Federal Circuit Weighs in on Exceptional Case Determinations in Realtime Adaptive Streaming v. Sling TV and Dish

A recent Federal Circuit decision provided some additional insight into exceptional case determinations in patent infringement disputes. In Realtime Adaptive Streaming v. Sling TV, the Federal Circuit reviewed an award of attorneys’ fees granted to DISH and related Sling entities (collectively, DISH) by the United States District Court for the District of Colorado. Realtime Adaptive Streaming LLC v. Sling TV, L.L.C. , Fed. Cir., 23-1035, vacated 8/23/24.

History of Events

On August 31, 2017, Realtime Adaptive Streaming LLC sued DISH and related Sling entities for alleged infringement of U.S. Patent Nos. 8,275,897; 8,867,610; and 8,934,535. Early in the case, the Defendants filed motions to dismiss and motions for judgment on the pleadings, asking the district court to find the asserted claims invalid under § 101. The district court denied these motions.

In October 2018, the Central District of California issued an order finding Claims 15-30 of the ‘535 patent ineligible under § 101 (Google decision). In December 2018, a magistrate judge in the District of Delaware found Claim 15 of the ‘535 patent ineligible (Netflix decision). Shortly after that, the district court stayed the infringement litigation pending IPR proceedings.

During the IPR proceedings claims 1-14 of the ‘535 patent were found to be unpatentable on obviousness grounds. Realtime then withdrew its claims under the ‘535 patent.

The district court lifted the stay on January 15, 2021. Shortly after stay was lifted the USPTO rejected claim 1 of the ‘610 patent as obvious as part of an ex parte reexamination.

In February 2021, DISH sent Realtime a letter conveying its belief the ‘610 patent was invalid and expressing its intention to seek attorneys’ fees.

On July 31, 2021, the district court granted DISH’s motion for summary judgment of invalidity, finding Claims 1, 2, 6, 8-14, 16, and 18 of the ‘610 patent directed to ineligible subject matter under § 101 and ultimately granted DISH’s Motion for Attorneys’ Fees, highlighting six “red flags” that Realtime’s case was fatally flawed.

On May 11, 2023, the Federal Circuit affirmed the district court’s order concluding that the asserted claims of the ‘610 patent are directed to ineligible subject matter under § 101. On August 23, 2024, it issued its opinion on the appeal of the attorneys’ fees award under 35 U.S.C. § 285, vacating the district court’s opinion and remanding for further consideration.

Federal Circuit’s Analysis of the District Court’s Red Flags

The Federal Circuit reviewed each of the six red flags identified by the district court:

a) Google and Netflix decisions: The Federal Circuit agreed that these decisions, which found claims of a related patent ineligible, were significant red flags.

b) Adaptive Streaming decision: The Federal Circuit found that the district court erred in treating this as a red flag, as it involved different technology and lacked sufficient analysis to show the patent infringement claim was exceptionally meritless.

c) Board’s invalidation of the ‘535 patent: The Federal Circuit found that the district court failed to adequately explain how these decisions supported a finding of exceptionality.

d) Reexamination of the ‘610 patent: The Federal Circuit found that the district court’s analysis was lacking and failed to adequately explain how these decisions supported a finding of exceptionality.

e) DISH’s notice letter: The Federal Circuit found that the letter alone was not sufficient to trigger § 285 and support an exceptionality finding.

f) Expert analysis evidence: The Federal Circuit found that the district court erred in its justification of Dr. Bovik’s opinions as a red flag.

Notice Letter Insufficient

The notice letter from DISH was not considered sufficient to trigger § 285 and support an exceptionality finding for several reasons:

  1. Limited analysis: The letter contained only two paragraphs dedicated to discussing the ineligibility of the asserted claims of the ‘610 patent. These paragraphs were described as “conspicuously short” and “riddled with conclusory statements” asserting similarities between the ‘610 patent claims and those of the ‘535 patent and the Adaptive Streaming patent.
  2. Lack of specific comparisons: The letter did not provide any further analysis or specific comparisons to support its assertions about the similarities between the patents.
  3. Insufficient notice: The court found that simply being on notice of adverse case law and the possibility that opposing counsel would pursue § 285 fees does not amount to clear notice that the ‘610 claims were invalid.
  4. Potential for abuse: The court noted that if such a notice letter were sufficient to trigger § 285, then every party would send such a letter setting forth its complaints at the early stages of litigation to ensure that—if it prevailed—it would be entitled to attorneys’ fees.
  5. Lack of follow-up: DISH did not follow up regarding its allegations after Realtime responded to the notice letter eleven days later.

