Patent Law Blog (Patently-O)

Square Pegs, Round Holes: Guest Post by Mark Janis and Jason Du Mont

Guest Post by Jason J. Du Mont, Microsoft IP Fellow at the Indiana University Maurer School of Law and Mark D. Janis, Robert A. Lucas Chair of Law at the Indiana University Maurer School of Law.

In Pacific Coast Marine Windshields Ltd. v. Malibu Boats, the Federal Circuit addressed a question of first impression: whether an applicant’s actions taken during prosecution of a design patent should be available for use when determining the design patent’s scope in subsequent litigation.  The court’s answer was yes.  While the answer may be unremarkable, the court’s unusual journey from question to answer raises broader questions about the wisdom of absorbing utility patent law’s judicially-derived doctrines into design patent law.

The applicant had filed a design patent application claiming “an ornamental design of a marine windshield with a frame, a tapered corner post with vent holes and without said vent holes, and with a hatch and without said hatch, as shown and described.”  The application included eleven drawings showing windshields with various numbers of vent holes, with and without hatches. During prosecution, the examiner imposed a restriction requirement and identified five patentably distinct groups in the application: windshields having “(1) four circular holes and a hatch; (2) four circular or square holes and no hatch; (3) no holes and a hatch; (4) no holes and no hatch; and (5) two oval or rectangular holes and a hatch” (internal citation omitted):

The applicant elected group one without traverse (which showed four circular holes and a hatch), deleted the figures not associated with this embodiment, and eventually rewrote the claim in a more conventional form, claiming “[t]he ornamental design for a marine windshield, as shown and described.”  The application issued as D555,070.  The applicant later filed a divisional directed to group three, which issued as D569,782, but there were apparently no further divisionals.

Pacific Coast subsequently asserted the ‘070 patent against Malibu Boats, which was producing a windshield having three square vent holes, as depicted below:  

Malibu Boats moved for summary judgment of non-infringement based on prosecution history estoppel.  The district court granted the motion and Pacific Coast appealed. 

No Distinct Doctrine of Equivalents for Design Patents

Prosecution history estoppel is a limitation on the doctrine of equivalents, so before it reached the district court’s prosecution history estoppel analysis, the Federal Circuit first had to determine whether the design patent law should recognize a doctrine of equivalents.  The court concluded that for design patents, literal infringement and infringement under the doctrine of equivalents are “intertwined,” pointing to the statute (35 U.S.C. § 289, which provides a remedy when another party “applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale” (emphasis added)), and the Gorham v. White case (which holds that infringement is based on substantial similarity). 

The court could have been more forthcoming as to what it means for the two infringement standards to be intertwined, but the key takeaway is clear: the design patent infringement analysis isn’t bifurcated into a literal infringement prong requiring identicality and an equivalency prong.  It relies on a test of substantial similarity based on the design’s overall impression. The court’s analysis signals that there’s no longer a need to speak of a distinct “equivalents” concept in design patent law; concepts of equivalency are built into the substantial similarity test.

 So Why Incorporate Prosecution History Estoppel?

Having recognized that design patent law includes no distinct doctrine of equivalents, the Federal Circuit could have declared that design patent law need not incorporate the utility patent law’s prosecution history estoppel jurisprudence.   The court could have formulated a prosecution history-based limiting doctrine that was customized to connect to design patent law’s “intertwined” infringement standard.  Or, the court could have even analogized to prosecution disclaimer, a simpler concept which limits literal claim scope and avoids entanglement with the presumptions and rebuttal routes of a post-Festo prosecution history estoppel doctrine.  See, e.g., Trading Techs. Intern., Inc. v. Open E Cry, LLC,  728 F.3d 1309 (Fed. Cir. 2013) (discussing the distinction).

Instead, the court stated that the “principles” of prosecution history estoppel applied to design patents, and resolved those principles into a three-step test: “(1) whether there was a surrender; (2) whether it was for reasons of patentability; and (3) whether the accused design is within the scope of the surrender.” It then relied on Festo and other utility patent cases in applying its test, concluding that “no presumption of prosecution history estoppel could arise” because there wasn’t any showing that the third part of the test was met.

Whatever this presumption is, it surely isn’t the Festo presumption.  Festo holds that a narrowing amendment that is substantially related to patentability triggers a presumption that the applicant surrendered all territory between the original and amended claim scope with regards to the claim limitation in question.  See, e.g., Duramed Pharma. v. Paddock Labs., Inc., 644 F.3d 1376 (Fed. Cir. 2011). There isn’t any third step calling for scrutiny of the accused device.   That inquiry would only be relevant to determining the scope of the estoppel—and that only comes into issue once it’s determined that the presumption of estoppel applies, and that the presumption hasn’t been rebutted. 

The court’s approach is likely to lead to confusion in design patent cases about how much utility patent doctrine really has been borrowed.  (It may also create some confusion in utility patent cases if it’s invoked there.  Doing so would be erroneous, in our view.)  This illustrates why it’s not always so easy, or desirable, to fling utility patent doctrine into design patent law.  The court could have avoided all of these doctrinal convolutions by steering clear of prosecution history estoppel jurisprudence and either drawing on simpler analogies or developing a test specific to design patents.

Applying the Court’s Three-Step Test

The Federal Circuit’s application of its three-step test further illustrates why borrowing from prosecution history estoppel doctrine may have been a bad idea.  In addition to diverging from the Festo presumption, the court’s rhetoric slips towards the element-by-element conceptions of equivalency and estoppel that govern in utility patent law, and away from conceptions of the design’s overall impression that design patent law mandates.

The court concluded that steps one and two of its test were met.  As for step (1), the applicant had deleted drawings directed to the patently distinct two-hole and no-hole embodiments, resulting in a surrender of scope, according to the court; and, as for step (2), deletions made in response to a restriction requirement were made for purposes of patentability and thus could trigger estoppel.  As the court pointed out, however, this latter point hasn’t been resolved in utility patent law.

Nevertheless, the court decided that step (3) (whether the accused design was within the scope of the surrender) wasn’t met, and that was enough for a reversal.  The defendant had chosen not to argue that the accused three-hole design was within the scope of the patentee’s non-elected designs.  Instead, the defendant asserted that because the patentee had elected designs having four holes (in the ‘070 patent-in-suit) and zero holes (in the ‘782 divisional), the patentee had surrendered any designs having a number of holes between zero and four.  The court was not persuaded, reasoning that the notion of surrendering an entire range “does not work in the context of design patents where ranges are not claimed, but rather individual designs.  Claiming different designs does not necessarily suggest that the territory between those designs is also claimed.”  These are crucial observations for limiting the impact of prosecution history estoppel, especially since the court didn’t address any other way of rebutting this presumption.

But the court left unaddressed the key question about applying step (3): what is the standard for determining whether an accused design falls within the scope of the surrender?  Some raw notion of “colorable imitation”?  A fully elaborated substantial similarity analysis in view of the prior art as per Egyptian Goddess?  Something else?

Moreover, by framing its analysis of the designs at issue by reference to the number of holes, the court encourages a mode of analysis that rests on individual design features, rather than the design’s overall impression.   There’s a deep disconnect here between utility and design patent law.  Equivalency (and, correspondingly, prosecution history estoppel) in utility patent law is to be applied on an element-by-element basis, but that doesn’t translate neatly to design patent law.   Here, where the embodiments differed by discrete, readily-identifiable features (such as the number of holes or hatches), perhaps the presence or absence of the features dictate one’s conclusions about the design’s overall impression.  We think this will not be so easy in most cases involving visually-complex designs.

More to Come …

The prospect that restriction and election practice will give rise to estoppel in design matters has significant practical consequences.  First, the implementation of the Hague will unquestionably lead to an influx of international applications that often contain plural embodiments—either explicitly allowed or because they are filtered from registration systems.  When coupled with distinctions in the determination of scope, between offices, the USPTO can expect to receive higher volumes of applications that may necessitate restrictions.  Second, the Federal Circuit’s In re Owens decision, and the USPTO’s apparent turn towards a more aggressive application of the written description requirement in design cases, may force design patent applicants to submit applications including large sets of drawings that depict numerous implementations of a design concept.  To the extent that these implementations are deemed patentably distinct embodiments, many applicants will find themselves facing restriction requirements.

That leads to the case’s key practical point:  if courts choose to apply Pacific Marine’s estoppel rule aggressively, practitioners may need to advise their clients to expect to file more divisionals—and, consequently, face higher prosecution costs.

Supreme Court on Intellectual Property

The Supreme Court agreed today to hear four new intellectual property cases this session: Two patent cases, a copyright case, and a trademark case:

• Nautilus v. Biosig Instruments (13-369): what is the proper standard for indefiniteness.
• Limelight Networks v. Akamai Technologies (12-786): Does inducement require underlying direct patent infringement infringement by another as a prerequisite to liability.
• ABC, Inc., v. Aereo, Inc. (13-461): when does an internet transmission count as a "public performance" under the copyright laws?
• POM Wonderful v. Coca-Cola (12-761): Who has standing to challenge a food or beverage label as misleading or false under the Lanham Act.

The cases should all be decided by the end of June 2014.

 

Quiet: Introverts and Patent Rights

by Dennis Crouch

Susan Cain's book Quiet walks through an historic societal transformation toward an "Extrovert Ideal" that "dramatically undervalues introverts" and incorrectly equates introversion with shy and antisocial behavior. This transformation parallels the shift from a culture that values character to one that values personality. See, Susan Cain, Quiet: The Power of Introverts in a World That Can't Stop Talking (2013).

The movement toward extroversion is present within the patent system as well with a push toward "teamwork" in inventing. Team-developed inventions appear to be more likely to receive corporate backing and to be patented. What is unclear, however is whether the shift moves us toward better innovation. Arguably, the rise in collaborative inventing is driven by the complex nature of modern inventions and facilitated by our improved communications tools. However, I suspect that Cain's social thesis in Quiet provides a more compelling explanation: that social pressure and top business school training shift our attention toward the committee work (and hiring workers who do well in committee).

The great Steve Wozniak provides some opposite advice:

The inventors and engineers I've met are like me—they're shy and they live in their heads. They're almost like artists. In fact, the very best of them are artists. And artists work best alone where they can control an invention's design without a lot of other periople designing it for marketing or some other committee. I don't believe anything really revolutionary has been invented by committee. If you're that rare engineer who'se an inventor and also an artist, I'm going to give you some advice that might be hard to take. That advice is: Work alone. You're going to be best able to design revolutionary products and features if your're working on your own. Not on a committee. Not on a team.

Of course, Wozniak did his most revolutionary work in the 1970's when two-thirds of patents listed a single person as "the inventor," today that figure has dropped to less than one-third. Over the past four decades, the number of inventors per patent has steadily crept upward as the lone inventors have gradually been crowded out.

The chart below shows the number of inventors per patent over the past eight years. What you can see is a continued increase in the percentage of patents with teams of inventors. In particular, the percentage of patents with only one inventor continues to fall while the percentage of patents with three or more inventors continues to rise.

Although inventing can still be a solo endeavor, patenting data indicates that paradigm no longer predominates.

See Dennis Crouch, The Changing Nature of Inventing: Collaborative Inventing at http://www.patentlyo.com/patent/2009/07/the-changing-nature-inventing-collaborative-inventing.html; Dennis Crouch, Inventor Count at http://www.patentlyo.com/patent/2013/01/inventors.html.

Patent Term Adjustment 2013

By Dennis Crouch

In 2011, I discussed an emerging downward trend in the percent of patents awarded at least some patent term adjustment (PTA). PTA extends the life-span of patent rights beyond the ordinary 20-year term and is intended to compensate a patentee for USPTO delays in issuing the patent.

The downward trend first reported in 2011 is continuing and is a further indication that the PTO is beginning to seriously tackle the rampant backlog and prosecution delays that have been an ever-present part of the system for so long. Still, over 70% of recently issued patents have lengthened patent terms due to patent office delays that go beyond the statutory bounds outlined in 35 U.S.C. 154. The time-series chart below breaks-down the numbers even further, showing impressive drops in the percentage of patents that receive more than one- and two-years of term adjustment.

The break-point of the charts in early 2010 shows the impact of the Federal Circuit's Wyeth decision holding that the PTO had been under-calculating patent term. The second chart shows the average PTA award (for those receiving PTA).

Federal Circuit Claims Jurisdiction over Regulatory Decision but Denies Nationwide Injunction for State Law Infraction

By Dennis Crouch

For many innovative new products, regulatory approval is a much greater hurdle than patent protection. And, unlike patent rights, regulatory approval is often a necessity. The present case is interesting in that the mascara product straddles the border between a lightly regulated beauty aide and a medical drug treatment.

Allergan, Duke University, and Dr. Murray Johnstone v. Athena Cosmetics (Fed. Cir. 2013) (CaseText)

Duke & Dr. Johnstone each hold several patents that are apparently embodied by Allergan's eyelash growth medicine Latisse and exclusively licensed by Allergan. In 2009, these partners collectively sued Athena Cosmetics for selling RevitaLash mascara in a way that infringes the patents. In addition, Allergan alleged violation of state (California) unfair competition law by selling drugs (i.e., medicated mascara) without regulatory approval.

Following some amount of pretrial litigation (including a claim construction and summary judgment of non-infringement), the district court dismissed all of the patent claims without prejudice (stipulated dismissal). A dismissal without prejudice means that the patentee to can re-file those claims at a later date. The district court then found summary judgment for the plaintiffs -- holding that Athena violated California's unfair competition law (UCL) by marketing, distributing and selling the mascara without regulatory approval. The district court then ordered a nationwide injunction against the sales.

Federal Circuit Jurisdiction. On appeal, the Federal Circuit first focused on the question of appellate jurisdiction. Under the law, the Federal Circuit has appellate jurisdiction over "any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to patents."

Although the original complaint clearly raised substantial issues of patent law, Allergan argued that the stipulated dismissal without prejudice removed the arising under jurisdiction. See Gronholz v. Sears, Roebuck & Co., 836 F.2d 515 (Fed. Cir. 1987) (dismissal of patent claims without prejudice operated as an amendment of the complaint and thus eliminated arising under jurisdiction); Rothe Dev. Corp. v. Dep't of Def., 545 F.3d 1023 (Fed. Cir. 2008) ("the basis of a district court's jurisdiction—and thus the path of appeal—may change over time in a case, for example, if certain claims are dismissed without prejudice").

On appeal, the Federal Circuit determined that the non-prejudicial dismissal did not eliminate the court's arising-under appellate jurisdiction. The court agreed that a non-prejudicial dismissal can eliminate its appellate jurisdiction, but distinguished this case because the prior patent rulings in the case indelibly altered the parties legal rights. In particular, the district court's prior claim construction ruling and summary judgment of non-infringement.

In the decision, the Federal Circuit did not discuss either the importance of amendments to the jurisdictional law found in the AIA or the recent Minton v. Gunn decision. By ignoring Minton, the Federal Circuit skipped over the more holistic interests-based approach to arising-under jurisdiction required there in favor of a more bright-line analysis that has been previously rejected by the Supreme Court.

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No Nationwide Injunction for Violating California Law: The Federal Circuit agreed that the district court correctly found Athena liable for violating California law, but the Appellate Panel rejected that court's nationwide injunction order as an abuse-of-discretion. The Federal Circuit wrote:

The injunction impermissibly imposes the UCL on entirely extraterritorial conduct regardless of whether the conduct in other states causes harm to California. This injunction is so broad that it would bar Athena from making its product in Idaho, distributing it from a facility in Nevada, and selling it to Connecticut consumers.

Interestingly, because the cause of action here was based on California law, the Federal Circuit looked to see whether California courts would have imposed a nationwide injunction and found that the "[t]he conduct enjoined here is exactly the sort of purely extraterritorial conduct that the California Court of Appeals expressly held could not be regulated by the UCL."

In addition, the Federal Circuit held that such extraterritorial application of California would be a violation of the U.S. Constitution's dormant Commerce Clause.

In short, California may, as it has in this case, conclude that its own unfair competition law has been violated, and it may prohibit any future conduct within its borders that would cause continued violation of its law. California is not permitted, however, to extend its unfair competition law to other states.

The upshot then is that RevitaLash is back on the market, but not in California (as shown in the image above).

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Professor Shubha Ghosh has written a number of important and interesting academic works. One is his recent book titled Identity, Invention, and the Culture of Personalized Medicine Patenting (2012 Cambridge Press). That book relates here because Ghosh identifies the '105 patent as a "race specific patent." The patent made Ghosh's book because identifies the race and gender of study subjects: e.g., "[study included] 38 Caucasian, 3 African-American, 1 Asian, 1 Hispanic; 13 male, 30 female." Ghosh argues that race-specific categories should not be allowed to be particularly claimed (they were not in this particular patent).

USPTO Approves of And/Or Claim Limitation

By Dennis Crouch

Ex Parte Gross (PTAB 2014)

Patent attorney J. Nicholas Gross has a number of his own patents pending. Application No. 11/565,411 is directed to a computerized business method of serving content appropriate advertisement.

Claim 1 requires a "plurality of different websites characterized by a common parameter including at least one of a common content topic and/or a common contractual arrangement."

The examiner rejected claim 1 as indefinite based upon the "and/or" term. On appeal, however, the PTAB reversed – finding that "A and/or B" does have a meaning and that meaning is A alone, B alone, or A and B together. However, the Board noted the "preferred verbiage" should be more simply "at least one of A and B."

The biggest problem with the Board's decision is that it was four-years in the making – reversing an examiner rejection mailed February 2, 2010.

USPTO Fees

In early 2013, the USPTO raised many of its fees and lowered a few. One accounting trick, however, is that some of the fee reductions were delayed until January 1, 2014. The two key areas of newly reduced fees are the publication fee and the issue fee.

