Patent Law Blog (Patently-O)

PTAB Backlog

By Dennis Crouch

After an examiner twice-rejects a patent application, the applicant can then appeal that case to the Patent Trial and Appeal Board (PTAB). The appeal process has a number of problems, one of which is exemplified by the chart above. The backlog of pending ex parte appeals is large – over 25,000 pending cases. Over the past two years, the PTAB has been taking action by both adding some efficiencies, reducing opinion writing duties, and also by hiring a large number of additional judges. As the chart shows, those efforts are having some impact on the backlog and hopefully turning the corner. On average, new PTAB decisions in these cases take a little over 2 ½ years from the applicant's appeal brief until issuance of the PTAB decision.

A Few Upcoming Events

By Dennis Crouch

My Upcoming Patent Events: Earlier this week I spoke at the 51^st Annual Conference on Intellectual Property at the Center for American and International Law in Plano. My topic was on functional patent claims and the historic cycle of attacks on that claim type followed by novel approaches and work-arounds by patent applicants. In a few weeks from now, Bart Starr and I will be leading a discussion at the annual meeting of state Attorneys General (NAAG) on the topic egregious patent licensing behavior. AGs are looking for ways they can use the consumer protection laws in this arena. In the program, we are in the difficult position of speaking immediately following Kevin Costner. In January, I'll join the Association of Corporate Patent Counsel at their 2014 Winter Meeting and then in February I will be down in Naples at an interesting gathering put together by Hal Wegner and Judge Linn and sponsored by the University of Akron School of Law titled the Naples Midwinter Patent Experts Conference. Faculty for the Naples conference include Judge Linn, Judge Kathleen O'Malley, PTO Director Terry Rea, former PTO Deputy Sharon Barner, Former Commissioner, Robert Stoll, PTAB Chair James Smith, and Bob Armitage. A number of us law professors will be there as well, including Tim Holbrook (Emory), Timo Minnsen (Copenhagen), Christal Sheppard (Nebraska), Dennis Crouch (MU), Jason Rantanen (Iowa), W. Keith Robinson (SMU), William Hubbard (Baltimore) and Dr. Heinz Goddar. Register for the Naples event here http://www.uakron.edu/law/ip/naples-midwinter.dot or by calling conference coordinator Shannon Aupperle at (330) 972-7988.

Lawsuit Abuse Reduction Act of 2013

The House of Representatives has passed H.R. 2655 titled Lawsuit Abuse Reduction Act of 2013 and the Bill now moves to the Senate for consideration. Although not a patent-focused bill, if enacted, the law could have a substantial impact on patent cases by amending Rule 11(c) by basically making sanctions mandatory for violations of Rule 11(b) certifications. In addition, the amendment would mandate that any sanctions compensate the reasonable expenses of the opposing side and also permit additional monetary and non-monetary sanctions as appropriate. The bulk of the amendment is as follows:

FRCP 11(c) Sanctions.

(1) In General. If, after notice and a reasonable opportunity to respond, the court determines that Rule 11(b) has been violated, the court shall may impose an appropriate sanction on any attorney, law firm, or party that violated the rule or is responsible for the violation. Absent exceptional circumstances, a law firm must be held jointly responsible for a violation committed by its partner, associate, or employee.

. . .

(4) Nature of a Sanction. A sanction imposed under this rule must be limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated. The sanction may include nonmonetary directives; an order to pay a penalty into court; or, if imposed on motion and warranted for effective deterrence, an order directing payment to the movant of part or all of the reasonable attorney's fees and other expenses directly resulting from the violation situated, and to compensate the parties that were injured by such conduct. Subject to the limitations in paragraph (5), the sanction shall consist of an order to pay to the party or parties the amount of the reasonable expenses incurred as a direct result of the violation, including reasonable attorneys' fees and costs. The court may also impose additional appropriate sanctions, such as striking the pleadings, dismissing the suit, or other directives of a nonmonetary nature, or, if warranted for effective deterrence, an order directing payment of a penalty into the court.

The House vote was almost strictly along party lines with Republicans voting in favor, Democrats against.

Hricik on 101

Prof Hricik has a new post on the Ethics Blog focusing on subject matter eligibility under 35 U.S.C. § 101 walking through how the Supreme Court has treated intangible laws of nature as compared with tangible natural phenomenon (or as he calls them 'natural products').

With that framework, here is what the Supreme Court cases teach: If a method claim is deemed to embrace intangible subject matter, or if a product claim embraces a natural product, the claim is at least suspect.

The point here is that the Supreme Court's precedent is really tied-in to claim type – product versus method.

Read it here: http://www.patentlyo.com/hricik/2013/11/my-second-belated-post-about-101.html

Cisco on the Wrong Side of Xenophobia and Anti-Religious Jury Tactics

Update – After thinking reading through this post, it is probably too harsh against Cisco. I was primarily set-off because I read this case involving Cisco's problematic litigation tactics immediately after I read about Cisco's general counsel complaining to Congress about the problematic litigation tactics of patent licensing companies.

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By Dennis Crouch

Foreign litigants often have a real fear of American juries. Back in 2003, Judge Moore (then Professor Moore) authored an interesting article titled Xenophobia in American Courts. In her article, Judge Moore looked at a large dataset of patent cases and found substantial support for the hypothesis that foreign parties are treated worse by juries than their domestic counterparts. This issue has been explored in a number of ways by academics and has parallels to other jury bias issues based upon race or religion. In general, the notion is that it is cognitively easier for people to negatively judge the actions of someone considered an "other."

The recent case of Commil v. Cisco raises some of these issues. And, although Judge Moore was not on the panel, the Federal Circuit agreed that anti-foreign and anti-Semitic tactics before the jury create prejudice that warrant a new trial.

The patentee, Commil, is an Israeli company that filed an infringement suit against Cisco in the Eastern District of Texas. In the first trial, the jury awarded $3.7 million in damages. However, Judge Everingham ordered a new trial based upon the prejudicial effect of "Cisco's counsel's improper religious comments." In the new trial, the jury awarded $63.7 million in damages. On appeal, Cisco asked that the first trial judgment be reinstated. On appeal, however, the Federal Circuit affirmed the new trial finding.

The particular prejudicial are as follows:

• While being cross-examined, Mr. David (the Commil inventor and co-owner) mentioned eating at a barbeque restaurant to which Cisco's counsel responded "I bet not pork." Counsel then went-on to ask Mr. David whether his cousin was a "bottom-feeder who swims around on the bottom buying people's houses that they got kicked out of for next to nothing."
• In closing arguments, Cisco's counsel began with a reference of the trial of Jesus – saying "You remember the most important trial in history, which we all read about as kids, in the Bible had that very question from the judge. What is truth?"

Considering these statements, Judge Everingham wrote:

This argument, when read in context with Cisco's counsel's comment regarding Mr. David and Mr. Arazi's religious heritage, impliedly aligns Cisco's counsel's religious preference with that of the jurors and employs an "us v. them" mentality – i.e., "we are Christian and they are Jewish."

Commil USA, LLC v. Cisco Sys., Inc., No. 2:07–CV–341, slip op. at 3 (E.D.Tex. Dec. 29, 2010).

On appeal, the Federal Circuit found that these actions warranted review and additionally highlighted other aspects from the trial:

For instance, during the voir dire, Commil's counsel explained that the case began in Israel, "the Holy Land for many religions." Later, during closing argument, Commil's counsel argued with respect to damages that Cisco wanted the jurors to "split the baby" and "You know, that wasn't wise at the time of King Solomon. It's not wise today."

Based upon these elements, the Federal Circuit had no trouble finding that the new trial was warranted.

 

[Updated to delete my harsher remarks]

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The interesting and important legal issue in this case is how the Federal Circuit allowed a partial-new-trial rather than a full trial.

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See also, Hal Wegner, Commil v. Cisco, a Sidebar: Judicial Denunciation of Anti-Semitic Jury Tactics, http://www.laipla.net/commil-v-cisco-a-sidebar-judicial-denunciation-of-anti-semitic-jury-tactics/ .

Recent Posts on Patently-O

We have published a number of important essays this week. Here is a breakdown:

• Independent Justification for Appellate Standing over Inter Partes Reviews
• Independent Justification for Appellate Standing over Administrative Patent Challenges – Part II
• A First Inter Partes Review Decision on the Merits
• Should you Transform Your Pre-AIA Application to an AIA Application?
• Guest Post - PAEs under the Microscope: An Empirical Investigation of Patent Holders as Litigants
• Substantial Evidence Rule Kills PTAB Appeals
• Disuniformity

Independent Justification for Appellate Standing over Administrative Patent Challenges – Part II

By Dennis Crouch

Earlier this week, I suggested that the Federal Circuit should independently be considering whether parties involved in administrative patent challenges (such as an inter partes review) have standing to appeal as required by Article III of the US Constitution. Now, the court has taken the first step and demanded that the public interest group Consumer Watchdog justify its standing to appeal in the inter partes review case against WARF's stem cell patent.

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

Back in 2006 Dan Ravicher filed an inter partes reexamination request of WARF's U.S. Patent No. 7,029,913 on behalf of Consumer Watchdog (then known as the Foundation for Taxpayer and Consumer Rights). The patent contains only three claims and broadly directed toward human embryonic stem cells being grown in vitro. After WARF amended its claims, added one new claim, and worked through several rounds of prosecution and rejection, the Board finally agreed that the claims are patentable.

Now Consumer Watchdog has appealed, arguing that "an in vitro culture of human embryonic stem cells is [not] patent eligible under 35 U.S.C. § 101" and also that the claims are invalid based upon prior art known at the time of filing. Of course, one problem with the § 101 argument is that § 101 is not a cognizable ground for deciding an inter partes reexamination. The challenger here argues that subject matter eligibility is a fundamental and threshold issue that the court can and should address, and "[d]oing so is especially appropriate here given recent developments in the law of patent eligible subject matter."

Standing on Appeal: One issue that neither party raised was whether Consumer Watchdog has standing to appeal. In an essay earlier this week, I noted that this is generally an issue that is ripe for consideration at the Federal Circuit. Although the statute allows for appeals of adverse PTO decisions to the Federal Circuit, the US Constitution separately limits the court's power to hear cases where there is no "case or controversy" between the parties. Although I do not know for sure, it appears that Consumer Watchdog does not have any anything at stake in the case in terms of being directly (or even indirectly) impacted by the outcome of the lawsuit.

In an order issued today, the Federal Circuit ordered that the parties brief this particular issue – "whether Consumer Watchdog has standing to pursue this appeal." Briefs are due by November 25, 2013. Although I don't know, Consumer Watchdog may be able to argue that it has standing based upon the actual facts on the ground. Alternatively, it is possible that a party with standing (such as a stem-cell-researcher being blocked by the patent) may be able to join the case at the 11^th hour. Another possibility is that Consumer Watchdog may be able to argue that a patent challenge at the PTO is essentially a public service action akin to a qui tam action. Under this last theory, would really be the general public or government that has standing to challenge a 'bad' patent and Consumer Watchdog is merely acting on behalf of us all.

More here on the case from Antoinette Konski: http://www.personalizedmedicinebulletin.com/2013/09/15/update-on-warf-stem-cell-patent-challenge/

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In recent weeks several non-practicing "patent killers" have filed inter partes review requests including RPX and Unified Patents. It will be interesting to see whether they file amicus briefs here.

A First IPR Decision on the Merits

Garmin v. Cuozzo Speed Tech, IPR2012-00001 (PTAB 2013)  Download Final decision-59

In its first full merits decision in an inter partes review case, the Patent Trial and Appeal Board (PTAB) has sided fully with the petitioner Garmin and ordered the three challenged claims cancelled. As you may discern from the docket number, this case was also the first IPR case filed on September 16, 2012 (the first day that such filings were allowed). The patent at issue is No. 6,778,074 and a parallel infringement lawsuit between Garmin & Cuozzo is pending in New Jersey District Court. Although the district court did not stay that case, Magistrate Judge Dickson has slowed the process to avoid making substantive decisions until the PTAB decision. In particular, the claim construction arguments have been delayed.

The patent itself is directed toward a speed-limit indicator tied to a GPS system that provides a signal to the driver when the care is moving faster than the speed-limit. Couzzo has accused several device makers (such as Garmin) as well as automobile manufacturers (such as Chrysler) of infringing the patent.

Garmin's IPR request actually challenged 17 claims of the '074 patent, but the PTAB only instituted the review for claims 10, 14, and 17 as such, it likely that Cuozzo will continue to pursue the litigation with a focus on the remaining claims. Those three claims were all found obvious by the PTAB. Based upon my quick read of the claims, independent claim 10 was the broadest in the patent and its elimination may give Garmin the opportunity to avoid infringement by pushing for a narrow construction of the remaining claims.

Four Reference Rejection: Patent attorneys regularly see obviousness rejections that hinge on the combination of four references.  However, the conventional wisdom is that those complex factual arguments are much less likely to fly in disctrict court litigation.  Here, the PTAB took on the challenge and found the patent obvious based upon four prior art references.  The take-away here is that the PTAB is ready and willing to handle complex invalidity arguments that might not work at the district court level. 

 

Claim Construction: One interesting aspect of the case is the way that the pending parallel litigation is clearly in the forefront of each decision by the parties. One limitation found in each claim of the patent is that a speedometer be "integrally attached" to a speeding-indicator. Couzzo that the proper construction of that term would require that the speedometer and speeding-indicator both be part of the same single component (i.e., shown on the same screen). On that point, the Board sided with Garmin – finding instead that the broadest reasonable interpretation of the claim scope required two separate components. In addition to making the claim more subject to prior art, the seeming result is also that a single Garmin device GPS cannot infringe unless somehow integrated with and integrally attached to a separate vehicle speedometer. Moving forward it will be interesting to see what level of respect the district court gives the PTO decision. I suspect that it will be given a great deal of respect.

Unable to Prove Early Conception  or Diligence: Two of the important prior art references used by the board presumptively qualify as 102(e) prior art in that the references are published US patent applications that were filed prior to Couzzo's application. Under the old first-to-invent rules, the law allows Couzzo prove a prior invention date. Here, Couzzo's proof failed because (1) his conception evidence was based solely on inventor testimony which is never sufficient without corroboration; and (2) his evidence of submission to the "Invention Submission Corporation" was insufficient because the date of submission was not corroborated by any testimony. Thus, the PTAB found that the earliest provable date of conception was December 2000 when the ISC patent attorney sent a letter to Couzzo referencing Couzzo's invention disclosure. Because Couzzo had not yet reduced his invention to practice as of that December 2000 date, the law also requires that he act with "reasonable diligence." Here, Couzzo received a search report from the patent attorney in January 2001; did not respond until March 2001; and did not explain why it took two months to provide comments or his daily progress on the matter. Then, later in March 2001 he received a new favorable patentability report from the patent attorney who stated he would begin work once Couzzo paid a $3,500 fee. However, he did not pay that fee until August 2001. Couzzo stated that he did not have the money at the time, but did not provide any daily progress reports showing what he was doing to get the money. The PTAB found that each of these gaps showed failure of diligence. As such, his attempt to antedate the references was rejected. The unfortunate problem here is that it looks like it was the complexity and tricks of the system that failed Couzzo and that, had he been blessed with more cash-on-hand and more sophisticated patent counsel then he would have avoided these key prior art references either by filing the patent application earlier or by ensuring documentation of conception and diligence. Soon after Couzzo's case was filed, the USPTO went after the Invention Submission Corporation as a scam. My understanding is that InventHelp is the successor-in-interest to ISC.

 

Interesting new survey results from a Time/Qualcomm survey of 10,000 global consumers. Read here: http://www.qualcomm.com/sites/default/files/uploads/time-invention-poll-in-cooperation-with-qualcomm-summary.pdf

Should you Transform Your Pre-AIA Application to an AIA Application?

By Dennis Crouch

In the lead-up to March 16, 2013 the patent office received an influx of tens-of-thousands of patent application filings. That date is important because new applications filed on or after March 16, 2013 are examined under the first-to-file rules of the America Invents Act (AIA). At first glance, that influx suggests that applicants overwhelmingly prefer the prior first-to-invent rules. That suggestion makes sense since the AIA generally expands the scope of prior art available to adjudge patentability. However, the reality is that early filing might me more properly seen as a hedge against the potential that the new rules are too harsh on patentees. As I discuss below, the AIA offers an easy mechanism for any pre-AIA patent application to be transformed into an AIA patent application and it turns out that there are several major reasons why a patentee might prefer its patents to be adjudged under the AIA rules.

Transforming to an AIA Patent: The basic rule is that the first-to-file rules of the AIA apply to any application with at least one claim whose priority date is on or after March 16, 2013. The mechanism then is to file a follow-on application, such as a continuation-in-part (CIP) application, that adds some new matter and a new claim. The result of that filing then is that the entire application and resulting patent will be judged under the AIA first-to-file rules. To be clear, the CIP transforms the entire application to an AIA application – even claims that are identical to those that were in the original pre-AIA application and that were fully supported by that original pre-AIA application. Although I use a CIP as an example here, any new filing that properly adds new matter and that results in a related new claim will qualify.

The procedure is easy – the larger question is why a patent applicant would prefer an AIA patent to a pre-AIA patent. Some reasons:

• AIA patents are (likely) not subject to being invalidated based upon pre-filing secret sales; secret offers to sell; or secret uses.
• AIA patents have expanded the scope of the Create Act so that would-be anticipating prior art is also negated. The basic idea is that non-public prior filings by a research partner will not negate patentability.
• AIA patents that stem from a foreign-filing count as prior art as of their priority filing date. This change effectively overrules the Hilmer doctrine and essentially makes AIA patents (and their associated published applications) much more powerful as a form of prior art.
• At the same time, claims that were fully supported by the original priority filing will still get that priority date even when being adjudged under the new law.

Depending upon your particular factual situation, these reasons may justify a transformation of a pre-AIA application to an AIA application. Directly on point, this opportunity suggests that attorneys revisit pending pre-AIA cases that involved some pre-filing commercial activity to nail down whether any pre-filing sales activity took place. This issue is especially important when you consider cases like Hamilton Beach Brands, Inc. v. Sunbeam Products, Inc., 726 F.3d 1370 (Fed. Cir. 2013). In that case the Federal Circuit found the patent-in-suit invalid based upon an offer from a foreign supplier to produce the product on behalf of the patentee. That is the sort of secret on-sale activity that will not serve as prior art for AIA patents. If that pre-filing on-sale activity was kept confidential then a transformation to an AIA application may make sense.

