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Congratulations to Director Michelle Lee

Tue, 03/10/2015 - 07:35

by Dennis Crouch

The U.S. Senate has now confirmed President Obama’s nomination of Michelle Lee as Undersecretary of Commerce and Director of the USPTO.  Congratulations to Director Lee on this expected but long awaited final step to filling the post left by David Kappos more than two years ago.  Lee has been with the PTO since 2012 and was previously Google’s chief patent counsel.

We will see Director Lee staying the course that she has already set with a focus on patent quality and efficient operations.  The larger and ongoing battles will be fought over patent litigation reform and the role of our post grant review system.  Lee is the first female director of the agency, whose top three leaders are now all women (with Peggy Focarino as Commissioner of Patents and Mary Boney Denison as Commissioner of Trademarks).

I very much look forward to working with Director Lee and her team at the USPTO. As part of this, we’re hosting a patent quality summit at the USPTO on March 25-26, 2015. []

Lee will likely be given latitude in naming her deputy director. Hal Wegner – very often correct in his insight – suggests two potential candidates: Russ Slifer (Director of the USPTO Denver Office) and Christal Sheppard (Director of the USPTO Detroit Office).  Slifer and Sheppard are current USPTO executives who have spent most of their careers outside the agency.

Low-Tech High-Tech

Mon, 03/09/2015 - 13:52

For those of you interested: Yes, I am one of those technologists who sends his kids to a low-tech elementary school where they learn to build, knit, paint, dye, crochet, and write — but basically only work with materials and tools that they can find in nature or make themselves.  I’m pretty confident that they’ll still figure out how to use an iPad when the time comes.  Here is the most recent article on the school:


Guest Post: Despite Alice Corp, McRO’s Software Patents Should be Seen as Eligible under Section 101

Mon, 03/09/2015 - 10:53

This is a guest post written by Tim Molino who is the Policy Director for BSA, which as shortened its name to The Software Alliance. Prior to joining BSA, Tim was Chief Counsel for Sen. Klobuchar (MN) and before that, he was a patent litigator for eight years.  The BSA has just filed an amicus brief in the Activision Blizzard case whose Section 101 issue is pending before the Federal Circuit.  This is one of the several cases where parties are testing for the boundaries of Alice Corp. – Dennis

= = = = =

by Tim Molino

The highly-anticipated Alice Corp. v CLS Bank case was widely expected to clarify the application of Section 101 to computer-implemented inventions and many expected the decision would answer the contentious question of whether software is eligible for patent protection.  Instead, the Supreme Court issued a relatively narrow ruling that cast doubt on the eligibility of most business methods, but suggested that software-based inventions that “improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field” would likely be eligible.

Now lower courts are beginning to apply the Alice and the Supreme Court’s distinction between abstract business practices and technological inventions. To date, the bulk of the district court decisions have dealt with so-called business method patents that recite a business practice or economic concept combined with a token recitation of implementation on a computer.  District courts have correctly invalidated these patents under 101 in the wake of Alice and Bilski. But we have also seen some troubling decisions where Alice has been misapplied to invalidate patents directed to real technology, rather than abstract business concepts.

Docket Navigator data suggests that in 2015, we could see more than 150 patent cases in district courts, arguing the patents are invalid on 101 grounds – and if the current trends continue, the patent would be invalidated in as many as 111 of those cases. These trend lines are troubling. With more than $50 billion in software research and development incentives at stake, it is imperative that the Federal Circuit make a course correction and send a clear signal that software-based technology is eligible for patent protection.

McRO v. Activision Blizzard – An Opportunity

Fortunately, the Federal Circuit has an opportunity to provide much-needed guidance to the lower courts in the upcoming McRO v. Activision Blizzard appeal. The McRO patents describe a computerized process for “automated rules-based use of morph targets and delta sets for lip-synchronized three-dimensional animation” that was a significant improvement over computer-aided processes previously used in the industry.

In this case, the Federal Circuit will use the Mayo and Alice decisions to guide their ruling. The Mayo and Alice decisions set forth a two-step analysis for eligibility:  First, the court must “determine whether the claims at issue are directed to” an ineligible “abstract idea, law of nature, or a natural phenomenon.”  If so, the court must then consider the elements of each claim to determine whether they contain sufficient detail and additional limitations “to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”

The lower court began its eligibility analysis in McRO v. Activision by noting that “[f]acially, these claims do not seem directed to an abstract idea. They are tangible, each covering an approach to automated three-dimensional computer animation, which is a specific technological process.”  However, instead of stopping there and recognizing that the patents did not involve an “abstract idea,” the court proceeded to invalidate them based on its conclusion that the claims covered nothing significantly more than the abstract idea of “using a rules-based morph target approach” to accomplish “automatic lip synchronization for computer-generated 3D animation.”

As we argue in our brief, reaching this counterintuitive (and seemingly counterfactual) conclusion required fundamental errors in applying both steps of the Alice analysis.

Step One – Are the claims directed to an abstract idea?

The claims at issue are directed to a specific, practical and useful improvement to an existing technological process.  Claim 1 of the ‘576 patent reads:

A method for automatically animating lip synchronization and facial expression of three-dimensional characters comprising:

obtaining a first set of rules that define output morph weight set stream as a function of phoneme sequence and time of said phoneme sequence;
An apparatus for automatically animating lip synchronization and facial expression of three-dimensional characters comprising:
obtaining a timed data file of phonemes having a plurality of sub-sequences; generating an intermediate stream of output morph weight sets and a plurality of transition parameters between two adjacent morph weight sets by evaluating said plurality of sub-sequences against said first set of rules;
generating a final stream of output morph weight sets at a desired frame rate from said intermediate stream of output morph weight sets and said plurality of transition parameters; and
applying said final stream of output morph weight sets to a sequence of animated characters to produce lip synchronization and facial expression control of said animated characters.

Clearly, this claim describes a concrete, real-world innovation that solves the difficult problem of accurately replicating the human face and speech in CGI and animation.

So how did the lower court conclude that it recites nothing more than an abstract idea?  It did so by reversing the order of Alice’s two analytical steps and by collapsing them into a single inquiry.

Rather than first determining whether the claim as written was directed to an abstract idea and then assessing the claim’s “additional element” to determine whether they add significantly more to the idea, the court began by seeking to uncover the “abstract idea” lurking underneath the claim language by stripping away all elements that were known in the prior art in an attempt to discover the claims “point of novelty.”

Step Two – Does the claim contain additional elements that ensure the patent amounts to “significantly more” than the underlying abstract idea?

The lower court’s application of step-two is equally misguided and problematic. In step two of the Alice test, the court must assess whether the “additional elements” (i.e., any element beyond the abstract idea itself) places meaningful limitations on the scope of the claim.

In describing step two, the Supreme Court stated in Mayo that “well-understood, routine, conventional activity” previously used in the field “is normally not sufficient to transform an unpatentable [abstract idea] into a patent-eligible application . . . .”  In other words, it is not generally “enough” simply to append routine, conventional steps – described at a high level of generality – to the abstract idea.

Unfortunately, the lower court fundamentally misinterprets this statement to mean that only novel elements (rather than all “additional elements”) should be considered for purposes of the “significantly more” analysis.  The court then proceeds (yet again) to read all of the additional elements out of the claim because they lack sufficient novelty.  Unsurprisingly, once all of the additional limitations recited in the claim are stripped away, all that is left is the abstract idea, leading the court to conclude that the claim fails the “significantly more” test.

This approach lacks any basis in the case law and ignores the fundamental difference between what is “known” in the prior art and what is “conventional” in industry practice.  For something to be conventional it must not only be known, but widely-adopted. Put simply, the fact that space travel is “known” in human society by no means makes it a “conventional” practice.

Conflating these two concepts and disregarding any element that has a basis in the prior art makes it virtually impossible to satisfy step two.  As the Supreme Court recognized in Mayo, “all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas,” and as a result “too broad an interpretation” of these implicit exclusions from eligibility would “eviscerate patent law.”

The approach taken by the lower court would fulfill this dismal prophesy.  As Judge Pfaelzer noted in a subsequent decision, “it is difficult to imagine any software patent that survives under McRO’s approach—most inventions today build on what is known in the art, and an improvement to software will almost inevitably be an algorithm or concept which, when viewed in isolation, will seem abstract. This analysis would likely render all software patents ineligible, contrary to Congress’s wishes.”

