Patent Law Blog (Patently-O)

USPTO Fee Increase - October 5, 2012

by Dennis Crouch

Reminder - A new fee schedule begins October 5, 2012 that raises patent fees by 0–3% depending upon the fee.  Thus, the issue fee for a utility patent is moving upward from $1,740 to $1,770, for example. This fee increase is designed to to account for inflation.

• Current Fees: http://www.uspto.gov/web/offices/ac/qs/ope/fee092611.htm
• New Fees: http://www.uspto.gov/web/offices/ac/qs/ope/fee100512.htm

This is a relatively minor change in fees and the fee structure. A much more substantial change will be implemented in the coming months (likely early 2013) once the USPTO finalizes its rules on AIA fee implementation. At that time, the micro entity fee discount will also become effective.

US Courts Reject German Injunction Order in Microsoft v. Google Patent Battle

by Dennis Crouch

Microsoft Corp. v. Motorola, Inc. (9th Cir. 2012)

The Ninth Circuit Court of Appeals has confirmed a temporary injunction blocking enforcement of Motorola's German patent infringement judgment against Microsoft's Xbox 360. In May 2012, the German court (sited in Mannheim) based its injunction order on three holdings: that (1) a licenses between Microsoft and Motorola did not cover asserted patents; (2) Motorola's commitments of the patents to FRAND agreements were not enforceable by Microsoft; and (3) Microsoft did indeed infringe the two asserted patents. The two Motorola patents asserted in Germany are EP0538667 ("'667") and EP0615384 ("'384"). These patents relate to the H.264 video coding and the 802.11 WLAN standards.

This is a somewhat unique situation because Motorola's patents are part of FRAND licensing commitments; both parties are American companies (although it is a German Motorola subsidiary that is pursuing the German case); and the German patent dispute is being resolved within contract litigation between the parties here in the US. In this vein, the Ninth Circuit decision relied on recent writings by Professor Lemley and Judge Posner that both push-against awarding injunctive relief for patents that have been involved in a FRAND license commitment. The appellate panel also found that US overrunning the German decision did not intolerably violate principles of comity -- especially because the German infringement action was filed after the US contract litigation had already started. One hook on the comity front is that the German injunction requires some additional action by Motorola (posting of a bond) before the Xbox injunction would begin. Thus, the US courts did not need to overturn the German decision but instead only order Motorola not to enforce its injunction.

Of course, Google now owns Motorola and is operating as puppet master behind the scenes.

http://www.ca9.uscourts.gov/datastore/opinions/2012/09/28/1235352.pdf

 

Patently-O Bits & Bytes by Lawrence Higgins

Patent Backlog to fall below 600K by end of the year!

• The current patent backlog is around 623,000 patents and is decreasing by an average of about 5,000 patents per month. This time last year the USPTO had a backlog of an estimated 683,000 patents and in 2010 it was 728,000 patents backlogged. By the end of the year the backlog should be under 600,000. The decrease from 2011 to 2012 is by almost 60,000 patents and this can be contributed to the hiring initiative that the USPTO implemented. The USPTO currently has around 7,600 patent examiners with plans to hire more in the near future. However, the patent backlog will be expected to start to slightly increase around March of 2013 due to the first-to-file patent system. [Link]

Great new free educational website!

• Coursera.org offers online classes in many different subject matters online for free. For example, they offer courses in electrical and materials engineering, computer science, biology & life sciences, and many more. The classes are taught by some of the leading institutions in the world. Some classes even offer a certificate of completion. I am currently enrolled in a computer science course taught by faculty from the University of Toronto.

Patent Jobs:

• Harrington & Smith is seeking a patent associate with a degree in EE or physics and at least 2 years of experience to work at their Shelton, Connecticut office. [Link]
• Krieg DeVault is looking for an IP associate with 3-7 years of experience to work at their Indianapolis office. [Link]
• Harrity & Harrity is searching for patent attorneys/agents with a background in EE, computer science, or physics and a minimum of 2 years of experience to work at their Fairfax, VA office. [Link]
• Honigman is seeking a patent attorney/agent with a degree in EE or computer science to work at their Oakland Count, Michigan office. [Link]
• Byrne Poh is looking for a patent attorney/agent with a degree in EE or computer science to work at their New York office. [Link]
• The Ollila Law Group is seeking a patent attorney with an EE and at least 2 years of experience to work at their Boulder office. [Link]
• Abel Law Group is seeking a chemical practitioner with 2+ years of experience to work at their Austin office. [Link]
• Klarquist Sparkman is seeking an IP Litigation Associate with 1-2 years of experience to work at their Portland office. [Link]

Upcoming Events:

• The Synopsis under IP/Patents Telecom Sourcing (SUITS) Conference is presented in conjunction with the ITEXPO on October 2 and 3, 2012 in Austin, Texas. The SUITS Conference provides a unique forum for innovators of in the field of telecommunications, including developers, executives, implementers, licenses, licensors, end users, and carriers, to learn about and discuss intellectual property issues. Key topics will include the changing patent law landscape, litigating in the telecom space post Apple v. Samsung, monetizing telecom patents and more. The conference includes moderators Christopher Douglas of Alston and Bird, Jeb Dykstra of technology Sector Law, Raffi Gostanian of Open Invention Network and Todd Juneau of Juneau Partners with guest speakers that include John Horvath of Google, Ross Barton and Stacey White of Alston and Bird, Robert Johnson of AmelioWave, Noreen Rucinski of Schneider Rucinski Enterprises and more. http://itexpo.tmcnet.com/suits/
• The 13^th Annual Maximizing Pharmaceutical Patent Lifecycles is scheduled for October 10-11 in New York. The conference will feature, Presentations from key representatives from the USPTO who will provide you with direct insights and the logic of this agency on some of most pressing life cycle management strategies that the industry is facing today, Analyses of recent critical cases affecting patent life cycle planning including: Caraco (use codes); Prometheus (subject matter eligibility); Sun Pharma (double patenting); Ariad (patentability); and Therasense (inequitable conduct) - and strategies for using these cases to your advantage and many more topics. [Link] (PatentlyO readers register for with PO 200 for a discount)
• The University of Akron School of Law's Center for IP & Technology will host the 6^th Annual IP Scholars Forum on October 26, 2012, from 9:00AM – 2:00 PM. The Forum's purpose is to bring together a small group of prominent scholars for intensive, high-level discussions on cutting-edge issues of common interest. This year's Forum will discuss "The Impact of IP on Public Health." Guest include: Frank Pasquale, Andrew Torrance, Jim Chen Jay Dratler, Jr., Katherine Van Tassel, and many others. [Link]
• The IP Section of the Nevada State Bar is hosting its annual CLE program in Las Vegas on November 2. The program will have sessions on trademarks, the top 10 patent cases of the year, IP strategy war stories, and many more. Guest speakers include: Mary LaFrance, Marketa Trimble, Mikio Ishimaru, Sean Carter, Jason Smalley, and many others. [Link]
• ACI's 14^th Advanced Forum on Biotech Patents will be held on November 28-29, in Boston. ACI's 14th Advanced Forum on Biotech Patents brings together another top-notch faculty of expert biotech patent practitioners who will share their experience and knowledge to help you avoid pitfalls and maximize the value of your intellectual property. [Link] (PatentlyO readers register for with PO 200 for a discount)
• The ACI's Orphan Drugs and Rare Diseases conference will take place on November 28-29 in Boston. There are an estimated 6,000 rare diseases currently recognized in the U.S. alone; European authorities recognize as many as 8,000 rare diseases. With only approximately 150 treatments for these diseases approved so far according to the FDA's orphan designation database, there is a unique opportunity for companies of all sizes to invest in research and development to try to capture this lucrative market share. Indeed, according to a leading industry report, the orphan disease therapeutics market will continue to see a marked increase in value through the decade, increasing from 2010's $2.3 billion to an estimated $6 billion in 2018. [Link] (PatentlyO readers register for with PO 200 for a discount)

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

Practice Note on US/EPO Patent Family Prosecution

Guest Post by Gwilym Roberts (UK) of Kilburn & Strode LLP

The USPTO delivered an advisory on 30th July 2012 urging US practitioners to file Form PTO/SB/69 effectively releasing search results from an unpublished US patent application for delivery to the EPO.  Practitioners in Europe have become aware of this because of the flurry of queries they have received subsequently from US attorneys requiring clarification! 

The relevant EPO provision is Rule 141 EPC.  Rule 141(1) is the key provision which entered into force on 1st January 2011 requiring applicants filing a European patent application claiming priority to additionally file a copy of the results of any search on the application from which priority was claimed.  However under Rule 141(2) the EPO can make special arrangements and US Federal Register Notice 2011-33539 notes that the USPTO has agreed with the EPO to provide the search results directly.  As a result, the EPO, prior to entry into force of the new rule, confirmed to users that they did not need to provide priority search results for US originating cases.  Hence, as far as European Patent attorneys are concerned, when we file a European patent application claiming priority from a US patent application there is no obligation on us, under EP law, to additionally provide search results from the original US application.

Before we get on to the new complexities following the USPTO advisory, as a final point Rule 141(3) does permit the European Patent Office to additionally request copies of search results from related cases.  In practice we are seeing this invoked in only very few instances. 

The complexity had come, as noted in the Federal Register Notice, because, of course, most if not all US patent applications will not have been published at the time a European application is filed claiming priority, meaning that the search results are not publically available.  As a result, Form PTO/SB/69 needs to be filled out for any US case in which an EP priority is likely to be claimed.  In practice this has not been happening, it would appear, hence issuance of the advisory pleading with US attorneys to fill out the form.  Of course the form is discretionary not obligatory and it may well be that in some instances applicants are not happy for their information to be released before publication of the patent application.  But the implication of the advisory notice is that if the situation is not remedied, the EPO exemption may be lifted meaning that on every EP case filed claiming priority from the US, the US search results need to be filed which will of course add to the burden and cost of the process.  It's not clear whether there has been discussion to that effect between the EPO and the USPTO, nor what prompted the appearance of the advisory. 

So what does this mean for US attorneys?  At present, whether or not the form is filed on the given case has no effect on the legal situation in Europe - European patent attorneys are not obliged to independently file copies of the priority search results by virtue of the notice from the EPO President.  Given that in due course the US application will be published the practical effects of not filing the form are likely to be either that processing of the European application is delayed until publication of the US application from which it claims priority, or that the EPO will start invoking Rule 141(3) and independently asking for the search results.  Longer term, however, we may see the exemption being lifted with the ensuing problems as described above. 

So for now perhaps the answer is, going forwards, and with applicant consent, to file the form, given that the results will be publically available at 18 months anyway.  However if the applicant is uncomfortable then this needs to be taken into account although it's worth noting that the search results will not become visible from the EPO earlier than 18 months either as it is subjected to the same non-publication period.  Questions have been raised as to whether it is necessary to file back dated release forms for applications already filed.  There will be no need to do this for applications that have been published but more generally this does not appear to be something the USPTO Advisory is requesting.

As regards the USPTO, it is clearly taking the correct legal line in terms of applicant interest.  But looking at other offices the approach taken by the UKIPO is certainly more straightforward - when requesting search on patents form 9A there is a box to be ticked requesting consent for sharing search information confidentially but note H indicates that in any event they are obliged to provide some information before publication to the EPO.  In other words, they just do it.  The relationship between EP law and UK law is far closer and intertwined, or course, but what a simple solution!

Summary

• It is necessary to provide search results from US applications in relation to EP applications claiming priority from them, but this is done automatically by the EPO 
• The USPTO can only send the priority search documents pre publication with applicant consent which it is now pleading with users to provide
• From an EP perspective there is no legal obligation for US applicants to provide such a consent
• But the long term result otherwise may be that the EPO no longer automatically obtains copies of US search results adding to the burden of the applicant, so it is worth doing, with client consent
• There seems no need to retrospectively provide consent on existing applications.

Appellate Review of Patent Claim Construction: The Reality and Wisdom of a “Mongrel” Standard

Guest Post by Professors J. Jonas Anderson (American University) and Peter S. Menell (Berkeley)

Patent scope plays a central role in the operation of the patent system, making patent claim construction a critical aspect of nearly every patent litigation.  With the resurgence of patent jury trials in the 1980s, the allocation of responsibility for interpreting patent claims between trial judge and jury emerged as a salient issue.  While the Supreme Court’s Markman decision usefully removed claim construction from the black box of jury deliberations notwithstanding its "mongrel" (mixed fact/law) character, the Federal Circuit’s adherence to the view that claim construction is a pure question of law subject to de novo appellate review produced an unusually high reversal rate. The high rate of reversal distorted the evidentiary foundation of claim construction determinations, delayed settlement of patent cases, ran up litigation costs, and turned appellate review of nearly every patent case into re-litigation of patent claim terms.

In 2004, the Federal Circuit undertook to reassess this regime in the Phillips case.  On its face, the majority en banc opinion largely stayed the course.  Indeed, the studies to have emerged since Phillips suggest that not much has changed, finding that the reversal rate remained high and that the Federal Circuit’s analytical framework remained largely unchanged.

Our recent article reports the results of a longer term, comprehensive, empirical analysis of the Federal Circuit’s claim construction jurisprudence from 2000 through 2011.  See “From de novo Review to Informal Deference: An Historical, Empirical, and Normative Analysis of the Standard of Appellate Review for Patent Claim Construction,” available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2150360.  In contrast to prior analyses, we find that the claim construction reversal rate has dropped precipitously since the Phillips decision.

	Pre-Phillips	Post-Phillips
Percentage of terms reversed	37.6%	23.8%
Percentage of cases with at least one reversed claim term	40.7%	29.9%
Percentage of cases resulting in remand, reversal, or vacation due to claim construction error	35%	24.1%

The following figure shows the term-by-term reversal rate as a rolling average over 100 terms.  The blue line indicates the date that the Federal Circuit granted en banc review in Phillips.  The green line indicates the date of the oral argument.  The red line indicates the date that the decision issued.

As our article explains, although a majority of the Federal Circuit declined to overturn the de novo standard, just about all members of the Federal Circuit apparently concluded at or around the time of the Phillips argument that they should lighten up on their scrutiny of district court decisions.  The immediate drop in reversals that occurs following the Phillips argument suggests that the change in reversal rates cannot simply be explained by district courts having changed their practices in response to the Phillips decision.  If the real benefit of Phillips was the opinion’s value in instructing district court judges, we would expect to see a delayed and gradual drop in reversals followed by a later increase as litigants began selecting only the strongest cases for appeal.  Instead, we see an immediate and sustained drop in reversals.

As the following chart indicates, affirmance rates for all members of the Federal Circuit rose after Phillips.

In addition, use of summary affirmances increased significantly following the Phillips decision and has remained higher than the pre-Phillips period.

Reversal rates have fallen across all technology fields except business methods. 

During 2011, the average reversal rate dipped to 17%.  In the two years prior to Phillips, the rate was in the mid-40s.

This does not mean, however, that the problems of de novo review have been adequately resolved.  So long as the Federal Circuit subscribes to the view that claim construction is a question of law subject to de novo review, district courts will downplay their resort to experts and fact-finding in managing claim construction in an effort to avoid reversal.  This will undermine the quality of adjudication and appellate review by failing to elicit relevant evidence and perpetuating opaque analysis and reasoning.  We propose a “mongrel” standard of appellate review of claim construction decisions that better reflects the comparative strengths of trial judges in determining how skilled artisans understand patent claim terms. 

The proper standard integrates fact-finding based on experts who can illuminate the perspective of skilled artisans and claim draftpersons with careful review of the intrinsic record.  Lower courts’ assessments of such evidence should be upheld if not clearly erroneous or clearly contradicted by the specification or prosecution history.  The Federal Circuit would review the intrinsic record on a more independent basis, but with due regard for the district court’s deliberations, proximity to the full record, and integration of the skilled artisan perspective.  Were the Federal Circuit to embrace such a standard, lower courts would openly exercise their discretion to receive such evidence and build a forthright record supporting their interpretation.  Such a “mongrel” appellate standard would foster better development of the basis for claim construction analysis while promoting earlier settlement of patent litigation and lower litigation cost.  Where the disputed claim term is particularly susceptible to skilled artisan construction, the district court’s ruling would carry great weight.  But where the term is set forth or substantially constrained by the specification or prosecution history, then the intrinsic record would control.  But even in the latter circumstance, we believe that the Federal Circuit should apply a heightened standard – a showing by the appellant of unambiguous evidence in the intrinsic record supporting an alternative construction – so as to promote settlement and reduce litigation costs and uncertainty.

Recognizing this more limited role for appellate review of claim construction should not be viewed as abandoning the effort to improve the clarity of patent claims.  That remains a critical component of improving the efficacy of the patent system.  What our analysis shows is that achieving that goal through de novo review of patent claim construction misapprehends comparative institutional analysis at a heavy cost.  Claim clarity can and should be handled through the claim indefiniteness doctrine and through greater efforts by the Patent Office to ensure that patent claims are clear at the front end of patent protection.

The Supreme Court is currently considering whether to grant a writ of certiorari in a case presenting the standard of appellate review for claim construction decisions in Retractable Technologies, Inc. v. Becton, Dickinson and Co.  We believe that the time is ripe to formalize a “mongrel” standard.

Bits and Bytes

by Dennis Crouch

• Human-Attorney Interaction: I've been enjoying the forum at ASKPatents.  My favorite question so far: How to torpedo a bad patent my former large employer is filing in my name? 
• Patent Infringement as a Civil Liberty: The ACLU has filed its petition for writ of certiorari with the U.S. Supreme Court in the Myriad gene patent case.  Many of us believe that the Supreme Court is likely to take the case. Dr. Kevin Noonan (who is pessimistic on the case) has more on Patent Docs. Dr. Noonan has also written an interesting post on In re Droge and its place in the obviousness doctrinal framework.
• More Patent Harmonization: The Senate has passed S.3486 –  the Patent Law Treaties Implementation Act of 2012.  The House has not yet voted on its version of the Bill and is unlikely to take any action until after the November 6 elections. The Act would implement both the Hague Agreement (common design application) and the Patent Law Treaty (common filing issues for utility patents). [BNA] 
• Is China Serious about Intellectual Property?: IPKat writes: “Xiao Zhenjiang, the leader of a counterfeiting gang was sentenced to life in prison and all of his belongings and property was ordered confiscated for counterfeiting almost GB £9,900,000 of luxury goods, specifically HERMÈS handbags/purses.”
• Kodak Rounding Error: As another example of American schools failing to teach mathematics, it appears Kodak accidentally added a decimal when predicting a $2.6 billion sale of its patent portfolio.  Market estimates are now about 10% of that figure. Neil Wilkof writes more.
• Next USPTO Director?: Managing Intellectual Property is queuing recently “retired” but indefatigable Robert Armitage as next USPTO Director.  Armitage should rightfully be seen as the driving force behind passage of the America Invents Act (AIA).  Armitage says that Kappos continues to be the right person for the job.  
• No Standing to Defend Constitution: The USPTO has responded to Mark Stadnyk's constitutional challenge to the AIA.  Their stance — that Stadnyk has no standing to defend the constitution because he cannot show any real or immediate injury due to the law's implementation.  

Patent Maintenance Fees

By Dennis Crouch

I have written before that about 50% of patents expire prematurely because the patent owners choose to not pay the maintenance fees. In many ways this is a good thing in that it clears-the-deck of patents whose owners may know of their worthlessness but that still require analysis and consideration by anyone conducting a freedom-to-operate search. And, by the time that maintenance fees are due (especially the 2^nd or 3^rd stage fees), the patentee should have a good sense of the market value of particular patent rights and can thus make an informed decision about whether or not to pay the fees due. Professor Rochelle Dreyfus wrote about this briefly in her 2006 article titled Pathological Patenting. Dreyfus wrote that "application fees should be low enough to attract patenting by all inventors and maintenance fees should be high enough to encourage abandonment of noncommercial patents." Rochelle Dreyfus, Pathological Patenting: The PTO as Cause or Cure, 104 Mich. L. Rev. 1559 (2006).

A major percentage of USPTO revenue is generated through these maintenance fee payments. Since those payments require no additional USPTO work beyond the fee processing, the several hundred million dollars in maintenance fee payments can be used to subsidize the examination of more recently filed patent applications. In 2008 and 2009, the USPTO saw a major drop in maintenance fee payments that can be correlated with the economic downturn. The payments have risen again and are hovering around the all-time highs. The USPTO is in the midst of a major revision of its fee structure based upon its newfound authority and responsibility under the America Invents Act (AIA). As part of those changes, the USPTO has suggested an increase in the maintenance fee payments, including a 55% increase in amount charged for the 3^rd stage maintenance fee. In a recent whitepaper on fees, the USPTO Director's official advisory committee (PPAC) agreed with an increase in maintenance fees but suggested that the 3^rd stage fee increase could negatively impact USPTO revenue.

The maintenance fees set forth in the NPRM are reasonable since by this point in the process, patentees should have a better sense of the value of their Intellectual Property (IP), although the PPAC still questions the increase proposed for the third stage maintenance fee. Given the percentage of patentees who currently pay for this stage, the concern is that revenues will decrease more than projected when fewer patentees elect 3rd stage maintenance. As the USPTO has noted, the AIA Fee Setting authority does not contemplate a once-and-done approach, but careful (at least yearly) review of fees and the observed behaviors of both applicants and Office personnel in response to the fees. PPAC encourages such continual review, especially with respect to things like responses to the 3rd Maintenance Fee and potential future course-corrections.

