Federal Circuit Vaporizes Phillip Morris’s Obviousness Challenge in “a Close One”

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In a recent precedential decision, the Federal Circuit shot down arguments from appellants Phillip Morris Products S.A., Phillip Morris USA, Inc. and Altria Client Services LLC (Phillip Morris) that challenged the ban on its imported electronic cigarettes handed down from the International Trade Commission (ITC).

The fight between the tobacco competitors started around this time three years ago in 2020 when RAI Strategic Holdings, Inc., R.J. Reynolds Vapor Company, and R.J. Reynolds Tobacco Company (Reynolds) asked the ITC to issue an exclusion order barring Phillip Morris from importing into the U.S. its IQOS line of heated tobacco and electronic cigarette products. Reynolds based this ask on the alleged infringement by the IQOS products of U.S. Patent Nos. 9,901,123 and 9,930,915 (the ʼ123 and 915 patents, respectively). The asserted claims in the ʼ123 patent are directed to “electronically-powered, aerosol-generating smoking articles” that heat tobacco (rather than burning it), which provides an inhalable vapor or aerosol substance. The ʼ915 patent relates to a reusable control unit for use with a disposable smoking article. However, since a successful complainant at the ITC can only obtain such an exclusion order if there is a domestic industry to be protected, Reynolds also asserted in the complaint that its VUSE line of electronic cigarettes satisfied both the economic and technical prongs of domestic industry.

The administrative law judge who oversaw the proceedings agreed with Reynolds on all accounts, including infringement of both the ʼ123 and ʼ915 patents (and non-obviousness of claims 27-30 of the ʼ123 patent), the presence of a domestic industry, and that “the public interest evidence of record [did] not weigh against entry of a remedy.” A limited exclusion order was recommended. With respect to the ʼ123 patent and its obviousness argument (the portion of the decision that is the focus of the remainder of this post), Philip Morris had attempted to plug the hole left by Morgan’s lack of a central heater with a) its expert’s opinion that central heaters were well known and regarded before the effective filing date of the ʼ123 patent and b) reference to the discussion in the ’123 patent that “[s]election of the power source and resistance heating elements can be a matter of design choice.” The ALJ was not persuaded and found that Morgan’s teaching of multiple circumferentially placed heaters around the outside of the housing “shows that it would not have been obvious to modify Morgan to include a centered heater.”

Phillip Morris then told the Commission that the ALJ improperly “require[ed] an express ‘motivation’ to modify Morgan with a centered heater,” even though a person of ordinary skill in the art would have been motivated by the known advantages of central heaters to modify Morgan. However, the Commission sided with the ALJ and explained that (a) since the evidence did not show or support a limited number of design choices, the placement of the heater was not a matter of a simple design choice and (b) the discussion of design choice in the ʼ123 patent was not in reference to the location or type of heater.

On appeal, Phillip Morris argued that it did show that claims 27-30 of the ʼ123 patent asserted claims were obvious and that the “court’s precedent dictates that when a feature is ‘a simple design choice,’ to be selected from among ‘a finite number of identified, predictable solutions,’ it ‘would have been obvious’ to pursue one of the known, predictable solutions.” The Federal Circuit ultimately disagreed and said that “[w]hile the issue of obviousness in view of Morgan is a close one, we are not convinced that the Commission erred in its fact findings or its ultimate conclusion” and extinguished Phillip Morris’s hopes of chipping away at the ITC’s findings.

So, what made this obviousness challenge such “a close one” for the appellate panel?

The ultimate question of obviousness is a legal question that the Federal Circuit reviews de novo with underlying factual findings that it reviews for substantial evidence. The panel seems to suggest that it may not have reached the same non-obviousness conclusion as the ITC under a de novo review. But, since Phillip Morris disputed underlying factual findings, the panel was confined to review the disputed issues under the substantial evidence standard. Under this standard of review, even if some evidence detracts from the Commission’s conclusion, the Federal Circuit “must affirm a Commission determination if it is reasonable and supported by the record as a whole. In fact, “the possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency’s finding from being supported by substantial evidence.” Indeed, while the appellate panel reviewed the ʼ123 patent and found that, when

[r]ead in context with the remainder of the specification, the Commission’s understanding [that the discussion of design choice in the ʼ123 patent was referring to the amount of resistance in the resistance heating elements and the voltage and current provided by the power sources rather than the arrangement and positioning of the resistance heating elements] is not unreasonable,

one could likely argue either side based on the excerpt below (in Col. 29, lines 32-50).

In fact, reviewing the first and last sentences of this paragraph, it seems that either or both of the battery selection or the resistance heating elements can vary and be a matter of design:

For all embodiments described above, the selection of battery and resistance heating elements can vary, and can be a matter of design.

. . .

Selection of the power source and resistance heating elements can be a matter of design choice, and be readily apparent to one skilled in the art… (emphasis added)

Yet, it appears that the ALJ and Commission focused instead on the second and third sentences and the particular example discussed therein related to selecting voltage, current, and resistance provided by the resistance heating elements to conclude that the teaching in this paragraph was not in any way referencing to the location or type of heater.

Regardless of whether this was a close one for the Federal Circuit or whether it “would have reached the same result as the Commission had the matter come before [it] for decision in the first instance,” the Commission’s final determination with respect to the validity of the ’123 patent was affirmed, and Phillip Morris is banned from importing and selling its IQOS products. And, as discussed in a related post, Phillip Morris now has to recharge its battery to fight against infringement allegations against the IQOS products brought by Healthier Choices Management and recently revived by the Federal Circuit.