Patent Law Blog (Patently-O)

Claim Construction: A Structured Framework*

Guest post by Professor Peter S. Menell (UC-Berkeley School of Law); Matthew D. Powers (Weil, Gotshal & Manges LLP); and Steven C. Carlson (Fish & Richardson PC) 

The construction of patent claims plays a critical role in nearly every patent case. It is central to evaluation of infringement and validity, and can affect or determine the outcome of other significant issues such as unenforceability, enablement, and remedies. Yet jurists and scholars have long lamented the challenges of construing patent claim terms. The Federal Circuit's en banc decision in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005), stands as the most authoritative decision on claim construction doctrine. But while putting to rest various controversies, many core tensions in claim construction persist. Moreover, the decision itself does not provide a step-by-step approach to construing claims. This commentary provides a structured road map.

Reissue Applications over Time

In 2008, the patent office reissued over 640 patents – breaking the prior record of 630 set in 1875. The historic numbers of reissued patents are shown in the first chart below grouped according to year of reissuance.

Although today's absolute numbers rival historic highs of the 19th century, today's relative number of reissued patents is close to the all-time low. The next chart shows the relative percentage of reissues as compared to utility patents granted (denominator based on a moving average of patents issued over of the prior ten years).

The final chart shows a time series of the average reissue pendency as measured from the reissue application filing date to the reissuance date. As is apparent, the pendency has been growing dramatically since 1997. 2009 looks to mark a second record – the first time that average prosecution pendency of reissues applications will be greater than five years.

Background: The reissue process is designed to allow a patent holder to correct a defective patent and is nestled between certificates of correction (minor errors) and reexamination. 35 U.S.C. §251 spells out particular defects that may be corrected in the process: Defect in the specification; Defect in the drawing; Error in claiming too much; or Error in claiming too little. In Medrad, the Federal Circuit broadly read these final two defects to "encompass any error that causes a patentee to claim more or less than he had a right to claim." Medrad, Inc. v. Tyco Healthcare Group LP, 466 F.3d 1047 (Fed. Cir. 2006). A major limit on the reissue process is that "[n]o reissued patent shall be granted enlarging the scope of the claims of the original patent unless applied for within two years from the grant of the original patent." Section 251, final paragraph. The limit on improper broadening of reissues is strict and applies when claims are "broader in any respect." Predicate Logic, Inc. v. Distributive Software, Inc., 544 F.3d 1298 (Fed. Cir. 2008).

Diverging Claim Constructions

Yesterday raised a valuable discussion on claim construction with many excellent comments on the Cotropia-Bey article. The issue is obviously important since claim construction disputes arise in virtually every attempt to enforce a patent. One problem with claim construction in litigation is that the district court follows a completely different process of claim construction than do PTO examiners. The rules suggest that the two claim construction scopes should form concentric circles with the PTO's broad construction and the Court's narrower construction. The reality is that it is hard to form these concentric circles -- especially with complex claims. And, it is virtually impossible to form concentric circles of construction using such distinct construction processes. Instead of nested constructions, in many cases the outcome of the district court tends to diverge from that suggested during prosecution.   

It seems odd that the patent prosecution process does not focus on determining the correct meaning of the claims. The better approach may well be to allow the original examination to determine the correct meaning of claims in a way that can be followed by courts down the line. I suspect that this approach would actually lead to more valid patents -- especially if examiners applied a stronger hand on issues of indefiniteness.

Notes:

• Joel Miller's 2006 JPTOS article in the Broadest Reasonable Interpretation standard is available here.
• Mark Lemley and Dan Burke recently wrote a paper arguing that we should admit defeat and move to a central claiming system. Their analogy is that claims might be better used as sign-posts rather than fence-posts. [Link]
• Lemley's 2005 article on The Changing Meaning of Patent Claim Terms is also a good read. [Link]

The Unreasonableness of the Patent Office's 'Broadest Reasonable Interpretation' Standard

Chris Cotropia (Richmond Law) and Dawn-Marie Bey (King & Spalding) have an interesting draft article out on the PTO's "broadest reasonable interpretation" standard for interpreting claims during patent prosecution. The article notes that the increase in post-grant reviews (reexaminations) running concurrently with infringement litigation raises the stakes of the PTO's standard.

From the abstract:

Although there has been much commentary on patent claim interpretation methodology in general, very little has been written about the unique interpretation approach the Patent Office employs. The courts, starting with the Court of Customs and Patent Appeals and continuing with the Federal Circuit, instruct the Patent Office to give every applied-for claim its 'broadest reasonable interpretation' (BRI) during patent examination. This Article explores this special standard and concludes that not only are the previously articulated rationales behind the BRI standard severely lacking, the standard is also contrary to both the patent statutes and the concept of a unitary patent system. The BRI standard additionally allows patent examiners to avoid difficult claim interpretation issues, leads to improper and uncorrectable denials of patent protection, and is incurably ambiguous.

Notes:

• Read the article here.
• MPEP 2111 "CLAIMS MUST BE GIVEN THEIR BROADEST REASONABLE INTERPRETATION"
• Ex parte Koo (BPAI 2008) (PTO Should Apply Broadest Reasonable Claim Interpretation to Section 101 Analysis)

The Effectiveness of Examiner Interviews

Often, a face-to-face discussion can help two parties resolve a sticky dispute. In patent prosecution, the patent applicant can request to sit down interview with an examiner to discuss the examiner's rejections. See 37 CFR 1.133. The interview can be face-to-face or via telephone or even video conference. Law firms located across the street from the PTO tend to tout the value of examiner interviews while those outside of DC tend to downplay their significance.

I recently created a database of about 17,000 patent applications filed 2000–2005. For each of those applications, I also have a listing of the prosecution history that indicates the timing of any examiner interview. I used this data to consider the effectiveness of examiner interviews. Note two important caveats: I did not look at the underlying documents in the file wrapper, and my data does not distinguish between interviews in person and those done at a distance.

The results: Overall 18% of applications were associated with an examiner interview. I broke the data into two groups.

Early Interviews: In what I call the "early interview" group are applications where the examiner interview took place prior to the mailing of any final office action. Applications in the early interview group had the same grant rate as those that did not have an early interview (70% grant rate of terminated cases). However, those with an interview tended to stay pending longer, and be more likely to have an RCE in the file history.

Late Interviews: In what I call the "late interview" group are applications where an examiner interview took place after a final office action was mailed. Applications in the late interview group had a much higher grant rate than did applications where a final action was mailed but the case was not subsequently interviewed. Here, 74% of those in the late interview group were allowed as compared with only 60% other applications where a final action was mailed. (+/– 3% at 95% CI).

Interviews by Organization: The table below looks at the top twenty filing organizations (as listed in the application correspondence) in my dataset based on the number of applications filed 2000-2005. For each organization, the table lists the number of applications that were interviewed, number of issued patents, percent of cases interviewed, and the percent of cases patented. (Note, this percent of patented cases includes still pending cases in the calculation instead of only terminated cases and is consequently lower than the rates reported above). Although these are organizations who filed the most applications, readers should note that they represent less than 20% of all filed patent applications.

Organization	Number of Applications in Database	Applications with Interviews	Number of Issued Patents	Percent of Cases Interviewed	Percent of Cases Patented
OBLON SPIVAK	374	107	241	29%	64%
SUGHRUE MION	248	35	150	14%	60%
BIRCH STEWART	210	46	138	22%	66%
HEWLETT PACKARD	190	26	91	14%	48%
OLIFF BERRIDGE	172	60	124	35%	72%
Harness Dickey	171	37	92	22%	54%
FOLEY LARDNER	153	25	93	16%	61%
KNOBBE MARTENS	138	27	73	20%	53%
NIXON VANDERHYE	138	21	82	15%	59%
FISH RICHARDSON	136	30	74	22%	54%
FINNEGAN HENDERSON	129	18	68	14%	53%
MCDERMOTT	119	14	80	12%	67%
Blakely Sokoloff	115	15	65	13%	57%
STAAS HALSEY	109	21	60	19%	55%
FITZPATRICK CELLA	108	19	74	18%	69%
TOWNSEND	108	22	65	20%	60%
ANTONELLI TERRY	101	12	68	12%	67%
PHILIPS IP	93	9	54	10%	58%
YOUNG THOMPSON	92	12	50	13%	54%
WENDEROTH LIND PONACK	91	22	57	24%	63%

  

Patent Application Pendency: Percent of Applications Still Pending

The large backlog of cases at the PTO has added greatly to the problem of long patent application pendency. There are other contributors to the problem – such as applicants and examiners unwilling to reach a compromise solution (often based on the demands of superiors).

To provide some measure of pendency, I created a database of 20,000+ randomly selected patent applications and issued patents filed 2000 - 2007. For each of case, I tallied the final status as of mid-July 2009. (Status is either patented, abandoned, or pending). Using that data, I created a chart of the percent of utility applications still pending as of July 2009. This data can be helpful for someone considering whether their still-pending application is an anomaly. Over 84% of the applications filed in 2007 are still pending (+/– 2% at 95% CI) , while less than 1% of applications filed in 2000 are still pending (+/– 1% at 95% CI).

The second chart standardizes the same data according to the amount of time in prosecution.

Notes:

• This data only includes applications that were either (1) published or (2) patented. I do not know the percentage of cases unpublished cases that are still-pending versus those that are abandoned.
• The data presented here does not distinguish between technology centers, continuations, etc. The still-pending rates varies considerably within those different categories.
• The pendency rate for applications filed Q4 2004 appears unexpectedly high and the rate for Q1 2005 appears unexpectedly low.. That is at least partially explained by a data collection artifact. My data sample includes a relatively large number of applications filed in late December 2004 and early January 2005 rather than being more evenly distributed throughout the respective three months.

The Changing Nature Inventing: Collaborative Inventing

Although inventing can still be a solo endeavor, patenting data indicates that paradigm no longer predominates. Over the past four decades, the number of inventors per patent has steadily crept upward. The first chart below shows the average number of inventors per patent moving from 1.6 for patents issued in the 1970’s to 2.5 for patents issued since 2000.*

As the chart below shows, this rising average is being driven by a dramatic increase in the proportion of “highly collaborative” inventions with three or more listed inventors. That rise is coupled with a proportional decrease in the proportion of solo inventions. Interestingly, the proportion of two-inventor patents has stayed relatively steady throughout the entire time period.

Some areas of technology lend themselves to team work. Biotech research and drug development is typically extremely expensive and done in structured teams while lower-tech areas may not be so structured. Compare, for instance patents in classes 514 (drugs) and 435 (chemistry of molecular biology) with patents in classes 135 (tents) and 297 (chairs). The first group averages three times the number of inventors as the second group.

It may also be that team-built inventions are more likely to get funding and be patented. Thus, non-US applicants are more likely to spend patenting money in the US on multi-inventor applicants. Likewise, multi-inventor applications are likely to have larger patent families through continuations and CIPs.

The rugged individualists are still out there – they are just getting more lonesome.

Notes:

• This data is derived from a sample of 750,000 patents issued from August 1971 through February 2009. All reported results are significant at the 99% confidence level.

Inter Partes Reexamination Statistics

In August 2008, Messrs Baluch and Maebius of Foley & Lardner published an interim report on the results of inter partes reexamination proceedings. At the time of their writing, however, only 30 inter partes reexaminations had been pushed-through to conclusion with a reexamination certificate. In the past year, that total has more than doubled to 73 issued reexamination certificates.

Of course, the main point about inter partes reexaminations is that the process can be incredibly slow if either party pushes. Only about 50% of the inter partes reexaminations filed 2001-2005 have been completed either through issuance of a reexamination certificate (on the merits) or procedurally terminated. Overall, the reexamination certificates took an average of 37.5 months to issue (median of 34.4 months). When all is said and done, this pendency will be much longer since the slow and/or hotly disputed cases are all still pending. Only one (1) of the completed cases received a BPAI decision (all claims were cancelled after BPAI affirmed) and no completed cases have received a court decision.

Results of the reexamination certificates: Inter partes reexaminations continue to show promise as a mechanism for "killing" patent claims. Of the 73 issued reexamination certificates, 60% (44) cancel all the claims and only 12% (9) confirm all the original claims as patentable. The remaining 27% (20) change the claimset in some way. For the 19 inter partes reexamination certificates issued on patents with co-pending litigation, 42% (8) resulted in all claims being cancelled; 5% (1) confirmed all claims as patentable; and 53% (10) changed the claimset in some fashion.

    

Evidence Based Prosecution: The Status of Applications Filed 4 ½ Years Ago

This morning I created a dataset of prosecution information for 462 randomly selected utility patent applications filed in December 2004 and January 2005 to get a sense of where those applications stand after 4 ½ years of prosecution. Overall, 48% of the applications have issued as patents; 26% have been abandoned; and 26% are still pending. (Note – I excluded the 12% of cases from my sample that were never published as applications because data is not available for most of them).

Table 1 below shows the detailed status for each case as provided by the USPTO's PAIR system. All but two of the pending cases have received at least an initial examination. The two still-unexamined cases are both software-related applications.

High-Level Status	Status	Percent of Cases
Patented	Patented Case	47.8%
Abandoned	Abandoned -- Failure to Respond to an Office Action	25.2%
Abandoned	Abandoned -- Failure to Pay Issue Fee	0.7%
Abandoned	Expressly Abandoned -- During Examination	0.2%
Pending	Non Final Action Mailed	8.9%
Pending	Final Rejection Mailed	6.4%
Pending	Response to Non-Final Office Action Entered and Forwarded to Examiner	5.0%
Pending	On Appeal -- Awaiting Decision by the Board of Appeals	1.0%
Pending	Notice of Allowance Mailed -- Application Received in Office of Publications	1.0%
Pending	Notice of Appeal Filed	0.7%
Pending	Publications -- Issue Fee Payment Verified	0.5%
Pending	Examiner's Answer to Appeal Brief Mailed	0.5%
Pending	Docketed New Case - Ready for Examination	0.5%
Pending	Appeal Awaiting BPAI Docketing	0.5%
Pending	Withdrawn Abandonment awaiting examiner action	0.2%
Pending	Response after Final Action Forwarded to Examiner	0.2%
Pending	Appeal Brief (or Supplemental Brief) Entered and Forwarded to Examiner	0.2%
Pending	Advisory Action Mailed	0.2%
Table 1

An often frustrating aspect of application pendency is that abandoned cases can be kept alive by filing a continuation application. Of those cases that have been either patented or abandoned, 25% have one or more descendents in the form continuation or CIP applications. (I have not determined whether those continuations are themselves still pending.)

