Articles Posted in New Decisions

February 13, 2015

Indiana Trademark Law: Consent Judgment Entered Enjoining Chanel’s Salon from Using “Chanel” in Business Name

Hammond, Indiana – Chanel’s Salon, LLC, d/b/a Chanel’s Salon and Chanel’s Cosmetology Salon, and Chanel Jones, all of Merrillville, Indiana, entered into a consent judgment with Chanel, Inc. of New York, New York to resolve ongoing trademark disputes regarding the trademarked term CHANEL®.

Indiana trademark attorneys for fashion-and-beauty giant Chanel, Inc. had sued in the Northern District of Indiana alleging that Chanel’s Salon, LLC and Chanel Jones had infringed and were infringing the trademark CHANEL, Registration Nos. 302,690; 510,992; 1,263,845; 1,348,842; 1,464,711; 1,559,404; 1,660,866; 3,134,695; and 4,105,557, which have been registered by the U.S. Patent and Trademark Office.

In this Indiana lawsuit, Chanel, Inc. alleged trademark infringement, trademark dilution, unfair competition under federal law as well as trademark infringement and unfair competition under Indiana state law. Chanel, Inc. claimed that its intellectual property rights to its trademark CHANEL had been infringed and diluted by actions of Defendants Chanel’s Salon, an Indiana beauty salon, and its owner Chanel Jones.

Specifically, Defendants were accused of using the trade names CHANEL’S SALON and/or CHANEL’S COSMETOLOGY SALON in connection with their beauty salon without Chanel’s authorization. Chanel, Inc. also claimed that the Defendants were infringing and diluting the CHANEL trademark by, inter alia, offering goods and services that are related to those offered under the CHANEL mark, including cosmetics, beauty consultation services and hair accessories.

This litigation ended pursuant to a consent judgment crafted by the parties and entered by the Indiana district court. As part of the consent judgment, the court issued a permanent injunction prohibiting Jones from using CHANEL to identify her beauty salon or any other enterprises, services or products. Jones was also enjoined from any use of the term CHANEL as part of any keyword, meta tag, page tag, or source code in any business marketing.

The order in this intellectual property litigation was issued by Judge Theresa L. Springmann in the Northern District of Indiana. This case is: Chanel, Inc. v. Chanel’s Salon LLC et al., Case No. 2:14-cv-00304-TLS-PRC.

January 23, 2015

Indiana Copyright Law: Court Orders SVT to Provide Video to EEOC Despite Copyright Concerns

By Overhauser Law Offices, LLC

Hammond, Indiana – Magistrate Judge Paul R. Cherry of the Northern District of Indiana, Hammond Division, ordered SVT, LLC d/b/a Ultra Foods (“SVT”) to produce a copyrighted training video to the Equal Employment Opportunity Commission (“EEOC”) in ongoing gender-discrimination litigation.

In 2010, Tiffany Swagerty was rejected from a position as a night crew stocker at SVT’s Ultra Foods operation in Merrillville, Indiana. She complained to the EEOC contending that SVT’s hiring manager had told her that women that were not usually hired for night positions. The subsequent investigation by the EEOC corroborated Swagerty’s assertions. The EEOC later sued SVT for violations of Title VII seeking injunctive relief and, on behalf of Swagerty and other similarly rejected female applicants, monetary damages.

In this current opinion in the matter of Equal Employment Opportunity Commission v. SVT, LLC d/b/a Ultra Foods, the court ruled on several discovery disputes between the parties. Among those issues was whether SVT must produce to the EEOC copies of a copyrighted “stocking video” or whether, in order to obtain a copy, the EEOC must bear a portion of the cost of the materials.

Specifically, as part of its discovery requests, the EEOC asked SVT to provide “all documents containing job descriptions for all stocker positions … including hiring criteria, requirements, and responsibilities created.” SVT objected to providing one piece of responsive material – a stocking DVD that was shown to overnight stockers during orientation – on copyright grounds. SVT stated that, while it had made “in-house copies” of the video, it would not be able to produce a copy of the materials to the EEOC and that it would cost $700 for the EEOC to order and purchase a set of the DVDs. Instead of providing the DVD, SVT offered to have counsel for the EEOC either share in the cost of the DVDs or, in the alternative, to view the DVDs at counsel for SVT’s office during the breaks of depositions. EEOC refused this offer and filed a motion to compel the production of the video.

The court was not persuaded that either of SVT’s proposals was sufficient. The court stated instead that SVT had offered an “unclear … explanation of when and how it obtained the original and/or copies of the DVDs, the nature and extent of any copyright that might exist, and what the costs … were expended for.” Consequently, the court granted the EEOC’s motion to compel, holding that SVT had “not met its burden of demonstrating that the cost of this discovery should be shifted” and ordered SVT to produce the copyrighted material to the EEOC without cost to the EEOC.

January 13, 2015

Indiana Patent Litigation: Federal Circuit Overturns Trial Court’s Award of Enhanced Damages for Patent Infringement

By Overhauser Law Offices, LLC

Washington, D.C. – The U.S. Court of Appeals for the Federal Circuit ruled on the patent infringement litigation between Zimmer of Warsaw, Indiana and Stryker of Kalamazoo, Michigan. The Federal Circuit upheld the jury’s finding that Zimmer had infringed three of Stryker’s patents but overturned the decision of the Western District of Michigan to triple the damage award, reducing the award from $228 million to $70 million, and vacated the district court’s award of attorneys’ fees.