The Federal Circuit concluded that without more substantive analysis or specific comparisons, the notice letter alone was not enough to put the patentee on notice that its arguments regarding ineligibility were so meritless as to amount to an exceptional case.

Conclusion

In conclusion, while the Federal Circuit agreed that some of the red flags identified by the district court were valid considerations, it found that others were not properly justified or explained. As a result, the court vacated the attorneys’ fees award and remanded the case for reconsideration consistent with its opinion.

The findings regarding the notice letter are not surprising. Patent cases may take a long time to develop and typically include an enormous amount of information. Both parties have a limited amount of information early in the case and so positions are staked out carefully. The court did not give an indication of what would be necessary to serve as adequate notice of the defects of a plaintiff’s patent assertion. It remains to be seen how the court treats the exceptional case analysis in light of the remand guidance from the Federal Circuit.

PTAB MTA Pilot Program to the Rescue

On review of a final written decision from the Patent Trial & Appeal Board in an inter partes review (IPR), the US Court of Appeals for the Federal Circuit found that all challenged claims were obvious but left open the possibility of the patent owner amending the claims under the Motion to Amend (MTA) Pilot Program. ZyXEL Communications Corp. v. UNM Rainforest Innovations, Case Nos. 22-2220; -2250 (Fed. Cir. July 22, 2024) (Dyk, Prost, Stark, JJ.)

ZyXEL Communications petitioned for IPR challenging claims 1 – 4, 6, 7 and 8 of a patent owned by UNM Rainforest Innovation (UNMRI). The patent relates to methods for constructing frame structures in communication systems using orthogonal frequency-division multiple access (OFDMA) technologies. The patent describes a method for constructing a frame structure with two sections, each of which is configured for a different communication system, where the second communication system is used to support high mobility users (i.e., faster moving users).

Before the Board, ZyXEL argued that claims 1 – 4, 6 and 7 were unpatentable in light of two prior art references (Talukdar and Li), and that claim 8 was unpatentable in light of Talukdar and another prior art reference (Nystrom). During the Board proceedings, UNMRI filed a contingent motion to amend if any of the challenged claims were found to be unpatentable. As part of its motion, UNMRI requested preliminary guidance from the Board pursuant to the Board’s MTA Pilot Program. In its opposition to UNMRI’s motion to amend, ZyXEL argued that UNMRI’s amended claims lacked written description support, and in its preliminary guidance, the Board agreed. UNMRI attempted to file a revised motion to amend, but the Board rejected the revised motion and instead permitted UNMRI to file a reply in support of its original motion. It also allowed ZyXEL to file a sur-reply. The Board determined that claims 1 – 4, 6 and 7 were unpatentable, but that claim 8 was not. The Board also granted UNMRI’s motion to amend and determined that the new claims were nonobvious over the prior art of record. Both sides appealed.

With respect to the Board’s decision on the obviousness of claims 1 – 4, 6 and 7, the Federal Circuit found that substantial evidence supported the ruling. UNMRI’s primary argument was that a person of skill in the art (POSA) would not have been motivated to combine Talukdar and Li, but the Court credited the Board’s reliance on ZyXEL’s expert, who demonstrated sufficient motivation to combine the two references.

The Federal Circuit reversed the Board’s finding that claim 8 had not been shown to be obvious, however. The Court noted that while the Nystrom reference may not explicitly state the benefit of the missing limitations, “a prior art reference does not need to explicitly articulate or express why its teachings are beneficial so long as its teachings are beneficial and a POSA would recognize that their application was beneficial.”