1. Publication Fee was $300 and is now $0, even for early-publication requests. This takes away one incentive to file a non-publication request.
2. Issue fee was $1,780 and is now $960. That fee is reduced by 50% for small entities and 75% for micro entities and universities.
3. PCT Fees are now subject to the small and micro entity status discounts.
4. Assignment recordation is now free if done electronically.

Utility Patents Granted in 2013: A New Record (For the Fourth Consecutive Year)

By Dennis Crouch

Despite being held-back by the Federal spending sequester and a focus on implementing the first-to-invent and post-issuance review procedures of the America Invents Act, the US Patent Office has also awarded more patents than ever. The preliminary figure for 2013 is 277,861 patents issued, which represents a 10% jump over last-year's record. See USPTO Patent Grants: Another Record Year (3rd in a Row). The average pendency of utility applications (application filing to issuance or abandonment) has been slowly decreasing over the past several years, but has hovered around 37-months for the past six months.

One more Click: Settlement Agreement Revives Disney's Business Method Patent

by Dennis Crouch

Disney v. Rea (Fed. Cir. 2013)

Disney's Patent No. 5,963,915 covers an internet purchase method. The patent was filed by Steve Kirsch and originally owned by his company InfoSeek that was purchased by Disney as part of what Wikipedia calls the "expensive failure" of Go.com.

The patent issued on October 5, 1999.  On October 4, 2001 (less than two years later), the patentee filed a broadening re-issue application that claimed a one-click purchase method to rival that of Jeff Bezos. Over the next eleven yars, the patentee argued back-and-forth with the PTO examiners over a variety of patentability issues. In due course, the patentee kept the application alive by filing three requests for continued examination (RCEs) and one administrative Appeal along with more than 100 different patent claims.  After losing at the BPAI, Disney then filed a civil action under 35 U.S.C. 145, asking the district court to order the USPTO to issue the patent. However, Federal Judge Brinkema sided with the USPTO and found that the claims as presented were invalid. Disney then appealed to the Federal Circuit.

Now, Disney and the USPTO have settled the appeal with the agreement that Disney will drop its appeal of pending claims so long as the USPTO (1) allows Disney to file another RCE in the case and (2) considers amended claims presented by Disney in a manner "consistent with the district court's decision" and considering the evidence presented at trial.  As part of the settlement, Disney also agrees that it is not entitled to a patent on the claims that were currently on appeal and agreed to pay the ~ $100,000 in appellate costs spent by the US Government.

In a joint brief, the parties suggest that Disney could still file a broadening continuation reissue application (while the civil action and related appeals are still pending) but could not file an RCE unless the case was remanded to the PTO.  It is unclear to me what actual benefit Disney receives here from the remand/RCE instead of filing of a continuation.

The settlement document is not yet publicly available.

Institut Pasteur: Federal Circuit Takes Hard Look at USPTO Board Factual Conclusions

By Dennis Crouch

Institut Pasteur v. Focarino and Precision BioSciences, Reexam No. 95,000,443 (Fed. Cir. 2013)

The French non-profit Institut Pasteur holds several patents covering site-directed insertion of genes into eukaryotic chromosomes. See U.S. Patent Nos. 7,309,605, 6,610,545, and 6,833,252. Basically, Pasteur discovered that a set of naturally occurring enzymes that could cleave chromosomal DNA at particular recognition sites and also discovered that cells will naturally repair the cleavage through homologous recombination even when an additional gene sequence is added, so long as a proper recombinatory DNA template is also added. It turns out that this sequence of events occurs in mitochondrial DNA but Pasteur was able to make it work on chromosomal DNA as well. The patents all relate to creating the enzymes and method of using those enzymes to insert DNA.

This is old stuff and all happened in the early 1990's The three patents all expired in 2012 while the case was pending appeal to the Federal Circuit, but companies may still be on the hook for past damages for what has become a basic tool of genetic engineering.

In 2009, Precision BioSciences filed for inter partes reexamination of the three patents. The examiner found the claimed invention obvious and that decision was affirmed by the USPTO's administrative patent appeal board. On appeal, the Federal Circuit has come-out with three interesting rulings:

Hard Deadline on Amendments: First, for the '605 patent, the claims were amended during the reexamination (and prior to the patent expiration date). For those claims, the court dismissed Pasteur's appeal as moot because "[substantially] amended claims cannot be entered now that the patent has expired." This result is obviously important for gamesmanship because it rewards delay tactics on the part of would-be infringers and also encourages patentees to work toward concluding any post-grant reviews.

No Substantial Evidence: Second, the Federal Circuit determined that the Board lacked Substantial Evidence for its factual conclusions that led to its obviousness decision of the challenged claims of the '545 patent. The question of obviousness is a matter of law predicated upon a set of factual conclusions. A factual conclusion must itself be based upon evidence presented to the Court. Here, after reviewing the two key prior art references (the evidence), the USPTO Board concluded that the prior art showed that the claimed enzyme "cleaved yeast chromosomal DNA when expressed in yeast cells." On appeal, the Federal Circuit rejected that factual conclusion after failing to find such a disclosure in either reference. One factor making the Federal Circuit's decision easier was that the Board based its conclusion upon the text of the prior art references rather than relying upon factual or expert testimony that could have offered stronger conclusory evidence.

Motivation to Combine: Finally, with regard to the '252 patent, the Federal Circuit found that the Board had failed to identify the "motivation, if any, a skilled artisan at the relevant time would have had to pursue the claimed invention."

Opinion by Judge Taranto

Verdict and Settlement

By Dennis Crouch

Cassidian Communications v. microData GIS (E.D. Tex. 2013). Last week an Eastern District of Texas jury found all of Cassidian's asserted "multiple-call-center" claims invalid. See U.S. Patent No. 6,744,858. According to Michael C. Smith, the E.D. Texas results for 2013 are "four plaintiff verdicts in fifteen infringement trials this year."

Meanwhile, Princeton Digital Image settled another infringement case. This time with Toys R Us. PDI's patent is US Patent No. 4,813,056 that allegedly covers "encoding image data into JPEG files for the purposes of producing JPEG images of products" for use on a website. The Patent was originally owned by GE and has now expired. PDI is in the process of collecting back-damages.

Further thoughts on Fee-Shifting from Judges Rader and O’Malley

By Dennis Crouch

Kilopass Tech v. Sidense Corp. (Fed. Cir. 2013)

In a 2012 decision, the district court ruled that Sidense did not infringe any of the claims of Kilopass's three asserted memory-cell patents and that decision was affirmed on appeal (without opinion). However, the district court denied an exceptional-case attorney-fee award because Sidense had failed to provide clear and convincing evidence that the infringement action was brought or prosecuted in bad faith. In a decision calling for broader awards of exceptional-case attorney-fees, the Federal Circuit has vacated and remanded. Judge O'Malley penned court's opinion with a concurring opinion filed by Chief Judge Rader.

35 U.S.C. § 285 provides that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." Over the past several years, Exceptional-case awards have been few-and-far-between and the perception is that those awards are particularly rare for prevailing defendants who successfully avoid liability for infringement. In Brooks Furniture, the Federal Circuit ruled that a prevailing accused infringer can receive fees under Section 285 based upon either (1) objectively baseless litigation brought in subject bad faith or (2) other misconduct during the litigation.

The attorney-fee issue is hot right now. The Supreme Court will hear two pending cases on the interpretation of Section 285 later this term and Congress is considering several bills that would make it easier for a prevailing party to also get its fees paid-for. These actions are primarily focuses ways to push-back against patentees who raise unsuccessful infringement claims.

Here, Sidense argued that the case should be found exceptional because the lawsuit was objectively baseless and brought in bad faith. The district court rejected that argument, and, in vacating that decision, the Federal Circuit made several important findings:

1. A case can still be brought in bad faith even if the plaintiff-patentee did not have actual knowledge of its baselessness. Rather, the knowledge requirement can be met when a lack of objective foundation for a claim was either known or obvious. Thus, a plaintiff with a misguided belief in its case can still be found to have brought the case in bad faith if the baselessness of the claim would have been obvious to someone more reasonable.
2. Subjective knowledge of bad faith can be proven through a variety of direct and circumstantial evidentiary proofs and should be based on the "totality of the circumstances." Thus, even though clear-and-convincing evidence is required to prove bad faith, courts can still "infer[] bad faith from circumstantial evidence."
3. A "smoking gun" that reveals "that a patentee knew that he had no chance of winning a lawsuit" is sufficient to show subjective bad faith despite other evidence to the contrary (such as an opinion of counsel that the case is a good one).
4. "Factors such as the failure to conduct an adequate pre-suit investigation, vexatious or unduly burdensome litigation tactics, misconduct in procuring the patent, or an oppressive purpose are factors which can be indicative of bad faith."

Judge O'Malley also discussed, but rejected, the defendant's arguments that (1) subjective bad faith be eliminated as an element of an exceptional case finding and that (2) fees should be awarded in cases where a patentee loses a week but reasonable case.

In light of patentees' First Amendment right to petition the government (by, for instance, filing a lawsuit seeking relief in the courts), we do not think Congress intended to discourage patentees from bringing reasonable claims of infringement by raising the specter of fee shifting—even when the patentee's legitimate claims are on less than the firmest ground.

. . . Patent owners possess presumptively valid property rights which convey the right to exclude others from practicing the claims in their patents. The property right conveyed by a patent has constitutional underpinnings. . . . And, patentees have a constitutional right to petition the government to enforce or otherwise vindicate those rights. Thus, where there is no basis upon with to predicate exceptionality other than the viability of the claims asserted, we conclude that § 285 fees should not be awarded as long as the patentee had an objectively reasonable basis for its claims [or] if an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome."

Instead, when a plaintiff presses reasonable, but weak, claims of infringement, a prevailing defendant must look to the many other bases for fee shifting under § 285.

Writing in concurrence, Chief Judge Rader argued that the rule for fee-shifting should be more liberal and generally allowed whenever the circumstances require fee shifting in order to prevent a gross injustice. See Eltech Sys. Corp. v. PPG Indus., Inc., 903 F.2d 805 (Fed. Cir. 1990).

Guest Post: So what if a True Invention Uses a Computer!

Guest Post by Martin Goetz

In the Alice vs. CLS Bank case that is before the Supreme Court the question by Alice is "Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter…". That's the wrong question to ask.

Equally wrong is to boil down that question to "Is software patentable"which both IP lawyers and the media are quick to do (see Crouch'sblog "Is Software Patentable?: Supreme Court to Decide"and Forbes articleSupreme Court Takes Up Case Challenging Software Patents).

The correct question, which the Supreme Court has answered indirectly and affirmatively in the past, but never in the way I have re-phrased the question is, "Is a 'true invention' that contain as part of (or all of) its disclosure (in its patent application) a digital computer (and a computer program), entitled to US patent protection."

I deliberately put in quotes true invention for that's not part of the debate. In previous patently-O articles I give just a few examples of true inventions which used a digital computer and software as part of their implementation of the invention e.g., artificial retina, voice translation, driverless car, Reading machine for the Blind and 3-D printer. Few, I believe, would debate whether those examples deserve the protection of the US patent System.

For a more in-depth discussion on my arguments of why "Is software patentable?" is the wrong question to ask, see my four patently-O blogs Do the Wright Brothers Deserve a Patent for their Flying Machine?: Why Eliminating Software Inventions from the Patent System Makes No Sense. , "No" to Software Patents Per Se: Software is Only a Means to an End. , In Defense of Software Patents and In Defense of Software Patents - Part 2.

Today, there are hundreds if not thousands of true, and undebatable, inventions that contain a digital computer and computer programs as part of their disclosure in virtually all world-wide industries, including the software industry.

For those that believe that the US patent system has spurred innovation and the growth of the United States since the patent system became law in 1790, eliminating true inventions that contain software as part of their disclosure, would be a catastrophe for the growth and health of the US economy.

Michelle Lee, Hal Wegner and Professor Scalia

Guest Post by Professor John F. Duffy, University of Virginia School of Law

[PDF of this Post with the Delegation of Authority: Download Michelle Lee2]

This title of this post, which addresses the legality of Michelle Lee’s recent appointment within the PTO, needs a bit of explanation.  The first two names in the title are not surprising because those two are at the center of the ongoing controversy.  On December 11, 2013, Michelle Lee was appointed by the Secretary of Commerce to be Deputy Director of the PTO and Deputy Under Secretary of Commerce for Intellectual Property.  Hal Wegner, the prominent patent commentator, has argued in a series of widely distributed papers that Lee’s appointment was unlawful.

The third name is the surprising one.  What does former Professor, now Justice, Antonin Scalia have to do with the controversy over Michelle Lee’s appointment?  The short answer is that the work of Professor Scalia, when he was a professor, is what convinces me that Hal Wegner is absolutely right to devote significant attention to the issue, but absolutely wrong in concluding that Lee was improperly appointed.  Let me explain.

First off, it is worthwhile to summarize the timeline of relevant events and Hal Wegner’s argument against the legality of Lee’s appointment.  After David Kappos left the position of PTO Director on February 1, 2013, his Deputy Director, Teresa Rea, assumed all the powers of the Director pursuant to 35 U.S.C. § 3(b)(1).  Ms. Rea served as Deputy Director until her departure on November 21, 2013.  Secretary of Commerce Penny Pritzker appointed Lee Deputy Director on December 11.  If Lee is validly appointed, then she like Rea has authority under § 3(b)(1) to exercise the powers of the Director while that office is vacant.    

Wegner begins his argument against the legality of Lee’s appointment by noting that the Secretary of Commerce has statutory authority to appoint a Deputy Director of the PTO only “upon nomination by the Director [of the PTO].”  35 U.S.C. § 3(b)(1).  At the time of Lee’s appointment, the PTO did not have a PTO Director to make such a nomination.  As just mentioned, all functions and powers of the PTO Director devolve by statute (§ 3(b)(1)) to the PTO Deputy Director in the case of a vacancy in the Director’s office, but of course at the time of the appointment of Lee, the Deputy Director’s position was also vacant. Thus, because the PTO lacked both a Director and Deputy Director (so Wegner’s argument goes), no person could properly make a “nomination” of Lee, and because a nomination is a statutory prerequisite for appointment, the appointment is not valid.  Wegner has even gone so far as to say:  “Why would a person of heretofore spotless reputation and noted achievement [i.e., Lee] accept an appointment in violation of the strict statutory wording that the appointment is only ‘upon nomination by the Director,’ 35 USC § 3(b)(1), at a time when there is no Director?” 

In sum, Wegner’s argument about the legality of Lee’s appointment turns on the absence of a proper statutory nomination.  Here’s where the work of Professor Scalia comes in. 

Years ago, when I was leaving law practice to begin a career in teaching, I asked Justice Scalia (my old boss) if he had any advice or suggestions about teaching administrative law—a subject that I intended to teach and that he had taught both here, at the University of Virginia, and at the University of Chicago.  In response, he gave me a real treasure: a copy of a 900+ page, unpublished manuscript of an administrative law casebook that he had coauthored and had used when he was teaching the subject. 

Scalia’s unpublished casebook taught me two things relevant to this current controversy about Michelle Lee’s appointment.  First, the casebook devotes a great deal of attention—about the first fifth of the book—to basic structural issues concerning delegations of power and the appointment and removal of officers.  That was much more attention, and much more prominent attention, than had been afforded to such issues in the administrative law casebook that I had used as a student.  I have come to think, however, that Professor Scalia’s approach is quite wise. 

Administrative law is, at its core, all about the allocation of power.  Thus, a great deal of attention should be devoted to understanding the law governing both proper delegations of power and the proper recipients of those delegations.  For that reason, I applaud Hal Wegner’s attention to the issue of whether Michelle Lee is lawfully appointed to be a proper recipient of the PTO’s important statutory powers. 

The second lesson I learned from Scalia’s administrative law casebook, however, tells me that Hal Wegner is not correct in concluding that Lee was invalidly appointed.  Within the section of his manuscript devoted to delegation and appointment issues, Scalia and his coauthor (the great constitutional law scholar David Currie) devoted an entire chapter to the topic of “Delegation Within the Executive Branch.”  That chapter was the most surprising to me when I first received the book, for it includes a whole set of cases on a topic that is almost unmentioned in modern administrative law courses: the ability of the President and other Executive Branch officers to delegate their powers to subordinates.  And it is that vein of authority on inter-executive delegations that demonstrates the flaw in Wegner’s argument.

The law on inter-executive delegations of authority has an overarching theme, which is that most executive branch officers may delegate their powers to subordinate officers.  Nondelegable executive powers are very much the exception, and the PTO Director’s power to nominate a candidate for appointment as Deputy is not such an exception. 

Wegner’s argument about Lee’s appointment assumes that the statutory power of the PTO Director to nominate a candidate for Deputy Director must be exercised by the PTO Director or someone who is expressly authorized by statute to act as the PTO Director (i.e., the Deputy Director).  In other words, Wegner assumes that the Director's deputy-nomination power is nondelegable.  That assumption is wrong.

The heads of most executive branch agencies have very broad statutory authority to delegate their powers.  The PTO is no exception.  The Patent Act expressly gives the Director the power to “delegate to [other PTO officers] such of the powers vested in the Office as the Director may determine.” 35 U.S.C. 3(b)(3)(B).  Supreme Court precedent establishes that such a general authorization for an executive branch agency head “permit[s] the delegation of any function vested in the [agency head] under the Act unless a specific limitation on that delegation authority appears elsewhere in the statute.”  Touby v. United States, 500 US 160, 169 (1991). 

