Argument Recap

As we have reported in earlier posts this week, the Federal Circuit last week heard four cases that attracted amicus briefs. In one of these cases, Immunex Corp. v. Sandoz Inc., the court addressed the issue of obviousness-type double patenting, which is an equitable doctrine aimed at preventing patent owners from extending patent protection beyond the statutorily-afforded term. As we noted in our argument preview, one of the main issues presented to the court concerning this doctrine in this case was whether Immunex owns “all substantial rights in [the patents-in-suit], including the ability to control patent prosecution.” Last week the parties presented their arguments to a panel of the court that included Judges O’Malley, Reyna, and Chen. Here is our argument recap.

On behalf of Sandoz Inc., William M. Jay began his argument by arguing that Immunex used a transfer of patent rights to obtain ten additional years on its patent term in violation of obviousness-type double patenting (ODP). Shortly after beginning his argument, Judge O’Malley asked if Sandoz’s position is that each of the district court’s numerous findings were made in error. Jay argued that while the district court made many findings, all of them were conclusions of law as opposed to factual finding. Judge Reyna then moved the conversation to the issue of the relevant 2004 agreement, which supposedly transferred the relevant legal rights. Judge O’Malley noted that the intent of the parties is important when determining the force of a contract, and asked Jay if there is any reason to look outside the four corners of the contract in this case. Jay began by arguing that the interpretation of the 2004 agreement is also a legal question. He then relied upon precedent to contend that, while the Federal Circuit has looked to parties’ intent in prior cases, when dealing with contracts between two sophisticated parties the terms of the contract should be used to interpret it.

The judges then asked why they should make the already difficult test for ODP more complex by looking for common ownership, which may ultimately be governed by state law. Jay argued that a prior decision rejected the “time of invention” test and argued instead that the “all substantial rights” test should apply. Judge O’Malley responded by pointing out that the court is not forced to pick between the two tests proposed by the parties. Jay maintained that the “all substantial rights” test for determining common ownership aligns with the longstanding test of determining who the effective patentee is for purposes of standing and the right to sue.

This discussion provoked clarifying questions from Judge Chen: “Just to clarify, for you, your position is that we should whole hog transport our body of law and prudential standing of who is the effective patent owner right into ODP [to determine] whether or not someone is a common owner of a patent? Or are there other sensitivities or types of sensitivities that we would have in a different context, here ODP, that militate against doing a carbon copy of what we already have for whether you have the right to sue on a patent?” Jay claimed that the case at hand would not require any different sensitivities, and maintained his position that the “all substantial rights” test used to determine who has the right to sue could be applied in the same way when determining common ownership for ODP.

Jay contended Immunex obtained all substantial rights in the patents because any retained rights by Roche are illusory. Specifically, Jay pointed to Immunex’s ability to end any Roche-initiated lawsuit without Roche’s authority by granting the alleged infringer a royalty free sublicense.

Judge O’Malley moved the conversation to the issue of whether to apply the “one-way vs. two-way” test for patentable distinctness under the ODP doctrine, which relates the issue of diligence and alleged delay at the USPTO. Jay argued that the two-way test is appropriate only in the unusual circumstance where the USPTO is solely responsible for the delay in causing the second-filed application to issue prior to the first-filed application. Jay contended that, here, where Immunex took over the prosecution of Roche’s patent ten years into prosecution and then “[got] rid of [one version of the technology] . . . and [swapped] in [another version of the technology],” the additional review time at the USPTO is the responsibility of the applicant (here, Immunex). In sum, Jay argued that the “one-way” test should be applied in this case because the USPTO cannot be held solely responsible for the delay in prosecution.

Jay briefly argued why the claim construction by the district court was allegedly incorrect.

Constantine L. Trela, Jr. argued on behalf of Immunex. Shortly after he began his argument, the judges asked him to describe Immunex’s portfolio, not including the Roche patents. Specifically, they asked “what patents does or did Immunex have that covered etanercept prior to the Roche patents?” Trela argued that there were technically none, but also said a couple of patents loosely cover etanercept and methods of administering it. Trela then turned to the issue of claim construction.

Judge O’Malley interrupted Trela to ask “if we find all the way through that the district court was wrong and get to the point of one-way vs two-way [distinctiveness], and the one-way method applies then [do you agree] ODP applies?” Trela argued that this approach would be incorrect, pointing to a footnote in the district court opinion as evidence that the same distinctiveness conclusion would apply for both the one-way and two-way approaches.

