Patently-O Law Blog
Some applicants have asked about the current status of their AIA applications. The chart above shows the current status of a sample of about 8,000 published patent applications claiming post-AIA status.* Because of the backlog of PTAB appeals, it will likely be 2017 before we start seeing substantive decisions on the merits of AIA appeals.
About 7% of recently issued patents claim post-AIA status.
* A patent application falls under the America Invents Act (AIA), if it ever included a claim whose earliest effective filing date (counting priority claims) is on or after March 16 2013. This automatically includes all applications filed after the March 2013 deadline that do not claim priority to any earlier applications. Applications filed before the March 2013 date are all pre-AIA because the new-matter restriction would require that all claims be associated with that pre-AIA filing date. In the middle are applications filed after the March 2013 date but that claim priority to a pre-AIA application. For those bridge applications, the patent applicants have been initially asked to self-determine whether their applications are considered pre- or post-AIA.
In an interesting – though non-precedential – opinion, the Federal Circuit has ruled that a “speech-recognition interface” software lacks subject matter eligibility “because [the claims] are not directed to one of the four statutory categories of inventions identified in 35 U.S.C. § 101. The court writes: “[s]oftware may be patent eligible, but when a claim is not directed towards a process, the subject matter must exist in tangible form. Here, the disputed claims merely claim software instructions without any hardware limitations.”
AllVoice Developments v. Microsoft (Fed. Cir. 2015)
Recent action in patent eligibility doctrine has primarily focused on the judicial prohibitions against patenting abstract ideas, laws of nature, and natural phenomena. However the statute does have some meat of its own. In particular, Section 101 particularly creates eligibility for four categories of inventions: processes, machines, manufactures, and compositions of matter. Inventions that cannot fit within the four statutory categories are not patent eligible.
Machine, Manufacture, Composition of Matter: These terms go back to the 1793 patent act and have been interpreted in dozens of cases. Here, the court summarizes:
Except for process claims, “the eligible subject matter must exist in some physical or tangible form.” Digitech, 758 F.3d 1344 (Fed. Cir. 2014). To be considered a machine under section 101, “the claimed invention must be a ‘concrete thing, consisting of parts, or of certain devices and combination of devices.’” Id. (quoting Burr v. Duryee, 68 U.S. 531 (1863)). Similarly, “[t]o qualify as a manufacture, the invention must be a tangible article that is given a new form, quality, property, or combination through man-made or artificial means. Likewise, a composition of matter requires the combination of two or more substances and includes all composite articles.” Id.
The question in this case is whether Claim 60 of AllVoice’s U.S. Patent No. 5,799,273 fits within any of the four categories. The claim reads as follows:
60. A universal speech-recognition interface that enables operative coupling of a speech-recognition engine to at least any one of a plurality of different computer-related applications, the universal speech-recognition interface comprising:
input means for receiving speech-recognition data including recognised words;
output means for outputting the recognised words into at least any one of the plurality of different computer-related applications to allow processing of the recognised words as input text; and
audio playback means for playing audio data associated with the recognised words.
In considering the claim, the court found that no tangible or physical object claimed. Rather, the patentee admitted that the claim elements are all software elements that do not expressly require hardware elements. Without any actual “machine” or “composition of matter”, the claim failed for lack of subject matter eligibility.
The AIA makes important changes to the law of prior-art that will impact which inventions are patentable, although it remains unclear whether the new law makes it more difficult to obtain patent protection because it increases the scope of prior art in some areas but decreases the scope in other areas.
What is an AIA-Application. An AIA application is a patent application that – at some point – included at least one claim whose effective filing date is on or after March 16, 2013. For most applications, the answer to this is easy: if the US application is filed before the 2013 deadline then it is not an AIA-application; and if the US application is filed after the 2013 deadline and has no priority claims then it is an AIA-application. The difficult questions come-up with post-AIA applications that claim priority to pre-AIA filings. The question that the applicant must answer for those is whether the newly filed application includes any claims (including cancelled claims) that were not fully supported by the priority filing.
In their filing papers, patent applicants are asked to self-identify whether the application should be considered pre- or post-AIA with the following check-box statement:
To get a sense of how the transition is going, I pulled-up the files of about 6,000 recently published patent applications to see whether they are listed as pre- or post- AIA applications. The chart below shows the results. Prior to October 2014, very few of the published applications were considered post-AIA. Unless early publication was requested, those applications were either filed prior to the March 2013 date or claimed priority prior to that date (which thus led to early publication). Applications published since October 2014 are generally ones filed after March 2013.
We now have a growing number of post-AIA applications filed more than 24-months ago. Many of these have now received a first office action and at least some have issued as patents. (See, for example, Patent Nos. 9,032,902; 9,033,062; 9,035,301; 9,035,446; and 9,037,353). Coming soon – battles over the meaning of the revised 35 U.S.C. 102.
Somewhat interesting to me that the USPTO self-reported quality numbers are way-down for FY2015. I have not yet followed-up, but my initial guess is that the change is a measurement change rather than a change in practice.
by Dennis Crouch
Although it sounds of a malformed naive question, at times patent applicants do want to copyright their patent. The patent application may, for instance, include software code, prose, or particular schematics that would seemingly be amenable to copyright protection.
In 1987, the USPTO created an official policy allowing patentees to include a “Copyright or Mask Work Notice in Patents” in order to “protect the various intellectual property rights of the author or inventor.” Those instructions were then codified in 37 C.F.R. 1.71(d)-(e)(1988). The rule requires that a copyright notice be accompanied with with a grant of permission to make certain copies:
A portion of the disclosure of this patent document contains material which is subject to (copyright or mask work) protection. The (copyright or mask work) owner has no objection to the facsimile reproduction by anyone of the patent document or the patent disclosure, as it appears in the Patent and Trademark Office patent file or records, but otherwise reserves all (copyright or mask work) rights whatsoever.
See also, MPEP 608(w).
Unfortunately, neither the rule nor statute provide any indication of the impact of a notice failure.
Published works are no longer required to include any copyright notice, and the PTO has never indicated (AFAIK) that submission without the copyright notice constitutes a waiver or abandonment of copyright protections. However, the failure to include a (c) notice could potentially be relevant to fair-use analysis.Santa Clara Copyright Law Professor Tyler Ochoa pointed me to Korzybski v. Underwood & Underwood, 36 F.2d 727 (2d Cir. 1929). In that 75 year old case, the appellate panel held that a patent filing served as a dedication of all rights in the disclosure to the public domain.
When Korzybski filed his application and received his patent, he . . . dedicated it to the public, save for the right to make, use, and vend it during the period for which the patent gave him that monopoly. The public had the right to the information disclosed in his patent and the right to use and copy the text and diagrams. . . . Everything disclosed in the patent became a part of the public domain.
. . . The defendant has done no more than photograph the [patented] anthropometer. This we hold it had a right to do, because the anthropometer was an embodiment of the drawings of the patent. The copyright was invalid, because the subject-matter had become a part of the public domain when complainant filed the prior application which resulted in the grant of his patent.
An inventor who has applied for and obtained a patent cannot extend his monopoly by taking out a copyright.
The Korzybski decision is based two distinct doctrines – failure of formalities (no longer the law) and improper extension both the failure of notice (no longer the law) and the traditional judge-made public policy that copyrights should not be used to extent patent rights (likely still the law).
I wanted to look at the number of patents that actually include the copyright notice and how that number has changed over time. The first chart shows the number of patents issued each year containing the copyright notice and the second chart provides charts the numbers as a percentage relative to the total patents issued each year.
Although the relative percentage has changed over time, it has always remained under 1%. My basic explanation for the percentage being so low is that the copyright notice requires an express waiver of certain rights – why do that without some justifiable gains?
Guest Post by Professor Shubha Ghosh, University of Wisconsin Law School
Congratualtions to Hannah Jiam for her great work on attorney’s fee shifting after the Supreme Court’s 2014 Octane Fitness and Highmark decisions! The forthcoming article provides a deep portrait of how attorneys have responded to the new regime under Section 285 and how courts have ruled. She also makes an insightful observation about the role of judicial discretion and the need for legislative reform of Section 285 to provide more detailed guidance for judges in order to direct and focus their discretion. Many scholars speak about attorney’s fees as a policy lever to limit frivolous litigation and the questionable practices of NPE’s. What I learned from Hannah’s article is that we also need to consider the torque of any particular policy lever (to take the nerdy techno-metaphor to the next level).
I have been pursuing research on Section 285 during my leave year from the University of Wisconsin as an AAAS Law, Science, and Policy Fellow at the Federal Judicial Center in Washington, DC. A completed paper summarizing my research will be available in a few months. Here, I would like to present some preliminary findings in order to complement Ms. Jiam’s work.
Where my methodology differs is to focus on the regimes pre-Octane Fitness as well as decisions after 2014. I am examining published judicial opinions ruling on 285 motions over three periods: (1) from the founding of the Federal Circuit in 1982 to the Brooks Furniture decision in the first week of 2005; (2) from 2005 to the Octane Fitness decision in 2014; and (3) from 2014 to the present. While there are methodological problems in looking at published opinions (which I address at the end of this post), looking at what courts have done and said with regards to 285 motions offers useful information on when courts have found a case to be exceptional and when not.