The transformation to an AIA application should probably be seen as a hedge rather than transformation because it does not require abandonment of the pre-AIA application. Thus, the same original priority filing that was filed before March 16, 2013 could result in a family of patents, some of which are adjudged under the pre-AIA rules and others that are adjudged under the AIA rules. The basic business question then for these pending pre-AIA questions is not whether the potential AIA patent is more likely to be valid than a pre-AIA patent. Rather, the hedging question is whether the addition of an AIA patent covering parallel subject matter adds enough value to be worth the costs.

There are a number of caveats to this procedure. Here are three. First, as I mentioned above, the transformation process requires the addition of new matter and a new claim that includes some of that new matter. I would expect some equitable risk for patent applicants in situations where it is clear that the new matter was only added as a formality in order to use this procedure. Defendants could potentially raise inequitable conduct or laches defenses based upon a patentee's claiming that some new matter was patentable when the only true purpose of the new matter was for the old claims to be interpreted under the new rule. In a similar vein, this approach raises double-patenting questions and it is somewhat unclear how double patenting issues will be resolved under the AIA. Finally, it is important to make clear that these transitional applications will not avoid 102(g) prior art based upon the transitional provisions found in the AIA.

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Note, I had been thinking some about this issue but my post here was triggered by a recent presentation by Bryan Diner from Finnegan who, in turn, recognized Tom Irving and his related Jedi Master Mixer strategy.

Independent Justification for Appellate Standing over Inter Partes Reviews

By Dennis Crouch

The recent Supreme Court decision in Already v. Nike revolves around the question of when a trademark-challenger has declaratory judgment standing to challenge a mark's validity. That particular case revolved around the impact of a covenant-not-to-sue. However, at oral arguments, Justice Kennedy turned his attention to administrative challenges before the TTAB (the trademark-equivalent of the PTAB) and asked whether a challenger who loses an opposition through that administrative body would have standing to ask the Federal Circuit to review the decision. Now, the statute is clear that any party to an opposition has a right to appeal to the Federal Circuit. 15 U.S.C. §1071. Justice Kennedy's question, however, focused on whether the case and controversy requirements of the constitution allows an Article III court to hear the case absent a stronger showing of conflict between the parties. Nike's counsel (Tom Goldstein) surprisingly answered (seemingly against his interest in this case) that Article III standing for the appellate court would not be satisfied simply by virtue of being involved with the trademark opposition.

JUSTICE KENNEDY: Is the standing burden any less after there is a -- an administrative adjudication and you go to court for judicial review?

MR. GOLDSTEIN: … We've looked at the cases. We think that it's a point in their favor, Justice Kennedy, that while you can go to the TTAB, they wouldn't be able to appeal to an Article III court. I think that's a point in their favor.

The point here is that, (1) an administrative agency (such as the PTO) can be empowered (under the Constitution) to decide cases between two parties without any showing of injury or standing by the petitioner. However, (2) if that administrative decision is appealed to an Article III court (such as the Federal Circuit), case must satisfy the ripe controversy requirements of the Constitution. At the Already oral arguments, the attorney for the US Government (Ms. Anders) attempted to cut-through some of this by arguing that, in some circumstances an adverse decision from the PTO would create the injury-in-fact that is sufficient to establish Article III standing for appeal. See Megan La Belle, Summary of Oral Argument in Already, LLC d/b/a Yums v. Nike, Inc. (November 8, 2012).

Although not an intellectual property case, the D.C. Circuit very recently decided a somewhat parallel issue in the case of Americans for Safe Access v. DEA, 706 F.3d 438 (D.C. Cir. 2013). The appellants in that case include Safe Access, is a marijuana legalization advocacy group, and several individuals who petitioned the US Drug Enforcement Administration (DEA) to reschedule marijuana as a Schedule III, IV, or V drug rather than a Schedule I drug. In the subsequent appeal to the D.C. Circuit, the DEA argued that the appellants had no Article III standing. Although the D.C. Circuit found standing, it agreed with the DEA that Article III standing continues to be a requirement and that participating an administrative hearing is not sufficient to create standing. Here, standing was based upon the fact that one of the appellants (Michael Krawitz) was a disabled veteran eligible for medical care through the Department of Veterans Affairs but was denied marijuana treatment and instead had to purchase his own through the Oregon Medical Marijuana Program.

Similarly, in Sierra Club v. EPA, 292 F.3d 895, 899 (D.C. Cir. 2002), the D.C. Circuit wrote:

An administrative agency is not subject to Article III of the Constitution of the United States [and] so the petitioner would have had no need to establish its standing to participate in the proceedings before the agency. When the petitioner later seeks judicial review, the constitutional requirement that it have standing kicks in, and that requirement is the same, of course, as it would be if such review were conduct in the first instance by the district court.

The point here is simply, that standing is a requirement at the appellate level and an adversarial administrative process itself does not necessarily create standing.

Post-Grant and Inter Partes Review: All of this is relevant to the USPTO's new administrative review procedures that allow third-parties to initiate an administrative patentability review without any showing of standing or interest in the outcome of the review. Under the statute, the third-party requester also has a right to appeal an adverse PTO decision directly to the Court of Appeals for the Federal Circuit.

Manufacturing Appellate Standing through Administrative Review: Although the statute provides for a right-to-appeal, the balance of the law (as exemplified above) requires that the parties will also need to satisfy the Constitutional standing requirement. One basic legal question then will focus on whether the government's suggestion in Already is correct – that a case and controversy can be manufactured by the administrative review itself. Of course, following Already, a covenant-not-to-sue given by the patentee to the review requestor would eliminate any possibility of injury-in-fact. And, if the requestor is a public-interest organization (such as PubPat) such a covenant would be essentially cost-free for the patentee.

Manufacturing Declaratory Judgment Standing through Administrative Review: An important twist on this then is that - if the administrative review serves as a bootstrapping mechanism for generating Article III standing for challenging patentability on appeal, then it should also serve to generate Article III standing for challenging patent validity in a district court declaratory judgment action.

Now, the reality is that this issue will only arise in limited circumstances because the high-cost of post-grant reviews serves as a major filter to post grant and inter partes review filings. We can expect that it will be primarily parties with genuine controversies that request the reviews and only a much smaller percentage will be folks without a genuine controversy. 

Thanks to James Dabney, Megan Labelle, Michael Burstein, and Erin Hawley for helping me to think through this issue. Of course, as you might expect, these folks don't entirely agree with my perspective.

Guest Post - PAEs under the Microscope: An Empirical Investigation of Patent Holders as Litigants

Guest Post by Christopher A. Cotropia, Professor of Law and Austin Owen Research Fellow, University of Richmond School of Law; Jay P. Kesan, Professor and H. Ross & Helen Workman Research Scholar, University of Illinois College of Law; and David L. Schwartz, Associate Professor and co-Director of the Center for Empirical Studies of Intellectual Property at Chicago-Kent College of Law

 Today, a certain type of patent litigant—the non-practicing entity (“NPE”), also known as a patent assertion entity (“PAE”), patent monetization entity (“PME”), or simply patent troll—is the target of much public debate, if not venom. Indeed, President Obama himself got involved in this debate, with his Council of Economic Advisers preparing a report this summer entitled “Patent Assertion and U.S. Innovation.” The Executive Summary of the President’s report sounds the following alarm about PAE suits:

Suits brought by PAEs have tripled in just the last two years, rising from 29 percent of all infringement suits to 62 percent of all infringement suits.

This asserted explosion in PAE-initiated litigation has fed into a wider perception that PAEs are out of control and need reining in by Congress.  But is the factual assertion by the President’s report an accurate characterization of total PAE litigation activity? 

We address this important issue in our new article, Patent Assertion Entities (PAEs) Under the Microscope: An Empirical Investigation of Patent Holders as Litigants. To investigate PAE litigation, we personally hand-coded all 7,500+ patent holder litigants in 2010 and 2012. In our coding, we finely classified the nature of the litigants, going beyond the simple PAE / non-PAE label.  Specifically, we coded each patent holder as one of the following:  (1) a University; (2) an Individual Inventor/Family Trust; (3) a large Patent Aggregator (e.g., Acacia); (4) a Failed Operating Company or Failed Start-up; (5) a Patent Holding Company that appears unaffiliated with the original inventor or owner; (6) an Operating Company; (7) an IP Holding Company affiliated with an operating company; or (8) a Technology Development Company (e.g., Walker Digital).[1]

Based on our data, and contrary to the assertions in the President’s report, we do not find an explosion in PAE litigation between 2010 and 2012.  In particular, the President’s report considered only the raw number of lawsuits filed in 2010 and 2012. By limiting its analysis to numbers of cases filed, rather than the underlying parties involved, the President’s report was incomplete and led to an erroneous conclusion.

To understand the reason for this error in the President’s report, one must consider an important change to patent litigation made by the America Invents Act (AIA). The AIA, adopted in 2011, changed the joinder rules relating to patent litigation by prohibiting patent holders from including multiple, unrelated defendants in a single lawsuit based on commonly-asserted patent(s). Instead, after the AIA, patent holders must file separate lawsuits against each unrelated defendant. Thus, rather than focusing on the raw number of lawsuits as the President’s report did, a more appropriate inquiry should focus on the total number of patent litigants, both patent holders and accused infringers, in order to gauge more accurately the actual number of patent disputes between parties. Using this approach, we found almost no difference between 2010 and 2012 in the number of litigants in patent cases. In other words, the “explosion” of PAE litigation between 2010 and 2012 is simply a mirage.

First, in terms of raw number of patent lawsuits, our study reveals that the number of lawsuits did increase between 2010 and 2012, with a substantial increase in the raw number filed by non-operating companies (by which we mean the sum of all categories except operating companies).  Our first finding therefore is similar to the President’s report.  For example, while what we coded as “Patent Holding Companies” (“PHCs”) suits comprised 16% (400) of cases filed in 2010, they comprised 38% (1,959) in 2012, and this is in comparison to “Operating Companies” suits comprising 69% (1,750) of cases in 2010 to 45% (2362) of cases in 2012.  The bar chart below reports these findings along with those for all of the categories we coded:

However, when we evaluated the number of litigants, rather than just the number of cases, the picture changed substantially. We considered separately both the number of unique patentees alleging infringement in 2010 and 2012 and the total number of alleged infringers in those years. For both, we found little difference between 2010 and 2012.  Our second finding therefore directly contradicts the statement in the President’s report that there was an explosion of PAE lawsuits in that time period.

Specifically, concerning the number of unique patentees starting litigation, the total number barely changed between the studied years, increasing from 1,610 unique patentees in 2010 to only 1,696 in 2012.  Further, the distribution among types of patentees stayed almost the same, with the unique number of PHC patentees slightly increasing from 13% (214) of all patentees in 2010 to 16% (266) in 2012, while Operating Company patentees dropped slightly, from 72% (1,156) of all patentees in 2010 to 69% (1,165) in 2012. The graph below reports all of the unique patentee numbers for the various categories.

And the number of infringement defendants (perhaps the best measure of the impact of patent litigation) corresponding to each category of patent holder also did not vary much from 2010 to 2012.  In particular, the overall litigation exposure from Operating Company suits compared to other types of patentee suits remained almost constant.  The number of defendants in Operating Company suits slightly dropped from 49% (5,708) of the total number of defendants in 2010 to 48% (5,611) in 2012.  And while the number of alleged infringers for other categories changed, the changes were slight.  For example, the number of defendants in PHCs suits rose from 27% (3,179) of all defendants in 2010 to 32% (3,698) in 2012 while the number in Individual/Family Trust dropped from 11% (1,320) in 2010 to 8% (927) in 2012.  The complete comparison of total number of parties excluding the patentee in 2010 versus 2012 is set forth in the graph below.

From this data, the only real change between 2010 and 2012, the increase in the raw number of lawsuits, is most likely driven almost entirely by a procedural rule change relating to joinder passed with the 2011 patent reform. These results call certain findings in the President’s report into serious question.

Information about lawsuit filings, obviously, cannot answer all questions about PAEs. There are other serious questions relating to PAEs that demand an empirical answer. For instance:

• Ÿ What is the volume of patent demand letters? How many of those assert frivolous claims?
• Ÿ Of the litigated cases, how many of the PAE (and non-PAE) cases are frivolous?

We do not know the answers to these questions (yet), and further rigorous empirical research is needed.

To aid the effort in understanding the patent litigation landscape, we have decided to release the underlying data—our specific classifications of the litigants in all patent lawsuits filed in both 2010 and 2012—to the public. We believe that releasing this data to the public, which unpacks the definition of PAE, provides better illumination to policy makers, researchers, and others interested in the patent litigation system.  This data is available to everyone to examine and evaluate at www.npedata.com. 

The full paper is available for download here. It provides a detailed analysis of the distribution of the 2010 and 2012 patent cases, including information based upon technology and litigant type.

We welcome any comments and suggestions on the article or the dataset.

---

[1] A more detailed description of the categories can be found on pages 13-14 of our draft article.

Substantial Evidence Rule Kills PTAB Appeals

by Dennis Crouch

In re Haase (Fed. Cir. 2013)

In a nonprecedential decision, the Federal Circuit has affirmed a PTO rejection of Richard Haase's pending water purification patent application No. 10/413,849. Although representing himself pro se in this case, Haase is no amateur patent sleuth. Rather, Hass has filed more than fifty patents applications related to water purification. See, for example, Patent Nos. 8,268,269, 8,161,748, and 8,123,944. Mr. Haase is also a graduate of the University of Missouri (ChemE + Mathematics + Economics). His company, ClearValue has filed several infringement lawsuits – most recently winning a multi-million dollar jury verdict that was then overturned on appeal. Haase also has a malpractice action pending against his former attorneys. Haase v. Abraham, Watkins, Nichols, Sorrels, Agosto & Friend, LLP, 404 S.W.3d 75 (Tex. App. 2013).

The patent here is directed toward a method of clarifying waste water, using chemical coagulants to remove solid contaminants.

In the end, this case follows the typical path of appeals from the PTAB to the Federal Circuit. Under the rules of administrative law, factual determinations by the PTAB are affirmed when supported by 'substantial evidence.' Under that rule, the PTAB factual determination will be affirmed so long as supported by "more than a mere scintilla" of evidence. In general, this is an easy threshold for the USPTO to meet. So, to be clear, the appellate court will affirm a factual determination even when that determination is likely wrong so long as some amount of evidence support the determination. We've all heard the adage that 'reasonable minds can differ.' I think of the substantial evidence rule as a relaxed version that 'somewhat reasonable minds can differ.' Or, in other words, the PTO's factual determinations will be affirmed if somewhat reasonable.

What is a factual determination: It is important to pause for a moment to recognize that a factual determination is quite different from mere evidence. Rather, a factual determination is generally an abstraction based upon the evidence presented.

Here, the PTAB read the evidence (a prior art reference) and made a factual determination that the evidence disclosed the elements of Haase's claims. On appeal, the Federal Circuit looked at that factual determination and found it at least somewhat reasonable (i.e. supported by substantial evidence).

Affirmed.

Disuniformity

By Jason Rantanen

Lee Petherbridge and I recently completed a draft of our empirical study of Federal Circuit doctrinal uniformity, a topic that ties in nicely with the recent debate over the Federal Circuit's exclusive jurisdiction over in patent cases. The piece is called Disuniformity and is available here.

The central finding of our study is a remarkable downward trend in decisional agreement between Federal Circuit judges over the past several years. Figure 1 from the study shows the degree to which all panel members agreed in precedential opinions in appeals arising from the district courts, presented as a 30-unit lagged average. 

While it is clearly the case that the rate at which these Federal Circuit opinions are unanimous exhibits some variation, the trend line suggests an over 20% drop in the rate at which panels were unanimous in precedential opinions between the end of 2004 and September 2013.

In the full article, available here, we dig deeper into what we think might be going on and offer some suggestions about what this growing trend of doctrinal disuniformity might mean for the debate over the court's exclusive jurisdiction in patent cases.

The article is still in the drafting stage, so any comments and critiques are welcome!

Here's the full abstract:

The Federal Circuit is a response to a failure in judicial administration that produced a fractured, unworkable patent law; one that Congress concluded ill-served entrepreneurship and innovation. The purpose of the response – vesting exclusive jurisdiction for patent appeals in the Federal Circuit – was to permit that court to develop patent law in the direction of greater clarity and uniformity. Both at the time of the Federal Circuit’s creation and more recently, scholars, judges, and practitioners have waged great debates over whether patent law uniformity furthers the ultimate goals of entrepreneurship and innovation. These debates have rested on a largely untested empirical proposition: that the Federal Circuit’s patent law jurisprudence embodies a move towards doctrinal uniformity. This paper reports an empirical study that examines patent law uniformity through the measure of open decisional disagreement between Federal Circuit judges. Its central empirical observation is a remarkable increase in decisional disagreement – indicative of a decline in doctrinal uniformity – among Federal Circuit judges over the past several years. The paper raises and discusses several possible explanations for its surprising observations, including, inter alia, the Supreme Court and personnel changes at the Federal Circuit. It also considers what the observations and explanations might contribute to a current debate over the merits of Congress’s decision to unify patent jurisdiction in the Federal Circuit.

The Landscape of Proposed Patent Law Amendments – A Comparative Look

Guest Post by Professor Jorge L. Contreras

As Dennis Crouch has recently reported here, a plethora of bills has been introduced in Congress this term to address various perceived problems with the patent system and patent litigation in the U.S. The amendments proposed in these bills, and in related administrative and executive proposals, generally seek to address three types of issues: (1) patent enforcement by so-called patent assertion entities (PAEs), (2) unclear or broad claim scope in software and business methods patents, and (3) commitments that patent holders make in the context of standards-essential patents, including FRAND (fair, reasonable and non-discriminatory) licensing commitments.

On November 8, American University Washington College of Law will be hosting a forum to discuss the range of pending legislative and administrative proposals designed to address these issues. In particular, we hope to gain a better understanding of how these proposals could affect current litigation and business practices, whether they will achieve their intended purposes or create unintended effects, who stands to benefit and lose from them, and what the chances are that such changes will be enacted in today's political environment.

