Cannabis Patents – The Elephant in the Room?

By Kevin Wimberly*

I write a lot about trademark issues within the cannabis industry, but there is another aspect of intellectual property that I believe will have a greater impact on the industry than even brand/trademark disputes, and that is patent infringement.
Cannabis-related patents have been around for years, but we’re just starting to see those patents being challenged and asserted. Two recent examples are illustrative of what I believe will become more and more commonplace in the very near future.

Case 1: Insys Development Co. v. GW Pharma Ltd.
This case is actually an “inter partes review” (or “IPR”) before the United States Patent and Trademark Office’s Patent Trial and Appeal Board (“PTAB”). In a nutshell, the IPR process allows a party to challenge the validity of another party’s patent prior to any claims of infringement. The argument is that the patent never should have been issued because the invention was already known or was obvious before the application was filed.
GW Pharma owns U.S. Patent No. 9,066,920 for “Use of one or a combination of phyto-cannabinoids in the treatment of epilepsy”. Claim 1 of the ‘920 Patent is simply this:

A method of treating partial seizure comprising administering cannabidiol (CBD), to a patient wherein the CBD is present in an amount which provides a daily dose of at least 400 mg.

Thus, if your CBD product is used to treat partial seizures and the treatment method includes CBD “in an amount which provides a daily dose of at least 400mg” then you arguably infringe the patent.

Insys filed an IPR petition to cancel the ‘920 Patent based on “prior art” (i.e. relevant evidence) which Insys believes shows that the invention in the patent was already known or was otherwise “obvious” in light of other prior art that existed prior to the filing of GW Pharma’s application. The IPR process (and patent law in general) is very complex and beyond the scope of this post.

One reason this IPR is so important is because the claims in the patent are fairly broad and could implicate many, many products that are already being marketed (albeit perhaps without the claims of treating epilepsy and seizures, which is part of what complicates these cannabis-patent issues). So, just how easy is it to challenge a patent like this via an IPR? Well, you’ll need over $30,000 just in filing fees to the USPTO if your petition is accepted by the USPTO and the proceeding is instituted ($15,000 just to file the petition, and another $15,500 if the USPTO “takes the case” and starts the review process). You read that correctly – over $30,000 just in government filing fees to get started. That does not include the attorneys’ fees that Insys (and GW Pharma) are paying, which I conservatively estimate are already in the hundreds of thousands of dollars. This is all to invalidate a single cannabis-related patent.
This is complicated litigation that few businesses can afford despite the fact that some of these patents affect the very ability of such businesses to exist.

There are many supplemental procedural issues involved in this case, but I expect a decision regarding the ‘920 Patent’s validity will be reached within the next couple of months.

Case 2: United Cannabis Corporation v. Pure Hemp Collective, Inc.
This case is different than the above IPR because this is a “classic” patent infringement case that is being brought within the United States District Court for the District of Colorado. Whereas Insys brought an IPR at the USPTO to try and invalidate GW Pharma’s patent prior to GW Pharma asserting the patent against Insys, here, United Cannabis Corporation owns a patent and is alleging that Pure Hemp Collective’s products infringe the patent. The similarity to the IPR is that it is typical practice for the defendant in a patent infringement case to defend against the infringement by counterclaiming that the patent is invalid. Thus, the Colorado court will likely address the validity of the patent should the case proceed.

The patent at issue in this case is U.S. Patent No. 9,730,911 for “Cannabis extracts and methods of preparing and using same.” Claim 1 is simply:

A liquid cannabinoid formulation, wherein at least 95% of the total cannabinoids is tetrahydrocannabinolic acid (THCa).

The case was just filed early August 2018, so it’s too early to see how Pure Hemp Collective intends to respond. It is a pretty typical example of the type of a patent infringement complaint which I predict we will see more and more of in the very near future as cannabis-patent owners start asserting their patents.

In sum, I expect to see more patent friction within the cannabis industry, and I also expect the media attention to increase as the gravity of cannabis-related patents becomes more well-known. There are already “patent busting” projects out there related to cannabis-patents, and I would not be surprised to see an increased focus on those efforts.

