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Lifescan, Inc. and Lifescan Scotland, Ltd v. Shasta Technologies

March 19, 2013



This action arises out of Defendants Shasta Technologies, LLC ("Shasta"), Instacare Corp. ("Instacare"), Pharmatech Solutions, Inc. ("Pharmatech"), and Conductive Technologies, Inc.'s 17 ("Conductive") (collectively, "Defendants") development and sale of GenStrips: blood glucose test 18 strips intended for use in Plaintiffs' LifeScan, Inc. and LifeScan Scotland, Ltd.'s (collectively, 19 "Plaintiffs") OneTouch Ultra test meter. Plaintiffs allege that Defendants' test strips infringe their 20 U.S. Patent Nos. 6,241,862 ("the '862 patent") and 5,708,247 ("the '247 patent") and that 21 Defendants indirectly infringe Plaintiffs' U.S. Patent No. 7,250,105 ("the '105 patent"). The court 22 previously stayed this action as to the '862 and '247 patents. Dkt. No. 245. 23

Presently before the court is Plaintiffs' Motion for Preliminary Injunction (Dkt. No. 176) 24 and Defendants' Motion to Dismiss as to Count 3 of the First Amended Complaint (Dkt. No. 174). 25

The court held a hearing on Plaintiffs' Motion for Preliminary Injunction on February 21, 2013 and 26 took Defendants' Motion to Dismiss under submission. Having reviewed the parties' briefing and heard the parties' arguments, the court GRANTS Plaintiffs' Motion for Preliminary Injunction and 2 DENIES Defendants' Motion to Dismiss for the reasons set forth below.


The parties are competitors in the blood glucose monitoring systems industry. Since 2000, Plaintiffs have marketed and sold the OneTouch Ultra System, a glucose monitoring system used 6 by patients with diabetes. See Pl. Mtn. for Prelim. Inj. 3-4, Dkt. No. 176; Def. Opp. 2; Dkt. No. 7 203. Plaintiffs are the market leader in glucose monitoring systems, and generate approximately $1 8 billion in sales annually. Dkt. No. 203 at 2. The system is composed of both a meter and 9 disposable test strips. Dkt. No. 176 at 3. To use the system, a patient places a disposable test strip 10 in the meter, draws a small drop of blood using a lancet, and places the blood on the test strip. Dkt. No. 176 at 3-4. The meter then determines the glucose level in the blood by measuring the electrical current produced when an electrochemical reaction is triggered in the strip by the 13 glucose. Id. at 4. 14

15 subject of the '105 patent. Id. DoubleSure Technology is a method designed to improve the 16 reliability and accuracy of glucose measurements. Id. It uses a self-testing strip design, using 17 multiple sensors in a downstream configuration. Id. at 6. Figure 2 depicts the test strip design: 18 19 20 21 22 23 24 25 26

Plaintiffs' competitive advantage appears to be in its DoubleSure Technology, which is the

A drop of blood applied to the top of the test strip flows downstream by capillary action.

Id. The test strip has two working sensors (6b and 8b), with one sensor downstream from the 28

other. Id. This design ensures that the first sensor is completely covered in blood before the 2 second sensor is reached, allowing for more accurate results. Id. The currents are measured at 3 each sensor, and if the values are within a pre-determined range of one another, the reading is 4 accurate. Id. If the difference in values is outside of the acceptable range, the reading may not be 5 accurate and the test strip can be discarded. Id. at 6-7. 6

7 specifically to work with the OneTouch Ultra meter. See id. at 5. GenStrips received FDA 8 approval in January of this year, but are not approved for use in any device other than the 9

Defendants' GenStrips are nearly identical to Plaintiffs' test strips, and are designed OneTouch Ultra meter. Id. While GenStrips have not been on the market for the majority of this 10 litigation, Defendants confirmed at the preliminary injunction hearing that their product is now available for purchase. Prelim. Inj. Hr'g Tr. (Rough) 80:20-21 (Feb. 21, 2013). 15 action, the court will apply Federal Circuit law. See Hybritech Inc. v. Abbott Labs., 849 F.2d 16 1446, 1450, n. 12 (Fed. Cir. 1988). The Federal Circuit requires the court to consider four factors 17 of "universal applicability" in determining whether a grant of a preliminary injunction is 18 appropriate: (1) reasonable likelihood of success on the merits; (2) irreparable harm; (3) the 19 balance of hardships tips in the plaintiff's favor; and (4) the injunction is in the public interest. 20

Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008)). Each of these four factors must be 22 weighed and assessed against the others and against the form and magnitude of the relief requested. 23

Hybritech, 849 F.2d at 1451. 24

26 patentee must show (1) it will likely prove infringement; and (2) its infringement claim will likely 27 withstand challenges to the patent's validity and enforceability. Purdue Pharma L.P. v. Boehringer 28


