Patent Law Blog (Patently-O)

KSR v. Teleflex: Supreme Court on Obviousness

KSR Int'l v. Teleflex, Inc., 550 U.S. ___ (2007).

In a unanimous decision, the Supreme Court rejected any notion that the concept of obviousness in patent law can be rigidly or narrowly defined -- holding that "the obviousness analysis cannot be confined by a formalistic conception."  However, the opinion does not radically change the notion of obviousness or immediately invalidate a wide swath of already issued patents.

The question of nonobviousness comes-up in Section 103 of the Patent Act. That section declares that a patent shall not issue if "the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains."

But what is "obvious"?  Certainly, this amorphous term has continuously stumped engineers and scientists for the past 50+ years.  One particular issue involves combination inventions that take various existing elements and combine them in a new way.  When is such a combination obvious?  In an attempt to provide improved notice and regularity, the Court of Appeals for the Federal Circuit (CAFC) introduced a test that holds a combination invention is nonobvious absent some teaching, suggestion, or motivation (TSM) to combine the various parts together.

In KSR, the Supreme Court began by rejecting the CAFC's test for obviousness:

"We begin by rejecting the rigid approach of the Court of Appeals. Throughout this Court's engagement with the question of obviousness, our cases have set forth an expansive and flexible approach inconsistent with the way the Court of Appeals applied its TSM test here."

At this point, I would have expected the Court to obliterate the past twenty-five years of obviousness jurisprudence and begin again with a clean slate. It did not do that — rather, the opinion appears to simply refine the particulars of how prior-art can be combined and when a "combined patent" will be seen as obvious.  Without explicitly saying so, the Court's opinion appears to affirm the CAFC's more recent pronouncements of a flexible test of obviousness. Dystar, Alza.

Patent Value: In the short-term, this case reduces the average value of patent holdings. Courts should find it easier to invalidate patents based on expert testimony and the jury's concept of obviousness. The story also becomes more important -- and attorneys who can tell an "invention story" will be in demand.  During prosecution, inventors and experts should get their pens ready to sign declarations of patentability.

Preliminary Gems:

• PHOSITA is Creative: A person of ordinary skill is also a person of ordinary creativity, not an automaton.
• Obvious to Try: When there is a design need or market pressure to solve a problem and there are a finite number of identified, predictable solutions, a person of ordinary skill has good reason to pursue the known options within his or her technical grasp. If this leads to the anticipated success, it is likely the product not of innovation but of ordinary skill and common sense.
• Hindsight Bias: Rigid preventative rules that deny factfinders recourse to common sense, however, are neither necessary under our case law nor consistent with it.
• No Presumption of Validity: We need not reach the question whether the failure to disclose Asano during the prosecution of Engelgau voids the presumption of validity given to issued patents, for claim 4 is obvious despite the presumption.
• Patents Halt Innovation: Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may, in the case of patents combining previously known elements, deprive prior inventions of their value or utility.
• Common Sense: Mentioned glowingly five separate times. 

Sarnoff Discusses KSR v. Teleflex

By Professor Joshua Sarnoff, Assistant Director of the Glushko-Samuelson Intellectual Property Law Clinic and a Practitioner-in-Residence at the Washington College of Law, American University. Professor Sarnoff filed an amicus brief in support of Petitioner KSR.

In its unanimous decision in KSR Int’l. Co v. Teleflex Inc., No. 04-1350 (April 30, 2007), the Supreme Court expressly overruled the Court of Appeals for the Federal Circuit’s “teaching-suggestion-motivation” (“TSM”) test for finding a claimed invention obvious and reaffirmed the Court’s precedents (in light of the 1952 enactment of Section 103 and its holding in Graham v. John Deere Co. of Kansas City, 383 U.S. 1 (1966)) regarding the obviousness of patents “based on the combination of elements found in the prior art” where there the combination “does no more than yield predictable results.”  Slip op. at 11-12.  The Court’s decision has therefore called into question the validity of hundreds of thousands of claims in issued patents, and will likely lead to a dramatic change to the method by which the Patent Office, the courts, and the bar conduct their obviousness analyses. 

Nevertheless, the Supreme Court’s opinion appears self-consciously narrow and provides little additional guidance for how to apply the Graham approach.  The Court’s decision leaves unclear whether the party with the burden of proving obviousness must demonstrate that “there was an apparent reason to combine the known elements in the fashion claimed by the patent at issue,” or only that the claim at issue if patented would reflect an “advance[] that would occur in the ordinary course without real innovation[, which] retards progress and may, in the case of patents combining previously known elements, deprive inventions of their value or utility.”  Slip op. at 14, 15.  As the Court noted, “as progress beginning from higher levels of achievement is expected in the normal course, the results of ordinary innovation are not the subject of exclusive rights under the patent laws.  Were it otherwise patents might stifle, rather than promote, the progress of useful arts.”  Slip op. at 24. Although the Court recited the Constitutional language, it did not expressly hold that obviousness is a constitutional requirement.  Further, the Court left to later case law any consideration of the extent to which the Court of Appeals’ more recent statements regarding the flexibility of its TSM test is consistent with Graham and the Supreme Court’s earlier precedents.  Slip op. at 18.

Supreme Court Retracts Patent Protection

KSR v. Teleflex, 550 U. S. ____ (2007): In a unanimous opinion authored by Justice Kennedy, the Supreme Court held that the Federal Circuit's "narrow" & "rigid" TSM test is not the proper application of the nonobviousness doctrine of Section 103(a) of the Patent Act.

"To facilitate review, [the obviousness] analysis should be made explicit. But it need not seek out precise teachings directed to the challenged claim's specific subject matter, for a court can consider the inferences and creative steps a person of ordinary skill in the art would employ."

"A patent composed of several elements is not proved obvious merely by demonstrating that each element was, independently, known in the prior art."

"There is no necessary inconsistency between the [TSM] test and the Graham analysis. But a court errs where, as here, it transforms general principle into a rigid rule limiting the obviousness inquiry."

Microsoft v. AT&T: With a 7-1 majority, the Supreme Court has ruled in favor of Microsoft in its extended fight againt extraterritorial application of US Patent Law -- holding that Section 271(f) of the Patent Act does not extend to cover foreign duplication of software. Justice Stevens dissented.

Opinions:

• Download KSRvTeleflexOpinion.pdf
• Download MSFTvATTOpinion.pdf

2007 Patent Reform: Proposed Amendments on Damages

By Professor Amy Landers

The proposed 2007 Patent Reform Act (the “Leahy-Berman bill”)[1] details modifications to 35 USC § 284 that will most certainly reduce many patent infringement damages awards. Three portions of the Leahy-Berman bill concern monetary compensation: First, the bill seeks to limit reasonable royalty damages to the inventive aspects of the claim. Second, the bill restricts the use of the entire market value rule. Third, the bill expressly confirms a fact finder’s ability to rely on certain types of evidence to measure compensatory harm.[2]

Reasonable Royalty: Relationship to Contribution over the Prior Art and Consideration of Relevant Factors.

Perhaps the most striking change in the Leahy-Berman bill is a proposed limitation to reasonable royalty recovery. Under current law, a reasonable royalty is calculated by envisioning the result of the parties’ hypothetical negotiation for a license to the claimed invention at the time infringement began.[3] This determination is made by a fact finder (whether judge or jury) and is guided by the application of the Georgia Pacific fifteen-factor test.[4]

Current patent law permits a reasonable royalty calculation for use made of “the invention”—that is, an infringed claim. Of course, few--if any--patent claims are entirely novel. Most claims are an improvement over the prior art. Further, combination claims aggregate prior art elements in a novel way, or else a combination of novel elements together with prior art elements.

The Leahy-Berman bill specifically requires a limit on reasonable royalty recovery to the “economic value properly attributable to patent’s specific contributions over the prior art,”—that is, the inventive portion of the claim. Such an aggressive limit on monetary relief for patent infringement has not been apparent in the case law for decades.[5] A statement by Sen. Leahy (link) explains that this limitation is intended to provide for compensation solely for “the truly new ‘thing’ that the patent reflects,” in response to a concern that “litigation has not reliably produced damages awards in infringement cases that correspond to the value of the infringed patent.” This reasonable royalty limitation, which is likely to affect patents in all technology sectors, promises to be controversial.

Additionally, the Leahy-Berman bill asks trial courts to exercise more control over the fact finder’s consideration of the reasonable royalty and to create a more defined record for appellate review. Under current law, a typical reasonable royalty jury instruction lists all fifteen Georgia Pacific factors although fewer than all factors may be relevant in any particular case.[6] Further, a verdict form asks a jury to set a royalty figure, but jurors are rarely asked to create a record as to how their result was reached.

Under the Leahy-Berman bill, the trial court must “identify all factors relevant to the determination of a reasonable royalty” and then the fact finders are limited to consider only the factors identified by the district court in awarding a reasonable royalty. As an example of this provision in operation, a trial court might make an initial determination as to whether derivative or convoyed sales exist, such that the sixth factor of the Georgia Pacific test is relevant. If no such sales are in evidence, under the Leahy-Berman bill a trial court must preclude a jury’s consideration of this sixth factor.

Significantly, the proposed legislation’s use of the word “factors” does not appear to be limited to the Georgia Pacific factors specifically and presumably would apply to any factor that might be considered, including those listed in proposed section 284(a)(4).