Regarding UNMRI’s motion to amend, ZyXEL argued that the Board erred in granting the motion because UNMRI did not satisfy the requirement that the motion itself contain written description support for all of the claim limitations of the substitute claims. The parties agreed that UNMRI’s reply contained the missing written description, but ZyXEL argued that this could not cure the procedural defect. The Federal Circuit acknowledged the procedural error but determined that “the core purpose of the MTA Pilot Program is to allow for the correction of errors in the original motion [and is thus] designed to allow reply briefs to address and correct errors.” The Court noted that ZyXEL had opportunity to respond in its sur-reply brief. The Court upheld the Board’s decision to grant UNMRI’s motion to amend and remanded the IPR back to the Board to determine, in light of the Court’s rulings on claim 8 and the fair teachings of Nystrom, whether the substitute claims were nonetheless obvious.

The Federal Circuit also reminded the Board that it may sua sponte identify a patentability issue for the proposed substitute claims based on any prior art of record in the proceedings.

15% Discount on Chinese Patent Annuities for Open Licensing

Per a slightly ambiguous notice from the Ministry of Finance and the National Development and Reform Commission released July 24, 2024 (财政部 国家发展改革委关于调整优化专利收费政策的通知), annuity fees will be reduced by 15% for Chinese patents for participating in China’s open licensing system. As of the time of writing, there were over 2,000 open licenses published on China’s Intellectual Property Administration’s (CNIPA) online publication system.

15% Discount on Chinese Patent

Specifically, section 2 reads:

A 15% reduction in annual patent fees during the implementation period of patent open licensing. If other patent fee reduction policies are also applicable, the most favorable policy can be selected, but it cannot be enjoyed repeatedly.

However, it is unclear if this requires an actual license or simply having an offer to license published on CNIPA’s open license system.

In addition, there appears to be an additional annuity fee due for patents that receive patent term compensation (presumably for both patent term extensions for pharmaceutical patents and patent term adjustment for CNIPA delay in patent examination). It is unclear if this additional annuity is due for the entire patent term or just for the added patent term.

Specifically, section 1 reads, in part:

A patent owner who files a request for patent term compensation shall pay a patent term compensation request fee.

If a request for patent term compensation is found to meet the conditions for term compensation upon review, an annual patent compensation fee shall be paid…

CNIPA earlier this month also released additional information about open licensing system including royalty rates.

The full text of the Notice if available here (Chinese only).

China’s Supreme People’s Court Releases Two Recent Patent-Related Typical Anti-Monopoly Cases

On June 24, 2024, China’s Supreme People’s Court (SPC) released five recent typical anti-monopoly cases, two of which relate to patents. The SPC stated that the cases were released so that Courts can “correctly apply the revised Anti-Monopoly Law and accurately understand the new judicial interpretation of anti-monopoly civil litigation issued today, fairly and efficiently hear monopoly cases, ensure the correct implementation of the Anti-Monopoly Law, and maintain fair competition in the market.”

Explanations from the SPC regarding the two cases follows:

Case No.:【案号】(2020)最高法知民终1140号

[Basic facts of the case] Yang XX Pharmaceutical Group Co., Ltd. and its subsidiaries (collectively referred to as Yang) are the manufacturers of the anti-allergic drug desloratadine citrate tablets with the trade name “Beixue.” Hefei Yi XX Pharmaceutical Co., Ltd. owns the relevant patents for desloratadine citrate. The company and its subsidiaries and affiliated companies (collectively referred to as Yi) are the only suppliers of the desloratadine citrate API required for the production of “Beixue”. In addition to producing desloratadine citrate API, Yi also produces desloratadine citrate hard capsules. Yi and Yang are both the supply and demand parties of the desloratadine citrate API involved in the case, and are also competitors in desloratadine citrate preparations. Yang believed that Yi used its dominant position in the market of desloratadine citrate API to restrict Yang to only purchase the API involved in the case from it, significantly raised the price of the API involved in the case, and threatened to stop supplying the API involved in the case to force Yang to accept other commercial arrangements unrelated to the API transaction involved, causing huge losses to Yang and therefore constituting an abuse of market dominance. Yang requested that Yi stop abusing its market dominance and compensate Yang for losses and reasonable expenses of 100 million RMB. The court of first instance found that Yi had abused its market dominance by restricting transactions, setting unfair high prices, and attaching unreasonable transaction conditions, and ordered it to immediately stop the above-mentioned behaviors and compensate Yang more than 68 million RMB. Both parties were dissatisfied and appealed to the Supreme People’s Court.