Of the cases already completed (no longer pending), the median patent took 2.6 years to issue while the median abandonment did not occur until 3.1 years into prosecution. Along this line, the longer a case was pending, the greater the likelihood that the case was abandoned. Thus, 71% of cases that were pending for fewer than three years were allowed while only 29% of cases that were pending for three to four and a half years were allowed.

The chart below shows the percentage of applications pending as a function of the number of years in prosecution. Although the average time in prosecution for this cohort cannot be calculated yet (because so many cases are still pending), the median time in prosecution – as seen in the chart – is 3.3 years.

The patent office examination corps is divided into various technology centers. In my sample, TC 2800 (Semiconductors, Electrical and Optical Systems and Components) had allowed the highest percentage of cases (70%) and had the lowest rate of applications still-pending after 4 ½ years (3%). TC 1600 (Biotechnology and Organic Chemistry) has the highest abandonment rate (36%) while TC 2600 has the highest percentage of cases still pending (48%).

Understanding the Role of the Board of Patent Appeals: Ex Parte Rejection Rates on Appeal

By Dennis Crouch     PDF Version of the Article

Abstract:

This study provides an issue-by-issue analysis of decisions on ex parte appeals by the Board of Patent Appeals and Interferences (BPAI) of the United States Patent and Trademark Office (USPTO). All the cases in this study were appealed to the BPAI after one or more of the pending claims were rejected by a patent examiner. 

In the study, I report that most BPAI appeals focus on two or more issues. Of those, the majority of issues (61%) are affirmed and the remainder reversed. When more issues are presented, the case as a whole becomes more likely to be affirmed-in-part. In addition, I find that the likelihood that a case is affirmed has increased over time (Jan 2008 - May 2009).

By far, the most common issue on appeal is obviousness. I find that 87% - 90% of ex parte BPAI decisions decide an issue of obviousness. Only 4% of appeals consider neither obviousness nor novelty. The major aberration of this trend is for cases involving biotechnology and organic chemistry (TC 1600). 18% of BPAI decisions arising from TC 1600 focus on issues other than obviousness and novelty.

In comparing results by issue, I find that obviousness rejections are more likely to be affirmed than are other types of rejections. Most cases (74%) that discuss neither obviousness nor novelty are reversed.

The BPAI is becoming increasingly important. Over the past several years, the BPAI has seen a dramatic rise in the number of appeals being filed. In addition every recent patent reform legislative proposal has included an increased role for the Board.

Speeding-Up Design Patents

Design patents are cheap and usually involve little prosecution. In a recent report at "Design Day", the USPTO noted that the agency is working to further shrink the timeline. Notably, the average number of days from payment of the issue fee to issuance of the patent has shrunk by 2/3 since 2006. In FY2009 (thus far), the delay averages 52 days while in FY 2006, the delay averaged 140+ days. The average pendency is about 16 months. Applications in the "rocket docket" issue within 6 months on average.

Appealing BPAI Rejections: Part I

My keen research assistant Patrick Barnacle pulled up records on 56 ex parte patent appeals that have been decided by the Court of Appeals for the Federal Circuit since March 2005. All of these cases arise from rejections sustained by the USPTO's internal Board of Patent Appeals and Interferences (BPAI). We are working to create a more complete database. In the meantime, I wanted to report some preliminary results on timing.

The median ex parte appeal took just over fifteen months to complete as measured from the date of the BPAI decision until the date of the Federal Circuit decision. As measured from the filing of the CAFC Notice of Appeal, the median appeal took exactly one year (365 days). Some appeals took longer: Comiskey, Ferguson, and Bilski each took more than two years from the NOA, but they were all tied to en banc decisions. About 25% of the appeals took less than ten months from the NOA.

Once oral arguments (if any) are complete, the Federal Circuit is rather quick at issuing an opinion. The median decision was issued 47 days after the oral arguments. (Again, a skewed average of 86 days is driven by the handful of en banc decisions) 30% of the decisions came within one week of oral arguments - most of those took one to two days.

We have not yet analyzed the correlation between delay and results, but it appears that especially quick decisions tend to favor the PTO over the applicant. As you might expect, delays in judgment correlate with longer opinions; opinions marked precedential; dissenting opinions; and opinions with Judge Newman on the panel.

Survey: Swearing behind prior art

Take the survey on a separate page Here.

Take the survey on a separate page Here.

BPAI Statistics: How Many Opinions do BPAI Judges Write?

As a follow-up to an earlier post on BPAI decisions; appeal efficiency and potentially over-worked Administrative Patent Judges, I took a look at BPAI decisions from January and February 2009. According to BPAI's statistics, the BPAI disposed of 993 ex parte appeals during that two month period. Based on the PTO's FY2009 numbers, about 9% of those disposals were either remands or dismissals without a decision on the merits. The examiner's rejection was affirmed in 55% of the cases; Affirmed-in-part in 14% of the cases; and reversed in 23% of the cases.

776 of the Jan-Feb 2009 ex parte decisions show-up in the Westlaw database. Those 776 decisions were authored by 78 different Administrative Patent Judges. During the two month period, four judges penned more than 25 opinions, although the average is closer to 10 opinions. (If we assume that Westlaw includes 80% of the opinions, then the average jumps to 12 opinions in the two months – or six opinions per month). On an annualized basis this extrapolates to authoring an average of 72 opinions per year. Of course, this average includes opinions by BPAI administration who regularly write only a small handful of decisions. Excluding those individuals pushes the extrapolated average to about 75 opinions per year for each BPAI Judge handling ex parte cases.

These numbers are comparable to the Court of Appeals for the Federal Circuit. Each of the twelve Federal Circuit judges (not counting Senior Judges) wrote about 28 majority opinions in 2008. In addition, each Federal Circuit judge participated in over 400 cases (most of which were decided without opinion). Thus, while the BPAI judges write more opinions, the Federal CIrcuit judges actually decide more cases.

Notes:

• The lower number of cases found in Westlaw is due – in part – to the fact that many of the cases being appealed are unpublished. In those cases, the BPAI decisions are kept secret. In addition, for some reason, Westlaw is not picking up all of the released BPAI decisions. Still, the Westlaw format is easier to use than the BPAI PDF.

Patently-O Bits and Bytes

• Tom Bakos and Mark Nowotarski have posted their own inventions on the Peer-to-Patent site. You can review them and add prior art: Invention 1, a Risk Assessment Company; Invention 2, SoberTeen Driving Insurance
• I am expecting an announcement of the next PTO director on Friday (May 8). Jim Pooley is being nominated as deputy director of WIPO and is apparently out of the running for the job of PTO director. The two leading candidates thus appear to be Todd Dickinson and David Kappos.
• If Kappos is nominated, the Peer-to-Patent system (originally funded by IBM) will receive a boost.
• Speaking of WIPO, the US has proposed "comprehensive" PCT Reform "which would result in the establishment of a new Patent Cooperation Treaty, PCT II. The new treaty would serve to better facilitate workload sharing between the patent offices.
• I just looked at Prof. Margo Bagley new article on First-to-Invent published in the Berkeley Technology Law Journal. Her conclusions: "The US First-to-Invent system may be unique in the world but it offers significant benefits to small entity entrepreneurs and others." Bagley sees these benefits as primarily coming through the "robust grace period." When should FITF be adopted? "Only when such a move will provide a clear advantage for small entities by facilitating the adoption of a one-year grace period outside of the US." See The Need for Speed (and Grace).
• Bagley's short article is well received. My one quibble is that she perpetuates the idea that a desire to end interferences is a major motivation in the debate. She says "Eliminating interferences and the uncertainty associated with them appears to be a prime motivation for the FITF legislation." Lets be clear, in the US, proponents of the first to file legislation want to make it easier to invalidate patents by creating more prior art.

Holman: A Contrarian Law Professor’s Two Cents on the Arkansas Carpenter's (Ciprofloxacin) Petition for Certiorari

By Christopher M. Holman, Ph.D., J.D., Associate Professor at UMKC Law School

Professor Mark Lemley recently filed an amici curiae brief on behalf of himself and a cohort of prominent professors of law, economics, and business in support of a petition for certiorari in Arkansas Carpenter's Health and Welfare Fund v. Bayer (the "Professors’ Brief").[1] Joining the professors as amici on the brief are the American Antitrust Institute, the Public Patent Foundation, and AARP. These professors and organizations are asking the Supreme Court to review and reverse the Federal Circuit's decision in In re Ciprofloxacin Hydrochloride Antitrust Litigation.[2] Arkansas Carpenter's is the latest in a string of certiorari petitions that have been filed in cases involving an unsuccessful antitrust challenge to a so-called “reverse payments settlement” between a drug patent owner and a potential generic competitor. So far the Supreme Court has denied all of the petitions.

The defining characteristic of a reverse payments settlement is the transfer of some form of consideration, often but not always cash, from the patent owner to the alleged infringer. In most settlements of patent infringement suits any payment typically flows from the alleged infringer to the patent owner, i.e., in the "forward" direction. Reverse payment settlements of challenges brought against prescription drug patents under the Hatch-Waxman Act have been controversial for years. The FTC and others charge that these agreements are anti-competitive and result in substantially higher prescription drug prices for consumers (and ultimately third-party payers such as the government). The atypical direction of the payment is considered suspect by many who view it as evidence that the merits of the patent case must be weak, and argue that the branded drug company is in effect paying the generic company to stay off the market and using the patent as a mere pretense to skirt antitrust liability. Clearly, absent the patent a naked agreement by a generic drug company to stay off the market in exchange for cash would constitute an antitrust violation.

Nonetheless, courts who have considered the legality of reverse payment settlements have repeatedly concluded that, in view of the incentives and dynamics created by the unique structure of a patent infringement suits brought under the Hatch-Waxman Act, it is neither surprising nor particularly suspicious to find payments flowing from the patent owner to the alleged infringer in the settlement of these suits. In fact, even the FTC has acknowledged that at least some reverse payment settlements are legitimate and even pro-competitive. In most patent infringement litigations, the alleged infringer faces the prospect of potentially large money damages based on its past infringement, so there is often an incentive to pay the patent owner to settle the lawsuit and avoid this risk. In contrast, Hatch-Waxman litigation generally occurs before the potentially infringing generic drug goes on the market. The generic drug company typically faces no risk of money damages for past infringement. At the same time, the drug patent owner faces huge potential financial losses if even one court finds its patent invalid or not infringed, and given the uncertainty patent litigation, particularly at the district court level, it is not surprising that some patent owners would be willing to pay to settle the lawsuit and resolve the uncertainty.

The Professor's Brief is essentially an updated version of a brief Professor Lemley filed in 2006 in support of a petition for certiorari in In re Tamoxifen, a reverse payment settlement antitrust challenge arising out of the Second Circuit. In 2006, I seriously considered signing on to his Tamoxifen amici brief; without having delved into the issue, the notion of reverse payments settlements as characterized by Professor Lemley and others struck me as suspicious and anti-competitive . After all, why would a patent owner pay an alleged infringer to settle a lawsuit unless the merits of the patent case were weak? Under these circumstances, is it not logical to infer that the parties are using the patent lawsuit as a mere pretense to provide cover for what is in actuality an agreement between potential competitors not to compete? However, before I signed on to the brief I decided to read the Second Circuit'sTamoxifen decision, as well as the reverse payments settlement decisions that had already been issued by the Sixth and Eleventh circuits. In his brief, Professor Lemley argued that the decisions from these other circuits were in conflict with the Second Circuit's decision in Tamoxifen. After reading the cases, I found that I disagreed with Professor Lemley's interpretation of the decisions, and concluded that in fact there is no split between the circuits. In fact, the decisions by the Second, Sixth and Eleventh circuits (and now the Federal Circuit) are all quite consistent, taking into account that each case involves its own unique settlement agreements and other surrounding facts, and that the decisions necessarily reflect the facts of the individual case being decided.

Reading these decisions sparked my curiosity, particularly since my interpretation of the case law diverged substantially from that of Lemley and many other academic commentators. I decided to research the topic, and in 2007 I published an article entitled “Do Reverse Payments Settlements Violate the Antitrust Laws?”[3] In the article, I survey the diverse array of patent settlements that have been lumped together under the imprecise label "reverse payment settlement,” and explain the factors that motivate the structure of these settlements. After reviewing the facts surrounding specific settlement agreements, and considering the well reasoned explanations of various judges who have rejected the notion that the mere presence of a reverse payment can render an otherwise legitimate patent settlement illegal, I came to disagree with the position propagated by the FTC and academics such as Professor Lemley, i.e., that the mere inclusion of a reverse payment in an otherwise legal patent litigation settlement renders the agreement per se or presumptively in violation of the antitrust laws. Moreover, my view is aligned with that of the vast majority of courts that have addressed the issue. After a close reading of the decisions, it is clear to me that the purported split between the circuits has so far failed to materialize, although the situation could change if and when other circuits weigh in on the issue.

In this short article penned for Patently-O, I will challenge some of the specific assertions made in the Professors’ Brief. For simplicity, many of the citations in this article are to my law review article. Those interested in a more expansive treatment of the subject are encouraged to consult the law review article, which includes primary cites to the cases and other authorities.