Stryker and Zimmer are the two principal participants in the market for orthopedic pulsed lavage devices. A modern, orthopedic pulsed lavage device is a combination spray-gun and suction-tube, used by medical professionals to clean wounds and tissue during surgery.

In 2010, Stryker Corp, Stryker Puerto Rico, Ltd. and Stryker Sales Corp. (collectively, “Stryker”), sued Zimmer, Inc., Zimmer Surgical, Inc. and Zimmer Orthopaedic Surgical Products of Warsaw, Indiana (collectively, “Zimmer”) alleging that Zimmer’s line of Pulsavac Plus pulsed lavage devices infringed three of Stryker’s patents – U.S. Patent No. 6,022,329 (“the ‘329 patent”), U.S. Patent No. 7,144,383 (“the ‘383 patent”) and U.S. Patent No. 6,179,807 (“the ‘807 patent”). A jury awarded $70 million in damages and the district court increased that figure by approximately $2.4 million to reflect sales made by Zimmer during a time period that had not been considered by the jury.

Stryker also moved for enhanced damages under 35 U.S.C. § 284, alleging willful patent infringement by Zimmer. Under § 284, “the court may increase the damages up to three times the amount found or assessed” at trial. For this determination, the court referred to Read Corp. v. Portec, Inc.. In Read, the Federal Circuit had held that the “paramount determination in deciding to grant enhancement and the amount thereof is the egregiousness of the defendant’s conduct based on all the facts and circumstances.” In evaluating the egregiousness of the defendant’s conduct, courts typically rely on the nine Read factors, which are:

1. whether the infringer deliberately copied the patentee’s ideas or design;

2. whether the infringer investigated the scope of the patent and formed a good faith belief that it was invalid or not infringed;

3. the infringer’s conduct during litigation;

4. the infringer’s size and financial condition;

5. closeness of the case;

6. duration of the infringing conduct;

7. remedial actions, if any, taken by the infringer;

8. the infringer’s motivation for harm; and

9. whether the infringer attempted to conceal its misconduct.

The district court found that all nine Read factors favored substantial enhancement of the jury’s award and trebled both the jury’s award of $70 million and the court’s award of supplemental damages.

In the current opinion, the Federal Circuit affirmed the jury’s findings that Stryker’s patents were valid and had been infringed by Zimmer, as well as the jury’s award of damages to Stryker but reversed the district court’s judgment that Zimmer’s infringement was willful.

To establish willfulness, the patentee has the burden of showing “by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” If and only if the patentee establishes this “threshold objective standard” does the inquiry then proceed to the question of whether the objectively defined risk was either known or so obvious that it should have been known to a party accused of patent infringement.

The Federal Circuit noted that the district court had failed to undertake the required objective assessment of Zimmer’s specific defenses to Stryker’s claims. The Federal Circuit then considered the question of objective recklessness, which “will not be found where the accused infringer’s position is susceptible to a reasonable conclusion of no infringement.” The court held that the objective standard showed that Zimmer had presented reasonable defenses to all of the asserted claims of Stryker’s patents. Consequently, Zimmer was found not to have acted recklessly and the decision to award enhanced damages was reversed.

Because the appellate court reversed the trial court’s determination that the infringement of the patents had been willful – and because district court’s award of attorneys’ fees was based on that determination – the Federal Circuit vacated district court’s finding that the case was exceptional as well as the award of attorneys’ fees and remanded the issue to the trial court for further consideration.

November 25, 2014

Indiana Patent Law: Method for Offering Video for Ad Viewing Is Not Patent Eligible

By Overhauser Law Offices, LLC

Washington, D.C. – In the matter of Ultramercial Inc. v. Hulu, LLC et al., a patent attorney for Ultramercial, Inc. and Ultramercial, LLC appealed to the United States Court of Appeals for the Federal Circuit asserting that the District Court for the Central District of California erred in granting Defendant Wildtangent, Inc.’s Motion to Dismiss.

Applying the U.S. Supreme Court‘s 2014 ruling in Alice Corp. v. CLS Bank Int’l, the Federal Circuit concluded that a method of offering free, streamed video in exchange for viewing an advertisement is not patent eligible. According to the court, the claims were directed to abstract ideas containing no element or combination of elements to ensure that the patent claims significantly more than the abstract idea itself.

While the court’s opinion disclaimed any intent of holding that all claims in all software-based patents will necessarily be directed to an abstract idea, it said this conclusion is warranted as to this claim. In a concurring opinion, Judge Mayer made three points: (1) patent eligibility is a threshold question, (2) there is no presumption of eligibility, and (3) Alice set out a technological arts test for patent eligibility.

Claims Direct to Patent-Ineligible Concept

Under Alice, the first step of the analysis is to determine if the claim was directed to a patent-ineligible concept, the court began. The method claim in question set out eleven steps, including receiving media, selecting an ad, offering sale on the Internet, limiting public access, offering for sale to the public in exchange for the selected ad, receiving the consumer’s request to view the ad, facilitating display of the ad, allowing consumer access to the media and if the ad is interactive, updating an activity log, and receiving payment from the ad sponsor.

In his opinion for the Court, Judge Lourie wrote “[t]his combination of steps recites an abstraction–an idea, having no particular concrete or tangible form.” The steps all describe an abstract idea, “devoid of a concrete or tangible application,” he explained, adding the following: “Although certain additional limitations, such as consulting an activity log, add a degree of particularity, the concept embodied by the majority of the limitations describes only the abstract idea of showing an advertisement before delivering free content.”