The Federal Circuit must be clear and decisive in nipping this in the bud. In deciding McRO, not only should they overrule the lower court’s erroneous conclusion, but they should take care to provide additional guidance regarding the correct application of the Alice test to avoid similar misapplication in other cases. This would provide much-needed clarity and certainty to patent holders and industries that rely on technology and software patents, shoring up our economic competitiveness and maintaining more than 2.5 million American jobs.


BSA’s members include: Adobe, Altium, Apple, ANSYS, Autodesk, Bentley Systems, CA Technologies, CNC/Mastercam, Dell, IBM, Intuit, Microsoft, Minitab, Oracle, PTC,, Siemens PLM Software, Symantec, Tekla, The MathWorks, and Trend Micro.


Briefs Filed Thus Far:

Judge Stark Set to Reduce (and Potentially Eliminate) Intellectual Ventures’ $17m Verdict Award

Fri, 03/06/2015 - 13:11

In February 2015, a Delaware Jury sided with Intellectual Ventures in its case against Symantec — finding that the security software company was infringing two IV patents and awarding $17 million in damages. U.S. Patent Nos. 6,073,142 and 5,987,610.

In an interesting post-verdict letter, Judge Stark has noted that the damages may have to be reduced because of the lack of evidence that the patented features “drove demand” for the accused products. [1-10-cv-01067-LPS-691-PRIMARY DOCUMENT]. I should note here that the letter is expressly not (yet) an order.

At trial, Intellectual Ventures damages expert (Michael Wagner) took the risky strategy of presenting only testimony relating to damages under the entire market value rule and did not offer a fallback reasonable royalty position.  That approach kept choices simple for the jury, but now it seems that the entire-market-value calculation likely lacks sufficient supporting evidence. If that testimony is disregarded then the only fall-back position is the damage evidence presented by Symantec’s expert.  Although that figure is currently under seal, it is most certainly significantly less than the $17 million award.

Judge Stark has also ordered post-trial briefing on whether the asserted claims lack patentable subject matter under Section 101 with the hope of resolving that issue before a second trial where IV is asserting the same patents against Trend Micro.  Obviously, a Section 101 ruling could eliminate the damage award in full.

= = = = =

About half of the award was associated with Symantec’s infringement of Claim 7 of the ‘610 patent. Claim 7 is a dependent claim (from claim 1), but I have rewritten it below in its equivalent independent form:

7. A virus screening method comprising the steps of: routing a call between a calling party and a called party of a telephone network; receiving, within the telephone network, computer data from a first party selected from the group consisting of the calling party and the called party; detecting, within the telephone network, a virus in the computer data; and in response to detecting the virus, inhibiting communication of at least a portion of the computer data from the telephone network to a second party selected from the group consisting of the calling party and the called party; and further comprising the step of determining that virus screening is to be applied to the call based upon at least one of an identification code of the calling party and an identification code of the called party.

Patent Litigation Data – March 2015

Thu, 03/05/2015 - 16:22

By Jason Rantanen

One of the main pieces of empirical data being drawn upon by folks arguing for and against various patent law reform proposals is the rate of new patent lawsuit filings.  As the intellectual property scholars’ letter to Congress recently observed, while there were fewer patent lawsuits filed last year than in 2013, that year was itself a record-setting year for patent lawsuit filings.  Professor Matthew Sag’s new study, IP Litigation in the United States District Courts: 1994 to 2014, illustrates the point of rising patent litigation dramatically: in the sixteen years from 1994 until 2010, the annual number of patent lawsuit filings doubled; it doubled again in the three years from 2010 to 2013.

While Professor Sag’s study provides a comprehensive empirical look at intellectual property litigation rates across all areas, over at Lex Machina legal data scientist Brian Howard has dug deeply into the patent lawsuit filing rate numbers to examine whether the America Invents Act led to a reduction in patent lawsuit filings once the anti-joinder provision of the AIA is accounted for.  Even when  controlling for the disaggregation of multi-defendant suits, he finds a rise in patent lawsuit filings during the two years after the enactment of the AIA.  While the more recent period has seen filings turn downward, his findings about the short term effects of the AIA are surprising and worth thinking about further.

Finally, as I’ve noted in the past, I find it useful to think not just about new patent lawsuit filings, which can provide a barometer of future patent litigation activity, but also about currently pending patent litigation and lawsuit termination rates.  In my view, these provide a better (although still imperfect) gauge of what kind of patent activity courts are presently seeing.  Figures 1 and 2 below are updated versions of the pending patent lawsuit data that I’ve previously written about.

Figure 1

Figure 2

The bottom line for this data is that while pending patent litigation remains below the all-time highs of the late 2013’s and early 2014, this activity has plateaued over the last few months and even rose slightly in February.  Digging a bit under the hood of the data, this rise appears due an increase in filings over that month as opposed to a drop in terminations, with February 2015 seeing about 500 new patent cases filed—a rise of 69 over January despite the shortness of the month.  Given the close attention that is paid to patent lawsuit filing rates, I suspect that this is a point that will be jumped on by many.  The below graph shows the number of patent actions filed, using LexMachina data, on a monthly basis from August 2014 – February 2015.

Figure 3

Guest Counterpoint: Patent Exhaustion and Helferich’s Assertion Problem

Thu, 03/05/2015 - 13:14

Guest Post by Professor Amelia Smith Rinehart (University of Utah)

Recently, the Federal Circuit held that the New York Times and others infringed patents claiming methods and systems for delivering content to smartphones.[1] In a related Patently-O essay, Professor Sam Ernst states that the Federal Circuit’s opinion in Helferich is “directly contrary to Supreme Court precedent and represents a fundamental misunderstanding of one of the core purposes of the exhaustion doctrine.”[2] To support his premise, Ernst claims that the Federal Circuit made “a broad and novel pronouncement that patent exhaustion only shields an authorized acquirer from liability, and does not follow the licensed device down the stream of commerce to protect all users of the device for its intended purpose.” [3]

I respectfully disagree. There is nothing broad or novel about the Federal Circuit’s “authorized acquirers” concept. In fact, as the Federal Circuit explains in Helferich, it comports with 150 years of judicial authority examining the patent exhaustion doctrine in a variety of contexts.[4] Likewise, Helferich squares directly with the Supreme Court’s recent exhaustion decisions in Quanta Computer v. LG Electronics[5] and Bowman v. Monsanto Co.[6] More surprising, perhaps, may be the fact that this is so—that Helferich could win infringement suits against New York Times and J.C. Penney based on their provision of content to smartphones that were already licensed by Helferich.[7] Accordingly, the difficulty with Helferich is not that the Federal Circuit stretches the exhaustion doctrine in a new way, but that the doctrine, in its old way, fails to provide an easy way to remove infringement liability in an increasingly complex world of patent assertion.

In his well-reasoned post, Professor Ernst contends that the exhaustion doctrine “has frequently applied to shield from liability persons who are not ‘authorized acquirers’ of the licensed devices,” and looks to both Quanta and the much older Motion Picture Patents v. Universal Manufacturing Co. for support. In my view, neither of these cases provides authority for applying the exhaustion doctrine directly to third parties who have not acquired the sold articles.

Quanta involved a license agreement that authorized the licensee to make, use, and sell the licensed products without restriction. In a separate agreement, the licensee agreed to notify its customers that they did not have a license to combine the licensed products with other non-licensed components. The Supreme Court held that the notice restriction was irrelevant because the licensee had a blanket authorization to make, use, and sell the licensed products. Once made then sold under this first authorization to make, sell, and use, the licensed products could be used by anyone downstream without liability for infringement on the grounds of exhaustion, including those purchasers who had notice of the separate notice restriction.[8] In Quanta, the purchasers of the licensed products—the customers of the licensee, Intel—were authorized acquirers (having acquired title to the products from one authorized to make and sell them unconditionally) shielded from liability when the patent owner sued them for infringement. The Quanta Court did not have to address the question of whether a third party who has not acquired title to a licensed product is shielded from direct liability for its own infringement by an authorized acquirer’s unlimited right to use and sell the patented good obtained via exhaustion.

Motion Picture Patents provides a more nuanced account of the exhaustion doctrine, but still involves authorized acquirers shielded from infringement liability.[9] The patented movie projectors in Motion Picture Patents carried a label notice that restricted the projector owner’s permission to use the projector to use solely with the patent owner’s films. After the patent owner sued a projector owner and a third party film manufacturer for infringement, the Court held that the projector patent rights were not infringed because of exhaustion. The label notice was not enforceable as a matter of patent law because the films were not within the patent rights in question—“to enforce [the label notice] would be to create a monopoly in the manufacture and use of moving picture films, wholly outside of the patent in suit and of the patent law as we have interpreted it.”[10] The projector owner clearly qualified as an authorized acquirer (with an invalid restriction on use) and avoided infringement liability because the authorized projector sale exhausted the patent rights covering those projectors.

