Patent Law Blog (Patently-O)

Reverse Bifurcation in Practice

By Jason Rantanen

Patent litigation can be particularly frustrating and inefficient when litigation costs far exceed the potential damages resulting from an infringement.  This issue is particularly problematic when the patent holder's expected litigation costs are significantly lower than those of the accused infringer, such as in the instance of the prototypical "patent troll," because under such circumstances the settlement value is largely driven by the expected cost of litigation to the accused infringer as opposed to the actual damages from the infringement, resulting in a windfall for the patent holder.

One strategy for addressing this issue - and for streamlining patent litigation generally - is to decide cheaper and easier issues early in the litigation process, a concept discussed by Dennis Crouch and Robert P. Merges in their article Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making, 25 Berkeley Tech. L.J. 1673 (2010).  An example of the strategy is "reverse bifurcation," in which the damages phase is moved to the front of the litigation sequence with the goal of figuring out how much is really at stake.  This procedural move may be particularly appropriate in the case of patent holders who sue a large number of parties, including parties with relatively small potential damages pools, in the hopes of extracting the aforementioned undeserved rents. 

This approach was recently employed by Otter Products LLC in its suit with Gellyfish Technology of Texas.  Earlier this year, Gellyfish sued Otter and 36 other defendants for infringement of Patent No. 6,847,310.  After being served with the Complaint, Otter attempted to identify the products accused of infringing the patent, finding that only two of the products named in the Complaint were ever sold by Otter, and those products (which have since been discontinued) had trival sales with potential damages estimated in the $800-$1200 range. 

When Otter's settlement offer was rejected, it filed a motion seeking to sever itself from the existing case and requesting a "reverse bifurcation" procedure in the new matter so that damages discovery and trial would precede liability discovery and trial.  A copy of that motion is available here:  Download Gellyfish v Alltel Motion.  The motion appears to have had some effect: shortly after it was filed, Otter withdrew the motion citing additional discussions between the parties that suggested an amicable resolution.

While no order issued in response to Otter's motion, Otter's approach makes considerable sense.  From a judicial and party efficiency standpoint, forcing patent holders to identify the accused products early on during litigation may greatly simplify discovery and perhaps eliminate the need for a merits determination, which itself can be extremely complex.  It may also help to discourage patent holders from bringing suits in instances where the potential damages are minimal compared to litigation costs.  And forcing patent holders to think about a realistic universe of damages (as opposed to pipe-dreams of every product sold by the accused infringer) may encourage earlier settlement - as perhaps occurred here.

Note: Thanks to Robert Merges for pointing me to the Otter case and the EDTexweblog.com for background on the case. 

Federal Circuit: Isolated Human DNA Molecules are Patentable

ASSOCIATION FOR MOLECULAR PATHOLOGY V. MYRIAD GENETICS (Fed. Cir. 2011)

In a much anticipated decision, the Court of Appeals for the Federal Circuit has rejected the Southern District of New York's court's holding that could have rendered invalid all patents claiming isolated forms of naturally occurring DNA molecules. However, the decision is somewhat nuanced and will be appealed.

Judge Lourie drafted the opinion of the court that was joined in-part by the entire panel. Judge Moore drafted a concurring opinion that agrees with the conclusion that the isolated DNA is patentable but disagrees with Judge Lourie's methodology for determining when an isolated compound is sufficiently "man made" to no longer be considered a natural phenomenon or product of nature. Judge Bryson concurred in part, but dissented on the issue of whether an isolated human DNA molecule should not be patentable. Judge Bryson writes:

We are therefore required to decide whether the process of isolating genetic material from a human DNA molecule makes the isolated genetic material a patentable invention. The court concludes that it does; I conclude that it does not.

Focusing here briefly on the majority opinion, the court made four specific holdings:

• Affirmed: The District Court properly had jurisdiction over the case;
• Reversed: The district court erred in holding that Myriad's claims directed to isolated DNA were invalid;
• Affirmed: The district court properly held that Myriad's claims directed to comparing or analyzing gene sequences were invalid; and
• Reversed: The district court erred in holding that Myriad's claims directed to screening potential cancer therapeutics via changes in cell growth rates were invalid.

The result here is that Myriad's BRCA Gene patents are somewhat damaged, but remain strong. The plaintiffs are likely to either request an en banc rehearing or immediately file a petition for a writ of certiorari with the Supreme Court. Myriad is likely to request a rehearing on the issue of subject matter jurisdiction.

[More to Come]

Documents: Read the 105 page decision here.

Essay: Not So Confidential: A Call for Restraint in Sealing Court Records

In a new Patently-O Patent Law Journal essay, Professor Bernard Chao argues that courts should do more to ensure public access to patent litigation documents. The Court of Appeals for the Federal Circuit already requires the parallel submission of non-confidential versions of any briefs filed under seal. Professor Chao argues that same approach could work in the district courts and would go a long way in solving the current problem of overly-sealed records. Read it while its hot:

Bernard Chao, Not So Confidential: A Call for Restraint in Sealing Court Records, 2011 Patently-O Patent L.J. 6.

Judge Nominee: Evan Wallach

Earlier today, I posted an essay titled "Federal Circuit Judicial Watch." Following my post, the White House announced an update -- that International Trade Court Judge Evan Wallach has been appointed to fill an open slot on the court. Judge Wallach is well known as an expert on war crimes and previously served as general counsel for Senate Majority Leader Harry Reid as well as in private practice and the army JAG corps.

Patent Licenses are Presumed to Cover Continuation Applications (Absent Clear Indication to the Contrary)

General Protecht Gp. (Zh. Dongzheng) v. Leviton Mfg. (Fed. Cir. 2011)

By Dennis Crouch

Note: This is an important case that clarifies a Federal Circuit rule of contract interpretation. The court holds here that a patent license will be presumed to cover continuation patents claiming priority to the licensed patent. Contracting parties can overcome this presumption by including within the contract "clear indication of mutual intent to the contrary." This case should be read in conjunction with TransCore v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed. Cir. 2009). In TransCore, a seeming clear statement that the license did not "apply to any other patents [already issued] or to be issued in the future" was insufficient to overcome the presumption that future continuation applications were included within the license. In both TransCore and GPG, the presumption is derived both (1) from a reading of the terms of the written contract and (2) from equitable estoppel principles.

The case is also notable for its approval of the use of a preliminary injunction against the parties to stop proceedings occurring in a separate judicial forum.

* * * *

Background: In a prior lawsuit, Leviton sued GPG for infringing two of its circuit interrupter patents. Prior to trial, the parties settled and Leviton issued a covenant not to sue GPG or its customers on the patents-in-suit. The settlement also included a venue clause – indicating that any dispute would be "prosecuted exclusively in the U.S. District Court for the District of New Mexico."

After the settlement, Leviton continued to prosecute continuation applications stemming from the original patents and, in 2010, filed complaints in both the International Trade Commission (ITC) and the Northern District of California against GPG for infringing two of the continuation patents.

In response, GPC filed a declaratory action in the New Mexico court and persuaded the judge there to issue a preliminary injunction barring Leviton from pursuing its claims in either the ITC or California. GPC argued that the prior settlement implicitly provides the company with a license to the newly issued patents and that, according to the prior settlement, any dispute regarding the license must be decided by the New Mexico court.

On appeal, the Federal Circuit affirmed lower court's preliminary injunction.

This case presents a non-frivolous dispute regarding the scope of a patent license. The outcome of that dispute will determine whether the patentee can sustain its suit for infringement. Thus, there is no question in this case that the dispute "relates to or arises out of" the Settlement Agreement. The forum selection clause therefore applies, and the district court did not abuse its discretion in granting the preliminary injunction on that basis.

GPC's implied license argument is non-frivolous based upon the Federal Circuit's decision in TransCore v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed. Cir. 2009). In that caes, TransCore had previously settled a lawsuit that gave ETC (through MARK IV) a license to practice the patents in suit. The settlement specifically stated that the covenant not to sue "shall not apply to any other patents issued as of the effective date of this Agreement or to be issued in the future." However, when TransCore's continuation patent later issued, the Federal Circuit held that the new patent was also covered by an implied license and through legal estoppels. Here, the court found that the same principles apply.

From our holding in TransCore it reasonably follows that where, as here, continuations issue from parent patents that previously have been licensed as to certain products, it may be presumed that, absent a clear indication of mutual intent to the contrary, those products are impliedly licensed under the continuations as well. If the parties intend otherwise, it is their burden to make such intent clear in the license. It is well settled that parties are free to contract around an interpretive presumption that does not reflect their intentions.

Affirmed.

Note: The preliminary injunction issue (esp. irreparable harm) is to be discussed in a separate post.

Federal Circuit Judicial Watch

The Court of Appeals for the Federal Circuit is a twelve member court, but that membership has been undergoing major changes over the past few years.