2.1Legal Standard

Because this motion for preliminary injunction arises in the context of a patent infringement Titan Tire Corp. v. Case New Holland, Inc., 566 F.3d 1372, 1375-76 (Fed. Cir. 2009) (citing 21

2.2Likelihood of Success on the Merits

In a patent infringement case, "reasonable likelihood of success on the merits" means that a Ingelheim Gmbh, 237 F.3d 1359, 1363 (Fed. Cir. 2001). Even at this stage, the court must 2 consider the evidence in light of the presumptions and burdens that will apply at trial. Titan Tire, 3

A patent is presumed valid at trial. 35 U.S.C. § 282. Thus, the alleged infringer bears the 5 burden of proving an affirmative defense of invalidity by clear and convincing evidence. Titan 6 Tire, 566 F.3d at 1376. If the accused infringer successfully meets its burden, the plaintiff then 7 must come forward with contrary evidence sufficient to overcome the accused infringer's showing. 8

566 F.3d at 1376. 4

Id. At the preliminary injunction stage, a patent is also presumed to be valid. Similarly, the 9 accused infringer bears the burden to present evidence of invalidity. However, unlike at trial, the 10 accused infringer need only raise a "substantial question" regarding validity. Sciele Pharma Inc. v. Cir. 2001) (finding that the defendants' burden to raise a "substantial question" did not equate to 14 the "clear and convincing" standard required at trial, but instead could be met by showing 15

"vulnerability"). Notwithstanding the accused infringer's duty to bring forward evidence of 16 invalidity, the ultimate burden remains on the plaintiff to show that the alleged infringer's defense 17

"lacks substantial merit," and that plaintiff is likely to succeed at trial despite the validity 18 challenge. Titan Tire, 566 F.3d at 1377 (quoting New England Braiding Co. v. A.W. Chesterton 19 Co., 970 F.2d 878, 883 (Fed. Cir. 1992)). In determining the likelihood of success on the validity 20 issue, the court must "weigh the evidence both for and against validity that is available at this 21 preliminary injunction stage.[t]hen.if the [court] concludes there is a 'substantial question' 22 concerning the validity of the patent, meaning that the alleged infringer has presented an invalidity 23 defense that the patentee has not shown lacks substantial merit, it necessarily follows that the 24 patentee has not succeeded in showing it is likely to succeed at trial on the merits of the validity 25 issue." Id. 26 27 28

Lupin Ltd., 684 F.3d 1253, 1263 (Fed. Cir. 2012); Abbot Labs. v. Sandoz, Inc., 544 F.3d 1341, 1364 (Fed. Cir. 2008);, Inc. v., Inc., 239 F.3d 1343, 1359 (Fed. 13 3 whether Plaintiffs are likely to show that the '105 patent has not been exhausted. "The declared 4 purpose of the patent law is to promote the progress of science and the useful arts by granting to 5 the inventor a limited monopoly, the exercise of which will enable him to secure the financial 6 rewards for his invention." Univis Lens Co. v. United States, 316 U.S. 241, 250 (1942) (citing 7

2.2.1Patent Exhaustion

Before reaching the issues of infringement and invalidity, the court must first consider U.S. Const. Art. I, § 8, cl. 8). To strike the proper balance between the public's interest in 8 innovation and an inventor's need for remuneration, the law extends to patentees a monopoly for a 9 limited period of time, during which the patentee maintains the exclusive "right to make, use, and 10 sell" the invention. See Bauer & Cie v. O'Donnell, 229 U.S. 1, 10 (1913). However, that monopoly is not unlimited. Once a patentee sells the patented invention in whole or, under certain circumstances, in part, the monopoly is exhausted. Univis, 316 U.S. at 249. This principle of 13 patent exhaustion is also called the first sale doctrine. See Static Control Components, Inc. v. 14

As the Supreme Court recently articulated, the first sale doctrine provides that "the initial

16 authorized sale of a patented item terminates all patent rights to that item." Quanta Comp., Inc. v. 17

LG Electronics, Inc., 553 U.S. 617, 625 (2008). In operation, the doctrine "prohibits patent 18 holders from selling a patented article and then 'invoking patent law to control postsale use of the 19 article.'" Excelstor Tech., Inc. v. Papst Licensing GmbH & Co. KG, 541 F.3d 1373, 1376 (Fed. 20

Cir. 2008) (citing Quanta, 553 U.S. at 638). Because application of the doctrine extinguishes a 21 patentee's monopoly right over the patented item, "[e]xhaustion is triggered only by a sale 22 authorized by the patent holder." Quanta, 553 U.S. at 636. 23