Design Patents: Sailing Through the PTO Part II

In an earlier article, I noted that only 25.6% of recently issued design patents received at least one rejection during prosecution. I wanted to develop a better understanding of the reasons for rejections, I filtered for recently issued patents that had been initially rejected during process and then pulled-up their file histories using PAIR. For this study, I looked the first non-final rejection of only 86 file wrappers, but even that small number of cases showed a dramatic result.

In my sample, the first non-final rejection came in some combination of six basic forms: anticipation; obviousness; lack of enablement or written description; indefiniteness; new matter; and double patenting.

The surprising results are that only 3.5% (3 of 86) of the rejections were prior art related rejections. In three of the cases, the examiner rejected the pending application as obvious in light of the prior art, and in one of those cases the examiner also asserted that the claimed design was anticipated by the prior art. In the remaining 83 cases, the examiner conducted prior art searches but indicated that the claimed design was patentable over the art. Combining probabilities: My data indicates that fewer than 1% of recently issued design patents ever received a novelty or anticipation rejection. (At 99%CI, this may go as high as 2.5%). In other words, design patent applications sail through the PTO.

Although design patent prosecution does not have much focus on inventiveness, examiners are keen to ensure that the scope of the patent claim (via the drawings) is well defined. The most common rejection in my sample was based on confusion created by the drawings. In a design patent application the drawings represent the majority of the specification and also define the claim scope. Thus, it makes sense that confusing or inconsistent drawings would lead to rejection based on both the first and second paragraph of 35 USC 112. In my sample, 79.1% of the rejections (68 of 86) raised a combination of both lacking enablement/description and indefiniteness.

16.2% of the rejections (14 of 86) included an obviousness-type double patenting rejection against an applicant's own previously-filed application. Those rejections are curably through a terminal disclaimer. However, some applicants prefer to argue over the rejection and save patent term. Finally, 3.5% (3 of 86) of rejections focused on new matter added during prosecution. Often, the new matter was allegedly added when the applicant submitted pen and ink drawings to substitute for photographs found in the original.

A Registration System: My data indicates that our design patent system is approaching a registration system. But, there is no problem with a system of design registration - especially if design patents continue to be narrowly construed. Europe's design registration is working well as are the US systems of trademark and copyright registration. In the US, most property rights are registered or recorded rather than thoroughly examined, and those lower-cost mechanisms should probably be the default unless we have some reason to believe that thorough examination is necessary.

Notes:

• See, Dennis Crouch, Design Patents: Sailing Through the PTO, Patently-O (April 2, 2009).
• My samples of recently issued design patents consists of design patents issued Feb-April 2009.
• As I mentioned in the earlier post, these numbers are a bit skewed because the file histories of abandoned design patent applications are kept secret by the PTO unless used as a priority document. Just under 20% of design patent applications are abandoned during prosecution, and I suspect that a greater percentage of those are rejected during prosecution. This consideration would thus skew the results for someone considering the likelihood that a pending design patent application will be rejected.
• In an upcoming paper (not yet available) I note that design patents are often used as substitutes for trade-dress protection, but that the overlapping of regimes does not create significant problems.

Challenging the Strong Presumption of Patent Validity

One of the next major legal challenges to patent rights will be against the strong presumption of validity associated with the patent grant. Section 282 of the patent act says only that a patent and its claims "shall be presumed valid." Under longstanding doctrine, this presumption can only be overcome with clear and convincing evidence of invalidity. The challenge to this presumption is most likely on two fronts: (1) expanded post-grant review and (2) court challenges to the weight of the presumption.

Expanded Post Grant Review: The PTO uses the lower preponderance (more likely than not) standard when refusing to grant patent rights, and expanded post-grant oppositions will likely allow would-be defendants to challenge patents at the lower standard.

Challenging the Weight of the Presumption: The greater change would come, however, if the Supreme Court takes a case on point. Since the 1952 Supreme Court has not definitively weighed-in on the the level of proof necessary to overcome the statutory presumption of validity, and the Court's Radio Corp (1934) opinion arguably sums up the pre-unification state of the law: "The force of that presumption has found varying expression in this and other courts." Of course, the unified Federal Circuit cleared the air by firmly establishing the clear and convincing standard as the standard. In a 2004 article, Mark Janis reviews the history of the presumption - finding that the clear and convincing standard was already the majority rule prior to unification, but that the Federal Circuit made the standard "meaningful once again." His message: "there is no strict, inevitable correlation between the words of the evidentiary standard and the overlying message delivered by the presumption of validity."

More recently, in KSR the Supreme Court all but suggested one potential petition question: "whether the failure to disclose [relevant prior art] during prosecution ... voids the presumption of validity given to issued patents." A more likely focus may be on reducing strength of the presumption over prior art that was not considered during prosecution.

Question: How would patent practice change if the strong presumption of validity was only applicable over prior art actually considered during prosecution?

Notes:

• I do not believe that the presumption of validity should be reduced. However, I wrote this post to let folks know that it is on the horizon and that a change is somewhat likely during the life of any currently pending patent application.
• Mark Janis, Reforming Patent Validity Litigation: The "Dubious Preponderance", 19 Berkeley Tech. L.J. 923 (2004).
• This post was prompted by an e-mail amongst IP law professors with special input from Mark Lemley, Arti Rai, David Hricik, Howard Skaist, Josh Sarnoff and Tom Field. See also Mark A. Lemley and Douglas Lichtman, Rethinking Patent Law's Presumption of Validity, 60 Stanford Law Review 45 (2007)(suggesting gold-plated patents).

In re Ferguson (Answers to Frequently Asked Questions FAQ)

Scott Harris is the attorney who prosecuted, briefed, and argued in re Ferguson at the Federal Circuit. Harris is a former Fish & Richardson partner and is now in solo practice. He is also listed as a co-inventor on the patent application in dispute here as well as 40 other patents and 100+ pending applications. I asked him to provide his perspective on the case. In response, Harris provided the following FAQ.

What is Ferguson’s holding?

In order for a claim to be patentable under 35 USC 101, that claim must recite either a machine, or recite something that is tied to a machine; or the claim must transform some physical thing. The machine or the physical thing being transformed cannot be a paradigm, cannot be a corporation, and cannot be a legal obligation. 35 USC 101 requires that you must be able to “touch” the machine or the thing being transformed.

How does Ferguson differ from Bilski?

The patent application of In re Bilski, 545, F.3d 943 (Fed Cir 2008) related to an improved mathematical way in which hedged commodities were analyzed and managed. Like many of the previous “preemption” cases that had been decided by the Supreme Court and by the Federal Circuit, Bilski’s claims recited a mathematical algorithm. The Federal Circuit holding announced a new test – requiring the claim combination to be either tied to a “machine” (e.g. a computer) , or claiming a transformation of an object. Since there was no “machine” or “transformation”, the court concluded that Bilski’s claims would “preempt” one specific mathematical form of hedging, effectively stopping anyone else from using these mathematical formulas in the same way. The machine/transformation cannot be peripheral to the claim – which means that the machine or transformation cannot be related to data gathering or “mere” post solution activity.

Unlike the “preemption” cases relied on by the Bilski court, Ferguson had no mathematical calculation at all. The Federal Circuit chose to extend the Bilski test beyond the confines of “preemption” to defeat patentability of Ferguson’s pure business method. Ferguson holds that Bilski’s “machine or transformation” test is the sole and exclusive test for determining patentable subject matter, with or without a mathematical calculation.

Ferguson also held

- that the machine prong of the Bilski test must be a physical thing that one must be able to touch, and

- that the “article” to be changed into a different state or thing cannot be a legal obligation – and presumably likewise must be something that can be touched.

What was the Ferguson patent application about?

In a nutshell – software written by the little guy that was marketed and supported as though it had been written by the big guy. We believed that institutions would simply refuse to adopt or purchase any software unless it was supported by a credible company. Someone in their basement could write the best word processor or drawing program ever – but no one would ever know, because few would ever adopt it.

The patent application claimed a way to support a very small software developer or writer - who had the skills to write the software, but did not have the skills or resources to market and support the software. Ferguson claimed a shared marketing force that took a share of the income or profit from the software in return for doing this marketing and support.   

Why did you write claims to a “paradigm”?

In 1999, new forms of patents and claims were erupting. The patent office had decided to accept as statutory Beauregard claims, which recited a sequence of instructions on a readable computer media. I was excited by the prospect of writing a whole new claim form for the business method genre.

I had originally filed Ferguson’s patent application with many claims reciting a “paradigm”, a way in which a business organization would carry out a specific business task. Other claims defined a process of doing that business task. Ferguson was about selling computer software, and that was not something that would normally be carried out on a computer.   

Based on everything I knew at that time, business methods should be patentable. I wanted to see if we could get the patent office to accept a wholly new form of claim adapted to the business method. I called this a paradigm, which Kuhn, in The Structure of Scientific Revolutions defined as “an accepted model or pattern, . . . Paradigms gain their status because they are more successful than their competitors in solving a few problems that the group of practitioners has come to recognize as acute.” A paradigm in this sense, therefore, referred to the successful way in which a problem is solved.

Why did you think you get claims like this?

I believed the Supreme Court when they said that 35 USC §101 allows you to patent “anything under the sun that is made by man". Diamond v Chakrabarty, 447 US 303, 308 (1980).

I believed the Federal Circuit, when they said that "business methods" were patentable. State Street Bank and Trust v Signature Financial Group Inc., 149 F.3d 1368 (Fed Cir 1998).

I did not believe there was any prior art defeating patentability, and indeed, the patent office never found any.

Are Business Methods still patentable after Bilski/Ferguson?

Bilski expressly did not overrule the part of State Street Bank and Trust v Signature Financial Group Inc., 149 F.3d 1368 (Fed Cir 1998), which held that business methods were NOT per se unpatentable.

However, I define a business method as a novel and unobvious way that a business carries out a new business function.

The holdings in Bilski and Ferguson make any such business method unpatentable, unless tied to a machine, or operated to transform a physical object. Therefore, some ways of carrying out the business method may be patentable under Bilski / Ferguson. I do not believe any pure business method could be patented under the holdings of Bilski/Ferguson.

What’s your take away from Ferguson?

Disclose (and claim) interaction with a computer in every patent application that is not a pure mechanical device.

Don’t get your hopes up about the patent office accepting an innovative claim form.

Economic Downturn => Downturn in Patent Filings

PTO Director John Doll was kind enough to provide me with updated numbers on patent filings through March 17, 2009. The PTO's numbers tell the story that original utility application filings and continuation application filings have slowed in FY 2009 while requests for continued examination (RCE's) filings continue to rise. The Office is now faced with a serious financial crisis. Original filings (i.e., revenues) are down to FY 2004 - 2005 levels but the budget and backlog are both at all time highs. Although I the numbers are still being compiled, two of the PTO's other primary sources of revenue - maintenance fees and late fees - are also down this fiscal year.

The first chart below shows a time series for the percentage of continuation applications and RCE filings as compared to the total UPR filings (Utility, Plant, and Re-Issue applications). Remember here, that for most PTO statistics, RCE filings are counted as a utility application. According to this data, 27.6% of all of the UPR filings thus far in FY09 are RCEs - continuing a steady trend of of rising RCE filings. (Note - the RCE data also includes historical data for CPA and R129 filings).

For the next chart, I extrapolated the partial FY 09 data to the entire fiscal year to find some expectation of the total filings for the year. I also removed the RCE/CPA data because most practitioners would not consider those as separate applications. As mentioned above, both the original and continuation filings are down to around FY 04 levels. As compared to FY 08, original filings are on track to drop about 10% while continuations will likely be down over 20%. The large drop in continuation filing is likely an artifact due to the large number of continuations filed at the beginning of FY 08 in anticipation of the looming limits on continuation practice.

In the title of this post, I link the economic downturn with the downturn in patent filings. Some may also link the drop in patent filings with other recent events that may drop the allure of a patent application - namely, KSR v. Teleflex; eBay v. MercExchange; Bilski; Seagate; the prospect of further patent reform; the Second Pair of Eyes review; 750,000 backlog of unexamined patents; and the 26 month average pendency before the first OA.
> Although not in the title of the graph, the numbers do include plant patent filings which have hovered around 1,000 per year.
Of course, other factors may also

Tags: backlog, uspto

Percentage of Patents that were Initially Rejected

This relates to my statements regarding the percentage of applications that receive at least an initial rejection. The graph below shows the percentage of patents issued (2000-2006) that were initially rejected by the PTO broken up into groups of art-units. Thus AU 1630 group actually includes AU 1630 - 1639. Close to 95% of the patents issued through the AU 1630 group during that period were initially rejected before being eventually allowed.

As with the design patent discussion yesterday, the rejection rate above is for applications that eventually issue as patents. For any given application, the effective rejection rate was likely higher because abandoned applications are probably more likely to have been rejected.

This data is now getting a bit old - but it is what it is. This data came from public PAIR before researchers were blocked from accessing it in any substantial way. Since 2006, applicants have complained of increased rejections. My perception that this change is not a shift toward more first office action rejections, but rather a shift toward sustaining more of those rejections in the second and subsequent office actions.

Design Patents: Sailing Through the PTO

Over eighty percent of utility patent applications are initially rejected during prosecution. Some areas of technology – such as semiconductors – have a lower rejection rate while others – such as electronic commerce methods – have an even higher rejection rate.

I wanted to compare the result for utility patents with design patents. I pulled up information on 1000 of the most recently issued design patents (all issued in March, 2009) and parsed through the file histories to see how design patent prosecution compares. As the graph below shows, in my sample, only 25.6% of the recently issued patents received an initial rejection during prosecution. To be clear, this 25% rejection rate is for applications that eventually issue as patents. To get an overall picture of design patent rejections, we need to also consider the applications that are abandoned and never issue as patents. Recent PTO statistics show that a bit under 20% of design patent applications are abandoned. Because design patent file histories are kept secret unless a patent issues, we cannot know why any individual case is abandoned – However, the two most likely situations are that the applicant (a) failed to respond to a rejection or (b) failed to pay the issue fee. Even if we assume that 100% of the abandoned cases are initially rejected, that only pushes the initial rejection rate to about 40%.