The Supreme People’s Court held in the second instance that Yi has a dominant market position in the desloratadine citrate API market in China, but its dominant market position has been weakened to a certain extent due to the strong indirect competition constraints from the downstream second-generation antihistamine preparation market. Based on the existing evidence, it is difficult to determine that it has abused its dominant market position. First, desloratadine citrate falls within the scope of protection of Yi’s patent rights. The time and scope of Yi’s restriction that Yang can only purchase the patented API involved in the case from it do not exceed the scope of the legitimate exercise of patent rights, and the resulting market blocking effect does not exceed the statutory exclusive scope of patent rights, so it does not constitute a restricted transaction behavior that abuses the dominant market position. Second, considering the internal rate of return after the price increase and the matching degree of price and economic value, it is more likely that the initial price of the patented API involved in the case is a promotional price, and the subsequent large price increase is likely to be a reasonable adjustment from the promotional price to the normal price. The fact that the price increase is significantly higher than the cost increase is not enough to determine that there is an unfair high-price behavior that abuses the dominant market position. Third, the existing evidence is insufficient to prove that Yi has explicitly or implicitly bundled the sales of the patented API involved in the case with unrelated products, so it is difficult to determine that there is an act of attaching unreasonable transaction conditions. Therefore, the judgment was revoked and the first-instance judgment was changed to dismiss Yang’s lawsuit request.

[Typical Significance] This case is the first monopoly civil lawsuit in China involving raw material pharmaceuticals. The judgment clarified the consideration of indirect competition constraints from the downstream market when judging the market dominance of intermediate input operators, the relationship between the market blocking effect of limited trading behavior and the statutory exclusive scope of patent rights, and the basic ideas and specific methods for judging unfair high prices. It has positive significance for promoting the accurate application of the Anti-Monopoly Law and effectively maintaining fair competition in the pharmaceutical market.

【案号】(2021)最高法知民终1482号

[Basic facts of the case] Ningbo XX Magnetics Co., Ltd. is an enterprise engaged in the production of sintered NdFeB materials in Ningbo, Zhejiang Province. A Japanese metal company has more than 600 sintered NdFeB patents in the field of rare earth materials worldwide. After licensing eight companies in China to implement its patented technology, it decided not to add new licensees. From March 2014 to March 2015, Ningbo XX Magnetics Co., Ltd. repeatedly requested a license from the Japanese metal company but was rejected. Therefore, it filed a lawsuit in December 2014, requesting that the Japanese metal company stop the abuse of market dominance such as refusal to trade and compensate Ningbo XX Magnetics Co., Ltd. for economic losses of 7 million RMB. The court of first instance determined that the Japanese metal company had a dominant position in the patent licensing market for essential patents for sintered NdFeB and that its refusal to trade had no legitimate reason. Therefore, it ordered the Japanese metal company to stop abusing its market dominance by refusing to trade and compensate Ningbo XX Magnetics Co., Ltd. for economic losses of 4.9 million RMB. The Japanese metal company was dissatisfied with the decision and filed an appeal.

The Supreme People’s Court held in the second instance that the evidence in this case was insufficient to prove that the sintered NdFeB patent of a Japanese metal company was irreplaceable, nor was it sufficient to prove that there was an independent licensing market for patents necessary for the production of sintered NdFeB. Therefore, it was difficult to determine that the relevant market in this case was the patent licensing market for patents necessary for the production of sintered NdFeB owned by the Japanese metal company. In this case, based on the demand substitution of sintered NdFeB material production technology, the relevant market in this case should be defined as the global sintered NdFeB material production technology market, including patented technologies and non-patented technologies with close substitution. Given that sintered NdFeB material production technology is used to produce sintered NdFeB materials, and the market share of sintered NdFeB materials (products) and other conditions can more accurately and conveniently reflect the market conditions of sintered NdFeB production technology, the market power of the technology owner in the relevant market involved in the case can be evaluated through the market share of the sintered NdFeB material market. Taking into account the evidence in the case, the Japanese metal company does not have a dominant position in the global sintered NdFeB material production technology market. Therefore, the court ruled to revoke the first-instance judgment and dismiss the lawsuit filed by the Ningbo magnetic company.