The court acknowledged that, at some level, all inventions reflect abstract ideas, and said this decision does not purport to say that all claims in all software-based patents will necessarily be directed to an abstract idea. Other cases may turn out differently, but the claims in this patent are directed to an abstract idea, Judge Lourie observed, which is a method of using advertising as an exchange or currency.

Nor does the addition of merely novel or non-routine components to the claimed idea necessarily turn an abstraction into something concrete, the court added. In any event, the novelty in implementation of the idea was a factor to be considered only in the second step of the Alice analysis, Judge Lourie wrote.

No Elements Transform Claims to Patent-Eligible Subject Matter

For the second step of the analysis–determining if elements or a combination of elements transform the claims to patent-eligible subject matter–the court examined the limitations of the claim, noting that they must disclose features that are more than “well-understood, routine, conventional activity.”

None of the 11 individual steps, viewed both individually and as an ordered combination, transformed the nature of the claim into patent-eligible subject matter, the court concluded.The majority of those steps comprised the abstract concept of offering media content in exchange for viewing an advertisement. Adding routine additional steps such as updating an activity log, requiring a request from the consumer to view the ad, restrictions on public access, and use of the Internet did not transform an otherwise abstract idea into patent-eligible subject matter. Instead, the claimed sequence of steps comprised only “conventional steps, specified at a high level of generality,” which is insufficient to supply an “inventive concept.” Instead, the steps of consulting and updating an activity log represented insignificant “data-gathering steps” and, thus, added nothing of practical significance to the underlying abstract idea. Further, that the system was active, rather than passive, and restricted public access also represented only insignificant “[pre]-solution activity,” which was also not sufficient to transform an otherwise patent-ineligible abstract idea into patent-eligible subject matter.

The invocation of the Internet added no inventive concept, the court explained, observing that, as an attempt to limit the use of the abstract idea to a particular technological environment, it was also insufficient to save the claim. “Given the prevalence of the Internet, implementation of an abstract idea on the Internet in the case is not sufficient to provide any “practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself,” Judge Lourie wrote. The fact that some of the eleven steps were not previously employed in this art, standing alone, was not enough to confer patent eligibility here, he added.

While the “machine or transformation” test can provide a useful clue to patent eligibility, Judge Lourie acknowledged, he pointed out that this claim was not tied to any machine other than a general purpose computer. Nor was there any sufficient “transformation” insofar as the subject matter of claim merely involved the granting of access and the exchange of money. These were insufficient, according to the court, because they were neither physical objects or substances nor representative of physical objects or substances.

Concurring Opinion

In his concurring opinion, Senior Judge Mayer stressed three separate points: (1) the subject matter requirements of 35 U.S.C. §101 were a threshold matter to be addressed at the outset of the litigation; (2) the issues of Section 101 were not subject to a presumption of patent eligibility; and (3) the Alice decision, for all intents and purposes, set out a technological arts test for patent eligibility.

To read the opinions in this case, click here.

November 21, 2014

Patent Law: Supreme Court Affirms Invalidity of Alice Corporation’s Software Patents

By Overhauser Law Offices, LLC

Washington, D.C. – The United States Supreme Court issued a unanimous opinion in Alice Corporation Pty. LTD v. CLS Bank International et al., Case No. 13-298. At issue was software that allows a neutral third party to ensure that all parties to a financial transaction have fully performed their obligations. The Court held that Alice Corporation’s patents should not have been issued because they (1) consisted of software created to implement an abstract idea but (2) lacked an “inventive concept” sufficient to transform the abstract idea into a patent-eligible application.

Alice Corporation owned several patents that covered a manner for mitigating “settlement risk,” i.e., the risk that one or more parties to an agreed-upon financial exchange will not satisfy their obligations. Alice Corporation’s patent claims consisted of computer software that facilitated the exchange of financial obligations between the parties. The patents-in-suit claimed (1) a method for exchanging financial obligations, (2) a computer system configured to carry out the method for exchanging obligations, and (3) a computer-readable medium containing program code for performing the method of exchanging obligations.

Respondents (collectively, “CLS Bank“), which operate a global network that facilitates currency transactions, sued Alice Corporation, arguing that the patent claims at issue were invalid, unenforceable, or not infringed. Alice Corporation counterclaimed, alleging infringement.

All of the claims were held to be ineligible for patent protection by the district court because they purported to protect to an abstract idea. The Federal Circuit, sitting en banc, affirmed, although, of the ten judges, only five agreed on the reasoning behind the holding.

The Supreme Court held for CLS Bank, affirming the Federal Circuit, and held that the patent claims were drawn to a patent-ineligible abstract idea under 35 U.S.C. § 101 and, thus, could not be patented.

In this opinion, the Court defined the Section 101 framework as having two parts. First, the court must determine if the patent claim at issue is directed toward an abstract idea. Second, it must examine the elements of the claim to determine whether it contains an “inventive concept” sufficient to transform the abstract idea into a patent-eligible application.

The Court concluded that, in the case of the software patents-in-suit, “the method claims, which merely require generic computer implementation, fail to transform [an] abstract idea into a patent-eligible invention.”