The Supreme Court’s Touby case is interesting because it involved the delegation of a very substantial power—the Attorney General’s power under the Controlled Substances Act to add new drugs to the list of drugs the possession of which could result in criminal prosecution (e.g., cocaine, heroin, etc.).  In other words, it was the power to create new criminal prohibitions through administrative rulemaking rather than through legislative action.  So substantial was this power that most of the Court’s opinion was devoted to addressing the constitutional limits on congressional power to give that power to any Executive Branch officer.  However, once the Court sustained the constitutionality of the statute giving the Attorney General the power to criminalize new conduct, the Court devoted a mere two paragraphs to upholding the Attorney General’s delegation of the power to the Administrator of the Drug Enforcement Administration (DEA).  See Touby, 500 U.S. at 169 (sustaining the Attorney General’s delegation power in 29 C.F.R. §0.100(b) to the DEA Administrator). 

The Attorney General’s power to delegate under the Controlled Substances Act is highly similar to the PTO Director’s similar power under the Patent Act.  The Attorney General is authorized to delegate “’delegate any of his functions under [the Controlled Substances Act] to any officer or employee of the Department of Justice.’” Id. (quoting 21 U. S. C. § 871(a)).  After articulating the legal standard that such executive delegation power applies “unless a specific limitation on that delegation authority appears elsewhere in the statute,” id., the Court merely looked to see whether the statute imposed any limitation on the Attorney General’s power to delegate to another officer the power to add new drugs to the schedule of controlled substances.  Finding no such limitation, the Court unanimously sustained the Attorney General’s delegation. 

A similar analysis here means that the PTO Director can delegate the deputy-nomination function, for the Director has a general power to delegate, and the statute creating the Director’s deputy-nomination power (35 U.S.C. § 3(b)(1)) also contains no restriction on delegation. 

Touby cited and distinguished an earlier case—United States v. Giordano, 416 US 505 (1974)—which shows an exception that proves the general rule.  There the Government argued that “Congress characteristically assigns newly created duties to the Attorney General rather than to the Department of Justice” and that the Attorney General could delegate any of those functions to other officers in the Department of Justice through his general power to delegate contained in 28 U.S.C. § 510.  The Supreme Court considered that argument to be, “[a]s a general proposition, … unexceptionable.”  Giordano, 416 U.S. at 514.

With respect to the specific power at issue in Giordano, however, the statute vesting the power with the Attorney General expressly addressed the issue of delegation and “specifically limited [the Attorney General] to delegating his authority to “‘any Assistant Attorney General specially designated by the Attorney General.’”  Giordano, 416 U.S. at 514 (quoting 18 U.S.C. § 2516).  The Court also cited another statute that both required a particular function to be exercised by the Attorney General or the Deputy Attorney General and expressly stated that the “‘function … may not be delegated.’” Id. (quoting 18 U. S. C. § 245(a)).   Statutes containing such language do supersede and limit general powers of executive delegation, but again, nothing like that language is contained in the statute authorizing the PTO Director to nominate a Deputy Director.

In sum, the law governing inter-executive delegation is very clear, and the PTO Director’s function of nominating a Deputy Director is fully delegable to any other officer in the PTO.  According to the PTO’s previous public statements, all of the functions of the PTO Director had been delegated to the Commissioner of Patents, Peggy Focarino, and Commissioner Focarino nominated Michelle Lee. See http://www.patentlyo.com/patent/2013/12/michelle-lee-director.html.  In a blog posting and widely distributed email, Hal Wegner described this PTO position to be “[r]emarkable” and “bizarre” because it means that Ms. Lee was nominated by a “Commissioner who has no statutory authority to make such a nomination.”  See http://www.laipla.net/commissioner-focarino-nominated-acting-under-secretary-michelle-lee/.  I, however, have quite the opposite reaction.  With two small caveats discussed below, I view the PTO’s position to be completely un-remarkable and un-bizarre; it is instead merely a reflection of the general rule that executive functions usually can be delegated to other officers within the agency. 

The two caveats are, I think, minor in this particular situation.  First, the Appointments Clause of the Constitution does place limits on inter-executive delegation, for only constitutionally appointed “Officers of the United States” may exercise a power that qualifies as a “significant authority pursuant to the laws of the United States.”  Buckley v. Valeo, 424 U.S. 1, 126 (1976).  Thus, significant powers cannot be delegated to non-officers within the PTO. 

It is an interesting question whether the PTO Director’s deputy-nomination function qualifies as a “significant authority.”  Typically, powers to make mere recommendations are not considered to be “significant authority,” but usually such recommendations are not binding in any way.  (Thus, if a nonofficer recommends option A, the officer receiving the advice can usually reject A and adopt options B, C, D, E, etc.)  The PTO Director’s deputy-nomination function might be a bit more significant because once person A is nominated, the Secretary of Commerce may be constrained either to accept A or to reject A and then await another nomination.  If the deputy-nomination function does constrain the Secretary’s appointment power, then the nomination function may constitute “significant authority” within the meaning of Buckley v. Valeo.  But even if so, the delegation to the Commissioner of Patents presents no problem because the Commissioner of Patents is properly appointed as an “Officer of the United States” (albeit an inferior officer) through the constitutionally acceptable process of appointment by a “head of Department[].”  U.S. Const. art. II, § 2, cl. 2; see also 35 U.S.C. § 3(b)(2)(A) (lodging the appointment of the Commissioner of Patents in the Secretary of Commerce). 

The second caveat is that the deputy-nomination power must have been actually delegated to Commissioner Focarino.  When a PTO Director leaves office (as David Kappos did on February 1, 2013), the Deputy Director assumes all the Director’s powers the automatic operation of 35 U.S.C. § 3(b)(1).  By “automatic operation,” I mean that departing Director does not have to sign any document delegating his powers because § 3(b)(1) immediately vests the Deputy Director with all of the Director’s powers as soon as the vacancy occurs.  When a Deputy Director departs while the Director’s office is vacant (as when Ms. Rea departed on November 21, 2013), no statute automatically authorizes anyone in the PTO to assume the PTO Director’s duties.  Thus, the departing Deputy Director must sign an order delegating the powers before she leaves. 

In this case, however, such a delegation did occur.  On November 15, 2013, soon-to-depart Deputy Director Rea delegated to the Commissioner of Patents Focarino all of the “non-exclusive functions and duties” assigned to the PTO Director or to the Deputy Director, with the delegation to take effect whenever the offices of Director and Deputy Director are both vacant.  See Delegation to Perform Non-Exclusive Functions and Duties (attached at the end of this paper).  That delegation is properly limited to the non-exclusive functions of the Director and Deputy Director—i.e., it does not extend to any non-delegable functions.  I’m not sure whether there are any such non-delegable functions assigned to the Director or Deputy Director, but I am certain that the Director’s deputy-nomination is surely one of the delegable functions. 

Hal Wegner has also cited the Vacancies Act, 5 U.S.C. § 3345 et seq., as providing support for his conclusion about the illegality of Michelle Lee’s appointment, but once again, his analysis of the Vacancies Act suffers from his assumption that the powers of the PTO Director are nondelegable, which is not correct. 

It is true that the Vacancies Act imposes strict limitations on the ability of other officers “to perform the functions and duties of any office of an Executive agency,” 5 U.S.C. § 3347(a), but the Act also expressly defines “function and duty” very narrowly to encompass only a statutory or regulatory function that is required “to be performed by the applicable officer (and only that officer),” id. § 3348(a)(2)(A)(ii) & (B)(ii) (emphasis added).  In short, the Vacancies Act’s restrictions apply only to the nondelegable duties of the vacant office.  As the Department of Justice’s Office of Legal Counsel has noted in its advice about the Vacancies Act, “[m]ost, and in many cases all, the responsibilities performed by a [Senate confirmed] officer will not be exclusive, and the [Vacancies] Act permits non-exclusive responsibilities to be delegated to other appropriate officers and employees in the agency.”  See Office of Legal Counsel, Guidance on Application of Federal Vacancies Reform Act of 1998 (available at http://www.justice.gov/olc/finalqa.htm (question 48)).  As discussed above, the PTO Director’s deputy-nomination function is surely delegable, and thus the Vacancies Act does not bar Commissioner of Patents Focarino from exercising it (as she apparently has in nominating Michelle Lee).

 If I am right in my conclusion that Michelle Lee has been properly nominated, and therefore properly appointed, as the new PTO Deputy Director, then the Vacancies Act does tell us one other important fact.  Ms. Lee may continue to serve as Deputy Director—and to exercise all the powers of the Director pursuant to § 3(b)(1)—without any particular time limit.

Normally, the Vacancies Act imposes a time limit of 210 days on the ability of a “first assistant” to serve in an “acting capacity” in an office requiring Senate confirmation.  5 U.S.C. §§ 3345 & 3346.  Since that 210-day period (roughly 7 months) commences with the vacancy in the relevant office (here the vacancy in PTO Director’s office), the time period would have already expired since David Kappos left office on February 1, much more than 7 months ago.  But the Vacancies Act expressly states that its time limits and other restrictions are inapplicable where “a statutory provision expressly … designates an officer or employee to perform the functions and duties of a specified office temporarily in an acting capacity.”  5 U.S.C. 3347(a)(1).  Because § 3(b)(1) of the Patent Act expressly vests the Deputy Director “with the authority to act in the capacity of the Director in the event of the absence or incapacity of the Director,” the Deputy Director—first Teresa Rea, now Michelle Lee—can continue to act in the capacity of Director without a time limit.  Indeed, this has to be true or else even Teresa Rea’s service as acting Director (which extended for more than nine months) would have been unlawful.

The Deputy Director’s ability to continue exercising the Director’s powers under § 3(b)(1) should not be viewed as an improper circumvention of the Senate’s role in the appointments process.  There is certainly no constitutional problem.  The PTO Director, even though currently subject to appointment by the President with the advice and consent of the Senate, is undoubtedly an “inferior officer” because the position is subordinate to the Secretary of Commerce, and Congress may by law vest the appointment of an inferior officer in the Head of a Department such as the Secretary of Commerce.  (Indeed, if the PTO Director were not an inferior officer, then it might very well be unconstitutional for the Deputy Director to exercise the Director’s powers for any length of time.)  Nor it is troubling as a statutory matter that the Deputy Director can exercise the Director’s powers for a potentially long period of time.  As the Vacancies Act shows, Congress clearly understands how to place time limits on the ability of deputies to act with the powers of a vacant office.  But Congress included no such limit in § 3(b)(1), and the Vacancies Act expressly provides that its strict time limits are inapplicable to such statutes.  

In closing, I would be remiss if I were not to give Hal Wegner some additional words of praise.  I have already complimented Wegner for bringing a proper level of attention to the important issue whether the powers of the PTO are being exercised by a lawfully appointed officer.  While I disagree with Wegner’s legal conclusion—and to be clear, I think there’s no doubt that Michelle Lee is properly appointed as the PTO’s new Deputy Director—I nonetheless do agree with Wegner that there’s something deeply wrong as a matter of policy (though not legality) with the current situation.  

With its appointment of Michelle Lee as Deputy Director, the Obama Administration must have determined that Ms. Lee is fully qualified and capable of exercising all the powers of the Director, because that is precisely what she will be doing as Deputy Director given the vacancy in the Director’s position.  Why then not nominate her to be Director?  Surely, it cannot be that the Administration fears a tie-up in the Senate. Now that the so-called “nuclear option” has been exercised, filibusters of executive nominations are not a threat, so the Administration could expect a relatively swift confirmation.  If the Administration intends to continue seeking another nominee for the position, that seems to be really bad treatment of the new Deputy Director.  Any new Director would surely want to name his or her own Deputy, and so another nominee will bring the possibility of at least a substantial demotion of the current Deputy.  Confidence in an agency’s leadership cannot be conveyed—both inside and outside of the agency—when the agency’s current leader appears to have only the contingent and begrudging support of the Administration. 

It also cannot escape notice of anyone that the USPTO has never had a woman as a permanent head (as opposed to an acting head).  News reports have speculated that “that the administration favours the appointment of the first woman permanent Director of the USPTO.” See “The USPTO Director job has never been more important, so keep a close eye on who gets it,” Intellectual Asset Management (available at http://www.iam-magazine.com/blog/Detail.aspx?g=d05df489-6d03-418d-9bcb-d07b3152cc0b).  If that is so, the Administration is certainly doing a poor job of it, for the Administration appears to be in the process of passing over multiple highly qualified women.  Deputy Director Teresa Rea was highly qualified and served as acting director for more than nine months.  She was not nominated for the permanent position and has now left the agency.  Perhaps passing on one qualified female candidate can be explained by a variety of circumstances, but the Administration now has another highly qualified woman who will in fact be running the agency.  If the Administration balks at nominating her for the top job, the agency will face the prospect of having several qualified women serve as mere “temps” while the job search drags on.  Such a process would, to put it mildly, seem like a suboptimal way to demonstrate the Administration’s enthusiasm for having a woman as the head of this important agency with its jurisdiction over matters of science, technology and innovation.  

Top Patent Law Stories of 2013 (Webinar)

MBHB's Patent Docs (Donald Zuhn and Kevin Noonan) are putting on a timely session focusing on the Top Patent Law Stories of 2013. The session will be a live webinar via WebEx on January 21, 2014, 10 a.m. - 11:15 a.m. (central time).

For the past six years, the Patent Docs weblog has presented an annual, end-of-the-year review of the top stories in patent law. In this presentation, Patent Docs co-authors Donald Zuhn and Kevin Noonan will take a look back at the top patent stories of 2013, many of which will likely impact patent applicants and practitioners in the coming year.

The event is free, but participants must register in advance and need to register individually to receive CLE credit.

Links:

• Event site
• Register here
• Add to your calendar
• Patent Docs website

Note - MBHB is the exclusive sponsor of the Patently-O blog.

Reading Patent Law

By Jason Rantanen

First, thank you for all the terrific comments I received in response to the Top 10 Patent Cases post.  There were some great ideas there and after substantial reflection I decided that my final list this year will be:

Bowman v. Monsanto, 133 S.Ct. 1761 (2012)
O’Reilly v. Morse, 56 U.S. 62 (1853)
Diamond v. Chakrabarty, 447 U.S. 303 (1980)
Egbert v. Lippmann, 104 U.S. 333 (1881); City of Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126 (1878)
Graham v. John Deere, 383 U.S. 1 (1966); KSR v. Teleflex, 550 U.S. 398 (2007)
The Incandescent Lamp Patent case, 159 U.S. 465 (1895)
Phillips v. AWH, 415 F.3d 1303 (Fed. Cir. 2005) (en banc)
Graver Tank v. Linde Air Products, 339 U.S. 605 (1950)
Gorham v. White, 81 U.S 511 (1871)
Bonito Boats v. Thunder Craft Boats, 489 U.S. 141 (1989)

While it's hard to do justice to patent law with just 10 or 12 cases, because this is an Introduction to Intellectual Property class the amount of classroom discussion that can be devoted to individual cases is limited.  Additional cases are discussed in the mini-treatise the students read and I'll cover them in the lecture component as well.  Fortunately, I also teach Patent Law which allows a much more substantive exploration of specific issues in patent law.  Also, the above list is a combination of importance and teaching value: some cases are on there more because they're both reasonably significant and useful teaching tools.

Second, for those of you who are interested in textualism and claim construction, Landslide recently published my review of Justice Antonin Scalia and Professor Bryan A. Garner's Reading Law: The Interpretation of Legal Texts from a patent law perspective.  A copy of the review is available on Landslide's website and I've archived a copy on ssrn. 

I'll also note that Professor Tun-Jeng Chiang wrote to me yesterday to share that his recently published article The Interpretation-Construction Distinction in Patent Law, 123 Yale Law Journal 530 (with Lawrence B. Solum) relates to many of the issues that I discuss in the review, taking on in particular the "argument that the high reversal rate belies the certainty of textualism or suggests that claim interpretation typically involves hard cases from a linguistic standpoint."  While I ultimately don't agree with many of Professor Chiang's arguments, his work is always insightful and worth reading.  His article is available here.

"Top 10" Patent Cases of All Time

By Jason Rantanen

I teach the Introduction to Intellectual Property course each spring here at Iowa.  Because this is a survey course that covers multiple areas of law that themselves each can be covered in an intermediate-level course, I always find it a fascinating challenge to balance breadth and depth in a way that maximizes students' ability to learn and apply the law. 

This coming semester I'm trying something new: rather than use a regular casebook, I'm taking a "top 40" cases approach combined with a hornbook.  The idea here is to use the hornbook together with lectures to cover the breadth of intellectual property while using discussion of the cases to dig more deeply into particularly significant or interesting moments in patents, copyrights, trademarks, trade secrets, and associated areas of law.  (For those of you not familiar with conventional casebooks, they're typically structured so that preparing for a single class involves reading 2-4 opinions plus associated casenotes.)

My current "top 10" list of patent cases is:

Bowman v. Monsanto, 133 S.Ct. 1761 (2012)
Diamond v. Chakrabarty, 447 U.S. 303 (1980)
Bilski v. Kappos, 561 U.S. __ (2010)
Egbert v. Lippmann, 104 U.S. 333 (1881); City of Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126 (1878) (taught together; yes, this technically makes it 11 cases)
KSR v. Teleflex, 550 U.S. 398 (2007)
The Incandescent Lamp Patent case, 159 U.S. 465 (1895)
Phillips v. AWH, 415 F.3d 1303 (Fed. Cir. 2005) (en banc)
Therasense v. Becton Dickinson, 649 F.3d 1276 (Fed. Cir. 2011) (en banc)
Global-Tech Appliances v. SEB, 563 U.S. __ (2011)
Bonito Boats v. Thunder Craft Boats, 489 U.S. 141 (1989)

These cases track the subject matter I cover in the classroom, so while there are more great cases in each area, I've limited it to just the top case or cases in each.   Also, I recognize that Bowman v. Monsanto is probably not on most folks' top 10 lists; however, I think it's a great way to introduce students to patent law and is particularly relevant here in the midwest.

