Patent Law Blog (Patently-O)

The USPTO’s Proposed Fees: Understanding Context and Keeping Sight of the Big Picture

Guest Post by Rick D. Nydegger. Mr. Nydegger is the former Chair of the Patent Public Advisory Committee and a Past President of the AIPLA.

The USPTO's release last week of its Proposed Patent Fee Schedule will likely spawn a wide range of reaction. Almost certainly some will raise a "hue and cry" and claim that the USPTO is needlessly enriching its coffers in a way that unfairly disadvantages the community of USPTO users. Others, like Horacio Gutierrez, Corp. VP and Deputy GC for Microsoft, will tend toward a more balanced view. In comments posted Feb. 9, 2012, Mr. Gutierrez observed that "Arguably there is no good time for a fee increase, and some will question whether increasing fees in challenging economic times is the right thing to do. But to us, there should be no question that now is the right time to have a discussion about the benefits of investing in further improvements in patent quality and the potential costs of delaying that investment." Mr. Gutierrez is right – this is the right time to have a discussion, and that discussion, at least in the initial stages, should focus on the big picture questions:

• How important is reaching 10 months to first action and reducing total pendency to 22.9 months by 2015? This is a major assumption that cuts across virtually all the proposed fees.
• How important is it to build a reserve fund equivalent to 3 months of the USPTO's annual operating expense, and how quickly does that need to be done? By some estimates, the reserve may be being funded at levels ranging from 150 million to 300 million dollars per year. Does this rank in importance with reducing pendency? In other words, should the user community be willing to simultaneously fund both of these objectives through higher fee increases, or would the user community prefer to see a more gradual, staged approach to building the reserve fund so that fee increases need not be quite so steep, at least for the next few years?
• Will the currently proposed fee schedule permit adequate investment in critical USPTO resources such as improving its IT systems, and continued hiring, training and retention of qualified examiners? What are the projected costs and time frames for accomplishing such investments in human and physical resources? And do these costs rank in importance with reducing pendency and creating a meaningful reserve fund? One could argue that investment in critical resources such as its IT systems and the hiring, training and retaining of qualified examiners is one of the best things the USPTO could do to improve and insure patent quality.

With any proposal as sweeping as this one, and particularly where the impact goes right to the bottom line, there will be a tendency to want to dig in and debate whether the fee changes proposed for each part of the USPTO examination process are justifiable. This will have a tendency to compartmentalize the debate in a way that may not be helpful. That is not to say that it is inappropriate at some stage to have a candid and probing dialogue between the Office and the user community that is designed to help the user community understand the methodology, models and assumptions behind the USPTO's proposed fees. This can only ultimately help the user community provide more meaningful response and guidance to the USPTO. But before that happens, we should first attempt to provide some sense of priority to the Office on the big picture questions, since those will impact fee setting across the board, and in a very substantial way. In other words, as users, we need to help the Office understand what is most important to us, and then be willing to help fund those priorities.

Once that happens, we can then invite the Office to share the assumptions and modeling (such as cost recovery assumptions, front-end fee vs. back end fees as mechanisms for cost recovery, etc.) that will invite productive dialogue and input on the specific fee proposals on a more individualized basis.

In any discussion of this type, the process has to begin someplace. The USPTO's Proposed Patent Fee Schedule released last week is just that – a starting point for discussion. As users of USPTO services, we will have the opportunity on Feb. 15th and Feb. 29th to engage the process and begin providing response to the Office. PPAC should be applauded for providing a set of thoughtful questions to guide those hearings, with focus on the big picture issues. Hopefully, those of us who participate in the process will understand the need to start with the big ticket issues, and will not let the discussion become embroiled in minutiae.

iLOR v. Google: Rejected Claim Construction Does Not Render Case "Objectively Baseless"

By Jason Rantanen

iLOR, LLC v. Google, Inc. (Fed. Cir. 2011)
Panel: Rader, Linn, Dyk (author)

This case involved a district court exceptional case determination based a finding that the suit was objectively baseless and brought in bad faith.  iLOR, the assignee of Patent No. 7,206,839, sued Google for infringement of the '839 patent by Google's Notebook product.  In denying iLOR's request for a preliminary injunction, the district court rejected iLOR's proposed construction of the only claim term in dispute, subsequently granting summary judgment of noninfringement.  The Federal Circuit affirmed the district court's denial of the preliminary injunction, agreeing that the language of the claim, the specification and the prosecution history supported the district court's construction.  See iLOR, LLC v. Google, Inc., 550 F.3d 1067 (Fed. Cir. 2008).  Following the Federal Circuit's disposition of that appeal, the district court granted Google's request to recover its attorneys' fees and costs and expenses, finding the case exceptional on the ground that it was "not close" on the merits (i.e.: ("objectively baseless") and iLOR had acted in subjective bad faith.  iLOR appealed.