In connection with this event, we have produced a non-partisan briefing paper describing each of the proposals made this term in the context of these three areas. Below is a chart that summarizes these proposals, indicating the general area(s) in which each seeks to make modifications to existing law (a detailed discussion of each can be found in the briefing paper):

Summary of Proposed Patent Law Amendments (2013)

	PAEs	Software and Business Methods	FRAND
Innovation Act (H.R. 3309 – Goodlatte)	Real Party in Interest	Studies	Pleading
	Discovery	CBM*	Discovery
	Joinder		Bankruptcy
	Customer Suits Pleading Attorneys' Fees
Patent Litigation Integrity Act (S. 1612 – Hatch)	Attorneys' Fees
SHIELD Act (H.R. 845 – DeFazio/Chaffetz)	Attorneys' Fees
Patent Quality Improvement Act (S. 866 - Schumer)		CBM*
STOP Act (H.R. 2766 – Issa/Chu)		CBM*
End Anonymous Patents Act (H.R. 2024 – Deutch)	Real Party in Interest
Patent Abuse Reduction Act (S. 1013 – Cornyn)	Real Party in Interest
	Discovery
	Attorneys' Fees Joinder
Patent Litigation and Innovation Act (H.R. 2639 – Jeffries)	Real Party in Interest
	Customer Suits
	Sanctions Joinder Discovery
White House Fact Sheet (June 4, 2013)	Real Party in Interest	CBM*	ITC Standards
	Demand Letter Disclosure	Functional Claiming
	Attorneys' Fees
	Customer Suits
	ITC Standards

Legend

Real Party in Interest: Proposals would require entities asserting patents to disclose ultimate parent companies and other related entities (responding to the common complaint that PAEs often "hide" behind shell companies so that the beneficial owners of patents are not known).

Discovery: Limitations on discovery in patent suits.

Joinder: Permits parties having an interest in patents to be joined into infringement suits.

Customer Suits: Limitations on patent infringement suits against end users of off-the-shelf products alleged to be infringing.

Pleading: Attempts to make pleading in patent infringement suits more specific.

Attorneys' Fees: Proposals to require the losing party to pay the prevailing party's fees in patent litigation.

Sanctions: Proposed sanctions for bringing "abusive" patent litigation.

Demand Letter Disclosure: Proposals to have patent demand letters filed publicly.

ITC Standards: Potential modification of ITC standards for issuing exclusion orders in patent cases, generally to be more consistent with the Supreme Court's ruling in e*Bay v. MercExchange (2006).

CBM: Modifications to the PTO's Transitional Program for Covered Business Method Patents.

Studies: Proposed research studies of particular topics.

Functional Claiming: Attempts to address broad "functional" claiming practice in software and business method patents.

Bankruptcy: Extension of bankruptcy law protections for patent licensees to patents that have been transferred to a third party.

 

Bits & Bytes from Jonathan Hummel

RECENTLY

#1. Paradigm: Intellectual Property as an Asset?

Our friends over at IPKat posted a great article about how the private sector might view intellectual property. The author compares a business centric definition of “asset” to intellectual property and explains why there are “five problems” with calling IP an “asset.”

Some of the “problems” discussed are: “intention” (acquisition v. creation) recognition in accounting books; “valuation” citing the fluctuation in price of the Kodak portfolio; “markets” public/private, primary/secondary, and “identification” whereas registered patents are easily identifiable, trade secrets and some other forms of IP are not so discreetly identifiable.

            -read the article here.

#2. Intellectual Ventures Faces Novel Attack on Business Model

Symantec and Trend Micro are fighting back against Intellectual Ventures. IV is asking for a combined $310 million from the companies for licensing a patent that cost IV $750,000 seven years ago. Symantec and Trend Micro are advancing a novel attack that basically says they shouldn’t have to pay such a large amount of money for a patent bought so “cheaply.” The two companies are asking a federal judge to bar IV from seeking such large licensing fees on the grounds that a patent acquired for so little couldn't possibly be worth so much.

            -read the Reuters article here.

#3. Public Citizen Blog: What’s this Anonymous Firm Hiding?

Scott Michelman at Public Citizen posts about the Company Doe Case. In the fall of 2011, a company calling itself “Company Doe” sued the CPSC to keep a report about one of its products out of the database, and it also sought to litigate its case under seal and without revealing its name. Public Citizen, along with Consumer Federation of America and Consumers Union (the publisher of Consumer Reports), objected to the seal. The consumer groups have appealed the sealing and pseudonymity rulings to the U.S. Court of Appeals for Fourth Circuit.

The case, Company Doe v. Public Citizen, is a first of its kind in several respects. First, it appears to be the first time a federal court has sealed the record in a civil case because of concern about a company’s reputation. Second, it appears to be the first time a court has allowed a company plaintiff to proceed under a fictitious name to protect its reputation.

 

#4. As Twitter Trots IPO, IBM Claims Infringement

Ingrid Lunden at TechCrunch reports: Twitter recently amended it’s S-1 filing and changed the share price from $17-20 up to $23-25. This increase comes in the midst of Twitter’s investor tour in anticipation of it’s IPO. Last week, I mentioned Twitter’s Puny Patent Portfolio and how that might be seen as a weakness. A spokesman said, “Many companies in these industries, including many of our competitors, have substantially larger patent and intellectual property portfolios than we do, which could make us a target for litigation…”

• The specific patents in question are:
  • U.S. Patent No. 6,957,224: Efficient retrieval of uniform resource locators;
  • U.S. Patent No. 7,072,849: Method for presenting advertising in an interactive service; and
  • U.S. Patent No. 7,099,862: Programmatic discovery of common contacts.

 

#5. SpicyIP Leads the Way in the Push for Transparency in Indian Patent Law

Shamnad Basheer, Professor at India’s National University of Juridical Sciences writes for a the newly redesigned site SpicyIP. The website pushes for transparency in Indian IP law.

New this week, a quote from the debut: “The week saw the official unveiling of the new SpicyIP. SpicyIP 2.0 is now a website purely dedicated to covering the latest developments in the Indian intellectual property arena and all things relevant. Apart from the revamped look, we have a host of new features such as IP Polls, IP Petitions, IP Jobs and IP Events.”

 

COOL TECH

Noise Cancellation for your Windows

While noise canceling technology has been around for a years now, it seems new applications are always cropping up. Sonos has a new gadget in development that might make your house quieter than ever. Check out the product here.

 

ISSUED

Lance Whitney at C|Net reports that Apple has been granted a patent covering technology that monitors your location and then performs automation tasks. It is U.S. Patent No. 8,577,392.

 

UPCOMING

Fordham Law School’s IP Summit: Post AIA – Strategies in Litigation and Patent Prosecution

• November 18^th and 19^th, 2013 – New York, NY
• Keynote Address: Hon. Paul R. Michel, Chief Judge (ret.), U.S. Court of Appeals for the Federal Circuit
• Approved for 12 hours CLE
• Website for the event here.

 

Suffolk University IP conference: Design Patents: Modernizing an Old Property Interest

• November 22, 2013 – Boston, MA
• Highlights include:

o      Attorneys involved in Apple & Samsung saga
o      Jong K. Choi of Samsung will moderate
o      Attorneys from the U.S. Patent & Trademark Office will provide an insider’s view of how design patents are handled.
o      Two nationally known experts in design protection, Christopher V. Carani and Perry Saidman, will discuss design protection legal issues.
o      Finally, the special damage provisions for Design Patents will be analyzed by a leading expert on patent damages.

 

Whittier Law School IP Symposium

• The Global Medicine Challenge: The Fine Line Between Incentivizing Innovation and Protecting Human Rights
  • The Keynote Speaker will be James Love, director of Knowledge Ecology International, and NGO dealing with issues involving Intellectual Property.
  • This event has been approved for 5.5 hours of CLE
  • View the Program Flyer here.

 

Essay Contest

Cyberweek Ethical Dilemma Essay Contest 2013

In conjunction with 2013 ABA Mediation Week, the Ethical Dilemma for Cyberweek 2013 concerns a mediation that is conducted online.  Students, let the ABA Section of Dispute Resolution’s Ethics Committee know your thoughts.  The contest is limited to Students 18 years of age or older.  Each participant is asked to submit an online analysis of the mediator’s performance, in 750 words or less, to Cyberweek Ethical Dilemma during Cyberweek, November 4 to November 8, 2013.  Each submission will be read by two members of the Ethics Committee, scored, and the winning submission will receive $100.00 and will be published in an upcoming issue of the Section’s Just Resolutions eNewsletter.  Read the full contest rules. Each participant will receive a certificate of participation upon submission of their analysis. Read the full hypothetical. 

 

JOBS

Patent Associate/Agent (Electrical) - Law Firm - Alexandria, Va.

• The Alexandria office of Buchanan Ingersoll & Rooney PC has an immediate opening for an Electrical patent associate or agent with a minimum of 2 years of patent experience and a degree in Electrical Engineering or Computer Science.

Patent Attorney or Agent - Law Firm - Flexible Location

• Guntin & Gust is seeking highly skilled and productive Patent Attorneys or Patent Agents. As part of our team you will be working with a diverse group of clients ranging from sophisticated mid-sized corporations to Fortune 100 companies.
• We work in the areas of electrical engineering, telecommunications, medical products, RF products, gaming products, nanotechnologies, and other fields.

Summary of Oral Argument in Medtronic v. Boston Scientific by Prof. La Belle

Guest Post by Megan M. La Belle, Assistant Professor at Catholic University of America, Columbus School of Law

Yesterday, the Supreme Court heard oral argument in Medtronic v. Boston Scientific, the first patent case of the term.  The issue before the Court is whether the burden of proof in a declaratory judgment action should be on the patent owner to prove infringement or on the accused infringer to prove noninfringement.  Ordinarily, the patent owner bears the burden of proving infringement, and the declaratory posture of a suit does not shift that burden.  In Medtronic, however, the Federal Circuit created an exception for “MedImmune-type” cases since the patent owner cannot counterclaim for infringement.  “Because the declaratory judgment plaintiff is the only party seeking the aid of the court,” the Federal Circuit reasoned, it should bear the burden of proving noninfringement.

Seth Waxman, on behalf of Medtronic, started his argument with the non-controversial proposition that patent law places the burden of proving infringement on the patent owner.  Mr. Waxman went on to argue that the burden should not shift when the infringement question is raised in a declaratory judgment action –  including MedImmune-type suits – because the Declaratory Judgment Act is merely a procedural device that does not alter substantive rights.  For the most part, the justices appeared to agree with Mr. Waxman.  However, a few questions were raised by Chief Justice Roberts, Justice Kagan, and Justice Kennedy about the fairness of allowing an accused infringer to enter into a license and then turn around and sue the patent owner for declaratory relief.  In the Chief Justice’s words: “The idea is you’re moving along with the license, everybody’s happy.  All of a sudden you jump into court.  Why shouldn’t you have the burden as the party who seeks to disturb the status quo?”

Both Mr. Waxman and Curtis Gannon, arguing on behalf of the government as amicus curiae, addressed these questions of potential unfairness to the patent owner.  They asserted that shifting the burden of proof was not the appropriate way to address the problem.  Mr. Waxman suggested, instead, that patent owners could take certain steps to protect themselves, for instance by including specific contractual provisions in the license that contemplate a declaratory judgment action by the licensee.  Mr. Waxman proposed a number of possible license provisions, including one that would increase the royalty rate if the accused infringer brings a declaratory judgment action, or a provision that makes the filing of a declaratory judgment action a breach of the license agreement.  Mr. Gannon agreed with Mr. Waxman, and made one additional point.  He said this problem of potential unfairness to the patent owner – assuming it is a problem – should be addressed by estoppel, not by shifting the burden of proof:

But even if there were some concern about the licensee turning around and challenging the agreement that it had previously made, it seems like the problem there is either that they should be estopped by what they already said in the agreement or Lear [v. Adkins] needs to be extended to keep them from being estopped in that way.  But shifting the burden of proof seems like an odd way to get at solving whatever the quandary there might be.       

The looming question since MedImmune is whether Lear allows patent owners to “license around” this problem as suggested, or whether such provisions undermine Lear’s policy of encouraging patent challenges.  Unfortunately, Medtronic is unlikely to answer that question, so licensing parties will to continue to wonder if these types of provisions are in fact valid and enforceable.

            Arguing on behalf of the patent owner, Mirowski Family Ventures, Arthur Neustadt defended the Federal Circuit’s decision in Medtronic.  Mr. Neustadt contended that the Federal Circuit correctly applied the “default rule,” which allocates the burden of proof to the party seeking relief.  Because Medtronic was the only party seeking relief in this case, Mr. Neustadt reasoned, it should bear the burden of proving noninfringement.  Justice Scalia began the questioning by stating that this default rule generally doesn’t apply to declaratory judgment actions.  So, Justice Scalia asked, “[w]hat’s different here?”  Mr. Neustadt responded that this case is different because the patent owner could not assert a counterclaim for infringement due to the license.  Justice Scalia was not persuaded by that argument because, as he explained, defendants in declaratory judgment actions often cannot counterclaim:

The whole purpose of the declaratory judgment statute is to enable you to sue before the other side has a cause of action against you.  That’s the whole purpose of it.  So – so why should the fact that the other side doesn’t have a counterclaim change anything?  That’s usually the situation.

Following up on this line of questioning, Justice Ginsburg asked whether Mr. Neustadt was saying that the burden of proof should shift in every declaratory judgment action where only one party is seeking relief.  Mr. Neustadt confirmed that that was his position; in his view, the burden shifting rule established in Medtronic should not be limited to patent cases.  This question of how far the Medtronic rule might extend is also explored in an essay I recently published.

            Throughout his argument, Mr. Neustadt made the point that this isn’t a dispute about infringement, it’s a dispute about claim coverage under the license agreement.  In other words, because there’s a license in place, Medtronic cannot be infringing the patent.  The justices seemed to think this was a distinction without a difference, however.  At one point Justice Breyer said: “[Y]ou want to call that a claim coverage.  I would call it no infringement.  Call it what you wish.”  Later in the argument, Justice Kagan disagreed with Mr. Neustadt’s characterization more directly: “You keep on saying it’s a question of claim coverage, but the question of claim coverage, all that is, is part of an infringement analysis.”  

            One issue the Court did not ask many questions about at oral argument was subject matter jurisdiction.  While subject matter jurisdiction was not raised by the parties, an amicus brief filed by Tessera Technologies argued that the case does not arise under the patent laws because it’s really a contractual royalty dispute, not a dispute about patent infringement.  Tessera relied heavily on the Supreme Court’s recent decision in Gunn v. Minton, which concerned the question of jurisdiction over patent malpractice actions.  Yet, at yesterday’s argument, the only question raised on the topic was by Justice Ginsburg who asked the government for its views on subject matter jurisdiction.    Mr. Gannon stated that the government believes this case arises under the patent laws.  He explained that, in declaratory judgment actions, subject matter jurisdiction is determined by considering what claims would be asserted in the hypothetical coercive action brought against Medtronic.  In other words, if Medtronic were to stop paying royalties and breach its license agreement, the patent owner would sue not only for breach of contract, but for patent infringement as well.   Although the Court did not devote much time to subject matter jurisdiction, the issue was discussed at some length at a post-argument discussion hosted yesterday afternoon by the American University Washington College of Law.  It will be interesting to see to what extent the Court addresses this jurisdictional question in its final decision.

A copy of the full transcript is available here.

The Court is expected to issue its decision before the end of June 2014. 

 

Exhausting Method Claims

By Dennis Crouch

LifeScan v. Shasta Tech (Fed. Cir. 2013)

The doctrine of patent exhaustion is something of a mess following the Supreme Court case of Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008). Here, the Federal Circuit relies on Quanta to find that a patented method of using a blood-glucose meter and test strips was exhausted (and therefore unenforceable) when the meters being used were received as gifts from the patentee. The case is an interesting and important read for patent strategists. Although the patentee lost here, the case implies several strategies that future patentees can use to avoid a similar outcome.

LifeScan's business model is interesting. It essentially gives-away its OneTouch blood-glucose meters but then makes money by selling the disposable test strips required to perform the test. The company's patent covers the combined use of the meter and the strips to measure glucose levels. U.S. Patent No. 7,250,105. Shasta sells knock-off versions of the lifeScan strips designed to be used in LifeScan OneTouch meters. LifeScan tried, but it was unable to obtain a patent on the strips themselves because of extensive prior art in the area.

Although Shasta does not actually perform the patented method, it does sell a product particularly designed to perform that method and also encourages its customers to perform the method. Thus, in 2011, LifeScan sued Shasta for inducing infringement and contributory infringement under 35 U.S.C. § 271(b) and (c). LifeScan also requested a preliminary injunction that was granted by N.D. California District Court Judge Edward Davila. The law of appellate procedure allows for immediate appeal of preliminary injunction decisions, leading to the present decision.

On appeal, the Federal Circuit reversed the preliminary injunction – finding that Shasta's use of the patented method was excused under the principles of patent exhaustion.

A patent offers exclusive rights to control the sale of goods covered by the patent. However, long ago, courts determined that a patent right should not confer power to control the entire downstream marketplace for goods. The non-statutory patent exhaustion doctrine achieves this goal by finding patent rights are exhausted or used-up vis-à-vis a particular patented good once the patentee authorizes its original sale or release into the marketplace. This concept is codified in copyright law under 17 U.S.C. § 109 that states "the owner of a particular copy … lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy."

Exhausting a patented method: In at least two different cases, the Supreme Court has applied the exhaustion doctrine to method-of-use claims. United States v. Univis Lens Co., 316 U.S. 241 (1942) and Quanta. Method claims are an odd-fit to the doctrine since the underlying product being sold will not necessarily be used to perform the method and may have been purchased for some other purpose. In Univis, the court wrote that the sale of an article that "embodies essential features" of a patented invention exhausted the patent-holder's rights in that particular article. Then, in Quanta, the court particularly stated that "method patents [are] exhausted by the sale of an item that embodied the method" and confirmed the "embodies essential features" test from Univis. In particular, the Quanta court noted an important factor for determining "substantial embodiment" of the patent is whether additional "inventive" steps are required and the scope of reasonable noninfringing uses. In Quanta, additional physical hardware was required to make Intel's chipsets into a workable system, but the court held that the chipsets exhausted LG's patent covering a method of using the system since the "additional step necessary to practice the patent[s was] the application of common processes or the addition of standard parts."

Here, the appellate panel found that LifeScan's meter substantially embodies the essential features of the method-of-use patent. It turns out that this is seemingly a quite easy case because there are no "reasonable and intended" non-infringing uses of the meter. Using a clever argument, LifeScan proposed that the method-of-use claim included inventive features separate and apart from the meter's function. However, the appellate panel rejected that argument based upon its reading of the patent and prior art – finding that the inventive "key" to the patent was the meter's inherent comparing function. Here, the majority appeared comfortable following Supreme Court principles in this area that suggest deconstructing the patented claim into its points of novelty or inventiveness.