Apportionment: The Entire Market Value Rule

As a general rule, patent damages are linked to the subject matter of the invention.[7] In some cases, an infringed claim relates to only one part of an entire multi-functional infringing product or system. In those circumstances, apportionment is the general rule—that is, damages are based on either lost profits or reasonable royalty apportioned for the infringing part as distinct from the remainder of a device that is outside the infringed claim’s scope. For example, damages for a claim directed to an improved windshield wiper are calculated based on the value of the infringing wiper, and not the sales price of the entire car into which the wiper is installed.

This general rule is modified under the judicially created “entire market value rule.” Where the entire market value rule applies, a patentee may recover damages based on the value of an entire apparatus or system that contains both infringing and additional, unpatented features.[8]

In “Let the Games Begin, Incentives To Innovation In The New Economy Of Intellectual Property Law,” I examine how the entire market value rule has recently received expansive application. Historically, the entire market value rule allowed recovery based on the price of entire product only where the “entire value” of the product was attributable to the infringing feature.[9] However, more recently, Federal Circuit cases more broadly apply the entire market value rule so long as there is a “functional relationship” between the infringing and the non-infringing components.[10] Further, patentees can recover for sales of non-infringing components where the patentee demonstrates a “reasonable probability” of selling the non-infringing components with the infringing part.[11]

An example of this expansive application of the entire market value rule can be seen in Lucent v. Newbridge Networks[12], where the district court determined that the jury’s addition of two software programs were properly included in the royalty base even where those programs were non-infringing, were not physically part of the infringing device and were not necessary for the device to operate. More recently, the Alcatel-Lucent verdict against Microsoft concerning the Windows® Media Player was reportedly calculated based on the average cost of a personal computer, and not limited to Microsoft’s Media Player or even Windows®.[13]

The Leahy-Berman bill provides an explicit, definitional standard for the application of the entire market value rule by requiring the patentee to show that the claim’s contribution is “the predominant basis for market demand” of an entire product or process. This standard reigns in the current expansive articulations of the entire market value rule by requiring a patentee to demonstrate that an infringing feature is the single primary reason users select an infringing product or process. If enacted, this subsection will have the overall effect of limiting damages to a particular infringing piece of a multifunctional product or process for both lost profits and reasonable royalty awards.

An open question exists as to the interaction between the proposed subsection (a)(2) governing reasonable royalties and (a)(3) governing the entire market value rule. Specifically, proposed subsection (a)(2) precludes recovery for the value of unpatented features of an infringing product or process. On the other hand, proposed subsection (a)(3) arguably permits such compensation where the inventive element is the “predominant basis for market demand.”

Marketplace Licensing and “Other Factors”.

The Leahy-Berman bill proposes one additional change, which appears of minor importance. That is, the bill expressly states that a fact finder may consider “the terms of a non-exclusive marketplace licensing of the invention” and any “other relevant factors” under the law in the damages determination. This subsection appears to be a codification of the existing law, which permits district courts wide discretion in considering evidence relevant to the damages determination.

Conclusion

As a whole, the Leahy-Berman bill represents an effort to refine and narrow available damages for patent infringement by building on an existing body of case law. The proposed changes to patent damages will undoubtedly present some challenging questions if adopted into law.

Two of the proposed sections require apportionment of inventive claimed matter from that outside the claim scope. The difficulty presented is that apportionment determinations can be difficult to implement. Perhaps the best evidence of this is the pre-1948 law, which relied on apportionment for calculating lost profits and had been described as a “complete failure of justice in almost every case in which supposed profits are recovered or recoverable” due to the time and complexity involved.[14]

Further, the Leahy-Berman bill has the potential for significant consequences for the licensing value of patents more generally. That is, to the extent that licensing determinations may reflect of potential results at trial, one might be expect that licensing negotiations will account for lowered damages the bill is passed into law. 2001).

Continuation and Claim Limitation Rules Submitted for Final Review: Final Publication in Early July

Hal Wegner has done the legwork to evidence the rumors.  On April 10, 2007, the USPTO Submitted two sets of final rules to the Office of Management & Budget for regulatory review:

• RIN: 0651-AB93: Changes to Practice for Continuing Applications, Requests for Continued Examination Practice, and Applications Containing Patentably Indistinct Claims
• RIN: 0651-AB94: Changes to Practice for the Examination of Claims in Patent Applications

Summer Implementation Likely: According to self-reports, Bush OMB has maintained a fairly strict adherence to a 90-day time-limit for review. Thus, barring unusual circumstances, publication of the rules can be expected in early July. Implementation would require a 30-day window following publication.

Get Involved: The Review Office has a policy "to meet with any party interested in discussing issues, whether they are from State or local governments, small business or other business or industry interests, or from the environmental, health or safety communities." In addition, third parties may submit written comments on any rule under review. [VIA FAX at (202) 395-3047 or 202-395-5806 or (202) 395-6566]. 

Earlier this month, Susan Dudley was named the new director of the Office of Information and Regulatory Affairs (OIRA) through a recess appointment. Her office is quite powerful because it "will have an opportunity to change or block all regulations proposed by government agencies."

Wegner on Patent Reform

By Hal Wegner

Before an overflow hearing room on an internationally available web broadcast, Chairman Howard Berman of the House Judiciary Subcommittee relevant to patents hosted a most informative and candid hearing yesterday afternoon joined by roughly ten of his committee colleagues, including Rep. Dan Issa, undoubtedly the most patent-interested member of Congress in some time (and like Abraham Lincoln an inventor-user of the patent system). 

Going into the hearing, the Chairman clearly recognized the total impasse from the last Congress over "second window" post-grant review and that the current legislation as introduced is dead in the water. Yet, the Chairman and the bipartisan participation manifested a determination to find a solution, best marked by the announcement of the intention of the Chairman to hold a markup hearing in May – which, coincidentally or not – will take place in all likelihood shortly after the KSR decision is reached by the Supreme Court, and possibly before the Supreme Court Microsoft decision.

The Public Perception of Patent Importance: Just a decade ago, a patent hearing would have drawn gaping yawns from the public with a smattering of a few Washington regulars and largely vacant seats, both for the members and the audience. Yesterday, eighty minutes before the hearing the attendants' line stretched down the corridor with numerous ill-dressed folks lounging on the floor or in chairs ("seat holders" selling their places in line to corporate VP's and lobbyists); those coming later had to sit in an overflow video-feed room; ten or so members of the subcommittee participated in the hearings, some showing significant insight. The press table was overflowing; the beat reporter for Reuters was unable to get a seat at the table. A former Chairman of the Subcommittee staff sat in the very last row of the audience, along with other pooh bahs.

The point? Patent reform is perceived by Congress as important; the presence of myriad lobbyists manifests the money that is being spent by industry to deal with reform.  Patent reform legislation will continue center stage, whether it passes or not. 

Potential Abuses of the "Second Window": Perhaps the single most constructive development that arose from the hearing was the focus upon the abuse of the current reexamination system that foreshadows similar problems under the proposed post-grant review system: Serial reexaminations and post-litigation reexaminations even after a final court decision have been unreasonable and made it impossible for the winner of a trial costing the parties millions of dollars to enjoy a quiet patent title: Even after winning at trial, reexaminations can be filed that may take many years to resolve, some just rehashing old issues lost at trial.

A Single, Joined Proceeding to Avoid "Second Window" Abuses: A possible solution that was not considered at the hearing; the subcommittee should consider a "one window" solution where a first-filing of a post-grant proceeding would result in a publication in the Official Gazette that would give the public a six month window to join in a single, one time only post-grant proceeding. Additionally, the filing of any patent litigation should also be noticed in the Official Gazette to similarly set a six month period to commence a post-grant proceeding: Failure to file within this period would forever shut the door to a post-grant proceeding to the extent that the litigation goes to a final decision on the merits. And, of course, after a final decision on the merits in patent litigation, no further post-grant proceeding should be permitted.

Rep. Issa's "One Window" and Judge-Opened Window Proposals: Rep. Issa suggested that perhaps "one window" might be provided for a post-grant proceeding, one shot at a patent, no matter when that window would be. Another thought that was put on the table was the idea that there could be a restricted "first window" but that a trial court could later order reopening a "second window" by referring a case to the post-grant authority. This would have the great benefit to the public of providing a better assurance that a patent-experienced tribunal would consider patent validity. (Presumably, for the roughly ten of the ninety-four District Courts that already provide excellent patent justice in a timely fashion, judges would decline to exercise this option but retain patent validity issues for their own tribunals. But, for the more than eighty other District Courts where a typical judge may be hearing his or her first or second patent case, the option of opening the "second window" may be very attractive.)

KSR, Microsoft, eBay - Looming Shadows from the Supreme Court : The Subcommittee is keenly aware of the presence of the Supreme Court in the patent arena. There was open discussion of the relief that Congress felt with the eBay decision that judicially resolved an issue this past Term that had been a bottleneck to progress on patent reform last year. Several references were made to the absence of any remedy to remove 35 USC § 271(f) and the hope that perhaps there would be a judicial solution in the Microsoft case that would remove yet another contentious issue; it was particularly for the reason of the pendency of the Microsoft case that the current legislation lacks any provision to deal with 35 USC § 271(f) repeal.