Most recently, Judge Arthur J. Gajarsa has announced his plan to step away from active service and assume senior status at the end of this week. Judge Gajarsa's absence creates a second open seat on the court. Although Edward DuMont has been nominated to fill the other open seat (vacated by Chief Judge Paul Michel, it appears likely that DuMont's nomination will not move forward at this point. Earlier this year, Judge Jimmie V. Reyna was confirmed by the Senate. The court has typically been seen as only lightly-partisan according to traditional Republican-Democratic lines, however it is interesting to note that Judge Reyna's confirmation marks the first time in history that the majority of active judges on the court were nominated by a Democratic President. Judge Kathleen O'Malley also joined the court on December 27, 2010.

With the recent passing of Judges Archer and Friedman, the court only includes four senior status judges: Judges Mayer, Plager, Clevenger, and Schall. As mentioned, Judge Gajarsa will soon join the senior status ranks. In 2011, senior judges have participated in over 20% of Federal Circuit panel decisions. Judges Newman, Lourie, Bryson, and Dyk are all eligible for Senior Status and Judge Linn will be eligible on his next birthday. Although none of those five have publicly announced any intent to step down, many expect at least two more lines to open-up during the next year.

The current Chief Judge of the Federal Circuit is Randall Rader. The position of Chief Judge of the Federal Circuit is given to the most senior active member of the court who is less than 65 years old and who has not previously been Chief Judge. The term is seven years. If Judge Rader serves-out his entire seven year term, then the next Chief Judge will be Judge Kimberly Moore. If, however, he resigns at least a year early, then Judge Sharon Prost would take on the post at age 64.

Thanks also to Hal Wegner of Foley & Lardner who has been keeping tabs on the Court.

In Memory: Judge Glenn Archer

James Brookshire of the Federal Circuit Bar Association (FCBA) sent me a note today that Judge Glenn Archer has died. Judge Archer first joined the Court of Appeals for the Federal Circuit in 1985 after a career as a JAG lawyer, a private practitioner, and an Assistant Attorney General of the Department of Justice Tax Division. Judge Archer was born in my home state of Kansas and left to attend Yale in the late 1940's. After Yale, he attended law school at George Washington in DC.

Judge Archer was Chief Judge of the Federal Circuit from 1994-1997 when he took senior status at the age of 68. His line on the court was not filled until 2000 when Judge Dyk was confirmed by the Senate. Judge Archer's last opinion for the court was in January 2011 in a case captioned Wiley v. Merit Systems Protection Bd. Chief Judge Rader and Judge Gajarsa joined Judge Archer's opinion holding that the MSPB had failed to properly follow the procedural requirements concerning a retired federal employee's survivor annuity. As a senior judge in 1998, Judge Archer was tasked with drafting the majority opinion in the en banc case of Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998). His opinion, written in the wake of the Supreme Court's Markman decision, held that claim construction was a "purely legal issue" subject to "de novo review on appeal." That still-controversial decision has now been cited more than 8,000 times.

A 2008 IP Law & Business article discussed the close connection between Judge Archer's former clerks. These clerks include Judge Kimberly Moore, Professor Tim Holbrook, Frank Angileri, and Teresa Lavenue.

The Court Released a Brief Statement

Patent Term Adjustment (PTA) Statistics

The chart above shows the perecent of patents that are awarded some patent term adjustment (PTA) at issue.  I have highlighted a recent apparent downward trend that began around October 2010.  Still, around 80% of recently issed patents have lengthened patent terms due to patent office delays that go beyond the statutory bounds outlined in 35 U.S.C. 154.

The chart below shows the average PTA award, again grouped by issue date. The break-point in early 2010 shows the impact of the Federal Circuit's Wyeth decision holding that the PTO had been under-calculating patent term. The average PTA award is now hovering around 600 days (20 months). 

Judge to PTO: Faster! Faster! Faster!

MONKEYmedia v. Apple (W.D. Tex. 2011)

In an interesting decision, W.D. Texas Judge Sam Sparks has ordered the USPTO to expedite the reexamination of the patents being asserted in litigation.

The case involves MONKEYmedia's U.S. Patent Nos. 6,393,158, 7,467,218, and 7,890,648 that all relate to seamless expansion and contraction of a multimedia experience. In July 2010, Monkeymedia sued a host of defendants for infringement. The defendants include Apple, Sony, Paramount, Walt Disney, Universal, etc. In December 2010, the defendants of the lawsuit jointly filed ex parte requests for reexamination for two of the patents and then in May, 2011 filed an additional request for the '648 patent that had newly issued.

In the first two cases, the USPTO has issued an initial rejection of the patent claims under reexamination – prompting the defendants to request a stay in the litigation. In a two-page order, Judge Sparks granted a temporary stay of the litigation (Until October 24, 2011).

The surprising ruling from Judge Sparks was an order directed toward the non-party USPTO directing the federal agency to expedite the reexamination of those patents. He writes:

The United States Patent and Trademark Office is ordered to expedite the reexamination of U.S. Patent Nos. 6,393,158, 7,467,218, and 7,890,648 and to advise the Court and the parties in these cases of its results prior to October 24, 2011. . .

[The USPTO] shall provide the results of its reexamination to the parties and the Court before the above date.

In an e-mail, New Hampshire University Law School professor Tom Field suggested that the court read the case of Singer Co. v. P.R. Mallory & Co., 671 F.2d 232 (7th Cir. 1982). In that case, the lower court had ordered the Patent Office to stay its proceedings regarding a particular reissue application. On appeal, the Seventh Circuit held that "enjoining the Patent Office was particularly inappropriate." Judge Sparks' ruling is potentially distinguishable from Singer. Here, Judge Sparks is not attempting to interrupt Patent Office procedure with an injunction, but only to speed-it-up.

Professor Field also points out that the Court should first establish jurisdiction over the PTO before ordering the agency to act.

Notes:

• Via: WHDA blog; Jason Schultz; and Tom Field.
• I looked through the briefing – neither party requested that the PTO be ordered to expedite.

Prosecution History Estoppel: Defining a Foreseeable Alternative

Duramed Parmaceuticals (Teva Women's Health) v. Paddock Labs. (Fed. Cir. 2011)

By Dennis Crouch

Note: This case supports the already accepted notion that the presumptive bar to the doctrine of equivalents created by a narrowing amendment during patent prosecution is very difficult to overcome.

Teva is the largest worldwide manufacturer of generic drugs. In this case, however, the tables are turned. In 2008, Teva purchased Barr and its subsidiary Duramed. In 2009, the company sued Paddock – alleging that the defendant's application with the FDA to distribute a generic estrogen-derived hormone replacement constituted patent infringement under 35 U.S.C. § 271 (e)(2)(A).

(2) It shall be an act of infringement to submit - (A) an application under section 505(j) of the Federal Food, Drug, and Cosmetic Act … for a drug claimed in a patent or the use of which is claimed in a patent.

The asserted patent – No. 5,908,638 – covers Duramed's Cenestin ERT product and appears to be set to expire in 2015.

Narrowing Amendment: During prosecution of the patent, Duramed amended narrowed its claim 1 in response to an office action rejection. The amendment took a limitation from a dependent claim and added it to claim 1 so that the independent claim now required that the pharmaceutical composition be "coated with a moisture barrier coating comprising ethylcellulose."

In its abbreviated new drug application (ANDA), Paddock indicated its plans to use a barrier made of polyvinyl alcohol rather than ethylcellulose. So, when it sued, Duramed alleged infringement under the doctrine of equivalents (DOE).

Festo and Prosecution History Estoppel: The district court rejected the DOE claim – holding that Duramed was barred from claiming equivalents over the ethylcellulose coating based upon the doctrine of prosecution history estoppels. (Citing Festo).

On appeal, the Federal Circuit affirmed – holding that the district court had properly ruled the patent not infringed.

A patent is literally infringed only when the accused action or device meets all of the elements of the invention as defined by the patent claims. Long ago, courts added some leeway to the infringement analysis through the Doctrine of Equivalents. Through application of the DOE, infringement can be found even when the accused device is outside of the literal scope of a patent claim – so long as there is "equivalence between the elements of the accused product or process and the claimed elements of the patented invention." Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17 (1997).

DOE and PHE: The courts have limited the DOE in a number of ways. One of the most important limitations is that of prosecution history estoppel (PHE). In Festo and other cases, the courts held that it would be unfair to allow a patentee to use the DOE to recapture patent scope that had been voluntarily surrendered in order to acquire the patent.

The process for determining whether prosecution history estoppel applies first asks whether estoppels presumptively applies and then asks whether the patentee can overcome the presumption. Thus:

• PHE is presumed when a patent claim is narrowed for reasons relating to patentability;
• However, the presumption can be overcome by showing that the patentee did not intend to surrender the particular equivalent.