My principal finding is that judicial discretion matters regardless of the stated standard for the award of attorney’s fees. In other words, raising the standard, as occurred with Brooks Furniture, or lowering the standard, as occurred with Octane Fitness, may not matter over all as to how courts exercise their discretion. The tentative implication is that the torque of attorney’s fees as policy levers depends on an articulation of what factors courts are required to use in awarding fees and perhaps ultimately on whether or not the fees are automatic.
Some preliminary findings from various data sources illustrate these points. Table 1 reports findings from Lex Machina, which reports on various patent litigation events starting in 2000. The database captures awards of attorney’s fees across jurisdictions. Unfortunately, the database, when examined in March, 2015, did not report denials. Nonetheless, consideration of the three periods for my study, we can see an above average of attorney’s fees awards per year during the Brooks Furniture period (from 2005 to 2014). The relative size of this number, as compared to the pre-Brooks Furniture period, may be surprising since Brooks Furniture presumably made it more difficult to obtain attorney’s fees. The magnitude is most likely the result of increased patent litigation during this period, as reported by other scholars. More careful study of the types of cases arsing during the Brooks Furniture period would explain the larger annual award rate by the district courts.Terminated cases with award Yrs Cases/yr Period 1 (2000-2005) 113 5 22.6 Period 2 (2005-2014) 292 9.33 31.29 Period 3 (2014-2015) 24 .9 26.67 TOTAL 429 15.23 28.17
TABLE 1: Lex Machina data on awarded attorney’s fees from 2000 to the present
Looking more closely at the 24 identified awards of attorney’s fees post-Octane, 17 of these cases involved awards to patent owners while 7 were awards to the alleged infringer (who of course prevailed at trial). Of the 17 cases in which the patent owner obtained attorney’s fees, 4 were default judgment cases and a different 4 also involved the award of enhanced damages. The last finding suggests that fees are awarded in cases that would not meet the standard for willful infringement.
One way to obtain a sense of types of cases is to look at the time towards final judgment from initial filing, what is reported in Lex Machina as “time to terminate.” Of the 7 cases in which the alleged infringer obtained attorneys’s fees, 5 were cases with above average time to terminate, meaning cases that were initiated sometime before the Octane Fitness decision. Of the 17 cases in which the patent owner received fees, 8 involved above average time to terminate. If cases with longer times to terminate are viewed as more contentious cases, it seems that cases in which alleged infringers prevail on fee shifting are more contentious than the cases in which the patent owner prevails on fees.
The main limitations with respect to the Lex Machina data are the selection effects that arise with respect to examining reported cases and the exclusion of fee denials. Nonetheless, even looking solely at instances of attorney fee awards, there does not seem to be a pro-defendant orientation in judicial decisions. But to fully understand whether Octane Fitness serves as an effective policy lever to control frivolous patent litigation, we need to compare the post-Octane world with the regimes that existed before.
Below, I provide some preliminary summary statistics about the denial and grant of attorney’s fees over three periods from 1982 to the present. These three periods are divided into the pre-Brooks Furniture regime (1982-2004); the Brooks Furniture regime (2005-2014); and the Octane Fitness regime (2014 to the present). The following results are based on reported decisions in Westlaw on 285 motions. The decisions include both grants and denials. I conducted the search of these cases in early January. I am currently working on updating the searches and expanding the coding of the cases for various factors pertinent to understanding what constitutes an exceptional case. I should emphasize that what I am presenting is still preliminary. But I believe there is enough here for discussion especially in light of Ms. Jiam’s study.
My Westlaw search identified 24 reported decisions on attorney’s fees post-Octane, 205 reported cases from the Brooks Furniture regime, and 147 from the period between the formation of the Federal Circuit and the Brooks Furniture ruling. I examined a random sample of 20% of the cases from the Brooks Furniture regime and 16% from the pre-Brooks regime. These two random samples provide the basis for the statistics presented below.
Table 2 reports on the 24 reported cases post-Octane. Of these 24 cases, 12 resulted in grants and 12 in denials. Of the 12 grants, 9 went to the non-patentee as prevailing party. This may suggest that non-patentees are more successful post-Octane in obtaining attorney’s fees awards. But what must also be taken into consideration is that the 12 denials of awards all were in cases where the non-patentee’s motion was denied by the court. Just to be clear, these denials involved cases in which the non-patentee was the prevailing party but the court determined that the case was not exceptional. Unlike the Lex Machina data, the Westlaw reported cases capture both grants and denials. The denials are important to take into consideration in examining the effectiveness of section 285 as a policy lever. To highlight this point, consider the following. Of all the 24 reported cases involving fee shifting, 21 involved motions from the non-patentee. The disproportionate number of non-patentee motions would suggest that the Octane Fitness regime might be more favorable to the non-patentee. But of these 21 motions, only 9 resulted in a grant, suggesting that the motions were successful in less than half the cases, as reported in Westlaw. On the other hand, patent owners had a 100 % success rates based on the 3 reported cases involving a motion brought by the owner.n Patentee Nonpatentee Infringement Declaratory Judgment Grant 12 3 9 11 1 Deny 12 0 12 10 2 TOTAL 24 3 21 21 3
Table 2: Attorney fee awards reported decisions post-Octane
How the litigation environment has changed under the Octane Fitness decision requires comparison with the world before hand. Tables 3 and 4 report similar statistics for the pre-Brooks and Brooks regimes, although based on random samples from the respective population of cases.n Patentee Nonpatentee Infringement DJ Grant 9 2 7 7 2 Deny 15 6 9 13 2 TOTAL 24 8 16 20 4
Table 3: pre-Brooks reported cases. Total=147. N=24 (16% random sample)n Patentee Nonpatentee Infringement DJ Grant 12 4 8 12 0 Deny 28 10 18 24 4 TOTAL 40 14 26 36 4
Table 4: Brooks Furniture reported cases. Total=205. N=40 (20% random sample)
These two tables are based on random samples from the population of cases and hence are very preliminary. Nonetheless they raise some hypotheses to examine in considering the entire population of cases.
The first point to emphasize once again is that denials need to be taken into consideration in gauging the effectiveness of a particular attorney’s fees regime. Under the pre-Brooks regime, there were about 62 % denials among the reported cases ruling on attorney’s fees. By comparison, there were 70 % denials among the reported cases ruling on attorney’s fees during the Brooks Furniture regime. Since the Brooks decision raised the standard for the award of attorney’s fees, it is not surprising that the denial rate is higher. But perhaps surprisingly, the rate may not be significantly higher (I have not done this test yet).
Furthermore, even though reported cases deal with motions from nonpatentees more frequently than motions from patent owners, nonpatentees are more likely to be denied fees under both the the pre-Brooks and Brooks regimes. Nonpatentees had a 44% grant rate under the pre-Brooks regime and a 31 % grant rate under Brooks. By comparison, patentees had a 25% grant rate pre-Brooks and a 28% grant rate under Brooks.
Once again, the various statistical tests of significance have not been applied yet to provide a full interpretation of these data. But two points are important at this stage of the research. In order to understand the effectiveness of Octane Fitness (its torque), we need to understand what the world of attorney’s fees looked like before the 2014 decision. Furthermore, we need to examine how grants and denials are awarded between patentees and nonpatentees. What the data suggest so far is that the various standards, however characterized as easy or hard, do not seem to favor one side over the other in patent litigation. To me, this suggest that judicial discretion may be working around the articulated standards to make decisions on a case by case basis. Part of the research is to determine what courts articulate as the relevant standard.
Table 5 partially addresses the big question of what courts deem to be exceptional cases. The table reports frequently used phrases across the various regimes in the published opinions.RATIONALES Grant Denial Pre-Brooks Furniture “dilatory tactics”; “inequitable conduct”; “willfulness”; “failure to investigate”; “fraud on USPTO” “no intent to deceive”; “no willfulness”; “no vexatious litigation”; failure to meet burden Brooks Furniture “vexatious litigation”; “misconduct in USPTO”; “bad faith”; “obj and subj baseless in light of claim construction” failure to meet burden; “no willfulness”; “no misconduct” Post-Octane litigation misconduct; discovery abuse; relitigating arguments; “lit theory inconsisitent with claim construction”; uncivil tacticsnuisance suit; Fogerty factors No misconduct; Reasonable tactics; No bad faith
Table 5: What courts say and do
An advantage of examining reproted cases, despite the limitations, is the ability to discern what courts are thinking in granting or denying fees. Let me focus on a few highlights here given my space restrictions. First, notice the prevalence of identified misconduct by the patentee or nonpatentee and attorneys as a basis for granting awards. Second, notice the prevalence of failure to meet the burden of proof in denying awards under the Brooks Furniture standard. Finally, notice the discussion of willfulness across the various regimes indicating that the determination of awarding fees occurs in the broader context of inequitable conduct and enhanced damages. My main conclusion from reading and assessing these cases is that courts seemingly exercise their discretion in determining what constitutes an exceptional case in similar ways despite the stated standard for granting fees. The policy prescription would be that the torque from using fee shifting as a policy lever may be dampened by judicial discretion. Whether legislative reform should cabin such discretion is at the core of how effective and politically feasible such reform would be.
