Lifescan Scotland, Ltd. v. Shasta Techs., LLC

• Decision Date: 04 November 2013
• Docket Number: No. 2013–1271.,2013–1271.
• Citation: 734 F.3d 1361
• Parties: LIFESCAN SCOTLAND, LTD. and LifeScan, Inc., Plaintiffs–Appellees, v. SHASTA TECHNOLOGIES, LLC and Conductive Technologies, Inc., Defendants–Appellants, and Instacare Corp. and Pharmatech Solutions, Inc., Defendants–Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

734 F.3d 1361

LIFESCAN SCOTLAND, LTD. and LifeScan, Inc., Plaintiffs–Appellees,

v. SHASTA TECHNOLOGIES, LLC and Conductive Technologies, Inc., Defendants–Appellants,andInstacare Corp. and Pharmatech Solutions, Inc., Defendants–Appellants.

No. 2013–1271.

United States Court of Appeals, Federal Circuit.

Nov. 4, 2013.

Gregory L. Diskant, Patterson Belknap Webb & Tyler LLP, of New York, NY, argued for plaintiffs-appellees. With him on the brief were Eugene M. Gelernter and Kathleen M. Crotty. Of counsel on the brief were Charles Hoffmann and Sean Marshall, Hoffmann Marshall Strong LLP, of New York, NY.

John J. Shaeffer, Lathrop & Gage LLP, of Los Angeles, CA, argued for defendants-appellants. With him on the brief were Robert P. Andris and Lael D. Andara, Roper, Majeski, Kohn & Bentley, of Redwood City, CA; and William A. Rudy, Lathrop & Gage LLP, of Kansas City, MO. Of counsel was Carole E. Handler, Lathrop Gage LLP, of Los Angeles, CA.

Before DYK, PROST, and REYNA, Circuit Judges.

DYK, Circuit Judge.

Defendants Shasta Technologies, LLC; Conductive Technologies, Inc.; Instacare Corp.; and Pharmatech Solutions, Inc. (collectively, “Shasta”) appeal from a decision of the United States District Court for the Northern District of California granting a preliminary injunction in favor of Plaintiffs LifeScan Scotland, Ltd. and LifeScan, Inc. (“LifeScan”). The injunction prohibited Shasta from making, using, or selling its blood glucose test strips. The district court found that the making, using, or selling of Shasta's strips likely indirectly infringes LifeScan's U.S. Patent No. 7,250,105 (“the '105 patent”). Because we agree that Shasta has established that it has a patent exhaustion defense, we reverse.

Background

I

This case concerns blood glucose monitoring systems, which are used by individuals with diabetes to assist them in maintaining healthy blood glucose levels. Such systems typically consist of an electrochemical meter and disposable test strips. To use the system, the user first inserts a test strip into the meter, then uses a lancet to draw a small drop of blood and places the drop on the test strip. The strip contains one or more electrodes, which may be “working electrodes” or “reference electrodes,” and which connect to the meter during operation. Each working electrode is coated with an enzyme, such as glucose oxidase, and a mediator, such as ferricyanide. The enzyme reacts with glucose in the blood sample, releasing electrons. The mediator then transfers those electrons to the working electrode. The working electrode is connected to the meter, which measures the resulting electric current. Because this current correlates with the concentration of glucose in the sample, the meter is thus able to measure the user's blood glucose level. The reaction occurring at the working electrode does not occur at the reference electrode because the reference electrode is not coated with glucose oxidase. Thus, by comparing the current at the reference electrode to the current at the working electrode, the meter can verify that the current produced at the working electrode is solely due to the reaction of the enzyme and mediator with blood glucose in the sample.

Blood glucose meters and disposable test strips of this general design first became available in the 1980s. The '105 patent claims to improve upon earlier systems. It claims a method of comparing the measurements taken by two separate working electrodes. If the readings of the two working electrodes differ significantly, this indicates problems such as inadequate sample volume or manufacturing defects, and the readings are to be discarded. A reference electrode on the strip serves as a common reference for both working electrodes.

