Holding: An obligation to indemnify a customer from patent infringement liability is sufficient to establish Article III standing for a supplier when the customer is accused of patent infringement by the patent owner.
Merck owns US Patent No. 10,647,861, which is directed to alpha-alumina flakes that are included in paints, coatings, inks, and as a transparent substrate for effect pigments. These flakes can be used to give a pearlescent or multicolor effect. CQV petitioned the PTAB for post-grant review of claims 1-22 of the ‘861 Patent. The PTAB found that CQV failed to show that the claims of the ‘861 Patent were unpatentable.
CQV argued in its petition to the PTAB that the claims of the ‘861 Patent were obvious in view of Xirallic®, a pearlescent pigment based on alpha-alumina flakes made commercially by Merck, and other references. CQV produced a particular sample of Xirallic® referred to as “Sample C”; however, the PTAB found that CQV had not adequately supported its contention that Sample C was prior art to the ‘861 Patent. There was also a dispute over whether the critical date of the ‘861 Patent was April 30, 2012 or April 30, 2013.
At the Federal Circuit, Merck argued that CQV lacked standing to appeal. CQV has the burden of showing that it suffered a sufficient injury in fact to have Article III standing to appeal. To show injury in fact, it is typically sufficient for the appellant to show that it has engaged in, is engaging in, or plans to engage in activity that would give rise to an infringement lawsuit.
CQV initially tried to show standing with a declaration from its Chief of Lab who stated that CQV sells pearlescent pigment products known as Adamas®, which competes with Xirallic®, and that Merck had contacted a customer of CQV and alleged infringement of the ‘861 Patent. CQV then filed a supplemental declaration with more detailed allegations that Merck had reached out to additional customers who had purchased Adamas® and discussed potential infringement of US Patent Publication No. 2014/0322536, which later became the ‘861 Patent. CQV was forced to enter an indemnity agreement with one of the customers, requiring CQV to indemnify the customer if Merck were to sue the customer for infringement.
An obligation to indemnify a customer from infringement liability has been found to allow a supplier to have standing for a declaratory judgment action. Since the standard for establishing standing under the Declaratory Judgment Act is the same as the standard for finding Article III standing, the Federal Circuit held that CQV had standing to appeal. The Federal Circuit stated that a customer’s purchase of Adamas® in the United States, Merck’s communication with that customer, and CQV’s indemnity agreement are sufficient for standing.
As to the prior art issue, the Federal Circuit remanded to the PTAB since it could not determine if the relevant evidence was properly evaluated. As the petitioner, CQV had the burden to show by a preponderance of the evidence that an asserted reference qualifies as prior art. CQV presented evidence that Xirallic® had been available before 2012; that an employee had purchased Sample C in 2011; and that Merck had been manufactured Sample C as early as 2007. The PTAB held that this evidence failed to establish that Sample C was available to the public before the earliest disputed critical date on April 30, 2012.
The Federal Circuit held that the PTAB erred by failing to consider the whole record. Even though the Federal Circuit’s review of PTAB decisions under the APA is deferential, the PTAB must still give a satisfactory explanation for its decision and show a rational connection between the facts of the case and the choice that was made. The PTAB did not include in its decision a discussion of a key piece of evidence presented by CQV. CQV presented evidence that Xirallic® is typically made available to the public after passing quality control, and quality control usually takes around two to three weeks. Therefore, Sample C would have likely been made available to the public within a few weeks of being placed into quality control. The PTAB disregarded this testimony without giving an explanation as to why it was not considered. Therefore, the Federal Circuit could not determine whether the PTAB properly decided that Sample C did not qualify as prior art.
Federal Circuit Precedential 
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