One last word about my methodology. There are obvious selection effects from examining reported cases as I have done here. These selection effects are also relevant for Hannah’s article. Reported cases are not the typical case. Although we need to consult reported cases to determine what courts consider “exceptional,” we need to keep in mind that the reported cases are not representative of the population of cases that fee shifting rules are supposed to regulate. One goal of fee shifting rules is to prevent frivolous litigation and specifically extracted settlements based on frivolous claims. The effect of fee shifting on settlement is a complex one. Assuming that frivolous cases can be precisely identified by a judge, patent owners may be less willing to bring frivolous cases. At the same time, nonpatentees may be less willing to settle all cases, particularly frivolous ones. Looking solely at reported cases does not allow a researcher to determine how effective a fee shifting regime is in controlling frivolous litigation and settlement. Therefore, we should be wary of making global conclusions from looking at reported cases. Nonetheless, the summary statistics I provide here, in conjunction with Ms. Jiam’s excellent work on post-Octane developments, shed some light on a critical aspect of the patent reform debate.
Here is a 1-hour quiz that I recently gave my patent law students on some of the basics of 101; 102; 103; and 112. Questions:
1. An employee at Freya’s small start-up company has come up with a new smartphone-app that helps cat-lovers meet. Essentially, the app causes the phone to “meow” when another user is nearby; “purr” when a good match is nearby; and “hiss” when an identified cat-hater or non-compatible is nearby. In her patent application, Freya claims:
A mobile device having a memory and a processor and operating as part of a social network, wherein the memory includes a stored program configured to:
cause the mobile device to emit a first sound based upon the proximity of a mobile device associated with a member of the social network;
cause the mobile device to emit a second sound based upon the proximity of a mobile device associated with a member of the social network who has been identified as a match; and
cause the mobile device to emit a third sound based upon the proximity of a mobile device associated with a member of the social network who has been identified as a bad match.
Is Freya’s claim subject-matter-eligible under 35 U.S.C. § 101? (120 words).
2. Regarding back to Freya’s claim above. Provide a concise argument that the yet-unpatented claim fails for lack of definiteness. (60 words).
3. Sometime during the past decade, Thor invented a new metal alloy known as Midguardium that is extremely hard and exhibits boomerang-like properties when thrown. Thor would like to patent a hammer made from the alloy but keep the actual process of making the alloy a trade-secret. May he do this? (50 words).
4. Following your advice above, Thor does fully disclose the process of making the alloy in his patent application (claiming “A hammer comprising a hammer-head made of Midguardium and a handle”). After Thor created his hammer (but before he filed his patent application), Loki independently invents Midguardium and forms it into scepter that he uses publicly in New York City. Loki does not, however, file for patent protection.
Concisely explain how the dates of invention, public use date, and Thor’s filing date may impact whether Loki’s disclosure counts as prior art against Thor’s patent application (250 words).
5. Assuming that Loki’s public-use counts as prior art against Thor’s patent application, can you make an argument that the scepter anticipates the aforementioned hammer claim? (60 words).
6. Still assuming that Loki’s public-use counts as prior art against Thor’s patent application, what can Thor do/argue in order in order to overcome the USPTO’s initial conclusion that the patent claim is obviousness based upon Loki’s use? (describe up to three approaches/arguments). (100 words).
Note: You are allowed to use a statutory reference (both pre and post AIA) and look-up relevant case law.
Last year, the Senate abandoned efforts to enact patent reform amid a lack of broad, bipartisan support. But now the tides have turned. In February, Rep. Bob Goodlatte reintroduced the Innovation Act with bipartisan sponsorship, and on April 29, a bipartisan group of senators, including Senate Judiciary Committee Chairman Chuck Grassley and Ranking Member Patrick Leahy, introduced the PATENT Act. The PATENT Act in particular reflects the kinds of compromises that will likely be necessary for passage of any patent reform bill, and therefore merits close consideration by participants in the patent system.
Pleading Standards: Several sections of the Act stand out as likely to have the greatest impact. First, the bill implements a heightened pleading standard for patent infringement claims that requires identification of the asserted patent, the asserted patent claim, and the accused product, together with an explanation of how the accused products infringe the elements of the asserted claims.
Where information needed to comply with these requirements is inaccessible after a reasonable inquiry, the party asserting infringement may provide a general description of the information needed, and an explanation as to why it is not accessible. Although a significant change from the notice pleading standard currently in place, this provision should be relatively easy to satisfy by legitimate litigants. Indeed, most good-faith litigants already gather or prepare the required information as part of their Rule 11 pre-filing investigations.
Parent Entity Liability: Second, the PATENT Act requires the accuser to identify, among other information, each entity other than the ultimate parent entity with a financial interest in the patent, patentee, and any ultimate parent entity of the patentee. Notably, the Act defines “financial interest” to mean, in part, the right of a person to receive a fixed or variable portion of the proceeds from the assertion of the patents-in-suit, which would include law firms working on a contingency fee basis.
As a result, compliance with this provision will signal to the court and to the accused infringer whether the patent holder is represented on a contingency fee basis. That information will likely cause the court and opposing counsel to draw certain inferences about the nature of the patent holder and the merits of the patent holder’s claims, which may or may not be justified.
Whether a matter is being handled on a full contingency fee arrangement, a hybrid arrangement or a traditional fee for service arrangement has always been considered irrelevant to the merits of a case or efficient adjudication of disputes, making this provision of the PATENT Act potentially problematic to the efficient working of the judicial system and fairness to its participants.
Loser-Pays Attorney Fees: Third, the Act significantly expands 35 U.S.C. § 285 regarding attorney fees, in part by mandating, absent special circumstances, that attorney fees be awarded against a non-prevailing party if the position or conduct of the party was not objectively reasonable. That change, which follows recent trends in case law (and now adds nothing new to the law), is insignificant compared to what comes next.
The Act allows an accused infringer to file a statement of good faith belief that the primary business of the accuser is the enforcement or licensing of patents. In response, the accuser must certify that it will have sufficient funds to satisfy a fee award, demonstrate that its primary business is not the enforcement or licensing of patents, identify interested parties who will be responsible for paying any fee award, or state that it has no such interested parties.
This portion of the PATENT Act is problematic on several fronts. First, a party whose primary business is patent enforcement and licensing, and that does not have any interested parties (to the extent such a party exists), could presumably certify only that it has no interested parties, and proceed with litigation regardless of whether it has funds sufficient to pay an attorney fee award. But even if this gaping loophole is closed, this provision would make patent litigation the sole area in the U.S. where a litigant must certify that it can satisfy some hypothetical possible future award of attorney fees.
What is the amount of the award that would need to be satisfied in the future? Could the plaintiff certify that it has assets which could be liquidated to cover the hypothetical award? What happens if those assets diminish in value during the pendency of the action, such that they can no longer satisfy the hypothetical future award? These are just some of the unanswered questions raised by the proposed changes, but they suggest that this provision will do nothing but increase litigation costs and further complicate an area of law that is already deeply complicated.
Demand Letter Content: Fourth, the PATENT Act requires greater specificity in demand letters, including identification of the patent allegedly infringed, at least one allegedly infringed claim of that patent, each accused product, a “clear and detailed” description of the grounds for the infringement allegation, identification of each person with a right to enforce the asserted patent, and an explanation of how any demanded compensation was calculated or determined. If the patent holder fails to comply with this requirement, the accused infringer is allowed an extra 30 days to respond to the complaint in any subsequently filed civil action.
Perhaps more importantly, the patent holder will also be penalized by not being able to rely upon a noncompliant pre-suit notification for purposes of establishing willfulness. This provision is perhaps best characterized as a solution looking for a problem. A party that receives a deficient demand letter should ignore the letter, which, based upon developed case law, cannot properly be used as the basis for finding willfulness.
Similarly, litigants often receive 20- to 30-day extensions of time to answer a complaint by simply filing a pro-forma request for the extension. And patent holders may opt to forego providing the compliant notice to avoid having a declaratory judgment action filed against them. In short, the provision is unlikely to effect a significant change in the behavior of litigants, but is sure to complicate the law and add unnecessary expense to infringement litigation.
Conclusions and Compromises: In the end, the PATENT Act has a number of provisions which will help to foster the efficient and just adjudication of patent infringement disputes. It is likely that the Act will achieve some traction — not only in the Senate, but also in the House of Representatives. However, a number of the proposed provisions of the Act are clearly directed to issues and problems that only a subset of the patent ecosystem experience, and they may prejudice other subsets of that ecosystem. Accordingly, the law of unintended consequences should be ever present when considering potential reform provisions, and Congress must be careful not to enact any statute which will not support and foster the judicial and patent systems as a whole.
By Jason Rantanen
Apple Inc. v. Samsung Electronics Co., Ltd. (Fed. Cir. 2015) Download Opinion
Panel: Prost (author), O’Malley, Chen
Apple prevailed at the district court on trade dress, design patent and utility patent claims, with a total award of almost a billion dollars. On appeal, the Federal Circuit reversed on trade dress but affirmed on the design and utility patents. The big winner in this case, though, are design patents: the Federal Circuit rejected Samsung’s attempt to exclude functional features from the infringement analysis and affirmed the district court’s award of Samsung’s total profits from the sale of the phones with the infringing design.