The chart below provides a time series of maintenance fee payments grouped according to fee payment deadline. Maintenance fees are due at three points following patent issuance: 3 ½ years; 7 ½ years; and 11 ½ years and the current fees are $1,130, $2,850, and 4,730 respectively (with 50% discounts for small-entities). In each case, the patentee is given an additional six-months to pay the maintenance fee (with a late-penalty surcharge). Thus, the USPTO does not officially record the patent as expired until the 4 year; 8 year; or 12 year mark respectively. It is those expiry deadlines that are represented in the chart below. Even after expiry, the USPTO generously allows expired patents to be revived. Those revivals are taken into account in the chart.

The chart shows three different series. The top series represents the percentage of patents where the first fee was paid. The middle series represents the percentage of patents where the second fee was paid. Obviously, in order to be eligible to pay the second fee, the patentee must have also paid the first fee. The lower series represents the percentage of patents where the third fee was paid.

From the chart, we can see that the percentage of payments for the second and third fee have fully recovered from the 2008-09 downturn and are at their highest points in the past decade. Payment for the first maintenance fee payment is still slightly below the pre-downturn rate. I expect another drop once the USPTO implements the new fee structure in early 2012. The chart above is important for USPTO revenue, but it doesn't tell the whole story since the number of issued patents has been rising over the past 12 years, as we move forward USPTO revenue may increase even if fee payment percentages decrease.

Patent Expiry: An important element of any freedom to operate search involves the question of whether or not particular patents have expired and thus freely available in the public domain for subsequent commercialization. Unfortunately, our current patent information system does a very poor job of linking patent expiration to search results. In addition, the USPTO's loose revival allowances (that make it easy to revive abandoned patents) mean that the data could not currently be relied on even if available. We still have some work to do.

Outside the Box Innovations v. Travel Caddy

By Jason Rantanen and Dennis Crouch

Outside the Box Innovations LLC (Union Rich) v. Travel Caddy  (Fed. Cir. 2012) Download 09-1171
Panel: Newman (concurring in part and dissenting in part), Prost, O'Malley (opinion for the court Per Curiam)

A major criticism of the inequitable conduct doctrine has been that patents could be held unenforceable based upon even "minor and inadvertent errors" that occurred during prosecution of a patent.  A major purpose of the Supplemental Examination provision of the America Invents Act was to provide an avenue for correcting the potential unenforceability of patent rights due to those errors. While the AIA was percolating through Congress, however, the Federal Circuit issued its en banc opinion in Therasense v. Becton Dickinson.  Under the revised legal framework for inequitable conduct articulated in Therasense, it is highly questionable whether these "minor" violations continue to meet the materiality requirement of inequitable conduct. 

Unsurprisingly, post-Therasense, the Federal Circuit has been skeptical of these types of claims.  Last fall, in Powell v. Home Depot, 663 F.3d 1221, the Federal Circuit affirmed a district court determination that the patentee did not commit inequitable conduct by failing to update a Petition to Make Special as this was "not the type of unequivocal act, 'such as the filing of an unmistakably false affidavit,' that would rise to the level of affirmative egregious misconduct.'" (PatentlyO discussion here). In Outside the Box Innovations v. Travel Caddy, the Federal Circuit continues in the direction set by Powell, although it does not appear to be ready to completely abandon the notion that certain "minor" violations can constitute inequitable conduct - perhaps maintaining a bit of the "bark" of inequitable conduct despite curtailing its "bite." 

Small Entity Fees and Inequitable Conduct

The USPTO offers a major price-break for “small entities” – a 50% reduction in fees if the patent owner qualifies for “small entity status.”  In practice, small entities can actually be quite large. The usual rule is that the organizational structure be less than 500 employees.   Small entities can lose their status, however, by inter alia licensing the patent to a non-small entity.  See Ulead Systems, Inc. v. Lex Computer & Management Corp., 351 F.3d 1139, 1142 (Fed. Cir. 2003).  (It's worth noting that the America Invents Act offers an even more aggressive price reduction of 75% for "micro entities," which the USPTO plans to implement in early 2013.)

Prior to Therasense, the Federal Circuit had held that inequitable conduct could arise when a large entity pays only the small entity fees.  See Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1231-33 (Fed. Cir. 2007).  Here, the patentee (Travel Caddy) paid the small entity fee when it should have paid the large entity fee (based upon licensing affiliates). The district court held the patents unenforceable. On appeal, the Federal Circuit reversed not on the ground of materiality, but on the basis of a lack of intent.  The court thus deferred to another day the question of whether the false statement associated with the small entity fee payment could rise to the level of "affirmative egregious misconduct," leaving it intact, if somewhat dinged up:

[A] false affidavit or declaration is per se material. Although on its face, it appears that a false declaration of small entity status would fall within the definition of an “unmistakably false affidavit,” particularly since a party that claims entitlement to small entity status does so in a sworn written declaration, we need not decide that question.[] Even if a false assertion of small entity status were per se material, the requirements of Therasense are not met here because there was no clear and convincing evidence of intent to deceive the PTO.  Specifically, there was no evidence that anyone involved in the patent prosecution knew that a patent license had been granted to a large entity and deliberately withheld that information in order to pay small entity fees.

Slip Op. at 13. 

Writing in dissent, Judge Newman argued that the majority did not go far enough in its reversal because the filing of the small entity statement by affidavit should not render the incorrect statement “per se material.”  Judge Newman also argued that a contingent patent license to a distributor should not necessarily defeat the small entity status.

Failure to Inform Patent Office of Pending Litigation

Manual of Patent Examining Procedure §2001.06(c) states that "Where the subject matter for which a patent is being sought is or has been involved in litigation, the existence of such litigation and any other material information arising therefrom must be brought to the attention of the U.S. Patent and Trademark Office."  The application leading to Patent No. 6,991,104 was a continuation of the application that led to Patent No. 6,823,992.  On September 23, 2005, a declaratory judgment was filed seeking a declaration of noninfringement of the '992 patent; Travel Caddy did not inform the patent examiner of the existence of this litigation prior to the '104 patent's issuance on January 31, 2006. 

The Federal Circuit reversed the district court's pre-Therasense finding of both materiality and intent on this theory of inequitable conduct as well. On materiality, the Federal Circuit ruled that the failure to disclose the existence of a litigation "when there was no citation of prior art, nor any pleading of invalidity or unpatentability in the ’992 complaint as it existed during pendency of the ’104 application" did not constitute "clear and convincing evidence" of materiality.  Slip Op. at 7.  On intent, "the record contains no suggestion of how the withholding of the information concerning the ’992 litigation could have deceived the examiner and no suggestion of deliberate action to withhold it in order to deceive the examiner."  Id. at 8. 

Experts Need Not Be Lawyers: In a somewhat bizzare ruling, the district court excluded an expert offered by one of the parties on the ground that he was not a lawyer.  "To be sure, many lawyers have technical training, but it is technological experience in the field of the invention that guides the determination of obviousness, not the rhetorical skill or nuanced advocacy of the lawyer."  Slip Op. at 19.  The Federal Circuit concluded that this constituted an abuse of discretion, and that the error had a "substantial influence" on the outcome of the case.

Claim Construction: The opinion also includes a detailed discussion of claim construction procedure in the context of a prior interpretation by a CAFC panel reviewing a denial of a preliminary injunction (although no final resolution of the issue is reached), and addresses issues of claim construction generally.  Judge Newman dissented from the opinion on these issues as well.

Federal Circuit Again Denies Declaratory Judgment Jurisdiction: DJ Plaintiff Must Provide Evidence of Real and Immediate Conflict

By Dennis Crouch

Matthews Int’l Corp. v. Biosafe Eng’g, LLC, (Fed. Cir. 2012)[1]

Judge Mayer begins his opinion with the statement: “Matthews is a leader in the “death care” industry.[2] It manufactures cremation equipment, caskets, and bronze memorials and sells them to funeral homes.”  Matthews is moving into the field of environmentally conscious cremation with its new BioCremation units.[3]

The patent owner in this case – Biosafe – purchased a handful of patents at the bankruptcy sale of the defunct company Waste Reduction Inc. Those patents are directed to using alkaline hydrolysis to break down hazardous biological waste.[4]

After a series of communications between the parties, Matthews filed for a declaratory judgment of non-infringement, invalidity, and unenforceability. The complaint also alleged state law claims of trade libel, defamation, and tortious interference with contractual relations.  Western District of Pennsylvania Judge Fischer[5] dismissed the case – holding that the court lacked declaratory judgment jurisdiction over the case.

At the time of the DJ lawsuit, Matthews had only created prototype models of the BioCremation units and had not settled on various parameters of the system or its operation.  Based upon that fact, the district court held that the potentially infringing features of the system were “fluid and indeterminate” and thus that the DJ claim “lack[ed] the necessary reality to satisfy the constitutional requirements for declaratory judgment jurisdiction.”[6]

On appeal, the Federal Circuit has affirmed – holding that “Matthews’ dispute with Biosafe lacks the requisite immediacy and reality to support the exercise of declaratory judgment jurisdiction.” 

Immediacy: Basically, the court agreed with the lower court that the action was not ripe because no party was in a position to immediately infringe the patent since – at the time of filing – no BioCremation units were in operation.  Further, the complaint did not allege that anyone would be using the units in an allegedly infringing manner.  As such, “its dispute with Biosafe is too remote and speculative to support the exercise of declaratory judgment jurisdiction.”

To be clear, Matthews (or its customers) do not have to release their product at-risk (i.e., begin infringing) before the courts will hear the lawsuit.  Rather, the declaratory judgment jurisdiction threshold can be crossed prior to product release. In this case, the court suggests that the way to meet that threshold test is to provides “some specific and concrete evidence regarding how Matthews’ customers plan to use the cremation units.”[7]

Reality:  The court explained its “reality” test for declaratory judgment jurisdiction as focusing on whether the DJ plaintiff has an actual product whose technology is “substantially fixed” as opposed to being “fluid and indeterminate.”  Here again, at the prototype stage it was impossible to know or predict whether the BioCremation units would be used in a way that could allegedly infringe.

Burden on DJ Plaintiff: Although the court did not discuss presumptions, the de facto holding here falls in line with the court’s recent decision in Medtronic, Inc. v. Boston Scientific Corp. (Fed. Cir. 2012).[8] In both cases, the court places the burden on the DJ plaintiff to actually show that a real and immediate controversy exists between the parties.

Trap for Unwary DJ Plaintiffs: The court does, however, present a bit of a trap for declaratory judgment plaintiffs when it asks them to provide evidence of a credible infringement argument.

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[1] http://www.cafc.uscourts.gov/images/stories/opinions-orders/12-1044.pdf.

[2] Before RADER, Chief Circuit Judge, MAYER and SCHALL, Circuit Judges.

[3] http://biocremationinfo.com/.

[4] See U.S. Patent Nos. 5,332,532, 6,437,211, 6,472,580, 7,183,453, 7,829,755, and 7,910,788.

[5] Biography of Judge Nora Barry Fischer at http://www.pawd.uscourts.gov/Documents/Public/Reference/j_fischer.pdf.

[6] Matthews Int’l Corp. v. Biosafe Eng’g, LLC, No. 11-CV–0269, 2011 WL 4498935 (W.D. Pa. Sept. 27, 2011) (“District Court Decision”).

[7] See Sierra Applied Scis., Inc. v. Advanced Energy Indus., Inc., 363 F.3d 1361, 1379 (Fed. Cir. 2004) (concluding that a dispute lacked the required immediacy where a prototype of the product in question would not be operational until more than a year after the complaint was filed); Telectronics Pacing Sys., Inc. v. Ventritex, Inc., 982 F.2d 1520, 1527 (Fed. Cir. 1992) (affirming the dismissal of a declaratory judgment claim where clinical trials of an allegedly infringing product had just begun and it was “years away” from being approved by the Food and Drug Administration (“FDA”)); Lang v. Pac. Marine & Supply Co., 895 F.2d 761, 764 (Fed. Cir. 1990) (concluding that the actual controversy requirement was not satisfied where the allegedly infringing product “would not be finished until at least 9 months after the complaint was filed”).

[8] Good-Standing Licensee Must Prove Non-Infringement in DJ Action, at http://www.patentlyo.com/patent/2012/09/good-standing-licensee-must-prove-non-infringement-in-dj-action.html.

USPTO Funding Secured Through March 2013

by Dennis Crouch

The USPTO does not receive any funding from general taxation sources. Rather, the agency is fully funded by the fees paid by patent applicants and patent owners.  Unfortunately, this link between fees and USPTO spending is based upon tradition and the usual approach rather than any actual requirement that the fee revenue be available for office expenditures.  The result is that Congress maintains the USPTO purse strings. 

In a bipartisan vote, the Senate recently passed the Continuing Appropriations Resolution, 2013.[1] That resolution was necessary because fiscal year 2013 begins October 1, 2012 and executive agency spending had only been appropriated through fiscal year 2012. 

The continuing resolution is a six-month gap filler and allows the USPTO and many other federal agencies to continue to spend money at the rate set for fiscal year 2012.

President Obama had asked for a increase in USPTO appropriations and that particular issue would likely receive bipartisan support.[2] The problem for the USPTO is that it is continually swept up as a small part of the contentious budget debate that often results in across-the-board solutions.  One reason for this is that federal budget accounting counts USPTO revenue as government revenue and USPTO spending as government spending. Thus, cuts in USPTO spending are in-fact budget cuts.[3]

Taking a step back, why shouldn’t some portion of the USPTO revenue be used for general government spending, i.e., deficit reduction or market infrastructure expenditures?  In particular, how is taking 10% from the USPTO worse increasing income, payroll, or business profit taxes – especially since a significant number of patent owners are foreign entities that pay no other federal taxes.  USPTO maintenance fees (renewal fees) are essentially property taxes – perhaps they should be treated as such.

 

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[1] Continuing Appropriations Resolution, 2013, at http://thomas.loc.gov/home/gpoxmlc112/hj117_eh.xml.

[2] USPTO Proposed Budget Just Shy of $3B, at http://www.patentlyo.com/patent/2012/02/uspto-proposed-budget-just-shy-of-3b.html.

[3] Federal Budget Cuts = USPTO Budget Cuts?, at http://www.patentlyo.com/patent/2011/04/federal-budget-cuts-uspto-budget-cuts.html.

Intellectual Ventures

by Dennis Crouch

Although it is unclear, Intellectual Ventures may now be the largest worldwide patent holder.  Part of the organization's strategy is to develop important portfolios for various industries and then ensure that each participant in that industry obtain a license. 

In a recent press release, Intellectual Ventures announced settlements with two additional memory device manufacturers: SK hynix Inc. and Elpida Memory, Inc.  IV writes:

At this point, nearly all the world’s major memory companies have licensed our portfolio.

IV continues to be secretive in its patent ownership strategy. However, several thousand of its patents are now properly listed in the USPTO assignment database. Unfortunately, these listings represent only a fraction of the company's ownership.

 

 

 

 

Kappos: PTAB Has Authority to Challenge Section 101 issues

By Dennis Crouch

On his blog, USPTO Director David Kappos has posted a response to my recent essay titled Can a Third Party Challenge Section 101 Subject Matter Eligibility in the USPTO's new Post-Grant Review Procedure? My essay was an extension of Prof. Hricik's post on a similar topic but with a litigation focus. In the response, Kappos provides his conclusion (and thus that of the USPTO) that the new Patent Trial and Appeal Board (PTAB) has the power and duty to consider patentable subject matter challenges brought under 35 U.S.C. § 101 in post-grant review proceedings or covered business method review proceedings.

The problem with the statute is that the scope of these post-grant proceedings is defined by reference to another provision – 35 U.S.C. § 282(b)(2) and (3). Those provisions in §282 in turn reference "Part II" of the 1952 Patent Act that roughly includes 35 U.S.C. §§ 100 – 199 (skipping gaps). In addition, challenges can only be brought if "identified in part II as a condition for patentability" or as a "requirement of section 112, except failure to disclose the best mode." Everyone is in agreement that the anticipation and obviousness elements of Sections 102 and 103(a) count as conditions for patentability. The language of the statute suggests that the requirements of Section 112 are not conditions for patentability. Most of us would probably think that Section 113's requirement of drawings where necessary is also not a condition for patentability but instead only a requirement.

Now, the difference between a condition and a requirement is that conditions for patentability can legally serve as invalidity defenses in patent litigation and, under the AIA can also serve as the basis of a post-grant review. On the other hand, the USPTO can still refuse to issue a patent based upon failure to meet a mere requirement. But, once the patent issues such a failure cannot serve as invalidity defenses.

The big question that we raised (and that Dir. Kappos has responded to) is what to do with the traditional elements of 35 U.S.C. § 101. For its part, the USPTO argues that all requirements of Section 101 are conditions for patentability and thus are proper subject of post-grant review proceedings. Director Kappos writes:

As we described in our final rules implementing post-grant review and covered business method review in the Federal Register, in our view the "grounds available for post-grant review include 35 U.S.C. 101 and 112, with the exception of compliance with the best mode requirement." 77 Fed. Reg. 48,680, 48,684 (Aug. 14, 2012). This interpretation is consistent with both the relevant case law and the legislative history.
 
Both the Supreme Court and the Federal Circuit have concluded that § 101 is a condition for patentability. In Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 12 (1966), the Supreme Court stated that the 1952 Patent Act "sets out the conditions of patentability in three sections," citing 35 U.S.C. §§ 101, 102, and 103. The Supreme Court has also addressed invalidity under § 101 when it was raised as a defense to an infringement claim under § 282. See Mayo Collab. Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1305 (2012).
 
If that were not clear enough, the Federal Circuit expressly rejected the argument – raised by the dissenting judge in the case – that § 101 is not a "condition for patentability" under § 282, stating that "the defenses provided in the statute, § 282, include not only the conditions of patentability in §§ 102 and 103, but also those in § 101." Dealertrack, Inc. v. Huber, 674 F.3d 1315, 1330 n.3 (Fed. Cir. 2012) (internal quotation marks omitted) (citing Aristocrat Techs. Austl. PTY Ltd. v. Int'l Game Tech., 543 F.3d 657, 661 (Fed. Cir. 2008)).

The Federal Circuit in Dealertrack also made clear that the use of the term "Conditions for patentability" in the titles of §§ 102 and 103, but not § 101, did not change the result, relying on the Supreme Court's pronouncement in Pennsylvania Department of Corrections v. Yeskey, 524 U.S. 206, 212 (1998) (quoting Trainmen v. Baltimore & Ohio R.R. Co., 331 U.S. 519, 528-529 (1947)), that a statute's title "is of use only when it sheds light on some ambiguous word or phrase" in the statute and that it "cannot limit the plain meaning of the text." Id. (quoting Trainmen v. Baltimore & Ohio R.R. Co., 331 U.S. 519, 528-529 (1947)).
 
The legislative history of the AIA also makes clear that Congress intended the PTAB to consider challenges brought under § 101 in post-grant reviews. For example, a key House Committee Report states that "the post-grant review proceeding permits a challenge on any ground related to invalidity under section 282." H.R. Rep. No.112-98, at 47 (2011). On the Senate side, Senator Kyl also included "section 101 invention issues" among those "that can be raised in post-grant review." 157 Cong. Rec. S1375 (daily ed. Mar. 8, 2011).
 
So, the courts and Congress have indicated quite clearly, in our view, that the PTAB should consider patentability challenges brought under § 101 in post-grant and covered business method reviews. Unless the courts or Congress tell us otherwise, we will do so.

Read the Kappos Blog

Now, for reasons discussed in prior posts, I disagree with Director Kappos that the answer is so clear. Basically, the precedent cited is dicta and not controlling. However, I do agree with Director Kappos' ultimate conclusion that Section 101 issues are (and will continue to be) be treated as conditions for patentability. I suspect his viewpoint will be vindicated within a couple of years as the issue reaches the Federal Circuit

Prof Sprigman Discusses his Knockoff Economy Book

Droge: Appealing Board Decisions (And Losing)

By Dennis Crouch

In re Droge (Fed. Cir. 2012)

In a unanimous panel opinion, the Federal Circuit has affirmed a decision by the Board of Patent Appeals and Interferences (now Patent Trials and Appeals Board) that Droge's claims are unpatentable as obvious when compared against the known prior art. In this case, it was the inventors' own previously published academic article that ended the case.

Droge' claimed invention covers a phage-mediated recombinant DNA method for use in eukaryotic cells and the inventor's prior paper involved a similar technique in prokaryotic cells. Droge presented a credible argument that differences in the cell types and protein co-factors meant that someone skilled in the art would not expect the prokaryotic technique to work in eukaryotic cells.

On appeal, the Federal Circuit found two problems with Droge's arguments: (1) the prior art does not need to create a true expectation that the new invention will work – rather, the question is whether it creates a "reasonable expectation of success." For that point, court quoted the 2009 Kubin decision: "Obviousness does not require absolutely predictability of success … all that is required is a reasonable expectation of success." In re Kubin, 561 F.3d 1351, 1360 (Fed. Cir. 2009)). (2) Because the expectation of success is a factual question, the Board's decision will only be overturned if that decision is unreasonable and lacks substantial evidence. That low evidentiary standard means that the Board's decisions are affirmed unless clearly wrong.

After rejecting Droge's arguments, the Federal Circuit then affirmed the rejection – finding the claims unpatentable.

Interesting – Dr. Peter Droge appears to be the owner of the patent application – having received an assignment from the other two inventors in 2002. The trio are also the listed inventors of U.S. Patent No. 7,491,539 that – according to the spotty USPTO assignment records – is co-owned by Dr. Droge and Boehringer Ingelheim.