In Festo, the Supreme Court offered two specific arguments that could be used to overcome the presumption: (1) that the alleged equivalent would have been unforeseeable at the time the amendment was made; and (2) that the reason for the amendment only tangentially related to the equivalent in question. In addition, the Supreme Court noted that other explanations may also work to overcome the presumption.

Here, the Federal Circuit agreed that the presumption of PHE applied because Duramed had narrowed its claims in response to a prior art rejection. The court also agreed that Duramed had failed to overcome the presumption. In particular, the court held that the polyvinal alcohol alternative should have been foreseeable because it was already known to be used in other pharmaceutical compositions.

What is Foreseeable?: Courts will find an alternative "foreseeable" if it is known in the prior art pertinent to the claim scope before the amendment. This definition means that a foreseeable alternative is somewhat more broadly defined than is an obvious alternative. Here, Duramed argued that it was not foreseeable at the time of the amendment to use the polyvinal alcohol alternative in combination with the estrogen drug. On appeal, the Federal Circuit held that foreseeability for PHE analysis does not require such precision – rather, it was sufficient for the court that the alternative was known for use with other pharmaceutical compounds.

As we spelled out in Schwarz, when the language of both original and issued claims begins with the words "[a] pharmaceutical composition," that language defines the field of the invention for purposes of determining foreseeability. Accordingly, PVA MBCs need only to have been known in the field of pharmaceutical compositions as of the time of Duramed's narrowing amendment. . . . [F]oreseeability does not require such precise evidence of suitability. And even if the [prior art] disclosure indicates that PVA is less than ideal in some pharmaceutical uses as an MBC, it is still disclosed to be useful as such, and that renders it foreseeable for purposes of prosecution history estoppel. Foreseeability does not require flawless perfection to create an estoppel.

Because Duramed was unable to overcome the presumption, prosecution history estoppels applies to bar Duramed from asserting that the accused Polyvinal alcohol barrier is equivalent to the claimed ethylcellulose barrier.

The Frequency of Means-Plus-Function Claims

The chart above shows the continued decline in the use means-plus-function claim limitations in U.S. Patents. To create the chart, I identified a sample of patents for each year and then used an automated search query to count the percent of patents that use the phrase "means for" in the claim set. This chart is even more dramatic if you consider that the average number of claims-per-patent has dramatically increased during this same period.

Patents Citing More than 2,500 References

Over the past year-and-a-half, 52 utility patents have issued that each cite more than 2,500 references.  It turns out that the vast majority of those patents are owned by one company –  Personalized Media Communications. PMC's recently issued patents also have the dubious honor of each having been filed prior to the 1995 change in patent term. Thus, PMC's patents will remain in force 17 years from the date of issuance even though they were filed more than 16 years ago. 

The second major excessive citer is Pelikan Technologies. Pelikan's patents relate to diabetes diagnostic tools, including electronic lancing. The other companies with excessive citations of prior art include Abbott Diabetes, Aloft Media, Angiotech Pharma, and Bayer Healthcare.(I could not find any patents that issued from 2000 through 2009 that cited more than 2,500 references).

Assignee Name	Patents on List	References Cited (avg)	Patent Documents Cited (avg)	Non-Patent Literature Cited (avg)	Example Patent
Personalized Media Communications	38	2,810	1,284	1,526	7966640
Pelikan Technologies	9	3,239	3,239	0	7981056
Abbott Diabetes Care	3	2,866	2,303	563	7920907
Bayer Healthcare	1	2,510	1,005	1,505	7897623
Angiotech Pharmaceuticals	1	3,068	245	2,823	7820193
Aloft Media	1	3,255	3,006	249	7970722

Why do PMC's patents take so long to issue? First, lets talk about what did not happen: (1) PMC never needed to appeal an examiner rejection; (2) PMC never even received a final office action; and (3) the application was not held back because of a secrecy order. Rather, the problem seems to be that PMC filed too many applications in 1995. Since PMC was only a small company with a so many patent applications, the PTO decided that it should "coordinate" the examination of PMC's patents. The result appears to be simply that the PTO created excessive delay, including four PTO-initiated suspensions of prosecution and Office Actions penned by at least three different examiners.

In one case that I looked at, some of the key file-history entries include:

File Application with a preliminary amendment	1995
Second Claim Set Amendment	1996
Examination Suspended (At PTO's Request) to Consider the Plethora of PMC patents	1997
First Non-Final Office Action Rejection	1997
Third Claim Set Amendment	1997
Second Non-Final Office Action Rejection	1998
Fourth Claim Set Amendment	1998
Fifth Claim Set Amendment	1999
Sixth Claim Set Amendment	2002
Third Non-Final Office Action Rejection (New Examiner)	2002
Seventh Claim Set Amendment	2002
Examination Suspended (At PTO's Request) to Consider the Plethora of PMC patents	2004
PMC Filed Petition to Cancel Suspension and Speed-Up the Examination	2005
Examination Suspended (At PTO's Request) to Consider the Plethora of PMC patent applications	2007
Examination Suspended (At PTO's Request) to Consider the Plethora of PMC patent applications	2008
Ex parte Quayle Action (With Proposed Amendment and New Examiner)	2009
Notice of Allowance	2010
Delay for additional Citation of References	2010
Issue	2011

Average Number of References Cited Per Patent

What are the odds that the PTO's new limited disclosure rules and the Federal Circuit's Therasense and Excergen decisions will turn this trend around? How will patent prosecutors alter their disclosure protocol based upon these changes in law & procedure?

More information on the data: The chart above shows the average number of references cited by both Applicants and Examiners as shown on the face of issued patents.  The chart is based upon all original utility applications published during a given time period. For 2011, numbers are through 7/20/2011.  The chart is “stacked,” thus, the average 42 citations per patent in 2011 includes, on average, 7.5 citations by the examiner and 34.5 citations by the applicant.  In 2010 I created a similar chart that showed a potential downward trend for 2010.  This new data rejects that trend –  although it is somewhat different because I have now excluded design patents from the data set.

As the table shows below, the median number of cited references is also growing, but at a much more manageable level and pace. 

Year	Median Number of References Cited
2005	13
2006	14
2007	14
2008	14
2009	15
2010	16
2011	17

USPTO Proposes to Modify Applicants Duty to Disclose, Following Therasense in Limiting the Scope of Materiality

In a four-page Federal Register notice of proposed rulemaking of proposed rulemaking, the US Patent Office has indicated its intent to revise its duty-to-disclose standards based upon the recent Federal Circuit en banc decision in Therasense, Inc. v. Becton, Dickinson & Co., --- F.3d --- (Fed. Cir. 2011). 

In Therasense, the Federal Circuit held that, apart from potentially affirmative egregious misconduct, inequitable conduct in patent prosecution should not be found unless it is proven that the misconduct was a “but for” cause of the patent issuing. Focusing specifically on the failure to disclose prior art, the court wrote: “[w]hen an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art.”  The office introduces its proposal as follows:

Specifically, the Office is proposing to revise the materiality standard for the duty to disclose to match the materiality standard, as defined in Therasense, for the inequitable conduct doctrine. While Therasense does not require the Office to harmonize the materiality standards underlying the duty of disclosure and the inequitable conduct doctrine, the Office believes that there are important reasons to do so. The materiality standard set forth in Therasense should reduce the frequency with which applicants and practitioners are being charged with inequitable conduct, consequently reducing the incentive to submit information disclosure statements containing marginally relevant information and enabling applicants to be more forthcoming and helpful to the Office. At the same time, it should also continue to prevent fraud on the Office and other egregious forms of misconduct. Additionally, harmonization of the materiality standards is simpler for the patent system as a whole.

The newly proposed Rule 56(b) (37 C.F.R. 1.56(b)) would read as follows:

Sec.  1.56  Duty to disclose information material to patentability.

* * * * *

(b) Information is material to patentability if it is material under the standard set forth in Therasense, Inc. v. Becton, Dickinson & Co., --- F.3d --- (Fed. Cir. 2011). Information is material to patentability under Therasense if:

(1) The Office would not allow a claim if it were aware of the information, applying the preponderance of the evidence standard and giving the claim its broadest reasonable construction; or

(2) The applicant engages in affirmative egregious misconduct before the Office as to the information.

* * * * *

Under the new rule, the mere failure to disclose information will never be considered material to patentability if the pending claim is allowable. A parallel change would be made to the disclosure rules governing reexaminations.

The current Rule 56(b) defines material information as non-cumulative information that either (1) “by itself or in combination with other information…compels a conclusion that a claim is unpatentable under the preponderance of evidence, burden-of-proof standard” or (2) is inconsistent with “a position the applicant takes” arguing that the claim is patentable.  The current rule implemented in 1992 and was itself an attempt by the USPTO to limit the scope of materiality. The pre-1992 rule required submission of information whenever there was a “substantial likelihood that a reasonable examiner would consider [the information] important in deciding whether to allow the application to issue a patent.” 