From a policy perspective, the court wrote that this is also the right decision:

Rejecting a claim of exhaustion in this case would be particularly problematic because LifeScan would be permitted to eliminate competition in the sale of the strips even though the strips do not embody the claimed invention and are themselves not patentable.

Killing a business model: LifeScan finally argued that exhaustion should not apply because it gives-away its meters for free and thus receives no "reward" for its patent. As a matter of first-impression for the Federal Circuit, the court held that "in the case of an authorized and unconditional transfer of title, the absence of consideration is no barrier to the application of patent exhaustion principles." For this result, the court looked back to 17^th century English Common Law principles regarding restraints on the alienation of chattels as part of a whole-interest transfer– finding that such restraints were (and are) typically barred regardless of whether the transfer was by gift or by sale. See also UMG Recordings, Inc. v. Augusto, 628 F.3d 1175 (9th Cir. 2011)(copyright).

The majority was penned by Judge Dyk who was joined by Judge Prost.

Writing in Dissent, Judge Reyna argued that essential features of the patented method were embodied by the test strips and that, as a result, sale of the meter cannot exhaust the patented method.

= = = = =

Linking Exhaustion and Inducement: A commonly stated patent law linking principle is "That which infringes if later, anticipates if earlier." Peters v. Active Manufacturing Co., 129 U.S. 530 (1889). Emerging from this case and Quanta appears to be another parallel – this time linking infringement and exhaustion. The principle could generally be stated that a patentees transfer actions exhaust a patent if those same actions, when done by another, would constitute infringement. Emerging from Quanta and LifeScan is the recognition that the principle applies even when the underlying claim is inducement and contributory infringement.

Federal Circuit to PTO: Apply KSRs Broad Basic Mandate

Randall MFG v. Rea (Fed. Cir. 2013) (Inter Partes Reexamination No. 95/000,326)

FG Products owns U.S. patent No. 7,214,017 that is directed to a moveable bulkhead for partitioning cargo space in a shipping container. Back in 2007, Randall requested inter partes reexamination of the '017 patent. The reexamination examiner found the claims as obvious based upon a combination of three prior art references. However, in a 2012 decision, the USPTO's Board reversed – finding that someone of skill in the art "would not reasonably have appreciated" that the prior art could be combined in the manner suggested. Now on appeal, the Federal Circuit has vacated the Board Decision – finding that the Board's approach failed because it narrowly focused on the four cited prior art references while ignoring other factual evidence presented. In essence, the Federal Circuit is demanding that the flexible analysis of KSR be applied by the USPTO.

In KSR, the Supreme Court criticized a rigid approach to determining obviousness based on the disclosures of individual prior-art references, with little recourse to the knowledge, creativity, and common sense that an ordinarily skilled artisan would have brought to bear when considering combinations or modifications. Rejecting a blinkered focus on individual documents, the Court required an analysis that reads the prior art in context, taking account of "demands known to the design community," "the background knowledge possessed by a person having ordinary skill in the art," and "the inferences and creative steps that a person of ordinary skill in the art would employ." KSR. . . .

The Board's analysis in this case ran afoul of that basic mandate. By narrowly focusing on the four prior-art references cited by the Examiner and ignoring the additional record evidence Randall cited to demonstrate the knowledge and perspective of one of ordinary skill in the art, the Board failed to account for critical background information that could easily explain why an ordinarily skilled artisan would have been motivated to combine or modify the cited references to arrive at the claimed inventions. As KSR established, the knowledge of such an artisan is part of the store of public knowledge that must be consulted when considering whether a claimed invention would have been obvious. . . .

The Board's failure to consider that evidence—its failure to consider the knowledge of one of skill in the art appropriately—was plainly prejudicial. Once it is established that a prevalent, perhaps even predominant, method of stowing a bulkhead panel was to raise it to the ceiling, it is hard to see why one of skill in the art would not have thought to modify Aquino to include this feature—doing so would allow the designer to achieve the other advantages of the Aquino assembly while using a stowage strategy that was very familiar in the industry. Moreover, although FG claims that, as depicted, the panels of Aquino may have been impeded by the rails from being raised all the way to the ceiling, there is no dispute that it would have been well within the capabilities of an ordinary bulkhead designer to adjust the geometry ( e.g., drop the hinge axis down a few inches) so that the panels could be freely raised to the ceiling. There are no apparent functional concerns that would have discouraged a bulkhead designer of ordinary skill from attempting the combination.

Particularly when viewed in the context of the background references Randall provided, the evidence strongly supports the notion that the bulkhead design FG claimed was nothing more than the "combination of familiar elements according to known methods,"" 'each performing the same function it had been known to perform,' " "yield[ing] predictable results." KSR (quoting Sakraida v. Ag Pro, Inc., 425 U.S. 273, (1976)). In addition, neither FG nor the Board points to any objective indicia of non-obviousness. On this record, the Board's finding of lack of motivation to combine is infected by prejudicial error. We accordingly vacate the Board's reversal of the Examiner's rejection.

Based upon Judge Taranto's writing here, it is unclear why he chose to vacate the Board holding rather than reverse as the Supreme Court did in KSR. Joining Judge Taranto on the panel were Judges Dyk and Rader.

In the context of the hallmark obviousness case of Graham v. John Deere, 383 U.S. 1 (1966), this case should probably be seen as placing focus on "the level of ordinary skill in the pertinent art" and a mechanism for evidencing the type of creativity

One interesting issue that I'll write on more later is that the Federal Circuit did not address the issue of standing – i.e., whether there is a sufficiently ripe case-or-controversy between the parties to comply with that Constitutional requirement.

Antigua Preparing to Move Forward with WTO Authorized Rejection of US Copyrights

By Dennis Crouch

Over the past several decades, the US has been at the forefront of pushing through low international trade barriers and strong intellectual property rights. The current scheme is organized through the World Trade Organization and the vast majority of nations have signed-on as members. The WTO has a dispute resolution mechanism that allows one country to bring another country to task for failing to abide by their trade-related promises. Most of these cases involve either import restrictions placed on certain goods or the "dumping" of goods.

Since around 2003, the US has taken fairly effective measures to destabilize the market for cross-border gambling and betting services. In response to those measures, the country of Antigua and Barbuda filed a WTO dispute complaining that the US action was a trade violation and, the WTO panel agreed with Antigua. The particular findings are that "three US federal laws (the Wire Act, the Travel Act and the Illegal Gambling Business Act) and the provisions of four US state laws (those of Louisiana, Massachusetts, South Dakota and Utah) on their face, prohibit … cross-border supply … contrary to the United States' specific market access commitments for gambling and betting services." [Link]

The penalty for a WTO violation typically involves the WTO allowing counter-measures by the injured party – typically their own import quota or restriction. In countries with a strong domestic industry, the import quota can provide a strong, be it temporary, boost. However, those quotas also injure local consumers who typically pay more for lower quality goods or services. Antigua's particular situation is also unique because the country does not have much of any domestic industry beyond tourism (including Gambling). As such, a typical quota does not make sense as a penalty against the US.

At the end of the day, the WTO authorized Antigua to suspend its TRIPs obligations with respect to U.S. intellectual property at a cost to the US.

Antigua is now rapidly moving forward with a monetization scheme that would essentially create a local market for copyrighted work owned by U.S. entities, but where no royalties are paid to the U.S. copyright holders. Antiguan legislation is expected in the upcoming weeks followed by bids from private contractors to build-out the online marketplace.

Warning: do not use political hearing video for a political purpose

Guest Post By Andrew Dhuey

Like most Americans, I watched the House Judiciary Committee hearing on H.R. 3309, the Innovation Act, this past Tuesday. While Members of Congress and witnesses lamented abusive assertions of patent rights, an ominous warning lurked below their talking heads:

Yes, that's right – I am not allowed to use this Congressional hearing video for a political purpose. I am apparently free to use this for entertainment or religious purposes, but I would have to turn away lucrative commercial sponsorships. Fox News and MSNBC should think twice before using this video – only bona fide news programs allowed.

But seriously, Judiciary, this is embarrassing. On what basis could you possibly restrict the use of this video? Why would you even want to do that?

Let's start with copyright law (psst…that's within your jurisdiction, Judiciary!). The video is a production of the Library of Congress. That means no copyright. 17 U.S.C. § 105 ("Copyright protection under this title is not available for any work of the United States Government"). Even if the video were copyrighted, imagine the First Amendment implications of restricting the political use of a public, political hearing video.

Perhaps Judiciary has in mind a contractual theory for this restriction. By watching the video, I am agreeing to this use restriction. That would be quite a stretch, though. If you sue me on that theory, Judiciary, I'm going to call you a "Video Troll" and lobby you to pass legislation that prevents abusive use restrictions on legislative hearing videos.

Maybe the most plausible explanation for this use restriction is that it is there by mistake. Please correct that mistake, Judiciary. It looks bad for the people who make intellectual property laws to impose a legally unenforceable use restriction on a public hearing video.

Andrew Dhuey is an appellate lawyer in Berkeley, California.

Section 337 Caseload and Win Rate Revert to Norms

Guest Post By Michael G. McManus

Traditionally, section 337 complainants at the ITC have enjoyed a greater chance of success than district court plaintiffs.  The historical complainant win rate at the ITC has been calculated as 58%.[1]  This contrasts with a district court patentee success rate of 32% (considering both summary judgment and trial stages).[2]  In 2010 and 2011 however, there was an unprecedented spike in the number of cases filed with the ITC.  These complainants fared poorly with a win rate well below the historical norm.  For section 337 complaints filed in 2012, however, both the number of cases and the win rate have reverted to recent historical norms.

In calendar year 2008, there were 36 section 337 complaints filed.  Of these, 20 were resolved by settlement[3] prior to the issue of an initial determination and 16 were resolved by administrative law judge (ALJ) decision[4] (either summary determination or final initial determination).  These 16 ALJ decisions were evenly split – 8 were resolved in favor of the complainant and 8 in favor of the respondent yielding a win rate of 50% at the ALJ stage.  The following year was generally similar.

In calendar year 2009, there were 34 section 337 complaints filed. Of these 34, 21 were resolved by settlement prior to the issue of an initial determination and 13 were resolved by ALJ decision.  Among those cases decided by ALJ decision, 6 were resolved in favor of the complainant and 7 in favor of the respondent yielding a win rate of 46%.

In calendar year 2010, the number of filings increased markedly to 58.  Of these, 36 were resolved by settlement prior to the issue of an initial determination and 22 were resolved by ALJ decision.  Of these 22 ALJ decisions, 10 were in favor of the complainant and 12 in favor of the respondent yielding a win rate of 45%.

In calendar year 2011, the number of section 337 filings increased further to an all-time high of 68.[5] Of these 68 cases, 49 were resolved by settlement prior to the issue of an initial determination and 19 were resolved by ALJ decision.  Of these 19 ALJ decisions, 5 were in favor of the complainant and 14 in favor of the respondent yielding a rather low win rate of 26%.

In calendar year 2012, by contrast, the number of section 337 filings fell to 40.  We cannot calculate the win rate for all cases filed in 2012 as those filed in the latter part of the year may still be awaiting ID’s.  All of those cases filed in the first half of 2012, however, have either settled or been subject to an initial determination.  Thus, we can use those cases from the first half of 2012 as a proxy.

There were 25 section 337 complaints filed in the first half of calendar year 2012.  Ten of these 25 resulted in ALJ adjudications. Of these 10, 6 were in favor of the complainant and 4 were in favor of the respondent yielding a win rate of 60%.

Put in graphical format, the win rate over time is seen as follows:

:

Overlaying the section 337 caseload over win rate yields the following:

The graph suggests an inverse relationship between caseload and complainant success rate but there is no obvious explanation for that relationship.  One possibility is that the ITC’s increasing popularity attracted weaker cases. Also, it is possible that the strain of a greatly increased caseload caused the ITC to react in ways that were less hospitable to complainants. In any case, the “great disruption” of 2011 seems to have passed and the Commission’s caseload and win rate have reverted to their historical norms.

---

Michael McManus is a partner at Duane Morris.

 

[1] Colleen V. Chien, Patently Protectionist? An Empirical Analysis Of Patent Cases At The International Trade Commission, 50 Wm. & Mary L. Rev. 63 (2008), at 97 n. 174 (overall win rate for the period from January 1995 to June 2007).

[2] PWC 2012 Patent Litigation Study at 17 (overall win rate for the period from 1995 to 2011).

[3] Here “settlement” encompasses all cases resolved by means other than contested adjudication (e.g., withdrawal of complaint, default).

[4] This article will evaluate win rate at the initial determination stage rather than the final determination stage to increase the sample size and to permit an “apples to apples” comparison with cases filed in 2012 (most of which have not yet proceeded to final determination).

[5] As this is the number of cases filed in the calendar year rather than the ITC’s fiscal year, it differs slightly from statistics on the ITC’s web page.

AIA Patents

The first-to-invent rules of the America Invents Act came into force on March 16, 2013. Patents with an effective-filing-date of March 16 or later are judged under the new rules of prior art and priority found in 35 U.S.C. § 102. Because the patent-prosecution process is slow, it appears that only two such utility patents have issued thus far: U.S. Patent Nos. 8,557,916 and 8,534,240. Both patents through an accelerated examination program and both issued without substantive rejection from the patent examiners. We expect to see only a trickle of these cases coming through over the next year with a larger bolus following.

Federal Circuit: Patent Claims Broadened During Prosecution Fail Written Description Requirement

By Dennis Crouch

Synthes USA v. Spinal Kinetics (Fed. Cir. 2013)

In a split opinion, the Federal Circuit has affirmed the jury verdict that Synthes' asserted patent claims are invalid for lack of written description and has also affirmed the district court's denial of SK's request for exceptional-case attorney fees under 35 U.S.C. § 285. Judge O'Malley penned the majority opinion that was joined by Judge Prost. Judge Taranto dissented – arguing that the evidence presented at trial was – as a matter of law – insufficient to prove that the claims lacked adequate written description.

Synthes' U.S. Patent No. 7,429,270 is directed to an intervertebral implant invented by a team of Swiss researchers. The original application was placed on file as an international application (PCT) in 2003. The U.S. national stage application was then filed in 2006. Five-years into prosecution, the patentee substantially amended the claims and added a new set of claims that were then asserted against SK. Claims 29-31. As part of these new claims, Synthes included the new terms "opening" and "plurality of openings" that had not been used previously in the patent application document. The original disclosure was directed more particularly toward grooves rather than the seemingly broader term openings. According to SK, Synthes added these limitations to the claims only after the accused SK product was on the market in a calculated attempt to shift the scope of the patent to cover SK's improved technology. Under US patent law, that sort of intentional shifting of patent claim scope is permissible so long as the amended claim is sufficiently supported by the original disclosure. See See Liebel-Flarsheim Co. v. Medrad, Inc., 358 F.3d 898, 909 n.2 (Fed. Cir. 2004).

It is not surprising that the infringement litigation turned on the proper construction of the "plurality of openings." As is usual for patent litigation, the patentee was working to find a "right-sized" patent that was broad enough to cover the accused product but narrow enough to still be valid. Here, the approach was to create a term "opening" in an implant-plate that was generic enough to both (1) be described by the disclosed radial plate grooves and (2) capture the elongated circle slots of the accused device. However, the jury sided with the accused infringer and found the claims invalid under the written description doctrine.

On appeal, the Federal Circuit affirmed – finding that the substantial evidence supported the jury verdict.

Sufficiency of written description requires that the original disclosure reasonably convey to PHOSITA that the inventor had possession of the claimed subject matter at the time of filing. The exact level of detail required depends upon "the nature and scope of the claims and on the complexity and predictability of the relevant technology." See Ariad Pharms., Inc. v. Eli Lilly & Co., 598 F.3d 1336, 1351 (Fed. Cir. 2010) (en banc).

In affirming the jury verdict, the basically followed the precedent of Leibel-Flarsheim to find that increased breadth-of-claim was not supported by the more narrow original specification. In particular, the court noted that the original disclosure only included "groove" examples, not slots or openings on the plate. ("The written description, however, never discloses anything broader than using grooves to anchor the fiber system to the cover plates.") That intrinsic evidence was then bolstered by expert testimony regarding the important differences between grooves, slots and other openings. Based upon this evidence, the court found substantial evidence for the jury verdict of invalidity.

[T]he jury was asked to determine whether the written description disclosure of "grooves" "reasonably convey[ed] to those skilled in the art that the inventor had possession of [an intervertebral implant that could utilize any sort of opening located anywhere on the cover plates to anchor the fiber system] as of the filing date." Ariad, 598 F.3d at 1351. The jury did not believe so and, when all reasonable inferences are drawn in favor of the jury verdict, we must affirm that decision.

One tricky issue here is the various burdens. On review, the appellate court looks for substantial evidence (more than a mere scintilla) but the jury had to find clear and convincing evidence of invalidity.

Writing in dissent, Judge Taranto framed this case is one where the "structural claim language … is broader than the specific embodiments disclosed in the written description." Of course, Federal Circuit precedent allows claims to be broader than the specific embodiments. See In re Rasmussen, 650 F.2d 1212, 1215 (CCPA 1981). According to Taranto, in this type of situation (alleged over-breadth), the challenger must show that the "particular difference" between the claim and the disclosure "has a material effect on whether the product or process would achieve the aims of the claims at issue, with materiality of the effect not the same as non-obviousness but related to predictability." In other words, broader conceptions of the invention that would be predictable by PHOSITAs mind after reading the specification should be deemed to fit within the written description.

= = = = =

On the concept of attorney fees under 35 U.S.C. § 285 – the court reiterated its rule sanctions against a losing patentee can only be imposed after a showing of clear and convincing evidence of either (1) litigation misconduct; (2) bringing the litigation in subjective bad faith; or (3) bringing objectively baseless litigation. Here, the appellate court agreed with the district court that SK had failed to demonstrate clear-and-convincing evidence of any one of those three justifications for fees.

Innovation Protection Act of 2013

by Dennis Crouch

We have been discussing pending legislation in Congress. On October 29, House Judiciary Committee Ranking Member Conyers (D-Mich.), IP Subcommittee Ranking Member Watt (D-N.C.), and Congressman Doug Collins (R-Ga.) introduced H.R. 3349 the “Innovation Protection Act.”