Practice Tip: Patent lawyers hoped that this much-anticipated case would clarify the extent to which software is patentable. The Supreme Court had a difficult task in drawing these lines. A ruling that allowed ideas that were overly broad and/or vague to be patented would have encouraged lawsuits by “patent trolls” and inhibited innovation by inventors who might fear that implementing their ideas would subject them to liability for patent infringement. On the other hand, a ruling that restricted the patentability of software too much could nullify thousands of existing patents and could also discourage innovation because an inventor’s resulting creation would be more difficult to patent.

November 19, 2014

Indiana Copyright Law: Seventh Circuit Holds that Subsequent Copyrighted Works Do Not Extend Copyright Period for Earlier Works

By Overhauser Law Offices, LLC

Chicago, Illinois – California attorney Leslie S. Klinger, co-editor of multiple collections of annotated works based on Arthur Conan Doyle‘s Sherlock Holmes fiction sued Conan Doyle Estate, Ltd. under the Declaratory Judgment Act in the Northern District of Illinois seeking a declaratory judgment that he may freely use material from those Sherlock Holmes works for which copyright protection has expired. The district court held that Klinger’s use of material that was no longer subject to copyright was permissible. The Seventh Circuit affirmed.

Arthur Conan Doyle published 56 stories and 4 novels featuring the fictional character Sherlock Holmes. Of these stories, only the final 10, published between 1923 and 1927, are still protected by copyright.

Leslie Klinger, Plaintiff-Appellee, co-edited an anthology called A Study in Sherlock: Stories Inspired by the Sherlock Holmes Canon. Klinger had not sought a license from Doyle’s estate, presuming that one was not necessary, as the copyrights on most of the works in the “canon” had expired. The estate disagreed and demanded that Random House, which had agreed to publish Klinger’s book, pay $5,000 for a copyright license. Random House acquiesced and, in 2011, the anthology was published.

The trouble began when Klinger and his co-editor decided to create a sequel, “In the Company of Sherlock Holmes” and entered into negotiations with Pegasus Books, a publisher. The Doyle estate again demanded a fee for a copyright license and threatened to interfere with distribution of the book if that copyright license fee was not paid, telling Pegasus, “If you proceed instead to bring out Study in Sherlock II [the original title of “In the Company of Sherlock Holmes”] unlicensed, do not expect to see it offered for sale by Amazon, Barnes & Noble, and similar retailers. We work with those compan[ies] routinely to weed out unlicensed uses of Sherlock Holmes from their offerings, and will not hesitate to do so with your book as well.” No threat of a lawsuit for copyright infringement was explicitly made. Pegasus subsequently refused to publish the book unless and until Klinger obtained a copyright license from the Doyle estate.

Instead of purchasing a license, Klinger sued the estate seeking a declaratory judgment that he could freely use any material from the Sherlock Holmes works for which the period of copyright protection had expired.

The district court held in Klinger’s favor. The estate appealed to the Seventh Circuit on two alternative grounds. The estate first contended that the district court lacked subject matter jurisdiction under the Declaratory Judgment Act because there was no “actual case or controversy.” Second, it asserted that a copyright on a “complex” character, whose full complexity is not revealed until a later story, remains protected under copyright law until the later story falls into the public domain.

Circuit Judge Posner, writing for the court, rejected both arguments. The “case or controversy,” necessary for federal jurisdiction was demonstrated by the estate’s “twin threats” of blocking the distribution of the book and the implied threat of a copyright lawsuit against the publisher, Klinger and the book’s co-editor for copyright infringement if the book were published without a license. That such a case or controversy existed was also demonstrated by the fact that Klinger could have sued on a claim of tortious interference with advantageous business relations as a result of the estate’s intimidation of his publisher.

The court then considered the question of “whether copyright protection of a fictional character can be extended beyond the expiration of the copyright on it because the author altered the character in a subsequent work.” The estate urged the court to grant additional copyright protection in its case, arguing that characters such as Sherlock Holmes were “round” and/or “complex” and thus deserving of greater shelter under copyright law than fictional characters that were “flat” and/or “simple.”

The court could find no basis in statute or case law to support the extension of a copyright beyond its expiration. Thus, it affirmed the uncontested matter of copyright protection for the later works – namely, a right to recover for copyright infringement still existed for some portions of the Sherlock Holmes works for which the copyrights had not yet expired. However, that protection was limited to only those elements of the later Sherlock Holmes works that included “incremental additions of originality.” The remainder, the court opined, had passed into the public domain, regardless of the dimensions of the characters portrayed.

Practice Tip: The court was also unpersuaded by the Doyle estate’s argument to extend copyright law on the grounds that failure to do so would diminish authors’ incentives to create. After noting that Arthur Conan Doyle had died 84 years prior, thus rendering the argument inapplicable in the current litigation, the court noted that “extending copyright protection is a two-edged sword from the standpoint of inducing creativity, as it would reduce the incentive of subsequent authors to create derivative works (such as new versions of popular fictional characters like Holmes and Watson) by shrinking the public domain.”

November 14, 2014

Indiana Trade Secret Law: Court Rules on Enforceability of Trade Secret Agreements

By Overhauser Law Offices, LLC

Indianapolis, Indiana – Pennsylvania trade secret attorneys, in conjunction with Indiana co-counsel, for Distributor Service, Incorporated (“DSI”) of Pennsylvania sued in the Southern District of Indiana alleging that Rusty J. Stevenson (“Stevenson”) of Indiana and Rugby IPD Corp. d/b/a Rugby Architectural Building Products (“Rugby”) of New Hampshire violated an agreement containing non-competition, non-solicitation, and non-disclosure provisions. In the instant order, the court ruled on motions for summary judgment filed by DSI and Stevenson.