The 800 pound gorilla that was not mentioned is the KSR case that in all likelihood will be decided before the May markup session. (The earliest date now that a decision could be forthcoming is this coming Monday when the court sits merely to deliver opinions. The Court has concluded all of its arguments for the October 2006 Term and is now regularly meeting on Mondays to hand down decisions, which will continue until the end of June.) To the extent that the KSR decision may represent a major disruption in the case law of obviousness, this will be a certain signal to the leaders of the patent community that there must be a post-grant solution to cull out invalid patents. The continued grant of "gas pedal" patents cannot be avoided; but, what must be avoided is the continuation of an absence of mechanisms to remove such patents from the rolls.

Witness Selection to Highlight the "Second Window" Impasse: While apportionment of damages in the legislation was also an important theme, it was clearly secondary to the issue of the "second window" for a post-grant review. The Chairman candidly announced that his subcommittee was focusing upon the differences between the industries. (Clearly, without resolution of the "second window" debate, there will be no comprehensive patent reform bill that can be enacted in this or any near term bill.) With this theme in mind, the Chairman noted the appearance of five witnesses:

(1) Kevin Sharer, Chairman and CEO of Amgen, accompanied by Vice-President David W. Beier, III, former Subcommittee Staff Chair , pointed to the necessity for (a) a more reliable post-grant procedure; and (b) the necessity of freedom from a "second window" for biotechnology.

The Sharer testimony and the silent but visible presence of Beier stole the show, both in terms of persuasiveness as well as for the special deference given by the Subcommittee to the Sharer-Beier entourage. Amgen was seeded first at the hearing and, pursuant to a special announcement by the Chairman at the outset, was given a preferred early set of questions to permit a Stage Right exit in the midst of the hearing, leaving the other witnesses at the table.

The Amgen testimony noted that a new biotechnology drug has a development cost running at the rate of $ 1.2 billion spread over a 15 year period.  Amgen itself pours out $ 3.4 billion in research costs each year, 90 % of which advances science but represents false starts in terms of any commercial possibilities. Quiet patent title at an early date is an absolute requirement for such expenditures.

One Size Doesn't Fit All: Quite clearly, the Amgen testimony, better than any representative for any of the various organizations, demonstrated the absolute, positive necessity the biotechnology community has for a highly reliable post-grant proceeding and one where there is early, quiet patent title ensured. Amgen persuasively explained the position of his company in a scenario that is echoed by all major pioneer pharma and biotech entities and manifests the futility of any attempt to ram through Congress a one-size-fits-all "second" window solution.

The Need for Independent PTO-Free Post-Grant Governance: The Amgen testimony implied a need for a very reliable post-grant system. While not a subject of the Congressional testimony yesterday, previous notes by this writer have suggested that as an imperative for any post-grant reform the proceedings must be divorced from the political control of the PTO. The BlackBerryGate and other long-running reexaminations manifest the necessity of this reform. It must be remembered that the 1980 original reexamination law could have been effective, including inter partes participation and including expedited consideration, all possible within the scope of the reexamination law and certainly within the budget of the PTO. The fact that the PTO today denies the "special dispatch" examination of a reexamination proceeding of importance speaks for itself. There is nothing to preclude a PTO-run post-grant review from similar political interference from the Director.

(2) Gary L. Griswold, 3M, for the 21st Century Patent Coalition spoke, as usual, strongly opposing any "second window" post-grant review and opposing other IT/EE initiatives. While the death of the current legislation is a certainty with or without the strident voice of the 21st Century Patent Coalition, the intransigence of the 21st Century Patent Coalition is perhaps the best indicator that no Phoenix can ever arise from the ashes of the current legislation.

Where is the AIPLA? The vast, overwhelming majority of the membership of the AIPLA favors reasonable patent reforms and can hardly be cast in the position of favoring the intransigent position taken by the 21st Century Patent Coalition. To say that the leadership of AIPLA is through an Executive Committee controlled by the common interests of the 21st Century Patent Coalition is difficult to dispute. (Oddly, AIPLA is the only bar association that is a member of this coalition, now just one of forty members of an otherwise industry coalition,  "plus Patent Cafe", identified as a post-script to this note.)

IPO has disappeared: It was nowhere to be seen nor heard. [DDC: IPO Continues to be a Major Player in this Reform]

(3) Prof. John R. Thomas, Congress' CRS in house researcher dismissed the post-grant legislation as "marginal". Rebutting those that portray the post-grant proceeding proposed by Congress as a "sea change", the professor said that the legislation would represent a "marginal change".

(4) William T. Tucker, California university system, stayed away from the "second window" debate, but uniquely focused upon a need to retain the "first inventor" system.

(5) Anthony Peterman, Dell Patent Counsel, expressed EE/IT views on the essential nature of the "second window" for his industry. Pointedly asked by the Chairman whether he understood the viewpoint of the biotech industry as expressed in the earlier testimony to avoid a late-stage "second window", Peterman agreed with the need to see whether a solution could be reached that would satisfy both sectors.

Notes:

The Coalition for 21st Century Patent Reform members include (per its announcement): "3M, Abbott Laboratories, Air Liquide, Air Products, AstraZeneca, Baxter Healthcare Corp., Beckman Coulter, Bridgestone Americas, Bristol-Myers Squibb, Cargill Incorporated, Caterpillar, Cephalon, CheckFree, Corning, Dow Chemical, Eastman Chemical, Electronics for Imaging, E.I. du Pont (DuPont), Eli Lilly, ExxonMobil, General Electric, Genzyme, GlaxoSmithKline, Henkel Corporation, Hoffman-La Roche, Johnson & Johnson, Merck, Millennium Pharmaceuticals, Monsanto, Motorola, Novartis, Patent Cafe.com Inc., Pfizer, Procter & Gamble, Sangamo BioSciences, Texas Instruments, UnitedTechnologies, Weyerhaeuser, Wyeth, and AIPLA."

Patently-O TidBits

• Patent Attorneys: Second most depressing job in Australia (regular lawyers are No. 1). LINK
• The House IP Subcommittee held a hearing on April 26 on patent reform, speakers included Gary Griswold (3M), Anthony Peterman (Dell), Kevin Sharer (CEO Amgen), Jay Thomas (Georgetown professor), and Bill Tucker (Tech Transfer at UC). LINK to WRITTEN TESTIMONY.
• FTC Commish on Tom Rosch on IP-Antitrust issues. LINK.
• World IP Day: I missed it, but IPKat has the (funny) discussion. LINK.
• Bidding for Patents.Com is now up to $420,000.

Upcoming Events

• May 6-9, I will be at the annual BIO International Convention -- this year being held in Boston.  I've been given a press pass -- Let me know if you would like to get together to talk about the future of American patent law.

First-to-File or Where to Place the Incentives?

This is a continuation of the interesting chain of comments found here.

The incentive debate is interesting.  Unfortunately, we do not have credible evidence about what value society should place on various aspects of the technology development process.  We do, however, have hunches:

Invention: There are many of us who believe that the invention process is intrinsically beneficial wholly apart from disclosure of the resulting invention. Often, the result of invention includes new products or more efficient technologies that simply would not have been otherwise available apart from the innovation.  At times, the invention may be used by the public without disclosing the invention itself.  In those cases, the public still benefits because of the availability of the new technology. In addition to the benefit of new products, there is also an educative effect of innovative efforts. Even if a research initiative fails today, the researchers (and perhaps their organization) will have learned something that will help them in future endeavors.

Disclosure: Few (if any) inventions are stand-alone. Rather, inventors "stand on the shoulders" of those who have come before. Of course, the only way that today's inventors know yesterday's technology is through public disclosure. Now, disclosure usually comes from something other than the patent document -- such as released products, academic papers, etc.  Disclosure also improves the potential for competition in the market.

For invention and disclosure, we also make the assumption that earlier is better. 

One aspect of the debate on first-to-file is the question of whether more focus should be placed on invention or disclosure.  Today's first-to-invent favors an early invention date, while the proposed first-to-invent system would push the (relative) focus toward disclosure.

Patent No. 7,018,407: Filed in 1981, Expires in 2026?

In March 2006, Medtronic was awarded Patent No. 7,018,407 -- a patent related to a tricuspid heart valve holder. This case is interesting because the patent stems from an application originally filed 24 years earlier in 1981.

In 1988, the applicant appears to have lost an interference proceeding regarding some of the claims.  The next correspondence comes 16 years later with an Ex Parte Quayle action that would lead to the 2006 allowance.

According to Alan Harrison, an Intellectual Property Analyst at Nerac, the PTO has also granted a further extension of 1109 days "for the delays in adjudication of the interference." 

Enforcement of pre-1995 patents has an additional twist regarding pre-existing use. Again, Alan Harrison:

35 USC 154(c)(2) REMEDIES moderates enforceability by prohibiting injunction, damages, or award of attorney fees against uses "commenced or for which substantial investment was made" during the pendency of the application prior to June 8, 1995 (pre-existing use).

But Medtronic still may sue competitors who continue their pre-existing use, and to continue such use those competitors must make equitable REMUNERATION under 35 USC 154(c)(3). Following Bristol-Myers Squibb Co. v. Royce, 69 F.3d 1130 (Fed.Cir. 1995), Medtronic may alternatively require deferment of FDA approval for infringing devices during the enforceable life of the patent.

It is unclear whether this patent has any commercial value -- and whether its submarine style emergence create other prosecution laches problems.