Are there other cases that you think are even more important or interesting?  Keep in mind that adding cases also requires removing an equivalent number of cases from the list.

CBT Flint v. Return Path: Applying 28 U.S.C. 1920(4) to E-Discovery Costs

By Jason Rantanen

CBT Flint Partners, LLC v. Return Path, Inc. (Fed. Cir. 2013)
Panel: Dyk, O'Malley (concurring-in-part and dissenting-in-part), Taranto (author)

This is an important pair of opinions that anyone interested in the fee-shifting proposals currently pending before Congress should read.  Two aspects are worth noting.  First, the court rejects the argument that Congress's 2008 amendment to section 1920(4) implemented a dramatic change in terms of e-discovery costs.  Second, it implements a granular framework for analyzing e-discovery cost requests that requires complex and careful line-drawing. In addition, both the majority and dissent address the policy concerns implicated in this area.

CBT sued Cisco Ironport Systems and Return Path (who I'll refer to collectively as Cisco, since most of the costs incurred here were sought by Cicso) for patent infringement.  Following claim construction, CBT stipulated to noninfringement and Cisco obtained summary judgment of indefiniteness on one asserted claim.  Cisco moved to recover its costs under 28 U.S.C. § 1920, including $243,453.02 in fees it paid to a company that handled electronic discovery.  The district court granted Cisco's request.  On appeal, the Federal Circuit reversed summary judgment of indefiniteness, construed the claim in question, and remanded for further proceedings.  The district court subsequently granted summary judgment of noninfringement to Cisco, which the Federal Circuit summarily affirmed.

After granting Cisco's motion for summary judgment of noninfringement, the district court again awarded Cisco the fees it paid to an e-discovery vendor. 

The district court's reasoning: The district court's award of costs was implicitly based on 28 U.S.C. § 1920(4), which states:

A judge or clerk of any court of the United States may tax as costs the following:

...

(4) Fees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case;

The Federal Circuit described the district court's reasoning as follows:

Based on a “careful review” of the vendor’s invoices to Cisco, the court characterized the services rendered as “highly technical” and “not the type of services that attorneys or paralegals are trained for or are capable of providing.”  The court concluded that the fees Cisco sought to recover were “the 21st Century equivalent of making copies” (although Cisco had not categorized them as such) and held them to be recoverable....In awarding Cisco the requested amounts, the court said that the “enormous burden and expense of electronic discovery are well known” and that “[t]axation of these costs will encourage litigants to exercise restraint in burdening the opposing party with the huge cost of unlimited demands for electronic discovery.” 

Slip Op. at 3 (internal citations omitted).  On appeal, the Federal Circuit reversed in part, vacated in part, and remanded the matter to the district court for further proceedings.

The Narrow Scope of Section 1920: In 2008, Congress amended section 1920(4) to remove a specific reference to "papers."  While the Eleventh Circuit (whose law applied in this case) has not addressed section 1920(4) as amended, its prior caselaw had interpreted section 1920 as being limited to the "reasonable costs of actually duplicating documents, not [] the costs of gathering those documents as a prelude to duplication."  The Federal Circuit concluded that the amendment did not change that interpretation: 

[W]e conclude that recoverable costs under section 1920(4) are those costs necessary to duplicate an electronic document in as faithful and complete a manner as required by rule, by court order, by agreement of the parties, or otherwise. To the extent that a party is obligated to produce (or obligated to accept) electronic documents in a particular format or with particular characteristics intact (such asmetadata, color, motion, or manipulability), the costs to make duplicates in such a format or with such characteristics preserved are recoverable as “the costs of making copies . . . necessarily obtained for use in the case.” 28 U.S.C. § 1920(4). But only the costs of creating the produced duplicates are included, not a number of preparatory or ancillary costs commonly incurred leading up to, in conjunction with, or after duplication.

Slip Op. at 10.

Three stages of e-discovery: To analyze whether the costs fell into the category of producing duplicates versus preparatory or ancillary activites, the court divided the e-discovery process into three stages: imaging and extraction (where source media is copied as a whole and individual documents are extracted), database creation and document identification (where extracted documents are organized into a database and searched), and production copying (where the documents selected for production are copied onto memory media). 

Comment: The opinion specifically refers to this as "the document production process used in this case."  However, these stages are common enough that the court's framework can be applied to most cases involving e-discovery.

However, while they provide a framework, these categories do not answer the question of whether costs may be awarded for the respective activies.  Rather, the court's opinion envisions a careful line-drawing process, in which the specific activities and their context plays a substantial role in determining whether individual costs may be awarded.  For example, in some circumstances, costs for extraction can be recoverable under section 1920 "where they are, in fact, necessary to make copies of information required to be produced and not incurred just to make copies for the convenience of the producing party."  Slip Op. at 13.  However, "if metadata can be preserved without first using imaging and extraction techniques, then those steps are outside section 1920(4)."  Id. at 13-14.  The opinion contains numerous examples of hypotheticals and considerations to take into account, while noting that it is "an inquiry that the district court should perform in the first instance."  Id. at 15. 

Comment: One thing to keep in mind with this opinion: the flexibility that the majority perceived in Eleventh Circuit law here is not uniform across the circuits.  The court's opinion specifically recognizes that its approach to stage one costs is at odds with the Third and Fourth Circuits.  This variation should be kept in mind when applying this opinion. 

Judge O'Malley's Separate Opinion: Writing separately, Judge O'Malley agreed with most of the majority's discussion but disagreed with respect to one category: the pre-duplication expenses that the majority described as "stage one costs."  In her view, the majority's approach, which allows some of these costs to be awarded, improperly broadens the scope of section 1920(4), is inconsistent with the Eleventh Circuit's prior approach to section 1920(4), and creates an unnecessary circuit split. 

References to the Sedona Conference: The opinion references the The Sedona Conference Glossary: E-Discovery & Digital Information Management (Sherry B. Harris et al. eds., 3rd ed. 2010) numerous times.  As I've written before, this is a worthwhile program to consider becoming involved in. 

In addition, the Sedona Conference has put together an all-star program on patent litigation reform called "Patent Litigation Best Practices: A Matter for Congress or for Bench and Bar?" that will be held on January 22, 2014.  The scheduled panelists include Judge O'Malley.

Patent Law Exam: Questions 2-4

This year I gave a very straightforward patent law exam that was worth 30% of the student grade. The remaining 70% was based upon a series of graded projects during the semester that included drafting claims, drafting office action rejections; drafting responses to rejections; problem sets; case summaries; briefing a mock-appeal; and holding oral arguments in our 3rd Annual Patent Law Moot Court at the University of Missouri. - Dennis

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2. Bob’s patent application is directed to a replicating in vitro cell culture of human embryonic stem cells capable of living without differentiation on a fibroblast feeder layer. Is the application subject-matter eligible? (100 words)

3. Referring back to Bob’s application, it turns out that Bob came up with a working model of the invention and then waited 11-months to file his patent application. Meanwhile, about six-months before Bob filed his application Cindy independently created a replicating in vitro cell culture of pig embryonic stem cells capable of living without differentiation on a fibroblast feeder layer.  Cindy immediately published her work in Science magazine.  Identify three additional facts that would help you know whether Cindy’s publication counts as prior art against Bob's pending patent application and indicate the relevance of those facts. (100 words). 

4. Referring back to Bob’s application and Assuming that Cindy’s publication counts as prior art under 35 U.S.C. 102(a), what is the most likely reason why the Bob’s application would be rejected as unpatentable? (20 words). 

Proving Anticipation-by-Inherency: It is Hard

By Dennis Crouch

Motorola Mobility v. ITC and Microsoft (Fed. Cir. 2013)

In a short opinion, the Federal Circuit has affirmed the ITC's judgment that Motorola infringes Microsoft's Patent No. 6,370,566 covering a mobile device having a "personal information manager."

The most interesting part of the decision comes from the court's analysis of the Apple Newton MessagePad device. Motorola had argued that the Newton anticipated the '566 patent. The ITC found that, while it was "plausible" that the Newton contained the claimed synchronization feature, that Motorola had failed to fully prove that limitation was practiced by the Newton. In particular, the ITC concluded that the "inference of a possibility" did not rise to the level of clear and convincing evidence. On appeal, the Federal Circuit affirmed – finding that "substantial evidence supports the Commission's conclusion that Motorola did not present clear and convincing evidence that the operating system necessarily required any additional capacity that would qualify it as a component 'to synchronize.' Inherency requires more than probabilities or possibilities."

The bad trick here is that Motorola pursued anticipation-by-inherency rather than proving that the Newton was actually used in an anticipating manner. As the Federal Circuit wrote, "inherency requires more than probabilities or possibilities" but instead requires that the limitation in question be a necessary consequence of using a device for its intended purposes. As Janice Mueller writes in her treatise: Stated another way, [inherency occurs when the] practice of the prior art reference would inevitably have resulted in the claimed invention." Bottom line here is that anticipation-by-inherency can be quite difficult to prove well beyond the already difficult hurdle of clear-and-convincing evidence.

The ITC issued an exclusion order that blocks importation of foreign-manufactured Motorola phones that infringe the '566 patents. It is unclear to me at this point which phones and Android operating systems are covered by the exclusion order.

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The '566 patent stems from a 1997 application and claims:

1. A mobile device, comprising: an object store; [i.e., a section of memory used to store records] an application program configured to maintain objects on the object store; a user input mechanism configured to receive user input information; a synchronization component configured to synchronize individual objects stored on the object store with remote objects stored on a remote object store; a communications component configured to communicate with a remote device containing the remote object store; and wherein the application program is further configured to generate a meeting object and an electronic mail scheduling request object based on the user input information.

 

 

 

Question 1 on my short-answer patent law final

What is your best short-answer to this exam question? (See the 20-word limit).

1. Alice's patent covers a new flat panel television made with cobalt-ion-trixles (a truly new compound). In her initial patent application, Alice did not disclose a WiFi transmitter/receiver as part of the television. However, during patent prosecution she added a claim directed to the television that includes both the cobalt-ion-trixles and a WiFi transmitter – arguing that the new WiFi limitation is okay because WiFi is so well known in the art. Assuming that WiFi is truly well known in the art, what is the most likely argument against patent validity? (20 words).

US Government Suggests that Supreme Court Reject Federal Circuit’s Divided Infringement Jurisprudence

By Dennis Crouch

Limelight Networks, Inc. v. Akamai Technologies, Inc. (Supreme Court 2013)

Akamai is the licensee of MIT's patents for that solve some problems associated with distributing large amount of data to individual servers and endpoints in a large computer network (such as the Internet). The ideas therein are used by Limelight to distribute video content on behalf of many of the largest content providers in the world. However, the Akamai/MIT patent has a problem in that several steps of the claimed method are performed by Limelight but others are performed by its customers. Prior Federal Circuit cases would have found Limelight not liable in this situation because no single entity (or its agents) performed each and every step of the claimed invention. The Federal Circuit rejected that rule in its en banc decision in this case – holding instead that Limelight could be held liable under 35 U.S.C. § 271(b) for practicing several of the steps itself and inducing others to perform the remaining steps.

Limelight has petitioned the Supreme Court for a writ of certiorari, asking the following question:

Whether the Federal Circuit erred in holding that a defendant may be held liable for inducing patent infringement under 35 U.S.C. § 271(b) even though no one has committed direct infringement under § 271(a).

The question presented by Limelight is somewhat misleading because the Federal Circuit left-open for another day whether Limelight's activity could be considered direct infringement under § 271(a). Adamai/MIT re-wrote the question:

Whether the Federal Circuit correctly held that a determination of induced infringement under § 271(b) does not require a predicate finding that a single entity was liable for infringement under § 271(a), under circumstances where all of the steps of a method claim are performed, but the inducer performs some steps itself and induces another to perform the remaining steps?

The Supreme Court then asked the US Solicitor General to provide comments on behalf of the US Government. In a brief signed both by the US Solicitor General Donald Verrilli and USPTO Solicitor Nathan Kelley, the US Government has supported the petition for writ of certiorari and sughested that the court reverse the Federal Circuit Decision.

The US Government position is typically seen as the most important and predictive brief on whether the Supreme Court will hear a particular case.

The government writes:

The Court should grant the petition … hold that a party cannot be liable for inducement under 35 U.S.C. 271(b) if no party has directly infringed the patent.

In its brief, the Government recognizes that, if the court follows its proposal, that the law "will likely permit vendors such as Limelight to avoid liability altogether." The brief goes on to indicate that the "statutory gap is unfortunate, but reflects the better reading of the current statutory language in light of establish background principles of vicarious liability."

The basic statutory argument is that 271(b) creates liability against someone who "actively induces infringement." And, the implication that the word infringement in the statute means infringement under 271(a).

SCOTUS Blog has the briefs: http://www.scotusblog.com/case-files/cases/limelight-networks-inc-v-akamai-technologies-inc/

Director Michelle Lee: A Rough Start

By Dennis Crouch

First, let me give my endorsement: I admire Director Michelle Lee and believe that she will be an excellent Deputy Director of the USPTO as well as Acting Director. She is extremely well qualified both in terms of education and experience; she is well respected in the highest levels of governments as well as by business leaders and on-the-ground innovators; and she is ready to work hard to improve the Patent Office and the US Patent System.

That said, Director Lee has not begun her tenure well – seemingly because of her willingness to go along with plans set forth by those in the White House in terms of both (1) the questionable process of her appointment and (2) an initial secret and private roundtable discussion.

Improper Appointment: Yesterday, we discussed the appointment of Director Lee as Deputy Director without proper statutory authority. In particular, the statute is fairly clear that no Deputy Director can be appointed in the absence of a Director. 35 U.S.C. § 3(b)(1). Further, an odd feature of the appointment was the caveat that she will not be titled "Acting Director" of the Agency even though she will be "Acting as Director" and even though the same statute provides that the Deputy Director should fill that role in the absence or incapacity of a Director.

The limits on the Directorship appointments are not merely statutory. Rather, they are in place to maintain an important check on executive authority. Special authority flows from the PTO Director because the Director is appointed by the President and approved by the Senate. See U.S. Constitution Article II, Section 2, Clause 2 (requiring "Advice and Consent of the Senate").

Now, the reality here is that these critiques are largely academic in that: (1) if put up for a vote in the Senate, Director Lee would very likely be approved based upon her qualifications that I discussed above; (2) any legal challenge to her nomination will likely be moot because a Senate-Approved Director is likely to be in office within a few months – well before pleadings would be complete on any challenge to Director Lee's legal authority. However, the comparisons to Dwight Schrute and his role as assistant to the regional manager.

Secret Exclusionary Meeting: Within hours of her announcement as Deputy Director, Director Lee and White House Patent Reform Coordinator Colleen Chien spearheaded a roundtable discussion with a select group of invited guests put forward by the heavily Democratic leaning "Business Forward" community. Business Forward does not lobby, but instead "mak[es] it easier for … business leaders from across America to advise Washington on how to create jobs and accelerate our economic recovery." The meeting was designated as "off the record" by the PTO and barred press (including Patently-O) from attending as well as leaders from the IPO and the AIPLA. USPTO Spokesman indicated that the meeting was a "normal" and usual event: "Yesterday's meeting with a group of seasoned patent litigators was part of a normal series of discussions USPTO has facilitated to solicit views on patent reform proposals from various segments of our user community. As legislation moves on to the Senate, we expect to continue to host such normal meetings with various parts of the IP community."

Now, I do not have a problem with the PTO Director and White House having private meetings, but it does look bad that Director Lee's first information-gathering discussion is with a private hand-selected group of operatives whose result will likely work to set her vision for patent reforms in ways that cannot be rebutted. Directors Kappos and Rea both pushed strongly for public discussion and my hope is that Director Lee will continue that important trend.

Michelle Lee, Acting as Director but not “Acting Director”

By Dennis Crouch

When Michelle Lee joined the USPTO in 2012, she took an interesting title – Director of the Silicon Valley Patent Office. With the resignation of both David Kappos (USPTO Director) and Theresa Rea (USPTO Deputy Director), Lee is the only remaining titled "Director" within the USPTO. There has been a growing expectation that she would soon shift from her West-Coast focus and take over operations of the full USPTO. Although the position of USPTO Director requires Senate confirmation, the Director of Commerce has the ability to shift the personnel who effectively control that position.

This morning, the Commerce Department announced that Michelle Lee will be the new Deputy Under Secretary of Commerce for Intellectual Property effective, January 13, 2014. Because there is no current USPTO Director she will be in charge until a new Director is nominated by the President and approved by the Senate.

Director Michelle Lee has a strong background in intellectual property, beginning with her multiple degrees from MIT in computer science and electrical engineering and a J.D. from Stanford Law School where she was a law review editor. Prior to law school, she worked in MIT's Artificial Intelligence labs and also in HP's research labs. She clerked both in the Northern District of California and for Judge Paul Michel at the Federal Circuit. She then worked for a decade in top Silicon Valley law firms, including Fenwick & West and Keker & Van Nest and then joined Google where she worked for a decade as head of their patent team and deputy general counsel. In the past, Lee has worked closely with Colleen Chien who is now spearheading the White House patent initiatives. Lee is seen as an effective manager and a visionary willing to take on major challenges. Like Kappos, I have always found Lee to be open and ready to hear and respond to reasoned input. There is some trepidation (or enthusiasm, depending upon your perspective) that she will strongly advocate Google's anti-patent stance. I suspect, however, that the result will be pushing for higher quality examination that better ensures clarity.

Congratulations to Michelle Lee!