Thus far in 2011, the average issued patent cites 42 prior art references.  This number is highly skewed because of a minority of patents that cite to an excessively large number of prior  art references.  The median patent in 2011 cites 17 references. Only 8% of the 2011 patents cite more than 100 references, but those patents collectively cite more references than the other 92% combined.

The USPTO is also seeking comment on other actions that “may provide an incentive for applicants to assist the Office by explaining/clarifying the relationship of prior art to the claimed invention.”

Written comments regarding the proposed rule change should be submitted to AC58.comments@uspto.gov within the next 60 days (by September 19, 2011).

Who cares about Patent Term?: Biotechnology Patent Applicants

For patent applications filed since 1995, the patent term is calculated by adding twenty years to the filing date. US applicants can add up to one year to the term by first filing a provisional application and then, after a one-year delay, filing a regular (non-provisional) application.  This is because the filing of the provisional application does not trigger the beginning of the twenty year term.  Provisional applications have the additional benefit of delaying some prosecution costs. However, the total application cost may well be greater because of the added fees and attorney oversight.

Shifted Term: Although the patent term with a provisional application can be up to twenty-one years from the provisional filing (not counting other term adjustments), the effective term (issue date to expiry date) is not really changed. Rather, because the USPTO does not examine (or even queue) provisional applications, the extra year on the end of the term is balanced by an extra year in prosecution. Thus, the trade-off is a question of whether the additional enforceable time is more valuable in three years from filing or in twenty years. 

Taking Advantage of Provisional Patent: The chart below shows the percent of US originated patents issued in 2010–2011 that claim priority to one or more provisional patent applications, grouped by USPTO technology center. Provisional applications have become popular across all technology areas. However, when compared with other areas of technology, the patents examined in Technology Center 1600 (Biotechnology and Organic Chemistry) are much more likely to claim priority to provisional applications and gain the year of delay.  In that area, research competition and a norm of academic publication requires that applications be filed early in the development process to avoid loss-of-rights. Yet, products are typically not ready or approved for market by the time of issuance. It is unclear at this point how many applicants will take advantage of the USPTO's two-year delay program.

USPTO Technology Centers:

 1600 - Biotechnology and Organic Chemistry
 1700 - Chemical and Materials Engineering
 2100 - Computer Architecture, Software, and Information Security
 2400 - Computer Networks, Multiplex communication, Video Distribution, and Security
 2600 - Communications
 2800 - Semiconductors, Electrical and Optical Systems and Components
 2900 - Designs
 3600 - Transportation,Construction, Electronic Commerce, Agriculture, National Security and License & Review
 3700 - Mechanical Engineering, Manufacturing, Products

Over the past several years, the percent of patents that claim priority to a provisional application has continued to rise. I expect that trend to continue.

  

Tees & Radar: Patent Pendency 2011

I updated my patent database to include all patents issued thus far in 2011.  For 2011, the median original patent issued in 3.8 years (4.0 years average pendency).  For patents issued from continuation and divisional applications, the 2011 median pendency was 2.4 years (3.0 years average pendency).  The pendency for original applications is essentially unchanged from 2010. However, the pendency of the median continuation & divisional application has dropped by about 5 months from 2010.

	Median Pendency (Years)
Year	2010	2011*
Patents Issued From Original Applications (Excluding Continuations & Divisional Applications)	3.8	3.8
Patents Issued From Continuation or Divisional Applications	2.8	2.4

Of all the patents issued thus far in 2011, Louis Brown's Patent No. 7,959,525 issued most quickly — 125 days from the earliest priority date.

Brown's patent is directed to a Dual Composition Golf Tee. The patent itself is occupies only six pages and with five claims (one independent). The patent cites several prior patents — most of those being Brown's own prior patents that were also examined by the same USPTO primary examiner Steve Wong. In the background section, Brown explains how his claimed invention is an improvement upon his prior own inventions.  Brown's case was "made special" after he filed a petition based upon his age (over 65 years).

The 2011 patent with the longest application pendency Patent No. 7,898,454 invented by Bertrand Starkey.  Starkey's patent application was filed in 1966 by the Canadian Government and is licensed to the US Army.   The application received a notice of allowance in 1968, but was held from issuance under a secrecy order until 2006.  The Starkey patent is directed to a Radar Jamming method. The Canadian equivalent of Starkey's patent was also held under a secrecy order and issued in 2007.  Starkey is also author of the intriguing book: Laplace Transforms for Electrical Engineers (1957).

Antitrust Concerns Over the $4.5B Apple-Microsoft-RIM Patent Purchase

by Dennis Crouch

In most cases, patent enforcement actions and resulting license agreements (settlements) avoid antitrust scrutiny.  However, both exclusive licenses and patent assignments are treated just like any other asset acquisition and are more likely to trigger antitrust review by the Department of Justice (DOJ) or Federal Trade Commission (FTC).

Earlier this summer “Rockstar Bidco” won the largest patent auction to-date by offering $4.5 billion for 6,000 patents held by bankrupt Nortel.  Rockstar outbid Google, whose final offer was $100 million short.  Rockstar is a collaborative shell company led by Microsoft, Apple, and Research-in-Motion.  Its not surprising that the patents largely relate to high speed mobile networking. 

The Market: In the US, these four players (Microsoft, Apple, RIM, and Google) currently own the market for smartphone operating systems. However, the Rockstar members relative market shares continue to drop as Google's Android system rapidly grows. As part of the background, these companies have been rapidly building their patent portfolios and exerting them as a mechanism to both earn royalties and shut down competitor activity.  For example, earlier this month the US International Trade Commission (USITC) ruled that HTC phones running Google Android software infringe a number of Apple's patents. HTC already pays $5 to Microsoft for each of its Android phones.

Back to the Nortel Patent Purchase: The bankruptcy court has approved the sale after being told by Nortel that “there's no antitrust risk to the deal.” However, according to the Washington Post, the Department of Justice is still considering whether the purchase would violate US antitrust laws. In April 2011, the DOJ intervened in a similar (but much smaller) purchase of 882 Novell patents by Microsoft, Oracle, and Apple to require open source licensing of the patent rights in certain situations. In that case, however, Novell had already made open source commitments. 

Google’s Own Antitrust Problems: I used three primary sources in writing this article: internet searching (i.e., Google search), e-mail correspondence (i.e., Google mail), and phone calls (i.e., Google Android phone).  (Here is my Google+ page).

Patently-O Bits & Bytes by Lawrence Higgins

BPAI's Backlog

• Currently the BPAI receives about 1,200 new cases every month, but only decides around 600 cases per month. As shown in the graph below the BPAI's backlog has been increasing exponentially since 2005. In 2005, the BPAI had a backlog of only 882 cases; however, currently the backlog is well over 20,000 cases. The average time for a case to work its way through the system is over 30 months. There are many reasons that can be contributed to the BPAI's backlog, but the 3 most important reasons are:
  • The increase in the amount of cases filed per month. In 2005, the BPAI only received about 220 new cases per month; however, in 2011, this number was well over 1,000.
  • The increase in the amount of patent applications filed per year. In 2005, the PTO received 390,000 new utility patent applications; however in 2010 the PTO received 490,000 new applications. Numbers for 2011 are not available, but it can be presumed to be about 500,000 new applications.
  • The amount of money the PTO has to hire new judges. A BPAI judge salary is over $150,000 per year, and to effectively handle the caseload the BPAI would need to more than double the amount of judges that they currently have. To hire about 90 more judges, it would cost the PTO over 13.5 million dollars.

BPAI Statistics

Schmirler v. Kappos: This case seems to raise some interesting issues about joint inventors (liability and rights) and patent fees.