Moving forward, Trela argued that “Sandoz is asking the court to make surprising new law here.” He contended that the statutory basis for ODP, 35 U.S.C. § 101, is not directed to patentees but inventors. In response, the judges posed the following hypothetical: “Would [it] be okay if some independent inventor invented something and the next day sold that to a big company like Immunex? And now Immunex owns the rights to file a patent application on the invention that had just been invented the day before?” They followed this hypothetical with a clarifying question, asking whether “that doesn’t constitute common ownership for possible ODP with respect to some of Immunex’s patent portfolio, because in your view Immunex did not own that independent inventor’s invention when the inventor actually made it?” Trela agreed that the judges correctly applied his argument. Specifically, Trela maintained that Immunex, in the hypothetical, would not run into issues of ODP because there wasn’t common ownership at the time of the invention.

Trela next argued that the “’all substantial rights’ [test] has never been applied in the ODP context” because, he argued, that test is used to determine if the right parties are in front of the court. The judges focused on the underlying policy issues, and explained that ODP is used to “prevent mischief and gamesmanship” for “expanding patent terms and controlling exclusivity of something that should be dedicated to the public.” More specifically, they pointed out that ODP is “an equitable judgment doctrine” and “we can imagine now that parties will structure deals in a way that gives the second party everything but technical ownership.” They continued: “That seems to be the thing that ODP would want to police against, to block a party from controlling the patent term for 30 to 40 years.” Trela responded by arguing that while ODP is an equitable doctrine, it is not detached from the statute. Further, Trela contended that equitable doctrines are usually applied in the district court, as it was here, and in this case the district court found no mischief or gamesmanship.

Judge O’Malley then asked “how else would we determine ownership,” and in particular what other factors would the court apply if it do not use the “all substantial rights” test? Answering the question, Trela maintained that, even if the “all substantial rights” test applies here, Sandoz’s argument fails. First, he contended that the court’s precedent holds that “the licensee could sublicense or settle its own suits before the licensor had the chance to sue” and still maintain substantial rights. Second, he argued that Roche is still the owner of the patent and the 2004 agreement was simply a license. This provoked a question about a section in the agreement that allegedly gives Immunex the ability to convert the “license” into a formal assignment for just $50,000. Sandoz, in its briefs, argued that Immunex could, at any time, for a nominal sum assign the rights of the patent. Judge O’Malley asked: “Isn’t that the equivalent of one day of [Immunex’s] sales?” Another judge quipped that it may be “more like one minute of [Immunex’s] sales.” Trela responded that the $50,000 is only additional consideration to satisfy contract law requirements. The judges latched on to this response by asking whether the $50,000 was simply illusory. Trela countered that it was not illusory and argued that Roche’s contractual ability to block any assignment of rights by Immunex defeats Sandoz’s arguments. More broadly, Trela contended that the ability to transfer property is the true test of ownership.

Moving to yet another issue, Judge O’Malley ask about a 180-day lapse clause regarding the legal right to sue. She asked: “What is your response to [Sandoz’s] contention that the 180 days effectively gives you control, because you get to sit and look at it, [and] because if you don’t want this person sued you can just give them a [royalty free sublicense]?” Trela argued that often the first right to sue will overtake the second right to sue, but this fact does not mean that the second right to sue is not substantial. Trela argued that this factor, among other provisions in the contract like its bankruptcy clause, makes clear that the 2004 agreement was a license and not an assignment.

Trela closed his time by arguing that, “for a variety of reasons,” the all substantial right test is not the correct test. “But,” he continued, “if the court applies it, as the district court did, you come out saying that this was a license, and not an assignment, and there is not the required common ownership for the purposes of ODP.”

The judges followed up with a final question regarding the one-way and two-way test for distinctiveness. The panel first pointed out that the addition of relevant claims by Immunex occurred 15 years after the priority date of the Roche patents. They then questioned whether that fact answers the critical question of why the first-filed applications issued second. Trela responded by arguing that Sandoz’s classification of the prosecution at the USPTO is incorrect. Instead, he argued, the original claims were broad enough to cover the later amended claims. Further, he argued, Roche simply decided to prosecute some of the claims first.

In his rebuttal, Jay began by focusing on the correct test to be applied to determine common ownership. He argued that the adoption of Immunex’s view (the “time of invention” approach) would give future parties the ability to easily avoid the doctrine of ODP. Turning to the relevant legislative history related to ODP, Jay pointed out that the relevant Senate report refers to ODP as being applied to commonly-owned applications. And Jay reiterated that while Roche retained some rights, those rights were not substantial.

We will monitor the case and report on its outcome.