Plaintiff DSI is a seller and distributor of wholesale specialty building products to businesses in the Middle Atlantic and Midwest regions of the country. It has eight locations in Indiana, Pennsylvania, Ohio, Kentucky, and Michigan. Defendant Rugby is also in the business of selling and distributing wholesale specialty building products. It does so throughout the United States, including in Indiana, and is a direct competitor of DSI. Stevenson, formerly an employee of DSI, is currently employed by Rugby.

DSI hired Stevenson in October 1999 to be a salesman. When he started, Stevenson had no sales experience in the specialty-building-products industry or any related industry. DSI indicated that it had invested significant time and resources to provide specialized training to Stevenson. In April 2005, DSI promoted Stevenson to the position of sales manager. Later, as part of his employment, Stevenson signed a Confidentiality and Non-Competition Agreement with DSI. This agreement contained provisions for Non-Competition/Non-Solicitation and Non-Disclosure of Confidential Information.

During his employment with DSI, Stevenson had access to information that DSI considered to be protectable as intellectual property assets. This information included all of DSI’s “Customer Lists,” “Customer Product Preferences,” “Competitive Pricing,” and “Competitive Cost Structure” for DSI’s Indianapolis branch. DSI asserted that this information was “the cornerstone of DSI’s ability to compete effectively in the specialty building products industry in Indiana,” and that the information “derives economic value from not being generally known to other persons who can obtain economic value from its disclosure or use.”

In August 2013, Mr. Stevenson resigned from DSI to take a position as the general manager of Rugby’s Indianapolis branch. Shortly thereafter, DSI sued Rugby and Stevenson seeking, inter alia, damages and injunctive relief. DSI asserted claims for: (1) breach of the Non-Compete Provision; (2) breach of the Non-Solicitation Provision; (3) breach of the Non-Disclosure Provision; (4) recovery of attorneys’ fees and expenses under the Agreement; (5) misappropriation of trade secrets; (6) breach of duty of loyalty, and (7) tortious interference.

In this opinion, District Judge Jane Magnus-Stinson reviewed cross-motions for summary judgment filed by DSI and Stevenson. DSI’s motion was denied in its entirety. Stevenson’s motion for summary judgment was granted as to Count 1, breach of the Non-Compete Provision, and Count 2, breach of the Non-Solicitation Provision. Stevenson’s motion for summary judgment on Count 3, breach of the Non-Disclosure Provision, was denied.

The court began by discussing the standard for upholding the provisions at issue. It is a longstanding principle in Indiana that covenants that restrict a person’s employment opportunities are strongly disfavored as a restraint of trade. To be enforceable, such restraints, such as a noncompetition agreement, must be reasonable. The court noted that it, while in many other contexts reasonableness was a question of fact, the reasonableness of a noncompetition agreement was a question of law and, thus, was capable of evaluation in response to the parties’ motions for summary judgment.

The first hurdle for DSI was to show that the agreement protected a legitimate interest, defined as “an advantage possessed by an employer, the use of which by the employee after the end of the employment relationship would make it unfair to allow the employee to compete with the former employer.” Indiana law provides that goodwill, including “secret or confidential information such as the names and addresses of customers and the advantage acquired through representative contact,” is a legitimate protectable interest. DSI argued that it had a legitimate interest in protecting the customer relationships that Stevenson had developed during his years working for DSI as well as the information embodied in DSI’s Customer Lists, Customer Product Preferences, Competitive Pricing, and Competitive Cost Structure, to which Stevenson had been permitted access. The court agreed that this was a protectable interest.

DSI next had to establish that Non-Compete Provision of the agreement was “reasonable in scope as to the time, activity, and geographic area restricted.” DSI argued that the provision was limited merely to restricting Stevenson from engaging in competitive business activity. The court was not convinced. Instead, it noted that, as drafted, the “competitive business activity” restriction applied to the activities of Stevenson’s new employer, not to Stevenson himself. Thus, because Rugby engaged in business activities that were competitive to DSI, the agreement would de facto prohibit Stevenson from working for Rugby in any capacity, despite that no “in-any-capacity” language was explicitly applied to Stevenson in the agreement. “For example,” the court explained, “[under DSI’s agreement,] Mr. Stevenson could not serve lunch in Rugby’s cafeteria or change light bulbs in Rugby’s offices because Rugby competes with DSI.” The court concluded that, as a result, the Non-Compete Provision was overly broad and unreasonable.

Regarding this provision, DSI also contended that alleging and proving that the employee had been provided with trade secrets could render an otherwise unenforceable non-competition clause enforceable. The court rejected this argument.

The court also granted summary judgment for Stevenson on the Non-Solicitation Provision. This provision attempted to restrict Stevenson’s ability to solicit “any customer or prospective customer of [DSI] with which [Stevenson] communicated while employed by [DSI].” The court found this restriction to be vague as to “prospective customer” as well as overbroad and unreasonable in scope.

Finally, the court declined to rule on the Non-Disclosure Provision on summary judgment. It held that, to evaluate whether this provision had been violated, it would need to determine whether “customer lists” and “the identities of key personnel and the requirements of the customers of [DSI]” were confidential. As the evidence submitted regarding confidentiality was “vague, generalized, and conflicting,” the court found that a genuine issue of material fact existed with regard to the Non-Disclosure Provision and, consequently, partial summary judgment in favor of either party was inappropriate on the record before it.

