Patent Law Blog (Patently-O)

Checklist to Avoid Inequitable Conduct

Debra Anderson recently published her checklist for ensuring that the PTO is notified of all relevant prior art and public uses of an invention. What is on your checklist?

1. Remind your client of the duty to disclose relevant prior art, including related copending applications (and make sure to file this prior art with the United States Patent and Trademark Office).
2. Make sure that the examiner at the patent office is aware of activity in related cases, if handled by other examiners.
3. Ask [inventors and in-house attorneys] about attendance at conferences [including notes taken], posters, and abstracts submitted to journals.
4. Remember to file prior art uncovered in foreign searches.
5. Ask about offers for sale or other public disclosures through use or publication.
6. If you are filing a declaration, make certain that it is clear to the PTO where the interests of the declarant lie. Do not conceal from the PTO facts known to you that are adverse to your client’s position (such as negative data), in order to advance your client’s case.
7. Discuss the date of invention and related evidence with your client.

Notes:

• Bracketed portions are my edits.
• Read the whole article in IP Today.

 

Claim Construction Not Required Before Preliminary Injunction Decision

Novo Nordisk v. Sanofi-Aventis (Fed. Cir. 2008) (nonprecedential)

Novo sued Sanofi alleging infringement of its patent covering an insulin pen. In a Feb 19, 2008 order, the district court denied Novo’s request for a preliminary injunction – finding that Sanofi has a strong non-infringement argument. On appeal, the CAFC quickly affirmed.

The decision to not issue a preliminary injunction rests within the discretion of the district court.

We will reverse such a decision only when an appellant demonstrates that the “factors relied on by the district court [were] clearly erroneous” and “that a denial of the preliminary relief sought would amount to an abuse of the court’s discretion upon reversal of an erroneous finding.” New Eng. Braiding Co. v. A.W. Chesterton Co., 970 F.2d 878 (Fed. Cir. 1992).

In this case, the district court did not construe the claims prior to denying the PI request. It did note, however, that “questions exist” as to whether the patented invention requires direct gearing and a non-rotatable piston — elements not found in the accused product.

In its appellate decision, the CAFC found that the lower court had acted properly in denying the PI request without deciding the claim construction issue: 

At the preliminary injunction stage, however, it is irrelevant whether this case presents greater issues of claim construction or validity—the existence of one or both of these issues is sufficient to justify the district court’s decision to deny a preliminary injunction.

Affirmed

• Note: My former firm, MBHB, represents Sanofi-Aventis in this appeal.

 

 

Patently-O Bits and Bytes No. 53

• Late Requests for Patent Term Extension: An earlier post noted that the PTO had rejected AstraZeneca’s request for a patent term extension because it was filed one day late. Interestingly in its filing, Astra found 14 other PTE requests that were filed on the 61^st day and were still granted: 5,827,937 (RESTYLANE); 5,639,639 (Luveris); 5,532,221; 5,441,745; 4,941,093; 4,874,749; 4,836,217 (ALLERGEN PATCH); 4,830,010; 4,702,253; 4,513,006; etc.
• The following histogram shows the distribution of patent term extensions granted by the PTO. The average extension is just over 2 1/2 years. The PTE list includes about 100 patents that would have expired already, but are still in force due to the extension. See http://www.uspto.gov/web/offices/pac/dapp/opla/term/156.html.

• Question: The CAFC reviews BPAI factual findings for substantial evidence. If an applicant appeals a Board ruling to a district court, how does that court treat the BPAI’s facutal findings? (Please cite a case or give your experience)
• SC Law Review: When I was born, my dad was attending USC — that’s right the Gamecocks of South Carolina.  The South Carolina Law Review transforming to a a peer review journal and is looking for help & comments. http://www.sclawreview.org/peerreview/index.php.

USPTO Rejects SYMBICORT Patent Extension

In re Patent Term Extension for Patent No. 5,674,860 (Commissioner for Patents 2008)

Summary: The USPTO has rejected AstraZeneca’s request for an extension of its patent term on Symbicort. In its decision, the office gave two reasons: (1) new combinations of old drugs do not receive extensions; and (2) AstraZeneca missed the filing deadline by a day.

Intro: AstraZeneca’s drug Symbicort has two active ingredients: formoterol fumarate dihydrate and budesonide. Global Symbicort sales were $1.6 billion in 2007.  The original patent application covering the combo invention was filed in 1991 by two of Astra’s Swedish scientists. The US version issued in 1997.

“Human drug products” require pre-market FDA approval – a long and expensive process. The FDA approved Symbicort in July 2006 – some 15 years after the original patent application was filed.  This long delay is common, and the Hatch-Waxman provision of 35 USC 156 provides for an extension of the patent term based on these delays.

In this case, however, the USPTO has rejected Astra’s extension petition — finding the patent ineligible.

Combo Drugs: Under the statute, extensions are only granted if the patented “product … is the first permitted [and FDA approved] commercial marketing use of the product.”  35 USC 156(a)(5)(A). It turns out that each active ingredient in the Symbicort has been previously marketed – although the combination was new to the market.  Applying the rule to the facts, the PTO found that the “product” had been previously marketed:

“Because both active ingredients in SYMBICORT have been previously approved for commercial marketing or use before the approval of SYMBICORT, Applicant's approval of SYMBICORT does not qualify as the first permitted commercial marketing or use of either active ingredient, as required by section 156(a)(5).”

Synergy is Irrelevant: Importantly, the PTO rejected the argument that the relevant “product” must include both active ingredients because they have synergistic value when combined.

“The term "product" as used in 35 U.S.C. 156 includes any new drug or antibiotic drug, "as a single entity or in combination with another active ingredient." 35 U.S.C. 156 (f)(2). Section 156(f)(2) says nothing about whether a combination is synergistic.”

This decision follows the CAFC precedent found in Arnold Partnership v. Dudas, 362 F.3d 1338 (Fed. Cir. 2004). In that case, the court rejected a PTE extension for Vicoprofen (hydrocodone/ibuprofen) announcing that the statute requires a component-by-component analysis for PTE extension:

“This statutory language requires this court to examine a drug product patent’s eligibility for extension on a component-by-component, or an ingredient-by-ingredient basis.  The final phrase in subsection (f) –“including any salt or ester of the active ingredient, as a single entity or in combination with another active ingredient” – emphasizes this point.  This final phrase of subsection (f) shows that the statute refers to a drug product on a component-by-component basis, not as a whole.” Arnold Partnership.

MPEP 2751 includes the interesting statement that “an approved product having two active ingredients, which are not shown to have a synergistic effect or have pharmacological interaction, will not be considered to have a single active ingredient made of the two active ingredients.”  The PTO in its decision rejected the negative implication of this statement.

One Day Late: As an alternative reason for its decision, the Commissioner found that the PTE Petition had been filed one day late. It is always a trick to figure out whether the first day of a time period “counts.” 

Section 156 announces that the due date is: "within the sixty-day period beginning on the date the product received [FDA] permission.” PTO rules spell this out more particularly – requiring the application be submitted “within the sixty day period beginning on the date the product first received permission.” 37 C.F.R. 1.720(f). Based on a “plain language” reading of the statute and rule, the PTO decided that the day that permission was granted counts as day one rather than day zero.

Because the FDA granted permission on July 21, 2006, PTO found that the sixty-day period ended on September 18, 2006. Astra filed its petition on September 19.

Astra can appeal “within TWO MONTHS of the mailing date of this letter.”  The PTO’s letter was sent on June 13 – query whether the reply is due on the 12th, 13th, or 14^th?

PTO Press Release: Deputy Peterlin Leaving PTO

Margaret Peterlin has announced that she will be leaving the PTO in August.  She has sparked resistance from the patent community ever since her appointment as deputy director of the USPTO in May 2007. She is considered an expert at legislative tactics at a time when the PTO was asking for legislation opposed by many patent practitioners.  In late 2007, a DC District dismissed a lawsuit against the USPTO requesting that Peterlin be removed from office. The complaint alleged that she lacked the intellectual property law experience required by statute for her position.  In many ways, the negative reaction to Peterlin was simply a reflection of frustrations felt by many patent practitioners.  In an internal message to PTO employees, Director Jon Dudas indicated that Peterlin is also expecting her first child later this year.  Congratulations and Good Luck!!

BPAI Factual Findings Affirmed Based on Substantial Evidence

In re Stauffer (Fed. Cir. 2008) (nonprecedential)

This is a nice idea: A device for automatically printing out caller ID records. What I prefer (and have used in the past) is to receive an e-mail receipt for all incoming calls and with messages attached in an mp3.

SEI (the party in interest) has a simple enough claim:

1. A caller ID printing device, comprising:

a controller configured to detect caller ID information from an incoming call; and
a printer configured to automatically print the caller ID information; and
a message template onto a call record immediately after the first receipt of a first ring signal and without user intervention.

The BPAI rejected the claim as obvious. On appeal, the CAFC reminded the applicant that the BPAI’s underlying factual determinations need only be supported by “substantial evidence.”

‘Substantial evidence is evidence that “a reasonable mind might accept as adequate to support a conclusion.” In re Gartside, 203 F.3d 1305 (Fed. Cir. 2000). “[W]here two different inconsistent conclusions may reasonably be drawn from evidence in the record, an agency’s decision to favor one conclusion over the other is the epitome of a decision that must be sustained upon review for substantial evidence.” In re Jolley, 308 F.3d 1317 (Fed. Cir. 2002). This court will not determine that a decision made by the Board is unsupported “simply because the Board chose one conclusion over another plausible alternative.” Id.’

In this case, the panel easily found that two references combined teach each element of the invention and render it obvious.