Trade Dress: Samsung challenged Apple’s unregistered and registered trade dresses on the ground that they were functional. Applying the Ninth Circuit’s law on Lanham Act claims, the Federal Circuit agreed that Apple’s asserted trade dresses possessed utilitarian functionality. In reaching this conclusion, it placed particular weight on the “product configuration” nature of the trade dress. “[C]ourts have noted that it is, and should be, more difficult to claim product configuration trade dress than other forms of trade dress.” Slip Op. at 8, quoting Leatherman Tool Grp., Inc. v. Cooper Indus., Inc., 199 F.3d 1009, 1011-12 (9th Cir. 1999). Here, all factors weighed in favor of the trade dresses being functional and thus unprotectable under trademark law.
Design Patents: A substantial portion of Apple’s billion dollar verdict were based on the infringement of its design patents and Samsung attacked that issue with an array of arguments. The Federal Circuit rejected all of them.
Functionality and infringement: Samsung argued that “the district court erred in failing to exclude the functional aspects of the design patents either in the claim construction or elsewhere in the infringement jury instructions.” Slip Op. at 20. “For example, Samsung contends that rectangular form and rounded corners are among such elements that should be ignored in the infringement analysis.” Id. But, the court held, the precedent cited by Samsung did not support a rule “to eliminate elements from the claim scope of a valid patent in analyzing infringement.” Id. at 21 Nor did the district court err in its construction of the patent: the principle that “it is the non-functional, design aspects that are pertinent to determinations of infringement” was properly reflected in “the district court’s construction
of the design patents as claiming only ‘the ornamental design’ as shown in the patent figures.” Id.
Actual deception not required and the role of prior art: In its instruction on infringement, the district court stated: “You do not need, however, to find that any purchasers actually were deceived or confused by the appearance of the accused Samsung products.” Samsung argued that this instruction misled the jury; the Federal Circuit disagreed. “[T]he jury instruction simply clarified that actual deception was not required, which is an accurate reflection of the analysis in Gorham.” Id. at 23. Nor did the jury instructions reduce the consideration of the prior art to a mere option.
Samsung also argued that infringement was not supported by substantial evidence, but its substantive arguments were essentially the same as its challenges to the jury instructions. The court rejected these and Samsung’s argument that the district court abused its discretion in precluding certain testimony.
Damages: This is the section of the opinion that will probably get the most attention. The damages statute for design patent infringement, 35 U.S.C. § 289 states:
Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250, recoverable in any United States district court having jurisdiction of the parties.
Nothing in this section shall prevent, lessen, or impeach any other remedy which an owner of an infringed patent has under the provisions of this title, but he shall not twice recover the profit made from the infringement
In other words, “Section 289 explicitly authorizes the award of total profit from the article of manufacture bearing the patented design.” Slip Op. at 25 (emphasis added). That is, Samsung’s total profit from its sales of phones with the infringing designs.
Samsung raised two primary arguments. First, it argued in favor of apportionment based on a causality theory; that is, that the only profits attributable to the infringement be allowable as damages. But the statute says “total profit,” and the statutory history contained an express removal of a prior apportionment requirement in the Act of 1887. Second, Samsung argued that the “article of manufacture” should be limited to the infringing “article of manufacture” and not the entire infringing product. Again, the Federal Circuit disagreed, distinguishing Samsung’s citation to a 1957 Second Circuit case involving pianos and piano cases. The Federal Circuit did not substantively engage with the statutory language on this issue.
The bottom line is that high damages claims for design patent infringement are going to be much more credible in the wake of Apple v. Samsung. Under the court’s ruling, it would seem entirely possible, as a hypothetical example, for an automobile manufacturer to be liable for its entire profits from a particular car model if that model contained, say, an infringing tail light. Given the publicity surrounding Apple v. Samsung, my expectation is that there will be explosion of design patent assertions and lawsuits.
Utility Patents: Samsung raised an indefiniteness argument based on the claim term “substantially centered;” unsurprisingly, the Federal Circuit rejected it. There is one interesting little nugget, though: Samsung lost because it “points to no evidence showing that skilled artisans would find the element ‘substantially centered’ as lacking reasonable certainty in its scope.” Slip Op. at 29. This language is notable because it reflects the court’s waffling between indefiniteness as an evidentiary question and indefiniteness as question of law. The former expressly involves testimony about what one of skill in the art would understand; the latter is a question for the court.
Utility Patent Damages: Lost profits for utility patent infringement does require a showing of causality and Samsung argued that there was an acceptable noninfringing substitute. But “the ‘[m]ere existence of a competing device does not make that device an acceptable substitute.’” Id. at 31, quoting precedent. All Samsung pointed to was the “mere existence” of a noninfringing phone. This was not enough, and “there was substantial evidence to support the jury’s refusal to consider the two phones asserted by Samsung as non-infringing substitutes.” Id. at 32. The Federal Circuit also rejected Samsung’s challenges to the reasonable royalty award on the set of phones for which Apple was not entitled to lost profits.
Hat tip to Tom Cotter for being the first to alert me to the opinion, which initially appeared only on PACER. His writeup of the damages discussion: http://comparativepatentremedies.blogspot.com/2015/05/federal-circuit-affirms-damages-awards.html.
There is some amount of tension between the Federal Circuit’s 2012 en banc decision in Marine Polymer Tech. v. HemCon (Fed. Cir. 2012) and the court’s recent finding in ArcelorMittal v. AK Steel (Fed. Cir. 2015). Both cases involved post-issuance proceedings where a claim’s scope had changed even though the claim itself had not been amended.
The underlying issue in Marine Polymer was whether a would-be infringer could claim have intervening rights under 35 U.S.C. §§ 252 and 307(b) if the scope of an non-amended claim was substantially changed during a reexamination. The en banc Federal Circuit held that the a claim whose scope is narrowed-by-argument during a reexamination did not impact statutory intervening rights because the language of 307(b) focused the intervening rights only on a “amended or new claim.” Because the claim was not actually amended, the law was not triggered.
In ArcelorMittal, we had a similar framework – in reissue the patentee expanded the scope of its non-amended independent claim based upon an a change to a dependent claim. In its decision, the Federal Circuit found that the changed scope should be seen as a broadening of the original claim — triggering the prohibition against a broadened reissue (more than two years after the original patent issuance).
The difference between these two cases seems to primarily stem from the statutory language — the reissue statute and broadening doctrine seemingly do not require an “amendment” in order to be triggered while the intervening rights statute does. (I should note that this distinction is on somewhat shaky grounds).
The new inter partes review statute appears to closely follow that of the reexamination statute — indicating that intervening rights will stem from an “amended or new claim.” The statute also provides that amendments “may not enlarge the scope of the claims of the patent.” 35 U.S.C. § 316. The one question left unclear is the impact of broadening-through-claim-construction during the inter partes review.
by Dennis Crouch
Akamai v. Limelight (Fed. Cir. 2015) (On remand from the Supreme Court)
On remand from the Supreme Court, a divided Federal Circuit has rejected calls to expand the scope of direct infringement to include a wider allowance for joint-tortfeasors when parties collectively practice all of the elements of a claimed invention. Rather, according to the majority opinion authored by Judge Linn, “the statutory framework of 35 U.S.C. § 271 does not admit to the sweeping notions of common-law tort liability argued in this case.”
Thus, the law remains that a party will not be liable for practicing several steps in a patented method and knowingly encouraging or instructing others to perform the remaining steps. Here, the court distinguishes other situations such as a principal-agent relationship or a contractual arrangement where principal liability exist based upon the actions of the agent. The court also notes that it may – in the future – expand direct liability to include “joint enterprise liability” but that “this case is not the appropriate vehicle.”
Writing in dissent, Judge Moore argues that the majority opinion “divorces patent law from mainstream legal principles by refusing to accept that § 271(a) includes joint tortfeasor liability. The majority’s rule creates a gaping hole in what for centuries has been recognized as an actionable form of infringement.”
Read the opinion here: http://www.cafc.uscourts.gov/images/stories/opinions-orders/9-1372.Opinion.5-11-2015.1.PDF
Guest Post by Hannah Jiam. Ms. Jiam is now a 3L at UC Berkeley School of Law and research assistant with Professor Colleen Chien. The full article related to this post is forthcoming in the Berkeley Technology Law Journal and is available here.
It has been a year since the Supreme Court’s decision in Octane Fitness and Highmark, and fee-shifting continues to be a popular issue in patent reform. Testimony presented to the House Judiciary Committee on February 12, 2015 discussed the percentage of attorneys’ fees awards before and after Octane. This month, the House Judiciary Committee discussed the fee-shifting provision from the Innovation Act. Congressman Bob Goodlatte, the Chairman of the Judiciary Committee, explained how the bill would “address the issues that businesses of all sizes and industries face from patent troll-type behavior.” Director Michelle Lee of the PTO supported the fee-shifting provisions in the Innovation Act, saying that the “fault based fee-shifting will raise the costs for those who engage in abusive actions.” There have been several articles and papers discussing the impact of Octane Fitness, but none of them provide an in-depth analysis of the district court holdings and the emerging trends post-Octane. I would like to contribute my own research and empirical analysis on the issue.
In the ten months following the Supreme court’s holding in Octane, there has been a significant increase in the number of motions made for attorneys’ fees under § 285, as well as the number of attorneys’ fees award to prevailing parties. From April 29, 2014 to March 1, 2015, district courts awarded fees in twenty-seven out of sixty-three cases. This rate, approximately 43%, is at least two times greater than the fee-shifting award rate in previous years. In fact, in the 12 months preceding Octane, only 13% of § 285 motions were granted.