Flower-Power

We having a small flower-bulb fundraiser for my son Charly's preschool. Plant the bulbs this fall and be surprised as they emerge in the spring. 50% goes to the school. Follow the link below. Thanks! Dennis

http://www.flowerpowerfundraising.com/campaign?campaign_id=12365

Over 23,000 plants have been patented under the US plant patent regime. Most of these are varieties of asexually reproduced flowers.

Guest Post: The Problematic Origins of Nationwide Patent Venue.

Guest Post by Professor Tun-Jen Chiang of George Mason University.

Patent litigators are all familiar with the Eastern District of Texas. The reason that this otherwise-unexceptional district is able to dominate patent litigation comes down to a little known case, VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), which created nationwide venue for virtually every patent case.

Some background is in order. 28 U.S.C. § 1400(b) allows a patent infringement action to be brought, inter alia, where the defendant "resides." Intuitively, one would think that residence refers to the state of incorporation or principal place of business, and under that version few defendants reside in East Texas.

28 U.S.C. § 1391(c) adds a wrinkle. It states: "For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction." By the plain language of the statute, a corporation that makes any sales in East Texas is then deemed to reside there. This is the basic analysis of VE Holdings.

But the Supreme Court decision in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957) is very much to the contrary. Fourco dealt with the prior version of § 1391(c), which stated: "A corporation may be sued in any judicial district in which it . . . is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes." The respondent in Fourco specifically argued that old § 1391(c) was clear and deemed a corporation to "reside" wherever it did business. The Supreme Court nonetheless held it did not apply to § 1400(b):

We think it is clear that § 1391 (c) is a general corporation venue statute, whereas § 1400(b) is a special venue statute applicable, specifically, to all defendants in a particular type of actions, i.e., patent infringement actions. In these circumstances the law is settled that [h]owever inclusive may be the general language of a statute, it will not be held to apply to a matter specifically dealt with in another part of the same enactment. . . .

We hold that 28 U.S.C. § 1400 (b) is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. § 1391(c).

The Federal Circuit in VE Holdings distinguished Fourco because the statutory language had changed. See 917 F.2d at 1579. But the change in language was immaterial to the underlying rationale of Fourco: the new § 1391(c) was and is still a "general corporation venue statute," and § 1400(b) was and is still a "special venue statute applicable, specifically, to . . . patent infringement actions."

What we have is the familiar situation where the Federal Circuit tosses aside a Supreme Court decision by invoking a slim excuse. See KSR Int'l Co. v. Teleflex Inc., 550 U.S. 398 (2007). Until very recently the Supreme Court indulged this. But the Court seems to have changed, and this would be a good time to revisit VE Holdings.

I should add one thing, which is that one can very much question whether Fourco itself is correctly decided. But this is, of course, not a question the Federal Circuit should arrogate upon itself to decide.

Good-Standing Licensee Must Prove Non-Infringement in DJ Action

By Dennis Crouch

In patent litigation, the patent holder ordinarily bears the burden of proving infringement. This case creates a limited exception for licensees in good standing who file declaratory judgment actions. In those cases, the burden shifts to the licensee to prove non-infringement.

Medtronic, Inc. v. Boston Scientific Corp. (Fed. Cir. 2012)(Linn, J.)

Standing: In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), the Supreme Court rejected the Federal Circuit's "reasonable apprehension" test for declaratory judgment jurisdiction in patent cases. MedImmune has been seen as opening the door to declaratory judgment actions even when the patentee could not have actually sued the DJ plaintiff. The most common situation involves a patent licensee who identifies evidence of invalidity. Sever contractual consequences could flow from a licensee simply ceasing royalty payemnts. Under MedImmune, the current licensee can file for a declaratory judgment of invalidity while continuing to pay the license. Under the old rule, that the court would of rejected DJ jurisdiction in that case under a reciprocal-right analysis since the patentee could not have sued the current licensee for infringement. In Lear v. Adkins, 395 U.S. 653 (1969) the Supreme Court announced its general policy of encouraging licensees to challenge patent rights.

Still, even under the expanded DJ jurisdiction of MedImmune, there must be an actual case or controversy between the parties that can be resolved by the court. Courts see the case and controversy language of the U.S. Constitution as creating a dividing line between its domain of resolving disputes and the no-no land of issuing "advisory opinions." The primary justification given for this distinction was given in a letter by Chief Justice John Jay in response to a request from then president George Washington. The Chief Justice suggested that the court's refusal to provide advisory opinions is an important element of maintaining the U.S. governmental structure of separation of powers. After MedImmune, however, the threshold for having an actual case became a bit fuzzy- at least in the patent law arena.

In Medtronic, the dispute is over a patent covering an implantable cardioverter defibrillator (ICD). In 1991, Medtronic sub-licensed the patent and has become the largest seller of ICD's in the country. The license agreement allowed Medtronic to challenge the patent while continuing to pay royalties into an escrow account. Because Medtronic's activities fell within the license, it cannot be considered an infringer and thus, the patentee had no standing to sue the company for infringement. Still, under MedImmune, the DJ action is clearly has standing.

Proving Non-Infringement in a Declaratory Judgment Action: In ordinary patent infringement litigation, the patentee bears the burden of proving – with a preponderance of the evidence – that the accused products infringe the asserted patent claims. In declaratory judgment patent cases where the patentee has a compulsory counterclaim of patent infringement, the courts essentially treat the case as an infringement action and, as such, require that the patentee prove infringement in order to win the case. In Medtronic, the situation is different because the patentee could not file an infringement counterclaim and therefore asked the court to place the burden of proving non-infringement onto the DJ plaintiff. Considering this issue, the Federal Circuit agreed – holding that the licensee had the burden of proving non-infringement in this situation:

This case requires us to determine the proper allocation of the burden of persuasion in the post-MedImmune world, under circumstances in which a declaratory judgment plaintiff licensee seeks a judicial decree absolving it of its responsibilities under its license while at the same time the declaratory judgment defendant is foreclosed from counterclaiming for infringement by the continued existence of that license. . . . [I]n the limited circumstance when an infringement counterclaim by a patentee is foreclosed by the continued existence of a license, a licensee seeking a declaratory judgment of noninfringement and of no consequent liability under the license bears the burden of persuasion. . . .

In the litigation, the patentee did not assert any infringement contentions or attempt to prove infringement. Based upon that failure, the district court held the patent not-infringed. Now, on remand, the district court will need to begin with a presumption of infringement and then consider whether the licensee can prove otherwise.

USPTO Press Release on Preissuance Submissions

USPTO Encourages Third Parties to Participate in Review of Pending Patent Applications

Crowdsourcing Initiative with Stack Exchange Enables Experts to Introduce Prior Art and Improve Quality of 
Examination Process

WASHINGTON — The U.S. Department of Commerce's United States Patent and Trademark Office (USPTO) encourages subject-matter experts to take advantage of a new rule implemented under the Leahy-Smith America Invents Act (AIA) that—for the first time in the history of U.S. patent law—allows third parties to submit relevant materials to patent examiners in any given examination. Submission of proposed prior art helps examiners determine whether the innovation in the application is patentable. The new provision, 35 U.S.C. 122(e), was implemented by the USPTO on Sunday, Sept. 16, and applies to any pending application.

Today, efforts are already underway in the private sector to crowdsource the identification of prior art.  One such initiative, utilizing input from the USPTO, is a newly launched social network known as Ask Patents by Stack Exchange, in which subject-matter experts volunteer to suggest prior art for given applications, as well as to offer their input on the proposed value of those suggestions from others.

"By introducing third party input into the examination process for the first time since the inception of our nation's intellectual property system, we're able to expand the scope of access to prior art in key areas like software patents. This will improve the examination process and advance the Administration's ongoing commitment to transparency and open government," said Under Secretary of Commerce for Intellectual Property and Director of the USPTO David Kappos. "We encourage our nation's innovators to follow Stack Exchange's example and assist us as we improve the examination process and resulting patent quality that will drive our economy and create jobs and exports."

The submission by third parties of prior art—the library of published patents, applications, or other publications in a specific technology area—allows the USPTO to tap directly into the U.S. innovation community. Submissions provide a fuller, more exhaustive scope of materials for examiners to review in determining the novelty of a given application. This new mechanism will help ensure that truly novel, useful, and non-obvious innovations obtain the intellectual property protection they deserve.

Stay current with the USPTO by subscribing to receive email updates. Visit our Subscription Center atwww.uspto.gov/subscribe.

A Rush to File at the End of Inter Partes Reexaminations

By Dennis Crouch

Two weeks ago I posted a list of issues to consider prior to the September 16, 2012 post grant changeover.  Two big changes were that (1) the relatively inexpensive inter partes reexamination is no longer available; and (2) the fee for filing an ex parte reexamination has risen 7-fold from $2,500 to $17,750.  In the days leading up to the changeover, several hundred reexaminations were filed –almost an entire year’s worth of reexamination requests.  See the chart below for inter partes reexaminations and note that the September filings are only for the first half of September (no filings accepted after September 15).

 

 

The Central Reexamination Unit (CRU) may be working quite hard for the next three months to meet the 90–day deadline for determining whether or not to grant the petitions.

This suggests that many potential patent challengers are not happy with the new system. 

Listen to Lawyer-2-Lawyer on AIA Implementation

by Dennis Crouch

Matt Kreeger (MoFo) and I just participated in the Lawyer2Lawyer radio show hosted by Bob Ambrogi. Our conversation focused on the new post-grant reforms but bled into a broader discussion of patent reform.

Listen here: http://legaltalknetwork.com/podcasts/lawyer-2-lawyer/2012/09/key-changes-to-patent-law/

 

 

Access to Courts: Federal Circuit Issues Preliminary Rejection of Judge Koh’s Stance on Open Access to Trial Documents

By Dennis Crouch

Apple v. Samsung, App. No. 12-1600 (Fed. Cir. 2012)

Despite their many disputes, there is one thing that both Apple and Samsung agree upon – that the trial and motion exhibits filed under seal with district court Judge Koh should remain under seal. Earlier this summer, Judge Koh ordered the unsealing of many of those up-to-now secret exhibits.

In an emergency appeal, the Federal Circuit has temporarily reversed Judge Koh's decision and ordered that the exhibits remain sealed until the conclusion of the appeal relating to unsealing of the records. It is an odd appeal in that both parties want the court to seal the documents. Our adversarial appellate system does not work that well when the parties agree with each other but disagree with the judge. At the district court, Reuters News Service intervened to ask the court to unseal the records. However, Reuters has announced that it will not participate in the appeal. The First Amendment Coalition attempted to intervene in the appeal, but that attempt has been denied by the Federal Circuit. Thus, it appears that no one will be arguing the other side.

I have not yet located the merits briefs for the appeal. Perhaps after reading those briefs I will understand how the Federal Circuit has Appellate Jurisdiction over the case. The vast majority of appeals from district court patent decisions can be classified in one of three boxes:

• Appeals from a final decision (Not applicable here because the district court has not yet finalized the case);
• Appeals from an order to grant or deny injunctive relief (Seemingly not applicable here in that a district court's order telling its own clerks to allow access to the records does not fit within any normal definition of an injunction); and
• Interlocutory mandamus appeals (Potentially applicable here, however, the Federal Circuit clerks ordinarily give these cases a special "M" docketing number – something that was not done here).

In the first two situations, an appellant has an immediate right to bring the appeal. Before the court will grant writ of mandamus, the appellant must provide sufficient justification for hearing the case immediately rather than waiting for all the issues in the case to be decided. This is obviously not an exhaustive list of potential avenues for appellate jurisdiction, but it does not appear that this appeal fits any of these three major avenues.

So, as it stands, the Federal Circuit has granted a temporary stay that will keep the documents under seal for the duration of this particular appeal. In the upcoming weeks, more complete briefing will take place and then the court will issue a final decision on whether or not Judge Koh's order releasing the documents somehow violates her judicial discretion. The stay was decided in a per curium opinion by what is likely the three-member panel that will eventually decide the appeal. However, the court did not release the names of the three appellate judges who participated in the decision.

Notes:

• Federal judge orders unsealing of documents in ongoing Apple-Samsung patent litigation.
• Bernard Chao, Not So Confidential: A Call for Restraint in Sealing Court Records, 2011 Patently-O Patent L.J. 6 at http://www.patentlyo.com/files/chao.sealedrecords.pdf.
• Federal Circuit order Granting Stay of Relief: http://www.cafc.uscourts.gov/images/stories/opinions-orders/2012-1600.9-18-12.1.pdf.
• Federal Circuit order Refusing FAC's Motion to Intervene: http://www.cafc.uscourts.gov/images/stories/opinions-orders/2012-1600.9-18-12.2.pdf.
• Judge Koh's UnSealing Order: https://docs.google.com/file/d/0B8kdt04nScwMN3lkdTBHRi0tSTA/edit?pli=1.

   

 

Preissuance Submissions: A Description of the Relevance to Examination but Not an Explanation

by Dennis Crouch

The USPTO is struggling somewhat with how to implement preissuance submissions. 

Required Concise Description: The new provision created by the America Invents Act (AIA) opens the door for any third party to submit “any … printed publication potential relevance to the examination of the application” if submitted within the proper window following application publication.  35 U.S.C. 122(e)(1).  The preissuance submission must also include a “concise description of the asserted relevance of each submitted document.” 35 U.S.C. 122(e)(2)(A).

The senior managers at USPTO learned patent law in the days when patent prosecution was extremely ex parte. Before 2001, pending applications were not published and were instead kept in complete confidence within the USPTO.  File wrappers were only reviewed in paper copy form and patent law was not generally thought of as much of a public concern.  Those days are gone, but fragments of that history remain.

In 1999 the omnibus appropriations bill included American Inventors Protection Act of 1999.  The AIPA implemented a new program of publishing pending patent applications 18–months after filing.  Applicants still have the option of keeping their applications secret while pending. However, that option requires that the applicant forego non-US patent rights. As the chart shows below, the vast majority of applications are published prior to issuance.  Further, about half of the non-published applications are ones that issued within 18 months of filing.

The new publication system raised a concern that third parties would begin challenging patents before issuance. As part of the legislative compromise, the 1999 AIPA legislation also included a special provision that blocks preissuance protests and oppositions. The provision authorizes the USPTO Director to establish procedures to ensure that no pre-issuance opposition is initiated following publication.

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.

35 U.S.C. 122(c). The USPTO recognizes that the new preissuance submission system is in tension with the rule against allowing pre-issuance oppositions. In its implementation regulations the USPTO attempts to provide some limitation on the submissions in order to avoid the conflict. In the explanation of the final rules, the USPTO writes:

The third party should present the concise description in a format that would best explain to the examiner the relevance of the accompanying document, such as in a narrative description or a claim chart. The statutory requirement for a concise description of relevance should not be interpreted as permitting a third party to participate in the prosecution of an application, as 35 U.S.C. 122(c) prohibits the initiation of a protest or other form of pre-issuance opposition for published applications without the consent of the applicant. Therefore, while a concise description of relevance may include claim charts (i.e., mapping various portions of a submitted document to different claim elements), the concise description of relevance is not an invitation to a third party to propose rejections of the claims or set forth arguments relating to an Office action in the application or to an applicant’s reply to an Office action in the application.

PreIssuance Final Rules (July 2012). In its discussion of the new rules, the USPTO also suggested that the concise description is “limited to a description of a document’s relevance” cannot include “arguments against patentability.”

Unlike the concise description of relevance required by 35 U.S.C. 122(e) for a preissuance submission, which is limited to a description of a document’s relevance, the concise explanation for a protest under 37 CFR 1.291 allows for arguments against patentability.

Clearly there is a limit here to the scope of the description that can be filed. However, the USPTO’s distinction between a description and explanation is not entirely clear. 

The USPTO’s approach here makes some sense but is somewhat misguided.  In my mind, the statutory mandated description of relevance seems to requires at least some indication the statutory hook.  This is especially true because the preissuance submissions are not limited to 102/103 related prior art submissions. Rather, the submissions merely need to be potentially relevant to examination.  The best interpretation of the statute is that the discription of relevance is a description of how the submitted document is relevant to the examination.  In my mind, this sets up a three way network and the required description should discuss how (1) the submitted document changes how we think about (2) the patent application based upon some (3) law or other element of patent examination.  In the context of a claim construction chart, the link to 102/103 will likely be implicitly understandable without discussing the statutory elements.  Explanations regarding claim construction, subject matter eligibility, indefiniteness, or other examination issues likely will not make sense unless at least those particular labels are provided in the explnation of how the document is relevant to the examination.

Ex Parte Patent Appeal Results

The chart above shows the results of ex parte appeals grouped by the fiscal year of the appeal decision. In the data, I eliminated administrative dismissals and other non-merits actions from consideration. At this point, I don't have a good explanation for the gradual shift in outcomes.  It may be driven by the underlying patentability of the claims; the selection of cases for appeal; shifts in the law; and also changes in Board decisionmaking.  2012 figures presented here are only through July 2012.

Harvard’s US OncoMouse Patents are All Expired (For the Time Being)

By Dennis Crouch

Harvard College v. Kappos, 12-cv-1034 (E.D.Va. 2012)

Harvard's patented OncoMouse has been a bestseller for cancer research here in the US. Two Harvard researchers took an available laboratory mouse and inserted a heritable cancer-causing gene into the creature's DNA. In the US, Harvard owns three patents covering aspects of the mouse and its creation that are exclusively licensed to Du Pont. U.S. Patent Nos. 4,736,866, 5,087,571, and 5,925,803. The patents were filed pre-1995 and thus have a term that lasts for 17 years from the patent issuance. The first two 17-year terms have expired, but the third could last until 2016 – except for the terminal disclaimer discussed below.

In 2010, an anonymous third party requestor (TPR) filed a reexamination request for the '803 patent. Last June, the USPTO confirmed the patentability of the challenged claims. However, the USPTO agreed with the TPR that a broadly worded terminal disclaimer filed in the parent '571 application meant that the'803 patent also expired in 2005. Thus, it doesn't matter whether the claims are valid over the prior art because they are expired. Because the patent had expired, the USPTO refused to allow Harvard to add additional claims to the patent during reexamination.

In the terminal disclaimer filed in the parent case, the patentee agreed to disclaim the term of the parent patent as well as any patent claiming benefit of the patent under 35 U.S.C. §120. Since the '803 patent claims priority to the parent under §120, that disclaimer seems to be effective to limit the '803's term as well. However, the disclaimer was never particularly filed in the '803 case (only its parent). Further, nothing in the record indicates that the examiner acknowledged receipt of the disclaimer in the parent case and there is no evidence that the terminal disclaimer fee was actually paid. The examiner did, however, remove the double patenting rejection had been blocking the issuance of the parent case and the filed terminal disclaimer authorized payment of the fee.

In the reexamination, the USPTO gave full support the examiner's decision that the terminal disclaimer limited the '803 patent term – finding that Harvard could have corrected the problems with the filing back when the patents were pending but that it is too late now.

It is only now that the non-standard disclaimer language of the terminal disclaimer filed in 1989 has an effect … [that] the patent owner [is] attempting to argue that ther terminal disclaimer had no legal effect. . . . [B]ecaues patent owner did not timely seek withdrawal of the terminal disclaimer from the parent patent as per the procedures in MPEP [at the time], patent owner cannot seek now to nullify the effect of the terminal disclaimer after the issued patent has reached its expiry date.

In response, Harvard has now filed a civil action in the Eastern District of Virginia asking the court to overturn the USPTO decision. For now, however, it appears that the mice are finally free although their title (OncoMouse) is still a registered trademark owned by DuPont.

Post Grant and Inter Partes Reviews Now Being Filed

by Dennis Crouch

48–hours after opening its doors, the Patent Trial & Appeal Board has new business.  According to the USPTO, ten new requests for inter partes reviews have been filed in the first two days as well as three post-grant review requests of financial business method patents (“covered business methods”).  Interestingly, four of the requests were filed by the non-practising entity Intellectual Ventures against patents owned by Xilinix. U.S. Patent Nos. 7,566,960, 7994609, 8,058,897, and 8,062,968.  Patrick Anderson has more history regarding the IV versus Xilinix fight at his GametimeIP blog.

On September 16, 2012, the USPTO's new inter partes reviews system became effective.  These reviews involve a complete redesign of inter partes reexaminations that can no longer be filed.  The new post-grant review system allows for an expanded scope of challenges.  Generally, PGR will only be available to challenge patents issued under the new first-to-file rules of the AIA. However, under the AIA, the PGR system can currently be used to challenge financial business method patents that fit the description provided by the statute.

The three business method reviews each focus on subject matter eligibility of the business method claims. Liberty Mutual challenged two such patents, including the following claim from U.S. Patent No. 6,553,350.

17. A method for determining a price of a product offered to a purchasing organization comprising:

arranging a hierarchy of organizational groups comprising a plurality of branches such that an organizational group below a higher organizational group in each of the branches is a subset of the higher organizational group;

arranging a hierarchy of product groups comprising a plurality of branches such that a product group below a higher product group in each of the branches in a subset of the higher product group;

storing pricing information in a data source, wherein the pricing information is associated, with (i) a pricing type, (ii) the organizational groups, and (iii) the product groups;

retrieving applicable pricing information corresponding to the product, the purchasing organization, each product group above the product group in each branch of the hierarchy of product groups in which the product is a member, and each organizational group above the purchasing organization in each branch of the hierarchy of organizational groups in which the purchasing organization is a member;

sorting the pricing information according to the pricing types, the product, the purchasing organization, the hierarchy of product groups, and the hierarchy of organizational groups;

eliminating any of the pricing information that is less restrictive; and determining the product price using the sorted pricing information.