* This article, in its entirety, was first published on Kevin’s personal blog, www.floridaiptrends.com.

How Has the Defend Trade Secrets Act Fared Two Years After Enactment?

About two years ago, on May 11, 2016, the Defend Trade Secrets Act (“DTSA”) was signed into law. The DTSA amended the Economic Espionage Act of 1996, by creating a private right of action in federal court for trade secret theft. To bring such an action, the party bringing suit must be the owner of the trade secret, the trade secret must relate to interstate or foreign commerce, and the trade secret must have been misappropriated.

Since its enactment, most cases brought under the DTSA have also included a cause of action under a state’s uniform trade secret act (UTSA) statute. In evaluating the DTSA, federal courts have primarily relied on state theft of trade secret case law in rendering ruling. For example, in Panera, LLC v. Nettles, 2016 U.S. Dist. LEXIS 101473 (E.D. Mo. Aug. 3, 2016), the court analyzed the plaintiff’s claims under the Missouri UTSA and then included a footnote stating that the same conclusion was reached under the DTSA. See Id. (“[a]lthough the Court’s analysis has focused on Panera’s Missouri trade secrets claim, an analysis under the Defend Trade Secrets Act would likely reach a similar conclusion.”). In another case, the court performed its analysis under the Washington UTSA then simply stated that a same result would result under the DTSA. See Earthbound Corp. v. MiTekUSA, Inc., 2016 U.S. Dist. LEXIS 110960 (W.D. Wash. Aug. 19, 2016)(“The same evidence demonstrates a likelihood of success on the merits on Plaintiffs’ claim for violation of the Economic Espionage Act, as amended by the Defend Trade Secrets Act.”).

Though the DTSA limits damages to actions in violation of the DTSA occurring after the effective date of May 11, 2016, courts are considering continuing misappropriation that started prior to the effective date. See, e.g., Brand Energy & Infrastructure Servs. v. Irex Contr. Grp., 2017 U.S. Dist. LEXIS 43497 (E.D. Pa. Mar. 23, 2017); Adams Arms, LLC v. Unified Weapon Sys., 2016 U.S. Dist. LEXIS 132201 (M.D. Fla. Sept. 27, 2016). However, recovery has been limited to post-DTSA effective date.

Though the DTSA provides for ex parte seizure, courts have been cautious to utilize this provision. As an overview, a plaintiff may seek a court to order law enforcement to seize any property “necessary to prevent the propagation or dissemination of the trade secret” without affording the accused party an opportunity to present a case before the court, either by way of filing a response or being heard at a hearing. This provision may be used in extraordinary circumstances. A party seeking an ex parte seizure must show that the information at issue is a trade secret – that the target of the seizure misappropriated or conspired to misappropriate the trade secret and that the target has actual possession of the trade secret and any property to be seized. The party must also identify the particular matter to be seized and location of the matter. Also, the applicant cannot publicize the requested seizure. The only known decision where an ex parte seizure request was successful is Mission Capital Advisors v. Romoka, No. 1:16-cv-05878-LLS (S.D.N.Y. July 22, 2016). Even though the plaintiff filed a complaint under the DTSA seeking an ex parte seizure, the court initially refused to enter the ex parte seizure order. Instead, the court provided a temporary restraining order and an order to show cause why a preliminary injunction should not be entered. The defendant did not respond that resulted in the court entering an ex parte seizure order for the U.S. Marshal to copy the plaintiff’s customer contact list from the defendant’s desktop computer as evidence and to then delete the customer contract list file from the defendant’s computer. Hence, the defendant’s contempt of court actually motivated the court to enter the ex parte seizure order.