I sorted the § 285 motions granted and denied by district, and reproduced them in the graph below.
Although there is not enough data at the moment to make any conclusive determinations, an initial analysis shows that there are certain districts with a higher proportion of cases in which attorneys’ fees were granted than cases where they were not. N.D. Cal. has the greatest total number of § 285 motions granted while D. Del. has the greatest total number of § 285 motions denied. For districts that have decided on four or more § 285 motions, S.D.N.Y. has the highest proportion of § 285 motions granted and D. Del. has the lowest proportion of § 285 motions granted. The majority of the § 285 motions appear to be concentrated in a small number of districts.
I also examined the percentage of § 285 motions granted over time from April 29, 2014 to March 1, 2015.
The variation in the rates between each month could have been a result of any number of variables (such as a district court judge’s availability, the load of a district court’s docket, etc.), but the percentage of § 285 motions granted each month has always been above the 20% yearly average in 2002 and 2011, and well above the 13% award rate in the 12 months preceding Octane.
I created a histogram of the award amounts in cases where the § 285 motions have been granted. Most of the cases have not yet determined the amount of attorneys’ fees to be awarded to the prevailing party, but the majority of § 285 awards thus far have ranged from $200,000 to $300,000.
Most courts have specifically limited the attorneys’ fees to the litigation misconduct and apportioned the fees to the “exceptional” behavior. This may explain why most of the fees are around $200,000 to $300,000.
Although the Supreme Court stated that the Federal Circuit’s standard was too stringent and inflexible, the Court did not define the standard for an “exceptional” case. District courts now know that an “exceptional” case is not limited to circumstances where there has been “material inappropriate conduct,” or where the litigation is both “brought in subjective bad faith” and is “objectively baseless,” but have little guidance on the actual meaning of “exceptional.” The meaning of “exceptional” continues to vary from case to case, but the Supreme Court’s decision reinforces a district court’s ability to use its discretion when deciding whether or not to award attorneys’ fees in “exceptional” cases.
Because the meaning of “exceptional” is still ambiguous and discretion may lead to forum shopping in district where fee awards are more or less likely under § 285, the “exceptional” case standard could benefit from further explanation. Unfortunately, the Federal Circuit’s ability to review a determination of “exceptionality” is limited by the Highmark decision, where the Supreme Court stated that a § 285 decision was a “matter of discretion” and that the exceptional-case determination should be reviewed only for abuse of discretion. Any steps towards further patent reform would be most effective through legislation – Congress can clarify the fee-shifting provision or decide whether or not it wants to maintain an “exceptional” standard under § 285. Furthermore, the Supreme Court’s interpretation of an “exceptional” case places a strong emphasis on the discretion of the district courts despite the removal of the “discretion” element in the 1952 Act. If Congress wants to elucidate or maintain the Supreme Court’s reintroduction of discretion, it should not wait for litigation.
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 Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014).
 Highmark Inc. v. Allcare Health Mgmt. Sys., 134 S. Ct. 1744, 1747 (2014)
 Gene Quinn, House Judiciary Committee Questions PTO Director Lee on Innovation Act, IP Watchdog (Apr. 14, 2015), http://www.ipwatchdog.com/2015/04/14/judiciary-committee-director-lee-on-innovation-act/id=56813.
 Hearing: H.R. 9, The “Innovation Act”, United States House of Representatives Judiciary Committee (Apr. 14, 2015, 2:00 PM), http://judiciary.house.gov/index.cfm/hearings?ID=E71D6951-38DA-42D8-9485-8EC6CE929977.
 The entire paper can be read at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2597195
 The following numbers were determined using LexisNexis and Westlaw to consolidate all cases from April 29, 2014 to March 1, 2015 involving a 35 U.S.C. § 285 motion. The cases retrieved were checked against a list on the blog Patently-O.com that consolidated several fee-shifting motions post-Octane. The analysis considered factors such as whether fees were awarded, the district, the court’s reasoning, and the award amount. Other analyses of § 285 motion decisions post-Octane have produced similar grant rates.
 In 2002, the attorneys’ fees were awarded only 10 times out of 50 total cases, and in 2011, only 20 times out of 86 cases. Colleen V. Chien, Reforming Software Patents, 50 HOU L. REV. 323, 380 n.355 (2012) (“Based on a search in Westlaw, in 2011, approximately twenty awards were made [on the basis of the exceptional cases rule of 35 U.S.C. § 285], and in 2002, ten awards were made. They were sought in eighty-six and fifty cases[, respectively].”)
 A Comparison of Pre Octane and Post Octane District Court Decisions on Motions for Attorneys’ Fees Under Section 285, available at http://ipwatchdog.com/materials/FCBA-Fee-Shifting-Paper.pdf.
 Octane Fitness, 134 S. Ct. at 1755.
 Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).
 Octane Fitness, 134 S. Ct. at 1749. (citing Highmark Inc. v. Allcare Health Mgmt. Sys., 134 S. Ct. 1744, 1747 (2014)).
by Dennis Crouch
ArcelorMittal v. AK Steel (Fed. Cir. 2015)
This case provides an important discussion of the “law of the case” doctrine and “mandate rule” as they apply to ongoing parallel patent-office administrative proceedings and in-court infringement proceedings. In particular, the appellate panel holds that the district court is bound by a prior Fed.Cir. claim construction in the same case – despite intervening decisions by the USPTO that the Fed.Cir. construction was too narrow.
The case is also important because of its finding that a claim whose scope is expanded during reissue based upon prosecution history (rather than amendment) will be seen as broadened – and thus may be invalid if the broadening misses the two-year deadline.
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Here, the patentee (ArcelorMittal) lost its first round of infringement litigation based upon a narrow claim construction of the claimed steel sheet having a “very high mechanical resistance.” Meanwhile, the patentee filed a reissue application with the USPTO that added a set of new dependent claims, including one that would seemingly expand the scope of the previously defined term. In particular, the Federal Circuit originally ruled that the “very high mechanical resistance” is defined as having a resistance >1500 MPa, but the reissue application added a new dependent claim stating that the resistance is “in excess of 1000 MPa.” That amendment seems to have implicitly increased the scope of claim 1 without actually amending any of the language in claim 1. As the court writes:
The only relevant change is the addition of a dependent claim which has the practical effect of expanding the scope of claim 1 to cover claim scope expressly rejected by a previous claim construction ruling.
With the original litigation was still pending in district court, the patentee added the Reissued patent to the infringement complaint. Siding with the defendant, the district court found that the broadened scope was improper because the Reissue application had been filed more than two years after the original patent issuance. On appeal, the Federal Circuit has affirmed, finding that – at least for this case – that the reissue claims are invalid. Here is the court’s logic:
The law-of-the-case doctrine “posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.” Banks v. U.S., 741 F.3d 1268, 1276 (Fed. Cir. 2014) (‘an inferior court has no power or authority to deviate from the mandate issued by an appellate court.’). Under the mandate rule and the broader law-of-the-case doctrine, a court may only deviate from a decision in a prior appeal if “extraordinary circumstances” exist. . . .
The successful prosecution of the [reissue] patent is not “new evidence” sufficient to trigger the extraordinary circumstances exception to the mandate rule and the law-of-the-case doctrine. Permitting a reissue patent to disturb a previous claim construction of the original claims would turn the [broadening] analysis under 35 U.S.C. § 251 on its head. . . . If the reissue claim itself could be used to redefine the scope of the original claim, this comparison would be meaningless.
Thus, the court found that the proper analysis for broadening reissue is whether the scope of claims in the reissued patent (as construed now) are broader than those same claims as found in the original patent (as previously construed). I should note that the court did not particularly address the fact that the broadened claim was not amended. However, this practical approach to scope is in line with the Court’s prior decision in Marine Polymer Tech. v. Hemcon, Inc. (Fed. Cir. 2011) that created intervening rights (i.e., no past infringement) based upon a narrowed construction during reexamination. [Update] Of course, that decision was reversed by the court sitting en banc.
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The law-of-the-case doctrine was not necessary here because the court also found that, when considering whether scope was improperly broadenend, the reissue’s prosecution cannot impact the scope of the original claims.
Going forward, there will be substantial pressure on law-of-the-case doctrine; the mandate rule; and the final judgment rule in managing the new multi-venue reality of patent enforcement/challenge.
An important question not addressed here for reissue applications is whether the PTO erred allowing the reissue claims to issue in their non-amended but broadened form? Was the PTO also bound by the prior Federal Circuit judgment regarding claim construction? What would have happened if the reissue was asserted in a second lawsuit or against a different party? …
As usual, Professor John Duffy is able to cast new insight on a well-worn problem. In the context of exhaustion, he enlists noted commercial law scholar Richard Hynes and together they walk through the underlying sources of the doctrine. Their work will likely have an important impact on the Federal Circuit’s upcoming Lexmark decision. – Dennis
In Lexmark International v. Impression Products, the Federal Circuit has now ordered en banc arguments to consider overturning not just one, but two of the court’s most important precedents on patent exhaustion. See en banc notice on Patently-O (linking to the court’s en banc order). Before discussing those two issues, we want to pose a question:
Q: What is the legal basis for the patent exhaustion doctrine?