24 could be deemed exhausted. Plaintiffs first distribute their OneTouch Ultra products either by (1) 25 having doctors distribute a free OneTouch Ultra kit, comprised of a meter and 10 test strips, to 26 diabetic patients, or (2) selling the OneTouch Ultra meter alone at a reduced price. Defendants 27 contend that under either distribution scheme, Plaintiffs have transferred ownership of their 28

Lexmark Int'l Inc., 615 F.Supp.2d 575, 578 (E.D. Ky. 2009). 15

The parties dispute whether an "authorized sale" has occurred such that the '105 patent patented invention, thus extinguishing their right to control consumers' use of the product. 2

Plaintiffs, however, contend that because they have not received their "reward" for the free kits and 3 because the meter alone does not "substantially embody" the inventive aspects of the '105 patent, 4 exhaustion cannot apply. 5 Distribution of OneTouch Ultra Kits

First, the court must consider whether distributing a patented article for free constitutes an "authorized sale." Plaintiffs argue that their free distribution scheme cannot trigger the first sale 8 doctrine because they have not received their "reward" for the patented article. Defendant 9 contends that a free distribution triggers the first sale doctrine because it is the transfer of 10 ownership, not the adequacy of Plaintiff's remuneration, which creates an "authorized sale."

The question presented by the parties-whether it is the transfer of title and ownership or rather the purchase and sale of a patented article that triggers the first sale doctrine-has not been 13 directly addressed by courts of higher authority. In most cases, courts need not consider this 14 distinction because the transfer of ownership is typically accomplished through a traditional sale or 15 licensing agreement. However, in a case such as this where the patented article primarily enters the 16 stream of commerce through a free distribution system, the distinction is a crucial one that must be 17 examined. 18

19 during an extended patent term. Chaffee v. The Boston Belting Co., 63 U.S. 217 (1859). In doing 20 so, the Court reiterated the principles of patent exhaustion, holding that 21

In 1859, the Supreme Court considered the question of whether patent exhaustion applied [w]hen the patented machine rightfully passes to the hands of the purchaser from the patentee, or from any other person by him authorized to convey it, the machine is no longer within the limits of the monopoly.By a valid sale and purchase, the patented machine becomes the private individual property of the purchaser, and is no longer protected by the laws of the United States, but by the laws of the State in which it is situated.

Id. at 223.

However, the court went on to declare that 28

Court found them to be "naked infringers" who could not be saved by the principles of patent 7 exhaustion. Id. at 224. 8

9 longer within the limits of the monopoly" would seem to support either party's argument in the 10 present case. On the one hand, the Court looked to a "valid sale and purchase" to trigger

exhaustion, whereas on the other, the Court pointed to a person's "legally acquir[ing] a title" as the exhaustive moment. A close reading of the opinion would seem to suggest that the way in which a 13 person would "legally acquire[] title" would be through a "valid sale and purchase;" however, the 14

Defendants' here. 16

17 address the difference between a "valid sale and purchase" and "legally acquir[ing] a title;" 18 however, the distinctions it has drawn in other areas prove useful to the analysis. In Univis, the 19

Court considered the question of whether the first sale doctrine applied when the patentee, a lens 20 company, sold its patented lens blanks to a wholesaler, who then was required to grind the blanks 21 down to finish them using a standard process cited in the patentee's method patents. 316 U.S. 241 22

(1942). Because the lens blanks themselves "embodie[d] essential features of [the] patented 23 invention" the court determined that their sale also embodied the "reward" to which the patentee 24 was entitled. 316 U.S. at 251. The Court explained that "the purpose of the patent law is fulfilled 25 with respect to any particular article when the patentee has received his reward for the use of his 26 invention by the sale of the article" and that beyond that sale, the patentee had no further right to 27 control use of the article. Id. 28

it is obvious[] that if a person legally acquires a title to that which is the subject of letters patent, he may continue to use he pleases, in the same manner as if dealing with property of any other kind."


Because the record did not reflect that the defendants had legally licensed the machine at issue, the 6

The language used by the Chafee Court in describing the point at which "the machine is no Court did not so explicitly state the principle, leaving the door open for arguments such as 15

As the Supreme Court's exhaustion jurisprudence evolved, the Court did not directly

2 that triggers exhaustion. However, the same day the Court issued its Univis decision, it also issued 3 an order in United States v. Masonite Corp., which steered the exhaustion inquiry away from a 4 focus on traditional sales. 316 U.S. 265 (1942). According to the Masonite Court, the form of the 5 sale of the patented article has no impact on the application of exhaustion; rather, the test simply is 6

"whether or not there has been such a disposition of the article that it may fairly be said that the 7 patentee has received his reward for the use of the article." 316 U.S. at 278 (finding exhaustion 8 where patentee "disposed" of the patented product to a del credere agent with which patentee had 9