[Typical Significance] This case is a typical case in which intellectual property rights and antitrust are intertwined, and has received widespread attention. The second-instance judgment properly handled the relationship between the exercise of patent rights and antitrust, and through scientific and reasonable definition of the relevant market, revised the judgment in accordance with the law to determine that the foreign right holder’s refusal to license the patent involved did not constitute monopoly behavior. The judgment in this case demonstrates the judicial concept of Chinese courts to equally protect the legitimate rights and interests of Chinese and foreign parties and the trial ideas of antitrust cases involving intellectual property abuse in accordance with the law, and actively responded to the concerns of the industry at home and abroad.

The original text including three additional cases is available here (Chinese only).

For All Patent/Trademark Practitioners: USPTO Provides Guidance for Use of AI in Preparing USPTO Submissions

The USPTO expounds a clear message for patent and trademark attorneys, patent agents, and inventors: use of artificial intelligence (AI), including generative AI, in patent and trademark activities and filings before the USPTO entails risks to be mitigated, and you must disclose use of AI in creation of an invention or practice before the USPTO if the use of AI is material to patentability.

The USPTO’s new guidance issued on April 11, 2024 is a counterpart to its guidance issued on February 13, 2024, which addresses AI-assisted invention creation process. In the new guidance issued on April 11, 2024, USPTO officials communicate the risks of using AI in preparing USPTO submissions, including patent applications, affidavits, petitions, office action responses, information disclosure statements, Patent Trial and Appeal Board (PTAB) submissions, and trademark / Trademark Trial and Appeal Board (TTAB) submissions. The common theme between the February 13 and April 11 guidance is the duty to disclose to the USPTO all information known to be material to patentability.

Building on the USPTO’s existing rules and policies, the USPTO’s April 11 guidance discusses the following:

(A) The duty of candor and good faith – each individual associated with a proceeding at the USPTO owes the duty to disclose the USPTO all information known to be material to patentability, including on the use of AI by inventors, parties, and practitioners.

(B) Signature requirement and corresponding certifications – using AI to draft documents without verifying information risks “critical misstatements and omissions”. Any submission for the USPTO in which AI helped prepare must be carefully reviewed by practitioners, who are ultimately responsible, to ensure that they are true and submitted for a proper purpose.

(C) Confidentiality of information – sensitive and confidential client information risks being compromised if shared to third-party AI systems, some of which may be located outside of the United States.

(D) Foreign filing licenses and export regulations – a foreign filing license from the USPTO does not authorize the exporting of subject matter abroad for the preparation of patent applications to be filed in the United States. Practitioners must ensure data is not improperly exported when using AI.

(E) USPTO electronic systems’ policies – Practitioners using AI must be mindful of the terms and conditions for the USPTO’s electronic system, which prohibit the unauthorized access, actions, use, modifications, or disclosure of the data contained in the USPTO system in transit to/from the system.

(F) The USPTO Rules of Professional Conduct – when using the AI tools, practitioners must ensure that they are not violating the duties owed to clients. For example, practitioners must have the requisite legal, scientific, and technical knowledge to reasonably represent the client, without inappropriate reliance on AI. Practitioners also have duty to reasonably consult with the client, including about the use of AI in accomplishing the client’s objectives.

The USPTO’s April 11 guidance overall shares principles with the ethics guidelines that multiple state bars have issued related to generative AI use in practice of law, and addresses them in the patent- and trademark-specific context. Importantly, in addition to ethics considerations, the USPTO guidance reminds us that knowing or willful withholding of information about AI use under (A), overlooking AI’s misstatements leading to false certification under (B), or AI-mediated improper or unauthorized exporting of data or unauthorized access to data under (D) and (E) may lead to criminal or civil liability under federal law or penalties or sanctions by the USPTO.

On the positive side, the USPTO guidance describes the possible favorable aspects of AI “to expand access to our innovation ecosystem and lower costs for parties and practitioners…. The USPTO continues to be actively involved in the development of domestic and international measures to address AI considerations at the intersection of innovation, creativity, and intellectual property.” We expect more USPTO AI guidance to be forthcoming, so please do watch for continued updates in this area.