The DTSA also provides for a whistleblower immunity notice provision in 18 U.S.C. § 1833(b)(3). Immunity is afforded to anyone who discloses in confidence a trade secret to a government entity (federal, state or local), including an attorney, in relation to a criminal investigation. This provision also covers disclosures of trade secrets made in court documents that are under seal. Immunity covers both federal and state trade secret law. Employers are expected to provide notice of this provision to employees, which may include independent contractors and consultants, such as in any contract or agreement (non-disclosure agreement, non-compete agreement, severance agreement, etc.) with an employee that governs the use of a trade secret or other confidential information of the employer. Failure to provide notice results in the employer not being able to recover exemplary damages or attorney’s fees that are provided under the DTSA should theft occur.

The first known case where the whistleblower immunity notice provision was considered is Unum Grp. v. Loftus, 220 F. Supp. 3d 143 (D. Mass. 2016). Unum sued its former employee, Loftus, for alleged misappropriation of trade secrets under the DTSA and the Massachusetts Trade Secret Act. Loftus was captured on surveillance video, over days, leaving one of Unum’s facilities with boxes, shopping bags and briefcases of documents both during and after hours. Even after being questioned, Loftus was seen leaving Unum’s office with his company laptop and another shopping bag. Unum requested that Loftus return the materials and Loftus responded through counsel, eventually returning the laptop, but not the documents. Unum sought a preliminary injunction and Loftus opposed by claiming immunity since he turned the information over to his attorney to pursue alleged unlawful activities against Unum. The court denied the motion by finding that the whistleblower provision was only an affirmative defense. Ultimately the court ordered all documents returned to the employer. Since the outcome of this case did not exactly comport with the DTSA, this outcome may have had more to do with the conduct of Loftus, specifically the witnessed conduct of Loftus in collecting Unum’s trade secrets.

In a more recent case, the court took a position more in line with the language of the DTSA. In Christian v. Lannett Co., 2018 U.S. Dist. LEXIS 52793, Civil Action No. 16-963 (E.D. Pa. Mar. 29, 2018), the court granted immunity. Plaintiff’s former employer brought a counterclaim under the DTSA for trade secret misappropriation after plaintiff filed a discrimination suit under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Acts, and the Family and Medical Leave Acts. Defendant’s DTSA counterclaim focused on the contention that after plaintiff’s employment was terminated she retained over 22,000 pages of her former employer’s confidential material. She disclosed this material to her counsel who in turn produced it to defendant in response to defendant’s discovery requests related to the discrimination claims. Plaintiff moved to dismiss the DTSA claim, arguing that she was immune from liability “because the only alleged disclosure of trade secrets which took place after the effective date of the [DTSA] occurred through a production of documents provided to her attorneys in confidence, pursuant to federal discovery requirements.” The Court agreed with Plaintiff. After recognizing that “the DTSA provides immunity for the disclosure of a trade secret ‘in confidence…to an attorney…solely for the purpose of reporting or investigating a suspected violation of law,’” the Court found that the production of defendant’s alleged trade secret material fell within the whistleblower immunity safe harbor because “plaintiff’s alleged disclosure was made to plaintiff’s counsel pursuant to a discovery Order of this Court, within the context of a lawsuit regarding violations of Title VII, the ADA, and the FMLA.”

Going forward and as further case law develops with respect to the DTSA, businesses should remain vigilant with identifying its trade secrets and taking reasonable measures to protect them. These efforts should also include ensuring that all contracts that relate to confidential information including, but not limited to, trade secrets, provide proper notice regarding the whistle blower immunity provision.

Venue Trends for Patent Litigation After TC Heartland

On May 22, 2017, the Supreme Court of the United States uprooted decades of precedent through its decision in TC Heartland v. Kraft Foods Group Brand, 137 S. Ct. 1514 (2017). Prior to TC Heartland, personal jurisdiction was enough to establish venue under 35 U.S.C. §1400(b), which gave plaintiffs the option to sue a defendant in any district where it sold an allegedly infringing product. Thus, the plaintiff could sue a defendant in the plaintiff’s own “backyard” by simply ordering a product online and having it shipped to their home state. However, in one fell swoop, the Supreme Court has now essentially required the plaintiff to go to the defendant. Following the decision in TC Heartland, a domestic corporation may now only be sued in either the state where it is incorporated or a state where it has committed acts of infringement and has a regular and established place of business. This decision struck a blow to plaintiffs by limiting the places where a defendant could be sued. However, a year has passed since the decision and plaintiffs have not given up hope in their attempts to circumvent the rule.