Professor Ernst seems to extrapolate from the Motion Picture Patents opinion (which admittedly is unclear on this point) that the third party film manufacturer could not be liable for infringement of the projector patents because it made and sold films for use in the projectors obtained from the patent owner in an authorized sale. In other words, Professor Ernst reads Motion Picture Patents to hold that exhaustion shielded the film manufacturer from liability because otherwise the patent owner could interfere with a projector owner’s use of the machines themselves.[11]

But Motion Picture Patents doesn’t go that far. The questions addressed by the Supreme Court both focus on whether the patent owner can restrict by mere notice a machine’s use by its purchaser or his successors in interest.[12] Later in its opinion, the Supreme Court distinguishes the machine from the materials to be used with it, declaring that “the right of the owner [of the machine] . . . to control by restriction the materials to be used in operating [it] . . . must be a right derived through the general law from the ownership of the property in the machine.”[13] Plainly, the Court applies the exhaustion doctrine to the possessor of the projector, a patented good now in commerce and owned free and clear from the patentee’s right to control the use and sale of the good itself. Therefore, I believe the better view of Motion Picture Patents is that the film manufacturer would’ve been liable, if at all, on a theory of contributory infringement. When the label notices could not be enforced, the sales of the projectors exhausted the projector patent rights as to those machines, and the film manufacturer could produce unpatented film for use in any of the sold machines without contributing to or inducing any infringement by the machine users.

Like the projectors in Motion Picture Patents, goods can travel through many hands downstream from the first authorized acquirer of title to the good. Nothing in Helferich indicates that the Federal Circuit is construing its “authorized acquirer” concept so narrowly as to exclude a good’s future owner (no matter how that downstream party obtained the good) from claiming exhaustion as a defense, should that good’s owner be charged with infringement by use or sale. Rather, the Federal Circuit seems to be unremarkably suggesting that an alleged infringer cannot assert an exhaustion defense unless she has acquired a good from the patent owner (directly or indirectly through someone with authorization to make and sell) that exhausts the claims at issue. Difficult questions may arise as to whether the good was acquired without condition on sale, whether the good’s sale exhausts claims to methods or combinations, whether any post-sale restrictions on the good are enforceable, and so on, but those questions are not at issue in the Helferich appeal.

When Professor Ernst states that “patent exhaustion adheres in the patented device, not in ‘certain persons’ who are authorized to use the device,” he might be conflating the exclusive rights of a patent with the exclusive rights of a purchased good, a conundrum that itself supports the existence of the patent exhaustion doctrine in the first place. Patent exhaustion is a defense to patent infringement. As such, it belongs to juridical persons accused of infringement (people, corporations, etc.), not the good itself.[14] Although we might talk in shorthand about the patented good traveling in commerce unencumbered by patent rights, a patent grants to its owner the right to exclude others (people, corporations, etc.) from infringing the patent. The purchaser of a good holds the rights inherent to the good as a piece of personal property. When the good is patented, these rights overlap. The doctrine of patent exhaustion emerged to reconcile that overlap in favor of the purchaser (and downstream acquirers, too) when it comes to using and selling a patented good acquired from an authorized seller: “one who buys patented articles of manufacture from one authorized to sell them becomes possessed of an absolute property in such articles, unrestricted in time or place.”[15] If the patented good is bought from someone unauthorized, if the transfer of the good’s title is conditional, if the good carries a post-sale restriction, then the purchaser may not be able to avail itself of the exhaustion defense. Thus, it is true that “patent exhaustion removes those legal restrictions [imposed by the patent statute] on certain persons in certain circumstances”[16]

The Federal Circuit makes Helferich look easy (and much less groundbreaking than Professor Ernst suggests) by assuming that Helferich controls separate and distinct patents from an exhaustion standpoint. The court holds that Helferich’s content claims are distinct patentable inventions from its handset claims, and, importantly, the allegedly infringing content providers are distinct infringing entities from the handset owners. This enables the court to affirm that exhaustion does not apply to “multiple related and separately patentable inventions” in this manner, without addressing the possibility offered by Professor Ernst that the exhaustion doctrine’s protection of downstream uses of a purchased good might inure to third parties who practice a claimed invention simply referencing a downstream device.[17]

During the parties’ oral arguments, all three judges asked both sides to consider that more difficult question of whether exhaustion would apply to the third party content providers if the content and handset patents were not separate and distinct. The plaintiffs not surprisingly answered no, that third parties not in possession of the patented good could not benefit from the exhaustion defense. The defendants admitted that no case existed on this point, but that cases like Hewlett Packard and Keurig, Inc. v. Sturm Foods, Inc. held that claims contemplating that an alleged infringer interferes with the use of a patented good would suffice to trigger exhaustion as to that third party.[18] In its opinion, the court confirmed that third party exhaustion was a question of first impression— “[n]either the parties nor we have identified any case from the Supreme Court that has found exhaustion without this common feature [of an authorized acquirer infringing the asserted claims].” Then, distinguishing the Keurig case directly, the court held that an alleged infringer who does not acquire the relevant patented good in an authorized manner cannot claim an exhaustion defense for his own direct infringement.[19]

Professor Ernst concludes that “[a] primary reason why patent exhaustion liberates the patented device from infringement claims is to promote the policy against restraints on alienation.” This notion obviously relates to the restrictions that factored so heavily into the early cases about exhaustion: territorial restrictions, post-sale restrictions, and tying restrictions like the ones in Motion Picture Patents. The holding in Helferich does not, as Professor Ernst urges, “threaten to impose a servitude on devices as they pass down the stream of commerce” because a downstream acquirer of the device can fully avail himself of the defense due to his property rights in the device. Judge Bryson’s walkie-talkie owner can sell his walkie-talkie, use it as an expensive paperweight, or otherwise dispose of it as he sees fit without fear of suit from the patent owner. In contrast, Helferich may continue to bring its infringement claims because these alleged infringers cannot avail themselves of a patent exhaustion doctrine defense. In my view, the Federal Circuit gets it right on the law from Quanta and earlier cases. Indeed, the court recognizes that to hold otherwise would expand the judicial doctrine.[20]

Unfortunately, the exhaustion doctrine presently can’t regulate what is most troubling about Helferich: the patent owner’s licensing practices. Helferich is a patent assertion entity that generates revenue from handset device licensing, making all handset device owners authorized acquirers of its patented goods. Yet, Helferich also intends to generate revenue from content licensing that allows companies like the New York Times, J.C. Penney, CBS, and others to provide content to those same handsets. It cannot do so unless it can threaten these companies with infringement. In this manner, Helferich wields what Justice Clarke in Motion Picture Patents called “a potential power for evil over an industry which must be recognized as an important element in the amusement life of a nation. . .”[21] Like the patent owners in that case, Helferich sells its machines and attempts to prohibit their use with content providers not authorized by Helferich. Unlike the patent owners in that case, Helferich’s content provision claims are independently patentable (or so the Federal Circuit determined based on the limited evidence before it) and, even if they were not, the content providers themselves (who do not use or sell the purchased handset devices) are not subject to the exhaustion doctrine based upon those claims.[22] Confirming the Court’s recent decisions in Quanta and Bowman, the class of “certain persons in certain circumstances” who can avail themselves of the patent exhaustion defense remains bound up in questions of what is used and sold, who bought the things used and sold, and what conditions are placed on that use or sale. None of these relevant limitations are apparent in Helferich.

Nevertheless, Professor Ernst is right to balk at carte blanche enforcement of these patents. The patent exhaustion doctrine fails to eliminate infringement liability for the defendants in Helferich, but the case offers an opportunity for scholars, courts, and other policymakers to reexamine the underlying goals of patenting along with mechanisms within patent law and antitrust law, like the narrowly applied exhaustion doctrine, that may promote or impede those goals in the context of patent assertion entities.[23]

—– notes —–

[1] Helferich Patent Licensing Co. v. New York Times Co. (Fed. Cir. Feb. 10, 2015).

[2] Samuel F. Ernst, The Federal Circuit’s New Authorized Acquirer Restriction on Patent Exhaustion, Patently-O blog, available at

[3] Id.

[4] Helferich, slip op. at 18.

[5] Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008).


[7] Helferich, slip op. at 7.

[8] Quanta, 553 U.S. at 638.

[9] Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917).

[10] Id.