Secondary Considerations of Obviousness in a Patent Case: The Seldom-Used "Simultaneous Invention" Factor

Secondary considerations are most often used by patentees as circumstantial evidence that an invention was nonobvious.  “Negative” secondary considerations – those used as circumstantial evidence of obviousness – have received less attention and less support in the case law. However, Brent Yamashita discusses the potential use of one negative secondary consideration: the simultaneous invention factor.  Brent gave his permission to publish this short article on the topic.

By Brent Yamashita*

Introduction: In nearly every patent litigation, the accused infringer will argue that the asserted patent claims are obvious (if not anticipated) by the prior art and therefore should be ruled invalid.  The U.S. Supreme Court substantially altered the law of obviousness in KSR when it held that an accused infringer does not necessarily need to show "a teaching, suggestion, or motivation" ("TSM") in the prior art to combine known elements in order to show that the combination was obvious.  See KSR Int'l Co. v. Teleflex Inc., 550 U.S. ___, 127 S. Ct. 1727, 1741 (2007).  Now that proving obviousness no longer requires establishing TSM, the secondary considerations of obviousness and nonobviousness have taken on greater importance in obviousness determinations, as KSR left that doctrine fully intact.

The concept of secondary considerations originated in Graham, where the Supreme Court stated that secondary considerations can serve as relevant "indicia of obviousness or nonobviousness" and might be utilized "to give light to the circumstances surrounding the origin of the subject matter to be patented."  See Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 17-18 (1966).  The Court further stated that secondary considerations can include commercial success, long-felt but unsolved need, and the failure of others.  See Id.  Other factors recognized by the Federal Circuit after Graham include whether the prior art teaches away from the invention, whether others have copied the invention, and whether the invention has received industry acclamation.  See, e.g., Ecolochem, Inc. v. Southern California Edison Co., 227 F.3d 1361 (Fed. Cir. 2000), cert. denied, 532 U.S. 974 (2001).

The Simultaneous Invention Factor: Another secondary consideration-and one which appears to have been discussed and applied much less frequently by the Federal Circuit than the other secondary considerations-is the simultaneous invention consideration.  The Federal Circuit has stated that, "[T]he possibility of near simultaneous invention by two or more equally talented inventors working independently,… may or may not be an indication of obviousness when considered in light of all the circumstances."  Ecolochem, 227 F.3d at 1379 (quoting Lindemann Maschinenfabrik GMBH v. American Hoist and Derrick Co., 730 F.2d 1452, 1460 (Fed. Cir. 1984)).  In other words, the fact that another person simultaneously and independently created the same invention claimed in the patent-in-suit can serve as an indication that the invention was obvious.

Every accused infringer should consider this often-overlooked secondary consideration in preparing its obviousness defense.  This factor can be particularly useful in a situation where the simultaneous inventions occurred shortly after an enabling technology was introduced.  Some inventions only become possible-or relevant-once a foundational technology becomes known.  For example, tires could not have been invented before the wheel and would have been meaningless before the wheel.  An enabling technology can serve as a chronological starting point for the simultaneous inventions that follow, which can be useful in gauging obviousness of the invention.

In this particular context, I propose that the simultaneous invention factor be modified as follows:  Simultaneous invention by a first inventor and a second inventor is indicative of obviousness when the development by the two inventors occurred independent of one another in a simultaneous manner shortly after an enabling technology emerged and where there is a nexus between the enabling technology and the development by the two inventors.  Applying the simultaneous invention factor in this manner would reflect the fact that if more than one person develops the claimed invention quickly once all of the necessary enabling technology becomes available, then the invention arguably was obvious.

As an example, imagine the following sequence of events: 

• March 1, 1925:  Company A introduces the world's first TV.  The TV includes an antenna for receiving broadcast signals.  (Admittedly, TV content is hard to come by at this time.)
• May 1, 1925:  Inventor B develops a TV antenna that improves the reception of Company A's TV.  Inventor B files a patent application on his invention and eventually obtains the patent.
• May 15, 1925:  Inventor C, independently of Inventor B, develops a TV antenna that improves the reception of Company A's TV.  Inventor C's antenna practices the claims of Inventor B's patent when it ultimately issues.

Under the simultaneous invention factor, an accused infringer in a lawsuit brought by the owner of Inventor B's patent could argue that the fact that Inventor B and Inventor C each independently created a TV antenna shortly after an enabling technology (i.e., Company A's TV) emerged suggests that the claimed invention was obvious once the enabling technology existed and that the invention would have been invented sooner had the enabling technology been available sooner.  In addition, the simultaneous invention factor in this context would counteract the ability of the patent holder to argue that a long-felt but unsolved need for the claimed invention shows that the patent was nonobvious, since the "long" aspect of the long-felt need in this context was a result of the amount of time that elapsed before the TV emerged and was not a result of the amount of time taken to develop the invention once the enabling technology existed.

From a litigation strategy standpoint, in most instances the accused infringer under this proposed rule would do whatever it could to find technology that preceded the invention and argue that it was enabling and that the invention occurred only once that technology existed.  The proposed modification of the simultaneous invention rule potentially could become a "knee-jerk" obviousness argument by every accused infringer, and courts therefore must be diligent about identifying and rejecting spurious arguments.  In that regard, requiring litigants to establish a nexus between the simultaneous inventions and the enabling technology will help to prevent the abuse of this secondary consideration.  The nexus will be most apparent if both inventors began their work only after the enabling technology emerged and if the inventions never could have been developed or built without that enabling technology in place.  In this sense, the enabling technology must be a genuine prerequisite or foundation for the invention.

Conclusion:  In appropriate circumstances, litigants should utilize the often-overlooked simultaneous invention factor in its obviousness defense.  If applied in the manner proposed in this article, the simultaneous invention factor properly recognizes the fact that in some instances inventions do not occur after years and years of toiling in a laboratory, but rather, after a minimal effort (executed by others independently and simultaneously) after a breakthrough in an enabling technology that is not itself the subject of the invention.

Notes:

• * Brent Yamashita is a partner in the patent litigation group of DLA Piper US LLP's Silicon Valley, California office.
• See also, Duffy’s Timing Approach to Patentability.
• TJ Chiang discusses this the history behind the Simultaneous Invention factor in his recent law review article: A COST-BENEFIT APPROACH TO PATENT OBVIOUSNESS.

Obviousness of Chemical Compounds; Split over Inequitable Conduct

EISAI v. DR. REDDY’S LABORATORY and TEVA PHARMACEUTICALS (Fed. Cir. 2008)

Eisai’s blockbuster ulcer drug AcipHex boasts over $1 billion in annual worldwide sales.  The company holds a patent covering the active ingredient – rabeprazole – and its salts. Dr. Reddy’s and Teva each filed ANDAs and Eisai filed suit to block generic entry.

Eisai won a summary judgment decision that the patent is infringed and enforceable. The appeal focuses on obviousness and inequitable conduct.

Obviousness of Chemical Compounds: Structural similarity is the touchstone of the obviousness inquiry for patents claiming a novel chemical compound. A looming question for pharmaceutical companies, however, is how the Supreme Court’s decision in KSR v. Teleflex will impact chemical patents.

In KSR, the Supreme Court eased a defendant’s pathway for invalidating a patent as obviousness. KSR’s focus, however was on inventions created by combining known elements.  Here, the individual components of Eisai’s claimed compound were all known. However, the Eisai decision cabins-in KSR’s importance by showing that the assumptions found in KSR often do not apply to chemical compound cases.

“The Supreme Court’s analysis in KSR thus relies on several assumptions about the prior art landscape. First, KSR assumes a starting reference point or points in the art, prior to the time of invention, from which a skilled artisan might identify a problem and pursue potential solutions. Second, KSR presupposes that the record up to the time of invention would give some reasons, available within the knowledge of one of skill in the art, to make particular modifications to achieve the claimed compound. Third, the Supreme Court’s analysis in KSR presumes that the record before the time of invention would supply some reasons for narrowing the prior art universe to a "finite number of identified, predictable solutions." In Ortho-McNeil Pharmaceutical, Inc. v. Mylan Laboratories, Inc., 520 F.3d 1358, 1364 (Fed. Cir. 2008), this court further explained that this "easily traversed, small and finite number of alternatives . . . might support an inference of obviousness." To the extent an art is unpredictable, as the chemical arts often are, KSR’s focus on these "identified, predictable solutions" may present a difficult hurdle because potential solutions are less likely to be genuinely predictable.”

Thus, in chemical compound cases, “a prima facie case for obviousness for a chemical compound still, in general, begins with the reasoned identification of a [prior art] lead compound.”  Obviousness can then based on structural similarity along with some “motivation that would have led one of ordinary skill in the art to select and then modify a known compound (i.e. a lead compound) in a particular way to achieve the claimed compound.”  Although the motivation to modify the prior art can come from many different fields, some motivation is needed. In chemical cases, this motivation may be proved by showing a ‘sufficiently close relationship’ between the prior art and claimed compound that would ‘create an expectation . . . that the new compound will have similar properties to the old.’ (internal quotation marks removed). In other words, an obvious substitution would be ‘predictable.’

In this case, the lead compound – Lansoprazole – is quite similar to the claimed compound Rabeprazole. The difference is only found in a trifluroethoxy substituent at the 4–position (see figure) versus a methoxypropoxy substituent.  Although structurally similar, the CAFC could not find any motivation to substitute the active groups. In particular, the court noted that it would not make sense to drop trifluroethoxy from the prior art — since it is that substituent that activated Lansoprazole.

“The record, however, shows no discernible reason for a skilled artisan to begin with lansoprazole only to drop the very feature, the fluorinated substituent, that gave this advantageous property.”

Nonobviousness affirmed.

