Patently-O Law Blog
The USPTO has an outstanding request for comments on its patent quality initiatives and many participants in the patent system will be submitting comments and proposals for improving patent quality. I have been working with a group of academics to create a second channel for submissions that will also open the door for further vetting and commentary to help the USPTO get a better sense of what ideas might work well. Of course, we would like input to go well beyond submissions from academics.
To that end:
+ + + + + +
The Berkeley Technology Law Journal (BTLJ) welcomes submissions on Patent Quality in parallel with the USPTO’s Request for Comments on Enhancing Patent Quality. BTLJ will publish selected Comment submissions in a special volume of our rapid publication, online-only Commentaries. BTLJ is seeking Comments on Quality submissions of under 1000 words. All sources should be cited but need not be formally Bluebooked. Comment submissions ideally should reflect the author’s parallel submissions to the USPTO Request for Comments, but may be revised for length and form as needed. Comments need not be novel ideas (although those are welcome as well), but rather can reflect the best known proposals for improving patent quality that may have already appeared in a full-length law review article. BTLJ will strive to post all submitted Comments that meet our standards of quality.
BTLJ seeks to cover a wide range of the three patent quality pillars and their six included proposals that have been outlined in the USPTO Request. Specifically, the first pillar, excellence in Work Products, includes (1) applicant requests for prosecution review of selected applications, (2) automated pre-examination search, and (3) clarity of record. The second pillar, excellence in measuring patent quality, includes (4) review of and improvements to quality metrics. The third pillar, excellence in customer service, includes (5) review of current compact prosecution model and the effect on quality, and (6) in-person interview capability with all examiners.
BTLJ requests that authors of Comments on Quality contact us by April 27, 2015 to express their intent to submit. Drafts of Comments on Quality, ready for publication, must be submitted by May 15, 2015.
Reviews of Comments on Quality
Additionally, BTLJ invites commentators to provide Reviews on the Comments on Quality submissions. Reviews should be under 3000 words. Preference will be given to those Reviews that address a wide range of the submitted comments, can provide some clarity and order to the submissions, and can impart insight on one or more of the Patent Quality Pillars outlined in the USPTO’s Request for Comments.
BTLJ requests that authors of Reviews contact us by April 25, 2015 to express their intent to submit. Drafts of Reviews must be submitted by June 5.
All submissions should be in Word doc/docx format. Preference will be given to those submissions exhibiting a high level of clarity and persuasive prose. Grammar and style should conform to the Chicago Manual of Style, and all citations should provide a hyperlink (if possible) and/or a clear, usable reference to the source material. All quotations must be accurate and attributed. If any portion of a manuscript has been previously published (aside from a submitted Comment to the USPTO for this initiative), the author must so indicate.
Expressions of interest, questions, and submissions can be sent to firstname.lastname@example.org
By Jason Rantanen
Ineos USA LLC v. Berry Plastics Corporation (Fed. Cir. 2015) Download Opinion [2015 WL 1727013]
Panel: Dyk, Moore (author), O’Malley
It is bedrock patent law that while a species anticipates a genus, a genus does not necessarily anticipate a species. That axiom does not mean, however, that a genus may not anticipate a species. Here, the Federal Circuit affirms the district court’s grant of summary judgment that the prior art, which disclosed a broader range that overlapped with the range claimed in the patent-in-suit, anticipates. The court’s opinion also involves an interesting twist of the standard burden of proof in patent invalidity, one that parties litigating this issue should take into consideration.
Ineos alleged that Berry Plastic infringes several claims of Patent No. 6,846,863 and Berry argued that the ‘863 patent is invalid. The key part of the court’s analysis focuses on claim 1:
1. Composition comprising at least  94.5% by weight of a polyethylene with a standard density of more than 940 kg/m3,
 0.05 to 0.5% by weight of at least one saturated fatty acid amide represented by CH3(CH2)nCONH2 in which n ranges from 6 to 28[,]
 0 to 0.15% by weight of a subsidiary lubricant selected from fatty acids, fatty acid esters, fatty acid salts, mono-unsaturated fatty acid amides, polyols containing at least 4 carbon atoms, monoor poly-alcohol monoethers, glycerol esters, paraffins,
polysiloxanes, fluoropolymers and mixtures thereof, and
 0 to 5% by weight of one or more additives selected from antioxidants, antacids, UV stabilizers, colorants and antistatic agents.
(bracketed numbers inserted by the court). The district court granted summary judgment for Berry on the basis that the asserted claims were anticipated by U.S. Patent No. 5,948,846. (The court refers to this prior art reference as the ‘846 patent, which makes it unnecessarily confusing given its similarity to the abbreviation of the patent in suit, the ‘863 patent. I’ll refer to the prior art as the ‘846 reference and the patent in suit as the ‘863 patent for clarity purposes.) The pre-America Invents Act version of the anticipation statute (35 U.S.C. § 102) applied, but the difference is irrelevant for the issue on appeal.
Genus-Species Problem: The parties did not dispute that the ‘846 reference contained many of the elements elements of claim 1. Of the disputed elements, limitation  involves the genus-species problem. With respect to that limitation, the ‘846 reference disclosed steamramide, a compound within the relevant class of saturated fatty amino acid amides, in amounts from 0.1 to 5 parts by weight, in contrast with the limitation 2 of the ‘863 patent, which claimed 0.05 to 0.5% by weight of at least one of that type of saturated fatty acid amides. The prior art reference and the claimed range thus overlapped. (The opinion notes that “The parties agree for purposes of this appeal that measurements in “% by weight” are equivalent to measurements in “parts by weight.”)
“When a patent claims a range, as in this case, that range is anticipated by a
prior art reference if the reference discloses a point within the range. Titanium Metals Corp. v. Banner, 778 F.2d 775, 782 (Fed. Cir. 1985).” Slip Op. at 6. However, “If the prior art discloses its own range, rather than a specific point, then the prior art is only anticipatory if it describes the claimed range with sufficient specificity such that a reasonable fact finder could conclude that there is no reasonable difference in how the invention operates over the ranges. Atofina, 441 F.3d at 999; ClearValue, Inc. v. Pearl River Polymers, Inc., 668 F.3d 1340, 1345 (Fed. Cir. 2012).” Id. And since “the disclosure of a range…does not constitute a specific disclosure of the endpoints of that range,” id. citing Atofina, 441 F.3d at 1000, the fact that the ‘834 reference disclosed an endpoint within the range claimed by the ‘863 reference meant that the species-genus rule did not apply.
Burden-shifting or not? The Federal Circuit nonetheless affirmed the district court because it concluded that Ineos had no evidence that the range claimed by the ‘863 patent was critical to the operability of the invention. In Atofina, for example, “the evidence showed that a person of ordinary skill in the art would have expected the synthesis reaction to operate differently, or not all, outside of the temperature range claimed in the patent-in-suit.” Id. at 7. Thus, it was the criticality of the range in the ‘863 patent relative to the ‘846 reference that mattered.
While Ineos did present evidence, the Federal Circuit disagreed that it was relevant. “even if true, this has nothing to do with the operability or functionality of the claimed invention. Ineos has not established any relationship between avoided cost and prevention of undesirable blemishes, and the claimed invention’s slip properties or elimination of odor and taste problems. Ineos does not suggest that the claimed invention’s slip properties or improved odor and taste properties would not have been expected based on the prior art. Because Ineos failed to “raise a genuine issue of fact about whether the range recited in limitation 2 of the patent is critical to the invention,” the court concluded that limitation 2 was present in the ‘846 reference.