Practice Tip #1: Summary judgment in federal court is guided by Rule 56 of the Federal Rules of Civil Procedure. A motion for summary judgment asks the court to find that a trial on a particular issue or issues is unnecessary because there is no genuine dispute as to any material fact and, instead, the movant is entitled to judgment as a matter of law. The moving party is entitled to summary judgment only if no reasonable fact-finder could return a verdict for the non-moving party.

Practice Tip 2: In a similar case, decided earlier this year, the Indiana Court of Appeals affirmed the trial court’s ruling that the noncompetition agreement binding an ex-employee of the plaintiff was overly broad and, thus, unenforceable.

September 10, 2014

Indiana Patent Law: Strong Showing Required to Plead and Prove Inequitable Conduct

By Overhauser Law Offices, LLC

Fort Wayne, Indiana – Judge Theresa L. Springmann of the Northern District of Indiana held

that a patent infringement defendant’s claim of inequitable conduct by the patentee had been insufficiently pled. The defendant’s counterclaim was dismissed and its affirmative defense struck.

In 2013, an Indiana patent attorney for Unverferth Manufacturing Co., Inc. of Kalida, Ohio sued Par-Kan Company of Silver Lake, Indiana alleging infringement of Patent No. 8,221,047, Seed Carrier With Pivoting Conveyor, which had been registered with the United States Patent and Trademark Office (“USPTO”).

Unverferth alleged that Par-Kan had engaged in both the “unauthorized, infringing manufacture, use, importation, sale and/or offer for sale” of the product and inducing others to infringe patented seed tender products, including its “Seed Weigh” product. Unverferth further alleged that the infringing behavior continued after Par-Kan was notified of the infringement and, as such, some or all of the infringement was willful.

In its complaint, filed by an Indiana patent lawyer, Unverferth asked for preliminary and permanent injunctions, for lost profits in an amount no less than a reasonable royalty, and that such damages be trebled. It also asked the court for a judgment that the case was “exceptional,” and that, consequently, it was entitled to all costs and expenses of the action, including reasonable attorneys’ fees.

Par-Kan interposed a claim of inequitable conduct against Unverferth, stating that two declarations of Unverferth’s Vice President of Sales and Marketing, which had been submitted to the USPTO, failed to mention all relevant facts. Par-Kan also asserted that certain statements in the declarations, such as “I am unaware of any other factors contributing to the success of the product,” were false.

Unverferth asked the court to dismiss Par-Kan’s counterclaim of inequitable conduct for failure to state a claim. Additionally, Unverferth asked the court to strike Par-Kan’s amended affirmative defense of inequitable conduct.

The court agreed that Par-Kan’s claim of inequitable conduct was not properly before the court. Inequitable conduct “renders an entire patent (or even a patent family) unenforceable,” stated the court. Thus, as a general rule, the application of a defense or counterclaim of inequitable conduct will be limited to instances where the patentee’s misconduct resulted in the unfair benefit of receiving an unwarranted claim.

Consequently, the accused infringer must meet the heavy burden of proving, by clear and convincing evidence, that the patent applicant (1) made an affirmative misrepresentation of material fact, failed to disclose material information, or submitted false material information, and (2) intended to deceive the USPTO.

The “materiality” element of the test requires a showing of “but-for” materiality – would the USPTO have allowed the claim if it had been aware of the undisclosed information? To allow the court to evaluate materiality, the alleged infringer’s pleading must include the “who, what, when, where, why and how” of the material misrepresentation or omission that it claims was made to the USPTO.

More specifically, the pleadings must identify the “who” – the specific individual associated with the filing or prosecution of the patent, who both knew of the material information and deliberately withheld or misrepresented it. They must also identify the “what” – which claims, and which limitations in those claims, the withheld references are relevant to – and the “where” – where in those references the material information is found. These assertions allow the alleged infringer to explain, and the court to infer, both “why” the withheld information is material and “how” an examiner would have used this information in assessing the patentability of the claims.

The court held that Par-Kan’s pleadings properly included the “who” and “when” components, but that they failed to meet requirements regarding the “what, where, how, and why” regarding the materiality of the alleged omissions and misstatements. Instead, the court noted that the USPTO had explicitly stated that the declarations in question were insufficient to overcome the rejections. Thus, the court held, but-for materiality had not been sufficiently pled.

The court then turned to the requirement that specific intent to deceive be shown. Deceptive intent may not be assumed from the materiality of a deception and a mere allegation of an omission is insufficient. Instead, to satisfy the inequitable conduct standard, “deceptive intent must be the most reasonable inference drawn from the evidence.” The court held that Par-Kan had failed to show that Unverferth had demonstrated deceptive intent, as other interpretations of the declarant’s intent were reasonable, including that the declarant had believed his sworn statements to be true.

The court dismissed Par-Kan’s counterclaim asserting, and struck its affirmative defense of, inequitable conduct. It stated, however, that were Par-Kan to file a motion to amend its pleadings, the court would consider whether such an amendment would be permitted.

Practice Tip: An exception to the requirement for “but-for” materiality exists where there is egregious affirmative misconduct. However, this exception contemplates extraordinary circumstances like “deliberately planned and executed schemes.” Alleged misconduct such as the failure to mention prior art references in an affidavit is insufficient to constitute such “egregious affirmative misconduct.”