The Bill is designed to protect the PTO from fee diversion by creating a wholly separate PTO revolving fund that the PTO could spend, regardless of any government shutdown, sequestration, or failure of appropriations.  “Any amounts in the Fund shall be available for use by the Director without fiscal year limitation.”  Of course, the fund would be maintained by USPTO fees and no taxpayer monies would go toward building the fund. 

File Attachment: H.R. 3499.pdf (249 KB)

Patent Reform 2013: Pending Bills

By Dennis Crouch

I wrote earlier about the pending Innovation Act (H.R. 3309) as proposed by a bipartisan set of Congressional leaders led by Rep. Bob Goodlatte. A host of other patent related bills are also pending in the House and Senate. The following is a rundown of some:

Manufacturing Innovation in America Act of 2013 (H.R. 2605)

Tax deduction carryover for patent development expenditures where profit is made years later.

Patent Abuse Reduction Act of 2013 (S. 1013) (Senators Cornyn and Grassley)

Smaller version of Goodlatte's Innovation Act that would focus on (1) raising pleading requirements (2) limiting discovery costs (especially pre-claim-construction); and (3) awarding attorney fees for the prevailing party.

End Anonymous Patents Act (H.R. 2024)

Requirement that the patent owner regularly update ownership information in the public record, including the "ultimate parent entity."

Patent Litigation and Innovation Act of 2013 (H.R. 2639)

Includes many provisions in parallel to the Goodlatte Innovation Act, but also includes a "sanction for abusive litigation" with mandatory review of each case by the court to ensure that no Rule 11(b) violations occurred.

MODDERN Cures Act of 2013 (H.R. 3091)

Extension of patent term for four to seven years for diagnostic medical tests. The program would be run through the FDA.

PATENT Jobs Act (H.R. 2582)

Proposed elimination of the PTO from the sequestration rules.

STOP Act (H.R. 2766)

Expanding the covered-business-method post-grant-review to also cover non-financial business methods and removal of the sunset provision. This is roughly parallel to the Patent Quality Improvement Act of 2013 (S. 866)

PACES Act (S. 1478) (Senator Cardin)

The Bill would remove certain patent infringement actions from Federal District Courts to the Court of Federal Claims. In particular, the bill focuses on causes of action against the unlicensed use patented inventions in the provision of 9-1-1, enhanced 9-1-1, or other emergency services. The CFC tends to favor the accused infringer both in terms of procedure and remedies available.

PARTS Act (S.780)

Act would prevent design patent owners from using those patents to prevent the use unauthorized spare-parts in the auto industry.

Medical Innovation Prize Fund Act (S. 627) (S. Sanders)

The bill would seemingly end drug patents with the text "no person shall have the right to exclusively manufacture, distribute, sell, or use a drug, a biological product, or a manufacturing process for a drug or biological product in interstate commerce."

Intellect Wireless v. HTC

By Jason Rantanen

Intellect Wireless, Inc. v. HTC Corp. (Fed. Cir. 2013) Download 12-1658.Opinion.10-7-2013.1
Panel: Prost, Moore (author), O'Malley

This opinion is notable because it involves one of the rare instances post-Therasense in which the Federal Circuit concludes that inequitable conduct occurred.

This appeal involves two related patents, Patent Nos. 7,266,186 and 7,310,416, which relate to wireless transmission of caller ID information.  During the prosecution of the '186/'416 patent family, Daniel Henderson, the inventor named on the patents, submitted a Rule 131 declaration to overcome a prior art reference.  A Rule 131 declaration is a document in which the inventor asserts that he or she invented the claimed invention prior to the date of a prior art reference cited by the examiner, a process colloquially referred to as "swearing behind."  (The mechanism does not allow applicants to bypass a statutory bar and was eliminated by the AIA.)  Mr. Henderson averred in the declaration that “the claimed invention was actually reduced to practice and was demonstrated at a meeting . . . in July of 1993.”  

When Mr. Henderson's company, Intellect Wireless, sued HTC for patent infringement, it came out that he had not actually reduced the invention to practice as of the date stated in the declaration.  The district court found that the false declaration constituted inequitable conduct under the Therasense framework.  Intellect appealed.

On appeal, the Federal Circuit affirmed, agreeing that both the requirements of materiality and intent were met. 

Materiality: One question left somewhat open after Therasense was the issue of what constituted egregious affirmative conduct.  Here, the court agreed that Mr. Henderson's conduct rose to that level. 

In one of its earliest opinions, the Federal Circuit held that when an applicant files a false declaration, the applicant must "expressly advise the PTO of [the misrepresentation’s] existence, stating specifically wherein it resides." Rohm & Haas Co. v. Crystal Chem. Co., 722 F.2d 1556, 1572 (Fed. Cir. 1983). In addition, "if the misrepresentation is of one or more facts, the PTO [must] be advised what the actual facts are." Id. 

Therasense, the Intellect Wireless panel held, did not modify this law.  "[T]he materiality prong of inequitable conduct is met when an applicant files a false affidavit and fails to cure the misconduct." Slip Op. at 7. 

Here, the original declaration was indisputably false; the only question was whether the subsequent actions by Mr. Henderson's attorney were sufficient to cure the falsity.  The court held that they were not.  While the attorney quickly submitted a revised declaration, that revised declaration failed to correct the falsehoods in the original declaration.  It did not expressly negate the false references to actual reduction in the original declaration, which included statements such as a reference to a "prototype now in the Smithsonian" that suggested a device embodying the claimed invention was actually built at the relevant time.  The panel agreed that "[n]owhere did the declaration openly advise the PTO of Mr. Henderson’s misrepresentations, as our precedent clearly requires," Slip Op. at 6., and "at best, the revised declaration obfuscated the truth."  Id.

Intent: The Federal Circuit also affirmed the district court's finding of intent to deceive.  In addition to the false statements made during prosecution of the '186 and '416 patents, Mr. Henderson also made false statements about actual reduction to practice during the prosecution of other patents in the family.  This pattern of false and misleading statements combined with the submission of a declaration containing fabricated examples of actual reduction to practice in order to overcome a prior art reference was sufficient to establish intent to deceive. 

Challenging the PTO’s NonAppealable Decisions to Grant or Deny Petitions for Inter Partes Review

By Dennis Crouch

In re MCM Portfolios LLC (Fed. Cir. 2013) (pending on petition for writ of mandamus)

In a recent post, I wrote briefly about statutory bar against appealing PTO decisions to grant or deny a request for inter partes review. In particular, 35 U.S.C. § 314(d) reads as follows: No Appeal.— The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable. MCM has now filed a somewhat direct challenge to the substance of that provision with a writ of mandamus to the Federal Circuit. Of course, a petition for writ of mandamus is not an appeal but instead a request for a particular order. By filing a writ (rather than an "appeal"), MCM avoids the statutory bar against appeals and also avoids the parallel problem arising from the lack of statutory support for a direct appeal. As I explain below, MCM would also argue that the statutory bar on appeals would not apply in its context because its petition challenges a PTO decision under § 315(b), not § 314.

MCM's Patent No. 7,162,549 covers a mechanism for controlling Flash storage devices that uses firmware error correction. According to the patentee, many Digital Picture Frames make use of the invention in their mode-of-operation. On September 21, 2011, MCM served PanDigital with a complaint for infringing the patent. Later, on March 28, 2012, MCM also sued HP for infringement. Now, the two lawsuits are largely the same because HP picture frames are actually made by PanDigital. MCM has provided expert testimony that HP DPFs are actually the PanDigital frames that have simply been re-branded with HPs name (with PanDigital's permission). Furthering the connection, HP publicly identifies PanDigital as its supplier; directs its customers to PanDigital for customer support; and sells its HP products on Amazon with an indication that they are also PanDigital products. Later, on March 28, 2013 HP filed its request for inter partes review. The date is important because it is just shy of one year after the March 28, 2012 date when HP was sued for infringement. It is, however, well over a year after PanDigital was sued.

35 U.S.C. § 315(b) creates a one-year statute of limitations for filing a request for inter partes review. The deadline is triggered when "the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent." Here, HP is the petitioners and filed within one-year of being served a complaint. However, as foreshadowed above, MCM argues that, for this action, PanDigital should also be considered a "privy of the petitioner."

In its decision, the PTAB sided with HP – writing that "[MCM] provides no persuasive evidence that HP could have exercised control over Pandigital's participation in the Texas Action. Thus, § 315(b) does not bar institution of inter partes review based on HP's Petition."

In the mandamus action, MCM argues that statute-of-limitations here is essentially a time-delayed res judicata action and, as such, it makes sense to interpret "privy" in the same manner as is done by the Supreme Court in those preclusion cases. In particular, MCM relies heavily on Taylor v. Sturgell, 553 U.S. 890 (2008) to argue that the grounds for binding related parties is much broader than the "control" grounds suggested by the USPTO. The PTO's approach consequently "systematically misconstrue[es] Taylor to allow late IPRs." Of note here, the PTO seemingly agrees that Taylor controls, but reads Taylor differently than MCM.

Because Mandamus is an extraordinary writ, the petitioner must do more than simply indicate that the Board was wrong in its decision. Rather, the petitioner must also convince that this is a case that needs to be heard immediately. MCM offers three key reasons:

• The Board's interpretation of §315(b) privity is incorrect as a matter of law.
• The systematic denial of Taylor's second ground for establishing privity justifies this Court's exercising its supervisory role to resolve important issues of first impression that involve alleged usurpation of power. Schlagenhauf v. Holder, 379 U.S. 104 (1964).
• The order of institution of an IPR cannot be remedied by a reversal on appeal.

Edward P. Heller is representing MCM in this appeal.

Download InreMCMPortfolioLLCWrit

Upcoming Fee Changes

A new set of US Patent Office fees will become effective on January 1, 2014.

Issue Fee Decrease:

• Issue fee: from $1,780 to $960
• Reissue Fee: from $1,780 to $960
• Design Issue Fee: from $1,020 to $560
• Publication Fee: From $300 to $0
• Note: Small and Micro Entity reductions are available for all issue fees. I suspect that a substantial number of applicants will delay payment of issue fee until after the new year in order to take advantage of this significant savings-per-patent.

Small and Micro Entity Reductions for PCT / International Stage Applications

• Small and Micro entity fee reductions will be available for a variety of new PCT fees. This change significantly changes the cost-structure for small companies considering PCT filings.

Assignment Recordation Fee Elimination:

• When submitting an assignment electronically, the fee drops from $40 to $0 for recording the assignment.

http://www.uspto.gov/web/offices/ac/qs/ope/fee031913.htm

Bits & Bytes from Jonathan Hummel

RECENTLY

#1. Twitter’s Puny Patent Portfolio May Prove A Positive

Leading up Twitter’s IPO, market analysts are pointing to the relatively small number of patents held by the company as weakness. Jeff John Roberts, writing for GigaOM explains why Twitter’s slim patent portfolio might not be a weakness, but instead a sign of strength.

            -read Bloomberg’s countervailing story here.

 #2. Apple Touchscreen Patent Upheld in Reexamination

Steven Musil, writing for C|Net, reports that “after invalidating US Patent No. 7,479,949 last December, the USPTO issued a re-examination certificate (see article & examination certificate here) reaffirming all 20 claims included in the patent, according to a filing last month spotted by Foss Patents.”

#3. Jorge Contreras on Patent Pledges Outside Standards-Setting Organizations

Dan O'Connor, writing at Patent Progress, interviewed Jorge Contreras to discuss his new paper, “Patent Pledges,” covering FRAND commitments and a call for a new paradigm in standards-setting. Mr. Contreras is a professor at the Washington College of Law at American University and a contributor at Patent Progress. His research focuses primarily on the effects of intellectual property structures on the dissemination and production of technological innovation, with a focus on basic scientific research and technical standards development.

#4. Goodlatte’s Innovation Act

Both Dennis Crouch here at Patently-O, and our friend Andrew Williams  at PatentDocs, wrote about legislation proposed by Rep. Bob Goodlatte (R-Va), namely the “Innovation Act.” The bill is squarely aimed at Patent Trolls and allows for parties to discover who the ultimate owner of the patent or exclusive right actually is, rather than a shell corporation.

            -Read Dennis’ article here.

            -Read Andrew’s article here.

PENDING

#1. Samsung Files Patent on Competitor to Google Glass

Alex Colon, writing at GigaOM, reports that Samsung has filed a design patent in Korea that looks suspiciously similar to Google Glass. Apparently, the Samsung patent focuses more on the “sportiness” of the spectacles. “The patent shows that the glasses could come with built-in earphones, which would allow you to listen to music and answer calls while you’re wearing it.”

 

COOL TECH

#1. Unbreakable Chemical Locks

Lisa Zyga’s story at Phys.org explains how research performed by Professor Abraham Shanzer and his group at the Weizmann Institute of Science in Rehovot, Israel could lead to the first chemical lock that responds to multiple “passwords.”

            -read the article here.

 

UPCOMING

Whittier Law School IP Symposium

• The Global Medicine Challenge: The Fine Line Between Incentivizing Innovation and Protecting Human Rights
  • The Keynote Speaker will be James Love, director of Knowledge Ecology International, and NGO dealing with issues involving Intellectual Property.
  • This event has been approved for 5.5 hours of CLE
  • View the Program Flyer here.

 

WIPO Events

• WIPO Advanced Workshop on Domain Name Dispute Resolution: Update on Precedent and Practice
  Geneva, Switzerland, October 29 and 30, 2013
• International Technology - Licensing and Dispute Resolution
  Madrid, Spain, November 11, 2013

 

JOBS

#1. Patent Associate - Law Firm - Rockford, Ill.

            -Reinhart Boerner Van Deuren s.c., is a full-service business-oriented law firm with offices in Chicago, Rockford, Denver, Phoenix, Milwaukee, Madison, and Waukesha with a national and international client base.

 

#2. Patent Attorney - Law Firm - Washington, D.C.

            -Morris & Kamlay LLP, an IP specialty firm in DC with a relaxed and flexible work environment, is looking for an experienced patent prosecutor.

 

#3. Patent Attorney - Law Firm - Melbourne, Australia

            -Phillips Ormonde Fitzpatrick is seeking a Patent Attorney to work in its Melbourne, Australia, offices.

Related articles

The Baby Boom of Patent Practitioners

AIA Shifts USPTO Focus from Inventors to Patent Owners

New Patent Legislation: Innovation Act of 2013

Samsung Proposes a Patent Pledge to Settle EC FRAND Investigation

Anti-'Patent Troll' Bill Introduced In Congress

Bits & Bytes from Jonathan Hummel

Patent Practitioners

New Patent Legislation: Innovation Act of 2013

By Dennis Crouch

Representative Bob Goodlatte (R-VA) with the bipartisan support of ten other members of the House has introduced a new set of proposed patent reforms currently tiled the "Innovation Act." (H.R. 3309) The proposed bill includes a number of provisions disparate provisions that would have a substantial impact on patent enforcement, procurement, and ownership. Some of the changes include severe increases in the requirements associated with filing a patent infringement complaint; Major statutory limitations on discovery; Elimination of the patent applicant option of filing a civil action to obtain a patent under Section 145; Forcing the USPTO to use standard claim construction (rather than BRI) in post-grant proceedings; Introduction of a new Double-Patenting rule; etc. the 50+ page bill is somewhat complex and, as Hal Wegner wrote, "[e]very organization impacted by patents must carefully study the Goodlatte bill for hidden features or suffer the consequences." [Text][Sectional-Analysis]

Major Proposed Changes include the Following:

1. A heightened pleading requirement for filing patent infringement claims, including a particularized statement "with detailed specificity" as to "how the terms in each [asserted] claim … correspond to the functionality of [each] accused instrumentality." A brand-generic infringement action under § 271(e)(2) need not comply with the heightened pleading requirements. In addition, the Judicial Conference would be ordered to modify the form complaint for patent infringement to reflect the heightened pleading.
2. An assumption that attorney-fees will be awarded to a prevailing party. The new provision would require an award of fees "unless the court finds that the position of the nonprevailing party . . . was substantially justified or that special circumstances make an award unjust." On its face the provision is largely party-neutral with two caveats. First, the provision allows prevailing-accused-infringers to collect fees from non-plaintiffs who have a substantial interest in the patent-at-issue in the case. Second, the provision indicates that a patentee who extends a covenant-not-to-sue to the other party will be deemed a non-prevailing party and thus subject to attorney fees.
3. Discovery will be limited until after a ruling on claim construction. In addition, the US Judicial Conference would be ordered to develop rules "to address the asymmetries in discovery burdens and costs in any civil action [relating to patents]."
4. Transparency of Ownership. As a new required disclosure, the patentee in an infringement litigation must disclose anyone with a financial interest in either the patents at issue or the patentee and must additionally disclose the "ultimate parent entity" of the patentee. In the appropriate Federal Regulations, an ultimate parent entity is ethereally defined as "entity which is not controlled by any other entity."
5. Stay for Customer Suits. When both a manufacturer and its customer are sued for infringing the same patent, customer suit would be stayed so long as the customer agrees to be bound by the results of that case.
6. IP in Bankruptcy. Under the new law, when a foreign company goes bankrupt, its trustee would no longer have the power to cancel licenses associated with US patent rights.
7. No Civil Action to Challenge PTO. The new law would eliminated the civil action option found in 35 U.S.C. § 145. Patent applicants refused by the patentee would rather only have the option of appealing directly to the Federal Circuit.
8. Shrinking Post-Grant-Review Estoppel. Under the current law, a post-grant review proceeding creates an estoppel against the petitioner later arguing in other forums "any ground that the petitioner raised or reasonably could have raised during that post-grant review." 35 U.S.C. § 325(e). The new law would narrow that estoppel only to grounds actually raised.
9. Patent Office Claim Construction. During Post-Grant Reviews and Inter Partes Reviews, the new law would require the patent office to use the ordinary "district court claim construction" law, that is, "construing each claim of the patent in accordance with the ordinary and customary meaning of such claim as understood by one of ordinary skill in the art and the prosecution history pertaining to the patent."
10. Double Patenting. There is some potential that the judicially created obviousness-type double patenting doctrine was eliminated by the recently implemented first-to-file regime. The new law would codify that doctrine.
11. Covered Business Method Patent Review. The AIA creates an option for third parties to attack patents covering non-technological "covered business method" innovations through the use of a new post-grant review proceeding. The new law would somewhat restrict the scope of CBM review to only cover first-to-invent patents (rather than pre-AIA patents) as defined in Section 3(n)(1) of the AIA. The new law would also, inter alia, codify the USPTO's somewhat broad definition of "financial product or service" described in the Versata case.
12. Patent Term Adjustment. The new law would eliminate any patent term adjustment for "B delay" occurring after an applicant files a request for continued examination. This change would have a significant impact on the patent term of a large number of issued patents. The amendment proposes to be effective with regards to any "patent application or patent" pending on the Act's date of enactment. (Note – it is unclear what it means for a "patent" to be "pending" in this context.)
13. Federal Jurisdiction over Patent Cases. Although not a statutory change, the new law would make the "clarifying" statement that: "The Federal interest in preventing inconsistent final judicial determinations as to the legal force or effect of the claims in a patent presents a substantial Federal issue that is important to the Federal system as a whole."