Most of the challenged patents are in the electronic, software, and business method market areas.  However, three patents stem from USPTO Technology Center 1600 (biochemistry and organic chemistry).

• Patent No. 6,258,540 (non-invasive prenatal diagnosis using maternal plasma owned by Oxford University (UK) Isis Innovation) challenged by Ariosa Diagnostic.
• Patent Nos. 7,713,698 and 7,790,869 (Columbia University patents on “massive parallel methods for decoding DNA and RNA”) challenged by Ilumina.

Other filers include Garmin Int'l (6,258,540); Nichia Corp. (6,653,215); and Macauto USA (6,422,291).

You can search the PTO post grant submissions here: https://ptabtrials.uspto.gov

 

Alleged Copyright Infringement by Patent Prosecutors

By Dennis Crouch

American Institute of Physics and John Wiley & Sons v. Schwegman Ludberg (D.Minn)

Publishers John Wiley & Sons and American Institute of Physics have asked the Minnesota District Court for leave to amend and narrow their complaint against the Schwegman law firm. The amendment would drop any allegation that submitting copies of copyright works to the USPTO constitute copyright infringement. The plaintiffs write that the amended complaint

does not allege that this unauthorized copying includes (i) making such copies of a copyrighted work for submission to the PTO as may be required by the rules and regulations of the PTO, (ii) transmitting such copies to the PTO, or (iii) making an archival copy of that work transmitted to the PTO for Defendants' internal file to document what has been transmitted.

To be clear, however, the plaintiffs have not dropped their case, but continue to allege that other copies and transmission do constitute copyright infringement. Further, because Wiley does not have any proof of those other activities, it argues that the now unchallenged submission to the PTO serves as "evidence of broader use and circulation" sufficient to permit the complaint to move forward.

The newly amended complaint thus recites no factual basis other than the fact that Schwegman is a law firm that prosecutes patents and that, because Schwegman submitted copies of certain articles to the USPTO that it must have also made unauthorized copies. The complaint:

14. Upon information and belief, Defendants have engaged in Unauthorized Copying with respect to the copyrighted articles from Plaintiffs' journals, including but limited to the articles identified on Schedule A.

15. Plaintiffs cannot know the full extent of Defendants' Unauthorized Copying without discovery.

The amended complaint also adds a further list of obscure scientific articles that were submitted to the PTO by Schwegman and were allegedly copied internally in an unauthorized manner. The plaintiffs have not yet filed any proposed amendments in the MBHB case.

The USPTO intervened in these cases supporting the law firms. It appears that this amendment is meant to appease the USPTO so that it will fall out of the case – making the defendants look much less sympathetic.

Notes:

• Despite its high-sounding name, the American Institute of Physics (AIP) is basically a publishing house struggling to survive.
• Open Access: Depending upon pricing structure, access to a journal such as the Journal of Applied Physics costs as much as $15k per year.  Academic authors generally receive no compensation for publication and there is a growing movement amongst academia toward open access journals.  Almost all law reviews make their works freely available online.  This enforcement project may push the sciences in that direction as well.
• See also:
• Copyright: Lawfirms Sued for Submitting Prior Art to the USPTO;
• Copyright Lawsuit Against Patent Firms Continues: Firms Claim Fair Use and Copyright Misuse;
• Supreme Court to Hear International Copyright Exhaustion Case.
• Read the Brief: File Attachment: mnd-1190merged.pdf (794 KB)

Entire Market Value vs. Entire Market Base

By Dennis Crouch

A few days ago, I posted an essay entitled Does the Entire Market Value Rule Make Sense when Applied to Apportionment Analyses? In the essay, I discussed contemporary changes in the entire market value rule that apply the rule even in the context of damage apportionment analysis. In relation to that, I'm enjoying Michael Greene's recent student note where he suggests a new naming convention that focuses the entire market value rule to its traditional role in limiting the equitable relief of lost profits. In the apportionment context, Greene would use a different name – the entire market base rule – for the doctrine limiting the use of the entire market as the base for calculating a reasonable royalty. In the second context, any limit on the evidence would be governed by Federal Rule of Evidence 403. See Michael A. Greene, All Your Base Are Belong to Us: Towards an Appropriate Usage and Definition of the 'Entire Market Value' Rule in Reasonable Royalties Calculations, 53 Boston College Law Review 233 (2012). Mark Lemley's 2009 article also provides an excellent introduction to the issue. Mark A. Lemley, Distinguishing Lost Profits from Reasonable Royalties, 51 Wm. & Mary L. Rev. 655 (2009). Funny tidbit – the Lemley article criticizes the Federal Circuit Lucent decision and, at the same time, the Lucent decision criticizes the Lemley article. Michael Greene tells the story:

Amusingly, [the] Federal Circuit in Lucent cites to and gently criticizes the very Lemley article which itself criticizes the Lucent opinion as confused. Despite lacking access to a time machine, Chief Judge Paul Michel had in fact obtained access to a draft of Professor Lemley's forthcoming article that then turned around [in the final version] and criticized Judge Michel's opinion criticizing it.

Sounds a bit like some blog comments I've seen.

MPEP.USPTO.GOV

The USPTO has released a new version of the Manual of Patent Examination Procedure (MPEP) along with a reworking of the MPEP website to allow for better facilitate online access to the rules and regulations. The new site can be found at http://mpep.uspto.gov.  The new style is also designed to allow the USPTO to quickly modify various sections so that the MPEP “can be updated within hours, rather than months.”  A new version of the TMEP is also available for trademark prosecution at http://tmep.uspto.gov.

Who Decides Obviousness: Judge or Jury?

By Dennis Crouch

Kinetic Concepts and Wake Forest University v. Smith & Nephew (Fed. Cir. 2012)

Wake Forest's asserted patents cover a medical technique that uses suction to close a gaping wound.  In certain situations, the suction method – also called Negative Pressure Wound Therapy – is apparently better than stitches or – my personal favorite – super glue.  Smith & Nephew's product has become popular – thus the lawsuit. My wife is an MD, so my usual wound therapy involves me saying "go see your momma."

The issue in the Kinetic appeal involves the question of obviousness and whether the ultimate question of obviousness should be decided by a judge or by the jury.  The Supreme Court has repeatedly stated that obviousness is a question of law based upon a set of underlying facts.  However, most district court judges allow the jury to decide the legal question of obvious. Further, few judges pose interrogatory questions to the jury regarding the factual underpinnings of their legal determination.

Here, S&N proposed that the jury only be asked to resolve the disputed questions of fact outlined in the Supreme Court's landmark 1966 decision Graham v. John Deere — questions such as the level of skill in the art and the scope and content of the prior art.  Under S&N's proposal, the judge would then take those answers and form a conclusion on the ultimate legal question of obviousness.  The patentees responsive brief identified this process as "one of the worst suggestions of all time." Here, the district court took a somewhat middle ground – deciding to give the legal issue to the jury, but also ask the jury to identify the underlying factual Graham factors.  In addition, the district court indicated that it would see the jury's obviousness conclusion "as advisory."  

The court wanted some factual guidance from the jury, but was also wary of asking the jury to write its response in narrative form. (Why?) In the end, the jury was asked several yes/no questions about the scope of the prior art; the differences between the prior art and the claimed invention; and whether secondary indicia of non-obviousness existed. After eight days of deliberation, the jury returned its verdict. Samples from the verdict form are shown below.

 

In its verdict, the jury concluded that the defendant had failed to prove the asserted claims to be obvious.

On JMOL, the district court rejected the jury verdict and held instead that the differences between the prior art and the claimed invention were so minimal as to be obvious to anyone of skill in the art. This holding thus left the asserted claims invalid. On appeal, the Federal Circuit has reinstated the jury verdict upholding the patent and held that the "district court committed error by failing to defer to the jury's factual findings and granting JMOL on obviousness." Professor Jason Rantanen wrote on this earlier:

Wake Forest, the patent holder, appealed a district court grant of JMOL of invalidity for obviousness of a claimed invention for treating difficult-to-heal wounds by applying suction (negative pressure). The CAFC reversed, holding that (1) the jury's "advisory" opinion on the ultimate issue obviousness gave rise to implied findings of facts that the district court was required to accept provided that they were supported by substantial evidence, despite the presence of special interrogatories on the verdict form; (2) the jury's implied findings of facts on the Graham factors were supported by substantial evidence; and (3) the ultimate conclusion of obviousness was that the claims were not obvious.

In arriving at the ultimate (legal) conclusion of nonobvious, the Federal Circuit focused its discussion on the lack of a reason to combine the prior art references (itself a factual finding), referencing concerns about hindsight reconstruction. In a statement suggesting a technology-based limitation on the use of common sense, the court held that "although expert testimony regarding motivation to combine is not always required, the technology at issue here is not the type of technology where common sense would provide the motivation to combine these references."

The court's usual approach to jury obviousness decisions typically begins with the jury's ultimate conclusion of obviousness/nonobviousness and then works back to the factual determinations necessary to reach that conclusion. In the absence of a special verdict spelling out the factual determinations, the court presumes that the jury made those necessary factual determinations and will affirm the jury verdict so long as those facts were supported by substantial evidence at the trial. In Kinetic, there was a special verdict where the jury particularly identified some of its factual conclusions. However, even here, there were a number of factual determinations necessary to reach the nonobviousness verdict – and those are typically implied into the jury verdict. The basic conclusion of the Federal Circuit in this case was that Smith & Nephew's obviousness argument was – at base – an attempt to challenge those underlying assumed factual determinations and, that challenge must fail because those determinations were supported by substantial evidence presented at trial.

Smith & Nephew challenged this working-back approach as wrong on (at least) two levels. First, since obviousness is a conclusion of law, the adjudged infringer argued that it couldn't be the basis for presuming particular factual conclusions that were not expressly decided by the jury. This is even further bolstered by the fact that the district court judge identified the jury's conclusion on obviousness as 'advisory.' The appellate court rejected those arguments by relying on its own precedent supporting the working-back approach and by determining that the district court's reference to the 'advisory' nature of the jury verdict had no meaning.

The court went on to specifically indicate that it is proper to submit legal arguments to a jury:

[I]t is neither error nor dangerous to justice to submit legal issues to juries, the submission being accompanied by appropriate instructions on the law from the trial judge. The rules relating to interrogatories, jury instructions, motions for directed verdict, JNOV, and new trial, and the rules governing appeals following jury trials, are fully adequate to provide for interposition of the judge as guardian of the law at the proper point and when necessary. There is no question that the judge must remain the ultimate arbiter on the question of obviousness. He or she exercises that role first in exercising the judge's duty of giving proper instructions on the law to the jury before it considers its verdict. The judge exercises control on the question again when presented with a motion for JNOV or new trial. In no sense need the judge abdicate the guardianship role.

R.R. Dynamics, Inc. v. A. Stucki Co., 727 F.2d 1506 (Fed. Cir. 1984).

En Banc Rehearing: Now, Smith & Nephew is preparing to ask the Court of Appeals for the Federal Circuit to rehear the case en banc asking the Federal Circuit to give meaning to the legal nature of an obviousness conclusion and ensure that an accused infringer has a right to an independent determination by a judge on the ultimate question of obviousness.

Notes

• Cal Crary followed the trial and posted the following in-depth analysis following the jury verdict.  

Supplemental Examination: Inequitable Conduct Amnesty and Beyond

By Dennis Crouch

Introduction to Supplemental Examination: The new supplemental examination procedure is a creation of the America Invents Act (AIA) and is effective as of September 16, 2012. At its most basic, the new procedure allows a patent owner to seek a low-level review of an issued patent to make sure that it was properly issued based upon some newly submitted information. If – on initial review – PTO agrees that the patent is still viable despite the new information the USPTO will conclude the review and issue a certificate indicating that the information presented in the request does not raise a substantial new question of patentability. On the other hand, if the USPTO finds a substantial new question of patentability, then the USPTO will order a full (ex parte) reexamination.

Inoculating Against Inequitable Conduct: Supplemental examination is often tied to inequitable conduct because the new statute indicates that a patent cannot be held unenforceable for failure-to-disclose (or mis-disclosure of) information during a prior examination once that information is considered in a supplemental examination. Professors Jason Rantanen and Lee Petherbridge have identified supplemental examination as an "amnesty program." They write in the Michigan Law Review that:

New § 257 is thus a patent amnesty program. It encourages patent applicants to use any number of strategies that would never have been countenanced under pre-AIA law to obtain patents, and it offers to cure all but the most extreme through filing a supplemental examination request. For example, potential descriptions of a claimed invention in a prior art printed publication, or possible instances of prior patenting of the claimed invention by another, that are known to a patent applicant, and that might have a high probability of barring a patent or limiting claim scope, may not be disclosed during the initial examination. Similarly, sales and public uses that are known to a patent applicant and that may have a high probability of barring the patentability of a claimed invention may be withheld at least until supplemental examination if the applicant likes (and perhaps longer depending on an applicant's risk tolerance). Even the use of false data to obtain the patent in the initial examination can be exonerated by filing a supplemental examination request, which by the statutorily required process can be expected to produce a director's certificate within three months.

Jason Rantanen and Lee Petherbridge, Toward a System of Invention Registration: The Leahy-Smith America Invents Act, 110 Mich. L. Rev. First Impressions 24 (2011).

To be clear, the strategies identified by Rantanen and Petherbridge would violate the professional ethics of a patent attorney or patent agent who deliberately chose that strategy. The argument here is that the supplemental examination rules (coupled with Theresense, Excergen, and their progeny) provide a marginal incentive to applicants to avoid fully complying with the duties of candor and good faith in all dealings with the USPTO. They write "the analysis provided here relates to the marginal effects of a supplemental examination system." In the end, however, it is unclear whether the new incentive will actually change any behavior. I.e., will the availability of supplemental examination mean that some important evidence will now be buried that would have otherwise been disclosed?

There are two statutory exceptions to the inoculation and both relate to times where the patentee waited too long to request the supplemental examination. The statute labels these prior enforcement allegations and prior allegations. Basically, the supplemental examination (and any subsequent reexamination) must be completed prior to the filing of a lawsuit where inequitable conduct may be raised as a defense. In addition, the supplemental examination must be filed prior to the inequitable conduct being alleged in a pleading or Paragraph IV certification. If the patentee fails either prong then the amnesty fails and a court will have power to adjudge the inequitable conduct.

Timing of Declaratory Judgment Actions: The distinction between the two exceptions can be seen in the context of declaratory judgment (DJ) actions. DJ actions are regularly filed in cases where would-be accused infringers take the preemptive measure of asking a court to declare a patent not-infringed, invalid, or unenforceable. Most (but certainly not all) DJ actions filed in the past few years are primarily venue contests and are filed shortly after the original complementary infringement action.

In thinking about supplemental examination amnesty in the context of DJ actions, it is easiest to begin with the understanding that, with two exceptions, the patent cannot be held unenforceable due to inequitable conduct once the patent properly passes through the supplemental examination amnesty program. In the ordinary infringement litigation filed by the patentee, one of the exceptions block the inoculation in cases where the litigation if filed prior to completion of the supplemental examination. This conclusion is based upon the statutory provision explaining that the inoculation "shall not apply to any defense raised [in infringement litigation] unless the supplemental examination, and any reexamination ordered pursuant to the request, are concluded before the date on which the action is brought." Notice here that the exception to inoculation specifically applies to "any defense." In the declaratory judgment context, the inequitable conduct allegation is not filed as a "defense" but rather as part of the complaint. This means that the § 257(c)(2)(B) exception does not apply to declaratory judgment actions. However, the § 257(c)(2)(A) exception will apply to declaratory judgment actions – leading to the conclusion that supplemental examination will provide amnesty against DJ inequitable conduct actions so long as the request for supplemental examination is filed prior to the filing of a DJ pleading that particularly alleges the inequitable conduct. Here, it appears that to satisfy the filing trigger, the request must meet the requirements set forth in the USPTO's implementation regulations. The USPTO will not grant a filing date to applications that fail to follow those guidelines.

Timing of Supplemental Examinations. In the paragraphs above, I identified instances where the inequitable conduct amnesty is triggered by either the filing of a supplemental examination request or else the completing of the supplemental examination. In many cases, the difference between those two will be minimal. The USPTO has announced its intention to complete all supplemental examination reviews within three months. That interpretation follows the statutory guidance that "Within 3 months after the date a request for supplemental examination meeting the requirements of this section is received, the Director shall conduct the supplemental examination and shall conclude such examination by issuing a certificate indicating whether the information presented in the request raises a substantial new question of patentability." This three-month deadline means that the USPTO will likely be sticklers for the filing requirements and may also mean that the USPTO will frequently order reexamination. The major exception to this quick timeline is that the supplemental examination will not be considered complete for amnesty purposes if a SNQ is raised in a way that triggers the automatic reexamination.

Statutory Provision Section 257: The new supplemental exam procedure is codified at 35 U.S.C. § 257 and reads as follows:

§ 257. Supplemental examinations to consider, reconsider, or correct information

(a) REQUEST FOR SUPPLEMENTAL EXAMINATION.—A patent owner may request supplemental examination of a patent in the Office to consider, reconsider, or correct information believed to be relevant to the patent, in accordance with such requirements as the Director may establish. Within 3 months after the date a request for supplemental examination meeting the requirements of this section is received, the Director shall conduct the supplemental examination and shall conclude such examination by issuing a certificate indicating whether the information presented in the request raises a substantial new question of patentability.

(b) REEXAMINATION ORDERED.—If the certificate issued under subsection (a) indicates that a substantial new question of patentability is raised by 1 or more items of information in the request, the Director shall order reexamination of the patent. The reexamination shall be conducted according to procedures established by chapter 30, except that the patent owner shall not have the right to file a statement pursuant to section 304. During the reexamination, the Director shall address each substantial new question of patentability identified during the supplemental examination, notwithstanding the limitations in chapter 30 relating to patents and printed publication or any other provision of such chapter.

(c) EFFECT.—

(1) IN GENERAL.—A patent shall not be held unenforceable on the basis of conduct relating to information that had not been considered, was inadequately considered, or was incorrect in a prior examination of the patent if the information was considered, reconsidered, or corrected during a supplemental examination of the patent. The making of a request under subsection (a), or the absence thereof, shall not be relevant to enforceability of the patent under section 282.

(2) EXCEPTIONS.—

(A) PRIOR ALLEGATIONS.—Paragraph (1) shall not apply to an allegation pled with particularity in a civil action, or set forth with particularity in a notice received by the patent owner under section 505(j)(2)(B)(iv)(II) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(2)(B)(iv)(II)), before the date of a supplemental examination request under subsection (a) to consider, reconsider, or correct information forming the basis for the allegation.

(B) PATENT ENFORCEMENT ACTIONS.—In an action brought under section 337(a) of the Tariff Act of 1930 (19 U.S.C. 1337(a)), or section 281 of this title, paragraph (1) shall not apply to any defense raised in the action that is based upon information that was considered, reconsidered, or corrected pursuant to a supplemental examination request under subsection (a), unless the supplemental examination, and any reexamination ordered pursuant to the request, are concluded before the date on which the action is brought.

(d) FEES AND REGULATIONS.—

(1) FEES.—The Director shall, by regulation, establish fees for the submission of a request for supplemental examination of a patent, and to consider each item of information submitted in the request. If reexamination is ordered under subsection (b), fees established and applicable to ex parte reexamination proceedings under chapter 30 shall be paid, in addition to fees applicable to supplemental examination.

(2) REGULATIONS.—The Director shall issue regulations governing the form, content, and other requirements of requests for supplemental examination, and establishing procedures for reviewing information submitted in such requests.

(e) FRAUD.—If the Director becomes aware, during the course of a supplemental examination or reexamination proceeding ordered under this section, that a material fraud on the Office may have been committed in connection with the patent that is the subject of the supplemental examination, then in addition to any other actions the Director is authorized to take, including the cancellation of any claims found to be invalid under section 307 as a result of a reexamination ordered under this section, the Director shall also refer the matter to the Attorney General for such further action as the Attorney General may deem appropriate. Any such referral shall be treated as confidential, shall not be included in the file of the patent, and shall not be disclosed to the public unless the United States charges a person with a criminal offense in connection with such referral.

(f) RULE OF CONSTRUCTION.—Nothing in this section shall be construed—

(1) to preclude the imposition of sanctions based upon criminal or antitrust laws (including section 1001(a) of title 18, the first section of the Clayton Act, and section 5 of the Federal Trade Commission Act to the extent that section relates to unfair methods of competition);

(2) to limit the authority of the Director to investigate issues of possible misconduct and impose sanctions for misconduct in connection with matters or proceedings before the Office; or

(3) to limit the authority of the Director to issue regulations under chapter 3 relating to sanctions for misconduct by representatives practicing before the Office.

As mentioned above, the effective date of the new supplementary examination procedure is September 16, 2012 and applies to all patents.

Costs and Fees for Supplemental Examination: The USPTO has indicated that its plans are to – for the most part – charge a fee for supplemental examination that is roughly equivalent to its expected cost for conducting the supplemental examination. In a prior post, Professor Rantanen explained: "The cost for filing a supplemental examination request remains steep: $5,140 for the initial request plus $16,120 for the ex parte re-examination fee. Both must be paid at the time of initial request, and the $16,120 will be refunded if no re-examination is ordered." In a proposed change in the fee structure, the USPTO has suggested that it lower the costs by a small amount and also allow for a 50% and 75% reduction in fees for small-entity and micro-entity patent owners. Those new fees will not be effective until early 2013.