This raises an interesting issue of burden-shifting. Since a patent is presumed valid, an accused infringer has the burden to prove that it is not. By requiring that Ineos show how the ‘863 limitation was different from what was found in the prior art, the criticality rule seemingly flips the burden, placing it on Ineos to prove that the ‘846 reference does not contain the disputed limitation. This is somewhat like the burden-flipping discussed in Mahurkar v. C.R. Bard, 79 F.3d 1572 (Fed. Cir. 1996), but not quite–in Mahurkar, there was no dispute that the prior art reference contained all the elements of the claimed invention; that flipped the burden to Dr. Mahurkar to come forward with proof of prior invention. I see the benefits of this approach: it avoids requiring the accused infringer to prove a negative (that the claimed range is not critical), but have difficulty squaring it with the broader presumption of validity.
I’m looking forward to participating in this week’s Stanford Law School conference focusing on the interplay between the USPTO and the Courts. [Event Website]. On April 17 (Friday), I will be introducing the topic with a discussion of the rise of administrative review proceedings under the America Invents Act of 2011. On the 18th (Saturday), I will be discussing my proposals for claim construction within the USPTO as part of Director Lee’s quality initiative.
In general, the 17th is designed as a practical-focused day with a number of practitioners and judges speaking along with a handful of academics and Judge Moore as the Keynote Speaker. The 18th is the “academic day” and will include presentations from many of the leading patent scholars in the country.
See you there!
by Dennis Crouch
In a report sharply critical of the US Patent Office, the Department of Commerce Inspector General’s Office has concluded that patent quality is not up-to-snuff. Read the report titled “USPTO Needs to Strengthen Patent Quality Assurance Practices.”
The report makes four basic conclusions:
- USPTO policies are “ineffective” at measuring whether examiners are issuing high quality patents.
- USPTO “quality metrics” may underrepresent the examination error rate.
- USPTO is not collecting data that could improve patent quality.
- USPTO’s response to “patent mortgaging” is likely insufficient (here, patent mortgaging refers to examiners intentionally submitting low-quality work in order to meet a quota that is later re-worked).
The OIG has asked the USPTO to respond to the report within 60-days with an action plan responding to the criticisms and recommendations of the report.
Regarding quality, it is clear that the USPTO is good at measuring production and docket management, but the PTO tends to lack either the skill or will to ensure that each office action is of a high quality. Thus, for instance, from FY11-FY13, only seven examiners received warnings for low quality applications while 500 warnings were issued for production or docket management failures. The concern is that we’re pushing examiners to keep-up rather than conduct the highest quality examination.
Although it was clearly written by outsiders who do not fully understand the system, the report does offer important insight that Director Lee should use when pushing toward higher quality patents.
In Lexmark v. Impression, the Federal Circuit is holding an en banc hearing to consider the impact of both Kirtsaeng and Quanta on issues of patent exhaustion. I wanted to provide the following some discussion of the facts at issue in the case. The following synopsis comes from the patentee Lexmark’s opening brief on the merits:
= = = = =
The facts relevant to this appeal are not in dispute, and were largely stipulated below. Lexmark is a leading developer and manufacturer of innovative imaging and information management products and services — including laser printers and toner cartridges. Through extensive in-house research and development, Lexmark develops most of the technology that goes into its products and services. These complex innovations are protected by numerous patents. Those at issue in this suit cover various aspects of Lexmark’s toner cartridges — for example, the “encoder wheel” which determines how much toner remains in the cartridge and optimizes the print settings accordingly.
. . . Although Lexmark is known for its printers, much of its profits derive from the sale of toner cartridges to replace the cartridges that come with Lexmark printers. Lexmark offers end-user customers a choice when they purchase these replacement cartridges: a “Regular Cartridge” sold at full price without any use limitations, or a “Return Program” cartridge sold at a discount in exchange for the purchaser’s agreement to use the cartridge only once.
The two types of cartridges are physically identical. (Id.) But under the Return Program, customers agree that after the cartridge’s toner is exhausted, they will return the empty cartridge only to Lexmark for remanufacturing or recycling. Customers who buy regular cartridges, on the other hand, pay full price, but are not subject to the single-use restriction. They may dispose of or refill the cartridge as they see fit.
The Return Program cartridges cost roughly 20 percent less than the unrestricted version. That discount reflects the limitation on customers’ use of the cartridges.
Lexmark sells Return Program cartridges directly (to end-user customers) and indirectly (through “authorized resellers”). The Return Program contractually binds both Lexmark’s authorized resellers and its customers. No Lexmark reseller is authorized to sell a Return Program cartridge that is not subject to the single-use restriction. And whether a customer buys a Return Program cartridge directly from Lexmark or indirectly from an authorized Lexmark reseller, it does so subject to a user agreement that obliges the customer to use the cartridge only once. Given Lexmark’s agreements with resellers as well as end-users, the Return Program is a restriction on both sale and use.
The use restriction — a combination patent license and contract — is clearly displayed, in multiple languages, on the outside packaging of a Return Program cartridge. It also appears on Lexmark’s website. Before opening the product, therefore, customers are advised that they have a choice whether to participate:RETURN EMPTY CARTRIDGE TO LEXMARK FOR RECYCLING Please read before opening. Opening this package or using the patented cartridge inside confirms your acceptance of the following license agreement. The patented Return Program cartridge is sold at a special price subject to a restriction that it may be used only once. Following this initial use, you agree to return the empty cartridge only to Lexmark for recycling. If you don’t accept these terms, return the unopened package to your point of purchase. A regular price cartridge without these terms is available.
This user agreement is an enforceable contract. Both the Ninth Circuit and the U.S. District Court for the Eastern District of Kentucky have rejected *9 challenges to the Return Program. The Ninth Circuit held that Lexmark’s user agreement provides customers with pre-sale notice, an opportunity to opt out, and consideration in the form of the price discount. The Ninth Circuit also found that Lexmark’s label was not misleading. And the Kentucky district court in Static Control Components, Inc. v. Lexmark International, Inc., rejected the argument that Lexmark and its customers lacked a “meeting of the minds,” holding instead that the Return Program “clearly set[s] forth contractual terms” of the type that have been “held to be valid.” Neither Impression nor any other defendant in this litigation challenged the enforceability of the Return Program on contract-law grounds. Indeed, Impression acknowledges that “Lexmark has an express and enforceable” contractual agreement with each of its end-user customers and with its authorized resellers. All remain free, of course, to opt for a Regular Cartridge at regular price.
The Return Program serves a number of important functions.
First, it protects the quality and reputation of Lexmark’s products. Many spent cartridges end up in the hands of “remanufacturers” that refill the toner and repackage the cartridge for sale. (See infraat 12–13.) Used cartridges refilled by third parties are susceptible to malfunctions and poor performance. Because the malfunctions can appear to involve the printer rather than the remanufactured cartridge, customers often blameLexmark rather than the supplier of the inferior knock-off cartridge — leading to warranty claims and fewer future purchases from Lexmark.
Second, the Return Program facilitates Lexmark’s own recycling and remanufacturing programs. In the 1990s, Lexmark began reconditioning its own spent cartridges. The Return Program provides a reliable stream of cartridges for Lexmark’s own remanufacturing efforts, which allow Lexmark to control the quality of its remanufactured cartridges. It also helps the environment by ensuring that *11 cartridges are properly recycled if they are not reused.
Third, the Return Program is part of Lexmark’s defense against piracy and grey-market suppliers. Lexmark’s cartridges are “regionalized” such that a cartridge sold in Europe, for instance, will not work in a printer sold in North America or Latin America. Recovering the cartridges after a single use reduces the opportunity for third-party grey-market activities. Regionalization makes it harder for third parties to use a product sold at a lower price in one market to undercut sales in another, higher-priced market. And even within a region, single-use licensing limits the chances for unauthorized reuse. Rather than restricting post-sale use across the board by imposing single-use requirements on all of its cartridges, however, Lexmark decided to give customers a choice of replacement cartridges by offering both single-use Return Program cartridges and unrestricted regular cartridges. It accounts for the potentially negative consequences of the unrestricted cartridges by pricing them differently than Return Program cartridges.