Regeneron v Novartis and Vetter: Walker Process Client Update

In an appeal that attracted a dozen amici, including the Department of Justice, the Federal Trade Commission, five states, and the District of Columbia, the Second Circuit gave the Walker Process antitrust doctrine a shot in the arm in a patent dispute related to pre-filled syringes (“PFSs”) used for injection of anti-VEGF biologic medicines into patients’ eyeballs (i.e., intravitreal injections).1 Under Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965), patentees who obtain patents through fraudulent behavior or inequitable conduct can be liable under the Sherman Antitrust Act. In a complaint filed in the Northern District of New York, Regeneron alleged Novartis and Vetter committed a Walker Process violation by obtaining and asserting patents for PFSs. The Second Circuit held that the district court made a mistake by dismissing Regeneron’s suit because it focused on the functional similarities in the markets for anti-VEGF medicines in PFSs and vials. In reversing, the Second Circuit held that the correct approach must focus on an economic market analysis rather than a functional market analysis, and that Regeneron’s complaint plausibly alleged that anti-VEGF PFSs constituted their own economic product market. As the amicus interest signals, the decision may have significant implications, both for the blockbuster market for anti-VEGF medicines and, more broadly, for defining the markets for different pharmaceutical methods of administration.

In its complaint, Regeneron alleges that in 2005, it had contracted with Vetter, a company providing pharmaceutical filling services, to collaborate on a PFS for its blockbuster anti-VEGF product, EYLEA.2 It alleges that its agreement with Vetter granted Regeneron ownership in any patent related to EYLEA PFSs. Id. Notwithstanding its agreement with Regeneron, Vetter later entered into a confidential agreement with Novartis to develop a PFS for anti-VEGF biologics, which are used to treat macular degeneration and other retinal conditions. Id. Indeed, both parties agree on the benefits of PFSs for patients and providers of anti-VEGF medicines—ease in administration, improved safety, and greater efficiency—compared to vials, which must be used to fill a separate syringe.3 Novartis has an anti-VEGF biologic, LUCENTIS, which Genentech markets in the United States.

Regeneron alleges that Vetter contributed to Novartis’s invention of U.S. Patent No. 9,220,631 (the “’631 Patent”) and that Novartis concealed Vetter’s contribution to inventorship from the PTO to avoid alerting Regeneron to its contractual violations. Id. Concealing inventorship from the PTO can constitute inequitable conduct and form the basis for a Walker Process claim. (Regeneron also alleges Novartis improperly withheld key prior art references from the PTO during prosecution.) Novartis’s resulting ’631 Patent specifically claims EYLEA’s active ingredient as a treatment for use in Novartis’s patented syringe.4 Regeneron contends that the defendants’ pattern of conduct delayed its entry into the PFS market, resulting in significant damages.5 Regeneron also alleges that, after the ’631 Patent issued, Vetter leaned on it in contract negotiations to enter a long-term deal and to agree not to challenge the validity of the ’631 Patent.6 Novartis sued Regeneron on the ’631 Patent in the ITC and the Northern District of New York in 2020, and there is a pending Federal Circuit appeal regarding the validity of the patent.7

The Second Circuit held that “the district court improperly concluded that Regeneron failed to plead adequately the existence of a distinct anti-VEGF PFS market because it… placed improper weight on the functional, rather than economic, similarities between anti-VEGF PFSs and vials.”8 Rather than look to the functional similarities in the markets for PFSs and vials (i.e., same drug, same medical condition), the Second Circuit held that the proper analysis was economic. That is, whether products are “reasonably interchangeable by consumers for the same purposes,” as assessed by examining “sufficient cross-elasticity of demand.”9 Regeneron’s complaint alleges that physicians transferred 80% of patients from vials to PFSs when they were offered for LUCENTIS. The Second Circuit found Regeneron’s allegation adequately pled a hypothetical monopoly market by pleading that the physicians’ switching behavior showed that a “small, but significant, price increase in the PFS version would not cause physicians to substitute the vial version for PFS.”10

Second, the Second Circuit held that the district court was wrong to decide that an antitrust market cannot be coextensive with a patent’s scope. Instead, “once an antitrust plaintiff has demonstrated that [1] a patent was obtained through fraud, it must [2] separately explain how the fraudulently obtained patent enabled the defendants to achieve market power within the relevant market.”11 Regeneron’s allegations regarding inventorship and improperly withheld prior art satisfied the “fraudulently obtained” prong of the test.12 Next, the Second Circuit found that Regeneron’s complaint adequately pled the “market power” prong, crediting Regenoron’s allegation that Novartis and Vetter attempted to use the ’631 patent to coerce Regeneron into a long-term exclusive PFS filling relationship and demanding other modifications to Regeneron and Vetter’s 2005 agreement.13