July 30, 2014

Indiana Trade Secret Law: Removing Allegation of Theft of Trade Secrets Results in Defendants’ Release from “Lockdown”

By Overhauser Law Offices, LLC

Indianapolis, Indiana – In 2013, a federal indictment including counts of theft of trade secrets belonging to Eli Lilly and Company (“Lilly”) was presented to the Southern District of Indiana. On the basis of this indictment, the court ordered Defendants Guoqing Cao and Shuyu Li, formerly employed by Eli Lilly and Company, to be detained at housing provided by Volunteers of America – Indiana (“VOA”), pending their criminal trial. When the 2013 indictment was superseded by a second indictment that did not include counts for the theft of trade secrets, the court granted Defendants’ request to be released to home detention.

On August 14, 2013, Defendants Cao and Li, two doctoral-level scientists formerly employed by Lilly, were charged with multiple counts of theft. At issue was intellectual property belonging to Lilly valued at $55 million. Counts one through three of the indictment, as well as counts five through ten, were listed as theft of trade secrets and aiding and abetting. Count four alleged conspiracy to commit theft of trade secrets.

In the initial proceedings, the United States maintained that the Defendants were traitors who had conveyed “American trade secrets” – specifically, “crown jewels” in the form of many millions worth of intellectual property belonging to Lilly – to Jiangsu Hengrui Medicine Co., Ltd., a company located in Shanghai, China. These arguments strongly impacted the court’s decision to order “lockdown” detention at the VOA.

A second indictment was later filed by the United States. Under the new indictment, the Defendants faced no charges of trade-secret theft. Instead, they were charged with one count each of wire fraud, aiding and abetting, and conspiracy to commit wire fraud. Based on the absence of allegations relating to trade-secret theft in the subsequent indictment, the Defendants asked the court to modify the terms of their detention.

The court was persuaded that such a change was warranted. It noted that there was “a difference between allegations of ‘theft of trade secrets’ and disclosure of ‘Lilly Property.'” It further stated that the earlier allegation – that Lilly’s “crown jewel” secrets had been stolen and provided to China – had been a critical factor in justifying the Defendants’ incarceration.

When the allegations of trade secret misappropriation were removed, the court found that those justifications were no longer applicable: “No longer are the Defendants accused of stealing ‘trade secrets’–those words are found nowhere in the superseding indictment” and released the Defendants from lockdown to the less-restrictive conditions of home detention.

Practice Tip #1: Nine Lilly trade secrets pertaining to pharmaceuticals under development for cardiovascular disease, diabetes and cancer were at issue in this Indiana criminal prosecution for theft of intellectual property.

Practice Tip #2: Defendants’ home detention restricts individuals to their residence at all times except for employment; education; religious services; medical, substance abuse, or mental health treatment; attorney visits; court appearances; court-ordered obligations; or other activities approved in advance by the pretrial services office or supervising officer. Defendants were also ordered not to access or use any internet-enabled device with the exception of utilizing email to communicate with counsel.

July 24, 2014

Lilly Successful in Defending Alimta Method-of-Use Patent

By Overhauser Law Offices, LLC

Indianapolis, Indiana – In conjunction with co-counsel, an Indiana patent attorney for Eli Lilly of Indianapolis, Indiana prevailed in the Southern District of Indiana on claims of patent infringement. At issue was Lilly’s patent on the use of Alimta® in conjunction with specific vitamins. District Judge Tanya Walton Pratt concluded that Defendants Teva Parenteral Medicines, Inc. of Irvine, California; APP Pharmaceuticals, LLC of Schaumburg, Illinois; Pliva Hrvatska D.O.O. of Zagreb, Croatia; Teva Pharmaceuticals USA Inc. of North Wales, Pennsylvania; and Barr Laboratories, Inc. of Montvale, New Jersey failed to prove invalidity of U.S. Patent No. 7,772,209 (the “‘209 Patent”) and entered judgment in favor of Lilly.

Lilly sells the drug Alimta (“pemetrexed”), a chemotherapy drug, to treat various types of lung cancer, including mesothelioma. However, certain side effects were troublesome, including treatment-related hematologic and gastrointestinal toxicity. Deaths among some patients were attributed to treatment with pemetrexed. In response to this concern, Lilly took the unusual step of mandating supplementation of the pemetrexed protocol with two vitamins – folic acid and vitamin B₁₂. The patentability of that idea was the focus of a patent challenge – this litigation – by five manufacturers of generic drugs.

Lilly’s ‘209 Patent describes a method of using an antifolate, pemetrexed, with vitamins. Antifolates are a type of chemotherapy drug used to treat certain types of cancer. They work by competing with folates, a class of essential nutrients that includes folic acid. By interfering with the action of folates, antifolates thereby deprive cancer cells of the DNA precursors they need to proliferate.

The generic challengers contended in part that the patent on the combined therapy is invalid, arguing that someone knowledgeable about both nutrition and medicine could have easily concluded that supplementation with B₁₂ and folate might alleviate certain side effects of pemetrexed.

Lilly, in contrast, argued that the vitamin regimen was not only counterintuitive when it was proposed, it was called “crazy” by a leading cancer doctor before testing showed its benefits.

Lilly prevailed. The court found that Defendants failed to show by clear and convincing evidence that the asserted claims of the ‘209 Patent were invalid for obviousness, obviousness-type double patenting, inadequate description or lack of enablement. Thus, the ‘209 Patent is valid and enforceable.