Regulatory Process: As instructed by the statute, the USPTO has promulgated a set of rules that more fully govern the process of supplemental examination.

Other Purposes of Supplemental Examination: There are strong suggestions that supplemental examination may be useful outside of the inequitable conduct situation. In particular, patentees may want to ensure that defendants can't argue in court that the best references were never seen by the USPTO. Other patentees may rely on supplemental examination as a mechanism for entering reexamination without having to first admit that something is wrong with the patent. I'll save consideration of these strategies for a later post.

Drew Curtis: How I beat a patent troll

Drew Curtis is the founder and administrator of Fark.com and recently gave a TED Talk where he expressly identifies patent trolls as "terrorists." His solution - "don't negotiate with terrorists." According to Curtis, "patent trolls have done more damage to the United States economy than any domestic or foreign terrorist organization in history, every year." The pejorative name calling needed to shift because it turns out that every kid wants to grow up to be a pirate.

Pending Appeals Not Impacted by BPAI->PTAB Transformation

Today, the USPTO's board of administrative patent judges changes its name from the Board of Patent Appeals and Interferences (BPAI) to the Patent Trial and Appeal Board (PTAB).  This transformation is required by the America Invents Act (AIA) and represents a further step in implementation of the new post-grant review trials as well as (eventual) elimination of intereference proceedings.

I received a few e-mails from parties concerned about the how the transformation impacts already pending appeals. The new name has no direct impact on the thousands of ex parte appeals pending before the Board.  For these cases, the transformation really is simply a name change and there is no need for applicants to take any responsive action.

 

Pre-Issuance Submissions

Ex Parte Patent Prosecution: Most of the American legal system is designed to operate in an adversarial environment. Each side presents their arguments and pokes holes in opposing arguments. A disinterested judge then considers these arguments and makes a ruling. The system works well because a financial award is typically associated with winning the argument – this aligning of incentives encourages each party to identify and present the best possible arguments to the judge. Patent prosecution does not follow this model – especially at the initial examination stage. Patent prosecution follows an ex parte model where one party (the patent applicant) has a strong interest in receiving a patent but where there is no interested party on the other side. Instead, the patent examiner is tasked with both seeking to identify arguments against patentability and then also determining whether those arguments are sufficient. Interestingly, patentees often argue that this system is problematic because of the potential bias associated with an examiner judging the quality of her own arguments. Third parties who may suffer under the patent rights also argue that the system is problematic – though for a different reason. They argue that the non-adversarial nature of the system means results in insufficient push-back on patentability questions and thus that many patents issue that should not have issued.

Third Party Intervention in the Prosecution Process in the Form of Preissuance Submissions: Up until now, there has been essentially no mechanism for a third party to participate in the original examination of a patent – that is changing (in a minor way) with the availability of third-party pre-grant submissions for pending patent applications. As of September 16, 2012, anyone has standing to submit documents to the USPTO that relate to pending patent applications.

Allowing for the Submission of Any Printed Publication of Potential Relevance: Most commonly, I suspect that applicants will submit prior art that they have identified as relevant to the pending application. However, the new rules allow the submission of any printed publication. In particular, the statute provides that "Any third party may submit for consideration and inclusion in the record of a patent application, any patent, published patent application, or other printed publication of potential relevance to the examination of the application." 35 U.S.C. § 122(e)(1). Thus, the printed publication is not limited prior art documents, but could relevant to other questions. Thus, for instance, a dictionary definition could be submitted for the question of indefiniteness; a court decision could be submitted for the question of patentable subject matter; a portion of the MPEP could be submitted on the question of improper revival; etc. The USPTO has suggested in its implementation regulations that documents prepared and published solely for the purpose of a pre-grant submission will not be accepted. I would argue, however, that restriction would violate the law passed by Congress and codified in 35 U.S.C. § 122(e) that only requires the document be a "printed publication of potential relevance to the examination of the application."

Guiding the Examiner with a Brief on the Merits: An important element of the new provision is that the preissuance submission must be accompanied by a brief explanation of why the various documents have been submitted. This is essentially a brief on the merits or skeleton argument akin to what would be filed by opposing counsel in litigation. As written, the law requires this submission in the form of "a concise description of the asserted relevance of each submitted document." Thus, the brief might include a table that shows how the prior art relates directly to the invention claimed; explain how a particular term is unduly ambiguous; how already recognized prior art fits the claims; or how a claim as drafted improperly claims an abstract idea or product of nature. Now, to be clear, this is not litigation and is not an inter partes action. Once the documents and brief is filed, the third party no longer has standing to make any statements or arguments on the record. And, attempts to do so will lead to disciplinary action by the OED. That said, it appears that the USPTO is ready and willing to consider briefs that are accurate and get to the point – especially if done in a way that saves examiner time.

Timeline for Submissions: There are some strict guidelines on the timing of preissuance submissions as goverened by §122(e)(1). That statute indicates that the submission must be:

made in writing before the earlier of—(A) the date a notice of allowance under section 151 is [mailed]; or (B) the later of— (i) 6 months after the date on which the application for patent is first published ... or (ii) the date of the first rejection under section 132 …

35 U.S.C. § 122(e)(1). Thus, a submission may only be filed after an application is publication and cannot be filed in non-published cases. Unless a patent is issued very quickly, third parties have at least six months from publication to file a preissuance submission. In areas suffering under a long backlog delay, the submission could be filed much later – so long as it is filed before the first action on the merits. Under the USPTO's implementation regulations, a restriction requirement on its own will not trigger the deadline.

The best practices approach is to identify problematic applications as soon as possible following publication and create conservative docket for filing preissuance submission. Because of the statutory deadline, the PTO has indicated that it is unwilling to grant any extensions of time for delays in filing.

Are you afraid?: Attorneys at Williams Mullen have urged caution to their clients – indicating that:

[I]ssues remain as to whether it is advisable to prepare such submissions due to the deference that can be given to USPTO examination and the potential prejudice to raising the same prior art in a later proceeding. Third party submissions at this stage will require caution and careful consideration before filing. Moreover, it remains unclear as to what effect these submissions will have on the examination of existing applications.

Williams Mullen is correct to urge caution, although I believe it is overstated. My view is that well written briefs submitted with the documentation will likely impact the prosecution by limiting the scope of the claim that eventually issues. This is a free submission that can be done anonymously (although your name would come out in litigation discovery) or through an organization. The most likely potential reward is that the claims will be narrowed before being attached with a presumption of validity that can only be overcome with clear and convincing evidence.

The short statute governing preissuance submissions reads as follows:

§ 122(e) PREISSUANCE SUBMISSIONS BY THIRD PARTIES.—

(1) IN GENERAL.—Any third party may submit for consideration and inclusion in the record of a patent application, any patent, published patent application, or other printed publication of potential relevance to the examination of the application, if such submission is made in writing before the earlier of—

(A) the date a notice of allowance under section 151 is given or mailed in the application for patent; or

(B) the later of— (i) 6 months after the date on which the application for patent is first published under section 122 by the Office, or (ii) the date of the first rejection under section 132 of any claim by the examiner during the examination of the application for patent.

(2) OTHER REQUIREMENTS.—Any submission under paragraph (1) shall—

(A) set forth a concise description of the asserted relevance of each submitted document;

(B) be accompanied by such fee as the Director may prescribe; and

(C) include a statement by the person making such submission affirming that the submission was made in compliance with this section.

In house attorneys will likely want to try-out a few to test the effect before an important case comes again. Richoh's App. No. 13/042,288 (Pub. No. 2012-0233658) offers a good place to start. The published application claims:

1. A method for generating a log of stroke data, comprising:

capturing stroke data from a user that inputs the stroke data into a portable computing device;

identifying a location of the user;

identifying acceleration of the user;

generating a log of stroke data that includes a time of input; and

generating a log of location and accelerometer history.

 

P-T-A-B: Patent Trial and Appeal Board

By Dennis Crouch

Sunday, September 16, 2012 marks day-one for the new Patent Trial and Appeal Board (PTAB) that replaces the Board of Patent Appeals and Interferences (BPAI). Before moving forward, I would like everyone on board with the correct pronunciation is P-T-A-B and not P-Tab.

James D. Smith is Chief Judge of the BPAI and appears to be posed to instantly become Chief Judge of the PTAB as part of the transition. Judge Smith recently offered the following remarks on USPTO Director Kappos' Blog:

September 16, 2012 marks a momentous occasion for the Board of Patent Appeals and Interferences. On that day, we become the Patent Trial and Appeal Board (PTAB). In keeping with that change, the Board will open for business to accept petitions for some of the new America Invents Act (AIA) post grant proceedings using the Patent Review Processing System (PRPS), our new, web-based e-filing tool. We are extremely excited to take part in this historic transition.

To commemorate the transition to the new Patent Trial and Appeal Board and as a demonstration of our desire to serve, the Board will be staffed during the entire 24-hour period of that first day. From early Sunday morning at 12:01 a.m., until late Sunday evening at 12:00 p.m., Board personnel will be available to assist the public with filing new cases. After opening day, Board personnel will be available during normal business hours, 8:30 a.m. to 5:00 p.m. Questions may be submitted by phoning 571-272-PTAB (7822) or by emailing Trials@uspto.gov. Feedback on the PRPS system is also welcome, and we have established a separate email box for receiving such feedback at PRPS-Suggestions@uspto.gov.

As Chief of the Board, I am extremely happy of the many accomplishments made by the Board team toward meeting our AIA responsibilities. Many team members have worked tirelessly, preparing for the big day – September 16th, 2012. I would like to thank all those people involved, both internally and externally, for making September 16th a reality.

 

The America Invents Act: One Year Later (Pt. 5)

By Jason Rantanen

Liveblogging the America Invents Act: One Year Later conference at the Indiana University Mauer School of Law. Warning and disclaimer: Quality may vary and these don't necessary reflect my opinions.

 

Panel 3: What did the AIA accomplish? What did it omit?

Mark Chandler (Cisco) - Not a patent lawyer; instead offers a high level perspective from tech industry. 

Issues from his perspective: Predictability is a key, but certainty means different things to different people.  Uncertainty in his industry is uncertainty about damages.  Ranges of outcome that lead to total unpredictability about valuation. The patent system is an industrial policy; it needs to be pared with a good commercial law system where the court decisions are defined by good predictability of result.  But parties aren't willing to have fruitful negotiations because of uncertainty as to damages.

Bad patents - very hard to overturn validity patents in court; estoppel provisions in inter partes reexamination made them a hard tool to use.  Also, backlog of patents. 

Effect of these issues was an increase value of litigation gamesmanship over the value of innovation. This was the context in which they came to the table.  For his industry, uncertainty as to scope of rights/quality of rights was not as important as uncertainty over damages.  But this is not something that he believes can be fixed legislatively.  From the point of view of the technology industry, the AIA accomplished very little in terms of the uncertainty they care about.

In terms of bad patents, he sees the mechanisms as positive.   On backlog, the funding provisions are excellent.

Looking forward, he is skeptical of having Congress dive into the damages issues.  Change is coming from the courts.  Judge Rader is a major mover here.  Clean up the Georgia-Pacific factors is something he sees as coming. 

Joinder provision - some judges, when confronted with the anti-joineder rule, are now consoldiating cases.  Work needs to be done here. 

Rocelle Dreyfuss (NYU) - Act focuses with laser like attention on getting a patent, but largely ignores what is being done with the patents.  Her focus is on research exemptions.  Long been two exemptions: Common law exemption and limited statutory Hatch-Waxman exemptions.  Common law exemption has largely been undermined by CAFC, especially in Madey v. Duke and Embrex v. Service Engineering; most recently, Judge Lourie's opinion in AMP v. USPTO (Myriad). 

Absence of such exception has become more worrisome over time.  Earlier studies indicated that scientists largely ignored patents.  More recent work has undermined this conclusion however.  Studies shown that less research conducted in areas where things are patented.

Every foreign country has a substantial research exception.  Japan is a good example. 

Can't you always do your research off shore?  But she'd like to see a strong research industry in the United States. 

Overall effect of a lack of research exception has been to distort other patent law doctrines - examples: Supreme Court/Federal Circuit subject matter cases.  All these cases are based on the view that patents can impact future research.  To some extent, the Supreme Court's exhaustion and injunctive reliefs are based on a concern about what's going on down stream.  A well drafted research exception is better served than twisting these doctrines around to allow downstream research.

Some believe (ex. Hal Wegner) that the common law will correct itself.  Judge Newman's language in this vein was been picked up by Chief Judge Rader in a recent opinion.  Wegner also argues that the fix would be relatively easy to accomplish with judge made law - drawing a distinction between research "on" versus research "with" a patented invention.  Other commentators would go back to the commercial/noncommercial distinction. She's doubtful these will work, however.  Rader's statement was part of a blistering dissent on an expansion of the statutory exemption; Judge Lourie's statement in Myriad was made just a month ago.  In addition, the fix isn't as simple as distinguishing between research "on" and "with"; actual research is actually far more complex - consider the use of diagnostic patents, which could be classified as either research on or research with. 

Copyright law has long had a fair use defense; it could work in patent law.  But complex, so better done as a statute than as a common law rule. 

John Duffy (UVA) - Likes: the new priority rule.  Never been a fan of first-to-file.  But this is not first to file - it's first-to-file or first-to-publicly disclose, which is a great change.  Best argument for first-to-file was administrative convenience.  Best argument for first-to-invent is that the lawyer shouldn't be part of the invention process.  New system takes the best of both: administrative ease (have to have publicly disclosed it) and you don't have to get a lawyer to do this.  Just have to get the rest of the world to follow us...

A partial accomplishment: ending asymmetric judicial review.  Historically, applicants could obtain immediate judicial review of rejections, but competitors could not obtain immediate judicial review of grants.  This was not good.  AIA helps here, with its post-grant processes.  But it still leaves significant holes in the availability of judicial review.  Proposes that the PTO be subject to standard agency review - points to Exela v. Kappos, E.D. Va. (Aug. 22, 2012).  May be a supreme court opinion.  If the country goes to symmetric judicial review, that would be a very good thing.

A partial accomplishment: curbing claim numerosity.  Patents have too many claims. Partial AIA solution: agency has power to set its own fees and thus could charge more for excessive claims. But sometimes there's a legitimate reason for large numbers of claims: legal uncertainty as to how claims will be interpreted.  Ultimate problem here: departed too far from traditional principles of claim construction.  We should instead focus on the invention - the contribution to the art - in interpreting claims.  261 U.S. 45, 63 (1923)

AIA's worst blemish: fueling bureacratic inflation. 

Gary Grisold (Senior Policy Advisory for the Coalition for 21st Century Patent Reform and former Chief IP Counsel at 3M) - AIA presented a great opportunity to improve the speed and efficiency of the patent system.  The playbook for improving the AIA was largely derived from the 2004 NAS Report.  Most of the recommendations of the 2004 report were put into play in the AIA.

Goals: effective, global patent protection efficiently obtained, maintained and enforced encouraging innovation and commercialization of innovation.  Showed us some of the charts that they used when building support for the patent law. A lot of progress from 2007-2011.

Process error - in the post-grant review, it allows the public to come in and be heard just after a patent is granted.  At some point, someone inserted "reasonably could have raised" judicial estoppel in PGR. Shouldn't be there.  Didn't realize that this happened, though.  Needs to be a technical correction to fix this.

Patent claim construction - For PGR/IPR, should patent claims should be construed the same as in validity challenges under 35 USC 282(b) rather than broadest reasonable construction?

What else might happen in the future?  Best mode - still there as an obligation; this creates a weird tension for the attorney and client.  Inequitable conduct - he believes that supplemental examination will have a lot of utility because firms will do extensive pre-litigation analysis.  Could go further with inequitable conduct, and lessen the effect even more, for the reason that it brings so much inefficiency into the process.  Experimental use exception - needs to be expanded.  Could expand prior user right.  Doctrine of equivalents is another opportunity for change.  Funding issues are always a concern - could be more secure. 

Doug Norman (Eli Lilly) - Going to talk about how in-house counsel deal with specific issues.

Move to first to file - won't preciptate a lot of change in their context, because for the past 40 years they've been living in a first-inventor-to-file world.  So their proceses have not had to change.  The change they feel is when they look at competitors' patents, they can better evaluate patent estates that they want to do a due dilligence study on. 

Grace period and international harmonization - Europeans aren't necessarily ready to accept a grace period. Have a grace period in the US that is clear, crisp and objective.  And very simple.

Fees  - important to point out that after a longrunning diversion of funds away from the PTO, the PTO has feesetting authority to move forward and build a new infrastructure.  It will cost users more, but if it leads to higher quality and faster service, it'll be worth it.

IPR/PGR considerations - A huge unknown right now.  Hopes that patent judges really will be conservative on the issue of discovery.  Is a technical amendment over the "could have raised" estoppel in PGR possible?  He hopes so; otherwise, it will greatly constrain the use of PGR. 

Inequitable conduct/supplemental examination - high point of the bill.  Thinks it will be used quite extensively, if for no other reason to have their own patents drawn into supplemental [think he means reexam] examination.  Plans on doing extensive due dilligence on patent estates they intend to acquire.  (comment - I suspect that in the pharmaceutical industry, there may be strong incentive to conduct extensive due dilligence.  I'm much less convinced this is the case in pretty much every other industry.).  He believes supplemental examination will be revolutionary, at least in the pharma/biological field.

Favors statutory research exemptions and full repeal of best mode requirement.  Related a story that OED is going to take best mode very seriously. 

John Vaughn (AAU): Universities and patent reform - University technology transfer plays an important role in technology innovation in this country.  Univerisity organizations worked together to present the view of the universities.  Two basic objectives: wanted to support those proposals that would enhance the US patent systems' ability to produce innovation, and wanted to support those proposals that would enhance the ability to licensed.  Very much shaped by 2004 NAS report. 

First to invent to first inventor to file - three conditions: (1) effective grace period; (2) continuation of provisional applications; (3) strong inventor declaration (?)  Worked with Congress on these. 

Patent certainty - university inventions inherently have uncertainty because of their early stage nature; adding other uncertainty further complicates that uncertainty.  Problem with statutory instructions on damages is that they would become a cost of doing business rather than something else. 

Strongly supported the new post-grant proceedure.  Agrees with others about the estoppel provision.  Concern that with the estoppel provision, the procedure won't be used. But very concerned about proposals for second window, additional post-grant challenge that would allow a broad capacity to challenge patents throughout their life.  This was viewed as making patents more uncertain, which would make them harder to license.  Compromise: revised and changed inter partes.

Debate over prior user rights.  Pre-AIA, only applied to business methods.  University community hated prior user rights - viewed it as a circumvention of the patent quid-pro-quo.  But at the end of patent reform, prior user rights was one of the primary obstacles at the end.  They worked out a compromise - a substantial expansion of prior user rights that sufficiently protect universities. 

Viewed as accomplishments: FtF - will be helpful to everyone.  Post-grant review - great, problem with estoppel.  Third party submisison of prior art - very helpful.  Enhanced fee setting - very helpful, wished better anti-fee diversion language.  Supplemental examination - very helpful, better to get rid of inequitable conduct altogether.  Scope of grace period - concern over how it will actually be interpreted. 

The America Invents Act: One Year Later (Pt. 4)

By Jason Rantanen

Liveblogging the America Invents Act: One Year Later conference at the Indiana University Mauer School of Law. Warning and disclaimer: Quality may vary and these don't necessary reflect my opinions.

Keynote speaker - Director David Kappos

Director Kappos - Going to talk about what the USPTO is working on. 

Satellite offices - USPTO has been around since around 1790; always had only one location.  First satellite office: Detroit.  That office now up and running, and first class of examiners is examining applications.  Hired about 12 judges there.  On time, below budget.

Opening up three more offices.  Dallas-Fort Worth, Denver, Silicon Valley.  Denver location has been chosen already; doing site surveys for the other two locations.  Have vacancy notifications for hiring requests for judge out now; will be putting out hiring announcements for examiners soon.  Love to hire law school graduates.  In addition to hiring in Alexandria, there are going to be hiring opportunities in these areas.  Great place to start your career; but also a good place for a long term career.

IP Critical to GDP and Jobs - conducted a recent study called "Industries in Focus" that reports on the importance of innovation/IP rights for the GDP.  Also a recent study by BIO that reports on the enormous contribution of universities to GDP through Bayh-Dole.

AIA- AIA is a lot about balance between first inventors and follow-on competitors.  On Sunday, the first major piece of the AIA goes into effect.  Follow-on competitors are great - produce great products at great prices; produce innovations of their own.  The AIA isn't about advantaging anyone; it's about balancing both sides.

Major tenets of AIA: enabling the patent system to work for everyone, in every industry. 

Increase certainty of patent rights - includes backstop provisions, such as post-grant review;

Remove or prevent low quality patents- no way, consistent with any cost-effective business methodology, that you can do a perfect job.  Also, courts have consistently not chosen the easy way out in terms of flexibility rather than hard, categorical rules.  PTO promulgates a lot of guidelines - useful, but not perfect. This is why post-grant is so important - when the PTO gets it wrong in the first instance, there's a backstop.

Build a 21st century patent system - this leads to the world's first 21st century patent system.  This is not the most-cautious approach.  It's not a Swiss watch, it's innovation friendly.

More than halfway done with implementing provisions of the AIA.  After Sunday, just the 18-month rules to go into effect. 

Challenging fee-setting process is in progress.  Started this process with the academy, with IP-law economists.  They helped design a system that sets fees that are consistent with policy.  It will take several iterations, but he's serious about listening to the academy on this issue.