[11] See Hewlett-Packard Co. v. Repeat-O-Type Stencil Mfg. Corp., Inc., 123 F.3d 1445 (Fed. Cir. 1997). Counsel for the Helferich defendants argued that the concept of interference with use laid out in Hewlett-Packard, a case about printer cartridge refilling, laid the grounds for a third party’s assertion of an exhaustion defense despite not owning the article sold. See Oral Argument, available at

[12] Id. at 508–509.

[13] Id. at 513.

[14] See 35 U.S.C. § 271(a) (2012) (“whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.”) (emphasis added).

[15] Keeler v. Standard Folding Bed Co., 157 U.S. 659, 666 (1895).

[16] Helferich, slip op. at 18.

[17] Helferich, slip op. at 17.

[18] Hewlett-Packard, 123 F.3d at 1455; Keurig, Inc. v. Sturm Foods, Inc., 732 F.3d 1370, 1374 (Fed. Cir. 2013).

[19] See Helferich, slip op. at 21 (“in contrast to Keurig, the present cases involve no assertion that the defendants are inducing or contributing to authorized acquirers’ infringement of the claims asserted against defendants.”)

[20] Id. at 29. Bowman further supports a goods-based view of exhaustion. There, the patented technology could self-replicate, meaning a use of the patented invention also made the patented invention. The Supreme Court held that an authorized sale only exhausted the right to use and sell the patented invention, not the right to make the invention, and so the second generation seed, despite being a product of a use of the first generation seed, infringed the patent when a farmer used it to grow (make) a third generation seed. Bowman, __ U.S. at __.

[21] Motion Picture Patents, 243 U.S. at 514–15.

[22] Notably, the films in Motion Picture Patents were also independently patentable, but the patent had expired before Universal began supplying film to the projector in suit. See Motion Picture Patents Co. v. Universal Film Mfg. Co., 235 F. 398, 399 (2d Cir. 1916) aff’d, 243 U.S. 502 (1917). (“Reissued letters patent No. 12,192 expired subsequent to the execution of the license by the complainant to the Precision Machine Company. Thereupon the Universal Film Manufacturing Company made a film embodying that invention, and sold it to the Universal Film Exchange, who furnished it for use to the [projector owner].”

[23] See also Mark A. Lemley & Douglas A. Melamed, Missing the Forest for the Trolls, 113 Colum. L. Rev. 2117 (suggesting changes to improve the patent system generally, including revising patentability standards, remedies and fee-shifting in patent litigation, and importantly, using antitrust to limit anticompetitive patent dispersion).

Guest Counterpoint by Prof. Sichelman: The Innovation Act’s Fee-Shifting is Biased against Patent Holders and Will Likely Increase PAE Activity

Wed, 03/04/2015 - 11:22

Ted Sichelman is a Professor of Law and Director of the Technology Entrepreneurship and Intellectual Proerty Clinic and Center for Intellectual Property Law & Markets at the University of San Diego School of Law. 

Representative Bob Goodlatte’s bill, HR 9 (the “Innovation Act”), has been receiving much attention in the press and on the Hill. The Innovation Act is largely identical to the one (HR 3309) that passed the full House in late 2013, so of all the pending patent reform bills, it is likely to receive the most play in Congress this term.

The Innovation Act includes what seems to be a neutral fee-shifting provision. Specifically, it would require a court to “award, to a prevailing party, reasonable fees and other expenses … unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust.”

Unfortunately, many commentators have focused the issue of whether this provision creates a presumption in favor of fee-shifting without carefully considering the many affiliated provisions in the bill. These additional provisions are particularly important because—contrary to the language quoted above—they significantly skew the effects of fee-shifting against patent holders. Given this lopsided effect, the fee-shifting provisions would probably increase patent assertion entity (PAE) activity. As I explain further below, this is because the provisions would most likely substantially reduce PAEs’ costs of acquiring patents.

A close reading of these additional fee-shifting provisions makes their skewed nature readily apparent. Take, for instance, the provision for “interested” third-party liability. It essentially makes those with a “direct financial interest in the patent . . . damages [award] or . . . licensing revenue” liable in the event a losing patent holder cannot pay a fee award (subject to certain exclusions). By its terms, the third-party liability provision only benefits “a prevailing party defending against an allegation of infringement of a patent claim” (emphasis added). So while third-party liability is quite expansive for those affiliated with losing patent holders, it is nonexistent for those affiliated with losing accused infringers.

Beyond discriminating against patent holders, the third-party liability provision further discriminates against non-practicing patent holders. Third-parties may only be joined in the event that the “prevailing party shows that the nonprevailing party has no substantial interest in the subject matter at issue other than asserting such patent claim in litigation.” This limitation would clearly capture non-practicing entities (NPEs), at least those who do not perform any R&D—although whether and when R&D is sufficient to meet the “substantial interest” threshold is undefined in the statute and thus unclear. If fee-shifting is truly designed to reduce low-quality suits, there is little basis to limit third-party liability only to NPEs. Anyone who has litigated knows that practicing entities, like NPEs, bring both strong and weak suits. There is a substantial economic interest in preventing frivolous suits regardless of the plaintiff’s business model.

Another example of the skewed nature of HR 9 is that settlement counts as a win for the accused infringer when the patentee “unilaterally extends to [the accused infringer] a covenant not to sue for infringement,” unless the patentee could have voluntarily dismissed the action without a court order. My understanding from experienced litigators is that these unilateral covenants tend to occur when the patent holder simply runs out of money and cannot continue to litigate. In this case, courts will often force the patent holder to provide a covenant not to sue in exchange for allowing it to drop the action. Presumably a patent holder providing such a covenant would sometimes not be able pay a fee award, which—if the patent holder is non-practicing—would allow the court to impose judgment on qualifying “interested” third-parties. On the other hand, if an accused infringer goes bankrupt, leading to a default judgment, the patent holder cannot join interested third-parties of the accused infringer when attorneys’ fees are owed.

The upshot of these provisions is to massively skew fee-shifting against the interests of patent holders, leading to an asymmetric risk that would very likely cause risk-averse inventors and assignees to avoid directly enforcing their patents, sometimes even strong ones. This is especially so because patent litigation is highly uncertain and costly, and the relevant test in the provision is the fairly open-ended “reasonably justified in law and fact” standard. Indeed, “reasonable fees and other expenses” in patent cases can be quite high—in large cases, well over $5 million—which would generally be a huge sticker shock to small companies and individual inventors with limited resources. Even a small percentage chance of a paying these fees could deter risk-averse inventors and assignees. In my personal experience running and dealing with many startups and individual inventors, they often are very risk averse when it simply comes to paying their own litigation expenses, much less the opposing party’s fees.

Oddly, the asymmetric nature of the Innovation Act’s fee-shifting provision may have the very opposite effect of what it purports to achieve by reducing so-called “patent troll” suits. As others have argued, the reason is straightforward: PAEs can more easily absorb the risk of bringing suit in the face of potential fee-shifting than startups and individuals. As I already pointed out, startups, individual inventors, and small companies are generally highly risk-averse patent holders. They would therefore fear liability being imposed on them for the direct enforcement of their patents (or if they simply retained an “interest” in a patent that was enforced by a third-party). As such, they would be more likely to sell their patents outright to PAEs instead of retaining a percentage in the litigation (as is standard today).

In fact, PAEs and their funders have already become savvy in this regard and often use single-purpose litigation entities with passive equity investors who cannot “influence, direct, or control” the litigation, removing these investors from liability under the Innovation Act. This approach makes the risk that the plaintiff would not be able to pay fee awards even more acute, leaving the original inventors on the hook if they retain a percentage stake of the proceeds (or probably even an equity stake in the single-purpose entity, because arguably the inventors can “influence” the litigation via their direct involvement). Indeed, even large companies and universities that monetize their patents via PAEs may decide to sell their patents outright to these PAEs, rather than retain a percentage stake, because of the unnecessary risk of placing their assets on the line. (Although the Innovation Act contains an escape valve whereby third parties can renounce all interest in the patents and avoid liability, it must be done very soon after a complaint is filed, which makes it of little use in a typical PAE deal.)

This shift from percentage deals to outright purchases would likely substantially drive down PAE patent acquisition costs. Because independent inventors and startups are risk averse—and some larger companies and universities likely are as well—these entities would expand the number of patents available for direct purchase by PAEs. This would likely push costs low enough that PAEs could afford to acquire much larger pools of patents, thereby increasing PAE assertions and reducing funds remitted back to original inventors and assignees.