The ‘209 Patent is presumed to be valid under 35 U.S.C. § 282. Defendants, as the parties challenging the validity of the ‘209 Patent, bore the burden of proving invalidity by clear and convincing evidence.

Defendants’ first contention was that the ‘209 Patent was obvious. To prove obviousness, they would have to show by clear and convincing evidence that the differences between the claims and the prior art at the time the invention were such that, considered as a whole, the claims would have been obvious to a person of ordinary skill in the art (“POSA”) in that subject matter.

Obviousness is a legal conclusion based on underlying factual findings. Such findings include: 1) the scope and content of the prior art; (2) the differences between the claims and the prior art; (2) the level of ordinary skill in the art; and (4) objective considerations of non-obviousness such as commercial success and satisfaction of a long-felt need. Moreover, it is insufficient that prior art merely includes separate references to the subject matter of a subsequent patent claim. Instead, obviousness requires the additional showing that a POSA would have combined those elements of the prior art. Thus, Defendants in this case bore the burden of proving that a POSA would have had reason to (1) administer folic acid pretreatment with pemetrexed, (2) administer vitamin B₁₂ pretreatment with pemetrexed, and (3) administer each of them according to the doses and schedules indicated in the ‘209 Patent.

The court first found that folic pretreatment with pemetrexed was not obvious. Among its findings were that the prior studies on mice would not have led a POSA to consider such supplementation. There would have been considerable difficulty in comparing studies on the combined treatment in mice with effects likely to be observed in humans, given the differences between humans and mice. One substantial difference was that mice have much higher requirements for folic acid. As an additional confounding factor, the studies on mice given low-folate diets were only possible because the mice were also given an antibiotic to prevent bacteria in the intestines of the mice from making folic acid that would otherwise raise a mouse’s level of folic acid.

These and other differences would have represented substantial obstacles in making the leap from the prior state of understanding of vitamin supplementation with antifolates to the claims of the ‘209 Patent. The court thus held that a POSA reviewing the prior art, instead of concluding that the supplementation was useful, would have likely concluded that supplementation decreased the efficacy of the drug. Consequently, those prior studies would have resulted in a “teaching away” from the claimed invention by discouraging a POSA from pursuing vitamin supplementation in conjunction with pemetrexed.

The court concluded that, likewise, vitamin B₁₂ pretreatment with pemetrexed was not obvious and that, as of June 1999, a POSA would have expected that vitamin B₁₂ would counteract the efficacy of antifolates. Instead, the court held that the benefit of using B₁₂ in conjunction with pemetrexed was not discovered until late 1999, when a mathematician for Lilly ran an extensive statistical analysis of data from patients in the worldwide, phase-III pemetrexed trial.

The court next held that the doses and schedules within the claims asserted by Lilly were not obvious. The vitamin dosing regimens attempted in the prior art, which contained folic acid only, reduced the efficacy of pemetrexed as compared to unsupplemented trials. However, the regimen in the ‘209 Patent actually improved the efficacy of the drug over unsupplemented clinical trials. While normally a change in temperature, concentration or both would be an unpatentable modification, patentability may be found if the results of such a change are “unexpectedly good.” The court held that the changes resulting from the methods described in the ‘209 Patent fell within this exception to the general rule.

The scheduling of the pretreatment with the vitamin supplementation was also deemed non-obvious by Judge Walton Pratt, as prior studies had shown that administration of folic acid one week prior to the administration of lometrexol (another chemotherapy agent) reduced the efficacy of the drug and was a cause of concern for oncologists. Based upon the results of that study, a POSA would have not have anticipated a likelihood of success with pretreatment with vitamins.

In its evaluation of non-obviousness, the court last considered secondary indicia of non-obviousness of the asserted claims of the ‘209 Patent. These indicia include the commercial success of the invention at issue and its satisfaction of a long-felt need; skepticism or disbelief before the invention; failure of others and evidence of unexpected properties. It found these indicia supported a conclusion of non-obviousness.

Finally, the court held that the claims at issue were not invalid for obviousness-type double patenting, concluding that the claims asserted in the ‘209 Patent were patentably distinct from Lilly’s U.S. Patent No. 5,217,974 (the “‘974 Patent”). The court included in its reasoning that the ‘974 Patent discloses, inter alia, the use of a much greater amount of folic acid, does not reference pemetrexed and includes nothing about pretreating with vitamin B₁₂.

Consequently, the court found that the asserted claims of the ‘209 Patent were valid and enforceable, and entered judgment in favor of Lilly and against Defendants.

Practice Tip #1:

Patent-infringement litigation between brand-name manufacturers and generic-drug makers is common. In a typical lawsuit, a company that wishes to sell a generic version of a brand-name drug, usually a widely used drug, will try to invalidate the patent on the drug, in the hopes that it could then offer the same drug in generic form.

This litigation was different from traditional patent litigation. The original patent on Alimta, administered as a stand-alone treatment, protects only Alimta’s active ingredient. That patent will expire in 2017. However, the focus of the current litigation was on the combination treatment – a “method-of-use patent” – that involves both Alimta and the vitamin regimen.

Practice Tip #2:

Because the ‘209 Patent was upheld, the period of exclusivity for Alimta, in conjunction with the vitamin supplementation, now expires in 2022. In 2013, Lilly earned revenues of $2.7 billion from global sales of Alimta. Thus, the extra five years of patent protection may result in additional revenues in excess of $10 billion for Lilly.