2012 Fall Roadshow in progress this month.  Lots of good feedback from these. Notes that new forms (not samples) that are to be used starting Monday are now available on the USPTO website.

Track One statistics - fast tracking of applications accompanied by a petition.  Now almost a year out from creation.  Average days to final disposition is 153.8 days.  About 5,500 applications so far.  Petition gets granted 96% of the time; 47 days to first office action. Of the 1716 final dispositions mailed, 867 allowances mailed.  Not a fast way to get a rejection; a fast way to get a patent if you should be getting a patent. Also, examiners want to pick up Track One first, because (1) it shows the applicant is serious; (2) probably an important innovation; and (3) applicant will be willing to engage with the examiner to get the job done.

Unexamined patent application backlog - backlog is going down.  New narrative is "optimal inventory" - want to come to the right level of backlog/inventory.  What about unintentional consequences: when they changed a lot of the incentives, it sent backlog numbers in the right direction.  However, the consequence was that doing this unintentionally sent a message to examiners to sit on RCE's; this is what they're working on now.  Soon, the RCE backlog will go like the unexamined patent application backlog. 

What is "inventory"?  The about of applications available fluctuates, but there needs to be work available to everyone to work on every day.  If the inventory gets too low, there are days when some people don't have enough work and others have too much.  So now the PTO needs to make sure that the inventor doesn't crash through the optimal inventory level.

Forward looking pendency - now down in the 16 month range.  Goal is 10 months; not that far off from that goal.  Less than two years from now they'll be at the optimal level. 

IP Awareness Assessment Tool - enables a non-lawyer to navigate a number of questions that adjusts the question to understand whether they might have possible issues in patent/trademark/trade secret areas.  Idea is to help small businesses understand when and how they need legal advice, and to navigate IP-issues before talking to a lawyer.

The H-Word: Harmonization.  Of forms of IP, patent laws are the laggard in terms of harmonization.  Working with patent systems of other countries to continue moving towards harmonization, especially grace period.  This is an area where further industry and academy support would be very welcome.  Trading partners need to change their laws to adopt the grace period. 

Social Enterprises: 2010-2011 - green tech pilot.  Totally maxed out.  This was the prototype for Track One.  Now they're working on the pro bono program.  A year into the program - have already issued patents, have inventors with products in the marketplace.  Launching in other cities.  By 2014, plan to have every region of US covered so that if you have a great idea, but not the resources to hire a patent attorney, you can get one through this system.  "No Invention Left Behind."  Looking to expand globally, with modifications.

Patents for Humanity - currently running.  Lot of applications coming in; closes in mid-October.  Involves patents that are being used for humanitarian purposes.  http://patentsforhumanity.challenge.gov.  Gives access to accelerated PTO processes, including appeals.

Education outreach - Put in place an education outreach to all kids in America.  Want to get positive, age-appropriate information out to kids of all ages so that they view themselves as innovators, they respect their innovations, they respect the innovations of others.

Software patents - came to the PTO to try and help with this.  Been working on making sure the agency doesn't issue patents that it shouldn't.  Championed stronger disclosure requirements; 112 guidelines specifically directed to software; trained examiners on using these guidelines; rise in 112 rejections on software patents.  This is a specific area where they're trying to improve patent quality. 

Question - how do you sort the good examiners from bad examiners?

Answer: USPTO has a LOT of data.  They track the data down to the individual examiner level.  Allowance rates - too high/too low.  Prosecution efficiency - have a new measure called compact prosecution that looks at whether the prosecution gets done.  Quality - check when they grant and reject cases.  Some of the best examiners are taken off the line and used as quality assurance supervisors.  What they've been finding is that even as you improve throughput and quality, there will be pockets (art units, departments, examiners) who need some help.  Data is also being given to the examiners on a monthly basis.  Also focusing on art units that exhibit significant deviations to see if there's an issue. Seeing improvement.

Bob Armitage - Thanked Director Kappos for the America invents Act.

Mark T. Banner Scholarship for Law Students

The Richard Linn Inn of Court in Chicago annually awards a law school scholarship in honor of patent bar leader Mark T. Banner who passed away in late 2007. The deadline for applying for the $5,000 scholarship is Nov. 16, 2012. More information is available at http://www.linninn.org/marktbanner.htm.

Inequitable Conduct: Federal Circuit Places another Nail in the Coffin

By Dennis Crouch

1^st Media v. Electronic Arts (Fed. Cir. 2012)

In a strong opinion, the Federal Circuit has rejected a district court holding of inequitable conduct in a failure-to-submit case. The appellate court held that the defendant had failed to prove that the failure to submit was a deliberate fraud on the PTO under the standard outlined in the court's 2011 en banc Therasense decision.

Individuals sufficiently involved with the prosecution of a patent application bears a "duty of candor and good faith dealing with the [USPTO], which includes a duty to disclose to the Office all information known to that individual to be material to patentability." 37 C.F.R. § 1.56 (Rule 56). This duty is particularly applied to each inventor named in the application and "each attorney or agent who prepares or prosecutes the application." A patent attorney's failure to comply with the duty of candor can lead to disciplinary hearings by the USPTO's office of enrollment and discipline (OED) and, as a rule, the USPTO refuses to grant patents "on an application in connection with which fraud on the Office was practiced or attempted or the duty of disclosure was violated through bad faith or intentional misconduct."

The fiercely adversarial litigation system in the US is comparably quite good at rooting out (and thus discouraging) fraud. Whenever a patent is being enforced, accused infringers scour the records and available evidence to look for any way failures to comply with Rule 56. When those failures rise to intentional and material misconduct, a court has the equitable power to hold the patent (and its patent family) unenforceable due to inequitable conduct in the prosecution of the application. Of course, attorney fraud is a serious charge, and even false claims create difficulties for the accused wrongdoer. As such, the courts have taken some steps toward limiting those types of claims. The two key recent cases on this point are Excergen and Therasense.

Excergen: The Federal Rules of Civil Procedure (FRCP) as interpreted by the Excergen decision, inequitable conduct may only be alleged as a defense if it can be pled with particularity (as opposed to other types of claims that may be pled much more generally).

Therasense: Under Therasense, inequitable conduct requires proof that the alleged wrongdoing was deliberately and knowingly wrong and that the result of the wrongdoing during patent prosecution impacted the issuance of the eventual patent and that each element be proven with clear and convincing evidence. In the failure-to-disclose situation, the court writes that a defendant must prove "that the applicant knew of the reference, knew that it was material, and made a deliberate decision to withhold it."

In 1^st Media, the asserted patent was part of a family of applications that had been filed in various countries around the world. Three references used to reject the foreign applications were never submitted for consideration by the US examiners. Nevada district court Judge Mahan considered this issue and found that both the patent attorney and the listed inventor were at fault for failing to submit the references and held the patent unenforceable.

On appeal, the Federal Circuit reversed – making clear (again) that in a failure-to-disclose situation, the defendant must prove that individuals with a Rule 56 duty "made a deliberate decision to withhold" the references. Further, that deliberate decision element must be proven with clear and convincing evidence and that proof cannot be inferred from the fact that the individuals had knowledge of the references and their materiality.

A court can no longer infer intent to deceive from non-disclosure of a reference solely because that reference was known and material. Moreover, a patentee need not offer any good faith explanation for his conduct unless and until an accused infringer has met his burden to prove an intent to deceive by clear and convincing evidence.

In the bench trial, Judge Mahan found the explanations given by the inventor and his patent attorney to lacking. On appeal, the Federal Circuit made clear that the burden is on the defendant to provide clear and convincing evidence.

The court provided a nice quite for patent attorneys:

Moreover, it is not enough to argue carelessness, lack of attention, poor docketing or cross-referencing, or anything else that might be considered negligent or even grossly negligent. To sustain a charge of inequitable conduct, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference. Whatever one might conclude about Lewis's and Sawyer's conduct and interactions relating to the Bush reference, and the nature of Sawyer's practice at the relevant time, the record does not support the inference that Lewis and Sawyer deliberately chose to withhold Bush.

Because one element of the inequitable conduct charge is missing, the court concluded that it cannot be proven. Of course, "carelessness, lack of attention, [or] poor docketing" will still lead to malpractice claims.

Notes:

• In its opinion, the Federal Circuit foreclosed any possibility for the defendants to re-open their inequitable conduct charges for a rehearing. However, the judge has not yet determined validity. Thus, if the withheld references are truly material then we'll see the jury hold the asserted claims obvious.
• Beginning September 16, 2012, patentees will also be able to request a supplemental examination at the USPTO to ensure that any references that had been previously withheld do not impact patentability. However, if the USPTO finds that the previously withheld references create a major patentability question then the Office will institute a reexamination.
• We now have a situation where inequitable conduct is quite difficult to prove – meaning that patent owners will rarely be harmed by a violation of the duty of candor and good faith dealing. Consequently, patent attorneys will faced increased pressure to push the boundaries.

The America Invents Act: One Year Later (Pt. 3)

By Jason Rantanen

Liveblogging the America Invents Act: One Year Later conference at the Indiana University Mauer School of Law. Warning and disclaimer: Quality may vary and these don't necessary reflect my opinions.

Panel 2: Administrative Trials

Michael Tierney (Lead judge of BPAI) - New Patent Trial and Appeal Board eFile system will go live at 12:01 am on Sunday, September 16.  They will also have folks available to answer calls starting on Sunday. 

AIA trial proceedings will be a hybrid examination/trial-like process.  Relatively straightforward, step-by-step proceedings.  Trials will be completed within one year. 

Who can practice: also a hybrid.  Lead counsel must be a practitioner registered with the PTO, but the board may recognize pro had vice counsel during a proceeding upon a showing of good cause.  A pro hac counsel is subject to the Office's Code of Professional Responsibility.  Requests should explain why there's good cause. 

Proceedings are streamlined so as to make it possible to complete proceeding in one-year.  In addition, page limits have been imposed on the petition and arguments, but not the evidence.  Claim charts can be included as single-spaced. 

Threshold standards for initiation:
IPR: "reasonably likelihood" that petitioner would prevail as to at least one claim challenged.  This means >50% chance. 
PGR/CBM: petition must demonstrate that it is "more likely than not" that at least one of the claims challenged is unpatentable.  This just means that it has to be a "close call" that one of the claims is unpatentable.  This does not mean that all non-frivolous arguments will result in a PGR/CBM proceeding.

Inter partes review: discovery- allow parties to agree to discovery between themselves.  Also, mandatory initial disclosures, routine discovery, and additional discovery. In general, discovery will function ilke infringement proceedings - i.e.: parties exchange among themselves, then choose what to provide to the board.   

Recommends starting with the practice guide if you want to understand the rules.  

Jay Kesan (University of Illinois) - Examined post-grant review in Japan and compared to US.

JPO has invalidation trial.  JPO does not have a threshold standard; grounds are very broad.  Anytimeime during the life of the patent. No estoppel under JPO proceeding.  Third parties that are not involved in the challenge can file another challenge on the same facts and evidence.  Scope in terms of the number of claims is not all that different.  Parties can file anonymously.  Takes about 8.7 months. Patent can be amended after the trial decision before the appeal - lots of opportunities to tweak the patent.  Just about anyone can request. 

Costs: Rough estimate is about $200,000 for US proceedings.  In Japan, about $25k to $125k. 

In Japan, about 7-10 times higher to litigate the case in district court.  Roughly about 2% of all patents are being challenged (300 out of 150,000 issued patents) are opposed using JPO invalidation. 

Data over a decade shows that the litigation court decisions tend to be arrived at before the JPO decision.  In a large number of cases, there's an agreement the patent is invalid.  There is some disagreement in cases, however - about 20% of the time the JPO and district court reach opposite conclusions.  This is consistent with the rate of affirmence of the JPO by the high court (around 80%).

Questions:
Joshua Larsen (Barnes & Thornburg) - what parts of the new procedures will be most challenging for the judges to deal with? 

Michael - not a whole lot of judges who had experience with inter partes, but they just hired a large number of people with significant litigation experience as judges. 

Jay K - 60-80 pages is still a lot of stuff to go through.  If 2% of all the issued patents are subject to this process, thats a lot of workload. 

Michael - there's still going to be ex parte reexamination.  There's also going to be full blown proceedings.  He wouldn't expect all 2% to go the reviews. 

Josh - how is claim construction going to be handled?

Michael - no Markman, but there's a requirement that the petitioner must explain what the claim means up front.  Tell us up front what you, as the petitioner, think the claim means and how the prior art meets the claims.  

Jay K - thinks this approach is just fine.

Jay Thomas - Is there a good balance between the litigation and the IPR process?  How are the parties going to figure out what patents will be challenged through post grant review?

Michael - when he looks at the statistics, most inter partes reexaminations had ongoing litigation.  Often there are stays in these cases.  His expectation as they go forward is that they will follow the 1-year timeframe.  If this is the case, the district court judge will know that the PTO is committed to having a decision within that one-year framework.

Jay K - If things were really ideal, if invalidity can be done relatively cheaply in the post grant proceedings, then this might save the parties some money in infringement litigation.    On the nine-month window, this is something that parties are going to need to figure out, maybe using proxies.

Josh - what is the possibility of serial filings on the same evidence?

Michael - I'm going to refer to 325(d).  The office may consider previous determinations in deciding whether to go forward.  If all the party is doing is submitting the same evidence again and again, the likelihood of going forward in low.

Jay K - when he talked to practitioners in Japan, they said that this type of behavior was a waste of time.

America Invents Act: One Year Later (pt. 2)

By Jason Rantanen

Liveblogging the America Invents Act: One Year Later conference at the Indiana University Mauer School of Law. Warning: Quality may vary.

Session 2: First to File/Supplemental Examination

I spoke during this panel, so wasn't able to take down any notes during Q&A

John Schaibley - Panel is going to discuss two changes under AIA: First to invent to First to File and Supplemental Examination.  Summarized the two changes.

Jay Thomas (Georgetown) - thanks Bob for his hard work on the AIA; but he won't necessarily agree with everything Bob said. 

When we teach 102, it's "the long march" - a lot of it is now gone.  Still going to be some complexity due to the prior user defense.  Also, what does "or otherwise available to the public."  What's the role of secret uses and sales prior to the date of filing. 

Remember two cases: Egbert v. Lipman(sp?): you can have a public of one; Metallizing Engineering: a trade secret use is patent defeating.  New section 102(a) still has the term "public use" in it.  Early legislative history indicated a continuity of meaning.  But things changed.  "or otherwise available to the public" was added.  Some legislative history that says that this has to be true for all prior art. Note that "public" is still pretty broad.  Just because it's technically publicly accessible doesn't mean that it's necessarily easy to find.

Also, keep in mind that these two cases were instances where the patent holder effectively tried to extend the date of filing.  Is it sound industrial policy to allow secret uses to not defeat patentability? 

International harmonization: tried to move in that direction, but didn't completely succeed.  Example: safe harbor under new 102 is different as between US and Europe and Japan. 

Short term issues: lots of filing before March 16, 2013.  Abolition of the Hilmer doctrine; lose ability to swear behind prior art references.  Storm surge is coming.  There's going to be a sharp distinction between old and new cases.  What to train the new examiners in?  Old and new or just new?  Constitutional challenges - probably dubious.  Employment assignment agreements - these will be important to look at.  And what about the technical corrections bill?  Likely to involve some huge changes of its own - dissatisfied parties are going to push for these. 

Dana Colarulli (USPTO) - Probably agrees with Bob on most of the things he said.  But legislation only gets us a good portion of the way there.  There's more to do.  Specifically, implementing the provisions in the appropriate way through rules. The PTO is really trying to get the implementation right. Very much looking for comments and feedback on the proposed rules.

International harmonization - huge step forward in restarting international harmonization discussions.  But doesn't go all the way there.  More work to be done. 

Impact of the law overall - this is the most significant change since 1836.  A lot of these changes have been percolating for far longer than the five years up to the AIA.  First to file really goes back to 1966 with a report from Lyndon Johnson, then a 1992 report that made the same suggestion.  2004 National Academies of Science recommended as well.  First to file is both international harmonization and a best practice. 

PTO's goals in drafting the rules.  Make the guidance clear and transparent.  Address examination issues raised by AIA up front. 

On grace period - this is a critical issue.  It's a unique feature of US law, but it's not the same grace period as we had before.  There are going to be questions about how narrowly the grace period is going to be read.  USPTO has interpreted the the grace period to be very narrow.  There are many views about this issue. 

Sales issue (ed. do they have to be public?) - legislative history conflicts.  Is Metalizing Engineering overturned or not? 

Visit the USPTO's AIA implementation page - lots of good material there. 

Nathan Kelley (USPTO) - How supplemental examination is supposed to work.  Purpose of supplemental examination is to immunize patentees against claims of inequitable conduct based on information that was not disclosed, inadequately disclosed, or incorrect information. 

Supplemental examination lets just about all issues of patentability to be raised.  Talked about the mechanics of supplemental examination.  If, for example, the issue raised by the supplemental examination is a written description issue, that's what will go into reexam. 

Could apply to patents that have expired because the statute of limitations on a patent (enforceability period) is six years. 

Improper requests will not get into the PAIR system until they are granted. 

Items of information are anything, as long as they're written.  Videos/oral testimony must include a transcript.   Can't give more than twelve items of information in any one request.  But you can make more than one request.

Fees - about $5k for the request, plus upfront $16,000 for reexam that will be refunded if no ex parte reexam. 

(I spoke about inequitable conduct post-Therasense and the effect on supplemental examination)

During Q&A, question came up about PTO fraud enforcement.  PTO views supplemental examination as exactly that, not an inquiry into the intent of the parties.

The America Invents Act: One Year Later (conference)

By Jason Rantanen

Liveblogging the America Invents Act: One Year Later conference at the Indiana University Mauer School of Law.   Warning and disclaimer: Quality may vary and these don't necessary reflect my opinions.

Session 1:

Mark Janis - opening remarks.  Hard to believe it's been a year act since AIA was signed.  Still at the beginning of understanding the AIA provisions.  Exciting times.  Lots of patent law thought leaders here today - Bob Armitage, Director K appos. 

Come back in ten days for the next conference.

Bob Armitage - wants to the the upbeat, inspirational speaker that we all need at 8:30 am. 

Some things that need to be done with the AIA in terms of legislative correction of errors.  Suggests that different constituencies in patent law work together on this goal in the immediate future - before the next election.

The AIA is the most profound change to the patent system since 1836 patent statute.  He's been involved in the process of patent reform for the last 30 years.  Shortly after he left law school, he realized that we had a law school that we had a patent system that didn't work very well.  Some of the things that we needed to do to improve the patent system was to eliminate first to invent, have a more transparent grace period, and eliminate recurring patent terms. 

Sees the AIA as major constituencies coming together to move the patent system in the direction of transparency and objectivity.  If the implementation of the AIA goes well, this is the patent system we'll have.  A more predictable patent system.  Much of this comes down to invalidity defenses - under the AIA these are much simpler. 

We were the last to the table in terms of modernizing our patent system.  Prior 1999, we really had a secret patent system. With the AIA, the patent system was opened up even further.  After AIA, there's no-fault correction of misnaming of inventors; the technical filing of an affidavit that mis-names the inventor is no longer a worry; best mode is no longer a concern for patent applicants; patent prosecutors are better off because of supplemental examination.  If they're deposed, and things arise, the patent holder can, in a pre-litigation context, go back to the patent office. (me: Query how this is viable, since depositions often arise during litigation.  Could make sense for a sequential litigant).

Other big changes: deceptive intent removed throughout the application process; patent owner can seek the patent as the applicant; no more supplemental oaths. 

Post-grant review: patents are now open to more challenges after the patent issues.  It's any issue of patentability that you can raise in court, you can raise in the PTO.  Why is this important?  This lets parties challenge patents the day patents issue, not six years down the road.  Challenging patents in court is expensive.  Post-grant review allows parties to resolve these issues in the matter of months, not years, at a fraction of the cost.

Sees the AIA as increasing transparency, objectivity, predictability, simplification of patent system.  Patent validity is reduced to just four objective legal standard: sufficient differentiation from prior public disclosures and earlier patent filings of others; sufficient disclosure to identify the claimed embodiments and enable them to be put to a specific practical, and substantial use; sufficient definiteness to differentiate subject matter; sufficient concreteness to avoid excessively conceptual or otherwise abstract subject matter.  That's all there is to the patent law.  These are objective standards that don't require you to know anything about what the inventor did, thought, etc. 

The national embarrassment of the first-to-invent system will now end. Example Gore-Tex case of why this was a problem.  Interference count practice was problematic.  It was an embarrassment and it's gone. 

The AIA is an attempt to be a codification of the way Congress wants the law, not a codification of what the law is. 102(b) was a colossal mess because of the attempt to codify existing law.  Under the AIA, there are no new AIA patent law doctrines.  Legislative history says "apply as written."  Example: 102 - only new phrase is "available to public."  Apply as written - this means that prior art is that art which is publicly accessible (comment: this issue is one of the most debated issues in the new AIA).

Who benefits from the AIA?  Those with the least resources, capital available.  It's a patent system optimized for small inventors, universities.  For those engaged in commerce of patents, supplemental examination allows for due diligence to be more effective, since it will allow the curing of inequitable conduct.

Does the Entire Market Value Rule Make Sense when Applied to Apportionment Analyses?