Conversely, even though the Innovation Act is highly biased in favor of accused infringers, a risk-neutral PAE or large practicing patentee may be able to extract greater settlements from risk-averse accused infringers, such as startups and small companies, by credibly threatening to take a strong case to trial. This is contrary to the poorly reasoned analysis by organizations such as the Electronic Frontier Foundation, which wrongly assumes that PAEs are “patent trolls” that file “weak” suits and also seemingly forgets small companies are regularly sued by larger competitors. Thus, the Innovation Act’s fee-shifting provisions could very well hurt small companies and startups that are defendants accused of infringement.

In sum, the gains from the Innovation Act’s fee-shifting provision, may simply go to large, risk-neutral companies, regardless of whether they are the Intellectual Ventures or Ciscos of the world, just as scholarly analysis has shown how fee-shifting operates in other areas of the law. Perhaps that is why it is not a coincidence that the Intellectual Property Owners Association , which is dominated by large companies, does not oppose it, while the National Venture Capital Association effectively does oppose it. Like the America Invents Act, the Innovation Act’s fee-shifting provisions would probably shift today’s innovation footprint away from the radical and disruptive (associated more with startups and individuals) towards the incremental (associated more with large, established companies).

There is no solid evidence that the potential benefits of the Innovation Act’s biased fee-shifting provision would outweigh its likely substantial costs. These costs could be so large that that even if we include the touted benefits from all of the other provisions in the Innovation Act, some of which could prove useful, I doubt the Act is worth it. In the very least, we should not impose radical and potentially very costly changes in the patent system without very good evidence. As such, anyone who cares about innovation as a whole should oppose the Innovation Act as it stands.

Patently-O Bits and Bytes

Tue, 03/03/2015 - 14:39

Information and events.

New Jobs Posted in Patently-O Jobs. Target your hiring with Patently-O.

The Strong Patent Act of 2015 from Senator Coons

Tue, 03/03/2015 - 11:43

by Dennis Crouch

Senator Coons is expected to introduce his competing patent reform bill into the Senate this week under the title Strong Patents Act.  As the name suggests, these provisions here tend to strongly favor patent holders.  With his usual understated tone, Herb Wamsley writes that Coons’ bill “will differ substantially from Rep. GOODLATTE’s bill H.R. 9.”  In the current political state, this provision has no hope of being enacted. However, I suspect that supporters of provision see it as having strong gridlock-creating potential.

The following is a fairly high-level review of the particular proposals as well as a link to the text of the bill.

[STRONG Patents Act of 2015]

Provisions related to PGR/IPR/Reexams: 

Claim Construction during Post-Issuance Review Proceedings shall be according to the “ordinary and customary meaning” and in the same way that a court would construe the claim in an action to invalidate a patent.  This provision would have the beneficial impact of better-linking the parallel court and PTO proceedings.  The provision would also make it more difficult for the PTAB to invalidate patents because the claims would no longer be given their broadest reasonable interpretation.

Amendments to the Claims during Post-Issuance Review Proceedings will be allowed if “reasonable.”

Presumption of Validity will Apply to patents being challenged in post-issuance review proceedings such that unpatentability of a previously issued claim would require clear and convincing evidence.

Standing to File Post-Issuance Review Proceedings will be limited to only entities charged with infringement.

In Response to a Post-Issuance Review Petition, the patentee will be allowed to submit supporting evidence.

Separating the Two Steps of Post-Issuance Review Proceedings: Under the proposed law, a PTAB judge who participates in the decision to grant a PGR/IPR petition will not then be allowed to decide the merits of the case.

Blocking Anonymous Petitions: The proposed law would allow the patentee to discover the real party in interest associated with the filing of either a reexamination or an PGR/IPR petition.

A One Year Deadline will be instituted for filing requests for ex part reexamination triggered by service of a complaint alleging infringement.

Civil Procedure:

Form 18 is to be eliminated.

USPTO Funding:

Fees collected by the USPTO will be made available to the Director until expended including past each fiscal year.


The Punitive Damages Provision would be amended to allow the court “in its discretion” to treble damages “upon determining, by a preponderance of the evidence, that the infringement was willful or in bad faith.”

Inducement of Infringement becomes a cause of action as outlined by the Federal Circuit in Akamai. This would effectively overrule the Supreme Court’s decision in the case.


The provision would fix a seeming gap in the current micro-entity status requirements that don’t actually allow universities to claim micro-entity status (for a 75% fee reduction) but instead only those with a duty to assign rights to the university.

Rogue and Opaque Demand Letters:

The new law would specify that certain bad-faith demand letters are unlawful under the FTC Act and the FTC would have power to enforce the law with a maximum penalty of $5 million.

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The Rewards From Effective Reform Could Be Great

Tue, 03/03/2015 - 06:35

A group of 51 intellectual property scholars have submitted the following letter to Congress with the conclusion that “a large body of evidence . . . indicates that the net effect of patent litigation is to raise the cost of innovation and inhibit technological progress.” – Dennis

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To Members of the United States Congress:

We, the undersigned, are economics and legal scholars who study innovation, intellectual property law, and policy. We write to respond to lobbyists and others who claim there is little empirical evidence available to assess the performance of the American patent system. In fact, a large and increasing body of evidence indicates that the net effect of patent litigation is to raise the cost of innovation and inhibit technological progress, subverting the very purpose of the patent system. As members of Congress debate reforms to improve the patent system we hope they appreciate the failings of the current system, and implement salutary reforms.

Over the last five years, academic researchers have published over two dozen empirical studies on patent litigation and its economic impacts (see the attached bibliography for a selection). These studies have been conducted by researchers with diverse views and using different methodologies.

The preponderant economic picture these studies present is that patent litigation now imposes substantial costs, particularly on small and innovative firms, and that these costs have tended overall to reduce R&D, venture capital investment, and firm startups. Not one study of the economic impact of current patent litigation concludes that the effects are negligible.

The number of defendants in patent lawsuits filed in 2009 was five times the annual number during the 1980s. By most tallies, the majority of lawsuits are now filed by so-called “patent assertion entities” (PAEs), popularly known as patent trolls. Estimates based on surveys, on firm 10-K filings, and on stock prices suggest that PAE litigation has been costing firms tens of billions of dollars per year since 2007. Startups and venture-backed firms, especially, report significant operational impacts from PAE lawsuits in survey-based studies. An econometric analysis finds that the more R&D a firm performs, the more likely it is to be hit with a patent lawsuit, all else equal. Another study associates lawsuits from PAEs with a decline of billions of dollars of venture capital investment; another found that extensive lawsuits caused small firms to sharply reduce R&D spending; and yet another 2 found that costly lawsuits caused publicly listed defendant firms to substantially curtail R&D spending.

Although each of these studies has limitations and none is conclusive by itself, a consistent picture emerges: the patent system provides strong protection without excessive litigation in some sectors such as pharmaceuticals, but substantial evidence highlights serious problems with patent litigation in many other industries. Even if the patent system on the whole promotes innovation, it does so despite the social costs that result from this litigation, not because of it.

Congress, the courts, and the Patent and Trademark Office have all made changes in recent years that help mitigate this problem. The Inter Partes Review and Covered Business Method proceedings established by the America Invents Act of 2011 have helped remove hundreds of invalid patents, many already involved in litigation. Supreme Court decisions have strengthened patentability standards and have somewhat lowered the hurdles to feeshifting in patent cases. Perhaps as a result, patent lawsuit filings declined modestly last year from the record setting level of 2013. While month-to-month comparisons are variable, 18% fewer patent lawsuits were filed last year than in 2013.

Nevertheless, patent litigation rates remain at detrimentally high levels. Indeed, much of the empirical research mentioned above covers periods prior to the last several recordbreaking years for patent litigation. That is, the research demonstrates that patent lawsuits were already harming innovation when litigation rates were significantly below current levels. In this light we are not surprised that a growing chorus of high-tech entrepreneurs and state attorneys general has stepped forward to urge that the patent system should work for innovators and not against them. Though we understand that crafting and implementing effective reform will be difficult, we write to emphasize the rewards from effective reform could be great.