LifeScan manufactures such a system, which it calls the “OneTouch Ultra” blood glucose monitoring system. According to LifeScan, its OneTouch Ultra system uses the technology described in the '105 patent. Claim 1, the only independent claim in the '105 patent, reads:

1. A method of measuring the concentration of a substance in a sample liquid comprising the steps of:

providing a measuring device[,] said device comprising:

a first working sensor part for generating charge carriers in proportion to the concentration of said substance in the sample liquid;

a second working sensor part downstream from said first working sensor part also for generating charge carriers in proportion to the concentration of said substance in the sample liquid wherein said first and second working sensor parts are arranged such that, in the absence of an error condition, the quantity of said charge carriers generated by said first working sensor [ ] part [is] substantially identical to the quantity of said charge carriers generated by said second working sensor part; and

a reference sensor part upstream from said first and second working sensor parts which reference sensor part is a common reference for both the first and second working sensor parts, said reference sensor part and said first and second working sensor parts being arranged such that the sample liquid is constrained to flow substantially unidirectionally across said reference sensor part and said first and second working sensor parts; wherein said first and second working sensor parts and said reference sensor part are provided on a disposable test strip;

applying the sample liquid to said measuring device;

measuring an electric current at each working sensor part proportional to the concentration of said substance in the sample liquid;

comparing the electric current from each of the working sensor parts to establish a difference parameter; and

giving an indication of an error if said difference parameter is greater than a predetermined threshold.

'105 patent col. 6 l. 52 to col 8 l. 4. In LifeScan's OneTouch Ultra system, the “sensor parts” refer to the electrodes located on the strips. The “measuring an electric current ...,” “comparing the electric current ...,” and “giving an indication of an error ...” steps are performed by the meter.

LifeScan sells 40% of its meters at below cost prices. It distributes the remaining 60% of its OneTouch meters through health care providers, who in turn give the meters to diabetic individuals for free. LifeScan distributes its meters in this way “in the expectation and intent that customers will use its OneTouch Ultra meters with [its] OneTouch Ultra test strips, from which [it] derive[s] a profit.” JA 319. Shasta does not sell blood glucose meters, but competes with LifeScan in the market for test strips. Shasta's “GenStrip” test strips are designed to work with LifeScan's meters.

II

On September 9, 2011, LifeScan filed suit against Shasta. In its amended complaint, it alleged that Shasta's manufacture and distribution of GenStrips would indirectly infringe the '105 patent.¹ It alleged that the users of Shasta's GenStrips would be direct infringers. LifeScan also sought a preliminary injunction barring Shasta “from contributing to and inducing the infringement of [the ' 105 patent] by selling or offering to sell [its] GenStrip product in the United States.” JA 62. Shasta argued that a preliminary injunction should not issue, inter alia, because Shasta had a substantial defense based on the doctrine of patent exhaustion under Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 128 S.Ct. 2109, 170 L.Ed.2d 996 (2008). The sale and distribution of LifeScan's meters, according to Shasta, exhausted LifeScan's rights under its method patent because the meters substantially embody the invention.

The district court granted LifeScan's motion for a preliminary injunction. With respect to LifeScan's likelihood of success on the merits, the court first addressed the issue of patent exhaustion. It began by concluding that LifeScan was likely to establish that its patent was not exhausted with respect to the 60% of meters that it distributes for free. It reasoned that patent exhaustion applies only to a “sale” where the patentee has received “consideration” in exchange for the patented product. It concluded that because LifeScan “receive[s] no remuneration at the moment [it] part[s] with [its] patented invention,” LifeScan could likely show that patent exhaustion is inapplicable to the meters distributed for free. JA 9. The court also concluded that patent exhaustion would not apply to LifeScan's sale of the remaining meters because “the '105 patent is a method patent that requires both a meter and a test strip for an individual to practice it.” JA 10. Although the court acknowledged that, under Quanta, a method claim is exhausted by the sale of a product that “ ‘substantially embodies' ” the invention, JA 11 (quoting Quanta, 553 U.S. at 633, 128 S.Ct. 2109), it concluded that LifeScan's meters “likely do not embody the inventive feature of the '105 patent.” JA 14. The district court also rejected Shasta's other noninfringement and invalidity arguments. Finally, the district court concluded that the remaining preliminary injunction factors favored LifeScan.

Shasta appeals. We have jurisdiction pursuant to 28 U.S.C. § 1292(c)(1). “[T]o the extent that a district court's decision to grant a preliminary injunction hinges on questions of law, our review is de novo.” Nat'l Steel Car, Ltd. v. Can. Pac. Ry., Ltd., 357 F.3d 1319, 1325 (Fed.Cir.2004) (quotation marks and alteration omitted). On April 29, 2013, we granted Shasta's motion for stay, staying the injunction “pending further order of the court.” LifeScan Scot., Ltd. v. Shasta Techs., LLC, No. 2013–1271 (Fed.Cir. Apr. 29, 2013).

Discussion

A preliminary injunction is “an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 22, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008) (citing Mazurek v. Armstrong, 520 U.S. 968, 972, 117 S.Ct. 1865, 138 L.Ed.2d 162 (1997) (per curiam)). “A plaintiff...