(A) The doctrine is based on the U.S. Constitution.
(B) The doctrine is based solely on an interpretation of the Patent Act.
(C) The doctrine is pure judge-made law, and much like any other common-law doctrine, it is based on judicial views about good policy.
(D) The doctrine is a hybrid of statutory law and judge-made law—a judicial gloss on the Patent Act created in an era when courts felt comfortable engaging in surgery on statutes to advance judicial views about good policy.
(E) None of the above.
If the answer to this question is crystal clear to you, then you need not read any further. But we are willing to bet that most sophisticated lawyers would answer this question incorrectly, so you really should read on.
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Let’s start with a tried and true strategy for answering multiple choice questions—eliminating implausible answers. First, let’s get rid of answer (E) “None of the above.” That’s got to be wrong, because the answers essentially cover all plausible bases for any legal doctrine in domestic law. We can also eliminate answer (A). No court or commentator has ever argued that the doctrine is constitutionally required.
That leaves three possible options—that the doctrine is (B) statutory interpretation, (C) judge-made law, or (D) some combination of those two. Most modern lawyers and commentators would choose (C) or (D). They would think that the exhaustion doctrine is—wholly or partially—judge-made “common law” that reflects judicial views about good policy. Indeed, just last month, this blog published commentary asserting that the exhaustion doctrine is based on “two policies,” including a supposed policy against allowing patentees a “double recovery” on the sale of their inventions and a supposed policy against “restraints on the alienation of chattels.” Samuel F. Ernst, Of Printer Cartridges and Patent Exhaustion: The En Banc Federal Circuit is Poised to Clarify Quanta.
Professor Ernst’s blog posting is, it is fair to say, the received wisdom among modern commentators, but we think that received wisdom to be quite clearly wrong. Our view is based on three reasons, which are summarized here but set forth in greater detail in our forthcoming article Statutory Domain and the Commercial Law of Intellectual Property (http://ssrn.com/abstract=2599074) (hereinafter Statutory Domain Article). First, in its foundational cases on both copyright and patent exhaustion, the Supreme Court repeatedly and clearly stated that it was engaged solely in statutory interpretation. For example, the Court in Bobbs-Merrill v. Straus—the foundational copyright exhaustion case—stated explicitly that the case presented “purely a question of statutory construction.” 210 U.S. 339, 350 (1908). Similarly, in Motion Picture Patents Company v. Universal Film—an important case on patent exhaustion from the same era—the Court quoted the language of the patent statute granting exclusive rights; stated that it was “interpreting this language of the statute”; and emphasized that it was trying to “determine the meaning of Congress” in writing that language. 243 U.S. 502, 509-10 (1917). Modern commentators have tended either to ignore these portions of the Supreme Court’s opinions or to assert that the Supreme Court was dissembling in those passages. (For examples, see Statutory Domain Article, at 6 n.16.) We think the Court was telling the truth and that the exhaustion doctrine is based purely on statutory interpretation.
A second reason for doubting the received wisdom about exhaustion is that the foundational cases consistently state their holding in terms of the relevant issue being “outside,” “beyond” or “not within” patent law. See, e.g., Motion Picture Patents, 243 U.S. at 509; Bloomer v. McQuewan, 55 U.S. 539, 549 (1852); Boston Store of Chicago v. American Graphophone Co., 246 US 8, 24 (1918). Such statements are inexplicable if patent law itself were concerned with limiting patentees’ ability to impose post-sale encumbrances on personal property. Those statements are, however, completely consistent with the exhaustion doctrine being based on statutory interpretation, for they fit perfectly with the view that exhaustion represents an inferred limit on the “scope” or “domain” of the Patent Act. (For a much more complete discussion of such domain limitations, see Statutory Domain Article at 24-31.) In other words, the underlying basis for the exhaustion doctrine is not substantive policies such as hostility toward restraints on alienation, but rather an absence of substantive policy on the issue within the Patent Act. Such issues are instead governed by a vast body of commercial law—including the law of contracts, security interests, personal property servitudes, antitrust, etc.—that permits all sorts of restraints on alienation, use restriction and encumbrances in some, but not all, circumstances. The exhaustion doctrine insures that IP law does not displace that vast and complex body of law in circumstances where Congress had no intent to do so.
Third and finally, the principal cases on exhaustion also consistently state that the Court is not deciding on the enforceability of any rights that the patentee may have under non-patent law. One classic statement is found in Keeler v. Standard Folding Bed, 157 US 659, 666 (1895), where the Court concluded its analysis: “Whether a patentee may protect himself and his assignees by special contracts brought home to the purchasers is not a question before us, and upon which we express no opinion. It is, however, obvious that such a question would arise as a question of contract, and not as one under the inherent meaning and effect of the patent laws.”
The correct answer to the question above is thus (B)—the exhaustion doctrine is pure statutory interpretation and does not reflect judicial hostility toward restraints on alienation or encumbrances generally.
This approach throws a new light on the questions that the Federal Circuit will address in its en banc decision. One of the en banc questions is whether the court should overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), and here the answer is surely “yes.” The Supreme Court case law establishes a pretty clear bright-line rule that the exclusive rights to make and use in the Patent Act are exhausted upon the first authorized sale or other transfer of ownership. (See Statutory Domain Article at 46-49.) Importantly, however, that bright-line rule is based on statutory considerations—Congress had no intention to displace the vast and complex law governing property encumbrances and other aspects of general commercial law. The rule is not based on a view that the Patent Act explicitly or implicitly has any hostility towards post-sale restraints on the alienation or use of chattel property. Patentees are therefore free to impose whatever contractual conditions they and their customers agree upon—subject, of course, to any limitations on lawful contracting imposed by state unconscionability doctrine, by federal antitrust doctrines, or by other law.
If patentees want more than mere contract rights to protect those conditions—if they want property rights that follow or “run with” the chattel—then they can encumber the chattel with a security interest. Indeed, for nearly a century, state commercial law has treated any so-called “conditional sale” as a sale subject to a security interest. The Federal Circuit’s Mallinckrodt decision, which allowed conditional sales to be enforced through patent law without any of the nuanced limitations imposed by modern commercial law, appears to be quaintly oblivious to nearly a century’s worth of change—a throw-back to commercial law generally abandoned in this country shortly after the turn of the last century. For the relevant history, see Statutory Domain Article at 53-54 nn. 226-30.
The other en banc question is whether the Federal Circuit should overrule Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001), which held that U.S. patent rights are not exhausted by foreign sales. The Supreme Court’s recent decision in Kirtsaeng v. Wiley, 133 S. Ct. 1351 (2013), ruled that foreign sales do trigger copyright exhaustion, and so the Federal Circuit has quite understandably framed the issue in terms of whether foreign sales trigger patent exhaustion. A statutory approach to the exhaustion question would, however, focus not only on the fact of a foreign sale, but also on the structure of the Patent Act’s distinct right to control importation.
In patent law, the right to control importation is a freestanding right, distinct from the exclusive right to control sales. In copyright law, that’s not so. A copyright owner’s exclusive right to import is defined in the statute to be part of the owner’s exclusive right to distribute under § 106(3) of the Copyright Act. The relevant statutory language states that unauthorized importation is “an infringement of the exclusive right to distribute … under section 106.” The statutory definition of the importation right as being within § 106(3)’s distribution rights is crucial because copyright’s codified exhaustion rule specifically points to the distribution right of §106 as the right that is to be exhausted by transfers of ownership. See 17 U.S.C. § 109(a).
How important is this difference—that the right to import is a freestanding right in patent law but not in copyright? Very. The first case cited in Kirtsaeng is Quality King Distributors v. L’anza Research, 523 U.S. 135 (1998), and as Justice Kagan made clear in her Kirtsaeng concurrence, Quality King was essential to gaining a majority of the Justices. Yet the very first step in the Court’s reasoning in Quality King was to emphasize that the Copyright Act “does not categorically prohibit the unauthorized importation [but instead] provides that such importation is an infringement of the exclusive right to distribute copies ‘under section 106.’” From that starting point—the Copyright Act’s blending together of the right to import as part of the distribution right—Quality King was able to reason that the importation right must also be exhausted whenever the right to distribute is also exhausted, and even the copyright owner in that case could not argue that its sales did not exhaust their distribution right.
Patent law’s distinct and separate right to control importation should be controlled not by Kirtsaeng and Quality King, but by the reasoning in Buck v. Jewell-LaSalle Realty Co., 283 U.S. 191 (1931), which held that the copyright’s separate exclusive right to control public performances is generally not subject to exhaustion. If exhaustion doctrine is a matter of statutory interpretation (as the Supreme Court has repeatedly stated), then a proper analysis of the doctrine requires attention to the specificity of rights in each statute. The pending en banc Federal Circuit case is superficially similar as a policy matter to Kirtsaeng and Quality King (because the cases all involve international aspects of exhaustion), but in terms of statutory structure, the en banc case is more like Buck (because both cases concern a right separate from any right traditionally subject to exhaustion).
There are, of course, additional arguments on this point. We cover many of these in our much longer article on the subject, and perhaps we will cover more in an amicus brief. Our overarching point—and our message to other brief writers in the upcoming en banc Federal Circuit case—is that, before jumping into a policy analysis of the pro’s and con’s of various exhaustion rules, parties and amici first address whether the Federal Circuit should be engaged in pure judicial policymaking or whether, as Supreme Court precedent suggests, the court should be determining the correct interpretation of the Patent Act.
