiction under Rule 12(b)(1) challenges. The Federal Circuit found that subject matter jurisdiction was not at issue; rather, Contec had moved to dismiss CTDI’s complaint under the district court’s discretion granted under the Declaratory Judgment Act, which does not involve the court’s subject matter jurisdiction. Since CTDI attempted to invoke an inapplicable procedure, and a court is not required to hold evidentiary hearings to evaluate its jurisdiction “so long as the court has afforded [the parties] notice and a fair opportunity to be heard,” the Federal Circuit found no basis for remanding for an evidentiary hearing. Tanzymore v. Bethlehem Steel Corp., 457 F.2d 1320, 1323–234 (3d Cir. 1972). Accordingly, the Federal Circuit affirmed the Eastern District of Pennsylvania’s dismissal of CTDI’s complaint.

The first-to-file rule, in which the forum of the first-filed action is favored over the forum of a later filed lawsuit, may be overcome when the first-filed action was anticipatory, disruptive to ongoing negotiations, and inconsistent with the purpose of the Declaratory Judgment Act.