Each Return Program cartridge contains a computer chip that, among other things, enforces the single-use restriction. The chip monitors the cartridge’s toner level: once all the toner in a Return Program cartridge is consumed, the chip stores this fact in its memory. If the cartridge is later reinstalled, the chip will interact with the printer to disable the cartridge.
Despite this protection, piracy threatens Lexmark’s cartridge sales. Third parties, including foreign companies, have hacked Lexmark’s computer chips and produced new versions that circumvent the single-use license. Those illegitimate chips, once installed in place of Lexmark’s originals, suppress the fact that the cartridge’s original toner was already consumed. This allows a used cartridge sold by a third party to masquerade as a genuine Lexmark cartridge. A Lexmark printer will accept the cartridge despite software designed to disable cartridges reused in violation of their single-use license.
Once the chip is circumvented, Lexmark’s Return Program cartridges may be reused multiple times, in violation of the single-use restriction. “Remanufacturing” a spent toner cartridge for reuse involves replacing worn components and refilling the toner. Companies like Impression and its suppliers gather spent cartridges, install hacked replacement chips, refill the cartridges with non-Lexmark toner, and sell the refilled cartridges for use in Lexmark printers. Although the cartridge may continue to function, the remanufacturing process, if not done correctly, will reduce its print quality over time, causing Lexmark reputational harm. This has happened many times when third parties have refilled and resold used Lexmark cartridges. . . .
In response to widespread piracy, Lexmark took legal action to protect its intellectual property, reputation, and revenues. It first initiated proceedings in the International Trade Commission, where it obtained a general exclusion order and cease-and-desist orders barring the importation of clone, counterfeit, remanufactured, refilled, and empty Lexmark toner cartridges.
Lexmark also sued several parties for patent infringement in this action in the U.S. District Court for the Southern District of Ohio. The suit targeted two types of infringement: the sale of “clone” cartridges manufactured by third parties as unauthorized copies of Lexmark’s genuine toner cartridges; and the sale of other cartridges originally manufactured and sold by Lexmark, such as remanufactured cartridges that had been refilled, repackaged, and resold by third parties under non-Lexmark labels.
During four years of litigation, most defendants agreed to individual settlements with Lexmark, leading the district court to enter consent judgments and stipulated permanent injunctions. In some instances, the court enforced Lexmark’s patent rights through contempt proceedings or default judgments. Impression is the sole remaining defendant litigating against Lexmark. . . .
With respect to Lexmark cartridges first sold outside the United States, Impression maintained that Lexmark’s sales abroad precluded Lexmark from suing for infringement of its U.S. patents when those cartridges were imported, remanufactured, or resold in the United States. Impression acknowledged that its position contradicted this Court’s ruling in Jazz Photo, which held that a foreign sale does not exhaust U.S. patent rights. But Impression contended that Jazz Photo had been implicitly overruled by the Supreme Court’s decision in Kirtsaeng. The district court disagreed, noting that Kirtsaeng construed a distinct provision of the Copyright Act and therefore did not implicitly overrule Jazz Photo’s application of the Patent Act.
As to Lexmark cartridges first sold in this country, Impression argued that Lexmark’s patent rights were exhausted despite the express contractual conditions under the Return Program. Again, Impression recognized that the *16 law of this Court was to the contrary, given Mallinckrodt’s holding that a sale under a single-use license did not exhaust the seller’s patent rights. But the district court accepted Impression’s contention that the Supreme Court’s decision in Quanta — which addressed an unrestricted first sale — implicitly overturned Mallinckrodt’s holding regarding a restricted sale. The district court’s opinion rested on its (mistaken) understanding that Lexmark resellers possess blanket authority to sell Return Program cartridges without restriction on their subsequent use. In this respect, the court held, Lexmark’s domestic sales of cartridges were analogous to Intel’s sales of software without restriction in Quanta — sales that, as decided by the Supreme Court, exhausted patent rights.
Both Lexmark and Impression, however, recognized that the district court had misunderstood the facts concerning Lexmark’s domestic sales, and that Lexmark’s contracts and licenses did in fact restrict the resale of Return Program cartridges. To avoid the need to amend the Complaint and undertake additional briefing, the parties submitted a joint motion asking the court to supplement the record with stipulated facts and then either to reconsider its decision on the Return Program cartridges or enter final judgment to facilitate appeal.
The district court supplemented the record with the stipulated facts, but declined otherwise to revisit its decision. Instead, the court entered a stipulated judgment of non-infringement in favor of Impression with respect to Return Program cartridges first sold inside the United States, and a stipulated judgment of infringement in favor of Lexmark with respect to cartridges first sold outside the United States. The court also entered a stipulated permanent injunction, barring Impression from selling the Accused Products in the United States, except to the extent that Lexmark’s patent rights had been held to have been exhausted.
Lexmark Int’l. v. Impression Prod. (Fed. Cir. 2015) (en banc)
Acting sua sponte, the Federal Circuit has ordered en banc briefing on the issue of international patent exhaustion.
As I have previously written, current Federal Circuit precedent on international exhaustion is in direct tension with the Supreme Court’s teaching – albeit in the copyright context. Compare Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2012) with Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001). The basic international exhaustion situation occurs when the patentee authorizes a the manufacture/sale of a patented product in a foreign country. And the exhaustion question is whether the U.S. patent is exhausted by that international authorization or instead can the patentee block importation of hte product into the U.S. based upon the U.S. patent. Kirtsaeng says that the foreign action exhausts the U.S. copyright while in Jazz Photo the Federal Circuit held that the foreign action does not exhaust a U.S. patent.
The patent exhaustion doctrine has also been complicated by the largely impenetrable Quanta and Mallinckrodt decisions. What types of servitudes can a patentee place on a patented product and how do those restrictions and obligations impact exhaustion?
The en banc order presents the following two questions:
(a) Should this court overrule Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001)?
(b) The case involves (i) sales of patented articles to end users under a restriction that they use the articles once and then return them and (ii) sales of the same patented articles to resellers under a restriction that resales take place under the single-use-and-return restriction. Do any of those sales give rise to patent exhaustion? In light of Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), should this court overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), to the extent it ruled that a sale of a patented article, when the sale is made under a restriction that is otherwise lawful and within the scope of the patent grant, does not give rise to patent exhaustion?
Briefs favoring a change in the law (supporting Impression) are due within 45-days and briefs supporting the status quo will be due within 30-days following. The Federal Circuit has indicated that briefs of amici curiae may be filed without consent or leave of the court “but otherwise must comply with Federal Rule of Appellate Procedure 29 and Federal Circuit Rule 29.”
by Dennis Crouch
Perhaps the greatest impact of the shift to a first-to-file system is that the US’s traditional one-year grace period has been greatly reduced. Prior to the America Invents Act (AIA), it was fairly straightforward process for patent applicants to take advantage of a one-year pre-filing grace period – with the basic result of negating would-be prior art created in the one-year time period prior to filing. Under the AIA, a grace period still exists, but only as to pre-filing disclosures either (1) made by (or derived from) the inventor or (2) subsequent to a prior disclosure by or from the inventor. This means that – under the AIA – a third-party disclosure made even one-day before your patent application filing date will normally negate your patent. From an international comparative law framework, the AIA grace period is still more forgiving than that of most other countries whose grace period only applies when an invention is disclosed pre-filing through malfeasance such as theft or fraud.
I should note here that the particular scope of the grace period under the AIA is somewhat unclear and will require interpretation by the courts. A reasonable reading of the statute would have the potential of greatly narrowing and limiting grace period so as to make it essentially ineffective.
Universities and independent inventors have pushed to restore the grace period to its prior expanse. Because these entities tend to lack fully-internal product development and funding regimes, they typically look to make pre-filing disclosures in order to at least test the waters of economic and practical viability.