By Dennis Crouch

I struggle to understand the mathematical logic in the debate over the recent expansion of the entire market value rule (contemporary EMVR) for calculating damages in patent cases. The entire market value rule is a tool that – in most cases – prevents a patent holder from using entire market value of a product as the starting point (i.e., the "base") when calculating patent damages. In its newest incarnation, the court has rejected use of the entire market value of an infringing product as the starting point for damage apportionment. In his Patent-Damages blog, Fish & Richardson Partner Justin Barnes provides his bottom line:

[I]f a product is not separable into constituent parts, the plaintiff is not necessarily entitled to a royalty base on that product (e.g., Outlook in the Lucent case), but that if a product is separable into constituent parts, the plaintiff almost certainly is not entitled to a royalty base on the overall product (e.g., [LaserDynamics and] Cornell).

The entire market value rule makes sense when it is being used to stop a patentee from unduly claiming the bulk of the infringer's profits. However, the absolute rule doesn't make sense when the entire-product royalty base provides a fine starting point for calculating the value of the incremental benefit provided by the invention in suit.

Patent damages are most often calculated as a percentage royalty rate multiplied by some "base price" of the infringing product and then multiplied again by the total quantity of infringing products. This approach is suggested by the Patent Act requirement that "the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs." 35 U.S.C. § 284.

The contemporary entire market value rule debate focuses on what base price to use in a situation involving a patent whose innovation is directed toward a component of a larger product. In particular, the inquiry is whether the base price should be the price of the entire multi-component product or instead some price associated with the component itself. The name for the rule comes into play because the price of the entire product is also known as the "entire market value." Unfortunately, the name for the rule masks an important element in the royalty calculus – that the percentage royalty rate is shifted downward anytime the base price is shifted from the component price to the price of the larger multi-component product. A patented innovation may have a large impact on the value of a particular component (and thus receive a high royalty rate). Of course, that component will fit within a larger product having many other valuable components. Because so many other factors contribute to the value of the multi-component product, the percentage of value that the patented innovation adds to the multi-component product will be considerably lower. So, as the base price moves toward capturing the entire market value, the percentage royalty rate drops.

In a model with a few assumptions about rational behavior and spillover benefit allocation, the arithmetic works-out so that a small percentage royalty of the entire market value of a multi-component product is equivalent to the appropriate corresponding larger percentage royalty of the component of that product. In one scenario the patentee receives a small percentage of a large sales base and in the other case receives a larger percentage of a smaller sales base. As we drill-down to smaller component pieces, the two variables in question – percent royalty and price-per-unit – vary inversely such that the product of the two stays constant. Since the damage award is based upon the product of those two factors, the choice of whether or not to use the entire market value as a base should not impact the actual damage award. I.e., there is no mathematical sense behind a rule that favors one approach over the other. With a reasonable royalty, we are usually looking to find the infringed invention's marginal contribution to the infringer's activities. That marginal contribution will not vary regardless of whether base is the value of the entire product or the relevant component.

Despite this simple analysis above, the courts have begun to severely limit the use of the entire market value in calculating reasonable royalties damages. The entire market value rule stops patentees from calculating damages based upon the entire market value of an infringing product to cases where the patented feature is the basis for customer demand. This is a shift in the law that may have begun with Lucent (2009) and Uniloc (2011). In the most recent case of LaserDynamics v. Quanta Computer, Inc., the Federal Circuit added-on to the rule by confirming that the royalty base used to calculate a reasonable royalty should be the "smallest saleable patent-practicing unit." Further, the entire market value of a product can only be used when the patented feature is provide to be the "motivating factor" for the customer purchase of the product. Merely being a but-for or "important" cause of the purchase was insufficient. The Laser Dynamics decision is likely the first major patent decision written by Judge Reyna. For his conclusion, Judge Reyna relies heavily on 2009 decision by Judge Rader where he sat by designation as a district court judge in Cornell Univ. v. Hewlett-Packard Co., 609 F. Supp. 2d 279 (N.D.N.Y. 2009). In that case, Judge Rader wrote that "counsel would have wisely abandoned a royalty base claim encompassing a product with significant non-infringing components. The logical and readily available alternative was the smallest salable infringing unit with close relation to the claimed invention—namely the processor itself.").

Limits on using the entire market value for calculation have been traced back to the 1884 Supreme Court case of Garretson v. Clark, 111 U.S. 120, 121 (1884). In that case, the patentee was awarded only nominal damages because the patentee failed to prove that it had suffered any loss or that the infringer had profited from the patented mop head improvement. In rejecting the appeal, Justice Field wrote:

When a patent is for an improvement, and not for an entirely new machine or contrivance, the patentee must show in what particulars his improvement has added to the usefulness of the machine or contrivance. He must separate its results distinctly from those of the other parts, so that the benefits derived from it may be distinctly seen and appreciated. The rule on this head is aptly stated by Mr. Justice Blatchford in the court below: "The patentee," he says, "must in every case give evidence tending to separate or apportion the defendant's profits and the patentee's damages between the patented feature and the unpatented features, and such evidence must be reliable and tangible, and not conjectural or speculative, or he must show by equally reliable and satisfactory evidence that the profits and damages are to be calculated on the whole machine, for the reason that the entire value of the whole machine, as a marketable article, is properly and legally attributable to the patented feature."

The plaintiff complied with neither part of this rule. He produced no evidence to apportion the profits or damages between the improvement constituting the patented feature and the other features of the mop. His evidence went only to show the cost of the whole mop and the price at which it was sold. And, of course, it could not be pretended that the entire value of the mop head was attributable to the feature patented. So the whole case ended, the rule was not followed, and the decree is therefore Affirmed.

Garretson. Now, one major difference between now and then is that in 1884 a patentee was still allowed to seek disgorgement of the defendant's profits – something that is no longer allowed in utility patent law. Setting profits aside, Garretson appears allow use of the entire market value so long as the patentee explains the added value of the particular patented invention and how that added value contributes to the value of the whole product "so that the benefit derived from [the invention] may be distinctly seen and appreciated." The driving factor in Garretson as in contemporary cases is to prevent overcompensation. However, the contemporary courts have not (and perhaps could not have) explained how the entire market value used as part of an apportionment analysis leads to overcompensation.

We might consider the availability of evidence. In the usual case, the value-added by an invention may be easier to see and understand at the component level because there are fewer issues to consider. On the other hand, base price information tends to be better available when looking at the entire market value of a product because that is what customers purchase – rather than looking at the value (or profit) associated with an integrated component. In situations like these where there are various legal theories available, we usually let the parties decide how to present their case according to what they believe is the best and most convincing evidence. The usual approach to intellectual property valuation is to use a variety of methodologies in the hopes that there will be some convergence on a best estimate and this is one useful methodology. In the larger context of the hypothetical negotiation, it just doesn't make any sense that neither party would have considered the price of the final product as part of their negotiations.

Cognitive Bias: In many multi-component cases, the correct royalty rate will be <<1% of the market value. Economists would have no problem with that result, but jurors might. In particular, it may be cognitively difficult for a juror to award a royalty rate of <<1% of the base price because that number seems so small. Again, in our adversarial system we normally rely on opposing counsel to help juries through their cognitive difficulties. In the multi-component situation, what's wrong with allowing the defendant to make the (seemingly easy and intuitive) showing that the accused product is based on thousands of innovations and equally important underlying patents that each deserve (and have received) their share of royalties and that the stacking problem means that royalties for the particular invention in question certainly could not be above say 0.002%. To avoid the small number bias problem, defendants can rescale their calculation to be something like $5 per thousand products sold. This provides a whole number base that we are all comfortable with.

Law Professors Brian Love has a nice pre-2009 article on the entire market value rule and its role in preventing patentee overcompensation. Brian J. Love, Patentee Overcompensation and the Entire Market Value Rule, 60 Stan. L. Rev. 263 (2007). However, the analysis has changed somewhat since then.

To be clear, I'm not arguing that the court should jettison the whole of the entire market value rule – just the post-2009 contemporary conception that applies the rule to prevent use of the entire product value base in an appropriate apportionment analysis.

Notes:

• Although none of them completely agree with my analysis, Professors Thomas Cotter (UMN), Amy Landers (UFL), and Brian J. Love (SCU) all provided very useful comments on this essay.
• Although I'm critical here of the damage jurisprudence of the Federal Circuit, at the time it was important for the court to take some steps to control damage calculations. In the background, Congress was a debating patent reform package that included provisions that would have significantly altered patentee's damages arguments and the FTC had argued forcefully for further restrictions on patent damages. The court's decisions then relieved the political pressure so that those provisions were eventually removed from the patent reform bill that was passed as the America Invents Act in September 2011.
• The LaserDynamics case is also important because of its repudiation of settlement data in the damage calculation – especially when the settlement came at a point where the defendant was in a strategically disadvantageous position.

Patently-O Bits and Bytes: Transitions

By Dennis Crouch

Joe Matal was instrumental in the 2012 passage of America Invents Act. At the time, Joe was counsel to the Judiciary Committee and, although on the republican side, Joe really was the in-house knowledge base for members of both parties. Joe recently wrote a major two-part article on the AIA and how it should be interpreted based upon the legislative history. He has recently joined the USPTO in the solicitor's office as an assistant solicitor. Another new USPTO employee is Mark Guetlich. Mark is stepping into what I see as an extremely important role leading external affairs for the patent side of the USPTO. Mark led Microsoft's international patent team for many years and most recently served as SAP's IP counsel based in Germany. Mark is a graduate of the University of Missouri as is the Microsoft Chief Patent Counsel Bart Eppenauer. Congratulations Joe and Mark!

President Obama has made two excellent nomination announcements. George Washington University law professor F. Scott Kieff will be nominated to join the United States International Trade Commission (USITC) as a USITC member. George Mason University law professor Joshua Wright is being nominated to become a commissioner of the Federal Trade Commission. Both choices are interesting because Scott and Josh are claimed by conservatives as thought leaders for the republican party. However, both are known for digging into problems to find the best practical solutions rather than being driven by ideology. In their roles, both will make an impact on patent law. Congratulations to Scott and Josh!

Beyond Question: RMail Challenges the Use of Subject Matter Eligibility as an Invalidity Defense

RMail v. Amazon.com and PayPal (E.D.Tx 2012)

Over the past few weeks we have been having an interesting debate over whether subject matter eligibility under 35 U.S.C. § 101 constitutes as valid defense to patent infringement that may be raised in litigation. Section 282 of the Patent Act defines defenses available to an accused infringer and that statute has been interpreted to limit defenses available only to those that fit the statutory list. Thus, because improper revival of an abandoned patent application does not fit on the list, the Federal Circuit ruled that mistake by the patentee and USPTO could not be used to later invalidate the patent during litigation. One problem with Section 282 is that it is not a simple list of references, but is instead really a pointer to other sections of the Patent Act. Thus, an accused infringer can assert an invalidity defense based upon "any ground specified in [Sections 100-188] as a condition for patentability" as well as "any requirement of section 112, except that the failure to disclose the best mode." Now, we normally think of the doctrines of invalidity deriving from Sections 102 (anticipation); 103 (obviousness); 112 (written description; enablement; indefiniteness); and 101 (utility and subject matter eligibility). Now, Section 112 is clearly identified as a defense, and the patent act particularly identifies section 102 and 103 as creating the "conditions for patentability" required under Section 282. The lone outsider then is Section 101 whose status as creating conditions for patentability has not been established. Professor Hricik introduced this argument and began the statutory analysis in a post titled Are the Courts Correct in Their Assumption that a Patent Issued on Non-patentable Subject Matter is Invalid?. I continued the argument by considering its application to the new post grant review program in a post titled Can a Third Party Challenge Section 101 Subject Matter Eligibility in the USPTO's new Post-Grant Review Procedure?. Now, in RMail, lawyers are asking Judge Gilstrap (E.D.Tx.) to decide the issue.

RMail's asserted patents are directed to a new way to authenticate service of electronic messages – i.e., to prove that an e-mail was actually sent and received without relying upon key encryption. U.S. Patent Nos. 6,182,219 and 6,571,334. Many of the claims are not limited to any particular "technology" except for various simple data structures. Instead, the claims simply focus on the sending and receiving of the various data elements in ways that could all seemingly be done offline using pencil and paper.

After being sued, PayPal filed a motion for partial summary judgment – asking the court to rule those claims invalid under 35 U.S.C. § 101 as lacking subject matter eligibility.

In response, RMail has argued that subject matter eligibility is not a proper invalidity defense permitted to be raised under Section 282 (in addition to providing arguments on the merits).

VI. CONGRESS DID NOT PERMIT SECTION 101 TO SUPPLY A LITIGATION DEFENSE

Rmail closes by asking the Court to recognize and apply all appropriate statutory barriers against entertaining Defendants' Section 101 defense. The entire jurisprudential "murky morass" of subject matter eligibility need not arise again in any litigation. Myspace, 672 F.3d at 1260 (using "murky morass" label). Rmail acknowledges that this argument is for the good faith extension or modification of existing caselaw. Courts until now have uniformly overlooked Congressional will on this question.

Namely, while Section 101 analyses are appropriate in Patent Office application proceedings, this Court lacks any statutory basis for analyzing Section 101 issues as a litigation defense. Patent defenses are statutory. Under the Patent Act of 1952, only enumerated patent defenses exist. Aristocrat Tech. v. Int'l Game Tech., 543 F.3d 657, 661-63 (Fed. Cir. 2008). If an issue is not denominated an infringement defense within the Patent Act, then the Court lacks jurisdiction to address it. Id.

. . . .

It does not matter that the statutory misinterpretation has lasted so long, or so pervades conventional thinking. Even a long-term statutory misconstruction will not bar restoring the patent system to its statutory limits. See Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 177, 191 (1994). . . . Four recent Supreme Court cases arose in the USPTO administrative context, and are thus consistent with Rmail's argument: Benson, Flook, Diehr, Bilski. A fifth, Prometheus, admittedly arose within an infringement defense context. However, no one seems to have pointed out to the Supreme Court this important threshold issue of statutory construction, and statutory limitations on the powers of the federal courts. Prometheus thus does not bar this Court from issuing a correct ruling in the present adversarial context.

PayPal's response is fairly weak – that the dicta of Aristocrat identifies Section 101 as a condition for patentability. (To be clear, the PayPal briefs are quite good – they just lightly treat this particular issue).

The landmark 1996 Supreme Court case of Graham v. John Deere is interesting and sends somewhat mixed signals in its dicta describing the patent act. In that case, the court wrote that "The [Patent] Act sets out the conditions of patentability in three sections. An analysis of the structure of these three sections indicates that patentability is dependent upon three explicit conditions: novelty and utility as articulated and defined in § 101 and § 102, and nonobviousness, the new statutory formulation, as set out in § 103." The odd element of the Supreme Court statement is that it does not identify subject matter eligibility as a defense created by § 101. In Aristocrat, the Federal Circuit explained away the gap by noting "it is beyond question that section 101's other requirement, that the invention be directed to patentable subject matter, is also a condition for patentability." I guess that question is no longer unaskable.

Docs:

• Download Rmail v Amazon.com 96 MSJ Non-Statutory Subject Matter
• Download Rmail v Amazon.com 98 Opposition to Motion for Partial Summary Judgment
• Download Rmail v Amazon.com 103 Reply in Support of Motion for Partial Summary Judgment of Invalidity
• Download Rmail v Amazon.com 104 Surreply re Motion for Partial Summary Judgment of Invalidity

Patent Pendency Time Series and Why Care about Prosecution Delays

By Dennis Crouch

In yesterday's post, I provided a histogram of USPTO patent prosecution pendency for the most recent issued utility patents. I received a couple of e-mails asking for similar historic information. The chart above shows a time series of USPTO patent prosecution pendency for utility patents.

To be clear, this is not a complete dataset. Rather, to create the chart I pulled up the group of utility patents issued on the first Tuesday of September for each year 1999-2012. Then, for each group, I identified the median pendency as calculated from the patent application filing date to the issue date and ignoring any priority claims. The median pendency is typically more time consuming to identify than is the arithmetic average. However, I believe it provides a comparatively better sense of the data in this case. Prosecution pendency tends to have a substantial skew allows a small number of patents with exceedingly long pendencies to shift the averages. Relying on the median eliminates that difficulty. Because of this ever-present skew, the median is always somewhat smaller than the average – perhaps making the situation look rosier than reality. However, I'm comfortable with this result that largely ignores the top .5% of patent pendency because those tend to be quite special cases. For fun, I also overlaid the names of the USPTO directors in office at the various points in the timeline.

This chart is useful to me as a sign of hope. It wasn't so long ago that the median pendency was hovering around two-years. And, all signs are that the pendency will drop over the next few years as thousands of new patent examiners find their footing. (This last bit about thousands of new patent examiners is intended to foreshadow a series of upcoming posts on the incredible rise in the number of patent examiners at the USPTO and an inquiry into what will happen with those examiners once the backlog is under control.)

= = = = =

Why should we care about patent pendency?: Reducing patent pendency has been a major goal of the Kappos directorship. However, it is probably useful to pause for a moment to consider whether we should care about pendency and backlog. Certainly we want to know and understand the delay in order to advise our clients on how to order their affairs. But, should we care whether the delay is relatively longer or shorter? In my view, the major harm of long delay is not felt by patent applicants, but rather by parties releasing new products who cannot rely upon parties who cannot rely on

Most of the backlog delay occurs between the time that the patent application is filed and the mailing of the first action on the merits (FAOM). From a patentee's perspective, that delay can actually be good. It allows the patent applicant to delay payment of certain fees (such as issue fees) and costs (such as attorney fees for prosecution) and provides the applicant with additional time to consider whether or not to pursue rights based upon the additional expected costs of patenting. When taking market developments into account, the delay also provides the applicant with time to adjust claim scope to better capture the market value of the invention. One potential problem with delays in prosecution is a reduction in patent term. However, the Patent Act generously compensates patentees for any term lost due to PTO delays (by adding additional time to the end of the term). Sometimes applicants have good reasons to want quick patent issuance. For those instances, the USPTO allows the applicant to pay a fee in order to skip the backlog queue. The so-called "track one" fee is a hefty $4.8k, but it is an option and my pre-AIA survey found that charge not unreasonable. At least in a somewhat simplified world, this $4.8k limits the per-application loss to applicants caused by the delay. I.e., if an applicant was going to be harmed by more than $4.8k due to the lengthy backlog, then the applicant can simply pay the fee to avoid that harm. This is a simplified world because, inter alia, applicants might not know from the outset that there is any benefit to a more rapid patent issuance.

The real problem with the backlog is that the resulting prosecution delays create uncertainty for product developers and marketers – those that actually create new products and sell them on the market. The long pendency allows patent applicants to watch the market and shift patent rights to cover activity that was previously considered legitimately open. During that time, manufacturers simply cannot know whether their products will be covered by patents held by some third party. For many market areas, this greatly increases the risk that products legitimately released into the stream of commerce and placed in the hands of consumers will – some years later – become infringing because of third-party patents that eventually issue. Many of the policy justifications that support old statutory bar of 35 U.S.C. 102(b) would also discourage a system that allows this result.

Patent Pendency Update

The chart above is made from the 5329 utility patents issued on September 4, 2012. More utility patents were issued on that day than any other day in U.S. history. As you can see from the chart, a substantial number of patents are issuing in less than two years. The median pendency (not counting priority claims) was just under 3 years and 4 months. Of the 410 design patents issued that same day, 44% issued within one year of filing and 92% within two years of filing.

CLS Bank v. Alice Corp: Patenting Software Ideas

By Dennis Crouch

"Settlement risk" is real in almost every transaction. When a lawyer does legal work, how does she know that she'll get paid. Conversely, if a client pays up-front, how does he know that the work will actually be performed. There is always a possibility of filing a lawsuit to demand fulfillment. However, most businesses would prefer a system that better guarantees a more immediate positive result. A trusted (and bonded) escrow agent can help relieve the problem, but even an escrow agent needs assurances. Further, in the age of electronic funding of transactions, we should be able to take advantage of features of a computer network that might not have been available in an offline world.

The recent Federal Circuit decision in CLS Bank v. Alice Corp. focuses on the subject matter eligibility of Alice's claim to a computer system for assisting with closing financial transactions in a way that avoids settlement risk. The system includes two elements: (1) data storage with various "shadow" variables stored therein; and (2) a computer that is programmed to conduct the transaction. Basically, the transaction is initially conducted in the shadow (i.e., mock) system and then, if the shadow system shows that the parties have sufficient funds to conduct the transaction, post the obligation to the real exchange institution.

The claim reads as follows:

1. A data processing system to enable the exchange of an obligation between parties, the system comprising:

a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and debit record maintained by an exchange institution; and

a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said transaction, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable, time invariant obligation placed on said exchange institution.

The district court initially ruled that the patent claim lacked subject matter eligibility. I wrote about that decision in a 2011 post entitled Bilski Applied to Invalidate Computer System Claims. In 2012, a divided Court of Appeals for the Federal Circuit revered – holding that that, when considered as a whole, the claim is patent eligible. Judge Linn wrote the majority opinion that was joined by Judge O'Malley. In many ways, Judge Linn's opinion follows the advice that Professor Rob Merges and I gave in our paper titled Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making. Judge Linn's approach is to only reach Section 101 issues when subject matter ineligibility is "manifestly evident". Judge Prost wrote in dissent and argued that the majority improperly ignored the Supreme Court's most recent statements on the topic found in Prometheus. Professor Jason Rantanen wrote a nice post on the Federal Circuit decision titled CLS Bank v. Alice: The "Nothing More Than" Limitation on Abstract Ideas.