CAFC Stays Permanent Injunction against Vonage Pending Appeal

Vonage v. Verizon (Fed. Cir. 2007).

In a rare emergency hearing on April 24, the Federal Circuit heard Vonage's plea for a stay of an injunction that would bar the upstart VOIP company from contracting with new customers. Soon after the hearing, the CAFC agreed -- staying any injunctive relief pending appeal.  The full appeal will also follow an expedited schedule and is scheduled for oral arguments on June 25, 2007.

This appeal comes on the heel of the jury verdict finding that Vonage infringes three Verizon patents. (6,282,574, 6,104,711, 6,359,880).  These patents all relate to various aspects of Internet telephony. Following the jury verdict, the District Court Judge issued a permanent injunction against Vonage, but granted a partial stay.  Under the district court's decision, the stay would have allowed Vonage to continue operation, but would have barred the Internet Telephone company from signing-up any new customers in the interim.

Rule 62(a) of the Federal Rules of Civil Procedure provides the general rule that a permanent injunction "shall not be stayed" pending appeal. According to the rule, however, such a stay is generally within the discretion of the district court. Likewise, the CAFC has, at times, also exerted its discretion to stay injunctive relief pendente lite.

The jurisprudence regarding patent stays is fairly scarce. Perhaps for obvious reasons, emergency stays are usually issued without any substantive opinion. There are a few cases outlining the basic approach to determining whether to issue a stay. In Standard Havens (1990) the Federal Circuit announced a four-factor test for considering whether to issue a stay pending appeal.

• Likelihood of success on the merits of the appeal;
• Irreparable harmed absent a stay;
• Irreparable harm due to a stay (continued infringement); and
• Public interest.

For Vonage, issuance of the permanent injunction would be equivalent to the proverbial fat lady singing through the Internet pipes. A full injunction would seemingly destroy Vonage's core business -- leaving its customers ready for the picking. 

The CAFC's swift action in these cases shows that it understands the critical business importance of the stay. 

Omeprazole Manufacturing Patent: 2-1 Inherent Anticipation

Omeprazole is the best-selling proton pump inhibitor sold under brand name Prilosec®. The drug operates by inhibiting the production of gastric acid, but only operates properly when administered within an enteric coating and an additional separating layer. AstraZeneca's Patent No. 6,013,281 relates to the process of forming the coated pill. In a 2-1 decision, the Court of Appeals for the Federal Circuit (CAFC) found the '281 patent invalid as inherently anticipated.

A prior Korean patent application recites all but one claim limitation of the asserted '281 patent.*  That limitation requires that the separating layer be formed "in situ." The trial court found, and CAFC affirmed that the in situ separation necessarily formed when practicing the prior art.

The record shows formation of the in situ separating layer in the prior art even though that process was not recognized at the time.... The [prior art] ingredients and protocols ... necessarily resulted in in situ formation of a separating layer. Thus, the trial court correctly found inherent anticipation.

Concluding for the 2-1 majority, Judge Rader affirmed the finding of invalidy.

In dissent, Judge Pauline Newman took issue with the majority's legal analysis.

Applying a novel theory of "inherent anticipation," the court invalidates Astra's patent on a newly discovered chemical process. . . . The court's explanation and citation of authority suggest that my colleagues have confused the law governing patentability of a newly discovered use of a known composition, which is achieved by "process" claim,1 with the unpatentability of the known composition itself.

Judge Newman insisted that inherency requires that the 'inherent information" still "be known to be present in the subject matter of the reference, when viewed by persons experienced in the field of the invention."  In addition, any secret tests using the Korean method cannot serve as prior art because they are not public.

• * One of the asserted claims (Claim 9) was not inherently anticipated, but was found obvious.

Patent Reform Act of 2007: Preliminary Notes and Comment Part I

This post provides some initial notes from my first read-through of the proposed legislation. More information regarding the proposal is available at an earlier post here.

1. Top Secret Development: The proposed legislation was developed in-secret by a closed-group representing industry organizations.  As it turns out, however, the major big-industry players are not all on-board and neither are groups of would-be patent plaintiffs. The end-result is a bill that is heavily tilted toward providing additional avenues for challenging patent validity and for reducing the power of all patents.  In that sense, the Bill is a gift to potential defendants. In the end, the legislation is so one-sided that it is quite unlikely to move forward without a complete overhaul.
2. No Grace Period?: The proposed first-to-file has been contentious for many years.  Proponents of the change talk about how Interference proceedings are an awful process and first-to-file avoids that problem. A first-to-file system automatically awards the patent to the first applicant who submits the patent application.  The proposed legislation, of course, does far more than ease resolution of interference disputes.  The proposal shifts all focus from an invention date to the "effective filing date" and in-the-process eliminates the US one-year grace period.  Notably, the grace period would still be intact for the inventor's own disclosure. 
3. Joint Research avoids Anticipation: The grace period is also still intact for disclosures made by the patent assignee -- a provision clearly favoring companies with larger research-arms.  In addition, there is still a one-year filing grace-period for disclosures made by parties to a properly-written joint research agreement. 
4. Public Use and On Sale Activity outside of the US would now be considered prior art.  This is probably justified by recently expanded extraterritorial effect of patent enforcement.
5. Damages a new floor: The new damages proposal is very specific and sets a new (lower) floor for damages. Under the proposal, courts must conduct a reasonable royalty analysis focused at the "patent's specific contribution over the prior art."  The statutory language surrounding this analysis appears to be complex enough to occupy dozens of CAFC opinions explaining the proper methods of determining the economic value of the difference between the invention and the prior art.  Reasonable royalty does, however, remain only a floor -- although according to the statute, it must now be calculated (even if going after lost-profits). (Jury Trial Issues?)
6. Clear Path to Avoid Willfulness: Adios Treble Damages.  The patent community spends a considerable amount of time discussing willful infringement and the associated enhanced damages. The current patent statute, however, does not mention willful infringement allowing for additional theories for enhancing damages.  The amendment would limit treble damages only to cases where willfulness is found based on clear and convincing evidence of either (1) notice of how particular acts infringed particular claims or (2) intentional copying with knowledge of the patent or (3) continuing to sell the infringing product after being adjudge an infringer.  "Good faith" by the infringer avoids willfulness. Although the 'rules' regarding increased damages have been becoming ever more stratified, this statute removes the vast majority of the current leeway given to courts and juries.
7. Bifurcation of Trials: Many defendants believe that juries are biased simply by hearing that they are accused of willful infringement. The reforms would bar a patentee from even alleging willfulness until after the patent has been found valid and infringed.
8. Inter Partes Reexamination: Many patent litigators have warned clients against filing inter partes reexamination requests because of the litigation estoppel created by by 35 USC 315(c). That provision estopps later validity challenges on grounds that a third party "raised or could have raised" during the reexamination.  The Patent Reform Act would limit the estoppel to only issues actually raised -- striking the "could have raised" language.

CAFC: Claim Differentiation Again

Intamin v. Magnetar Tech (Fed. Cir. 2007).

Intamin owns a patent on a magnetic braking system for a roller coaster and sued Magnetar for infringement.

The claim construction dispute involved an "intermediary" between two magnets.  Relying on an ordinary meaning interpretation, the lower court had found that the intermediary could not itself be a magnet: "In short, ordinary meaning supports [a narrow construction], and neither the specification nor the prosecution history changes the ordinary meaning."

On appeal, the CAFC found an error in claim construction -- holding that the claimed intermediary could itself be a magnet. The court based its result on an implication of claim differentiation. 

[A dependent claim] discloses "[t]he braking device of claim 1 wherein said intermediary is non-magnetic." This dependent claim shows both that the claim drafter perceived a distinction between magnetic and non-magnetic intermediaries and that independent claim 1 impliedly embraced non-magnetic intermediaries.

Interestingly, the CAFC allowed the claim differentiation argument despite the fact that "Intamin did not raise this argument until reconsideration." As a backup, the court implicitly relied on the ordinary (broad) meaning of intermediary to further justify its holding.

At one point, the '350 patent describes an embodiment of the invention with a "non-magnetic" intermediary.... The single reference does not expressly limit the entire invention but only describes a single embodiment. Moreover, the term "intermediary," like the term "baffle" in Phillips, embraces more than the limited specification disclosure.

Vacated and Remanded.

IP Hall of Fame

The London-based publication Intellecutal Asset Management (IAM) magazine has created the "IP Hall of Fame" to honor individuals - both past and present - who have played a major role in creating and improving our intellectual property systems.  The Hall of Fame was started in 2006 with inductees such as Thomas Jefferson, James Madison, and Thomas Edison. More modern inductees include Marshall Phelps and Don Banner.

The 2007 induction process has recently begun. Nominations may be submitted by anyone through the IP Hall of Fame website: www.IPHallOfFame.com.  The 2007 awards will be presented at a big Ocean Tomo gala in October.

Along with Phelps, Todd Dickinson, Senator Birch Bayh and others, I am a new member of the IP Hall of Fame Academy -- the group that selects the inductees.  You can blame us if your nominees are not selected this year.

• www.IPHallOfFame.com
• 2006 Inductees
• IP Hall of Fame Academy

Note: The IP Hall of Fame is quite different from the National Inventors Hall of Fame, which is focused on the accomplishments of inventors.