Post TC Heartland, issues regarding the applicability of pendent venue have been on the rise. Pendent venue allows a court to exercise, otherwise improper, venue over a claim where venue is proper over other claims, in the interest of judicial efficiency. Thus, plaintiffs have resorted to stacking their complaints with claims in which the court does have proper venue, in order to argue that the court should exercise pendent venue and retain jurisdiction over the patent infringement claims in the name of saving judicial time and resources. Courts, however, have consistently rejected this argument, finding, the Supreme Court’s decision in TC Heartland, prescribing the circumstances under which a defendant can be brought into court, cannot be supplanted by the exercise of pendent venue. See Jenny Yoo Collection, Inc. v. Watters Design Inc., 2017 WL 4997838 (S.D.N.Y. Oct. 20, 2017); Wet Sounds, Inc. v. Powerbass USA, Inc., 2018 WL 1811354 (S.D. Tex. Apr. 17, 2018); Olivia Garden, Inc. v. Stance Beauty Labs, L.L.C., 2018 WL 3392063 at *3 (N.D. Cal. 2018).

Plaintiffs have also attempted to base venue on the operations of related entities, specifically a defendant’s corporate affiliates. In these situations, the plaintiff may name both the parent and subsidiary company in its suit because one of the two is incorporated in the plaintiff’s home state. The plaintiff then asserts that the agency relationship between the two is sufficient for the court to retain jurisdiction over both so long as venue is proper over one. This approach however has similarly been met with no success, with courts consistently holding that after TC Heartland, for a regular and established place of business of a subsidiary to be imputed to a corporate relative, there must be a lack of corporate separateness. See Soverain IP, LLC v. AT&T, Inc., 2017 WL 6452802 (E.D. Tex. 2017); Symbology Innovations, LLC v. Lego Systems, Inc., 2017 WL 4324841 (E.D. Va. Sept. 28, 2017).

Nevertheless, there may be some light at the end of this tunnel for plaintiffs. A line of cases from the district of Delaware have suggested that venue may be proper where it is based on the presence and activities of a corporate family. See Bristol-Myers Squibb Company v. Mylan Pharmaceuticals, Inc., 2017 WL 3980155 (D. Del. Sept. 11, 2017); UCB, Inc v. Mylan Technologies, Inc., 2017 WL 5985559 (D. Del. December 1, 2017); Mallinckrodt IP v. B. Braun Medical Inc., 2017 WL 6383610 (Dec. 14, 2017). A corporate family is a group of corporations consisting of a parent corporation and all of its subsidiaries, in which the parent corporation owns directly or indirectly a one hundred percent interest. Allowing venue to be based on the presence and activities of a corporate family builds off of the Federal Circuit’s holding in Minnesota Mining & Manufacturing Co. v. Eco Chemicals, Inc., in which the court held that venue in patent infringement case may be proper with regard to one corporation by virtue of the acts of another, intimately connected, corporation. 757 F.2d 1256 (Fed. Cir. 1985). These cases give rise to question of whether the corporate veil must be pierced in order to impute venue onto a corporate affiliate, or whether venue can be proper simply because the entity is a part of a corporate family that is present and active in the plaintiff’s choice of judicial forum. At least one court has rejected this approach, explaining that while the Supreme Court did not address circumstances in which companies residing in various states are affiliated corporate entities, its broad unqualified language in TC Heartland precludes finding venue is appropriate simply because the plaintiff’s complaint cannot be filed in one judicial district and the defendant is a corporate family. See Tower Laboratories, Ltd. V. Lush Cosmetics Limited, 285 F.Supp.3d 321, 324 (D.D.C. 2018). Considering the district discord, this issue will likely make its way to the Federal Circuit by next year.

