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When market entry fee part of damages for patent infringement, permanent injunction inappropriate
January 21, 2008

In a recent decision, the Federal Circuit affirmed a finding of infringement of a patent relating to the detection and classification of Hepatitis C Virus, but remanded the case for a determination of anticipation.

In arguably the most interesting aspect of the decision, the court vacated the permanent injunction entered against the defendant. The plaintiff asked for and was awarded damages to compensate for the amount the defendant would have had to pay the plaintiff for a "market entry fee." As a result, the court reasoned the plaintiff could not assert that it would be irreparably harmed by future sales by the defendant, having already been compensated for the harm caused by the defendant's entry to the market. The court therefore instructed the district court on remand to determine the amount of royalty due on the defendant's compulsory license under the patent going forward.

The court briefly mentioned the issue of willful infringement after In re Seagate Technology, LLC, but only noted that there was no evidence of objective recklessness by the defendant and therefore the finding of no willful infringement was appropriate. The court also gave a reminder to parties and lawyers of the potential consequences when being too cavalier toward obligations under the Federal Rules of Civil Procedure. As explained in the court's footnote 4:

This case aptly demonstrates the pitfalls of playing fast and loose with rules of discovery. Conclusory expert reports, eleventh hour disclosures, and attempts to proffer expert testimony without compliance with Rule 26 violate both the rules and principles of discovery, and the obligations lawyers have to the court. Exclusion and forfeiture are appropriate consequences to avoid repeated occurrences of such manipulation of the litigation process.
More detail of Innogenetics, N.V. v. Abbott Labs. after the jump.BackgroundInnogenetics is the assignee of a patent relatign to diagnostic tools to detect and classify Hepatitis C Virus (HCV) genotypes. Abbott Laboratories produces competing genotyping assay kits. Abbott's kits, like the method claimed in the '704 patent, involved specifically hybridizing probes to the nucleic acids of the HCV's 5' UTR. Innogenetics sued Abbott, asserting that Abbott's genotyping assay kits infringe the '704 patent. Claim 1, the only independent claim on appeal, reads as follows:
A method of genotyping HCV present in a biological sample comprising hybridizing nucleic acids in a biological sample with at least one probe and detecting a complex as formed with said probe and said nucleic acids of HCV, using a probe that specifically hybridizes to the domain extending from the nucleotides at positions -291 to -66 of the 5' untranslated region of the HCV.

Abbott moved for summary judgment of noninfringement, invalidity and inequitable conduct. The court denied Abbott's motions, and in its opinion construed the claim limitation "detecting a complex as formed" to mean "detecting a complex that is or has been formed." The district court also construed the limitation in the preamble, "method of genotyping," to mean "[a] method that distinguishes among types and/or subtypes of hepatitis C virus (HCV) and classifies the HCV into a genotype or subtype." The court also concluded that Abbott had failed to adduce sufficient evidence to require a trial on the issue of inequitable conduct. Furthermore, the district court deemed Abbott's inequitable conduct claim "exceptional" and awarded attorney's fees to Innogenetics. The district court also granted Innogenetics' motion in limine, and excluded testimony on obviousness by Abbott's witness, Dr. Patterson. However, the written order inaccurately stated that defendant was precluded from entering ANY evidence of obviousness at trial. Aware of the mistake, Abbott nonetheless never moved for correction or reconsideration of the written order. Additionally, the district court precluded the following evidence related to anticipation:

  1. U.S. Patent No. 6,071,693 (the Cha patent) on the grounds that Abbott did not disclose the patent as an anticipating prior art reference until the last day of discovery
  2. any testimony beyond the actual words and content of the Cha PCT application from Dr. Cha, the inventor of the Cha patent and the Cha PCT application, on the grounds that he had not been tendered as an expert witness and that an expert report had not been submitted.

Because Abbott conceded that its entire noninfringement argument was predicated on a construction of the claims that the court had not adopted, the district court entered judgment as a matter of law of literal infringement against Abbott. The case then proceeded to jury trial on only Abbott's affirmative defense of anticipation. At trial, Abbott presented the international patent application for the invention claimed in the Cha patent and the testimony of its expert, Dr. Bruce Patterson, that the Resnick patent anticipated claim 1 of the '704 patent. However, before the case went to the jury, the district court granted judgment as a matter of law of no anticipation by the Resnick patent based on its determination that Dr. Patterson's testimony "rested on an inaccurate understanding of the construction of the limitation 'genotyping.'"The jury concluded that claim 1 of the '704 patent was not anticipated and awarded $7 million in damages to Innogenetics and found Abbott's infringement to be willful. The district court granted Abbott's post-trial motion for judgment as a matter of law that its infringement was not willful, but denied its other post-trial motions. On appeal, Abbott raised virtually every issue that had been decided adversely to it at the district court, including the district court's claim construction, summary judgment of literal infringement, evidentiary exclusions as to Abbott's obviousness and anticipation defenses, judgment as a matter of law that the Resnick patent did not anticipate claim 1 of the '704 patent, summary judgment of no inequitable conduct, award of attorney's fees to Innogenetics for Abbott's counterclaim of inequitable conduct due to its exceptionality, and the grant of a permanent injunction. On cross-appeal, Innogenetics challenges the district court's judgment as a matter of law overturning the jury verdict of willful infringement.