Another Means-Plus-Function Patent: Invalid as Indefinite

By Dennis Crouch

Ibormeith IP v. Mercedes-Benz (Fed. Cir. 2013)

Ibormeith's patent covers a "sleepiness monitor" intended to sense when a vehicle driver is getting sleepy. This is obviously an important topic that results in thousands of annual traffic accidents. Ibormeith's solution is to monitor both the time-of-day (circadian rhythm inputs) and unusual steering movement (vehicle inputs) and then use an algorithm to determine the likelihood of sleepy driving. The result then could be to warn the driver by beeping or perhaps taking more automated control of the vehicle. The patent (No 6,313,749) was issued back in 2001 around the time when attorneys were coming-round to the notion that means-plus-function claims lead to trouble – either comedy or tragedy depending upon your point-of-view.

The patent statute allows for patent claims to be written as a "means for" accomplishing a particular function. 35 U.S.C. § 112(f). When written in claim form, a "means for" claim appears extremely broad because it suggests coverage of all possible means or mechanisms for accomplishing the stated goal. However, the statute says otherwise. Rather than covering all possible mechanisms, Section 112(f) requires that the limitation be construed to only cover the "corresponding structure … described in the specification and equivalents thereof." Since 1994, the Federal Circuit has supported this narrow construction. See In re Donaldson, 29 USPQ2d 1845 (Fed. Cir.1994). As Judge Taranto writes in this case "The price of using this form of claim … is that the claim be tied to a structure defined with sufficient particularity in the specification."

Taking all of this a step further, the courts have also repeatedly held that a patent is invalid as indefinite under Section 112(b) if a claimed "means" if no particular corresponding structure is disclosed in the specification. See, e.g., Function Media, LLC v. Google, Inc., 708 F.3d 1310, 1319 (Fed. Cir. 2013); Blackboard, Inc. v. Desire2Learn Inc., 574 F.3d 1371, 1382-83 (Fed. Cir. 2009).

Here, the patent claims at issue all include a "computational means" that figure out whether or not someone is sleepy. And, on summary judgment, the district court found the claims indefinite because the claimed computational means were not supported by structure in the specification. That decision has been affirmed in a unanimous opinion written by Judge Taranto. Oddly, adequate disclosure under § 112(b) is a question of law reviewed de novo on appeal. That lower standard still did not carry the day for the patentee.

As in so many cases, the claimed "means" is really an algorithm being run on a computer to accomplish some particular goal. The court has ruled that the algorithm needs to be one that is "sufficiently defined to render the bounds of the claim . . . understandable to the implementer." Here, the specification defines a set of input variables and a "sleep propensity algorithm" that is the sum of those variables. The specification also indicates the potential for various warning thresholds associated with the sleep propensity algorithm. However, the specification does not include any real examples for how the algorithm would work.

For Judge Taranto, the decision is largely about litigation strategy. The patentee argued that the algorithm is very broadly defined by the specification. The point of that argument was to ensure broad claim scope. However, the results is a finding that the algorithm is not particularly defined and therefore that the claim is invalid.

With means-plus-function claiming, the narrower the disclosed structure in the specification, the narrower the claim coverage. To succeed in ultimately proving that the "computational means" elements cover the accused Mercedes products … Ibormeith's [argued that the algorithm of] Table 10 … is broad enough to reach the accused products. With consequences of such importance, Ibormeith's position as to Table 10's breadth is fairly treated as a binding admission. . . . That position, however, fails in the necessary attempt to steer a course that permits proof of infringement yet avoids invalidity.

Judge Taranto's analysis here makes sense within the context of litigation strategy and holding parties to their litigation admissions. The major problem with this approach, however, is that allows patentees to hold-in and maintain ambiguity until the point of litigation.

= = = = =

The patent at issue here is based upon the invention by Dr. Louise Reyner and Dr. Jim Horne who are both sleep researchers at Loughborough University in the UK and who won the Queen's prize in 2007 for their work on road death reduction through their work on driver sleepiness research. In March 2010, the UK company Astid Ltd. recorded its ownership of the patent and that same day Ibomeith was formed that is one of Michael Connelly's companies.

Interpreting the IPR Deadline; Conflicting PTAB Decisions; and Appealing Nonappealable Decisions

By Dennis Crouch

St. Jude Medical v. Volcano Corp. (PTAB 2013)

This PTAB decision is important for a number of reasons. First, as a rule of substantive law, the decision announces a new interpretation of the statute-of-limitations for filing an IPR under 35 U.S.C. § 315(b). Second, the decision highlights (without directly addressing) the need for a better understanding of the role of precedent within PTAB decisions for cases such as this where a second PTAB panel rejects the legal analysis of a first PTAB panel. Finally, the case is important because it highlights problems with the statutory rule that the PTAB's determination "whether to institute an inter partes review [is] final and nonappealable." 35 U.S.C. § 314(d).

The Patent Trial and Appeal Board (PTAB) continues to see a growing docket of inter partes reviews (IPR) and post-grant reviews of covered-business-method patents (PGR-CBM). Of importance, the PTAB appears to be scrutinizing review requests and has denied several – finding that the requester had failed to meet the "reasonable likelihood" standard of 35 U.S.C. § 315 or the "more likely than not" standard of 35 U.S.C. § 324.

Here, however, an expanded panel of five administrative patent judges has denied St. Jude's IPR petition based upon the one-year statute of limitations triggered by service of "a complaint alleging infringement" under 35 U.S.C. § 315(b). That statute provides:

An inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.

This is seemingly a pretty straightforward and easy to adjudicate rule. However, St. Jude raised an interesting question of law because it was never served with a complaint per se.  Rather, St. Jude sued Volcano for infringement and Volcano served an answer and counterclaim of infringement. The counterclaim was served more than one-year before the IPR request. Leaving the legal question of whether the filing of an answer with a counterclaim alleging infringement counts under the statute as a "complaint alleging infringement." There does not appear to be any direct legislative history from the AIA on point other than the general conception that the deadline is intended to prevent repeated "repeated litigation and administrative attacks." H.R. Rep. No. 112-98 at 48 (2011). As is often true of the Congressional record, that statement is general enough to be read in support of either side. And, certainly a counterclaim is often thought of as more of a defensive tact rather than being offensive harassment.

St. Jude's legal argument stems from Rule 7 of the Federal Rules of Civil Procedure that define pleadings in civil cases as follows:

Only these pleadings are allowed:

(1) a complaint;

(2) an answer to a complaint;

(3) an answer to a counterclaim designated as a counterclaim;

(4) an answer to a crossclaim;

(5) a third-party complaint;

(6) an answer to a third-party complaint; and

(7) if the court orders one, a reply to an answer.

You'll notice from the allowed pleadings that a counterclaim (No. 3) is separately defined from a complaint (No. 1). That listing coupled with the statement indicating that these are the "only" pleadings allowed suggests that the differentiation in the list is also important. Similarly, St. Jude points to FRCP R. 3 that states "A civil action is commenced by filing a complaint with the court." Finally, St. Jude highlights that the statute in question (§315) particularly mentions counterclaims in a different section of the provision and that linguistic distinction suggests that Congress thought that a counterclaim was different from a complaint.

The Board rejected St. Jude's argument – finding instead that a counterclaim is the functional and legal equivalent of a complaint and consequently that the request for IPR was untimely. The Board writes:

The Federal Rules of Civil Procedure neither define the term "complaint" in Rule 3 nor use it to refer only to the filing that commences a civil action. Rule 3 states, as amended in 2007: "A civil action is commenced by filing a complaint with the court." The rule specifies merely which filing commences a civil action—a complaint—but does not limit a "complaint" to be that filing and nothing else. Moreover, the term is used elsewhere in the Rules to refer to a pleading that does not commence a civil action. For example, Rule 14(a)(1) states, in pertinent part: "A defending party may, as third-party plaintiff, serve a summons and complaint on a nonparty who is or may be liable to it for all or part of the claim against it." A complaint against a third party does not commence a civil action; rather, it joins the third party to an existing civil action. The Rules, therefore, do not define or use the term "complaint" in the exclusive manner St. Jude argues.

We disagree also with St. Jude's contention that Rule 7 distinguishes a counterclaim from a complaint in a way that is meaningful for our determination. Rule 7 lists pleadings allowed in a civil action. The mere listing of items separately, however, does not, by itself, draw distinctions among the items in the list insofar as their legal equivalence. We discern in Rule 7 no such comparison or distinction between a complaint and a counterclaim.

A complaint and a counterclaim instead bear marked similarities. A counterclaim imposes the same burdens on the parties as does a complaint. A counterclaim alleges a cause of action, just like a complaint; confirming that equivalence, Wright and Miller explains that a counterclaim "basically is a defendant's complaint." 5 FED. PRAC. & PROC. CIV. § 1184 (3d ed.). …

St. Jude argues next that a counterclaim should be distinguished from a complaint in § 315(b) because that distinction is made in § 315(a). Pet. 3. St. Jude observes that 35 U.S.C. § 315(a)(3) excludes a counterclaim challenging validity from constituting a complaint challenging validity in § 315(a)(1). This argument is unpersuasive. Section 315(a)(3) states specifically that the exclusion applies to, and is made for purposes of, subsection § 315(a) only. The inapplicability of such an exclusion to § 315(b) indicates, to the contrary of St. Jude's position, that no similar exclusion exists, or was intended, with regard to a complaint and a counterclaim for infringement in respect of § 315(b). . . .

One interesting element of the decision here is that it differs with a prior decision made by the PTAB in Macauto USA v. Bos GmbH, IPR2012-00004. There, a three-member PTAB board found that the statute-of-limitations was tolled in cases where the complainant then voluntarily dismissed its case with prejudice. Citing Wright, Miller, Kane, and Marcus, 9 Federal Prac. & Proc. Civ. § 2367 (3d. ed.) ("[A]s numerous federal courts have made clear, a voluntary dismissal without prejudice under Rule 41(a) leaves the situation as if the action never had been filed.") It is not surprising that there are no overlapping judges between the St. Jude decision and Macauto.

The general standard operating procedure at the PTAB is that a Board decision is binding precedent "only if the opinion has been made Precedential" under the PTAB's operating procedure. See http://www.uspto.gov/ip/boards/bpai/procedures/sop2.pdf. Thus, at this point, neither opinion is precedential and so the next panel is also open to re-decide the case as it sees fit according to the law.

Certainly, the Federal Circuit would ordinarily be ready-willing-and-able to quickly resolve the split of opinion on the meaning of the law here. However, the statute indicates that this particular decision is both final and nonappealable. 35 U.S.C. § 314(d). Of course, the statute does not indicate that the decision cannot be attacked through a mandamus action or through a separate collateral attack on the final judgment, neither of which are ordinarily considered an appeal.

Samsung Proposes a Patent Pledge to Settle EC FRAND Investigation

Guest post by Jorge L. Contreras.  Prof. Contreras is an Associate Professor of Law at American University Washington College of Law.

As part of the global smartphone litigation between Apple and Samsung, the European Commission has been investigating Samsung’s use of injunctive relief to address infringement of standards-essential patents (SEPs).  Last December, the Commission informed Samsung that its attempts to obtain injunctions against Apple based on SEPs covering the European Telecommunications Standardisation Institute's (ETSI) 3G UMTS mobile wireless standard constituted an abuse of dominant position under EU competition law.  One of the key elements in the claim against Samsung was that it sought injunctions after having committed to license its SEPs to implementers of the UMTS standards on fair, reasonable and non-discriminatory (FRAND) terms, a common requirement within the standards-development world. 

Last week the Commission announced  that it has received a preliminary settlement proposal from Samsung.  Under this proposal, Samsung would commit not to seek injunctions in Europe on the basis of SEPs covering a broad range of wireless telecommunications and networking standards (i.e., well beyond the UMTS standard at issue in the Apple case), so long as the alleged infringers agreed to comply with a specified process for determining appropriate FRAND royalty rates.  This process would include good faith negotiations for at least 12 months, followed by arbitration at the International Chamber of Commerce (ICC) or litigation in the English High Court.  Samsung’s commitment with respect to its SEPs would become the most recent in a growing number of public commitments being made voluntarily by patent holders to limit the enforcement of their patents covering standardized technologies.

For those following the smartphone wars, Samsung’s proposal should sound familiar, as it bears a striking resemblance to the terms on which Google settled an investigation by the U.S. Federal Trade Commission this summer.  The FTC’s investigation of Google’s subsidiary Motorola Mobility also focused on the use of SEPs to seek injunctive relief against implementers of industry standards, and was based on the potential anticompetitive impact of this behavior.  There are, however, several notable differences between the FTC’s Google settlement and what Samsung has proposed.  Some of these are summarized in Table 1 below:

Table 1

Comparison of Google and Samsung (Proposed) Injunction Settlement Terms

	FTC-Google Order (Jul. 23, 2013)	Samsung Proposal to EC (Oct. 17, 2013)
Scope of Non-injunction commitment	Worldwide	European Economic Area (EEA)
Duration of Commitment	10 years	5 years
Standards covered	Any standard published by a standards-setting organization (SSO)	Mobile Device* standards published by SSOs
Mandatory negotiation period	6 months	12 months
Designated arbitral tribunals	AAA, JAMS, WIPO	ICC
Designated courts	Any tribunal worldwide	English High Court or EU Unified Patent Court

* Mobile devices include smartphones and tablet devices but exclude desktop, notebook, subnotebook and laptop computers.

As Table 1 indicates, Samsung’s proposal is (not surprisingly) a bit less burdensome than the terms that Google agreed with the FTC.  To wit, the proposed geographic coverage is narrower (the EEA rather than the whole world) and the duration is half as long (5 rather than 10 years).  Interestingly, however, Samsung has proposed a mandatory negotiation period, during with it would be required to negotiate FRAND terms with a potential licensee, that is twice as long as the period agreed by Google (12 versus 6 months).  As patent holders typically want to get to court as quickly as possible, it is not clear why Samsung has proposed a longer period, and this may simply be a function of private signaling made by the Commission.  Samsung’s choice of arbitral tribunals is also interesting, inasmuch as it designates the private International Chamber of Commerce (ICC) over the UN-chartered World Intellectual Property Organization (WIPO), which has actively been seeking to get into the SEP arbitration business.

Just as the FTC did prior to finalization of the Google settlement, the EC has solicited public comments on the proposed Samsung settlement.  The FTC received 25 submissions in response to its solicitation, and made several adjustments to the final Google order as a result.  The EC has allowed 30 days for the submission of comments (through Nov. 16, 2013) and it is likely that many of the same issues that were raised in the comments to the FTC will surface again.

For those who are generally interested in voluntary patent pledges like the one proposed by Samsung, the Program on Information Justice and Intellectual Property (PIJIP) at American University’s Washington College of Law has established a new public web resource listing and describing non-SDO patent commitments.  The site, which was launched last week, already includes 63 different non-SDO patent commitments covering thousands of patents.  These pledges have been made by industry leaders such as Google, Microsoft, Apple and Intel, as well as small entities and, should its proposal to the EC be accepted, Samsung.  We hope to continue to add information to this site, and invite the submission of additional non-SDO patent commitments by the public.

Enforcing Injunctions: Perhaps Not so Powerful

By Dennis Crouch

NCube (ARRIS Gp) v. SeaChange (Fed. Cir. 2013)

Injunctive relief is a powerful mechanism for stopping ongoing patent infringement and for forcing settlement by placing large hold-up costs on adjudged infringers who are locked-into maintaining their technology profile. In the area of multi-component systems, many accused-infringers and academics argue that the hold-up costs of injunctive relief sets-up an imbalance of power that results in a windfall settlement for minor-component patentees. The prototypical case is where an injunction is ordered to stop sales of a complex product based upon the finding that one of the many components infringes a patent.

The decision here offers a counterbalance based upon the recognition that product specifications and production methods are continually updated and modified. Major modifications may result in a new product version, but more minor changes regularly implemented without direct customer notification.

Here, the ARRIS patent covers a system of delivering streamed video that have been purchased online. Patent No. 5,805,804. A jury found that SeaChange's ITV product was infringing and the district court entered a permanent injunction – enjoining SeaChange from using or selling the ITV product or "any devices not more than colorably different therefrom that clearly infringe the Adjudicated Claims of the '804 patent." Although stated within the same paragraph here, it actually took four years for the court to order the permanent injunction following the jury verdict. The delay took into account post-verdict motions and briefing and then an appeal to the Federal Circuit where the verdict was affirmed.

By the time the injunction order became effective, SeaChange had modified its ITV system in order to avoid infringement. This approach is common. In essence, when an injunction issues regarding a minor component of a product, the outcome is normally not to cease manufacturing and sales but rather to modify or "patch" the product design and thus avoid the injunction. It's also common that the work-around is – from the patentee's point of view – still within the coverage of the patent.

After a failed settlement attempt, ARRIS filed a contempt motion asking the district court to stop the sales. However, the district court refused and that refusal has been affirmed on appeal the Federal Circuit. Rather, in order to stop the new product ARRIS would need to file an entirely new federal lawsuit.

Contempt motions are actually difficult to win. The basic rule is that the party seeking to enforce the injunction must provide clear and convincing evidence that the accused activity falls within the injunction. For new product designs, the courts only allow contempt when the new product is "no more than colorably different" than the one found to be infringing. See TiVo v. EchoStar (Fed. Cir. 2011) (en banc).

Here, the modification was to basically take a ClientID out of a particular table stored on the system and instead stored elsewhere on the system. Although the ClientID still performs the same function, the change "is a significant change to the system."

The result then is that ARRIS only avenue for enforcement is to file a new infringement lawsuit.