Patent Reform Act of 2007

On April 18, 2007, bipartisan legislators in both the Senate and House of Representatives introduced sweeping patent reform measures in legislation termed the Patent Reform Act of 2007. The reform measures include the following provisions: 

• First-to-file rights and elimination of interference proceedings;
• Reform to make it easier to file a patent application without the inventor's cooperation;
• Limitation of damages to only the economic value of the improvement as compared to the prior-art;
• Specific limitations on when damages may be trebled for willfulness;
• Post-grant opposition proceedings and a reduction in the litigation estoppel effect of reexaminations;
• Limitations on patent venue;
• Authority to the PTO director to create further regulations.

Although couched in terms of the importance of patents and patent quality. The thrust of many of the measures are clearly directed at "limiting litigation abuses."  The two versions (Senate and House) are appear virtually identical in substance.

Analysis:

• Inter Partes Reexamination: Many patent litigators have warned clients against filing inter partes reexamination requests because of the litigation estoppel created by by 35 USC 315(c). That provision estopps later validity challenges on grounds that a third party "raised or could have raised" during the reexamination.  The Patent Reform Act would limit the estoppel to only issues actually raised -- striking the "could have raised" language.

Legislative Documents:

• Download SENATE Version of the Bill (S.1145).
• Download HOUSE Version of the Bill (H.R.1908).

Congressional Players:

• The Senate version was introduced by Senators Leahy, Hatch, Schumar, and Cornyn
• The House version was introduced by Representatives Berman, Smith, Conyers, Coble, Boucher, Godlatte, Zoe Lofgren, Issa, Schiff, Cannon, and Jackson-Lee

Lobbying Players:

• www.innovationalliance.net (Tech Companies who want strong patents)
• www.ipo.org (Industry group -- Formerly supported strong IP rights -- now a consensus builder -- noting that "the battle-of-the-industries description of patent reform is simplistic and sensationalist.")
• www.phrma.org (Big Pharma: Strong patent rights)
• www.patentsmatter.com
• www.patentfairness.org ("Over-broad patent grants stifle future innovators, while unjustified lawsuits that aim to extort settlements")
• www.aipla.org (Group of lawyers who are, for the most part, unwilling to take a stand)
• www.bsa.org (Microsoft, Apple, HP -- all supporting dramatic patent reform that curbs litigation in favor of the more genteel cross-licensing).

Who is writing about patent reform:

• Peter Zura
• Matt Buchanan
• Patent Hawk
• Patent Docs

News & PR:

• Nothing Cash Can't Cure (IP Law & Business by John Bringardner)($$$)
• BIO Expresses Concerns Regarding New Patent Reform Legislation (PR)
• Coalition for Patent Fairness Supports Introduction of Bipartisan, Bicameral Patent Reform Bills  (PR)
• Apple among supporters of new patent reform bill (PR)
• BSA Applauds new Reforms (PR)
• Patent Reform May have a Chance (AP Report)

Call for Papers:

• I would like to publish a couple of well written editorials on patent reform within the next two weeks. Feel free to submit yours to dcrouch@gmail.com.

Patent Reform Act of 2007

On April 18, 2007, bipartisan legislators in both the Senate and House of Representatives introduced sweeping patent reform measures in legislation termed the Patent Reform Act of 2007. The reform measures include the following provisions: 

• First-to-file rights and elimination of interference proceedings;
• Reform to make it easier to file a patent application without the inventor's cooperation;
• Limitation of damages to only the economic value of the improvement as compared to the prior-art;
• Specific limitations on when damages may be trebled for willfulness;
• Post-grant opposition proceedings with a reduction in the litigation estoppel effect;
• Limitations on patent venue;
• Authority to the PTO director to create further regulations.

Although couched in terms of the importance of patents and patent quality. The thrust of many of the measures are clearly directed at "limiting litigation abuses."  Although a detailed analysis has not been completed, the two versions appear virtually identical.

Legislative Documents:

• Download SENATE Version of the Bill
• Download HOUSE Version of the Bill

Congressional Players:

• The Senate version was introduced by Senators Leahy, Hatch, Schumar, and Cornyn
• The House version was introduced by Representatives Berman, Smith, Conyers, Coble, Boucher, Godlatte, Zoe Lofgren, Issa, Schiff, Cannon, and Jackson-Lee

Lobbying Players:

• www.innovationalliance.net (Tech Companies who want strong patents)
• www.ipo.org (Industry group -- Formerly supported strong IP rights -- now a consensus builder)
• www.phrma.org (Big Pharma: Strong patent rights)
• www.patentsmatter.com
• www.patentfairness.org ("Over-broad patent grants stifle future innovators, while unjustified lawsuits that aim to extort settlements")
• www.aipla.org (Group of lawyers who are, for the most part, unwilling to take a stand)
• www.bsa.org (Microsoft, Apple, HP -- all supporting dramatic patent reform that curbs litigation in favor of the more genteel cross-licensing).

Who is writing about patent reform:

• Peter Zura
• Matt Buchanan
• Patent Hawk
• Patent Docs

News:

• Nothing Cash Can't Cure (IP Law & Business by John Bringardner)($$$)
• BIO Expresses Concerns Regarding New Patent Reform Legislation (PR)
• Coalition for Patent Fairness Supports Introduction of Bipartisan, Bicameral Patent Reform Bills  (PR)
• Apple among supporters of new patent reform bill (PR)
• BSA Applauds new Reforms (PR)
• Patent Reform May have a Chance (AP Report)

Patently-O plans to publish a couple of well written editorials on patent reform within the next two weeks. Feel free to submit yours to dcrouch@gmail.com.

Pay the Taxman: The Patent Tax

The Software Freedom Law Center is a joint project between Eben Moglen and Dan Ravicher.  Clearly pro-FOSS and anti-patent-protection. For tax day, the Center has released their letter describing the patent tax. Here is the gist:

If you run a computer using Windows, you're not just paying for the programmers who put the program together and the corporate operations that brought it to market. You're also paying a hidden tax of well over $20 that Microsoft has had to pay to other patent holders.

The letter goes-on to talk about how Linux has never been found liable for patent infringement. . .

Read the patent-tax letter and sing the song:

Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman, yeah, I'm the taxman

Should five per cent appear too small
Be thankful I don't take it all
'Cause I'm the taxman, yeah I'm the taxman

If you drive a car, I'll tax the street,
If you try to sit, I'll tax your seat.
If you get too cold I'll tax the heat,
If you take a walk, I'll tax your feet.

Don't ask me what I want it for
If you don't want to pay some more
'Cause I'm the taxman, yeah, I'm the taxman

Now my advice for those who die
Declare the pennies on your eyes
'Cause I'm the taxman, yeah, I'm the taxman
And you're working for no one but me.

Antitrust Enforcement and Intellectual Property Rights: FTC/DOJ Joint Report

The FTC and DOJ have jointly issued a monumental report on the relationship between patent rights and antitrust policy.  Gems from the report:

• Refusal to license patents to competitors - without more - will not raise antitrust concerns.
• Conditional refusals, on the other hand, are subject to antitrust scrutiny.
• Standard setting negotiations, cross-licensing, & patent pools are not per se violations, but are reviewed under the rule of reason framework.
• The starting point for evaluating practices that extend beyond a patent’s expiration is an analysis of whether the patent in question confers market power. If so, these practices will be evaluated under the agencies’ traditional rule of reason framework, unless the agencies find a particular practice to be a sham cover for naked price fixing or market allocation.
• Collecting royalties beyond a patent’s statutory term can be efficient.

Notably absent from the report are issues involving pharmaceutical reverse-payments where the two departments have recently knocked-heads.

Read the report here.

[Via Professor Sokol at the Antitrust Blog]

Ocean Tomo's IP Exchange (IPX)

Ocean Tomo continues to make news in its quest to reduce intellectual property transaction costs and, in the process, transform IP rights into liquid assets and financial instruments.

 On Thursday, April 19 (10:00am - 12:00pm), Ocean Tomo will be holding a town-hall meeting at Chicago's Swissotel discussing the company's newest venture -- its IP Enterprise Zone (IPEZ) and IP Exchange (IPX).

IPX Chicago is expected to provide a number of tradable products, including equity listings, IP Indexes, IP Backed Bonds and Securities, standardized IP related futures and options, and "patent rich company IPO's."  There is also real potential that the exchange will include securities based on the outcome of patent litigation as well as patent prosecution. 

Ocean Tomo talks about the revolution in IP Backed Securities as a parallel to the rise in mortgage-backed securities that has continued to drive low lending rates for the past decade.  

For those of you out of the loop, Ocean Tomo's IP auction is also being held in Chicago this week.

• www.oceantomo.com
• IPX Press Release

Patent Exhaustion at the Supreme Court

Quanta v. LG Electronics (on Petition for Certiorari, 2007).

Chipmaker Intel licensed a set of patents owned by the Korean chaebol LG.  By its terms, the license expressly does not extend to Intel's customers and similarly does not cover any customer product made by combining an Intel product with a non-Intel product. 

When LG sued a host of Intel-chip-based computer manufacturers for infringement, they complained of attempted double-dipping.  According to the defendants, their use of licensed Intel-chips implicated the first sale doctrine of patent exhaustion.

First Sale Doctrine: Under the first sale doctrine, an authorized and unrestricted sale of a patented product exhausts the patent's power over that particular product.  Thus, a patentee cannot later sue a customer who uses the product in an infringing manner.