Infringement
Abbott argued that the district court's construction of the word "as" from the claim limitation "detecting a complex as formed with said probe and said nucleic acids of HCV" limited the claims at issue to detecting hybridized complexes in a contemporaneous manner. Hence, Abbott asserts that its products are not encompassed because they detect the formation of a hybridized complex through the observation of fluorescence emitted after the complex has been destroyed. The Federal Circuit held the district court properly construed the claim limitation as detecting the formation of probe-target complexes, regardless of whether the method of detecting requires destroying the probe-target complex itself. The court reasoned that a plain reading of the claim limitation suggests that it does just what it says—it detects the formation of a complex between a probe and nucleic acids of the HCV. Nowhere does the claim language suggest that it only detects the complex itself. The court noted that Innogenics expert's reading of the claim was supported by the intrinsic evidence. The specification of the '704 patent explicitly stated that the detection of hybrids "may be determined by means of colorimetric, fluorescent, radiometric detection or any other method. Lastly, Abbott offered a single dictionary evidence of "as" as meaning contemporaneous, but the court held that such an argument "commits the very error of construction that we warned against in Phillips."The only other argument regarding infringement raised by Abbott was that its method of detection, Realtime PCR, was not known at the time the patent-in-suit was filed. The court, however, noted that Abbott "raised this issue for the first time at 9:30 p.m. on the night before the start of trial and did so simply by submitting a proposed jury instruction, rather than by bringing the matter directly to the attention of the court and opposing counsel." As a result, the issue was not properly preserved for appeal. In any event, the court noted the argument was meritless, as patent claims, if drafted broadly enough, can cover after-arising technology. Accordingly, the finding of literal infringement was affirmed.InvalidityAbbott challenged the district court's denial of its motion for a new trial on the issue of invalidity on a number of evidentiary exclusions.

Obviousness
During the discovery period, the district court granted Innogenetics' motion to strike Dr. Patterson's supplemental expert report because it violated the court's earlier order on the filing of such supplemental reports. Abbott did not contest that ruling. This left Abbott with only Dr. Patterson's original expert report for his planned testimony on obviousness. In that report, Dr. Patterson merely listed a number of prior art references and then concluded with the stock phrase "to one skilled in the art it would have been obvious to perform the method." Abbott also argued that Dr. Patterson discussed the Cha PCT application but pointed to a section of the expert report that focused exclusively on anticipation. The court noted that nowhere did Dr. Patterson state how or why a person ordinarily skilled in the art would have found the claims of the '704 patent obvious. The district court determined that the report was insufficient to support a jury finding of obviousness and excluded Dr. Patterson from testifying about obviousness at trial, and the Federal Circuit agreed, finding no abuse of discretion.The written order commemorating the ruling regarding Dr. Patterson's obviousness testimony inaccurately noted that Abbott was precluded from entering any evidence of obviousness at trial. Even though it was aware of the mistake, Abbott nonetheless never moved for correction or reconsideration of the written order, instead only seeking correction by way of overturning the jury's unfavorable verdict against it. Abbott's only support for its argument that it had suffered prejudice from not being able to present other witnesses on obviousness is the bald statement that some of its other non-expert witnesses "could have" established invalidity under § 103, with no further specificity. As speculation cannot demonstrate prejudice, the Federal Circuit concluded that the district court's denial of a new trial on the issue of obviousness was well within its discretion. AnticipationAbbott also sought to introduce at trial the testimony of Dr. Tai-An Cha, the inventor and author of three prior art references, including the Cha PCT application. The district court confined Dr. Cha's testimony to the actual words and content of the Cha PCT application because Abbott had only disclosed Dr. Cha as a fact witness and no expert report had been filed. The district court concluded that just because Dr. Cha was not receiving compensation for his scientific testimony did not exempt Abbott from furnishing an expert report and otherwise complying with Rule 26. On appeal, Abbott entirely failed to address the district court's reason for restricting Dr. Cha's testimony—that witnesses who will be giving scientific testimony are not exempt from the report requirements of Rule 26(a)(2)(B), regardless of compensation. As a result, the court found that this evidentiary ruling was not an abuse of its discretion. Abbott also did not disclose the Cha U.S. patent as an anticipatory prior art reference under 35 U.S.C. § 282 until the last day of discovery, after the time for depositions had passed. Abbott had not discussed the Cha U.S. patent in an expert report, identified it during discovery in response to Innogenetics' interrogatories on anticipation, or mentioned it in the final pretrial conference. Abbott did not refer to the Cha U.S. patent again until the eve of trial, when Abbott sought to amend the district court's jury instructions to include the Cha patent in the jury instructions specific to anticipation. Finding that the belated introduction of the Cha U.S. patent as an anticipatory prior art reference was prejudicial to Innogenetics, the district court excluded the Cha U.S. patent from consideration on the issue of anticipation.The Federal Circuit noted that although Abbott technically complied with the requirements of § 282, the district court did not abuse its discretion in excluding the Cha U.S. patent from trial, based on the extremely late disclosure that essentially prevented any meaningful exploration of Abbott's positions with regard to the Cha U.S. patent during discovery.