Why the Decision Matters

The Second Circuit’s decision stands out for two reasons. First, anti-VEGF biologics are a big business for innovator companies, biosimilar makers, and government payers. EYLEA’s total revenue for 2023 was nearly $5.9 billion.14 Roche, which through its subsidiary Genentech commercializes LUCENTIS in the US, reported $460 million CHF in 2023 revenue, down from approximately $1 billion CHF in 2022 after entry from two biosimilars, with more pending.15 Biosimilars referencing EYLEA are also pending FDA approval or in clinical trials.16 Government payers are naturally interested in age-related macular degeneration (AMD) medications: among Americans over 65, the CDC estimates that approximately 1.3 million have vision-threatening AMD, with another 10.9 million having milder AMD.17 Indeed, the state amici’s brief supporting Regeneron noted the states’ interest in the markets for AMD drugs.18

Second, and more broadly, a product’s presentation or method of administration—pill vs. liquid; standard vs. extended release; IV vs. subcutaneous injection—has major implications for patients, providers, and product lifecycle. Different methods of administration may expand a product’s commercial reach and, as this case shows, provide additional patent protection (and possibly market exclusivity). Antitrust scrutiny directed to narrowly defined markets for methods of administration—here PFSs—is noteworthy. The amicus brief from the DoJ and FTC makes clear that it is supporting neither side and “take[s] no position as to whether the complaint adequately pleads a relevant antitrust market or states an antitrust claim.”19 However, the Federal government’s amicus brief also stated that the district court erred in its decision, and the brief’s analysis of the proper market definition parallels the reasoning ultimately adopted by the Second Circuit.20

This decision relates to a motion to dismiss under Rule 12(b)(6), where the court only looks for a plausible, well-pled complaint. Novartis will have its day in court at the summary judgment and trial stages, where Regeneron will owe a higher burden of proof. However, antitrust claims are powerful tools because they carry the monetary risk of treble damages as well as the possibility of scrutiny from regulators. These risks must be weighed, not just by outside counsel and CLOs, but by CEOs and boards of directors.

Footnotes

[1] See Regeneron Pharm., Inc. v. Novartis Pharma AG et al., No. 22-427, slip op. at 1 (March 18, 2024). As the Second Circuit explains, “[t]he products in question are prescription medications used to treat the overproduction of vascular endothelial growth factor (‘VEGF’), a naturally occurring protein that, if overproduced, can lead to various eye disorders and, in some cases, to permanent blindness.”

[2] Slip op. at 9

[3] Id. at 8-9

[4] See ’631 Patent at Claim 12

[5] See slip op. at 10-11.

[6] Id. at 13-14.

[7] Id. at 15-16.

[8] Id. at 19.

[9] Id. at 20-21 (citing Brown Shoe Co. v. United States, 370 U.S. 294 (1962) and United States v. Am. Express. Co., 838 F.3d 179 (2d Cir. 2016)).

[10] Slip op. at 26; see, e.g., Am. Express, 838 F.3d at 199 (small but significant non-transitory increase in price (“SSNIP”) may demonstrate that the proposed market is relevant market).

[11] Slip op. at 30(citing Walker Process, 382 U.S. at 177).

[12] Id. at 30-31.

[13] Id. at 31-32. In addition to reversing the district court’s decision on the antitrust claim, the Second Circuit reversed the court’s dismissal of Regeneron’s claim for tortious interference with contract as time barred, crediting Regeneron’s equitable estoppel arguments.

[14] “Regeneron Reports Fourth Quarter and Full Year 2023 Financial and Operating Results,” Feb. 2, 2024, https://investor.regeneron.com/news-releases/news-release-details/regeneron-reports-fourth-quarter-and-full-year-2023-financial (last visited March 20, 2024).

[15] “Roche Finance Report 2023,” at 16, https://assets.roche.com/f/176343/x/3b1fb647e2/fb23e.pdf (last visited March 20, 2024).