As the graph below shows, of the 1000 issued design patents in my sample, only 4.1% received a final rejection during prosecution; and only 0.2% cases (2 out of 1000) included a notice of appeal. None of the 1000 cases included an appeal brief.

The design patents in the study had an average pendency of 15.3 months calculated by finding the number of months between the filing date and the issue date. As may be expected, applications that included at least one rejection took considerably longer to issue (21.5 months) as compared to those that were never rejected (13.2 months). (These means are different at 99.9 CI).

Most design patents (58%) in my sample have only one inventor. However, 69% of the inventors are listed as joint inventors. A number of the muliti-inventor patents included trans-national inventorship with inventors originating from two or more separate countries. About 1% of the applications listed at least one inventor from the US & Great Britain. Another 1% listed at least one inventor from both the US and China.

Supreme Court Asked to Expand Defenses to Patent Infringement

IGT v. Aristocrat Tech of Australia (on petition for certiorari)

Every year, the PTO revives hundreds of unintentionally abandoned patent applications, and about half of those eventually issue as patents (not counting continuations and other descendants).

In the IGT case, the gaming-manufacturer was sued for allegedly infringing two of Aristrocrat's slot-machine patents. The first patent stemmed from an Australian provisional application that was followed by an international PCT filing. At the national stage in the US, the applicant missed the filing deadline but was able to convince the PTO to revive the application as unintentionally abandoned. The second patent is a continuation from the first.

In court, IGT has argued the revival was improper and thus, that the patents are invalid. IGT reasoned (and the district court agreed) that the revival was improper because the PTO lacked authority to revive national stage applications that were unintentionally filed late. Rather, the statute arguably only allows revival of applications upon proof that the tardiness was unavoidable.

Without determining the proper scope of the PTO's revival authority, the Federal Circuit rejected IGT's argument - holding that improper revival is not a "cognizable defense" to patent infringement and reminding defendants that a patent is not invalid simply because the PTO erred in issuing the patent.

Enumerated Defenses in Litigation: Section 282 of the Patent Act defines the defenses available against charges of patent infringement. These enumerated defenses include:

1. Noninfringement …,
2. Invalidity of the patent or any claim in suit on any ground specified in part II of this title as a condition for patentability,
3. Invalidity of the patent or any claim in suit for failure to comply with any requirement of sections 112 or 251 of this title.
4. Any other fact or act made a defense by this title.

In its analysis, the Federal Circuit found that improper revival did not fall within any of the four categories of defenses - and thus cannot be raised as a litigation defense. The case implicitly calls into question other traditional defenses such as nonstatutory double patenting, improper inventorship. IGT argues that the decision also implies that a defendant could not challenge a patent based on its expiration due to failure to pay maintenance fees. Of course, a defendant should have some mechanism for challenging an improperly revived patent - either through the courts or a post-grant procedure at the PTO. Under the Federal Circuit's rule, however, a typical defendant would have no recourse. (Two potential avenues could be (1) inequitable conduct in the revival and (2) trigger an interference.)

Leaving the PTO's revival grant's unchallengeable is particularly troublesome because of the serious lack of transparency in the petitions office. Pre-grant revivals are tucked away in individual prosecution file wrappers and cannot be searched in any public database. Thus, the public is left without any check on the system at either the micro or macro level.

Petition for Certiorari: IGT has petitioned the Supreme Court for a writ of certiorari and has garnered the support of the group of usual defendants (Cisco, Dell, Google, Microsoft, etc.) with the simple question:

Whether a patent infringement defendant may assert as a defense the fact that the patent resulted from an abandoned application that was not revived according to the requirements prescribed by Congress.

In several ways, this cases parallels the other recent Supreme Court patent cases such as KSR, eBay, and MedImmune. At least as history tells the story, each of those cases began with a rigid rule created by the Federal Circuit to favor patent holders. In each case, the Supreme Court softened the rule to add flexibility in a way that favors the defendants. In KSR, the rigid TSM test for applying multiple references during obviousness analysis was relaxed. In eBay, the rule strongly favoring injunctive relief was relaxed. And, in MedImmune, the rule setting a reasonable apprehension of a lawsuit as a condition precedent to a declaratory judgment action was also relaxed. In the IGT case at hand, the Supreme Court has the opportunity to tear down another rigid application of the law and open a new avenue for defendants to challenge a patent holder's rights.

Invalidity of the patent or any claim: Although slightly off-topic, I am intrigued by the wording of Section 282, which creates the defense of "invalidity of the patent or any claim." (Emphasis added). Ordinary validity issues focus on individual claims. Is the claim anticipated or obvious? Is the claim definite, fully described, and enabled, and does it properly claim patentable subject matter? The general focus on the validity of claims begs the question of what we mean by "invalidity of the patent." IGT's theory of invalidity based on improper revival is bolstered here because it would breathe meaning into the statutory invalid "patent."

Aristocrat's opposition and any amici in opposition are due April 22.

Briefs:

• IGTSupremeCt.pdf
• IGTamicus.pdf

Related Posts:

• Dennis Crouch, Erroneous Revival by PTO is not a Cognizable Defense in an Infringement Action, Patently-O (Sept. 22, 2008)
• Dennis Crouch, CAFC to Decide Important Revival Case: Aristocrat v. IGT, Patently-O (Dec. 12, 2007)
• Dennis Crouch, No Revival For "Unintentional" Missed National Stage Filing Date (Delay Must Be Unavoidable), Patently-O (Jul. 26, 2007)
• Dennis Crouch, Reviving Unintentionally Abandoned Patent Applications, Patently-O (Feb. 26, 2008)
• Dennis Crouch, IGT Petitions for En Banc Rehearing: Asking Court to Allow Invalidity Defense for “Improper Revival”, Patently-O (Oct. 7, 2008)
• Dennis Crouch, Reinstating Patents After Failure to Pay Maintenance Fee, Patently-O (Feb. 26, 2009)
• I mentioned above that improper revival could be challenged in the course of an interference. Chico Gholz pointed me to his 2009 IP Today article addressing the issue: Aristocrat V. IGT: Another Reason Why Provoking An Interference May Be Preferable To Defending An Infringement Action. Of course, as one comment already indicates, interferences are severely time-limited.
  

Best Practices for Trade Secret Protection

I recently attended a conference of senior corporate patent counsel. Much of the discussion focused on cost savings in a tight economy. In patent prosecution, this process has been going on for years by limiting prosecution fees and filing abroad only on important cases. Part of the discussion focused on short-term mechanisms to push off cost - such as using provisional and timing PCT applications.

New Focus on Trade Secrets: One alternative suggested is increased reliance on trade secret. Trade secrets are relatively much cheaper than patents. Trade secret protection is automatic so long as sufficient steps are taken to keep the secret and the secret is economically valuable. Patent filings are dropping and many companies are taking a harder look at trade secret law as a mechanism to at least temporarily protect rights.

The public benefit of public disclosure is often touted when comparing patents with trade secrets. Patents require public disclosure with the aim of promoting the flow of ideas and information. Trade secret laws prohibit disclosure.

The private benefit of private disclosure: Anyone who has practiced trade secret law intuitively knows that patents naturally create additional information benefits that I call "private disclosure." I note two of these benefits below: The benefit of defining rights

Value of Defining Rights: Despite serious problems with claim scope unpredictability, patents do a good job of explicitly stating the rights being claimed. Defined rights can be sold, traded, and accounted-for both externally and within the company. And, patent law facilitates a process for looking at by-product innovations to consider whether they should be pursued. These benefits flow from Coase's work on property rights. Although trade secrets can also be well defined, trade secret law does not require explicit pre-identification nor does it provide such a mechanism. Rather, in most cases, a company's knowledge about its own trade secret information is left nebulous and largely undefined.

Employee Relations: The patent system also creates a nice mechanism for managing employee relations. Inventors typically have a duty to assign all their work-related inventions to their employer. However, that duty is crystalized when the inventor files an oath and an assignment of rights. Often, the inventor gets a cash bonus at that point as well. Although the inventor already had a duty to assign, the actual assignment is important psychologically - to ensure that all the parties agree who owns what. Typical trade secret practice does not involve any explicit acknowledgment of the trade secret nature of particular innovations and information. Some companies attempt an end-of-employment statement that This is important because most trade-secret practice involves former employees using inside knowledge to benefit a competitor.

Best Practices for Trade Secret Law: Most companies have invention disclosure programs, but few of them link those disclosures to trade secret practice. Notably, when a company decides not to pursue patent protection, a process of assignment (and possible small bonus) should still be followed to ensure that the creator understands that the innovation belongs to the company and is not being given to the public. Likewise, companies may consider implementing broader innovation identification programs that encompass both patentable inventions and trade secret information.

Notes:

• One query: In the US, trade secret law is state specific - although most jurisdictions follow the Uniform Trade Secret Act. Do any jurisdictions have a "working" requirement for trade secret? Take the situation where a company employee creates a new product, but the company decides not to pursue the product and it just sits in the file cabinet?
• China: In the US, the commercialization of trade secrets will block the user from later obtaining a patent on the otherwise secret information. A Foley & Lardner report by Sharon Barner and Hal Wegner indicates that under Chinese law, there commercialized trade secrets may still be patented. Is this true in other FTF countries?

Inequitable Conduct: Trends at the Federal Circuit

In Larson Mfg, Judge Linn revived the call to rebuild the ramparts protecting patent applicants against charges of inequitable conduct. For some sense of history, I used Westlaw to pull-up the past twenty-five years of Federal Circuit decisions and counted the number of decisions that at least mention "inequitable conduct." The result is a clear increase in the number of decisions discussing inequitable conduct. Although the absolute number of Federal Circuit patent decisions has also risen somewhat, the growth rate of IC decisions greater.

The graph below shows the number of Federal Circuit decisions that at least mention "inequitable conduct" for each year 1984-2008.

2009 may buck the trend. As of March 19, 2009, only two decisions mentioned inequitable conduct (Larson Mfg., and Rothman). At that rate, we might project only nine or ten decisions for the entire year.

I use the 'mention' of inequitable conduct here because the stated 'plague' primarily focuses on the allegations of inequitable conduct. The mere allegations of inequitable conduct are certainly harmful to the patentee. However - more than that - they are harmful to the profession and to the patent system as a whole by continually suggesting that patent attorneys and patent agents are facilitating fraudulent activities.

Rooklidge: Patent Reform Damages Provision Violates Seventh Amendment

The following post is by Bill Rooklidge. Rooklidge is a patent litigator and former head of the AIPLA. He clerked at the Federal Circuit in the early 1980's.

Richard Cauley’s March 14, 2009 guest post accurately characterized the damages reform provision of the Patent Reform Act of 2009 as “a judicial nightmare” because of its procedural complications, attendant delay and reversal potential. Two additional problems with that provision merit note: it perpetuates prior art subtraction and introduces into jury trial multiple potential violations of the Seventh Amendment.

Fact-finding and the Seventh Amendment. The Supreme Court coined the term “gatekeeper” in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), to describe the trial court’s obligation to “ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.” In addition to rulings on Daubert motions, courts also fulfill their gatekeeper role by ruling on motions for summary judgment and judgment as a matter of law, motions in limine, evidentiary objections, and jury instructions. The bills’ damages section would enhance the courts’ gatekeeper role, but in doing so unconstitutionally invade the jury’s province as fact finder.

The bills would add to 35 U.S.C. §284 paragraph (c)(1), which would require the court to select from three methods for calculating a reasonable royalty “based on the facts of the case and after adducing any further evidence the court deems necessary.” A procedural rule requiring the court to weigh evidence to select from alternate theories would be void for depriving the patentee of its right to jury trial. See Fidelity & Deposit Co. of Maryland v. United States, 187 U.S. 315, 320 (1902). A genuine issue of material fact, that is, a dispute over facts that might affect the outcome, requires the issue to go to the jury. See generally Anderson v. Liberty Lobby, 477 U.S. 242 (1986). Similarly, the trial court’s exclusion of the entire market value rule under paragraph (c)(1)(A) for the patentee’s failure to make “a showing to the satisfaction of the court,” would violate the Seventh Amendment in a jury trial in which the patentee presents enough evidence to create a genuine issue of material fact. See Minks v. Polaris Indus., Inc., 546 F.3d 1364, 1372 (Fed. Cir. 2008) (vacating because trial “court necessarily engaged in an independent review of the evidence and substituted its conclusion for that of the jury on the factual issue of compensatory damages”).

The first section of the bills’ section (c)(1)(B) authorizes trial courts to exclude the patentee’s prior licenses for failure to make a “showing to the satisfaction of the court” of three facts regarding the claimant’s other licenses:

“the claimed invention has been the subject of a nonexclusive license for the use made by the invention by the infringer”;

the licenses have been extended “to a number of persons sufficient to indicate a generally marketplace recognition of the reasonableness of the licensing terms”; and

“the license was secured prior to the filing of the case before the court.”

The court also must determine whether the infringer’s use is “of substantially the same scope, volume, and benefit of the rights granted under such license. The second sentence of paragraph (c)(1)(B) requires a similar procedure for noninfringing substitutes for the infringing product or process. And paragraph (c)(1)(C) likewise requires the court to “conduct an analysis to ensure that a reasonable royalty is applied only the portion of the economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art.” A court making these findings would invade the province of the jury where the patentee presents substantial evidence on these issues.