Proceedings: The lower court quickly found that the Intel "unrestricted" license and Intel's sale of its chips under the license exhausted LG's rights to any additional patent recovery. On appeal, the Court of Appeals for the Federal Circuit (CAFC) reversed, finding that when restrictions are placed on a license, "it is more reasonable to infer that the parties negotiated a price that reflects only the value of the ‘use’ rights conferred by the patentee." The appellate panel found that there was no exhaustion because of express conditions on the use of Intel's licensed products -- specifically that the products could not be combined with non-Intel parts.

Now, the defendants have asked the Supreme Court to decide whether the CAFC erred by holding that LG's "patent rights were not exhausted by its license agreement with Intel Corporation, and Intel's subsequent sale of product under the license."  On April 16, the Supreme Court requested the views of the Solicitor General -- a major step toward granting certiorari.

Quanta's petition to the Supreme Court begins with hyperbole:

[LG Electronics] purchased a portfolio of patents ... and now contends that those patents are infringed by every computer in the world.

Quanta's argument is quite simple:

• Intel sold chipsets to the petitioners;
• Those sales were fully authorized under the LG license and were made without restriction;
• Therefore, LG's patent rights are exhausted.

Quanta goes on to say that under Supreme Court jurisprudence, a sale cannot be conditional. (No improper restraints on alienation).  And, without citing Arizona Cartridge, the petition lists a set of upcoming problems if conditions for sale are allowed for patented items:

[T]he Federal Circuit's new jurisprudence threatens to kick off a new era of "notices" attached to sold goods.  Obvious candidates include "single use only," "no use outside of Massachusetts," "no repair," "no resale," or "no resale for less than the price of purchase."

On the other side, LG points-out that Intel made a business decision not to cover its customers.  Because of that decision, Intel received a cheaper license, but now the customers must make-up the difference.

[When there are no patent misuse or notice concerns,] parceling out of the exclusivity rights is simply a matter for negotiation in the marketplace, not for a legal override of commercially fashioned terms.

An amicus on behalf of Dell, HP and others identifies the origin of the current CAFC precedent: Mallinckrodt.

Mallinckrodt held that a restriction on the post-sale use and enjoyment of a patented article is enforceable under the patent laws as long as it does not “venture[] beyond the patent grant and into behavior having an anticompetitive effect not justifiable under the rule of reason.”

According to the Amicus (and Quanta), the Mallinckrodt decision and its progeny do not follow Supreme Court precedent as stated in Univis Lens.

Univis Lens ... held that the authorized sale of an article manufactured “under the patent” exhausts all patent claims in the article regardless of any purported limitation on the subsequent use and enjoyment of the article. . . Univis Lens held that a condition on the post-sale use and enjoyment of a patented device violated the antitrust laws because it was not enforce-able under the patent laws, and thus was not protected against antitrust scrutiny. See 316 U.S. at 252 (“[t]he price fixing features of appellees’ licensing system, which are not within the protection of the patent law, violate the Sherman Act”).United States v. Univis Lens Co., 316 U.S. 241 (1942)

Notes

• It turns out that the patents were originally issued to Wang Labs and are indeed quite broad. U.S. Patent Nos. 4,918,645; 5,077,733; 4,939,641; 5,379,379; and 5,892,509
• Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992)
• Jazz Photo v. ITC, 264 F.3d 1094 (Fed. Cir. 2001), cert. denied, 536 U.S. 950 (2002)("United States patent rights are not exhausted by products of foreign provenance. To invoke the protection of the first sale doctrine, the authorized first sale must have occurred under the United States patent.").
• Arizona Cartridge Remanufacturers Association Inc. v Lexmark International Inc, 421 F.3d 981 (9th Cir. 2005)
• United States v. Univis Lens Co., 316 U.S. 241 (1942)

Humerus Claim Construction: Plain Meaning Redux

Acumed v. Stryker (Fed. Cir. 2007).

Acumed and Stryker both manufacture equipment for orthopedic surgery. Based on its patented nail technology for reconstructing humerus fractures, Acumed sued Stryker for patent infringement. A jury found the claims valid and that Stryker was a literal and willful infringer. Based on the verdict, the Oregon judge assessed enhanced damages and entered a permanent injunction against the adjudged infringer.  Stryker appealed infringement and willfulness.

Claim Construction: The most-disputed aspect of the case involved the court's interpretation of the claim term "transverse holes." Every figure showed the holes, showed them extending "perpendicularly through the shaft." Similarly, the description noted that the holes were "perpendicular."  Based on this intrinsic evidence and the precedential value of Phillips, Stryker argued that the claim term should be given a narrow meaning.

On appeal, the CAFC refused to limit "transverse holes" to holes that were arranged perpendicularly. In doing so, the court reestablished that the paramount rule of construction is that claims are given their plain meaning.

The plain meaning ... covers more than the particular embodiment shown.... While the disclosed embodiment possesses “perpendicular” holes, the claim language covers all “transverse” holes—a word that does not necessarily imply right angles. Moreover, the patentees’ description of their preferred embodiment itself implies a difference between the words “perpendicular” and “transverse.”

In its analysis, the Court implied reasoning similar to that of claim differentiation.  Here, however, the analysis compared the use of "perpendicular" in the specification with the word "transverse" as used in the claims.

The written description states that Figure 2 “illustrates a plurality of transverse holes, each of which is . . . perpendicular to the portion of the nail axis at the butt portion 14 of the nail.” ’444 patent col.2 ll.56-59. This implies that a “transverse” hole need not be “perpendicular”—if it were, the patentee would not have needed to clarify that these holes, in addition to being transverse, were perpendicular to the nail axis.

This case follows the same pattern as the en banc decision of  Phillips v. AWH:

Just as in Phillips, where the asserted claim mentioned “steel baffles” and hence “strongly implie[d] that the term ‘baffles’ does not inherently mean objects made of steel,” this usage of language is strong evidence that the patentee considered “transverse” and “perpendicular” to have distinctly different meanings.

Narrowing Intrinsic Evidence: The court refused to give credence to the interpretation of the term "transverse" found in prior art that was cited on the face of the patent because the reference was not “created by the patentee in attempting to explain and obtain the patent.”

Judge Kimberly Moore dissented from this claim interpretation.  Judge Moore would have held that the intrinsic evidence "fully supports" defining "transverse" as “made at right angles to the anterior-posterior axis of the body”.

The majority suggests that the use of both words “implies a difference between the words ‘perpendicular’ and ‘transverse.’” The majority contends that if transverse was meant to be construed as perpendicular, “the patentee would not have needed to clarify that these holes, in addition to being transverse, were perpendicular to the nail axis.” I disagree... [T]he patentee used the two words to clearly specify which of the definitions of transverse applied to his invention; the purpose of using the word “perpendicular” was to further describe what the inventor meant by the term “transverse,” not to distinguish it as the majority suggests.

Willfulness Affirmed:

[T]wo patent attorneys ... at first strongly discouraged Stryker from marketing the infringing nail in the United States. Despite that advice, Stryker continued to push towards a United States market entry, filing its FDA application months before it received ... revised [non-infringement] legal advice....The judgment of willfulness is therefore affirmed.

Permanent Injunction: Because the case was decided before eBay, the CAFC remanded for a finding on the equities.

Verizon v. Vonage

Vonage is the darling of network neutrality advocates.  Using Vonage, millions of people have canceled their telephone service in favor of an IP-phone that connects through the Internet.

Last month, a jury determined that Vonage infringed three Verizon patents. (6,282,574, 6,104,711, 6,359,880).  These patents all relate to various aspects of Internet telephony.

This is not a "troll" case -- By definition, patent trolls are only looking for a payment in exchange for a patent license. Here, it is fairly clear that Verizon hopes that its patents will cause Vonage to close its doors.  Thus, Verizon requested and was granted a permanent injunction.

Stays Pending Appeal: The general rule as stated in the Federal Rules of Civil Procedure [R. 62(a)] is that a permanent injunction "shall not be stayed during the period after its entry and until an appeal is taken or during the pendency of an appeal." At its discretion, a district court can stay an injunction.  In cases such as this, where the patents strike to the core of the defendant's business, denial of a stay often ends the case because an appeal 3-months-later is too late. Under the Federal Rules of Appellate Procedure [R. 8(a)], a defendant may make a motion to the appellate panel for temporary relief after first showing that a lower court motion would have been "impractical." 

In Standard Havens, the Federal Circuit announced a four-factor test for considering whether to issue a stay pending appeal.

• Likelihood of success on the merits of the appeal;
• Irreparable harmed absent a stay;
• Irreparable harm due to a stay (continued infringement); and
• Public interest.

Vonage Partial Stay: The U.S. District Judge Claude Hilton (E.D.Va) issued the permanent injunction and but granted a partial stay. The judge's decision allowed Vonage to continue in operation, but barred the upstart from signing-up any new customers.

Emergency Appeal: As it did in TiVo v. EchoStar, the Court of Appeals for the Federal Circuit (CAFC) immediately stayed the injunction (at the request of Vonage) and will hear an appeal regarding injunctive relief on April 24, 2007.