On its face, the Univis opinion suggests that it is a traditional sale of a patented invention

"no intimate relationship" and with whom patentee competed, because the arrangement, without 10 more, enlarged the patentee's privilege to fix prices in violation of the Sherman Act). The inquiry

thus shifted from whether a "valid sale and purchase" had occurred to whether the patentee had

received his "reward" in any form. After Univis and Masonite, the Court did not develop the 13

"reward" inquiry further. Nor did it address any major patent exhaustion issue until 2008, when it 14 issued its opinion in Quanta. In that case, which will be discussed in detail in the following 15 section, the Court acknowledged that an "authorized sale" was required to trigger the first sale 16 doctrine, but did not address the issue of reward in any substantial detail. 17

In the years since Univis, the Federal Circuit has shed some light on what forms of "reward" trigger exhaustion. In 1993, the court considered the question of whether a licensed 19 seller of a patented product must own the patent rights to that product in order for there to be a sale 20 sufficient to trigger exhaustion. Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1556, 1569-70 (Fed. 21 Cir. 1993). In holding that the patentee-assignee's rights terminated with the sale of the patented 22 product by a licensee acting within the scope of its license, the court noted that 23

[w]hile Intel may not in retrospect be pleased with the deal that it made permitting HP to make unrestricted sales, it nevertheless granted HP that right in 1983, presumably for consideration it believed to be of value at that time. It cannot now renege on that grant to avoid its consequences.

Id. at 1569.


2 settlement agreement containing a broad covenant not to sue for future infringement constituted an 3

Cir. 2009). In that case, the plaintiff had received $4.5 million from a competitor in exchange for 5 an unconditional covenant not to sue and a release of all existing claims. When the plaintiff later 6 sued a customer of the competitor for infringement, the Federal Circuit upheld the district court's 7 finding that the plaintiff's patents had been exhausted by the settlement agreement. 8

Later, in TransCore, LP v. Electronic Transaction Consultants Corp., the court found that a

"authorized sale" for purposes of patent exhaustion under Quanta. 563 F.3d 1271, 1276-77 (Fed. 4

More recently, the court has examined the issue in the context of patented seeds. In

Monsanto Co. v. Bowman, the court found that patent exhaustion may apply to the original seeds 10 sold, but not to any subsequent generation of those seeds after they have been planted. 657 F.3d

1341, 1347-48 (Fed. Cir. 2011), cert granted 133 S. Ct. 420 (Oct. 5, 2012). In so finding, the court explained that the subsequent generation of seeds constitutes a "newly infringing article" for which 13 the patentee had not received a reward. Id. 14

The common theme running through this line of cases is consideration. In each case where

15 exhaustion has been found, the transfer of ownership of the patented article was accomplished by 16 some bargained-for exchange: a traditional sale, as in Univis; a licensing agreement, as in Intel; the 17 disposition of an article with a competitor in exchange for higher sale prices, as in Masonite; or a 18 covenant not to sue in exchange for a cash settlement, as in TransCore. In contrast, exhaustion has 19 not been found when the patentee has not received any consideration in exchange for the patented 20 article, as with the second generation seeds in Monsanto. 21

22 remuneration at the moment they part with their patented invention. Rather, Plaintiffs distribute 23 the kits in consideration of patients' anticipated future repeat purchases of Plaintiffs' disposable 24 test strips. Thus, at the moment of disposition, Plaintiffs have not received their reward for their 25 invention. At the hearing, Defendants argued that Plaintiffs receive their reward for the '105 26 invention within two months of the free distribution of the meters. Hr'g Tr. (Rough) 88:21-24. 27

In this case, when Plaintiffs distribute their OneTouch Ultra kits for free, they receive no Such argument belies any suggestion by Defendants that Plaintiffs receive their reward when they 28 distributes the kits for free-i.e., the parties essentially agree that the "reward" comes in Plaintiffs' 2 repeated sale of disposable test strips to diabetic patients. Because the Supreme Court and the 3

Federal Circuit have emphasized that a patentee's receiving of some reward for his or her invention 4 triggers exhaustion, and because Plaintiffs here do not receive any reward at the time of 5 distribution, Plaintiffs can likely show that patent exhaustion is not triggered by the free 6 distribution of its OneTouch Ultra kits. 7

9 patent exhaustion, the court must now consider whether the sale of the OneTouch Ultra meter alone 10 at a reduced price is sufficient to exhaust the '105 patent. The '105 patent is a method patent that 11' Sale of Meters Alone at a Reduced Price

Having determined that the free distribution of OneTouch Ultra kits likely does not trigger requires both a meter and a test strip for an individual to practice it. As such, the sale of the meter 12 by itself does not necessarily convey the entire invention of the '105 patent to ...

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