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Companies ‘Doing Backflips’ at Top Patent Court Seek SCOTUS Help

Jan. 25, 2021, 10:56 AM

The choice that confronted one of the nation’s biggest jet engine makers is being faced by other industries, too, as they weigh whether to reveal potentially damning product secrets as the price to challenge a competitor’s patent.

The Supreme Court could announce as soon as late February if it will wade into the issue, which involves how the court that handles the nation’s patent appeals decides who can seek review of patent office decisions.

The case before the high court involves pharmaceuticals, but the legal issue is identical to the one pitting General Electric Co. against Raytheon Technologies Corp.—the two major players in the commercial aircraft engine market.

When a Raytheon patent stood in the way of its new technology, GE sought to knock it out at the patent office. But when the Patent Trial and Appeal Board upheld Raytheon’s patent, the only way GE could get the U.S. Court of Appeals for the Federal Circuit to review the decision late last year was to admit that it’s developing an airplane engine that it “fully expects” Raytheon will accuse of infringing.

Such an admission puts companies in an awkward position: If they want to preemptively challenge a patent without being sued for infringement, they have to say something that could be used against them in future litigation to appeal an agency loss.

“Parties are doing backflips to ask, ‘How close to the line can we get to saying we might infringe while giving the other side ground to clap back and sue us?’” said Jonathan Stroud, the chief IP counsel at Unified Patents, a membership group that seeks to deter patent assertions from nonpracticing entities. “This isn’t helping anybody, it’s just creating a lot of work for lawyers.”

The narrow view of standing developed by the Federal Circuit since 2017 could harm innovation, said patent law expert Sapna Kumar of the University of Houston Law Center.

“We need people to be able to challenge the bad patents so that they can in turn, give us new products,” Kumar said.

The Federal Circuit will continue to follow this hard line unless the U.S. Supreme Court takes up a case on the issue. It will have the opportunity in a case between generic drugmaker Argentum Pharmaceuticals and branded maker Novartis Pharmaceuticals next month.

‘Skin in the Game’

Anyone can challenge a patent’s validity in inter partes review at the PTAB.

It’s the agency’s way of acknowledging that it issues 360,000 patents a year and doesn’t have the resources to do a really good validity check of each upfront, Stroud said.

“It’s like saying to the office, ‘I’m going to point out how you screwed up and you need to look into it,’” he said.

But a party seeking to appeal an adverse PTAB decision to the Federal Circuit has to have Article III standing, which requires a concrete injury. Establishing standing isn’t hard for a company that has been sued for infringement. The situation gets trickier when there isn’t parallel litigation pending.

The idea behind the high bar for getting appellate review is “you want litigants who have skin in the game,” Kumar said. “You don’t want people to be using the court system to prove a point when the outcome of the decision doesn’t really matter to them.”

The Federal Circuit has interpreted injury-in-fact in this situation to mean a party has to show a substantial risk of an infringement suit involving the patent in question.

“This has really become a fundamentally fact-driven question,” Pauline M. Pelletier, a director at Sterne Kessler Goldstein & Fox PLLC in Washington, said. “And because fact-dependent questions don’t give parties in the real world as much certainty as they would probably like, this is one of those issues where the law will continue to develop on a case-by-case basis.”

Conflicting Rulings

That uncertainty is illustrated by two opinions involving GE and Raytheon, issued a year apart.

In 2019, the Federal Circuit held GE didn’t have standing to appeal a failed attempted to invalidate Raytheon’s U.S. Patent No. 8,511,605 on gas turbine airplane engines. The court found GE’s argument that it suffered a competitive injury too speculative.

In December 2020, the Federal Circuit found GE did have standing to appeal a failed attempt to invalidate another Raytheon engine patent, U.S. Patent No. 8,695,920. The court went to great lengths to point out that this time GE showed it would “likely engage in activity that would prompt an infringement suit” by giving details of the $10 million to $12 million it spent in 2019 developing a new engine design that it already had shopped to Airbus.

If the Federal Circuit judges were generalists, “they would look at this and say clearly Raytheon and GE are locked in a decadeslong battle over a very tightly controlled industry and every patent that one of them has on a jet engine matters on some level,” Stroud said. Instead they have to show the dollar amount or produce a study on appeal, he said.

“Petitioners appealing were hoping that they wouldn’t have to go so far as to effectively admit to potential infringement to get in the doors of the Federal Circuit,” Pelletier said.

Kumar said that although the court is right to require a concrete injury, standing is on a continuum. “There’s a big difference between a group of concerned citizens on one hand, and having to all but say, ‘We’re going to be infringing this patent if it doesn’t get invalidated through an IPR’ on the other,” she said.

Eyes on Supreme Court

The standing issue comes up often in pharmaceutical cases, as illustrated by a cert petition currently awaiting Supreme Court review.

The Federal Circuit ruled last April that generic drugmaker Argentum Pharmaceuticals LLC didn’t have standing to appeal the PTAB’s decision upholding U.S. Patent No. 9,187,405 on Novartis Pharmaceuticals Corp.‘s Gilenya multiple sclerosis drug.

Argentum argued to the Federal Circuit that it had standing because it faced a “real and imminent threat” of litigation from Novartis based on its development of a generic version of Gilenya. The court called the threat “conclusory and speculative.”

Kumar said the Federal Circuit “has made constitutional standing extra difficult to meet.” Only the Supreme Court can change that. “The Supreme Court doesn’t require nearly as much as the Federal Circuit does,” she said.

Stroud, in his own capacity, filed an amicus brief in favor of Argentum’s petition for review. But otherwise the case hasn’t attracted any attention from outside parties, and Novartis waived its right to respond. That doesn’t bode particularly well for a Supreme Court grant, Pelletier said.

But a week before the court was originally supposed to consider the petition at its Jan. 22 conference, it asked Novartis to file a response brief. That signals the court may be interested in the topic, and that its decision on whether to take the case will be pushed back until after the brief is due Feb. 16.

To contact the reporter on this story: Perry Cooper in Washington at pcooper@bloomberglaw.com

To contact the editors responsible for this story: Keith Perine at kperine@bloomberglaw.com; Gregory Henderson at ghenderson@bloombergindustry.com

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