* Amaris Gyebi was a 2018 Summer Associate with Beusse Wolter Sanks & Maire, PLLC and is an incoming Associate in August 2019. This blog post was supervised by Terry Sanks and Amber Davis.

SOFTWARE PATENT ELIGIBILITY UPDATE

Written By Eugene J. Molinelli

Before an invention is evaluated under the standards of novelty and non-obviousness, it must be determined if the invention is patent eligible subject matter. The basic principal is that patent eligible inventions, according to statute, are directed to: a process; machine; article of manufacture; or a composition of matter. However, judicial exceptions have been established by the case law to prevent patenting: laws of nature (such as e=mc2); natural phenomena (going by different names in different cases but including such phenomenon as naturally occurring minerals, organisms and molecules called products of nature, and naturally occurring correlations between or among measurables); and abstract ideas (such as mental steps, information, conventional business practice, generic computing). There has been much uncertainty in determining whether a particular claim falls into one of the exceptions. In an infamous decision, Alice Corp. Pty. Ltd. v. CLS Bank Int’l. 134 S. Ct. 2437 (2014), the Supreme Court laid out an analysis procedure. Step 1, determine whether the claim is directed to one of the 4 statutory categories. If not, it is not patent eligible. If so, perform step 2 to determine whether the claim is covered by one of the judicial exceptions. Step 2 has two parts. Step 2A, determine whether the claim is directed to, when taken as a whole, a judicial exception. If not, it is patent eligible. If so, then, in step 2B, determine whether the claim adds significantly more. If not, it is not patent eligible.

In Alice, claims to software to determine whether an account had enough funds to execute a purchase on an instantaneous basis was found to be directed to the abstract idea of performing conventional business practices on a computer and that the claims had nothing more than mental steps and generic computer operations. Therefore the claims at issue were patent ineligible. This decision was considered to be a significant blow to software based patents.

Several recent decisions by the U.S. Court of Appeals for the Federal Circuit (CAFC) and a memorandum from the Deputy Commissioner for Patent Examination Policy disseminated on November 2, 2016 provide more arguments that breathe life into software-related patent claims that had been receiving resistance from many examiners as not patent eligible.

In DDR Holdings, LLC. v. Hotels.Com, L.P., 773 F.3d 1245 (Fed. Cir. 2014),the CAFC indicated that software for solving a problem that is rooted in the field of computer technology is not directed to an abstract idea.

In Enfish LLC v. Microsoft Corp. 2016 U.S. App. LEXIS 8699, 2016 WL 2756255 (Fed. Cir. May 12, 2016), The CAFC points out “Software can make non-abstract improvements to computer technology” and pass at the first stage of analysis and does not need the second stage to find “substantially more.” The CAFC further points out “The ‘directed to’ inquiry . . . cannot simply ask whether the claims involve a patent-ineligible concept … Rather . . . whether their character as a whole is directed to excluded subject matter.” This case also stands for the proposition that a physical component need not be recited in a software method claim, stating “that the improvement is not defined by reference to “physical” components does not doom the claims. To hold otherwise risks resurrecting a bright-line machine-or-transformation test . . . or creating a categorical ban on software patents.” Interestingly, the CAFC did not refer to software steps as “mental steps” performed on a general purpose computer, which is often argued by examiners when rejecting software patents.

In the non-precedential decision in SmartGene, Inc., v. Advanced Biological Labs., SA , No. 2013-1186 (Fed. Cir. Jan. 24, 2014), the CAFC clarified that prior cases taught mental steps were steps that could be and routinely are carried out mentally. This leaves room for software patents that apply complex routines that were never meant to be carried out manually by humans.

