Troutman Sanders Federal Circuit Review – December 5, 2014

Each week, Troutman Sanders’ Federal Circuit review summarizes the Federal Circuit precedential patent opinions from the prior week.

This week:

  • Failure to Challenge All Asserted Claims in a USPTO Covered Business Method Proceeding Does Not Justify Denial of Accused Infringer’s Statutory Motion to Stay District Court Litigation.
  • A Claim Limitation is Not Inherent When It Differs from the Natural Result of Combining Elements that are Explicit in the Prior Art.

Failure to Challenge All Asserted Claims in a USPTO Covered Business Method Proceeding Does Not Justify Denial of Accused Infringer’s Statutory Motion to Stay District Court Litigation.

Versata Software, Inc. v. Callidus Software, Inc., No. 2014-1468, 2014 U.S. App. LEXIS 21962 (Fed. Cir. Nov. 20, 2014) (Chen, J.). Click Here for a copy of the opinion.

Versata sued Callidus Software in the District of Delaware for infringement of three patents. Callidus counterclaimed for infringement of its own patents and alerted the court of its intent to request Covered Business Method (CBM) review of Versata’s patent. Callidus filed CBM petitions challenging all of the claims in one patent and some claims in the other two patents, and concurrently filed a motion to stay the district court litigation. The district court stayed the litigation for one patent, but not for the two patents where only some claims were under CBM review. Citing Section 18(b) of the America Invents Act, the district court considered the following factors:

  1. whether a stay, or the denial thereof, would simplify the issues and streamline the trial;
  2. whether discovery was complete and a trial date had been set;
  3. whether a stay, or the denial thereof, would unduly prejudice the non-moving party or present a clear tactical advantage for the moving party; and
  4. whether the burden of litigation, on the parties and on the court, would be reduced by a stay.

The district court found that the failure to challenge all claims in two patents weighed against a stay. The status of the litigation was deemed neutral, because a decision by the district court would likely be reached within a few months of a CBM final written decision. The district court also found that Callidus’ decision to request a stay of Versata’s infringement claims but not its own counterclaims created an unfair tactical advantage. Finally, the district court found that early motion practice by Callidus had burdened the court and weighed against a stay.

Callidus made an interlocutory appeal to the Federal Circuit. The Federal Circuit found that the district court had erred in its analysis of each and every factor of Section 18(b).

First, the Federal Circuit found that denial of a stay based on failure to challenge every claim was inappropriate, and while challenging every claim would indeed further simplify the issues, the court should have analyzed “what would be resolved by CBM review versus what would remain.” The Court rejected a “categorical rule” to deny a stay where some asserted claims are not challenged in the CBM. Second, it was incorrect to overlook the early stage of the proceeding and that a significant amount of discovery remained. These factors favor a stay. Third, The district court’s assertion that Callidus intended to move forward on its own interests while staying Versata’s case was not correct. There was no tactical advantage and no finding of prejudice to weigh against a stay. Fourth, the Federal Circuit found that the district court’s analysis was “backward” and should have considered the future impact of the stay on the litigation rather than the parties’ past actions in filing early motions.

Given its conclusion that all four factors weighed strongly in favor of granting a stay, the Federal Circuit reversed and remanded with instructions to grant Callidus’ motion to stay as to all three asserted patents.

A Claim Limitation is Not Inherent When It Differs from the Natural Result of Combining Elements that are Explicit in the Prior Art.

Par Pharmaceutical, Inc., & Alkermes Pharma Ireland Ltd. v. TWi Pharmaceuticals, Inc., No. 2014-1391 (Fed. Cir. Dec. 3, 2014) (O’Malley, J.).Click Here for a copy of the opinion.