• In Schmirler, full issue fee was paid by one of three inventors on his AMEX card. Power of attorney (POA) was transferred by all three inventors to a law firm to wrap up prosecution and POA by its terms was to cease when attorney received issued patent. There is some evidence that, after the POA was transferred, one of the inventors requested a refund from AMEX, not the USPTO. About 2 weeks after the patent issued, AMEX executed a chargeback to take the issue fee back from the PTO. The PTO did not discover the fee discrepancy until 3 years later, and when they did discover it they sent out a letter regarding the fee discrepancy. The PTO did not receive any response, so in January 2005 the patent was vacated. The case focuses on essentially one question; should Schmirler be allowed to proceed on his own to protect his patent rights that were vacated by the PTO? Complaint Schmirler-MSJ-Memo PTO-MSJ-Memo Schmirler-Response PTO-Response

The Smithsonian and USPTO collaborate on an exhibition

• The exhibition The Great American Hall of Wonders examines the nineteenth-century American belief that the people of the United States shared a special genius for innovation. It explores this belief through works of art, mechanical inventions, and scientific discoveries, and captures the excitement of citizens who defined their nation as a "Great Experiment" sustained by the inventive energies of Americans in every walk of life. The exhibition opened on July 15, 2011 and will close on January 8, 2012. [Link]

Patent Jobs:

• Snyder, Clark, Lesch & Chung is seeking a patent attorney with at least 2 years of experience to work in their Herndon, Virginia office. [Link]
• BASF is seeking an IP Counsel to work at their Florham Park, New Jersey location. [Link]
• Klarquist Sparkman is searching for patent associates or patent agents to work in their Portland office. [Link]
• Ambature is seeking patent attorneys/patent agents. [Link]

Upcoming Events:

• World Research Group is holding the 8^th Annual Patents for Financial Services Summit on July 27-28^th in New York. Guest speakers include David Cunningham, Larry Bromberg, Matthew Krigbaum, and Moshe Malina. (Patently-O readers can use Promo Code ENN794 for a $200 discount) [Link]
• The 2^nd European Pharmaceutical Regulatory Law Forum will be held in Brussels, Belgium September 21-22^nd. The forum will focus on recent developments affecting the pharma industry in Europe and will discuss the impact of US developments on European companies. (Patently-O readers can register with code PO 10 for a 10% discount) [Link]
• American Conference Institute's Life Sciences Business Development & Acquisitions in Emerging Markets conference is scheduled for September 26-27 in New York, NY. (Patently-O readers can register with code PO 200 for a discount) [Link]
• IPMI is holding the IP Law & Management Institute on November 6^th – 8^th at the Rancho Las Palmas in Palm Springs, CA. Hailed as "One of the few programs geared to experienced in-house IP Counsel", the Institute is a CLE-accredited program designed to provide time-starved Heads of IP with the Opportunity to meet and network with their peers, learn from the best practices and validate solutions and services. [Link]

Contact Lawrence.Higgins@patentlyo.com with leads for future Bits and Bytes.

Recent Patent Law Scholarship

By Jason Rantanen

Several interesting new articles are currently making the rounds.  Two particularly noteworthy ones are summarized below:

James Bessen, A Generation of Software Patents
Do patents benefit software firms? James Bessen examines this issue through both a survey of existing literature and a new empirical study.  Bessen finds that although the number of software-related patents has grown rapidly over the past decade, the share of those patents obtained by software firms has remained relatively small, and is largely accounted for by the activity of a small number of large software firms.  In other words, most software patents go to firms outside the software industry.  Bessen also provides data that brings into question the value of patents to startup software firms and examines changes in the probability that a software patent will be involved in litigation during the first four years of its patent life.

The complete article is available via ssrn here.

Mark Lemley, The Myth of the Sole Inventor
In his most recent major article, Mark Lemley challenges the canonical story of the lone genius inventor while proposing a novel justification for the patent system.  Professor Lemley first breaks down the idea that invention occurs independantly, created by a handful of extraordinary inventors, through a series of vignettes about famous inventions: the steam engine, steamboats, the cotten gin, and other classic examples of pioneering inventions.  Rather than lone inventors, Lemley argues, history is replete with examples of simultaneous invention, calling into question the traditional incentive justification for the patent system.  Nor do any of the other conventional justifications for the patent system work, Lemley suggests.  What is needed instead is a new theory, which he offers: patents encourage patent racing, which drives innovation to occur faster, and in a more diverse manner, than it otherwise would.

The complete article is available via ssrn here.  Written Description blog offers a more in-depth discussion of the article.

Patent Malpractice Litigation: State versus Federal Jurisdiction

Magnetek, Inc. v. Kirkland & Ellis, LLP, 2011 Ill. App. LEXIS 708 (Ill. App. 2011)

In 2005, Ole Nilssen and Magnetek settled Nilssen's infringement lawsuit with an agreement to arbitrate the final award.  The arbitrator awarded $23 million in damages to Nilssen and the parties eventually agreed to an $18 million payment.  During that time, Magnetek was represented by the litigation powerhouse Kirkland & Ellis.  Magnetek later learned that Nilssen had (allegedly) obtained its patents through fraud. At that point, Magnetek obtained new counsel, however, the court refused to set aside the arbitration award — holding that Magnetek "could have discovered evidence of the alleged misconduct at the time of the arbitration, but failed to do so." (In the background, Nilssen's patents were eventually held unenforceable in a separate case involving a different defendant).

Magnetek's malpractice suit against Kirkland & Ellis is based upon the alleged facts that the law firm advised Magnetek to enter into the settlement agreement to arbitrate the dispute and to forego further discovery (that would have likely uncovered problems with the patent). 

After a briefing and oral arguments, the state court dismissed the case – holding that the substantive overlapping patent law issues require that the case be heard in Federal Court. 

On appeal, the state appellate court reversed — finding that the case did not "arise under" federal patent law and therefore should be heard in state court.

Legal Background: In a 2005 dispute over a tax seizure & subsequent claim to quiet title, the U.S. Supreme Court ruled that federal-question jurisdiction over state law claims require both (1) the presence of a disputed and substantial federal issue; and (2) abidance with "congressional judgment about the sound division of labor between state and federal courts governing the application of [federal-question jurisdiction]." Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308 (2005). Appling Grable in the patent law situation, the court wrote that

[T]he jurisdictional question then becomes whether, based on the well-pleaded complaint, the state-law claim necessarily raises a stated federal patent law issue, actually disputed and substantial, which the federal courts may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities."

In considering Magnetek's complaint, the court recognized that Magnetek's successful malpractice claim would require proof that – absent the alleged malpractice – it would have proved Nilssen's patents unenforceable. However, because the patent has already been held unenforceable in a separate case, that issue is no longer "disputed" and therefore does not give rise to federal jurisdiction.

Consequently, as the Federal Circuit discussed in Laboratory Corp. of America Holdings, the issue of the unenforceability … "has been resolved and is no longer disputed." While a finding of legal malpractice would depend on the unenforceability of the '409 patent, the circuit court would not have to conduct an independent analysis of unenforceability because the district court established, and the Federal Circuit affirmed, the merits of that claim and neither party contests those decisions. Therefore, there is no "disputed" federal patent issue raised by Magnetek's legal malpractice complaint that would give rise to federal jurisdiction.

For these reasons, this case is distinguishable from Air Measurement, Immunocept, and Premier Networks, on which both parties rely to support their respective arguments. In each of those cases, the plaintiffs in the legal malpractice case were also the plaintiffs in the underlying lawsuits. In each of those underlying suits, whether for patent infringement or negligent claims drafting, the plaintiffs lost on the merits of their claims. To prove that they would have been successful in the underlying lawsuits, the plaintiffs would have to prove that their patents were infringed to satisfy the proximate cause element, which their former attorneys did not concede in the malpractice cases. Additionally, in Immunocept, the plaintiff would have to prove that its patent would have been issued with a broader claim scope before proving infringement. Thus, unlike the present case, those plaintiffs were asking a state court to retry the infringement case and evaluate the effect of the evidence they claim would have changed the outcomes, without the benefit of a separate and final determination on the merits of those claims.

The malpractice action is now remanded to the Cook County trial court.  

The Future of Expectancy Interests in Patent Rights

Justice Breyer's dissent in Stanford v. Roche focused (in part) on what he suspected was an error in the Federal Circuit's rule distinguishing a promise to transfer from an automatic future-transfer agreement.  Justice Breyer considers a pre-invention contract as creating equitable title in the invention and that, at least historically, courts did not automatically transfer of legal title to patent rights.  Breyer's dissent has created a large amount of uncertainty in whether the Federal Circuit's rule of enforcing automatic transfer agreements will remain in force.

The language of automatic future transfer agreements is certainly strained and requires some disconnect from reality.  Typically, when joining a company a new employee will “hereby assign” all rights to future inventions.  Of course, at that point the new employee has no future inventions and no rights to assign.  However, when the language is written correctly, the Federal Circuit rule operates so that rights to any future invention automatically transfers to the employer at the point of invention.  (Query later how to conceptualize the “point of invention).  In many other areas of property law, this type of futures contract would not result in an automatic transfer of property rights but instead only an equitable expectancy interest and contract damages if rights were not delivered.  Copyright has a special statutory provision for works-made-for-hire that handle this situation by automatically vesting rights in the employer.

In an interesting first-response to Stanford v. Roche, Professor Hagelin (Syracuse) argues that the language of the Patent Act requires that transfer of legal title in patent right can only take place after the patent application has been filed — and therefore that the Federal Circuit rule is wrong.