Prior Art Subtraction. Section (c)(1)(A)’s requirement for application of the entire market value rule that the “claimed invention’s specific contribution over the prior art” be the “predominant basis for market demand” is just the latest form of “prior art subtraction.” Use of “specific contribution over the prior art” is an attempt to separate the “gist” or “heart” of the invention from the patent claims, and would introduce the extra step of subjectively redefining the scope of a patent. The Federal Circuit long ago rejected using the “gist” or “heart” of the invention to determine obviousness, see Para-Ordnance Mfg. v. SGS Importers Int’l, Inc., 73 F.3d 1085 (Fed. Cir. 1995), and recently rejected using the “point of novelty” in design patent law. Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 678 (Fed. Cir. 2008). Stripping the prior art elements out of the claimed invention that has been examined by the USPTO, construed by the federal district court, and relied upon to determine validity and infringement, in no way approximates the “heart” or “gist” of the invention, and that inherently subjective process would be unfair to the patent owner, and would eliminate application of the entire market value to inventions consisting entirely of prior art elements, arguably the vast majority.

Paragraph (c)(1)(C) would limit the reasonable royalty base to the “economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art,” replacing apportionment with prior art subtraction. This analysis is no substitute for the sophisticated and nuanced apportionment approach available under existing case law such as Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1133-37 (S.D.N.Y. 1970). Paragraph (c)(1)(C) would address the combination invention problem by stating that for combination inventions “the contribution over the prior art may include the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements as part of the combination, if the patentee demonstrates that value.” This analysis, which finds no precedent in existing case law and lacks any readily definable economic standards, does not even begin to address the problem that subtracting the prior art elements simply does not approximate what the inventor really invented.

Replacement of “contribution over the prior art” with the “essential features” language from the Supreme Court’s recent Quanta Computer, Inc. v. LG Electronics, Inc., 128 S. Ct. 2109 (2008), would just put another label on prior art subtraction. Regardless of label, the bills’ damages provision would drastically reduce patent owners’ ability to obtain reasonable royalty damages, which could not be less fair to those, like independent inventors, research institutions and universities, that have no ability to obtain lost profits damages.

Notes

• Forward Looking Patent Damages
• Patent Reform 2009: Damages
• Patent Reform Act of 2009
• Richard Cauley’s March 14, 2009 guest post
  
• Rooklidge: Reform of a Fast-Moving Target: The Development of Patent Law Since the 2004 National Academies Report: rooklidgereform.pdf

Guest Post: Hot Topics in US Patent Reexamination

By Robert Greene Sterne. Rob Sterne is a founding director of the IP firm Sterne Kessler Goldstein & Fox. I asked him to write about current 'hot topics' in patent reexamination.

The marked increase in the use of reexamination has naturally caused more frequent and closer evaluation and scrutiny of its unique procedures by involved parties and the courts. In FY2008, according to official USPTO (PTO) statistics, 168 inter partes reexams and 680 ex parte reexams were instituted. Compare this to FY2005, where 59 inter partes reexams and 524 ex parte reexams were instituted just three years ago. In short, it is becoming one of the faster developing areas of intellectual property law and, in the words of top PTO officials, it is a true "work in progress."

Developed in conjunction with the Sedona Patent Litigation Conference and a team of my colleagues (and incorporating feedback of dozens of sources including judges, senior officials from the PTO, patent litigators, patent prosecutors, academics, bloggers, and interested members of the public), a comprehensive and neutral white paper overview of this subject matter provides an in-depth review of hot issues currently confronting parties that find themselves in the "parallel universe" of patent reexamination and concurrent litigation in the district courts and USITC. The hot topics addressed include (A) impact of PTO decisions on stock price, (B) reexamination pendency, (C) substantial new questions of patentability, (D) real party in interest, (E) duty of disclosure, (F) protective orders, (G) stay of litigation in view of reexamination, (H) appeals from the Central Reexamination Unit to the Board of Patent Appeals and Interferences, (I) the impact of reexamination on settlement, and (J) page and time limits in reexamination proceedings.

Here is a closer look at three of these topics:

• Litigation Stays: Reality or Myth – The percentage of reexams that are in the 'parallel universe' of district court or USITC patent litigation continues to climb. For example, in FY2008, 62% of current inter partes reexams and 30% of ex parte reexams were in parallel litigation. Judges have wide latitude in granting or denying stays and litigants must carefully evaluate prior stay decisions from their judge and the court they are in to effectively prognosticate how the judge will rule. Especially with respect to inter partes reexams, the grant of a stay can effectively be "game over" for the patent owner.
• Stock Fluctuation: Impact of PTO and Court Decisions on Stock Price – The practical impact of reexam on patent owners can be enormous. There are recent celebrated examples of stocks dropping 40% in hours after the release of a non-final office action rejecting claims in a suit, even though this development is not controlling on a court case because the reexam is not final. Third party requestors engage in litigation in the press by issuing inflammatory press releases that spin the truth. Patent owners need to be prepared for this media battle to protect their stock price. Moreover, the PTO mails decisions to parties in the reexam, putting the patent owner at a real disadvantage in dealing with the potential reexam media war.
• Reexamination Pendency: So How Long Does it Take? – The stated goal of the PTO CRU is 24 months from the time the reexam is instituted to a Final CRU office action or action closing prosecution. By statute, the CRU must handle reexams with “special dispatch.” However, there are no definitive statistics on how long it takes for a reexam to be handled to completion by the CRU and then through appeal at the BPAI. Our current best estimate is that it takes approximately two to four years for the CRU to complete a reexam, typically a little faster for ex parte reexams, and two to four years for the BPAI to complete a reexam appeal. Thus, the reexam process could take four to eight years before it arrives at the US Court of Appeals for the Federal Circuit on appeal. This is a significant amount of time and requires additional strategy and tactical decisions by the parties.

For additional insight into patent reexamination, download recent podcasts – "2008 Patent Reexamination Trends" (Episode #1) here and "The Parallel Universe of Patent Reexamination and Litigation" (Episode #2) here.Download the latest version of the Sedona Conference related paper referenced above here, where you can read in-depth about the full list of hot topics identified above.

Forward Looking Patent Damages

In the wake of eBay, courts and scholars have been working to figure out what to do after denying injunctive relief. A common suggestion is to award an ongoing royalty - often termed a compulsory license. In an impressive body of research stretching back to the year 1660, Lewis & Clark professor Tomás Gómez-Arostegui concludes that "federal courts lack the authority, in either law or equity, to award prospective compensation to plaintiffs for post-judgment copyright or patent infringements."

Until such time as Congress creates a new form of compulsory licensing, future-damage awards and continuing royalties can only be granted in lieu of a final injunction by consent of the parties.

In non-patent cases, such as accidental death, courts regularly calculate future damages - such as earning capacity. However, in those cases, the award is based on a past tort. In patent cases, prospective damages are based upon future infringing actions.

Looking historically, Gómez-Arostegui could not find a single instance prior to 1789 where the Chancery "awarded a continuing royalty in lieu of a final injunction in infringement cases." In cases where no injunction was granted, the court did "nothing at all" about ongoing infringement.

How does this cut:

Read the paper here.

Stays Pending Inter Partes Reexamination

In an earlier post I indicated my suprise that courts continue to “grant stays of litigation pending re-examination – especially inter partes reexaminations which tend to be incredibly slow.” In thumbing through Matthew Smith’s new book on Inter Partes Reexaminations, the following statements caught my attention and reaffirmed my conclusion that stays do not make sense here:

“A fully contested proceeding, therefore, could consume six to seven years. . . . [However t]here is as yet no reliable data available to estimate the total time of the proceeding. As of the end of 2008, the only cases with issued reexamination certificates were those in which technical mistakes were made, or in which at least one party chose not to contest the proceedings.”

The first request for inter partes reexamination was made in 2001 and still no contested inter partes reexamination has completed its course. Mr. Smith’s suggestion of “six to seven years” may well be optimistic.

Part of the Patent Reform Act of 2009 would be to take inter partes reexaminations out of the hands of the examination corps and put it under the direction of “an administrative patent judge.” Under the proposal, the PTO is given authority to spell out the actual procedures. Of course, the Board of administrative patent judges has been handling this sort of trial-in-the-first-instance for many years in the form of interference proceedings. The board already has a trial division that is ready to go. Although there are some outliers, interference proceedings are generally terminted within less than two years. For the Oct-Dec 2009 period, 13 interference proceedings were terminated with an average pendency of 9.5 months. 100% of those cases were terminated in less than two years. See 37 C.F.R 41.200(c) (“Patent interferences shall be administered such that pendency before the Board is normally no more than two years.”)

Notes:

• Matt Smith’s book is online and free (1.5 mb). Smith is a patent attorney at Foley & Lardner's DC Office.

What is a troll patent and why are they bad?

By TJ Chiang (Professor at George Mason Law School). Professor Chiang wrote the following squib after reading yet another article complaining about patent trolls.

There is much debate and controversy over the term "patent troll." Let me suggest a fairly narrow definition, but one that identifies a category of patents with distinct problems. Moreover, let me suggest that we should talk about individual patents as "troll patents," rather than entire entities as patent trolls. A troll patent is one that:

1. Is owned by someone that does not practice the invention.
2. Is infringed by, and asserted against, non-copiers exclusively or almost exclusively. By copying I mean any kind of derivation, not just slavish replication.
3. Has no licensees practicing the particular patented invention except for defendants in (2) who took licenses as settlement.
4. Is asserted against a large industry that is, based on (2), composed of non-copiers.

The problem with a patent troll—or, more accurately, the particular troll patent—that fits all four conditions above is that the troll patent does only two things. First, it gathers dust in the patent office. Second, it inflates prices on products. The patent itself contributes nothing useful to society, in so far as the people who actually make anything useful would have done it equally in the absence of the patent.

These four conditions also rule out a few non-practicing entities; or, rather, many of the patents held by these entities. University-held patents are largely not troll patents, in so far as they are often on substantial advances where the infringers copy. Individual inventors are also not always trolls. An individual inventor that licenses others to commercialize the invention is not a troll; nor where the inventor actually has something significant that gets pirated. But a patent owner who sits in wait to ambush an industry later, with a patent that does nothing otherwise except gather dust, is a troll.

One hypothetical that will surely be thrown at me is the individual inventor who tries to commercialize the invention, but fails, and then sues the industry years later. This inventor is a visionary ahead of his time who was merely unlucky. On the other hand, this inventor still contributed nothing useful to society. It is worth emphasizing the fact that, by my hypothetical, the industry produced the same technology independently, without copying anything from the patent. In the absence of copying by someone else or the commercialization of the product through the patent, I do not see the inventor as having done society much of a favor.

Guest Post: Monsanto Company’s View on Patent Reform – Protect Innovation:

David Snively is Monsanto's General Counsel. He read Google's calls for patent reform and penned the following response. Monsanto's business model relies heavily on its ability to protect its innovations through intellectual property and contract in the US and Globally. Monsanto has also been the defendant in numerous patent battles.

Dr. Alan Greenpan's keynote speech on "Markets and the Judiciary" noted that "critical to economic growth is a rule of law, particularly protection of the rights of individuals and property". His remark that for IP law, the constancy of the protection afforded under the Constitution of the United States and our fully-functioning legal system is the basis for the U.S. economy's sustaining lead – even in difficult economic times with broken markets. Our patent system is the envy of the globe and while capable of thoughtful adjustment should not be hijacked by international pirates or corporations seeking to dilute legitimate protection that breeds investment and jobs. This is why Monsanto Company, as a global leader for innovation and technology in agriculture, is joined by trade unions and countless other groups who strive to assure Greenspan's voice is not lost in the din from hedge funds, offshore interests or others seeking short term gain by weakening our great patent system.

I respectfully disagree with the recent blog post by Google's Head of Patents and General Counsel, commenting on the perceived risks from damage awards in patent cases. Monsanto has faced billion dollar damage claims as a wrongly sued patent defendant and also knows the true benefits from avoiding the encouragement of willful infringement based on a smaller party's calculated gain in the face of limited risk of a meaningful award of damages if infringement is established. With full knowledge of all these issues and our substantial alignment with Google and the information technology industry over the legitimate need to curtail patent trolls and a myriad of other concerns - we encourage thoughtful reform. Last year Congress passed without public objection Public Law 110-403 the "Prioritizing Resources and Organization for Intellectual Property Act of 2008" which was designed to significantly enhance government law enforcement resources for combating certain kinds of intellectual property (IP) theft, e.g. criminal counterfeiting and infringement of computer software. The law helps protect investments in the research, development and marketing of certain kinds of innovative American products and services. The information technology industry was rightly bothered that its intellectual property rights were being trampled on by "pirates".

But, according to the financial sector and the information technology industry it seems that too many other people have too many patents that get in the way of too much "innovation" that is being marketed by an industry that doesn't own the rights to the "innovation". Some say that innovation can't stand still while somebody does a patent search to make sure that the "innovation" that is being marketed won't infringe any of those too many patents. So the complaint is "we are getting sued too much by these innovators who are stifling our innovation". Unlike the solution for rampant copyright infringement the perverse solution for rampant patent infringement is to propose "reforms" that would both reduce incentive to invest in research, development and marketing of innovative American products and services and provided impediments for improving patent quality. Dr. Greenspan's Georgetown keynote aptly recalled the copyright situation when he quoted Stephen Breyer from the Harvard Law Review decades prior to becoming a Justice "the case for copyright…rests not upon the proven need, but rather upon the uncertainty as to what would happen if protection were removed. One may suspect the risk of harm is small, but the world without copyright is nonetheless [in the words of Hamlet] 'undiscover'd country' which 'puzzles the will,/And makes us rather bear those ills we have/Than fly to others that we know not of.'

The problems posed by the patent reform bill are many:

• It would change the calculation of damages that an infringer (pirate) would pay as compensation for trampling on patent rights, encouraging only more callous disregard of patent rights and piracy.
• It would change the venue provisions in a way that would impose a substantial burden and inconvenience on patent owners by limiting access to the judicial system, encouraging only more callous disregard of patent rights and piracy.
• "Technical" changes would weaken protection and encourage piracy via removing the estoppels provisions and expanding the prior art basis for engaging in inter partes re-examination, in effect providing a system of post grant review that will serve only to harass patent owners by effectively taking patents out or service for the duration of unlimited re-examinations, encouraging only more callous disregard of patent rights and piracy.