Lee's appointment does have a genuine statutory problem. In particular, the statute requires that a Deputy Director be appointed by the Secretary of Commerce "upon nomination by the [USPTO] Director." 35 U.S.C. § 3. Because there is no Director, there could be no such nomination. One reason why there is no Director is that position requires Senate approval (as required by the Constitution), and the President's approach here appears to be an attempted end-run around that process. The DoC press release includes the following statement: "Upon assuming her role as USPTO Deputy Director, Lee will perform the functions and duties of the USPTO Director, a position that is currently vacant. In accordance with statutory law, she will assume the title of 'Acting Director' once President Obama nominates a Director." The final sentence of this is unclear to me, but the PTO confirmed that their statement is correct, she will only be acting as director but not officially Acting Director. This is apparently an attempt to avoid the statutory and Constitutional requirements mentioned above. I think it has the complete opposite result because the statute requires that the Deputy Director "act in the capacity of the Director in the event of the absence or incapacity of the Director." Noted patent attorney Hal Wegner comments: "Why would a person of heretofore spotless reputation and noted achievement accept an appointment in violation of the strict statutory wording that the appointment is only 'upon nomination by the Director,' 35 USC § 3(b)(1), at a time when there is no Director." USPTO's chief communications officer Todd Elmer clarified to me that PTO's Commissioner of Patents Peggy Focarino apparently nominated Michelle Lee who was then selected by the Secretary of Commerce. Since Focarino has been handling all the duties of the director, then the PTO has reasoned that Focarino has the power to nominate under the statute.

• Michelle Lee, Patent Reform Needed More than Ever (2009)
• Michelle Lee, Reforming Patent, Promoting Invention (2007)

John Cabeca will take-over as director of the SV patent office.

Chisum on Patents: Abstract Ideas

Don Chisum on the CLS Bank case:

The Supreme Court often intervenes to resolve splits among the various courts of appeal. Here a split exists within a circuit that the circuit itself is unable to resolve. The circuit judges' varying interpretations of a body of recent and not-so-recent Supreme Court precedent riddled with fuzzy language and inconsistent results caused the split. Now, the Court has the opportunity (and the obligation) to clean up a mess that is, to a major extent, of its own making.

Read Chisum's full write-up on the law of "abstract ideas" post-Bilski. http://www.chisum-patent-academy.com/wp-content/uploads/Supreme-Court-on-Computer-Software-Patents-1.pdf

Supreme Court: The Right to a Jury Trial on Obviousness

By Dennis Crouch

Soverain v. Newegg (on petition for writ of certiorari)

After a trial on the merits, Judge Davis (E.D.Tex.) found that the accused infringer (Newegg) had presented insufficient evidence of obviousness and refused to let that issue go to the jury. Instead, the judge awarded a directed verdict for the patentee (Soverain) that the asserted claims were not invalid as obvious. The jury went on to find Newegg liable for infringement and awarded $2.5 million in damages and also found the patent not anticipated. Following trial, the district court denied Newegg's motion for new trial on obviousness grounds. On appeal, the Federal Circuit took the almost unprecedented stance of reversing the non-obviousness decision. One reason for the rarity of a full-reversal (rather than vacatur) is largely explained by the substantial factual foundation that serves as the basis of an obviousness decision. In its opinion, the Federal Circuit couched its discussion in terms of questions of law – following the Supreme Court's lead from KSR International Co., v. Teleflex, Inc., 550 U.S. 398 (2007). In that case, the Supreme Court was able to make the legal conclusion that the asserted claims were obvious because the factual underpinnings of obviousness were seemingly not in material dispute.

In its petition for writ of certiorari, Soverain focuses on the Seventh Amendment right to a jury trial and argues that the Federal Circuit's approach effectively and improperly redefines obviousness as a pure question of law.

Question Presented:

Whether the Federal Circuit's effective redefinition of obviousness as a pure question of law, allowing it to resolve disputed factual questions in the first instance on appeal, violates the Seventh Amendment and this Court's precedent.

Here, Sovarain points to a number of factual issues that the Federal Circuit identified as questions of law, including assessing credibility of the witnesses, resolving conflict between witness testimony resolving the teaching of prior art references.

The Seventh Amendment provides that:

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved...

The Seventh Amendment "preserve[s]" the "common law" right to jury trial and, as a consequence, presents an oddball test that roughly asks whether the cause of action at issue was (or is analogous to) a common law cause of action that was tried before an English jury back in in 1791 and then whether the particular trial decision in question is one that was (or would have been) decided by a jury. See Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996).

The Supreme Court has indicated that patent infringement lawsuits where the patentee is seeking damages are cases at law protected by the Seventh Amendment right to a jury trial. However, as far as I know, the Supreme Court has never held that the right to a jury particularly to an obviousness challenge or to the underlying factual conclusions that serve as the basis for an obviousness decision. 1800's cases do suggest that the factual underpinnings to the "invention" requirement are subject to a jury determination. See, for example, Battin v. Taggert, 58 U.S. (17 How.) 74 (1854); and Turrill v. Michigan S. & N. Ind. R.R. Co., 68 U.S. (1 Wall.) 491 (1864) ("[T]here was an important question of fact which should have been left to the jury, whether … any of the prior movable pressblocks … were substantially the same as the machine of the patentee."). However, the 1952 Patent Act expressly eliminated the doctrine of invention in favor of the new doctrine of obviousness. In its last foray into this area, the Supreme Court recognized in Markman that claim construction included both questions of fact and questions of law, but ultimately determined that no fundamental right to a jury trial existed for that doctrine.

An interesting inside issue here is that Judge Newman has been a strong proponent of the right to a jury trial on obviousness. See Newell Cos. v. Kenney Manufacturing Co., 864 F.2d 757 (Fed.Cir. 1988) (J. Newman dissenting from holding that ultimate question of obviousness may be decided by judge over party's objection). However, it was Newman who found Soverain's patent obvious in the present case. In the 1988 Newell case, the majority held that the patentee has no right to a jury trial on obviousness unless the factual underpinnings are in dispute.

The defendant was, of course, entitled to have a jury summoned in this case, but that right was subject to the condition, fundamental in the conduct of civil actions, that the court may withdraw a case from the jury and direct a verdict, according to the law if the evidence is uncontradicted and raises only a question of law.

Of course, Judge Nies did not walk through the weeds of history (as required by the Supreme Court) to arrive at this answer but instead only looked to the "fundamental notion" that there is no right to a jury decision regarding a question of law. See also, In re Lockwood, 50 F.3d 966 (Fed. Cir. 1995) (Nies, C.J. writing in dissent) (arguing that a patent is a public right created by Congress and "[a] constitutional jury right to determine validity of a patent does not attach to this public grant") (mandamus vacated without opinion by the Supreme Court).

Focusing back, the Soverain petition does not ask the Supreme Court to overrule Newell, but rather to merely limit courts ability to unilaterally expand take would-be factual question and then make those factual conclusions under the guise of legal determinations. Soverain writes:

The Federal Circuit's decision to take for itself questions this Court has reserved for the trier of fact has significant consequences that threaten the stability and predictability of the patent system. This decision shifts the boundary between the ultimate legal question of obviousness and the underlying factual questions. It thus paves the way for district courts and other panels to decide factual questions and undermines the role that the jury and procedural safeguards play in ensuring that hindsight bias does not skew the analysis of obviousness. By downplaying the factual component of obviousness, the Federal Circuit's decision also erodes the clear and convincing evidence standard for proving invalidity, which this Court reaffirmed in Microsoft Corp. v. i4i Limited Partnership, 131 S. Ct. 2238 (2011).

I also see this case as asking for clarification of the KSR decision in terms of what elements of the "common sense" analysis should be considered determinations rightfully before a jury. I suspect that the brief strategically avoided that issue because the Federal Circuit is a much riper target for review than a recent unanimous and popular Supreme Court opinions.

In an amicus brief supporting the petition, Professor Eileen Herlihy argues that the Federal Circuit systematically gets Seventh Amendment questions wrong and needs to be set straight by the Supreme Court. Herlihy has written two articles on how the Seventh Amendment should be applied to patent cases.

• Download Soverain Cert Petition 10.16.2013
• Download Herlihy Mossoff 7th Amendment amicus brief Soverain v. Newegg
• Download Brief of i4i Limited Partnership
• Download 13-477acMDBCapitalGroup

 

Unpublished US Applications

We have moved to a somewhat steady state of 7%, with the bulk of these being US originated applications. That figure may further drop because the $300 publication fee has now been eliminated.

Is Software Patentable?: Supreme Court to Decide

By Dennis Crouch

50-years on, we still don't have the answer as to whether computer programs are patentable.

The Supreme Court has granted a writ of certiorari in the software patent case of ALICE CORPORATION PTY. LTD. V. CLS BANK INTERNATIONAL, ET AL., Docket No. 13-298 (Supreme Court 2013). The Australian patent holder Alice Corp presented the following question:

Issue: Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.

In a highly fractured en banc decision, the Federal Circuit determined that Alice Corp's claims lacked eligibility. Because none of the opinions in the decision carried a majority, the result was that the Federal Circuit only added confusion to the area.

Alice Corp's Patent No. 7,725,375 covers software for managing the risk associated with an online transaction essentially by using an electronic escrow service. Claim 26 recites how the system would work:

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

a communications controller,

a first party device, coupled to said communications controller,

a data storage unit having stored therein (a) information about a first account for a first party, independent from a second account maintained by a first exchange institution, and (b) information about a third account for a second party, independent from a fourth account maintained by a second exchange institution; and

a computer, coupled to said data storage unit and said communications controller, that is configured to (a) receive a transaction from said first party device via said communications controller; (b) electronically adjust said first account and said third account in order to effect an exchange obligation arising from said transaction between said first party and said second party after ensuring that said first party and/or said second party have adequate value in said first account and/or said third account, respectively; and (c) generate an instruction to said first exchange institution and/or said second exchange institution to adjust said second account and/or said fourth account in accordance with the adjustment of said first account and/or said third account, wherein said instruction being an irrevocable, time invariant obligation placed on said first exchange institution and/or said second exchange institution.

The patent also claims "a computer program" for accomplishing the same result.

Capturing the Consumer Surplus through Downstream licensing and Infringement Lawsuits

by Dennis Crouch

Downstream users have been increasingly subject to patent infringement lawsuits even when the product manufacturer would seemingly have been a more natural and focused target. Many assign nefarious intent to these downstream user lawsuits, but it turns out there is a good faith economic reason why the lawsuits make sense for a patentee. The basic insight here is that lawsuits against parties further downstream in the market chain allow the patentee to capture a portion of the economic consumer surplus that is not available at manufacturer-level lawsuits.

A U.S. patent provides its owner with the right to exclude others from making, using, selling offering-to-sell, importing or exporting the patented invention. 35 U.S.C. § 271. The statute is broad enough to allow a patentee to target any point along the supply chain.* However, the rules on exhaustion and multiple recovery prevent a patentee from collecting duplicative royalties at from different points along the supply chain.

In a market economy, consumers typically purchase goods when the prices of those goods are less than what the consumers are willing to pay. Consumer surplus is defined as the difference between that highest price that they would be willing to pay and the price that they actually did pay. Because of pricing difficulties for producers and market competition, almost all goods and services are associated with some consumer surplus. This consumer surplus is a spillover benefit that simply cannot be fully captured by the manufacturer. Each step along a supply chain also typically involves consumer surplus, with the result being that the end-user places a substantially higher value on the good than did the original manufacturer.

This notion of consumer surplus ties back into the patent laws at the point of collecting damages. Under the patent laws, a patentee is due at least "a reasonable royalty for the use made of the invention by the infringer." And, because downstream users place a higher value on the goods than do upstream manufacturers and distributers, it makes sense that the reasonable royalty award will also be relatively higher.

A typical patent scenario might involve a software developer who made check-processing software that was then sold through a vender to banks around the country. The developer, vender, and banks are all potentially liable for infringement and the patentee wanting to enforce its patent would then need to choose whom to sue for infringement. Here, the banks likely paid the vender significantly less than the actual value they receive from using the software. Similarly, a successful vender would have paid the software developer significantly less than the resale price. These differences in valuation offer fuel for the 'hypothetical negotiation' that serves as the fundamental basis for reasonable royalty damages. Simply stated, a party who values the invention more would tend to pay more for use of the invention.

A difficulty with customer-lawsuits is the large number of lawsuits and negotiations. Rather than dealing with a single manufacturer that may result in a single large payout, the patentee is working through dozens or even hundreds or thousands of customers who each pay their bit. In addition, patentees whose preference is to stop infringing use rather than collect royalties will likely prefer to cut focus on the manufacturer level as a better chokepoint.

Now, taking a step back toward reality: It is unlikely that these differences in valuation are driving the current preference for customer lawsuits. Rather, the settlement value of most of the customer lawsuits are driven by the cost-of-defense rather than the merits of the patent at issue or its value to the user. This means that my reasonable royalty calculation from above, even if mathematically correct, is largely irrelevant in the current climate. I should note that there are at least several legitimate criticisms to my analysis and underlying assumptions above, but I'll save those for a later post.

DC

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* With method-of-use claims, the end users end users are the only likely direct infringers, but even there, the suppliers may be liable for inducement or contributory infringement. (Recent cases tightening the mens rea requirement limit this somewhat).

 

Next Step in Patent Reform

By Dennis Crouch

With the passage of the Goodlatte Innovation Act (H.R. 3309), attention now moves to the Senate to consider a a roughly parallel bill. Several amendments passed during today's debate and we'll address those in a later post.

In the Senate, Senators Leahy (D-VT), Lee (R-UT), Whitehouse (D-RI), and Klobuchar (D-MN) have proposed the Patent Transparency and Improvements Act of 2013 (S. 1720). In a prior essay, I called the Leahy-Lee proposal "more measured and limited" than the Goodlatte bill and "much more narrowly focused on egregious patent enforcement abuses."

One important element coming through this process is a clear lack of leadership from the PTO. Although former director David Kappos testified against the Goodlatte proposal, his golden air of credibility and executive authority has shifted since joining the Cravath firm. The PTO has been without a Senate-approved director February 1, 2013 and any new (yet unnamed) PTO director is weeks or months away.

Legislative update.

Chairman Goodlatte is pushing for a vote today in the House on the Innovation Act. Ranking Member Conyers is pushing back. Update: A few minutes ago, the House passed Rep. Goodlatte’s Innovation Act with a strong bi-partisan vote of 325 – 91.

Constitutional Challenge to Administrative Patent Review – Part IV

By Dennis Crouch

Although the parties are ostensibly focused on whether WARF's "replicating in vitro cell culture of human embryonic stem cells" constitutes patentable subject matter, the Federal Circuit is instead directing its attention to the issue of whether the patent challenger – Consumer Watchdog – has standing to file its patent appeal.

Consumer Watchdog v. Wisconsin Alumni Research Foundation (WARF) (Fed. Cir. 2013)

• Independent Justification for Appellate Standing over Inter Partes Reviews – Part I
• Independent Justification for Appellate Standing over Administrative Patent Challenges – Part II
• Constitutional Challenge to Administrative Patent Challenges – Part III

The Patent Act allows any party to file a post-grant administrative challenge and, if "dissatisfied" the results of the change, to appeal an adverse PTO ruling. Despite the statutory promise of appeal-rights, in Part I, I raised a concern as to whether a third-party challenger who loses at the PTO would necessarily have Article III standing. Within days, of that posting, the Federal Circuit ordered that Consumer Watchdog and WARF brief the issue of whether Consumer Watchdog has standing under Article III.

In Monday's oral arguments, the court focused entirely on the issue of standing and would hear no arguments regarding the substantive appeal. Dan Ravicher (for Consumer Watchdog) and Kara Stoll (for WARF) both handled themselves very well, but Ravicher noted that the PTO should be at the table since Consumer Watchdog's complaint is with the PTO for wrongfully issuing the patent and then wrongfully confirming patentability in the reexamination. Chief Judge Rader, Judge Prost and newly enrobed Judge Hughes participated fully in the questioning, although each of indicated some difficulty buying into Ravicher's argument that Congress created a potential injury-in-fact with its "dissatisfied" language and that the injury was realized when the PTO rejected Watchdog's case.

However, following Ravicher's suggestion, the Court has now requested that "the United States Patent and Trademark Office and the United States" provide briefs in the case and particularly brief "whether Consumer Watchdog has standing to pursue its appeal to this court." Recognizing the recent tension in briefing between the USPTO and the DOJ, the court wrote that "The PTO and the United States may submit a joint brief, if they so choose."

Although the court does not explicitly welcome other amicus briefs, I am confident that several will be forthcoming. Briefs are due January 6, 2014.

Federal Circuit’s Most Frequently Cited Cases in 2013

The following list comes from a search of 264 patent-related opinions by the Federal Circuit issued this year. The following are the most frequently cited cases found therein:

1. Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998).
2. Phillips v. Awh Corp., 415 F.3d 1303 (Fed. Cir. 2005).
3. KSR International Co. v. Teleflex Inc., 550 U.S. 398 (2007).
4. Graham v. John Deere Co., 383 U.S. 1 (1966).
5. Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576 (Fed. Cir. 1996).
6. Anderson v. Liberty Lobby, Inc, 477 U.S. 242 (1986).
7. In re Robert J. Gartside, 203 F.3d 1305 (Fed. Cir. 2000).
8. Markman v. Westview Instruments, 517 U.S. 370 (1996).
9. Microsoft Corp. v. i4i Ltd. Partnership, 564 U.S. ___ , 131 S.Ct. 2238 (2011).
10. Omega Engineering, Inc v. Raytek Corp., 334 F.3d 1314 (Fed. Cir. 2003).
11. Eurand, Inc. v. Mylan Pharms. Inc. (In re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent Litig.), 676 F.3d 1063 (Fed. Cir. 2012).
12. Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995).

At some point this term, the Federal Circuit will decide Lighting Ballast Control v. Philips Electronics and that decision is expected to serve as a replacement for Cybor.