Ocean Tomo versus PatentRatings

Ocean Tomo, LLC v. Jonathan Barney and PatentRatings LLC, Docket No. 12-cv-8450 (N.D. Ill. 2013)

Jonathan Barney is the founder of PatentRatings, the company that holds the patent on rating patents based upon a variety of objective criteria. See U.S. patent No. 6,556,992, 7,657,476, 7,716,226, 7,949,581, 7,962,511, 8,131,701, 8,504,560. In 2005, Barney joined Ocean Tomo and the company licensed use of his patent ratings information. According to the court documents, that agreement ended on a bad note in 2011:

After Barney began to work at Ocean Tomo, he quickly soured on the company as he discovered that "the environment at Ocean Tomo was rife with conflict, back-biting, and shady business and accounting practices." According to Barney, Ocean Tomo attempted to freeze him out, deprive him of the benefits he had been promised, and destroy him and PatentRatings financially so Ocean Tomo could appropriate the PatentRatings system and the associated intellectual property. Barney alleges that by February of 2011, the working environment at Ocean Tomo was so intolerable that he had no choice but to resign. He also alleges that Ocean Tomo used his resignation as an excuse to redeem a portion of his equity units without paying consideration and to reduce his share of profits and equity based on groundless claims of misconduct. . . . Barney also contends that Ocean Tomo wrongfully disclosed PatentRatings' confidential information to third-party software developers so they could reverse engineer the PatentRatings system and develop knock-off products based on PatentRatings' intellectual property. In addition, Barney asserts that Ocean Tomo wrongfully accessed PatentRatings' computer servers in Irvine, California, copied confidential data on the servers, and transferred that data to its own servers so it could attempt to reverse-engineer PatentRatings' product.

Prior to this lawsuit, the parties had actually arbitrated some of their disputes and a three-member panel found largely for Barney in rejecting Ocean Tomo's request for $2.5 million in damages. However, Ocean Tomo then sued in Illinois state court Barney for violation of his employment agreement, violation of the Illinois Trade Secret Act, violation of the Computer Fraud and Abuse Act (CFAA), and conversion. Barney removed the case to Federal Court countersued as noted above.

Although the case is still ongoing, the district court has dismissed several of Barney's claims for failure to state a claim upon which relief can be granted. These include Barney's claims of violation of an implied covenant of good faith and fair dealing; fraud; and the CFAA violation allegation. In particular, under Illionois law there is no independent cause of action for violation of the implied covenant of good faith and fair dealing, but rather that covenant is a part of each contract and thus must instead be alleged as part of a breach of contract claim. Barney's claim that Ocean Tomo committed fraud stemmed from his joining with the firm in 2005 and was thus barred by the Illinois five-year statute of limitations. Finally, the CFAA claim alleges that in September 2012 (long after the break-up) Ocean Tomo accessed PatentRatings' servers without authorization, copied confidential data and thereby caused at least $5,000 in damages. For a CFAA civil action, the damage threshold is a required element of a claim. However, in oral arguments PatentRatings admitted it was in the process of evaluating the damage an/or loss. The court therefore also dismissed the CFAA claim based upon PatentRatings' "tacit concession that its CFAA claim is deficient."

= = = = =

Based upon an ongoing license, In Ocean Tomo continues to use the PatentRatings algorithms to report on patent quality through its Ocean Tomo Ratings.

= = = = =

District Court Decision: Download Gov.uscourts.ilnd.275661.52.0

New Lawsuits: Gillette and P&G

By Dennis Crouch

Two interesting consumer products lawsuits filed this week:

• Gillette Company v. BK Gifts, Docket No. 13-cv-02241 (N.D. Ohio); and
• Procter & Gamble Company v. Conopco, Inc. and Unilever United States, Inc., Docket No., 13-cv-00732 (S.D. Ohio).

Gillette sued BK Gifts for selling generic knock-off versions of the popular Gillette MACH3 and Proglide razor blades. The defendant has not been selling these as counterfeit goods but rather as goods offering the same functionality at a substantially lower price. Their website stated: "STOP OVERPAYING FOR RAZOR BLADES . . . If you like Gillette® MACH3®, MACH3® SENSITIVE or M3 Power you'll love our Classic Razor Blades." Now, the website states "WE No Longer Sell Razors Due to a Pending Lawsuit With Gillette."

In the lawsuit, Gillette does not suggest that it invented any new technology or useful good but rather asserted six design patents that cover the ornamental design of its razors. US Design Patent Nos. D415315, D422751, D430023, D440874, D531518, and D575454. Of interest, the D'315 should expire on October 12, 2013 and several others will expire in 2014.

P&G's lawsuit against Unilever involves three shampoo concoctions that are useful for dandruff: US Patent Nos. 6,451,300, 6,649,155, and 6,974,569. Although the patent makes some claims regarding the effective treatment of dandruff, I don't see any file history information where the PTO asked for any proof to back-up those claims. An interesting aspect of the dispute is that P&G and Unilever have an ongoing contractual process for resolving patent disputes that involve a tiered approach that begins with good faith negotiations, then moves to mediation, and finally to non-binding arbitration. If that process fails, then the case can file in court. The complaint in this case indicates that the process has been successful in that the parties have settled five different patent disputes over the past five years without having to file a civil action. However, P&G alleges that Unilever has refused to arbitrate the case and instead filed inter partes review petitions with the PTO and filed a declaratory judgment action in the UK challenging the patent there. See IPR Nos. 2013-0505, 2013-0509, 2013-0510.

==

The twin patent-term-adjustment cases of Exelixis, Inc. v. Rea and Novartis AG v. Rea are now scheduled for oral arguments at the PTO.

What is Your Experience with Patent Assertion Entities and Patent Licensing?

One difficulty with studying patent enforcement is that so much of the action goes on behind closed doors and outside of court filings.

A colleague of mine is looking to interview a number of different participants for a research study on patent assertion entities. Specifically, the colleague is looking to talk to the following types of people:

• Solo inventors or small firms that have sold their invention rights to a patent assertion entity;
• Solo inventors or small firms that attempted to sell their invention rights to a manufacturing entity but failed;
• Entities that previously were engaged in manufacturing but now primarily license their intellectual property portfolios; and
• Entities that have licensed technology from a patent assertion entity that previously was a manufacturing entity (see #3 above)

If you fit within any of these categories and would be willing to answer a few questions, please e-mail your contact information to [email protected].

I have been assured that "interview data will remain confidential" and that "information gathered will be used strictly for academic research." The researcher here has no affiliation to any party on either side of the current debates on patent assertion entities.

-- Dennis

Intellectual Ventures and its 80,000 Patents

by Dennis Crouch

On Friday, Greg Gorder led a great discussion here at the University of Missouri School of Law as part of our symposium on Resolving IP Disputes. Gorder is a co-founder of the patent-law giant Intellectual Ventures. The focus of Gorder's talk was on incremental invention and the "invention gap" associated with most products on the market. Intellectual Ventures basically defines this invention gap as the number of patents that a company is infringing when it makes or sells its products. The key figure that I walked away with was 80,000. Intellectual Ventures now owns over 80,000 patents and pending patent applications.

Later this week we should have video of the conference available for viewing.

While Mr. Gorder was speaking here at Mizzou, his company attorneys were busy filing a host of patent infringement lawsuits against the mobile carrier industry, including AT&T, Leap Wireless, Nextel, T-Mobile, and US Cellular. The patents in suit include U.S. Patent Nos. 6,640,248; 5,602,831; 6,023,783; 6,952,408; 6,370,153; 5,963,557; 8,310,993; 7,269,127; 7,848,353; 8,396,079; and 7,787,431. In typical aggregator form, the patents come from a diverse array of sources including Malibu Networks (a failed company with "promising technology" that "entered the market about two years too early"); Seiko (an ongoing company that wanted to monetize its invention surplus); California Institute of Technology (a large non-practicing entity); AirNet Communications; John Eng; IPWireless; Georgia Tech; and Neocific.

Supreme Court Action Today

By Dennis Crouch

Supreme Court Action on 10/7/2013

Extraterritorial Application of US Patent Law: The Supreme Court has issued an invitation to the Solicitor General to file the Views of the Obama Administration (CVSG) in Maersk Drilling USA, Inc. v. Transocean Offshore Deepwater Drilling, Inc., Sct. No. 13-43 (2013). The focus of the case is location – and, what is meant by an "offer to sell . . . within the United States" under 35 U.S.C. § 271(a). The Federal Circuit held that the actual location of the offer is immaterial so long as the offer contemplated performance within the United States.

Subject Matter Eligibility: The Supreme Court has denied certiorari in the § 101 case challenging PerkinElmer's patented "method for determining whether a pregnant woman is at an increased risk of having a fetus with Down's syndrome." Intema Ltd. v. PerkinElmer, Inc., Supreme Court No. 12-1372. The case with a much greater shot is Alice v. CLS Bank and perhaps its companion WildTangent v. Ultramcercial. Briefing of the petition continues in those cases.

False Marking: The Supreme Court has denied certiorari in PubPat's False Marking case. PubPat had challenged the AIA's retroactive rejection of non-competitor qui tam suits for false marking. Public Patent Foundation, Inc. v. McNeil-PPC, Inc., Sct. No. 13-161.

Prior Art Presumed Enabling: The Supreme Court has denied certiorari in the Finjan's challenge to the PTO's presumption that prior art is enabling. Finjan, Inc. v. U.S. Patent and Trademark Office, Sct. No. 12-1245.

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Patent Cases Where Petition for Certiorari has been Filed:

Limelight v. Akamai, Sct. No. 12-786, is still pending at the Supreme Court and awaiting comments from the US Solicitor General (CVSG) before the court decides whether to grant the petition for writ of certiorari. The question presented in that case is whether indirect infringement (inducement) requires underlying direct infringement by a single actor. The Federal Circuit says "no."

Hyundai Motor America, Inc. v. Clear with Computers, LLC, Sct. No. 13-296. This pending case is a follow-up to the Supreme Court's 2011 decision in Microsoft v. i4i where the court held that invalidity defenses must be proven with clear and convincing evidence. That decision included a concurrence by Justice Breyer indicating that questions of law (such as obviousness) need not be proven with clear and convincing evidence. "The question presented is whether, following i4i, a district court may … instruct a jury to apply the heightened 'clear and convincing' standard not only to disputed factual aspects of an invalidity claim, but also to the legal aspects of such a claim - including the ultimate question of a patent's invalidity?"

The petition for writ of certiorari in Sony v. 1^st Media, Sct. No. 12-1086, is fully briefed but has not yet been decided. That case involves the extent of district court discretion in evaluating the equitable doctrine of patent unenforceability. The case largely challenges the strict requirements of Therasense.

In Fox Group, Inc. v. Cree, Inc., Sct. No. 12-1378, the asserted patent was found invalid under 35 U.S.C. § 102(g)(2) since the subject matter of the patent had previously been invented. The statute only works if the prior inventor did not abandon, suppress, or conceal the prior invention and here the prior inventor concealed how to make the invention, did not commercialize it, and did not apply for a patent. However, the prior inventor did disclose the fact of the invention and publicly offered some non-enabling clues to the invention. Although briefing is now complete, the Supreme Court took no action in this case yet.

Nautilus v. Biosig is pending at the Supreme Court and awaiting a response from Biosig. The case questions whether the "Insolubly Ambiguous" standard for indefiniteness is overly strict.

Another pending petition is Nokia v. v. International Trade Commission, Sct. No. 12-1352. The case focuses on patent enforcement entities and the "domestic industry" requirement for USITC jurisdiction.

Organic Seed Growers and Trade Ass'n v. Monsanto Co, Sct. No. 13-303, is also pending as a petition for writ of certiorari. The case argues that organic farmers have jurisdiction to challenge Monsanto's GMO seed patents.

Saffran v. Johnson & Johnson, Sct. No. 13-405. In this case, the patentee essentially asks the Supreme Court to decide the issue before the en banc Federal Circuit in Lighting Ballast Control. I.e., "Whether the Federal Circuit should have given deference to the district court's factual findings in construing the patent claims." This petition is something of a place-holder to give the patentee time to see the outcome of Lighting Ballast.

Artesyn Technologies, Inc. v. SynQor, Inc., Sct No. 13-375. In this pending case, the losing defendant has asked that the Supreme Court tell the Federal Circuit to "Follow KSR" and also "Follow Global-Tech" rather than recreating the formal TSM test and allowing recklessness serve as proof of knowledge for induced infringement. In the similar pending petition of Arthrex, Inc. v. Smith & Nephew, Inc., Sct. No. 13-290, the petitioner asks for a further definition of "willful blindness" for inducement.

Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., Sct. No. 13-269. This damages case focuses on when lost-sales outside of the US can be captured under US law. Here, the patentee argues that those sales should be accounted-for when they are "direct and foreseeable result of patent infringement inside the United States." Briefing is ongoing at the petitions stage.

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Patent cases where the Supreme Court has granted certiorari and will be hearing the case this term:

Medtronic Inc. v. Boston Scientific Corp., Sct. No. 12-1128 (Does a Declaratory Judgment plaintiff who is also an ongoing licensee of the patent have the burden of proving non-infringement?).

Highmark Inc. v. Allcare Health Mgmt. Sys., Sct. No. 12-1163 (When must deference be given to a lower court judgment regarding an exceptional case finding under §285?).

Octane Fitness, LLC v. Icon Health and Fitness, Inc., Sct. No. 12-1184 (What is the proper definition of an "exceptional case"?).

= = = = =

Hal Wegner follows these developments closely and his Top-Ten lists are available through the LAIPLA website: http://www.laipla.net/hal-wegners-top-ten-patent-cases/

Patent Law Federalism (Part II): Protecting the Free Speech Interest of Patent Owners to Conduct an Out-of-Court Patent Enforcement Campaign

By Dennis Crouch

Activision TV v. Pinnacle Bancorp (D.Neb 2013)

In a second opinion in as many weeks, Federal Judge Bataillon (D.Neb.) has again ruled against the Nebraska State Attorney General and the state's campaign against patent enforcement activities. [Link to Decision] Activision holds several patents that essentially cover the operation of a digital menu board with photographs. See U.S. Patent Nos. 8,330,613 and 7,369,058. And the company has sued a host of defendants and has sent out cease-and-desist letters to an even larger group, including some in Nebraska.

In response to those enforcement activities, the Nebraska Attorney General sent a letter to Activision's litigation counsel ordering the firm to "immediately cease and desist the initiation of any and all new patent infringement enforcement efforts within the State of Nebraska pending the outcome of [the Attorney General] office's investigation."

In the first opinion, Judge Bataillon held that the firm could continue to represent Activision in Federal Court patent litigation by enjoining enforcement of that aspect of the Attorney General's order. Following that order, Activision pressed on – asking the court to also enjoin the entire Attorney General order so that the firm could continue to pursue new out-of-court enforcement activities – such as contacting infringers and demanding that they pay for licenses. The Court has now sided with the patentee and against the Attorney General – finding that the restriction on enforcement activities likely operate as a prior-restraint on speech in violation of Activision (and its Attorneys) First Amendment rights of Free Speech and their Due Process rights.

The court finds the cease and desist order in this case is akin to a prior restraint. . . . The court finds Activision is likely to win on the merits as there is no claim or evidence to date of bad faith. Further, as there is no claim of bad faith, federal law governing these patents, including sending initial letters to businesses believed to violate a patent owned by Activision, is preempted by the federal government. Also, Activision has a First Amendment right to associate with counsel of its choosing without interference from the state of Nebraska. In addition, the cease and desist order operates in this case as a prior restraint on Activision's speech and association rights. For these reasons, the court finds Activision is likely to win on the merits. . . .

The court is deeply concerned about the ability of the Attorney General to issue cease and desist orders, prior to the conclusion of the investigation, prior to any negative findings, prior to any hearings, and prior to permitting submission of documents and evidence by the Farney Daniels law firm. On the contrary, the Attorney General sent a request for information to Farney Daniels the same day it sent the cease and desist order, and gave Farney Daniels until August 18, 2013, to respond. Farney Daniels responded, and no further actions have been taken. The inability of Farney Daniels to submit such letters to businesses in Nebraska clearly infringes on the First Amendment rights of Activision to be represented by the counsel of their choice.

This opinion comes as a result of Activision's motion for preliminary injunction (that has now been granted). Thus, the court found that the patentee was likely to win its case on the merits and that the Attorney General order was causing immediate irreparable harm. Under the laws of Appellate Procedure, the Attorney General has the right to immediately appeal this decision to the Court of Appeals to the Federal Circuit (where he would lose).

An important aspect of this decision is that it is not limited to patent law issues. Rather, the same First Amendment and Due Process claims here would apply any time the Attorney General issues a cease-and-desist order prior to conducting any investigation.

= = = = =

To be clear, the court did not shut-down the Attorney General's investigation but instead found that it is improper for the Attorney General to compel silence without even conducting an investigation. "The court notes, there is no doubt the Attorney General generally has the power to investigate activity that it believes violates state law. . . . If … at some point during the investigation evidence supports a claim of bad faith, the Attorney General is free to revisit this preliminary injunction with the court."

What is an Exceptional Case such that Court Should Award Attorney Fees?

By Dennis Crouch

Earlier this week, I commented on the two attorney-fees cases pending before the US Supreme Court:

• Octane Fitness, LLC v. ICON Health & Fitness, Inc., Docket No. 12-1184; and
• Highmark Inc. v. Allcare Health Management Sys., Docket No. 121163.

Both cases stem from the same perspective that the "exceptional case" requirement for attorney fees is too narrowly construed by the courts and especially by the Federal Circuit. See 35 U.S.C. § 285.

I noted in the prior post that the predecessor of Section 285 was first enacted in a 1946 Patent bill. The 1946 law was substantially similar to the current law (enacted in 1952) with the major difference that the 1946 act expressly gave the court "discretion" to award attorney fees to the prevailing party while the 1952 act removed that "discretion" term and instead indicated that the fee may be awarded "in exceptional cases."

The Senate Report associated with the 1946 statute indicates that the statute is not intended to make fee awards an "ordinary thing in patent suits" but instead to reserve such awards for "gross injustice."

It is not contemplated that the recovery of attorney's fees will become an ordinary thing in patent suits, but the discretion given the court in this respect, in addition to the present discretion to award triple damages, will discourage infringement of a patent by anyone thinking that all he would be required to pay if he loses the suit would be a royalty. The provision is also made general so as to enable the court to prevent a gross injustice to an alleged infringer.