[16] See, e.g., “New and Upcoming biosimilar launches,” at 6 https://www.cardinalhealth.com/content/dam/corp/web/documents/Report/cardinal-health-biosimilar-launches.pdf (last visited March 20, 2024).

[17] See “Prevalence of Age-Related Macular Degeneration (AMD), at Table 1, https://www.cdc.gov/visionhealth/vehss/estimates/amd-prevalence.html (last visited March 20, 2024).

[18] See Brief of Amici Curiae Nevada, District of Columbia, Illinois, Louisiana, Minnesota, and New Mexico as Amicus Curiae in Support of Plaintiff-Appellant, Regeneron Pharmaceuticals, Inc., Case 22-427, Dkt. 106 at 2.

[19] See Brief for the United States and the Federal Trade Commission as Amici Curiae in Support of Neither Party, Case 22-427, Dkt. 90 at 1.

[20] Id. at 12.

New USPTO Obviousness Guidelines Seek to Refine Examiner Evaluations Likely Making Path to Patent Grant More Difficult and Potentially Opening Door to More Patent Challenges

On February 27, the United States Patent and Trademark Office (USPTO) released new guidance aimed at enhancing the methodology used to assess the obviousness of patent applications. The updated USPTO guidance emphasizes the need for a clear articulation of a reasoned analysis, grounded in relevant facts, in determining whether a claimed invention meets the criteria of being obvious. The USPTO asserts that this initiative is in line with the directives of the U.S. Supreme Court’s landmark decision in KSR Int’l Co. v. Teleflex Inc., advocating for a flexible approach toward obviousness evaluations.

The USPTO suggests that this newly issued guidance will act as a practical manual for USPTO examiners, applicable to all utility patent applications under review or contestation. It allegedly aims to ensure a standardized application of the law of obviousness across various cases.

A brief synopsis provided from the USPTO’s updated guidance and garnered since the KSR decision of the Federal Circuit include:

  • In KSR, the Supreme Court instructed the Federal Circuit that persons having ordinary skill in the art also may glean suggestions from the prior art that go beyond the primary purpose for which that prior art was produced. “Thus, the Supreme Court taught that a proper understanding of the prior art extends to all that the art reasonably suggests and is not limited to its articulated teachings regarding how to solve the particular technological problem with which the art was primarily concerned.”
  • Since KSR, the Federal Circuit has confirmed that “the flexible approach to obviousness encompasses not only how to understand the scope of prior art, but also how to provide a reasoned explanation to support a conclusion that claims would have been obvious.”
  • However, a flexible approach to obviousness does not negate the need for articulated reasoning and evidentiary support, the USPTO said.
  • Obviousness decision-makers must examine all the evidence before them.
  • The USPTO states that, “there is no one-size-fits-all approach to crafting an obviousness rejection.”

Kathi Vidal, Director of the USPTO, expressed the agency’s commitment to issuing reliable patent rights while ensuring clarity and consistency across the board. “Our initiative aims at bolstering transparency and uniformity within our processes and across the innovation landscape,” Vidal remarked.

The implications of this USPTO guidance extend to design patents as well, with the USPTO keenly awaiting the Federal Circuit’s verdict in LKQ Corp. v. GM Global Technology Operations LLC.

Additionally, the USPTO makes notes that it is gearing up to explore the influence of artificial intelligence on the landscape of prior art and the competence of someone skilled in the art, particularly how these factors interplay with patentability assessments including obviousness determinations. The USPTO plans to invite public commentary on these topics soon.

The updated USPTO guidelines initially appear to increase the burden on the patent applicant or the patentee to show that a claimed invention is not obvious by allowing the obviousness decision-makers (e.g., USPTO examiners and judges of the Patent Trial and Appellate Board (PTAB)) more flexibility in rejecting claims and to go outside of the boundaries of patent documents used to reject claims as long as reasoning is articulated and evidentiary support is provided. To counter an obviousness rejection made by an obviousness decision-maker, patent applicants or patentees should review obviousness rejections for a clearly articulated obviousness reasoning, including evidentiary support (e.g., not purely the examiner or judge’s argument) that is sound (e.g., actually supports the examiners or judges’ positions). Patent applicants and patentees also may need to rely on more expert declarations or affidavits to help overcome obviousness rejections.

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