After Final Consideration Pilot (AFCP) Extended

The USPTO has extended the After Final Consideration Pilot 2.0 (AFCP 2.0) program that basically gives examiners credit for considering responses filed after a final rejection.

To be eligible for consideration under AFCP 2.0, you must file a response under 37 CFR §1.116, which includes a request for consideration under the pilot (Form PTO/SB/434) and an amendment to at least one independent claim that does not broaden the scope of the independent claim in any aspect. . . . If you are considering filing a response to a final rejection under 37 CFR 1.116 that you believe will lead to allowance of your application with only limited further searching and/or consideration by the examiner, you should consider requesting consideration of the response under AFCP 2.0.

The program was scheduled to end on December 14, 2013, but has been extended until September 30, 2014.

Henry Ford, Patent Trolling, & the Goodlatte Innovation Act in Cartoon Form

Virtual Designs

Guest Post by Mark D. Janis, Robert A. Lucas Chair of Law at the Indiana University Maurer School of Law and Jason Du Mont, Microsoft IP Fellow at the Indiana University Maurer School of Law

While design patents for generated images are commonly portrayed as the newest thing in design patent law, they've actually been around for some time. The USPTO implemented a relevant set of guidelines almost 20 years ago, and today well over 3500 design patents on generated images have been granted.

Nevertheless, scholars have paid relatively little attention to many of the core legal questions these design patents present, and no one has systematically studied how the PTO examines applications that claim these designs. In our recent article, Virtual Designs*, available here, we attempt to fill this vacuum. We analyze the core questions of design patent doctrine, and we provide the first rigorous empirical look at patenting in this sector.

Among the findings are three key points:

1. Virtual designs are eligible designs "for an article of manufacture" (35 USC § 171).

   Virtual designs are akin to surface treatments. While some design patents protect the shapes of articles of manufacture, others protect surface treatments for articles of manufacture (wallpaper patterns, textile prints, etc.). Surface treatments are eligible subject matter, and always have been, starting with the first design patent provisions in 1842.

   Like other surface treatments, virtual designs (e.g., icons on a phone GUI) are eligible subject matter independent of the appearance of the associated article of manufacture (e.g., the phone).This is not a terribly exotic legal proposition. It's merely a manifestation of the concept thata protectable design may reside in some part of the article; it need not extend to the entirety of the article. Standard design patent claiming practice permits applicants to implement this concept by rendering the unclaimed portions of the article in broken lines.

   While virtual designs may be transient, design patent law has previously dealt with this question, too. The CCPA reversed the PTO's rejection in In re Hruby, involving a design for a spray pattern for a water fountain. The design patent eligibility analysis should not turn on whether the design is too ephemeral, whether the subject matter is a water spray pattern or a virtual design.

2. Virtual designs equilibrate around the prosecution norms of other design patent sectors

   We studied all available design patents granted for virtual designs and their prosecution histories. We adapted empirical techniques developed for studying utility patents, and extended the traditional proxies used by economists for measuring the quality and private value of utility patents.

   Our analysis indicates that virtual designs are at least on par with design patents from other sectors when assessed by these traditional measures. And, if anything, an argument can be made that they might actually be more heavily scrutinized than others. They not only garner more rejections, but they also receive more prior art citations from examiners, and greater numbers of forward self-citations.

3. Virtual designs will present a handful of doctrinal challenges

   We expect that design patents for virtual designs will present some challenges for existing rules of design patent anticipation, obviousness, infringement, and remedies. Ultimately, we propose a series of guidelines that seek to account for the transferability of the design among different mediums, and for the need to provide adequate public notice and room to engage in non-traditional, expressive uses of designs.

* We use virtual designs as a generic term that covers everything from GUIs to isolated icons and arrows grouped in classes D14/485 to 495 by the USPTO.

** Read the full article here: http://ssrn.com/abstract=2265733.

Patently-O Bits & Bytes by Lawrence Higgins

Jury Orders Newegg To Pay $2.3 Million To TQP Development

• The online retailer Newegg has lost a patent case centering on Web encryption, after a Texas jury rejected its argument that a claim from the company TQP Development was invalid. The jury ordered Newegg to pay $2.3 million. Newegg's Chief Legal Officer Lee Cheng stated that "the company does not agree with the verdict and they fully intend to take the case up on appeal and vindicate our rights." [Link]

No Patent Trolls in Nebraska!

• Nebraska's Attorney General Jon Bruning wants to start a task force to end, what he calls patent scams. Bruning, states that, he "plans to call for a coalition of states, like with the tobacco cases," referring to the partnership of state attorneys general that collected billions from cigarette makers in the 1990s as compensation for health-care costs related to treating smokers. [Link] [Link]

Teaching Fellow for Stanford Law School LLM Program in Law, Science and Technology

• The Teaching Fellow for the Stanford Law School LLM Program in Law, Science and Technology will work with candidates in the LLM specialization in Law, Science and Technology. The fellow will assume significant academic, advising and administrative responsibilities. He or she will be responsible for organizing and teaching two quarters of a colloquium addressing current issues and scholarship in intellectual property, cyberlaw, bioethics, and related fields.  The fellow will also organize and facilitate informal workshops, outside speakers, and academic and social events; be responsible for day-to-day administrative management of the LLM program; advise and counsel LLM candidates on academic and personal issues; respond to inquiries from prospective LLM applicants; and interact with our faculty in support of the LLM program goals and needs. The fellow will work with the Executive Director of International Graduate Programs, and under the supervision of the Faculty Director of the Law, Science and Technology program. The fellow will also fully participate in the admissions process, working under the guidance of the Associate Dean for Admissions to admit the new class. Although this is a full time position, the fellow should have a reasonable amount of time to conduct his or her own research, and will have ready access to affiliated faculty for that purpose.

  
  Candidates for this position are expected to have strong academic records and references.  Professional experience in the area is also valuable. This position is intended primarily for people who expect to pursue an academic career in a field that is reasonably related to the specialization and who hold a JD, JSD or LLM from a U.S. law school.  Applicants are expected to commit to this position in one year increments, starting in August 2014, with a two-year commitment preferred.

  
  Those interested should apply by letter, summarizing their complete educational qualifications and experience, as well as any other information that might help us in making selections. Each applicant should also send us an official law school transcript, a resume, copies of any publications, and three letters of recommendation (at least two from law professors) commenting on the applicant's suitability for the position in terms of teaching ability, analytic capability, interpersonal skills, and writing ability.

  Apply by January 15, 2014! Your application package should be sent to: [email protected]

Upcoming Events:

• IQPC is hosting its Patent Infringement Litigation Summit on December 9^th and 10^th in San Francisco. The Summit will bring together in-house counsel from major companies, law firm attorneys and representatives from other vendors to facilitate strategy and information sharing among these key stakeholders. [Link]
• American Conference Institute is holding its Advanced Forum on Modern Patent Litigation Practice on December 10-11, 2013 in New York, NY. The American Conference Institute's (ACI's) Advanced Forum on Patent Litigation is the only event that advises all litigators, be they in-house or outside counsel, of the changing landscape of patent litigation caused by recent legislation, government agency guidelines, and court determinations. This conference will not only serve as the standard for Patent Litigation Conferences going forward, but also as an annual meeting place for the "who's who" of the industry. [Link]
• IBC Legal is hosting the 5^th annual International Patent Litigation conference on 10^th & 11^th December 2013 in London. Register with 10% discount at: [Link]
• Momentum Event Group is hosting its conference IP Counsel Exchange for Biosimilar Applicants & Sponsors on January 23-24 in New York. Register with discount code PJ10. [Link]
• IBC Legal will hold its 22^nd annual Biotech $ Pharmaceutical Patenting Conference February 25 & 26 in Munich, Germany. The keynote speaker will be Heli Pihlajamaa, Director of Patent Law at the European Patent Office. [Link]
• Momentum Event Group is hosting its conference The IP Counsel Summit on Post-Grant Patent Challenges on February 27-28 in Paola Alto, CA. Register with discount code PJ10. [Link]
• The Chisum Patent Academy is now accepting registrations for their 2014 Advanced Patent Law seminars, to be held
  • March 5-7, 2014: Cincinnati, Ohio
  • August 13-15, 2014: Seattle , Washington
  • August 18-20, 2014: Seattle, Washington

The Academy applies for 18 CLE credits in each state where seminars are held. [Link]

Constitutional Challenge to Administrative Patent Challenges – Part III

By Dennis Crouch

Consumer Watchdog v. Wisconsin Alumni Research Foundation (WARF) (Fed. Cir. 2013)

A major limitation on judicial power comes from the doctrine of standing. A U.S. court has no power to hear a dispute between parties unless the plaintiff has or imminently will suffer injury-in-fact caused by the challenged action of the defendant that is redressable by a favorable court decision. This limitation has been derived from Article III of the U.S. Constitution that states "The Judicial Power shall extend to all Cases . . .[and] to Controversies . . ." To be clear, this limitation on power is placed on Article III courts at the district, appellate, and supreme court level. However, the limitation has not been applied to adjudicative processes that take place within administrative agencies since the government's authority to perform those activities is not seated in Article III. The conflicting approach to standing between these two adjudicative regimes regularly comes into conflict when parties appeal adverse agency decisions to an Article III court. The general rule for resolving this conflict is Constitutional supremacy – i.e., an Article III court cannot hear a case unless the standing requirement is met.

In the patent world, this issue is most focused in the area of post-issuance administrative patent challenges, particularly including inter partes review, post-grant review, covered-business-method review, and inter partes reexamination. In those regimes, any third party can administratively challenge a patent. Under the statute, the third-party then has a right to appeal an adverse decision to the Court of Appeals for the Federal Circuit. One question on appeal in the Consumer Watchdog case is whether there is standing for the appeal. Here, Consumer Watchdog is a public interest group that has not claimed any direct impact due to the WARF stem-cell patent, but certainly had standing to file its inter partes reexamination. I discussed this issue in some detail here:

• Independent Justification for Appellate Standing over Inter Partes Reviews
• Independent Justification for Appellate Standing over Administrative Patent Challenges – Part II

The parties have now briefed the issue of standing and the court holds oral arguments on Monday, December 2.

• Download CW v WARF - Appellee Order Brief (ECF)
• Download CW v WARF - Appellant Order Brief (ECF)

Consumer Watchdog's brief does a nice job of drawing a parallel between the post-issuance challenges and Freedom-of-Information-Act (FOIA) requests. In each case, the relevant statute has no standing requirement but authorizes appeal to Federal Courts.

The Supreme Court has described FOIA as a "judicially enforceable public right" (EPA v. Mink, 410 U.S. 73, 80 (1973)) and made clear that no injury is required of a person who seeks to enforce that right. NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 221 (1978).

The essential idea here that the statute goes a long way toward creating standing by (1) creating a right to petition and then (2) granting a right to appeal to unsuccessful petitioners. And then, the injury-in-fact or "concrete injury" is completed at least when the PTO finds against the petitioner. At that point, the only party with a right of appeal is the petitioner. This particularization before getting to court helps to distinguish the present case from the leading Supreme Court case of Lujan where a statute provided that "any person" could file suit in federal court.

Idea of a patent challenge as a "judicially enforceable public right" also has precedential support. See Lear v. Adkins, 395 U.S. 653 (1969)

Consumer Watchdog also makes an important point here, that the PTO should be a party to the appeal and that the Federal Circuit should at least invite briefing from the US Government on the issue of standing.

For its part WARF relies heavily on Lujan:

To satisfy Article III standing, Watchdog, a nonprofit taxpayer and consumer-rights organization, must establish an injury in fact—i.e., an actual and imminent, concrete and particularized invasion of a legally protected interest—caused by WARF. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). But Watchdog does not and has not claimed to make, use, or sell the patented invention; has not and could not be threatened with suit; and has not named another real party in interest, either in this appeal or before the PTO. Watchdog therefore cannot establish standing, and Watchdog's appeal should be dismissed.

The result then is that WARF here is inherently arguing that the statute providing for a right to appeal is unconstitutionally broad. The question then is the extent that this crumbles the regime even further. [Updated to clarify that WARF does not explicitly argue the statute is unconstitutional.]

IP Law Professors Rise-Up Against Patent Assertion Entities

By Dennis Crouch

A group of sixty US intellectual property law professors have signed a letter to Congress supporting anti-troll patent reform legislation. This effort was driven by Professor Love of Santa Clara and is also signed by Professors Bessen, Goldman, Ghosh, Lemley, Meurer, Samuelson, Sprigman, and others. [Download ProfessorsLetterOnTrolls].

A key introductory line from the letter:

Despite our differences, we all share concern that an increasing number of patent owners are taking advantage of weaknesses in the system to exploit their rights in ways that on net deter, rather than encourage, the development of new technology.

The basic argument is that patent litigation is expensive and frontloaded in such a way that "creates an opportunity for abuse" because early-state settlement is focused more on the cost of litigation rather than the value of the patent or its underlying technology. And, it is the recent "rise of patent assertion entities" that has "disrupted [the] delicate balance" of the patent system.

The professors propose the following six general reforms:

1. To discourage weak claims of patent infringement brought at least in part for nuisance value, we recommend an increase in the frequency of attorneys' fee awards to accused patent infringers who choose to fight, rather than settle, and ultimately defeat the infringement allegations levelled against them.
2. To reduce the size and front-loaded nature of patent litigation costs, we recommend limitations on the scope of discovery in patent cases prior to the issuance of a claim construction order, particularly with respect to the discovery of electronic materials like software source code, emails, and other electronic communications.
3. To further protect innocent retailers and end-users that are particularly vulnerable to litigation cost hold-up, we recommend that courts begin to stay suits filed against parties that simply sell or use allegedly infringing technology until after the conclusion of parallel litigation between the patentee and the technology's manufacturer.
4. To facilitate the early adjudication of patent infringement suits, we recommend that patentees be required to plead their infringement allegations with greater specificity.
5. [To increase transparency and confidence in the market for patent licensing, we recommend that Congress require] patentees … to disclose and keep up-to-date the identity of parties with an ownership stake or other direct financial interest in their patent rights.
6. [To increase transparency and confidence in the market for patent licensing, we recommend that] Congress consider additional legislation designed to deter fraudulent, misleading, or otherwise abusive patent licensing demands made outside of court.

Without a doubt, there is merit to the professors' case, although I bristle at the letter's broad-brush statements and overt stance that is pro-large-corporate-entity. I have a few thoughts regarding the specific suggestions:

(1): Anti-plaintiff fee shifting will have the obvious impact of altering the availability of contingency-fee counsel which may be the motivation of the suggestion. One problem is that almost every patent in litigation is amenable to a good-faith challenge on either invalidity or non-infringement grounds. Predicting winners and losers is a difficult prospect and this gives me little faith that the fee-shifting proposal will primarily target low-quality claims but instead will target risk-averse plaintiffs. The professors' suggestion here to reward non-settlement does not provide me with any confidence that overall litigation costs will be reduced. On the other hand, this proposal (especially if focused on invalidating patents) could serve as something like a bounty for attorneys to challenge bad patents and, as a consequence, would lessen the free-rider problem associated with a single company challenging a patent that is also being asserted against competitors.

(2) & (4): I agree that there is plenty room for reducing discovery costs and for raising pleading requirements without substantially harming patentee rights. However, one problem for both software and method patents is that some forms of infringement are difficult to truly pin-down absent discovery. Some work must be done on any particular proposals to ensure that the result is not a clear pathway unactionable infringement.

(3) Regarding customer lawsuits, we have a difficulty in line drawing because, for the most part, these are not simply customer lawsuits. Rather, the patents being asserted cover particular methods or systems that take advantage of a particular device on-the-market (such as a wireless router or flat-panel television). In this situation, the differences are such that the manufacturer and retailer typically refuse to honor their implied warrantee that the good is "free of the rightful claim … of infringement or the like." UCC 2-312(3). And so, the question is whether these use cases will fit within the definition. One reason for the downstream lawsuits is that downstreamers typically value the technology more than upstreamers with the result of greater damage award. (We know the downstreamers valued it more because they purchased it from the upstreamers). Since the exhaustion doctrine only allows a patentee to recoup at one point in the stream-of-commerce, it makes sense that they would focus on the highest valued user.

= = = = =

Text of the letter:

To Members of the United States Congress:

We, the undersigned, are 60 professors from 26 states and the District of Columbia who teach and write about intellectual property law and policy. We write to you today to express our support for ongoing efforts to pass patent reform legislation that, we believe, will improve our nation's patent system and accelerate the pace of innovation in our country.

As a group we hold a diversity of views on the ideal structure and scope of our nation's intellectual property laws. Despite our differences, we all share concern that an increasing number of patent owners are taking advantage of weaknesses in the system to exploit their rights in ways that on net deter, rather than encourage, the development of new technology.

Several trends, each unmistakable and well supported by empirical evidence, fuel our concern. First, the cost of defending against patent infringement allegations is high and rising. The American Intellectual Property Law Association estimates that the median cost of litigating a moderately-sized patent suit is now $2.6 million, an amount that has increased over 70% since 2001. These and other surveys suggest that the expense of defending even a low-stakes patent suit will generally exceed $600,000. Moreover, the bulk of these expenses are incurred during the discovery phase of litigation, before the party accused of infringement has an opportunity to test the merits of the claims made against it in front of a judge or jury.

The magnitude and front-loaded nature of patent litigation expenses creates an opportunity for abuse. Patent holders can file suit and quickly impose large discovery costs on their opponents regardless of the validity of their patent rights and the merits of their infringement allegations. Companies accused of infringement, thus, have a strong incentive to fold and settle patent suits early, even when they believe the claims against them are meritless.