Transparency is critical to society today yet the patent reform bill would not require publication of all patent applications at 18 months reducing the public knowledge of prior art making it harder to avoid investment in patent-free technology and reducing the likelihood that quality patents will issue.

Thoughtful patent reform is needed. There are things to support in the House version of the patent reform bill. For example, the House bill while strangely modifying the damages calculation would authorize a study to see if such a modification is needed. Such studies are available and do not support the anecdotes that say damage awards are out of control.

Patent Reform that discourages investment in research and development and the job growth and economic stimulus that is spawned by thousands of small companies as well as large companies that rely on a robust and strong patent system is bad for America. Monsanto invests over $2M every day in research and is committed publicly to helping double food yield in corn, soy and cotton by 2030 while using 1/3 fewer natural resources and improving the lives of farmers globally. Accomplishing this task of sustainable agriculture requires a patent system and rule of law that Dr. Greenspan says has always been found in the Constitution of the United States.

Patent Reform 2009: Damages

The most contentious portion of the Patent Reform Act of 2009 is the damages provision. The current damages statute gives little guidance to a court. Damages must be "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." 35 U.S.C. §284. The Court may "increase the damages up to three times the amount found or assessed." Id. The courts have given some flesh to the rough skeleton created by these statutes. One construct is the hypothetical negotiation – asking the counterfactual question of what licensing scheme would these dueling foes have agreed to if they had actually come to a licensing agreement. The Georgia Pacific factors guide the process of deternining a reasonable royalty. In some cases, courts allow a patentee to recover lost profits.

As it turns out, the damages actually awarded in patent cases are generally thought to be much higher than negotiated license agreements.  Part of the difference stems from the reality that patent damages are awarded only on patents that are known to be valid, infringed, and enforceable, and after the risk and expense of litigation have already been taken. In ordinary license negotiations, these risks lower the potential royalty rate and – in contrast – should increased the level of compensation in post-trial damages.  There is some evidence that juries simply tend toward large damage awards.

Stacking Problem: In some technology areas – such as electronics – this creates a potential problem known as royalty stacking. Most electronics products are covered by multiple patents – often dozens of patents. CDMA2000 communication standard, for instance, reportedly invringes at least 924 patents. [LINK] When each patentee is awarded a 5% royalty, it does not take long before the entire revenue is taken just to pay for intellectual property rights. If everyone has blocking rights then no business can get done, and we see the tragedy of the anti-commons. Of course, stacking is only a problem in theory. CDMA2000 is a standard actually used around the world. Producers are making (some) money. Multiple patents covering products have causes prices to be raised, but it is not clear than any market has been destroyed or even that the royalty payments outway the benefit of the innovation.

Uncertainty Problem: Jury verdicts are quite unpredictable, and because the royalty rules are so loose, damages appeals are rarely successful.

The new legislation appears to take on these problems in a way to (1) reduce the average damage award; (2) make damage awards more rational and predictable; and (3) make damages judgment more subject to appellate review.

The practical approach of the legislation is to create a “standard for calculating reasonable royalty” which require a determination of the “specific contribution over the prior art” to determine damages. Some courts already follow the rules set out in the proposed legislation. Thus, legislation advocates may refer to the damages reforms as simply a clarification that limits the actions of rogue courts.

The proposed text reads as follows:

35 USC 284(c)(1) IN GENERAL.-The court shall determine, based on the facts of the case and after adducing any further evidence the court deems necessary, which of the following methods shall be used by the court or the jury in calculating a reasonable royalty pursuant to subsection (a). The court shall also identify the factors that are relevant to the determination of a reasonable royalty, and the court or jury, as the case may be, shall consider only those factors in making such determination.

''(A) ENTIRE MARKET VALUE.-Upon a showing to the satisfaction of the court that the claimed invention's specific contribution over the prior art is the predominant basis for market demand for an infringing product or process, damages may be based upon the entire market value of that infringing product or process.

''(B) ESTABLISHED ROYALTY BASED ON MARKETPLACE LICENSING.-Upon a showing to the satisfaction of the court that the claimed invention has been the subject of a nonexclusive license for the use made of the invention by the infringer, to a number of persons sufficient to indicate a general marketplace recognition of the reasonableness of the licensing terms, if the license was secured prior to the filing of the case before the court, and the court determines that the infringer's use is of substantially the same scope, volume, and benefit of the rights granted under such license, damages may be determined on the basis of the terms of such license. Upon a showing to the satisfaction of the court that the claimed invention has sufficiently similar noninfringing substitutes in the relevant market, which have themselves been the subject of such nonexclusive licenses, and the court de termines that the infringer's use is of substan tially the same scope, volume, and benefit of the rights granted under such licenses, damages may be determined on the basis of the terms of such licenses. ''

(C) VALUATION CALCULATION.-Upon a determination by the court that the showings required under subparagraphs (A) and (B) have not been made, the court shall conduct an analysis to ensure that a reasonable royalty is applied only to the portion of the economic value of the infringing product or process properly at tributable to the claimed invention's specific contribution over the prior art. In the case of a combination invention whose elements are present individually in the prior art, the contribution over the prior art may include the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements as part of the combination, if the patentee demonstrates that value.

''(2) ADDITIONAL FACTORS.-Where the court determines it to be appropriate in determining a reasonable royalty under paragraph (1), the court may also consider, or direct the jury to consider, any other relevant factors under applicable law.

Notes:

• I’ll use this opportunity to plug a new book by Richard Cauley: Winning the Patent Damages Case (Oxford 2009). Great book, the only problem is the $185 price tag.
• The Bills have received numbers: H.R. 1260 is sponsored by Rep. Conyers (MI) and co-sponsored by Reps. Berman (CA), Goodlatte (VA), Jackson-Lee (TX), and Smith (TX). S. 515 is sponsored by Sen. Leahy and co-sponsored by Sens. Crapo (ID), Gillibrand (NY), Hatch (UT), Risch (ID), Schumer (NY), and Whitehouse (RI). Both Bills have been referred to their respective Judiciary Committee which are headed by the Bill sponsors.

Back Reading

• Dennis Crouch, Patent Reform Act of 2009, Patently-O (March 3, 2008).
• William Rooklidge, “Reform” of Patent Damages.
• Dennis Crouch, Patent Reform 2007: Apportionment of Damages, Patently-O (May 25, 2007).
• Amy Landers, 2007 Patent Reform: Proposed Amendments on Damages, Patently-O (April 29, 2007).

Reinstating Patents After Failure to Pay Maintenance Fee

In a prior post, I discussed payment of maintenance fees. Ordinarily, three post-issuance maintenance fees must be paid in order to keep the patent in force for its entire term. A large entity pays $980 3.5 years after issuance; $2,480 7.5 years after issuance; and $4,110 11.5 after issuance. If the fee is not paid then the patent will expire at the next 4, 8, or 12 year mark. In that 6-month interim (e.g., between the 3.5 year due date and the 4 year expiration date), the fee can still be paid with a $130 surcharge. Once the patent expires, it can still be reinstated if the fee is paid along with an additional surcharge for either unavoidable failure to pay the fee ($700) or unintentional failure to pay the fee ($1,640). In addition, the Patent Office (PTO) must accept your explanation for the delay. Under 35 U.S.C. 41(c), revival for unintentional expiry is only available within two years of the expiration date. Later revival requires proof that the failure to pay the fee was unavoidable - a difficult standard to meet.

The PTO publishes reinstated patents each week in the Official Gazette. Using those publications, I compiled the following table showing the number of patents being reinstated each year. As the chart show, the number of reinstated patents has risen over time. The absolute number of issued patents is also rising, but at a slower rate. Thinking about this as an applicant's 'error rate' - for the past decade, about 2.5 percent of patents that expire due to non-payment of maintenance fees are later reinstated. This is an incredibly high error rate for a purely ministerial function of paying a fee.

I pulled Patent No. 6,798,824 from the list of reinstated patents that was published in the February 24, 2009 Official Gazette. That patent originally was assigned to InterDigital and is directed to a particular type of spread spectrum communications device. The patent issued on September 28, 2004 and expired four yeas later due to failure to pay the maintenance fees. Realizing its problem, the patent holder filed a petition to accept late payment of maintenance fees on December 19, 2008 and the petition was granted on January 30, 2009. (Note - the petition is not available in PAIR).

Note:

• Cite, Dennis Crouch, Reinstating Patents After Failure to Pay Maintenance Fee, Patently-O, http://www.patentlyo.com/patent/2009/02/reinstating-pat.html (Feb. 26, 2009). See also, Dennis Crouch, USPTO Maintenance Fees, Patently-O, http://www.patentlyo.com/patent/2009/02/uspto-maintenance-fees.html (Feb. 23, 2009); Dennis Crouch, Formalism at the Federal Circuit: Equitable Plea for Revival is Rejected, Patently-O, http://www.patentlyo.com/patent/2008/06/formalism-at-th.html (June 10, 2008) (discussing the Federal Circuit's decision in Burandt v. Dudas); Dennis Crouch, Unavoidable Delay: Ignorance as an Excuse?, Patently-O, http://www.patentlyo.com/patent/2007/08/unavoidable-del.html (Aug. 15, 2007) (discussing the FemSpec case where the DC district court refused to revive a patent - holding that the unavoidable delay standard has a due care element).

USPTO Maintenance Fees

A large portion of PTO revenue comes through applicant’s payment of maintenance fees. Under the current fee structure, three post-grant maintenance fees must be paid in order to keep a patent from prematurely expiring. A large entity pays $980 3.5 years after issuance; $2,480 7.5 years after issuance; and $4,110 11.5 after issuance. If the fee is not paid then the patent will expire at the next 4, 8, or 12 year mark. In FY08, the PTO reported over $500 million in revenue from maintenance fees.

I wanted to look at how maintenance fees are being paid, so I downloaded the past decade of OG Notices and parsed-out notices of patent expiration. The chart below shows some results.

The chart shows survival rates for the four (red), eight (blue), and twelve (green) year marks. Each datapoint represents the average survival rate for patents that would have expired on that date. For instance, of the 2229 utility patents that issued on December 31, 1996, the first fee was paid for 84% of the patents, the first two fees were paid for 63% of the patents, and all three fees were paied for 49% of the patents. (Note – I did not yet add-back cases that were revived due to unintentional abandonment.)

The median patent has an ordinary enforceable term of about 17 years. This is based on the twenty year term which begins at filing of the non-provisional application minus three years of prosecution. If prosecution takes longer than three years, then the term will likely be extended under the PTA provisions.

However, this data shows that the median patent term is actually cut short by about five years because applicants decide not to pay the large final fee.

A third feature to recognize from this chart is that the percentage of patents whose fees are being paid is increasing over time. However, the PTO has indicated that it expects a drop in maintenance fee payments due to the economic slump.

Judge Moore looked at expiration data for patents issued in 1991 in her paper on “Worthless Patents.” Her result is that patents were more likely to “survive” (i.e., have their maintenance fees paid) when they have more claims, more art cited, more related applications, and longer prosecution times. US corporate owners were more likely to pay the fees than individual or foreign owners. She also found that Semiconductor and Optics patents were the most likely to survive. Amusement patents were unlikely to survive.

Provisional Patent Applications: Waiting to File Non-Provisionals

For better or worse, provisional patent applications have always been used as a way to delay patent prosecution. The procedure has become popular as a relatively cheap and informal mechanism for preserving priority of invention without losing patent term. Although a provisional application sets a priority date, the application does not even reach the examination queue until the full utility patent application is filed. Thus, on average, each day of delay in filing the utility patent application pushes the issue date back one day as well. However, provisional applications also serve as a mechanism for extending the tail end of the patent term because the twenty-year patent term does not begin to run until filing of the utility patent.

Provisional applications have become quite popular. In FY2007, for instance, over 132,000 provisional applications were filed and about 30% of recent patents assigned to US companies reference a provisional filing. [Link]

To see how provisional filings are being used, I compiled a set of 65,000 patents that issued sometime between Jan 2007 and Feb 2009 (inclusive). All the patents in the group share the common property of claiming priority only to one or more provisional applications. I additionally excluded patents that made other priority claims such as continuations, divisionals, and continuations-in-part. Once I formed the set of patents, I then looked at the filing date of the provisional application compared with the filing of the utility application to how applicants are using the extra year of deferred examination. For patents claiming priority to multiple provisional applications, I used the date of the earliest filed provisional application.

The graph below shows the result. The vast majority of applicants wait until the year is almost up before taking action and filing the non-provisional application. About two-thirds of the non-provisional applications were filed with less than ten days remaining in the one-year provisional pendency. In over ten percent of the cases, applicants properly filed the non-provisional more than 365 days after the original provisional filing because of weekends, holidays, and/or leap year.

Two weeks ago, I had a conversation with a patent litigator about the propensity of patent attorneys to barely meet deadlines. He was worried about the potential for malpractice claims against his firm. And, here, I found a surprising number of cases that appear to miss the deadline.

My lingering question for patent attorneys and applicants -- why delay so long? Is it simply a matter of doing work according to deadline? Does it matter that delaying filing the application also delays the eventual issuance of the patent?

References Cited

I compiled a list of the over five hundred thousand reference citations in the almost eighteen thousand utility patents issued in the past two months. (Jan 1, 2009 – Feb 18, 2009, excluding reissues and reexaminations). In this sample, the average patent issued with 31 cited references. This is a skewed average – the median patent only cites 15 references. The vast majority of references (77%) are introduced by the applicant during prosecution while less than a quarter (23%) are cited by the examiner.

Patent documents (including US & foreign issued patents and published applications) represent 82% of the cited documents while non-patent literature represents 18% of the total. As was noted in the comments regarding PTO search tools, PTO searches are overwhelmingly focused on patent documents. Thus, 95% of references cited by PTO examiners are patent documents. (See pie chart aside).