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Read the full article here http://ssrn.com/abstract=2599074.
Federal Circuit Chooses Quantity over Quality in Fight over Electro-Mechanical Stimulation Device Patent
by Dennis Crouch
A discussion of Lelo v. USITC and Standard Innovation Corp. (Fed. Cir. 2015):
The US International Trade Commission (USITC) provides an alternate/additional forum for asserting patent rights. Unlike district court, the USITC is not empowered to award damages for past infringement but can only enjoin future importation of infringing articles through what is known as an exclusion order. Although limited, these exclusion orders can carry substantial power – simply because so many high-tech products sold in the U.S. are manufactured abroad.
The Congressionally designated purpose of the USITC is to protect U.S. industry. In the IP context, this purpose has been implemented as a requirement that USITC patent assertions be associated with a domestic industry. Under Section 337(a) of the Tariff Act of 1930 (as substantially amended), “with respect to the articles protected by the patent,” the patentee must show that there is, within the U.S.: “(A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing.” 19 U.S.C. § 1337(a)(3). To be clear, although the USITC requires a domestic industry related to products covered by the patent, there is not requirement that the patentee be a U.S. company.
Here, the owner of the asserted U.S. patent No. 7,931,605 is the Canadian company Standard Innovation Corporation. The invention covers an “electro-mechanical sexual stimulation device to be worn during intercourse.” The Federal Circuit euphemistically identifies this as a “kinesiotherapy device.”
Standard Innovation has its products manufactured in China, although the company does use some U.S. sourced components (such as the backbone material, rubber, pigment, and control-chip wafer). The manufactured product is then shipped worldwide, including to the U.S. where a wholly-owned U.S. subsidiary distributes the product.
The question on appeal is whether a domestic industry exists under the law. The ALJ first deciding the case found “no,” but the Commission disagreed. On appeal, the Federal Circuit has sided with the ALJ that no domestic industry exists.
In reviewing USITC decisions, the Federal Circuit generally reviews questions of law de novo but gives substantial deference to factual conclusions (substantial evidence standard).
The court’s reasoning here is somewhat odd — that the statute requires a quantitative analysis of the amount of domestic industry that was not provided by the USITC.
Quantitative Analysis: As mentioned, the domestic industry requirement requires more than an iota of domestic industry – rather the statute requires “signficant” or “substantial” industry. According to the court – those heightened requirements are properly interpreted as requiring a quantitative analysis:
All of the foregoing requires a quantitative analysis in order to determine whether there is a “significant” increase or attribution by virtue of the claimant’s asserted commercial activity in the United States.
Rather than conducting a full analysis of domestic industry investment, the USITC simply found that some of the component products were “critical” aspects of the final product. For example, “the backbone material specifically allowed for beneficial flexibility and resilience, [and] the microcontrollers enabled the devices to function as a vibrator [with multiple modes]”.
On appeal, the Federal Circuit rejected these “qualitative elements” – finding that the statute requires a quantitative analysis of the impact on domestic investment and employment.
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The USITC argued that its qualitative analysis was in parallel to that done in the prior case of Certain Male Prophylactic Devices, Inv. No. 337-TA- 546, USITC Pub. 4005 (June 21, 2007) (patent at issue). However, the court found that it didn’t fit. That is, the prior decision was appropriately characterized as quantitative in nature.
Guest Post by Gary L. Griswold. Mr. Griswold is a Consultant residing in Hudson, WI and was formerly President and Chief Intellectual Property Counsel for 3M Innovative Properties Company. The paper reflects the views of the author. He wishes to thank Bob Armitage and Mike Kirk for their excellent contributions to the paper.
Last summer I wrote a paper with this same title explaining why now is the time to commence universal publication of all design patent applications filed in the United States. Indeed, recent events have made this the perfect time to legislate such transparency.
The United States has now deposited its instrument of ratification of the Geneva Act of the Hague Agreement Concerning International Registration of Industrial Designs. The Geneva Act will enter into force, in respect to the United States, on May 13, 2015. The Final Rules were published by the USPTO on April 2, 2015. U.S. applicants will be able to file under Hague, have their Hague-filed applications published by the International Bureau of the World Intellectual Property Organization at 6 months from filing, and be eligible following such international publication for provisional rights to recover a reasonable royalty under 35 U.S.C. 154(d).
For the reasons stated in my earlier paper, all U.S. design applicants—not just Hague applicants—should have the benefits that come from this type of universal examination transparency. Transparency places design patent applicants into the driver’s seat, able to head off those that may be tempted to copy a product incorporating the published design. They can develop a filing plan which meets their circumstances and know exactly when their application will be published making provisional rights available.
Importantly, the published application will produce an immediate prior art effect retroactive to its filing date once published—for both anticipation and obviousness purposes. Thus, those who would subsequently seek to obtain patents on the same design or obvious variants would be blocked.
Armed with the knowledge from published pending patent filings, competitors will have the opportunity at an early point in their commercialization process to design away from designs covered by published claims. They can thereby avoid the potential exposure under provisional rights, as well as the potential for post issuance infringement liability for the infringer’s total profits (35 U.S.C. 289).
The public will benefit from the opportunity to provide input into the examination process. Public input during the examination phase carries with it the promise of a higher quality examination and more certain patent validity. Competitors will have the ability to provide patent examiners with prior art that might otherwise not surface or be overlooked.
This is possible because the America Invents Act (AIA) offers a brief time window after publication of an application for public submissions of prior art to patent examiners. The limited duration of this opportunity assures that the speed of examination is not negatively impacted. Public input of this type can have the collateral benefit of lessening the likelihood that a PGR or IPR will be initiated based upon missed or overlooked prior art during the patent application filing and examination process.
Publication of domestic design patent applications should occur, as it does for international design patent applications under Hague, six months after the U. S. filing. In my earlier paper, I explained the reasons that 18 month publication used for utility patent application publication is inappropriate for design applications. The short examination pendency before design applications mature into issued patents dictates that design patent applications be published at six months.
Understandably, concerns over this move to transparency have been expressed by those who have grown comfortable with the pre-Hague status quo. Adapting to any new regime requires adjustments to new opportunities and new challenges. Utility patent practitioners have blazed the trail here, having gone through a major change-in-practice drill with the America Inventor’s Protection Act (AIPA) and AIA. In the end, the transparency that early publication would provide and the benefits that it would offer to clients argue strongly for professionals to embrace this change.
An important goal of the patent system is to promptly and efficiently grant valid patents on inventions that stimulate marketplace innovation. Publishing design patent applications advances that goal.
 Griswold, Gary L., Publishing Design Patent Applications: Time to Act¸ Patently-O (August 24, 2014), available at http://patentlyo.com/patent/2014/08/publishing-design-applications.html and IPO L.J. (August 26, 2014), available at http://www.ipo.org/wp-content/uploads/2014/08/design_patent_gg_article.pdf
by Dennis Crouch
In a major 2014 decision, the Supreme Court raised the standard of definiteness under 35 U.S.C. 112(b) – now requiring that the scope of patent claims be “reasonably certain” to one of skill in the art. Nautilus v. Biosig. Historically, “reasonably certain” is a high standard and has been linked with the beyond-a-reasonable-doubt standard in criminal law. I.e., claim scope that is reasonably certain may also be seen as having its scope defined beyond a reasonable doubt. The higher standard can also be contrasted with the prior Federal Circuit that only invalidated ambiguous claims that were both insolubly ambiguous and not amenable to construction.
Despite the dramatic potential of Nautilus, the Federal Circuit has largely muted its impact.
The one area where patent-challengers see continued success is when means-plus-function claims lack appropriate structural support in the underlying patent document. 35 U.S.C. 112(f) allows a patentee to claim a “means” for accomplishing a specified function without reciting the actual structure of the mechanism or material used to accomplish the function. However, as a rule of construction, the statute indicates that the “means” will be construed to “cover the corresponding structure, material, or acts described in the specification and equivalents thereof.” The impact is that, although the claim appears to broadly cover a “function” it will be construed to be much more limited. When an applicant follows this claiming approach, but fails to specify any corresponding structure within the specification then the claim is deemed invalid as indefinite.
In Eon Corp v. AT&T (Fed. Cir. 2015), the Federal Circuit has affirmed that Eon’s asserted patent claims are invalid for failing to specify the structure associated with a purely functional claim element.
Eon’s U.S. Patent No. 5,663,757 covers a data processing station that facilitates instant purchases while watching a television program. The patent was written back when the wort “means” was still popular among patent drafters. Here, the district court found that eight separate “means” claims were directed to “complex” computer software such as “causing selected themes to automatically display a second menu.” Based upon that undisturbed complexity fact-finding, the appellate court found that a structure in the form of the software algorithm should have been disclosed. Because no software algrithms were disclosed, the software means claims failed and were properly held invalid as indefinite.
Of interest here, the Federal Circuit reasoned that the algorithm is necessary to “avoid pure functional claiming.” Quoting Aristocrat Techs. Austl. Pty Ltd. v. Int’l Game Tech., 521 F.3d 1328 (Fed. Cir. 2008).