Historically, this problem has largely been a self-correcting one. In suits between product-producing technology companies, the party accused of infringement can file a counterclaim and impose a roughly equal amount of discovery costs on the plaintiff. The costs, though high, are symmetrical and, as a result, tend to encourage technology companies to compete in the marketplace with their products and prices, rather than in the courtroom with their patents.

In recent years, however, a second trend – the rise of "patent assertion entities" (PAEs) – has disrupted this delicate balance, making the high cost of patent litigation even more problematic. PAEs are businesses that do not make or sell products, but rather specialize in enforcing patent rights. Because PAEs do not make or sell any products of their own, they cannot be countersued for infringement. As a result, PAEs can use the high cost of patent litigation to their advantage. They can sue, threaten to impose large discovery costs that overwhelmingly fall on the accused infringer, and thereby extract settlements from their targets that primarily reflect a desire to avoid the cost of fighting, rather than the chance and consequences of actually losing the suit.

To be sure, PAEs can in theory play a beneficial role in the market for innovation and some undoubtedly do. However, empirical evidence strongly suggests that many PAEs have a net negative impact on innovation. Technology companies – which, themselves, are innovators – spend tens of billions of dollars every year litigating and settling lawsuits filed by PAEs, funds that these tech companies might otherwise spend on additional research and design. Surveys also reveal that a large percentage of these suits settle for less than the cost of fighting, and multiple empirical studies conclude that PAEs lose about nine out of every ten times when their claims are actually adjudicated on their merits before a judge or jury.

The impact of these suits is made more troubling by the fact that PAE activity appears to be on the rise. Empirical studies suggest that at least 40%, and perhaps as high as 59% or more, of all companies sued for patent infringement in recent years were sued by PAEs. PAE suits were relatively rare more than a decade ago, and they remain relatively rare today elsewhere in the world.

More worrisome than these bare statistics is the fact that PAEs are increasingly targeting not large tech firms, but rather small business well outside the tech sector. Studies suggest that the majority of companies targeted by PAEs in recent years earn less than $10 million in annual revenue.

When PAEs target the numerous small companies downstream in the supply chain, rather than large technology manufacturers upstream, they benefit in two ways. First, for every product manufacturer, there may be dozens or hundreds of retailers who sell the product, and hundreds or thousands of customers who purchase and use the technology. Patent law allows patent owners to sue makers, sellers, or users. Suing sellers or users means more individual targets; some PAEs have sued hundreds of individual companies. And, more targets means more lawyers, more case filings, more discovery, and thus more litigation costs overall to induce a larger total settlement amount.

Second, compared to large manufacturers, small companies like retailers are less familiar with patent law, are less familiar with the accused technology, have smaller litigation budgets, and thus are more likely to settle instead of fight. In fact, many small businesses fear patent litigation to such an extent that they are willing to pay to settle vague infringement allegations made in lawyers' letters sent from unknown companies. Like spammers, some patent owners have indiscriminately sent thousands of demand letters to small businesses, with little or no intent of actually filing suit but instead with hopes that at least a few will pay to avoid the risk.

This egregious practice in particular, but also all abusive patent enforcement to some extent, thrives due to a lack of reliable information about patent rights. Brazen patent owners have been known to assert patents they actually do not own or, conversely, to go to great lengths to hide the fact that they actually do own patents being used in abusive ways. Some patent owners have also sought double recovery by accusing companies selling or using products made by manufacturers that already paid to license the asserted patent. Still others have threatened or initiated litigation without first disclosing any specific information about how, if at all, their targets arguably infringe the asserted patents.

In short, high litigation costs and a widespread lack of transparency in the patent system together make abusive patent enforcement a common occurrence both in and outside the technology sector. As a result, billions of dollars that might otherwise be used to hire and retain employees, to improve existing products, and to launch new products are, instead, diverted to socially wasteful litigation.

Accordingly, we believe that the U.S. patent system would benefit from at least the following six reforms, which together will help reduce the cost of patent litigation and expose abusive practices without degrading inventors' ability to protect genuine, valuable innovations:

1. To discourage weak claims of patent infringement brought at least in part for nuisance value, we recommend an increase in the frequency of attorneys' fee awards to accused patent infringers who choose to fight, rather than settle, and ultimately defeat the infringement allegations levelled against them.
2. To reduce the size and front-loaded nature of patent litigation costs, we recommend limitations on the scope of discovery in patent cases prior to the issuance of a claim construction order, particularly with respect to the discovery of electronic materials like software source code, emails, and other electronic communications.
3. To further protect innocent retailers and end-users that are particularly vulnerable to litigation cost hold-up, we recommend that courts begin to stay suits filed against parties that simply sell or use allegedly infringing technology until after the conclusion of parallel litigation between the patentee and the technology's manufacturer.
4. To facilitate the early adjudication of patent infringement suits, we recommend that patentees be required to plead their infringement allegations with greater specificity.

And finally, to increase transparency and confidence in the market for patent licensing, we recommend:

1. that patentees be required to disclose and keep up-to-date the identity of parties with an ownership stake or other direct financial interest in their patent rights, and
2. that Congress consider additional legislation designed to deter fraudulent, misleading, or otherwise abusive patent licensing demands made outside of court.

In closing, we also wish to stress that as scholars and researchers we have no direct financial stake in the outcome of legislative efforts to reform our patent laws. We do not write on behalf of any specific industry or trade association. Rather, we are motivated solely by our own convictions informed by years of study and research that the above proposals will on net advance the best interests of our country as a whole. We urge you to enact them.

Sincerely,

John R. Allison (Texas); Clark D. Asay (Penn State); Jonathan Askin (Brooklyn); Gaia Bernstein (Seton Hall); James E. Bessen (BU); Jeremy W. Bock (Memphis); Annemarie Bridy (Idaho); Irene Calboli (Marquette); Michael A. Carrier (Rutgers); Bernard Chao (Denver); Andrew Chin (UNC); Ralph D. Clifford (UMass); Jorge L. Contreras (American); Rebecca Curtin (Suffolk); Samuel F. Ernst (Chapman); Robin Feldman (Hastings); William T. Gallagher (Golden Gate); Jon M. Garon (Northern Kentucky); Shubha Ghosh (Wisconsin); Eric Goldman (Santa Clara); Leah Chan Grinvald (Suffolk); Debora J. Halbert (Hawaii); Bronwyn H. Hall (Berkeley); Yaniv Heled (Georgia State); Christian Helmers (Santa Clara School of Business); Sapna Kumar (Houston); Mary LaFrance (UNLV); Peter Lee (Davis); Mark A. Lemley (Stanford); Yvette Joy Liebesman (SLU); Lee Ann W. Lockridge (LSU); Brian J. Love (Santa Clara); Glynn S. Lunney, Jr. (Tulane); Phil Malone (Stanford); Mark P. McKenna (Notre Dame); Michael J. Meurer (BU); Joseph Scott Miller (Georgia); Fiona M. Scott Morton (Yale); Lateef Mtima (Howard); Ira Steven Nathenson (St. Thomas); Laura Lee Norris (Santa Clara); Tyler T. Ochoa (Santa Clara); Sean A. Pager (Michigan State); Cheryl B. Preston (BYU); Jorge R. Roig (Charleston); Jacob H. Rooksby (Duquesne); Brian Rowe (Seattle); Matthew Sag (Loyola Chicago); Pamela Samuelson (Berkeley); Jason Schultz (NYU); Christopher B. Seaman (W&L); Carl Shapiro (Berkeley); Lea Shaver (Indiana); Jessica Silbey (Suffolk); Christopher Jon Sprigman (NYU); Madhavi Sunder (Davis); Toshiko Takenaka (Washington); Sarah Tran (SMU); Jennifer M. Urban (Berkeley); Samson Vermont (Charlotte)

PTO Transitions: Director and Deputy Director Positions Open

In September 2013, USPTO Acting Director Teresa Stanek Rea gave notice that she would step down from the agency in the near future. She has now acted-on that notice and has left the agency. Rea has been Acting Director since January 2013 when David Kappos left to take at the NY Corporate firm of Cravath. Congratulations to Director Rea on her successful tenure that will largely be seen as working toward practical goals of implementing the first-to-file and post-issuance review provisions of the America Invents Act (AIA) in a time of budget cuts and Washington contention. Prior to joining the USPTO in 2011, Rea was a partner at Crowell & Morning.

Peggy Focarino, the commissioner of patents, has now stepped in with the duties of acting director. The PTO's closest link with the White House now is through its Chief of Staff Andrew Byrnes. Unfortunately, Mr. Byrnes has only been in the role since September 2013. Prior to that Byrnes was a litigator at Covington & Burling.

Under the patent statute, the USPTO Director "shall be appointed by the President, by and with the advice and consent of the Senate. The Director shall be a person who has a professional background and experience in patent or trademark law." 35 U.S.C. § 3. The Deputy is then chosen by the Secretary of Commerce upon nomination by the PTO Director. The next director is expected to be a PTO outsider, but no names are forthcoming at this point.

In an email this morning, Hal Wegner distributed the above screen-shot with the caption: Whither Administration Leadership in Patents?

Mullin on Spangenberg

Joe Mullin is probably the country's leading out-of-the-beltway journalist who regularly covers patent law issues. He writes for ArsTechnica and tends to take favor defendants (accused infringers) in his stories, although not as much as his colleague Timothy B. Lee.

Mullin's recent story on the Newegg patent trial and Erich Spangenberg is a really interesting read.

http://arstechnica.com/tech-policy/2013/11/newegg-on-trial-mystery-company-tqp-re-writes-the-history-of-encryption/

Shooting Blanks: Federal Circuit finds Knock-Off Manufacturer not a “Willful Infringer”

By Dennis Crouch

Jake Lee v. Mike's Novelties (Fed. Cir. 2013)

Jake Lee's patent No. 6,419,936 is directed to a novelty pipe whose bowl looks like a revolver cylinder and is actually rotatable so that there is more than one chamber for holding "tobacco."

The accused device a knockoff version. In the infringement case, the jury awarded $40,000 in lost profits and the district court enhanced damages to $70,000 for willful infringement. The court also awarded $230,000 in attorney fees after finding an exceptional case.

On appeal, the Federal Circuit affirmed the infringement award but reversed on willfulness – finding that the defendant's non-infringement arguments were "not objectively unreasonable." Because the exceptional-case attorney fee award was partially based upon the finding of willful infringement (and also litigation misconduct), the court remanded for a determination as to whether the litigation misconduct alone was sufficient to warrant the exceptional case finding.

Technical experts testify in almost every patent case and explain to the jury how the accused product does (or does not) meet the limitations as construed by the court. In a low-value case such as this, an expert would have blown the budget wide open and so the patentee did not present expert testimony. On appeal, the Federal Circuit affirmed that expert testimony is not required to win a patent case – especially where the technology is "easily understandable" Quoting Centricut, LLC v. Esab Group, Inc., 390 F.3d 1361, 1369 (Fed. Cir. 2004).

Enhanced Damages: The text of the patent statute seemingly provides courts with broad discretion to award up-to treble damages. Under 35 U.S.C. § 284, "the court may increase the damages up to three times the amount found or assessed." Despite the seeming broad discretion offered by the statute, the Federal Circuit tightly controls enhanced damage awards and requires that any award be based upon "willful patent infringement." The willful component is further defined as requiring both (1) clear-and-convincing evidence that the infringer took steps to infringe the patent despite an objectively high likelihood that its actions constituted infringement of a valid patent and (2) that the accused infringer subjectively knew of the "objectively-defined risk" or should have known because the risk was so obvious. In re Seagate Tech., LLC, 497 F.3d 1360, 1368 (Fed. Cir. 2007). Further, this willfulness determination is not given to the discretion of the district court but instead reviewed de novo on appeal. Finally, a correct finding of willfulness permits the award of enhanced damages but does not require such an award.

In this case, the defendant had survived summary judgment based upon a "genuine issue of material fact" as to whether the accused turret met the weight limitation found in the claims. And, in oral arguments at the Federal Circuit, plaintiffs' counsel admitted that the defendants' argument was reasonable. One thing that is unclear from the case is when the defendant recognized its reasonable-but-wrong defense to infringement. Was there some time-period when the defendant continued to infringe prior to concocting its defense? And, would the infringement during that period constitute willful infringement?

Litigation Misconduct: The district court found several instances of litigation misconduct by the defendant and defendant's counsel, including bad-faith settlement offers, bad faith conduct during discovery, and unacted-upon threats to report Lee's counsel to state bar associations. However, the exceptional case award was based both on that misconduct and the willfulness finding. On remand, the district court will need to determine whether the misconduct alone is sufficient to make an exceptional case finding and award attorney fees. Depending upon the circumstances, the plaintiff in this case may do well to ask the district court to delay its determination until after the Supreme Court decides the two pending attorney-fee-award cases later this term.

Notes:

• Here is an infringing version for sale on Amazon: http://www.amazon.com/Revolver-Novelty-Six-Hitter-Pipe/dp/B00FGL8BFE/ref=pd_sim_sbs_hpc_1. You can literally get it while its hot.

Patent Reform 2013: Demand Letter Transparency Act of 2013

By Dennis Crouch

In many ways, a patent infringement demand letter is akin to a debt collection action. And, we know that debt collection is highly regulated under both Federal and State consumer protection laws. The current mood in Congress and amongst the state attorneys general is that patent demand letters should also be regulated to control their negative impact on the marketplace. The particular focus is on patentees who threaten litigation against the users of off-the-shelf technology (such as WiFi technology or Flat-Panel Screens) with little or no due diligence or pre-threat investigations. In some cases, patentees are threating litigation with no intention of actually filing suit and are hoping to use the high cost of patent litigation to drive settlement value rather than the underlying value of the patented invention.

Senators Leahy and Lee have proposed the Patent Transparency and Improvements Act (PTIA) of 2013 (S. 1720) as a quite weak form of regulation that would only address the most egregious cases of threats that operate as an unfair competition.

Now, Representatives Jared Polis (D-Co) and Tom Marino (R-Pa) have proposed their own legislation that would have more teeth. See the Demand Letter Transparency Act of 2013 (H.R.3540).  Download HR3540

H.R. 3540 includes a number of interesting features:

• Any demand letter must include:
  • A listing of each claim being asserted and a listing of each accused device;
  • If indirect infringement is claimed, an explanation of the underlying direct infringement;
  • A description of the principle business of the party alleging infringement;
  • A list of other cases and review proceedings where the patent was asserted;
  • Identifying of any licensing term or pricing commitments associated with the asserted patent.
  • A listing of all people who have a direct financial interest in the outcome of the action, and a description of the agreements providing the legal basis for these financial interests; and
  • A statement to the recipient that 'You are not required to respond to this letter by law.'
• A 20-demand-level threshold that raises heightened requirements, including the submission of demand information regarding the demands to the USPTO that will then be publicly available. (i.e., once a patentee sends out 20 demand letters, then it must begin complying with certain reporting requirements).
• Failure to abide by the demand letter requirements would result in abandonment of the patent; other financial penalties; and also action by the FTC.
• Under the statute, a demand letter is defined broadly as any "written communication directed to an unaffiliated third party stating or indicating, directly or indirectly, that the intended recipient or anyone affiliated with that recipient is or may be infringing a patent, or may bear liability or owe compensation to another because of such patent."

While the Leahy-Lee proposal is likely under-inclusive, H.R. 3540 is over-inclusive and would serve as a trap for unwary business leaders looking to license their company's technology. Two tweaks would bring focus: (1) only apply the demand letter requirements to instances where more than 20-demand letters have been sent-out; and (2) narrow the definition of demand letters so that some amount of written technology license negotiations can occur without raising the threat of abandonment (perhaps this could be done through some sort of safe-harbor).

Patent Reform 2013: Measured Reform Proposals from the Senate

Senators Leahy (D-VT), Lee (R-UT), and Whitehouse (D-RI) have proposed their own patent reform bill titled the Patent Transparency and Improvements Act (PTIA) of 2013 –this one much more narrowly focused on egregious patent enforcement abuses. As compared with the Goodlatte proposal, the Leahy-Lee proposal is much more measured and limited in its action. Democratic leaders on the House Judiciary Committee (Representatives Conyers and Watt) have announced their support of the Leahy-Lee approach over Goodlatte's that would include "far ranging changes to the litigation system, such as limits on pleadings and discovery, and intrusive mandates on the court system." 

The Leahy-Lee PTIA includes a number of interesting provisions. Most of the provisions are replicas of those already proposed in other bills. One new provision here is a statement authorizing the FTC to act against unfair and deceptive practices associated with the sending of fraudulent or materially misleading demand letters in connection with the assertion of a patent. Although not stated, the new law would also be tangentially useful for both state attorneys general and for private class-action plaintiffs to seek compensation against egregious actions.

A key element of the proposal would be to require that any demand letters include a statement of (A) patent asserter's identity; (B) the patent being asserted; and (C) the reasons for the assertion.

Under the proposal, the new statute would state that:

It shall be an unfair or deceptive act … for a person, in connection with the assertion of a US patent, to engage in the widespread sending of written communications that state that the intended recipients or any affiliated persons are infringing or have infringed the patent and bear liability or owe compensation if –

(1) the communications falsely threaten that administrative or judicial relief will be sought if compensation is not paid or the infringement issue is not otherwise resolved;

(2) the assertions contained in the communications lack a reasonable basis in fact or law, including, for example, because—

(A) the person asserting the patent is not a person, or does not represent a person, with the current right to license the patent to, or to enforce the patent against, the intended recipients or any affiliated persons; or

(B) the communications seek compensation on account of activities undertaken after the patent has expired; or

(3) the content of the written communications is likely to materially mislead a reasonable recipient, including, for example, because the content fails to include such facts reasonably necessary to inform the recipient of—

(A) the identity of the person asserting a right to license the patent to, or enforce the patent against, the intended recipient or any affiliated person;

(B) the patent issued by the USPTO alleged to have been infringed; and

(C) the reasons for the assertion that the patent may be or may have been infringed.