A High Bar for Inequitable Conduct: As usual, Judge Rader took a hard stance against inequitable conduct. He writes:

“Inequitable conduct in prosecuting a patent application before the United States Patent & Trademark Office may take the form of an affirmative misrepresentation of material fact, a failure to disclose material information, or the submission of false material information, but in every case this false or misleading material communication or failure to communicate must be coupled with an intent to deceive.  Innogenetics, N.V. v. Abbott Labs., 512 F.3d 1363, 1378 (Fed. Cir. 2008).  Materiality, defined as "what a reasonable examiner would have considered important in deciding whether to allow a patent application," and intent are both questions of fact, and require proof by clear and convincing evidence.  Id.  To satisfy the "intent" prong for unenforceability, "the involved conduct, viewed in light of all the evidence, including evidence indicative of good faith, must indicate sufficient culpability to require a finding of intent to deceive."  Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 876 (Fed. Cir. 1988) (en banc) (citing Norton v. Curtiss, 433 F.2d 779 (CCPA 1970)).  Gross negligence is not sufficient.  Id.  This is a high bar.”

This opinion along with Judge Rader’s recent dissent in the Aventis case may show a growing split within the court on the issue of inequitable conduct.

Notes:

• I updated this report to add a squishy word: “often.” The modified sentence now reads: “However, the Eisai decision cabins-in KSR’s importance by showing that the assumptions found in KSR often do not apply to chemical compound cases.”

Reading Quanta Narrowly

David McGowan is a law professor at the University of San Diego School of Law. Much of his research involves the interplay between new technologies and antitrust law. I asked him to comments on the Supreme Court’s recent patent-antitrust decision: Quanta.

By David McGowan

To the extent possible, parties and not courts should set the terms for practicing inventions.  Parties have better information than courts; they are likely to set more efficient terms.  The Supreme Court’s opinion in Quanta Computer, Inc. v. LG Electronics, Inc, does not embrace this principle, though it may not reject it very broadly. The opinion may and should be narrowly construed.

I presume readers of this blog are generally familiar with the ruling. Intel took from LG electronics a license providing Intel a defense to infringement and immunity from contributory infringement by Intel’s customers, who knew Intel’s license did not extend to them.  The Court nevertheless held the Intel license exhausted LG’s rights insofar as Intel chips were concerned.

The Court’s analysis on the main point is too formal. Because the chips embodied substantially all the relevant LG inventions and had no substantial use unrelated to practicing those inventions, the Court thought it irrelevant that Intel customers knew their chips implied no LG license.

But an invention is an intellectual achievement distinct from its embodiment in a product.   There is no logical reason the sale of a product should exhaust rights in an invention.  There is a logical objection: Forcing patentees to load up initial sales with all the terms necessary to tailor rights to potential uses will tend to increase transaction costs of initial licenses and probably result in lumpier, less tailored contracting in general.  Better to let Intel buy its peace at a price that reflects its business and let its customers do the same. 

The statute does not compel the Court’s holding, which rests on history.  The Court should have limited rather than extended the cases it relied on.  These, such as Bauer and Motion Picture Patents, invoked exhaustion to defeat post-sale restrictions on use of a product.  But such restrictions may facilitate price discrimination or make sense for other business reasons.  Intel and LG, and firms like them, know better than courts when this is the case. 

Against this it might be argued that a robust exhaustion doctrine economizes on downstream transaction costs.  Conceptually that is true, and perhaps persuasive at the retail consumer level, but Quanta was not such a case.  Taken to its logical conclusion, this argument implies patentees are better off suing everyone and negotiating settlements than licensing anyone and giving up the ability to tailor terms.  That implication is perverse.

The Court’s devotion to history is odd because it has not shown much regard for history of late.  In eBay v. Mercexchange it was unimpressed by the long history of presumptive injunctive relief for infringement.  In the antitrust context, in Leegin Creative Leather it recently overruled the longstanding per se prohibition on minimum resale price maintenance.  And in Illinois Tool Works the Court reversed the relatively longstanding presumption that patents imply market power in tying cases. 

Quanta is at least in tension with Leegin and Tool Works.  Those cases recognize that post-sale restrictions may be efficient, a point Leegin makes directly and which is implicit in Section 271(d)(5) of the Patent Act, on which the Tool Works Court relied. In placing economic substance over transactional form, Leegin and Tool Works follow Continental TV, Inc. v. GTE Sylvania, which overruled the Court’s per se prohibition on vertical nonprice restraints.  Like exhaustion, that rule had been based on transactional formalism rather than economic analysis.

Both Leegin and Tool Works reject doctrines that trace to the same cluster of cases, such as Bauer and Motion Picture Patents, the Quanta Court cites favorably. Yet the Quanta Court said nothing to explain how its holding relates to antitrust precedents (or Section 271(d)(5)) recognizing that post-sale restrictions may be efficient.  One therefore might try to read Quanta as qualifying even its recent antitrust cases.

On this reading, at least insofar as pass-through restrictions are concerned Quanta implicitly qualifies the Federal Circuit’s Mallinckrodt precedent, which, in the misuse context, upholds patentees’ ability to impose lawful conditions on use.   Professor Ghosh has suggested (http://lawprofessors.typepad.com/antitrustprof_blog/2008/06/the-quandry-of.html) the Court’s footnote seven, which says exhaustion does not necessarily bar breach of contract claims, may point in this direction.

This reading of Quanta is neither compelled nor desirable.  It is possible to reconcile Quanta with the Court’s recent (and sensible) antitrust decisions by focusing on two things not at issue in Quanta. 

First, the initial license to Intel was not conditional.  The cases the Court cited also involved unconditional sales. Quanta therefore should not be read to extend to conditional licenses, and thus not to undercut Mallinckrodt directly.  Second,  Quanta presented no question regarding pass-through conditions and should not be held to govern them.  Intel merely bought immunity from suit for contributory infringement.  The Court did not stress this fact, but it is fair to repay the woodenness of its analysis with a strict reading of its holding.

A weakness of this reading is that it renders Quanta trivial.  One wonders why the Court would take a such a case.  Possibly the Court believes patent law and the Federal Circuit have got out of hand and must be reigned in.  But its majority opinions have not matched the robust commentary cert grants have prompted.  They are fairly narrow and unambitious.  So is Quanta, and it deserves to be read that way. 

Applying Festo to Claim Construction: Construing an Amended Claim

University of Texas v. BENQ, et al. (Fed. Cir. 2008)

In 2005, UT filed suit against a total of fifty-six defendants alleging infringement of claims 10 and 11 of its patent that converts text messages into binary syllabic elements before transmission.  After claim construction, the district court granted summary of non-infringement. 

Construction of Amended Claim: The appeal focuses on the term “syllabic element.” UT wanted the phrase to be broader than “a character set of one syllable.”  In its analysis of claim construction, the CAFC looked to the prosecution history.

After receiving a rejection during prosecution, UT added the “syllabic element” term to replace “an alphabetic character string” and cancelled a dependent claim directed toward matching whole words.  On appeal, the CAFC gave “substantial weight” to these amendments — presuming that the amended phrase could not be as broad as the original:

“[C]laim 10 originally recited matching with an alphabetic character string, while one of its dependent claims specified that this string comprised a word. After the examiner identified a reference that showed matching with a word, the Board of Regents limited claim 10 to require matching with syllabic element(s) and canceled the dependent claim that required matching with words. The cancellation of this dependent claim indicates that the set of “syllabic elements” does not include all words.”

In addition, because the amendment was made in order to overcome a prior art reference, the CAFC found it would be nonsensical to give the claim a definition as broad as the original:

“Moreover, if "syllabic elements" included words, then [the prior art] disclosure of matching with words would teach the portion of claim 10 that was amended to distinguish [the prior art]. We decline to adopt a construction that would effect this nonsensical result.”

Finally, the CAFC chose to hold the prosecution history against the patentee by ignoring potential arguments that lack explicit support in the intrinsic record.

“While the Board of Regents might have been able to distinguish [the prior art] on this ground, the intrinsic record fails to support the argument that it actually did so.”

Intermittent Infringement: The asserted method claim uses a comprising transition and requires that “each pre-programmed code being representative of a syllabic element.”  The accused products do use pre-programmed codes, but only some of them are representative of syllabic elements. Thus, the question on appeal was whether the claims require a vocabulary that includes only syllabic elements.  With some sophistry, the CAFC arrived at the result that an infringing vocabulary would only include syllabic elements. In particular, the claim reads as follows:

“…matching said binary code with one or more pre-programmed codes, each pre-programmed code being representative of a syllabic element; [and]

[f]orming a representation of the word from the one or more syllabic elements represented by the matched one or more pre-programmed codes…“

 Here, the CAFC used its grammatical analysis to find that the “matched” pre-programmed codes are a subset of the whole set of “each” pre-programmed code. The claim requires each pre-programmed code to be a syllabic element, ergo the entire set of pre-programmed codes must be in syllabic element form. q.e.d.

Claim construction and resulting summary judgment affirmed.

 

 

Filing of Continuations and RCEs: 1998-2007

Esther Kepplinger at Wilson Sonsini generated the data for the graphs above. They show that RCE filings have dramatically increased over the past decade. (Note that Kepplinger included CPA's in the RCE numbers).

Patently-O Bits and Bytes No 52

• Judge Ward to BSC Counsel: "The court has never had counsel so recklessly disregard its orders before this trial" [Smith Discusses]
• David Donoghue directs us to Victoria Pynchon’s article on ‘negotiating by e-mail.’ Bottom line: e-mail negotiations increase hostility. [Article][Donoghue]
• I’m looking for a legal analysis of the potential pitfalls of outsourcing of patent proseuction. Anyone? dcrouch@patentlyo.com.
• Paul Caron’s Law Prof Blog Ranking puts Patently-O tied for 5^th in the nation based on web site visits in the past year.