In reversing the district court, the CAFC first likened the exceptional case standard for a suit brought by a patent plaintiff (absent misconduct during patent prosecution or litigation) to that of willful infringement.  "The objective baselessness standard for enhanced damages and attorneys’ fees against a non-prevailing plaintiff under Brooks Furniture is identical to the objective recklessness standard for enhanced damages and attorneys’ fees against an accused infringer for § 284 willful infringement actions under In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc)."  Slip Op. at 8-9.  Thus, just as willfulness requires an assessment of both objective and "subjective" (i.e.: known or so obvious that it should have been known) prongs, so too does the exceptional case determination. And just as for willfulness, the objective assessment "is to be determined based on the record ultimately made in the infringement proceedings."  Id. at 10.

Comment: At some points, the Federal Circuit's opinion is confusingly imprecise in its usage of "objective baselessness."  Although in some instances it refers to the "objective baselessness" standard as being identical to the overall objective recklessness standard for willfulness (which includes, according to the court, both objective and subjective elements), at other times it treats it as being identical to only the "objective" prong of the analysis.  The only reading that makes sense is that when the court indicates that "objective baselessness" is identical to the willfulness "objective recklessness" standard, what it is really referring to is the overall standard for an exceptional case determination based on a meritless case theory, while when it compares it to the "objective" prong of the willfulness analysis, it really is referring to "objective baselessness."

Applying this framework, the CAFC concluded that iLOR's claim construction was not objectively baseless, and thus it was unnecessary to consider the issue of subjective bad faith.  The CAFC pointed to iLOR's arguments supporting its proposed construction, which - although the court disagreed with them - had some merit.  The CAFC also commented on the difficulty of claim construction, "in which the issues are often complex and the resolutions not always predictable."  Id. at 13.  And the court noted that the fact that it "held oral argument and issued a precedential written opinion in the first appeal suggests that we did not regard the case as frivolous."  Id. at 13-14.  In short, "simply being wrong about claim construction should not subject a party to sanctions where the construction is not objectively baseless."  Id. at 14.

Michel & Nothhaft: Inventing Our Way Out of Joblessness

Judge Paul Michel and Hank Nothhaft (Tessera CEO) have written an important OP-ED for the New York Times. They argue that an important way for the US government to stimulate entrepreneurship and job growth is by giving the USPTO a large bolus of money ($1 billion) to put its affairs in order:

This would enable the agency to upgrade its outmoded computer systems and hire and train additional examiners to deal with the threefold increase in patent applications over the past 20 years. Congress should also pass pending legislation that would prohibit any more diverting of patent fees and give the office the authority to set its own fees.

. . . .

To be sure, not every patent creates a job or generates economic value. Some, however, are worth thousands of jobs — Jack Kilby’s 1959 patent for a semiconductor, for example, or Steve Wozniak’s 1979 patent for a personal computer. It’s impossible to predict how many new jobs or even new industries may lie buried within the patent office’s backlog. But according to our analysis of the data in the Berkeley Patent Survey, each issued patent is associated with 3 to 10 new jobs.

In addition, the pair suggests an “innovation tax credit” for each patent received by a small business:

To encourage still more entrepreneurship, Congress should also offer small businesses a tax credit of up to $19,000 for every patent they receive, enabling them to recoup half of the average $38,000 in patent office and lawyers’ fees spent to obtain a patent. Cost, after all, is the No. 1 deterrent to patent-seeking, the patent survey found.

For the average 30,000 patents issued to small businesses each year, a $19,000 innovation tax credit would mean a loss of about $570 million in tax revenue in a year. But if it led to the issuance of even one additional patent per small business, it would create 90,000 to 300,000 jobs.

Taken together, fully financing the patent office and creating an innovation tax credit could mean as many as 2.5 million new jobs over three years, and add up to 600,000 more jobs every year thereafter.

It only makes sense to help innovative small businesses make their way to the patent office and, once there, find it ready to issue the patents that lead to new jobs.