A general purpose computer is flexible—it can do anything it is programmed to do. Therefore, the disclosure of a general purpose computer or a microprocessor as corresponding structure for a software function does nothing to limit the scope of the claim and “avoid pure functional claiming.” Aristocrat. As such, when a patentee invokes means-plus-function claiming to recite a software function, it accedes to the reciprocal obligation of disclosing a sufficient algorithm as corresponding structure.
Although the court here highlights the doctrinal point of “pure” functional claiming — claiming function with no limiting structure — the actual facts are that the disclosed microprocessor and does provide some amount of structure. As with abstract-idea analysis, it seems here that the question is not so black-and-white, but rather whether some magical threshold has been crossed.
The case also offers some hints to the ongoing debate over subject matter eligibility of computer implemented inventions. In particular, the court reiterated its prior statements that a “the general purpose computer becomes a special purpose computer when loaded with the special programming.”
By Jason Rantanen
Biosig Instruments, Inc. v. Nautilus, Inc. (Fed. Cir. 2015) (on remand from the Supreme Court) [2015 WL 1883265] Download Opinion
Panel: Newman, Schall, Wallach (author)
About a month ago, I wrote an essay entitled “Teva, Nautilus and Change without Change.” To the extent that anyone still harbored doubts about that premise in the context of Nautilus, the Federal Circuit’s opinion on remand should dispel them. (Caveat: As I discussed in the essay, means-plus-function claims, such as the claims in Eon that Dennis will post about shortly, are a whole different ball of wax. To me one of the most fascinating issues in patent law right now is whether the court will expand that framework to function-claiming more broadly. The revised Nautilus opinion leaves that door a little more open than the original opinion.)
This dispute is well-known, so I’ll just summarize the procedural posture. The district court granted summary judgment that the claims were indefinite. On appeal, the Federal Circuit reversed, holding the claims not indefinite. The Supreme Court granted certiorari to address the legal standard the Federal Circuit referenced on indefiniteness: that a claim is indefinite “only when it is ‘not amenable to construction’ or ‘insolubly ambiguous.'” 715 F.3d 891, 898 (2013). In Nautilus, the Supreme Court rejected this standard:
Those formulations can breed lower court confusion, for they lack the precision § 112, ¶ 2 demands. It cannot be sufficient that a court can ascribe some meaning to a patent’s claims; the definiteness inquiry trains on the understanding of a skilled artisan at the time of the patent application, not that of a court viewing matters post hoc. To tolerate imprecision just short of that rendering a claim “insolubly ambiguous” would diminish the definiteness requirement’s public-notice function and foster the innovation-discouraging “zone of uncertainty,” United Carbon, 317 U.S., at 236, 63 S.Ct. 165, against which this Court has warned.
Nautilus, 134 S.Ct. at 2130 (2014). The Court did not, however, resolve the overall dispute, instead returning the appeal to the Federal Circuit.
On remand the parties disputed “whether the Supreme Court articulated a new, stricter standard or whether, in rejecting the phrases ‘insolubly ambiguous’ and ‘amenable to construction,’ the Court was primarily clarifying that a patent’s claims must inform those skilled in the art with “reasonable certainty” of what is claimed.” Slip Op. at 7-8. The Federal Circuit did not directly answer this question, but suggested the latter through a nautical metaphor: “The Court has accordingly modified the standard by which lower courts examine allegedly ambiguous claims; we may now steer by the bright star of ‘reasonable certainty,’ rather than the unreliable compass of ‘insoluble ambiguity.'” Id. at 9. The implication of this metaphor, combined with the passage preceding it, is that the problem the Court perceived was not that the insolubly ambiguous standard allowed too much imprecision in patent claims; the problem was that the insolubly ambiguous standard itself was too imprecise: “The Court found too imprecise our “insolubly ambiguous” standard,” Id. at 8. The implication that Nautilus simply clarified, rather than raised, the standard for indefiniteness is further supported by an extensively-footnoted discussion of “reasonably certainty” as a “familiar standard,” one that “In the wake of Nautilus II, judges have had not problem operating under.” Id. at 12. The takeaway is that Nautilus offers a more precise standard, but not one that moves the target.
With this clarification in place, the panel concluded that its prior decision was correct: Biosig’s claims inform those skilled in the art with reasonable certainty about the scope of the invention.” Id. at 14. The court’s revised analysis turns entirely on the intrinsic evidence (“We revisit the intrinsic evidence here to make clear that a skilled artisan would understand with reasonable certainty the scope of the invention.”) Notably missing from this discussion is any mention of Halliburton, which the court distinguished at length in the original opinion. To the contrary: the description of the indefiniteness standard at the beginning of the opinion expressly quotes from that case: “Moreover, when a claim limitation is defined in ‘purely functional terms,’ a determination of whether the limitation is sufficiently definite is ‘highly dependent on context (e.g., the disclosure in the specification and the knowledge of a person of ordinary skill in the relevant art area).’ Halliburton Energy Servs., Inc. v. M-I LLC, 514 F.3d 1244, 1255 (Fed. Cir. 2008).” Function-claiming remains an area to watch.
Guest Post by Jeffrey A. Lefstin, Professor of Law at the University of California, Hastings College of Law.
The Supreme Court’s decision in Alice v. CLS Bank resolved the easy cases: claims that merely recite a mode of organizing activity coupled with a generic instruction to “do it on a computer” or “do it on the Internet.” The key question left open by Alice is whether claims to specific information-processing techniques represent ineligible abstract ideas or eligible applications. Answering that question will be critical to resolving cases like California Institute of Technology v. Hughes Communications, Inc., and McRO v. Activision, discussed in Robert Stoll’s Patently-O post last month.
The patents in Caltech were directed to a method of generating error correction codes in digital transmissions. They described a method of generating parity bits by accumulating previously generated parity bits, and a sum of randomly chosen irregular repeats of message bits. Notwithstanding that the patents claimed only information-processing steps, Judge Pfaelzer of the Central District of California ruled that the claims were patent-eligible: while the claims were directed to the abstract idea of error correction, the algorithm for generating parity bits represented an inventive application of the underlying idea.
As Judge Pfaelzer recognized, that holding might be in tension with Digitech Image Technologies v. Electronics for Imaging, where the Federal Circuit, relying on Benson and Flook, suggested that any claim merely transforming information with “mathematical algorithms” is not patent-eligible. So Caltech squarely raises the question of whether specific information-processing algorithms are patent-eligible after Alice.
More generally, the significance of Benson and Flook after Alice is a critical question for future § 101 jurisprudence: much of the difficulty faced by the lower courts and the USPTO arises from attempts to reconcile the Supreme Court’s earlier caselaw with its decisions since Bilski.
It is time to acknowledge that they cannot be reconciled, and they need not be. While the Court maintains a pretense that all its opinions are coherent with each other, the regime the Court has crafted since Bilski represents a sharp break from its earlier decisions. Courts that continue to rely on Benson and Flook have not recognized the significance of Alice’s reaffirmation of the Mayo framework for patent-eligibility. For Mayo established both a different structure and a different rationale for subject matter eligibility than the Court had employed in its prior cases.
First, Mayo provided a new structure for the § 101 inquiry: step one is to identify an abstract idea or law of nature underlying the claim, and step two asks whether the claim further recites an ‘inventive concept’ that transforms the abstract idea or law of nature into a patent-eligible application. If that was not the analytical framework employed in the Court’s earlier cases, then the analysis and holdings of those cases are not necessarily relevant after Mayo and Alice. The Court itself told us in Bilski that its earlier opinions represented nothing more than explanations of the basic exceptions for laws of nature and abstract ideas.
Second, Mayo and Alice reoriented the rationale for subject-matter exclusions. Benson and Flook were premised in large part on the exclusion of subject matter not expressly authorized by Congress, the restriction of patents to tangible processes, or the exclusion of preexisting truths that exist apart from human action. Those premises were rejected in Chakrabarty, Bilski, and Alice, respectively. Instead, Mayo and Alice grounded subject matter exclusions on the ‘building-block’ concern: that patents on fundamental principles risk foreclosing more innovation than they promote.
Given the Court’s reorientation of the doctrine, Benson and Flook’s focus on ‘algorithms’ is no longer relevant. Abstract ideas, after Bilski, Mayo, and Alice, are not characterized by intangibility or field of invention. They are characterized by ‘fundamentalness’ – the concern that patents on basic concepts will foreclose too much further development. In this framework, a specific information-processing algorithm, such as an algorithm for generating parity bits, does not qualify as an abstract idea.
Caltech defined the abstract idea as the purpose of the claim, recited at a reasonably high level of generality: error correction, in the claims at issue. Identifying the abstract idea with the purpose or effect of the claim follows from the structure of the Mayo/Alice test. Step one defines the abstraction (if any) underlying the claim, while step two asks whether the application of that abstraction contains an inventive concept. The object of step one must therefore be to separate the idea of the invention from the means of application, which will be the subject of step two.
We already differentiate between idea and means of application in the law of inventorship: courts have long distinguished between formulating a goal, effect or result – which is not a contribution to conception – and formulating the means of attaining that result – which is a contribution to conception. So the Caltech analysis merely maps that long-standing distinction onto the subject-matter inquiry under § 101.
I discuss these ideas further, and develop a framework of ‘inventive concept’ applicable to both abstract ideas and laws of nature, in a forthcoming paper available here.