Outsourcing of Patent Preparation: PTO Says Beware

In a recent notice, the PTO has indicated that it may be illegal to outsource invention information to a foreign county for the purposes preparing a US patent application.

1. A foreign filing license from the USPTO does not authorize the exporting of subject matter abroad for the preparation of patent applications to be filed in the United States.
2. Applicants who are considering exporting subject matter abroad for the preparation of patent applications to be filed in the United States should contact the Bureau of Industry and Security (BIS) at the Department of Commerce for the appropriate clearances.

What's Sauce For the Private Goose...

Ilya Shapiro is a Senior Fellow at the libertarian Cato Institute in DC. He was also my classmate in both college and law school. In a recent op-ed for the Legal Times, Shapiro supported BPMC’s contention that the state of California should not be immune from charges of patent infringement.

What's Sauce For the Private Goose...

by Ilya Shapiro (This article appeared in the Legal Times on June 2, 2008.)

… In Biomedical Patent Management Corp. v. California Department of Health Services, the biotechnology company known as BPMC is suing the state of California for patent infringement—specifically, of the company's patent on a form of prenatal screening for fetal abnormalities. Ignoring the merits of the suit, the federal district court in San Francisco dismissed it on the ground of "sovereign immunity": Under the Supreme Court's reading of the 11th Amendment, a state cannot be sued in federal court without its consent. The U.S. Court of Appeals for the Federal Circuit—which handles all appeals in patent litigation—affirmed the lower court decision.

So BPMC has turned to the Supreme Court, which in recent years has been increasingly willing to reverse the Federal Circuit. The company wants the Court to strip California's immunity in this case because the state's Department of Health Services previously waived immunity when it joined a suit brought by a state contractor about the same patented procedure. That is, after California actively litigated the earlier suit (which sought and failed to obtain a declaratory judgment that the contractor was not infringing BPMC's patent), the state should be precluded from turning around to claim immunity when it gets sued over the same issue.

Moreover, as BPMC notes, the University of California (among other state agencies) routinely submits to federal court jurisdiction when it pursues claims for violations of its own patent rights. Given that California uses the patent system (and courts' enforcement thereof), it has relinquished whatever sovereign immunity the state enjoys—immunity that is legally suspect in any event when the sovereign engages in commercial activities.

And, boy, does California use the patent system. The state universities alone own more than 3,300 patents that generate $210 million in annual revenue. California has filed 21 patent infringement suits since 1990 and won more than $900 million in judgments since 2000.

And yet the state has also wielded sovereign immunity arguments to get suits dismissed at least six times since 1987 (including suits by Genentech and Eli Lilly & Co.).

While the worst peddler of this double standard, California is by no means alone. At least 32 states have filed at least 173 patent suits since the mid-1990s.

UNFAIR ADVANTAGE

Business groups hope that the Supreme Court will remove what they see as a competitive advantage enjoyed by state entities: Private patent holders can't seek recompense for a state's unlicensed use of software or medical devices, while states can turn to the courts to protect their patents. Medical innovators and technological entrepreneurs in the private sector suffer.

"It's audacious for a state to use the federal courts to sue for patent infringement, but to block infringement suits against it as a sovereign that cannot be sued," says Robin Conrad of the National Chamber Litigation Center in a press release. The center has filed an amicus brief on behalf of the U.S. Chamber of Commerce in the case—only the second time the Chamber has ever filed in a Supreme Court patent case.

This hypocrisy should not even be in play any more, not since Congress passed the Patent Remedy Act of 1992. That legislation was intended to "clarify that states .?.?. are subject to suit in federal court by any person for infringement of patents."

That sounds clear enough. But in 1999 the Supreme Court ruled in a trademark case, College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, that Congress' legislative powers under Article I of the Constitution were insufficient to trump states' sovereign immunity. Except in 2006 the Court held the opposite in a federal bankruptcy case, Central Virginia Community College v. Katz. The votes in these seemingly contradictory decisions were 5-4.

In fact, neither case should have been close: When a state repeatedly and voluntarily invokes federal court jurisdiction in a series of similar cases—under patent or any other law—it generally has waived immunity against suits brought by private parties under those same laws. And the precedent is well established that a state waives sovereign immunity when it seeks to adjudicate its rights in federal court. For example, the Supreme Court unanimously held in the 2002 case of Lapides v. Board of Regents of the University System of Georgia that a state loses its 11th Amendment immunity when it removes a case from state to federal court.

EASY CALL

So, as the solicitor general's office collects agency views and mulls the administration's position, it should recognize that Biomedical Patent Management Corp.—an unwieldy name for an important case—not only represents the chance to right the balance between a state and its citizens with respect to intellectual property. It also provides the perfect opportunity for the Court to clarify its jurisprudence on the relationship between Congress' Article I powers and states' 11th Amendment immunity.

Sovereign immunity is properly a shield against lawsuits challenging a state's governmental action, not a sword with which to carve out economic advantage over private competitors. If the Supreme Court declines to hear this case, thereby letting the Federal Circuit ruling stand, it would reinforce that unfair advantage—and strike a blow against private sector innovation.

Whoever it is that replaces the outgoing Paul Clement should not agonize over this one. The next solicitor general should advise the Supreme Court to grant this petition for review. And the justices should take his advice.

TAFAS v. DUDAS: PTO Asks CAFC To Allow Office to Implement Limits on Continuations and Claims

Tafas v. Dudas (on appeal at the CAFC)

After being rejected by the district court, the USPTO has appealed its case to the Federal Circuit. On appeal, the USPTO asks the appellate court to allow the patent agency to implement new rules that place limits on the number of claims filed with each patent application and the number of continuations that may stem from each patent application. [File Attachment: pto tafas brief (144 KB)]

The PTO asks the CAFC to review three specific issues:

1. Whether the PTO's new limits on claims and continuations are within the scope of the Office's statutory rulemaking authority;
2. Whether the new limits conflict with the Patent Act; and
3. Whether the PTO must provide additional notice and comment for its rule changes.

The PTO summarizes its arguments as follows:

1. The Final Rules are within the scope of the USPTO's rulemaking authority under the Patent Act. The Act's primary grant of rulemaking authority, Section 2(b)(2), authorizes the Office to issue rules that "govern the conduct of proceedings in the Office," "facilitate and expedite the processing of patent applications," and "govern the recognition and conduct of agents, attorneys, or other persons representing applicants or other parties before the Office." The USPTO correctly determined that the Final Rules fit within these grants of rulemaking authority. By setting filing and documentation requirements, the rules regulate the conduct of proceedings in the Office and the conduct of attorneys and other representatives, and by discouraging unnecessarily repetitive filings and providing examiners with needed information, they facilitate and expedite the processing of patent applications.

In holding that the Final Rules are ultra vires, the court made no effort to measure the Final Rules against the actual terms of Section 2(b)(2), nor did the court give the USPTO's interpretation of that provision the deference required by Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and its progeny. Instead, the court held that the Office is confined to issuing procedural rules and that the Final Rules are impermissibly substantive. But the cases on which the district court relied do not engraft a rigid procedural/substantive distinction onto Section 2(b)(2). And even if they did, the Final Rules would still pass muster, for they regulate the procedures used in proceedings before the Office rather than the substantive criteria for the awarding of patents. The district court's conclusion that the rules are substantive rather than procedural rests on APA cases that do not involve that distinction at all, and the court's standards for measuring the "substantiveness" of rules are at odds with the Supreme Court's jurisprudence under the Rules Enabling Act.

The court compounded these errors by erroneously holding that Section 2(b)(2)(B), which provides for the USPTO to issue rules "in accordance with" 5 U.S.C. § 553, requires the Office to engage in notice-and-comment rulemaking even when Section 553 expressly provides that notice and comment are not required.

2. In the course of its ultra vires analysis, the district court held that the Final Rules are inconsistent with other provisions of the Patent Act. That holding is likewise incorrect. The court mischaracterized the effects of the Final Rules, misconstrued the statutory provisions, misunderstood the judicial precedents concerning those provisions, and failed to give the USPTO's construction of the provisions the deference required by Chevron.

The district court held that Rules 78 and 114 conflict with Section 120 and 132(b), respectively, because the rules place "hard limits" on the number of continuation applications and RCEs that an applicant may file, while the statutory provisions entitle applicants to make an unlimited number of such filings. But the rules do not in fact limit the number of continuation applications and RCEs that may be filed; they simply require an applicant to show the need for further filings once a threshold number of filings has been made. And even if the rules did impose fixed limits, they would not conflict with Sections 120 and 132(b). Section 120 was enacted by Congress simply to provide a statutory basis for continuation practice, not to vest applicants with the right to file an endless stream of continuation applications.

Likewise, Section 132(b), which directs the Office to issue regulations providing for continued examinations, does not entitle applicants to file an endless series of RCEs. The district court held that Rules 75 conflicts with Section 112 ¶2 by limiting the number of claims that may be included in a single application. But Rule 75 places no limit whatsoever on the number of claims in an application, and Section 112 ¶ 2 does not address the permissibility of such a limit in any event. The court also held that Rule 75 and 265 conflict with the provisions of the Patent Act that assign the USPTO the burden of examination and the burden of establishing a prima facie case of unpatentability. But there is no conflict between those provisions and the rules, which merely require applicants to provide information about their claims and prior art so examiners can discharge their burdens more accurately and efficiently.

The Death of Google's Patents?

By John F. Duffy* [File Attachment (42 KB)]

            The Patent and Trademark Office has now made clear that its newly developed position on patentable subject matter will invalidate many and perhaps most software patents, including pioneering patent claims to such innovators as Google, Inc.