I have quibbles with the numbers used by the authors. However, I do think that they are on the right track in a few respects — especially with the idea that investing in incentives to innovate is a much more cost-effective and stable policy approach as compared with hiring folks to do government work.

Notes:

• Read the full Op-Ed: http://www.nytimes.com/2010/08/06/opinion/06nothhaft.html
• As academic quibbles: 
  • The statement that “each issued patent is associated with 3 to 10 new jobs” cannot be derived from the Berkeley Patent Survey.  However, I don’t see that figure as unreasonable or unlikely. It would be helpful to see how the authors calculated this figure.
  • In addition, it is important to recognize that patents are just one step along the road toward job creation. The idea is that patents can provide confidence and stability in business potential ventures.  That confidence and stability leads to investment and job creation.

In re Gleave: Reference with Unknown Utility Still Anticipates

In re Gleave (Fed. Cir. 2009)

In 2008, the BPAI affirmed the examiner's rejection of Gleave's claims as anticipated. The claims focus on an antisense oligodeoxynucleotide designed to bind two different types of insulin-dependent growth factor binding protein (IGFBP). The prior art included a document that listed the genetic sequence of the complementary sense strands but did not identify any utility of the sequence.

On appeal, the Federal Circuit affirmed the anticipation rejection - basing its decision on the rule that anticipatory prior art does need to be functional, useful, or show actual reduction to practice. Rather, to be anticipatory, the prior art must enable the skilled artisan to make the claimed invention.

In the 1973 Wiggins case, the CCPA ruled that the "mere naming of a compound in a reference, without more, cannot constitute a[n anticipatory] description of the compound." The Federal Circuit here distinguished Wiggins - noting that in Gleave's case, the sequence listing was sufficient to allow a skilled artisan to "at once envision each member of this limited class."

Notes:

• A claim by Gleave with functional language might not have been anticipated by the prior disclosure of the bare sequence.
• Patent Docs review the case
• Patent Hawk has the title "useless but enabling."

Patently-O Bits and Bytes No. 100

• PTO Director: Commerce Secretary Locke has been confirmed as Commerce Secretary. Congratulations. With patent attorney blinders - the next step is to solidify the PTO leadership positions. Leading candidates include Todd Dickinson and David Kappos (IBM). Dickinson is an old-guard Clinton supporter. Kappos was an Obama donor.
• Drop in Filing?: I recently relayed an apparent quote from the PTO General Counsel James Toupin reporting a 16% decrease in new patent filings. Toupin and the PTO have since rejected that number as a large overstatement and have indicated that they will provide better numbers shortly. The bottom line is still true - the PTO is experiencing a cash-shortfall and is cutting its own budget wherever it can.
  
• Fee Increases: Dramatically shifting its position, the IPO has announced that it opposes "any significant increase in USPTO patent fees in the near term."
• IP Primer: The Dickstein Shapiro firm has released a new version of its IP Primer (free, but you have to give a name).
• Patent Reform 2009: The Senate Judiciary Committee holds the ball on patent reform and is set to meet again to discuss mark-ups on March 31, 2009. Lobbying will be heavy during the next week to define the center "consensus" ground. Quinn; IPWatch.
  

Patently-O Bits and Bytes No. 98: Economic Downturn and the PTO

Marketers see an economic downturn as a time to emerge with a new business paradigm. Better start working.

• Hearsay: A Patently-O reader paraphrased the PTO's James Toupin who spoke at a recent USC conference: "New patent filings are down 16% so far in 2009." Patents were previously thought to be rather inelastic to price. There is a confluence of issues: (1) downturn in the US economy reducing cash-on-hand and a strong dollar discouraging foreign investment; (2) Increased PTO bureaucracy making it more difficult to obtain a patent with a valuable scope; (3) increased in patentability standards making it more difficult to obtain patent protection; and (4) decreased potential returns in litigation.
• PTO Budget: The falling numbers has the PTO worried about its budget. I would say that the falling numbers are signs of much larger worries than just the PTO budget.
• PTO Cuts: PTO Director Doll was previously reported as saying that the PTO has stopped hiring.
• PTO Cuts: Now, the PTO has announced that all legal and technical studies programs have been suspended because of "budget constraints." One PTO reader noted that the Examiner's Union (POPA) knew about the cuts to this cherished development program for the past week, but remained silent.
• Superduperextraordinary: CCIA calls for further tightening the standard for patentability. (Via Greg Aharonian)