Hagelin writes:

Section 261 of the Patent Act prescribes how legal title to patents and patent application may be transferred. Section 261 states: "Applications for patents, patents, or any interest therein, shall be assignable in law by an instrument in writing." Clearly, the Patent Act contemplates that a transfer of legal title to patents and patent applications can only be accomplished after the patent has issued or the patent application has been filed. The phrase "any interest therein" in Section 261 does not alter the Patent Act's basic requirement that legal title to patents and patent applications can only be transferred after a patent has issued or a patent application has been filed. The phrase "any interest therein" refers directly to patent applications and issued patents and covers situations in which submitters may be joint inventors or multiple assignees.

. . . .

It would seem, therefore, that the Federal Circuit's notion of an expectant interest transforming into a legal title by operation of law, without any further act on the part of the transferor, is a fiction which flies in the face of legal and practical realities. The only way legal title in an invention can be transferred from an inventor to another party is through a written document executed after a patent has issued, or after, or concurrently with, the filing of a patent application. It does not matter whether the employee-inventor has signed an employment agreement in which he or she has agreed to presently assign patent rights in future inventions. Legal title cannot pass to the employer until an assignment document is executed after a patent has issued or a patent application has been filed, and the assignment document is recorded with the PTO.

Hagelin's notion that title cannot transfer without recording the transfer is wrong.   However, there is merit to the general point made by both Breyer and Hagelin — that the Federal Circuit automatic transfer rule has problems.

Court Continues to Struggle with Claim Construction

Retractable Technologies v. Becton, Dickinson and Company (BD) (Fed. Cir. 2011)

In 2010, Judge Folsom of the Eastern District of Texas confirmed the jury finding that BD was liable for infringing three of RTI's retractable syringe patents and that BD's invalidity arguments were not convincing. On appeal a two-member majority (Judges Lourie and Plager) reversed-in-part — finding that the district court had erred in its construing of the term “body” too broadly by not limiting the term to a “one piece body.” The majority opinion was written by Judge Lourie. Judge Plager filed a concurring opinion asking courts to focus on the “actual invention” when construing claims. Chief Judge Rader wrote in dissent that the majority's construction improperly imported limitations from the specification into the claims.

I begin with Judge Plager's minority view of focusing attention on the actual invention (rather than solely on the written claim language) that has been a recent topic for discussion in the legal academy. 

Plager writes:  

However much desired by the claim drafters, who want claims that serve as business weapons and litigation threats, the claims cannot go beyond the actual invention that entitles the inventor to a patent. For that we look to the written description. I have written elsewhere about the curse of indefinite and ambiguous claims, divorced from the written description, that we regularly are asked to construe, and the need for more stringent rules to control the curse.

I understand how a perfectly competent trial judge can be persuaded by the siren song of litigation counsel to give the jury wide scope regarding what is claimed. But it is a song to which courts should turn a deaf ear if patents are to serve the purposes for which they exist, including the obligation to make full disclosure of what is actually invented, and to claim that and nothing more.

Although the written description and enablement requirements are intended to ensure that the claim scope is commensurate with the disclosure, Plager's approach has some merit as a mechanism for allowing courts to adjust patent scope based on disclosure problems rather than the binary valid/invalid choice available under Section 112 p1 defenses.

The Majority Claim Construction: The meaning of a patent claim is considered a question of law that is reviewed de novo on appeal.  That is, on appeal, no deference is to be given to the lower court's opinion.  In the 2005 en banc decision of Phillips v. AWH, 415 F.3d 1303, the Federal Circuit wrote that claim meaning should be determined by looking at the words of the claims themselves; the patent specification; the prosecution history; and any relevant extrinsic evidence.  Phillips changed the law of claim construction by requiring that clams always be construed “in view of the written description.”

One-Piece Body: The claimed syringe includes a limitation to “a hollow syringe body comprising a barrel and having a front end portion and a back end portion, the back end portion further comprising at least one radially extending member providing finger grips for the syringe body.”  The district court looked primarily to the claim language in ruling that the claimed “body” is not limited to a one-piece structure (except for dependent claim 25 that did explicitly limit the body to “one piece”).

Claim Differentiation: On appeal, the Federal Circuit first addressed the claim differentiation argument and found a weak implication that a claimed “body” should be broader than a claimed “one piece body.”  

While the patents contain an independent claim that recites a “body,” with a dependent claim that limits the “body” to a “one-piece body,” none of the claims expressly recite a body that contains multiple pieces. Thus, while the claims can be read to imply that a “body” is not limited to a one-piece structure, that implication is not a strong one.

The decision suggests that the claim differentiation would have been a much stronger argument if a separate dependant claim had been limited to “a multiple-piece body” or “a non-one-piece body.”

Specification: In several decisions, the Federal Circuit has ruled that claim differentiation arguments will be outweighed by a contrary construction “dictated by the written description or prosecution history.”  Here, the court found that the specification's background section discussing the prior dictated the a narrow construction. In particular, the background section of one of the asserted patents included the following line:

The prior art has not recognized that such a structure can be molded as a one piece outer body

And, the Summary of the Invention stated that the invented syringe “features a one piece hollow outer body.”  The specification discusses several embodiments of a one piece body and never discloses a body that consists of anything other than a one-piece body (except in disparaging the prior art).

In considering these competing arguments, the court noted that there is a very “fine line between construing the claims in light of the specification and improperly importing a limitation from the specification into the claims.”  Here, the court ruled the one piece body is necessary “to tether the claims to what the specifications indicate the inventor actually invented.”  

Chief Judge Rader's dissent evokes the pre-Phillips notion that a patent claim can often be read in a vacuum unless scope is disclaimed during prosecution or terms specially defined in the specification.

He writes:

[Under Phillips] Claim language is to be given its ordinary and customary meaning, as understood by a person of ordinary skill in the art at the time of the invention. In this case, neither party contends that “body” has a special, technical meaning in the field of art, and thus claim construction requires “little more than the application of the widely accepted meaning of commonly understood words.” (quoting Phillips). The ordinary and customary meaning of “body” does not inherently contain a one-piece structural limitation. Moreover, neither the claim language nor the written description evinces intent by the patentee to limit the scope of “body” to one-piece bodies.

. . .

Certainly, the claims do not stand alone and must be read in light of the specifications. Nothing in the specifications, however, rebuts the strong presumption created by the claim language that “body” does not contain a one-piece structural limitation. The specifications do not reveal a special definition given by the inventor to the word “body.” Nor do the specifications contain an intentional disclaimer or disavowal of claim scope by the inventor.

This opinion serves as evidence that the court continues to struggle with claim construction and that there continues to be some amount of panel dependence in the results.

Patently-O Bits & Bytes by Lawrence Higgins

District Courts Selected for Patent Pilot Program

• Fourteen federal district courts have been selected to participate in a 10-year pilot project designed to enhance expertise in patent cases. To be eligible to participate, courts had to be among the 15 district courts in which the largest number of patent and plant variety protections cases were filed in 2010. Some of the selected courts are the; Eastern District of Texas, Northern District of Texas, Southern District of California, and Southern District of California. Among the courts selected, the Eastern District of Texas has seen the most patent litigation in recent years. Will this patent program cause a shift in the amount of cases that the Eastern District of Texas (or any of the courts selected) receives or will they continue to receive a high number of patent cases? [Link]

Group of 6 Buys Over 6,000 Patents

• The winning bid for the Nortel patents was a staggering $4.5 billion dollars, roughly equal to $750,000 dollars per patent. The 6 companies that came together to outbid Google and others were; Apple, EMC, Ericsson, Microsoft, RIM and Sony. John Amster the CEO of RPX, a company who participated in the auction, stated that “a number of… companies clearly wanted to both own the patents themselves and keep them away from Google.” While none of the winning companies have reported exactly why they wanted the patents and what they plan to do with the patents, presumptions can be made. For example, it can be presumed that Apple and RIM wanted the patents to try to keep Google out of the mobile communications market. Also, it can be presumed that the 6 companies wanted the patents for the same reason Google wanted the patents, which was for a means to stay out of patent infringement lawsuits. [Link]

IP Podcast and Suffolk Law!