Taking a middle ground, a bipartisan set of Senators and Representatives have proposed the Grace Period Restoration Act of 2015. [Senators Tammy Baldwin (D-WI) and David Vitter (R-LA), along with United States Representatives Jim Sensenbrenner (R-WI) and John Conyers, Jr. (D-MI)].
I have not yet seen the text of the proposal, but the basic idea is that the amended statute would not fully restore the grace period to pre-AIA days but would clarify the AIA grade period in the following ways:
- Clarify that no pre-filing disclosure by the inventor within the one-year will jeopardize patentability either on anticipation or obviousness grounds
- Clarify that the inventor’s pre-filing disclosure of the invention in a printed publication (within the one year grace period) immunizes the application any subsequent disclosure by a third-party.
The proposal here is being framed as fixing an unintended error in the AIA, and I think that is a largely correct historical statement and that there may be support from leaders in both the House and Senate. However, there will be push-back by those who (1) prefer a system better harmonized with the rest-of-the-world and (2) prefer a system where it is easier to invalidate a patent.
In Oplus Tech v. Vizio, the Federal Circuit remanded with an order for the district court to expressly determine whether an award of attorney fees are warranted. After the merits were determined (summary judgment of non-infringement) the district court found the case “exceptional” under 35 U.S.C. 285 based upon litigation misconduct by Oplus. However, the district court then refused to award fees to the victorious accused (without fully articulating its reasons for the denial). On appeal, the Federal Circuit reviewed the record and could not “find a basis to support the court’s refusal to award fees.”
Although the “exceptional case” finding can still be a distinct step from a fee award. The case here suggests that a court should ordinarily award fees in exceptional cases.
Although the award of fees is clearly within the discretion of the district court, when, as here, a court finds litigation misconduct and that a case is exceptional, the court must articulate the reasons for its fee [denial] decision. In light of the court’s fact findings regarding the extent of harassing, unprofessional, and vexatious litigation, the change in legal standard by the Supreme Court, and the lack of sufficient basis to deny fees under § 285, we vacate and remand for the district court to consider whether and the extent to which fees are warranted. Because the court premised its decision regarding fees under § 1927 and its inherent power at least in part on its decision to deny fees under § 285, we vacate those rulings and remand for further proceedings.
Thus, on remand, the district court will reconsider whether fee award is appropriate based upon its prior determination of litigation misconduct.
The particular misconduct here that went unchallenged on appeal:
The court found that from the start Oplus “delayed the litigation by strategically amending its claims to manufacture venue,” and, in doing so, “flouted the standards of appropriate conduct and professional behavior.” It found that “Oplus provided only the most tenuous basis in its initial complaint for bringing suit in Illinois” and that its “first amended complaint took its first step over the boundaries of professionalism” because the “amendment rendered its allegations against Sears prima facie inadequate.” It chastised Oplus for “ignor[ing] well-settled law” by asking “the [Panel on Multidistrict Litigation] to return the case to Illinois after it lost” the motion to transfer to the Central District of California.
The court found that “Oplus misused the discovery process to harass Vizio by ignoring necessary discovery, flouting its own obligations, and repeatedly attempting to obtain damages information to which it was not entitled.” It found that Oplus implemented an “abusive discovery strategy” that involved “avoid[ing] its own litigation and discovery obligations while forcing its opponent to provide as much information as possible about Vizio’s products, sales, and finances.” The court noted that its “greatest concern . . . was Oplus’s counsel’s subpoena for documents counsel had accessed under a prior protective order.” In that instance, counsel for Oplus represented an unrelated patentee in a prior litigation against Vizio and, pursuant to the protective order in that prior litigation, retained copies of documents produced by Vizio. Here, counsel for Oplus, Niro, Haller & Niro, drafted what it called a tailored subpoena for documents retained by counsel for the earlier plaintiff, which also happened to be Niro, Haller & Niro. The court concluded that it “strain[ed] credulity” to believe that Oplus “issued the subpoena without using any knowledge by three attorneys [that both worked on the earlier case and the present case] as to the content of the discovery sought.” The court found that “Oplus blatantly misinterpreted its own prior discovery requests in an attempt to obtain the same information the Court had previously refused to compel.”
The court found that “Oplus used improper litigation tactics including presenting contradictory expert evidence and infringement contentions as well as misrepresenting legal and factual support.” It found that Oplus’s response to Vizio’s complaint about contradictory expert opinions—where Oplus disavowed “its own expert’s statement when Vizio cited the paragraph, rather than the paragraph heading” of its expert’s report—was “merely one example of Oplus’s strategic manipulation of the facts and evidence provided to the Court.” In another example, it noted that whereas “Oplus’s infringement contentions cite[d] a patent to show infringement” of Oplus’s patents, its “expert testifie[d] that the same patent did not disclose the methods of Oplus’s patents.” It found that “Oplus consistently twisted the Court’s instructions and decisions” and attempted “to mislead the Court.” It complained that when “Oplus had no evidence of infringement of one element of a claim, it simply ignored that element and argued another.” It found that “Oplus regularly cited to exhibits that failed to support the propositions for which they were cited” and that “Oplus’s malleable expert testimony and infringement contentions left Vizio in a frustrating game of Whac-A-Mole throughout the litigation.”
The district court particularly highlighted the activities of four lawyers from Niro, Haller & Niro: Gabriel Opatken, Raymond Niro, Arthur Gasey, and Paul Gibbons. [District Court 285 Denial][Patently-O Discussion]. The story told to the district court was that Opatken was a fresh new attorney handling most of the case but who was insufficiently supervised. Once put on notice of the misconduct Ray Niro put a stop to those activities. I suspect that the district court felt that internal reprimand was sufficient.
On Friday, April 10, 2015, we held the Fourth Annual University of Missouri Patent Law Moot Court Competition. Law students wrote briefs and presented oral arguments on legal and procedural questions surrounding the patenting of compounds derived from human genes. [Discussion of the Problem]. The McKool Smith firm has sponsored the event and funded a $1,000 prize to the winning student for each of the next four years. This event is also now linked with our developing Center for Intellectual Property and Entrepreneurship.
Overall winner of the competition based upon both is Paul Jacobson who will receive the $1,000 McKool Smith prize. Honorable mention goes to Mary Albert, Micah Uptegrove, Peter Bruntrager, Justin Moody,Bhandana Katoch, Mitchell Terry, John Clizer, and Joe Morrey who each received at least one first place vote. I want to especially thank our set of excellent IP-attorney-judges who gave up their day and evening for this event as well as my Teaching Assistant and future patent attorney Marriam Lin.
The next competition will be held in the Fall of 2015.
Automated Merchandising v. Michelle Lee raises yet another separation of powers issue between the courts and the patent office. Originally AMS sued Crane for infringing its U.S. Patent Nos. 6,384,402, 6,794,634, 7,191,915, and 7,343,220. In response, Crane filed (pre-AIA) inter partes reexamination requests against the patents. Then the lawsuit settled and the court issued a consent decree (final judgment) dismissing the case with prejudice and stating that the parties stipulate that the patent claims are valid. AMS took that decree to the USPTO who refused to terminate the reexamination because the final judgment was not a “decision” on the merits of validity. In response, AMS filed suit in the Eastern District of Virginia alleging violations of the Administrative Procedures Act (APA). Section 704 of the APA provides for review of agency actions:
Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review.
However, the statute is clear that a non-final agency action is not reviewable.
According to the court’s judgment here the PTO’s refusal-to-terminate was an interlocutory order. Even though the PTO originally identified it as “final,” that designation alone is insufficient to meet the final action requirement of the statute. On remand, the inter partes review will continue and, if the patentee loses on the merits, may then have a chance to appeal the refusal-to-terminate.
This case adds further weight to the argument that we need a more comprehensive approach to the various pathways for enforcing and challenging patent rights.