When I consider this claim, a few thoughts arise:

1. This is a system claim rather than a method claim. However, the structure of the claim is such that the system is designed around the method that it is intended to perform. This makes me think that the teaching of Bilski and Mayo v. Prometheus cannot be ignored here even though those cases were focused on the eligibility of method claims.
2. The claim requires computer hardware as an integral portion of the invention. However, the particularly claimed computer hardware is entirely conventional and being used in an unsurprisingly conventional manner. Further, if we relax the claim requirements of a computer and "electronic" communications then this same transaction could be fully conducted offline with paper as the data storage unit and contracts creating the time invariant obligation.
3. Use of the system does not require any physical transformation recognized by the courts (unless you interpret the claim to be limited to only include data storage units that work by physical transformation). The claim does require changes in bank account values and legal obligations, but those have not traditionally been seen as qualifying transformations in the patent eligibility context.
4. Finally, and most importantly for me, the invention is designed to solve a particular problem in industry and claims a system that operates by performing a series of identified steps to address that particular problem.

Many of you know that, in my view, the Supreme Court precedent on subject matter eligibility has not been internally reconciled. That ongoing precedential conflict coupled with the fuzziness of boundary lines continue to fuel debate on the topic both within and outside of the courthouse. On balance, both sides of this debate have strong arguments based upon patent law history and precedent and I can understand why someone versed in Supreme Court patent eligibility precedent could end up with a conclusion on either side.

Despite the Federal Circuit opinion, this case has not gone away. In recent days, the accused infringer (CLS Bank) has filed a request for rehearing and that request is supported by three amicus briefs. CLS Bank's main point in its brief is that the CLS Bank computer system claim is unpatentable when fully analyzed against Bilski and Prometheus. The brief asks two questions:

1. Whether the new test for patent-eligibility articulated by the panel majority is inconsistent with Bilski's and Mayo's approach to 35 U.S.C. § 101; and
2. Whether the method, system, and media claims at issue are patent ineligible because, albeit computer-implemented, they recite no more than an abstract fundamental mechanism of financial intermediation with no inventive concept.

The CLS Bank brief was filed by Mark Perry and his team at Gibson Dunn in DC. This is a change from the Kaye Scholer firm that represented CLS Bank at the district court and in the original appeal.

An amicus brief filed on behalf of a diverse group of five companies including British Airways and LinkedIN (and who all tend to be defendants in patent cases) spelled out how the "course filter" approach used by Judge Linn went against both recent and old Supreme Court precedent. That brief asks two additional questions:

1. Should courts enforce the patent eligibility requirement evenhandedly without imposing a "manifestly evident" or "coarse filter" hurdle on the patent challenger?
2. Is patent eligibility a threshold requirement well suited for decision on the pleadings and on early summary judgment?

John Vandenberg of Klarquist Sparkman filed the BA/LinkedIN brief.

Daryl Joseffer of King & Spalding filed a second amicus brief on behalf of Google, HP, Red Hat and Twitter. The brief explains how Mayo identifies four "guideposts" for determining whether an invention lacks subject matter eligibility under the prohibitions of abstract ideas and laws of nature. The four clues all begin with the notion that a patentable invention must be "significantly more than an abstract idea." Thus, if you begin with an abstract idea, "(1) adding steps that are conventional or obvious is insufficient to confer patentable subject matter (Mayo at 1294, 1298, 1299); (2) adding steps that are so general and non-specific that they do not significantly limit the claim's scope is insufficient (id. at 1300, 1302); (3) limiting an idea to a particular technological environment is insufficient (id. at 1294, 1297); and (4) claims that fail the machine-or-transformation test are likewise dubious (id. at 1296, 1303). Explaining the first point, the brief argues that a claim must contain an "inventive concept" apart from the identified law of nature or abstract idea.

The EFF brief filed by Julie Samuel reminds the court of the extensive literature concluding that software patents are bad – especially when in the hands of "patent trolls."

The patentee's responsive brief is due later this month.

*****

• Download CLS.enbanc
• Download CLS.Google
• Download CLS.LinkedIN
• Download CLS.EFF

*****

At least two additional software patent cases are pending at the Federal Circuit. In Bancorp v. Sun Life, a different panel of Federal Circuit judges considered software patents similar to those in CLS Bank but found the claims ineligible under Section 101. In WildTangent v. Ultramercial, the Federal Circuit initially ruled that patented method of distributing copyrighted media was eligible. However, that case was vacated and remanded by the Supreme Court following its decision in Mayo and with instructions to reconsider the holding based upon the new Supreme Court precedent. WildTangent has also requested an en banc hearing. WildTangent's petition asks: "When does a patent's reference to the use of a general purpose computer or an Internet website transform an otherwise unpatentable abstract concept into a process that satisfies the subject-matter eligibility requirement of 35 U.S. C. § 101?" Arguing from the other side (asking for its patent to be revalidated), Bancorp identifies the conflict with CLS Bank and argues that the "manifestly abstract" standard should be applied to its case.

• Download Bancorp.enbanc
• Download WildTangent.enbanc

*****

Judge Linn, author of the CLS Bank decision has announced his move to Senior Status in November 2012. Senior judges ordinarily do not decide whether to hear cases en banc and do not sit en banc. The one significant exception to that rule is that a senior judge will be a part of the en banc panel if that judge was a part of the original panel that heard the case. For this particular contentious issue, Judge Linn's status may well impact the results.

*****

Counting votes is always difficult and may not be worthwhile, but I pulled-up seven recent software patent eligibility decisions and classified the results based upon how the various panel member voted on the eligibility question. If I leave out judges Schall and Plager (Senior judges), the result is that three of the judges sit on the "claims eligible" side (Chief Judge Rader and Judges O'Malley and Newman); five of the judges are on the "claims ineligible" side (Judges Prost, Bryson, Dyk, Moore, and Wallach); two have decisions on both sides (Judges Linn and Lourie); and one is not in my sample (Judge Reyna).

Case	Claims Eligible	Claims Ineligible
WildTangent	Rader, Lourie, O'Malley
CLS Bank	Linn, O'Malley	Prost
Bancorp		Lourie, Prost, Wallach
RCT v. Microsoft	Rader, Newman, Plager
Cybersource		Bryson, Dyk, Prost
Dealtracker*	Plager	Linn, Dyk
Fort Properties		Prost, Schall, Moore

 

Continuations-in-Part (CIPs) and Priority Claims

By Dennis Crouch

This post considers the meaning of priority in a continuation-in-part application and, in particular, when the claimed priority document can serve as prior art against the child.

Yesterday, I wrote about the majority opinion in Santarus v. Par Pharma (Fed. Cir. 2012). In that case, the patentee was fighting for the validity of its continuation-in-part (CIP) patent. A CIP is a patent filing that claims priority to a previously filed parent patent document but that also adds some amount of new material to the disclosure and/or claims. In CIP applications, priority date is determined on a claim-by-claim basis. Of course the priority date is important because it largely defines the scope of prior art available to potentially invalidate the patent claims.

In its decision, the Court of Appeals for the Federal Circuit ruled that some of the disputed claims were sufficiently disclosed in the parent filing and therefore properly claimed priority to that original filing date. Another set of claims, however, included matter that was added in the CIP. Those claims with new matter were not given priority to the original filing and thus had to rely on the filing date of the CIP application. Thus, for the claims with new matter any patent issued or document published more than one-year before the CIP filing date would count as prior art under 35 U.S.C. 102(b). See Paperless Accounting v. Bay Area Rapid Transit System, 804 F.2d 659, 665 (Fed. Cir. 1986).

At this point in the analysis, there is a major point of contention between the judges on one particular alleged prior art reference – whether the original patent filing counts as prior art against the child. The parent patent (really, the great grandparent patent) was filed in 1996 and issued as a patent in 1998. The descendent patent in being litigated in this case was not filed until 2003 but claims priority back to the original 1996 filing through a series of continuations and CIPs. Under normal circumstances, a 1998 patent would clearly serve as prior art against a 2003 filing under Section 102(b) as discussed above. However the system of priority claiming to parent applications is designed to overcome that problem by treating the child applications as if they had been filed on the same day as the original ancestor – so long as the procedures of 35 U.S.C. § 120 are followed. Interesting for the purposes of this discussion, Section 120 discusses priority at the patent level rather than claim-by-claim and asks whether the "application for patent" satisfies the written description and enablement requirements.

35 U.S.C. 120 Benefit of earlier filing date in the United States.

An application for patent for an invention disclosed in the manner provided by the first paragraph of section 112 of this title in an application previously filed in the United States . . . shall have the same effect, as to such invention, as though filed on the date of the prior application. . .

In Santarus, the invention of only some of the claims were sufficiently disclosed in the original specification. For those claims that lack priority, the big question is whether and to what extent the original patent can be used as 102(b)/103(a) prior art as part of an obviousness rejection.

In a per curium opinion, the majority (Chief Judge Rader and Judge Moore) held that – since priority is determined on a claim-by-claim basis – that the original patent was prior art against the claims that lacked priority. Writing in dissent, Judge Newman argued that the priority should be given with regard to material disclosed in the priority document. Judge Newman's approach also breaks the patent apart but divides priority more precisely according to which material was found in the original disclosure. Under Judge Newman's approach, the original filing cannot be used as a priority document.

Newman writes:

The panel majority forgets that "matter disclosed in the parent application is entitled to the benefit of the filing date of the parent application." Waldemar Link, GmbH & Co. v. Osteonics Corp., 32 F.3d 556 (Fed. Cir. 1994); see Litton Sys., Inc. v. Whirlpool Corp., 728 F.2d 1423 (Fed. Cir. 1984) ("The earlier filing date of the parent application pertains to material in the C-I-P application also disclosed in the prior application. 35 U.S.C. §120."). Instead, the panel majority relies upon the common subject matter from the '737 [original] patent disclosure to invalidate the '885 claims supported by that subject matter. This is incorrect, for the common subject matter in the '885 patent is entitled to the '737 filing date. That entitlement is not lost by issuance of the '737 patent.

Of course, majority did not "forget" as Judge Newman suggested. Rather, the majority found that the patentee had "waived any argument that the '737 patent is not prior art to the other claims" by failing to appeal that point.

+ + + + +

Although distinguishable, the most on-point decision relating to this issue may well be In re Chu, 66 F.3d 292 (Fed. Cir. 1995). In that case (and with Judge Newman on the panel), the Federal Circuit ruled that the asserted priority document could be used as prior art because all of the claims included added limitations not found in the priority document. The court wrote:

Chu is entitled to the benefit of the Doyle patent filing date only if the Doyle patent discloses the subject matter now claimed by Chu. This, however, is admitted by Chu not to be the case. In fact, Chu states that "the invention as now claimed[ ] was not described in the [Doyle] patent." Specifically, Chu concedes that "nothing in Doyle suggests that SCR catalyst be placed inside the bag filter." Therefore, independent claim 1, which includes this limitation, and dependent claims 2, 4, and 14, are not supported by the Doyle patent disclosure. Accordingly, Chu cannot obtain the benefit of the Doyle patent filing date for these claims and the Doyle patent was properly relied on as prior art.

The obvious difference between the present case and Chu is that some of the claims are supported by the priority document.

K-Tec v. Vita-Mix: Analogous Art and Willful Infringement

By Jason Rantanen

K-Tec, Inc. v. Vita-Mix Corp. (Fed. Cir. 2012) Download 11-1244-1484-1512
Panel: Newman, Lourie (author), Prost

K-TEC and Vita-Mix are manufacturers of high-end blenders.  In the early 2000's, K-Tec developed a blender geometry that reduced the problem of cavitation (the formation of an air-pocket around the spinning blade).  Figure 11 of K-Tec's patent illustrates the concept:

Vita-Mix used K-TEC's five-sided commercial embodiment to design its own upgraded blending jar.  After Vita-Mix released its product, two of K-TEC's patents issue.  Upon being notified of the patents, Vita-Mix redesigned its product in an attempt to design-around the patent claims (which reference "four side walls" and "a fifth truncated wall disposed between two of the four side walls.")  The redesigned Vita-Mix product looked like this:

During the patent infringement suit, the district court granted summary judgment of infringement and summary judgment that two prior art references asserted by Vita-Mix were not analogous art.  The remaining issues were tried to a jury, which found in favor of K-TEC on the remaining issues of validity, willfulness, and damages.

Analogous Art: Following KSR v. Teleflex, there was some question as to the strength of the analogous arts doctrine in light of the Court's repudiation of rigid tests in analyzing nonobviousness.  Last year, however, in In re Klein, the Federal Circuit applied a robust analogous art doctrine to limit the scope of prior art that may be considered by the examiner during patent prosecution.  K-TEC v. Vita-Mix indicates that the analogous art test continues to remain alive and well in the infringement context, affirming a grant of summary judgment that the references did not constitute analogous art. 

Vita-Mix argued that the district court should have permitted the jury to consider two non-blender designs that depict five-sided containers.  Design Patent 227,535 ("Grimes") provides an example:

Under Federal Circuit precedent, a prior art reference may not be considered in the obviousness analysis unless it is analogous art.  There are two ways to meet this requirement: (1) the reference can be from the same field of endeavor as the claimed invention; or (2) it can be reasonably pertinent to the particular problem with which the inventor is involved.  Here, Vita-Mix did not contend that the container design patents were from the same field of endeavor, and thus the CAFC focused its analysis on the second condition.

In affirming the district court's grant of summary judgment that the two design patents were not analogous art, the CAFC concluded that despite the inventor testifying that he "wanted the resulting jar to fit within K-TEC's existing quiet box, there is no dispute that creating a smaller jar was not the problem he set out to solve because K-TEC's existing jars already fit within the quiet box."  Slip Op. at 16.  (It's unclear from the opinion why needing a smaller jar would caused Grimes to have "commended itself" to an inventor's intention in considering his problem.)  A greater problem was that Vita-Mix's expert report "did not 'explain any rational underpinning for [the inventor] to have consulted non-blending containers or food mixers in order to solve the problems he encountered in designing a new blending container.'"  Slip Op. at 16, quoting the district court's opinion.

Comment: Why, especially in light of KSR v. Teleflex, should the analogous arts analysis have anything to do with what an inventor thought?  Here's how the CAFC is currently articulating the "reasonably pertinent" prong: "A reference is reasonably pertinent if it, as a result of its subject matter, 'logically would have commended itself to an inventor’s attention in considering his problem.'" Slip Op. at 15, quoting Innovention Toys, LLC v. MGA Entm’t, Inc., 637 F.3d 1314, 1321 (Fed. Cir. 2011).  Shouldn't the analysis be based on what a person having ordinary skill in the art would have thought, not an inventor (and especially not "the" inventor)? 

Willful Infringement Treated as a Question for the Jury: For those seeking to prove willful infringement, this is a good case; for those seeking some consistency with previous opinions on the subject, it may be less so.  Following the jury trial, the district court denied Vita-Mix's motion seeking to overturn the finding of willful infringement.  In affirming, the opinion makes no reference to the CAFC's recent instruction that the "objective prong" of the Seagate recklessness analysis is a separate question of law.  Instead, the opinion barely distinguishes the "objective" prong from the "subjective" prong.  Evidence for the "objective" prong:

• Vita-Mix's noninfringement theory and most of its invalidity theories were properly disposed of on summary judgment;
• Its remaining theories were "soundly" rejected by the jury;
• In designing the product illustrated above, Vita-Mix started with a direct copy of K-TEC's five-sided jar (note: the "direct copy" was Vita-Mix's own pre-patent version of K-TEC's commercial embodiment); and
• Vita-Mix considered other noninfringing designs, but opted to "produce a container that performed in the same way as the [earlier Vita-Mix product] and employ a design that its customers would not be able to distinguish from [Vita-Mix's earlier product]."

The court continued on to state that "similarly, K-TEC presented substantial evidence that Vita-Mix knew of the objectively high risk of infringing K-TEC's valid patents, but decided to proceed anyway,"  Slip Op. at 22, indicating that the preceding factors were the factors relevant to that "objectively high risk."  

Comment: One area where the K-Tec holding is particularly difficult to square with prior precedent is its reliance on copying as part of the "objective" prong of the Seagate analysis.  See DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F.3d 1314 (Fed. Cir. 2009) ("Because we hold that DePuy failed as a matter of law to satisfy Seagate's first prong, we need not address DePuy's arguments concerning “copying” and Medtronic's rebuttal evidence concerning “designing around,” both of which are relevant only to Medtronic's mental state regarding its direct infringement under Seagate's second prong.").  

A Higher Written Description Standard for Negative Claim Limitations?

By Dennis Crouch

Santarus and the University of Missouri v. Par Pharma (Fed. Cir. 2012)

My employer (University of Missouri) owns several patents covering formulations of omeprazole proton pump inhibitors (PPIs). The patents are exclusively licensed to Santarus who markets the drugs under the brand Zegerid®. Par filed its request to make a generic version which prompted this infringement litigation.

The inventor, Dr. Jeff Phillips is a pharmacist at MU had the simple idea of combining omeprazole with baking soda (sodium bicarbonate). The baking soda helps the drug resist stomach acids long enough to be absorbed in the stomach wall. Although not a blockbuster drug, the approach has been successful for many patients with GERD and Santarus sales are about $40 million per year. (The reported deal is that MU receives about 5% of sales. As the inventor, Phillips receives a small cut from that.)

During litigation the patents were successfully attacked as obvious based upon a preliminary written description challenge.

Written Description Killing Priority and thus Nonobviousness: We know that patent applicants are allowed to narrow patent claims during the prosecution process. The vast majority of issued patent claims are not found in the originally filed patent application but instead are amended during prosecution. This is typically done by adding limitations into the claims as MU did here. The primary constraint on adding limitations is that the newly amended claim must be supported by the original application specification. Thus, a patentee cannot create limitations from thin-air, but must instead identify limitations found in the specification to be added into the claims. In the simple case, newly added claim limitations that are not supported by the specification are rejected for new matter at the USPTO and, once issued, can be invalidated for lacking written description under 35 U.S.C. § 112. The situation is a bit more confusing when the application claims priority to a prior patent filing. Of course, most issued patents do claim priority to a prior patent filing so the family member situation is quite important. In the patent family context, a child application might fully comply with the written description requirement if considered on its own. The child application can also be valid if new matter was added to the specification or claims at the time of filing. However, that new matter (if included within the claims) will mean that the patentee cannot claim priority to the parent application's filing date. Where the parent case is published more than one year before the patent filing, that parent application can also serve as a prior art against the child application under 35 U.S.C. §102(b) unless priority can be established. (Query how this will works under the AIA?)

In this case, the generic challenger argued that one of the claimed limitations was not supported by the parent patent and, as a consequence, that parent patent serves as a critical piece of prior art that invalidates the claims.

One set of asserted claims were amended from the priority filing to included an exclusionary wherein limitation. In particular, the claims stated that "the composition contains no sucralfate." The original specification had noted several reasons why omeprazole was preferable to sucralfate. In the same sentence, the specification also indicated that omeprazole is also preferable to sodium bicarbonate for those same reasons. Since sodium bicarbonate is actually an element of the invention, the district court held that the same sentence could not be used to particularly exclude sucralfate without further evidence that sucralfate is contraindicated. On appeal, the Federal Circuit rejected this reasoning – holding that preference statement in the specification was sufficient to justify addition of the exclusionary limitation and that the sodium bicarbonate inclusion (as a buffer) was justified by other portions of the specification.

Higher Bar for Negative Limitations?: The exclusionary limitation here is a negative limitation because it defines what the invention does not contain. Here, the invention does not contain sucralfate. The tradition in patent law has been to avoid negative limitations and, certainly, an invention cannot be wholly defined by negative limitations. However, negative limitations are allowed and are useful at times. It appears that the court sets a higher bar for the inclusion of negative limitations than it does positive elements of a claim. This is done by requiring that the specification include a reason for the exclusion in order to satisfy the written description requirement. The court writes here: "Negative claim limitations are adequately supported when the specification describes a reason to exclude the relevant limitation." Ordinarily, such justification is not required for positive claim elements - although justifying explanations can be helpful in justifying greater claim breadth.

Although some reasoning is required, the patentee need not disclaim the element in the specification in order to add the exclusionary limitation in the claims. "Such written description support need not rise to the level of disclaimer. In fact, it is possible for the patentee to support both the inclusion and exclusion of the same material."

With these notions in mind, the court held that the statements in the specification were sufficient to support the exclusionary limitation in this case. "The claim limitation that the Phillips formulations contain no sucralfate is adequately supported by statements in the specification expressly listing the disadvantages of using sucralfate." And, as a consequence, the parent patent is not a proper prior art reference against those claims supported by the original specification.

Patent with Multiple Priority: In cases with a complex family structure, patent priority is actually determined on a claim-by-claim basis. As discussed above, the Federal Circuit held that some of MU's claims properly claim priority to the original specification filed with the USPTO. On appeal, the patentee implicitly agreed that some of the other patent claims are not supported by the original specification. For those cases, the original filing qualifies as prior art against the no-priority claims under section 102(b). The question then is whether the newly added material is sufficiently different to avoid invalidation on obviousness.

Without going into detail, the Federal Circuit found that some of the patent claims that qualified for priority were also nonobvious and thus should be treated as valid and enforceable.

Need one to win: In the end, this appears to be a win for Mizzou since a patentee only need a court to find one of its claims is infringed and enforceable.

Notes:

• Although I am employed by the University of Missouri, the university is not my client and I have not spoken with any of the university counsel about this case.
• Par also appealed the district court's finding of no inequitable conduct. The Federal Circuit affirmed that holding based upon a lack of clear and convincing evidence of intent deceive the USPTO.