Clark Asay (BYU); Carliss Baldwin (Harvard Business); James Bessen (BU); Jeremy Bock (Memphis); Michele Boldrin (Wash U Econ); Michael Burstein (Yeshiva); Andrew Chin (UNC); Lauren Cohen (Harvard Business); Wesley Cohen (Duke Business); Kevin Collins (Wash U); Jorge Contreras (Utah); Robert Cook-Deegan (Duke Public Policy); Ben Depoorter (Hastings); Samuel Ernst (Chapman); Robin Feldman (Hastings); Lee Fleming (Berkeley); Roger Ford (UNH); Brian Frye (Kentucky); William Gallagher (Golden Gate); Shubha Ghosh (Wisconsin); Eric Goldman (SCU); Umit Gurun (UT Dallas Business); Bronwyn Hall (Berkeley Econ); Christian Helmers (SCU Business); Joachim Henkel (Technische Business); Cynthia Ho (Loyola Chicago); Herbert Hovenkamp (Iowa); Ben Klemens (U.S. Census); Scott Kominers (Harvard Fellow); Amy Landers (Drexel); Mark Lemley (Stanford); David Levine (Wash U Econ); Yvette Liebesman (SLU); Brian Love (SCU); Phil Malone (Stanford); Michael Meurer (BU); Joseph Miller (Georgia); Ira Nathenson (St. Thomas); Jacob Rooksby (Duquesne); Pamela Samuelson (Berkeley); Sharon Sandeen (Hamline); F.M. Scherer (Harvard Gov’t); Roger Smeets (Rutgers Business); Talha Syed (Berkeley); Alexander Tabarrok (George Mason Econ); Toshiko Takenaka (UWash); John Turner (Georgia Econ); Ryan Vacca (Akron); Eric von Hippel (MIT Management); Jonathan Williams (Georgia Econ). 

Apple-Samsung Lawsuit Raises Important Questions about Scope of Injunctions

Tue, 03/03/2015 - 00:24

Guest Post by Professor Daryl Lim (John Marshall Law School)

Apple and Samsung will once again lock horns at an appeals court. Apple is seeking a permanent sales ban on patented features contained in Samsung’s Galaxy S3 smartphone and nine other older smartphone models. The U.S Court of Appeals for the Federal Circuit, which will hear the oral arguments on March 4, had earlier ruled that those seeking injunctive relief must show a “causal nexus” between the infringement and the asserted “irreparable” harm.

The patents cover user-interface designs for software covering the “autocorrect,” “slide to unlock,” and “quick link” features. A lower court ruled (ruling here) that Apple had failed in carrying its burden to show the infringed features drove consumer demand for Samsung’s products. It also rejected Apple’s argument that its reputation had suffered “irreparable” harm.


1. Feature-Based Injunctions

Apple has argued that the narrow ban it sought covering the infringing features should have been granted. A ban focusing on infringing features rather than whole products has much to commend itself. It better tailors the remedy to address the harm and comports with the equitable basis of injunctive relief. The need for proportionality also manifests itself in the requirement that courts weigh the relative hardships to the parties in deciding whether to grant or deny an injunction, as well as in deciding whether the injunction is in the public’s interest.

At the same time, Apple’s view that a nexus “necessarily” exists because its injunction is narrowly tailored leans too far in the other direction. That kind of categorical thinking was rejected by the Supreme Court in its seminal eBay decision, which required courts to undertake an approach that emphasizes a careful balancing of the effects of granting the request for an injunction. Google, LG and others also cautioned against it, warning that it would breed patent hold-ups, with smartphones typically containing 250,000 patents. Rather than devoting time and resources to develop new products or improving existing ones, companies could be consumed with waves of vexatious litigation by patentees seeking feature-specific injunctions.\

On the other hand, Nokia warned that the value of exclusive licenses turns on robust exclusion rights, and their absence “would devalue those patent rights and stifle incentives for further innovation.”  However, the Supreme Court has repeatedly held that the exclusive rights are a means to furthering the public interest by facilitating the dissemination of new and useful technology.  The proper remedy for infringement is monetary compensation; unless eBay standards are met. Sales bans are the exceptions to that norm.


2. Reputation as a Proxy for “Irreparable Harm”

Apple also sought to show that infringement by a rival would harm its reputation. According to Apple, this qualifies for “irreparable harm,” warranting an injunction. As with all cases for injunctive relief, the facts are crucial in providing the proper context for delineating the scope of its applicability.

Apple relied principally on Douglas Dynamics, where the Federal Circuit held that the patentee’s reputation as an innovator would be damaged if customers found the same features in snowplows sold by its rivals. The owner promoted this “easy on, easy off” feature in its advertising, and the infringer had marketed itself as the patentee at “half the price.”

Apple argues that Douglas Dynamics did not require patent-specific proof in finding reputational harm. But it cannot have it both ways. If Apple seeks a feature-specific injunction to remedy a specific harm, then it must also accept that the harm to reputation must be similarly linked to the patented feature. Injunctions are a response to threats of imminent harm. It will be difficult for Apple to show this nexus.

First, during the relevant period Samsung launched nine flagship devices containing features Apple did not offer, such as near field communications technology. The lower court found its products independently reputable.

Second, consumers are unlikely to link the patented features with Apple. In the same way an infringing cooling fan in a computer does not harm the innovator’s reputation as a computer maker, features such “quick link”, “slide to unlock” and “autocorrect” do not harm Apple’s reputation for making smartphones.    Moreover, Apple’s latest operating system, iOS7 has already abandoned features like the spot-specific “slide to unlock” feature.

Third, few would have missed Apple’s muscular pursuit of patent litigation. Its reputation cuts against the conclusion that “irreparable” harm has resulted from the infringement.


Fourth, its reputation as an innovator remains stellar. At $700 billion, Apple is the world’s largest company by market capitalization.


Fifth, if Apple is truly concerned about Samsung misappropriating its goodwill or consumer confusion, it is barking up the wrong tree. Trademark law, not patent law is Apple’s remedy to protecting its reputation.


This case represents one of the last in Apple-Samsung global litigation. Many in the tech world will watch with great interest where the Federal Circuit stands on both issues. Its pronouncements will define the final contours of the end-game.


Daryl Lim is an Assistant Professor at The John Marshall Law School where he teaches courses in intellectual property law as well as antitrust law.  In 2014, he was nominated “Professor of the Year”, and was one of 24 law professors worldwide nominated for a list of top 10 antitrust/competition law professors under 40 on the Antitrust & Competition Policy Blog. His latest article “Standard Essential Patents, Trolls, and the Smartphone Wars: Triangulating the End Game” may be found here.



USPTO Cancels Sensitive Application Warning System (SAWS)

Mon, 03/02/2015 - 17:30

by Dennis Crouch

USPTO management has announced the cancellation of its Sensitive Application Warning System (SAWS).  Writing in an internal email, Commissioner Focarino indicated that “the USPTO has decided to retire this program.”  This announcement is effective immediately and “applications currently in this program will now proceed through prosecution absent any additional SAWS-related processing.”

Focarino also promised that any future quality-enhancing initiatives on par with SAWS “will be disclosed to the public before implementation.”

As I wrote earlier, some ideas behind the SAWS Program offer potential benefits of better focusing resources. However, the downfall of the program was the lack of public accountability.  Congratulations to the USPTO for recognizing this issue and promising a more transparent future.

Focarino’s email alludes to the fact that the SAWS program began in 1994 – a time when pending applications were still kept secret.  “Today, unlike when the SAWS program was created, most applications are published eighteen months after submission, exposing them to public scrutiny and the potential for third-party submissions of prior art.”  Likewise, the public access has also pushed the USPTO further towards accountability in its operations.

[Update: Information has now been added to the USPTO website]

Trademark: Registration Void if Completed Prior to Actually Rendering Services in Commerce

Mon, 03/02/2015 - 15:22

by Dennis Crouch

David Couture v. Playdom (Fed. Cir. 2015)

In what may become an important trademark decision, the Federal Circuit has ruled that trademark registration requires actual use in commerce. 15 U.S.C. 1051.  For goods, this means that the goods must actually be sold or transported in commerce. For services, this means that services must actually be rendered in commerce.

Here, Couture’s PLAYDOM mark is being challenged by Playdom, Inc.  Couture’s commercial use of the mark including registration of the domain [] in a way that includes the offer of writing and video production services and a contact address. Couture did eventually provide services, but only well after the mark was actually registered.

Because no services had been provided as of the registration application date, the mark was deemed void ab initio and therefore cancelled

Intent to use: Trademark attorneys know that applications can be filed prior to use under the provisions allowing for an “application for a bona fide intention to use [ITU] trademark.”  The statute has particular provisions for that approach, including a timeline for proving actual use.  15 U.S.C. § 1051(b)(1).  Here, Courture failed to follow that approach and the Federal Circuit here affirmed the Federal Circuit rule barring substitution of an ITU application after registration.

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One of the traditional benefits of trademark law is that it has fewer disastrous pitfalls for the uninformed (as compared with patent law).  This case here will catch some unwary in its net.