= = = = =
In B&B, the Supreme Court held that decisions by the PTO can have preclusive effect when the same issue is raised in a parallel litigation. In dicta, the court also indicated that preclusion also operates in the opposite direction — federal court decisions also have preclusive impact on PTO decision making. B&B is focused on the doctrine of issue preclusion that is also known as collateral estoppel.
Because issue preclusion requires that the issue be actually litigated, it does not apply to the AMS. However, the parallel doctrine of claim preclusion (res judicata) may indeed apply – that doctrine typically applies when a second dispute involves a a prior final judgment of a claim sharing a “common nucleus of operative fact” and (roughly) identical parties.
A complicating factor here is that – as to inter partes reexaminations – the Patent Act had a particular statute that could be seen as redefining the scope of issue and claim preclusion for patent cases.
Once a final decision has been entered against a party in a civil action arising in whole or in part under section 1338 of title 28, that the party has not sustained its burden of proving the invalidity of any patent claim in suit . . . , then neither that party nor its privies may thereafter request an inter partes reexamination of any such patent claim on the basis of issues which that party or its privies raised or could have raised in such civil action . . . , and an inter partes reexamination requested by that party or its privies on the basis of such issues may not thereafter be maintained by the Office . . . .
35 U.S.C. 317(b). The major question for this statute is whether it reflects an alteration of traditional rules of preclusion or instead offer an additional layer of preclusion when the traditional rules do not apply.
In 2013 Texas A&M purchased the somewhat floundering Texas Wesleyan law school and created what is now the Texas A&M University School of Law – located in Dallas. In joining with a major research institution, part of the TAMU mission has been to further build the IP program that already includes Megan Carpenter, Brian Holland, and Dennis Kelly. Today, the law school announced its hiring of four new IP faculty: Professors Peter Yu (from Drake); Glenn Lunney (from Tulane); Irene Calboli (from Marquette); and Saurabh Vishnubhakat (from the PTO). Congratulations to TAMU on this bold move that will certainly raise its stature in the ever growing Texas market for IP attorneys. Congratulations both to the law school and its new faculty!
= = = = = =
I have received some criticism for this post. First – I recognize that the law school is in Ft. Worth, but from my non-Texan distance Ft. Worth is part of the Dallas metro area – as is Plano, Arlington, etc. Admittedly, my knowledge is largely derived from my childhood love of the (original) Dallas TV show. Second, I noted that Texas Wesleyan was “somewhat floundering.” I do stand behind that, although it should be in the context of the reality that the vast majority of law schools are currently struggling. Finally – Prof Lunney, I do apologize for misspelling your name! -Dennis
Shubha Ghosh is the Vilas Research Fellow & George Young Bascom Professor in Business Law at the University of Wisconsin Law School. He is currently serving as the inaugural AAAS Science, Technology, and Policy Fellow at the Federal Judicial Center in Washington, D.C.
I attended the oral arguments on March 31 in the Kimble v Marvel case, in which the Court considers whether to overrule Brulotte v. Thys. A 1964 precedent authored by Justice Douglas, the Brulotte decision employs an amalgam of preemption and patent misuse analysis to hold that post-expiration royalty payments for patent licensing are invalid.
Judging from the oral arguments, the Court is grappling with two issues. The first is that of stare decisis. The second is what standard should replace the per se rule articulated in Brulotte if it is overruled.
Stare Decisis and Living Economists
The divisions on the Court parallel that of Leegin v Creative Products, a 2007 decision in which the Court overruled the 95 year old per se rule against minimum resale price maintenance. The Court was split five to four with Justices Kennedy writing for Justices Roberts, Thomas, Scalia, and Alito. Justice Breyer wrote in dissent with Justices Ginsburg, Souter, and Stevens signing onto his defense of precedent.
During the Kimble oral arguments, Justice Breyer defended Brulotte with an elaborate hypo involving a patent owner that locks in all potential licensees with obligations for royalty payments going beyond the term of the patent. His point: contracts can extend the exclusivity of a patent beyond its limited time. Questioning from Justices Sotomayor and Kagan suggested that they may follow the reasoning of their predecessors Justices Souter and Stevens from the Leegin decision. Justice Sotomayor wondered why changes in the viewpoint of economists should guide precedent. “What if fifty years from now economists agree that Brulotte was correct?,” she asked. Justice Kagan adopted a similar tack by asking petitioners what problems Brulotte caused that would require overruling. Even if a bad rule, she implied, knowledgeable parties can readily contract around it.
My prediction is that the final vote will parallel that in Leegin for an overruling of Brulotte. Whatever one thinks of the result, the opinion itself is not clearly reasoned with a mix of preemption and patent misuse analysis. The problem with Brulotte is that the 1979 Aronson v. Quick Point decision tempers its reasoning by allowing parties flexibility in contracting over patentable subject matter.
While there has been much criticism from economists about the rationality of the Brulotte per se rule, from a transactional perspective the real problem is that the rule provides a trap for the unwary. Justice Scalia pointed out that the beneficiaries of the rule are licensees who knowingly enter into licenses with post-expiration payment obligations hoping that the licensor does not know of Brulotte. Such seemed to be the case in the Kimble case. Such opportunistic licensees can obtain lower royalty payments knowing that any post expiration obligation would be invalid. The Brulotte rule can be transacted around or used opportunistically. In order to avoid the latter possibility, the decision should be overruled.
After Brulotte: A Reasonable Rule or a Rule of Reason?
Harder to predict is how the Justices will overrule Brulotte. The Court had an easier choice in Leegin which was a pure antitrust case. Once the Court rejects a per se rule, it is replaced with the rule of reason in antitrust cases. Petitioners were advocating a rule of reason approach as has been adopted in patent misuse cases. Justice Sotomayor questioned why antitrust principles should be introduced into patent law. If there is an antitrust problem, the licensee can just bring an antitrust claim, she suggested. Justice Breyer raised the specter of administration costs that a rule of reason approach would imply. Other justices were less vocal about what could replace Brulotte.
It is true that Brulotte is not an antitrust case. But patent misuse tracks antitrust law (for example, see the treatment of tying as misuse under 35 USC 271(d)). So the petititoners’ advocating for a rule of reason approach is appropriate and perfectly consistent with any accompanying antitrust claims to a defense of patent infringement.
What is interesting to me is how the Court might address issues of preemption. The Court has not considered an intellectual property preemption cases since 1989 even though the issue has been percolating in the lower courts in the context of licensing and contract. Part of me hopes that the Court resolves the lower court’s treatment of preemption. Realistically, neither the briefs nor the argument address the preemption issue head on. The issue should await more careful consideration of the relationship between patents and contracts.
However, if the Court does address the preemption issue, then the 1979 Aronson issue should be its guide. In that case, the Court addressed the validity of an escalator clause which created two tiers of royalties based on whether a patent was granted on an invention. When the licensee ended up paying royalties for an invention which was found to be unpatentable, it raised preemption of the escalator clause under Brulotte. The reasoning was straightforward: if royalties after patent invalidity are preempted because of conflict with the limited terms of patents, then royalties on an invention for which a patent was denied should also be in conflict. The licensee reasoned that if such contracts were upheld, an inventor would not need to seek a patent since contract could provide equivalent protection.
The Court correctly rejected the reasoning. Patents offer benefits beyond contract. Furthermore, contracting supplements patenting and does not interfere with it. So the escalator clause was upheld. But Justice Blackmun in concurrence wondered about the conflict with Brulotte. As he wrote in 1979:
[As in Brulotte], Mrs. Aronson has used the leverage of her patent application to negotiate a royalty contract which continues to be binding even though the patent application was long ago denied. The Court… asserts that her leverage played “no part” with respect to the contingent agreement to pay a reduced royalty if no patent issued within five years. Yet it may well be that Quick Point agreed to that contingency in order to obtain its other rights that depended on the success of the patent application. The parties did not apportion consideration in the neat fashion the Court adopts.