Abbott further argued on appeal that the district court erred in granting judgment as a matter of law of no anticipation of claim 1 of the '704 patent by the Resnick patent and in denying its motion for a new trial. The district court's grant of judgment as a matter of law was predicated on its determination that Dr. Patterson's testimony "rested on an inaccurate understanding of the construction of the term 'genotyping.'" Here the Federal Circuit held that the district court's conclusion was clearly erroneous. Dr. Patterson testified that the Resnick patent disclosed probes that "distinguish" between two groups of hepatitis C isolates. The dispute over whether Dr. Patterson based his testimony on the district court's claim construction turned upon his use of the words "detect" and "classify" and the district court's use of the words "distinguish" and "classify" in its construction of a "method of genotyping." The court held it could "discern no difference in meaning between the definition of genotyping used by Dr. Patterson and the one adopted by the district court." As such, the Federal Circuit held that the district court's preclusion of Dr. Patterson's testimony on the basis that he was using a different definition of "method of genotyping" was improper, and remanded for a new trial on the issue of whether the Resnick patent anticipated claim 1. Inequitable conductAbbott contended that Innogenetics' representation to the USPTO of the relevance of the Cha PCT application during the prosecution of the '704 patent amounted to inequitable conduct. The CHA PCT patent was referenced in an European application on the same technology as the "closest prior art." The EPO rejected the application as not novel in light of the Cha PCT application. In the US, the prosecution history of the '704 patent showed that Innogenetics submitted to the USPTO both the Cha PCT application itself and an international search report that clearly marked the Cha PCT application as problematic. However, Innogenetics' patent attorney, in his accompanying prior art statement submitted to the USPTO, stated that "the references do not relate to the invention and, therefore, further discussion of the same is not necessary." Innogenetics' prosecuting attorney admitted that he did not actually examine the prior art identified, and that his statement that "the references do not relate to the invention" was the same boilerplate language he used in other prior art statements.The court held that the district court correctly concluded that Innogenetics' behavior before the USPTO did not constitute a material omission or misrepresentation, holding that Innogenetics' representation of the Cha PCT application amounted to mere attorney argument. Further, the USPTO had the relevant reference before it, and could therefore make its own determination regarding the reference's relevance. The court also affirmed as not clearly erroneous the district court's conclusion that the assertion of an inequitable conduct defense was exceptional, and the associated award of attorney fees.Permanent injunctionWhen seeking damages, Innogenetics not only sought a royalty on all of Abbott's infringing sales, but also a a market entry fee of $5.8 million. The jury awarded this fee, along with $1.2 million in royalties to Innogenetics. As a result, Abbott argued Innogenetics had been fully compensated for Abbott's infringement, and there was therefore no irreparable harm.

The Federal Circuit, citing eBay, held that the reasonable royalties awarded to Innogenetics include an upfront entry fee that contemplated or was based upon future sales by Abbott in a long term market. As stated by the court: "When a patentee requests and receives such compensation, it cannot be heard to complain that it will be irreparably harmed by future sales." As a result, the district court's grant of an injunction prohibiting future sales of Abbott's genotyping assay kits was an abuse of discretion. The court remanded the case to determine the terms of a compulsory license, such as conditioning the future sales of the infringing products on payment of the running royalty.

Willful infringement
Finally, the court turned to Innogenetics' cross-appeal challenging the district court's grant of judgment as a matter of law of no willful infringement, overturning the jury's verdict to the contrary. The court, citing its recent decision in In re Seagate Technology, LLC, noted that "proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness." The court found nothing in the record to indicate how Abbott's development and sale of its genotyping products were at risk of an objectively high likelihood of infringement, and therefore affirmed the lower court.To read the full decision in Innogenetics, N.V. v. Abbott Labs., click here.

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