USPTO Continuation Practice Rules

The following synopsis comes from noted patent attorney Charles Van Horn:

USPTO Commissioner for Patents John Doll announced today at a DC Bar meeting that the final rules on continuation and designated claims practices are at OMB (Office of Management and Budget) for approval.  The final rules were logged in on April 10 and OMB is expected to complete its review in 90 days, but frequently grants itself an extension of time.  The final IDS rules were said to be on the desk of Director Dudas for approval, and will follow the other two packages to OMB in due course.  So at this point in time, July-August would be an approximation for publication of the final rules, with 30 days (based on previous PTO statements) to implementation.  No details of the final rules were disclosed.

Context: The PTO has proposed dramatically limiting the number of allowed continuation applications (including continuations, continuations-in-part, and requests for continued examination) and the number of claims pursued in each patent.  These proposals have drawn ire from the patent bar.

Famous Domain: Patents.Com is On-Sale

When I think of PATENTS.COM, I immediately think of Carl Oppedahl's old law firm.  Of course, this secondary meaning was not enough to overcome the Federal Circuit's determination that the domain name's trademark usage was merely descriptive. [Link]

PATENTS.COM is now up for sale! As of today, the high-bid is $10,000. I expect the bidding to go much higher for this trendsetting and well established domain.

• Auction Notes: http://www.patents.com/forsale.

Pin-Citing Prior Art

As part of requests for either reexamination or accelerated examination, the submitter must include particular references to the relevant portions of cited prior art.  The Peer-to-Patent project also plans to include a pin-cite approach to give the Examiner a genuine clue as to why particular references were cited. [A pin-cite is a law-school term for a citation to the location of the information within a document. In patent-lingo, this might be: Column 5, lines 12-55]

This leads to a question of whether pin-cite references are helpful to examiners, and whether they would lead to greater patent accuracy.  Theoretically, a pin-cite should help ensure that the Examiner browses the most relevant portion of the cited art.  In addition, the pin-cites may reduce the amount of time that the Examiner uses to pinpoint relevant portions -- freeing up time for a more in-depth analysis or for a broader search strategy.

If these projects are successful, you can expect that the pin-cites will be required IDS practice within a few years.

Query:

• Do (will) pin cites help the examiners and lead to a higher quality examination of patent applications?
• Do any Examiners regularly request such information from the applicant?  Under Star Fruits, an Examiner would certainly be within the law to require further information regarding the cited art.  E.g., "For each pending claim, please identify relevant portions of each reference cited by the applicant." 
• As an applicant, how would you respond to such a request?

Prosecution History Leads to Limiting Preamble

Bass Pro v. Cabela's (Fed. Cir. 2007).

Bass Pro owns a patent covering a vest with an attached seat. In April 2003, Bass Pro sued its arch-rival Cabela's for patent infringement and the parties quickly settled with Cabela's agreeing to stop infringing under a consent decree signed by the judge.  A year later, Cabela's introduced a new product -- a backpack with an attached seat. Bass Pro brought a contempt proceeding.

Modified Product Contempt Rule: When an enjoined party produces a modified device, a contempt order can issue only after a showing that the modified device infringes the patent.

It appears that Cabela's accused backpack exhibits every element in the body of Bass Pro's claim 1. The only difference is the preamble -- Bass Pro's preamble is directed to a vest and seat combo -- not a backpack. 

The district court, seeing the evidence, decided that the vest preamble should not be limiting -- thus finding that the 'vest' claim covers the backpack product.

Amended Preamble: Ordinarily, a preamble does not create a cause for limiting the claim scope.  In this case, however, the prosecution history led-us out of the ordinary.  During prosecution, Bass Pro had amended the preamble to add the vest term (replacing the original 'garment'). In addition, throughout prosecution Bass Pro had discussed its "vest" in contrast to prior art backpack-chair combos.

It is clear that this patentee procured the patent based on the "unique combination of vest and pivotable seat member" stressed in the prosecution history, where the applicant placed these limitations in the claims. The district court erred in holding that the "vest" of claim 1 was not a material limitation to the claim.

On the correct claim construction the vest is a material element, and the claim cannot reasonably be found to be literally infringed.

Notes:

• I'm a big Bass Pro fan. We make an annual late-December journey to the store in search of fabulous Christmas presents.  Let me suggest one in particular: This stove-top popcorn popper works amazingly well.

Happy Birthday Patently-O

Today is the three-year anniversary of the Patently-O Blog. It all started on April 6, 2004.  We now have 1400+ posts covering every precedential patent appeal and Supreme Court decision during this time.

I'm amazed at the popularity of the site -- especially considering that the site is primarily directed to the relatively small group of attorneys practicing patent law and patent litigation (about 30,000 persons).  In all, there have been over 3 million visits.  These visits come from virtually every technology-related Fortune 1000 company, every law firm with at least five patent attorneys on staff, and many many other sources.  Recently a larger number of Patent Examiners have begun to read the site as well.  The graph below falls-short because it does not include the 8,000+ attorneys and agents who have signed-up to receive Patently-O through an e-mail or an RSS-reader.

CAFC Calls Meeting to Discuss Litigating Against the Government

The CAFC has announced that next Tuesday the Court will hold a discussion regarding "Briefing and Oral Argument in Cases Involving the Government." 

The discussion will be held in Courtroom 201 at 2 p.m. on Tuesday, April 10 at the Howard T. Markey National Courts Building. After presentations by one or more judges, there will be an opportunity for those attending to ask questions. The session is expected to last no more than 90 minutes. No advanced registration is required and of course no cost is involved.

While a significant number of patent cases involve the government as a party, I expect that the focus of the briefing will involve cases rising from the US Merit Systems Protection Board (MSPB), Court of Federal Claims (CFC), Board of Contract Appeals (BCA), and the Department of Veteran Affairs (DVA). These cases are occasionally worth a substantial amount of money (especially CFC & BCA cases). However, the majority are small-potatoes as compared to most patent appeals. Consequently, attorneys involved prepare less.  I suspect that the Court will primarily focus on that issue.

A couple of side-notes: one involving pro-bono and another involving the national stature of the Court of Appeals for the Federal Circuit.

Pro Bono: Some of these low-dollar cases create a perfect opportunity for a patent attorney interested in pro-bono activities. In handling a Veteran's appeal, you will likely provide a valuable service and, at the same time, build your experience at the CAFC.

A National Court: Unlike the regional circuit courts of appeal, the CAFC is a national court that handles cases from all-around the country.  To the extent possible, meetings such as this should provide an opportunity for all interested attorneys to participate or at-least access the information provided by the Court.  A simple suggestion would be to provide telephonic access or an MP3 recording of the event. Of course, this is a minor suggestion -- in fact, it is wonderful that the Court is interested in prompting a dialogue with the Bar.

Claim Differentiation

Andersen Corp. v. Fiber Composites (Fed. Cir. 2007).

Claim differentiation is based on a "common sense" presumption that different words used in the various claims indicate that the claims differ in focus and scope. Andersen holds a number of patents related to fiber materials and sued Fiber Composites for infringement.  Fiber Composites used the material for deck railing. Several of the claims included terms such as pellets, linear extrudates, or composites. 

Overcoming the Presumption of Claim Differentiation: Based on the concept of claim differentiation, Andersen argued that the composite limitation must not be limited to pellets and linear extrudates.  In its decision, the CAFC agreed that - in the abstract - Andersen's argument was sound.  However, the appellate body found "powerful evidence" in both the specification and prosecution history that overcome the presumption of claim differentiation. In particular, the applicant lumped the three elements together when making arguments and discussed the pellet form as an 'essential' part of the invention.

Differentiation of Elements vs. Claims: It is also important to remember that the doctrine is that of claim differentiation rather than element differentiation.  Claim differentiation is not necessary unless the claims as a whole are redundant.

"A further reason for not applying the doctrine of claim differentiation in this case is that the ... claims are not otherwise identical but for the references to pellets, linear extrudates, and composite compositions, and thus the district court’s construction does not make the composite composition claims redundant. Instead, there are numerous other differences varying the scope of the claimed subject matter....

Even though the “composite composition” claims, as construed by the district court, cover substantially the same subject matter that is covered by the “pellet” and “linear extrudate” claims, overlapping patent claims are not unusual, and the overlap does not require us to construe the “composite composition” claims to cover subject matter that differs from the subject matter covered by the other two sets of claims. Under these circumstances, the doctrine of claim differentiation does not require rejection of the district court’s construction of the claims.

Consequently, the CAFC ruled that the composite elements were no broader than the claimed pellets or extrudates.

Notes:

• This is a case from January 2007.  I missed it because the Seagate en banc order was released the same day.

Pro Se Applicant: Reinstatement Denied

 Korsinsky v. Dudas (Fed. Cir. 2007) (NONPRECEDENTIAL [but citable] OPINION).

Korsinsky, an individual inventor, allowed his patent to expire for failure to pay the maintenance fee. After the PTO refused to reinstate the patent, he brought this federal action.

The patent in question (4,736,447) is related to automatic data processing of a video feed reaches back to a 1983 filing date.  The patent itself issued in 1988, but the patentee did not make the first maintenance fee payment at 3.5 years. Thus, the patent expired in 1992. Twelve years later (in 2004), Korsinsky filed a petition for reinstatement based on the patentee's statement that "the notice of maintenance fee was not received." After being denied reinstatement by the PTO, Kirsinsky first requested a refund and then attempted again to get reinstatement.