            In a series of cases including In re Nuijten, In re Comiskey and In re Bilski, the Patent and Trademark Office has argued in favor of imposing new restrictions on the scope of patentable subject matter set forth by Congress in § 101 of the Patent Act.  In the most recent of these three—the currently pending en banc Bilski appeal—the Office takes the position that process inventions generally are unpatentable unless they “result in a physical transformation of an article” or are “tied to a particular machine.”[1] Perhaps, the agency has conceded, some “new, unforeseen technology” might warrant an “exception” to this formalistic test, but in the agency’s view, no such technology has yet emerged so there is no reason currently to use a more inclusive standard.[2]  

            The Bilski en banc hearing attracted enormous attention, and yet there has remained a sense among many patent practitioners that the PTO’s attempts to curtail section 101 would affect only a few atypical patent claims.  The vast bulk of patents on software, business and information technology are thought by some not to be threatened because those innovations are typically implemented on a machine—namely, a computer—and the tie to a machine would provide security against the agency’s contractions of § 101.  Even if that view were right, the contraction of patent eligibility would be very troubling because the patent system is supposed to be designed to encourage the atypical, the unusual and the innovative.  But that view is wrong.

            The logic of the PTO’s positions in Nuijten, Comiskey and Bilski has always threatened to destabilize whole fields of patenting, most especially in the field of software patents.  If the PTO’s test is followed, the crucial question for the vitality of patents on computer implemented inventions is whether a general purpose computer qualifies as a “particular” machine within the meaning of the agency’s test.  In two recent decisions announced after the oral arguments in the Bilski case, Ex parte Langemyr (May 28, 2008) and Ex parte Wasynczuk (June 2, 2008),[3] the PTO Board of Patent Appeals and Interferences has now supplied an answer to that question: A general purpose computer is not a particular machine, and thus innovative software processes are unpatentable if they are tied only to a general purpose computer.  

Movie: Flash of Genius

The new movie is based on the life and patent trials of Bob Kearns.

Patent Appeals: The Elements of Effective Advocacy in the Federal Circuit

Book: Patent Appeals: The Elements of Effective Advocacy in the Federal Circuit
Author: Mark Davies
Publisher: Oxford University Press

Cost: $85.00 from Amazon

Mark Davies recently authored the user manual for Federal Circuit appeals.  From its 300 spiral-bound pages, you can tell that the book is designed to serve the appellate attorney during the process of crafting a brief. Davies argued dozens of appeals as a DOJ appellate attorney and is now doing the same at O’Melveny in DC.

The book is very easy to read and understand, and it does an especially good job of providing concrete advice on how to draft an effective and clearly written brief while staying within the rules.

Davies adapts Strunk & White’s Elements of Style into a top five list that would benefit any writing: (1) Omit needless words; (2) Make the paragraph the unit of composition; (3) Use parallel and consistent writing form; (4) Use the active voice; and (5) Use definite, specific, concrete language.

His biggest general piece of advice is in all caps: DO NOT USE A DISTRICT COURT BRIEF AS A SHELL!

If you have an appeal pending, you better use the book.

 

Legal Ethics Survey

Please take four minutes from your day to complete the following survey on the ethics of patent prosecution: ETHICS SURVEY.

This survey stems from last week’s discussion of the “Poor Man’s Opposition,” and considers how attorneys and agents should respond to prior art received after a notice of allowance.

Are these appeal timing estimates correct?

The PTO is asking whether these numbers are accurate under the newly finalized Appeal Brief rules. (This will impact whether the Whitehouse allows the new rules to be implemented). Comments are due by August 8, 2008, to Susan Fawcett (Susan.Fawcett@uspto.gov), who will in turn be required to provide them to OMB. 

The numbers above include “the time to gather the necessary information, prepare the briefs, petitions, and requrests, and submit them to the USPTO.” 

Notes:

• UPDATE: Comments are due by August 8, 2008 (I had originally reported August 9).
• Thanks to David Boundy for supplying this information. (For some unknown reason, the USPTO did not post information about this request for information from the public).
• File Attachment: timing.pdf (56 KB) [This contains the PTO’s estimate of hours and costs]
• File Attachment: appeal rules.pdf (287 KB) [This contains the final PTO rules on appeal briefs]
• File Attachment: info collection.pdf (157 KB) [This contains directions on how the OMB requires information to be collected]

Can a Patent Plaintiff Reserve Claims to be Filed in a Later Lawsuit?

Hemphill v. Kimberly-Clark (Fed. Cir. 2008 — appeal pending)

Over the past few years, the CAFC has been developing its jurisprudence on both claim preclusion and issue preclusion. A new appeal will likely add to the mix.

Hemphill initially sued Kimberly-Clark back in 2002 for infringement of claim 1 of her patent covering a tampon design. (U.S. Patent No. 4,557,720). Kimberly-Clark won that case on summary judgment of non-infringement.

Now, Hemphill has filed a new suit — alleging that the same Kimberly-Clark products infringe claim 2 of the same patent. The new case was dismissed under the theory of claim preclusion or res judicata.  Claim preclusion prevents re-litigation of the same case between the same parties. “[A] party who once has had a chance to litigate a claim before an appropriate tribunal usually aught not to have another chance to do so.”

Here, the new litigation involves the same parties, same product, and same patent. Based on the seemingly identical circumstances, the lower court held res judicata applies — and that Hemphill should have brought the charges under claim 2 in the initial proceeding.

In 2005, the CAFC held that res judicata does not apply when the second litigation involved a new patent — holding that “each patent asserted raises an independent and distinct cause of action.”  [Abbey v. Mercedes]  Likewise, the CAFC held in 2008 that res judicata does not apply when the second litigation involves an accused product that is not “essentially the same” as the originally accused product. [Acumed v. Stryker]

In all likelihood the CAFC will affirm here — holding that when a patentee holds-back certain claims within a patent that those claims will be lost.  A factor weighing heavily against Hemphill is that she is appealing pro se.

Links:

• PATRACER

 

Patently-O Bits and Bytes No. 51

• Business Method Public Scrutiny: Peer-to-patent public review of pending applications is expanding to Business Method Patents. [PTO Press Release][ http://www.peertopatent.org/ ] .
• CAFC Calendar: Check out this calendar before planning your next DC trip – Perhaps you can work-in a visit to the CAFC while it is in session. [CAFC Calendar].
• Triway Pilot Program: The USPTO, EPO, and JPO are beginning a pilot program to share work. In this program, each office will conduct searches and the results will be shared. [LINK].
• Public PAIR Access: Although file histories are an integral part of patent analysis and are often useful as prior art, the PTO offers no search tools for PAIR access. Furthermore, the PTO has thus far prevented companies from using automated engines to obtain bulk data in order to create an accessible database. Here is the PTO's response so far: "There are no immediate plans to remove the CAPTCHA restriction. However, we are evaluating a solution that will ease the restriction and permit limited automated access. The USPTO is committed to providing access to public data, and recognizes the urgency in implementing support for both interactive and automated access to Public PAIR. The USPTO will keep you informed and involved as we continually work to improve access to public patent information contained in the PAIR system."

When does a case become moot (and thus not an Article III controversy)?

Merck v. Apotex (Fed. Cir. 2008) (non-precedential)

Apotex filed an abbreviated new drug application (ANDA) to begin making a generic version of the osteoporosis drug FOSAMAX. The drug brought in over $3 billion in 2007. Merck sued for infringement and Apotex filed counterclaims of invalidity and non-infringement.

After some discovery, Merck decided to end the case by filing a covenant not to sue Apotex for infringement of the patents-in-suit and moved to dismiss all claims and counterclaims. Wanting to keep the case alive, Apotex then moved to add a Sherman Act antitrust claim for Merck's activities. The district court denied Apotex's motion and dismissed the case.

Even though Merck agreed not to sue, Apotex could not begin manufacturing a generic version because another company – TEVA – held exclusive rights as the "first generic." In particular, because TEVA was the first ANDA filer, that company holds 180 days of market exclusivity once it begins marketing its product. If Apotex had won its case, TEVA's 180 days would be triggered by the court decision. While the appeal was pending, TEVA – on its own – triggered the 180 day exclusivity period by starting to sell its generic version.

Moot Appeal: On appeal, the CAFC found Apotex's case moot. Because TEVA's 180 days were already running, a judgment of invalidity would not allow Apotex on the market any sooner.

Interestingly, the Washington Legal Foundation (WLF) filed an amicus brief arguing that the case be dismissed because there was no dispute over validity or infringement: "permitting courts to exercise jurisdiction in cases of this sort would expand federal court jurisdiction well beyond limits imposed by Article III of the Constitution and would put federal courts in the business of rendering advisory opinions."

Antitrust: The CAFC also affirmed the lower court's refusal to hear the Apotex antitrust claims because those claims failed to sufficiently plead an antitrust injury.

Case ordered to be dismissed as moot.

 

Obviousness is Reviewed De Novo

Muniauction, Inc. v. Thomson Corp. and I-Deal (Fed. Cir. 2008) (Part II)

[Read Part I discussing joint infringement]

Muniauction's patent relates to municipal bond auctions. During cross examination at trial, Muni's expert admitted that two of the claims were identical to the prior art except for the patentee's use of a web browser to access the auction. Despite that admission, the Pittsburgh jury refused to invalidate the patent leading to an award of $77 million for willful infringement. On appeal, the CAFC reversed – finding the claimed invention obvious.

No Obvious Deference: Like claim construction, obviousness is a question of law that is reviewed de novo on appeal. Despite that similarity, obviousness is normally decided by a jury. This difference is justified by the relatively small number of "underlying facts" in contention during claim construction as compared with plethora of factual issues that build up to a conclusion of obviousness. As the CAFC explained in the 2007 Dippin' Dots opinion, "[t]hose factual underpinnings include the scope and content of the prior art, differences between the prior art and the claims at issue, and the level of ordinary skill in the art."