Justice Blackmun reconciles the two cases by saying that Brulotte is solely about leveraging that allows the patent owner to extend the patent term through contract. Perhaps a better reconciliation would have been to temper the leveraging analysis, grounded in patent misuse, through application of a rule of reason analysis. That course should be the one the Court adopts in Kimble after it overrules the pre se rule of Brulotte.
by Dennis Crouch
In a letter mailed on April 7, 2015, I joined with the Electronic Frontier Foundation (EFF) in calling on the U.S. Court of Appeals for the Federal Circuit to re-institute free public access to orders issued by the court.
Following former Chief Judge Rader’s resignation in 2014, the Federal Circuit stopped providing free public access the the vast majority of court orders. These orders are still accessible through PACER, but that system is difficult and costly to use.
Although the court’s most substantive work is usually found in published opinions. Court orders can be substantive and important and the letter provides a few examples:
For example, an order involving ongoing royalties in cases involving Apple and VirnetX was not chosen for publication on the site, despite the high interest in the proceedings the case has generated, and the impact the order could have on the publicly traded companies. Another order barred Facebook from asserting invalidity defenses on appeal for procedural reasons – a matter of public interest because it could educate litigants about how to preserve issues on appeal, and because Facebook is a public company. Even in cases where the Court seeks public participation, it has not chosen to put relevant orders up on its website for public access. On December 30, the Court granted a petition for en banc rehearing of SCA Hygiene Products v. First Quality Baby Products, No. 2013-1564, announcing on its website that it invited amicus curiae briefs in the case. Rather than posting the order on its website, the Court instead directed interested parties to view the order on PACER. Because the case is sufficiently important to merit an announcement on the Court’s website, it was dismaying that the order was not selected for public access on the website.
The change that we propose is simple and fully within the Court’s power — we know this because the court was previously providing free public access to these documents as standard operating procedure. My hope is that the Court will hear our respectful requests and make this appropriate change.
Michael Barclay and Vera Ranieri from EFF have also written on the topic in the EFF Deep Links Blog.
Astrazeneca v. Apotex (Fed. Cir. 2015)
Omeprazole (Prilosec) is a proton pump inhibitor (PPI) used to treat stomach acid issues. In a prior portion of this case, the Federal Circuit affirmed that Apotex’s generic omeprazole infringed the AZ patents and that the patents were not invalid. After that 2007 decision, the company took the product off the market. The present appeal is simply about the damages that Apotex needs to pay based upon its infringement from 2003 – 2007.
A patentee is entitled to “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.” 35 U.S.C. § 284. Thus, the statute sets a ‘floor’ of a reaonable royalty but offers the option of proving further damages that would not be accounted-for in such a royalty calculation. This second category is ordinarily thought of as the patentee’s “lost profits” due to the infringement. See Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009).
Reasonable Royalty as 50% of gross margin: Here, the patentee asked for a reasonable royalty, which the district court set at 50% of Apotex’s $150 million gross margin (gross sales minus cost of goods) on the infringing sales. On appeal, the Federal Circuit has affirmed.
District courts (and juries) are given substantial deference in awarding damages for patent infringement. Factual conclusions (including the ultimate award) are reviewed only for clear error and the damage computation approach is reviewed for abuse of discretion.
Entire Market Value Rule for Pharma: The most interesting aspect of the case involved a discussion of the “entire market value rule.”
When thinking about damages, the focus should be on the incremental value of the patented invention. When the patent covers only a small-portion of a multi-component product, the damage award should be based upon how the invention improves that small-portion unless the patentee proves that the patented feature “creates the basis for customer demand” in the whole product or “substantially creates the value of the component part.” quoting Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011). One way around this is for a patentee to claim the product as a whole, then reciting both the novel features and conventional elements that make-up the rest of the product. Here, that is exactly what AZ did – claiming a pill containing the (novel) drug covered with a (standard) enteric coating and subcoating. For the Federal Circuit, that claiming trick was sufficient to allow the patentee to focus on the entire market value of the pills rather than on the value of the novel drug component:
Astra’s formulation patents claim three key elements—the drug core, the enteric coating, and the subcoating. The combination of those elements constitutes the complete omeprazole product that is the subject of the claims. Thus, Astra’s patents cover the infringing product as a whole, not a single component of a multi-component product. There is no unpatented or non-infringing feature in the product.
The court did note that the relative proportion of novel-to-conventional parts should have an impact on the ultimate damage awaard:
When a patent covers the infringing product as a whole, and the claims recite both conventional elements and unconventional elements, the court must determine how to account for the relative value of the patentee’s invention in comparison to the value of the conventional elements recited in the claim, standing alone. See Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1233 (Fed. Cir. 2014) (“[T]he patent holder should only be compensated for the approximate incremental benefit derived from his invention.”).
All of these thoughts and concerns regarding proportional valuation go back to the 1884 Supreme Court case of Garretson v. Clark, 111 U.S. 120 (1884). In that case, the court wrote that the patentee:
must in every case give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features, and such evidence must be reliable and tangible, and not conjectural or speculative, or he must show by equally reliable and satisfactory evidence that the profits and damages are to be calculated on the whole machine, for the reason that the entire value of the whole machine, as a marketable article, is properly and legally attributable to the patented feature.
Thus, under Garretson, it should not really matter whether you calculate the reasonable royalty as a smaller percentage of the whole product or instead a larger percentage of the component. However, there are two reasons why plaintiffs want to use the larger number. First, there is a sense that a judge/jury is psychologically more likely to award a higher total amount when the pie appears larger. Second is the reality that the whole product is sold at a point further down the supply chain where prices are higher as opposed to component supply where prices are generally much lower.
= = = =
- In re Omeprazole Patent Litig., 84 F. App’x 76 (Fed. Cir. 2003) (“Omeprazole I”);
- In re Omeprazole Patent Litig., 483 F.3d 1364 (Fed. Cir. 2007) (“Omeprazole II”);
- In re Omeprazole Patent Litig., 281 F. App’x 974 (Fed. Cir. 2008) (“Omeprazole III”); and
- In re Omeprazole Patent Litig., 536 F.3d 1361 (Fed. Cir. 2008) (“Omeprazole IV”);
- All relating to U.S. Patent Nos. 4,786,505 and 4,853,230.
Check out Patent Number 9,000,000 issued on April 7, 2015. Although the first U.S. utility patents were issued in 1790, the current numbering system did not begin until 1836. An additional 9,500 patents issued between 1790 and 1836.
About 1/3 of all issued patents are currently in-force.
By Ron D. Katznelson
A letter to Congress from 51 professors of law and economics argues that “the net effect of patent litigation is to raise the cost of innovation and inhibit technological progress.” In response, an equally strong letter to Congress from other 40 professors of law and economics expresses “deep concerns with the many flawed, unreliable, or incomplete studies about the American patent system that have been provided to members of Congress.” The response letter defends the patent system and notes a pattern of analytical flaws in some studies underlying the 51 professors’ letter, listing basic empirical analysis reliability criteria that such studies fail to meet. Are criteria for reliable empirical analysis fungible? Should our patent policy turn on a “they said – they said” contest?
The answer must be a resounding NO. It turns out that the government has developed detailed criteria, requirements and standards for reliable empirical analysis and information quality. Because the public disproportionately relies on information disseminated by the government, the government holds itself to substantially higher standards than those used by private parties or non-government entities in disseminating information on the internet or in academic journals, with its high variability in accuracy and reliability. Congress enacted the Information Quality Act (“IQA”) in order to ensure that information disseminated by government agencies meet the standards of “quality, objectivity, utility, and integrity.” 44 U.S.C. § 3516, note. Information disseminated by the government for reliance by government and the public must be “presented in an accurate, clear, complete, and unbiased manner.” The IQA forbids agencies from endorsing or approvingly disseminating information of substandard quality from third-parties.