Although – on average – applicants submit most of the prior art, Applicants submitted absolutely no references (zero) 15% of the patents in my study, and the median number of references cited by the applicant is only 7. Applicants cite over 200 references in only 2% of cases. The PTO's stalled IDS rules give the applicant 20 'free' references that can be cited without payment of a fee or further description. About 23% of the issued patents in my sample include more than 20 references cited by the applicant. The chart below is a histogram of applicant submitted references. About 12% of patents are "off the chart." In those cases the applicant cited more than 40 references.

Take-away: First, the data shows that applicant submitted references are substantially different from those cited by examiners. Non-patent literature is an important category of prior art that is largely missed by examiners, and the current information disclosure system does a pretty good job of getting more of that type of art in front of the examiner than he or she would otherwise see. A second point is that most of the time, examiners are not being swamped by reference submissions. It is surprising that 15% of patented cases include absolutely no applicant cited references. On the other hand, folks who submit over 200 references are deliberately choosing to do so. Generally, the very large reference volume comes in cases where the applicant knows that the innovation is important and is looking for more assured protection. In those cases, I don't see the harm in making the applicant somehow pay for the additional resources required to review those references. [Of course, in that case, the PTO should allow more examination time as well]

The next graph shows the average number of applicant-cited references for various top-patenting companies. The size of the blue bar reflects the number of applicant cited reference on average, for that assignee's Jan-Feb 2009 patents. (Scale at bottom). The graph is sorted so that companies with the greatest average number of cites are shown at the top. Although this is not strictly true, the difference between companies is largely a difference in areas of technology. Thus, companies patenting electronics generally cite less prior art than others. You may also notice in this list that US based companies tend to cite more prior art. The final chart in the series shows that – on average, US assignees submit over three times as many prior art references as do their foreign counterparts or patents without an assignee.

Extending Patent Terms

I looked again at patent term adjustments (PTA) for US patents. 3294 utility patents were granted on February 17, 2009. Of those, 2467 (75%) included some patent term adjustment based on PTO delays in prosecution under 35 U.S.C. § 154(b). For each of these patents, some additional quantum of exclusivity is added to the end of the patent term so long as maintenance fees are paid.

The median adjustment was just over one year (376 days) with the average adjustment of 430 days. The longest adjustment in the group was over five years (1958 days). That patent (No. 7,490,438) is directed to an automobile door and is based on an application filed in 2000. In that case, the applicant appealed twice. The examiner was reversed both times. The applicant lost 11 potential PTA days for filing an IDS after the first office action.

Notes

• I upted the post to clarify that I am talking about Patent Term Adjustment here (PTA) available under 35 U.S.C. § 154(b). PTA applies to patents filed after May 2000.
• See also http://www.patentlyo.com/patent/2008/03/extending-the-p.html

Percent of Patents Discussing “Microsoft,” part II

In an earlier post, I introduced some data relating to patents that discuss Microsoft somewhere in the patent document. That post showed that almost 5% of newly issued patents refer to the software giant in some way. That data also showed a strong upward trend over time. The post received a few interesting comments as well as a few suggestions. [LINK] In response, I have added some additional data to the graphs. The first graph below shows the percent of patents that discuss Microsoft (in blue) and now also includes the percent of patents that are assigned to Microsoft (in red). Several years ago, Microsoft publicized their intention to obtain a large number of patents. That intention is becoming a reality, and Microsoft recently obtained its 10,000^th patent. However, only about 20% of patents that discuss Microsoft are actually assigned to the company.

The next graph compares the patents discussing "Microsoft" with other products/companies. Here, I include patents that discuss "Microsoft" (blue), "UNIX" (green), "LINUX" (red), and "Apple" (tan). UNIX has seen some growth, but not much since the mid 1990's. In the past couple of years, the number of LINUX patents have grown dramatically, but still pale in comparison to Microsoft patents. Although the absolute numbers for LINUX related patents are still small, they are surprisingly high based on the anti-patent lore of LINUX developers. Apple has remained steady over the years. Of course, my results for Apple should be tempered by the false positive results that actually refer to the fruit rather than the computer company or its products.

An issue in all these graphs is time lag. The time lag of issued patents may be easily seen by searching for patents that discuss "Google." – The result is only 1342 patents but 4682 published applications.

Percent of Patents Discussing “Microsoft”

I looked at all patents that include the word "Microsoft" somewhere within the patent document. These include patents assigned to the company as well as well as patents that simply refer to Microsoft in the specification or list of cited references. That almost 5% of new all patents refer to the software giant is a sign that the company's technology serves as a creative platform for ongoing developments.

Federal Circuit Disposition Statistics

The Federal Circuit had done a nice job summarizing their outcomes for the past year. Looking at cases decided on the merits, patent cases arising from district court were affirmed 55% of the time; affirmed-in-part 24% of the time; and reversed 19% of the time.

Federal Circuit Statistics Page

Six Easy Suggestions for Improving Patent Office Transparency

For a government agency, the USPTO (PTO) is fairly transparent to non-parties hoping to learn about the patent system and about specific patent cases. The PTO website receives millions of visits to access patents, published patent applications documents, and prosecution history files. In promoting the new rule changes, the PTO also offered up a number of metrics to prove its case. While that information was useful, its reliability was generally impossible to independently verify because the underlying data was not publicly available. The truth is that the PTO still has a long way to go before we can consider it a transparent operation.

Why this is important: Part of the need for more information involves public accountability so that we can ensure that the PTO is efficiently and accurately carrying out its role in the patent system. Independent verification is especially important now when various factions (including the PTO's own lobbying arms) are calling for various reforms of patent laws and the rules of patent procedure. However, the call for transparency at the PTO is at least equally focused on the business need of understanding how the patent system works and how competitors are using the patent system.

I have created a short list of "easy" suggestions for improving transparency at the Patent Office. I call it an easy list, because these steps really just involve taking information that is already at the fingertips of PTO insiders and making the information accessible to those on the outside. Following these steps may be a quick and easy way for career office officials to quickly win favor with the new Obama administration.

1. Make petitions decisions available. Challenges to certain decisions by patent examiners and PTO officers go through a petition process to the Commissioner of Patents rather than through the Board of Patent Appeals and Interferences (BPAI). These cases include disputes involving revival, patent term extension, patent term adjustment, patent term restoration, reexamination petitions, petitions involving filing dates, petitions involving disclaimer of scope, refund petitions. Since January 1, 2005, the PTO has not posted any petitions decisions to its website. Thus - unless a party knows the specific case number and obtains it through the Image File Wrapper in the Patent Application Information Retrieval (PAIR) system - the petitions are inaccessible. Conventional wisdom is that petitions practice can be something of a black hole -- unless the PTO decides to act quickly. This is only conventional wisdom, because the actual practice of the office is hidden. It would be an easy change to start publishing all petitions decisions as they are released in once convenient location on the PTO website.
2. Make public PAIR information available for automated download -- either through the PTO website or through a third party willing to make the information publicly available. The PAIR system is amazing in the information that it provides. However, it is clunky and wastes a tremendous amount of time to access each individual case. File history information is important because claim construction decisions now rely on that information in interpreting the claims. In addition, file histories are an important source of prior art - especially in the way that the documents can provide contextual information on how different elements may fit together. Yet, PAIR is not generally searchable and data cannot be obtained in any bulk way. This must change. I will be more than willing to work with PTO to and others to create a system that works. Although I am not wedded to this approach, I would favor a system that embraces the possibility that individuals and companies will take-hold of the data stream and use it in creative ways.
3. Publish the standard metrics used by PTO executives to measure the process flow and quality. Of course, this should be done in a way that maintains some semblance of privacy for PTO employees, but I doubt that the executive-level charts include specific names of the 6,000 examiners. Of course, I don't know because these items are not publicly available.
4. Allow search engines to crawl through the PTO web-servers. Matt Buchanan wrote an interesting post on President Obama's new ROBOT.TXT file for the whitehouse.gov website. [LINK] Obama has apparently opened the site to allow it to be crawled by any search engine. The PTO should follow suit so that documents posted to the website can be found through Google, Yahoo, CURL, Alexa, etc. Remember, the touchstone of publication is whether it is accessible to the public. Many documents on the USPTO.gov website are worthless because they are too difficult to find through the locked-down search procedures available on the current website. This is an extremely easy change. It took the White House a few minutes to make the change, the PTO could be done in the same way. Kudos to the PTO -- After I wrote a first post on this issue, two PTO officials contacted me to indicate that they were working on resolving the issue.
5. Use PDF format to allow download of patents and patent applications in their "Standard" form. This would be a bonus, but it is not required since there are low coast ways to obtain this result through an outside vendor. One problem with using an outside source, however, is the possibility that search information may be stored and used against the searcher at some point.
6. Openly respond and post all responses to freedom of information act (FOIA) requests on the PTO website. The PTO has created a FOIA website that is hardly searchable. And, most FOIA documents are not placed on the FOIA website. Any response to a FOIA request should be automatically and immediately uploaded to the FOIA website so that it is accessible to the public at large rather than to only the one person who requested the information. As a teacher, I have learned that if one person asks a question, it is likely that other folks had the same question. In most cases, the PTO could upload the documents and save mailing costs by simply providing a link. President Obama has ordered all executive agencies to "adopt a presumption in favor" of FOIA requests, and this change would fall in line with the spirit of that request.

I have eliminated other potential projects and changes that might be considered "hard" for the PTO to complete. These are easy and should be done. This is a draft of ideas -- add yours below. Also, please let me know if there is already a good way to access the information that I discussed above.

Bits and Bytes

• New PTO Director: The USPTO will be closed on Monday and Tuesday (Jan. 19-20). When it reopens, John Doll will be the Acting Director of the USPTO. Doll is a career PTO official and already fully understands the system and the role of the PTO director. Because Doll has had considerable influence while working under Jon Dudas, we can expect that there will be few immediate or dramatic changes. In part because of the absence of a Commerce Secretary, I expect that Doll's tenure will likely last for several months.
• Secretary of Commerce: While on the topic, I heard this morning that John Thompson, CEO of Symantec may be named appointed as the next Secretary of Commerce. If appointed, Thompson may play an important role in some patentability disputes. Symantec has been directly involved in a number of patent litigation disputes – both as a plaintiff and as a defendant. Symantec is the assignee of hundreds of patents. I cannot say, however, whether Thompson feels scorned or empowered by the current patent system.
• Chief Judge Michel & Professor Lichtman: Professor Doug Lichtman has introduced his most recent guest on the "IP Colloquium" – Chief Judge Paul Michel of the Court of Appeals for the Federal Circuit. In an hour-long discussion, the pair discuss common deficiencies in appellate advocacy; the important value of amicus briefs at the rehearing stage; Section 101 post-Bilski; and the lost doctrine of equivalents. Professor Lichtman has configured the system so that you can also easily claim free CLE credit in California, Illinois, NY, Texas, or Washington State. Excellent work!
• ABA Top Legal Blogs: For two years in a row, the ABA Journal has chosen Patently-O as one of the top 100 legal blogs. (Only 50 blogs made the cut both years). In addition, Patently-O has been honored in 2008 as the top legal blog focusing on a niche area of law. Thank you to everyone who voted during this process! In time for Patently-O's fifth anniversary in April, I expect that the website will record its ten-millionth visit in addition to the 16,000+ readers who receive their updates via the daily e-mail feed.
• Patent agent Brian Galvin has started a new blog, in a recent post, he discusses the BPAI's Cornea-Hasegan Opinion. His analogy is interesting: "[The current state] of statutory eligibility … reminds me of … Ptolemaic astronomy just before Galileo, Kepler and Copernicus. The more wheels we add, the more untenable the whole structure." [LINK]

The Soaring Rate of BPAI Appeals

In two earlier posts, I discussed the BPAI reversal rate (link) and the reopening of prosecution after a reversal (link). In the reversal rate, I also looked at the historic jump in the absolute number of BPAI appeals filed. In FY2008 (ending Sept 30, 2008), the BPAI received over 6,000 ex parte appeals– concluding two consecutive years of over 35% annual growth rate in appeal filings.

Although dramatic, the reported filing increases pale in comparison to those seen in the past four months. The BPAI reports that in the period of Sept-Dec 2008, it received an average of 954 ex parte appeal cases per month. That value is well more than double the monthly average for the same span in 2007.

At this rate, the number of BPAI appeals would easily reach 10,000 in FY2009.

The planned BPAI rule changes may explain at least part of the sudden jump. In a recent presentation, William Smith of Woodcock Washburn stated that the new rules are "onerous and will significantly increase the cost of preparing an Appeal Brief." [Link]. I have spoken with several patent attorneys who intentionally filed appeal briefs early in order to beat the December 10 deadline. That deadline has now been postponed. If the rules truly are onerous, then we may see a drop in appeals once they become effective.

Jury verdict forms

Agere Systems v. Sony Corp (E.D. Tex. 2008).

In November 2008, a jury returned a verdict finding that Sony had induced infringement of Agere's patent by marketing and selling its PlayStation Portable (PSP) game. It is interesting to look at the simplicity of the jury form:

Post-verdict motions are still pending in the Sony case, but an appeal is expected.

In Spine Solutions v. Medtronic (D.Del. 2008), the jury found that the asserted claims were non-obvious and that the patentee was entitled to lost profit damages.

Some of the damages were also awarded based on a "reasonable royalty" of 18%.

BPAI Appeal Statistics: The Plummeting Reversal Rate

In an earlier post, I examined what happens to patent applications after the BPAI reverses an examiner rejection. [LINK] This next post looks at the BPAI reversal rate itself. Here, I define the reversal rate as the percentage of cases where the Examiner rejections are completely reversed (as opposed to partial reversals).

Over the past several years, the BPAI reversal rate has dropped dramatically. From FY1999-FY2005, the reversal rate remained relatively steady between 35% and 40%. Then, in FY2006 we began to see a smaller proportion of reversals. By the first two months of FY2009, the reversal rate had dropped to 20%. Part of the drop is likely attributable to new filtering mechanisms that keep low-quality rejections from reaching the Board. The pre-appeal brief conference program started in 2005 and allows a patent applicant to request an internal review of the examiner's final rejection at the Tech Center (TC) level before an appeal brief is filed. Even if no pre-appeal brief conference request is made, the examiner's case for a rejection is usually reviewed at the TC level before the examiner is allowed to file a responsive brief.