Here, the court cited KSR to hold – as a matter of law – that the Muniauction improvement was nothing "more than the predictable use of prior art elements according to their established function."

Broad Claims Create Trouble for Secondary Factors: Broadly written claims increase the chance that some prior art will be found to invalidate the claimed property right. Here, the CAFC also found that broad claims make it difficult to use secondary factors of patentability to establish nonobviousness. The particular issue here is that a tight nexus must link the claimed invention to the secondary factors (such as long felt need & market success).

"[C]ommercial success or other secondary considerations may presumptively be attributed to the patented invention only where 'the marketed product embodies the claimed features, and is coextensive with them.'" Quoting Ormco v. Align.

Muni showed success of its products. However, the reports of success focused only on one portion of the invention as claimed. The appellate panel compared those narrow reports of success with the broad claims – finding that the success "lacks the required nexus with the scope of the claims."

MUNIAUCTION: Joint Infringement Requires Mastermind

Muniauction, Inc. v. Thomson Corp. and I-Deal (Fed. Cir. 2008)

Ray Niro's team helped Muniauction win a jury verdict of willful infringement resulting in an award of $77 million for lost profit and enhanced damages. On appeal, the CAFC reversed finding some of the claims obvious as a matter of law and others not infringed. As its name implies, Muniauction's patent relates to municipal bond auctions.

Infringement by a Single Actor: If it were not well understood already, this opinion completely rejects the rogue theory of joint infringement. Rather, a method claim is only infringed when a single party can be charged with performing each step of the asserted claim. Here, Muni's claims required action by both a bidder and an auction system.

There are times when infringement can be found despite multiple actors. However, in those cases, a single party must be shown to exercise "control or direction" over the entire infringement. This is known as the "mastermind" requirement, and the CAFC has noted that it closely parallels the theory of vicarious liability.

"the control or direction standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method."

The CAFC left some wiggle room. A later case could still hold that it is not necessary to show facts sufficient to support traditional vicarious liability. (This case notes that such facts would be sufficient, but does not state they are necessary). Thus activities by an independent contractor could potentially still be attributed to the principal. However, the court made clear that direct infringement will not be found when the steps of a method claim are performed "mere arms-length cooperation" between parties. I have suggested that the line be drawn with collusion or conspiracy to infringe rather than limited to principal-agent relationships.

Obviousness: Muni's expert admitted that claims 1 and 31 were identical to a prior art system except for the patentee's use of a web browser to access the auction. In a post-KSR world that type of invention is difficult to protect. The court reversed the jury verdict – finding the invention obvious as a matter of law. [More on Muniauction obviousness in tomorrow's post]

Notes: The non-infringed claim reads as follows:

1. In an electronic auction system including an issuer's computer having a display and at least one bidder's computer having an input device and a display, said bidder's computer being located remotely from said issuer's computer, said computers being coupled to at least one electronic network for communicating data messages between said computers, an electronic auctioning process for auctioning fixed income financial instruments comprising:

inputting data associated with at least one bid for at least one fixed income financial instrument into said bidder's computer via said input device;

automatically computing at least one interest cost value based at least in part on said inputted data, said automatically computed interest cost value specifying a rate representing borrowing cost associated with said at least one fixed income financial instrument;

submitting said bid by transmitting at least some of said inputted data from said bidder's computer over said at least one electronic network; and

communicating at least one message associated with said submitted bid to said issuer's computer over said at least one electronic network and displaying, on said issuer's computer display, information associated with said bid including said computed interest cost value,

wherein at least one of the inputting step, the automatically computing step, the submitting step, the communicating step and the displaying step is performed using a web browser.

    

Patently-O Bits and Bytes No. 50

• Query: Does anyone use the XML links found within private PAIR?
• Obviousness: Secondary factors are generally used to prove that an invention is nonobvious. Symmetry may cause us to think that factors may also exist that are useful in showing that an invention is obvious. A recent article by Brent Yamashita explores one of these: Simultaneous Invention. “[T]he fact that another person simultaneously and independently created the same invention claimed in the patent-in-suit can serve as an indication that the invention was obvious.”
• EVENTS:  Upcoming events from American Conference Institute:
• Global Patent Litigation Congress, October 7-8, 2008, New York, NY
• Business Method Patents, November 19-20, 2008, New York, NY
• ACI is a media sponsor of the Patently-O Job Site.
• Patent Lie: I read A Patent Lie over the weekend — lots of fun for a patent attorney to read.
• Tragedy of the Anticommons: Professor Heller’s new book is apparently an easy read. His work serves as a base for many who see IP rights as excessive and problematic. [LINK][Tim Wu Review]

CAFC Leans on District Court to Open Sealed Case

Kuney v. Bean (BayState v. Bowers) (Fed. Cir. 2008)

Professor Kuney is in the midst of writing a detailed account of the BayState v. Bowers case file. In that case, the CAFC affirmed the enforceability of a shrink wrap license term that barred reverse engineering of the software. In that case, a number of amici briefs argued that reverse engineering sits at the core of capitalism.

Like most patent lawsuits, the documents filed and exchanged in the case are kept from the public – sealed under a stipulated protective order signed by the Massachusetts District Court. To open the file, Kuney filed a motion to intervene in the case and to modify the protective order. Bowers agreed to open access to the documents, but Bean (BayState's successor in interest) initially refused. Although Bean and Kuney later agreed to a modified protective order, the court refused to enter it and rejected Kuney's motion to intervene.

On appeal, the CAFC found that the lower court had abused its discretion and vacated.

Opening a Sealed File: "Intervention is the proper means for a non-party to challenge a protective order." When making a determination of whether to open records, the courts should begin with "a presumption of public access to judicial records." In a decade old case, the First Circuit explained the value of public access as fostering "the important values of quality, honesty, and respect for the judicial system." In this case, the CAFC recognized that Kuney needs the documents to do his scholarly work. However, the district court created no record of weighing the value of public access against the presumption of privacy.

Because the district court failed to explain its reason for dismissal, this case is vacated "for a balancing of the public and private interests in determining whether to grant or deny Professor Kuney's motion."

Rich Baker Announces Congressional Bid

Richard Baker is 3Com's innovative intellectual property director. He is also running for Congress to represent the 6^th District of Massachusetts as a Republican. (North of Boston). For many years, Baker has been a proponent of strong patent rights and monetization of those rights:

"We need strong patent laws in the United States to protect our ideas, to protect our inventors, to protect our jobs, from infringers. For the past several years, many in Congress have been working hard to water down our patent laws, trying to make it easier for copiers to steal ideas. As an Intellectual Property Executive, I know the impact of these changes on the Massachusetts economy, and I will fight efforts to weaken our protection in the global economy."

Baker is the republican candidate and will be up against incumbent Democrat John Tierney in the fall.

Links:

• http://www.richbaker08.com/

Business System Patents

Ex Parte Simpson, Appeal 2008-0569 (BPAI 2008)

HP's patent application focused on software used to discover networked devices. Claim 32 was rejected for lack of statutory subject matter.

32. A device discovery service stored on a computer-readable medium, the service comprising:

logic configured to discover devices directly connected to a network that are not directly connected to a computer; and

logic configured to provide a user home service accessible with a network browser with a list of at least one discovered device that is available for use on the network.

This claim is interesting because like Wasynczuk, it involves a system claim that is not patentable subject matter.

'These claims are directed to a "service" stored on a computer-readable medium, the service comprising logic "configured" to perform functions. Logic, read with reasonable breadth, includes descriptive material indicating the algorithm or reasoning behind an operational computer program, not the program itself. As such the claims are addressed to nonfunctional descriptive material, which is non-statutory. "When nonfunctional descriptive material is recorded on some computer-readable medium, in a computer or on an electromagnetic carrier signal, it is not statutory since no requisite functionality is present to satisfy the practical application requirement." MPEP § 2106.01.'

Similarly in Ex parte Godwin (BPAI 2008), the Board found that IBM's "server system" claims non-statutory subject matter. In that case, the server was recited in the claim preamble and thus non-limiting.

Apotex Challenge to ACULAR LS Patent Barred by Res Judicata

Roche Palo Alto and Allergan v. Apotex (Fed. Cir. 2008)

Roche’s patent covers drug formulations for treating eye inflammation and covers products sold as ACULAR and ACULAR LS. The two formulations differ in their proportion of various drugs such as an ammonium preservative and a surfactant.

Hoping to sell generic versions, Apotex filed two ANDAs with the FDA – one for each formulation.  In response, Roche filed two separate infringement actions against Apotex (the ACULAR and ACULAR LS cases respectively). In 2007 the CAFC put a final nail in the ACULAR case by affirming the district court’s holding that the patent was not invalid and not unenforceable (infringement had already been decided).  This appeal involves ACULAR LS.

Reverse Doctrine of Equivalents Remains Dead: In the 1950 Graver Tank opinion, the Supreme Court discussed how the reverse DOE can be used to limit the scope of claim coverage: “where a device is so far changed in principle from a patented article that it performs the same or a similar function in a substantially different way, but nevertheless falls within the literal words of the claim." Although Graver Tank stands as good law, the CAFC has “never affirmed a finding of non-infringement under the reverse doctrine of equivalents.”  Here, the CAFC continued to reject the doctrine of reverse equivalents.

Relying on a technical expert, Apotex argued that its formulation – although covered by the literal claims – operated under a different principle (involving the formation of micelles). The CAFC rejected this argument for several reasons: (1) the principle was derived from expert testimony without relying on the prosecution history which was not entered into evidence in the case; (2) the principle was not required in the specification; and (3) there was no evidence that the examiner relied on the principle in allowing the patent to issue.