The Office of Management and Budget (“OMB”) promulgated guidelines for agencies to comply with the IQA, including the Bulletin for Peer Review and the Standards and Guidelines for Statistical Surveys. These quality standards are quite specific. For example, they set criteria for presentation and substantive balance and objectivity, transparency of data and methods, conditions under which peer-review is required, design of survey frames and sample coverage, minimum survey response rates below which specific bias analyses are required, etc. Virtually all government agencies, including the Executive Office of the President, are subject to these guidelines and standards. Under the IQA, agencies are required to establish administrative procedures enabling “affected persons” “to seek and obtain correction of information maintained and disseminated by the agency that does not comply with [the OMB IQA] guidelines;” agencies have established a 60-day period for their review and corrective action in response to such requests. Agency responses to such petitions are not judicially reviewable because the IQA establishes no Article III standing for petitioners. However, the President and OMB regulations require agency compliance with the IQA.
Whereas 51 professors, relying on works that do not meet the IQA standards, can freely publish and argue (as they have) that patent litigation inhibits technological progress, the government is precluded from doing so. But that is exactly what the White House has done in contravention of the IQA by publishing its “patent troll” report known as the Patent Assertion Entities (“PAE”) Report. It relies on many of the works cited by the 51 professors’ letter, without even having conducted an IQA pre-dissemination review—a basic first-level IQA requirement. For these reasons, I have filed with the White House a petition under the IQA, requesting correction and removal of this PAE Report from all government websites.
My Petition shows that the PAE Report contravenes the IQA because it expressly relies on third-party information that does not meet the IQA standards. The sources relied on by the PAE Report purport to document patent litigation rates, quantify the private and social costs of patent litigation, survey “victims” of PAE litigation, and show the purported adverse effects of PAE activities. This information includes studies that have undergone no peer review; that have relied on opaque or erroneous methods and surveys; that lack objectivity; and lack practical utility.
To achieve agency compliance with identifiable IQA standards, my Petition concludes with 21 specific requests for correction supported by evidence and arguments. My Petition provides a compendium of detailed analyses of fundamental flaws surrounding data and methods used in eight commonly cited studies purported to document PAE harms, upon which the PAE Report relies.
Examples of some of the PAE Report’s assertions failing the IQA are:
- that PAEs take advantage of the patent litigation cost asymmetries to force settlements and that they have an incentive to drag out litigation; my Petition shows that this allegation lacks supporting evidence and merely relies on a citation to a reference that does not exist, therefore failing to meet the IQA;
- that the social costs of PAEs patent litigation is $83 billion per year; my Petition shows in detail that the Bessen et al. paper upon which the allegation relies is erroneous, biased and fraught with fundamental analytical flaws and the information fails to meet the IQA standards;
- that the direct costs to defendants of PAE litigation are $29 billion per year; my Petition shows that the Bessen & Meurer paper upon which the allegation relies, incorrectly defines “costs” and is based on a biased and opaque sample in a flawed survey that fails to meet the IQA Survey Standards;
- an allegation of a “dramatic rise” in PAE litigation and that PAEs brought 62% of all patent suits; my Petition shows that the Chien blog post upon which the allegation relies, fails to meet the IQA because (i) it is irreproducible by independent qualified parties since it is based on secret data and methods, and is financially supported by parties that have an interest in the outcome of the study, and (ii) because it lacks objectivity by failing to even mention the effects of the AIA joinder provisions on the surge in the number of suits;
- that 40% of technology startups targeted by PAEs suffered a “significant operational impact;” my Petition shows that the survey upon which the allegation relies fails to meet the IQA because the only thing known about the sample frame is its purposeful bias against NPEs. Solicitations (i.e., “trolling”) for the survey were made by entities that are “critical of the patent system,” encouraging respondents to participate in order to send a message to Congress—not to conduct bona fide research.
I also show (including through FOIA revelations) that the PAE Report’s secret author, a patent law professor, dominated its content by her own works, and those substantially reflecting her views. The White House omitted some in-text citations to the professor’s works from the bibliographic reference list and falsely attributed her survey results to a news reporter. Together, these errors had the effect of concealing the dominance of this professor’s works in the PAE Report. But where the professor’s own publications elsewhere strike a balance by at least acknowledging and crediting references with views opposing her own (see Petition, Sec. 5.5.1), it appears that the White House overruled her approach, as the PAE Report generally fails the objectivity requirement of the IQA. It lacks objectivity both on presentation and substance, because it focuses only on the ostensible negative aspects of NPEs or PAEs. The IQA “objectivity” standard requires analysis that also includes the salutary economic benefits of patent enforcement, or the positive role of NPEs as intermediaries—analysis that is entirely omitted.
The results are troubling. For example, the PAE Report disseminates this sweeping conclusory economic assessment: “the losses caused by excessive litigation [include] lost value to consumers who are not able to buy innovative products, and reduced income for workers whose pay is lower because they are unable to work with more productive new processes.” Absolutely no evidence or other bases are cited in support of this allegation. Ironically, the stark failure to meet the IQA standards may produce the opposite result of that intended by the proponents of patent reform. For example, estimates of the number of NPE demand letters based on extrapolation from one extreme outlier case (see Petition at 41) are so fantastic that they undermine the credibility of the legitimate efforts to address a genuine (but infrequent) problem of abusive demand letters.
The Petition and supporting material may appear to some readers as cumbersome and repetitive. This may be so because it is written to overcome the burden on the petitioner of establishing non-compliance with the IQA, including the requisite particularized requests for correction. Stay tuned to see what corrective action the White House may take.
In our Fourth Annual Patent Law Moot Court here at Mizzou Law, the students are grappling another Myriad lawsuit asserting its BRCA1 gene patents. The question presented is whether the cDNA claims that the Supreme Court suggested are patent eligible could be voided as improperly claiming an abstract idea.
= = = = =
Order: Presently before the Court is Defendant’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). In its oral motion, Defendants’ asserted that Claims 2 and 6 of Myriad’s U.S. Patent No. 5,747,282 are directed toward unpatentable subject matter under 35 U.S.C. § 101 as improperly claiming an abstract idea. Plaintiffs disagreed and further responded that the issue had been foreclosed in its favor by the Supreme Court’s recent decision regarding the claim and patent at issue and that the issue was not the proper subject of a motion to dismiss.
Parties will brief the issue and particularly address the following:
- Whether the asserted claims of the patent-in-suit are directed toward an unpatentable abstract idea in violation of the requirements of 35 U.S.C. § 101.
- The direct impact of Association for Molecular Pathology v. Myriad Genetics, Inc., 133 S.Ct. 2107 (2013) on this motion.
- Whether a challenge to subject matter eligibility is the proper subject of a motion to dismiss.
Briefs will be submitted simultaneously by 5:00 pm on April 6, 2015 and will otherwise follow the requirements set out in Local Rule 4.3. The Court will entertain oral arguments on April 10, 2015 at 3:30 pm. Each party will be given up to 20 minutes to present its case.
= = = =
 The parties have stipulated that Claim 2 is directed toward a cDNA version of the naturally occurring BRCA gene and that Claim 6 is a fragment of the cDNA sequence defined by Claim 2.
= = = =
Should be interesting. How would you argue the case for/against?
= = = =
SPONSOR US: I’m looking for a sponsor for the event so that I can give the winner a cash prize. A tax-deductable donation of $5,000 will fund the system for the next four years and get your name mentioned in Patently-O each year!
Guest Commentary by Robert Stoll
In the wake of the Supreme Court’s decision in Alice Corp v. CLS Bank (2014), there have been dozens of decisions in federal district courts and at the Federal Circuit that have applied Alice and Section 101 to a wide variety of business method and software related patents. And in the vast majority of these cases, the courts have invalidated the patents.