In recent years, these filters have operated to weed-out 80% of the cases where an appeal brief or pre-appeal brief conference request had been filed. Prior to implementation of these filters, the majority of appeal briefs led to BPAI decisions. [See Katznelson, Slide 15]

When the low quality rejections are eliminated from consideration, we should expect that the BPAI reversal rate would drop – as it has. The BPAI is no longer seeing many of the easy reversal cases where the examiner made a clear legal error. Rather, today's cases before the board tend to be more focused on arguable issues involving obviousness, enablement, and patentable subject matter.

The filters only tell part of the story, and the reversal rate masks the fact that - in absolute numbers - the Board is reversing more cases than ever. Over this same period, the number of appeals filed has increased dramatically. And, although the BPAI has increased its throughput, the backlog has grown five-fold since 2005. These pendency pressures give the Board an incentive to make appeals less hospitable – as we saw with the new (not-yet-final) BPAI appeal rules.

Notes:

• Prior Patently-O Posts: How long does a BPAI Appeal take; BPAI Appeal Statistics; BPAI Patent Judges

On the Price Elasticity of Demand for Patents

In a recent working paper, two European economists studied the price elasticity of demand for patents based on data from past twenty-five years. Their empirical result – the demand for patents is responsive to price, but relatively inelastic. I have created the following table showing where their result fits in the overall elasticity schema of goods and services.

Good	Estimated Elasticity	Description
Salt	0.1	Highly Inelastic
Patents	0.4	Inelastic
Legal Services in General	0.4	Inelastic
Utilities	0.4	Inelastic
New Tires	1.0	Moderate
Restaurant Meals	2.3	Elastic
Chevrolet Automobiles	4.0	Elastic

Elasticity is simply a way to measure (or estimate) the how the demand for a good changes in response to a change in the price of that good. Their results essentially show that pricing mechanisms could be effective in shaping applicant behavior, but that a significant result would require a dramatic change in fees. From a historical perspective, the authors attribute at least part of the "boom" in patent filings to a relative fee reduction and generally "very inexpensive" fees. "Higher fees would … [help] reduce the upward trend in propensity to patent."

Notes:

• Read the paper: On the Price Elasticity of Demand for Patents by Gaetan de Rassenfosse and Bruno van Pottelsberghe de la Potterie. [LINK]
• Historical data is only available for a limited range of pricing schemes.  In his paper on Patent Demand Tim Wilson proposes raising the patent filing fee to $50,000 with the assumption that the demand for patents becomes more elastic as the price becomes dramatically higher.  

What Happens After the BPAI Reverses an Examiner Rejection

Even after the Board of Patent Appeals and Interferences (BPAI) reverses an examiner's rejection, the case is returned to the same examiner to ensure that the application is in condition for allowance. 37 CFR 41.54. At that point, the examiner is not allowed to make another search for prior art. However, the examiner may reopen prosecution and enter a new grounds for rejection "[i]f the examiner has specific knowledge of the existence of a particular reference or references which indicate nonpatentability of any of the appealed claims." MPEP §1214.04. According to the MPEP, reopening prosecution requires written approval of the Technology Center Director.

To get a sense of how this post-reversal process operates in practice, I looked at a set of 149 decisions from 2006 where the BPAI had reversed examiner rejections. In 80% of cases, the examiner accepted the BPAI decision and did not re-open prosecution. In these cases, a patent generally issued within nine-months of the BPAI decision (median of six months) unless the applicant caused some delay. A typical delay is seen in IBM's Application No. 10/047,116. After winning an appeal on nonobviousness grounds and receiving a notice of allowance, IBM failed to pay the issue fee in a timely fashion. The patent finally issued after the PTO granted a petition to revive.

In the remaining 20% of the reversals, the PTO re-opened prosecution by offering new grounds for rejection. Occasionally the new grounds are suggested by the BPAI but more often they come from the examiner and fall under §101, §103, or §112. The current status of those re-opened cases from my 2006 sample can roughly be broken into thirds: a third of the cases were eventually patented despite the new rejection; a third of the cases are still pending; and a third of the cases were abandoned after the PTO continued to press its case. A handful of the pending cases are on their way to the BPAI for a second go-round.

Notes:

• One PTO insider takes issue with my statement that after being reversed "the examiner is not allowed to make another search for prior art." The MPEP §1214.04 states that "[t]he examiner should never regard such a reversal as a challenge to make a new search to uncover other and better references." According to the insider, that statement is not a prohibition on making a new search, but only a "discouragement." In practice, new searches are conducted and, if new art is found the PTO will reopen prosecution.

Professor Collins: In re Bilski: Tangibility Gone “Meta”

By Professor Kevin Emerson Collins (Indiana University Law School – Bloomington) [PDF Version]

In its recently issued en banc majority opinion in In re Bilski, the Federal Circuit articulates a "machine-or-transformation" test for patent-eligible subject matter under § 101 of the Patent Act. Although they are both legitimate questions, this short comment addresses neither whether there is a legitimate statutory basis for this test nor whether Supreme Court precedent should be interpreted so as to mandate (or even support) this test. Rather, it focuses solely on the criteria that the court offers to draw the line between patentable and unpatentable transformations. The Federal Circuit has added a new twist to the tangibility test that has for many years played a role in determining patent-eligibility: the tangibility test has gone "meta." The tangibility of the formal data that is actually transformed by a method of processing information is not relevant to patent-eligibility, but the tangibility of the things that the data is about—the tangibility of the informational content of the data or the things to which the data refers—now appears to be dispositive.

Bilski sets out a disjunctive two-prong "machine-or-transformation" test for patent-eligible subject matter: "A claimed process is surely patent-eligible subject matter under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing." Slip op. at 10. The opinion declines to elaborate on the implications of the particular-machine prong of the test because the applicants conceded that their claim did not satisfy this prong. Id. at 24. It addresses only the transformation prong. It puts forward a conjunctive, two-prong test that must be satisfied for a method to "transform[] a particular article into a different state or thing" and thus to qualify as patent-eligible subject matter. First, the transformation implicated "must be central to the purpose of the claimed process." Id. In other words, it must also "impose meaningful limits on the claim's scope" and not "be insignificant extra-solution activity." Id. Second, the transformation only qualifies as patent-eligible if it transforms a certain type of "article." "[T]he main aspect of the transformation test that requires clarification here is what sorts of things constitute 'articles' such that their transformation is sufficient to impart patent-eligibility under § 101." Id. at 24–25. This is the distinction—the distinction between the "articles" that, if transformed, constitute patent-eligible subject matter and the other "articles" that, if transformed, do not constitute patent-eligible subject matter—on which the opinion elaborates at length, id. at 25–32, and on which this comment focuses.

Most importantly for the point addressed here, the Federal Circuit implies in Bilski that there are two different categories of "electronically-manipulated data," id. at 25, and that the data in each category is a different type of "article" insofar as patent-eligibility is concerned. The data in the first category is an "article" that, if transformed by a method claim, constitutes patent-eligible subject matter, but a method that transforms the data in the second category is not a patent-eligible method.

The first category is comprised of data that represents a "physical object or substance." Id. at 28. For example, citing In re Abele, 684 F.2d 902 (C.C.P.A. 1982), the Federal Circuit stated that a method that transforms data that "clearly represent[s] the physical and tangible objects, namely the structure of bones, organs, and other body tissues" is a patent-eligible method. Slip. op. at 26.

The second category of data seems to have two distinct subsets. The first subset is data that, as claimed, does not represent anything (or, alternatively, that can represent anything). This data is semantically empty; it is a variable without any specified informational content. Bilski again uses Abele—but this time the claims that the court rejected under § 101—as an example. Id. The fact that methods reciting the transformation of this meaningless (or infinitely meaningful) data are not patent-eligible should come as no surprise to those familiar with the history of patent-eligibility in the last several decades: methods that recite the manipulation of variables without semantic meaning are nothing more than methods that recite mathematical algorithms in the abstract.

The second subset of the second category, however, is likely to raise some eyebrows: it contains data that represents something specific or something in particular, but that something represented is itself intangible. Here, the informational content of the data—the thing in the world to which the data refers—is intangible. The Federal Circuit holds that the method at issue in Bilski is not patent-eligible because it "transform[s]" or "manipulat[es]" data representing "public or private legal obligations or relationships, business risks, or other such abstractions," which critically is not data "representative of physical objects or substances." Id. at 28.

The idea that the meaning that the user attributes to the data transformed or manipulated by an information processing method is relevant to patent-eligibility is not a novel feature of the "machine-or-transformation" test announced in Bilski. For example, the "concrete, useful and tangible result" test of State Street Bank required the courts to examine the meaning of the data, variables or "numbers" in the course of determining patent-eligibility. State St. Bank & Trust Co. v. Signature Fin. Group, 149 F.3d 1368, 1373–75 (Fed. Cir. 1998). However, what is new in Bilski is the importance now placed on the physicality of the thing to which the data refers. Thus, the tangibility test has gone "meta": it is no longer the tangibility of jostling electrons that is of concern (as it was in the early days of patents on computer-executed information processing methods), but the tangibility of the stuff represented by those electrons-as-symbols. In the language of semiotics, the tangibility analysis has shifted from a concern about the tangibility of the signifier—the physical configuration of matter that forms a symbol—to a concern about the tangibility of the signified—the informational content of or the thing represented by the symbol.

There is in my opinion much that needs to be said about this move in Bilski that takes the long-standing concern about tangibility in the patent-eligibility analysis "meta," transforming it from a concern about a signifier to a concern about a signified. Here, however, I limit myself to raising two initial, narrow questions.

First, the move raises a normative question: Why should we treat information about tangible things in a manner that is categorically different from the manner in which we treat information about intangible things? Having taken its cue from the Supreme Court, the Federal Circuit clearly wants to prevent patent-eligible method claims from pre-empting mathematical "fundamental principles." Slip op. at 26. However, the most appropriate means to achieve this end would seem to be a focus on the specificity, not the intangibility, of what is meant. Why should the manipulation of data that represents my height (a presumptively physical property of my body) be patentable, yet the manipulation of data that represents my expected longevity (a property that is difficult to classify as a physical one) be unpatentable?

Second, the move raises concerns about administrability. Is data about my expected longevity about something physical, namely my body? If it is, then why isn't the data at issue in Bilski also about something tangible? The data is after all about a property of lumps of coal, namely their expected future rate of consumption or the legal rights that individuals have with respect to them. Or, to formulate the administrability problem in a recursive manner, what about data that is about the structural qualities of electronic signals? To determine whether a method that manipulates such data is patent-eligible, it would seem again to be necessary to confront the tangibility of an electronic signal—the very question that patent doctrine has been trying to render irrelevant for several decades—but this time with the signal as a signified rather than as a signifier.

CLE: How to Draft Software Claims under Bilski

In Bilski, the Federal Circuit laid down the law of subject matter eligibility under Section 101 of the Patent Act. To be patent eligible, a claimed process must either: (1) be tied to a particular machine or apparatus, or (2) transform a particular article into a different state or thing. In all likelihood, claim limitations focused at general machines such as a "computer" will not be considered tying to "particular machine." Bilski did not, however, decide that question – Bilski's claims were admittedly divorced from any particular machine. On the transformation side, the court provided the example from Abele where graphically displaying "X-ray attenuation data produced in a two dimensional field by a computed tomography scanner" was sufficient transformation. Bilski's claims were essentially knocked-out on the new mental steps doctrine – a process where all the claimed steps "may be performed entirely in the human mind is obviously not tied to any machine and does not transform any article into a different state or thing."

Two additional points: Although the Federal Circuits points to the machine-or-transformation test as the sole test for Section 101 patentability, the court approved two ‘corollaries.’  First, field-of-use limitations continue to be “generally insufficient to render an otherwise ineligible process claim patent-eligible.” Second, "insignificant postsolution activity will not transform an unpatentable principle into a patentable process." (quoting Diehr).  Thus, merely reciting a specific machine or particular transformation will not bring a claim into the realm of patentable subject matter unless the recitation is more than mere insignificant postolution or extra-solution activity.

Going forward, I do not believe that these limitations will have a significant impact on a skilled practitioner's ability to patent software innovations. However, I would like community input on how you might properly claim computer software in a way that avoids § 101 rejections?

The Health Impact Fund

Last week I spoke with Yale Professor Thomas Pogge about his proposal for a "Health Impact Fund." The mission is to provide incentives to develop and distribute drugs that will achieve major global health impacts. Pogge sees the current patent system as valuable, but lacking. The problem is that the most innovative pharmaceutical companies find it very difficult to make money from treatments that are focused on the problems of the developing world. Although helpful, charity donations of drugs are typically insufficient and lead to the problem of parallel imports.

The solution proposed by Pogge is to form a global fund and pay innovator companies based on the global health impact of their new treatment. The more "quality adjusted life years" (QALYs) saved, the more money a company gets. The intent of this reward scheme is to focus the innovators on developing and distributing treatments that will have the greatest worldwide health impact.

The system is intended simply as an additional incentive layer. A drug developer may obtain patents as usual. However, in order to qualify for the program, the patentee would agree to sell its drugs at cost and guarantee access.

Pogge's models suggest that the fund would have a major impact if funded with $6 billion annually.

Notes:

• HIF Book is online
• I like the idea of aligning economic interests of the innovators with a health impact. If structured correctly, innovators will like this program because it does not take away the option of simply using the traditional patent system. The problems are primarily logistical: who pays the $6b?; how do you measure health impact?; how do you prevent gaming the system (by, for example, only using the program when the patents are likely to be challenged)?; etc.
• President Bush's "Emergency Plan for AIDS Relief" is set to spend about $6 billion on global AIDS treatment this year. [Link]