USPTO Quality Summit

Sun, 03/01/2015 - 18:00

I’m looking forward to participating in the USPTO Patent Quality Summit March 25-26, 2015.  More info here:


Smartflash v. Apple: Is the Invention an Abstract Idea?

Fri, 02/27/2015 - 18:27

by Dennis Crouch

In the upcoming $500 million Apple v. Smartflash appeal, a central question will be whether the Smartflash patents properly claim eligible subject matter under 35 U.S.C. 101 as interpreted by Alice v. CLS Bank (2014).  (These issues will first arise in post-verdict motions before the district court).  If these claims are patent eligible, then Alice will ultimately have only a minor shift in the law.

Although there may be factual underpinnings, patent eligibility is generally thought to be a question of law that is decided by a judge rather than jury.  In this case, Apple motioned for summary judgment of ineligibility under the Alice standard.  That motion was first considered and rejected by Magistrate Judge Nicole Mitchell and then confirmed without opinion by Judge Rodney Gilstrap.

Lets look at the Smartflash claims. Claim 32 of U.S. Patent No. 8,118,221 is fairly indicative and claims a data access terminal that is designed to take-in data from a supplier and provides the data to a carrier.  The arguably novel features of the apparatus is found in the claimed software code that (1) receives payment data and payment validation; and (2) once payment is made then retrieving data and a “condition for accessing the data” from the supplier and send it to the carrier. The claim further points out that the condition is “dependent upon the amount of payment.” [Text of the claim is at the bottom].  That condition might, for instance, be that the data file (i.e.,  movie) is permanently accessible based upon a larger payment, but only available for a seven days based upon a smaller payment. The eligibility question will be whether this claim is effectively directed to an unpatentable abstract idea.

In Alice Corp., the Supreme Court explained a two step process for its abstract idea analysis. In step one, the court asks whether the claim is directed to or encompasses an abstract idea. For some, it appears that this approach involves considering the gist of the invention as claimed.  Thus, in Alice Corp., the Supreme Court saw that the claimed invention was directed toward the general idea of “mitigating settlement risk” even though the particular claim at issue involved more particularized elements. In step two, the court asks whether any of the specifically claimed elements or combination of elements in the claim are sufficient to ensure that the claim amounts to significantly more than the abstract idea itself.  Here, the question could be restated as to whether the claim in question includes an innovative or otherwise sufficient practical application of the aforementioned abstract idea.

In thinking through the claims at issue in Smartflash, the district court (through the magistrate judge) followed the two-step approach of Alice to ultimately find the claims patent eligible.

In step one, the district court sided with Apple – finding that the patent claims do recite abstract ideas. In particular, the court found that “the asserted claims recite methods and systems for controlling access to content data … and receiving and validating payment data” with the state purpose of “reduc[ing] the risk of unauthorized access to content data.” Generalizing further upon these notions, the court found that the general purpose of the claim to be “conditioning and controlling access to data based on payment” and concluded that to be an “abstract and a fundamental building block of the economy in the digital age.”  In considering this approach, the district court interpreted Alice step one as focused on the “general purpose” of the invention and that Alice only “considers specific limitations at step two.”

In step two, the district court ruled against Apple — finding that the specific limitations found in the claims were sufficient to transform the abstract purpose to a patent eligible invention. “The asserted claims contain meaningful limitations that transform the abstract idea of the general purpose of the claims into a patent-eligible invention.” Here, the court pointed to the recited limitations such as “status data”, “use rules”, and “content memory.” Although those none of those individual limitations may be substantial enough, the court found them indicative of the reality that the “claimed solution is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.”  Finally, to drive-home this point, the court attempted to draw an analogy to pre-internet days and found that the solutions offered here is fundamentally different from prior solutions of the general abstract problem in pre-internet days.

In its step-two analysis, the district court attempted to hone its decision closely to Judge Chen’s decision in DDR Holdings.

[Read the Magistrate Judge opinion adopted by the District Court: 6-13-cv-00447-JRG-KNM-423-PRIMARY DOCUMENT]

In the same way that the Supreme Court’s Alice Corp analysis is deeply unsatisfying, the district court’s analysis here is also fails to be compelling.  In each case, application of the legal rule to the particular facts is done in merely a conclusory way without support of either facts or substantial analysis.

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Claim 32. A data access terminal for retrieving data from a data supplier and providing the retrieved data to a data carrier, the terminal comprising: a first interface for communicating with the data supplier; a data carrier interface for interfacing with the data carrier; a program store storing code; and

a processor coupled to the first interface, the data carrier interface, and the program store for implementing the stored code, the code comprising:

code to read payment data from the data carrier and to forward the payment data to a payment validation system; code to receive payment validation data from the payment validation system; code responsive to the payment validation data to retrieve data from the data supplier and to write the retrieved data into the data carrier; code responsive to the payment validation data to receive at least one access rule from the data supplier and to write the at least one access rule into the data carrier, the at least one access rule specifying at least one condition for accessing the retrieved data written into the data carrier, the at least one condition being dependent upon the amount of payment associated with the payment data forwarded to the payment validation system; and code to retrieve from the data supplier and output to a user-stored data identifier data and associated value data and use rule data for a data item available from the data supplier.






Current U.S. Patent Practitioner Trends

Thu, 02/26/2015 - 18:47

Guest Post by Zachary Kinnaird, Patent Attorney with International IP Law Group

We are currently in the midst of a noticeable downward trend in the number of new patent practitioners each year.  As recently at 2009, nearly 2,000 new patent attorney and agents earned registration numbers, however this has fallen more than 40% in just five years.  Based on registrations from this January, only 1,000 new patent practitioners are projected to register in 2015.

Registration timing data also shows:

  • A weak correlation between law school enrollees and new patent practitioners
  • A third of current patent attorneys were previously patent agents
  • The average time to convert from agent to attorney is slightly less than 3 years
  • Dramatic shifts in registration frequency around changes in the law and USPTO policy

In addition to the current downward trend, other interesting points include the roughly 55% decrease in registration numbers earned from 2003 to 2004.  Also notable is the doubling of new registration numbers earned from 1997 to 1998.  However, as noted in the methodology below, any data prior to 1998 may not be consistent with more recent data due to USPTO surveys and database updates.  Accordingly, fewer conclusions and points of interest can be identified for these earlier years.

January 2015 Below Average, Projecting Only ~1,000 New 2015 Practitioners

In the chart above, the averages for each month from 2005 – 2014 are shown with error bars showing the standard error for the number of new practitioners in the past 9 years.  Based on data pulled from the month of January 2015, a prediction can be made about this year’s total new practitioners.  As no satisfactory correlation is currently found between the number of new practitioners and any other identified factor, these predictions are made only by comparison to averages over similar time periods.

A simple proportion is used as follows:

This is of course a very loose estimation.  Based on the standard error of January months used in the average, it would not be surprising to see up to 1,112 or as low as only 787 new US patent practitioners in 2015.  These lower projections fit the recent downward trend seen year to year since 2009.  If this downward trend continues, I am interested to see its effect on the employment market for patent attorneys, patent firms, and patent educators.

Weak Correlation between Law School Enrollees and New Patent Practitioners

In this graph, the number of newly enrolled 1L law students as reported by The Wall Street Journal is compared to the number of new registration numbers earned each year.  Although at times there appears to be a weak correlation, overall there does not appear to be any correlation between the number of students attending law school and the number of new patent practitioners each year.  Indeed, the correlation coefficient in excel for these two trends was 0.066.

From the lack of a strong correlation presented by these values, one conclusion to draw is that the factors that convince a person to enter law school are different or are weighed differently than the factors that convince a person to pursue a career as a patent practitioner.

1/3 of Patent Attorneys were Agents First, Usually Converted in 3 Years or Less

With date of registration data, it is possible to find the number of patent attorneys who were previously agents.  Of the 43,064 practitioners listed, 13,232 were listed as a patent agent first.  This represents approximately 31% of the listed practitioners.

It is also possible to find the average time between these practitioners’ registration as agents and their later registrations as attorneys.  On average, the conversion time was 1039 days, or roughly 2 years and 10 months.  Since the primary requirement to convert a registration status from agent to attorney is passing a state bar, it is reasonable to conclude that this number is close to 3 years because of the typical three year duration of law school in the United States.

However, more interesting is the fact that this average value is just below 3 years.  One interpretation is that this figure suggests the group of practitioners who change from patent agent to patent attorney, on average, decided to pursue work as a patent practitioner only after entering law school.  Otherwise, this average might be longer than the average duration of law school, not shorter.