S. Rep. No. 1503, 79th Cong., 2d Sess. (1946), reprinted in 1946 U.S. Code Cong. Serv. 1386, 1387.

When the 1952 act was passed, the House Committee Report briefly mentioned the "exceptional case" amendment to the statute – indicating that the phrase "'in exceptional cases' has been added as expressing the intention of the present statute as shown by its legislative history and as interpreted by the courts."

In several cases, the Federal Circuit has considered the standard and, after some debate, decided in Eltech Systems Corp. v. PPG Industries, Inc., 903 F.2d 805 (Fed. Cir. 1990), that the exceptional case standard should be the same for both prevailing plaintiffs and for prevailing defendants – writing: "we now reach the question and determine that there is and should be no difference in the standards applicable to patentees and infringers who engage in bad faith litigation." The Eltech Systems case was then cited positively by the Supreme Court in Fogerty v. Fantasy, 510 U.S. 517 (1994) as justification for a party-neutral approach to fee shifting in copyright cases.

We note that the federal fee-shifting statutes in the patent and trademark fields, which are more closely related to that of copyright, support a party-neutral approach. Those statutes contain language similar to that of [17 U.S.C.] § 505, with the added proviso that fees are only to be awarded in "exceptional cases." 35 U.S.C. § 285 (patent) ("The court in exceptional cases may award reasonable attorney fees to the prevailing party"); 15 U.S.C. § 1117 (trademark) (same). Consistent with the party-neutral language, courts have generally awarded attorney's fees in an evenhanded manner based on the same criteria. For patent, see, e.g., Eltech Systems Corp. v. PPG Industries, Inc., 903 F.2d 805, 811 (Fed. Cir. 1990) ("[T]here is and should be no difference in the standards applicable to patentees and infringers who engage in bad faith litigation"). For trademark, see, e.g., Motown Productions, Inc. v. Cacomm, Inc., 849 F.2d 781, 786 (2^nd Cir. 1988) (exceptional circumstances include cases in which losing party prosecuted or defended action in bad faith); but see Scotch Whisky Assn. v. Majestic Distilling Co., 958 F.2d 594 (4^th Cir.) (finding in the legislative history that prevailing defendants are to be treated more favorably than prevailing plaintiffs), cert. denied, 506 U.S. 862 (1992).

Fogerty at note 12.

Of course, the problem with a party-neutral approach is that it can only be applied at a certain high level of granularity or abstractness. Since patentees and accused infringers make systematically different argument and have systematically different strategies, the particular causes of exceptional case findings tends to be different. Thus, losing infringers most often pay fees based upon ongoing willful and reckless infringement while losing patentees most often pay fees for suing on patent obtained through inequitable conduct or for bringing baseless lawsuits. At that low level of granularity, the differences are such that it is difficult to compare whether a party-neutral approach is being applied.

Notes:

Thanks to John Pinkerton at Thompson & Knight for providing me with this legislative history from the 1946 Act.

Government Shutdown & Patent Law Practice

• Federal Courts (including the Federal Circuit) are continuing to operate on remaining budget surplus;
• USPTO is continuing to Operate on Remaining Revenues, although the agency is taking cost cutting measures and the 18th Annual Independent Inventors Conference has been cancelled.
• The FDA is largely closed and is not accepting filings that require FY2014 fees.
• FTC is closed and has postponed its patent troll investigation until further notice; and
• USITC has closed and is postponing its patent infringement investigations until further notice (all case deadlines are tolled).

 

Prior Art for Obviousness

In re Winslow, 365 F.2d 1017 (C.C.P.A. 1966)

In the 1966 decision Judge Rich described the scope of prior art for §103 using the tableau framework:

We think the proper way to apply the 103 obviousness test to a case like this is to first picture the inventor as working in his shop with the prior art references — which he is presumed to know — hanging on the walls around him.

I wonder if today, the proper legal analysis would begin with a Google's search engine that has indexed the prior art references?

Also, did the AIA eliminate the "pertinent art" requirement?

Supreme Court’s New Patent Cases

By Dennis Crouch

The Supreme Court today granted writs of certiorari in two patent-related cases appealed from the Court of Appeals for the Federal Circuit and one copyright case out of the Ninth Circuit.

• Octane Fitness, LLC v. ICON Health & Fitness, Inc., Docket No. 12-1184;
• Highmark Inc. v. Allcare Health Management Sys., Docket No. 121163; and
• Petrella v. MGM, Docket No. 12-1315.

The patent cases fit as a pair and both ask questions regarding the award of attorney fees to a prevailing party. In the US, each party to a litigation ordinarily pays its own attorney fees. Thus, although an accused infringer who successfully raises an invalidity defense will not pay damages to the patentee, that prevailing defendant will still need to pay its attorneys and experts for the thousands of hours spent defending the lawsuit. Likewise, a patentee who wins an infringement lawsuit generally takes a substantial portion of any award and turns it over to the attorneys and experts who turned the patent into cash.

Rule 11(c) of the Federal Rules of Civil Procedure offers sanctions for litigation abuses and indicates that reasonable attorney fees can serve as one form of sanctions. In addition, the section 285 of the Patent Act provides that a "court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285. The language of Section 285 was first included in the 1946 statutory revision of damage calculations. However, that rather than limiting the award to "exceptional cases" the 1946 statute provided that "[t]he court may in its discretion award reasonable attorney's fees to the prevailing party." I have not researched the legislative history behind this particular

In general, accused infringers who win patent cases have three particular complaints regarding the "exceptional case" limitation: (1) that the court has too narrowly interpreted the statute so that attorney fees are rarely awarded; (2) The second complaint is that fees are more likely to be awarded to a prevailing patentee (typically based upon willful infringement) than to a prevailing defendant despite Supreme Court precedent that suggests "prevailing plaintiffs and prevailing defendants are to be treated alike." (quoting the Supreme Court copyright case of Fogerty v. Fantasy). (3) Finally, the parties complain that the Federal Circuit is too quick to overturn fee-awards rather than providing substantial deference to the district court judgment. I should point out here that – at this point – these arguments do not have strong empirical support.

Over the years, there has been substantial academic debate on the policy potential of a more rigorous loser-pay rule. The primary idea is that the loser-pays rule reduces speculative litigation and would "limit the tactical leverage gained by a party with a weak case threatening a defendant with costly litigation." At the same time, the created-risk may also over-deter by also discouraging valid claims. As Jay Kesan explains, in general, the outcome of a balanced fee shifting regime is difficult to predict since parties who believe they have a strong case are more likely to sue (with the belief they will both compensatory recover damages and recoup attorney fees). "If both parties are pessimistic, settlement will likely occur under either system. However, if the plaintiff is optimistic, he is more likely to litigate because he will get a judgment without incurring costs." Jay P. Kesan, Carrots and Sticks to Create a Better Patent System, 17 Berkeley Tech. L.J. 763 (2002). By making more at-stake in the lawsuit, we also likely shift the rate of appeal upward for cases that do not settle.

= = =

In Octane Fitness, the petition challenges the "rigid and exclusive" test that the Federal Circuit uses to determine whether a case is "exceptional." A common theme of recent Supreme Court patent cases is a holding that challenged Federal Circuit rule is too rigid and should instead be more flexible. The second theme in recent Supreme Court patent cases is a holding that, when appropriate, patent law should fall in step with all other areas of law. The petition latches onto these theme and essential says "the Federal Circuit has done it again…" The particular question raised by Octane Fitness is as follows:

Whether the Federal Circuit's promulgation of a rigid and exclusive two-part test for determining whether a case is "exceptional" under 35 U.S.C. § 285 improperly appropriates a district court's discretionary authority to award attorney fees to prevailing accused infringers in contravention of statutory intent and this Court's precedent, thereby raising the standard for accused infringers (but not patentees) to recoup fees and encouraging patent plaintiffs to bring spurious patent cases to cause competitive harm or coerce unwarranted settlements from defendants.

Icon rephrased as follows:

Patent infringement claims between industry competitors, ICON Health & Fitness, Inc. and Octane Fitness, LLC, were decided below on summary judgment. Both lower courts held that this case was not an "exceptional" patent case that would warrant the award of attorney fees to the prevailing party. Should this Court reverse the lower courts through judicial expansion of the attorney fee-shifting statute found in 35 U.S.C. § 285?

In the particular case, the district court conducted a Markman hearing and, based upon its claim construction, held that Octane's products did not infringe Icon's patent covering its elliptical exercise machine.

For its part, Octane writes that the "most compelling reason[] to grant certiorari …. [is that] the Federal Circuit's current exceptional case standard is squarely in conflict with this Court's holding in Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994) … Fogerty mandates that plaintiffs and defendants be treated alike under an analogous fee-shifting provision in the Copyright Act." Of course, one problem with the even-handed mandate is that plaintiffs and defendants lose cases for different reasons. Within this framework, a party's status actually does make some difference for fee-shifting. Findings of willful infringement, for instance, favor only patentees, while findings of inequitable conduct during patent prosecution favor only accused infringers. Either party can be awarded attorney's fees based on the bad faith assertion of objectively baseless claims or other litigation misconduct.

In the background are a variety statutory proposals that would accomplish much of what Octane seeks. However, a Supreme Court decision in the case is likely to arrive before any Congressional action. See Congressing.

In Highmark, former Acting Solicitor General Neal Katyal (now at Hogan Lovells) has asked the Supreme Court to focus on whether the Federal Circuit must give deference to a lower court award of attorney-fees to a prevailing party.

The petition asks:

The Patent Act provides that A case is "exceptional" if it is objectively baseless and brought in bad faith. After living with this case for more than six years, the District Court found that it was objectively baseless and brought in bad faith, and it awarded fees. Over a strong dissent, a Federal Circuit panel reversed, holding that a district court's objective baselessness determination is reviewed "without deference." The Federal Circuit denied rehearing en banc by a vote of six to five. One of the two pointed dissents from that denial accurately observed that the decision below "deviates from precedent *** and establishes a review standard for exceptional case findings in patent cases that is squarely at odds with the highly deferential review adopted by every regional circuit and the Supreme Court in other areas of law."

The question presented is: Whether a district court's exceptional-case finding under 35 U.S.C. § 285, based on its judgment that a suit is objectively baseless, is entitled to deference.

Undoubtedly, the Supreme Court will reverse in Highmark and the reasons are well understood by the Federal Circuit judges. In all likelihood, a GVR without opinion would provide sufficient instruction to the Federal Circuit in this case. However, I suspect that we will see these two cases argued and decided in parallel with a roughly identical timeline. One important aspect of the Highmark case is the question of whether attorney fees can be awarded as a deterrent against other parties' bad behavior.

The copyright case is Petrella v. MGM and focuses on the doctrine of laches as it applies to copyright enforcement – with a particular focus on what might be termed "rolling infringement." The copyright holder in the case is Paula Petrella whose father Peter Petrella wrote two 1970s screenplays (one titled The Raging Bull) and a book about the life of boxer Jake LaMotta. A few years later(1980), Raging Bull became an Oscar winning movie. In 2009, Petrella sued MGM for copyright infringement. Now, both MGM and Petrella claim ownership over the copyrights being asserted and MGM claims that the movie does not infringe the Petrella copyrights. However, the focus of the case at the Supreme Court is whether the doctrine of laches can block a copyright holder from suing for a new act of infringement (such as distributing another copy of the movie).

Petrella presents the question as follows:

The Copyright Act expressly prescribes a three-year statute of limitations for civil copyright claims. 17 U.S.C. § 507(b). The three-year period accrues separately for each act of infringement, even if it is one of a continuing series of acts of infringement.

The federal courts of appeals have divided 3-2-1 over whether the nonstatutory defense of laches can bar a civil copyright suit brought within the express three-year statute of limitations. Three circuits forbid any application of laches or restrict the remedies to which it can apply. Two other circuits strongly disfavor laches and restrict it to exceptional circumstances. The Ninth Circuit not only does not restrict laches or the remedies to which it can apply, but has also adopted a presumption in favor of applying laches to continuing copyright infringements.

The question presented is: Whether the nonstatutory defense of laches is available without restriction to bar all remedies for civil copyright claims filed within the three-year statute of limitations prescribed by Congress, 17 U.S.C. § 507(b).

The case has obvious implications for patent law since patent law doctrine includes a similar non-statutory laches doctrine and six-year statute of limitations. It is possible that the Supreme Court will essentially eliminate the laches doctrine (but leave a claim of equitable estoppel).

It should be an interesting year in patent law.

Under the AIA,

A person shall be entitled to a patent unless-(1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; or (2) the claimed invention was described in a patent … or in [a published] application … [that] names another inventor and was effectively filed before the effective filing date of the claimed invention.

35 U.S.C. 102(a) (2013).

The USPTO is now examining patents under this new standard. I would love to see a real world example of this law being applied in a way shows the difference between our new filing-date focus and the old invention-date focus. [email protected]

Licensee Underreporting

By Dennis Crouch

One problem with royalty agreements is the annual fight over whether the licensee is paying full royalties to the licensor. In a recently released report, the technology-license auditors at Invotex say that there is good reason for a fight based upon their finding that "89% of audited licensees underreport and underpay royalties." According to their audits, a full 25% of licensees were paying less than half of what they should.

Now, one potential issue with this report is that Invotex has some amount of bias because the company primarily represents licensors willing to pay for an audit (and who have some suspicion of under-reporting). In addition, Invotex has a financial incentive to make audits appear larger. That said, the results found here are not surprising to me and attorneys should recognize that a licensor's role must be an active one.

Read the report here: http://invotex.com/perspectives/intellectual-property/13th-annual-invotex-royalty-compliance-report-89-audited

Bits & Bytes from Jonathan Hummel

RECENTLY

#1. Patent Battle over Cash-Cow Cameras in St. Louis

American Traffic Solutions (ATS) is suing B&W Sensors for patent infringement on a patent that covers, “technology using photography to simultaneously clock multiple vehicles on a single roadway.” Largely known for manufacturing controversial red-light cameras (see story in Missouri Appeals Court). ATS says B&W has misrepresented its speed-camera services to potential customers by falsely claiming that ATS could not offer them. ATS also complains that B&W has brought negative local attention to speed cameras, damaging the potential market for ATS in the St. Louis area.

 

#2. Troubled Trolls Pen Letter to Congress Re Covered Business Method Expansion

Matt Levy, writing at Patent Progress, breaks down a letter sent last week by concerned NPEs. Last Friday, BSA (Business Software Alliance) and a number of companies sent a letter to Senate and House Judiciary Committee leadership. BSA puts forth the standard “hamper to innovation” argument against expanding covered from only those business method patents dealing with financial services to all business methods. The letter was delivered to Senate Judiciary Chairman Patrick Leahy (D-Vt.) and Ranking Member Chuck Grassley (R-Iowa), and House Judiciary Chairman Bob Goodlatte (R-Va.) and Ranking Member John Conyers, Jr., (D-Mich.).Read the letter here.

 

#3. Martha Stewart Embroiled in Patent Battle with LodSys

Timothy B. Lee, writing for The Switch, at the Washington Post, reports that NPEs have a new, very formidable enemy: Martha Stewart. In July, Lodsys sent Stewart's media empire letters warning her that four of its iPad apps infringed LodSys's patent. Lodsys demanded $5,000 for each of the four apps to license the patents. Rather than simply pay the fee to make LodSys go away, Martha Stewart Living Omnimedia filed suit in Wisconsin seeking declaration that it had not infringed.

 

#4. Police Intellectual Property Unit Makes First Arrests

The Guardian reports that a new police unit to tackle illegal downloads and counterfeit DVDs and CDs has carried out its first raids and arrested two men. The police intellectual property crime unit (PIPCU), which launched on Friday, is being run by City of London police and has government funding of £2.56m over two years.

 

PENDING

Apple Applies For a Patent on E-Book Signing Technology

Writing for PC Magazine, Stephanie Mlot, explains, "A digital tome would come embedded with a specific autograph page, or a 'hot spot' autograph widget area configured to receive autographs."  Adding, "Don't expect to see this e-autograph system added to iBooks anytime soon. Find the patent here.

 

UPCOMING

#1. Intellectual Property Symposium – 10/4 – University of Misosuri

Join us at the University of Missouri, School of Law for a discussion of the current issues facing Intellectual Property practice. Hosted by the school’s Center for Dispute Resolution, the Symposium will feature Greg Gorder, co-found of Intellectual Ventures giving the Keynote Address.

-http://law.missouri.edu/csdr/symposium/2013/

#2. Antitrust and Intellectual Property Conference  -- 10/10 

-ABA Section of Intellectual Property

-Live/In-Person

#3. International Laws Governing Cross Border Discovery, Privilege, Confidentiality and Data -- 10/16

-ABA Section of Intellectual Property

-Webinar/Teleconference

 

 

JOBS

IP Attorney - Law Firm - Lansing, Mich.

            -Fraser Trebilcock Davis & Dunlap, P.C., an established Lansing Law Firm, has an opportunity for an experienced IP Attorney.

            -Please send resume with cover letter to Thaddeus E. Morgan, 124 W. Allegan, Suite 1000, Lansing, MI 48933.

 

Technical Writer/Patent Agent - Law Firm - Charlotte, N.C.

            -Additon, Higgins, Pendleton & Ashe, a boutique intellectual property law firm based in Charlotte, North Carolina, is seeking an experienced technical writer or patent agent to immediately join the firm. The candidate should also have a degree in electrical engineering, computer engineering, or computer science. Admission to practice before the USPTO is a plus.

            -Please send your resume, writing samples, and cover letter to [email protected].

 

 

Related articles

Patent troll Lodsys demands $5,000 from Martha Stewart. That was a bad idea [GigaOM]

Patent trolls have a new enemy: Martha Stewart

Resolving IP Disputes: Calling for an Alternative Paradigm

FTC on Patent Trolls

Bits & Bytes from Jonathan Hummel

USPTO and Government Shutdown

There is a potential of a substantial government shutdown on Tuesday, October 1 when the new fiscal year begins without moneys being appropriated.  The Patent Office has more control over its budget than some agencies and has a reserve fund that can be spent without further appropriations. So, for patent filers, the USPTO will remain open for business for at least a few weeks. A parallel fiscal hurdle is expected to hit October 19 when the US government’s debt load will to reach its self-imposed ceiling.  At that point, the PTO would likely be severely required to restrict spending.

October 4, 2013

http://law.missouri.edu/csdr/symposium/2013/