The Senators will readily admit that this statute is only directed toward the worst offenders and would not serve the goal of generally weakening the ability of a patent holder to assert its rights.

In addition to the bad faith demand letter rules, the proposal would also improving post-issuance review procedures to require that the PTO apply the same claim construction as used in court rather than the “broadest reasonable interpretation.”  In my view, this change should be implemented across the board so that all interpretations made on the record at the PTO will have a direct and foreseeable impact on the scope actually given to claims during litigation. At the same time, the PTO should be able to maintain wide authority to object to claim terms that are indefinite or poorly defined. 

A full outline of the bill is here and the text is here.  Up next - the Demand Letter Transparancy Act of 2013.

Ohio Willow Wood v. Alps South

By Jason Rantanen

The Ohio Willow Wood Company v. Alps South, LLC (Fed. Cir. 2013) Download 12-1642.Opinion.11-13-2013.1
Panel: Dyk, Bryson, and Reyna (author)

There are three main isues addressed in this opinion:

1) Collateral Estoppel based on similar claims in a different patent;

2) Obviousness involving the addition of numerical limitations in dependent claims; and

3) Inequitable conduct: reversal of SJ of no IC.

Background: The Ohio Willow Wood Company (OWW) asserted Patent No. 5,820,237 against Alps South.  The '237 patent relates to directed to cushioning devices that go over the residual stumps of amputated limbs to make the use of prosthetics more comfortable.  The district court granted summary judgment that OWW was collaterally estopped from challenging the invalidity of set of claims in the '237 patent, that the second set of asserted claims was invalid for obviousness, and that there was no inequitable conduct.  OWW appealed the collateral estoppel and obviousness issues while Alps cross-appealed the inequitable conduct issue. 
Collateral Estoppel: The collateral estoppel issue in this case is notable because it involves a separate (albeit related) patent.  OWW sued Thermo-Ply, Inc. for infringement of Patent No. 7,291,182, which issued from a continuation of the '237 patent, in a separate proceeding.  The court in that litigation held the claims of the '182 patent invalid for obviousness, a ruling that was affirmed on appeal.  Based on this previous disposition, the district court in the OWW v. Alps litigation ruled that a set of claims from the '237 were invalid due to collateral estoppel. 

The Federal Circuit affirmed, holding that collateral estoppel can apply across patents.  "Our precedent does not limit collateral estoppel to patent claims that are identical. Rather, it is the identity of the issues that were litigated that determines whether collateral estoppel should apply....If the differences between the unadjudicated patent claims and adjudicated patent claims do not materially alter the question of invalidity, collateral estoppel applies."  Slip Op. at 11.

Here, the differences between the patent claims did not materially alter the question of invalidity: 

As reflected in the claim language above, these patents use slightly different language to describe substantially the same invention. For example, where the ’237 patent recites a “tube sock-shaped covering,” an “amputation stump being a residual limb,” and “fabric in the shape of a tube sock,” the ’182 patent analogously recites the same claim scope in the form of a “cushion liner for enclosing an amputation stump, said liner comprising a fabric covering having an open end for introduction of said stump and a closed end opposite said open end.”  Thus, the mere use of different words in these portions of the claims does not create a new issue of invalidity. 

Id. at 12.

Obviousness - Exercise of Ordinary Skill: OWW also challenged the district court's summary determination that a second set of claims was invalid for obviousness. The crux of OWW's argument was based on the addition of numerical limits on certain characteristics of the "gel composition" and "fabric" elements in dependent claims.  The CAFC agreed with the district court that the addition of these numerical limits was nothing more than the exercise of ordinary skill in the art:

[N]othing in the record indicates that confining the otherwise obvious “gel composition” and “fabric” limitations to the recited numerical limits in the disputed dependent claims was anything other than the exercise of routine skill. Each of these features were well-known in the prior art and their use would have been predictable by one of ordinary skill in the art.

Slip Op. at 15.  Nor did the analysis fo secondary indicia of non-obviousness change the outcome.  OWW failed to show the requisite nexus between the secondary indicia and the patented invention (which in this case was specifically the claimed invention with the numerical limitations as distinguished from the invention minus the numerical limitations).  Furthermore, "where a claimed invention represents no more than the predictable use of prior art elements according to established functions, as here, evidence of secondary indicia are frequently deemed inadequate to establish non-obviousness."

Inequitable Conduct: While the litigation was pending, Alps initiated two ex parte reexaminations of the '237 patent.  Alps supported its second ex parte reexam request with the testimony of a Mr. Comtesse, who had been affiliated with the company that produced the prior art product that Alps relied upon.  The examiner accepted this testimony as evidence that the prior art possessed certain characteristics, resulting in the rejection of all of the claims of the '237 patent. 

In its appeal to the BPAI, OWW argued "that the examiner’s rejection was improper because it relied on the uncorroborated testimony of Mr. Comtesse, whom OWW characterized as a highly interested party." Slip Op. at 7.  OWW denied the existence of any other evidence that would support the relevant testimonty of Comtesse.  The BPAI subsequently reversed the examiner, finding that Comtesse was an interested third party and that his testimony was uncorroborated.

During the district court proceeding, Alps argued that there was contrary evidence that became known to OWW during the course of the litigation and should have disclosed to the PTO.  Applying Therasense, however, the district court granted summary judgment in favor of OWW. 

On appeal, the Federal Circuit reversed, finding that when viewing the evidence in a light most favorable to Alps, genuine issues of material fact remained.  Here, the allegedly material information went to the issue of whether disclosure would have led the BPAI to credit Comtesse's testimony.  The CAFC concluded that there was at least a genuine issue of fact.  Furthermore, the CAFC concluded that viewing the facts in a light most favorable to Alps, OWW's (allegedly false and unfounded) assertions regarding the interested nature of Mr. Comtesse "would be tantamount to the filing of an unmistakably false affidavit."  

Design patents, trade dress & Apple III

By Sarah Burstein, Associate Professor of Law at the University of Oklahoma College of Law

Apple, Inc. v. Samsung Electronics Co., Ltd. (Fed. Cir. Nov. 18, 2013) (Apple III) Download 2013-1129

Panel: Prost (author), Bryson, O'Malley

As Dennis reported yesterday, Apple has scored another win at the Federal Circuit. Specifically, the Federal Circuit has vacated and remanded Judge Koh's denial of a permanent injunction with respect to Apple's utility patents.

But it wasn't a complete win. The Federal Circuit affirmed Judge Koh's denial of a permanent injunction with respect to Apple's design patents and product-design trade dress. This post will focus on the design-related portions of the Federal Circuit's decision.

Design patents: Last summer, the jury found Samsung liable for infringing three design patents—U.S. Patent Nos. D618,677 ("the D'677 patent"), D593,087 ("the D'087 patent") and D604,305 ("the D'305 patent").

The D'677 and D'087 patents claim partial designs for smartphone configurations. Here are representative drawings from each of them:

The D'305 patent claims a design for a graphical user interface. Here is one of the claimed embodiments:

(Although the D'305 patent was published in black-and-white, one of the drawings was submitted in—and therefore claims—color. The image shown above is from one of Apple's district court filings.)

Judge Koh denied Apple's request for a permanent injunction with respect to these design patents. In her order, Judge Koh concluded that Apple "simply [had] not established a sufficient causal nexus between infringement of its design patents and irreparable harm."

On appeal, Apple challenged that conclusion, pointing to: (1) evidence indicating "that design is important [to] consumer choice" in smartphones; and (2) "evidence of quotations from Samsung consumer surveys and from an industry review praising specific elements of both Apple's and Samsung's phone designs, including some elements of Apple's patented designs." According to Apple, this evidence was sufficient to establish a causal nexus.

The Federal Circuit did not exactly disagree. The court took some pains to point out that it "might not reverse the entry of an injunction based on [that] evidence." But, emphasizing the deferential standard of review, the Federal Circuit decided that Judge Koh had not abused her discretion in denying an injunction.

According to the Federal Circuit, Judge Koh "correctly noted . . . that evidence showing the importance of a general feature of the type covered by a patent is typically insufficient to establish a causal nexus." She "was also correct that isolated, anecdotal statements about single design elements do not establish that Apple's broader patented designs are drivers of consumer demand." Therefore, the Federal Circuit affirmed the denial of a permanent injunction with respect to the design patents.

Comment: This decision could make it more difficult for patent owners to get injunctions for partial designs—that is, when they assert design patents that claim portions (instead of all or most) of a product's design. The Federal Circuit specifically distinguished this case from Apple I, which involved a design patent that claimed the entire configuration of a tablet computer.

Trade dress: The jury also found that Samsung infringed Apple's unregistered iPhone 3G trade dress and registered iPhone trade dress (Reg. No. 3,470,983). Here is the illustration from the trade dress registration certificate:

Judge Koh denied Apple's motion for injunctive relief on its trade dress claims, based on "Samsung's cessation of its diluting conduct."

On appeal, the Federal Circuit looked to the controlling regional circuit law—in this case, the law of the Ninth Circuit. The Federal Circuit noted that, under Ninth Circuit precedent, "ongoing diluting behavior is not necessary to obtain an injunction." But, according to the Federal Circuit, that does not mean "that a court commits legal error if . . . it considers a defendant's voluntary cessation of diluting behavior as a reason to deny injunctive relief."

In this case, the undisputed evidence showed that Samsung stopped selling the offending products. And there was no evidence that it would sell them in the future. In light of that evidence, the Federal Circuit concluded that Judge Koh did not abuse her discretion in denying an injunction.

Comment: One particularly interesting issue raised by Judge Koh's order remains unresolved. In ruling on Apple's motion for a permanent injunction, Judge Koh concluded that Apple did not have to make a "showing of irreparable harm beyond the harm of dilution itself." She based this conclusion on the text of 15 U.S.C. § 1125(c)(1). The Federal Circuit did not reach this issue in Apple III. But it might not be able to avoid it for long. Many plaintiffs assert trade dress claims along with their design patent claims. And, as readers of this blog no doubt are aware, those cases are within the Federal Circuit's exclusive appellate jurisdiction. So the Federal Circuit will likely be confronted with this issue again—quite possibly before the regional circuits have a chance to weigh in.

A Computer Encompassing a Human

By Dennis Crouch

Ex Parte Ciprian Agapi, 2013 WL 6039024 (PTAB 2013)

The PTAB continues to decide a large number of subject matter eligibility issues. In this case, IBM is attempting to patent a "computer implemented" method and system for producing, brokering, and distributing digital content. The examiner rejected the pending claims under 35 U.S.C. § 101 as encompassing (1) a human organism and (2) an abstract idea, either of which is sufficient to render the claims unpatentable. The method of claim 1 includes ten steps that basically follow the process shown in the flowchart below. Claims 22 and 23 offer the same substantive limitations in the form of a "machine-readable storage" and "computer-implemented system" respectively. The claims do provide for "computer implemented … distribution" and "digitally conveyable content" but do not otherwise claim any particular technological implementation.

In interpreting the claims, the PTAB basically found that the claim form was critical for its analysis. In particular, the Board found that the system claim (23) is unpatentable because it encompasses a human being or group of human beings.

[W]e agree with the Examiner that the claimed content systems encompass a human being or a group of human beings, when given the broadest reasonable meaning in light of the Specification. We see nothing in the meaning of system itself or the Specification that would preclude these systems from being reasonably construed as encompassing a human being or a group of human beings. Further, we note that the Specification describes embodiments where these systems include both humans and computers, as well as, embodiments where these systems are fully automated.

In considering the machine-readable medium claim (22) and the method claim (1), the Board found that neither "reasonably encompass" human beings. Rather, the one is directed to "an article … that causes a machine" to act and the other is directed to the "use [of] human interaction but [does] not encompass the humans themselves."

Regarding the abstract idea, the Board found that the method claim (1) failed the machine-or-transformation test since it neither required a "particular" machine and because the "mere manipulation or reorganization of data . . . does not satisfy the transformation prong." CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1375 (Fed. Cir. 2011).

[Update] According to the examiner, the only claims that passed subject-matter-eligibility muster were those written in Beauregard form and directed to software stored on a machine readable device. However, [as LB correctly points out in the comments], the Board found cause to reject those as well – holding the claims are unpatentable because they closely track the unpatentable method and system claims. In addition, the Board also found the claims unpatentable as ineligible signals since the storage media could be a transitory signal.

http://e-foia.uspto.gov/Foia/ReterivePdf?system=BPAI&flNm=fd2011010208-11-12-2013-1

Federal Circuit offers Apple Second Chance to Block Sales of Samsung Galaxy Nexus Devices

By Dennis Crouch

Apple Inc. v. Samsung Electronics Co., Appeal No. 2013-1129 (Nov. 18, 2013)

In a unanimous opinion, the Federal Circuit has vacated Judge Koh's decision denying Apple injunctive relief to stop Samsung's ongoing infringement of Apple's utility patents. These utility patents cover software features such as the "bounce-back" feature for scrolling; a multi-touch display for distinguishing between single-finger actions and multi-fingered actions such as "pinch-to-zoom"; and a "double-tap-to-zoom" patent. See U.S. Patent Nos. 7,469,381, 7,844,915, and 7,864,163. The appellate panel affirmed the finding of no irreparable harm (and thus no injunctive relief) for Samsung's adjudged infringement of the related design patents and trade dress.

Injunctive relief requires a showing of irreparable harm due to ongoing infringement. In a prior Apple case (Apple II), the Federal Circuit explained that this showing can be broken-down into a two part requirement of "(1) that absent an injunction, it will suffer irreparable harm, and (2) that a sufficiently strong causal nexus relates the alleged harm to the alleged infringement." Apple II. Following the jury determination of infringement, District Judge Koh held hearings on injunctive relief and found that Apple failed to prove a causal nexus. On appeal, the Federal Circuit partially rejected Judge Koh's analysis – finding basically that Judge Koh had set-up the causal nexus test as too-difficult of a hurdle. In particular, the appellate panel determined that (1) ongoing infringement can be seen as the cause of irreparable harm even of not the sole-reason for the harm; (2) in considering irreparable harm a court should consider all of the infringed patents and patent claims rather than looking at each patent or claim one-at-a-time. See also, Apple I.

On remand, the district court will reconsider Apple should now be awarded injunctive relief. The Federal Circuit has been somewhat demanding on Judge Koh. Originally, Judge Koh had granted injunctive relief, but that award was rejected because Koh did not consider the new causal nexus requirement. Now, the her opinion denying injunctive relief has been rejected for placing too much emphasis on the causal nexus requirement.

In general, this case should be seen as relaxing the test of injunctive relief and will have its greatest impact in markets such as the smartphone market where devices include a large number of features and where market players have a large variety of patents covering those features.

Cases:

• Apple III (This Case): Apple Inc. v. Samsung Elecs. Co., __ F.3d__ (Fed. Cir. 2013)(Prost, J.);
• Judge Koh's Decision reversed here: Apple Inc. v. Samsung Elecs. Co., 909 F. Supp. 2d 1147 (N.D. Cal. 2012);
• Apple II: Apple Inc. v. Samsung Electronics Co., 695 F.3d 370 (Fed. Cir. 2012); and
• Apple I: Apple Inc. v. Samsung Electronics Co., 678 F.3d 1314 (Fed. Cir. 2012).

PTAB Appeals 10-Second Survey

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Guest Post by Prof. Risch: Functionality and Graphical User Interface Design Patents

Guest Post by Michael Risch, Professor of Law, Villanova University School of Law

Read the whole draft here, forthcoming in the Stanford Tech. L. Rev.

Before I was a patent guy, I was a copyright guy, and I did much of my work and research in user interfaces. In the 1980’s and 1990’s, there was a lot of uncertainty about how user interfaces would be protected by copyright. The latest version of the Copyright Act had just become effective, and graphical user interfaces (GUIs) were just taking off. Following a lot of litigation, and despite seemingly contradictory appellate rulings and an equally divided Supreme Court in one case, things eventually settled down.

It is against this backdrop that I took great interest in the Apple v. Samsung case, which is in trial right now on damages issues. Buried in all the talk about rectangles with rounded corners and pinch to zoom is a graphical user interface design patent.

Several of Samsung’s phones infringed this patent. In my article, I consider the implications of design patents, functionality, and graphical user interfaces. This is a realm previously limited to copyright. The difference in protection is important because design patents do not traditionally allow the same defenses — like fair use — associated with copyright.

The article answers three emerging questions:

1. Aren’t GUIs something that should be protected by copyright only? Why should there be a patent? The answer is relatively simple: the law has, since 1870, contemplated dual protection. The article traces the history to explain why the law could have evolved differently, but simply did not.

2. Display screens change, both before and after sale. How can someone patent an ephemeral screen design? It also turns out that ephemeral designs have been protected for some time. Even so, the article proposes some limitations on the protection of GUIs that should address the special nature of GUI design patents.

3. There are many differences between Apple’s patent and Samsung’s product. How can Apple own the idea of square icons in a grid with a dock bar at the bottom? This last question is the most intractable: determining when a design is infringing, and the role that functionality should play in that consideration. The bulk of the article is dedicated to answering this question. 

To answer the third question, the article draws on lessons from prior copyright disputes about GUIs. It first suggests that courts must act as gatekeepers, rather than allowing juries to determine which elements to disregard as functional. It then develops economic factors that can help the court determine whether a design element is functional, and whether to allow reuse by a competing program.

While the economic factors, such as consumer switching costs, apply to both copyright and design patents, the legal doctrine to achieve economic ends will necessarily differ. As noted above, there is no fair use doctrine in design patent law. Even so, there is a form of filtration, and the article proposes that such filtration be expanded to exclude functional elements from infringement analysis. The full article is available here.