• Professor Andrew Beckerman-Rodau and Ian Menchini of Suffolk Law School produce a series of IP Law podcast. These podcast are available for free on ITunesU. The podcasts are downloaded approximately 1,000 times weekly and discuss many interesting IP topics. [Link] If anyone is interested in doing a podcast, they should contact Ian Menchini by email. (imenchin@suffolk.edu) Also, the Suffolk Law School has an IP Concentration for law students and a Patent law specialization for law students who may be interested in practicing IP law. [Link]

Patent Jobs:

• Grimes & Battersby is seeking senior IP attorneys with experience in IP litigation, prosecution and licensing. [Link]
• Edell, Shapiro & Finnan is searching for associates with backgrounds in electrical engineering and mechanical engineering, to work in their Rockville, Maryland office. [Link]
• An Orange County based IP firm seeks to fill 2 positions. One is a part time litigator and the other is a full time litigator/prosecutor. [Link]
• Fenwick & West is looking for a patent litigation associate with 2-4 years of patent litigation and a Ph.D. in a life science discipline. [Link]

Upcoming Events:

• World Research Group is holding the 8^th Annual Patents for Financial Services Summit on July 27-28^th in New York. Guest speakers include David Cunningham, Larry Bromberg, Matthew Krigbaum, and Moshe Malina. (Patently-O readers can use Promo Code ENN794 for a $200 discount) [Link]
• The 2^nd European Pharmaceutical Regulatory Law Forum will be held in Brussels, Belgium September 21-22^nd. The forum will focus on recent developments affecting the pharma industry in Europe and will discuss the impact of US developments on European companies. (Patently-O readers can register with code PO 10 for a 10% discount) [Link]
• American Conference Institute’s Life Sciences Business Development & Acquisitions in Emerging Markets conference is scheduled for September 26-27 in New York, NY. (Patently-O readers can register with code PO 200 for a discount) [Link]
• IPMI is holding the IP Law & Management Institute on November 6^th – 8^th at the Rancho Las Palmas in Palm Springs, CA. Hailed as “One of the few programs geared to experienced in-house IP Counsel”, the Institute is a CLE-accredited program designed to provide time-starved Heads of IP with the Opportunity to meet and network with their peers, learn from the best practices and validate solutions and services. [Link]

Contact Lawrence.Higgins@patentlyo.com with leads for future Bits and Bytes.

Guest Post: Rein in the Big Bank Bail-Out

Guest post by the Honorable Paul Michel, former Chief Judge of the Court of Appeals for the Federal Circuit

Last month the House of Representatives passed the America Invents Act (H.R.1249), as the Senate had earlier, with the goal of streamlining patent law. Massive lobbying by Wall Street banks, however, produced not streamlining, but protection for financial firms who infringe other firms' valid patents – so-called "business method patents". Instead of simplicity and speed, this provision adds complexity and delay.

"Business method patents", like all other patents, preserve the Constitutional right to exclusive use of one's invention for a limited period. If another uses it without the owner's permission, courts will enforce patent rights once violation of a valid patent is proven. The bill will make getting justice more difficult.

Of course not all business method patents are valid. Under present law, however, procedures are available to banks in both the courts and the patent office to invalidate patents that should not have been granted. They are often used and frequently successful.

This feature of the bill, Section 18, however, adds a special new procedure in the patent office that favors financial firms in several unjustified ways. First, it allows patents to be invalidated even though properly granted under the laws applicable at the time, even when they have been upheld by the courts or after re-examination in the Patent Office. Second, it allows lawsuits to be stalled for years while the patent office reviews the old patents under the new laws. It does so by skewing the standards courts normally apply in deciding whether to freeze ("stay") the lawsuit until the patent office completes all reviews. Further, it creates an automatic right of appeal if the stay is denied, guaranteeing further delay and burdening the appeals court with reviewing trial court orders not normally appealable.

No other industry is so protected, no other type of patent so degraded. That is not equal justice under law, but special interest legislation at its worst. Favoritism for financial firms will encourage other industries likewise to seek legislative exemption from normal rules and equal justice. That will further fragment patent law, expanding complexity and delay just when simplicity and expedition are needed to spur recovery and create jobs.

Furthermore, Section 18 is not even a necessary measure, since a recent Supreme Court decision already establishes a standard to identify those methods patents that were improperly granted.

It is important that the U.S. patent system and the businesses and jobs it supports be protected from overzealous advocates who would try to use Section 18 beyond even the banks' specially requested favors. There are three ways of accomplishing this. First, the Senate could and should simply remove Section 18 from the bill. If the banks are too powerful for that to be achieved, then the Senate should amend Section 18 to restrict it explicitly as described above – to abstract business concepts applying particularly to the operations of financial institutions (which by definition would preserve their special-interest "private legislation"). If the banks are too powerful for even that to happen, then the Senate should make it clear in legislative history that Section 18 in fact is intended to have such a narrow focus, and the U.S. Patent Office should implement Section 18 in a manner consistent with that narrow focus – or otherwise be faced with a great number of challenges to validly issued patents that, according to the banks, were not their targets. This would add a great many new proceedings to the Patent Office's workload, placing considerable weight on a system already under heavy stress. And the challenges to valid patents could lower the value of U.S. inventions, and threaten your business, your patents and your job.

In the bill, Section 18 provides an exemption for "technological" inventions, but nowhere in the bill is that word defined. Instead, the bill directs that the Patent Office is to decide by regulation what "technological" means. But that flies in the face of settled law that the Patent Office lacks legal authority to issue substantive regulations. The competence of the office to make such legislative judgments may also be questioned. Here, again, if Section 18 is not removed altogether the Senate should at least fill in the gaps by clarifying this term and confining the "business method patents" provision to the narrow special interests – banks and financial services companies – that were accommodated here.

A similar provision in Section 14 categorically invalidates all so-called "tax strategy patents," favoring a few businesses as no others – this time lawyers and accountants providing tax services. Again, it is unnecessary because court decisions already identify which of this class of patents are invalid as obvious. These favored firms are legislatively immunized even when they plainly infringe patents the courts and the patent office have found valid or would under normal rules, just because Congress says so. That is not rule of law, but rule of lobbyists, again leading to favoritism to a select group of firms.

Again, this provision could cover far more than intended, and be argued to apply to all patents that refer to taxes regardless of how limited they may otherwise be. A new computer application to calculate taxes could be blocked from patenting although the patent would be directed to the machine, not the tax strategy. And although patents are exempted where the tax avoidance strategy is "severable," the term has no clear meaning in this context.

While this would not be an appropriate reading, it behooves the Senate to restrict the "tax strategy" provision with simple modifications to spell out an appropriately narrow definition. Otherwise, as with business method patents, years of litigation over tax strategy patents could follow, creating uncertainty and threatening jobs just when everyone agrees we need more certainty to promote growth. And it will increase delays just when everyone agrees we must reduce them.

Before Congress finalizes the patent reform bill, its best course is to strip out all special interest sections that bail out big banks, Wall Street investment firms, and tax lawyers and accountants. Failing that, amendments as described above are important, or at least legislative history that explains the narrow applicability of Section 18. Without these, the harms can easily outweigh the benefits of this complex 150-page bill. In that event, I say better to reject the current bill and start over.

Notes:

• Image by Libby Levi.

In Memory: Judge Daniel M. Friedman

Court of Appeals for the Federal Circuit Judge Daniel Friedman died earlier this week at the age of 95.  Judge Friedman was the last living original member of the court. He was known for his sharp intellect, friendly demeanor, and bow ties.

Judge Friedman graduated from Columbia Law School in 1940 and continued to practice law over the next 71 years (with a brief break to serve in the U.S. Army in WWII).  For the last 29 years, he has been a Judge on the Federal Circuit.   law over a span of more than 70 years — including the last 29 years on the Federal Circuit. In his practice at the Justice Department, then Solicitor Friedman argued eighty cases at the Supreme Court.

Judge Friedman took Senior Status at the Court in 1989 and his seat filled by Judge Alan Lourie. His last patent opinion (of several hundred) was released in January 2011.

Statement by Chief Judge Rader

H.R. 1249 Section 18

SEC. 18. TRANSITIONAL PROGRAM FOR COVERED BUSINESS METHOD PATENTS.

(a) Transitional Program.—

(1) ESTABLISHMENT.—Not later than the date that is 1 year after the date of the enactment of this Act, the Director shall issue regulations establishing and implementing a transitional post-grant review proceeding for review of the validity of covered business method patents. The transitional proceeding implemented pursuant to this subsection shall be regarded as, and shall employ the standards and procedures of, a post-grant review under chapter 32 of title 35, United States Code, subject to the following:

(A) Section 321(c) of title 35, United States Code, and subsections (b), (e)(2), and (f) of section 325 of such title shall not apply to a transitional proceeding.

(B) A person may not file a petition for a transitional proceeding with respect to a covered business method patent unless the person or the person’s real party in interest or privy has been sued for infringement of the patent or has been charged with infringement under that patent.

(C) A petitioner in a transitional proceeding who challenges the validity of 1 or more claims in a covered business method patent on a ground raised under section 102 or 103 of title 35, United States Code, as in effect on the day before the effective date set forth in section 3(n)(1), may support such ground only on the basis of—

(i) prior art that is described by section 102(a) of such title of such title (as in effect on the day before such effective date); or

(ii) prior art that—

(I) discloses the invention more than 1 year before the date of the application for patent in the United States; and

(II) would be described by section 102(a) of such title (as in effect on the day before the effective date set forth in section 3(n)(1)) if the disclosure had been made by another before the invention thereof by the applicant for patent.