Cause of action:

Mr. Korsinsky’s main argument on appeal is that the PTO has designed a system with tricks and traps that duped him into disclosing his invention and paying substantial sums only to have his invention later confiscated. He argues that this system violates Article I, Section 8, clause 8 of the United States Constitution, which grants Congress the power “[t]o promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

On appeal, the CAFC sided with the USPTO and district court -- determining that the maintenance fee system is constitutional and has not been arbitrarily or capriciously enforced.

Notes:

• John Whealan (pictured at right) handled the PTO's brief. Mr. Whealan has been the USPTO Solicitor since 2001.

The Least Restrictive Claim

In an earlier post, I noted that there are some benefits of providing an initial claim with concrete structure and limitations so that someone reading the claim can instantly understand the invention and its benefits. This helps frame the invention in the minds of the reader and may be especially important when the USPTO Examiner flips to Claim 1 before reading anything else in the patent application.

There are, however, limitations to this approach. In particular, 37 C.F.R. 1.75(g) provides that "[t]he least restrictive claim should be presented as claim number 1." That rule of practice was added in 1996 along with other changes for implementing the 18-month publication rules. The purpose of the change was "to facilitate the selection of a representative claim" to be published in the Gazette.

Although the rule is in place, it appears to be rarely -- if ever -- enforced. The Manual of Patent Examination Practice (MPEP) interprets the rule as a should rule rather than a must rule. 

Claims should preferably be arranged in order of scope so that the first claim presented is the least restrictive. MPEP 608.01(m)

Further, a search of CAFC, District Court, and BPAI opinions along with law review articles reveals only two passing mentions of the rule. (Interestingly, the law review article appears to incorrectly interpret the rule).

Of course, the fact that the rule has not been enforced does not lead to the conclusion that the rule will not be enforced against your client. (I.e., down the line it might come up once again).

The right aproach: Of the usual three independent claims, it is often difficult to determine which is the least restrictive because each may approach the invention from a different perspective.  If one is clearly the least restrictive then it should be listed as claim 1.  If some ambiguity remains, choose the claim that is the most concrete, fleshed-out, and understandable and list it as claim 1.

CAFC Voids Certificate of Correction

Central Admixture Pharmacy v. Advanced Cardiac Solutions (Fed. Cir 2007).

Central Admixture (CAPS) owns a patent covering a glucose-protein solution used to help overcome ischemia during heart surgery. During prosecution, CAPS made a Freshman-Chem error -- claiming the fluid concentration range in units of osmolarity (solute per liter of total solution) instead of osmolality (solute per kilogram of solvent). In this case, for instance, the unit change moves the claimed range by only a few percent. However, the defendant's concentration was on the border-line -- making the issue critical.

CAPS applied for and received a certificate of correction.  The certificate, however, was not issued until after the litigation had already begun.

Certificate of Correction: A certificate of correction can be used to correct a minor mistake such as a "clerical or typographical" error or other minor error. In Superior Fireplace, the court held that a certificate of correction that broadens the claim is only permissible when it is clear from the specification and prosecution history how to correct the error.

Broadening: Here, the CAFC found that the correction broadened the claims because they now cover "less-concentrated solutions which would not be covered under the original claims." [DDC: Of course, a range should not be considered broadened if you are merely shifting the range].

Clear Error Correction: CAPS error is not plain to a reader since solutions have both an osmolality and and osmolarity.  The error can be seen when examining the units used in the specification (mOsmol/L, rather than mOsmol/kg), but the CAFC saw the difference between these units as "very slight." (noting that the difference between miles and meters is much different).

Since the error corrected here was not clearly evident to one of skill in the art and the result of its correction was to broaden the claims, ACS should be granted summary judgment that the certificate of correction is not valid.

The relief for an improper certificate of correction is simply to cancel the certificate.  Thus, in this case the patent "continues to read as it did prior to the issuance of the certificate."

Voidable Title: The research that led to the patent was funded by an NIH grant. The NIH indicated that it would waive its rights to obtain patent protection, but the inventor (Dr. Buckberg of UCLA) failed to properly perfect the waiver.  In Campbell Plastics, the CAFC held that a similar error would allow the Government to obtain title to the patent. However, in this case, the inventor retains title until the day that the NIH goes after it.

Notes:

• The certificate of correction was issued in 2001. The CAFC did not mention that a reexamination certificate was issued in 2005 that made no-change to the corrected patent. 
• Factually, is an osmolarity of 400-500 mOsmol broader than an osmolality of 400-500 mOsmol?
• Footnote 5: 'The result might be different if the patentee’s choice of unit resulted in a clearly incorrect claim—“fifty miles” instead of “fifty meters,” for instance. Here, though, the difference between an osmolarity of 400 mOsmol/L and an osmolality of 400 mOsmol/kg is very slight.'

Patent Venue and Jurisdiction: Why E.D. Texas?

28 USC 1400(b) is the primary patent venue statute. Under the statute, a patent infringement lawsuit may be filed in a jurisdiction (a) where the defendant resides; or (b) where the infringement occurred -- so long as the defendant has a "regular and established place of business" in that jurisdiction.

Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business. 28 USC 1400

1400(b) has been around for a long time and has (historically) been given narrow interpretation. Corporate residence was often limited to the location of the principal place of business or corporate headquarters and an established place of business did not include stores owned by others or sales-persons covering the locale. Numerous patent cases were dismissed or transferred because the defendant did not meet the requirements of the law. For instance, in the 1964 case of Sheldon v. Norbute, a Pennsylvania district court transferred the patentee's case to New York even though the infringement occurred in Pennsylvania. According to the court, the defendant did not fit under the statute because it did not "maintain, control, or pay for an establishment in the district."

In 1990, Congress took to the pen and broadened the definition of a defendant's "residence" to include any jurisdiction where the court has personal jurisdiction.

For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced. 28 USC 1391

In VE Holdings (1990), the Federal Circuit interpreted the amended statute -- determining that the statute's "language is clear and its meaning is unambiguous."  The appellate panel held that the new statute eviscerats the limitations of Section 1400(b) and allows for patent infringement suits in any jurisdiction where the defendant has sufficient contacts under the constitution.

This leads us to last week -- where Orion IP filed suit against 63 defendants in the sparsely populated Eastern District of Texas.  It appears that only a handful of these large corporate defendants have any connection to the jurisdiction beyond a mere 'stream of commerce' analysis.  Is it time to return some teeth to Section 1400?

The Senate's Patent Reform Bill of 2006 (S.3818) would have amended §1400 to, for the most part, eliminate the 1990 expansion.  Under that proposal, the revised venue statute would read as follows:

(b) Any civil action arising under any Act of Congress relating to patents, other than an action for declaratory judgment ... may be brought only — (1) in the judicial district where either party resides; or (2) in the judicial district where the defendant has committed acts of infringement and has a regular and established place of business.

(c) Notwithstanding section 1391(c) of this title, for purposes of venue under subsection (b), a corporation shall be deemed to reside in the judicial district in which the corporation has its principal place of business or in the State in which the corporation is incorporated.

The proposal still goes beyond the original scope of §1400 by allowing suits in jurisdictions based on the residence of either the plaintiff or defendant. 

• Full Disclosure: Several of MBHB's are defendants in the Orion case. These comments are my own and not those of MBHB or its clients.

PTO: Second Pair of Eyes and Quality Review

The PTO has been quietly expanding its patent quality review program using both pre and post-allowance approaches.  The general perception is that the quality review is both over-inclusive and under-inclusive.  It must certainly be true that the review is catching some patents.  However, the following quote -- reportedly from a Patent Examiner -- suggests that the review program -- at least the top-secret post-allowance review -- may be somewhat misdirected in its approach.

"[I]f your claims are long and all the t's and i's are crossed and dotted, those cases will get a pass.  If the claims are short and the subject matter is easily comprehensible, they will get reviewed. (A note to attorney out there -- make those claims long, heh).  Short claims will get many rejections no matter how novel or unobvious they are.  They will make the applicant to put anything in for an allowance.  First action allowance will get pulled (at least in my group)." (via G. Ahronian)

Many patent attorneys draft their initial claim in short-abstract form. I have heard of the two finger approach for the first claim which requires the text of claim one to fit under your index and middle fingers. My approach has long been to provide an initial claim that is long and detailed so that the examiner can understand the invention in concrete form.  With later independent claims, I begin to draw-out the scope to cover a larger ranger of enabled scope.  I wonder how this approach fares under the new quality review process. Of course, this approach must be used within the applicable rules -- notably 37 CFR 1.75(g), which requires that the "least restrictive claim should be presented as claim number 1, and all dependent claims should be grouped together with the claim or claims to which they refer to the extent practicable." 

Notes:

• Secrets at the PTO: The PTO has been stingy and secretive with all information regarding its Office of Patent Quality Assurance (OPQA). What we do know is that OPQA rejections (or their underlying reasoning) are not provided to patent applicants or placed into any publicly available record.  Any further information regarding operation of the OPQA would be appreciated (either via email or comment). dcrouch@gmail.com.
• Litigation Notes: Anyone litigating a recently issued patent may want to submit a FOIA request to the PTO to obtain OPQA information regarding the patent in question. A routing sheet may be available. Examiners -- Is an internal record maintained regarding OPQA rejections?

April TidBits

• Gmail is now in paper version.
• Google is also offering free wireless Internet TiSP
• C|net News notes Wikipedia's adventure in surgery.

(Via Ken Gemmill & IP Central)

[THESE ARE JOKES -- APRIL FOOLS]