 Month To Month Registration Frequency Shifts with Changes in Patent Law

 Since the start of online testing, registrations are more evenly spread through the year.  However there are still outlier months, and recently these outlier months correspond almost perfectly to follow the timing of the phases of AIA changes were set to be added the patent bar.  The slight delay from implementation month is likely explained by processing times at the USPTO of registration paperwork after passing the patent bar.  Unsurprisingly, the months immediately following the large increases show dramatic drops in the number of freshly registered practitioners.

Further, these outlier months make sense both theoretically and personally.  I myself was part of the May 2013 outlier month, and scheduled my exam towards the end of the month in March 2013 – the final month before the third phase of AIA changes were to be tested.  After passing the exam, my paperwork and processing time at the USPTO resulted in a first registration date of 5/20/2013.  It appears I was not alone in strategically scheduling my exam to avoid the uncertainty of being tested on new law.

Dramatic Shift in Registration Timing after USPTO Shift to Year Round Testing

The above chart shows the number of new registration numbers earned every month from January 2002 to December 2007.  This range was chosen to highlight the effect of the USPTO switching from administering the patent bar twice a year to the year round method used today.


The USPTO provides both a database for practitioner information as well as a zip file of this data in spreadsheet form that is updated daily.  However, the spreadsheet provided by the USPTO does not include the dates of registration as an attorney or agent.  Accordingly, the process of retrieving the registration date information from the online database was automated to yield the data that is analyzed in this post.  As many practitioners have been registered as both patent agents and as patent attorneys, only the date an individual first received a registration number was used for this analysis.

Unfortunately, it is unclear how accurately the USPTO database reflects active U.S. Patent practitioners.  Dennis Crouch wrote about this issue in 2012 and also covered one of the Patent Office’s attempts to refresh its database to reflect a more accurate count of current practitioners.  In fact, as recently as October 2014, the Office of Enrollment and Discipline (OED) has conducted another survey for registration numbers 35,000-39,999 to update the information in its database.  For the curious, these most recently identified registration numbers correspond to practitioners who first registered between August 1991 and February 1996.  Due to these surveys, and the lack of more complete data, the following graphs and charts only represent the USPTO attorney and agent database as of January 31, 2015.

Future Analysis

In the future, I will take a look at the ratio of agents to attorneys on from year to year to see if the relative percentage of patent agents is increasing, decreasing, or does not follow a trend.  I also plan to flesh out the historical parts of this data by calculating yearly values of registration numbers from earlier years to compensate for the data removed by the USPTO through OED surveys.

“Late” IDS Filing Limits Patent Term Adjustment (PTA)

Thu, 02/26/2015 - 17:30

by Dennis Crouch

Prior to 1995, the U.S. measured patent term very simply – a patent was in force for 17 years after issuance so long as the appropriate maintenance fees were paid.  Now, the U.S. has transitioned to a base term of 20-years from the filing date. With an average application pendency of about three-years, that transition has been seen as largely term-neutral.  However, Congress also created the patent term adjustment (PTA) system to increase the post-issuance term where USPTO delays have eaten-up too much of the 20-years. A major problem with the PTA statute is that it is poorly drafted – leading to major gaps and ambiguities.

For most patentees, an extra month added to a patent set to expire 15 years from now is relatively worthless.  However, there exists a subset of patentees that have good reasons to believe that the extra month may be worth millions of dollars (typically pharma).

In Gilead v. Michelle Lee (Fed. Cir. 2015), the fight focused on whether a “late” submission of an information disclosure statement (IDS) should count against the applicant’s PTA.  In its unanimous decision, the Federal Circuit affirmed the lower court holding that the PTO’s interpretation of the statute was reasonable and thus enforceable.

The relevant timeline in the case is as follows:

  • February 22 2008: Gilead files its application.
  • November 18 2009: USPTO mails a restriction requirement.
  • February 18 2010: Gilead files a responsive election.
  • April 16 2010: 57-days later, Gilead files a supplemental IDS.
  • July 29 2011: USPTO mails its notice of allowance.
  • April 3, 2012: Application issues as U.S. Patent No. 8,148,374.

The particular fight is whether that 57-days between its responsive-election and IDS filing should be counted against Gilead.

35 U.S.C. § 154(b)(2)(C) indicates that “the period of adjustment . . . shall be reduced by a period equal to the period of time during which the applicant failed to engage in reasonable efforts to conclude prosecution of the application.” The statute also gives the USPTO authority to “prescribe regulations establishing the circumstances that constitute a failure of an applicant to engage in reasonable efforts to conclude processing or examination of an application.”  Taking on that role, the USPTO created did establish a rule that such a failure includes the “submission of a supplemental reply or other paper, other than a supplemental reply or other paper expressly requested by the examiner, after a reply has been filed.” 37 C.F.R. § 1.704(c)(8)

The IDS filing appears to squarely fall within the rule as written by the USPTO and Gilead’s challenge here is that the rule itself invalid as arbitrary and capricious.  In particular, Gilead argues that there is no indication whatsoever that the IDS filing led to any delays in prosecution.

In rejecting Gilead’s appeal, the Federal Circuit found: (1) the statute does not particularly address the IDS question but does give the USPTO authority to fill-the-gaps; and (2) the USPTO’s approach of creating an across-the-board rule is reasonable and certainly not arbitrary-and-capricious even though an applicant’s action may not have caused delay in the particular case at issue.   In this second-step of the analysis, the USPTO’s decision-making is given wide deference so that courts regularly affirm the applicability of rules that – in the view of the court – are sub-optimal.

Holding: Gilead does not get its extra 57 days of patent term.

Practice Tip: Before filing an office action (OA) response, take a few minutes to consider whether there are any supplemental IDS filings that should be included. Otherwise, you may lose patent term.

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I should note that I avoided the genuine complexity of the PTA statute in the post above. If you really want to understand the statute then you’ll need at least an hour and several pieces of scratch paper.

Hyatt’s Family Tree

Thu, 02/26/2015 - 07:23

by Dennis Crouch

In the ongoing saga between the USPTO and Hyatt, the USPTO recently submitted an interesting family tree of related applications filed by Gilbert Hyatt.  Nice redaction.

It is unclear to me why the entire block is redacted since some of the Hyatt patents have issued and therefore are public as is the application of any unpublished application whose filing-date benefit is claimed by one of issued patents.

Status of USPTO’s Withdrawn Abstract Idea Patents

Wed, 02/25/2015 - 19:59

by Dennis Crouch

In the Summer of 2014, the U.S. Supreme Court decided the seminal case of Alice Corp v. CLS Bank that pushed further against the patenting of abstract ideas or their non-inventive applications. As part of its implementation procedures, the USPTO quickly began examining applications under the new standards and – as an immediate response – withdrew the allowance of a number of applications that had been determined to be patentable prior to the Alice decision.  Through a FOIA request, Charles Duan and Tristan Gray-Le Coz of Public Knowledge were able to obtain a list of those several hundred withdrawn applications and reported their results on Patently-O in November 2014.

I wanted to follow up on those applications to how they have fared in the seven months since the USPTO’s July 2014 action. These cases are interesting because they were ready for issuance and the only extra issue is eligibility under Section 101.  Thus, this setup offers a nice natural experiment to consider cases where Section 101 is of direct importance.

Using PAIR, I pulled up pendency information for each of these applications and the chart below shows the results:

Basically, 93% of the applications are still pending. Most of these have been initially rejected under Section 101 and now are on to a second-round final. 7% though are either patented or have received a notice of allowance. Only 1% of the applications have been abandoned.  Because these applicants had – at one point – a genuine expectation of issuance that may be hard eliminate.

Of these issued patents, I think that the response filed in Application No. 13/076,216 is interesting. In that case, the applicant essentially argued that the USPTO had failed to provide evidence that the idea of data collection and analysis was an abstract idea and failed to provide evidence that the computer-implemented limitations failed to provide sufficient practical grounding in order to avoid the eligibility ax. The ‘216 application has matured into U.S. Patent No. 8,965,784.

Over the next year, we should begin to get a good picture of how the USPTO will be working with the framework laid out by the courts.

Half-Billion Dollar Verdict Against Apple

Wed, 02/25/2015 - 12:28

Mansion-sized patent jury verdicts have been slow, but are not forgotten. Yesterday a jury awarded $500 million to the patent holder Smartflash LLC.  The jury also found that that the infringement was willful.

The three patents at issue are U.S. Patent Nos. 7,334,720 (claim 13); 8,118,221 (claim 32); and 8,336,772 (claims 26 and 32) and cover managed data-access systems.