Claim Preclusion: Apotex hoped to challenge the patent’s validity a second time — this time with the benefit of the new KSR standards for obviousness. The district court, however, refused a second go-round — finding the claims precluded. In the Ninth Circuit, claim preclusion applies to prevent subsequent litigation where “(1) the same parties … were involved in the prior litigation, (2) the prior litigation involved the same claim or cause of action as the later suit, and (3) the prior litigation was terminated by a final judgment on the merits.”  In patent cases, the second suit is considered the “same claim” when the accused products are “essentially the same.”  The party asserting claim preclusion has the burden of proving that the accused products are essentially the same.

Essentially the Same: On appeal, the CAFC held that analysis of whether two products are essentially the same (for claim preclusion) should focus on the claims. Here, the court affirmed that both the ACULAR and ACULAR LS formulations are essentially the same “because both formulations are encompassed by the [patent] claims.”

“Though the court recognized that there are differences in the concentrations of the ingredients in the ANDA-1 and ANDA-2 formulations, it also realized that all of the concentrations are well within the ranges claimed in the ’493 patent. The fact that they are stabilized by different mechanisms, even if true, is irrelevant because both formulations are encompassed by the claims of the ’493 patent. Thus, any difference in composition between the two formulations is merely colorable and the two formulations are “essentially the same.”

In addition, the CAFC confirmed that there is no “change of law” exception to claim preclusion — what is done is done. Thus, KSR gives no right to re-open closed claims. (*There are of course some exceptions to this role of no exception.).

Notes:

• Claim preclusion is also known as res judicata. The CAFC did not need to reach whether issue preclusion should also apply.
• The CAFC’s claim preclusion jurisprudence appears to be developing a pro-patentee bias. Compare this Roche with the Acumed v. Stryker (a patentee does not lose rights by filing suit against only some of an accused infringer’s products).

Recent BPAI Decisions

• Precedential:
• Ex parte Ghuman, Appeal No. 2008-1175 (BPAI May 1, 2008)(rejected claims that are not appealed are considered withdrawn and subject to cancellation by examiner).
• Ex parte Fu, Appeal No. 2008-0601, 2008 WL 867826 (BPAI March 31, 2008) (applying KSR to find it obvious to substitute one species for its genus where the genus contains a limited number of species).
• Ex Parte Nehls, Appeal No. 2007-1823, 2008 WL 258370 (BPAI January 28, 2008) (“substantial” and “specific” utility).
• Ex parte Letts, Appeal No. 2007-1392, 2008 WL 275515 (BPAI January 31, 2008) (applicant may not conditionally withdraw a claim on appeal).
• Informative:
• Ex parte Wasynczuk (BPAI June 2, 2008) (Computer method claims were patentable subject matter because they “recite a process that employs one of the other statutory categories.” On the other hand, the “computer implemented system” claims were not patentable subject matter because they did not recite a “particular machine implementation”.)
• Ex parte Langemyr (BPAI May 28. 2008) (mathematical manipulations of data do not become eligible subject matter even when performed on a computer and outputted to a display).
• Ex parte Kim (BPAI May 29, 2008) (indefiniteness rejection affirmed; PTO will not assume a particular meaning of claim terms without some factual or rational basis).

Patently-O Bits and Bytes No. 49

• On June 11, 2008, the PTO submitted its "Fiscal Year 2009 Revision of Request for Continued Examination, Eighteen-Month Publication, and Other Miscellaneous Cost-Recovery Patent Fees." The particulars of this amended proposal have not been released. [LINK]
• Copyrights may now be registered electronically ($35) [LINK]

Poor Man’s Opposition at the PTO: Trickery

Several attorneys relayed their experience with my poor man's opposition. One gamey approach that is for the third party to hold its prior art materials until the USPTO issues a notice of allowance and then immediately forwards several important references to the patent applicant the case. The patentee can either (1) suffer the delay of withdrawing the patent from issuance in order to have the new art considered or (2) allow the patent to issue while knowing that its duty of disclosure had not been fulfilled.

Poor-man’s Opposition Proceeding

Nowotarski and Bakos propose opening the patent prosecution process to third parties – at least to allow some forms of protests or pre-issuance oppositions. Those activities are expressly barred by 35 U.S.C. 122(c). [LINK]

Although no direct oppositions are available to third parties worried about pending patent applications, an increasing number of attorneys are employing a strategy that could be termed a 'poor-man's opposition.' The round-about strategy relies on the patent applicant's duty of candor to ensure that opposition materials be submitted to the PTO.

Poor-Man's USPTO Opposition Procedure:

1. Create package of prior art and report explaining why pending claims are unpatentable;
2. Forward package to attorneys representing patentee with reminder of the duty of candor (retain evidence of submission);
3. Applicant should submit entire package to PTO;
4. Monitor PAIR to ensure that examiner receives and uses package;
5. If necessary provide follow-up evidence and reports.

If the patent applicant fails to submit either the prior art or the associated reasoning, any issued patent may well be found unenforceable due to inequitable conduct during prosecution. An additional feature of this procedure is that the opposing party can – at its option – remain anonymous. Many attorneys don't like this process because of the lack of control and because it "shows your hand."

Patently-O Bits and Bytes No. 48

• Judy Jarecki-Black from Merial Limited has been named the "Best Chief IP Counsel" by 2008" by Global Counsel Awards 2008. Glacéau was awarded the "Best IP Counsel Team." [LINK]
• Eastern District of Texas Settlement: SAP agrees to pay $83 million to i2 Technologies. [LINK] In what appears to be primarily a trade secret case, Oracle is seeking $1 billion in damages from SAP. (Oracle's no-patent strategy may prove successful).
• Shen Wei v. Ansell Health Care (N.D. Ill 2008) (Claim Construction Issue Preclusion): The patentee lost a claim construction argument in earlier litigation against another party. In this case, Judge Guzman held that the patentee could not re-argue the construction based on collateral estoppels / issue preclusion. [LINK]
• BPAI Constitutionality Problem: Representative Berman has introduced H.R. 6362 to fix the BPAI judge appointment problem by returning the duty of appointment to the "Secretary of Commerce, in consultation with the Director of the United States Patent and Trademark Office."
• No Double Secret Expedited Reexamination: In Reexamination No. 95/008,972 the PTO recently refused to give any preferential or speedy treatment of the reexamination despite pending litigation. [LINK]

Repeal 35 USC 122(c) …..at least for Business Methods

By Mark Nowotarski and Tom Bakos

35 USC 122(c) needs to be repealed and replaced with a law that will allow a more efficient and effective examination process. The current legal requirement to prevent third parties from participating in the patent examination process is no longer in the best public interest. Peer to Patent has shown us that public participation works, but the next step is impossible until 122(c) is at least amended. An examination process that utilizes the expertise of the industries in which applications lie has now become essential in the very difficult to examine fields of software, pharmaceuticals, and business methods.

35 USC 122(c) was added to the American Inventors Protection Act of 1999 to protect the interests of applicants, particularly small entities, once their patent applications were published. The concern at the time was preventing major corporations from harassing independent inventors by inundating the patent office with submissions and commentary intended merely to delay and ultimately prevent otherwise well deserved patents from issuing.

Times, however, have changed.

The USPTO can't keep up with demand in part because it lacks technical expertise in many fields. A growing public perception is that patents inhibit innovation. The Supreme Court is openly questioning the presumptive validity of business method patents and political forces are aligning themselves to legislatively restrict the scope of patent protection in some of the most promising areas of growth in our economy, such as the financial services sector.

Recent trials of the Peer to Patent program have shown that well regulated systems for third party submissions and commentary can be set up to effectively assist examiners and dramatically improve the efficiency and thoroughness of patent examination. The system demonstrated its ability to harness the efforts of third party reviewers, including those in the employ of large corporations, to not only uncover important prior art, but to provide useful commentary as well. And, it did this without the feared negative consequences of large corporations unfairly dominating the examination process. But Peer to Patent is of limited use as long as 35 USC 122(c) restricts it to applicants who volunteer to have their applications reviewed and stops the review once the application is in the hands of an examiner.

Our experience in working together on several business method cases is that the combined efforts of a practitioner (like Mark) and third party technical expert (like Tom) yields dramatically higher quality applications and faster prosecution. We see no reason why the same principles can't be applied by the USPTO so that examiners, with the proper safeguards, can work with third party technical experts to get higher quality patents to issue in substantially less time.

Recent advances in the art of public participation in patent examination can be applied to assure that large corporations do not unfairly monopolize third party submissions thus rendering 35 USC 122(c) in its current form no longer necessary. Rather than requiring the Director to block third party submissions, the law should allow the Director to harness the efforts of outside experts in order that inventors can receive the timely and thorough patent examination they deserve.

• 122(c) reads as follows: "PROTEST AND PRE-ISSUANCE OPPOSITION.- The Director shall establish appropriate procedures to ensure that no protest or other form of pre-issuance opposition to the grant of a patent on an application may be initiated after publication of the application without the express written consent of the applicant."

[NOTE: Mark Nowotarski is the president of Markets, Patents & Alliances and is a registered patent agent specializing in business methods. His background is in mechanical engineering and he has 17 patents in this field. Tom Bakos FSA MAAA is an independent actuary specializing in helping clients patent their insurance innovations. He is an inventor on one issued and several pending business method patents. Mark and Tom are also coeditors of the Insurance IP Bulletin. The Insurance IP Bulletin is a bimonthly publication dedicated to helping the insurance industry use patents to promote innovation.]

Reigniting the Engine of Growth with the Sparkplug of Invention

By Michael Martin.