(D) The petitioner in a transitional proceeding that results in a final written decision under section 328(a) of title 35, United States Code, with respect to a claim in a covered business method patent, or the petitioner’s real party in interest, may not assert, either in a civil action arising in whole or in part under section 1338 of title 28, United States Code, or in a proceeding before the International Trade Commission under section 337 of the Tariff Act of 1930 (19 U.S.C. 1337), that the claim is invalid on any ground that the petitioner raised during that transitional proceeding.

(E) The Director may institute a transitional proceeding only for a patent that is a covered business method patent.

(2) EFFECTIVE DATE.—The regulations issued under paragraph (1) shall take effect upon the expiration of the 1-year period beginning on the date of the enactment of this Act and shall apply to any covered business method patent issued before, on, or after that effective date, except that the regulations shall not apply to a patent described in section 6(f)(2)(A) of this Act during the period in which a petition for post-grant review of that patent would satisfy the requirements of section 321(c) of title 35, United States Code.

(3) SUNSET.—

(A) IN GENERAL.—This subsection, and the regulations issued under this subsection, are repealed effective upon the expiration of the 8-year period beginning on the date that the regulations issued under to paragraph (1) take effect.

(B) APPLICABILITY.—Notwithstanding subparagraph (A), this subsection and the regulations issued under this subsection shall continue to apply, after the date of the repeal under subparagraph (A), to any petition for a transitional proceeding that is filed before the date of such repeal.

(b) Request For Stay.—

(1) IN GENERAL.—If a party seeks a stay of a civil action alleging infringement of a patent under section 281 of title 35, United States Code, relating to a transitional proceeding for that patent, the court shall decide whether to enter a stay based on—

(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;

(B) whether discovery is complete and whether a trial date has been set;

(C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and

(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

(2) REVIEW.—A party may take an immediate interlocutory appeal from a district court’s decision under paragraph (1). The United States Court of Appeals for the Federal Circuit shall review the district court’s decision to ensure consistent application of established precedent, and such review may be de novo.

(c) ATM Exemption For Venue Purposes.—In an action for infringement under section 281 of title 35, United States Code, of a covered business method patent, an automated teller machine shall not be deemed to be a regular and established place of business for purposes of section 1400(b) of title 28, United States Code.

(d) Definition.—

(1) IN GENERAL.—For purposes of this section, the term “covered business method patent” means a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.

(2) REGULATIONS.—To assist in implementing the transitional proceeding authorized by this subsection, the Director shall issue regulations for determining whether a patent is for a technological invention.

(e) Rule Of Construction.—Nothing in this section shall be construed as amending or interpreting categories of patent-eligible subject matter set forth under section 101 of title 35, United States Code.

Two-way Declaratory Judgment: Court rejects "competing patent" theory of jurisdiction

Creative Compounds v. Starmark Labs (Fed. Cir. 2011).

Creative and Starmark compete in manufacturing and selling the body-building supplement dicreatine malate. Both also hold patents that cover aspects of the supplement.  Starmark's Patent No. 7,109,373 claims a genus of creatine salts and methods of making the salts; Creative's Patent No. 7,129,273 has a narrower set of claims directed to dicreatine malate and methods of administering that compound.  In the lead-up to litigation, Starmark's predecessor-in-interest (SAN) first sent a letter to supplement buyers to advise the industry of its patent. Creative then sent similar letter to buyers identifying its own patent and also noting its belief that the SAN patent was unenforceable.  Starmark itself was not formed until two months after Creative sent its letters.

Although both parties held patents, Creative started the lawsuit with a declaratory judgment complaint seeking a judgment that Starmark's '373 patent was invalid and not infringed. In its answer/counterclaim, Starmark alleged infringement of its '373 patent and also demanded a declaratory judgment that it did not infringe Creative's '273 patent.   

A court's subject matter jurisdiction over a declaratory judgment complaint requires that the requested judgment relate to an actual,  substantial, immediate and adverse legal controversy between the parties. See MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007).  A DJ defendant (i.e., the patentee) generally waives objection to jurisdiction when it files an answer with a cross-allegation of infringement.  Here, however, Creative was able to successfully challenge the court's jurisdiction because it did not allege infringement of its own patent.

In many ways, this case is a level-of-abstraction problem.  Clearly the parties compete in the market place and for buyers and they hold potentially overlapping patents that have been linked in correspondence with third parties. However, the court focuses its attention on the more narrow question of whether there is a case-or-controversy surrounding the '273 patent so as to allow the court to hold jurisdiction over a declaratory judgment action seeking to invalidate that patent. 

In its decision, the Federal Circuit came to the interesting conclusion that Creative's seemingly threatening letter could not be seen as any accusation of infringement against Starmark because Starmark was formed as a legal entity by SAN after the letters were mailed.

Here, Creative never accused Starmark of infringing its ’273 Patent. While Creative did send letters to purchasers of dicreatine malate alleging that dicreatine malate would infringe claims of the ’273 Patent, none of these letters were sent to Starmark. To the extent Starmark contends those letters were sent to its customers, this contention rings hollow when the letters were sent to SAN’s customers in August 2006 and Starmark was not formed until October 2006. In the absence of an indemnity agreement between Starmark and one of these "customers," Starmark has, at most, only an economic interest in clarifying its customers’ rights under Creative’s patents. Such an economic interest alone, however, cannot form the basis of an ‘actual controversy’ under the Declaratory Judgment Act. Thus, the district court lacked declaratory judgment jurisdiction over the ’273 Patent.

The court also made clear that the “competing patent” scenario does not tend to create jurisdiction with regard to the opposing party's patent unless the the legal claim being sought is akin to an interference proceeding.  

Readers may notice that these declaratory judgment rulings appear to follow a formalistic approach that make a distinction without explaining the importance.  For instance, it appears that the “late” formation of Starmark had very little practical impact because the new company was a subsidiary that involved the same individuals, the same products, and same market structure as the predecessor company.  

Notes:

• The decision also affirms the lower court summary judgment ruling that Creative infringed the '373 patent and that the patent was not invalid.  It does not appear that Creative appealed the permanent injunction.
• Anthony Roberts has some background information on the parties. [Link]

Lobbying for a Patent Term Extension

Medicines Company (MDCO) v. Kappos (Fed. Cir. 2011)

The FDA approved the new drug application (NDA) for MDCO's blockbuster drug Angiomax (bivalirudin) on December 15, 2000.  As it turns out, it is important that the approval came at 5:18 pm on a Friday. After the approval, MDCO filed for a patent term extension (PTE) based upon the delay in the regulatory approval process. Unfortunately, the company waited until February 14, 2001 to file the PTE application — just past the sixty-day period allowed under the statute. The PTO refused to consider the application because it was late. 

MDCO has been fighting its loss of term extension on three fronts: (1) privately with its prosecution firm; (2) in court against the PTO and (3) in the halls of Congress.  It appears that the company is likely be successful in the end.

First, in February 2011, WilmerHale (and its malpractice insurers) agreed to pay MDCO $18 million for past expenses and made available an additional $214 million in case generic bivalirudin goes on the market in the US prior to June 2015 as a result of PTE not being granted or being held valid.   The $18 million reportedly covers the expenses associated with litigation against the PTO and lobbying congress.

In court, the district court applied an “after-business-hours” exception to the statute and therefore agreed with MDCO that the PTE application was timely filed.  The PTO chose not to appeal that decision. However, a German generic manufacturer –  APP Pharma — is attempting to intervene and appeal on behalf of the USPTO. APP has a strong argument on the merits, but a weak argument on its own standing.  The appellate court earlier rejected a motion to bifurcate the appeal between the standing issue and the merits issue and will instead hear them jointly.

Finally, the recent patent reform bill passed in the House of Representatives (H.R. 1249) includes a provision particularly crafted to aide MDCO. The provision says simply that, for the purposes of calculating the PTE application due date, any regulatory after 4:30 pm will be considered to have occurred on the next business day. (Amending 35 U.S.C. 156(d)(1)). That provision, however, is not in the Senate's version.

Although not written as such, the legislative measure is essentially a private relief bill directed to help MDCO (no other pharmaceutical company has or will make the same mistake).  There is some precedent for straightforward term extensions, including ones for patents covering aspartame (6 years), isoflurane (5 years),  Impro (15 years), glyburide (6 years), gemfibrozil (3 1/2 years), olestra (3 years), oxaprozin (2 years).

Notes: Kurt Karst has been following the case in detail at his FDA Law Blog.

USPTO Patent Grant Forecast for 2011

In early 2011, the USPTO appeared to be on pace to issue a record number of patents for the year. That changed when Congress cut $100 million from USPTO's remaining fiscal year budget.  That budget cut led directly to a reduction in examiner hours — the key USPTO input.

The new forecasted outlook for 2010 suggests that the number of issued patents for 2011 will be slightly less than that of 2010.