This trend line has led to rampant speculation about the end of software patents. But a review of the patents in those cases indicates that the claims at issue in most of the district court cases (and arguably all the Federal Circuit decisions) were directed to business methods that would have likely been held invalid under Bilski and other pre-Alice decisions. What we have seen far less is how courts will apply Alice to patent claims directed to software technology (as opposed to business methods).
Arguably the first of those cases is on its way through the Federal Circuit. The McRO (Planet Blue) v. Activision Blizzard, et al. (C.D. Cal. 2014) (“Planet Blue”) appeal pending at the Federal Circuit may be an important indicator of how software patents will be evaluated by the courts going forward.
Unlike many of the other Section 101 cases that have largely involved simple financial/business practices or similar non-technical “inventions,” the patents in Planet Blue are directed to what appear to be actual technological challenges. The patents utilize complex and seemingly specific computer-implemented techniques.
And yet the Planet Blue patents were found invalid under Section 101 in the district court. In deciding the case, Judge Wu did a thorough analysis of the patent claims, starting with the observation that “[f]acially, these claims do not seem directed to an abstract idea” and appear to be directed to a “specific technological process.” However, interpreting Mayo to require him to disregard any aspect of the claims found in the prior art, he conducted a further analysis to determine what feature of the claims were novel. Wu found that the only aspect of the claims that added to the prior art was an abstract idea: “the use of rules, rather than artists, to set the morph weights and transitions between phonemes.”
Planet Blue has now appealed to the Federal Circuit, and opening merits briefs were recently filed. These and the subsequent briefs, arguments and decision in this case will be important for practitioners and patent holders for several reasons:
The Federal Circuit will evaluate a patent claim that is technology-based.
An initial read of the claims in the Planet Blue patents seem to be a far cry from basic method claims. The Planet Blue patents are used in animation; the technology helps automate the process of adapting an animated image to mouth words without having to draw or manually program the animated character’s movements. Its’ claims are drawn to the use of three-dimensional synchronization for certain applications in animation.
The district court initially acknowledged that the claims, in isolation, appeared tangible and specific and did not seem directed to an abstract idea: “considered standing alone, the asserted claims do not seem to cover any and all use of rules for three-dimensional synchronization.” In deciding this case, the Federal Circuit will be making an important decision on how to evaluate technology and software claims in a post-Alice environment.
The decision should provide additional guidance on how to apply the ‘significantly more’ test.
In the Alice decision, the Court recognized that patents – even those that are directed to an abstract idea or other ineligible concept – can be made patent eligible if the patent ‘transforms’ the abstract idea, or does ‘something’ or ‘significantly more’ than a patent on the concept itself. This is the second step of the Alice/Mayo test, which the Court refers to as the search for an inventive concept. Unfortunately, both the Supreme Court and Federal Circuit have provided scant guidance on what is necessary to satisfy this “significantly more” test.
In this case, the district court found that the claims covered a well-known concept of lip synchronization and weren’t sufficient to meet the ‘significantly more’ test. The Federal Circuit will review the claims, and assess whether the district court’s analysis and conclusion were correct. The Federal Circuit’s decision should provide some insight as to how ‘significantly more’ test should be performed and how claims should be read moving forward.
Lower courts will be paying close attention to the Federal Circuit’s ruling in this case in their 101 assessments.
Just six weeks after the Planet Blue decision, another Section 101 decision came out from the Central District of California, this one authored by Judge Pfaelzer, in California Institute of Technology v. Hughes Communications, Inc. (C.D. Cal. 2014). In that case, the court denied Hughes’ motion for summary judgment on Section 101 ineligibility. Judge Pfaelzer also undertook a lengthy analysis of Section 101 case law. In applying the Mayo/Alice framework, the court found that the Caltech claims were directed to abstract ideas, but that the claims were patentable since they contain inventive concepts.
Interestingly, Judge Pfaelzer also made a point of discussing the Planet Blue decision. While respectfully acknowledging that Planet Blue offers valuable contributions to the Section 101 discussion, Judge Pfaelzer noted that Planet Blue ultimately reached the wrong conclusion since courts should not, in her view, apply the point-of-novelty approach in the Section 101 inquiry, citing the Supreme Court’s Diamond v. Diehr decision.
This is the first step in the journey, not the destination. Planet Blue may turn out to be a bellwether case on software patentability, as these patents seem quite similar to so many of the software patents held by companies across the IT industry and beyond. But the outcome is likely to be highly panel dependent, and it would not be surprising to see a request for en banc consideration at some point down the line. The case is sure to be closely watched, and it will be fascinating to see whether the Federal Circuit follows the lead of Ultramercial (and upholds the lower court decision on patent ineligibility), or whether the reasoning of DDR Holdings will prevail (and the Section 101 decision reversed).
Bob Stoll is a partner at Drinker Biddle and Reath and Co-Chair of the IP Group and a previous Commissioner for Patents at the USPTO. The views expressed above are his own and do not necessarily represent the views of his firm or its clients.
Last week the Supreme Court heard oral arguments in the patent licensing dispute known as Kimble v. Marvel Enterprises, Docket No. 13-720. In that case the license of Mr. Kimble’s patent covering a web-shooter-toy appears to extend beyond the expiry date of the patent and Supreme Court’s prior precedent holds that such post-expiry royalty arrangements are not enforceable. Brulotte v. Thys, 379 U.S. 29 (1964) (post expiry patent license is per se patent misuse).
The per se rule created in Brulotte is what Chief Justice Roberts called a “problem with the ’60s.” More recently, the Supreme Court has overruled a whole set similar per se antitrust cases — and instead applying a rule of reason.
The patentee’s basic argument is that it makes sense to allow parties to negotiate for their own contract terms and decouple a private contract from the patent’s right to exclude.
MR. MELNIK (for patentee): The way that I would reconcile it … is to decouple the notion of the right to exclude, which is what the statutory term is about, the right to prevent the public as a whole from using the patented invention from the specific royalty arrangement.
Under a rule of reason, a post-expiry license could still be seen as misuse, but that result would depend upon the particular circumstances.
One reason not to overrule Brulotte is that such a course is a rather drastic policy-based action.
JUSTICE SOTOMAYOR: How long has Brulotte been around?
MR. MELNIK: 50 years.
JUSTICE SOTOMAYOR: Why don’t we just let Congress fix it, because if it’s wrong, people can complain to [Congress]. . . .
JUSTICE KAGAN: It may or may not be right, but there’s nothing incredibly sort of wierd and anomalous about it. . . . we have a very strong rule of statutory stare decisis. We need some special justification to break away from that rule. . . . But [this issue] surely is a question for Congress, to go back to what Justice Sotomayor was saying, you know, to the extent that there’s a real world problem, and maybe there is and maybe there’s not, it’s a little bit hard to tell from the amicus briefs. I mean, they’re surely better equipped than we are to deal with that.
The response to the Court here is that the court has been revising statutes for many years without much concern for stare decisis – i.e., that it is really too late for the court to claim it is not an activist court.
On the policy side – the basic reason to keep the rule is as a mechanism for better insuring that inventions are available to the public at the patent term’s expiration.
Herb Wamsley has been a mainstay and leader of the patent law bar for many decades — including 32 years leading Intellectual Property Owners Association (IPO) and previously as chief of staff to the Patent & Trademark Office Director. I have tremendous respect for Herb and the organization he has built. Although I often don’t fully agree with the IPO positions, Herb has always been honest and open and ready to talk through the pros and cons of any issue.
Herb Wamsley has announced his retirement from the IPO and I want to congratulate Herb on such a successful career that has touched so many of us.
The IPO has also announced its new search for an executive director of the agency. I wonder if they can woo away the current PTO Chief of Staff Andrew Byrnes. According to the announcement: “Candidates should be skilled in IP law and practice, government affairs, communications, consensus-building, management and organization. To view the job announcement including duties and skill set click here.”