Why do patents end up in litigation? Typically, people answer that it is the amount of money at stake. This answer is not wrong. Since the cost of litigation is relatively constant, people should be (and in fact are) more willing to pay lawyers to litigate claims that are very large compared to the cost of litigation. But this is not a full answer to the question. For this answer does not explain why patents specifically should end up in litigation more often. In fact, trillions of dollars in legal rights are exchanged everyday around the globe without litigation. By comparison, the amount of money at stake in patent lawsuits is relatively small.

The Theory of Focal Points

Economist Thomas Schelling is famous for advancing a theory of conflict and cooperation. According to Schelling, even when communication (and hence negotiated agreement) are difficult or impossible, two people can cooperate through a shared focal point. For example, if I told you to meet me in New York City tomorrow but for some reason I couldn't tell you where and when, we might still meet by going to a famous spot at noon, such as Grand Central Station or the top of the Empire State Building. Our shared vision of these famous spots is a focal point that permits us to coordinate.

The theory of focal points explains why some groups of people fight and some cooperate. When the focal point for a first group is mutually exclusive to the focal point for a second group, conflict emerges. When the focal point is shared or non-mutually exclusive, cooperation emerges. To some extent, all conflict between people can be viewed as a costly renegotiation of focal points.

With Schelling's theory in mind, let's revisit the question of patents. What are the focal points for the various parties involved in patent litigation? To simplify the question, suppose there are only two groups involved in patent litigation: "inventors" (or their employers) and "producers" (i.e., the people who sell products or services that practice a claimed invention). Ignore for now the detail that some inventors are also producers, and that some producers are also inventors.

When patents are litigated, the focal point for inventors is on obtaining a large royalty or payment for the right to practice the invention. By contrast, the focal point for producers is on paying a small (or no) royalty or payment to practice the invention. Although both inventors and producers seek profit, at the point in time when patents are litigated, these focal points are mutually exclusive because (at worst) both have incurred costs of R&D for developing the invention. Patent litigation thus becomes a zero sum game.

The Focal Point of Profit

At first glance, therefore, one might think that inventors and producers are doomed to conflict. Before rushing to that conclusion, however, it's worth noting that in some broader sense, at least, inventors and producers share a focal point -- namely, profit.

Profit is an unusually broad focal point. As Adam Smith is famous for pointing out, the voluntary exchange of goods and services creates profit. With profit the focal point, the problem of avoiding conflict between inventors transforms into a problem of identifying and promoting the circumstances in which the voluntary exchange of inventions for cash can take place between inventors and producers.

If such voluntary exchanges never occurred, we might have reason to doubt whether conflict between inventors and producers could ever be avoided. Fortunately, such exchanges do, in fact, occur. Thus, it can be inferred that the conflict arises over how what is exchanged (services and patent rights) should be valued.

Again, this might seem puzzling at first because, at least in principle, there should be no difference in how value is measured. At least within the United States, the same rules for accounting and reporting financial statements apply to both inventors and producers. In principle, the inventors and producers should be able to compare their financial statements, and reach some agreement over the value of an invention.

But since this never seems to occur, the most reasonable inference seems to be that the conflict arises from a difference in how we interpret accounting and financial statements. In fact, it is precisely here that the focal points of inventors and producers diverge. Having had the rare opportunity of working both in patent law and accounting, it has been my privilege to be one of the first to have noticed this. In short, a better theory of accounting would help resolve conflicts over patented inventions and restore a cultural norm of cooperation within patent law. Astute readers should note that, in addition to patent law, Venice was the birthplace of double-entry accounting in the 15th century.

Problems with the Static Picture of Cost Accounting

As described by William H. Waddell and Norman Bodek in Rebirth of American Industry, the theory behind the most dominant method of accounting (which is called "cost accounting") was developed at General Motors in the early 20th century by Alfred Sloan, Pierre DuPont, and Donaldson Brown. The relevant detail about this theory is that it was designed to measure (and hence manage) return on investment (ROI). To that end, the paradigm that Sloan, DuPont, and Brown had in mind in developing their rules for accounting was a static picture. Specifically, their picture was of what the corporation would be worth in liquidation.

With the picture of the corporation in liquidation in mind, it is easier to understand why so many things that we might intuitively imagine to be costs are instead treated as assets under cost accounting. For example, under the cost accounting system, unsold inventory is reported as an asset. Cost accounting assumes that the inventory could be sold at cost in liquidation. The reporting ignores, of course, the fact that unsold inventory will incur expenses. More importantly, it ignores that what's unsold before liquidation is less likely to sell at cost in liquidation.

Under the cost accounting system, IP is called an asset on balance sheets. Again, the assumption is that patents can be sold at cost during liquidation. Again, this assumption begs several important questions. Perhaps most importantly is the question of why, if the IP is so valuable, it could not be used to attract financing or revenue, thereby avoiding liquidation. There were (and are) reasonable answers to that question when debt or equity are unavailable for reasons that have nothing to do with the demand for the patented invention. But its salience suggests that there might be better ways to measure the value of IP.

Whereas all patents cost something to procure, market demand only emerges for a handful of all patented inventions. Thus, the system of cost accounting has given managers and investors the perverse incentive to aggregate thousands of patents, inflating their balance sheets, much like we saw prior to the subprime mortgage debacle. Firms invest billions of dollars in new technology, spend millions on patent portfolios, inflating their asset accounts -- all before attracting a single customer! Not to be outdone, when the corporation fails, the cost accounting system encourages us to sell the patents at auction, and let third-parties extract whatever they can from the legal rights. On my view, the system of cost accounting, coupled with the shortage of patent lawyers who really understand technology, are responsible for the emergence of the worst kind of patent trolls.

Dynamic Accounting and the Promise of Cooperation

Fortunately, there is now a light at the end of the tunnel. In fact, many corporations have shifted away from the static picture of corporations inherent in cost accounting to a more dynamic picture. Lean accounting, in fact, was practiced at Ford Motor Company almost 100 years ago, before Ford was eclipsed by the success of General Motors. It turns out that cost accounting is a perfectly fine system of accounting when demand is basically infinite relative to the cost of supply. If the market is never cleared, then the corporations that use cost accounting will end up reporting higher return on investment (ROI) than the corporations that use lean accounting. Lean accounting is an inherently more stable mechanism for promoting growth within a corporation in part because it does not tradeoff short-term gains in income against long-term sustainable growth. But once GM started doing it, everybody else in the automobile industry, and eventually the entire economy, had to follow.

Under a dynamic theory of accounting, IP is more like equity than it is like an asset. That's because the primary value of patent rights is in promoting invention and collaboration, both of which are dynamic because people are dynamic. Elsewhere I have explained how inventors are customers. Within the cycle of growth of corporations, inventors and customers are the source of information about demand. It is no accident that unmet need was considered by Judge Learned Hand to be the most important of the secondary considerations on obviousness.

By contrast, assets are static. By adopting rules for reporting and managing the IP that are more consistent with the actual mechanism whereby it increases profit, we will in turn discourage wasteful conflicts. A very important corollary to this is that stronger patent rights would be beneficial in promoting collaboration and avoiding conflict. Strong property rights discourage people from litigating what could be solved through negotiation at an earlier point in time. As Robert Frost noted, "Good fences make good neighbors." With a change to the accounting rules, these early negotiations will happen more often.

Finally, let me emphasize that changes to financial statements need not be dramatic. For example, the simple addition of average daily debit and credit flows for each balance sheet account would permit the shift in managing and investing that I'm advocating here. Since most accounting is now done by computers, this kind of change is actually very cheap. The value of inventions could then be measured easily by comparison between the average daily debit and credit flows before and after an invention had been implemented. Suddenly, inventors and producers have a numerical way to measure the value of an invention.

[Michael Martin is a former in house counsel and founder of Venetian Capital Management.]

Will Sprint Communications lead to a rethink of patent law’s standing doctrine?

By TJ Chiang

Last week, the Supreme Court decided Sprint Communications Co. v. APCC Services, a case that received more attention for Chief Justice Roberts' citation to Bob Dylan than the mundane federal jurisdiction issues involved. The case involved the collection of small debts by payphone operators from long-distance phone companies. Because the amounts involved were small, payphone operators assigned their claims to "aggregators," who effectively brought the suit on their behalf. The issue was whether these aggregators, who had nothing but an assignment of the right to sue the phone companies, had standing in federal court.

The Court held that "an assignee of a legal claim for money owed has standing to pursue that claim in federal court." As an example of this longstanding ability to assign legal claims to strangers who had not suffered any personal injury, the Court cited the early patent statute, which permitted (then and now) inventors to assign their patents to others.

The irony of the shout-out to patent law is that both the Supreme Court and the Federal Circuit have consistently held that the assignee of a legal claim for money owed on a patent does not have standing to pursue that claim in federal court. A bare assignment of the legal claim for past infringement damages—precisely the type of assignment in Sprint Communications, since the plaintiffs were not assigning their payphones to the aggregators—does not confer standing to sue. See, e.g., Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24 (1923); Mars, Inc. v. Coin Acceptors, Inc., No. 07-1409 (Fed. Cir. June 2, 2008). Instead, the assignment must include the patent itself or an exclusive license.

There are certainly sound policy reasons for requiring the patentee to be a party to an infringement suit, not least because a judgment of invalidity might not be binding absent such participation. At the same time, the patentee standing requirement is a source of frequent litigation at the Federal Circuit. Moreover, because standing is jurisdictional, the issue of proper parties can require an entire case to be relitigated due to a procedural defect. Perhaps the time is ripe for some rethinking in this area, as Sprint Communications and Crown Die appear to be in some tension with each other.

[NOTE: This summer TJ Chiang is transitioning from his position as an associate at Quinn Emmanuel to become a professor at George Mason Law School. Along with yours truly and Jon Dudas, TJ Chiang is a graduate of the University of Chicago Law School. SSRN]