In McRO, Inc. v. Bandi Namco Games America, 120 USPQ2d 1091 (Fed. Cir. 2016), the CAFC expanded patent eligible software to computer-related technology. In this case the computer program was directed to improving appearance of animated speech, which could be considered information processing, and not directed to making a better computer or network device. These claims passed eligibility under step 2B, as specifying algorithms that were significantly more than the idea of generic computer operations and did not preempt all ways of accomplishing the same result. After this case, the USPTO distributed a memorandum to patent examiners, which stated, among other things, patent eligible claims are “not limited to improvements in the operation of a computer or a computer network per se, but may also be claimed as a set of “rules” (basically mathematical relationships) that improve computer-related technology by allowing computer performance of a function not previously performable by a computer.” This is a big help because, in the past, examiners have rejected claims directed to processing medical images. Now we can argue that medical image process is a computer-RELATED technology.

In Trading Technologies International Inc., v CQG, Inc., No. 2016-1616 (January 18, 2017), the CAFC found eligible a specific structured graphical user interface (GUI) paired with functionality that resolves a specific problem in computerized trading. In this case the CAFC provided additional factors that favor eligibility: “not an idea that has long existed”; “Precedent has recognized that specific technologic modifications to solve a problem or improve the functioning of a known system generally produce patent-eligible subject matter”; “claim elements are considered in combination for evaluation under Alice Step 1, and then individually when Alice Step 2 is reached.” This case is remarkable for demonstrating the first commercial software found patent eligible since the Bilski v. Kappos., 561 U.S. 593 (2010) decision by Supreme Court found software to mitigate risk are abstract ideas; and, for adding “computerized trading” to computer-related technologies.

Currently we are recommending to clients that using computer software for processing information already available to produce output information is not patentable unless the processor performs specific, non-mental, non-routine processing that does not pre-empt all ways of producing the stated output from the stated input.

 

 

May 2016 Subject Matter Eligibility Update

Written By Judith Evans

The USPTO just issued a May 2016 Subject Matter Eligibility Update providing further guidance to examiners and practitioners in determining subject matter eligibility under 35 U.S.C. § 101, more specifically to clarify the scope of judicial exceptions to subject matter eligibility. Subject matter involving an abstract idea, law of nature, natural phenomena, or natural products is considered ineligible for patent protection and is thus called a “judicial exception.” However, claims that include limitations involving these exceptions are not a priori unpatentable; instead they require heightened scrutiny by the examiner to determine whether the claim as a whole “adds meaningful limits on the use of the exception” that make the claim patentable. Continue reading May 2016 Subject Matter Eligibility Update

Comments on the Revival of Software Patents as Patent Eligible Subject Matter

Written By Eugene J. Molinelli

A brand new decision by the U.S. Court of Appeals for the Federal Circuit (CAFC) and new USPTO guidelines for examiners disseminated on May 4, 2016 may have breathed new life into arguments that had been receiving resistance from some examiners in response to rejections that software-related patent claims are not patent eligible under 35 U.S.C. 101.

For example, the guidelines state “Examiners should not go beyond those concepts that are similar to what the courts have identified as abstract ideas.” By reciting many steps of a claim as the abstract idea, examiners have gone beyond any abstract idea recognized previously by the courts. Furthermore, some examiners have asked applicants to cite an example in the previous guidelines similar to applicants’ respective claims. Examiners may ignore applicants’ objections that there is o example corresponding to applicants’ respective claims. The new guidelines state “applicants should not be required to model their claims or responses after the examples to attain eligibility.” Thus it may be worth referencing those two points and resubmitting and even resubmitting previous responses to such rejections. Continue reading Comments on the Revival of Software Patents as Patent Eligible Subject Matter

Federal Theft of Trade Secrets Act Enacted

Written By Terry M. Sanks

The Defend Trade Secrets Act (“DTSA”) was signed into law yesterday. The DTSA amends the Economic Espionage Act of 1996 and now provides another means to protect against intellectual property theft. Though federal law already provided for a criminal theft of trade secret cause of action, which could be brought by the federal government, this new federal law creates a private civil cause of action for trade secret misappropriation that can be brought by individuals or business entities if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. Continue reading Federal Theft of Trade Secrets Act Enacted