Megace OS, marketed by Bristol-Myers Squibb, is an oral suspension of micronized megestrol (megestrol acetate) used for increasing body mass in patients suffering from anorexia and cachexia in AIDS and cancer patients. Par received FDA approval to market a generic version of Megace OS. Par also discovered that Megace OS showed a strong food effect. It demonstrated greater drug absorption when given with a meal than when fasting. However, a nanosized megestrol formulation showed a greatly reduced food effect. The difference in drug absorption between fed and fasted states is much less. Par obtained U.S. Pat. No. 7,101,576 covering methods for using nanosized megestrol to increase body mass, wherein “there is no substantial difference in the Cmax of megestrol” in a subject between fasted and fed states. The FDA approved Par’s New Drug Application for its megestrol nanoparticle formulation, which was marketed as Megestrol ES. Unlike Megace OS, Megace ES was indicated for use without regard to meals.

TWi filed an ANDA seeking approval to market a generic form of nanosized megestrol and made a Paragraph IV certification asserting invalidity and non-infringement of the ‘576 patent. Par then sued TWi for infringement of the ‘576 patent. After a bench trial, the district court held the ‘576 patent invalid as inherently obvious. The court based its decision on evidence that reducing particle size could improve bioavailability and on expert testimony indicating that an improvement in bioavaibility necessarily decreases any food effect. The food effect of megestrol was not explicit in the prior art, but was found to be an inherent result of an obvious reduction in particle size, even if it was not previously known that a food effect existed for megestrol or Megace OS.

The Federal Circuit disagreed with the district court’s inherency analysis. To rely on inherency as applied to obviousness, a party must meet the “high standard” of establishing that a challenged claim limitation “necessarily must be present” or is the “natural result” of the combination of explicitly disclosed prior art elements. “The mere fact that a certain thing may result from a given set of circumstances is not sufficient.” Here, a reduction in particle size may naturally result in some improvement in the food effect. Nevertheless, the claims require more than a decrease in food effect. They require “no substantial difference in Cmax” between fasted and fed states. “While it may be true that a reduction in particle size naturally results in some improvement in the food effect, the district court failed to conclude that the reduction in particle size naturally results in ‘no substantial difference’ in the food effect.” Because the district court ignored the claim limitations at issue, its inherency finding was erroneous.

Par argued there was no motivation to combine the megestrol and nanoparticle technology, there was evidence of a “teach away” and that the evidence of unexpected results was inadequate. The Federal Circuit affirmed on these points. A motivation to combine references is not limited to the same motivation that drove the original inventors. The district court did not err in looking to motivations beyond the food effect, such as viscosity and interpatient variability problems with micronized megestrol. In addition, Federal Circuit law “does not require that the motivation be the best option, only that it be a suitable option.” The district court was also correct in finding a reasonable likelihood of success in combining megestrol with nanoparticle technology, which “does not necessitate an absolute certainty for success.” There was no “teach away” because the reference never mentioned nanoparticle technology nor indicated that particle size reduction would lead to more rapid elimination of megestrol.

Finally, the Federal Circuit held that the district court correctly considered the relevance of the unexpected results and appropriately weighed those results. The district court also correctly determined that an expert’s equivocal statement that “the use of [nanosized] formulation may be preferable to Megace OS” was insufficient to establish a long-felt need.

The Court ruled: “Although we agree with the district court’s analysis and conclusions on motivation to combine, reasonable expectation of success, and objective indicia of nonobviousness, we vacate the district court’s judgment that the ’576 patent is obvious, and remand for further analysis of the food effect limitation consistent with our precedent on inherency. The district court should also consider TWi’s other grounds for invalidity, such as enablement, if necessary.”

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Each week, we succinctly summarize the preceding week of Federal Circuit precedential patent opinions. We provide the pertinent facts, issues, and holdings. Our Review allows you to keep abreast of the Federal Circuit’s activities – important for everyone concerned with intellectual property. We welcome any feedback you may provide.

Joe Robinson, Ryan Schneider, Bob Schaffer, Nicole Sullivan, and Tinh Nguyen.

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